-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IOYF8eI0sR7p2l18lxhufyleUTnq26Qfln80EEDuAin31kiAxvbvJXjhop9t0E6L +8mVExXwprcUjjpHkGoOxQ== 0000893750-99-000141.txt : 19990402 0000893750-99-000141.hdr.sgml : 19990402 ACCESSION NUMBER: 0000893750-99-000141 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRAHAM PACKAGING CO CENTRAL INDEX KEY: 0001061506 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS PLASTIC PRODUCTS [3080] IRS NUMBER: 232786688 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-53603 FILM NUMBER: 99582635 BUSINESS ADDRESS: STREET 1: 1110 EAST PRINCESS STREET CITY: YORK STATE: PA ZIP: 17403 BUSINESS PHONE: 7178498500 MAIL ADDRESS: STREET 1: 110 EAST PRINCESS STREET CITY: YORK STATE: PA ZIP: 17403 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _____ Commission File Number: 333-53603 GRAHAM PACKAGING COMPANY (Exact name of registrant as specified in its charter) Delaware 23-2786688 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1110 East Princess Street York, Pennsylvania (Address of principal executive offices) 17403 (zip code) (717) 849-8500 (Registrant's telephone number, including area code) Securities Registered pursuant to Section 12(b) of the Act: None Securities Registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No[ ]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] There is no established public trading market for any of the general or limited partnership interests in the registrant. The aggregate market value of the voting securities held by non-affiliates of the registrant as of February 28, 1999 was $-0-. As of February 28, 1999, the general partnership interest in the registrant was owned by GPC Opco GP L.L.C., and the limited partnership interest in the registrant was owned by Graham Packaging Holdings Company. See Item 12, "Security Ownership of Certain Beneficial Owners and Management." _______________ DOCUMENTS INCORPORATED BY REFERENCE None. GRAHAM PACKAGING COMPANY INDEX Page PART I: Number Item 1. Business. 5 Item 2. Properties. 29 Item 3. Legal Proceedings. 31 Item 4. Submission of Matters to a Vote of Security 32 Holders. PART II: 33 Item 5. Market for the Registrant's Common Equity 33 and Related Stockholder Matters. Item 6. Selected Financial Data. 34 Item 7. Management's Discussion and Analysis of 38 Financial Condition and Results of Operations. Item 7A. Quantitative and Qualitative Disclosures 49 about Market Risk. Item 8. Financial Statements and Supplementary 50 Data. Item 9. Changes in and Disagreements With 84 Accountants on Accounting and Financial Disclosure. PART III: 84 Item 10. Advisory Committee Members, Directors and 84 Executive Officers of the Registrant. Item 11. Executive Compensation. 88 Item 12. Security Ownership of Certain Beneficial 95 Owners and Management. Item 13. Certain Relationships and Related 96 Transactions. PART IV: 106 Item 14: Exhibits, Financial Statement Schedules, 106 and Reports on Form 8-K PART I Item 1. Business Unless the context otherwise requires, all references herein to the "Company," with respect to periods prior to the recapitalization described below (the "Recapitalization"), refer to the business historically conducted by Graham Packaging Holdings Company ("Holdings") (which served as the operating entity for the business prior to the Recapitalization) and one of its predecessors (Graham Container Corporation), together with Holdings' subsidiaries and certain affiliates, and, with respect to periods subsequent to the Recapitalization, refer to Graham Packaging Company (the "Operating Company") and its subsidiaries. Since the Recapitalization, the Operating Company has been a wholly owned subsidiary of Holdings. All references to the "Recapitalization" herein shall mean the collective reference to the recapitalization of Holdings and related transactions as described under "-- The Recapitalization" below, including the initial borrowings under the New Credit Agreement (as defined below), the Offerings (as defined below) and the related uses of proceeds. References to "Continuing Graham Partners" herein refer to Graham Packaging Corporation ("Graham GP Corp."), Graham Family Growth Partnership or affiliates thereof or other entities controlled by Donald C. Graham and his family, and references to "Graham Partners" refer to the Continuing Graham Partners, Graham Engineering Corporation ("Graham Engineering") and the other partners of Holdings (consisting of Donald C. Graham and certain entities controlled by Mr. Graham and his family). Since July 27, 1998, the Company's operations have included the operations of Graham Emballages Plastiques S.A.; Graham Packaging U.K. Ltd.; Graham Plastpak Plastic, Ambalaj A.S; and Graham Packaging Deutschland Gmbh, as a result of the acquisition of selected plants of Crown Cork & Seal. All references to "Management" herein shall mean the management of the Company at the time in question, unless the context indicates otherwise. In addition, unless otherwise indicated, all sources for all industry data and statistics contained herein are estimates contained in or derived from internal or industry sources believed by the Company to be reliable. CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS All statements other than statements of historical facts included in this Report on Form 10-K, including, without limitation, statements regarding the Company's future financial position, economic performance and results of operations, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as "may", "will", "expect", "intend", "estimate", "anticipate", "believe", or "continue" or the negative thereof or variations thereon or similar terminology. