<PAGE>
As filed with the Securities and Exchange Commission on February 2, 2000
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form F-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
IFCO SYSTEMS N.V.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
The Netherlands 3089 98-0216429
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
Strawinskylaan 2001
NL-1077 ZZ
Amsterdam, The Netherlands
31-20-546-0255
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Silver Oak Acquisition Corp.
c/o Corporation Trust Company
1209 Orange Street
Wilmington, Delaware 19801
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Stephen M. Wiseman Randall G. Ray
King & Spalding Gardere & Wynne, L.L.P.
1185 Avenue of the Americas 1601 Elm Street, Suite 3000
New York, New York 10036-4003 Dallas, Texas 75201
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the effective date of this registration
statement and upon consummation of the merger described herein.
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. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
Title of each class of maximum Proposed maximum Amount of
securities to be Amount to be offering price aggregate registration
registered Registered(1) per share offering price(2) fee(3)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ordinary shares, nominal
value two euros per
share.................. 8,837,109 N/A $109,295,822 $28,855
- -------------------------------------------------------------------------------------
</TABLE>
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(1) Represents the maximum number of IFCO Systems N.V. ordinary shares
anticipated to be issued in connection with the merger in exchange for 60%
of the issued and outstanding shares of PalEx, Inc., common stock, $0.01
par value per share, assuming (a) the issuance prior to the effective time
of the merger of all shares of PalEx common stock subject to rights to
acquire shares of PalEx common stock, which are exercisable or convertible
before the effective time of the merger and (b) the issuance of
approximately 0.662 IFCO Systems ordinary shares for each share of PalEx
common for which a stock election is made.
(2) Estimated solely for purposes of computing the registration fee pursuant to
Rule 457(f)(1) of the Securities Act of 1933, based upon the estimated
market value of up to 13,349,108 shares of PalEx common stock to be
exchanged for and converted into IFCO Systems ordinary shares pursuant to
the amended and restated merger agreement (based upon the average of high
and low sales prices per share of PalEx common stock as reported by the
Nasdaq National Market on January 28, 2000, of $8.1875 per share).
(3) The registration fee is calculated pursuant to Rule 457(f)(1) under the
Securities Act by multiplying the proposed maximum aggregate offering price
by .000264. A fee of $32,911 has previously been paid by PalEx pursuant to
Section 14(g) of the Securities Exchange Act of 1934 in connection with
preliminary proxy materials filed with respect to the merger, which,
pursuant to Rule 457(b) under the Securities Act, reduces the registration
fee calculated pursuant to Rule 457. No additional registration fee payment
is due.
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.
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<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. 3)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X]Preliminary Proxy Statement
[_]Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[_]Definitive Proxy Statement
[_]Definitive Additional Materials
[_]Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
PALEX, INC.
(Name of Registrant as Specified In Its Charter)
----------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_]No fee required.
[_]Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[X]Fee paid previously with preliminary materials.
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
[PalEx LOGO]
February 4, 2000
Dear PalEx Stockholder:
PalEx's board of directors has unanimously approved a merger of PalEx with
IFCO Systems N.V. in order to combine IFCO Systems' European and other round-
trip container operations and PalEx's North American pallet and industrial
container operations. Before PalEx can proceed with the merger, PalEx
stockholders must approve a merger agreement between IFCO Systems and PalEx
that will allow the merger to take place.
PalEx stockholders will receive merger consideration with a total value of
$9.00 for each of their shares of PalEx common stock. The merger consideration
may take the form of cash and/or ordinary shares of IFCO Systems valued at
their initial public offering price. You may make an election as to the amount
of cash and/or IFCO Systems ordinary shares you will receive by completing the
accompanying election form. IFCO Systems' initial public offering will be on
the Frankfurt Stock Exchange in Germany. The IPO will be completed on the same
day as the merger and immediately following the closing of the merger. The
total merger consideration for all of the shares of PalEx common stock is
limited to not less than 40% and not more than 49% in the form of cash and not
more than 60% and not less than 51% in the form of IFCO Systems ordinary
shares. At the time of the stockholders' meeting to vote on the merger
agreement, you will not know the IPO price of the IFCO Systems ordinary shares
or the number of IFCO Systems ordinary shares you will receive in the merger.
PalEx is very excited about the opportunities it sees in merging with IFCO
Systems and our board of directors urges you to vote for the merger proposal
described in the accompanying proxy statement/prospectus.
To vote your shares, you may use the enclosed proxy card or attend the
special stockholders' meeting on March 2, 2000.
Your vote is very important. To vote for the merger proposal, you must cast a
for vote by following the instructions stated on the enclosed proxy card or
given over the telephone. If you do not vote at all, it will, in effect, count
as a vote against the merger proposal.
This proxy statement/prospectus also constitutes a prospectus for IFCO
Systems with respect to the IFCO Systems ordinary shares to be issued to PalEx
stockholders under the merger agreement. Please read this proxy
statement/prospectus carefully for more detailed information on the merger.
Very truly yours,
Vance K. Maultsby, Jr.
Chief Executive Officer
PalEx, Inc.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the IFCO Systems ordinary shares to
be issued in the merger or determined whether this proxy
statement/prospectus is truthful or complete. Any representation to the
contrary is a criminal offense. This proxy statement/prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any
securities in any jurisdiction where an offer or solicitation would be
illegal.
This proxy statement/prospectus is dated February 4, 2000, and is first being
mailed to PalEx stockholders on or about February 7, 2000.
<PAGE>
PALEX, INC.
6829 Flintlock Road
Houston, Texas 77040
---------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON MARCH 2, 2000
---------------
PalEx, Inc. will hold a special meeting of its stockholders on March 2, 2000,
at 10:00 a.m. Houston time at 6829 Flintlock Road, Houston, Texas, for the
following purposes:
1. To approve and adopt the Amended and Restated Agreement and Plan of
Reorganization, dated as of October 6, 1999, and effective as of March
29, 1999, as amended by Amendment No. 1 thereto dated as of January 31,
2000, among PalEx, IFCO Systems N.V., a public limited liability company
incorporated under the laws of the Netherlands ("IFCO Systems"), IFCO
Europe Beteiligungs GmbH, a limited liability company organized under
the laws of the Federal Republic of Germany ("IFCO Europe"), MTS
Okologistik GmbH, a limited liability company organized under the laws
of the Federal Republic of Germany ("MTS"), Schoeller International
Logistics Beteiligungsgesellschaft mbH (which will be renamed IFCO
International Network Beteiligungsgesellschaft mbH), a limited liability
company organized under the laws of the Federal Republic of Germany
("IFCO International" and, together with IFCO Europe and MTS, the "IFCO
Companies"), Schoeller Logistics Industries GmbH (formerly known as
Schoeller Packaging Systems GmbH), a limited liability company organized
under the laws of the Federal Republic of Germany ("Schoeller
Industries"), and Silver Oak Acquisition Corp., a corporation organized
under the laws of the State of Delaware ("Silver Oak"). The merger
agreement provides for, among other things: (a) the contribution of the
interests of Schoeller Industries and its affiliates in IFCO Europe,
MTS, and IFCO International to IFCO Systems, a new company formed for
purposes of the merger and related transactions; and (b) the merger of
PalEx with and into Silver Oak, a newly formed corporation and wholly
owned subsidiary of IFCO Systems. Silver Oak will be the surviving
corporation in the merger as a wholly owned subsidiary of IFCO Systems.
2. To act on any other matter that may be properly submitted to a vote at
the special meeting.
3. If necessary, to approve any postponements or adjournments of the
special meeting without further notice except by announcement at the
meeting being postponed or adjourned.
Only holders of record of PalEx common stock at the close of business on
January 21, 2000, are entitled to notice of, and to vote at, the special
meeting or any postponements or adjournments.
Our board of directors has unanimously approved the merger proposal and
recommends that you vote to approve and adopt the merger agreement, which is
described in detail in the accompanying proxy statement/ prospectus. Approval
and adoption of the merger agreement requires the affirmative vote of the
holders of record of a majority of the shares of PalEx common stock outstanding
and entitled to vote at the special meeting.
Schoeller Industries has obtained a voting agreement from some of our
stockholders who control approximately 29% of the shares of PalEx common stock
entitled to vote at the meeting. These stockholders have agreed to vote their
shares in favor of the merger agreement. PalEx has agreed to use its reasonable
efforts after the mailing of the proxy statement/prospectus to deliver an
additional voting agreement in favor of Schoeller Industries. Assuming this
additional voting agreement is delivered prior to the special meeting, the
total number of shares subject to the voting agreements and agreeing to vote
for approval of the merger agreement will be at least 51% of the outstanding
shares of PalEx common stock as of the record date.
BY ORDER OF THE BOARD OF DIRECTORS
Casey A. Fletcher
Secretary
Houston, Texas
February 4, 2000
To ensure that your shares are represented at the special meeting, PalEx
urges you to complete, date, and sign the enclosed proxy card and mail it
promptly in the postage-paid envelope provided. PalEx also encourages you to
return a signed proxy card whether or not you plan to attend the special
meeting in person. You may revoke your proxy at any time before it is voted by
delivering written notice of revocation to the Secretary of PalEx, by
delivering a later-dated proxy, or by attending the special meeting and voting
in person or withdrawing your proxy. You should also complete and return an
election form/letter of transmittal for your merger consideration, which is
being mailed to you separately. You may revoke or change an election only by
written notice to IFCO Systems on or before 5:00 p.m. New York time on March 1,
2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER..................................... iv
SUMMARY.................................................................... 1
The Companies............................................................ 1
The PalEx Special Stockholders' Meeting.................................. 3
The Merger and Related Transactions...................................... 3
The Merger Agreement..................................................... 6
Markets and Market Prices................................................ 8
Unaudited Comparative Per Share Data..................................... 9
Summary Financial Information............................................ 11
RISK FACTORS............................................................... 15
Risks Related to the Merger.............................................. 15
Risks Related to IFCO Systems or the IFCO Companies' Businesses.......... 16
Risks Related to PalEx's Business........................................ 18
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS....................... 20
THE PALEX SPECIAL MEETING.................................................. 22
General.................................................................. 22
Time and Place........................................................... 22
Purposes................................................................. 22
Record Date; Shares Entitled to Vote; Quorum............................. 22
Votes Required; Voting and Revocation of Proxies; Effect of Abstentions
and Non-Votes........................................................... 22
Voting Agreements........................................................ 23
Solicitation of Proxies.................................................. 23
THE MERGER................................................................. 24
Background of the Merger................................................. 24
PalEx's Reasons for the Merger........................................... 32
IFCO Companies' Reasons for the Merger................................... 34
Projections for PalEx and the IFCO Companies............................. 34
Recommendation of the PalEx Board of Directors........................... 35
Opinion of PalEx's Financial Advisor..................................... 35
Interests of Certain Persons in the Merger............................... 41
Appraisal Rights......................................................... 44
Accounting Treatment..................................................... 46
U.S. Federal Income Tax Consequences..................................... 46
Netherlands Tax Consequences............................................. 53
Regulatory Matters....................................................... 54
THE MERGER AGREEMENT....................................................... 55
General.................................................................. 55
Related Matters.......................................................... 55
The Merger............................................................... 56
Conversion of PalEx Shares............................................... 57
Treatment of PalEx Stock Options and Warrants............................ 61
Structure of IFCO Systems After the Merger............................... 61
No Solicitation Before the Merger; No Withdrawal or Modification of Rec-
ommendation............................................................. 62
PalEx Stockholder Approval............................................... 63
Voting Agreements........................................................ 63
Restrictions on Transfers of IFCO Systems Ordinary Shares................ 64
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Additional Agreements................................................... 64
Representations and Warranties.......................................... 67
Conditions to Completion of the Merger.................................. 69
Extension and Waiver.................................................... 71
Termination of the Merger Agreement; Payment of a Termination Fee....... 71
Expenses................................................................ 72
Amendment............................................................... 72
Governing Law........................................................... 72
CONCURRENT TRANSACTIONS................................................... 73
The IPO................................................................. 73
Financing Transactions.................................................. 74
Purchase of Remaining Interest in U.S. Joint Venture.................... 74
CAPITALIZATION............................................................ 75
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS......................... 76
Basis of Presentation................................................... 76
Unaudited Pro Forma Combined Balance Sheet.............................. 77
Unaudited Pro Forma Combined Statement of Operations.................... 78
Notes to Unaudited Pro Forma Combined Financial Statements.............. 80
SELECTED FINANCIAL INFORMATION............................................ 86
IFCO Companies.......................................................... 86
PalEx................................................................... 88
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 90
IFCO Companies.......................................................... 90
PalEx................................................................... 101
INDUSTRY OVERVIEW......................................................... 110
Round-trip Systems...................................................... 110
Round-trip Containers................................................... 110
Pallets................................................................. 111
Industrial Containers or Steel Drums.................................... 111
BUSINESS.................................................................. 113
Overview................................................................ 113
Company Strengths....................................................... 113
Business Strategy....................................................... 114
History................................................................. 115
Systems and Services.................................................... 116
Expansion and Acquisitions.............................................. 120
Sales and Marketing..................................................... 121
Customers............................................................... 122
Suppliers and Raw Materials............................................. 123
Intellectual Property................................................... 124
Competition............................................................. 124
Employees............................................................... 126
Properties.............................................................. 126
Regulation.............................................................. 127
Legal Proceedings....................................................... 131
MANAGEMENT................................................................ 132
IFCO Systems............................................................ 132
IFCO Companies.......................................................... 134
PalEx................................................................... 136
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT............... 138
IFCO Systems............................................................ 138
PalEx................................................................... 138
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF THE IFCO COMPANIES...... 140
Supply Agreement........................................................ 140
Management Agreements................................................... 140
Loans and Guarantees.................................................... 141
Participating Rights.................................................... 141
Redeemable Participating Rights......................................... 142
Agreement with GE Capital and GE Erste.................................. 142
DESCRIPTION OF IFCO SYSTEMS SHARE CAPITAL................................. 143
General................................................................. 143
Dividends............................................................... 143
Voting Rights........................................................... 143
Adoption of Annual Accounts............................................. 144
Liquidation Rights...................................................... 144
Issues of Shares; Preemptive Rights..................................... 144
Repurchase and Cancellation of Shares................................... 144
Limitations on Right to Hold or Vote the Ordinary Shares................ 145
Obligations of Shareholders to Disclose Holdings........................ 145
COMPARISON OF RIGHTS OF HOLDERS OF PALEX COMMON STOCK AND IFCO SYSTEMS
ORDINARY SHARES.......................................................... 146
Authorized Capital Stock................................................ 146
Board of Directors...................................................... 146
Monetary Liability of Directors......................................... 147
Voting Rights........................................................... 147
Removal of Directors and Filling Vacancies on the Board of Directors.... 147
Special Meetings of Stockholders........................................ 147
Charter and Bylaw Amendments............................................ 148
SHARE CERTIFICATES AND TRANSFER........................................... 149
EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS........ 149
ENFORCEABILITY OF CIVIL LIABILITIES....................................... 149
LEGAL MATTERS............................................................. 150
EXPERTS................................................................... 150
STOCKHOLDER PROPOSALS..................................................... 150
WHERE YOU CAN FIND MORE INFORMATION....................................... 150
INDEX TO FINANCIAL STATEMENTS............................................. F-1
APPENDIX A--Amended and Restated Agreement and Plan of Reorganization..... A-1
APPENDIX B--Fairness Opinion of Batchelder & Partners, Inc................ B-1
APPENDIX C--Section 262 of the Delaware General Corporation Law........... C-1
APPENDIX D--Articles of Association of IFCO Systems (English transla-
tion).................................................................... D-1
</TABLE>
iii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What will I receive for my PalEx shares?
A: For each share of PalEx common stock, you will receive merger consideration
with a total value of $9.00, consisting of cash and/or ordinary shares of
IFCO Systems based upon your election and the elections of other PalEx
stockholders. If the total consideration PalEx stockholders elect is more
than 49% cash or more than 60% stock, then your election may be adjusted. If
you elect 49% or less cash or 60% or fewer shares, your election will not be
changed. If you elect more cash or more shares, then your election and the
elections of all stockholders above the limits will be proportionately
reduced, based upon the number of shares of PalEx common stock covered by
those elections, until the total cash consideration for all stockholders is
49% or the total share consideration is 60%. If you do not make an election,
you may receive all shares, all cash, or a combination of cash and shares
determined pursuant to the merger agreement.
Q: Will my shares be publicly traded?
A: Yes. Upon completion of the IPO, the IFCO Systems ordinary shares will be
listed on the Amtlicher Handel segment of the Frankfurt Stock Exchange.
PalEx stockholders will receive IFCO Systems ordinary shares in the merger
that will be listed on the Nasdaq National Market and may only be traded in
the United States in U.S. dollars.
Q: What will the effect of the IPO be on my shares?
A: The shares issued in the IPO will reduce the total percentage ownership of
the PalEx stockholders. IFCO Systems expects that after the IPO,
approximately 30% of the IFCO Systems ordinary shares will be held by new
investors from the IPO.
Q: What are the benefits to PalEx stockholders from the merger?
A: PalEx stockholders will receive cash and/or publicly traded shares in the
merger. Once the IPO is completed, PalEx stockholders who receive stock will
become shareholders in a leading provider of round-trip systems for
distribution of products. IFCO Systems and PalEx believe that by offering a
larger, international infrastructure, a broader range of services, and
access to more markets, the combined company resulting from the merger
offers all shareholders more growth potential than either PalEx or the IFCO
Companies would have as stand-alone companies. You should also note,
however, that if you receive IFCO Systems ordinary shares in the merger, the
new shares will have lower net income per share and lower book value per
share than your shares of PalEx common stock.
Q: Is the merger taxable?
A: Yes, but assuming the merger is a reorganization for tax purposes, the
merger will generally be taxable only to the extent you receive cash in the
merger and have gain on your shares of PalEx common stock.
Q: When do you expect to complete the merger?
A: IFCO Systems and PalEx expect to complete the merger in the first quarter of
2000. Because completion of the merger is tied to IFCO Systems' completion
of its IPO, however, IFCO Systems and PalEx cannot predict the exact timing.
Q: Does the merger depend upon completing an IPO for the new company?
A: Yes. The merger agreement requires the IPO to be completed on the same day
the merger is completed.
Q: Am I entitled to appraisal rights?
A: Yes. If you do not vote in favor of the merger, but the merger is approved
and completed, and you follow the appropriate procedures, you will be
entitled to exercise appraisal rights and to receive the appraised value of
your shares of PalEx common stock.
iv
<PAGE>
Q: How do I vote?
A: Mail your signed proxy card in the enclosed return envelope as soon as
possible so that your PalEx shares may be represented at the special meeting
of PalEx stockholders. You may also vote in person at the special meeting.
Q: May I change my vote?
A: Yes. You may change your vote by delivering written notice of revocation of
your proxy to the Secretary of PalEx, by delivering a later-dated proxy
card, or by attending the special stockholders' meeting and voting in person
or withdrawing your proxy.
Q: Should I send in my stock certificate now?
A: Yes. In order to make a valid election as to the form of merger
consideration, you must submit your share certificates or a guarantee of
delivery along with a completed election form/letter of transmittal by 5:00
p.m. New York time on March 1, 2000. The amount of cash and IFCO Systems
ordinary shares you will receive will be determined pursuant to the merger
agreement and the elections by other stockholders. After IFCO Systems and
PalEx complete the merger, IFCO Systems will send a letter of transmittal to
PalEx stockholders whose shares were converted in the merger, but who did
not previously submit their share certificates. The instructions
accompanying the letter of transmittal explain how to exchange your PalEx
common stock for the merger consideration.
Q: May I change my election?
A: Yes. You may revoke an election only by written notice to IFCO Systems'
exchange agent on or before 5:00 p.m. New York time on March 1, 2000.
Q: Whom may I call with questions?
A: If you have any questions about the merger or any related transactions or
would like copies of any of the documents IFCO Systems and PalEx refer to in
this proxy statement/prospectus, please call PalEx's Investor Relations
Department at 941-533-1148, extension 1530.
v
<PAGE>
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus. It does not contain all of the information that may be
important to you. You should read this entire proxy statement/prospectus
carefully. IFCO Systems and PalEx refer you to the merger agreement attached as
Appendix A for a more detailed description of the merger and the related
transactions. You should also read the other documents referred to in this
proxy statement/prospectus.
The Companies
IFCO Systems N.V.
Strawinskylaan 2001
NL-1077 ZZ
Amsterdam, The Netherlands
Telephone 31-20-546-
0255
When the merger with PalEx is completed, IFCO Systems will combine the IFCO
Companies' round-trip container, or RTC, systems with PalEx's pallet and
industrial container operations. Round-trip means that a container is used for
the flow of products through one whole distribution cycle and then is reused
multiple times. The IFCO Companies' operations are primarily in Europe, and
PalEx's operations are located in North America. IFCO Systems was formed for
purposes of the merger and the other transactions described in the merger
agreement, including the IPO of IFCO Systems ordinary shares on the Frankfurt
Stock Exchange. After the merger, IFCO Systems refers to the combined IFCO
Companies and PalEx and their subsidiaries.
IFCO Systems believes it will be a leading provider of round-trip systems
internationally, serving over 9,000 customers in 17 countries. IFCO Systems
believes it will:
. own and manage the largest pool of RTCs in Europe based on 1997 market
information;
. own and manage a rental pool of over 1.5 million pallets in Canada,
making it the second largest pallet rental pool owner and manager in
North America;
. be the largest provider of new and recycled pallets in North America
based on PalEx's pallet industry experience and industry information;
and
. be the largest provider of industrial container reconditioning services
in North America based on PalEx's 1998 volume and its estimate of the
total number of industrial containers reconditioned in the United States
each year using information obtained from the Reusable Industrial
Packaging Association.
On a pro forma basis for the merger, IFCO Systems' revenues were
approximately $516.2 million for the year ended December 31, 1998, and
approximately $451.1 million for the ten months ended October 31, 1999.
The IFCO Companies 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. The IFCO Companies contract third parties to collect empty RTCs from
retailers for inspection and reconditioning by the IFCO Companies as necessary.
The RTCs are then reintroduced into the round-trip system for reuse on a just-
in-time basis. The IFCO Companies' 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.
The IFCO Companies are IFCO Europe Beteiligungs GmbH, MTS Okologistik GmbH,
and Schoeller International Logistics Beteiligungsgesellschaft mbH, which will
be renamed IFCO International Network Beteiligungsgesellschaft mbH, and their
subsidiaries.
1
<PAGE>
The IFCO Companies started an RTC leasing pool in Europe in 1992. Currently
there are over 60 million IFCO RTCs in circulation. IFCO Europe's RTC pool now
serves over 4,000 growers supplying produce to approximately 15,000 supermarket
outlets throughout Western Europe. Currently, approximately 75 retailer groups
are using IFCO round-trip systems.
PalEx, Inc.
6829 Flintlock Road
Houston, Texas 77040
Telephone 713-332-6145
PalEx manufactures, sells, leases, and recycles wooden pallets in a wide
variety of shapes and sizes for the movement of various types of goods. PalEx
currently conducts its pallet operations from 60 facilities throughout the
United States and Canada. PalEx also reconditions industrial container
products, which include steel closed top drums, steel drums with fully
removable heads, plastic drums, and industrial bulk containers. PalEx's
industrial container group operates from 12 facilities in the United States.
Company Strengths
IFCO Systems believes that following the merger the combined company will
have the following strengths:
. leading provider of round-trip systems;
. systems approach to product flow;
. innovative patented technology and economic efficiencies;
. well-established partnerships with retailers and growers;
. geographic diversity; and
. experienced management team and strong strategic relationships.
Business Strategy
IFCO Systems' objective is to be the preeminent international provider of
round-trip systems through the implementation of the following strategy:
. expand into the United States;
. cross sell among businesses in the United States;
. further development of markets;
. further logistics systems opportunities; and
. continue to pursue strategic acquisitions and alliances worldwide.
2
<PAGE>
The PalEx Special Stockholders' Meeting
Time and Place; Purposes
The special meeting of PalEx stockholders will be held on March 2, 2000, at
10:00 a.m. Houston time at 6829 Flintlock Road, Houston, Texas. At the special
meeting, you will be asked to approve and adopt the merger agreement and act on
other matters properly brought before the special meeting.
Voting
You are entitled to vote at the special meeting if you owned shares of PalEx
common stock as of the close of business, 5:00 p.m. Houston time on January 21,
2000, the record date for the special meeting. PalEx stockholders will be
entitled to one vote at the special meeting for each share of PalEx common
stock they own.
Approval and adoption of the merger agreement by the PalEx stockholders will
require the affirmative vote of the holders of record of a majority of the
shares of PalEx common stock outstanding and entitled to vote at the special
meeting. For any matter other than the merger proposal, approval will require
the affirmative vote of a majority of the shares of PalEx common stock
represented in person or by proxy at the special meeting and entitled to vote
on the matter.
As of the record date, the directors and executive officers of PalEx and
their affiliates beneficially owned approximately 24.6% of the outstanding
shares of PalEx common stock, excluding options to purchase shares. The holders
of these shares or the persons with the right to vote these shares have told
PalEx that they presently intend to vote the shares for approval of the merger
agreement or have signed a voting agreement agreeing to do so.
Schoeller Logistics Industries GmbH has obtained a voting agreement from a
group of PalEx stockholders who own approximately 29% of the outstanding shares
of PalEx common stock as of the date of this proxy statement/prospectus,
including some of PalEx's directors and executive officers. These stockholders
have agreed to vote their shares in favor of the merger agreement at any
stockholders' meeting.
The Merger and Related Transactions
What Will Happen?
Immediately before an IPO of IFCO Systems ordinary shares, and on the same
day, PalEx will merge with and into Silver Oak Acquisition Corp., a newly
formed, wholly owned subsidiary of IFCO Systems. Silver Oak will survive the
merger as a wholly owned subsidiary of IFCO Systems and will change its name to
"PalEx, Inc." PalEx stockholders will receive merger consideration with a total
value of $9.00, consisting of cash and/or IFCO Systems ordinary shares pursuant
to elections by PalEx stockholders. The IPO is a condition to the closing of
the merger and must be completed on or before May 31, 2000. The IPO is
conditioned upon completion of the merger and a high yield financing.
At the same time as the closing of the IPO and the merger, IFCO Systems
intends to issue approximately 180.0 million euros, or approximately $175.6
million, of debt in the form of a high yield financing and enter into a new
senior credit facility. The completion of the high yield debt financing is
conditioned upon the completion of the merger, the IPO, and the new senior
credit facility. The IPO is also conditioned upon the completion of the high
yield debt financing and total proceeds to IFCO Systems from the IPO and the
high yield debt of at least $250.0 million.
3
<PAGE>
The following diagram illustrates the structure of IFCO Systems and its
subsidiaries after completion of the merger and the other transactions
described in the merger agreement, including the IPO. 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 AND POST-IPO STRUCTURE
[POST-MERGER AND POST-IPO STRUCTURE DIAGRAM APPEARS HERE]
4
<PAGE>
References in this proxy statement/prospectus to the IFCO Systems ordinary
shares to be issued to PalEx stockholders as part of the merger consideration,
upon the exchange of the 665,793 outstanding exchangeable shares of SMG
Corporation, PalEx's Canadian subsidiary, at the time of the merger or
following the merger, or upon the future exercise of outstanding options or
warrants converted as part of the merger, mean IFCO Systems ordinary shares
that will be listed on the Nasdaq National Market and may only be traded in the
United States in U.S. dollars. This type of shares is often used for the
trading of securities of Dutch corporations and is commonly referred to as New
York shares.
IFCO Systems and PalEx have attached the merger agreement as Appendix A to
this proxy statement/prospectus. IFCO Systems and PalEx urge you to read the
merger agreement carefully.
PalEx's Reasons for the Merger
The PalEx board of directors has unanimously approved the merger. During the
period of negotiations and various meetings of the board of directors, the
board of directors carefully considered a number of factors positive and
negative, including, among other factors favoring the merger, the:
. financial condition and results of operations of PalEx and the IFCO
Companies;
. market prices for the PalEx common stock;
. merger consideration to be received by PalEx stockholders including the
option to receive cash and/or IFCO Systems ordinary shares;
. strategic nature of the business combination; and
. growth opportunities for the combined company, especially in the United
States.
Opinion of Financial Advisors
PalEx's financial advisor is Batchelder & Partners, Inc. On September 27,
1999, Batchelder delivered its written opinion to PalEx's board of directors.
The opinion states that, as of that date, the consideration to be received by
the PalEx stockholders in the merger is fair to the PalEx stockholders from a
financial point of view. The opinion is subject to the assumptions,
qualifications, and limitations identified in the opinion. PalEx has attached
the opinion as Appendix B to this proxy statement/prospectus. PalEx encourages
you to read the opinion carefully.
Appraisal Rights of Dissenting Stockholders
If you do not vote in favor of the merger, but the merger is approved and
completed, and you follow the appropriate procedures under Delaware law, you
will be entitled to exercise appraisal rights and to receive the appraised
value of your shares of PalEx common stock instead of receiving the merger
consideration consisting of cash and/or IFCO Systems ordinary shares. We have
included as Appendix C to this proxy statement/prospectus a copy of Section 262
of the Delaware General Corporation Law, which governs your appraisal rights.
U.S. Federal Income Tax Consequences
PalEx has obtained an opinion of counsel that, assuming, among other things,
PalEx receives the private letter ruling it has requested from the IRS that the
merger qualifies for an exception to Section 367(a) of the Internal Revenue
Code, the merger should qualify as a reorganization for federal income tax
purposes. Assuming the merger qualifies as a reorganization, a PalEx
stockholder generally will recognize gain, if any, upon the merger only to the
extent the holder receives cash in the merger and will recognize loss only if
the holder receives only cash in the merger. Any gain recognized may be capital
gain or ordinary income, depending upon a number of factors. PalEx's obligation
to complete the merger is conditioned upon the private letter ruling having
been received and the opinion having been confirmed on the date of the merger.
5
<PAGE>
The Merger Agreement
What PalEx Stockholders Will Receive in the Merger
The merger agreement provides that each share of PalEx common stock will be
exchanged for consideration with a total value of $9.00 as follows:
. $9.00 cash; or
. the number of IFCO Systems ordinary shares calculated by dividing $9.00
by the IPO price expressed in U.S. dollars, which is a fraction referred
to as the exchange ratio; or
. a combination of cash and IFCO Systems ordinary shares.
The form of consideration will be determined by an election made by each
PalEx stockholder and the holders of the SMG exchangeable shares. The total
merger consideration for all the shares of PalEx common stock, including
consideration payable after the merger on exchange of SMG exchangeable shares,
however, is limited as follows:
. not less than 40% and not more than 49% of the shares may be exchanged
for cash; and
. not more than 60% and not less than 51% of the shares may be exchanged
for IFCO Systems ordinary shares.
An election form/letter of transmittal is being mailed to you separately.
Each PalEx stockholder should complete the election form/letter of transmittal
and send it and the PalEx stockholder's stock certificates to IFCO Systems'
exchange agent. Each holder of SMG exchangeable shares will also have the
opportunity to complete an election form for the amount of cash and/or IFCO
Systems ordinary shares to be received upon exchange of the SMG exchangeable
shares at the time of the merger or following the merger. On the election form,
the holder must indicate the number of shares to be exchanged for cash and the
number of shares to be exchanged for IFCO Systems ordinary shares.
The holders of SMG exchangeable shares are subject to the same election
provisions as PalEx stockholders, including deemed elections for non-electing
holders. If a holder exchanges SMG exchangeable shares for shares of PalEx
common stock, the holder will receive merger consideration pursuant to the
election procedures in the merger. A holder of SMG exchangeable shares after
the merger will be entitled to exchange its SMG exchangeable shares for cash
and/or IFCO Systems ordinary shares as fixed by the election procedures. The
election by holders of SMG exchangeable shares will be included in the
calculation of the limits on the composition of the total merger consideration.
PalEx intends to obtain amendments to SMG's articles of amalgamation and of the
support agreement with the holders of SMG exchangeable shares to provide for
exchange on the basis of the election procedures after the merger.
If a PalEx stockholder owns 10,000 shares immediately before the completion
of the merger, makes a complete and timely election, and PalEx stockholders
electing to receive stock will receive approximately 0.662 IFCO Systems
ordinary shares for each share of PalEx common stock based on an assumed IPO
price of $13.60, the following table shows examples of possible elections:
<TABLE>
<CAPTION>
Election Merger Consideration
--------------------- --------------------------------------------------
IFCO Systems
Cash Stock Cash Ordinary Shares
---- ----- ------- ---------------
<S> <C> <C> <C>
20% 80% $18,000 5,296
40% 60% $36,000 3,972
60% 40% $44,100(1) 3,376
</TABLE>
- --------
(1) If all the cash elections together comprise more than 49% of the total
merger consideration, this is the minimum amount of cash that would be paid
to the PalEx stockholder. The actual amount will depend on the elections by
other PalEx stockholders and the number of shares of PalEx common stock
covered by cash elections of more than 49%.
6
<PAGE>
Completed election forms must be received by IFCO Systems' exchange agent no
later than 5:00 p.m. New York time on March 1, 2000. If the exchange agent does
not receive a fully completed and signed election form, along with a completed
letter of transmittal and stock certificates for the shares covered by the
election form, for a holder by the election deadline, then that holder will be
deemed not to have made an election and will receive merger consideration
pursuant to the adjustment calculations made by the IFCO Systems exchange
agent. A non-electing holder will receive:
. all IFCO Systems ordinary shares if the total cash elections are more
than 49% of the total merger consideration;
. all cash if the total stock elections are more than 60% of the total
merger consideration; or
. in all other cases, cash to the extent of cash available under the total
cash limit and then stock if cash is not available.
7
<PAGE>
Markets and Market Prices
IFCO Systems
All of the outstanding IFCO Systems ordinary shares will be owned by
Schoeller Logistic Technologies Holding GmbH before the merger and the IPO.
Before the IPO, no public market exists for the IFCO Systems ordinary shares.
After completion of the IPO, the IFCO Systems ordinary shares will be listed on
the Frankfurt Stock Exchange and, with respect to the IFCO ordinary shares
issued to PalEx stockholders in the merger, in the form of New York shares on
the Nasdaq National Market.
IFCO Systems is currently a wholly owned subsidiary of Schoeller Industries,
but immediately prior to the merger will be a wholly owned subsidiary of
Schoeller Holding.
IFCO Systems is a newly formed company and has never declared or paid any
dividends. IFCO Systems has no plans to pay dividends in the foreseeable
future. In addition, IFCO Systems anticipates that any new senior credit
facility will include restrictions on its ability to pay dividends without the
consent of the lenders.
PalEx
The PalEx common stock has traded on the Nasdaq National Market since its
initial public offering on March 20, 1997, under the symbol "PALX." The
following table lists the high and low sales prices for PalEx's common stock
from March 20, 1997, through January 28, 2000. During 1997, PalEx changed its
fiscal year-end to the last Sunday of each December from a fiscal year ending
on November 30.
<TABLE>
<CAPTION>
Low High
------- -------
<S> <C> <C>
1997 fiscal year
Second quarter (March 20, 1997-June 1, 1997)................. $ 7.750 $10.250
Third quarter (June 2, 1997-August 31, 1997)................. $ 9.625 $14.250
Fourth quarter (September 1, 1997-December 28, 1997)......... $11.125 $15.875
1998 fiscal year
First quarter (December 29, 1997-March 29, 1998)............. $11.125 $15.000
Second quarter (March 30, 1998-June 28, 1998)................ $ 9.250 $13.375
Third quarter (June 29, 1998-September 27, 1998)............. $ 5.625 $ 9.875
Fourth quarter (September 28, 1998-December 27, 1998)........ $ 5.875 $ 9.750
1999 fiscal year
First quarter (December 28, 1998-March 28, 1999)............. $ 6.500 $11.000
Second quarter (March 29, 1999-June 27, 1999)................ $ 5.250 $ 9.125
Third quarter (June 28, 1999-September 26, 1999)............. $ 4.250 $ 6.375
Fourth quarter (September 27, 1999-December 26, 1999)........ $ 5.000 $ 8.000
2000 fiscal year
First quarter (December 27, 1999-January 28, 2000)........... $6.4375 $ 8.500
</TABLE>
On March 29, 1999, the last trading day before the announcement of the
signing of the merger agreement, the closing sale price for PalEx common stock
as reported by the Nasdaq National Market was $8.625. On January 28, 2000, the
closing sale price for PalEx common stock as reported by the Nasdaq National
Market was $8.25.
On the record date for the special meeting, PalEx had 157 holders of record
of its common stock and approximately 1,500 beneficial holders.
PalEx has not declared or paid any dividends on its common stock. PalEx's
senior credit facility includes restrictions on PalEx's ability to pay
dividends without the consent of the lenders.
8
<PAGE>
Unaudited Comparative Per Share Data
The following table shows information about the net income (loss) per share,
dividends per share, and book value per share of PalEx and similar information
reflecting the merger and other transactions, on a basis that IFCO Systems and
PalEx refer to as pro forma information. This information is based on the
combined historical financial information of the IFCO Companies and the
consolidated historical financial information of PalEx included in this proxy
statement/prospectus. The assumptions used in preparing the pro forma financial
information are discussed in the pro forma financial statements included in
this proxy statement/prospectus.
In presenting its comparative pro forma information, PalEx assumes that the
15 companies it acquired in 1998, which were accounted for as purchases, were
acquired on January 1, 1998, for purposes of combined net income per share.
PalEx made no acquisitions during the ten-month period ended October 24, 1999.
In presenting its comparative pro forma information, IFCO Systems assumes that
the merger occurred on January 1, 1998, for purposes of combined net (loss) per
share and as of October 31, 1999, for purposes of pro forma combined book value
per share.
PalEx stockholders will receive between 40% and 49% of the total merger
consideration in cash. The pro forma presentation shown below reflects the
effect on IFCO Systems's net (loss) per share and book value per share if the
total merger consideration is 40% or 49% cash. IFCO Systems and PalEx assume
that PalEx stockholders electing to receive cash for their common stock will
receive $9.00 for each share, while PalEx stockholders electing to receive IFCO
Systems ordinary shares will receive approximately 0.662 IFCO Systems ordinary
shares for each share of PalEx common stock based on assumptions regarding the
valuation of IFCO Systems before the IPO and the size of the IPO. These
assumptions are not necessarily indicative of the actual pre-IPO valuation, IPO
size, or IPO price per share. The actual number of IFCO Systems ordinary shares
that will be issued to PalEx stockholders will be determined based upon the
elections by PalEx stockholders.
This pro forma information, while helpful in illustrating the financial
characteristics of IFCO Systems after completion of the merger with PalEx, does
not attempt to predict or suggest future results.
The information in the following table is based on the combined historical
financial information of the IFCO Companies and the consolidated historical
financial information of PalEx included in this proxy statement/prospectus. In
addition, the assumptions used in preparing the pro forma financial information
are discussed in the pro forma financial statements included in this proxy
statement/prospectus.
IFCO Companies--Historical
<TABLE>
<CAPTION>
At and for the At and for the
year ended ten months ended
December 31, 1998 October 31, 1999
----------------- -------------------
<S> <C> <C>
Per share data:
Net (loss)............................. $ (.45) $ (.38)
Cash dividends declared................ -- --
Book value............................. $(1.54) $(1.77)
PalEx--Equivalent Pro Forma
<CAPTION>
At and for the At and for the ten-
fiscal year ended month period ended
December 27, 1998 October 24, 1999
----------------- -------------------
<S> <C> <C>
Per share data:
Net income............................. $ .48 $ .50
Cash dividends declared................ -- --
Book value............................. $ 7.02 $ 7.64
</TABLE>
9
<PAGE>
IFCO Systems--Pro Forma (1)
<TABLE>
<CAPTION>
At and for the
At and for the ten months
year ended ended
December 31, 1998 October 31, 1999
----------------- ----------------
<S> <C> <C>
Per share data:
Net (loss) ............................... $(.28) $(.16)
Cash dividends declared................... -- --
Book value................................ $6.09 $5.90
IFCO Systems--Pro Forma (2)
<CAPTION>
At and for the
At and for the ten months
year ended ended
December 31, 1998 October 31, 1999
----------------- ----------------
<S> <C> <C>
Per share data:
Net (loss) ............................... $(.26) $(.13)
Cash dividends declared................... -- --
Book value................................ $6.51 $6.33
</TABLE>
- --------
(1) Assumes PalEx stockholders elect to receive 49% of the total merger
consideration in cash.
(2)Assumes PalEx stockholders elect to receive 40% of the total merger
consideration in cash.
10
<PAGE>
Summary Financial Information
The following tables show summary combined historical financial information
for the IFCO Companies, pro forma financial information for IFCO Systems, and
consolidated historical financial information for PalEx. The summary combined
historical statement of operations data and other operating data for the IFCO
Companies for the two years ended December 31, 1998, is derived from the IFCO
Companies audited combined financial statements, which were audited by PwC
Deutsche Revision AG, independent accountants. The summary consolidated
historical statement of operations data and other operating data for PalEx for
the three years ended December 27, 1998, is derived from PalEx's audited
consolidated financial statements, which were audited by Arthur Andersen LLP,
independent certified public accountants. All other historical financial
information for the IFCO Companies and PalEx is unaudited. 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
financial statements of the IFCO Companies and consolidated financial
statements of PalEx included in this proxy statement/prospectus. The IFCO
Companies' financial statements have been prepared in U.S. dollars and in
accordance with U.S. GAAP.
The summary pro forma financial information for IFCO Systems shows you how
IFCO Systems might have looked if the pre-merger transactions described in the
merger agreement, the merger, and the IPO and other concurrent transactions had
been completed as of January 1, 1998, for purposes of the statement of
operations data and other operating data and October 31, 1999, for purposes of
the balance sheet data. When reading the summary pro forma financial
information, you should also read the unaudited pro forma combined financial
statements included in this proxy statement/prospectus. The pro forma financial
statements were prepared using the purchase method of accounting, with the IFCO
Companies treated as the accounting acquirer. If IFCO Systems had actually
completed these transactions as of January 1, 1998, or at October 31, 1999, the
combined company might have performed differently. You should not rely on the
pro forma financial information as an indication of the results that IFCO
Systems would have achieved if the transactions had taken place earlier or the
future results that IFCO Systems will experience after completion of these
transactions.
The IFCO Companies/IFCO Systems
<TABLE>
<CAPTION>
IFCO Systems
IFCO Companies Historical Combined Pro Forma Combined
---------------------------------------------------------- -----------------------------
Year Ended Ten Months Ended
December 31, October 31, Year Ended
--------------------------------- ----------------------- December 31, Ten Months Ended
1996 1997 1998 1998 1999 1998 October 31, 1999
----------- -------- ----------- ----------- ----------- ------------ ----------------
(in thousands, except share and per share data)
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues.................. $122,959 $116,735 $ 134,721 $106,021 $ 126,399 $ 516,232 $ 451,100
Gross profit.............. 4,605 17,113 28,503 20,147 26,069 101,526 89,095
Income (loss) from
operations............... (12,058) (1,726) 2,686 2,123 3,672 19,679 21,416
Net interest cost......... (7,751) (7,928) (7,030) (6,024) (6,881) (23,432) (21,600)
Net (loss) applicable to
ordinary shares.......... $(19,542) $(11,210) $ (8,913) $ (8,119) $ (7,542) $ (10,939) $ (6,095)
Pro forma net (loss) per
ordinary share--basic and
diluted.................. $ (.45) $ (.38) $ (.28) $ (.16)
Shares used in computing
pro forma net
(loss) per ordinary
share--basic and
diluted.................. 20,000,000 20,000,000 38,683,118 38,683,118
Other Operating Data:
EBITDA and non-recurring
charges(1)............... $ 27,953 $ 24,369 $ 27,197 $ 19,528 $ 27,989 $ 71,402 $ 67,185
EBIT(1)................... $(11,791) $ (3,235) $ (1,673) $ (1,922) $ (517) $ 19,655 $ 21,337
Cash flows from:
operating activities(2).. $ 32,490 $ 59,938 $ 40,497 $ 33,420 $ 48,252 $ 49,632
investing activities(2).. $(43,221) $ (38,766) $(35,895) $ (40,104) $ (138,785) $ (46,700)
financing activities(2).. $ 5,029 $ (6,442) $ (5,469) $ (5,155) $ 102,006 $ (13,669)
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
IFCO Companies IFCO Systems
Historical Pro Forma
Combined Combined
as of as of
October 31, October 31,
1999 1999
-------------- ------------
(in thousands)
(unaudited) (unaudited)
<S> <C> <C>
Balance Sheet Data:
Working capital (deficit).......................... $(89,154) $(33,661)
Total assets....................................... 273,646 710,299
Total debt, including capital lease obligations.... 106,646 263,363
Total stockholders' equity......................... (35,307) 228,418
</TABLE>
- --------
(1) EBIT and EBITDA and non-recurring charges are not presented as alternative
measures of operating results or cash flows from operations as determined
in accordance with generally accepted accounting principles, but because
they are accepted financial indicators of the ability to incur and service
debt. EBIT represents the IFCO Companies' combined net (loss) applicable to
ordinary shares and IFCO Systems' pro forma combined net (loss) applicable
to ordinary shares, in each case after exclusion of net interest costs and
income tax provisions. EBITDA and non-recurring charges represents the IFCO
Companies' EBIT and IFCO Systems' pro forma EBIT plus depreciation and
amortization charges and nonrecurring, one-time restructuring charges
related to the termination of PalEx's relationship with CHEP USA. EBIT and
EBITDA and non-recurring charges as presented are not necessarily
comparable with similarly titled measures presented by other companies. The
following table reflects the calculation of EBIT and EBITDA and non-
recurring charges:
<TABLE>
<CAPTION>
IFCO Systems
Pro Forma
IFCO Companies Historical Combined Combined
------------------------------------------------------ ------------------------
Year Ended Ten Months Ended Ten Months
December 31, October 31, Year Ended Ended
----------------------------- ----------------------- December 31, October 31,
1996 1997 1998 1998 1999 1998 1999
----------- -------- ------- ----------- ----------- ------------ -----------
(in thousands)
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Net (loss) applicable to
ordinary shares........ $(19,542) $(11,210) $(8,913) $(8,119) $(7,542) $(10,939) $(6,095)
Income tax provision.... -- 47 210 173 144 7,162 5,832
Net interest cost....... 7,751 7,928 7,030 6,024 6,881 23,432 21,600
-------- -------- ------- ------- ------- -------- -------
EBIT.................. (11,791) (3,235) (1,673) (1,922) (517) 19,655 21,337
Depreciation and
amortization........... 39,744 27,604 28,870 21,450 28,506 48,194 45,848
Restructuring charges... -- -- -- -- -- 3,553 --
-------- -------- ------- ------- ------- -------- -------
EBITDA and non-
recurring charges.... $ 27,953 $ 24,369 $27,197 $19,528 $27,989 $ 71,402 $67,185
======== ======== ======= ======= ======= ======== =======
</TABLE>
(2) The IFCO Companies' historical combined cash flow information is not
available for the year ended December 31, 1996. IFCO Systems' pro forma
combined cash flows from operating, investing, and financing activities for
the year ended December 31, 1998, and the ten months ended October 31,
1999, have been calculated by adding the amounts in these categories from
the historical financial statements of the IFCO Companies and PalEx and do
not reflect any pro forma adjustments.
12
<PAGE>
PalEx
<TABLE>
<CAPTION>
Ten-Month
Fiscal Year Ended Period Ended
-------------------------------------- ------------------------
November 30, December 28, December 27, October 25, October 24,
1996 1997 1998 1998 1999
------------ ------------ ------------ ----------- -----------
(in thousands, except share and per share data)
(unaudited)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues............... $ 145,030 $ 222,993 $ 319,691 $ 256,874 $ 320,433
Gross profit(1)........ 23,165 34,909 58,894 47,345 62,961
Income from
operations(1)......... 8,937 12,934 17,297 11,109 22,826
Net interest cost (2).. (1,065) (1,590) (8,206) (6,078) (10,660)
Net income............. $ 6,039 $ 6,640 $ 3,986 $ 2,355 $ 6,764
Net income per share--
basic................. $ .64 $ .43 $ .21 $ .13 $ .33
Net income per share--
diluted............... $ .64 $ .42 $ .21 $ .12 $ .33
Shares used in
computing net income
per share--basic...... 9,433,414 15,561,489 18,937,354 18,651,737 20,297,016
Shares used in
computing net income
per share--diluted.... 9,433,414 15,914,157 19,310,295 19,047,287 20,299,381
Other Operating Data:
EBITDA and non-
recurring charges(3).. $ 13,045 $ 19,933 $ 35,680 $ 27,677 $ 36,538
EBIT(3)................ $ 9,448 $ 13,066 $ 17,559 $ 11,348 $ 24,213
Cash flows from:
operating activities.. $ 12,116 $ 6,363 $ 13,596 $ 7,072 $ 16,212
investing activities.. $ (7,355) $ (13,756) $ (100,819) $ (91,383) $ (6,596)
from financing
activities........... $ (5,051) $ 11,976 $ 83,966 $ 78,942 $ (8,514)
</TABLE>
<TABLE>
<CAPTION>
October 24,
1999
--------------
(in thousands)
(unaudited)
<S> <C>
Balance Sheet Data:
Working (deficit)............................................... $(84,797)
Total assets.................................................... 299,617
Total debt...................................................... 147,181
Stockholders' equity............................................ 103,613
</TABLE>
- --------
(1) The results of operations for PalEx's year ended December 27, 1998, include
pre-tax charges of approximately $1.2 million for inventory revaluation
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. The results of operations for PalEx's ten-month
period ended October 25, 1998, include pre-tax charges of approximately
$1.7 million for inventory valuation adjustment and approximately $2.4
million for restructuring costs and expenses related to the termination of
PalEx's customer relationship with CHEP USA.
(2) Includes interest expense and other income (expense), net.
(3) EBIT and EBITDA and non-recurring charges are not presented as alternative
measures of operating results or cash flows from operations as determined
in accordance with generally accepted accounting principles, but because
they are accepted financial indicators of the ability to incur and service
debt. EBIT represents PalEx's net income after exclusion of interest
expense and provision for income taxes. EBITDA and non-recurring charges
represents PalEx's EBIT plus depreciation and amortization charges, and
non-recurring, one-time restructuring charges related to the termination of
PalEx's relationship with CHEP USA, pooling expenses, and compensation
differential. EBIT and EBITDA and non-recurring charges as presented are
not necessarily comparable with similarly titled measures presented by
other companies. The following table reflects the calculation of EBIT and
EBITDA and non-recurring charges:
13
<PAGE>
<TABLE>
<CAPTION>
Ten-Month
Fiscal Year Ended Period Ended
-------------------------------------- -----------------------
November 30, December 28, December 27, October 25, October 24,
1996 1997 1998 1998 1999
------------ ------------ ------------ ----------- -----------
(in thousands)
(unaudited)
<S> <C> <C> <C> <C> <C>
Net income.............. $ 6,039 $ 6,640 $ 3,986 $ 2,355 $ 6,764
Provision for income
taxes.................. 1,833 4,704 5,105 2,676 5,402
Interest expense........ 1,576 1,722 8,468 6,317 12,047
------- ------- ------- ------- -------
EBIT................... 9,448 13,066 17,559 11,348 24,213
Depreciation and
amortization........... 3,597 5,847 11,665 7,974 12,325
Restructuring charge.... -- -- 3,553 5,452 --
Pooling expenses and
compensation
differential(4)........ -- 1,020 2,903 2,903 --
------- ------- ------- ------- -------
EBITDA and non-
recurring charges..... $13,045 $19,933 $35,680 $27,677 $36,538
======= ======= ======= ======= =======
</TABLE>
(4) Pooling expenses primarily represent financial advisory and legal fees
incurred by some of the pooled companies in connection with PalEx's
acquisition of those companies. Compensation differential is the difference
between previous owners' compensation before their companies were acquired
by PalEx and the amounts they contractually agreed to be paid afterward.
14
<PAGE>
RISK FACTORS
You should carefully consider all the information in this proxy
statement/prospectus, including the following risk factors, before making an
investment decision regarding the merger and the IFCO Systems ordinary shares.
The risks described below are the significant risks known to IFCO Systems, the
IFCO Companies, and PalEx. The business, financial conditions, or results of
operations of IFCO Systems, the IFCO Companies, or PalEx could be materially
adversely affected by any of the risks.
Risks Related to the Merger
The operational and financial benefits expected from the merger may not be
realized and shareholder value may be impaired
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
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, IFCO Systems may not be
successful in using the PalEx North American locations in connection with the
IFCO Companies' U.S. business.
The merger may not be tax-free to PalEx or PalEx stockholders
PalEx is obligated to complete the merger only if it receives (1) the private
letter ruling it has requested from the U.S. Internal Revenue Service that the
merger qualifies for an exception to Section 367 of the Internal Revenue Code
and (2) tax opinions from its special U.S. tax counsel that provide, among
other things, that the merger should be treated as a reorganization for federal
income tax purposes. Assuming the merger is a reorganization:
. PalEx and IFCO Systems will not recognize gain or loss upon the merger;
. a PalEx stockholder will generally recognize any gain on the merger only
to the extent of any cash received; and
. any gain to the PalEx stockholders in the merger in excess of the cash
received will not be recognized.
Even with PalEx's receipt of the tax opinions, the IRS could take the position
that the merger is taxable, either because it disagrees with the opinions or
because one or more of the assumptions upon which the opinions are based are
incorrect. One key assumption is that the total fair market value of the IFCO
Systems ordinary shares received by PalEx stockholders, based on the high and
low sales prices of the shares on the date of the merger, will be no less than
42% of the total merger consideration paid to PalEx stockholders. This
valuation, however, cannot be determined until after completion of the merger
and the IPO. If the IRS were to take the position that the merger is taxable
and prevail, then PalEx would recognize gain from the merger as if it had sold
all of its assets in a fully taxable transaction and a PalEx stockholder would
recognize gain or loss in an amount equal to the difference between the
stockholder's basis in the shares of PalEx common stock surrendered in the
merger and the sum of the cash and the fair market value, as of the effective
time of the merger, of the IFCO Systems ordinary shares received in the merger.
After the merger, the value of the IFCO Systems ordinary shares received by
PalEx stockholders could decline below the IPO price
The exact number of IFCO Systems ordinary shares to be received by PalEx
stockholders in the merger will be based on the elections by PalEx stockholders
and the IPO price of the IFCO Systems ordinary shares.
15
<PAGE>
Following the merger, the value of the IFCO Systems ordinary shares received by
PalEx stockholders will depend on the market price of IFCO Systems ordinary
shares, which after the IPO could trade at a price significantly below the IPO
price. There has not previously been a public market for the IFCO Systems
ordinary shares.
The IFCO Systems ordinary shares will have a lower book value than the PalEx
shares and IFCO Systems will at least initially have a net loss per share
The book value of the IFCO Systems ordinary shares will be significantly
lower than the book value of the shares of PalEx common stock and, unlike
PalEx, IFCO Systems will lose money, at least initially.
Protecting shareholder rights may prove more difficult and costly than in a
Delaware corporation
IFCO Systems' corporate affairs are governed by its articles of association
and by the laws of the Netherlands. The rights of shareholders of IFCO Systems
and the responsibilities of directors on its board of directors, its officers,
and the experts named in this proxy statement/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, IFCO Systems'
public shareholders may have more difficulty and be subject to higher costs in
protecting their interests in the face of actions by IFCO Systems' management,
board of directors, or controlling shareholders than they would as shareholders
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 IFCO Systems or those persons, or enforcing, in courts outside of the
United States, judgments against IFCO Systems 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 the
assets of IFCO Systems will be located outside of the United States, any
judgment obtained in the United States against those persons or IFCO Systems
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.
Risks Related to IFCO Systems or the IFCO Companies' Businesses
IFCO Systems will be controlled by a limited number of shareholders, which
will limit the ability of the public shareholders to influence the affairs of
IFCO Systems
After completion of the merger and the IPO, and assuming PalEx stockholders
elect to receive 49% of the total merger consideration in cash, Christoph and
Martin Schoeller, through Schoeller Industries and/or affiliates and Schoeller
Holding, will beneficially own approximately 51.7% of the outstanding IFCO
Systems ordinary shares. The Schoellers will be able to influence the business,
policies, and affairs of IFCO Systems and may be able to block approval of any
proposed merger, combination, or sale of substantially all the assets. Because
they will have the largest beneficial ownership, the Schoellers may
legitimately seek to preserve their control and may not have the same interest
as smaller shareholders in pursuing strategic investments or business
combinations if the result would be a decrease in control or would cause IFCO
Systems no longer to exist as a separate entity.
Christoph Schoeller will not be devoting his full time to IFCO Systems, which
may impair its business prospects
Under the terms of a management agreement with IFCO Europe, Schoeller
Industries provides administrative and management services, but Christoph
Schoeller, who will be Chairman of the board of directors of IFCO Systems, will
not devote his full working time to the IFCO Companies. Because of other
Schoeller family business interests, Christoph Schoeller will continue to be
unable to devote his undivided attention to the operations and management of
IFCO Systems. This may impede the management and operations of IFCO Systems and
limit the growth prospects for the business.
16
<PAGE>
IFCO Systems' international operations may prove more difficult or costly than
its domestic operations
Since IFCO Systems will have significant operations outside of Germany and
the United States, it will be 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 IFCO Systems' 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 IFCO Systems' ability to effectively enforce its rights.
IFCO Systems will be dependent on extensive capital investment, which may not
be readily available
IFCO Systems' business plan calls for extensive capital investment. IFCO
Systems may be unable to obtain sufficient capital resources to finance its
operations. A lack of capital or an increase in the cost of capital may prevent
IFCO Systems from achieving its growth plans and its financial objectives.
IFCO Systems will be dependent on its relationships with a small number of
large retailers
IFCO Systems will be dependent on its relationships with a small number of
large retailers. The inability of IFCO Systems to maintain these relationships
or cultivate new relationships on similar terms will impair its ability to
remain competitive in the markets in which it will operate. The loss of one or
more of these relationships would have a negative impact on the revenues and
net income of IFCO Systems.
IFCO Systems' growth strategies may not be achieved
IFCO Systems expects to grow both internally and through acquisitions and
alliances. IFCO Systems expects to spend significant time and effort in
evaluating, completing, and integrating acquisitions. The systems, procedures,
and controls of IFCO Systems may not be adequate to support its operations as
it expands, including its expansion in the United States. Any future growth
also will impose significant additional responsibilities on its senior
management. To the extent IFCO Systems is unable to manage its growth
effectively, or is unable to attract and retain qualified management, IFCO
Systems' ability to grow or maintain its level of revenues and net income, or
to implement its business plan, could be materially limited.
The IFCO Companies' business models may not succeed in new markets
The IFCO Companies' business plans rely on duplicating their business models
in new markets, including the United States. The IFCO Companies' business
models may not be successfully duplicated in these new markets.
Weather conditions may reduce demand for IFCO Systems' services and products
IFCO Systems provides a significant portion of its 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 IFCO Systems' revenues and net income. For example, a heavy
freeze that damages citrus or other produce crops could have a significant
negative impact on IFCO Systems' financial condition and results of operations.
IFCO Systems' operating results may fluctuate significantly due to seasonal
factors
IFCO Systems' businesses, including the businesses of both the IFCO Companies
and PalEx, will be subject to seasonal variations in operations and demand.
IFCO Systems' 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, particularly for PalEx
17
<PAGE>
in the Southeast and Western regions of the United States. 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, IFCO
Systems' performance, including the performance of both the IFCO Companies and
PalEx, in any particular quarter may not be indicative of the results that can
be expected for any other quarter or for the entire year.
IFCO Systems is in a highly competitive industry, which may limit its business
prospects
IFCO Systems faces competition in all geographic markets and each industry
sector in which it operates. IFCO Systems expects aggressive competition from
packaging industry companies, including CHEP, an international supplier of
pallets and other material handling products. The IFCO Companies 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 IFCO Systems' revenues,
limit its ability to grow, increase pricing pressure on its products, and
otherwise affect its financial results.
IFCO Systems may incur increased costs due to fluctuations in interest rates
and foreign currency exchange rates
As a consequence of the global nature of the combined businesses of the IFCO
Companies and PalEx, IFCO Systems will be exposed to increases in interest
rates and changes in foreign currency exchange rates, which may result in
decreased net income. IFCO Systems will 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. IFCO Systems
will also be exposed to risks from changes in foreign currency exchange rates
as a result of its financial reporting in U.S. dollars.
Fluctuations in the exchange rate between the U.S. dollar and the euro will
affect the U.S. dollar equivalent of the euro price of IFCO Systems ordinary
shares traded on the Frankfurt Stock Exchange and, as a result, are likely to
affect the market price of the New York shares traded on the Nasdaq National
Market. These fluctuations will also affect the U.S. dollar amounts received by
holders of IFCO Systems ordinary shares on the conversion into U.S. dollars of
cash dividends, if any, paid in euros on the IFCO Systems ordinary shares.
Risks Related to PalEx's Business
PalEx's 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 PalEx's cost of goods sold is lumber, which is the
principal raw material used in the manufacture and repair of wooden pallets.
Any increase in the cost of lumber or decrease in the availability of lumber
will materially increase cost of goods sold resulting in decreased net income
unless there is a corresponding increase in the prices PalEx charges its
customers. PalEx, however, may be limited in how much of a cost increase, if
any, it is able to pass along to customers or how quickly it is 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 hardwood is greater than the supply, the price will
increase and PalEx's cost for lumber will increase. The factors affecting
supply and demand are outside PalEx's 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.
18
<PAGE>
Since hardwood is difficult to harvest in adverse weather, adverse weather
may also decrease the supply, resulting in price increases. PalEx may not be
able to secure adequate lumber supplies in the future at prices it considers
reasonable.
PalEx has relied on acquisitions for growth and it may not be able to continue
to make acquisitions or successfully operate acquired businesses
One of PalEx's principal growth strategies has been to acquire additional
pallet manufacturing and recycling and drum reconditioning companies. PalEx may
not be able to identify or acquire additional businesses or integrate and
manage those additional businesses successfully. Acquisitions may involve a
number of operational risks, including:
. integration of acquisitions into PalEx may not be successful or may not
be possible without substantial costs, delays, or other problems, in
either case reducing any positive impact on PalEx's revenues and net
income or actually decreasing net income;
.adverse short-term effects on reported operating results, which will
result in lower net income;
. diversion of management's attention from operations, which could result
in decreased net income or limit internal growth;
. dependence on retention, hiring, and training of key personnel, which
may impair PalEx's ability to integrate acquisitions successfully or may
prevent PalEx from seizing future growth opportunities, both internally
and through acquisitions; and
. increased goodwill, which must be amortized, currently at the rate of
approximately $4.4 million per year, thus reducing PalEx's net income.
In addition, PalEx could 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.
PalEx's markets for pallet manufacturing and recycling services and industrial
container reconditioning services are highly competitive, which may limit
PalEx's ability to grow or maintain profit margins and net income
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 PalEx's ability to
grow or maintain profit margins and net income.
PalEx's pallet manufacturing operations may also be subject to competition
from lumber mills, which could decrease PalEx's profitability
PalEx often competes 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 PalEx's profitability.
PalEx's pallet manufacturing and recycling operations are subject to
competition from larger competitors, which may limit PalEx's ability to grow or
maintain revenues and net income
Other companies with significantly greater capital and other resources than
PalEx, including CHEP, may enter or expand their operations in the pallet
manufacturing and recycling businesses in the future, which could place PalEx
in direct competition with these larger companies in the markets for new and
recycled pallets. Increased competition from CHEP or other large competitors
could reduce PalEx's revenues through loss of customers or competitive pricing
pressures. Decreases in revenues could have a corresponding effect on net
income.
19
<PAGE>
PalEx's pallet operations face competition from other pallet alternatives,
which could limit or decrease revenues
PalEx's 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 PalEx, 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 PalEx to attract and retain customers or force PalEx to reduce
prices. As a result, revenue growth may be limited or may decrease with
corresponding effects on PalEx's net income.
PalEx has potential exposure to environmental liabilities, which may increase
costs and lower net income
PalEx's 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 PalEx's
subsidiaries' facilities, PalEx may be required to incur remediation costs and
other related expenses. In addition, although PalEx intends to conduct
appropriate due diligence with respect to environmental matters in connection
with future acquisitions, PalEx may not be able to identify or be indemnified
for all potential environmental liabilities relating to any acquired business.
A PalEx subsidiary 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 PalEx or its subsidiaries, if not covered
by adequate insurance or indemnification, will increase PalEx's costs and have
negative impact on its net income.
PalEx may not be able to negotiate with union employees and may be subject to
work stoppages
Approximately 300 employees of PalEx's container group are members of various
labor unions. If PalEx is 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, PalEx
could experience a significant disruption of its operations and higher ongoing
labor costs. This could result in decreased revenues and/or lower net income
than otherwise could have been achieved.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this proxy statement/prospectus discuss
future expectations, contain projections of results of operations or financial
condition of IFCO Systems, the IFCO Companies, or PalEx, or state other
forward-looking information. These statements may include statements for the
period following the merger. You can find many of these statements by looking
for words like believes, expects, anticipates, estimates, or similar
expressions used in this proxy statement/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 IFCO Systems, the IFCO Companies, and PalEx believe to be
reasonable.
20
<PAGE>
Risks and uncertainties include the following:
. the timely completion of the merger according to its terms, including
completion of the IPO;
. the ability of the combined company to effectively integrate their
operations and achieve their operational and growth objectives;
. the competitive nature of the container businesses;
. customer demand and business and economic cycles;
. the ability to finance capital expenditures and growth;
. 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 actual results to be materially different
from the forward-looking statements are also disclosed in the "Risk Factors"
section and throughout this proxy statement/prospectus.
21
<PAGE>
THE PALEX SPECIAL MEETING
General
PalEx is furnishing this proxy statement/prospectus to you in connection with
the solicitation of proxies by the PalEx board of directors for use at the
special meeting of PalEx stockholders to be held on March 2, 2000. PalEx will
first mail this proxy statement/prospectus and accompanying form of proxy to
PalEx stockholders on or about February 7, 2000.
Time and Place
The special meeting will be held at 6829 Flintlock Road, Houston, Texas, on
March 2, 2000, starting at 10:00 a.m. Houston time.
Purposes
At the special meeting, you will be asked to:
1.approve and adopt the merger agreement;
2.act on any other matter that may be properly submitted to a vote at the
special meeting; and
3. if necessary, approve any postponements or adjournments of the special
meeting without further notice except by announcement at the meeting
being postponed or adjourned.
The PalEx board of directors has unanimously approved the merger agreement
and recommends that PalEx stockholders vote for approval and adoption of the
merger agreement.
Record Date; Shares Entitled to Vote; Quorum
The PalEx board of directors has fixed the close of business on January 21,
2000, as the record date for PalEx stockholders entitled to notice of and to
vote at the special meeting. As of the record date, there were 19,633,548
shares of PalEx common stock outstanding. PalEx stockholders will be entitled
to one vote for each share of PalEx common stock they own. The common stock is
PalEx's only class of outstanding voting securities.
The holders of a majority of the outstanding shares of PalEx common stock
entitled to vote at the special meeting must be present, either in person or by
proxy, to establish a quorum for business to be conducted at the special
meeting.
Votes Required; Voting and Revocation of Proxies; Effect of Abstentions and
Non-Votes
Delaware law requires the affirmative vote of the holders of record of at
least a majority of the shares of PalEx common stock outstanding and entitled
to vote at the special meeting for approval and adoption of the merger
agreement.
All shares of PalEx common stock represented by properly executed proxies
will be voted per the instructions indicated in the proxies. Any PalEx
stockholder who has previously delivered a properly executed proxy may revoke
the proxy at any time before it is voted. A proxy may be revoked either by:
. delivering to the Secretary of PalEx before the special meeting a written
revocation of the proxy;
. signing and returning a later dated proxy to the Secretary of PalEx; or
. attending the special meeting and voting in person, regardless of whether
a proxy has previously been given, or withdrawing your proxy. Mere
attendance at the special meeting, however, will not in and of itself
have the effect of revoking the proxy.
22
<PAGE>
All valid, unrevoked proxies will be voted as directed. In the absence of any
directions to the contrary, proxies will be voted in favor of each of the
proposals listed in the notice of special meeting.
If any other matters are properly presented for action at the special
meeting, the persons named in the proxy will have the discretion to vote on
those matters in their best judgment, unless authorization is withheld.
Votes cast by proxy or in person at the special meeting will be tabulated by
a judge of voting appointed for the special meeting, who will determine whether
or not a quorum is present. Abstentions will be treated as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum. Abstentions will be included in vote totals and thus will have the same
effect on each proposal as a negative vote. If a proxy is returned by a broker
or other stockholder who does not have authority to vote, does not give
authority to a proxy to vote, or withholds authority to vote on one or more
proposals as to any shares, those shares will be considered present at the
meeting for purposes of determining a quorum. The failure to submit a proxy or
to vote at the special meeting, an abstention as to the merger proposal, or a
non-vote as to the merger proposal will each have the same effect as a vote
against the merger agreement.
A representative of Arthur Andersen LLP, PalEx's independent public
accountants, is expected to be present at the special meeting and will have the
opportunity to make a statement. The representative will be available to answer
appropriate questions from PalEx stockholders.
The matters to be considered at the special meeting are of great importance
to PalEx stockholders. PalEx urges you to read and carefully consider the
information presented in this proxy statement/prospectus, and to complete,
date, sign, and promptly return the enclosed proxy in the enclosed postage-paid
envelope.
Voting Agreements
As of the record date, the directors and executive officers of PalEx and
their affiliates beneficially owned approximately 24.6% of the outstanding
shares of PalEx common stock, excluding options to purchase shares. The holders
of these shares or the persons with the right to vote these shares have
indicated to PalEx their intent to vote the shares for approval of the merger
agreement or have signed a voting agreement obligating them to do so.
Schoeller Industries has obtained a voting agreement from a group of PalEx
stockholders who own approximately 29% of the outstanding shares of PalEx
common stock as of the date of this proxy statement/prospectus, including some
of PalEx's directors and executive officers. These stockholders have agreed to
vote their shares in favor of the merger agreement at any stockholders'
meeting. The voting agreement is effective until the earlier of completion of
the merger agreement, termination of the merger agreement, or May 31, 2000.
PalEx has agreed to use its reasonable efforts after the mailing of this proxy
statement/prospectus to deliver an additional voting agreement in favor of
Schoeller Industries, so that the total number of shares subject to the voting
agreements and agreeing to vote for approval of the merger agreement will be at
least 51% of the outstanding shares of PalEx common stock as of the record
date.
Solicitation of Proxies
Proxies will be solicited by mail. Proxies may also be solicited personally,
or by telephone, fax, or other means by the directors, officers, and employees
of PalEx. Directors, officers, and employees soliciting proxies will receive no
special or extra compensation, but may be reimbursed for related out-of-pocket
expenses. In addition to solicitation by mail, PalEx will make arrangements
with brokerage houses and other custodians, nominees, and fiduciaries to send
the proxy materials to beneficial owners. PalEx will, upon request, reimburse
these brokerage houses, custodians, and other persons for their reasonable out-
of-pocket expenses in doing so. PalEx and IFCO Systems will each pay one-half
of the expenses of printing and mailing this proxy statement/prospectus. PalEx
will pay for the other costs of soliciting proxies.
23
<PAGE>
THE MERGER
Background of the Merger
PalEx has regularly considered opportunities for acquisitions, other
strategic alliances, and raising capital. In May 1998, PalEx engaged Batchelder
& Partners, Inc., as its financial advisor to analyze and consider several
larger strategic and financial opportunities.
In June 1998, PalEx and GE Capital Services, Inc., began discussions
regarding possible joint strategic initiatives in the materials handling
industry. These discussions were initially between Sam Humphreys, the Chairman
of PalEx, and Nigel Andrews, an Executive Vice President of GE Capital
Services. These initial discussions took place at meetings in mid-June 1998 in
Stamford, Connecticut. In the course of these meetings, GE Capital Services
discussed its investment in the IFCO Companies. PalEx had previously become
familiar with the IFCO Companies and their operations in Europe and start-up
initiative in the United States. PalEx and GE Capital Services agreed to
schedule another meeting to discuss a possible initiative involving both GE
Capital Services and the IFCO Companies and to have in attendance the persons
at GE Capital Services responsible for its investment in the IFCO Companies and
representatives of the IFCO Companies.
In late June 1998, representatives of PalEx, Batchelder, GE Capital Services,
and the IFCO Companies met at GE Capital Services' offices in New York City to
discuss possible relationships, including a possible business combination. Sam
Humphreys and Vance Maultsby, PalEx's Chief Executive Officer, attended the
meeting on behalf of PalEx. Paul Gelburd and Scott Gould represented GE Capital
Services, and Christoph and Martin Schoeller represented the IFCO Companies.
On July 10, 1998, PalEx and Schoeller Industries entered into a Non-
Disclosure Agreement with respect to information to be provided by the IFCO
Companies to PalEx.
On August 6, 1998, at a meeting of the PalEx board of directors in Houston,
Texas, Sam Humphreys made a presentation to the board of directors about IFCO
Europe. Mr. Humphreys showed the board of directors marketing videos provided
by the IFCO Companies and described their businesses. He also discussed the
rationale for a strategic relationship between PalEx and IFCO Europe, including
their common experiences with shipping platforms and logistics operations,
common access to retailers' backdocks, and ability to cross-sell to each
other's customers, including the ability to take advantage of each other's
relationships with growers. The board of directors authorized PalEx's
management to continue its discussions and negotiations with respect to a
possible strategic business combination with IFCO Europe.
During August and September 1998, Sam Humphreys and Vance Maultsby spoke with
Christoph and Martin Schoeller and with representatives of GE Capital Services
on a periodic basis by telephone to continue discussions about a possible
business combination and develop proposed terms.
On September 11, 1998, Sam Humphreys and Vance Maultsby met with Christoph
and Martin Schoeller from the IFCO Companies and Paul Gelburd and Scott Gould
from GE Capital Services in New York City to continue discussions about a
possible business combination.
On October 1-2, 1998, Sam Humphreys and Vance Maultsby again met with the
Schoellers in New York City along with a representative of Batchelder. At this
meeting, the parties began more detailed discussions about the structure of a
business combination and PalEx provided the Schoellers with a preliminary term
sheet. The preliminary term sheet reflected the creation of a new holding
company, PalEx's merger with a holding company subsidiary, and ownership by
PalEx stockholders of a minority interest in the holding company. The actual
ownership interest to be received by the PalEx stockholders was to be
determined based on the due diligence investigations of each company. The
parties also discussed what they needed for purposes of due diligence
investigations.
24
<PAGE>
On October 6, 1998, Vance Maultsby sent a confidential memorandum to the
PalEx board of directors to update the board of directors on the status and
progress of discussions. He indicated that preliminary discussions involved the
formation of a new public holding company, with IFCO Europe and PalEx merging
into subsidiaries of the holding company for stock consideration. Based upon
the preliminary discussions, including the October 2, 1998, meeting, PalEx
stockholders would exchange their PalEx stock for a minority interest in the
new holding company. The valuation proposed to the Schoellers and GE Capital
Services at that time provided PalEx's stockholders with a combined interest in
the new company of 30-45%. The holding company would complete an IPO at the
same time as the merger. Mr. Maultsby indicated to the board of directors that
the exact consideration to be paid to PalEx's stockholders would likely be
subject to the value of the individual companies implied by the IPO valuation
and the completion of due diligence investigations by both parties. The other
principal term discussed was the interest in the new holding company acquiring
the minority interest in IFCO International's U.S. joint venture. Mr. Maultsby
informed the board that a detailed term sheet was being prepared.
On October 7, 1998, Mr. Maultsby had a conference call with the PalEx board
of directors to discuss these preliminary terms, answer questions, and hear
comments. A representative from Batchelder also participated in the call.
Representatives of PalEx and GE Capital Services met again in New York City
on October 8-9, 1998. Vance Maultsby, Edward Rhyne, PalEx's Vice President and
General Counsel, and Dinesh Lathi represented PalEx. Paul Gelburd and Scott
Gould attended the meeting on behalf of GE Capital Services. Frank Tofflinger,
Chief Financial Officer of Schoeller Industries, and a representative of King &
Spalding, U.S. counsel to the IFCO Companies, attended on behalf of the IFCO
Companies. The structure discussed at this meeting contemplated the possibility
of an IPO of a new holding company on the Neuer Markt segment of the Frankfurt
Stock Exchange. Following this meeting, on October 10, 1998, PalEx distributed
a revised term sheet to the Schoellers reflecting the discussions at the
October 2, 1998, meeting. In addition, the term sheet included a proposal that
the new holding company would acquire options to purchase IFCO International
and MTS.
On October 21, 1998, the PalEx board of directors had a conference call to
discuss the status of the proposed business combination with IFCO Europe.
On October 29, 1998, at a meeting of the PalEx board of directors in Houston,
Texas, Sam Humphreys summarized the status of the business combination
discussions with IFCO Europe and PalEx's due diligence investigations. After
further discussion about the proposed transaction, the PalEx board determined
that PalEx should continue pursuing the possible business combination. On the
same date, Baker Botts L.L.P., PalEx's counsel at the time and now PalEx's
special U.S. tax counsel, distributed a preliminary draft of a definitive
merger agreement to Edward Rhyne and King & Spalding. The preliminary draft
provided for PalEx stockholders to receive a minority stock interest in a new
holding company as merger consideration. The percentage ownership for PalEx
stockholders, as proposed, was contemplated as a range, to be agreed upon based
on continuing due diligence, but at that time tentatively set at 30% to 40%,
with the actual percentage to depend on the holding company's pre-IPO
valuation. The draft also contemplated IFCO International using reasonable
efforts to acquire the minority interest in IFCO International's U.S. joint
venture.
During the first week of November 1998, PalEx sent a team to the IFCO
Companies' headquarters in Pullach, Germany, for purposes of continuing PalEx's
due diligence and developing a financial model for the proposed business
combination. The PalEx team included Joseph Cruz, PalEx's President and Chief
Operating Officer, Philip Freeman, PalEx's Executive Vice President, Edward
Rhyne, Dinesh Lathi, representatives of Batchelder, and representatives of
Arthur Andersen in Germany.
On November 19-20, 1998, representatives of PalEx, GE Capital Services, and
the IFCO Companies again met in New York City to discuss the possible business
combination. Sam Humphreys, Vance Maultsby, Edward Rhyne, Dinesh Lathi, and
Fraser Campbell, President of PalEx's Canadian subsidiary, along with a
representative of Batchelder, represented PalEx. Scott Gould, Liz Masciopinto,
and Natalie Jenkins represented
25
<PAGE>
GE Capital Services and Jorgen Poulsen represented Transport International
Pool, an affiliate of GE Capital Services. Representatives of J.P. Morgan, as a
financial advisor to GE Capital Services, attended the meeting on behalf of GE
Capital Services. The Schoellers and Frank Tofflinger represented the IFCO
Companies. The primary focus of the meeting was continued due diligence with
respect to both operations and the integration of the businesses.
Sam Humphreys and Vance Maultsby again met with Paul Gelburd and Scott Gould
of GE Capital Services in New York City on November 20, 1998, to discuss the
structure of the proposed business combination. The parties continued to have
discussions in late November and early December 1998 regarding the structure of
the proposed business combination and the treatment of GE Capital Services'
interests in IFCO Europe.
On December 1, 1998, Sam Humphreys, Vance Maultsby, Christoph Schoeller, and
Paul Gelburd had a conference call to discuss management of the combined
company and open business points.
Sam Humphreys and Vance Maultsby met with Christoph and Martin Schoeller in
Puerto Rico on January 8-9, 1999, for further discussions regarding the desired
structure of the business combination.
On January 12, 1999, PalEx and Schoeller Industries entered into a
Confidentiality Agreement with respect to information to be provided by PalEx
to the IFCO Companies.
On January 26, 1999, the PalEx board of directors held a telephonic meeting
to review the status of the proposed business combination with IFCO Europe.
Casey Fletcher, PalEx's Chief Accounting Officer, Phil Freeman, Gregg Gibson of
Sonoma Pacific Company, a PalEx subsidiary, Vance Maultsby, and Edward Rhyne
also participated in the telephonic meeting. Sam Humphreys summarized for the
board the developments in the proposed transaction since the previous board
meeting. Mr. Humphreys outlined a proposed structure that would include not
only IFCO Europe, but also MTS and IFCO International, including IFCO
International's interests in Argentina and in joint ventures in Japan and the
United States. The intention was for the combined company to simultaneously
complete an IPO with a listing on the Neuer Markt. PalEx shareholders and the
Schoellers would each own 50% of the combined company, but General Electric
Erste Beteiligungs GmbH, a subsidiary of GE Capital Corporation, would continue
to own 24% of IFCO Europe and have an option to acquire the remaining 76% of
IFCO Europe. The proposed structure had been discussed in detail with the
Schoellers, but no terms had been negotiated with GE Capital regarding GE
Erste's and GE Capital's existing interests and options with respect to IFCO
Europe, IFCO International, and MTS. The proposed structure also contemplated
that the combined company would negotiate to purchase the interest in IFCO
International's U.S. joint venture, IFCO-U.S., L.L.C., not already owned by
IFCO International. The board of directors, along with management, voted to
continue negotiations and due diligence to determine whether a desirable
transaction could be structured.
On February 2-3, 1999, Joseph Cruz, Vance Maultsby, Edward Rhyne, Howe
Wallace, PalEx's Chief Human Resources Officer, and representatives of
Batchelder met in Tampa, Florida, with IFCO U.S. management and representatives
of the IFCO Companies to discuss due diligence issues regarding IFCO U.S.
In late February and early March 1999, the parties continued to discuss and
refine the structure of the proposed transaction.
On February 22-25, 1999, PalEx representatives traveled to the IFCO
Companies' headquarters in Pullach, Germany, to continue their due diligence
investigations and meet with representatives of Apax Partners & Co., the IFCO
Companies' financial advisor. Vance Maultsby, Edward Rhyne, and representatives
of Batchelder attended the meetings on behalf of PalEx. Martin and Christoph
Schoeller and Frank Tofflinger were the lead participants on behalf of the IFCO
Companies. The discussions covered various issues, including the structure of
the transaction, continuing due diligence investigations by both PalEx and the
IFCO Companies, corporate governance, and the timing of the transaction. Based
upon the understanding that IFCO Europe would purchase
26
<PAGE>
its shares held by GE Erste and that GE Capital and GE Erste would release all
options and other rights with respect to the IFCO Companies, the parties agreed
to a structure in which PalEx stockholders would receive 32% to 35% of the new
combined company depending on the trading prices of the new shares after the
IPO. The parties also agreed to target March 19, 1999, for execution of a
definitive agreement.
On March 2, 1999, Baker Botts prepared and distributed a summary term sheet
for the transaction. The term sheet showed PalEx stockholders receiving 32% to
35% of a new combined company prior to an IPO by the new company depending on
the trading prices of the new shares after the IPO.
On March 8-10, 1999, Sam Humphreys, Vance Maultsby, and Edward Rhyne met in
New York City with Christoph and Martin Schoeller, a representative of Apax,
and Paul Gelburd and Scott Gould to refine the structure of the business
combination and the operation of the businesses after completion of the
transaction. Following the meeting, Baker Botts sent a revised draft of the
merger agreement to Edward Rhyne and King & Spalding.
On March 16, 1999, Edward Rhyne had a conference call with a representative
of King & Spalding and a representative of Gardere & Wynne, L.L.P., PalEx's
counsel, to discuss the appropriate parties to the transaction, the structure
of the merger, including the formation of the new holding company, the draft
merger agreement, and outstanding due diligence issues. The attorneys agreed to
meet in New York City beginning on March 22, 1999, to negotiate and execute the
definitive agreement and address remaining due diligence issues.
On March 18, 1999, Gardere & Wynne sent a revised draft of the merger
agreement to King & Spalding reflecting miscellaneous changes from the initial
draft.
On March 22, 1999, Edward Rhyne and representatives of King & Spalding and
Gardere & Wynne began meeting in New York City to finalize the definitive
agreement.
On March 23, 1999, the PalEx board of directors reconvened a meeting in
Houston, Texas, that began on March 22, 1999, for the purpose of discussing the
proposed merger with the IFCO Companies and related transactions. Also
attending the reconvened meeting in person or by telephone were Casey Fletcher,
Phil Freeman, Gregg Gibson, Vance Maultsby, Edward Rhyne, Christoph and Martin
Schoeller, Howe Wallace, representatives of Batchelder, and a representative of
Baker Botts.
At the request of Sam Humphreys, Martin Schoeller made a detailed
presentation to the board of directors regarding the organization, operations,
and financial performance of and growth potential for IFCO Europe, MTS, and
IFCO International, including its joint ventures in Japan, the United States,
and Argentina. These three IFCO Companies would be contributed to the new
combined company, IFCO Systems. Edward Rhyne provided additional information to
the board of directors regarding a long-term supply agreement between the IFCO
Companies and other Schoeller entities. At the conclusion of Mr. Schoeller's
presentation, the directors had the opportunity to ask Mr. Schoeller questions
about the IFCO Companies.
A representative of Batchelder then discussed for the directors the Neuer
Markt, which was the stock market proposed for listing of the IFCO Systems
ordinary shares. He described the Neuer Markt's history, trading capabilities
in the United States, and initial listing criteria. After this presentation,
the Schoellers left the meeting.
Batchelder provided an overview of the proposed transaction structure and
terms and detailed presentation of both PalEx's and the IFCO Companies'
historical and projected financial results, and discussed Batchelder's
valuation materials. The directors had substantial opportunity to ask
Batchelder and Mr. Rhyne about the transaction and the financial information.
The board of directors discussed the proposed ownership interests in the new
company for PalEx's stockholders and the IFCO Companies' stockholders.
Batchelder then reviewed its proposed form of fairness opinion and answered
questions regarding the valuation methodologies it used in its fairness
analysis.
27
<PAGE>
After a detailed discussion of the fiduciary duties of directors under
Delaware law, the board of directors unanimously approved the proposed merger
transaction subject to a review of the definitive agreement to be distributed
later in the week. The board of directors agreed to hold a telephonic meeting
on March 28, 1999, to consider the terms of the definitive agreement relating
to the proposed transaction.
Beginning on March 24, 1999, Christoph and Martin Schoeller, Frank
Tofflinger, and a representative of Boesebeck Droste, the IFCO Companies'
German counsel, began meeting in New York City with Scott Gould to negotiate a
draft agreement between the IFCO Companies and GE Capital regarding GE
Capital's interests.
On March 25, 1999, Vance Maultsby, a representative of Batchelder, Christoph
and Martin Schoeller, Frank Tofflinger, and a representative of Boesebeck
Droste joined the meeting that began on March 22, 1999, in order to finalize
due diligence discussions, negotiate the merger agreement, and finalize the
draft agreement with GE Capital. Sam Humphreys joined that meeting on March 26,
1999.
The PalEx board of directors then held a telephonic meeting on March 28,
1999. Casey Fletcher, Phil Freeman, Gregg Gibson, Vance Maultsby, Edward Rhyne,
Howe Wallace, representatives of Batchelder, and a representative of Baker
Botts also participated in the meeting. A representative of Baker Botts
summarized the directors' fiduciary obligations in considering the merger
agreement. The board of directors considered the draft merger agreement and the
delivery of Batchelder's opinion dated March 28, 1999. Edward Rhyne and the
representatives of Batchelder discussed the terms of the draft merger agreement
in detail for the directors. After a detailed discussion by the directors, the
board of directors unanimously approved the merger agreement.
During the meetings and negotiations held on March 22-29, 1999, the parties
agreed to make various changes to the proposed merger agreement, including
adding or providing for:
. IFCO International and MTS as parties;
. IFCO Systems as a prospective party;
. description of proposed transaction with GE Capital and GE Erste;
. refinement of merger consideration calculation, including introduction
of PalEx 1999 performance as an element in the calculation;
. post-merger corporate governance;
. extension of representations and warranties to cover IFCO International,
MTS, and IFCO Systems in addition to IFCO Europe;
. voting agreement requirement;
. restrictions on share transfers by PalEx insiders;
. grant of IFCO Systems options based on outstanding PalEx stock options
to be converted in the merger;
. fixing a pre-IPO combined company valuation condition at $390 million;
and
. payment of a termination fees in specified situations.
At the continuing meetings in New York City, PalEx and the IFCO Companies and
their representatives completed the negotiation of the merger agreement. The
merger agreement was signed on March 29, 1999, and PalEx and the IFCO Companies
issued a joint press release on March 30, 1999, to announce the transaction.
Following execution of the merger agreement, King & Spalding engaged Dutch
legal counsel on behalf of the IFCO Companies. King & Spalding asked Dutch
legal counsel to review the merger agreement for compliance with Dutch law,
since it provided for IFCO Systems to be a Dutch company. Based on advice from
Dutch counsel, Gardere & Wynne and King & Spalding prepared a draft of an
amended and restated merger
28
<PAGE>
agreement to include necessary changes under Dutch law and make other,
technical corrections to the merger agreement. None of the revisions changed
the basic structure of the transaction.
During the process of preparing the proxy statement/prospectus,
representatives of Schoeller Industries and PalEx continued to discuss the
transaction and its structure.
On August 27, 1999, the PalEx board of directors held a telephonic meeting to
discuss the status of the merger. Casey Fletcher, Philip Freeman, Vance
Maultsby, Edward Rhyne, a representative of Batchelder, and a representative of
Gardere & Wynne also participated in the telephonic meeting. The directors
discussed delays in the transaction, which included a longer than expected
period to complete the conversion of the IFCO Companies' financial statements
to U.S. GAAP and to complete audit work, continuing negotiations by the IFCO
Companies for purchase of the minority interest in IFCO U.S., and delays with
respect to the proposed listing on the Neuer Markt. Preliminary meetings
between IFCO Systems and Neuer Markt officials indicated the need for further
information and presentations and that IFCO Systems' industry and business
might not be considered sufficiently technology-driven for purposes of the
Neuer Markt. As a result, IFCO Systems believed that obtaining a Neuer Markt
listing would be a longer process than originally thought, if a listing could
be obtained given the Neuer Markt's industry and business profile. The
directors believed these delays created the increasing likelihood that the
merger could not be completed by December 31, 1999, which was a condition to
the transaction under the original merger agreement. The directors also
received information (1) about the current performance of the stock of Neuer
Markt listed companies and (2) with respect to the characteristics and
valuations of companies listed on other trading segments of the Frankfurt Stock
Exchange if a Neuer Markt listing could not be obtained or was determined not
to be the best market for the IFCO Systems ordinary shares. The directors were
informed that the IFCO Systems ordinary shares could be listed on the other
segments of the Frankfurt Stock Exchange with greater certainty within the
desired time frame. Management then discussed with the board of directors the
need for additional capital to be used for capital expenditures and growth in
operations. The board of directors directed management to convey to Christoph
and Martin Schoeller its concern about being able to complete the transaction
in 1999 and the implications if the IFCO Systems ordinary shares were listed on
a trading segment of the Frankfurt Stock Exchange other than the Neuer Markt.
The board of directors also determined to meet in person the following week in
New York City, where discussions relating to the transaction were being held
with the Schoellers' representatives.
On September 2, 1999, the PalEx board of directors met in New York City to
obtain a further update about the merger and related matters. Casey Fletcher,
Philip Freeman, Gregg Gibson, Ted Grubbs (PalEx's Controller), Vance Maultsby,
Edward Rhyne, Howe Wallace, and a representative of Batchelder also attended
the meeting. The board of directors concluded that it was unlikely that the
merger could be completed by December 31, 1999, and that it was uncertain
whether the IFCO Systems ordinary shares would be approved for listing on the
Neuer Markt within a reasonable time. Because of the delay into 2000 and the
uncertainty of a Neuer Markt listing, the directors agreed that it was
necessary for management to focus on PalEx's interim capital requirements. By
the time of the meeting, negotiations with the IFCO Companies had been
proceeding for over a year. During that period, PalEx had delayed its own
additional financing efforts. The effect was a limitation on funds available
for capital expenditures and other growth, except for availability under
PalEx's senior credit facility. The directors believed that additional capital,
beyond the then current availability under the senior credit facility, was
needed to permit continued growth of PalEx's operations in the fourth quarter
of 1999 and the first quarter of 2000. The board of directors also determined
that, because of the uncertainties and delays in the Neuer Markt listing
process, it was advisable to proceed with a listing of the IFCO Systems
ordinary shares on the Amtlicher Handel segment of the Frankfurt Stock
Exchange. Batchelder made a presentation to the board of directors about the
structure of the Amtlicher Handel, its listing requirements, and company
performance and trading multiples on the trading segment. As a result of these
determinations, the board of directors believed it was prudent to delay the
initial filing of the proxy statement/prospectus with the SEC and to discuss a
restructuring of the transaction with the Schoellers.
Following this meeting of the board of directors, Sam Humphreys and Vance
Maultsby had discussions with Christoph and Martin Schoeller regarding the
transaction. On September 14, 1999, Sam Humphreys and
29
<PAGE>
Vance Maultsby met with Christoph and Martin Schoeller in New York City to
discuss the merger status and its structure. Mr. Humphreys advised the
Schoellers of PalEx's concerns about the uncertainty of a Neuer Markt listing
of the IFCO Systems ordinary shares, the recent performance of Neuer Markt
shares, and the inability to complete the transaction in 1999. Mr. Humphreys
also discussed PalEx's need to address its financing issues and extend the
maturity of its senior credit facility.
As a result of these concerns, Mr. Humphreys informed the Schoellers that
PalEx's board of directors believed that the consideration to be received by
PalEx stockholders needed to be modified. Mr. Humphreys informed the Schoellers
of the board of directors' belief that PalEx's stockholders should receive 40%
of the stock of IFCO Systems outstanding immediately before the IPO. The
Schoellers countered by suggesting the consideration in the merger be changed
to provide PalEx's stockholders with consideration with a defined value of
$9.00 per share. The Schoellers believed this change would address the concerns
about the value of the interest in IFCO Systems received by PalEx stockholders
in the merger. In addition, the Schoellers offered to pay up to 50% of the
merger consideration in cash to address any immediate liquidity concerns of
PalEx's stockholders and concerns about the valuation of the IFCO Systems
ordinary shares to be issued in the transaction. Based on these discussions,
representatives of PalEx prepared a term sheet reflecting a revised transaction
structure and provided it to Christoph and Martin Schoeller on September 17,
1999. On September 19, 1999, Sam Humphreys, Vance Maultsby, and Edward Rhyne
had a conference call with Christoph and Martin Schoeller to discuss the terms
for a revised transaction structure to be presented to PalEx's board of
directors, which included, among other things, merger consideration in cash
and/or IFCO Systems ordinary shares with a total value of $9.00 for each share
of PalEx common stock, the removal of a Neuer Markt listing as a condition to
the transaction, securing interim financing for PalEx, and a new deadline of
May 31, 2000, for completing the merger. The parties also discussed the form of
consideration to be received by PalEx's stockholders, including:
. the requirement that the merger qualify as a tax-free reorganization to
PalEx's stockholders;
. the liquidity provided by a cash component;
. the likelihood of large PalEx stockholders being required by the IPO
underwriters to agree to hold their shares for an extended period after
the IPO; and
. the belief that many PalEx stockholders would desire to receive a larger
percentage of the consideration in the form of IFCO Systems ordinary
shares.
After further discussion, the parties agreed in principle that PalEx
stockholders would be able to receive IFCO Systems stock and/or cash in
exchange for their PalEx stock. They also agreed in principle for the total
consideration to be paid to PalEx's stockholders to be comprised of not less
than 40% cash and not less than 51% stock in IFCO Systems.
On September 20, 1999, the PalEx board of directors held a telephonic meeting
to discuss the revised transaction terms that had been discussed with the
Schoellers and to receive an update from PalEx's management regarding the
efforts to obtain interim financing. Casey Fletcher, Philip Freeman, Gregg
Gibson, Vance Maultsby, Edward Rhyne, Howe Wallace, a representative of
Batchelder, and a representative of Gardere & Wynne also participated in the
meeting. The board of directors authorized management to continue negotiations
with the Schoellers, proceed with preparation and negotiation of an amended and
restated merger agreement reflecting the new terms, and continue discussions
with of interim financing sources.
On September 22, 1999, Gardere & Wynne distributed a new draft of an amended
and restated merger agreement to King & Spalding reflecting the new terms.
Representatives of PalEx, Gardere & Wynne, and King & Spalding then met by
telephone on several occasions to finalize the wording of provisions of the
amended and restated merger agreement. These meetings primarily focused on
revising the language of the merger consideration provisions to reflect
accurately the new terms and to implement the election procedures, as well as
miscellaneous agreed changes consistent with the new terms.
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<PAGE>
On September 27, 1999, Edward Rhyne and the Schoellers negotiated open
business terms of the transaction during several conference calls. One of the
principal open items was whether the merger consideration should be fixed at
$9.00 per share or variable. The other principal open item was the issuance of
stock options to IFCO Systems personnel at the time of the merger. The parties
ultimately determined that the plan in the original merger agreement for
similar stock options to, and in proportionately the same numbers as, the
outstanding PalEx options to be converted in the merger was not workable. As a
substitute, the parties agreed that at the effective time of the merger IFCO
Systems would issue 300,000 options to each of the Schoellers and up to
1,000,000 options to employees of Schoeller Industries and its affiliates.
Later on September 27, 1999, the PalEx board of directors held another
telephonic meeting. Casey Fletcher, Philip Freeman, Edward Rhyne, Vance
Maultsby, Howe Wallace, a representative of Batchelder, and a representative of
Gardere & Wynne also participated in the meeting. The board of directors
received an update from management regarding the negotiation of the amended and
restated merger agreement. Management indicated that no material issues
remained outstanding with respect to the terms of the merger agreement.
Management also informed the board of directors that discussions were
continuing with possible sources of interim financing and the lenders in
PalEx's senior credit facility, but that nothing had been finalized. Finally,
Batchelder summarized its analysis of the revised merger structure and the
merger consideration proposed to be received by PalEx stockholders. A copy of
the analysis was sent to the directors after the meeting. Batchelder informed
the board of directors that it was issuing a new fairness opinion as of the
date of the meeting. The new fairness opinion reflected the revised terms of
the transaction and concluded that the merger consideration was fair to PalEx
stockholders from a financial point of view. Batchelder also formally withdrew
its original fairness opinion. Based upon this information and subject to
obtaining a commitment for interim financing, the board of directors
unanimously approved the amended and restated merger agreement.
The principal differences between the revised terms of the transaction and
the transaction addressed by Batchelder in its original fairness opinion are
highlighted in the following table:
<TABLE>
<CAPTION>
Original Revised
-------- -------
<S> <C>
. merger consideration of 32%-35% of IFCO . merger consideration with a fixed total
Systems ordinary shares depending on the value of $9.00 per share
trading prices after the IPO
. merger consideration in IFCO Systems . merger consideration in cash and/or IFCO
ordinary shares Systems ordinary shares per elections
. requirement for listing of IFCO Systems . requirement for listing of IFCO Systems
ordinary shares on the Neuer Markt ordinary shares on the Amtlicher Handel
segment of the Frankfurt Stock Exchange or Neuer
Markt segments of the Frankfurt Stock
Exchange
. IFCO Systems to issue stock options to . IFCO Systems to issue stock options for
IFCO Systems management on the vesting the purchase of 300,000 IFCO Systems
and exercise price terms equivalent to ordinary
the outstanding PalEx stock options and shares to each of the Schoellers and
in a number proportionate to the options to purchase up to 1,000,000
Schoellers' 68%-65% ownership shares to employees of Schoeller
Industries and its affiliates
. Pre-IPO combined company valuation of . Pre-IPO combined company valuation of
not less than $390.0 million not less than $400.0 million
. December 31, 1999, termination date . May 31, 2000, termination date
</TABLE>
Following the September 27 board meeting, Vance Maultsby continued to
negotiate interim financing.
On September 28, 1999, representatives of the IFCO Companies and PalEx began
meeting in Houston, Texas, to complete negotiation of the amended and restated
merger agreement and revise the draft proxy statement/prospectus to reflect the
revised transaction terms.
31
<PAGE>
On October 4, 1999, the PalEx board of directors held another telephonic
meeting. Casey Fletcher, Philip Freeman, Gregg Gibson, Vance Maultsby, Edward
Rhyne, Howe Wallace, a representative of Batchelder, and a representative of
Gardere & Wynne also participated in the meeting. Vance Maultsby gave the
directors an update on the progress in obtaining interim financing. Mr.
Maultsby indicated that negotiations were continuing. The directors discussed
the desirability of adding a condition or a termination right to the merger
agreement with respect to obtaining the desired interim financing and any
necessary restructuring of PalEx's senior credit facility. The board of
directors confirmed approval of the amended and restated merger agreement on
that basis.
Following this meeting, representatives of Gardere & Wynne and King &
Spalding continued negotiation and preparation of the final terms of the
amended and restated merger agreement.
The amended and restated merger agreement was signed on October 6, 1999, and
PalEx and the IFCO Companies issued a joint press release on October 6, 1999,
to announce the revised terms of the transaction.
On January 31, 2000, IFCO Systems, PalEx, and the other parties to the merger
agreement executed amendment no. 1 to the merger agreement to provide for
technical corrections and to modify the corporate governance provisions to
provide for a single board of directors.
PalEx's Reasons for the Merger
The PalEx board of directors has unanimously approved the merger. During the
period of negotiations and various meetings of the board of directors, the
board of directors carefully considered a number of factors, including the
following material factors in favor of the merger:
(1) Financial Condition and Results of Operations. The PalEx board of
directors reviewed the historical and current financial condition, results
of operations, prospects, and businesses of PalEx and the IFCO Companies
before and after giving effect to the merger. The PalEx board of directors
determined that the combined company would have greater growth
opportunities than either of the separate companies.
(2) Market Prices. The PalEx board of directors reviewed the market
conditions and then current and historic market prices for the PalEx common
stock.
(3) Merger Consideration. The merger agreement is the result of arm's-
length negotiations between PalEx and Schoeller Industries and the
Schoellers and provides for the payment of cash and/or the issuance of IFCO
Systems ordinary shares in exchange for shares of PalEx common stock. PalEx
stockholders will receive a total value of $9.00 per share of PalEx Common
Stock in the form of cash and/or IFCO Systems ordinary shares valued at the
IPO price. The merger consideration represented a premium over the recent
market price per share of the PalEx common stock.
(4) Strategic Business Combination. The PalEx board of directors believes
that the merger will provide PalEx stockholders with cash and/or an
attractive investment in a combined company with growth opportunities that
will be uniquely positioned to provide global product flow technologies and
systems based upon a successful business model for RTCs in Europe and for
pallets and industrial containers in the United States.
(5) Growth Opportunities. The potential for expansion in the United
States of the IFCO Companies' fast-growing business using PalEx's extensive
North American network of locations gives the combined company significant
growth opportunities in global product flow technologies and systems.
(6) Need for Additional Capital. The PalEx board of directors believes it
will be easier for the combined company to raise capital than for PalEx
alone.
(7) Expanded Customer and Retailer Relationships. The merger is expected
to give both PalEx and the IFCO Companies access to the other party's
extensive customer and retailer relationships. The PalEx board of directors
believes the merger will present significant opportunities for cross-
selling among the combined company's businesses. These opportunities
include the expansion of the IFCO Companies' business in the United States
and the improvement of PalEx's relationships in the United States with
global retailers who already participate in the IFCO Companies' systems in
Europe and elsewhere.
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<PAGE>
(8) Operational Experience. The IFCO Companies operate a pooling system
for RTCs with experienced management in Europe. This operational expertise
and experience can be used to assist PalEx in the expansion of its shipping
platform and container management services and in offering RTC services to
U.S. customers and retailers.
(9) Competitive Strengths. The combination of the IFCO Companies and
PalEx will make the combined company stronger competitively than the two
groups separately. The merger may also make the combined company a larger
potential threat to competitors, who may increase their market activities
to combat the threat.
(10) Management. The merger brings together two experienced management
teams with entrepreneurial cultures.
(11) Fairness Opinion. Representatives of Batchelder made a presentation
to the PalEx board of directors on September 27, 1999, regarding valuation.
Batchelder delivered its opinion to the board of directors that, as of
September 27, 1999, the consideration to be received by PalEx stockholders
in the merger is fair to the PalEx stockholders from a financial point of
view.
(12) Tax-Free Transaction. The PalEx board of directors expects that the
merger will qualify as a tax-free reorganization. PalEx stockholders will
recognize gain, if any, on the merger only to the extent of the cash
received as merger consideration.
(13) Due Diligence Review. The PalEx board of directors reviewed the
results of the due diligence investigation of the IFCO Companies conducted
by PalEx's management and representatives.
In reviewing the proposed merger, the PalEx board of directors also
considered other factors, some of which may be viewed as negative with respect
to the merger:
(1) Limits on Merger Consideration. The merger agreement limits the
merger consideration to $9.00 per share and limits the total number of IFCO
Systems ordinary shares that may be issued to PalEx stockholders.
(2) Need for Additional Capital. In order to realize the growth potential
for the combined company, IFCO Systems will need to access a substantial
amount of additional capital beyond the anticipated net proceeds from the
IPO. This is likely to include the use of debt for borrowed money at the
time of the IPO and afterward.
(3) Projected Capital Needs in Excess of Cash Flows through
2003. Projections for the combined company showed capital needs greater
than cash flows from operations through the first three years, which places
additional pressure on IFCO Systems to secure additional capital.
(4) Relatively High Leverage. As a result of the high yield financing and
initial borrowings under a new senior credit facility at the time of the
merger and the IPO, IFCO Systems will have relatively high leverage. The
level of leverage is likely to increase as IFCO Systems reissues additional
amounts under the new senior credit facility or seeks other debt financing
to meet its capital needs.
(5) Implementation of IFCO Systems' Business Plan. The strategic benefits
of the merger and growth opportunities for the combined company will be
realized only if IFCO Systems is able to achieve its business plan,
including successful implementation of its European model of round-trip
systems in the United States and elsewhere. In addition, although the IFCO
Companies have substantial internal growth capability, they have not yet
achieved sustained profitability, which will be necessary to maintain and
increase long-term shareholder value.
(6) Dependence on Favorable Frankfurt Stock Exchange Valuation and
Completion of the IPO. The merger is conditioned upon a favorable
valuation of the combined company and completion of the IPO. It may not be
possible to obtain the required valuation or to complete the IPO.
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<PAGE>
(7) Control by Schoellers. Before and after the IPO, Christoph and Martin
Schoeller will effectively control IFCO Systems, even after any conversion
by GE Erste of its convertible debenture and will hold management
positions. As a result, the Schoellers will have substantial influence over
the affairs of IFCO Systems through their share ownership, the election of
members of the board of directors, as the principal supplier of RTCs, and
otherwise. Neither Christoph nor Martin Schoeller has previously led a
public company.
(8) Dependence on Consolidating Retail Base. The retail market served by
the IFCO Companies in Europe, including the grocery segment, is
consolidating and, therefore, the number of retailer groups is decreasing.
There is a similar trend in the United States. Given the IFCO Companies'
experience in Europe and continued successful relationships with retailer
groups, the PalEx board of directors determined this factor was not
material.
(9) Negative Cash Flow from IFCO Japan. IFCO International is a minority
owner of IFCO Japan, which is still in its startup phase of operation and
is currently generating negative cash flow. The PalEx board of directors
determined that this factor was not material since negative cash flow was
to be expected initially and because of the minority ownership.
In view of the wide variety of factors considered in its evaluation of the
merger, the PalEx board of directors did not find it practicable to attempt to
quantify, rank, or otherwise assign relative weights to specific factors
considered in reaching its decision. The PalEx board of directors reached a
general consensus that the merger was in the best interests of PalEx and the
PalEx stockholders. In considering these factors, individual members of the
board of directors may have given different weight to different factors.
IFCO Companies' Reasons for the Merger
The IFCO Companies' management boards have unanimously determined that the
merger is fair to and in the best interests of the IFCO Companies and its
shareholders. The material factors taken into account by IFCO Companies'
management boards in reaching their conclusions and formulating their
recommendation are set forth below:
. IFCO Systems could accelerate the roll-out of the IFCO Companies'
existing early-stage round-trip systems in the United States. The merger
with PalEx should enable the IFCO Companies to expand more rapidly using
PalEx's existing infrastructure of 72 facilities in the United States
and Canada.
. A combination of the flow of pallets and containers is expected to
unlock a significant cost-saving potential for the IFCO Companies and
their customers.
. IFCO Systems will be uniquely positioned to offer customers complete
backdock services, which includes initial product receiving and
container or pallet disposition operations on a retailer's back dock.
Having considered these advantages, the IFCO Companies' management boards
determined that a combination with PalEx represented a unique strategic
opportunity for the IFCO Companies and their shareholders, who could continue
to participate as shareholders in the combined company.
Projections for PalEx and the IFCO Companies
The following sets forth financial information and projections provided by
each of PalEx and the IFCO Companies to the other party for the fiscal years
ending December 31, 2000 through 2002. Each of PalEx and the IFCO Companies
developed their financial projections based on their best estimates of the
expected future performance at the time the projections were prepared. These
projections could change and are not necessarily indicative of the actual
performance at the time of the merger and the IPO, or the actual future
performance after the merger and the IPO, of PalEx, the IFCO Companies, or IFCO
Systems.
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<PAGE>
Neither IFCO Systems, PalEx, nor the IFCO Companies publicly disclose
financial projections in the ordinary course and do not intend to publish any
financial projections in the future. The following projections were not
prepared with a view to public disclosure. The projections were delivered to
PalEx's and the IFCO Companies' management in connection with each party's due
diligence investigation of the other party and preparation for the IPO. These
projections also were not prepared in accordance with generally accepted
accounting principles. Neither PalEx's nor the IFCO Companies' independent
accountants have examined, reviewed, or compiled any of the following
projections or expressed any conclusion or provided any other form of assurance
with respect to the projections and, accordingly, assume no responsibility for
the projections. These projections were not prepared with a view to compliance
with the guidelines established by the American Institute of Certified Public
Accountants regarding projections, which would require more complete
presentation of data than as shown below.
<TABLE>
<CAPTION>
PalEx (in millions):
2000 2001 2002
---- ---- ----
<S> <C> <C> <C>
Revenues.................................................. $421 $540 $670
EBITDA.................................................... $ 47 $ 63 $ 87
EBIT...................................................... $ 32 $ 42 $ 60
Net income................................................ $ 7 $ 9 $ 16
<CAPTION>
IFCO Companies (in millions):
2000 2001 2002
---- ---- ----
<S> <C> <C> <C>
Revenues.................................................. $199 $266 $340
EBITDA.................................................... $ 57 $ 74 $ 98
EBIT...................................................... $ 21 $ 27 $ 37
Net income................................................ $ 6 $ 10 $ 14
</TABLE>
Recommendation of the PalEx Board of Directors
The PalEx board of directors unanimously recommends that PalEx stockholders
vote for the approval and adoption of the merger agreement.
Opinion of PalEx's Financial Advisor
The PalEx board of directors retained Batchelder & Partners, Inc., to act as
a financial advisor to PalEx and the PalEx board of directors in connection
with the merger. The terms of the merger agreement, including the merger
consideration, were determined through negotiations between PalEx and the IFCO
Companies. Batchelder did not recommend the amount of consideration to be paid
to PalEx stockholders. Batchelder was retained based upon its experience and
expertise in transactions similar to the merger and its reputation in the
investment community. Batchelder is a nationally recognized investment banking
and financial advisory firm and, as part of its investment banking activities,
is regularly engaged in the valuation of businesses and their securities in
connection with merger transactions and other types of acquisitions,
dispositions, business combinations, private placements, and valuations for
corporate and other purposes.
At the September 27, 1999, meeting of the PalEx board of directors,
Batchelder delivered a presentation and oral fairness opinion to the PalEx
board of directors. Batchelder subsequently confirmed this opinion in writing
as of that date and has consented to the inclusion of this opinion, its
summary, and all references to Batchelder in this proxy statement/prospectus.
The opinion stated that, subject to the considerations set forth in its written
opinion, the consideration to be received by the holders of PalEx common stock
pursuant to the merger was fair to the holders of PalEx common stock from a
financial point of view. No limitations were imposed by PalEx on Batchelder
with respect to the investigations made or procedures followed in rendering its
opinion. However, Batchelder was not retained or requested to consider any
strategic or financial alternatives to the merger or to seek indications of
interest from other potential buyers in connection with rendering its opinion.
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<PAGE>
The full text of Batchelder's opinion, dated September 27, 1999, which sets
forth the qualifications, assumptions made, matters considered, limitations on
the review undertaken in connection with the opinion, and circumstances where
the opinion should not be relied upon, is attached as Appendix B to this proxy
statement/prospectus and is incorporated by reference. Some of these
assumptions relate to future market conditions and other matters beyond the
control or influence of PalEx or IFCO Systems. Batchelder's original fairness
opinion presented to the PalEx board, dated March 28, 1999, was withdrawn as of
September 27, 1999, due to the material modifications made to the merger
agreement after the date of the original opinion.
The summary of Batchelder's opinion in this proxy statement/prospectus is
qualified in its entirety by the full text of its written opinion. PalEx urges
you to read the full written opinion carefully.
Batchelder's opinion does not constitute a recommendation to any holder of
PalEx common stock as to whether the stockholder should vote for or against the
merger agreement. Batchelder's opinion addresses only the financial fairness of
the merger consideration to be received by the stockholders of PalEx as of
September 27, 1999, and does not address any other aspect of the merger.
Batchelder's opinion states that it is not a report or valuation within the
meaning of Section 11 of the Securities Act, and Batchelder has not assumed
responsibility under the terms of its engagement for performing the level of
diligence or independent verification that would be required for Batchelder to
render a report or valuation within the meaning of the applicable provisions of
the Securities Act.
In connection with its opinion, Batchelder, among other things:
.reviewed publicly available and internal financial and other data of PalEx
and the IFCO Companies;
. reviewed the audited financial statements of PalEx for the years ended
November 30, 1996, December 28, 1997 and December 27, 1998, and
quarterly unaudited 1999 financial statements through June 27,1999, all
as filed with the SEC;
. reviewed the audited financial statements of the IFCO Companies for the
years ended December 31, 1996, 1997 and 1998, and internally generated,
unaudited financial statements of the IFCO Companies for interim
quarters through June 30, 1999;
. reviewed the financial terms and conditions of a draft amended and
restated merger agreement provided on September 24, 1999;
. reviewed publicly available information concerning the trading of, and
the trading market for, PalEx common stock;
. reviewed with investment bankers knowledgeable of the Frankfurt Stock
Exchange, who were identified to Batchelder by the IFCO Companies and by
PalEx, publicly available information concerning the trading market for
stocks listed on the Frankfurt Stock Exchange and estimates of implied
value ranges for the IFCO Systems ordinary shares;
. compared PalEx and IFCO Systems from a financial point of view with
other comparable companies in the materials handling and packaging and
logistics industries;
. considered the financial terms, as they relate to PalEx and to the
extent publicly available, of comparable recent business combinations of
companies in the materials handling and packaging industry;
. discussed with PalEx's management the prospects for, and business
challenges facing, PalEx without the merger;
. reviewed and discussed with management representatives of PalEx and the
IFCO Companies business and financial information regarding PalEx and
the IFCO Companies furnished to Batchelder, including financial
forecasts and related assumptions of PalEx and the IFCO Companies and
the operating synergies and strategic benefits they expect to result
from the merger;
. made inquires regarding, and discussed, the merger and the merger
agreement and other related matters with PalEx's legal counsel; and
. performed other analyses and examinations as Batchelder deemed
appropriate.
36
<PAGE>
In connection with its review, Batchelder did not assume any obligation to
verify independently this information and relied on its accuracy and
completeness in all material respects. With respect to the financial forecasts
provided to Batchelder by the managements of PalEx and the IFCO Companies,
including projections of synergies, Batchelder assumed that:
(1) the forecasts were reasonably prepared on bases reflecting the best
available estimates and judgments as to the future financial
performance of PalEx and the IFCO Companies;
(2) PalEx and the IFCO Companies will perform substantially in accordance
with these projections; and
(3) these projections provide a reasonable basis upon which Batchelder can
form its opinion.
With respect to the operating synergies and strategic benefits expected by
PalEx's management to result from the merger, PalEx advised Batchelder to
assume that these synergies and benefits will be substantially achieved.
Batchelder also assumed that there had been no material changes in PalEx's or
the IFCO Companies' assets, financial condition, results of operations,
business, or prospects since the dates of their last financial statements made
available to Batchelder. The managements of PalEx and the IFCO Companies
advised Batchelder, and Batchelder assumed, that they were not aware of any
facts or circumstances that would make the information reviewed by Batchelder
inaccurate or misleading in any material respect.
Batchelder relied on advice of PalEx's legal counsel and independent
accountants as to all legal and financial reporting matters with respect to
PalEx, the merger, and the merger agreement. Batchelder assumed that the merger
will be treated as a purchase of PalEx under Accounting Principles Board
Opinion No. 16 and that the merger will be treated as a tax-free reorganization
within the meaning of Section 368 of the U.S. Internal Revenue Code. Batchelder
also assumed that the merger will be completed in a manner that complies in all
respects with the applicable provisions of the Securities Act, the Securities
Exchange Act, and all other applicable federal and state statutes, rules, and
regulations, including applicable laws of Germany and the Netherlands.
In addition, Batchelder did not make an independent evaluation, appraisal, or
physical inspection of any of the assets or liabilities of PalEx or the IFCO
Companies, nor has Batchelder been furnished with any appraisals.
Batchelder's opinion is based on economic, monetary and currency exchange,
Nasdaq National Market and Frankfurt Stock Exchange, and other conditions as in
effect on, and the information made available to Batchelder as of, September
27, 1999. The opinion should not be relied upon if future facts and
circumstances are inconsistent with Batchelder's assumptions and, if
Batchelder's assumptions are not supported by facts and circumstances at the
time of the special meeting to vote on the merger agreement, Batchelder
reserves the right, and it would expect, to withdraw the opinion. Although
subsequent developments may affect its opinion, and except to the extent
provided below, Batchelder did not assume any obligation to update, revise, or
reaffirm its opinion.
Batchelder further assumed that the representations and warranties of each
party in the merger agreement are true and correct, that each party to the
merger agreement will perform all of the covenants and agreements required to
be performed by that party under the merger agreement, and that the merger will
be completed in accordance with the terms described in the merger agreement,
without any further amendment, and without waiver by PalEx of any of the
conditions to its obligations. Batchelder also assumed that in the course of
obtaining the necessary regulatory or other consents or approvals, contractual
or otherwise, for the merger, no restrictions, amendments, or modifications
will be imposed that will have a material adverse effect on the contemplated
benefits of the merger.
Batchelder expressed no opinion regarding the likelihood that IFCO Systems
will complete the IPO or the price at which the IFCO Systems ordinary shares
may trade at any time. However, because the value of the merger consideration
will depend upon whether the IPO occurs and its pricing, in order to deliver
its opinion as of September 27, 1999, Batchelder, at PalEx's instruction,
assumed for purposes of its opinion
37
<PAGE>
that concurrently with or immediately after the merger, IFCO Systems will
complete an IPO of sufficient size so that (1) an active and liquid trading
market in IFCO Systems ordinary shares will exist and (2) investment analysts
would cover IFCO Systems in their regular reports. Batchelder was unable to
assess the reasonableness of assumptions for any date after September 27, 1999,
related to initial public offerings for, and the trading of securities listed
on, the Frankfurt Stock Exchange and euro to U.S. dollar exchange rates, all of
which depend upon factors beyond any control or influence of the IFCO Companies
and PalEx. Batchelder's opinion should not be relied upon if future facts and
circumstances are inconsistent with its assumptions. If Batchelder's
assumptions are not supported by facts and circumstances at the time of the
special meeting of PalEx's stockholders, Batchelder reserves the right, and it
would expect, to withdraw its opinion.
Additionally, the market value of the merger consideration received in the
merger can be expected to change after completion of the merger as the trading
price of the IFCO Systems ordinary shares changes in the ordinary course or
otherwise of purchases and sales in the open market.
The following is a summary of the report presented by Batchelder to the PalEx
board of directors on September 27, 1999, in connection with its opinion dated
as of that date.
Comparable Public Company Analysis. Batchelder reviewed the trading multiples
of companies comparable to PalEx to assess the valuation of PalEx assuming it
traded at the mean or median multiples of its peers. Using public and other
information provided by PalEx, Batchelder calculated a range of implied values
for PalEx common stock based on a comparison of the last 12 months' revenues,
last 12 months' EBITDA, last 12 months' EBIT, last 12 months' net income, and
estimated 1999 net income of the following 16 publicly traded comparable
materials handling and packaging companies and 10 publicly traded comparable
logistics and transportation companies:
Comparable Materials Handling and Packaging Companies
. AEP Industries, Inc. . Ivex Packaging Corporation
. Artra Group, Inc. . Mobile Mini, Inc.
. Ball Corporation . Myers Industries, Inc.
. Bemis Co. . Owens-Illinois, Inc.
. BWAY Corporation . Silgan Holdings, Inc.
. Carmel Container Systems . Sonoco Products Company
. Crown Cork & Seal Company . Tuscarora Incorporated
. Greif Bros. Corporation . U.S. Can Corporation
Comparable Logistics and Transportation Companies
. Air Express International Corp. . Expeditors International of
. C.H. Robinson Worldwide, Inc. Washington
. Circle International Croup, Inc. . Fritz Companies, Inc.
. Corporate Express, Inc. . Hub Group, Inc.
. Eagle USA Airfreight, Inc. . Rollins Truck Leasing Corp.
. Ryder Systems, Inc.
The September 23, 1999, stock prices of the comparable companies resulted in
the following mean and median multiples of (1) aggregate value, which is
defined as equity value plus long-term debt, and (2) equity value:
<TABLE>
<CAPTION>
Mean Median
Multiple Multiple
-------- --------
<S> <C> <C>
Aggregate value/last 12 months' revenues................... 1.1x 0.8x
Aggregate value/last 12 months' EBITDA..................... 8.4x 6.9x
Aggregate value/last 12 months' EBIT....................... 14.2x 11.3x
Equity value/last 12 months' net income.................... 23.8x 16.9x
Equity value/1999 net income............................... 16.4x 14.6x
</TABLE>
38
<PAGE>
Batchelder applied the mean and median multiples for the comparable companies
to PalEx's applicable last twelve months' results as of June 30, 1999, and 1999
forecasts, and made adjustments by subtracting PalEx's long-term debt as of
June 30, 1999 ($143 million), where applicable, to determine the implied equity
value of PalEx. The resulting range of values for the implied equity value of
PalEx was $98 million to $249 million. Batchelder gave more weight to the
multiples of reported EBITDA, EBIT, and net income in this analysis. This
analysis indicated an implied equity value, which is defined as aggregate value
minus long-term debt, of PalEx of between $142.1 million and $182.7 million, or
between $7.00 and $9.00 per share of PalEx common stock. This value range was
on the low- to mid-end of the value that Batchelder assessed.
Comparable Transaction Analysis. In order to estimate the value per share of
PalEx common stock assuming PalEx were sold, Batchelder reviewed the
consideration paid in six merger and acquisition transactions in the packaging
and industrial container industry announced since January 1997. Batchelder
analyzed the consideration paid in these transactions as a multiple of (1)
aggregate value to the target companies' last 12 months' revenues, last 12
months' EBITDA, and last 12 months' EBIT and (2) equity value to the target
companies' last 12 months' net income. This analysis yielded the following mean
and median multiples:
<TABLE>
<CAPTION>
Mean Median
Multiple Multiple
-------- --------
<S> <C> <C>
Aggregate value/last 12 months' revenues................... 0.7x 0.6x
Aggregate value/last 12 months' EBITDA..................... 9.7x 4.6x
Aggregate value/last 12 months' EBIT....................... 18.8x 13.0x
Equity value/last 12 months' net income.................... 32.8x 14.6x
</TABLE>
Batchelder then applied the mean and median multiples to PalEx's June 30,
1999, last 12 months' revenues, last 12 months' EBITDA, last 12 months' EBIT,
and last 12 months' net income. The resulting range of values for the implied
equity value of PalEx was $48 million to $358 million. Batchelder gave more
weight to the value calculations based on last 12 months' EBITDA and last 12
months' net income in this analysis. This analysis indicated an implied equity
value of PalEx of between $121.8 million and $223.3 million, or between $6.00
and $11.00 per share. This value range was consistent with the overall value
per share of PalEx common stock that Batchelder assessed, although with a wider
range.
Premiums Paid Analysis. Batchelder reviewed the consideration paid in 146
U.S. acquisitions involving consideration of between $100 million and $300
million announced since January 1, 1998, excluding technology and biotechnology
transactions. Batchelder performed this analysis in order to determine the
average premium to stock price that PalEx stockholders may expect upon a change
of control transaction. Batchelder calculated the premiums paid in these
transactions over the applicable stock prices of the target companies one day,
one week, and 30 days before the announcement of the acquisitions and then
calculated both the mean and the median of the premiums as follows:
<TABLE>
<CAPTION>
Mean Median
Premium Paid Premium Paid
------------ ------------
<S> <C> <C>
1 day.............................................. 29.3% 24.3%
1 week............................................. 34.5% 30.2%
30 days............................................ 42.4% 39.6%
</TABLE>
Batchelder then applied the mean and median premiums to PalEx's closing stock
prices one day ($5.88), one week ($5.46), and 30 days ($5.54) before September
24, 1999. Based on this analysis, an application of the mean and median
premiums to the September 24, 1999, closing stock price of PalEx's common stock
indicated an assessed equity valuation range of $162.4 million to $182.7
million, or between $8.00 and $9.00 per share. This value range was consistent
with the range per share of PalEx common stock that was assessed by Batchelder.
No company or transaction used in the comparable company analysis, the
comparable transaction analysis, or the premiums paid analysis is identical to
PalEx or the combined company resulting from the merger.
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<PAGE>
Accordingly, an evaluation of the results of these analyses is not simply a
mathematical calculation. It involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that could affect the public trading value of the
companies being analyzed.
Discounted Cash Flow Analysis. In order to calculate an estimate of the value
of PalEx from a cash flow perspective, Batchelder performed a discounted cash
flow analysis using the financial forecasts for PalEx for 2000 through 2008
supplied by PalEx's management. First, Batchelder considered management's
estimate of the future stream of free cash flows that PalEx would produce
through 2008 and then calculated a range of PalEx terminal values at the end of
2008 by applying a range of EBITDA exit multiples from 7.0x to 9.0x to PalEx's
estimated EBITDA in 2008. The cash flow stream and terminal values were
discounted to present values using discount rates ranging from 12.0% to 16.0%,
which were chosen to reflect reasonable ranges of PalEx's estimated cost of
capital. PalEx management advised Batchelder that PalEx as a stand-alone
company most likely could not economically raise, in the near future, capital
via the public equity markets. As a result, the range of discount rates used
incorporates returns on capital that would likely include required equity
returns from the private equity markets. This analysis indicated an implied
equity value of PalEx of between $142.1 million and $182.7 million, or between
$7.00 and $9.00 per share. This range is consistent with the overall value per
share of PalEx common stock that Batchelder assessed.
The summary above is not a comprehensive description of all analyses and
examinations actually conducted by Batchelder in the preparation of its
opinion. The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses and of the factors considered by Batchelder, without
considering all analyses and factors, would create an incomplete view of the
process underlying Batchelder's presentation to the PalEx board of directors.
In addition, Batchelder may have given some analyses more or less weight than
other analyses and may have deemed various assumptions more or less probable
than other assumptions. Accordingly, the ranges of valuations resulting from
any particular analysis described above should not be taken to be Batchelder's
or PalEx's view of the actual value of PalEx or the PalEx common stock. To the
contrary, Batchelder expressed no opinion on the actual value of PalEx, the
PalEx common stock, or the actual value of the merger consideration to be
received by PalEx stockholders in exchange for their PalEx common stock. Its
opinion, which is addressed and limited to the PalEx board of directors,
extends only to the opinion expressed by Batchelder that the value of the
merger consideration to holders of PalEx common stock, from a financial point
of view under the merger, based on facts and circumstances existing at the date
of the opinion and in reliance on material assumptions described in this
summary, is within the range of values that might fairly be ascribed to PalEx
common stock as of September 27, 1999, the date of Batchelder's opinion.
In performing its analyses, Batchelder made numerous assumptions with respect
to industry performance, general business and economic conditions, and other
matters, many of which are beyond the control of PalEx and the IFCO Companies.
The analyses performed by Batchelder are not necessarily indicative of actual
values or actual future results, which may be significantly more or less
favorable than those suggested by these analyses. The analyses do not purport
to be appraisals or to reflect the prices at which a company might actually be
sold or the prices at which any securities may trade at any time in the future.
Batchelder used in its analyses various projections of future performance
prepared by the managements of PalEx and the IFCO Companies. The projections
are based on numerous uncertain variables and assumptions that are inherently
unpredictable. Accordingly, actual results could vary significantly from those
assumed in these projections.
The opinion of Batchelder and the presentation to the PalEx board of
directors summarized above were among the many factors taken into consideration
by the PalEx board of directors in determining whether to approve and to
recommend that PalEx stockholders approve the merger. Batchelder, however, does
not make any recommendation to holders of PalEx common stock or to any other
person or entity as to whether the stockholders should vote for or against the
merger agreement. Batchelder's opinion did not address the relative merits of
the merger, any alternatives to the merger, or PalEx's underlying business
decision to proceed with or effect the merger.
40
<PAGE>
Pursuant to the terms of its engagement, PalEx paid Batchelder a fee of
$300,000 upon presentation of its original fairness opinion, which would have
been payable regardless of the conclusions of the opinion. In consideration of
the financial advisory services provided to PalEx in connection with the
merger, immediately before completion of the merger Batchelder will receive
200,000 shares of PalEx common stock, but only if the merger is completed. Upon
completion of the merger, Batchelder will also vest in 250,000 previously
issued warrants for PalEx common stock with an exercise price of $11.375 per
share. In the merger, the shares of PalEx common stock will be exchanged for
and converted into cash and/or IFCO Systems ordinary shares, as Batchelder may
elect pursuant to the merger agreement. The warrants will be converted to
warrants to purchase IFCO Systems ordinary shares pursuant to the merger
agreement. In addition, PalEx has agreed to reimburse Batchelder for its out-
of-pocket expenses and to indemnify Batchelder and related parties against
specified liabilities, including liabilities under the federal securities laws.
In the past, Batchelder has provided financial advisory and investment banking
services to PalEx and has received customary fees for the rendering of these
services. From the time Batchelder was retained in May 1998, Batchelder has
received $350,000 in retainer fees from PalEx in addition to the fee for the
fairness opinion. Pursuant to the engagement letter between Batchelder and
PalEx, Batchelder is expected to continue its financial advisory services until
April 30, 2000.
Interests of Certain Persons in the Merger
In considering the recommendation of the PalEx board of directors to approve
the merger, PalEx stockholders should be aware that the PalEx directors and
executive officers have interests in the merger, which are discussed below.
Stock Ownership. All directors and executive officers of PalEx are beneficial
owners of PalEx common stock. Pursuant to the merger agreement, shares of PalEx
common stock held by directors and executive officers of PalEx will be
exchanged for cash and/or IFCO Systems ordinary shares on the same basis as for
other PalEx stockholders.
Change of Control Agreements. PalEx has written employment agreements with
nine executive officers or directors:
. A. Joseph Cruz, President and Chief Operating Officer;
. Casey A. Fletcher, Chief Accounting Officer and Secretary;
. Troy L. Fraser, director;
. Phillip M. Freeman, Executive Vice President;
. A.E. Holland, Jr., director, and President of Ridge Pallets, Inc., a
wholly owned subsidiary of PalEx;
. Vance K. Maultsby, Jr., Chief Executive Officer;
. Edward E. Rhyne, Vice President and General Counsel;
. Stephen C. Sykes, director, and President of Interstate Pallet Co., Inc.,
a wholly owned subsidiary of PalEx; and
. Elliot S. Pearlman, director, and President and Chief Executive Officer
of PalEx Container Systems, Inc.
The employment agreements of Casey Fletcher, Troy Fraser, A.E. Holland, Vance
Maultsby, Edward Rhyne, and Stephen Sykes contain provisions concerning a
change in control of PalEx, including the following:
. in the event five days' advance notice of the transaction giving rise to
the change in control is not received by PalEx and the officer or
director, the change in control will be deemed a termination of the
employment agreement by PalEx without cause, and the provisions of the
employment agreement governing a termination without cause will apply,
except that the severance amount otherwise payable, which is the base
salary for the greater of a year or the remaining employment term, will
be tripled and the provisions that restrict competition with PalEx will
not apply;
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. in any change of control situation, the officer or director may elect to
terminate his employment by giving five days' written notice prior to
the anticipated closing of the transaction giving rise to the change in
control, which will be deemed a termination of the employment agreement
by PalEx without cause, and the provisions of the employment agreement
governing a termination without cause will apply, except that the
severance amount otherwise payable will be doubled and the time period
during which the officer or director is restricted from competing with
PalEx will be shortened to two years; and
. the officer or director must be given sufficient time and opportunity to
elect whether to exercise all or any of his options to purchase PalEx
common stock, including any options with accelerated vesting under the
provisions of the stock option plan, so that, if he desires, the officer
or director may acquire PalEx common stock at or prior to the closing of
the transaction giving rise to the change in control.
The merger will constitute a change of control under these employment
agreements. Under the merger agreement, PalEx has agreed to use its reasonable
efforts to cause these six executive officers or directors and the nine other
employees with this type of employment agreement to waive any rights of
termination and rights to receive severance or other payments from PalEx in
connection with a change of control resulting from the merger. The change of
control waivers are a condition to completion of the merger.
Stock Options. Pursuant to the merger agreement, each option to purchase
PalEx common stock that is outstanding at the effective time of the merger will
automatically convert into an option to purchase a number of IFCO Systems
ordinary shares. The number of IFCO Systems ordinary shares will be equal to
the number of shares of PalEx common stock that could have been purchased under
the converted option multiplied by the exchange ratio under the merger
agreement. Upon exercise, cash will be paid instead of any fractional IFCO
Systems ordinary share. The exercise price per share will be equal to the per
share exercise price of the converted option divided by the exchange ratio.
With respect to qualified or incentive stock options, the conversion will be
made in a manner consistent with the applicable provisions of the U.S. Internal
Revenue Code. PalEx optionholders will also be given the alternative of
electing to exchange their options for new, fully vested options, exercisable
at the IPO price, to purchase the number of IFCO Systems ordinary shares that
represents the economic equivalent of a straight conversion into options to
purchase IFCO Systems ordinary shares as described above.
The merger will be a change of control event under the terms of PalEx's stock
option plan. As a result, all of the outstanding stock options will be fully
vested at the effective time of the merger and at the time of conversion into
new options to purchase IFCO Systems ordinary shares.
IFCO Systems has agreed to maintain an effective registration statement under
the Securities Act to cover the IFCO Systems ordinary shares issuable upon the
exercise of the new options and warrants resulting from this conversion, as
well as the new warrant issued to Batchelder. See "The Merger Agreement--
Treatment of PalEx Stock Options and Warrants."
The following table lists the directors and executive officers of PalEx who
are holders of options to purchase PalEx common stock, the number of shares of
PalEx common stock that may be purchased upon exercise of the options, and the
number of IFCO Systems ordinary shares that may be purchased upon exercise
after conversion pursuant to the merger agreement:
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<TABLE>
<CAPTION>
Shares of PalEx IFCO Systems Ordinary
Common Stock Shares Purchasable
Name Purchasable Upon Exercise After Conversion(1)
---- ------------------------- ---------------------
<S> <C> <C>
Tucker S. Bridwell............. 45,000 29,790
John E. Drury.................. 25,000 16,550
Sam Humphreys.................. 5,000 3,310
Vance K. Maultsby, Jr.......... 200,000 132,400
Elliot S. Pearlman............. 100,000 66,200
Edward E. Rhyne................ 200,000 132,400
</TABLE>
- --------
(1) Assuming PalEx stockholders will receive approximately 0.662 IFCO Systems
ordinary shares for each share of PalEx common stock in the merger.
In addition, under the merger agreement, as of the closing date of the
merger, IFCO Systems will issue options to purchase 300,000 IFCO Systems
ordinary shares to each of Christoph Schoeller, Martin Schoeller, and Sam
Humphreys as incentive compensation for their involvement in the business of
IFCO Systems. The exercise price for these options will be the IPO price. On or
after the closing date, IFCO Systems also shall be entitled to issue options to
purchase up to 1,000,000 IFCO Systems ordinary shares to employees of Schoeller
Industries or its affiliates. Christoph and Martin Schoeller are not eligible
to receive any of these options. In addition, no eligible employee may be
granted options for more than 100,000 shares. The exercise price for these
options will be the market value per IFCO Systems ordinary share on the date of
grant, which will be the IPO price if the options are granted on the closing
date of the merger and the IPO. Each of these options will be fully exercisable
on the date of grant.
In January 2000, PalEx granted options to purchase 200,000 shares of PalEx
common stock to Eckhard Pfeiffer, who will become a director of IFCO Systems
after the merger. The exercise price of the options is $7.00 per share, the
closing sale price of the PalEx common stock on the date of the grant. The
options will only be exercisable if the merger and the IPO are completed and if
Mr. Pfeiffer is an IFCO Systems director on the first anniversary of the
closing of the merger and the IPO. The options will be converted into options
to purchase IFCO Systems ordinary shares as part of the merger.
Assuming PalEx stockholders elect to receive 49% of the total merger
consideration in cash, after the merger and the IPO, there will be
approximately 38.7 million IFCO Systems ordinary shares outstanding.
Indemnification and Insurance. After the effective time of the merger, IFCO
Systems and the surviving corporation will each indemnify, to the fullest
extent permitted under applicable law, all present and former directors,
officers, employees, or agents of PalEx or any of its subsidiaries against
claims related to any action or omission in connection with the person's
service to PalEx before the effective time. IFCO Systems and the surviving
corporation will also indemnify these persons for claims arising out of or
related to the transactions contemplated by the merger agreement. This
indemnification obligation includes the payment of reasonable legal fees and
expenses and other reasonable expenses before the final resolution of the
claim. If necessary, the determination of whether a person's conduct complies
with Delaware law or the surviving corporation's charter or bylaws will be made
by independent legal counsel. If it is determined by any court with competent
jurisdiction that an indemnified person was not entitled to be indemnified,
then that person will be required to repay the amounts advanced or paid by IFCO
Systems or the surviving corporation.
For a period of six years after the effective time, IFCO Systems will
maintain the current PalEx policies of directors' and officers' liability
insurance or will maintain substitute policies that have at least the same
coverage and are otherwise materially the same as the current policies. IFCO
Systems' obligation is, however, limited to insurance coverage costing no more
than 130% of the previous year's cost.
Future Employment and Continued Compensation and Benefits. For at least two
years following the effective time of the merger, IFCO Systems will provide all
current and former employees of PalEx and its subsidiaries, including PalEx's
executive officers, with compensation and benefits that are at least generally
as
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favorable as the compensation and benefits they were entitled to receive
immediately before the effective time. This includes benefits pursuant to
retirement plans, medical plans, layoff policies, and deferred compensation
arrangements. In addition, time of service with PalEx or any of its
subsidiaries will be recognized for purposes of determining any benefit
eligibility, vesting, or accrual. IFCO Systems is not, however, required to
grant any stock options to any employee.
IFCO Systems will also honor each existing employment, severance, and
termination agreement between PalEx or any of its subsidiaries and any
director, executive officer, or employee. IFCO Systems will not unilaterally
amend any of these agreements for at least two years in any way that would
reduce or impair benefits payable to a covered employee.
IFCO Systems has agreed upon employment terms with Vance K. Maultsby, Jr., as
Executive Vice President, Strategy and Finance and Chief Financial Officer, and
Edward E. Rhyne, as Executive Vice President and General Counsel, after the
merger. The new employment terms will be effective upon completion of the
merger. For each officer, the initial term of employment will be three years.
Mr. Maultsby will have a base salary of $300,000 per year initially. He will
also be granted options to purchase 100,000 IFCO Systems ordinary shares at the
IPO price, which will vest over a three-year period. Mr. Rhyne will have a base
salary of $236,000 per year initially, which will increase to $250,000 on June
1, 2000. He will also be granted options to purchase 135,000 IFCO Systems
ordinary shares at the IPO price, which will vest over a three-year period.
Both officers will be eligible to participate in an executive bonus plan, which
has not yet been adopted. In addition, upon completion of the merger, each
officer will be entitled to a transaction completion bonus equal to one to two
times his base salary.
Appraisal Rights
PalEx is a Delaware corporation. Section 262 of the Delaware General
Corporation Law provides appraisal rights, or "dissenters' rights" to
stockholders of a Delaware corporation that is involved in a merger.
The following discussion is not a complete statement of the appraisal rights
under Section 262, but covers all material provisions. The full text of Section
262 is reprinted as Appendix C to this proxy statement/ prospectus. For
purposes of this discussion, all references here and in Section 262 to a
stockholder are to the PalEx stockholders of record immediately prior to the
effective time of the merger. A person having a beneficial interest in shares
of PalEx held of record in the name of another person, like a broker or
nominee, must act promptly to cause the record holder to follow the steps
summarized below properly and timely in order to perfect appraisal rights.
Stockholders who follow the specific procedures set forth in Section 262 will
be entitled to have their shares of PalEx common stock appraised by the
Delaware Court of Chancery and to receive payment of the fair value of their
shares, but without any element of value arising from the accomplishment or
expectation of the merger, together with a fair rate of interest, as determined
by the Delaware Court of Chancery.
Under Section 262, where a merger agreement is to be submitted for approval
and adoption at a meeting of stockholders, as in the case of the special
meeting, not less than 20 days prior to the meeting, PalEx must notify each of
its stockholders entitled to appraisal rights that appraisal rights are
available and include in each notice a copy of Section 262. This proxy
statement/prospectus is that notice. Any stockholder who wishes to exercise
appraisal rights or wishes to preserve the right to do so should review the
following discussion and Appendix C carefully. Failure to properly and timely
comply with the procedures specified in Section 262 will result in the loss of
appraisal rights under Delaware law.
A stockholder wishing to exercise appraisal rights must deliver to PalEx,
before the vote on the approval and adoption of the merger agreement at the
special meeting, a written demand for appraisal of the shares of PalEx common
stock held by the stockholder. The stockholder must reasonably inform PalEx of
the identity of the stockholder as well as the stockholder's intention to
demand an appraisal of the fair value of the shares held. In addition, a
stockholder wishing to exercise appraisal rights or wishing to preserve the
right to do so must hold the shares of record on the date the written demand
for appraisal is made and must continue to hold the shares through the
effective time of the merger.
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Only a stockholder is entitled to assert appraisal rights for PalEx common
stock registered in the stockholder's name. A demand for appraisal should be
executed by or on behalf of the stockholder, fully and correctly, as the
stockholder's name appears on the stockholder's stock certificates. The demand
must state that the stockholder intends to demand appraisal of the shares of
PalEx common stock held by the stockholder.
If the shares of PalEx common stock are owned of record in a fiduciary
capacity, such as by a trustee, guardian, or custodian, the demand should be
made in that capacity. If the shares of PalEx common stock are owned of record
by more than one person, as in a joint tenancy or tenancy in common, the demand
should be executed by or on behalf of all joint owners. An authorized agent,
including one or more joint owners, may execute a demand for appraisal on
behalf of a stockholder of record. The agent must, however, identify the record
owner or owners and expressly disclose the fact that, in executing the demand,
the agent is agent for the owner or owners. A stockholder, such as a broker who
holds PalEx common stock as nominee for several beneficial owners, may exercise
appraisal rights with respect to the shares of PalEx common stock held for one
or more beneficial owners while not exercising appraisal rights with respect to
the PalEx common stock held for other beneficial owners. The written demand
should set forth the number of shares of PalEx common stock as to which
appraisal is sought. If no number of shares of PalEx common stock is expressly
mentioned, the demand will be presumed to cover all PalEx common stock held in
the name of the stockholder. Stockholders who hold their shares in brokerage
accounts or other nominee forms, and who wish to exercise appraisal rights, are
urged to consult with their brokers to determine the appropriate procedures for
the nominee to exercise appraisal rights.
All written demands for appraisal of PalEx common stock should be mailed or
delivered to PalEx at 6829 Flintlock Road, Houston, Texas 77040, Attention:
General Counsel, so they will be received before the vote on the approval and
adoption of the merger agreement at the special meeting.
Within ten days after the effective time of the merger, PalEx, as the
surviving corporation, must send a notice regarding the effectiveness of the
merger to each person who has satisfied the demand provisions of Section 262.
Within 120 days after the effective time, but not thereafter, PalEx, or any
stockholder entitled to appraisal rights under Section 262 and who has complied
with the demand procedures, may file a petition in the Delaware Court of
Chancery demanding a determination of the fair value of the stockholder's
shares. PalEx is not under any obligation, and has no present intention, to
file a petition with respect to the appraisal of the fair value of the PalEx
common stock. Accordingly, stockholders must initiate all necessary action to
perfect their appraisal rights within the time period in Section 262.
Within 120 days after the effective time of the merger, any stockholder who
has complied with the requirements for exercise of appraisal rights will be
entitled to request in writing a statement from PalEx setting forth the total
number of shares of PalEx common stock not voted in favor of the merger and
with respect to which demands for appraisal have been received and the total
number of holders of those shares. The statement must be mailed to the
stockholder within ten days after the written request has been received by
PalEx or within ten days after expiration of the period for delivery of demands
for appraisal, whichever is later.
If a holder of record of PalEx common stock timely files a petition for
appraisal and serves a copy of the petition upon PalEx, PalEx will then be
obligated within 20 days to file with the Delaware Register in Chancery a duly
verified list containing the names and addresses of all stockholders who have
demanded an appraisal of their shares and with whom agreements as to the value
of their shares have not been reached. After notice to those stockholders as
required by the Delaware Court of Chancery, the Delaware Court of Chancery is
empowered to conduct a hearing on the petition to determine those stockholders
who have complied with Section 262 and who have become entitled to appraisal
rights. The Delaware Court of Chancery may require the stockholders who
demanded payment for their shares to submit their stock certificates to the
Delaware Register in Chancery for notation on the certificates of the pendency
of the appraisal proceeding. If any stockholder fails to comply, the Delaware
Court of Chancery may dismiss the proceedings as to the stockholder.
After determining the stockholders entitled to appraisal, the Delaware Court
of Chancery will appraise the fair value of their shares of PalEx common stock.
Stockholders considering seeking appraisal should be aware that:
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. the fair value of their PalEx common stock as determined under Section
262 could be more than, the same as, or less than the value of the
consideration that they would otherwise receive in the merger if they did
not seek appraisal; and
. investment banking opinions as to fairness from a financial point of view
are not necessarily opinions as to fair value under Section 262. The
Delaware Supreme Court has stated that "proof of value by any techniques
or methods which are generally considered acceptable in the financial
community and otherwise admissible in court" should be considered in the
appraisal proceedings.
In addition, Delaware courts have decided that the statutory appraisal
remedy, depending on factual circumstances, may or may not be a stockholder's
exclusive remedy. The Delaware Court of Chancery will also determine the amount
of interest, if any, to be paid upon the amounts to be received by persons
whose shares of PalEx common stock have been appraised. The costs of the action
may be determined by the Delaware Court of Chancery and taxed upon the parties
as the Delaware Court of Chancery deems equitable. The Delaware Court of
Chancery may also order that all or a portion of the expenses incurred by any
stockholder in connection with an appraisal, including reasonable attorneys'
fees and the fees and expenses of experts utilized in the appraisal proceeding,
be charged pro rata against the value of all of the shares of PalEx common
stock entitled to appraisal.
Any stockholder who has duly demanded an appraisal in compliance with Section
262 will not, after the effective time of the merger, be entitled to vote the
shares of PalEx common stock subject to the demand for any purpose or be
entitled to the payment of dividends or other distributions on those shares,
except for dividends or other distributions payable to holders of record of
PalEx common stock as of a date prior to the effective time.
If any stockholder who demands appraisal under Section 262 fails to perfect,
or effectively withdraws or loses the right to appraisal, the stockholder's
shares of PalEx common stock will be converted into IFCO Systems ordinary
shares in accordance with the merger agreement. A stockholder will fail to
perfect, or will effectively lose, the right to appraisal if no petition for
appraisal is filed within 120 days after the effective time of the merger. A
stockholder may withdraw a demand for appraisal by delivering to PalEx a
written withdrawal of the demand for appraisal and an acceptance of the merger.
Any attempt to withdraw made more than 60 days after the effective time will,
however, require the written approval of PalEx. Once a petition for appraisal
is filed, the appraisal proceeding may not be dismissed as to any stockholder
without court approval.
Failure to follow the steps required by Section 262 for perfecting appraisal
rights may result in the loss of such rights. A stockholder will then be
entitled to receive only the consideration set forth in the merger agreement
for each share of PalEx common stock outstanding immediately prior to the
effective time of the merger and owned by the stockholder.
Accounting Treatment
The merger is intended to be treated under U.S. GAAP as a purchase of PalEx
by IFCO Systems for accounting and financial reporting purposes. Therefore, the
total consideration paid by IFCO Systems in connection with the merger will be
allocated to PalEx's assets and liabilities based on their fair values with any
excess being treated as goodwill.
U.S. Federal Income Tax Consequences
Scope of Discussion
The following discussion summarizes (1) the material U.S. federal income tax
consequences of the merger to U.S. holders, as defined below, of PalEx common
stock who exchange PalEx common stock for cash and/or IFCO Systems ordinary
shares in the merger and (2) the material U.S. federal income tax consequences
to U.S. holders of the ownership and disposition of IFCO Systems ordinary
shares. This discussion is based upon existing U.S. federal income tax law,
including legislation, regulations, administrative rulings, and court
decisions, as in effect on the date of this proxy statement/prospectus, all of
which are subject to change, possibly with retroactive effect. For purposes of
this discussion, a U.S. holder is a beneficial owner of stock that is:
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. an individual citizen or resident of the United States;
. a corporation created or organized in or under the laws of the United
States or of a state of the United States or the District of Columbia; or
. a partnership, trust, or estate treated, for U.S. federal income tax
purposes, as a domestic partnership, trust, or estate.
The discussion assumes that U.S. holders hold their PalEx common stock and
will hold the IFCO Systems ordinary shares that they will receive in the merger
as a capital asset. Tax consequences which are different from or in addition to
those described in this summary may apply to U.S. holders who are subject to
special treatment under U.S. federal income tax law, such as tax exempt
organizations, financial institutions, insurance companies, broker-dealers,
persons who hold their PalEx common stock as part of a hedge, straddle, wash
sale, synthetic security, conversion transaction, or other integrated
investment comprised of PalEx common stock and one or more other investments,
or persons who acquired their shares in compensatory transactions. This
discussion is limited to U.S. federal income tax considerations and does not
address other U.S. federal tax considerations or state, local, or foreign tax
considerations.
This summary is not a substitute for an individual analysis of the tax
consequences of the merger to a U.S. holder of PalEx common stock. Each U.S.
holder or non-U.S. holder should consult a tax advisor as to the U.S. federal
income tax consequences of the merger, including any such consequences arising
from the particular facts and circumstances of the U.S. holder or non-U.S.
holder, and as to any estate, gift, state, local, or foreign tax consequences
of the merger.
U.S. Federal Income Tax Consequences of the Merger to U.S. Holders
Private Letter Ruling. Since IFCO Systems is a foreign corporation for U.S.
federal tax purposes, U.S. holders of PalEx common stock would recognize their
entire gain, if any, on the merger even if the merger qualifies, as described
below under the heading "--Opinion of Counsel," as a reorganization under
Section 368(a) of the Internal Revenue Code, unless the merger also qualifies
for an exception to Section 367(a)(1) of the Internal Revenue Code. The
obligation of PalEx to complete the merger is conditioned on the receipt by
PalEx from the IRS of a private letter ruling that the merger qualifies for the
exception. PalEx currently expects that it will receive the private letter
ruling. If PalEx does not receive the private letter ruling, it may waive this
condition and proceed on the basis of an opinion of its special U.S. tax
counsel, Baker Botts L.L.P., that the merger should qualify for an exception to
Section 367(a)(1). However, the ability of Baker Botts to issue that opinion
would depend upon the facts and circumstances immediately before the completion
of the merger.
PalEx anticipates that the private letter ruling, if received, will require
that the value of the IFCO Systems ordinary shares outstanding immediately
before the merger must be at least equal to the sum of the cash and the value
of the IFCO Systems ordinary shares issued to PalEx stockholders in the merger.
PalEx anticipates that the IPO price will be used to value the IFCO Systems
ordinary shares for this purpose.
As discussed below, the obligations of PalEx and of IFCO Systems to complete
the transactions described in the merger agreement are subject to various
conditions, including that the pricing of the IPO imply a minimum market
valuation, assuming completion of the merger but before the IPO, of $400
million for the combined company based on the currency exchange rate as of the
IPO pricing date. PalEx expects that this condition will be satisfied. If it
is, the condition in the private letter ruling described above will also be
satisfied. Otherwise, under some circumstances, the condition in the private
letter ruling would not be satisfied. Under the merger agreement, PalEx and
IFCO Systems are entitled to waive the $400 million combined valuation
condition. However, in deciding whether to waive this condition, PalEx would
have to take into account whether the condition contained in the private letter
ruling is nevertheless satisfied, or, if not, whether the merger is in the best
interests of the PalEx stockholders even if U.S. holders of PalEx common stock
are required to recognize their entire gain, if any, on the merger.
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Opinion of Counsel. Assuming that the private letter ruling is received,
Baker Botts is of the opinion that the merger should be a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code, subject to the
assumptions and qualifications discussed above under the heading "--Scope of
Discussion" and the further assumptions that:
. the private letter ruling is not withdrawn or modified in any material
respect and any valuation requirement or other condition contained in
the private letter ruling will be satisfied;
. the representations made to Baker Botts by PalEx and IFCO Systems in
officers' certificates are accurate, will remain accurate through the
time of the merger, and, where they relate to events after the merger,
including the representation that PalEx will comply with all reporting
requirements in applicable Treasury regulations, will remain accurate
after the merger;
. the merger and related transactions will take place as described in the
merger agreement and this proxy statement/prospectus, and the
information in this proxy statement/prospectus is accurate in all
material respects and will be accurate in all material respects at the
time of the merger;
. the representations and warranties in the merger agreement are true and
will be true at the time of the merger, and the covenants, conditions,
and obligations in the merger agreement will be satisfied;
. any representations made in the officers' certificates of PalEx and IFCO
Systems or in the merger agreement "to the knowledge of" or similarly
qualified are accurate without that qualification.
. the terms of the SMG exchangeable shares will be revised to be
exchangeable for the same merger consideration as will be paid or issued
to the PalEx stockholders; as a result, the SMG exchangeable shares will
not be exchangeable for stock of the surviving corporation in the merger
or at any time after the merger;
. the IFCO Systems ordinary shares received by PalEx stockholders in the
merger will constitute less than 50% of the outstanding IFCO Systems
ordinary shares after the merger and before the IPO;
. the total fair market value, on the date of the merger, of the IFCO
Systems ordinary shares received by PalEx stockholders will be no less
than 42% of the sum of that total fair market value and the total amount
of cash paid to PalEx stockholders in the merger, including cash
payments to dissenters and instead of fractional IFCO Systems ordinary
shares; and
. the total consideration received by dissenters will not be materially
different from the product of $9.00 and the number of dissenting shares.
The merger agreement conditions the obligation of PalEx to complete the
merger upon (1) the opinion of Baker Botts not having been withdrawn or
modified in any material respect and (2) receipt of a second opinion of Baker
Botts, dated as of the date of the merger, reconfirming the conclusions above.
It is possible, however, that events arising after the second opinion is issued
and the merger is completed could cause an assumption underlying the opinions
not to be true and therefore cause the merger to fail to qualify as a
reorganization. In particular, if the average of the high and low selling
prices of IFCO Systems ordinary shares on the primary trading market on which
the IFCO Systems ordinary shares are listed on the date of the merger is
substantially lower than the IPO price, the merger may not qualify as a
reorganization if the total fair market value of the IFCO Systems ordinary
shares received by PalEx stockholders in the merger, determined at the average
selling price described above, is less than 42% of the sum of that total fair
market value and the total amount of cash received by PalEx shareholders in the
merger, including cash payments to dissenters and instead of fractional IFCO
Systems ordinary shares.
The opinion of Baker Botts will not be binding on the IRS or a court and will
not preclude the IRS or a court from adopting a contrary position.
Assuming the merger is a reorganization, it is the further opinion of Baker
Botts that, subject to the assumptions and qualifications discussed above under
the heading "--Scope of Discussion," the U.S. federal income tax consequences
of the merger to U.S. holders are as described below.
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Exchange of PalEx Common Stock Solely for Cash. A U.S. holder who exchanges
PalEx common stock solely for cash in the merger generally will recognize
capital gain or loss in an amount equal to the difference between the amount of
cash received by the U.S. holder and the adjusted tax basis of the U.S. holder
in the PalEx common stock surrendered. The capital gain or loss will be a long-
term capital gain or loss if the U.S. holder's holding period for the PalEx
common stock surrendered is more than one year. If, however, a U.S. holder
actually or constructively owns IFCO Systems ordinary shares after the merger,
including shares constructively owned as a result of constructive ownership of
shares of PalEx common stock that are exchanged for IFCO Systems ordinary
shares in the merger, the cash received by the U.S. holder may, under some
circumstances, be a dividend taxable as ordinary income. A U.S. holder will be
treated as constructively owning shares the U.S. holder has a right or option
to acquire and shares owned or subject to options held by related persons and
entities. U.S. holders should consult their tax advisors regarding the
likelihood and the effect of dividend treatment based on their particular
circumstances.
Exchange of PalEx Common Stock Solely for IFCO Systems Ordinary
Shares. Except as described below under the headings "--Special Rule for U.S.
Holders Who Will Be 5% Shareholders of IFCO Systems" and "--Cash in Lieu of
Fractional IFCO Systems Ordinary Shares," a U.S. holder who exchanges PalEx
common stock solely for IFCO Systems ordinary shares in the merger will not
recognize gain or loss on the exchange. The U.S. holder will have an adjusted
tax basis in the IFCO Systems ordinary shares received equal to the U.S.
holder's adjusted tax basis in the shares of PalEx common stock surrendered and
will have a holding period in the IFCO Systems ordinary shares received that
includes the U.S. holder's holding period in the shares of PalEx common stock
surrendered.
Exchange of PalEx Common Stock for Both IFCO Systems Ordinary Shares and
Cash. Except as described below under the headings "--Special Rules for U.S.
Holders Who Will Be 5% Shareholders of IFCO Systems" and "--Cash in Lieu of
Fractional IFCO Systems Ordinary Shares," a U.S. holder who exchanges PalEx
common stock in the merger for a combination of IFCO Systems ordinary shares
and cash will realize gain or loss equal to the difference between the fair
market value of the consideration received by the U.S. holder and the adjusted
tax basis of the U.S. holder in the PalEx common stock surrendered. The gain
will be recognized, however, only to the extent of the amount of cash received
by the U.S. holder. Any loss will not be recognized. Each share of PalEx common
stock, or block of shares acquired at the same price, will be treated as
exchanged for a pro rata portion of cash and IFCO Systems ordinary shares.
Any gain recognized will be treated as capital gain unless, as discussed
below, the receipt of the cash has the effect of the distribution of a dividend
for U.S. federal income tax purposes. In that case, the gain will be treated as
ordinary dividend income to the extent of the U.S. holder's ratable share of
PalEx's accumulated earnings and profits. Any capital gain will be long-term
capital gain if, as of the date of the merger, the holding period for the PalEx
shares exchanged is more than one year.
The exchange will not have the effect of a dividend with respect to a U.S.
holder if either the exchange is substantially disproportionate with respect to
the U.S. holder or the exchange otherwise results in a meaningful reduction in
the U.S. holder's interest in IFCO Systems.
The exchange would be substantially disproportionate with respect to the U.S.
holder if the U.S. holder's percentage interest in IFCO Systems, including IFCO
Systems ordinary shares constructively owned by the U.S. holder, immediately
after the merger is less than 80% of what the percentage interest would have
been if, hypothetically, all PalEx stockholders who receive cash in the merger,
including the U.S. holder, had instead received an equivalent amount of IFCO
Systems ordinary shares.
Whether an exchange would result in a meaningful reduction depends on the
particular U.S. holder's facts and circumstances. However, the exchange should
generally result in a meaningful reduction if:
. the U.S. holder's percentage interest in IFCO Systems, immediately after
the merger and including shares actually and constructively owned, is
minimal;
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. the U.S. holder exercises no control over corporate affairs of PalEx or
IFCO Systems; and
. the U.S. holder's percentage interest in IFCO Systems ordinary shares is
actually reduced from what the interest would have been if,
hypothetically, all PalEx stockholders who receive cash in the merger had
instead received an equivalent amount of IFCO Systems ordinary shares.
There are a number of uncertainties regarding how the calculations called for
by the substantially disproportionate and meaningful reduction tests should be
made. U.S. holders should consult their own tax advisors as to the possibility
that all or a portion of any cash received in exchange for their PalEx common
stock will be treated as a dividend and with respect to the consequences of
that treatment, including the eligibility of U.S. holders that are corporations
for a dividends received deduction and treatment of the dividend as an
extraordinary dividend under Section 1059 of the Code.
The U.S. holder's adjusted tax basis in the IFCO Systems ordinary shares
received in the merger will equal the U.S. holder's adjusted tax basis in the
PalEx common stock surrendered, decreased by the amount of cash received by the
U.S. holder and increased by the amount of gain recognized by the U.S. holder,
if any. The U.S. holder's holding period for the IFCO Systems ordinary shares
received in the merger will include the holding period of the PalEx common
stock surrendered.
Special Rules for U.S. Holders Who Will Be 5% Shareholders of IFCO Systems. A
U.S. holder who will actually or constructively own 5% or more of the total
voting power or the total value of all shares of IFCO Systems after the merger
will qualify for the nonrecognition treatment described above only if the U.S.
holder files an agreement with the IRS to recognize gain in the future under
some circumstances. Any U.S. holder who will be a 5% shareholder of IFCO
Systems after the merger should consult his or her own tax advisor concerning
the decision to file a gain recognition agreement and the procedures to be
followed in connection with the filing. A U.S. holder who is not a 5%
shareholder of IFCO Systems after the merger is not subject to any special
filing requirements under Section 367 of the Internal Revenue Code, but should
comply with the normal requirements applicable to any reorganization under
Section 368 of the Internal Revenue Code by attaching an information statement
to his or her return for the year in which the merger occurs in the form
required by the Treasury regulations under those provisions. A U.S. holder who
plans to purchase IFCO Systems ordinary shares in the IPO should consult his or
her tax advisor concerning whether those shares will be taken in account in
determining whether the U.S. holder is a 5% shareholder after the merger.
Cash in Lieu of Fractional IFCO Systems Ordinary Shares. No fractional IFCO
Systems ordinary shares will be issued in the merger. A U.S. holder of PalEx
common stock who receives IFCO Systems ordinary shares and cash in lieu of a
fractional IFCO Systems ordinary share in the merger will be treated as having
received that fractional IFCO Systems ordinary share in the merger and then as
having received the cash in a redemption of the fractional IFCO Systems
ordinary share. A U.S. holder who does not receive any other cash in the merger
probably will, based upon the current IRS advance ruling policy, recognize gain
or loss on the redemption. The gain or loss will be long-term capital gain or
loss if, as of the date of the merger, the holding period for the IFCO Systems
fractional share is more than one year. Cash paid to a U.S. holder who receives
other cash and IFCO Systems ordinary shares in the merger probably will have
the same character, i.e., dividend or capital gain or loss, as the other cash
received by the U.S. holder.
Consequences of Failure to Qualify as a Reorganization. If the merger does
not qualify as a reorganization under Section 368(a) of the Internal Revenue
Code:
. PalEx would recognize gain on the merger equal to the excess of:
. the sum of the fair market value on the merger date of the IFCO
Systems ordinary shares received by PalEx stockholders in the
merger, the total amount of cash received by PalEx stockholders in
the merger, and the amount of liabilities of PalEx assumed by the
surviving corporation in the merger; over
. PalEx's basis in its assets; and
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. a U.S. holder of PalEx common stock would recognize capital gain or loss
on the merger in an amount equal to the difference between the U.S.
holder's basis in the PalEx common stock surrendered and the sum of the
cash and the fair market value, as of the date of the merger, of the IFCO
Systems ordinary shares received in the merger.
Backup Withholding. Payments of cash to a U.S. holder surrendering shares of
PalEx common stock in the merger generally will be subject to information
reporting to the IRS. In addition, they generally will be subject to backup
withholding, whether or not the U.S. holder also receives IFCO Systems
ordinary shares in the merger, at a rate of 31% of the cash payable to the
U.S. holder, unless the U.S. holder furnishes the U.S. holder's taxpayer
identification number in the manner prescribed in applicable Treasury
Regulations, certifies that the number is correct, certifies as to no loss of
exemption from backup withholding, and meets other specified conditions.
Appropriate documentation for this purpose will be provided to U.S. holders
with the election form that will be sent to them by the exchange agent. Any
amounts withheld from payments to a holder under the backup withholding rules
will be allowed as a refund or credit against the U.S. holder's U.S. federal
income tax liability, provided the required information is furnished to the
IRS.
Consequences to U.S. Holders of Ownership and Disposition of IFCO Systems
Ordinary Shares
General. The following is a discussion of the material U.S. federal income
tax consequences to U.S. holders who receive IFCO Systems ordinary shares in
the merger of the ownership and disposition of those shares.
Distributions on and Sale of the IFCO Systems Ordinary Shares. U.S. holders
will be required to include in gross income as ordinary dividend income the
gross amount of any distribution paid on the IFCO Systems ordinary shares,
without reduction for Netherlands withholding tax, as discussed below, to the
extent that the distribution is paid out of IFCO Systems' current or
accumulated earnings and profits as determined for U.S. tax purposes. These
dividends generally will not be eligible for the dividends received deduction
that is allowed to U.S. corporate shareholders on dividends received from a
domestic corporation. Distributions in excess of those earnings and profits
will be applied first to reduce the U.S. holder's tax basis in the holder's
shares. To the extent that the distribution exceeds the U.S. holder's tax
basis, the excess will constitute gain from a sale or exchange of the shares.
IFCO Systems has stated that it does not intend to pay dividends any time in
the foreseeable future.
The amount of income recognized upon the receipt of Dutch guilders as a
dividend will be the U.S. dollar value of the guilders on the date of receipt,
regardless of whether the U.S. holder converts the payment into U.S. dollars.
Gain or loss, if any, recognized by a U.S. holder on the sale or disposition
of guilders will be ordinary income or loss.
Except as discussed below, a U.S. holder may elect annually either to deduct
Netherlands withholding tax on dividends against the holder's income or to
take the withholding taxes as a credit against the holder's U.S. federal
income tax liability, subject to U.S. foreign tax credit limitation and
election rules. Under current Dutch law, IFCO Systems under some circumstances
may be permitted to deduct and retain from amounts withheld from dividends a
portion of the amount that would otherwise be required to be remitted to the
taxing authorities in the Netherlands. This amount generally may not exceed 3%
of the total dividend distributed by IFCO Systems. If IFCO Systems has
withheld an amount from dividends paid to shareholders, which it then is not
required to remit to any taxing authority in the Netherlands, the amount in
all likelihood would not qualify as a creditable tax for U.S. federal income
tax purposes. IFCO Systems will endeavor to provide to U.S. holders
information concerning the extent to which it has applied the reduction
described above to dividends paid to U.S. holders.
IFCO Systems expects that, for foreign tax credit purposes, dividends paid
on the IFCO Systems ordinary shares will generally be foreign source income
and will be passive income or, in some cases, financial services income. Under
Section 904(g) of the Internal Revenue Code, however, dividends paid by a
foreign corporation that is treated as 50% or more owned by United States
persons may be treated as U.S.-source income for foreign tax credit purposes,
to the extent the foreign corporation itself has more than an insignificant
amount of U.S.-source income. It is possible that, after the merger and the
IPO, IFCO Systems may be treated as 50% or more owned by U.S. persons for
purposes of Section 904(g) of the Internal Revenue Code.
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A U.S. holder of IFCO Systems ordinary shares will generally recognize gain
or loss for U.S. federal income tax purposes upon the sale or exchange of the
shares in an amount equal to the amount realized from the sale or exchange
minus the U.S. holder's tax basis for such shares. Subject to the discussion
below under the heading "--Special Status of Some Corporations for U.S. Tax
Purposes," any gain or loss will be a capital gain or loss and, in the case of
an individual U.S. holder, any gain would be subject to U.S. federal income tax
at a maximum rate of 20% if the U.S. holder's holding period for the IFCO
Systems ordinary shares at the time of the sale or exchange exceeds one year.
Special Status of Some Corporations for U.S. Tax Purposes. For U.S. federal
income tax purposes, a foreign corporation like IFCO Systems is classified as a
passive foreign investment company for each taxable year in which either (1)
75% of more of its gross income is passive income, as defined for U.S. tax
purposes, or (2) on average for the taxable year, 50% or more in value of its
assets produce passive income or are held for the production of passive income.
For purposes of applying the foregoing tests, the foreign corporation is deemed
to own its proportionate share of the assets of and to receive directly its
proportionate share of the income of any other corporation of which the foreign
corporation owns, directly or indirectly, at least 25% by value of the stock.
While income from leasing is generally considered passive income, there is an
exception, under the Code and applicable Treasury regulations, for income from
property that is leased as a result of the performance of marketing functions
by the lessor when the marketing and servicing activities of the lessor in a
foreign country are indicative of the active conduct of a trade or business by
the lessor.
Classification of a foreign corporation as a passive foreign investment
company can have various adverse consequences to U.S. holders. These include
taxation of gain on a sale or other disposition of the stock of the corporation
at ordinary income rates and imposition of an interest charge on gain on or
distributions with respect to the stock. These consequences would not apply if
the U.S. holder elected to treat the foreign corporation as a qualified
electing fund for all taxable years during which the U.S. holder held stock of
the corporation and during which the corporation was a passive foreign
investment company. The general effect of a qualified electing fund election is
to require the U.S. holder to include in income the holder's pro rata share of
the income of the foreign corporation for each year in which the corporation is
classified as a passive foreign investment company, even if no dividend
distributions are received. U.S. holders of stock of a passive foreign
investment company may also make other elections that are not described here.
While no opinion of counsel has been requested or will be obtained, IFCO
Systems believes that it will not be a passive foreign investment company
following the merger and the IPO. However, the tests for determining passive
foreign investment company status are applied annually, and it is difficult
accurately to predict future income and assets relevant to this determination.
Accordingly, IFCO Systems cannot assure you that it will not become a passive
foreign investment company. If IFCO Systems should determine in the future that
it is a passive foreign investment company, it will endeavor to notify U.S.
holders and to provide them with the information required to make a qualifying
electing fund election, although there can be no assurance that it will be able
to do so in a timely and complete manner. U.S. holders should consult their own
tax advisers about the passive foreign investment company rules, including
qualified electing fund elections.
IFCO Systems would be a controlled foreign corporation if U.S. holders who
owned, actually or constructively, stock representing 10% or more of the voting
power of IFCO Systems collectively owned, actually or constructively, stock
representing more than 50% of the voting power or value of IFCO Systems. IFCO
Systems does not expect to be a controlled foreign corporation following the
merger and the IPO. If it nevertheless were a controlled foreign corporation,
that status would have no effect on any U.S. holder who at all times owned,
actually or constructively, stock representing less than 10% of the voting
power of IFCO Systems.
United States Information Reporting and Backup Withholding. Distributions of
dividends on IFCO Systems ordinary shares paid within the United States or
through some United States-related financial intermediaries are subject to
information reporting and may be subject to backup withholding at a 31% rate
unless the holder (1) is a corporation or other exempt recipient or (2)
provides a taxpayer identification number
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and certifies that no loss of exemption from backup withholding has occurred.
Information reporting requirements and backup withholding may also apply to the
cash proceeds of a sale of the IFCO Systems ordinary shares. Any withholding
would be in addition to the Netherlands dividend withholding discussed below.
Netherlands Tax Consequences
The following is a summary of the material tax consequences under the laws of
the Kingdom of the Netherlands to an owner of IFCO Systems ordinary shares who
is deemed to be a citizen or resident of the United States for purposes of the
relevant tax codes. This summary is not a complete analysis or listing of all
the possible tax consequences and does not address all tax considerations that
may be relevant to all categories of owners of IFCO Systems ordinary shares,
some of whom may be subject to special rules. This summary is based upon
current Netherlands tax law, which may change from time to time.
You should consult your own tax advisor with respect to the tax consequences
of the ownership and disposition of IFCO Systems ordinary shares based upon
your particular circumstances.
Netherlands Dividend Withholding Tax. Under Netherlands domestic law,
dividend distributions by IFCO Systems are generally subject to withholding tax
at a rate of 25%. These dividend distributions include dividends in cash or in
kind, constructive dividends, and liquidation and repurchase proceeds in excess
of recognized paid-in capital, as determined according to Dutch tax law. Stock
dividends are also subject to Netherlands withholding tax unless they are
distributed out of IFCO Systems' paid-in capital as recognized for Netherlands
tax purposes.
Under the treaty with the United States, however, dividends paid by IFCO
Systems to a resident of the United States are generally eligible for a
reduction of the 25% Netherlands withholding tax to 15%, or 5% if the
beneficial owner is a U.S. corporation owning at least 10% of the voting power
of IFCO Systems. To be eligible for the reduction, an IFCO Systems shareholder
must not have an enterprise or an interest in an enterprise that is, in whole
or in part, carried on through a permanent establishment or a permanent
representative in the Netherlands and to which the IFCO Systems ordinary shares
are attributable. The treaty with the United States provides for a complete
exemption for dividends received by exempt organizations and exempt pension
trusts.
Certification Procedure to Obtain the 15% Rate. A shareholder that claims the
reduced withholding or an exemption from withholding must first complete and
file a Form IB 92 U.S.A with the Netherlands tax authority. A copy should also
be filed with the IRS. In order to apply for the reduction or an exemption upon
the receipt of dividends, the shareholder should present the form to the payor.
If a person claims a refund, this form must be filed with the Netherlands tax
authority within three years after the end of the calendar year in which the
tax was levied. The person making the claim must describe the circumstances
that prevented applying for the reduction or exemption upon receipt of the
dividends. Qualifying U.S. exempt organizations or exempt pension trusts
subject to the 25% withholding rate must seek a full refund of the tax withheld
by using a Form IB 95 U.S.A.
Netherlands Income Tax and Corporate Income Tax. In general, a nonresident
shareholder will not be subject to Netherlands income tax, other than
withholding tax, with respect to dividends distributed by IFCO Systems on the
IFCO Systems ordinary shares. In addition, a non-resident shareholder is not
generally subject to Netherlands income or withholding tax on gain on the sale
or disposition of IFCO Systems ordinary shares to persons other than IFCO
Systems or its direct and indirect subsidiaries. These general rules are
applicable as long as the nonresident shareholder:
. does not carry on a business, in whole or in part, in the Netherlands
through a permanent establishment or a permanent representative to which
the IFCO Systems ordinary shares are attributable;
. does not carry out and has not carried out employment activities in the
Netherlands with which the holding of the IFCO Systems ordinary shares
is connected; and
. is not a resident or a deemed resident of the Netherlands for
Netherlands tax purposes.
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However, in some cases, Netherlands tax may be imposed on the dividends or
gains if the nonresident shareholder, alone or with related parties, holds a
substantial interest in IFCO Systems. In general a holder can only be taxed on
this basis if the holder has a substantial or deemed substantial interest in
IFCO Systems. In general, a substantial interest will exist if the nonresident
shareholder, alone or together with his or her spouse, holds either directly or
indirectly, a participation interest in, or right to acquire at least 5% of the
issued shares of any class of shares of IFCO Systems or holds, either directly
or indirectly, profit sharing rights representing entitlement to at least 5% of
the annual profit of IFCO Systems or of the liquidation proceeds. A deemed
substantial interest will be present if all or part of a substantial interest
has been disposed of, or is deemed to have been disposed of, under a roll-over
facility.
Under most tax treaties, the Netherlands may not impose tax on capital gains
realized upon the sale or disposition of shares by shareholders entitled to
treaty benefits unless additional conditions are met. Under the U.S. tax
treaty, the Netherlands may not impose tax on capital gains realized by a
shareholder that is a treaty beneficiary unless, in the case of an individual
shareholder:
. the shareholder, alone or with specified relatives, owns at least 25% of
any class of shares at the time of the sale or disposition; and
. the shareholder has, at any time during the previous five years, been a
resident of the Netherlands.
Netherlands Net Wealth Tax. A nonresident shareholder who is an individual is
not subject to Netherlands net wealth tax with respect to the IFCO Systems
ordinary shares, provided that the nonresident shareholder does not carry on a
business, in whole or in part, in the Netherlands through a permanent
establishment or a permanent representative to which the shares are
attributable. Corporations are not subject to Netherlands net wealth tax.
Netherlands Gift and Inheritance Tax. No Netherlands gift or inheritance tax
will arise as a result of the gift of the IFCO Systems ordinary shares by, or
on the transfer of the IFCO Systems ordinary shares at the death of, a
nonresident shareholder who is an individual, unless:
. the shareholder is a resident or a deemed resident of the Netherlands
for tax purposes; or
. the IFCO Systems ordinary shares are attributable to a permanent
establishment or a permanent representative of the shareholder in the
Netherlands. In some cases, an individual who was previously a resident
of the Netherlands may be deemed to continue to be a resident at the
time of the gift or death. Corporations are not subject to Netherlands
gift or inheritance tax.
Regulatory Matters
U.S. Antitrust Notification. The Hart-Scott-Rodino Antitrust Improvements Act
of 1976 and related rules provide that some acquisition transactions, including
the merger, may not be completed until required information and materials have
been sent to the Antitrust Division of the U.S. Department of Justice and the
Federal Trade Commission. Required waiting periods must also expire or be
terminated. Schoeller Industries and PalEx filed the required information with
the Antitrust Division and the FTC on June 16, 1999, and received notice of
early termination on June 28, 1999. At any time before or after the effective
time of the merger, and even though the HSR Act waiting period has been
terminated, the Antitrust Division or the FTC could take action under the U.S.
antitrust laws as it deems necessary or advisable in the public interest,
including seeking to enjoin completion of the merger or seeking the transfer of
assets or businesses of PalEx or IFCO Systems. Private parties may also seek to
take legal action under antitrust laws.
German Antitrust Notification. The German Act Against Restraints of
Competition (Gesetz gegen Wettbewerbsbeschrankungen), which provides
ratification of specified transactions, including the merger, must be provided
to the Federal Cartel Office before completion of the merger. The Federal
Cartel Office may prohibit a merger only if it informs the notifying parties
within one month of receipt of the notification that it has entered into an in-
depth investigation of the matter. Schoeller Industries filed the notification
with the Federal Cartel Office on December 23, 1999, and received clearance for
the merger from Federal Cartel office on January 5, 2000. The decisions of the
Federal Cartel Office may be challenged in court by third parties.
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THE MERGER AGREEMENT
The following is a summary of the material terms of the merger agreement, but
is not a description of all the terms of the merger agreement. A copy of the
merger agreement is attached as Appendix A to this proxy statement/prospectus
and is incorporated in this summary by reference. IFCO Systems and PalEx urge
you to read the full merger agreement.
General
The merger agreement provides for the merger of PalEx with and into Silver
Oak, a newly formed, wholly owned subsidiary of IFCO Systems. Silver Oak will
survive the merger as a wholly owned subsidiary of IFCO Systems and will change
its name to "PalEx, Inc." At the effective time of the merger, IFCO Systems
will become the owner of all of the outstanding common shares of IFCO Europe
and all the outstanding shares of IFCO International and MTS. Immediately
following the effective time of the merger IFCO Systems will complete its IPO.
Related Matters
Formation of IFCO Systems and Silver Oak. As provided by the merger
agreement, Schoeller Industries created IFCO Systems as a wholly owned
subsidiary, and IFCO Systems has formed Silver Oak as its wholly owned
subsidiary to participate in the merger. Schoeller Industries subsequently
contributed all of the outstanding IFCO Systems ordinary shares to Schoeller
Holding. Silver Oak has authorized capital stock of 100 shares of common stock,
par value $0.01 per share. Silver Oak has issued all of its authorized shares
to IFCO Systems.
Contribution of Shares of IFCO Europe, MTS, and IFCO International. Schoeller
Industries has contributed the single outstanding common share of IFCO Europe
and all of the outstanding shares of MTS to Schoeller Holding, which then
contributed the shares to IFCO Systems.
Gebruder Schoeller Beteiligungsverwaltungs GmbH, a German limited liability
company, previously owned all of the outstanding shares of IFCO International.
Gebruder Schoeller is owned by the shareholders of Schoeller Industries and
members of their families. Schoeller Industries caused Gebruder Schoeller to
contribute the IFCO International shares to Schoeller Holding, which then
contributed the shares to IFCO Systems.
Agreement with GE Capital and GE Erste. GE Erste owns the single outstanding
preferential share of IFCO Europe. Schoeller Industries, the shareholders of
Schoeller Industries, Schoeller Plast Industries GmbH, Gebruder Schoeller,
Schoeller KG, and IFCO Systems have entered into an Option Release and IPO-
Facilitation Agreement with GE Capital and GE Erste in connection with the
proposed merger and the IFCO Systems 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 IFCO
Systems 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 IFCO Systems.
In January 2000, GE Erste contributed the IFCO Europe preferential share to
Schoeller Holding, which then contributed the share to IFCO Systems. 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 $22.5 million, with a 30-year term and bearing
5% interest per year. The convertible
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debenture is convertible by GE Erste into IFCO Systems ordinary shares held by
Schoeller Holding consisting of not more than 15.45% of the IFCO Systems
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 IFCO Systems
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 IFCO Systems capital
stock outstanding before the merger and the IPO is less than DM45.0 million, or
approximately $22.5 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 IFCO Systems ordinary shares with
a value equal to DM45.0 million, or approximately $22.5 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
IFCO Systems makes 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 IFCO Systems will issue a
promissory note to GE Capital for DM45.0 million, or approximately $22.5
million. The promissory note will provide for an initial payment of DM11.25
million, or approximately $5.6 million, out of the net proceeds that IFCO
Systems receives from the IPO. The balance of the principal will be payable in
five annual installments of 10%, 10%, 20%, 20%, and 40% beginning on December
31, 2001. For the first year after the completion of the merger and the IPO,
the promissory note will bear interest at an annual rate equal to the Euro
Interbank Offered Rate plus 2.75%. Accrued interest will be payable on the
first day of the second year. After the first year, the annual interest rate
will be 10% and will be payable each year on December 31. Payment of the
promissory note will be secured by a pledge of the IFCO Europe common share and
the IFCO International shares. The promissory note may be prepaid at any time
without prepayment penalty. 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.
The Option Release Agreement is subject to the written consent of IFCO
Europe's lenders. These consents were obtained in January 2000. The Option
Release Agreement also requires that the IPO be completed by December 31, 2000.
IPO. The merger agreement provides that Schoeller Industries will use its
reasonable efforts, and cause IFCO Systems to use its reasonable efforts, to
complete the IPO. PalEx agreed to reasonably cooperate with Schoeller
Industries and IFCO Systems in connection with the IPO. Subject to the advice
of the managing underwriters for the IPO and market conditions on the stock
market on which the IFCO Systems ordinary shares are authorized for listing,
the parties intend for IFCO Systems to sell approximately 30% of the
outstanding IFCO Systems ordinary shares in the IPO, after giving effect to the
merger.
The Merger
Effective Time and Closing. The effective time of the merger will be
immediately upon filing of a certificate of merger with the Secretary of State
of the State of Delaware or at the later time agreed to by IFCO Systems and
PalEx and provided in the certificate of merger. The merger agreement provides
that the parties' intend to complete the merger:
. as soon as practicable after the contribution of the shares of IFCO
Europe, IFCO International, and MTS to IFCO Systems;
. as soon as practicable after the completion of the transactions in the
Option Release Agreement; and
. on the same day as, but immediately before, completion of the IPO.
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The closing of the merger will take place as soon as practicable following
the date the last of the conditions of IFCO Systems and PalEx are fulfilled or
waived or at another time agreed by IFCO Systems and PalEx.
Certificate of Incorporation and Bylaws. The merger agreement provides that
PalEx's certificate of incorporation in effect prior to the merger will be
amended to reflect the name change. As amended, the Silver Oak certificate of
incorporation will be the certificate of incorporation of the surviving
corporation. Silver Oak's bylaws in effect prior to the merger will be the
bylaws of the surviving corporation.
Directors and Officers. After the effective time of the merger, the directors
of the surviving corporation will be Christoph Schoeller, Martin Schoeller, and
Vance K. Maultsby, Jr. The officers of PalEx at the effective time of the
merger will be the officers of the surviving corporation.
Conversion of PalEx Shares
The merger agreement provides that at the effective time of the merger, and
without any action by PalEx stockholders, each issued and outstanding share of
PalEx common stock will be exchanged for consideration with a total value of
$9.00 as follows:
. $9.00 cash, without interest; or
. the number of IFCO Systems ordinary shares calculated by dividing $9.00
by the IPO price, which is a fraction referred to as the exchange ratio;
or
. a combination of cash and IFCO Systems ordinary shares.
Calculation of Merger Consideration. For purposes of calculating merger
consideration, the IPO price will be equal to the initial public offering price
per share of the IFCO Systems ordinary shares, as determined by IFCO Systems
and the managing underwriters for the IPO and which will be expressed in euros,
multiplied by the currency exchange rate for euros to U.S. dollars on the date
the initial public offering price is determined.
The form of consideration will be determined by an election made by each
PalEx stockholder. The total merger consideration for all the shares of PalEx
common stock, including consideration payable after the merger on exchange of
SMG exchangeable shares, however, is limited as follows:
. not less than 40%; and
. not more than 60% of the shares may be exchanged for IFCO Systems
ordinary shares;
. provided that if the holders together elect to receive more than 40% of
the total merger consideration in cash, then the amount of cash
consideration will be increased to up to 49% of the total merger
consideration.
Election Procedures. An election form/letter of transmittal is being mailed
to you separately. Each PalEx stockholder should complete the election
form/letter of transmittal and send it and the PalEx stockholder's stock
certificates to IFCO Systems' exchange agent. Each holder of SMG exchangeable
shares will also have the opportunity to complete an election form for the
amount of cash and/or IFCO Systems ordinary shares to be received upon exchange
of the SMG exchangeable shares after the merger. On the election form, the
holder must indicate the number of shares to be exchanged for cash and the
number of shares to be exchanged for IFCO Systems ordinary shares. Each holder
is entitled to receive not less than 40% of the merger consideration in cash
and not less than 60% in IFCO Systems ordinary shares, unless the maximum
amount of cash consideration is increased beyond 40% as discussed above.
Completed election forms must be received by IFCO Systems' exchange agent no
later than 5:00 p.m. New York time on March 1, 2000. If the exchange agent does
not receive a fully completed and signed election form, along with a completed
letter of transmittal and stock certificates for the shares of PalEx
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<PAGE>
common stock covered by the election form, for a holder by the election
deadline, then that holder will be deemed not to have made an election and will
receive merger consideration as described below. In addition, PalEx
stockholders exercising their appraisal rights will be deemed to have made a
cash election.
Holders of shares of PalEx common stock or SMG exchangeable shares who make a
cash election for not more than 49% of their shares or who make a stock
election for not more than 60% of their shares will receive cash and IFCO
Systems ordinary shares. Holders who make a cash election for more than 49% of
their shares or who make a stock election for more than 60% of their shares may
have their cash or stock election adjusted downward if the elections by all the
holders together exceed either the cash or stock limits. Any adjustments will
be made by IFCO Systems' exchange agent pursuant to detailed provisions in the
merger agreement.
If the number of shares covered by cash elections exceeds 49%, then:
. all shares covered by stock elections and all shares for which there is
no election will be exchanged for IFCO Systems ordinary shares;
. all shares covered by cash elections that are held by each holder making
a cash election with respect to 49% or less of the total number of shares
for which the holder is making an election will be exchanged for cash;
and
. all shares covered by cash elections that are held by a holder making a
cash election with respect to more than 49% of the total number of shares
for which the holder is making an election will be exchanged for cash and
IFCO Systems ordinary shares based on adjustment formulas in the merger
agreement.
Applying these adjustment formulas, a holder of these cash election shares
will receive the following:
. cash equal to
.$9.00
.multiplied by a number, the First Cash Number, equal to
.49 x total number of shares held by the holder
. cash equal to
.$9.00
.multiplied by a number, the Second Cash Number, equal to the product of
the number of the -- First Cash Number
holder's cash
election shares
-------------------------------------------------------
total number of cash -- total First Cash
election shares held Number for all
by all holders holders electing
electing more than more than 49% cash
49% cash
and
(.49 x total number
of shares)
-- total number of cash -- total First Cash
election shares held Number for all
by all holders holders electing
electing not more more than 49% cash
than 49% cash
. a number of IFCO Systems ordinary shares equal to
.$9.00
------
IPO Price
. multiplied by the number of the holder's cash election shares less the
sum of the First Cash Number and the Second Cash Number
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<PAGE>
If the number of shares covered by elections for IFCO Systems ordinary
shares exceeds 60%, then:
. all shares covered by cash elections and all shares for which there is no
election will be exchanged for cash;
. all shares covered by stock elections that are held by each holder making
a stock election with respect to 60% or less of the total number of
shares for which the holder is making an election will be exchanged for
IFCO Systems ordinary shares; and
. all shares covered by stock elections that are held by a holder making a
stock election with respect to more than 60% of the total number of
shares for which the holder is making an election will be exchanged for
cash and IFCO Systems ordinary shares based on adjustment formulas in the
merger agreement.
Applying these adjustment formulas, a holder of these cash election shares
will receive the following:
. a number of IFCO Systems ordinary shares equal to
.$9.00
------
IPO price
.multiplied by a number, the First Stock Number, equal to
.60 x total number of shares held by the holder
. a number of IFCO System ordinary shares equal to
.$9.00
------
IPO price
.multiplied by a number, the Second Stock Number, equal to the product
of
the number of the -- First Stock Number
holder's stock
election shares
-------------------------------------------------------
total number of -- total First Stock
stock election Number for all
shares held by all holders electing
holders electing more than 60% stock
more than 60% stock
and
(.60 x total number
of shares)
-- total number of -- total First Stock
stock election Number for all
shares held by all holders electing
holders electing more than 60% stock
not more than 60%
stock
. cash equal to
.$9.00
. multiplied by the number of the holder's stock election shares less
the sum of the First Stock Number and the Second Stock Number
If the number of shares covered by cash elections is greater than or equal
to 40%, but less than or equal to 49%, then:
. all shares covered by stock elections will be exchanged for IFCO ordinary
shares;
. all shares covered by cash elections will be exchange for cash; and
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<PAGE>
. all shares for which there is no election will be exchanged for cash and
IFCO Systems ordinary shares based on adjustment formulas in the merger
agreement.
Applying these adjustment formulas, a holder of a non-election shares will
receive the following for each share for which there is no election:
. cash equal to the lesser of
.$9.00 or
.$9.00 x .49 x total number of
shares
--------------------------
total number of non-
election shares
. if the amount of cash calculated is less than $9.00, a number of IFCO
Systems ordinary shares equal to
.$9.00
------
IPO Price
.multiplied by
1 - .49 x total number of
shares
--------------------------
total number of non-
election shares
A PalEx stockholder or holder of SMG exchangeable shares may revoke an
election by written notice to IFCO Systems' exchange agent on or before 5:00
p.m. New York time on March 1, 2000. A holder may submit a new election form at
the time it revokes an earlier election or at any time after revoking an
earlier election but before the election deadline. If a new election is not
made, the holder will be deemed not to have made an election, and IFCO Systems'
exchange agent will retain the stock certificates tendered with the revoked
election form until the time shares are exchanged upon completion of the
merger. All election forms will automatically be revoked if the merger
agreement is terminated. If the merger agreement is terminated, the stock
certificates tendered will be promptly returned to the PalEx stockholder.
IFCO Systems' exchange agent will make binding determinations whether or not
an election has been properly made or revoked. The exchange agent will also
make all of the computations of the merger consideration based on the elections
and deemed elections and any required adjustments. These computations will be
binding on the PalEx stockholders and holders of SMG exchangeable shares.
Examples of Merger Consideration. A table illustrating examples of the number
of IFCO Systems ordinary shares that may be received by PalEx stockholders in
the merger based upon possible elections by PalEx stockholders is included in
the Summary.
Cancellation of Shares. Each share of PalEx capital stock, if any, owned by
IFCO Systems or any of its subsidiaries, held in treasury by PalEx, or owned by
any of PalEx's subsidiaries immediately before the effective time of the merger
will be canceled and retired.
Fractional Shares. No fractional IFCO Systems ordinary shares will be issued
in the merger. Instead, each PalEx stockholder that would otherwise be entitled
to receive a fractional share will receive an amount in cash equal to the value
of an IFCO Systems ordinary share multiplied by the fraction. The value of an
IFCO Systems ordinary share for this calculation will be the IPO price.
Exchange Procedures. Before the effective time of the merger, IFCO Systems
will appoint an independent bank, trust company, or other U.S. financial
institution to act as the exchange agent in connection with the merger.
Promptly after the effective time of the merger, the exchange agent will mail
to each PalEx stockholder of record immediately before the effective time, who
has not previously submitted a letter of transmittal and certificates with an
election form, a letter of transmittal and instructions for the stockholder to
use in surrendering its old PalEx certificates in exchange for certificates
representing whole IFCO Systems ordinary shares and cash instead of any
fractional share. After the effective time of the merger and until they are
surrendered, old PalEx certificates will represent only the right to receive
the merger consideration as described above. No dividends or distributions
declared or made after the effective time of the merger with respect to IFCO
Systems ordinary shares will be paid to the holder of any unsurrendered PalEx
certificate until after surrender of the certificate.
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After the effective time of the merger and after the exchange agent receives
an old PalEx certificate and a completed letter of transmittal, the exchange
agent will deliver to the stockholder on behalf of Silver Oak and IFCO Systems
the amount of cash and/or the number of whole IFCO Systems ordinary shares
issued by IFCO Systems against contribution of the shares of PalEx common stock
represented by the old PalEx certificate. The amount of cash and number of IFCO
Systems ordinary shares will be based upon the PalEx stockholder's election of
merger consideration and any required adjustments to the election. The exchange
agent will also deliver to the stockholder cash instead of any fractional IFCO
Systems ordinary share.
No transfers of shares of PalEx common stock will be made after the effective
time of the merger.
Treatment of PalEx Stock Options and Warrants
Pursuant to the merger agreement, each option or warrant to purchase PalEx
common stock that is outstanding at the effective time of the merger will
automatically be exchanged into an option or warrant to purchase a number of
IFCO Systems ordinary shares. The number of IFCO Systems ordinary shares will
be equal to the number of shares of PalEx common stock that could have been
purchased under the exchanged option or warrant multiplied by the exchange
ratio. Upon exercise, cash will be paid instead of any fractional IFCO Systems
ordinary share. The exercise price per share will be equal to the per share
exercise price of the converted option or warrant divided by the exchange
ratio. With respect to qualified or incentive stock options, the conversion
will be made in a manner consistent with the applicable provisions of the
Internal Revenue Code. PalEx optionholders will also be given the alternative
of electing to exchange their options for new, fully vested options,
exercisable at the IPO price, to purchase the number of IFCO Systems ordinary
shares that represents the economic equivalent of a straight conversion into
options to purchase IFCO Systems ordinary shares as described above.
The merger will be a change of control event under the terms of PalEx's stock
option plan. As a result, all of the outstanding stock options will be fully
vested at the effective time of the merger and at the time of conversion into
new options to purchase IFCO Systems ordinary shares.
IFCO Systems has agreed to maintain an effective registration statement under
the Securities Act to cover the IFCO Systems ordinary shares issuable upon the
exercise of the new options and warrants resulting from this conversion.
Structure of IFCO Systems After the Merger
Articles of Association. IFCO Systems and PalEx have agreed that the articles
of association of IFCO Systems at the effective time will be in the form they
reasonably agree upon. An English translation of the agreed upon articles of
association has been included as Appendix D to this proxy statement/prospectus.
Board of Directors. At the effective time of the merger, the board of
directors of IFCO Systems will consist of seven members as follows:
. Christoph Schoeller, Chairman;
. Martin A. Schoeller, Chief Executive Officer;
. Cornelius Geber;
. Sam W. Humphreys;
. Randall Onstead;
. Eckhard Pfeiffer; and
. Dr. Frank Tofflinger.
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<PAGE>
Executive Officers. At the effective time of the merger, IFCO Systems will
have five executive officers. The initial executive officers will be:
. Martin A. Schoeller, Chief Executive Officer
. A. Joseph Cruz, President, North America
. Vance K. Maultsby, Jr., Executive Vice President, Strategy and Finance
and Chief Financial Officer
. Edward E. Rhyne, Executive Vice President and General Counsel; and
. Howe Q. Wallace, Executive Vice President, Human Resources.
Headquarters. Following the effective time of the merger, IFCO Systems will
maintain its headquarters in Amsterdam, the Netherlands, and operations
headquarters in Munich, Germany, and Houston, Texas.
Language. Following the effective time of the merger, English will be the
official language for the management of IFCO Systems, except where Netherlands
law requires records or filings in the Dutch language.
Accounting Practices. Following the effective time of the merger, the books
and records of IFCO Systems will be maintained in accordance with U.S. GAAP in
addition to Netherlands GAAP.
No Solicitation Before the Merger; No Withdrawal or Modification of
Recommendation
No Solicitation by PalEx. Under the merger agreement, PalEx has agreed that
before the effective time of the merger neither it nor its subsidiaries will,
nor authorize or permit any of its representatives to, (1) solicit, initiate,
or knowingly encourage anyone to make a proposal for the acquisition of all or
a significant portion of PalEx's assets, business, or equity securities or (2)
participate in any discussions or negotiations regarding an acquisition
proposal. Prior to the PalEx stockholders' meeting, however, PalEx may respond
to an unsolicited proposal that did not otherwise result from a breach of its
no solicitation agreement, furnish information to the person or entity making
the proposal, and participate in discussions or negotiations regarding the
proposal. PalEx must first give written notice to Schoeller Industries and must
enter into an appropriate confidentiality agreement with the person or entity
making the proposal.
No Withdrawal or Modification of Recommendation by PalEx. PalEx has also
agreed that its board of directors or any board committee will not:
. withdraw, modify, or publicly propose to withdraw or modify the approval
or recommendation of the merger agreement;
. approve, recommend, or publicly propose to approve or recommend any
acquisition proposal as described above; or
. cause PalEx to enter into any nonbinding or binding acquisition agreement
with respect to any acquisition proposal.
Prior to the PalEx stockholders' meeting, however, the PalEx board of
directors may determine in its good faith judgment, after consulting with
outside legal counsel, that the failure to do any of these things with respect
to a superior acquisition proposal would breach or be inconsistent with the
board's fiduciary duties to PalEx stockholders. If the PalEx board of directors
makes this determination, it may withdraw or modify its approval or
recommendation of the merger agreement, approve, recommend, or propose to
approve or recommend the superior acquisition proposal, terminate the merger
agreement and, after termination, cause PalEx to enter into a binding agreement
with respect to the superior acquisition proposal. The PalEx board of directors
may not take any of these steps unless it first gives Schoeller Industries
written notice at least five business days in advance, stating the material
terms of the superior acquisition proposal and identifying the
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<PAGE>
person or entity making the proposal. In addition, PalEx may not terminate the
merger agreement and enter into any binding agreement until after its
stockholders' meeting has been held and the PalEx stockholders have failed to
approve and adopt the merger agreement.
A superior acquisition proposal is a proposal that:
. is unsolicited;
. did not otherwise result from a breach of PalEx's no solicitation
agreement;
. the PalEx board of directors determines in good faith, based on the
advice of Batchelder or other financial advisor with a nationally
recognized reputation, to be more favorable to PalEx stockholders than
the merger; and
. if needed, has financing committed or the PalEx board of directors
determines financing is reasonably capable of being obtained by the
person or entity making the proposal.
No Solicitation by Schoeller Industries, IFCO Systems, or Any IFCO
Company. In addition to the restrictions placed on PalEx regarding solicitation
of proposals, before the effective time of the merger neither Schoeller
Industries, IFCO Systems, nor any of the IFCO Companies or their subsidiaries
will, or authorize or permit any of their representatives to, solicit,
initiate, or knowingly encourage anyone to make a proposal for the acquisition
of all or a significant portion of any of their assets, business, or equity
securities. Schoeller Industries, IFCO Systems, the other IFCO Companies, and
their subsidiaries are not, however, prevented from making or soliciting a
proposal in response to or competitive with a superior acquisition proposal for
PalEx.
PalEx Stockholder Approval
Under the merger agreement, PalEx is required to use its reasonable efforts
to obtain stockholder approval. The date of the special meeting has been set
after consulting with Schoeller Industries and is intended to be before the
pricing date of the IPO, but not more than 45 days before the anticipated
closing date for the IPO.
PalEx, through the PalEx board of directors, has agreed to recommend to the
PalEx stockholders approval and adoption of the merger agreement. As described
above, there are situations in which the PalEx board of directors may determine
to withdraw or modify its approval or recommendation. In addition, the PalEx
board of directors may withdraw or modify its approval or recommendation if
Batchelder withdraws or materially modifies the fairness opinion and the PalEx
board of directors determines in good faith, after consulting with outside
legal counsel, that the failure to withdraw or modify the board's approval or
recommendation would breach or be inconsistent with the board's fiduciary
duties to PalEx stockholders. No withdrawal or modification of the PalEx board
of directors' approval or recommendation relieves PalEx of its obligation to
hold the stockholders' meeting.
Voting Agreements
At the time the merger agreement was signed, Schoeller Industries obtained a
voting agreement from ten beneficial holders of PalEx common stock. These
stockholders own approximately 29% of the outstanding shares of PalEx common
stock as of the date of this proxy statement/prospectus. Pursuant to the voting
agreement, these stockholders have agreed to vote their shares in favor of the
merger agreement at any stockholders' meeting. The voting agreement also limits
the stockholders' rights to transfer the shares, establish a voting trust, or
grant any proxy except for approval of the merger agreement. The voting
agreement does not restrict a stockholder who is also a director or officer of
PalEx from taking any action that may be necessary as a result of his position
as a director or officer.
Under the merger agreement, PalEx has agreed to use its reasonable efforts
after the mailing of this proxy statement/prospectus to deliver an additional
voting agreement in favor of Schoeller Industries from additional stockholders.
Assuming this additional voting agreement is delivered prior to the special
meeting, the total
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<PAGE>
number of shares subject to the voting agreements and agreeing to vote for
approval of the merger agreement will be at least 51% of the outstanding shares
of PalEx common stock as of the record date and sufficient to approve the
merger.
If the PalEx board of directors withdraws its recommendation for the merger
agreement, the voting agreements will, nevertheless, remain in effect and
require these stockholders to vote their shares in favor of the merger
agreement. The voting agreement is effective until the earlier of completion of
the merger, termination of the merger agreement, or May 31, 2000.
Restrictions on Transfers of IFCO Systems Ordinary Shares
Before the closing of the merger, IFCO Systems is required to enter into a
lockup agreement with each of Christoph Schoeller, Martin Schoeller, Schoeller
Industries, and Schoeller Holding. In addition, PalEx will use its reasonable
best efforts to deliver lockup agreements to IFCO Systems that have been
executed by 13 senior executives of PalEx and senior executives of PalEx's
subsidiaries. Each of the lockup agreements will restrict the transfer for two
years after the closing date of the IPO of all IFCO Systems ordinary shares
directly or indirectly owned, or entitled to be received, by these restricted
stockholders. The restriction period will terminate early for any of the PalEx
officers or senior executives whose employment with PalEx or a PalEx subsidiary
is terminated without cause or because of a breach by IFCO Systems, PalEx, or a
PalEx subsidiary. The restricted IFCO Systems ordinary shares may begin to be
sold during the restricted period as follows:
<TABLE>
<CAPTION>
Time After the IPO Closing Date Shares That May Be Sold
------------------------------- -----------------------
<S> <C>
one month......................... 20%
12 months......................... additional 15%
15 months......................... additional 15%
18 months......................... additional 15%
21 months......................... additional 15%
</TABLE>
As a result of this schedule, at any time beginning 24 months after the
closing date of the IPO, these IFCO Systems ordinary shares will no longer be
restricted from transfer.
Additional Agreements
Reasonable Efforts; Regulatory Matters. Each party has agreed to use all
reasonable efforts to take, or cause to be taken, all actions necessary in
order to complete the merger and the other transactions described in the merger
agreement. These efforts include obtaining all necessary consents and approvals
and making all necessary filings.
As part of these efforts, Schoeller Industries and PalEx specifically agreed
to make, and made, the appropriate filings under the HSR Act with the Antitrust
Division and the FTC and has made similar filings that may be required based
upon the laws of Germany. Schoeller Industries and PalEx do not anticipate the
need to make similar filings with any other country. Schoeller Industries and
PalEx will use all reasonable efforts to comply with all lawful requests of
these governmental authorities and will not extend any applicable waiting
period that would delay completion of the merger.
Business Before the Merger. The merger agreement generally provides that,
until the effective time of the merger, PalEx and its subsidiaries on the one
hand and each of the IFCO Companies and its subsidiaries on the other hand (1)
will take specific actions to maintain their businesses and (2) will not take
specified actions as listed below. The exceptions to these requirements are
other provisions of the merger agreement or a written agreement of Schoeller
Industries for PalEx or a written agreement of PalEx for the IFCO Companies.
Despite these requirements, the merger agreement clearly states that neither
party has the right to control or direct the other party's operations before
the effective time of the merger.
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Each of PalEx and the IFCO Companies will, and will cause its subsidiaries
to:
. conduct their businesses in the ordinary and usual course of business
consistent with past practice;
. use all reasonable efforts to preserve intact their business
organizations;
. use all reasonable efforts to keep available the services of their
current officers and key employees;
. use all reasonable efforts to preserve the goodwill and business
relationships with customers, suppliers, and others having business
relationships with them; and
. maintain insurance coverage with financially responsible carriers at
levels consistent with past practice.
They will also not take the following actions:
. change their corporate governing documents;
. change their capitalization, including declaring or paying any
dividends, except that PalEx may issue shares of its common stock on the
exercise of its outstanding options, warrants, exchangeable shares, or
convertible promissory notes and to Batchelder immediately prior to the
merger;
. incur, or become contingently liable on, any debt for borrowed money,
except for:
. borrowings in the ordinary course of business consistent with past
practice;
. for PalEx, borrowings to refinance existing indebtedness other than
its senior credit facility;
. for PalEx, borrowings of up to $150.0 million to refinance its
senior credit facility on terms generally no less favorable than the
terms of the senior credit facility on the date of the merger
agreement;
. for PalEx, the issuance in a private placement of senior
subordinated notes of up to $40.0 million; and
. for an IFCO Company, borrowings to refinance existing indebtedness;
. do anything or fail to do anything that would cause PalEx or its
stockholders to have to recognize gain or loss for U.S. federal income
tax purposes as a result of the merger;
. sell, transfer, or encumber any material assets or business other than:
. in the ordinary course of business; and
. for PalEx, pledges and grants of lien in connection with refinancing
its senior credit facility;
. materially change its employee compensation and benefits, including:
. entering into new employment or severance arrangements with, or
increasing the compensation of, directors, officers, or key
employees unless disclosed in writing to the other party prior to
signing the merger agreement;
. adopt or enter into any new employee benefit plan or arrangement
except as legally required; and
. for PalEx, materially increasing benefits or compensation expenses,
except for normal increases in the ordinary course of business;
. make or change any material tax election or make any material tax
agreement or settlement;
. acquire by merger or otherwise any business or entity or acquire any
material assets; and
. authorize or agree to do any of the listed actions.
Access to Information. PalEx and IFCO Systems have each agreed to provide
the other party and the other party's representatives with full access during
normal business hours to all the properties and records of it and its
subsidiaries. For IFCO Systems, this includes access by PalEx and its
representatives to the properties and records of IFCO U.S. and to the
underwriters and their representatives in connection with the IPO. Each
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<PAGE>
party will also promptly provide the other party with (1) a copy of any report
or filing made under securities laws or stock exchange regulations or filed in
connection with the merger agreement and (2) other information as reasonably
requested.
Employee Matters. For at least two years following the effective time of the
merger, IFCO Systems will provide all current and former employees of PalEx and
its subsidiaries with compensation and benefits that are at least generally as
favorable as the compensation and benefits they were entitled to receive
immediately before the effective time. This includes benefits pursuant to
retirement plans, medical plans, layoff policies, and deferred compensation
arrangements. In addition, time of service with PalEx or any of its
subsidiaries will be recognized for purposes of determining any benefit
eligibility, vesting, or accrual. IFCO Systems is not, however, required to
grant any stock options to any employee unless required pursuant to a separate
agreement.
IFCO Systems will also honor each existing employment, severance, and
termination agreement between PalEx or any of its subsidiaries and any
director, officer, or employee. IFCO Systems will not unilaterally amend any of
these agreements for at least two years in any way that would reduce or impair
benefits payable to a covered employee.
Waiver of Change of Control Payments. Some of PalEx's officers and key
employees have employment agreements that provide for severance payments upon a
change of control of PalEx. The merger will constitute a change of control
under these agreements. Pursuant to the merger agreement, PalEx has agreed to
use its reasonable efforts to cause the 15 employees with this type of
employment agreement to waive any rights of termination and rights to receive
severance or other payments from PalEx in connection with a change of control
resulting from the merger. Waivers by at least 11 of these employees is a
condition to IFCO Systems' obligations to complete the merger.