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, the Company can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the issuers' expectations ("cautionary statements") include, without limitation, the high degree of leverage and substantial debt service obligations of the Operating Company and Holdings, the restrictive covenants contained in instruments governing indebtedness of the Company, including the New Credit Agreement, competition in the Company's markets, including the impact of possible new technologies, a decline in the domestic motor oil business, risks associated with the Company's international operations, the Company's exposure to fluctuations in resin prices and its dependence on resin supplies, the Company's dependence on significant customers and the risk that customers will not purchase the Company's products in the amounts expected by the Company under their requirements contracts, the Company's dependence on key employees and the material adverse effect that could result from the loss of their services, the Company's dependence on certain continuing relationships with Graham Engineering and other Graham Partners and affiliates thereof, risks associated with environmental regulation, risks associated with possible future acquisitions, risks associated with hedging transactions, and the possibility that the Company may not be able to achieve success in developing and expanding its business, including, without limitation, the Company's hot-fill PET plastic container business. See " -- Certain Risks of the Business." All subsequent written and oral forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements. General The Company, is a worldwide leader in the design, manufacture and sale of customized blow molded rigid plastic bottles, as hereinafter described. The Operating Company was formed under the name "Graham Packaging Holdings I, L.P." on September 21, 1994 as a Delaware limited partnership. Holdings was formed under the name "Sonoco Graham Company" on April 3, 1989 as a Pennsylvania limited partnership and changed its name to "Graham Packaging Company" on March 28, 1991. The predecessor to Holdings controlled by the Continuing Graham Partners was formed in the mid-1970's as a regional domestic custom plastic bottle supplier, using the proprietary Graham Rotational Wheel. Upon the Recapitalization, substantially all of the assets and liabilities of Holdings were contributed to the Operating Company, and subsequent to the Recapitalization, the primary business activity of Holdings has consisted of its direct and indirect ownership of 100% of the partnership interests in the Operating Company. Upon the Recapitalization, the Operating Company and Holdings changed their names to "Graham Packaging Company" and "Graham Packaging Holdings Company," respectively. The principal executive offices of the Company are located at 1110 East Princess Street, York, Pennsylvania 17403, Telephone (717) 849- 8500. The Company is managed in three operating segments: North America, which includes the United States and Canada; Europe; and Latin America. Each operating segment includes three major service lines: Automotive, Food and Beverage and Household Cleaning and Personal Care. The Company's customized blow molded rigid plastic bottles are made primarily from high density polyethylene ("HDPE") and polyethylene terephthalate ("PET") resins. The Company's customers include many of the world's largest branded consumer products companies for whom customized packaging design is a critical component in their efforts to differentiate their products to the consumer in the (i) automotive, (ii) food and beverage and (iii) household cleaning and personal care products businesses. With leading positions in each of its businesses, the Company has been a major beneficiary of the trend of conversion from glass, paper and metal containers to plastic packaging and has grown its net sales over the past 16 years at a compounded annual growth rate ("CAGR") of over 23%. In contrast to the carbonated soft drink bottle business, the businesses in which the Company operates are characterized by more specialized technology, a greater degree of customized packaging, shorter production runs, higher growth rates and more attractive profit margins. In order to position itself to further capitalize on the conversion trend, the Company has made substantial capital expenditures since 1992, particularly in the fast growing hot-fill PET area for shelf- stable (i.e., unrefrigerated) beverages. In addition, Management believes, based on internal estimates, that the Company has distinguished itself as the leader in locating its manufacturing plants on-site at its customers' packaging facilities and has over one-third