Stock Options to IFCO Systems Management. Under the merger agreement, as of
the closing date of the merger, IFCO Systems will issue options to purchase
300,000 IFCO Systems ordinary shares to each of Christoph Schoeller, Martin
Schoeller, and Sam Humphreys as incentive compensation for their involvement in
the business of IFCO Systems. The exercise price for these options will be the
IPO price. On or after the closing date, IFCO Systems also shall be entitled to
issue options to purchase up to 1,000,000 IFCO Systems ordinary shares to
employees of Schoeller Industries or its affiliates. Christoph and Martin
Schoeller are not eligible to receive any of these options. In addition, no
eligible employee may be granted options for more than 100,000 shares. The
exercise price for these options will be the market value per IFCO Systems
ordinary share on the date of grant, which will be the IPO price if the options
are granted on the closing date of the merger and the IPO. Each of these
options will be fully exercisable on the date of grant.
Indemnification and Insurance of PalEx Directors and Officers. After the
effective time of the merger, IFCO Systems and PalEx, as the surviving
corporation in the merger, will each indemnify, to the fullest extent permitted
under applicable law, all present and former directors, officers, employees,
and agents of PalEx or any of its subsidiaries against claims related to any
action or omission in connection with the person's service to PalEx before the
effective time. This indemnification obligation includes the payment of
reasonable legal fees and expenses and other reasonable expenses before the
final resolution of any claim. For six years after the effective time, IFCO
Systems will maintain the current PalEx policies of directors' and officers'
liability insurance or will maintain substitute policies that have at least the
same coverage and are otherwise materially the same as the current policies.
IFCO Systems' obligation is, however, limited to insurance coverage costing not
more than 130% of the previous year's cost.
Listing of IFCO Systems Ordinary Shares. IFCO Systems has agreed to use all
reasonable efforts to have the IFCO Systems ordinary shares to be issued in the
merger, or reserved for issuance upon the exercise of stock options or warrants
or the conversion or exchange of convertible or exchangeable securities,
authorized for listing on the Amtlicher Handel segment or on the Neuer Markt
segment of the Frankfurt Stock Exchange.
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IFCO Systems has also agreed to use all reasonable efforts to cause the New
York shares representing these IFCO Systems ordinary shares to be approved for
listing on the Nasdaq National Market.
Other Agreements. The merger agreement contains other mutual agreements of
the parties relating to:
. actions to be taken with respect to the intended tax treatment of the
merger;
. press releases or public announcements;
. notification of any event that would cause any representation or
warranty in the merger agreement to be untrue or materially inaccurate;
. notification of any material failure to perform an agreement or satisfy
a condition; and
.restrictions on related party transactions after the merger.
The parties have also agreed to the following:
. Schoeller Industries or its affiliates will transfer or license to IFCO
Systems all technology necessary for the business of IFCO Systems to the
extent possessed by Schoeller Industries or its affiliates;
. IFCO Systems and IFCO International will use their reasonable best
efforts to complete the purchase of the remaining interests of IFCO
U.S.; and
. PalEx will use its reasonable efforts to amend the documents governing
the SMG exchangeable shares to provide for exchange into the merger
consideration as provided in the merger agreement.
Representations and Warranties
Representations and Warranties of PalEx. The merger agreement includes
standard representations and warranties by PalEx to Schoeller Industries, which
must continue to be true and correct on the closing date of the merger, except
as otherwise provided in the merger agreement. These representations and
warranties are as to:
. corporate organization, standing, and foreign qualifications of PalEx
and its subsidiaries;
. capitalization of PalEx;
. ownership by PalEx of the shares of capital stock of its subsidiaries;
. power and authority of PalEx to execute the merger agreement and,
subject to approval of the merger agreement by PalEx's stockholders,
complete the merger;
. no violation, conflicts, breaches, or defaults of PalEx's certificate of
incorporation or bylaws, laws and regulations applicable to PalEx or its
subsidiaries, and instruments or agreements to which PalEx or its
subsidiaries are bound as a result of executing and delivering the
merger agreement or completing the merger;
. consents, required filings, or approvals needed for the merger;
. accuracy of statements and reports PalEx has filed with the SEC and of
PalEx's financial statements;
. absence of undisclosed liabilities;
. absence of identified changes or events since December 27, 1998;
. pending or threatened litigation;
. accuracy of information provided for this proxy statement/prospectus or
the registration statement;
. compliance with laws and regulations and possession and no violation of
all government permits necessary for the business of PalEx and its
subsidiaries;
. compliance by PalEx and its subsidiaries with their certificate or
articles of incorporation and bylaws and with agreements binding them;
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. environmental matters;
. tax matters;
. existence, terms, and compliance with applicable laws of PalEx's
employee benefit plans;
. labor matters;
. ownership of and rights to use intangible property;
. title of PalEx and its subsidiaries to their assets;
. insurance coverage maintained by PalEx and its subsidiaries;
. year 2000 computer systems and software compliance;
. no action taken that would prevent the merger from constituting a
qualified reorganization under Section 368(a) of the Internal Revenue
Code;
. stockholder approval necessary to approve the merger agreement;
. brokers and finders engaged by PalEx; and
. a fairness opinion delivered by Batchelder.
Representations and Warranties of the IFCO Companies. The merger agreement
also includes standard representations and warranties by each of the IFCO
Companies to PalEx, which must continue to be true and correct on the closing
date of the merger, except as otherwise provided in the merger agreement. These
representations and warranties are as to:
. corporate organization, standing, and foreign qualifications of each
IFCO Company and its subsidiaries;
. capitalization of each IFCO Company;
. ownership by each IFCO Company of the shares of capital stock or other
equity interests of its subsidiaries;
. power and authority of each IFCO Company to execute the merger agreement
and complete the merger;
. no violation, conflicts, breaches, or defaults with respect to each IFCO
Company's governing corporate documents, laws and regulations applicable
to each IFCO Company or its subsidiaries, and instruments or agreements
to which each IFCO Company or its subsidiaries are bound as a result of
executing and delivering the merger agreement or completing the merger;
. consents, required filings, or approvals needed for the merger;
. accuracy of each IFCO Company's financial statements;
. absence of undisclosed liabilities;
. liabilities and other obligations of each IFCO Company to Schoeller
Industries or any affiliate of Schoeller Industries;
. absence of identified changes or events since December 31, 1998;
. pending or threatened litigation;
. accuracy of information provided for this proxy statement/prospectus or
the registration statement;
. compliance with laws and regulations and possession and no violation of
all government permits necessary for the business of each IFCO Company
and its subsidiaries;
. compliance by each IFCO Company and its subsidiaries with their
memorandum or articles of association and with agreements binding them;
. environmental matters;
. tax matters;
. existence, terms, and compliance with applicable laws of each IFCO
Company's employee benefit plans;
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. labor matters;
. ownership of and rights to use intangible property;
. title of each IFCO Company and its subsidiaries to their assets;
. insurance coverage maintained by each IFCO Company and its subsidiaries;
. year 2000 computer systems and software compliance;
. no action taken that would prevent the merger from constituting a
qualified reorganization under Section 368(a) of the Internal Revenue
Code;
. brokers and finders engaged by each IFCO Company; and
. no ownership of shares of PalEx common stock.
Representations and Warranties of Schoeller Industries. The merger agreement
also includes standard representations and warranties by Schoeller Industries
to PalEx, which must continue to be true and correct on the closing date of the
merger, except as otherwise provided in the merger agreement. These
representations and warranties are as to:
. capitalization of Schoeller Industries;
. ownership and status of IFCO Companies' capital shares;
. corporate organization and standing and power and authority of Schoeller
Industries to execute the merger agreement and complete the merger;
. consents, required filings, or approvals needed for the merger;
. no violation, conflicts, breaches, or defaults of any governmental
requirement, Schoeller Industries governing corporate documents, laws
and regulations applicable to Schoeller Industries or its subsidiaries,
and instruments or agreements to which Schoeller Industries or its
subsidiaries are bound as a result of executing and delivering the
merger agreement or completing the merger;
. pending or threatened litigation;
. no brokers and finders engaged by Schoeller Industries;
. lack or waiver of preemptive rights or similar rights to acquire any
capital shares of the IFCO Companies or their subsidiaries;
. no ownership of shares of PalEx common stock; and
. net worth in excess of DM100.0 million, or approximately $49.9 million.
Conditions to Completion of the Merger
Joint Conditions. The merger agreement provides that the obligations of each
party to complete the transactions described in the merger agreement are
subject to the following conditions:
. IPO minimum valuation. The pricing of the IPO must imply a minimum
market valuation, assuming completion of the merger but before the IPO,
of $400.0 million for the combined company based on the currency
exchange rate as of the IPO pricing date.
. Merger and IPO closing. The closing of the merger and the IPO must occur
on the same day.
. PalEx stockholder approval. The merger agreement must have been approved
by the required vote of PalEx stockholders.
. Listing of IFCO Systems ordinary shares. The IFCO Systems ordinary
shares issuable in both the merger and the IPO, and the shares reserved
for issuance on the exercise of converted stock options and warrants,
must have been authorized for listing on the Amtlicher Handel or on the
Neuer Markt.
. Listing of New York shares. New York shares representing the IFCO
Systems ordinary shares issuable in the merger, and the shares reserved
for issuance on the exercise of converted stock options and warrants,
must have been authorized for listing on the Nasdaq National Market.
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. Required consents. Each of PalEx and Schoeller Industries and IFCO
Systems must have obtained all required, material consents to the merger
and related transactions.
. Antitrust matters. The waiting period under the HSR Act and any similar
European government requirements must have expired or terminated, and
any necessary consents or approvals pursuant to any European government
requirements must have been obtained.
. Effectiveness of registration statement. The registration statement must
have become effective and there must be no stop order or pending stop
order to suspend its effectiveness.
. State securities laws compliance. IFCO Systems must have received all
necessary permits or authorizations for the merger and related
transactions under applicable state securities laws and they must be in
full force.
. No injunction. There must be no preliminary or permanent injunction,
order, or ruling by any court or governmental authority that prevents
completion of the merger.
. Law or government action. No law or regulation must have been enacted,
and no action must have been taken by any governmental authority, in the
United States, Germany, or the Netherlands that would prevent completion
of the merger or make it illegal.
PalEx's Conditions. The merger agreement also provides that the obligation of
PalEx to complete the merger is subject to the following conditions:
. Performance by IFCO Systems and Silver Oak. IFCO Systems and Silver Oak
must have performed in all material respects their agreements contained
in the merger agreement.
. Representations and warranties of IFCO Systems and Schoeller
Industries. The representations and warranties of IFCO Systems and
Schoeller Industries in the merger agreement must be true in all
material respects as of the date of the merger agreement and as of the
closing date of the merger.
. Tax ruling. PalEx must have received a private ruling from the IRS that
the PalEx stockholders qualify for an exception to Section 367(a)(1) of
the Internal Revenue Code with respect to the merger, and the tax ruling
must not have been withdrawn or materially modified.
. Tax opinion. On or before the date this proxy statement/prospectus is
mailed to PalEx stockholders, PalEx must have received an opinion from
Baker Botts to the effect that the merger should be treated as a
reorganization under the Internal Revenue Code and IFCO Systems should
be treated as a corporation with respect to the merger. As of the
closing date of the merger, the opinion must not have been withdrawn or
materially modified. PalEx must also have received a second tax opinion
from Baker Botts reconfirming the first tax opinion. In giving its
opinion, Baker Botts may rely on the IRS tax ruling.
. Contribution of shares. The contribution of shares to IFCO Systems from
Schoeller Industries and its affiliate must have been completed.
. GE transactions. The transactions contemplated in the Option Release
Agreement must have been completed, including GE Erste's contribution to
IFCO Systems of GE Subsidiary's preferential share in IFCO Europe.
. IPO closing. The closing of the IPO must not yet have occurred. In
addition, the closing date of the IPO must not be more than 45 days
after the date of the PalEx stockholders' meeting. If PalEx receives
outside legal advice that it must recirculate a supplemented proxy
statement/prospectus and resolicit proxies for the meeting and if
Schoeller Industries has received voting agreements covering at least
51% of the outstanding shares of PalEx common stock, PalEx is required
to hold a new stockholders' meeting and a new 45-day period will run
from the date of the new meeting.
. Purchase of IFCO U.S. IFCO Systems' agreement to purchase the remaining
interest in IFCO U.S. must not have been amended in any material respect
and must be in full force and effect.
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IFCO Systems' Conditions. The merger agreement also provides that the
obligations of IFCO Systems, Silver Oak, and Schoeller Industries to complete
the transactions described in the merger agreement are subject to the following
conditions:
. Performance by PalEx. PalEx must have performed in all material respects
its agreements contained in the merger agreement.
. Representations and warranties of PalEx. The representations and
warranties of PalEx in the merger agreement must be true in all material
respects as of the date of the merger agreement and as of the closing
date of the merger.
. Lockup agreements. IFCO Systems must have received a lockup agreement
from at least ten of the 13 identified officers and senior executives of
PalEx and its subsidiaries.
. Waivers of change of control payments. IFCO Systems must have received a
waiver from at least 11 of the 15 PalEx employees who have employment
agreements with change of control severance provisions.
Extension and Waiver
Prior to the effective time of the merger, the parties may extend the time
for performance of a party or waive compliance with any representation and
warranty, agreement, or condition in the merger agreement. Any extension or
waiver must be in writing and may be given at any time before the closing date
of the merger, whether before or after the approval of PalEx's stockholders has
been obtained.
Termination of the Merger Agreement; Payment of a Termination Fee
Rights of Schoeller Industries or PalEx to Terminate. At any time before the
closing of the merger, Schoeller Industries and PalEx may terminate the merger
agreement by mutual written consent. In addition, either Schoeller Industries
or PalEx may terminate the merger agreement if:
. the closing date of the IPO is not on or before May 31, 2000;
. as of the pricing date of the IPO, the IPO pricing as recommended by the
IPO managing underwriters implies a market valuation of IFCO Systems,
assuming completion of the merger but before the IPO, less than $400.0
million for the combined company based on the currency exchange rate on
the pricing date;
. the PalEx stockholders fail to approve and adopt the merger agreement at
the PalEx stockholders' meeting, provided that the PalEx board of
directors has not withdrawn or modified its approval or recommendation
of the merger agreement before the meeting;
. IFCO Systems does not obtain an authorization for listing on the
Amtlicher Handel or the Neuer Markt and that failure is not cured within
30 days after IFCO Systems receives notice;
. IFCO Systems' agreement to purchase the remaining interest in IFCO U.S.
is terminated for any reason;
. the representations and warranties of the other party contained in the
merger agreement fail to be true in all material respects as of the date
made and the facts giving rise to the failure have not been cured within
30 days after written notice is given to the other party;
. the other party fails to perform in any material respect its agreements
under the merger agreement and the failure is not cured within 30 days
after notice to the other party; or
. the merger is enjoined by a final, nonappealable order or ruling of a
court or governmental authority with jurisdiction, provided that the
order or ruling was not entered at the request of the party seeking
termination or its affiliates.
Rights of PalEx to Terminate. PalEx may also terminate the merger agreement
if:
. The PalEx board of directors, in compliance with the merger agreement,
withdraws or modifies its approval or recommendation of the merger
agreement before the PalEx stockholders' meeting because of a superior
acquisition proposal.
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. The PalEx stockholders fail to approve and adopt the merger agreement at
the meeting.
. PalEx enters into a binding agreement with respect to the superior
acquisition proposal. If PalEx terminates the merger agreement on this
basis, it must pay Schoeller Industries a termination fee.
Rights of Schoeller Industries to Terminate. Schoeller Industries may also
terminate the merger agreement for the following reasons:
. The PalEx board of directors, in compliance with the merger agreement,
withdraws or modifies its approval or recommendation of the merger
agreement before the PalEx stockholders' meeting because of a superior
acquisition proposal or approves, recommends, or proposes to approve or
recommend a superior acquisition proposal.
. The PalEx board of directors, in compliance with the merger agreement,
withdraws or modifies its approval or recommendation of the merger
agreement before the PalEx stockholders' meeting because of a superior
acquisition proposal and the PalEx stockholders fail to approve and
adopt the merger agreement at the meeting. If Schoeller Industries
terminates the merger agreement on this basis, PalEx must pay Schoeller
Industries a termination fee.
. For any other reason, in its sole discretion, if at the time of
termination all the representations and warranties of the IFCO Companies
and Schoeller Industries are true in all material respects and the IFCO
Companies and Schoeller Industries are not in material breach of any
their agreements under the merger agreement. If Schoeller Industries
terminates the merger agreement on this basis, it must pay PalEx a
termination fee.
Effect of Termination. The merger agreement generally provides that if it is
terminated, the merger agreement will immediately be void and none of the
parties will have any further obligation, except for (1) payment of termination
fees, (2) the confidential treatment of information, and (3) payment of
expenses.
Payment of Termination Fee. If PalEx is obligated to pay Schoeller Industries
a termination fee for the reasons identified above, the termination fee will be
equal to 5% of PalEx's market capitalization on the date of termination.
PalEx's market capitalization will be determined by multiplying the closing
sale price per share reported by Nasdaq on the date of termination by the sum
of the number of shares of PalEx common stock and SMG exchangeable shares
outstanding on the date of termination.
If Schoeller Industries is obligated to pay PalEx a termination fee for the
single reason identified above, the termination fee will be DM12.0 million, or
approximately $6.0 million.
Expenses
Except as otherwise previously agreed by the parties or provided in the
merger agreement, each party is responsible for paying its own costs and
expenses related to the merger agreement and the transactions contemplated by
the merger agreement. Under the merger agreement, the parties have agreed that
Schoeller Industries and IFCO Systems on the one hand and PalEx on the other
hand will each pay one-half of the costs, expenses, and filing fees in
connection with (1) filing, printing, and mailing of this proxy
statement/prospectus and the registration statement and (2) the filings of
premerger notification and report forms under the HSR Act and similar European
government requirements. In addition, if the merger is completed, IFCO Systems
will be responsible for IFCO Systems' and PalEx's professional fees and
expenses and costs and expenses incurred by PalEx in connection with new,
interim financing to be obtained before the IPO.
Amendment
The parties to the merger agreement may not amend the merger agreement except
by action taken by their management boards, managing directors, and boards of
directors and then only by written amendment signed by each of the parties. The
merger agreement may be amended at any time before the closing date of the
merger, whether before or after the approval of PalEx's stockholders has been
obtained.
Governing Law
The merger agreement is generally governed by Delaware law. To the extent
required by the laws of the Netherlands, the share exchange for the merger will
be governed by the laws of the Netherlands.
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CONCURRENT TRANSACTIONS
The IPO
General
On the same day as, and directly following, the closing of the merger, IFCO
Systems will complete the IPO of IFCO Systems ordinary shares. The shares will
be listed on the Frankfurt Stock Exchange and, for shares sold to U.S.
investors, on the Nasdaq National Market. Approximately 11.8 million shares are
expected to be offered in the IPO. The initial public offering price of the
shares, and the number of shares offered, will be determined by the
underwriters for the IPO, in consultation with IFCO Systems, after the PalEx
special stockholders' meeting but before the closing of the merger, and will be
based on the market conditions prevailing at the time. Neither this proxy
statement/prospectus nor any of the information contained in this proxy
statement/prospectus is, or should be considered to be, an offer to sell shares
in the IPO. The offering of the shares in the IPO will be made to prospective
investors only by a separate prospectus. Assuming PalEx stockholders elect to
receive 49% of the total merger consideration in cash, upon completion of the
IPO there will be approximately 38.7 million IFCO Systems ordinary shares
outstanding. The IPO is a condition to the closing of the merger. The IPO is
conditioned upon the closing, on the same day, of the merger, and IFCO Systems'
high yield debt financing. In addition, the IPO is conditioned upon IFCO
Systems receiving total proceeds from the IPO and the high yield debt of at
least $250.0 million.
Listing
IFCO Systems has applied to list the IFCO Systems ordinary shares on the
Amtlicher Handel segment of the Frankfurt Stock Exchange, with registration in
SMAX, under the symbol "ife" and, for shares issued or sold to U.S. investors,
to be quoted on the Nasdaq National Market under the symbol "IFCO".
The Frankfurt Stock Exchange
The Frankfurt Stock Exchange is operated by Deutsche Borse AG and is the most
significant of the eight German stock exchanges. In 1999, it has accounted for
approximately 84% of the volume of traded shares in Germany. The total volume
of equities traded on the Frankfurt Stock Exchange in 1999 was approximately
4.0 trillion euros, based on the Frankfurt Stock Exchange's practice of
recording the sale and purchase components involved in any trade as separate
transactions, for both equity and debt instruments. In 1998, the Frankfurt
Stock Exchange was the fourth largest stock exchange in the world behind the
New York Stock Exchange, The Nasdaq Stock Market, and the London Stock Exchange
based on trading volume. As of December 30, 1999, 3,418 equity securities were
listed on the Frankfurt Stock Exchange.
The Frankfurt Stock Exchange has four basic segments:
. Amtlicher Handel, the Official Market;
. Geregelter Markt, the Regulated Market;
. Freiverkehr, the Over-the-Counter Segment; and
. Neuer Markt, the New Market.
Amtlicher Handel. The Amtlicher Handel is the first segment of the stock
exchange with all officially listed securities. The DAX is the index of the 30
most actively traded domestic Amtlicher Handel equities. As of January 7, 2000,
the DAX was 6,780.96.
SMAX. Due to the focus of investors on the large DAX values, on April 26,
1999, Deutsche Borse created the Small Caps Exchange, or SMAX, as an additional
segment, to improve the position of established small and medium-sized
companies from traditional industries. The requirements of the SMAX are a free
float of shares of at least 20%, one designated sponsor, acceptance of the
German take-over code, quarterly reporting, disclosure of share ownership of
board members and executive officers, and at least one analyst presentation per
year, to ensure transparency and high liquidity. Each equity listed on the SMAX
is required to
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have at least one designated sponsor who acts as financial intermediary
furnishing liquidity by, either voluntarily or on request, posting bid and
offer limits. The Frankfurt Stock Exchange believes this activity enhances
trading results in the narrowing of bid/offer spreads. Participation in SMAX
requires admission to trading on the Amtlicher Handel or the Regulated Market,
a less prominent market segment. A company listed on the SMAX cannot be
included on the DAX or listed on the Neuer Markt. As of January 7, 2000, 129
equities were listed on the SMAX with a weighted market capitalization of 14.0
billion euros.
Financing Transactions
At the same time as the completion of the merger and the IPO, IFCO Systems
plans to issue approximately 180.0 million euros, or approximately $175.6
million, of debt in the form of a high yield financing and enter into a new
senior credit facility. The completion of the high yield debt financing is
conditioned upon the completion of the merger, the IPO, and the new senior
credit facility. Neither this proxy statement/prospectus nor any of the
information contained in this proxy statement/prospectus is, or should be
considered to be, an offer to sell, or an invitation to participate in, any
future financings.
Purchase of Remaining Interest in U.S. Joint Venture
At the same time as, or within five days following, the completion of the
IPO, IFCO Systems has agreed to purchase the interest of Intertape Polymer
Group Inc. in IFCO-U.S., L.L.C., a joint venture between IFCO International and
Intertape. IFCO Systems will purchase Intertape's interest for approximately
$5.0 million in cash. In addition, IFCO International will repay debt owed by
IFCO U.S. to Intertape, which as of October 31, 1999, was approximately $25.5
million.
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CAPITALIZATION
The following table sets forth the IFCO Companies' historical combined
capitalization as of October 31, 1999, and IFCO Systems' capitalization on a
pro forma combined basis as of October 31, 1999. You should read this table
along with "Unaudited Pro Forma Combined Financial Statements" and the IFCO
Companies' financial statements included in this proxy statement/prospectus.
<TABLE>
<CAPTION>
As of October 31, 1999
---------------------------
IFCO Companies IFCO Systems
Historical Pro Forma
Combined Combined
-------------- ------------
(in thousands)
(unaudited) (unaudited)
<S> <C> <C>
Cash and cash equivalents........................... $ 9,134 $ --
======== ========
Long-term debt (including current maturities):
Long-term debt (including related party loans).... $ 75,350 $ 22,682
Other long-term debt.............................. -- 189,324
Capital lease obligations......................... 31,296 31,296
Promissory note payable........................... -- 20,061
-------- --------
Total long-term debt............................ 106,646 263,363
Participating rights................................ 3,871 --
Redeemable participating rights..................... 1,477 --
Redeemable convertible preferred stock.............. 26,335 --
Stockholders' equity:
Common stock/paid-in capital...................... -- 273,742
Contributed share capital......................... 10,017 --
Retained (deficit)................................ (46,400) (46,400)
Other stockholders' equity........................ 1,076 1,076
-------- --------
Total stockholders' equity...................... (35,307) 228,418
-------- --------
Total capitalization............................ $103,022 $491,781
======== ========
</TABLE>
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UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Basis of Presentation
The following unaudited pro forma combined financial statements give effect
to:
. the acquisitions by IFCO Systems of the outstanding capital stock of
PalEx, IFCO Europe, MTS, and IFCO International;
. the IPO and other concurrent transactions; and
. IFCO Systems' acquisition of the minority interest in IFCO U.S.
The acquisitions of PalEx will be 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 pro forma combined balance sheet gives effect to the
acquisitions, the IPO, and other related and concurrent transactions as if they
had occurred on October 31, 1999. The unaudited pro forma combined statements
of operations give effect to these transactions as if they had occurred on
January 1, 1998.
IFCO Systems expects that the combination of the IFCO Companies and PalEx
will allow the companies to take advantage of synergies among their businesses,
including the use of PalEx's infrastructure in North America to expand the
rental pools of RTCs and pallets in North America. IFCO Systems cannot quantify
any advantages or additional costs of the combinations until completion of the
acquisitions. No estimates of any advantages or additional costs have been
included in the pro forma financial information.
The pro forma adjustments are based on preliminary estimates, available
information, and assumptions that IFCO Systems' management deems appropriate
and may be revised as additional information becomes available. IFCO Systems'
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 IFCO Systems' 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 IFCO
Systems' financial position or results of operations for any future periods.
The pro forma combined 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 the IFCO
Companies and PalEx included in this proxy statement/prospectus.
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IFCO Systems N.V.
Unaudited Pro Forma Combined Balance Sheet
As of October 31, 1999
(In thousands)
<TABLE>
<CAPTION>
IFCO IFCO
Systems Systems
IFCO Pro Forma Pro Forma
Companies PalEx Adjustments Combined
--------- -------- ----------- ---------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents............. $ 9,134 $ 5,255 $ (14,389)b,c,d, $ --
e,f,g,h,i
Accounts receivable,
net..................... 81,509 51,068 6,114 e 138,691
Inventories.............. 3,838 27,535 -- 31,373
Other current assets..... -- 11,457 29 e 11,486
-------- -------- --------- --------
Total current assets.... 94,481 95,315 (8,246) 181,550
PROPERTY, PLANT AND
EQUIPMENT, net........... 162,772 75,239 11,687 e 249,698
GOODWILL AND OTHER
INTANGIBLE
ASSETS, net.............. 8,698 125,406 119,352 b,e,h 253,456
OTHER ASSETS.............. 7,695 3,657 14,243 a,d 25,595
-------- -------- --------- --------
Total assets............ $273,646 $299,617 $ 137,036 $710,299
======== ======== ========= ========
CURRENT LIABILITIES:
Current maturities of
long-term debt.......... $ 8,167 $145,030 $(153,197)e,f $ --
Current maturities of
capital lease
obligations............. 10,528 -- -- 10,528
Refundable deposits...... 70,820 -- 3,439 e 74,259
Accounts payable......... 76,533 11,232 -- e,g 87,765
Other current
liabilities............. 17,587 23,850 1,222 e 42,659
-------- -------- --------- --------
Total current
liabilities............ 183,635 180,112 (148,536) 215,211
ACCUMULATED LOSSES IN
EXCESS OF INVESTMENT IN
EQUITY ENTITIES.......... 5,684 -- (5,590)e 94
LONG-TERM DEBT AND RELATED
PARTY LOANS, net of
current maturities....... 67,183 2,151 (46,652)f 22,682
CAPITAL LEASE OBLIGATIONS,
net of current
maturities............... 20,768 -- -- 20,768
OTHER LONG-TERM DEBT...... -- -- 189,324 d 189,324
PROMISSORY NOTE PAYABLE... -- -- 20,061 h 20,061
OTHER LIABILITIES......... -- 13,741 -- 13,741
PARTICIPATING RIGHTS...... 3,871 -- (3,871)i --
REDEEMABLE PARTICIPATING
RIGHTS................... 1,477 -- (1,477)i --
REDEEMABLE CONVERTIBLE
PREFERRED STOCK.......... 26,335 -- (26,335)b --
STOCKHOLDERS' EQUITY:
Ordinary shares.......... -- 203 (203)a,b --
Paid-in capital.......... 10,017 79,107 184,618 b,c,d 273,742
Other stockholders'
equity.................. 1,076 (901) 901 b 1,076
Retained earnings
(deficit)............... (46,400) 25,204 (25,204)b (46,400)
-------- -------- --------- --------
Total stockholders'
equity................. (35,307) 103,613 160,112 228,418
-------- -------- --------- --------
Total liabilities and
stockholders' equity... $273,646 $299,617 $ 137,036 $710,299
======== ======== ========= ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
77
<PAGE>
IFCO Systems N.V.
Unaudited Pro Forma Combined Statement of Operations
For the year ended December 31, 1998
(In thousands, except for share and per share data)
<TABLE>
<CAPTION>
PalEx
-----------------------------------------------
IFCO
Total Systems IFCO Systems
IFCO As Previously Purchase Pro Forma Pro Pro Forma Pro Forma
Companies Reported Acquisitions Adjustments Forma Adjustments Combined
--------- ------------- ------------ ----------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES................ $134,721 $319,691 $60,163 $ -- $379,854 $ 1,657 i $ 516,232
COST OF GOODS SOLD...... 106,218 259,562 45,389 (349)a 304,602 2,651 i 413,471
INVENTORY VALUATION
ADJUSTMENT............. -- 1,235 -- -- 1,235 -- 1,235
-------- -------- ------- ------- -------- ------- -----------
Gross profit........... 28,503 58,894 14,774 349 74,017 (994) 101,526
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 28,515 33,042 11,375 (1,239)a 43,178 1,719 i 73,412
AMORTIZATION OF GOODWILL
AND OTHER INTANGIBLE
ASSETS................. 383 3,334 -- 1,273b 4,607 4,208 e 9,198
POOLING EXPENSES........ -- 1,841 -- (1,841)a -- -- --
COMPENSATION
DIFFERENTIAL........... -- 1,062 -- (1,062)a -- -- --
RESTRUCTURING CHARGE.... -- 949 -- -- 949 -- 949
PLANT CLOSURE COSTS AND
ASSET ABANDONMENT
LOSS................... -- 1,369 -- -- 1,369 -- 1,369
OTHER OPERATING
(INCOME), net.......... (3,081) -- -- -- -- -- (3,081)
-------- -------- ------- ------- -------- ------- -----------
Income (loss)
from operations....... 2,686 17,297 3,399 3,218 23,914 (6,921) 19,679
NET INTEREST COST....... (7,030) (8,468) -- (2,925)c (11,393) (5,009)f,g,h,j (23,432)
OTHER INCOME (EXPENSE),
net.................... (2,997) 262 751 -- 1,013 1,960 i (24)
-------- -------- ------- ------- -------- ------- -----------
(Loss) income before
provision for income
taxes ................ (7,341) 9,091 4,150 293 13,534 (9,970) (3,777)
INCOME TAX PROVISION ... 210 5,105 -- 1,917d 7,022 (70) k 7,162
-------- -------- ------- ------- -------- ------- -----------
Net (loss) income...... $ (7,551) $ 3,986 $ 4,150 $(1,624) $ 6,512 $(9,900) $ (10,939)
======== ======== ======= ======= ======== ======= ===========
Net loss per share--
basic and diluted...... $ (.28)l,m
===========
Shares used in computing
net loss per share--
basic and diluted...... 38,683,118 m
===========
Calculation of EBITDA
and non-recurring
charges (n):
Net loss................ $ (10,939)
Provision for income
taxes.................. 7,162
Net interest cost....... 23,432
-----------
EBIT................... 19,655
Depreciation and
amortization........... 48,194
Restructuring charges... 3,553
-----------
EBITDA and non-
recurring charges..... $ 71,402
===========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
78
<PAGE>
IFCO Systems N.V.
Unaudited Pro Forma Combined Statement of Operations
For the ten months ended October 31, 1999
(In thousands, except for share and per share data)
<TABLE>
<CAPTION>
IFCO
Systems IFCO Systems
IFCO Pro Forma Pro Forma
Companies PalEx Adjustments Combined
--------- -------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUES................ $126,399 $320,433 $ 4,268 i $ 451,100
COST OF GOODS SOLD...... 100,330 257,472 4,203 i 362,005
-------- -------- ------- -----------
Gross profit........... 26,069 62,961 65 89,095
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 24,029 36,142 1,641 i 61,812
AMORTIZATION OF GOODWILL
AND OTHER INTANGIBLE
ASSETS................. 344 3,993 3,506 e 7,843
OTHER OPERATING
(INCOME), net.......... (1,976) -- -- (1,976)
-------- -------- ------- -----------
Income (loss)
from operations....... 3,672 22,826 (5,082) 21,416
NET INTEREST COST....... (6,881) (12,047) (2,672)f,g,h,j (21,600)
OTHER INCOME (EXPENSE),
net.................... (2,933) 1,387 1,467 i (79)
-------- -------- ------- -----------
(Loss) income before
provision for income
taxes ................ (6,142) 12,166 (6,287) (263)
INCOME TAX PROVISION ... 144 5,402 286 k 5,832
-------- -------- ------- -----------
Net (loss) income...... $ (6,286) $ 6,764 $(6,573) $ (6,095)
======== ======== ======= ===========
Net loss per share--
basic and diluted...... $ (.16)l,m
===========
Shares used in computing
net loss per share--
basic and diluted...... 38,683,118 m
===========
Calculation of EBITDA
and non-recurring
charges (n):
Net loss ............... $ (6,095)
Provision for income
taxes.................. 5,832
Net interest cost....... 21,600
-----------
EBIT................... 21,337
Depreciation and
amortization........... 45,848
-----------
EBITDA and non-
recurring charges..... $ 67,185
===========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
79
<PAGE>
IFCO Systems N.V.
Notes to Unaudited Pro Forma Combined Financial Statements
1.GENERAL
The historical financial statements reflect the financial position and
results of operations of the IFCO Companies and PalEx and were derived from
their respective financial statements. The periods included in these financial
statements for the IFCO Companies and PalEx are as of October 31, 1999, and for
the year ended December 31, 1998, and the ten months ended October 31, 1999,
for the IFCO Companies and as of October 24, 1999, and for the year ended
December 27, 1998, and the ten-month period ended October 24 1999, for PalEx.
The financial statements of PalEx reflect adjustments to the year ended
December 27, 1998, to present the effect of acquisitions accounted for under
the purchase method, under the caption "Total Purchase Acquisitions," as if the
acquisitions were effective January 1, 1998.
2.THE MERGER AND CONCURRENT TRANSACTIONS
IFCO Systems will issue its ordinary shares in exchange for all the
outstanding capital stock of the IFCO Companies and between 51% and 60% of the
outstanding capital stock of PalEx. The following pro forma adjustments assume
that PalEx stockholders elect to receive 49% of the merger consideration in
cash. If PalEx stockholders were to elect to receive 40% of the merger
consideration in cash, rather than 49%, pro forma net (loss) would be
approximately $(10.0) million and pro forma net (loss) per share would be
$(.26) during the year ended December 31, 1998. Pro forma net (loss) would be
approximately $(5.2) million and pro forma net (loss) per share would be $(.13)
during the ten months ended October 31, 1999. 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.
3.UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
a. Reflects the issuance of 200,000 shares of PalEx common stock to PalEx's
financial advisor immediately prior to the IPO and the corresponding
reduction of paid-in capital as a transaction cost.
b. Reflects:
. the acquisition of PalEx for approximately $184.5 million consisting
of approximately 6.9 million IFCO Systems ordinary shares and
approximately $90.4 million in cash issued to PalEx stockholders;
. the contribution to IFCO Systems of the redeemable convertible
preferred stock of IFCO Europe previously held by GE Erste; and
. approximately 20.0 million IFCO Systems ordinary shares to the
shareholders of the IFCO Companies, which will be recorded at book
value. The acquisition price of PalEx is $9.00 under the terms of
the merger agreement. This adjustment reflects the election of the
PalEx shareholders to receive 49% of the value of their common stock
in cash, which represents the maximum percentage of cash PalEx
stockholders will receive. The number of IFCO Systems ordinary
shares issued to shareholders of the IFCO Companies and to PalEx
stockholders assumes an IPO valuation of approximately $13.60 per
ordinary share and makes assumptions regarding the valuation of IFCO
Systems before the IPO and before the distribution of 49% of the
value of PalEx in cash to PalEx's stockholders. These assumptions
are not necessarily indicative of the actual pre-IPO valuation, IPO
size, or IPO price per share.
c. Reflects the cash proceeds of approximately $143.3 million from the
issuance of approximately 11.8 million IFCO Systems ordinary shares, net
of estimated offering costs of approximately $16.7 million. Offering
costs consist principally of underwriting discounts and commissions,
accounting, advisory, and legal fees and printing expenses.
d. Reflects issuance of (Euro)180.0 million of long-term debt, translated
to approximately $189.3 million using the exchange rate as of October
29, 1999, of one euro = $1.0518, with interest payable at 10% per year,
net of related financing costs of approximately $14.2 million, including
the costs of refinancing the credit facilities of PalEx and the IFCO
Companies.
80
<PAGE>
e. Reflects the purchase of the remaining interest in IFCO U.S., a
subsidiary of IFCO International, for $5.0 million, and the
consolidation of the now wholly owned subsidiary.
f. Reflects the reduction of existing debt with the proceeds of the IPO and
the issuance of long-term debt.
g. Reflects the payment of approximately $25.5 million to the remaining
interest holder of IFCO U.S. in payment of that subsidiary's various
indebtedness to the remaining interest holder.
h. Reflects the issuance of a promissory note payable for approximately
$26.7 million, reduced by an approximate $6.7 million cash payment at
the closing, initially bearing interest at the Euro Interbank Offered
Rate (assumed to be 3.25% for pro forma adjustment purposes) plus 2.75%,
in exchange for the release of options and other rights previously
purchased by GE Capital and GE Erste. The allocation of the purchase
price for the rights and options to the assets and liabilities of IFCO
Systems has not yet been completed. As a result, the purchase price has
been preliminarily allocated to goodwill.
i Reflects the payment of approximately $5.3 million to retire, at book
value, the participating rights and the redeemable participating rights
of the IFCO Companies, which are held by related parties of the IFCO
Companies.
The following table summarizes the unaudited pro forma combined balance sheet
adjustments (in thousands):
<TABLE>
<CAPTION>
Pro Forma
a b c d e f g h i Adjustments
---- -------- -------- -------- ------- --------- -------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents.......... $-- $(90,401) $143,300 $175,081 $(4,968) $(199,849) $(25,517) $(6,687) $(5,348) $ (14,389)
Accounts receivable,
net.................. -- -- -- -- 6,114 -- -- -- -- 6,114
Inventories........... -- -- -- -- -- -- -- -- -- --
Other current assets.. -- -- -- -- 29 -- -- -- -- 29
---- -------- -------- -------- ------- --------- -------- ------- ------- ---------
Total current assets.. -- (90,401) 143,300 175,081 1,175 (199,849) (25,517) (6,687) (5,348) (8,246)
PROPERTY, PLANT AND
EQUIPMENT, net........ -- -- -- -- 11,687 -- -- -- -- 11,687
GOODWILL AND OTHER
INTANGIBLE ASSETS,
net................... -- 80,878 -- -- 11,726 -- -- 26,748 -- 119,352
OTHER ASSETS........... -- -- -- 14,243 -- -- -- -- -- 14,243
---- -------- -------- -------- ------- --------- -------- ------- ------- ---------
Total assets.......... $-- $ (9,523) $143,300 $189,324 $24,588 $(199,849) $(25,517) $20,061 $(5,348) $ 137,036
==== ======== ======== ======== ======= ========= ======== ======= ======= =========
CURRENT LIABILITIES:
Current maturities of
long-term debt....... $-- $ -- $ -- $ -- $21,102 $(153,197) $(21,102) $ -- $ -- $(153,197)
Current maturities of
capital lease
obligations.......... -- -- -- -- -- -- -- -- -- --
Refundable deposits... -- -- -- -- 3,439 -- -- -- -- 3,439
Accounts payable...... -- -- -- -- 4,415 -- (4,415) -- -- --
Other current
liabilities.......... -- -- -- -- 1,222 -- -- -- -- 1,222
---- -------- -------- -------- ------- --------- -------- ------- ------- ---------
Total current
liabilities.......... -- -- -- -- 30,178 (153,197) (25,517) -- -- (148,536)
ACCUMULATED LOSSES IN
EXCESS OF INVESTMENT
IN EQUITY ENTITIES.... -- -- -- -- (5,590) -- -- -- -- (5,590)
LONG-TERM DEBT AND
RELATED PARTY LOANS,
net of current
maturities............ -- -- -- -- -- (46,652) -- -- -- (46,652)
CONVERTIBLE NOTES
PAYABLE............... -- -- -- -- -- -- -- -- -- --
OTHER LONG-TERM DEBT... -- -- -- 189,324 -- -- -- -- -- 189,324
PROMISSORY NOTE
PAYABLE............... -- -- -- -- -- -- -- 20,061 -- 20,061
CAPITAL LEASE
OBLIGATIONS, net of
current maturities.... -- -- -- -- -- -- -- -- -- --
OTHER LIABILITIES...... -- -- -- -- -- -- -- -- -- --
PARTICIPATING RIGHTS... -- -- -- -- -- -- -- -- (3,871) (3,871)
REDEEMABLE
PARTICIPATING RIGHTS.. -- -- -- -- -- -- -- -- (1,477) (1,477)
REDEEMABLE CONVERTIBLE
PREFERRED STOCK....... -- (26,335) -- -- -- -- -- -- -- (26,335)
STOCKHOLDERS' EQUITY:
Ordinary shares....... 2 (205) -- -- -- -- -- -- -- (203)
Paid-in capital....... (2) 41,320 143,300 -- -- -- -- -- -- 184,618
Other stockholders'
equity............... -- 901 -- -- -- -- -- -- -- 901
Retained earnings..... -- (25,204) -- -- -- -- -- -- -- (25,204)
---- -------- -------- -------- ------- --------- -------- ------- ------- ---------
Total stockholders'
equity............... -- 16,812 143,300 -- -- -- -- -- -- 160,112
---- -------- -------- -------- ------- --------- -------- ------- ------- ---------
Total liabilities and
stockholders'
equity............... $-- $ (9,523) $143,300 $189,324 $24,588 $(199,849) $(25,517) $20,061 $(5,348) $ 137,036
==== ======== ======== ======== ======= ========= ======== ======= ======= =========
</TABLE>
81
<PAGE>
4.UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS
PalEx
a. Adjusts the allocation of purchase price to inventory as it affects cost
of goods sold, adjusts compensation to the level the former owners of
companies acquired by PalEx agreed to receive as a result of the
acquisitions, reflects revisions of lease agreements with stockholders
of PalEx as a result of the purchase of some companies by PalEx, and
reflects pooling expenses incurred in conjunction with companies
acquired by PalEx.
b. Reflects additional amortization of goodwill resulting from PalEx's 1998
acquisitions accounted for as purchases, using a 30-year estimated life.
c. Reflects the net increase in interest expense attributed to incremental
borrowings resulting from PalEx's 1998 acquisitions accounted for as
purchases.
d. Reflects the incremental provision for federal and state income taxes
relating to the other PalEx income statement adjustments and for income
taxes on some of PalEx's 1998 purchase acquisitions that were previously
taxed as S Corporations.
IFCO Systems
e. Reflects the amortization of goodwill of approximately $4.2 million
during the year ended December 31, 1998, and approximately $3.5 million
during the ten months ended October 31, 1999, 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.
f. Reflects interest expense reduction of approximately $17.1 million
during the year ended December 31, 1998, and approximately $15.7 million
during the ten months ended October 31, 1999, on approximately $222.3
million of historical debt assumed to be repaid using available cash on
hand and proceeds from the IPO and other long-term debt, reduced by cash
payments required under the terms of the merger agreement and other
concurrent transactions. The interest expense reduction is calculated
using a weighted average effective interest rate of approximately 7.7%
per year for the year ended December 31, 1998, and approximately 8.5%
per year for the ten months ended October 31, 1999.
g. Reflects additional interest expense incurred of approximately $18.9
million during the year ended December 31, 1998, and approximately $15.8
million during the ten months ended October 31, 1999, in conjunction
with the issuance of (Euro)180.0 million of long-term debt, translated
to approximately $189.3 million using the exchange rate as of October
29, 1999 of one euro = $1.0518, at an assumed interest rate of 10% per
year. The principal borrowing level and the interest rate under this
arrangement are based on management's current estimates.
h. Reflects additional interest expense of approximately $1.2 million
during the year ended December 31, 1998, and approximately $1.0 million
during the ten months ended October 31, 1999, incurred in conjunction
with the GE Capital promissory note, net of approximately $6.7 million
payment at the closing, of approximately $20.1 million at an assumed
interest rate of 6.0% per year.
i. Reflects the consolidation of the revenues and expenses of IFCO U.S. as
a wholly owned subsidiary, which occurs 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'
assumed repayment of all interest-bearing debt of IFCO U.S.
j. Reflects the amortization of loan costs associated with the issuance of
long-term debt and the refinancing of the credit facilities of PalEx and
the IFCO Companies.
k. 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
82
<PAGE>
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.
l. Reflects the elimination of the accretion attributable to the redeemable
convertible preferred stock of IFCO Europe as a result of its
contribution by GE Erste to IFCO Systems, as well as the elimination of
the accretion attributable to the participating rights and the
redeemable participating rights of the IFCO Companies as a result of
their assumed retirement by IFCO Systems at their book values.
m. The shares used in calculating net (loss) per share--basic include
approximately 20.0 million ordinary shares issued by IFCO Systems in
exchange for the outstanding shares of the IFCO Companies, approximately
6.9 million ordinary shares issued in exchange for the outstanding
shares of PalEx and approximately 11.8 million ordinary shares issued in
the IPO. Net (loss) per share --diluted considers the equivalent shares
for unexercised stock options issued to PalEx employees and contemplated
to be issued to IFCO Systems employees and conversion of convertible
debt.
n. Pro forma EBIT and EBITDA and non-recurring charges are not presented as
alternative measure of operating results or cash flows from operations
as determined in accordance with generally accepted accounting
principles, but because they are accepted financial indicators of the
ability to incur and service debt on a pro forma combined basis. Pro
forma EBIT represents IFCO Systems' pro forma combined net (loss) after
exclusion of net interest costs and income tax provisions. Pro forma
EBITDA and non-recurring charges represents IFCO Systems' EBIT plus
depreciation and amortization charges, and non-recurring, one-time
restructuring charges related to the termination of PalEx's relationship
with CHEP USA. Pro forma EBIT and EBITDA and non-recurring charges as
presented are not necessarily comparable with similarly titled measures
presented by other companies.
83
<PAGE>
The following table summarizes the unaudited pro forma combined statement of
operations adjustments for the year ended December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
Total
Pro Forma
Adjustments
a b c d PalEx e f g h i j k
------- ------- ------- ------- ----------- ------- ------- -------- ------- ------ ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES......... $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $1,657 $ -- $--
COST OF GOODS
SOLD............. (349) -- -- -- (349) -- -- -- -- 2,651 -- --
INVENTORY
VALUATION
ADJUSTMENT....... -- -- -- -- -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------- ------- ------ ------- ----
Gross profit.... 349 -- -- -- 349 -- -- -- -- (994) -- --
SELLING, GENERAL
AND
ADMINISTRATIVE
EXPENSES......... (1,239) -- -- -- (1,239) -- -- -- -- 1,719 -- --
AMORTIZATION OF
GOODWILL AND
OTHER INTANGIBLE
ASSETS........... -- 1,273 -- -- 1,273 4,208 -- -- -- -- -- --
POOLING
EXPENSES......... (1,841) -- -- -- (1,841) -- -- -- -- -- -- --
COMPENSATION
DIFFERENTIAL..... (1,062) -- -- -- (1,062) -- -- -- -- -- -- --
RESTRUCTURING
CHARGE........... -- -- -- -- -- -- -- -- -- -- -- --
PLANT CLOSURE
COSTS AND ASSET
ABANDONMENT
LOSS............. -- -- -- -- -- -- -- -- -- -- -- --
OTHER OPERATING
INCOME, net...... -- -- -- -- -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------- ------- ------ ------- ----
Income (loss)
from
operations...... 4,491 (1,273) -- -- 3,218 (4,208) -- -- -- (2,713) -- --
NET INTEREST
COST............. -- -- (2,925) -- (2,925) -- 17,076 (18,932) (1,204) -- (1,949) --
OTHER INCOME
(EXPENSE), net... -- -- -- -- -- -- -- -- -- 1,960 -- --
------- ------- ------- ------- ------- ------- ------- -------- ------- ------ ------- ----
(Loss) income
before provision
for income
taxes........... 4,491 (1,273) (2,925) -- 293 (4,208) 17,076 (18,932) (1,204) (753) (1,949) --
INCOME TAX
PROVISION........ -- -- -- 1,917 1,917 -- -- -- -- -- -- (70)
------- ------- ------- ------- ------- ------- ------- -------- ------- ------ ------- ----
Net (loss)
income ......... $ 4,491 $(1,273) $(2,925) $(1,917) $(1,624) $(4,208) $17,076 $(18,932) $(1,204) $ (753) $(1,949) $ 70
======= ======= ======= ======= ======= ======= ======= ======== ======= ====== ======= ====
<CAPTION>
Total
Pro Forma
Adjustments
IFCO Systems
------------
<S> <C>
REVENUES......... $ 1,657
COST OF GOODS
SOLD............. 2,651
INVENTORY
VALUATION
ADJUSTMENT....... --
------------
Gross profit.... (994)
SELLING, GENERAL
AND
ADMINISTRATIVE
EXPENSES......... 1,719
AMORTIZATION OF
GOODWILL AND
OTHER INTANGIBLE
ASSETS........... 4,208
POOLING
EXPENSES......... --
COMPENSATION
DIFFERENTIAL..... --
RESTRUCTURING
CHARGE........... --
PLANT CLOSURE
COSTS AND ASSET
ABANDONMENT
LOSS............. --
OTHER OPERATING
INCOME, net...... --
------------
Income (loss)
from
operations...... (6,921)
NET INTEREST
COST............. (5,009)
OTHER INCOME
(EXPENSE), net... 1,960
------------
(Loss) income
before provision
for income
taxes........... (9,970)
INCOME TAX
PROVISION........ (70)
------------
Net (loss)
income ......... $ (9,900)
============
</TABLE>
84
<PAGE>
The following table summarizes the unaudited pro forma combined statement of
operations adjustments for the ten months ended October 31, 1999 (in
thousands):
<TABLE>
<CAPTION>
Total
Pro Forma
Adjustments
e f g h i j k IFCO Systems
------- ------- -------- ------- ------- ------- ----- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES................ $ -- $ -- $ -- $ -- $ 4,268 $ -- $ -- $ 4,268
COST OF GOODS SOLD...... -- -- -- -- 4,203 -- -- 4,203
------- ------- -------- ------- ------- ------- ----- -------
Gross profit........... -- -- -- -- 65 -- -- 65
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... -- -- -- -- 1,641 -- -- 1,641
AMORTIZATION OF GOODWILL
AND OTHER INTANGIBLE
ASSETS................. 3,506 -- -- -- -- -- -- 3,506
OTHER OPERATING INCOME,
net.................... -- -- -- -- -- -- -- --
------- ------- -------- ------- ------- ------- ----- -------
Income (loss) from
operations............ (3,506) -- -- -- (1,576) -- -- (5,082)
NET INTEREST COST....... -- 15,732 (15,777) (1,003) -- (1,624) -- (2,672)
OTHER INCOME (EXPENSE),
net.................... -- -- -- -- 1,467 -- -- 1,467
------- ------- -------- ------- ------- ------- ----- -------
(Loss) income before
provision for income
taxes................. (3,506) 15,732 (15,777) (1,003) (109) (1,624) -- (6,287)
INCOME TAX PROVISION.... -- -- -- -- -- -- 286 286
------- ------- -------- ------- ------- ------- ----- -------
Net (loss) income...... $(3,506) $15,732 $(15,777) $(1,003) $ (109) $(1,624) $(286) $(6,573)
======= ======= ======== ======= ======= ======= ===== =======
</TABLE>
85
<PAGE>
SELECTED FINANCIAL INFORMATION
IFCO Companies
The selected historical financial information presented below for, and as of
the end of, each of the years in the two years ended December 31, 1998, is
derived from the IFCO Companies' audited combined 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 ten months ended October 31, 1998 and 1999, is
derived from the IFCO Companies' unaudited combined financial statements. No
selected financial information has been presented as of and for the years ended
December 31, 1994 and 1995. Financial information for these years is
unavailable since no consolidated financial information for IFCO Europe was
prepared for these years. Further, financial information for these years has
been prepared for the individual entities in accordance with German GAAP, which
differs significantly from U.S. GAAP. In the IFCO Companies' 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 Companies. You should read this selected historical
financial information along with "Management's Discussion and Analysis of
Financial Condition and Results of Operations--IFCO Companies" and the
financial statements of the IFCO Companies included in this proxy
statement/prospectus.
<TABLE>
<CAPTION>
Ten Months Ended
Year Ended December 31, October 31,
------------------------------- -----------------------
1996 1997 1998 1998 1999
----------- --------- -------- ----------- -----------
(in thousands )
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues............... $122,959 $116,735 $134,721 $106,021 $126,399
Cost of sales.......... 118,354 99,622 106,218 85,874 100,330
-------- --------- -------- -------- --------
Gross profit........... 4,605 17,113 28,503 20,147 26,069
Selling, general and
administrative
expenses.............. 21,798 22,263 28,515 20,729 24,029
Amortization of
goodwill.............. 236 675 383 274 344
Other operating
(income), net......... (5,371) (4,099) (3,081) (2,979) (1,976)
-------- --------- -------- -------- --------
Income (loss) from
operations............ (12,058) (1,726) 2,686 2,123 3,672
Net interest cost...... (7,751) (7,928) (7,030) (6,024) (6,881)
Other income (expense),
net................... 267 (2,139) (2,997) (2,922) (2,933)
Income tax
(provision)........... -- (47) (210) (173) (144)
-------- --------- -------- -------- --------
Net (loss)............. $(19,542) $ (11,840) $ (7,551) $ (6,996) $ (6,286)
======== ========= ======== ======== ========
Other Operating Data:
EBITDA and non-
recurring charges(1).. $ 27,953 $ 24,369 $ 27,197 $ 19,528 $ 27,989
EBIT(1)................ $(11,791) $ (3,235) $ (1,673) $ (1,992) $ (517)
Cash flows from:
operating
activities(2)......... $ 32,490 $ 59,938 $ 40,497 $ 33,420
investing
activities(2)......... $ (43,221) $(38,766) $(35,895) $(40,104)
financing
activities(2)......... $ 5,209 $ (6,442) $ (5,469) $ (5,155)
</TABLE>
86
<PAGE>
<TABLE>
<CAPTION>
As of December 31, As of
------------------------------ October 31,
1996 1997 1998 1999
----------- -------- -------- -----------
(in thousands)
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents..... $ 14,231 $ 7,992 $ 23,642 $ 9,134
Receivables................... 95,970 93,397 74,462 81,509
Other current assets.......... 9,296 775 1,874 3,838
-------- -------- -------- --------
Total current assets......... 119,497 102,164 99,978 94,481
Property, plant and equipment,
net.......................... 128,661 134,776 172,437 162,772
Other long term assets........ 6,735 12,617 12,038 16,393
-------- -------- -------- --------
Total assets................. $254,893 $249,557 $284,453 $273,646
======== ======== ======== ========
Short-term loans.............. $ 48,943 $ 53,440 $ 500 $ 500
Short-term related party
loans........................ 26,612 23,298 2,618 2,254
Current maturities of long-
term debt.................... -- -- 4,912 5,413
Current maturities of capital
lease obligations............ 15,135 4,738 9,340 10,528
Refundable deposits........... 50,029 64,323 70,875 70,820
Accounts payable.............. 71,054 65,010 69,287 76,533
Accrued expenses and other
current liabilities.......... 21,661 12,294 7,303 11,591
Deferred income............... 4,347 4,660 6,573 5,996
Accumulated losses in excess
of investment in equity
entities..................... 1,267 3,136 4,472 5,684
Long-term debt, net of current
maturities................... 4,975 464 77,874 67,183
Capital lease obligations, net
of current maturities........ 5,913 7,971 26,867 20,768
-------- -------- -------- --------
Total liabilities............ 249,936 239,334 280,621 277,270
Participating rights.......... 5,419 3,956 4,274 3,871
Redeemable participating
rights....................... -- 1,256 1,544 1,477
Redeemable convertible
preferred stock.............. -- 25,001 28,887 26,335
Total stockholders' equity
(deficit).................... (462) (19,990) (30,873) (35,307)
-------- -------- -------- --------
Total liabilities and
stockholder's equity........ $254,893 $249,557 $284,453 $273,646
======== ======== ======== ========
</TABLE>
- --------
(1) EBIT and EBITDA and non-recurring charges are not presented as alternative
measures of operating results or cash flows from operations as determined
in accordance with generally accepted accounting principles, but because
they are accepted financial indicators of the ability to incur and service
debt. EBIT represents the IFCO Companies' combined net (loss) applicable
to ordinary shares after exclusion of net interest costs and income tax
provisions (benefits). EBITDA and non-recurring charges represents the
IFCO Companies' EBIT plus depreciation and amortization charges and non-
recurring, one-time restructuring charges, if any. EBIT and EBITDA and
non-recurring charges as presented are not necessarily comparable with
similarly titled measures presented by other companies. The following
table reflects the calculation of EBIT and EBITDA and non-recurring
charges:
<TABLE>
<CAPTION>
Ten Months Ended
Year Ended December 31, October 31,
----------------------------- -----------------------
1996 1997 1998 1998 1999
----------- -------- ------- ----------- -----------
(in thousands)
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net (loss) applicable to
ordinary shares........ $(19,542) $(11,210) $(8,913) $(8,119) $(7,542)
Income tax provision.... -- 47 210 173 144
Net interest cost....... 7,751 7,928 7,030 6,024 6,881
-------- -------- ------- ------- -------
EBIT................... (11,791) (3,235) (1,673) (1,922) (517)
Depreciation and
amortization........... 39,744 27,604 28,870 21,450 28,506
-------- -------- ------- ------- -------
EBITDA and non-
recurring charges..... $ 27,953 $ 24,369 $27,197 $19,528 $27,989
======== ======== ======= ======= =======
</TABLE>
(2) The IFCO Companies' historical combined cash flow information is not
available for the year ended December 31, 1996.
87
<PAGE>
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 27, 1998,
for each of the ten-month periods ended October 25, 1998, and October 24, 1999,
and as of October 24, 1999, is derived from PalEx's consolidated financial
statements. In PalEx's 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 PalEx. You should read this selected historical
financial information along with "Management's Discussion and Analysis of
Financial Condition and Results of Operations--PalEx" and the financial
statements of PalEx included in this proxy statement/prospectus.
<TABLE>
<CAPTION>
Ten-Month
Fiscal Year Ended Period Ended
Fiscal Year Ended November 30, -------------------------- ------------------------
----------------------------------- December 28, December 27, October 25, October 24,
1994 1995 1996 1997 1998 1998 1999
----------- ---------- ---------- ------------ ------------ ----------- -----------
(in thousands except share and per share data)
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues............... $ 116,942 $ 125,707 $ 145,030 $ 222,993 $ 319,691 $ 256,874 $ 320,433
Cost of goods sold..... 99,207 105,195 121,865 188,084 259,562 207,850 257,472
Inventory valuation
adjustment(1) -- -- -- -- 1,235 1,679 --
---------- ---------- ---------- ----------- ----------- ----------- -----------
Gross profit........... 17,735 20,512 23,165 34,909 58,894 47,345 62,961
Selling, general and
administrative
expenses.............. 12,350 13,333 14,063 20,135 33,042 27,374 36,142
Amortization of
goodwill and other
intangible assets 76 76 165 820 3,334 2,186 3,993
Pooling expenses....... -- -- -- -- 1,841 1,841 --
Compensation
differential.......... -- -- -- 1,020 1,062 1,062 --
Restructuring
charge(1)............. -- -- -- -- 949 2,404 --
Plant closure costs and
asset abandonment
loss(1)............... -- -- -- -- 1,369 1,369 --
---------- ---------- ---------- ----------- ----------- ----------- -----------
Income from
operations............ 5,309 7,103 8,937 12,934 17,297 11,109 22,826
Net interest cost(2)... (854) (1,375) (1,065) (1,590) (8,206) (6,078) (10,660)
Provision for income
taxes................. 1,476 1,594 1,833 4,704 5,105 2,676 5,402
---------- ---------- ---------- ----------- ----------- ----------- -----------
Net income ............ $ 2,979 $ 4,134 $ 6,039 $ 6,640 $ 3,986 $ 2,355 $ 6,764
========== ========== ========== =========== =========== =========== ===========
Net income per share--
basic................. $ .32 $ .44 $ .64 $ .43 $ .21 $ .13 $ .33
Net income per share--
diluted............... $ .32 $ .44 $ .64 $ .42 $ .21 $ .12 $ .33
Shares used in
computing net income
per share-- basic..... 9,433,414 9,433,414 9,433,414 15,561,489 18,937,354 18,651,737 20,297,016
Shares used in
computing net income
per share--diluted.... 9,433,414 9,433,414 9,433,414 15,914,157 19,310,295 19,047,287 20,299,381
Other Financial Data:
EBITDA and non-recurring
charges(3)............. $ 7,480 $ 11,258 $ 13,045 $ 19,933 $ 35,680 $ 27,677 $ 36,538
EBIT(3)................. $ 5,309 $ 7,573 $ 9,448 $ 13,066 $ 17,559 $ 11,348 $ 24,213
Cash flows from:
operating activities... $ 5,824 $ 7,425 $ 12,116 $ 6,363 $ 13,596 $ 7,072 $ 16,212
investing activities... $ (9,240) $ (4,128) $ (7,355) $ (13,756) $ (100,819) $ (91,383) $ (6,596)
financing activities... $ 3,532 $ (3,747) $ (5,051) $ 11,976 $ 83,966 $ 78,942 $ (8,514)
</TABLE>
88
<PAGE>
<TABLE>
<CAPTION>
November 30,
--------------------------- December 28, December 27, October 24,
1994 1995 1996 1997 1998 1999
----------- ------- ------- ------------ ------------ -----------
(in thousands)
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital
(deficit).............. $ 3,004 $ 6,613 $ 7,630 $ 35,705 $ 54,672 $(84,797)
Total assets............ 48,933 50,857 57,868 120,005 292,438 299,617
Total debt.............. 21,770 21,212 18,648 32,880 155,772 147,181
Stockholders' equity.... 16,956 19,400 24,443 67,437 95,280 103,613
</TABLE>
- --------
(1) The results of operations for PalEx's year ended December 27, 1998, include
pre-tax charges of approximately $1.2 million for inventory revaluation
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. The results of operations for PalEx's ten-month
period ended October 25, 1998, include pre-tax charges of approximately
$1.7 million for inventory valuation adjustment and approximately $2.4
million for restructuring costs and expenses related to the termination of
PalEx's customer relationship with CHEP USA.
(2) Includes interest expense and other income (expense), net.
(3) EBIT and EBITDA and non-recurring charges are not presented as alternative
measures of operating results or cash flows from operations as determined
in accordance with generally accepted accounting principles, but because
they are accepted financial indicators of the ability to incur and service
debt. EBIT represents PalEx's net income after exclusion of interest
expense and provision for income taxes. EBITDA and non-recurring charges
represents PalEx's EBIT plus depreciation and amortization charges, and
non-recurring, one-time restructuring charges related to the termination of
PalEx's relationship with CHEP USA, pooling expenses, and compensation
differential. EBIT and EBITDA and non-recurring charges as presented are
not necessarily comparable with similarly titled measures presented by
other companies. The following table reflects the calculation of EBIT and
EBITDA and non-recurring charges:
<TABLE>
<CAPTION>
Ten-Month
Fiscal Year Ended Fiscal Year Ended Period Ended
November 30, --------------------------- -----------------------
--------------------------- December 28, December 27, October 25, October 24,
1994 1995 1996 1997 1998 1998 1999
----------- ------- ------- -------------- ------------ ----------- -----------
(in thousands)
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income.............. $2,979 $ 4,134 $ 6,039 $ 6,640 $ 3,986 $ 2,355 $ 6,764
Provision for income
taxes.................. 1,476 1,594 1,833 4,704 5,105 2,676 5,402
Interest expense........ 854 1,845 1,576 1,722 8,468 6,317 12,047
------ ------- ------- ------- ------- ------- -------
EBIT................... 5,309 7,573 9,448 13,066 17,559 11,348 24,213
Depreciation and
amortization........... 2,171 3,685 3,597 5,847 11,665 7,974 12,325
Restructuring charge.... -- -- -- -- 3,553 5,452 --
Pooling expenses and
compensation
differential(4)........ -- -- -- 1,020 2,903 2,903 --
------ ------- ------- ------- ------- ------- -------
EBITDA and non-
recurring charges..... $7,480 $11,258 $13,045 $19,933 $35,680 $27,677 $36,538
====== ======= ======= ======= ======= ======= =======
</TABLE>
(4) Pooling expenses primarily represent financial advisory and legal fees
incurred by some of the pooled companies in connection with PalEx's
acquisition of those companies. Compensation differential is the difference
between previous owners' compensation before their companies were acquired
by PalEx and the amounts they contractually agreed to be paid afterward.
89
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
IFCO Companies
You should read the following discussion in conjunction with the IFCO
Companies' combined financial statements included in this proxy
statement/prospectus. In addition, you should read "Business" for more
information about the IFCO Companies.
Introduction
The IFCO Companies believe they own and manage the leading plastic round-trip
container, or RTC, pool in Europe based on 1997 market information. They also
have RTC operations in the United States, Japan, and Argentina. The IFCO
Companies currently have over 60 million RTCs in circulation.
The IFCO Companies' European perishables operations, which are owned by IFCO
Europe, accounted for 91.9% of the IFCO Companies' combined revenues during the
first ten months of 1998 and 92.2% of the IFCO Companies' combined revenues
during the first ten months of 1999. These operations are comprised of round-
trip systems for the movement of fruit and vegetables. The IFCO Companies
deliver RTCs to growers in order to transport 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 the IFCO Companies 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,
intermediary parties, and the retailer until the deposit is ultimately repaid
to the retailer upon the IFCO Companies' 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.
The IFCO Companies' RTCs are supplied by Schoeller Plast AG, an indirect 80%-
owned subsidiary of Schoeller Industries, under a long-term supply agreement.
The IFCO Companies' 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. The IFCO Companies have
a 33% minority ownership interest in the Japanese operations and a 51% economic
interest and 50% voting interest in the U.S. operations. Both of these
investments are accounted for under the equity method. IFCO Systems has an
agreement to acquire the remaining interest in the U.S. operations in
connection with the merger. These businesses are still developing and are
currently generating operating losses, although the IFCO Companies believe that
this business segment has the potential to generate profits once additional
market share is attained.
The IFCO Companies' dry good operations, which are owned by MTS, accounted
for 7.3% of the IFCO Companies' combined revenues during the first ten months
of 1998 and 6.2% of the IFCO Companies' combined revenues during the first ten
months of 1999. MTS operates 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 the IFCO Companies to
accurately track their movements and invoice customers. The logistics of RTC
movement in the dry good operations are similar to the IFCO Companies' European
perishables operations. The IFCO Companies 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
extends to September 30, 2004. Deutsche Post AG, the German postal service is
one of the largest European transporters of parcels and letters.
IFCO Systems intends to report its results in accordance with U.S. GAAP. The
IFCO Companies, whose operations are located primarily in Europe, previously
reported their results under German GAAP. As a significant portion of its
revenues will be collected in currencies other than the U.S. dollar, IFCO
Systems' results of operations may be adversely affected by fluctuations in
currency exchange rates. For example, if the
90
<PAGE>
value of the Deutsch mark to the U.S. dollar goes down, the portion of IFCO
Systems revenues collected in Deutsch marks would appear smaller when converted
into U.S. dollars for purposes of reporting under U.S. GAAP.
Results of Operations
The following table sets forth selected financial data for the periods
presented for each of the IFCO Companies' business segments and the same data
as a percentage of its combined revenues. Functional currencies in the IFCO
Companies' 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.
<TABLE>
<CAPTION>
For the Ten Months Ended
For the Year Ended December 31, October 31,
--------------------------------------------------- --------------------------------
1996 1997 1998 1998 1999
--------------- --------------- --------------- -------------- ---------------
(dollars in thousands)
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
European perishables.... $115,059 93.6% $106,863 91.5% $123,673 91.8% $97,420 91.9% $116,562 92.2%
Non-European
perishables............ 1,617 1.3 292 0.3 1,147 0.9 873 0.8 1,968 1.6
Dry good................ 6,711 5.5 9,580 8.2 9,901 7.3 7,728 7.3 7,869 6.2
Eliminations............ (428) (0.4) -- -- -- -- -- -- -- --
-------- ----- -------- ----- -------- ----- ------- ----- -------- -----
122,959 100.0 116,735 100.0 134,721 100.0 106,021 100.0 126,399 100.0
Cost of sales:
European perishables.... 110,770 90.1 90,849 77.8 96,884 71.9 78,965 74.4 93,281 73.8
Non-European
perishables............ 1,360 1.1 219 0.1 717 0.5 482 0.5 1,437 1.1
Dry good................ 6,652 5.4 8,554 7.4 8,617 6.4 6,427 6.1 5,911 4.7
Eliminations............ (428) (0.3) -- -- -- -- -- -- (299) (0.2)
-------- ----- -------- ----- -------- ----- ------- ----- -------- -----
118,354 96.3 99,622 85.3 106,218 78.8 85,874 81.0 100,330 79.4
Total gross profit...... 4,605 3.7 17,113 14.7 28,503 21.2 20,147 19.0 26,069 20.6
Selling, general and
administrative
expenses:
European perishables.... 16,462 13.4 18,937 16.2 24,920 18.5 18,700 17.6 21,188 16.8
Non-European
perishables............ 2,362 1.9 1,718 1.5 1,629 1.2 832 0.8 2,194 1.7
Dry good................ 2,974 2.4 1,608 1.4 1,966 1.5 1,434 1.4 958 0.7
Eliminations............ -- -- -- -- -- -- (237) (0.2) (311) (0.2)
-------- ----- -------- ----- -------- ----- ------- ----- -------- -----
21,798 17.7 22,263 19.1 28,515 21.2 20,729 19.6 24,029 19.0
Goodwill amortization... 236 0.2 675 0.6 383 0.3 274 0.3 344 0.3
Other operating
(income), net.......... (5,371) (4.4) (4,099) (3.5) (3,081) (2.3) (2,979) (2.8) (1,976) (1.6)
Operating (loss) income:
European perishables.... (7,038) (5.7) 501 0.4 4,584 3.4 2,595 2.4 3,814 3.0
Non-European
perishables............ (2,105) (1.7) (1,645) (1.4) (1,216) (0.9) (431) (0.4) (1,420) (1.1)
Dry good................ (2,915) (2.4) (582) (0.5) (682) (0.5) (41) -- 1,278 1.0
-------- ----- -------- ----- -------- ----- ------- ----- -------- -----
(12,058) (9.8) (1,726) (1.5) 2,686 2.0 2,123 2.0 3,672 2.9
Other expenses, net..... (7,484) (6.1) (10,067) (8.6) (10,027) (7.4) (8,946) (8.4) (9,814) (7.8)
Income tax (provision)
benefit................ -- -- (47) -- (210) (0.2) (173) (0.2) (144) (0.1)
-------- ----- -------- ----- -------- ----- ------- ----- -------- -----
Net loss................ $(19,542) (15.9)% $(11,840) (10.1)% $ (7,551) (5.6)% $(6,996) (6.6)% $ (6,286) 5.0%
======== ===== ======== ===== ======== ===== ======= ===== ======== =====
</TABLE>
Ten Months Ended October 31, 1999, Compared to Ten Months Ended October 31,
1998
Revenues. The IFCO Companies' combined revenues increased $20.4 million, or
19.2%, to $126.4 million in the first ten months of 1999 from $106.0 million in
the first ten months of 1998.
European Perishables Operations. Revenues from the European perishables
operations increased $19.2 million, or 19.6%, to $116.6 million in the first
ten months of 1999 from $97.4 million in the first ten months of 1998. This
increase was primarily attributable to an increase of 9.4% 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
91
<PAGE>
offset by a decrease of 2.4% related to changes in currency exchange rates
relative to the previous period. The increased use was also a result of the
IFCO Companies' establishing new retail partners, favorable harvests of citrus
fruit, and increased business from existing customers.
Non-European Perishables Operations. Revenues from the non-European
perishables operations increased $1.1 million, or 125.4%, to $2.0 million in
the first ten months of 1999 from $0.9 million in the first ten months of 1998,
as a result of increased volume in Argentina.
Dry Good Operations. Revenues from the dry good operations increased $0.2
million, or 1.8%, to $7.9 million in the first ten months of 1999 from $7.7
million in the first ten months of 1998, as a result of increased business with
MTS's major customer.
Cost of Sales and Gross Profit. The IFCO Companies' combined cost of sales
increased $14.4 million, or 16.8%, to $100.3 million in the first ten months of
1999 from $85.9 million in the first ten months of 1998. Gross profit as a
percentage of revenues increased 1.6% for the first ten months of 1999 compared
to the first ten months of 1998 primarily as a result of more favorable pricing
from transportation and washing vendors in the first ten months of 1999 as
compared to the first ten months of 1998.
European Perishables Operations. Cost of sales increased $14.3 million, or
18.1%, to $93.3 million in the first ten months of 1999 from $79.0 million in
the first ten months of 1998. 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 more favorable pricing from transportation and washing
vendors in the first ten months of 1999 as compared to the first ten months of
1998. This was partially offset by increased costs incurred to expand the
business in Europe. The expansion costs were reduced by a $2.8 million
reimbursement from Schoeller Plast AG in accordance with a cost-sharing
agreement between the companies.
Non-European Perishables Operations. Cost of sales increased $0.9 million, or
198.1%, to $1.4 million in the first ten months of 1999 from $0.5 million in
the first ten months of 1998. The percentage increase in cost of sales was
higher than the percentage increase in related revenues for the same period due
to start-up activities in South American countries other than Argentina.
Dry Good Operations. Cost of sales decreased by $0.5 million, or 8.0%, to
$5.9 million in the first ten months of 1999 from $6.4 million in the first ten
months of 1998. Revenues increased slightly in the same period. The primary
reason for the decrease in cost of sales was a reduction of internal handling
costs by a change in operations.
Selling, General and Administrative Expenses and Other Operating Income
(Expenses), Net. Selling, general and administrative expenses and other
operating income (expenses), net increased $4.3 million, or 24.2%, to $22.1
million in the first ten months of 1999 from $17.8 million in the first ten
months of 1998 and increased as a percentage of revenues to 17.4% in the first
ten months of 1999 from 16.7% in the first ten months of 1998. The increase as
a percentage of revenues was the result of costs of $2.8 million related to the
merger. This consists of $2.1 million, which the company has agreed to
reimburse Palex for its transaction costs, and $0.7 million for professional
advisory services. Without these costs, selling, general and administrative
expenses and other operating income (expenses), net as a percentage of revenues
would have decreased due to expenditures made in the first ten months of 1998
to prepare for the increase in business that the IFCO Companies anticipated in
1999.
Other Income and Expense. Interest expense decreased $0.1 million, or 0.1%,
to $7.3 million in the first ten months of 1999 from $7.4 million in the first
ten months of 1998. Interest income decreased $0.8 million, or 65.0%, to $0.5
million in the first ten months of 1999 from $1.3 million in the first ten
months of 1998. The net increase in interest costs was primarily a result of
the further reduction of receivables from related parties due to the
requirements under the IFCO Companies' credit facilities.
Primarily as a result of the foregoing, net loss decreased to $6.3 million in
the first ten months of 1999 from $7.0 million in the first ten months of 1998.
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Fiscal Year Ended December 31, 1998, Compared to Year Ended December 31, 1997
Revenues. The IFCO Companies' combined revenues increased $18.0 million, or
15.4%, to $134.7 million in 1998 from $116.7 million in 1997.
European Perishables Operations. Revenues from the European perishables
operations increased $16.8 million, or 15.7%, to $123.7 million in 1998 from
$106.9 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 attributable to 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 the IFCO Companies' establishing new retail partners,
favorable harvests of citrus fruit, and increased business from existing
customers.
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. The IFCO Companies' combined 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 14.7% for
1997 to 21.2% for 1998. These margin gains are primarily a result of the
following:
. increased utilization of the IFCO Companies' 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 $7.2 million, or 40.0%, to $25.4
million in 1998 from $18.2 million in 1997 and increased as a percentage of
revenues to 18.9% in 1998 from 15.6% in 1997. The increase was due to
additional staff in electronic data processing, controlling, and logistic
management.
Other Income and Expense. Interest expense decreased $3.2 million, or 26.9%,
to $8.6 million in 1998 from $11.8 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.
Primarily as a result of the foregoing, net loss decreased to $7.6 million in
1998 from $11.8 million in 1997.
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Fiscal Year Ended December 31, 1997, Compared to Year Ended December 31, 1996
Revenues. The IFCO Companies' combined revenues decreased $6.3 million, or
5.1%, to $116.7 million in 1997 from $123.0 million in 1996. The decrease
resulted primarily from the adverse impact of currency fluctuations in the
European perishables operations and marginally lower average prices,
notwithstanding unit increases in the European perishables operations.
European Perishables Operations. Revenues decreased $8.2 million, or 7.1%, to
$106.9 million in 1997 from $115.1 million in 1996. This decrease was primarily
attributable to a 1.6% decline in average prices. The decrease was partially
offset by increased volume of RTCs used for fresh produce. The increase in RTC
trips was a result of establishing new retail partners as well as increased
volume from existing customers.
Non-European Perishables Operations. Revenues decreased $1.3 million, or
81.9%, to $0.3 million in 1997 from $1.6 million in 1996, as a result of a
decrease in sales volume in Argentina. The decrease was primarily attributable
to a change in management, which caused a temporary interruption in the
business.
Dry Good Operations. Revenues increased $2.9 million, or 42.8%, to $9.6
million in 1997 from $6.7 million in 1996, as a result of significant volume
increases with its major customer.
Cost of Sales and Gross Profit. The IFCO Companies' combined cost of sales
decreased $18.8 million, or 15.8%, to $99.6 million in 1997 from $118.4 million
in 1996, and gross profit as a percentage of revenues increased from 3.7% for
1996 compared to 14.7% for 1997. These margin increases from 1996 to 1997 were
mainly driven by decreased breakage costs and increased RTC trips.
European Perishables Operations. Cost of sales decreased $20.0 million, or
18.0%, to $90.8 million in 1997 from $110.8 million in 1996. The decrease in
the cost of sales was, apart from currency translation effects, attributable to
a significant reduction in the number of broken RTCs of 2.8 million in 1997. In
addition, in 1996, IFCO Europe experienced high washing costs due to a
significant reorganization of washing activities. This was normalized in 1997,
resulting in a significant decrease in washing costs.
Non-European Perishables Operations. Cost of sales decreased $1.2 million, or
83.9%, to $0.2 million in 1997 from $1.4 million in 1996. The decrease was due
to a management change and the related reduction in revenues.
Dry Good Operations. Cost of sales increased $1.9 million, or 28.6%, to $8.6
million in 1997 from $6.7 million in 1996. The percentage increase was lower
than the percentage increase in related revenues for the same period due to
increasing economies of scale.
Selling, General and Administrative Expenses and Other Operating Income
(Expenses), Net. Selling, general and administrative expenses and other
operating income (expenses), net increased $1.8 million, or 10.6%, to $18.2
million in 1997 from $16.4 million in 1996. During 1997, the IFCO Companies
increased infrastructure expenditures in various areas, including electronic
data processing and controlling, to support an anticipated significant growth
in revenues. Due to financing restrictions, however, the IFCO Companies were
required to postpone the efforts to increase revenues until 1998. With respect
to non-European perishables operations, fixed costs could not be reduced to
match the reduction in revenues resulting from the change in management in
Argentina.
Primarily as a result of the foregoing, net loss decreased to $11.8 million
in 1997 from $19.5 million in 1996.
Liquidity and Capital Resources
The IFCO Companies have historically financed their growth with medium-term
financing, the funds from which have been primarily used to fund their
investment in the RTC pools.
Cash Flows. Operating activities provided $33.4 million of cash in the first
ten months of 1999 compared to $40.5 million in the first ten months of 1998,
which represents a decrease of $7.1 million, or
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17.5%. This net decrease is due to several factors. During the first ten months
of 1998, the IFCO Companies reduced accounts receivable through increased
factoring activities, which led to additional positive cash flow of $17.7
million. In the first ten months of 1999, the IFCO Companies did not realize
any additional cash effect for factoring. Accounts receivable net of factoring
volume increased $18.7 million in the first ten months of 1999. During the same
period, accounts payable increased $17.4 million as the result of increased
business activity.
Operating activities provided $59.9 million of cash in 1998 compared to $32.5
million in 1997, which represents an increase of $27.4 million, or 84.5%. This
net increase is due to several factors. In 1997, the IFCO Companies experienced
an increase in accounts receivable of $11.6 million. In 1998, the IFCO
Companies reduced accounts receivable through increased factoring activities,
which led to additional positive cash flow of $2.2 million. In 1997, the IFCO
Companies decreased inventory by $7.4 million compared to a $1.6 million
increase in 1998. The IFCO Companies obtained additional liquidity through
factoring proceeds of $25.4 million in 1998. Accounts payable increased $5.1
million in 1997 and $10.9 million in 1998 due to higher sales volume in each
period.
Cash used in investing activities in the first ten months of 1999 was $40.1
million compared to $35.9 million in the first ten months of 1998, which
represents an increase of $4.2 million, or 11.7%. The majority of cash used in
both periods was for the purchase of RTCs and other property, plant, and
equipment. The investment in RTCs decreased by $4.3 million from $35.2 million
in the first ten months of 1998 to $30.9 million in the first ten months of
1999, mainly because of a lower average price for purchased RTCs due to the
product mix. In addition, for the first ten months of 1999, the IFCO Companies
recognized capitalized merger costs of $3.4 million.
Cash used in investing activities in 1998 was $38.8 million compared to $43.2
million in 1997, which represents a decrease of $4.4 million, or 10.3%. 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 the IFCO Companies experienced in
1998. Financial assets and property and equipment were also sold in 1998 and
contributed $2.9 million in cash.
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 bank debt by the IFCO Companies 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 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 to IFCO Europe. As part of the
transactions related to the merger, GE Capital and GE Erste will contribute all
of their interests and release all of their rights to IFCO Systems. See "The
Merger Agreement--Related Matters--Agreement with GE Capital and GE Erste."
Credit Facilities. In 1998, IFCO Europe negotiated a new financing
arrangement with a lending syndicate for a total of DM181.0 million, or
approximately $90.3 million. The amount of credit available under the financing
arrangement was reduced in 1999 to DM160.5 million, or approximately $80.1
million. The credit facility consists of DM125.5 million, or approximately
$62.6 million, available under a Senior Facility Agreement and DM35.0 million,
or approximately $17.5 million, available under a Senior Subordinated Facility
Agreement.
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The Senior Facility Agreement consists of a DM64.0 million, or approximately
$31.9 million, fixed-term loan and two revolving credit facilities totaling
DM61.5 million, or approximately $30.7 million. All borrowings under the Senior
Facility Agreement, $53.2 million of which was outstanding as of October 31,
1999, contain principal reduction provisions, mature in 2004, and accrue
interest at EURIBOR plus 1.75%, or 4.61% as of October 31, 1999. Available
credit under the Senior Facility Agreement as of October 31, 1999, was $14.3
million.
Outstanding borrowings under the Senior Subordinated Agreement, which totaled
DM35.0 million, or approximately $17.5 million, as of October 31, 1999, accrue
interest at a rate of EURIBOR plus 2.75%, or 5.61% as of October 31, 1999. The
Senior Subordinated Agreement does not have scheduled principal reductions
until a balloon payment in 2005. The bank syndicate for the credit facilities
has consented to the scheduled IPO under the condition, that the lenders
receive a payment of DM40.0 million, or approximately $20.0 million, from the
IPO net proceeds to reduce by that amount the borrowings under the term loan
portion of Senior Facility Agreement. Additionally, at the time of the merger
and IPO, the available facility amount under the revolving credit portion of
the Senior Facility Agreement will be reduced by DM20.0 million, or
approximately $10.0 million, and any borrowings in excess of the reduced
revolving credit limit will be repaid from the IPO net proceeds or proceeds
from the planned debt financing. In addition, upon completion of the IPO, the
final maturity date of the Senior Facility Agreement term loan and revolver
will be accelerated to June 30, 2001, and the Senior Subordinated Agreement
repayment schedule will be modified to provide for semiannual principal
payments through September 30, 2005.
A significant portion of IFCO Europe's receivables and long-lived assets are
pledged as security against all outstanding borrowings under the Senior
Facility Agreement and Senior Subordinated Agreement, which also prohibit any
dilution of GE Erste's capital investment. The Senior Facility Agreement and
Senior Subordinated Agreement prohibit any payment of dividends as long as any
outstanding borrowings exist under either agreement, restrict IFCO Europe's
incurrence or assumption of other indebtedness and require IFCO Europe to
comply with non-financial and financial covenants, including funded debt and
interest expense to earnings before taxes, depreciation, interest, and
amortization ratios and cash flow ratios. As of October 31, 1999, and as of the
date of this proxy statement/prospectus, IFCO Europe was in compliance with, or
had obtained waivers for, each of the covenants contained in the Senior
Facility Agreement and the Senior Subordinated Agreement.
The Senior Facility Agreement and Senior Subordinated Agreement also permit
specified levels of receivable factoring. During 1994, IFCO Europe had entered
into a factoring agreement under which IFCO Europe could offer all of their
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 4.11% as of October 31, 1999. IFCO Europe factored 20% of
its combined revenues and incurred factoring and interest charges under this
agreement of $2.6 million in 1998. During the first ten months of 1999, IFCO
Europe factored 40% of its combined revenues and incurred factoring and
interest charges of $3.4 million.
At October 31, 1999, the IFCO Companies had entered into $31.3 million of
capital leases.
To reduce its variable rate interest risk, IFCO Europe entered into an
interest rate cap agreement. As of October 31, 1999, this interest rate cap
covered $54.5 million of its outstanding debt and limited interest rates
applicable to those borrowings to 6.75% for $11.3 million of borrowings under
the Senior Facility Agreement and to 7.75% for $43.2 million of borrowings
under the Senior Subordinated Agreement. The costs of this agreement are
included in interest expense ratably over the term of the agreement.
Future Liquidity Needs. In addition to the IPO, IFCO Systems intends to
pursue other financing including further equity investment, the issuance of
notes, or syndicated bank facilities. At the same time as the completion of the
merger and the IPO, IFCO Systems plans to issue approximately 180.0 million
euros, or
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approximately $175.6 million, of debt in the form of a high yield financing and
enter into a new senior credit facility. See "Concurrent Transactions." IFCO
Systems believes that available cash and cash flow from operations, together
with the proceeds from the IPO, the high yield debt financing, and the new
senior credit facility will be adequate to repay a substantial portion of IFCO
Systems' debt and to meet IFCO Systems' liquidity needs for the foreseeable
future. IFCO Systems' ability to make scheduled payments of principal or
interest on, or to refinance, its indebtedness, or to fund planned capital
expenditures, will depend on its future performance. IFCO Systems' 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 its control. IFCO Systems may not generate
sufficient cash flow from operations, that anticipated revenue growth and
operating improvements may not be realized or that future capital may not be
available in an amount sufficient, or on acceptable terms, to enable it to
service its indebtedness or to fund its other liquidity needs.
IFCO Systems anticipates that any new senior credit facility and the
indenture with respect to any high yield debt financing will contain a number
of significant covenants that, among other things, will restrict corporate and
business activities, including the ability of IFCO Systems to:
. dispose of assets;
. incur additional indebtedness;
. prepay other indebtedness:
. pay dividends;
. repurchase or redeem capital stock;
. enter into specified investments or create new subsidiaries;
. enter into sale and lease-back transactions;
. make specific types of acquisitions;
. engage in mergers or consolidations;
. create liens; or
. engage in certain transactions with affiliates.
In addition, under any new senior credit facility, IFCO Systems will likely be
required to comply with specified financial 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.
Capital Expenditures. The IFCO Companies' aggregate capital expenditures were
$36.3 million for the first ten months of 1999, $40.2 million for 1998, and
$42.5 million for 1997. These capital expenditures were principally for the
purchase of RTCs. IFCO Systems anticipates that a planned expansion of the
European perishables RTC pool will require investments of $69.5 million in 2000
and $46.7 million in 2001. For the planned expansion of the non-European
perishables RTC pool, IFCO Systems projects capital expenditures of $0.5
million in 2000 and $1.3 million in 2001.
The IFCO Companies believe they will be able to finance operations and
scheduled debt repayments from operating cash flow and additional borrowings
under existing credit facilities. However, the planned increase in capital
expenditures for expansion of the non-European RTC pool will require financing
from other sources, like the IPO and the proposed concurrent financing
transactions.
Impact of Inflation
The results of the IFCO Companies' operations for the periods discussed have
not been materially affected by inflation.
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Foreign Currency Translation Effects
The functional currency of the IFCO Companies is the Deutsch mark. The IFCO
Companies have elected the U.S. dollar as their 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 the IFCO Companies' 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:
<TABLE>
<CAPTION>
Weighted Rate at the
Period average rate(1) balance sheet date(2)
------ --------------- ---------------------
<S> <C> <C>
Year ended December 31, 1996..... 0.6631 0.6432
Year ended December 31, 1997..... 0.5757 0.5580
Ten Months ended October 31,
1998............................ 0.5638 0.6038
Year ended December 31, 1998..... 0.5685 0.6140
Ten Months ended October 31,
1999............................ 0.5500 0.5374
</TABLE>
- --------
(1) The average of the noon buying rates for the Deutsch mark by the Federal
Reserve Bank of New York, expressed as U.S. dollars per DM1.00, on the last
business day of each full month during the indicated period.
(2) The noon buying rate, expressed as U.S. dollars per DM1.00, as of the
indicated balance sheet date.
In this proxy statement/prospectus, approximate dollar amounts are provided
for euro-denominated amounts based on the noon buying rate on January 31, 2000,
of one euro = $0.9757. Approximate dollar amounts are provided for Deutsch-
mark-denominated amounts based on this euro rate and the fixed conversion rate
of one euro = DM1.95583, resulting in a rate of 0.4989 U.S. dollars for each
Deutsch mark.
Seasonality
The IFCO Companies' revenues vary depending on the fruit and vegetable
harvesting season in different countries. Historically a higher portion of
their sales and operating income has been recognized in the fourth quarter than
in the first quarter, which has historically been their 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 the IFCO Companies' RTCs from warmer
countries in Southern Europe are higher than the costs to transport the RTCs
from closer locations in Central Europe. The IFCO Companies accordingly charge
customers in these Southern European countries higher usage fees.
Related Party Supplier
In 1997, a subsidiary of IFCO Europe entered into a ten-year supply agreement
with Schoeller Plast Industries GmbH to provide the IFCO Companies with all of
its new RTCs. The supply agreement was later assigned to Schoeller Plast AG, an
indirect 80%-owned subsidiary of Schoeller Industries. Changes in pricing may
occur when Schoeller Plast AG's production costs vary by more that 15%. Under
the terms of the supply agreement, the IFCO Companies receive a fixed price per
kilogram for broken containers, which are taken back by Schoeller Plast AG. See
"Certain Relationships and Related Transactions of the IFCO Companies--Supply
Agreement."
Year 2000
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define a specific year. Absent corrective
actions, a computer program that has date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in system failures or miscalculations causing disruptions to various activities
and operations.
The IFCO Companies began addressing the year 2000 issue in 1997 by setting up
Project 2000, which is managed through interaction between the IFCO Companies'
internal electronic data processing department and
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the managing directors of the individual businesses. In addition to using these
internal resources, third parties are also assisting in renovating and testing
computer hardware and software and embedded systems. The IFCO Companies'
critical business operations are concentrated in the financial accounting and
inventory management systems, which, as discussed below, have been replaced by
a new comprehensive accounting system. These existing systems will serve as
backup systems after the successful implementation of the new system. The IFCO
Companies have no significant internally developed computer systems that need
to be updated. All locations of the IFCO Companies were examined for non-IT and
non-embedded systems. All third-party providers of computer systems and
services, including embedded systems, have been contacted. Approximately 80% of
the contacted vendors have responded to the IFCO Companies' requests.
Management believes that year 2000 issues, if any, with respect to the
remaining 20% of their contacted vendors will not have a material adverse
effect on the IFCO Companies' financial condition or results of operations.
The IFCO Companies have not to date, including since January 1, 2000,
experienced any disruptions to their manufacturing operations, systems, or
other processes due to year 2000 problems, nor are they aware of any material
disruptions to their manufacturing operations, systems, or other processes that
could occur because of year 2000 problems. The IFCO Companies could, however,
experience isolated failures at random locations due to year 2000 problems that
were previously undetected in some personal computers and related software or
in microprocessor-driven machinery. The IFCO Companies believe, however, that
they can compensate for any isolated failures, if they occur, by manual
intervention without any material adverse affect on the IFCO Companies'
financial condition and results of operations.
During 1999, the IFCO Companies completed the installation of a new computer
system. The system is a comprehensive "enterprise response program" based on
software developed and sold by SAP, a leading German developer of systems
applications. The system was installed and implemented by Siemens Business
Systems, a leading application installer in the electronic data processing
environment in Germany. Each of SAP and Siemens has represented to the IFCO
Companies that the new computer system is year 2000 compliant.
The IFCO Companies have developed contingency plans that are focused on
ensuring that daily and long-term work routines can be performed without
significant interruption in the event of year 2000 difficulties. The
contingency plans include performing some processes manually, repairing
affected systems, and changing suppliers as necessary. The IFCO Companies'
efforts in addressing the year 2000 issue would be expected to minimize, but
not eliminate, the risks of third party non-compliance. If the IFCO Companies
or a third party upon which they rely fail to adequately address the year 2000
issue, the resulting problems could disrupt the IFCO Companies' business.
Possible problems that could result in a worst case scenario include:
. incomplete or inaccurate accounting, recording, or processing of
revenues or other financial information;
. delays or failures in obtaining RTCs;
. incomplete or inaccurate accounting, recording, or processing of product
distribution to customers; and
. interruptions in product distribution.
In addition, there are not readily available substitute public utility
vendors for power, water, or telephone services, all of which are an integral
part of the IFCO Companies' operations. If any or all of the IFCO Companies'
utility vendors fail to deliver services due to their own year 2000 problems,
the financial condition and results of operations of the IFCO Companies would
be materially adversely affected.
Project 2000 cost approximately $500,000 through the end of 1999, of which
$430,000 was incurred through December 31, 1998. The IFCO Companies'
development of new operating systems and modification of existing systems have
not been subject to any delay caused in whole or in part by year 2000 efforts
and, therefore, management believes it should not have a material adverse
effect on the IFCO Companies' financial condition or results of operations.
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There are many risks associated with year 2000 issues, including the risk
that the IFCO Companies' computer systems will not operate as intended. The
systems, services, and products of the IFCO Companies and other third parties
may not be year 2000 compliant. Likewise, the IFCO Companies' compliance
schedule may not be met. Any significant unresolved issues related to the year
2000 compliance initiatives could result in an interruption in, or failure of,
normal business activities or operations, or the incurrence of unanticipated
damages or expenses related to the resolution of these issues or related
regulatory actions or legal liabilities, that could have a material adverse
effect on the IFCO Companies' results of operations or financial condition.
To the fullest extent permitted by law, this year 2000 discussion is a "Year
2000 Readiness Disclosure" within the meaning of the U.S. Year 2000 Information
and Readiness Disclosure Act, 15 U.S.C. Section 1.
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. The IFCO Companies have assessed their
internally developed and purchased applications to determine the changes needed
to process euro-denominated transactions. As a result, the IFCO Companies'
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 the IFCO Companies' financial results. In the future, the IFCO Companies
will use the euro as its functional currency in connection with its new
electronic data processing systems.
Quantitative and Qualitative Disclosures About Market Risks
The IFCO Companies are exposed to two broad classes of risk: interest rate
risk and currency exchange rate fluctuations.
The IFCO Companies' exposure to interest rate risk relates primarily to their
variable rate debt. At October 31, 1999, the carrying value of their total
variable rate debt was $72.0 million. To help to reduce the IFCO Companies'
variable rate interest risk, the IFCO Companies have entered into an interest
rate cap agreement, which as of October 31, 1999, covers $54.5 million of their
outstanding debt and limits interest rates related to these borrowings to 6.75%
for $11.3 million of borrowings under the Senior Facilities Agreement and to
7.75% for $43.2 million of borrowings under the Senior Subordinated Agreement.
The following table shows interest sensitivities at the current borrowing level
of hypothetical changes in interest rates on the debt, net of any interest rate
differential received on the cap:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Change in interest rate in
percentage points from current
borrowing level............... -3% -1% +1% +3% +5% +10%
Increase (decrease) in net
interest expense (in
thousands).................... $(2,160) $(720) $720 $1,690 $2,041 $2,916
</TABLE>
The IFCO Companies are exposed to a degree of currency risk by virtue of
conducting a portion of its business in currencies other than the Deutsch mark.
The IFCO Companies' 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. The IFCO Companies' 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 the IFCO Companies'
exposure to exchange rate fluctuations from their European operations.
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PalEx
You should read the following discussion in conjunction with PalEx's
consolidated financial statements included in this proxy statement/prospectus.
In addition, you should also read "Business" for more information about PalEx.
Introduction
PalEx's revenues are derived from:
. the manufacture and sale of new pallets;
. the reconditioning and repair of steel drums, leasing of intermediate
bulk containers, and provision of management services to users of steel
drums and intermediate bulk containers;
. the repair, remanufacture, and sale of recycled pallets and the provision
of pallet management services; and
. pallet and container leasing, retrieval, repair, and management services.
New pallet sales accounted for approximately 54% of PalEx's consolidated
revenues for the 1998 fiscal year, which ended December 27, 1998. A substantial
portion of the cost of a new pallet is lumber, and new pallet sales prices are
strongly influenced by the cost, availability, and type of lumber used. As a
result, changes in lumber prices can significantly impact PalEx's revenues and
margins. New pallet manufacturing is generally considered to be a mature
industry characterized by moderate growth rates.
The reconditioning and repair of steel drums accounted for approximately 27%
of PalEx's consolidated revenues for the 1998 fiscal year. The steel drum
reconditioning and repair industry has barriers to entry by new competitors,
including compliance with environmental standards and high capital
requirements. Consequently, competition is generally stable or declining in the
industry, which provides surviving industry participants with the opportunity
to acquire market share via pricing strategy or acquisitions.
The repair, remanufacture, and sale of recycled pallets and recycled pallet
management services accounted for approximately 17% of PalEx's consolidated
revenues for the 1998 fiscal year. These activities are more labor intensive
and require fewer raw materials than manufacturing new pallets. Recycling
operations generally generate higher gross profits as a percentage of revenues
than new pallet sales.
Canadian pallet leasing, retrieval, repair, and management services and
intermediate bulk container leasing in the United States accounted for
approximately 2% of PalEx's consolidated revenues for the 1998 fiscal year.
PalEx recognizes revenue upon the delivery of a product or service to a
customer. PalEx does not generally maintain significant finished goods
inventory. Cost of sales for pallets are predominantly variable, including the
cost of lumber, labor, fasteners, transportation, equipment maintenance, and
utilities. Fixed costs in pallet cost of sales include depreciation of
equipment, supervisory labor, and direct overhead. A significant number of
PalEx's pallet production employees are paid on a production or piecework
basis, which PalEx believes provides incentives for increased productivity.
Cost of sales for reconditioned steel drums contain higher fixed costs, a
reflection of the high capital requirements of the business. Fixed costs of
sales for reconditioned steel drums include depreciation, transportation, and
facility repairs. Variable costs to recondition steel drums include chemicals
and coatings, hardware, labor, and raw drums.
Although PalEx sells products to a broad range of industries, approximately
7% of PalEx's revenues for the 1998 fiscal year were attributable to the
agricultural industry in the Southeastern and Western regions of the United
States, with the citrus and produce industries constituting the largest
component of these revenues. Revenue associated with these industries is highly
seasonal, concentrated in the period from October through May. Moreover, severe
weather, particularly during the harvesting seasons, may cause a reduction in
demand from agricultural customers, adversely affecting PalEx's revenues and
results of operations. Adverse weather conditions may also affect PalEx's raw
material costs.
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Termination of CHEP USA Relationship
During the last quarter of 1997 and the first part of the first quarter of
1998, various members of PalEx's management had numerous discussions with
representatives of PalEx's then largest customer, CHEP USA, regarding numerous
issues affecting the profitability of the products PalEx manufactured for CHEP
USA and the pricing of new pallets, the uncertainty of CHEP USA production
requirements, the absence of fees for extra services provided to CHEP USA,
quality control, and the opening of new facilities that would be primarily
dedicated to performing services for CHEP USA. PalEx manufactured new, high-
grade pallets for CHEP USA, 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 PalEx-operated depots, where they were sorted, repaired,
and returned to CHEP USA's customers.
In addition, during this same period PalEx began renegotiating the prices
CHEP USA was being charged for new pallets to more accurately reflect
constantly changing lumber prices. After subsequent discussion and
communications, PalEx recognized that these issues would not be resolved to the
mutual satisfaction of CHEP USA and PalEx. Accordingly, PalEx notified CHEP USA
that effective on April 29, 1998, it would cease supplying CHEP USA with new
pallets and provided advance notice, generally, 10 to 60 days, under
contractual arrangements to discontinue repair and depot services for CHEP USA.
The termination of PalEx's relationship with CHEP USA adversely affected the
operations of some of PalEx's facilities in the Southeastern and Western United
States. PalEx developed a restructuring plan to close, curtail, or convert
operations at facilities related to CHEP USA production to alternative business
activities. As of December 27, 1998, three CHEP USA-related manufacturing
facilities had closed, one was sold, and two more were consolidated into one
facility. Two other CHEP USA-related facilities were converted to manufacture
non-CHEP USA products. PalEx also terminated approximately 400 production-
related employees at CHEP USA-related facilities during 1998.
During the 1998 fiscal year, approximately 8% of PalEx's consolidated
revenues were attributable to CHEP USA. Sales to CHEP USA for the year ended
November 30, 1996, were approximately 21% of consolidated revenues and for the
year ended December 28, 1997, were approximately 26% of consolidated revenues.
Results of Operations
Following the acquisition of the founding companies and PalEx's initial
public offering and during fiscal 1997, PalEx acquired five additional
companies. During the 1998 fiscal year, PalEx acquired a total of 19 companies.
Of the 1998 acquisitions, ten are engaged in the pallet business in the United
States, eight are engaged in the reconditioning and rebuilding of industrial
steel containers in the United States, and one, SMG Corporation, is engaged in
the rental of pallets in Canada.
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The following table lists PalEx's acquisitions through October 24, 1999:
<TABLE>
<CAPTION>
Date of
Company Acquired Acquisition
---------------- -----------
<S> <C>
Founding companies (1):
Fraser Industries, Inc....................................... 3/25/97
Ridge Pallets, Inc........................................... 3/25/97
Interstate Pallet Co., Inc................................... 3/25/97
Pooled companies (2):
Sheffield Lumber & Pallet Company, Inc....................... 8/1/97
Sonoma Pacific Company....................................... 8/1/97
New London Pallet Inc........................................ 10/14/97
Bay Area Pallet Company...................................... 10/31/97
Other 1997 fiscal year acquisitions (3):
Summers Pallet Manufacturing, Inc............................ 11/20/97
1998 pooled companies (4):
Acme Barrel Company, Inc..................................... 2/23/98
Western Container, Limited Liability Company................. 2/23/98
Drum Service Co. of Florida.................................. 2/27/98
Consolidated Container Corporation........................... 2/27/98
1998 purchased companies (5):
American Pallet Recyclers, Inc............................... 1/2/98
Consolidated Drum Reconditioning, Inc........................ 2/12/98
Capital Pallet, Incorporated................................. 3/18/98
Pallet Outlet Company, Inc................................... 3/20/98
Southern Pallets, Inc........................................ 3/25/98
Shipshewana Pallet Co., Inc.................................. 5/21/98
Gilbert Lumber Inc........................................... 6/11/98
Valley Pallets, Inc.......................................... 6/17/98
Duckert Pallet Co., Inc...................................... 7/14/98
Continental Pallet Company, Inc.............................. 7/27/98
McCook Drum & Barrel Co., Inc................................ 8/4/98
Isaacson Lumber Company...................................... 8/31/98
SMG Corporation.............................................. 9/11/98
Charlotte Steel Drum Corporation............................. 10/23/98
Atlas Container Company, Inc................................. 10/30/98
</TABLE>
- --------
(1) PalEx acquired the founding companies concurrently with the closing of its
initial public offering.
(2) PalEx acquired the pooled companies in the 1997 fiscal year following
PalEx's initial public offering. PalEx accounted for each of these
acquisitions as a pooling-of-interests.
(3) PalEx accounted for the 1997 acquisition of Summers as a purchase.
(4) PalEx acquired the 1998 pooled companies in the 1998 fiscal year and
accounted for each of these acquisitions as a pooling-of-interests.
(5) The 1998 purchased companies were acquired in the 1998 fiscal year and were
accounted for as purchases. PalEx sometimes refers to the 1998 purchased
companies, together with Summers, as the purchased companies.
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The following table sets forth selected financial data and that data as a
percentage of PalEx's revenues for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Ten-Month Period Ended
-------------------------------------------------------------- --------------------------------------
November 30, 1996 December 28, 1997 December 27, 1998 October 25, 1998 October 24, 1999
----------------- ----------------- ----------------- ---------------- ----------------
(dollars in thousands)
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 145,030 100.0% $ 222,993 100.0% $ 319,691 100.0% $ 256,874 100.0% $ 320,433 100.0%
Cost of goods sold...... 121,865 84.0 188,084 84.3 259,562 81.2 207,850 80.9 257,472 80.4
Inventory valuation
adjustment............. -- -- -- -- 1,235 0.4 1,679 0.7 -- --
---------- ------- ---------- ------- ---------- ------- --------- ------ --------- ------
Gross profit............ 23,165 16.0 34,909 15.7 58,894 18.4 47,345 18.4 62,961 19.6
Selling, general and
administrative
expenses............... 14,063 9.7 20,135 9.0 33,042 10.3 27,374 10.7 36,142 11.3
Amortization of goodwill
and other intangible
assets................. 165 0.1 820 0.4 3,334 1.0 2,186 0.9 3,993 1.2
Compensation
differential........... -- -- 1,020 0.5 1,062 0.3 1,062 0.4 -- --
Pooling expenses........ -- -- -- -- 1,841 0.6 1,841 0.7 -- --
Restructuring charge.... -- -- -- -- 949 0.3 2,404 0.9 -- --
Plant closure costs and
asset abandonment
loss................... -- -- -- -- 1,369 0.4 1,369 0.5 -- --
---------- ------- ---------- ------- ---------- ------- --------- ------ --------- ------
Income from operations.. 8,937 6.2 12,934 5.8 17,297 5.4 11,109 4.3 22,826 7.1
Interest expense........ (1,576) (1.1) (1,722) (0.8) (8,468) (2.7) (6,317) (2.5) (12,047) (3.7)
Other income (expense),
net.................... 511 0.3 132 0.1 262 0.1 239 0.1 1,387 0.4
---------- ------- ---------- ------- ---------- ------- --------- ------ --------- ------
Income before income
taxes.................. 7,872 5.4 11,344 5.1 9,091 2.8 5,031 1.9 12,166 3.8
Income tax provision.... 1,833 1.2 4,704 2.1 5,105 1.6 2,676 1.0 5,402 1.7
---------- ------- ---------- ------- ---------- ------- --------- ------ --------- ------
Net income.............. $ 6,039 4.2% $ 6,640 3.0% $ 3,986 1.2% $ 2,355 0.9% $ 6,764 2.1%
========== ======= ========== ======= ========== ======= ========= ====== ========= ======
</TABLE>
Ten-Month Period Ended October 24, 1999, Compared to Ten-Month Period Ended
October 25, 1998
Revenues increased 24.7% from approximately $256.9 million in the ten-month
period ended October 25, 1998, to approximately $320.4 million in the ten-month
period ended October 24, 1999. On April 29, 1998, PalEx notified its largest
customer, CHEP USA, that PalEx was terminating all existing agreements with
CHEP USA. Effective that date, PalEx ceased supplying CHEP USA with new pallets
and provided advance notice, generally ten to 60 days, under contractual
arrangements to discontinue repair and depot services to CHEP USA. The
termination of PalEx's relationship affected some of PalEx's facilities in the
Southeastern and Western United States. Revenues related to CHEP USA sales for
the ten-month period ended October 25, 1998, were approximately $26.1 million.
The increase in revenues for the ten-month period ended October 24, 1999,
compared to the ten-month period ended October 25, 1998, is primarily
attributable to the companies acquired as purchases and sales to new customers
that replaced sales previously made to CHEP USA.
Gross profit increased from approximately $47.3 million for the ten-month
period ended October 25, 1998, to approximately $63.0 million for the ten-month
period ended October 24, 1999, primarily as a result of increased volumes due
to the acquisition of the purchased companies. Gross profit as a percentage of
revenues increased from 19.1%, excluding the inventory valuation adjustment
resulting from the termination of the business relationship with CHEP USA, for
the ten-month period ended October 25, 1998, to 19.6% for the ten-month period
ended October 24, 1999, primarily due to higher margins from both recycled
pallet sales and new pallet manufacturing, which higher margins were partially
offset by lower gross margins in drum reconditioning and services and pallet
leasing in Canada. PalEx's 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
costs.
Selling, general and administrative expenses increased from approximately
$27.4 million, or 10.7% of revenues, in the ten-month period ended October 25,
1998 to $36.1 million, or 11.3% of revenues, in the ten-month period ended
October 24, 1999. This increase is generally attributable to the purchased
companies acquired during 1998, and to PalEx's continued efforts in organizing
and building its regional operating structure.
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The results of operations for the ten-month period ended October 25, 1998,
include approximately $1.8 million for pooling expenses and approximately $1.1
million for compensation differential related to the acquisition of Acme and
Western. Restructuring charges relating to PalEx's termination of its
relationship with CHEP USA were approximately $5.5 million during the ten
months ended October 25, 1999.
Amortization of goodwill and other intangible assets increased from
approximately $2.2 million for the ten-month period ended October 25, 1998, to
approximately $4.0 million for the ten-month period ended October 24, 1999.
This increase was due to the additional companies acquired as purchases.
Interest expense increased from approximately $6.3 million for the ten-month
period ended October 25, 1998, to approximately $12.1 million for the ten-month
period ended October 24, 1999, primarily as a result of the additional
borrowings related to the acquisitions of the 1998 purchased companies and
higher interest rates.
As a result of the foregoing, net income increased from approximately $2.4
million for the ten-month period ended October 25, 1998, to approximately $6.8
million for the ten-month period ended October 24, 1999.
Year Ended December 27, 1998, Compared to Year Ended December 28, 1997
Revenues increased approximately $96.7 million, or 43.4%, to approximately
$319.7 million from approximately $223.0 million. Revenues attributable to the
1998 purchased companies were approximately $94.7 million. Revenues for the
founding companies and the pooled companies and Summers, adjusted for the
comparable period in 1998 for which there were no revenues in 1997, decreased
approximately $23.0 million from 1997 to 1998. CHEP USA sales decreased
approximately $32.4 million from 1997 to 1998. Approximately $9.4 million of
the decrease in sales attributable to CHEP USA was replaced in 1998 after the
termination of PalEx's CHEP USA relationship with increased sales to other
customers.
Revenues from new pallet sales increased approximately $19.2 million and
revenues from recycled pallet sales increased approximately $47.5 million in
1998 over 1997. Revenues from pallet leasing and related services increased
approximately $4.6 million in 1998 over 1997. Revenues from reconditioned drum
sales increased approximately $25.4 million in 1998 over 1997. All of these
increases were primarily attributable to the addition of the revenues of the
1998 purchased companies.
Gross profit as a percentage of revenues increased to 18.4% for 1998 compared
to 15.7% for 1997. PalEx's consolidated sales mix now consists of a higher
percentage of sales of recycled pallets and reconditioned drums, which have
higher gross margins.
Selling, general and administrative expenses increased 64.1% to approximately
$33.0 million in 1998 from approximately $20.1 million in 1997 and were 10.3%
of revenues in 1998 and 9.0% of revenues in 1997. Approximately $10.5 million
of this increase was attributable to the acquisitions of the 1998 purchased
companies and approximately $2.4 million was associated with the costs of being
a public company.
The results of operations for 1998 included charges of approximately $1.8
million for pooling expenses and approximately $1.1 million for compensation
differential. Compensation differential is the difference between previous
owners' compensation before their companies were acquired by PalEx and the
amounts they contractually agreed to be paid afterward. There were no pooling
expenses for 1997. Compensation differential for 1997 was approximately $1.0
million.
Goodwill amortization increased in 1998 to approximately $3.3 million from
approximately $0.8 million because of the additional companies PalEx acquired
during 1998 that were accounted for as purchases.
The results of operations for 1998 include after-tax charges of approximately
$1.2 million for costs associated with the conversion or closure of facilities
and approximately $0.8 million for plant closure and asset abandonment losses
related to the termination of PalEx's relationship with CHEP USA.
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<PAGE>
Interest expense increased in 1998 to approximately $8.5 million from
approximately $1.7 million in 1997. The increase in interest expense was
primarily attributable to the additional indebtedness incurred in conjunction
with the acquisitions of the 1998 Purchased Companies and the refinanced debt
of the 1998 pooled companies.
Federal and state income taxes have been provided on the earnings of Fraser,
the pooled companies, and the 1998 pooled companies for 1997 and on Ridge,
Interstate, and Summers from their dates of acquisition. The provision for
income taxes for 1997 also includes a charge of approximately $0.5 million,
representing deferred income taxes for Fraser at the time of PalEx's initial
public offering. This charge was not previously recorded because of Fraser's
status under Subchapter S of the Internal Revenue Code. PalEx's effective
income tax rate was 56.2% of pretax income for 1998, primarily due to
nondeductible amortization of goodwill and costs and expenses incurred in
conjunction with those companies acquired as poolings-of-interests.
As a result of the foregoing, net income for 1998 decreased approximately
$2.6 million to approximately $4.0 million from approximately $6.6 million in
1997.
Year Ended December 28, 1997, Compared to November 30, 1996
Revenues increased approximately $78.0 million, or 53.8%, to approximately
$223.0 million in 1997 from approximately $145.0 million in 1996. Of this
increase, approximately $45.4 million was attributable to the acquisition of
Ridge and Interstate and approximately $21.4 was attributable to an increase in
new pallet sales. Approximately $11.2 million of the increase was attributable
to an increase in unit sales of reconditioned drums.
Gross profit as a percentage of revenues remained relatively unchanged at
15.7% in 1997 compared to 16.0% in 1996. The slight decrease in gross profit
percentage was partially attributable to increased lumber costs during the
year. Gross margins for reconditioned drums were slightly lower due to market
driven price pressures.
Selling, general and administrative expenses increased 43.2% to approximately
$20.1 million in 1997 from approximately $14.1 million in 1996 and were 9.0% of
revenues in 1997 and 9.7% of revenues in 1996. The amount of increase was
primarily attributable to increased costs associated with being a public
company and the acquisitions of Ridge, Interstate, and Summers.
Goodwill amortization in 1997 is primarily attributable to the acquisition of
Ridge, Interstate, and Summers.
Interest expense increased to approximately $1.7 million in 1997 from
approximately $1.6 million in 1996 as a result of the increase in indebtedness
in 1997.
As a result of the foregoing, net income increased to approximately $6.6
million in 1997 from approximately $6.0 million in 1996.
Liquidity and Capital Resources
On March 25, 1997, PalEx completed its initial public offering, which
involved the sale of 3.0 million shares of its common stock at a price to the
public of $7.50 per share. The net proceeds to PalEx from its initial public
offering, after deducting underwriting discounts, commissions, and offering
expenses, were approximately $20.1 million. Of this amount, $3.4 million was
used to pay the cash portion of the purchase prices relating to the
acquisitions of the founding companies with the remainder being used to repay
indebtedness of the founding companies. On April 22, 1997, PalEx sold an
additional 450,000 shares of its common stock at a price to the public of $7.50
per share, which generated net proceeds to PalEx of $3.1 million after
underwriting discounts and commissions, pursuant to an over-allotment option
granted by PalEx to the underwriters in connection with its initial public
offering. The net proceeds were used to repay debt borrowed under PalEx's
senior credit facility.
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<PAGE>
PalEx and members of a lending syndicate, which includes Bank One, Texas,
N.A., as a lender and administrative agent, are parties to an amended senior
credit facility dated as of September 26, 1999. The senior credit facility
provides PalEx 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. The
senior credit facility will terminate and all amounts outstanding, if any, will
be due and payable on the earlier of June 30, 2000, or a change of control,
which will occur upon completion of the pending merger with IFCO Systems, which
is expected to close in the first quarter of 2000. Amounts outstanding under
the senior credit facility at October 24, 1999, are classified as current
liabilities.
Advances under the senior credit facility bear interest at a defined base
interest rate of Bank One plus a margin of 200 basis points. At PalEx's option,
advances may bear interest based on a designated LIBOR plus a margin of 400
basis points. The interest rate on the senior credit facility will increase by
50 basis points on March 31, 2000. Commitment fees of 50 basis points are
payable quarterly on the unused portion of the senior credit facility. The
senior credit facility contains a limit for standby letters of credit of $10.0
million. There were letter of credit commitments of approximately $3.8 million
outstanding under the senior credit facility as of October 24, 1999.
The senior credit facility prohibits the payment of dividends by PalEx,
restricts PalEx's incurrence or assumption of other indebtedness and
acquisitions, and requires PalEx to comply with financial covenants including
consolidated net worth, fixed charge coverage, and funded debt and senior debt
to earnings before interest, taxes, depreciation, and amortization ratios. The
approximate level of borrowings available under the senior credit facility as
of October 24, 1999 was $13.2 million. The senior credit facility is secured by
a lien on the real and tangible personal property of PalEx, a pledge of the
outstanding stock of each of PalEx's U.S. subsidiaries and 65% of the
outstanding stock of PalEx's Canadian subsidiary. The amounts due under the
senior credit facility are also guaranteed by PalEx's U.S. subsidiaries.
On November 10, 1999, PalEx entered into a note purchase agreement for CIBC
World Markets Corp. to acquire $25.0 million of PalEx's unsecured Senior
Subordinated Notes due September 30, 2000. Under the terms of the senior
subordinated notes, PalEx will pay interest at the greater of LIBOR plus 600
basis points and the rate on the senior credit facility plus 200 basis points.
The interest rate on the senior subordinated notes will increase by 50 basis
points on each of March 31, 2000, and June 30, 2000. PalEx was required to pay
a fee of approximately $0.8 million when the senior subordinated notes were
issued and will be required to pay a fee of approximately $0.6 million on June
30, 2000, if the senior subordinated notes have not been repaid as of that
date. If the senior subordinated notes are not repaid in full before September
30, 2000, the holders of the senior subordinated notes will be granted warrants
to purchase 5% of the then outstanding, fully diluted shares of PalEx common
stock. At CIBC's option, the holders may be paid a cash fee instead of the
warrants. Net proceeds from the issuance of the senior subordinated notes will
be used to pay down the amounts outstanding under the senior credit facility
and increase the amounts available thereunder.
Under the terms of the senior credit facility and the CIBC note purchase
agreement, capital expenditures are limited to $7.5 million for the fiscal
quarter ending December 26, 1999, $17.5 million for the fiscal quarter ending
March 26, 2000, and $25.0 million for the fiscal quarter ending June 25, 2000.
This is also a cumulative limitation.
PalEx issued approximately $10.0 million in subordinated convertible notes
payable to former owners of the 1998 Purchased Companies. The convertible
notes, which bear interest at rates ranging from 6% to 8%, include provisions
that allow conversion into shares of PalEx's common stock beginning on the
first anniversary date of the convertible notes at conversion prices ranging
from $10.78 to $15.86 per share. If the convertible notes are not converted,
they become due and payable on their second anniversary. At PalEx's option, the
convertible notes may be prepaid at any time following the conversion date.
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PalEx's liabilities under the senior credit facility mature on June 30, 2000,
and its liabilities under the subordinated notes mature on September 30, 2000.
PalEx intends to refinance these liabilities in connection with the completion
of the merger with IFCO Systems. However, PalEx cannot assure you the merger
with IFCO will be completed or completed before the maturity of these
liabilities. In either event, PalEx would have to extend the maturity dates
under the senior credit facility and the subordinated notes or obtain
additional or new financing to satisfy or refinance these liabilities. PalEx
cannot assure you that it could extend the maturity dates or obtain additional
or new financing or that it could do so on commercially favorable terms.
PalEx's failure to accomplish at least one of these objectives could have a
material adverse effect on its results of operations and financial condition.
PalEx's capital expenditures were $8.3 million for the ten-month period ended
October 24, 1999, $14.0 million for the year ended December 27, 1998, and $9.1
million for the year ended December 28, 1997. These expenditures were primarily
for additional and replacement pallet and drum manufacturing equipment. PalEx's
currently anticipated capital expenditures for additional and replacement
pallet and drum manufacturing equipment and pallet pool expenditures are $27.0
million during fiscal 2000 and $24.2 million during fiscal 2001.
Seasonality
The pallet manufacturing and crating business is subject to seasonal
variations in operations and demand. PalEx's third quarter is traditionally the
quarter with the lowest demand. PalEx has a significant number of agricultural
customers 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 PalEx's ability to
obtain adequate supplies of lumber at a reasonable cost. PalEx locations
serving predominantly manufacturing and industrial customers experience less
seasonality. PalEx's 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.
Management believes that the effects of seasonality will diminish as PalEx
grows and expands its customer base both internally and through acquisition.
However, management believes the third quarter currently represents the
seasonally slow quarter of PalEx's fiscal year.
Year 2000 Issues
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define a specific year. Absent corrective
actions, a computer program that has date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in system failures or miscalculations causing disruptions to various activities
and operations.
PalEx has conducted an evaluation of the actions necessary in order to ensure
that its computer systems will be able to function without disruption with
respect to the application of dating systems in the year 2000. The majority of
PalEx's information technology software with potential year 2000 concerns was
licensed from vendors that have either changed their product to remove the
effects of the year 2000 issue or have committed to have the necessary changes
made during 1999. PalEx has also conducted reviews and inquiries concerning
software used in the operation of PalEx's manufacturing equipment. PalEx's
operating businesses do not require extensive systems-oriented applications.
The pallet manufacturing business consists of harvesting, transporting,
cutting, assembling, and delivering finished wood products. The drum
reconditioning business consists of collecting, reconditioning, and delivering
empty steel containers. Isolated microprocessor-driven manufacturing equipment
involved in the pallet manufacturing and drum reconditioning processes have
either been conformed to year 2000 standards or are scheduled for conformity by
the vendor in 1999. PalEx has not experienced any disruptions to its
manufacturing operations, systems, or other processes to date, including since
108
<PAGE>
January 1, 2000, due to year 2000 problems, nor is it aware of any material
disruptions to its manufacturing operations, systems, or other processes that
could occur because of year 2000 problems. PalEx is also unaware of any
exposure to contingencies related to the year 2000 issue for the products it
has sold in the past. PalEx does not anticipate the loss of any revenues due to
the year 2000 issue.
As a result of its evaluations of the year 2000 issue, PalEx has upgraded and
replaced some of its information and other computer systems in order to be able
to operate without disruption after 1999. The costs of these actions were
approximately $100,000. Although PalEx is assessing the reliability of its year
2000 compliance, disruptions of the computer systems of banks, vendors,
customers, or other third parties, whose systems are outside PalEx's control,
could impair PalEx's ability to obtain necessary raw materials or to sell to or
service its customers. Disruption of PalEx's computer systems, or the computer
systems of its banks, vendors, or customers, as well as the cost of avoiding
any disruption, could have a material adverse effect upon PalEx's financial
condition and results of operations. It is also possible, based upon a worst
case scenario analysis, that PalEx could experience isolated failures at random
locations due to year 2000 problems that were previously undetected in some
personal computers and related software or in microprocessor-driven machinery.
PalEx believes, however, it can compensate for any isolated failures, if they
occur, by manual intervention without any material adverse affect on PalEx's
financial condition and results of operations.
PalEx has developed contingency plans with respect to different areas of its
operations. These plans are intended to allow PalEx to continue to operate if
there is a year 2000 failure. The contingency plans include performing some
processes manually, repairing affected systems, and changing suppliers as
necessary. PalEx's efforts in addressing the year 2000 issue can only minimize,
but cannot eliminate, the risks of third party non-compliance. If we or a third
party upon which we rely fail to adequately address the year 2000 issue, the
resulting problems could disrupt PalEx's business. Possible problems include:
. incomplete or inaccurate accounting, recording, or processing of revenues
or other financial information;
. delays or failures in obtaining raw materials and manufacturing supplies;
. incomplete or inaccurate accounting, recording, or processing of product
distribution to customers; and
. interruptions in product distribution.
PalEx, as part of its contingency plan, has initiated a formal communication
program with significant vendors to evaluate their year 2000 compliance, and is
assessing their responses to PalEx's year 2000 readiness questionnaire.
Approximately 46% of those vendors surveyed have responded to our inquiry
regarding their own year 2000 readiness. Of those vendors that have replied,
all have stated that their ability to supply PalEx will not be affected by year
2000 issues. However, if a significant vendor becomes unable to deliver
materials or services, PalEx has identified replacement vendors that can
provide substitute materials and services for many of the goods PalEx sells and
substitutes for many of the services it receives can be obtained from other
vendors. No single supplier accounts for more than approximately 3% of PalEx's
purchases, and PalEx does not currently foresee any significant impairment in
its ability to procure materials due to operational failures of vendors.
Management believes that year 2000 issues, if any, with respect to the vendors
surveyed who have not responded will not have a material adverse effect on
PalEx's financial condition or results of operations. However, PalEx cannot
assure timely compliance of vendors and may be adversely affected by failures
of significant vendors to supply products or services due to year 2000
compliance failures. In addition, there are not readily available substitute
public utility vendors for electricity, natural gas, water, or telephone
services, all of which are an integral part of PalEx's operations. If any or
all of PalEx's utility vendors fail to deliver services due to their own year
2000 problems, PalEx' financial condition and results of operations would be
materially adversely affected.
To the fullest extent permitted by law, this year 2000 discussion is a "Year
2000 Readiness Disclosure" within the meaning of the U.S. Year 2000 Information
and Readiness Disclosure Act, 15 U.S. C. Section 1.
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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.
IFCO Systems believes 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;
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. 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.
PalEx believes 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, PalEx believes 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, PalEx estimates that the
U.S. pallet industry generated revenues of approximately $5.6 billion in 1997
and is served by approximately 3,600 companies. PalEx believes, based on its
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. PalEx estimates, 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. PalEx also
estimates 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
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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, PalEx
estimates 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.
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BUSINESS
Overview
When the merger with PalEx is completed, IFCO Systems will combine the IFCO
Companies' round-trip systems with PalEx's pallet and industrial container
operations. The IFCO Companies' operations are primarily in Europe, and PalEx's
operations are located in North America. The round-trip systems offer customers
and retailer groups a variety of services and products for the movement of many
types of goods.
The IFCO Companies 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, reduced storage requirements, and reduction of the amount of packaging
for transport. The IFCO Companies contract third parties to collect empty RTCs
from retailers for inspection and reconditioning by the IFCO Companies as
necessary.
The RTCs are then reintroduced into the round-trip system for multiple reuse
on a just-in-time basis. The IFCO Companies' 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.
PalEx manufactures, sells, leases, and recycles wooden pallets in a wide
variety of shapes and sizes. PalEx also reconditions industrial container
products, which include steel closed top drums, steel drums with fully
removable heads, plastic drums, and industrial bulk containers.
IFCO Systems believes it will be a leading provider of round-trip systems
internationally, serving over 9,000 customers in 17 countries. IFCO Systems
believes it will:
. own and manage the largest pool of RTCs in Europe based on 1997 market
information;
. own and manage a rental pool of over 1.5 million pallets in Canada,
making it the second largest pallet rental pool owner and manager in
North America;
. be the largest provider of new and recycled pallets in North America
based on PalEx's pallet industry experience and of industry information;
and
. be the largest provider of industrial container reconditioning services
in North America based on PalEx's 1998 volume and its estimate of the
total number of industrial containers reconditioned in the United States
each year using information obtained from the Reusable Industrial
Packaging Association.
Company Strengths
IFCO Systems believes that following the merger the combined company will
have the following strengths:
. Leading Provider of Round-trip Systems. IFCO Systems will be a leading
provider of round-trip systems for the transport of fruits and
vegetables in Europe. In addition, IFCO Systems will have a rental pool
of over 1.5 million pallets in Canada and is positioned to expand its
pallet pooling services into the United States.
. Systems Approach to Product Flow. IFCO Systems will provide customers
and retailers with comprehensive systems to effectively manage the flow
of products throughout the distribution process. IFCO Systems will offer
solutions to its 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.
The merger with PalEx will provide IFCO Systems with an existing North
American network of 72 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 its extensive regional networks, IFCO Systems will 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.
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. Innovative Patented Technology and Economic Efficiencies. IFCO Systems'
patented technology will allow it to provide user-friendly, stackable,
and collapsible RTCs. IFCO Systems' plastic RTCs will be 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 upon a comparison with CHEP's container, IFCO Systems' principal
competitor, IFCO Systems believes none are as fully and easily
collapsible as the IFCO RTCs. In addition, IFCO Systems' RTCs will 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. IFCO Systems
has established or will be developing relationships with many retailers
and growers. Retailers using IFCO Systems' 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 the IFCO Companies' RTCs. IFCO Systems is
developing relationships with Wal-Mart and H.E. Butt in the United
States, among others, and intends to expand its market share in the
United States.
. Geographic Diversity. IFCO Systems will have geographically diverse
operations with 62 locations in Europe, 11 locations in Japan, six
locations in Argentina, and 83 locations in North America, including
PalEx's 72 locations. Its decentralized facilities will provide IFCO
Systems with a competitive advantage and allow it to meet retailers'
needs in these regions. IFCO Systems believes it will also be 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. IFCO
Systems' management team will have extensive experience in the
transportation, logistics, and packaging industries. PalEx brings to
IFCO Systems management with broad experience in transportation and
logistics operations, acquisitions, and knowledge of the U.S. market.
This management group understands and has experience integrating
acquired businesses into a common infrastructure. IFCO Systems also will
enter both major markets--Europe and North America--with established
local management personnel for day-to-day operations and expansion. In
addition, GE Capital will have a continuing relationship with IFCO
Systems because of its status as a noteholder and GE Erste's right to
become a direct or indirect holder of IFCO Systems ordinary shares. IFCO
Systems intends to use this continuing relationship to avail itself of
GE Capital's extensive experience and other relationships.
Business Strategy
IFCO Systems' objective is to be the preeminent international provider of
round-trip systems through the implementation of the following strategy:
. Expand into the United States. IFCO Systems believes the combination of
(1) the IFCO Companies comprehensive round-trip systems and high quality
RTCs and (2) PalEx's relationships with
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producers and retailers, knowledge of shipping platform and container
management services, and experience with North American distribution
channels will offer IFCO Systems a significant opportunity to expand the
combined company's 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. IFCO Systems believes a similar
evolution will occur in the United States based upon comparable
opportunities and receptiveness among growers and retailers. Since IFCO
Systems will be able to benefit from the existing PalEx network of 72
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. IFCO Systems believes that
it 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. IFCO Systems intends to continue its
expansion into other geographic and product markets with both existing
and new products and services.
. Dry Goods. IFCO Systems intends to continue expanding its 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. IFCO Systems
believes the many advantages of RTCs will enable it to attract dry
goods manufacturers and retailers and provide it with additional
market share in geographic markets where it is already a leading
provider of RTCs for produce and other perishables.
. Worldwide. In the future, IFCO Systems intends to continue
expanding its round-trip systems to other geographic markets with an
initial emphasis on accelerating the growth of its developing
operations in Japan and Argentina.
. Further Logistics Systems Opportunities. Retailers, distributors, and
producers are focusing increasingly on cost-effective means of
transporting and effectively tracking their goods. IFCO Systems intends
to capitalize upon this trend by increasing and improving its array of
logistics services. IFCO Systems plans to continue development of a
number of services that are intended to grow its business profitably and
ensure its position as a leading provider of round-trip systems. One
example is the development of technology beyond traditional barcode
scanners that will allow its 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. IFCO
Systems believes that the fragmented nature of its industries provides
opportunities for both internal growth and growth through strategic
acquisitions. IFCO Systems intends to pursue both strategic acquisitions
and those that enable it to expand in selected geographic areas. In the
last two years, PalEx has successfully completed and integrated 24
acquisitions. In addition, IFCO Systems will consider joint ventures
that would give it access to new products, markets, or technologies.
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.
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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, and through September 26, 1999, 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 60 facilities in 18 states in the United States and seven
Canadian provinces.
In separate transactions in February 1998, PalEx acquired four leading steel
drums 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 through September 30,
1999, 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 12 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 the IFCO Companies started the RTC pool in Europe in 1992, they believe
they have become the leading supplier of RTCs in Europe. Currently there are
over 60 million IFCO RTCs in circulation. IFCO Europe's 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. The IFCO Companies are able to maximize these benefits as a result of
experience with container pooling and transport and their network of container
depots, which is extensive in Europe and growing in other regions.
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The IFCO round-trip system is illustrated as follows:
[GRAPHIC OF IFCO SYSTEMS ROUND TRIP SYSTEM]
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 RTCs, 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;
. IFCO contracts 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, IFCO returns deposit to the retailer; and
. IFCO inspects and cleans, repairs, or recycles, as necessary, empty RTCs
at the IFCO container depot to make them ready for their next delivery
to a producer.
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The 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.
The IFCO Companies 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 IFCO's 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.
IFCO Europe initially developed RTCs for use with fresh produce. The IFCO
Companies 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.
Pallets
PalEx offers new pallet manufacturing and pallet rental, repair,
remanufacture, and recycling services. Although new pallet manufacturing
accounts for a majority of PalEx's revenues, PalEx believes that rental pool,
repair, remanufacture, and recycling services present the greatest opportunity
for future growth.
New Pallet Manufacturing. The manufacturing process at its 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.
PalEx believes 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.
PalEx uses 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
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storage. More customized or smaller orders may be manufactured by hand on
assembly tables by two laborers using pneumatic nailers. PalEx typically
manufactures pallets upon receipt of customer orders and generally does not
maintain a significant inventory of completed pallets.
New pallet manufacturing represented approximately 54% of PalEx's revenues
for the 1998 fiscal year ended December 27, 1998, and approximately 57% of
revenues for the ten-month period ended October 24, 1999. The ten-month period
in 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 PalEx sells
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 approximately 17% of PalEx's
revenues for the 1998 fiscal year and approximately 16% of revenues for the
first ten months of the 1999 fiscal year.
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.
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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
approximately 27% of PalEx's revenues for the 1998 fiscal year and
approximately 25% of revenues for the first ten months of the 1999 fiscal year.
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, PalEx will contract with a customer to remove all pallets or drums
from a particular location and transport them to its repair or reconditioning
facility. The pallets or drums are sorted and repaired or reconditioned as
needed at a PalEx depot and sold to third parties, returned to either the
customer or its supplier or placed in storage and made available for return to
service. PalEx may contract with a customer to perform any or all of the
management services available. PalEx believes there are significant
opportunities to manage customers' entire shipping container and platform
requirements and that it is in a unique position to develop and offer these
services.
Expansion and Acquisitions
Round-trip Containers
IFCO International has interests in joint ventures in Japan and the United
States and has begun an operation in Argentina for the development and
operation of round-trip systems and RTC pools.
In Japan, IFCO International has 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, IFCO International entered into a joint venture 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. Although Intertape controls the day-to-day operation of IFCO U.S., IFCO
International currently has a majority equity interest. Effective as of May 1,
1999, Intertape exercised its option to purchase an additional joint venture
interest in exchange for a promissory note to IFCO International for
approximately $3.2 million, increasing its equity interest to 49%. IFCO Systems
has agreed to purchase the Intertape interest in IFCO U.S. following or
concurrently with the completion of the IPO.
IFCO International entered the market in Argentina in mid-1998. The Argentine
operation began local production of RTCs in March 1999. It has had initial
success in attracting some major retailers to IFCO round-trip systems.
Pallets
Since its initial three acquisitions in connection with its initial public
offering in March 1997 and through December 1998, PalEx has 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 $9.9 million principal
amount of convertible notes.
Industrial Containers
In February 1998, PalEx Container Systems, Inc., a wholly owned subsidiary of
PalEx, acquired five companies in separate transactions. Through December 1998,
PalEx Container Systems completed three
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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.
PalEx made no acquisitions during the first ten months of 1999.
Sales and Marketing
Round-trip Containers
The IFCO Companies currently maintain a broad range of customers located
throughout Europe, Japan, the United States, and Argentina. The IFCO Companies'
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. The sales process is managed by direct salespersons, supplemented
with high-level discussions between the top management of the IFCO Companies
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 the IFCO Companies seek to generate the majority of their business
through retailers, their marketing strategy focuses on large retail chains. The
IFCO Companies' 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.
The IFCO Companies' 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.
The IFCO Companies place a significant emphasis on marketing. The IFCO
Companies maintain a large advertising presence in relevant industry
publications in order to increase their international profile and create a
strong brand name. Another successful marketing tool which the IFCO Companies
utilize is attendance at trade fairs, where the IFCO Companies market their
services to retailers and growers. Additionally, the IFCO Companies have a
comprehensive and regularly updated website and also produce an array of
product brochures and other marketing materials.
The future growth prospects for the IFCO Companies are largely dependent upon
an internationally recognized brand name which will expand their existing
customer base and further advance the acceptance of round-trip systems by the
retail sector.
Pallets and Industrial Containers
PalEx currently sells to pallet and industrial container customers within the
various geographic regions in which it conducts operations. Its primary sales
and marketing activities involve direct selling by its 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 its customers need pallets and/or container management
services on a national scale, PalEx continues the development and
implementation of its national sales and marketing plan to provide these
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services at many locations throughout the United States. PalEx seeks 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.
PalEx has developed relationships with several national customers and intends
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 PalEx intends to tailor its 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. The IFCO Companies' top twenty grower customers accounted for
approximately 16% of revenues for 1998. No grower customer accounted for more
than 5% of IFCO Europe's 1998 revenues, and IFCO Europe does not materially
rely on any single grower customer. The top ten retailer groups using IFCO RTCs
accounted for approximately 80% of the recollection of containers in 1998.
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, the IFCO Companies 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 the IFCO Companies as
they are able to obtain more volume through existing relationships.
Outside of Europe, the IFCO Companies' 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.
The IFCO Companies currently have three principal customers for their 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
PalEx 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 operations.
PalEx 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
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regional and national in scale. Because a significant part of its products and
services are sold to customers engaged in the produce and citrus industries,
PalEx's sales volumes in some regions tend to be seasonal.
Suppliers and Raw Materials
Round-trip Containers
Schoeller Plast AG manufactures the RTCs used by the IFCO Companies.
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 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 arms-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. PalEx has long-term relationships with its lumber and plywood vendors.
PalEx believes that these relationships, as well as its ability to pursue
larger volume purchases, will help to ensure adequate lumber supplies at
competitive prices in the future. During the 1998 fiscal year, PalEx purchased
lumber and plywood from over 120 vendors. One of these vendors accounted for
approximately 8% and another for approximately 5% of its total lumber purchases
during the 1998 fiscal year. PalEx does not believe that the loss of either of
these vendors would materially adversely affect its financial condition or
results of operations. PalEx intends 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 PalEx's revenues and operating margins. While PalEx
believes that it will benefit from strong relationships with multiple lumber
suppliers, it cannot assure you that it will be able to secure adequate lumber
supplies in the future. Lumber supplies and costs are affected by many factors
outside its 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 PalEx's ability to obtain adequate
supplies of lumber at a reasonable cost. In 1997, PalEx 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.
PalEx attempts 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. PalEx also is able to buy low-quality lumber and
upgrade this lumber at its plants. Although PalEx had studied the broad use of
alternative materials, like plastic, for the manufacture of pallets, PalEx
believes that there is not currently an available alternative raw
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material that possesses the tensile strength, recyclability, and low cost of
wood. PalEx continues to evaluate alternatives to wood and are receptive to
their future use in pallet production.
PalEx sources the majority of its 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. PalEx identifies these sources through
establishing relationships with pallet users and by direct solicitation,
telemarketing, and advertising. PalEx generally achieves timely pallet removal
by placing a trailer at a source that loads unwanted pallets onto the trailer.
PalEx then removes the load of pallets at the same time it delivers recycled
pallets to the pallet user. In some cases, PalEx is paid a tipping fee for
hauling away the used pallets or is allowed to take the pallets away at no
charge. In other cases, PalEx buys the used pallets.
Industrial Containers
PalEx sources the majority of drums to be reconditioned from customers to
which it provides 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 of the United States are regions that 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 the
IFCO Companies' business. Schoeller Plast conducts ongoing research and
development as part of its obligations under the supply agreement with IFCO
GmbH to create and improve the design of the IFCO Companies' products. These
efforts are conducted in collaboration with, and with input from, the IFCO
Companies. They have resulted in a number of innovative product designs and
improvements. The IFCO Companies have a policy of protecting their proprietary
technology with patents. The IFCO Companies file patent applications in the
countries in which they operate and have obtained several European and
international patents covering their products. The IFCO Companies believe the
loss of these patent rights would have a material adverse affect on their
businesses.
The IFCO Companies principal patents relate to their RTCs for perishables and
for dry goods. The principal patent for RTCs in the perishables segment
protects the IFCO Companies' 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
PalEx does not rely on patents or trademarks to any material degree in its
pallet or industrial container operations.
Competition
Round-trip Containers
The IFCO Companies believe that no other company has successfully challenged
their position in Europe with respect to round-trip systems. The IFCO Companies
do, however, anticipate more aggressive challenges. The principal competitive
factors are network economics, industry standards, and cost-savings. The IFCO
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Companies believe that when retailers select container systems, they want to be
able to choose in a competitive environment. The IFCO Companies also believe
the market position they have obtained is protected as a result of:
. their established relationships with customers and retailers, which are
maintained in part by the logistical services provided through IFCO
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.
IFCO Europe's 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.
The principal competition to the IFCO Companies 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.
The IFCO Companies are currently supplying RTCs for dry goods to only three
principal customers.
The IFCO Companies 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, the IFCO Companies face
similar competitive pressures to those in Europe, except that CHEP has a more
significant presence overall in the United States than IFCO U.S. and represents
a competitive challenge.
Pallets
PalEx believes 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 PalEx's 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 PalEx 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 PalEx. Other companies with significantly greater capital
and other resources than PalEx, 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, PalEx
has 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.
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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 PalEx has container operations, it faces 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
Round-trip Containers
As of January 1, 2000, the IFCO Companies had 517 full-time employees
internationally, including employees at container depots. The IFCO Companies
believe that their relationship with employees is satisfactory.
Pallets and Industrial Containers
At October 24, 1999, PalEx had 3,717 employees, approximately 700 of which
were employees of PalEx's container group. Approximately 300 employees of the
container group at three locations are covered by collective bargaining
agreements. PalEx believes that its relationship with its employees is
satisfactory.
At March 22, 1999, PalEx had approximately 3,600 employees, approximately 700
of which were employees of PalEx's container group. At March 15, 1998, PalEx
had approximately 2,800 employees, approximately 705 of which were employees of
PalEx's container group.
Properties
Round-trip Containers
At October 31, 1999, the IFCO Companies operated 62 container depots in
connection with its 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 IFCO International's interests in joint ventures outside of Europe,
IFCO round-trip systems operations are operated from 28 leased depot facilities
in the following countries:
Argentina (6)
Japan (11)
United States (11)
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Pallets and Industrial Containers
At November 22, 1999, PalEx operated 60 pallet facilities and 12 drum
reconditioning facilities in 24 states in the United States and seven Canadian
provinces. PalEx owns 25 of these facilities and leases 47. Most of PalEx's
facilities offer more than one pallet-related or drum-related service. The
corporate headquarters are located in Houston, Texas, and is leased. The chart
below summarizes the locations of PalEx's facilities as of November 22, 1999:
<TABLE>
<CAPTION>
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
----------------- ---------- ---------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
PalEx's interests in its owned and leased properties are pledged as security
for the repayment of amounts due under its senior credit facility. PalEx
believes that its properties are generally adequate for its present needs.
Further, PalEx believes that suitable additional or replacement space will be
available when required.
Regulation
Round-trip Containers
The IFCO Companies' 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.
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Pallets
All of PalEx's 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 PalEx's operations to monitor compliance with these laws and
regulations.
Industrial Containers
PalEx's 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, PalEx's 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 PalEx's 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. PalEx's container group must ensure
that these drums are "empty" as determined by EPA regulations at the time they
are received at its facilities. PalEx's 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 PalEx,
as well as others in the steel drum reconditioning industry, to make
significant capital and operating expenditures from time to time. PalEx makes a
continuing effort to anticipate regulatory, political, and legal developments
that might affect operations, especially the operations of PalEx's container
group, but PalEx will not always be able to do so. PalEx 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
PalEx's container group or other of PalEx's businesses. These actions could
adversely affect PalEx's operations or impact PalEx's financial condition or
earnings 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 its
operations, PalEx's container group or other of PalEx's subsidiaries may from
time to time receive citations or notices of violations or orders from
governmental authorities. When PalEx receives citations or notices, PalEx's
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, PalEx's
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, PalEx anticipates that changing
requirements in health, safety, and environmental protection laws will require
PalEx's container group to continually modify or replace various facilities and
alter methods of operation at costs that may be substantial. PalEx's 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 PalEx's container group's businesses and neither materially adversely
affects PalEx's earnings nor places PalEx at any competitive disadvantage.
Although, to PalEx's knowledge, PalEx is currently in compliance in all
material respects with all applicable federal, state, and local laws, permits,
regulations, and orders affecting PalEx's operations where noncompliance would
result
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in a material adverse effect on PalEx's financial condition, results of
operations, or cash flows, PalEx cannot assure you that it will not have to
expend substantial amounts for environmental matters in the future.
PalEx's container group expects to grow in part by acquiring other existing
drum reconditioning operations. Although PalEx conducts due diligence
investigations of the past waste management practices and the environmental
condition of the businesses that PalEx's container group acquires, PalEx cannot
assure you that, through PalEx's investigation, PalEx will identify or quantify
all potential environmental problems or risks. As a result, PalEx's container
group may have acquired, or may in the future acquire, properties that have
environmental problems and related liabilities. PalEx seeks 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. PalEx cannot, however, assure
you that it 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
PalEx's 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. PalEx, as well as other entities with drum reconditioning
operations, could incur significant costs in complying with these regulations;
however, PalEx does not believe that the costs of complying with these
standards will have a material adverse effect on its 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
PalEx's subsidiaries or their predecessors have been, or with which they may
become, associated as an owner or operator may subject PalEx's 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 a subsidiary of PalEx, PalEx 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
PalEx's subsidiaries acquired or operated them.
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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.
PalEx's 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 PalEx's operations,
including the operations of PalEx's 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 PalEx.
State and Local Regulation. The states in which PalEx operates 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 PalEx's container group. PalEx's container group's
facilities and operations are likely to be subject to many, if not all, of
these types of requirements.
Environmental Proceedings. PalEx subsidiaries are currently parties to the
following judicial or administrative proceedings with respect to environmental
matters.
Zellwood Superfund Site. In February 1998, a wholly owned subsidiary of PalEx
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. PalEx believes 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 at the Zellwood Site
would be approximately $1.0 million and the cost of the selected remedy for
groundwater at the Zellwood Site would be approximately $5.1 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
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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. 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 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, PalEx believes 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. PalEx will
continue to determine the availability of additional insurance coverage for
this matter.
Legal Proceedings
Round-trip Containers
From time to time, any of the IFCO Companies may be a party to various legal
proceedings arising in the ordinary course of business. The IFCO Companies are
not currently a party to any material legal proceedings and are not aware of
any legal proceedings threatened against them that would have a material
adverse effect on their business. Since the beginning of the last two fiscal
years, the IFCO Companies have not been parties to litigation or similar
proceedings that had a significant effect on their financial condition.
Pallets
PalEx has from time to time been a party to litigation arising in the normal
course of its business. Most of that litigation involves claims for personal
injury or property damage incurred in connection with PalEx's operations. PalEx
believes that none of these actions will have a material adverse effect on its
financial condition or results of operations.
Industrial Containers
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 17 years and a declaratory
judgment for future response costs. See "--Regulation--Industrial Containers."
Since the beginning of the last two fiscal years, PalEx has not been a party
to litigation or similar proceedings that had a significant effect on its
financial condition.
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MANAGEMENT
IFCO Systems
Responsibility for the management of IFCO Systems lies with its board of
directors. After the closing of the merger, the responsibility for the
management of IFCO Systems lies with its board of directors, consisting of A
members and B members. The area of responsibility of the B members covers in
particular the general course of affairs of the company and its enterprise. The
area of responsibility of the A members covers in particular 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 shall resign no later
than upon the close of the annual shareholders meeting held in the fourth year
after the year of his last appointment. IFCO Systems can be represented by the
board of directors, by each A member individually, and by each B member acting
jointly with an A member. See "Description of IFCO Systems Share Capital."
The directors and executive officers of IFCO Systems before the merger are as
follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Dr. Willy von Becker.... 36 Director and Chief Financial Officer
Martin A. Schoeller..... 42 Director and Chief Executive Officer
Dr. Willy von Becker is a director and the Chief Financial Officer of IFCO
Systems prior to the merger. Dr. von Becker became a director upon the
formation of IFCO Systems on March 31, 1999. Dr. von Becker joined IFCO Europe
in April 1998 as its Corporate Controller, the position he currently holds.
From 1994 until 1998, Dr. von Becker worked as an independent consultant,
specializing in financial accounting, business process re-engineering, and
strategic business planning. He has acted as consultant on a number of national
and international projects for major companies in a variety of industries
including information technology, automotive, and textiles. From 1991 to 1993,
Dr. von Becker was a consultant with a Munich-based software company, R&S.
Martin A. Schoeller has been a Managing Director of IFCO Europe since
November 1997 and the sole Managing Director of IFCO International since May
1995. Mr. Schoeller became a director and the Chief Executive Officer of IFCO
Systems in January 2000. In 1992, Martin 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.
The directors and executive officers of IFCO Systems after the merger will
be:
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Christoph Schoeller..... 42 Chairman and B Director
Martin A. Schoeller..... 43 Chief Executive Officer and A Director
Cornelius Geber......... 47 B Director
Sam W. Humphreys........ 39 B Director
Randall Onstead......... 43 B Director
Eckhard Pfeiffer........ 58 B Director
Dr. Frank Tofflinger.... 39 B Director
A. Joseph Cruz.......... 53 President, North America
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......... 44 Executive Vice President, Human Resources
</TABLE>
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Christoph Schoeller has been a Managing Director of IFCO Europe since
November 1997. In 1992, he co-founded IFCO GmbH and MTS with his brother,
Martin Schoeller. Christoph 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.
Cornelius 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 also 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 has been a director of PalEx since January 1996 and became
non-executive Chairman of the Board in March 1997 upon the closing of PalEx's
initial public offering. Mr. Humphreys is engaged in private equity and venture
capital investing. Through Main Street Merchant Partners II, L.P., a merchant
banking firm, and other investment partnerships, Mr. Humphreys has been
involved in the creation and development of numerous businesses during the
1990s and has served in executive management positions and the board of
directors of several of these businesses, including U.S. Delivery Systems,
Inc., the largest same-day local delivery company in the U.S.A.; Envirofil,
Inc., a solid-waste management company; C\\2\\ Media, Inc., a digital media
business; and e-CommLink, Inc., which provides Internet banking systems to
commercial banks.
Randall Onstead has been Chairman and Chief Executive Officer of Randall's
Food Markets, Inc., since 1998. 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 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 has been a director of the Carlyle Group Europe, a
private equity group, based in Washington D.C., 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.
A. Joseph Cruz became a director in February 1998 and President and Chief
Operating Officer of PalEx in November 1998. Mr. Cruz previously served as
President of PalEx Container Systems since PalEx's acquisition of Consolidated
Drum Reconditioning, Inc., or CDR, in February 1998. Prior to that acquisition
and since it was acquired by Mr. Cruz and Philip M. Freeman in 1986, Mr. Cruz
was a 50% owner of CDR and its Chief Executive Officer.
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Vance K. Maultsby, Jr. 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 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 acquisition lawyer for more than five years.
Howe Q. Wallace became the Chief Human Resource Officer of PalEx upon 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 Container Association, or NWPCA,
from February 1995 to February 1998, and has been active in industry education
efforts.
IFCO Companies
The directors and executive officers of the IFCO Companies are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Jorg Augustin......... 49 Managing Director of IFCO Europe, IFCO GmbH,
IFCO International, and MTS
Dr. Willy von Becker.. 36 Corporate Controller of IFCO Europe
Gunter Gerland........ 51 Managing Director of IFCO GmbH, MTS, and IFCO
Logistics System GmbH
Dirk Grosgen.......... 34 Managing Director of IFCO Finance Consulting
GmbH
Klaus Hufnagel........ 37 Managing Director of MTS
Hans E. Maier......... 31 Managing Director of MTS
Gustaf Sandahl........ 39 Director Sales & Marketing of IFCO GmbH
Holger Schmidt........ 36 Managing Director of IFCO Finance
Christoph Schoeller... 42 Managing Director of IFCO Europe
Martin A. Schoeller... 43 Managing Director of IFCO Europe and IFCO
International
</TABLE>
Jorg Augustin has been a Managing Director and the Chief Financial Officer of
IFCO Europe and a Managing Director of IFCO GmbH, IFCO International, and MTS
since June 1999. From 1996 until 1998, Mr. Augustin was Chief Financial Officer
of ISS Holding GmbH. He served as Director Finance Europe Medical Products
Division of the NMC--Medical Division of W.R. Grace Inc. from 1994 to 1995. In
1991, he joined Digital-Kienzle GmbH, a manufacturer of electronic scales and
other equipment, as Manager Finance and Administration PCS, deputy and member
of the board of directors of PCS, a subsidiary of Digital-Kienzl. In 1993, Mr.
Augustin became responsible for business controls at Digital-Kienzle. Mr.
Augustin joined Texas Instruments in 1979 as Logistic Manager, became European
Controller of the MIS Division in 1981, and was promoted to Controller Germany
for Computers and Peripherals, Industrial Automation, Consumer Products,
Marcom, MIS, Metals and Controls in 1987.
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Gunter Gerland became a Managing Director of IFCO GmbH in December 1994, of
MTS in January 1995, and of IFCO Logistics Services GmbH in April 1997. Since
1994, Mr. Gerland has been responsible for personnel, finance, internal
controls, electronic data processing, and procurement at the Schoeller group's
logistics operation. From 1990 until 1994, he was head of logistics at the REWE
retailing group. In 1987, he was made head of logistics in Northern Germany at
COOP, a German food retailer, and served until 1990.
Dirk Grosgen became a Managing Director of IFCO Finance, the financial
services and advisory company for the IFCO Companies, in January 1999. He
joined IFCO Finance in July 1997 as head of the Controlling Department and is
responsible for group consolidation, group planning and monthly reporting,
annual financial statements, and contact with independent auditors. From 1995
until 1997, Mr. Grosgen worked for IMM Office, an office equipment retail
chain, as a Controller. He joined Arthur Andersen Stuttgart in 1991, first as
an assistant and later becoming a senior accountant.
Klaus Hufnagel has been recently appointed the Managing Director of MTS. Mr.
Hufnagel has, since 1997, been Director of Business Development for GE
Transport International Pool & Modular Space Europe, a provider of rental and
leasing products for the transportation and construction industry in all major
European countries. From 1995 until 1997, Mr. Hufnagel was Managing Partner and
executive board member of ERM Equity Research & Management AG, a private
equity, venture capital, and corporate finance consulting firm, which he co-
founded. From 1992 until 1995, Mr. Hufnagel was a Senior Manager of Equity
Investments at HKM Hypo Kapitalbeteiligungs-Management GmbH, a private equity
investment and management company.
Hans E. Maier joined MTS as a Managing Director in September 1998. From 1995
until September 1998, Mr. Maier was a director of Barkawi + Partners GmbH, a
consulting firm in Munich, where he had responsibility for projects within the
telecommunications industry, as well as for several projects for clients of the
Schoeller group of companies, in particular IFCO GmbH. From July 1992 to April
1995, he was with Roland Berger & Partner International Management Consultants.
He worked on assignments involving restructuring and corporate recovery,
mergers and acquisitions, and strategic advice for the service industry.
Gustaf Sandahl became Director Sales & Marketing of IFCO GmbH in 1999. Mr.
Sandahl joined the Schoeller group of companies in 1995. Initially, he was
responsible for the joint venture Schoeller Plast / Norsk Hydro in Norway. In
1996, he became a Managing Director of IFCO Scandinavia. From 1992 until 1995,
he was affiliated with MTP, a seafood transportation packaging company in
Bremerhaven, Germany, first as Manager of Sales and then, beginning in 1993, as
a Managing Director. From 1987 to 1992, Mr. Sandahl was Export Manager of
Danisco Pack, a leading Scandinavian manufacturer of packaging material.
Holger Schmidt became a Managing Director of IFCO Finance in June 1998. Mr.
Schmidt is responsible for accounting and treasury for IFCO Europe and MTS.
From 1996 until March 1998 he was the Head of the Finance and Controlling
Department at Telenet, a software company and subsidiary of Alcatel. Mr.
Schmidt joined Arthur Andersen in Munich in 1992, first as an assistant and
later advancing to senior accountant.
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PalEx
PalEx's executive officers and directors before the merger are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Tucker S. Bridwell...... 48 Director (1)(2)
A. Joseph Cruz.......... 53 President, Chief Operating Officer, and
Director
John E. Drury........... 55 Director (1)(2)
Casey A. Fletcher....... 45 Chief Accounting Officer and Secretary
Troy L. Fraser.......... 50 Director
Philip M. Freeman....... 55 Executive Vice President
A.E. Holland, Jr........ 52 President of Ridge Pallets, Inc. and Director
Sam W. Humphreys........ 39 Chairman of the Board and Director (1)(2)
Vance K. Maultsby, Jr... 47 Chief Executive Officer
Elliot S. Pearlman...... 58 President and Chief Executive Officer of
PalEx Container Systems, Inc., and Director
Edward E. Rhyne......... 39 Vice President and General Counsel
Stephen C. Sykes........ 55 President of Interstate Pallet Co., Inc., and
Director
</TABLE>
--------
(1) Member of the Audit Committee
(2)Member of the Compensation Committee
Tucker S. Bridwell became a director of PalEx in March 1997 upon the closing
of PalEx's initial public offering. Since October 1997, Mr. Bridwell has been
President of Mansefeldt Investment Corporation, a private investment firm. Mr.
Bridwell is also the President of Topaz Exploration Company, an oil and gas
exploration company, a position he has held since 1980. From 1992 until October
1997, Mr. Bridwell was the President of Fred Hughes Motors, Inc., which owned
ten new-car franchises in the Abilene, Texas area. From 1985 to 1992, Mr.
Bridwell was President of Ard Drilling Company, an oilfield drilling company,
and served as President of Texzona Corporation, a private investment company,
from 1979 to 1980. From 1976 to 1979, Mr. Bridwell was Tax Manager with Condley
& Company and was an accountant with Price Waterhouse from 1974 to 1976. Mr.
Bridwell is a Certified Public Accountant.
John E. Drury became a director of PalEx in March 1997 upon the closing of
PalEx's initial public offering. From May 1994 until August 1999, Mr. Drury was
the Chairman and Chief Executive Officer of Waste Management, Inc., the largest
solid waste company in North America. Waste Management was formerly known as
USA Waste Services, Inc. until July 1998. USA Waste was the surviving
corporation in a May 1994 merger with Envirofil, Inc. From February 1991
through April 1994, Mr. Drury was a Managing Director of Sanders Morris Mundy,
Inc., an investment banking firm. From 1982 through January 1991, Mr. Drury was
President and Chief Operating Officer of Browning-Ferris Industries, Inc., or
BFI, where he was responsible for the worldwide operations of BFI. Mr. Drury is
a partner in Main Street.
Casey A. Fletcher became Chief Accounting Officer and Secretary of PalEx in
March 1997 upon the closing of PalEx's initial public offering. From 1983 until
PalEx's initial public offering and its acquisition of Ridge Pallets, Inc., one
of PalEx's founding companies, Mr. Fletcher was Ridge's Controller and Chief
Financial Officer. Prior to his employment with Ridge, Mr. Fletcher was
associated with Arthur Young from 1976 to 1979. Mr. Fletcher is a Certified
Public Accountant.
Troy L. Fraser became a director of PalEx in March 1997 upon the closing of
PalEx's initial public offering and currently works on business development
projects for PalEx's pallet operations. Mr. Fraser served
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as PalEx's Chief Development Officer from March 1997 to November 1998. He was
President of Fraser Industries, Inc., one of PalEx's founding companies,
beginning in 1975 when he and his two brothers purchased Fraser from their
father, until PalEx's reorganization of its Texas subsidiaries in March 1999.
In 1988, Mr. Fraser was elected to the Texas House of Representatives where he
served three terms, and was named the National Republican Legislator of the
Year in 1991. In November 1996, Mr. Fraser was elected to the Texas State
Senate. In 1996, Mr. Fraser served as Vice President of the NWPCA and has
served for two terms on the NWPCA's board of directors.
Philip M. Freeman has been Executive Vice President since November 1998. Mr.
Freeman previously served as Chief Operating Officer of PalEx Container Systems
after PalEx's acquisition of CDR in February 1998. Prior to that acquisition,
and since it was acquired by Mr. Freeman and Mr. Cruz in 1986, Mr. Freeman was
a 50% owner of CDR and its Chief Operating Officer.
A. E. Holland, Jr. has been a director of PalEx since March 1997 upon the
closing of PalEx's initial public offering. Mr. Holland served as Chief
Operating Officer from March 1997 to November 1998. He has over 25 years of
experience in the pallet industry. Mr. Holland has been associated with Ridge
since 1969 and has served as President of Ridge since 1980. Mr. Holland has
served on the board of directors of the NWPCA and was President of the NWPCA
from 1990 to 1991. Mr. Holland has served the Florida Chamber of Commerce as
Treasurer, Chairman of the finance Committee and member of the State Strategic
Planning Committee.
Elliot S. Pearlman has been President and Chief Executive Officer of PalEx
Container Systems and a director of PalEx since PalEx acquired Acme Barrel
Company, Inc., in February 1998. Mr. Pearlman served as Acme's President and
Chief Executive Officer and was a principal stockholder from 1992 until PalEx's
acquisition of Acme. Mr. Pearlman serves as a director of the Association of
Container Reconditioners and served as chairman of this association in 1996 and
1997.
Stephen C. Sykes has been a director of PalEx since March 1997 upon the
closing of PalEx's initial public offering. Mr. Sykes founded Interstate Pallet
Co., Inc., one of PalEx's founding companies, in 1979 and has served as its
President and Chief Executive Officer from its inception. From 1974 to 1979,
Mr. Sykes was the Director of Transportation for the Virginia Division of Holly
Farms Poultry. Mr. Sykes has been an active member of the NWPCA since 1981 and
served as its President from 1992 to 1993.
137
<PAGE>
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
IFCO Systems
Prior to the merger, all of the outstanding ordinary shares of IFCO Systems
will be owned by Schoeller Holdings. The shareholders of Schoeller Holding are
Schoeller Industries, which owns 75.95%, and Gebruder Schoeller, which owns
24.05%. Gebruder Schoeller is owned by the same individuals and entity that own
Schoeller Industries. The following table sets forth information immediately
prior to the merger with respect to the beneficial ownership of Schoeller
Industries ordinary shares, which constitutes the only outstanding class of
voting securities of Schoeller Industries. Except as indicated, beneficial
ownership includes the sole power to vote and to dispose of the securities in
question. Except as indicated below, none of the directors or executive
officers of Schoeller Industries owned any other IFCO Systems equity
securities.
<TABLE>
<CAPTION>
Beneficial Ownership
-----------------------
Name of Beneficial Owner Shares Percentage
------------------------ --------- ----------
<S> <C> <C>
Christoph Schoeller............................. 500,000(1) 50.0%
Martin A. Schoeller............................. 500,000(2) 50.0%
Andrea Schoeller................................ 95,000 9.5%
Schoeller KG.................................... 100,000 10.0%
All shareholders (3)............................ 1,000,000 100.0%
</TABLE>
- --------
(1) Includes 95,000 shares owned by Andrea Schoeller, Christoph Schoeller's
wife. Christoph Schoeller disclaims beneficial ownership of these shares.
(2) Includes 100,000 shares owned by Schoeller KG, which is beneficially owned
by Alexander Schoeller and Leopold Schoeller, the children of Martin
Schoeller. Martin Schoeller disclaims beneficial ownership of these shares.
(3) GE Erste is the holder of a convertible debenture of Schoeller Holding,
which, at the election of GE Erste, is convertible into 15.45% of the
outstanding shares of Schoeller Holding or of the IFCO Systems ordinary
shares held by Schoeller Holding. Conversion of the debenture into IFCO
Systems ordinary shares will not dilute the ownership of other shareholders
of IFCO Systems.
PalEx
The following table sets forth information as of December 31, 1999, with
respect to the beneficial ownership of PalEx common stock, which constitutes
PalEx's only outstanding class of voting securities, by:
. each person who, to PalEx's knowledge, beneficially owned more than 5%
of the common stock;
. each of PalEx's directors;
. PalEx's Chief Executive Officer and its four other most highly
compensated executive officers as of the end of the 1998 fiscal year for
services rendered to PalEx during the 1998 fiscal year and one former
executive officer who would have been among the most highly compensated
officers had he still been an executive officer at the end of the 1998
fiscal year; and
. all of PalEx's directors and executive officers as a group.
Except as indicated below, none of PalEx's directors or executive officers
owned any other PalEx equity securities.
Except as indicated, beneficial ownership includes the sole power to vote and
to dispose of the securities in question. If a person has the right to acquire
beneficial ownership of any shares by exercise of options within 60 days after
December 31, 1999, the shares are deemed beneficially owned by the listed
person and are deemed to be outstanding solely for the purpose of determining
the percentage of PalEx common stock that the listed person owns. These shares
are not included in the computations for any other person.
138
<PAGE>
<TABLE>
<CAPTION>
Beneficial Ownership
--------------------
Name of Beneficial Owner or Group Shares Percentage
--------------------------------- --------- ----------
<S> <C> <C>
Tucker S. Bridwell (1)............................... 50,000 *
A. Joseph Cruz (2)................................... 530,766 2.7%
John E. Drury (3).................................... 192,227 *
Casey A. Fletcher (4)................................ 322,783 1.6%
Troy L. Fraser (5)................................... 1,455,415 7.4%
Philip M. Freeman (2)................................ 530,766 2.7%
A. E. Holland, Jr . (6).............................. 318,583 1.6%
Sam W. Humphreys (7)................................. 455,000 2.3%
Vance K. Maultsby, Jr. (8)........................... 250,000 1.3%
Elliott S. Pearlman (9).............................. 1,248,967 6.3%
Edward E. Rhyne (10)................................. 200,000 1.0%
Stephen C. Sykes (11)................................ 384,528 2.0%
All directors and executive officers as a
group (12 persons).................................. 5,408,269 26.8%
</TABLE>
- --------
* Less than 1%.
(1) Includes options to purchase 45,000 shares.
(2) Includes 530,766 shares owned by CDRCO NW, L.L.C., a limited liability
company in which Mr. Cruz and Mr. Freeman each hold a 50% ownership
interest.
(3) Includes options to purchase 25,000 shares.
(4) Includes 2,200 shares which are owned by Mr. Fletcher's two sons. Mr.
Fletcher disclaims beneficial ownership of these shares.
(5) Includes 50,000 shares beneficially owned in Mr. Fraser's capacity as
trustee of the Fraser Profit Sharing Plan. Mr. Fraser disclaims beneficial
ownership of these shares.
(6) Includes 318,583 shares owned by the Holland Revocable Trust.
(7) Includes options to purchase 5,000 shares.
(8) Includes options to purchase 200,000 shares, assuming completion of the
merger.
(9) Includes an aggregate of 880,002 shares owned by the Elliot S. Pearlman
Living Trust dated November 7, 1992, 149,500 shares owned by the Elliot S.
Pearlman Living Trust dated July 2, 1996, 8,369 shares owned by ESP
Associates, L.P., and 4,000 shares owned by ESP Consulting Pension Plan.
Also includes options to purchase 100,000 shares, assuming completion of
the merger.
(10) Includes options to purchase 200,000 shares, assuming completion of the
merger.
(11) Includes 10,000 shares beneficially owned in Mr. Sykes' capacity as
trustee of the Interstate Profit Sharing Plan. Mr. Sykes disclaims
beneficial ownership of these shares.
139
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF THE IFCO COMPANIES
Supply Agreement
IFCO International Food Container Organization GmbH, a wholly owned
subsidiary of IFCO Europe, 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 exclusively from Schoeller Plast AG. Schoeller Plast AG
has also agreed to provide ongoing research and development to improve
technology relating to the RTCs. All IFCO RTC technological developments are
assigned to IFCO GmbH under the supply agreement. 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 $3.04, 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, 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, upon the request
of IFCO GmbH, be renewed 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 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 $3.0 million, for the
year ended 1999. For the ten months ended October 31, 1999, Schoeller Plast AG
has reimbursed IFCO GmbH DM5.0 million, or approximately $2.5 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.
140
<PAGE>
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 $125,000, 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. The loan from IFCO International to IFCO U.S. bears interest at a
rate of 6% per year.
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. $375,000. 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 will be 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 $0.7 million, 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 $100,000,
at an interest rate of 5.0% per annum. The purpose of the loan was to provide
additional working capital to IFCO International and will be repaid upon the
closing of the merger and IPO.
Creditanstalt--Bankverein AG has extended a credit facility of DM1.5 million,
or approximately $0.7 million, to IFCO International. Of this amount, $500,000
is available to IFCO Argentina through Banco B.I. Creditanstalt S.A., an
affiliate of Creditanstalt. The credit facility has 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, have each provided a guarantee of up to DM1.5 million in
favor of Creditanstalt.
Participating Rights
IFCO GmbH has issued to an 80%-owned subsidiary of Schoeller Industries
participating rights with a nominal value of DM10.0 million, or approximately
$5.0 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 $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 intends to redeem these participating
rights at their book value at the closing of the IPO.
141
<PAGE>
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 $125,000 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 intends to redeem these redeemable
participating rights at their book value at the closing of the IPO.
Agreement with GE Capital and GE Erste
GE Erste owns the single outstanding preferential share of IFCO Europe.
Schoeller Industries, the shareholders of Schoeller Industries, Schoeller Plast
Industries GmbH, Gebruder Schoeller, Schoeller KG, and IFCO Systems entered
into the Option Release and IPO-Facilitation Agreement with GE Capital and GE
Erste in connection with the proposed merger and the IPO, which provides for,
among other things, Schoeller Holding's issuance of a DM45.0 million, or
approximately $22.5 million, convertible debenture to GE Erste and IFCO
Systems' issuance of a promissory note to GE Capital for the same amount. 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. See "The Merger Agreement--Related Matters."
142
<PAGE>
DESCRIPTION OF IFCO SYSTEMS SHARE CAPITAL
IFCO Systems was incorporated under the laws of the Netherlands by deed dated
March 31, 1999. Material provisions of the articles of association of IFCO
Systems at the time the merger is completed, an English translation of which
has been included as Appendix D to this proxy statement/prospectus, and related
provisions of Netherlands law are summarized below. The summary covers the
material provisions of the articles of association, but is not a complete
statement of these provisions and is qualified in its entirety by reference to
Appendix D and applicable Netherlands law.
General
The authorized share capital of IFCO Systems is divided into 100,000,000
ordinary shares and 100,000,000 preference shares, each with a nominal value of
two euros per share. The ordinary shares will be in registered form. See "Share
Certificates and Transfer."
Dividends
Dividends may be paid out of annual profits shown in the annual accounts of
IFCO Systems as adopted by the shareholders at a general meeting of IFCO
Systems. At its discretion, however, and subject to statutory provisions, the
board of directors may distribute interim dividends on the ordinary shares
before the annual accounts for any financial year have been adopted at a
general meeting of shareholders. The board of directors may decide that all or
part of IFCO Systems' profits should be reserved and not be made available for
distribution to shareholders. Those profits that are not reserved will be
distributed to holders of ordinary shares, provided that the distribution does
not reduce shareholders' equity below the issued share capital increased by the
amount of reserves required by Netherlands law. Existing reserves that are
distributable in accordance with Netherlands law may be made available to the
general meeting of shareholders for distribution upon proposal by the board of
directors. The right to dividends and distributions will lapse if the dividends
or distributions are not claimed within five years following the day after the
date on which they were made available.
Voting Rights
Appointment of the Board of Directors of IFCO Systems. Members of the board
of directors of IFCO Systems are appointed by the general meeting of
shareholders.
General Meeting of Shareholders of IFCO Systems. General meetings of
shareholders will be held at least once a year, not later than six months after
the end of the fiscal year. Notices convening a general meeting will be mailed
to holders of registered shares at least 15 days before the annual meeting. In
order to attend, to address, and to vote at the general meeting of
shareholders, the holders of registered shares must notify IFCO Systems in
writing of their intention to attend the meeting. IFCO Systems does not solicit
from or nominate proxies for its shareholders and is exempt from the SEC's
proxy rules under the Exchange Act. However, shareholders and other persons
entitled to attend general meetings of shareholders may be represented by
proxies with written authority. See "Share Certificates and Transfer."
General meetings of shareholders may be held as often as deemed necessary by
the board of directors and must be held if one or more shareholders or other
persons entitled to attend the general meeting of shareholders, jointly
representing at least 10% of the issued share capital, make a written request
to that effect to the board of directors specifying in detail the business to
be considered.
Resolutions are adopted at general meetings of shareholders by a majority of
the votes cast (except where a different proportion of votes is required by the
articles of association or Netherlands law) in a meeting in which holders of at
least one-third of the issued shares are represented. Each share carries one
vote.
143
<PAGE>
Amendment of Articles of Association and Winding Up of IFCO Systems. A
resolution of the general meeting of shareholders to amend the articles of
association or to wind up IFCO Systems may only be approved if proposed by the
board of directors. A resolution to dissolve IFCO Systems must be approved by
at least three-fourths of the votes cast.
Adoption of Annual Accounts
IFCO Systems' annual Netherlands statutory accounts, together with a
certificate of the auditor in respect of the accounts, will be submitted to the
general meeting of shareholders for adoption. Adoption of IFCO Systems' annual
accounts by the general meeting of shareholders discharges the board of
directors from liability for the performance of its duties for the past fiscal
year to the extent apparent from the annual accounts. Under Netherlands law,
this discharge is not absolute and will not be effective as to matters not
disclosed to the shareholders.
Liquidation Rights
If IFCO Systems is dissolved and liquidated, the assets remaining after
payment of all debts and liquidation expenses are to be distributed
proportionally to holders of the ordinary shares.
Issues of Shares; Preemptive Rights
The board of directors of IFCO Systems has the power to issue shares if it
has been designated to do so by the shareholders at a general meeting. Pursuant
to IFCO Systems' articles of association, the board of directors is authorized
to issue shares or rights to obtain shares through February 1, 2005, up to a
total share capital of 50,000,000 ordinary shares and 50,000,000 preference
shares. A further designation of the board of directors may be effective for a
specified period up to five years and may be renewed. In the absence of a
designation, the shareholders at a general meeting have the power to adopt
resolutions to issue shares.
Holders of shares have a pro rata preemptive right of subscription to any
share of the same class issued for cash, which right may be limited or
eliminated. Shareholders have no pro rata preemptive subscription right with
respect to any shares issued for a contribution other than cash or in the case
of shares issued to employees of IFCO Systems or its group companies. If
designated for this purpose by the shareholders at a general meeting, the board
of directors has the power to limit or eliminate such rights. Pursuant to the
articles of association, the board of directors is authorized to limit or
eliminate shareholder preemptive rights through February 1, 2005. A further
designation may be effective for up to five years and may be renewed. In the
absence of a designation, the shareholders at a general meeting have the power
to limit or eliminate these rights.
These provisions apply equally to the issuances of rights to subscribe for
ordinary shares, but not to the issue of ordinary shares to any person
exercising any previously acquired right to subscribe for shares.
Repurchase and Cancellation of Shares
IFCO Systems may repurchase fully paid-up ordinary shares, subject to
compliance with Netherlands law requirements and provided the aggregate nominal
value of the ordinary shares acquired by IFCO Systems at any one time amounts
to no more than 10% of IFCO Systems' issued share capital. Ordinary shares
owned by IFCO Systems may not be voted or counted for quorum purposes. Any
repurchases are subject to the approval of the board of directors and the
authorization of shareholders at the general meeting of shareholders of IFCO
Systems. The authorization may not be for more than 18 months and must specify
the number of shares that may be repurchased.
Upon the proposal of the board of directors, the shareholders at a general
meeting have the power to cancel shares acquired by IFCO Systems or to reduce
the nominal value of the shares. Any proposal for cancellation or reduction of
nominal value is subject to general requirements of Netherlands law with
respect to reduction of share capital.
144
<PAGE>
Limitations on Right to Hold or Vote the Ordinary Shares
There are currently no limitations imposed by Netherlands law or by the
articles of association of IFCO Systems on the right of non-resident owners to
hold or vote the ordinary shares.
Obligations of Shareholders to Disclose Holdings
The Netherlands 1996 Act on Disclosure of Holdings in Listed Companies (Wet
melding zeggenschap in ter beurze genoteerde vennootschappen 1996) applies to
any person who, directly or indirectly:,
. acquires or disposes of an interest of voting rights and/or the capital
of a public limited company incorporated under Netherlands law;
. which has an official listing on a stock exchange within the European
Economic Area; and
. as a result of the acquisition or disposal the percentage of voting
rights or capital interest owned falls within a different percentage
range than the percentage that the person had ownership of immediately
prior to the acquisition or disposal. The percentage ranges are 0-5%, 5-
10%, 10-25%, 25-50%, 50-66 2/3%, and 66 2/3% and more.
The Holdings Disclosure Act requires the person to notify IFCO Systems as
well as the Securities Board of the Netherlands (Stichting Toezicht
Effectenverkeer) in writing immediately after the acquisition or disposal of
the triggering interest in the shares. Whenever the shares of a company subject
to the Holdings Disclosure Act are newly admitted to official listing on a
stock exchange within the European Economic Area, a disclosure obligation
arises for a person who knows or should know that his holding of capital
interest or voting rights amounts to 5% or more. This obligation must be
discharged within four weeks of the shares being admitted to listing.
Between five and nine days after receipt of the notification, the Securities
Board is required to disclose the information as notified to the public by
means of an advertisement in a newspaper distributed throughout the member
states of the European Economic Area in which the company is listed on a stock
exchange. At the request of the company made within three days after the
notification, the Securities Board may abstain from the disclosure if it finds
in its discretion that the disclosure would be in violation of the general
interest or if the company would suffer serious disadvantage from the
disclosure and nondisclosure could not lead to deception of the public with
respect to facts and circumstances essential for the assessment of the shares
issued by the company.
Noncompliance with the obligations of the Holding Disclosure Act constitutes
an economic offense. Also, a civil court may issue orders against any person
who fails to notify or incorrectly notifies in accordance with the Holdings
Disclosure Act, including suspension of the voting rights in respect of the
person's ordinary shares.
As of January 1, 1999, new regulations regarding insider trading under the
Dutch 1995 Act on the Supervision of the Securities Trade (Wet toezicht
effectenverkeer 1995) came into force. The new regulations provide, among other
things, for an additional notification duty for shareholders holding, directly
or indirectly, more than 25% of the capital in a listed company. These
shareholders are obliged to notify the Securities Board of the Netherlands of
any and all transactions they enter into with respect to securities of a
company in which they hold an interest of more than 25%. If a shareholder
holding more than 25% is a legal entity and not an individual, the obligation
is extended to the managing directors and supervisory directors of the legal
entity.
145
<PAGE>
COMPARISON OF RIGHTS OF HOLDERS OF
PALEX COMMON STOCK AND IFCO SYSTEMS ORDINARY SHARES
PalEx is incorporated under the laws of Delaware and IFCO Systems is
organized under the laws of the Netherlands. Upon completion of the merger, the
holders of PalEx common stock upon exchange of their shares will become holders
of IFCO Systems ordinary shares. Their rights as IFCO Systems shareholders will
be governed by the laws of the Netherlands and by the articles of association
of IFCO Systems. The following discussion is a comparison of the material
differences in the rights of the holders of PalEx common stock and IFCO Systems
ordinary shares.
Although it is not practical to compare all of the differences between the
PalEx certificate of incorporation and the PalEx bylaws and the IFCO Systems
articles of association, the following is a summary of material differences
that may significantly affect the rights of PalEx stockholders. For a more
detailed description of the terms of the IFCO Systems ordinary shares see
"Description of IFCO Systems Share Capital."
<TABLE>
<CAPTION>
PalEx IFCO Systems
----- ------------
<S> <C> <C>
Authorized Capital Stock The PalEx certificate of The IFCO Systems articles of
incorporation authorizes association provide for an
30,000,000 shares of PalEx authorized share capital of
common stock, par value $0.01 100,000,000 ordinary shares and
per share, and 5,000,000 shares 100,000,000 preference shares,
of PalEx preferred stock, par each with a nominal value of
value $0.01 per share. two euros per share.
Board of Directors The PalEx certificate of The IFCO Systems articles of
incorporation provides that the association provide for a board
number of directors comprising of directors, consisting of A
the PalEx board of directors members and B members. The area
shall be fixed by the PalEx of responsibility of the B
board of directors, but may not members covers in particular
consist of less than three and the general course of affairs
not more than 15 persons. The of the company and its
PalEx board of directors can enterprise. The area of
change the number of directors responsibility of the A members
without stockholder approval. covers in particular the day-
The PalEx board of directors to-day management of the
currently consists of eight company and its enterprise. The
directors. The term of office maximum number of members of
for each director is one year, the board directors shall be
and each term expires at the nine and the number of members
time of the annual meeting of shall be determined by the
the stockholders. general meeting of
shareholders. Effective as of
the closing date of the merger,
the board of directors will
consist of seven members. The A
members of the board of
directors are appointed for an
indefinite period of time. The
B members of the board of
directors shall resign no later
than upon the close of the
annual shareholders meeting
held in the fourth year after
the year of his last
appointment. The B members can
be reappointed immediately. The
remuneration of the A members
shall be determined by the B
members and the remuneration of
the B members shall be
determined by the A members.
</TABLE>
146
<PAGE>
<TABLE>
<S> <C> <C>
Monetary Liability of The PalEx certificate of The articles of association of
Directors incorporation provides for the IFCO Systems provide for a
elimination of personal similar form of indemnification
monetary liability of directors of members of the board of
to the fullest extent directors; however, Netherlands
permissible under the Delaware law may limit indemnification
General Corporation Law. of directors of a company for
liabilities arising from their
actions as members of the board
of directors.
Voting Rights Each share of PalEx common Each ordinary share of IFCO
stock is entitled to one vote. Systems entitles the holder to
one vote. All shareholders'
resolutions are taken by
absolute majority of the votes
cast, unless a greater majority
is prescribed by the articles
of association or Netherlands
law. For all resolutions, a
quorum of one-third of the
issued share capital is
required.
Removal of Directors and The PalEx certificate of The members of the board of
Filling Vacancies on the incorporation provides that directors may be suspended and
Board of Directors directors may be removed only dismissed by a vote of
for cause by the affirmative shareholders at a general
vote of a majority of the meeting. Removal of members of
voting power of the outstanding the board of directors without
capital stock of PalEx entitled cause is possible, but may be
to vote at an election of contrary to the principles of
directors. The PalEx reasonableness and fairness
certificate of incorporation that are imposed under
provides that any vacancy, Netherlands law. Any removal
whether arising through death, without cause therefore could
resignation, or removal of a be declared null and void.
director, or through an
increase in the number of
directors, will be filled by a
majority vote of the remaining
directors then in office.
Special Meetings of Under the PalEx bylaws, a General meetings of
Stockholders special meeting of stockholders shareholders may be called and
may be called at any time by convened by the board of
the Chief Executive Officer. A directors. General meetings of
special meeting of the shareholders may also be called
stockholders may also be called by shareholders and/or other
by the Secretary at the written parties with meeting rights,
request, or by resolution jointly representing at least
adopted by the affirmative 10% of the issued share
vote, of a majority of the capital, if the board of
board of directors. directors has not complied with
the request of the shareholders
and/or other parties with
meeting rights to convene a
shareholders' meeting.
</TABLE>
147
<PAGE>
<TABLE>
<CAPTION>
PalEx IFCO Systems
----- ------------
<S> <C> <C>
Charter and Bylaw The PalEx certificate of Any amendment of the articles
Amendments incorporation provides that the of association of IFCO Systems
affirmative vote of the holders requires a shareholders'
of 80% of the outstanding resolution that has been
capital stock entitled to vote proposed by the board of
in the election of directors is directors.
required to amend, modify, or
repeal any of the provisions
set forth in Articles FIFTH,
election and composition,
SIXTH, power and authority,
EIGHTH, limited liability, and
NINTH, voting requirements. The
PalEx bylaws provide that,
unless expressly stated in the
PalEx certificate of
incorporation, the directors
may amend the PalEx bylaws by
the affirmative vote of the
directors and without the vote
of the stockholders. The PalEx
bylaws provide further that
stockholders may amend the
PalEx bylaws with the vote of
80% of the total voting power
of all shares of stock of PalEx
entitled to vote in the
election of directors.
</TABLE>
148
<PAGE>
SHARE CERTIFICATES AND TRANSFER
The IFCO Systems ordinary shares will be issuable in registered form only.
Registered shares issued to persons in the United States are referred to as New
York shares. Registered shares may consist of either New York shares registered
with Deutsche Bank AG, IFCO Systems' transfer agent and registrar in New York,
or other IFCO Systems ordinary shares registered in book-entry form in a
register kept by or on behalf of IFCO Systems in Amsterdam. New York shares
will be represented by certificates printed in English or, to the extent
possible, in book-entry form. IFCO Systems has applied to have the New York
shares quoted on the Nasdaq National Market and all other IFCO Systems ordinary
shares listed on the Frankfurt Stock Exchange. Only New York shares will be
traded on the Nasdaq National Market. All other IFCO Systems ordinary shares
will be traded on the Frankfurt Stock Exchange.
The transfer of registered shares requires an instrument intended for such
purpose and, except when IFCO Systems is a party to such transfer, the written
acknowledgement of the transfer by IFCO Systems or, in the case of New York
shares, the New York transfer agent and registrar in the name of IFCO Systems,
and in the case of New York shares, submission of any certificates to IFCO
Systems or the New York transfer agent and registrar.
IFCO Systems ordinary shares booked in the Amsterdam register may be
converted into New York shares. On presentation to the New York transfer agent
and registrar of New York shares for cancellation and when accompanied by the
appropriate request, the New York shares may be exchanged for IFCO Systems
ordinary shares registered in the Amsterdam register and vice versa.
Certificates for New York shares may be exchanged at the office of the New York
transfer agent and registrar for certificates of other authorized
denominations. A fee of up to $5.00 per 100 ordinary shares will be charged to
shareholders for the exchange of New York shares for registered shares at the
Amsterdam register and vice versa.
EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There are currently no limitations, either under the laws of the Netherlands
or in the articles of association of IFCO Systems, to the rights of non-
residents of the Netherlands to hold or vote ordinary shares. Cash
distributions, if any, payable in guilders or ordinary shares may be officially
transferred from the Netherlands and converted into any other currency without
Dutch legal restrictions, except that for statistical purposes any payments and
transactions must be reported by Deutsche Borse Clearing AG to the Dutch
Central Bank. Cash distributions, if any, on New York shares will be paid in
U.S. dollars, converted at the rate of exchange at the close of business on the
date fixed for that purpose by the board of directors in accordance with IFCO
Systems' articles of association. IFCO Systems has no current intention to pay
dividends on its ordinary shares in the foreseeable future. See "Description of
IFCO Systems Share Capital--Dividends" and "Share Certificates and Transfer."
ENFORCEABILITY OF CIVIL LIABILITIES
IFCO Systems is a public limited liability company incorporated under the
laws of the Netherlands. Upon completion of the merger and the IPO, some
members of the board of directors, some of the officers of IFCO Systems, and
some of the experts named in this proxy statement/prospectus will 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 IFCO Systems or
those persons, or to enforce, in courts outside of the United States, judgments
against IFCO Systems 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 the assets of IFCO Systems
will be located outside of the United States, any judgment obtained in the
United States against those persons or IFCO Systems 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.
149
<PAGE>
LEGAL MATTERS
The validity of the shares of IFCO Systems ordinary shares to be issued in
connection with the merger will be passed upon by Stibbe Simont Monahan Duhot
P.C., New York, New York. U.S. federal income tax consequences of the merger
will be passed upon for PalEx by its special U.S. tax counsel, Baker Botts
L.L.P., Houston, Texas.
EXPERTS
The combined financial statements of the IFCO Companies as of December 31,
1997 and 1998, and for each of the years then ended and the balance sheet of
IFCO Systems as of March 31, 1999, appearing in this proxy statement/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, 1997 and 1998, and
for each of the years then ended, appearing in this proxy statement/prospectus
have been so included in reliance on the report (which contains an explanatory
paragraph relating to the company's ability to continue as a going concern as
described in Note 1 to the financial statements) of PricewaterhouseCoopers LLP,
independent 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
November 30, 1996, December 28, 1997, and December 27, 1998, and for the years
ended November 30, 1995, November 30, 1996, December 28, 1997, and December 27,
1998, and the one-month period ended December 31, 1996, included in this proxy
statement/prospectus have been audited by Arthur Andersen LLP, independent
certified public accountants, as indicated in their reports dated February 27,
1998, and February 26, 1999, and are included in reliance upon the report of
that firm as experts in auditing and accounting.
STOCKHOLDER PROPOSALS
If the merger is not consummated, proposals of stockholders intended to be
presented at PalEx's 2000 annual meeting of stockholders must be received by
PalEx by April 30, 2000, for inclusion in PalEx's proxy materials relating to
each meeting. In the event the merger is consummated, there will not be a 2000
annual meeting of stockholders of PalEx.
WHERE YOU CAN FIND MORE INFORMATION
PalEx files annual, quarterly, and current reports, proxy statements, and
other information with the SEC. You may read and copy any reports, statements,
and other information filed by PalEx 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. PalEx's 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.
IFCO Systems filed a registration statement on Form F-4 to register with the
SEC the IFCO Systems ordinary shares to be issued to PalEx stockholders in the
merger. This proxy statement/prospectus is a part of that registration
statement and constitutes a prospectus of IFCO Systems, as well as being a
proxy statement of PalEx.
As allowed by the SEC rules, this proxy statement/prospectus does not contain
all the information you can find in the registration statement or the exhibits
to the registration statement. The registration statement and the exhibits are
also available at the SEC's public reference rooms, from commercial document
retrieval services, and at the SEC's web site.
150
<PAGE>
You should rely only on the information contained in this proxy
statement/prospectus to vote on the merger. Neither IFCO Systems nor PalEx has
authorized anyone to provide you with information that is different from what
is contained in this proxy statement/prospectus. This proxy
statement/prospectus is dated February 4, 2000.
151
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
IFCO Systems N.V.
Report of Independent Accountants........................................ F-2
Balance Sheet as of March 31 and October 31, 1999 (unaudited)............ F-3
Unaudited Interim Statement of Comprehensive Loss for the period from
April 1, 1999 to October 31, 1999....................................... F-4
Unaudited Interim Statement of Shareholders' Equity...................... F-5
Notes to the Financial Statements........................................ F-6
IFCO
Report of Independent Accountants........................................ F-8
Combined Balance Sheets as of December 31, 1997 and 1998 and October 31,
1999 (unaudited)........................................................ F-9
Combined Statements of Operations for the years ended December 31, 1997
and 1998 and the ten months ended October 31, 1998 and 1999 (unaudited)
........................................................................ F-10
Combined Statements of Comprehensive Loss for the years ended December
31, 1997 and 1998 and the ten months ended October 31, 1998 and 1999
(unaudited)............................................................. F-11
Combined Statements of Net Investment for the years ended December 31,
1997 and 1998 and the ten months ended October 31, 1998 and 1999
(unaudited)............................................................. F-12
Combined Statements of Cash Flows for the years ended December 31, 1997
and 1998 and the ten months ended October 31, 1998 and 1999
(unaudited)............................................................. F-13
Notes to the Combined Financial Statements............................... F-14
PalEx, Inc. and Subsidiaries
Report of Independent Certified Public Accountants....................... F-31
Consolidated Balance Sheets as of December 28, 1997, December 27, 1998,
and October 24, 1999 (unaudited)........................................ F-32
Consolidated Statements of Operations for the years ended November 30,
1996, December 28, 1997, and December 27, 1998, the one-month period
ended December 31, 1996, and the ten-month
periods ended October 25, 1998, and October 24, 1999 (unaudited)........ F-33
Consolidated Statements of Comprehensive Income for the years ended
November 30, 1996,
December 28, 1997, and December 27, 1998, the one-month period ended
December 31, 1996,
and the ten-month periods ended October 25, 1998, and October 24, 1999
(unaudited)............................................................. F-34
Consolidated Statements of Changes in Stockholders' Equity for the years
ended November 30, 1995, November 30, 1996, December 28, 1997, and
December 27, 1998, and the ten-month period ended October 24, 1999
(unaudited)............................................................. F-35
Consolidated Statements of Cash Flows for the years ended November 30,
1996, December 28, 1997, and December 27, 1998, the one-month period
ended December 31, 1996, and the ten-month
periods ended October 25, 1998, and October 24, 1999 (unaudited)........ F-36
Notes to Consolidated Financial Statements............................... F-37
IFCO-U.S., L.L.C.
Report of Independent Certified Public Accountants....................... F-57
Balance Sheets as of December 31, 1997 and 1998 and October 31, 1999
(unaudited)............................................................. F-58
Statements of Operations and Changes in Accumulated Members' Deficit for
the years ended December 31, 1997 and 1998 and the ten months ended
October 31, 1998 and 1999 (unaudited)................................... F-59
Statements of Cash Flows for the years ended December 31, 1997 and 1998
and the ten months ended October 31, 1998 and 1999 (unaudited).......... F-60
Notes to Financial Statements and the ten months ended October 31, 1998
and 1999 (unaudited).................................................... F-61
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders
of IFCO Systems N.V.
Burgermeister Rijnderstean 20
1185 MC Amsterdam, The Netherlands
In our opinion, the accompanying balance sheet presents fairly in all material
respects, the financial position of IFCO Systems N.V. ("the Company") at March
31, 1999, in conformity with generally accepted accounting principles in the
United States. The financial statement is the responsibility of the Company's
management; our responsibility is to express an opinion on the financial
statement based on our audit. We conducted our audit of the statement in
accordance with generally accepted auditing standards, which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statement is 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 audit provides a reasonable basis
for the opinion expressed above.
PwC Deutsche Revision
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
Dusseldorf, Germany
August 25, 1999
/s/ Betz /s/ Hartmann
F-2
<PAGE>
IFCO SYSTEMS N.V.
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
March 31, October 31,
1999 1999
--------- -----------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................ $54,040 $52,590
======= =======
SHAREHOLDER'S EQUITY
SHAREHOLDER'S EQUITY
Common stock............................................. $54,040 $54,040
Accumulated other comprehensive loss..................... -- (1,450)
------- -------
Total shareholder's equity.............................. $54,040 $52,590
======= =======
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-3
<PAGE>
IFCO SYSTEMS N.V.
UNAUDITED INTERIM STATEMENT OF COMPREHENSIVE LOSS
for the Period from April 1, 1999 to October 31, 1999
<TABLE>
<S> <C>
Net loss......................................................... $ --
Other comprehensive loss:
Foreign currency translation adjustment........................ (1,450)
-------
Comprehensive loss............................................... $(1,450)
=======
</TABLE>
F-4
<PAGE>
IFCO SYSTEMS N.V.
UNAUDITED INTERIM STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Other
Common Comprehensive Shareholders'
Stock Loss Equity
------- ------------- -------------
<S> <C> <C> <C>
Original contribution on and balance at
March 31, 1999........................... $54,040 $ -- $54,040
Foreign currency translation adjustment... (1,450) (1,450)
------- ------- -------
BALANCE October 31, 1999.................. $54,040 $(1,450) $52,590
======= ======= =======
</TABLE>
F-5
<PAGE>
IFCO SYSTEMS N.V.
NOTES TO THE FINANCIAL STATEMENTS
1.BASIS OF PRESENTATION
IFCO Systems N.V. was incorporated under the laws of the Netherlands on
March 31, 1999. On the incorporation date, $54,040 of cash was contributed by
Schoeller Packaging Systems GmbH ("SPS") in exchange for 5,000 ordinary shares
of common stock. The authorized share capital of IFCO Systems N.V. is divided
into 25,000 ordinary shares, with a nominal value of 10 euro per share. IFCO
Systems N.V. is a wholly owned subsidiary of SPS.
The accompanying financial statement has been prepared in accordance with
United States generally accepted accounting principles.
The unaudited interim financial statements reflect all adjustments,
consisting only of normal recurring adjustments which, in the opinion of
management, are necessary for a fair presentation of the information therein.
2.SIGNIFICANT ACCOUNTING POLICIES
The functional currency is the euro. The Company has selected the United
States dollar ("US$") 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.
3.SUBSEQUENT EVENTS
IFCO Systems N.V. was formed pursuant to a definitive merger agreement
effective March 29, 1999 with PalEx, Inc. ("PalEx"). Under the terms of the
agreement, prior to the merger, IFCO Systems N.V. will form Silver Oak
Acquisition Corp. as its wholly owned subsidiary to participate in the merger.
Silver Oak Acquisition Corp. will have authorized capital stock of 100 shares
of common stock, par value $0.01 per share. Silver Oak Acquisition Corp. will
issue all of its authorized shares to IFCO Systems N.V.
Prior to the merger with PalEx, SPS will contribute the shares it owns of
IFCO Europe Beteiligungs GmbH ("IFCO Europe"), which is 76% owned by SPS, and
MTS Okologistik Verwaltungs GmbH ("MTS"), 100% owned by SPS, to IFCO Systems
N.V. In addition, Gebruder Schoeller Beteilungsverwaltungs GmbH ("GSB") will
contribute the shares of Schoeller International Logistics
Beteiligungsgesellschaft mbH ("SIL"), 100% owned by GSB, to IFCO Systems N.V.
Both SPS and GSB are owned by the same group of shareholders, the Schoeller
family. The merger with PalEx will occur on the same day as, but immediately
before, an initial public offering of shares in IFCO Systems N.V.
IFCO Europe is the holding company of IFCO International Food Container
Organisation GmbH ("IFCO GmbH"). IFCO Europe is involved in the organization
and administration of the purchase, distribution and leasing of reusable crate
systems in Germany and other European countries. IFCO Europe is 76% owned by
SPS, with a subsidiary of General Electric Capital Corporation ("GECC") holding
a preferred share representing 24%. In connection with its initial investment
of DM 45 million ($24.9 million) 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. In connection with the merger agreement, a
debenture in the amount of DM 45 million ($27.6 million) will be issued to GECC
by a company controlled by the Schoeller family for GECC's preferred share in
IFCO Europe. This debenture will have a 30 year term and bear interest at 5%
per year. The debenture will be exchangeable for IFCO Systems N.V. ordinary
shares that are held by the Schoeller controlled issuer of the debenture after
a mandatory holding
F-6
<PAGE>
IFCO SYSTEMS N.V.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
period. GECC's options to increase its investment in IFCO Europe, MTS and SIL
will be exchanged for a promissory note payable issued by IFCO Systems N.V. in
the amount of DM 45 million ($27.6 million), of which DM 11.25 million ($6.9
million) will be paid out of the proceeds from the initial public offering. The
balance will be paid over five years beginning on December 31, 2001. In the
first year the annual interest rate will be EURIBOR plus 2.75%, increasing to
10% in the second year.
MTS is a German company that is 100% owned by SPS 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, is a German company which is 100% owned by GSB and holds ownership
interests in reusable crate systems in the United States, Argentina and Japan.
The operation in Argentina is wholly owned by SIL and is consolidated within
SIL. SIL has a 50% voting interest in the operations in the United States
("IFCO-US") and a 33% ownership investment in the Japanese operations. SIL's
business processes are generally similar to those of IFCO Europe. In connection
with the merger agreement, the Company intends to purchase the remainder of
IFCO-US, giving it 100% ownership.
Prior to the merger with PalEx, SPS will change its name to Schoeller
Logistics Technologies GmbH and SIL will change its name to IFCO International
Network Beteiligungsgesellschaft mbH.
The closing of the merger is subject to the approval of shareholders of
PalEx, completion of the initial public offering of IFCO Systems N.V. and other
customary conditions. Under the current terms of the agreement, the
participating rights (see below) will remain outstanding. The transaction is
expected to be completed by the end of the first quarter of 2000.
Unaudited Subsequent Events
Effective November 4, 1999, SPS contributed its shares of IFCO Europe, which
is 76% owned by SPS, and MTS, 100% owned by SPS, to IFCO Systems N.V. In
addition, GSB contributed its shares of SIL, 100% owned by GSB, to IFCO Systems
N.V. effective November 4, 1999. Both SPS and GSB are owned by the same group
of shareholders, the Schoeller family.
F-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of Schoeller Packaging Systems GmbH
and Gebruder Schoeller Beteilungsverwaltungs GmbH
Zugspitzstrabe 15
82049 Pullach
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, comprehensive income, net investment and of
cash flows present fairly, in all material respects, the combined financial
position of IFCO Europe Beteiligungs GmbH and MTS Okologistik GmbH,
subsidiaries of Schoeller Packaging Systems GmbH, Pullach and Schoeller
International Logistics Beteiligungsgesellschaft mbH, a subsidiary of Gebruder
Schoeller Beteilungsverwaltungs GmbH, Munich (collectively "IFCO") at December
31, 1998 and 1997, and the results of their operations and their cash flows for
each of the years then ended, in conformity with generally accepted accounting
principles in the United States. These financial statements are the
responsibility of IFCO'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 generally accepted auditing
standards in Germany, which are substantially consistent with those 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.
PwC Deutsche Revision
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
Dusseldorf, Germany
April 30, 1999
/s/ Betz /s/ Hartmann
(Betz) (Hartmann)
Wirtschaftsprufer Wirtschaftsprufer
F-8
<PAGE>
IFCO
COMBINED BALANCE SHEETS
(In thousands of US$)
<TABLE>
<CAPTION>
December 31,
------------------ October 31,
1997 1998 1999
-------- -------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash
equivalents........... $ 7,992 $ 23,642 $ 9,134
Receivables............ 93,397 74,462 81,509
Other.................. 775 1,874 3,838
-------- -------- --------
Total current assets.. 102,164 99,978 94,481
PROPERTY, PLANT AND
EQUIPMENT, net......... 134,776 172,437 162,772
OTHER ASSETS............ 12,617 12,038 16,393
-------- -------- --------
Total assets.......... $249,557 $284,453 $273,646
======== ======== ========
LIABILITIES AND NET
INVESTMENT
CURRENT LIABILITIES:
Short-term loans....... $ 53,440 $ 500 $ 500
Short-term related
party loans........... 23,298 2,618 2,254
Current maturities of
long-term debt........ -- 4,912 5,413
Current maturities of
capital lease
obligations........... 4,738 9,340 10,528
Refundable deposits.... 64,323 70,875 70,820
Accounts payable....... 65,010 69,287 76,533
Accrued expenses and
other current
liabilities........... 12,294 7,303 11,591
Deferred income........ 4,660 6,573 5,996
-------- -------- --------
Total current
liabilities.......... 227,763 171,408 183,635
ACCUMULATED LOSSES IN
EXCESS OF INVESTMENT IN
EQUITY ENTITIES........ 3,136 4,472 5,684
LONG-TERM DEBT, net of
current maturities..... 464 77,874 67,183
CAPITAL LEASE
OBLIGATIONS, net of
current maturities..... 7,971 26,867 20,768
COMMITMENTS AND
CONTINGENCIES
PARTICIPATING RIGHTS.... 3,956 4,274 3,871
REDEEMABLE PARTICIPATING
RIGHTS................. 1,256 1,544 1,477
REDEEMABLE CONVERTIBLE
PREFERRED STOCK........ 25,001 28,887 26,335
NET INVESTMENT:
Contributed share
capital............... 10,017 10,017 10,017
Accumulated deficit.... (29,945) (38,858) (46,400)
Accumulated other
comprehensive loss.... (62) (2,032) 1,076
-------- -------- --------
(19,990) (30,873) (35,307)
-------- -------- --------
Total liabilities and
net investment....... $249,557 $284,453 $273,646
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-9
<PAGE>
IFCO
COMBINED STATEMENTS OF OPERATIONS
(In thousands of US$)
<TABLE>
<CAPTION>
Year Ended Ten Months Ended
December 31, October 31,
------------------ -----------------------
1997 1998 1998 1999
-------- -------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUES........................... $116,735 $134,721 $106,021 $126,399
COST OF SALES:
Depreciation and amortization
expense and crate breakage....... 26,929 28,487 21,176 28,162
Other costs of sales.............. 72,693 77,731 64,698 72,168
-------- -------- -------- --------
99,622 106,218 85,874 100,330
-------- -------- -------- --------
Gross profit..................... 17,113 28,503 20,147 26,069
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.......................... 22,263 28,515 20,729 24,029
AMORTIZATION OF GOODWILL........... 675 383 274 344
OTHER OPERATING (INCOME) EXPENSES,
net............................... (4,099) (3,081) (2,979) (1,976)
-------- -------- -------- --------
Income (loss) from operations.... (1,726) 2,686 2,123 3,672
INTEREST EXPENSE................... (11,815) (8,637) (7,355) (7,347)
INTEREST INCOME.................... 3,887 1,607 1,331 466
FOREIGN CURRENCY (LOSSES) GAINS.... 25 (188) (166) (690)
LOSSES FROM EQUITY ENTITIES........ (2,347) (2,726) (2,431) (1,632)
OTHER INCOME (EXPENSE), net........ 183 (83) (325) (611)
-------- -------- -------- --------
Loss before income taxes......... (11,793) (7,341) (6,823) (6,142)
INCOME TAX PROVISION............... (47) (210) (173) (144)
-------- -------- -------- --------
Net loss......................... (11,840) (7,551) (6,996) (6,286)
-------- -------- -------- --------
ACCRETION OF PREFERRED STOCK AND
PARTICIPATING RIGHTS.............. 630 (1,362) (1,123) (1,256)
Net loss applicable to common
stock........................... $(11,210) $ (8,913) $ (8,119) $ (7,542)
======== ======== ======== ========
Unaudited pro forma basic loss per
share (in US$).................... $ (.45) $ (.38)
======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-10
<PAGE>
IFCO
COMBINED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands of US$)
<TABLE>
<CAPTION>
Year Ended Ten Months Ended
December 31, October 31,
----------------- -----------------------
1997 1998 1998 1999
-------- ------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net loss............................. $(11,840) $(7,551) $(6,996) $(6,286)
Other comprehensive loss:
Foreign currency translation
adjustment......................... 317 (1,970) (1,663) 3,108
-------- ------- ------- -------
Comprehensive loss................... $(11,523) $(9,521) $(8,659) $(3,178)
======== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-11
<PAGE>
IFCO
COMBINED STATEMENTS OF NET INVESTMENT
(In thousands of US$)
<TABLE>
<CAPTION>
Accumulated
Contributed Other
Share Accumulated Comprehensive Net
Captial Deficit Loss Investment
----------- ----------- ------------- ----------
<S> <C> <C> <C> <C>
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)
Accretion of redeemable
convertible preferred stock,
net of tax.................. -- (1,274) -- (1,274)
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..................... -- (7,551) -- (7,551)
------- -------- ------- --------
BALANCE December 31, 1998.... $10,017 $(38,858) $(2,032) $(30,873)
Accretion of redeemable
convertible preferred stock,
net of tax (unaudited)...... -- (1,077) -- (1,077)
Participating rights, net of
tax (unaudited)............. -- (60) -- (60)
Redeemable cumulative
participating rights,
(unaudited)................. -- (119) -- (119)
Foreign currency adjustment
(unaudited)................. -- -- 3,108 3,108
Net loss (unaudited)......... -- (6,286) -- (6,286)
------- -------- ------- --------
BALANCE October 31, 1999..... $10,017 $(46,400) $ 1,076 $(35,307)
======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-12
<PAGE>
IFCO
COMBINED STATEMENTS OF CASH FLOWS
(In thousands of US$)
<TABLE>
<CAPTION>
Year Ended Ten Months Ended
December 31, October 31,
----------------- -----------------------
1997 1998 1998 1999
-------- ------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss............................ $(11,840) $(7,551) $(6,996) $(6,286)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation of property, plant and
equipment and crate breakage...... 26,929 28,487 21,176 28,162
Amortization of goodwill........... 675 383 274 344
Amortization of intangible assets
and debt issuance costs........... -- 664 228 38
Foreign exchange (gain)/loss....... (25) 188 166 690
(Profit)/loss on sale of property,
plant and equipment............... (2) -- -- 106
Losses from equity entities........ 2,347 2,726 2,431 1,632
Changes in operating assets and
liabilities--
Proceeds from factoring
arrangement....................... -- 25,435 19,883 28,004
Receivables........................ (11,588) 2,160 (2,186) (46,654)
Other assets, long term............ 243 112 586 (1,456)
Inventory.......................... 7,414 (1,621) (1,205) (2,293)
Prepaid expenses and other current
accounts.......................... 107 673 714 47
Accounts payable................... 5,076 10,933 251 17,435
Other current liabilities.......... 3,515 (7,791) (5,422) 1,334
Accrued liabilities................ 8,722 3,803 9,980 12,068
Deferred income.................... 917 1,337 617 249
-------- ------- ------- -------
Net cash provided by operating
activities....................... 32,490 59,938 40,497 33,420
-------- ------- ------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of crates................. (41,950) (38,098) (35,170) (33,054)
Purchase of property, plant and
equipment......................... (562) (2,097) (2,062) (3,021)
Purchase of other intangible
assets............................ (243) (33) -- (188)
Merger costs....................... -- -- -- (3,421)
Investment in equity entities...... (478) (1,390) (1,386) (420)
Proceeds from sale of property and
equipment......................... 448 106 -- --
Sale (purchase) of investments
carried at cost................... (436) 2,746 2,723 --
-------- ------- ------- -------
Net cash used in investing
activities....................... (43,221) (38,766) (35,895) (40,104)
-------- ------- ------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from sale of redeemable
convertible preferred stock....... 24,949 --
Payments on short term bank
borrowings........................ -- (51,254) (50,699) --
Payments on long term bank
borrowings........................ (3,502) (15,351) (15,221) (11,581)
Payments on related party loans.... -- (25,779) (25,616) (196)
Payments on capital lease
obligations....................... (14,214) (5,331) (4,589) (4,527)
Proceeds from short term bank
borrowings........................ 8,591 --
Proceeds from long term bank
borrowings........................ -- 91,756 90,764 11,010
Proceeds from related party loans.. 3,997 1,850 1,595 139
Payment for interest rate cap...... -- (202)
Debt issuance costs................ (6,621) (2,131) (1,703) --
Capital distribution to
shareholders...................... (8,635) -- -- --
Other.............................. 464 -- -- --
-------- ------- ------- -------
Net cash provided by (used in)
financing activities............. 5,029 (6,442) (5,469) (5,155)
-------- ------- ------- -------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS.......... (549) 920 589 (2,669)
-------- ------- ------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... (6,251) 15,650 (278) (14,508)
CASH AND CASH EQUIVALENTS, beginning
of the period 14,243 7,992 7,992 23,642
-------- ------- ------- -------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 7,992 $23,642 $ 7,714 $ 9,134
======== ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest............. $ 6,772 $ 6,959 $ 5,841 $ 6,805
Cash paid for income taxes......... $ 47 $ 64 $ 64 $ 181
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Accretion of redeemable convertible
preferred stock................... -- $ 1,274 -- --
Redeemable cumulative participating
rights............................ $ 144 $ 149 -- --
Participating rights............... $ (774) $ (61) -- --
Purchase of containers on capital
leases............................ $ 8,465 $ 9,382 $ 4,228 $ 4,125
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-13
<PAGE>
IFCO
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(In thousands of US$ unless otherwise stated)
1.BUSINESS AND ORGANIZATION:
These combined financial statements represent the operations of IFCO Europe
Beteiligungs GmbH ("IFCO Europe") and MTS Okologistik Verwaltungs GmbH ("MTS"),
which are subsidiaries of Schoeller Packaging Systems GmbH, Pullach ("SPS"), as
well as the operations of Schoeller International Logistics
Beteiligungsgesellschaft mbH ("SIL"), a subsidiary of Gebruder Schoeller
Beteilungsverwaltungs GmbH, Munich ("GSB") (collectively "IFCO" or the
"Company"). The entities are involved in crate leasing and servicing
activities. SPS and GSB are wholly owned by the same group of shareholders, the
Schoeller family. IFCO Europe, MTS and SIL previously reported separately to
SPS and GSB respectively, and all costs relating to each entity were
historically billed through management charges. These costs include all general
corporate overheads, 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. All significant inter-company
transactions and balances between the combined companies have been eliminated.
Income taxes have been calculated on a separate return basis.
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 reusable crate
systems in Germany and other European countries. The crates 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 crates to various
intermediaries and ultimately retailers for sale to consumers. IFCO Europe
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. IFCO Europe is 76% owned by SPS, with a
subsidiary of General Electric Capital Corporation ("GECC") holding a preferred
share representing 24%. In connection with its initial investment of $24,949 in
IFCO Europe in 1997, GECC received options to increase its investment in IFCO
Europe to 49% and then up to 100% after certain dates have passed and criteria
have been met. GECC also received options to purchase 100% of MTS and up to
100% of SIL after certain dates have passed and criteria have been met.
MTS, a German company that is 100% owned by SPS, was established in 1992 and
offers a reusable packing system for dry goods sold primarily by retailers.
MTS's business processes are generally similar to those of IFCO Europe.
SIL, a German company which is 100% owned by GSB was established in 1994 to
hold ownership interests in reusable crate systems in the United States,
Argentina and Japan. The operation in Argentina is wholly owned and is
consolidated within SIL. SIL has a 50% voting interest in the operations in the
United States and a 33% ownership investment in the Japanese operations. SIL
has agreed to fund its proportionate share of losses of the operation in the
United States in excess of its capital investment. Both of these operations are
accounted for under the equity method. SIL's business processes are generally
similar to those of IFCO Europe.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Accounting Principles
The accompanying combined financial statements have been prepared in
accordance with United States generally accepted accounting principles.
Fiscal Year
All combined entities maintain their accounting records using a December 31
year-end.
F-14
<PAGE>
IFCO
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
(In thousands of US$ unless otherwise stated)
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 crate 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 crate rental pool to ensure that all unusable crates are reduced to net
realizable value in accordance with the Company's crate supply contract. These
charges are considered breakage by the Company and are included in cost of
sales in the accompanying combined 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
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 and has determined that no impairments would have been recognized under
SFAS No. 121.
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 to the fair value of the
leased property at the inception of the lease 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 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 financial statements as of December 31, 1998.
Investments Carried at Cost
Entities where IFCO has less than 20% of the voting rights and over which
IFCO does not exercise significant influence are accounted for at cost, and are
included in other assets on the combined balance sheet. In 1997 this consisted
of one entity, APOLLO Verwaltungsgesellschaft mbH, Munchen, which was sold in
1998.
F-15
<PAGE>
IFCO
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
(In thousands of US$ unless otherwise stated)
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. SIL has not recorded its proportionate share of IFCO-
Japan's losses in excess of its investment in IFCO Japan as SIL is under no
obligation, and has no intention, to fund IFCO-Japan's losses. IFCO Japan's
losses that have been recorded are included in losses from equity entities on
the combined 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
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 statement of operations.
Participating Rights
The participating rights were originally issued to Schoeller Plast Industries
GmbH, Pullach, ("SPI"), a company wholly owned by SPS, 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 $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. 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.
Redeemable Participating Rights
In 1996 SIL received DM 2 million ($1,228) from Alexander Schoeller & Co.
Management Holding GmbH ("Schoeller Management Holding"), a company which is
wholly owned by the Schoellers. Each year that SIL recognizes a profit under
German GAAP, Schoeller Management Holding is entitled to DM 250,000 ($154) per
annum. This amount is cumulative, and any unpaid balance due to SIL's lack of
profit bears interest at 6.0% per annum. Schoeller Management Holding does not
participate in SIL's losses, and has no voting rights in SIL. The agreement is
for an unlimited duration, and may be terminated by either party with a six
month notice period.
Income Taxes
The Company uses the liability method of accounting for income taxes, wherein
deferred tax assets and liabilities are recognized for future tax consequences
attributable to temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to reverse. The effect of a change in tax rates on deferred tax assets
and liabilities is recognized in income in the period that includes the
enactment date. Deferred tax assets are reduced by a valuation allowance if,
based on the weight of the available evidence, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. As changes
in tax laws or rate are enacted, deferred tax assets and liabilities are
adjusted through income tax expense.
F-16
<PAGE>
IFCO
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
(In thousands of US$ unless otherwise stated)
Revenue Recognition
The majority of the Company's combined revenues are generated from crate
usage fees and are recognized over the Company's service obligation period,
which 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 also generates revenues from the lease of crates for specified
periods of time, which are recognized on a straight-line basis over the lease
term. Additionally, the Company generates revenues from the sales of broken
crates.
Refundable Deposits
The Company receives a deposit from its customers upon crate delivery that is
classified as a refundable deposit in the accompanying combined balance sheets.
This deposit is refunded by the Company when the crate 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 Statement of Operations.
The functional currency is the local currency of each subsidiary. The Company
has selected the United States dollar ("US$") as its reporting currency. The
financial statements of the Company's operations which are not denominated in
United States dollars are translated using the exchange rate as of the balance
sheet date for assets and liabilities and a weighted average exchange rate for
the reported amount of revenues, expenses, gains and losses during the
reporting period. The cumulative translation adjustment is recorded as a
separate component of shareholders' equity.
Use of Estimates
The preparation of combined financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the combined
financial statements and the reported amount of revenues and expenses during
the reporting period. Although the Company reviews all significant estimates
affecting its combined financial statements on a recurring basis and records
the estimated effect of any necessary adjustments prior to their publication,
actual results could differ from these estimates.
F-17
<PAGE>
IFCO
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
(In thousands of US$ unless otherwise stated)
Unaudited Pro Forma Loss Per Share
Unaudited pro forma basic loss per share has been computed using an estimate
of the number of ordinary shares that will be issued to the shareholders of the
Company upon formation of IFCO Systems N.V. This amount has been calculated as
20.0 million. The numerator used in the calculation of unaudited proforma basic
loss per share has been calculated using the net loss for the year plus
accretion on the redeemable convertible preferred stock, 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. See additional
discussion related to the formation of IFCO Systems N.V. in Note 12.
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 quarter 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 consolidated financial statements.
Interim Financial Statements
The unaudited combined consolidated interim financial statements included
herein have been prepared in accordance with United States generally accepted
accounting principles. These statements reflect all adjustments, consisting
only of normal recurring adjustments which, in the opinion of management, are
necessary for a fair presentation of the information contained therein. All
significant inter-company transactions and balances between the combined
companies have been eliminated.
3.PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
Estimated
Useful At December 31,
Lives in ------------------
Years 1997 1998
--------- -------- --------
<S> <C> <C> <C>
Crates....................................... 8-15 $145,444 $188,848
Machinery and equipment...................... 4-10 5,783 7,631
Furniture and fixtures....................... 4-10 2,881 4,213
-------- --------
$154,108 $200,692
Less: Accumulated depreciation and
amortization................................ (19,332) (28,255)
-------- --------
$134,776 $172,437
======== ========
</TABLE>
Depreciation expense for the years ended December 31, 1997 and 1998 was
$8,579 and $10,414, respectively. Of the total assets above, costs of $14,388
and $38,288, along with accumulated depreciation of $651 and $981, are held
under capital leases at December 31, 1997 and 1998, respectively.
F-18
<PAGE>
IFCO
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
(In thousands of US$ unless otherwise stated)
4.DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts Receivable
The major components of accounts receivable are as follows:
<TABLE>
<CAPTION>
At December 31,
---------------- At October 31,
1997 1998 1999
------- ------- --------------
(unaudited)
<S> <C> <C> <C>
Trade (gross).................................. $71,946 $63,292 $68,582
Less: Allowance for doubtful accounts.......... (5,886) (6,079) (4,101)
Related party.................................. 14,396 7,538 8,678
Other.......................................... 12,941 9,711 8,350
------- ------- -------
$93,397 $74,462 $81,509
======= ======= =======
</TABLE>
Activity in the Company's allowance for doubtful accounts consists of the
following:
<TABLE>
<CAPTION>
Year ended
December 31,
-------------
1997 1998
------ ------
<S> <C> <C>
Balance, beginning of the year................................... $5,460 $5,886
Write-offs....................................................... -- --
Additional provisions............................................ 426 193
------ ------
$5,886 $6,079
====== ======
</TABLE>
Other Assets
The major components of other assets are as follows:
<TABLE>
<CAPTION>
At December 31,
----------------
1997 1998
------- -------
<S> <C> <C>
Goodwill................................................... $ 3,805 $ 4,187
Debt issuance costs........................................ 6,417 9,364
Investment accounted for under the cost method............. 2,695 --
Other...................................................... 942 962
------- -------
$13,859 $14,513
Less: Accumulated amortization............................. (1,242) (2,475)
------- -------
$12,617 $12,038
======= =======
</TABLE>
Accounts payable
The major components of accounts payable are as follows:
<TABLE>
<CAPTION>
At December 31,
--------------- At October 31,
1997 1998 1999
------- ------- --------------
(unaudited)
<S> <C> <C> <C>
Trade......................................... $64,712 $65,525 $ 72,129
Related party................................. 298 3,762 4,404
------- ------- --------
$65,010 $69,287 $ 76,533
======= ======= ========
</TABLE>
F-19
<PAGE>
IFCO
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
(In thousands of US$ unless otherwise stated)
5.DEBT:
Long-Term Debt
During 1998, IFCO Europe negotiated a new financing arrangement through a
lending syndicate under a Deutsch Mark ("DM") 146 million ($89,644) Senior
Facility Agreement ("SFA"), and a DM 35 million ($21,490) Senior Subordinated
Agreement ("SSA"). The proceeds from the SFA and SSA were primarily used to
reduce the Company's outstanding short-term borrowings.
The SFA consists of a DM 76 million ($46,664) fixed term loan and two
revolving credit facilities totaling DM 70 million ($42,980). All borrowings
under the SFA contain principal reduction provisions, mature in 2004 and accrue
interest at EURIBOR plus 1.75% (4.98% as of December 31, 1998). The SSA is due
in full in 2005. Outstanding borrowings under the SSA accrue interest at a rate
of EURIBOR plus 2.75% (5.98% as of December 31, 1998).
IFCO Europe borrowed DM 76 million ($46,664) under the SFA fixed term loan,
and repaid DM 4 million ($2,456) on December 31, 1998 as required by the debt
agreement. At December 31, 1998, borrowings under the SFA revolving credit
facility totaled DM 27 million ($16,578), leaving DM 43 million ($26,403)
available for future borrowings. The entire amount of the SSA was borrowed
during 1998, and was outstanding at December 31, 1998.
Substantially all of IFCO Europe'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 factoring of receivables in excess of DM 80 million ($49,122). The
SFA and SSA limit the amount of capital lease obligations that IFCO Europe may
enter into from January 1, 1999 onwards to DM 75 million ($46,052). The SFA and
SSA also prohibit the payment of dividends by IFCO Europe as long as any
outstanding borrowings exist under the SFA or SSA, restrict IFCO Europe's
incurrence or assumption of other indebtedness and require IFCO Europe 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. IFCO Europe was in compliance
with, or had subsequently obtained waivers for, such covenants as of December
31, 1998.
To hedge its variable rate interest risk, IFCO Europe has entered into an
interest rate cap agreement, which as of December 31, 1998, covers $65,600 of
IFCO Europe's outstanding debt and limits interest rates applicable to those
borrowings to 6.75%. 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 balance
sheets.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
At December
31,
------------- At October 31,
1997 1998 1999
----- ------- --------------
(unaudited)
<S> <C> <C> <C>
SFA term loan.................................. $ -- $44,208 $34,393
SFA credit facilities.......................... -- 16,578 18,808
SSA term loan.................................. -- 21,490 18,808
Other.......................................... 464 510 587
----- ------- -------
$ 464 $82,786 $72,596
Less: current maturities....................... -- (4,912) (5,413)
----- ------- -------
$ 464 $77,874 $67,183
===== ======= =======
</TABLE>
F-20
<PAGE>
IFCO
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
(In thousands of US$ unless otherwise stated)
The maturities of long-term debt are as follows for the years ending December
31:
<TABLE>
<CAPTION>
Amount
-------
<S> <C>
1999................................................................. $ 4,912
2000................................................................. 6,036
2001................................................................. 7,368
2002................................................................. 12,894
2003................................................................. 12,894
Thereafter........................................................... 38,682
-------
$82,786
=======
</TABLE>
Short-Term Loans
Short-term loans in 1997 consisted of short-term notes with banks and other
third parties and were due on demand. These loans were repaid with the proceeds
from the SFA and SSA. There are no short-term loans at December 31, 1998.
Short-Term Related Party Loans
SPS and GSB, SPS's subsidiaries and SPS'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%.
Related Party Loans
The balance in related party loans represents funding that has been provided
by companies under common control, and have due dates that extend beyond
December 31, 1999.
Receivable Factoring
Prior to May 1998, IFCO GmbH 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 GmbH's
books. The administrative processes related to collecting the receivables was
performed by the third party acting as an agent for IFCO GmbH, for which IFCO
GmbH paid a fee.
In May 1998 the arrangement was altered to allow IFCO GmbH 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 GmbH. The remainder, less a factoring charge, is
held in an escrow account and is remitted to IFCO GmbH following collection.
There is no risk of loss associated with the funds initially received by IFCO
GmbH, and these funds have been netted off against receivables. The risk of
loss on the balance held in the escrow account remains with IFCO GmbH, with the
factoring agent performing the administrative collection process for all
factored receivables. The balance held in the escrow account is included in
receivables on the combined balance sheet and at December 31, 1998 was $7,279.
The interest rate on cash advances relating to uncollected factored receivables
is based on the three-month EURIBOR rate plus 1.25% (4.48% as of December 31,
1998). IFCO GmbH factored approximately $25,435 of its combined receivables in
1998 and incurred approximately $2,629 in factoring and interest charges
relating to this agreement for the year ended December 31, 1998.
F-21
<PAGE>
IFCO
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
(In thousands of US$ unless otherwise stated)
Capital Lease Obligations
The Company has entered into leases with third parties principally for
plastic crates 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:
<TABLE>
<CAPTION>
Amount
-------
<S> <C>
1999................................................................ $11,603
2000................................................................ 11,135
2001................................................................ 7,607
2002................................................................ 4,704
2003................................................................ 2,501
Thereafter.......................................................... 3,734
-------
Total future minimum lease payments................................. $41,284
Less amounts representing interest.................................. (5,077)
-------
Present value of future minimum lease payments...................... $36,207
=======
Current............................................................. $ 9,340
Non-current......................................................... 26,867
-------
Total............................................................... $36,207
=======
</TABLE>
6.REDEEMABLE CONVERTIBLE PREFERRED STOCK
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 ($1,382) of profits
before any profits are distributed to the common stockholders.
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 ($27,630), plus preferential
dividends which have not been distributed, less any eventual distribution of
profits in excess of the preferential dividends.
In connection with the investment in the preferred share, GECC received
options to increase its investment in IFCO Europe to 49% and then up to 100%
after certain dates have passed and criteria have been met. In addition, GECC
received options to purchase 100% of MTS and up to 100% of SIL after certain
dates have passed and criteria have been met. Also in connection with the
investment, SPS has a put option to sell its interest in IFCO Europe to GECC
after certain dates have passed and criteria have been met.
F-22
<PAGE>
IFCO
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
(In thousands of US$ unless otherwise stated)
7.INCOME TAXES:
<TABLE>
<CAPTION>
Year ended
December 31,
---------------
1997 1998
------- ------
<S> <C> <C>
Loss before income taxes
Germany................................................... $ 8,227 $3,802
Foreign................................................... 3,217 3,539
------- ------
Total...................................................... $11,444 $7,341
======= ======
Income tax provision
Current
Germany................................................... $ -- $ --
Foreign................................................... (47) (210)
------- ------
Total current.............................................. $ (47) $ (210)
------- ------
Deferred
Germany................................................... $ -- $ --
Foreign................................................... -- --
------- ------
Total Deferred............................................. $ -- $ --
------- ------
Total provision ........................................... $ (47) $ (210)
======= ======
</TABLE>
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:
<TABLE>
<CAPTION>
Year ended
December 31,
--------------
1997 1998
------ ------
<S> <C> <C>
Tax benefit at statutory rate (48.8%)....................... $5,585 $3,582
Increase (decrease) resulting from:
Movement in valuation allowance............................ (3,693) (3,605)
Participating rights....................................... (378) (30)
Non deductible finance charges............................. (464) (348)
Goodwill amortisation...................................... (131) (118)
Other...................................................... (966) 309
------ ------
$ (47) $ (210)
====== ======
</TABLE>
F-23
<PAGE>
IFCO
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
(In thousands of US$ unless otherwise stated)
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:
<TABLE>
<CAPTION>
At December 31,
-----------------
1997 1998
------- --------
<S> <C> <C>
Deferred income tax liabilities:
Accelerated depreciation................................. $57,893 $ 81,114
Other.................................................... 4,685 3,467
------- --------
Total deferred income tax liabilities..................... $62,578 $ 84,581
Deferred income tax assets:
Carryforward losses...................................... $61,422 $ 73,891
Interest on accretion.................................... -- 622
Capitalized crate cost................................... 6,181 17,679
Patent................................................... 3,676 3,596
Other..................................................... 3,018 6,164
------- --------
Total deferred income tax assets.......................... $74,297 $101,952
Valuation allowance....................................... (11,719) (17,371)
------- --------
Net deferred income tax assets............................ $62,578 $ 84,581
Deferred income tax assets, net........................... $ -- $ --
======= ========
</TABLE>
Current deferred tax assets, net are recorded in other current assets in the
accompanying combined balance sheets.
Income taxes payable at December 31, 1997 and 1998 was approximately $47 and
$146, respectively and are included in accrued liabilities in the accompanying
combined balance sheets.
As certain crate 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, 1997 and 1998, the Company has net operating loss
carryforwards in Germany of approximately $115,453 and $135,275, respectively.
The loss carryforwards attributable to German operations do not expire. The
loss carryforwards attributable to foreign operations at December 31, 1997 and
1998 are $11,840 and $18,468, respectively. These operating loss carryforwards
expire in 2004 and 2005. These carryforwards are available to offset future
taxable income. A valuation allowance has been made by the Company to provide
for deferred tax assets. The valuation allowance is necessary as the specific
subsidiaries for which it is attributable have not made profits consistently,
thereby making it more likely than not that the asset will not be realized. The
amount of the valuation allowance is reviewed periodically and will be released
in the future if it becomes more likely than not that these carryforward losses
can be realised.
F-24
<PAGE>
IFCO
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
(In thousands of US$ unless otherwise stated)
Activity in the Company's valuation allowance for deferred tax assets
consists of the following:
<TABLE>
<CAPTION>
Year ended
December 31,
----------------
1997 1998
------- -------
<S> <C> <C>
Balance, beginning of year................................ $ 5,497 $11,719
Increase (decrease) due to foreign exchange translation... (958) 1,485
Additions in the year due to subsidiary loss
carryforwards............................................ 7,180 4,167
------- -------
Balance, end of year...................................... $11,719 $17,371
======= =======
</TABLE>
The valuation allowance allocated by tax jurisdiction is as follows:
<TABLE>
<CAPTION>
Year ended
December 31,
---------------
1997 1998
------- -------
<S> <C> <C>
Germany:
Current...................................................... $ 300 $ 800
Long-term.................................................... 7,192 10,451
------- -------
$ 7,492 $11,251
Other:
Long-term.................................................... $ 4,227 $ 6,120
------- -------
Total........................................................ $11,719 $17,371
======= =======
</TABLE>
8.COMMITMENTS AND CONTINGENCIES:
Litigation
One of the Company's subsidiary's has been 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 crate 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.
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 accrued on a straight-line basis over the
term of the lease. Minimum future rental payments under these leases as of
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Amount
-------
<S> <C>
1999................................................................. $ 4,094
2000................................................................. 3,605
2001................................................................. 2,700
2002................................................................. 1,603
2003................................................................. 1,504
Thereafter........................................................... 1,449
-------
$14,955
=======
</TABLE>
Rent expense under operating leases was approximately $2,335 and $4,442 for
the years ending December 31, 1997 and 1998, respectively.
F-25
<PAGE>
IFCO
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
(In thousands of US$ unless otherwise stated)
9.RELATED PARTY TRANSACTIONS:
Crate Supply Contracts
IFCO Europe has historically purchased the majority of its crates 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
crates. SPI will not provide plastic crates to other third parties. 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 than 15%,
as defined in the agreement. This supply agreement also states that the Company
is to receive a fixed price per kilogram for broken containers that are
recollected from the Company by SPI. During 1997 and 1998, the Company paid SPI
$45,472 and $46,397, respectively, for crates. Sales of broken containers from
the Company to SPI totaled $8,750 in 1997 and $9,438 in 1998, and are included
within revenues.
Management Fee
The Company has entered into a management contract expiring in November 2000
with SPS to provide management and administrative services to the Company. The
Company has recorded $769 and $576 in costs under this contract during fiscal
years 1997 and 1998, respectively, which are included in selling, general and
administrative costs in the accompanying combined statement of operations. The
current contract expires on December 31, 2000, and the total management fee
payable by the Company to SPS in 1999 and 2000 is DM 1.75 million ($995) per
annum.
Related Party Working Capital Financing
The Company has generated payables to and receivables from SPI, primarily as
a result of the purchase of crates from SPI and the subsequent sale of broken
crates 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 8%.
The Company has recorded net interest income (expense) from related parties
which principally consist of SPS and SPI of approximately ($1,266) and $215
during the fiscal years' 1997 and 1998, respectively.
Capital Distribution
During 1997, IFCO Europe purchased a patent for a type of plastic crate from
SPI for $8,635. The patent had been internally developed by SPI and had a
nominal carrying value. As this represented a transfer of assets under common
control, the amount paid for the patent has been treated as a capital
distribution, and IFCO Europe is carrying the patent at the nominal carrying
value.
Unaudited Related Party Transactions
In January 1999, the Company entered into an additional agreement with
Schoeller Plast AG, an indirect 80%-owned subsidiary of SPS, in which Schoeller
Plast AG agreed to share higher initial costs related to the strategic growth
of the crate leasing and supply business up to a maximum amount of DM 6 million
for the year ended 1999. For the ten months ended October 31, 1999, Schoeller
Plast AG has reimbursed the Company DM 5 million which has been recorded as a
reduction of cost of goods sold. The agreement terminated at the end of 1999
and subsequent to December 31, 1999, no further costs related to the additional
agreement will be reimbursed.
F-26
<PAGE>
IFCO
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
(In thousands of US$ unless otherwise stated)
10.BUSINESS SEGMENTS:
The Company has three business segments, the European plastic crate
operations ("European perishables"), the dry good container operations ("Dry
good"), and the non-European plastic crate operations ("Non-European
perishables"). The European perishables and Non-European perishables segments
sell, repair/wash, lease and retrieve plastic crates primarily for use in
agricultural and industrial markets. The Dry good segment has a reusable
packing system for dry goods, primarily for use in agricultural and 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.
F-27
<PAGE>
IFCO
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
(In thousands of US$ unless otherwise stated)
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 balance sheet of a portion of IFCO-US's losses
recognized in excess of the carrying value of the investment in IFCO-US. Losses
from equity entities represents the portion of IFCO-US and IFCO Japan's losses
that the Company has recognized in the combined statements of operations.
<TABLE>
<CAPTION>
Year ended December 31, 1997
--------------------------------------------------
IFCO
Europe MTS SIL Eliminations Combined
-------- ------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
Revenues................ $106,863 $ 9,580 $ 292 $ -- $116,735
Profit (loss) before
taxes ................. (7,338) (424) (4,031) -- (11,793)
Interest revenue........ 4,031 240 71 (455) 3,887
Interest expense........ (11,749) (244) (277) 455 (11,815)
Depreciation and crate
breakage............... (25,009) (1,783) (137) -- (26,929)
Amortization............ (675) -- -- -- (675)
Total assets............ 237,629 15,242 2,411 (5,725) 249,557
Net investment.......... (8,184) (3,003) (7,132) (1,671) (19,990)
Accumulated loss in
excess of investments
in equity entities..... -- -- (3,136) -- (3,136)
Losses from equity
entities............... -- -- (2,347) -- (2,347)
Capital expenditures.... (40,656) (1,783) (73) -- (42,512)
<CAPTION>
Year ended December 31, 1998
--------------------------------------------------
IFCO
Europe MTS SIL Eliminations Combined
-------- ------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
Revenues................ $123,673 $ 9,901 $ 1,147 $ -- $134,721
Profit (loss) before
taxes.................. (2,644) (470) (4,227) -- (7,341)
Interest revenue........ 1,660 238 7 (298) 1,607
Interest expense........ (8,446) (133) (356) 298 (8,637)
Depreciation and crate
breakage............... (26,363) (1,917) (207) -- (28,487)
Amortization............ (383) -- -- -- (383)
Total assets............ 267,866 17,954 2,777 (4,144) 284,453
Net investment.......... (13,270) (3,812) (11,973) (1,818) (30,873)
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)
<CAPTION>
Ten months ended October 31, 1998 (unaudited)
--------------------------------------------------
IFCO
Europe MTS SIL Eliminations Combined
-------- ------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
Revenues................ $ 97,420 $ 7,728 $ 873 -- $106,021
Profit (loss) before
taxes.................. (3,501) 17 (3,339) -- (6,823)
Total assets............ 255,281 16,246 2,575 (4,461) 269,641
<CAPTION>
Ten months ended October 31, 1999 (unaudited)
--------------------------------------------------
IFCO
Europe MTS SIL Eliminations Combined
-------- ------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
Revenues................ $116,562 $ 7,869 $ 1,968 -- $126,399
Profit (loss) before
taxes.................. (2,853) 502 (3,791) -- (6,142)
Total assets............ 260,777 14,392 6,068 (7,591) 273,646
</TABLE>
Eliminations for revenue and expense items above are made to eliminate
intercompany sales and expenses. Eliminations for total assets are made for
intercompany receivables and investments in other affiliated entities.
F-28
<PAGE>
IFCO
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
(In thousands of US$ unless otherwise stated)
The Company's revenue by country, based on the location of the customer, is
as follows:
<TABLE>
<CAPTION>
Year ended Ten Months Ended
December 31, October 31,
----------------- -----------------------
1997 1998 1998 1999
-------- -------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Germany............................ $ 42,805 $ 48,383 $ 43,934 $ 51,785
Spain.............................. 20,914 23,727 15,683 14,844
Italy.............................. 14,746 18,369 14,428 15,462
France............................. 10,043 11,208 9,231 9,857
Other.............................. 28,227 33,034 22,745 34,451
-------- -------- -------- --------
Combined........................... $116,735 $134,721 $106,021 $126,399
======== ======== ======== ========
</TABLE>
The Company's long-lived assets by country are as follows:
<TABLE>
<CAPTION>
Year ended
December 31,
-----------------
1997 1998
-------- --------
<S> <C> <C>
Germany.................................................... $147,016 $183,888
Other...................................................... 377 587
-------- --------
Combined................................................... $147,393 $184,475
======== ========
</TABLE>
11.EQUITY ENTITIES:
IFCO-US is considered a significant investment accounted for under the equity
method given that losses from equity entities recorded by the Company in
respect of IFCO-US is approximately 27% of the total net loss before income
taxes, participating rights and minority interest of the Company. Summarized
financial data is as follows for IFCO-US:
<TABLE>
<CAPTION>
At December 31, At
------------------ October 31,
1997 1998 1999
-------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Total assets.................................... $ 10,187 $ 9,731 $ 21,017
Total liabilities............................... $(16,458) $(20,273) $(34,466)
Members' deficit................................ $ (6,271) $(10,542) $(13,449)
</TABLE>
Summarized income information for IFCO-US is as follows:
<TABLE>
<CAPTION>
Year ended Ten Months Ended
December 31, October 31,
------------------ -----------------------
1997 1998 1998 1999
-------- -------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue.......................... $ 919 $ 1,657 $ 1,157 $ 4,268
Gross margin (loss).............. (1,338) (994) (921) 64
Loss from operations............. (2,761) (2,713) (2,345) (1,577)
Net loss......................... (3,783) (4,272) (3,691) (2,907)
</TABLE>
12.SUBSEQUENT EVENT:
Effective March 29, 1999, the Company entered into a definitive merger
agreement with PalEx, Inc. ("PalEx") to merge their businesses. The combined
entity, to be named IFCO Systems N.V., will include the
F-29
<PAGE>
IFCO
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
(In thousands of US$ unless otherwise stated)
Company and PalEx's North American pallet and industrial container operations.
The merger will also occur on the same day as, but immediately before, an
initial public offering of shares in IFCO Systems N.V.
IFCO Systems N.V. will initially be established as a subsidiary of SPS, and
IFCO Europe, MTS and SIL will be contributed to IFCO Systems N.V. Under the
terms of the agreement, PalEx will merge into a subsidiary of IFCO Systems N.V.
A debenture in the amount of DM 45 million ($27,631) will be issued to GECC
by a company controlled by the Schoeller family for GECC's preferred share in
IFCO Europe. This debenture will have a 30 year term and bear interest at 5%
per year. The debenture will be exchangeable for IFCO Systems N.V. ordinary
shares that are held by the Schoeller controlled issuer of the debenture after
a mandatory holding period. GECC's options to increase its investment in IFCO
Europe, MTS and SIL will be exchanged for a promissory note payable issued by
IFCO Systems N.V. in the amount of DM 45 million ($27,631), of which DM 11.25
million ($6,908) will be paid out of the proceeds from the initial public
offering. The balance will be paid over 5 years beginning on December 31, 2001.
In the first year the annual interest rate will be EURIBOR plus 2.75%,
increasing to 10% in the second year.
The Company intends to purchase the remainder of IFCO-US, giving it 100%
ownership.
Prior to the merger with PalEx, SPS will change its name to Schoeller
Logistics Technologies GmbH and SIL will change its name to IFCO International
Network Beteiligungsgesellschaft mbH.
The closing of the merger is subject to the approval of shareholders,
completion of the initial public offering of IFCO Systems N.V. and other
customary conditions. The transaction is expected to be completed by the end of
the first quarter of 2000.
Unaudited subsequent events
Effective November 4, 1999, Schoeller Packaging Systems GmbH ("SPS")
contributed its shares of IFCO Europe Beteiligungs GmbH ("IFCO Europe"), which
is 76% owned by SPS, and MTS Okologistik Verwaltungs GmbH ("MTS"), 100% owned
by SPS, to IFCO Systems N.V. In addition, Gebruder Schoeller
Beteilungsverwaltungs GmbH ("GSB") contributed its shares of Schoeller
International Logistics Beteilungsverwaltungs GmbH ("SIL"), 100% owned by GSB,
to IFCO Systems N.V. effective November 4, 1999. Both SPS and GSB are owned by
the same group of shareholders, the Schoeller family.
In connection with the merger, the Company has agreed to reimburse PalEx up
to a maximum amount of $2.3 million for costs incurred by PalEx related to the
merger. For the ten months ended October 31, 1999, the Company recorded
expenses of $2.1 million related to this agreement. These expenses are included
in selling, general and administrative expenses.
The bank syndicate for the credit facilities has consented to the scheduled
IPO under the condition, that the lenders receive a payment of DM40.0 million,
or approximately $21.1 million, from the IPO net proceeds to reduce by that
amount the borrowings under the term loan portion of Senior Facility Agreement.
Additionally, at the time of the merger and IPO, the available facility amount
under the revolving credit portion of the Senior Facility Agreement will be
reduced by DM20.0 million, or approximately $10.6 million, and any borrowings
in excess of the reduced revolving credit limit will be repaid from the net
proceeds of the initial public offering or proceeds from a debt financing. In
addition, if the IPO occurs, the final maturity date of the Senior Facility
Agreement term loan and revolver will be accelerated to June 30, 2001, and the
Senior Subordinated Agreement repayment schedule will be modified to provide
for semiannual principal payments through September 30, 2005.
F-30
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of PalEx. Inc.:
We have audited the accompanying consolidated balance sheets of PalEx. Inc.
(a Delaware corporation) and subsidiaries as of December 28, 1997, and December
27, 1998, and the related consolidated statements of operations, comprehensive
income, changes in stockholders' equity and cash flows for the years ended
November 30, 1996, December 28, 1997, and December 27, 1998, and the one-month
period ended December 31, 1996. 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 generally accepted auditing
standards. 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 28, 1997, and December 27, 1998, and the results of their
operations and their cash flows for the years ended November 30, 1996, December
28, 1997, and December 27, 1998, and the one month period ended December 31,
1996, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Tampa, Florida
February 26, 1999
F-31
<PAGE>
PALEX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 28, December 27, October 24,
1997 1998 1999
------------ ------------ -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............. $ 7,448 $ 4,157 $ 5,255
Accounts receivable, net of allowances
of $617, $1,616 and $1,500............ 21,592 44,543 51,068
Inventories............................ 20,383 29,986 27,535
Deferred income taxes.................. 945 2,105 2,503
Prepaid expenses and other current
assets................................ 3,387 4,427 8,954
-------- -------- --------
Total current assets..................... 53,755 85,218 95,315
PROPERTY, PLANT AND EQUIPMENT, net....... 37,850 75,724 75,239
GOODWILL AND OTHER INTANGIBLE ASSETS,
net of accumulated amortization of
$1,313, $4,648 and $8,464............... 27,974 128,568 125,406
OTHER ASSETS............................. 426 2,928 3,657
-------- -------- --------
Total assets............................. $120,005 $292,438 $299,617
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit......................... $ 1,150 $ -- $ --
Current maturities of long-term debt... 1,057 1,960 135,018
Current maturities of subordinated
convertible notes payable to related
parties............................... -- -- 10,012
Bank overdraft......................... -- 8,407 7,945
Accounts payable....................... 9,342 9,004 11,232
Accrued expenses....................... 5,094 10,646 13,910
Income taxes payable................... 1,407 529 1,995
-------- -------- --------
Total current liabilities................ 18,050 30,546 180,112
LONG-TERM DEBT, net of current
maturities.............................. 30,673 143,902 2,151
SUBORDINATED CONVERTIBLE NOTES PAYABLE TO
RELATED PARTIES, net of current
maturities.............................. -- 9,910 --
DEFERRED INCOME TAXES.................... 3,167 5,350 5,668
FOREIGN DEFERRED INCOME TAXES............ -- 3,957 4,512
OTHER LONG-TERM LIABILITIES.............. 678 3,493 3,561
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value;
30,000,000 shares authorized;
17,644,520, 20,289,091 and 20,299,341
shares outstanding.................... 176 203 203
Capital in excess of par value......... 54,107 79,030 79,107
Unearned compensation.................. (1,770) (1,770) (1,770)
Accumulated other comprehensive income
(loss):
Foreign currency translation
adjustment........................... -- (623) 869
Retained earnings........................ 14,924 18,440 25,204
-------- -------- --------
Total stockholders' equity............... 67,437 95,280 103,613
-------- -------- --------
Total liabilities and stockholders'
equity.................................. $120,005 $292,438 $299,617
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-32
<PAGE>
PALEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Ten-Month
One Month Period Ended
Year Ended Period Ended Year Ended Year Ended ----------------------
November 30, December 31, December 28, December 27, October October
1996 1996 1997 1998 25, 1998 24, 1999
------------ ------------ ------------ ------------ ---------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
REVENUES................ $ 145,030 $ 3,828 $ 222,993 $ 319,691 $ 256,874 $ 320,433
COST OF GOODS SOLD...... 121,865 3,121 188,084 259,562 207,850 257,472
INVENTORY VALUATION
ADJUSTMENT............. -- -- -- 1,235 1,679 --
--------- --------- ---------- ---------- ---------- ----------
Gross Profit............ 23,165 707 34,909 58,894 47,345 62,961
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 14,063 749 20,135 33,042 27,374 36,142
AMORTIZATION OF GOODWILL
AND OTHER INTANGIBLE
ASSETS................. 165 -- 820 3,334 2,186 3,993
POOLING EXPENSES........ -- -- -- 1,841 1,841 --
COMPENSATION
DIFFERENTIAL........... -- -- 1,020 1,062 1,062 --
RESTRUCTURING CHARGE.... -- -- -- 949 2,404 --
PLANT CLOSURE COSTS AND
ASSET ABANDONMENT
LOSS................... -- -- -- 1,369 1,369 --
--------- --------- ---------- ---------- ---------- ----------
Income (loss) from
operations............. 8,937 (42) 12,934 17,297 11,109 22,826
INTEREST EXPENSE........ (1,576) (25) (1,722) (8,468) (6,317) (12,047)
OTHER INCOME (EXPENSE),
NET.................... 511 1 132 262 239 1,387
--------- --------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE
PROVISION FOR INCOME
TAXES.................. 7,872 (66) 11,344 9,091 5,031 12,166
PROVISION FOR INCOME
TAXES.................. 1,833 -- 4,704 5,105 2,676 5,402
--------- --------- ---------- ---------- ---------- ----------
NET INCOME (LOSS)....... $ 6,039 $ (66) $ 6,640 $ 3,986 $ 2,355 $ 6,764
========= ========= ========== ========== ========== ==========
Net income (loss) per
share--basic........... $ .64 $ (.01) $ .43 $ .21 $ .13 $ .33
========= ========= ========== ========== ========== ==========
Net income (loss) per
share--diluted......... $ .64 $ (.01) $ .42 $ .21 $ .12 $ .33
========= ========= ========== ========== ========== ==========
Shares used in computing
net income (loss) per
share--basic........... 9,433,414 9,433,414 15,561,489 18,937,354 18,651,737 20,297,016
========= ========= ========== ========== ========== ==========
Shares used in computing
net income (loss) per
share--diluted......... 9,433,414 9,433,414 15,914,157 19,310,295 19,047,287 20,299,381
========= ========= ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-33
<PAGE>
PALEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
<TABLE>
<CAPTION>
One Month Ten-Month Ten-Month
Year Ended Period Ended Year Ended Year Ended Period Ended Period Ended
November 30, December 31, December 28, December 27, October 25, October 24,
1996 1996 1997 1998 1998 1999
------------ ------------ ------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net income (loss)....... $6,039 $(66) $6,640 $3,986 $2,355 $6,764
Other comprehensive
income (loss):
Foreign currency
translation
adjustment............. -- -- -- (623) (440) 1,492
------ ---- ------ ------ ------ ------
Comprehensive income
(loss)................. $6,039 $(66) $6,640 $3,363 $1,915 $8,256
====== ==== ====== ====== ====== ======
</TABLE>
The accompanying notes are integral part of these consolidated financial
statements.
F-34
<PAGE>
PALEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Common Stock
--------------------
Accumulated
Capital in Treasury Other
Stockholders' Excess Unearned Retained Stock Income Comprehensive
Shares Amount of Par Value Compensation Earnings (loss) Income (Loss) Total
------ ------------- ------------ ------------ -------- ------------ ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, November 30,
1995................... 9,433 $ 94 $ 5,232 $(2,260) $16,834 $(876) $ -- $ 19,024
Distributions to
stockholders, net...... -- -- -- -- (2,229) -- -- (2,229)
Capital contributions
equal to the current
income taxes of S
corporations........... -- -- 1,329 -- -- -- -- 1,329
Shares released under
leveraged ESOP plan.... -- -- -- 280 -- -- -- 280
Net income.............. -- -- -- -- 6,039 -- -- 6,039
------ ---- ------- ------- ------- ----- ----- --------
BALANCE, November 30,
1996................... 9,433 94 6,561 (1,980) 20,644 (876) -- 24,443
Issuance of common
stock:
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
Issuance of common
stock:
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 (unaudited).... 10 -- 77 -- -- -- -- 77
Foreign currency
translation adjustment
(unaudited)............ -- -- -- -- -- -- 1,492 1,492
Net income (unaudited).. -- -- -- -- 6,764 -- -- 6,764
------ ---- ------- ------- ------- ----- ----- --------
BALANCE, October 24,
1999................... 20,299 $203 $79,107 $(1,770) $25,204 $ -- $ 869 $103,613
====== ==== ======= ======= ======= ===== ===== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-35
<PAGE>
PALEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
One Month Ten-Month Period Ended
Year Ended Period Ended Year Ended Year Ended ------------------------
November 30, December 31, December 28, December 27, October 25, October
1996 1996 1997 1998 1998 24 , 1999
------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM (unaudited) (unaudited)
OPERATING ACTIVITIES:
Net income (loss)....... $6,039 $(66) $ 6,640 $ 3,986 $ 2,355 $ 6,764
Net loss for Fraser for
the one month
transition period...... -- -- (66) -- -- --
Adjustment to conform
year-end of pooled
companies.............. -- -- 467 (470) (470) --
Unearned compensation... 280 -- 210 -- -- --
Cash acquired from
pooled company at
inception.............. -- -- 51 -- -- --
Adjustments to reconcile
net income (loss) to
net cash provided by
(used in) operating
activities:
Depreciation and
amortization........... 3,597 99 5,847 11,665 7,974 12,325
(Gain) loss on sale of
property, plant and
equipment.............. 29 -- 400 1,135 1,430 (499)
Capital contributions
equal to the current
income taxes of S
corporations 1,329 -- 1,209 -- -- --
Deferred tax provision
(benefit).............. 134 -- (86) 1,082 53 483
Changes in operating
assets and liabilities
net of purchased
companies:
Accounts receivable..... (1,045) (387) (1,632) (7,349) (4,787) (6,394)
Inventories............. 282 (486) (5,458) 473 987 2,534
Prepaids and other
current assets......... (569) 80 (1,767) (386) (236) (4,522)
Other assets............ (1,173) 1 1,370 239 (1,173) (793)
Accounts payable........ 1,599 434 51 1,733 (1,766) 1,740
Accrued expenses........ 1,626 (402) (2,155) (837) 2,288 3,115
Income taxes payable.... 66 -- 1,135 (707) (1,407) 1,296
Deferred revenue........ (78) (2) 147 285 (192) 5
Other liabilities....... -- -- -- 2,747 2,016 158
------ ---- ------- -------- ----------- -----------
Net cash provided by
(used in) operating
activities............. 12,116 (729) 6,363 13,596 7,072 16,212
------ ---- ------- -------- ----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of property,
plant and equipment.... (7,355) (92) (9,149) (13,987) (12,472) (8,331)
Proceeds from sale of
equipment.............. -- -- -- -- 1,661 1,735
Purchase of minority
interest in pooled
company................ -- -- -- (751) -- --
Adjustments to purchase
price of certain
Purchased Companies.... -- -- -- -- -- --
Cash paid for purchased
companies, net of cash
acquired............... -- -- (4,607) (86,081) (80,572) --
------ ---- ------- -------- ----------- -----------
Net cash used in
investing activities... (7,355) (92) (13,756) (100,819) (91,383) (6,596)
------ ---- ------- -------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net payments on lines
for credit............. (3,535) -- (365) (1,150) (1,150) --
Net proceeds (payments)
on notes payable to
related parties........ 555 -- (2,980) -- -- --
Proceeds from debt...... 6,801 821 32,787 170,675 155,075 43,033
Payments on debt........ (6,642) -- (28,648) (59,064) (74,278) (51,624)
Payments of acquired
indebtedness of
purchased companies.... -- -- -- (26,664) -- --
Net proceeds from
exercise of stock
options................ -- -- -- 46 46 77
Net proceeds from
issuance of common
stock.................. -- -- 23,564 -- -- --
Purchase of minority
interest in pooled
company................ -- -- -- -- (751) --
Other capital
contributions.......... -- -- -- 123 -- --
Distributions to
stockholders........... (2,230) -- (12,382) -- -- --
------ ---- ------- -------- ----------- -----------
Net cash provided by
(used in) financing
activities............. (5,051) 821 11,976 83,966 78,942 (8,514)
------ ---- ------- -------- ----------- -----------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH AND
CASH EQUIVALENTS....... -- -- -- (34) (3) (4)
------ ---- ------- -------- ----------- -----------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ (290) -- 4,583 (3,291) (5,372) 1,098
CASH AND CASH
EQUIVALENTS, beginning
of period.............. 3,155 -- 2,865 7,448 7,448 4,157
CASH AND CASH
EQUIVALENTS, end of
period................. $2,865 $-- $ 7,448 $ 4,157 $ 2,076 $ 5,255
------ ---- ------- -------- ----------- -----------
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Cash paid for interest.. $1,703 $ 25 $ 1,710 $ 7,474 $ 5,977 $ 11,432
====== ==== ======= ======== =========== ===========
Cash paid for income
taxes.................. $1,008 $-- $ 1,835 $ 4,776 $ 4,512 $ 3,525
====== ==== ======= ======== =========== ===========
SUPPLEMENTAL SCHEDULE OF
NON-CASH INVESTING AND
FINANCING ACTIVITIES
Convertible notes
payable issued in
business acquisitions.. $ -- $-- $ -- $ 9,910 $ 9,910 $ --
====== ==== ======= ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-36
<PAGE>
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 "Acquisitions"), the following three businesses: Fraser
Industries, Inc. ("Fraser"), Ridge Pallets, Inc. ("Ridge"), and Interstate
Pallet Co., Inc. ("Interstate"), collectively referred to as the "Founding
Companies." The consideration for the acquisitions of the Founding Companies
consisted of a combination of cash and Common Stock.
Subsequent to the acquisition of the Founding Companies and the Offering, and
during fiscal 1997, PalEx acquired 5 additional companies. Sheffield Lumber &
Pallet Company, Inc. ("Sheffield"), Sonoma Pacific Company ("Sonoma"), Bay Area
Pallet ("Bay Area") and New London Pallet ("New London") were accounted for as
poolings-of-interests (the "Pooled Companies"). The fifth acquisition, Summers
Pallet Manufacturing, Inc. ("Summers"), was accounted for as a purchase.
During fiscal 1998, the Company acquired 19 additional companies, 4 of which,
Acme Barrel Company, Inc. ("Acme"), Drum Service Co. of Florida ("DSF"),
Consolidated Container Corporation ("CCC") and Western Container, Limited
Liability Company ("Western"), were accounted for as poolings-of-interests (the
"1998 Pooled Companies"). The other 15 companies, Consolidated Drum
Reconditioning, Inc. ("CDR"), American Pallet Recyclers, Inc. ("APR"), Capital
Pallet, Incorporated ("Capital"), Pallet Outlet Company, Inc. ("POC"), Southern
Pallets, Inc. ("Southern"), Shipshewana Pallet Co., Inc. ("Shipshewana"),
Gilbert Lumber Inc. ("Gilbert"), Valley Pallets, Inc. ("Valley"), Duckert
Pallet Co., Inc. ("Duckert"), Continental Associated Investments
("Continental"), Isaacson Lumber Company ("Isaacson"), McCook Drum & Barrel
Co., Inc. ("McCook"), Charlotte Steel Drum ("CSD"), Atlas Drum ("Atlas") and
SMG Corporation ("SMG") were accounted for as purchases (the "1998 Purchased
Companies" and, together with Summers, the "Purchased Companies"). Eight of the
19 companies acquired in fiscal 1998 are engaged in the reconditioning and
rebuilding of industrial steel containers. SMG is engaged in the rental of
pallets in Canada.
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 7 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. The Company's pallet leasing operations
serve six Canadian provinces. 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, the 1998 Pooled
Companies and the Purchased Companies.
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 assigned and recorded based on estimates of fair value and
will be adjusted to reflect changes in the estimates of fair value, although
the Company does not believe those changes will be material. The accompanying
consolidated financial statements present Fraser combined with the Pooled
Companies and the 1998 Pooled
F-37
<PAGE>
PALEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Companies for all periods, and include Ridge, Interstate and the Purchased
Companies from their respective dates of acquisition. All significant
intercompany transactions and balances have been eliminated in consolidation.
Certain reclassifications have been made to prior year consolidated financial
statements to conform with the current-year presentation.
The Pooled Companies previously reported on a calendar year-end. As such, the
accounts of these companies for their 1996 calendar year have been consolidated
with the accounts of PalEx as of and for the year ended November 30, 1996.
Acme, DSF and CCC previously reported on year-ends of April 30, October 31 and
November 30, respectively. The results of operations for Acme have been
conformed to the fiscal-year end of PalEx for 1997. Revenues and net loss for
the four month period ended April 30, 1997 were approximately $8,445,000 and
$467,000, respectively. Acme's net loss for the four-month transition period is
included as an adjustment to the consolidated statements of stockholders'
equity and cash flows for the year ended December 28, 1997. Acme's results of
operations for its year ended April 30, 1997 has been included in the Company's
consolidated statement of operations for the year ended November 30, 1996. The
results of operations included herein for the years ended November 30, 1996 and
December 28, 1997 include DSF and CCC for their respective twelve-month periods
ended October 31, 1996 and 1997 and November 30, 1996 and 1997. An adjustment
has been made to the accompanying consolidated statements of stockholders'
equity and cash flows for the year ended December 27, 1998, to reflect the net
loss for the transition periods of DSF and CCC. Revenues and net loss for DSF
and CCC for the transition period were approximately $3,075,000 and $470,000,
respectively.
Fiscal Year
During 1997, PalEx changed its year-end to the last Sunday in the calendar
year from November 30. 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. The accompanying consolidated financial
statements include the statement of operations and cash flows for the one-month
period ended December 31, 1996, representing the income and cash flows of
Fraser, the accounting acquiror, for this one-month transition period.
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 purchase business combinations is
recorded at fair value. Property, plant, and equipment acquired subsequently 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 Company's capital leases are insignificant. 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 and industrial bulk containers at one of the drum operations. Where
the Company repairs its own pallets or reuses industrial
F-38
<PAGE>
PALEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
containers, 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 3 to 10 years, with a weighted
average useful life approximately 9 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 income (expense), net, in the accompanying
consolidated statements of operations.
In 1996, the Company adopted 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 and has determined that
no impairments would have been recognized under SFAS No. 121, other than those
related to the termination of the Company's relationship with CHEP USA
("CHEP"), as discussed in Note 11.
Goodwill
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 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 27, 1998.
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 income taxes were not provided on the undistributed foreign earnings
of SMG because such earnings are expected to be reinvested indefinitely.
The stockholders of Fraser and three of the four Pooled Companies elected to
be taxed under the provisions of Subchapter S of the Internal Revenue Code
prior to their acquisition by the Company. Under these provisions, these
companies did not pay federal and certain state income taxes. Instead, these
companies' respective stockholders paid income taxes on their proportionate
shares of the companies' net earnings. The S Corporation status of Fraser and
the applicable Pooled Companies was terminated effective with the combination
with PalEx, and the Company is now subject to federal and state income taxes.
The Company recorded a charge to income tax expense of approximately $488,000
on March 25, 1997, representing income taxes at that date which were not
previously recorded because of Fraser's status under Subchapter S.
F-39
<PAGE>
PALEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For purposes of these consolidated financial statements, federal and state
income taxes have been provided for the net income of the applicable Pooled
Companies as if these companies had filed C Corporation tax returns for the
preacquisition periods. The current income tax expense of the applicable Pooled
Companies is reflected in the consolidated financial statements in the
provision for income taxes and as an increase to capital in excess of par
value.
Revenue Recognition
The Company recognizes revenue upon delivery of the product to the customer.
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 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
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share" ("SFAS No. 128"). The Company adopted SFAS No. 128
for the year ended December 28, 1997. Under SFAS No. 128, 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--diluted reflects the
potential dilution that could occur if securities and other contracts to issue
common stock were exercised or converted into common stock. Net income per
share--diluted is computed similarly to fully diluted net income per share
under previous accounting rules.
Net income per share--basic and diluted was computed using 9,433,414 shares
(the aggregate number of shares attributable to Fraser and the shares issued in
acquisitions accounted for under the pooling-of-interests method) for the year
ended November 30, 1996 and the one-month transition period ended December 31,
1996. Net income per share--basic for the year ended December 28, 1997 was
computed using, in addition to the aforementioned shares, 6,128,075 weighted
average shares issued in consideration for the acquisition of Ridge, Interstate
and Summers, the shares issued pursuant to the Offering and 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 acquisition of one of the 1998 Pooled
Companies, deemed to have been acquired at its date of inception in 1997.
F-40
<PAGE>
PALEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Net income per share--basic for the year ended December 27, 1998 was computed
using 17,644,521 shares issued in consideration for the acquisition of the
Founding Companies, the Pooled Companies, the 1998 Pooled Companies and
Summers, the shares issued pursuant to the Offering and 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 and
1,292,833 weighted average shares issued for the acquisition of the 1998
Purchased Companies and exercise of stock options.
Net income per share--diluted for the years ended December 28, 1997 and
December 27, 1998 includes 352,668 and 372,941 shares, respectively, for
unexercised stock options computed under the treasury method. The weighted
average shares for 1998 includes 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 convertible notes payable was anti-dilutive for the year
ended December 27, 1998, and therefore not included in the calculation of net
income per share--diluted.
The following stock options were outstanding as of the end of the fiscal
years 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:
<TABLE>
<CAPTION>
Year ended December 27,
Year ended December 28, 1997 1998
-------------------------------- -------------------------
<S> <C> <C>
Number of options....... 292,000 1,056,000
Exercise price (range).. $11.38-$14.75 $10.25-$14.88
Expiration date
(range)................ August 1, 2007-December 10, 2007 June 6, 2007-May 21, 2008
</TABLE>
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 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) capital-intensive nature of the
business.
F-41
<PAGE>
PALEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Vendors
During the year ended December 27, 1998, the Company purchased approximately
13% of its lumber from two vendors.
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 (also see Note 11). 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 21 percent, 26 percent and 8 percent of the Company's
consolidated revenues in 1996, 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 the sales prices
approximate those charged to unaffiliated third parties.
Recent Accounting Pronouncements
Comprehensive Income
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income"
("SFAS No. 130"). This statement establishes rules for the reporting of
comprehensive income and its components. The Company's comprehensive income
consists of net income and foreign currency translation adjustments and is
presented in the accompanying consolidated statements of comprehensive income.
The adoption of SFAS No. 130 had no impact on total stockholders' equity. The
Company had no other comprehensive income prior to 1998.
Segment Information
The Company operates in two business segments; pallet manufacturing and
recycling and steel drum reconditioning, and follows the reporting requirements
of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (see Note 12).
Interim Financial Information
The interim financial statements as of October 24, 1999 and for the ten
months ended October 25, 1998 and October 24, 1999, are unaudited, and certain
information and footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have been
omitted. In the opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary to fairly
F-42
<PAGE>
PALEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
present the financial position, results of operations and cash flows with
respect to the interim financial statements have been included. Due to
seasonality and other factors, the results of operations for the interim
periods are not necessarily indicative of the results for the entire fiscal
year.
3.BUSINESS COMBINATIONS:
1997 Purchase Acquisitions
The acquisitions of Ridge, Interstate and Summers 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 Summers. 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 Ridge, Interstate and Summers. The allocations
resulted in 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):
<TABLE>
<S> <C>
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
The acquisitions of the 1998 Purchased Companies were accounted for as
purchases and have been reflected in the Company's 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 the 1998
Purchased Companies. 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...................................... 62,602
Convertible notes payable issued................................... (9,910)
Liabilities assumed................................................ (45,597)
Fair value of common stock......................................... (25,532)
--------
Cash paid, net of cash acquired.................................... $ 85,512
========
</TABLE>
F-43
<PAGE>
PALEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pro Forma Presentation
The following table sets forth unaudited pro forma statements of operations
data of the Company which reflects adjustments to the consolidated financial
statements to present the effect of the acquisitions of Ridge, Interstate and
the Purchased Companies as if the acquisitions were effective January 1, 1997
(amounts in thousands, except per share data):
<TABLE>
<CAPTION>
Year Ended Year Ended
December 28, December 27,
1997 1998
------------ ------------
(unaudited)
<S> <C> <C>
Revenues........................................... $379,534 $379,854
======== ========
Net Income......................................... $ 10,574 $ 6,512
======== ========
Net Income per share--diluted...................... $ .52 $ .32
======== ========
</TABLE>
Pro forma adjustments included in the amounts above primarily relate to
adjustments to selling, general and administrative expenses for changes in the
compensation level of the owners of the acquired businesses, adjustments to
interest expense attributable to incremental borrowing levels and incremental
interest rate levels, amortization of goodwill and adjustment to the income tax
provisions based on pro forma operating results. Net income per share--diluted
assumes all shares had been outstanding for the periods presented, except for
shares issued pursuant to the over-allotment option and those shares issued to
the profit-sharing plans of the Founding Companies, which are included only
from their date of issuance.
The unaudited pro forma data presented above is not necessarily indicative of
actual results that might have occurred had the operations and management teams
of PalEx, the Founding Companies, the Pooled Companies, the 1998 Pooled
Companies and the Purchased Companies been combined at the beginning of each
period presented.
4.PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
Estimated Useful December 28, December 27,
Lives In Years 1997 1998
---------------- ------------ ------------
<S> <C> <C> <C>
Land............................. $ 3,273 $ 5,485
Machinery and equipment.......... 5-10 48,089 60,753
Rental assets.................... 3-10 -- 15,537
Buildings........................ 15-40 12,977 19,890
Furniture and fixtures........... 5-8 1,706 3,890
Tractors and trailers............ 5-6 10,636 18,122
-------- --------
76,681 123,677
Less: accumulated depreciation... (38,831) (47,953)
-------- --------
$ 37,850 $ 75,724
======== ========
</TABLE>
F-44
<PAGE>
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):
<TABLE>
<CAPTION>
December 28, December 27,
1997 1998
------------ ------------
<S> <C> <C>
Balance at beginning of year..................... $ 253 $ 617
Additional charges to costs and expenses......... 227 394
Additional allowances from Purchased Companies... 165 843
Deductions for uncollectible accounts written
off............................................. (28) (238)
------- -------
Balance at end of year........................... $ 617 $ 1,616
======= =======
The major components of inventories are as follows (in thousands):
<CAPTION>
December 28, December 27,
1997 1998
------------ ------------
<S> <C> <C>
Raw materials.................................... $16,555 $23,174
Work-in-process.................................. 102 43
Finished goods................................... 3,726 6,769
------- -------
$20,383 $29,986
======= =======
Accrued expenses consist of the following (in thousands):
<CAPTION>
December 28, December 27,
1997 1998
------------ ------------
<S> <C> <C>
Accrued compensation and benefits................ $ 2,132 $ 2,762
Accrued taxes.................................... 756 1,503
Other accrued expenses........................... 2,206 6,381
------- -------
$ 5,094 $10,646
======= =======
</TABLE>
6.DEBT:
Credit Facility
On March 25, 1997, the Company entered into a credit agreement with Bank One,
Texas, N.A. ("Bank One"), which was amended on January 29, 1998, September 3,
1998 and November 10, 1998 (the "Credit Facility"). The Credit Facility
provided the Company with a revolving line of credit of up to $150.0 million
which could be used for general corporate purposes, including the repayment or
refinancing of indebtedness of the Founding Companies, the Pooled Companies,
the 1998 Pooled Companies and the Purchased Companies, future acquisitions,
capital expenditures, letters of credit and working capital.
Advances under the Credit Facility bore interest at designated variable rates
plus margins ranging from 0 to 25 basis points, depending on the ratio of the
Company's interest bearing debt to its pro forma trailing earnings before
interest, taxes, depreciation and amortization for the previous four quarters.
At the Company's option, the loans could bear interest based on a designated
London interbank offered rate ("LIBOR") plus a margin ranging from 75 to 200
basis points, depending on the ratio noted above. Commitment fees of 17.5 to 30
basis points are payable on the unused portion of the line of credit. The
Credit Facility contained a limit for standby letters of credit up to $10.0
million. There were letter of credit commitments of approximately $3.0 million
outstanding under the Credit Facility as of December 27, 1998. The Credit
Facility prohibited the
F-45
<PAGE>
PALEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
payment of dividends by the Company, restricted the Company's incurrence or
assumption of other indebtedness and required the Company to comply with
financial covenants, including fixed charge coverage, certain funded debt to
earnings before taxes, depreciation, interest, amortization and tangible assets
to liabilities ratios. The Company was in compliance with, or had obtained
waivers for, the covenants on December 27, 1998. The approximate level of
borrowings available under the Credit Facility as of December 27, 1998 was
approximately $5.5 million. The Company's U.S. subsidiaries guaranteed and the
outstanding stock of each of the Company's U.S. subsidiaries and 65% of the
outstanding stock of the Company's Canadian subsidiary was pledged to secure
the repayment of all amounts due under the Credit Facility.
The Credit Facility was amended on December 28, 1998 (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. The Amended Credit Facility will
terminate and all amounts outstanding thereunder, if any, will be due and
payable on April 1, 2000.
Advances under the Amended Credit Facility bear interest at Bank One's base
interest rate, as defined, plus a margin of 50 basis points through March 31,
1999 and increasing by 50 basis points on that date and each quarter until
maturity. At the Company's option, such advances may bear interest based on a
designated LIBOR plus a margin of 275 basis points through March 31, 1999 and
increasing by 50 basis points on that date and each quarter until maturity.
Commitment fees of 50 basis points are payable on the unused portion of the
line of credit through March 31, 1999 and increase by 50 basis points on that
date and each quarter until maturity. The Amended Credit Facility contains a
limit for standby letters of credit of up to $10.0 million. The Amended Credit
Facility prohibits the payment of dividends by the Company, restricts the
Company's incurrence or assumption of other indebtedness and requires the
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. 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% 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.
Convertible Notes Payable to Related Parties
The Company issued approximately $9.9 million in subordinated convertible
notes payable (the "Convertible Notes") to certain former owners of the 1998
Purchased Companies. The Convertible Notes, which bear interest at rates
ranging from six to eight percent, include provisions that allow conversion
into shares of the Company's Common Stock beginning on the first anniversary
date of the Convertible Notes (the "Conversion Date") at conversion prices
ranging from $10.78 to $15.86 per share. If the Convertible Notes are not
converted they become due and payable on their second anniversary. At the
Company's option, the Convertible Notes may be prepaid at any time following
the Conversion Date.
F-46
<PAGE>
PALEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 28, December 27,
1997 1998
------------ ------------
<S> <C> <C>
Advances under the Credit Facility, bearing
interest at rates ranging from 7.04% to 8.04 %
as of December 27, 1998........................ $24,000 $141,500
Industrial development revenue bonds, bearing
interest at a variable rate (6.20% at December
27, 1998), payable in annual installments of
$50 through maturity in 2008, secured by a
certificate of deposit and
bank letter of credit.......................... 550 500
Various notes payable, bearing interest at rates
ranging from 5.02% to 8.30% in 1997 and 7.00%
to 7.50% at December 27, 1998, with monthly
installments totaling approximately $31 and
maturity dates ranging
from 1999 until 2009, secured by certain
Company assets................................. 5,387 2,136
Variable rate note issued by the Acme ESOP (see
Note 10), guaranteed
by the Company, interest at 5.81% as of
December 27, 1998.............................. 1,770 1,700
Other notes payable............................. 23 26
------- --------
31,730 145,862
------- --------
Less-current maturities......................... (1,057) (1,960)
------- --------
$30,673 $143,902
======= ========
</TABLE>
Future maturities of long-term debt as of December 27, 1998 are as follows
(in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ending December,
----------------------------
<S> <C>
1999............................................................... $ 1,960
2000............................................................... 141,865
2001............................................................... 329
2002............................................................... 316
2003............................................................... 308
Thereafter......................................................... 1,084
--------
$145,862
========
</TABLE>
7.INCOME TAXES:
The provision (benefit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
Year Ended
--------------------------------------
November 30, December 28, December 27,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Federal
Current............................... $1,207 $3,944 $2,831
Deferred.............................. 143 (71) 892
------ ------ ------
1,350 3,873 3,723
------ ------ ------
Foreign
Current............................... -- -- 238
Deferred.............................. -- -- 184
------ ------ ------
-- -- 422
------ ------ ------
State
Current............................... 492 846 829
Deferred.............................. (9) (15) 131
------ ------ ------
483 831 960
------ ------ ------
$1,833 $4,704 $5,105
====== ====== ======
</TABLE>
F-47
<PAGE>
PALEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The differences in income taxes provided and the amounts determined by
applying the federal statutory tax rate to income before income taxes result
from the following (in thousands):
<TABLE>
<CAPTION>
Year Ended
--------------------------------------
November 30, December 28, December 27,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Tax at federal statutory rate of
35%................................ $2,755 $3,970 $3,182
Increase (decrease) resulting from:
State income taxes, net of federal
benefit........................... 353 547 624
Income taxed to Fraser
stockholders...................... (1,381) (172) --
Additional foreign income tax
provision......................... -- -- 74
Nondeductible items:
Goodwill amortization.............. -- 200 484
Pooling expenses................... -- 45 603
Other nondeductible items.......... 76 16 89
Other.............................. 30 98 49
------ ------ ------
$1,833 $4,704 $5,105
====== ====== ======
</TABLE>
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 (in thousands):
<TABLE>
<CAPTION>
December 28, December 27,
1997 1998
------------ ------------
<S> <C> <C>
Deferred income tax liabilities:
Property and equipment............................ $(2,547) $(8,405)
Other............................................. (620) (902)
------- -------
Total deferred income tax liabilities.............. (3,167) (9,307)
------- -------
Deferred income tax assets:
Basis difference in inventory..................... -- 175
Allowance for doubtful accounts................... 111 654
Accruals and reserves............................. 834 1,276
------- -------
Total deferred income tax assets................... 945 2,105
------- -------
Net deferred income tax liabilities................ $(2,222) $(7,202)
======= =======
</TABLE>
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.
F-48
<PAGE>
PALEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company is self-insured for certain medical claims up to $50,000 per
person 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 27, 1998.
Operating Lease Agreements
The Company leases certain facilities and equipment. Minimum future rental
payments under noncancelable operating leases as of December 27, 1998 are as
follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ending
------------------
<S> <C>
1999................................................................. $ 2,889
2000................................................................. 2,313
2001................................................................. 2,050
2002................................................................. 1,599
2003................................................................. 1,122
Thereafter........................................................... 1,543
-------
$11,516
=======
</TABLE>
Rent expense under operating leases was approximately $463,000, $1,445,000
and $2,995,000 for fiscal years 1996, 1997 and 1998, respectively. Rent expense
paid to related parties and included in the foregoing amounts was approximately
$227,000, $146,000 and $558,000 for fiscal years 1996, 1997 and 1998,
respectively. In June 1998, the company purchased property for $1,400,000 from
an officer/board director. Management believes that the purchase price
approximates market value.
Potential Environmental Liabilities
In February 1998, the Company acquired 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") 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.
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 17 years and a declaratory judgment for future response
costs.
F-49
<PAGE>
PALEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 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 December 27,
1998 includes a $2.0 million receivable from a former shareholder of DSF and a
corresponding amount in other long-term liabilities.
In November 1998, Container Services Company ("CSC"), a subsidiary of PalEx
Container Systems, Inc. which acquired CDR, 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"). The
Casmalia Site was a licensed hazardous waste disposal facility from 1974 to
1989. In 1989, the EPA refused to reissue Casmalia's RCRA permit on the grounds
that the operator of the site was in violation of the preexisting permit and
other environmental laws and regulations. As a result of the owner/operator
abandoning efforts to properly close and clean up the site, the EPA took
emergency action. There are approximately 10,000 generators who legally sent
(according to EPA estimates) approximately 4.5 billion pounds of waste to the
Casmalia Site. EPA estimates that the clean up of this site will cost
approximately $500 million and will take over 30 years to complete.
The EPA has entered in a partial settlement with 50 major PRPs and is
currently in negotiations with over 50 other major PRPs. In October 1998, the
EPA sent out general notices to 750 de minimis PRPs, including CSC. In
addition, it is expected that the EPA will send out several hundred additional
notice letters to de minimis PRPs. The EPA estimates that the original 750 de
minimis PRPs are responsible for an aggregate of about 10% of the volume of
waste shipped to the Casmalia Site.
Based on CSC's alleged contribution of waste to the Casmalia Site, the EPA
has offered to settle its claims against CSC for approximately $300,000, which
represents a 100% premium over EPA's estimate of CSC's proportionate share of
the estimated clean up costs. In return for settlement, CSC will be granted
contribution protection against lawsuits by other PRPs who contributed waste to
the Casmalia Site. CSC is currently reviewing EPA's settlement offer and
estimates of CSC's contribution of waste to the site. In addition, CSC has
joined a joint defense group of over 140 other de minimis PRPs for the primary
purpose of negotiating a reduction in, and the terms of, the EPA's settlement
offer. The Company has included such settlement amount as accrued expenses in
the accompanying consolidated balance sheet as of December 27, 1998.
Contingent Purchase Price
The Company is obligated under the terms of an agreement with the former
owners of one of the 1998 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. Amounts due under this
contingency, if any, will be accrued as part of the purchase price when the
contingency is resolved in 1999 and 2000.
F-50
<PAGE>
PALEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 27,
1998 is approximately $5.6 million, of which approximately $4.6 million is
payable in 1999 and approximately $1.0 million is payable in 2000. These
employment agreements expire on various dates through September 2000.
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. The warrant may be exercised in whole or
in part upon the consummation of certain defined transactions, none of which
had occurred as of December 27, 1998, and expires in May 2005.
9. STOCK OPTION PLAN:
On June 1, 1996, the Board of Directors 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 of the
Company. The Company accounts for the Stock Option Plan under APB Opinion No.
25, and no compensation expense has been recognized. The Stock Option Plan,
which permits an amount equal to no more than 15% of the outstanding shares of
PalEx 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 Company's Board of Directors.
The following table summarizes activity under the Stock Option Plan:
<TABLE>
<CAPTION>
Exercise
Shares Price
---------- ------------
<S> <C> <C>
Outstanding at November 30, 1996
Granted.......................................... 1,328,500 $7.50-$14.75
Exercised........................................ -- --
Forfeited and canceled........................... (7,000) $7.50
Outstanding at December 28, 1997.................. 1,321,500 $7.50-$14.75
Granted.......................................... 1,361,500 $5.88-$14.88
Exercised........................................ (6,500) $7.50
Forfeited and canceled........................... (65,850) $7.50-$13.50
Outstanding at December 27, 1998.................. 2,610,650 $5.88-$14.88
Weighted average fair value of options granted
during 1997...................................... $5.38
Weighted average fair value of options granted
during 1998...................................... $6.79
Weighted average remaining contractual life for
options issued in 1997........................... 8.33 years
Weighted average remaining contractual life for
options issued in 1998........................... 9.36 years
</TABLE>
At December 27, 1998, options for approximately 257,000 shares of common
stock were exercisable. Unexercised options expire ten years from the issue
date.
F-51
<PAGE>
PALEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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):
<TABLE>
<CAPTION>
Year ended Year ended
December 28, December 27,
1997 1998
------------ ------------
<S> <C> <C>
Net income attributable to common stockholders... $6,640 $3,986
Pro forma adjustment............................. (775) (1,434)
------ ------
Pro forma net income attributable to common
stockholders.................................... $5,865 $2,552
Net income per share ("EPS")
Basic EPS as reported........................... $ .43 $ .21
Basic EPS pro forma............................. $ .38 $ .13
Diluted EPS as reported......................... $ .42 $ .21
Diluted EPS pro forma........................... $ .37 $ .13
</TABLE>
Fair value of the options was estimated at the date of grant using the Black-
Scholes option-pricing model using the following weighted average assumptions:
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year
1997 Options 1998 Options
------------ ------------
<S> <C> <C>
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
</TABLE>
A summary of stock options outstanding and exercisable as of December 27,
1998 is as follows:
<TABLE>
<CAPTION>
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
------------- ----------- --------------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$5.88-$8.75 1,361,750 8.72 $ 7.51 181,750 $ 7.50
$8.88-$13.12 811,000 9.14 $11.73 29,100 $10.19
$13.13-$14.88 437,900 8.89 $14.23 46,580 $13.66
</TABLE>
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% of their annual
compensation or the maximum amount permitted under Internal Revenue Service
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.
Certain of the Company's subsidiaries had defined contribution employee
benefit plans at the time of their acquisition by PalEx. Employer contributions
to the Plan and the other defined contribution plans for the Pooled Companies
and the 1998 Pooled Companies for all periods presented and for Ridge,
Interstate and the Purchased Companies from their respective dates of
acquisition were approximately $2,184,000, $1,134,000 and $768,000 for 1996,
1997 and 1998, respectively.
F-52
<PAGE>
PALEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In May 1985, Acme established an employee stock ownership plan ("ESOP") for
Acme's eligible employees, as defined. The ESOP is a qualified plan exempt from
taxes under Internal Revenue Section 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 PalEx 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 and $153,000 for
the years ended December 28, 1997 and December 27, 1998, respectively. These
contributions include interest paid by Acme or the Company of approximately
$122,000 and $83,000 for the years ended December 28, 1997 and December 27,
1998, respectively, on the loan used to purchase the ESOP shares. The balance
in unearned compensation of $1,770,000 at December 28, 1997 and December 27,
1998 results from the leveraged ESOP stock purchase less the deemed release of
shares at cost. At December 27, 1998, 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 Internal Revenue
Service 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 capital in excess of
par 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 in 1998.
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.
F-53
<PAGE>
PALEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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 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 fiscal years
1996, 1997 or 1998.
F-54
<PAGE>
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, Summary of Significant
Accounting Policies. 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.
<TABLE>
<CAPTION>
Pallet Drum Consolidated
-------- ------- ------------
<S> <C> <C> <C>
Year Ended December 27, 1998
Revenues..................................... $234,120 $85,571 $319,691
Segment earnings contribution................ 15,286 11,743 27,029
Depreciation and amortization................ 9,085 2,223 11,308
Total Assets................................. 255,363 37,075 292,438
Capital Expenditures......................... 9,428 4,523 13,951
Year Ended December 27, 1997
Revenues..................................... $162,848 $60,145 $222,993
Segment earnings contribution................ 15,402 (152) 15,250
Depreciation and amortization................ 4,607 951 5,558
Total Assets................................. 96,562 23,443 120,005
Capital Expenditures......................... 7,683 1,466 9,149
Year Ended December 27, 1996
Revenues..................................... $ 96,047 $48,983 $145,030
Segment earnings contribution................ 8,409 693 9,102
Depreciation and amortization................ 2,165 1,267 3,432
Total Assets................................. 37,129 20,739 57,868
Capital Expenditures......................... 4,063 3,292 7,355
</TABLE>
Segment earnings contribution is reconciled to consolidated income before
provision for income taxes as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
November 30, December 28, December 27,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Total earnings contribution for
reportable segments............... $ 9,102 $ 15,250 $ 27,029
Unallocated amounts:
Corporate expenses................ -- 1,496 4,080
Interest expense.................. 1,576 1,722 8,468
Goodwill amortization............. -- 593 2,977
Restructuring charge.............. -- -- 949
Plant closure and asset
abandonment loss................. -- -- 1,369
Other income (expense)............ 346 (95) (95)
-------- -------- --------
Income before provision for income
taxes............................. $ 7,872 $ 11,344 $ 9,091
======== ======== ========
The Company's revenue by country, based on the location of the customer, is
as follows:
<CAPTION>
Year Ended Year Ended Year Ended
November 30, December 28, December 27,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
United States...................... $145,030 $222,993 $314,967
Canada............................. -- -- 4,724
-------- -------- --------
Consolidated....................... $145,030 $222,993 $319,691
======== ======== ========
</TABLE>
F-55
<PAGE>
PALEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company's long-lived assets by country are as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 28, December 27,
1997 1998
------------ ------------
<S> <C> <C>
United States...................................... $66,250 $176,063
Canada............................................. -- 31,157
------- --------
Consolidated....................................... $66,250 $207,220
======= ========
</TABLE>
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.
13.QUARTERLY FINANCIAL RESULTS (UNAUDITED):
Summarized quarterly financial data for 1998 and 1997 is as follows (in
thousands except per share data):
<TABLE>
<CAPTION>
Quarter
-------------------------------
First Second Third Fourth
------- ------- ------- -------
<S> <C> <C> <C> <C>
Year ended December 27, 1998
Revenues.................................... $68,970 $83,362 $77,912 $89,447
Gross profit................................ 12,600 14,086 15,380 16,828
Net income.................................. 1,160 169 1,177 1,480
Net income per share--basic................. .06 .01 .06 .08
Net income per share--diluted............... .06 .01 .06 .08
<CAPTION>
Quarter
-------------------------------
First Second Third Fourth
------- ------- ------- -------
<S> <C> <C> <C> <C>
Year ended December 28, 1997
Revenues.................................... $39,797 $63,866 $57,583 $61,747
Gross profit................................ 5,960 10,919 8,603 9,427
Net income.................................. 1,342 2,618 785 1,895
Net income per share--basic................. .12 .15 .05 .11
Net income per share--diluted............... .12 .15 .04 .11
</TABLE>
The results of operations for the first and second quarters of 1998 include
charges of approximately $1.6 and $0.2 million, respectively, for pooling
expenses. The results of operations for the second quarter of 1998 includes a
pre-tax charge of approximately $5.0 million related to the termination of the
CHEP relationship (see Note 11). The results of operations for the third
quarter of 1998 includes a pre-tax charge of approximately $1.4 million for
plant closure and asset abandonment costs, offset by a pre-tax credit to the
CHEP restructuring charge of approximately $0.9 million, for a net third
quarter pre-tax charge of approximately $0.5 million. The results of operations
for the fourth quarter of 1998 include a pre-tax credit of approximately $1.9
million related to revisions in management's estimates of the CHEP
restructuring charge.
F-56
<PAGE>
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, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles. 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 generally accepted auditing
standards, 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.
The Company is a limited liability corporation with two members and, as
disclosed in the notes to the financial statements, has extensive transactions
and relationships with its members and their affiliates. Because of these
relationships, it is possible that the terms of these transactions are not the
same as those that would result from transactions among wholly unrelated
parties.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's negative cash flow from operations, excess
liabilities over assets and debt in default raise substantial doubt about its
ability to continue as a going concern without significant financial support
from its members.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Tampa, Florida
September 3, 1999
F-57
<PAGE>
IFCO-U.S., L.L.C.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------- October 31,
1997 1998 1999
----------- ------------ ------------
(unaudited)
<S> <C> <C> <C>
ASSETS:
Cash................................. $ 8,030 $ 10,487 $ 32,316
Receivables, net of allowance for
doubtful accounts of $25,000,
$50,000 and $75,000................. 1,050,391 2,376,495 4,443,294
Related party receivables............ 2,095,216 95,749 4,824,018
Crate rental pool, net............... 5,427,486 5,299,773 10,394,471
Crates held for transfer to related
party............................... 243,569 611,107 145,427
Equipment and furniture, net......... 1,362,199 1,296,018 1,148,420
Other assets......................... -- 40,883 28,609
----------- ------------ ------------
$10,186,891 $ 9,730,512 $ 21,016,555
=========== ============ ============
LIABILITIES AND MEMBERS' DEFICIT:
Accounts payable and accrued
expenses............................ $ 455,109 $ 616,945 $ 1,077,028
Related party payables............... 1,942,965 3,120,816 4,538,374
Refundable deposits.................. 1,016,899 2,014,188 3,438,997
Installment loan..................... -- -- 144,492
Related party debt................... 13,042,632 14,521,444 25,267,426
----------- ------------ ------------
16,457,605 20,273,393 34,466,317
=========== ============ ============
Commitments and contingencies (Notes
1, 6 and 7)
MEMBERS' DEFICIT:
Class A voting membership interests,
$.40 par value; 1,000 shares
authorized.......................... 400 400 400
Class B non-voting membership
interests, $.40 par value; 1,500
shares authorized................... 600 600 600
Accumulated deficit.................. (6,271,714) (10,543,881) (13,450,762)
----------- ------------ ------------
Total members' deficit.............. (6,270,714) (10,542,881) (13,449,762)
----------- ------------ ------------
$10,186,891 $ 9,730,512 $ 21,016,555
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-58
<PAGE>
IFCO-U.S., L.L.C.
STATEMENTS OF OPERATIONS AND CHANGES IN ACCUMULATED MEMBERS' DEFICIT
<TABLE>
<CAPTION>
Ten-Month
Year Ended Period Ended
December 31, October 31,
------------------------- -------------------------
1997 1998 1998 1999
----------- ------------ ----------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Rental revenues......... $ 919,427 $ 1,657,424 $ 1,156,754 $ 4,267,790
----------- ------------ ----------- ------------
Cost of revenues:
Rental logistics cost.. (1,254,538) (1,646,080) (1,289,533) (2,725,341)
Crate depreciation..... (499,098) (679,324) (482,568) (1,358,141)
Equipment
depreciation.......... (49,140) (132,763) (112,101) (120,000)
Loss on related party
crate transfers....... (454,445) (193,238) (193,238) --
----------- ------------ ----------- ------------
Total cost of revenues.. (2,257,221) (2,651,405) (2,077,440) (4,203,482)
----------- ------------ ----------- ------------
Gross margin (loss)... (1,337,794) (993,981) (920,686) 64,308
Selling, general and
administrative
expenses............... (1,423,417) (1,719,353) (1,424,015) (1,641,457)
----------- ------------ ----------- ------------
Loss from operations.. (2,761,211) (2,713,334) (2,344,701) (1,577,149)
Interest expense........ (1,033,872) (1,382,946) (1,168,975) (1,343,271)
Other income (expense),
net.................... 12,031 (175,887) (177,043) 13,539
----------- ------------ ----------- ------------
Net loss................ (3,783,052) (4,272,167) (3,690,719) (2,906,881)
Beginning accumulated
deficit................ (2,488,662) (6,271,714) (6,271,714) (10,543,881)
----------- ------------ ----------- ------------
Ending accumulated
deficit................ $(6,271,714) $(10,543,881) $(9,962,433) $(13,450,762)
=========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-59
<PAGE>
IFCO-U.S., L.L.C.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Ten-Month
Year Ended Period Ended
December 31, October 31,
------------------------ ------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net cash provided by (used
in) operating activities:
Net loss................... $(3,783,052) $(4,272,167) $(3,690,719) $(2,906,881)
Adjustments to reconcile
net loss to cash provided
by operating activities:
Depreciation.............. 557,934 826,042 726,885 1,511,471
Provision for doubtful
accounts receivable...... 25,000 25,000 25,000 25,000
Transfer of crates to
related parties,
excluding freight and
duty..................... 219,141 106,343 106,343 (193,148)
Loss on disposition of
equipment and furniture.. -- 198,547 198,547 --
Decrease (increase) in
receivables.............. (595,894) (1,351,104) (503,403) (2,091,799)
Decrease (increase) in
related party
receivables.............. (1,969,647) 1,999,467 2,015,877 (1,575,269)
Decrease (increase) in
other assets............. 58,577 (40,883) (101,998) 12,274
Increase (decrease) in
accounts payable and
accrued expenses......... 94,552 161,836 364,063 460,083
Increase (decrease) in
related party accounts
payable.................. 1,069,925 1,177,851 857,623 1,417,558
Increase (decrease) in
refundable deposits...... 561,991 997,289 328,302 1,424,809
----------- ----------- ----------- -----------
Net cash used in operating
activities................ (3,761,473) (171,779) 326,520 (1,915,902)
----------- ----------- ----------- -----------
Net cash provided by (used
in) investing activities:
Purchases of furniture and
equipment................. (683,066) (279,084) (322,277) (5,732)
Proceeds from crate
transfers to related
parties................... 1,790,551 1,128,973 1,039,908 1,695,809
----------- ----------- ----------- -----------
Net cash provided by
investing activities...... 1,107,485 849,889 717,631 1,690,077
----------- ----------- ----------- -----------
Net cash provided by (used
in) financing activities:
Proceeds from issuance of
related party debt........ 4,504,285 1,682,585 1,282,320 2,896,664
Payment of installment
debt...................... -- -- -- (182,695)
Payment of related party
debt...................... (1,854,456) (2,358,238) (2,317,612) (2,466,315)
----------- ----------- ----------- -----------
Net cash provided by (used
in) financing activities.. 2,649,829 (675,653) (1,035,292) 247,654
----------- ----------- ----------- -----------
Net increase (decrease) in
cash:
Cash equivalents at the
beginning of the period... (4,159) 2,457 8,859 21,829
Cash at the end of the
period.................... 12,189 8,030 8,030 10,487
----------- ----------- ----------- -----------
$ 8,030 $ 10,487 $ 16,889 $ 32,316
=========== =========== =========== ===========
Supplemental cash flow
information:
Interest paid............. 270,000 289,000 $ 231,500 $ 247,500
Non-cash investing and
financing activities:
</TABLE>
During 1997 and 1998, the Company had crate purchases of approximately
$1,854,000 and $2,154,000, respectively. These crate purchases have been
financed with notes payable from related parties.
During the ten-month periods ended October 31, 1998 and 1999, the Company had
crate purchases of approximately $1,352,000 and $7,280,000, respectively. These
crates purchases have been financed with notes payable to related parties.
During the ten-month period ended October 31, 1999, the Company was assigned a
$3,153,000 member receivable in exchange for a member loan of $3,153,000 (Note
1).
The accompanying notes are an integral part of these financial statements.
F-60
<PAGE>
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.
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 negative cash flow from operations, excess
liabilities over assets and related party debt in default raise substantial
doubt about its ability to continue as a going concern without significant
financial support from its members. The accompanying financial statements have
been prepared on a going concern basis, which contemplates continuity of
operations and the realization of assets and liquidation of liabilities in the
ordinary course of business.
On September 2, 1999, PIC and SIL-US entered into a Membership Interest and
Share Purchase Agreement (the "Purchase Agreement") which management believes
provides the framework for the continued funding for the Company's operations.
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 31, 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 (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 $17,976,000 as of April 30,
1999 ($24,391,000 as of October 31, 1999). 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.
The Purchase Agreement may be terminated by mutual consent of the parties, if
there is a material breach of any representation, warranty or covenant, or if
the PalEx Merger and IPO are not consummated by March 31, 2000. If the PalEx
Merger and IPO have not occurred by March 31, 2000, SIL-US shall make a
F-61
<PAGE>
IFCO-U.S., L.L.C.
NOTES TO FINANCIAL STATEMENTS--(Continued)
member loan to the Company for half of the IPG debt, less SIL-US's existing
debt. In such event, SIL-US and IPG agree to proportionately fund the future
cash and operating and financial requirements of IFCO-US in accordance with the
IFCO-US budget. If SIL fails to timely fund its proportionate share of such
cash requirements, then PIC shall have an option to purchase SIL-US' 80%
membership interest in IFCO-US for $11,092,500 together with redelivery of the
Polymer Shares, less $2,500,000, plus any indebtedness of IFCO-US to SIL or its
Affiliates, and the Polymer Note shall mature and be paid in full. If IPG fails
to timely fund its proportionate share of such cash requirements, then SIL
shall have an option to purchase the Polymer Interest and the Polymer Shares
for $10,657,500, plus any indebtedness of IFCO-US to IPG or its affiliates. In
the event that neither option has been exercised by December 31, 2002, the
exercise price of such options shall be adjusted to the fair market value of
the Company at such time.
The Company's continuation as a going concern is dependent on its members
ability to fulfill the obligations under the terms as described above and
ultimately to obtain profitability and to generate sufficient cash flows, on a
timely basis, to meet its obligations. The financial statements do not include
any adjustments relating to recoverability and classifications of liabilities
that might be necessary should the Company be unable to continue as a going
concern.
These interim financial statements as of October 31, 1999 and for the ten
months ended October 31, 1998 and 1999, are unaudited and reflect all
adjustments, consisting of normal recurring accruals which, in the opinion of
management, are necessary for a fair presentation of the information contained
therein.
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.
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.
F-62
<PAGE>
IFCO-U.S., L.L.C.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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
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 and $295,000 in advertising costs for the year
ended December 31, 1997 and 1998, 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.
F-63
<PAGE>
IFCO-U.S., L.L.C.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 36% and 29% 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 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.
3. RECEIVABLES:
Receivables consisted of the following as of:
<TABLE>
<CAPTION>
December 31, October 31, 1999
----------------------- -----------------
1997 1998
---------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Trade--Rental receivables.......... $ 206,648 $ 523,339 $ 1,176,791
Trade--Deposit receivables......... 862,383 1,903,156 3,336,784
Less: Allowance for doubtful
accounts.......................... (25,000) (50,000) (75,000)
Other receivables.................. 6,360 -- 4,719
---------- ----------- ------------
$1,050,391 $ 2,376,495 $ 4,443,294
========== =========== ============
Related party receivables consisted of the following as of:
<CAPTION>
October 31,
December 31, 1999
----------------------- ------------
1997 1998
---------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Crate transfer receivable.......... $ -- $ 95,749 $ 1,671,018
Polymer Note receivable............ -- -- 3,153,000
---------- ----------- ------------
$ -- $ 95,749 $ 4,824,018
========== =========== ============
4. CRATE RENTAL POOL, NET
Crate rental pool, net consisted of the following as of:
<CAPTION>
October 31,
December 31, 1999
----------------------- ------------
1997 1998
---------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Crate rental pool.................. $6,149,627 $ 6,367,117 $ 12,357,527
Less: accumulated depreciation..... (722,141) (1,067,344) (1,963,056)
---------- ----------- ------------
Crate rental pool, net............. $5,427,486 $ 5,299,773 $ 10,394,471
========== =========== ============
</TABLE>
Crate depreciation expense for the years ended December 31, 1997 and 1998 was
$499,098 and $679,324, respectively.
F-64
<PAGE>
IFCO-U.S., L.L.C.
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. EQUIPMENT AND FURNITURE:
Equipment and furniture consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Machinery and equipment.............................. $1,405,317 $1,444,451
Furniture and fixtures............................... 18,538 25,040
---------- ----------
1,423,855 1,469,491
Less: accumulated depreciation....................... (61,656) (173,473)
---------- ----------
Equipment and furniture, net......................... $1,362,199 $1,296,018
========== ==========
</TABLE>
Equipment and furniture depreciation expense for the years ended December 31,
1997 and 1998 was $58,836 and $146,718, respectively.
6. RELATED PARTY DEBT:
Indebtedness consists of the following as of:
<TABLE>
<CAPTION>
October 31,
December 31, 1999
----------------------- ------------
1997 1998
----------- -----------
(unaudited)
<S> <C> <C> <C>
U.S. prime rate advances from PIC........ $ 4,465,882 $ 4,353,392 $ 2,171,720
0% advances from PIC..................... -- 800,000 4,165,281
U.S. prime rate + 6% related party notes
payable in default from IFCO
Manufacturing........................... 860,807 1,339,883 2,573,042
10% related party notes payable from IFCO
Manufacturing .......................... 6,315,943 5,828,169 10,642,102
U.S. prime rate PIC member loan.......... 1,400,000 1,400,000 1,550,000
0% SIL-US member loan.................... -- 800,000 4,165,281
----------- ----------- ------------
$13,042,632 $14,521,444 $ 25,267,426
=========== =========== ============
</TABLE>
The maturities of indebtedness are as follows for the years ending December
31:
<TABLE>
<CAPTION>
Amount
-----------
<S> <C>
1999.......................................................... $ 4,463,992
2000.......................................................... 1,647,699
2001.......................................................... 811,159
2002.......................................................... 245,201
2003.......................................................... --
Thereafter.................................................... 7,353,393
-----------
$14,521,444
===========
</TABLE>
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% and 7.75% at December 31, 1997 and
1998, 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).
F-65
<PAGE>
IFCO-U.S., L.L.C.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 US prime rate + 6% (14.5% and 13.75% at December 31, 1997 and
1998, 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.
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, 1998, 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.
7. 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 and $47,000 for the years ended December 31, 1997
and 1998, 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, 1998 are as follows:
<TABLE>
<CAPTION>
Amount
--------
<S> <C>
1999............................................................. $275,619
2000............................................................. 276,416
2001............................................................. 185,173
2002............................................................. 7,000
--------
744,208
========
</TABLE>
F-66
<PAGE>
IFCO-U.S., L.L.C.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Rent expense under operating leases was approximately $46,000 and $155,000
for the years ending December 31, 1997 and 1998, respectively.
8. 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.
9. 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:
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1998
---------- ----------
<S> <C> <C>
Crate deposits........................................... $ 152,400 $ 266,421
Reconditioning fees...................................... 297,257 574,672
Crate purchases.......................................... 317,735 22,608
Royalties................................................ 24,117 63,709
Interest payable......................................... 795,105 1,558,525
Interest payable in default.............................. 356,351 634,881
---------- ----------
$1,942,965 $3,120,816
========== ==========
</TABLE>
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 and 1998, the Company purchased approximately $1,854,000 and $2,154,000,
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 and 1998, the Company recorded royalty commission expenses of
$19,123 and $45,484, 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-
Europe as consideration for the services.
F-67
<PAGE>
IFCO-U.S., L.L.C.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Export rental revenue was approximately $273,000 and $306,000 for the years
ended December 31, 1997 and 1998, respectively.
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 and 1998, 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 and 1998, the Company
recognized losses of $454,000 and $193,000 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:
<TABLE>
<CAPTION>
Year ended
December 31,
-----------------
1997 1998
-------- --------
<S> <C> <C>
Employee benefits............................................ $ 35,000 $ 45,000
Leased vehicles for salesman travel.......................... 40,000 60,000
Telecommunications expenses.................................. 15,000 23,000
-------- --------
$ 90,000 $128,000
======== ========
</TABLE>
10. 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 and 1998 were $12,000 and $24,000, respectively.
F-68
<PAGE>
APPENDIX A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
(as amended by Amendment No. 1)
Dated as of October 6, 1999
and effective as of
March 29, 1999
by and among
IFCO Systems N.V.,
IFCO Europe Beteiligungs GmbH,
MTS Okologistik Verwaltungs GmbH,
Schoeller International Logistics Beteiligungsgesellschaft mbH,
Schoeller Packaging Systems GmbH,
Silver Oak Acquisition Corp.
and
PalEx, Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
ARTICLE I
<C> <S> <C>
NON-MERGER TRANSACTIONS............................. A-1
SECTION 1.1. Ownership of IFCO................................... A-1
SECTION 1.2. Formation of Merger Sub............................. A-2
SECTION 1.3. Corporate Authorizations............................ A-2
SECTION 1.4. Contribution of Shares.............................. A-2
General Electric; Contribution of IFCO Europe
SECTION 1.5. Preferred Share..................................... A-2
SECTION 1.6. Initial Public Offering of IFCO Ordinary Shares..... A-2
ARTICLE II
THE MERGER.......................................... A-2
SECTION 2.1. Appointment of Exchange Agent....................... A-2
SECTION 2.2. The Merger.......................................... A-3
SECTION 2.3. Effective Time...................................... A-3
SECTION 2.4. Effects of the Merger............................... A-3
SECTION 2.5. Closing............................................. A-3
ARTICLE III
CONVERSION OF SHARES IN THE MERGER.................. A-4
SECTION 3.1. Conversion of PalEx Capital Stock................... A-4
SECTION 3.2. Conversion of Merger Sub Shares..................... A-6
SECTION 3.3. Election of Merger Consideration.................... A-6
SECTION 3.4. Share Exchange...................................... A-9
SECTION 3.5. Dissenting Shares................................... A-10
SECTION 3.6. Exchange of Shares.................................. A-10
SECTION 3.7. No Fractional Shares................................ A-12
SECTION 3.8. Closing of PalEx's Transfer Books................... A-12
SECTION 3.9. Modification of Share Exchange Procedures........... A-12
ARTICLE IV
IFCO GOVERNANCE AFTER THE EFFECTIVE TIME............ A-12
SECTION 4.1. IFCO Governance after Effective Time................ A-12
SECTION 4.2. Corporate and Operational Headquarters.............. A-12
SECTION 4.3. Language............................................ A-12
SECTION 4.4. U.S. GAAP........................................... A-12
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PALEX............. A-13
SECTION 5.1. Organization and Qualification...................... A-13
SECTION 5.2. Capitalization...................................... A-13
SECTION 5.3. Subsidiaries........................................ A-14
SECTION 5.4. Authority; Non-Contravention; Approvals............. A-14
Reports and Financial Statements; Accounting and
SECTION 5.5. Other Systems....................................... A-15
SECTION 5.6. Absence of Undisclosed Liabilities.................. A-16
SECTION 5.7. Absence of Certain Changes or Events................ A-16
SECTION 5.8. Litigation.......................................... A-16
SECTION 5.9. Registration Statement and Proxy Statement.......... A-17
SECTION 5.10. No Violation of Law................................. A-17
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
Page No.
--------
<C> <S> <C>
SECTION 5.11. Compliance with Agreements.......................... A-17
SECTION 5.12. Environmental Matters............................... A-17
SECTION 5.13. Taxes............................................... A-18
SECTION 5.14. Employee Benefit Plans; ERISA....................... A-18
SECTION 5.15. Labor Controversies................................. A-20
SECTION 5.16. Intangible Property................................. A-20
SECTION 5.17. Title to Assets..................................... A-20
SECTION 5.18. Insurance........................................... A-20
SECTION 5.19. Year 2000........................................... A-21
SECTION 5.20. Reorganization...................................... A-21
SECTION 5.21. PalEx Stockholders' Approval........................ A-21
SECTION 5.22. Brokers and Finders................................. A-21
SECTION 5.23. Opinion of Financial Advisor........................ A-21
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF IFCO COMPANIES.... A-21
SECTION 6.1. Organization and Qualification...................... A-22
SECTION 6.2. Capitalization...................................... A-22
SECTION 6.3. Subsidiaries........................................ A-23
SECTION 6.4. Authority; Non-Contravention; Approvals............. A-24
Reports and Financial Statements; Accounting and
SECTION 6.5. Other Systems....................................... A-25
SECTION 6.6. Liabilities......................................... A-25
SECTION 6.7. Absence of Certain Changes or Events................ A-26
SECTION 6.8. Litigation.......................................... A-26
SECTION 6.9. Registration Statement and Proxy Statement.......... A-27
SECTION 6.10. No Violation of Law................................. A-27
SECTION 6.11. Compliance with Agreements.......................... A-27
SECTION 6.12. Environmental Matters............................... A-27
SECTION 6.13. Taxes............................................... A-28
SECTION 6.14. Employee Benefit Plans and Arrangements............. A-28
SECTION 6.15. Labor Controversies................................. A-29
SECTION 6.16. Intangible Property................................. A-30
SECTION 6.17. Title to Assets..................................... A-30
SECTION 6.18. Insurance........................................... A-31
SECTION 6.19. Year 2000........................................... A-31
SECTION 6.20. Reorganization...................................... A-31
SECTION 6.21. Brokers and Finders................................. A-31
SECTION 6.22. Ownership of PalEx Common Stock..................... A-31
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF SPS............... A-31
SECTION 7.1. Capitalization...................................... A-31
Ownership and Status of IFCO Companies Capital
SECTION 7.2. Stock............................................... A-31
SECTION 7.3. Organization; Power and Authority; Approval......... A-31
SECTION 7.4. No Conflicts or Litigation.......................... A-32
SECTION 7.5. No Brokers.......................................... A-32
SECTION 7.6. Preemptive and Other Rights; Waiver................. A-32
SECTION 7.7. Ownership of PalEx Common Stock..................... A-32
SECTION 7.8. Net Worth........................................... A-32
</TABLE>
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<PAGE>
<TABLE>
ARTICLE VIII
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CONDUCT OF BUSINESS PENDING THE EFFECTIVE TIME...... A-32
Conduct of Business by PalEx Pending the Effective
SECTION 8.1. Time................................................ A-32
Conduct of Business by IFCO Pending the Effective
SECTION 8.2. Time................................................ A-35
SECTION 8.3. Control of PalEx's Operations....................... A-35
SECTION 8.4. Control of IFCO's Operations........................ A-35
SECTION 8.5. No Solicitation..................................... A-35
ARTICLE IX
ADDITIONAL AGREEMENTS............................... A-36
SECTION 9.1. Access to Information............................... A-36
SECTION 9.2. Registration Statement and Proxy Statement.......... A-37
Corrections to the Proxy Statement and Registration
SECTION 9.3. Statement........................................... A-38
SECTION 9.4. PalEx Stockholders' Approval........................ A-38
SECTION 9.5. Exchange Listings................................... A-38
SECTION 9.6. Options and Warrants................................ A-38
SECTION 9.7. Employee Matters.................................... A-39
SECTION 9.8. Agreement to Cooperate.............................. A-40
SECTION 9.9. Reorganization...................................... A-40
SECTION 9.10. Public Statements................................... A-40
SECTION 9.11. Notification of Certain Matters..................... A-40
SECTION 9.12. Directors' and Officers' Indemnification............ A-41
SECTION 9.13. Voting Agreement.................................... A-42
Restrictions on Transfer of Shares by Certain
SECTION 9.14. Shareholders........................................ A-42
SECTION 9.15. Related Party Transactions.......................... A-42
SECTION 9.16. Additional IFCO Options............................. A-42
SECTION 9.17. Technology Transfer................................. A-43
SECTION 9.18. Reservation of Right to Revise Transaction.......... A-43
SECTION 9.19. SMG Exchangeable Shares............................. A-43
SECTION 9.20. IFCO U.S. .......................................... A-43
ARTICLE X
CONDITIONS.......................................... A-44
SECTION 10.1. Conditions to Each Party's Obligations.............. A-44
SECTION 10.2. Conditions to Obligation of PalEx................... A-44
Conditions to Obligations of IFCO, Merger Sub and
SECTION 10.3. SPS................................................. A-45
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER................... A-46
SECTION 11.1. Termination......................................... A-46
SECTION 11.2. Effect of Termination............................... A-48
SECTION 11.3. Termination Fee..................................... A-48
SECTION 11.4. Extension; Waiver................................... A-48
ARTICLE XII
GENERAL PROVISIONS.................................. A-49
SECTION 12.1. Payment of Expenses................................. A-49
SECTION 12.2. Non-Survival of Representations and Warranties...... A-49
</TABLE>
A-iii
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<TABLE>
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SECTION 12.3. Notices.............................................. A-49
SECTION 12.4. Entire Agreement; No Third-Party Beneficiaries....... A-50
SECTION 12.5. Assignment........................................... A-50
SECTION 12.6. Severability......................................... A-50
SECTION 12.7. Interpretation....................................... A-50
SECTION 12.8. Governing Law........................................ A-50
SECTION 12.9. Arbitration.......................................... A-51
SECTION 12.10. Counterparts......................................... A-51
Annexes and Exhibits
Exhibit A PalEx Employee Waivers
Exhibit B Form of Voting Agreement
Exhibit C Management Stockholders
Annex A List of Defined Terms
</TABLE>
A-iv
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION (this
"Agreement"), dated as of October 6, 1999 (the "Execution Date") and effective
as of March 29, 1999 (the "Effective Date"), is by and among IFCO Systems N.V.,
a public limited liability company incorporated under the laws of The
Netherlands ("IFCO"), IFCO Europe Beteiligungs GmbH, a limited liability
company organized under the laws of the Federal Republic of Germany ("IFCO
Europe"), MTS Okologistik Verwaltungs GmbH, a limited liability company
organized under the laws of the Federal Republic of Germany ("MTS"), Schoeller
International Logistics Beteiligungsgesellschaft mbH, a limited liability
company organized under the laws of the Federal Republic of Germany ("SIL"),
Schoeller Packaging Systems GmbH, a limited liability company organized under
the laws of the Federal Republic of Germany ("SPS"), Silver Oak Acquisition
Corp., a corporation organized under the laws of the State of Delaware ("Merger
Sub") and PalEx, Inc., a corporation organized under the laws of the State of
Delaware ("PalEx").
W I T N E S S E T H:
WHEREAS, SPS owns 76% of the capital shares of IFCO Europe and 100% of the
capital shares of MTS, and an affiliate of SPS owns 100% of the capital shares
of SIL;
WHEREAS, IFCO is a wholly owned Subsidiary of SPS and/or its affiliates
(IFCO, IFCO Europe, SIL and MTS, being collectively referred to herein as the
"IFCO Companies" and SPS desires to contribute the capital shares SPS owns of
IFCO Europe and MTS, and to cause the capital shares of SIL to be contributed,
to IFCO upon the terms and subject to the conditions set forth in this
Agreement;
WHEREAS, the managing directors of SPS and the Board of Directors of PalEx
have approved the merger of PalEx with and into Merger Sub on the terms and
subject to the conditions set forth in this Agreement (the "Merger");
WHEREAS, the parties hereto intend that the Merger will close immediately
prior to the closing of an initial public offering in Europe by IFCO of
ordinary shares of IFCO ("IFCO Ordinary Shares");
WHEREAS, the parties hereto intend the Merger to qualify as a tax-free
reorganization under Section 368(a) of the U.S. Internal Revenue Code of 1986,
as amended (the "Code"), and the regulations thereunder, and this Agreement is
hereby adopted as a plan of reorganization for purposes of Section 368(a) of
the Code and the regulations thereunder; and
WHEREAS, capitalized terms used in this Agreement, which are listed in Annex
A hereto together with the paragraph or the Section in which they are defined,
shall have the respective meanings set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements this Agreement contains, the parties
hereto, intending to be legally bound, agree as follows:
ARTICLE I
NON-MERGER TRANSACTIONS
SECTION 1.1. Ownership of IFCO. Except as otherwise provided in this
Agreement, SPS or Schoeller Logistics Holdings GmbH, a limited liability
company organized under the laws of the Federal Republic of Germany ("Schoeller
Holdings"), which is wholly owned by SPS and/or its affiliates, will own 100%
of the IFCO Ordinary Shares from inception and prior to the IPO Closing Date.
SPS has delivered a copy of the Articles of Association of IFCO to PalEx. SPS
will consult with PalEx in advance with respect to any amendments to the
Articles of Association of IFCO prior to the Merger and the IPO and will
promptly deliver copies of any such amendments to PalEx.
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SECTION 1.2. Formation of Merger Sub. SPS has caused IFCO to incorporate
Merger Sub pursuant to the General Corporation Law of the State of Delaware
(the "DGCL") to be a constituent company in the Merger. Merger Sub has
authorized capital stock consisting of 100 shares, par value $0.01 per share
(the "Merger Sub Capital Stock"), all of which is issued and outstanding and
held by IFCO, subject to the provisions of Section 2.1.
SECTION 1.3. Corporate Authorizations. SPS shall cause IFCO and Merger Sub to
obtain all necessary corporate authorizations with respect to this Agreement
and the transactions contemplated hereby.
SECTION 1.4. Contribution of Shares. On or before the Closing Date but prior
to the Effective Time and the completion of the IPO, SPS shall contribute the
IFCO Europe Share and the MTS Shares to IFCO and shall cause its affiliate
Gebruder Schoeller Beteiligungsverwaltungs GmbH, a limited liability company
organized under the laws of the Federal Republic of Germany ("Gebr.
Schoeller"), to contribute the SIL Shares to IFCO, either directly or through
SPS.
SECTION 1.5. General Electric; Contribution of IFCO Europe Preferred Share.
(a) SPS and its affiliates, Martin Schoeller, Christoph Schoeller, Andrea
Schoeller, Schoeller KG, Schoeller Plast Industries GmbH, Gebr. Schoeller and
IFCO have entered into that certain Option Release and IPO-Facilitation
Agreement with General Electric Capital Corporation ("GE Capital") and General
Electric Erste Beteiligungs GmbH ("GE GmbH"), which was notarized under German
law on May 27, 1999 (the "Option Release Agreement"), pursuant to which GE GmbH
and any affiliates thereof shall (i) give any required consent with respect to
the Merger and the IPO, (ii) provide for the release, to be effective as of the
Closing Date, of any options of GE to purchase capital shares of IFCO Europe,
SIL or MTS pursuant to the Investment Agreement and the termination of the
Investment Agreement and (iii) provide for the contribution of the IFCO Europe
Preferred Share as described in Section 1.5(b). SPS and such affiliates shall
complete, or cause to be completed, to the extent within their respective power
to complete, the conditions precedent in (S) 8.1 of the Option Release
Agreement.
(b) On or before the Closing Date and prior to the Effective Time, SPS shall
use its reasonable efforts to cause GE GmbH to contribute to IFCO the IFCO
Europe Preferred Share held by GE GmbH in exchange for a convertible debenture
(the "Convertible Debenture") to be issued by Schoeller Holdings to which SPS
and/or its affiliates shall have previously contributed all the outstanding
IFCO Ordinary Shares. The Convertible Debenture shall be convertible into
outstanding shares of Schoeller Holdings or outstanding IFCO Ordinary Shares
representing, indirectly or directly, 15.45% of the issued and outstanding IFCO
Ordinary Shares immediately prior to the Effective Time.
SECTION 1.6. Initial Public Offering of IFCO Ordinary Shares. SPS shall use
its reasonable efforts, and shall cause IFCO to use all reasonable efforts, to
pursue with reasonable diligence the completion of and to complete the IPO.
PalEx agrees to reasonably cooperate with SPS and IFCO in connection with the
IPO. The parties acknowledge that they currently anticipate, subject to the
advice and recommendations of the underwriters in connection with the IPO and
market conditions on the Listing Market, that the number of IFCO Ordinary
Shares offered in the IPO will constitute approximately 30% of the issued and
outstanding IFCO Ordinary Shares after giving effect to the IPO and the
transactions contemplated by this Agreement.
ARTICLE II
THE MERGER
SECTION 2.1. Appointment of Exchange Agent. As promptly as possible following
the Effective Date IFCO shall appoint a United States bank or trust company or
other independent financial institution in the United States reasonably
satisfactory to IFCO and PalEx to act as exchange agent for the Share Exchange
and the delivery of the Aggregate Merger Consideration to former stockholders
of PalEx (the "Exchange Agent"). IFCO and PalEx shall enter into an Exchange
Agent Agreement with the Exchange Agent in form and
A-2
<PAGE>
substance reasonably satisfactory to IFCO and PalEx, which shall set forth the
duties, responsibilities and obligations of the Exchange Agent consistent with
the terms of this Agreement.
SECTION 2.2. The Merger. On the terms and subject to the conditions of this
Agreement and in accordance with the DGCL, at the Effective Time, PalEx will
merge with and into Merger Sub and the separate existence of PalEx thereupon
will cease. Merger Sub will be the surviving corporation in the Merger and is
hereinafter sometimes referred to as the "Surviving Corporation." The corporate
existence of Merger Sub, with all its property, rights, privileges, franchises,
powers and objects, shall continue unaffected and unimpaired by the Merger and,
as the Surviving Corporation, it shall be governed by the laws of the State of
Delaware and succeed to all property, rights, privileges, franchises, powers,
objects, debts, liabilities and duties of PalEx in accordance with Section
259(a) of the DGCL.
SECTION 2.3. Effective Time. The Merger will become effective immediately
when a certificate of merger, in a form reasonably acceptable to IFCO and PalEx
and prepared and executed in accordance with the relevant provisions of the
DGCL (the "Certificate of Merger"), is filed with the Secretary of State of the
State of Delaware or, if agreed by IFCO and PalEx, at such time thereafter as
may be provided in the Certificate of Merger (the "Effective Time"). Merger Sub
will file the Certificate of Merger with the Secretary of State of the State of
Delaware in accordance with the DGCL as soon as practicable after the
consummation of the transactions described in Sections 1.4 and 1.5 and in
accordance with Section 2.5. The parties acknowledge that it is their mutual
desire and intent to consummate the transactions contemplated by this Agreement
as soon as practicable after the Execution Date and to effect the Merger after
the consummation of the transactions described in Sections 1.4 and 1.5 and
immediately prior to the completion of the IPO on the IPO Closing Date.
Accordingly, they will, subject to the provisions hereof and to the fiduciary
duties of their respective managing directors, Supervisory Boards, Management
Boards, Boards of Directors or equivalent bodies, use all reasonable efforts to
consummate, as soon as practicable, the transactions contemplated by this
Agreement in accordance with Section 2.5.
SECTION 2.4. Effects of the Merger.
(a) The Merger shall have the effects set forth in Sections 259, 260 and
261 of the DGCL.
(b) At the Effective Time, the Certificate of Incorporation of Merger Sub
as in effect immediately prior to the Effective Time shall be amended to change
the name of the Surviving Corporation to "PalEx, Inc." As so amended, such
Certificate of Incorporation will be the Certificate of Incorporation of the
Surviving Corporation after the Effective Time, and thereafter may be amended
in accordance with its terms and as the DGCL provides.
(c) The Bylaws of Merger Sub as in effect immediately prior to the
Effective Time will be the Bylaws of the Surviving Corporation after the
Effective Time, and thereafter may be amended in accordance with their terms
and as the Certificate of Incorporation of the Surviving Corporation and the
DGCL provide.
(d) The directors of the Surviving Corporation from and after the Effective
Time will be Christoph Schoeller, Martin Schoeller and Vance K. Maultsby, Jr.,
each of whom will serve until his successor is duly elected or appointed and
qualified, or until his earlier death, resignation or removal in accordance
with the Surviving Corporation's Certificate of Incorporation and Bylaws.
(e) The officers of PalEx immediately prior to the Effective Time will
serve as the officers of the Surviving Corporation from and after the Effective
Time until their respective successors are duly appointed and qualified, or
until their earlier death, resignation or removal in accordance with the
Surviving Corporation's Certificate of Incorporation and Bylaws.
SECTION 2.5. Closing. The closing (the "Closing") of the transactions
contemplated by this Agreement, consistent with Section 2.3, will take place at
a location mutually agreeable to IFCO and PalEx as promptly as practicable
following the date on which the last of the conditions set forth in Article X
is fulfilled or waived, or at such other time as IFCO and PalEx shall agree.
This Agreement refers to the date on which the Closing occurs as the "Closing
Date."
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<PAGE>
ARTICLE III
CONVERSION OF SHARES IN THE MERGER
SECTION 3.1. Conversion of PalEx Capital Stock.
(a)At the Effective Time, by virtue of the Merger and without any action
on the part of any holder of any capital stock of PalEx:
(i)each share of common stock, par value $0.01 per share, of PalEx
("PalEx Common Stock") issued and outstanding immediately prior to the
Effective Time (other than PalEx Treasury Shares to be canceled in
accordance with clause (ii) of this Section 3.1(a)) will, subject to
Sections 3.5 and 3.7, be exchanged for and converted into the right to
receive consideration with a value equal to $9.00 in the form of cash,
IFCO Ordinary Shares or a combination thereof as follows: (A) $9.00
(the "Merger Price" in cash, without any interest thereon (the "Cash
Consideration"); or (B) a fraction of IFCO Ordinary Shares calculated
by dividing $9.00 by the IPO price, rounded to the fourth decimal place
(such fraction being referred to herein as the "Exchange Ratio" and the
number of IFCO Ordinary Shares being referred to herein as the "Stock
Consideration") (the Cash Consideration and/or the Stock Consideration
being referred to herein, collectively, as the "Merger Consideration"
and the aggregate of such consideration provided in exchange for all
shares of PalEx Common Stock being referred to herein as "Aggregate
Merger Consideration"), which shall be determined pursuant to an
election or deemed non-election by the holder thereof as set forth in
Section 3.3 and which shall be subject to the limitations set forth in
this Section 3.1 on the Aggregate Merger Consideration; notwithstanding
the foregoing, prior to IFCO's transfer of the cash and issuance of the
IFCO Ordinary Shares to the Exchange Agent pursuant to Section 3.4 for
the account of the former holders of PalEx Common Stock in the Share
Exchange (as defined in Section 3.4), each such holder shall, in
addition to his, her or its right to receive the Merger Consideration,
or, in the event of the holders of Dissenting Shares, if any, in
addition to his, her or its right to receive the consideration as
described in Section 3.5, have an ownership interest in the Surviving
Corporation identical in all respects to his, her or its ownership
interest in PalEx immediately prior to the Effective Time (the
"Ownership Interest");
(ii)each share of capital stock of PalEx, if any, owned by IFCO or
any of its Subsidiaries or held in treasury by PalEx or any of its
Subsidiaries immediately prior to the Effective Time (collectively,
"PalEx Treasury Shares") will be canceled and retired and will cease to
exist and no IFCO Ordinary Shares or other consideration will be
delivered or deliverable in exchange therefor;
(iii)subject to and as more fully provided in Section 9.6, each
unexpired option or warrant to purchase PalEx Common Stock which is
outstanding at the Effective Time, whether or not then exercisable,
automatically and without any action on the part of the holder thereof
will be exchanged into an option or warrant to purchase a number of
IFCO Ordinary Shares equal to the number of shares of PalEx Common
Stock which could be purchased under such option or warrant multiplied
by the Exchange Ratio, at a price per IFCO Ordinary Share equal to the
per share exercise price of such option or warrant divided by the
Exchange Ratio, which price shall at least be equal to the nominal
value of an IFCO Ordinary Share;
(iv) subject to Section 9.19, each SMG Exchangeable Share (as defined
in Section 5.2(a)) issued and outstanding immediately prior to the
Effective Time will, subject to Section 3.7, and from and after the
Effective Time be exchangeable for and convertible into the right to
receive the same Merger Consideration that would have been received if
such SMG Exchangeable Share had been exchanged for a share of PalEx
Common Stock immediately prior to the Effective Time (the "SMG Exchange
Consideration"); provided that the Surviving Corporation shall pay to
IFCO an amount equal to the cash actually paid by IFCO in any such
exchange and the nominal value of the IFCO Ordinary Shares issued by
IFCO in any such exchange or take such other steps as may be necessary
and appropriate under the law of The Netherlands to evidence
consideration for such cash and shares;
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<PAGE>
(v) each PalEx Convertible Note (as defined in Section 5.2(a)) which
is outstanding at the Effective Time, whether or not then exercisable,
automatically and without any action on the part of the holder thereof
shall be convertible into a number of IFCO Ordinary Shares equal to the
number of shares of PalEx Common Stock which could be received upon
conversion of such PalEx Convertible Note multiplied by the Exchange
Ratio, at a price per IFCO Ordinary Share equal to the per share
conversion price of such PalEx Convertible Note divided by the Exchange
Ratio, which price shall at least be equal to the nominal value of an
IFCO Ordinary Share; provided that the Surviving Corporation shall pay
to IFCO an amount equal to the nominal value of the IFCO Ordinary
Shares issued by IFCO in the conversion of any Convertible Note or take
such other steps as may be necessary and appropriate under the law of
The Netherlands to evidence consideration for such shares.
(b) The Aggregate Merger Consideration, together with the SMG Exchange
Consideration, the cash payable to holders of Dissenting Shares pursuant to
Section 3.5, and the cash payable in lieu of fractional shares pursuant to
Section 3.7, shall be comprised of (i) not less than 40% of the shares of PalEx
Common Stock and SMG Exchangeable Shares being exchanged for and converted into
Cash Consideration (the "Cash Election Number") and (ii) not more than 60% of
the Shares of PalEx Common Stock and SMG Exchangeable Shares being exchanged
for and converted into stock consideration (the "Stock Election Number");
provided, however, that if the Record Holders elect pursuant to Section 3.3 to
receive a greater amount of Cash Consideration than the Cash Election Number,
then the Cash Election Number shall be increased to up to 49% of the shares of
PalEx Common Stock and SMG Exchangeable Shares being exchanged for and
converted into Cash Consideration (the "Adjusted Cash Election Number").
(c) All IFCO Ordinary Shares issuable in the Merger will be deemed for all
purposes to have been issued by IFCO at the Effective Time.
(d) For purposes of this Section 3.1 and as otherwise used in this
Agreement, the following terms have the meanings assigned to them below:
"Currency Exchange Rate" means, as of any specified day the rate at which
one Euro would be translated into United States Dollars using the currency
cross rate for late New York trading in Euros, as published in the Wall
Street Journal, Eastern Edition, on such specified day.
"IPO" means the first time IFCO issues and sells IFCO Ordinary Shares in
a primary underwritten offering.
"IPO Closing Date" means the date on which IFCO first receives payment
for the IPO Shares.
"IPO Pricing Date" means the date on which IFCO and the underwriters
named in the underwriting agreement relating to the IPO agree in that
underwriting agreement (or in a related pricing agreement) to the initial
public offering price per share of IFCO Ordinary Shares, subject to the
terms and conditions of the underwriting agreement, the "Initial Offering
Price").
"IPO Price" means the product of (i) the Initial Offering Price and (ii)
the Currency Exchange Rate for the IPO Pricing Date.
"IPO Shares" means the number of IFCO Ordinary Shares IFCO sells in the
IPO.
"Subsidiary" means, with respect to any party, any corporation, limited
liability company, partnership, joint venture or other entity, whether
incorporated or unincorporated, of which: (i) such party or any other
Subsidiary of such party is a general partner; or (ii) at least a majority
of the securities or other equity interests having by their terms ordinary
voting power to elect a majority of the members of the Supervisory Board,
Management Board, managing directors, Board of Directors or any similar
governing body of such entity is, directly or indirectly, owned or
controlled by such party or by any one or more of its Subsidiaries, or by
such party and any one or more of its Subsidiaries.
(e) for purposes of this Section 3.1 and as otherwise used in this Agreement,
references to IFCO Ordinary Shares to be issued to holders of PalEx Common
Stock as part of the Merger Consideration or to be issued
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<PAGE>
from and after the Effective Time as provided in this Section 3.1 shall mean
New York shares representing such IFCO Ordinary Shares.
SECTION 3.2. Conversion of Merger Sub Shares. At the Effective Time, by
virtue of the Merger and without any action on the part of IFCO, each share of
Merger Sub Capital Stock will convert into one fully paid and nonassessable
share of common stock, par value $0.01 per share, of the Surviving Corporation.
SECTION 3.3 Election of Merger Consideration.
(a) Election. Each record holder of shares of PalEx Common Stock (other than
PalEx or any of its Subsidiaries) as of the record date (the "Record Date") for
the PalEx Stockholders' Meeting (each a "PalEx Record Holder"), each record
holder of SMG Exchangeable Shares as of the Record Date (each an "SMG Holder")
and Batchelder & Partners, Inc. ("Batchelder" and, together with the PalEx
Record Holders and the SMG Holders, the "Record Holders"), to which PalEx has
agreed to issue 200,000 shares of PalEx Common Stock immediately prior to the
Effective Time, pursuant to the agreement with Batchelder described in Section
5.22, will be entitled, with respect to the Record Holder's shares, to make an
unconditional election (an "Election") on or prior to the Election Date to
determine the form of the Merger Consideration to be received with respect to
such shares. Subject to the adjustment procedures Section 3.3 (e), each Record
Holder (or the beneficial owner of the shares through appropriate and customary
documentation and instructions) shall specify as part of the Election (i) the
number of shares of PalEx Common Stock or SMG Exchangeable Shares owned by such
Record Holder (or in the case of Batchelder, to be owned) that such Record
Holder desires to be exchanged for and converted into (or, with respect to SMG
Exchangeable Shares, exchangeable for and convertible into) Cash Consideration
(a "Cash Election") and (ii) the number of shares of PalEx Common Stock or SMG
Exchangeable Shares owned by such Record Holder that such Record Holder desires
to be exchanged for and converted into (or, with respect to SMG Exchangeable
Shares, exchangeable for and convertible into) Stock Consideration (a "Stock
Election").
(b) Form of Election. A form of election in such form as PalEx and IFCO shall
mutually agree (the "Election Form") and a Letter of Transmittal, shall be
mailed by PalEx with the Proxy Statement to each Record Holder. The Election
Form shall be used by each Record Holder to make an Election as provided for in
Section 3.3(a). Each completed and signed Election Form shall be accompanied
by, for each PalEx Record Holder, (i) the certificate or certificates for all
of the shares of PalEx Common Stock covered by such Election Form (or (A)
customary affidavits and indemnification regarding the loss or destruction of
such certificate or certificates or (B) an appropriate guarantee of delivery of
such certificate or certificates, as set forth in the instructions accompanying
the Letter of Transmittal, from a member of any registered national securities
exchange or of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company in the United States, provided such
certificate or certificates are in fact delivered to the Exchange Agent by the
time required for such guarantee of delivery, and, provided further, that
failure to deliver such certificate or certificates covered by such guarantee
of delivery shall invalidate an otherwise properly made Election) and (ii) a
completed and duly executed Letter of Transmittal. Record Holders who hold
shares of PalEx Common Stock or SMG Exchangeable Shares as nominees, trustees
or in other representative capacities (a "Representative") may submit multiple
Election Forms, provided that such Representative certifies that each such
Election Form covers all the shares of PalEx Common Stock held by such
Representative for a particular beneficial owner. "Election Date" shall mean
5:00 p.m., Houston, Texas time, on the business day immediately preceding the
PalEx Stockholders' Meeting.
(c) Failure To Make an Election. If a Record Holder fails to deliver a fully
completed and signed Election Form to the Exchange Agent by the Election Date,
together with the certificate or certificates for the shares of PalEx Common
Stock to which the Election Form relates and a completed and duly executed
Letter of Transmittal, but has not exercised its or his rights as a dissenting
stockholder pursuant to Section 3.5, such Record Holder shall be deemed not to
have made an Election and shall receive Merger Consideration as provided in
Section 3.3(e) (a "Non-Election"). Regardless of any Election Form received by
the Exchange Agent, holders of Dissenting Shares pursuant to Section 3.5 shall
be deemed to have made a Cash Election.
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(d) Subsequent Holders. If a Record Holder transfers shares of PalEx Common
Stock or SMG Exchangeable Shares after the Record Date but before the close of
business on the business day immediately preceding the Election Date (the
"Transferred Shares"), the new holder of the Transferred Shares (the
"Subsequent Holder") shall be entitled to revoke, in accordance with the
procedures in Section 3.3(f), any Election made by such Record Holder with
respect to the Transferred Shares and, if desired, to make a new Election, in
accordance with the procedures in Section 3.3(b), with respect to the
Transferred Shares. PalEx and IFCO shall make available, or shall cause the
Exchange Agent to make available, one or more separate Election Forms to any
Subsequent Holder upon such Subsequent Holder's or PalEx's request to the
Exchange Agent. PalEx shall provide to the Exchange Agent all information
reasonably necessary for it to perform as specified in this Section 3.3(d).
(e) Adjustment Procedures.
(i) If the sum of the aggregate number of shares of PalEx Common Stock
and SMG Exchangeable Shares covered by Cash Elections and represented by
cash payable in lieu of fractional shares pursuant to Section 3.7 (the
"Cash Election Shares"), exceeds the Adjusted Cash Election Number, then:
(A) all shares of PalEx Common Stock and SMG Exchangeable Shares
covered by Stock Elections (the "Stock Election Shares") and all shares
of PalEx Common Stock and SMG Exchangeable Shares covered by Non-
Elections (the "Non-Election Shares") shall be exchanged for and
converted into (or, with respect to SMG Exchangeable Shares,
exchangeable for and convertible into) the right to receive IFCO
Ordinary Shares;
(B) all Cash Election Shares held by each Record Holder making a Cash
Election with respect to 49% or less of the total number of shares for
which an Election is made by such Record Holder, Dissenting Shares and
shares represented by cash payable in lieu of fractional shares
pursuant to Section 3.7 (collectively, the "Unadjusted Cash Election
Shares") shall be exchanged for and converted into (or, with respect to
SMG Exchangeable Shares, exchangeable for and convertible into) the
right to receive cash; and
(C) the Cash Election Shares held by a Record Holder (an "Adjusted
Cash Record Holder") making a Cash Election with respect to greater
than 49% of the total number of shares for which an Election is made by
such Adjusted Cash Record Holder (the "Adjusted Cash Election Shares")
shall be exchanged for and converted into (or, with respect to SMG
Exchangeable Shares, exchangeable for and convertible into) the right
to receive the sum of
(1) an amount in cash, without interest, equal to the product of
(x) the Cash Consideration,
(y) .49 and
(z) the total number of shares of PalEx Common Stock and SMG
Exchangeable Shares held by such Adjusted Cash Record
Holder (the product of (y) and (z) being referred to herein
as the "First Cash Adjustment Number"),
(2) an amount in cash, without interest, equal to the product of
(x) the Cash Consideration,
(y) a fraction, the numerator of which shall be the total
number of Adjusted Cash Election Shares held by such
Adjusted Cash Record Holder less the First Cash Adjustment
Number and the denominator of which shall be the total
number of Adjusted Cash Election Shares held by all
Adjusted Cash Record Holders less the total First Cash
Adjustment Number for all Adjusted Cash Record Holders, and
(z) the Adjusted Cash Election Number less the sum of the
number of all the Unadjusted Cash Election Shares and the
total First Cash Adjustment Number for all Adjusted Cash
Record Holders (the product of (y) and (z) being referred
to herein as the "Second Cash Adjustment Number") and
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(3) a number of IFCO Ordinary Shares equal to the product of
(x) the Stock Consideration and
(y) the total number of Adjusted Cash Election Shares held by
such Adjusted Cash Record Holder, less the First Cash
Adjustment Number and less the Second Cash Adjustment
Number.
(ii) If the Stock Election Shares exceed the Stock Election Number, then:
(A) all Cash Election Shares and Non-Election Shares shall be
exchanged for and converted into (or, with respect to SMG Exchangeable
Shares, exchangeable for and convertible into) the right to receive
cash;
(B) all Stock Election Shares held by each Record Holder making a
Stock Election with respect to 60% or less of the total number of
shares for which an Election is made by such Record Holder
(collectively, the "Unadjusted Stock Election Shares") shall be
exchanged for and converted into (or, with respect to SMG Exchangeable
Shares, exchangeable for and convertible into) the right to receive
IFCO Ordinary Shares; and
(C) the Stock Election Shares held by a Record Holder (an "Adjusted
Stock Record Holder") making a Stock Election with respect to greater
than 60% of the total number of shares for which an Election is made by
such Adjusted Stock Record Holder (the "Adjusted Stock Election
Shares") shall be exchanged for and converted into (or, with respect to
SMG Exchangeable Shares, exchangeable for and convertible into) the
right to receive the sum of
(1) a number of IFCO Ordinary Shares equal to the product of
(x) the Stock Consideration,
(y) .60 and
(z) the total number of shares of PalEx Common Stock and SMG
Exchangeable Shares held by such Adjusted Stock Record
Holder (the product of (y) and (z) being referred to herein
as the "First Stock Adjustment Number"),
(2) a number of IFCO Ordinary Shares equal to the product of
(x) the Stock Consideration,
(y) a fraction, the numerator of which shall be the total
number of Adjusted Stock Election Shares held by such
Adjusted Stock Record Holder less the First Stock
Adjustment Number and the denominator of which shall be the
total number of Adjusted Stock Election Shares held by all
Adjusted Stock Record Holders less the total First Stock
Adjustment Number for all Adjusted Stock Record Holders,
and
(z) the Stock Election Number less the sum of the number of
all the Unadjusted Stock Election Shares and the total
First Stock Adjustment Number for all Adjusted Stock Record
Holders (the product of (y) and (z) being referred to
herein as the "Second Stock Adjustment Number") and
(3) an amount in cash, without interest, equal to the product of
(x) the Cash Consideration and
(y) the total number of Adjusted Stock Election Shares held by
such Adjusted Stock Record Holder, less the First Stock
Adjustment Number and less the Second Stock Adjustment
Number.
(iii) If the Cash Election Shares are greater than or equal to the Cash
Election Number, but less than or equal to the Adjusted Cash Election
Number, then:
(A) all Stock Election Shares shall be exchanged for and converted
into (or, with respect to SMG Exchangeable Shares, exchangeable for and
convertible into) the right to receive IFCO Ordinary Shares;
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(B) all Cash Election Shares shall be exchanged for and converted
into (or, with respect to SMG Exchangeable Shares, exchangeable for and
convertible into) the right to receive cash; and
(C) each Non-Election Share shall be exchanged for and converted into
(or, with respect to the SMG Exchangeable Shares, exchangeable for and
convertible into) the right to receive
(1) an amount in cash equal to the lesser of
(x) the Cash Consideration or
(y) the product of (i) the Cash Consideration and (ii) a
fraction (the "Non-Election Fraction"), the numerator of which
shall be the Adjusted Cash Election Number less the Cash
Election Shares and the denominator of which shall be the total
number of Non-Election Shares, and
(2) if the amount calculated pursuant to clause (1) above is less
than the Cash Consideration, a number of IFCO Ordinary Shares equal
to the product of
(x) the Stock Consideration and
(y) a fraction equal to one minus the Non-Election Fraction.
(iv) For purposes of subsections (i)(C) and (ii)(C) of this Section
3.3(e), (A) the sum of the amounts in cash pursuant to clauses (1) and (2)
of subsection (i)(C) and clauses (1) and (2) of subsection (ii) (C),
respectively, shall be rounded to the nearest whole cent and (B) the number
of IFCO Ordinary Shares pursuant to clause (3) of each of subsections
(i)(C) and (ii)(C) shall be rounded to the fourth decimal place. For
purposes of subsection (iii)(C) of this Section 3.3(e), (A) the product of
the amount in cash pursuant to clause (1) thereof and the total number of
Non-Election Shares held by a Record Holder shall be rounded to the nearest
whole cent and (B) the product of the number of IFCO Ordinary Shares
pursuant to clause (2) thereof and the total number of Non-Election Shares
held by a Record Holder shall be rounded to the fourth decimal place.
(f) Revoking Election Forms. Any Election Form may be revoked by the Record
Holder submitting it, or by a Subsequent Holder of Transferred Shares to which
it relates, only by written notice received by the Exchange Agent on or before
the Election Date. If an Election Form is revoked by a Record Holder, the
Record Holder may make a new Election in accordance with the procedures in
Section 3.3(b). If an Election Form is revoked and a new Election Form is not
so made, the Record Holder shall be deemed to have made a Non-Election and the
Exchange Agent shall retain the certificate or certificates for the shares
submitted with the revoked Election Form for exchange and conversion at the
Effective Time. All Election Forms shall be automatically revoked if SPS or
PalEx terminate this Agreement or SPS and PalEx notify the Exchange Agent in
writing that the Merger has been abandoned. If the Merger is abandoned, the
certificate or certificates for the shares of PalEx Common Stock tendered by a
PalEx Record Holder with such Election Form and to which such Election Form
relates shall be promptly returned to the PalEx Record Holder submitting the
same.
(g) Election Determinations. The determination of the Exchange Agent shall be
binding as to whether or not an Election has been properly made or revoked
pursuant to this Section 3.3 and when an Election or revocation of an Election
was received. If the Exchange Agent reasonably determines in good faith that
any Election was not timely and properly made by a Record Holder, such Record
Holder shall be deemed to have made a Non-Election. IFCO shall have the
discretion to cause the Exchange Agent, or delegate the discretion to the
Exchange Agent, to disregard immaterial defects in Election Forms. The Exchange
Agent shall also make all computations as to the proration of the merger
consideration as contemplated in this Section 3.3, and any such computation
shall be conclusive and binding on the Record Holders and any Subsequent
Holders.
SECTION 3.4. Share Exchange. Upon the terms and subject to the conditions of
this Agreement, as of the Effective Time, IFCO will duly issue the IFCO
Ordinary Shares that form part of the Aggregate Merger Consideration to the
Exchange Agent for the account of the former stockholders of PalEx, and
Exchange Agent
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will contribute, for the account of the former stockholders of PalEx, all of
the Ownership Interests in the Surviving Corporation to IFCO as a contribution
in kind (the "Share Exchange") to pay up such IFCO Ordinary Shares. At the
Effective Time, the obligation to effect the Share Exchange shall be
unconditional and irrevocable.
SECTION 3.5. Dissenting Shares. Notwithstanding anything in this Agreement to
the contrary, shares of PalEx Common Stock which are issued and outstanding
immediately prior to the Effective Time and which are held by any stockholder
who is entitled to appraisal rights pursuant to Section 262 of the DGCL, who,
on a timely basis, makes and perfects a demand for appraisal of such shares in
accordance with all requirements and provisions of Section 262 of the DGCL, and
who does not effectively withdraw or lose the right to such appraisal
(collectively, "Dissenting Shares"), shall not be converted as described in
Section 3.1, but shall, from and after the Effective Time, represent only the
right to receive from the Surviving Corporation such consideration as may be
determined to be due to such stockholder with respect to such Dissenting Shares
pursuant to Section 262 of the DGCL; provided, however, that Dissenting Shares
held by any stockholder who, after the Effective Time, withdraws his demand for
appraisal or loses his right of appraisal with respect to those shares, in
either case pursuant to Section 262 of the DGCL, shall forthwith be converted
into the right to receive the consideration specified in Section 3.1, without
interest pursuant to a cash election (without regard to any proration).
SECTION 3.6. Exchange of Shares.
(a)Exchange Fund. As of the Effective Time, IFCO will provide to the Exchange
Agent the IFCO Ordinary Shares required to effect exchanges for stock pursuant
to Sections 3.1 and 3.3 and this Section 3.6, and the Surviving Corporation
will provide the Exchange Agent with a sufficient amount of cash to effect
exchanges for cash pursuant to Sections 3.1 and 3.3 and this Section 3.6 and to
fund the payment of cash in lieu of fractional shares pursuant to Section 3.7
(all of which is collectively referred to herein as the "Exchange Fund").
(b)Exchange Procedures. Promptly after the Effective Time, the Exchange Agent
will mail to each holder of record of a certificate or certificates that
immediately prior to the Effective Time represented outstanding shares of PalEx
Common Stock (the "Old PalEx Certificates"), who is entitled to receive Merger
Consideration with respect to each such share pursuant to Section 3.1(a), (i) a
letter of transmittal (which will specify that delivery of Old PalEx
Certificates will be effected, and risk of loss and title to the Old PalEx
Certificates will pass, only on actual delivery of the Old PalEx Certificates
to the Exchange Agent) and (ii) instructions for use in effecting the surrender
of the Old PalEx Certificates in exchange for certificates representing IFCO
Ordinary Shares (collectively, "Letter of Transmittal"), unless such record
holder shall have submitted a Letter of Transmittal together with an Election
Form pursuant to Section 3.3. Upon surrender of an Old PalEx Certificate to the
Exchange Agent, together with a duly executed letter of transmittal and such
other documents as the Exchange Agent may reasonably require, the holder of
that Old PalEx Certificate shall be entitled to receive in exchange therefor
(x) if applicable, a certificate in the name of the holder representing that
number of whole IFCO Ordinary Shares into which the shares of PalEx Common
Stock theretofore represented by the Old PalEx Certificate so surrendered will
have been converted pursuant to Sections 3.1(a) and 3.3 and (y) if applicable,
a certified or bank cashiers check payable in U.S. dollars to such holder an
amount equal to the sum of (A) the amount of cash into which such shares of
PalEx Common Stock will have been converted pursuant to Sections 3.1(a) and
3.3, (B) cash in lieu of fractional IFCO Ordinary Shares into which the shares
of PalEx Common Stock theretofore represented by such Old PalEx Certificate
will have been converted pursuant to Sections 3.1(a) and Section 3.3 and (C)
the payment of any dividends and distributions pursuant to Section 3.6(d), and
the Old Palex Certificate so surrendered shall be canceled.
(c)Transfer or Other Taxes. If any certificate for IFCO Ordinary Shares is to
be issued in a name other than that in which the Old PalEx Certificate
surrendered in exchange therefor is registered, it will be a condition of that
exchange that the person requesting such exchange will pay any applicable
transfer or other taxes required by reason of that issuance.
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(d)Dividends; Distributions. IFCO shall not declare or pay any dividends on
or before the Effective Time. No dividends or other distributions declared or
accrued with respect to IFCO Ordinary Shares after the Effective Time will be
paid to the holder of any unsurrendered Old PalEx Certificate, with respect to
which the IFCO Ordinary Shares shall have been issued in the Merger. All such
dividends or other distributions shall be paid by IFCO to the Exchange Agent
(on behalf of holders of unsurrendered Old Pal Ex Certificates) and shall be
included in the Exchange Fund, in each case until such Old PalEx Certificates
shall be surrendered as provided herein, but (i) upon that surrender there
shall be paid, to the person in whose name the certificates representing those
IFCO Ordinary Shares shall be issued and registered the amount of dividends or
other distributions theretofore paid with respect to such IFCO Ordinary Shares
as of any date subsequent to the Effective Time but prior to that surrender and
(ii) at the appropriate payment date or as soon as practicable thereafter,
there shall be paid to that person the amount of dividends or other
distributions with a record date, or which have accrued, after the Effective
Time but prior to that surrender, but which are not payable until a date after
that surrender, which are payable with respect to whole IFCO Ordinary Shares,
subject in any case to any applicable abandoned property, escheat and similar
laws. No interest will be payable on any such dividends or distributions
pursuant to this Section 3.6 or any payment for fractional shares pursuant to
Section 3.7.
(e)Lost, Stolen or Destroyed Certificates. If any Old PalEx Certificate has
been lost, stolen or destroyed, on the making of an affidavit of that fact by
the person claiming ownership of that Old PalEx Certificate, IFCO and the
Surviving Corporation will issue in exchange for that lost, stolen or destroyed
Old PalEx Certificate the IFCO Ordinary Shares, cash and other property
deliverable in respect thereof determined in accordance with this Article III.
When authorizing any such issuance, either IFCO or the Surviving Corporation
may, in its discretion and as a condition precedent to that issuance to any
person, require that person to give IFCO and the Surviving Corporation such
indemnity as it may reasonably direct as protection against any claim that may
be made against IFCO or the Surviving Corporation with respect to the PalEx
Certificate alleged to have been lost, stolen or destroyed.
(f)Final Settlement. From and after the Effective Time, the holders of Old
PalEx Certificates shall cease to have any rights with respect to such shares
except as otherwise provided herein or by applicable law. All rights to receive
cash in lieu of fractional shares, if any, and cash and/or IFCO Ordinary Shares
in which shares of PalEx Common Stock shall have been converted pursuant to
this Article III shall be deemed to have been paid or issued, as the case may
be, in full satisfaction of all rights pertaining to such shares of PalEx
Common Stock.
(g)Termination of Exchange Fund. Any portion of the Exchange Fund that
remains undistributed to the holders of the Old PalEx Certificates one year
after the Effective Time shall be delivered by the Exchange Agent to a
depositary bank designated by IFCO, upon demand, whereupon such depositary bank
shall hold the Exchange Fund on behalf of holders of unsurrendered Old PalEx
Certificates, and any holders of Old PalEx Certificates who have not heretofore
complied with this Section 3.6 shall thereafter look only to IFCO or such
depositary bank for payment of their claim for Merger Consideration for each
share of PalEx Common Stock evidenced by such Old PalEx Certificates and any
dividends or distributions with respect to IFCO Ordinary Shares and IFCO shall
cause the depositary bank to satisfy such claim. Such depositary bank shall
maintain an office in the City of New York where holders of Old PalEx
Certificates may comply with this Article III.
(h)Withholding Taxes. Each of the Exchange Agent and IFCO shall be entitled
to deduct and withhold from the consideration otherwise payable pursuant to
this Agreement to any holder of Old PalEx Certificates and from dividends, if
any, payable pursuant to Section 3.6(d) such amounts as it is required to
deduct and withhold with respect to the making of such payment under the Code
or any provision of state, local or non-U.S. tax law. To the extent that
amounts are so withheld by the Exchange Agent or IFCO, as the case may be, such
withholdings shall be treated for all purposes of this Agreement as having been
paid to the holder of the Old PalEx Certificate in respect of which such
deduction and withholding was made by the Exchange Agent or IFCO, as the case
may be.
(i) Liability. None of the Exchange Agent, IFCO or the Surviving Corporation
shall be liable to any holder of shares of PalEx Common Stock or IFCO Ordinary
Shares, as the case may be, for such shares (or
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dividends or distributions with respect thereto) or cash in lieu of fractional
IFCO Ordinary Shares delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
SECTION 3.7. No Fractional Shares. Notwithstanding any other provision of
this Agreement, no certificates or scrip for fractional IFCO Ordinary Shares
will be issued in the Merger and no holder of an Old PalEx Certificate entitled
to receive a fractional IFCO Ordinary Share in the Merger but for this Section
3.7 will be entitled to any dividend or other distribution with respect to that
fractional share or have any rights of a holder of IFCO Ordinary Shares by
reason of that fractional share. In lieu of any such fractional shares, each
holder of shares of PalEx Common Stock who would otherwise have been entitled
to receive a fraction of an IFCO Ordinary Share on surrender of Old PalEx
Certificates for exchange pursuant to this Article III will be entitled to
receive from the Exchange Agent an amount in cash (without interest) equal to
the value of an IFCO Ordinary Share, calculated based upon the IPO Price,
multiplied by such fraction. The Surviving Corporation shall provide the
Exchange Agent with sufficient cash to make such payments to the holders of Old
PalEx Certificates in cash, without interest, on the surrender of the Old PalEx
Certificates.
SECTION 3.8. Closing of PalEx's Transfer Books. At and after the Effective
Time, holders of Old PalEx Certificates will cease to have any rights as
stockholders of PalEx, except for the right to receive cash and/or IFCO
Ordinary Shares (and dividends or other distributions, if any, thereon)
pursuant to Sections 3.1, 3.3 and 3.6, and the right to receive cash as payment
for and in lieu of fractional shares pursuant to Section 3.7. At the Effective
Time, the stock transfer books of PalEx will be closed and no transfer of
shares of PalEx Common Stock which were outstanding immediately prior to the
Effective Time thereafter will be made.
SECTION 3.9. Modification of Share Exchange Procedures. The parties agree to
revise the share exchange procedures set forth in Article II and III as may be
necessary and appropriate to comply with the laws of the jurisdiction in which
IFCO is organized, provided that the economic effect of the share exchange
procedures shall not be changed.
ARTICLE IV
IFCO GOVERNANCE AFTER THE EFFECTIVE TIME
SECTION 4.1. IFCO Governance after Effective Time. IFCO and PalEx agree that,
after the Effective Time, and without the intention to interfere with the
rights and powers of IFCO's shareholders meeting or its Board of Directors,
they will recommend to their respective shareholders and Board of Directors the
following:
(a) The Articles of Association of IFCO and any other applicable corporate
governance documents of IFCO as may be required by the laws of the jurisdiction
in which it is organized, in each case, following the Effective Time, shall be
in the form reasonably agreed on between IFCO and PalEx.
(b) Notwithstanding the foregoing, the Board of Directors of IFCO (the "IFCO
Board of Directors") shall consist of seven members. The initial members of the
IFCO Board of Directors shall be Martin Schoeller, Christoph Schoeller, Sam
Humphreys, Dr. Frank Tofflinger, Eckhard Pfeiffer, Randall Onstead, and
Cornelius Geber. The initial Chairman shall be Christoph Schoeller.
SECTION 4.2. Corporate and Operational Headquarters. Following the Effective
Time, IFCO shall maintain its primary headquarters in Amsterdam, The
Netherlands, and shall initially maintain two regional corporate and
operational headquarters: one located at the current headquarters of IFCO
Europe in Munich, Germany; and one located at the current headquarters of PalEx
in Houston, Texas.
SECTION 4.3. Language. Following the Effective Time, English shall be the
official language for the management of IFCO, except where Dutch law requires
records or filings in the Dutch language.
SECTION 4.4. U.S. GAAP. Following the Effective Time, the books and records
of IFCO shall be maintained in accordance with U.S. GAAP, in addition to The
Netherlands generally accepted accounting principles to the extent required
under Dutch law.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PALEX
PalEx represents and warrants to SPS that, except as set forth in the
disclosure schedule dated as of the Effective Date and signed by an authorized
officer of PalEx (the "PalEx Disclosure Schedule") and the supplemental
disclosure schedule dated as of the Execution Date and signed by an authorized
officer of PalEx and delivered to SPS on or before the second business day
after the Execution Date in a form reasonably satisfactory to SPS (the "PalEx
Supplemental Disclosure Schedule") (provided, however, that any exception set
forth in the PalEx Supplemental Disclosure Schedule with respect to any matter
or event occurring or arising after the Execution Date, which has or could
reasonably be expected to have a PalEx Material Adverse Effect, shall not have
the effect of modifying these representations and warranties or the exceptions
set forth in the PalEx Disclosure Schedule), each of which exceptions will
specifically identify the relevant Section hereof to which it relates, all of
the following representations and warranties in this Article V are as of the
Effective Date (or such other date stated therein), and will be, on the Closing
Date and immediately prior to the Effective Time, true and correct:
SECTION 5.1. Organization and Qualification. PalEx is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite corporate power and authority to own, lease and
operate its assets and properties and to carry on its business as it is now
being conducted. PalEx is qualified to do business and is in good standing in
each jurisdiction in which the properties it owns, leases or operates or the
nature of the business it conducts makes that qualification necessary, except
where the failure to be so qualified and in good standing will not, when taken
together with all other such failures, reasonably be expected to have a
material adverse effect on the business, operations, properties, assets,
condition (financial or other) or results of operations of PalEx and its
Subsidiaries, taken as a whole (a "PalEx Material Adverse Effect"). True,
accurate and complete copies of PalEx's Certificate of Incorporation and
Bylaws, in each case as in effect on the Effective Date, including all
amendments thereto, have heretofore been delivered or made available to SPS.
SECTION 5.2. Capitalization.
(a) As of the Effective Date, the authorized capital stock of PalEx consists
of 30,000,000 shares of PalEx Common Stock and 5,000,000 shares of preferred
stock, par value $.01 per share ("PalEx Preferred Stock"). As of March 26,
1999, (i) 19,578,609 shares of PalEx Common Stock were issued and outstanding,
all of which were validly issued and are fully paid, nonassessable and free of
preemptive rights, (ii) no shares of PalEx Preferred Stock were issued and
outstanding, (iii) no shares of PalEx Common Stock and no shares of PalEx
Preferred Stock were held in the treasury of PalEx, (iv) 2,581,400 shares of
PalEx Common Stock were issuable pursuant to options granted under PalEx's 1996
Stock Option Plan, (v) 250,000 shares of PalEx Common Stock were reserved for
issuance pursuant to a warrant issued by PalEx to Batchelder, (vi) 703,346
shares of PalEx Common Stock were reserved for issuance on conversion of
convertible promissory notes in the aggregate principal amount outstanding of
approximately $9,900,000 (the "PalEx Convertible Notes") and (vii) 720,732
shares of PalEx Common Stock were reserved for issuance to the former
shareholders of SMG Corporation ("SMG") in exchange for exchangeable shares of
SMG Corporation (the "SMG Exchangeable Shares").
(b) Except as set forth in Section 5.2(a) or as disclosed in the PalEx SEC
Reports, as of the Effective Date there are no outstanding subscriptions,
options, calls, contracts, commitments, understandings, contractual
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement and also including any rights plan or other anti-takeover agreement
(collectively, "Stock Commitments"), obligating PalEx or any Subsidiary of
PalEx to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of the capital stock of PalEx or obligating PalEx or any
Subsidiary of PalEx to grant, extend or enter into any such agreement or
commitment. Except as contemplated pursuant to this Agreement, there are no
voting trusts, proxies or other agreements or understandings (collectively,
"Voting Arrangements") to which PalEx or any Subsidiary of PalEx or, to the
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knowledge of PalEx, any director or executive officer of PalEx is a party or is
bound with respect to the voting of any shares of capital stock of PalEx.
SECTION 5.3. Subsidiaries. Each direct and indirect Subsidiary of PalEx is
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization and has the requisite power and authority to own,
lease and operate its assets and properties and to carry on its business as it
is now being conducted. Each Subsidiary of PalEx is qualified to do business
and is in good standing in each jurisdiction in which the properties it owns,
leases or operates or the nature of the business it conducts makes such
qualification necessary, except where the failure to be so qualified and in
good standing would not, when taken together with all such other failures with
respect to all Subsidiaries of PalEx, have a PalEx Material Adverse Effect. All
the outstanding shares of capital stock of each corporate Subsidiary of PalEx
are validly issued, fully paid, nonassessable and free of preemptive rights and
are owned directly or indirectly by PalEx free and clear of any liens, security
interests, charges, claims or other encumbrances (each, a "Lien"), except that
those shares are pledged to secure the indebtedness outstanding under the
Credit Agreement between PalEx and Bank One, Texas, N.A. (the "PalEx Credit
Facility"). There are no Stock Commitments or Voting Arrangements relating to
the issuance, sale, voting, transfer, ownership or other rights with respect to
any shares of capital stock of any corporate Subsidiary of PalEx, including any
right of conversion or exchange under any outstanding security, instrument or
agreement.
SECTION 5.4. Authority; Non-Contravention; Approvals.
(a) PalEx has full corporate power and authority to enter into this
Agreement and, subject to the PalEx Stockholders' Approval and the PalEx
Required Regulatory Approvals, to consummate the transactions contemplated
hereby. The Board of Directors of PalEx has at a meeting duly called and held
and at which a quorum was present and acting throughout, by the requisite
affirmative vote of the directors of PalEx, (i) determined that the Merger is
in the best interests of PalEx and its stockholders and (ii) approved this
Agreement and the Merger. No other corporate proceedings on the part of PalEx
are necessary to authorize the execution and delivery of this Agreement or,
except for the PalEx Stockholders' Approval, the consummation by PalEx of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by PalEx and, assuming the due authorization, execution and delivery
hereof by the other parties hereto, constitutes a valid and legally binding
agreement of PalEx, enforceable against PalEx in accordance with its terms,
except as that enforceability may be subject to (y) any applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and (z) general
equitable principles.
(b) The execution and delivery of this Agreement by PalEx do not violate,
conflict with or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under or result in the creation of any Lien on any of the properties or assets
of PalEx or any of its Subsidiaries under any of the terms, conditions or
provisions of (i) the charter, bylaws or other similar governing documents of
PalEx or any Subsidiary of PalEx, (ii) any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of any
governmental or regulatory authority, body or court (each, a "Governmental
Requirement") applicable to PalEx or any of its Subsidiaries or any of their
respective properties or assets or (iii) any note, bond, mortgage, indenture,
deed of trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which PalEx or any of its
Subsidiaries is now a party or by which PalEx or any of its Subsidiaries or any
of their respective properties or assets may be bound or affected. The
consummation by PalEx of the transactions contemplated hereby will not result
in any violation, conflict, breach, termination, acceleration or creation of
Liens under any of the terms, conditions or provisions described in clauses (i)
through (iii) of the preceding sentence, subject (A) in the case of the terms,
conditions or provisions described in clause (ii) above, to obtaining (prior to
the Effective Time) the PalEx Required Regulatory Approvals and the PalEx
Stockholders' Approval and (B) in the case of the terms, conditions or
provisions described in clause (iii) above, to obtaining (prior to the
Effective Time) consents required from commercial lenders, lessors or other
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third parties as specified in the PalEx Disclosure Schedule or PalEx
Supplemental Disclosure Schedule. Excluded from the foregoing sentences of this
Section 5.4(b), insofar as they apply to the terms, conditions or provisions
described in clauses (ii) and (iii) of the first sentence of this Section
5.4(b), are such violations, conflicts, breaches, defaults, terminations,
accelerations or creations of Liens as would not, singly or in the aggregate,
have a PalEx Material Adverse Effect, materially impair the ability of PalEx to
perform its obligations hereunder or prevent the consummation of any of the
transactions contemplated hereby.
(c) Except for (i) the filings by PalEx required by the U.S. Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and
comparable antitrust notice or filing requirements imposed by the European
Union or the laws of the jurisdiction in which IFCO is organized (the "European
Governmental Requirements"), and the expiration or termination of the
applicable waiting periods with respect thereto, (ii) the filing of the Proxy
Statement and the Registration Statement with the U.S. Securities and Exchange
Commission (the "SEC") pursuant to the U.S. Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the U.S. Securities Act of 1933, as amended
(the "Securities Act"), and the declaration of the effectiveness of the
Registration Statement by the SEC and filings with various state "blue sky" or
securities authorities, and such other compliance with the Exchange Act and the
rules and regulations thereunder as may be required in connection with this
Agreement and the transactions contemplated hereby, and (iii) the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware in
connection with the Merger (the filings referred to in clauses (i) through
(iii) and the related approvals of the applicable governmental or regulatory
bodies or authorities collectively being the "PalEx Required Regulatory
Approvals"), no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body or
authority (each, a "Regulatory Approval") is necessary for the execution and
delivery of this Agreement by PalEx or the consummation by PalEx of the
transactions contemplated hereby, other than such Regulatory Approvals as, if
not made or obtained, as the case may be, would not, singly or in the
aggregate, render that consummation unlawful, void or voidable in whole or in
any part or have a PalEx Material Adverse Effect.
SECTION 5.5. Reports and Financial Statements; Accounting and Other Systems.
(a) Since March 20, 1997, PalEx has filed with the SEC all material forms,
statements, reports and documents (including all exhibits, post-effective
amendments and supplements) required to be filed by it under each of the
Securities Act, the Exchange Act and the respective rules and regulations
thereunder, all of which, as amended if applicable, complied when filed in all
material respects with all applicable requirements of the appropriate act and
the rules and regulations thereunder. PalEx has previously delivered or made
available to SPS copies (including all exhibits, post-effective amendments and
supplements) of (i) all reports, including quarterly reports, and registration
statements filed by PalEx with the SEC since March 20, 1997 (other than
registration statements filed on Form S-8) and (ii) PalEx's Annual Report on
Form 10-K for the fiscal year ended December 27, 1998 as filed with the SEC on
March 29, 1999 (the documents referred to in clauses (i) and (ii) referred to
collectively as the "PalEx SEC Reports"). The PalEx SEC Reports are identified
in the PalEx Disclosure Schedule or PalEx Supplemental Disclosure Schedule. As
of their respective dates, the PalEx SEC Reports did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited interim consolidated financial
statements of PalEx and its Subsidiaries included in such reports
(collectively, the "PalEx Financial Statements") have been prepared in
accordance with U.S. generally accepted accounting principles ("U.S. GAAP")
applied on a consistent basis (except as may be indicated therein or in the
notes thereto) and fairly present the financial position of PalEx and its
consolidated Subsidiaries as of the dates thereof and the results of their
operations and their cash flows for the periods then ended, subject, in the
case of the unaudited interim financial statements, to normal year-end and
audit adjustments and any other adjustments described therein.
(b) Each of PalEx and its Subsidiaries maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with U.S. GAAP and to
maintain accountability for assets, (iii) access to assets is permitted only in
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accordance with management's general or specific authorization and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
SECTION 5.6. Absence of Undisclosed Liabilities. Except as disclosed in the
PalEx SEC Reports or as heretofore disclosed to SPS in writing with respect to
acquisitions or potential transactions or commitments, neither PalEx nor any of
its Subsidiaries had at December 27, 1998, or has incurred since that date, any
liabilities or obligations (whether absolute, accrued, contingent or otherwise)
of any nature, except: (a) liabilities, obligations or contingencies that (i)
are accrued or reserved against in the PalEx Financial Statements or reflected
in the notes thereto, (ii) were incurred after December 27, 1998 in the
ordinary course of business and consistent with past practices or (iii) arises
from disclosures set forth on the PalEx Disclosure Schedule or PalEx
Supplemental Disclosure Schedule; (b) liabilities, obligations or contingencies
that (i) would not, singly or in the aggregate, have a PalEx Material Adverse
Effect or (ii) have been discharged or paid in full prior to the Effective
Date; (c) liabilities and obligations that (i) are of a nature not required to
be reflected in the consolidated financial statements of PalEx and its
Subsidiaries prepared in accordance with U.S. GAAP consistently applied and
(ii) were incurred in the ordinary course of business; and (d) liabilities and
obligations under this Agreement.
SECTION 5.7. Absence of Certain Changes or Events. Except as disclosed in the
PalEx SEC Reports, since December 27, 1998, the business of PalEx and its
Subsidiaries has been conducted in the ordinary course consistent with past
practices and there has not been:
(a) any event, occurrence, development or state of circumstances or facts
which has had or is reasonably likely to have, individually or in the
aggregate, a PalEx Material Adverse Effect;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of PalEx or its
Subsidiaries, or any repurchase, redemption or other acquisition by PalEx or
any of its Subsidiaries of any outstanding shares of capital stock or other
securities of, or other ownership interests in, PalEx or any of its
Subsidiaries, except for the SMG Exchangeable Shares;
(c) any making of any material loan, advance or capital contributions to or
investment in any person other than loans, advances or capital contributions to
or investments in its Subsidiaries other than advances under the PalEx Credit
Facility and indebtedness incurred in the ordinary course and consistent with
past practices in connection with equipment purchases;
(d) any material change in the method of accounting or accounting practice
of PalEx or its Subsidiaries, other than changes required by U.S. GAAP; or
(e) any (i) grant of any severance or termination pay except as
contemplated by Section 9.7(d) to (A) any employee of PalEx or any of its
Subsidiaries other than ordinary course grants in amounts consistent with past
practices or (B) any director or officer of PalEx or any of its Subsidiaries,
(ii) increase in benefits payable under any existing severance or termination
pay policies or employment agreements, (iii) entering into of any employment,
deferred compensation or other similar agreement (or any amendment to any such
existing agreement) with any director or officer of PalEx or any of its
Subsidiaries or (iv) increase in compensation, bonus or other benefits payable
to directors or officers, other than, with respect to each of clauses (i)-(iv),
in the ordinary course consistent with past practices, which do not, in the
aggregate, have a Material Adverse Effect.
SECTION 5.8. Litigation. Except as disclosed in the PalEx SEC Reports, there
are no claims, suits, actions or proceedings pending or, to the knowledge of
PalEx, threatened against, relating to or affecting PalEx or any of its
Subsidiaries, before any court, any governmental department, commission,
agency, instrumentality or authority or any arbitrator or mediator (each, a
"Court"), which seek to restrain or enjoin the consummation of the Merger or
which could reasonably be expected, either alone or in the aggregate with all
such claims, actions or proceedings, to have a PalEx Material Adverse Effect.
Except as disclosed in the PalEx SEC Reports, neither PalEx nor any of its
Subsidiaries is subject to any Governmental Requirement of any Court which
prohibits or restricts the consummation of the transactions contemplated hereby
or would have a PalEx Material Adverse Effect.
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SECTION 5.9. Registration Statement and Proxy Statement. None of the
information to be supplied by PalEx or its Subsidiaries for inclusion in (a)
the Registration Statement on Form F-4 to be filed under the Securities Act
with the SEC by IFCO in connection with the Merger for the purpose of
registering the IFCO Ordinary Shares to be issued in the Merger (the
"Registration Statement") or (b) the proxy statement/prospectus to be included
in the Registration Statement and distributed in connection with the meeting of
the stockholders of PalEx to vote on this Agreement and the Merger (the "Proxy
Statement") will, in the case of the Proxy Statement or any amendments thereof
or supplements thereto, at the time of the mailing of the Proxy Statement and
any amendments thereof or supplements thereto, and at the time of that meeting
of the stockholders of PalEx or, in the case of the Registration Statement, as
amended or supplemented at the time it becomes effective and at the time of
such meeting, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they are
made, not misleading. The Proxy Statement will, as of its mailing date, comply
as to form in all material respects with all applicable Governmental
Requirements, except that no representation is made by PalEx with respect to
information supplied or omitted by the IFCO Companies, Merger Sub or SPS for
inclusion therein.
SECTION 5.10. No Violation of Law. Except as disclosed in the PalEx SEC
Reports, neither PalEx nor any of its Subsidiaries is in violation of, or has
been given notice or been charged with any violation of, any Governmental
Requirement (including, without limitation, any applicable environmental law,
ordinance or regulation), except for violations which, singly or in the
aggregate, could not reasonably be expected to have a PalEx Material Adverse
Effect. Without limiting the generality of the foregoing, neither PalEx nor any
of its Subsidiaries, nor, to the knowledge of PalEx, any director, officer,
agent, stockholder, employee or other person associated with or acting on
behalf of PalEx or any of its Subsidiaries has (a) used any corporate funds for
any unlawful contribution, gift, entertainment or other unlawful expense
relating to any political activity, (b) made any direct or indirect unlawful
payment to any government official or employee from corporate funds or (c) made
any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment. Except as disclosed in the PalEx SEC Reports, as of the Effective
Date, to the knowledge of PalEx, no investigation or review by any governmental
or regulatory body or authority is pending or threatened, nor has any
governmental or regulatory body or authority indicated an intention to conduct
the same, other than, in each case, those the outcome of which, as far as
reasonably can be foreseen, will not, singly or in the aggregate, have a PalEx
Material Adverse Effect. PalEx and its Subsidiaries have all permits, licenses,
franchises, variances, exemptions, orders, authorizations, consents and
approvals (each, a "Permit") necessary to conduct their businesses as presently
conducted (collectively, the "PalEx Permits"), except for Permits the absence
of which, singly or in the aggregate, would not have a PalEx Material Adverse
Effect. Neither PalEx nor any of its Subsidiaries is in violation of the terms
of any PalEx Permit, except for delays in filing reports or violations that,
singly or in the aggregate, would not have a PalEx Material Adverse Effect.
SECTION 5.11. Compliance with Agreements. Except as disclosed in the PalEx
SEC Reports, neither PalEx nor any of its Subsidiaries is in breach or
violation of or in default in the performance or observance of any term or
provision of, and no event has occurred which, with lapse of time or action by
a third party, could result in a default under, (a) the charter, bylaws or
similar governing documents of PalEx or any of its Subsidiaries or (b) any
contract, commitment, agreement, indenture, mortgage, loan agreement, note,
lease, bond, license, approval or other instrument to which PalEx or any of its
Subsidiaries is a party or by which any of them is bound or to which any of
their property is subject, other than, in the case of clause (b) of this
Section 5.11, breaches, violations and defaults that, singly or in the
aggregate, would not have a PalEx Material Adverse Effect.
SECTION 5.12. Environmental Matters. Except as disclosed in the PalEx SEC
Reports with respect to the Zellwood Groundwater Contamination Site in Orange
County, Florida, and the Casmalia Site in Santa Barbara County, California, (a)
PalEx and its Subsidiaries have conducted their respective businesses in
material compliance with all applicable Governmental Requirements relating to
(i) the protection of human health and safety, (ii) the protection of the
environment or (iii) hazardous or toxic substances or wastes, pollutants or
contaminants (collectively, "Environmental Laws"), (b) there is no claim
pending under any
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Environmental Law or, to the knowledge of PalEx, threatened against PalEx or
any of its Subsidiaries, except for those that, if determined adversely to
PalEx or any of its Subsidiaries would not, singly or in the aggregate, have a
PalEx Material Adverse Effect, (c) there are no past or present actions,
activities, circumstances, events or incidents, including releases of any
material into the environment, that would reasonably be expected to form the
basis of any claim against PalEx or any of its Subsidiaries, except for an such
claims that, if determined adversely to PalEx or any of its Subsidiaries, would
not, singly or in the aggregate, have a PalEx Material Adverse Effect, and (d)
neither PalEx nor any of its Subsidiaries is liable for any costs or
liabilities related to compliance with Environmental Laws (including any
capital or operating expenditures required for cleanup, closure of properties
or compliance with Environmental Laws or any permit, license or approval, any
related constraints on operating activities and any potential liabilities to
third parties), except for such costs and liabilities that, as far as can
reasonably be foreseen, will not, singly or in the aggregate, have a PalEx
Material Adverse Effect.
SECTION 5.13. Taxes.
(a) PalEx and its Subsidiaries have duly filed with the appropriate
governmental or other taxing authorities all Tax Returns required to be filed
by them for all periods ending on or prior to the Effective Time, other than
those Tax Returns the failure to file which, singly or in the aggregate, would
not have a PalEx Material Adverse Effect, and those filed Tax Returns are true,
correct and complete in all material respects. PalEx and its Subsidiaries have
duly paid in full or made adequate provision for the payment of all Taxes for
all past and current periods. The liabilities and reserves for Taxes reflected
in PalEx's balance sheet included in the latest PalEx SEC Report are adequate
to cover all Taxes for all periods ending at or prior to the date of that
balance sheet and there is no liability for Taxes for any period beginning
after such date other than Taxes arising in the ordinary course of business.
There are no material Liens for Taxes on any property or asset of PalEx or any
Subsidiary thereof, except for Liens for Taxes not yet due. There are no
unresolved issues of law or fact arising out of a notice of deficiency,
proposed deficiency or assessment from the IRS or any other taxing authority
with respect to Taxes of PalEx or any of its Subsidiaries which, if decided
adversely, singly or in the aggregate, would have a PalEx Material Adverse
Effect. Neither PalEx nor any of its Subsidiaries has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency other than waivers and extensions that are no
longer in effect. Neither PalEx nor any of its Subsidiaries is a party to any
agreement providing for the allocation or sharing of Taxes with any entity that
is not, directly or indirectly, a wholly owned corporate Subsidiary of PalEx
other than agreements the consequences of which are fully and adequately
reserved for in the PalEx Financial Statements. Neither PalEx nor any of its
corporate Subsidiaries has, with regard to any assets or property held,
acquired or to be acquired by any of them, filed a consent to the application
of Section 341(f) of the Code.
(b) For purposes of this Agreement, the term "Taxes" (i) means all taxes,
including, without limitation, income, gross receipts, excise, property, sales,
withholding, social security, occupation, use, service, license, payroll,
franchise, transfer and recording taxes, fees and charges, windfall profits,
severance, customs, import, export, employment or similar taxes, charges, fees,
levies or other assessments imposed by the Federal Republic of Germany, the
United States, or any state, local or foreign government or subdivision or
agency thereof, whether computed on a separate, consolidated, unitary, combined
or any other basis, and (ii) includes any interest, fines, penalties or
additional amounts and any interest in respect of any additions, fines or
penalties attributable or imposed or with respect to any such taxes, charges,
fees, levies or other assessments.
(c) For purposes of this Agreement, the term "Tax Return" means any return,
report, rendition or other document or information required to be supplied to a
taxing authority in connection with Taxes.
SECTION 5.14. Employee Benefit Plans; ERISA.
(a)Except as disclosed in the PalEx SEC Reports, at the Effective Date, PalEx
and its Subsidiaries do not maintain or contribute to or have any obligation or
liability to or with respect to any employee benefit plans, policies, programs,
arrangements or practices (such plans, policies, programs, arrangements or
practices of PalEx and its Subsidiaries being referred to as the "PalEx
Plans"), including employee benefit plans within
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the meaning set forth in Section 3(3) of the U.S. Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or other similar material
arrangements for the provision of benefits (including any multi-employer plan
within the meaning of Section 3(37) of ERISA (a "Multi-Employer Plan") or any
multiple employer plan within the meaning of Section 413(c) of the Code (a
"Multiple Employer Plan")) with respect to which PalEx or its Subsidiaries has,
individually or in the aggregate, any material unfunded liabilities. Neither
PalEx nor any of its Subsidiaries maintains or has any liability with respect
to any Multiple Employer Plan. Neither PalEx nor any of its Subsidiaries has
any obligation to create or contribute to any PalEx Plan not disclosed in the
PalEx SEC Reports or to amend any PalEx Plan so disclosed to increase benefits
or contributions thereunder, except as required under the terms of the PalEx
Plans or existing collective bargaining agreements or to comply with applicable
law and neither PalEx or any Subsidiaries has, individually or in the
aggregate, any material unfunded liability under any of the PalEx Plans that is
not disclosed in the PalEx SEC Reports.
(b)Except as disclosed in the PalEx SEC Reports, (i) there have been no
prohibited transactions within the meaning of Section 406 or 407 of ERISA or
Section 4975 of the Code ("Prohibited Transactions") with respect to any of the
PalEx Plans that could result in penalties, taxes or liabilities which, singly
or in the aggregate, could have a PalEx Material Adverse Effect, (ii) there is
no outstanding material liability, whether measured alone or in the aggregate,
under Title IV of ERISA with respect to any of the PalEx Plans, (iii) neither
the Pension Benefit Guaranty Corporation nor any plan administrator has
instituted proceedings to terminate any of the PalEx Plans subject to Title IV
of ERISA other than in a standard termination described in Section 4041(b) of
ERISA (a "Standard Termination"), (iv) none of the PalEx Plans has incurred any
accumulated funding deficiency (as defined in Section 302 of ERISA and Section
412 of the Code (an "AFD")), whether or not waived, as of the last day of the
most recent fiscal year of each of the PalEx Plans ended prior to the Effective
Date, (v) the current present value of all projected benefit obligations under
each of the PalEx Plans subject to Title IV of ERISA did not, as of its latest
valuation date, exceed the then current value of the assets of such plan
allocable to such benefit liabilities by more than the amount, if any,
disclosed in the PalEx SEC Reports as of December 27, 1998, based on reasonable
actuarial assumptions that are currently and consistently utilized for such
PalEx Plan, (vi) each of the PalEx Plans has been operated and administered in
all material respects in accordance with applicable laws during the period of
time covered by the applicable statute of limitations or any other period that
could have a PalEx Material Adverse Effect, (vii) each of the PalEx Plans that
is intended to be qualified within the meaning of Section 401(a) of the Code (a
"Qualified Plan") has been operated and administered in accordance with the
requirements for a Qualified Plan and has been determined by the U.S. Internal
Revenue Service (the "IRS") to be a Qualified Plan and that determination has
not been modified, revoked or limited by failure to satisfy any condition
thereof or by a subsequent amendment thereto or a failure to amend, except that
it may be necessary to make additional amendments retroactively to maintain the
status of such PalEx Plans as Qualified Plans and the period for making any
such necessary retroactive amendments has not expired, (viii) with respect to
Multi-Employer Plans, neither PalEx nor any of its Subsidiaries has made or
suffered a complete withdrawal or a partial withdrawal, as such terms are
respectively defined in Sections 4203, 4204 and 4205 of ERISA (a "Complete or
Partial Withdrawal") and, to the knowledge of PalEx, no event has occurred or
is expected to occur which presents a material risk of a Complete or Partial
Withdrawal, (ix) to the knowledge of PalEx, there are no material pending,
threatened or anticipated claims involving any of the PalEx Plans other than
claims for benefits in the ordinary course, (x) PalEx and its Subsidiaries have
no current material liability under Title IV of ERISA and PalEx does not
reasonably anticipate that any such liability will be asserted against PalEx or
any of its Subsidiaries and (xi) no act, omission or transaction (individually
or in the aggregate) has occurred with respect to any PalEx Plan that has
resulted or could result in any material liability (direct or indirect) of
PalEx or any Subsidiary of PalEx under Section 409 or 502(c)(i) or (l) of ERISA
or Chapter 43 of Subtitle (A) of the Code. Neither PalEx nor any of its
Subsidiaries is required to provide security to a PalEx Plan pursuant to
Section 401(a)(29) of the Code.
(c)There are no agreements that will or may provide payments to any officer,
employee, stockholder or highly compensated individual which will be "parachute
payments" under Code Section 280G that are nondeductible to PalEx or to its
Subsidiaries or subject to tax under Code Section 4999.
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SECTION 5.15. Labor Controversies. Except as disclosed in the PalEx SEC
Reports, (a) there are no significant controversies pending or, to the
knowledge of PalEx, threatened between PalEx or any of its Subsidiaries and any
representative of any of their employees, except for such controversies as,
singly or in the aggregate, could not reasonably be expected to have a PalEx
Material Adverse Effect, (b) neither PalEx nor any of its Subsidiaries is a
party to, or bound by, any material collective bargaining agreement or other
material contract, agreement, arrangement or understanding with a labor union
or labor organization, (c) to the knowledge of PalEx, there are no
organizational efforts presently being made involving any of the presently
unorganized employees of PalEx or any of its Subsidiaries, except for such
organizational efforts as, singly or in the aggregate, could not reasonably be
expected to have a PalEx Material Adverse Effect and (d) since December 27,
1998, there has not been any adoption or amendment in any material respect by
PalEx or any of its Subsidiaries of any material collective bargaining
agreement or other contract, agreement, arrangement or understanding with a
labor union or labor organization. Each of PalEx and its Subsidiaries is in
compliance with all laws regarding employment, employment practices, terms and
conditions of employment and wages, except for such noncompliance that, singly
or in the aggregate, could not reasonably be expected to have a PalEx Material
Adverse Effect.
SECTION 5.16. Intangible Property. PalEx and its Subsidiaries possess or have
adequate rights to use all material trademarks, trade names, patents, service
marks, brand names, computer programs, databases, industrial designs and
copyrights necessary for the operation of their respective businesses
(collectively, the "PalEx Intangible Property"), except where the failure to
possess or have adequate rights to use such properties could not, singly or in
the aggregate, reasonably be expected to have a PalEx Material Adverse Effect.
To the knowledge of PalEx, the use of the PalEx Intangible Property by PalEx or
its Subsidiaries does not, in any material respect, conflict with, infringe on,
violate or interfere with or constitute an appropriation of any right, title,
interest or goodwill of any other person or entity in any intellectual property
right, trademark, trade name, patent, service mark, brand name, computer
program, database, industrial design, copyright or any pending application
therefor, and there have been no claims made to that effect, and neither PalEx
nor any of its Subsidiaries has received any notice of any such claim or
otherwise knows that any of the PalEx Intangible Property is invalid or
conflicts with the asserted rights of any other person or entity or has not
been used or enforced or has been failed to be used or enforced in a manner
that would result in the abandonment, cancellation or unenforceability of any
of the PalEx Intangible Property, except for any such conflict, infringement,
violation, interference, claim, invalidity, abandonment, cancellation or
unenforceability that, singly or in the aggregate, could not reasonably be
expected to have a PalEx Material Adverse Effect.
SECTION 5.17. Title to Assets. PalEx and each of its Subsidiaries has good
and marketable title in fee simple to all its real property and good title to
all its leasehold interests and other properties, as reflected in the most
recent balance sheet included in the PalEx Financial Statements, except for
properties and assets that have been disposed of in the ordinary course of
business since the date of that balance sheet, free and clear of all Liens of
any nature whatsoever, except (a) any Lien for current taxes, payments of which
are not yet delinquent, (b) such imperfections in title and easements and
encumbrances, if any, as are not substantial in character, amount or extent and
do not materially detract from the value or interfere with the present use of
the property subject thereto or affected thereby, or otherwise materially
impair the business operations of PalEx or any of its Subsidiaries (as
presently conducted) or (c) as disclosed in the PalEx SEC Reports, and except
for such matters which, singly or in the aggregate, could not reasonably be
expected to have a PalEx Material Adverse Effect. All leases under which PalEx
or any of its Subsidiaries leases any real or personal property are in good
standing, valid and effective in accordance with their respective terms, and
there is not, under any of such leases, any existing default or event which,
with notice or lapse of time or both, would become a default other than
failures to be in good standing, valid and effective and defaults under such
leases which, singly or in the aggregate, will not have a PalEx Material
Adverse Effect.
SECTION 5.18. Insurance. PalEx and its Subsidiaries maintain insurance
coverage reasonably adequate for the operation of their respective businesses
(taking into account the cost and availability of such insurance).
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SECTION 5.19. Year 2000. All computer systems and computer software used by
PalEx or any of its Subsidiaries (a) recognize or are being adapted so that,
prior to December 31, 1999, they shall recognize the advent of the year 2000
without any adverse change in operation associated with such recognition, (b)
can correctly recognize or are being adapted so that they can correctly
recognize and manipulate date information relating to dates before, on or after
January 1, 2000, including but not limited to accepting date input, performing
calculations on dates or portion of dates and providing date output, and the
operation and functionality of such computer systems and such computer software
will not be adversely affected by the advent of the year 2000 or any
manipulation of data featuring information relating to dates before, on or
after January 1, 2000, and (c) can suitably interact with other computer
systems and computer software in a way that does not compromise (i) its ability
to correctly recognize the advent of the year 2000 or (ii) its ability to
correctly recognize and manipulate date information relating to dates before,
on or after January 1, 2000 (the operations of clauses (a), (b) and (c)
together, "Millennium Functionality"), except in each case for such computer
system and computer software, the failure of which to achieve Millennium
Functionality, individually or in the aggregate, is not reasonably likely to
have a PalEx Material Adverse Effect. To the knowledge of PalEx, as of the
Effective Date, the costs of the adaptions necessary to achieve Millennium
Functionality are not reasonably likely to have a PalEx Material Adverse
Effect.
SECTION 5.20. Reorganization. Neither PalEx nor, to the knowledge of PalEx,
any of its affiliates has taken or agreed or intends to take any action or has
any knowledge of any fact or circumstance that would prevent the Merger from
constituting a reorganization qualifying under the provisions of Section 368(a)
of the Code. For purposes of this Agreement, "affiliate" means, as to any
specified person or entity, any other person or entity that, directly or
indirectly through one or more intermediaries or otherwise, controls, is
controlled by or is under common control with the specified person or entity
(as used in this definition, "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a person or entity (whether through ownership of capital stock, by
contract or otherwise)).
SECTION 5.21. PalEx Stockholders' Approval. The affirmative vote of
stockholders of PalEx required for approval and adoption of this Agreement is a
majority of the outstanding votes entitled to be cast by holders of PalEx
Common Stock entitled to vote thereon and is the only vote of holders of any
class or series of PalEx capital stock necessary to approve and adopt this
Agreement and the transactions contemplated hereby.
SECTION 5.22. Brokers and Finders. Except for the fees and expenses payable
to Batchelder, which fees are reflected in its agreement with PalEx (a copy of
which has been delivered to SPS), PalEx has not entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of PalEx to pay any finder's fees, brokerage or agent commissions or
other like payments (each, a "Transaction Fee") in connection with the
transactions contemplated hereby. Except for the fees and expenses paid or
payable to Batchelder, there is no claim for payment by PalEx of any
Transaction Fee in connection with the negotiations leading to this Agreement
or the consummation of the transactions contemplated hereby.
SECTION 5.23. Opinion of Financial Advisor. Batchelder has rendered a written
opinion to the Board of Directors of PalEx as of the Execution Date to the
effect that the Merger Consideration is fair from a financial point of view to
the stockholders of PalEx (the "Fairness Opinion").
ARTICLE VI
REPRESENTATIONS AND WARRANTIESOF IFCO COMPANIES
Each of the IFCO Companies represents and warrants to PalEx with respect to
such IFCO Company that, except as set forth in the disclosure schedule dated as
of the Effective Date and signed by an authorized officer of each of the IFCO
Companies (the "IFCO"), and the supplemental disclosure schedule dated as of
the Execution Date and signed by an authorized officer of each of the IFCO
Companies and delivered to PalEx on
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or before the second business day after the Execution Date in a form reasonably
satisfactory to PalEx (the "IFCO Supplemental Disclosure Schedule") (provided,
however, that any exception set forth in the IFCO Supplemental Disclosure
Schedule with respect to any matter or event occurring or arising after the
Execution Date, which has or could reasonably be expected to have a IFCO
Material Adverse Effect, shall not have the effect of modifying these
representations and warranties or the exceptions set forth in the IFCO
Disclosure Schedule), each of which exceptions will specifically identify the
relevant Section hereof to which it relates, all of the following
representations and warranties in this Article VI are as of the Effective Date
(or such other date stated therein), and will be, on the Closing Date and
immediately prior to the Effective Time, true and correct:
SECTION 6.1. Organization and Qualification. Such IFCO Company (other than
IFCO) is a private company duly organized, validly existing and in good
standing under the laws of the Federal Republic of Germany. As of the execution
date, IFCO is a non-trading, public limited company duly organized, validly
existing and in good standing under the laws of The Netherlands. Such IFCO
Company (other than IFCO) has, and IFCO has as of the Execution Date the
requisite power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted. Such IFCO
Company (other than IFCO) is, and IFCO as of the Execution Date, qualified to
do business and in good standing in each jurisdiction in which the properties
it owns, leases or operates or the nature of the business it conducts makes
that qualification necessary, except where the failure to be so qualified and
in good standing will not, when taken together with all other such failures,
reasonably be expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other) or results of
operations of the IFCO Companies and their Subsidiaries, taken as a whole (an
"IFCO Material Adverse Effect"). True, accurate and complete copies of the
Memorandum and Articles of Association of such IFCO Company (other than IFCO),
as in effect on the Effective Date, and of IFCO as in effect on the Execution
Date, including all amendments thereto, have heretofore been delivered or made
available to PalEx.
SECTION 6.2. Capitalization.
(a) As of the Execution Date, (i) SPS and/or its affiliates own all of the
IFCO Ordinary Shares which have been validly issued and be fully paid,
nonassessable and free of preemptive rights, (ii) no IFCO Ordinary Shares will
be held in the treasury of IFCO and (iii) there will be no outstanding options
or warrants to purchase IFCO Ordinary Shares other than (A) shares of stock
reserved for issuance pursuant to the agreement described in Section 6.21 and
(B) as contemplated in this Agreement and the transactions contemplated hereby.
(b) As of the Effective Date, (i) SPS owns one common share of IFCO Europe
in the nominal amount of DM 3,040,000.00 (76%) (the "IFCO Europe Share") and GE
GmbH owns one preferential share of IFCO Europe in the nominal amount of DM
960,000.00 (24%) (the "IFCO Europe Preferred Share") of the total share capital
of DM 4,000,000.00, which shares were validly issued fully paid, nonassessable
and free of preemptive rights, (ii) no IFCO Europe Shares and no IFCO Europe
Preferred Shares are held in the treasury of IFCO Europe and (iii) there are no
outstanding options or warrants to purchase IFCO Europe Shares or IFCO
Preferred Shares other than (A) options granted to GE Capital or GE GmbH
(together with GE Capital, "GE") and SPS pursuant to the Investment Agreement,
(B) a pledge of share capital of IFCO Europe to be granted to GE to secure
future indebtedness, all as contemplated in the Option Release Agreement, (C) a
pledge of share capital of IFCO Europe granted as security for payment of
indebtedness of SPS, granted to WeHaCo Kapitalbeteiligungsgesellschaft Mbh
("WeHaCo") and Provinzial Beteiligungsgesellschaft Mbh ("Provinzial") pursuant
to Deed 1543/1997 of the notary Dr. Rolf Jauch of Stuttgart dated November 4/5,
1997 (the "WeHaCo/Provinzial Deed") and (D) as set forth in Section 6.3 of the
IFCO Disclosure Schedule.
(c) As of the Effective Date, (i) Gebr. Schoeller (all of the share capital
of which is owned by Martin Schoeller, Christoph Schoeller, Andrea Schoeller
and children of Martin Schoeller), Martin Schoeller and Christoph Schoeller
collectively own six shares of SIL in the total nominal amount of DM 50,000.00
(the "SIL Shares") representing the total share capital of SIL, all of which
were validly issued and are fully paid, nonassessable and free of preemptive
rights, (ii) no SIL Shares are held in the treasury of SIL and (iii) there are
no outstanding options or warrants to purchase SIL Shares other than pursuant
to the Investment Agreement.
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(d) As of the Effective Date, (i) SPS owns three shares of MTS in the
nominal amounts of DM 5,000.00, DM 5,000.00 and DM 40,000.00 (the "MTS Shares")
of the total share capital of DM 50,000.00, all of which were validly issued
and are fully paid, nonassessable and free of preemptive rights, (ii) no MTS
Shares are held in the treasury of MTS and (iii) there are no outstanding
options or warrants to purchase MTS Shares other than (A) options granted
pursuant to the Investment Agreement and to WeHaCo and (B) a pledge of share
capital of MTS granted as security for payment of indebtedness of MTS to WeHaCo
and Provinzial pursuant to the WeHaCo/Provinzial Deed.
(e) Except as otherwise set forth in this Section 6.2, as of the Effective
Date there are no outstanding Stock Commitments obligating such IFCO Company or
any of its Subsidiaries (nor will there be prior to the Merger with respect to
Merger Sub) to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of the capital stock of such IFCO Company or obligating
such IFCO Company or any Subsidiaries to grant, extend or enter into any such
agreement or commitment other than pursuant to the Investment Agreement, the
Option Release Agreement and this Agreement. There are no Voting Arrangements
to which such IFCO Company or any Subsidiaries or, to the knowledge of such
IFCO Company, any of its directors or executive officers is a party or is bound
with respect to the voting of any shares of capital stock of an IFCO Company
other than pursuant to the (i) Operating Agreement dated February 16, 1995 (the
"IPG Agreement") between IFCO U.S. and Intertape Polymer Group Inc. ("IPG"),
(ii) a joint venture arrangement with Mitsubishi Chemical and MKV (the
"Mitsubishi Agreement") and (iii) the Investment Agreement. The IFCO Ordinary
Shares issued to stockholders of PalEx in the Merger will be at the Effective
Time duly authorized, validly issued, fully paid and nonassessable and free of
preemptive rights.
SECTION 6.3. Subsidiaries. Each direct and indirect Subsidiary of such IFCO
Company (other than IFCO) and each other company or entity in which such IFCO
Company owns, directly or indirectly, a minority equity interest (including,
without limitation, IFCO Japan (each an "IFCO Minority Subsidiary") and each
direct and indirect Subsidiary of IFCO as of the Execution Date, is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization and has the requisite power and authority to own,
lease and operate its assets and properties and to carry on its business as it
is now being conducted. When formed, Merger Sub will be a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Each such Subsidiary and IFCO Minority Subsidiary is, and Merger Sub
will be when formed, qualified to do business and in good standing in each
jurisdiction in which the properties it owns, leases or operates or the nature
of the business it conducts makes such qualification necessary, except where
the failure to be so qualified and in good standing would not, when taken
together with all such other failures with respect to all such Subsidiaries and
IFCO Minority Subsidiaries, have an IFCO Material Adverse Effect. All the
outstanding shares of capital stock of each such Subsidiary (other than Merger
Sub) and IFCO Minority Subsidiary that is a corporation are validly issued,
fully paid, nonassessable and free of preemptive rights and, except as provided
in the IFCO Disclosure Schedule or IFCO Supplemental Disclosure Schedule, and
with respect to the IFCO Minority Subsidiaries, as to only those shares
actually owned by such IFCO Company, are owned directly or indirectly by IFCO
Europe, SIL or MTS, free and clear of any Liens. When formed, all the
outstanding shares of Merger Sub Capital Stock will be validly issued, fully
paid, nonassessable and free of preemptive rights. Merger Sub will be formed
solely to participate in the Merger and will engage in no activities except
those incident to the Merger. Except as provided in Article III or as set forth
in the IFCO Disclosure Schedule or IFCO Supplemental Disclosure Schedule, there
are, and will be, no Stock Commitments or Voting Arrangements relating to the
issuance, sale, voting, transfer, ownership or other rights with respect to any
shares of capital stock of any such Subsidiary or IFCO Minority Subsidiary that
is a corporation, including any right of conversion or exchange under any
outstanding security, instrument or agreement other than pursuant to the
Investment Agreement, the IPG Agreement, the Mitsubishi Agreement and any
voting arrangements pursuant to any of the agreements disclosed in Section 6.3
of the IFCO Disclosure Schedule or IFCO Supplemental Disclosure Schedule.
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SECTION 6.4. Authority; Non-Contravention; Approvals.
(a) Such IFCO Company has full corporate power and authority to enter into
this Agreement and, subject to the IFCO Required Regulatory Approvals, to
consummate the transactions contemplated hereby. This Agreement has been, or
will be in the case of IFCO, approved by the Registered Managers, Management
Board, Board of Directors or equivalent body of such IFCO Company, and no other
corporate proceedings on the part of such IFCO Company are necessary to
authorize the execution and delivery of this Agreement or the consummation by
such IFCO Company of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by such IFCO Company and, assuming the due
authorization, execution and delivery hereof by the other parties hereto,
constitutes a valid and legally binding agreement of such IFCO Company,
enforceable against it in accordance with its terms, except as that
enforceability may be subject to (i) any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally and (ii) general equitable
principles.
(b) Except as provided in the IFCO Disclosure Schedule or IFCO Supplemental
Disclosure Schedule, the execution and delivery of this Agreement by such IFCO
Company does not, and will not in the case of IFCO does not as of the Execution
Date, violate, conflict with or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under or result in the creation of any Lien on any of the
properties or assets of such IFCO Company or any of its Subsidiaries or IFCO
Minority Subsidiaries under any of the terms, conditions or provisions of (i)
the memorandum and articles of association, charter or bylaw or other similar
governing documents of such IFCO Company or any Subsidiary or IFCO Minority
Subsidiary thereof, (ii) any Governmental Requirement applicable to such IFCO
Company or any of its Subsidiaries or IFCO Minority Subsidiaries or any of
their respective properties or assets or (iii) any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, concession, contract,
lease or other instrument, obligation or agreement of any kind to which such
IFCO Company or any of its Subsidiaries or IFCO Minority Subsidiaries is now a
party or by which such IFCO Company or any of its Subsidiaries or IFCO Minority
Subsidiaries or any of their respective properties or assets may be bound or
affected. The consummation by the IFCO Companies of the transactions
contemplated hereby will not result in any violation, conflict, breach,
termination, acceleration or creation of Liens under any of the terms,
conditions or provisions described in clauses (i) through (iii) of the
preceding sentence, subject (A) in the case of the terms, conditions or
provisions described in clause (ii) above, to obtaining (prior to the Effective
Time) the IFCO Required Regulatory Approvals and (B) in the case of the terms,
conditions or provisions described in clause (iii) above, to obtaining (prior
to the Effective Time) consents required from commercial lenders, lessors or
other third parties as specified in the IFCO Disclosure Schedule or IFCO
Supplemental Disclosure Schedule. Excluded from the foregoing sentences of this
Section 6.4(b), insofar as they apply to the terms, conditions or provisions
described in clauses (ii) and (iii) of the first sentence of this Section
6.4(b), are such violations, conflicts, breaches, defaults, terminations,
accelerations or creations of Liens as would not, singly or in the aggregate,
have an IFCO Material Adverse Effect, materially impair the ability of the IFCO
Companies to perform their obligations hereunder or prevent the consummation of
any of the transactions contemplated hereby.
(c) Except for (i) the filings by SPS required by the HSR Act and
comparable European Governmental Requirements, including, without limitation,
filings with the German Federal Kartel Office, and the expiration or
termination of the applicable waiting periods with respect thereto, (ii) the
filing of the Proxy Statement and the Registration Statement with the SEC
pursuant to the Exchange Act and the Securities Act, and the declaration of the
effectiveness of the Registration Statement by the SEC and filings with various
state "blue sky" or securities authorities, (iii) filings with, and approval
of, the Listing Market and (iv) the filing of the Certificate of Merger with
the Secretary of State of the State of Delaware in connection with the Merger
(the filings referred to in clauses (i) through (iv) and the related Regulatory
Approvals collectively being the "IFCO Required Regulatory Approvals"), no
Regulatory Approval is necessary for the execution and delivery of this
Agreement by such IFCO Company or the consummation by such IFCO Company of the
transactions contemplated hereby, other than such Regulatory Approvals as, if
not made or obtained, as the case may be,
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would not, singly or in the aggregate, render that consummation unlawful, void
or voidable in whole or in any part or have an IFCO Material Adverse Effect.
SECTION 6.5. Reports and Financial Statements; Accounting and Other Systems.
(a) Each of IFCO Europe, SIL and MTS has previously delivered or made
available to PalEx copies of the audited financial statements of such IFCO
Company and its consolidated Subsidiaries as of December 31, 1995, 1996 and
1997 and for its fiscal years then ended, and the unaudited interim financial
statements of each such IFCO Company and its consolidated Subsidiaries as of
September 30, 1997 and 1998 and the nine months then ended (collectively, the
"IFCO German GAAP Financial Statements"). The IFCO German GAAP Financial
Statements have been prepared in accordance with German generally accepted
accounting principles ("German GAAP") applied on a consistent basis (except as
may be indicated therein or in the notes thereto) and, except as disclosed in
the IFCO Disclosure Schedule or IFCO Supplemental Disclosure Schedule, fairly
present the financial position of each such IFCO Company and its consolidated
Subsidiaries as of the dates thereof and the results of their operations and
their cash flows for the periods then ended, subject, in the case of the
unaudited interim financial statements, to normal year-end and audit
adjustments and any other adjustments described therein.
(b) IFCO Europe, SIL and MTS has delivered or made available to PalEx, on
or before copies of the audited financial statements of such combined IFCO
Companies and their consolidated Subsidiaries as of December 31, 1998 and for
their fiscal years then ended (the "IFCO U.S. GAAP Financial Statements" and,
together with the IFCO German GAAP Financial Statements, the "IFCO Financial
Statements"). The IFCO U.S. GAAP Financial Statements have been prepared in
accordance with U.S. GAAP applied on a consistent basis (except as may be
indicated therein or in the notes thereto) and, except as disclosed in the IFCO
Disclosure Schedule or IFCO Supplemental Disclosure Schedule, fairly present
the financial position of such combined IFCO Companies and their consolidated
Subsidiaries as of the date thereof and the results of their operations and
their cash flows for the period then ended.
(c) Such IFCO Company and its Subsidiaries and IFCO Minority Subsidiaries
maintains, or in the case of IFCO will maintain, a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with German GAAP and, with
respect to the IFCO Minority Subsidiaries, generally accepted accounting
principles in their respective
jurisdictions, and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
SECTION 6.6. Liabilities.
(a) Absence of Undisclosed Liabilities. Except as heretofore disclosed to
PalEx in writing in English with respect to acquisitions or potential
transactions or commitments or as disclosed in the IFCO Disclosure Schedule or
IFCO Supplemental Disclosure Schedule, neither such IFCO Company nor any of its
Subsidiaries or IFCO Minority Subsidiaries had at December 31, 1998, or has
incurred since that date, any liabilities or obligations (whether absolute,
accrued, contingent or otherwise) of any nature, except: (a) liabilities,
obligations or contingencies that (i) are accrued or reserved against in the
IFCO Financial Statements or reflected in the notes thereto, (ii) were incurred
after December 31, 1998 in the ordinary course of business and consistent with
past practices or (iii) arises from disclosures set forth on the IFCO
Disclosure Schedule or IFCO Supplemental Disclosure Schedule; (b) liabilities,
obligations or contingencies that (i) would not, singly or in the aggregate,
have an IFCO Material Adverse Effect or (ii) have been discharged or paid in
full prior to the Execution Date; (c) liabilities and obligations that (i) are
of a nature not required to be reflected in the consolidated financial
statements of an IFCO Company and its Subsidiaries prepared in accordance with
U.S. GAAP and, with respect to the IFCO Minority Subsidiaries generally
accepted accounting principles in their respective jurisdiction consistently
applied and (ii) were incurred in the ordinary course of business; and (d)
liabilities and obligations under this Agreement or the Option Release
Agreement.
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(b) Affiliate Liabilities and Obligations. The net liabilities and
obligations of IFCO Europe, SIL and MTS (the "Logistics Group") to SPS or any
affiliate of SPS (the "Intercompany Debt") as of the Effective Date does not
exceed, in the aggregate, the amounts shown as of December 31, 1998 in the IFCO
Financial Statements. The Logistics Group agrees to provide to PalEx, not later
than 30 days after the Execution Date, a schedule of the Intercompany Debt
showing the amount and nature of each Intercompany Debt for each IFCO Company
in the Logistics Group as of a recent date. The IFCO Disclosure Schedule or
IFCO Supplemental Disclosure Schedule set forth the fees payable or to be paid
in the future by each IFCO Company, Subsidiary of an IFCO Company or IFCO
Minority Subsidiary to SPS or any affiliate thereof.
(c)Funding Obligations for IFCO Minority Subsidiaries. Except as disclosed on
Schedule 6.6(c), none of the IFCO Companies has any obligation to make any
additional capital contribution or otherwise provide additional funding to any
IFCO Minority Subsidiary.
SECTION 6.7. Absence of Certain Changes or Events. Except as disclosed in the
IFCO Financial Statements or in the IFCO Disclosure Schedule or IFCO
Supplemental Disclosure Schedule, since December 31, 1998 the business of such
IFCO Company and its Subsidiaries and IFCO Minority Subsidiaries has been
conducted in the ordinary course consistent with past practices and there has
not been:
(a)any event, occurrence, development or state of circumstances or facts
which has had or is reasonably likely to have, individually or in the
aggregate, an IFCO Material Adverse Effect;
(b)any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of such IFCO Company
or its Subsidiaries or IFCO Minority Subsidiaries, or any repurchase,
redemption or other acquisition by such IFCO Company or any of its Subsidiaries
or IFCO Minority Subsidiaries of any outstanding shares of capital stock or
other securities of, or other ownership interests in, any IFCO Company or any
of its Subsidiaries or IFCO Minority Subsidiaries other than in the ordinary
course and which does not have a Material Adverse Effect and is consistent with
past practices;
(c)any making of any material loan, advance or capital contributions to or
investment in any person other than loans, advances or capital contributions to
or investments in its Subsidiaries or IFCO Minority Subsidiaries;
(d)any material change in the method of accounting or accounting practice of
such IFCO Company or its Subsidiaries or IFCO Minority Subsidiaries, other than
changes required by German GAAP or U.S. GAAP; or
(e)any (i) grant of any severance or termination pay to (A) any employee of
an IFCO Company or any of its Subsidiaries other than ordinary course grants in
amounts consistent with past practices or (B) any director or officer of an
IFCO Company or any of its Subsidiaries or IFCO Minority Subsidiaries,
(ii) increase in benefits payable under any existing severance or termination
pay policies or employment agreements, (iii) entering into of any employment,
deferred compensation or other similar agreement (or any amendment to any such
existing agreement) with any director or officer of an IFCO Company or any of
its Subsidiaries or IFCO Minority Subsidiaries or (iv) increase in
compensation, bonus or other benefits payable to directors or officers other
than, with respect to each of clauses (i)-(iv), in the ordinary course of
business consistent with past practices, which do not, in the aggregate, have a
Material Adverse Effect.
SECTION 6.8. Litigation. Except as disclosed in the IFCO Financial Statements
or in the IFCO Disclosure Schedule or IFCO Supplemental Disclosure Schedule,
there are no claims, suits, actions or proceedings pending or, to the knowledge
of such IFCO Company, threatened against, relating to or affecting any IFCO
Company or any of its Subsidiaries or IFCO Minority Subsidiaries, before any
Court, which seek to restrain or enjoin the consummation of the Merger or which
could reasonably be expected, either alone or in the aggregate with all such
claims, actions or proceedings, to have an IFCO Material Adverse Effect. Except
as disclosed in the IFCO Financial Statements, no IFCO Company or any of its
Subsidiaries or IFCO Minority Subsidiaries is subject to any Governmental
Requirement of any Court which prohibits or restricts the consummation of the
transactions contemplated hereby or would have an IFCO Material Adverse Effect.
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SECTION 6.9. Registration Statement and Proxy Statement. None of the
information to be supplied by such IFCO Company or its Subsidiaries or IFCO
Minority Subsidiaries for inclusion in (a) the Registration Statement or the
Proxy Statement will, in the case of the Proxy Statement or any amendments
thereof or supplements thereto, at the time of the mailing of the Proxy
Statement and any amendments thereof or supplements thereto, and at the time of
the meeting of the stockholders of PalEx to be held for the purpose of voting
on this Agreement and the Merger or, in the case of the Registration Statement,
as amended or supplemented at the time it becomes effective and at the time of
such meeting, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they are
made, not misleading. The Proxy Statement will, as of its mailing date, comply
as to form in all material respects with all applicable Governmental
Requirements, except that no representation is made by such IFCO Company with
respect to information supplied or omitted by PalEx for inclusion therein.
SECTION 6.10. No Violation of Law. Except as disclosed in the IFCO Financial
Statements, neither such IFCO Company nor any of its Subsidiaries or IFCO
Minority Subsidiaries is in violation of, or has been given notice or been
charged with any violation of, any Governmental Requirement (including, without
limitation, any applicable environmental law, ordinance or regulation), except
for violations which, singly or in the aggregate, could not reasonably be
expected to have an IFCO Material Adverse Effect. Without limiting the
generality of the foregoing, neither such IFCO Company nor any of its
Subsidiaries or IFCO Minority Subsidiaries, nor, to the knowledge of such IFCO
Company, any director, officer, agent, shareholder, employee or other person
associated with or acting on behalf of such IFCO Company or any of its
Subsidiaries or IFCO Minority Subsidiaries has (a) used any corporate funds for
any unlawful contribution, gift, entertainment or other unlawful expense
relating to any political activity, (b) made any direct or indirect unlawful
payment to any government official or employee from corporate funds or (c) made
any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment. Except as disclosed in the IFCO Financial Statements or in the IFCO
Disclosure Schedule or IFCO Supplemental Disclosure Schedule, as of the
Effective Date, to the knowledge of such IFCO Subsidiary, no investigation or
review by any governmental or regulatory body or authority is pending or
threatened, nor has any governmental or regulatory body or authority indicated
an intention to conduct the same, other than, in each case, those the outcome
of which, as far as reasonably can be foreseen, will not, singly or in the
aggregate, have an IFCO Material Adverse Effect. Such IFCO Company and its
Subsidiaries and IFCO Minority Subsidiaries have all Permits necessary to
conduct their businesses as presently conducted (collectively, the "IFCO
Permits"), except for Permits the absence of which, singly or in the aggregate,
would not have an IFCO Material Adverse Effect. Neither such IFCO Company nor
any of its Subsidiaries is in violation of the terms of any IFCO Permit, except
for delays in filing reports or violations that, singly or in the aggregate,
would not have an IFCO Material Adverse Effect.
SECTION 6.11 Compliance with Agreements. Except as disclosed in the IFCO
Financial Statements or in the IFCO Disclosure Schedule or IFCO Supplemental
Disclosure Schedule, neither such IFCO Company nor any of its Subsidiaries or
IFCO Minority Subsidiaries is in breach or violation of or in default in the
performance or observance of any term or provision of, and no event has
occurred which, with lapse of time or action by a third party, could result in
a default under, (a) the memorandum and articles of association, charter,
bylaws or other similar governing documents of such IFCO Company or any of the
Subsidiaries or IFCO Minority Subsidiaries thereof or (b) any contract,
commitment, agreement, indenture, mortgage, loan agreement, note, lease, bond,
license, approval or other instrument to which such IFCO Company or any of its
Subsidiaries or IFCO Minority Subsidiaries is a party or by which any of them
is bound or to which any of their property is subject, other than, in the case
of clause (b) of this Section 6.11, breaches, violations and defaults that,
singly or in the aggregate, would not have an IFCO Material Adverse Effect.