of its 51 facilities at on-site locations. The many benefits of on-site plants, in addition to the Company's track record of innovative design, superior customer service and low cost manufacturing processes, help account for the fact that the Company has enjoyed long-standing relationships averaging 15 years with its top 20 customers. For the year ended December 31, 1998, over 70% of the Company's net sales were generated by its top 20 customers, the majority of which were under long-term contracts (i.e., with terms of between one and ten years) and the remainder of which were customers with whom the Company has been doing business for over 10 years on average. For the year ended December 31, 1998, the Company generated net sales and Adjusted EBITDA (as defined in Note 8 to "Selected Financial Data" (Item 6) below) of $588.1 million and $119.7 million, respectively. Automotive. The Company is the preeminent supplier of one quart HDPE motor oil containers in the United States, producing over 1.4 billion units in 1998, which Management believes, based on internal estimates, represents approximately 73% of the one quart motor oil containers produced domestically. The Company is a supplier of such containers to many of the top domestic producers of motor oil, including Ashland Inc. ("Ashland," producer of Valvoline motor oil), Castrol Inc. ("Castrol"), Chevron Corporation ("Chevron"), Equilon Enterprises LLC ("Equilon", an alliance between Texaco Inc. "Texaco" and Shell Oil Company "Shell"), Pennzoil-Quaker State Company ("Pennzoil-Quaker State", the result of the merger between Pennzoil Products Company, "Pennzoil", and The Quaker State Corporation, "Quaker State"), and Sun Company, Inc ("Sun Company"), and management believes the Company is the sole supplier of one quart motor oil containers to five of these producers. The Company also manufactures containers for other automotive products, such as antifreeze and automatic transmission fluid. Capitalizing on its leading position in the U.S., the Company has expanded its operations in Latin America. In Brazil, where Management believes, based on internal estimates, that the Company is among the largest independent suppliers of plastic packaging for motor oil, the Company currently operates five plants. In addition to benefitting from the conversion to plastic packaging for motor oil in Latin America, Management believes that the Company will benefit from the general growth in the automotive business in this region as the number of motor vehicles per person increases. For the years ended December 31, 1996, 1997 and 1998, the Company generated approximately 39.4%, 37.6% and 32.1%, respectively, of its net sales from the automotive container business. Food & Beverage. In the food and beverage business, the Company produces both HDPE and PET containers for customers for whom customized packaging design is a critical component of their efforts to differentiate their products to the consumer. From 1993 through December 31, 1998, the Company grew its food and beverage business at a CAGR of 88%. This substantial growth has been driven by the rapid conversion of metal, glass and paper containers to plastic bottles, as the superior functionality, safety and improving economics of plastic became more apparent and preferred by consumers. The Company is a leader in the production of HDPE containers for non-carbonated chilled juice and juice drinks and certain liquid foods that utilize HDPE resins. From 1992 through December 31, 1998, the Company invested over $166 million in capital expenditures to build a strategic nationwide plant network and to develop the specialized bottle manufacturing processes necessary to produce the PET bottles required for the hot-fill packaging of non- refrigerated, shelf-stable juices and juice drinks. The hot-fill process, in which bottles are filled at between 180 degrees -190 degrees Fahrenheit to kill bacteria, permits the shipment and display of juices and juice drinks in a shelf-stable state. The manufacturing process for hot-fill PET packaging is significantly more demanding than that used for cold-fill carbonated soft drink containers, and typically involves shorter production runs, greater shape complexity and close production integration with customers. The Company's largest customers in the food and beverage business include Clement-Pappas & Company, Inc. ("Clement- Pappas"), Groupe Danone ("Danone"), Hershey Foods Corporation ("Hershey's"), Hi-Country Foods Corporation ("Hi-Country"), The Minute Maid Company ("Minute Maid"), Nestle Food Company ("Nestle's"), Northland Cranberries, Inc. ("Northland Cranberries"), Ocean Spray Cranberries, Inc. ("Ocean Spray"), Seneca Foods Corporation ("Seneca"), Tree Top Inc. ("Tree Top"), Tropicana Products, Inc. ("Tropicana") and Welch Foods, Inc. ("Welch's"). For the years ended December 31, 1996, 1997 and 1998, the Company generated approximately 25.3%, 28.9% and 37.6%, respectively, of its net sales from the food and beverage business. Household Cleaning & Personal Care ("HC/PC"). The Company is a leading supplier of HDPE custom bottles to the North American HC/PC products business which includes products such as hair care, liquid