SECTION 6.12. Environmental Matters. Except as disclosed in the IFCO
Financial Statements, (a) such IFCO Company and its Subsidiaries and IFCO
Minority Subsidiaries have conducted their respective businesses in material
compliance with all applicable Environmental Laws, (b) there is no claim
pending under any Environmental Law or, to the knowledge of such IFCO Company,
threatened against it or any of its
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Subsidiaries or IFCO Minority Subsidiaries, except for those that, if
determined adversely to the IFCO Company or any of its Subsidiaries or IFCO
Minority Subsidiaries would not, singly or in the aggregate, have an IFCO
Material Adverse Effect, (c) to the knowledge of such IFCO Company, there are
no past or present actions, activities, circumstances, events or incidents,
including releases of any material into the environment, that would reasonably
be expected to form the basis of any claim against such IFCO Company or any of
its Subsidiaries or IFCO Minority Subsidiaries, except for an such claims that,
if determined adversely to such IFCO Company or any of its Subsidiaries or IFCO
Minority Subsidiaries, would not, singly or in the aggregate, have an IFCO
Material Adverse Effect, and (d) neither such IFCO Company nor any of its
Subsidiaries or IFCO Minority Subsidiaries is liable for any costs or
liabilities related to compliance with Environmental Laws (including any
capital or operating expenditures required for cleanup, closure of properties
or compliance with Environmental Laws or any permit, license or approval, any
related constraints on operating activities and any potential liabilities to
third parties), except for such costs and liabilities that, as far as can
reasonably be foreseen, will not, singly or in the aggregate, have an IFCO
Material Adverse Effect.
SECTION 6.13. Taxes. Such IFCO Company and its Subsidiaries and to the
knowledge of such IFCO Company, the IFCO Minority Subsidiaries have duly filed
with the appropriate governmental or other taxing authorities all Tax Returns
required to be filed by them for all periods ending on or prior to the
Effective Time, other than those Tax Returns the failure to file which, singly
or in the aggregate, would not have an IFCO Material Adverse Effect, and those
filed Tax Returns are true, correct and complete in all material respects. Such
IFCO Company and its Subsidiaries and to the knowledge of such IFCO Company,
the IFCO Minority Subsidiaries have duly paid in full or made adequate
provision for the payment of all Taxes for all past and current periods. Except
as provided in the IFCO Disclosure Schedule or IFCO Supplemental Disclosure
Schedule, the liabilities and reserves for Taxes reflected in the most recent
IFCO balance sheet included in the IFCO Financial Statements are adequate to
cover all Taxes for all periods ending at or prior to the date of that balance
sheet and there is no liability for Taxes for any period beginning after such
date other than Taxes arising in the ordinary course of business. There are no
material Liens for Taxes on any property or asset of such IFCO Company or any
Subsidiary or to the knowledge of such IFCO Company, the IFCO Minority
Subsidiary thereof, except for Liens for Taxes not yet due. Except as provided
in the IFCO Disclosure Schedule or IFCO Supplemental Disclosure Schedule, there
are no unresolved issues of law or fact arising out of a notice of deficiency,
proposed deficiency or assessment from any taxing authority with respect to
Taxes of such IFCO Company or any of its Subsidiaries or to the knowledge of
such IFCO Company, the IFCO Minority Subsidiaries which, if decided adversely,
singly or in the aggregate, would have an IFCO Material Adverse Effect. Neither
such IFCO Company nor any of its Subsidiaries or to the knowledge of such IFCO
Company, the IFCO Minority Subsidiaries has waived any statute of limitations
in respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency other than waivers and extensions that are no longer
in effect. Neither such IFCO Company nor any of its Subsidiaries or, to the
knowledge of such IFCO Company, IFCO Minority Subsidiaries is a party to any
agreement providing for the allocation or sharing of Taxes with any entity that
is not, directly or indirectly, a wholly owned corporate Subsidiary or IFCO
Minority Subsidiary of an IFCO Company other than agreements the consequences
of which are fully and adequately reserved for in the IFCO Financial
Statements. Neither such IFCO Company nor any of its corporate Subsidiaries or,
to the knowledge of such IFCO Company, IFCO Minority Subsidiaries has, with
regard to any assets or property held, acquired or to be acquired by any of
them, filed a consent to the application of Section 341(f) of the Code.
SECTION 6.14. Employee Benefit Plans and Arrangements.
(a)With respect to operations in jurisdictions other than the United States,
all employee benefit plans or arrangements of such IFCO Company and its
Subsidiaries and IFCO Minority Subsidiaries are in compliance with all
applicable law, except where the failure to be in compliance, singly or in the
aggregate, would not have an IFCO Material Adverse Effect.
(b)With respect solely to operations in the United States, and except as
disclosed in the IFCO Financial Statements, to the knowledge of such IFCO
Company, at the Effective Date, (i) such IFCO Company and its
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Subsidiaries and IFCO Minority Subsidiaries do not maintain or contribute to or
have any obligation or liability to or with respect to any material employee
benefit plans, policies, programs, arrangements or practices (such plans,
policies, programs, arrangements or practices of such IFCO Company and its
Subsidiaries and IFCO Minority Subsidiaries being referred to as the "IFCO
Plans"), including employee benefit plans within the meaning set forth in
Section 3(3) of ERISA or other similar material arrangements for the provision
of benefits (excluding any Multi-Employer Plan or any Multiple Employer Plan),
(ii) neither such IFCO Company nor any of its Subsidiaries or IFCO Minority
Subsidiaries has any obligation to create or contribute to any IFCO Plan not
disclosed in the IFCO Financial Statements or to amend any IFCO Plan so
disclosed to increase benefits or contributions thereunder, except as required
under the terms of the IFCO Plans or existing collective bargaining agreements
or to comply with applicable law, (iii) there have been no Prohibited
Transactions with respect to any of the IFCO Plans that could result in
penalties, taxes or liabilities which, singly or in the aggregate, could have
an IFCO Material Adverse Effect, (iv) except for premiums due, there is no
outstanding material liability, whether measured alone or in the aggregate,
under Title IV of ERISA with respect to any of the IFCO Plans, (v) neither the
Pension Benefit Guaranty Corporation nor any plan administrator has instituted
proceedings to terminate any of the IFCO Plans subject to Title IV of ERISA
other than in a Standard Termination, (vi) the current present value of all
projected benefit obligations under each of the IFCO Plans subject to Title IV
of ERISA did not, as of its latest valuation date, exceed the then current
value of the assets of such plan allocable to such benefit liabilities by more
than the amount, if any, disclosed in the IFCO Financial Statements as of
December 31, 1998, based on reasonable actuarial assumptions currently utilized
for such IFCO Plan, (vii) each of the IFCO Plans has been operated and
administered in all material respects in accordance with applicable laws during
the period of time covered by the applicable statute of limitations, (viii)
each of the IFCO Plans that is intended to be a Qualified Plan has been
determined by the IRS to be a Qualified Plan and that determination has not
been modified, revoked or limited by failure to amend, except that it may be
necessary to make additional amendments retroactively to maintain the status of
such IFCO Plans as Qualified Plans, and the period for making any such
necessary retroactive amendments has not expired, (ix) with respect to Multi-
Employer Plans, neither such IFCO Company nor any of its Subsidiaries or IFCO
Minority Subsidiaries has made or suffered a Complete or Partial Withdrawal
and, to the knowledge of such IFCO Company, no event has occurred or is
expected to occur which presents a material risk of a complete or Partial
Withdrawal, (x) to the knowledge of such IFCO Company, there are no material
pending, threatened or anticipated claims involving any of the IFCO Plans other
than claims for benefits in the ordinary course, (xi) such IFCO Company and
Subsidiaries and IFCO Minority Subsidiaries have no current material liability
under Title IV of ERISA and such IFCO Company does not reasonably anticipate
that any such liability will be asserted against such IFCO Company or any of
its Subsidiaries or IFCO Minority Subsidiaries and (xii) no act, omission or
transaction (individually or in the aggregate) has occurred with respect to any
IFCO Plan that has resulted or could result in any material liability (direct
or indirect) of such IFCO Company or any Subsidiary or IFCO Minority Subsidiary
under Section 409 or 502(c)(i) or (l) or ERISA or Chapter 43 of Subtitle (A) of
the Code. To the knowledge of such IFCO Subsidiary, neither such IFCO Company
nor any of its Subsidiaries or IFCO Minority Subsidiaries is required to
provide security to an IFCO plan pursuant to Section 401(a)(29) of the Code.
(c) With respect solely to operations in the United States, and to the
knowledge of such IFCO Company, there are no agreements that will or may
provide payments to any officer, employee, stockholder or highly compensated
individual which will be "parachute payments" under Code Section 280G that are
nondeductible to such IFCO Company or subject to tax under Code Section 4999
for which such IFCO Company or any of its Subsidiaries or Minority IFCO
Subsidiaries would have withholding liability.
SECTION 6.15. Labor Controversies. Except as disclosed in the IFCO Financial
Statements, (a) there are no significant controversies pending or, to the
knowledge of such IFCO Company, threatened between such IFCO Company or any of
its Subsidiaries and any representative of any of their employees, except for
such controversies as, singly or in the aggregate, could not reasonably be
expected to have an IFCO Material Adverse Effect, (b) neither such IFCO Company
nor any of its Subsidiaries is a party to, or bound by, any material collective
bargaining agreement or other material contract, agreement, arrangement or
understanding
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with a labor union or labor organization, (c) to the knowledge of such IFCO
Company, there are no material organizational efforts presently being made
involving any of the presently unorganized employees of such IFCO Company or
any of its Subsidiaries, except for such organizational efforts as, singly or
in the aggregate, could not reasonably be expected to have an IFCO Material
Adverse Effect and (d) since December 31, 1998, there has not been any adoption
or amendment in any material respect by such IFCO Company or any of its
Subsidiaries of any material collective bargaining agreement or other contract,
agreement, arrangement or understanding with a labor union or labor
organization. Such IFCO Company and its Subsidiaries is in compliance with all
laws regarding employment, employment practices, terms and conditions of
employment and wages, except for such noncompliance that, singly or in the
aggregate, could not reasonably be expected to have an IFCO Material Adverse
Effect.
SECTION 6.16. Intangible Property. Such IFCO Company and its Subsidiaries and
IFCO Minority Subsidiaries possesses or has adequate rights to use all material
trademarks, trade names, patents, service marks, brand names, computer
programs, databases, industrial designs and copyrights or representations or
expressions of any thereof or registration or application therefor by such IFCO
Company and its Subsidiaries and IFCO Minority Subsidiaries necessary for the
operation of its business (collectively, the "IFCO Intangible Property"),
except where the failure to possess or have adequate rights to use such
properties could not, singly or in the aggregate, reasonably be expected to
have an IFCO Material Adverse Effect. To the knowledge of such IFCO Company,
the use of the IFCO Intangible Property by such IFCO Company or its
Subsidiaries does not, in any material respect, conflict with, infringe on,
violate or interfere with or constitute an appropriation of any right, title,
interest or goodwill of any other person or entity in any intellectual property
right, trademark, trade name, patent, service mark, brand name, computer
program, database, industrial design, copyright or any pending application
therefor, and there have been no claims made to that effect, and neither such
IFCO Company nor any of its Subsidiaries has received any notice of any such
claim or otherwise knows that any of the IFCO Intangible Property is invalid or
conflicts with the asserted rights of any other person or entity or has not
been used or enforced or has been failed to be used or enforced in a manner
that would result in the abandonment, cancellation or unenforceability of any
of the IFCO Intangible Property, except as previously disclosed to PalEx or for
any such conflict, infringement, violation, interference, claim, invalidity,
abandonment, cancellation or unenforceability that, singly or in the aggregate,
could not reasonably be expected to have an IFCO Material Adverse Effect.
SECTION 6.17. Title to Assets. Except as provided in the IFCO Disclosure
Schedule or IFCO Supplemental Disclosure Schedule, such IFCO Company and its
Subsidiaries and IFCO Minority Subsidiaries has good and marketable title to
all real property reflected in the IFCO Financial Statements to be owned by it
and good title to all its leasehold interests and other properties as reflected
in the most recent balance sheet included in the IFCO Financial Statements,
except for such properties and assets that have been disposed of in the
ordinary course of business since the date of that balance sheet, free and
clear of all Liens of any nature whatsoever, except (a) any Lien for current
taxes, payments of which are not yet delinquent, (b) such imperfections in
title and easements and encumbrances, if any, as are not substantial in
character, amount or extent and do not materially detract from the value or
interfere with the present use of the property subject thereto or affected
thereby, or otherwise materially impair the business operations of such IFCO
Company or any of its Subsidiaries or IFCO Minority Subsidiaries (as presently
conducted), (c) liens incurred in the ordinary course of business or (d) as
disclosed in the IFCO Financial Statements and except for such matters which,
singly or in the aggregate, could not reasonably be expected to have an IFCO
Material Adverse Effect. Except as provided in the IFCO Disclosure Schedule or
IFCO Supplemental Disclosure Schedule, all leases under which such IFCO Company
or any of its Subsidiaries or IFCO Minority Subsidiaries leases any real or
personal property are in good standing, valid and effective in accordance with
their respective terms, and there is not, under any of such leases, any
existing default or event which, with notice or lapse of time or both, would
become a default other than failures to be in good standing, valid and
effective and defaults under such leases which, singly or in the aggregate,
will not have an IFCO Material Adverse Effect.
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SECTION 6.18. Insurance. Such IFCO Company and its Subsidiaries or, to the
knowledge of such IFCO Company, the IFCO Minority Subsidiaries maintains
insurance coverage reasonably adequate for the operation of their respective
businesses (taking into account the cost and availability of such insurance).
SECTION 6.19. Year 2000. All computer systems and computer software used by
such IFCO Company or any of its Subsidiaries are being converted to SAP, which
conversion is expected to be complete by December 31, 1999. Upon completion of
the conversion, such computer systems and computer software are reasonably
expected to have Millennium Functionality, except in each case for such
computer system and computer software, the failure of which to achieve
Millennium Functionality, individually or in the aggregate, is not reasonably
likely to have an IFCO Material Adverse Effect. To the knowledge of such IFCO
Company, as of the Effective Date, the aggregate additional external costs of
the adaptions necessary to achieve Millennium Functionality for all of the IFCO
Companies are not reasonably likely to exceed DM 5,000,000.
SECTION 6.20. Reorganization. Neither such IFCO Company nor, to its
knowledge, any of its affiliates has taken or agreed or intends to take any
action or has any knowledge of any fact or circumstance that would prevent the
Merger from constituting a reorganization qualifying under the provisions of
Section 368(a) of the Code.
SECTION 6.21. Brokers and Finders. Except for the fees and expenses payable
to APAX Partners & Co., which fees are reflected in its agreement with such
IFCO Company (a copy of which has been delivered to PalEx), such IFCO Company
has not entered into any contract, arrangement or understanding with any person
or firm which may result in the obligation of such IFCO Company to pay any
Transaction Fee in connection with the transactions contemplated hereby. Except
for the fees and expenses paid or payable to APAX Partners, Inc., there is no
claim for payment by such IFCO Company of any Transaction Fee in connection
with the negotiations leading to this Agreement or the consummation of the
transactions contemplated hereby.
SECTION 6.22. Ownership of PalEx Common Stock. Neither such IFCO Company nor
any of its Subsidiaries or IFCO Minority Subsidiaries beneficially owns any
shares of PalEx Common Stock as of the Effective Date.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF SPS
SPS represents and warrants to PalEx, except as set forth in the IFCO
Disclosure Schedule or IFCO Supplemental Schedule, all the following
representations and warranties in this Article VII are as of the Effective Date
(or such other date stated therein), and will be, on the Closing Date and
immediately prior to the Effective Time, true and correct:
SECTION 7.1. Capitalization. As of the Effective Date, Martin Schoeller,
Christoph Schoeller, Andrea Schoeller and Schoeller KG own all of the
outstanding shares of SPS, and there are no Stock Commitments or Voting
Arrangements with respect to the shares of SPS that could cause the first
clause of this sentence no longer to be true and correct.
SECTION 7.2. Ownership and Status of IFCO Companies Capital Stock. SPS is the
record and beneficial owner of (a) 76% of the IFCO Europe Shares and (b) 100%
of the MTS Shares. Gebr. Schoeller GmbH, Martin Schoeller and Christoph
Schoeller are the record and beneficial owners of 100% of the SIL Shares. At
the time of the formation of IFCO, SPS will be the record and beneficial owner
of 100% of the IFCO Ordinary Shares.
SECTION 7.3. Organization; Power and Authority; Approval. SPS is a private
company duly organized, validly existing and in good standing under the laws of
the Federal Republic of Germany and has the full power and authority to execute
and deliver this Agreement and to perform its obligations hereunder. This
Agreement has been approved by the Managers of SPS, and no other corporate
proceedings on the part of
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SPS are necessary to authorize the execution and delivery of this Agreement or
the consummation by SPS of the transactions contemplated hereby. This Agreement
has been duly executed and delivered by SPS, and assuming the due
authorization, execution and delivery hereof by PalEx, constitutes the legal,
valid and binding obligation of SPS, enforceable against SPS in accordance with
its terms, except as that enforceability may be subject to (a) any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and (b)
general equitable principles. SPS has obtained or will obtain by closing, in
accordance with all applicable Governmental Requirements and its charter
documents, all third-party approvals and has taken or will have taken by the
Closing Date all actions necessary for the authorization, execution and
delivery by SPS of, and performance by SPS of its obligations under, this
Agreement.
SECTION 7.4. No Conflicts or Litigation. Upon receipt of all of the necessary
consents contemplated under Section 6.4, SPS's execution, delivery and
performance of this Agreement do not and will not (a) violate or conflict with
any Governmental Requirement, or (b) breach or constitute a default under any
agreement or instrument to which SPS is a party or by which it or any IFCO
Ordinary Shares SPS owns is bound or violate SPS's charter documents except
such violations, conflicts, breaches or defaults which would not, singly or in
the aggregate, be reasonably expected to have a Material Adverse Effect on the
business, operations, properties, assets, condition (financial or other) or
results of operations of SPS and its Subsidiaries taken as a whole. Other than
as disclosed in Section 6.8 of the IFCO Disclosure Schedule or IFCO
Supplemental Disclosure Schedule, no litigation is pending or, to the knowledge
of SPS, threatened to which SPS is or may become a party which (i) questions or
involves the validity or enforceability of any of SPS's obligations hereunder,
(ii) impairs the value of the IFCO Companies, taken as a whole, which would
have an IFCO Material Adverse Effect or (iii) seeks (or reasonably may be
expected to seek) (A) to prevent or delay the consummation of the transactions
contemplated by this Agreement or (B) damages in connection with such
consummation.
SECTION 7.5. No Brokers. SPS has not, directly or indirectly, in connection
with this Agreement or the transactions contemplated hereby (a) employed any
broker, finder or agent or (b) agreed to pay or incurred any obligation to pay
any broker's or finder's fee, any sales commission or any similar form of
compensation.
SECTION 7.6. Preemptive and Other Rights; Waiver. Except as contemplated in
this Agreement or pursuant to the Investment Agreement, the Option Release
Agreement or the preferred dividend certificate (Genusschein) with respect to
IFCO International Food Container Organization GmbH for DM 10,000,000.00, SPS
either (a) does not own or otherwise have any preemptive or other similar right
of any kind (including any right of first offer or refusal) to acquire any IFCO
Ordinary Shares or any other capital shares of an IFCO Company or any capital
shares or equity interests of a Subsidiary of an IFCO Company or an IFCO
Minority Subsidiary, or (b) hereby irrevocably waives each right of that type
SPS does own or otherwise has.
SECTION 7.7. Ownership of PalEx Common Stock. Neither SPS nor any of its
Subsidiaries or affiliates beneficially owns any shares of PalEx Common Stock
as of the Effective Date.
SECTION 7.8. Net Worth. SPS has a net worth (stock capital plus reserves and
shareholders loans) in excess of DM 100,000,000.
ARTICLE VIII
CONDUCT OF BUSINESS PENDING THE EFFECTIVE TIME
SECTION 8.1. Conduct of Business by PalEx Pending the Effective Time. Except
as otherwise contemplated by this Agreement or disclosed in Section 8.1 of the
PalEx Disclosure Schedule or PalEx Supplemental Disclosure Schedule, from the
Effective Date and continuing until the Effective Time or earlier termination
of this Agreement, unless SPS otherwise agrees in writing (which agreement
shall not be unreasonably withheld or delayed), PalEx will, and will cause its
Subsidiaries to:
(a) conduct their respective businesses in the ordinary and usual course of
business and consistent with past practice;
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(b) not (i) amend or propose to amend the charter, bylaws or other similar
governing documents of PalEx or any of its Subsidiaries, (ii) split, combine or
reclassify (whether by stock dividend or otherwise) their outstanding capital
stock, (iii) declare, set aside or pay any dividend or distribution payable in
cash, stock, property or otherwise, except for the payment of dividends or
distributions by wholly owned Subsidiaries of PalEx to PalEx or (iv) issue,
deliver, sell, pledge or otherwise encumber any shares of its capital stock,
any other voting securities or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible securities, other than, in accordance with the terms thereof, the
issuance of PalEx Common Stock as set forth in Section 5.2;
(c) not (i) incur or become contingently liable with respect to any
indebtedness for borrowed money other than (A) borrowings in the ordinary
course of business consistent with past practice, (B) borrowings to refinance
existing indebtedness (other than under the PalEx Credit Facility) on terms
reasonably acceptable to IFCO, (C) borrowings of up to $150,000,000 to
refinance existing indebtedness under the PalEx Credit Facility on terms no
less favorable in the aggregate than the terms of the PalEx Credit Facility as
of the Effective Date or (D) the issuance of senior subordinated notes in a
private placement or in an aggregate amount not to exceed $40,000,000, (ii)
redeem, purchase, acquire or offer to purchase or acquire any shares of its
capital stock or any options, warrants or rights to acquire any of its capital
stock or any security convertible into or exchangeable for its capital stock,
(iii) take or fail to take any action which action or failure to take action
would cause PalEx or its stockholders (except to the extent that any
stockholders receive cash in lieu of fractional shares and except to the extent
of stockholders in special circumstances that require them to recognize gain or
loss notwithstanding the application of Section 354 of the Code) to recognize
gain or loss for federal income tax purposes as a result of the consummation of
the Merger or would otherwise cause the Merger not to qualify as a
reorganization under Section 368(a) of the Code or (iv) sell, pledge, dispose
of or encumber any material assets or businesses other than (A) sales or other
dispositions in the ordinary course of business and (B) pledges and grants of
Liens to extend, refinance, renew, replace or restructure the indebtedness
outstanding under the PalEx Credit Facility;
(d) use all reasonable efforts to preserve intact their respective business
organizations and goodwill, keep available the services of their respective
current officers and key employees and preserve the goodwill and business
relationships with customers, suppliers and others having business
relationships with them;
(e) not enter into or amend any employment, severance, special pay
arrangement with respect to termination of employment or other similar
arrangements or agreements with any directors, officers or key employees,
except as disclosed by PalEx to SPS in writing prior to the Effective Date;
(f) except for normal increases in the ordinary course of business consistent
with past practice that, in the aggregate, do not materially increase benefits
or compensation expenses of PalEx or its Subsidiaries, increase the
compensation of any director, officer or pay any benefit or amount not required
by a plan or arrangement as in effect on the Effective Date to any such person;
(g) not adopt, enter into or amend any bonus, profit sharing, compensation,
stock option, pension, retirement, deferred compensation, health-care,
employment or other employee benefit plan, agreement, trust, fund or
arrangement for the benefit or welfare of any employee or retiree, except as
required to comply with changes in applicable law;
(h) use commercially reasonable efforts to maintain with financially
responsible insurance companies insurance on its tangible assets and its
businesses in such amounts and against such risks and losses as are consistent
with past practice;
(i) not make, change or revoke any material Tax election or make any material
agreement or settlement regarding Taxes with any taxing authority;
(j) acquire (i) by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other manner, any business or
any corporation, partnership, joint venture, association or other business
organization or divisions thereof or (ii) any assets that are material,
individually or in the aggregate, to PalEx; and
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(k) authorize or contract or agree to do any of the foregoing.
SECTION 8.2. Conduct of Business by IFCO Pending the Effective Time. Except
as otherwise contemplated by this Agreement, the Option Release Agreement or
disclosed in Section 8.2 of the IFCO Disclosure Schedule or IFCO Supplemental
Disclosure Schedule, from the Effective Date and continuing until the Effective
Time or earlier termination of this Agreement, unless PalEx otherwise agrees in
writing (which agreement shall not be unreasonably withheld or delayed), IFCO
will, and will cause its Subsidiaries and its IFCO Minority Subsidiaries to the
extent of its direct or indirect control thereof) to:
(a)conduct their respective businesses in the ordinary and usual course of
business and consistent with past practice;
(b)not (i) amend or propose to amend the memorandum and articles of
association, charter, bylaws or other similar governing documents of IFCO or
any of its Subsidiaries or IFCO Minority Subsidiaries, (ii) split, combine or
reclassify (whether by stock dividend or otherwise) their outstanding capital
stock or (iii) declare, set aside or pay any dividend or distribution payable
in cash, stock, property or otherwise, except for the payment of dividends or
distributions by wholly owned Subsidiaries of IFCO to IFCO; provided, however,
that IFCO may, subject to Section 1.1 amend its Articles of Association in
contemplation of the IPO, including, without limitation, an amendment to
increase the authorized capital stock of IFCO;
(c)not (i) incur or become contingently liable with respect to any
indebtedness for borrowed money other than (A) borrowings in the ordinary
course of business or (B) borrowings to refinance existing indebtedness on
terms reasonably acceptable to PalEx, (ii) redeem, purchase, acquire or offer
to purchase or acquire any shares of its capital stock or any options, warrants
or rights to acquire any of its capital stock or any security convertible into
or exchangeable for its capital stock, (iii) take or fail to take any action
which action or failure to take action would cause PalEx or its stockholders
(except to the extent that any stockholders receive cash in lieu of fractional
shares and except to the extent of stockholders in special circumstances that
require them to recognize gain or loss notwithstanding the application of
Section 354 of the Code) to recognize gain or loss for federal income tax
purposes as a result of the consummation of the Merger or would otherwise cause
the Merger not to qualify as a reorganization under Section 368(a) of the Code
or, (iv) sell, pledge, dispose of or encumber any material assets or businesses
other than sales or other dispositions in the ordinary course of business;
(d)use all reasonable efforts to preserve intact their respective business
organizations and goodwill, keep available the services of their respective
current officers and key employees and preserve the goodwill and business
relationships with customers, suppliers and others having business
relationships with them;
(e)not enter into or amend any employment, severance, special pay arrangement
with respect to termination of employment or other similar arrangements or
agreements with any directors, officers or key employees, except in the
ordinary course and consistent with past practice and except as disclosed by
IFCO to PalEx in writing prior to the Effective Date;
(f)not adopt, enter into or amend any bonus, profit sharing, compensation,
stock option, pension, retirement, deferred compensation, health-care,
employment or other employee benefit plan, agreement, trust, fund or
arrangement for the benefit or welfare of any employee or retiree, except as
required to comply with changes in applicable law;
(g)use commercially reasonable efforts to maintain with financially
responsible insurance companies insurance on its tangible assets and its
businesses in such amounts and against such risks and losses as are consistent
with past practice;
(h)not make, change or revoke any material Tax election or make any material
agreement or settlement regarding Taxes with any taxing authority;
(i)acquire (i) by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other manner, any business or
any corporation, partnership, joint venture, association or other business
organization or divisions thereof or (ii) any assets that are material,
individually or in the aggregate, to IFCO; and
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(j)authorize or contract or agree to do any of the foregoing.
SECTION 8.3. Control of PalEx's Operations. Nothing in this Agreement gives
to SPS or IFCO, directly or indirectly, rights to control or direct PalEx's
operations prior to the Effective Time. Prior to the Effective Time, PalEx will
exercise, consistent with the terms and conditions of this Agreement, complete
control and supervision of its operations.
SECTION 8.4. Control of IFCO's Operations. Nothing in this Agreement gives to
PalEx, directly or indirectly, rights to control or direct SPS's or IFCO's
operations prior to the Effective Time. Prior to the Effective Time, IFCO will
exercise, consistent with the terms and conditions of this Agreement, complete
control and supervision of its operations.
SECTION 8.5. No Solicitation.
(a)After the Effective Date and prior to the Effective Time or earlier
termination of this Agreement, neither PalEx nor any of its Subsidiaries will,
and each of them will not authorize or permit any of its officers, directors or
employees, or any attorney, accountant, investment banker, financial advisor or
other agent retained by it, to (i) solicit, initiate or knowingly encourage
(including by way of furnishing material nonpublic information), or take any
other action designed to facilitate any inquiries or the making of, any
proposal that constitutes a PalEx Acquisition Proposal or (ii) participate in
any discussions or negotiations in respect of a PalEx Acquisition Proposal;
provided, however, that, at any time prior to the PalEx Stockholders Meeting,
PalEx may, in response to a PalEx Acquisition Proposal, which was not solicited
by it and which did not otherwise result from a breach of this Section 8.5(a),
and subject to providing prior written notice of its decision to take such
action to SPS (the "PalEx Notice") and compliance with Section 8.5(b),
following delivery of the PalEx Notice (x) furnish information with respect to
PalEx and its Subsidiaries to any person making a PalEx Acquisition Proposal
pursuant to a confidentiality agreement containing provisions substantially
similar to the Confidentiality Agreement and (y) participate in discussions or
negotiations regarding such PalEx Acquisition Proposal. For purposes of this
Agreement, "PalEx Acquisition Proposal" means any inquiry, proposal or offer
from any person relating to any direct or indirect acquisition or purchase of a
business that constitutes all or a significant portion of the net revenues, net
income or assets of PalEx and its Subsidiaries, taken as a whole, or all or a
significant portion of any class of equity securities of PalEx or any of it
Subsidiaries, any tender offer or exchange offer that if consummated would
result in any person beneficially owning all or a significant portion of any
class of equity securities of PalEx or any of its Subsidiaries or any merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving PalEx or any of its Subsidiaries, other than
the transactions contemplated by this Agreement.
(b)Except as expressly permitted by this Section 8.5 and subject to the
requirements of the PalEx Board of Directors to call the PalEx Stockholders
Meeting in accordance with Section 9.4(a), neither the Board of Directors of
PalEx nor any committee thereof shall (i) withdraw or modify, or propose
publicly to withdraw or modify, in a manner adverse to IFCO, the approval or
recommendation by such Board of Directors or such committee of this Agreement,
(ii) approve or recommend, or propose publicly to approve or recommend, any
PalEx Acquisition Proposal or (iii) cause PalEx to enter into any letter of
intent, agreement in principle, acquisition agreement or other similar
agreement related to any PalEx Acquisition Proposal (each a "PalEx Acquisition
Agreement"). Notwithstanding the foregoing, in the event that prior to the
PalEx Stockholders Meeting the Board of Directors of PalEx determines in its
good faith judgment, after consultation with outside counsel, that failure to
take any of the foregoing actions with respect to a PalEx Superior Proposal
would result in a breach of, or be inconsistent with the exercise of, its
fiduciary duties to PalEx stockholders under applicable law, the Board of
Directors of PalEx may (subject to the terms of this and following sentences of
this Section 8.5(b)) withdraw or modify its approval or recommendation of this
Agreement, approve or recommend, or propose to approve or recommend, such PalEx
Superior Proposal, terminate this Agreement and concurrently with or after such
termination cause PalEx to enter into any binding PalEx Acquisition Agreement
with respect to such PalEx Superior Proposal; provided, however, (A) in each
case, at any time after 11:59 p.m.
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on the fifth business day following SPS's receipt of written notice advising
SPS that the Board of Directors of PalEx is prepared to accept a PalEx Superior
Proposal, specifying the material terms and conditions of such PalEx Superior
Proposal and identifying the person making such PalEx Superior Proposal and (B)
in the case of termination of this Agreement and entering into any binding
PalEx Acquisition Agreement, only at a time that is after the PalEx
Stockholders Meeting to be held in respect of this Agreement, and at which
meeting the stockholders of PalEx failed to approve and adopt this Agreement.
For purposes of this Agreement, a "PalEx Superior Proposal" means any PalEx
Acquisition Proposal (1) which was not solicited by PalEx and which did not
otherwise result from a breach of Section 8.5(a), (2) the terms of which the
Board of Directors of PalEx determines in its good faith judgment (based on the
advice of Batchelder or other financial advisor of nationally recognized
reputation) to be more favorable to PalEx's stockholders than the Merger and
(3) for which financing, to the extent required, is then committed or which, in
the good faith judgment of the Board of Directors of PalEx, is reasonably
capable of being obtained by such third party.
(c)After the Effective Date and prior to the Effective Time or earlier
termination of this Agreement, none of IFCO, any of its Subsidiaries, the other
IFCO Companies or SPS will, and each of them will not authorize or permit any
of its officers, directors or employees, or any attorney, accountant,
investment banker, financial advisor or other agent retained by it, to solicit,
initiate or knowingly encourage (including by way of furnishing material
nonpublic information), or take any other action designed to facilitate any
inquiries or the making of, any acquisition proposal or any proposal or offer
from any person relating to any direct or indirect acquisition or purchase of a
business that constitutes all or a significant portion of the net revenues, net
income or assets of the IFCO Companies or any of their Subsidiaries, taken as a
whole, or all or a significant portion of any class of equity securities of any
IFCO Company or any of their Subsidiaries, or all or any substantial part of
the outstanding capital stock of PalEx or IFCO, any tender offer or exchange
offer that if consummated would result in any person beneficially owning all or
a significant portion of any class of equity securities of any IFCO Company or
any of their Subsidiaries or PalEx, or any merger, consolidation, business
combination recapitalization, liquidation, dissolution or similar transaction
involving an IFCO Company or any of their Subsidiaries, other than the
transactions contemplated by this Agreement; provided, however, that IFCO, any
of its Subsidiaries, the other IFCO Companies or SPS will not be precluded from
making or soliciting a proposal or offer in response to and in competition with
a PalEx Superior Proposal.
(d)Nothing contained in this Section 8.5 shall prevent PalEx's Board of
Directors from taking and disclosing to PalEx's stockholders a position
contemplated by Exchange Act Rule 14e-2.
ARTICLE IX
ADDITIONAL AGREEMENTS
SECTION 9.1. Access to Information.
(a)PalEx will, and will cause its Subsidiaries to, afford to IFCO, and its
accountants, counsel, financial advisors and other representatives (the "IFCO
Representatives"), and IFCO will, and will cause its Subsidiaries to, afford to
PalEx and its accountants, counsel, financial advisors and other
representatives (the "PalEx Representatives"), full access, during normal
business hours throughout the period from the Effective Date and continuing
until the Effective Time, to all their respective properties, books, contracts,
commitments and records (and IFCO will provide or cause to be provided to the
PalEx Representatives access to all the properties, books, contracts,
commitments and records of IFCO U.S., L.L.C., a Delaware limited liability
company ("IFCO U.S.") and to the underwriters and their agents or
representatives in connection with IPO, and, during such period, PalEx and IFCO
will furnish promptly to one another (i) a copy of each report, schedule and
other document filed or received by either of them pursuant to the requirements
of securities laws or stock exchange regulations of the United States, any
state or foreign country or filed by either of them with the SEC in connection
with the transactions contemplated by this Agreement and (ii) such other
information concerning their respective businesses, properties and personnel as
IFCO or PalEx, as the case may be, reasonably requests; provided, however, that
no investigation pursuant to this Section 9.1 will amend or modify any
representations or warranties made herein or the conditions to the obligations
of the respective parties to
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consummate the transactions contemplated by this Agreement. IFCO will hold,
will cause its Subsidiaries to hold and will use its reasonable best efforts to
cause the IFCO Representatives to hold, and PalEx will hold, will cause its
Subsidiaries to hold and will use its reasonable best efforts to cause the
PalEx Representatives to hold, in strict confidence all nonpublic documents and
information furnished to IFCO or to PalEx, as the case may be, in connection
with the transactions contemplated by this Agreement, except that (y) IFCO and
PalEx may disclose such information as may be necessary in connection with
seeking the IFCO Required Regulatory Approvals, the PalEx Required Regulatory
Approvals and the PalEx Stockholders' Approval and (z) each of IFCO and PalEx
may disclose any information that applicable law or judicial or administrative
order requires it to disclose.
(b)If this Agreement terminates in accordance with its terms, each party
hereto will (i) promptly return all nonpublic written material provided to it
by any other party hereto pursuant to this Section 9.1, (ii) not retain any
copies, extracts or other reproductions, in whole or in part, of that written
material and (iii) will destroy or cause to be destroyed all documents,
memoranda, notes and other writings under its control and prepared by it or on
its behalf on the basis of the nonpublic information in that material
(collectively, "Analyses") (and IFCO and PalEx will use their respective
reasonable best efforts to cause their advisors and representatives to destroy
the Analyses under their control), and that destruction (and reasonable best
efforts) will be certified in writing by an authorized officer supervising that
destruction.
(c)PalEx will promptly advise IFCO in writing of any change or the occurrence
of any event after the Effective Date having, or which, insofar as can
reasonably be foreseen, in the future may have, any PalEx Material Adverse
Effect. IFCO will promptly advise PalEx in writing of any change or the
occurrence of any event after the Effective Date having, or which, insofar as
can reasonably be foreseen, in the future may have, any IFCO Material Adverse
Effect or any material adverse effect on or material impairment of the IPO and
shall keep PalEx reasonably apprised as to the status of the IPO.
SECTION 9.2. Registration Statement and Proxy Statement.
(a)As soon as reasonably practicable following the Execution Date, (i) PalEx
and IFCO will prepare and file a preliminary Proxy Statement with the SEC, (ii)
IFCO will prepare and file the Registration Statement with the SEC as soon as
reasonably practicable following the receipt of and response to comments, if
any, from the SEC with respect to the preliminary Proxy Statement, and (iii)
IFCO will make appropriate filings and obtain necessary approvals to effect the
IPO. Each of IFCO and PalEx will use all reasonable efforts to have the
Registration Statement declared effective under the Securities Act as promptly
as practicable after the filing thereof. IFCO will also take any action
required to be taken under applicable state blue sky or securities laws in
connection with the issuance of IFCO Ordinary Shares pursuant hereto. IFCO and
PalEx will promptly furnish to each other all information, and take such other
actions, as may reasonably be requested in connection with any action by either
of them in connection with the preceding sentences of this Section 9.2. Each of
IFCO and PalEx agrees that the information it provides for use in the Proxy
Statement and the Registration Statement will not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. PalEx shall mail a
copy of the Proxy Statement to record holders of the SMG Exchangeable Shares at
the same time the Proxy Statement is mailed to PalEx stockholders.
(b)PalEx shall use reasonable efforts to cause to be delivered to IFCO
letters of Arthur Andersen LLP, independent public accountants, dated a date
within two business days before the date on which the Registration Statement
shall become effective and addressed to IFCO and PalEx, in form and substance
reasonably satisfactory to IFCO and customary in scope and substance for
letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement.
(c)IFCO shall use reasonable efforts to cause to be delivered to PalEx
letters of PricewaterhouseCoopers, independent public accountants or its
affiliates, dated a date within two business days before the date on which the
Registration Statement shall become effective and addressed to PalEx and IFCO,
in form and substance reasonably satisfactory to PalEx and customary in scope
and substance for letters delivered by independent public accountants in
connection with registration statements similar to the Registration Statement.
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SECTION 9.3. Corrections to the Proxy Statement and Registration
Statement. Prior to the date the PalEx Stockholders' Approval has been
obtained, each of PalEx and IFCO will correct promptly any information provided
by it to be used specifically in the Proxy Statement and Registration Statement
that has become false or misleading in any material respect and will take all
steps necessary to file with the SEC and have declared effective or cleared by
the SEC any amendment of or supplement to the Proxy Statement or the
Registration Statement so as to correct the same and to cause the Proxy
Statement as so corrected to be disseminated to the stockholders of PalEx, in
each case to the extent required by applicable law.
SECTION 9.4. PalEx Stockholders' Approval.
(a) PalEx will, as promptly as practicable following the date on which the
Registration Statement becomes effective under the Securities Act, duly call
and give notice of a meeting of its stockholders (the "PalEx Stockholders'
Meeting") for the purpose of obtaining the PalEx Stockholder' Approval and,
subject to Section 9.4(b), will use its reasonable efforts to obtain
stockholder approval and adoption of this Agreement in accordance with the
Certificate of Incorporation and Bylaws of PalEx, the applicable provisions of
the DGCL and the Exchange Act (and the rules and regulations thereunder) and
the applicable rules of the Nasdaq National Market ("Nasdaq") (the "PalEx
Stockholders' Approval"). PalEx will convene and hold the PalEx Stockholders'
Meeting, in consultation with SPS, as soon as practicable following the date on
which the Registration Statement becomes effective under the Securities Act,
prior to the IPO Pricing Date and not more than 45 days before the anticipated
IPO Closing Date.
(b) PalEx will, through its Board of Directors, recommend to its stockholders
approval and adoption of this Agreement, except that the PalEx Board of
Directors may withdraw or modify its approval or recommendation of this
Agreement (i) in compliance with the requirements of Section 8.5(b) or (ii)
upon any withdrawal or material modification of the Fairness Opinion and the
determination by the Board of Directors of PalEx in its good faith judgment,
after consultation with outside counsel, that failure to take such action would
result in a breach of, or be inconsistent with, the exercise of its fiduciary
duties to PalEx stockholders under applicable law; provided, however, that such
withdrawal or modification shall not relieve PalEx of its obligation to call,
give notice of, convene and, in consultation with SPS, hold the PalEx
Stockholders' Meeting as provided in Section 9.4(a).
SECTION 9.5. Exchange Listings.
(a) IFCO will use all reasonable efforts to effect, as applicable, at or
before the Effective Time, authorization for listing on the Amtlicher Handel
segment or on the Neuer Markt segment of the Frankfurt Stock Exchange (the
"Listing Market"), of, as applicable, (i) IFCO or (ii) on official notice of
issuance, the IFCO Ordinary Shares to be issued pursuant to the Merger or to be
reserved for issuance on exercise of stock options or warrants or the
conversion or exchange of convertible or exchangeable securities as
contemplated hereby.
(b) IFCO will use all reasonable efforts to cause, at or before the Effective
Time, New York shares representing the IFCO Ordinary Shares issuable in the
Merger, and those to be reserved for issuance upon exercise of the IFCO
Options, conversion of the PalEx Convertible Notes and exchange of the SMG
Exchangeable Shares, to be approved for listing on Nasdaq, subject to official
notice of issuance.
SECTION 9.6. Options and Warrants. Prior to the Effective Time, IFCO and
PalEx will take such action as may be necessary to cause each unexpired and
unexercised option and each unexpired and unexercised warrant to purchase
shares of PalEx Common Stock (each a "PalEx Option") to be automatically
converted at the Effective Time into an option or warrant, as applicable (each
an "IFCO Option"), to purchase a number of IFCO Ordinary Shares equal to the
number of shares of PalEx Common Stock that could have been purchased under the
PalEx Option multiplied by the Exchange Ratio, at a price per IFCO Ordinary
Share equal to the option exercise price determined pursuant to the PalEx
Option divided by the Exchange Ratio and otherwise subject to the same terms
and conditions as the PalEx Option; provided, however, that in the case of any
option to which Section 421 of the Code applies by reason of its qualification
under any of Sections 422-24
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of the Code, the option price, the number of IFCO Ordinary Shares purchasable
pursuant to such option and the terms and conditions of exercise of such option
shall be determined in order to comply with Section 424(a) of the Code; and
provided further, that the number of IFCO Ordinary Shares that may be purchased
on exercise of such IFCO Option shall not include any fractional share and, on
exercise of such IFCO Option, a cash payment shall be made for any fractional
share based on the closing price of a IFCO Ordinary Share on the Listing Market
on the second trading day immediately preceding the date of exercise. The date
of grant of a substituted IFCO Option will be the date on which the
corresponding PalEx Option was granted. At the Effective Time, except to the
extent otherwise required by the existing stock option agreements, all
references to PalEx in the stock option agreements covering outstanding PalEx
Options will be deemed to refer to IFCO. IFCO will assume all PalEx's
obligations with respect to PalEx Options as so amended and will, from and
after the Effective Time, make available for issuance on exercise of the IFCO
Options all IFCO Ordinary Shares covered thereby and maintain an effective
registration statement under the Securities Act which covers (a) those shares
and (b) the warrant issued to Batchelder (if not exercised).
SECTION 9.7. Employee Matters.
(a) In general, and subject to the specific provisions of this Section 9.7,
and consistent with past practices of the IFCO Companies and PalEx, IFCO will
seek to attract and retain superior quality executive, managerial, technical
and administrative personnel in every market in which it conducts activities
(directly or through its Subsidiaries) and will generally implement
compensation and benefit plans and policies necessary to achieve this
objective.
(b) For at least two years following the Effective Time (such period, the
"Initial Period"), IFCO will provide or cause to be provided to current and
former employees of PalEx and its Subsidiaries compensation and benefits that
are at least as favorable in the aggregate as the compensation and benefits
they were entitled to receive immediately prior to the Effective Time
(including, without limitation, benefits, if any, pursuant to pension plans,
savings plans, medical plans and programs, layoff policies, deferred
compensation arrangements and retiree benefit plans policies and arrangements);
provided, that nothing contained in this Section 9.7(b) shall be construed as
any commitment with respect to continued employment, each such employee (not
otherwise party to an employment agreement) remaining an employee at will; and
provided, further, that such benefits shall not be deemed to include any right
to receive or expectation of receiving grants of stock options; and provided,
further, with respect to employees who are subject to collective bargaining
agreements, all benefits shall be provided in accordance with the applicable
collective bargaining or other labor agreements. IFCO shall honor, and shall
cause its Subsidiaries to honor, pursuant to their terms, all employee benefit
obligations to current and former employees and directors of PalEx.
(c) From and after the Effective Time, IFCO shall, and shall cause its
Subsidiaries to, recognize service with PalEx and PalEx's Subsidiaries prior to
the Effective Time for all purposes (including, without limitation, eligibility
to participate, vesting, benefit accrual, eligibility to commence benefits and
severance) under any benefit plans of IFCO or its Subsidiaries in which the
particular employee or former employee of PalEx (or any of its Subsidiaries)
participates; provided, however, that the foregoing shall not result in any
duplication of benefits.
(d) Except as otherwise expressly provided in this Agreement, from and after
the Effective Time, IFCO shall honor, and shall cause its Subsidiaries to
honor, in accordance with its terms, each existing employment, severance and
termination agreement between PalEx or any of its Subsidiaries on the one hand
and any officer, director or employee of any such company on the other hand. To
the extent that any such employment, severance or termination agreement can be
unilaterally amended by PalEx (or any of its Subsidiaries), IFCO agrees not to
amend, and to cause its Subsidiaries not to amend, any such plan or agreement
prior to the second anniversary of the Effective Time in a manner that will
reduce or otherwise impair the benefits that would be payable to any employee
pursuant to such plan or agreement who is covered thereby.
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(e) Waiver of Certain PalEx Employment Agreement Change of Control
Provisions. PalEx shall use its reasonable efforts to cause the PalEx employees
set forth on Exhibit A attached hereto to, as soon as practicable following the
Effective Date, waive any rights of termination and rights to receive severance
or other payments that such PalEx employees may have in connection with a
change of control of PalEx as set forth in their respective PalEx employment
agreement, resulting from the transactions contemplated by this Agreement
(collectively, the "PalEx Employee Waivers").
SECTION 9.8. Agreement to Cooperate.
(a) Subject to the terms and conditions herein provided and subject to the
fiduciary duties of the respective Board of Directors or equivalent body of
PalEx and IFCO, each of the parties hereto will use all reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including using its reasonable efforts to obtain all necessary or appropriate
waivers, consents or approvals of third parties required in order to preserve
material contractual relationships of PalEx and its Subsidiaries, all necessary
or appropriate waivers, consents and approvals to effect all necessary
registrations, filings and submissions and to lift any injunction or other
legal bar to the Merger (and, in such case, to proceed with the transactions
contemplated by this Agreement as expeditiously as possible).
(b) Without limitation of the foregoing, each of SPS and PalEx undertakes and
agrees to file as soon as practicable after the Effective Date (i) a
Notification and Report Form under the HSR Act with the U.S. Federal Trade
Commission (the "FTC") and the Antitrust Division of the U.S. Department of
Justice (the "Antitrust Division") and (ii) such notices and filings as may be
required pursuant to comparable European Governmental Requirements. Each of SPS
and PalEx will (y) use its reasonable efforts to comply as expeditiously as
possible with all lawful requests of the FTC or the Antitrust Division, or the
applicable authorities pursuant to the comparable European Governmental
Requirements, for additional information and documents and (z) not extend any
waiting period under the HSR Act or pursuant to comparable European
Governmental Requirements or enter into any agreement with the FTC or the
Antitrust Division, or the applicable authorities pursuant to the comparable
European Governmental Requirements, not to consummate the transactions
contemplated by this Agreement, except with the prior written consent of the
other.
SECTION 9.9. Reorganization. It is the intention of the parties hereto that
the Merger will qualify as a reorganization described in Section 368(a) of the
Code. None of the parties hereto (nor any of their respective Subsidiaries)
will take or omit to take any action (whether before, at or after the Effective
Time) that would cause the Merger not to be so treated. The parties will
characterize the Merger as such a reorganization for purposes of all Tax
Returns and other filings. PalEx shall timely comply with all reporting
requirements contained in Section 1.367(a)-3(c)(6) of the Treasury Regulations.
SECTION 9.10. Public Statements. SPS and PalEx will consult with each other
on any press releases or public announcements pertaining to this Agreement or
the transactions contemplated hereby and will not issue any such press release
or make any such public announcement without the mutual agreement of PalEx and
SPS as to the content of such release or announcement, except as may be
required by applicable law or by obligations pursuant to any listing agreement
with any national securities exchange (including, for this purpose, Nasdaq), in
which case the party proposing to issue such press release or make such public
announcement will use its reasonable best efforts to consult in good faith with
the other parties before issuing any such press release or making any such
public announcement.
SECTION 9.11. Notification of Certain Matters. Each of PalEx and SPS agrees
to give prompt notice to each other of, and to use their respective reasonable
best efforts to prevent or promptly remedy, (a) the occurrence or failure to
occur, or the impending or threatened occurrence or failure to occur, of any
event whose occurrence or failure to occur would be likely to cause any of its
representations or warranties in this Agreement to be untrue or inaccurate in
any material respect at any time from the Effective Date to the Effective Time
and (b) any material failure on its part to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder.
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SECTION 9.12. Directors' and Officers' Indemnification.
(a) After the Effective Time, each of IFCO and the Surviving Corporation
will, to the fullest extent permitted under applicable law, indemnify and hold
harmless each present and former director, officer, employee and agent of PalEx
or any of its Subsidiaries (each, together with such person's heirs, executors
or administrators, an "Indemnified Party" and, collectively, the "Indemnified
Parties") against any costs or expenses (including attorneys' fees), judgments,
fines, losses, claims, damages, liabilities and amounts paid in settlement in
connection with any actual or threatened claim, action, suit, proceeding or
investigation (each, whether civil, criminal, administrative or investigative,
a "Claim"), arising out of, relating to or in connection with any action or
omission in connection with such person serving as an officer, director,
employee or agent of PalEx occurring prior to the Effective Time (including,
without limitation, acts or omissions in connection with such person's serving
as an officer, director or fiduciary of any entity if such service was at the
request or for the benefit of PalEx) or arising out of or pertaining to the
transactions contemplated by this Agreement. In the event of any such actual or
threatened Claim (whether arising before or after the Effective Time), (i)
PalEx or IFCO and the Surviving Corporation, as the case may be, will pay the
reasonable fees and expenses of counsel selected by the Indemnified Parties,
which counsel must be reasonably satisfactory to IFCO, promptly after
statements therefor are received, and will pay all other reasonable expenses in
advance of the final disposition of that Claim, (ii) IFCO and the Surviving
Corporation will cooperate and use all reasonable efforts to assist in the
vigorous defense of any such Claim and (iii) to the extent any determination is
required to be made with respect to whether an Indemnified Party's conduct
complies with the standards set forth under the DGCL and the Surviving
Corporation's charter or bylaws, that determination will be made by independent
legal counsel acceptable to IFCO, the Surviving Corporation and the Indemnified
Party; provided, however, that neither IFCO nor the Surviving Corporation will
be liable for any settlement effected without its written consent (which
consent will not to be unreasonably withheld or delayed) and, provided,
further, that if IFCO or the Surviving Corporation advances or pays any amount
to any person under this Section 9.12(a) and it is thereafter finally
determined by a Court of competent jurisdiction that such person was not
entitled to be indemnified hereunder for all or any portion of such amount,
that person must repay such amount or such portion thereof, as the case may be,
to IFCO or the Surviving Corporation, as the case may be. The Indemnified
Parties as a group may not retain more than one law firm to represent them with
respect to each Claim unless there is, under applicable standards of
professional conduct, a potential conflict on any significant issue between the
positions of any two or more Indemnified Parties.
(b) In the event the Surviving Corporation or IFCO or any of their successors
or assigns (i) consolidates with or merges into any other person and is not to
be the continuing or surviving corporation or entity of that consolidation or
merger or (ii) transfers all or substantially all its properties and assets to
any person, then and in each such case IFCO and the Surviving Corporation will
cause proper provisions to be made so that the successors and assigns of the
Surviving Corporation or IFCO assumes the obligations set forth in this Section
9.12.
(c) For a period of six years after the Effective Time, IFCO will cause to be
maintained in effect the current policies of directors' and officers' liability
insurance maintained by PalEx and its Subsidiaries (provided that IFCO may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions that are no less advantageous in any material
respect to the Indemnified Parties and which coverages and amounts must be no
less than the coverages and amounts provided at that time for IFCO's directors
and officers) with respect to matters rising before the Effective Time;
provided, however, in no event shall IFCO be required to maintain such
insurance with comparable coverage if the cost of such insurance is more than
130% of the cost of such insurance in the prior year, but in such case IFCO
shall purchase as much coverage as possible for such amount.
(d) IFCO will pay all reasonable expenses, including reasonable attorneys'
fees, that may be incurred by any Indemnified Party in enforcing the indemnity
and other obligations provided in this Section 9.12, and IFCO will advance
expenses as incurred to the fullest extent permitted by applicable law,
provided the person to whom expenses are advanced provides an undertaking to
repay such advances if it is ultimately determined that such person is not
entitled to indemnification hereunder.
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(e) The rights of each Indemnified Party hereunder will be in addition to any
other rights such Indemnified Party may have under indemnification agreements
with PalEx, the Certificate of Incorporation or Bylaws of PalEx, under the DGCL
or otherwise. The provisions of this Section 9.12 will survive the consummation
of the Merger and expressly are intended to benefit each of the Indemnified
Parties.
SECTION 9.13. Voting Agreement. As of the Execution Date and at the request
of SPS, a Voting Agreement in favor of SPS in the form of Exhibit B to this
Agreement (the "Voting Agreement") has been delivered by the stockholders of
PalEx listed on Schedule A to the Voting Agreement. As soon as practicable
after the mailing of the Proxy Statement to the PalEx Stockholders, PalEx will
use its reasonable efforts to deliver to SPS an additional Voting Agreement in
favor of SPS substantially in the form of Exhibit A (the "Additional Voting
Agreement") from additional stockholders of PalEx, such that the number of
outstanding shares of PalEx Common Stock held by the stockholders executing the
Voting Agreement and Additional Voting Agreement, as of the Record Date, and
subject thereto shall constitute not less than 51% of the outstanding shares of
PalEx Common Stock as of the Record Date.
SECTION 9.14. Restrictions on Transfer of Shares by Certain
Shareholders. Prior to the Closing Date, IFCO shall have entered into a lockup
agreement (each a "Lockup Agreement") with each of (a) Martin Schoeller,
(b) Christoph Schoeller, (c) SPS and (d) Schoeller Holdings. Further, PalEx
will use its reasonable best efforts to deliver to IFCO Lockup Agreements
executed by the officers and senior executives of PalEx and senior executives
of PalEx's Subsidiaries listed on Exhibit C to this Agreement (the "Management
Shareholders" and together with Martin and Christoph Schoeller, the "Restricted
Shareholders"). Each Lockup Agreement shall restrict the transfer of 100% of
the IFCO Ordinary Shares held, to be held or entitled to be received by the
Restricted Shareholder as of the Effective Time for a period of two years
beginning on the IPO Closing Date, (unless, with respect to a Management
Shareholder, the employment of the Management Shareholder by IFCO, PalEx or a
Subsidiary of PalEx is earlier terminated without cause or as a result of a
breach by IFCO, PalEx or a Subsidiary of PalEx of any employment agreement with
the Management Shareholder), subject to the ability of the Restricted
Shareholder to transfer his IFCO Ordinary Shares in the following amounts and
periods: (a) 20% at any time beginning one month after the IPO Closing Date,
(b) an additional 15% beginning 12 months after the IPO Closing Date, (c) an
additional 15% at any time beginning 15 months after the IPO Closing Date, (d)
an additional 15% at any time beginning 18 months after the IPO Closing Date
and (e) an additional 15% at any time beginning 21 months after the IPO Closing
Date. IFCO shall not waive any such restriction except upon an affirmative vote
of the independent directors on the Board of Directors (or equivalent body) of
IFCO.
SECTION 9.15. Related Party Transaction. From and after the Effective Time,
none of IFCO or any Subsidiary of IFCO or IFCO Minority Subsidiary shall enter
into any transaction with any affiliate thereof (other than an IFCO Company,
Subsidiary of an IFCO Company or an IFCO Minority Subsidiary), including any
transaction to purchase from or sell to any such affiliate, any goods or
services, unless such transaction is approved by the disinterested directors on
the Board of Directors (or equivalent body) of IFCO.
SECTION 9.16. Additional IFCO Option.
(a) As of the Closing Date, IFCO shall issue options to purchase 300,000 IFCO
Ordinary Shares at an exercise price per share equal to the IPO Price to each
of Christoph Schoeller, Martin Schoeller, and Sam W. Humphreys as incentive
compensation for their involvement in the business of IFCO following the
Closing Date.
(b) On or after the Closing Date, IFCO shall be entitled to issue options to
purchase up to an aggregate of 1,000,000 IFCO Ordinary Shares, at an exercise
price per share equal to (i) the IPO Price, if the date of grant is the Closing
Date or (ii) the closing price per share of the IFCO Ordinary Shares as
reported by the Listing Market on the date of grant, if the date of grant is
after the Closing Date, to employees of SPS or its affiliates other than
Christoph Schoeller and Martin Schoeller, provided that no individual employee
shall be granted options for more than 100,000 IFCO Ordinary Shares.
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(c) Options granted by IFCO pursuant to this Section 9.16 shall vest and
become immediately exercisable on the date of grant.
SECTION 9.17. Technology Transfer. SPS covenants that, to the extent SPS or
its affiliates possess any material trademarks, trade names, patents, service
marks, brand names, computer programs, databases, industrial designs and
copyrights "know-how", or representations or expressions thereof or
registration or applications therefor (collectively, the "Technology"), which
are necessary for the operation of the businesses of the IFCO Companies, the
Subsidiaries of the IFCO Companies or IFCO Minority Subsidiaries, but which
have not been transferred to or licensed to an IFCO Company, a Subsidiary of an
IFCO Company or an IFCO Minority Subsidiary, then SPS shall, or shall use its
reasonable efforts to cause its affiliates to, (a) transfer any such Technology
to IFCO or (b) license such Technology to IFCO pursuant to a perpetual,
royalty-free license to the fullest extent permitted under applicable law. If
any such license shall be, or any license existing as of the Effective Date is,
non-exclusive, then SPS shall not thereafter enter into a new license, and
shall use its reasonable efforts to cause its affiliates not to enter into a
new license, with respect to such Technology to any party that competes with
the IFCO Companies.
SECTION 9.18. Reservation of Right to Revise Transaction. If the
implementation and mechanics of the transactions contemplated by this Agreement
prove not to be operable or optimal as determined only by mutual agreement of
the parties, including, without limitation, (x) the jurisdiction in which IFCO
is organized, (y) the issuance to U.S. holders of PalEx Common Stock of
American Depositary shares evidenced by American Depositary Receipts or similar
security, representing the IFCO Ordinary Shares to be issued to the PalEx
Stockholders, and (z) the treatment of the PalEx Options under the laws of the
jurisdiction in which IFCO is organized, the parties will use their reasonable
best efforts to change the method or any component of effecting the business
combination between PalEx and IFCO contemplated hereby, and each party will
cooperate in such efforts, including, if necessary, to provide for a different
form of transaction to effect the business combination of PalEx and IFCO;
provided, that no such change shall (a) alter or change the amount or kind of
consideration to be received by holders of PalEx Common Stock, (b) adversely
affect the tax treatment to PalEx, IFCO or their respective stockholders as a
result of the transactions contemplated hereby, (c) materially delay receipt of
any material approval referred to in this Agreement or the consummation of the
transactions contemplated hereby, (d) impose material additional covenants, (e)
alter or change the conditions to Closing or (f) materially alter or change the
termination rights.
SECTION 9.19. SMG Exchangeable Shares. PalEx shall use its reasonable efforts
to amend the Articles of Association of SMG and that certain Support Agreement
dated as of September 11, 1998 between PalEx, 131530 Ontario Inc. and The
Ronald Doering Family Trust, Save-On Pallets Ltd., 1271478 Ontario Limited,
1296288 Ontario Limited, 1271477 Ontario Limited, Rollem Holdings Limited,
Worden A. Teasdale, Clint Sharples and Cosimo Fiorenza to provide, from and
after the Effective Time, for the exchange of each SMG Exchangeable Share for
the Merger Consideration that would have been received if such SMG Exchangeable
Share had been exchanged for shares of PalEx Common Stock immediately prior to
the Effective Time.
SECTION 9.20. IFCO U.S. IFCO and SIL shall use their reasonable best efforts
to cause the transactions contemplated by that certain Membership Interest and
Share Purchase Agreement dated as of August 31, 1999 (the "IFCO U.S.
Agreement") by and among Polymer International Corp., IFCO, IPG, IFCO
Manufacturing Inc., SIL and Schoeller - U.S., Inc. to be consummated on the
Closing Date.
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ARTICLE X
CONDITIONS
SECTION 10.1. Conditions to Each Party's Obligations. The respective
obligations of each party to effect the transactions contemplated by this
Agreement will be subject to the fulfillment at or prior to the Closing Date of
the following conditions:
(a) the IPO shall have been priced on a basis that implies that the market
equity valuation of IFCO prior to the IPO, but on a combined basis as if the
other transactions contemplated by this Agreement, including the Merger, had
been consummated (the "Market Equity Valuation"), is not less than $400,000,000
based on the Currency Exchange Rate on the IPO Pricing Date, and the Closing
and the closing of the IPO shall occur on the same day;
(b)this Agreement and the Merger shall have been approved and adopted by the
requisite vote of the stockholders of PalEx under applicable law and listing
requirements;
(c)the IFCO Ordinary Shares issuable in the IPO and the IFCO Ordinary Shares
issuable in the Merger and those to be reserved for issuance on exercise of
stock options and warrants or on conversion or exchange of outstanding
convertible or exchangeable securities or IFCO as applicable, shall have been
authorized for listing on the Listing Market;
(d)PalEx, on one hand, and SPS and IFCO, on the other hand, shall have
obtained all consents set forth, respectively, in Section 5.4(b) of the PalEx
Disclosure Schedule or PalEx Supplemental Disclosure Schedule and in Section
6.4(b) of the IFCO Disclosure Schedule or IFCO Supplemental Disclosure
Schedule, except for such consents the failure of which to obtain would not,
singly or in the aggregate, have, respectively, a PalEx Material Adverse Effect
or an IFCO Material Adverse Effect, materially impair the ability,
respectively, of PalEx or SPS and IFCO to perform its obligations hereunder or
prevent the consummation of any of the transactions contemplated hereby;
(e)the waiting period applicable to the consummation of the transactions
contemplated by this Agreement under the HSR Act and pursuant to the European
Governmental Requirements shall have expired or been terminated and any
necessary consents or approvals required pursuant to the European Governmental
Requirements shall have been obtained;
(f)the Registration Statement shall have become effective in accordance with
the provisions of the Securities Act, no stop order suspending that
effectiveness shall have been issued and remain in effect and there shall be no
pending proceeding for that purpose instituted by the SEC or any other
regulatory authority;
(g)IFCO shall have received all state securities law or "blue sky" permits
and authorizations necessary to carry out the transactions contemplated hereby,
such permits and authorizations shall be in full force and effect and no
action, suit, proceeding or investigation seeking to revoke or suspend the
effectiveness of any such permit or authorization shall have been initiated and
be continuing or shall have been threatened and be unresolved;
(h)no preliminary or permanent injunction or other order, decree or ruling by
any Court which prevents consummation of the Merger shall have been issued and
remain in effect (each party agreeing to use its reasonable efforts to have any
such injunction, order, decree or ruling lifted); and
(i)no action shall have been taken, and no statute, rule or regulation shall
have been enacted, by any government or governmental agency in the United
States, the Federal Republic of Germany or The Netherlands which would prevent
the consummation of the Merger or make the consummation of the Merger illegal.
SECTION 10.2. Conditions to Obligation of PalEx. Unless waived by PalEx, the
obligation of PalEx to effect the Merger will be subject to the fulfillment at
or prior to the Closing Date of the following additional conditions:
(a)IFCO and Merger Sub shall have performed in all material respects their
respective agreements contained in this Agreement required to be performed on
or prior to the Closing Date and the representations
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and warranties of the IFCO Companies and SPS contained in this Agreement shall
be true and correct in all material respects on and as of the date made and on
and as of the Closing Date as if made at and as of such date (except, in each
case, to the extent that such representations and warranties speak as of an
earlier date), and PalEx shall have received a certificate of the President or
a Vice President of each of the IFCO Companies and SPS to that effect;
(b)PalEx shall have received a private ruling from the IRS that the
stockholders of PalEx qualify for an exception to Section 367(a)(1) of the Code
under U.S. Treasury Regulation Section 1.367(a)-3(c)(9)(i) with respect to the
Merger (the "Tax Ruling" and such Tax Ruling shall not have been withdrawn or
modified in any material respect;
(c)(i) On or before the date the Proxy Statement is first mailed to the
stockholders of PalEx, Baker & Botts, L.L.P., special counsel to PalEx, shall
have rendered a written opinion, reasonably satisfactory to both PalEx and SPS,
to the Board of Directors of PalEx as of the date rendered to the effect that,
if the Merger and the other transactions contemplated by this Agreement are
consummated in accordance with the terms of this Agreement, (A) the Merger
should be a "reorganization" within the meaning of Section 368(a) of the Code
and (B) IFCO should be treated as a corporation under Section 367(a)(1) of the
Code with respect to the Merger (the "Tax Opinion"), (ii) as of the Closing
Date, the Tax Opinion shall not have been withdrawn or modified in any material
respect, and (iii) a second written opinion of Baker & Botts, L.L.P.,
reconfirming the Tax Opinion and dated as of the Closing Date, reasonably
satisfactory to both PalEx and SPS, shall have been rendered to PalEx provided
that in rendering the Tax Opinions such counsel may (y) rely upon the Tax
Ruling (or, in the case of the Original Tax Opinion, may assume the Tax Ruling
will be received and will not have been withdrawn or modified in any material
respect prior to the Merger) and (z) receive and rely on representations of
fact contained in certificates of PalEx and IFCO and provided further that the
Tax Opinions shall not address the tax consequences applicable to any
stockholder of PalEx who, immediately after the Merger, will be a "five percent
transferee shareholder" with respect to IFCO within the meaning of U.S.
Treasury Regulation Section 1.367(a)-3(c)(5).
(d)SPS shall have contributed the IFCO Europe Shares and the MTS Shares, and
SPS shall have caused Gebr. Schoeller to contribute the SIL Shares (either
directly or through SPS), to IFCO on or before the Effective Time;
(e)The transactions contemplated by the Option Release Agreement shall have
been consummated, including, without limitation, that GE GmbH shall have
exchanged the IFCO Europe Preferred Share for the Convertible Debenture on or
before the Effective Time.
(f)The closing of the IPO shall not have occurred;
(g)New York shares representing the IFCO Ordinary Shares issuable in the
Merger, and those to be reserved for issuance on exercise of the IFCO Options,
conversion of the PalEx Convertible Notes and exchange of the SMG Exchangeable
Shares, shall have been authorized for listing on Nasdaq;
(h)The IPO Closing Date shall not be more than 45 days after the PalEx
Stockholders' Meeting, provided that if (i) PalEx shall have received advice
from its outside legal counsel that it will be necessary to recirculate the
Proxy Statement, as appropriately supplemented, and resolicit proxies for a new
PalEx Stockholders' Meeting, and (ii) SPS shall have received Voting Agreements
and Additional Voting Agreements for not less than 51% of the outstanding PalEx
Common Stock, then PalEx shall be required to convene and hold a new PalEx
Stockholders' Meeting and a new 45-day period for purposes of this condition
shall run from the date of the new PalEx Stockholders' Meeting; and
(i)The IFCO U.S. Agreement shall not have been amended in any material
respect, except in accordance with Section 9.20, and shall be in full force and
effect.
SECTION 10.3. Conditions to Obligations of IFCO, Merger Sub and SPS. Unless
waived by IFCO, Merger Sub and SPS, the obligations of IFCO, Merger Sub and SPS
to effect the transactions
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contemplated by this Agreement will be subject to the fulfillment at or prior
to the Closing Date of the following additional conditions:
(a)that PalEx shall have performed in all material respects its agreements
contained in this Agreement required to be performed on or prior to the Closing
Date and the representations and warranties of PalEx contained in this
Agreement shall be true and correct in all material respects on and as of the
date made and on and as of the Closing Date as if made at and as of such date
(except, in each case, to the extent that such representations and warranties
speak as of an earlier date and IFCO shall have received a Certificate of the
President or of a Vice President of PalEx to that effect;
(b)that IFCO shall have received a Lockup Agreement executed by not less than
75% of the Management Stockholders; and
(c)PalEx shall have obtained at least eleven of the PalEx Employee Waivers as
set forth in Section 9.7(e) hereto.
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
SECTION 11.1. Termination. This Agreement may be terminated at any time prior
to the Closing Date, whether before or after the PalEx Stockholders' Approval
has been obtained, by the mutual written consent of SPS and PalEx or as
follows:
(a)SPS or PalEx will have the right to terminate this Agreement:
(i)if the IPO Closing Date is not on or before May 31, 2000;
(ii) if, as of the IPO Pricing Date based on the price of the IFCO
Ordinary Shares for the IPO as recommended by the managing underwriters
representing IFCO, after consultation with IFCO and PalEx, the IPO pricing
implies a Market Equity Valuation less than $400,000,000 based on the
Currency Exchange Rate on the IPO Pricing Date, except as provided in
Section 11.1(d);
(iii) if the stockholders of PalEx fail to approve and adopt this
Agreement at the PalEx Stockholders' Meeting, or any postponement or
adjournment thereof, at which a vote on such matters was taken, provided
that the PalEx Board of Directors shall not have withdrawn or modified its
approval or recommendation of this Agreement prior to the PalEx
Stockholders' Meeting;
(iv) if IFCO does not obtain authorization from a Listing Market for
listing of IFCO or the IFCO Ordinary Shares, as applicable, and such
failure to obtain authorization is not cured within 30 days of IFCO's
receipt of actual notice thereof; or
(v) if the IFCO U.S. Agreement is terminated for any reason.
(b)PalEx will have the right to terminate this Agreement:
(i) if the representations and warranties of the IFCO Companies or SPS
shall fail to be true and correct in all material respects on and as of the
date made or, except in the case of any such representations and warranties
made as of a specified date, on and as of any subsequent date as if made at
and as of such subsequent date, and the facts giving rise to such failure
shall not have been cured, or could not be cured, in all material respects
within 30 days after written notice of such failure is given to SPS by
PalEx;
(ii) if either IFCO or SPS (A) fails to perform in any material
respect any of its material covenants in this Agreement and (B) does not
cure such default in all material respects within 30 days after notice of
such default is given to SPS by PalEx;
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(iii) if the Merger is enjoined by a final, nonappealable order,
decree or ruling issued by a Court of competent jurisdiction or some other
governmental body or regulatory authority having jurisdiction, provided
that such order, decree or ruling was not entered at the request or with
the support of PalEx or affiliates thereof, and if PalEx shall have used
reasonable efforts to prevent the entry of such order, decree or ruling;
(iv) subject to payment of the PalEx Termination Fee pursuant to
Section 11.3(a) , if the PalEx Board of Directors (in compliance with the
requirements of Section 8.5(b)) withdraws or modifies its approval or
recommendation of this Agreement prior to the PalEx Stockholders' Meeting
because of a PalEx Superior Proposal, the stockholders of PalEx fail to
approve and adopt this Agreement at the PalEx Stockholders' Meeting, or any
postponement or adjournment thereof, at which a vote on such matters was
taken, and PalEx (in compliance with the requirements of Section 8.5(b))
enters into a binding PalEx Acquisition Agreement with respect to the PalEx
Superior Proposal; or
(v) on or before December 31, 1999, if PalEx shall not have (i) issued
senior subordinated notes in a private placement in an aggregate amount not
less than $25,000,000, (ii) extended the maturity date of the PalEx Credit
Facility such that the maturity date of the PalEx Credit Facility is on or
after the date that the parties reasonably anticipate at the time of such
extension as the Closing Date, and (iii) entered into an amendment of the
PalEx Credit Facility with the lenders thereunder to restructure the
financial covenants thereof such that PalEx has availability under the
PalEx Credit Facility, including the amount of outstanding principal
indebtedness thereunder, up to the full amount thereof of $150,000,000, or
obtained alternative financing with an effect on PalEx reasonably
equivalent to the foregoing (collectively, the "Interim Financing").
(c)SPS shall have the right to terminate this Agreement:
(i) if the representations and warranties of PalEx shall fail to be
true and correct in all material respects on and as of the date made or,
except in the case of any such representations and warranties made as of a
specified date, on and as of any subsequent date as if made at and as of
such subsequent date, and the facts giving rise to such failure shall not
have been cured, or could not be cured, in all material respects within 30
days after written notice of such failure is given to PalEx by SPS;
(ii) if PalEx (A) fails to perform in any material respect any of its
material covenants in this Agreement and (B) does not cure such default in
all material respects within 30 days after notice of such default is given
to PalEx by SPS;
(iii) if the Merger is enjoined by a final, nonappealable order,
decree or ruling issued by a Court of competent jurisdiction or some other
governmental body or regulatory authority having jurisdiction, provided
that such order, decree or ruling was not entered at the request or with
the support of SPS, any IFCO Company, or affiliates thereof and if IFCO and
SPS shall have used reasonable efforts to prevent the entry of such order,
decree or ruling;
(iv) if the PalEx Board of Directors (in compliance with the
requirements of Section 8.5(b)) withdraws or modifies its approval or
recommendation of this Agreement prior to the PalEx Stockholders' Meeting
because of a PalEx Superior Proposal or approves or recommends, or propose
to approve or recommend, a PalEx Superior Proposal;
(v) if the PalEx Board of Directors (in compliance with the
requirements of Section 8.5(b)) withdraws or modifies its approval or
recommendation of this Agreement prior to the PalEx Stockholders' Meeting
because of a PalEx Superior Proposal and the stockholders of PalEx fail to
approve and adopt this Agreement at the PalEx Stockholders' Meeting, or any
postponement or adjournment thereof, at which a vote on such matters was
taken; or
(vi) for any other reason, in its sole discretion, upon payment of the
IFCO Termination Fee pursuant to Section 11.3(b), provided that at the time
of termination (A) all representations and warranties of the IFCO Companies
and SPS are true and correct in all material respects and (B) the IFCO
Companies and SPS shall not be in material breach of their respective
covenants.
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(d)If the Market Equity Valuation is less than $400,000,000 as of the first
attempted IPO Pricing Date, then neither SPS or PalEx shall have the right to
terminate pursuant to Section 11.1(a)(ii), but instead SPS and PalEx agree that
IFCO may have a second attempt to price the IPO at any time within the 90 days
thereafter and Section 11.1(a)(ii) shall then be applicable with respect to
such second attempted IPO Pricing Date; provided, however, that if IFCO fails
to have a second attempted IPO Pricing on or before the end of such 90-day
period, then either SPS or PalEx may terminate this Agreement at the end of
such 90-day period on the basis of Section 11.1(a)(ii) as modified by this
Section 11.1(d).
SECTION 11.2. Effect of Termination. In the event of termination of this
Agreement by either SPS or PalEx pursuant to the provisions of Section 11.1,
this Agreement will forthwith become void and there will be no further
obligation on the part of SPS, IFCO, Merger Sub or PalEx (except that this
Section 11.2, Section 11.3, the second sentence of Section 9.1(a) and Sections
9.1(b) and 12.1 will survive the termination). Nothing in this Section 11.2
will relieve any party from liability for any willful or intentional breach of
this Agreement.
SECTION 11.3. Termination Fee.
(a)If (i) PalEx terminates this Agreement pursuant to Section 11.1(b)(iv) or
(ii) SPS terminates this Agreement pursuant to Section 11.1(c)(v), then PalEx
shall promptly, but in no event later than two business days, after the date of
termination, pay or cause to be paid to SPS the PalEx Termination Fee, payable
by wire transfer of same day funds to such account as SPS may designate in
writing to PalEx. PalEx acknowledges that the agreements contained in this
Section 11.3(a) are an integral part of the transactions contemplated by this
Agreement and that, without these agreements, SPS would not enter into this
Agreement.
(b)If SPS terminates this Agreement pursuant to Section 11.1(c)(vi), then SPS
shall promptly, but in no event later than two business days, after the date of
termination, pay or cause to be paid to PalEx the IFCO Termination Fee, payable
by wire transfer of same day funds to such account as PalEx may designate in
writing to SPS. SPS acknowledges that the agreements contained in this Section
11.3(b) are an integral part of the transactions contemplated by this Agreement
and that, without these agreements, PalEx would not enter into this Agreement.
(c)If PalEx or SPS fails promptly to pay or cause to be paid a Termination
Fee when due pursuant to this Section 11.3, and, in order to obtain such, the
non-terminating party (SPS or PalEx) commences a suit that results in a
judgment against the terminating party for the Termination Fee, the terminating
party shall pay to such non-terminating party its costs and expenses (including
reasonable attorneys' fees and expenses) in connection with such suit, together
with interest on the amount of the Termination Fee from, and at the prime rate
of Citibank, N.A. (or, if unavailable such other money center bank
headquartered in New York, New York, as selected by such non-terminating party
(the "Prime Rate") by written notice to the terminating party) in effect on,
the date payment of the Termination Fee was required to be made.
(d)The "PalEx Termination Fee" shall mean an amount, not to exceed
$10,000,000, equal to (i) 5% of (ii) the market capitalization of PalEx on the
date of termination, as determined by multiplying the closing sale price per
share of the PalEx Common Stock as reported by Nasdaq on such date by sum of
the number of shares of PalEx Common Stock and SMG Exchangeable Shares
outstanding on the date of termination. The "IFCO Termination Fee" (with the
PalEx Termination Fee, each a "Termination Fee") shall mean an amount equal to
DM 12,000,000.
SECTION 11.4. Extension; Waiver. At any time prior to the Effective Time,
the parties hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant thereto and (c) waive compliance with any of the
agreements or conditions contained herein. Notwithstanding the foregoing, no
failure or delay by any party hereto in exercising any right hereunder shall
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right hereunder. Any agreement on the part of a party hereto to any such
extension or waiver will be valid only if set forth in an instrument in writing
signed on behalf of that party.
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ARTICLE XII
GENERAL PROVISIONS
SECTION 12.1. Payment of Expenses. Except as otherwise previously agreed by
the parties, each party hereto shall pay its own costs and expenses incident to
preparing for entering into and carrying out this Agreement and the
consummation (a) of the transactions contemplated hereby, whether or not these
transactions shall be consummated, except that each of SPS and IFCO, on the one
hand, and PalEx, on the other hand, shall bear and pay one-half of the costs
and expenses incurred in connection with (i) the filing, printing and mailing
of the Proxy Statement and Registration Statement (including SEC filing fees)
and (ii) the filings of the premerger notification and report forms under the
HSR Act and the European Governmental Requirements (including filing fees), and
(b) if the Merger is completed (i) fees and expenses incurred by IFCO or PalEx
for professional services, including, without limitation, financial advisors,
accountants, and attorneys, and whether paid or to be paid in cash or in the
form of securities, (ii) costs and expenses, whether paid or to be paid in cash
or in the form of securities, incurred by PalEx prior to the Closing in
connection with the Interim Financing, including additional financing to the
level as contemplated in Section 8.1(c)(i)(D), shall be borne by IFCO Systems
following the Effective Time.
SECTION 12.2. Non-Survival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement will survive the Effective Time. This Section 12.2
shall not limit any covenant or agreement hereunder of any party hereto which
by its terms contemplates performance after the Effective Time.
SECTION 12.3. Notices. All notices and other communications required or
permitted hereunder must be in writing (except as this Agreement otherwise
specifies) and will be deemed to be delivered and received if personally
delivered or if delivered by telex, telegram, facsimile or courier service,
when actually received by the party to whom notice is sent, addressed to the
appropriate party or parties, at the address of such party or parties set forth
below (or at such other address as such party may designate by written notice
to all other parties in accordance herewith):
(i)If to IFCO or Merger Sub, to:
IFCO
Zugspitzstrasse 15
82049 Pullach
Germany
Attention: Martin and Christoph Schoeller
Telecopy: 011-49-897-449-1298
with a copy (which shall not constitute notice) to:
King & Spalding
1185 Avenue of the Americas
New York, New York 10036-4003
Attention: Stephen M. Wiseman, Esq.
Telecopy: (212) 556-2222
(ii)If to PalEx, to:
Palex, Inc.
6829 Flintlock Road
Houston, Texas 77040
Attention: Edward Rhyne, Esq.
Telecopy: (713) 332-6146
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<PAGE>
with a copy (which shall not constitute notice) to:
Gardere & Wynne, L.L.P.
1601 Elm Street, Suite 3000
Dallas, Texas 75201
Attention: Randall G. Ray, Esq.
Facsimile: (214) 999-4667
SECTION 12.4. Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the documents and instruments referred to herein) (a) constitutes
the entire agreement and supersedes all other prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof, including, without limitation, that
certain Agreement and Plan of Reorganization dated as of March 29, 1999 by and
among IFCO Europe, MTS, SIL, SPS and PalEx; provided, that the provisions of
that certain Non-Disclosure Agreement dated July 10, 1998, between PalEx and
SPS, that certain Confidentiality Agreement dated January 12, 1999, between
PalEx and SPS concerning confidentiality and related matters (collectively, the
"Confidentiality Agreement") and any previous agreement with respect to
expenses will remain in effect, and (b) is not intended to confer on any other
person any rights or remedies hereunder, except as Sections 9.6, 9.7 and 9.12
provide.
SECTION 12.5. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder may be assigned by any of the parties hereto
(whether by operation of law or otherwise) without the prior written consent of
the other parties hereto.
SECTION 12.6. Severability. If any term or provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby are not affected in any
manner materially adverse to any party. Upon such determination that any term
or other provision is invalid, illegal or incapable of being enforced, the
parties shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the transactions be consummated as originally
contemplated to the fullest extent possible.
SECTION 12.7. Interpretation. The headings contained in this Agreement are
included for convenience of reference only and do not affect in any way the
meaning or interpretation of this Agreement. In this Agreement, unless a
contrary intention appears, (a) the words "herein," "hereof" and "hereunder"
and other words of similar import refer to this Agreement as a whole and not to
any particular Article, Section or other subdivision, (b) reference to any
Article or Section means that Article or Section hereof, (c) the word
"including" (and, with correlative meaning, the word "include") means
including, without limiting the generality of any description preceding such
word, and (d) the words "shall" and "will" are used interchangeably and have
the same meaning. Whenever the context so requires, as used in this Agreement,
the singular number includes the plural and vice versa, and a reference to one
gender includes the other gender and the neuter. Whenever any representation
and warranty is made herein by a party hereto and is qualified by the words "to
the knowledge of" that party (or phrases with similar wording or effect), such
representation and warranty shall be deemed to be made to the actual knowledge
of the senior management (vice presidents or comparable positions and higher
offices) of that party. No provision of this Agreement shall be interpreted or
construed against any party hereto solely because such party or its legal
representative drafted such provision.
SECTION 12.8. Governing Law. TO THE EXTENT REQUIRED BY THE LAW OF THE
JURISDICTION IN WHICH IFCO IS ORGANIZED, THE DELIVERY OR CONTRIBUTION OF IFCO
ORDINARY SHARES AS PART OF THE SHARE EXCHANGE SHALL BE GOVERNED BY AND EFFECTED
IN ACCORDANCE WITH SUCH LAWS. IN ALL OTHER RESPECTS, THIS AGREEMENT SHALL BE
GOVERNED, INCLUDING VALIDITY, INTERPRETATION AND
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<PAGE>
EFFECT, BY THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS EXECUTED
AND TO BE PERFORMED WHOLLY WITHIN THAT STATE.
SECTION 12.9. Arbitration. All disputes arising in connection with the
present contract shall be finally settled under the Rules of Conciliation and
Arbitration of the International Chamber of Commerce by three arbitrators
appointed in accordance with the said Rules. Each party shall nominate one
arbitrator for confirmation by the competent authority under the Rules
("Appointing Authority"). Both arbitrators shall agree on the third arbitrator
within 30 days. Should the two arbitrators fail to agree on the third
arbitrator within the above time limit, he shall be appointed by the Appointing
Authority. The seat of arbitration shall be London, England. The arbitrators
shall allocate among the parties, in accordance with the equities of the
resolution of the dispute, the costs and expenses (including reasonable
attorneys' fees and expenses of the parties) incurred in connection with the
arbitration proceedings.
SECTION 12.10. Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed to be an original, but all of which
will constitute one and the same agreement, it being understood that all
parties need not sign the same counterpart. Facsimile transmission of any
signed original document and/or retransmission of any signed facsimile
transmission will be deemed the same as delivery of an original. At the request
of any party, the parties will confirm facsimile transmission by signing a
duplicate original document.
[Remainder of page intentionally left blank.]
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<PAGE>
IN WITNESS WHEREOF, SPS and PalEx have caused this Agreement to be signed by
their respective officers and attested to as of the date first written above.
IFCO SYSTEMS N.V.
/s/ Willy von Becker /s/ Jurgen
Benz
By: ______________________________________
Willy von Becker Jurgen Benz
Name: ____________________________________
Managing Directors
Title: ___________________________________
IFCO EUROPE BETEILIGUNGS GMBH
/s/ Martin Schoeller /s/ Christoph
Schoeller
By: ______________________________________
Martin Schoeller Christoph
Schoeller
Name: ____________________________________
Managing Directors
Title: ___________________________________
MTS OKOLOGISTIK VERWALTUNGS GMBH
/s/ Gunter Gerland /s/ Jorg Augustin
By: ______________________________________
Gunter Gerland Jorg Augustin
Name: ____________________________________
Managing Directors
Title: ___________________________________
SCHOELLER INTERNATIONAL LOGISTICS
BETEILIGUNGSGESELLSCHAFT MBH
/s/ Martin Schoeller /s/ Jorg
Augustin
By: ______________________________________
Martin Schoeller Jorg Augustin
Name: ____________________________________
Managing Directors
Title: ___________________________________
SCHOELLER PACKAGING SYSTEMS GMBH
/s/ Martin Schoeller /s/ Christoph
Schoeller
By: ______________________________________
Martin Schoeller Christoph
Schoeller
Name: ____________________________________
Managing Directors
Title: ___________________________________
SILVER OAK ACQUISITION CORP.
/s/ Egbert von Cramm
By: ______________________________________
Egbert von Cramm
Name: ____________________________________
President
Title: ___________________________________
PALEX, INC.
/s/ Edward Rhyne
By: ______________________________________
Edward Rhyne
Name: ____________________________________
Vice President
Title: ___________________________________
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<PAGE>
ANNEX A
LIST OF DEFINED TERMS
<TABLE>
<CAPTION>
Section or
Defined Term Paragraph
- ------------ ----------
<S> <C>
AFD............................................................. 5.14(b)
Additional Voting Agreement..................................... 9.13
Adjusted Cash Election Number................................... 3.1(b)
Adjusted Cash Election Shares................................... 3.3(e)(i)(C)
Adjusted Cash Record Holder..................................... 3.3(e)(i)(C)
Adjusted Stock Election Shares.................................. 3.3(e)(ii)(C)
Adjusted Stock Record Holder.................................... 3.3(e)(ii)(C)
affiliate....................................................... 5.20
Aggregate Merger Consideration.................................. 3.1(a)(i)
Agreement....................................................... First paragraph
Alternate Case Consideration.................................... 3.1(c)
Analyses........................................................ 9.1(b)
Antitrust Division.............................................. 9.8(b)
Appointing Authority............................................ 12.9
Batchelder...................................................... 3.3(a)
Cash Consideration.............................................. 3.1(a)(i)
Cash Election................................................... 3.3(a)
Cash Election Number............................................ 3.1(b)
Cash Election Shares............................................ 3.3(e)(i)
Certificate of Merger........................................... 2.3
Claim........................................................... 9.12(a)
Closing......................................................... 2.5
Closing Date.................................................... 2.5
Code............................................................ Fifth recital
Complete or Partial Withdrawal.................................. 5.14(b)
Confidentiality Agreement....................................... 12.4
control......................................................... 5.20
Convertible Debenture........................................... 1.5(b)
Court........................................................... 5.8
Currency Exchange Rate.......................................... 3.1(d)
DGCL............................................................ 1.2
Dissenting Shares............................................... 3.5
Effective Date.................................................. First paragraph
Effective Time.................................................. 2.3
Election........................................................ 3.3(a)
Election Date................................................... 3.3(b)
Election Form................................................... 3.3(b)
Environmental Laws.............................................. 5.12
ERISA........................................................... 5.14(a)
European Governmental Requirements.............................. 5.4(c)
Exchange Act.................................................... 5.4(c)
Exchange Agent.................................................. 2.1
Exchange Fund................................................... 3.6(a)
Exchange Ratio.................................................. 3.1(a)(i)
Execution Date.................................................. First paragraph
Fairness Opinion................................................ 5.23
First Cash Adjustment Number.................................... 3.3(e)(i)(C)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Section or
Defined Term Paragraph
- ------------ ----------
<S> <C>
First Stock Adjustment Number..................... 3.3(e)(ii)(C)
FTC............................................... 9.8(b)
GE................................................ 6.2(b)
GE Capital........................................ 1.5(a)
GE GmbH........................................... 1.5(a)
Gebr. Schoeller................................... 1.4
German GAAP....................................... 6.5(a)
Governmental Requirement.......................... 5.4(b)
HSR Act........................................... 5.4(c)
IFCO.............................................. First paragraph
IFCO Board of Directors........................... 4.1(c)
IFCO Companies.................................... Second recital
IFCO Disclosure Schedule.......................... First paragraph of Article VI
IFCO Europe....................................... First paragraph
IFCO Europe Preferred Share....................... 6.2(b)
IFCO Europe Share................................. 6.2(b)
IFCO Financial Statements......................... 6.5(b)
IFCO German GAAP Financial Statements............. 6.5(a)
IFCO Intangible Property.......................... 6.16
IFCO Material Adverse Effect...................... 6.1
IFCO Minority Subsidiary.......................... 6.3
IFCO Option....................................... 9.6
IFCO Ordinary Shares.............................. Fourth recital
IFCO Permits...................................... 6.10
IFCO Plans........................................ 6.14(b)
IFCO Representatives.............................. 9.1(a)
IFCO Required Regulatory Approvals................ 6.4(c)
IFCO Supplemental Disclosure Schedule............. First Paragraph of Article VI
IFCO Termination Fee.............................. 11.3(d)
IFCO U.S.......................................... 9.1(a)
IFCO U.S. Agreement............................... 9.20
IFCO U.S. GAAP Financial Statements............... 6.5(b)
Indemnified Parties............................... 9.12(a)
Indemnified Party................................. 9.12(a)
Initial Offering Price............................ 3.1(d)
Initial Period.................................... 9.7(b)
Intercompany Debt................................. 6.6(b)
Interim Financing................................. 11.1(b)(v)
Investment Agreement.............................. 6.2(b)
IPG............................................... 6.2(e)
IPG Agreement..................................... 6.2(e)
IPO............................................... 3.1(d)
IPO Closing Date.................................. 3.1(d)
IPO Price......................................... 3.1(d)
IPO Pricing Date.................................. 3.1(d)
IPO Shares........................................ 3.1(d)
IRS............................................... 5.14(b)
Letter of Transmittal............................. 3.6(b)
Lien.............................................. 5.3
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Section or
Defined Term Paragraph
- ------------ ----------
<S> <C>
Listing Market..................................... 9.5(a)
Lockup Agreement................................... 9.14
Logistics Group.................................... 6.6(b)
Management Shareholders............................ 9.14
Market Equity Valuation............................ 10.1(a)
Merger............................................. Third recital
Merger Consideration............................... 3.1(a)(i)
Merger Price....................................... 3.1(a)(i)
Merger Sub......................................... First paragraph
Merger Sub Capital Stock........................... 1.2
Millennium Functionality........................... 5.19
Mitsubishi Agreement............................... 6.2(e)
MTS................................................ First paragraph
MTS Shares......................................... 6.2(d)
Multi-Employer Plan................................ 5.14(a)
Multiple Employer Plan............................. 5.14(a)
Nasdaq............................................. 9.4(a)
Non-Election....................................... 3.1(c)
Non-Election Fraction.............................. 3.3(e)(iii)(C)
Non-Election Shares................................ 3.3(e)(i)(A)
Old PalEx Certificates............................. 3.6(b)
Option Release Agreement........................... 1.5(a)
PalEx.............................................. First paragraph
PalEx Acquisition Agreement........................ 8.5(b)
PalEx Acquisition Proposal......................... 8.5(a)
PalEx Common Stock................................. 3.1(a)(i)
PalEx Convertible Notes............................ 5.2(a)
PalEx Credit Facility.............................. 5.3
PalEx Disclosure Schedule.......................... First paragraph of Article V
PalEx Employee Waivers............................. 9.7(e)
PalEx Financial Statements......................... 5.5(a)
PalEx Intangible Property.......................... 5.16
PalEx Material Adverse Effect...................... 5.1
PalEx Notice....................................... 8.5(a)
PalEx Option....................................... 9.6
PalEx Permits...................................... 5.10
PalEx Plans........................................ 5.14(a)
PalEx Preferred Stock.............................. 5.2(a)
PalEx Record Holder................................ 3.3(a)
PalEx Representatives.............................. 9.1(a)
PalEx Required Regulatory Approvals................ 5.4(c)
PalEx SEC Reports.................................. 5.5(a)
PalEx Stockholders' Approval....................... 9.4(a)
PalEx Stockholders' Meeting........................ 9.4(a)
PalEx Superior Proposal............................ 8.5(b)
PalEx Supplemental Disclosure Schedule............. First paragraph of Article V
PalEx Termination Fee.............................. 11.3(d)
PalEx Treasury Shares.............................. 3.1(a)(ii)
Permit............................................. 5.10
Prime Rate......................................... 11.3(c)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Section or
Defined Term Paragraph
- ------------ ----------
<S> <C>
Prohibited Transactions......................................... 5.14(b)
Provinzial...................................................... 6.2(b)
Proxy Statement................................................. 5.9
Qualified Plan.................................................. 5.14(b)
Record Date..................................................... 3.3(a)
Record Holders.................................................. 3.3(a)
Registration Statement.......................................... 5.9
Regulatory Approval............................................. 5.4(c)
Representative.................................................. 3.3(b)
Restricted Shareholders......................................... 9.14
Schoeller Holdings.............................................. 1.1
SEC............................................................. 5.4(c)
Second Cash Adjustment Number................................... 3.3(e)(i)(C)
Second Stock Adjustment Number.................................. 3.3(e)(ii)(C)
Securities Act.................................................. 5.4(c)
Share Exchange.................................................. 3.4
SIL............................................................. First paragraph
SIL Shares...................................................... 6.2(c)
SMG............................................................. 5.2(a)
SMG Exchange Consideration...................................... 3.1(a)(iv)
SMG Exchangeable Shares......................................... 5.2(a)
SMG Holder...................................................... 3.3(a)
SPS............................................................. First paragraph
Standard Termination............................................ 5.14(b)
Stock Commitments............................................... 5.2(b)
Stock Consideration............................................. 3.1(a)(i)
Stock Election.................................................. 3.3(a)
Stock Election Number........................................... 3.1(b)
Stock Election Shares........................................... 3.3(e)(i)(A)
Subsequent Holder............................................... 3.3(d)
Subsidiary...................................................... 3.1(d)
Surviving Corporation........................................... 2.2
Tax Opinion..................................................... 10.2(c)(i)
Taxes........................................................... 5.13(b)
Tax Return...................................................... 5.13(c)
Tax Ruling...................................................... 10.2(b)
Technology...................................................... 9.17
Termination Fee................................................. 11.3(d)
Transaction Fee................................................. 5.22
Transferred Shares.............................................. 3.3(d)
Unadjusted Cash Election Shares................................. 3.3(e)(i)(B)
Unadjusted Stock Election Shares................................ 3.3(e)(ii)(B)
U.S. GAAP....................................................... 5.5(a)
Voting Agreement................................................ 9.13
Voting Arrangements............................................. 5.2(b)
WeHaCo.......................................................... 6.2(b)
WeHa Co./Provinzial Deed........................................ 6.2(b)
</TABLE>
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<PAGE>
APPENDIX B
Batchelder & Partners, Inc.
11975 El Camino Real, Suite 300
San Diego, California 92130
September 27, 1999
Board of Directors
PalEx, Inc.
1360 Post Oak Blvd.
Suite 800
Houston, TX 77056
Gentlemen:
PalEx, Inc., a Delaware corporation traded on the Nasdaq National Market
("Seller"), and Schoeller Packaging Systems GmbH, a private company organized
under the laws of the Federal Republic of Germany ("Schoeller"), along with
certain affiliates of Schoeller, intend to execute an Amended and Restated
Agreement and Plan of Reorganization dated as of October , 1999 and effective
as of March 29, 1999 (as so amended, the "Merger Agreement"). The Merger
Agreement calls for the formation by Schoeller of a private company formed
under the laws of The Netherlands ("IFCO Systems"). Schoeller will contribute
all of the outstanding shares of IFCO Europe GmbH, Schoeller International
Logistics Beteiligungsgesellschaft mbH, and MTS Okologistik Verwaltungs GmbH
(collectively, "IFCO") to IFCO Systems. IFCO Systems will form Merger Sub, a
Delaware corporation. Seller will merge with and into Merger Sub at the merger
date (the "Merger"), with Merger Sub surviving such Merger, and whereupon
Seller shall cease to exist. Immediately after the Merger, IFCO Systems will
effect an initial public offering ("IPO") of its ordinary shares (the "IFCO
Systems Common Stock") on the Frankfurt Stock Exchange.
As more fully described in the Merger Agreement, each outstanding share of
the Seller's common stock, $.01 par value per share ("Seller Common Stock"),
will be exchanged for $9.00 per share (the "Consideration") in the form of cash
and/or IFCO Systems Common Stock, as described below. Forty percent of the
aggregate Consideration will be in the form of cash and 60% will be in the form
of IFCO Systems Common Stock valued at the IPO price. If PalEx shareholders
elect to receive a greater percentage of cash, then up to 49% of the aggregate
Consideration will be in the form of cash and no less than 51% will be in the
form of IFCO Systems Common Stock. Further, the Merger is subject to several
conditions, including the receipt of an opinion from Seller's tax counsel that
the Merger qualifies as a tax-free reorganization, all as more fully described
in the Merger Agreement.
You have asked for our opinion as to whether the Consideration to be received
by the stockholders of Seller pursuant to the Merger is fair to such
stockholders from a financial point of view, as of the date hereof. We are
acting as financial advisor to the Seller in connection with the Merger
(although in so acting, we are not entering into an agency or other fiduciary
relationship with the Seller, its Board or stockholders or any other person)
and will receive a fee from the Seller for our services, a significant portion
of which is contingent upon the consummation of the Merger. In addition, the
Seller has agreed to indemnify us for certain liabilities arising out of our
engagement. We have, in the past, provided financial advisory services to the
Seller and may continue to do so and have received, and may receive, fees for
the rendering of such services.
In connection with our opinion, we have, among other things: (i) reviewed
certain publicly available and internal financial and other data with respect
to Seller and IFCO, including the financial statements for recent years (the
last audited IFCO and PalEx financial statements provided to Batchelder were as
of December 31, 1998) and interim periods to June 30, 1999 and certain other
relevant financial and operating data relating to Seller and IFCO made
available to us from published sources and from the internal records of Seller
and IFCO; (ii) reviewed the financial terms and conditions of the Merger
Agreement; (iii) reviewed certain publicly
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available information concerning the trading of, and the trading market for,
Seller Common Stock; (iv) reviewed with investment bankers knowledgeable of the
Frankfurt Stock Exchange, who were provided by each of IFCO and Seller, certain
publicly available information concerning the trading market for stocks listed
on the Frankfurt Stock Exchange and estimates of implied value ranges for the
IFCO Systems Common Stock; (v) compared Seller from a financial point of view
with certain other companies in the materials handling and packaging, and
logistics industries which we deemed to be relevant; (vi) considered the
financial terms, as they relate to the Seller and to the extent publicly
available, of selected recent business combinations of companies in the
materials handling and packaging industry which we deemed to be comparable, in
whole or in part, to the Merger; (vii) discussed with Seller's management the
prospects for, and business challenges facing, Seller absent the Merger; (viii)
reviewed and discussed with representatives of the management of Seller and
IFCO certain information of a business and financial nature regarding Seller
and IFCO, furnished to us by them, including financial forecasts and related
assumptions of Seller and IFCO and the operating synergies and strategic
benefits expected to result from the Merger; (ix) made inquires regarding, and
discussed, the Merger and the Merger Agreement and other matters related
thereto with Seller's counsel; and (x) performed such other analyses and
examinations as we deemed appropriate.
In connection with our review, we have not assumed any obligation
independently to verify the foregoing information and have relied on its
accuracy and completeness in all material respects. With respect to the
financial forecasts for Seller and IFCO provided to us by their respective
managements, upon their advice and with your consent we have assumed for
purposes of our opinion that the forecasts, including projections of synergies,
have been reasonably prepared on bases reflecting the best available estimates
and judgements of their respective managements at the time and through the date
hereof as to the future financial performance of Seller and IFCO, that Seller
and IFCO will perform substantially in accordance with such projections, and
that such projections provide a reasonable basis upon which we can form our
opinion. With respect to the operating synergies and strategic benefits
expected by Seller's management to result from the Merger, you have advised us
to assume that such synergies and benefits will be achieved substantially in
accordance with such expectations. You have advised us and we have assumed,
that there have been no material changes in Seller's or IFCO's assets,
financial condition, results of operations, business or prospects since the
respective dates of their last financial statements made available to us. The
respective managements of Seller and IFCO have advised us and we have assumed
that they are not aware of any facts or circumstances that would make the
information reviewed by us inaccurate or misleading. We have relied on advice
of the counsel and the independent accountants to Seller as to all legal and
financial reporting matters with respect to Seller, the Merger and the Merger
Agreement. You have informed us, and we have assumed without verification and
with your consent, that the Merger will be treated as a Purchase of Seller
under Accounting Principles Board Opinion No. 16 and that the Merger will be
treated as a tax-free reorganization with respect to stockholders of Seller
receiving IFCO Systems Common Stock within the meaning of Section 368 of the
U.S. Internal Revenue Code of 1986, as amended. We have assumed that the Merger
will be consummated in a manner that complies in all respects with the
applicable provisions of the Securities Act of 1933, as amended (the
"Securities Act"), the Securities Exchange Act of 1934 and all other applicable
federal and state statutes, rules and regulations including applicable German
and Netherlands law. In addition, we have not assumed responsibility for making
an independent evaluation, appraisal or physical inspection of any of the
assets or liabilities (contingent or otherwise) of Seller or IFCO, nor have we
been furnished with any such appraisals. At your instruction, we did not
solicit other third party indications of interest in acquiring all or any part
of the Seller. We have assumed that the final form of the Merger Agreement will
be substantially similar to the last draft reviewed by us. Finally, our opinion
is based on economic, monetary and currency exchange, Nasdaq National Market
and Frankfurt Stock Exchange and other conditions as in effect on, and the
information made available to us as of, the date hereof. Accordingly, although
subsequent developments may affect this opinion, and except as specifically
provided below, we do not assume any obligation to update, revise or reaffirm
this opinion.
We have further assumed with your consent that the representations and
warranties of each party in the Merger Agreement are true and correct, that
each party to the Merger Agreement will perform all of the covenants and
agreements required to be performed by such party under the Merger Agreement,
and that the
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Merger will be consummated in accordance with the terms described in the Merger
Agreement, without any further amendments thereto, and without waiver by Seller
of any of the conditions to its obligations thereunder. We have also assumed
that in the course of obtaining the necessary regulatory or other consents or
approvals (contractual or otherwise) for the Merger, no restrictions,
amendments or modifications, will be imposed that will have a material adverse
effect on the contemplated benefits of the Merger.
We are not expressing (and cannot express) an opinion regarding the
likelihood that IFCO Systems will complete the IPO or the price at which the
IFCO Systems Common Stock may trade at any future time. However, because the
Merger depends significantly upon whether the IPO occurs and its pricing, in
order to deliver our opinion as of this date we must, and you have instructed
us to, assume for purposes of this opinion that concurrently with, or
immediately after, the Merger, IFCO Systems will consummate an IPO of
significant size. As described above, we have relied upon the financial
forecasts provided to us. In addition, we are unable to assess the
reasonableness of assumptions for any date after the date hereof related to
initial public offerings for, and the trading of securities listed on, the
Frankfurt Stock Exchange, and Euro to U.S. dollar exchange rates, all of which
depend upon factors beyond any control or influence of Schoeller, IFCO and
Seller. This opinion should not be relied upon if future facts and
circumstances are inconsistent with our assumptions, and if our assumptions are
not supported by facts and circumstances at the time of the meeting of Seller's
stockholders to vote on the Merger, we reserve the right, and we would expect,
to withdraw this opinion. Additionally, the market value of the Consideration
received in the Merger can be expected to change after consummation of the
Merger as the trading price of IFCO Systems Common Stock changes in the
ordinary course (or otherwise) of purchases and sales in the open market. You
acknowledge that the Merger Agreement as originally executed on March 29, 1999
has been materially amended. Accordingly, the opinion we delivered to you on
March 28, 1999 is no longer relevant, and, therefore, it is withdrawn. This
opinion replaces our earlier opinion in full.
Based upon the foregoing and in reliance thereon, it is our opinion that the
Consideration to be received by the stockholders of Seller pursuant to the
Merger is fair to such stockholders from a financial point of view, as of the
date hereof.
This opinion is directed to the board of directors of Seller for use only in
connection with its consideration of the Merger and is not a recommendation to
any stockholder as to how such stockholder should vote with respect to the
Merger or otherwise. Further, this opinion addresses only the financial
fairness of the Consideration to be received by the stockholders of the Seller
as of the date hereof, and it does not address any other aspect of the Merger
including, without limitation, the relative merits of the Merger, any
alternatives to the Merger or Seller's underlying business decision to proceed
with or effect the Merger. This opinion may not be used or referred to by
Seller, or quoted or disclosed to any person in any manner, without our prior
written consent, provided, however, we consent to its inclusion in any proxy
statement or registration statement with respect to the Merger. In furnishing
this opinion, we do not admit that we are experts within the meaning of the
term "experts" as used in the Securities Act and the rules and regulations
promulgated thereunder, nor do we admit that this opinion constitutes a report
or valuation within the meaning of Section 11 of the Securities Act.
Very truly yours,
/s/ Batchelder & Partners, Inc.
_____________________________________
Batchelder & Partners, Inc.
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APPENDIX C
DELAWARE CODE ANNOTATED
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
(S) 262 Appraisal rights.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to (S) 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share"
mean and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series
of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S) 251 (other than a merger effected pursuant to
subsection (g) of (S) 251), (S) 252, (S) 254, (S) 257, (S) 258, (S) 263 or (S)
264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of (S) 251 of this title.
(2)Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to (S)(S)
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
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(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsection (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228 or
(S) 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within twenty days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
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constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given; provided that,
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been
received and the aggregate number of holders of such shares. Such written
statement shall be mailed to the stockholder within 10 days after his written
request for such a statement is received by the surviving or resulting
corporation or within 10 days after expiration of the period for delivery of
demands for appraisal under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceedings.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted his certificates of stock to
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the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to appraisal
rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest maybe simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, to be charged pro rata against the value of all the shares entitled to
an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall
deliver to the surviving or resulting corporation a written withdrawal of his
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
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APPENDIX D
AMENDMENT TO THE ARTICLES OF ASSOCIATION
On this day, the [ ] two thousand, appeared before me, Hajo Bart Hendrik
Kraak, civil law notary in Amsterdam:
[ ]
The appearing person declared:
- that of the company with limited liability: IFCO Systems N.V., with
official seat in Amsterdam, having its office at 1077 ZZ Amsterdam,
Strawinskylaan 2001, and filed with the Trade Register of the Chamber of
Commerce and Industry in Amsterdam under number 34113177 the articles of
association were last amended by deed executed on [ ] before a [H.B.H.
Kraak], civil law notary in Amsterdam, in respect of which amendment the
Minister of Justice on [ ] under number N.V. 1.070.445 has advised that
no objections have been apparent;
- that the sole shareholder of the company resolved to amend the articles
of association of the company integrally;
- that furthermore a decision was made to authorize the appearing person
to execute the deed of amendment to the articles of association;
- that the resolutions mentioned above are evidenced by a shareholders
resolution which will be annexed to this deed.
Consequently the appearing person declared that the articles of association
of the company are hereby amended as follows:
DEFINITIONS
ARTICLE 1
In these Articles of Association the following definitions apply:
a. Articles of Association shall mean: the articles of association of the
Company;
b. The Company shall mean: IFCO Systems N.V., registered in Amsterdam;
c. The Board of Directors shall mean: the board of management of the
Company;
d. General Meeting shall mean: both the body formed by shareholders and
others with voting rights as well as the meeting of shareholders and others
with voting rights;
e. Annual Meeting shall mean: the General Meeting with the purpose of
considering and approving the Annual Accounts, the annual report and any
other documents required by law;
f. Subsidiary shall mean:
1. a legal entity in which the Company or one or more of its
Subsidiaries, whether or not pursuant to an agreement with other
persons entitled to vote, can jointly or by itself exercise more than
half of the voting rights at the general meeting;
2. a legal entity, of which the Company or one or more of its
Subsidiaries are member or shareholder and, whether or not pursuant to
an agreement with other persons entitled to vote, can jointly or by
itself appoint or remove from office more than half of the members of
the board of management, even if all the persons entitled to vote cast
their votes;
3. a company acting under its own name in which the Company or one or
more of its Subsidiaries, as partner is or are fully liable for the
debts towards creditors;
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g. Group Company shall mean: a legal entity or a company which is
associated with the Company in a group;
h. Distributable reserves shall mean: that part of the Company's
shareholders' equity which is in excess of the paid-up and called-up part
of the capital, increased by the reserves which are required by law and by
virtue of these Articles of Association;
i. Annual Accounts shall mean: the balance sheet, the profit and loss
account and the explanatory notes to these accounts.
NAME AND SEAT
ARTICLE 2.
1. The name of the Company is: IFCO Systems N.V.
2. Its registered seat is in Amsterdam.
3. The Company may have branch offices and branch establishments elsewhere,
both at home and abroad.
OBJECTS
ARTICLE 3.
The object of the Company is to participate in and to manage, control and
finance other enterprises, to provide security for debts of subsidiaries and
group companies of the Company and of third parties, to enter into agreements
concerning the indemnification of its managing directors and to undertake all
that which is connected to the foregoing or in furtherance thereof, all in the
widest sense of the words.
CAPITAL AND SHARES
ARTICLE 4.
1. The authorized capital amounts to four hundred million Euro (EURO
400,000,000.--).
2. It is divided into two hundred million shares, each with a nominal value of
two Euros (EURO 2.--), consisting of one hundred million ordinary shares
and one hundred million preference shares.
Where these Articles of Association refer to shares and shareholders, these
shall be understood to refer to the aforementioned classes and holders
thereof, unless the contrary is indicated.
3. The preference shares are registered shares and are numbered consecutively.
Share certificates thereof shall not be issued.
The ordinary shares shall be registered shares.
4. If a share belongs to more than one person, the collectively entitled
parties may only have themselves represented vis-a-vis the Company by one
person.
SHARE CERTIFICATES
ARTICLE 5.
1. To the extent the Company is listed on one or more stock exchanges, ordinary
registered shares shall be available:
- in the form of an entry in the share register without issue of a share
certificate;
- shares of this type are referred to in these Articles of Association as
type I registered shares;
- and--should the Board of Directors so decide--also in the form of an
entry in the shareholders register with issue of a certificate, which
certificate shall consist of a main part without dividend coupon;
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- shares of this type and share certificates relating thereto are
referred to in these Articles as type II registered shares and type II
share certificates.
2. The Board of Directors can decide that the registration of type I registered
shares may only take place for one or more quantities of shares--which
quantities are to be specified by the said Board--at the same time.
3. Type II share certificates shall be available in such denominations as the
Board of Directors shall determine.
4. All share certificates shall be signed by or on behalf of two Members of
the Board of Directors;
the signatures may be effected by printed facsimile.
Furthermore, type II share certificates shall, and all other share
certificates may, be countersigned by one or more persons designated by the
Board of Directors for that purpose.
5. All share certificates shall be identified by numbers and/or letters.
6. The Board of Directors can determine that for the trade at foreign
exchanges share certificates shall be issued complying with the
requirements set by said foreign exchange(s) and not provided with any
dividend sheet.
7. The expression "share certificate" as used in these Articles shall include
a share certificate in respect of more than one share.
DUPLICATES
ARTICLE 6.
1. Upon written request from a shareholder, missing or damaged share
certificates, or parts thereof, may be replaced by new certificates or by
duplicates bearing the same numbers and/or letters, provided the applicant
proves his title and, in so far as applicable, his loss to the satisfaction
of the Board of Directors, and further subject to such conditions as the
Board of Directors may deem fit.
2. In appropriate cases, at its own discretion, the Board of Directors may
stipulate that the identifying numbers and/or letters of missing documents
be published three times, at intervals of at least one month, in at least
three newspapers to be indicated by the Board of Directors announcing the
application made;
in such a case new certificates or duplicates may not be issued until six
months have expired since the last publication, always provided that the
original documents have not been produced to the Board of Directors before
that time.
3. The issue of new certificates or duplicates shall render the original
document invalid.
SHAREHOLDERS REGISTER
ARTICLE 7.
1. Notwithstanding the provisions of the law in respect of registered shares, a
register shall be kept by or on behalf of the Company, which register shall
be regularly updated and, at the discretion of the Board of Directors, may,
in whole or in part, be kept in more than one copy and at more than one
place.
If the listing of the shares of the Company on a stock exchange or a
regulated over the counter market in a country or countries other than the
Netherlands so requires, part or parts of the share register may be kept in
such country or countries.
2. Each shareholder's name, his address and such further data as the Board of
Directors deems desirable, whether at the request of a shareholder or not,
shall be entered in the register.
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3. The form and the contents of the shareholders register shall be determined
by the Board of Directors with due regard to the provisions of paragraphs 1
and 2 of this Article.
The Board of Directors may determine that the records shall vary as to
their form and contents according to whether they relate to type I
registered shares or to type II registered shares.
4. Upon request a shareholder shall be given free of charge a declaration of
what is stated in the register with regard to the shares registered in his
name, which declaration may be signed by one of the specially authorized
persons to be appointed by the Board of Directors for this purpose.
5. The provisions of the last four paragraphs shall equally apply to rights of
usufruct or pledge on one or more registered shares, with the proviso that
the other data required by law must be entered in the register.
CONVERSION
ARTICLE 8.
1. Subject to the provisions of Article 5, the holder of type I registered
shares may, upon his request and at his option, have one or more type II
registered shares entered in the shareholders register for the same nominal
amount and have issued to him one or more type II shares certificates.
2. Subject to the provisions of Article 5, the holder of type II registered
shares registered in his name may, after lodging the type II share
certificates with the Company, upon his request and at his option, have one
or more type I registered shares entered in the shareholders register for
the same nominal amount.
A shareholder who requests that type I registered shares are registered in
his name may require that such shares are also registered in his name in a
register held outside of the Netherlands as provided in Article 7 paragraph
1.
3. The holder of one or more share certificates may, after lodging the share
certificates with the Company, upon his request and at his option have
issued to him one or more share certificates, of the same type, and for the
same nominal amount, each for as many shares as he requests, subject however
to the provisions of Article 5, paragraphs 3.
4. A request as mentioned in this Article shall, if the Board of Directors so
requires, be made on a form obtainable from the Company free of charge,
which shall be signed by the applicant.
TRANSFER OF SHARES
ARTICLE 9.
1. The transfer of a registered share shall be effected either by service upon
the Company of the instrument of transfer or by written acknowledgement of
the transfer by the Company.
2. Where a transfer of a type II registered share is effected by service in
writing of an instrument of transfer on the Company, the Company shall, at
the discretion of the Board of Directors, either endorse the transfer on the
share certificate or cancel the share certificate and issue to the
transferee one or more new share certificates registered in his name to the
same nominal amount.
3. The Company's written acknowledgement of a transfer of a type II registered
share shall, at the discretion of the Board of Directors, be effected either
by endorsement of the transfer on the share certificates or by the issue to
the transferee of one or more new share certificates registered in his name
to the same nominal amount.
4. The provisions of the foregoing paragraphs of this Article shall equally
apply to the allotment of registered shares in the event of a judicial
partition of any community of property or interests, the transfer of a
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registered share as a consequence of a judgement execution and the creation
of limited rights in rem on a registered share.
5. The submission of requests and lodging of documents referred to in Articles
5 to 9 inclusive shall be made at an address to be indicated by the Board
of Directors.
Different addresses may be indicated for the different classes and types of
shares and share certificates among which in any case an address in
Amsterdam.
6. The Company is authorized to charge amounts to be determined by the Board
of Directors not exceeding cost price to those persons who request any
services to be carried out by virtue of Articles 5 to 9 inclusive, provided
that a number of shares, which number shall be determined by the Board of
Directors, will be combined without cost in one share certificate, which
share certificate at request of the shareholder may again without cost, be
divided in simple share certificates or in share certificates which
represent a different number of shares, which number shall be determined by
the Board of Directors.
ISSUE OF SHARES
ARTICLE 10.
1. The General Meeting or the Board of Directors, if designated thereto by the
General Meeting, shall resolve on further issues of shares; if the Board of
Directors has been designated thereto, the General Meeting may not, as long
as such designation is valid, resolve on further issues.
2. The General Meeting or, as the case may be, the Board of Directors shall
determine the price and further conditions of issue, with due observance of
the other relevant provisions in these Articles of Association.
3. If the Board of Directors is designated as authorized to resolve on the
further issue of shares, it shall be determined by the General Meeting when
such designation is made, how many and what class of shares may be issued.
When such designation is made, the duration of the designation, which shall
not exceed five years, shall also be stipulated.
The designation can be renewed each time for a period of no more than five
years.
Unless otherwise stipulated when the designation is made, said designation
cannot be withdrawn.
4. If a resolution of the General Meeting pertaining to an issue or to the
designation of the Board of Directors, as referred to above, is to be
valid, it shall require a prior or simultaneous positive resolution from
each group of holders of shares of the same class whose rights are affected
by the issue.
5. Within eight days after a resolution of the General Meeting on an issue or
on a designation of the Board of Directors as referred to above, the Board
of Directors shall submit a full text thereof at the office of the Trade
Register. The Board of Directors shall notify the office of the Trade
Register of each issue of shares within eight days thereafter, stating the
number and class thereof.
6. The provisions in paragraphs 1 to 5, inclusive, of this Article shall apply
accordingly to the granting of rights to take shares but shall not apply to
the issue of shares to a person who is exercising a previously acquired
right to subscribe for shares.
7. Shares shall not be issued below par value, without prejudice to the
provisions in article 80, paragraph 2 of Book 2 of the Dutch Civil Code.
On the issue of an ordinary share, at least the nominal amount shall be
paid up thereon, as well as, in the event the share is taken for a higher
amount, the difference between such amounts.
8. Upon the issue of preference shares it may be stipulated that a part of the
nominal amount, not exceeding three-fourths of the nominal amount, must be
paid up only if and when requested by the Company.
9. Payment shall be made in cash insofar as another form of payment has not
been agreed upon, without prejudice to the provisions in article 80b of
Book 2 of the Dutch Civil Code.
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Payment may only be made in foreign currency with the permission of the
Company and, furthermore, with due observance of the provisions in article
80a paragraph 3 of Book 2 of the Dutch Civil Code.
10. The Board of Directors is authorized to effect legal transactions as
referred to in article 94, paragraph 1 of Book 2 of the Dutch Civil Code
without prior approval of the General Meeting.
PRE-EMPTIVE RIGHT
ARTICLE 11.
1. Subject to the provisions in the third sentence of article 96a, paragraph 1
of Book 2 of the Dutch Civil Code, each holder of ordinary shares shall have
a pre-emptive right to ordinary shares to be issued in proportion to the
aggregate nominal amount of his ordinary shares.
2. When shares are issued, there shall be no pre-emptive rights towards shares
to be issued against any payment other than in cash.
3. With due observance of this Article, the General Meeting or, as the case may
be, the Board of Directors shall resolve, when the resolution in respect of
issue is passed, on the manner and time-frame within which the pre-emptive
right may be exercised.
4. The Board of Directors shall announce an issue with pre-emptive right and
the time-frame within which such may be exercised in the manner as provided
in Article 22.
5. The pre-emptive rights may be exercised for a period of at least two weeks
after the day of announcement.
6. The pre-emptive right may be limited or excluded by resolution of the
General Meeting.
In the proposal thereto, the reasons for the proposal and the choice of the
intended price of issue shall be explained in writing.
The pre-emptive right may also be limited or excluded by the Board of
Directors, if the Board of Directors has been designated by resolution of
the General Meeting for a specific period of no more than five years as
authorized to limit or exclude the pre-emptive right; such designation is
only possible if the Board of Directors has also been designated previously
or simultaneously as referred to in Article 10, paragraph 1. The
designation can be renewed each time for a period not in excess of five
years; the authority granted thereby may only be exercised with the issue
of shares to which the Board of Directors has competently resolved.
Unless otherwise stipulated in the designation, it may not be withdrawn.
7. A resolution of the General Meeting on the limitation or exclusion of the
pre-emptive right or on the designation as referred to in the previous
paragraph shall require a majority of at least two-thirds of the votes
cast, if less than half the issued capital is present or represented at the
meeting.
The Board of Directors shall deposit a full text of such resolution at the
office of the Trade Register.
8. In case rights to subscribe for ordinary shares are to be granted, holders
of ordinary shares shall have a pre-emptive right;
the provisions stipulated above in this Article shall apply accordingly.
Shareholders shall not have a pre-emptive right on shares to be issued to a
person exercising a previously acquired right to subscribe for shares.
OWN SHARES
ARTICLE 12.
1. Upon any issue of shares the Company may not subscribe for shares in its own
capital.
2. The Company may only acquire pursuant to a proposal of the Board of
Directors fully paid-up shares in its own capital for no consideration or
under universal title or if:
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a. the distributable reserves are at least equal to the price of
acquisition;
b. the nominal amount of the shares in its capital to be acquired,
already held or held in pledge by the Company or a Subsidiary does not
exceed one-tenth of the issued capital;
c. the authorization for such acquisition has been granted by the General
Meeting. Such authorization shall be valid for no more than eighteen
months.
The General Meeting shall determine in its authorization the number of
shares which may be acquired, the manner in which they may be acquired and
the maximum and minimum to be observed in respect of the price of
acquisition.
For the validity of such acquisition shall be decisive the extent of the
Company's shareholders' equity according to the last-adopted balance sheet,
minus the price for the acquisition on the shares in the capital of the
Company and distributions from profits or reserves to others, which the
Company and its Subsidiaries became indebted for after the date of the
balance sheet.
If a financial year has expired for a period in excess of six months
without the Annual Accounts having been adopted, then acquisition other
than under universal title in accordance with this paragraph 2 shall not be
allowed.
The authorization referred to here shall not be required, insofar as the
Company acquires own shares, listed on an official price list of a stock
exchange, in order to transfer such by virtue of an arrangement applicable
to employees of the Company or of a Group Company to such employees.
3. Neither the Company nor any of its Subsidiaries may extend loans, give
security, grant a price guarantee, guarantee in any other way or, severally
or in any other way, bind itself in addition to or for other persons with a
view to subscribing for or acquiring shares in the Company.
This prohibition shall, however, not apply in the event mentioned in
article 98c paragraph 2 of Book 2 of the Dutch Civil Code.
4. Alienation of shares held by the Company in its own capital shall only be
effected pursuant to a resolution of the Board of Directors.
With the resolution in respect of alienation, the conditions of such
alienation shall also be determined.
5. No votes can be cast at a General Meeting on a share owned by the Company or
a Subsidiary thereof.
Usufructuaries and pledgees of shares which are owned by the Company and
its Subsidiaries, are not, however, excluded from exercising their voting
right if the right of usufruct or the right of pledge was created before
the share was held by the Company or a Subsidiary.
The Company or a Subsidiary cannot cast votes on a share in respect of
which it has a right of usufruct or a right of pledge.
6. In determining to which extent shareholders cast votes, are present or
represented, or to which extent the share capital is supplied or is
represented, shares in respect of which the law provides that no votes may
be cast shall not be taken into account.
7. A Subsidiary may not for its own account subscribe for shares in the
capital of the Company, nor have such done.
The acquisition of such shares may only be effected directly or indirectly
by Subsidiaries for their own account under specific title insofar as the
Company may, pursuant to the provisions laid down in the preceding
paragraphs of this Article, acquire shares in its own capital.
A Subsidiary may not,
a. after it has become a Subsidiary; or
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b. after the company of which it is a Subsidiary has been converted into
a company with limited liability ("Naamloze Vennootschap"); or
c. after it has as a Subsidiary acquired shares in the capital of the
Company for no consideration or under universal title,
for a period in excess of three years hold or cause to be held for its own
account shares in excess of one-tenth of the issued capital together with
the Company and its other Subsidiaries.
CAPITAL REDUCTION
ARTICLE 13.
1. The General Meeting may, at the proposal of the Board of Directors, resolve
on reduction of the issued capital by cancelling shares or by reducing the
nominal amount of shares by means of an amendment of the Articles of
Association.
In this resolution, the shares to which the resolution pertains shall be
indicated and the execution of the resolution shall be laid down.
2. A resolution to cancel shares can relate only to shares which are held by
the Company or to all outstanding preference shares.
3. Reduction of the amount of shares without repayment of capital and without
release from the obligation to pay calls shall be effected in proportion to
all the shares of one and the same class.
4. Partial repayment of capital on shares or release from the obligation to
pay calls shall only be possible in proportion to all the shares or to all
the preference shares exclusively.
5. The pro-rata requirements mentioned in paragraphs 3 and 4 of this Article
may be deviated from with the approval of all the shareholders concerned.
6. A resolution in respect of capital reduction shall require a majority of at
least two-thirds of the votes cast, if less than half the issued capital is
represented at the meeting.
7. The convocation of a meeting in which a resolution is to be passed as
referred to in this Article shall state the purpose of the capital
reduction and the manner of execution.
8. The Company is obliged to publish the resolutions referred to in this
Article in conformity with the provisions of the law.
A resolution to reduce the issued capital shall not come into force as long
as creditors of the Company may oppose the same in conformity with the
relevant provisions of the law.
RIGHT OF USUFRUCT, RIGHT OF PLEDGE
ARTICLE 14.
1. A right of usufruct or pledge may be created on a share.
In that event, the voting right shall accrue to the shareholder or the
usufructuary or the pledgee, if this has been provided for at the time of
creation of the right of usufruct or pledge.
2. The shareholder who has no voting right and the usufructuary or pledgee who
does have a voting right shall have the rights granted by law to holders of
depositary receipts for shares issued with the cooperation of a company.
3. The rights referred to in paragraph 2 do not accrue to the usufructuary or
pledgee who has no voting rights.
4. A right of pledge may also be created without acknowledgement by or
notification to the Company.
In that event article 239 of Book 3 of the Dutch Civil Code shall apply
accordingly, in which case acknowledgement by or notification of the
Company shall replace the notification referred to in paragraph 3 of that
Article.
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MANAGEMENT
ARTICLE 15.
1. The Company shall be managed by a 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 of Members shall be determined by the
General Meeting, with the understanding that there shall be at least one A
Member.
Only natural persons may be a Member of the Board of Directors.
2. The Members of the Board of Directors shall be appointed by the General
Meeting.
3. The General Meeting may suspend and dismiss the Members of the Board of
Directors.
4. Even after having been extended, a suspension shall not last for more than
three months.
If no decision has been reached after that time on the lifting of the
suspension or the removal from office, the suspension shall cease to exist.
5. The B Members of the Board of Directors shall determine the remuneration and
other conditions of employment of the A Members of the Board of Directors.
The A Members of the Board of Directors shall determine the remuneration of
the B Members of the Board of Directors.
6. The field of activity (werkkring) of the B Members regards in particular the
general course of affairs of the company and its enterprise. The field of
activity of the A Members regards in particular the day to day management of
the Company and its enterprise.
7. A Member of the Board of Director may give a power-of-attorney to one of the
other Members of the Board of Director by means of a signed document, sent
by post or by fax, to represent him at the Board of Directors' meetings and
to vote in his place. However a Member of the Board of Directors is not
allowed to cast more than two proxy votes.
8. The Board of Directors appoints a chairman (the "Chairman") from among its
members and a chief executive officer (the "Chief Executive Officer") from
among its A members.
9. The Board of Directors shall meet whenever a Member of the Board of
Directors shall so require.
It shall pass resolutions by an absolute majority of votes cast by all
Managing Directors in office.
Blank votes shall be considered null and void.
The Board of Directors may establish rules pertaining to the decision-
making process of the Board of Directors.
10. The Board of Directors may decide to institute committees to which powers
can be delegated by the Board of Directors by virtue of the regulations,
without prejudice to the statutory duties of the Board of Directors.
11. The Board of Directors is authorized to appoint officials who may represent
the Company and to grant to such persons any title and powers as it seems
appropriate.
12. A B member of the Board of Directors shall resign no later than upon the
close of the annual shareholders meeting held in the fourth year after the
year of his last appointment. Without prejudice to the provisions of the
first sentence, he can then be reappointed immediately. The Board of
Directors shall draw up a roster of resignation for its B members.
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REPRESENTATION
ARTICLE 16.
1. The Company shall be represented by the Board of Directors except to the
extent otherwise provided by law.
In addition, the authority to represent the Company is vested:
--in each A Member of the Board of Directors individually; and
--in a B Member of the Board of Directors acting jointly with an A Member
of the Board of Directors.
2. In all events of the Company having a conflict of interest with one or more
Members of the Board of Directors, the Company shall continue to be
represented in the manner described in paragraph 1 above.
In all events in which the Company has a conflict of interest with a Member
of the Board of Directors in his private capacity, the board resolution
regarding that relevant legal act requires the prior approval of the
General Meeting.
Failure to obtain the approval defined in the present paragraph shall not
affect the Board of Directors or the authority of the Members of the Board
of Directors to represent the Company.
3. If a Member of the Board of Directors is absent or prevented from acting,
the remaining Members of the Board of Directors or the remaining Member of
the Board of Directors shall be charged with the management of the Company.
If the sole Member of the Board of Directors or all the Members of the
Board of Directors are absent or prevented from acting, the person to be
designated for that purpose by the General Meeting shall be charged with
the management of the Company until the situation of absence or other
prevention has ceased to exist in respect of at least one Member of the
Board of Directors.
INDEMNIFICATION, LIMITED LIABILITY
ARTICLE 17.
1. The Company shall indemnify any person who is or was a member of the Board
of Directors and who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or
in the right of the Company) by reason of the fact that he is or was a
member of the Board of Directors or proxyholder (procuratiehouder), officer,
employee or agent of the Company, or is or was serving at the request of the
Company as a member of the Board of Directors or proxyholder
(procuratiehouder), officer, employee, trustee or agent of another company,
a partnership, joint venture, trust or other enterprise or entity, including
with respect to employee benefit plans maintained or sponsored by the
Company or for the benefit of its or any of its group companies' employees
or consultants, (each an "Indemnitee"), against any and all liabilities
including all expenses (including attorneys' fees), judgements, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful or
outside of his mandate.
The termination of any action, suit or proceeding by a judgement, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, in and of itself, create a presumption that the
person did not act in good faith and not in a manner which he reasonably
could believe to be in or not opposed to the best interests of the Company,
and, with respect to any criminal action or proceeding, had reasonable
cause to believe that his conduct was unlawful.
2. No indemnification pursuant to paragraph 1 of this Article shall be made in
respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable for gross negligence or wilful misconduct in the
performance of his duty to the Company, unless and only to the extent that
the court in
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which such action or proceeding was brought or any other court having
appropriate jurisdiction shall determine upon application that, despite the
adjudication of liability but in view of all of the circumstances of the
case, such person is fairly and reasonably entitled to indemnification
against such expenses which the court in which such action or proceeding was
brought or such other court having appropriate jurisdiction shall deem
proper.
3. Expenses (including attorneys' fees) incurred by an Indemnitee in defending
a civil or criminal action, suit or proceeding may be paid by the Company in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of an Indemnitee to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Company as authorized in this Article.
Such expenses incurred by Indemnitees may be so advanced upon such terms
and conditions as the Board of Directors decides.
4. The indemnification provided for by this Article shall not be deemed
exclusive of any other right to which a person seeking indemnification or
advancement of expenses may be entitled under the laws of the Netherlands as
from time to time amended or under any by-laws, agreement, resolution of the
shareholders meeting of shareholders or of the disinterested Members of the
Board of Directors or otherwise, both as to actions in his official capacity
and as to actions in another capacity while holding such position, and shall
continue as to a person who has ceased to be a member of the Board of
Directors or proxyholder (procuratiehouder), officer, employee, trustee or
agent and shall also inure to the benefit of the heirs, executors,
administrators and the estate of such a person.
The Company may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the advancement of
expenses to any Indemnitee to the fullest extent of the provisions of this
Article 17 with respect to the indemnification and advancement of expenses
of Indemnitees.
5. The Company may purchase and maintain insurance on behalf of any Indemnitee,
whether or not the Company would have the power to indemnify him against
such liability under the provisions of this Article.
6. Whenever in this Article reference is made to the Company, this shall
include, in addition to the resulting or surviving company also any
constituent company (including any constituent company of a constituent
company) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had the power to indemnify its members
of the board of management or members of the supervisory board, or
proxyholders (procuratiehouder), officers, employees and agents, so that any
person who is or was a member of the supervisory board, member of the board
of management, or proxyholder (procuratiehouder), officer, employee or agent
of such constituent company, or is or was serving at the request of such
constituent company as a member of the supervisory director, member of the
managing board, or proxyholder (procuratiehouder), officer, employee,
trustee or agent of another company, a partnership, joint venture, trust or
other enterprise or entity, shall stand in the same position under the
provisions of this Article with respect to the resulting or surviving
company as he would have with respect to such constituent company if its
separate existence had continued.
7. No person shall be personally liable to the Company or its shareholders for
monetary damages for breach of fiduciary duty as a member of the Board of
Directors; provided, however, that the foregoing shall not eliminate or
limit the liability of a member of the Board of Directors (1) for any breach
of such individual's duty of loyalty to the Company or its shareholders, (2)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (3) for any transaction from which
the member of the Board of Directors derived an improper personal benefit or
(4) for personal liability which is imposed by Dutch law, as from time to
time amended.
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8. No amendment, repeal or modification of this Article 17 shall adversely
affect any right or protection of any person entitled to indemnification or
advancement of expenses under this Article 17 prior to such amendment,
repeal or modification.
FINANCIAL YEAR, ANNUAL ACCOUNTS, ANNUAL REPORT AND PUBLICATION
ARTICLE 18.
1. The financial year shall be equal to the calendar year.
2. Each year, within five months after the close of the financial year--
subject to extension of this period by the General Meeting on the grounds
of circumstances of an exceptional nature by at most six months--the Board
of Directors shall draw up the Annual Accounts.
Within this period the Board of Directors shall also submit the annual
report.
The Annual Accounts shall be signed by all the Members of the Board of
Directors.
If the signature of one or more of them is missing, mention thereof shall
be made and the reason therefor stated.
3. The Board of Directors shall submit the Annual Accounts to the General
Meeting.
4. From the day the Annual Meeting has been convened until the close of that
meeting, the documents referred to in paragraph 2 of this Article shall,
together with the information to be added pursuant to article 392 of Book 2
of the Dutch Civil Code, be deposited at the Company's offices and in
Amsterdam at the place to be mentioned in the convocation for inspection by
all shareholders and each of them may obtain copies thereof at no cost.
5. The General Meeting shall adopt the Annual Accounts.
The adoption of the Annual Accounts shall discharge the Members of the
Board of Directors for their Management, insofar as such management is
apparent from the Annual Accounts.
6. The Annual Accounts may not be adopted by the General Meeting if they have
been unable to ascertain to their satisfaction the statement of the auditor
referred to in Article 19, paragraph 1, which must be attached to the
Annual Accounts, unless the other information included mentions of a legal
ground why the statement is lacking.
7. The Company shall procure the publication of the documents and information
referred to in this Article, if and insofar as and in the manner as
prescribed in articles 394 et seq. of Book 2 of the Dutch Civil Code.
AUDITOR
ARTICLE 19.
1. The General Meeting shall give, without prejudice to any relevant statutory
provisions, an auditor ("register accountant") or another expert as referred
to in article 393 of Book 2 of the Dutch Civil Code or an organization in
which such experts are working together, the instruction to examine and
audit the Annual Accounts.
That expert shall report on his audit to the Board of Directors and shall
lay down the result of his audit in a report, stating whether the Annual
Accounts give a true and fair view of the financial position of the
Company.
2. If the General Meeting fails to appoint an auditor then the Board of
Directors shall be competent to do so.
3. The General Meeting or the party who gave the instruction, shall at all
times be authorized to cancel the instruction mentioned in this Article.
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PROFITS
ARTICLE 20.
1. The Company may make distributions to the shareholders and to other persons
entitled to the profits only up to a sum not exceeding the amount of the
distributable reserves.
2. Profits shall be distributed after adoption of the Annual Accounts showing
such is allowed.
3. Each year, the Board of Directors shall determine which part of the
profits--the positive balance of the profit and loss account--shall be
reserved.
4. From the profits remaining after reservation according to the above, a
dividend shall be distributed on the preference shares equal to the average
rate of Euribor plus two calculated over the amounts paid on such shares,
the average being taken over the number of days this rate applied over the
financial year concerned.
5. The balance then remaining shall be distributed as a dividend on ordinary
shares.
6. In calculating the profit appropriation, the shares held by the Company in
its own capital shall not count, unless a usufruct has been created on these
shares.
7. Insofar as profit is available in the Company, the Board of Directors may
resolve on payment of an interim dividend on account of the expected
dividend, provided always that the provisions laid down in paragraph 1 of
this Article have been satisfied, such to be shown by an interim balance
sheet as referred to in article 105 paragraph 4 of Book 2 of the Dutch Civil
Code.
8. The General Meeting may, following a proposal of the Board of Directors,
resolve to make distributions to the holders of ordinary shares from one or
more reserves which need not be maintained pursuant to the law or to these
Articles of Association.
The provisions of the paragraphs 1, 2, 7 and 9 apply accordingly.
9. The resolutions to distribute (interim) dividends may entail that (interim)
dividends will be wholly or partly distributed not in cash, but in the form
of shares in the Company or in a Subsidiary.
10. The (interim) dividend shall be made payable on a day to be determined by
the Board of Directors.
11. (Interim) dividends which have not been collected within five years after
they became payable shall be forfeited to the Company.
ANNUAL MEETING
ARTICLE 21.
The Annual Meeting shall be held within six months after the close of the
financial year, for the purpose of:
a. the discussion of the Annual Accounts and of the other information
referred to in article 392 of Book 2 of the Dutch Civil Code, except in
case extension has been granted for the preparation of the Annual Accounts
pursuant to article 101 of Book 2 of the Dutch Civil Code;
b. adoption of the Annual Accounts, unless an extension as referred to in
paragraph a. of this article has been granted;
c. delivery of the written report made by the Board of Directors on the
state of the Company's affairs and the management conducted during the past
financial year, unless an extension as referred to in a. above has been
granted;
d. effecting all such things as furthermore prescribed by the law;
e. dealing with all such further items of business as stated in the
convocation of the meeting.
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CONVOCATION
ARTICLE 22.
1. All convocations for the General Meeting and all announcements,
notifications and communications to shareholders and other parties with
meeting rights shall be effected by means of letters sent to the addresses
as recorded in the register referred to in Article 7, without prejudice to
the relevant provisions of the law.
2. The convocation shall be effected no later than on the fifteenth day before
the day of the meeting.
3. In the convocation the agenda shall be given or it shall be communicated
that shareholders and other parties with meeting rights may inspect the
agenda at the offices of the Company, without prejudice to the relevant
provisions of the law.
4. Insofar as all documents which must be available for inspection by
shareholders and other parties with meeting rights have not been included in
the convocation, these documents shall be made available at the offices of
the Company and, if the Company is listed on a stock exchange, with such
paying agent as referred to in the rules relating to securities of such
stock exchange, to be designated in the convocation for shareholders and
other parties with meeting rights at no cost.
OTHER GENERAL MEETINGS
ARTICLE 23.
1. Other General Meetings shall be held whenever the shareholders and other
parties with meeting rights shall be called and convened for that purpose by
the Board of Directors.
2. If one or more shareholders and/or other parties with meeting rights,
jointly representing at least one-tenth of the issued capital, have
requested the Board of Directors in writing to call and convene a General
Meeting, at the same time specifying the items of the agenda, and the Board
of Directors has not complied with such request in such a way that the
General Meeting can be held within six weeks following such request, they
shall be authorized to call such meeting themselves.
PLACE, CHAIRMANSHIP, MINUTES
ARTICLE 24.
1. General Meetings shall be held in Amsterdam, Schiphol (Haarlemmermeer), The
Hague, Maastricht, Nijmegen or in Venlo, at a location to be stated in the
convocation.
2. General Meetings shall be presided over by the Chairman of the Board of
Directors;
if the Chairman is absent, the member of the Board of Directors designated
by the Board of Directors shall preside and if such member is absent, the
Meeting itself shall choose its chairman.
3. Minutes shall be kept of the business transacted at the meeting.
The minutes shall be acknowledged, in evidence whereof the chairman and the
person who took the minutes shall sign them.
Minutes need not be taken of the business transacted if a notarial record
is made.
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ACCESS
ARTICLE 25.
1. All Members of the Board of Directors, shareholders and other parties with
meeting rights or their authorized agents--the latter with due observance of
the provisions of Article 26--shall be entitled to attend the General
Meeting, to address the meeting and, insofar as they have voting rights, to
cast their vote thereat.
In order to exercise that right holders of ordinary registered shares,
usufructuaries and pledgees of registered shares with the rights granted by
law under article 88 casu quo article 89 of Book 2 of the Dutch Civil Code
to holders of depositary receipts issued with the cooperation of a company
must express their desire to do so to the Company in writing, such no later
than at the time and place mentioned in the convocation and also--insofar
as it concerns type II registered shares- stating the indentifying number
of the share certificate.
2. The time referred to in the previous paragraph cannot be set earlier than
on the seventh day before the day of the meeting.
3. If the voting right on a share accrues to the usufructuary or the pledgee
instead of to the shareholder, the shareholder shall also be authorised to
attend the General Meeting and address it, provided that, where ordinary
registered shares are concerned, the Company has been notified of the
intention to attend the meeting in accordance with paragraph 1, or where
ordinary registered shares are concerned, the deposition prescribed in
paragraph 1 has taken place.
4. The chairman of the meeting shall decide on access to the meeting by others
than those who are entitled thereto by law.
POWER OF ATTORNEY
ARTICLE 26.
Shareholders and other parties with meeting rights may have themselves
represented by written power of attorney. The Company shall be notified hereof
in accordance with the provisions of Article 25, paragraph 1 of the Articles of
Association.
VOTES
ARTICLE 27.
1. Each person entitled to vote or his representative must sign the attendance
list.
2. Each share confers the right to cast one vote.
3. Insofar as the law or these Articles of Association do not prescribe a
greater majority, resolutions are passed by an absolute majority of the
votes cast.
Resolutions of the General Meeting can only be adopted validly in a meeting
in which no less than one-third of the issued capital is represented.
A new meeting as referred in article 120 paragraph 3 of Book 2 of the Dutch
Civil Code cannot be convened.
4. All votes shall be oral votes.
However, the chairman may resolve to have votes cast by ballot.
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In the event of an election of persons, a person with voting rights present
at the meeting may also require that the votes be cast by ballot.
Voting by ballot shall be effected with closed, unsigned ballot papers.
5. If the votes are tied the drawing of lots shall decide if it concerns an
election of persons and the motion shall be defeated if it concerns an item
of business.
6. Blank votes and invalid votes shall count as not having been cast.
7. The Board of Directors shall keep records of the resolutions passed.
The notes shall be deposited at the offices of the Company for inspection
by shareholders and other persons with meeting rights who shall if so
requested be furnished with a transcript or extract of these notes at no
more than the cost price.
AMENDMENT OF ARTICLES OF ASSOCIATION AND LIQUIDATION
ARTICLE 28.
1. A resolution of the General Meeting to amend the Articles of Association or
to dissolve the Company may only be taken at the proposal of the Board of
Directors.
2. The full proposal shall be deposited for inspection by the shareholders and
other parties with meeting rights at the offices of the Company and in
Amsterdam at a location to be mentioned in the convocation as of the day of
convocation to the General Meeting until the conclusion thereof;
the transcripts of this proposal shall be made available for the
shareholders and other parties with meeting rights at no cost.
3. A resolution to dissolve the Company may only be taken in a General Meeting
with a majority of no less than three-fourths of the votes cast.
4. Upon the dissolution of the Company the liquidation shall be effected by
the Board of Directors.
5. During the liquidation the provisions of these Articles of Association
shall remain in full force as much as possible.
6. The balance of the liquidation shall be distributed as follows:
a. to the holders of preference shares, the amount paid on such shares;
b. the remaining balance shall be distributed to the holders of ordinary
shares in proportion to everyone's nominal possession of said shares.
7. The books and records of the Company shall be kept for ten years after the
completion of the liquidation by the party designated for that purpose by
the General Meeting.
PROVISIONAL CLAUSES
ARTICLE 29.
The Board of Directors shall be authorized to resolve on issues of shares and
limitation or exclusion of the pre-emptive right, as well as to grant the right
to subscribe for shares.
The authority of the Board of Directors to adopt such a resolution pertains
to all shares not yet issued up to a total issued share capital of fifty
million ordinary shares and fifty million preference shares.
The authority referred to herein shall end on the 1 February two thousand and
five subject to the possibility of extension as stipulated in Article 10 and
Article 11 of these Articles of Association.
D-16
<PAGE>
FINAL STATEMENTS.
Finally the appearing person declared:
- that the issued capital amounts to [ ]
that on [ ] under number N.V. 1.070.445 the Minister of Justice
has--according to the certificate attached to this deed--advised that
no objections to the present amendment to the articles of association
have been apparent.
This deed was executed today in Amsterdam.
The substance of this deed was stated and explained to the appearing person.
The appearing person declared not to require a full reading of the deed, to
have taken note of the contents of this deed and to consent to it.
Subsequently, this deed was read out in a limited form, and immediately
thereafter signed by the appearing person and myself, civil-law notary, at
[ ].
D-17
<PAGE>
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.
<TABLE>
<C> <S>
2.1 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 (included as Appendix A to the proxy statement/prospectus filed
as part of this registration statement).
3.1 Articles of Association of IFCO Systems (English translation) (included
as Appendix D to the proxy statement/prospectus filed as part of this
registration statement).
4.1 Specimen Certificate of IFCO Systems ordinary shares.
5.1 Opinion of Stibbe Simont Monahan Duhot P.C. as to the legality of the
IFCO Systems ordinary shares.
8.1 Opinion of Baker Botts L.L.P. regarding federal income tax matters.
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.
10.1 Form of Lockup Agreement to be executed by Christoph Schoeller, Martin
Schoeller, Schoeller Industries, Schoeller Holding, and certain senior
executives of PalEx and its subsidiaries.
10.2 Form of Waiver to be entered into by IFCO Systems and by certain
employees of PalEx.
10.3 Senior Facility Agreement, dated February 20, 1998, between IFCO
International Food Container Organization GmbH, as Borrower, IFCO Europe,
and the Financial Institutions named therein.
10.4 Amendment to Senior Facility Agreement, dated February 28, 1998.
10.5 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.
10.6 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.
10.7 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.
10.8 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.
10.9 Supply Agreement, dated November 4, 1997, between IFCO Europe and
Schoeller Plast Industries GmbH (assigned to Schoeller Plast AG).
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C>
10.10 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.
</TABLE>
<TABLE>
<C> <S>
10.11 Management Agreement, dated as of January 2, 1997, between Schoeller
Industries and IFCO Europe.
10.12 Management Agreement, dated as of January 2, 1997, between Schoeller
Industries and MTS.
10.13 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).
10.14 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).
10.15 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).
10.16 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 optionees
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).
10.17 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).
10.18 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).
10.19 Form of Employment and Noncompetition Agreement for Messrs. Maultsby,
Rhyne, Fletcher, and Fraser (the terms of each agreement are identical
except for the level of compensation provided for the respective
individual) (incorporated by reference to Exhibit 10.4 to PalEx's
Registration Statement on Form S-1, registration no. 333-18683).
10.20 Form of Employment and Noncompetition Agreement for Messrs. Cruz and
Freeman (incorporated by reference to Exhibit 10.14 to PalEx's Annual
Report on Form 10-K for the fiscal year ended December 27, 1998,
Commission file no. 000-22237, as filed with the SEC on March 30, 1999).
10.21 Contract of Employment between SLS Schoeller Logistic Services GmbH and
Mr. Holger Schmidt, dated April 10, 1997, as amended by Agreement of
Change, dated July 23, 1999.
10.22 Contract of Employment between SLS Schoeller Logistic Services GmbH and
Mr. Dirk Grosgen, dated April 10, 1997, as amended by Agreement of
Change, dated July 23, 1999.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.23 Contract of Employment between IFCO Scandinavia A/S and Mr. Gustav
Sandahl, dated December 17, 1997.
10.24 Contract of Employment between IFCO International Food Container
Organisation GmbH and Mr. Gustav Sandahl, dated November 4, 1998.
10.25 Managing Director Employment Agreement between IFCO International Food
Container Organisation GmbH and Mr. Jorg Augustin, dated May 21, 1999.
10.26 Preliminary Contract on the Conclusion of a Management Contract between
Mr. Gunter Gerland and Schoeller Plast Holding GmbH, dated December 29,
1993.
10.27 Managing Director Employment Agreement between MTS and Mr. Klaus
Hufnagel, dated December 23, 1999.
10.28 Consultancy Agreement between IFCO Europe and Dr. Willy von Becker,
dated January 30, 1998, as amended by Supplementary Agreement, dated
June 28, 1999.
21 Subsidiaries of the Registrant.
23.1 Consent of PwC Deutshe 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. (included as part of Exhibit
5.1).
23.5 Consent of Batchelder & Partners, Inc.
23.6 Consent of Baker Botts L.L.P. (included as part of Exhibit 8.1).
23.7 Consent of Cornelius Geber.
23.8 Consent of Sam W. Humphreys.
23.9 Consent of Randall Onstead.
23.10 Consent of Eckhard Pfeiffer.
23.11 Consent of Christoph Schoeller.
23.12 Consent of Dr. Frank Tofflinger.
24 Power of Attorney (included on signature page).
99.1 Opinion of Batchhelder & Partners, Inc. (included as Appendix B to the
proxy statement/prospectus filed as part of this registration
statement).
99.2 Amended and Restated Certificate of Incorporation of PalEx (incorporated
by reference to Exhibit 3.1 to PalEx's Registration Statement on Form S-
1, registration no. 333-18683).
99.3 By-Laws of PalEx (incorporated by reference to Exhibit 3.2 to PalEx's
Registration Statement on Form S-1, registration no. 333-18683).
99.4 Form of Proxy for the PalEx special meeting of stockholders.
99.5 Election Form/Letter of Transmittal for PalEx stockholders.
</TABLE>
- --------
*To be filed by amendment.
(b) Financial Statement Schedules.
Not required.
(c) Reports, Opinions, Appraisals.
Included as Appendix B to the Proxy Statement/Prospectus which is part of
this Registration Statement.
II-3
<PAGE>
Item 22. Undertakings
(a) The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii)
to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and (iii) to include any material information with
respect to the Amended and Restated Agreement and Plan of Reorganization
not previously disclosed in the registration statement or any material
change to such information in the registration statement;
(2) that, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof;
(3) to remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering;
(4) to file a post-effective amendment to the registration statement to
include any financial statements required by Rule 3-19 of Regulation S-X
under the Securities Act of 1933 at the start of any delayed offering or
throughout a continuous offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The Registrant hereby undertakes that:
(1) prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is part of this registration statement, by
any person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) Every prospectus: (i) that is filed pursuant to immediately preceding
paragraph, or (ii) that purports to meet the requirements of Section 10(a)(3)
of the Securities Act of 1933, and is used in connection with an offering of
securities subject to Rule 415, will be filed as part of an amendment to the
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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 of 1933 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 of 1933 and will be governed by the final adjudication of such
issue.
II-4
<PAGE>
(e) The undersigned Registrant hereby undertakes: (i) to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form F-4, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means; and (ii) to arrange or provide for a
facility in the United States for the purpose of responding to such requests.
The undertaking in the immediately preceding clause (i) includes information
contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
(f) 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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form F-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in Pullach, Germany, on
this 2nd day of February, 2000.
IFCO SYSTEMS N.V.
By:
/s/ Martin A. Schoeller ______
Martin A. Schoeller Director and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and hereby
authorizes any one of the following persons, Martin A. Schoeller and Dr. Willy
von Becker, acting alone, as such person's true and lawful attorney-in-fact and
agents, jointly and severally, with full power of substitution and
resubstitution, for such person in his name, place and stead, to sign any and
all amendments (including post-effective amendments) to this registration
statement, and cause the same to be filed with the Securities and Exchange
Commission hereby granting to said attorney-in-fact full power and authority to
do and perform each and every act and thing necessary or desirable to be done
in and about the premises as fully as to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all
acts and things that said attorney-in-fact may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement on Form F-4 has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Martin A. Schoeller Director and Chief February 2, 2000
______________________________________ Executive Officer
Martin A. Schoeller (principal executive
officer)
</TABLE>
<TABLE>
<S> <C> <C>
/s/ Willy von Becker Director and Chief February 2, 2000
______________________________________ Financial Officer
Dr. Willy von Becker (principal financial and
accounting officer)
</TABLE>
Puglisi & Associates
By:
/s/ Gregory F. Lavelle ____ Authorized Representative in the
United States
February 2,
Gregory F. Lavelle Vice 2000
President
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
2.1 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 (included as Appendix
A to the proxy statement/ prospectus filed as part of this
registration statement).
3.1 Articles of Association of IFCO Systems (English translation)
(included as Appendix D to the proxy statement/prospectus filed as
part of this registration statement).
4.1 Specimen Certificate of IFCO Systems ordinary shares.
5.1 Opinion of Stibbe Simont Monahan Duhot P.C. as to the legality of
the IFCO Systems ordinary shares.
8.1 Opinion of Baker Botts L.L.P. regarding federal income tax
matters.
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.
10.1 Form of Lockup Agreement to be executed by Christoph Schoeller,
Martin Schoeller, Schoeller Industries, Schoeller Holding, and
certain senior executives of PalEx and its subsidiaries.
10.2 Form of Waiver to be entered into by IFCO Systems and by certain
employees of PalEx.
10.3 Senior Facility Agreement, dated February 20, 1998, between IFCO
International Food Container Organization GmbH, as Borrower, IFCO
Europe, and the Financial Institutions named therein.
10.4 Amendment to Senior Facility Agreement, dated February 28, 1998.
10.5 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.
10.6 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.
10.7 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.
10.8 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.
10.9 Supply Agreement, dated November 4, 1997, between IFCO Europe and
Schoeller Plast Industries GmbH (assigned to Schoeller Plast AG).
10.10 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.
10.11 Management Agreement, dated as of January 2, 1997, between
Schoeller Industries and IFCO Europe.
10.12 Management Agreement, dated as of January 2, 1997, between
Schoeller Industries and MTS.
10.13 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).
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.14 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).
10.15 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).
10.16 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 optionees
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).
10.17 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).
10.18 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).
10.19 Form of Employment and Noncompetition Agreement for Messrs. Maultsby,
Rhyne, Fletcher, and Fraser (the terms of each agreement are identical
except for the level of compensation provided for the respective
individual) (incorporated by reference to Exhibit 10.4 to PalEx's
Registration Statement on Form S-1, registration no. 333-18683).
10.20 Form of Employment and Noncompetition Agreement for Messrs. Cruz and
Freeman (incorporated by reference to Exhibit 10.14 to PalEx's Annual
Report on Form 10-K for the fiscal year ended December 27, 1998,
Commission file no. 000-22237, as filed with the SEC on March 30, 1999).
10.21 Contract of Employment between SLS Schoeller Logistic Services GmbH and
Mr. Holger Schmidt, dated April 10, 1997, as amended by Agreement of
Change, dated July 23, 1999.
10.22 Contract of Employment between SLS Schoeller Logistic Services GmbH and
Mr. Dirk Grosgen, dated April 10, 1997, as amended by Agreement of
Change, dated July 23, 1999.
10.23 Contract of Employment between IFCO Scandinavia A/S and Mr. Gustav
Sandahl, dated December 17, 1997.
10.24 Contract of Employment between IFCO International Food Container
Organisation GmbH and Mr. Gustav Sandahl, dated November 4, 1998.
10.25 Managing Director Employment Agreement between IFCO International Food
Container Organisation GmbH and Mr. Jorg Augustin, dated May 21, 1999.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.26 Preliminary Contract on the Conclusion of a Management Contract between
Mr. Gunter Gerland and Schoeller Plast Holding GmbH, dated December 29,
1993.
10.27 Managing Director Employment Agreement between MTS and Mr. Klaus
Hufnagel, dated December 23, 1999.
10.28 Consultancy Agreement between IFCO Europe and Dr. Willy von Becker,
dated January 30, 1998, as amended by Supplementary Agreement, dated
June 28, 1999.
21 Subsidiaries of the Registrant.
23.1 Consent of PwC Deutshe 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. (included as part of Exhibit
5.1).
23.5 Consent of Batchelder & Partners, Inc.
23.6 Consent of Baker Botts L.L.P. (included as part of Exhibit 8.1).
23.7 Consent of Cornelius Geber.
23.8 Consent of Sam W. Humphreys.
23.9 Consent of Randall Onstead.
23.10 Consent of Eckhard Pfeiffer.
23.11 Consent of Christoph Schoeller.
23.12 Consent of Dr. Frank Tofflinger.
24 Power of Attorney (included on signature page).
99.1 Opinion of Batchhelder & Partners, Inc. (included as Appendix B to the
proxy statement/prospectus filed as part of this registration
statement).
99.2 Amended and Restated Certificate of Incorporation of PalEx (incorporated
by reference to Exhibit 3.1 to PalEx's Registration Statement on Form S-
1, registration no. 333-18683).
99.3 By-Laws of PalEx (incorporated by reference to Exhibit 3.2 to PalEx's
Registration Statement on Form S-1, registration no. 333-18683).
99.4 Form of Proxy for the PalEx special meeting of stockholders.
99.5 Election Form/Letter of Transmittal for PalEx stockholders.
</TABLE>
- --------
*To be filed by amendment.
<PAGE>
EXHIBIT 4.1
<TABLE>
<CAPTION>
NUMBER SHARES
- ---------------- ----------------
ISNV IFCO SYSTEMS N.V.
- ---------------- -----------------
<S> <C> <C>
ORDINARY SHARES INCORPORATED UNDER THE LAWS OF THE NETHERLANDS ORDINARY SHARES
TWO EUROS EACH AND DOMICILED AT AMSTERDAM THIS CERTIFICATE IS TRANSFERABLE TWO EUROS EACH
AT THE OFFICE OF THE TRANSFER AGENT OF THE COMPANY IN NEW YORK
</TABLE>
CUSIP:
SEE REVERSE SIDE FOR CERTAIN DEFINITIONS
This Certifies that [NAME OF SHAREHOLDER]
is the owner of [NUMBER OF SHARES]
FULLY PAID AND NON-ASSESSABLE ORDINARY SHARES, OF THE NOMINAL (PAR) VALUE
OF 2.00 EUROS PER SHARE, OF IFCO SYSTEMS N.V. (the "Company") transferable on
the books of the Company in person or by duly authorized attorney upon surrender
of this share certificate properly endorsed. This certificate is not valid
unless countersigned and registered by the New York Transfer Agent and
Registrar. The certificate and the shares represented hereby are issued and
shall be subject to all of the provisions of the laws of The Netherlands, to the
Articles of Association of the Company, if and as amended (copies of which are
available at the office of the Company at Amsterdam, The Netherlands and at the
office of the New York Transfer Agent and Registrar), and to all provisions
whereof the holder of the shares is bound.
Dated: IFCO SYSTEMS N.V.
COUNTERSIGNED AND REGISTERED:
Deutsche Bank AG
TRANSFER AGENT
AND REGISTRAR
AUTHORIZED OFFICER IFCO SYSTEMS N.V. SIGNATURE
Chief Executive Officer
<PAGE>
IFCO SYSTEMS N.V.
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM- as tenants in common UNIF GIFT MIN ACT _________________________Custodian_____________
TEN ENT- as tenants by the entireties (Cust) (Minor)
JT TEN- as joint tenants with under Uniform Gifts to Minors
right of survivorship and Act ______________________________________
not as tenants in common (State)
Additional abbreviations may also be used though not listed.
For value received, ___________________________________________________________________________ hereby sell, assign and transfer to
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF PURCHASER
________________________________________________
________________________________________________
___________________________________________________________________________________________________________________________________
(PLEASE PRINT OR TYPE NAME AND ADDRESS INCLUDING ZIP CODE OF PURCHASER)
___________________________________________________________________________________________________________________________________
___________________________________________________________________________________________________________________________________
who accepts * _____________________________________________________________________________________________________________________
___________________________________________________________________________________________________________________ Ordinary Shares
each with par value of two Euros (Euro 2.00) in the share capital of the Company, represented by the Certificate. The parties waive
their right to invoke a recission of this agreement on any ground whatsoever upon the transfer of the aforementioned Ordinary
Shares. This agreement is governed by the laws of The Netherlands. Seller hereby irrevocably constitutes and appoints _____________
__________________________________________________________________________________________________________________________ Attorney
to transfer the same on the books of the Company with full power of substitution.
Signatures(s) Guaranteed: Seller ________________________________________________
Signature
By: _________________________________________________________ Place ________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION [BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN Date ________________________________________________
APPROVED SIGNATURE GUARANTEE MEDALIAN PROGRAM] PURSUANT
TO UNITED STATES SECURITIES AND EXCHANGE ACT RULE 170 ACT 13
THE TRANSFER OF THE SHARES EVIDENCED BY THE CERTIFICATE CAN ONLY BE EFFECTED BY A WRITTEN INSTRUMENT OF TRANSFER AND WRITTEN
ACKNOWLEDGEMENT OF SUCH TRANSFER BY THE PUBLIC LIMITED LIABILITY COMPANY IFCO SYSTEMS N.V. OF AMSTERDAM. THE NETHERLANDS OR BY
DEUTSCHE BANK AG AS AGENT.
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN ON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR
WITH THAT ALTERATIONS ** ENLARGEMENT OR ANY CHANGE WHATEVER
</TABLE>
<PAGE>
Exhibit 5.1
[LETTERHEAD OF STIBBE SIMONT MONAHAN DUHOT P.C.]
IFCO Systems N.V.
Strawinskylaan 2001
1077 ZZ AMSTERDAM
The Netherlands
Ladies and Gentlemen:
We have acted as legal counsel in the Netherlands to IFCO Systems N.V., a
Netherlands company (the "Issuer"), in connection with the filing by the Issuer
under the Securities Act of 1933, as amended, of a registration statement dated
February 2, 2000 on Form F-4 (the "Registration Statement") with the United
States Securities and Exchange Commission, filed in connection with a
combination of the businesses of the Issuer and PalEx, Inc. ("PalEx") in the
manner and on the terms and conditions as set forth in the Amended and Restated
Agreement and Plan of Reorganization dated October 6, 1999 as included in the
Registration Statement (the "Merger Agreement").
In rendering this opinion we have examined and relied upon the following
documents:
(1) the Registration Statement which includes the Merger Agreement;
(2) Amendment no. 1 to the Amended and Restated Agreement and Plan of
Reorganization;
(3) an excerpt dated the date hereof of the registration of the Company in the
Trade Register of the Chamber of Commerce of Amsterdam, The Netherlands
(the "Excerpt");
(4) a copy of the Deed of Incorporation of the Company (the "Deed of
Incorporation"), executed on March 31, 1999 which includes the articles of
association (statuten) of the Company in force on the date hereof (the
"Articles");
(5) the proposed amendement of the Articles as included in the Registration
Statement; and
(6) a company certificate of even date hereof attached hereto as Annex 1 (the
"Company Certificate");
and such other documents and such treaties, laws, rules, regulations, and the
like, as we have deemed necessary as a basis for the opinions hereinafter
expressed.
<PAGE>
We have assumed:
(i) the genuineness of all signatures;
(ii) the authenticity of all the agreements, certificates, and other documents
submitted to us as originals;
(iii) the conformity to the originals of all documents submitted to us as
copies;
(iv) that a ministerial declaration of non-objection will be received with
respect to the document referred to under (5) above and that such
document will be duly and validly executed through a notarial deed prior
to the issuance of the Shares, substantially in the form as examined by
us as draft;
(v) that the resolution to issue the Shares shall have been validly passed
prior to the issuance of the Shares;
(vi) that prior to the issuance of Shares the Company shall have made a
description as referred to in Section 2:94(b)(1) of the Dutch Civil Code
and an accountant qualified in the Netherlands shall have issued a
certificate as referred to in Section 2:94(b)(2) of the Dutch Civil Code;
and
(vii) that the contents of the Excerpt and the Company Certificate are true and
complete as of the date hereof.
Based on the foregoing and subject to any factual matters or documents not
disclosed to us in the course of our investigation, and subject to the
qualifications and limitations stated hereafter, we are of the opinion that:
A. The Company has been duly incorporated and is validly existing as a
"naamloze vennootschap" (company with limited liability) under the laws of
The Netherlands.
B. The Shares, to be issued to PalEx shareholders as contemplated in the
Registration Statement (the "Shares"), when duly issued and delivered in
accordance with the provisions of the Merger Agreement and Netherlands law,
against payment therefor as provided in the Merger Agreement, will be duly
and validly issued, fully paid and non-assessable.
In rendering the opinions expressed herein, we have, with your approval, relied
without independent investigation as to all matters governed by or involving
conclusions under the federal law of the United States of America and the law of
the State of New York, upon the opinion (including the qualifications,
assumptions and limitations expressed therein) of King & Spalding, United States
counsel to the Company, of even date herewith.
We express no opinion on any law other than the law of The Netherlands as it
currently stands and has been interpreted in published case law of the courts of
The Netherlands as per the date hereof. We express no opinion on any laws of the
European Communities (insofar as not implemented in The Netherlands in statutes
or other regulations of general application).
This opinion is strictly limited to the matters stated herein and may not be
read as extending by implication to any matters not specifically referred to.
Nothing in this opinion should be taken as expressing an opinion in respect of
any representations or warranties, or other information, or any other document
examined in connection with this opinion except as expressly confirmed herein.
<PAGE>
We hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the use of our name under the caption "Legal Matters" contained
in the prospectus which is included in the Registration Statement.
Yours sincerely,
/s/ Stibbe Simont Monahan Duhot P.C.
Stibbe Simont Monahan Duhot P.C.
18394
<PAGE>
ANNEX 1
COMPANY CERTIFICATE
-------------------
The undersigned, Dr. Willy von Becker, officer of IFCO Systems N.V. (the
"Company") and authorised to represent the Company, hereby declares the
following to Stibbe Simont Monahan Duhot P.C. in order for them to rely on the
contents hereof in the framework of the legal opinion to be issued by them to us
in relation to the Registration Statement on Form-4 relating to the proposed
merger of the Company with PalEx, Inc.:
1. The Company has not proposed and the shareholders of the Company have not
resolved to dissolve the Company;
2. The Company is not involved in legal proceedings which are aimed at the
dissolution of the Company;
3. The Company has not applied for suspension of payment or bankruptcy, nor has
the Company been granted suspension of payment or declared bankrupt;
4. Since the shareholders resolution of 22 November 1999 to amend the articles
of association of the Company, no resolution to amend the articles of
association of the Company has been taken;
5. Prior to the shareholders resolution of 22 November 1999, no resolution to
amend the articles of association of the Company has been taken, which has
not been carried out up to this date.
Signed by Dr. Willy von Becker on February 1, 2000.
/s/ Willy von Becker
- ----------------------------------
<PAGE>
[KING & SPALDING LETTERHEAD]
February 2, 2000
Stibbe Simont Monahan Duhot
350 Park Avenue, 28th Floor
New York, New York 10022
Ladies and Gentlemen:
We have acted as special New York counsel to IFCO Systems N.V. ("IFCO
Systems"), in connection with the preparation, execution and delivery of the
Amended and Restated Agreement and Plan of Reorganization, dated as of October
6, 1999 and effective as of March 29, 1999 (the "Merger Agreement"), by and
among IFCO Systems, IFCO Europe Beteiligungs GmbH, MTS Okologistik Verwaltungs
GmbH, IFCO International Network Beteiligungsgesellschaft mbH, Schoeller
Logistics Industries GmbH, Silver Oak Acquisition Corp. and PalEx, Inc.
(collectively, the "Merger Parties"). You have requested this opinion in
connection with the filing by IFCO Systems of a registration statement (the
"Registration Statement") on Form F-4 under the Securities Act of 1933 with the
Securities and Exchange Commission. The Registration Statement is being filed
in connection with the consummation of the transactions contemplated by the
Merger Agreement.
In that connection, we have examined counterparts of the Merger Agreement,
executed by the Merger Parties.
In our examination of the Merger Agreement, we have assumed the genuineness
of all signatures, the due authority of the parties executing the Merger
Agreement and the conformity to the original of the copy of the Merger Agreement
submitted to us. We have also assumed that each of the Merger Parties is duly
incorporated, validly existing and in good standing as a corporation under the
laws of its respective jurisdiction, has taken all steps necessary to execute
the Merger Agreement under the laws of its respective jurisdiction and has duly
executed and delivered, with all necessary power and authority (corporate and
otherwise), the Merger Agreement. As to matters of fact, we have relied solely
upon the document we have examined.
Based upon the foregoing, and subject to the qualifications set forth
below, we are of the opinion that the Merger Agreement creates a legal, valid
and binding obligation of IFCO Systems enforceable against IFCO Systems in
accordance with its terms.
<PAGE>
2
Our opinion is subject to the following qualifications:
(a) Our opinion expressed above is subject to the effect of any
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar law affecting creditors' rights generally.
(b) Our opinion expressed above is subject to the effect of general
principles of equity, including (without limitation) concepts of
materiality, reasonableness, good faith and fair dealing (regardless of
whether considered in a proceeding in equity or at law).
(c) We note further that, in addition to the application of equitable
principles described above, courts have imposed an obligation on
contracting parties to act reasonably and in good faith in the exercise of
their contractual rights and remedies, and may also apply public policy
considerations in limiting the right of parties seeking to obtain
indemnification under circumstances where the conduct of such parties in
the circumstances in question is determined to have constituted
negligence.
(d) Our opinion expressed above is limited to the laws of the State
of New York and the Federal laws of the United States, and we do not
express any opinion herein concerning any other laws.
This opinion letter speaks only as of the date hereof. We do not assume,
and we expressly disclaim, any responsibility to advise you of any change of law
or fact that may occur after the date of this opinion letter even though such
change may affect the legal analysis, a legal conclusion or any other matter set
forth in or relating to this opinion letter.
We hereby consent to the use of this opinion as an exhibit to your opinion
that will be filed as an exhibit to the Registration Statement.
Very truly yours,
/s/ King & Spalding
SMW:alm:jmc
<PAGE>
Exhibit 8.1
[LETTERHEAD OF BAKER BOTTS L.L.P.]
February 2, 2000
PalEx, Inc.
6829 Flintlock
Houston, Texas 77040
Ladies and Gentlemen:
We are acting as special U.S. tax counsel to PalEx, Inc., a corporation
organized under the laws of the State of Delaware ("PalEx"), in connection with
the Merger, as defined and described in the Amended and Restated Agreement and
Plan of Reorganization dated as of October 6, 1999 and effective as of March 29,
1999 to which IFCO Systems N.V., a public limited liability company incorporated
under the laws of The Netherlands ("IFCO"), certain affiliates of IFCO and PalEx
are parties (the "Merger Agreement"). As set forth in the Registration Statement
on Form F-4 filed by IFCO with the U.S. Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "Securities Act"),
relating to the ordinary shares of IFCO to be issued by IFCO pursuant to the
Merger (the "Registration Statement"), certain legal matters in connection with
the Merger are being passed on for PalEx by us.
In our capacity as special U.S. tax counsel for PalEx, we have examined
the Merger Agreement, the Registration Statement, including the proxy
statement/prospectus forming a part thereof (the "Proxy Statement/Prospectus"),
and the originals, or copies certified or otherwise identified, of corporate
records of PalEx, certificates of public officials and of representatives of
PalEx and IFCO, statutes and other instruments and documents as a basis for the
opinions we express herein.
Subject to the assumptions and qualifications set forth in the discussion
in the Proxy Statement/Prospectus under the headings "THE MERGER - United States
Federal Income Tax Consequences - Scope of Discussion" and "-- U.S. Federal
Income Tax Consequences of the Merger to U.S. Holders" (the "Discussion"),
including, without limitation, the assumption that PalEx will receive the
private letter ruling it has requested from the Internal Revenue Service ("IRS")
regarding certain issues under section 367(a)(1) of the Internal Revenue Code of
1986, as amended (the "Code"), we (i) are of the opinion that IFCO should be
treated as a corporation under section 367(a)(1) of the Code with respect to the
Merger and (ii) hereby confirm the opinions which are attributed to us in the
Discussion. We express no other opinion as to the United States federal, state,
local, foreign or other tax consequences of the Merger. We understand that,
except as
<PAGE>
BAKER BOTTS LLP
February 2, 2000
2
described above, no ruling will be requested from the IRS on any aspect of the
Merger. Our opinions are not binding on the IRS or a court and will not preclude
the IRS or a court from adopting a contrary position.
This letter is furnished to you solely for use in connection with the
Merger. We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the references to our firm name under the headings
"THE MERGER - United States Federal Income Tax Consequences - U.S. Federal
Income Tax Consequences of the Merger to U.S. Holders" and "LEGAL MATTERS" in
the Proxy Statement/Prospectus. In giving such consent, we do not thereby admit
that we are in the category of persons whose consent is required under Section 7
of the Securities Act or the rules and regulations of the SEC thereunder.
Sincerely,
/s/ Baker Botts L.L.P.
----------------------
BAKER BOTTS L.L.P.
<PAGE>
1
EXHIBIT 9.1
VOTING AGREEMENT
VOTING AGREEMENT (this "Agreement"), dated as of October 6, 1999, by and
among Schoeller Packaging Systems GmbH, a private company organized under the
laws of the Federal Republic of Germany ("SPS") and the individuals and other
parties listed on Schedule A attached hereto (together, the "Stockholders"),
each a stockholder of PalEx, Inc., a corporation organized under the laws of
Delaware (the "Company").
WHEREAS, concurrently with the execution of this Agreement, the Company,
SPS and certain other parties have entered into an Amended and Restated
Agreement and Plan of Reorganization (as the same may be amended from time to
time, the "Merger Agreement."), providing for the merger (the "Merger") of
Merger Sub (as defined in the Merger Agreement) with and into the Company
pursuant to the terms and conditions of the Merger Agreement;
WHEREAS, each Stockholder owns the number of shares of common stock, par
value $.01 per share, of the Company (the "Common Stock"), set forth opposite
his, her or its name on Schedule A attached hereto (such shares of Common Stock,
together with any other shares of capital stock of the Company acquired by such
Stockholder after the date hereof and during the term of this Agreement
(including through the exercise of any stock options, warrants or similar
instruments), being collectively referred to herein as the ("Shares");
WHEREAS, each of the Stockholders has agreed, upon the terms and subject to
the conditions set forth herein, to vote its Shares at a meeting of the
Company's Stockholders in favor of approval of the Merger Agreement; and
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, SPS has requested that each Stockholder enter into this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt,
sufficiency and adequacy of which is hereby acknowledged, the parties hereto
agree as follows:
1. Agreement to Vote Shares. The Stockholders agree during the term of
this Agreement to vote their respective Shares, in person or by proxy, in favor
of approval of the Merger Agreement at every meeting of the stockholders of the
Company at which such matters are considered and at every adjournment thereof
(each, a "Stockholders' Meeting").
2. No Voting Trusts. Each of the Stockholders agrees that it will not,
nor will such Stockholder permit any entity under such Stockholder's control to,
deposit any of such Stockholder's Shares in a voting trust or subject any of its
Shares to any arrangement with respect to the voting of its Shares inconsistent
with this Agreement.
3. No Other Grant of Proxy. Each of the Stockholders agrees that it will
not,
<PAGE>
2
directly or indirectly, grant any proxies or powers of attorney with respect to
the Shares (other than in connection with matters proposed by the Company, other
than approval of the Merger Agreement, at an annual meeting of the Company) to
any individual, corporation, partnership, limited liability company, joint
venture, association, trust, unincorporated organization or other entity (each,
a "person") other than SPS or any person designated in writing by SPS.
4. Limitation on Dispositions. Without the prior written consent of SPS,
each of the Stockholders shall not transfer, sell, assign or convey, or offer or
agree to transfer, sell, assign or convey, any of their Shares during the term
of this Agreement. Without limiting the generality of the foregoing, each of
the Stockholders shall not grant to any party any option or right to purchase
their Shares or any interest therein. Each of the Stockholders acknowledge and
agree that the transfer agent with respect to their Shares shall be given notice
that their Shares are subject to the terms of this Agreement and such Shares
shall not be transferred except in accordance with the terms of this Agreement.
5. Specific Performance. Each party hereto acknowledges that it will be
impossible to measure in money the damage to the other party if a party hereto
fails to comply with the obligations imposed by this Agreement, and that, in the
event of any such failure, the other party will not have an adequate remedy at
law or in damages. Accordingly, each party hereto agrees that injunctive relief
or other equitable remedy, in addition to remedies at law or damages, is the
appropriate remedy for any such failure and will not oppose the granting of such
relief on the basis that the other party has an adequate remedy at law. Each
party hereto agrees that it will not seek, and agrees to waive any requirement
for, the securing or posting of a bond in connection with any other party's
seeking or obtaining such equitable relief.
6. Term of Agreement; Termination. The term of this Agreement shall
commence on the date hereof, and such term and this Agreement shall terminate
upon the earliest to occur of 10. (i) the Effective Time (as defined in the
Merger Agreement); (ii) the date on which the Merger Agreement is terminated;
and (iii) May 31, 2000. Upon such termination, no party shall have any further
obligations or liabilities hereunder; provider, however, that such termination
shall not relieve any party from liability for any breach of this Agreement
prior to such termination.
7. Stockholder Capacity. No person executing this Agreement who is or
becomes during the term hereof a director or officer of the Company (or who has
been designated to the Board of Directors of the Company by a Stockholder) makes
(or shall be deemed to have made) any agreement or understanding herein in his
or her capacity as such director or officer. Without limiting the generality of
the foregoing, each Stockholder signs solely in its, his capacity as the record
and/or beneficial owner, as applicable, of such Stockholder's Shares and nothing
herein shall limit or affect any actions taken by a Stockholder (or a designee
of a Stockholder) in his or her capacity as an officer or director of the
Company in exercising its rights under the Merger Agreement.
8. Entire Agreement. This Agreement supersedes all prior agreements,
written or
<PAGE>
3
oral, among the parties hereto with respect to the subject matter hereof,
including, without limitation, that certain Voting Agreement dated as of March
29, 1999 by and among SPS and the Stockholders, and contains the entire
agreement among the parties with respect to the subject matter hereof. This
Agreement may not be amended, supplemented or modified, and no provisions hereof
may be modified or waived, except by an instrument in writing signed by all
parties hereto. No waiver of any provisions hereof by any party shall be deemed
a waiver of any other provisions hereof by any such party, nor shall any such
waiver be deemed a continuing waiver of any provision hereof by such party.
9. Notices. All notices, consents, requests, instructions, approvals
and other communications provided for herein shall be in writing and shall be
deemed to have been duly given if mailed, by first class or registered mail,
five (5) business days after deposit in the United States Mail, or if telexed or
telecopied, sent by telegram, or delivered by hand or reputable overnight
courier, when confirmation is received, in each case as follows:
If to the Stockholders to:
[Stockholder] c/o Edward Rhyne
General Counsel
PalEx, Inc.
6829 Flintlock Road
Houston, Texas 77040
Telephone: (713) 332-6145
Facsimile: (713) 332-6146
With a copy to:
Edward Rhyne
General Counsel
PalEx, Inc.
6829 Flintlock Road
Houston, Texas 77040
Telephone: (713) 332-6145
Facsimile: (713) 332-6146
If to SPS to:
Schoeller Packaging Systems GmbH
Zugspitzstrasse 15
D-82049 Pullach
Germany
Attention: Martin Schoeller
Telephone: 49 89 74491 0
<PAGE>
4
Facsimile: 49 89 74491 299
With a copy to:
King & Spalding
1185 Avenue of the Americas
New York, New York 10036-4003
Attention: Stephen M. Wiseman, Esq.
Telephone: (212) 556-2265
Facsimile: (212) 556-2222
or such other persons or addresses as may be designated in writing by the party
to receive such notice. Nothing in this Section 9 shall be deemed to constitute
consent to the manner and address for service of process in connection with any
legal proceeding (including litigation arising out of or in connection with this
Agreement), which service shall be effected as required by applicable law.
10. Miscellaneous. (a) Nothing contained in this Agreement shall be
construed as creating any liability on the part of the Stockholders under the
Merger Agreement.
(b) This Agreement shall be deemed a contract made under, and for all
purposes shall be construed in accordance with, the laws of the State of
Delaware, without reference to its conflicts of law principles.
(c) If any provision of this Agreement or the application of such
provision to any person or circumstances shall be held in invalid or
unenforceable by a court of competent jurisdiction, such provision or
application shall be unenforceable only to the extent of such invalidity or
unenforceability, and the remainder of the provision held invalid or
unenforceable and the application of such provision to persons or circumstances,
other than the party as to which it is held invalid, and the remainder of this
Agreement, shall not be affected.
(d) This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
(e) All Section headings herein are for convenience of reference only and
are not part of this Agreement, and no construction or reference shall be
derived therefrom.
(f) The obligations of the Stockholders set forth in this Agreement shall
not be effective or binding upon any Stockholder until after such time as the
Merger Agreement is executed and delivered by the entities that are a party
thereto.
<PAGE>
5
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first written above.
SCHOELLER PACKAGING SYSTEMS GMBH
By: /s/ Martin Schoeller /s/ Christoph Schoeller
<PAGE>
6
/s/ Sam W. Humphreys
<PAGE>
7
/s/ Elliot S. Pearlman
<PAGE>
8
ELLIOT S. PEARLMAN LIVING TRUST
DATED AUGUST 7, 1992
By: /s/ Elliot S. Pearlman
Elliot S. Pearlman, Trustee
<PAGE>
9
ELLIOT S. PEARLMAN LIVING TRUST
DATED JULY 2, 1996
By: /s/ Elliot S. Pearlman
Elliot S. Pearlman, Trustee
<PAGE>
10
THE GIBSON REVOCABLE TRUST DATED
DECEMBER 30, 1982
By: /s/ Gregg C. Gibson
Gregg C. Gibson, Trustee
By: /s/ Judith Gibson
Judith Gibson, Trustee
<PAGE>
11
MURPHY FAMILY PARTNERS, LTD.
By: /s/ J. Michael Murphy
J. Michael Murphy, General Partner
<PAGE>
12
MURPHY FAMILY LAND COMPANY, LTD.
By: /s/ J. Michael Murphy
J. Michael Murphy, General Partner
<PAGE>
13
MURPHY FAMILY INVESTMENTS, LTD.
By: /s/ J. Michael Murphy
J. Michael Murphy, General Partner
<PAGE>
14
CDRCO NW LLC.
By: /s/ A. Joseph Cruz
A. Joseph Cruz
By: /s/ Philip M. Freeman
Philip M. Freeman
<PAGE>
15
/s/ Stephen C. Sykes
<PAGE>
16
/s/ Casey A. Fletcher
<PAGE>
17
A.E. HOLLAND JR., TRUSTEE OF THE
ALFRED ELTON HOLLAND JR. REVOCABLE
TRUST DATED SEPTEMBER 4, 1994
By: /s/ A.E. Holland, Jr.
A.E. Holland, Jr., Trustee
<PAGE>
18
/s/ Howe Q. Wallace
<PAGE>
19
TROY FRASER & LINDA FRASER JT TEN
/s/ Troy Fraser
/s/ Linda Fraser
<PAGE>
20
Schedule A
----------
1. The Pearlman Group/1/
2. The Gibson 1982 Revocable Trust dated December 30, 1982
3. The Murphy Group/2/
4. CDRCo NW LLC/3/
5. Stephen C. Sykes
6. Casey A. Fletcher
7. A. E. Holland Jr., Trustee of the Alfred Elton Holland Jr. Revocable Trust
dated September 4, 1994
8. Howe Q. Wallace
9. Troy Fraser & Linda Fraser JT TEN
10. Sam W. Humphreys
_______________________
/1/For purposes of this Schedule A only, "The Pearlman Group" means Elliot
S. Pearlman, the Elliot S. Pearlman Living Trust dated August 7, 1992 and the
Elliot S. Pearlman Living Trust dated July 2, 1996
/2/For purpose of this Schedule A only, "the Murphy Group" means Murphy
Family Partners, Ltd., Murphy Family Land Company, Ltd. and Murphy Family
Investments, Ltd.
/3/Controlled by A. Joseph Cruz and Phil Freeman
<PAGE>
Exhibit 10.1
FORM OF
LOCK-UP AGREEMENT
THIS AGREEMENT (the "Agreement"), is made and entered into by the
undersigned (each, a "Restricted Shareholder") as of the ____ day of ________,
2000. Capitalized terms used herein and not otherwise herein defined shall have
the meanings set forth for such terms in the Merger Agreement (as defined
below).
WHEREAS, IFCO Systems N.V., a public limited liability company organized
under the laws of the Netherlands ("IFCO Systems"), IFCO Europe Beteiligungs
GmbH, a limited liability company organized under the laws of the Federal
Republic of Germany ("IFCO Europe"), MTS Okologistik Verwaltungs GmbH, a limited
liability company organized under the laws of the Federal Republic of Germany
("MTS"), Schoeller International Logistics Beteiligungsgesellschaft mbH, a
limited liability company organized under the laws of the Federal Republic of
Germany ("IFCO International"), Schoeller Logistics Industries GmbH (formerly
known as Schoeller Packaging Systems GmbH), a limited liability company
organized under the laws of the Federal Republic of Germany ("Schoeller
Industries"), Silver Oak Acquisition Corp., a corporation organized under the
laws of the State of Delaware ("Silver Oak"), and PalEx, Inc., a corporation
organized under the laws of the State of Delaware ("PalEx"), have entered into
an Amended and Restated Agreement and Plan of Reorganization, dated as of
October 6, 1999 and effective as of March 29, 1999 (the "Merger Agreement");
WHEREAS, in connection with and pursuant to the terms of the Merger
Agreement, each Restricted Shareholder shall hold or be entitled to receive
ordinary shares of IFCO Systems ("IFCO Systems Ordinary Shares");
WHEREAS, each Restricted Shareholder is entering into this Agreement to set
forth certain terms and conditions governing its actions prior to consummation
of the Merger and for a period of time following the IPO Closing Date with
respect to the IFCO Systems Ordinary Shares held by it.
NOW, THEREFORE, in consideration of the transactions contemplated by the
Merger Agreement and the mutual promises and covenants contained herein, each of
the undersigned Restricted Shareholders agrees as follows:
1. Restriction on Transfer of Shares. Without a waiver given upon an
---------------------------------
affirmative vote of the independent members of the Board of Directors of IFCO
Systems, during the term of this Agreement, each of the undersigned Restricted
Shareholders shall not transfer, sell, assign or convey, or offer or agree to
transfer, sell, assign or convey, any of the IFCO Systems Ordinary Shares held,
or to be held or entitled to be received by such Restricted Shareholder as of
the Effective Time, subject to the ability to transfer IFCO Systems Ordinary
Shares in the following amounts and during the following periods:
(a) an initial 20% at any time beginning one month after the IPO
Closing Date;
(b) an additional 15% beginning 12 months after the IPO Closing Date;
(c) an additional 15% at any time beginning 15 months after the IPO
Closing Date;
<PAGE>
2
(d) an additional 15% at any time beginning 18 months after the IPO
Closing Date; and
(e) an additional 15% at any time beginning 21 months after the IPO
Closing Date.
2. Notation of Shares. Each undersigned Restricted Shareholder
------------------
understands that the transfer agent of IFCO Systems may be given notice that the
IFCO Systems Ordinary Shares are subject to the terms of this Agreement and such
IFCO System Ordinary Shares shall not be transferred except in accordance with
the terms hereof.
3. Remedies. The undersigned acknowledges and agrees that neither IFCO
--------
Systems, IFCO Europe, MTS, IFCO International, Schoeller Industries, Silver Oak,
nor PalEx could be made whole by monetary damages in the event of any default by
the undersigned of the terms and conditions set forth in this Agreement. It is
accordingly agreed and understood that IFCO Systems, IFCO Europe, MTS, IFCO
International, Schoeller Industries, Silver Oak, and PalEx, in addition to any
other remedy which each may have at law or in equity, shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and specifically
to enforce the terms and provisions hereof in any action instituted in any court
of the United States, the Netherlands or of the Federal Republic of Germany, or
in any other court that has appropriate jurisdiction.
4. Term. The covenants and obligations set forth in paragraphs 1
-----
through 3 of this Agreement shall expire and be of no further force or effect on
the earliest of: (i) the expiration or termination of the Merger Agreement, if
such expiration or termination occurs prior to the Effective Time; (ii) the end
of the two-year period beginning on the IPO Closing Date; or (iii) with respect
to a Management Shareholder, upon the termination of employment of the
Management Shareholder by IFCO Systems, PalEx or a Subsidiary of PalEx without
cause or as a result of a breach by IFCO Systems, PalEx or a Subsidiary of PalEx
of any employment agreement with such Management Shareholder.
5. Other Restrictions on Transfer. The restrictions on transfer of
------------------------------
shares pursuant to this Agreement shall be subject to any additional
restrictions on transfers that any Restricted Shareholder may agree to for the
benefit of the managing underwriter in the IPO, to the extent that such
additional restrictions may be more restrictive.
6. Successor and Assigns. This Agreement shall be binding upon each
----------------------
of the undersigned Restricted Shareholders and each of his or her respective
heirs and assigns.
7. Governing Law. This Agreement shall be governed by the laws of the
--------------
State of Delaware.
8. Counterparts. This Agreement may be executed in two or more
-------------
counterparts, each of which will be deemed to be an original, but all of which
will constitute one and the same agreement, it being understood that all parties
need not sign the same counterpart. Facsimile transmission of any signed
original document and/or retransmission of any signed facsimile transmission
will be deemed the same as delivery of an original. At the request of any party,
the parties will confirm facsimile transmission by signing a duplicate original
document.
<PAGE>
3
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
each of the undersigned Restricted Shareholders as of the day and year first
above written.
__________________________________
Christoph Schoeller
__________________________________
Martin Schoeller
SCHOELLER LOGISTICS INDUSTRIES GMBH
By:_______________________________
Name:
Title:
SCHOELLER LOGISTIC TECHNOLOGIES HOLDING GMBH
By:_______________________________
Name:
Title:
__________________________________
Sam W. Humphreys
TROY FRASER & LINDA FRASER JT TEN
__________________________________
Troy Fraser
__________________________________
Linda Fraser
<PAGE>
4
A.E. HOLLAND JR., TRUSTEE OF THE
ALFRED ELTON HOLLAND JR. REVOCABLE
TRUST DATED SEPTEMBER 4, 1994
By:_______________________________
A.E. Holland, Jr., Trustee
__________________________________
Elliot S. Pearlman
ELLIOT S. PEARLMAN LIVING TRUST
DATED AUGUST 7, 1992
By:_______________________________
Elliot S. Pearlman, Trustee
ELLIOT S. PEARLMAN LIVING TRUST DATED
JULY 2, 1996
By:_______________________________
Elliot S. Pearlman, Trustee
__________________________________
Stephen C. Sykes
__________________________________
Vance K. Maultsby, Jr.
<PAGE>
5
CDRCO NW LLC
By:_______________________________
A. Joseph Cruz
By:_______________________________
Philip M. Freeman
__________________________________
Casey A. Fletcher
__________________________________
Howe Q. Wallace
__________________________________
Fraser Campbell
__________________________________
Steve Fraser
__________________________________
Dan Helmick
__________________________________
Jon Stein
<PAGE>
Exhibit 10.2
FORM OF
WAIVER
THIS WAIVER is made and entered into as of the ___ day of _______, 2000 by
[insert name of employee] (the "Employee") and IFCO Systems N.V., a public
limited liability company organized under the laws of the Netherlands ("IFCO
Systems").
W I T N E S S E T H
-------------------
WHEREAS, ___________________ (the "Employer") and the Employee entered into
that certain Employment Agreement, dated __________, 199_ (the "Employment
Agreement");
WHEREAS, the Employment Agreement contemplates that, upon a Change of
Control as (defined in the Employment Agreement), the Employee has the right to
terminate the Employment Agreement and receive severance compensation in an
amount equal to two or three times, depending on the satisfaction of certain
conditions, the Employee's base salary for the greater of 12 months or the
remaining term of employment under the Employment Agreement (the "Termination
Provision");
WHEREAS, IFCO Systems, IFCO Europe Beteiligungs GmbH, a limited liability
company organized under the laws of the Federal Republic of Germany ("IFCO
Europe"), MTS Okologistik Verwaltungs GmbH, a limited liability company
organized under the laws of the Federal Republic of Germany ("MTS"), Schoeller
International Logistic Beteiligungsgesellschaft mbH), a limited liability
company organized under the laws of the Federal Republic of Germany ("IFCO
International"), Schoeller Logistic Industries GmbH (formerly known as Schoeller
Packaging Systems GmbH), a limited liability company organized under the laws of
the Federal Republic of Germany ("Schoeller Industries"), Silver Oak Acquisition
Corp., a corporation organized under the laws of the State of Delaware ("Silver
Oak"), and PalEx, Inc., a corporation organized under the laws of the State of
Delaware ("PalEx"), have entered into an Amended and Restated Agreement and Plan
of Reorganization, dated as of October 6, 1999 and effective as of March 29,
1999 (the "Merger Agreement");
WHEREAS, the consummation of the transactions contemplated in the Merger
Agreement will constitute a Change of Control (as defined in the Employment
Agreement) and give rise to the Termination Provision;
WHEREAS, pursuant to the Merger Agreement, PalEx has agreed to use its
reasonable efforts to obtain waivers of any such Termination Provisions and
obtaining such waivers is condition to the obligations of IFCO Systems,
Schoeller Industries and Silver Oak to consummate the transactions contemplated
in the Merger Agreement; and
WHEREAS, the Employee desires to waive the Termination Provision.
<PAGE>
2
NOW, THEREFORE, in consideration of the promises contained herein, the
undersigned Employee and IFCO Systems hereby agree as follows:
1. Waiver. Pursuant to Section 9.7(e) of the Merger Agreement, the
------
undersigned Employee hereby waives the Termination Provision in connection with
and effective upon the consummation of the transactions contemplated in the
Merger Agreement.
2. Continuation of Employment Agreement. Except as otherwise
------------------------------------
modified by this Waiver, IFCO Systems agrees to cause the Employer, as a direct
or indirect wholly owned subsidiary of IFCO Systems after consummation of the
transactions contemplated in the Merger Agreement, to otherwise continue the
Employment Agreement in full force and effect pursuant to the terms thereof.
3. Successor and Assigns. This Waiver shall be binding upon the
---------------------
undersigned and each of his or her respective heirs and assigns.
4. Governing Law. This Waiver shall be governed by the laws of
-------------
the State of Delaware.
IN WITNESS WHEREOF, the undersigned have executed this Waiver as of the day
and year first above written.
[NAME OF EMPLOYEE]
By:__________________________
[name of Employee]
IFCO SYSTEMS N.V.
By:__________________________
Name
Title:
<PAGE>
EXHIBIT 10.3
CONFORMED COPY
SENIOR FACILITY AGREEMENT
between
IFCO INTERNATIONAL FOOD CONTAINER ORGANISATION GmbH
as Borrower
and
IFCO EUROPE BETEILIGUNGS-GmbH
as IFCO Europe
BARCLAYS CAPITAL
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK
and
BHF BANK AKTIENGESELLSCHAFT
as Joint Arrangers
BARCLAYS BANK PLC
BHF BANK AKTIENGESELLSCHAFT
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK
CREDITANSTALT AG
DEUTSCHE BANK AKTIENGESELLSCHAFT, Munich Branch
NORDDEUTSCHE HYPOTHEKEN-UND WECHSELBANK AG
and
OLDENBURGISCHE LANDESBANK AG
as Co-Arrangers
BHF BANK AKTIENGESELLSCHAFT
as Agent and Security Trustee
Clifford Chance
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Clause Page No.
Part 1
INTERPRETATION
<S> <C>
1. Interpretation..................................................... 1
Part 2
THE FACILITIES
2. The Facilities..................................................... 26
3. Purpose............................................................ 26
4. Conditions Precedent............................................... 26
5. Nature of Banks' Rights and Obligations............................ 26
Part 3
UTILISATION OF THE FACILITIES
6. Utilisation of the Term Facility................................... 28
7. Utilisation of the Revolving Facility.............................. 29
8. Bank Guarantees.................................................... 30
9. Indemnity Relating to Bank Guarantees Issued by the Fronting Bank.. 32
10. Indemnity Relating to Bank Guarantees issued by the Agent on behalf
of the Revolving Banks............................................. 36
11. Guarantee Commission and Fees...................................... 36
Part 4
INTEREST
12. Interest Periods (Term Advances)................................... 38
13. Interest Rate and Payment.......................................... 39
14. Market Disruption (Term Advances).................................. 40
15. Market Disruption (Cash Advances).................................. 41
Part 5
REPAYMENT, PREPAYMENT AND CANCELLATION
16. Repayment of Term Loan and Cash Advances........................... 43
17. Prepayment......................................................... 43
18. Reductions in Revolving Commitments................................ 45
19. Cancellation....................................................... 46
Part 6
CHANGES IN CIRCUMSTANCES
20. Taxes.............................................................. 47
21. Tax Credits........................................................ 48
22. Tax Receipts....................................................... 48
23. Increased Costs.................................................... 48
24. Illegality......................................................... 50
25. Mitigation......................................................... 51
Part 7
REPRESENTATIONS, COVENANTS AND EVENTS OF DEFAULT
26. Representations.................................................... 52
27. Financial Information.............................................. 56
28. Financial Condition................................................ 60
29. Covenants.......................................................... 70
30. Events of Default.................................................. 78
Part 8
DEFAULT INTEREST AND INDEMNITY
31. Default Interest and Indemnity.................................... 83
Part 9
PAYMENTS
32. Currency of Account and Payment.................................... 85
33. Payments........................................................... 85
34. Set-Off............................................................ 86
35. Redistribution of Payments......................................... 86
</TABLE>
<PAGE>
Part 10
FEES, COSTS AND EXPENSES
<TABLE>
<S> <C>
36. Fees...................................................... 88
37. Costs and Expenses........................................ 88
Part 11
AGENCY PROVISIONS
38. The Agent, the Arrangers and the Banks.................... 90
Part 12
ASSIGNMENTS AND TRANSFERS
39. Benefit of Agreement...................................... 95
40. Assignments and Transfers by the Borrower................. 95
41. Assignments and Transfers by Banks........................ 95
42. Disclosure and Syndication................................ 96
Part 13
MISCELLANEOUS
43. Calculations and Evidence of Debt......................... 98
44. Remedies, Waivers, Amendments and Consents................ 98
45. Partial Invalidity........................................ 99
46. Notices................................................... 100
47. European Monetary Union................................... 100
48. Intercreditor and Security Trust Agreement
Acknowledgements and Undertakings......................... 101
Part 14
LAW AND JURISDICTION
49. Law....................................................... 103
50. Jurisdiction.............................................. 103
</TABLE>
<PAGE>
<TABLE>
<S> <C>
THE FIRST SCHEDULE
The Banks and their Commitments................................................ 104
THE SECOND SCHEDULE
Form of Transfer Certificate................................................... 105
THE THIRD SCHEDULE
Conditions Precedent........................................................... 108
THE FOURTH SCHEDULE
Notice of Drawdown of Term Advances/Revolving Advances/Bank
Guarantees................................................................ 113
THE FIFTH SCHEDULE
Terms of Indemnity in relation to Bank Guarantees.............................. 114
THE SIXTH SCHEDULE
PART I
Form of Bank Guarantee to be issued by the Fronting Bank....................... 117
PART II
Bank Guarantee to be issued by the Agent on behalf of the Banks................ 118
THE SEVENTH SCHEDULE
Group Structure Chart.......................................................... 121
THE EIGHTH SCHEDULE
Existing Indebtedness.......................................................... 122
THE NINTH SCHEDULE
Material Intellectual Property................................................. 123
</TABLE>
<PAGE>
THIS AGREEMENT is made the 20 day of February 1998
BETWEEN
(1) IFCO INTERNATIONAL FOOD CONTAINER ORGANISATION GmbH as borrower (the
"Borrower");
(2) IFCO EUROPE BETEILIGUNGS-GmbH ("IFCO Europe");
(3) BARCLAYS CAPITAL, DG BANK DEUTSCHE GENOSSENSCHAFTSBANK and BHF BANK
AKTIENGESELLSCHAFT as joint arrangers of the Facilities (the "Joint
Arrangers");
(4) BARCLAYS BANK PLC, BHF BANK AKTIENGESELLSCHAFT, DG BANK DEUTSCHE
GENOSSENSCHAFTSBANK, CREDITANSTALT AG, DEUTSCHE BANK AKTIENGESELLSCHAFT,
Munich Branch, NORDDEUTSCHE HYPOTHEKEN-UND WECHSELBANK AG and
OLDENBURGISCHE LANDESBANK AG as co-arrangers (together with the Joint
Arrangers, the "Arrangers");
(5) BHF BANK AKTIENGESELLSCHAFT as security trustee for the Beneficiaries (the
"Security Trustee");
(5) BHF BANK AKTIENGESELLSCHAFT as agent for the Banks (the "Agent");
(6) THE FINANCIAL INSTITUTIONS named in Part I of the First Schedule (the "Term
Banks"); and
(7) THE FINANCIAL INSTITUTIONS named in Part II of the First Schedule (the
"Revolving Banks").
NOW IT IS HEREBY AGREED as follows:
Part 1
INTERPRETATION
1. Interpretation
1.1 In this Agreement:
"Accountant's Report" means the report of C&L Deutsche Revision dated 10 October
1997 with a reliance letter in favour of the Security Trustee as security
trustee for the Beneficiaries from time to time;
"Accounting Principles" means accounting principles generally accepted in the
Relevant Jurisdiction in effect from time to time and consistently applied
Provided that, in respect of any consolidated financial statements of the Group,
"Accounting Principles" means
<PAGE>
accounting principles generally accepted in Germany from time to time and
consistently applied;
"Accounting Reference Period" means, in respect of any Group Entity, the
financial year or other period in respect of which the audited accounts of such
Group Entity are drawn up;
"Adjusted EBITDA" shall have the meaning ascribed to it in Clause 28.5;
"Advance" means, save as otherwise provided herein, an advance made or to be
made by the Banks hereunder;
"Apollo" means Apollo Verwaltungsgesellschaft mbH & Co.;
"Applicable Fronting Bank Rate" means in relation to a Bank Guarantee:
(i) where the original duration of such Bank Guarantee is equal to or less
than one year, nought point two per cent. (0.2%) per annum;
(ii) where the original duration of such Bank Guarantee is greater than one
year but less than four years, nought point two five per cent. (0.25%) per
annum; and
(iii) where the original duration of such Bank Guarantee is equal to or greater
than four years, nought point three per cent. (0.3%) per annum.
"Auditors" means any of Coopers & Lybrand, Price Waterhouse, Arthur Andersen,
KPMG, Ernst & Young or such other firm of auditors of international repute
approved in writing by the Agent (such approval not to be unreasonably withheld
or delayed) and being the auditors for the time being of all Group Entities;
"Authorised Signatory" in relation to either the Borrower or IFCO Europe and any
communication to be made, or any document to be executed or certified, by it,
means, at any time, any person:
(i) who is duly authorised at such time, in such manner as may be
reasonably acceptable to the Agent, to make such communication, or to
execute or certify such document on its behalf; and
(ii) in respect of whom the Agent has received a certificate signed by a
director or other authorised officer of it, or by another of its
Authorised Signatories, setting out the name and, where such person
is authorised to execute or certify documents, signature of such
person and confirming such person's authority to act as aforesaid;
"Available Revolving Facility" means, at any time, the aggregate from time to
time of the Revolving Available Commitments of the Revolving Banks at such time,
adjusted for the purposes of Clauses 7.1(iv), 7.1(v) and 7.1(vi) and a proposed
Revolving Advance only, so as to take into account any reduction in the
Revolving Commitment of a Revolving Bank which will occur prior to the
commencement of or during the Term relating to such proposed Revolving
<PAGE>
Advance consequent upon a cancellation of the whole or any part of the relevant
Revolving Commitment of such Revolving Bank pursuant to the terms hereof;
"Available Term Facility" means, at any time, the aggregate amount of the Term
Available Commitments of the Term Banks at such time;
"Banks" means the Term Banks, the Fronting Bank, the Revolving Banks and the
Hedging Counterparty and "Bank" means any of them (and, for the avoidance of
doubt, defining any person as a "Bank" does not imply that such person is a bank
for regulatory purposes);
"Bank Guarantee" means a bank guarantee (Garantie or Burgschaft) issued or to be
issued by the Agent on behalf of the Revolving Banks or by the Fronting Bank
pursuant to the terms and subject to the conditions hereof substantially in the
relevant form set out in the Sixth Schedule or in such other form as may be
requested by the Borrower and which is acceptable to the Fronting Bank (where
applicable), the Revolving Banks and the Agent;
"Bardusch" means Helmut Bardusch GmbH & Co.;
"Bardusch Loan" means a loan from Bardusch to the Borrower dated 30 September
1997 in an amount of DM3,438,028.60;
"Beneficiaries" means the Agent, the Arrangers, the Banks, each Hedge
Counterparty and the Security Trustee, and "Beneficiary" means any of them;
"Budget" means the consolidated budget of the Group for a financial year
delivered by the Borrower to the Agent pursuant to Clause 27.2;
"Business" means the business carried on by the Group at the date hereof;
"Business Plan" means the medium term profit and loss forecast for the Group
provided to the Banks in relation to the proposed Facilities and the financial
model initialled by the Agent and the Borrower and designated by the Agent and
the Borrower as "the Business Plan";
"Capital Expenditure" shall have the meaning ascribed thereto in Clause 28.5;
"Cash Advance" means a Revolving Advance made by way of cash advance (as from
time to time reduced by payment or prepayment);
"Cash Flow" shall have the meaning ascribed thereto in Clause 28.5;
"Commission Payment Date" means each date upon which guarantee commission is
payable pursuant to the terms of Clause 11.3;
"Commitment" means, in relation to any Bank, the aggregate amount of such Bank's
Term Commitment and such Bank's Revolving Commitment;
"Confidentiality Undertaking" means a confidentiality undertaking substantially
in the standard form from time to time of the LMA or in such other form as may
be agreed between
<PAGE>
the Borrower and the Agent;
"Contribution Contract" means the contribution contract dated 4 November/5
November 1997 between Schoeller Packaging Systems GmbH and IFCO Europe as set
out in the Seventh Schedule to the Investment Agreement;
"Current Assets" shall have the meaning ascribed thereto in Clause 28.5;
"Dangerous Substance" means any radioactive emissions and any solid, liquid or
gaseous matter which is dangerous or toxic to living things or which damages the
environment;
"Disclosure Letter" means the letter from the Borrower to the Agent dated the
date hereof in the agreed form;
"Drawdown Date" means, in relation to any Advance, the proposed date for the
making of such Advance or, in relation to any Bank Guarantee, the proposed date
for the issue of such Bank Guarantee;
"Duly Authorised Officer" means, in relation to any certification to be given by
or on behalf of either the Borrower or IFCO Europe, its Authorised Signatory
whose office and identity has been notified to the Agent where the Agent is
reasonably satisfied that such person is the appropriate person to give such
certification;
"EBITA" shall have the meaning ascribed thereto in Clause 28.5;
"EBITDA" shall have the meaning ascribed thereto in Clause 28.5;
"Encumbrance" includes any mortgage, charge, pledge, lien, hypothecation or
other encumbrance securing any obligation of any person or any other type of
preferential arrangement (including, without limitation, title transfer and
retention arrangements (other than those entered into in the ordinary course of
trading and liens and retention of title rights created by operation of law or
standard business terms), sale and leaseback, sale and purchase or deferred
purchase arrangements and the discounting or factoring of receivables on
recourse terms) having a similar effect or any other arrangement having
substantially the same economic effect as any of the foregoing;
"Environmental Approvals" means any permit, approval, identification number,
consent, licence or other authorisation required under any applicable
Environmental Laws;
"Environmental Claims" means any and all actions, suits, demands, demand
letters, claims, notices, investigations, proceedings, consent orders or consent
agreements relating in any way to any Environmental Law or any Environmental
Approval (hereafter "Claims"), including without limitation (a) any and all
Claims by governmental or regulatory authorities for enforcement, clean-up,
removal, response, remedial or other actions or damages pursuant to any
applicable Environmental Law and (b) any and all Claims by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief arising from alleged injury or threat to health, safety or the
environment;
<PAGE>
"Environmental Laws" means all laws and regulations compliance with which is
mandatory for any Group Entity in any jurisdiction, relating to waste or
contamination or pollution of air, water (including ground water and underground
water) or soil;
"Environmental Report" means the report of Environmental Resources Management
dated September 1997 with a reliance letter in favour of the Agent as agent for
the Beneficiaries from time to time;
"Event of Default" means any of those events specified in Clause 30.1;
"Excess Cash Flow" means, in respect of any Accounting Reference Period of the
Group ending on and after 31 December 1998, EBITDA for such Accounting Reference
Period adjusted as follows:
(i) deducting taxes paid during the relevant Accounting Reference
Period;
(ii) deducting increases (or adding decreases) in Working Capital over
the relevant Accounting Reference Period;
(iii) deducting Capital Expenditure;
(iv) deducting Total Debt Service;
(v) deducting the actual cash effect of extraordinary charges and
adding the actual cash effect of extraordinary income under the
Accounting Principles during the relevant Account Reference Period;
(vi) deducting the actual cash effect of currency losses and adding the
actual cash effect of currency gains during the relevant Accounting
Reference Period;
(vii) adding the actual cash effect of disposals (deducting any profit
element and/or adding any loss made on) of any asset made during
the relevant Accounting Reference Period permitted hereunder;
(viii) plus any net increase or minus any net decrease in the capital
element of any Permitted External Leasing entered into during such
Accounting Reference Period;
(ix) less the sum of (a) DM5,000,000 after deducting (b) the amount of
any taxes which are payable by any member of the Group in respect
of the Investment and in respect of any potential tax liabilities
identified in the Tax Report and which are not indemnified by SPS
pursuant to the Investment Agreement,
(without any double counting) each as determined by reference to the
relevant audited consolidated financial statements of the Group delivered
pursuant to the provisions of Clause 27.1;
"Existing Crates" means crates which are in existence at the date hereof and
which are the
<PAGE>
subject of the Leasing Facilities or which are manufactured after the date
hereof but for the sole purpose of replacing broken crates which are in
existence at the date hereof and which are the subject of Leasing Facilities and
which are otherwise dealt with in accordance with the terms of the Facility
Documents;
"Existing Indebtedness" means the Pool Indebtedness, the SPS Shareholder Loan,
the Bardusch Loan, the Hannover Finanz Loan, the Schroder Loan and the
indebtedness under the Leasing Facilities;
"External Finance Lease" means any Finance Lease where the lessor is not a
member of the Group;
"Facilities" means the Term Facility, the Tranche A Revolving Facility and the
Tranche B Revolving Facility and "Facility" shall mean any one of them;
"Facility Documents" means this Agreement, the Intercreditor Agreement, each
Bank Guarantee the Senior Security Documents, the Security Trust Agreement, the
Hedging Agreements, the fee letters referred to in Clauses 36.2 and 36.3, any
documents evidencing the terms of any other agreement or document that may be
entered into or executed pursuant to or in connection with any of the foregoing
by the Borrower or IFCO Europe or any of them or entered into by any person
creating or evidencing security for the obligations of the Borrower hereunder
whether by way of personal covenant, charge, security interest, mortgage,
pledge, or otherwise or regulating the priorities of such security, and any
other agreement or document designated in writing as a "Facility Document" by
the Borrower and the Agent;
"Facility Office" means, in relation to the Agent or any Bank, the office
identified with its signature below (or, in the case of a Transferee, at the end
of the Transfer Certificate to which it is a party as Transferee) or such other
office as it may from time to time select;
"FIBOR" means, in relation to any Advance or unpaid sum and any specified
period, the rate per annum determined by the Agent to be equal to either:
(i) the offered rate appearing on the relevant page (being currently page
"22000") of the Telerate screen which displays interest rates for the
currency in which such Advance or unpaid sum is denominated (or, if such
page or such service shall cease to be available, such other page or such
other service (as the case may be) for the purpose of displaying interest
rates for such currency as the Agent, after consultation with the Banks and
the Borrower, shall select) and for such specified period at or about 11.00
a.m. on the Quotation Date for such specified period; or
(ii) if the Agent is unable to access the Telerate Screen or if no such display
rate is then available for such currency or such specified period and, at
such time, the Agent has not selected any alternative service as
contemplated in (i) above, the arithmetic mean (rounded upwards, if
necessary, to four decimal places) of the rates (as notified to the Agent)
at which each of the Reference Banks was offering to prime banks in the
Frankfurt Interbank Market deposits in the currency in which such Advance
or unpaid sum is denominated and for such specified period at or about
11.00 a.m. on the Quotation Date for such specified period,
<PAGE>
and, for the purposes of this definition, "specified period" means the Interest
Period or Term for such Advance or, as the case may be, the relevant period in
respect of which FIBOR falls to be determined in relation to such unpaid sum;
"Final Maturity Date" means 30 September 2004 provided that if such day is not a
business day the Final Maturity Date shall be the immediately preceding business
day;
"Finance Lease" means a contract between a lessor and a lessee for lease or hire
of a specific asset in respect of the financing of crates and/or plant and
equipment;
"Financial Indebtedness" means in relation to any Group Entity at any time any
indebtedness incurred in respect of:
(i) the principal amount, and the capitalised element (if any), of money
borrowed or raised and debit balances at banks and premiums if any
and capitalised interest in respect thereof;
(ii) the principal and premiums (if any) and capitalised interest in
respect of any debenture, bond, note, loan stock or similar
instrument;
(iii) liabilities (including pursuant to counter-indemnities and
reimbursement obligations) in respect of any letter of credit,
standby letter of credit securing Financial Indebtedness arising
under this definition, acceptance credit, bill discounting or note
purchase facility and any receivables purchase, factoring or
discounting arrangements (to the extent that such arrangement is
with recourse to any Group Entity);
(iv) the capital value of any Finance Lease;
(v) the deferred purchase price of assets or services (except any such
arrangement entered into in the ordinary course of trading and
having a term not exceeding 180 days from the date on which the
liability was originally incurred);
(vi) liabilities in respect of any foreign exchange agreement (other than
foreign exchange agreements for spot delivery), currency or interest
purchase or swap or other derivative transactions or similar
arrangements (and the amount of the Financial Indebtedness in
relation to any such transaction shall be calculated by reference to
the mark-to-market valuation of such transaction at the relevant
time);
(vii) all obligations to purchase, redeem, retire, defease or otherwise
acquire for value any share capital of any person or any warrants,
rights or options to acquire such share capital in respect of
transactions which have the commercial effect of borrowing or which
otherwise finance its or the Group's operations or capital
requirements;
<PAGE>
(viii) any other transactions having the commercial effect of borrowing
entered into by such Group Entity; and
(ix) all Financial Indebtedness of other persons of the kinds referred to
in paragraphs (i) to (viii) above guaranteed or indemnified directly
or indirectly in any manner by such Group Entity, or having the
commercial effect of being guaranteed or indemnified directly or
indirectly by such Group Entity;
"Financial Quarter" shall have the meaning ascribed thereto in Clause 28.5;
"Financial Statements" shall be deemed to be a reference to the most recent
audited consolidated financial statements of the Group delivered pursuant to
paragraph (i) of Clause 27.1;
"Flotation" means the listing of any shares on any stock exchange or the grant
of permission to deal in any such shares on any recognised exchange;
"Fronting Bank" means BHF Bank Aktiengesellschaft or such alternative Bank as
may have agreed in writing with the Borrower and the Agent to issue any Bank
Guarantee in accordance with the provisions of this Agreement;
"GBL" means GISO Verwaltungsgesellschaft mbH & Co. Behalterleasing KG;
"GE" means General Electric Erste Beteiligungs GmbH, a wholly owned subsidiary
of General Electric Capital Corporation;
"Group" means the Borrower and its subsidiaries from time to time;
"Group Entity" means any member of the Group;
"Growth Capital Expenditure" shall have the meaning ascribed thereto in Clause
28.5;
"Hannover Finanz Loan" means a loan from Hannover Finanz to the Borrower dated 7
November 1995 in an amount of DM5,000,000;
"Hedge Counterparty" means any Bank which is a party to an outstanding Hedging
Agreement with the Borrower from time to time;
"Hedging Agreements" means any agreements entered into from time to time by the
Borrower with a Bank in relation to Permitted Treasury Transactions entered into
as described in the Hedging Strategy Letter;
"Hedging Strategy Letter" means the letter addressed to the Agent from the
Borrower setting out the approved and agreed hedging strategy in agreed terms
(to include interest rate hedging as well as foreign exchange rate hedging);
"Information Memorandum" means the document concerning the Group and the
Investment dated October 1997 prepared by the Borrower in relation to this
transaction and distributed by
<PAGE>
the Arrangers to certain banks or financial institutions during October and
November 1997 as the same may be updated from time to time with the agreement of
the Borrower and further circulated to certain banks or financial institutions
after the date hereof;
"Insurance Report" means the report regarding the insurances of each Group
Entity prepared by Burmester, Duncker & Joly insurance brokers to the Borrower
and addressed to the Agent on behalf of the Beneficiaries dated 14 January 1998
(as the same may be updated on or about the date hereof);
"Instructing Group" means:
(a) whilst no Advances or Bank Guarantees are outstanding hereunder, a
Bank or group of Banks whose aggregate Commitments, calculated on the
date on which the Agent seeks instructions from the Banks, amount (or,
if each Bank's Commitment has been reduced to zero, did immediately
before such reduction to zero, amount) in aggregate to more than sixty
six and two thirds per cent. (66%) of the aggregate of the Total
Commitments;
(b) whilst at least one Advance or Bank Guarantee is outstanding
hereunder, a Bank or group of Banks to whom in aggregate more than
sixty six and two thirds per cent. (66%) of the Outstandings is owed;
"Intellectual Property" means the Material Intellectual Property interests
together with any renewals or redesignations thereof and all other material
intellectual property now or in the future owned by any member of the Group;
"Intercreditor Agreement" means the intercreditor agreement entered into on or
before the date on which the first Advance is made hereunder between, inter alia
the Agent, the Security Trustee, the Hedge Counterparties, the Banks, the Senior
Subordinated Agent and the Senior Subordinated Lenders;
"Interest Period" means, in relation to the Term Advances, any of the periods
determined pursuant to Clauses 12.1 to 12.4 (inclusive);
"Investa" means Investa Projektentwicklungs-und Verwaltungs GmbH;
"Investment" means the investment of DM45,000,000 by way of equity in IFCO
Europe by GE in accordance with the Investment Agreement and the Contribution
Contract;
"Investment Agreement" means the investment agreement (including all schedules
thereto) dated 21/22 August 1997 and amended by amendment agreements dated 15
October 1997 and 4/5 November 1997 between Christoph Schoeller, Schoeller
Packaging Systems GmbH, Andrea Schoeller, Martin Alexander Schoeller, Schoeller
KG, Schoeller Plast Industries GmbH, General Electric Erste Beteiligungs GmbH
and GE Capital Corporation;
"IT Schedule" means a schedule setting out the planned timetable for the
installation of an information technology system within the Group;
<PAGE>
"Leasing Facilities" means the leasing facilities provided pursuant to
agreements dated 1 October 1995, 5 November 1996, 17 December 1996, 8 August
1997 and 30 September 1997 relating to a maximum aggregate amount of 4,980,770
crates between the Borrower and Bardusch and the leasing facility provided
pursuant to an agreement dated 1 October 1994 between Investa and the Borrower
relating to a maximum amount of 1,005,369 crates;
"Legal Due Diligence Report" means the legal due diligence report in relation to
the Investment prepared by Feddersen Laule Scherzberg & Ohle Hansen Ewerwahn
dated 17 October 1997 addressed to or with a reliance letter in favour of the
Agent for and on behalf of the Beneficiaries from time to time;
"Legal Opinions" means the opinions in the agreed form referred to in part F of
the Third Schedule and delivered on or before the date on which the first
Advance is made hereunder;
"Liabilities" shall have the meaning ascribed thereto in Clause 28.5;
"LMA" means the Loan Market Association;
"Margin" means one point seven five per cent. (1.75%) per annum or such lesser
rate per annum as may be in effect from time to time in accordance with Clause
13.5;
"Market Report" means the report of LEK dated 5 September 1997 with a reliance
letter in favour of the Agent as agent for the Beneficiaries from time to time;
"Material Adverse Effect" shall mean a material adverse effect on the business,
operations, liabilities, assets or condition (financial or otherwise) of any
Material Group Entity or on the ability of either of the Borrower or IFCO Europe
to perform its obligations under any of the Facility Documents;
"Material Group Entity" means the Borrower, IFCO Europe, GBL or any Group
Entity:
(a) having (when consolidated with the earnings before interest and tax or
turnover or gross assets of its subsidiaries) more than five per cent.
(5%) of the earnings before interest and tax or turnover or gross
assets of the Group all as determined by reference to the most latest
audited consolidated accounts of such Group Entity and the Group
Provided that:
(1) in the case of a Group Entity acquired after the end of the
financial period to which the latest relevant audited accounts
relate, the reference to the latest audited accounts for the
purposes of the calculation above shall, until audited accounts
for the financial period in which the acquisition is made are
published, be deemed to be a reference to such first-mentioned
accounts as if such subsidiary had been shown in such accounts by
reference to its own latest audited accounts, adjusted as deemed
appropriate by the Auditors; and
(2) if, in the case of any subsidiary which itself has subsidiaries,
no consolidated accounts are prepared and audited, its earnings
before
<PAGE>
interest and tax or, as the case may be, gross assets shall be
determined on the basis of pro forma consolidated accounts of the
relevant subsidiary and its subsidiaries prepared for this
purpose by the Auditors or the auditors for the time being of the
relevant subsidiary; or
(b) not falling within paragraph (a) above but which, as a result of any
intra-group transfer or re-organisation would, adopting either test
referred to in paragraph (a) above and as if the accounts referred to
in such paragraph had been drawn up immediately following such
transfer or reorganisation, be a Material Group Entity Provided that
such subsidiary shall only become a Material Group Entity upon the
completion of such transfer or reorganisation,
and a report by the Auditors that in their opinion a subsidiary is or is not, or
was or was not, at any particular time or during any particular period a
Material Group Entity shall, in the absence of manifest error, be conclusive and
binding on all parties hereto;
"Material Intellectual Property" means the intellectual property specified in
the Ninth Schedule and any other Intellectual Property which is material to the
Group's business;
"Material Leasing Agreements" means each of the Leasing Facilities and the
leasing agreements between the Borrower and GBL dated 1 January 1995, 31
December 1995, 31 October 1996, 1 January 1997, 1 July 1997 and 1 October 1997,
for an aggregate amount of 41,166,662 crates and any other leasing agreement or
contract entered into by the Borrower or any other Group Entity where the
duration of such agreement or contract is in excess of twelve months and the
capital amount of such leasing facility is in excess of DM1,000,000;
"MTS" means MTS Okologistik Verwaltungs GmbH;
"Net Disposal Proceeds" means the gross total proceeds of disposals, leases or
transfers of the right to receive any revenues or of any assets (including
marketable securities) of any Group Entity (other than disposals which
constitute Permitted Leasing or Permitted Factoring) which (when aggregated with
the proceeds of all other such disposals, leases or transfers by Group Entities)
exceed DM1,500,000 (or its equivalent) in any financial year of the Group less:
(i) out of pocket expenses properly incurred;
(ii) sales of stock and other disposals in the ordinary course of
business;
(iii) the unpaid principal balance on the date of such disposal, lease or
transfer of any Permitted Indebtedness secured by a Permitted
Encumbrance on the asset disposed of, leased or transferred which
must be repaid by the seller on such disposal (together with any
premiums, interests or fees required to be paid in connection
therewith);
(iv) any sale taxes paid or payable by the seller due to such sale; and
(v) any income, capital gains or other taxes incurred and required to be
paid by the seller in connection with such disposal, lease or
transfer as reasonably
<PAGE>
determined in good faith by the seller on the basis of the existing
average tax rates applicable to the gain (if any) and after taking
into account all available credits, deductions and allowances;
"Net Worth" shall have the meaning ascribed thereto in Clause 28.5;
"New Crates" means any crates not owned by any member of the Group at the date
hereof and which have not been used by the Borrower or any other member of the
Group for trading purposes;
"Non-Group Entity" means any person which is not a member of the Group;
"Notice of Drawdown" means a duly completed notice substantially in the form set
out in Part I of the Fourth Schedule;
"Original Financial Statements" means the audited consolidated financial
statements of the Group for its financial year ending 31 December 1996;
"Outstandings" means, at any time, the aggregate of:
(i) the amounts of each outstanding Revolving Advance; and
(ii) the amounts of each outstanding Bank Guarantee (a Bank's share of the
Outstandings in respect of a Bank Guarantee being the amount thereof
allocated to such Bank pursuant to the provisions of Clause 8 as
reduced pursuant to the terms hereof); and
(iii) the amount of the Term Loans at such time;
"Patent" means the Patent relating to a plastic container, especially a
vegetable container with hinged sides (registered at the European Patent Office
under number EP93902215 and with the World Intellectual Property Organisation
under number PCT/EP93/00091);
"Permitted Crate Disposals" means any disposal of New Crates made for the
purposes of sale and leaseback arrangements forming part of any Permitted
Leasing transaction;
"Permitted Disposals" means in any financial year disposals of assets not being
Material Intellectual Property which are:
(i) disposals by a Group Entity in its ordinary course of trade;
(ii) disposals of assets and/or revenues for cash by a Group Entity where
the value of the aggregate net consideration received in respect of
all such disposals by Group Entities does not exceed DM2,500,000 or
its equivalent in any one financial year; or
(iii) disposals which are Permitted Transactions, Permitted Crate
Disposals or made pursuant to Permitted Factoring;
<PAGE>
"Permitted Encumbrances" means:
(i) Encumbrances arising hereunder or under any of the Senior
Subordinated Security Documents or Senior Security Documents;
(ii) any Encumbrance which the Agent, acting on the instructions of an
Instructing Group, has at any time in writing agreed shall be a
Permitted Encumbrance, provided that the amount secured thereby is
not increased in amount or extended in terms of repayment date;
(iii) up to the date falling six months after the date hereof only, any
Encumbrance securing up to a maximum of 3,300,000 Existing Crates
created pursuant to the agreement dated 4 July/12 July 1996 between
the Borrower and Rewe-Zentral AG, Koln, Cologne;
(iv) liens arising by operation of law in the ordinary course of
business and not by reason of default and liens and retention
rights created pursuant to standard business terms (and not by
reason of default);
(v) any Encumbrance created in relation to the netting of Group bank
account balances;
(vi) any retention of title to goods supplied to the relevant Group
Entity where such retention is agreed in the ordinary course of its
trading activities;
(vii) any Encumbrance constituted by a Finance Lease, hire purchase or
conditional sale agreement, where the Financial Indebtedness
arising under such arrangement constitutes Permitted Indebtedness;
or
(viii) any Encumbrance arising under condition 14 of the general business
conditions of German banks with whom any Group Entity maintains a
banking relationship in the ordinary course of business;
"Permitted Expenditure" means, in respect of any financial year of the Group,
(i) capital expenditure made in accordance with the Business Plan; (ii) capital
expenditure financed by way of lease financing falling within paragraph (vi) of
the definition of Permitted Indebtedness (to the extent not already included in
(i) above) and (iii) other capital expenditure in a maximum aggregate amount
equal to 50% of the Excess Cash Flow for the previous financial year (or its
equivalent) (or such greater figure as may be agreed to in writing by an
Instructing Group);
"Permitted External Leasing" means any leasing of crates under External Finance
Leases where the aggregate Financial Indebtedness created thereunder falls
within the provisions of sub-paragraph (vi) of the definition of Permitted
Indebtedness and where the number of Existing Crates leased thereunder does not
exceed (when aggregated with the number of Existing Crates leased under all such
other leasing transactions) 6,000,000;
<PAGE>
"Permitted Factoring" means the non-recourse factoring arrangements between the
Borrower and DG Diskontbank GmbH as the same are in existence at the date hereof
or any other factoring arrangement made by the Borrower with any Bank provided
that the aggregate amount permitted to be outstanding at any relevant time under
all such factoring arrangements does not exceed DM80,000,000 or its equivalent
and in respect of which the Borrower has granted an assignment (in form and
substance satisfactory to the Agent) to the Security Trustee of all of the
Borrower's rights under such factoring agreement;
"Permitted Indebtedness" means:
(i) any Financial Indebtedness arising under the Facility Documents;
(ii) any Financial Indebtedness arising in respect of Senior
Subordinated Debt;
(iii) any Financial Indebtedness arising under Permitted Treasury
Transactions;
(iv) any Financial Indebtedness arising in respect of Permitted
Factoring;
(v) any Financial Indebtedness supported by a Bank Guarantee;
(vi) any Financial Indebtedness arising under or in respect of any
External Finance Lease where the amount of such Financial
Indebtedness when aggregated with the Financial Indebtedness under
or in respect of any other External Finance Lease does not exceed
(subject to the provisions of Clause 18.2), (a) at any time on or
before 1 January 1999, DM60,000,000 (or its equivalent) or (b) at
any time after 1 January 1999, DM75,000,000 (or its equivalent);
(vii) any Financial Indebtedness arising under or pursuant to Permitted
Internal Leasing;
(viii) any Financial Indebtedness arising under any Permitted Loans; and
(ix) any Financial Indebtedness secured by a Permitted Encumbrance
referred to in paragraph (ii) of the definition thereof;
"Permitted Internal Leasing" means any leasing of crates under a Finance Lease
where the Lessor is GBL and the Lessee thereunder is the Borrower and where the
terms of such leasing are substantially the same as the terms of the existing
leases between GBL and the Borrower referred to in the definition of Leasing
Facilities;
"Permitted Leasing" means Permitted External Leasing and Permitted Internal
Leasing;
"Permitted Loan" means:
(i) any loan made by the Borrower to GBL where the purpose of such loan is
to facilitate Permitted Internal Leasing; and
(iv) any loan or other financial accommodation made by the Borrower to any
of its
<PAGE>
employees provided that the amount of such loans to employees, when
aggregated with the amount of loans made by other Group Entities to
their employees, does not exceed DM500,000 (or its equivalent);
"Permitted Transactions" means the payment or declaration of any dividend,
return on capital, repayment of capital contributions or other distributions by
any Group Entity to the Borrower or to any other Group Entity for the purpose of
immediate distribution through other relevant Group Entities to the Borrower;
"Permitted Treasury Transactions" means the following Treasury Transactions:
(i) forward foreign exchange contracts for hedging currency exposures in
the ordinary course of trade; and
(ii) transactions entered into in accordance with the Hedging Strategy
Letter;
"Pool Indebtedness" means the indebtedness created pursuant to (i) agreements
dated 28 July 1995, 26 March/2 April 1997 and 24/30 June 1997 between the
Borrower and DG Bank Deutsche Genossenschaftsbank in an amount of DM32,000,000,
(ii) agreements dated 14 December 1995 and 14 March 1997 between the Borrower
and Deutsche Bank Aktiengesellschaft, Munich Branch in an amount of
DM24,500,000, (iii) an agreement dated 9 August 1995 between the Borrower and
Oldenburgische Landesbank in an amount of DM17,100,000 and (iv) an agreement
dated 20 December 1994 between the Borrower and Norddeutsche Hypotheken-und
Wechselbank AG in an amount of DM17,000,000;
"Portion" means the participation of a Bank under or in respect of a Bank
Guarantee as determined under Clause 7.2;
"Potential Event of Default" means any event which would (but for the passage of
any period of time provided for in Clause 30.1, the giving of notice, the making
of any determination hereunder or any combination thereof) be an Event of
Default;
"Proportion" means, in relation to a Bank at any time, the proportion borne, at
such time, by its Commitment to the Total Commitments (or, if all the Total
Commitments are then zero, by its Commitment to the Total Commitments
immediately prior to their reduction to zero);
"Qualifying Bank" means any bank or other financial institution in respect of
which the Borrower will not be obliged to make any withholding or deduction on
account of tax from payments of interest made to such bank under German law at
the date hereof (or, in the case of a Transferee, the date of the relevant
Transfer Certificate);
"Quarter Date" means each of 31 March, 30 June, 30 September and 31 December;
"Quotation Date" means, in relation to any period for which an interest rate is
to be determined hereunder, the day on which quotations would ordinarily be
given by prime banks in the Frankfurt Interbank Market for deposits in the
currency in relation to which such rate is to be determined for delivery on the
first day of that period Provided that, if for any such period quotations would
ordinarily be given by prime banks in the Frankfurt Interbank
<PAGE>
Market for deposits in such currency on more than one date, the Quotation Date
for that period shall be the last of those dates;
"Reference Banks" means the principal Frankfurt offices of BHF Bank
Aktiengesellschaft, Barclays Bank PLC and DG Deutsche Genossenschaftsbank or
such other bank or banks as may from time to time be agreed between the Borrower
and the Agent (acting on the instructions of an Instructing Group);
"Relevant Jurisdictions" means, in respect of any person, the jurisdiction of
the country in which such person is incorporated and, if different, where it is
resident or has its principal place of business, and each jurisdiction or state
in which it owns or leases property or otherwise conducts its business;
"Relevant Laws" means, in respect of any person, the laws of its Relevant
Jurisdictions;
"Relevant Period" shall, save as otherwise provided herein, have the meaning
ascribed thereto in Clause 28.5;
"Relevant Ratio" shall have the meaning ascribed thereto in Clause 13.4;
"Relevant Reduction" shall have the meaning ascribed thereto in Clause 13.4;
"Relevant Taxes" means, in relation to any payment which falls to be made by the
Borrower any present or future Taxes of any nature (other than Taxes imposed on
or measured by net income) now or hereafter imposed by the laws of (a) its
Relevant Jurisdictions, (b) any other jurisdiction from which, or through which,
such payment is made or any country to whose taxation laws the Borrower is at
the time of such payment subject, (c) any political sub-division of one or more
of its Relevant Jurisdictions or any other such jurisdictions or (d) any
federation or association of which one or more of its Relevant Jurisdictions or
any other such jurisdiction is or are, at the time of such payment, a member or
members;
"Repayment Date" means, in relation to any Cash Advance, the last day of the
Term thereof;
"Replacement Capital Expenditure" shall have the meaning ascribed thereto in
Clause 28.5;
"Reports" means the Accountant's Report, the Legal Due Diligence Report, the
Environmental Report, the Tax Report, the Insurance Report and the Market
Report;
"Reservations" means the principle that equitable remedies are remedies which
may be granted or refused at the discretion of the court, the limitation of
enforcement by laws relating to bankruptcy, insolvency, liquidation,
reorganisation, court schemes, moratoria, administration and other laws
generally affecting the rights of creditors, the time barring of claims under
any applicable limitation acts, the possibility that a court may strike out
provisions of a contract as being invalid for reasons of oppression, undue
influence or similar reasons and any other reservations or qualifications of law
(but not of fact) expressed in any of the Legal Opinions;
"Revolving Advance" means, save as otherwise provided herein, a Tranche A Cash
Advance
<PAGE>
or a Tranche B Cash Advance made or to be made and any Bank Guarantee issued or
to be issued under the Revolving Facilities;
"Revolving Available Commitment" means, in relation to a Revolving Bank at any
time and save as otherwise provided herein, such Bank's Tranche A Revolving
Commitment and Tranche B Revolving Commitment at such time less the aggregate of
its portions of the Tranche A Revolving Advances and Tranche B Revolving
Advances which are then outstanding Provided that such amount shall not be less
than zero;
"Revolving Commitment" means, in relation to a Revolving Bank at any time and
save as otherwise provided herein, the aggregate of such Bank's Tranche A
Revolving Commitment and Tranche B Revolving Commitment;
"Revolving Facility" means each of the Tranche A Revolving Facility and the
Tranche B Revolving Facility and "Revolving Facilities" means both of them;
"Rolling Basis" shall have the meaning ascribed thereto in Clause 28.5;
"Schroder Loan" means the loan from Schroder, Munchmeyer, Hengst & Co made
pursuant to an agreement dated 1/10 December 1993 to the Borrower in an amount
of DM1,000,000;
"Secured Obligations" in relation to any Senior Security Document has the
meaning ascribed thereto in that Senior Security Document;
"Security Trust Agreement" means the security trust agreement entered into on or
about the date hereof between, amongst others, the Borrower, the Beneficiaries,
the Security Trustee, the Agent, the Senior Subordinated Agent and the Senior
Subordinated Lenders;
"Senior Interest Expense" shall have the meaning ascribed thereto in Clause
28.5;
"Senior Security Documents" means the documents, in the agreed form, listed in
paragraphs E1 and E2 of the Third Schedule together with any other document
entered into by any person creating or evidencing security for all or any part
of the obligations of the Borrower under any of the Facility Documents whether
by way of personal covenant, charge, security interest, mortgage, pledge or
otherwise;
"Senior Subordinated Agent" means the agent under the Senior Subordinated
Facility Agreement or any refinancing thereof;
"Senior Subordinated Debt" means at any time all amounts outstanding under the
Senior Subordinated Facility Agreement at such time;
"Senior Subordinated Facility" means the term loan facility in an amount of
DM35,000,000 or any refinancing thereof made available to the Borrower by the
Senior Subordinated Lenders;
"Senior Subordinated Facility Agreement" means the agreement dated on or about
the date hereof pursuant to which the Senior Subordinated Facility is made
available to the Borrower or any refinancing thereof;
<PAGE>
"Senior Subordinated Facility Documents" means the Senior Subordinated Facility
Agreement and any other agreement or document that may be entered into or
executed pursuant thereto or in connection therewith or any refinancing thereof;
"Senior Subordinated Lenders" means Barclays Bank PLC and any bank becoming a
party to the Senior Subordinated Facility Agreement pursuant to the provisions
thereof or any lenders providing the refinancing thereof;
"Senior Subordinated Loan" means at any time the amount outstanding in respect
of principal under the Senior Subordinated Facility Agreement at such time;
"Senior Subordinated Security Documents" has the meaning ascribed to that term
in the Senior Subordinated Facility Agreement;
"SPI" means Schoeller Plast Industries GmbH;
"SPS" means Schoeller Packaging Systems Europe GmbH;
"SPS Shareholder Loan" means a loan from SPS to the Borrower made pursuant to an
agreement dated 21 November 1996 in an amount of DM37,500,000;
"Supply Agreement" means the supply agreement dated 4/5 November 1997 between
the Borrower and Schoeller Plast Industries GmbH together with the supplemental
agreements thereto dated 3 February 1998 and 11 February 1998 and any other
agreement which may, from time to time and with the approval of the Agent
(acting on the instructions of an Instructing Group) replace such agreement;
"Syndication" means the first transfer or assignment of rights, benefits and
obligations pursuant to Clause 41.1 by the Banks set out in the First Schedule;
"Tax Report" means the report of Arthur Andersen dated 18 September 1997
addressed to General Electric Capital Corporation entitled "Project Pineapple
Tax Due Diligence (Final Report)" together with confirmation that calculations
in relation to the VAT tax treatment are correctly integrated in the Business
Plan;
"Taxes" includes all present and future income and other taxes, levies,
assessments, imposts, deductions, charges, compulsory loans and withholdings
whatsoever together with interest thereon, additions to tax and penalties and
surcharges and fines with respect thereto, if any, and any payments made on or
in respect thereof and "Tax" and "Taxation" shall be construed accordingly;
"Term" means, save as otherwise provided herein, in relation to any Cash
Advance, the period for which such Cash Advance is borrowed as specified by the
Borrower in the Notice of Drawdown relating thereto and, in relation to any Bank
Guarantee, the period from the date on which such Bank Guarantee is issued until
its expiry date (as specified in the Notice of Drawdown relating thereto);
<PAGE>
"Term Advance" means, save as otherwise provided herein, the advance made or to
be made by the Term Banks under the Term Facility;
"Term Available Commitment" means, in relation to a Term Bank at any time and
save as otherwise provided herein, such Bank's Term Commitment at such time less
the aggregate of its portion of the Term Loan at such time;
"Term Commitment" means, in relation to any Term Bank at any time and save as
otherwise provided herein, the amount set opposite its name under the heading
"Term Commitment" in Part I of the First Schedule;
"Term Facility" means the term loan facility granted by the Term Banks to the
Borrower pursuant to Clause 2.1;
"Term Loan" means the aggregate amount of the Term Advances for the time being
outstanding under the Term Facility;
"Term Repayment Dates" means each 31 March and 30 September falling on or during
the period between the date upon which the first Term Advance is made hereunder
and the Final Maturity Date and "Term Repayment Date" means any of them
provided that if any such day is not a business day, such Term Repayment Date
shall be the immediately preceding business day;
"Termination Date" means 28 February 1998;
"Total Debt" shall have the meaning ascribed thereto in Clause 28.5;
"Total Commitments" means the aggregate for the time being of the Banks'
Commitments;
"Total Fixed Charges" shall have the meaning ascribed thereto in Clause 28.5;
"Total Interest Expense" shall have the meaning ascribed thereto in Clause 28.5;
"Total Loan" means the aggregate of the Term Loan and the Revolving Facility
Outstandings;
"Total Revolving Commitment" means the aggregate of each Bank's Revolving
Commitment;
"Total Tranche A Revolving Commitment" means the aggregate for the time being of
the Revolving Banks' Tranche A Commitments;
"Tranche A Available Revolving Facility" means, at any time, the aggregate at
such time of the Tranche A Revolving Available Commitments of the Revolving
Banks at such time adjusted, for the purposes of Clause 8.1(iv) and a proposed
Tranche A Revolving Advance only, so as to take into account any reduction in
the Tranche A Revolving Commitment of a Revolving Bank which will occur prior to
the commencement of or during the Term relating to such proposed Tranche A
Revolving Advance consequent upon a cancellation of the whole or any part of the
Tranche A Revolving Commitment of such Revolving Bank pursuant to the terms
hereof;
<PAGE>
"Tranche A Cash Advance" means an advance made by way of cash advance under the
Tranche A Revolving Facility;
"Tranche A Revolving Advance" means, save as otherwise provided herein, an
advance made or to be made by the Revolving Banks under the Tranche A Revolving
Facility;
"Tranche A Revolving Available Commitment" means the aggregate of, in relation
to a Revolving Bank at any time and save as otherwise provided herein, such
Bank's Tranche A Revolving Commitment at such time less the aggregate of its
portion of the Tranche A Revolving Outstandings at such time;
"Tranche A Proportion" means, in relation to a Revolving Bank, at any time, the
proportion borne at such time, by its Tranche A Revolving Commitment to the
Total Tranche A Revolving Commitment (or, if the Total Tranche A Revolving
Commitment is then zero, by its Tranche A Revolving Commitment to the Total
Tranche A Revolving Commitment immediately prior to its reduction to zero);
"Tranche A Revolving Commitment" means, in relation to a Revolving Bank at any
time and save as otherwise provided herein, the amount opposite its name under
the heading "Tranche A Revolving Commitment" in Part II of the First Schedule;
"Tranche A Revolving Facility" means the revolving loan facility granted to the
Borrower by the Revolving Banks pursuant to Clause 2.2;
"Tranche A Revolving Facility Outstandings" means the aggregate Outstandings for
the time being under the Tranche A Revolving Facility;
"Tranche B Available Revolving Facility" means, at any time, the aggregate at
such time of the Tranche B Revolving Available Commitments of the Revolving
Banks adjusted, for the purposes of Clauses 7.1(v) and (vi) and a proposed
Tranche B Revolving Advance only, so as to take into account any reduction in
the Tranche B Revolving Commitment of a Revolving Bank which will occur prior to
the commencement of or during the Term relating to such proposed Trance B
Revolving Advance consequent upon a cancellation of the whole or any part of the
Tranche B Revolving Commitment of such Revolving Bank pursuant to the terms
hereof;
"Tranche B Cash Advance" means an advance made by way of cash advance under the
Tranche B Revolving Facility;
"Tranche B Revolving Advance" means, save as otherwise provided herein, an
advance made or to be made by the Revolving Banks under the Tranche B Revolving
Facility;
"Tranche B Revolving Available Commitment" means the aggregate of, in relation
to a Revolving Bank at any time and save as otherwise provided herein, such
Bank's Tranche B Revolving Commitment at such time less the aggregate of its
portion of the Tranche B Revolving Facility Outstandings at such time;
<PAGE>
"Tranche B Revolving Commitment" means, in relation to a Revolving Bank at any
time and save as otherwise provided herein, the amount opposite its name under
the heading "Tranche B Revolving Commitment" in Part II of the First Schedule;
"Tranche B Revolving Facility" means the revolving loan and guarantee facility
granted to the Borrower by the Revolving Banks pursuant to Clause 2.3;
"Tranche B Revolving Facility Outstandings" means the aggregate Outstandings for
the time being under the Tranche B Revolving Facility;
"Transaction Costs" means all up-front fees, out-of-pocket costs and expenses,
stamp and registration Taxes or the equivalent in any jurisdiction incurred by
IFCO Europe or any Group Entity in connection with the Investment, the
Facilities, the Senior Subordinated Facility or the transactions entered into in
accordance with the Hedging Strategy Letter;
"Transfer Certificate" means a certificate substantially in the form set out in
the Second Schedule (with such amendments as may be approved by the Agent)
signed by a Bank and a Transferee whereby:
(i) such Bank seeks to transfer to such Transferee all or a part of such
Bank's rights and obligations under the Facility Documents upon and
subject to the terms and conditions set out in Clause 41; and
(ii) such Transferee undertakes to perform the obligations it will assume
as a result of delivery of such certificate to the Agent as is
contemplated in Clause 41.3;
"Transfer Date" means, in relation to any Transfer Certificate, the date for the
making of the transfer as specified in the schedule to such Transfer
Certificate;
"Transferee" means a person to which a Bank seeks to assign all or part of such
Bank's rights and by which all or part of such Bank's obligations hereunder are
assumed;
"Treasury Transaction" means any currency or interest purchase, cap or collar
agreement, forward rate agreements, interest rate or currency future or option
contract, foreign exchange or currency purchase or sale agreement and any
similar agreement, interest rate swap, currency swap or combined interest rate
and currency swap agreement and any other similar agreement entered into prior
to, on or after the date hereof by any Group Entity; and
"Working Capital" shall have the meaning ascribed thereto in Clause 28.5.
1.2 Any reference in this Agreement to:
"acting together in concert" means persons who pursuant to an agreement or
understanding (whether formal or informal) actively co-operate together with a
view to achieving a common objective or to control another body corporate;
"affiliate" of any person shall be construed as a reference to the ultimate
holding company of
<PAGE>
that person or an entity of which that person or its ultimate holding company
(a) has direct or indirect control or (b) owns directly or indirectly more than
fifty per cent. (50%) of the share capital or similar rights of ownership;
the "Agent", the "Arrangers", a "Beneficiary", the "Security Trustee", the
"Borrower", "IFCO Europe" or any "Bank" shall be construed so as to include its
and any subsequent successors, permitted Transferees and assigns in accordance
with their respective interests;
a document in "agreed form" or on "agreed terms" is if it is initialled for the
purposes of identification as such by or on behalf of the Borrower and the
Agent;
on "arm's-length terms" means on terms that are fair and reasonable to the
relevant Group Entity and no more or less favourable to the relevant person
(being the other party to the relevant transaction) than could reasonably be
expected to be obtained in a comparable arm's length transaction with a person
which is not an affiliate of the relevant Group Entity;
the "assets" of any person shall be construed as a reference to the whole or any
part of its business, undertakings, property, intellectual property, shares,
securities, debts, accounts, revenues (including any right to receive revenues),
goodwill, shareholdings and uncalled capital including premium whether now or
hereafter acquired and any other assets whatsoever;
"Barclays Capital" shall be construed as a reference to Barclays Capital Group,
the investment banking division of Barclays Bank PLC;
a "business day" shall be construed as a reference to a day (other than a
Saturday or Sunday) on which banks are generally open for business in Frankfurt
and Munich;
a "Clause" shall, subject to any contrary indication, be construed as a
reference to a clause hereof;
"control" of a body corporate means:
(i) the power to:
(a) cast or control the casting of more than one-half of the maximum
number of votes that might be cast at a general meeting of the
body corporate; or
(b) appoint or remove all, or the majority, of the directors of the
body corporate (and the relevant person or persons shall be
deemed to have power to make such an appointment if:
(1) an individual cannot be appointed as a director of the body
corporate without the exercise by the relevant person or
persons of such power in the individual's favour; or
(2) an individual's appointment as a director of the body
corporate
<PAGE>
follows necessarily from the individual being a director or
other officer of any of the relevant person or persons); or
(c) to give directions with respect to the operating and financial
policies of the body corporate which the directors of the body
corporate are obliged to comply with; or
(ii) the holding of more than one-half of the issued share capital of the
body corporate (excluding any part of that issued share capital that
carries no right to participate beyond a specified amount in a
distribution of either profits or capital);
"disposal" shall be construed as any sale, lease, transfer, conveyance,
assignment or other disposal (including, without limitation, any other
transaction or arrangement pursuant to which the economic or other commercial
benefit of the existing and/or remaining assets of the relevant person is lost
or materially diluted) and "dispose" shall be construed accordingly;
the "equivalent" on any given date in one currency (the "first currency") of an
amount denominated in another currency (the "second currency") is a reference to
the amount of the first currency which could be purchased with the amount of the
second currency at the rate of exchange quoted by the Agent at or about 11.00
a.m. Frankfurt time on such date (or such other time as may be appropriate) for
the purchase of the first currency with the second currency;
a "holding company" of a legal person shall be construed as a reference to any
legal person of which the first-mentioned legal person is a subsidiary;
a "guarantee" means any guarantee, suretyship, bond, indemnity, letter of
credit, third party security or other legally binding assurance against
financial loss granted by one person in respect of any indebtedness of another
person, or any agreement to assume any indebtedness of any other person or to
supply funds or to invest in any manner whatsoever in such other person by
reason of or otherwise in relation to indebtedness of such other person;
"indebtedness" shall be construed so as to include any obligation (whether
incurred as principal or as surety) for the payment or repayment of money,
whether present or future, actual or contingent;
"legal person" shall be construed as a reference to any person having separate
legal personality under the jurisdiction of its incorporation or establishment;
"loans" shall be construed so as to include, without limitation, any transaction
or arrangement pursuant to which any Financial Indebtedness is or may be owed by
or to any Group Entity to or by any other person;
a "month" is a reference to a period starting on one day in a calendar month and
ending on the numerically corresponding day in the next calendar month save
that, where any such period would otherwise end on a day which is not a business
day, it shall end on the next business day, unless that day falls in the
calendar month succeeding that in which it would otherwise
<PAGE>
have ended, in which case it shall end on the preceding business day Provided
that, if a period starts on the last business day in a calendar month or if
there is no numerically corresponding day in the month in which that period
ends, that period shall end on the last business day in that later month (and
references to "months" shall be construed accordingly);
a "Part" shall, subject to any contrary indication, be construed as a reference
to a part hereof;
a "person" shall be construed as a reference to any person, firm, company, body
corporate, corporation, government, state or agency of a state or any
association or partnership (whether or not having separate legal personality) of
two or more of the foregoing;
a "Schedule" shall, subject to any contrary indication, be construed as a
reference to a schedule hereto;
a "subsidiary" of a legal person shall be construed as a reference to any legal
person:
(i) which is controlled, directly or indirectly, by the first-mentioned
legal person;
(ii) more than half the issued share capital (or equivalent right of
ownership) of which is beneficially owned, directly or indirectly, by
the first-mentioned legal person; or
(iii) which is a subsidiary of another subsidiary of the first-mentioned
legal person;
and, for these purposes, a legal person shall be treated as being controlled by
another if that other legal person is able to direct its affairs and/or to
control the composition of its board of directors or equivalent body;
"VAT" shall be construed as a reference to value added tax including any similar
tax which may be imposed in place thereof from time to time;
a "wholly-owned subsidiary" of a company or corporation shall be construed as a
reference to any company or corporation which has no other members except that
other company or corporation and that other company's or corporation's wholly-
owned subsidiaries or persons acting on behalf of that other company or
corporation or its wholly-owned subsidiaries; and
the "winding-up", "dissolution" or "administration" of a partnership, company or
corporation shall be construed so as to include any equivalent or analogous
proceedings under the law of the jurisdiction in which such company or
corporation or partnership is incorporated or any jurisdiction in which such
company or corporation carries on business including the seeking of liquidation,
winding-up, reorganisation, dissolution, administration, arrangement,
adjustment, protection or relief of debtors.
1.3 "DM" or "Deutsche Mark" denotes the lawful currency for the time being of
the Federal Republic of Germany (and, for the avoidance of doubt, such term
shall include, where appropriate and where such currency is the lawful currency
of the Federal Republic of Germany, the European Single Currency Unit (Euro)).
<PAGE>
1.4 Save where the contrary is indicated:
(i) any reference in this Agreement to this Agreement, any other Facility
Document or any other agreement or document shall be construed as a
reference to this Agreement, such other Facility Document or, as the
case may be, such other agreement or document as the same may have
been, or may from time to time be, amended, varied, novated,
supplemented or replaced;
(ii) any reference in this Agreement to a statute shall be construed as a
reference to such statute as the same may have been, or may from time
to time be, amended or re-enacted to the extent such amendment or re-
enactment is substantially to the same effect as such statute on the
date hereof;
(iii) any reference in this Agreement to a time of day shall be construed
as a reference to Frankfurt time;
(iv) a Bank Guarantee shall be "repaid" or "prepaid" by providing the
Fronting Bank or the Agent on behalf of the Revolving Banks with cash
cover in the currency in which that Bank Guarantee is denominated, by
reducing, whether by partial cancellation or otherwise, (in
accordance with the terms of this Agreement and the relevant Bank
Guarantee) the amount that may be demanded under that Bank Guarantee
(or by such amount automatically reducing in accordance with the
terms of the relevant Bank Guarantee) or by cancelling that Bank
Guarantee by returning the original to the Fronting Bank or the Agent
on behalf of the Revolving Banks (as appropriate) together with
written confirmation (in form and substance satisfactory to the
Fronting Bank or the Agent on behalf of the Revolving Banks (as
appropriate)) from the beneficiary that the Fronting Bank has (or, as
the case may be, the Revolving Banks have) no further liability under
that Bank Guarantee;
(v) "cash cover" is provided, in whole or in part, in respect of a Bank
Guarantee at any time by paying an amount, in the currency in which
that Bank Guarantee is denominated, equal to the whole or a part of
the outstanding amount of such Bank Guarantee at such time to the
Fronting Bank (or, as the case may be, to the Agent on behalf of the
Revolving Banks) and the Fronting Bank (or, as the case may be, the
Agent) paying the amount so received by it into an account with it in
the name of the Borrower from which the only withdrawals which may be
made are withdrawals to pay the Fronting Bank (or, as the case may
be, the Revolving Banks) amounts due and payable to it (or them)
under this Agreement following any payment made by it (or, as the
case may be, the Revolving Banks) under such Bank Guarantee and in
respect of which account and all claims arising thereunder, the
Borrower has granted to the Fronting Bank (or, as the case may be, to
the Agent on behalf of the Revolving Banks) pursuant to agreed upon
documentation, a first priority security interest in order to secure
all amounts which may become payable by such Borrower in respect of
such Bank Guarantee; and
<PAGE>
(vi) an amount "outstanding" at any time under or in respect of a Bank
Guarantee is the maximum amount that may be demanded under that Bank
Guarantee at that time in accordance with its express provisions less
(i) the aggregate amount of cash cover held in relation to that Bank
Guarantee at that time and (ii) (save to the extent that this is taken
into account in the express provisions of that Bank Guarantee) the
aggregate of all payments made by the Fronting Bank or the Revolving
Banks pursuant to demands made under that Bank Guarantee on or prior
to such time (save to the extent that the Fronting Bank or the
Revolving Banks have not been reimbursed in respect of the same
(unless the context otherwise requires)) and each provision of this
Agreement which requires reference to the concept contained in this
paragraph (vi) shall be construed accordingly.
1.5 Clause, Part and Schedule headings are for ease of reference only.
1.6 The general terms and conditions (Allgemeine Geschaftsbedingungen) of the
Agent (as the same are in force from time to time) shall apply to this
Agreement as if set out in full herein and as if any references to
"customer" therein were a reference to the Borrower save that, where those
terms and conditions conflict with the terms of this Agreement, the terms
of this Agreement shall prevail Provided that it is understood that,
without limitation, Clause 19 of the Allgemeine Geschaftsbedingungen does
not conflict with the terms of this Agreement.
<PAGE>
Part 2
THE FACILITIES
2. The Facilities
2.1 The Term Banks grant to the Borrower, upon the terms and subject to the
conditions hereof, an amortising term loan facility in an amount of DM76,000,000
(the "Term Facility").
2.2 The Revolving Banks grant to the Borrower a revolving credit facility in an
aggregate principal amount of DM45,000,000 (the "Tranche A Revolving Facility").
2.3 The Revolving Banks grant to the Borrower upon the terms and subject to the
conditions hereof a revolving advance and bank guarantee facility in an
aggregate principal amount of DM25,000,000 (the "Tranche B Revolving Facility").
3. Purpose
3.1 The Term Facility is intended for the purpose of refinancing certain of the
Existing Indebtedness (not including any Leasing Facilities) and funding certain
of the costs of the Investment (the details and amounts of which have been
agreed with the Agent prior to making payment) and the Borrower shall apply
amounts drawn by it under the Term Facility accordingly.
3.2 The Tranche A Revolving Facility is intended for refinancing certain of the
Existing Indebtedness (not including any Leasing Facilities) and financing the
general corporate purposes of the Borrower and the Borrower shall apply amounts
drawn under the Tranche A Revolving Facility accordingly.
3.3 The Tranche B Revolving Facility is intended for the purposes of providing
guarantees to providers of finance under External Finance Leases with the
Borrower and to fund Replacement Capital Expenditure and Growth Capital
Expenditure of the Borrower and the Borrower shall apply amounts drawn under the
Tranche B Revolving Facility accordingly.
3.4 Without prejudice to the obligations of the Borrower under this Clause 3,
none of the Beneficiaries shall be obliged to concern themselves with the
application of amounts raised by the Borrower hereunder.
4. Conditions Precedent
Save as the Banks may otherwise agree, the Facilities will not be available for
utilisation unless the Agent has received all of the documents and other
evidence listed in the Third Schedule (or the Agent has confirmed to the
Borrower in writing that it is satisfied that, subject only to the making of the
requested Advances, it will receive the same) in form and substance satisfactory
to the Agent and the Joint Arrangers.
5. Nature of Banks' Rights and Obligations
<PAGE>
5.1 The obligations of each Beneficiary under the Facility Documents are
several.
5.2 The failure by any Beneficiary to perform its obligations under the
Facility Documents shall not affect the obligations of the Borrower or IFCO
Europe towards any other party hereto or to any other Facility Document nor
shall any other party be liable for the failure by such Beneficiary to perform
its obligations under the Facility Documents.
5.3 The amounts outstanding at any time hereunder from the Borrower to any of
the other parties hereto shall be a separate and independent debt, and except as
otherwise stated herein each such party shall be entitled to protect and enforce
its individual rights arising out of the Facility Documents independently of any
other party, and it shall not be necessary for any party hereto to be joined as
an additional party in any proceedings for such purposes Provided that if any
Bank commences proceedings in respect of this Agreement it shall notify the
Agent as soon as practicable thereafter and the Agent shall notify the other
Banks accordingly.
5.4 No Bank shall be entitled to terminate its relationship with the Borrower
hereunder unless such termination is expressly permitted hereunder.
5.5 Where any Bank fails to perform its obligations hereunder, then such Bank
shall, at the request of the Borrower (and upon reasonable notice), transfer its
participation hereunder (at par value) to another bank or financial institution
nominated by the Borrower and acceptable to the Fronting Bank which is willing
to participate in the Facilities Provided that such transfer is made in
accordance with the terms hereof (and in particular but without limitation, in
accordance with the provisions of Part 12 hereof).
<PAGE>
Part 3
UTILISATION OF THE FACILITIES
6. Utilisation of the Term Facility
6.1 Save as otherwise provided herein, a Term Advance under the Term Facility
will be made by the Term Banks to the Borrower, if:
(i) not later than 10.00 a.m. on the third business day (or such lesser
period as the Agent may agree) before the proposed date for the
making of the Term Advance, the Agent has received from the Borrower
an irrevocable Notice of Drawdown therefor, receipt of which shall
oblige the Borrower to borrow the amount therein requested in the
currency (being Deutsche Mark) and on the date therein stated upon
the terms and subject to the conditions contained herein;
(ii) the proposed date for the making of the Term Advance is a business
day which is or precedes the Termination Date;
(iii) none of the events described in Clause 14 have occurred in such a way
that, in accordance with the provisions of that clause, would operate
to prevent the Advance from being made;
(iv) the proposed amount of the Term Advance is equal to the amount of the
Available Term Facility; and
(v) either:
(a) no Event of Default or Potential Event of Default has occurred
and is continuing and has not been waived or would result from
the making of the Term Advances; and
(b) the representations set out in Clause 26.1 are true on and as of
the proposed date for the making of such Term Advance in all
material respects,
or each of the Term Banks agrees (notwithstanding any matter mentioned
at (a) or (b) above) to participate in the making of the Term Advance.
6.2 Each Term Bank participating in the Term Facility will participate in the
Term Advance made pursuant to Clause 6.1 through its Facility Office in the
proportion borne by its Term Available Commitment to the Available Term Facility
immediately prior to the making of the Term Advance.
6.3 If a Bank's Term Available Commitment is reduced in accordance with the
terms hereof after the Agent has received a Notice of Drawdown then the amount
of the Term Advance shall be reduced accordingly.
<PAGE>
6.4 Each Bank's Term Available Commitment shall be reduced to zero at the close
of business on the day on which the Term Advance is made.
7. Utilisation of the Revolving Facility
7.1 Save as otherwise provided herein, a Cash Advance will be made by the
Revolving Banks to the Borrower or a Bank Guarantee will be issued by the
Fronting Bank or the Agent on behalf of the Banks if:
(i) not more than ten business days nor later than 10.00 a.m. on the
third business day before the proposed date for the making of such
Cash Advance or the issuing of such Bank Guarantee, the Agent has
received from the Borrower an irrevocable Notice of Drawdown
therefor (such Notice of Drawdown in the case of a Bank Guarantee to
include the additional information required by Clause 8.1) receipt
of which shall oblige the Borrower to borrow the amount therein
requested (or have the relevant Bank Guarantee issued), in the
currency (being Deutsche Mark) and on the date therein stated upon
the terms and subject to the conditions contained herein;
(ii) the proposed date for the making of such Cash Advance or the issuing
of such Bank Guarantee is on or after the making of the Term Advance
and is a business day falling one month or more before the Final
Maturity Date;
(iii) (in respect of Cash Advances) none of the events described in Clause
15 have occurred in such a way that would, in accordance with the
provisions of that clause, prevent the Advance from being made;
(iv) (in respect of Cash Advances to be made under the Tranche A
Revolving Facility) the proposed amount of such Cash Advance is (a)
a minimum amount of DM5,000,000 and an integral multiple of
DM1,000,000 which is less than the amount of the Tranche A Available
Revolving Facility or (b) equal to the amount of the Tranche A
Available Revolving Facility;
(v) (in respect of Cash Advances to be made under the Tranche B
Revolving Facility), the proposed amount of such Cash Advance is (a)
a minimum amount of DM5,000,000 and an integral multiple of
DM1,000,000 which is less than the Tranche B Available Revolving
Facility or (b) equal to the amount of the Tranche B Available
Revolving Facility;
(vi) (in respect of a Bank Guarantee) the proposed amount of such Bank
Guarantee does not exceed the Tranche B Available Revolving Facility
and is a minimum amount of DM1,000,000;
(vii) (in respect of a Bank Guarantee) the issuing of the proposed Bank
Guarantee would not result in more than six Bank Guarantees being
outstanding;
(viii) the proposed Term of such Revolving Advance is (if a Cash Advance) a
<PAGE>
period of one, three or six months (or such other period as may be
previously agreed to by the Banks) or (if a Bank Guarantee) is for a
period not exceeding one year or, if so required by the beneficiary of
the relevant Bank Guarantee as a consequence of the duration of the
relevant Finance Lease, such other period which is commensurate with
the duration of the relevant Finance Lease and in any case such period
ends on or before the Final Maturity Date;
(ix) in the case of a Bank Guarantee, the Fronting Bank or the Revolving
Banks (as appropriate) have approved the terms of the Bank Guarantee
which is to be issued pursuant to the Notice of Drawdown (which,
unless the Agent (acting on the instructions of all the Banks)
otherwise agrees in writing, shall be substantially in the relevant
form set out in the Sixth Schedule) and have approved the identity of
the beneficiary of the Bank Guarantee to be issued pursuant to the
Notice of Drawdown (which approval may only be withheld on legal
grounds or on the grounds of the requirements of any applicable
fiscal, monetary, regulatory or other authority); and
(x) either:
(a) no Event of Default or Potential Event of Default has occurred
and is continuing and has not been waived, or would result from
the making of such Revolving Advance; and
(b) the representations set out in Clause 26.1 (save, in the case of
any Revolving Advance made or (as the case may be) issued after
the date hereof, for the representations which are not repeated
pursuant to Clause 26.2) are true in all material respects or
have been waived on and as of the proposed date for the making or
(as the case may be) issuing of such Revolving Advance,
or each of the Revolving Banks agrees (notwithstanding any matter
mentioned at (a) or (b) above) to participate in the making of such
Revolving Advance (if it is a Cash Advance) or each of the Banks
agrees (notwithstanding any matter mentioned at (a) or (b) above) that
such Revolving Advance may be issued (if it is a Bank Guarantee).
7.2 Each Revolving Bank participating in the Revolving Facility will
participate in the Revolving Advance made pursuant to Clause 7.1 through its
Facility Office in the proportion borne by its Revolving Available Commitment to
the Available Revolving Facility immediately prior to the making of that
Revolving Advance.
7.3 If a Bank's Revolving Commitment is reduced in accordance with the terms
hereof after the Agent has received the Notice of Drawdown for a Revolving
Advance (or is scheduled to be reduced during the period in which such Advance
or Bank Guarantee is expected to be outstanding) and such reduction was not
taken into account in determining the Available Revolving Facility for the
purposes of Clause 7.1(iv), (v) or (vi), then the actual amount of that
Revolving Advance shall be reduced accordingly.
<PAGE>
8. Bank Guarantees
8.1 A Notice of Drawdown requesting the issue of a Bank Guarantee (in addition
to complying with Clause 7.1) must specify in respect of the Bank Guarantee to
be issued pursuant to such Notice of Drawdown:
(i) the purpose of its issue;
(ii) the issue date;
(iii) the final expiry date as selected in accordance with Clause 7.1(vii);
(iv) the beneficiary agreed in accordance with Clause 7.1(viii);
(v) the currency of denomination of the proposed Bank Guarantee which
shall be Deutsche Mark;
(vi) its face value in accordance with Clause 7.1(vi); and
(vii) whether the Bank Guarantee is to be issued by the Agent on behalf of
the Revolving Banks or by the Fronting Bank.
8.2 Where the Tranche B Revolving Facility is to be drawn by way of the issue
of a Bank Guarantee, such Bank Guarantee shall be made available either by the
Fronting Bank which shall then act as the principal of any such guarantee given
to a third party at the request of the Borrower or by the Agent on behalf of
each of the Revolving Banks in which case each Revolving Bank shall be severally
liable as the principal of any such guarantee up to the amount of its Portion in
respect of such Bank Guarantee.
8.3 If the proposed issue of a Bank Guarantee to a proposed beneficiary is
prohibited under any law, statute, regulation, order or decree to which a Bank
(by or on behalf of which such Bank Guarantee is to be issued) or the Fronting
Bank is subject or pursuant to any request from a requirement of any central
bank or other fiscal, monetary or other authority to which a Bank or the
Fronting Bank is subject, the Bank or the Fronting Bank shall notify the Agent
thereof not later than two business days before the proposed date for the
issuing of such Bank Guarantee and that Bank (or, where applicable) the Fronting
Bank shall not be obliged to participate in the issue of such proposed Bank
Guarantee.
8.4 The Agent is hereby authorised to issue any Bank Guarantee to be issued on
behalf of the Banks pursuant hereto by:
(i) completing the issue date and expiry date of such Bank Guarantee
(which shall be a date falling no later than the Final Maturity
Date);
(ii) completing the schedule to such Bank Guarantee with the amount of
each Revolving Bank's Portion calculated pursuant to Clauses 7.2 and
7.3; and
(iii) executing and delivering such Bank Guarantee to the relevant
recipient on the
<PAGE>
date upon which such Bank Guarantee is issued.
8.5 The Borrower (in respect of any Bank Guarantee issued at its request)
hereby:
(i) authorises the Agent, the Revolving Banks and the Fronting Bank to,
and the Agent, the Revolving Banks and the Fronting Bank shall, make
any payment and comply with any demand made by a third party in
respect of a Bank Guarantee which is valid on its face, appears to
comply with the terms thereof and which may be claimed from or made
upon it without any reference to or further authority from the
Borrower unless it has actual knowledge that any such demand is
fraudulent;
(ii) agrees that its authorisation under paragraph (i) above shall remain
in full force and effect and shall not be discharged until such date
as the Agent (acting on the instructions of all of the Banks) shall
notify the Borrower that it is fully satisfied that the Revolving
Banks or, as the case may be, the Fronting Bank remain under no
liability (actual or contingent) in respect of any Bank Guarantee;
(iii) agrees that each Bank Guarantee is issued subject to and with the
benefit of the provisions of the Fifth Schedule; and
(iv) agrees that it will at all times indemnify the Revolving Banks on
demand of such Revolving Bank (or the Agent on its behalf) and keep
each of the Revolving Banks indemnified on demand of such Revolving
Bank (or the Agent on its behalf) from and against all actions,
suits, proceedings, claims, demands, liabilities, damages, costs,
expenses, losses and charges whatsoever in relation to or arising out
of the issue of any Bank Guarantee, the payment of any claim made
thereunder or arising out of each such Bank's obligations pursuant to
Clause 9.1 Provided that the Borrower shall be entitled to finance a
payment under such indemnity by utilising the Revolving Facility if
it is then entitled to draw under the Revolving Facility in
accordance with the terms of this Agreement.
8.6 The Agent shall notify the Borrower upon its receipt of a demand by a
beneficiary under a Bank Guarantee issued hereunder and, where the Fronting Bank
or, as the case may be, the Revolving Banks make a payment under any such Bank
Guarantee, such payment shall be made no earlier than the third business day
after the date on which the Fronting Bank (or, as the case may be, the Agent on
behalf of the Revolving Banks) received such demand from such beneficiary (and,
for the avoidance of doubt, it is expressly agreed that neither the Agent, the
Revolving Banks nor the Fronting Bank shall be obliged to give any further
notice to the Borrower before making such payment to such beneficiary).
8.7 The Agent shall provide each of the Revolving Banks on whose behalf a Bank
Guarantee has been issued with a copy of such Bank Guarantee as soon as
practicable after the same has been issued and where the Fronting Bank has
issued a Bank Guarantee it shall, as soon as practicable after the same has been
issued, provide each Revolving Bank with a copy of such Bank Guarantee.
<PAGE>
9. Indemnity Relating to Bank Guarantees Issued by the Fronting Bank
9.1 In the event of any failure of the Borrower to perform its obligations
under Clause 8.5(iv) or as set out in the Fifth Schedule or the Borrower revokes
the authorisations given under Clause 8.5(i) or (ii), each Revolving Bank, in
relation to any Bank Guarantee issued by the Fronting Bank pursuant hereto,
hereby irrevocably and unconditionally:
(i) EITHER:
(a) guarantees to the Fronting Bank severally up to the amount of its
Portion and as a primary obligation, the due and punctual
observance and performance of all of the payment obligations of
the Borrower in respect of any Bank Guarantee issued by the
Fronting Bank in its capacity as such;
OR
(b) (if it is not permitted by its constitutive documents or any
applicable law to grant guarantees), agrees that:
(A) upon any failure of the Borrower to make timely payment of
any amount due in respect of a Bank Guarantee issued by the
Fronting Bank in its capacity as such, each such Revolving
Bank, without any further action, shall be deemed to have
taken, as of the date of issuance of each such outstanding
Bank Guarantee, an undivided participating interest from the
Fronting Bank in such Bank Guarantee outstanding at such
time (and upon the occurrence of an Event of Default
specified in Clause 30.1(viii), (ix), (x), (xi) or (xii)
each Revolving Bank shall be deemed to have taken, as of the
date of issuance by the Fronting Bank of each outstanding
Bank Guarantee, an undivided participating interest from the
Fronting Bank in each such Bank Guarantee outstanding at
such time) in a proportion equal to such Revolving Bank's
Portion and each such Revolving Bank agrees that it shall
hold the Fronting Bank harmless and indemnify the Fronting
Bank for such Revolving Bank's Portion of any drawing under
any such Bank Guarantee in which it has taken such an
undivided participating interest under this Clause 9.1; and
<PAGE>
(B) the obligation of each Revolving Bank to make payments to
the Fronting Bank with respect to any Bank Guarantee issued
by the Fronting Bank after having taken a portion thereof as
provided above shall be irrevocable and shall not be subject
to any qualification or exception whatsoever and shall be
made in accordance with the terms and conditions of this
Agreement under all circumstances, including without
limitation any of the following circumstances:
(1) any lack of validity or enforceability of this
Agreement, any of the Facility Documents, and all other
documents and instruments executed by the Borrower or
any of its affiliates and delivered to the Agent, the
Fronting Bank or any other Bank in connection with or
related to the Facilities, the Bank Guarantees or the
assets subject to the Senior Security Documents,
together with any and all amendments, extensions,
renewals and modifications thereof;
(2) the existence of any claim, set-off, defence or other
right which the Borrower or any other person may have
at any time against the beneficiary named in any Bank
Guarantee or any transferee of any Bank Guarantee (or
any person for whom any such transferee may be acting),
the Agent, the Fronting Bank, any other Bank or any
other person, whether in connection with this
Agreement, such Bank Guarantee, the transactions
contemplated herein or any unrelated transactions
(including any underlying transactions between the
Borrower or any of its affiliates and the beneficiary
named in such Bank Guarantee);
(3) any demand presented under any Bank Guarantee proving
to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or
inaccurate in any respect;
(4) the surrender or impairment of any security for the
performance or observance of any of the terms of any of
this Agreement or any of the Facility Documents; or
(5) the occurrence of any Potential Event of Default or
Event of Default;
<PAGE>
AND
(ii) agrees to pay to the Agent for the account of the Fronting Bank on
demand made through the Agent and in the currency in which the
relevant Bank Guarantee is denominated, its Portion of any and every
sum or sums of money which the Borrower shall from time to time be
liable to pay to the Fronting Bank in respect of a Bank Guarantee
issued by the Fronting Bank; and
(iii) agrees to pay to the Fronting Bank full cash cover for its Portion of
the outstanding contingent liabilities at any time after the Fronting
Bank has become entitled to demand an indemnity in respect thereof
from the Borrower and which shall not have been paid at the time such
demand is made.
9.2 Any payment made or to be made by a Revolving Bank pursuant to Clause 9.1
and any unreimbursed amount on the part of the Fronting Bank shall (for the
purpose of calculating interest thereon which is due from the Borrower) be
deemed to have been made available to the Borrower by way of cash advance
pursuant to the Revolving Facility on the date such payment is made or is to be
made (or unreimbursed) and accordingly is subject to the terms and conditions
hereof as if it were a Cash Advance with an initial Term of one month but for
all other purposes shall be immediately due and payable by the Borrower.
9.3 (i) The obligations of each Revolving Bank contained in Clause 9.1 shall
constitute and be continuing obligations notwithstanding any
settlement of account, Event of Default or other matter or thing
whatsoever.
(ii) As a separate and independent stipulation each Revolving Bank agrees
that any sum or sums of money intended to be the subject of the
guarantee in Clause 9.1 and subject to Clause 9.1(ii) shall be
recoverable from each Revolving Bank (in their respective
proportions) as sole principal debtor even if they would not be
recoverable from the Borrower by reason of any legal limitation,
disability or incapacity or liquidation or any other fact or
circumstance (whether known to the Fronting Bank or not) but which
would have been recoverable from such Revolving Bank if it were the
sole or principal debtor in respect of such as liability in place of
the Borrower.
(iii) The obligation of each Revolving Bank contained in Clause 9.1 shall
not be affected in any way by any time or indulgence granted to the
Borrower or by any variation compromise or release of any its
obligations to the Fronting Bank under the Revolving Facility.
(iv) Any settlement or discharge between any Revolving Bank and the
Fronting Bank shall be conditional upon no security or payment to the
Fronting Bank by any Revolving Bank or any other person on behalf of
any Revolving Bank being avoided or reduced by virtue of any
provisions or enactments relating to bankruptcy, insolvency or
liquidation for the time being in force and, if any such security or
payment shall be avoided or reduced, the Fronting Bank shall
<PAGE>
be entitled to recover the value or amount of such security or
payment from such Revolving Bank subsequently as if such settlement
or discharge had not occurred.
9.4 The Fronting Bank shall not be obliged before requesting counter-
indemnification from any Revolving Bank by this Agreement to:
(i) obtain judgment in any court against the Borrower or any other
Group Entity;
(ii) make or file any claim or proof in a winding-up or dissolution of
the Borrower or any other Group Entity; or
(iii) enforce or seek to enforce any other security taken in respect of
any of the obligations of the Borrower or any other Group Entity.
9.5 If a Revolving Bank (a "Defaulting Bank") fails to make payment on the
due date therefor of any amount due from it for the account of the Fronting Bank
pursuant to Clause 8.4 (the balance thereof for the time being unpaid being
referred to in this Clause as an "overdue amount") then until the Fronting Bank
(or the Agent on its behalf) has received payment of that amount in full (and
without prejudice to any other rights or remedies of the Fronting Bank in
respect of such failure):
(i) the Fronting Bank shall be entitled to receive any remuneration
which such Defaulting Bank would otherwise have been entitled to
receive in respect of the Revolving Facility; and
(ii) the overdue amount shall bear interest at the rate of one per cent.
per annum over the Fronting Bank's cost of borrowing for the time
being and any such interest which accrues shall be invoiced
monthly.
10. Indemnity Relating to Bank Guarantees issued by the Agent on behalf of
the Revolving Banks
10.1 If, at any time after the date hereof but prior to the expiry of a Bank
Guarantee which is issued by the Agent on behalf of the Revolving Banks a demand
for payment (the amount so demanded being herein referred to as the "Amount
Demanded") is made under such Bank Guarantee the Agent shall:
(i) promptly notify the Borrower of such demand and make demand of such
Borrower for an amount equal to the Amount Demanded; and
(ii) notify the Revolving Banks of the Amount Demanded and the date of
payment therefor.
10.2 The Borrower shall, after receipt of the notice under Clause 10.1(i), no
later than 11.00 a.m. on the second business day preceding the payment date
therefor (calculated in accordance with Clause 8.6), pay to the Agent the amount
demanded of it and, for the avoidance of doubt, the Borrower shall be entitled
to finance such a payment by utilising the
<PAGE>
Revolving Facility if it is then entitled to draw under the Revolving Facility
in accordance with the terms of this Agreement.
10.3 If the Agent has required the Borrower to pay an amount pursuant to
Clause 10.1 and has not, by 11.00 a.m. on the second business day preceding the
payment date therefor, received such amount in full from the Borrower;
(i) the Agent shall make a demand of each Revolving Bank for payment to
the Agent on the business day following the date of the Agent's
demand of an amount equal to such Bank's Portion in relation to the
relevant Bank Guarantee; and
(ii) each Revolving Bank shall, on the business day following the date
of the Agent's demand under (i) above, pay to the Agent the amount
so demanded of such Bank.
10.4 The Agent shall pay amounts received by it pursuant to Clauses 10.2 or
10.3, to the beneficiary of such Bank Guarantee.
10.5 Each Bank accepts each Bank Guarantee issued by the Agent on its behalf
for itself and the Agent, in its capacity as such, without power of attorney,
accepts and issues each such Bank Guarantee for each Transferee. Each Transferee
to whom a Bank has transferred or assigned any right or obligation in accordance
with the terms of this Agreement ratifies the issuing of such Bank Guarantee on
its behalf by accepting such transfer or assignment, thereby becoming a Bank.
All parties to this Agreement hereby confirm that the validity of the Bank
Guarantees shall not be affected by the Agent, in its capacity as such, acting
as representative without power of attorney for each Transferee.
11. Guarantee Commission and Fees
11.1 The Borrower shall pay guarantee commission to the Agent for the account
of the Revolving Banks (in their respective Portions) on the issue of any
Bank Guarantee requested by it hereunder at a rate per annum equal to the
Margin prevailing in respect of the Revolving Facility from time to time
on the Fronting Bank's exposure under such Bank Guarantee from the date
of issuance of such Bank Guarantee until such date as the Fronting Bank
and the Revolving Banks have ceased to be under any liability (actual or
contingent) in respect thereof.
11.2 Where a Bank Guarantee is issued by the Fronting Bank, the Borrower shall
pay to the Fronting Bank for its own account a fronting fee on the issue
of any Bank Guarantee for the account of the Borrower at the Applicable
Fronting Bank Rate on the Fronting Bank's exposure under such Bank
Guarantee calculated from the date of issuance of such Bank Guarantee
until such date as the Fronting Bank has ceased to be under any liability
(actual or contingent) in respect thereof.
11.3 The commission payable under Clause 11.1 above and the fronting fee
payable under Clause 11.2 above shall be paid quarterly in advance during
the continuance of the Revolving Facility (and if such day is not a
business day, on the preceding business
<PAGE>
day) commencing on the date of issuance of the relevant Bank Guarantee.
11.4 For the avoidance of doubt, the Fronting Bank's Proportion of the
commission at the rate and calculated in the manner specified in Clause
11.1 above shall be payable to the Fronting Bank in its capacity as a
Revolving Bank, notwithstanding that it may not be legally capable of
guaranteeing itself in its capacity as Fronting Bank.
<PAGE>
Part 4
INTEREST
12. Interest Periods (Term Advances)
12.1 The period for which each Term Advance is outstanding shall be divided
into successive periods each of which (other than the first) shall start on the
last day of the preceding such period.
12.2 The duration of each Interest Period shall, save as otherwise provided
herein, be one, three or six months (or such other period as the Borrower and
the Banks may agree), in each case as the Borrower may, by not less than three
business days' prior notice to the Agent, select (and the Agent shall promptly
notify the Banks participating in the relevant Term Advance of the duration
selected by the Borrower) Provided that:
(i) if the Borrower fails to give such notice of its selection in
relation to an Interest Period, the duration of that Interest
Period shall, subject to (ii) and (iii) below, be three months;
(ii) any Interest Period which begins during or at the same time as any
other Interest Period shall end at the same time as that other
Interest Period; and
(iii) any Interest Period in respect of a Term Advance which would
otherwise end during the month preceding, or extend beyond, a Term
Repayment Date shall be of such duration that it shall end on such
Term Repayment Date.
12.3 The Borrower may, by not less than three business days' prior notice to
the Agent, direct that any Term Advance shall, at the beginning of any Interest
Period relating thereto, be divided into (and thereafter, save as otherwise
provided herein, treated in all respects as) two or more Term Advances having
such amounts (in aggregate, equalling the amount of the Term Advance being so
divided) as shall be specified by the Borrower in such notice Provided that the
Borrower shall not be entitled to make such a direction if:
(i) as a result of so doing, there would be more than four outstanding
Term Advances; or
(ii) any Term Advance thereby coming into existence would be in an
amount of less than DM5,000,000
12.4 If following a direction under Clause 12.3 two or more Interest Periods
in respect of a Term Advance made to the Borrower end at the same time, then, on
the last day of those Interest Periods, the Term Advances to which such Interest
Periods relate shall be consolidated into (and thereafter, save as otherwise
provided herein, treated in all respect as) a single Term Advance.
<PAGE>
13. Interest Rate and Payment
13.1 On the last day of each Interest Period relating to a Term Advance (and,
if such Interest Period is longer than six months, on the day falling six months
after the first day of such Interest Period and on the last day of each
successive period of six months during such Interest Period) the Borrower shall
pay accrued interest on such Term Advance.
13.2 On the Repayment Date relating to each Cash Advance, the Borrower shall
pay accrued interest on such Cash Advance.
13.3 The rate of interest on each Term Advance during each Interest Period
relating thereto and on each Cash Advance during the Term relating thereto shall
be the rate per annum which is the sum of the Margin and FIBOR on the Quotation
Date therefor.
13.4 If the aggregate amount of the Term Loan and the Total Revolving
Commitment has been permanently reduced by an amount at least equal to one of
the amounts set out in Column 1 of Clause 13.5 (the "Relevant Reduction") and at
the time of delivery to the Agent of the financial statements for any period (in
this Clause 13, the "Relevant Time Period") pursuant to Clause 27.1(i)(a),
Clause 27.1(ii)(a) or Clause 27.1(iii)(a), a Duly Authorised Officer of the
Borrower certifies or (in the case of delivery of any audited financial
statements) the Auditors certify to the Agent in the certificate provided by him
or them (as the case may be) under Clause 27 in relation to such accounts that
such financial statements show that the ratio of Total Debt to Adjusted EBITDA
(in this Clause 13, the "Relevant Ratio") in respect of that Relevant Time
Period falls within one of the ranges specified in column 2 of Clause 13.5, then
(Provided that no Event of Default or Potential Event of Default has occurred
and is continuing and subject to Clause 13.7) the Margin in respect of the
Facilities for the period referred to in Clause 13.6 shall be the percentage in
column 3 of Clause 13.5 set opposite the amount of such Relevant Reduction and
the range into which that Relevant Ratio falls.
13.5 Column 1 Column 2 Column 3
Relevant Reduction Relevant Ratio Margin%
(DM)
25,000,000 or more 3.00:1 or less 1.625
30,000,000 or more 2.75:1 or less 1.50
40,000,000 or more 2.50:1 or less 1.375
50,000,000 or more 2.25:1 or less 1.250
and, for the avoidance of doubt where the amount of the Relevant Reduction and
the amount of the Relevant Ratio fall in different lines across the columns set
out above then:
(i) where the Relevant Reduction falls on a line which is above the
line on which the Relevant Ratio appears, the Margin shall be the
figure set out in the same line as the applicable Relevant
Reduction; and
<PAGE>
(ii) where the Relevant Ratio falls on a line which is above the line on
which the Relevant Reduction falls, the Margin shall be the figure
set out in the same line as the applicable Relevant Ratio.
13.6 Any revised Margin provided for in Clause 13.5 in relation to each
Advance will become effective on the first day of each Interest Period or Term
commencing (or, in the case of a Bank Guarantee, the next Commission Payment
Date occurring) immediately after the date on which the accounts for the
Relevant Time Period are delivered to the Agent under Clause 27 together with
the certificate relating to covenant performance referred to in Clause
27.1(i)(c), 27.1(ii)(c) or 27.1(iii)(b) (as applicable) but shall cease to be
effective as from the first day of the Interest Period or Term commencing (or,
in the case of a Bank Guarantee, the next Commission Payment Date occurring)
after the Relevant Reduction and/or Relevant Ratio ceases to be achieved.
13.7 Any amendment to the Margin provided for in Clause 13.5 in relation to
each Advance will cease for each Interest Period or Term on the first day of the
Interest Period or Term commencing (or, in the case of a Bank Guarantee, on the
next Commission Payment Date occurring), immediately after the date that any
accounts of the Borrower or any certificates of a Duly Authorised Officer of the
Borrower or the Auditors are due to be delivered under Clause 27 if not
delivered by then and shall be suspended after the occurrence of any Event of
Default and shall only be reinstated once such Event of Default has been
remedied or waived specifically for the purpose of this Clause 13.7 and
financial statements have been delivered for the relevant financial period after
such remedy or waiver which show that the Relevant Reduction and Relevant Ratio
have been (or continue to be) achieved in which case such amendment to the
Margin shall commence on the first day of each Interest Period or Term beginning
(or, in the case of a Bank Guarantee, on the next Commission Date occurring),
after the financial statements showing that the Relevant Reduction and Relevant
Ratio have been (or continue to be) achieved are delivered.
14. Market Disruption (Term Advances)
14.1 If, in relation to any Term Advance:
(i) the Agent determines that at or about 11.00 a.m. on the Quotation
Date for an Interest Period in respect of such Term Advance FIBOR
cannot be ascertained; or
(ii) before the close of business in Frankfurt on the Quotation Date for
an Interest Period in respect of such Term Advance, the Agent has
been notified by a Bank or each of a group of Term Banks to whom in
aggregate fifty per cent or more of the Term Facility is (or, if a
Term Advance were then made, would be) owed that the FIBOR rate
does not accurately reflect the cost to it of obtaining such
deposits in Deutschemark for the relevant period,
then, notwithstanding the provisions of Clauses 6, 12 and 13:
(a) the Agent shall promptly notify the Borrower and the Term Banks of
such
<PAGE>
event; and
(b) where, in the opinion of the Agent, the events described in
paragraph (i) or (ii) above have occurred pursuant to events in the
banking market generally such that it is not feasible for such Term
Advance to be made, the Term Advance shall not be made; and
(c) where paragraph (b) does not apply, such Term Advance shall be
made; and
(d) the rate of interest applicable to the Term Advances from time to
time during the relevant Interest Periods shall be the rate per
annum which is the sum of the Margin and the rate per annum
determined by the Agent to be the weighted average (rounded to four
decimal places) of the rates notified by each Term Bank to the
Agent before the last day of such Interest Period to be those which
express as a percentage rate per annum the cost to such Term Bank
of funding from whatever sources it may select its portion of such
Term Advance during such Interest Period; and
(e) if the Agent or the Borrower so requires, within five days of such
notification the Agent and the Borrower shall enter into
negotiations with a view to agreeing a substitute basis (1) for
determining the rates of interest from time to time applicable to
the Term Advances and/or (2) upon which the Term Advances may be
made or maintained thereafter and any such substitute basis that is
agreed shall take effect in accordance with its terms and be
binding on each party hereto.
14.2 Interest on a Term Advance during an Interest Period specified in Clause
12.1 shall be distributed by the Agent to the Term Banks in proportion to the
amounts which represent the cost to each Term Bank of funding its share of such
Term Advance during such Interest Period provided that any such interest which
is attributable to the Margin shall be distributed by the Agent to the Term
Banks in proportion to their respective participations in such Term Advance.
15. Market Disruption (Cash Advances)
15.1 If in relation to any Cash Advance:
(i) the Agent determines that at or about 11.00 a.m. on the Quotation
Date for the Term in respect of such Cash Advance FIBOR cannot be
ascertained; or
(ii) before the close of business in Frankfurt on the Quotation Date for
such Term the Agent has been notified by a Revolving Bank or each
of a group of Revolving Banks to whom in aggregate fifty per cent.
or more of the Revolving Facility Outstandings is (or, if a Cash
Advance were then made, would be) owed, that the FIBOR rate does
not accurately reflect the cost to it of obtaining such deposits
for the relevant period Deutschemark,
then, notwithstanding the provisions of Clauses 7 and 13:
<PAGE>
(a) the Agent shall notify the Borrower and the Revolving Banks of such
event;
(b) where, in the opinion of the Agent, the events described in
paragraph (i) or (ii) above have occurred pursuant to events in the
banking market generally such that it is not feasible for such Cash
Advance to be made, the Cash Advance shall not be made; and
(c) where paragraph (b) does not apply such Cash Advance shall be made;
and
(d) the rate of interest applicable to such Cash Advance during such
Term shall be the rate per annum which is the sum of the Margin and
the rate per annum determined by the Agent to be the weighted
average (rounded to four decimal places) of the rates notified by
each Revolving Bank to the Agent before the last day of such
Interest Period to be those which express as a percentage rate per
annum the cost to such Revolving Bank of funding from whatever
sources it may reasonably select its portion of such Cash Advance
during such Interest Period; and
(e) if the Agent or the Borrower so requires, within five days of such
notification the Agent and the Borrower shall enter into
negotiations with a view to agreeing a substitute basis for
determining the rates of interest which may be applicable to Cash
Advances in the future and any such substitute basis that is agreed
shall take effect in accordance with its terms and be binding on
each party hereto.
15.2 Interest on a Cash Advance during a Term specified in Clause 15.1 shall
be distributed by the Agent to the Revolving Banks in proportion to the amounts
which represent the cost to each Revolving Bank of funding its share of such
Cash Advance during such Term provided that any such interest which is
attributable to the Margin shall be distributed by the Agent to the Revolving
Banks in proportion to their respective participations in such Cash Advance.
<PAGE>
Part 5
REPAYMENT, PREPAYMENT AND CANCELLATION
16. Repayment of Term Loan and Cash Advances
16.1 The Borrower shall repay the Term Loan in instalments by repaying on each
Term Repayment Date set out below an amount equal to the amount which appears
opposite such date in the column headed "Repayment Amount" below:
Term Repayment Dates Repayment
Amount
(DM,000,000)
30 September 1998 4
31 March 1999 4
30 September 1999 4
31 March 2000 4.5
30 September 2000 4.5
31 March 2001 6.0
30 September 2001 6.0
31 March 2002 8.0
30 September 2002 8.0
31 March 2003 8.0
30 September 2003 8.0
31 March 2004 5.5
30 September 2004 5.5
16.2 The Borrower shall repay in full each Cash Advance on its Repayment Date
and all amounts outstanding under the Revolving Facility shall be repaid on or
before the Final Maturity Date.
17. Prepayment
17.1 The Borrower may, if it has given to the Agent not less than ten business
days' prior written notice to that effect, prepay the whole or any part of the
Term Loan (being an amount such that the Term Loan is reduced by at least
DM1,000,000) on the last day of any Interest Period relating thereto (or at any
other time on payment of the appropriate breakage costs and accrued interest in
accordance with Clause 33.4).
17.2 The Borrower and IFCO Europe shall apply the following or procure that
the following are applied, within the time limits specified below, in repayment
of the Term Facility and permanent reduction of the Available Revolving Facility
in the manner specified in Clause 17.4:
(i) within one month of delivery of the annual consolidated accounts
under Clause 27.1 in each year, fifty per cent. (50%) of Excess
Cash Flow of the Group for the financial year to which those
consolidated accounts relate;
<PAGE>
(ii) within fourteen business days of receipt, all Net Disposal Proceeds
save to the extent that it is demonstrated to the reasonable
satisfaction of the Agent that such Net Disposal Proceeds have been
or will, within six months of their receipt be reinvested by the
relevant member of the Group in assets within the Group which are
of a similar nature to those which have been disposed of;
(iii) within fourteen business days of receipt, the proceeds (net of
costs and expenses associated with such claim together with
transmission and foreign exchange costs and expenses) of any
insurance claim received by any Group Entity, other than where such
proceeds do not exceed DM1,000,000 (or its equivalent in any other
currency) in aggregate or where such proceeds arise from claims
under third party or public liability insurance policies and save
to the extent that such proceeds are demonstrated to the reasonable
satisfaction of the Agent to be paid to such Group Entity by way of
reimbursement of such Group Entity for amounts applied by such
Group Entity in respect of the damage or liability in relation to
which such relevant insurance claim was made prior to receipt of
such proceeds or to meet a liability in respect of which such
monies were received or are, within a period of 12 months of
receipt by the relevant Group Entity, demonstrated to the
reasonable satisfaction of the Agent to be applied to the
replacement and/or repair of the assets in respect of which the
relevant insurance claim was made or to meet such liability;
(iv) within two business days of receipt, the net proceeds received by
IFCO Europe or any Group Entity as a result of any Flotation of its
shares or any Flotation of the shares of any of its subsidiaries;
(v) within two business days of receipt, an amount equal to all amounts
which are raised out of (a) any loans or other Financial
Indebtedness (other than Permitted Loans and Permitted
Indebtedness) raised by the Borrower or any other member of the
Group and (b) the proceeds of any equity subscribed for in the
Borrower save to the extent that proceeds of any capital increase
need to be retained by the relevant company in order to comply with
applicable companies law; and
(vi) within fourteen business days of receipt, an amount equal to all
amounts paid by MTS to IFCO Europe by way of share dividends.
17.3 Any amount prepaid pursuant to Clauses 17.2(iv) or 17.2(v) shall be
immediately applied by the Agent in accordance with Clause 17.4 and any other
amounts prepaid pursuant to Clause 17.2 shall, at the Borrower's option, either
be immediately applied by the Agent in accordance with Clause 17.4 (in which
case the Borrower shall also pay any amounts payable pursuant to Clause 31.4) or
shall be held by the Agent in an interest bearing account (which shall be
secured to the reasonable satisfaction of the Agent) and shall then be applied
by the Agent on the last day of the then relevant current Interest Periods (in
the case of the Term Facility) or on the relevant Repayment Dates (in the case
of the Revolving Facilities) in accordance with the terms of Clause 17.4 and the
Agent is authorised to purchase with any amounts held by it hereunder, such
other currencies as may be necessary to enable it to make
<PAGE>
such applications.
17.4 Any amount prepaid pursuant to Clause 17.2 shall be applied as follows:
(a) first, against outstandings under the Term Facility against
instalments due on the remaining Term Repayment Dates in inverse
order of maturity;
(b) secondly, (after the Term Loan has been repaid) in prepayment of
outstanding Cash Advances (as specified by the Borrower or, failing
such specification, as the Agent shall determine) and permanent
reduction of the Available Revolving Facility; and
(c) thirdly, in procuring the release of the obligations of the Banks
and the Fronting Bank in respect of any Bank Guarantees (together
with the corresponding permanent reduction of the Available
Revolving Facility).
17.5 If, at any time, any person other than the Borrower or IFCO Europe
becomes the owner of any shares in any member of the Group then the Agent may,
by giving five business days' notice, require the Facilities to be prepaid in
full and the Borrowe r shall prepay the Outstandings in accordance with such
notice.
17.6 Any prepayments shall be made together with accrued interest thereon and
all other amounts (including, without limitation, any amounts payable under
Clause 33.4) payable under this Agreement in relation to the amount prepaid
calculated up to the date of prepayment.
17.7 The Borrower shall not repay or prepay all or any part of the Term Loan
or any Cash Advance except at the times and in the manner expressly provided in
this Agreement and shall not be entitled to reborrow any such amount of the Term
Loan repaid or prepaid.
17.8 Any notice of prepayment given by the Borrower pursuant to Clause 17.1
shall be irrevocable and shall specify the date upon which such prepayment is to
be made and the amount of such prepayment and shall oblige the Borrower to make
such prepayment on such date.
17.9 Nothing in this Clause 17 will permit any Group Entity to make any
disposal, sale, lease or transfer or undertake any other transaction not
otherwise permitted in accordance with the Facility Documents.
17.10 The rate of interest payable on any amounts held pursuant to Clause 17.3
pending application shall be the rate of interest then payable by the Agent to
its similar customers for deposits of similar amounts and duration.
18. Reductions in Revolving Commitments
18.1 On 30 September 2002 and 30 September 2003 part of the Tranche A
Revolving Commitments of the Revolving Banks shall be cancelled so that the
aggregate of the Tranche A Revolving Commitments shall be reduced on each of
those dates by DM5,000,000 (such
<PAGE>
cancellation to be applied amongst the Revolving Banks in their Tranche A
Proportions) and the Borrower shall ensure that sufficient amounts of the
Revolving Advances mature on such dates as are necessary to ensure that the
Tranche A Revolving Facility Outstandings do not exceed the aggregate Tranche A
Revolving Commitments as so reduced.
18.2 Where any Cash Advances are made under the Tranche B Revolving Facility
then the relevant limit set out in paragraph (vi) of the definition of Permitted
Indebtedness in relation to Finance Leases shall be reduced by an equal amount.
18.3 On the Final Maturity Date, each Bank's Revolving Commitment shall be
cancelled and reduced to zero.
19. Cancellation
19.1 The Borrower may, by giving to the Agent not less than thirty business
days' prior notice to that effect, cancel the whole or any part of the Available
Revolving Facility, being an amount of at least DM5,000,000 and an integral
multiple of DM1,000,000. Any such cancellation shall reduce the Revolving
Available Commitment of the Revolving Banks rateably.
19.2 Any notice of cancellation given by the Borrower pursuant to Clause 19.1
shall be irrevocable and shall specify the date upon which such cancellation is
to be made and the amount of such cancellation.
19.3 Each Bank's Commitment shall automatically be cancelled at the close of
business on the Termination Date.
<PAGE>
Part 6
CHANGES IN CIRCUMSTANCES
20. Taxes
20.1 All payments to be made by the Borrower to any person hereunder shall be
made free and clear of and without deduction for or on account of Tax except to
the extent that the Borrower is required to make such a payment subject to the
deduction or withholding of Tax. If the Borrower is required to make any
payment to any person hereunder subject to any deduction or withholding on
account of any Relevant Tax then the sum payable by the Borrower in respect of
which such deduction or withholding is required to be made shall be increased to
the extent necessary to ensure that, after the making of the required deduction
or withholding, such person receives and retains (free from any liability in
respect of any such deduction or withholding) a net sum equal to the sum which
it would have received and so retained had no such deduction or withholding been
made or required to be made Provided that the Borrower shall not be obliged to
increase any payment under this Clause 20.1 to any Bank not being or ceasing to
be a Qualifying Bank unless (i) the requirement to deduct or withhold would have
applied had such Bank been or continued to be a Qualifying Bank (in which case
the amount payable will not exceed the amount which would have been payable to a
Qualifying Bank) or (ii) such Bank is not or ceases to be a Qualifying Bank as a
result of a change of law or application of a double taxation treaty or
generally applied practice of the tax authorities in Germany required to make
such deduction or withholding.
20.2 Without prejudice to the provisions of Clause 20.1, if any person or the
Agent on its behalf is required to make any payment on account of Tax (not being
a tax imposed on the net income of its Facility Office by the jurisdiction in
which it is incorporated or in which its Facility Office is located) or
otherwise on or in relation to any sum received or receivable hereunder by such
person or the Agent on its behalf (including, without limitation, any sum
received or receivable under this Clause 20) or any liability in respect of any
such payment is asserted, imposed, levied or assessed against such person or the
Agent on its behalf, the Borrower shall, upon demand of the Agent, promptly
indemnify such person against such payment or liability, together with any
interest, penalties and expenses payable or incurred in connection therewith.
20.3 A Bank intending to make a claim pursuant to Clause 20.2 shall notify the
Agent of the event by reason of which it is entitled to do so, whereupon the
Agent shall notify the Borrower thereof showing reasonably detailed calculations
of such claim Provided that nothing herein shall require such Bank to disclose
any confidential information relating to the organisation of its affairs.
20.4 Each Bank confirms that it is not its intention to require any support or
securities from any foreign shareholder of the Borrower or any related party of
any such shareholder (other than the Borrower itself and its affiliates) other
than where such support arises by operation of applicable law and confirms that,
to the best of its knowledge and belief as at the date hereof, it has not
required any such support or securities Provided that, if any such support or
securities are deemed to have been provided and this gives rise to a liability
for any member of the Group or any shareholder of any such member or any related
party, notwithstanding this
<PAGE>
expression of intention, no Bank shall be liable in respect thereof and the
Borrower agrees that it will not assert any claim against any Bank in respect of
any such liability.
20.5 Each Bank confirms that, upon request from the Borrower, it will take
such steps as may be reasonable and practical in all the circumstances to
support the Borrower in providing evidence to the German tax authorities that no
such support or securities have been provided by any such foreign shareholders
or related parties, provided that no Bank shall be under any obligation to do
anything which would or might have an adverse effect upon its business,
operations or financial condition or the management of its Tax affairs and
provided further that nothing herein shall require any Bank to disclose any
confidential information relating to the organisation of its affairs.
21. Tax Credits
21.1 If, following any increase in any sum payable under this Agreement under
Clause 20.1, any Beneficiary shall receive or be granted a credit against or
remission for any Tax payable by it, that Beneficiary shall, subject to the
Borrower having made any increased payment in accordance with Clause 20.1 and to
the extent that such Beneficiary can do so in its sole opinion without
prejudicing the retention of the amount of such credit or remission and without
prejudice to its right to obtain any other relief or allowance which may be
available to it and to conduct its own tax affairs as it thinks fit, reimburse
such amount as that Beneficiary shall in its absolute discretion certify to be
the proportion of such credit or remission as will leave that Beneficiary (after
such reimbursement) in no worse position than it would have been in had no
increase been required under Clause 20.1.
21.2 Nothing contained in this Agreement or any of the Facility Documents
shall oblige any Beneficiary to rearrange its tax affairs or to disclose any
information regarding its tax affairs and computations.
22. Tax Receipts
22.1 If, at any time, the Borrower is required by law to make any deduction or
withholding from any sum payable by it hereunder (or if thereafter there is any
change in the rates at which or the manner in which such deductions or
withholdings are calculated), the Borrower shall promptly notify the Agent.
22.2 If the Borrower makes any payment hereunder in respect of which it is
required to make any deduction or withholding, it shall pay the full amount
required to be deducted or withheld to the relevant taxation or other authority
within the time allowed for such payment under applicable law and shall deliver
to the Agent for each Bank, within thirty days after it has made such payment to
the applicable authority, an original receipt (or a certified copy thereof)
issued by such authority evidencing the payment to such authority of all amounts
so required to be deducted or withheld in respect of that Bank's share of such
payment (or, if no such receipt is issued, evidence of such payment in form and
substance satisfactory to the Agent (acting reasonably)).
23. Increased Costs
<PAGE>
23.1 If, by reason of (i) any change in law after the date hereof or in its
interpretation or administration and/or (ii) compliance with any request from or
requirement of any central bank or other fiscal, monetary or other authority
after the date hereof (including, without limitation, a request or requirement
which affects the manner in which a Bank or any holding company of such Bank is
required to or does maintain capital resources having regard to such Bank's
obligations hereunder and to amounts owing to it hereunder) which, in either
case, affects banks such as the relevant Bank generally and with which it is
customary for banks such as the relevant Bank to comply:
(a) a Bank or any holding company of such Bank incurs a cost as a
result of such Bank's having entered into and/or performing its
obligations under the Facility Documents and/or assuming or
maintaining a commitment under the Facility Documents and/or making
one or more Advances hereunder and/or participating in any Bank
Guarantee;
(b) a Bank or any holding company of such Bank is unable to obtain the
rate of return on its overall capital which it would have been able
to obtain but for such Bank's having entered into and/or performing
its obligations and/or assuming or maintaining a commitment under
this Agreement;
(c) there is any increase in the cost to a Bank or any holding company
of such Bank of funding or maintaining all or any of the Advances
comprised in a class of Advances formed by or including the
Advances made or to be made by such Bank hereunder; or
(d) a Bank or any holding company of such Bank becomes liable to make
any payment on account of tax (not being a tax imposed on the net
income of such Bank's Facility Office by the jurisdiction in which
it is incorporated or in which its Facility Office is located) or
otherwise on or calculated by reference to the amount of the
Advances made or to be made by such Bank hereunder and/or such
Bank's participation in any Bank Guarantee issued or to be issued
hereunder and/or to any sum received or receivable by it hereunder;
then the Borrower shall, from time to time on demand of the Agent, promptly pay
to the Agent for the account of that Bank amounts sufficient to indemnify that
Bank or any such holding company against, as the case may be, (1) such cost, (2)
such reduction in such rate of return (or such proportion of such reduction as
is, in the opinion of that Bank, attributable to its obligations hereunder), (3)
such increased cost (or such proportion of such increased cost as is, in the
opinion of that Bank, attributable to its funding or maintaining Advances
hereunder) or (4) such liability.
23.2 Clause 23 shall not apply so as to oblige the Borrower to compensate or
indemnify the Agent or any Bank for any cost, interest cost, liability or
reduction:
(i) resulting from the introduction of or any change in or in the
interpretation or application by any relevant authority of, any
law, regulation, directive or request relating to the deduction,
withholding, payment or other imposition of any tax to which the
provisions of Clause 20.1 and/or 20.2 apply; or
<PAGE>
(ii) resulting from any change, request or requirement relating to tax
imposed on the overall net income of the Agent or any Bank by the
jurisdiction in which it is incorporated or in which its Facility
Office is located.
23.3 A Bank intending to make a claim pursuant to Clause 23.1 shall notify the
Agent of the event by reason of which it is entitled to do so, whereupon the
Agent shall notify the Borrower thereof showing reasonably detailed calculations
of such claim Provided that nothing herein shall require such Bank to disclose
any confidential information relating to the organisation of its affairs.
24. Illegality
If, at any time after the date hereof, it is or becomes unlawful or
contrary to any request from or requirement of any applicable fiscal, monetary
or other authority which it is customary for banks to comply with for a Bank to
make, fund or allow to remain outstanding all or any of the Advances made or to
be made by it hereunder or for such Bank or, as the case may be, the Fronting
Bank, to participate in the issue of, or allow to remain outstanding all or any
of its liabilities under, any Bank Guarantee, then that Bank or, as the case may
be, the Fronting Bank shall, promptly after becoming aware of the same, deliver
through the Agent to the Borrower a certificate to that effect and, unless such
illegality is avoided in accordance with Clause 25:
(a) such Bank (or, where relevant, the Fronting Bank) shall not
thereafter be obliged to participate in any Advances or to
participate in the issue of any Bank Guarantee and the amount (if
any) of its Commitment shall be reduced to zero on the earliest
date required by law; and
(b) if the Agent on behalf of such Bank so requires or, in the case of
(ii) below (if appropriate), the Fronting Bank so requires, the
Borrower shall:
(i) on the earliest date required by law or, if earlier, the
last day of the Term or current Interest Period thereof (as
applicable), repay such Bank's share of any such outstanding
Advances together with accrued interest thereon and all
other amounts owing to such Bank; and/or
(ii) on the earliest date required by law procure that such
Bank's or, as the case may be, Fronting Bank's obligations
under or in respect of any Bank Guarantees will be reduced
to zero or otherwise secured at the cost of the Borrower
(with one hundred per cent. (100%) cash security in Deutsche
Mark) in a manner acceptable to such Bank or, as the case
may be, the Fronting Bank,
Provided that any sums received by a Bank or, as the case may be, the
Fronting Bank under paragraph (ii) hereof shall be credited to an account
by such Bank or Fronting Bank bearing interest at such rate as such Bank
or Fronting Bank shall determine and the Bank or Fronting Bank shall
until the expiry date of any such outstanding Bank Guarantees or, if
earlier, the date on which the Agent declares any Advances
<PAGE>
outstanding hereunder to be due and payable pursuant to Clause 30.2,
account to the Borrower for such interest.
25. Mitigation
If circumstances arise in respect of the Agent or any Bank which would, or would
upon the giving of notice, result in:
(i) the reduction of its Commitment to zero pursuant to Clause 24;
(ii) the prepayment of its share of the Advances pursuant to Clause 24;
(iii) an increase in the amount of any payment to be made to it for its
account pursuant to Clause 20.1; or
(iv) a claim for indemnification pursuant to Clause 20.2 or 23.1
then, without in any way limiting, reducing or otherwise qualifying the
obligations of the Borrower under Clauses 20 to 24 inclusive, the Agent or such
Bank (as the case may be) shall, upon written request from the Borrower take
such steps as may be reasonable and practical in all the circumstances to
mitigate the effects of those circumstances including (without limitation)
submitting all forms required by a national taxation authority in connection
with the payment of gross sums under any applicable double tax treaty, the
transfer of its lending office to another jurisdiction or the assignment of all
its rights hereunder to and assumption of all its obligations hereunder by
another bank or financial institution acceptable to the Borrower (acting
reasonably) and the Fronting Bank which is willing to participate in the
Facilities in its place, provided that neither the Agent nor the Bank shall be
under an obligation to submit any such forms or to make any such transfer or
assignment and transfer if, in its reasonable opinion, it would or might have an
adverse effect upon its business, operations or financial condition or the
management of its Tax affairs.
<PAGE>
Part 7
REPRESENTATIONS, COVENANTS AND EVENTS OF DEFAULT
26. Representations
26.1 Subject to the provisions of the Disclosure Letter, the Borrower hereby
represents to each of the Beneficiaries in respect of itself and in respect of
each other Group Entity (but in relation to any such other Group Entity to the
best of the Borrower's knowledge and belief (having made all due enquiries))
and, in the case of Clauses 26.1(i) to (iv) inclusive, Clauses 26.1(ix) to (xi)
inclusive, Clause 26.1(xiii) (but only in relation to the Facility Documents),
and Clause 26.1(xvi), IFCO Europe represents in respect of itself that:
(i) it is a corporation duly incorporated, validly existing and
registered under the laws of the jurisdiction in which it is
incorporated, capable of being sued in its own right and not
subject to any immunity from any proceedings and has the power and
all necessary governmental and other material consents, approvals,
licences and authorisations under any applicable jurisdiction to
own its property and assets and to carry on its business
substantially as currently conducted;
(ii) subject to the Reservations it has the power to enter into and
perform its obligations under each of the Facility Documents to
which it is a party and has taken all necessary corporate and other
action to authorise the execution, delivery and performance of each
of the Facility Documents, to which it is a party;
(iii) (subject to the Reservations) no limit on its powers will be
exceeded as a result of the borrowings, granting of security or
giving of guarantees contemplated by the Facility Documents to
which it is a party and (subject to the Reservations) those
documents constitute its legal, valid and binding and enforceable
obligations;
(iv) the execution by it of each of the Facility Documents to which it
is a party and the exercise by it of its rights and the performance
of its obligations thereunder including, without limit, borrowing
hereunder, granting any security or giving guarantees contemplated
by the Facility Documents will not (a) result in the existence or
imposition of nor oblige it or any Group Entity to create any
Encumbrance (other than any Permitted Encumbrance) in favour of any
person over all or any of its present or future revenues or assets
(b) conflict in any material respect with any agreement, mortgage,
bond or other instrument to which it is a party or which is binding
upon it or any of its assets (c) conflict with its constitutive
documents and rules and regulations or (d) (subject to the
Reservations) conflict with any existing applicable law, regulation
or official or judicial order in its jurisdiction of incorporation;
(v) no litigation, arbitration, administrative proceedings, or
governmental or regulatory investigations, proceedings or disputes
have been commenced or,
<PAGE>
to the best of its knowledge and belief (having made all due
enquiries), threatened against any Group Entity or its respective
assets or revenues nor, to its knowledge, are there any
circumstances likely to give rise to any such litigation,
arbitration, administrative proceedings, or governmental or
regulatory investigations, proceedings or disputes which in any
such case might reasonably be expected to have a Material Adverse
Effect;
(vi) neither it nor any member of the Group has any Financial
Indebtedness (other than (i) Existing Indebtedness which will be
repaid on the date on which the first Advance is made hereunder or
(ii) Permitted Indebtedness) and no Encumbrances (other than
Permitted Encumbrances) existing over all or any of its or their
present or future revenues, undertakings or assets;
(vii) to the best of its knowledge and belief (having made all due
enquiry) no Event of Default has occurred which has not been either
remedied (or otherwise ceased to be continuing) or expressly waived
in writing;
(viii)the Information Memorandum, the Business Plan and any lists or
other reports prepared by the Borrower and supplied to the Agent in
connection herewith have been prepared after due and careful
consideration and, to the best of its knowledge and belief (having
made all due enquiry)
(a) it is not aware of any material inaccuracy as to factual
matters relating to the Group in the Reports, the Information
Memorandum or the Business Plan;
(b) it does not (as at the date thereof) disagree with nor regard
as unreasonable or unattainable any of the forecasts or
projections set out in the Reports, the Information
Memorandum or the Business Plan;
(c) the assumptions upon which the forecasts and projections
contained in the Reports, the Information Memorandum and the
Business Plan are based are in its opinion (having made all
reasonable enquiries) fair and reasonable;
(d) it is not aware of any significant facts or matters not
stated in the Reports the Information Memorandum or the
Business Plan, the omission of which in its reasonable
opinion might make any statements contained therein
misleading in any material respect; and
(e) it has made full disclosure of all requested information
relevant to the preparation of the Reports and the
Information Memorandum to all the persons responsible for or
involved in preparing the Reports and the Information
Memorandum;
(ix) the Original Financial Statements and the latest Financial
Statements delivered hereunder were prepared in accordance with the
Accounting Principles and give (in conjunction with the notes
thereto) a true and fair view
<PAGE>
of the financial condition of the Group at the date as of which
they were prepared and the results of the Group's operations during
the Accounting Reference Period then ended and any other accounts
delivered under this Agreement fairly represent (or in the case of
any management accounts the Borrower believes, acting reasonably,
that they fairly represent) the financial condition of the Group at
the date at which they were prepared and the results of the Group's
operations during the period to which such accounts relate;
(x) to the best of its knowledge and belief (having made all due
enquiry) neither it nor any Group Entity, as at the date as of
which any Financial Statements were prepared, failed to disclose or
reserve against any liabilities (contingent or otherwise) material
in relation to the Group as a whole nor any material unrealised
anticipated losses of the Group (which were material to the Group
as a whole) arising from commitments entered into by it which, in
accordance with the Accounting Principles, it should have disclosed
or reserved against;
(xi) there has been no material adverse change in the financial
condition or business of the Group since 30 September 1997;
(xii) to the best of its knowledge and belief (having made all due
enquiry), (a) it is and has been in full compliance in all material
respects with all applicable Environmental Laws and (b) it has been
and is in all material respects in compliance with the terms of all
Environmental Approvals necessary for the ownership and operation
of its facilities and businesses as presently owned and operated
and as presently proposed to be owned and operated the failure to
comply with which might reasonably be expected to have a Material
Adverse Effect;
(xiii)all necessary consents to the transactions constituted by the
Investment, the Facility Documents and the Senior Subordinated
Facility Documents have been obtained where failure to obtain them
might reasonably be expected to have any significant effect on the
rights or entitlements of the Beneficiaries under this Agreement or
the commercial value of the security granted pursuant to the Senior
Security Documents;
(xiv) to the best of its knowledge and belief (and in reliance upon
information supplied by GE), all necessary consents, licences and
other things (other than any necessary corporate action on the part
of GE) have been obtained or carried out to enable GE to own
(beneficially as well as legally) up to and including 100% of the
shares in IFCO Europe;
(xv) to the best of its knowledge, information and belief the Material
Group Entities have complied in all material respects with all
Taxation laws in the jurisdiction of their incorporation and where
they carry on their business;
(xvi) the claims of the Beneficiaries against it under any of the
Facility Documents to which it is a party will rank at least pari
passu with the claims of all its
<PAGE>
other unsecured and unsubordinated creditors save, in either case,
those whose claims are preferred solely by any bankruptcy,
insolvency, liquidation, merger or other similar laws of general
application;
(xvii) to the best of its knowledge and belief having made all due
enquiries it is not in breach of or in default under any agreement
to which it is a party or which is binding on it or any of its
assets to an extent or in a manner which might reasonably be
expected to have a Material Adverse Effect;
(xviii) it is not aware of any matter which would materially affect the
validity, subsistence or use of any of the Material Intellectual
Property;
(xix) it has and each Group Entity has good title to or valid leases or
licences of all of its assets necessary to carry on its business as
presently conducted, the absence of which might reasonably be
expected to have a Material Adverse Effect;
(xx) the Material Intellectual Property is, in the case of the Material
Intellectual Property set out in the Ninth Schedule, owned by the
Group Entity disclosed as the owner of such Material Intellectual
Property in such Schedule, and in the case of any other Material
Intellectual Property owned by the Borrower or such other Group
Entity as has been disclosed in writing to the Agent;
(xxi) GBL has no creditors other than the Borrower and SPI and SPI is a
creditor of GBL only to the extent of that part of the purchase
price for the Patent which remains unpaid;
(xxii) there has been no significant amendment, variation or waiver of the
terms of the Investment Agreement or the Supply Agreement save as
approved in writing by the Agent and it is acknowledged that, for
the avoidance of doubt, any amendment having the effect (in the
opinion of the Banks) of reducing the extent of the rights and
obligations of either GE or General Electric Capital Corporation
under the Investment Agreement shall be considered to be
significant;
(xxiii) it is not aware that any of the representations and warranties made
in favour of General Electric Capital Corporation contained in the
Investment Agreement were incorrect or untrue in any material
respect when made;
(xxiv) all crate rental contracts entered into by the Borrower with
growers are expressly governed by German law and all arrangements
entered into by the Borrower with its subsidiaries in relation to
crates are governed by German law;
(xxv) the chart showing the structure of the Group and set out in the
Seventh Schedule is true, correct and accurate in all material
respects;
(xxvi) the Existing Indebtedness is as set out in the Eighth Schedule and
the
<PAGE>
definition of Leasing Facilities;
(xxvii) Apollo is a dormant company, has no assets and is not trading;
and
(xxviii) at the date of this Agreement, the aggregate amount of all
receivables owed to the Borrower is at least 70% of the
aggregate amount of all receivables owed to the Group.
26.2 The representations and warranties in Clause 26.1 and the Disclosure
Letter shall survive the execution hereof and the making of each Advance under
this Agreement and (save for the representation at Clause 26.1(xxviii)) shall be
repeated in the notification made by the Borrower to the Agent pursuant to
Clause 12.2 and (save for the representations contained in sub-clause (viii) of
Clause 26.1 (which shall only be repeated upon each date that any update of the
Information Memorandum is agreed with the Agent pursuant to Clause 29.11 and
then only in respect of such updated information)) on the first day of each
Interest Period and at the end of each successive period of six months ending
during an Interest Period or Term, by reference to the facts and circumstances
then existing.
27. Financial Information
27.1 So long as any of the Beneficiaries have any amounts outstanding to them
or are under any commitment, obligation or liability (whether actual or
contingent) to make Advances or provide other financial accommodation to the
Borrower under or pursuant to this Agreement or any other Facility Document
(including any Bank Guarantee) the Borrower shall:
(i) as soon as the same become available, but in any event within
120 days after the end of each of its financial years deliver
to the Agent:
(a) the audited consolidated financial statements (including
balance sheet (Bilanz), profit and loss (Gewinn-und
Verlustrechnung) and cash flow statements (Lagebericht
including Vermogens-und Finanzlange and
KapitalfluBrechnung) of IFCO Europe for such financial
year Provided that if, at any time, the difference between
the consolidated financial statements of IFCO Europe and
the consolidated financial statements of the Group (if
such had been prepared at such time) would represent
something other than solely the capital value of IFCO
Europe at such time and its investment (if any) in MTS or
if the Agent (acting reasonably) requires, the Borrower
shall provide the audited consolidated financial
statements of the Group;
(b) the unconsolidated financial statements (including balance
sheet (Bilanz) and profit and loss (Gewinn-und
verlustrechung)) of each Group Entity for such financial
year (which shall be audited where such financial
statements are, in accordance with applicable law,
required to be audited);
(c) a certificate from a Duly Authorised Officer of the
Borrower (confirmed by a certificate from the Auditors)
setting out in reasonable detail the
<PAGE>
Excess Cash Flow calculation for such financial year and
certifying the Total Debt to Adjusted EBITDA ratio for the
purposes of Clause 13.4 for such financial year (supported
by reasonably detailed calculations), together with a list
of the then Material Group Entities;
(d) a compliance certificate in a form reasonably acceptable to
the Agent issued by the Auditors certifying whether or not
the financial covenants in Clause 28 have been observed,
supported by reasonably detailed calculations and confirming
that VAT has been correctly treated by the Group during the
financial year to which such certification relates (the
first such compliance certificate to be provided in relation
to the audited financial statements for the Accounting
Reference Period ending 31 December 1998);
(e) a certificate of an Authorised Signatory of the Borrower
certifying that as of the date thereof and to the best of
his/her knowledge and belief (having made all due enquiry)
no Event of Default has occurred or, if it has occurred, a
description thereof and the action taken or proposed to be
taken to remedy it; and
(f) a comparison against the Budget for such period;
(ii) as soon as the same become available, but in any event within (x)
in the case of each Financial Quarter falling before the first
anniversary hereof, 60 days and (y) in any other case 45 days
after the end of each Financial Quarter deliver to the Agent:
(a) the unaudited consolidated financial statements of the Group
for such period, including consolidated balance sheet
(Bilanz), consolidated profit and loss accounts (Gewinn-und
Verlustrechnung) and cash flow statements (Lagebericht
including Vermogens-und Finanzlange and
KapitalfluBrechnung), and a report on the business
comprising a consolidated statement of the revenues and
expenditures of the Group, all such financial statements to
be in a format acceptable to the Agent;
(b) a compliance certificate in a form reasonably acceptable to
the Agent given on behalf of the Borrower by a Duly
Authorised Officer certifying whether or not the financial
covenants in Clause 28 have been observed and certifying the
Total Debt to Adjusted EBITDA ratio for the purpose of
Clause 13.4 for such Financial Quarter, in each case
supported by reasonably detailed calculations;
(c) a written report of a Duly Authorised Officer of the
Borrower explaining in reasonable detail any material
differences between the actual performance of the Group
during such Financial Quarter and the performance of the
Group forecast in the budget for such period and providing a
forecast of the performance of the Group for the next twelve
months; and
<PAGE>
(d) a written report of a Duly Authorised Officer of the
Borrower setting out, in reasonable detail, an analysis of
the status of the crates over the previous four Financial
Quarters including details of crate breakages and the rate
of turnover per crate (including the number of cycles per
crate for such Relevant Period).
(iii) as soon as the same become available, but in any event within (x)
in the case of each calendar month falling on or after 31 January
1998 but before the first anniversary of the date hereof, 45 days
and (y) in any other case 30 days after the end of each calendar
month, deliver to the Agent:
(a) the management accounts of the Group (on a consolidated and
unconsolidated basis) for such calendar month (on a
month-to-month and cumulative basis and in a form reasonably
acceptable to the Agent) and providing a management
commentary thereon as to, inter alia, the Group's
performance during such calendar month and any material
developments or proposals affecting the Group or its
business;
(b) a compliance certificate in a form reasonably acceptable to
the Agent given on behalf of the Borrower by a Duly
Authorised Officer certifying the Total Debt to Adjusted
EBITDA ratio for the purpose of Clause 13.4 for such
calendar month, supported by reasonably detailed
calculation; and
(c) a report containing sufficiently detailed information
regarding the extent (both as to volume and amount) of
leasing which each Group Entity (on a subsidiary by
subsidiary basis) enters into as principal with growers and
the amount of receivables owing to each such Group Entity;
and
(iv) from time to time on the request of the Agent, furnish the Agent
with such information about the business, operations,
performance, prospects and financial condition of the Group or
any Group Entity or any other information as the Agent or any
Bank through the Agent may reasonably require, in particular all
information and documents as may be required under Sections 13,
13(a) and 18 of the German Banking Act (Gesetz uber das
Kreditwesen).
27.2 The Borrower shall, as soon as the same become available, and in any
event not later than 30 days before the beginning of any Accounting Reference
Period commencing with the financial year beginning 1 January 1999, deliver to
the Agent in sufficient copies for the Banks an annual Budget prepared by
reference to each month in respect of such financial year of the Group
including:
(i) forecasts of projected disposals (including timing and amount
thereof) of the Group for such Accounting Reference Period and
for the next two succeeding Accounting Reference Periods;
<PAGE>
(ii) projected annual profit and loss accounts for, and projected
balance sheets and cash flow statements on a monthly basis for,
such Accounting Reference Period and for the next two succeeding
Accounting Reference Periods on a consolidated basis for the
Group including a detailed working capital plan with an
explanation of the assumptions made with respect to the Group's
working capital requirements;
(iii) a qualitative analysis and commentary from the management on its
proposed activities for such Accounting Reference Period and for
the next two succeeding Accounting Reference Periods and such
financial years;
(iv) projections of Capital Expenditure; and
(v) targets for the turnover rate of the container pool and the
average annual breakage rate
and the Borrower shall forthwith provide the Agent with details of any material
changes in the projections delivered under Clause 27.2 as soon as it becomes
aware of any such change.
27.3 The Borrower shall ensure that:
(i) each set of financial statements delivered by it pursuant to
Clause 27.1 and 27.2 is prepared in accordance with the
Accounting Principles and (other than changes to the basis in
order to accord with the Accounting Principles where an
appropriate agreement has been reached in accordance with Clause
27.4) on the same basis as is used in the preparation of the
Original Financial Statements together with an appropriate
reconciliation statement in relation to financial statements not
prepared in accordance with the Accounting Principles and that
each statement in respect of the Group is prepared on a
consolidated and consolidating basis;
(ii) each set of financial statements delivered by it pursuant to
Clause 27.1(i), (ii) or (iii) is certified on behalf of the
Borrower by an Authorised Signatory of the Borrower (a) (in the
case of each set of financial statements delivered by it under
Clause 27.1(i)) as giving (where such financial statements are
audited) a true and fair view of the financial condition of the
Group and each Group Entity as at the end of the period to which
those financial statements related and of the results of its
operations during such period or (where such financial statements
are not audited) fairly represent the financial condition of the
Group and each Group Entity as at the end of the period to which
those financial statements related and of the results of its
operations during such period and (b) (in the case of each set of
financial statements delivered by it under Clause 27.1(ii) and
(iii)) as being (to the best of his/her knowledge and belief)
accurate in all material respects; and
(iii) each set of financial statements delivered by it pursuant to
Clause 27.1(i)(a) has been audited by the Auditors.
<PAGE>
27.4 Without prejudice to the obligations contained in Clause 27.3(i), if any
accounts to be delivered under Clause 27.1 are prepared on a basis not
contemplated by Clause 27.3(i) or the Accounting Principles in effect on the
date as of which the Original Financial Statements were prepared (as
appropriate) change in a way that affects the financial covenants contained in
Clause 28 or the calculation of Excess Cash Flow:
(i) the Agent (acting on the instructions of an Instructing Group)
and the Borrower shall, at the Agent's request, negotiate in good
faith with a view to agreeing such amendments to the financial
covenants in Clause 28 or the calculation of Excess Cash Flow
and/or the definitions used therein as may be necessary to grant
to the Banks protection comparable to that granted on the date
hereof, and any amendments as agreed will have effect on the date
agreed between the Agent and the Borrower; and
(ii) if no such agreement is reached within 30 days of the Agent's
request, the Agent shall (if so requested by an Instructing
Group) instruct independent accountants to determine any
amendments to Clause 28 or the calculation of Excess Cash Flow
which those accountants (acting as experts and not as
arbitrators) consider appropriate to grant to the Banks
protection comparable to that granted on the date hereof, which
amendments shall be binding and shall take effect when so
determined by those accountants. The reasonable cost and expenses
of those accountants shall be for the account of the Borrower.
27.5 Each set of accounts, financial reports and other documents delivered to
the Agent under Clause 27 shall be delivered in sufficient copies for each Bank.
27.6 The Borrower shall promptly on the appointment of any replacement
Auditors execute and deliver a letter in the agreed form to authorise the
Auditors to confirm to and discuss with the Agent (upon or after the occurrence
of an Event of Default which is continuing unremedied and unwaived and having
given the Borrower an opportunity to attend such discussions) the factual
accuracy of information related to or arising out of the annual audit of the
Group by the Auditors and the due application of the Accounting Principles to
the audit process and shall procure that the Auditors acknowledge such
authorisation. Under conditions that normally apply to audits in accordance with
generally accepted audit standards, the Borrower shall provide the Auditors with
unrestricted access to all and any information available to or in the possession
of the Borrower or any other Group Entity in this regard and shall otherwise
ensure that full co-operation is afforded to the Auditors.
27.7 The Borrower hereby undertakes to provide to the Agent on a monthly basis
(in sufficient copies for the Banks) information (in such form and containing
such details as the Agent may reasonably require) regarding the installation of
information technology systems within the Group and regarding the appointment of
a Chief Operations Co-ordinator for the Group and a Financial Controller for the
Group and, in any case, to ensure that a Chief Operations Co-ordinator for the
Group and a Financial Controller of the Group (in each case acceptable to IFCO
Europe) is appointed within three months of the date hereof and to ensure that
the information technology systems are installed in a timely fashion and in
accordance with the timetable set out in the IT Schedule.
<PAGE>
27.8 The Borrower shall supply to the Agent in sufficient copies for the
Banks:
(i) all documents despatched to the shareholders of the Borrower
which are required to be sent to such shareholders by law without
their specific request; and
(ii) all documents despatched by or on behalf of the Borrower to its
creditors generally in their capacity as such,
in all cases at the same time as such documents are despatched.
27.9 The Borrower shall provide to the Agent, in sufficient copies for the
Banks, the annual Budget for 1998 prepared by reference to each month in respect
of the financial year of the Group ending on 31 December 1998 and containing all
of the information set out in Clauses 27.2 (i) to (v) inclusive by no later than
31 March 1988.
28. Financial Condition
28.1 The Borrower shall ensure that:
(i) Senior Interest Cover Ratio
(a) the ratio of EBITA to Senior Interest Expense, calculated on an
Adjusted Rolling Basis, shall not, in respect of any Adjusted
Relevant Period ending on each Financial Quarter set out below be
less than the ratio set out below as applicable in relation to
that Financial Quarter:
Financial Quarter Ending Ratio
31 March 1998 1.7:1
30 June 1998 2.3:1
30 September 1998 2.6:1
and
(b) the ratio of EBITA to Senior Interest Expense, calculated on a
Rolling Basis, shall not in respect of any Relevant Period ending
on each Financial Quarter be less than the ratio set out below as
applicable in relation to that Financial Quarter:
Financial Quarter Ending Ratio
31 December 1998 3.0:1
31 March 1999 3.5:1
30 June 1999 4.0:1
30 September 1999 4.5:1
31 December 1999 4.7:1
<PAGE>
30 March 2000 5:1
and
(c) the ratio of EBITA to Senior Interest Expense, calculated on a
Rolling Basis, shall not, in respect of any Relevant Period
ending in each Financial Quarter beginning after 30 March 2000 be
less than 5:1;
(ii) Total Interest Cover
(a) the ratio of EBITA to Total Interest Expense, calculated on an
Adjusted Rolling Basis, shall not, in respect of any Adjusted
Relevant Period ending on the last day of each Financial Quarter
set out below be less than the ratio set out below as applicable
in relation to that Financial Quarter:
Financial Quarter Ending Ratio
31 March 1998 1.2:1
30 June 1998 1.7:1
30 September 1998 1.9:1
and
(b) the ratio of EBITA to Total Interest Expense, calculated on a
Rolling Basis, shall not, in respect of any Relevant Period
ending on the last day of each Financial Quarter be less than the
ratio set out below as applicable in relation to that Financial
Quarter:
Financial Quarter Ending Ratio
31 December 1998 2.1:1
31 March 1999 2.5:1
30 June 1999 2.8:1
30 September 1999 3:1
31 December 1999 3:1
30 March 2000 4:1
30 June 2000 4:1
30 September 2000 4:1
31 December 2000 4:1
31 March 2001 4:1
30 June 2001 4:1
30 September 2001 4:1
31 December 2001 4:1
31 March 2002 4:1
30 June 2002 4:1
30 September 2002 4:1
31 December 2002 4:1
31 March 2003 4:1
<PAGE>
30 June 2003 4:1
30 September 2003 4:1
31 December 2003 4:1
31 March 2004 4:1
30 June 2004 4:1
30 September 2004 4:1
(iii) Total Cash Cover
(a) the ratio of Cash Flow in respect of any Adjusted Relevant Period
to Total Debt Service shall not be less than 1.1:1.
and
(b) the ratio of Cash Flow in respect of any Relevant Period to Total
Debt Service shall not be less than the amount set out below
alongside such period:
Financial Quarter Ending Ratio
31 December 1998 1.1:1
31 March 1999 1.1:1
30 June 1999 1.1:1
30 September 1999 1.1:1
31 December 1999 1.1:1
30 March 2000 1.1:1
30 June 2000 1.1:1
30 September 2000 1.1:1
31 December 2000 1.1:1
31 March 2001 1.1:1
30 June 2001 1.1:1
30 September 2001 1.1:1
31 December 2001 1.1:1
31 March 2002 1.1:1
30 June 2002 1.1:1
30 September 2002 1.1:1
31 December 2002 1.1:1
31 March 2003 1.1:1
30 June 2003 1.1:1
30 September 2003 1.1:1
31 December 2003 1.1:1
31 March 2004 1.1:1
30 June 2004 1.1:1
30 September 2004 1.1:1
(iv) Net Worth
the Net Worth of the Group shall not at any time during any period
specified below be less than the amount set out below alongside such
period:
<PAGE>
Financial Quarter Ending Amount (DM,000,000)
31 March 1998 63.8
30 June 1998 64.4
30 September 1998 65.3
31 December 1998 66.5
31 March 1999 67.6
30 June 1999 69.0
30 September 1999 70.7
31 December 1999 72.3
30 March 2000 74.0
30 June 2000 75.0
30 September 2000 76.0
31 December 2000 77.5
31 March 2001 78.0
30 June 2001 79.0
30 September 2001 80.0
31 December 2001 80.0
31 March 2002 85.0
30 June 2002 90.0
30 September 2002 95.0
31 December 2002 100.0
31 March 2003 105.0
30 June 2003 110.0
30 September 2003 115.0
31 December 2003 120.0
31 March 2004 130.0
30 June 2004 140.0
30 September 2004 160.0
(v) Leverage
(a) the ratio of Total Debt on the last day of the Financial Quarter
set out below to Annualised Adjusted EBITDA for the Adjusted
Relevant Period shall not exceed the ratio set out below as
applicable for that Financial Quarter;
Financial Quarter Ending Ratio
31 March 1998 6.5:1
30 June 1998 5.8:1
30 September 1998 5.3:1
and
(b) subject to clause 28.2 the ratio of Total Debt on the last day of
the Financial Quarter set out below to Adjusted EBITDA for the
Relevant Period shall not exceed the ratio set out below as
applicable for that Financial Quarter;
<PAGE>
Financial Quarter Ending Ratio
31 December 1998 5.3:1
31 March 1999 4.7:1
30 June 1999 4.4:1
30 September 1999 4:1
31 December 1999 4:1
30 March 2000 3.7:1
30 June 2000 3.5:1
30 September 2000 3.4:1
31 December 2000 3.3:1
31 March 2001 3.1:1
30 June 2001 2.7:1
30 September 2001 2.6:1
31 December 2001 2.5:1
31 March 2002 2.5:1
30 June 2002 2.5:1
30 September 2002 2.5:1
31 December 2002 2.5:1
31 March 2003 2.5:1
30 June 2003 2.5:1
30 September 2003 2.5:1
31 December 2003 2.5:1
31 March 2004 2.5:1
30 June 2004 2.5:1
30 September 2004 2.5:1
28.2 If either:
(a) at the end of any Financial Quarter referred to below the number of
CrateTurns Per Year calculated on a Rolling Basis exceeds, by ten per
cent or more, the figure set out for such Financial Quarter in the
Business Plan; or
(b) at the end of any Financial Quarter referred to below, the Breakage
Rate set out in the Business Plan exceeds the actual Breakage Rate by
ten per cent or more (calculated on a Rolling Basis), for such
Financial Quarter;
and, in either case,
(c) Adjusted EBITDA for the Relevant Period is greater than ten per cent
of the Adjusted EBITDA for such Relevant Period set out in the
Business Plan,
then the ratio for the relevant Financial Quarter set out in Clause 28.1(v)(b)
shall be adjusted so that the Borrower shall ensure that the ratio of Total Debt
on the last day of the Financial Quarter set out below during which the
conditions set out above have been met shall not exceed the ratio set out below
as applicable thereto:
<PAGE>
Financial Quarter Ending Ratio
30 June 1999 4.6:1
30 September 1999 4.5:1
31 December 1999 4.3:1
30 March 2000 4.0:1
30 June 2000 3.7:1
30 September 2000 3.5:1
28.3 (i) The covenants contained in Clauses 28.1(i), (ii), (iii) and (v) will
be tested as of the dates specified in those Clauses, by reference to
the quarterly accounts delivered pursuant to Clause 27.1(ii) and by
reference to the audited accounts delivered pursuant to Clause
27.1(i).
(ii) The covenant contained in Clause 28.1(iv) shall be complied with at
all times and for this purpose Net Worth shall be subject to
adjustment on a continuing basis by any losses or profits
demonstrated by the monthly accounts delivered pursuant to Clause
27.1(iii), the quarterly accounts delivered pursuant to Clause
27.1(ii) and the audited accounts delivered pursuant to Clause
27.1(i).
28.4 If, at any time the covenants contained in Clauses 28.1 are breached, the
Borrower shall ensure that no Capital Expenditure shall be made by any member of
the Group for so long as the covenants contained in those clauses (or any of
them) are not met and the Borrower shall provide a proposal to remedy such
breach in form and substance satisfactory to an Instructing Group.
28.5 The expressions used in Clause 13, Clause 27, this Clause 28 and in the
definition of Excess Cash Flow shall, subject as provided herein, be calculated
by reference to the Group and be construed in accordance with the Accounting
Principles but so that the capitalised terms used in such Clauses and in such
definitions shall, for the purposes of those Clauses and definitions have the
following meanings:
(i) "Adjusted EBITDA" means, in relation to any Relevant Period (or,
where appropriate, Adjusted Relevant Period), EBITDA for such period
plus the amount of rentals under Finance Leases during such Relevant
Period less any Replacement Capital Expenditure made in that period;
(ii) "Adjusted Relevant Period" means, (a) in respect of the First
Financial Quarter ending in 1998, such Financial Quarter, (b) in
respect of the Second Financial Quarter ending in 1998, the period
from 1 January 1998 to 30 June 1998 and (c) in respect of the third
Financial Quarter ending in 1998, the period from 1 January 1998 to
30 September 1998;
(iii) "Adjusted Rolling Basis" refers to any calculation of a ratio or an
amount made at the end of a Financial Quarter in respect of that
Financial Quarter, or, where the relevant Financial Quarter is not
the first Financial Quarter of 1998:
<PAGE>
(a) where the calculation is made in relation to the second Financial
Quarter of 1998, that Financial Quarter and the previous
Financial Quarter; and
(b) where the calculation is made in relation to the third Financial
Quarter of 1998, that Financial Quarter and the previous two
Financial Quarters;
(iv) "Annualised Adjusted EBITDA" means:
(a) in relation to the Financial Quarter ending on 31 March 1998,
Adjusted EBITDA for such period multiplied by four;
(b) in relation to the Financial Quarter ending on 30 June 1998, the
sum of Adjusted EBITDA for such period divided by two and
multiplied by four; and
(c) in relation to the Financial Quarter ending on 30 September 1998,
the sum of Adjusted EBITDA for such period divided by three and
multiplied by four;
(v) "Breakage Rate" means, in respect of any Relevant Period, the average
number of crates which have been leased by any Group Entity to
growers which are broken during a crate cycle expressed as a
percentage of the number of completed crate cycles during such
Relevant Period;
(vi) "Capital Expenditure" means, in respect of any Relevant Period (or,
where appropriate, Adjusted Relevant Period), Replacement Capital
Expenditure, Growth Capital Expenditure and any other capital
expenditure;
(vii) "Cash Flow" means, in respect of any Relevant Period or, where
applicable, any Adjusted Relevant Period, EBITDA for such period
adjusted as follows:
(a) deducting taxes paid during the relevant Accounting Reference
Period;
(b) deducting increases (or adding decreases) in Working Capital over
the relevant Accounting Reference Period;
(c) deducting Capital Expenditure;
(d) deducting the actual cash effect of extraordinary charges and
adding the actual cash effect of extraordinary income under the
Accounting Principles during the relevant Account Reference
Period;
(e) deducting the actual cash effect of currency losses and adding
the actual cash effect of currency gains during the relevant
Accounting Reference Period;
<PAGE>
(f) adding the actual cash effect of disposals (deducting any
profit element and/or adding any loss made on) of any asset
made during the relevant Accounting Reference Period permitted
hereunder; and
(f) plus any net increase or minus any net decrease in the capital
element of any Permitted External Leasing entered into during
such Accounting Reference Period;
(viii) "Crate Turns Per Year" means, in respect of any Relevant Period, the
average number of income generating completed crate cycles made by
all crates owned by or leased to all Group Entities during such
Relevant Period;
(ix) "Current Assets" means at any time the sum of Inventory, trade
receivables, receivables from affiliates and other receivables,
marketable securities and prepaid expenses, in each case as set out
in sections 266(2)B and C of the Commercial Code (HGB), but
excluding cash at bank and in hand;
(x) "EBIT" means for any Relevant Period (or, where appropriate,
Adjusted Relevant Period), the consolidated earnings of the Group
for such Relevant Period (or, where appropriate, Adjusted Relevant
Period) before (or, if already taken into account in calculating the
consolidated earnings of the Group, after adding back):
(a) any expense or income on account of income taxes and deferred
taxation;
(b) any interest (excluding the amount of rentals under Finance
Leases), commissions, discounts and other fees incurred by any
Group Entity in respect of Financial Indebtedness and of the
costs relating to hedging permitted under the Permitted
Treasury Transactions;
(c) any interest earned by any Group Entity; and
(d) items treated as extraordinary income or charges under the
Accounting Principles;
(xi) "EBITA" means, in respect of any Relevant Period (or, where
appropriate, Adjusted Relevant Period), EBIT for such Relevant
Period (or, where appropriate, Adjusted Relevant Period) plus
amortisation;
(xii) "EBITDA" means in respect of any Relevant Period (or, where
appropriate, Adjusted Relevant Period), EBIT for such Relevant
Period (or, where appropriate, Adjusted Relevant Period) plus
depreciation and amortisation;
(xiii) "Financial Quarter" means each of those periods of approximately
three calendar months in any financial year of the Group ending on
any Quarter Date;
<PAGE>
(xiv) "Growth Capital Expenditure" means, in respect of any Relevant
Period (or, where appropriate, Adjusted Relevant Period),
expenditure by a Group Entity in financing the purchase of crates
which results in an increase in the number of crates owned by or
leased to the Group;
(xv) "Liabilities" means at any time the sum of all liabilities
(including trade creditors, accruals, amounts payable to affiliates
and pension provisions and other provisions and liabilities
(including, for the avoidance of doubt, any provisions made in
respect of amounts representing deposits for crate rentals which
are expected to be returned) and excluding any Financial
Indebtedness) and prepayments and deferred income;
(xvi) "Net Worth" means the equity of the Borrower (including its
subscribed capital, capital reserves, earnings reserves, profit or
loss carried forward and annual surplus or deficit) in each case as
set out in section 266(3)A of the Commercial Code (HGB) and as
shown in the Borrower's consolidated balance sheet:
(a) less any dividend or other distribution declared, recommended
or made by any Group Entity to the extent such distribution is
not provided for in such accounts;
(b) less the cumulative amount of any writing up of the book value
of any assets of any Group Entity;
(c) less or plus (as the case may be) any amount attributable to
minority interests;
(d) not making any adjustments for any amounts positive or
negative attributable to goodwill or amortisation;
(xvii) "Relevant Period" means the period of four Financial Quarters
ending on the date on which the relevant calculation falls to be
made;
(xviii) "Replacement Capital Expenditure" means, in respect of any Relevant
Period, expenditure by a Group Entity on the improvement or
replacement of crates (together with costs properly incurred in
connection therewith) (which are necessary in order to maintain the
total number of crates within the Group);
(xix) "Rolling Basis" refers to the calculation of a ratio or an amount
made at the end of a Financial Quarter in respect of that Financial
Quarter and the preceding three Financial Quarters;
(xx) "Senior Interest Expense" means, in respect of any Relevant Period,
Total Interest Expense less such part of Total Interest Expense as
is incurred in connection with the Senior Subordinated Facility
Documents plus amounts paid and/or costs charged during the
----
Relevant Period (or, where appropriate, Adjusted Relevant Period)
relating to hedging arrangements entered into in
<PAGE>
connection with the obligations under the Facility Documents;
(xxi) "Total Debt" means, at any time, the aggregate of all Financial
Indebtedness of the Group Entities at such time incurred under or
pursuant to this Agreement, the Senior Subordinated Facility
Agreement or any Permitted External Leasing;
(xxii) "Total Debt Service" means in respect of any Relevant Period (or,
where appropriate, Adjusted Relevant Period), the aggregate of:
(a) Total Interest Expense (excluding capitalised interest); and
(b) the aggregate of the scheduled repayments, prepayments or
other payments of principal under the Term Facilities; and
(c) any dividends on shares or similar payments made to
warrantholders by the Borrower (which for the avoidance of
doubt, is prohibited pursuant to Clause 29); and
(xxiii) "Total Interest Expense" means in respect of any Relevant Period
(or, where appropriate, Adjusted Relevant Period), the aggregate
(on a consolidated basis) of all interest, commission, fees and
other charges incurred by all Group Entities in respect of
Financial Indebtedness (other than Financial Indebtedness incurred
pursuant to Permitted Leasing facilities and Financial
Indebtedness incurred pursuant to Permitted Factoring) accruing or
paid in the Relevant Period or Adjusted Relevant Period (as
appropriate):
(a) less amounts received pursuant to interest hedging
arrangements entered into in connection with the obligations
under the Facility Documents and permitted as Permitted
Treasury Transactions; and
(b) plus amounts paid and/or costs charged during the relevant
period relating to hedging arrangements entered into in
connection with the obligations under the Facility Documents,
(xxiv) "Working Capital" means on any date:
(a) Current Assets of the Group; less
(b) Liabilities of the Group.
29. Covenants
29.1 The Borrower and (in the case of Clauses 29.1(i), (ii), (v), (xiv), (xvii)
and (xviii) only) IFCO Europe shall itself and (in the case of the Borrower)
shall (to the extent legally possible) procure that each Group Entity shall
(except as may be otherwise agreed in writing by an Instructing Group):
(i) do all such things as are necessary to maintain its existence as a
legal person
<PAGE>
save for ceasing to exist by virtue of a solvent reorganisation
which has previously been consented to by the Agent and the Banks;
(ii) obtain, comply with the terms of, promptly renew from time to time
and do all that is necessary to maintain in full force and effect
all authorisations, approvals, licences, consents and exemptions
available and required under or by any applicable law or regulation
to enable it to lawfully enter into and perform its obligations
under the Facility Documents to which it is expressed to be party
or, so far as it is possible to do so, to ensure the legality,
validity or admissibility in evidence of such Facility Documents
and, on request of the Agent, supply copies (certified by a director
of the Borrower, IFCO Europe or relevant Group Entity (as
appropriate) as true, complete and up to date), of any such
authorisations, approvals, licences, consents and exemptions;
(iii) effect and maintain insurances on and in relation to its business,
assets and rights of an insurable nature (against loss or damage by
fire, storm, explosion and other consequential losses) and in
relation to product and third party liability and for such amounts
as a reasonably prudent person carrying on a similar business to
that Group Entity might be expected to maintain and as may from time
to time be required by the Agent (acting reasonably). The relevant
Group Entity shall (if so requested in writing) supply the Agent
with copies of all such insurance policies or certificates of
insurance in respect thereof or such other evidence of the existence
of such policies as may be reasonably acceptable to the Agent and
shall, in any event, notify the Agent of any material changes to its
insurance cover made from time to time. The Borrower shall certify
(by way of a Certificate from a Duly Authorised Officer) within 30
days of the end of each Accounting Reference Period that all
insurance premiums for the Group have been paid in respect of such
Accounting Reference Period and that all insurances for the Group
are up to date;
(iv) promptly inform the Agent of the occurrence of any Event of Default
or Potential Event of Default upon becoming aware of the same and,
upon receipt of a written request to that effect from the Agent,
confirm to the Agent that, save as previously notified to the Agent
or as notified in such confirmation, no Event of Default or
Potential Event of Default has occurred and is continuing;
(v) ensure that, to the extent such action is legally possible, at all
times the claims of the Beneficiaries against it under any of the
Facility Documents to which it is expressed to be a party rank at
least pari passu with the claims of all its other unsecured and
unsubordinated creditors save, in each case, those whose claims are
preferred by any bankruptcy, insolvency, liquidation or other
similar laws of general application;
(vi) comply with all applicable laws, rules, regulations and orders and
obtain and maintain all governmental and regulatory consents and
approvals the failure to comply with which might reasonably be
expected to have a Material Adverse Effect;
<PAGE>
(vii) ensure that it has the right and is duly qualified to conduct its
business as it is conducted from time to time in all applicable
jurisdictions and does all things necessary to obtain, preserve and
keep in full force and effect all rights including, without
limitation, all rights which are necessary for the conduct of its
business, the absence of which might reasonably be expected to have
a Material Adverse Effect;
(viii) duly and punctually pay and discharge (a) prior to the imposition of
any material penalties in respect thereof, all Taxes, assessments
and governmental charges imposed upon it or its assets and (b) all
lawful claims which, if unpaid, would by law become Encumbrances
upon its assets save to the extent payment thereof is being
contested in good faith by the relevant Group Entity and where
payment thereof can be lawfully withheld;
(ix) maintain and preserve all of its assets that are used or useful in
the conduct of its business in good working order and condition,
ordinary wear and tear excepted, where the failure to maintain or
preserve might reasonably be expected to have a Material Adverse
Effect;
(x) comply with all Environmental Laws and maintain and comply with the
terms and conditions of all Environmental Approvals, in each case as
may be necessary for the conduct of its business, the failure to
comply with which might reasonably be expected to have a Material
Adverse Effect;
(xi) maintain and preserve all of the Material Intellectual Property and
use reasonable endeavours to maintain and preserve all other
Intellectual Property which a prudent person carrying on a similar
business to the Group would use;
(xii) procure that the Material Intellectual Property is registered with
all appropriate registries and authorities (including, in the case
of any patents) at the European and International Patent offices or
other appropriate local registries in the name of the owner of such
intellectual property and, in particular but without limiting the
generality of the foregoing, the Borrower shall, within four weeks
of the date of this Agreement, submit all applications for
registration and other documents or forms necessary to ensure that
the Patent is registered in the name of GBL at Patent Offices in
Germany, Austria, France, Switzerland, Denmark, Spain, the United
Kingdom and Italy (and shall provide the Agent with confirmation of
the submission of such applications and shall not withdraw such
applications) and shall do all things necessary, recommended or
required (including, without limitation, co-operating to the fullest
extent possible with such Patent offices, answering all
requisitions, paying all fees and submitting all documents requested
or required) to ensure that the registrations are completed in a
timely fashion and shall maintain or procure the maintenance of all
such registrations and pay all fees and do all such other things as
may be required to ensure the protection of such registrations;
(xiii) promptly notify the Agent upon the creation or acquisition of
Material
<PAGE>
Intellectual Property and, at the request of the Agent, grant
security in favour of the Security Trustee over all such Material
Intellectual Property;
(xiv) at its own expense, take all such action as the Agent, or the
Security Trustee, may require for the purpose of perfecting or
protecting the Agent's and the pledgees' or Security Trustee's
rights under and preserving the security interests intended to be
created by any of the Facility Documents or for facilitating the
realisation of any such security or any part thereof;
(xv) advise the Agent forthwith of the details of each litigation,
arbitration or administrative proceeding pending or (to its
knowledge) threatened against any Group Entity which may (together
with any legal or other costs in connection therewith) result in a
liability of such Group Entity in an amount in excess of
DM1,000,000 or its equivalent;
(xvi) ensure that any one or more authorised representatives of the
Agent will be allowed to have access to the assets, books and
records of each Group Entity and to inspect the same at any time
upon or after the occurrence of an Event of Default which is
continuing unremedied and unwaived on the giving of reasonable
notice;
(xvii) to the extent legally possible and as required by the Agent
(acting on the instructions of an Instructing Group) and at the
Borrower's expense (which, for the avoidance of doubt, may include
the cost of obtaining legal opinions regarding such security in
accordance with the requirements of the Agent or the terms of any
Facility Document) from time to time (and, in the case of any
shares in MTS, within five business days of acquiring the same
(unless otherwise such requirement is waived by the Agent acting
on the instructions of an Instructing Group)), create or procure
the creation of such security over the shares or assets of MTS or
any Group Entity in favour of the Beneficiaries where such company
becomes a Group Entity or where it becomes necessary to replace
any security which secured all or any of the obligations of the
Borrower under the Facility Documents which has lapsed or become
unenforceable;
(xviii) at its own expense, take all such action as the Agent or the
Security Trustee (each acting on the instructions of an
Instructing Group) may reasonably require for the purpose of
perfecting or protecting the Beneficiaries' rights under, and
preserving the security interests intended to be created by, any
of this Agreement and the Senior Security Documents (including,
where necessary, the provision of security over the shares of IFCO
Contenedores S.A. or other Group Entities to secure the
obligations of the Borrower under any Hedging Agreements not
otherwise secured) or for facilitating the realisation of any such
security or any part thereof Provided that this does not restrict
the ability of the Borrower or any member of the Group to conduct
its business or assets so pledged prior to an Event of Default in
the ordinary course of business;
(xix) where any report provided pursuant to Clause 27.1(iii)(c) shows
that the
<PAGE>
amount of receivables owing to the Borrower are less than 70% of
all receivables owing to the Group, provide or procure the
provision to the Security Trustee on behalf of all the
Beneficiaries at the Borrower's expense (which, for the avoidance
of doubt, may include the cost of obtaining any legal opinions
required by the Agent or pursuant to the Finance Documents) such
additional security (including security over the receivables or
other assets of individual Group Entities) as the Agent may
specify;
(xx) ensure that at all times amounts payable, including interest and
principal, under the Senior Subordinated Facility Documents are
(unless otherwise provided herein or in any other Facility
Document) subordinated to the claims of the Banks under the
Facility Documents;
(xxi) ensure adequate contributions are made to pension schemes in
respect of employees of the Group where such pension schemes are
required in the Relevant Jurisdiction of such Group Entity; and
(xxii) promptly notify the Agent of any termination before the end of its
usual contractual term of the Supply Agreement or any material
adverse change to the Supply Agreement.
29.2 The Borrower shall not and shall procure that no Group Entity shall,
without the prior written consent of an Instructing Group (and, in the case of
Clauses 29.2(iv) and 29.2(v) only, IFCO Europe shall procure that the Borrower
shall not, without the prior written consent of an Instructing Group):
(i) create (or agree to create) or permit to subsist any Encumbrance
over all or any of its present or future revenues or assets or
undertaking other than a Permitted Encumbrance;
(ii) save for Permitted Transactions and Permitted Loans, make or
provide any loans or give any guarantees or grant any credit or
other financial accommodation to or for the benefit of any person
(or agree so to do) whether or not such person is a Group Entity
other than (a) trade credit granted in the ordinary course of
trading provided that such trade credit is on arm's-length terms
and upon terms usual for such trade or (b) loans made to IFCO
Europe Provided that the amount of such loans does not exceed, in
aggregate DM500,000 (or its equivalent);
(iii) incur, create or permit to subsist or have outstanding any
Financial Indebtedness other than Permitted Indebtedness;
(iv) pay, make or declare any dividend, return on capital, repayment of
capital contributions or other distribution or make any
distribution of assets or any payment in respect of interest or
principal or other payment whatsoever whether directly or
indirectly to any warrantholder;
(v) agree any amendment to or variation of any document delivered to
the Agent
<PAGE>
pursuant to Clause 4 or waive any right thereunder nor alter any
rights attaching to the authorised and issued share capital of
any Group Entity which, in any such case, (in the opinion of the
Banks) might reasonably be expected materially and adversely to
affect the interests of the Banks (for avoidance of doubt,
nothing in this Clause 29.2 (v) shall prevent GE or General
Electric Capital Corporation from exercising any of its rights to
increase its shareholding in IFCO Europe under the Investment
Agreement in accordance with its terms);
(vi) enter into any receivables purchase, factoring or discounting
arrangements other than Permitted Factoring;
(vii) enter into any Treasury Transactions other than Permitted
Treasury Transactions;
(viii) incur any Replacement Capital Expenditure other than Permitted
Expenditure;
(ix) enter into any Finance Leases with any Non-Group Entity other
than Permitted External Leasing.
29.3 The Borrower undertakes that it shall itself and shall procure that each
Group Entity shall ensure that without prejudice to any other restriction
contained in any of the Facility Documents and save as permitted by an
Instructing Group:
(i) no account of any Non-Group Entity shall be included in any
profit and loss pooling arrangements (Ergebnisabfuhrungs-und
Beherrschungsvertag) or arrangements whereby credit or debit
balances on accounts of one or more Group Entity may be netted
against debit or credit balances on accounts in the name of other
Group Entities;
(ii) no payment of principal or interest, charges, fees or other
amounts on any loan or other financial accommodation made by any
Non-Group Entity to any Group Entity shall be made other than
such payments made in relation to Permitted Indebtedness Provided
that, for the avoidance of doubt, payments of trade credit
otherwise permitted hereunder by any Group Entity to Schoeller
Plast Industries GmbH made pursuant to any arrangements for
deferred payment or any such payments where the proceeds of such
payment are immediately used (directly or indirectly) in the
repayment of Existing Indebtedness which is required to be repaid
pursuant to this Agreement may be made;
(iii) all arrangements made by any Group Entity with any other person
(whether or not such person is a Group Entity) shall be on arm's
length terms (and the Auditors shall confirm to the Agent
annually that any such arrangements made during the year to which
the relevant confirmation relates were made on arm's length
terms).
29.4 (i) The Borrower shall, within ninety (90) days of the date hereof
enter into the
<PAGE>
Treasury Transactions envisaged by the Hedging Strategy Letter.
(ii) The Borrower agrees and each Hedge Counterparty agrees that:
(a) any Hedging Agreement to which it is at any time party
governing the terms of a hedging transaction will be in the
form of either the German Framework Contract for Financial
Markets (Rahmenvertrag fur Finanztermingeschafte) or the
ISDA 1992 Master Agreement and will provide for "two way
payments" in the event of a termination of that hedging
transaction entered into under such Hedging Agreement
whether upon a termination event or an Event of Default (as
defined herein), meaning that the defaulting party under
that Hedging Agreement will be entitled to receive payment
under the relevant termination provisions if the net
replacement value of all terminated transactions effected
under that Hedging Agreement is in its favour;
(b) if on termination of any hedging transaction under any
Hedging Agreement to which it is party a settlement amount
or other amount falls due from the Hedge Counterparty to the
Borrower then, if the security constituted by the Senior
Security Documents has become enforceable, that amount shall
be paid by such Hedge Counterparty to the Security Trustee
and treated as proceeds of enforcement of the security
conferred by the Senior Security Documents for application
in the order prescribed in the Security Trust Agreement and
Intercreditor Agreement;
(c) until service of a notice by the Agent under Clause 30.1, no
Hedge Counterparty will exercise any right it might
otherwise have pursuant to any Hedging Agreement to
terminate any hedging transactions under such Hedging
Agreement or to refuse to make any payment due from it
thereunder; and
(d) each Hedge Counterparty shall, promptly after the Agent has
served a notice under Clause 30.1, exercise any and all
rights it may have to terminate the hedging transactions
under each Hedging Agreement to which it is party, unless
the Agent (acting on the instructions of an Instructing
Group) otherwise agrees or requires.
29.5 The Borrower shall give the Agent not less than 25 business days' prior
written notice of the intention of it or of its subsidiaries to:
(i) change its accounting reference date or financial year end;
(ii) pay, make or declare any dividend, return on capital, repayment
of capital contributions or other distribution or make any
distribution of assets or any payment in respect of interest or
principal or other payment whatsoever (each such payment referred
to herein as a "distribution") whether directly or indirectly to
any shareholder save for Permitted Transactions or otherwise
<PAGE>
where the proceeds of such distribution are to be immediately
utilised in the repayment of Existing Indebtedness which is
intended to be repaid pursuant to the terms hereof or a
prepayment hereunder;
(iii) (a) issue or redeem or repurchase, purchase, defease or retire
any shares other than pursuant to any Flotation of such shares or
(b) alter any rights attaching to its issued shares in existence
(including preference shares) at the date hereof which would
increase amounts payable in respect of those shares or materially
adversely affect the rights and interests of the Beneficiaries;
(iv) dispose of, by one or more transactions or series of transactions
(whether related or not and whether involuntarily or
voluntarily), the whole or any part of or any interest in its
revenues, assets, business or undertaking other than Permitted
Disposals;
(v) make any material changes to the general nature of the business
of the Borrower or the Group on the date hereof, or carry on any
other business which results in any change to the nature of such
business.
29.6 The Agent shall be entitled within 10 business days of receipt of the
Borrower's notice under Clause 29.5 to request the Borrower to supply to the
Agent in sufficient copies for the Banks any relevant information in connection
with the proposed action or steps referred to in such notice.
29.7 The Agent shall notify the Borrower, within 10 business days of receipt
of the Borrower's notice under Clause 29.5, or if additional information has
been requested by the Agent within the prescribed time, within 10 business days
of receipt of such information, whether the proposed action or steps under
Clause 29.5 is or is, in the reasonable opinion of the Agent, acting on the
instructions of an Instructing Group, likely to have a Material Adverse Effect.
29.8 If the proposed action or steps under Clause 29.5 is so considered by the
Agent to have a Material Adverse Effect and the relevant member of the Group
nevertheless takes such action or steps under Clause 29.5, the Agent shall be
entitled to make (and, if so instructed by an Instructing Group, shall make) the
declaration, request and/or instruction set out in Clause 30.1 and call for
repayment of the Advances and exercise the other rights in accordance with
Clause 30.2.
29.9 The Borrower covenants that it will procure that for a period of 30
consecutive days in each financial year beginning after 31 December 1998, the
Tranche A Available Revolving Facility Outstandings are not more than fifty per
cent. (50%) of the aggregate of each Bank's Tranche A Revolving Commitment
during such period.
29.10 IFCO Europe hereby undertakes that it shall procure that so long as any
amount remains outstanding under any of the Facility Documents or the Senior
Subordinated Facility Documents, MTS shall not utilise any Intellectual Property
or other property or assets owned, leased, licensed or otherwise made available
to any Group Entity.
<PAGE>
29.11 The Borrower hereby undertakes to provide the Agent and the Arrangers
with any information or other assistance they may require in updating the
Information Memorandum with a view to undertaking a Syndication of the
Facilities.
29.12 The Borrower shall, promptly upon becoming aware of the same, notify the
Agent (and provide the Agent with reasonable details) of any claims which are
made or any breach alleged pursuant to or in respect of any warranties and
indemnities contained in the Investment Agreement where the potential claim
exceeds DM1,000,000 (or its equivalent).
29.13 The Borrower shall not and shall procure that no Group Entity shall,
except with the prior written consent of the Banks:
(i) (a) purchase, subscribe for or otherwise acquire any shares (or
other securities or any interest therein) in, or incorporate, any
other company or agree to do any of the foregoing, (b) purchase
or otherwise acquire any assets (other than in the ordinary
course of trading) or revenues or (without limitation to any of
the foregoing) acquire any business or interest therein or (c)
form or enter into any partnership, consortium, joint venture or
other like arrangement or agree to do so; or
(ii) enter into any merger or consolidation with any other person
other than as permitted pursuant to Clause 29.13(i),
and it is hereby acknowledged and agreed that where the Borrower makes any
request for consent pursuant to this Clause 29.13, the Banks and the Borrower
shall consult in good faith.
29.14 The Borrower shall procure that any Encumbrance created pursuant to the
agreement dated 4 July/12 July between the Borrower and Rewe-Zentral AG, Koln,
Cologne is released or discharged on or before the date falling six months after
the date hereof and that all assets subject to such Encumbrances are, forthwith
upon their release from such Encumbrance, secured in favour of the Beneficiaries
to the satisfaction of the Agent.
29.15 The Borrower shall ensure that any member of the Group which has any
interest in any crates or in any leasing or ancillary transactions relating to
crates shall provide effective security over such interest in favour of the
Security Trustee to the satisfaction of the Agent and shall notify the Agent
forthwith upon taking delivery of any New Crates or purchasing any crates from
any lessors (such notification to contain details as to the number, type and
identification of such crates or any other information the Agent may reasonably
require).
29.16 IFCO Europe shall procure that at least DM1,000,000 of additional capital
is invested by way of equity into the Borrower no later than 31 March 1998.
29.17 The Borrower shall procure that the only creditors of GBL remain, at all
times, the Borrower and SPI and, in the case of SPI, such company is a creditor
of GBL only to the extent of that part of the purchase price for the Patent
which remains unpaid at such time.
29.18 The Borrower shall provide security, in form and substance satisfactory
to the Security Trustee over any shares acquired by it in Gelog AG after the
date hereof and shall procure that
<PAGE>
any shares acquired by any of the directors of Gelog AG are so secured in favour
of the Security Trustee.
30. Events of Default
30.1 If:
(i) the Borrower fails to pay any sum due from it under this
Agreement at the time (or within three business days of the due
date for payments therefor where such failure is due to a
technical or administrative difficulty in payment of funds) and
in the manner specified therein; or
(ii) any representation, warranty or statement made or repeated by
either the Borrower, IFCO Europe or any other person granting
security pursuant to the Facility Documents in any of the
Facility Documents to which it is a party or in any notice or
other document, certificate or statement delivered by it pursuant
thereto or in connection therewith is or proves to have been
incorrect or misleading in any material respect when made or
repeated and it is not remedied (if capable of being remedied)
within 10 business days of the earlier of the Borrower's
knowledge that such representation, warranty or statement was
inaccurate or notice thereof to the Borrower by the Agent; or
(iii) the Borrower fails to perform or comply with any of the
obligations expressed to be assumed by it in Clause 28; or
(iv) either the Borrower, IFCO Europe or any other person granting
security pursuant to the Facility Documents fails duly to perform
or comply with any other obligation expressed to be assumed by it
in any of the Facility Documents to which it is a party and such
failure is not remedied (if capable of being remedied) within 10
business days of the earlier of the Borrower's knowledge of such
failure or notice thereof to the Borrower by the Agent; or
(v) at any time the Borrower, IFCO Europe or any other person
granting security pursuant to the Facility Documents no longer
has the legal power to perform its obligations under the Facility
Documents to which it is a party or to own its assets or to carry
on its business substantially as presently conducted or at any
time it is or becomes unlawful for either the Borrower, IFCO
Europe or any other person granting security pursuant to the
Facility Documents to conform or comply with any or all of its
obligations under any Facility Document to which it is a party or
any of the obligations of either of the Borrower, IFCO Europe or
any other person granting security pursuant to the Facility
Documents thereunder are not or cease to be legal, valid and
binding and enforceable; or
(vi) any Financial Indebtedness (not being Financial Indebtedness owed
solely by one Group Entity to another Group Entity) of IFCO
Europe or any Group Entity or Group Entities in an amount in
aggregate exceeding DM5,000,000 or its equivalent is not paid
when due (or within any grace period originally
<PAGE>
provided), or is declared to be or otherwise becomes due and
payable prior to its specified maturity or any creditor or
creditors of IFCO Europe or any Group Entity or Group Entities
become entitled to declare any such Financial Indebtedness due
and payable prior to its specified maturity; or
(vii) any Material Group Entity shall cease or suspend or threaten to
cease or suspend all or a material part of its operations or
business; or
(viii) any Material Group Entity or IFCO Europe ceases or suspends
generally payment of its debts or announces an intention so to do
or is (or is deemed for the purposes of any law applicable to it
to be) unable to pay its debts as they fall due, commences
negotiations with any one or more of its creditors with a view to
a general readjustment or rescheduling of its indebtedness or
makes a general assignment for the benefit of or a composition
with its creditors or a moratorium is declared in respect of any
of the indebtedness of any Material Group Entity; or
(ix) any Material Group Entity takes any corporate action or legal
proceedings (which proceedings are not discharged of within 14
days provided such proceedings are contested in good faith) are
started for its winding-up, dissolution or administration (or its
equivalent in any other applicable jurisdiction) (other than
pursuant to a solvent reorganisation previously approved in
writing by an Instructing Group) or for the appointment of a
liquidator, receiver, administrator, administrative receiver,
trustee or similar officer of it or of any or all of its revenues
and assets or any application is made or petition is lodged for
the making of an administration order in relation to any Material
Group Entity and not discharged within 14 days (provided such
proceedings are contested in good faith) or any analogous
proceedings shall be commenced against any Material Group Entity
under the laws of any jurisdiction; or
(x) any execution or distress is levied against, or encumbrancer
takes possession of the whole or any part of, the property,
undertaking or assets of any Material Group Entity or any
analogous proceedings shall be commenced against any Material
Group Entity under the laws of any jurisdiction and not
discharged within 14 days provided such proceedings are contested
in good faith where such execution or distress has a Material
Adverse Effect; or
(xi) any event occurs or proceedings are taken with respect to any
Material Group Entity in any jurisdiction to which it is subject
or in which it has assets which has an effect similar to or
equivalent to any one of the events mentioned in sub-clauses
(viii) to (x) inclusive to this Clause 30.1; or
(xii) the security created by any Encumbrance created by any Material
Group Entity becomes enforceable and any steps are taken by the
beneficiary of such Encumbrance to enforce the same; or
(xiii) all or a majority of the issued shares of any Material Group
Entity or the
<PAGE>
whole or any part (not being a wholly immaterial part) of its
revenues or assets is seized, nationalised, expropriated or
compulsorily acquired; or
(xiv) GE ceases to hold at least 24% of the shares of IFCO Europe or,
at any time, the level of control which GE holds in IFCO Europe
is decreased or the shareholding which it holds in IFCO Europe at
such time is decreased (other than where there is a dilution in
the shareholding which GE has in IFCO Europe at any time which is
less than five per cent of the total share capital issued by IFCO
Europe at such time and (a) GE continues to hold at least 20% of
the shares of IFCO Europe; (b) such dilution (in the opinion of
an Instructing Group) does not reduce GE's rights and obligations
under the Investment Agreement; (c) none of the obligations of
any person under any of the Facility Documents would be affected
by such dilution; (d) no previous dilution in GE's investment in
IFCO Europe has occurred; and (e) the Borrower has given to the
Agent at least ten business days' prior notice of such dilution
and the Agent (acting on the instructions of an Instructing Group
(acting reasonably)) has not informed the Borrower that it does
not agree to such dilution; or
(xv) GE ceases to be a wholly-owned subsidiary of General Electric
Capital Corporation; or
(xvi) the Borrower is no longer a wholly-owned subsidiary of IFCO
Europe; or
(xvii) any Facility Document or the security intended to be constituted
by any of the Facility Documents is repudiated or the validity or
applicability thereof to any sums due or to become due thereunder
is disaffirmed by or on behalf of any party thereto; or
(xviii) the Borrower's auditors qualify their annual audited report to
the consolidated accounts of the Group in a manner which is, in
the reasonable opinion of an Instructing Group, material in the
context of the Facilities; or
(xix) any Group Entity breaches any Environmental Law or any
Environmental Claim is made or threatened against any Group
Entity which, in either case, might reasonably be expected to
have a Material Adverse Effect; or
(xx) any litigation, arbitration, administrative proceedings or
governmental or regulatory investigations, proceedings or
disputes are commenced or threatened against any Group Entity or
its respective assets or revenues or there are any circumstances
likely to give rise to any such litigation, arbitration,
administrative proceedings or governmental or regulatory
investigations, proceedings or disputes which is likely to be
adversely determined and, if adversely determined, would be
reasonably likely to have a Material Adverse Effect; or
(xxi) any circumstances occur or exist which (in the reasonable opinion
of an Instructing Group) have a Material Adverse Effect; or
<PAGE>
(xxii) any of the pledges over the shares or other security over MTS or
any Group Entity forming part of the Senior Security Documents
ceases to be legal, valid and binding and this has not been
remedied to the satisfaction of an Instructing Group within 10
business days of the earlier of the Borrower's board of directors
knowledge thereof or notice thereof to the Borrower by the Agent;
or
(xxiii) any event occurs under any Senior Subordinated Facility Document
which, but for the terms of the Intercreditor Agreement, would
entitle the Senior Subordinated Lenders to make a declaration of
acceleration thereunder; or
(xxiv) the average price of crates supplied pursuant to the Supply
Agreement increases above the level of DM6.10 or there is any
other alteration to the Supply Agreement where such alteration
is, in the opinion of an Instructing Group, likely to have a
Material Adverse Effect; or
(xxv) there is a reduction in the level of shareholding (if any) which
IFCO Europe has in MTS; or
(xxvi) any Material Leasing Agreement is terminated by reason of a
default (howsoever described) on the part of a Group Entity and
such termination, in the opinion of an Instructing Group, has a
Material Adverse Effect,
then, subject to the provisions of the Disclosure Letter and in any such case
and at any time thereafter the Agent may (and, if so instructed by an
Instructing Group, shall) by written notice to the Borrower:
(a) declare that the Total Commitments shall be cancelled whereupon
the same shall be cancelled and the Term Commitment and the
Revolving Commitment of each Bank shall be reduced to zero;
and/or
(b) declare the Advances to be immediately due and payable (whereupon
the same shall become so payable together with accrued interest
thereon and any other sums then owed by the Borrower hereunder)
or declare the Advances to be due and payable on demand of the
Agent; and/or
(c) require the Borrower to repay each Bank Guarantee then in issue
(whereupon the Borrower shall do so); and/or
(d) subject to the provisions of the Intercreditor Agreement,
exercise or direct the Security Trustee to exercise all rights
and remedies of a mortgagee or a secured party at such time,
whether or not applicable to the affected assets subject to the
Senior Security Documents, and otherwise, including, without
limitation, the right to demand cash collateral with respect to
Bank Guarantees outstanding as of such date, the right to
foreclose the Encumbrances granted herein or in any of the Senior
Security Documents by any available judicial procedure and/or to
take possession of any or all of the assets subject to the
<PAGE>
Senior Security Documents, the other security for the Advances
and the books and records relating thereto, with or without
judicial process. For the purposes of the preceding sentence, the
Security Trustee may enter upon any or all of the premises where
any of the assets subject to the Senior Security Documents, such
other security or books or records may be situated and take
possession and remove the same therefrom.
30.2 If, pursuant to Clause 30.1, the Agent declares the Advances and/or any
other amount to be due and payable on demand of the Agent, then, and at any time
thereafter, the Agent may (and, if so instructed by an Instructing Group, shall)
by written notice to the Borrower:
(i) call for payment or repayment of the Advances and/or any other
amount owing by the Borrower hereunder on such date as it may
specify in such notice (whereupon the same shall become due and
payable on such date together with accrued interest thereon) or
withdraw its declaration with effect from such date as it may
specify in such notice; and/or
(ii) select as the duration of any Interest Period which begins whilst
such declaration remains in effect a period of six months or
less; and/or
(iii) declare that the Senior Security Documents (or any other them)
shall have become enforceable subject to and in accordance with
the provisions thereof.
<PAGE>
Part 8
DEFAULT INTEREST AND INDEMNITY
31. Default Interest and Indemnity
31.1 If any sum due and payable by the Borrower under the Facility Documents
is not paid on the due date therefor in accordance with the provisions of Clause
33 or if any sum due and payable by the Borrower under any judgment of any court
in connection therewith is not paid on the date of such judgment, the period
beginning on such due date or, as the case may be, the date of such judgment and
ending on the date upon which the obligation of the Borrower to pay such sum
(the balance thereof for the time being unpaid being herein referred to as an
"unpaid sum") is discharged shall be divided into successive periods, each of
which (other than the first) shall start on the last day of the preceding such
period and the duration of each of which shall (except as otherwise provided in
this Clause 31) be selected by the Agent having regard to when such unpaid sum
is likely to be paid.
31.2 During each such period relating thereto as is mentioned in Clause 31.1
an unpaid sum shall bear interest or, insofar as it relates to unpaid interest,
shall give rise to a claim for lump sum damages, at the rate per annum which is
the sum from time to time of three per cent. per annum and FIBOR on the
Quotation Date therefor Provided that:
(i) if, for any such period, FIBOR cannot be determined, the rate of
interest or, as the case may be, lump sum damages applicable to
each Bank's portion of such unpaid sum shall be the rate per
annum which is the sum of three per cent. per annum and the rate
per annum notified to the Agent by such Bank as soon as
practicable after the beginning of such period as being that
which expresses as a percentage rate per annum the cost to such
Bank of funding from whatever source it may select its portion of
such unpaid sum for such period; and
(ii) if such unpaid sum is all or part of an Advance which became due
and payable on a day other than the last day of the Term or the
Interest Period in respect thereof (as the case may be), the
first such period applicable thereto shall be of a duration equal
to the unexpired portion of that Term or Interest Period (as the
case may be) and the rate of interest or, as the case may be,
lump sum damages applicable thereto from time to time during such
period shall be that which would have been applicable to it had
it not so fallen due plus such rate as is necessary to increase
the Margin that would be otherwise payable on such amount to
three per cent per annum.
31.3 Any interest or lump sum damages which shall have accrued under Clause
31.2 in respect of an unpaid sum shall be due and payable and shall be paid by
the Borrower at the end of the period by reference to which it is calculated or
on such other date or dates as the Agent may specify by written notice to the
Borrower.
31.4 If any Bank or the Agent on its behalf receives or recovers all or any
part of such Bank's share of an Advance otherwise than on the last day of the
Term or the Interest Period in respect thereof (as the case may be), the
Borrower shall pay to the Agent on demand for
<PAGE>
account of such Bank an amount equal to the amount (if any) by which (i) the
additional interest (excluding the Margin) which would have been payable on the
amount so received or recovered had it been received or recovered on the last
day of the Term or the Interest Period in respect thereof (as the case may be)
exceeds (ii) the amount of interest which in the opinion of the Agent would have
been payable to the Agent on the last day of the Term or Interest Period in
respect thereof (as the case may be) on the basis of the rate determined by the
Agent to be the arithmetic mean (rounded to four decimal places) of the rates
specified by each Reference Bank to the Agent at which each of the Reference
Banks was offering to prime banks in the Frankfurt Interbank Market deposits in
the currency of the amount so received or recovered equal to the amount so
received or recovered for a period starting on the third business day following
the date of such receipt or recovery and ending on the last day of the Term or
Interest Period (as the case may be) in respect thereof.
31.5 The Borrower undertakes to indemnify (to the extent that such indemnity
does not in any relevant jurisdiction contravene any law which restricts the
incurring of any obligation or liability by the Borrower in connection with the
Investment):
(i) each of the Beneficiaries against any cost, claim, loss, expense
(including legal fees) or liability together with any VAT thereon,
which any of them may sustain or incur as a consequence of the
occurrence of any Event of Default or any default by the Borrower or
IFCO Europe or any Group Entity or any of them in the performance of
any of the obligations expressed to be assumed by them in any of the
Facility Documents;
(ii) the Agent against any cost or loss it may suffer or incur as a
result of its entering into or performing any foreign exchange
contract for the purposes hereof; and
(iii) each Bank against any loss it may suffer as a result of its funding
its portion of an Advance requested by any Borrower hereunder but
not made available by reason of the operation of any one or more of
the provisions hereof.
31.6 Any unpaid sum shall (for the purposes of this Clause 31 and Clause 23.1)
be treated as an advance and accordingly in this Clause 31 the term "Advance"
includes any unpaid sum and "Term" and "Interest Period", in relation to an
unpaid sum, includes each such period relating thereto as is mentioned in Clause
31.1.
<PAGE>
Part 9
PAYMENTS
32. Currency of Account and Payment
32.1 Deutsche Mark is the currency of account and payment for each and every
sum at any time due from the Borrower hereunder Provided that:
(i) each payment in respect of costs and expenses shall be made in the
currency in which the same were incurred;
(ii) each payment pursuant to Clause 20.2 or Clause 23.1 shall be made in
the currency specified by the party claiming thereunder; and
(iii) any amount expressed to be payable in a currency other than Deutsche
Mark shall be paid in that other currency.
32.2 If any sum due from the Borrower under any of the Facility Documents or
any order or judgment given or made in relation thereto has to be converted from
the currency (the "first currency") in which the same is payable thereunder or
under such order or judgment into another currency (the "second currency") for
the purpose of (i) making or filing a claim or proof against the Borrower, (ii)
obtaining an order or judgment in any court or other tribunal or (iii) enforcing
any order or judgment given or made in relation hereto, the Borrower shall
indemnify and hold harmless each of the persons to whom such sum is due from and
against any loss suffered as a result of any discrepancy between (a) the rate of
exchange used for such purpose to convert the sum in question from the first
currency into the second currency and (b) the rate or rates of exchange at which
such person may in the ordinary course of business purchase the first currency
with the second currency upon receipt of a sum paid to it in satisfaction, in
whole or in part, of any such order, judgment, claim or proof.
33. Payments
33.1 On each date on which this Agreement requires an amount to be paid by the
Borrower or any of the Banks hereunder, the Borrower or, as the case may be,
such Bank shall make the same available to the Agent by payment in Deutsche Mark
(or, where applicable, Euro) in immediately available, freely transferable,
cleared funds to such account with such bank as the Agent shall have specified
for this purpose.
33.2 If, at any time, it shall become impracticable (by reason of any action of
any governmental authority or any change in law, exchange control regulations or
any similar event) for the Borrower to make any payments hereunder in the manner
specified in Clause 33.1, then the Borrower may agree with each or any of the
Banks alternative arrangements for the payment direct to such Bank of amounts
due to such Bank hereunder Provided that, in the absence of any such agreement
with any Bank, the Borrower shall be obliged to make all payments due to such
Bank in the manner specified herein. Upon reaching such agreement the Borrower
and such Bank shall immediately notify the Agent thereof and shall thereafter
promptly notify the Agent of all payments made direct to such
<PAGE>
Bank.
33.3 Save as otherwise provided herein, each payment received by the Agent for
the account of another person pursuant to Clause 33.1 shall be made available by
the Agent to the person for whose account such payment was received (in the case
of a Bank, for the account of the Facility Office) for value the same day by
transfer to such account of such person with such bank in the principal
financial centre of the country of the currency of such payment as such person
shall have previously notified to the Agent.
33.4 All payments required to be made by the Borrower hereunder shall be
calculated without reference to any set-off or counterclaim and shall be made
free and clear of and without any deduction for or on account of any set-off or
counterclaim.
33.5 Where a sum is to be paid hereunder to the Agent for account of another
person, the Agent shall not be obliged to make the same available to that other
person or to enter into or perform any exchange contract in connection therewith
until it has been able to establish to its satisfaction that it has actually
received such sum, but if it does so and it proves to be the case that it had
not actually received such sum, then the person to whom such sum or the proceeds
of such exchange contract was so made available shall on request refund the same
to the Agent together with an amount sufficient to indemnify the Agent against
any cost or loss it may have suffered or incurred by reason of its having paid
out such sum or the proceeds of such exchange contract prior to its having
received such sum.
34. Set-Off
The Borrower authorises each Bank for so long as an Event of Default is
continuing to apply any credit balance to which the Borrower is entitled on any
account with that Bank in satisfaction of any sum due and payable from the
Borrower to such Bank hereunder but unpaid; for this purpose, each Bank is
authorised to purchase with the moneys standing to the credit of any such
account such other currencies as may be necessary to effect such application.
No Bank shall be obliged to exercise any right given to it by this Clause 34.
35. Redistribution of Payments
35.1 If, at any time, the proportion which any Bank (a "Recovering Bank") has
received or recovered (whether by payment, the exercise of a right of set-off or
combination of accounts or otherwise) in respect of its portion of any payment
(a "relevant payment") to be made under this Agreement by the Borrower for
account of such Recovering Bank and one or more other Banks is greater (the
portion of such receipt or recovery giving rise to such excess proportion being
herein called an "excess amount") than the proportion thereof so received or
recovered by the Bank or Banks so receiving or recovering the smallest
proportion thereof, then:
(i) such Recovering Bank shall pay to the Agent an amount equal to such
excess amount;
(ii) there shall thereupon fall due from the Borrower to such Recovering
Bank an amount equal to the amount paid out by such Recovering Bank
pursuant to paragraph (i) above, the amount so due being, for the
purposes hereof, treated
<PAGE>
as if it were an unpaid part of such Recovering Bank's portion of
such relevant payment; and
(iii) the Agent shall treat the amount received by it from such Recovering
Bank pursuant to paragraph (i) above as if such amount had been
received by it from the Borrower in respect of such relevant payment
and shall pay the same to the persons entitled thereto (including
such Recovering Bank) pro rata to their respective entitlements
thereto.
35.2 If any sum (a "relevant sum") received or recovered by a Recovering Bank
in respect of any amount owing to it by the Borrower becomes repayable and is
repaid by such Recovering Bank, then:
(i) each Bank which has received a share of such relevant sum by reason
of the implementation of Clause 35.1 shall, upon request of the
Agent, pay to the Agent for account of such Recovering Bank an
amount equal to its share of such relevant sum; and
(ii) there shall thereupon fall due from the Borrower to each such Bank
an amount equal to the amount paid out by it pursuant to paragraph
(i) above, the amount so due being, for the purposes hereof, treated
as if it were the sum payable to such Bank against which such Bank's
share of such relevant sum was applied.
35.3 If any Bank shall commence any action or proceeding in any court to
enforce its rights hereunder and, as a result thereof or in connection
therewith, shall receive any excess amount (as defined in Clause 35.1), then
such Bank shall not be required to share any portion of such excess amount with
any Bank which has the legal right to, but does not, join in such action or
proceeding or commence and diligently prosecute a separate action or proceeding
to enforce its rights in another court.
<PAGE>
Part 10
FEES, COSTS AND EXPENSES
36. Fees
36.1 The Borrower shall pay to the Agent for the account of each Revolving Bank
a commitment commission on the amount of such Bank's Revolving Available
Commitment from day to day during the period beginning on the date hereof and
ending on the Final Maturity Date, such commitment commission to be calculated
at the rate of nought point seven five per cent. (0.75%) per annum and payable
in arrear on the last day of each successive period of three months which ends
during such period and on the Final Maturity Date.
36.2 The Borrower shall pay to the Joint Arrangers on the date hereof the
underwriting and arrangement fees specified in the letter dated the date hereof
from the Joint Arrangers to the Borrower at the times, and in the amounts,
agreed in such letter.
36.3 The Borrower shall pay to the Agent and the Security Trustee for its own
account the agency and security agency fees specified in the letter of even date
herewith from the Agent to the Borrower at the times, and in the amounts, agreed
in such letter.
37. Costs and Expenses
37.1 The Borrower shall pay to the Agent at the time and in the amount
specified in the letter of even date herewith from the Agent to the Borrower the
amounts payable by it in respect of legal and other expenses (including
disbursements and printing costs) together with any VAT thereon incurred by it
in connection with the negotiation, preparation and execution of the Facility
Documents and the completion of the transactions herein and therein
contemplated.
37.2 The Borrower shall, from time to time on demand of the Agent, reimburse
the Beneficiaries for all reasonable costs and expenses (including legal fees)
together with any VAT thereon incurred in or in connection with any actual or
proposed amendment, waiver or restructuring of the Facilities, or with the
preservation and/or enforcement of any of the rights of the Beneficiaries under
the Facility Documents or any of the documents referred to therein in any
jurisdiction.
37.3 The Borrower shall pay all stamp, registration and other taxes to which
the Facility Documents or any judgment given in connection herewith is or at any
time may be subject and shall, from time to time on demand in writing of the
Agent, indemnify the Beneficiaries against any liabilities, costs, claims and
expenses resulting from any failure to pay or any delay in paying any such tax.
37.4 The Borrower shall, from time to time on demand of the Agent (and without
prejudice to the provisions of Clause 37.2) compensate the Agent for the time
and expenditure, all costs and expenses (including telephone, fax, copying,
travel and personnel costs) reasonably incurred by the Agent in connection with
its taking such action as it may deem appropriate or in complying with any
instructions from an Instructing Group or any request by the Borrower
<PAGE>
or IFCO Europe in connection with:
(a) the granting or proposed granting of any waiver or consent requested
hereunder by the Borrower or IFCO Europe;
(b) any actual, potential or suspected breach by the Borrower or IFCO
Europe of its obligations hereunder;
(c) the occurrence of any event which is an Event of Default or a
Potential Event of Default; or
(d) any amendment or proposed amendment hereto requested by the Borrower
or IFCO Europe.
37.5 If the Borrower fails to perform any of its obligations under this
Clause 37, each Bank shall, in its Proportion, indemnify each of the
Beneficiaries against any loss incurred by any of them as a result of such
failure and the Borrower shall forthwith reimburse each Bank for any payment
duly made by it pursuant to this Clause 37.5.
<PAGE>
Part 11
AGENCY PROVISIONS
38. The Agent, the Arrangers and the Banks
38.1 Each Arranger and Bank hereby appoints the Agent to act as its agent in
connection with the Facility Documents and to exercise such rights, powers,
authorities and discretions as are specifically delegated to the Agent by the
terms of the Facility Documents together with all such rights, powers,
authorities and discretions as are reasonably incidental thereto Provided that
the Agent shall not be authorised to commence any legal actions or proceedings
on behalf of any Bank without such Bank's written consent. The Agent shall be
released from the restrictions set out in Section 181 of the German Civil Code.
The Agent can grant substitute powers of attorney and release any sub-agent from
such restrictions and revoke such substitute powers of attorney.
38.2 For the purposes of Part 11: "Agent's Liabilities" means all liabilities
(including any liability in respect of tax), costs, fees, charges, damages,
losses and expenses (including legal fees and expenses and, in each case, VAT or
any similar tax charged or chargeable in respect thereof):
(i) to which the Agent becomes subject by reason of it acting as agent
under the Facility Documents; and
(ii) incurred by the Agent or any attorney, agent, delegate or other
person appointed by the Agent under any Facility Document in
relation to or arising out of the taking or holding of any of the
security given or created by or pursuant to any of the Facility
Documents or in the execution or purported execution of the rights,
trust, powers, authorities, discretions and obligations vested in
it,
in each case under the Facility Documents or by law, including but not
limited to those relating to all actions, proceedings, claims and demands
in respect of any matter or thing done or omitted in any way relating to
the Facility Documents and all amounts due to the Agent by way of
remuneration for acting as agent or trustee (as the case may be) under any
of the Facility Documents.
38.3 The Agent may:
(i) assume that:
(a) any representation made by the Borrower or IFCO Europe or any
Group Entity in connection herewith or in connection with any
other Facility Document is true;
(b) no Event of Default or Potential Event of Default has occurred;
(c) neither the Borrower nor IFCO Europe nor any Group Entity is in
<PAGE>
breach of or default under its obligations hereunder or under
any other Facility Document; and
(d) any right, power, authority or discretion vested herein or in
any other Facility Document upon an Instructing Group, the
Banks or any other person or group of persons has not been
exercised,
unless it has, in its capacity as agent for the Banks, received
notice to the contrary from any other party hereto;
(ii) assume that the Facility Office of each Bank is that identified
with its signature below (or, in the case of a Transferee, at the
end of the Transfer Certificate to which it is a party as
Transferee) until it has received from such Bank a notice
designating some other office of such Bank to replace its Facility
Office and act upon any such notice until the same is superseded
by a further such notice;
(iii) engage and pay for the advice or services of any lawyers,
accountants, surveyors or other experts whose advice or services
may to it seem necessary, expedient or desirable and rely upon any
advice so obtained;
(iv) rely as to any matters of fact which might reasonably be expected
to be within the knowledge of the Borrower upon a certificate
signed by or on behalf of the Borrower;
(v) rely upon any communication or document believed by it to be
genuine;
(vi) refrain from exercising any right, power or discretion vested in
it as agent hereunder unless and until instructed by an
Instructing Group as to whether or not such right, power or
discretion is to be exercised and, if it is to be exercised, as to
the manner in which it should be exercised; and
(vii) refrain from acting in accordance with any instructions of an
Instructing Group to begin any legal action or proceeding arising
out of or in connection with any of the Facility Documents until
it shall have received such security as it may require (whether by
way of payment in advance or otherwise) for all costs, claims,
losses, expenses (including legal fees) and liabilities together
with any VAT thereon which it will or may expend or incur in
complying with such instructions.
38.4 The Agent shall:
(i) promptly inform each Bank of the contents of any written notice or
document received by it in its capacity as Agent from either of
the Borrower or IFCO Europe or any Group Entity under any Facility
Document;
(ii) promptly notify each Bank of the occurrence of any Event of
Default or any default by either of the Borrower or IFCO Europe or
any Group Entity in the due performance of or compliance with its
obligations under any Facility
<PAGE>
Document of which the Agent has written notice from any other
party hereto;
(iii) save as otherwise provided herein, act as agent under the Facility
Documents in accordance with any instructions given to it by an
Instructing Group, which instructions shall be binding on the
Beneficiaries; and
(iv) if so instructed by an Instructing Group, refrain from exercising
any right, power or discretion vested in it as agent under the
Facility Documents.
38.5 Notwithstanding anything to the contrary expressed or implied herein
neither the Agent nor the Arrangers shall:
(i) be bound to enquire as to:
(a) whether or not any representation made by either of the
Borrower or IFCO Europe or any Group Entity in connection
with any Facility Document is true;
(b) the occurrence or otherwise of any Event of Default or
Potential Event of Default;
(c) the performance by either of the Borrower or IFCO Europe or
any Group Entity of its obligations under any Facility
Document; or
(d) any breach of or default by either of the Borrower or IFCO
Europe or any Group Entity of or under its obligations under
any of the Facility Documents;
(ii) be bound to account to any Bank for any sum or the profit element
of any sum received by it for its own account;
(iii) be bound to disclose to any other person any information relating
to any Group Entity if such disclosure would or might in its
opinion constitute a breach of any law or regulation or be
otherwise actionable at the suit of any person;
(iv) be under any obligations other than those for which express
provision is made herein.
38.6 Each Bank shall, from time to time on demand by the Agent, indemnify the
Agent, in its Proportion, against any and all costs, claims, losses, expenses
(including legal fees) and liabilities together with any VAT thereon which the
Agent may incur, otherwise than by reason of its own gross negligence or wilful
misconduct, in acting in its capacity as agent under any of the Facility
Documents.
38.7 Neither the Agent nor the Arrangers accepts any responsibility for the
accuracy and/or completeness of the Reports, the Information Memorandum or the
Business Plan or any other information supplied by either of the Borrower or
IFCO Europe or any Group Entity in connection with any of the Facility Documents
(whether on, before or after the date hereof)
<PAGE>
or for the legality, validity, effectiveness, adequacy or enforceability of the
Facility Documents and neither the Agent nor the Arrangers shall be under any
liability as a result of taking or omitting to take any action (whether on,
before or after the date hereof) in relation to any of the Facility Documents,
save in the case of its gross negligence or wilful misconduct.
38.8 Each of the Banks agrees that it will not assert or seek to assert
against any director, officer or employee of the Agent or the Arrangers any
claim it might have against any of them in respect of the matters referred to in
Clause 38.7.
38.9 Each of the Banks agrees that the liability of the Agent in performing
its duties hereunder shall be limited only to claims arising out of the Agent's
own gross negligence or wilful misconduct; further, with respect to any claim,
the Agent shall not be liable for any indirect or consequential loss or damage
suffered by any person.
38.10 The Agent and the Arrangers may accept deposits from, lend money to and
generally engage in any kind of banking or other business with any Group Entity.
38.11 The Agent may resign its appointment hereunder at any time without
assigning any reason therefor by giving not less than thirty days' prior written
notice to that effect to each of the other parties hereto Provided that no such
resignation shall be effective until a successor for the Agent is appointed in
accordance with the succeeding provisions of this Clause 38.
38.12 If the Agent gives notice of its resignation pursuant to Clause 38.11,
then any reputable and experienced bank or other financial institution may after
consultation with the Borrower be appointed as a successor to such Agent by an
Instructing Group during the period of such notice but, if no such successor is
so appointed, the Agent may appoint such a successor itself.
38.13 If a successor to the Agent is appointed under the provisions of
Clause 38.12, then (i) the retiring Agent shall be discharged from any further
obligation hereunder but shall remain entitled to the benefit of the provisions
of this Clause 38 and (ii) its successor and each of the other parties hereto
shall have the same rights and obligations amongst themselves as they would have
had if such successor had been a party hereto.
38.14 It is understood and agreed by each Bank that it has itself been, and
will continue to be, solely responsible for making its own independent appraisal
of and investigations into the financial condition, creditworthiness, condition,
affairs, status and nature of IFCO Europe and each Group Entity and,
accordingly, each Bank warrants to the Agent and the Arrangers that it has not
relied on and will not hereafter rely on the Agent and the Arrangers nor either
of them:
(i) to check or enquire on its behalf into the adequacy, accuracy or
completeness of any information provided by either of the Borrower
or IFCO Europe or any Group Entity in connection with any of the
Facility Documents or the transactions therein contemplated
(whether or not such information has been or is hereafter
circulated to such Bank by the Agent and/or the Arrangers); or
(ii) to assess or keep under review on its behalf the financial
condition, creditworthiness, condition, affairs, status or nature
of IFCO Europe or any
<PAGE>
Group Entity.
38.15 In acting as Agent for the Banks, the Agent's agency divisions shall be
treated as a separate entity from any other of its divisions or departments and,
notwithstanding the foregoing provisions of this Clause 38, in the event that
the Agent should act for IFCO Europe or any Group Entity in any capacity in
relation to any other matter, any information given by IFCO Europe or such Group
Entity to the Agent in such other capacity may be treated as confidential by the
Agent.
38.16 Notwithstanding anything to the contrary expressed or implied herein and
without prejudice to the provisions of Clause 38.15 the Agent shall not as
between itself and the Banks be bound to disclose to any Bank or other person
any information which is supplied by IFCO Europe or any Group Entity to the
Agent in its capacity as agent hereunder for the Banks and which is identified
by IFCO Europe or such Group Entity at the time it is so supplied as being
confidential information Provided that the consent of IFCO Europe or the
relevant Group Entity to such disclosure shall not be required in relation to
any information which in the opinion of the Agent relates to an Event of Default
or Potential Event of Default or in respect of which the Banks have given a
confidentiality undertaking in a form satisfactory to the Agent and IFCO Europe
or the relevant Group Entity.
38.17 To the extent that the Agent or the Security Trustee receives or recovers
monies following the service of a notice in accordance with Clause 30.1 or 30.2
pursuant to or as a result of any breach of any Facility Document to be applied
in discharging any obligation (whether actual or contingent, present or future)
of the Borrower under any Facility Document, such monies shall (without
prejudice to the respective rights of the Agent or the Security Trustee pursuant
to any Facility Document to credit any monies received by it to any suspense
account) be applied as between the Beneficiaries:
(a) first, in or towards payment of all costs and expenses incurred
by the Agent, the Fronting Bank and the Security Trustee in
acting in those capacities under the Facility Documents;
(b) secondly, in or towards payment of any amounts which are due and
payable at such time by the Borrower to any Beneficiary under any
of the Facility Documents in respect of interest, guarantee
commission, commitment commission and other fees pro rata to the
respective entitlements of such Beneficiaries;
(c) thirdly, in or towards payment of any amounts which are due and
payable at such time by the Borrower to any Beneficiary under any
of the Facility Documents in respect of principal pro rata to the
respective entitlements of such Beneficiaries;
(d) fourthly, in or towards payment of any other sums whatsoever then
due and payable to the Beneficiaries pursuant to the Facility
Documents pro rata to their respective entitlements;
(e) fifthly, if the Borrower is under no further actual or contingent
liability
<PAGE>
hereunder or under any other Facility Document, in application
against the obligations of the Borrower under the Senior
Subordinated Facility Documents or, if the Borrower is under no
further actual or contingent liability thereunder, in payment to
any person to whom the Security Trustee is obliged to pay in
priority to the Borrower otherwise entitled thereto, to the
extent it is so obliged; and
(f) sixthly, thereafter, in payment to the Borrower.
<PAGE>
Part 12
ASSIGNMENTS AND TRANSFERS
39. Benefit of Agreement
This Agreement shall be binding upon and enure to the benefit of each party
hereto and its or any subsequent successors, Transferees and assigns.
40. Assignments and Transfers by the Borrower
The Borrower shall not be entitled to assign or transfer all or any of its
rights, benefits and obligations under any of the Facility Documents.
41. Assignments and Transfers by Banks
41.1 Any Bank may at any time assign all or any of its rights and benefits
under the Facility Documents or assign and transfer in accordance with Clause
41.3 all or any of its rights, benefits and obligations to any Qualifying Bank
with (subject to Clause 41.7) the prior written consent of the Fronting Bank and
the Borrower (such consent, in the case of the Borrower, not to be unreasonably
withheld).
41.2 If any Bank assigns all or any of its rights and benefits under the
Facility Documents in accordance with Clause 41.1 (but otherwise than in
accordance with Clause 41.3), then, unless and until the assignee has agreed
with the Agent and the other Banks that it shall be under the same obligations
towards each of them as it would have been under if it had been an original
party hereto or thereto as a Bank, the other Beneficiaries shall not be obliged
to recognise such assignee as having the rights against each of them which it
would have had if it had been such a party thereto.
41.3 If any Bank wishes to assign and transfer all or any of its rights and
benefits under any of the Facility Documents as contemplated in Clause 41.1,
then such assignment and transfer may (subject to the proviso to Clause 41.1) be
effected by the delivery to the Agent of a duly completed and duly executed
Transfer Certificate in which event, on the later of the Transfer Date specified
in such Transfer Certificate and the fourth business day after (or such earlier
business day endorsed by the Agent on such Transfer Certificate falling on or
after) the date of execution of such Transfer Certificate by the Agent:
(i) to the extent that in such Transfer Certificate the Bank party
thereto seeks to transfer any of its obligations hereunder and/or
under or in respect of the other Facility Documents, the
Borrower, IFCO Europe and such Bank shall be released from
further obligations towards one another hereunder and/or under or
in respect of the other Facility Documents to such extent and
their respective rights against one another shall to that extent
be cancelled (such rights, benefits and obligations being
referred to in this Clause as "discharged rights and
obligations");
<PAGE>
(ii) to the extent that in such Transfer Certificate the Bank party
thereto seeks to assign any of its rights and benefits hereunder
and/or under or in respect of the other Facility Documents, they
shall be so assigned and each of the Borrower and IFCO Europe
agrees (subject to, in relation to the proposed transfer of the
benefit of the Senior Security Documents in such Transfer
Certificate, compliance with relevant laws) that it is an
effective assignment of such rights and benefits;
(iii) each of the Borrower, IFCO Europe and the Transferee party
thereto shall assume obligations towards one another and/or
acquire rights and benefits against one another which differ from
such discharged rights and obligations only insofar as the
Borrower, IFCO Europe and such Transferee have assumed and/or
acquired the same in place of the Borrower, IFCO Europe and such
Bank; and
(iv) the Beneficiaries shall acquire the same rights and benefits and
assume the same obligations between themselves as they would have
acquired and assumed had such Transferee been an original party
hereto as a Bank with the rights, benefits and/or obligations
acquired or assumed by it as a result of such transfer.
41.4 On the date upon which a transfer takes effect pursuant to Clause 41.3,
other than pursuant to the Syndication, the Transferee in respect of such
transfer shall pay to the Agent for its own account a transfer fee of DM10,000.
41.5 The Borrower shall from time to time at the request of the Agent promptly
execute any accession agreement to any of the Senior Security Documents and do
any other act or thing or execute such further documents as directed by the
Agent in connection with the transfer of rights and benefits under Clause 41.1.
41.6 Any transfer pursuant to Clause 41.3 of part of a Bank's Commitment shall
be in a minimum amount of DM7,500,000 and where any Bank transfers part of its
Commitment only, it shall transfer pro rated portions of its Commitments under
each Facility.
41.7 Any consent required to be given by a party under Clause 41.1 shall be
deemed to have been given unless such party shall have notified the requesting
party to the contrary within five business days of the request for such consent.
42. Disclosure and Syndication
42.1 Any Bank may disclose to any person:-
(a) to (or through) whom such Bank assigns or transfer (or may
potentially assign or transfer) all or any of its rights,
benefits and obligations hereunder;
(b) with (or through) whom such Bank enters into (or may potentially
enter into) any sub-participation in relation to, or any other
transaction under which
<PAGE>
payments are to be made by reference to, the Facility Documents,
the Borrower or IFCO Europe; or
(c) to whom information may be required to be disclosed by any
applicable law or regulation,
such information about the Borrower, IFCO Europe the Group and as such Bank
shall consider appropriate, provided that (in the case of (a) and (b) only) the
person to whom such information is to be given has entered into a
Confidentiality Undertaking. If requested to do so by the Borrower, a Bank
shall inform the Borrower as to the identity of any person to whom it has given
such information.
42.2 The Borrower acknowledges that syndication of the Facilities in
accordance with this Clause 42.2 may take place and undertakes to assist and co-
operate with the Arrangers in such Syndication by, inter alia:
(i) expediting site visits at reasonable times upon reasonable notice
by the Agent and persons who have been invited by the Arrangers
to participate in the Facilities ("Invitees");
(ii) participating at reasonable times upon reasonable notice in
presentations to the Banks and the Invitees concerning the
Borrower, the Group Entities and their activities;
(iii) using all reasonable efforts (if necessary) to obtain appropriate
authorisations from the Auditors, other accountants, consultants
and professional advisers to release to the Banks and the
Invitees any information, including the Reports;
(iv) refraining from making any statement, announcement or publication
or doing any act or thing calculated to obstruct syndication of
the Facilities in any way other than as required by applicable
law or good commercial practice; and
(v) if so requested by the Arrangers, procuring the assistance of its
directors and other officers in the updating of the Information
Memorandum.
<PAGE>
Part 13
MISCELLANEOUS
43. Calculations and Evidence of Debt
43.1 Interest, fronting fees, guarantee commission and commitment commission
shall accrue from day to day and shall be calculated on the basis of a year of
360 days (or, in any case where market practice differs, in accordance with
market practice) and the actual number of days elapsed.
43.2 If on any occasion a Reference Bank or Bank fails to supply the Agent
with a quotation required of it under the foregoing provisions of this
Agreement, the rate for which such quotation was required shall be determined
from those quotations which are supplied to the Agent.
43.3 Each Bank shall maintain in accordance with its usual practice accounts
evidencing the amounts from time to time lent by and owing to it hereunder.
43.4 The Agent shall maintain on its books a control account or accounts in
which shall be recorded (i) the amount of any Advance made or arising hereunder
and each Bank's share therein and the face amount of any Bank Guarantee issued
by the Fronting Bank and each Bank's share therein, (ii) the amount of all
principal, interest and other sums due or to become due from the Borrower to any
of the Banks hereunder and each Bank's share therein and (iii) the amount of any
sum received or recovered by the Agent hereunder and each Bank's share therein.
43.5 In any legal action or proceeding arising out of or in connection with
this Agreement, the entries made in the accounts maintained pursuant to Clauses
43.3 and 43.4 shall, in the absence of manifest error, be conclusive evidence of
the existence and amounts of the obligations of the Borrower therein recorded.
43.6 A certificate of a Bank as to (i) the amount by which a sum payable to it
hereunder is to be increased under Clause 20.1 or (ii) the amount for the time
being required to indemnify it against any such cost, payment or liability as is
mentioned in Clause 20.2 or 23.1 shall, if supported by relevant documentation,
be conclusive for the purposes of this Agreement.
44. Remedies, Waivers, Amendments and Consents
44.1 No failure to exercise, nor any delay in exercising, on the part of the
Agent and the Banks or any of them, any right or remedy hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any right or
remedy prevent any further or other exercise thereof or the exercise of any
other right or remedy. The rights and remedies herein provided are cumulative
and not exclusive of any rights or remedies provided by law.
44.2 The Agent may agree with the Borrower any amendment to or the
modification of the provisions of any of the Facility Documents or any schedule
thereto, which is necessary to correct a manifest error.
<PAGE>
44.3 Subject to Clause 44.4, the Agent (acting on the instructions of an
Instructing Group) may agree with the Borrower any amendment to or modification
of the provisions of any of the Facility Documents or any schedule thereto, or
grant any waiver or consent in relation thereto.
44.4 (a) Any amendment, modification, waiver, variation or consent which
relates to:
(i) the definitions of "Final Maturity Date", "Instructing
Group" or "Margin" in Clause 1.1;
(ii) Clauses 3, 40, 37, 17, 18, 13.4 or 13.5;
(iii) this Clause 44;
(iv) any extension of the date of payment for or a decrease in
the amount of, or a change in the currency of, any sum
payable to a Beneficiary under any of the Facility
Documents;
(v) the priority of liabilities under the Facility Documents
or the order or manner in which liabilities are reduced
thereunder;
(vi) an amendment to any Senior Security Document which is, in
the sole opinion of the Security Trustee, material;
(vii) the release of any asset which is the subject of the
security granted in favour of the Beneficiaries;
(viii) any increase in the Total Commitment of any Bank;
(ix) any provision which expressly contemplates the need for
the consent or approval of all the Banks,
may be effected with (and only with) the consent of all the
Banks.
(b) Any amendment, modification, waiver, variation or consent which
relates to any provision of this Clause 44, Clause 39 or Part 11
or would otherwise affect any of the Agent's, the Security
Trustee's or the Fronting Bank's rights hereunder or subject the
Agent, the Security Trustee or the Fronting Bank to any
additional obligations hereunder may be affected with (and only
with) the consent of the Agent and the Fronting Bank (as
applicable).
45. Partial Invalidity
If, at any time, any provision hereof is or becomes illegal, invalid or
unenforceable in any respect under the law of any jurisdiction, neither the
legality, validity or enforceability of the remaining provisions hereof nor the
legality, validity or enforceability of such provision under the law of any
other jurisdiction shall in any way be affected or impaired thereby and the
<PAGE>
relevant provision shall be replaced with a new provision reflecting the same
commercial intent of the parties, which provision shall be legal, valid and
enforceable under the law of the relevant jurisdiction.
46. Notices
46.1 Each communication to be made under any of the Facility Documents shall
be made in writing but, unless otherwise stated, may be made by telex, facsimile
or letter.
46.2 Any communication or document to be made or delivered by one person to
another pursuant to this Agreement shall (unless that other person has by
fifteen days' written notice to the Agent specified another address) be made or
delivered to that other person at the address telex or facsimile identified with
its signature below (or, in the case of a Transferee, at the end of the Transfer
Certificate to which it is a party as Transferee) and shall be deemed to have
been made or delivered when despatched, with appropriate answerback received (in
the case of any communication made by telex), when received (in the case of any
communications made by facsimile) or (in the case of any communication made by
letter) when left at that address or (as the case may be) ten days after being
deposited in the post postage prepaid in an envelope addressed to it at that
address Provided that any communication or document to be made or delivered to
the Agent shall be effective only if the same is expressly marked for the
attention of the department or officer identified with the Agent's signature
below (or such other department or officer as the Agent shall from time to time
specify for this purpose).
46.3 Save where the Agent agrees otherwise each communication and document
made or delivered by one party to another pursuant to this Agreement shall be in
the English language or accompanied by a translation thereof into English
certified (by an officer of the person making or delivering the same) as being a
true and accurate translation thereof.
47. European Monetary Union
47.1 The European Economic and Monetary Union (EMU) provides for the
introduction of a single currency (Euro) and the substitution of the national
currencies of the Member States participating in EMU.
47.2 On the date of the introduction of the single currency (Euro) for the
Federal Republic of Germany, the currency specified in this Agreement and the
currency specified for payments under this Agreement shall be substituted by the
single currency and the changeover into the single currency (Euro) shall take
place. Conversions shall be based on the officially fixed conversion rate.
47.3 Neither the introduction of the single currency (Euro) nor the
substitution of the national currencies of the Member States participating in
the EMU nor the fixing of the official conversion rate for replacement nor any
economic consequences that arise from any of the aforementioned events or in
connection with the EMU shall give rise to any right to prematurely terminate,
contest, cancel, rescind, modify or renegotiate this Agreement or any of its
provisions or to raise any other objections and/or exceptions or to assert any
claims for compensation. The Agreement and all its provisions shall be continued
unchanged.
<PAGE>
48. Intercreditor and Security Trust Agreement Acknowledgements and
Undertakings
48.1 The Borrower and IFCO Europe hereby expressly authorise the Security
Trustee to enforce the security constituted by the Senior Security Documents in
the manner provided for in the Facility Documents and irrevocably waive any
rights (and shall procure that each Group Entity providing security hereunder
shall waive such rights) which they may now or in the future have to challenge
or have set aside any arrangements relating to:
(a) the placing of the proceeds of the enforcement of any security in
a suspense account bearing interest at the applicable interest
rate from time to time of the Security Trustee; or
(b) any other matter or thing regarding the order of enforcement of
security and the priority of the application of the proceeds of
such enforcement in accordance with the provisions of the
Facility Documents.
48.2 The Borrower and IFCO Europe acknowledge and agree (and shall procure the
agreement of each other Group Entity providing security hereunder) that, except
as otherwise provided in the Facility Documents, they shall have no right to be
consulted in relation to or to object to any enforcement or other action by the
Beneficiaries in relation to the Facility Documents and, for the avoidance of
doubt, none of the Beneficiaries shall incur any liability to IFCO Europe or any
Group Entity in relation to such action in the absence of fraud, wilful
misconduct or the failure by the Beneficiaries to comply with the standard of
care which could reasonably be expected to be given by any similar person in
similar circumstances.
48.3 The Borrower acknowledges each of the terms of the Intercreditor
Agreement and the Security Trust Agreement and undertakes and agrees to be bound
by their terms.
48.4 The Borrower and IFCO Europe hereby agree and acknowledges that the
Senior Liabilities (other than the Postponed Senior Liabilities) shall rank pari
passu between themselves and, whether secured or unsecured, shall rank in
priority to the Senior Subordinated Liabilities and that the Senior Subordinated
Liabilities shall rank in priority to the Postponed Senior Liabilities.