fabric care and dish care products and hard service cleaners. By focusing on its customized product design capability, the Company provides its HC/PC customers with a key component in their efforts to differentiate products on store shelves. The Company's largest customers in this sector include The Clorox Company ("Clorox"), Colgate-Palmolive Company ("Colgate-Palmolive"), The Dial Corp. ("Dial"), Johnson & Johnson ("J&J"), L'Oreal S.A. ("L'Oreal"), The Procter & Gamble Company ("Procter & Gamble") and Unilever NV ("Unilever"). The Company is pursuing significant growth opportunities both domestically and internationally associated with the continued conversion to HDPE packaging of both household cleaners and personal care products. The Company continues to benefit as liquid fabric care products, which are packaged in plastic containers, capture an increased share from powdered detergents, which are predominantly packaged in cardboard. For the years ended December 31, 1996, 1997 and 1998, the Company generated approximately 35.3%, 33.5%, and 30.3% respectively, of its net sales from the HC/PC business. Additional information regarding business segments is provided in Note 19 of the Notes to Financial Statements. Products The Company currently designs, manufactures and sells customized HDPE and PET blow-molded rigid plastic bottles, thermo-formed rigid plastic containers and injection molded caps and spouts, primarily for the automotive, food and beverage and HC/PC products businesses. The Company's custom packaging involves a high degree of design and engineering to accommodate complex bottle shapes (e.g., handles, view stripes, pouring features and customized labeling) and performance and material requirements (e.g., hot-fill capability, recycled material usage and multiple layering). HDPE containers, which are non-transparent, are utilized to package products such as motor oil, fabric care, dish care, personal care products, certain food products, chilled juices and juice drinks. The Company's HDPE containers are designed with custom features, such as specially designed shapes, handles and pouring spouts which differentiate customers' products to consumers and which may consist of a single layer of plastic or multiple layers for specialized uses. Customers request multi-layer containers for a variety of reasons, including the increased differentiation of the packaging (such as oxygen barrier layering properties), the desire to include recycled materials in the product's packaging and the reduction of cost by limiting the use of colorants to a single exterior layer. The Company operates one of the largest HDPE recycling plants in North America and more than 60% of its North American HDPE units produced contain post-consumer recycled HDPE bottles. PET containers, which are transparent, are utilized for products where glass-like clarity is valued and that require shelf stability, such as carbonated soft drinks ("CSD"), juice, juice drinks, isotonics and teas. CSD producers are the largest users of PET containers, and the cold-fill manufacturing process used for this application is characterized by long production runs and standardized technology due to a low degree of product differentiation through package design. By contrast, the hot-fill manufacturing process used for the Company's products is characterized by shorter production runs, high customization to facilitate greater packaging differentiation and the ability to withstand the high temperatures under which the containers are filled. Customers Substantially all of the Company's sales are made to major branded consumer products companies and oil companies located across the United States and in foreign countries. The Company's customers demand a high degree of packaging design and engineering to accommodate complex bottle shapes, performance requirements, materials, speed to market and reliable delivery. As a result, many customers opt for long-term contracts, many of which have terms of one to ten years. A majority of the Company's top 20 customers are under long-term contracts. The Company's contracts typically contain provisions allowing for price adjustments based on the market price of resins and colorants, energy and labor costs, among others, and contain, in certain cases, the Company's right of first refusal to meet a competing third party bid to supply the customer. In many cases, the Company is the sole supplier of all of its customer's custom plastic bottle requirements nationally, regionally or for a specific brand. For the year ended December 31, 1998 the Company had only one customer (Unilever) that accounted for over 10% of the Company's total net sales (12% for the year ended December 31, 1998). For the year ended December 31, 1998 the Company's twenty largest customers, who accounted for over 70% of net sales, were, in alphabetical order: Customer(1) Business Company Customer Since(1) Ashland(2) Automotive Early 1970's Castrol Automotive Late 1960's Chevron Automotive Early 1970's Clement Pappas Food & Beverage Mid 1990's Colgate-Palmolive HC/PC Mid 1980's Danone Food & Beverage Before 1980 Dial HC/PC Early 1990's Equilon Automotive Early 1970's Hershey's Food & Beverage