48.5 The Borrower undertakes that prior to the Senior Discharge Date it will
not, unless the Majority Lenders otherwise previously consent in writing:
(i) pay, prepay, redeem, purchase or otherwise acquire or satisfy in
any manner (including by set-off or combination of accounts) the
whole or any part of the Senior Subordinated Liabilities
otherwise than pursuant to the terms of the Intercreditor
Agreement;
(ii) (other than those created pursuant to the Senior Subordinated
Facility Documents (as the same are in force at the date hereof)
or otherwise permitted pursuant to the terms of the Intercreditor
Agreement) create or permit to subsist any security interest over
any of its assets for, or any guarantee, indemnity or other
assurance against financial loss in respect of, any of the
<PAGE>
Senior Subordinated Liabilities;
(iii) make any Material Variation to any term of the Senior
Subordinated Facility Documents (other than an extension to, or
postponement of, a date for payment of any amount thereunder);
(iv) exercise any right or take any other action which would cause any
amount (other than amounts referred to in Clause 9.1 of the
Intercreditor Agreement) to become due and payable in connection
with any of the Senior Subordinated Facility Documents or the
Senior Subordinated Liabilities; or
(v) take or omit to take any action whereby the subordination
contemplated by the Intercreditor Agreement may be impaired.
48.6 The Borrower and IFCO Europe hereby consent, so long as any of the
Facility Documents remain subsisting, to the disclosure by any of the Agent, the
Senior Subordinated Agent, the Security Trustee and the Lenders to each other of
such information concerning IFCO Europe or any member of the Group to such
extent as such persons see fit.
48.7 The Borrower agrees that, if the Senior Discharge Date would have
occurred on any date but for the fact that the Hedging Liabilities remain
outstanding, all outstanding Hedging Agreements in relation to any Hedge
Counterparty shall automatically terminate on that date unless the Senior
Subordinated Agent agrees to the contrary.
48.8 Any capitalised term used in this Clause 48 and not defined herein shall
bear the meaning ascribed to it in the Intercreditor Agreement.
<PAGE>
Part 14
LAW AND JURISDICTION
49. Law
This Agreement shall be governed by, and shall be construed in accordance with,
German law.
50. Jurisdiction
50.1 Each of the Borrower and IFCO Europe hereby irrevocably agrees for the
benefit of each of the Beneficiaries that the District Court (Landgericht) of
Frankfurt am Main shall have jurisdiction to hear and determine any suit, action
or proceeding, and to settle any disputes, which may arise out of or in
connection with this Agreement and, for such purposes, irrevocably submits to
the jurisdiction of such courts.
50.2 Each of the Borrower and IFCO Europe irrevocably waives any objection
which it might now or hereafter have to the courts referred to in Clause 50.1
being nominated as the forum to hear and determine any suit, action or
proceeding, and to settle any disputes, which may arise out of or in connection
with this Agreement and agrees not to claim that any such court is not a
convenient or appropriate forum.
50.3 The submission to the jurisdiction of the courts referred to in Clause
50.1 shall not (and shall not be construed so as to) limit the right of the
Beneficiaries or any of them to take proceedings against either of the Borrower
or IFCO Europe in any other court of competent jurisdiction nor shall the taking
of proceedings in any one or more jurisdictions preclude the taking of
proceedings in any other jurisdiction (whether concurrently or not) if and to
the extent permitted by applicable law.
50.4 Each of the parties hereto hereby waives trial by jury in any judicial
proceeding involving, directly or indirectly, any matter (whether sounding in
tort, contract or otherwise) in any way arising out of, related to, or connected
with any of the Facility Documents or the relationships established hereunder
and whether arising or asserted before or after the date hereof or before or
after the payment, observance and performance in full of such party's
obligations hereunder.
AS WITNESS the hands of the duly authorised representatives of the parties
hereto the day and year first before written.
<PAGE>
THE FIRST SCHEDULE
The Banks and their Commitments
Part I
The Term Banks Term Commitment (DM)
BHF Bank Aktiengesellschaft 21,111,280.00
DG Bank Deutsche Genossenschaftsbank 21,111,280.00
Creditanstalt AG 14,777,440.00
Barclays Bank PLC 6,504,586.67
Deutsche Bank AG, Munich Branch 6,333,333.33
Norddeutsche Hypotheken-und Wechselbank AG 3,081,040.00
Oldenburgische Landesbank AG 3,081,040.00
-------------
Total Term 76,000,000.00
=============
Part II
The Revolving Banks Tranche A Tranche B
Revolving Revolving
Commitment Commitment
(DM) (DM)
BHF Bank Aktiengesellschaft 12,500,100.00 6,944,500.00
DG Bank Deutsche Genossenschaftsbank 12,500,100.00 6,944,500.00
Creditanstalt AG 8,749,800.00 4,861,000.00
Barclays Bank PLC 3,851,400.00 2,139,666.67
Deutsche Bank AG, Munich Branch 3,750,000.00 2,083,333.33
Norddeutsche Hypotheken-und Wechselbank AG 1,824,300.00 1,013,500.00
Oldenburgische Landesbank AG 1,824,300.00 1,013,500.00
------------- -------------
Total Revolving 45,000,000.00 25,000,000.00
============= =============
<PAGE>
THE SECOND SCHEDULE
Form of Transfer Certificate
To: BHF Bank Aktiengesellschaft
TRANSFER CERTIFICATE
relating to the agreement (as from time to time amended, varied, novated or
supplemented, the "Facility Agreement") dated [ ] whereby a
DM76,000,000 term loan facility and DM70,000,000 revolving loan and guarantee
facilities were made available to IFCO International Food Container Organisation
GmbH as Borrower by a group of banks on whose behalf BHF Bank
Aktiengesellschaft acted as agent in connection therewith.
1. Terms defined in the Facility Agreement shall, subject to any contrary
indication, have the same meanings herein. The terms Bank, Transferee, Bank's
Participation and Amount Transferred are defined in the schedule hereto.
2. The Bank (i) confirms that the Bank's Participation is an accurate summary
of its participation in the Facility Agreement and (ii) requests the Transferee
to accept and procure the assignment and transfer to the Transferee of a
percentage of the Bank's Participation (equal to the percentage that the Amount
Transferred is of the aggregate of the component amounts (as set out in the
schedule hereto) of the Bank's Participation) by counter-signing and delivering
this Transfer Certificate to the Agent at its address for the service of notices
specified in the Facility Agreement.
3. The Transferee hereby requests the Agent to accept this Transfer
Certificate as being delivered to the Agent pursuant to and for the purposes of
Clause 41.3 of the Facility Agreement and the Bank hereby assigns its rights
under the Facility Documents (including the security pursuant to the Senior
Security Documents) and transfers its obligations thereunder to the extent set
out in the schedule hereto so as to take effect in accordance with the terms of
the Facility Agreement thereof on the Transfer Date or on such later date as may
be determined in accordance with the terms thereof.
4. The Transferee confirms that it has received a copy of the Facility
Documents together with such other information as it has required in connection
with this transaction and that it has not relied and will not hereafter rely on
the Bank to check or enquire on its behalf into the legality, validity,
effectiveness, adequacy, accuracy or completeness of any such information and
further agrees that it has not relied and will not rely on the Bank to assess or
keep under review on its behalf the financial condition, creditworthiness,
condition, affairs, status or nature of the Borrower or IFCO Europe or any Group
Entity.
5. The Transferee hereby undertakes with the Bank and each of the other
parties to the Facility Agreement that it will perform in accordance with their
terms all those obligations which by the terms of the Facility Documents
(including any Bank Guarantees which have been issued prior to the date hereof)
will be assumed by it after delivery of this Transfer
<PAGE>
Certificate to the Agent and satisfaction of the conditions (if any) subject to
which this Transfer Certificate is expressed to take effect.
6. The Transferee accepts any Bank Guarantees which have been issued prior to
the date hereof for itself and accepts that the Agent, without power of
attorney, has issued such Bank Guarantees for such Transferee and the Transferee
ratifies the issuing of such Bank Guarantee by the Agent on its behalf by
accepting the transfer referred to herein and by its execution of this Transfer
Certificate.
7. The Bank makes no representation or warranty and assumes no responsibility
with respect to the legality, validity, effectiveness, adequacy or
enforceability of the Facility Documents or any document relating thereto and
assumes no responsibility for the financial condition of the Borrower or IFCO
Europe or any Group Entity or for the performance and observance by the Borrower
and IFCO Europe or any Group Entity of any of their obligations under the
Facility Documents or any document relating thereto and any and all such
conditions and warranties, whether express or implied by law or otherwise, are
hereby excluded.
8. The Bank hereby gives notice that nothing herein or in the Facility
Documents (or any document relating thereto) shall oblige the Bank to (i) accept
a re-assignment or re-transfer from the Transferee of the whole or any part of
its rights, benefits and/or obligations under the Facility Documents transferred
pursuant hereto or (ii) support any losses directly or indirectly sustained or
incurred by the Transferee for any reason whatsoever including, without
limitation, the non-performance by the Borrower or IFCO Europe or any other
party to the Facility Documents (or any document relating thereto) of its
obligations under any such document. The Transferee hereby acknowledges the
absence of any such obligation as is referred to in (i) or (ii) above.
9. This Transfer Certificate and the rights and obligations of the parties
hereunder shall be governed by and construed in accordance with German law.
10. The benefit of the Senior Security Documents (subject to compliance with
applicable law) shall in respect of each of the Facilities pass automatically to
the Transferee to the extent of the Amount Transferred in respect thereof and
the security granted thereby will be kept and administered by the Agent for the
benefit of the Transferee.
The Schedule
1. Bank:
2. Transferee:
3. Transfer Date:
4. Bank's Participation:
<PAGE>
Term Commitment: [ ]
Tranche A Revolving Commitment: [ ]
Tranche B Revolving Commitment: [ ]
Bank's Commitment Bank's Portion of the Total Loan
Term Facility:
Tranche A Revolving Facility:
Tranche B Revolving Facility:
5. Amount Transferred:
Commitment Transferred Loan Transferred
Term Facility:
Tranche A Revolving Facility:
Tranche B Revolving Facility:
Details of Bank Guarantees
issued and outstanding: Portion Transferred
[Transferor Bank] [Transferee Bank]
By: By:
Date: Date:
Administrative Details of Transferee
Address:
Contact Name:
Account(s) for Payments:
Telex:
Facsimile:
Telephone:
<PAGE>
* The Transferee must also accede to the Intercreditor Agreement, the
Security Trust Agreement and certain of the Senior Security Documents by
execution of relevant accession agreements.
<PAGE>
THE THIRD SCHEDULE
Conditions Precedent
A. Corporate Documents
1. In relation to each of SPI, MTS, the Borrower, IFCO Europe and each member
of the Group (a "Member") which is party to a Facility Document:
(a) copies, certified by a director of each such company as being true,
complete and up to date, of the constitutional documents including the
certificate of incorporation or officially certified recent excerpts
from the Commercial Register (Handelsregisterauszug) and articles of
association of such company (or its equivalent in the relevant
jurisdiction);
(b) copies, certified by a director of each of the Borrower, IFCO Europe
and each such company or Member as being true, complete and up to
date, of the necessary resolutions by the shareholders authorising the
execution, delivery and performance of the Facility Documents and the
terms and conditions thereof and authorising a named person or persons
to sign each Facility Document and any documents to be delivered by
the Borrower, IFCO Europe, SPI, MTS or Member (as the case may be)
pursuant thereto; and
(c) a certificate of a duly authorised officer of the Borrower, IFCO
Europe and each such Member or other company, setting out the names
and signatures of the persons authorised to sign, on behalf of such
person each Facility Document to which it is or is to be party and any
document to be delivered by such person pursuant thereto.
2. A copy, certified a true copy by the Borrower on behalf of the Borrower,
IFCO Europe, SPI, MTS and each Group Entity of each such law, decree,
material consent, licence, approval and authorisation as is necessary to
render the Facility Documents legal, valid and binding, to make the
Facility Documents admissible in evidence in its jurisdiction of
incorporation and to enable each of the Borrower, IFCO Europe, SPI, MTS and
the members of the Group to perform its obligations thereunder, and a copy
of each such law, decree, material consent, licence, approval and other
authorisation (other than any corporate authorisations) required to permit
GE to own (beneficially as well as legally) 100% of the shares of IFCO
Europe.
B. Business Plan, Accounts, Supply Agreement and Reports
1. The Business Plan in the agreed form.
2. The Reports.
3. The Supply Agreement together with all annexes thereto showing, inter alia,
that (a) the maximum average price per crate will not, during the time at
which any amount is outstanding hereunder, exceed DM6.10 and (b) the
Borrower has purchased or has an
<PAGE>
option to purchase the crate manufacturing tools at a total price not
exceeding their current market value.
4. Where any of the Reports are not addressed to the Agent or any Joint
Arranger for and on behalf of the Beneficiaries from time to time, in each
case a reliance letter from the person who prepared such Report in an
agreed form in favour of the Agent on behalf of the Beneficiaries from time
to time.
5. Original Financial Statements, the Financial Statements of the Group for
the Financial Quarter ended 30 September 1997 and the Financial Statements
of the Group for the eleven months ending 30 November 1997, in each case
certified by a Duly Authorised Officer of the Borrower (such certification
to include a confirmation that no material adverse change in the financial
position or operating results of the Group during the period to which those
financial statements relate).
C. Investment Agreement and Related Matters
1. A photocopy of an executed copy, certified by a director of the Borrower
and a duly authorised officer of General Electric Capital Corporation as
true, complete and up to date of the Investment Agreement and the
Contribution Contract.
2. Evidence (in the form of a confirmation from the Borrower and GE) that all
conditions to the Investment have been satisfied without waiver, amendment,
variation or modification.
3. Confirmation from the Borrower and GE in the agreed terms, addressed to the
Agent (on behalf of the Banks) that the Investment has been completed in
accordance with the terms of the Investment Agreement and the Contribution
Contract and that no material right or entitlement of IFCO Europe or GE
(whether to receive documents or otherwise) thereunder has been waived or
modified except with the written consent of the Agent.
4. A certificate from a director of the Borrower certifying that no amendment
(save as previously approved in writing by the Agent) has been made to the
Investment Agreement, the Supply Agreement or the Contribution Contract and
that such documents contain the full agreement of the parties thereto as to
the matters set out therein relating to the Group.
5. A certificate from an Authorised Signatory of the Borrower and each person
granting an Encumbrance hereunder confirming that the constitutional
documents of each of their subsidiaries whose shares are to be pledged
pursuant to the Senior Security Documents:
either:
(i) do not contain any provisions allowing the Board of Directors or
shareholders of the relevant subsidiary to refuse the transfer to and
approval and registration of; and
<PAGE>
(ii) do not contain any pre-emption rights or other need for approvals of
the transfer to,
any persons as shareholders of the relevant subsidiary pursuant to any
enforcement by the Security Trustee (acting on behalf of the Beneficiaries)
of the security created by the relevant Senior Security Document,
or
that the relevant shareholders resolutions, consents and approvals have
been obtained to the granting and enforcement of the Encumbrances (and that
no corporate bar therefore exists to the enforcement of the Encumbrances).
6. Confirmation from the Borrowers auditors that at least DM45,000,000 (less
DM300,000 applied in respect of fees incurred in relation to the
Investment) have been invested by GE into IFCO Europe in accordance with
the Investment Agreement and that an amount of at least DM43,700,000 of
such funds so invested by GE has been invested in the Borrower by IFCO
Europe as an additional capital contribution into the capital reserves
(Kapitalrucklage) of the Borrower.
D. Senior Subordinated Financing Documents
1. Evidence that the aggregate of fully paid in equity capital of the Borrower
is at least DM45,000,000 and that an advance will be made to the Borrower
of DM35,000,000 on the date on which the first Advance will be made
hereunder under the Senior Subordinated Facility.
2. A certified true, complete copy of the Senior Subordinated Facility
Documents duly executed by the parties hereto.
E. Security and Priority Documents
1. The following security documents, together with all documents to be
delivered pursuant thereto:
(a) a pledge agreement pledging all shares in the Borrower dated on or
about the date hereof by IFCO Europe;
(b) a pledge agreement (or other similar agreement) by each member of the
Group of all of such member's shares in its subsidiaries (and the
delivery (where appropriate) of Share Certificates for all shares in
such subsidiary endorsed (where necessary) by the relevant Group
Entity in blank to the Agent or an undertaking to deliver such Share
Certificates forthwith to the Agent following their issue) and all
other documents ancillary thereto;
(c) a pledge agreement by Mr. Luitpold Roever in favour of the Security
Trustee pledging all shares owned by him in GISO Verwaltungs
Gesellschaft mbH and
<PAGE>
the delivery of all relevant share certificates (if any are issued) to
the Security Trustee and any other documents ancillary thereto;
(d) a share pledge from each of Mr T Maurer and Mr W Zingg in favour of
the Security Trustee, pledging all shares owned by them in IFCO
(Schweiz) A.G. and the delivery of all relevant share certificates to
the Security Trustee and all other documents ancillary thereto;
(e) a share pledge from MTS Okologistik GmbH in favour of the Security
Trustee pledging all shares owned by it in IFCO International Food
Container Organisation S.r.l (and the delivery (if the Security
Trustee requires) of all share certificates held by it) and any other
documents ancillary thereto;
(f) a share pledge from Schoeller Plast Industries GmbH in favour of the
Security Trustee pledging all shares owned by it in IFCO International
Food Container Organisation S.A.S. and the delivery (if the Security
Trustee requires) of all share certificates in such company held by it
or on its behalf and any other documents ancillary thereto;
(g) an assignment of receivables (including an assignment of all factoring
agreements and leasing agreements) by the Borrower and any other
member of the Group specified by the Agent in accordance with normal
German practice in the form of a Globalzession and any other documents
ancillary thereto;
(h) an agreement between SPI, GBL, the Borrower and the Security Trustee
relating to licences granted in relation to the Patent and other
ancillary items.
2. Security in form and substance satisfactory to the Agent over all crates
(including New Crates and any Existing Crates currently encumbered which
are, pursuant to the terms hereof, to be released from such Encumbrance)
owned by the Group (including security in respect of crates held at
depots), the Material Intellectual Property and the Supply Agreement.
3. The Intercreditor Agreement
4. The Security Trust Agreement.
5. Evidence that all existing Encumbrances over the assets or undertakings of
each Group Entity other than Permitted Encumbrances have been released or
discharged (or will be released or discharged on the making of the first
Advance hereunder) and/or transferred to the Security Trustee.
F. Legal Opinions
Legal Opinions of:
(a) lawyers acceptable to the Joint Arrangers in relation to the Borrower,
IFCO Europe and each company providing security hereunder.
<PAGE>
(b) Clifford Chance in relation to the laws of the Federal Republic of
Germany addressed to the Agent on behalf of the Banks.
G. Miscellaneous
1. Evidence that all fees and reimburseable expenses payable to the Agent, the
Security Trustee, the Arrangers and/or the Banks in connection herewith
shall be made out of the first Advance and that all costs in connection
with the Investment have been paid or will be paid out of the proceeds of
the first Advance.
2. The Hedging Strategy Letter.
3. The fee letters referred to in Clauses 36.2, 36.3 and 37.1.
4. Estimated details of all Transaction Costs certified by a Duly Authorised
Officer of the Borrower.
5. Certified true copies of all of the Services Agreements (or similar
agreement) of Messrs Gerland, Tofflinger and Benz.
6. Information in the form of an update of the report prepared by General
Electric Capital Corporation regarding the installation of Information
Technology Systems within the Group including details of their current
status and the IT Schedule.
7. Evidence that the Existing Indebtedness (other than indebtedness under the
Leasing Agreements) has been cancelled and/or repaid (or will, upon the
making of the first Advance hereunder and under the Senior Subordinated
Facility be repaid).
8. A letter from the Borrower addressed to the Auditors instructing them to
co-operate with the Agent where the Agent approaches the Auditors for
information regarding any Group Entity following the occurrence of an Event
of Default which is continuing unremedied and unwaived and with the
Borrower having been offered an opportunity to attend any such discussions
and a letter from the Auditors addressed to the Borrower and the Agent
confirming their acceptance of such instructions.
9. A budget showing the forecast monthly profit and loss account for the
financial year beginning 1 January 1998 including confirmation that VAT
treatment is consistent with the advice set out in the Tax Report.
10. A letter from GE Capital Corporation regarding the utilisation of any
payments received by it relating to claims made by it following a breach of
warranty or misrepresentation pursuant to the Investment Agreement in the
prepayment of the Facilities.
11. Copies of each of the Material Leasing Agreements.
12. A confirmation letter confirming, inter alia, the extent of External
Finance Leases and
<PAGE>
that no objections to the European Commission's decision not to take anti-
trust action against the Borrower have been received.
<PAGE>
THE FOURTH SCHEDULE
Notice of Drawdown of Term Advances/Revolving Advances/Bank Guarantees
From: IFCO International Food Container Organisation GmbH
To: BHF Bank Aktiengesellschaft
Dear Sirs
1. We refer to the agreement (as from time to time amended, varied, novated
or supplemented, the "Facility Agreement") between, amongst others, IFCO
International Food Container Organisation GmbH as Borrower and you as Agent
dated [ ] whereby a term facility of up to DM76,000,000 was made available
to the Borrower and revolving facilities of up to DM70,000,000 (or its
equivalent) was made available to the Borrower. Terms defined in the Facility
Agreement shall have the same meaning in this notice.
2. We hereby give you notice that, pursuant to the Facility Agreement and
upon the terms and subject to the conditions contained therein, we wish [a Term
Advance/Tranche A Cash Advance/Tranche B Cash Advance to be made to us/the
Fronting Bank to issue a Bank Guarantee/the Agent to issue a Bank Guarantee on
behalf of the Revolving Banks] as follows:
(i) Drawdown Date
(ii) Term or Interest Period:
[(iii) Details of Bank Guarantee as required under Clause 8.1].
3. We confirm that subject to the provisions of the Disclosure Letter, at the
date hereof, the representations set out in Clause 26.1 (other than the
representations not required to be repeated pursuant to Clause 26.2) are true in
all material respects and no Event of Default or Potential Event of Default has
occurred and is continuing and has not been waived or would result from the
making of such Advance.
4. The proceeds of this drawdown should be credited to the account of [ ]
numbered [ ] with [ ].
Yours faithfully
...............................
for and on behalf of
IFCO International Food Container Organisation GmbH
<PAGE>
THE FIFTH SCHEDULE
Terms of Indemnity in relation to Bank Guarantees
1. The Borrower hereby unconditionally and irrevocably agrees and undertakes
to the Agent, the Revolving Bank and the Fronting Bank as follows:
(a) subject to Clause 8.5(i), the Borrower will at all times indemnify the
Revolving Banks and the Revolving Banks and the Fronting Bank on
demand of the Agent and keep the Fronting Bank indemnified on demand
of the Agent from and against all actions, suits, proceedings, claims,
demands, liabilities, damages, costs, expenses, losses and charges
whatsoever in relation to or arising out of any utilisation of the
Revolving Facility and the Borrower will pay to the Agent for account
of the Fronting Bank (or, as the case may be, the Revolving Banks) the
amount of all payments made (whether directly or by way of set-off,
counterclaim or otherwise howsoever) and all losses, costs or expenses
suffered or incurred from time to time by the Fronting Bank or the
Revolving Banks, by reason or in consequence of its incurring a
liability under any utilisation of the Revolving Facility and any of
the aforesaid indemnities relating thereto Provided that neither the
Fronting Bank nor the Revolving Banks have acted negligently;
(b) the liability of the Borrower under this indemnity shall not be
discharged, lessened or impaired by any time being given or by
anything being done by the Revolving Banks or the Fronting Bank.
2. The Borrower specifically releases and indemnifies the Agent, the Revolving
Banks and the Fronting Bank from and against the consequences of the
Fronting Bank's, the Agent's or any Revolving Bank's failure and/or the
failure of any other person to receive any telex, facsimile or telephone
message in a form in which it was despatched and from and against the
consequences of any delay that may occur during the course of the
transmission of any such message unless the Fronting Bank, Agent or
Revolving Bank has acted negligently in relation to such failure.
3. The obligations of the Borrower hereunder and under each document executed
pursuant to or in relation to this Agreement shall not be in any way
discharged or impaired by reason of any time or other indulgence which may
be granted (a) to the Agent, the Revolving Banks or the Fronting Bank in
writing by any beneficiary of any utilisation of the Revolving Facility or
(b) by the Agent, the Revolving Banks or the Fronting Bank in writing to
any person from whom it may seek reimbursement in respect of sums paid out
by it under any utilisation of the Revolving Facility or any other
obligation pursuant thereto or pursuant to this Agreement, as the case may
be, by any variation of any underlying agreement (or utilisation of the
Revolving Facility) relates, this Agreement or any such document nor by any
circumstance which would or might (but for this provision) constitute a
legal or equitable discharge or defence of the Borrower.
<PAGE>
4. The Agent, the Revolving Banks or the Fronting Bank may, with the
Borrower's written consent, at any time, without thereby discharging,
impairing or otherwise affecting any security created by, pursuant to or in
relation to this Agreement or the rights, powers and remedies conferred
upon it by this Agreement, any such security or by law, (a) offer or agree
to or enter into agreement for the extension or variation of any
utilisation of the Revolving Facility or (b) offer to give or agree to give
any time or other indulgence to any sums paid out by it under any
utilisation of the Revolving Facility, any obligation pursuant thereto or
any other obligation pursuant to this Agreement.
5. Any rights conferred on the Agent, the Revolving Banks or the Fronting Bank
by this Agreement and by each document executed pursuant to or in relation
to this Agreement shall be in addition to and not in substitution for or
derogation of any other rights which the Agent, the Revolving Banks or the
Fronting Bank may at any time have to seek from the Borrower or any other
person reimbursement of or indemnification against payments made or
liabilities incurred under any utilisation of the Revolving Facility, any
obligation pursuant thereto or any other obligation pursuant to this
Agreement.
6. For the purposes of this Agreement, a utilisation of the Revolving Facility
shall be considered to be outstanding until the latest of (a) the date of
return of the document evidencing the Revolving Banks' or the Fronting
Bank's (as the case may be) liability to the relevant beneficiary under
such utilisation of the Revolving Facility to the Fronting Bank, the Agent
or the Revolving Banks (as appropriate) from such beneficiary together with
written confirmation from such beneficiary (in form and substance
satisfactory to the Fronting Bank, the Agent and/or the Revolving Banks (as
appropriate) that the Fronting Bank has (or, as the case may be, the
Revolving Banks have) no further liability under such document; (b) the
expiry date referred to in that document (being the latest date by which
the beneficiary thereof shall be entitled to make a demand of the Fronting
Bank, the Agent, the Revolving Banks (as appropriate) thereunder); and (c)
the date on which all liabilities referred to in that utilisation of the
Revolving Facility or arising under the claims secured by such utilisation
have been discharged.
7. The Borrower hereby confirms and agrees that:
(a) the Fronting Bank, the Agent and the Revolving Banks shall be entitled
and bound to make any payment requested or demanded in writing by any
beneficiary under any utilisation of the Revolving Facility regardless
of whether or not the Borrower shall be in any way in breach of any of
its obligations under or by virtue of the transaction to which that
utilisation of the Revolving Facility refers and without making any
investigation as to the bona fide nature, validity or genuineness of
any such request or demand (unless, under applicable law, the Fronting
Bank or the Revolving Banks (as the case may be) is under no
obligation to make such payment), and
(b) the liability of the Borrower hereunder and the right and obligation
of the
<PAGE>
Fronting Bank or the Revolving Banks (as the case may be) to make such
payment shall be in no way diminished or prejudiced if it should
appear that, as between the Borrower and that beneficiary, that
beneficiary was not entitled for whatever reason to demand payment
under such utilisation of the Revolving Facility or that such demand
was not valid or genuine (subject as mentioned in paragraph (a)
above).
8. It is acknowledged that the Agent shall notify the Borrower upon its
receipt of a demand by a beneficiary under a Bank Guarantee and, where the
Fronting Bank or, as the case may be, the Revolving Banks make a payment
under any Bank Guarantee, such payment shall be made no earlier than the
third business day after the date on which the Fronting Bank (or, as the
case may be, the Agent on behalf of the Revolving Banks) received such
demand from such beneficiary (and, for the avoidance of doubt it is
expressly agreed that neither the Agent, the Revolving Banks nor the
Fronting Bank shall be obliged to give any further notice to the Borrower
before making such payment to such beneficiary).
<PAGE>
THE SIXTH SCHEDULE
PART I
Form of Bank Guarantee to be issued by the Fronting Bank
(Note: This form shall be used unless otherwise agreed by the Agent)
[___________________
(Beneficiary)
Bank Guarantee No. __________
We have been informed that you are prepared to enter into a finance leasing
contract (a "Finance Lease") in relation to crates with IFCO International Food
Container Organisation GmbH, hereinafter "borrower" in the amount of _________,
provided payments and interest obligations under such Finance Lease are
guaranteed by a bank.
This being premised, we, BHF Bank Aktiengesellschaft, hereby irrevocably
guarantee and undertake to pay to you on your first written demand any amount up
to
____________________
(say: _____________________)
including accrued interest, fees and commission provided you confirm to us at
the same time in writing that the amount required from us constitutes the
outstanding credit amount (including accrued interest, fees and commission)
which the borrower, in spite of your respective demand, has failed to pay when
due.
This guarantee shall expire on ____________ or, if earlier, upon this document
being returned to us, unless your written demand under this guarantee in
accordance with the above-mentioned conditions has been received by us in
Frankfurt by the end of that day.
This guarantee is not assignable.
All rights and obligations arising from this guarantee shall be governed by the
laws of the Federal Republic of Germany. The court having non-exclusive
jurisdiction shall be the district court (Landgericht) of Frankfurt am Main.
[Appropriate EMU language to be inserted]
BHF Bank Aktiengesellschaft
<PAGE>
THE SIXTH SCHEDULE
PART II
Bank Guarantee to be issued by the Agent on behalf of the Banks
THIS GUARANTEE made on the [ ] day of [ ] by BHF BANK
AKTIENGESELLSCHAFT of [ ], as agent (the "Agent") for the
banks listed in the First Schedule hereto (together with their successors,
transferees and assigns the "Banks"), in favour of [ ] (the "Beneficiary")
witnesses as follows:
1. Subject to the terms hereof, each of the Banks, acting through the Agent
hereby unconditionally and severally guarantees the payment in accordance
with paragraph 4 below of its Portion of the payment obligations IFCO
International Food Container Organisation GmbH (the "Company") under
[insert defaults of relevant leasing agreement between the Beneficiary and
the Company] (the "Agreement").
2. No Bank shall be obliged to make payments hereunder exceeding in aggregate
the maximum amount specified in relation to that Bank in the First Schedule
hereto (as the same may be amended from time to time). Any payment made by
a Bank hereunder shall reduce such Bank's liability to make payment
hereunder accordingly.
3. No demands may be made hereunder after 5.00 p.m. Frankfurt time on [ ]
(the "Expiry Date") or, if earlier after this document has been returned to
the Agent. Neither the Banks nor the Agent will have any liability in
respect of any demand delivered after such time.
4. Subject to paragraph 3 above, within three business days of receiving a
written demand hereto from the Beneficiary (addressed to the Agent on
behalf of all the Banks and signed by two authorised officers of the
Beneficiary) at [details of Agent's office to be inserted] each Bank hereby
agrees to pay to the Beneficiary in the currency specified in the First
Schedule hereto it Portion of any amount due and owing by the Company but
unpaid under the Agreement, subject to the maximum amount referred to in
paragraph 2 above.
5. If any Bank (for the purpose of this Guarantee, the "Transferor") transfers
all or any of its rights and obligations under the Facility Agreement (the
"Facility Agreement") dated [ ] and made between, inter alia,
the Company as Borrower and the Agent as Agent in accordance with the terms
of that agreement to another financial institution (the "Transferee") this
Guarantee shall be deemed to be amended and reference herein to a Bank
shall include reference to such Transferee and such Transferor shall be
discharged from any obligations hereunder to the extent that the same are
transferred to the Transferee and so that the Transferor's Portion shall be
reduced to the extent of the transfer.
6. The rights of the Beneficiary under this Guarantee may not be assigned or
transferred.
<PAGE>
7. The Agent has entered into this Guarantee in its capacity as agent for
disclosed principals and accordingly shall be under no obligation to the
Beneficiary hereunder (other than in its capacity as a Bank).
8. The Obligations of each Bank hereunder are several and in the event of any
demand being made hereunder each Bank shall only be liable for its Portion
of any amount so demanded. The Beneficiary may not make demand through the
Agent on any Bank in respect of any amount in respect of which it has
previously made a demand, but which remains unpaid as a result of the
failure by another Bank to make payment in accordance with the terms
hereof.
9. The failure of a Bank to perform its obligations hereunder shall not affect
the obligations of any other Bank to the Beneficiary nor shall the Agent or
any other Bank be liable for the failure by any Bank to perform its
obligations hereunder.
10. In this Guarantee "Portion" in relation to a Bank means the percentage
figure specified in relation to that Bank in the First Schedule hereto (as
the same may be amended from time to time) or, in the case of a Transferee,
the percentage transferred to it by the Transferor in accordance with the
terms of the Facility Agreement.
11. All rights and obligations arising from this Guarantee shall be governed by
the law of the Federal Republic of Germany. The court having non-exclusive
jurisdiction shall be the district court (Landgericht) of Frankfurt am
Main.
[appropriate EMU language to be inserted]
..................................
For and on behalf of
BHF BANK AKTIENGESELLSCHAFT as agent for
the Banks
<PAGE>
THE SCHEDULE
The Banks Maximum Amount Portion
<PAGE>
THE SEVENTH SCHEDULE
Group Structure Chart
<PAGE>
THE EIGHTH SCHEDULE
Existing Indebtedness
Description Amount outstanding as at
19 February 1998
A *Pool Indebtedness
Payable to:
*DG Bank Deutsche
Genossenschaftsbank 30,000,000
*Deutsche Bank
Aktiengesellschaft, Munich Branch 24,500.000
*Oldenburgische Landesbank 17,000,000
*Norddeutsche Hypotheken-und
Wechsellbank AG 17,000,000
B *SPS Shareholder Loan
Payable to SPS 37,500,000
C *Bardusch Loan
Payable to Bardusch 3,400,000
D *Hannover Finanz Loan
Payable to Hannover Finanz 5,000,000
E *Schroder Loan
Payable to:
Schroder, Munchmyer,
Hugst & Co 500,000
-------------
134,900,000
_________________
* This Indebtedness is to be repaid on the date of the making of the first
Advance hereunder.
<PAGE>
THE NINTH SCHEDULE
Material Intellectual Property
Description of Property Owner of Intellectual Property
1. European Patent entitled "Plastic GBL
Container, especially a vegetable
container with hinged sides".
Patent No: 0575594 (Europe).
(European patent application no.
EP93902215 which has now been
granted). Registered in: Austria,
Belgium, Switzerland, Germany,
Denmark, Sweden, Spain, France,
Great Britain, Greece, Italy, The
Netherlands.
Expiry: 2013
2. International Patent Application No. GBL
International Patent PCT/EP93/00091.
Registered in Norway (registered on
02.07.1997), Poland (registered on
02.08.1996), Russia (registered on
27.06.1997), Czech Republic
(registered on 18.02;.1997) with
pending applications in Slovakian
Republic, Hungary and Ukraine.
Expiry: 2013
3. German Patent Application No. GBL
P4201145.0 (pending).
4. Utility Model (Gebrauchsmuster) GBL
Number: G9321234
Expiry: 17.01.2002 (prolongation
possible)
Country: Germany
5. Utility Model (Gebrauchsmuster) GBL
Number: G92189776
Expiry: 17.01.2000 (prolongation
possible)
Country: Germany
<PAGE>
6. Design Protection (Geschmacksmuster) GBL
Number: M92086764
Expiry: 16.11.2002
Country: Germany
7. Trademarks GBL
IFCO
Registered in Benelux, Denmark,
Germany, Finland, France,
Greece, Great Britain, The
Netherlands, Norway, Austria,
Sweden, Switzerland and Spain.
<PAGE>
EXECUTION PAGES
As Borrower
IFCO INTERNATIONAL FOOD CONTAINER ORGANISATION GmbH
By: /s/ DR. FRANK TOFFLINGER
Address: Zugspitzstrasse 15
D-8209 Pullach
Germany
Telephone: +49 89
Facsimile: +49 89 74491 239
Attention: Dr. Frank Tofflinger
copy notices: Martin and Christoph Schoeller (Fax No: +49 89 74491 298)
As IFCO Europe
IFCO EUROPE BETEILIGUNGS-GmbH
By: /s/ MARTIN SCHOELLER
Address: Zugspitzstrasse 15
D-82049 Pullach
Germany
Telephone: +49 89 74491 240
Facsimile: +49 89 74491 239
Attention: Dr. Frank Tofflinger
copy notices: Martin and Christoph Schoeller (Fax No: +49 89 74491 298)
The Security Trustee
BHF BANK AKTIENGESELLSCHAFT
By: /s/ GERD P. BIEDING /s/ MICHAEL FOCKING
Address: Berliner Handels und Frankurter Bank
Bockenheimer Landstrasse 10
D-60323 Frankfurt am Main
Germany
Telephone: +49 69 718
Facsimile: +49 69 718 4480
Attention: Dr. P. Koch
<PAGE>
The Agent
BHF BANK AKTIENGESELLSCHAFT, Head Office, Frankfurt am Main
By: /s/ GERD P. BIEDING /s/ MICHAEL FOCKING
Address for notice: Niederlassung Munchen
Max-Joseph-Strasse 6
80333 Munchen
Telephone: +49 89 55173 267
Facsimile: +49 89 55173 292
Attention: Jorg Salven
The Joint Arrangers
BARCLAYS CAPITAL
By: /s/ TIM TAYLOR
Address: 5 The North Colonnade
Canary Wharf
London E14 4BB
Telephone: +44 171 773 2358
Facsimile: +44 171 773 4894
Attention:
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK
By: /s/ MARKUS KASCH /s/ ANDREAS THONHAUSER
Address: Turkenstrasse 16
80268 Munich
Germany
Telephone:
Facsimile: +49 89 2134 2639
Attention:
<PAGE>
BHF BANK AKTIENGESELLSCHAFT, Head Office, Frankfurt am Main
By: /s/ GERD P. BIEDING /s/ MICHAEL FOCKING
Address for notices: Niederlassung Munchen
Max-Joseph-Strasse
80333 Munchen
Telephone: +49 89 55173 267
Facsimile: +49 89 55173 292
Attention: Jorg Salven
The Co-Arrangers and the Banks
BARCLAYS BANK PLC
BY: /s/ TIM TAYLOR
ADDRESS: Bockenheimer Landstrasse 38-40
60323 Frankfurt am Main
Germany
Telephone: +49 69 7161 1862
Facsimile: +49 69 7161 1889
Attention: Rolf-Peter Ruoff/Diva Cortellini
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK
By: /s/ MARKUS KASCH /s/ ANDREAS THONHAUSER
ADDRESS: Turkenstrasse 16
80268 Munich
Germany
Telephone:
Facsimile: +49 89 2134 2639
Attention:
<PAGE>
BHF BANK AKTIENGESELLSCHAFT, Head Office, Frankfurt am Main
By: /s/ GERD P. BIEDING /s/ MICHAEL FOCKING
Address for notices: Niederlassung Munchen
Max-Joseph-Strabe
80333 Munchen
Telephone: +49 89 55173 267
Facsimile: +49 89 55173 292
Attention: Jorg Salven
CREDITANSTALT AG
By: /s/ BETTINA STEINHAUER
Address: Creditanstalt AG
Wasagasse 2
A-1090 Vienna
Telephone:
Facsimile: +431 310 0554
Attention: Mr. Martin Benger
NORDDEUTSCHE HYPOTHEKEN-UND WECHSELBANK AG
By: /s/ BETTINA STEINHAUER
Address: Postflach 10
Domstrasse 9
20033 Hamburg
Germany
Telephone:
Facsimile: +49 40 324 122
Attention: Mr. Klaus Bruning
<PAGE>
OLDENBURGISCHE LANDESBANK AG
By: /s/ BETTINA STEINHAUER
Address: Postflach 26
26016 Oldenburg
Germany
Telephone:
Facsimile: +49 441 210 362
Attention: Mr. Heinrich Rawe
DEUTSCHE BANK AKTIENGESELLSCHAFT, Munich Branch
By: /s/ BETTINA STEINHAUER
Address: Riesstrasse 25
80992 Munich
Germany
Telephone:
Facsimile: +49 89 2390 2033
Attention: Mr. Manfred Graeff
<PAGE>
EXHIBIT 10.4
BHF-BANK
Fax-Nr. Telefax
To: IFCO International Food Container From: BHF-BANK
Organisation GmbH Akbangesellschaft
089/744 91239
Attn. Dr. Tofflinger
IFCO Europe Betelligungs-GmbH
089/744 91296
Attn.: Mr. Martin and Christoph Department: Kreditrislko-Management
Schoeller
Projektfinanzierung
Barclays Capital
0044-171-773 4894 Name: Gerd Bleding
Attn.: Mr. Tim Taylor ble
Phone/Ext.: 069 718 34 37
DG Bank
Deutsche Genossenschaftsbank
089/2134 2639 Fax-No.: 069 718 44 80
Attn.: Mr. Markus Kasch
Date: 26.02.98
Credianstalt AG
0043-1-310 0554
Attn.: Mr. Martin Benger
Norddeutsche Hypotheken-und
Wechselbank AG
040/324 122
Attn.: Mr. Klaus Bruning
Oldenburgische Landesbank AG
0441/210 362
Attn.: Mr. Heinrich Rawe
Deutsche Bank Aktiengesellschaft
089/2390 2033
Attn.: Mr. Manfred Graeff
Total Pages (including this cover sheet): 2
IFCO
Senior Facility Agreement dated February 20, 1998
Ladies and Gentlemen:
In connection with the above-captioned matter, please be advised that the
"Termination Date" February 28, 1998 as provided for under 1.1 needs to be
changed. We suggest to choose March 11, 1998 as new "Termination Date". Please
indicate your consent to this change by duly signing and returning the attached
copy of this letter to us.
Should you have any questions, please do not hesitate to contact either Michael
Focking at (0)69 718 4320 or Gerd Bleding at (0)69 718 3437.
<PAGE>
Yours sincerely.
BHF-BANK Aktiengesellschaft
/s/ Dr. Reinhardt /s/ Gerd Bleding
(Dr. Reinhardt) (Bleding)
agreed: /s/ Christoph Schoeller
------------------------
name
26/02/98
------------------------
place/date
<PAGE>
EXHIBIT 10.5
CONFORMED COPY
SENIOR SUBORDINATED FACILITY AGREEMENT
between
IFCO INTERNATIONAL FOOD CONTAINER ORGANISATION GmbH
as Borrower
IFCO EUROPE BETEILIGUNGS-GmbH
as IFCO Europe
BARCLAYS CAPITAL
as Arranger
BHF BANK AKTIENGESELLSCHAFT
as Security Trustee
and
BARCLAYS BANK PLC
as Agent
Clifford Chance
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Clause Page No.
<S> <C>
Part 1
INTERPRETATION
1. Interpretation...................................... 1
Part 2
THE FACILITY
2. The Facility........................................ 22
3. Purpose............................................. 22
4. Conditions Precedent................................ 22
5. Nature of Banks' Rights and Obligations............. 22
Part 3
UTILISATION OF THE FACILITY
6. Utilisation of the Facility......................... 24
Part 4
INTEREST
7. Interest Periods.................................... 25
8. Interest Rate and Payment........................... 26
9. Market Disruption................................... 26
Part 5
REPAYMENT, PREPAYMENT AND CANCELLATION
10. Repayment........................................... 28
11. Prepayment.......................................... 28
12. Intentionally left blank............................ 30
</TABLE>
<PAGE>
<TABLE>
Part 6
CHANGES IN CIRCUMSTANCES
<S> <C>
13. Taxes................................................. 31
14. Tax Credits........................................... 32
15. Tax Receipts.......................................... 32
16. Increased Costs....................................... 32
17. Illegality............................................ 34
18. Mitigation............................................ 34
Part 7
REPRESENTATIONS, COVENANTS AND EVENTS OF DEFAULT
19. Representations....................................... 36
20. Financial Information................................. 40
21. Financial Condition................................... 44
22. Covenants............................................. 54
23. Events of Default..................................... 62
Part 8
DEFAULT INTEREST AND INDEMNITY
24. Default Interest and Indemnity........................ 66
Part 9
PAYMENTS
25. Currency of Account and Payment....................... 68
26. Payments.............................................. 68
27. Set-Off............................................... 69
28. Redistribution of Payments............................ 69
Part 10
FEES, COSTS AND EXPENSES
29. Fees.................................................. 71
30. Costs and Expenses.................................... 71
Part 11
AGENCY PROVISIONS
</TABLE>
<PAGE>
<TABLE>
<S> <C>
31. The Agent, the Arranger and the Banks........................................................... 73
Part 12
ASSIGNMENTS AND TRANSFERS
32. Benefit of Agreement............................................................................ 78
33. Assignments and Transfers by the Borrower....................................................... 78
34. Assignments and Transfers by Banks.............................................................. 78
35. Disclosure and Syndication...................................................................... 79
Part 13
MISCELLANEOUS
36. Calculations and Evidence of Debt............................................................... 81
37. Remedies, Waivers, Amendments and Consents...................................................... 81
38. Partial Invalidity.............................................................................. 82
39. Notices......................................................................................... 82
40. European Monetary Union......................................................................... 83
41. Intercreditor and Security Trust Agreement Acknowledgements and Undertakings.................... 83
Part 14
LAW AND JURISDICTION
42. Law............................................................................................. 86
43. Jurisdiction.................................................................................... 86
THE FIRST SCHEDULE
The Banks and their Commitments...................................................................... 87
THE SECOND SCHEDULE
Form of Transfer Certificate......................................................................... 88
THE THIRD SCHEDULE
Conditions Precedent................................................................................. 91
THE FOURTH SCHEDULE
Notice of Drawdown of Advances....................................................................... 96
THE FIFTH SCHEDULE
Group Structure Chart................................................................................ 97
</TABLE>
<PAGE>
<TABLE>
<S> <C>
THE SIXTH SCHEDULE
Existing Indebtedness................................................................................ 98
THE SEVENTH SCHEDULE
Material Intellectual Property....................................................................... 99
</TABLE>
<PAGE>
THIS AGREEMENT is made the 20 day of February 1998
BETWEEN
(1) IFCO INTERNATIONAL FOOD CONTAINER ORGANISATION GmbH as borrower (the
"Borrower");
(2) IFCO EUROPE BETEILIGUNGS-GmbH ("IFCO Europe");
(3) BARCLAYS CAPITAL as Arranger of the Facility (the "Arranger");
(4) BHF BANK AKTIENGESELLSCHAFT as security trustee for the Beneficiaries (the
"Security Trustee");
(5) BARCLAYS BANK PLC as agent for the Banks (the "Agent"); and
(6) THE FINANCIAL INSTITUTIONS named in the First Schedule (the "Banks").
NOW IT IS HEREBY AGREED as follows:
Part 1
INTERPRETATION
1. Interpretation
1.1 In this Agreement:
"Accountant's Report" means the report of C&L Deutsche Revision dated 10 October
1997 with a reliance letter in favour of the Security Trustee as security
trustee for the Beneficiaries from time to time;
"Accounting Principles" means accounting principles generally accepted in the
Relevant Jurisdiction in effect from time to time and consistently applied
Provided that, in respect of any consolidated financial statements of the Group,
"Accounting Principles" means accounting principles generally accepted in
Germany from time to time and consistently applied;
"Accounting Reference Period" means, in respect of any Group Entity, the
financial year or other period in respect of which the audited accounts of such
Group Entity are drawn up;
"Adjusted EBITDA" shall have the meaning ascribed to it in Clause 21.5;
"Advance" means, save as otherwise provided herein, the advance made or to be
made by the Banks hereunder;
"Apollo" means Apollo Verwaltungsgesellschaft mbH & Co.;
"Auditors" means any of Coopers & Lybrand, Price Waterhouse, Arthur Andersen,
KPMG, Ernst &
<PAGE>
Young or such other firm of auditors of international repute approved in writing
by the Agent (such approval not to be unreasonably withheld or delayed) and
being the auditors for the time being of all Group Entities;
"Authorised Signatory" in relation to either the Borrower or IFCO Europe and any
communication to be made, or any document to be executed or certified, by it,
means, at any time, any person:
(i) who is duly authorised at such time, in such manner as may be
reasonably acceptable to the Agent, to make such communication, or
to execute or certify such document on its behalf; and
(ii) in respect of whom the Agent has received a certificate signed by a
director or other authorised officer of it, or by another of its
Authorised Signatories, setting out the name and, where such person
is authorised to execute or certify documents, signature of such
person and confirming such person's authority to act as aforesaid;
"Available Commitment" means, in relation to a Bank at any time and save as
otherwise provided herein, such Bank's Commitment at such time less the
aggregate of its portion of the Loan at such time;
"Available Facility" means, at any time, the aggregate amount of the Available
Commitments of the Banks at such time;
"Bardusch" means Helmut Bardusch GmbH & Co;
"Bardusch Loan" means a loan from Bardusch to the Borrower dated 30 September
1997 in an amount of DM3,438,028.60 ;
"Beneficiaries" means the Agent, the Arranger, the Banks, each Hedge
Counterparty and the Security Trustee, and "Beneficiary" means any of them;
"Budget" means the consolidated budget of the Group for a financial year
delivered by the Borrower to the Agent pursuant to Clause 20.2;
"Business" means the business carried on by the Group at the date hereof;
"Business Plan" means the medium term profit and loss forecast for the Group
provided to the Banks in relation to the proposed Facility and the financial
model initialled by the Agent and the Borrower and designated by the Agent and
the Borrower as "the Business Plan";
"Capital Expenditure" shall have the meaning ascribed thereto in Clause 21.5;
"Cash Flow" shall have the meaning ascribed thereto in Clause 21.5;
"Commitment" means, in relation to any Bank at any time and save as otherwise
provided herein, the amount set opposite its name under the heading "Commitment"
in the First Schedule;
"Confidentiality Undertaking" means a confidentiality undertaking substantially
in the standard form
<PAGE>
from time to time of the LMA or in such other form as may be agreed between the
Borrower and the Agent;
"Contribution Contract" means the contribution contract dated 4 November/5
November 1997 between Schoeller Packaging Systems GmbH and IFCO Europe as set
out in the Seventh Schedule to the Investment Agreement;
"Current Assets" shall have the meaning ascribed thereto in Clause 21.5;
"Dangerous Substance" means any radioactive emissions and any solid, liquid or
gaseous matter which is dangerous or toxic to living things or which damages the
environment;
"Disclosure Letter" means the letter from the Borrower to the Agent dated the
date hereof in the agreed form;
"Drawdown Date" means, in relation to any Advance, the proposed date for the
making of such Advance;
"Duly Authorised Officer" means, in relation to any certification to be given by
or on behalf of either the Borrower or IFCO Europe, its Authorised Signatory
whose office and identity has been notified to the Agent where the Agent is
reasonably satisfied that such person is the appropriate person to give such
certification;
"EBITA" shall have the meaning ascribed thereto in Clause 21.5;
"EBITDA" shall have the meaning ascribed thereto in Clause 21.5;
"Encumbrance" includes any mortgage, charge, pledge, lien, hypothecation or
other encumbrance securing any obligation of any person or any other type of
preferential arrangement (including, without limitation, title transfer and
retention arrangements (other than those entered into in the ordinary course of
trading and liens and retention of title rights created by operation of law or
standard business terms), sale and leaseback, sale and purchase or deferred
purchase arrangements and the discounting or factoring of receivables on
recourse terms) having a similar effect or any other arrangement having
substantially the same economic effect as any of the foregoing;
"Environmental Approvals" means any permit, approval, identification number,
consent, licence or other authorisation required under any applicable
Environmental Laws;
"Environmental Claims" means any and all actions, suits, demands, demand
letters, claims, notices, investigations, proceedings, consent orders or consent
agreements relating in any way to any Environmental Law or any Environmental
Approval (hereafter "Claims"), including without limitation (a) any and all
Claims by governmental or regulatory authorities for enforcement, clean-up,
removal, response, remedial or other actions or damages pursuant to any
applicable Environmental Law and (b) any and all Claims by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief arising from alleged injury or threat to health, safety or the
environment;
"Environmental Laws" means all laws and regulations compliance with which is
mandatory for any
<PAGE>
Group Entity in any jurisdiction, relating to waste or contamination or
pollution of air, water (including ground water and underground water) or soil;
"Environmental Report" means the report of Environmental Resources Management
dated September 1997 with a reliance letter in favour of the Agent as agent for
the Beneficiaries from time to time;
"Event of Default" means any of those events specified in Clause 23.1;
"Excess Cash Flow" means, in respect of any Accounting Reference Period of the
Group ending on and after 31 December 1998, EBITDA for such Accounting Reference
Period adjusted as follows:
(i) deducting taxes paid during the relevant Accounting Reference
Period;
(ii) deducting increases (or adding decreases) in Working Capital over
the relevant Accounting Reference Period;
(iii) deducting Capital Expenditure;
(iv) deducting Total Debt Service;
(v) deducting the actual cash effect of extraordinary charges and
adding the actual cash effect of extraordinary income under the
Accounting Principles during the relevant Account Reference
Period;
(vi) deducting the actual cash effect of currency losses and adding the
actual cash effect of currency gains during the relevant
Accounting Reference Period;
(vii) adding the actual cash effect of disposals (deducting any profit
element and/or adding any loss made on) of any asset made during
the relevant Accounting Reference Period permitted hereunder;
(viii) plus any net increase or minus any net decrease in the capital
element of any Permitted External Leasing entered into during such
Accounting Reference Period;
(ix) less the sum of (a) DM5,000,000 after deducting (b) the amount of
any taxes which are payable by any member of the Group in respect
of the Investment and in respect of any potential tax liabilities
identified in the Tax Report and which are not indemnified by SPS
pursuant to the Investment Agreement,
(without any double counting) each as determined by reference to the
relevant audited consolidated financial statements of the Group delivered
pursuant to the provisions of Clause 20.1;
"Existing Crates" means crates which are in existence at the date hereof and
which are the subject of the Leasing Facilities or which are manufactured after
the date hereof but for the sole purpose of replacing broken crates which are in
existence at the date hereof and which are the subject of Leasing Facilities and
which are otherwise dealt with in accordance with the terms of the Facility
Documents;
<PAGE>
"Existing Indebtedness" means the Pool Indebtedness, the SPS Shareholder Loan,
the Bardusch Loan, the Hanover Finanz Loan, the Schroder Loan and the
indebtedness under the Leasing Facilities;
"External Finance Lease" means any Finance Lease where the lessor is not a
member of the Group;
"Facility" means the term loan facility granted by the Banks to the Borrower
pursuant to Clause 2;
"Facility Documents" means this Agreement, the Intercreditor Agreement, the
Senior Subordinated Security Documents, the Security Trust Agreement, the
Hedging Agreements, the fee letters referred to in Clauses 29.1 and 29.2, any
documents evidencing the terms of any other agreement or document that may be
entered into or executed pursuant to or in connection with any of the foregoing
by the Borrower or IFCO Europe or any of them or entered into by any person
creating or evidencing security for the obligations of the Borrower hereunder
whether by way of personal covenant, charge, security interest, mortgage,
pledge, or otherwise or regulating the priorities of such security, and any
other agreement or document designated in writing as a "Facility Document" by
the Borrower and the Agent;
"Facility Office" means, in relation to the Agent or any Bank, the office
identified with its signature below (or, in the case of a Transferee, at the end
of the Transfer Certificate to which it is a party as Transferee) or such other
office as it may from time to time select;
"FIBOR" means, in relation to any Advance or unpaid sum and any specified
period, the rate per annum determined by the Agent to be equal to either:
(i) the offered rate appearing on the relevant page (being currently page
"22000") of the Telerate screen which displays interest rates for the
currency in which such Advance or unpaid sum is denominated (or, if such
page or such service shall cease to be available, such other page or such
other service (as the case may be) for the purpose of displaying interest
rates for such currency as the Agent, after consultation with the Banks and
the Borrower, shall select) and for such specified period at or about 11.00
a.m. on the Quotation Date for such specified period; or
(ii) if the Agent is unable to access the Telerate Screen or if no such display
rate is then available for such currency or such specified period and, at
such time, the Agent has not selected any alternative service as
contemplated in (i) above, the arithmetic mean (rounded upwards, if
necessary, to four decimal places) of the rates (as notified to the Agent)
at which each of the Reference Banks was offering to prime banks in the
Frankfurt Interbank Market deposits in the currency in which such Advance
or unpaid sum is denominated and for such specified period at or about
11.00 a.m. on the Quotation Date for such specified period,
and, for the purposes of this definition, "specified period" means the Interest
Period for such Advance or, as the case may be, the relevant period in respect
of which FIBOR falls to be determined in relation to such unpaid sum;
"Final Maturity Date" means 30 September 2005 provided that if such day is not a
business day the Final Maturity Date shall be the immediately preceding business
day;
"Finance Lease" means a contract between a lessor and a lessee for lease or hire
of a specific asset in
<PAGE>
respect of the financing of crates and/or plant and equipment;
"Financial Indebtedness" means in relation to any Group Entity at any time any
indebtedness incurred in respect of:
(i) the principal amount, and the capitalised element (if any), of
money borrowed or raised and debit balances at banks and premiums
if any and capitalised interest in respect thereof;
(ii) the principal and premiums (if any) and capitalised interest in
respect of any debenture, bond, note, loan stock or similar
instrument;
(iii) liabilities (including pursuant to counter-indemnities and
reimbursement obligations) in respect of any letter of credit,
standby letter of credit securing Financial Indebtedness arising
under this definition, acceptance credit, bill discounting or note
purchase facility and any receivables purchase, factoring or
discounting arrangements (to the extent that such arrangement is
with recourse to any Group Entity);
(iv) the capital value of any Finance Lease;
(v) the deferred purchase price of assets or services (except any such
arrangement entered into in the ordinary course of trading and
having a term not exceeding 180 days from the date on which the
liability was originally incurred);
(vi) liabilities in respect of any foreign exchange agreement (other
than foreign exchange agreements for spot delivery), currency or
interest purchase or swap or other derivative transactions or
similar arrangements (and the amount of the Financial Indebtedness
in relation to any such transaction shall be calculated by
reference to the mark-to-market valuation of such transaction at
the relevant time);
(vii) all obligations to purchase, redeem, retire, defease or otherwise
acquire for value any share capital of any person or any warrants,
rights or options to acquire such share capital in respect of
transactions which have the commercial effect of borrowing or which
otherwise finance its or the Group's operations or capital
requirements;
(viii) any other transactions having the commercial effect of borrowing
entered into by such Group Entity; and
(ix) all Financial Indebtedness of other persons of the kinds referred
to in paragraphs (i) to (viii) above guaranteed or indemnified
directly or indirectly in any manner by such Group Entity, or
having the commercial effect of being guaranteed or indemnified
directly or indirectly by such Group Entity;
"Financial Quarter" shall have the meaning ascribed thereto in Clause 21.5;
"Financial Statements" shall be deemed to be a reference to the most recent
audited consolidated financial statements of the Group delivered pursuant to
paragraph (i) of Clause 20.1;
<PAGE>
"First Repayment Date" means 31 March 2005 provided that if such day is not a
business day the First Repayment Date shall be the immediately preceding
business day;
"Flotation" means the listing of any shares on any stock exchange or the grant
of permission to deal in any such shares on any recognised exchange;
"GBL" means GISO Verwaltungsgesellschaft mbH & Co. Behalterleasing KG;
"GE" means General Electric Erste Beteiligungs GmbH, a wholly owned subsidiary
of General Electric Capital Corporation;
"Group" means the Borrower and its subsidiaries from time to time;
"Group Entity" means any member of the Group;
"Growth Capital Expenditure" shall have the meaning ascribed thereto in Clause
28.5;
"Hannover Finanz Loan" means a loan from Hannover Finanz to the Borrower dated 7
November 1995 in an amount of DM5,000,000;
"Hedge Counterparty" means any Bank which is a party to an outstanding Hedging
Agreement with the Borrower from time to time;
"Hedging Agreements" means any agreements entered into from time to time by the
Borrower with a Bank in relation to Permitted Treasury Transactions entered into
as described in the Hedging Strategy Letter;
"Hedging Strategy Letter" means the letter addressed to the Agent from the
Borrower setting out the approved and agreed hedging strategy in agreed terms
(to include interest rate hedging as well as foreign exchange rate hedging);
"Information Memorandum" means the document concerning the Group and the
Investment dated October 1997 prepared by the Borrower in relation to this
transaction as the same may be updated from time to time with the agreement of
the Borrower and further circulated to certain banks or financial institutions
after the date hereof;
"Insurance Report" means the report regarding the insurances of each Group
Entity prepared by Burmester, Duncker & Joly, insurance brokers to the Borrower
and addressed to the Agent on behalf of the Beneficiaries dated 14 January 1998
(as the same may be updated on or about the date hereof);
"Instructing Group" means:
(a) whilst no Advances are outstanding hereunder, a Bank or group of Banks
whose aggregate Commitments, calculated on the date on which the Agent
seeks instructions from the Banks, amount (or, if each Bank's
Commitment has been reduced to zero, did immediately before such
reduction to zero, amount) in aggregate to more than sixty six and two
thirds per cent. (66%) of the aggregate of the Total Commitments;
<PAGE>
(b) whilst at least one Advance is outstanding hereunder, a Bank or group
of Banks to whom in aggregate more than sixty six and two thirds per
cent. (66%) of the Loan is owed;
"Intellectual Property" means the Material Intellectual Property interests
together with any renewals or redesignations thereof and all other material
intellectual property now or in the future owned by any member of the Group;
"Intercreditor Agreement" means the intercreditor agreement entered into on or
before the date on which the first Advance is made hereunder between, inter alia
the Agent, the Security Trustee, the Hedge Counterparties, the Banks, the Senior
Agent and the Senior Lenders;
"Interest Period" means any of the periods determined pursuant to Clauses 7.1 to
7.4 (inclusive);
"Investment" means the investment of DM45,000,000 by way of equity in IFCO
Europe by GE in accordance with the Investment Agreement and the Contribution
Contract;
"Investa" means Investa Projektentwicklungs-und Verwaltungs GmbH;
"Investment Agreement" means the investment agreement (including all schedules
thereto) dated 21/22 August 1997 and amended by amendment agreements dated 15
October 1997 and 4/5 November 1997 between Christoph Schoeller, Schoeller
Packaging Systems GmbH, Andrea Schoeller, Martin Alexander Schoeller, Schoeller
KG, Schoeller Plast Industries GmbH, General Electric Erste Beteiligungs GmbH
and GE Capital Corporation;
"IT Schedule" means a schedule setting out the planned timetable for the
installation of an information technology system within the Group;
"Leasing Facilities" means the leasing facilities provided pursuant to
agreements dated 1 October 1995, 5 November 1996, 17 December 1996, 8 August
1997 and 30 September 1997 relating to a maximum aggregate amount of 4,980,770
crates between the Borrower and Bardusch and the leasing facility provided
pursuant to an agreement dated 1 October 1994 between Investa and the Borrower
relating to a maximum amount of 1,005,369 crates;
"Legal Due Diligence Report" means the legal due diligence report in relation to
the Investment prepared by Feddersen Laule Scherzberg & Ohle Hansen Ewerwahn
dated 17 October 1997 addressed to or with a reliance letter in favour of the
Agent for and on behalf of the Beneficiaries from time to time;
"Legal Opinions" means the opinions in the agreed form referred to in part F of
the Third Schedule and delivered on or before the date on which the first
Advance is made hereunder;
"Liabilities" shall have the meaning ascribed thereto in Clause 21.5;
"LMA" means the Loan Market Association;
"Loan" means the aggregate amount of the Advances for the time being outstanding
under the Facility;
<PAGE>
"Margin" means two point seven five per cent. (2.75%) per annum;
"Market Report" means the report of LEK dated 5 September 1997 with a reliance
letter in favour of the Agent as agent for the Beneficiaries from time to time;
"Material Adverse Effect" shall mean a material adverse effect on the business,
operations, liabilities, assets or condition (financial or otherwise) of any
Material Group Entity or on the ability of either of the Borrower or IFCO Europe
to perform its obligations under any of the Facility Documents;
"Material Group Entity" means the Borrower, IFCO Europe, GBL or any Group
Entity:
(a) having (when consolidated with the earnings before interest and tax or
turnover or gross assets of its subsidiaries) more than five per cent.
(5%) of the earnings before interest and tax or turnover or gross
assets of the Group all as determined by reference to the most latest
audited consolidated accounts of such Group Entity and the Group
Provided that:
(1) in the case of a Group Entity acquired after the end of the
financial period to which the latest relevant audited accounts
relate, the reference to the latest audited accounts for the
purposes of the calculation above shall, until audited accounts
for the financial period in which the acquisition is made are
published, be deemed to be a reference to such first-mentioned
accounts as if such subsidiary had been shown in such accounts by
reference to its own latest audited accounts, adjusted as deemed
appropriate by the Auditors; and
(2) if, in the case of any subsidiary which itself has subsidiaries,
no consolidated accounts are prepared and audited, its earnings
before interest and tax or, as the case may be, gross assets
shall be determined on the basis of pro forma consolidated
accounts of the relevant subsidiary and its subsidiaries prepared
for this purpose by the Auditors or the auditors for the time
being of the relevant subsidiary; or
(b) not falling within paragraph (a) above but which, as a result of any
intra-group transfer or re-organisation would, adopting either test
referred to in paragraph (a) above and as if the accounts referred to
in such paragraph had been drawn up immediately following such
transfer or reorganisation, be a Material Group Entity Provided that
such subsidiary shall only become a Material Group Entity upon the
completion of such transfer or reorganisation,
and a report by the Auditors that in their opinion a subsidiary is or is not, or
was or was not, at any particular time or during any particular period a
Material Group Entity shall, in the absence of manifest error, be conclusive and
binding on all parties hereto;
"Material Intellectual Property" means the intellectual property specified in
the Ninth Schedule and any other Intellectual Property which is material to the
Group's business;
<PAGE>
"Material Leasing Agreements" means each of the Leasing Facilities and the
leasing agreements between the Borrower and GBL dated 1 January 1995, 31
December 1995, 31 October 1996, 1 January 1997, 1 July 1997 and 1 October 1997,
for an aggregate amount of 41,166,662 crates and any other leasing agreement or
contract entered into by the Borrower or any other Group Entity where the
duration of such agreement or contract is in excess of twelve months and the
capital amount of such leasing facility is in excess of DM1,000,000;
"MTS" means MTS Okologistik Verwaltungs GmbH;
"Net Disposal Proceeds" means the gross total proceeds of disposals, leases or
transfers of the right to receive any revenues or of any assets (including
marketable securities) of any Group Entity (other than disposals which
constitute Permitted Leasing or Permitted Factoring) which (when aggregated with
the proceeds of all other such disposals, leases or transfers by Group Entities)
exceed DM1,500,000 (or its equivalent) in any financial year of the Group less:
(i) out of pocket expenses properly incurred;
(ii) sales of stock and other disposals in the ordinary course of
business;
(iii) the unpaid principal balance on the date of such disposal, lease or
transfer of any Permitted Indebtedness secured by a Permitted
Encumbrance on the asset disposed of, leased or transferred which
must be repaid by the seller on such disposal (together with any
premiums, interests or fees required to be paid in connection
therewith);
(iv) any sale taxes paid or payable by the seller due to such sale; and
(v) any income, capital gains or other taxes incurred and required to
be paid by the seller in connection with such disposal, lease or
transfer as reasonably determined in good faith by the seller on
the basis of the existing average tax rates applicable to the gain
(if any) and after taking into account all available credits,
deductions and allowances;
"Net Worth" shall have the meaning ascribed thereto in Clause 21.5;
"New Crates" means any crates not owned by any member of the Group at the date
hereof and which have not been used by the Borrower or any other member of the
Group for trading purposes;
"Non-Group Entity" means any person which is not a member of the Group;
"Notice of Drawdown" means a duly completed notice substantially in the form set
out in the Fourth Schedule;
"Original Financial Statements" means the audited consolidated financial
statements of the Group for its financial year ending 31 December 1996;
<PAGE>
"Patent" means the Patent relating to a plastic container, especially a
vegetable container with hinged sides (registered at the European Patent Office
under number EP93902215) and with the World Intellectual Property Organisation
under number PLT/EP93/00091;
"Permitted Crate Disposals" means any disposal of New Crates made for the
purposes of sale and leaseback arrangements forming part of any Permitted
Leasing transaction;
"Permitted Disposals" means in any financial year disposals of assets not being
Material Intellectual Property which are:
(i) disposals by a Group Entity in its ordinary course of trade;
(ii) disposals of assets and/or revenues for cash by a Group Entity
where the value of the aggregate net consideration received in
respect of all such disposals by Group Entities does not exceed
DM2,500,000 or its equivalent in any one financial year; or
(iii) disposals which are Permitted Transactions, Permitted Crate
Disposals or made pursuant to Permitted Factoring;
"Permitted Encumbrances" means:
(i) Encumbrances arising hereunder or under any of the Senior
Subordinated Security Documents or Senior Security Documents;
(ii) any Encumbrance which the Agent, acting on the instructions of an
Instructing Group, has at any time in writing agreed shall be a
Permitted Encumbrance, provided that the amount secured thereby is
not increased in amount or extended in terms of repayment date;
(iii) up to the date falling six months after the date hereof only, any
Encumbrance securing up to a maximum of 3,300,000 Existing Crates
created pursuant to the agreement dated 4 July/12 July 1996 between
the Borrower and Rewe-Zentral AG, Koln, Cologne;
(iv) liens arising by operation of law in the ordinary course of
business and not by reason of default and liens and retention
rights created pursuant to standard business terms (and not by
reason of default);
(v) any Encumbrance created in relation to the netting of Group bank
account balances;
(vi) any retention of title to goods supplied to the relevant Group
Entity where such retention is agreed in the ordinary course of its
trading activities;
(vii) any Encumbrance constituted by a Finance Lease, hire purchase or
conditional sale agreement, where the Financial Indebtedness
arising under such arrangement constitutes Permitted Indebtedness;
or
<PAGE>
(viii) any Encumbrance arising under condition 14 of the general business
conditions of German banks with whom any Group Entity maintains a
banking relationship in the ordinary course of business;
"Permitted Expenditure" means, in respect of any financial year of the Group,
(i) capital expenditure made in accordance with the Business Plan; (ii) capital
expenditure financed by way of lease financing falling within paragraph (vi) of
the definition of Permitted Indebtedness (to the extent not already included in
(i) above) and (iii) other capital expenditure in a maximum aggregate amount
equal to 50% of the Excess Cash Flow for the previous financial year (or its
equivalent) (or such greater figure as may be agreed to in writing by an
Instructing Group);
"Permitted External Leasing" means any leasing of crates under External Finance
Leases where the aggregate Financial Indebtedness created thereunder falls
within the provisions of sub-paragraph (vi) of the definition of Permitted
Indebtedness and where the number of Existing Crates leased thereunder does not
exceed (when aggregated with the number of Existing Crates leased under all such
other leasing transactions) 6,000,000;
"Permitted Factoring" means the non-recourse factoring arrangements between the
Borrower and DG Diskontbank GmbH as the same are in existence at the date hereof
or any other factoring arrangement made by the Borrower with any Bank provided
that the aggregate amount permitted to be outstanding at any relevant time under
all such factoring arrangements does not exceed DM80,000,000 or its equivalent
and in respect of which the Borrower has granted an assignment (in form and
substance satisfactory to the Agent) to the Security Trustee of all of the
Borrower's rights under such factoring agreement;
"Permitted Indebtedness" means:
(i) any Financial Indebtedness arising under the Facility Documents;
(ii) any Financial Indebtedness arising in respect of Senior Debt;
(iii) any Financial Indebtedness arising under Permitted Treasury
Transactions;
(iv) any Financial Indebtedness arising in respect of Permitted
Factoring;
(v) any Financial Indebtedness supported by a guarantee issued pursuant
to the Senior Facility Agreement by the Fronting Bank (as defined
in the Senior Facility Agreement) or by the Senior Agent on behalf
of the Senior Lenders (or any of them);
(vi) any Financial Indebtedness arising under or in respect of any
External Finance Lease where the amount of such Financial
Indebtedness when aggregated with the Financial Indebtedness under
or in respect of any other External Finance Lease does not exceed
(subject to the provisions of Clause 18.2), (a) at any time on or
before 1 January 1999, DM60,000,000 (or its equivalent) or (b) at
any time after 1 January 1999, DM75,000,000 (or its equivalent);
(vii) any Financial Indebtedness arising under or pursuant to Permitted
Internal Leasing;
<PAGE>
(viii) any Financial Indebtedness arising under any Permitted Loans; and
(ix) any Financial Indebtedness secured by a Permitted Encumbrance
referred to in paragraph (ii) of the definition thereof;
"Permitted Internal Leasing" means any leasing of crates under a Finance Lease
where the Lessor is GBL and the Lessee thereunder is the Borrower and where the
terms of such leasing are substantially the same as the terms of the existing
leases between GBL and the Borrower referred to in the definition of Leasing
Facilities;
"Permitted Leasing" means Permitted External Leasing and Permitted Internal
Leasing;
"Permitted Loan" means:
(i) any loan made by the Borrower to GBL where the purpose of such loan
is to facilitate Permitted Internal Leasing; and
(ii) any loan or other financial accommodation made by the Borrower to
any of its employees provided that the amount of such loans to
employees, when aggregated with the amount of loans made by other
Group Entities to their employees, does not exceed DM500,000 (or
its equivalent);
"Permitted Transactions" means the payment or declaration of any dividend,
return on capital, repayment of capital contributions or other distributions by
any Group Entity to the Borrower or to any other Group Entity for the purpose of
immediate distribution through other relevant Group Entities to the Borrower;
"Permitted Treasury Transactions" means the following Treasury Transactions:
(i) forward foreign exchange contracts for hedging currency exposures
in the ordinary course of trade; and
(ii) transactions entered into in accordance with the Hedging Strategy
Letter;
"Pool Indebtedness" means the indebtedness created pursuant to (i) agreements
dated 28 July 1995, 26 March/2 April 1997 and 24/30 June 1997 between the
Borrower and DG Bank Deutsche Genossenschaftsbank in an amount of DM32,000,000,
(ii) agreements dated 14 December 1995 and 14 March 1997 between the Borrower
and Deutsche Bank Aktiengesellschaft, Munich Branch in an amount of
DM24,500,000, (iii) an agreement dated 9 August 1995 between the Borrower and
Oldenburgische Landesbank in an amount of DM17,100,000 and (iv) an agreement
dated 20 December 1994 between the Borrower and Norddeutsche Hypotheken-und
Wechselbank AG in an amount of DM17,000,000;
"Potential Event of Default" means any event which would (but for the passage of
any period of time provided for in Clause 23.1, the giving of notice, the making
of any determination hereunder or any combination thereof) be an Event of
Default;
<PAGE>
"Proportion" means, in relation to a Bank at any time, the proportion borne, at
such time, by its Commitment to the Total Commitments (or, if all the Total
Commitments are then zero, by its Commitment to the Total Commitments
immediately prior to their reduction to zero);
"Qualifying Bank" means any bank or other financial institution in respect of
which the Borrower will not be obliged to make any withholding or deduction on
account of tax from payments of interest made to such bank under German law at
the date hereof (or, in the case of a Transferee, the date of the relevant
Transfer Certificate);
"Quarter Date" means each of 31 March, 30 June, 30 September and 31 December;
"Quotation Date" means, in relation to any period for which an interest rate is
to be determined hereunder, the day on which quotations would ordinarily be
given by prime banks in the Frankfurt Interbank Market for deposits in the
currency in relation to which such rate is to be determined for delivery on the
first day of that period Provided that, if for any such period quotations would
ordinarily be given by prime banks in the Frankfurt Interbank Market for
deposits in such currency on more than one date, the Quotation Date for that
period shall be the last of those dates;
"Reference Banks" means the principal Frankfurt offices of Barclays Bank PLC or
such other bank or banks as may from time to time be agreed between the Borrower
and the Agent (acting on the instructions of an Instructing Group);
"Relevant Jurisdictions" means, in respect of any person, the jurisdiction of
the country in which such person is incorporated and, if different, where it is
resident or has its principal place of business, and each jurisdiction or state
in which it owns or leases property or otherwise conducts its business;
"Relevant Laws" means, in respect of any person, the laws of its Relevant
Jurisdictions;
"Relevant Period" shall, save as otherwise provided herein, have the meaning
ascribed thereto in Clause 21.5;
"Relevant Taxes" means, in relation to any payment which falls to be made by the
Borrower any present or future Taxes of any nature (other than Taxes imposed on
or measured by net income) now or hereafter imposed by the laws of (a) its
Relevant Jurisdictions, (b) any other jurisdiction from which, or through which,
such payment is made or any country to whose taxation laws the Borrower is at
the time of such payment subject, (c) any political sub-division of one or more
of its Relevant Jurisdictions or any other such jurisdictions or (d) any
federation or association of which one or more of its Relevant Jurisdictions or
any other such jurisdiction is or are, at the time of such payment, a member or
members;
"Repayment Date" means each of the First Repayment Date and the Final Maturity
Date;
"Replacement Capital Expenditure" shall have the meaning ascribed thereto in
Clause 21.5;
"Reports" means the Accountant's Report, the Legal Due Diligence Report, the
Environmental Report, the Tax Report, the Insurance Report and the Market
Report;
"Reservations" means the principle that equitable remedies are remedies which
may be granted or
<PAGE>
refused at the discretion of the court, the limitation of enforcement by laws
relating to bankruptcy, insolvency, liquidation, reorganisation, court schemes,
moratoria, administration and other laws generally affecting the rights of
creditors, the time barring of claims under any applicable limitation acts, the
possibility that a court may strike out provisions of a contract as being
invalid for reasons of oppression, undue influence or similar reasons and any
other reservations or qualifications of law (but not of fact) expressed in any
of the Legal Opinions;
"Rolling Basis" shall have the meaning ascribed thereto in Clause 21.5;
"Schroder Loan" means the loan from Schroder, Munchmeyer, Hengst & Co made
pursuant to an agreement dated 1/10 December 1993 to the Borrower in an amount
of DM1,000,000;
"Secured Obligations" in relation to any Senior Subordinated Security Document
has the meaning ascribed thereto in that Senior Subordinated Security Document;
"Security Trust Agreement" means the security trust agreement entered into on or
about the date hereof between, amongst others, the Borrower, the Beneficiaries,
the Security Trustee, the Agent, the Senior Agent and the Senior Lenders;
"Senior Agent" means the agent under the Senior Facility Agreement or any
refinancing thereof;
"Senior Debt" means at any time all amounts outstanding under the Senior
Facility Agreement at such time;
"Senior Facility" means the revolving and term loan facilities in an aggregate
amount of DM146,000,000 or any refinancing thereof made available to the
Borrower by the Senior Lenders;
"Senior Facility Agreement" means the agreement dated on or about the date
hereof pursuant to which the Senior Facility is made available to the Borrower
or any refinancing thereof;
"Senior Facility Documents" means the Senior Facility Agreement and any other
agreement or document that may be entered into or executed pursuant thereto or
in connection therewith or any refinancing thereof;
"Senior Interest Expense" shall have the meaning ascribed thereto in Clause
28.5;
"Senior Lenders" means each of the financial institutions party to the Senior
Facility Agreement as "Banks" and any bank becoming a party to the Senior
Facility Agreement pursuant to the provisions thereof or any lenders providing
the refinancing thereof;
"Senior Loan" means at any time the amount outstanding (whether actual or
contingent) in respect of principal under the Senior Facility Agreement at such
time;
"Senior Security Documents" has the meaning ascribed to that term in the Senior
Facility Agreement;
"Senior Subordinated Security Documents" means the documents, in the agreed
form, listed in paragraphs E1 and E2 of the Third Schedule together with any
other document entered into by any person creating or evidencing security for
all or any part of the obligations of the Borrower under any
<PAGE>
of the Facility Documents whether by way of personal covenant, charge, security
interest, mortgage, pledge or otherwise;
"SPI" means Schoeller Plast Industries GmbH;
"SPS" means Schoeller Packaging Systems Europe GmbH;
"SPS Shareholder Loan" means a loan from SPS to the Borrower made pursuant to an
agreement dated 21 November 1996 in an amount of DM37,500,000;
"Supply Agreement" means the supply agreement dated 4/5 November 1997 between
the Borrower and Schoeller Plast Industries GmbH together with the supplemental
agreements thereto dated 3 February 1998 and 11 February 1998 and any other
agreement which may, from time to time and with the approval of the Agent
(acting on the instructions of an Instructing Group) replace such agreement;
"Syndication" means the first transfer or assignment of rights, benefits and
obligations pursuant to Clause 34.1 by the Banks set out in the First Schedule;
"Tax Report" means the report of Arthur Andersen dated 18 September 1997
addressed to General Electric Capital Corporation entitled "Project Pineapple
Tax Due Diligence (Final Report)" together with confirmation that calculations
in relation to the VAT tax treatment are correctly integrated in the Business
Plan;
"Taxes" includes all present and future income and other taxes, levies,
assessments, imposts, deductions, charges, compulsory loans and withholdings
whatsoever together with interest thereon, additions to tax and penalties and
surcharges and fines with respect thereto, if any, and any payments made on or
in respect thereof and "Tax" and "Taxation" shall be construed accordingly;
"Termination Date" means 28 February 1998;
"Total Debt" shall have the meaning ascribed thereto in Clause 21.5;
"Total Commitments" means the aggregate for the time being of the Banks'
Commitments;
"Total Fixed Charges" shall have the meaning ascribed thereto in Clause 21.5;
"Total Interest Expense" shall have the meaning ascribed thereto in Clause 21.5;
"Transaction Costs" means all up-front fees, out-of-pocket costs and expenses,
stamp and registration Taxes or the equivalent in any jurisdiction incurred by
IFCO Europe or any Group Entity in connection with the Investment, the Facility,
the Senior Facility or the transactions entered into in accordance with the
Hedging Strategy Letter;
"Transfer Certificate" means a certificate substantially in the form set out in
the Second Schedule (with such amendments as may be approved by the Agent)
signed by a Bank and a Transferee whereby:
(i) such Bank seeks to transfer to such Transferee all or a part of such
Bank's rights and
<PAGE>
obligations under the Facility Documents upon and subject to the terms
and conditions set out in Clause 34; and
(ii) such Transferee undertakes to perform the obligations it will assume
as a result of delivery of such certificate to the Agent as is
contemplated in Clause 34.3;
"Transfer Date" means, in relation to any Transfer Certificate, the date for the
making of the transfer as specified in the schedule to such Transfer
Certificate;
"Transferee" means a person to which a Bank seeks to assign all or part of such
Bank's rights and by which all or part of such Bank's obligations hereunder are
assumed;
"Treasury Transaction" means any currency or interest purchase, cap or collar
agreement, forward rate agreements, interest rate or currency future or option
contract, foreign exchange or currency purchase or sale agreement and any
similar agreement, interest rate swap, currency swap or combined interest rate
and currency swap agreement and any other similar agreement entered into prior
to, on or after the date hereof by any Group Entity; and
"Working Capital" shall have the meaning ascribed thereto in Clause 21.5.
1.2 Any reference in this Agreement to:
"acting together in concert" means persons who pursuant to an agreement or
understanding (whether formal or informal) actively co-operate together with a
view to achieving a common objective or to control another body corporate;
"affiliate" of any person shall be construed as a reference to the ultimate
holding company of that person or an entity of which that person or its ultimate
holding company (a) has direct or indirect control or (b) owns directly or
indirectly more than fifty per cent. (50%) of the share capital or similar
rights of ownership;
the "Agent", the "Arranger", a "Beneficiary", the "Security Trustee", the
"Borrower", "IFCO Europe" or any "Bank" shall be construed so as to include its
and any subsequent successors, permitted Transferees and assigns in accordance
with their respective interests (and, for the avoidance of doubt, defining any
person as a "Bank" does not imply that such person is a bank for regulatory
purposes);
a document in "agreed form" or on "agreed terms" is if it is initialled for the
purposes of identification as such by or on behalf of the Borrower and the
Agent;
on "arm's-length terms" means on terms that are fair and reasonable to the
relevant Group Entity and no more or less favourable to the relevant person
(being the other party to the relevant transaction) than could reasonably be
expected to be obtained in a comparable arm's length transaction with a person
which is not an affiliate of the relevant Group Entity;
the "assets" of any person shall be construed as a reference to the whole or any
part of its business, undertakings, property, intellectual property, shares,
securities, debts, accounts, revenues (including any right to receive revenues),
goodwill, shareholdings and uncalled capital including premium
<PAGE>
whether now or hereafter acquired and any other assets whatsoever;
"Barclays Capital" shall be construed as a reference to Barclays Capital Group,
the investment banking division of Barclays Bank PLC;
a "business day" shall be construed as a reference to a day (other than a
Saturday or Sunday) on which banks are generally open for business in Frankfurt
and Munich;
a "Clause" shall, subject to any contrary indication, be construed as a
reference to a clause hereof;
"control" of a body corporate means:
(i) the power to:
(a) cast or control the casting of more than one-half of the maximum
number of votes that might be cast at a general meeting of the
body corporate; or
(b) appoint or remove all, or the majority, of the directors of the
body corporate (and the relevant person or persons shall be
deemed to have power to make such an appointment if:
(1) an individual cannot be appointed as a director of the body
corporate without the exercise by the relevant person or
persons of such power in the individual's favour; or
(2) an individual's appointment as a director of the body
corporate follows necessarily from the individual being a
director or other officer of any of the relevant person or
persons); or
(c) to give directions with respect to the operating and financial
policies of the body corporate which the directors of the body
corporate are obliged to comply with; or
(ii) the holding of more than one-half of the issued share capital of the
body corporate (excluding any part of that issued share capital that
carries no right to participate beyond a specified amount in a
distribution of either profits or capital);
"disposal" shall be construed as any sale, lease, transfer, conveyance,
assignment or other disposal (including, without limitation, any other
transaction or arrangement pursuant to which the economic or other commercial
benefit of the existing and/or remaining assets of the relevant person is lost
or materially diluted) and "dispose" shall be construed accordingly;
the "equivalent" on any given date in one currency (the "first currency") of an
amount denominated in another currency (the "second currency") is a reference to
the amount of the first currency which could be purchased with the amount of the
second currency at the rate of exchange quoted by the Agent at or about 11.00
a.m. Frankfurt time on such date (or such other time as may be appropriate) for
the purchase of the first currency with the second currency;
<PAGE>
a "holding company" of a legal person shall be construed as a reference to any
legal person of which the first-mentioned legal person is a subsidiary;
a "guarantee" means any guarantee, suretyship, bond, indemnity, letter of
credit, third party security or other legally binding assurance against
financial loss granted by one person in respect of any indebtedness of another
person, or any agreement to assume any indebtedness of any other person or to
supply funds or to invest in any manner whatsoever in such other person by
reason of or otherwise in relation to indebtedness of such other person;
"indebtedness" shall be construed so as to include any obligation (whether
incurred as principal or as surety) for the payment or repayment of money,
whether present or future, actual or contingent;
"legal person" shall be construed as a reference to any person having separate
legal personality under the jurisdiction of its incorporation or establishment;
"loans" shall be construed so as to include, without limitation, any transaction
or arrangement pursuant to which any Financial Indebtedness is or may be owed by
or to any Group Entity to or by any other person;
a "month" is a reference to a period starting on one day in a calendar month and
ending on the numerically corresponding day in the next calendar month save
that, where any such period would otherwise end on a day which is not a business
day, it shall end on the next business day, unless that day falls in the
calendar month succeeding that in which it would otherwise have ended, in which
case it shall end on the preceding business day Provided that, if a period
starts on the last business day in a calendar month or if there is no
numerically corresponding day in the month in which that period ends, that
period shall end on the last business day in that later month (and references to
"months" shall be construed accordingly);
a "Part" shall, subject to any contrary indication, be construed as a reference
to a part hereof;
a "person" shall be construed as a reference to any person, firm, company, body
corporate, corporation, government, state or agency of a state or any
association or partnership (whether or not having separate legal personality) of
two or more of the foregoing;
a "Schedule" shall, subject to any contrary indication, be construed as a
reference to a schedule hereto;
a "subsidiary" of a legal person shall be construed as a reference to any legal
person:
(i) which is controlled, directly or indirectly, by the first-mentioned
legal person;
(ii) more than half the issued share capital (or equivalent right of
ownership) of which is beneficially owned, directly or indirectly, by
the first-mentioned legal person; or
(iii) which is a subsidiary of another subsidiary of the first-mentioned
legal person;
and, for these purposes, a legal person shall be treated as being controlled by
another if that other legal person is able to direct its affairs and/or to
control the composition of its board of directors or
<PAGE>
equivalent body;
"VAT" shall be construed as a reference to value added tax including any similar
tax which may be imposed in place thereof from time to time;
a "wholly-owned subsidiary" of a company or corporation shall be construed as a
reference to any company or corporation which has no other members except that
other company or corporation and that other company's or corporation's wholly-
owned subsidiaries or persons acting on behalf of that other company or
corporation or its wholly-owned subsidiaries; and
the "winding-up", "dissolution" or "administration" of a partnership, company or
corporation shall be construed so as to include any equivalent or analogous
proceedings under the law of the jurisdiction in which such company or
corporation or partnership is incorporated or any jurisdiction in which such
company or corporation carries on business including the seeking of liquidation,
winding-up, reorganisation, dissolution, administration, arrangement,
adjustment, protection or relief of debtors.
1.3 "DM" or "Deutsche Mark" denotes the lawful currency for the time being of
the Federal Republic of Germany (and, for the avoidance of doubt, such term
shall include, where appropriate and where such currency is the lawful currency
of the Federal Republic of Germany, the European Single Currency Unit (Euro)).
1.4 Save where the contrary is indicated:
(i) any reference in this Agreement to this Agreement, any other Facility
Document or any other agreement or document shall be construed as a
reference to this Agreement, such other Facility Document or, as the
case may be, such other agreement or document as the same may have
been, or may from time to time be, amended, varied, novated,
supplemented or replaced;
(ii) any reference in this Agreement to a statute shall be construed as a
reference to such statute as the same may have been, or may from time
to time be, amended or re-enacted to the extent such amendment or re-
enactment is substantially to the same effect as such statute on the
date hereof;
(iii) any reference in this Agreement to a time of day shall be construed
as a reference to Frankfurt time.
1.5 Clause, Part and Schedule headings are for ease of reference only.
1.6 The general terms and conditions (Allgemeine Geschaftsbedingungen) of the
Agent (as the same are in force from time to time) shall apply to this
Agreement as if set out in full herein and as if any references to
"customer" therein were a reference to the Borrower save that, where those
terms and conditions conflict with the terms of this Agreement, the terms
of this Agreement shall prevail Provided that it is understood that,
without limitation, Clause 19 of the Allgemeine Geschaftsbedingungen does
not conflict with the terms of this Agreement.
1.7 This Agreement is subject to the terms of the Intercreditor Agreement and
in any case where the terms of this Agreement and the terms of the
Intercreditor Agreement conflict, the terms of the Intercreditor Agreement
shall prevail.
<PAGE>
Part 2
THE FACILITY
2. The Facility
The Banks grant to the Borrower, upon the terms and subject to the conditions
hereof, an amortising term loan facility in an amount of DM35,000,000 (the
"Facility").
3. Purpose
3.1 The Facility is intended for the purpose of refinancing certain of the
Existing Indebtedness (not including any Leasing Facilities) and funding certain
of the costs of the Investment (the details and amounts of which have been
agreed with the Agent prior to making payment) and the Borrower shall apply
amounts drawn by it under the Facility accordingly.
3.2 Without prejudice to the obligations of the Borrower under this Clause 3,
none of the Beneficiaries shall be obliged to concern themselves with the
application of amounts raised by the Borrower hereunder.
4. Conditions Precedent
Save as the Banks may otherwise agree, the Facility will not be available for
utilisation unless the Agent has received all of the documents and other
evidence listed in the Third Schedule (or the Agent has confirmed to the
Borrower in writing that it is satisfied that, subject only to the making of the
requested Advances, it will receive the same) in form and substance satisfactory
to the Agent and the Arranger.
5. Nature of Banks' Rights and Obligations
5.1 The obligations of each Beneficiary under the Facility Documents are
several.
5.2 The failure by any Beneficiary to perform its obligations under the
Facility Documents shall not affect the obligations of the Borrower or IFCO
Europe towards any other party hereto or to any other Facility Document nor
shall any other party be liable for the failure by such Beneficiary to perform
its obligations under the Facility Documents.
5.3 The amounts outstanding at any time hereunder from the Borrower to any of
the other parties hereto shall be a separate and independent debt, and except as
otherwise stated herein each such party shall be entitled to protect and enforce
its individual rights arising out of the Facility Documents independently of any
other party, and it shall not be necessary for any party hereto to be joined as
an additional party in any proceedings for such purposes Provided that if any
Bank commences proceedings in respect of this Agreement it shall notify the
Agent as soon as practicable thereafter and the Agent shall notify the other
Banks accordingly.
5.4 No Bank shall be entitled to terminate its relationship with the Borrower
hereunder unless such termination is expressly permitted hereunder.
5.5 Where any Bank fails to perform its obligations hereunder, then such Bank
shall, at the request
<PAGE>
of the Borrower (and upon reasonable notice), transfer its participation
hereunder (at par value) to another bank or financial institution nominated by
the Borrower and acceptable to the Agent which is willing to participate in the
Facility Provided that such transfer is made in accordance with the terms hereof
(and in particular but without limitation, in accordance with the provisions of
Part 12 hereof).
<PAGE>
Part 3
UTILISATION OF THE FACILITY
6. Utilisation of the Facility
6.1 Save as otherwise provided herein, the Advance will be made by the Banks to
the Borrower, if:
(i) not later than 10.00 a.m. on the third business day (or such lesser
period as the Agent may agree) before the proposed date for the
making of the Advance, the Agent has received from the Borrower an
irrevocable Notice of Drawdown therefor, receipt of which shall
oblige the Borrower to borrow the amount therein requested in the
currency (being Deutsche Mark) and on the date therein stated upon
the terms and subject to the conditions contained herein;
(ii) the proposed date for the making of the Advance is a business day
which is or precedes the Termination Date;
(iii) none of the events described in Clause 9 have occurred in such a way
that, in accordance with the provisions of that clause, would operate
to prevent the Advance from being made;
(iv) the proposed amount of the Advance is equal to the amount of the
Available Facility; and
(v) either:
(a) no Event of Default or Potential Event of Default has occurred
and is continuing and has not been waived or would result from
the making of the Advances; and
(b) the representations set out in Clause 19.1 are true on and as of
the proposed date for the making of such Advance in all material
respects,
or each of the Banks agrees (notwithstanding any matter mentioned at
(a) or (b) above) to participate in the making of the Advance.
6.2 Each Bank participating in the Facility will participate in the Advance
made pursuant to Clause 6.1 through its Facility Office in the proportion borne
by its Available Commitment to the Available Facility immediately prior to the
making of the Advance.
6.3 If a Bank's Available Commitment is reduced in accordance with the terms
hereof after the Agent has received a Notice of Drawdown then the amount of the
Advance shall be reduced accordingly.
6.4 Each Bank's Available Commitment shall be reduced to zero at the close of
business on the day on which the Advance is made.
<PAGE>
Part 4
INTEREST
7. Interest Periods
7.1 The period for which an Advance is outstanding shall be divided into
successive periods each of which (other than the first) shall start on the last
day of the preceding such period.
7.2 The duration of each Interest Period shall, save as otherwise provided
herein, be one, three or six months (or such other period as the Borrower and
the Banks may agree), in each case as the Borrower may, by not less than three
business days' prior notice to the Agent, select (and the Agent shall promptly
notify the Banks participating in the Advance of the duration selected by the
Borrower) Provided that:
(i) if the Borrower fails to give such notice of its selection in
relation to an Interest Period, the duration of that Interest Period
shall, subject to (ii) and (iii) below, be three months;
(ii) any Interest Period which begins during or at the same time as any
other Interest Period shall end at the same time as that other
Interest Period; and
(iii) any Interest Period in respect of the Advance which would otherwise
end during the month preceding, or extend beyond, a Repayment Date
shall be of such duration that it shall end on such Repayment Date.
7.3 The Borrower may, by not less than three business days' prior notice to the
Agent, direct that any Advance shall, at the beginning of any Interest Period
relating thereto, be divided into (and thereafter, save as otherwise provided
herein, treated in all respects as) two or more Advances having such amounts (in
aggregate, equalling the amount of the Advance being so divided) as shall be
specified by the Borrower in such notice Provided that the Borrower shall not
be entitled to make such a direction if:
(i) as a result of so doing, there would be more than four outstanding
Advances; or
(ii) any Advance thereby coming into existence would be in an amount of
less than DM5,000,000
7.4 If following a direction under Clause 7.3 two or more Interest Periods in
respect of the Advance made to the Borrower end at the same time, then, on the
last day of those Interest Periods, the Advances to which such Interest Periods
relate shall be consolidated into (and thereafter, save as otherwise provided
herein, treated in all respect as) a single Advance.
<PAGE>
8. Interest Rate and Payment
8.1 On the last day of each Interest Period relating to an Advance (and, if
such Interest Period is longer than six months, on the day falling six months
after the first day of such Interest Period and on the last day of each
successive period of six months during such Interest Period) the Borrower shall
pay accrued interest on such Advance.
8.2 The rate of interest on each Advance during each Interest Period relating
thereto shall be the rate per annum which is the sum of the Margin and FIBOR on
the Quotation Date therefor.
9. Market Disruption
9.1 If, in relation to any Advance:
(i) the Agent determines that at or about 11.00 a.m. on the Quotation Date
for an Interest Period in respect of such Advance FIBOR cannot be
ascertained; or
(ii) before the close of business in Frankfurt on the Quotation Date for an
Interest Period in respect of such Advance, the Agent has been
notified by a Bank or each of a group of Banks to whom in aggregate
fifty per cent. or more of the Facility is (or, if an Advance were
then made, would be) owed that the FIBOR rate does not accurately
reflect the cost to it of obtaining such deposits in Deutschemark for
the relevant period,
then, notwithstanding the provisions of Clauses 6, 7 and 8:
(a) the Agent shall promptly notify the Borrower and the Banks of such
event; and
(b) where, in the opinion of the Agent, the events described in paragraph
(i) or (ii) above have occurred pursuant to events in the banking
market generally such that it is not feasible for such Advance to be
made, the Advance shall not be made; and
(c) where paragraph (b) does not apply such Advance shall be made; and
(d) the rate of interest applicable to the Advances from time to time
during the relevant Interest Periods shall be the rate per annum which
is the sum of the Margin and the rate per annum determined by the
Agent to be the weighted average (rounded to four decimal places) of
the rates notified by each Bank to the Agent before the last day of
such Interest Period to be those which express as a percentage rate
per annum the cost to such Bank of funding from whatever sources it
may select its portion of such Advance during such Interest Period;
and
(e) if the Agent or the Borrower so requires, within five days of such
notification the Agent and the Borrower shall enter into negotiations
with a view to agreeing a substitute basis (1) for determining the
rates of interest from time to time applicable to the Advances and/or
(2) upon which the Advances may be made or maintained thereafter and
any such substitute basis that is agreed shall take effect in
accordance
<PAGE>
with its terms and be binding on each party hereto.
9.2 Interest on an Advance during an Interest Period specified in Clause 9.1
shall be distributed by the Agent to the Banks in proportion to the amounts
which represent the cost to each Bank of funding its share of such Advance
during such Interest Period provided that any such interest which is
attributable to the Margin shall be distributed by the Agent to the Banks in
proportion to their respective participations in such Advance.
<PAGE>
Part 5
REPAYMENT, PREPAYMENT AND CANCELLATION
10. Repayment
10.1 The Borrower shall repay the Loan in two instalments by repaying on the
First Repayment Date, an amount of DM17,500,000 and by repaying on the Final
Maturity Date all amounts then outstanding in full.
11. Prepayment
11.1 Subject to the terms of the Intercreditor Agreement, the Borrower may, if
it has given to the Agent not less than ten business days' prior written notice
to that effect, prepay the whole or any part of the Loan (being an amount such
that the Loan is reduced by at least DM1,000,000) on the last day of any
Interest Period relating thereto (or at any other time on payment of the
appropriate breakage costs and accrued interest in accordance with Clause 24.
11.2 The Borrower and IFCO Europe shall apply the following or procure that the
following are applied, within the time limits specified below, in repayment of
the Facility in the manner specified in Clause 11.4:
(i) within one month of delivery of the annual consolidated accounts
under Clause 20.1 in each year, fifty per cent. (50%) of Excess Cash
Flow of the Group for the financial year to which those consolidated
accounts relate;
(ii) within fourteen business days of receipt, all Net Disposal Proceeds
save to the extent that it is demonstrated to the reasonable
satisfaction of the Agent that such Net Disposal Proceeds have been
or will, within six months of their receipt be reinvested by the
relevant member of the Group in assets within the Group which are of
a similar nature to those which have been disposed of;
(iii) within fourteen business days of receipt, the proceeds (net of costs
and expenses associated with such claim together with transmission
and foreign exchange costs and expenses) of any insurance claim
received by any Group Entity, other than where such proceeds do not
exceed DM1,000,000 (or its equivalent in any other currency) in
aggregate or where such proceeds arise from claims under third party
or public liability insurance policies and save to the extent that
such proceeds are demonstrated to the reasonable satisfaction of the
Agent to be paid to such Group Entity by way of reimbursement of such
Group Entity for amounts applied by such Group Entity in respect of
the damage or liability in relation to which such relevant insurance
claim was made prior to receipt of such proceeds or to meet a
liability in respect of which such monies were received or are,
within a period of 12 months of receipt by the relevant Group Entity,
demonstrated to the reasonable satisfaction of the Agent to be
applied to the replacement and/or repair of the assets in respect of
which the relevant insurance claim was made or to meet such
liability;
(iv) within two business days of receipt, the net proceeds received by
IFCO Europe or
<PAGE>
any Group Entity as a result of any Flotation of its shares or any
Flotation of the shares of any of its subsidiaries;
(v) within two business days of receipt, an amount equal to all amounts
which are raised out of (a) any loans or other Financial Indebtedness
(other than Permitted Loans and Permitted Indebtedness) raised by the
Borrower or any other member of the Group and (b) the proceeds of any
equity subscribed for in the Borrower save to the extent that
proceeds of any capital increase need to be retained by the relevant
company in order to comply with applicable companies law; and
(vi) within fourteen business days of receipt, an amount equal to all
amounts paid by MTS to IFCO Europe by way of share dividends,
provided that any requirement to make a prepayment hereunder shall be
subject always to the terms of the Intercreditor Agreement.
11.3 Any amount prepaid pursuant to Clauses 11.2(iv) or 11.2(v) shall be
immediately applied by the Agent in accordance with Clause 11.4 and any other
amounts prepaid pursuant to Clause 11.2 shall, at the Borrower's option, either
be immediately applied by the Agent in accordance with Clause 11.4 (in which
case the Borrower shall also pay any amounts payable pursuant to Clause 24.4) or
shall be held by the Agent in an interest bearing account (which shall be
secured to the reasonable satisfaction of the Agent) and shall then be applied
by the Agent on the last day of the then relevant current Interest Periods in
accordance with the terms of Clause 11.4 and the Agent is authorised to purchase
with any amounts held by it hereunder, such other currencies as may be necessary
to enable it to make such applications.
11.4 Any amount prepaid pursuant to Clause 11.2 shall be applied against
outstandings under the Facility against instalments due on the remaining
Repayment Dates in inverse order of maturity.
11.5 If, at any time, any person other than the Borrower or IFCO Europe becomes
the owner of any shares in any member of the Group then the Agent may, by giving
five business days' notice, require the Facility to be prepaid in full and the
Borrower shall prepay the Loan in accordance with such notice.
11.6 Any prepayments shall be made together with accrued interest thereon and
all other amounts (including, without limitation, any amounts payable under
Clause 24.4) payable under this Agreement in relation to the amount prepaid
calculated up to the date of prepayment.
11.7 The Borrower shall not repay or prepay all or any part of the Loan except
at the times and in the manner expressly provided in this Agreement and shall
not be entitled to reborrow any such amount of the Loan repaid or prepaid.
11.8 Any notice of prepayment given by the Borrower pursuant to Clause 11.1
shall be irrevocable and shall specify the date upon which such prepayment is to
be made and the amount of such prepayment and shall oblige the Borrower to make
such prepayment on such date.
11.9 Nothing in this Clause 11 will permit any Group Entity to make any
disposal, sale, lease or transfer or undertake any other transaction not
otherwise permitted in accordance with the Facility
<PAGE>
Documents.
11.10 The rate of interest payable on any amounts held pursuant to Clause 11.3
pending application shall be the rate of interest then payable by the Agent to
its similar customers for deposits of similar amounts and duration.
12. Intentionally left blank
<PAGE>
Part 6
CHANGES IN CIRCUMSTANCES
13. Taxes
13.1 All payments to be made by the Borrower to any person hereunder shall be
made free and clear of and without deduction for or on account of Tax except to
the extent that the Borrower is required to make such a payment subject to the
deduction or withholding of Tax. If the Borrower is required to make any
payment to any person hereunder subject to any deduction or withholding on
account of any Relevant Tax then the sum payable by the Borrower in respect of
which such deduction or withholding is required to be made shall be increased to
the extent necessary to ensure that, after the making of the required deduction
or withholding, such person receives and retains (free from any liability in
respect of any such deduction or withholding) a net sum equal to the sum which
it would have received and so retained had no such deduction or withholding been
made or required to be made Provided that the Borrower shall not be obliged to
increase any payment under this Clause 13.1 to any Bank not being or ceasing to
be a Qualifying Bank unless (i) the requirement to deduct or withhold would have
applied had such Bank been or continued to be a Qualifying Bank (in which case
the amount payable will not exceed the amount which would have been payable to a
Qualifying Bank) or (ii) such Bank is not or ceases to be a Qualifying Bank as a
result of a change of law or application of a double taxation treaty or
generally applied practice of the tax authorities in Germany required to make
such deduction or withholding.
13.2 Without prejudice to the provisions of Clause 13.1, if any person or the
Agent on its behalf is required to make any payment on account of Tax (not being
a tax imposed on the net income of its Facility Office by the jurisdiction in
which it is incorporated or in which its Facility Office is located) or
otherwise on or in relation to any sum received or receivable hereunder by such
person or the Agent on its behalf (including, without limitation, any sum
received or receivable under this Clause 13) or any liability in respect of any
such payment is asserted, imposed, levied or assessed against such person or the
Agent on its behalf, the Borrower shall, upon demand of the Agent, promptly
indemnify such person against such payment or liability, together with any
interest, penalties and expenses payable or incurred in connection therewith.
13.3 A Bank intending to make a claim pursuant to Clause 13.2 shall notify the
Agent of the event by reason of which it is entitled to do so, whereupon the
Agent shall notify the Borrower thereof showing reasonably detailed calculations
of such claim Provided that nothing herein shall require such Bank to disclose
any confidential information relating to the organisation of its affairs.
13.4 Each Bank confirms that it is not its intention to require any support or
securities from any foreign shareholder of the Borrower or any related party of
any such shareholder (other than the Borrower itself and its affiliates) other
than where such support arises by operation of applicable law and confirms that,
to the best of its knowledge and belief as at the date hereof, it has not
required any such support or securities Provided that, if any such support or
securities are deemed to have been provided and this gives rise to a liability
for any member of the Group or any shareholder of any such member or any related
party, notwithstanding this expression of intention, no Bank shall be liable in
respect thereof and the Borrower agrees that it will not assert any claim
against any Bank in respect of any such liability.
<PAGE>
13.5 Each Bank confirms that, upon request from the Borrower, it will take such
steps as may be reasonable and practical in all the circumstances to support the
Borrower in providing evidence to the German tax authorities that no such
support or securities have been provided by any such foreign shareholders or
related parties, provided that no Bank shall be under any obligation to do
anything which would or might have an adverse effect upon its business,
operations or financial condition or the management of its Tax affairs and
provided further that nothing herein shall require any Bank to disclose any
confidential information relating to the organisation of its affairs.
14. Tax Credits
14.1 If, following any increase in any sum payable under this Agreement under
Clause 13.1, any Beneficiary shall receive or be granted a credit against or
remission for any Tax payable by it, that Beneficiary shall, subject to the
Borrower having made any increased payment in accordance with Clause 30.1 and to
the extent that such Beneficiary can do so in its sole opinion without
prejudicing the retention of the amount of such credit or remission and without
prejudice to its right to obtain any other relief or allowance which may be
available to it and to conduct its own tax affairs as it thinks fit, reimburse
such amount as that Beneficiary shall in its absolute discretion certify to be
the proportion of such credit or remission as will leave that Beneficiary (after
such reimbursement) in no worse position than it would have been in had no
increase been required under Clause 30.1.
14.2 Nothing contained in this Agreement or any of the Facility Documents shall
oblige any Beneficiary to rearrange its tax affairs or to disclose any
information regarding its tax affairs and computations.
15. Tax Receipts
15.1 If, at any time, the Borrower is required by law to make any deduction or
withholding from any sum payable by it hereunder (or if thereafter there is any
change in the rates at which or the manner in which such deductions or
withholdings are calculated), the Borrower shall promptly notify the Agent.
15.2 If the Borrower makes any payment hereunder in respect of which it is
required to make any deduction or withholding, it shall pay the full amount
required to be deducted or withheld to the relevant taxation or other authority
within the time allowed for such payment under applicable law and shall deliver
to the Agent for each Bank, within thirty days after it has made such payment to
the applicable authority, an original receipt (or a certified copy thereof)
issued by such authority evidencing the payment to such authority of all amounts
so required to be deducted or withheld in respect of that Bank's share of such
payment (or, if no such receipt is issued, evidence of such payment in form and
substance satisfactory to the Agent (acting reasonably)).
16. Increased Costs
16.1 If, by reason of (i) any change in law after the date hereof or in its
interpretation or administration and/or (ii) compliance with any request from or
requirement of any central bank or other fiscal, monetary or other authority
after the date hereof (including, without limitation, a request or requirement
which affects the manner in which a Bank or any holding company of such Bank is
required to or does maintain capital resources having regard to such Bank's
obligations hereunder and to amounts owing to it hereunder) which, in either
case, affects banks such as the relevant Bank
<PAGE>
generally and with which it is customary for banks such as the relevant Bank to
comply:
(a) a Bank or any holding company of such Bank incurs a cost as a result
of such Bank's having entered into and/or performing its obligations
under the Facility Documents and/or assuming or maintaining a
commitment under the Facility Documents and/or making one or more
Advances hereunder;
(b) a Bank or any holding company of such Bank is unable to obtain the
rate of return on its overall capital which it would have been able to
obtain but for such Bank's having entered into and/or performing its
obligations and/or assuming or maintaining a commitment under this
Agreement;
(c) there is any increase in the cost to a Bank or any holding company of
such Bank of funding or maintaining all or any of the Advances
comprised in a class of Advances formed by or including the Advances
made or to be made by such Bank hereunder; or
(d) a Bank or any holding company of such Bank becomes liable to make any
payment on account of tax (not being a tax imposed on the net income
of such Bank's Facility Office by the jurisdiction in which it is
incorporated or in which its Facility Office is located) or otherwise
on or calculated by reference to the amount of the Advances made or to
be made by such Bank hereunder and/or to any sum received or
receivable by it hereunder;
then the Borrower shall, from time to time on demand of the Agent, promptly pay
to the Agent for the account of that Bank amounts sufficient to indemnify that
Bank or any such holding company against, as the case may be, (1) such cost, (2)
such reduction in such rate of return (or such proportion of such reduction as
is, in the opinion of that Bank, attributable to its obligations hereunder), (3)
such increased cost (or such proportion of such increased cost as is, in the
opinion of that Bank, attributable to its funding or maintaining Advances
hereunder) or (4) such liability.
16.2 Clause 16.1 shall not apply so as to oblige the Borrower to compensate or
indemnify the Agent or any Bank for any cost, interest cost, liability or
reduction:
(i) resulting from the introduction of or any change in or in the
interpretation or application by any relevant authority of, any law,
regulation, directive or request relating to the deduction,
withholding, payment or other imposition of any tax to which the
provisions of Clause 13.1 and/or 13.2 apply; or
(ii) resulting from any change, request or requirement relating to tax
imposed on the overall net income of the Agent or any Bank by the
jurisdiction in which it is incorporated or in which its Facility
Office is located.
16.3 A Bank intending to make a claim pursuant to Clause 16.1 shall notify the
Agent of the event by reason of which it is entitled to do so, whereupon the
Agent shall notify the Borrower thereof showing reasonably detailed calculations
of such claim Provided that nothing herein shall require such Bank to disclose
any confidential information relating to the organisation of its affairs.
<PAGE>
17. Illegality
If, at any time after the date hereof, it is or becomes unlawful or contrary to
any request from or requirement of any applicable fiscal, monetary or other
authority which it is customary for banks to comply with for a Bank to make,
fund or allow to remain outstanding all or any of the Advances made or to be
made by it hereunder, then that Bank shall, promptly after becoming aware of the
same, deliver through the Agent to the Borrower a certificate to that effect
and, unless such illegality is avoided in accordance with Clause 18:
(a) such Bank shall not thereafter be obliged to participate in any
Advances and the amount (if any) of its Commitment shall be reduced
to zero on the earliest date required by law; and
(b) if the Agent on behalf of such Bank so requires, the Borrower shall
on the earliest date required by law or, if earlier, the last day of
the current Interest Period thereof, repay such Bank's share of any
such outstanding Advances together with accrued interest thereon and
all other amounts owing to such Bank.
18. Mitigation
If circumstances arise in respect of the Agent or any Bank which would, or would
upon the giving of notice, result in:
(i) the reduction of its Commitment to zero pursuant to Clause 17;
(ii) the prepayment of its share of the Advances pursuant to Clause 17;
(iii) an increase in the amount of any payment to be made to it for its
account pursuant to Clause 13.1; or
(iv) a claim for indemnification pursuant to Clause 13.2 or 16.1
then, without in any way limiting, reducing or otherwise qualifying the
obligations of the Borrower under Clauses 13 to 17 inclusive, the Agent or such
Bank (as the case may be) shall, upon written request from the Borrower take
such steps as may be reasonable and practical in all the circumstances to
mitigate the effects of those circumstances including (without limitation)
submitting all forms required by a national taxation authority in connection
with the payment of gross sums under any applicable double tax treaty, the
transfer of its lending office to another jurisdiction or the assignment of all
its rights hereunder to and assumption of all its obligations hereunder by
another bank or financial institution acceptable to the Borrower (acting
reasonably) which is willing to participate in the Facility in its place,
provided that neither the Agent nor the Bank shall be under an obligation to
submit any such forms or to make any such transfer or assignment and transfer
if, in its reasonable opinion, it would or might have an adverse effect upon its
business, operations or financial condition or the management of its Tax
affairs.
<PAGE>
Part 7
REPRESENTATIONS, COVENANTS AND EVENTS OF DEFAULT
19. Representations
19.1 Subject to the provisions of the Disclosure Letter, the Borrower hereby
represents to each of the Beneficiaries in respect of itself and in respect of
each other Group Entity (but in relation to any such other Group Entity to the
best of the Borrower's knowledge and belief (having made all due enquiries))
and, in the case of Clauses 19.1(i) to (iv) inclusive, Clauses 19.1(ix) to (xi)
inclusive, Clause 19.1(xiii) (but only in relation to the Facility Documents),
and Clause 19.1(xvi), IFCO Europe represents in respect of itself that:
(i) it is a corporation duly incorporated, validly existing and
registered under the laws of the jurisdiction in which it is
incorporated, capable of being sued in its own right and not subject
to any immunity from any proceedings and has the power and all
necessary governmental and other material consents, approvals,
licences and authorisations under any applicable jurisdiction to own
its property and assets and to carry on its business substantially as
currently conducted;
(ii) subject to the Reservations it has the power to enter into and
perform its obligations under each of the Facility Documents to which
it is a party and has taken all necessary corporate and other action
to authorise the execution, delivery and performance of each of the
Facility Documents, to which it is a party;
(iii) (subject to the Reservations) no limit on its powers will be exceeded
as a result of the borrowings, granting of security or giving of
guarantees contemplated by the Facility Documents to which it is a
party and (subject to the Reservations) those documents constitute
its legal, valid and binding and enforceable obligations;
(iv) the execution by it of each of the Facility Documents to which it is
a party and the exercise by it of its rights and the performance of
its obligations thereunder including, without limit, borrowing
hereunder, granting any security or giving guarantees contemplated by
the Facility Documents will not (a) result in the existence or
imposition of nor oblige it or any Group Entity to create any
Encumbrance (other than any Permitted Encumbrance) in favour of any
person over all or any of its present or future revenues or assets
(b) conflict in any material respect with any agreement, mortgage,
bond or other instrument to which it is a party or which is binding
upon it or any of its assets (c) conflict with its constitutive
documents and rules and regulations or (d) (subject to the
Reservations) conflict with any existing applicable law, regulation
or official or judicial order in its jurisdiction of incorporation;
(v) no litigation, arbitration, administrative proceedings, or
governmental or regulatory investigations, proceedings or disputes
have been commenced or, to the best of its knowledge and belief
(having made all due enquiries), threatened against any Group Entity
or its respective assets or revenues nor, to its knowledge, are there
any circumstances likely to give rise to any such litigation,
arbitration, administrative
<PAGE>
proceedings, or governmental or regulatory investigations,
proceedings or disputes which in any such case might reasonably be
expected to have a Material Adverse Effect;
(vi) neither it nor any member of the Group has any Financial
Indebtedness (other than (i) Existing Indebtedness which will be
repaid on the date on which the first Advance is made hereunder or
(ii) Permitted Indebtedness) and no Encumbrances (other than
Permitted Encumbrances) existing over all or any of its or their
present or future revenues, undertakings or assets;
(vii) to the best of its knowledge and belief (having made all due
enquiry) no Event of Default has occurred which has not been either
remedied (or otherwise ceased to be continuing) or expressly waived
in writing;
(viii) the Information Memorandum, the Business Plan and any lists or other
reports prepared by the Borrower and supplied to the Agent in
connection herewith have been prepared after due and careful
consideration and, to the best of its knowledge and belief (having
made all due enquiry)
(a) it is not aware of any material inaccuracy as to factual matters
relating to the Group in the Reports, the Information Memorandum
or the Business Plan;
(b) it does not (as at the date thereof) disagree with nor regard as
unreasonable or unattainable any of the forecasts or projections
set out in the Reports, the Information Memorandum or the
Business Plan;
(c) the assumptions upon which the forecasts and projections
contained in the Reports, the Information Memorandum and the
Business Plan are based are in its opinion (having made all
reasonable enquiries) fair and reasonable;
(d) it is not aware of any significant facts or matters not stated
in the Reports the Information Memorandum or the Business Plan,
the omission of which in its reasonable opinion might make any
statements contained therein misleading in any material respect;
and
(e) it has made full disclosure of all requested information
relevant to the preparation of the Reports and the Information
Memorandum to all the persons responsible for or involved in
preparing the Reports and the Information Memorandum;
(ix) the Original Financial Statements and the latest Financial
Statements delivered hereunder were prepared in accordance with the
Accounting Principles and give (in conjunction with the notes
thereto) a true and fair view of the financial condition of the
Group at the date as of which they were prepared and the results of
the Group's operations during the Accounting Reference Period then
ended and any other accounts delivered under this Agreement fairly
represent (or in the case of any management accounts the Borrower
believes, acting reasonably, that they fairly represent) the
financial condition of the Group at the date at which they were
<PAGE>
prepared and the results of the Group's operations during the period
to which such accounts relate;
(x) to the best of its knowledge and belief (having made all due
enquiry) neither it nor any Group Entity, as at the date as of which
any Financial Statements were prepared, failed to disclose or
reserve against any liabilities (contingent or otherwise) material
in relation to the Group as a whole nor any material unrealised
anticipated losses of the Group (which were material to the Group as
a whole) arising from commitments entered into by it which, in
accordance with the Accounting Principles, it should have disclosed
or reserved against;
(xi) there has been no material adverse change in the financial condition
or business of the Group since 30 September 1997;
(xii) to the best of its knowledge and belief (having made all due
enquiry), (a) it is and has been in full compliance in all material
respects with all applicable Environmental Laws and (b) it has been
and is in all material respects in compliance with the terms of all
Environmental Approvals necessary for the ownership and operation of
its facilities and businesses as presently owned and operated and as
presently proposed to be owned and operated the failure to comply
with which might reasonably be expected to have a Material Adverse
Effect;
(xiii) all necessary consents to the transactions constituted by the
Investment, the Facility Documents and the Senior Facility Documents
have been obtained where failure to obtain them might reasonably be
expected to have any significant effect on the rights or
entitlements of the Beneficiaries under this Agreement or the
commercial value of the security granted pursuant to the Senior
Subordinated Security Documents;
(xiv) to the best of its knowledge and belief (and in reliance upon
information supplied by GE), all necessary consents, licences and
other things (other than any necessary corporate action on the part
of GE) have been obtained or carried out to enable GE to own
(beneficially as well as legally) up to and including 100% of the
shares in IFCO Europe;
(xv) to the best of its knowledge, information and belief the Material
Group Entities have complied in all material respects with all
Taxation laws in the jurisdiction of their incorporation and where
they carry on their business;
(xvi) the claims of the Beneficiaries against it under any of the Facility
Documents to which it is a party will rank at least pari passu with
the claims of all its other unsecured and unsubordinated creditors
save, in either case, those whose claims are preferred solely by any
bankruptcy, insolvency, liquidation, merger or other similar laws of
general application;
(xvii) to the best of its knowledge and belief having made all due
enquiries it is not in breach of or in default under any agreement
to which it is a party or which is binding on it or any of its
assets to an extent or in a manner which might reasonably be
expected to have a Material Adverse Effect;
<PAGE>
(xviii) it is not aware of any matter which would materially affect the
validity, subsistence or use of any of the Material Intellectual
Property;
(xix) it has and each Group Entity has good title to or valid leases or
licences of all of its assets necessary to carry on its business
as presently conducted, the absence of which might reasonably be
expected to have a Material Adverse Effect;
(xx) the Material Intellectual Property is, in the case of the
Material Intellectual Property set out in the Ninth Schedule,
owned by the Group Entity disclosed as the owner of such Material
Intellectual Property in such Schedule, and in the case of any
other Material Intellectual Property owned by the Borrower or
such other Group Entity as has been disclosed in writing to the
Agent;
(xxi) GBL has no creditors other than the Borrower and SPI and SPI is a
creditor of GBL only to the extent of that part of the purchase
price for the Patent which remains unpaid;
(xxii) there has been no significant amendment, variation or waiver of
the terms of the Investment Agreement or the Supply Agreement
save as approved in writing by the Agent and it is acknowledged
that, for the avoidance of doubt, any amendment having the effect
(in the opinion of the Banks) of reducing the extent of the
rights and obligations of either GE or General Electric Capital
Corporation under the Investment Agreement shall be considered to
be significant;
(xxiii) it is not aware that any of the representations and warranties
made in favour of General Electric Capital Corporation contained
in the Investment Agreement were incorrect or untrue in any
material respect when made;
(xxiv) all crate rental contracts entered into by the Borrower with
growers are expressly governed by German law and all arrangements
entered into by the Borrower with its subsidiaries in relation to
crates are governed by German law;
(xxv) the chart showing the structure of the Group and set out in the
Seventh Schedule is true, correct and accurate in all material
respects;
(xxvi) the Existing Indebtedness is as set out in the Eighth Schedule
and the definition of Leasing Facilities;
(xxvii) Apollo is a dormant company, has no assets and is not trading;
and
(xxviii) at the date of this Agreement, the aggregate amount of all
receivables owed to the Borrower is at least 70% of the aggregate
amount of all receivables owed to the Group.
<PAGE>
19.2 The representations and warranties in Clause 19.1 and the Disclosure
Letter shall survive the execution hereof and the making of each Advance under
this Agreement and (save for the representation at Clause 19.1(xxviii)) shall be
repeated in the notification made by the Borrower to the Agent pursuant to
Clause 7.2 and (save for the representations contained in sub-clause (viii) of
Clause 19.1 (which shall only be repeated upon each date that any update of the
Information Memorandum is agreed with the Agent pursuant to Clause 22.10 and
then only in respect of such updated information)) on the first day of each
Interest Period and at the end of each successive period of six months ending
during an Interest Period, by reference to the facts and circumstances then
existing.
20. Financial Information
20.1 So long as any of the Beneficiaries have any amounts outstanding to them
or are under any commitment, obligation or liability (whether actual or
contingent) to make Advances or provide other financial accommodation to the
Borrower under or pursuant to this Agreement or any other Facility Document the
Borrower shall:
(i) as soon as the same become available, but in any event within 120
days after the end of each of its financial years deliver to the
Agent:
(a) the audited consolidated financial statements (including
balance sheet (Bilanz), profit and loss (Gewinn-und
Verlustrechnung) and cash flow statements (Lagebericht
including Vermogens-und Finanzlange and KapitalfluBrechnung)
of IFCO Europe for such financial year Provided that if, at any
time, the difference between the consolidated financial
statements of IFCO Europe and the consolidated financial
statements of the Group (if such had been prepared at such
time) would represent something other than solely the capital
value of IFCO Europe at such time and its investment (if any)
in MTS or if the Agent (acting reasonably) requires, the
Borrower shall provide the audited consolidated financial
statements of the Group;
(b) the unconsolidated financial statements (including balance
sheet (Bilanz) and profit and loss (Gewinn-und verlustrechung))
of each Group Entity for such financial year (which shall be
audited where such financial statements are, in accordance with
applicable law, required to be audited);
(c) a certificate from a Duly Authorised Officer of the Borrower
(confirmed by a certificate from the Auditors) setting out in
reasonable detail the Excess Cash Flow calculation for such
financial year, together with a list of the then Material Group
Entities;
(d) a compliance certificate in a form reasonably acceptable to the
Agent issued by the Auditors certifying whether or not the
financial covenants in Clause 21 have been observed, supported
by reasonably detailed calculations and confirming that VAT has
been correctly treated by the Group during the financial year
to which such certification relates (the first such compliance
certificate to be provided in relation to the audited financial
statements for the Accounting Reference Period ending 31
December 1998);
<PAGE>
(e) a certificate of an Authorised Signatory of the Borrower
certifying that as of the date thereof and to the best of
his/her knowledge and belief (having made all due enquiry) no
Event of Default has occurred or, if it has occurred, a
description thereof and the action taken or proposed to be
taken to remedy it; and
(f) a comparison against the Budget for such period;
(ii) as soon as the same become available, but in any event within (x) in
the case of each Financial Quarter falling before the first
anniversary hereof, 60 days and (y) in any other case 45 days after
the end of each Financial Quarter deliver to the Agent:
(a) the unaudited consolidated financial statements of the Group
for such period, including consolidated balance sheet (Bilanz),
consolidated profit and loss accounts (Gewinn-und
Verlustrechnung) and cash flow statements (Lagebericht and
Vermogens-und Finanzlange including Kapitalflussrechnung), and
a report on the business comprising a consolidated statement of
the revenues and expenditures of the Group, all such financial
statements to be in a format acceptable to the Agent;
(b) a compliance certificate in a form reasonably acceptable to the
Agent given on behalf of the Borrower by a Duly Authorised
Officer certifying whether or not the financial covenants in
Clause 21 have been observed supported by reasonably detailed
calculations;
(c) a written report of a Duly Authorised Officer of the Borrower
explaining in reasonable detail any material differences
between the actual performance of the Group during such
Financial Quarter and the performance of the Group forecast in
the budget for such period and providing a forecast of the
performance of the Group for the next twelve months; and
(d) a written report of a Duly Authorised Officer of the Borrower
setting out, in reasonable detail, an analysis of the status of
the crates over the previous four Financial Quarters including
details of crate breakages and the rate of turnover per crate
(including the number of cycles per crate for such Relevant
Period).
(iii) as soon as the same become available, but in any event within (x) in
the case of each calendar month falling on or after 31 January 1998
but before the first anniversary of the date hereof, 45 days and (y)
in any other case 30 days after the end of each calendar month,
deliver to the Agent:
(a) the management accounts of the Group (on a consolidated and
unconsolidated basis) for such calendar month (on a month-to-
month and cumulative basis and in a form reasonably acceptable
to the Agent) and providing a management commentary thereon as
to, inter alia, the Group's performance during such calendar
month and any material developments or proposals affecting the
Group or its business; and
<PAGE>
(b) a report containing sufficiently detailed information regarding
the extent (both as to volume and amount) of leasing which each
Group Entity (on a subsidiary by subsidiary basis) enters into
as principal with growers and the amount of receivables owing
to each such Group Entity; and
(iv) from time to time on the request of the Agent, furnish the Agent
with such information about the business, operations, performance,
prospects and financial condition of the Group or any Group Entity
or any other information as the Agent or any Bank through the Agent
may reasonably require, in particular all information and documents
as may be required under Sections 13, 13(a) and 18 of the German
Banking Act (Gesetz uber das Kreditwesen).
20.2 The Borrower shall, as soon as the same become available, and in any event
not later than 30 days before the beginning of any Accounting Reference Period
commencing with the financial year beginning 1 January 1999, deliver to the
Agent in sufficient copies for the Banks an annual Budget prepared by reference
to each month in respect of such financial year of the Group including:
(i) forecasts of projected disposals (including timing and amount
thereof) of the Group for such Accounting Reference Period and for
the next two succeeding Accounting Reference Periods;
(ii) projected annual profit and loss accounts for, and projected balance
sheets and cash flow statements on a monthly basis for, such
Accounting Reference Period and for the next two succeeding
Accounting Reference Periods on a consolidated basis for the Group
including a detailed working capital plan with an explanation of the
assumptions made with respect to the Group's working capital
requirements;
(iii) a qualitative analysis and commentary from the management on its
proposed activities for such Accounting Reference Period and for the
next two succeeding Accounting Reference Periods and such financial
years;
(iv) projections of Capital Expenditure; and
(v) targets for the turnover rate of the container pool and the average
annual breakage rate
and the Borrower shall forthwith provide the Agent with details of any material
changes in the projections delivered under Clause 20.2 as soon as it becomes
aware of any such change.
20.3 The Borrower shall ensure that:
(i) each set of financial statements delivered by it pursuant to Clause
20.1 and 20.2 is prepared in accordance with the Accounting
Principles and (other than changes to the basis in order to accord
with the Accounting Principles where an appropriate agreement has
been reached in accordance with Clause 20.4) on the same basis as is
used in the preparation of the Original Financial Statements
together with an appropriate reconciliation statement in relation to
financial statements not prepared in
<PAGE>
accordance with the Accounting Principles and that each statement
in respect of the Group is prepared on a consolidated and
consolidating basis;
(ii) each set of financial statements delivered by it pursuant to Clause
20.1(i), (ii) or (iii) is certified on behalf of the Borrower by an
Authorised Signatory of the Borrower (a) (in the case of each set
of financial statements delivered by it under Clause 20.1(i)) as
giving (where such financial statements are audited) a true and
fair view of the financial condition of the Group and each Group
Entity as at the end of the period to which those financial
statements related and of the results of its operations during such
period or (where such financial statements are not audited) fairly
represent the financial condition of the Group and each Group
Entity as at the end of the period to which those financial
statements related and of the results of its operations during such
period and (b) (in the case of each set of financial statements
delivered by it under Clause 20.1(ii) and (iii)) as being (to the
best of his/her knowledge and belief) accurate in all material
respects; and
(iii) each set of financial statements delivered by it pursuant to Clause
20.1(i)(a) has been audited by the Auditors.
20.4 Without prejudice to the obligations contained in Clause 20.3(i), if any
accounts to be delivered under Clause 20.1 are prepared on a basis not
contemplated by Clause 20.3(i) or the Accounting Principles in effect on the
date as of which the Original Financial Statements were prepared (as
appropriate) change in a way that affects the financial covenants contained in
Clause 21 or the calculation of Excess Cash Flow:
(i) the Agent (acting on the instructions of an Instructing Group) and
the Borrower shall, at the Agent's request, negotiate in good faith
with a view to agreeing such amendments to the financial covenants
in Clause 21 or the calculation of Excess Cash Flow and/or the
definitions used therein as may be necessary to grant to the Banks
protection comparable to that granted on the date hereof, and any
amendments as agreed will have effect on the date agreed between
the Agent and the Borrower; and
(iii) if no such agreement is reached within 30 days of the Agent's
request, the Agent shall (if so requested by an Instructing Group)
instruct independent accountants to determine any amendments to
Clause 21 or the calculation of Excess Cash Flow which those
accountants (acting as experts and not as arbitrators) consider
appropriate to grant to the Banks protection comparable to that
granted on the date hereof, which amendments shall be binding and
shall take effect when so determined by those accountants. The
reasonable cost and expenses of those accountants shall be for the
account of the Borrower.
20.5 Each set of accounts, financial reports and other documents delivered to
the Agent under Clause 20 shall be delivered in sufficient copies for each Bank.
20.6 The Borrower shall promptly on the appointment of any replacement Auditors
execute and deliver a letter in the agreed form to authorise the Auditors to
confirm to and discuss with the Agent (upon or after the occurrence of an Event
of Default which is continuing unremedied and unwaived and having given the
Borrower an opportunity to attend such discussions) the factual accuracy of
<PAGE>
information related to or arising out of the annual audit of the Group by the
Auditors and the due application of the Accounting Principles to the audit
process and shall procure that the Auditors acknowledge such authorisation.
Under conditions that normally apply to audits in accordance with generally
accepted audit standards, the Borrower shall provide the Auditors with
unrestricted access to all and any information available to or in the possession
of the Borrower or any other Group Entity in this regard and shall otherwise
ensure that full co-operation is afforded to the Auditors.
20.7 The Borrower hereby undertakes to provide to the Agent on a monthly basis
(in sufficient copies for the Banks) information (in such form and containing
such details as the Agent may reasonably require) regarding the installation of
information technology systems within the Group and regarding the appointment of
a Chief Operations Co-ordinator for the Group and a Financial Controller for the
Group and, in any case, to ensure that a Chief Operations Co-ordinator for the
Group and a Financial Controller of the Group (in each case acceptable to IFCO
Europe) is appointed within three months of the date hereof and to ensure that
the information technology systems are installed in a timely fashion and in
accordance with the timetable set out in the IT Schedule.
20.8 The Borrower shall supply to the Agent in sufficient copies for the
Banks:
(i) all documents despatched to the shareholders of the Borrower which
are required to be sent to such shareholders by law without their
specific request; and
(ii) all documents despatched by or on behalf of the Borrower to its
creditors generally in their capacity as such,
in all cases at the same time as such documents are despatched.
20.9 The Borrower shall provide to the Agent, in sufficient copies for the
Banks, the annual Budget for 1998 prepared by reference to each month in respect
of the financial year of the Group ending on 31 December 1998 and containing all
of the information set out in Clauses 20.2 (i) to (v) inclusive by no later than
31 March 1988.
21. Financial Condition
21.1 The Borrower shall ensure that:
(i) Senior Interest Cover Ratio
(a) the ratio of EBITA to Senior Interest Expense, calculated on an
Adjusted Rolling Basis, shall not, in respect of any Adjusted
Relevant Period ending on each Financial Quarter set out below be
less than the ratio set out below as applicable in relation to that
Financial Quarter:
Financial Quarter Ending Ratio
31 March 1998 1.7:1
30 June 1998 2.3:1
30 September 1998 2.6:1
<PAGE>
and
(b) the ratio of EBITA to Senior Interest Expense, calculated on a
Rolling Basis, shall not in respect of any Relevant Period ending on
each Financial Quarter be less than the ratio set out below as
applicable in relation to that Financial Quarter:
Financial Quarter Ending Ratio
31 December 1998 3.0:1
31 March 1999 3.5:1
30 June 1999 4.0:1
30 September 1999 4.5:1
31 December 1999 4.7:1
30 March 2000 5:1
and
(c) the ratio of EBITA to Senior Interest Expense, calculated on a
Rolling Basis, shall not, in respect of any Relevant Period ending in
each Financial Quarter beginning after 30 March 2000 be less than
5:1;]
(ii) Total Interest Cover
(a) the ratio of EBITA to Total Interest Expense, calculated on an
Adjusted Rolling Basis, shall not, in respect of any Adjusted
Relevant Period ending on the last day of each Financial Quarter set
out below be less than the ratio set out below as applicable in
relation to that Financial Quarter:
Financial Quarter Ending Ratio
31 March 1998 1.2:1
30 June 1998 1.7:1
30 September 1998 1.9:1
and
(b) the ratio of EBITA to Total Interest Expense, calculated on a Rolling
Basis, shall not, in respect of any Relevant Period ending on the
last day of each Financial Quarter be less than the ratio set out
below as applicable in relation to that Financial Quarter:
Financial Quarter Ending Ratio
31 December 1998 2.1:1
31 March 1999 2.5:1
30 June 1999 2.8:1
30 September 1999 3:1
31 December 1999 3:1
30 March 2000 4:1
<PAGE>
30 June 2000 4:1
30 September 2000 4:1
31 December 2000 4:1
31 March 2001 4:1
30 June 2001 4:1
30 September 2001 4:1
31 December 2001 4:1
31 March 2002 4:1
30 June 2002 4:1
30 September 2002 4:1
31 December 2002 4:1
31 March 2003 4:1
30 June 2003 4:1
30 September 2003 4:1
31 December 2003 4:1
31 March 2004 4:1
30 June 2004 4:1
30 September 2004 4:1
31 December 2004 4:1
31 March 2005 4:1
30 June 2005 4:1
30 September 2005 4:1
(iii) Total Cash Cover
(a) the ratio of Cash Flow in respect of any Adjusted Relevant Period to
Total Debt Service shall not be less than 1.1:1.
and
(b) the ratio of Cash Flow in respect of any Relevant Period to Total
Debt Service shall not be less than the amount set out below
alongside such period:
Financial Quarter Ending Ratio
31 December 1998 1.1:1
31 March 1999 1.1:1
30 June 1999 1.1:1
30 September 1999 1.1:1
31 December 1999 1.1:1
30 March 2000 1.1:1
30 June 2000 1.1:1
30 September 2000 1.1:1
31 December 2000 1.1:1
31 March 2001 1.1:1
30 June 2001 1.1:1
30 September 2001 1.1:1
31 December 2001 1.1:1
<PAGE>
31 March 2002 1.1:1
30 June 2002 1.1:1
30 September 2002 1.1:1
31 December 2002 1.1:1
31 March 2003 1.1:1
30 June 2003 1.1:1
30 September 2003 1.1:1
31 December 2003 1.1:1
31 March 2004 1.1:1
30 June 2004 1.1:1
30 September 2004 1.1:1
31 December 2004 1.1:1
31 March 2005 1.1:1
30 June 2005 1.1:1
30 September 2005 1.1:1
(iv) Net Worth
the Net Worth of the Group shall not at any time during any period
specified below be less than the amount set out below alongside such
period:
Financial Quarter Ending Amount (DM,000,000)
31 March 1998 63.8
30 June 1998 64.4
30 September 1998 65.3
31 December 1998 66.5
31 March 1999 67.6
30 June 1999 69.0
30 September 1999 70.7
31 December 1999 72.3
30 March 2000 74.0
30 June 2000 75.0
30 September 2000 76.0
31 December 2000 77.5
31 March 2001 78.0
30 June 2001 79.0
30 September 2001 80.0
31 December 2001 80.0
31 March 2002 85.0
30 June 2002 90.0
30 September 2002 95.0
31 December 2002 100.0
31 March 2003 105.0
30 June 2003 110.0
30 September 2003 115.0
31 December 2003 120.0
31 March 2004 130.0
<PAGE>
30 June 2004 140.0
30 September 2004 160.0
31 December 2004 170.0
31 March 2005 180.0
30 June 2005 190.0
30 September 2005 200.0
(v) Leverage
(a) the ratio of Total Debt on the last day of the Financial Quarter set
out below to Annualised Adjusted EBITDA for the Adjusted Relevant
Period shall not exceed the ratio set out below as applicable for that
Financial Quarter;
Financial Quarter Ending Ratio
31 March 1998 6.5:1
30 June 1998 5.8:1
30 September 1998 5.3:1
and
(b) subject to clause 28.2 the ratio of Total Debt on the last day of the
Financial Quarter set out below to Adjusted EBITDA for the Relevant
Period shall not exceed the ratio set out below as applicable for that
Financial Quarter;
Financial Quarter Ending Ratio
31 December 1998 5.3:1
31 March 1999 4.7:1
30 June 1999 4.4:1
30 September 1999 4:1
31 December 1999 4:1
30 March 2000 3.7:1
30 June 2000 3.5:1
30 September 2000 3.4:1
31 December 2000 3.3:1
31 March 2001 3.1:1
30 June 2001 2.7:1
30 September 2001 2.6:1
31 December 2001 2.5:1
31 March 2002 2.5:1
30 June 2002 2.5:1
30 September 2002 2.5:1
31 December 2002 2.5:1
31 March 2003 2.5:1
30 June 2003 2.5:1
30 September 2003 2.5:1
31 December 2003 2.5:1
<PAGE>
31 March 2004 2.5:1
30 June 2004 2.5:1
30 September 2004 2.5:1
31 December 2004 2.5:1
31 March 2005 2.5:1
30 June 2005 2.5:1
30 September 2005 2.5:1
21. If either:
(a) at the end of any Financial Quarter referred to below the number of
CrateTurns Per Year calculated on a Rolling Basis exceeds, by ten per
cent or more, the figure set out for such Financial Quarter in the
Business Plan; or
(b) at the end of any Financial Quarter referred to below, the Breakage
Rate set out in the Business Plan exceeds the actual Breakage Rate by
ten per cent or more (calculated on a Rolling Basis), for such
Financial Quarter;
and, in either case,
(c) Adjusted EBITDA for the Relevant Period is greater than ten per cent
of the Adjusted EBITDA for such Relevant Period set out in the
Business Plan,
then the ratio for the relevant Financial Quarter set out in Clause 21.1(v)(b)
shall be adjusted so that the Borrower shall ensure that the ratio of Total Debt
on the last day of the Financial Quarter set out below during which the
conditions set out above have been met shall not exceed the ratio set out below
as applicable thereto:
Financial Quarter Ending Ratio
30 June 1999 4.6:1
30 September 1999 4.5:1
31 December 1999 4.3:1
30 March 2000 4.0:1
30 June 2000 3.7:1
30 September 2000 3.5:1
21.3 (i) The covenants contained in Clauses 21.1(i), (ii), (iii) and (v) will
be tested as of the dates specified in those Clauses, by reference to
the quarterly accounts delivered pursuant to Clause 20.1(ii) and by
reference to the audited accounts delivered pursuant to Clause
20.1(i).
(ii) The covenant contained in Clause 21.1(iv) shall be complied with at
all times and for this purpose Net Worth shall be subject to
adjustment on a continuing basis by any losses or profits demonstrated
by the monthly accounts delivered pursuant to Clause 20.1(iii), the
quarterly accounts delivered pursuant to Clause 21.1(ii) and the
audited accounts delivered pursuant to Clause 20.1(i).
<PAGE>
21.4 If, at any time the covenants contained in Clauses 21.1 are breached, the
Borrower shall ensure that no Capital Expenditure shall be made by any member of
the Group for so long as the covenants contained in those clauses (or any of
them) are not met and the Borrower shall provide a proposal to remedy such
breach in form and substance satisfactory to an Instructing Group.
21.5 The expressions used in Clause 20, this Clause 21 and in the definition of
Excess Cash Flow shall, subject as provided herein, be calculated by reference
to the Group and be construed in accordance with the Accounting Principles but
so that the capitalised terms used in such Clauses and in such definitions
shall, for the purposes of those Clauses and definitions have the following
meanings:
(i) "Adjusted EBITDA" means, in relation to any Relevant Period (or,
where appropriate, Adjusted Relevant Period), EBITDA for such period
plus the amount of rentals under Finance Leases during such Relevant
Period less any Replacement Capital Expenditure made in that period;
(ii) "Adjusted Relevant Period" means, (a) in respect of the First
Financial Quarter ending in 1998, such Financial Quarter, (b) in
respect of the Second Financial Quarter ending in 1998, the period
from 1 January 1998 to 30 June 1998 and (c) in respect of the third
Financial Quarter ending in 1998, the period from 1 January 1998 to
30 September 1998;
(iii) "Adjusted Rolling Basis" refers to any calculation of a ratio or an
amount made at the end of a Financial Quarter in respect of that
Financial Quarter, or, where the relevant Financial Quarter is not
the first Financial Quarter of 1998:
(a) where the calculation is made in relation to the second
Financial Quarter of 1998, that Financial Quarter and the
previous Financial Quarter; and
(b) where the calculation is made in relation to the third
Financial Quarter of 1998, that Financial Quarter and the
previous two Financial Quarters;
(iv) "Annualised Adjusted EBITDA" means:
(a) in relation to the Financial Quarter ending on 31 March 1998,
Adjusted EBITDA for such period multiplied by four;
(b) in relation to the Financial Quarter ending on 30 June 1998,
the sum of Adjusted EBITDA for such period divided by two and
multiplied by four; and
(c) in relation to the Financial Quarter ending on 30 September
1998, the sum of Adjusted EBITDA for such period divided by
three and multiplied by four;
(v) "Breakage Rate" means, in respect of any Relevant Period, the
average number of crates which have been leased by any Group Entity
to growers which are broken during a crate cycle expressed as a
percentage of the number of completed crate cycles during such
Relevant Period;
<PAGE>
(vi) "Capital Expenditure" means, in respect of any Relevant Period (or,
where appropriate, Adjusted Relevant Period), Replacement Capital
Expenditure, Growth Capital Expenditure and any other capital
expenditure;
(vii) "Cash Flow" means, in respect of any Relevant Period or, where
applicable, any Adjusted Relevant Period, EBITDA for such period
adjusted as follows:
(a) deducting taxes paid during the relevant Accounting Reference
Period;
(b) deducting increases (or adding decreases) in Working Capital
over the relevant Accounting Reference Period;
(c) deducting Capital Expenditure;
(d) deducting the actual cash effect of extraordinary charges and
adding the actual cash effect of extraordinary income under
the Accounting Principles during the relevant Account
Reference Period;
(e) deducting the actual cash effect of currency losses and adding
the actual cash effect of currency gains during the relevant
Accounting Reference Period;
(f) adding the actual cash effect of disposals (deducting any
profit element and/or adding any loss made on) of any asset
made during the relevant Accounting Reference Period permitted
hereunder; and
(f) plus any net increase or minus any net decrease in the capital
element of any Permitted External Leasing entered into during
such Accounting Reference Period;
(viii) "Crate Turns Per Year" means, in respect of any Relevant Period,
the average number of income generating completed crate cycles made
by all crates owned by or leased to all Group Entities during such
Relevant Period;
(ix) "Current Assets" means at any time the sum of Inventory, trade
receivables, receivables from affiliates and other receivables,
marketable securities and prepaid expenses, in each case as set out
in sections 266(2)B and C of the Commercial Code (HGB), but
excluding cash at bank and in hand;
(x) "EBIT" means for any Relevant Period (or, where appropriate,
Adjusted Relevant Period), the consolidated earnings of the Group
for such Relevant Period (or, where appropriate, Adjusted Relevant
Period) before (or, if already taken into account in calculating
the consolidated earnings of the Group, after adding back):
(a) any expense or income on account of income taxes and deferred
taxation;
(b) any interest (excluding the amount of rentals under Finance
Leases), commissions, discounts and other fees incurred by any
Group Entity in respect
<PAGE>
of Financial Indebtedness and of the costs relating to hedging
permitted under the Permitted Treasury Transactions;
(c) any interest earned by any Group Entity; and
(d) items treated as extraordinary income or charges under the
Accounting Principles;
(xi) "EBITA" means, in respect of any Relevant Period (or, where
appropriate, Adjusted Relevant Period), EBIT for such Relevant
Period (or, where appropriate, Adjusted Relevant Period) plus
amortisation;
(xii) "EBITDA" means in respect of any Relevant Period (or, where
appropriate, Adjusted Relevant Period), EBIT for such Relevant
Period (or, where appropriate, Adjusted Relevant Period) plus
depreciation and amortisation;
(xiii) "Financial Quarter" means each of those periods of approximately
three calendar months in any financial year of the Group ending on
any Quarter Date;
(xiv) "Growth Capital Expenditure" means, in respect of any Relevant
Period (or, where appropriate, Adjusted Relevant Period),
expenditure by a Group Entity in financing the purchase of crates
which results in an increase in the number of crates owned by or
leased to the Group;
(xv) "Liabilities" means at any time the sum of all liabilities
(including trade creditors, accruals, amounts payable to affiliates
and pension provisions and other provisions and liabilities
(including, for the avoidance of doubt, any provisions made in
respect of amounts representing deposits for crate rentals which
are expected to be returned) and excluding any Financial
Indebtedness) and prepayments and deferred income;
(xvi) "Net Worth" means the equity of the Borrower (including its
subscribed capital, capital reserves, earnings reserves, profit or
loss carried forward and annual surplus or deficit) in each case as
set out in section 266(3)A of the Commercial Code (HGB) and as
shown in the Borrower's consolidated balance sheet:
(a) less any dividend or other distribution declared, recommended
or made by any Group Entity to the extent such distribution is
not provided for in such accounts;
(b) less the cumulative amount of any writing up of the book value
of any assets of any Group Entity;
(c) less or plus (as the case may be) any amount attributable to
minority interests;
(d) not making any adjustments for any amounts positive or
negative attributable to goodwill or amortisation;
(xvii) "Relevant Period" means the period of four Financial Quarters
ending on the date on
<PAGE>
which the relevant calculation falls to be made;
(xviii) "Replacement Capital Expenditure" means, in respect of any
Relevant Period, expenditure by a Group Entity on the improvement
or replacement of crates (together with costs properly incurred
in connection therewith) (which are necessary in order to
maintain the total number of crates within the Group);
(xix) "Rolling Basis" refers to the calculation of a ratio or an amount
made at the end of a Financial Quarter in respect of that
Financial Quarter and the preceding three Financial Quarters;
(xx) "Senior Interest Expense" means, in respect of any Relevant
Period, Total Interest Expense less such part of Total Interest
Expense as is incurred in connection with the Senior Subordinated
Facility Documents plus amounts paid and/or costs charged during
----
the Relevant Period (or, where appropriate, Adjusted Relevant
Period) relating to hedging arrangements entered into in
connection with the obligations under the Facility Documents;
(xxi) "Total Debt" means, at any time, the aggregate of all Financial
Indebtedness of the Group Entities at such time incurred under or
pursuant to this Agreement, the Senior Facility Agreement or any
Permitted External Leasing;
(xxii) "Total Debt Service" means in respect of any Relevant Period (or,
where appropriate, Adjusted Relevant Period), the aggregate of:
(a) Total Interest Expense (excluding capitalised interest); and
(b) the aggregate of the scheduled repayments, prepayments or
other payments of principal hereunder; and
(c) any dividends on shares or similar payments made to
warrantholders by the Borrower (which for the avoidance of
doubt, is prohibited pursuant to Clause 22); and
(xxiii) "Total Interest Expense" means in respect of any Relevant Period
(or, where appropriate, Adjusted Relevant Period), the aggregate
(on a consolidated basis) of all interest, commission, fees and
other charges incurred by all Group Entities in respect of
Financial Indebtedness (other than Financial Indebtedness
incurred pursuant to Permitted Leasing facilities and Financial
Indebtedness incurred pursuant to Permitted Factoring) accruing
or paid in the Relevant Period or Adjusted Relevant Period (as
appropriate):
(a) less amounts received pursuant to interest hedging
arrangements entered into in connection with the obligations
under the Facility Documents and permitted as Permitted
Treasury Transactions; and
(b) plus amounts paid and/or costs charged during the relevant
period relating to hedging arrangements entered into in
connection with the obligations under
<PAGE>
the Facility Documents,
(xxiv) "Working Capital" means on any date:
(a) Current Assets of the Group; less
(b) Liabilities of the Group.
22. Covenants
22.1 The Borrower and (in the case of Clauses 22.1(i), (ii), (v), (xiv), (xvii)
and (xviii) only) IFCO Europe shall itself and (in the case of the Borrower)
shall (to the extent legally possible) procure that each Group Entity shall
(except as may be otherwise agreed in writing by an Instructing Group):
(i) do all such things as are necessary to maintain its existence as a
legal person save for ceasing to exist by virtue of a solvent
reorganisation which has previously been consented to by the Agent
and the Banks;
(ii) obtain, comply with the terms of, promptly renew from time to time
and do all that is necessary to maintain in full force and effect
all authorisations, approvals, licences, consents and exemptions
available and required under or by any applicable law or regulation
to enable it to lawfully enter into and perform its obligations
under the Facility Documents to which it is expressed to be party
or, so far as it is possible to do so, to ensure the legality,
validity or admissibility in evidence of such Facility Documents
and, on request of the Agent, supply copies (certified by a director
of the Borrower, IFCO Europe or relevant Group Entity (as
appropriate) as true, complete and up to date), of any such
authorisations, approvals, licences, consents and exemptions;
(iii) effect and maintain insurances on and in relation to its business,
assets and rights of an insurable nature (against loss or damage by
fire, storm, explosion and other consequential losses) and in
relation to product and third party liability and for such amounts
as a reasonably prudent person carrying on a similar business to
that Group Entity might be expected to maintain and as may from time
to time be required by the Agent (acting reasonably). The relevant
Group Entity shall (if so requested in writing) supply the Agent
with copies of all such insurance policies or certificates of
insurance in respect thereof or such other evidence of the existence
of such policies as may be reasonably acceptable to the Agent and
shall, in any event, notify the Agent of any material changes to its
insurance cover made from time to time. The Borrower shall certify
(by way of a Certificate from a Duly Authorised Officer) within 30
days of the end of each Accounting Reference Period that all
insurance premiums for the Group have been paid in respect of such
Accounting Reference Period and that all insurances for the Group
are up to date;
<PAGE>
(iv) promptly inform the Agent of the occurrence of any Event of Default
or Potential Event of Default upon becoming aware of the same and,
upon receipt of a written request to that effect from the Agent,
confirm to the Agent that, save as previously notified to the Agent
or as notified in such confirmation, no Event of Default or
Potential Event of Default has occurred and is continuing;
(v) ensure that, to the extent such action is legally possible, at all
times the claims of the Beneficiaries against it under any of the
Facility Documents to which it is expressed to be a party rank at
least pari passu with the claims of all its other unsecured and
unsubordinated creditors save, in each case, those whose claims are
preferred by any bankruptcy, insolvency, liquidation or other
similar laws of general application;
(vi) comply with all applicable laws, rules, regulations and orders and
obtain and maintain all governmental and regulatory consents and
approvals the failure to comply with which might reasonably be
expected to have a Material Adverse Effect;
(vii) ensure that it has the right and is duly qualified to conduct its
business as it is conducted from time to time in all applicable
jurisdictions and does all things necessary to obtain, preserve and
keep in full force and effect all rights including, without
limitation, all rights which are necessary for the conduct of its
business, the absence of which might reasonably be expected to have
a Material Adverse Effect;
(viii) duly and punctually pay and discharge (a) prior to the imposition of
any material penalties in respect thereof, all Taxes, assessments
and governmental charges imposed upon it or its assets and (b) all
lawful claims which, if unpaid, would by law become Encumbrances
upon its assets save to the extent payment thereof is being
contested in good faith by the relevant Group Entity and where
payment thereof can be lawfully withheld;
(ix) maintain and preserve all of its assets that are used or useful in
the conduct of its business in good working order and condition,
ordinary wear and tear excepted, where the failure to maintain or
preserve might reasonably be expected to have a Material Adverse
Effect;
(x) comply with all Environmental Laws and maintain and comply with the
terms and conditions of all Environmental Approvals, in each case as
may be necessary for the conduct of its business, the failure to
comply with which might reasonably be expected to have a Material
Adverse Effect;
(xi) maintain and preserve all of the Material Intellectual Property and
use reasonable endeavours to maintain and preserve all other
Intellectual Property which a prudent person carrying on a similar
business to the Group would use;
(xii) procure that the Material Intellectual Property is registered with
all appropriate registries and authorities (including, in the case
of any patents) at the European and International Patent offices or
other appropriate local registries in the name of the owner of such
intellectual property and, in particular but without limiting the
<PAGE>
generality of the foregoing, the Borrower shall, within four weeks
of the date of this Agreement, submit all applications for
registration and other documents or forms necessary to ensure that
the Patent is registered in the name of GBL at Patent Offices in
Germany, Austria, France, Switzerland, Denmark, Spain, the United
Kingdom and Italy (and shall provide the Agent with confirmation
of the submission of such applications and shall not withdraw any
such applications) and shall do all things necessary, recommended
or required (including, without limitation, co-operating to the
fullest extent possible with such patent offices, answering all
requisitions, paying all fees and submitting all documents
required or requested) to ensure that the registrations are
completed in a timely fashion and shall maintain or procure the
maintenance of all such registrations and pay all fees and do all
such other things as may be required to ensure the protection of
such registrations;
(xiii) promptly notify the Agent upon the creation or acquisition of
Material Intellectual Property and, at the request of the Agent,
grant security in favour of the Security Trustee over all such
Material Intellectual Property;
(xiv) at its own expense, take all such action as the Agent, or the
Security Trustee, may require for the purpose of perfecting or
protecting the Agent's and the pledgees' or Security Trustee's
rights under and preserving the security interests intended to be
created by any of the Facility Documents or for facilitating the
realisation of any such security or any part thereof;
(xv) advise the Agent forthwith of the details of each litigation,
arbitration or administrative proceeding pending or (to its
knowledge) threatened against any Group Entity which may (together
with any legal or other costs in connection therewith) result in a
liability of such Group Entity in an amount in excess of
DM1,000,000 or its equivalent;
(xvi) ensure that any one or more authorised representatives of the
Agent will be allowed to have access to the assets, books and
records of each Group Entity and to inspect the same at any time
upon or after the occurrence of an Event of Default which is
continuing unremedied and unwaived on the giving of reasonable
notice;
(xvii) to the extent legally possible and as required by the Agent
(acting on the instructions of an Instructing Group) and at the
Borrower's expense (which, for the avoidance of doubt, may include
the cost of obtaining legal opinions regarding such security in
accordance with the requirements of the Agent or the terms of any
Facility Document) from time to time (and, in the case of any
shares in MTS, within five business days of acquiring the same
(unless otherwise such requirement is waived by the Agent acting
on the instructions of an Instructing Group)), create or procure
the creation of such security over the shares or assets of MTS or
any Group Entity in favour of the Beneficiaries where such company
becomes a Group Entity or where it becomes necessary to replace
any security which secured all or any of the obligations of the
Borrower under the Facility Documents which has lapsed or become
unenforceable;
(xviii) at its own expense, take all such action as the Agent or the
Security Trustee (each acting on the instructions of an
Instructing Group) may reasonably require for the purpose of
perfecting or protecting the Beneficiaries' rights under, and
preserving the
<PAGE>
security interests intended to be created by, any of this
Agreement and the Senior Subordinated Security Documents
(including, where necessary, the provision of security over the
shares of IFCO Contenedores S.A. or other Group Entities to secure
the obligations of the Borrower under any Hedging Agreements not
otherwise secured) or for facilitating the realisation of any such
security or any part thereof Provided that this does not restrict
the ability of the Borrower or any member of the Group to conduct
its business or assets so pledged prior to an Event of Default in
the ordinary course of business;
(xix) where any report provided pursuant to Clause 20.1(iii)(b) shows
that the amount of receivables owing to the Borrower are less than
70% of all receivables owing to the Group, provide or procure the
provision to the Security Trustee on behalf of all the
Beneficiaries at the Borrower's expense (which, for the avoidance
of doubt, may include the cost of obtaining any legal opinions
required by the Agent or pursuant to the Finance Documents) such
additional security (including security over the receivables or
other assets of individual Group Entities) as the Agent may
specify;
(xx) ensure adequate contributions are made to pension schemes in
respect of employees of the Group where such pension schemes are
required in the Relevant Jurisdiction of such Group Entity; and
(xxi) promptly notify the Agent of any termination before the end of its
usual contractual term of the Supply Agreement or any material
adverse change to the Supply Agreement.
22.2 The Borrower shall not and shall procure that no Group Entity shall,
without the prior written consent of an Instructing Group (and, in the case of
Clauses 22.2(iv) and 22.2(v) only, IFCO Europe shall procure that the Borrower
shall not, without the prior written consent of an Instructing Group):
(i) create (or agree to create) or permit to subsist any Encumbrance
over all or any of its present or future revenues or assets or
undertaking other than a Permitted Encumbrance;
(ii) save for Permitted Transactions and Permitted Loans, make or
provide any loans or give any guarantees or grant any credit or
other financial accommodation to or for the benefit of any person
(or agree so to do) whether or not such person is a Group Entity
other than (a) trade credit granted in the ordinary course of
trading provided that such trade credit is on arm's-length terms
and upon terms usual for such trade or (b) loans made to IFCO
Europe Provided that the amount of such loans does not exceed, in
aggregate DM500,000 (or its equivalent);
(iii) incur, create or permit to subsist or have outstanding any
Financial Indebtedness other than Permitted Indebtedness;
(iv) pay, make or declare any dividend, return on capital, repayment of
capital contributions or other distribution or make any
distribution of assets or any payment in respect of interest or
principal or other payment whatsoever whether directly or
indirectly to any warrantholder;
<PAGE>
(v) agree any amendment to or variation of any document delivered to
the Agent pursuant to Clause 4 or waive any right thereunder nor
alter any rights attaching to the authorised and issued share
capital of any Group Entity which, in any such case, (in the
opinion of the Banks) might reasonably be expected materially and
adversely to affect the interests of the Banks (for avoidance of
doubt, nothing in this Clause 22.2 (v) shall prevent GE or General
Electric Capital Corporation from exercising any of its rights to
increase its shareholding in IFCO Europe under the Investment
Agreement in accordance with its terms);
(vi) enter into any receivables purchase, factoring or discounting
arrangements other than Permitted Factoring;
(vii) enter into any Treasury Transactions other than Permitted Treasury
Transactions;
(viii) incur any Replacement Capital Expenditure other than Permitted
Expenditure;
(ix) enter into any Finance Leases with any Non-Group Entity other than
Permitted External Leasing.
22.3 The Borrower undertakes that it shall itself and shall procure that each
Group Entity shall ensure that without prejudice to any other restriction
contained in any of the Facility Documents and save as permitted by an
Instructing Group:
(i) no account of any Non-Group Entity shall be included in any profit
and loss pooling arrangements (Ergebnisabfuhrungs-und
Beherrschungsvertag) or arrangements whereby credit or debit
balances on accounts of one or more Group Entity may be netted
against debit or credit balances on accounts in the name of other
Group Entities;
(ii) no payment of principal or interest, charges, fees or other amounts
on any loan or other financial accommodation made by any Non-Group
Entity to any Group Entity shall be made other than such payments
made in relation to Permitted Indebtedness Provided that, for the
avoidance of doubt, payments of trade credit otherwise permitted
hereunder by any Group Entity to Schoeller Plast Industries GmbH
made pursuant to any arrangements for deferred payment or any such
payments where the proceeds of such payment are immediately used
(directly or indirectly) in the repayment of Existing Indebtedness
which is required to be repaid pursuant to this Agreement may be
made;
(iii) all arrangements made by any Group Entity with any other person
(whether or not such person is a Group Entity) shall be on arm's
length terms (and the Auditors shall confirm to the Agent annually
that any such arrangements made during the year to which the
relevant confirmation relates were made on arm's length terms).
22.4 (i) The Borrower shall, within ninety (90) days of the date hereof
enter into the Treasury Transactions envisaged by the Hedging
Strategy Letter.
<PAGE>
(ii) The Borrower agrees and each Hedge Counterparty agrees that:
(a) any Hedging Agreement to which it is at any time party
governing the terms of a hedging transaction will be in the
form of either the German Framework Contract for Financial
Markets (Rahmenvertrag fur Finanztermingeschafte) or the ISDA
1992 Master Agreement and will provide for "two way payments"
in the event of a termination of that hedging transaction
entered into under such Hedging Agreement whether upon a
termination event or an Event of Default (as defined herein),
meaning that the defaulting party under that Hedging Agreement
will be entitled to receive payment under the relevant
termination provisions if the net replacement value of all
terminated transactions effected under that Hedging Agreement
is in its favour;
(b) if on termination of any hedging transaction under any Hedging
Agreement to which it is party a settlement amount or other
amount falls due from the Hedge Counterparty to the Borrower
then, if the security constituted by the Senior Subordinated
Security Documents has become enforceable, that amount shall be
paid by such Hedge Counterparty to the Security Trustee and
treated as proceeds of enforcement of the security conferred by
the Senior Subordinated Security Documents for application in
the order prescribed in the Security Trust Agreement and
Intercreditor Agreement;
(c) until service of a notice by the Agent under Clause 30.1, no
Hedge Counterparty will exercise any right it might otherwise
have pursuant to any Hedging Agreement to terminate any hedging
transactions under such Hedging Agreement or to refuse to make
any payment due from it thereunder; and
(d) each Hedge Counterparty shall, promptly after the Agent has
served a notice under Clause 23.1, exercise any and all rights
it may have to terminate the hedging transactions under each
Hedging Agreement to which it is party, unless the Agent
(acting on the instructions of an Instructing Group) otherwise
agrees or requires.
22.5 The Borrower shall give the Agent not less than 25 business days' prior
written notice of the intention of it or of its subsidiaries to:
(i) change its accounting reference date or financial year end;
(ii) pay, make or declare any dividend, return on capital, repayment of
capital contributions or other distribution or make any
distribution of assets or any payment in respect of interest or
principal or other payment whatsoever (each such payment referred
to herein as a "distribution") whether directly or indirectly to
any shareholder save for Permitted Transactions or otherwise where
the proceeds of such distribution are to be immediately utilised in
the repayment of Existing Indebtedness which is intended to be
repaid pursuant to the terms hereof or a prepayment hereunder;
<PAGE>
(iii) (a) issue or redeem or repurchase, purchase, defease or retire any
shares other than pursuant to any Flotation of such shares or (b)
alter any rights attaching to its issued shares in existence
(including preference shares) at the date hereof which would
increase amounts payable in respect of those shares or materially
adversely affect the rights and interests of the Beneficiaries;
(iv) dispose of, by one or more transactions or series of transactions
(whether related or not and whether involuntarily or voluntarily),
the whole or any part of or any interest in its revenues, assets,
business or undertaking other than Permitted Disposals;
(v) make any material changes to the general nature of the business of
the Borrower or the Group on the date hereof, or carry on any other
business which results in any change to the nature of such
business.
22.6 The Agent shall be entitled within 10 business days of receipt of the
Borrower's notice under Clause 22.5 to request the Borrower to supply to the
Agent in sufficient copies for the Banks any relevant information in connection
with the proposed action or steps referred to in such notice.
22.7 The Agent shall notify the Borrower, within 10 business days of receipt of
the Borrower's notice under Clause 22.5, or if additional information has been
requested by the Agent within the prescribed time, within 10 business days of
receipt of such information, whether the proposed action or steps under Clause
22.5 is or is, in the reasonable opinion of the Agent, acting on the
instructions of an Instructing Group, likely to have a Material Adverse Effect.
22.8 If the proposed action or steps under Clause 22.5 is so considered by the
Agent to have a Material Adverse Effect and the relevant member of the Group
nevertheless takes such action or steps under Clause 22.5, the Agent shall be
entitled to make (and, if so instructed by an Instructing Group, shall make) the
declaration, request and/or instruction set out in Clause 23.1 and call for
repayment of the Advances and exercise the other rights in accordance with
Clause 23.2.
22.9 IFCO Europe hereby undertakes that it shall procure that so long as any
amount remains outstanding under any of the Facility Documents or the Senior
Facility Documents, MTS shall not utilise any Intellectual Property or other
property or assets owned, leased, licensed or otherwise made available to any
Group Entity.
22.10 The Borrower hereby undertakes to provide the Agent and the Arranger with
any information or other assistance they may require in updating the Information
Memorandum with a view to undertaking a Syndication of the Facility.
22.11 The Borrower shall, promptly upon becoming aware of the same, notify the
Agent (and provide the Agent with reasonable details) of any claims which are
made or any breach alleged pursuant to or in respect of any warranties and
indemnities contained in the Investment Agreement where the potential claim
exceeds DM1,000,000 (or its equivalent).
22.12 The Borrower shall not and shall procure that no Group Entity shall,
except with the prior written consent of the Banks:
(i) (a) purchase, subscribe for or otherwise acquire any shares (or
other securities or any
<PAGE>
interest therein) in, or incorporate, any other company or agree to
do any of the foregoing, (b) purchase or otherwise acquire any
assets (other than in the ordinary course of trading) or revenues
or (without limitation to any of the foregoing) acquire any
business or interest therein or (c) form or enter into any
partnership, consortium, joint venture or other like arrangement or
agree to do so; or
(ii) enter into any merger or consolidation with any other person other
than as permitted pursuant to Clause 22.12(i),
and it is hereby acknowledged and agreed that where the Borrower makes any
request for consent pursuant to this Clause 22.12, the Banks and the Borrower
shall consult in good faith.
22.13 The Borrower shall procure that any Encumbrance created pursuant to the
agreement dated 4 July/12 July 1996 between the Borrower and Rewe-Zentral AG,
Koln, Cologne is released or discharged on or before the date falling six months
after the date hereof and that all assets subject to such Encumbrances are,
forthwith upon their release from such Encumbrance, secured in favour of the
Beneficiaries to the satisfaction of the Agent.
22.14 The Borrower shall ensure that any member of the Group which has any
interest in any crates or in any leasing or ancillary transactions relating to
crates shall provide effective security over such interest in favour of the
Security Trustee to the satisfaction of the Agent and shall notify the Agent
forthwith upon taking delivery of any New Crates or purchasing any crates from
any lessors (such notification to contain details as to the number, type and
identification of such crates or any other information the Agent may reasonably
require).
22.15 IFCO Europe shall procure that at least DM1,000,000 of additional capital
is invested by way of equity into the Borrower no later than 31 March 1998.
22.16 The Borrower shall procure that the only creditors of GBL remain, at all
times, the Borrower and SPI and, in the case of SPI, such company is a creditor
of GBL only to the extent of that part of the purchase price for the Patent
which remains unpaid at such time.
22.17 The Borrower shall provide security, in form and substance satisfactory to
the Security Trustee over any shares acquired by it in Gelog AG after the date
hereof and shall procure that any shares acquired by any of the directors of
Gelog AG are so secured in favour of the Security Trustee.
23. Events of Default
23.1 If:
(i) the Borrower fails to pay any sum due from it under this Agreement
at the time (or within three business days of the due date for
payments therefor where such failure is due to a technical or
administrative difficulty in payment of funds) and in the manner
specified therein; or
(ii) any representation, warranty or statement made or repeated by
either the Borrower, IFCO Europe or any other person granting
security pursuant to the Facility Documents in any of the Facility
Documents to which it is a party or in any notice or other
<PAGE>
document, certificate or statement delivered by it pursuant thereto
or in connection therewith is or proves to have been incorrect or
misleading in any material respect when made or repeated and it is
not remedied (if capable of being remedied) within 10 business days
of the earlier of the Borrower's knowledge that such
representation, warranty or statement was inaccurate or notice
thereof to the Borrower by the Agent; or
(iii) the Borrower fails to perform or comply with any of the obligations
expressed to be assumed by it in Clause 21; or
(iv) either the Borrower, IFCO Europe or any other person granting
security pursuant to the Facility Documents fails duly to perform
or comply with any other obligation expressed to be assumed by it
in any of the Facility Documents to which it is a party and such
failure is not remedied (if capable of being remedied) within 10
business days of the earlier of the Borrower's knowledge of such
failure or notice thereof to the Borrower by the Agent; or
(v) at any time the Borrower, IFCO Europe or any other person granting
security pursuant to the Facility Documents no longer has the legal
power to perform its obligations under the Facility Documents to
which it is a party or to own its assets or to carry on its
business substantially as presently conducted or at any time it is
or becomes unlawful for either the Borrower, IFCO Europe or any
other person granting security pursuant to the Facility Documents
to conform or comply with any or all of its obligations under any
Facility Document to which it is a party or any of the obligations
of either of the Borrower, IFCO Europe or any other person granting
security pursuant to the Facility Documents thereunder are not or
cease to be legal, valid and binding and enforceable; or
(vi) any Financial Indebtedness (not being Financial Indebtedness owed
solely by one Group Entity to another Group Entity) of IFCO Europe
or any Group Entity or Group Entities in an amount in aggregate
exceeding DM5,000,000 or its equivalent is not paid when due (or
within any grace period originally provided), or is declared to be
or otherwise becomes due and payable prior to its specified
maturity or any creditor or creditors of IFCO Europe or any Group
Entity or Group Entities become entitled to declare any such
Financial Indebtedness due and payable prior to its specified
maturity; or
(vii) any Material Group Entity shall cease or suspend or threaten to
cease or suspend all or a material part of its operations or
business; or
(viii) any Material Group Entity or IFCO Europe ceases or suspends
generally payment of its debts or announces an intention so to do
or is (or is deemed for the purposes of any law applicable to it to
be) unable to pay its debts as they fall due, commences
negotiations with any one or more of its creditors with a view to a
general readjustment or rescheduling of its indebtedness or makes a
general assignment for the benefit of or a composition with its
creditors or a moratorium is declared in respect of any of the
indebtedness of any Material Group Entity; or
<PAGE>
(ix) any Material Group Entity takes any corporate action or legal
proceedings (which proceedings are not discharged of within 14 days
provided such proceedings are contested in good faith) are started
for its winding-up, dissolution or administration (or its
equivalent in any other applicable jurisdiction) (other than
pursuant to a solvent reorganisation previously approved in writing
by an Instructing Group) or for the appointment of a liquidator,
receiver, administrator, administrative receiver, trustee or
similar officer of it or of any or all of its revenues and assets
or any application is made or petition is lodged for the making of
an administration order in relation to any Material Group Entity
and not discharged within 14 days (provided such proceedings are
contested in good faith) or any analogous proceedings shall be
commenced against any Material Group Entity under the laws of any
jurisdiction; or
(x) any execution or distress is levied against, or encumbrancer takes
possession of the whole or any part of, the property, undertaking
or assets of any Material Group Entity or any analogous proceedings
shall be commenced against any Material Group Entity under the laws
of any jurisdiction and not discharged within 14 days provided such
proceedings are contested in good faith where such execution or
distress has a Material Adverse Effect; or
(xi) any event occurs or proceedings are taken with respect to any
Material Group Entity in any jurisdiction to which it is subject or
in which it has assets which has an effect similar to or equivalent
to any one of the events mentioned in sub-clauses (viii) to (x)
inclusive to this Clause 23.1; or
(xii) the security created by any Encumbrance created by any Material
Group Entity becomes enforceable and any steps are taken by the
beneficiary of such Encumbrance to enforce the same; or
(xiii) all or a majority of the issued shares of any Material Group Entity
or the whole or any part (not being a wholly immaterial part) of
its revenues or assets is seized, nationalised, expropriated or
compulsorily acquired; or
(xiv) GE ceases to hold at least 24% of the shares of IFCO Europe or, at
any time, the level of control which GE holds in IFCO Europe is
decreased or the shareholding which it holds in IFCO Europe at such
time is decreased (other than where there is a dilution in the
shareholding which GE has in IFCO Europe at any time which is less
than five per cent of the total share capital issued by IFCO Europe
at such time and (a) GE continues to hold at least 20% of the
shares of IFCO Europe; (b) such dilution (in the opinion of an
Instructing Group) does not reduce GE's rights and obligations
under the Investment Agreement; (c) none of the obligations of any
person under any of the Facility Documents would be affected by
such dilution; (d) no previous dilution in GE's investment in IFCO
Europe has occurred; and (e) the Borrower has given to the Agent at
least ten business days' prior notice of such dilution and the
Agent (acting on the instructions of an Instructing Group (acting
reasonably)) has not informed the Borrower that it does not agree
to such dilution; or
(xv) GE ceases to be a wholly-owned subsidiary of General Electric
Capital Corporation; or
<PAGE>
(xvi) the Borrower is no longer a wholly-owned subsidiary of IFCO Europe;
or
(xvii) any Facility Document or the security intended to be constituted by
any of the Facility Documents is repudiated or the validity or
applicability thereof to any sums due or to become due thereunder
is disaffirmed by or on behalf of any party thereto; or
(xviii) the Borrower's auditors qualify their annual audited report to the
consolidated accounts of the Group in a manner which is, in the
reasonable opinion of an Instructing Group, material in the context
of the Facility; or
(xix) any Group Entity breaches any Environmental Law or any
Environmental Claim is made or threatened against any Group Entity
which, in either case, might reasonably be expected to have a
Material Adverse Effect; or
(xx) any litigation, arbitration, administrative proceedings or
governmental or regulatory investigations, proceedings or disputes
are commenced or threatened against any Group Entity or its
respective assets or revenues or there are any circumstances likely
to give rise to any such litigation, arbitration, administrative
proceedings or governmental or regulatory investigations,
proceedings or disputes which is likely to be adversely determined
and, if adversely determined, would be reasonably likely to have a
Material Adverse Effect; or
(xxi) any circumstances occur or exist which (in the reasonable opinion
of an Instructing Group) have a Material Adverse Effect; or
(xxii) any of the pledges over the shares or other security over MTS or
any Group Entity forming part of the Senior Subordinated Security
Documents ceases to be legal, valid and binding and this has not
been remedied to the satisfaction of an Instructing Group within 10
business days of the earlier of the Borrower's board of directors
knowledge thereof or notice thereof to the Borrower by the Agent;
or
(xxiii) the average price of crates supplied pursuant to the Supply
Agreement increases above the level of DM6.10 or there is any other
alteration to the Supply Agreement where such alteration is, in the
opinion of an Instructing Group, likely to have a Material Adverse
Effect; or
(xxiv) there is a reduction in the level of shareholding (if any) which
IFCO Europe has in MTS; or
(xxv) any Material Leasing Agreement is terminated by reason of a default
(howsoever described) on the part of a Group Entity and such
termination, in the opinion of an Instructing Group, has a Material
Adverse Effect,
then, subject to the provisions of the Disclosure Letter and in any such case
and at any time thereafter the Agent may (and, if so instructed by an
Instructing Group, shall) by written notice to the Borrower:
<PAGE>
(a) declare that the Total Commitments shall be cancelled whereupon the
same shall be cancelled and the Commitment of each Bank shall be
reduced to zero; and/or
(b) declare the Advances to be immediately due and payable (whereupon
the same shall become so payable together with accrued interest
thereon and any other sums then owed by the Borrower hereunder) or
declare the Advances to be due and payable on demand of the Agent;
and/or
(c) subject to the provisions of the Intercreditor Agreement, exercise
or direct the Security Trustee to exercise all rights and remedies
of a mortgagee or a secured party at such time, whether or not
applicable to the affected assets subject to the Senior
Subordinated Security Documents, and otherwise the right to
foreclose the Encumbrances granted herein or in any of the Senior
Subordinated Security Documents by any available judicial procedure
and/or to take possession of any or all of the assets subject to
the Senior Subordinated Security Documents, the other security for
the Advances and the books and records relating thereto, with or
without judicial process. For the purposes of the preceding
sentence, the Security Trustee may enter upon any or all of the
premises where any of the assets subject to the Senior Subordinated
Security Documents, such other security or books or records may be
situated and take possession and remove the same therefrom.
23.2 If, pursuant to Clause 23.1, the Agent declares the Advances and/or any
other amount to be due and payable on demand of the Agent, then, and at any time
thereafter, the Agent may (and, if so instructed by an Instructing Group, shall)
by written notice to the Borrower:
(i) call for payment or repayment of the Advances and/or any other
amount owing by the Borrower hereunder on such date as it may
specify in such notice (whereupon the same shall become due and
payable on such date together with accrued interest thereon) or
withdraw its declaration with effect from such date as it may
specify in such notice; and/or
(ii) select as the duration of any Interest Period which begins whilst
such declaration remains in effect a period of six months or less;
and/or
(iii) declare that the Senior Subordinated Security Documents (or any
other them) shall have become enforceable subject to and in
accordance with the provisions thereof.
<PAGE>
Part 8
DEFAULT INTEREST AND INDEMNITY
24. Default Interest and Indemnity
24.1 If any sum due and payable by the Borrower under the Facility Documents is
not paid on the due date therefor in accordance with the provisions of Clause 26
or if any sum due and payable by the Borrower under any judgment of any court in
connection therewith is not paid on the date of such judgment, the period
beginning on such due date or, as the case may be, the date of such judgment and
ending on the date upon which the obligation of the Borrower to pay such sum
(the balance thereof for the time being unpaid being herein referred to as an
"unpaid sum") is discharged shall be divided into successive periods, each of
which (other than the first) shall start on the last day of the preceding such
period and the duration of each of which shall (except as otherwise provided in
this Clause 24) be selected by the Agent having regard to when such unpaid sum
is likely to be paid.
24.2 During each such period relating thereto as is mentioned in Clause 24.1 an
unpaid sum shall bear interest or, insofar as it relates to unpaid interest,
shall give rise to a claim for lump sum damages, at the rate per annum which is
the sum from time to time of three per cent. per annum and FIBOR on the
Quotation Date therefor Provided that:
(i) if, for any such period, FIBOR cannot be determined, the rate of
interest or, as the case may be, lump sum damages applicable to
each Bank's portion of such unpaid sum shall be the rate per annum
which is the sum of three per cent. per annum and the rate per
annum notified to the Agent by such Bank as soon as practicable
after the beginning of such period as being that which expresses as
a percentage rate per annum the cost to such Bank of funding from
whatever source it may select its portion of such unpaid sum for
such period; and
(iii) if such unpaid sum is all or part of an Advance which became due
and payable on a day other than the last day of the Interest Period
in respect thereof (as the case may be), the first such period
applicable thereto shall be of a duration equal to the unexpired
portion of that Interest Period (as the case may be) and the rate
of interest or, as the case may be, lump sum damages applicable
thereto from time to time during such period shall be that which
would have been applicable to it had it not so fallen due plus such
rate as is necessary to increase the Margin that would be otherwise
payable on such amount to three per cent. per annum.
24.3 Any interest or lump sum damages which shall have accrued under Clause
24.2 in respect of an unpaid sum shall be due and payable and shall be paid by
the Borrower at the end of the period by reference to which it is calculated or
on such other date or dates as the Agent may specify by written notice to the
Borrower.
24.4 If any Bank or the Agent on its behalf receives or recovers all or any
part of such Bank's share of an Advance otherwise than on the last day of the
Interest Period in respect thereof, the Borrower shall pay to the Agent on
demand for account of such Bank an amount equal to the amount (if any) by which
(i) the additional interest (excluding the Margin) which would have been payable
on the amount so received or recovered had it been received or recovered on the
last day of the Interest Period in
<PAGE>
respect thereof exceeds (ii) the amount of interest which in the opinion of the
Agent would have been payable to the Agent on the last day of the Interest
Period in respect thereof on the basis of the rate determined by the Agent to be
the arithmetic mean (rounded to four decimal places) of the rates specified by
each Reference Bank to the Agent at which each of the Reference Banks was
offering to prime banks in the Frankfurt Interbank Market deposits in the
currency of the amount so received or recovered equal to the amount so received
or recovered for a period starting on the third business day following the date
of such receipt or recovery and ending on the last day of the Interest Period in
respect thereof.
24.5 The Borrower undertakes to indemnify (to the extent that such indemnity
does not in any relevant jurisdiction contravene any law which restricts the
incurring of any obligation or liability by the Borrower in connection with the
Investment):
(i) each of the Beneficiaries against any cost, claim, loss, expense
(including legal fees) or liability together with any VAT thereon,
which any of them may sustain or incur as a consequence of the
occurrence of any Event of Default or any default by the Borrower,
IFCO Europe or any member of the Group or any of them in the
performance of any of the obligations expressed to be assumed by
them in any of the Facility Documents;
(ii) the Agent against any cost or loss it may suffer or incur as a
result of its entering into or performing any foreign exchange
contract for the purposes hereof; and
(iii) each Bank against any loss it may suffer as a result of its funding
its portion of an Advance requested by any Borrower hereunder but
not made available by reason of the operation of any one or more of
the provisions hereof.
24.6 Any unpaid sum shall (for the purposes of this Clause 24 and Clause 16.1)
be treated as an advance and accordingly in this Clause 24 the term "Advance"
includes any unpaid sum and "Interest Period", in relation to an unpaid sum,
includes each such period relating thereto as is mentioned in Clause 24.1.
<PAGE>
Part 9
PAYMENTS
25. Currency of Account and Payment
25.1 Deutsche Mark is the currency of account and payment for each and every
sum at any time due from the Borrower hereunder Provided that:
(i) each payment in respect of costs and expenses shall be made in the
currency in which the same were incurred;
(ii) each payment pursuant to Clause 13.2 or Clause 16.1 shall be made in
the currency specified by the party claiming thereunder; and
(iii) any amount expressed to be payable in a currency other than Deutsche
Mark shall be paid in that other currency.
25.2 If any sum due from the Borrower under any of the Facility Documents or
any order or judgment given or made in relation thereto has to be converted from
the currency (the "first currency") in which the same is payable thereunder or
under such order or judgment into another currency (the "second currency") for
the purpose of (i) making or filing a claim or proof against the Borrower, (ii)
obtaining an order or judgment in any court or other tribunal or (iii) enforcing
any order or judgment given or made in relation hereto, the Borrower shall
indemnify and hold harmless each of the persons to whom such sum is due from and
against any loss suffered as a result of any discrepancy between (a) the rate of
exchange used for such purpose to convert the sum in question from the first
currency into the second currency and (b) the rate or rates of exchange at which
such person may in the ordinary course of business purchase the first currency
with the second currency upon receipt of a sum paid to it in satisfaction, in
whole or in part, of any such order, judgment, claim or proof.
26. Payments
26.1 On each date on which this Agreement requires an amount to be paid by the
Borrower or any of the Banks hereunder, the Borrower or, as the case may be,
such Bank shall make the same available to the Agent by payment in Deutsche Mark
(or, where applicable, Euro) in immediately available, freely transferable,
cleared funds to such account with such bank as the Agent shall have specified
for this purpose.
26.2 If, at any time, it shall become impracticable (by reason of any action of
any governmental authority or any change in law, exchange control regulations or
any similar event) for the Borrower to make any payments hereunder in the manner
specified in Clause 26.1, then the Borrower may agree with each or any of the
Banks alternative arrangements for the payment direct to such Bank of amounts
due to such Bank hereunder Provided that, in the absence of any such agreement
with any Bank, the Borrower shall be obliged to make all payments due to such
Bank in the manner specified herein. Upon reaching such agreement the Borrower
and such Bank shall immediately notify the Agent thereof and shall thereafter
promptly notify the Agent of all payments made direct to such Bank.
26.3 Save as otherwise provided herein, each payment received by the Agent for
the account of
<PAGE>
another person pursuant to Clause 26.1 shall be made available by the Agent to
the person for whose account such payment was received (in the case of a Bank,
for the account of the Facility Office) for value the same day by transfer to
such account of such person with such bank in the principal financial centre of
the country of the currency of such payment as such person shall have previously
notified to the Agent.
26.4 All payments required to be made by the Borrower hereunder shall be
calculated without reference to any set-off or counterclaim and shall be made
free and clear of and without any deduction for or on account of any set-off or
counterclaim.
26.5 Where a sum is to be paid hereunder to the Agent for account of another
person, the Agent shall not be obliged to make the same available to that other
person or to enter into or perform any exchange contract in connection therewith
until it has been able to establish to its satisfaction that it has actually
received such sum, but if it does so and it proves to be the case that it had
not actually received such sum, then the person to whom such sum or the proceeds
of such exchange contract was so made available shall on request refund the same
to the Agent together with an amount sufficient to indemnify the Agent against
any cost or loss it may have suffered or incurred by reason of its having paid
out such sum or the proceeds of such exchange contract prior to its having
received such sum.
27. Set-Off
The Borrower authorises each Bank for so long as an Event of Default is
continuing to apply any credit balance to which the Borrower is entitled on any
account with that Bank in satisfaction of any sum due and payable from the
Borrower to such Bank hereunder but unpaid; for this purpose, each Bank is
authorised to purchase with the moneys standing to the credit of any such
account such other currencies as may be necessary to effect such application.
No Bank shall be obliged to exercise any right given to it by this Clause 27.
28. Redistribution of Payments
28.1 If, at any time, the proportion which any Bank (a "Recovering Bank") has
received or recovered (whether by payment, the exercise of a right of set-off or
combination of accounts or otherwise) in respect of its portion of any payment
(a "relevant payment") to be made under this Agreement by the Borrower for
account of such Recovering Bank and one or more other Banks is greater (the
portion of such receipt or recovery giving rise to such excess proportion being
herein called an "excess amount") than the proportion thereof so received or
recovered by the Bank or Banks so receiving or recovering the smallest
proportion thereof, then:
(i) such Recovering Bank shall pay to the Agent an amount equal to such
excess amount;
(ii) there shall thereupon fall due from the Borrower to such Recovering
Bank an amount equal to the amount paid out by such Recovering Bank
pursuant to paragraph (i) above, the amount so due being, for the
purposes hereof, treated as if it were an unpaid part of such
Recovering Bank's portion of such relevant payment; and
(iii) the Agent shall treat the amount received by it from such Recovering
Bank pursuant to paragraph (i) above as if such amount had been
received by it from the Borrower in respect of such relevant payment
and shall pay the same to the persons entitled thereto
<PAGE>
(including such Recovering Bank) pro rata to their respective
entitlements thereto.
28.2 If any sum (a "relevant sum") received or recovered by a Recovering Bank
in respect of any amount owing to it by the Borrower becomes repayable and is
repaid by such Recovering Bank, then:
(i) each Bank which has received a share of such relevant sum by reason
of the implementation of Clause 28.1 shall, upon request of the
Agent, pay to the Agent for account of such Recovering Bank an
amount equal to its share of such relevant sum; and
(ii) there shall thereupon fall due from the Borrower to each such Bank
an amount equal to the amount paid out by it pursuant to paragraph
(i) above, the amount so due being, for the purposes hereof, treated
as if it were the sum payable to such Bank against which such Bank's
share of such relevant sum was applied.
28.3 If any Bank shall commence any action or proceeding in any court to enforce
its rights hereunder and, as a result thereof or in connection therewith, shall
receive any excess amount (as defined in Clause 28.1), then such Bank shall not
be required to share any portion of such excess amount with any Bank which has
the legal right to, but does not, join in such action or proceeding or commence
and diligently prosecute a separate action or proceeding to enforce its rights
in another court.
<PAGE>
Part 10
FEES, COSTS AND EXPENSES
29. Fees
29.1 The Borrower shall pay to the Arranger on the date hereof the underwriting
and arrangement fees specified in the letter dated the date hereof from the
Arranger to the Borrower at the times, and in the amounts, agreed in such
letter.
29.2 The Borrower shall pay to the Agent for its own account the agency fees
specified in the letter of even date herewith from the Agent to the Borrower at
the times, and in the amounts, agreed in such letter.
30. Costs and Expenses
30.1 The Borrower shall pay to the Agent at the time and in the manner and
amount specified in the letter of even date herewith from the Agent to the
Borrower the amounts payable by it in respect of legal and other expenses
(including disbursements and printing costs) together with any VAT thereon
incurred by it in connection with the negotiation, preparation and execution of
the Facility Documents and the completion of the transactions herein and therein
contemplated.
30.2 The Borrower shall, from time to time on demand of the Agent, reimburse
the Beneficiaries for all reasonable costs and expenses (including legal fees)
together with any VAT thereon incurred in or in connection with any actual or
proposed amendment, waiver or restructuring of the Facility, or with the
preservation and/or enforcement of any of the rights of the Beneficiaries under
the Facility Documents or any of the documents referred to therein in any
jurisdiction.
30.3 The Borrower shall pay all stamp, registration and other taxes to which
the Facility Documents or any judgment given in connection herewith is or at any
time may be subject and shall, from time to time on demand in writing of the
Agent, indemnify the Beneficiaries against any liabilities, costs, claims and
expenses resulting from any failure to pay or any delay in paying any such tax.
30.4 The Borrower shall, from time to time on demand of the Agent (and without
prejudice to the provisions of Clause 30.2) compensate the Agent for the time
and expenditure, all costs and expenses (including telephone, fax, copying,
travel and personnel costs) reasonably incurred by the Agent in connection with
its taking such action as it may deem appropriate or in complying with any
instructions from an Instructing Group or any request by the Borrower or IFCO
Europe in connection with:
(a) the granting or proposed granting of any waiver or consent requested
hereunder by the Borrower or IFCO Europe;
(b) any actual, potential or suspected breach by the Borrower or IFCO
Europe of its obligations hereunder;
(c) the occurrence of any event which is an Event of Default or a
Potential Event of Default; or
<PAGE>
(d) any amendment or proposed amendment hereto requested by the Borrower
or IFCO Europe.
30.5 If the Borrower fails to perform any of its obligations under this Clause
30, each Bank shall, in its Proportion, indemnify each of the Beneficiaries
against any loss incurred by any of them as a result of such failure and the
Borrower shall forthwith reimburse each Bank for any payment duly made by it
pursuant to this Clause 30.5.
<PAGE>
Part 11
AGENCY PROVISIONS
31. The Agent, the Arranger and the Banks
31.1 The Arranger and each Bank hereby appoints the Agent to act as its agent
in connection with the Facility Documents and to exercise such rights, powers,
authorities and discretions as are specifically delegated to the Agent by the
terms of the Facility Documents together with all such rights, powers,
authorities and discretions as are reasonably incidental thereto Provided that
the Agent shall not be authorised to commence any legal actions or proceedings
on behalf of any Bank without such Bank's written consent. The Agent shall be
released from the restrictions set out in Section 181 of the German Civil Code.
The Agent can grant substitute powers of attorney and release any sub-agent from
such restrictions and revoke such substitute powers of attorney.
31.2 For the purposes of Part 11: "Agent's Liabilities" means all liabilities
(including any liability in respect of tax), costs, fees, charges, damages,
losses and expenses (including legal fees and expenses and, in each case, VAT or
any similar tax charged or chargeable in respect thereof):
(i) to which the Agent becomes subject by reason of it acting as agent
under the Facility Documents; and
(ii) incurred by the Agent or any attorney, agent, delegate or other
person appointed by the Agent under any Facility Document in
relation to or arising out of the taking or holding of any of the
security given or created by or pursuant to any of the Facility
Documents or in the execution or purported execution of the rights,
trust, powers, authorities, discretions and obligations vested in
it,
in each case under the Facility Documents or by law, including but not
limited to those relating to all actions, proceedings, claims and demands
in respect of any matter or thing done or omitted in any way relating to
the Facility Documents and all amounts due to the Agent by way of
remuneration for acting as agent or trustee (as the case may be) under any
of the Facility Documents.
31. The Agent may:
(i) assume that:
(a) any representation made by the Borrower or IFCO Europe or any
Group Entity in connection herewith or in connection with any
other Facility Document is true;
(b) no Event of Default or Potential Event of Default has occurred;
(c) neither the Borrower nor IFCO Europe nor any Group Entity is in
breach of or default under its obligations hereunder or under
any other Facility Document; and
<PAGE>
(d) any right, power, authority or discretion vested herein or in
any other Facility Document upon an Instructing Group, the
Banks or any other person or group of persons has not been
exercised,
unless it has, in its capacity as agent for the Banks, received
notice to the contrary from any other party hereto;
(ii) assume that the Facility Office of each Bank is that identified with
its signature below (or, in the case of a Transferee, at the end of
the Transfer Certificate to which it is a party as Transferee) until
it has received from such Bank a notice designating some other
office of such Bank to replace its Facility Office and act upon any
such notice until the same is superseded by a further such notice;
(iii) engage and pay for the advice or services of any lawyers,
accountants, surveyors or other experts whose advice or services may
to it seem necessary, expedient or desirable and rely upon any
advice so obtained;
(iv) rely as to any matters of fact which might reasonably be expected to
be within the knowledge of the Borrower upon a certificate signed by
or on behalf of the Borrower;
(v) rely upon any communication or document believed by it to be
genuine;
(vi) refrain from exercising any right, power or discretion vested in it
as agent hereunder unless and until instructed by an Instructing
Group as to whether or not such right, power or discretion is to be
exercised and, if it is to be exercised, as to the manner in which
it should be exercised; and
(vii) refrain from acting in accordance with any instructions of an
Instructing Group to begin any legal action or proceeding arising
out of or in connection with any of the Facility Documents until it
shall have received such security as it may require (whether by way
of payment in advance or otherwise) for all costs, claims, losses,
expenses (including legal fees) and liabilities together with any
VAT thereon which it will or may expend or incur in complying with
such instructions.
31.4 The Agent shall:
(i) promptly inform each Bank of the contents of any written notice or
document received by it in its capacity as Agent from either of the
Borrower or IFCO Europe or any Group Entity under any Facility
Document;
(ii) promptly notify each Bank of the occurrence of any Event of Default
or any default by either of the Borrower or IFCO Europe or any Group
Entity in the due performance of or compliance with its obligations
under any Facility Document of which the Agent has written notice
from any other party hereto;
(iii) save as otherwise provided herein, act as agent under the Facility
Documents in accordance with any instructions given to it by an
Instructing Group, which instructions shall be binding on the
Beneficiaries; and
<PAGE>
(iv) if so instructed by an Instructing Group, refrain from exercising
any right, power or discretion vested in it as agent under the
Facility Documents.
31.5 Notwithstanding anything to the contrary expressed or implied herein
neither the Agent nor the Arranger shall:
(i) be bound to enquire as to:
(a) whether or not any representation made by either of the
Borrower or IFCO Europe or any Group Entity in connection with
any Facility Document is true;
(b) the occurrence or otherwise of any Event of Default or
Potential Event of Default;
(c) the performance by either of the Borrower or IFCO Europe or any
Group Entity of its obligations under any Facility Document; or
(d) any breach of or default by either of the Borrower or IFCO
Europe or any Group Entity of or under its obligations under
any of the Facility Documents;
(ii) be bound to account to any Bank for any sum or the profit element of
any sum received by it for its own account;
(iii) be bound to disclose to any other person any information relating to
any Group Entity if such disclosure would or might in its opinion
constitute a breach of any law or regulation or be otherwise
actionable at the suit of any person;
(iv) be under any obligations other than those for which express
provision is made herein.
31.6 Each Bank shall, from time to time on demand by the Agent, indemnify the
Agent, in its Proportion, against any and all costs, claims, losses, expenses
(including legal fees) and liabilities together with any VAT thereon which the
Agent may incur, otherwise than by reason of its own gross negligence or wilful
misconduct, in acting in its capacity as agent under any of the Facility
Documents.
31.7 Neither the Agent nor the Arranger accepts any responsibility for the
accuracy and/or completeness of the Reports, the Information Memorandum or the
Business Plan or any other information supplied by either of the Borrower or
IFCO Europe or any Group Entity in connection with any of the Facility Documents
(whether on, before or after the date hereof) or for the legality, validity,
effectiveness, adequacy or enforceability of the Facility Documents and neither
the Agent nor the Arranger shall be under any liability as a result of taking or
omitting to take any action (whether on, before or after the date hereof) in
relation to any of the Facility Documents, save in the case of its gross
negligence or wilful misconduct.
31.8 Each of the Banks agrees that it will not assert or seek to assert against
any director, officer or employee of the Agent or the Arranger any claim it
might have against any of them in respect of the matters referred to in Clause
31.7.
<PAGE>
31.9 Each of the Banks agrees that the liability of the Agent in performing
its duties hereunder shall be limited only to claims arising out of the Agent's
own gross negligence or wilful misconduct; further, with respect to any claim,
the Agent shall not be liable for any indirect or consequential loss or damage
suffered by any person.
31.10 The Agent and the Arranger may accept deposits from, lend money to and
generally engage in any kind of banking or other business with any Group Entity.
31.11 The Agent may resign its appointment hereunder at any time without
assigning any reason therefor by giving not less than thirty days' prior written
notice to that effect to each of the other parties hereto Provided that no such
resignation shall be effective until a successor for the Agent is appointed in
accordance with the succeeding provisions of this Clause 31.
31.12 If the Agent gives notice of its resignation pursuant to Clause 31.11,
then any reputable and experienced bank or other financial institution may after
consultation with the Borrower be appointed as a successor to such Agent by an
Instructing Group during the period of such notice but, if no such successor is
so appointed, the Agent may appoint such a successor itself.
31.13 If a successor to the Agent is appointed under the provisions of Clause
31.12, then (i) the retiring Agent shall be discharged from any further
obligation hereunder but shall remain entitled to the benefit of the provisions
of this Clause 31 and (ii) its successor and each of the other parties hereto
shall have the same rights and obligations amongst themselves as they would have
had if such successor had been a party hereto.
31.14 It is understood and agreed by each Bank that it has itself been, and
will continue to be, solely responsible for making its own independent appraisal
of and investigations into the financial condition, creditworthiness, condition,
affairs, status and nature of IFCO Europe and each Group Entity and,
accordingly, each Bank warrants to the Agent and the Arranger that it has not
relied on and will not hereafter rely on the Agent and the Arranger nor either
of them:
(i) to check or enquire on its behalf into the adequacy, accuracy or
completeness of any information provided by either of the Borrower
or IFCO Europe or any Group Entity in connection with any of the
Facility Documents or the transactions therein contemplated (whether
or not such information has been or is hereafter circulated to such
Bank by the Agent and/or the Arranger); or
(ii) to assess or keep under review on its behalf the financial
condition, creditworthiness, condition, affairs, status or nature of
IFCO Europe or any Group Entity.
31.15 In acting as Agent for the Banks, the Agent's agency divisions shall be
treated as a separate entity from any other of its divisions or departments and,
notwithstanding the foregoing provisions of this Clause 31, in the event that
the Agent should act for IFCO Europe or any Group Entity in any capacity in
relation to any other matter, any information given by IFCO Europe or such Group
Entity to the Agent in such other capacity may be treated as confidential by the
Agent.
<PAGE>
31.16 Notwithstanding anything to the contrary expressed or implied herein and
without prejudice to the provisions of Clause 31.15 the Agent shall not as
between itself and the Banks be bound to disclose to any Bank or other person
any information which is supplied by IFCO Europe or any Group Entity to the
Agent in its capacity as agent hereunder for the Banks and which is identified
by IFCO Europe or such Group Entity at the time it is so supplied as being
confidential information Provided that the consent of IFCO Europe or the
relevant Group Entity to such disclosure shall not be required in relation to
any information which in the opinion of the Agent relates to an Event of Default
or Potential Event of Default or in respect of which the Banks have given a
confidentiality undertaking in a form satisfactory to the Agent and IFCO Europe
or the relevant Group Entity.
31.17 To the extent that the Agent or the Security Trustee receives or recovers
monies following the service of a notice in accordance with Clause 23.1 or 23.2
pursuant to or as a result of any breach of any Facility Document to be applied
in discharging any obligation (whether actual or contingent, present or future)
of the Borrower under any Facility Document and subject always to the terms of
the Intercreditor Agreement, such monies shall (without prejudice to the
respective rights of the Agent or the Security Trustee pursuant to any Facility
Document to credit any monies received by it to any suspense account) be applied
as between the Beneficiaries:
(a) first, in or towards payment of all costs and expenses incurred by
the Agent and the Security Trustee in acting in those capacities
under the Facility Documents;
(b) secondly, in or towards payment of any amounts which are due and
payable at such time by the Borrower to any Beneficiary under any of
the Facility Documents in respect of interest, guarantee commission,
commitment commission and other fees pro rata to the respective
entitlements of such Beneficiaries;
(c) thirdly, in or towards payment of any amounts which are due and
payable at such time by the Borrower to any Beneficiary under any of
the Facility Documents in respect of principal pro rata to the
respective entitlements of such Beneficiaries;
(d) fourthly, in or towards payment of any other sums whatsoever then
due and payable to the Beneficiaries pursuant to the Facility
Documents pro rata to their respective entitlements;
(e) fifthly, if the Borrower is under no further actual or contingent
liability hereunder, in payment to any person to whom the Security
Trustee is obliged to pay in priority to the Borrower otherwise
entitled thereto, to the extent it is so obliged; and
(f) sixthly, thereafter, in payment to the Borrower.
<PAGE>
Part 12
ASSIGNMENTS AND TRANSFERS
32. Benefit of Agreement
This Agreement shall be binding upon and enure to the benefit of each party
hereto and its or any subsequent successors, Transferees and assigns.
33. Assignments and Transfers by the Borrower
The Borrower shall not be entitled to assign or transfer all or any of its
rights, benefits and obligations under any of the Facility Documents.
34. Assignments and Transfers by Banks
34.1 Any Bank may at any time assign all or any of its rights and benefits
under the Facility Documents or assign and transfer in accordance with Clause
34.3 all or any of its rights, benefits and obligations to any Qualifying Bank
with (subject to Clause 34.7) the prior written consent of the Borrower (such
consent not to be unreasonably withheld).
34.2 If any Bank assigns all or any of its rights and benefits under the
Facility Documents in accordance with Clause 34.1 (but otherwise than in
accordance with Clause 34.3), then, unless and until the assignee has agreed
with the Agent and the other Banks that it shall be under the same obligations
towards each of them as it would have been under if it had been an original
party hereto or thereto as a Bank, the other Beneficiaries shall not be obliged
to recognise such assignee as having the rights against each of them which it
would have had if it had been such a party thereto.
34.3 If any Bank wishes to assign and transfer all or any of its rights and
benefits under any of the Facility Documents as contemplated in Clause 34.1,
then such assignment and transfer may (subject to the proviso to Clause 34.1) be
effected by the delivery to the Agent of a duly completed and duly executed
Transfer Certificate in which event, on the later of the Transfer Date specified
in such Transfer Certificate and the fourth business day after (or such earlier
business day endorsed by the Agent on such Transfer Certificate falling on or
after) the date of execution of such Transfer Certificate by the Agent:
(i) to the extent that in such Transfer Certificate the Bank party
thereto seeks to transfer any of its obligations hereunder and/or
under or in respect of the other Facility Documents, the Borrower,
IFCO Europe and such Bank shall be released from further
obligations towards one another hereunder and/or under or in
respect of the other Facility Documents to such extent and their
respective rights against one another shall to that extent be
cancelled (such rights, benefits and obligations being referred to
in this Clause as "discharged rights and obligations");
<PAGE>
(ii) to the extent that in such Transfer Certificate the Bank party
thereto seeks to assign any of its rights and benefits hereunder
and/or under or in respect of the other Facility Documents, they
shall be so assigned and each of the Borrower and IFCO Europe
agrees (subject to, in relation to the proposed transfer of the
benefit of the Senior Subordinated Security Documents in such
Transfer Certificate, compliance with relevant laws) that it is an
effective assignment of such rights and benefits;
(iii) each of the Borrower, IFCO Europe and the Transferee party thereto
shall assume obligations towards one another and/or acquire rights
and benefits against one another which differ from such discharged
rights and obligations only insofar as the Borrower, IFCO Europe
and such Transferee have assumed and/or acquired the same in place
of the Borrower, IFCO Europe and such Bank; and
(iv) the Beneficiaries shall acquire the same rights and benefits and
assume the same obligations between themselves as they would have
acquired and assumed had such Transferee been an original party
hereto as a Bank with the rights, benefits and/or obligations
acquired or assumed by it as a result of such transfer.
34.4 On the date upon which a transfer takes effect pursuant to Clause 34.3,
other than pursuant to the Syndication, the Transferee in respect of such
transfer shall pay to the Agent for its own account a transfer fee of DM3,000.
34.5 The Borrower shall from time to time at the request of the Agent promptly
execute any accession agreement to any of the Senior Subordinated Security
Documents and do any other act or thing or execute such further documents as
directed by the Agent in connection with the transfer of rights and benefits
under Clause 34.1.
34.6 Any transfer pursuant to Clause 34.3 of part of a Bank's Commitment shall
be in a minimum amount of DM5,000,000.
34.7 Any consent required to be given by a party under Clause 34.1 shall be
deemed to have been given unless such party shall have notified the requesting
party to the contrary within five business days of the request for such consent.
35. Disclosure and Syndication
35.1 Any Bank may disclose to any person:-
(a) to (or through) whom such Bank assigns or transfer (or may
potentially assign or transfer) all or any of its rights, benefits
and obligations hereunder;
(b) with (or through) whom such Bank enters into (or may potentially
enter into) any sub-participation in relation to, or any other
transaction under which payments are to be made by reference to, the
Facility Documents, the Borrower or IFCO Europe; or
(c) to whom information may be required to be disclosed by any applicable
law or regulation,
<PAGE>
such information about the Borrower, IFCO Europe the Group and as such Bank
shall consider appropriate, provided that (in the case of (a) and (b) only) the
person to whom such information is to be given has entered into a
Confidentiality Undertaking. If requested to do so by the Borrower, a Bank
shall inform the Borrower as to the identity of any person to whom it has given
such information.
35.2 The Borrower acknowledges that syndication of the Facility in accordance
with this Clause 35.2 may take place and undertakes to assist and co-operate
with the Arranger in such Syndication by, inter alia:
(i) expediting site visits at reasonable times upon reasonable notice
by the Agent and persons who have been invited by the Arranger to
participate in the Facility ("Invitees");
(ii) participating at reasonable times upon reasonable notice in
presentations to the Banks and the Invitees concerning the
Borrower, the Group Entities and their activities;
(iii) using all reasonable efforts (if necessary) to obtain appropriate
authorisations from the Auditors, other accountants, consultants
and professional advisers to release to the Banks and the Invitees
any information, including the Reports;
(iv) refraining from making any statement, announcement or publication
or doing any act or thing calculated to obstruct syndication of the
Facility in any way other than as required by applicable law or
good commercial practice; and
(v) if so requested by the Arranger, procuring the assistance of its
directors and other officers in the updating of the Information
Memorandum.
35.3 Each Bank confirms in favour of the Agent (on the date hereof, or, in the
case of a Bank which becomes a party hereto pursuant to a transfer or
assignment, on the date on which the relevant transfer or assignment becomes
effective) that either:
(a) it is not resident for tax purposes in the United Kingdom and is
beneficially entitled to the Loan and the interest thereon; or
(b) it is a bank as defined for the purposes of Section 349 of ICTA and
is beneficially entitled to the Loan and the interest thereon,
and each Bank in favour of the Agent agrees to notify the Agent if there is any
change in its position from that set out above.