Mid 1980's Hi-Country Food & Beverage Early 1990's Northland Cranberries Food & Beverage Late 1990's Ocean Spray Food & Beverage Early 1990's Pennzoil-Quaker State Automotive Early 1970's Petrobras Distribuidora Automotive Early 1990's S.A. Procter & Gamble HC/PC Early 1980's Sun Company Automotive Early 1960's Tree Top Food & Beverage Early 1990's Tropicana Food & Beverage Mid 1980's Unilever HC/PC, Food & Beverage Early 1970's Welch's Food & Beverage Early 1990's (1) These companies include their predecessors, if applicable, and the dates may reflect customer relationships initiated by predecessors to the Company or entities acquired by the Company. (2) Ashland is the producer of Valvoline motor oil. Foreign Operations The Company has significant operations outside the United States in the form of wholly owned subsidiaries, cooperative joint ventures and other arrangements. The Company has 21 plants located in countries outside of the United States, including Canada (4), Brazil (5), France (5), Germany (1), Italy (2), Poland (1), Turkey (1), United Kingdom (1) and Hungary (1). Brazil and Argentina. In Brazil, the Company operates four on- site plants for motor oil packaging, including for Petrobras Distribuidora S.A., the national oil company of Brazil. The Company also operates an off-site plant for its motor oil and agricultural and chemical businesses. On April 30, 1997, the Company acquired 80% of certain assets and assumed 80% of certain liabilities of Rheem-Graham Embalagens Ltda. in Brazil. Graham Packaging do Brasil Industriais e Commerciais S.A. ("Graham Packaging do Brazil") is the current name of the Company's subsidiary in Brazil. In February 1998, the Company acquired the residual 20% ownership interest in Graham Packaging do Brazil. In Argentina, the Company formed a subsidiary, Lido-Plast Graham, to enter into a joint venture and manufacturing agreement with Lido Plast S.A. and Lido Plast San Luis S.A. (collectively, "Lido Plast"). Western Europe. The Company operates an on-site plant in each of France and Hungary, respectively, and nine off-site plants in France, Germany, Italy, Turkey and the United Kingdom, all for the production of liquid food HDPE containers, HC/PC, automotive and agricultural chemical products. Under its long-term contract with Danone, the Company manufactures a substantial portion of the plastic containers for drinkable yogurt in France. Poland. Through Masko-Graham, a 50% owned joint venture in Poland, the Company manufactures HDPE bottles for HC/PC and the liquid food products. Competition The Company faces substantial competition across its product lines from a number of well-established businesses operating both regionally and internationally. The Company's primary competitors include Owens-Brockway (a wholly owned subsidiary of Owens-Illinois, Inc.), Ball Corporation, Crown Cork & Seal Company, Inc., Plastic Containers, Inc. (a wholly owned subsidiary of Continental Can Company, Inc., which during 1998 was sold to Suiza Foods Corporation), Plastipak, Inc., Silgan Holdings Inc. (successor to Silgan Corporation), Schmalbach-Lubeca Plastic Containers USA Inc., American National Can, Inc. and Alpla Werke Alwin Lehner Gmbh. Several of these competitors are larger and have greater financial and other resources than the Company. Management believes that the Company's long-term success is largely dependent on its ability to provide superior levels of service, its speed to market and its ability to develop product innovations and improve its production technology and expertise through its applied design and development capability. Other important competitive factors include rapid delivery of products, production quality and price. Marketing and Distribution The Company's sales are made through its own direct sales force; agents or brokers are not utilized to conduct sales activities with customers or potential customers. Sales activities are conducted from the Company's corporate headquarters in York, Pennsylvania and from field sales offices located, among other places, in Houston, Texas; Cincinnati, Ohio; Levittown, Pennsylvania; Burlington, Ontario; Mississauga, Ontario; Montreal, Quebec; Paris, France; Buenos Aires, Argentina; Rio de Janeiro and Sao Paulo, Brazil; Milan, Italy and Sulejowek, Poland. The Company's products are typically delivered by truck, on a daily basis, in order to meet its customers' just-in-time delivery requirements, except in the case of on-site operations. In many cases, the Company's on-site operations are integrated with their customers' manufacturing operations so that deliveries are made, as needed, by direct conveyance to the customers' fill lines. Design and Development Design and development constitutes an important part of the Company's competitive advantage both in the design, development and enhancement of new customized products and in the creation of manufacturing technologies to improve production efficiency. The Company is actively involved with its customers in the design and introduction of new packaging features, including the design of special wheel molds. In general, wheel molds are only able to run on the machines for which they are built, thus encouraging