<PAGE>
Part 13
MISCELLANEOUS
36. Calculations and Evidence of Debt
36.1 Interest and fees shall accrue from day to day and shall be calculated on
the basis of a year of 360 days (or, in any case where market practice differs,
in accordance with market practice) and the actual number of days elapsed.
36.2 If on any occasion a Reference Bank or Bank fails to supply the Agent with
a quotation required of it under the foregoing provisions of this Agreement, the
rate for which such quotation was required shall be determined from those
quotations which are supplied to the Agent.
36.3 Each Bank shall maintain in accordance with its usual practice accounts
evidencing the amounts from time to time lent by and owing to it hereunder.
36.4 The Agent shall maintain on its books a control account or accounts in
which shall be recorded (i) the amount of any Advance made or arising hereunder
and each Bank's share therein, (ii) the amount of all principal, interest and
other sums due or to become due from the Borrower to any of the Banks hereunder
and each Bank's share therein and (iii) the amount of any sum received or
recovered by the Agent hereunder and each Bank's share therein.
36.5 In any legal action or proceeding arising out of or in connection with
this Agreement, the entries made in the accounts maintained pursuant to Clauses
36.3 and 36.4 shall, in the absence of manifest error, be conclusive evidence of
the existence and amounts of the obligations of the Borrower therein recorded.
36.6 A certificate of a Bank as to (i) the amount by which a sum payable to it
hereunder is to be increased under Clause 13.1 or (ii) the amount for the time
being required to indemnify it against any such cost, payment or liability as is
mentioned in Clause 13.2 or 16.1 shall, if supported by relevant documentation,
be conclusive for the purposes of this Agreement.
37. Remedies, Waivers, Amendments and Consents
37.1 No failure to exercise, nor any delay in exercising, on the part of the
Agent and the Banks or any of them, any right or remedy hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any right or
remedy prevent any further or other exercise thereof or the exercise of any
other right or remedy. The rights and remedies herein provided are cumulative
and not exclusive of any rights or remedies provided by law.
37.2 The Agent may agree with the Borrower any amendment to or the modification
of the provisions of any of the Facility Documents or any schedule thereto,
which is necessary to correct a manifest error.
37.3 Subject to Clause 37.4, the Agent (acting on the instructions of an
Instructing Group) may agree with the Borrower any amendment to or modification
of the provisions of any of the Facility Documents or any schedule thereto, or
grant any waiver or consent in relation thereto.
<PAGE>
37.4 (a) Any amendment, modification, waiver, variation or consent which
relates to:
(i) the definitions of "Final Maturity Date", "Instructing Group"
or "Margin" in Clause 1.1;
(ii) Clauses 3, 34, 30, 11 or 8;
(iii) this Clause 37;
(iv) any extension of the date of payment for or a decrease in the
amount of, or a change in the currency of, any sum payable to
a Beneficiary under any of the Facility Documents;
(v) the priority of liabilities under the Facility Documents or
the order or manner in which liabilities are reduced
thereunder;
(vi) an amendment to any Senior Subordinated Security Document
which is, in the opinion of the Security Trustee and the
Agent, material;
(vii) the release of any asset which is the subject of the security
granted in favour of the Beneficiaries;
(viii) any increase in the Total Commitment of any Bank;
(ix) any provision which expressly contemplates the need for the
consent or approval of all the Banks,
may be effected with (and only with) the consent of all the Banks.
(b) Any amendment, modification, waiver, variation or consent which
relates to any provision of this Clause 37, Clause 33 or Part 11 or
would otherwise affect any of the Agent's or the Security Trustee's
rights hereunder or subject the Agent or the Security Trustee to any
additional obligations hereunder may be affected with (and only with)
the consent of the Agent and/or the Security Trustee (as applicable).
38. Partial Invalidity
If, at any time, any provision hereof is or becomes illegal, invalid or
unenforceable in any respect under the law of any jurisdiction, neither the
legality, validity or enforceability of the remaining provisions hereof nor the
legality, validity or enforceability of such provision under the law of any
other jurisdiction shall in any way be affected or impaired thereby and the
relevant provision shall be replaced with a new provision reflecting the same
commercial intent of the parties, which provision shall be legal, valid and
enforceable under the law of the relevant jurisdiction.
39. Notices
39.1 Each communication to be made under any of the Facility Documents shall be
made in writing
<PAGE>
but, unless otherwise stated, may be made by telex, facsimile or letter.
39.2 Any communication or document to be made or delivered by one person to
another pursuant to this Agreement shall (unless that other person has by
fifteen days' written notice to the Agent specified another address) be made or
delivered to that other person at the address telex or facsimile identified with
its signature below (or, in the case of a Transferee, at the end of the Transfer
Certificate to which it is a party as Transferee) and shall be deemed to have
been made or delivered when despatched, with appropriate answerback received (in
the case of any communication made by telex), when received (in the case of any
communications made by facsimile) or (in the case of any communication made by
letter) when left at that address or (as the case may be) ten days after being
deposited in the post postage prepaid in an envelope addressed to it at that
address Provided that any communication or document to be made or delivered to
the Agent shall be effective only if the same is expressly marked for the
attention of the department or officer identified with the Agent's signature
below (or such other department or officer as the Agent shall from time to time
specify for this purpose).
39.3 Save where the Agent agrees otherwise each communication and document made
or delivered by one party to another pursuant to this Agreement shall be in the
English language or accompanied by a translation thereof into English certified
(by an officer of the person making or delivering the same) as being a true and
accurate translation thereof.
40. European Monetary Union
40.1 The European Economic and Monetary Union (EMU) provides for the
introduction of a single currency (Euro) and the substitution of the national
currencies of the Member States participating in EMU.
40.2 On the date of the introduction of the single currency (Euro) for the
Federal Republic of Germany, the currency specified in this Agreement and the
currency specified for payments under this Agreement shall be substituted by the
single currency and the changeover into the single currency (Euro) shall take
place. Conversions shall be based on the officially fixed conversion rate.
40.3 Neither the introduction of the single currency (Euro) nor the
substitution of the national currencies of the Member States participating in
the EMU nor the fixing of the official conversion rate for replacement nor any
economic consequences that arise from any of the aforementioned events or in
connection with the EMU shall give rise to any right to prematurely terminate,
contest, cancel, rescind, modify or renegotiate this Agreement or any of its
provisions or to raise any other objections and/or exceptions or to assert any
claims for compensation. The Agreement and all its provisions shall be continued
unchanged.
41. Intercreditor and Security Trust Agreement Acknowledgements and
Undertakings
41.1 The Borrower and IFCO Europe hereby expressly authorise the Security
Trustee to enforce the security constituted by the Senior Subordinated Security
Documents in the manner provided for in the Facility Documents and irrevocably
waive any rights (and shall procure that each Group Entity providing security
hereunder shall waive such rights) which they may now or in the future have to
challenge or have set aside any arrangements relating to:
<PAGE>
(a) the placing of the proceeds of the enforcement of any security in a
suspense account bearing interest at the applicable interest rate
from time to time of the Security Trustee; or
(b) any other matter or thing regarding the order of enforcement of
security and the priority of the application of the proceeds of such
enforcement in accordance with the provisions of the Facility
Documents.
41.2 The Borrower and IFCO Europe acknowledge and agree (and shall procure the
agreement of each Group Entity providing security hereunder) that, except as
otherwise provided in the Facility Documents, they shall have no right to be
consulted in relation to or to object to any enforcement or other action by the
Beneficiaries in relation to the Facility Documents and, for the avoidance of
doubt, none of the Beneficiaries shall incur any liability to IFCO Europe or any
Group Entity in relation to such action in the absence of fraud, wilful
misconduct or the failure by the Beneficiaries to comply with the standard of
care which could reasonably be expected to be given by any similar person in
similar circumstances.
41.3 The Borrower acknowledges each of the terms of the Intercreditor Agreement
and the Security Trust Agreement and undertakes and agrees to be bound by their
terms.
41.4 The Borrower and IFCO Europe hereby agree and acknowledges that the Senior
Liabilities (other than the Postponed Senior Liabilities) shall rank pari passu
between themselves and, whether secured or unsecured, shall rank in priority to
the Senior Subordinated Liabilities and that the Senior Subordinated Liabilities
shall rank in priority to the Postponed Senior Liabilities.
41.5 The Borrower undertakes that prior to the Senior Discharge Date it will
not, unless the Majority Lenders otherwise previously consent in writing:
(i) pay, prepay, redeem, purchase or otherwise acquire or satisfy in
any manner (including by set-off or combination of accounts) the
whole or any part of the Senior Subordinated Liabilities otherwise
than pursuant to the terms of the Intercreditor Agreement;
(ii) (other than those created pursuant to the Senior Subordinated
Facility Documents (as the same are in force at the date hereof) or
otherwise permitted pursuant to the terms of the Intercreditor
Agreement) create or permit to subsist any security interest over
any of its assets for, or any guarantee, indemnity or other
assurance against financial loss in respect of, any of the Senior
Subordinated Liabilities;
(iii) make any Material Variation to any term of the Senior Subordinated
Facility Documents (other than an extension to, or postponement of,
a date for payment of any amount thereunder);
(iv) exercise any right or take any other action which would cause any
amount (other than amounts referred to in Clause 9.1 of the
Intercreditor Agreement) to become due and payable in connection
with any of the Senior Subordinated Facility Documents or the
Senior Subordinated Liabilities; or
<PAGE>
(v) take or omit to take any action whereby the subordination
contemplated by the Intercreditor Agreement may be impaired.
41.6 The Borrower and IFCO Europe hereby consent, so long as any of the
Facility Documents remain subsisting, to the disclosure by any of the Agent, the
Senior Agent, the Security Trustee and the Lenders to each other of such
information concerning IFCO Europe or any member of the Group to such extent as
such persons see fit.
41.7 The Borrower agrees that, if the Senior Discharge Date would have occurred
on any date but for the fact that the Hedging Liabilities remain outstanding,
all outstanding Hedging Agreements in relation to any Hedge Counterparty shall
automatically terminate on that date unless the Agent agrees to the contrary.
41.8 Any capitalised term used in this Clause 41 and not defined herein shall
bear the meaning ascribed to it in the Intercreditor Agreement.
<PAGE>
Part 14
LAW AND JURISDICTION
42. Law
This Agreement shall be governed by, and shall be construed in accordance with,
German law.
43. Jurisdiction
43.1 Each of the Borrower and IFCO Europe hereby irrevocably agrees for the
benefit of each of the Beneficiaries that the District Court (Landgericht) of
Frankfurt am Main shall have jurisdiction to hear and determine any suit, action
or proceeding, and to settle any disputes, which may arise out of or in
connection with this Agreement and, for such purposes, irrevocably submits to
the jurisdiction of such courts.
43.2 Each of the Borrower and IFCO Europe irrevocably waives any objection
which it might now or hereafter have to the courts referred to in Clause 43.1
being nominated as the forum to hear and determine any suit, action or
proceeding, and to settle any disputes, which may arise out of or in connection
with this Agreement and agrees not to claim that any such court is not a
convenient or appropriate forum.
43.3 The submission to the jurisdiction of the courts referred to in Clause
43.1 shall not (and shall not be construed so as to) limit the right of the
Beneficiaries or any of them to take proceedings against either of the Borrower
or IFCO Europe in any other court of competent jurisdiction nor shall the taking
of proceedings in any one or more jurisdictions preclude the taking of
proceedings in any other jurisdiction (whether concurrently or not) if and to
the extent permitted by applicable law.
43.4 Each of the parties hereto hereby waives trial by jury in any judicial
proceeding involving, directly or indirectly, any matter (whether sounding in
tort, contract or otherwise) in any way arising out of, related to, or connected
with any of the Facility Documents or the relationships established hereunder
and whether arising or asserted before or after the date hereof or before or
after the payment, observance and performance in full of such party's
obligations hereunder.
AS WITNESS the hands of the duly authorised representatives of the parties
hereto the day and year first before written.
<PAGE>
THE FIRST SCHEDULE
The Banks and their Commitments
The Banks Commitment (DM)
Barclays Bank PLC 35,000,000
<PAGE>
THE SECOND SCHEDULE
Form of Transfer Certificate
To: Barclays Bank PLC
TRANSFER CERTIFICATE
relating to the agreement (as from time to time amended, varied, novated or
supplemented, the "Facility Agreement") dated [ ] whereby a
DM35,000,000 term loan facility was made available to IFCO International Food
Container Organisation GmbH as Borrower by a bank or group of banks on whose
behalf Barclays Bank PLC acted as agent in connection therewith.
1. Terms defined in the Facility Agreement shall, subject to any contrary
indication, have the same meanings herein. The terms Bank, Transferee, Bank's
Participation and Amount Transferred are defined in the schedule hereto.
2. The Bank (i) confirms that the Bank's Participation is an accurate summary
of its participation in the Facility Agreement and (ii) requests the Transferee
to accept and procure the assignment and transfer to the Transferee of a
percentage of the Bank's Participation (equal to the percentage that the Amount
Transferred is of the aggregate of the component amounts (as set out in the
schedule hereto) of the Bank's Participation) by counter-signing and delivering
this Transfer Certificate to the Agent at its address for the service of notices
specified in the Facility Agreement.
3. The Transferee hereby requests the Agent to accept this Transfer
Certificate as being delivered to the Agent pursuant to and for the purposes of
Clause 34.3 of the Facility Agreement and the Bank hereby assigns its rights
under the Facility Documents (including the security pursuant to the Senior
Subordinated Security Documents) and transfers its obligations thereunder to the
extent set out in the schedule hereto so as to take effect in accordance with
the terms of the Facility Agreement thereof on the Transfer Date or on such
later date as may be determined in accordance with the terms thereof.
4. The Transferee confirms that it has received a copy of the Facility
Documents together with such other information as it has required in connection
with this transaction and that it has not relied and will not hereafter rely on
the Bank to check or enquire on its behalf into the legality, validity,
effectiveness, adequacy, accuracy or completeness of any such information and
further agrees that it has not relied and will not rely on the Bank to assess or
keep under review on its behalf the financial condition, creditworthiness,
condition, affairs, status or nature of the Borrower or IFCO Europe or any Group
Entity.
5. The Transferee hereby undertakes with the Bank and each of the other
parties to the Facility Agreement that it will perform in accordance with their
terms all those obligations which by the terms of the Facility Documents will be
assumed by it after delivery of this Transfer Certificate to the Agent and
satisfaction of the conditions (if any) subject to which this Transfer
Certificate is expressed to take effect.
7. The Bank makes no representation or warranty and assumes no responsibility
with respect to
<PAGE>
the legality, validity, effectiveness, adequacy or enforceability of the
Facility Documents or any document relating thereto and assumes no
responsibility for the financial condition of the Borrower or IFCO Europe or any
Group Entity or for the performance and observance by the Borrower, IFCO Europe
or any Group Entity of any of their obligations under the Facility Documents or
any document relating thereto and any and all such conditions and warranties,
whether express or implied by law or otherwise, are hereby excluded.
8. The Bank hereby gives notice that nothing herein or in the Facility
Documents (or any document relating thereto) shall oblige the Bank to (i) accept
a re-assignment or re-transfer from the Transferee of the whole or any part of
its rights, benefits and/or obligations under the Facility Documents transferred
pursuant hereto or (ii) support any losses directly or indirectly sustained or
incurred by the Transferee for any reason whatsoever including, without
limitation, the non-performance by the Borrower or IFCO Europe or any other
party to the Facility Documents (or any document relating thereto) of its
obligations under any such document. The Transferee hereby acknowledges the
absence of any such obligation as is referred to in (i) or (ii) above.
9. This Transfer Certificate and the rights and obligations of the parties
hereunder shall be governed by and construed in accordance with German law.
10. The benefit of the Senior Subordinated Security Documents (subject to
compliance with applicable law) shall in respect of the Facility pass
automatically to the Transferee to the extent of the Amount Transferred in
respect thereof and the security granted thereby will be kept and administered
by the Agent for the benefit of the Transferee.
The Schedule
1. Bank:
2. Transferee:
3. Transfer Date:
4. Bank's Participation:
Commitment: [ ]
Bank's Commitment Bank's Portion of the Total Loan
5. Amount Transferred:
Commitment Transferred Loan Transferred
<PAGE>
[Transferor Bank] [Transferee Bank]
By: By:
Date: Date:
Administrative Details of Transferee
Address:
Contact Name:
Account(s) for Payments:
Telex:
Facsimile:
Telephone:
* The Transferee must also accede to the Intercreditor Agreement, the
Security Trust Agreement and certain of the Senior Subordinated Security
Documents by execution of relevant accession agreements.
<PAGE>
THE THIRD SCHEDULE
Conditions Precedent
A. Corporate Documents
1. In relation to each of SPI, MTS, the Borrower, IFCO Europe and each member
of the Group (a "Member") which is party to a Facility Document:
(a) copies, certified by a director of each such company as being true,
complete and up to date, of the constitutional documents including the
certificate of incorporation or officially certified recent excerpts
from the Commercial Register (Handelsregisterauszug) and articles of
association of such company (or its equivalent in the relevant
jurisdiction);
(b) copies, certified by a director of each of the Borrower, IFCO Europe
and each such company or Member as being true, complete and up to
date, of the necessary resolutions by the shareholders authorising the
execution, delivery and performance of the Facility Documents and the
terms and conditions thereof and authorising a named person or persons
to sign each Facility Document and any documents to be delivered by
the Borrower, IFCO Europe, SPI, MTS or Member (as the case may be)
pursuant thereto; and
(c) a certificate of a duly authorised officer of the Borrower, IFCO
Europe and each such Member or other company, setting out the names
and signatures of the persons authorised to sign, on behalf of such
person each Facility Document to which it is or is to be party and any
document to be delivered by such person pursuant thereto.
2. A copy, certified a true copy by the Borrower on behalf of the Borrower,
IFCO Europe, SPI, MTS and each Group Entity of each such law, decree,
material consent, licence, approval and authorisation as is necessary to
render the Facility Documents legal, valid and binding, to make the
Facility Documents admissible in evidence in its jurisdiction of
incorporation and to enable each of the Borrower, IFCO Europe, SPI, MTS and
the members of the Group to perform its obligations thereunder, and a copy
of each such law, decree, material consent, licence, approval and other
authorisation (other than any corporate authorisations) required to permit
GE to own (beneficially as well as legally) 100% of the shares of IFCO
Europe.
B. Business Plan, Accounts, Supply Agreement and Reports
1. The Business Plan in the agreed form.
2. The Reports.
3. The Supply Agreement together with all annexes thereto showing, inter alia,
that (a) the maximum average price per crate will not, during the time at
which any amount is outstanding hereunder, exceed DM6.10 and (b) the
Borrower has purchased or has an option to purchase the crate manufacturing
tools at a total price not exceeding their current market value.
<PAGE>
4. Where any of the Reports are not addressed to the Agent or any Arranger for
and on behalf of the Beneficiaries from time to time, in each case a
reliance letter from the person who prepared such Report in an agreed form
in favour of the Agent on behalf of the Beneficiaries from time to time.
5. Original Financial Statements, the Financial Statements of the Group for
the Financial Quarter ended 30 September 1997 and the Financial Statements
of the Group for the eleven months ending 30 November 1997, in each case
certified by a Duly Authorised Officer of the Borrower (such certification
to include a confirmation that no material adverse change in the financial
position or operating results of the Group during the period to which those
financial statements relate).
C. Investment Agreement and Related Matters
1. A photocopy of an executed copy, certified by a director of the Borrower
and a duly authorised officer of General Electric Capital Corporation as
true, complete and up to date of the Investment Agreement and the
Contribution Contract.
2. Evidence (in the form of a confirmation from the Borrower and GE) that all
conditions to the Investment have been satisfied without waiver, amendment,
variation or modification.
3. Confirmation from the Borrower and GE in the agreed terms, addressed to the
Agent (on behalf of the Banks) that the Investment has been completed in
accordance with the terms of the Investment Agreement and the Contribution
Contract and that no material right or entitlement of IFCO Europe or GE
(whether to receive documents or otherwise) thereunder has been waived or
modified except with the written consent of the Agent.
4. A certificate from a director of the Borrower certifying that no amendment
(save as previously approved in writing by the Agent) has been made to the
Investment Agreement, the Supply Agreement or the Contribution Contract and
that such documents contain the full agreement of the parties thereto as to
the matters set out therein relating to the Group.
5. A certificate from an Authorised Signatory of the Borrower and each person
granting an Encumbrance hereunder confirming that the constitutional
documents of each of their subsidiaries whose shares are to be pledged
pursuant to the Senior Subordinated Security Documents:
either:
(i) do not contain any provisions allowing the Board of Directors or
shareholders of the relevant subsidiary to refuse the transfer to and
approval and registration of; and
(ii) do not contain any pre-emption rights or other need for approvals of
the transfer to,
any persons as shareholders of the relevant subsidiary pursuant to any
enforcement by the Security Trustee (acting on behalf of the Beneficiaries)
of the security created by the relevant Senior Subordinated Security
Document,
<PAGE>
or
that the relevant shareholders resolutions, consents and approvals have
been obtained to the granting and enforcement of the Encumbrances (and that
no corporate bar therefore exists to the enforcement of the Encumbrances).
6. Confirmation from the Borrowers auditors that at least DM45,000,000 (less
DM300,000 applied in respect of fees incurred in relation to the
Investment) have been invested by GE into IFCO Europe in accordance with
the Investment Agreement and that an amount of at least DM43,700,000 of
such funds so invested by GE has been invested in the Borrower by IFCO
Europe as an additional capital contribution into the capital reserves
(Kapitalrucklage) of the Borrower.
D. Senior Financing Documents
1. Evidence that the aggregate of fully paid in equity capital of the Borrower
is at least DM45,000,000 and that an advance will be made to the Borrower
of DM76,000,000 on the date on which the first Advance will be made
hereunder under the Senior Facility.
2. A certified true, complete copy of the Senior Facility Documents duly
executed by the parties hereto.
E. Security and Priority Documents
1. The following security documents, together with all documents to be
delivered pursuant thereto:
(a) a pledge agreement pledging all shares in the Borrower dated on or
about the date hereof by IFCO Europe;
(b) a pledge agreement (or other similar agreement) by each member of the
Group of all of such member's shares in its subsidiaries (and the
delivery (where appropriate) of Share Certificates for all shares in
such subsidiary endorsed (where necessary) by the relevant Group
Entity in blank to the Agent or an undertaking to deliver such Share
Certificates forthwith to the Agent following their issue) and all
documents ancillary thereto;
(c) a pledge agreement by Mr. Luitpold Roever in favour of the Security
Trustee pledging all shares owned by him in GISO Verwaltungs
Gesellschaft mbH and any other documents ancillary thereto;
(d) a share pledge from each of Mr T Maurer and Mr W Zingg in favour of
the Security Trustee, pledging all shares owned by them in IFCO
(Schweiz) A.G. and the delivery of all relevant share certificates to
the Security Trustee and any other documents ancillary thereto;
(e) a share pledge from MTS Okologiskik GmbH in favour of the Security
Trustee
<PAGE>
pledging all shares owned by it in IFCO International Food Container
Organisation S.r.l (and the delivery (if the Security Trustee
requires) of all share certificates held by it) any other documents
ancillary thereto;
(f) a share pledge from Schoeller Plast Industries GmbH in favour of the
Security Trustee pledging all shares owned by it in IFCO International
Food Container Organisation S.A.S. and the delivery (if the Security
Trustee requires) of all Share Certificates in such company held by it
or on its behalf any other documents ancillary thereto;
(g) an assignment of receivables (including an assignment of all factoring
agreements and leasing agreements) by the Borrower and any other
member of the Group specified by the Agent in accordance with normal
German practice in the form of a Globalzession any other documents
ancillary thereto;
(h) an agreement between SPI, GBL, the Borrower and the Security Trustee
relating to licences granted in relation to the Patent and other
ancillary items.
2. Security in form and substance satisfactory to the Agent over all crates
(including New Crates and any Existing Crates currently encumbered which
are, pursuant to the terms hereof, to be released from such Encumbrance)
owned by the Group (including security in respect of crates held at
depots), the Material Intellectual Property and the Supply Agreement.
3. The Intercreditor Agreement
4. The Security Trust Agreement.
5. Evidence that all existing Encumbrances over the assets or undertakings of
each Group Entity other than Permitted Encumbrances have been released or
discharged (or will be released or discharged on the making of the first
Advance hereunder) and/or transferred to the Security Trustee.
F. Legal Opinions
Legal Opinions of:
(a) lawyers acceptable to the Arranger in relation to the Borrower, IFCO
Europe and each company providing security hereunder.
(b) Clifford Chance in relation to the laws of the Federal Republic of
Germany addressed to the Agent on behalf of the Banks.
G. Miscellaneous
1. Evidence that all fees and reimburseable expenses payable to the Agent, the
Security Trustee, the Arranger and/or the Banks in connection herewith
shall be made out of the first Advance and that all costs in connection
with the Investment have been paid or will be paid out of the proceeds of
the first Advance.
<PAGE>
2. The Hedging Strategy Letter.
3. The fee letters referred to in Clauses 12, 29.1, 29.2 and 30.1.
4. Estimated details of all Transaction Costs certified by a Duly Authorised
Officer of the Borrower.
5. Certified true copies of all of the Services Agreements (or similar
agreement) of Messrs Gerland, Tofflinger and Benz.
6. Information in the form of an update of the report prepared by General
Electric Capital Corporation regarding the installation of Information
Technology Systems within the Group including details of their current
status and the IT Schedule.
7. Evidence that the Existing Indebtedness (other than indebtedness under the
Leasing Agreements) has been cancelled and/or repaid (or will, upon the
making of the first Advance hereunder and under the Senior Facility be
repaid).
8. A letter from the Borrower addressed to the Auditors instructing them to
co-operate with the Agent where the Agent approaches the Auditors for
information regarding any Group Entity following the occurrence of an Event
of Default which is continuing unremedied and unwaived and with the
Borrower having been offered an opportunity to attend any such discussions
and a letter from the Auditors addressed to the Borrower and the Agent
confirming their acceptance of such instructions.
9. A budget showing the forecast monthly profit and loss account for the
financial year beginning 1 January 1998 including confirmation that VAT
treatment is consistent with the advice set out in the Tax Report.
10. A letter from GE Capital Corporation regarding the utilisation of any
payments received by it relating to claims made by it following a breach of
warranty or misrepresentation pursuant to the Investment Agreement in the
prepayment of the Facility.
11. Copies of each of the Material Leasing Agreements.
12. A confirmation letter confirming, inter alia, the extent of External
Finance Leases and that no objections to the European Commission's decision
not to take anti-trust action against the Borrower have been received.
<PAGE>
THE FOURTH SCHEDULE
Notice of Drawdown of Advances
From: IFCO International Food Container Organisation GmbH
To: Barclays Bank PLC
Dear Sirs
1. We refer to the agreement (as from time to time amended, varied, novated
or supplemented, the "Facility Agreement") between, amongst others, IFCO
International Food Container Organisation GmbH as Borrower and you as Agent
dated [ ] whereby a term facility of up to DM35,000,000 was made
available to the Borrower. Terms defined in the Facility Agreement shall have
the same meaning in this notice.
2. We hereby give you notice that, pursuant to the Facility Agreement and
upon the terms and subject to the conditions contained therein, we wish an
Advance to be made to us as follows:
(i) Drawdown Date
(ii) Interest Period.
3. We confirm that subject to the provisions of the Disclosure Letter, at
the date hereof, the representations set out in Clause 19.1 (other than the
representations not required to be repeated pursuant to Clause 19.2) are true in
all material respects and no Event of Default or Potential Event of Default has
occurred and is continuing and has not been waived or would result from the
making of such Advance.
4. The proceeds of this drawdown should be credited to the account of
[ ] numbered [ ] with [ ].
Yours faithfully
...............................
for and on behalf of
IFCO International Food Container Organisation GmbH
<PAGE>
THE FIFTH SCHEDULE
Group Structure Chart
<PAGE>
THE SIXTH SCHEDULE
Existing Indebtedness
Description Amount outstanding as at
19 February 1998
(DM)
*A Pool Indebtedness
Payable to:
*DG Bank Deutsche
Genossenschaftsbank 30,000,000
*Deutsche Bank
Aktiengesellschaft, Munich Branch
24,500,000
*Oldenburgische Landesbank 17,000,000
*Norddeutsche Hypotheken-und
Wechsellbank AG 17,000,000
*B SPS Shareholder Loan
Payable to SPS 37,500,000
C Bardusch Loan
Payable to Bardusch 3,400,000
D Hanover Finanz Loan
Payable to Hanover Finanz 5,000,000
*E Schroder Loan
Payable to:
Schroder, Munchmyer,
Hugst & Co 500,000
----------------
Total: 134,900,000
- --------------------------------------------------------------------------------
* This Indebtedness is to be repaid on the date of the making of the first
Advance hereunder.
<PAGE>
THE SEVENTH SCHEDULE
Material Intellectual Property
Description of Property Owner of Intellectual Property
1. European Patent entitled "Plastic GBL
Container, especially a vegetable
container with hinged sides".
Patent No: 0575594 (Europe).
(European patent application no.
EP93902215 which has now been
granted).
Registered in: Austria, Belgium,
Switzerland, Germany, Denmark,
Sweden, Spain, France, Great
Britain, Greece, Italy, The
Netherlands.
Expiry: 2013
2. International Patent No. GBL
International Patent
PCT/EP93/00091 Registered in
Norway (registered on
02.07.1997), Poland (registered
on 02.08.1996), Russia
(registered on 27.06.1997),
Czech Republic (registered on
18.02.1997) with pending
applications in Slovakian
Republic, Hungary and Ukraine.
Expiry: 2013
3. German Patent Application No. GBL
P4201145.0 (pending)
4. Utility Model (Gebrauchsmuster) GBL
Number: G9321234
Expiry: 17.01.2002 (prolongation
possible)
Country: Germany
5. Utility Model (Gebrauchsmuster) GBL
Number: G92189776
Expiry: 17.01.2000 (prolongation
possible)
Country: Germany
6. Design Protection (Geschmacksmuster) GBL
Number: M92086764
Expiry: 16.11.2002
Country: Germany
<PAGE>
7. Trademarks GBL
IFCO
Registered in Benelux, Denmark,
Germany, Finland, France,
Greece, Great Britain, The
Netherlands, Norway, Austria,
Sweden, Switzerland and Spain
<PAGE>
EXECUTION PAGES
As Borrower
IFCO INTERNATIONAL FOOD CONTAINER ORGANISATION GmbH
By: /s/ GUNTER GERLAND /s/ DR. FRANK TOFFLINGER
Address: Zugspitzstrasse 15
D-8209 Pullach
Germany
Telephone: +49 89 744 91240
Facsimile: +49 89 744 91239
Attention: Dr Frank Tofflinger
Copy Notices: Martin and Christoph Schoeller (Fax No: +4989 744 91298)
As IFCO Europe
IFCO EUROPE BETEILIGUNGS-GmbH
By: /s/ MARTIN SCHOELLER
Address: Zugspitzstrasse 15
D-8209 Pullach
Germany
Telephone: +49 89 744 91240
Facsimile: +49 89 744 91239
Attention: Dr Frank Tofflinger
Copy Notices: Martin and Christoph Schoeller (Fax No: +4989 744 91298)
The Security Trustee
BHF BANK AKTIENGESELLSCHAFT
By: /s/ GERD P. BIEDING /s/ SIBYLLE BACH
Address: Berliner Handels und Frankurter Bank
Bockenheimer Landstrasse 10
60323 Frankfurt am Main
Germany
Telephone: +49 69 718 2644
Facsimile: +49 69 718 4480
Attention: Dr P Koch
<PAGE>
The Agent
BARCLAYS BANK PLC
By: /s/ TIM TAYLOR
Address: Bockenheimer Landstrasse 38-40
60323 Frankfurt am Main
Telephone: + 4969 7161 1862
Facsimile: + 4969 7161 1889
Attention: Rolf-Peter Ruoff/Diva Cortellini
The Arranger
BARCLAYS CAPITAL
By: /s/ TIM TAYLOR
Address: 5 The North Colonnade
Canary Wharf
London E14 4BB
Telephone: +44 171 773 2358
Facsimile: +44 171 773 4894
Attention: Tim Taylor
The Banks
BARCLAYS BANK PLC
By: /s/ TIM TAYLOR
Address: Bockenheimer Landstrasse 38-40
60323 Frankfurt am Main
Telephone: + 4969 7161 1862
Facsimile: + 4969 7161 1889
Attention: Rolf-Peter Ruoff/Diva Cortellini
<PAGE>
EXHIBIT 10.6
CONFORMED COPY
INTERCREDITOR AGREEMENT
between
BHF BANK AKTIENGESELLSCHAFT
as Senior Agent and Security Trustee
THE SENIOR LENDERS
named herein
BARCLAYS BANK PLC
as Senior Subordinated Agent
THE SENIOR SUBORDINATED LENDERS
named herein
and
OTHERS
Clifford Chance
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Clause Page No.
<S> <C>
1. Interpretation and Definitions...................................... 2
2. Consent to the Finance Documents.................................... 6
3. Ranking (Schuldrechtliche Rangvereinbarung)......................... 6
4. Undertakings of the Senior Subordinated Agent and the Senior
Subordinated Lenders................................................ 6
5. Undertakings in respect of the Hedging Liabilities.................. 7
6. Undertakings in respect of the Senior Liabilities................... 8
7. Consents and Entrenched Provisions.................................. 9
8. The Hedging Liabilities............................................. 10
9. Permitted Payments.................................................. 10
10. Subordination (Rangrucktrittsvereinbarung).......................... 12
11. Enforcement (Durchsetzung der Anspruche und Verwertung
der Sicherheiten)................................................... 15
12. Appropriation (Anrechnung der erhaltenen Zahlungen)................. 18
13. Amendments (Anderungen)............................................. 19
14. Notices (Mitteilungen).............................................. 19
15. Miscellaneous....................................................... 20
16. Assignments and Transfers (Abtretungen, Schuldubernahme oder
Vertragsubernahme).................................................. 21
17. Transfers of Senior Liabilities to the Senior Subordinated Lenders.. 21
18. The Security Trustee................................................ 22
19. Governing Law (Rechtswahl).......................................... 22
20. Jurisdiction (Gerichtsstand)........................................ 23
SCHEDULE I
Form of Accession Agreement.............................................. 24
</TABLE>
<PAGE>
THIS INTERCREDITOR AGREEMENT is made the 20th day of February 1998
BETWEEN:-
(1) BHF BANK AKTIENGESELLSCHAFT as agent for the Senior Lenders under the
Senior Facility Agreement (the "Senior Agent") and as security agent and
security trustee (Treuhander) for the Beneficiaries (in this capacity, the
"Security Trustee");
(2) THE FINANCIAL INSTITUTIONS whose names are set out as Initial Senior
Lenders on the execution pages to this Agreement (the "Initial Senior Lenders");
(3) BARCLAYS BANK PLC as agent for the Senior Subordinated Lenders under the
Senior Subordinated Facility Agreement (the "Senior Subordinated Agent"); and
(4) THE FINANCIAL INSTITUTION whose name is set out as initial mezzanine lender
on the execution pages to this Agreement (the "Initial Senior Subordinated
Lender");
WHEREAS:
(A) By a senior facility agreement (the "Senior Facility Agreement") dated on
or about the date hereof made between, inter alia, the Senior Agent, the
Security Trustee, the Senior Lenders and IFCO International Food Container
Organisation GmbH (the "Borrower"), the Senior Lenders have agreed to make
available to the Borrowers term and revolving, loan facilities of such amounts
and on the terms referred to in the Senior Facility Agreement for the purposes
therein mentioned.
(B) A Bank or Banks (as the terms are defined in the Senior Facility Agreement)
have agreed to or may enter into interest rate and/or currency hedging
agreements with the Borrower pursuant to and in accordance with the original
terms of the Agreed Hedging Strategy (such agreements together with any
additional agreements entered into by the Borrower in accordance with the
original terms of the Agreed Hedging Strategy being hereinafter referred to as
the "Hedging Agreements").
(C) By a senior subordinated facility agreement (the "Senior Subordinated
Facility Agreement") dated on or about the date hereof made between, inter alia,
the Senior Subordinated Agent, the Security Trustee, the Initial Senior
Subordinated Lender and the Borrower, the Initial Senior Subordinated Lender has
agreed to make available to the Borrower (as defined therein) a mezzanine loan
facility of such amount and on the terms referred to in the Senior Subordinated
Facility Agreement for the purposes therein mentioned.
(D) Pursuant to the Security Documents, security (the "Security") is to be
granted in favour of the Security Agent as trustee and/or in favour of the
Beneficiaries as security for the obligations of the Borrower under the Finance
Documents.
(E) It has been agreed between the parties hereto that the claims of the
Beneficiaries against the Borrower under the Facility Agreements and the
<PAGE>
2
Security Documents and the claims of each of the Hedge Counterparties under the
Hedging Agreements shall be regulated and/or subordinated in the manner set out
herein.
NOW THIS AGREEMENT WITNESSETH and IT IS HEREBY AGREED AND DECLARED as follows:
1. Interpretation and Definitions
1.1 In this Agreement:
"Agreed Hedging Strategy" means the approved and agreed hedging strategy
contained in the Hedging Strategy Letter (as defined in the Senior Facility
Agreement);
"Accession Agreement" means an accession agreement substantially in the form set
out in Schedule I executed or to be executed by a person intending to become a
party hereto;
"Beneficiaries" means each of the Beneficiaries as defined in the Security Trust
Agreement and their respective successors, assigns and transferees from time to
time;
"Facility Agreements" means the Senior Facility Agreement and the Senior
Subordinated Facility Agreement and "Facility Agreement" shall mean either of
them;
"Finance Documents" means the Senior Facility Documents, the Senior Subordinated
Facility Documents and the Hedging Agreements;
"Hedge Counterparties" means each of the Banks (as that term is defined in each
of the Facility Agreements) which enters into a Hedging Agreement with the
Borrower and delivers an Accession Agreement to the Security Trustee;
"Hedging Liabilities" means all present and future sums, liabilities and
obligations whatsoever (actual or contingent) payable, owing, due or incurred by
the Borrower to any Hedge Counterparty pursuant to the terms of any Hedging
Agreement together with all Related Liabilities in relation thereto, as
determined by the relevant Hedge Counterparty and agreed by the Senior Agent
(or, after the Senior Discharge Date, the Senior Subordinated Agent) at any
given time;
"Lenders" means the Senior Lenders, the Hedge Counterparties and the Senior
Subordinated Lenders;
"Liabilities" means the Senior Liabilities and the Senior Subordinated
Liabilities;
"Majority Lenders" means, until the Senior Discharge Date, the Majority Senior
Lenders and, after the Senior Discharge Date, the Majority Senior Subordinated
Lenders;
"Majority Senior Subordinated Lenders" means an Instructing Group as defined in
the Senior Subordinated Facility Agreement;
<PAGE>
3
"Majority Senior Lenders" means an Instructing Group as defined in the Senior
Facility Agreement;
"Material Variation" in relation to each of the Senior Facility Documents and
the Senior Subordinated Facility Documents means:-
(i) increases in or a change in the basis on which interest accrues or is
payable (not being, for the avoidance of doubt, fluctuations of FIBOR) not
provided for by the original terms of the relevant document;
(ii) alterations of the provisions relating to the amounts or currency or dates
of repayment or prepayment;
(iii) increases in the maximum commitments or principal amounts capable of being
outstanding thereunder as at the date hereof,
(iv) changes in the basis on which fees, commissions or other like payments are
made or calculated (other than, for the avoidance of doubt, an increase in the
amount of any fees payable to the Senior Agent or the Senior Subordinated Agent
of up to DM1OO,000 per annum for each such agent following the occurrence of a
Senior Default or Senior Subordinated Default (as the case may be);
(v) any amendment, variation or supplement whereby the Borrower becomes liable
to make an additional payment (or increase an existing payment) not provided for
by the original terms of the relevant document;
(vi) any amendment, variation, waiver or release of or supplement in a manner
whereby the ranking and/or subordination arrangements provided for herein are
adversely affected; and
(vii) amendments, variations or supplements to the representations, covenants
and/or events of default other than those which do not impose any additional
obligations on any Group Entity;
"Postponed Senior Liabilities" means any Senior Liabilities (and Related
Liabilities relating thereto (other than as referred to in the further proviso
in Clause 6.1)) which do not have priority over the Senior Subordinated
Liabilities by reason of Clause 6.1.
"Related Liabilities" in relation to any of the Liabilities means:
(i) any refinancing, novation (other than pursuant to transfer certificates
permitted by the Senior Facility Documents or the Senior Subordinated Facility
Documents), refunding, deferral or extension of any of those liabilities;
(ii) any further advance which may be made under any agreement supplemental to
the relevant facilities agreement plus all interest, fees and costs in
connection therewith;
(iii) any claim for damages or restitution in the event of rescission of any
such liabilities or otherwise in connection with the relevant facilities
agreement;
<PAGE>
4
(iv) any claim against the Borrower flowing from any recovery by the Borrower of
a payment or discharge in respect of those liabilities on the grounds of
preference or otherwise; and
(v) any amounts (such as post-insolvency interest) which would be included in
any of the above but for any discharge, non-provability, unenforceability or
non-allowability of the same in any insolvency or other proceedings;
"Security Documents" means each of the Senior Security Documents (as that term
is defined in the Senior Facility Agreement) and the Senior Subordinated
Security Documents (as that term is defined in the Senior Subordinated Facility
Agreement);
"Security Trust Agreement" means the security trust agreement entered into on or
about the date hereof between, inter alia, the Beneficiaries, the Borrower, IFCO
Europe and the Security Trustee;
"Senior Discharge Date" means the date on which the Senior Liabilities (other
than the Postponed Senior Liabilities) have been repaid in full and all
commitments in respect thereof have been cancelled;
"Senior Default" means any event specified as an event of default in Clause 30.1
of the Senior Facility Agreement;
"Senior Facility Documents" shall have the meaning ascribed to the term
"Facility Documents" in the Senior Facility Agreement;
"Senior Lenders" means each Initial Senior Lender and any other Bank to whom any
Senior Liabilities become outstanding provided that such Bank has acceded to
this Agreement in accordance with Clause 16;
"Senior Liabilities" means all present and future sums, liabilities and
obligations whatsoever (actual or contingent) payable, owing, due or incurred by
the Borrower to any of the Beneficiaries under the Senior Facility Documents
together with all Related Liabilities in relation thereto (which, in the case of
the Hedging Agreements, shall be determined by the relevant Hedge Counterparty
and agreed by the Senior Agent at any given time);
"Senior Subordinated Beneficiaries" means each of the Beneficiaries as defined
in the Senior Subordinated Facility Agreement and their respective successors,
assigns and transferees from time to time;
"Senior Subordinated Default" means any event specified as an event of default
in Clause 23 of the Senior Subordinated Facility Agreement;
"Senior Subordinated Discharge Date" means the date on which all Senior
Subordinated Liabilities have been fully paid and discharged to the reasonable
satisfaction of the Senior Subordinated Agent, whether or not as a result of
enforcement;
"Senior Subordinated Facility Documents" shall have the meaning ascribed to the
term "Facility Documents" in the Senior Subordinated Facility Agreement;
<PAGE>
5
"Senior Subordinated Lenders" means each Initial Senior Subordinated Lender and
any other Bank (as defined in the Senior Subordinated Facility Agreement) to
whom any Senior Subordinated Liabilities become outstanding Provided that such
Bank has acceded to this Agreement in accordance with Clause 16; and
"Senior Subordinated Liabilities" means all present and future sums, liabilities
and obligations whatsoever (actual or contingent) payable, owing, due or
incurred by the Borrower to any of the Senior Subordinated Beneficiaries under
the Senior Subordinated Facility Documents together with all Related Liabilities
in relation thereto.
1.2 Unless the context or the express provisions of this Agreement otherwise
require:
(i) words importing the singular shall include the plural and vice versa;
(ii) references herein to any act or statute shall include any modification
extension or reenactment thereof for the time being in force and shall also
include all instruments, orders, plans, regulations, permissions and directions
at any time deriving validity therefrom;
(iii) references herein to all or any documents shall be construed as
references to those documents as the same may have been or may be from time to
time amended, supplemented or novated in accordance with their terms and, if
appropriate, the terms of this Agreement;
(iv) any reference herein to a person shall include a company, partnership or
unincorporated association;
(v) headings shall be ignored for the purposes of interpretation;
(vi) references herein to a party, shall be construed so as to include their
respective successors in title, transferees and assigns and (where applicable)
to any replacement or additional trustee or agent as permitted by and in
accordance with the document governing the rights and obligations of such party
and subject to the applicable terms hereof;
(vii) references to a "Clause" or "Schedule" shall, subject to any contrary
indication, be construed as a reference to a clause hereof or schedule hereto;
(viii) references to a "security interest" shall be construed as a reference to
a mortgage, charge (whether legal or equitable), pledge, lien, hypothecation or
other security interest of any kind whatsoever securing any obligation of any
person or any other type of preferential arrangement (including, without
limitation, title transfer and retention arrangements (other than those entered
into in the ordinary course of trading), sale and leaseback, sale and purchase
or deferred purchase arrangements and the discounting or factoring of
receivables on recourse terms) having a similar effect or any other arrangement
having substantially the same economic effect as any of the foregoing; and
(ix) references to "assets" shall include properties and revenues.
<PAGE>
6
1.3 Terms defined or to which a meaning is ascribed in the Senior Facility
Agreement shall, unless otherwise defined herein or unless the context
otherwise requires, bear the same meaning herein.
2. Consent to the Finance Documents
Subject to the terms of this Agreement, each of the parties hereto, for all
purposes, hereby consents to the entering into and performance of the Finance
Documents by the parties thereto.
3. Ranking (Schuldrechtliche Rangvereinbarung)
3.1 Each of the Senior Agent, the Senior Subordinated Agent and the Lenders
hereby agrees, subject and without prejudice to the security constituted by
their respective security documents, and the Security Trustee acknowledges that
the Senior Liabilities (other than the Postponed Senior Liabilities) shall rank
pari passu between themselves and, whether secured or unsecured, shall rank in
priority to the Senior Subordinated Liabilities and that the Senior Subordinated
Liabilities shall rank in priority to the Postponed Senior Liabilities.
3.2 Save as otherwise provided herein the priorities referred to in Clause 3.1
will not be affected by any reduction or increase in the principal amount
secured by the Security made in accordance with the terms hereof or the original
terms of the Finance Documents or by any intermediate release of, reduction or
increase in, amendment or variation to any of the Finance Documents made in
accordance with the terms hereof or the original terms of the Finance Documents
or by any variation to, or satisfaction of, any of the Liabilities or any other
circumstances made in accordance with the terms hereof or the original terms of
the Finance Documents.
3.3 The provisions of Clause 3.1 above shall apply notwithstanding the order
in which or dates upon which the Finance Documents and this Agreement are
executed or any of them are registered or notice of them is given to any person
and shall apply regardless of the date upon which the relevant liabilities arise
and of whether any relevant Lender is obliged to advance monies included in the
relevant Liabilities and regardless of any fluctuations in the amount of any
relevant Liabilities outstanding.
3.4 If under the terms of any of the Finance Documents any assets or the
proceeds from any sale, conveyance, transfer or assignment of assets (whether or
not the subject of the security constituted by the Security Documents) or any
part thereof are required to be applied in mandatory prepayment of the
Liabilities then the prior written consent of none of the Lenders shall be
required for such application and such proceeds shall be applied in or towards
payment of the Liabilities in accordance with the terms of the Facility
Agreements and this Agreement.
4. Undertakings of the Senior Subordinated Agent and the Senior Subordinated
Lenders
4.1 Each of the Senior Subordinated Agent and the Senior Subordinated Lenders
undertakes that it will not, prior to the Senior Discharge Date, unless the
Senior Agent (acting on the instructions of the Majority Lenders)
<PAGE>
7
otherwise previously consents in writing (and subject to the right to take any
action permitted under Clause 11):
(i) permit or require the Borrower to pay, prepay, redeem, purchase, defease
or otherwise acquire or satisfy in any manner (including by set-off or
combination of accounts) the whole or any part of the Senior Subordinated
Liabilities otherwise than pursuant to Clause 9.1 (except that the Senior
Subordinated Agent may, following the occurrence of a Senior Subordinated
Default, exercise any right it may have to accelerate the Borrower's obligations
in respect of the Senior Subordinated Liabilities to the extent permitted under
Clause 11);
(ii) (other than under the Security Documents) take, accept or receive (unless
beyond its control) the benefit of any security interest, guarantee, indemnity
or other assurance against financial loss in respect of the Senior Subordinated
Liabilities from the Borrower, IFCO Europe or other member of the Group unless
(a) first or at the same time there is conferred on the Senior Lenders and the
Hedge Counterparties the benefit (ranking first in point of security ) of such
security interest, guarantee, indemnity or other assurance against financial
loss in such manner and such form as the Senior Agent may require or (b) the
Senior Agent shall have declined (acting on the instructions of the Majority
Lenders) to take the benefit of such security interest, guarantee, indemnity or
other assurance against financial loss and shall have notified such decision to
the Senior Subordinated Agent in writing and in any event (c) the Senior Agent
shall have received a legal opinion (obtained at the expense of the Borrower or,
to the extent the Borrower is not able to fund such expense, the Senior
Subordinated Lenders) in form and substance satisfactory to the Senior Agent
stating that the security interests constituted by the Security Documents and
the ranking created hereby will not thereby be prejudiced;
(iii) expressly agree to any Material Variation to the Senior Subordinated
Facility Documents or incur any Related Liabilities referred to in sub-
paragraphs (i) and (ii) of the definition thereof; or
(iv) take or omit to take any action whereby the subordination contemplated by
this Agreement may be impaired.
4.2 The Senior Subordinated Agent shall, promptly upon becoming aware of the
same, notify the Senior Agent of the occurrence of a Senior Subordinated
Default.
4.3 The Senior Subordinated Agent will co-operate with the Senior Agent with a
view to reflecting the priority of the security conferred by the Security
Documents in any register or with any filing or registration authority and in
giving notice to insurers, debtors liable for receivables covered by the
Security Documents and other persons.
5. Undertakings in respect of the Hedging Liabilities
5.1 Each of the Hedge Counterparties undertakes that it will not, unless the
Majority Senior Lenders and the Majority Senior Subordinated Lenders otherwise
consent in writing:
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8
(i) take, accept or receive the benefit of any security interest, guarantee,
indemnity or other assurance against financial loss in respect of the Hedging
Liabilities except pursuant to the Senior Security Documents (as defined in the
Senior Facility Agreement) or with the consent of the Senior Agent and the
Senior Subordinated Agent (acting reasonably) where the security constituted by
the Security Documents would not otherwise extend to the Hedging Liabilities; or
(ii) agree to any amendment, supplement or novation (other than an amendment of
a minor or technical nature) in the terms of the Hedging Agreements.
5.2 If the Senior Discharge Date would have occurred on any date but for the
fact that the Hedging Liabilities only remain outstanding, all outstanding
hedging transactions under the Hedging Agreements in relation to any Hedge
Counterparty shall automatically terminate on that date unless the Senior
Subordinated Agent agrees to the contrary.
5.3 Each Hedge Counterparty will provide to the Security Trustee, the Senior
Agent and the Senior Subordinated Agent copies of all documents constituting the
Hedging Agreements as soon as reasonably practicable.
6. Undertakings in respect of the Senior Liabilities
6.1 Each of the Senior Agent, the Senior Lenders, the Senior Subordinated
Agent and the Senior Subordinated Lenders agrees with each other that subject as
provided below unless the Majority Lenders and the Majority Senior Subordinated
Lenders otherwise consent in writing, neither the Senior Agent, the Senior
Lenders nor any of them will agree to any Material Variation (falling within
paragraphs (i) to (v) of the definition of "Material Variation") to the Senior
Facility Agreement or permit any Related Liabilities referred to in sub-
paragraphs (i) and (ii) of the definition thereof to arise (except for any
capitalisation (or lump sum damages) of or in respect of accrued interest)
Provided that, following the occurrence of a Senior Default which either
consists of a failure to pay an amount due to be paid under the Senior Facility
Documents or has been certified by the Senior Agent (acting on the instructions
of the Majority Senior Lenders) as being material in the opinion of the Majority
Senior Lenders, the Senior Lenders and the Senior Agent may agree to such a
Material Variation or permit such a Related Liability to arise to the extent
that the same consists of an increase in the maximum commitment or principal
amount capable of being outstanding thereunder provided that the aggregate
amount of any such increases does not exceed an amount equal to 10% of the
amount of such commitment or principal amount at the date hereof (or, where any
amortisations have actually been made at such time, 10% of the amount of the
commitment after the receipt of such amortisation amounts) plus interest and
commission thereon at the same rate as applicable under the original terms of
the Senior Facility Agreement. It is hereby understood that any breach of the
provisions of this Clause by the Senior Agent or the Senior Lenders shall result
in any increased amount of the Senior Liabilities being ranked, for all purposes
of this Agreement and the Security Documents, immediately behind the Senior
Subordinated Liabilities and the other Senior Liabilities PROVIDED FURTHER THAT
the Senior Agent and the Senior Lenders shall be permitted to extend the date on
which any principal amount is to be paid under the Senior Facility Agreement
provided that it is not extended beyond the Final Maturity Date.
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9
6.2 Each of the Senior Agent and the Senior Lenders undertakes that it will
not, prior to the Senior Subordinated Discharge Date, unless the Majority Senior
Subordinated Lenders otherwise consent in writing:
(i) permit or require the Borrower to pay, repay, prepay, redeem, purchase or
otherwise acquire any of the Postponed Senior Liabilities.
(ii) (other than under the Security Documents executed in favour of the
Security Trustee) take, accept or receive (unless beyond its control) the
benefit of any security interest, guarantee, indemnity or other assurance
against financial loss in respect of the Postponed Senior Liabilities (from the
Borrower, IFCO Europe or any other member of the Group) unless (a) first or at
the same time there is conferred on the Senior Subordinated Lenders the benefit
(ranking first in point of security) of such security interest, guarantee,
indemnity or other assurance against financial loss in such manner and such form
as the Senior Subordinated Agent may require or (b) the Senior Subordinated
Agent shall have declined to take the benefit of such security interest,
guarantee, indemnity or other assurance against financial loss and shall have
notified such decision to the Senior Agent in writing and in any event (c) the
Senior Subordinated Agent shall have received a legal opinion in form and
substance satisfactory to the Senior Subordinated Agent stating that the
security interests constituted by the Security Documents and the ranking created
hereby will not thereby be prejudiced;
(iii) discharge or seek to discharge all or any part of the Postponed Senior
Liabilities by set-off, any right of combination of accounts or otherwise; or
(iv) take or omit any action whereby the ranking contemplated of the Postponed
Senior Liabilities by this Agreement may be impaired.
Provided that nothing in this Clause 6.2 shall prevent any enforcement of the
Security Documents by or on behalf of the Senior Agent and/or the Senior
Lenders.
6.3 Subject to the foregoing, the Senior Agent and the Senior Lenders, shall
be entitled to agree to an amendment, supplement or novation to the Senior
Facility Documents without prejudicing the priority created hereby.
6.4 The Senior Agent shall promptly upon becoming aware of the same notify the
Senior Subordinated Agent of the occurrence of a Senior Default.
7. Consents and Entrenched Provisions
7.1 If the Security Trustee, the Senior Agent or the Senior Lenders (as the
case may be) or, after the Senior Discharge Date, the Security Trustee, the
Senior Subordinated Agent or the Senior Subordinated Lenders:
(i) grants any consent, release, approval or waiver to the Borrower, IFCO
Europe or any Group Entity pursuant to the terms of any of the Finance
Documents;
(ii) makes any determination under, or agrees any amendment, supplement or
novation to, any of the Finance Documents; or
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10
(iii) waives any Senior Default or, after the Senior Discharge Date, any Senior
Subordinated Default;
then the Hedge Counterparties shall give or make (and to the extent possible
shall be deemed to have given or made), at the same time, a corresponding
consent, release, approval, determination, amendment, supplement, novation or
waiver, in each case in equivalent terms, for the purposes of the Finance
Documents to which they are a party and shall not be permitted to object to any
such action by the Senior Agent, the Security Trustee, the Senior Lenders, the
Senior Subordinated Agent or the Senior Subordinated Lenders (as the case may
be), or the Borrower, IFCO Europe or other Group Entity doing anything in
accordance with such action by the Senior Agent, the Security Trustee, the
Senior Lenders, the Senior Subordinated Agent or the Senior Subordinated Lenders
(as the case may be), by virtue of anything in the Finance Documents and shall
do all such things and execute or procure the execution of all such documents as
the Senior Agent or the Senior Subordinated Agent (as the case may be) may
reasonably require to give effect to the terms of this Clause.
7.2 None of the Senior Agent, the Security Trustee, the Senior Lenders, the
Senior Subordinated Agent or the Senior Subordinated Lenders (as the case may
be) shall be liable for any consent, release, approval, determination,
amendment, supplement, novation or waiver or other action given or taken under
Clause 7.1 to any of the Lenders or any other person.
8. The Hedging Liabilities
Subject to Clause 11, and for so long as the Senior Liabilities (other than the
Hedging Liabilities) are outstanding, from and after the date hereof no Hedge
Counterparty nor any person on their behalf or appointed by any of them will
discharge, sue for or institute legal proceedings to recover all or any part of
the Hedging Liabilities nor petition or apply for or vote in favour of any
resolution for the winding-up, dissolution, administration of or voluntary
arrangement (Vergleich) in relation to the Borrower, IFCO Europe or any member
of the Group.
9. Permitted Payments
9.1 (i) Subject to (ii) and (iii) below, the Borrower may pay a Senior
Subordinated Liability and the Senior Subordinated Agent may receive for the
benefit of the Senior Subordinated Lenders payment of a Senior Subordinated
Liability to the extent that the payment or receipt is a payment or receipt of
interest, fees and expenses, and/or a payment, or receipt in respect of tax
gross-ups and other indemnities under the Senior Subordinated Facility Agreement
(except to the extent that any such indemnity payment or receipt would
constitute a payment or receipt of principal) or a payment made pursuant to
Clause 17 of the Senior Subordinated Facility Agreement and in any case, is made
in accordance with the terms of the Senior Subordinated Facility Documents as at
the date hereof (or as amended otherwise than in breach of Clause 4).
(ii) If:
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11
(a) a Senior Default has occurred due to the non-payment of principal, interest
fees, expenses, costs or other amounts (other than in respect of a Postponed
Senior Liability) (a "Senior Payment Default") the Senior Agent shall promptly
notify the Senior Subordinated Agent thereof and thereafter the Senior Agent,
acting on the instructions of the Majority Senior Lenders, may (and if
instructed by the Majority Senior Lenders, shall) serve a written notice
(together with any notice under Clause 9. 1 (iii), a "Stop Notice") on the
Senior Subordinated Agent and the Borrower specifying, such Senior Payment
Default and suspending permitted payments; or
(b) the Senior Agent has declared the Senior Liabilities due and payable or
otherwise accelerated payment of the Senior Liabilities,
then (following service of such Stop Notice or the making of such declaration or
acceleration) no payments may be made in respect of any Senior Subordinated
Liability until either:
(1) the Senior Payment Default has been remedied or waived by or on behalf of
the Majority Senior Lenders in writing or has ceased to exist; or
(2) the Senior Agent, acting on the instructions of the Majority Senior
Lenders, has by notice in writing to the Senior Subordinated Agent and the
Borrower cancelled the Stop Notice; or
(3) the Senior Agent, acting on the instructions of the Majority Senior
Lenders, has cancelled or withdrawn its declaration or other premature
acceleration.
(iii) If any other Senior Default has occurred which the Senior Agent (acting on
the instructions of the Majority Senior Lenders) certifies in the relevant
notice to be material in the opinion of the Majority Senior Lenders, for a
period of 180 days from receipt by the Senior Subordinated Agent of a written
notice in respect thereof, no payments may be made in respect of any Senior
Subordinated Liability unless:
(a) such Senior Default has been remedied or waived by or on behalf of the
Majority Senior Lenders in writing or has ceased to exist; or
(b) the Senior Agent, acting on the instructions of the Majority Senior
Lenders, has by notice in writing to the Senior Subordinated Agent and the
Borrower cancelled the Stop Notice; or
(c) the Senior Discharge Date has occurred.
(iv) No more than one Stop Notice in relation to any Senior Default other than
a Senior Payment Default may be served in any consecutive 365 day period and no
Stop Notice may be delivered in relation to any Senior Default (other than a
Senior Payment Default) more than 30 days after the Senior Agent becomes
actually aware of such Senior Default.
(v) No Senior Default (other than a Senior Payment Default) that existed or
was continuing on the date of service of any Stop Notice will be, or can be
made, the basis for the service of a subsequent Stop Notice, unless such
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12
default has been cured or waived for a period of not less than 90 consecutive
days subsequent to the date of service of the first Stop Notice.
9.2 The failure to make a payment under the Senior Subordinated Facility
Documents by reason of any provision of this Agreement shall not be construed as
preventing the occurrence of a Senior Subordinated Default and the provisions of
this Clause 9 shall not prevent the Senior Subordinated Agent and/or the Senior
Subordinated Lenders taking any action permitted under Clause 11.
9.3 It is expressly agreed as between the Borrower and the Senior Subordinated
Lenders that the obligation to make any payment under the Senior Subordinated
Facility Documents not permitted to be paid under this Clause shall continue and
that default interest (or, insofar as it relates to unpaid interest, lump sum
damages) shall accrue thereon in accordance with the provisions of the Senior
Subordinated Facility Documents. Any interest (or lump sum damages) so accrued
may only be paid in accordance with the provisions of this Clause 9.
9.4 If at any time whilst the Senior Liabilities or, after the Senior
Discharge Date, the Senior Subordinated Liabilities are or may be outstanding:
(i) any Senior Subordinated Lender receives a payment or distribution in cash
or in kind of, or on account of, any of the Senior Subordinated Liabilities not
permitted by Clause 9. 1, as the case may be, or made in accordance with Clause
12; or
(ii) the Borrower makes any payment or distribution in cash or in kind on
account of the purchase or other acquisition of any of the Senior Subordinated
Liabilities,
the receiving Senior Subordinated Lender will forthwith pay any and all such
amounts to the Security Trustee (Treuhander) for application in accordance with
Clause 12.
10. Subordination (Rangrucktrittsvereinbarung)
10.1 Notwithstanding the terms of the Finance Documents it is agreed that:
(i) all amounts payable under the Finance Documents; and
(ii) any payment or distribution of any kind or character, whether in cash,
securities or other property which is payable or deliverable upon or with
respect to any of the Liabilities or any part thereof by IFCO Europe or any
Group Entity or its estate or any liquidator, receiver or like officer
consequent upon its winding-up
shall, unless otherwise stipulated in this Agreement, forthwith be paid or
delivered direct to the Security Trustee and shall be held by the Security
Trustee upon trust for application in accordance with Clause 12 PROVI]DED THAT
until the service of a notice under Clause 30. 1 (b) of the Senior Facility
Agreement in accordance with the terms of the relevant Facility Documents
payments in respect of the Senior Liabilities and (to the extent permitted under
the other terms hereof) the Senior Subordinated Liabilities shall
<PAGE>
13
continue to be made in accordance with the terms of the relevant Finance
Documents.
10.2 If:
(i) any distribution, division or application, partial or complete, voluntary
or involuntary, by operation of law or otherwise, of all or any part of the
assets of any Material Group Entity or IFCO Europe occurs by reason of the
liquidation, dissolution or other winding-up of such Material Group Entity (or
IFCO Europe) or its businesses (or its equivalent in any other applicable
jurisdiction) or any sale, receivership, or other insolvency proceeding
(Konkurs) or assignment for the benefit of creditors or any analogous
proceedings; or
(ii) IFCO Europe or any Material Group Entity goes into liquidation or becomes
subject to any insolvency or rehabilitation proceeding (Konkurs),
administration, or voluntary arrangement (Vergleich) or any analogous
proceedings (which in any such case would be a Senior Default),
then and in any such event:
(a) the Senior Subordinated Liabilities shall be postponed and subordinated to
the Senior Liabilities (other than the Postponed Senior Liabilities);
(b) any payment or distribution of any kind or character and all and any rights
in respect thereof, whether in cash, securities or other property which is
payable or deliverable upon or with respect to the Senior Subordinated
Liabilities and the Senior Liabilities or any part thereof by the liquidator,
administrator, administrative receiver or receiver (or the equivalent thereof)
of such Group Entity (or, where applicable, IFCO Europe) or its estate shall
forthwith be paid or delivered to the Security Trustee (Treuhander) for
application in accordance with Clause 12; and
(c) if the trust referred to in Clause 10.1 fails or cannot be given effect to
the Senior Lenders and the Senior Subordinated Lenders will pay an amount equal
to such payment or distribution received by it (net of reasonable costs and
expenses of making such payment) to the Security Trustee (Treuhander) for
application in accordance with Clause 12.
10.3 (i) Each of the Lenders irrevocably authorises and empowers the Security
Trustee to demand, sue and prove for, collect and receive every payment or
distribution referred to in Clause 10.2(b) and give acquittance therefor and to
file claims and take such other proceedings, in the Security Trustee's own name,
the name of the relevant Lender, or otherwise as the Security Trustee may deem
necessary or advisable for the enforcement of the provisions of this Agreement
or otherwise to ensure the payment of debts in accordance with the priorities
set out herein.
(ii) The Lenders will execute or procure the execution of and deliver to the
Security Trustee such powers of attorney, assignments or other instruments as
may reasonably be requested by the Security Trustee in order to enable the
Security Trustee to enforce any and all claims upon or with respect to the
Senior Liabilities, the Senior Subordinated Liabilities or any part thereof and
to collect and receive any and all payments or distributions which may be
<PAGE>
14
payable or deliverable at any time upon or with respect to any of such
Liabilities or any part thereof to the extent that the relevant Lender has
failed to comply with its obligations hereunder after being requested to do so
by the Security Trustee, and the Security Trustee and/or the Senior Lenders and,
after the Senior Discharge Date, the Senior Subordinated Lenders have a claim on
the amount represented by such payment or distribution.
(iii) The liquidator or other insolvency representative or trustee of the
Borrower or its estate is authorised to apply any assets or moneys received by
him in accordance with the terms of this Agreement or as instructed by the
Security Trustee.
(iv) Without prejudice to the foregoing provisions of this Clause or any other
provision hereof, nothing in this Agreement shall inhibit any of the Lenders
from claiming or proving in the liquidation of the Borrower for the amount of
the Senior Liabilities or the Senior Subordinated Liabilities owing to them.
10.4 (i) If any amounts described in Clause 10.2(b) are received by any of the
Lenders or any person acting on their behalf with respect to the Senior
Liabilities, the Senior Subordinated Liabilities or any part thereof, the
relevant Lender(s) (or person acting on their behalf as aforesaid) will for so
long as any of the Senior Liabilities and, after the Senior Discharge Date, the
Senior Subordinated Liabilities and the Postponed Senior Liabilities are or may
be outstanding forthwith pay (and pending such payment shall hold the same on
trust for the Security Trustee for the purpose hereof) an amount equal to the
amount received by such Lender (net of reasonable costs and expenses of making
such payment) to the Security Trustee to be held on trust and to be applied in
accordance with the terms of Clause 12.
(ii) If, following the occurrence of any of the events specified in Clause
10.2(i) or (ii) the Senior Liabilities or the Senior Subordinated Liabilities
are discharged in whole or in part by a set-off, the Lender receiving the
benefit of such set-off will forthwith pay (and, in each case, pending such
payment shall hold the same on trust for the Security Trustee for the purpose
hereof) an amount equal to the amount of the relevant Liabilities discharged by
the set-off (net of reasonable costs and expenses of making such payments or
effecting, such set-off) to the Security Trustee to be held on trust and to be
applied in accordance with the terms of Clause 12.
(iii) For the avoidance of doubt, no such payments, receipts or amounts in
respect of set off as described in paragraphs (i) or (ii) of this Clause shall,
as between the Borrower and its creditors, be deemed to constitute payment by
the Borrower to the relevant Lenders in respect of the relevant Liabilities.
10.5 Prior to the Senior Discharge Date, the Senior Subordinated Lenders shall
not make any claim for costs or damages in relation to the Reports without
offering to the Senior Agent and the Senior Lenders an opportunity to join in
such claim. If the Senior Agent and the Senior Lenders join in such claim or
make an equivalent claim the proceeds of all such claims (net of all costs)
shall be treated as if they were proceeds of the Security Documents. If the
Senior Agent and the Senior Lenders refuse to join in such claim or to make an
equivalent claim the Senior Subordinated Lenders may retain the
<PAGE>
15
proceeds of their claim and, for the avoidance of doubt, in any case where the
Senior Agent and the Senior Lenders have joined such claim or made an equivalent
claim but have ceased to pursue such claim (and, if the Senior Lenders have
ceased such claim by reason of having made a settlement, the proceeds of such
settlement are retained by them), the Senior Subordinated Lenders may continue
such action and retain any proceeds of such continued action.
11. Enforcement (Durchsetzung der Anspruche und Verwertung der Sicherheiten)
11.1 So long as any of the Senior Liabilities (other than the Hedging
Liabilities) or, after the Senior Discharge Date, the Senior Subordinated
Liabilities are or may be outstanding, the Hedge Counterparties shall not be
entitled, unless the Majority Lenders and the Majority Senior Subordinated
Lenders otherwise consent in writing:
(i) to accelerate any of the Hedging, Liabilities, unless at the same time, or
prior to, such acceleration the Senior Liabilities (other than the Hedging,
Liabilities) have been accelerated; or
(ii) in any manner to enforce any security conferred by any of the Security
Documents or to require any other person to enforce the same.
11.2 Prior to the Senior Discharge Date, none of the Senior Subordinated
Lenders will be entitled (except as expressly permitted by this Agreement)
unless the Senior Subordinated Agent has become, pursuant to the other
provisions of this Clause 11, entitled to enforce the Senior Subordinated
Liabilities and the Senior Subordinated Security Documents (as defined in the
Senior Subordinated Facility Agreement):
(i) to accelerate any of the Senior Subordinated Liabilities or otherwise
declare any of the Senior Subordinated Liabilities prematurely due and payable
on or by reason of the occurrence of a Senior Subordinated Default or any other
circumstances howsoever described unless at the same time, or prior to, such
acceleration, the Senior Liabilities (or any of them) have been accelerated or
unless such declaration or acceleration is made upon advice of counsel solely in
order to protect the recoverability of the Senior Subordinated Liabilities; or
(ii) in any manner to enforce any security conferred by any of the Security
Documents by sale, possession, appointment of a receiver or otherwise or to
require any other person to enforce the same; or
(iii) discharge, sue for or institute legal proceedings to recover all or any
part of the Senior Subordinated Liabilities; or
(iv) petition or apply or vote in favour of any resolution for the winding-up,
dissolution, administration of or voluntary arrangement in relation to IFCO
Europe or any member of the Group,
Provided that, for the avoidance of doubt, the Senior Subordinated Agent and the
Senior Subordinated Lenders shall provided that there is no adverse effect on
the subordination contemplated hereunder be entitled to apply to a court
<PAGE>
16
for injunctive relief, an order for specific performance or a declaratory order
on the interpretation of any of the Senior Subordinated Documents.
11.3 If any Senior Subordinated Default occurs (otherwise than as a direct
result of a breach by a Senior Subordinated Lender of its obligations under the
Senior Subordinated Facility Documents) and it is a Senior Subordinated Default
which the Senior Subordinated Agent (acting on the instructions of the Majority
Senior Subordinated Lenders) certifies to the Senior Lenders is material in the
opinion of the Majority Senior Subordinated Lenders, the Senior Subordinated
Agent may by written notice to the Senior Agent specifying the Senior
Subordinated Default (an "Enforcement Notice") request the Senior Agent to
inform the Senior Subordinated Agent whether the Senior Agent proposes to
instruct the Security Trustee to enforce the security conferred by the Security
Documents.
11.4 If the Senior Agent within 60 days of such notice informs the Senior
Subordinated Agent that it is proposed (on the instructions of the Majority
Lenders) to enforce the Security Documents or if the Senior Agent does not
respond within such 60 days, and subject to Clause 11.8, then promptly
thereafter the Senior Lenders will instruct the Security Trustee to enforce the
security (if the Senior Lenders are entitled to procure the enforcement of the
Security Documents at such time) and the Security Trustee will enforce the
Security Documents by the taking of such steps as it deems appropriate (in its
sole discretion) in accordance with its powers and duties failing which (or if
the Senior Lenders are not entitled to procure the enforcement of the Security
Documents at such time but subject always to Clause 11.8 and the other
provisions of this Agreement and the Facility Documents) the Senior Subordinated
Agent may exercise its rights of acceleration under the Senior Subordinated
Facility Agreement and instruct the Security Trustee to enforce the security and
the Security Trustee shall so enforce. For the avoidance of doubt the Senior
Lenders confirm that they will not following the delivery of an Enforcement
Notice do anything which would render them not entitled to procure enforcement
of the Security Documents at that time.
11.5 If the Senior Agent informs the Senior Subordinated Agent within such 60
days that it is not proposed (on the instructions of the Majority Lenders) to
enforce the Security Documents, then, not earlier than 180 days after the
service of the Enforcement Notice (the "Standstill Period") and provided that
the same Senior Subordinated Default referred to in such Enforcement Notice is
continuing and subject to Clauses 11.7 and 11.8, the Senior Subordinated Agent
may declare the Senior Subordinated Liabilities due and payable, require the
Security Trustee to enforce the Security Documents by the taking of such steps
as it deems appropriate in accordance with its powers and duties and take such
other action as is available to them to recover the Senior Subordinated
Liabilities (subject to any proceeds thereof being paid to the Security Trustee
for distribution in accordance with Clause 12).
11.6 If, at any time before the Senior Discharge Date, a winding-up or
administration order is made in relation to IFCO Europe or any Group Entity or a
voluntary arrangement (Vergleich) or other analogous proceedings in relation to
IFCO Europe or any Group Entity is approved, then the Senior Subordinated Agent
may at any time thereafter notify the Senior Agent thereof and if the Senior
Agent determines that such event is material in the context of the business
carried on by the Group, then (subject to Clause 11.8) the Senior
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17
Agent shall require the Security Trustee to enforce the Security Documents,
whereupon the Security Trustee shall promptly enforce the Security Documents (if
entitled to do so) by the taking of such steps as it deems appropriate (in its
sole discretion) in accordance with its powers and duties.
11.7 The Senior Subordinated Lenders may not make any demand on or take any
other action against the Borrower in relation to the Senior Subordinated
Liabilities in circumstances which would otherwise be permitted by this Clause
11 where both the following apply:
(i) the Security Trustee (or any receiver appointed pursuant to any of the
Security Documents), acting on the instructions of the Majority Lenders and in
accordance with the terms hereof, confirms to the Senior Subordinated Agent in
writing that it is enforcing or taking steps to enforce security conferred by
any of the Security Documents over the shares of the Borrower by selling or
procuring the sale of all such shares which are subject to such security, and
has not subsequently notified the Senior Subordinated Agent to the contrary in
writing (and the Security Trustee undertakes to notify or procure that any such
receiver notifies the Senior Subordinated Agent promptly upon such enforcement
being discontinued); and
(ii) the period elapsed from the date on which the Senior Subordinated Lenders
would have been permitted pursuant to this Clause 11 in the absence of this
Clause 11.7 to make a demand or otherwise take action against such Borrower in
relation to the Senior Subordinated Liabilities is less than 120 days (or such
shorter or longer period as the Senior Subordinated Agent (with the consent of
the Majority Senior Subordinated Lenders) may otherwise agree with the Senior
Agent (with the consent of the Majority Senior Lenders)).
11.8 It is hereby agreed by the Senior Lenders, the Senior Subordinated Lenders
and the Security Trustee that the Security Trustee will commence enforcement of
the Security upon the instruction of either the Majority Lenders or, where the
circumstances set out in this Clause 11 permit, at the request of the Senior
Subordinated Agent Provided that the manner of such enforcement shall be
determined by the Majority Lenders and Provided Further that the proceeds of any
such enforcement shall be held on trust by the Security Trustee and applied in
accordance with the provisions of Clause 12. Where practicable the Security
Trustee, the Senior Agent and the Senior Subordinated Agent shall consult in
relation to the enforcement process.
11.9 Each of the Senior Agent, the Senior Subordinated Agent and the Lenders
agrees that the subordination effected hereby shall be in addition to and shall
not prejudice or affect any security or any right or remedy of the Senior
Lenders and the Hedge Counterparties in respect of the Senior Liabilities, or
the Senior Subordinated Lenders and the Hedge Counterparties in respect of the
Senior Subordinated Liabilities and each of the Senior Lenders, the Hedge
Counterparties and the Senior Subordinated Lenders hereby agrees that:
(i) subject to the other provisions of this Agreement, the obligations and
liabilities of each of the Borrower, or any other person, for or in respect of
the Senior Liabilities and/or the Senior Subordinated Liabilities, may, from
time to time, in whole or in part, be renewed, extended, amended, supplemented,
novated, accelerated, compromised, terminated, sold,
<PAGE>
18
transferred, exchanged, waived or released Provided that no Group Entity shall
be bound by any change to the Senior Liabilities or the Senior Subordinated
Liabilities unless the same is made in accordance with the terms of this
Agreement and the Senior Facility Documents or the Senior Subordinated Facility
Documents (as the case may be);
(ii) subject to the other provisions of this Agreement, the Senior Lenders, the
Hedge Counterparties and the Senior Subordinated Lenders may exercise or refrain
from exercising any right, remedy or power granted by the Security Documents,
the Facility Documents or the Senior Subordinated Facility Documents or any
other document creating, evidencing or otherwise related thereto or given
therefor (including, without limitation, the right to perfect any security
interest created in connection therewith);
(iii) subject to Clause 7. 1, any and all security interests at any time,
present or future, held, given or intended to be given for the Liabilities, and
any rights or remedies of the Senior Lenders, the Hedge Counterparties or the
Senior Subordinated Lenders in respect thereof may, from time to time, in whole
or in part, be exchanged, sold, transferred, released, modified, waived or
extended by the Senior Lenders, the Hedge Counterparties or the Senior
Subordinated Lenders (as the case may be);
(iv) the Senior Agent, the Senior Lenders, the Hedge Counterparties, the Senior
Subordinated Agent and the Senior Subordinated Lenders (subject to the other
provisions hereof) shall be entitled to exercise their rights under the Senior
Facility Documents or, as the case may be, the Senior Subordinated Facility
Documents in such manner and at such time as they shall consider fit and,
subject as required by applicable German law, solely having regard to their own
interests (including, without limitation, incurring any obligation to marshal
security held) and, following any enforcement action against the Borrower, IFCO
Europe or any Group Entity or enforcement of the Security shall be entitled to
cease such enforcement; and
(v) any balance or balances of funds with the Senior Lenders, the Hedge
Counterparties or the Senior Subordinated Lenders at any time standing to the
credit of any of the Borrower, IFCO Europe or any Group Entity may (subject to
the other provisions hereof), from time to time, in whole or in part, be
surrendered or released,
and that all of the above shall be without impairing, abridging, diminishing,
releasing or affecting the subordination of the Senior Subordinated Liabilities
to the Senior Liabilities provided herein and without any of the Senior Agent,
the Senior Lenders or the Hedge Counterparties incurring any liability to any of
the Senior Subordinated Lenders.
12. Appropriation (Anrechnung der erhaltenen Zahlungen)
12.1 All amounts received by the Security Trustee and held on trust pursuant
to this Agreement, after providing for all of its outgoings, costs, charges,
expenses and liabilities in connection with acting as Security Trustee (and
after setting aside such sums as it considers (in its sole discretion) will or
may become payable in the future and which it considers will not or may not be
discharged out of future receipts from the enforcement of any Security) and
<PAGE>
19
after providing for payments ranking in priority as a matter of law shall be
applied:
(i) prior to the Senior Discharge Date, in or towards payment of the Senior
Liabilities (but excluding the Postponed Senior Liabilities) including, without
limitation any amounts required by way of cash collateral in respect thereof by
payment to the Senior Agent and each Hedge Counterparty in rate-able proportions
to the amounts then due to the Senior Lenders and the Hedge Counterparties (and
the Senior Agent shall apply any monies so received by it from the Security
Trustee in accordance with the terms of the Senior Facility Agreement);
(ii) after the Senior Discharge Date in or towards payment of the Senior
Subordinated Liabilities by payment to the Senior Subordinated Agent and the
Hedge Counterparties in rateable proportions to the amounts then due to the
Senior Subordinated Lenders and the Hedge Counterparties (and the Senior
Subordinated Agent shall apply any monies so received by it from the Security
Trustee in accordance with the terms of the Senior Subordinated Facility
Agreement); and
(iii) after the Senior Subordinated Discharge Date in or towards payment to the
Senior Agent for distribution in accordance with the Senior Facility Agreement
for application towards the Postponed Senior Liabilities which are then due in
rateable proportions.
12.2 Any balance shall be held by the Security Trustee and shall be
subsequently applied in accordance with Clause 12.1 above as and when relevant
amounts become due and may be so applied. Any balance held by the Security
Trustee after irrevocable discharge in full of the Liabilities including,
without limitation, any amounts required by way of cash collateral in respect
thereof, (as to which amounts the Security Trustee shall be entitled to rely on
a written certificate from the Senior Agent, the Hedge Counterparties and the
Senior Subordinated Agent (as the case may be)) shall (after providing for
payments ranking in priority as a matter of law) be paid in accordance with
Clause 12.1(ii) and (iii) above and otherwise to such person (in the reasonable
opinion of the Security Trustee) as may be entitled thereto.
13. Amendments (Anderungen)
The provisions of this Agreement may not be amended (otherwise than in
accordance with the terms hereof) except by written agreement between the Senior
Agent (acting on the instructions of the Majority Senior Lenders), the Hedge
Counterparties, the Senior Subordinated Agent, (acting on the instructions of
the Majority Senior Subordinated Lenders) and the Security Trustee. Any
amendment so made shall bind all the parties hereto
14. Notices (Mitteilungen)
14.1 Each communication to be made hereunder shall be made in writing but,
unless otherwise stated, may be made by telex (provided answerback is received),
facsimile or letter.
14.2 Any communication or document to be made or delivered by one person to
another pursuant to or in connection with this Agreement shall (unless that
<PAGE>
20
other person has by fifteen days' written notice to the one specified another
address) be made or delivered to that other person at the address telex or
facsimile identified with its signature below or in any Accession Agreement and
shall be deemed to have been made or delivered when despatched (and answerback
received) (in the case of any communication made by telex) when received (in the
case of communications made by facsimile) or (in the case of any communication
made by letter) when left at that address or (as the case may be) ten days after
being deposited in the post, postage prepaid, in an envelope addressed to it at
that address Provided that if such communication or document would otherwise be
deemed to have been received on a day which is not a business day it shall be
deemed to have been received on the next subsequent business day.
14.3 Each communication and document made or delivered by one party to another
pursuant to this Agreement shall be in the English language.
15. Miscellaneous
15.1 This Agreement may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which, when executed
and delivered, shall constitute an original, but all the counterparts shall
together constitute one and the same instrument.
15.2 The obligations of the parties who have executed this Agreement shall not
be affected by the fact that not all of the parties hereto have validly executed
this Agreement and such obligations shall be binding inter se.
15.3 If any provision of this Agreement is prohibited or unenforceable in any
jurisdiction in relation to any party hereto, such prohibition or
unenforceability shall not invalidate the remaining provisions hereof or affect
the validity or enforceability of such provision in any other jurisdiction or in
relation to any of the other parties hereto and the relevant provision shall be
replaced with a new provision reflecting the commercial intent of the parties,
which provision shall be legal, valid and enforceable under the law of the
relevant jurisdiction.
15.4 Each amount payable by any of the Hedge Counterparties or the Senior
Subordinated Lenders to the Senior Agent or the Security Trustee or, after the
Senior Discharge Date, payable to the Senior Subordinated Agent which is not
paid when due and payable shall carry interest until paid (as well before as
after judgement) payable on demand at a rate of interest as would equal the cost
to the Senior Agent, the Senior Subordinated Agent or, as the case may be, the
Security Trustee of borrowing such amount as determined by the Senior Agent, the
Senior Subordinated Agent or, as the case may be, the Security Trustee.
15.5 The Beneficiaries hereby acknowledge that the certificates of the Senior
Agent and the Senior Subordinated Agent concerning the amounts due to each
Beneficiary in respect of the payment obligations of the Borrower under the
Senior Facility Documents and the Senior Subordinated Facility Documents
respectively shall be binding upon each Beneficiary and Senior Subordinated
Beneficiary hereunder in the absence of manifest error.
<PAGE>
21
15.6 The priority and subordination provisions of this Agreement are
cumulative.
15.7 This Agreement overrides anything in the Hedging Agreements and the
Senior Subordinated Facility Documents to the contrary.
15.8 The parties hereto confirm that this Agreement shall not constitute nor
create nor is it intended to constitute or create any security interest on the
part of the Senior Agent, the Senior Subordinated Agent or any of the Lenders.
15.9 Notwithstanding anything herein to the contrary, the Senior Agent agrees
that it will (so far and for such period as it considers it to be practicable in
the prevailing circumstances) consult with the Senior Subordinated Agent prior
to its granting any consent or waiver in relation to, or exercising any
discretion given to it pursuant to the terms of the Finance Documents or taking
any steps to accelerate or cancel the Senior Liabilities or enforce the Senior
Liabilities.
15.10 None of the Senior Agent, the Senior Subordinated Agent and the Security
Trustee may resign or be removed as specified in the Senior Facility Agreement
or, as the case may be, the Senior Subordinated Facility Agreement unless a
replacement Senior Agent, Senior Subordinated Agent or Security Trustee agrees
with all other parties hereto to become the replacement agent or, as the case
may be, trustee under this Agreement by execution of an Accession Agreement or
by such other method as may be approved by the Majority Lenders.
16. Assignments and Transfers (Abtretungen, Schuldubernahme oder
Vertragsubernahme)
16.1 The parties hereto confirm that any person becoming a Lender or an Agent
(by the execution of a substitution or transfer certificate or otherwise) shall
be entitled to the benefit of the provisions contained herein as if it had been
originally named a party hereto. Each party hereto makes an irrevocable offer,
without the need for any further action, to each such person which may be
accepted by such person becoming a Lender or Agent. In addition each party
hereto (including parties subsequently becoming bound by this Agreement)
irrevocably authorises the Security Trustee to agree, on its behalf, with any
other person intended to become a party hereto as a Lender or Agent to the
execution of an Accession Agreement so as to make such person a party to this
Agreement as a Senior Lender, a Hedge Counterparty, a Senior Subordinated
Lender, a Senior Agent or a Senior Subordinated Agent and hereby expressly
consents to such person acceding hereto as such. The parties hereto agree that
this authorisation and consent is given to secure the interests of the parties
under this Agreement and is accordingly irrevocable.
16.2 The parties hereto agree that none of the Lenders will assign or transfer
to any person the whole or any part of their rights or obligations in respect of
any of the Liabilities or any of the at Finance Documents or enter into any
Hedging Agreement unless permitted pursuant to the provisions of the Finance
Documents and the assignee, transferee or Hedge Counterparty, as the case may
be, previously or simultaneously agrees with the other parties hereto to be
bound by the provisions of this Agreement as if it was named herein and subject
to the same rights and obligations (mutatis mutandis) as the relevant
<PAGE>
22
Lender and executes and delivers to the Security Trustee (with a copy to the
Senior Agent and the Senior Subordinated Agent) an Accession Agreement.
17. Transfers of Senior Liabilities to the Senior Subordinated Lenders
17.1 If at any time and for so long as the Senior Subordinated Lenders are not
entitled to receive payments pursuant to Clause 9.1 or following the Final
Maturity Date, the Senior Subordinated Agent (acting on the instructions of all
the Senior Subordinated Lenders) shall be entitled to request that the Senior
Lenders shall transfer to them in accordance with Clause 38 of the Senior
Facility Agreement all (and not part only) of their rights and obligations in
respect of the Senior Liabilities whereupon:
(a) to the extent that they are lawfully able to do so; and
(b) upon receipt by the Senior Agent of the amounts referred to in Clause 17.2,
each of the Senior Lenders shall as soon as reasonably practicable after such
receipt so transfer all of its rights and obligations in respect of the Senior
Liabilities to such person or persons as the Senior Subordinated Agent shall
reasonably request.
17.2 In consideration of the Senior Lenders transferring their rights and
obligations in respect of the Senior Liabilities as provided for in Clause 17.1,
the Senior Subordinated Lenders (in such proportions as they may agree) shall
pay to the Senior Agent for the account of itself or the Senior Lenders (or, as
the case may be, to the Security Trustee) and in the currency in which the same
are outstanding or incurred:
(i) an amount equal to all amounts then due to the Senior Lenders in respect
of the Senior Liabilities or outstanding in respect thereof (whether or not
due);
(ii) an amount equal to all the costs which will be incurred by the Senior
Lenders (or any of them) in terminating any arrangements which they may have
made to fund such due or outstanding amounts; and
(iii) any fees, costs or expenses (including legal fees) which the Senior Agent
or the Senior Lenders or the Security Trustee or any of them may properly incur
in connection with effecting such transfer,
all as certified by the Senior Agent to the Senior Subordinated Agent within 10
business days of receipt of the request for such transfer.
18. The Security Trustee
18.1 Each of the Senior Agent, the Senior Subordinated Agent, the Lenders and
the Hedge Counterparties hereby confirms the appointment of the Security Trustee
to act as its trustee in connection herewith and authorises the Security Trustee
to act on the instructions of the Majority Lenders save as otherwise provided in
this Agreement and, after the Senior Discharge Date, on the instructions of the
Majority Senior Subordinated Lenders and to exercise such rights, powers and
discretions as are specifically delegated to the
<PAGE>
23
Security Trustee by the terms hereof and the Security Trust Agreement together
with all rights, powers and discretions as are reasonably incidental thereto or
necessary to give effect to the trusts hereby created.
18.2 Each of the Lenders agrees that each of the Senior Agent, the Senior
Subordinated Agent and the Security Trustee shall be entitled (to the extent
these may be relevant in connection with the obligations of the Security Trustee
hereunder) to the benefit of the protections and other provisions relating to
the scope of its duties and obligations contained in Clause 38 of Senior
Facility Agreement, Clause 31 of the Senior Subordinated Facility Agreement and
Clause 9 of the Security Trust Agreement as if they were included (mutatis
mutandis) herein provided that neither the Senior Agent, the Senior Subordinated
Agent nor the Security Trustee shall be deemed to be the agent of IFCO Europe or
any Group Entity.
18.3 Each party hereto relieves the Senior Agent to the full extent necessary
from the restrictions of Section 181 of the German Civil Code (BGB) to perform
its duties and obligations as Security Trustee hereunder.
19. Governing Law (Rechtswahl)
19.1 This Agreement shall be governed by, construed and interpreted in
accordance with German law.
20. Jurisdiction (Gerichtsstand)
20.1 Each of the parties hereto irrevocably agrees for the benefit of each of
the Beneficiaries that the District Court (Landgericht) of Frankfurt am Main
shall have jurisdiction to hear and determine any suit, action or proceeding,
and to settle any disputes, which may arise out of or in connection with this
Agreement and, for such purposes, irrevocably submits to the jurisdiction of
such courts.
20.2 Each party to this agreement irrevocably waives any objection which it
might now or hereafter have to the courts referred to in Clause 20.1 being
nominated as the forum to hear and determine any suit, action or proceeding, and
to settle any disputes, which may arise out of or in connection with this
Agreement and agrees not to claim that any such court is not a convenient or
appropriate forum.
IN WITNESS whereof this Agreement has been executed by the parties hereto the
day and year first above written.
<PAGE>
The Senior Agent
EXECUTED
by BHF BANK AKTIENGESELLSCHAFT, Head Office, Frankfurt/Main
By: /s/ GERD P. BIEDING /s/ MICHAEL FOCKING
Address: Max-Joseph - Strasse 6
80333 Munchen
Germany
Telephone: +49 89 55173-267
Facsimile: +49 89 55173-292
Attention: Jorg Salven
The Security Trustee
EXECUTED
by BHF BANK AKTIENGESELLSCHAFT
By: /s/ GERD P. BIEDING /s/ MICHAEL FOCKING
Address: Bockenheimer Landestrasse 10
60323 Frankfurt am Main
Germany
Telephone:
Facsimile: +49 69 718 4480
Attention: Peter Koch
The Initial Senior Lenders
EXECUTED
by BARCLAYS BANK PLC
By: /s/ TIM TAYLOR
Address: Bockenheimer Landstrasse 38-40
60323 Frankfurt am Main
Germany
Telephone: +49 69 7161-1862
Facsimile: +49 69 7161-1889
Attention: Rolf-Peter Ruoff/Diva Cortellini
<PAGE>
BHF BANK AKTIENGESELLSCHAFT, Head Office, Frankfurt/Main
By: /s/ GERD P. BIEDING /s/ MICHAEL FOCKING
Address: Max-Joseph - Strasse 6
80333 Munchen
Germany
Telephone: +49 89 55173-267
Facsimile: +49 89 55173-292
Attention: Jorg Salven
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK
By: /s/ ANDREAS THONHAUSER /s/ MARKUS KASCH
Address: Deurtenstrasse 16
80268 Munich
Germany
Telephone:
Facsimile: +49 89 21342-639
Attention: Mr. Markus Kasch
CREDITANSTALT AG
By: /s/ BETTINA STEINHAUER
Address: Brienner Str. 9
D-80333
Munich
Germany
Telephone:
Facsimile: +49 89 29074-588
Attention: Mr. Klaus Butscher
<PAGE>
DEUTSCHE BANK AKTIENGESELLSCHAFT, Munich Branch
By: /s/ BETTINA STEINHAUER
Address: Unternehmen und Institutionen
Riestrasse 25
BE Munchen 80992
Germany
Telephone:
Facsimile: +49 89 23902-033
Attention: Mr. Manfred Graeff
NORDDEUTSCHE HYPOTHEKEN-UND WECHSELBANK AG
By: /s/ BETTINA STEINHAUER
Address: Postflach 10
Domstrasse 9
20033 Hamburg
Germany
Telephone:
Facsimile: +49 40 324-122
Attention: Mr. Klaus Bruning
OLDENBURGISCHE LANDESBANK AG
By: /s/ BETTINA STEINHAUER
Address: Postflach 26
26016 Oldenburg
Germany
Telephone:
Facsimile: +49 44 1210-362
Attention: Mr. Heinrich Rawe
<PAGE>
The Senior Subordinated Agent
EXECUTED
by BARCLAYS BANK PLC
By: /s/ TIM TAYLOR
Address: Bockenheimer Landstrasse 38-40
60323 Frankfurt am Main
Germany
Telephone: +49 69 7161-1862
Facsimile: +49 69 7161-1889
Attention: Rolf-Peter Ruoff/Diva Coutellini
The Initial Senior Subordinated Lender
EXECUTED
by BARCLAYS BANK PLC
By: /s/ TIM TAYLOR
Address: Bockenheimer Landstrasse 38-40
60323 Frankfurt am Main
Germany
Telephone: +49 69 7161-1862
Facsimile: +49 69 7161-1889
Attention: Rolf-Peter Ruoff/Diva Coutellini
<PAGE>
EXHIBIT 10.7
CONFORMED COPY
SECURITY TRUST AGREEMENT
between
BHF BANK AKTIENGESELLSCHAFT
as Security Trustee
IFCO INTERNATIONAL FOOD CONTAINER ORGANISATION GmbH
as Borrower
IFCO INTERNATIONAL FOOD CONTAINER ORGANISATION GmbH
IFCO EUROPE BETEILIGUNGS-GmbH
and others
as Chargors
BHF BANK AKTIENGESELLSCHAFT
as Senior Agent
BARCLAYS BANK PLC
as Senior Subordinated Agent
and
Others
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Clause Page
<S> <C>
1. Definition and Interpretation....................................................... 2
2. Appointment of the Security Trustee................................................. 6
3. Declaration of Trust and Appointment as Administrator............................... 6
4. The Security Trustee, an Instructing Group and the Lenders.......................... 6
5. Enforcement of Security............................................................. 7
6. The Security Recoveries Account..................................................... 8
7. Application of Proceeds............................................................. 8
8. Distributions to the Beneficiaries.................................................. 10
9. The Security Trustee's Rights, Powers and Discretions............................... 11
10. Release and Sale of Security........................................................ 16
11. Resignation of Security Trustee..................................................... 17
12. Appointment of Additional Security Trustees......................................... 17
13. Benefit of Agreements............................................................... 18
14. Fees, Costs and Expenses and Indemnity.............................................. 18
15. Notices............................................................................. 20
16. Information and directions.......................................................... 20
17. Partial Invalidity; Remedies and Waivers............................................ 20
18. Amendments.......................................................................... 21
19. Order of Enforcement................................................................ 21
20. Termination......................................................................... 21
21. Counterparts........................................................................ 22
22. Governing Law....................................................................... 22
23. Jurisdiction........................................................................ 22
SCHEDULE
Form of Accession Agreement.............................................................. 23
</TABLE>
<PAGE>
THIS SECURITY TRUST AGREEMENT is made this 27th day of February 1998
BETWEEN:
(1) BHF BANK AKTIENGESELLSCHAFT (in its capacity as trustee (Treuhander) and
administrator of the Security for the Beneficiaries, the "Security
Trustee");
(2) IFCO INTERNATIONAL FOOD CONTAINER ORGANISATION GmbH as borrower under the
Facility Agreements referred to below (the "Borrower")
(3) IFCO INTERNATIONAL FOOD CONTAINER ORGANISATION GmbH, IFCO EUROPE
BETEILIGUNGS GmbH, GISO VERWALTUNGSGESELLSCHAFT mbH & CO. BEHALTERLEASING
KG, SCHOELLER PLAST INDUSTRIES GmbH, MR. THEODOR MAURER, MR. WERNER ZINGG
and MR. LUITPOLD ROEVER (the "Chargors");
(4) BARCLAYS BANK PLC, DG BANK DEUTSCHE GENOSSENSCHAFTSBANK and BHF BANK
AKTIENGESELLSCHAFT as joint arrangers of the Senior Facility Agreement (the
"Joint Arrangers");
(5) BARCLAYS BANK PLC, BHF BANK AKTIENGESELLSCHAFT, DG BANK DEUTSCHE
GENOSSENSCHAFTSBANK, CREDITANSTALT AG, DEUTSCHE BANK AKTIENGESELLSCHAFT,
NORDDEUTSCHE HYPOTHEKEN-UND WECHSELBANK AG and OLDENBURGISCHE LANDESBANK AG
as co-arrangers of the Senior Facility Agreement (together with the Joint
Arrangers the "Arrangers");
(6) BHF BANK AKTIENGESELLSCHAFT in its capacity as agent under the Senior
Facility Agreement referred to below (the "Senior Agent");
(7) BARCLAYS BANK PLC in its capacity as agent under the Senior Subordinated
Facility Agreement referred to below (the "Senior Subordinated Agent");
(8) INTERNATIONAL FOOD CONTAINER ORGANISATION GmbH (the "Company
Counterparty"); and
(9) THE FINANCIAL INSTITUTIONS whose names are set out as Senior Lenders and
Senior Subordinated Lenders on the execution pages of this Agreement (the
"Lenders").
WHEREAS
(A) Pursuant to a facility agreement dated on or about the date hereof and made
between inter alia the Borrower, the Arrangers, the Senior Agent, the
Security Trustee and the Senior Lenders (the "Senior Facility Agreement")
the Senior Lenders have agreed to make available to the Borrower term and
revolving loan facilities upon the terms and subject to the conditions set
out therein.
<PAGE>
(B) Certain Banks and/or Senior Subordinated Lenders (together with any other
Bank or Senior Subordinated Lender entering into a Hedging Agreement, the
"Hedge Counterparties") have entered into or have agreed to or may enter
into interest rate and/or currency hedging agreements with the Company
Counterparty pursuant to and in accordance with the terms of the Facility
Agreements (such agreements together with any additional agreements entered
into by the Borrower in relation to Permitted Treasury Transactions being
hereinafter referred to as the "Hedging Agreements").
(C) By a subordinated facility agreement (the "Senior Subordinated Facility
Agreement") dated on or about the date hereof and made between, inter alia,
the Senior Subordinated Agent, the Security Trustee, the Senior
Subordinated Lenders, the Borrower and IFCO Europe, the Senior Subordinated
Lenders have agreed to make available to the Borrower of such amount and on
the terms referred to in the Senior Subordinated Facility Agreement for the
purposes therein mentioned.
(D) Pursuant to the Security Documents, security is to be granted in favour of
the Security Trustee as trustee and/or in favour of the Beneficiaries as
security for the obligations of the Borrower under the Facility Agreements
and the obligations of the Company Counterparty under any Hedging
Agreements.
(E) In consideration of the Lenders making the facilities available to the
Borrower, the Chargors have agreed to provide certain security in the
amounts and to the extent set out in the Security Documents and the
security purposes declarations respectively agreed in relation thereto.
(F) It is a condition precedent to the Facility Agreements that this Agreement
is entered into and is performed and fulfilled in accordance with the
provisions hereof.
NOW THIS SECURITY TRUST AGREEMENT is made as follows:
1. Definition and Interpretation
1.1 Terms defined or to which a meaning is ascribed in the Senior Facility
Agreement shall, unless otherwise defined herein or unless the context requires
otherwise, have the same meaning in this Agreement.
1.2 In this Agreement including the recitals:
"Accession Agreement" means an accession agreement substantially in the form set
out in the Schedule hereto with such amendments as the Security Trustee may
require;
"Beneficiaries" means the Security Trustee, the Senior Agent, the Senior
Lenders, the Hedge Counterparties, the Senior Subordinated Agent, the Senior
Subordinated Lenders, the Fronting Bank and the Arrangers and "Beneficiary"
means any of them;
"Chargor" means each Chargor and each person who, from time to time, becomes a
party to this Agreement pursuant to Clause 13 as a Chargor;
<PAGE>
"Enforcement Notice" means a notice in writing to the Security Trustee from the
Senior Agent (or, where the Senior Discharge Date has occurred or the Senior
Subordinated Agent is otherwise permitted, pursuant to the terms of the
Intercreditor Agreement, to instruct the Security Trustee to enforce the
Security, the Senior Subordinated Agent) acting on the instructions of the
Majority Lenders (or, in the case where such notice is served by the Senior
Subordinated Agent pursuant to the terms of the Intercreditor Agreement before
the Senior Discharge Date, an Instructing Group (as that term is defined in the
Senior Subordinated Facility Agreement)):
(i) certifying that either (i) a Senior Default has occurred or that (ii)
a Senior Subordinated Default has occurred and pursuant to the terms
of the Intercreditor Agreement, the Senior Subordinated Agent is
entitled to instruct the Security Trustee to enforce the Security; and
(ii) directing the Security Trustee to enforce the Security and outlining
the action which the Majority Lenders wish to take;
"Facility Agreements" means the Senior Facility Agreement and the Senior
Subordinated Facility Agreement and "Facility Agreement" means either of them;
"Facility Documents" means the Senior Facility Documents and the Senior
Subordinated Facility Documents;
"Hedging Liabilities" shall have the same meaning ascribed to it in the
Intercreditor Agreement;
"Lenders" means the Senior Lenders and the Senior Subordinated Lenders;
"Majority Lenders" shall have the meaning ascribed to it in the Intercreditor
Agreement;
"Majority Senior Lenders" shall have the meaning ascribed to it in the
Intercreditor Agreement;
"Majority Senior Subordinated Lenders" shall have the meaning ascribed to it in
the Intercreditor Agreement;
"Proceeds" means all amounts or other recoveries received or made by or on
behalf of the Security Trustee in its capacity as Security Trustee for or on
behalf of the Beneficiaries, all amounts or recoveries received or made by the
Security Trustee pursuant to, or upon enforcement of, any of the Security and in
each case after deducting (to the extent not already deducted or retained prior
to such receipt or recovery by the Security Trustee):
(i) all sums which are by law or contract payable to any Receiver;
(ii) all sums which the Security Trustee is required by the terms of the
Security Documents to pay to any other person or authority before
distributing any such receipts or recoveries to any of the
Beneficiaries; and
(iii) all sums which the Security Trustee is by law required to retain or
to pay to any person or authority in priority to the Beneficiaries;
<PAGE>
"Receiver" means a Konkursverwalter or similar officer appointed by any court
for the purpose of realising, getting in or disposing of any of the assets or
revenues the subject of any of the Security Documents;
"Relevant Agent" means, (i) with respect to the Security, until the Senior
Discharge Date, the Senior Agent and at any time after the Senior Discharge
Date, shall mean the Senior Subordinated Agent and (ii) in each other respect,
the term "Relevant Agent" shall mean either the Senior Agent and/or the Senior
Subordinated Agent as the context may require;
"Secured Assets" means the assets which from time to time are the subject of the
Security or which are otherwise encumbered pursuant to any Security Document;
"Security" means any security assumed and accepted by or through the Security
Trustee or the Beneficiaries, as the case may be, pursuant to any Security
Document and held or administered by the Security Trustee on behalf of or in
trust for the Beneficiaries hereunder and any addition or replacement or
substitution thereof;
"Security Distribution Amount" means the aggregate amounts standing to the
credit of the Security Recoveries Accounts as at close of business in Frankfurt
on the date falling eleven business days prior to the Security Distribution
Date;
"Security Distribution Date" means each business day on which the Security
Trustee is to make a distribution to the Beneficiaries pursuant to Clause 8;
"Security Distribution Entitlement" means:
(a) in the case of the Senior Liabilities, the Hedging Liabilities and the
Senior Agent and each Hedge Counterparty, the amount payable to it (in
the case of the Senior Agent for distribution amongst the Senior
Lenders) pursuant to Clause 7.1(i);
(b) in the case of the Senior Subordinated Liabilities and the Senior
Subordinated Agent, the amount payable to it (in the case of the
Senior Subordinated Agent for distribution amongst the Senior
Subordinated Lenders), pursuant to Clause 7.1(ii); and
(c) in the case of the Postponed Senior Liabilities (as defined in the
Intercreditor Agreement) and the Senior Agent, the amount payable to
it (for distribution amongst the Senior Lenders), pursuant to Clause
7.1(iii)
"Security Documents" means each of the Senior Security Documents (as that term
is defined in the Senior Facility Agreement) and the Senior Subordinated
Security Documents (as that term is defined in the Senior Subordinated Facility
Agreement));
"Security Purpose Declaration" means, in relation to any Security, the
description of the secured claims for which such Security is granted;
"Security Recoveries Account" means the account in the name of the Security
Trustee designated "Security Recoveries Account" maintained by the Security
Trustee and each account or sub-account established pursuant to the provisions
hereof and designated accordingly;
<PAGE>
"Senior Default" shall have the meaning ascribed to it in the Intercreditor
Agreement;
"Senior Discharge Date" shall have the meaning ascribed to it in the
Intercreditor Agreement;
"Senior Facility Documents" shall have the meaning ascribed to it in the
Intercreditor Agreement;
"Senior Lenders" means each person who, from time to time, is a party to the
Senior Facility Agreement as a Bank;
"Senior Liabilities" shall have the meaning ascribed to it in the Intercreditor
Agreement; and
"Senior Subordinated Default" shall have the meaning ascribed to it in the
Intercreditor Agreement;
"Senior Subordinated Facility Documents" shall have the meaning ascribed to it
in the Intercreditor Agreement;
"Senior Subordinated Lenders" means each person who from time to time is a party
to the Senior Subordinated Facility Agreement as a Bank (as that term is defined
in the Senior Subordinated Facility Agreement);
"Senior Subordinated Liabilities" shall have the same meaning ascribed to it in
the Intercreditor Agreement;
"Total Outstandings" means, in relation to each Beneficiary, the aggregate
amount outstanding or owed to it under the Facility Documents, as notified by it
upon the request of the Security Trustee.
1.3 Except to the extent that the context otherwise requires, any reference to
this "Agreement" shall be construed as a reference to this Agreement as amended,
restated or supplemented from time to time in accordance with Clause 18 and
shall include any document which is supplemental to, is expressed to be
collateral with or is entered into pursuant to or in accordance with the terms
of, this Agreement.
1.4 Headings shall be ignored in construing this Agreement.
1.5 References to and definitions of any of the Facility Documents and any
other documents or instruments referred to herein shall (subject to the
provisions of the Intercreditor Agreement) be deemed to include any documents or
instruments amending, varying, supplementing, novating or replacing the terms
respectively thereof from time to time.
1.6 Save where the contrary is indicated, or the context otherwise requires,
the singular of any defined term includes the plural, and vice versa.
1.7 References to parties herein shall also be deemed to include references to
their respective successors, transferees and assigns. References to the Chargors
shall be construed to include a reference to any Chargor which provides
additional security in relation to any Finance Document and accedes to this
Agreement.
<PAGE>
2. Appointment of the Security Trustee
2.1 Each of the parties hereto appoints the Security Trustee as trustee
(Treuhander) and administrator for the purpose of holding on trust (Treuhand)
and accepting and administering the Security for and on behalf of Beneficiaries.
2.2 The Security Trustee accepts its appointment as a trustee (Treuhander),
agent and administrator of the Security on the terms and subject to the
conditions set out in this Agreement.
3. Declaration of Trust and Appointment as Administrator
3.1 The Security Trustee shall
(i) hold and administer any Security which is security assigned
(Sicherungseigentum/Sicherungsabtretung) or otherwise transferred
under a non-accessory security right (nicht akzessorische Sicherheit)
to it as trustee (Treuhander) for the benefit of the Beneficiaries;
and
(ii) administer any Security which is pledged (Verpfandung) or otherwise
transferred to any Beneficiary under an accessory security right
(akzessorische Sicherheit).
3.2 Each Beneficiary hereby authorises the Security Trustee to accept as its
representative (Stellvertreter) any pledge or other creation of any accessory
right made to such Beneficiary in relation to the Facility Documents.
3.3 The Security Trustee shall act in relation to all Security in accordance
with the terms and subject to the conditions of this Agreement and the relevant
Security Document. Each Beneficiary hereby ratifies and approves all acts
previously done by the Security Trustee on such Beneficiary's behalf.
3.4 Each relevant Chargor and each relevant Beneficiary agree that the Security
Documents entered into between them in addition to this Agreement shall be
subject to the relevant terms of this Agreement.
4. The Security Trustee, an Instructing Group and the Lenders
4.1 Notwithstanding anything to the contrary which may be contained in any of
the Facility Documents the Security Trustee shall be entitled to (and shall)
assume that the interests of each Beneficiary in connection with this Agreement
and the Facility Documents are for all purposes represented by the relevant
Majority Lenders (or, where the Facility Documents so provide, the Lenders) and
the Borrower, IFCO Europe, each Chargor and each Beneficiary submits to the
instructions of the Majority Lenders (or, where the Facility Documents so
provide, the Lenders) given in accordance with this Agreement and the Facility
Documents.
<PAGE>
4.2 The Security Trustee shall, save as otherwise provided in Clause 5 and
subject to the provisions of the Facility Documents:
(i) act as trustee and, as the case may be, as administrator under this
Agreement in accordance with any instructions given to it by the
Relevant Agent acting on the instructions of the Majority Lenders or
the Lenders, as appropriate having regard to the provisions of the
Facility Documents, which instructions shall be binding on each
Chargor and Beneficiary, provided that where any provision of any of
the Facility Documents requires the consent of the Relevant Agent or
the Security Trustee to any matter or thing and such provision
provides that such consent of the Relevant Agent or the Security
Trustee shall not be unreasonably withheld, then the Majority Lenders
or the Lenders (as appropriate) having regard to the provisions of the
Facility Documents, shall not be entitled to give directions to the
Relevant Agent or the Security Trustee to withhold its consent (and
shall direct the Relevant Agent or the Security Trustee to give its
consent accordingly) if in all the circumstances it would be
unreasonable for the Relevant Agent or the Security Trustee to
withhold such consent; and
(ii) if so instructed by the Relevant Agent (acting on the instructions of
the Majority Lenders), refrain from exercising any right, power or
discretion vested in it as trustee and administrator under the
Facility Documents.
4.3 The Security Trustee shall not in any way or to any extent be liable or
responsible to the Borrower, IFCO Europe, any Chargor, any Beneficiary or any
other person for any loss, liability, costs, damages or expenses arising from
any action which it takes, or refrains from taking, with regard to the Facility
Documents in accordance with their terms (including, without limitation, any
direction contained in an Enforcement Notice to enforce any Security), in
accordance with the provisions of this Clause 4, the other provisions of this
Agreement or the other Facility Documents save in the case of gross negligence
or wilful misconduct or the failure by the Security Trustee to comply with the
standard of care which could reasonably be expected to be given by any similar
person in similar circumstances.
4.4 Without prejudice to Clause 4.2, the Security Trustee may, whenever it
considers it necessary or expedient to do so, refer any question in relation to
the exercise and performance of its rights, powers and discretions under this
Agreement or any of the other Facility Documents to the Relevant Agent (acting
on the instructions of the Majority Lenders or the Majority Senior Subordinated
Lenders or Lenders (where appropriate)) or otherwise seek clarification or
amplification from the Relevant Agent (acting on the instructions of the
Majority Lenders or the Majority Senior Subordinated Lenders or Lenders (where
appropriate)) of any direction given to it and, if so directed by the Relevant
Agent (acting on the instructions of the Majority Lenders or the Majority Senior
Subordinated Lenders or Lenders (where appropriate)) in response to such
referral, shall exercise (or refrain from exercising) any such right, power or
discretion in accordance with such directions.
5. Enforcement of Security
5.1 Subject to Clause 9.1(vi) and the terms of the Intercreditor Agreement the
Security Trustee shall not take any action to initiate the enforcement of any of
the Security unless and until it shall have received an Enforcement Notice
directing it to do so. Upon receipt of an Enforcement Notice and upon
<PAGE>
instruction of the Relevant Agent (acting on the instructions of the Majority
Lenders) the Security Trustee shall, subject to the terms and conditions of such
Enforcement Notice and hereof, commence with and initiate such measures as the
Security Trustee may deem permissable, necessary or advisable for the
enforcement of all or part (as instructed) of the Security.
5.2 The parties hereto hereby acknowledge and agree that:
(i) no Beneficiary shall exercise any independent power to enforce any of
the Security or to exercise any rights, remedies, discretions or
powers or to grant any consents or releases under or pursuant to the
Facility Documents or otherwise have direct recourse to any of the
Security; and
(ii) no Beneficiary (other than in its capacity as a Beneficiary comprising
all or part of the Majority Lenders (or where the Facility Documents
otherwise provide, the Lenders)) shall be entitled to require the
Security Trustee to take any action or proceedings under or in
relation to any of the Facility Documents or to exercise any of the
rights, powers or discretions conferred on it by this Agreement or any
of the Facility Documents.
6. The Security Recoveries Account
6.1 The Security Trustee shall establish a separate Security Recoveries Account
for each currency in which Proceeds are, or are to be, received.
6.2 Subject to Clause 6.3, the Security Trustee shall credit the Proceeds
received by it to the relevant Security Recoveries Account.
6.3 With the consent of the Majority Lenders the Security Trustee shall be
entitled to convert or exchange any Proceeds (or part thereof) into one or more
other currencies prior to crediting the relevant Security Recoveries Account.
6.4 Interest shall accrue on each Security Recoveries Account at such rate, and
shall be payable by crediting such interest to such Security Recoveries Account
on such dates, as may be reasonably determined by the Security Trustee to be the
market rate applicable to deposits in substantially the same amounts and same
currencies as the amounts credited to the Security Recoveries Account. Amounts
credited to any Security Recoveries Account in respect of interest shall be
treated as Proceeds.
7. Application of Proceeds
7.1 After the Security Trustee shall have received an Enforcement Notice the
Security Trustee shall, to the extent permitted by applicable law, apply on such
date (each a "Security Distribution Date") as the Security Trustee shall select
(and in any event, no less frequently than quarterly) Proceeds standing to the
credit of the Security Recoveries Account(s) after providing for all of its
outgoings, costs, charges, expenses and liabilities in connection with acting as
Security Trustee (and after setting aside such sums as it considers will or may
become payable in the future and which it considers will not or may not be
discharged out of future receipts from the enforcement of any Security and after
providing for payments ranking in priority as a matter of law):
<PAGE>
(i) prior to the Senior Discharge Date, in or towards payment pro rata of
the Senior Liabilities (but excluding the Postponed Senior
Liabilities) and the Hedging Liabilities, including, without
limitation any amounts required by way of cash collateral in respect
thereof by payment to the Senior Agent and each Hedge Counterparty in
rateable proportions to the amounts then due to the Senior Lenders
and the Hedge Counterparties (and the Senior Agent shall apply any
monies so received by it from the Security Trustee in accordance with
the terms of the Senior Facility Agreement);
(ii) after the Senior Discharge Date, in or towards payment of the Senior
Subordinated Liabilities by payment to the Senior Subordinated Agent
and the Hedge Counterparties in rateable proportions to the amounts
then due to the Senior Subordinated Lenders and the Hedge
Counterparties (and the Senior Subordinated Agent shall apply any
monies so received by it from the Security Trustee in accordance with
the terms of the Senior Subordinated Facility Agreement); and
(iii) after the Senior Subordinated Discharge Date (as defined in the
Intercreditor Agreement) in or towards payment pro rata to the Senior
Agent for distribution in accordance with the Senior Facility
Agreement, for application towards the Postponed Senior Liabilities
which are then due in rateable proportions.
7.2 Any balance shall be held by the Security Trustee and shall be subsequently
applied in accordance with 7.1 above as and when relevant amounts become due and
may be so applied. Any balance held by the Security Trustee after irrevocable
discharge in full of the Senior Liabilities, including, without limitation, any
amounts required by way of cash collateral in respect thereof, (as to which
amounts the Security Trustee shall be entitled to rely on a written certificate
from the Senior Agent and the Hedge Counterparties (as the case may be)), shall
(after providing for payments ranking in priority as a matter of law) be paid in
accordance with Clauses 7.1(ii) and 7.1(iii) above and otherwise to such person
(in the reasonable opinion of the Security Trustee) as may be entitled thereto.
7.3 The Security Trustee shall be entitled to make any currency conversions
necessary for the purpose of making any of the payments referred to in Clause
7.1 in the currency/currencies in which the liabilities are denominated at the
time of such payments.
7.4 The Security Trustee shall be entitled to make the deductions and
withholdings (on account of tax or otherwise) from payments to the Beneficiaries
hereunder which it is required by any applicable law to make, and to pay all tax
which may be assessed against it in respect of any of the Security, in respect
of anything done by it in its capacity as Security Trustee or otherwise by
virtue of its capacity as such. Each Chargor agrees that amounts outstanding
under any of the Facility Documents shall only be discharged by virtue of
receipt or recovery by the Security Trustee of Proceeds and to the extent that
the ultimate recipient actually and effectively receives monies from the
Security Trustee hereunder sufficient to satisfy the share of the relevant
recipient of any amount outstanding under any of the Facility Documents.
7.5 If any Chargor receives any sum from any person which, pursuant to the
Facility Documents, should have been paid to the Security Trustee, such sum
shall be held on trust for the Security Trustee (for the benefit of the
Beneficiaries). Such Chargor undertakes to pay to the Security Trustee such sum
for application in accordance with this Clause 7.
<PAGE>
7.6 For the avoidance of doubt, Clause 31 of the Senior Facility Agreement
applies mutatis mutandis to this Agreement.
8. Distributions to the Beneficiaries
8.1 Prior to the Security Trustee making any distribution to the Beneficiaries
pursuant to Clause 7 hereof, the Security Trustee shall no later than ten
business days prior to the Security Distribution Date (such tenth business day
hereafter referred to as the "Distribution Notification Date") notify the
Borrower on behalf of the Chargors and the Beneficiaries of:
(i) the Security Distribution Amount; and
(ii) the Security Distribution Date;
and request the Beneficiaries or the Relevant Agent on their behalf each to
notify the Security Trustee (such notification (which shall be binding on the
Beneficiary giving it) to be received by the Security Trustee at least five
business days prior to the proposed Security Distribution Date and copied to the
Borrower) of the aggregate amount outstanding to it (or, in the case of
notification by a Relevant Agent, the amount outstanding to those Beneficiaries
on whose behalf such notification is given) under the Facility Documents
calculated as at the Distribution Notification Date.
8.2 Four business days prior to the Security Distribution Date the Security
Trustee shall calculate the Security Distribution Entitlement for each
Beneficiary (or group of Beneficiaries) and shall notify on the next business
day each Beneficiary of its Security Distribution Entitlement.
8.3 Once the Security Trustee has effected such calculations referred to in
Clause 8.2 above, the Security Trustee shall be entitled to effect such currency
conversions and exchanges as the Security Trustee may determine to be necessary
to provide for any Security Distribution Entitlement to be distributed in
accordance with Clause 8.4 below in the currency in which the obligations of the
Borrower are denominated. The Security Trustee shall be entitled to apply such
amount of such other currency as the Security Trustee may determine standing to
the credit of any of the Security Recoveries Account(s) as may be required to
fund each such currency exchange or conversion.
8.4 On each Security Distribution Date, the Security Trustee shall distribute
the Security Distribution Amount by paying to each Beneficiary (or, in the case
of the Senior Lenders and, where applicable, the Senior Subordinated Lenders, to
the Senior Agent or the Senior Subordinated Agent (as applicable), on their
behalf) an amount equal to the Security Distribution Entitlement for such
Beneficiary (or group of Beneficiaries (as appropriate)) and in the relevant
currency or currencies for application against each Beneficiary's share of
amounts outstanding under the Facility Documents.
8.5 Any payment made pursuant to Clause 8.4 above shall be made by the Security
Trustee to such account as such Beneficiary (or the Relevant Agent on its
behalf) may have notified to the Security Trustee for that purpose. It is hereby
acknowledged and agreed that the Security Trustee shall not be concerned to, and
shall have no duty or responsibility to, see to or enquire as to the application
by any Beneficiary of any payments so made to it by the Security Trustee.
8.6 The Security Trustee shall promptly and in any event within seven business
days thereafter forward to the Beneficiaries and to the Borrower on behalf of
the Chargors details of the amounts of all
<PAGE>
distributions made in accordance with Clauses 7 and 8 hereof.
8.7 In making any calculation or payment pursuant to this Clause 8 the Security
Trustee shall be entitled to rely upon the information supplied to it by the
Beneficiaries and/or the Chargors (including without limitation, information as
to amounts outstanding under the Facility Documents) and shall be entitled to
make distributions hereunder based on such calculations. In case of any
discrepancy between a Beneficiary's and any Chargor's information the
Beneficiary's information shall prevail, save for manifest error.
9. The Security Trustee's Rights, Powers and Discretions
9.1 The Security Trustee may:
(i) assume unless it has, in its capacity as Security Trustee, actual
knowledge or actual notice to the contrary, that:
(a) any representation made by any Chargor in, or pursuant to, any
of the Facility Documents to which it is expressed to be a party
is true;
(b) no Event of Default or Potential Event of Default (each as
defined in each Facility Document) has occurred;
(c) no Chargor is in breach of or default under its obligations
under any of the Facility Documents to which it is expressed to
be a party;
(d) the identity of the Senior Agent and the Senior Subordinated
Agent is as notified to it at the date of this Agreement or
subsequently notified to it in writing by the Relevant Agent;
(e) a person purporting to be an authorised signatory of any of the
Chargors or any other person is duly authorised to act in that
capacity by or on behalf of such Chargor or other person; and
(f) any direction (including, without limitation, any direction
contained in an Enforcement Notice) received by it from a
Relevant Agent or the Majority Lenders is correct;
(ii) rely as to any matters of fact which might reasonably be expected to
be within the knowledge of any Chargor upon a certificate signed by
or on behalf of such Chargor;
(iii) rely upon any communication or document believed by it to be genuine;
(iv) refrain from acting in accordance with an Enforcement Notice or any
other any instruction until it shall have received such security as
it may require for itself (whether by way of payment in advance or
otherwise) for all costs, claims, expenses (including legal fees) and
liabilities which it will or may expend or incur in complying with
such instructions;
<PAGE>
(v) engage and pay for the advice or services of, and rely and act on
the opinion or advice (howsoever given) of, or any information
obtained from, any lawyers, accountants, surveyors or other
professional advisers or experts whose advice or services may to it
seem necessary, expedient or desirable;
(vi) refrain from exercising any right, power or discretion vested in it
under any of the Facility Documents unless and until instructed by a
Relevant Agent (acting on the instructions of the Majority Senior
Lenders (or, where appropriate, the Majority Senior Subordinated
Lenders or the Lenders)) as to whether or not such right, power or
discretion is to be exercised and, if it is to be exercised, as to
the manner in which it should be exercised;
(vii) other than the actual realisation of any Security, do any act or
thing in the exercise of any of its duties under the Facility
Documents which in its absolute discretion (in the absence of any
instructions of the Relevant Agent (acting on the instructions of
the Majority Lenders (or, where appropriate, the Majority Senior
Subordinated Lenders) as to the doing of such act or thing) it deems
advisable for the protection and benefit of all the Beneficiaries,
including in matters of urgency the commencement of required action
for the enforcement (to which the Security Trustee is expressly
authorised herewith); this shall include the giving of information
in relation to the Security or the Secured Assets to the Relevant
Agent; and
(viii) upon a disposal of any Secured Assets by any Receiver, or by any of
the Chargors (where the Security Trustee has consented to such
disposal) to any third party, release on its own behalf and on
behalf of the Beneficiaries such Secured Assets from Security,
provided that, without the consent of the relevant Beneficiaries, no
Security shall be released where any claim secured by such Security
as described in the Security Purpose Declaration for such Security
is still outstanding and not effectively paid.
9.2 The Security Trustee may (in accordance with the provisions of the
Intercreditor Agreement), subject to the proviso hereto and unless the express
provisions of any such Security Document provide otherwise, if authorised by the
Relevant Agent (acting on the instructions of the Majority Lenders amend or vary
the terms of or waive breaches of or defaults under, or otherwise excuse
performance of any of the Security Documents; any such amendments, variation,
waiver or consent so authorised shall be binding on all the parties hereto and
the Security Trustee shall be under no liability whatsoever in respect thereof
provided that the Security Trustee shall not be authorised, except with the
prior written consent of all the Beneficiaries:
(a) (without prejudice to Clause 9.1(viii) above) to agree to any change
which would affect the nature or the scope of or to release any of
the Secured Assets or the manner in which Proceeds are distributed
thereunder or hereunder; or
(b) to agree to any amendment to this Clause 9.2.
9.3 Notwithstanding anything to the contrary expressed or implied herein, the
Security Trustee shall not:
<PAGE>
(i) be bound to enquire as to the occurrence of any Senior Default,
Senior Subordinated Default or Potential Event of Default (as
defined in any of the Facility Agreements);
(ii) be bound to enquire as to whether or not any representation made by
any of the Chargors under or in connection with any of the Facility
Documents is true;
(iii) be liable for any losses to any Beneficiary, howsoever caused, as a
result of taking or omitting to take any action whatsoever in
relation to any of the Facility Documents or otherwise, save in the
case of gross negligence of wilful misconduct;
(iv) be bound to account to any Beneficiary for any sum or the profit
element of any sum received by it for its own account whether in
connection with the Facility Documents or otherwise;
(v) be bound to disclose to any other person any information relating to
any Chargor if such disclosure would or might in its opinion
constitute a breach of any law or regulation or be otherwise
actionable at the suit of any person or is prohibited under the
Facility Documents; or
(vi) be under any obligations other than those for which express
provision is made herein or in any of the Facility Documents.
9.4 The Security Trustee accepts no responsibility for the accuracy and/or
completeness of any information supplied by any of the Chargors or any other
person in connection with, or for the legality, validity, effectiveness,
adequacy or enforceability of, any of the Facility Documents and shall not be
liable or responsible for any losses to any person, howsoever caused, as a
result of taking or omitting to take any action whatsoever in relation to any of
the Facility Documents or otherwise, save in the case of gross negligence or
wilful misconduct.
9.5 Each of the Beneficiaries agrees that it will not assert or seek to assert
against any director, officer or employee of the Security Trustee any claim it
might have against any of them in respect of the matters referred to in Clause
9.4.
9.6 Each Beneficiary agrees that the liability of the Security Trustee in
performing its duties hereunder shall be limited only to claims arising out of
the Security Trustee's own gross negligence or wilful misconduct; further, with
respect to any claim, the Security Trustee shall not be liable for any indirect
or consequential loss or damage suffered by any person.
9.7 The Security Trustee may accept deposits from, lend money to, and generally
engage in any kind of banking or other business with, each of the Chargors.
9.8 It is understood and agreed by each Beneficiary that it has itself been,
and will continue to be, solely responsible for making its own independent
appraisal of and investigations into the financial condition, creditworthiness,
condition, affairs, status and nature of each of the Chargors and, accordingly,
each Beneficiary warrants to the Security Trustee that is has not relied and
will not hereafter rely on the Security Trustee:
(i) to check or enquire on such Beneficiary's behalf into the adequacy,
accuracy or
<PAGE>
completeness of any information provided by any of the Chargors or any
other person in connection with any of the Facility Documents or the
transactions therein contemplated (whether or not such information has
been or is hereafter circulated to such Beneficiary by the Security
Trustee);
(ii) to check or enquire on such Beneficiary's behalf into the adequacy,
accuracy or completeness of any communication delivered to the
Security Trustee under any of the Facility Documents, any legal or
other opinions, reports, valuation, certificates, appraisals or other
documents delivered or made or required to be delivered or made at any
time in connection with any of the Facility Documents, any security to
be constituted thereby or any other report or other document,
statement or information circulated, delivered or made, whether orally
or otherwise and whether before, on or after the date of this
Agreement;
(iii) to check or enquire on such Beneficiary's behalf into the due
execution, delivery, validity, legality, adequacy, suitability,
performance, enforceability or admissibility in evidence of any
guarantee, indemnity or security given or created by the Facility
Documents or any obligations imposed thereby or assumed thereunder;
(iv) to check or enquire on such Beneficiary's behalf into the ownership,
value or sufficiency of any of the Secured Assets, the priority of any
of the Security, the right or title of any person in or to any
property comprised therein or the existence of any encumbrance
affecting the same; or
(v) to assess or keep under review on such Beneficiary's behalf the
financial condition, creditworthiness, condition, affairs, status or
nature of any Chargor.
9.9 The Security Trustee, and every attorney, agent or other person appointed
by it under any of the Facility Documents, shall have the right to be
indemnified out of the Proceeds against all claims, demands, liabilities,
proceedings, costs, fees, charges, losses and expenses incurred by any of them
in relation to or arising out of the taking or holding of any of the Security,
the exercise or purported exercise of any of the rights, trusts, powers and
discretions vested in any of them or any other matter or thing done or omitted
to be done in connection with any of the Facility Documents or pursuant to any
law or regulation (otherwise than as a result of its gross negligence or wilful
misconduct or the failure by the Security Trustee to comply with the standard of
care which could reasonably be expected to be given by any similar person in
similar circumstances).
9.10 The Security Trustee may:
(i) whenever it thinks fit, delegate by power of attorney or otherwise to
any prudently selected person or persons, all or any of the rights,
powers, authorities and discretions vested in it by any of the
Facility Documents and such delegation may be made upon such terms
and subject of such conditions (including the power to sub-delegate)
and subject to such regulations as it may think fit and it shall not
be bound to supervise, or be in any way responsible for any loss
incurred by reason of any misconduct or default on the part of, any
such delegate or sub-delegate;
(ii) accept without enquiry, requisition or objection such right and title
as any of the
<PAGE>
Chargors or any other person may have to any of the Secured Assets
belonging to such Chargor or such other person (or any part thereof),
and the Security Trustee shall not be bound or concerned to
investigate or make any enquiry into the right or title of such
Chargor or other person to such property (or any part thereof) or,
without prejudice to the foregoing, to require such Chargor or other
person to remedy any defect in its right or title as aforesaid;
(iii) refrain from doing anything which would or might in its opinion be
contrary to any relevant law, directive or regulation of any
jurisdiction or which would or might otherwise render it liable to
any person, and the Security Trustee may do anything which is, in its
opinion, necessary to comply with any such law, directive or
regulation;
(iv) determine all questions and doubts arising in relation to the
interpretation or application of any provisions of any Security
Document as it affects the Security Trustee (and any such
determination (whether made upon a question actually raised or
implied in the acts or proceedings of the Security Trustee) shall be
conclusive and shall bind the other parties hereto); and
(v) the Security Trustee shall be at liberty to place all title deeds and
other documents certifying, representing or constituting the title to
any of the property which is the subject matter of the Security
Documents for the time being in its hands in any safe deposit, safe
or receptacle selected by the Security Trustee or with any reputable
bankers or banking company (including the Security Trustee, the
Senior Agent or the Senior Subordinated Agent or any of the
Beneficiaries) or reputable company whose business includes
undertaking the safe custody of documents or reputable lawyers and/or
notaries and may on the instructions of the Senior Agent or, subject
to the terms hereof, the Senior Subordinated Agent make any such
arrangements as they think fit for allowing the relevant Chargor or
its lawyers or auditors access to or possession of such title deeds
and other documents when necessary or convenient and the Security
Trustee shall not be responsible for any loss incurred in connection
with any such deposit, access or possession.
9.11 Without prejudice to the provisions of any of the Facility Documents, the
Security Trustee shall not be under any obligation to insure any Facility
Documents, to insure any of the Secured Assets or to require any other person to
maintain any such insurance and shall not be responsible for any loss which may
be suffered by any person as a result of the lack of or inadequacy or
insufficiency of any such insurance.
9.12 Each of the Chargors and the Beneficiaries hereby relieves the Relevant
Agent to the full extent necessary from the restrictions of Section 181 of the
German Civil Code (BGB) to perform its duties and obligations as Security
Trustee hereunder.
9.13 The powers, trusts, authorities and discretions conferred upon the
Security Trustee by this Agreement shall be in addition to any which may from
time to time be vested in the Security Trustee by general law or otherwise.
9.14 The Security Trustee shall promptly after receipt thereof provide to each
of the Senior Agent
<PAGE>
and the Senior Subordinated Agent (the "Agents") a copy of any notice or
information received by it under or pursuant to the Facility Documents from any
person other than such Agent and shall provide to the Agents at the time of
giving such notice a copy of any notice given by the Security Trustee hereunder
or in relation hereto to any person other than such Agent.
10. Release and Sale of Security
10.1 The Security Trustee shall and is hereby authorised by each of the Senior
Lenders, the Hedge Counterparties and the Senior Subordinated Lenders (and to
the extent it may have any interest therein, every other party hereto) to
execute on behalf of itself and each Senior Lender, Hedge Counterparty, Senior
Subordinated Lender and other party hereto where relevant without the need for
any further referral to, or authority from, any Senior Lender, Hedge
Counterparty, Senior Subordinated Lender or other person all necessary releases
of any security or guarantees given by any Chargor under any Facility Document
in relation to the disposal of any asset which is permitted or required under or
consented to in accordance with the Facility Documents including, without
limitation:
(i) any formal release of any asset which the Security Trustee is,
pursuant to the Facility Documents, required to give or which, in its
absolute discretion considers necessary or desirable in connection
with that disposal; and
(ii) any release of any security given by any Chargor which is or is a
subsidiary of a company which is sold in accordance with the terms of
and without any breach of the Facility Documents.
10. If:
(i) pursuant to an enforcement of any of the Security Documents, the
Security Trustee on the instructions or with the consent of the
Majority Lenders sells or otherwise disposes of any assets; or
(ii) the Chargor concerned sells or otherwise disposes of such asset at
the request of the Security Trustee on the instructions or with the
consent of the Majority Lenders after a Senior Default, or, if after
the Senior Discharge Date after a Senior Subordinated Default,
the Security Trustee is hereby authorised by each of the Senior Lenders,
the Hedge Counterparties and the Senior Subordinated Lenders to execute on
behalf of itself and each such Senior Lender and Hedge Counterparty (if
prior to the Senior Discharge Date) and each Senior Subordinated Lender and
Senior Subordinated Hedge Counterparty, without the need for any further
referral to or authority from such Senior Lender, Hedge Counterparty or
Senior Subordinated Lender, any release of the security created by the
Security Documents over that asset provided that in each such case the
proceeds are to be applied in the manner provided for in this Agreement.
<PAGE>
11. Resignation of Security Trustee
11.1 The Security Trustee may resign as such hereunder at any time without
assigning any reason therefore by giving not less than ten days' prior written
notice to that effect upon satisfaction in full of all liabilities under the
Facility Documents (the "Liabilities") and at any other time by giving not less
than thirty days' prior written notice to that effect to each of the other
parties hereto; or a Relevant Agent (acting on the instructions of the Majority
Senior Lenders and the Majority Senior Subordinated Lenders acting together) may
at any time terminate the appointment of the Security Trustee hereunder by
giving not less than sixty days' prior written notice to each of the other
parties hereto, provided that no such resignation or termination shall be
effective until (i) a successor to the Security Trustee is appointed in
accordance with the succeeding provisions of this Clause 11, (ii) all of the
Security and title to the Secured Assets and all of the Security Trustee's
rights, benefits and obligations under the Facility Documents have been validly
transferred to such successor; (iii) such successor has confirmed its agreement
to be bound by the provisions of this Agreement and all other related agreements
to which the Security Trustee is a party; and (iv) all amounts then due or owing
to the Security Trustee (whether in respect of fees, costs, expenses or
otherwise) have been duly paid and no other amounts are then outstanding to the
Security Trustee hereunder.
11.2 If the Security Trustee gives notice of its resignation or its appointment
is terminated pursuant to Clause 11.1, any reputable bank or other financial
institution may be appointed as a successor to the Security Trustee by Majority
Senior Lenders and Majority Senior Subordinated Lenders (acting together) but,
if no such successor is so appointed within a reasonable time, the Security
Trustee may appoint such a successor itself.
11.3 If a successor to the Security Trustee is appointed under the provisions
of Clause 11.2, (i) the resigning Security Trustee shall be discharged from any
further obligation hereunder but shall remain entitled to the benefit of the
provisions of Clauses 5, 9, this Clause 11 and Clause 13 and (ii) such successor
and each of the other parties hereto shall have the same rights and obligations
amongst themselves as they would have had if such successor had been an original
party hereto.
12. Appointment of Additional Security Trustees
The Security Trustee may at any time in its sole discretion appoint any person
to act either as a separate trustee or as a co-trustee jointly with it (i) if it
considers such appointment to be in the interests of the Beneficiaries or (ii)
for the purposes of conforming to any legal requirements, restrictions or
conditions which the Security Trustee deems relevant for the purposes hereof,
and the Security Trustee shall give prior notice to each Chargor of any such
appointment. Any person so appointed shall have such powers, authorities and
discretions and such duties and obligations as shall be conferred or imposed on
such person by the instrument of appointment and shall have the same benefits
under Clauses 5, 9, 11 and 13 as the Security Trustee. The Security Trustee
shall have power in like manner to remove any person so appointed. Such
reasonable remuneration as the Security Trustee may pay to any person so
appointed, and any costs, charges and expenses incurred by such person in
performing its functions pursuant to such appointment, shall for the purposes
hereof be treated as costs, charges and expenses incurred by the Security
Trustee in performing its function as trustee hereunder and shall not be
considered part of any fee the Security Trustee may charge for its acting in
such capacity.
<PAGE>
13. Benefit of Agreements
13.1 This Agreement shall be binding on and enure to the benefit of each party
hereto and its successors in title.
13.2 No party hereto may assign all or any of its rights or transfer any of its
obligations hereunder except as expressly permitted by the Facility Documents or
as may be required by law and any such transfer or assignment which may be so
permitted shall not take effect unless the transferee or assignee has delivered
to the Security Trustee a duly completed Accession Agreement.
13.3 Each Chargor authorises each Beneficiary to effect an assignment of the
security interests created by any Chargor to or for the benefit of such
Beneficiary to any Lender or the Security Trustee unless any such assignment is
not effected in order to protect or with a view to protecting the interests of
the relevant Beneficiary. It is understood that in relation to security
interests which are accessory security interests under the laws under which they
are created such security interests would automatically follow the assignment
and transfer of the relevant secured claim under the relevant Facility Agreement
or any other Facility Document.
13.4 Each Chargor authorizes and approves any assignment and transfer effected
to any Transferee pursuant to Clause 41 of the Senior Facility Agreement or
Clause 34 of the Senior Subordinated Facility and agrees to be bound towards
each Transferee (as defined in each Facility Agreement) as if such Transferee
were an original party to the relevant Facility Agreement and this Agreement.
13.5 Each person entering into this Agreement as Chargor after the date of
first execution hereof pursuant to the requirements of additional security under
any Facility Document or otherwise, and who endorses a conformed copy hereof
countersigned by the Security Trustee (for itself and on behalf of all other
parties hereto), shall be bound by the terms hereof as if it were an original
party hereto.
13.6 The Security Trustee shall be entitled, at its discretion, to require any
person granting security for the obligations of the Borrower under the Facility
Documents, any person who replaces or succeeds any party hereto, any Hedge
Counterparty or Company Counterparty, any person becoming a Lender under the
Facility Agreements or any person who is party to a security pool agreement
contemplated by the Facility Documents to enter into an Accession Agreement to
become a party hereto and the Borrower and IFCO Europe agree to procure that any
Group Entity who provides any security, guarantee or other surety in respect of
the obligations of the Borrower in respect of any of the Facility Documents
shall, if so required by the Security Trustee, become a party hereto by
delivering to the Security Trustee a duly completed Accession Agreement.
14. Fees, Costs and Expenses and Indemnity
14.1 Each Chargor shall, from time to time on demand of the Security Trustee,
reimburse the Security Trustee for all out of pocket costs and expenses
reasonably incurred by the Security Trustee in acting as such hereunder and in
relation to the Security Documents, including all costs of convening and holding
any meeting of the Beneficiaries (or any part thereof) for any purpose
whatsoever and all professional fees.
14.2 Each Chargor shall, from time to time on demand of the Security Trustee,
reimburse the
<PAGE>
Security Trustee for all costs and expenses (including professional fees)
incurred in or in connection with the preservation, protection and/or
enforcement of the Security or any part thereof.
14.3 Each Chargor shall indemnify the Security Trustee and every attorney,
agent or other person appointed by it against all claims, demands, liabilities,
proceedings, costs, fees, charges, losses and expenses incurred by any of them
in relation to or arising out of the taking or holding of any of the Security in
the exercise of the rights, trusts, powers and discretions vested in any of them
or in respect of any matter or thing done or omitted to be done in connection
with this Agreement or pursuant to any law or regulation (otherwise than as a
result of its gross negligence or wilful misconduct or the failure by the
Security Trustee or such other person to comply with the standard of care which
could reasonably be expected to be given by any similar person in similar
circumstances).
14.4 Each Chargor shall pay all fees and other taxes to which this Agreement
or any of the Security Documents or any judgment given in connection therewith
is or at any time may be subject and shall, from time to time on demand of the
Security Trustee, indemnify the Security Trustee and each Beneficiary against
all liabilities, costs, claims and expenses resulting from any failure to pay or
any delay in paying any such fee or tax.
14.5 Each Chargor shall pay to the Security Trustee for its services hereunder
a reasonable fee as determined by the Security Trustee in case any other
Security than that specified in the Schedule hereto is taken or administered by
the Security Trustee.
14.6 All fees payable by the Chargors under this Clause 14 shall be exclusive
of value added tax or any similar tax, which, if applicable, shall be payable by
the Chargors at the relevant rate from time to time in addition to such fees.
14.7 The Chargors shall, from time to time on demand of the Security Trustee,
reimburse the Security Trustee for its own account at such daily and/or hourly
rates as the Security Trustee shall from time to time determine, acting
reasonably, for the cost of utilising its management time and/or other resources
in connection with taking all such steps or other action in its capacity as
trustee which the Security Trustee may deem appropriate, which the Beneficiaries
or the Majority Lenders (or, where appropriate, the Lenders) require or which
any of the Chargors requests in connection with:
(i) the granting or proposed granting of any waiver, consent or release
hereunder or under any of the Security Documents;
(ii) any amendment or proposed amendment hereto or to any of the
Security Documents;
(ii) the occurrence of any Senior Default or Senior Subordinated Default
or any investigation as to whether any such default under any of
the Facility Agreements may have occurred; or
(iv) the preservation and/or enforcement of any of the rights of the
Beneficiaries under any of the Facility Documents.
14.8 If the Chargors fail to perform any of their obligations under any of
Clauses 14.1 to 14.7 each Beneficiary shall, in the proportion borne by its
share of the Total Outstandings to the aggregate of the Total Outstandings of
all the Beneficiaries for the time being (or, if the Total Outstandings of all
the
<PAGE>
Beneficiaries are zero, immediately prior to their being reduced to zero),
indemnify the Security Trustee against any loss incurred by it as a result of
such failure and the Chargors shall jointly and severally indemnify each
Beneficiary against, and forthwith reimburse to each Beneficiary the amount of,
any payment made by it pursuant to this Clause 14.8.
14.9 The obligations of each Chargor under this Clause 14 shall be joint and
several.
14.10 Nothing in this Clause 14 shall prejudice the rights of the Security
Trustee in respect of any fees, costs and expenses payable to the Security
Trustee under any of the other Facility Documents.
15. Notices
15.1 Each communication to be made hereunder shall be made in writing but,
unless otherwise stated, may be made by telex, facsimile or letter.
15.2 Any communication or document to be made or delivered by one person to
another pursuant to this Agreement shall (unless that other person has by
fifteen days' written notice to the Security Trustee or, in the case of the
Security Trustee, to the Beneficiaries, and the Chargors specified another
address) be made or delivered to that other person at the address set out below
and shall be deemed to have been made or delivered when despatched, with
appropriate answerback received (in the case of any communication made by
telex), when received (in the case of any communication made by facsimile) or
(in the case of any communication made by letter) when left at that address or
(as the case may be) ten days after being deposited in the post postage prepaid
in an envelope addressed to it at that address provided that any communication
or document to be made or delivered to the Security Trustee shall be effective
only when received by it.
The notice address for each party shall be the address identified with its
signature below.
15.3 Each Chargor shall appoint an agent for the receipt of notices and for
the service of process under or in relation hereto.
15.4 Each communication and document made or delivered by one party to another
pursuant to this Agreement shall be in the English language or accompanied by a
translation thereof into English.
16. Information and directions
The parties hereto shall furnish to the Security Trustee such information and
directions as the Security Trustee may reasonably specify as being necessary or
desirable or which it may require for the purpose of enabling the Security
Trustee to perform its functions as such.
17. Partial Invalidity; Remedies and Waivers
17.1 If at any time any one or more of the provisions hereof is or becomes
invalid, illegal or unenforceable in any respect such provision shall be
ineffective to the extent necessary without affecting or impairing the validity,
legality and enforceability of the remaining provisions hereof or affect the
validity or enforceability of such provision in any other jurisdiction or in
relation to any other parties hereto and the relevant provision shall be
replaced with a new provision reflecting the commercial intent of the parties
which provision shall be legal, valid and enforceable under the law of
<PAGE>
the relevant jurisdiction.
The parties hereto shall replace such illegal, invalid or unenforceable
provision by such provision which comes as close as legally possible to the
purpose of this Agreement.
17.2 No failure to exercise, nor any delay in exercising, on the part of the
Beneficiaries or any of them, any right or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any right or remedy
prevent any further or other exercise thereof or the exercise of any other right
or remedy. The rights and remedies herein provided are cumulative and not
exclusive of any rights or remedies provided by law.
18. Amendments
Other than in the case of an amendment or supplement to correct a manifest error
(which may be made by the Security Trustee) any amendment variation, waiver,
consent or supplement to this Agreement (including this Clause 18) may be made
only with the agreement of all the parties in writing.
19. Order of Enforcement
Each of the Chargors hereby waives, to the extent permitted under applicable
law, all rights it may otherwise have to require that any Security be enforced
in any particular order or manner or that any sum received or recovered from any
person, or by virtue of the enforcement of the Security or any other encumbrance
of any nature over any assets or revenues, which is capable of being applied in
or towards discharge of any amounts outstanding under any of the Facility
Documents or any other obligations the discharge of which is secured by any of
the Senior Security Documents, is so applied.
20. Termination
20.1 If the Security Trustee, with the approval of the Majority Senior Lenders
and Majority Senior Subordinated Lenders shall determine that all amounts
outstanding under any of the Facility Documents and all related liabilities have
been fully and finally discharged, the trust created hereunder shall be
terminated, whereupon each Chargor and the Security Trustee shall be released
from its obligations hereunder (save for those which arose prior to such
winding-up).
20.2 The Security Trustee shall following a determination referred to in
Clause 20.1, in accordance with the terms of the Security Documents or otherwise
if so directed in writing by a Relevant Agent (acting on the instructions of the
Majority Senior Lenders or Majority Senior Subordinated Lenders (as appropriate)
as soon as reasonably practical release any Security and/or release from
Security any of the Secured Assets and/or reassign to the relevant Chargor
and/or such other person as may be entitled thereto any property or rights
assigned or put into trust by such Chargor and/or such other person to the
Security Trustee as security in accordance with the provisions of the Security
Documents or, as the case may be, such written directions.
<PAGE>
21. Counterparts
This Agreement may be executed in any number of counterparts each of which shall
constitute an original.
22. Governing Law
This Agreement shall be governed by, and construed in accordance with, German
law.
23. Jurisdiction
23.1 Each of the parties hereto irrevocably agrees for the benefit of each of
the Beneficiaries that the District Court (Landgericht) of Frankfurt am Main
shall have jurisdiction to hear and determine any suit, action or proceeding,
and to settle any disputes, which may arise out of or in connection with this
Agreement and, for such purposes, irrevocably submits to the jurisdiction of
such courts.
23.2 Each party to this agreement irrevocably waives any objection which it
might now or hereafter have to the courts referred to in Clause 23.1 being
nominated as the forum to hear and determine any suit, action or proceeding, and
to settle any disputes, which may arise out of or in connection with this
Agreement and agrees not to claim that any such court is not a convenient or
appropriate forum.
23.3 The submission to the jurisdiction of the courts referred to in Clause
23.1 shall not (and shall not be construed so as to) limit the right of the
Beneficiaries or any of them to take proceedings against any of the Chargors in
any other court of competent jurisdiction nor shall the taking of proceedings in
any one or more jurisdictions preclude the taking of proceedings in any other
jurisdiction (whether concurrently or not) if and to the extent permitted by
applicable law.
23.4 Each of the parties hereto hereby waives trial by jury in any judicial
proceeding involving, directly or indirectly, any matter (whether sounding in
tort, contract or otherwise) in any way arising out of, related to, or connected
with this Agreement or the relationships established hereunder and whether
arising or asserted before or after the date hereof or before or after the
payment, observance and performance in full of such party's obligations
hereunder.
IN WITNESS WHEREOF this Agreement has been executed by the parties hereto the
day and year first above written.
<PAGE>
SCHEDULE
Form of Accession Agreement
THIS Agreement dated [ ], [ ] is supplemental to a security trust
agreement (the "Security Trust Agreement") dated [ ] between, amongst others,
the Security Trustee, the Senior Lenders and the Senior Subordinated Lenders.
Words and expressions defined in the Security Trust Agreement have the same
meaning when used in this Agreement.
[Name of new Chargor/Lender/Agent/Security Trustee/Hedge Counterparty] hereby
agrees with each other person who is or who becomes a party to the Security
Trust Agreement that with effect on and from the date hereof it will be bound by
the Security Trust Agreement as [a Hedge Counterparty/Senior Lender/Senior
Subordinated Lender/Senior Agent/Senior Subordinated Agent/Security
Trustee/Chargor] as if it had been party to the Security Trust Agreement in that
capacity.
Address for notice of [Name] for the purposes of Clause 15 (Notices) of the
Security Trust Agreement is:-
[
].
This Agreement is governed by German law. The provisions of Clause 23 of the
Security Trust Agreement shall apply hereto mutatis mutandis as if set out
herein.
By [Name of Acceding Party]
Name:
Address:
<PAGE>
As Borrower, Chargor and Company Counterparty
IFCO INTERNATIONAL FOOD CONTAINER ORGANISATION GmbH
By: /s/ GUNTER GERLAND /s/ DR. FRANK TOFFLINGER
Address: Zugspitzstrasse 15
D-82049 Pullach
Germany
Telephone:
Facsimile: +49 89 74491-239
Attention: Dr. Frank Tofflinger; copy to Martin
and Christoph Schoeller: Fax: (+49) (89) 74491-298
As Chargor
IFCO EUROPE BETEILIGUNGS-GmbH
By: /s/ MARTIN SCHOELLER
Address: Zugspitzstrasse 15
D-82049 Pullach
Germany
Telephone:
Facsimile: +49 89 74491-239
Attention: Dr. Frank Tofflinger; copy to Martin
and Christopher Schoeller: Fax: (+49) (89) 74491-298
GISO VERWALTUNGSGESELLSCHAFT mbH & CO. BEHALTERLEASING KG
By: /s/ E. WILCKE
Address: c/o Luitpold Roever
Widenmayerstrasse 28/IV
D-80538
Germany
Telephone:
Facsimile: +49 89 74491-239
Attention: Dr. Frank Tofflinger; copy to Martin
and Christoph Schoeller: Fax: (+49) (89) 74491-298
<PAGE>
SCHOELLER PLAST INDUSTRIES GmbH
By: /s/ E. WILCKE
Address: Zugspitzstrasse 15
D-82049 Pullach
Germany
Telephone:
Facsimile: +49 89 74491-239
Attention: Dr. Frank Tofflinger; copy to Martin
and Christopher Schoeller: Fax: (+49) (89) 74491-298
T. MAURER
By: /s/ E. WILCKE
Address: Neugutstrasse 54
CH 8600 Dubendorf
Telephone:
Facsimile:
W. ZINGG
By: /s/ E. WILCKE
Address: Arnistrasse 6
CH 8908 Hedingen
Telephone:
Facsimile:
LUITPOLD ROEVER
By: /s/ E. WILCKE
Address: Wieden mayerstrasse 28/IV
D80538 Munich
Telephone:
Facsimile:
<PAGE>
The Security Trustee
BHF BANK AKTIENGESELLSCHAFT
By: /s/ MICHAEL FOCKING /s/ BARBARA BACH
Address: Bockenheimer Landstrasse 10
60323 Frankfurt am Main
Germany
Telephone:
Facsimile: + 49 69 718 4480
Attention:
The Arrangers
BARCLAYS BANK PLC
By: /s/ TIM TAYLOR
Address: 5 The North Colonnade
Canary Wharf
London E14 4BB
Telephone:
Facsimile:
Attention:
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK
By: /s/ MARKUS KASCH /s/ ANDREAS THONHAUSER
Address: Deurtenstrasse 16
80268 Munich
Germany
Telephone:
Facsimile: + 49 89 2134 2639
Attention:
<PAGE>
BHF BANK AKTIENGESELLSCHAFT, HEAD OFFICE, FRANKFURT/MAIN
By: /s/ BARBARA BACH /s/ MICHAEL FOCKING
Address: Niederlassung Munchen
Max-Joseph-Strasse 6
8033 Munchen
Telephone: + 49 89 551 73267
Facsimile: + 49 89 551 73292
Attention: Jorg Salven
CREDITANSTALT AG
By: /s/ HANS-GUNTHER NORDHUES
Address: Brienner Str. 9
D-80333
Munich
Telephone:
Facsimile: + 49 89 290 74588
Attention:
NORDDEUTSCHE HYPOTHEKEN-UND WECHSELBANK AG
By: /s/ HANS-GUNTHER NORDHUES
Address: Postflach 10
Domstrasse 9
20033 Hamburg
Telephone:
Facsimile: + 49 40 32 4122
Attention:
<PAGE>
DEUTSCHE BANK AKTIENGESELLSCHAFT, MUNICH BRANCH
By: /s/ HANS GUNTHER NORDHUES
Address: Unternehmen und Institutionen
Riesstrasse 25
80992 Munich
Germany
Telephone:
Facsimile: +49 89 23902-033
Attention: Mr. Manfred Graeff
OLDENBURGISCHE LANDESBANK AG
By: /s/ HANS GUNTHER NORDHUES
Address: Postflach 26
26016 Oldenburg
Telephone:
Facsimile: + 49 441 210 362
Attention:
The Senior Agent
BHF BANK AKTIENGESELLSCHAFT, HEAD OFFICE, FRANKFURT/MAIN
By: /s/ BARBARA BACH /s/ MICHAEL FOCKING
Address: Max-Joseph - Strasse 6
80333 Munchen
Germany
Telephone: +49 89 55173-267
Facsimile: +49 89 55173-292
Attention: Jorg Salven
<PAGE>
The Senior Subordinated Agent
BARCLAYS BANK PLC
By: /s/ TIM TAYLOR
Address: Bockenheimer Landstrasse 38-40
60323 Frankfurt am Main
Telephone: + 49 69 7161 1862
Facsimile: + 49 69 7161 1889
Attention:
The Senior Lenders
BARCLAYS BANK PLC
By: /s/ TIM TAYLOR
Address: Bockenheimer Landstrasse 38-40
60323 Frankfurt am Main
Telephone: + 49 69 7161 1862
Facsimile: + 49 69 7161 1889
Attention:
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK
By: /s/ ANDREAS THONHAUSER MARKUS KASCH
Address: Deurtenstrasse 16
80268 Munich
Germany
Telephone:
Facsimile: +49 89 21342-639
Attention: Mr. Markus Kasch
<PAGE>
BHF BANK AKTIENGESELLSCHAFT, HEAD OFFICE, FRANKFURT/MAIN
By: /s/ BARBARA BACH /s/ MICHAEL FOCKING
Address: Max-Joseph - Strasse 6
80333 Munchen
Germany
Telephone: +49 89 55173-267
Facsimile: +49 89 55173-292
Attention: Jorg Salven
CREDITANSTALT AG
By: /s/ HANS GUNTHER NORDHUES
Address: Brienner Str. 9
D-80333
Munich
Germany
Telephone:
Facsimile: +49 89 29074-588
Attention: Mr. Klaus Butscher
NORDDEUTSCHE HYPOTHEKEN-UND WECHSELBANK AG
By: /s/ HANS GUNTHER NORDHUES
Address: Postflach 10
Domstrasse 9
20033 Hamburg
Germany
Telephone:
Facsimile: +49 40 324-122
Attention: Mr. Klaus Bruning
<PAGE>
DEUTSCHE BANK AKTIENGESELLSCHAFT, MUNICH BRANCH
By: /s/ HANS GUNTHER NORDHUES
Address: Unternehmen und Institutionen
Riesstrasse 25
80992 Munich
Germany
Telephone:
Facsimile: +49 89 23902-033
Attention: Mr. Manfred Graeff
OLDENBURGISCHE LANDESBANK AG
By: /s/ HANS GUNTHER NORDHUES
Address: Postflach 26
26016 Oldenburg
Germany
Telephone:
Facsimile: +49 44 1210-362
Attention: Mr. Heinrich Rawe
The Senior Subordinated Lenders
BARCLAYS BANK PLC
By: /s/ TIM TAYLOR
Address: Bockenheimer Landstrasse 38-40
60323 Frankfurt am Main
Telephone: + 49 69 7161 1862
Facsimile: + 49 69 7161 1889
Attention: Rolf-Peter Ruoff/Diva Cortellini
<PAGE>
Exhibit 10.8
OPTION RELEASE AND IPO-FACILITATION AGREEMENT
by and between
1. SPS
and
- only to the extent expressly set forth in this Agreement -
2. The Schoellers
3. SPI
and
4. IFCO Systems
5. GE Capital
6. GE Subsidiary
- the parties under no. 1 - 6. hereinafter referred to as "the Parties" -
<PAGE>
PREAMBLE
1. Reference is made to a certain investment agreement entered into between
the Parties (except for IFCO systems) on August 21/22, 1997 by notarial deed no.
1178/1997 of the notary Dr. Rolf Jauch, Stuttgart, as amended by deed no.
1416/1997 of the same notary dated October 15, 1997 and as further amended by
deed no. 1536/1997 of the same notary dated November 4/5, 1997 (the "Investment
Agreement") which Investment Agreement is setting forth, among others, the terms
and conditions of GE Capital's Investment in IFCO Europe Beteiligungs GmbH
("IFCO Europe") which serves as a holding company for a group of companies
engaged in the lease of multi-use plastic crates and containers.
GE Capital has informed the other Parties:
"For the Investment Agreement, GE Capital designated General Electric Erste
Beteiligungs GmbH as "GE Subsidiary" to be the Investment vehicle and legally
assigned to it its rights, claims and obligations under the Investment
Agreement; however, GE Capital retained its economic interest in its rights,
claims and obligations under the Investment Agreement with respect to Phases II
and III, in particular with respect to the options and rights referred to in
sec. 2 of this Agreement, in order to keep its full flexibility with respect to
the potential reassignment or assignment to other affiliates for Phase II and
Phase III. Thus, General Electric Erste Beteiligungs GmbH reassigned its rights,
claims and obligations under the Investment Agreement with respect to Phase II
and Phase III, at GE Capital's request, to GE Capital."
Section 27(6) of the Investment Agreement as amended remains untouched.
2. IFCO Europe is a German limited liability company registered with the
Commercial Register at the Amtsgericht Munich under HRB 117230. The shareholders
of IFCO Europe are SPS with one common share in the nominal amount of DM
3.040.000,00 (76%) and GE Subsidiary with one preferential share in the nominal
amount of DM 960.000,00 (24%) of the total share capital of DM 4.000.000,00.
3. SPS is the sole shareholder in MTS Okologistik Verwaltungs GmbH, a
limited liability company registered with the Commercial Register at the
Amtsgericht Munich under HRB 101883 ("MTS"). SPS holds three shares in MTS in
the nominal amounts of DM 5.000,00. DM 5.000,00 and DM 40.000,00 summing up to a
total share capital of DM 50.000,00.
4. Schoeller International Logistics Beteiligungsgesellschaft mbH is a
German limited liability company registered with the Commercial Register at the
Amtsgericht Munich under HRB 106637 ("SIL"). Gebr. Schoeller
Beteiligungsverwaltungs GmbH owns six shares in SIL in the total nominal amount
of DM 50.000,00 representing the total share capital of that company.
5. IFCO Systems is a Dutch stock corporation registered in the Trade
Register of the Chamber of Commerce of Amsterdam under no. 34113177 with a
issued share capital of euro 50,000.00 divided into 5000 shares in the nominal
amount of euro 10 each. IFCO Systems is a non-trading stock corporation the
stock in which will have been acquired prior to the Closing of this Agreement by
SPS.
6. It is the intention of the Parties hereto that IFCO Systems shall serve
as a holding company for certain companies of the Schoeller group of companies
in order to make an initial public offering ("IPO") of shares in IFCO Systems at
the "Neue Markt" in Frankfurt/Main, Germany or another official stock exchange
elsewhere. Simultaneously with the IPO, but not conditional only upon its
occurrence, IFCO Systems and PalEx, Inc., a corporation organized under the laws
of the state of Delaware ("PalEx") and currently listed at NASDAQ, desire to
combine their respective businesses, stockholder groups, managements and other
constituencies in a merger transaction resulting in a corporate integration (the
"Merger"). The IPO is intended to raise new capital for IFCO Systems.
7. IFCO Systems, SPS and GE Capital have the common intention to reasonably
facilitate the IPO and the Merger and recognize that the cooperation between SPS
and GE Capital on the basis of the Investment Agreement requires certain changes
for the purpose of the IPO or the Merger to occur in accordance with
<PAGE>
the terms and conditions of this Agreement as set forth hereinafter. In
particular, IFCO Systems, with the consent of all parties hereto, explicitly
adheres to the Investment Agreement to the extent that it shall not take any
actions which would diminish or impair the rights of any party thereto.
In consideration of the foregoing, the Parties agree as follows:
Section 1
Facilitation of the Merger and the IPO
1.1 Prior to or at the Closing of this Agreement, SPS, shall have by way of
capital increase or otherwise, contributed to IFCO Systems
a. its share in the nominal amount of DM 3.040.000,00 in IFCO Europe;
b. its shares in the nominal amount of DM 5.000,00, DM 5.000,00 and DM
40.000,00 in MTS;
c. its shares in the normal amounts of DM 11.300,00, DM 11.200,00,
DM 12.500,00, DM 1.200,00, DM 12.500,00 and DM 1.300,00 in SIL having acquired
such shares from GSB.
1.2 GE Subsidiary herewith, as a precautionary matter, consents to the
transfer of the share in IFCO Europe to IFCO Systems for purposes of the IPO
and/or the Merger.
1.3 Subject to the Closing of this Agreement, SPS, GE Capital and GE
Subsidiary agree to use reasonable efforts to facilitate the IPO and/or the
Merger as described in no. 6 of the Preamble to this Agreement and SPS, GE
Capital and GE Subsidiary agree to take, or cause to be taken, all actions and
reasonably cooperate in all things necessary, proper or advisable for the making
of the IPO and the consummation of the Merger, such actions and cooperations
being in particular, but not limited to, the actions and cooperations as listed
hereinafter:
1.3.1 To have IFCO Systems be listed at the "Neue Markt" in Frankfurt/Main or
any other official stock exchange with an initial public offer of IFCO Systems
stocks to be made not later than December 31, 1999 (the "IPO Deadline"); the
occurrence of the IPO within the meaning of this Agreement shall be the date at
which any stocks of IFCO Systems have been listed for the first time at the
"Neue Markt" in Frankfurt/Main or any other official stock exchange;
1.3.2 To have IFCO Systems establish IFCO, Inc., a Delaware corporation which
shall be merged with PalEx whereby PalEx shall be the surviving company and
whereby the rights to receive shares in PalEx after the Merger shall be
contributed to IFCO Systems against the issuance of new stocks representing at
least 32%, but not more than 35% of the total stock capital after the capital
increase (however before the capital increase for the IPO), such new stocks to
be subscribed to exclusively by the owners of the rights to receive shares, or
the shares, in PalEx after the Merger; the occurrence of the Merger within the
<PAGE>
meaning of this Agreement shall be date at which the Merger described in this
Section 1.3.2 will have become effective and consummated.
1.4 GE Capital shall make reasonable efforts to introduce IFCO Systems as a
supplier to all appropriate General Electric companies.
Section 2
Release of Options and Rights
2.1 At the Closing of this Agreement and under the conditions precedent that
the IPO or the Merger shall have occurred (the "Condition": aufschiebende
Bedingung) and provided further that the Condition shall have occurred not later
than the IPO Deadline, the Investment Agreement shall terminate in its entirety
and all rights, remedies and obligations of the Parties under the Investment
Agreement are herewith canceled and waived; such rights, remedies and
obligations being in particular, but not limited to
2.1.1 Any and all obligations of SPS under the MTS Option pursuant to Section 8
of the Investment Agreement; for the avoidance of doubt, the Parties are in
agreement that this Section 2.1.1 does not prejudice either party's right to
assert its respective legal position with respect to the exercise of the MTS
option;
2.1.2 Any and all obligations of SPS under the GE Capital Phase II Option
pursuant to Section 10 of the Investment Agreement;
2.1.3 Any and all obligations by IFCO Europe and SPS under the redemption right
of GE Subsidiary pursuant to Section 15 of the Investment Agreement;
2.1.4 Any and all obligations by SPI under the GE Capital SPI preferred
dividend certificate call option pursuant to Section 15A of the Investment
Agreement.
2.1.5 Any and all obligations by SPS under the GE Capital Phase III Option
pursuant to Section 16 of the Investment Agreement;
2.1.6 Any and all obligations by the Schoellers under the SIL Option pursuant
to Section 21 of the Investment Agreement; for the avoidance of doubt, the
Parties are in agreement that this Section 2.1.6 does not prejudice either
party's right to assert its respective legal position with respect to the
exercise of the SIL Option;
2.1.7 Any and all obligations by SPS under the GE Capital 2% Option pursuant to
Section 22 of the Investment Agreement;
2.1.8 Subject to the occurrence of the Condition, any of the rights, remedies
and obligations of the parties which are incorporated in consummation documents
as shown in the Schedules to the Investment Agreement shall, for the avoidance
of doubt, be herewith canceled and waived vis-a-vis the respective parties of
such consummation documents.
<PAGE>
2.2 At the Closing of this Agreement, SPS, the Schoellers and SPI herewith
accept the release and waiver pursuant to Section 2.1.
Section 3
Consideration for the Release
3.1 As consideration for the release as set forth in Section 2 and, further,
subject to the Condition and, provided further, that the Condition shall have
occurred not later than the IPO Deadline, IFCO Systems undertakes to pay to GE
Subsidiary the sum of
DM 45.000.000,00
(in words: fortyfive million Deutsche Mark).
The undertaking shall be made substantially in the form of the Promissory Note
as attached in Appendix 2 of this Notarial Deed which Promissory Note shall also
be subject to the Condition.
3.2 The Promissory Note shall be secured by Share Pledges in the form as shown
in Appendix 3 of this Notarial Deed.
3.3 The parties are in agreement that in an Event of Default as defined in
the Promissory Note, neither GE Subsidiary nor GE Capital, including through
their affiliates, shall be entitled to acquire the shares in IFCO Europe or SIL
by realizing the security under the Share Pledges and, furthermore, GE Capital
and GE Subsidiary, including through their affiliates, undertake not to acquire
such shares from a third party, provided that such third party has acquired such
shares by realizing any security interest in such shares, in which event GE
Subsidiary shall receive the proceeds from such shares in the amount of the
principal outstanding under the promissory note plus interest accrued thereon,
after payment to any prior ranking lien holders of the pledged shares. If the
sale has not occurred within 180 days after an Event of Default, GE Capital has
a right to the pledged shares in IFCO Europe or SIL, provided that GE Capital
sells the shares within 180 days after their acquisition. In the event of a
breach of this undertaking, GE Capital upon request by SPS, shall sell or cause
such shares to be sold and transferred to IFCO Systems against payment of their
nominal value.
Section 4
Representations and Warranties by SPS, Remedies
4.1 SPS represents and warrants (garantiert) to GE Capital - under exclusion
of all warranties and representations other than listed hereinafter - that as of
the Closing of this Agreement, the following statements are true, complete and
correct:
4.1.1 SPS
SPS has all necessary power and authority to execute and deliver this
Agreement and to consummate the transactions provided by this Agreement.
<PAGE>
4.1.2 IFCO Systems
IFCO Systems is a Dutch stock corporation with an issued share capital
of 50,000.00 euros divided into 5000 shares of 10 euros each. SPS is the
unrestricted owner of such shares and such shares are not subject to any rights
or encumbrances by third parties. The share capital of IFCO Systems is fully
paid in. Since its establishment, IFCO Systems has not been engaged into any
business and has incurred no obligations or liabilities other than pursuant to
this Agreement. The equity capital of IFCO Systems prior to the transactions
contemplated in Section 1 is not less than its share capital except that the
equity capital may have been reduced by bank charges for the administration of
the bank accounts of the company and the cost of establishing the company.
4.1.3 IFCO Europe, MTS, SIL and IFCO, Inc.
a. By consummation of the transactions contemplated in Section 1.1, IFCO
Systems shall become the owner of one share in the nominal amount of DM
3.040.000,00 in IFCO Europe and of all existing shares in SIL and MTS. The
shares in IFCO Europe, MTS and SIL are not subject to any rights or encumbrances
by third parties except for the shares in IFCO Europe which are pledged to BZW
Deutschland, Branch of Barclays Bank plc on the basis of the Share Pledge
Agreement dated November 4/5, 1997, notarial deed no. 1542/1997 of the notary
Dr. Jauch in Stuttgart and except for the shares in IFCO Europe and MTS which
are subject to the other option rights and security interests pursuant to Deed
No. 1563/1997J of the notary Dr. Jauch in Stuttgart. GE Capital and GE
Subsidiary confirm that the contents of the aforementioned notarial deeds are
fully known to them. SIL and MTS are duly organized, validly existing and in
good standing under the laws of the Federal Republic of Germany and duly
qualified or authorized to conduct business. The share capital of MTS and SIL
has been fully paid in and no repayments of the share capital have been made.
b. True, correct and complete copies of preliminary unaudited financial
statements of MTS and SIL as of December 31, 1998 are attached to this Agreement
in Annex 1 (the "Financial Statements"). The Financial Statements were prepared
from the books and records of MTS and SIL and present, subject to the annual
audit, a true and fair view of the respective financial positions of MTS and
SIL, in each case in accordance with generally accepted accounting principles in
Germany applied on a basis consistent with the accounting principles of the
preceding fiscal year. The parties refer to Annex I; the Annex was submitted to
their knowledge and signed by them. The parties waive their right to have the
annex read out to them.
c. Since December 31, 1998, there has not been any material adverse effect
or any development or combination of developments of which SPS has knowledge
that is reasonably likely to result in a material adverse effect on the
business, assets, operations, prospects or financial or other conditions of MTS
and/or SIL, and/or IFCO, Inc., except for the dispute with Intertape Polymer
Group (IPG). Furthermore, since December 31, 1998, there has not been any effect
or any development or combination of developments of which SPS has knowledge
that is reasonably likely to cause substantial liability of MTS and/or SIL
and/or IFCO, Inc., and which GE Capital has not been informed of.
4.1.4 HoldCo
Subject to the terms set forth in Section 5 SPS shall establish a wholly
owned subsidiary, which shall be a German limited liability company with a share
capital of 25,000.00 euros (the "HoldCo"). HoldCo shall be duly organized,
validly existing and in good standing under the laws of the Federal Republic of
Germany and duly qualified or authorized to conduct business. The share capital
of HoldCo shall be fully paid in.
4.2 If SPS is in breach of any of the warranties or representations under
Section 4.1 of this Agreement, SPS shall remedy the breach without undue delay,
but in any event not later than 60 days after receipt of a written request by GE
Capital. If the remedy of a breach of warranty by SPS requires financial
compensation to GE Capital or if for whatever other reason SPS does not cure the
breach within due time, SPS shall financially compensate GE Capital for an
amount equal to the aggregate amount of the damage resulting
<PAGE>
from all breaches of warranty, in no event, however, for an amount exceeding DM
30.000.000,00 for all breaches of warranty in the aggregate. SPS shall have the
right, at its own discretion and instead of paying a financial compensation, to
deliver stocks in IFCO Systems the aggregate value of which shall be equal to
the amount of financial compensation owed to GE Capital hereunder as determined
on the basis of the average listing price at all stock exchanges where IFCO
Systems stocks are listed as of the day when SPS first receives written notice
by GE Capital of any claim made hereunder.
4.3 Rights and obligations in connection with representations and warranties
contained in this Section 4 shall become time-barred (Verjahrung) within 18
months after the Closing of this Agreement.
Section 5
Contribution by GE Capital to IFCO Systems
5.1 Upon request by GE Capital or SPS to be made in writing at any time after
the Closing of this Agreement, but prior to the occurrence of the Condition, GE
Subsidiary shall transfer its preferential share together with all rights in
IFCO Europe in the nominal amount of DM 960.000,00 to IFCO Systems. Prior to or
upon such request, SPS shall contribute all stocks in IFCO Systems to a wholly
owned subsidiary of SPS to be then established, which shall be a German limited
liability company with a share capital of euro 25,000.00 (the "HoldCo"). As sole
consideration for the transfer of the preferential share, GE Subsidiary shall
receive a debenture, in the form attached hereto as Annex 2 (the "Debenture")
and subject to the provisions set forth in this Annex 2. The costs of
notarization in connection with the contribution of GE Subsidiary's preferential
share shall be split between GE Capital and IFCO Systems.
5.2 SPS undertakes to maintain ownership and title to its shares in HoldCo
for the period of at least one year following the occurrence of the IPO. In the
event that SPS sells all or the majority of its shares in HoldCo, SPS warrants
that the party which acquires these shares will assume the obligations of SPS
pursuant to sentence 1, above. If the acquiring party does not assume such
obligations, SPS will be held liable for any damages arising as a consequence of
this non-assumption.
5.3 In the event that SPS sells all or the majority of its shares in HoldCo,
SPS shall, at the request of GE Subsidiary, arrange for the sale of an equal
proportion of GE Subsidiary's shares in HoldCo.
5.4 SPS undertakes not to take unfair advantage of its position as
controlling or majority shareholder of HoldCo at GE Subsidiary's or GE Capital's
expense, in particular not to take or support, except with the express consent
of GE Capital, any action which would dilute the value of the Debenture Stock
Parcel as defined in the Debenture and could not be justified on bona fide arm's
length terms: provided, however, that all actions agreed upon under the
provisions of this agreement shall be deemed to have been made with the consent
of GE Capital.
<PAGE>
Section 6
Representation and Warranties of GE Capital and GE Subsidiary
6.1 GE Capital and GE Subsidiary, jointly and severally, represent and
warrant (garantieren) - under exclusion of all warranties and representations
other than listed hereinafter - to SPS that as of the date of Closing of this
Agreement, the following statements are true, complete and correct.
6.1.1 GE Capital is a duly organized corporation, validly existing and in good
standing under the laws of New York and has all the necessary powers and
authorizations to carry on its business as presently being conducted. GE Capital
has all the requisite corporate power and authority to execute and deliver, and
to perform its obligations under this Agreement and the other documents to be
executed and delivered by GE Capital pursuant hereto. The Agreement has been
duly authorized by all necessary corporate action and has been (at the Closing)
duly executed and delivered by GE Capital and is (or upon execution and delivery
will be) the valid and binding obligation of GE Capital, enforceable against GE
Capital in accordance with its terms and no offset, counterclaim or defense
exists to the performance by GE Capital of such Agreement.
6.1.2 Neither the execution and delivery by GE Capital of this Agreement nor
any other documents to be executed and delivered by GE Capital in connection
herewith nor compliance by GE Capital with the terms an provisions hereof or
thereof will conflict with or result in a breach of any of the terms, conditions
or provisions of (i) the Articles of Incorporation or Bylaws of GE Capital, or
(ii) any judgment, order, injunction, decree or ruling of any court or of any
governmental entity or any law, statue or regulation to which GE Capital is
subject.
6.2 GE Capital and GE Subsidiary, jointly and severally, represent and
warrant (garantieren) to SPS that as of the date of GE Subsidiary's contribution
of the share in IFCO Europe pursuant to Section 5 of this Agreement, IFCO
Systems shall become the unrestricted owner of the share in the nominal amount
of DM 960,000.00 in IFCO Europe, such share being free from any rights or
encumbrances by third parties including GE Capital.
6.3 GE Capital and GE Subsidiary, jointly and severally, represent and
warrant (garantieren) to SPS, the Schoellers, SPI and IFCO Systems, to each of
them individually and severally, that as of the date of the Closing of this
Agreement and as of the date of the occurrence of the Condition, GE Capital and,
to the extent mentioned in the information by GE Capital in para 1. of the
Preamble, GE Subsidiary, are the sole owners of rights under the Investment
Agreement which are the subject of the release pursuant to Section 2 and that
such rights are free from any rights or encumbrances by third parties including
any company affiliated with GE Capital other than GE Subsidiary.
6.4 Rights and obligations in connection with representatives and warranties
contained in this Section 6 shall become time-barred (Verjahrung) within 18
months after the date when the contribution pursuant to Section 5 is made except
that rights and obligations in connection with representations and warranties
contained in section 6.3 shall be time-barred within 18 months after the date of
the occurrence of the Condition.
Section 7
Investment Agreement
7.1 The Parties confirm herewith that the Investment Agreement shall remain
in full force and effect except as otherwise set forth in this Agreement. The
parties further confirm that the rights and obligations of the parties
thereunder shall not operate to prevent the transactions contemplated by this
Agreement to be consummated. In the event that the Condition shall not have
occurred on or before the IPO Deadline, all deadlines or dates for the exercise
or existence of rights and obligations including, but not limited to, the
reference dates for financial statements and similar, under the
<PAGE>
Investment Agreement, unless elapsed at the time of Signing of this Agreement,
shall be extended by one year. The extension shall in particular, but not only,
include any deadlines or dates for the exercise or existence of options under
the Investment Agreement. The extension shall also include any deadlines or
dates for the exercise or existence of rights and obligations of the parties
under all Schedules to the Investment Agreement, in particular but not limited
to, the Supply Agreement in Schedule 9.
7.2 SPS and IFCO Systems shall have the right to request one extension of the
IPO Deadline until December 31, 2000 by giving written notice of such request to
GE Capital together with the delivery of the financial statements of IFCO Europe
as of December 31, 1999 pursuant to Section 10.2 of the Investment Agreement.
Upon receipt of such notice by GE Capital, the IPO Deadline within the meaning
of this Agreement shall be extended until December 31, 2000 and Section 7.1
shall apply mutatis mutandis; in particular, but not limited to, all deadlines
and dates shall be extended by one year over and above the extension in Section
7.1
Section 8
Conditions to the Performance of this Agreement
8.1 This Agreement becomes legally binding upon the signing of the Parties
hereto. The performance of this Agreement shall be subject to the conditions
precedent as listed hereinafter and the closing of this Agreement shall occur on
the day when all the conditions precedent as listed hereinafter have been
fulfilled (the "Closing"):
8.1.1 consummation of the transactions contemplated in Section 1.1;
8.1.2 written consent to the performance of this Agreement by BHF Bank
Aktiengesellschaft as Agent and Security Trustee for the Joint Arrangers and Co-
Arrangers under the Senior Facility Agreement between IFCO International Food
Container Organization GmbH and IFCO Europe Beteiligungs GmbH and the Joint
Arrangers, Co-Arrangers and Agent dated February 20, 1998;
8.1.3 written consent by Barclays Bank plc. as Agent for the Arranger and the
Security Trustee under the Senior Subordinated Facility Agreements between IFCO
International Food Container Organization GmbH, IFCO Europe and the Arranger and
Security Trustee dated February 20, 1998 regarding the share of SPS in IFCO
Europe, and further as pledgee under the Share Pledge Agreement, deed no.
1542/1997 of the notary Dr. Jauch in Stuttgart dated November 4/5, 1997.
8.2 In the event that any or all of the conditions precedent pursuant to
Section 8.1 have not been fulfilled until July 15, 1999, this Agreement shall
not close and the conditions precedent shall be regarded as finally not met.
<PAGE>
Section 9
Board Observation Rights
IFCO Systems and SPS grant to GE Subsidiary and GE Capital board observation
rights with respect to IFCO Systems and to the extent permissible under Dutch
Stock Corporation law as follows:
a) right of presence to observe the shareholder meetings:
b) right to receive supervisory board minutes, if any; and
c) right to receive audited annual statements and internal quarterly reports
when available.
IFCO Systems shall cover adequate travel expenses for one representative of GE
Subsidiary and one representative of GE Capital to attend such board meetings up
to four times per fiscal year.
Section 10
Final Provisions
10.1 The Parties agree to reasonably cooperate with regard to this Agreement
and their obligations constituted herein.
10.2 All information disclosed by either Party to the other in connection with
the transaction contemplated by, or the discussions and negotiations preceding
this Agreement shall be kept confidential by such other Party and shall not be
used other than as contemplated by this Agreement.
10.3 No press releases or any public disclosure, either written or oral of
this Agreement, including the transactions contemplated by this Agreement, shall
be made without the prior knowledge and the written consent of the Parties,
except as required by law or self-regulatory rules of any stock exchange or as
required for the prosecution of any claims. No release or disclosure will be
made to any self-regulatory body or government agency by either party without
the other's prior review.
10.4 This Agreement constitutes the entire and exclusive agreement and
understanding between the Parties. Any amendment to this Agreement including to
this clause shall be made in writing, unless notarial form is required.
10.5 Should a provision of this Agreement be or become invalid or
unenforceable, such shall not affect the validity of the remaining provisions.
The Parties agree in such case to replace the invalid or unenforceable provision
by a valid or enforceable one which comes closest as possible to the intent and
purpose of the provision to be replaced.
10.6 Neither Party may assign, in whole or in part, any right or claim under
or in connection with this Agreement without prior written consent of the
respective other Party.
10.7 This Agreement shall be governed and construed exclusively in accordance
with the laws of the Federal Republic of Germany, excluding its conflict of law
regulations.
10.8 All disputes arising out of or in connection with this Agreement and its
performance, including its validity, shall be finally settled according to the
arbitration rules of the German Institution of Arbitration e.V. (DIS) without
request to ordinary courts of law. The arbitration tribunal may also decide on
the validity of this arbitration rule. The language of the proceedings shall be
English; however, documents in the German language might also be presented as
long as a complete, correct and true translation of such document into English
is also presented.
10.9 the venue of the arbitration tribunal shall be Frankfurt/Main, Federal
Republic of Germany.
10.10 All Annexes to this Agreement constitute an integral part
of this Agreement.
<PAGE>
10.11 The costs of notarization and consummation of this Agreement and its
Annexes shall be borne by GE Capital. GE Capital shall further bear the cost
of the legal advisers to SPS in connection with this Agreement and its Schedules
up to a maximum amount of US $100.000,00. In the event that the Condition has
finally not occurred, SPS shall fully reimburse GE Capital for such cost of its
legal advisors. The cost of all other advisers shall be borne by the parties
requesting such advice.
10.12 Notices and all correspondence relating to this Agreement shall be sent
to:
GE Capital:
General Electric Corporation
260 Long Ridge Road
Stamford, CT 06927-5000, USA
GE Subsidiary:
General Electric Erste Beteiligungs GmbH,
Stahlstrasse 42, 65428 Russelsheim
with a copy to: Gleiss Lutz Hootz Hirsch
Dr. Gerhard Weger
May bachstr. 6
70469 Stuttgart
IFCO Systems, SPS and GSB:
IFCO Systems N.V.
Burgemeester Rijndersln 20
1185MC Amstelveen
Schoeller Packaging Systems GmbH
Zugspitz strasse 15
82049 Pullach
Gebruder Schoeller Beteiligungs verwaltungs GmbH
Zugspitz strasse 15
82049 Pullach
with a copy to: Boesebeck Droste
Dr. Johannes Meinel
Schluter strasse 37
10629 Berlin
10.13 GE Capital, GE Subsidiary, IFCO Systems and SPS shall make a common
determination evinced in writing, for use by either Party, upon the occurrence
of the Condition and the date thereof or, as the case may be, and the latest by
January 1, 2001 on whether the condition has finally not been met or occurred.
<PAGE>
-2-
AGREEMENT
TO AMEND
THE OPTION RELEASE AND IPO FACILITATION AGREEMENT
The Parties agree upon the following amendments to the Option Release and IPO
Facilitation Agreement:
1. Appendix 3, Share Pledge Agreement
a) The third paragraph of II.2.(c) shall be amended to read as follows:
"On the first day of each calendar year during the term of this pledge
but for the first time in 2001, a value to loan ratio ("V/L-Ratio")
shall be determined. The value to be considered ("Value") shall be
calculated according to the following formula:
[(EBITDA of IFCO Europe + SIL) x EBITDA multiple of IFCO Systems] minus
[(Interest Bearing Debts minus Cash) x (Sales IFCO Europe + SIL)]
-----------------------
(Sales IFCO Systems)
EBITDA shall be determined under US-GAAP. The loan to be considered in
the V/L-Ratio ("Loan") shall be the principal of the Note outstanding
as of the dates of the aforementioned determination plus accrued
interest as of such dates. "
b) At the end of II.7. the following shall be inserted:
"(d) GE Capital shall not be entitled by way of exercising its remedies
pursuant to (a) above to arrange for a public auction or any other sale
of the Pledged Shares, with exception of the shares in SIL, or
<PAGE>
-3-
to sell the Pledged Shares, with exception of the shares in SIL, in
accordance with (a) above last sentence, as long as any loans made
under the Senior Facility Agreement, as defined in this deed (Annex 2,
II), or the Senior Subordinated Facility Agreement, as defined in the
Senior Facility Agreement, have not been fully repaid."
2. Section 5 Option Release and IPO Facilitation Agreement
Section 5.1 sentence 1 shall be reworded as follows:
"Upon request by GE Capital or SPS to be made in writing at any
time after the Closing of this Agreement, but prior to the
occurrence of the Condition, GE Subsidiary shall transfer its
preferential share together with all rights in IFCO Europe in the
nominal amount of DM 960.000,00 to HoldCo (as defined hereinafter)
and SPS shall procure that HoldCo promptly contributes the
preferential share by way of capital increase or otherwise to IFCO
Systems. Prior to or upon such request..."
<PAGE>
EXHIBIT 10.9
English Translation
Agreement
on the Development and Supply of
Multi Use Plastic Crates
between
1. Schoeller Plast Industries
GmbH, Zugspitzstr. 15, 82049
Pullach
- hereinafter: "SPI" -
and
2. IFCO International Food Container Organisation GmbH,
Zugspitzstr. 15, 82049 Pullach
- hereinafter: "IFCO"
<PAGE>
2
Contents
<TABLE>
<S> <C>
Preamble................................................................. 4
Part A. General.......................................................... 4
I. Scope of Cooperation.......................................... 7
II. Definitions................................................... 8
Part B. Development
I. Duties of SPI................................................. 14
II. Duty to Cooperate of IFCO..................................... 14
III. Inventions/Innovations/Property Rights........................ 15
IV. New Products and Improvements................................. 18
V. Reimbursement of Development Costs............................ 20
Part C. Supply........................................................... 20
I. Purchase and Supply of IFCO-Products.......................... 20
II. License to Certain Technology................................. 20
III. Preferable Supplier/Preferable Customer....................... 25
IV. Pricing and Repurchasing...................................... 28
V. Most Favored Customer......................................... 33
VI. Payment Terms................................................. 34
VII. Specifications and Warranties................................. 34
VIII. Transfer of Risk.............................................. 37
Part D. General
I. Assignment.................................................... 37
II. Joinder by MTS................................................ 38
III. Term.......................................................... 39
IV. Confidentiality............................................... 42
V. Cooperation and Non-Compete................................... 43
VI. Miscellaneous................................................. 45
</TABLE>
Exhibits
Exhibit 1: Breakage Rates
Exhibit 2: List of MTS-Patents
Exhibit 3: List of MTS-Products
Exhibit 4: List of Contractual Patents
Exhibit 5: List of IFCO-Products
Exhibit 6: The Specifications
Exhibit 7: License Agreement
Exhibit 8: Matrix Showing Prices based on Volume
Exhibit 9: Cost Plus Matrix
<PAGE>
3
Preamble
1. Schoeller Packaging Systems GmbH ("SPS owns 80% of the shares in SPI. Until
November ___, 1997, SPS also owned 80% of the shares in IFCO and MTS Okologistik
Verwaltungs GmbH ("MTS"). It then acquired the remaining 20% of the shares in
IFCO and MTS. In accordance with a certain investment agreement between SPS, the
owners of SPS and General Electric Capital Corporation ("GE Capital") setting
forth the terms and conditions of GE Capital's investment in IFCO and MTS, duly
notarized on August 20/21, 1997 and amended on November ____, 1997 with General
Electric Erste Beteiligungs GmbH ("GE Subsidiary") and SPI becoming a party
thereto (the amended investment agreement hereinafter referred to as: the
"Investment Agreement"), SPS will contribute 100% of the shares in IFCO to IFCO
Europe Beteiligungs GmbH ("NewCo") the shares of which will be partially (76%)
held by SPS and the remaining part being held by GE Subsidiary. If GE Subsidiary
exercises its Option to invest in MTS provided by the Investment Agreement, the
shares in MTS will be completely contributed to NewCo. Also, the participation
of GE Subsidiary in NewCo might raise to 49% or 100% due to several option
rights provided by the Investment Agreement.
2. IFCO and MTS have their main field of business in the lease of multi-use
plastic crates and containers. IFCO is serving the European Market in the range
of fresh food and MTS is serving the same market for dry goods. With "European
Market" it is meant that the geographic destination of transport crates and/or
containers lays within Europe, as understood geographically, including
Greenland, Cyprus, Turkey and Russia. The multi-use transport container system
used by IFCO and some of the containers used by MTS have been developed in close
cooperation with SPI and its subsidiaries.
3. The development work performed by SPI and its subsidiaries was and will be
paid as part of the purchase price of future orders, Today, IFCO is a key
customer of SPI and, vice versa, SPI is a key supplier of IFCO. The patents
used by IFCO are held by a partnership under control of IFCO.
4. SPI and IFCO both wish to continue their successful development and supply
relationship independently from the ownership positions in NewCo. In
particular, SPI shall continue to develop for IFCO new types of crates and shall
work on improvements on existing crates. In accordance with past practice, IFCO
shall become owner of such further developments and new patents related to new
crates or further developments. The development services performed by SPI and
its subsidiaries shall be paid off by the purchase prices for future orders over
a certain period of time.
5. MTS with respect to its own range of products shall become a party to this
Agreement with rights and obligations as provided for IFCO once it has become a
subsidiary of NewCo.
6. Nothing in this contract shall prohibit SPI to produce and sell other
products for multi-use-container pools, provided that SPI was neither directly
nor indirectly involved in the design or the development.
NOW, THEREFORE, IFCO and SPI (hereinafter: the "Parties") agree as follows:
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4
Part A. General
I. Scope of Cooperation
1. SPI shall further develop and improve the multi-use transport container
system for pooling applications for third party logistics by order of IFCO, in
accordance with specifications agreed among the Parties from time to time. The
multi-use transport container system is intended for use for fresh food, in
particular fruits, vegetables, fish and meat.
2. SPI shall develop and improve multi-use transport containers for pooling
applications for third party logistics for dry goods in accordance with
specifications agreed among the Parties from time to time by order of MTS, once
MTS has become a party to this agreement.
3. SPI shall transfer intellectual property rights related to developments on
order of IFCO or MTS to the respective party that for a period of ten (10)
years, however, IFCO or MTS will exclusively order the respective new product or
improvement from SPI, only, in accordance with the terms and conditions of this
Agreement.
II. Definitions
For purposes of this Agreement, the following terms shall have the meanings
assigned to them below:
"Affiliate" means legally independent enterprises that in their internal
relationship are majority owned enterprises and enterprises with majority
interests ((S) 16 AktG (Stock Corporations Act)), dependant and governing ((S)
17 AktG), enterprises of the same group ((S) 18 AktG), enterprises holding
interests in one another ((S) 19 AktG) or parties of a profit and loss share
agreement ((S)(S) 291, 192 AktG).
"Breakage Rates" means the breakage rates set forth in Exhibit I for the
products marketed by IFCO at the time this Agreement is signed, plus amendments
thereto agreed upon by the Parties hereto from time to time, as the case may be,
e.g. for New Products, changes.
"Comparable Product" has the meaning subscribed for it in Section C.III.1.
"Cost Plus Formula" means the formula set forth in Section C.IV.1c.
"Data" has the meaning subscribed for it in Section B.II.1.
"Developed Invention" means all Development Results that are protectable as a
property right, in particular as a patent.
"Development Results" means all technical knowledge, documentation, information
and other results (for the avoidance of doubt, such results shall comprise
inventions, improvements and/or innovations that are protectable as a property
right, in particular as a patent) of SPI's development for and on behalf of
IFCO, as described in Section B, including New Products, improvements and
innovations to IFCO-Products and New Products, inventions
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5
within the range of the multi-use and/or returnable packaging systems, but
without know-how relating to the production process.
"Europe" means Europe in the geographical sense and Greenland, Cyprus, Turkey
and Russia. The "European Market" shall have the meaning subscribed for it in
the Preamble under no. 2.
"Introduction Period" has the meaning subscribed for it in Section C.IV.2.
"Investment Agreement" means a certain investment agreement notarized as
notarial deed no. 1187/1997J of the Notary Dr. Rolf Jauch, Stuttgart, between
SPS, the Schoellers and GE Capital and amended on November 4/5, 1997.
"License Agreement" has the meaning ascribed to it in Section C.II.
"Manufacturing Costs" has the meaning subscribed for it in Section C.IV.b.
"Minimum Resisting Period" means the time period the Products shall resist to
breakage in accordance with Section C.VII.2., such time being agreed upon the
Parties from time to time for New Products, MTS Products and New MTS Products.
For all Products marketed by IFCO at the time this Agreement is signed the
Minimum Resisting Period shall be a period of fifty-four (54) months, except for
crates that can be identified as participating on a time based lease where the
Minimum Resisting Period shall be one (1) year.
"MTS Products" means the returnable packages for pools for packages for dry
goods that can be used in third party logistics to be supplied by SPI to MTS
under license of certain patents, such patents listed on Exhibit 2, including
but not limited to the packages listed in Exhibit 3, as amended by New MTS
Products from time to time pursuant to Section D.II. of this Agreement or as
otherwise amended by mutual agreement between SPI and MTS, as the case may be.
"MTS-Option" means the right of MTS to join this Agreement and to become a party
hereto, a set forth in Section D.II.
"New MTS Products" has the meaning subscribed for it in Section D.III.
"Contractual Patents" means the patents set forth in Exhibits 2 and 3, such
lists being amended from time to time in accordance with Section B.III.4.
"New Products" has the meaning subscribed for it in Section B.IV.1.
"Raw Material Price" has the meaning subscribed for it in Section C.IV.1.b.
"Third Party IFCO Product" has the meaning subscribed in Section C.III.1.
"Third Party MTS Product" has the meaning subscribed for it in Section C.III.4.
"Person" means any individual, partnership, corporation, trust, association or
other entity.
"Plan" means the annual purchase and supply plan to be agreed between the
Parties in accordance with Section C.I.2. on a rolling forecast basis.
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6
"Production Costs" has the meaning subscribed for it in Section C.IV.1.
"IFCO-Products" means the multi-use transport crates for fresh food that can be
used in pools for third party logistics to be supplied by SPI to IFCO under
license of certain Contractual Patents, such Contractual Patents listed on
Exhibit 4, including but not limited to the products listed in Exhibit 5, as
amended by New Products from time to time pursuant to Section B.IV.2. of this
Agreement or as otherwise amended by mutual agreement of the Parties, as the
case may be.
"Purchase Price" means the price for IFCO-Products.
"Repurchase Price" has the meaning subscribed for it in Section C.IV.3.
"Specifications" means the technical description of the IFCO Products, as
provisionary contained in Exhibit C.VII.1 and provided in more detail by SPI
within 120 days after the signing of this Agreement, and as amended for New
Products from time to time in accordance with Section 6.
"Subsidiaries" means the foreign subsidiaries of IFCO as defined in the
Investment Agreement.
"Term of this Agreement" has the meaning ascribed to it in Section D.III.
Part B. Development
I. Duties of SPI
l. SPI hereby commits itself to diligently seek improvements to IFCO-Products
and to deliver without undue delay the Development Results to IFCO.
2. SPI furthermore commits itself to develop diligently potential innovations
and/or additional IFCO-Products for use in pools of returnable crates for fresh
food in accordance with specifications agreed upon the parties from time to
time.
3. During the development, SPI shall pursue the goals of lightweight
construction, recycability as well as the greatest possible stability.
4. SPI shall, without undue delay, inform IFCO on possible improvements,
innovations and the current development results. For the avoidance of doubt,
the obligation for confidentiality, as provided in Section D.V. shall apply.
II. Duty to Cooperate of IFCO
1. IFCO shall provide to SPI for its own use in writing any information,
documents, technical specifications, new requirements, potential innovations or
applications and experience reports that can potentially lead to improvements of
IFCO-Products. For the avoidance of doubt, the obligation for confidentiality
provided by Section D.V. shall apply for such Data (hereinafter "Data") which
IFCO possesses and which is necessary for the performance of the development.
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7
2. IFCO shall reasonably assist SPI in the development of new design
proposals.
3. Also, IFCO shall not order third parties to make development without the
prior written consent of SPI.
III. Inventions/Innovations/Property Rights
1. SPI hereby commits itself to achieve Development Results which are
unencumbered by the property rights of third parties. However, SPI shall not be
obliged for a particular patent research.
2. In the event third-party property rights which oppose the Development
Results be known to SPI, the latter must immediately inform IFCO in writing
thereof after receiving such knowledge and attain the decision of IFCO regarding
the use or non-use thereof. Inventions which were made by SPI prior to the
start of the development work hereunder and which have been registered or for
which property rights have been granted must also be disclosed in writing as
soon as they become relevant in the development work performed for IFCO.
3. Insofar as it be necessary, for the use of the Development Results, to use
inventions which were made by SPI prior to the start of the development work to
be performed hereunder which have been registered or for which property rights
have been granted, IFCO shall receive a nonexclusive licence unlimited in time
and free of charge, but restricted to the use of the Development Results. The
license shall include the power to grant sublicenses in case of either IFCO
being entitled to use an alternate supplier in accordance with Section C.I.4. or
the Term of this Agreement has ended, including the case of early termination.
In the event such early termination by SPI for which IFCO is responsible,
however, SPI shall be entitled for a license fee in the amount of 10 % of the
purchase price of the respective Product for the remainder of the original [if
the agreement would not have been terminated earlier] (ten (10) years) Term of
this Agreement has the contract not been terminated. The power to grant
sublicenses, however, is subject to SPI's prior written approval which shall not
be unreasonably withheld.
4. In the event of a Developed Invention, SPI shall immediately have the
relating property right(s) being registered and protected within Europe on
behalf and on the expense of IFCO. In particular, IFCO shall be exclusively
entitled to any European patent derived from any IFCO Product or IFCO-Patent.
In such event, the Term IFCO-Patent shall also apply on such new Contractual
Patent. In the event that IFCO acquires a European patent for a New Product, it
shall grant to SPI an exclusive license free of charge to manufacture said New
Product, only for the term of this Agreement as provided in Section D.III. SPI
can also use these patents free of charge for the production of products for
third parties that are not in any way competitive to IFCO and/or MTS, provided,
however, that the compound of the Purchase Price according to Section C.IV.4c(v)
will be adjusted downwards to reflect a fair and adequate portion of the
research and development costs related to such property right. If and when such
patent will be used for third party products, SPI shall without undue delay
inform IFCO of the use. At the end of the Term of this Agreement (for the
respective IFCO-Product) the license of SPI shall become
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8
non-exclusive provided, however, that IFCO shall not use such Contractual Patent
outside of its business.
IV. New Products and Improvements
1. "New Products" are all products, that are either (i) products developed by
SPI for and on behalf of IFCO that are additional to IFCO-Products, e.g.
products having characteristics (other than size, colour and/or weight)
different from IFCO-Products, such characteristics being particularly developed
for certain goods or a certain range of goods, or (ii) products (including, but
not limited to IFCO-Products) improved by a Developed Invention.
2. IFCO shall have the right to purchase New Products exclusively from SPI and
to market New Products. New Products shall be governed by the terms of this
Agreement and incorporated in the term "IFCO-Products" once IFCO has given
notice in writing that it intends to market said New Product, provided, however,
that such notice has been given without undue delay and no later three (3)
months after a respective offer (in writing) by SPI. The foregoing
notwithstanding, SPI shall have the right to market New Products on a non-
exclusive basis without paying any fees to IFCO to third parties in the event
that IFCO fails to market such New Products successfully in accordance with the
mutually agreed upon marketing plan for the respective New Products within the
thirty-six (36) months immediately following their actual commercial
introduction. SPI shall fully cooperate with IFCO and undertake its best
efforts that IFCO will achieve the market plan.
3. If IFCO has, nevertheless, failed to meet the market plan, SPI shall also be
entitled to buy out all respective inventory of IFCO relating to said product
and to indemnify IFCO for all costs occurred in connection with the marketing of
said product. If SPI exercises the above mentioned right, the respective New
Product shall no longer be an IFCO-Product.
V. Reimbursement of Development Costs
The service charge for SPI's development services shall be compensated in terms
of the Purchase Prices in accordance with C. hereof. The Parties acknowledge
that, as a result, IFCO will pay for SPI's development an amount that is
directly related to the commercial success of the respective development and
such payment only is affected if and to the extent that (i) SPI's development
results in New Products, and (ii) IFCO has accepted to market such New Product.
Part C. Supply
I. Purchase and Supply of IFCO-Products
1. During the Term of this Agreement subject to Sections C.II and C. III below,
SPI for the European Market, will be the exclusive supplier for the IFCO-
Products to IFCO and the Subsidiaries, and IFCO for the European Market, also,
shall acquire the IFCO-Products from SPI, exclusively. SPI shall not, at any
time during the Term of this Agreement, offer to sell, market or sell any of the
IFCO-Products to any Person other than IFCO without the express prior written
consent of IFCO.
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9
2. Prior to the beginning of each calendar year during the Term of this
Agreement, the Parties shall agree on a purchase and supply plan for the IFCO-
Products in the next calendar year (the "Plan"). Within the sixty (60) day
period immediately following the signing of this Agreement by the Parties, the
Parties shall agree in writing upon the Plan for calendar year 1998. As long as
the new plan is not in place, the provisions of the last agreed Plan shall
continue to apply. IFCO shall use all reasonable efforts to purchase on a
regular basis in accordance with the Plan then in effect and advise SPI as early
as practicable of any expected deviations from such Plan. SPI shall deliver the
IFCO-Products ordered by IFCO in accordance with the Plan. The Parties
acknowledge That the Plan for any particular year represents a good faith
estimate of IFCO's projected requirements and does not constitute a commitment
of the part of IFCO to purchase all of such quantities.
3. Actual orders shall be evidenced by an IFCO purchase order. IFCO shall
submit a written purchase order to SPI at least thirty (30) calendar days prior
to the shipment date specified in such purchase order. The purchase order shall
constitute a firm commitment by IFCO to purchase the IFCO-Products in accordance
with the terms of this Agreement. The purchase order will include all
information required by SPI to perform the order. Any changes to the purchase
orders must be in writing, signed by IFCO and confirmed by SPI.
4. In the event that SPI cannot fulfil any purchase order although such order
is according to the Plan, or if such order is not included in the Plan and SPI
has failed to use its best efforts to fulfil such order, IFCO, at its option,
may have such purchase orders filled by an alternate supplier and SPI shall
cooperate with and assist IFCO as IFCO may reasonably request. SPI shall notify
IFCO without undue delay of its inability to perform the order. SPI hereby
acknowledges and agrees that (i) IFCO requires a reliable source of supply of
the IFCO-Products, and (ii) under the circumstances described above in this
Section C.I.4., IFCO will require that an alternate supplier be available
immediately. Therefore, within sixty (60) days after the signing of this
Agreement by the Parties, SPI will assist IFCO in the selection of an alternate
supplier to act as a standby.
5. If and to the extent that SPI is in delay with any purchase order for no
more than four (4) months because of breakage of the required bottle-neck-
moulds, such delay in delivery will neither entitle IFCO to have the order
performed by an alternate supplier nor give right to any other remedy, provided
that (i) SPI has used its best efforts to have the bottle-neck mould replaced as
soon as possible, and (ii) SPI has kept a reasonable number of moulds in
reserve, has kept its equipment in good order and the damage has not been caused
by an unqualified worker being used instead of qualified worker.
II. License to Certain Technology
IFCO shall provide to SPI an exclusive royalty free license to practice and use
the Contractual Patents to manufacture the IFCO-Products during the Term of this
Agreement in accordance with the License Agreement attached hereto as Exhibit 7
(the "License Agreement"). In the event, however, that SPI cannot fulfil any
purchase order although such order is according to the Plan, or if the ordered
quantity is beyond the quantity provided by the Plan and SPI has failed to use
its best efforts to fulfil such order, notwithstanding the
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10
exclusive nature of the license IFCO shall be entitled to license the
appropriate technology to produce the IFCO-Products to the alternate supplier
selected by IFCO in accordance with Section C.I.4, above, such license being
restricted, however, to the production of the respective orders.
III. Preferable Supplier/Preferable Customer
1. If IFCO is interested to buy from a third party a new product for the use in
its multi-use-transport-crate pool for fresh food applications in third party
logistics on a rental basis such product being either (i) a product additional
to IFCO-Products, e.g. a product having a characteristic (other than size,
colour and/or weight) different to IFCO-Products, such characteristics being
particularly developed for certain goods or a certain range of goods, or (ii) a
product improved by an third party intellectual property right ("Third Party
IFCO Product"), IFCO shall notify SPI in writing of such intention and the terms
and conditions of the offer of such third party prior to the conclusion of any
binding commitments. Within a period of three (3) months after receipt of the
aforementioned notice, SPI shall be entitled to notify IFCO that SPI is able to
deliver said Third Party IFCO Product or a competitive product with comparable
specifications, characteristics and features ("Comparable Product"). Upon such
notice by SPI, the Third Party IFCO Product and the Comparable Product shall
become an IFCO-Product and SPI shall deliver such IFCO-Product under the terms
and conditions offered by the third party for its Third Party IFCO Product,
unless the product of SPI is superior, starting thirty (30) days after the
respective notice by SPI, at the latest.
2. If SPI gives notice to IFCO, within the aforementioned time period, that SPI
is momentarily unable to deliver the Third Party IFCO Product or a Comparable
Product but is interested in the supply, then IFCO shall be entitled to order
the third party IFCO Product from the third party. Notwithstanding the above,
IFCO shall use its best efforts to negotiate terms and conditions that minimize
the costs for a taking up of production by SPI after a twenty-four (24) months
of supply. IFCO shall ask for advice by SPI. Also, SPI shall be entitled to
request IFCO to have the supply transferred from the third party to SPI at the
end of the twenty-four (24) months term, provided, however, that SPI has
respected a three (3) months notice period to the end of the above mentioned
term. If SPI so requests, the Third Party IFCO Product and the respective
Comparable Product shall also become an IFCO-Product and SPI shall be
exclusively entitled but also obliged to deliver such new IFCO-Product to IFCO
in the future. Any payments that have to be made to the third party supplier in
connection with the transfer of production shall be shared between IFCO and SPI.
3. For the avoidance of doubt, if SPI does within the time frame given neither
give the notices provided under Section C.III.1. first sentence nor the notice
provided under Section C.III.2. first sentence, IFCO shall be free to order the
Third Party IFCO Product from the third party.
4. Sections C.III.1. to C.III.3. shall apply to MTS, mutatis mutandis, if MTS
has joined this Agreement, with respect to packages of third parties that MTS is
interested to buy from a third party for the use in its multi-use package pool
for dry goods applications in third party logistics ("Third Party MTS
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11
Products"). If such Third Party MTS Products are to be supplied by SPI it shall
become a MTS-Product, as does the Comparable Product.
5. SPI hereby grants a right of first refusal to IFCO for all products that
will be used in the multi-use transport pool for fresh food applications in
third party logistics. A respective right of first refusal shall be granted to
MTS for all packages that will be used in the multi-use package pool for dry
goods applications in third party logistics. If such products or packages will
be accepted by IFCO or MTS, respectively, they shall become an IFCO-Product or
MTS-Product, respectively.
6. For the avoidance of doubt, SPI shall always be entitled to subcontract.
IV. Pricing and Repurchasing
1. The "Purchase Prices" shall be:
a) For the calendar year 1997, SPI shall sell the IFCO-Products to IFCO at a
price not greater than DM 4,43/kg.
b) For calendar years 1998, 1999 and 2000, the purchase prices of the IFCO-
Products under this Agreement shall be as set forth on Exhibit 8 hereto. The
Purchase Price will be adjusted in case and every time the raw material prices
including pigments (the "Raw Material Price") on a calendar year average will
fall more than 15% of the Raw Material Price raise more than 15% of the Raw
Material Price or raise more than 15% Raw Material Price prior to such
adjustment. The calculation set forth in Exhibit 8 is based on a Raw Material
price of DM 1,78/kg. An adjustment will also take place in case the total
aggregate manufacturing cost (the "Manufacturing Costs") will fall more than 15%
below or raise more than 15% of the Manufacturing Costs prior to such
adjustment, all calculated on a calendar year average. SPS shall be required to
prove such changes of cost by industry publications of indices. The effect of
such changes will be applied in the proportion to the value added per kg.
c) As of the calendar year 1998 IFCO shall be entitled to request that the
Purchase Prices for the IFCO-Products - except for such Products where the
Introduction Period has not yet expired - shall be calculated and mutually
agreed upon for the thirty-six (36) months after such request has been made
shall in accordance with a Cost Plus formula (the "Cost Plus Formula"). For
purposes of this Agreement, the Cost Plus Formula means that the market based
price shall be calculated based on (i) the average comparable loan moulding
cost/kg in the European Market (to be reviewed on an annual basis by the
Parties) plus (ii) raw material cost/kg plus mutually agreed upon costs/kg (iii)
for a) managing the production, b) cleaning and transport and c) reasonable and
verifiable research and development costs directly attributable to the
respective IFCO-Products (the costs under (i) to (iii) collectively: the
"Production Costs") plus a profit margin of eight percent (8%) of the Production
Costs. Upon determination of the price based on the Cost Plus Formula the time
after the end of the 36 months period, the pricing for the production years 1 to
3 will be based on a graduated declining price schedule based upon volumes, with
the purchase price declining from the first year of production until the "Cost
Plus" price is achieved by the end of the third year of production, as
illustrated in the Matrix attached as Exhibit 9.
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d) After the third year of production, IFCO and SPI will agree to pricing going
forward based on the same Cost Plus Formula as in the above Paragraph (c) for
the next thirty-six (36) months.
2. Notwithstanding the above, the Purchase Price of New Products to be
delivered by SPI to IFCO in the period agreed upon in the marketing plan (the
"Introduction Period") will be mutually agreed upon prior to their commercial
introduction and will include consideration of relevant respective research and
development costs. At the end of the Introduction Period, for a period of three
(3) years the Purchase Price for such New Product shall be determined in
accordance with a matrix substantially similar to the matrix contained in
Exhibit 8, the purchase price for the successive three (3) years of production
shall be calculated and mutually agreed upon in accordance with the Cost Plus
Formula on a gradually declining basis as set forth in Section C.IV.1.c. Then,
Section C.IV.1.d. shall apply.
3. SPI shall repurchase from IFCO all regenerate materials from defective or
broken IFCO-Products at a price (the "Repurchase Price") of DM 1,78/kg (DM 2,50
for 1,4/kg crate) which will compensate IFCO for any claims from IFCO against
SPI relating to defects in quality, but not with respect to any rejections under
Section C.VII. of this Agreement, provided that the material to be repurchased
can be used by SPI for the production of newly recycled products for IFCO or
other customers of SPI. The Repurchase Price shall be adjusted if and every
time the annual year average prices for the new raw material on the market will
fall more than 15 % below or raise more than 15 % over the Repurchase Price
prior to such adjustment. In the event that SPI cannot use the material for the
production of newly recycled products for IFCO or other customers of SPI, then
SPI shall repurchase such regenerative materials at the then highest available
price quoted in the market for the relevant quantity in lieu of the price
referred to hereinabove.
4. The prices indicated in above Section C.IV. shall be understood with
VATstill to be added in the respective amount provided by law.
V. Most Favored Customer
Subject to the provisions of the next sentence, if during the Term, SPI offers
to sell or shall sell any IFCO-Products to any other customers at a price or on
other contractual conditions more favorable than those then extended to IFCO,
SPI shall without undue delay notify IFCO of such more favorable price and
contractual conditions, and shall renegotiate the terms and conditions and which
upon acceptance by IFCO shall be retroactive to the date that such more
favorable price, terms or conditions were offered to such other customers. IFCO
will receive the benefit of the price adjustment agreed upon on all future
purchases of the IFCO-Products to the extent such contractual conditions offered
to such third party. Nothing in this Section shall be deemed to release SPI
from its exclusive obligations to IFCO.
VI. Payment Terms
SPI shall invoice IFCO for IFCO-Products delivered to or picked-up by or on
behalf of IFCO at SPI's normal invoicing intervals and payment shall be due
within thirty (30) days of IFCO's receipt of the applicable invoice. In case
IFCO will be in liquidity needs, however, payment shall not become due but
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13
within sixty (60) days after receipt of the applicable invoice, provided that
IFCO has no other possibility to satisfy the liquidity needs from third parties
(other than affiliated companies).
VII. Specifications and Warranties
1. SPI warrants that the IFCO-Products supplied by SPI to IFCO pursuant to this
Agreement shall conform to the Specifications. SPI shall deliver to IFCO within
120 days after the signing of this Agreement more detailed specifications to the
IFCO-Products currently purchased by IFCO that shall become part of the
Specifications. Also, SPI shall deliver to IFCO such detailed specifications
for every New Product that will be marketed by IFCO prior to its agreed upon
commercial introduction.
2. SPI warrants that the IFCO-Products supplied by SPI to IFCO pursuant to this
Agreement shall conform, normal wear and tear (to be indicated by handling in
compliance with SPI's handling instructions), during the Term of this Agreement,
to the Breakage Rates. In particular, SPI warrants that the IFCO-Products for
the Minimum Resisting Period will not be subject to breakage due to normal wear
and tear. In addition, SPI will work closely with IFCO to further strengthen
the durability of the IFCO-Products so that today's breakage rate resulting form
false handling will be reduced.
3. IFCO shall have the right to reject and not accept any delivery of IFCO-
Products that fail to meet the Specifications. IFCO's right of rejection shall
be exercised by delivery of written notice to SPI, identifying the rejected
products and the reason for rejection provided that any such rejection notice
with respect to detectable defects by their nature or by taking samples, shall
be valid only if received by SPI within fourteen (14) working days after
delivery of the IFCO-Products to which such rejection applies. At IFCO's
option, SPI shall use its best efforts and within a reasonable amount of time
after its receipt of any such notice of rejection from IFCO, to correct the
nonconformity and commence to ship to IFCO Products meeting the Specifications.
At IFCO's option, if IFCO rejects the IFCO-Products upon return of the crates,
IFCO shall receive a credit for the applicable invoice(s) to IFCO, or shall have
SPI replace rejected IFCO-Products at no cost to IFCO. IFCO shall return all
rejected IFCO-Products to SPI, at SPI's request and at SPI's sole cost and
expense. SPI shall bear all transportation costs including packaging, loading,
shipping and unloading for such returned IFCO-Products from locations within
Europe.
4. SPI agrees to indemnify and hold IFCO harmless from and against any and all
claims relating to third party property infringements which IFCO may suffer or
incur relating to or arising out of, directly or indirectly, the manufacture of
the IFCO-Products. SPI's obligation to indemnify IFCO shall be limited to
compensate third party claims. Furthermore, SPI shall use its best efforts to
get the third party intellectual property licensed at reasonable expenses. If
the grant of such licence shall not prove possible, SPI shall use its best
efforts to change the respective product so that the third party property right
is no longer required. If and only if such changes to a IFCO-Product are
impossible, IFCO may have the product supplied by the third party.
VIII. Transfer of Risk
<PAGE>
14
Title and risks shall pass to IFCO upon the delivery of the IFCO-Products to
IFCO or at IFCO's designated delivery location FOB.
Part D. General
I. Assignment
Without the prior written consent of the other party, this Agreement shall only
be assignable to an Affiliate of the assigning Party and only under the
condition that in case of such assignment the assigning Party guarantees the
performance of the Agreement by the assignee.
II. Joinder by MTS
MTS shall be entitled to join this contract as an additional party and such
acquire the rights and obligations provided by this Agreement for IFCO (the
"MTS-Option"), the respective provisions being applicable for MTS-Products
(instead of IFCO-Products), Third Party MTS-Products (instead of Third Party
IFCO-Products) and New MTS-Products (instead of New IFCO-Products), mutatis
mutandis. The MTS-Option has to be exercised in writing. In particular, SPI
shall be obliged for development services as provided under Section B. and MTS
shall be entitled for supply of MTS Products and New MTS Products as provided by
this Agreement for IFCO with respect to IFCO-Products and New Products. "New
MTS-Products" shall be all packages, that are either (i) packages developed by
SPI for and on behalf of MTS that are additional to MTS Products, e.g. packages
having characteristics (other than size, colour and/or weight) different to
IFCO-Products, such characteristics being particularly developed for certain
goods or a certain range of goods, or (ii) products (including, but not limited
to MTS Products) improved by a Developed Invention.
III. Term
1. Except as provided otherwise herein, this Agreement shall commence on
November 1, 1997 and end on December 31, 2007 (the "Term of this Agreement").
2. With respect to MTS-Products, the Term of this Agreement extend to the tenth
anniversary of MTS joining this Agreement. With respect to New Products and New
MTS-Products, the Term of this Agreement shall extend to the tenth anniversary
of the actual commercial introduction of the respective product, unless SPI is
entitled to market such products to third parties pursuant to Section B.IV.2,
last sentence.
3. IFCO and/or MTS shall also be entitled to request SPI that the Term of this
Agreement is extended by an additional ten (10) years term with respect to any
and/or all of the products, even for single ones. The same applies for an
extension of the Term of this Agreement after the expiration of the original ten
(10) years term for New Products and New MTS-Products. In any case of extension
according to this Section D.III.3., the Purchase Price for each IFCO-Product
and/or MTS-Product where the Term of this Agreement will be extended, as the
case may be, at the end of the original Term of this Agreement for each
respective Product shall reduce by such portion of the Purchase Price that
according to the Cost-Plus-Formula is paid for research and development as
provided by Section C.IV.4.c)(v).
<PAGE>
15
4. Regardless of any extension of the Term of this Agreement, the obligations
set forth in Section B. shall terminate on December 31, 2007.
5. In addition to any other rights or remedies of the Parties set forth in
this Agreement, this Agreement may be terminated by either party for good cause
(aus wichtigem Grund) in which case the Term of this Agreement shall end for all
products. The Parties agree that a reason for termination due to good cause
shall be in particular if
a) bankruptcy proceedings have been opened against the shareholder, or the
opening of bankruptcy proceedings is denied due to lack of assets,
b) a receiver or custodian is appointed for the other Party's business, or
c) a material portion of the other Party's business is subject to attachment or
similar process and such attachment is in the process of being realized
(Pfandverwertung).
6. In any event that either Party validly exercises a right for termination,
except SPI has terminated for good cause for which IFCO is responsible
(schuldhaft verursacht), SPI shall fully cooperate and assist IFCO, including
providing a reasonable number of person hours, to effectuate the transfer of all
manufacturing technology relating to the IFCO-Products to an alternate
manufacturer designated by IFCO and accepted by SPI, which acceptance shall not
be unreasonably withheld, conditioned or delayed: In addition, effective as of
the date of termination, SPI shall sell and convey all right in and to all
moulds used in the production of the IFCO-Products to IFCO at the lesser of (i)
fair market value determined by a neutral auditing company mutually satisfactory
to both Parties, or (ii) book value, in each case as of the date of such sale
and transfer.
IV. Confidentiality
Each Party hereto agrees for the benefit of the other Parry, its successors and
assigns, to maintain as confidential and secret all information, technical data
or knowledge relating to the IFCO-Products or to the development of new IFCO-
Products and except as expressly permitted in this Agreement or otherwise
required by law or regulation, not to use or disclose any of such information,
data or knowledge without the written consent of the other Party. Any
information, knowledge or technical data which already is generally published
and publicly available at the time of disclosure or thereafter becomes generally
published and publicly available without violation of the other Party's rights
under this Section, and any information which was already in the receiving
Party's possession, as evidenced by written documentation, prior to the
disclosure of such information to the receiving Party by the disclosing Party,
shall not be deemed confidential for purposes of this Section. The provisions
of this Section shall survive expiration or termination of this Agreement for a
period of two (2) years after the effective date of such termination.
V. Cooperation and Non-Compete
1. The Parties agree fully to cooperate in good faith with regard to this
Agreement and their obligations constituted herein.
<PAGE>
16
2. During the Term of this Agreement and - if this Agreement is terminated for
good cause by IFCO for which SPI is responsible (schuldhaft verursacht) - for
two (2) years thereafter, without the prior written consent of IFCO, SPI will
not, and SPI will not permit any Affiliate or any of their successors in
interest to, directly or indirectly (whether as a joint venturer, shareholder,
licensor, lessor, seller of bulk assets, agent, principal, independent
contractor or otherwise), manufacture, furnish, assemble, print, market, sell or
distribute to any third party any IFCO-Products on its own behalf or on the
behalf of a third party. In the event SPI breaches this obligation, IFCO at its
sole option may either request SPI to pay liquidated damages in the amount of DM
500,000 or go for its actual damages.
3. For the Term of this Agreement and - if this Agreement is terminated for
good cause by SPI for which IFCO is responsible (schuldhaft verursacht) - for a
period of two (2) years thereafter, IFCO and its Affiliates will desist from
hiring any current employees of SPI or SPI's Affiliates, and neither IFCO nor
its Affiliates shall encourage such employees to seek employment with IFCO or
its Affiliates. If IFCO nevertheless knowingly hires any employee of SPI or its
Affiliates in a leading position or any employee having particular know-how, SPI
at its sole option may either request an amount of DM 500,000 for education of
said employee or go for its actual damage.
4. For the Term of this Agreement and - if this Agreement is terminated for
good cause by IFCO for which SPI is responsible (schuldhaft verursacht) - for a
period of two (2) years thereafter, SPI and its Affiliates will desist from
hiring any current employees of IFCO or IFCO's Affiliates, and neither SPI nor
its Affiliates shall encourage such employees to seek employment with SPI or its
Affiliates. If SPI nevertheless knowingly hires any employee of IFCO or its
Affiliates in a leading position or any employee having particular know-how,
IFCO at its sole option may either request an amount of DM 500,000 for education
of said employee or go for its actual damage.
VI. Miscellaneous
1. Notices. All notices with legal effect under this Agreement shall be in
writing and shall be made by hand delivery, facsimile, overnight mail or
registered mail, postage prepaid, return receipt requested, to the following
addresses:
(a) If to SPI, to:
Schoeller Plast Industries GmbH
Telephone Number: 089-744910
Facsimile Number: 089-74491290
Attention: Mr. Herzbruch
(b) If to IFCO, to:
IFCO International Food Container Organisation GmbH
Telephone Number: 089-744910
Facsimile Number: 089-74491290
Attention:
<PAGE>
17
With a copy to:
GE Returnable Packaging Systems, Inc.
80 West Lancaster Ave.
Devon, PA 19333
Telephone Number: 610-225-2901
Facsimile Number: 610-225-2956
Attention: Assistant General Counsel
or to such other address, facsimile number or addressee as shall be furnished by
a Party by notice sent writing in accordance with the provisions of this Section
17; and such notice shall be deemed to have been given or made as of the date so
delivered, if delivered personally; when receipt is acknowledged, if sent by
facsimile; one business day after being sent, if sent by overnight mail for next
morning delivery; and four business days after so mailed, if sent by registered
or certified mail.
2. Amendments. Any amendment or supplement to this Agreement -including this
clause - shall be effective only if it is in writing and signed by all of the
Parties hereto.
3. Entire Agreement. This Agreement contains the entire agreement between the
Parties pertaining to the subject matter hereof (including MTS if the MTS-Option
is exercised) and supersedes all prior agreements between the Parties with
respect to such matters.
4. Effect of Invalidity of Certain Provisions. If any term or provision of
this Agreement shall be ineffective or unenforceable the Parties shall agree on
a valid provision which comes economically closest to the invalid provision that
shall replace such provision and this Agreement taken as a whole, without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement. In particular, if any provision should be prohibited by German or EC
antitrust law, then the Parties shall mutually agree on a valid alternative
which approximates as closely as possible the economic objective of such
prohibited provision and together with the valid and enforceable part of this
Agreement comes as closely as possible to the economic contents, rights and
obligations of this Agreement, taken as a whole and including the invalid
provisions. If the rights of IFCO with regard to Developed Inventions and
property rights developed under Section B. of this Agreement should be invalid,
then IFCO shall be entitled for reimbursement of such portions of purchase
prices paid by IFCO for the development of such property rights in the past, to
the extent such property rights were of importance with regard to the Purchase
Prices for IFCO-Products, except if SPI will notwithstanding of the invalidity
of the respective provision transfer the property rights to IFCO waiving all
rights for retransfer. Also, the Purchase Prices as of such day shall reduce
with the Cost Plus Formula no longer containing development costs.
5. Descriptive Headings. The headings in this Agreement were included for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
<PAGE>
18
6. Language of Agreement. This Agreement is executed in the German language as
the binding version.
7. Applicable Law; Arbitration. This Agreement shall be governed by, and
construed in accordance with, the laws of Germany, without giving effect to the
conflict of laws principles thereof. All disputes arising out of or in
connection with this Agreement and its performance, including its validity,
shall be finally settled according to the Arbitration Rules of the German
Institution of Arbitration e. V. (DIS) without recourse to the ordinary courts
of law. The Arbitration Tribunal may also decide on the validity of this
arbitration rule. The language of the proceedings shall be German; however,
documents in the English language might also be presented. The venue of the
Arbitration Tribunal shall be Munich, Federal Republic of Germany.
_____________________, ___________________
/s/ Erwin Treiber /s/ Jorg Augustin
/s/ Stefan Eylert /s/ Juergen Benz
________________________________ _________________________________________
Schoeller Plast Industries GmbH IFCO International Food Container
Organisation GmbH
<PAGE>
EXHIBIT 10.10
EXECUTION COPY
MEMBERSHIP INTEREST AND SHARE PURCHASE AGREEMENT
by and among
POLYMER INTERNATIONAL CORP.,
(as Seller)
IFCO SYSTEMS N.V.,
(as Purchaser)
INTERTAPE POLYMER GROUP INC.,
IFCO MANUFACTURING INC.,
SCHOELLER INTERNATIONAL LOGISTICS
BETEILIGUNGSGESELLSCHAFT MBH,
and
SCHOELLER - U.S., INC.,
Dated as of September 2, 1999
MEMBERSHIP INTEREST AND SHARE PURCHASE AGREEMENT
<PAGE>
THIS MEMBERSHIP INTEREST AND SHARE PURCHASE AGREEMENT (this "Agreement") is
made as of September 2, 1999, by and among Intertape Polymer Group Inc., a
corporation organized under the laws of Canada ("IPG"), Polymer International
Corp., a corporation organized under the laws of Virginia and an indirect wholly
owned subsidiary of IPG ("Polymer"), IFCO Manufacturing Inc., a corporation
organized under the laws of Delaware ("IFCO Manufacturing"), IFCO Systems N.V.,
a limited liability company organized under the laws of the Netherlands ("IFCO
Systems"), Schoeller International Logistics Beteiligungsgesellschaft mbH, a
limited liability company organized under the laws of the Federal Republic of
Germany ("SIL"), and Schoeller - U.S., Inc., a corporation organized under the
laws of Delaware and a wholly owned subsidiary of SIL ("Schoeller U.S.").
WITNESSETH:
WHEREAS, pursuant to an Operating Agreement, dated as of February 16, 1995,
by and between Schoeller U.S. and Polymer (the "Operating Agreement"), such
parties formed IFCO - U.S., L.L.C., a limited liability company organized under
the laws of the State of Delaware ("IFCO U.S." or, the "Company"); and
WHEREAS, Polymer is the owner and holder of 20% (the "Polymer Interest") of
the Membership Interests and sharing ratios of the Company (the "Membership
Interests") and Schoeller U.S. is the owner and holder of the remaining 80% of
the Membership Interests and sharing ratios; and
WHEREAS, Polymer has purchased from SIL 36.25% of the outstanding shares of
Schoeller U.S. (the "Polymer Shares"); and
WHEREAS, IFCO Systems, IFCO Europe Beteiligungs GmbH, a limited liability
company organized under the laws of the Federal Republic of Germany, MTS
Okologistik Verwaltungs GmbH, a limited liability company organized under the
laws of the Federal Republic of Germany, SIL, Schoeller Packaging Systems GmbH,
a limited liability company organized under the laws of the Federal Republic of
Germany, and PalEx, Inc., a corporation organized under the laws of the state of
Delaware ("PalEx"), are parties to that certain Agreement and Plan of
Reorganization, dated as of March 29, 1999 (the "Merger Agreement"); and
WHEREAS, a newly formed Delaware company and wholly owned subsidiary of
IFCO Systems will be merged with and into PalEx on the terms and subject to the
conditions set forth in the Merger Agreement (the "Merger"); and
WHEREAS, in connection with the Merger, IFCO Systems desires to purchase
from Polymer and Polymer desires to sell to IFCO Systems, the Polymer Interest
on the terms and conditions set forth in this Agreement; and
WHEREAS, in connection with the Merger, SIL desires to purchase from
Polymer, and Polymer desires to sell to SIL, the Polymer Shares on the terms and
conditions set forth in this Agreement; and
WHEREAS, in connection with the Merger, IFCO Systems, or SPI as an assignee
of IFCO Systems, desires to purchase from IFCO Manufacturing, the IFCO
Manufacturing Assets on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the promises and the mutual agreements,
representations, warranties, provisions and covenants contained herein, the
parties hereto, intending to be legally bound, agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. Capitalized terms used in this agreement shall have
the following meanings:
"Additional Indebtedness" means any indebtedness (or any such indebtedness
converted to capital or equity after the date of this Agreement, without double
counting) incurred by the Company to IPG or its Affiliates after April 30, 1999
and prior to the Closing Date, including indebtedness arising under the Existing
Supply Agreement; provided, that the amount of such Additional Indebtedness does
not exceed $12,000,000 as of March 31, 2000.
"Affiliate" of, or "Affiliated" with, a specified person or entity means a
person or entity that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the specified person or entity.
"Agreement" has the meaning set forth in the first paragraph of this
Agreement.
"Balance Sheet Date" has the meaning set forth in Section 4.3(a).
"Cash Amount" means $2,500,000 unless, by October 31, 1999, SIL notifies IPG
in writing that such amount shall not be applicable to this Agreement, in which
case the Cash Amount shall be zero.
"Charter Documents" means the certificate/articles of incorporation or
organization, bylaws, partnership agreement, operating agreement, regulations or
similar governing documents for any person or entity.
"Closing" and "Closing Date" have the meanings set forth in Section 3.1.
"Company" has the meaning set forth in the second paragraph of this
Agreement.
"Control" and its derivatives means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
a person or entity, whether through the ownership of voting securities or voting
interests, by contract or otherwise.
"Encumbrances" means liens, charges, pledges, options, mortgages, deeds of
trust, security interests, claims, restrictions (whether on voting, sale,
transfer, disposition or otherwise), licenses, sublicenses, easements and other
encumbrances of every type and description, whether imposed by law, agreement,
undertaking or otherwise.
"Existing Indebtedness" means the principal and interest owed by the Company
to IPG or its Affiliates as of April 30, 1999 in the amount of $17,976,173 (or
any such indebtedness converted to capital or equity after the date of this
Agreement, without double counting).
"Existing Supply Agreement" means the Supply Agreement, dated as of May 10,
1996, as amended, by and among IPG, IFCO U.S. and SIL.
<PAGE>
"Financial Statements" has the meaning set forth in Section 4.3.
"GAAP" means U.S. generally accepted accounting principles applied on a
basis consistent with preceding years and throughout the periods involved.
"Governmental Authority" means any federal, state, local or foreign
government, political subdivision or governmental or regulatory authority,
agency, board, bureau, commission, instrumentality or court or quasi-
governmental authority.
"IFCO Group" means collectively IFCO Systems, SIL and Schoeller U.S.
"IFCO Inventory" means the useable, useful, non-obsolete inventory and
supplies of IFCO Manufacturing.
"IFCO Manufacturing" has the meaning set forth in the first paragraph of
this Agreement.
"IFCO Manufacturing Assets" means the IFCO Moulds, the IFCO Inventory, the
Existing Supply Agreement, and the indebtedness from IFCO U.S. to IFCO
Manufacturing.
"IFCO Moulds" means the IFCO moulds as reflected on the books and records of
the Company as set forth on Exhibit A and any additions thereto as of the date
hereof.
"IFCO Systems" has the meaning set forth in the first paragraph of this
Agreement.
"Indemnified Party" and "Indemnifying Party" have the meanings set forth in
Section 8.3.
"Intellectual Property" means patents, inventions, trade secrets, know-how,
copyrights (whether registered or unregistered), works of authorship, trademarks
(whether registered or unregistered), service marks (whether registered or
unregistered), mask works, trade names, trade dress, product names,
registrations of any of the foregoing, patent applications, trademark and
service mark applications, software, firmware, specifications, processes,
drawings, designs, technology, formulae and proprietary information and
documents incorporating any similar rights, including technical reports,
laboratory books and notebooks.
"Interim Balance Sheet" has the meaning set forth in Section 4.3(a).
"Interim Financial Statements" has the meaning set forth in Section 4.3(a).
"IPG" has the meaning set forth in the first paragraph of this Agreement.
"IPG Group" means collectively IPG, Polymer and IFCO Manufacturing.
"IPO" means the initial public offering of ordinary shares by IFCO Systems
or its Affiliates.
<PAGE>
"Loss" or "Losses" means all liabilities, losses, claims, damages, actions,
suits, proceedings, demands, assessments, adjustments, fees, costs and expenses
(including specifically, but without limitation, reasonable attorneys' fees and
expenses of investigation).
"Membership Interests" has the meaning set forth in the third paragraph of
this Agreement.
"Merger" has the meaning set forth in the sixth paragraph of this
Agreement.
"Merger Agreement" as the meaning set forth in the fifth paragraph of this
Agreement.
"Operating Agreement" has the meaning set forth in the second paragraph of
this Agreement.
"PalEx" has the meaning set forth in fifth paragraph of this Agreement.
"Polymer" has the meaning set forth in the first paragraph of this
Agreement.
"Polymer Interest" has the meaning set forth in the third paragraph of this
Agreement.
"Polymer Note" has the meaning set forth in Section 2.3.
"Polymer Shares" has the meaning set forth in the fourth paragraph of this
Agreement.
"Production License Agreement" means the Production License Agreement,
dated March 19, 1996, by and between SIL and IFCO U.S., as assigned by the
Assignment of Production License Agreement, dated May 15, 1996, by and between
SIL, IFCO U.S. and IPG.
"Schoeller U.S." has the meaning set forth in the first paragraph of this
Agreement.
"Security Agreement" means the Security Agreement, dated May 18, 1996,
between IFCO U.S. and IPG granting to IPG a security interest in the collateral
described therein.
"SIL" has the meaning set forth in the first paragraph of this Agreement.
"SPI" means Schoeller Plast Industries GmbH, a limited liability company
organized under the laws of the Federal Republic of Germany.
"System License Agreement" means the System License Agreement, dated March
19, 1996, by and between SIL, IFCO U.S. and IPG.
"Taxes" means all taxes, charges, fees, levies or other assessments
including income, gross receipts, excise, property, sales, withholding, social
security, unemployment, occupation, use, service, service use, license, payroll,
franchise, transfer and recording taxes, fees and charges, imposed by the United
States or any state, local or foreign government or subdivision or agency
thereof, whether computed on a separate, consolidated, unitary,
<PAGE>
combined or any other basis; and shall include any interest, fines, penalties or
additional amounts attributable to or imposed with respect to any such taxes,
charges, fees, levies or other assessments.
"Third Person" and "Third Person Claim" have the meanings set forth in
Section 8.3.
"Year-End Financial Statements" has the meaning set forth in Section
4.3(a).
Section 1.2 Interpretation. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Agreement include the plural as well as the
singular;
(b) "including" or "include" does not denote or imply any limitation;
(c) "dollars" and "$" mean U.S. dollars;
(d) whenever the context requires, the gender of all words used herein
shall include the masculine, feminine and neuter;
(e) all accounting terms not otherwise defined herein have the meanings
ascribed to them in accordance with GAAP; and
(f) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision.
ARTICLE II
SALE; PURCHASE PRICE
Section 2.1 Sale and Transfer of Polymer Interest; IFCO Manufacturing Assets.
(a) Subject to the terms and conditions of this Agreement, Polymer shall sell,
convey and deliver to IFCO Systems, and IFCO Systems shall purchase and accept
from Polymer, all of the right, title and interest of Polymer in and to the
Polymer Interest, free and clear of all Encumbrances.
(b) Subject to the terms and conditions of this Agreement, and assuming
that the Polymer Shares have been previously conveyed to Polymer by SIL free and
clear of all Encumbrances, Polymer shall sell, convey and deliver to SIL, and
SIL shall purchase and accept from Polymer, all of the right, title and interest
of Polymer in and to the Polymer Shares, free and clear of all Encumbrances.
(c) Subject to the terms and conditions of this Agreement, IFCO
Manufacturing shall sell, convey and deliver to SPI, as assignee of IFCO
Systems, and SPI shall purchase and accept from IFCO Manufacturing, all of the
right, title and interest of IFCO Manufacturing in and to the IFCO Manufacturing
Assets, free and clear of all Encumbrances.
Section 2.2 Purchase Price. (a) In consideration for the sale of the Polymer
Interest by Polymer to IFCO Systems, the sale of the Polymer Shares by Polymer
to SIL, and in full satisfaction of any an all amounts that may be owed by IFCO
U.S. or SIL to the IPG Group, IFCO Systems and SIL shall pay to Polymer
<PAGE>
at the Closing an aggregate purchase price consisting of an amount equal to: (i)
the Existing Indebtedness; (ii) the Additional Indebtedness; and (iii)
$10,657,500; less the sum of: (i) the amount of the Polymer Note; (ii) the
amount of the Existing Indebtedness and Additional Indebtedness owing from IFCO
U.S. to IFCO Manufacturing as of the Closing Date which is included in
subparagraph (b)(ii) below; and (ii) the Cash Amount;
(b) In consideration for the sale of the IFCO Manufacturing Assets by IFCO
Manufacturing to SPI, as assignee of IFCO Systems: (i) SPI shall pay to IFCO
Manufacturing at Closing at aggregate purchase price consisting of an amount
equal to the sum of (A) the net book value of IFCO Moulds; (B) the net book
value of IFCO Inventory (which as of the date hereof, is approximately $400,000;
and (C) $2,500,000; and (ii) IFCO Systems shall pay to IFCO Manufacturing the
amount of the Existing Indebtedness and Additional Indebtedness owing from IFCO
U.S. to IFCO Manufacturing as of the Closing Date as if all such indebtedness
was due and payable as of such date.
Section 2.3 Member Notes. (a) Upon execution of this Agreement, Polymer shall
acquire the Polymer Shares from SIL for $3,153,000 (causing its overall
beneficial interest in IFCO U.S. to total 49%). In consideration for such
purchase, Polymer issued to SIL a promissory note of Polymer (the "Polymer
Note"). Effective October 1, 1999, SIL shall assign the Polymer Note to the
Company which shall be deemed a loan to the Company by Schoeller U.S. the
interest on which shall be waived until March 31, 2000. If Polymer pays the
Polymer Note after March 31, 2000, the Company shall apply such amount to reduce
the Existing Indebtedness.
(b) Effective as of October 1, 1999, IPG and Polymer shall waive interest
on an additional $3,153,000 of the Existing Indebtedness (which will aggregate
$6,306,000 of Existing Indebtedness on which interest shall be waived until
March 31, 2000).
(c) Commencing September 10, 1999, and on the first business day of each
month thereafter until the earlier of the Closing Date or March 1, 2000,
Schoeller U.S. and Polymer shall each make a loan to the Company in the amount
of $75,000 by wire transfer to the Company, each of which shall bear interest at
the interest rate applicable to the Existing Indebtedness.
(d) Schoeller U.S. agrees that, upon request by Polymer, the interest
applicable to the Existing Indebtedness, the Polymer Note and any other loans to
the Company by either the IPG Group or the IFCO Group may be waived on a dollar-
for-dollar basis applied to such IPG Group and IFCO Group loans through March
31, 2000 in the amounts designated by Polymer.
(e) In the event that the amount of indebtedness owed by the Company to
the IFCO Group becomes and remains substantially equal to the indebtedness owed
by the Company to the IPG Group (other than indebtedness under the Supply
Agreement), the indebtedness owed by the Company to the IPG Group (other than
indebtedness under the Supply Agreement which shall continue to be secured by
the Security Agreement) shall cease to be secured under the Security Agreement
or any similar agreement.
ARTICLE III
CLOSING
<PAGE>
Section 3.1 Closing and Closing Date. The consummation of the purchase of the
Polymer Interest and the purchase of the IFCO Manufacturing Assets contemplated
by this Agreement (the "Closing") shall take place at the offices of King &
Spalding, 1185 Avenue of the Americas, New York, New York 10036 on the fifth
business day following the closing of the Merger and the IPO, or at such other
time as the parties to this Agreement shall agree, which date is herein referred
to as the "Closing Date."
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF IPG, POLYMER AND IFCO MANUFACTURING
IPG, Polymer and IFCO Manufacturing, jointly and severally, represent and
warrant to IFCO Systems, SIL and Schoeller U.S. as follows:
Section 4.1 Due Organization and Qualification; Ownership of Polymer Interest.
(a) IPG is a corporation duly organized, validly existing and in good
standing under the laws of Canada. Polymer is a corporation duly organized,
validly existing and in good standing under the laws of Virginia. IFCO
Manufacturing is a corporation duly organized validly existing and in good
standing under the laws of Delaware.
(b) Polymer is the record and beneficial owner of the Polymer Interest and
the Polymer Shares, has full power and authority to sell and convey the Polymer
Interest and the Polymer Shares and, upon delivery of and payment therefor, IFCO
Systems and SIL will acquire good and valid title to the Polymer Interest and
the Polymer Shares, respectively, in each case free and clear of any
Encumbrance.
Section 4.2 Authorization; Non-Contravention; Approvals.
(a) IPG, Polymer and IFCO Manufacturing each has the requisite corporate
power and authority to enter into this Agreement and consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
have been approved by all requisite corporate action of IPG, Polymer and IFCO
Manufacturing. This Agreement has been duly and validly executed and delivered
by IPG, Polymer and IFCO Manufacturing, and, assuming the due authorization,
execution and delivery hereof by the IFCO Group, constitutes a valid and binding
agreement of IPG, Polymer and IFCO Manufacturing, enforceable against each in
accordance with its terms, except as that enforceability may be subject to: (i)
any applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting or relating to enforcement of creditors' rights
generally; and (ii) general principles of equity.
(b) The execution and delivery of this Agreement by IPG, Polymer and IFCO
Manufacturing does not, and the consummation by IPG, Polymer and IFCO
Manufacturing of the transactions contemplated hereby will not, violate or
result in a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or result in the
creation of any Encumbrance upon the Polymer Interest or the Polymer Shares, the
IFCO Manufacturing Assets or any of the properties or assets of
<PAGE>
the Company, IPG, Polymer or IFCO Manufacturing, under any of the terms,
conditions or provisions of: (i) the Charter Documents of IPG, Polymer and IFCO
Manufacturing; (ii) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any court or Governmental
Authority applicable to the Company, IPG, Polymer or IFCO Manufacturing or any
of their properties or assets, the Polymer Interest or the Polymer Shares; or
(iii) any material agreement, note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, concession, lease or other instrument, obligation or
agreement of any kind to which the Company, IPG, Polymer or IFCO Manufacturing
are now a party or by which the Company, IPG, Polymer or IFCO Manufacturing or
any of their properties or assets (including the Polymer Interest and the
Polymer Shares) may be bound or affected, except by such consents as may be
required by the IFCO Group pursuant to the Operating Agreement and its related
licensing agreements, which consents shall be deemed given by the execution of
this Agreement.
(c) No declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any Governmental Authority is necessary
for the execution and delivery of this Agreement by IPG, Polymer or IFCO
Manufacturing or the consummation by them of the transactions contemplated
hereby. None of the contracts to which the Company, IPG, Polymer or IFCO
Manufacturing is a party requires notice to, or the consent or approval of, any
third party for the execution and delivery of this Agreement by IPG, Polymer or
IFCO Manufacturing or the consummation by IPG, Polymer or IFCO Manufacturing of
the transactions contemplated hereby.
Section 4.3 Financial Statements.
(a) Attached hereto as Schedule 4.3(a) are complete and correct copies of
the following financial statements:
(i) the unaudited balance sheets of the Company as of December 31,
1996, 1997, and 1998 and the related unaudited statements of operations for the
three year period ended December 31, 1998 (collectively, the "Year-End Financial
Statements"); and
(ii) the unaudited balance sheet (the "Interim Balance Sheet") of the
Company as of June 30, 1999 (the "Balance Sheet Date") and the related unaudited
statement of operations for the six-month period ended June 30, 1999
(collectively, the "Interim Financial Statements" and, together with the Year-
End Financial Statements, the "Financial Statements").
(b) Except as set forth on Schedule 4.3(b), the Financial Statements have
been prepared from the books and records of the Company on the accrual basis of
accounting in conformity with GAAP (except for the absence of notes in the
Interim Financial Statements) and present fairly the financial position and
results of operations of the Company as of the dates of such statements and for
the periods covered thereby. The books of account of the Company have been kept
accurately in all material respects in the ordinary course of business and the
transactions entered therein represent bona fide transactions, and the revenues,
expenses, assets and liabilities of the Company have been properly recorded
therein in all material respects, except for items created by the IFCO Group
without the knowledge of the IPG Group.
Section 4.4 Liabilities and Obligations. The Company did not have at the
Balance Sheet Date, nor has it incurred since that date, any material
<PAGE>
liabilities or obligations (whether absolute, accrued, contingent or otherwise)
of any nature, except liabilities, obligations or contingencies that: (i) are
accrued or reserved against in the Financial Statements; and (ii) were incurred
after the Balance Sheet Date in the ordinary course of business and consistent
with past practices or are described on Schedule 4.4, except for items created
by the IFCO Group without the knowledge of the IPG Group.
Section 4.5 Material Customers. Except to the extent set forth on Schedule
4.5(a), and except as previously disclosed to the IFCO Group, since December 31,
1998 and through the date hereof, to the best knowledge of Andrew Archibald and
Melbourne F. Yull, without an affirmative duty to investigate, no customer
accounting for 5% or more of the Company's revenue during the 12-month period
ended December 31, 1998 or during the seven-month period ended on the Balance
Sheet Date has canceled or substantially reduced or is currently attempting or
threatening or intending to cancel or substantially reduce its purchases of the
Company's products or services.
Section 4.6 Intellectual Property. To the best of IPG's and Polymer's
knowledge, all of the Intellectual Property of the Company is identified on
Schedule 4.6. To the best of IPG's and Polymer's knowledge, the use of such
Intellectual Property by the Company does not and has not been alleged by any
person or entity to infringe on the rights of any person or entity. To the best
of the IPG Group's knowledge, at the time of Closing, the Company will own or
have the right to use, all such Intellectual Property of the Company in
substantially the same manner and subject to substantially the same limitations
as used in the Company's business or exist on the date hereof and immediately
prior to Closing, assuming that the IFCO Group takes no action to the contrary,
and such Intellectual Property is all the Intellectual Property necessary for
IFCO U.S. to conduct its business as it is currently being conducted. Any
Intellectual Property developed solely or jointly by the Company shall be
transferred to the Company at Closing.
Section 4.7 Compensation; Employment Agreements. The Company has no written
employment agreements or severance agreements obligating the Company to pay any
current or former employee any amount thereunder. The parties agree to work in
good faith for the next 30 days to offer some or all of the employees financial
incentives for continuing to work for the Company until April 30, 2000, or such
other date as the parties may agree. Such amounts shall be paid by the Company.
Section 4.8 Litigation and Compliance with Law. There are no suits, actions,
or legal, administrative, arbitration or other proceedings pending or, to the
knowledge of the Company, IPG or Polymer, threatened against or affecting the
Company, the Polymer Interest, the Polymer Shares or the IFCO Manufacturing
Assets, at law or in equity, before or by any Governmental Authority having
jurisdiction over the Company, Polymer or IFCO Manufacturing, except as set
forth on Schedule 4.8. No notice of any claim, action, suit or proceeding,
whether pending or threatened, has been received by the Company and, to the
knowledge of Polymer, there is no basis therefor except as set forth on Schedule
4.8. The Company has complied, and is in compliance, with all laws,
regulations, writs, injunctions, decrees and orders applicable to, and licenses,
operating authorizations, franchises, permits and other third party and
governmental authorizations of, the Company, or its assets or operations.
<PAGE>
Section 4.9 Absence of Changes. Since the Balance Sheet Date, except as set
forth in Schedule 4.9, the Company has conducted its operations in the ordinary
course and there has not been:
(a) any material adverse change in the business, operations, properties,
condition (financial or other), assets, liabilities (contingent or otherwise) or
the results of operations of the Company; provided, however, that continuation
of losses by the Company shall not, in and of itself, be deemed a material
adverse change;
(b) any damage, destruction or loss (whether or not covered by insurance)
materially adversely affecting the properties or businesses of the Company or
the IFCO Manufacturing Assets;
(c) except as contemplated hereby, any declaration or payment of any
dividend or distribution to members or any direct or indirect redemption,
purchase or other acquisition of any Membership Interests;
(d) any increase in the compensation payable or to become payable by the
Company to any of its or IPG's officers, directors, managers, employees,
consultants or agents other than in the ordinary course of business consistent
with past practice;
(e) except as contemplated hereby, any cancellation, or agreement to
cancel, any indebtedness or other obligation owing to the Company;
(f) except as contemplated hereby, any increase in the Company's
indebtedness, other than accounts payable and indebtedness incurred in the
ordinary course of business, consistent with past practices;
(g) any plan, agreement or arrangement granting any preferential rights to
purchase or acquire any interest in any of the assets, property or rights of the
Company or requiring consent of any party to the transfer and assignment of any
such assets, property or rights;
(h) any purchase or acquisition of, or agreement, plan or arrangement to
purchase or acquire, any property, rights or assets outside of the ordinary
course of business of the Company;
(i) any waiver of any material rights or claims of the Company;
(j) any material breach, amendment or termination of any material
contract, agreement, license, permit or other right to which the Company is a
party or any of its property is subject; or
(k) any material transaction by the Company outside the ordinary course of
business.
Section 4.10 Year 2000. IPG and Polymer make no representation that the
Company is "Year 2000" compliant.
Section 4.11 Disclosure. No representation or warranty of IPG, Polymer or IFCO
Manufacturing contained in this Agreement contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements herein or therein, in light of the circumstances under which it was
made, not misleading. There are no other representations or
<PAGE>
warranties made by IPG or Polymer in connection with the sale of the Polymer
Interest, the Polymer Shares and the IFCO Manufacturing Assets except as set
forth herein.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
IFCO SYSTEMS, SIL AND SCHOELLER U.S.
IFCO Systems, SIL and Schoeller U.S., jointly and severally, represent and
warrant to IPG and Polymer as follows:
Section 5.1 Due Organization and Qualification. IFCO Systems is a limited
liability company duly organized, validly existing and in good standing under
the laws of the Netherlands. SIL is a limited liability company duly organized,
validly existing and in good standing under the laws of the Federal Republic of
Germany. Schoeller U.S. is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware.
Section 5.2 Authorization; Non-Contravention; Approvals.
(a) IFCO Systems, SIL and Schoeller U.S. each has the full legal right,
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement have been approved by all requisite corporate action of IFCO
Systems, SIL and Schoeller U.S. This Agreement has been duly and validly
executed and delivered by IFCO Systems, SIL and Schoeller U.S., and, assuming
the due authorization, execution and delivery by the IPG Group, constitutes a
valid and binding agreement of IFCO Systems, SIL and Schoeller U.S., enforceable
against each in accordance with its terms, except as that enforceability may be
subject to: (i) any applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to enforcement of
creditors' rights generally; and (ii) general principles of equity.
(b) The execution and delivery of this Agreement by IFCO Systems, SIL and
Schoeller U.S. does not, and the consummation by IFCO Systems, SIL and Schoeller
U.S. of the transactions contemplated hereby will not, violate or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or result in the creation of any
Encumbrance upon any of the properties or assets of IFCO Systems, SIL or
Schoeller U.S under any of the terms, conditions or provisions of: (i) the
Charter Documents of IFCO Systems, SIL or Schoeller U.S; (ii) any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit
or license of any court or Governmental Authority applicable to IFCO Systems,
SIL or Schoeller U.S or any of their properties or assets; or (iii) any material
note, bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of any
kind to which IFCO Systems, SIL or Schoeller U.S is now a party or by which IFCO
Systems, SIL or Schoeller U.S or any of their properties or assets may be bound
or affected, except for the consent of PalEx under the Merger Agreement.
(c) No declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body or
<PAGE>
authority is necessary for the execution and delivery of this Agreement by IFCO
Systems, SIL or Schoeller U.S or the consummation by IFCO Systems, SIL or
Schoeller U.S of the transactions contemplated hereby.
Section 5.3 Litigation. There are no suits, actions, or legal, administrative,
arbitration or other proceedings pending or, to the knowledge of the IFCO Group,
threatened against or affecting the IFCO Group at law or in equity, before or by
any Governmental Authority having jurisdiction over the IFCO Group. No notice
of any claim, action, suit or proceeding whether pending or threatened has been
received by the IFCO Group and, to the knowledge of the IFCO Group, there is no
basis therefor, which: (a) if determined adversely to the IFCO Group could
reasonably be expected to result in any material adverse change in the business,
operations, properties, condition (financial or other), assets, liabilities
(contingent or otherwise), results of operations or prospects of the IFCO Group;
or (b) seek to prevent the consummation of the transactions contemplated hereby.
Section 5.4 Title to Polymer Shares. SIL is the record and beneficial owner of
the Polymer Shares, has full power and authority to sell and convey the Polymer
Shares and, upon delivery of and payment therefor, Polymer will acquire good and
valid title thereto, in each case free and clear of any Encumbrance.
Section 5.5 Disclosure. No representation or warranty of the IFCO Group
contained in this Agreement contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements herein
or therein, in light of the circumstances under which it was made, not
misleading. There are no other representations or warranties made by the IFCO
Group except as set forth herein.
ARTICLE VI
CERTAIN COVENANTS
Section 6.1 Conduct of Business. From the date of this Agreement until the
earlier of March 31, 2000 or the Closing Date, IFCO Manufacturing shall, with
respect to the IFCO Manufacturing Assets, and IPG, Polymer, SIL and Schoeller
U.S. shall, with respect to the Company, each use their best efforts to cause
IFCO Manufacturing and the Company, respectively, to conduct their businesses
only in the ordinary course and shall reasonably cooperate with each other in
the management of the Company's business. Without limiting the generality of
the foregoing, IFCO Manufacturing shall, with respect to the IFCO Manufacturing
Assets, and IPG, Polymer, SIL and Schoeller U.S. shall, with respect to the
Company, each use their best efforts to ensure that IFCO Manufacturing and the
Company, respectively, shall not, except as otherwise expressly provided in this
Agreement or with the written consent of the IPG Group and the IFCO Group:
(a) other than as permitted herein, make or agree to make any change in or
grant any options, warrants, calls, conversion rights or commitments on any
Membership Interests;
(b) increase the compensation payable or to become payable by the Company
to any of its officers, directors, employees, consultants or agents, except for
customary increases in the ordinary course of business and consistent with past
practices;
<PAGE>
(c) adopt or enter into any new or amend any existing employee benefit
plan of the Company or any employment agreement or severance agreement in an
aggregate amount not to exceed $25,000 to which the Company is a party;
(d) cancel or agree to cancel, any indebtedness or other obligation owing
to the Company;
(e) increase the indebtedness of the Company, other than Additional
Indebtedness, accounts payable incurred in the ordinary course of business,
consistent with past practices or incurred in connection with the transactions
contemplated by this Agreement;
(f) allow any Encumbrance to be placed on any property or assets of the
Company or the IFCO Manufacturing Assets except for Encumbrances exiting on the
date hereof or purchase money security interests for new asset acquisitions;
(g) take any action not in compliance with the Budget;
(h) enter into, or agree to enter into, any plan, agreement or arrangement
granting any preferential rights to purchase or acquire any interest in any of
the assets, property or rights of the Company or the IFCO Manufacturing Assets,
or requiring consent of any party to the transfer and assignment of any such
assets, property or rights;
(i) purchase or acquire, or enter into any agreement, plan or arrangement
to purchase or acquire, any property, rights or assets (including the IFCO
Manufacturing Assets) outside of the ordinary course of the Company's business;
(j) waive any material rights or claims; or
(k) materially breach, materially change the terms of, materially amend or
terminate any material contract, agreement, permit or other right to which the
Company is a party or any of its property is subject which would be
disadvantageous to the Company.
Section 6.3 Reasonable Efforts. The IPG Group and the IFCO Group shall use all
reasonable efforts to preserve intact the Company's business organization, the
Company's goodwill, and the IFCO Manufacturing Assets.
Section 6.4 Future Cooperation. (a) Polymer and Schoeller U.S. shall each
deliver or cause to be delivered to the other following the Closing such
additional instruments as the other may reasonably request for the purpose of
fully carrying out this Agreement.
(b) The IPG Group shall: (i) cooperate with the IFCO Group in preparation
of the Financial Statements and the audit thereof; (ii) provide such other
additional information about the Company as may be requested by any applicable
Governmental Authority or any securities exchange on which the shares of IFCO
Systems will be listed; (iii) consent to the use and filing of the Financial
Statements in connection with the IPO; and (iv) provide all other assistance
reasonably necessary or as reasonably requested by the IFCO Group to consummate
the transactions contemplated herein with respect to the sale of the Polymer
Interest, the Polymer Shares and the IFCO Manufacturing Assets.
<PAGE>
(c) The IFCO Group and the IPG Group shall reasonably cooperate to maximize
the tax benefits and minimize the tax liabilities for each of the parties hereto
(or their respective beneficial owners) in connection with the transactions
contemplated herein.
(d) Polymer and Schoeller U.S. shall jointly use their reasonable best
efforts to ensure that the Company becomes "Year 2000" compliant and shall share
equally the cost of such efforts even in the event that the costs of such
efforts exceed the agreed upon funding levels of Polymer and Schoeller U.S. as
set forth in the Budget. Polymer and Schoeller U.S. shall agree in advance and
in writing to any contract or expenditure greater than $20,000 which is
necessary for the Company to become "Year 2000" compliant. Each member shall
contribute to the Company the amount necessary to pay for such costs within 30
days of receipt of an invoice for such costs.
Section 6.4 Expenses. The IFCO Group will pay the fees, expenses and
disbursements of the IFCO Group and their respective agents, representatives,
financial advisors, accountants and counsel incurred in connection with the
execution, delivery and performance of this Agreement and any amendments hereto
and the consummation of the transactions contemplated hereby. The IPG Group
will pay the fees, expenses and disbursements of the IPG Group and its
respective agents, representatives, financial advisors, accountants and counsel
incurred in connection with the execution, delivery and performance of this
Agreement and any amendments hereto and the consummation of the transactions
contemplated hereby. The fees and expenses of PricewaterhouseCoopers in
connection with the audit of the financial statements shall be paid by the IFCO
Group.
Section 6.5 Other Documents. At the Closing, IFCO Systems shall receive the
following additional certificates, instruments and documents:
(i) Proper assignments of the Polymer Interest and the IFCO
Manufacturing Assets duly endorsed by Polymer and IFCO Manufacturing,
respectively, and otherwise in a form reasonably acceptable to IFCO Systems.
(ii) All of the Company's books and records, including minute books,
corporate charter, Operating Agreement, Membership Interest records, bank
account records, accounting records, computer records and all contracts with
third parties.
(iii) The written resignations of such members of the Board of Members
as were appointed by the IPG Group and of such officers as may be requested by
IFCO Systems, such resignations to be effective concurrently with the Closing.
(iv) An assignment of the Production License Agreement from IPG to IFCO
U.S.
Section 6.6 Waiver of Defaults. Until the earlier of March 31, 2000 or the
Closing Date, the IPG Group agrees to: (i) continue to produce cases and to
provide financing therefor in accordance with the Existing Supply Agreement;
(ii) not take any action to enforce its rights with respect to any defaults that
exist under any Existing Indebtedness or Additional Indebtedness; and (iii) so
long as the IFCO Group is in compliance with its obligations hereunder in all
material respects, not take any action to enforce any rights
<PAGE>
it may have to foreclose or take other legal action with respect to such
indebtedness.
Section 6.7 No Further Obligation. The parties agree that, except as otherwise
provided herein, effective as of the Closing: (i) the IPG Group shall have no
further obligations under the Operating Agreement, the Guaranty, dated February
25, 1995 issued by IPG on behalf of the Company, the Existing Supply Agreement
or otherwise to provide funding to the Company; and (ii) the IPG Group shall
have no further right to any of the assets of the Company and shall release all
collateral under the Security Agreement. At Closing, the Guaranty dated
February 25, 1995 issued by SIL on behalf of the Company shall be cancelled and
the IPG Group shall have no further rights thereunder.
Section 6.8 Termination of Production License Agreement. At Closing, the
Production License Agreement, and the assignment thereof shall be terminated.
Section 6.9 Pledge of Membership Interests. (a) Schoeller U.S. and Polymer
shall not pledge or otherwise encumber their respective Membership Interests,
except that Schoeller U.S. may pledge its Membership Interest in connection with
obtaining financing in connection with the Closing of the Merger and the IPO.
(b) Schoeller U.S. and SIL shall, within 30 days after the date hereof,
provide reasonable evidence to IPG and Polymer that as of the date of this
Agreement the consent of SIL's lenders and bank creditors would be required to
pledge the Membership Interests of the Company held by Schoeller U.S. If such
evidence is not provided within such time period, Schoeller U.S. shall promptly
pledge to IPG its Membership Interests in the Company by execution of a pledge
agreement in a form substantially consistent with the form attached hereto as
Exhibit B.
Section 6.10 Office Sub-Lease. The rights and obligations of the Company under
the existing sub-lease with respect to the Company's office space located at
5401 West Kennedy Boulevard, Tampa, Florida, shall not be affected by the
transactions contemplated herein. The cost sharing ratio for the Company under
the sub-lease shall be the sharing percentage in effect on the date hereof
provided, that such cost sharing percentage shall be no less than 50% and no
greater than 80%. As of the date hereof, the monthly rental for the primary
lease is as set forth in the first amendment to the primary lease dated January
1997. Notwithstanding the foregoing, Polymer and Schoeller U.S. shall use their
reasonable best efforts to attempt to terminate either the sub-lease or the
primary lease, or assign the sub-lease or primary lease to a third party on
terms reasonably satisfactory to Schoeller U.S. The IPG Group shall have no
obligation to renew the sub-lease or primary lease beyond their termination date
of January 31, 2002.
Section 6.11 Consent of PalEx. The IFCO Group shall use its reasonable best
efforts to obtain by September 3, 1999 the consent of PalEx to the transactions
contemplated herein. Irrespective of whether the consent of PalEx is obtained,
the provisions of Section 10.2(b) shall remain effective.
Section 6.12 Mutual Release. In the event that the Merger and IPO are
consummated, each party to this Agreement hereby releases each other party to
this Agreement from any and all liabilities arising from the transactions
between the parties. This release shall not be construed as a release from
<PAGE>
claims that the parties may have against each other based upon fraud or breach
of fiduciary duty.
Section 6.13 Shareholders Agreement. In connection with the purchase of the
Polymer Shares, the parties agree to promptly enter into a shareholders
agreement with respect to Schoeller U.S. providing for the following: (a) that
the shareholders will have pre-emptive rights; (b) that Schoeller U.S. will
serve only as a holding company for IFCO U.S., and only conduct such business as
is necessary in connection therewith; (c) that the subsidiary interest of
Schoeller U.S. in IFCO U.S. will not be subject to transfer, attachment, or
pledge, except for such actions in connection with a corporate reorganization of
IFCO Systems and with the consent of IPG, which consent shall not be
unreasonably withheld; and (d) distributions received by Schoeller U.S. shall be
distributed pro-rata to its shareholders if requested by Polymer or SIL.
ARTICLE VII
CONDITIONS TO CLOSING
Section 7.1 Conditions to Obligations of the IFCO Group. Except as may be
waived, the obligations of the IFCO Group to consummate the transactions
contemplated herein are subject to satisfaction of the following conditions:
(a) The IFCO Group shall have received certificates of the IPG Group that
the representations and warranties of the IPG Group contained in this Agreement
are true in all material respects at and as of the Closing, as though such
representations and warranties had been made at and as of the Closing.
(b) The IFCO Group shall have received certificates of the IPG Group that:
(i) the IPG Group has performed and complied in all material respects with the
covenants or conditions required by this Agreement or any of the agreements,
documents or instruments executed pursuant hereto or thereto to be performed and
complied with by the IPG Group prior to the Closing; and (ii) attaches true and
complete copies of evidence of all corporate authority of the IPG Group
authorizing the transactions contemplated by this Agreement.
(c) The Merger and the IPO shall have been consummated no later than March
31, 2000.
(d) No action, suit or proceeding before any Governmental Authority, to
enjoin the transactions contemplated by this Agreement or to its consummation,
shall have been instituted on or before the Closing Date.
Section 7.2 Conditions to Obligations of the IPG Group. Except as may be
waived, the obligation of the IPG Group to consummate the transactions
contemplated herein is subject to satisfaction of the following conditions:
(a) The IPG Group shall have received certificates of the IFCO Group that:
(i) the representations and warranties of the IFCO Group contained in this
Agreement are true in all material respects at and as of the Closing, as though
such representations and warranties had been made at and as of the Closing; (ii)
the IFCO Group has performed and complied in all material respects with the
covenants or conditions required by this Agreement or any of the agreements,
documents or instruments executed pursuant hereto or thereto to be performed and
complied with by the IFCO Group prior to the Closing; and
<PAGE>
(iii) attaches true and complete copies of evidence of all corporate authority
of the IFCO Group authorizing the transactions contemplated by this Agreement.
(b) The Merger and the IPO shall have been consummated no later than March
31, 2000.
(c) No action, suit or proceeding before any Governmental Authority, to
enjoin the transactions contemplated by this Agreement or to its consummation,
will have been instituted on or before the Closing Date.
ARTICLE VIII
INDEMNIFICATION
The IPG Group and the IFCO Group each make the following covenants:
Section 8.1 Indemnification by the IPG Group. IPG and Polymer, jointly and
severally, covenant and agree that each will (without any right of
indemnification or contribution from the Company), indemnify, defend, protect
and hold harmless the IFCO Group and their officers, directors, employees,
stockholders, agents, representatives and Affiliates (including the Company)
from and against all Losses incurred by any of such indemnified persons as a
result of or arising from: (a) any breach of the representations and warranties
of the IPG Group set forth herein or in the Schedules or certificates delivered
in connection herewith, provided that notice of such claim is given in
accordance with Section 11.4 hereof; and (b) any breach or nonfulfillment of any
covenant or agreement on the part of the IPG Group under this Agreement.
Section 8.2 Indemnification by the IFCO Group. IFCO Systems, SIL and
Schoeller U.S., jointly and severally, covenant and agree that each will
(without any right of indemnification or contribution from the Company)
indemnify, defend, protect and hold harmless the IPG Group and their officers,
directors, employees, stockholders, agents, representatives and Affiliates
(including the Company) at all times from and after the date of this Agreement
from and against all Losses incurred by such indemnified persons as a result of
or arising from: (a) any breach of the representations and warranties set forth
herein or in the Schedules or certificates delivered in connection herewith,
provided that notice of such claim is given in accordance with Section 11.4
hereof; and (b) any breach or nonfulfillment of any covenant or agreement on the
part of the IFCO Group under this Agreement.
Section 8.3 Third Person Claims. Promptly after any party hereto (the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, which the Indemnified Party believes
in good faith is an indemnifiable claim under this Agreement ("Third Person
Claim"), the Indemnified Party shall give to the party obligated to provide
indemnification pursuant to Section 8.1 or Section 8.2 hereof (the "Indemnifying
Party") written notice of such claim or the commencement of such action or
proceeding. Such notice shall state the nature and the basis of such claim and
a reasonable estimate of the dollar value thereof. The Indemnifying Party shall
have the right to defend and settle the Third Person Claim, at its own expense
and by its own counsel, any such matter so long as the Indemnifying Party
pursues the same diligently and in good faith and in accordance with this
Section 8.3. If the Indemnifying Party undertakes to
<PAGE>
defend or settle the Third Person Claim, it shall promptly notify the
Indemnified Party of its intention to do so, and the Indemnified Party shall
cooperate with the Indemnifying Party and its counsel in all commercially
reasonable respects in the defense thereof and in any settlement thereof. Such
cooperation shall include, but shall not be limited to, furnishing the
Indemnifying Party with any books, records and other information reasonably
requested by the Indemnifying Party and in the Indemnified Party's possession or
control. After the Indemnifying Party has notified the Indemnified Party of its
intention to undertake to defend or settle a Third Party Claim, and for so long
as the Indemnifying Party diligently pursues such defense, the Indemnifying
Party shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability; provided, however, that the Indemnified Party shall be entitled, at
its expense, to participate in the defense of such asserted liability and the
negotiations of the settlement thereof, and the Indemnifying Party shall not
settle any such Third Person Claim without the consent of the Indemnified Party
unless the settlement thereof imposes no liability or obligation on, and
includes a complete release from liability of, the Indemnified Party. If the
Indemnifying Party desires to accept a final and complete settlement of any such
Third Person Claim imposing liability on the Indemnified Party and/or failing to
include a complete release, the Indemnifying Party must get consent from the
Indemnified Party. If, upon receiving notice, the Indemnifying Party does not
timely undertake to defend a Third Person Claim to which the Indemnified Party
is entitled to indemnification hereunder, or fails diligently to pursue such
defense, the Indemnified Party may undertake such defense through counsel of its
choice, at the cost and expense of the Indemnifying Party, and the Indemnified
Party may settle such matter, and the Indemnifying Party shall reimburse the
Indemnified Party for the amount paid in such settlement and any other
liabilities or expenses incurred by the Indemnified Party in connection
therewith. Notwithstanding the above, if the named parties to any such action or
proceeding (including any impleaded parties) include both such Indemnified Party
and the Indemnifying Party and such Indemnified Party shall have been advised by
counsel that representation of both parties by the same counsel would be
inappropriate due to actual or potential material differing interests between
them (in which case, if such Indemnified Party notifies the Indemnifying Party
that it elects to employ separate counsel at the expense of the Indemnifying
Party, the Indemnifying Party shall not have the right to assume or continue the
defense of such action or proceeding on behalf of such Indemnified Party).
Section 8.4 Non-Third Person Claims. In the event that any Indemnified Party
asserts the existence of a claim giving rise to Losses (but excluding claims
resulting from the assertion of liability by Third Persons), such party shall
give written notice to the Indemnifying Party. Such written notice shall state
that it is being given pursuant to this Section 8.4, specify the nature and
dollar amount of the claim asserted (to the extent reasonably determinable), and
the of the claim deemed a valid claim (such date to be established in accordance
with the next sentence). If such Indemnifying Party, within 60 days after
receipt by such Indemnified Party, shall not give written notice to such
Indemnified Party announcing such Indemnifying Party's intent to contest such
assertion of such Indemnified Party, such assertion shall be deemed accepted and
the amount of such claim shall be deemed a valid claim. If, however, such
Indemnifying Party contests such assertion of a claim by giving such written
notice to the Indemnified Party within such 60-day period, then the parties
shall act in good faith to reach agreement
<PAGE>
regarding such claim. If, after a period of 60 days, the parties cannot resolve
any such dispute after good faith negotiations with respect thereto, such
dispute shall be submitted to arbitration in accordance with the provisions of
Section 11.9.
ARTICLE IX
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
Section 9.1 Nondisclosure. The IPG Group recognizes and acknowledges that it
has in the past, currently has, and in the future will have, access to certain
confidential information of the Company and/or the IFCO Group, such as lists of
customers, operational policies, and pricing and cost policies that are, and
following the Closing will be, valuable, special and unique assets of the
Company and/or the IFCO Group. The IPG Group agrees that neither it nor its
Affiliates will use or disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose whatsoever,
except as is required in the course of performing its duties to the Company,
unless (a) such information becomes known to the public generally through no
fault of the IPG Group, or (b) disclosure is required by law or the order of any
governmental authority, provided, that prior to disclosing any information
pursuant to this clause (b) the IPG Group shall, if possible, give prior written
notice thereof to the Company and the IFCO Group and provide the Company and the
IFCO Group with the opportunity to contest such disclosure. In the event of a
breach or threatened breach by the IPG Group of the provisions of this Section
9.1, the Company and/or the IFCO Group shall be entitled to an injunction
restraining the IPG Group from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
Company and/or the IFCO Group from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages. This provision
shall become effective upon the Closing.
Section 9.2 Covenant Not to Compete and Non-Solicitation. The IPG Group and
the IFCO Group acknowledge that the non-competition provisions of Article XX,
Section 16 of the Operating Agreement shall apply to each of the parties and
shall survive the Closing.
Section 9.3 Equitable Relief. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which the Company
would have no other adequate remedy, the IPG Group and the IFCO Group agree that
the foregoing covenants may be enforced against it by injunctions, restraining
orders and other equitable actions. The members of the IPG Group and the IFCO
Group also agree that if injunctive relief is granted to the Company, no bond
shall be required. Notwithstanding that injunctive relief is an appropriate
remedy for breach of these covenants, the Company shall also be entitled to
recover all damages which arise from the breach, together with interest, costs
and attorneys fees (for appeal).
ARTICLE X
TERMINATION
Section 10.1 Termination. This Agreement may be terminated and the transaction
contemplated hereby abandoned:
<PAGE>
(a) By mutual written consent of the parties at any time prior to the
Closing.
(b) If the Closing of the Merger and IPO do not occur by March 31, 2000.
(c) Prior to the Closing, by written notice from IFCO Systems to the IPG
Group and the other parties if: (i) there is a material breach of any
representation, warranty or covenant on the part of the IPG Group or if a
representation or warranty of the IPG Group shall be untrue in any material
respect, in either case such that the conditions specified therein would not be
satisfied at Closing and such breach continues for 30 days after notice to the
IPG Group and an opportunity to cure such default; or (ii) consummation of any
of the transactions contemplated hereby is enjoined, prohibited or otherwise
restrained by the terms of a final, non-appealable order or judgment of a
Governmental Authority.
(d) Prior to the Closing, by written notice from IPG to the IFCO Group and
the other parties: (i) there is a material breach of any representation,
warranty or covenant on the part of the IFCO Group or if a representation or
warranty of the IFCO Group shall be untrue in any material respect, in either
case such that the conditions specified therein would not be satisfied at
Closing and such breach continues for 30 days after notice to the IFCO Group and
an opportunity to cure such default; or (ii) consummation of any of the
transactions contemplated hereby is enjoined, prohibited or otherwise restrained
by the terms of a final, non-appealable order or judgment of a Governmental
Authority.
Section 10.2 Effect of Termination. (a) Any termination of this Agreement,
however effected, shall not release either the IFCO Group on the one hand or the
IPG Group on the other from any liability or other consequences arising from any
breach or violation by such party of the terms of this Agreement prior to the
effective time of such termination, nor shall any such termination release any
party from its obligations or duties under this Agreement, which, by their terms
and/or expressed intent, may require performance subsequent to any such
termination, and all provisions of this Agreement that set forth such
obligations or duties and such other general or procedural provisions that may
be relevant to any attempt to enforce such obligations or duties, shall survive
any such termination of this Agreement until such obligations or duties shall
have been performed or discharged in full.
(b) If the closing of the Merger and IPO have not occurred by March 31,
2000, then notwithstanding the termination of this Agreement:
(i) Polymer shall retain the Polymer Interest and the Polymer Shares.
(ii) The Polymer Note shall be deemed a loan to the Company by
Schoeller U.S. or its Affiliates.
(iii) No later than April 30, 2000, SIL shall make a shareholder loan to
the Company in an amount equal to the quotient of (a) the sum of (A) the
Existing Indebtedness and (B) the Additional Indebtedness, less any such
indebtedness of the Company owing to SIL or Schoeller U.S. as of March 31, 2000
(less any such Existing Indebtedness and Additional Indebtedness arising
pursuant to the Supply Agreement which is not then due and payable or not in
<PAGE>
default) divided by two. The Company shall then promptly distribute this amount
to Polymer. For the avoidance of doubt, this subparagraph (b)(iii) is intended
by the parties to equalize the balance in each member's loan account for amounts
other than those amounts pursuant to the Supply Agreement that are not due and
payable as of March 31, 2000.
(iv) After March 31, 2000, the members hereto agree that they shall
approve an annual budget for the Company by September 30 of the year preceding
the applicable budget year. If the Members fail to approve a budget by
September 30 of the preceding year, the members shall work in good faith and
utilize reasonable best efforts to resolve such dispute. One month prior to the
end of each fiscal quarter, management of the Company shall provide the members
with an estimate of funding requirements for such fiscal quarter. Each member
shall then have 15 days to approve or object to such funding requests. If both
members approve the budget, SIL and IPG shall make shareholder loans to fund
such additional requirements. If one or more of SIL or IPG object to such
funding requirements, the parties will have 15 days in which to reconcile their
differences. If they fail to do so within such 15-day period. Neither member
shall be required to fund amounts in excess of the amounts set forth in the
budget.
(v) In the absence of bank or other third party financing, SIL and IPG
agree to proportionately fund the future cash operating and financial
requirements of IFCO U.S. in accordance with the budgets referred to above
including, if there is a manufacturing joint venture between SPI and IPG, cash
requirements contemplated by the Existing Supply Agreement, otherwise the
funding obligations under the Existing Supply Agreement shall remain in effect
including the price levels and supplier financing provisions, and in the event
that SIL and IPG agree to continue operating the Company on a joint and
cooperative basis, the System License Agreement and the Production License
Agreement shall be automatically extended to January 17, 2011 on their same
terms.
(vi) If SIL fails to timely fund its proportionate share of such cash
requirements referenced in sub-paragraph (v) above, then Polymer shall have an
option to purchase, free and clear of all Encumbrances, the Schoeller U.S. 80%
Membership Interest in IFCO U.S. for $11,092,500; together with the redelivery
of the Polymer Shares, less the Cash Amount, plus any indebtedness of IFCO U.S.
to SIL or its Affiliates, and the Polymer Note shall mature and be paid in full,
and, if and only if such option is exercised, the System License Agreement and
the Production License Agreement shall be automatically extended to January 17,
2011 on their same terms; provided, however, that the System License Agreement
shall be royalty free and the exclusivity provisions of Section 1(a) thereof
shall apply only to rigid foldable transport containers for the fruit and
vegetable market sector.
(vii) If IPG fails to timely fund its proportionate share of such cash
requirements, then SIL shall have an option to purchase, free and clear of all
Encumbrances, the Polymer Interest and the Polymer Shares for $10,657,500, plus
any Existing Indebtedness and Additional Indebtedness of IFCO U.S. owing to IPG
or its Affiliates (including debt incurred under the Existing Supply Agreement).
(c) Each of the options referred to in Section 10.1(b)(vi) and Section
10.1(b)(vii) may be exercised by written notice to the other party, and the
closing of the purchase of such Membership Interests covered by such option
<PAGE>
shall be on the date specified therein, which shall be not less than 15 days nor
more than 30 days after the date such notice is delivered. Each of the options
specified above shall expire on December 31, 2002.
ARTICLE XI
MISCELLANEOUS
Section 11.1 Successors and Assigns. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto and the
successors thereof. Notwithstanding the foregoing, the IFCO Group may assign to
SPI its right to purchase the IFCO Manufacturing Assets.
Section 11.2 Entire Agreement. This Agreement (including the Schedules and
Exhibits attached hereto) and the documents delivered pursuant hereto constitute
the entire agreement and understanding among the parties hereto and supersede
any prior agreement and understanding relating to the subject matter hereof,
including that certain IFCO U.S., L.L.C. Term Sheet; provided, however, that any
confidentiality agreements, the Operating Agreement, the Existing Supply
Agreement or any other agreement between any of the parties hereto shall survive
the execution of this Agreement and shall not be affected, except as
specifically modified by the terms of this Agreement. This Agreement may be
modified or amended only by a written instrument executed by the parties hereto,
acting through their respective officers, duly authorized by their respective
Boards of Directors or similar governing body.
Section 11.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed to be an original, but all of which
will constitute one and the same agreement, it being understood that all parties
need not sign the same counterpart. Facsimile transmission of any signed
original document and/or retransmission of any signed facsimile transmission
will be deemed the same as delivery of an original. At the request of any
party, the parties will confirm facsimile transmission by signing a duplicate
original document.
Section 11.4 Notices. Any notice required to be given pursuant to this
Agreement shall be in writing, which shall include, without limitation, telex,
telecopy or other electronic transmission reduced to written form. Notice given
by telex, telecopy or other electronic transmission shall be deemed to have been
given and received when sent. Notice by mail shall be deemed to have been given
and received four (4) calendar days after the day first deposited in the United
States mail, certified mail, first class postage prepaid, return receipt
requested, and as addressed as shown below. Notice by overnight service shall
be deemed to have been given and received the day after they are sent. All
notices shall be to the following addresses, unless changed in writing by the
respective addressee:
(a) If to Schoeller U.S., SIL or IFCO Systems, addressed to:
IFCO
Zugspitzstrasse 15
82049 Pullach
Germany
Attention: Martin Schoeller and Christoph Schoeller
Telecopy: 011-49-897-449-1298
<PAGE>
With a copy (which shall not constitute notice) to:
King & Spalding
1185 Avenue of the Americas
New York, New York 10036-4003
Attention: Stephen M. Wiseman, Esq.
Telephone: 212-556-2265
Telecopy: 212-556-2222
(b) If to IPG, Polymer or IFCO Manufacturing, addressed to:
Intertape Polymer Group, Inc.
5401 W. Kennedy Blvd., Suite 760
Tampa, Florida 33609
Attention: Andrew Archibald
Telephone: 514-731-7591
Telecopy: 514-731-5039
With a copy (which shall not constitute notice) to:
Shutts & Bowen LLP
20 North Orange Avenue, Suite 1000
Orlando, Florida 32801-4626
Attention: J. Gregory Humphries, Esq.
Telephone: 407-423-3200
Telecopy: 407-425-8316
or such other address as any party hereto shall specify pursuant to this Section
11.4 from time to time.
Section 11.5 Governing Law. This Agreement shall be construed in accordance
with the laws of the State of Delaware (except for its principles governing
conflicts of laws).
Section 11.6 Survival of Representations and Warranties. The representations
and warranties set forth herein shall survive the Closing for three years.
Covenants and other agreements herein shall, unless otherwise provided, survive
the Closing for the applicable statutory limitation periods.
Section 11.7 Exercise of Rights and Remedies. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
Section 11.8 Severability. If any term or provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby are not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties shall negotiate
in good faith to modify this Agreement so as to effect
<PAGE>
the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the transactions be consummated as originally
contemplated to the fullest extent possible.
Section 11.9 Dispute Resolution.
(a) Except with respect to injunctive relief as provided in (which relief
may be sought from any court or administrative agency with jurisdiction with
respect thereto), any unresolved dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
accordance with the rules of the American Arbitration Association then in
effect. The arbitration shall be conducted by a retired judge employed by the
office of J.A.M.S./Endispute, Inc. ("JAMS"). The arbitration shall be held in
Tampa, Florida.
(b) The parties shall obtain from JAMS a list of the retired judges
available to conduct the arbitration. The parties shall use their reasonable
efforts to agree upon a judge to conduct the arbitration. If the parties cannot
agree upon a judge to conduct the arbitration within 10 days after receipt of
the list of available judges, the parties shall ask JAMS to provide the parties
a list of three available judges (the "Judge List"). Within five days after
receipt of the Judge List, each party shall strike one of the names of the
available judges from the Judge List and return a copy of such list to JAMS and
the other party. If two different judges are stricken from the Judge List, the
remaining judge shall conduct the arbitration. If only one judge is stricken
from the Judge List, JAMS shall select a judge from the remaining two judges on
the Judge List to conduct the arbitration.
(c) The arbitrator shall not have the authority to add to, detract from, or
modify any provision hereof nor to award punitive damages to any injured party.
The arbitrator shall have the authority to order payment of damages,
reimbursement of costs, including those incurred to enforce this Agreement, and
interest thereon in the event the arbitrator determines that a material breach
of this Agreement has occurred. A decision by the arbitrator shall be final and
binding. Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
(d) In the event that arbitration shall arise with respect to any claim, the
prevailing party shall be entitled to reimbursement of costs and expenses
incurred in connection with such arbitration including reasonable attorneys'
fees, if the parties hereto, acting in good faith, cannot reach agreement with
respect to such claim within 60 days after the notice provided by the
Indemnifying Party.
[The remainder of this page is intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
INTERTAPE POLYMER GROUP INC.
By: /s/ Andrew M. Archibald
----------------------------
Name:
Title:
POLYMER INTERNATIONAL CORP.
By: /s/ Andrew M. Archibald
----------------------------
Name:
Title:
IFCO MANUFACTURING CORP.
By: /s/ Andrew M. Archibald
----------------------------
Name:
Title:
IFCO SYSTEMS N.V.
By: /s/ Christoph Schoeller
----------------------------
Name:
Title:
SCHOELLER INTERNATIONAL LOGISTICS
BETEILIGUNGSGESELLSCHAFT MBH
By: /s/ Christoph Schoeller
----------------------------
Name:
Title:
SCHOELLER - U.S., INC.
By: /s/ Christoph Schoeller
----------------------------
Name:
Title:
<PAGE>
EXHIBIT 10.11
English Translation
Management Agreement
The following Management Agreement is hereby concluded between
Schoeller Packaging Systems GmbH
Zugspitzstrasse 15
82 049 Pullach
- hereinafter "Contractor"
and
IFCO INTERNATIONAL FOOD CONTAINER ORGANISATION GMBH
Zugspitzstrasse 15
82049 Pullach
(acting here for IFCO subsidiaries, see appendix):
- hereinafter "Principal" -
The contractor has particular knowledge and experience in the sector of
commercial, financial and administrative management services; for this it has
the appropriate personnel, the corresponding connections and possibilities for
the provision of the desired management services at it disposal. It is prepared
to offer the Principal its knowledge, its experience and the corresponding
management services.
The Principal is interested in taking advantage of the management services
offered by the Contractor.
1. The Contractor shall provide the following management services:
a) economic management services
- co-ordination and support of planning and control
- investor relations inasmuch as the Principal is affected
- strategic alliances inasmuch as the Principal is affected
- consultation and support in financing
- public relations and marketing support
2. The Principal shall have claim to use and call up these services or to
the award of order. The Contractor shall as a rule provide these
management services continuously without being mandated specially with
the individual management services.
3. The Principal shall pay a reasonable remuneration for the management
services.
<PAGE>
4. In the course of the year, an advance payment shall be made on the basis
of the budgetary costs. The Contractor shall, after the end of the
business year, send a final invoice to the Principal . The invoice shall
show the costs assigned according to a described distribution key
proportional to turnover which, however, should not exceed DM 1 million
net.
5. This Agreement shall be concluded for the period from 1/01/1997 to
31/12/2000. The contractual partners shall decide at the latest by 30th
November of a calendar year, for the first time on 30th November 2000,
as to whether the Agreement should be extended for a further year.
Exceptional termination shall be possible at any time if good cause,
e.g. alteration in the majority relationships etc. exists.
6. For the year of 1997 a budget of DM 2.07 million is envisaged for the
management function of the Contractor (structure according to appendix).
The cost share for 1997 shall be calculated hereby from the planned
annual turnover of the Principal for 1997 and the share resulting from
that in the planned total turnover in the SPS group. Total turnover in
this sense is the additive turnover without consolidation adaptations.
7. Each notification or declaration in accordance with this Agreement and
each supplement to this Agreement shall require written form.
8. In case one of the regulations of this Agreement should be invalid, the
other regulations shall remain valid nevertheless. Both parties
undertake to replace the invalid regulation with a valid regulation
which most closely approaches the intended purpose.
9. This Agreement is subject to the law of the Federal Republic of Germany.
The place of fulfilment and place of jurisdiction shall be Munich.
Munich, on this 2nd day of January 1997.
/s/ Martin Schoeller /s/ Christoph Schoeller
SCHOELLER PACKAGING SYSTEMS GMBH
/s/ Juergen Benz /s/ Gunter Gerland
IFCO INTERNATIONAL FOOD CONTAINER ORGANISATION GMBH
<PAGE>
Appendix I
to the Management Agreement between Schoeller Packaging Systems and IFCO
International Food Container Organisation GmbH
List of the subsidiaries of IFCO GmbH included in the Management Agreement
IFCO International Food Container Organisation GmbH
Behalterleasing KG, Munich
SLS Schoeller Logistic Services GmbH, Pullach
IFCO AG., Romont/Switzerland
IFCO International Food Container Organisation Ges. mbH
Vienna/Austria
IFCO International Food Container Organisation Italia s.r.1, Calenza, Italy
IFCO France International Food Container Organisation S.A.S Rungis
IFCO International Food Container Organisation UK Limited, High Wycombe, Bucks,
United Kingdom
SPS Planning 1997
Apportionment *)
75%
Production earnings 0
+/- LBV 0
=payment 1 0
Reduction in earnings 0
Other earnings 0
= payment 0
Deployment of goods 0
= net revenue 0
Personnel -664 -498
Rentals -33 -25
Travelling costs -92 -69
Legal and consultation costs -1,600 -11200
Advertising costs -12 -9
Other costs -236 -177
Leasing -60 -45
Depreciation -11 -8
Telephone / fax -30 -23
Insurances -19 -14
<PAGE>
Interest expenses -4,511
Total costs -7,268 -2,068
Company result -7,268
+) assumption = 75% of all costs incurred at SPS
(without interest) concern group - subsidiaries
(SPI, IFCO, MTS)
<PAGE>
Alteration Agreement
on the Management Agreement of 02/01/1997
between Schoeller Packaging Systems GmbH
- hereinafter also "SPS" -
and the IFCO International Food Container Organisation GmbH
- hereinafter also "IFCO" -
The Management Agreement of 02/01/1997 is altered as follows:
No. 4, sentence 3:
The invoice shows the costs to be allocated according to a described
distribution key proportional to turnover which, however, may not exceed DM 1.5
million.
No. 4, sentence 1:
For the year 1999, a budget amounting to DM 3.0 million is envisaged for the
management function of the Contractor.
Pullach, 14/12/1998
/s/ Martin Schoeller /s/ Christoph Schoeller
IFCO International Food Container Organisation GmbH, Pullach
/s/ Juergen Benz /s/ Gunter Gerlaud
Schoeller Packaging Systems GmbH, Pullach
<PAGE>
EXHIBIT 10.12
English Translation
Management Agreement
The following Management Agreement is hereby concluded between
Schoeller Packaging Systems GmbH
Zugspitzstrasse 15
82 049 Pullach
- hereinafter "Contractor" -
and
MTS Okologistik Verwaltungs GmbH
Zugspitzstrasse 15
82049 Pullach
- hereinafter "Principal" -
The contractor has particular knowledge and experience in the sector of
commercial, financial and administrative management services; for this it has
the appropriate personnel, the corresponding connections and possibilities for
the provision of the desired management services at it disposal. It is prepared
to offer the Principal its knowledge, its experience and the corresponding
management services.
The Principal is interested in taking advantage of the management services
offered by the Contractor.
1. The Contractor shall provide the following management services:
a) economic management services
- co-ordination and support of planning and control
- investor relations inasmuch as the Principal is affected
- strategic alliances inasmuch as the Principal is affected
- consultation and support in financing
- public relations and marketing support
2. The Principal shall have claim to use and call up these services or to
the award of order. The Contractor shall as a rule provide these
management services continuously without being mandated specially with
the individual management services.
3. The Principal shall pay a reasonable remuneration for the management
services.
4. In the course of the year, an advance payment shall be made on the basis
<PAGE>
of the budgetary costs. The Contractor shall, after the end of the
business year, send a final invoice to the Principal . The invoice shall
show the costs assigned according to a described distribution key
proportional to turnover which, however, should not exceed DM 1 million
net.
5. This Agreement shall be concluded for the period from 1/01/1997 to
31/12/2000. The contractual partners shall decide at the latest by 30th
November of a calendar year, for the first time on 30th November 2000, as
to whether the Agreement should be extended for a further year. Exceptional
termination shall be possible at any time if good cause, e.g. alteration in
the majority relationships etc. exists.
6. For the year of 1997 a budget of DM 2.07 million is envisaged for the
management function of the Contractor (structure according to appendix).
The cost share for 1997 shall be calculated hereby from the planned
annual turnover of the Principal for 1997 and the share resulting from
that in the planned total turnover in the SPS group. Total turnover in
this sense is the additive turnover without consolidation adaptations.
7. Each notification or declaration in accordance with this Agreement and
each supplement to this Agreement shall require written form.
8. In case one of the regulations of this Agreement should be invalid, the
other regulations shall remain valid nevertheless. Both parties
undertake to replace the invalid regulation with a valid regulation
which most closely approaches the intended purpose.
9. This Agreement is subject to the law of the Federal Republic of Germany.
The place of fulfilment and place of jurisdiction shall be Munich.
Munich, on this 2nd day of January 1997.
/s/ Martin Schoeller /s/ Christoph Schoeller
SCHOELLER PACKAGING SYSTEMS GMBH
/s/ Ulrich Schafhausen /s/ Gunter Gerland
MTS Okologistik Verwaltungs GmbH
<PAGE>
Alteration Agreement
on the Management Agreement of 02/01/1997
between Schoeller Packaging Systems GmbH
- hereinafter also "SPS" -
and MTS Okologistik Verwaltungs GmbH
- hereinafter also "MTS" -
The Management Agreement of 02/01/1997 is altered as follows:
No. 4, sentence 3:
The invoice shows the costs to be allocated according to a described
distribution key proportional to turnover which, however, may not exceed DM 1.5
million.
No. 4, sentence 1:
For the year 1999, a budget amounting to DM 3.0 million is envisaged for the
management function of the Contractor.
Pullach, 14/12/1998
/s/ Martin Schoeller /s/ Christoph Schoeller
IFCO International Food Container Organisation GmbH, Pullach
/s/ Gunter Gerland /s/ Hans Meier 04/02/99
MTS Okologistik Verwaltungs GmbH
<PAGE>
Appendix I
to the Management Agreement between Schoeller Packaging Systems and IFCO
International Food Container Organisation GmbH
List of the subsidiaries of IFCO GmbH included in the Management Agreement
IFCO International Food Container Organisation GmbH
Behalterleasing KG, Munich
SLS Schoeller Logistic Services GmbH, Pullach
IFCO AG., Romont/Switzerland
IFCO International Food Container Organisation Ges. mbH
Vienna/Austria
IFCO International Food Container Organisation Italia s.r.1, Calenza, Italy
IFCO France International Food Container Organisation S.A.S Rungis
IFCO International Food Container Organisation UK Limited, High Wycombe, Bucks,
United Kingdom
SPS Planning 1997
Apportionment *)
75%
Production earnings 0
+/- LBV 0
=payment 1 0
Reduction in earnings 0
Other earnings 0
= payment 0
Deployment of goods 0
= net revenue 0
Personnel -664 -498
Rentals -33 -25
Travelling costs -92 -69
Legal and consultation costs -1,600 -11200
Advertising costs -12 -9
Other costs -236 -177
Leasing -60 -45
Depreciation -11 -8
Telephone / fax -30 -23
Insurances -19 -14
Interest expenses -4,511
<PAGE>
Total costs -7,268 -2,068
Company result -7,268
+) assumption = 75% of all costs incurred at SPS
(without interest) concern group - subsidiaries
(SPI, IFCO, MTS)
<PAGE>
Exhibit 10.21
English Translation
CONTRACT OF EMPLOYMENT
Between
SLS Schoeller Logistic Services GmbH
(in future: SFD Schoeller Finanz-Dienstleistungs GmbH)
Zugspitzstr. 15
82049 Pullach
referred to hereinafter as "SLS" or "company"
and
Mr. Holger Schmidt
referred to hereinafter as "employee" the following agreement has been reached.
I. Position
1)The employee is engaged in the area of Management Information
Systems/Corporate Development/ Corporate Finance
2)SLS shall be entitled to engage the employee in other comparable areas of
activity.
3)The employee shall be directly responsible to the Manager of Management
Information Systems/Corporate Development/Corporate Finance and shall ensure
said manager is appropriately informed about all the business transactions
relating to the employee's area of operation.
II. Working hours
1)Regular working hours are 5 (five) work days with a total of 40 (forty) hours,
excluding breaks. The beginning and end shall be specified by SLS in exercising
its right to give instructions.
2)The employee herewith declares his willingness to effect overtime and to work
in excess of regular hours, including work and travel on Saturdays, Sundays and
public holidays.
III. Payment
1)In remuneration of his employment, the employee shall receive a gross annual
salary of DM 110,000 (in words: one hundred and ten thousand Deutschmarks) which
shall be paid out in twelve equal installments at the end of each month.
2)Dependent on successful results, the employee shall receive an initial annual
bonus of DM 20,000, the requirements for which shall be specified separately
each year for the following business year.
<PAGE>
3)All and any overtime and work in excess of regular hours including extra
payment for Sundays and public holidays shall be deemed fully recompensed with
the payment of the above specified salary.
IV. Other employer benefits
1)The company shall provide the employee with an appropriate company car for the
length of his employment with the company(e.g. BMW 325 - year old vehicle).
Running and maintenance costs shall be borne by the company. The company car may
be used under ordinary circumstances for private purposes; in this case, the
costs of fuel shall be borne by the employee. In terms of the money's worth
advantage of said vehicle, the respective provisions under fiscal law and the
company directives shall be applicable. The employee herewith undertakes to
return the vehicle at any time at the first request of the company. Any right of
retention is herewith explicitly ruled out.
2)After the expiry of the trial period, SLS shall also grant the employee
capital accumulation benefits of DM 78.- gross per month in addition to his
salary specified in II.
3)Likewise in addition to the salary specified in II, the employee shall receive
a holiday allowance of DM 33.- ross for each day of vacation.
V. Expenses
In the event of travel initiated and approved by the company, the employee shall
be reimbursed for travel costs of which evidence is presented pursuant to the
respectively valid company directives and the respective directives under fiscal
law.
VI. Sickness
1)In the event of sickness not caused by negligence on the part of the employee,
which impedes him carrying out his assignments, the employee shall be entitled
to the continued payment of his salary for a maximum of six weeks.
2)The employee shall notify the company immediately of any prevention to his
working capacity or any working disability and the likely duration thereof. Upon
questioning, the reasons for said prevention or incapacity shall be given. If
the illness lasts for three days or longer, the employee shall provide the
company on the third day at the latest with a medical certificate on his
condition, giving details of the beginning and probable duration of the working
incapacity. Should said incapacity last longer than specified in the medical
certificate, the employee undertakes to provide another medical certificate
within three days.
3)Should the working incapacity be caused by a third party, the employee
herewith assigns all claims against this third party for compensation of damages
or other remunerative payments to SLS, to the amount of the continued salary
payments effected by SLS.
VII. Vacation
<PAGE>
1)The employee shall be entitled to an annual 30 work day holiday. Work days are
all days of the week except for Saturdays and Sundays and public holidays at the
registered seat of business of the company.
2)Vacation shall be applied for in advance in good time with the employee's
superior or with management and accordingly approved.
3)In planning and commencing vacation, corporate priorities are to be given
appropriate consideration. Any overall company vacation is to be offset against
the employee's annual vacation.
VIII. Side-line operations
The employee herewith undertakes to supply SLS with his full working capacity.
Side-line activities for which payment is effected or which are detrimental to
work for the company as well as any involvement or participation in other
undertakings shall require the previous written consent of the management of
SLS.
IX. Confidentiality agreement and return of documentation
1)The employee herewith undertakes, in particular after termination of his
employment with the company, to maintain secrecy regarding all confidential
matters and business secrets of the company with which he becomes familiar
during his employment with the company(in particular procedures, data, know-how,
marketing plans, business plans, unpublished financial statements, licences,
prices, costs and staff, customer and supplier lists) and shall neither make
them known to third parties nor make use of them for his own benefit or the
benefit of third parties.
2)The employee shall treat and keep with care all items and documents belonging
to SLS i.e. made available to him by SLS, so that unauthorised access by third
parties is rendered impossible.
3)Upon leaving the company, the employee shall return to the company, without
being requested to do so and whilst still in the employment of the company, all
items in his possession belonging to the company, as well as all documents
relating to the operations of the company and/or confidential information as
defined in the above paragraph (1), in particular all notes, memoranda, records,
drawings, minutes, reports, files, samples, books, plans and such like (as well
as copies or other reproductions thereof and all his own records including hard
and software ) ("items/documents"). The employee herewith acknowledges that all
documents are solely the property of the company. The employee retains no right
of retention in respect of the said items/ documents.
X. Pirating prohibition
The employee herewith undertakes not to pirate off any other applicant from the
company either during employment with the company or after termination thereof
or to induce them to terminate their employment with the company.
XI. Industrial property rights
<PAGE>
1)The employee herewith assigns to the company the unrestricted right to exploit
and utilise in terms of time, premises and content any working insights which
can be protected by copyright or such that can be protected by industrial
property rights that have been produced by the employee during his employment
with the company in the course of his working assignments laid down by contract.
The transfer of the right to utilise and exploit covers the permission to
process said insights and the granting of licences to third parties. The
employee explicitly renounces all rights to the working insights to which he
might be entitled as author, in particular the right to be nominated and the
right to make said insights accessible to the public. The transfer of the right
to utilisation and exploitation and the above specified waiver shall be deemed
fully compensated by the salary specified under the above section III (1).
2)At the request of SLS, the employee shall be supportive to the company in its
acquisition of copyrights and other industrial property rights relating to the
working insights of the employee, even in other countries. To this end, the
employee shall complete and deliver all applications, declarations of assignment
and other declarations required by law and shall sign all documents which are
required or requested by the company, in order to transfer in full the rights to
the working insights to the company and to enable the company, the successors
thereof and assignees to secure the full exclusive utilisation thereof and the
advantages of the working insights and to exploit them. For the period of his
employment with the company, the employee shall receive no further payment for
the fulfilment of this duty to be involved than the reimbursement of costs which
he incurs as a result of the requests of the company. As long as the employee
meets his duties of involvement after termination of employment with the
company, an appropriate daily rate shall be paid to him and all costs reimbursed
that have been incurred as a result of the requirements of the company.
3)The Employed Inventors' Act shall apply in respect to employee inventions.
XII. Commencement and termination of term of contract
1)The employment contract commences on the 01.07.1997 or earlier as far as this
is possible. The first six (6) months are deemed to be a trial period.
2)For both parties, the period of notice to terminate the contract is twelve
weeks to the end of a calendar half-year. Any legal prolongation of the period
of notice for the company shall likewise apply to the notice of termination
given by the employee.
3)The right to give exceptional notice of termination shall not be affected
hereby.
4)Prior to the beginning of the employment, regular notice of termination shall
be excluded. Should the employee nevertheless give notice to terminate or fail
to appear in good time to commence employment, he shall incur a contractual
penalty of one month's salary.
5)In the event the employee gives notice to terminate employment, the company
shall be entitled to release the employee from further activity for the company
until termination of said employment.
<PAGE>
XIII. Various
1)The employment contract is subject to German law.
2)This contract replaces all previous agreements including any verbal
arrangements that might have been made.
3)Alterations and additions to this contract including this clause as well as
the notice of termination of this contract shall require the written form to be
operative.
4)Should any provision of this Contract be or become invalid, this shall not
affect the validity of the remaining provisions. In lieu of the invalid
provision, an appropriate provision shall apply which is in context with the
intended business purpose of the invalid regulation.
XIV. Place of performance
The place of performance for employment and all duties derived therefore shall
be the registered seat of business of the company in Pullach, Munich.
Pullach, 26.3.1997 Munich, 10.4.1997
Signed: /s/ Dr. Frank Tofflinger
SLS Schoeller Logistic services GmbH /s/ Holger Schmidt
(in future:
SFD Schoeller Finanz-Dienstleistungs GmbH)
<PAGE>
Agreement of change
to the contract of employment between Schoeller Finanzberatungs- und
Dienstleistung GmbH (formerly SLS GmbH) and Mr. Holger Scmidt of 26/03/1997 and
to the agreement of change of 03/08/1998
The aforesaid contract of employment is hereby amended in the following items
with effect from 1/7/1999:
1. Item III. Remuneration
(1)
As remuneration for his work, the employee shall receive a gross annual salary
of DM 125,000 (In words: One hundred and twenty five thousand Deutschmarks)
payable in 12 equal installments on the last day of each month.
(2)
The employee shall receive a variable, annual bonus of a maximum of DM 40,000
gross (In words: Forty thousand Deutschmarks), which is made up each to the half
by targets agreed in advance for the business year and by the achievement of the
planned operating result of the IFCO Europe sub-group. A separate agreement
regulates the details.
All other provisions in the aforesaid contract of employment continue in force
unaltered.
Munich, 23 July 1999
/s/ Juerg Augustin /s/ Holger Schmidt
IFCO International Food Container Holger Schmidt
Organisation GmbH
<PAGE>
Exhibit 10.22
English Translation
CONTRACT OF EMPLOYMENT
Between
SLS Schoeller Logistic Services GmbH
(in future: SFD Schoeller Finanz-Dienstleistungs GmbH)
Zugspitzstr. 15
82049 Pullach
referred to hereinafter as "SLS" or "company"
and
Mr. Dirk Grosgen (formerly Dirk Schulze)
Raucheneggerstr. 2
81245 Munich
referred to hereinafter as "employee"- the following agreement has been reached.
I. Position
1) The employee is engaged in the area of Management Information
Systems/Corporate Development/ Corporate Finance
2) SLS shall be entitled to engage the employee in other comparable areas of
activity.
3) The employee shall be directly responsible to the Manager of Management
Information Systems/Corporate Development/Corporate Finance and shall ensure
said manager is appropriately informed about all the business transactions
relating to the employee's area of operation.
II. Working hours
1) Regular working hours are 5 (five) work days with a total of 40 (forty)
hours, excluding breaks. The beginning and end shall be specified by SLS in
exercising its right to give instructions.
2) The employee herewith declares his willingness to effect overtime and to work
in excess of regular hours, including work and travel on Saturdays, Sundays and
public holidays.
III. Payment
1) In remuneration of his employment, the employee shall receive a gross annual
salary of DM 110,000 (in words: one hundred and ten thousand Deutschmarks) which
shall be paid out in twelve equal installments at the end of each month.
<PAGE>
2) Dependent on successful results, the employee shall receive an initial annual
bonus of DM 20,000, the requirements for which shall be specified separately
each year for the following business year.
3) All and any overtime and work in excess of regular hours including extra
payment for Sundays and public holidays shall be deemed fully recompensed with
the payment of the above specified salary.
IV. Other employer benefits
1) The company shall provide the employee with an appropriate company car for
the length of his employment with the company(e.g. BMW 325 - year old vehicle).
Running and maintenance costs shall be borne by the company. The company car may
be used under ordinary circumstances for private purposes; in this case, the
costs of fuel shall be borne by the employee. In terms of the money's worth
advantage of said vehicle, the respective provisions under fiscal law and the
company directives shall be applicable. The employee herewith undertakes to
return the vehicle at any time at the first request of the company. Any right of
retention is herewith explicitly ruled out.
2) After the expiry of the trial period, SLS shall also grant the employee
capital accumulation benefits of DM 78.- gross per month in addition to his
salary specified in II.
3) Likewise in addition to the salary specified in II, the employee shall
receive a holiday allowance of DM 33.- ross for each day of vacation.
V. Expenses
In the event of travel initiated and approved by the company, the employee shall
be reimbursed for travel costs of which evidence is presented pursuant to the
respectively valid company directives and the respective directives under fiscal
law.
VI. Sickness
1) In the event of sickness not caused by negligence on the part of the
employee, which impedes him carrying out his assignments, the employee shall be
entitled to the continued payment of his salary for a maximum of six weeks.
2) The employee shall notify the company immediately of any prevention to his
working capacity or any working disability and the likely duration thereof.
Upon questioning, the reasons for said prevention or incapacity shall be given.
If the illness lasts for three days or longer, the employee shall provide the
company on the third day at the latest with a medical certificate on his
condition, giving details of the beginning and probable duration of the working
incapacity. Should said incapacity last longer than specified in the medical
certificate, the employee undertakes to provide another medical certificate
within three days.
3) Should the working incapacity be caused by a third party, the employee
herewith assigns all claims against this third party for compensation of damages
or other remunerative payments to SLS, to the amount of the continued salary
payments effected by SLS.
<PAGE>
VII. Vacation
1) The employee shall be entitled to an annual 30 work day holiday. Work days
are all days of the week except for Saturdays and Sundays and public holidays at
the registered seat of business of the company.
2) Vacation shall be applied for in advance in good time with the employee's
superior or with management and accordingly approved.
3) In planning and commencing vacation, corporate priorities are to be given
appropriate consideration. Any overall company vacation is to be offset against
the employee's annual vacation.
VIII. Side-line operations
The employee herewith undertakes to supply SLS with his full working capacity.
Side-line activities for which payment is effected or which are detrimental to
work for the company as well as any involvement or participation in other
undertakings shall require the previous written consent of the management of
SLS.
IX. Confidentiality agreement and return of documentation
1) The employee herewith undertakes, in particular after termination of his
employment with the company, to maintain secrecy regarding all confidential
matters and business secrets of the company with which he becomes familiar
during his employment with the company(in particular procedures, data, know-how,
marketing plans, business plans, unpublished financial statements, licences,
prices, costs and staff, customer and supplier lists) and shall neither make
them known to third parties nor make use of them for his own benefit or the
benefit of third parties.
2) The employee shall treat and keep with care all items and documents belonging
to SLS i.e. made available to him by SLS, so that unauthorised access by third
parties is rendered impossible.
3) Upon leaving the company, the employee shall return to the company, without
being requested to do so and whilst still in the employment of the company, all
items in his possession belonging to the company, as well as all documents
relating to the operations of the company and/or confidential information as
defined in the above paragraph (1), in particular all notes, memoranda, records,
drawings, minutes, reports, files, samples, books, plans and such like (as well
as copies or other reproductions thereof and all his own records including hard
and software ) ("items/documents"). The employee herewith acknowledges that all
documents are solely the property of the company. The employee retains no right
of retention in respect of the said items/ documents.
X. Pirating prohibition
The employee herewith undertakes not to pirate off any other applicant from the
company either during employment with the company or after termination thereof
or to induce them to terminate their employment with the company.
<PAGE>
XI. Industrial property rights
1) The employee herewith assigns to the company the unrestricted right to
exploit and utilise in terms of time, premises and content any working insights
which can be protected by copyright or such that can be protected by industrial
property rights that have been produced by the employee during his employment
with the company in the course of his working assignments laid down by contract.
The transfer of the right to utilise and exploit covers the permission to
process said insights and the granting of licences to third parties. The
employee explicitly renounces all rights to the working insights to which he
might be entitled as author, in particular the right to be nominated and the
right to make said insights accessible to the public. The transfer of the right
to utilisation and exploitation and the above specified waiver shall be deemed
fully compensated by the salary specified under the above section III (1).
2) At the request of SLS, the employee shall be supportive to the company in its
acquisition of copyrights and other industrial property rights relating to the
working insights of the employee, even in other countries. To this end, the
employee shall complete and deliver all applications, declarations of assignment
and other declarations required by law and shall sign all documents which are
required or requested by the company, in order to transfer in full the rights to
the working insights to the company and to enable the company, the successors
thereof and assignees to secure the full exclusive utilisation thereof and the
advantages of the working insights and to exploit them. For the period of his
employment with the company, the employee shall receive no further payment for
the fulfilment of this duty to be involved than the reimbursement of costs which
he incurs as a result of the requests of the company. As long as the employee
meets his duties of involvement after termination of employment with the
company, an appropriate daily rate shall be paid to him and all costs reimbursed
that have been incurred as a result of the requirements of the company.
3) The Employed Inventors' Act shall apply in respect to employee inventions.
XII. Commencement and termination of term of contract
1) The employment contract commences on the 01.07.1997 or earlier as far as this
is possible. The first six (6) months are deemed to be a trial period.
2) For both parties, the period of notice to terminate the contract is twelve
weeks to the end of a calendar half-year. Any legal prolongation of the period
of notice for the company shall likewise apply to the notice of termination
given by the employee.
3) The right to give exceptional notice of termination shall not be affected
hereby.
4) Prior to the beginning of the employment, regular notice of termination shall
be excluded. Should the employee nevertheless give notice to terminate or fail
to appear in good time to commence employment, he shall incur a contractual
penalty of one month's salary.
<PAGE>
5) In the event the employee gives notice to terminate employment, the company
shall be entitled to release the employee from further activity for the company
until termination of said employment.
XIII. Various
1) The employment contract is subject to German law.
2) This contract replaces all previous agreements including any verbal
arrangements that might have been made.
3) Alterations and additions to this contract including this clause as well as
the notice of termination of this contract shall require the written form to be
operative.
4) Should any provision of this Contract be or become invalid, this shall not
affect the validity of the remaining provisions. In lieu of the invalid
provision, an appropriate provision shall apply which is in context with the
intended business purpose of the invalid regulation
XIV. Place of performance
The place of performance for employment and all duties derived therefore shall
be the registered seat of business of the company in Pullach, Munich.
Pullach, 26.3.1997 Munich, 10.4.1997
Signed: /s/ Dr. Frank Tofflinger /s/ Schoener
SLS Schoeller Logistic services GmbH /s/ Dirk Schulze
(in future:
SFD Schoeller Finanz-Dienstleistungs GmbH)
<PAGE>
Agreement of Change
to the contract of employment between Schoeller Finanzberatungs- und
Dienstleistung GmbH (formerly SLS GmbH) and Mr. Dirk Grosgen of 26/03/1997 and
to the agreement of change of 03/08/1998
The aforesaid contract of employment is hereby amended in the following items
with effect from 1/7/1999:
1. Item III. Remuneration
(1)
As remuneration for his work, the employee shall receive a gross annual salary
of DM 125,000 (In words: One hundred and twenty five thousand Deutschmarks)
payable in 12 equal installments on the last day of each month.
(2)
The employee shall receive a variable, annual bonus of a maximum of DM 40,000
gross (In words: Forty thousand Deutschmarks), which is made up each to the half
by targets agreed in advance for the business year and by the achievement of the
planned operating result of the IFCO Europe sub-group. A separate agreement
regulates the details.
All other provisions in the aforesaid contract of employment continue in force
unaltered.
Munich, 23 July 1999
(Signature) /s/ Joerg Augustin /s/ Dirk Grosgen
IFCO International Food Container Dirk Grosgen
Organisation GmbH
<PAGE>
Exhibit 10.23
English Translation
CONTRACT OF EMPLOYMENT
The following is agreed between
IFCO Scandinavia A/S
Norgesvej 51 U
DK-6100 Haderslev
- - referred to below as "IFCO" or the "company"
and
Mr Gustav Sandahl
Marie Margrethevej 6
DK-6100 Haderslev
- - referred to below as "GS" -
I. Position
GS is appointed as the General Manager for IFCO Scandinavia A/S.
GS shall undertake the tasks incumbent on a General Manager and is responsible
for expanding the Scandinavian market. He is furthermore responsible for
expanding meat and fish operations in Europe and may also be deployed in
supervisory committees in the works within the group. Separate agreements are
required for this.
The General Manager reports to the Supervisory Board and shall provide
appropriate information on all the business processes which affect his range of
duties.
II. Working hours
Daily working hours are governed by the operational requirements.
III. Remuneration
As remuneration for his work, GS shall receive a gross monthly salary of DKK
50,000. The salary shall be paid on the last day of the month.
The employee shall receive an incentive bonus oriented to the company's annual
result and the employee's personal contribution. A supplementary agreement shall
govern the details of this.
It is pointed out that this bonus is a voluntary, additional payment made by
IFCO and that no claims may be derived for subsequent years, even after repeated
payment of such.
Payment of this salary compensates all overtime/extra hours worked and any
Sunday and holiday bonuses which arise on account of travelling (i.e. in
particular driving and flight times).
IV. Expenses
<PAGE>
GS shall be re-imbursed for documented travel expenses incurred on approved
journeys made on the company's behalf.
GS shall use his private car for company business travel. This use shall be re-
imbursed by invoicing IFCO each month in accordance with the respective tax-free
KM flat-rates applicable.
V. Illness
In case of illness without culpability which prevents him from exercising his
duties, GS is entitled to continued payment of his salary for a maximum of 6
months.
GS shall inform IFCO without delay of any incapacity or inability to work and
the likely duration of such. on request, the reasons for the incapacity or
inability to work shall be given. If the illness lasts three days or more, GS
shall provide the company with a doctor's note confirming his illness and which
states the start and the likely duration of the inability to work. If the
inability to work extends beyond that stated in the doctor's note, GS is obliged
to inform the company of this without delay and to submit a new medical
certificate within three days.
If the inability to work is caused by a third party, GS hereby assigns all
claims to damages or other recompense against this third party to IFCO to the
amount of the salary payments made by IFCO.
VI. Holidays
GS has an annual holiday entitlement of 30 working days. Working days are all
weekdays except Saturdays, Sundays and public holidays at the company's
headquarters.
Reasonable account shall be taken of operational requirements when planning and
starting holidays.
VII. Auxiliary activities
GS is obliged to provide IFCO with his full working capacity, although this
contract respects the contract already in force with ECO Packaging Norway A/S.
other auxiliary work requires prior approval in writing from the group
headquarters in Munich.
VIII. Secrecy and return of documents
GS is obliged, particularly after this contract of employment has ended, to keep
all confidential matters and the company's business secrets which become known
to him in the course of his work for the company (in particular, processes,
data, expertise, marketing plans, business strategies, unpublished balance sheet
figures, licenses, prices, costs and lists of employees, customers and
suppliers) strictly secret, and to neither pass these on to third parties nor
utilise these for own purposes or those of third parties.
<PAGE>
GS shall treat all objects and documents belonging to IFCO or provided to him by
IFCO circumspectly, and to safeguard these in such a way that they cannot come
into the hands of unauthorised persons.
On leaving the company without prompting, and on request during the existence of
the contract of employment, GS shall return to the company all objects in his
possession which belong to the company, as well as all documents which concern
the company's business operations and/or contain confidential information - in
particular, all notes, memoranda, records, drawings, minutes, reports, files,
samples, books, diagrams and similar documents (as well as copies or other
reproductions of such and all own records; including hardware and software)
("objects/documents). GS recognises that all documents are the sole possession
of the company. GS has no right of retention to the objects/documents.
IX. Commencement and termination of contract
The contract of employment commences on 1/l/1998 and runs for 24 months.
Notice of termination is 6 months to end of contract, otherwise the contract is
extended automatically.
The right to serve extraordinary notice remains unaffected.
If proper notice is served, the company is entitled to release GS from further
duties until the contract of employment ends.
X. Miscellaneous
The contract of employment is subject to Danish law.
This contract replaces all previous agreements, including any verbal
understandings.
Changes and supplements to this contract, including this clause, and notice of
termination must be in writing to be legally effective.
If individual provisions of this contract are or become ineffective, this casts
no doubt on the effectiveness of the remaining provisions. A regulation shall be
agreed to replace the ineffective provision, one which comes closest to the
financial purpose intended by the parties.
Haderslev, 17/12/97 Haderslev, 17/12/97
/s/ Juergen Benz /s/ Gustav Sandahl
IFCO Scandinavia A/S Gustav Sandahl
<PAGE>
EXHIBIT 10.24
English Translation
CONTRACT OF EMPLOYMENT
The following is agreed between
IFCO International Food Container Organisation GmbH
Zugspitzstr. 15
82049 Pullach
- - referred to below as "IFCO" or the "company" -
and
Mr. Gustav Sandahl
Marie Margrethevej 6
DK-6100 Haderslev
- - referred to below as the "employee" -
I. Position
(1) The employee is appointed as the German sales manager of IFCO GmbH.
(2) IFCO is also entitled to delegate comparable activities to the employee.
(3) The employee reports to the management and is responsible for providing
appropriate information on all the business processes which affect his range of
duties.
(4) The employee's place of work is Munich.
II. Working hours
(1) Daily working hours are governed by the operational
requirements.
(2) The employee declares himself ready to work overtime and additional
hours including work and travelling on Saturdays, Sundays and public holidays.
III. Remuneration
(1) As remuneration for his work, the employee shall receive a fixed annual
salary of DM 158,000 (In words: One hundred and fifty eight thousand
Deutschmarks) payable in 12 equal monthly instalments. The monthly salary shall
be paid on the last day of the month.
(2) The employee shall receive a variable, annual bonus oriented to the
company's annual result and the employee's personal contribution. A
supplementary agreement shall govern the details of this. It is pointed out that
this bonus is a voluntary, additional payment made by the company and that the
employee may not derive any claim for subsequent years even after repeated
payment of such.
<PAGE>
(3) Payment of this salary compensates all overtime/extra hours worked and
any Sunday and holiday bonuses which arise on account of travelling (i.e. in
particular driving and flight times).
IV. Other benefits provided by the employer
(1) The company shall provide the employee with a company car (e.g. BMW
series 5) for the duration of the contract of employment in accordance with the
corporate guidelines. operating and maintenance costs shall be paid by IFCO. The
company car may be used for private purposes within the usual scope; the costs
of petrol associated with this are paid by the employee. Current fiscal
regulations apply to the monetary value of the benefit. The employee is obliged
to return the vehicle to IFCO on first request without any right of retention.
V. Expenses
The employee shall be reimbursed for documented travel expenses incurred on
approved journeys made on the company's behalf within the framework of the
prevailing company guidelines and the respective fiscal guidelines applicable.
VI. Illness
(1) In case of illness without culpability which prevents the employee from
exercising his duties, the employee is entitled to continued payment of his
basic salary for a maximum of 6 months.
(2) The employee shall inform IFCO without delay of any incapacity or
inability to work and the likely duration of such. On request, the reasons for
the incapacity or inability to work shall be given. If the illness lasts three
days or more, the employee shall provide the company with a doctor's note
confirming his illness and which states the start and the likely duration of the
inability to work. If the inability to work extends beyond that stated in the
doctor's note, the employee is obliged to inform the company of this without
delay and to submit a new medical certificate within three days.
(3) If the inability to work is caused by a third party, the employee hereby
assigns all claims to damages or other recompense against this third party to
IFCO to the amount of the salary payments made by IFCO.
VII. Holidays
(1) The employee has an annual holiday entitlement of 30 working days.
Working days are all weekdays except Saturdays, Sundays and public holidays at
the company's headquarters.
(2) Holidays shall be applied for in good time and approved by the superior
or the company's management.
(3) Reasonable account shall be taken of operational requirements when
planning and starting holidays. Any operational holidays shall be offset against
the annual holiday entitlement.
<PAGE>
VIII. Auxiliary activities
The employee is obliged to provide IFCO with his full working capacity.
Auxiliary work, either paid or unpaid which restricts the employment
relationship, and co-operation with or participation in another company requires
prior permission in writing from the management of IFCO.
IX. Secrecy and return of documents
(1) The employee is obliged, particularly after this contract of employment
has ended, to keep all confidential matters and the company's business secrets
which become known to him in the course of his work for the company (in
particular, processes, data, expertise, marketing plans, business strategies,
unpublished balance sheet figures, licenses, prices, costs and lists of
employees, customers and suppliers) strictly secret, and to neither pass these
on to third parties nor utilise these for own purposes or those of third
parties.
(2) The employee shall treat all objects and documents belonging to IFCO or
provided to him by IFCO circumspectly, and to safeguard these in such a way that
they cannot come into the hands of unauthorised persons.
(3) On leaving the company without prompting, and on request during the
existence of the contract of employment, the employee shall return to the
company all objects in his possession which belong to the company, as well as
all documents which concern the company's business operations and/or contain
confidential information in the sense of Paragraph (1) above - in particular,
all notes, memoranda, records, drawings, minutes, reports, files, samples,
books, diagrams and similar documents (as well as copies or other reproductions
of such and all own records; including hardware and software)
("objects/documents). The employee recognises that all documents are the sole
possession of the company. The employee has no right of retention to the
objects/documents.
X. Prohibition of head-hunting
During or after termination of his contract of employment, the employee agrees
not to poach other employees from the company, nor encourage these to terminate
their working relationship with the company.
XI. Protected rights
(1) The employee shall transfer the exclusive rights of use and
exploitation, without restriction on time, space or content, to the company for
all working results capable of being patented or otherwise protected by
commercial propriety rights which the employee produces during the course of the
contract of employment within the framework of his contractual working duties.
The transfer of rights of use and exploitation includes permission to process
and to issue licenses to third parties. The employee expressly waives all other
rights to working results accruing to him as the author. In particular, the
right to designate the work and to allow access to it. The transfer of rights of
use and exploitation and the aforesaid waiver are
<PAGE>
recompensed in full by payment of the salary agreed under Section III (1) above.
(2) At IFCO's request, the employee shall support the former in obtaining
copyrights and other commercial proprietary rights for the employee's working
results, also in other countries. To this end, the employee shall complete and
submit all applications, declarations of assignment and other legal declarations
and sign all documents which are required or requested by the company in order
to transfer the rights to the working results fully to the company and to enable
the company, its successors and assignees to secure the complete and exclusive
use and benefits of the working results, and to exploit these. During the
duration of the contract of employment, the employee shall receive no further
remuneration for fulfilment of this duty of co-operation with the exception of
reimbursement of the expenses incurred by him on account of the company's
demands. Insofar as the employee fulfils the duty of co-operation after the
employment relationship has ended, he shall receive a reasonable daily rate and
be reimbursed for the expenses incurred by him on account of the company's
demands.
(3) The Employee Invention Act applies to employee inventions.
XII. Commencement and termination of contract
(1) The contract of employment commences on 01/1/1998.
(2) Notice of termination for both parties is three months to the end of the
calendar half-year. Any legal extension to the period of notice incurred by the
company shall apply likewise to termination by the employee.
(3) The right to serve extraordinary notice remains unaffected.
(4) If proper notice is served, the company is entitled to release the
employee from further duties until the contract of employment ends.
XIII. Miscellaneous
(1) The contract of employment is subject to German law.
(2) This contract replaces all previous agreements,
including any verbal understandings.
(3) Changes and supplements to this contract, including this clause, and
notice of termination must be in writing to be legally effective.
(4) If individual provisions of this contract are or become ineffective,
this casts no doubt on the effectiveness of the remaining provisions. A
regulation shall be agreed to replace the ineffective provision, one which comes
closest to the financial purpose intended by the parties.
XIV. Place of fulfilment
<PAGE>
Unless agreed otherwise, the place of fulfilment for the contract of employment
and all the obligations arising from it is the company's headquarters in
Pullach.
Pullach, 4/11/98
/s/ Juergen Benz /s/ Andreas Suck /s/ Gustav Sandahl
IFCO International Food Gustav Sandahl
Container Organisation GmbH
<PAGE>
Exhibit 10.25
English Translation
MANAGING DIRECTOR EMPLOYMENT AGREEMENT
between
IFCO International Food Container Organisation GmbH
ZugspitzstraBe 15
82049 Pullach
represented by its Shareholder
IFCO Europe Beteiligungs-GmbH
ZugspitzstraBe 15
82049 Pullach,
the latter represented by Martin Schoeller and Christoph Schoeller
hereinafter "Company" -
and
Mr. Joerg Augustin
Eigerstrasse 78
81825 Muenchen
- - hereinafter "Managing Director" -
I. Position
(1) Mr. Joerg Augustin is appointed as Managing Director of the Company. He
shall represent the Company according to the stipulation of the law, the
regulations of the Company Agreement and the instructions of the Shareholders'
Meeting.
(2) His area of duties shall comprise the management of the transactions of
the Company, in particular in the commercial sector according to the stipulation
of the law, the regulations of the Company Agreement and the instructions of the
Shareholders' Meeting and can, alongside this from time to time at the request
of the Shareholders' Meeting extend to the support of its inter-company
objectives to the fulfilment of other duties and the taking over of further
areas of responsibility within the framework of the Schoeller group. In
particular, the Managing Director shall look after the activities of IFCO Europe
Beteiligungs GmbH, Schoeller International Logistics Beteiligungsgesellschaft
mbH and MTS Okologistik GmbH.
(3) Rules of Procedure to be decreed by the Shareholders' Meeting and at any
time alterable can regulate the scope of the authority of the Management
internally, and the allocation of duties and areas of responsibility and the
distribution of duties and competence of several managing directors of the
Company between each other which, in its currently valid version, shall be part
of the Agreement.
<PAGE>
(4) The Managing Director shall report - with the reservation of any other
provision - to a managing director of the shareholder (representative of the
Shareholders' Meeting). The Managing Director shall be informed about
reconstruction within the framework of the planned IPO and about associated
additional international duties.
(5) The working hours shall be directed according to the business
requirements and shall amount to 40 hours per week. The Managing Director
declares his preparedness to carry out any additional work and overtime which
becomes operationally necessary including Saturdays, Sundays and public holidays
and travelling time arising through travelling activities.
(6) The place of work shall be the head office of the Company in Pullach,
Zugspitze 15. In case of business requirement, the Managing Director shall also
be prepared to move to another German town/city whereby the Company shall take
over the removal costs on presentation of verification.
(7) All actions and transactions outside the current business operations and
the transactions contained in appendix I shall require the prior written
approval of the Shareholders' Meeting. Further restrictions within the internal
relationship and revocation of the appointment or the restriction of any sole
authority of representation in the sense of overall representation can be
resolved at any time by the Shareholders' Meeting. In any case, the Managing
Director shall always require, in representing the Company externally, and also
for the case that he has the authority of sole representation, a second
signature, i.e. the signature of another managing director or a
"Prokurist"(Executive employee with special power of attorney)
II. Remuneration
(1) The Managing Director shall receive an annual gross salary of DM 250 000
(in words: two hundred and fifty thousand German marks) (basic salary) payable
in twelve equal monthly instalments each at the end of a month. If a
contractual year be shorter than the calendar year, the remuneration shall be
paid proportionally. Additional work or overtime (incl. any allowances) shall
be compensated through the remuneration.
(2) In addition to the basic salary according to the above paragraph (1),
the Managing Director shall receive a variable remuneration dependent on success
amounting to DM 60 000 (in words: sixty thousand) according to the stipulation
of the bonus plan to be determined annually by the Shareholders' Meeting. The
bonus decisive for the year 1999 shall be consolidated on achieving the budget
of IFCO Europe Beteiligungs GmbH, paid out by EBITDA after break-even amounting
to DM 61.8 million DM (cf. appendix 2) and guaranteed proportionally for 1999 to
50%. The bonus plan decisive for the subsequent years shall be determined
jointly with the Managing Director and shall become a significant part of this
Agreement. For the claim to target remuneration, only the achievement of the
objectives is of significance, not, however, whether the decisions of the
Managing Director were veritably the cause for the achievement of targets. On
the other hand, there shall be no claim on the part of the Managing Director if
he has not achieved the objectives set, wholly or partly, due to the decisions
of the Shareholders'
<PAGE>
Meeting, e.g. on alteration to or removal of products or distribution channels.
(3) The Company shall take over a contribution to the voluntary health
insurance of the Managing Director amounting to the statutory employer share, a
maximum, however, of the employer share taking the national insurance system as
the basis.
(4) Remuneration according to paragraph (1) shall be reviewed every two
years.
(5) The Company shall, at the request of the Managing Director, conclude for
him a direct insurance with an insurance company selected by the Managing
Director and pay the insurance premiums up to a maximum of DM 4000 per annum
taking into consideration the legal tax regulations. The lump-sum income tax to
be paid shall be the expense of the Managing Director.
(6) The Company intends, on the Company or the parent company of the IFCO
group (IFCO Systems N.V.) being quoted on the stock exchange, to develop a stock
options programme into which the Managing Director shall be included.
III. Illness/Insurance
(1) The Managing Director shall inform the representative of the
Shareholders' Meeting without delay about any illness and, in case of illness
lasting for more than 3 days, present a doctor's certificate from which the
incapacity to work and the probable duration of the illness can be seen. The
Managing Director shall thereby draw the attention of any co-managing directors
and the representative of the Shareholders' Meeting to matters which have to be
attended to urgently.
(2) In the case of blameless illness or incapacity to work preventing the
carrying out of his duties, the Managing Director shall have claim to continued
payment of the basic salary for the duration of six (6) months- Claims for
damages against third parties shall be assigned by the Managing Director to the
amount of the continued payment of salary paid by the Company.
(3) The company shall conclude an accident insurance for the Managing
Director which shall insure him against business or private accident amounting
to DM 250 000 for the case of death and DM 500 000 in case of invalidity.
IV Travelling Costs/Company Car
(1) The Company shall refund the Managing Director all verified travelling
costs in accordance with the currently valid establishment or travelling cost
guidelines of the Company and the currently valid legal German tax guidelines.
(2) As far as in any establishment or travelling costs guidelines of the
Company nothing else is determined, the Managing Director shall be entitled to
use the 1st class for rail travel and the business class for air travel.
<PAGE>
(3) Should the expenses paid exceed the lump-sum amount permitted by the tax
regulations, the Managing Director shall verify the amounts in detail by means
of correct dockets and invoices.
(4) In accordance with the stipulation of the currently valid company car
guidelines, the Company shall provide the Managing Director with a car (e.g.
one-year old BMW 535 car) for private and business use and shall bear all cost
arising for this. The Managing Director shall bear the income tax incurred by
the private share of the use.
V. Holidays
(1) The Managing Director shall have claim to annual holiday of 30 working
days which, in case of employment for less than a full year, shall be granted
proportionally. Working days are all calendar days with the exception of
Saturdays, Sundays and statutory holidays at the head office of the Company.
(2) The Managing Director shall orientate the point of time and duration of
holidays to company interests and co-ordinate it reasonably in advance with the
representative of the Shareholders' Meeting and any co-managing directors.
VI. Ancillary Employment/Prohibition of Competition
(1) The Managing Director shall devote his complete working capacity to the
Company and foster its interests. Any other remunerative employment or
participation in other companies of any type shall require the approval of the
Shareholders' Meeting. This is not the case for the customary purchase of
shares or other business shares for the purposes of investment. The membership
in representative supervisory bodies of other companies also requires the prior
approval of the Shareholders' Meeting.
(2) In addition, the parties agree the following subsequent prohibition of
competition which shall only become effective if no termination of the
employment relationship is pronounced during the trial period:
(a) The Managing Director undertakes, during his employment and for the
duration of 24 months after termination of the employment relationship, not to
carry out competitive activities in any form either of a self-employed nature or
as entrepreneur, nor nonindependently or as employee either directly or
indirectly through participation. Competitive activity in the sense of this
provision is all activity which has to do with competitive products and/or which
refer to a target market of the Company or associated enterprise. Associated
enterprises in the sense of sub-paragraph (a) are companies for which the
Managing Director has had management responsibility in the last two years before
termination of his employment. Competitive products are products, developments
or services which are similar to the products, developments or services or are
in competition with the products, developments or services which the Company or
associated enterprises have manufactured, developed, licensed, distributed or
actively planned (and at least passed a
<PAGE>
corresponding resolution) in the last two years before termination of the
employment of the Managing Director. Competitive products are in particular all
products, developments or services which concern dual-use packaging systems. The
target market of the Company or associate enterprises is any market sector, any
market segment or customer and/or supplier group with which the Company or
associated enterprises have had a business relationship in the last two years
before termination of the employment or built up or actively planned a business
relationship. Competitive activity is in particular any activity for the
enterprises Chep, Steco, BPS, Delbrouck, Compac, Linpak, Craemer, Hays and all
enterprises active in the MTV amalgamation and their associated companies as far
as the Managing Director does not inform Company in writing about the taking up
of such an activity and verify that he, in this company, works in a separate
department and has exclusively to do with other products, developments or
services than the competitive products.
(b) The prohibition of competition shall extend spatially to all countries
in which the Company or associated enterprises have been active or have
definitely planned an activity in the last two years before termination of the
employment of the Managing Director. On signing this agreement these were in
particular the following countries: Scandinavia, United Kingdom, Germany,
Switzerland, Austria, France, Italy, Spain.
(c) For the duration of the prohibition of competition subsequent to the
contract, the Company undertakes to pay the Managing Director compensation
amounting to half of the last payments made in accordance with this agreement
for each year of the prohibition. The payment of compensation is due
proportional to time at the end of each month. The regulation of section 74 c
HGB (German Commercial Code) concerning the credit of other income and
obligation to information is valid correspondingly.
(d) The Company can, before expiry of the employment relationship, waive
adherence to the prohibition of competition subsequent to the contract by means
of written declaration towards the Managing Director. In this case the
obligation to payment of compensation ends after 12 months after declaration of
the waiver.
(e) In the case of exceptional termination of the employment relationship
for good cause the contractual party justified to termination shall have the
right to cancel the prohibition of competition by means of written declaration
towards the other party within one month after pronouncement of the exceptional
termination.
(f) The Managing director shall pay a contract penalty for every case of
contravention of the prohibition of competition amounting to the amount which
corresponds to the monthly remuneration in accordance with this agreement
received on the average in the last 12 months before resignation. At the same
time, the payment of compensation shall lapse for the month in which
contravention took place. In case of permanent violation, the contract penalty
shall be effective again for each month commenced. At the same time, the
payment of compensation shall lapse for each month commenced. Further-reaching
existing claims of the Company on the basis of contravention of the prohibition
of competition shall not be affected by the above regulation.
<PAGE>
VII Secrecy, Inventions, Copyright and other Protective Rights, Return of
Documents
(1) The Managing Director is obliged, in particular also in the period
following termination of this service agreement, to keep secret all confidential
information about the business of the contractual relationships, conclusions,
transactions or special matters concerning the Company or associated enterprises
and not to use this information for his own or the use of others.
(2) Publication and lectures which affect the field of business of the
Company or of other associated enterprises require the prior approval of the
Shareholders' Meeting.
(3) Any invention or other proposal for technical improvement by the
Managing Director and all claims resulting from such are due to the Company with
the exception of inventions which are obviously in no connection with the field
of activities of the Company. The Managing Director hereby allows the Company
to obtain a patent and patent protection for the Company for any invention made
by him. Separate remuneration of the Managing Director shall not take place for
this; the permission is rather covered in its full scope by the basic salary as
regulated under the no. 11 (1) above. The Managing Director is obliged to
notify the Company, represented by the Shareholders' Meeting, of all inventions
or proposals for technical improvement in the field of business of the Company
without delay. In addition, the process regulations of the ArbNErfG in favour
of the Company shall be valid.
(4) The Managing Director shall transfer the exclusive, temporal, spatial
and textual unrestricted rights of use and utilisation for all results of work
which are protectable or copyrightable or subject to other rights according to
brand, design and/or pattern or any other protective rights which the Managing
Director creates during his working hours or, as far as they have reference to
his service contractual tasks, also outside his working hours. The transfer of
the right of use and utilisation comprises the permission for handling and award
of licence to third parties and is covered fully by the basic salary regulated
under the above no. II (1). The Managing Director shall waive expressly all
other rights to the results of work due to him as originator or other protective
rights holders, in particular the right to nomination of name and provision of
accessibility to the work.
(5) The Managing Director shall, at the demand of the Company, support it in
obtaining patents, protective rights and other legal possibilities for
protection for the results of the work of the Managing Director in Germany and
in other countries. For this purpose the Managing Director shall complete and
submit all applications, assignment declarations and other legal business
declarations, and sign all documents which are required or desired by the
Company to transfer patents or protective rights to the results of the work in
Germany and in other countries and to enable the Company and its successors and
assignees to utilise and secure the full and exclusive use of these results of
work. For the fulfilment of these duties of co-operation, the Managing Director
shall receive for the duration of this service agreement no further remuneration
apart from the refund of costs which have arisen for him through the demand of
the Company. As far as the Managing Director fulfils
<PAGE>
the duties of cooperation after termination of this services agreement, he shall
receive a reasonable daily rate and the refund of all costs which have arisen
for him through the demand of the Company.
(6) Independent of the duties of co-operation regulated in the above para.
(5), the Managing Director shall secure and keep up to date an appropriate
documentation of his patentable or protectable results of work and make these
accessible to the Company at any time and transfer this to its property.
(7) On demand of the Company during the service relationship, at the latest,
however on resignation from the Company without necessity for request, the
Managing Director shall return to the Company all files and other documents
concerning the business operations of the Company or associated enterprises to
be found in his possession or subject to his access - in particular all plans,
customer and price lists, printed material, certificates, drawings, notes,
drafts - and copies of these without consideration of the fact of whether he
should have received them from the Company or from associated enterprises. In
this sense, the same is the case for non-physical information and material such
as, for example, computer programmes or information stored on disks,
VIII Term
(1) The employment agreement shall commence on 16/06/1999. The first six
(6) months shall be regarded as a trial period.
(2) The period of notice shall be, during the trial period, six months with
effect from the end of the month and after the trial period for both parties six
(6) months with effect from the calendar half-year. After expiry of the trial
period, ordinary termination is possible at the earliest with effect from
30/06/2002.
(3) The right to exceptional termination remains unaffected.
(4) Before commencement of the employment relationship, ordinary termination
is excluded. If the Managing Director terminates nevertheless or if he does not
commence his work in good time, he shall forfeit a contract penalty amounting to
one month's salary.
(5) The Company is entitled to release the Managing Director during the term
of this agreement from further activities in particular in the case of his
suspension or dismissal as Managing Director whereby the Managing Director shall
only have claim to continued payment of his basic salary according to no. II (1)
from the point of time of such release.
IX Diverse
(1) Alterations or supplements to this agreement, including this provision,
require written form to be effective.
<PAGE>
(2) This agreement is subject to the law of the Federal Republic of Germany.
The place of jurisdiction shall be Munich, District Court Munich 1.
(3) The place of fulfilment for the duties of both parties shall be the head
office of the Company.
Pullach, 21" May 1999.
IFCO International Food Container Organisation GmbH
represented here by its Shareholder
IFCO Europe Beteiligungs-GmbH
the latter represented by their managing directors
/s/ Martin Schoeller /s/ Christoph Schoeller /s/ Joerg Augustin
Martin Schoeller Christoph Schoeller Joerg Augustin
Draft
Appendix I
to the Managing Director Employment Agreement
a) sale of the Company in whole or in part
b) sale of subsidiaries or interests of the Company in whole or in part
C) erection or closure of a branch
d) erection or purchase of a company or purchase of shares in a company;
e) commencement or termination of branches
f) moving of head office
g) purchase of properties or rights or obligations equal to properties;
h) deviation from the budget of over 10%
i) investments or company maintenance measures which in individual cases
exceed DM 100 000 and lease agreements which in individual cases exceed DM 100
000;
conclusion, alteration or termination of rental of lease agreements with a term
of more than 2 years or a monthly burden of more than DM 40 000;
k) appointment, promotion, transfer or dismissal of employees with an annual
salary (incl. all variable remuneration) of more than DM 150 000; conclusion or
extension of pension commitments; granting of investment in the Company, in its
assets turnover, profit or similar: granting of a fixed term/termination period
of more than 6 months for any employee.
1) granting of loans to employees which in individual cases exceed DM 5000
or DM 20 000 in the business year;
m) granting of advance payments to employees of more than DM 5000;
n) mass dismissals to an extent corresponding to section KSshG or new
appointments to a similar extent;
o) the taking over of guarantee obligations, bonds, bond premiums or the
granting of a credit in individual cases amounting to more than DM 20 000 or
<PAGE>
in one business year as a whole of more than DM 100 000 with the exception of
guarantee agreements which are in direct connection with the customary course of
business such as, for example, payment obligations, services commitments or the
granting of a trade credit as far as these are customary in the Company;
p) granting of credit securities of any type, (e.g. liens, equitable liens)
and the granting of a credit to non-employees which does not correspond to the
customary course of business and the taking over of obligations by order of
third parties;
q) conclusion, alteration or termination of licence agreements and co-
operation agreements;
r) implementation of legal disputes with amounts involved of more than DM 20
000 in individual cases or of more that DM 100 000 in the complete business
year;
s) agreement , alteration, or termination of agreements with persons who are
through birth or marriage with shareholders or managing directors related or
connected by marriage;.
t) granting or revocation of "Prokura"(special power of attorney for
executive employees) or a commercial power of attorney.
<PAGE>
EXHIBIT 10.26
English Translation
Preliminary Contract on the Conclusion of a
MANAGEMENT CONTRACT
between
Mr. Gunter Gerland, resident in: In den Hessengarten 5, 61352 Bad-Homburg
- hereinafter referred to as "the Director"
- -
and
Schoeller Plast Holding GmbH, Heilmannstrasse 1, 81479 Munich
- hereinafter referred to as "Schoeller" -
Introduction
A pool is operated for reusable containers for fruit and vegetables (IFCO) as
part of the Schoeller Group. Various additional pools are being prepared for
other reusable containers in addition to the aforesaid reusable container pool.
Schoeller shall be liable to the Director that for ensuring that Schoeller or a
Schoeller company will establish a new company by no later than April 1, 1994
(hereinafter referred to as the "Company") as the sponsor of additional pools
for reusable containers and that the Company will conclude a Management Contract
with the Director with further details of the following terms and conditions.
The Director hereby promises Schoeller that he will conclude a Management
Contract with the Company with further details of the following terms and
conditions as a contract in favour of the aforesaid Company.
I. Contract Commencement and Term
(1) The contract of employment shall commence upon Schoeller's receipt of the
notification by the Director that his present contract of employment has
been rescinded, at the earliest on January 1, 1994 but at all events not
later than April 1, 1994 and regardless of the receipt of the aforesaid
notification.
(2) The contract of employment shall have a fixed term of 18 months. The
contract of employment shall be automatically prolonged to December 31,
<PAGE>
1997 unless it is terminated by one of the contracting parties with at
least 6 months' notice. If the present contract is terminated by the
Company, the Director shall be entitled to payment of his fixed agreed
compensation for a period of twelve (12) months with effect from receipt of
the notice of termination. This shall not be interpreted as a prolongation
of the contract of employment extending beyond the first fixed period of 18
months but as a commitment of the Company to pay severance compensation
based on how many months the aforesaid twelve months' period covers the
first fixed term of 18 months. The contract of employment shall be
prolonged for a further period of 3 years after December 31, 1997 unless
the contract has been terminated by one of the contracting parties with 12
months' notice to the end of the contract.
(3) As a prerequisite for its validity, any notice of termination must be
served in writing by the Director to the Chairman of the Shareholders'
Committee if such a Chairman has been designated to the best of the
knowledge of the Director, otherwise to all shareholders registered with
the Company.
(4) Upon receipt of the notice of termination, the Company shall be entitled to
suspend the Director from his duties with a continued payment of his
average monthly remuneration for the last twelve months. All holiday
entitlements shall be settled with the aforesaid exemption from duties.
II. Function / Scope of Activities
(1) The Director shall represent the Company singly or together with one or
more additional Directors or together with a Procurist [an officer of the
company with registered powers of representation].
(2) The Director shall assume the commercial and logistic activities of the
Company. The Company may specify the job description in further detail
within the above-mentioned framework.
(3) When exercising his duties and especially when representing the Company in
legal matters, the Director shall observe the provisions of the
shareholders' meeting and, if one is available, the shareholders'
committee, the Company's statutes and the current version of the Rules of
Procedure (especially rules of procedure relating to several Directors in
relations per se if applicable) (the current version is enclosed in the
Appendix) and shall also comply with the provisions of the present
Management Contract.
III. Work Assignment
(1) The Munich office in Irmgardstrasse is envisaged as the place of work. The
Director shall be prepared to move within Germany to a reasonable ex rent
for operational reasons.
(2) Normal working hours shall be fourty (40) hours per week, including breaks,
with a week consisting of five (5) working days.
(3) The Director shall be prepared to carry out additional work and to work
overtime for operational reasons, including driving hours caused by
<PAGE>
business travel and hereby confirms that the aforesaid is settled in full
with his remuneration referred to in the following Section IV.
IV. Remuneration
(1) The MD shall receive a annual gross salary of DM 205,000 (fixed) as
compensation for his services, payable in thirteen equal monthly
installments at the month-end after deducting taxation and social security
contributions. The employer's contribution to the social security
contributions shall be borne by the Company.
(2) The Director shall receive an annual bonus of DM 45,000 in addition to his
fixed salary provided the Company has achieved its targets during the
financial year as specified by the Company at the beginning of the
financial year on the basis of a budget / annual forecast proposal
submitted by the Director. The bonus shall be paid when the annual
financial statements are available and shall be increased or reduced
depending on the extent to which the aforesaid objectives are exceeded or
otherwise; further details are provided in the specimen calculation
attached in the Appendix. For the first year of the present Management
Contract, the Director shall receive a supplement of DM 57,000 in addition
to his fixed annual gross fixed salary instead of the variable bonus
governed above which depends upon the achievement of given targets, with
the first half of the aforesaid supplement being paid at the end of October
1994 and the second half at the end of January 1995.
(3) If the work of the Director end during the course of a year and begins
and/or ends during the course of a month, the fixed annual gross salary and
the bonus shall be calculated and paid pro rata temporis (with the
exception of 1994).
(4) The Company shall insure the Director against business and private
accidents at its cost, namely DM 350,000 in the event of death and 700,000
in the event of disability. Claims under the aforesaid insurance policies
shall be paid directly to the Director or, in the event of his death,
directly to his heirs.
(5) A direct insurance of DM 4,200 p.a. shall be concluded for the Managing
Director. The payments to be made by the Company in this respect shall be
included in the gross fixed salary and shall be deducted from the aforesaid
amount.
(6) The Director's gross fixed salary shall be discussed at the end of the
first contract year and thereafter every two years. The economic
development of the Company, the personal performances and contributions of
the Director and the increase in the cost of living shall be appropriately
taken into account.
V. Employees' Capital Accumulation Scheme
(1) The Company shall pay the monthly contributions of DM 52 to the Director
relating to the employees' capital accumulation scheme.
<PAGE>
(2) The Company shall make the first payment of this benefit with effect from
the first month of employment.
VI. Company Car / Travelling Expenses
(1) The Director shall be provided with a company car - a BMW 520 or
comparable model in the standard design.
(2) The company car may be used by the Director for reasonable private
purposes, whereby the necessary fuel costs shall be done by the Director
personally.
(3) The Director shall wage tax attributable to the private use of the
company car in accordance with the respective tax regulations.
(4) The relevant guidelines of the Company (the current version is enclosed
in the Appendix) shall apply for the reimbursement of costs incurred on
business travel. If the expenses incurred exceed the fixed rate amounts
permissible under taxation regulations, the Director shall be required to
document the aforesaid amounts in detail by means of proper vouchers and
invoices.
VII. Holiday
(1) The Director's holiday shall be equivalent to 30 working days.
(2) The timing of the Director's holiday shall be coordinated with the
business requirements of the Company. Any works holiday shall be set off
against the annual holiday.
VIII. Duty of Secrecy
(1) The Director shall undertake to observe secrecy with regard to
circumstances and matters of the Company and firms affiliated with the
Company and which come to the attention of the Director within the scope of
the employment relationship in dealings with everyone who is not authorized
to have such knowledge by virtue of his position or activity within the
Company. This principle of secrecy shall also apply after the Director has
left the Company. It shall not relate to communications which the Director
has to make by law. The Director shall grant unauthorized persons no
insight into the affairs and circumstances of the Company or any other
companies within the Schoeller Group, nor insight into his own knowledge of
the Company's operations, procedures and installations, etc., which the
Director does not need to grant for business reasons.
(2) The results of the business activities of the Director shall remain the
(intellectual) property of the Company. Reference is also made in this
respect to Section X. of the present contract.
(3) As the property (including the intellectual property) of the Company
assigned to him, the Director shall undertake to treat all items relating
to his business activities with care, e.g. tools, other working utensils,
books, documents, plans, specimens, own drawings and business documents
<PAGE>
of all kinds and to keep them in safe custody in such a way that they do
not come into the hands of unauthorized persons and that they are
automatically returned to the Company at any time upon request but at the
latest when the present contract of employment comes to an end. The
Director shall have no retention right in respect of the aforesaid items.
IX. Competition Ban
(1) The Director shall be subject to a subsequent competition ban for a further
24 months when the present contract of employment has terminated. During
the aforesaid period, the Director shall support no business which operates
a pool for reusable containers, or develops, produces or rents reusable
containers capable of being pooled, which offers multiple-use logistics as
a "product" or which competes with the Company in any other way
(hereinafter referred to as "Competitors"). From a spatial point of view,
the competition ban includes all competitors which operate in the
territories of the Federal Republic of Germany and direct neighboring
countries to the Federal Republic of Germany. The Director shall
particularly undertake to enter into no employment, management of
consultancy agreements with the aforesaid competitors, nor to perform any
of the aforesaid contracts, nor to acquire direct or indirect holdings in
any such companies, nor to commence a competitive activity for his own
account.
(2) The Company shall pay the Director a compensation amounting to half what
the Director earned in the last 12 months prior to the termination of his
contract of employment. (S) 74 c of the German Commercial Code shall apply
accordingly.
(3) If the Director breaches the competition ban, he shall pay a contract
penalty to the Company for one month during the period of infringement or a
continuation thereof, with such contract penalty being equivalent to one
sixth (1/6 th) of what the Director earned as (gross) remuneration in the
last 12 months before he left the Company. Additional claims by the Company
shall not be prejudiced by the aforesaid contract penalty.
(4) The Company may waive the competition ban by means of a written declaration
to the Director before the end of the constrict of employment, with the
result that the Company is exempt from its obligation to pay compensation
in accordance with the preceding paragraph 2 at the end of 3 (12) months
following receipt of the aforesaid Declaration.
X. Inventions
Any inventions made by the Director and any claims to industrial property rights
based on the aforesaid inventions, including all copyright exploitation rights
to any creations of the Director, shall remain the exclusive property of the
Company with the exception of inventions and creations which clearly have no
relationship whosoever with the areas of activity of the Company. No special
compensation shall be payable to the Director in this respect. All inventions
and /or creations eligible for copyright protection and to which the Company is
entitled shall be reported to the Company (represented by the shareholders'
meeting) by the Director immediately and the latter shall
<PAGE>
support the Company to the necessary extent in acquiring and exploiting any
industrial property rights.
XI. Secondary Employment
(1) The Director shall devote the whole of his working activities to the
affairs of the Company and shall promote the interests of the Company to
the best of his ability.
(2) During the term of the present contract, the Director shall undertake to
carry out no remunerative or normally remunerative secondary employment
without the prior written consent of the Company. This shall also apply to
direct or indirect participators in other companies which are clearly not
exclusively acquired for ordinary investment purposes. Any membership in
official bodies (Management Boards, Executive Boards and Supervisory
Boards) of other companies shall likewise require the prior written consent
of the Company.
XII. Illness
In the event of illness or any other hindrance or impediment not attributable to
the Director, the remuneration of the Director shall be continue to be paid for
a period of 6 months.
XIII. Final Provisions
(1) Any contract amendments must be made in writing in order to be valid and
also require the express consent of the shareholders' meeting. The same
shall also apply to any rescission of the aforesaid written form
requirement.
(2) If individual provisions of the present contract are or become invalid, the
validity of the other provisions shall remain in full force and effect. The
parties shall undertake to replace the invalid provision by a valid
provision which comes as close as possible to the original economic
intention of the invalid provision.
Munich, December 22, 1993
Schoeller Plast Holding The Director:
Bad Homburg, December 29, 1993
represented by:
By /s/Christoph Schoeller By /s/Gunter Gerland
----------------------- ------------------
Christoph Schoeller Gunter Gerland
Appendices - Guidelines on removal, travelling and accommodation costs
<PAGE>
- Rules of Procedure
- Assumption of "commuting costs"
<PAGE>
Exhibit 10.27
English Translation
MANAGING DIRECTOR EMPLOYMENT AGREEMENT
between
MTS Oklologistik GmbH, Zugspitze 15, 62 049 Pullach here represented by its
shareholder IFCO Systems N.V. the latter represented by its managing director
Dr. Willy von Becker
- - hereinafter "the Company" -
and
Mr. Klaus Hufnagel, Denninger Strasse 164, 81927 Munchen
- hereinafter "Managing Director" -
I. Position
(1) Mr. Hufnagel is appointed with corresponding shareholder resolution as
Spokesman of the Management of the Company.
(2) His area of duties shall comprises the management of the transactions of
the Company, according to the stipulation of the law, the regulations of
the Company Agreement and the instructions of the Shareholders' Meeting and
can, alongside this, from time to time at the request of the Shareholders'
Meeting extend to the support of its intercompany objectives, to the
fulfilment of other duties and the taking over of further areas of
responsibility within the framework of the Schoeller group.
(3) Rules of Procedure to be decreed by the Shareholders' Meeting and at any
time alterable can regulate the scope of the authority of the Management
internally, and the allocation of duties and areas of responsibility and
the distribution of duties and competence of several managing directors of
the Company between each other which, in its currently valid version,
shall be part of the Agreement.
(4) The Spokesman of the Management shall report currently to Messrs Martin
Schoeller and Christoph Schoeller (representatives of the Shareholders'
Meeting).
(5) The working hours shall be directed according to the business requirements
and shall amount to 40 hours per week. The Managing Director declares his
preparedness to carry out any additional work and overtime which becomes
operationally necessary including Saturdays, Sundays and public holidays
and travelling time arising through travelling activities.
<PAGE>
(6) The place of work shall be the head office of the Company in Pullach,
Zugspitze 15. In case of business requirement, the Managing Director shall
also be prepared to move to another German town/city whereby the Company
shall take over the removal costs on presentation verification.
(7) All actions and transactions outside the current business operations and
the transactions contained in appendix 1 shall require the prior written
approval of the Shareholders' Meeting or the representatives of the
Shareholders' Meeting according to no. II (4).. Further restrictions in the
internal relationship and revocation of the appointment can be resolved at
any time by the Shareholders' Meeting. In the internal relationship, the
Spokesman of the Management shall always require a second signature, i.e.
the signature of another managing director or a "Prokurist" (Executive
employee with special power of attorney) even if he has been granted the
authority of sole representation.
II. Remuneration
(1) The Spokesman of the management shall receive an annual gross salary of DM
300 000 (basic salary) payable in twelve equal monthly instalments each at
the end of a month.
(2) In addition to the basic salary according to the above paragraph (1), the
Spokesman of the Management shall receive a variable remuneration dependent
on success according to the stipulation of the bonus plan to be determined
annually by the Shareholders' Meeting. The bonus decisive at commencement
of the agreement shall be a significant part of this agreement and
envisages the following:
The maximum achievable annual bonus shall be DM 150 000 and is composed to
50% of stock options on stock exchange quotation of IFCO Systems and to 50%
from a result/target-dependent amount. The details of the stock options
shall be negotiated separately. The result/target-dependent bonus share
shall be directed to 20% to the result of IFCO Systems and to 80% to the
result of MTS/the personal objectives.
For the first year of the Agreement (2000), a bonus of 80% of the total
amount of DM 150 000 shall be guaranteed whereby in the year 2000 DM 50 000
from the guaranteed bonus together with the monthly basic salary from the
Company shall be paid out proportional to time.
For the second year of this agreement (2001) a bonus of a total of DM 50
000 shall be guaranteed by the Company which shall also be paid out monthly
with the basic salary and shall be counted in the payment of the total
bonus due to the Spokesman of the Management.
From the third year of the Agreement (2002), no part of the bonus shall be
guaranteed by the Company. A mid-year advance payment of DM 50 000 shall be
paid on the total bonus. This advance payment shall be paid out monthly
proportionally with the basic salary and shall be counted in the payment of
the total bonus due to the Spokesman of the Management.
The not guaranteed part of the bonus shall be paid out at the latest 3
<PAGE>
months after expiry of each business year of the Company as far as the
claim of the Spokesman of the Management to payment of the not guaranteed
bonus exists.
For the claim to the not guaranteed target remuneration, only the
achievement of the objectives is of significance, not, however, whether the
decisions of the Spokesman of the Management were veritably the cause for
the achievement of targets. On the other hand, there shall be no claim on
the part of the Spokesman of the Management to not guaranteed target
remuneration if he has not achieved the objectives set wholly or partly due
to the decisions of the Shareholders' Meeting, e.g. on alteration to or
removal of products or distribution channels.
(3) The Company shall take over a contribution to the voluntary health
insurance and statutory nursing insurance of the Spokesman of the
Management amounting to the statutory employer share, a maximum, however,
of the employer share taking the national insurance system as basis. This
contribution shall be paid out in addition to the monthly basic salary.
(4) The Company shall grant the Spokesman of the Management from the first full
month of employment asset-creating payments amounting to DM 52.00 monthly.
(5) Remuneration according to paragraph (1) shall be reviewed every 1.5 years.
III Illness/Insurance
(1) The Managing Director shall inform the representative of the Shareholders'
Meeting without delay about any illness and, in case of illness lasting for
more than 3 days, present a doctor's certificate from which the incapacity
to work and the probable duration of the illness can be seen. The Managing
Director shall thereby draw the attention of any co-managing directors and
the representative of the Shareholders' Meeting to matters which have to be
attended to urgently.
(2) In the case of blameless illness or incapacity to work preventing the
carrying out of his duties, the Spokesman of the Management shall have
claim to continued payment of the basic salary plus the guaranteed bonus,
the advance payment on the bonus from the year 2002 and the contribution to
the voluntary health insurance and the statutory nursing care according to
nos. II (1), (2) and (3) for the duration of six (6) months.
(3) If the Company has a company old-age pension scheme, the Spokesman of the
Management shall participate - as long as nothing else is agreed.
(1) The company shall conclude an accident insurance for the Spokesman of the
Management which shall insure him against business or private accident
amounting to DM 500 000 for the case of death and DM 1 000 000 in case of
invalidity.
(2) The Company shall take over the costs of the existing direct insurance of
the Spokesman of the Management amounting to DM 3408.00 p.a.
IV. Travelling Costs/Company Car
(1) The Company shall refund the Managing Director all verified travelling
costs in accordance with the currently valid establishment or travelling
cost guidelines of the Company and the currently valid legal German tax
guidelines.
(2) As far as in any establishment or travelling costs guidelines of the
Company nothing else is determined, the Managing Director shall be
entitled to use the 1st class for rail travel and the business class for
air travel.
<PAGE>
(3) Should the expenses paid exceed the lump-sum amount permitted by the tax
regulations, the Managing Director shall verify the amounts in detail by
means of correct dockets and invoices.
(4) The Company shall provide the Spokesman of the Management in accordance
with the stipulation of the currently valid company car guidelines with a
car of a purchase price of DM 90 000 for private and business use and shall
bear all costs arising for this both for business and for private use. The
Spokesman of the Management shall bear the income tax incurred by the
private share of the use. In the case of release of further activities in
accordance with no. VIII (3), the obligation of the Company to provision of
the car falls away and the Spokesman of the Management undertakes to return
the car to the Company on first demand by the Company.
V. Holidays
(1) The Managing Director shall have claim to annual holiday of 30 working days
which, in case of employment for less than a full year, shall be granted
proportionally. Working days are all calendar days with the exception of
Saturdays, Sundays and statutory holidays at the head office of the
Company.
(2) The Managing Director shall orientate the point of time and duration of
holidays to company interests and co-ordinate it reasonably in advance with
the representative of the Shareholders' Meeting and any co-managing
directors.
VI. Ancillary Employment/Prohibition of Competition
(1) The Managing Director shall devote his complete working capacity to the
Company and foster its interests. Any other remunerative employment or
participation in other companies of any type shall require the approval of
the Shareholders' Meeting. This is not the case for the customary purchase
of shares or other business shares for the purposes of investment. The
membership in representative supervisory bodies of other companies also
requires the prior approval of the Shareholders' Meeting. The Company shall
grant approval when the ancillary employment does not impair the work
performance of the Spokesman of the Management within the framework of this
agreement and other justified company interests of the Employers are not
impaired.
(2) In addition, the parties agree the following subsequent prohibition of
competition which shall only become effective if no termination of the
employment relationship is pronounced during the trial period:
(a) The Managing Director undertakes, during his employment and for the
duration of 24 months after termination of the employment relationship, not
to carry out competitive activities in any form either of a self-employed
nature or as an entrepreneur, nor non-independently or as employee either
directly or indirectly through participation. Competitive activity in the
sense of this provision is all activity which has to do with competitive
products and/or which refer to a target market of the Company or associated
enterprise. Associated enterprises in the sense of sub-paragraph (a) are
companies for which the Managing Director has had management responsibility
in the last two years before termination of his employment. Competitive
products are products, developments or services which are similar to the
products, developments or services or are in competition with the products,
developments or services which the Company or associated enterprises have
manufactured, developed, licensed, distributed or actively planned (and at
least passed a corresponding resolution) in the last two years before
termination of the employment of the Managing Director. Competitive
products are in particular all products, developments or services which
concern dual-use packaging systems. The target market of the Company or
associate enterprises is any market sector, any market segment or customer
and/or supplier group with which the Company or associated enterprises have
had a business relationship in the last two years before termination of the
employment or built up or actively planned a business relationship.
Competitive activity is in particular any activity for the enterprises
Chep, Steco, BPS, Delbrouck, Compac, Linpak, Cramer, Hays and all
enterprises active in the MTV amalgamation and their associated companies
as far as the Managing Director does not inform Company in writing about
the taking up of such an activity and verify the he, in this company, works
in a separate department and has exclusively to do with other products,
developments or services than the competitive products. Competitive
activities in the sense of this provision are all activities in the fields
in which the Company is active. Fields of activities of the Company are:
- - the letting of dual-use transport containers in particular for fruit,
vegetables, fish, meat and other fresh foodstuffs;
- - the operation of other dual-use transport systems and the packaging and
further letting of these systems;
- - the provision of services in the winding up of dual-use pools:
- - the organisation of pools (of dual-use transport systems) and the provision
of services which are in connection with this in particular washing
services.
- -
Competitive products are, in particular, all products, developments and
services which concern the dual-use packaging systems.
(b) The prohibition of competition extends spatially also to all countries in
which the Company is active at the point of times of resignation of the
Spokesman of the Management.
(c) For the duration of the prohibition of competition subsequent to the
contract, the Company undertakes to pay the Spokesman of the Management
compensation amounting to half of the last payments made in accordance with
this agreement, in particular of the basic salary and the bonus, for
<PAGE>
each year of prohibition,.
(d) The Company can, before expiry of the employment relationship, waive
adherence to the prohibition of competition subsequent to the contract by
means of written declaration towards the Managing Director. In this case
the obligation to payment of compensation ends after 12 months after
declaration of the waiver.
(e) Sections 74 et seq. HGB are valid in addition.
(f) In the case of exceptional termination of the employment relationship for
good cause, the contractual party justified to termination shall have the
right to cancel the prohibition of competition by means of written
declaration towards the other party within one month after receipt of the
exceptional termination. Compensation in the case of dissociation is not
indebted.
VII. Secrecy, Inventions, Copyright and other Protective Rights, Return of
Documents
(1) The Managing Director is obliged, in particular also in the period
following termination of this service agreement, to keep secret all
confidential information about the business of the contractual
relationships, conclusions, transactions or special matters concerning
the Company or associated enterprises and not to use this information
for his own or the use of others.
(2) Publication and lectures which affect the field of business of the Company
or of other associated enterprises require the prior approval of the
Shareholders' Meeting.
VIII. Term
(1) This Agreement shall commence on 01/02/2000 and is valid for an
undetermined period. Both parties can terminate the agreement at 6 months'
notice with effect from the expiry of a calendar year.
(2) The right to exceptional termination remains unaffected.
(3) The Company is entitled to release the Spokesman of the Management during
the term of this agreement from further activities in particular in the
case of his suspension or dismissal as Managing Director whereby the
Managing Director shall only have claim to continued payment of his basic
salary plus the guaranteed bonus. Advance payment on the bonus from the
year 2002 and the contribution to the voluntary health insurance and the
statutory nursing insurance according to no. II (1), (2) and (3). (?
original not grammatically complete - translator's note).
IX. Diverse
(1) This Agreement replaces all previous agreements concerning the service
relationship. Any previous employment relationship shall be regarded at the
latest on expiry of the last day before commencement of this agreement as
being terminated and shall also not exist as dormant work relationship.
(2) This agreement is subject to the law of the Federal Republic of Germany.
The place of jurisdiction shall be Munich, District Court Munich I.
(3) The place of fulfilment for the duties of both parties shall be the head
office of the Company.
<PAGE>
(4) For the case that one regulation of this Agreement, taking into
consideration applicable law, be or become ineffective or unenforceable,
this should not lead to the fact that the complete agreement is ineffective
or unenforceable. The regulation shall rather be altered and interpreted in
such a manner that the original objective of such an ineffective or
unenforceable provision can be achieved within the framework of applicable
law and jurisdiction. The same is the case for loopholes in the agreement.
Amsterdam, 21/12/1999 Munich, 23/12/1999
MTS Okologistik GmbH
represented here by its shareholder
IFCO Systems N.V,
the latter represented by its Managing Director Dr. Willy von Becker
/s/ Klaus Hufnagel /s/ Willy von Becker
(signature) (Managing Director)
(Klaus Hufnagel)
<PAGE>
EXHIBIT 10.28
English Translation
Supplementary Agreement
to the Consultancy Agreement of January 30, 1998
between
IFCO Europe Beteiligungs GmbH
- hereinafter referred to below as the "Company" -
and
Dr. Willy von Becker
A consultancy agreement was concluded by the parties on January 30, 1998 with a
term up to March 31, 1999. Supplementary to the aforesaid consultancy
agreement, the parties hereby agree as follows for continuing the contractual
relationship:
Re I. Duties and Obligations / Contract Term
The scope of consultancy services shall amount to 3 man days per week
for 47 weeks a year. The aforesaid scope of consultancy services is
hereby formally agreed.
Should the Company require additional consultancy service days, it
may commission them in writing for a fee of DM 1,200 per day after
prior agreement with the Consultant.
The contractual relationship may be terminated for the first time in
Week 25 (calendar week 43/1999) with preliminary notice of 8 weeks
(calendar week 35/1999).
Re II. Compensation
The Consultant shall receive a fee of DM 1,200 per day for his
services.
(Example: 3 x 47 x DM 1,200 = DM 169,000 for I year).
No holiday or public holidays shall be paid.
The Consultant shall receive a 50:50 bonus for the "EU Support" and
"SAP" projects, the amount and basis of which shall be agreed
separately.
Pullach, June 28, 1999
/s/ Dr. Willy von Becker
Dr. Willy von Becker
/s/ Martin Schoeller /s/ Christoph Schoeller
Martin Schoeller Christoph Schoeller
<PAGE>
Annex to the Supplementary Agreement of June 28, 1999
to the Consultancy Agreement of January 30, 1998
between
IFCO Europe Beteiligungs GmbH
- hereinafter referred to below as the "Company" -
and
Dr. Willy von Becker
Bonus Agreement
The Company shall pay a bonus to Dr. Becker based on the following conditions:
1) SAP Project for the IFCO Group
A bonus of DM 15,000 shall be paid for the SAP Project if the following
objectives are reached in full:
a) Budget compliance in accordance with the SAP contract of March 31,
1999 (cf. Annex 1)
b) SAP implementation, i.e. if the F1, SD, MM and HR modules can be
used by the IFCO Group error-free with effect from January 1, 2000.
c) Customizing by means of the change request procedure (cf. Page 4 of
the SAP contract of March 31, 1999) is not included in Section a)
above.
2) EC Support
Dr. von Becker shall receive 3 % commission on the net support funds a
fonds perdu for the IFCO Group, less the costs incurred for the aforesaid.
The bonus under 1) and 2) above shall amount to a maximum of DM 30,000.
Pullach, June 28, 1999
/s/ Dr. Willy von Becker
Dr. Willy von Becker
/s/ Martin Schoeller /s/ Christoph Schoeller
Martin Schoeller Christoph Schoeller
<PAGE>
Consultancy Agreement
The following Consultancy Agreement is hereby concluded
between
IFCO Europe Beteiligungs GmbH, in formation
- hereinafter also referred to as the Company" -
and Dr. Willy von Becker:
I. Duties and Obligations
1. Dr. von Becker shall assist the management of the Company and shall
service the requirements of IFCO's activities in Europe as Controller.
His duties and responsibilities shall particularly include planning
and analysis as well, including budgeting, deviation analyses and
business development. Above all, Dr. von Becker shall be also be
responsible for reporting to the stockholders based on US standards.
2. Dr. von Becker shall report directly to the management of the Company.
3. Dr. von Becker shall implement an integrated software for the whole
IFCO Group as project manager.
4. The scope of consultancy services shall be 4 man days per week.
I. Contract Term
1. The contract shall commence on April 1, 1998 and shall end on March
31, 1999.
2. The Company shall be entitled to prolong the contract by 1 year up to
February 28, 1999 on the same conditions.
II. Compensation
1. As compensation for his work, Dr. von Becker shall receive a fee of DM
17,500 per month, plus statutory value-added tax.
2. Based on the contract term of 12 months, he shall be released from
duties for 4 calendar weeks with continued payment of his consultancy
fee.
III. Reimbursement of Expenses
Expenses incurred on business travel made in the interests of the
Company shall be reimbursed to the Consultant upon submission of
appropriate vouchers and documentation. The Consultant shall be
<PAGE>
entitled to charge DM 0.65 per km for business travel with a motor
vehicle.
IV. Secrecy/Records
1. The Consultant shall be obliged observe secrecy towards third parties
on all operational and business matters of the Company. The
aforesaid obligation shall also apply after he has ceased to work for
the company. Dr. von Becker shall also be obliged to observe the
principles for exercising the consultancy profession as laid down by
the Association of German Consultants (BDU).
2. When he ceases to work for the Company, Dr. von Becker shall be
obliged to return all documents, correspondence and records, etc.,
relating to the affairs of the company.
VI. Ancillary Agreements and Contract Amendments
No verbal ancillary agreements have been made. All amendments and
supplements to the present contract must be made in writing in order to
be valid.
VII. Final Provisions
1. If individual provisions of the present contract are or become
invalid, the validity of the other provisions shall remain in full
force and effect. The parties shall undertake to replace the
invalid provision by a valid provision which comes as close as
possible to the original economic intention of the invalid
provision.
2. All amendments and supplements relating to the present contract must
be made in writing in order to be valid. This shall also apply to
any rescission of the written form requirement.
Munich, January 30, 1998
/s/ Dr. Willy von Becker
Dr. Willy von Becker
/s/ Martn Schoeller /s/ Christoph Schoeller
Martin Schoeller Christoph Schoeller
<PAGE>
Exhibit 21
SUBSIDIARIES
<TABLE>
<CAPTION>
Company Name Jurisdiction
- ------------ --------------
<S> <C>
IFCO Europe Beteiligungs GmbH Germany
IFCO International Food Germany
Container Organisation GmbH
IFCO Logistic Services GmbH Germany
IFCO System Logistik GmbH Germany
IFCO Finance Consulting GmbH Germany
IFCO International Food Austria
Container Organisation Ges.mbH
IFCO France s.a.s. France
IFCO Schweiz AG Switzerland
IFCO Skandinavien A/S Denmark
IFCO Contenedores S.A. Spain
IFCO UK Ltd. United Kingdom
IFCO Italia S.r.l. Italy
GELOG AG Switzerland
GISO Verwaltungsgesellschaft mbH & Co. Germany
Behalterleasing KG
MTP GmbH Germany
MTP GmbH & Co. KG Germany
MTS Okologistik GmbH Germany
Schoeller International Logistics Germany
Beteiligungsgesellschaft mbH
Schoeller-U.S., Inc. United States
IFCO-U.S., L.L.C. United States
IFCO Argentina S.A. Argentina
IFCO Uruguay s.a. Uruguay
IFCO Japan Inc. Japan
IFCO do Brasil Brasil
Embalagens Ltda.
Silver Oak Acquisition Corp. United States
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form F-4 of IFCO
Systems N.V. of our reports dated August 25, 1999 and April 30, 1999 relating
to the financial statements of IFCO Systems N.V. and the combined financial
statements of IFCO Europe Beteiligungs GmbH and MTS Okologistik GmbH,
subsidiaries of Schoeller Packaging Systems GmbH, Pullach, and Schoeller
International Logistics Beteiligungsgesellschaft mbH, a subsidiary of Gebruder
Schoeller Beteilungsverwaltungs GmbH, Munich (collectively "IFCO"),
respectively, which appear in such Registration Statement. We also consent to
the references to us under the headings "Experts", "Summary Financial
Information" and "Selected Financial Data" in such Registration Statement.
PwC Deutsche Revision
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
Dusseldorf, Germany
January 31, 2000
/s/ Betz /s/ Hartmann
- ------------------------------ ------------------------------
Betz Hartmann
Wirtschaftsprufer Wirtschaftsprufer
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use in
this registration statement on Form F-4 of IFCO Systems N.V. of our report dated
February 26, 1999 included in PalEx, Inc.'s Form 10-K for the year ended
December 27, 1998 and to all references to our Firm included in this
registration statement.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Tampa, Florida
February 1, 2000
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form F-4 of IFCO
Systems N.V. of our report dated September 3, 1999 relating to the financial
statements of IFCO-U.S., L.L.C., which appears in such Registration Statement.
We also consent to the references to us under the headings "Experts" in such
Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Tampa, Florida
Dated as of February 1, 2000
<PAGE>
EXHIBIT 23.5
Batchelder & Partners, Inc.
11975 El Camino Real, Suite 300
San Diego, California 92130
February 1, 2000
Board of Directors
PalEx, Inc.
6829 Flintlock Road
Houston, Texas 77040
Gentlemen:
We hereby consent to the inclusion in the Registration Statement of IFCO
Systems N.V. on Form F-4, of our opinion letter appearing as Appendix B to the
proxy statement/prospectus that is part of the Registration Statement and to the
references to our firm name therein. In giving this consent, we do not thereby
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations adopted by the Securities and Exchange Commission thereunder, nor do
we admit that we are experts with respect to any part of the Registration
Statement within the meaning of the term "experts" as used in the Securities Act
of 1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
Batchelder & Partners, Inc.
By: /s/ Ralph V. Whitworth
-----------------------
Ralph V. Whitworth
Partner
<PAGE>
Exhibit 23.7
CONSENT
The undersigned hereby consents to his nomination to serve as a Director of
IFCO Systems N.V., a public limited liability company incorporated under the
laws of the Netherlands, and to all references to him and to his professional
history, including but not limited to his biography in the prospectus that is
included or made a part of this Registration Statement on Form F-4 filed with
the Securities and Exchange Commission, and any amendment thereto.
Dated as of January 31, 2000
By: /s/ Cornelius Geber
--------------------------------------
Cornelius Geber
<PAGE>
Exhibit 23.8
CONSENT
The undersigned hereby consents to his nomination to serve as a Director of
IFCO Systems N.V., a public limited liability company incorporated under the
laws of the Netherlands, and to all references to him and to his professional
history, including but not limited to his biography in the prospectus that is
included or made a part of this Registration Statement on Form F-4 filed with
the Securities and Exchange Commission, and any amendment thereto.
Dated as of January 31, 2000
By: /s/ Sam W. Humphreys
--------------------------------------
Sam W. Humphreys
<PAGE>
Exhibit 23.9
CONSENT
The undersigned hereby consents to his nomination to serve as a Director of
IFCO Systems N.V., a public limited liability company incorporated under the
laws of the Netherlands, and to all references to him and to his professional
history, including but not limited to his biography in the prospectus that is
included or made a part of this Registration Statement on Form F-4 filed with
the Securities and Exchange Commission, and any amendment thereto.
Dated as of January 25, 2000
By: /s/ Randall Onstead
--------------------------------------
Randall Onstead
<PAGE>
Exhibit 23.10
CONSENT
The undersigned hereby consents to his nomination to serve as a Director of
IFCO Systems N.V., a public limited liability company incorporated under the
laws of the Netherlands, and to all references to him and to his professional
history, including but not limited to his biography in the prospectus that is
included or made a part of this Registration Statement on Form F-4 filed with
the Securities and Exchange Commission, and any amendment thereto.
Dated as of January 31, 2000
By: /s/ Eckhard Pfeiffer
--------------------------------------
Eckhard Pfeiffer
<PAGE>
Exhibit 23.11
CONSENT
The undersigned hereby consents to his nomination to serve as a Director of
IFCO Systems N.V., a public limited liability company incorporated under the
laws of the Netherlands, and to all references to him and to his professional
history, including but not limited to his biography in the prospectus that is
included or made a part of this Registration Statement on Form F-4 filed with
the Securities and Exchange Commission, and any amendment thereto.
Dated as of January 31, 2000
By: /s/ Christoph Schoeller
--------------------------------------
Christoph Schoeller
<PAGE>
Exhibit 23.12
CONSENT
The undersigned hereby consents to his nomination to serve as a Director of
IFCO Systems N.V., a public limited liability company incorporated under the
laws of the Netherlands, and to all references to him and to his professional
history, including but not limited to his biography in the prospectus that is
included or made a part of this Registration Statement on Form F-4 filed with
the Securities and Exchange Commission, and any amendment thereto.
Dated as of January 31, 2000
By: /s/ Dr. Frank Tofflinger
--------------------------------------
Dr. Frank Tofflinger
<PAGE>
Exhibit 99.4
PalEx, Inc.
6829 Flintlock Road
Houston, Texas 77040
PROXY FOR THE SPECIAL MEETING OF STOCKHOLDERS ON MARCH 2, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned (i) acknowledges receipt of the Notice dated February 4,
2000, of a Special Meeting of the Stockholders of PalEx, Inc., a Delaware
corporation, to be held on March 2, 2000, at 10:00 a.m. Houston time at the
offices of PalEx, Inc., at 6829 Flintlock Road, Houston, Texas 77040, and
the Proxy Statement/Prospectus in connection therewith; and (ii) appoints
Vance K. Maultsby, Jr. and Edward E. Rhyne, and each of them, with full
power of substitution, proxies to vote in respect of the undersigned's
shares of common stock of PalEx, Inc., held of record by the undersigned at
the close of business on January 21, 2000, or with respect to which the
undersigned is entitled to vote and act, at the meeting and at any
postponements or adjournments thereof, and the undersigned directs that this
proxy be voted as set forth on the reverse.
If more than one of the proxies named herein shall be present in person or
by substitute at the meeting or at any postponements or adjournments
thereof, both of the proxies so present and voting, either in person or by
substitute, shall exercise all of the powers hereby given.
This proxy when properly executed will be voted in the manner directed. IF
NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ITEMS 1 AND 2.
(Continued on reverse side)
<PAGE>
PalEx, Inc.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY 0
[ ]
<TABLE>
<S> <C> <C> <C>
1. Proposal to approve the Amended and Restated For Against Abstain
Agreement of Merger and Plan of Reorganization, [ ] [ ] [ ]
dated as of October 6, 1999, and effective as
of March 29, 1999, as amended by Amendment No. 1
thereto dated as of January 31, 2000, among
PalEx, IFCO Systems N.V., IFCO Europe Beteiligungs
GmbH, MTS Okologistik GmbH, Schoeller International
Logistics Beteiligungsgesellschaft mbH, Schoeller
Logistics Industries GmbH (formerly known as
Schoeller Packaging Systems GmbH), and Silver Oak
Acquisition Corp.
2. In their discretion of the proxies, on any other For Against Abstain
matters that may properly come before the special [ ] [ ] [ ]
meeting or any postponements or adjournments
thereof.
</TABLE>
DATED: ___________________________________________________________________, 2000
________________________________________________________________________________
Signature of Stockholder
________________________________________________________________________________
Signature of Stockholder
________________________________________________________________________________
Title, if applicable
Please date this proxy and sign your name exactly as it appears hereon. Where
there is more than one owner, each should sign. When signing as an attorney,
administrator, executor, guardian, or trustee, please add your title as such.
If executed by a corporation, the proxy should be signed by a duly authorized
officer.
Please mark, sign, date, and return your proxy promptly in the enclosed enve-
lope whether or not you plan to attend the special meeting. No postage is re-
quired. You may nevertheless vote in person if you do attend.
<PAGE>
Exhibit 99.5
PALEX, INC.
6829 Flintrock Road
Houston, Texas 77040
------------------------------------
ELECTION FORM / LETTER OF TRANSMITTAL
------------------------------------
[NAME AND ADDRESS LABEL]
Dear PalEx Stockholder:
We are sending you this election form/letter of transmittal because PalEx,
Inc. has signed a merger agreement with IFCO Systems N.V. and the other parties
named in the merger agreement. As more fully described in the proxy
statement/prospectus that has separately been sent to you in connection with
the proposed merger, if the PalEx stockholders approve and adopt the merger
agreement, PalEx will be merged with and into Silver Oak Acquisition Corp., a
newly formed, wholly owned subsidiary of IFCO Systems. Silver Oak will survive
the merger as a wholly owned subsidiary of IFCO Systems and will change its
name to "PalEx, Inc." You should read carefully the proxy statement/prospectus.
You hold shares of PalEx common stock. If we complete the merger, each of
your shares of PalEx common stock will be exchanged, at your election, into one
of the following:
. $9.00 in cash; or
. the number of IFCO Systems ordinary shares calculated by dividing $9.00
by the IPO price of the IFCO Systems ordinary shares expressed in U.S.
dollars; or
. a combination of cash and IFCO Systems ordinary shares.
This form offers you a choice of electing to receive cash or IFCO Systems
ordinary shares, or some of each, for your PalEx common stock.
You should make an election on this form, but even if you do so, we may not
be able to give you what you elect. If we receive too many elections for cash
or stock, we may have to allocate cash and stock to you in different
proportions than you elect. The total merger consideration for all of the PalEx
common stock is limited as follows:
. not less than 40% and not more than 49% of the PalEx shares may be
exchanged for cash; and
. not more than 60% and not less than 51% of the PalEx shares may be
exchanged for IFCO Systems ordinary shares.
For further information, see "The Merger Agreement--Conversion of PalEx
Shares" on pages 57-61 of the proxy statement/prospectus.
The holders of exchangeable shares of SMG Corporation, PalEx's wholly owned
Canadian subsidiary, are subject to the same election provisions as PalEx
stockholders. Subject to amendment of SMG's articles of amalgamation and of the
support agreement with the holders, a holder of SMG exchangeable shares after
the merger will be entitled to exchange its SMG exchangeable shares for cash
and/or IFCO Systems ordinary shares pursuant to the procedures set forth in
this election form/letter of transmittal.
Each PalEx stockholder and each SMG holder should complete this election
form/letter of transmittal and return it along with, for the PalEx
stockholders, the stock certificates, a book entry transfer of shares, or a
guaranteed delivery for the shares covered by the election form/letter of
transmittal to Deutsche Bank AG, IFCO Systems' exchange agent.
<PAGE>
A completed election form/letter of transmittal must be received by the
exchange agent no later than 5:00 p.m. New York time on March 1, 2000. If the
exchange agent does not receive for a holder by the election deadline a
properly completed and signed election form/letter of transmittal and, for the
PalEx stockholders, stock certificates, a book entry transfer of shares, or a
guaranteed delivery for the shares of PalEx common stock covered by this
election form/letter of transmittal, then that holder will be deemed not to
have made an election and will receive merger consideration pursuant to the
adjustment calculations made by the exchange agent.
If for any reason the merger is not completed, this election form will be
void and of no effect. Certificate(s) for shares of PalEx common stock
previously delivered to the exchange agent will be returned promptly. The
merger is expected to be completed on or before March 8, 2000.
Please read carefully the accompanying general instructions beginning on page
13, complete the information as required on pages 4-12, and return this
election form/letter of transmittal, along with, for the PalEx stockholders,
all of your PalEx stock certificates, book entry transfer of shares, or
guarantee of delivery of shares in the enclosed envelope to the exchange agent
no later than 5:00 p.m. New York time on March 1, 2000 at the following
address:
Deutsche Bank AG
c/o BT Services Tennessee, Inc.
Corporate Trust Reorganization Unit
P.O. Box 292737
Nashville, Tennessee 37229-2737
Delivery of this election form/ letter of transmittal to an address other
than as set forth above will not constitute a valid delivery. You must sign the
election form/letter of transmittal where requested.
2
<PAGE>
INSTRUCTIONS FOR STEP 1
IDENTIFY YOUR SHARES AND MAKE YOUR ELECTION
Share Identification. You must identify the shares of PalEx common stock (or
SMG exchangeable shares) that you own.
In the spaces provided under the column entitled "Name(s) and Address(es) of
Registered Holder(s)," print the name(s) and address(es) of the registered
holder(s). In the spaces provided under the column entitled "Certificate
Number," insert the stock certificate number for each stock certificate you
hold. If you do not hold stock certificate(s), please indicate in the
"Certificate Number" column. In the spaces provided under the column entitled
"Number of Shares Represented By," insert the number of shares represented by
the corresponding stock certificate(s) or held by book-entry. At the bottom of
the "Number of Shares Represented By" column, please insert the total number of
PalEx shares you own.
Election. Choose the consideration you would like to receive. The sum of
your elections must be equal to the total number of PalEx shares (or SMG
exchangeable shares) you hold.
All-Cash Election. You may choose to make an all-cash election with respect
to all of your shares of PalEx common stock (or SMG exchangeable shares) and
receive $9.00 in cash for each share of PalEx common stock (or upon exchange
after the merger for each SMG exchangeable share). To make an all-cash
election, you should insert the total number of PalEx shares you own in the
space provided under the column entitled "Cash Election."
*or*
All-Stock Election. You may choose to make an all-stock election with
respect to all of your shares of PalEx common stock (or SMG exchangeable
shares) and receive the number of IFCO Systems ordinary shares calculated by
dividing $9.00 by the IPO price of the IFCO Systems ordinary shares expressed
in U.S. dollars for each share of PalEx common stock (or upon exchange after
the merger for each SMG exchangeable share). To make an all-stock election, you
should insert the total number of PalEx shares you own in the space provided
under the column entitled "Stock Election."
*or*
Combination Election. You may choose to make a combination election with
respect to all of your shares of PalEx common stock (or SMG exchangeable
shares) and receive (or receive upon exchange after the merger for SMG
exchangeable shares) a combination of (1) $9.00 in cash for each share for
which you elect to receive cash and (2) the number of IFCO Systems ordinary
shares calculated by dividing $9.00 by the IPO price expressed in U.S. dollars
for each share for which you elect to receive stock. To make a combination
election, you should insert the number of PalEx shares you would like to
exchange to cash in the space provided under the column entitled "Cash
Election" and insert the number of PalEx shares you would like to convert to
IFCO Systems ordinary shares in the space provided under the column entitled
"Stock Election."
*or*
Non-Election. You may choose to make an affirmative non-election with
respect to all of your shares of PalEx common stock (or SMG exchangeable
shares). In the event you make an affirmative non-election or fail to properly
submit this form, you will receive cash and/or stock pursuant to the adjustment
provisions of the merger agreement as calculated by the exchange agent. To make
a non-election, you should insert the total number of PalEx shares you own in
the space provided under the column entitled "Non-Election."
Note: Please review carefully pages 57-61 of the proxy statement/prospectus
for an explanation of the conversion of the PalEx shares. As explained in the
proxy statement/prospectus, the total merger consideration for all shares of
PalEx common stock is limited as follows: (1) not less than 40% and not more
than 49% of the shares may be exchanged for cash; and (2) not more than 60% and
not less than 51% of the shares may be exchanged for IFCO Systems ordinary
shares. The elections by holders of SMG exchangeable shares will be included in
the calculation of the limits on the composition of the total merger
consideration.
Once completed, go to Step 2.
3
<PAGE>
STEP 1
IDENTIFY YOUR SHARES AND MAKE YOUR ELECTION
<TABLE>
<CAPTION>
ame(s)Nand Addresses of Number of Shares
Registered Holder(s) Certificate Number* Represented By Cash Election Stock Election Non-Election
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Shares:
- --------------------------------------------------------------------------------------------------------
</TABLE>
* If you do not hold PalEx stock certificates, please indicate and a book-
entry transfer will be made for you.
NOTE: YOUR ELECTION MAY BE ADJUSTED BY THE EXCHANGE AGENT IF YOU ELECT TO
EXCHANGE (1) MORE THAN 49% OF YOUR PALEX SHARES FOR CASH OR (2) MORE THAN
60% OF YOUR PALEX SHARES FOR STOCK.
For PalEx stockholders, your election will be valid only if accompanied by
your PalEx stock certificate(s), a book entry transfer of shares to the
exchange agent (check the box below), or a guaranteed delivery (check the box
below).
[_]CHECK HERE IF YOUR PALEX SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s) ___________________________________________________
Window Ticket Number (if any): _________________________________________________
[_]CHECK HERE IF YOUR PALEX SHARES ARE BEING DELIVERED BY BOOK ENTRY TRANSFER
TO THE EXCHANGE AGENT'S ACCOUNT AND COMPLETE THE FOLLOWING:
Name of Electing Institution: __________________________________________________
The Depository Trust Company Account Number: ___________________________________
Transaction Code Number: _______________________________________________________
4
<PAGE>
INSTRUCTION FOR STEP 2A
LETTER OF TRANSMITTAL
Regardless of your election in Step 1, if you are a PalEx stockholder you
must send all of your PalEx stock certificates to the exchange agent with the
following letter of transmittal. See General Instruction D.1. If you do not
hold stock certificates, please indicate on the previous page and a book-entry
transfer will be made for you. Holders of SMG exchangeable shares should not
complete the letter of transmittal or send any share certificates.
Please read and sign the letter of transmittal on the following page.
If you have all of the stock certificates representing your shares of PalEx
common stock and do not have special payment or delivery instructions as set
forth below, sign the letter of transmittal and go to Step 3. See General
Instruction D.2. regarding the proper form of signatures.
If you have lost any or all of the stock certificates representing your
shares of PalEx common stock, in addition to signing the letter of transmittal
and sending it to the exchange agent together with any stock certificates you
do have as described above, you must complete Step 2B with respect to any
certificates you have lost.
If you want the new IFCO Systems certificates being issued to you pursuant to
the merger to be registered, and/or you want the cash being paid to you
pursuant to the merger agreement to be payable, to someone other than the
person or entity listed on your PalEx stock certificates, you must complete and
sign the "Special Payment Instructions" box on page 7. If you transferred any
of your shares to someone else after January 21, 2000, you must sign the
"Special Payment Instructions" box on page 7.
If you want the new IFCO Systems certificates and/or the cash being issued or
paid to you pursuant to the merger to be registered or payable to you, but sent
to someone else, you must complete and sign the "Special Delivery Instructions"
box on page 7.
If you fill out either the "Special Payment Instructions" box or the "Special
Delivery Instructions" box, you must have your signature(s) medallion
guaranteed by an eligible institution. See General Instruction D.4.
If your cash payment exceeds $500,000 and you would like it to be sent to you
by wire transfer rather than by check, you must complete and sign the "Wiring
Instructions" box on page 7. Please verify your wiring instructions before
completing the "Wiring Instructions" box. If you provide incorrect wiring
instructions, IFCO Systems will have the right to send your money to you by
check.
If the PalEx stock certificates are not available prior to the election
deadline, a Guarantee of Delivery may be completed by an eligible institution
and your election will be valid if the stock certificates, together with a copy
of the completed election form/letter of transmittal, are received by the
exchange agent within three trading days after the election deadline .
The exchange agent will issue you a single check and/or a single book entry
advice representing IFCO Systems ordinary shares. If you would prefer to
receive a stock certificates, please check the box in the "Receipt of
Certificates" section below. If you request a stock certificate, the exchange
agent will issue a single certificate representing the IFCO Systems ordinary
shares. However, if for tax purposes or otherwise you wish to have the new
certificates issued in particular denominations, please provide explicit
instructions to the exchange agent.
After you have completed the above, go to Step 3.
5
<PAGE>
STEP 2A
LETTER OF TRANSMITTAL
Deutsche Bank AG, Exchange Agent:
In connection with the merger, the undersigned hereby submits the stock
certificate(s) representing the undersigned's shares of PalEx, Inc. common
stock to, or hereby transfers ownership of such stock certificate(s) by book-
entry transfer to the account of, Deutsche Bank AG, the exchange agent
designated by IFCO Systems N.V. pursuant to the merger agreement by and among
IFCO Systems, PalEx, and the other parties named therein, or its replacement or
successor, and instructs the exchange agent to deliver to the undersigned, in
exchange for the undersigned's shares of PalEx common stock, cash and/or IFCO
Systems ordinary shares pursuant to the undersigned's election as set forth on
the election form enclosed with this letter of transmittal. The undersigned
understands that the undersigned's election may be adjusted by the exchange
agent if the undersigned elected to exchange (1) more than 49% of the
undersigned's PalEx shares for cash or (2) more than 60% of the undersigned's
PalEx shares for IFCO Systems ordinary shares.
By delivery of this letter of transmittal to the exchange agent, the
undersigned hereby forever waives the undersigned's right to dissent under
applicable Delaware law and withdraws all written objections to the merger
and/or demands for appraisal, if any, with respect to the shares of PalEx
common stock owned by the undersigned.
The undersigned represents and warrants that the undersigned has full power
and authority to surrender the stock certificate(s) surrendered herewith or
transferred in book-entry form, or covered by a guarantee of delivery, free and
clear of all liens, claims, and encumbrances. The undersigned will, upon
request, execute and deliver any additional documents reasonably deemed by the
exchange agent or IFCO Systems to be appropriate or necessary to complete the
sale, assignment, or transfer of the PalEx shares. All authority conferred or
agreed to be conferred in this letter of transmittal shall be binding upon the
successors, assigns, heirs, executors, administrators, and legal
representatives of the undersigned and shall not be affected by, and shall
survive, the death or incapacity of the undersigned.
Unless otherwise indicated under "Special Payment Instructions" on the
following page, please issue any certificate for IFCO Systems ordinary shares
and/or any check payable (or wire transfer of funds payable) in exchange for
the undersigned's shares of PalEx common stock in the name of the registered
holder(s) of such PalEx common stock. Similarly, unless otherwise indicated
under "Special Delivery Instructions" and/or "Wiring Instructions" on the
following page, please mail any certificate for IFCO Systems ordinary shares
and/or any check payable in exchange for the undersigned's shares of PalEx
common stock to the registered holder(s) of the PalEx common stock at the
address or addresses shown below.
REGISTERED PALEX STOCKHOLDER(S) SIGN HERE
- -------------------------------------- --------------------------------------
Signature of owner(s) Signature of owner(s)
Print Name: __________________________ Print Name: __________________________
- -------------------------------------- --------------------------------------
Social Security or other Tax ID Number Social Security or other Tax ID
Address: _____________________________ Number
- -------------------------------------- Address: _____________________________
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
Date: _________________________ , 2000 --------------------------------------
Date: _________________________ , 2000
6
<PAGE>
SPECIAL PAYMENT INSTRUCTIONS
(To be completed ONLY if you want the new IFCO Systems certificates being
issued to you pursuant to the merger to be registered, and/or you want the
cash being paid to you pursuant to the merger agreement to be payable, to
someone other than the person or entity listed on your PalEx stock
certificates.)
Register my IFCO Systems ordinary shares, and make payment to, the following:
Name:_______________________________________________________________________
(Please type or print)
Address:____________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
(include Zip Code)
SPECIAL DELIVERY INSTRUCTIONS
(To be completed ONLY if you want the new IFCO Systems certificates and/or
the cash being issued or paid to you pursuant to the merger to be registered
or payable to you, but sent to someone else.)
Mail or deliver my IFCO Systems ordinary shares, and send payment to, the
following:
Name:_______________________________________________________________________
(Please type or print)
Address:____________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
(include Zip Code)
WIRING INSTRUCTIONS
Provided I am to receive at least $500,000 in cash, I would like to receive
all of the cash to be paid to me in connection with the merger to be sent by
wire transfer, pursuant to the following wiring instructions in lieu of
delivery of a check:
Name of Financial Institution:______________________________________________
Financial Institution's ABA No.:____________________________________________
Name of Account:____________________________________________________________
Account No.:________________________________________________________________
7
<PAGE>
SIGNATURE GUARANTEE
(In the event that the check and/or certificate representing IFCO Systems
ordinary shares is to be issued in exactly the name of the record holder(s)
of the PalEx common stock, no guarantee of the signature on this election
form/letter of transmittal is required)
If you have filled out either the "Special Payment Instructions" box, the
"Special Delivery Instructions" box or the "Guarantee of Delivery" box you
must have your signature(s) medallion guaranteed by an eligible
institution.
Name of Guarantor:_____________________________
Signature(s) Guaranteed:_______________________
______________________________
Date:________, 2000
Apply Signature Medallion:
GUARANTEE OF DELIVERY
The undersigned, a member firm of a registered national securities
exchange, a member of the NASD, Inc., or a commercial bank or trust company
in the United States, hereby guarantees to deliver to the exchange agent
either all of the certificate(s) for PalEx common stock to which this
election form/letter of transmittal relates, or such certificates as are
identified below, duly endorsed in blank or otherwise in form acceptable
for transfer, no later than 5:00 p.m. New York time, on the third trading
day after the election deadline. If you complete this guarantee of
delivery, you will need a signature guarantee by an eligible institution.
The undersigned acknowledges that it must deliver the PalEx shares
covered by this election form and letter of transmittal to the exchange
agent within the time period set forth above and that failure to do so
could result in financial loss to the undersigned.
------------------------------------ ------------------------------------
Dated Print Firm Name
------------------------------------ ------------------------------------
Certificate Number(s) Authorized Signature
------------------------------------ ------------------------------------
Number of PalEx shares Address
If the PalEx shares will be ------------------------------------
delivered by book-entry transfer,
provide the Depository Trust
Company account number: ____________
------------------------------------
------------------------------------
Telephone number
RECEIPT OF CERTIFICATES
Unless you check the box below, you will receive book-entry IFCO Systems
ordinary shares.
[_]Check here if you would like certificate(s) for your IFCO Systems
ordinary shares.
8
<PAGE>
INSTRUCTION FOR STEP 2B
CERTIFY IF CERTIFICATE(S) ARE LOST
If you are unable to locate some or all of the stock certificates
representing your shares of PalEx common stock, you must complete the
certification on the following page. Your signature must be notarized.
Please see General Instruction D.2. regarding proper signatures.
After you have completed the above, go to Step 3.
9
<PAGE>
STEP 2B--CERTIFY IF CERTIFICATE(S) ARE LOST
The certificate(s) representing the following shares of PalEx, Inc. common
stock has/have been lost, stolen, seized, or destroyed, at a time unknown to
me:
-----------------------------------------
Certificate Number Shares
-----------------------------------------
-----------------------------------------
-----------------------------------------
-----------------------------------------
I hereby certify the following:
(1) I have made or caused to be made a diligent search for such stock
certificate(s) and have been unable to find or recover it/them. I have not
sold, assigned, pledged, transferred, deposited under any agreement, or
hypothecated the shares of PalEx common stock represented by such stock
certificate(s), or any interest therein, or assigned any power of attorney
or other authorization respecting the same which is now outstanding and in
force, or otherwise disposed of such stock certificate(s); and no person,
firm, corporation, agency, or government, other than me, has or has
asserted any right, title, claim, equity, or interest in, to, or respecting
such shares of PalEx common stock.
(2) Please issue a replacement stock certificate(s). In consideration of
the issuance of a replacement certificate(s), I hereby agree to indemnify
and hold harmless IFCO Systems N.V. and any person, firm, or corporation
now or hereafter acting as IFCO Systems' transfer agent, registrar,
trustee, depository, redemption, fiscal, or paying agent, or in any other
capacity, and also any successors in any such capacities, and their
respective heirs, successors, and assigns, from and against any and all
liability, loss, damage, and expense in connection with, or arising out of,
their compliance with my request herein.
(3) I also agree, in consideration of compliance with the foregoing
request, immediately to surrender to the IFCO Systems the lost stock
certificate(s) should it/they hereafter come into my possession or control.
<TABLE>
<S> <C>
SIGNATURE _______________________________________________ DATE , 2000
SIGNATURE _______________________________________________ DATE , 2000
SIGNATURE _______________________________________________ DATE , 2000
</TABLE>
STATE OF (S)
(S)
COUNTY OF (S)
I, , a Notary Public, do hereby certify that on the day
of 2000, personally appeared before me , known to me to be the
persons whose name(s) is/are subscribed to the foregoing instrument, who, being
by me first duly sworn, declared that the statements contained therein are true
and that he/she/they signed said instrument for the purposes, in the capacity,
and for consideration therein expressed.
----------------------------------
[Notary: Please modify if necessary to conform to your state law or attach an
alternative form.]
10
<PAGE>
INSTRUCTION FOR STEP 3
COMPLETE SUBSTITUTE FORM W-9
PalEx stockholders must complete the following Substitute Form W-9 to avoid
having 31% of your payment withheld for federal income tax purposes as set
forth in General Instruction D.6. to this election form.
Please do the following:
(1) write your social security number (or employer identification number
for entities) in the top right box of the Substitute Form W-9;
(2) print your name and address in the space provided;
(3) check the box next to "Individual/Sole Proprietor," "Corporation,"
"Partnership," or "Other" (and, if other, write in the type of entity); and
(4) sign the "Certification Instructions" box at the bottom of the
Substitute Form W-9.
If you do not yet have a Taxpayer Identification Number, please check the box
in "Part 3," sign in the "Certification Instructions" box, and, in addition,
sign the "Certification of Payee Awaiting Taxpayer Identification Number" box
at the bottom of the page.
Please see General Instruction D.6. for information on this Form W-9 and
General Instruction D.2. regarding proper signatures. Additional Forms W-9 are
attached for your use, if necessary, as Exhibit A to this election form/letter
of transmittal.
11
<PAGE>
STEP 3--COMPLETE SUBSTITUTE FORM W-9
PAYER: DEUTSCHE BANK AG
- -------------------------------------------------------------------------------
Part 1--PLEASE PROVIDE YOUR Social Security
SUBSTITUTE TIN IN THE BOX AT RIGHT AND Number OR Employer
Form W-9 CERTIFY BY SIGNING BELOW Identification Number
----------------------
Department of
the Treasury --------------------------------------------------------
Internal Part 3--Awaiting
Revenue Part 2--CERTIFICATION--Under TIN [_]
Service penalties of perjury, I certify
that:
If you checked
(1) The number shown on this this box, please
form is my correct Taxpayer complete the
Identification Number (or I "Certificate of
am waiting for a number to Payee Awaiting
be issued to me), and Taxpayer Identi-
fication Number"
below.
Payer's Request
for Taxpayer
Identification
Number (TIN)
---------------
(Print name) (2) I am not subject to backup
withholding either because I
have not been notified by the
IRS that I am subject to
backup withholding as a
result of a failure to report
all interests or dividends,
or the IRS has notified me
that I am no longer subject
to backup withholding.
--------------- --------------------------------------------------------
(Address)
CERTIFICATION INSTRUCTIONS--You must cross out item
(2) above if you have been notified by the IRS that
you are subject to backup withholding because of
under-reporting interest or dividends on your tax
return. However, if after being notified by the IRS
that you were subject to backup withholding, you
received another notification from the IRS that you
are no longer subject to backup withholding, do not
cross out item (2).
---------------
Check the box that
applies:
[_Individual/Sole]
Proprietor
[_Corporation]
[_Partnership]
[_Other: __________]
(specify) SIGNATURE ____________________ DATE , 2000
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE MERGER.
PLEASE REVIEW GENERAL INSTRUCTION D.8. FOR ADDITIONAL DETAILS.
IF YOU ARE AWAITING A TAXPAYER IDENTIFFICATION NUMBER, YOU MUST COMPLETE
THE FOLLOWING CERTIFICATE AND CHECK THE BOX IN PART 3 OF SUBSTITUTE FORM
W-9.
CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER
(To be completed ONLY IF box in Part 3 of W-9 is checked)
I certify, under penalties of perjury, that a Taxpayer Identification Number
has not been issued to me, and that I mailed or delivered an application to
receive a Taxpayer Identification Number to the appropriate IRS Center or
Social Security Administration Office (or I intend to mail or deliver an
application in the near future). I understand that if I do not provide a
Taxpayer Identification Number to the payer, 31% of all payments made to me
pursuant to the merger shall be retained until I provide a Tax Identification
Number to the payor and that, if I do not provide my Taxpayer Identification
Number within 60 days, such retained amounts shall be remitted to the IRS as
backup withholding and 31% of all reportable payments made to me thereafter
will be withheld and remitted to the IRS until I provide a Taxpayer
Identification Number.
SIGNATURE ____________________________________ DATE , 2000
12
<PAGE>
** GENERAL INSTRUCTIONS **
A. Special Conditions.
1. Time in which to elect. To be effective, a completed election form/letter
of transmittal and, for PalEx stockholders, your stock certificates, a book
entry transfer of shares, or a guaranteed delivery for the shares covered by
the election form/letter of transmittal, must be received by the exchange
agent, at the address set forth on page 2, no later than 5:00 p.m. New York
time on March 1, 2000 (the "Election Date"). If the merger is approved and
thereafter completed, and if the exchange agent has not received a properly
completed election form/letter of transmittal prior to the Election Date, you
will receive merger consideration pursuant to the adjustment calculations made
by the exchange agent, as more fully described in the proxy
statement/prospectus. See General Instruction C.
2. Revocation of election. An election may be revoked by the person who
submitted the election form/letter of transmittal to the exchange agent by
written notice to the exchange agent prior to the Election Date. A holder may
submit a new election form at the time it revokes an earlier election or at any
time after revoking an earlier election but before the Election Date. If a new
election is not made, the holder will be deemed not to have made an election,
and exchange agent will retain the stock certificate(s) tendered with the
revoked election form until the time the shares are exchanged upon completion
of the merger. All election forms will automatically be revoked if the merger
agreement is terminated. If the merger agreement is terminated, the stock
certificates tendered will be promptly returned to you.
B. Election Procedures.
A description of the election procedures is set forth in the proxy
statement/prospectus under "The Merger Agreement--the Merger" and "--Conversion
of PalEx Shares" and is contained in the merger agreement. All elections are
subject to compliance with such procedures. In connection with making any
election, you should read carefully, among other matters, the information
contained in the proxy statement/prospectus under "The Merger--U.S. Federal
Income Tax Consequences" and "--Netherlands Tax Consequences." See also "Risk
Factors--The merger may not be tax- free to PalEx or PalEx stockholders" in the
proxy statement/prospectus for a discussion of the possibility that the merger
may be a taxable transaction.
As a result of the election procedures, you may receive IFCO Systems ordinary
shares or cash in amounts that vary from your election in Step 1. You will not
be able to change the number of shares or the amount of cash allocated to you
pursuant to the election procedures.
C. Receipt of Shares or Cash.
Promptly after the effective time of the merger, IFCO Systems will instruct
the exchange agent to mail certificate(s) for your shares of IFCO Systems
ordinary shares and/or cash payments by check to you with respect to each share
of PalEx common stock (if you complete the "Wiring Instructions" in Step 2A of
this election form and you are to receive at least $500,000, all of the cash
will be sent to you by wire transfer). If you fail to submit this properly
completed election form/letter of transmittal and stock certificates, a book
entry transfer of shares, or a guaranteed delivery for the PalEx shares covered
by the election form/letter of transmittal by the Election Date as set forth
above, you will receive merger consideration pursuant to the adjustment
calculations made by the exchange agent pursuant to the merger agreement, as
more fully described in the proxy statement/prospectus, as soon as practicable
after the certificate(s) representing such PalEx shares have been submitted. No
fractional IFCO Systems ordinary shares will be issued in the merger. Instead,
each PalEx stockholder that would otherwise be entitled to receive a fractional
share will receive an amount in cash equal to the value of an IFCO Systems
ordinary share multiplied by the fraction. The value of an IFCO Systems
ordinary share for this calculation will be the IPO price.
D. General.
1. Execution and delivery. This election form/letter of transmittal must be
properly filled in, dated, and signed in all applicable places, and must be
delivered (together with all of the other required materials) to the exchange
agent at the address as set forth on page 2.
13
<PAGE>
The method of delivery of all documents is at your option and risk, but if
sent by mail, registered mail, return receipt requested, and properly insured,
using the enclosed envelope, is suggested.
2. Signatures. The signature (or signatures, in the case of certificates
owned by two or more joint holders) on this election form/letter of transmittal
should correspond exactly with the name(s) as written on the face of the
certificate(s) submitted (or in the case of a holder of SMG exchangeable
shares, on your certificate representing your SMG exchangeable shares) unless
the shares of PalEx common stock (or SMG exchangeable shares) described on this
election form have been assigned by the registered holder(s), in which event
this election form should be signed in exactly the same form as the name of the
last transferee indicated on the transfers attached to or endorsed on the
certificates.
If this election form is signed by a person or persons other than the
registered holder(s) of the certificates, the certificates must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name(s) of the registered owner(s) appear on the certificates.
If this election form or any stock certificate(s) or stock power(s) is signed
by a trustee, executor, administrator, guardian, officer of a corporation,
attorney-in-fact, or any other person acting in a representative or fiduciary
capacity, the person signing must give such person's full title in such
capacity.
3. New certificates and checks in same name. If you are receiving any IFCO
Systems ordinary shares, the stock certificate(s) representing such IFCO
Systems ordinary shares and/or any check(s) in respect of shares of PalEx
common stock shall be registered in, or payable to the order of, exactly the
same name(s) that appears on the certificate(s) representing such shares of
PalEx common stock submitted with this election form, unless "Special Payment
Instructions" in Step 2A are completed. No endorsement of certificate(s) or
separate stock power(s) are required.
4. Guarantee of Signature. No signature guarantee is required on this form if
it is signed by the registered holder(s) of the PalEx common stock surrendered
under this election form, and the IFCO Systems ordinary shares and/or the check
are to be issued and/or payable to the record holder(s) without any change or
correction in the name of the record holder(s). In all other cases, all
signatures on the election form/letter of transmittal must be guaranteed. All
signatures required to be guaranteed must be guaranteed by a bank, broker, or
other institution that is a member of the Medallion Signature Guaranty Program.
Public notaries cannot execute acceptable guarantees of signatures.
5. Miscellaneous. A single check, wire transfer, and/or stock certificate
representing IFCO Systems ordinary shares to be received will be issued to you
unless you have instructed us otherwise in this election form/letter of
transmittal.
All questions with respect to this election form/letter of transmittal
(including, without limitation, questions relating to the timeliness or
effectiveness of revocation or any election and computations as to any
adjustments) will be determined by the exchange agent, which determination
shall be conclusive and binding.
6. Backup federal income tax withholding and Substitute Form W-9. Under the
"backup withholding" provisions of U.S. federal income tax law, any payments
made to you pursuant to the merger may be subject to backup withholding of 31%.
To prevent backup withholding, PalEx stockholders should complete and sign the
Substitute Form W-9 included in Step 3 of this election form/letter of
transmittal and either: (a) provide your correct taxpayer identification number
("TIN") and certify, under penalties of perjury, that the TIN provided is
correct (or that you are awaiting a TIN), and that (i) you have not been
notified by the IRS that you have been subjected to backup withholding as a
result of failure to report all interest or dividends or (ii) the IRS has
notified you that you are no longer subject to backup withholding; or (b)
provide an adequate basis for exemption. If the box in Part 3 of the substitute
Form W-9 is checked, the exchange agent shall retain 31% of cash payments made
to you during the 60-day period following the date of the Substitute Form W-9.
If you furnish the exchange agent with your TIN within 60 days of the date of
the Substitute Form W-9, the exchange agent shall remit such amounts retained
during the 60-day period to you. If, however, you have not provided the
exchange agent with your TIN within such 60-day period, the exchange agent will
remit such previously retained amounts to the IRS as backup withholding. In
general, if you are an individual, the TIN is your Social Security number. If
the certificates for PalEx common stock are registered in more than one name or
are not in the name of the actual owner, consult the Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 (copies
of which may be obtained
14
<PAGE>
from the exchange agent) for additional guidance on which number to report. If
the exchange agent is not provided with the correct TIN or an adequate basis
for exemption, the holder may be subject to a $50 penalty imposed by the IRS
and backup withholding at a rate of 31%. Certain stockholders (including, among
others, all corporations and certain foreign individuals) are not subject to
these backup withholding and reporting requirements. In order to satisfy the
exchange agent that a foreign individual qualifies as an exempt recipient, such
holder must submit a statement (generally, IRS Form W-8), signed under
penalties of perjury, attesting to that individual's exempt status. A form for
such statements can be obtained from the exchange agent.
For further information concerning backup withholding and instructions for
completing the Substitute Form W-9 (including how to obtain a TIN if you do not
have one and how to complete the Substitute Form W-9 if stock is held in more
than one name), consult the Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 (copies of which may be obtained
from the exchange agent).
Failure to complete the Substitute Form W-9 will not, by itself, cause your
shares of PalEx common stock to be deemed invalidly tendered, but may require
the exchange agent to withhold 31% of the amount of any payments made pursuant
to the merger. Backup withholding is not an additional U.S. federal income tax.
Rather, the U.S. federal income tax liability of a person subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the IRS.
15