customers to retain the Company as their primary packaging provider. Management believes that the Company's design and development capabilities, coupled with the support of Graham Engineering in the design of blow molding wheels and recycling systems, has positioned the Company as the packaging design and development leader in the industry. Pursuant to the Equipment Sales Agreement, Graham Engineering will continue to provide engineering, consulting and other services and sell to the Company certain proprietary blow molding wheels. Over the past several years, the Company has received and has filed for numerous patents. See "--The Recapitalization," "--Intellectual Property"; and "Certain Relationships and Related Transactions--Certain Business Relationships--Equipment Sales Agreement" (Item 13). Manufacturing A critical component of the Company's strategy is to locate its manufacturing plants on-site, at its largest customers' manufacturing operations, to provide the highest possible servicing levels, to reduce expensive shipping and handling charges and to heighten production and distribution efficiencies. The Company is the industry leader in providing on-site manufacturing arrangements, with over a third of its 51 facilities on-site at customers' facilities, substantially more than its competitors. See "Properties" (Item 2). Within its 51 plants, the Company runs over 400 production lines. As necessary, the Company dedicates particular production lines within a plant to better service its customers. The Company's plants generally operate 24 hours a day, five to seven days a week, although not every production line is run constantly. When customer demand requires, the Company runs its plants seven days a week. In the blow molding process used for HDPE applications, resin pellets are blended with colorants or other necessary additives and fed into the extrusion machine, which uses heat and pressure to form the resin into a round hollow tube of molten plastic called a parison. Bottle molds mounted radially on a wheel capture the parison as it leaves the extruder. Once inside the mold, air pressure is used to blow the parison into the bottle shape of the mold. In the 1970's, the Company introduced the Graham Wheel. The Graham Wheel is a single parison, electro- mechanical rotary blow molding technology designed for its speed, reliability and ability to use virgin resins, high barrier resins and recycled resins simultaneously without difficulty. The Company has achieved very low production costs, particularly in plants housing Graham Wheels. While certain of the Company's competitors also use wheel technology in their production lines, the Company has developed a number of proprietary improvements which Management believes permit the Company's wheels to operate at higher speeds and with greater efficiency in the manufacture of containers with one or more special features, such as multiple layers and in-mold labeling. In the stretch blow molding process used for hot-fill PET applications, resin pellets are fed into a Husky injection molding machine that uses heat and pressure to mold a test tube shaped parison or "preform." The preform is then fed into the Sidel blow molder where it is re-heated to allow it to be formed through a stretch blow molding process into a final container. During this re-heat and blow process, special steps are taken to induce the temperature resistance needed to withstand high temperatures on customer filling lines. Management believes that the Husky injection molders and Sidel blow molders used by the Company are widely recognized as the leading technologies for high speed production of hot-fill PET containers and have replaced less competitive technologies used initially in the manufacture of hot-fill PET containers. Management believes that equipment for the production of cold-fill containers can be refitted to accommodate the production of hot-fill containers. However, such refitting has only been accomplished at a substantial cost and has proven to be substantially less efficient than the Company's equipment for producing hot-fill PET containers. The Company maintains a program of quality control with respect to suppliers, line performance and packaging integrity for its containers. The Company's production lines are equipped with various types of automatic inspection machines that electronically inspect containers for dimensional conformity, flaws and various other performance requirements. Additionally, product samples are inspected and tested by Company employees on the production line for proper dimensions and performance and are also inspected and audited after packaging. Containers that do not meet quality standards are crushed and recycled as raw materials. The Company monitors and updates its inspection programs to keep pace with modern technologies and customer demands. Quality control laboratories are maintained at each manufacturing facility to test characteristics of the products and compliance with quality standards. The Company has highly modernized equipment in its plants, consisting primarily of the proprietary rotational wheel systems sold to the Company by Graham Engineering and shuttle systems, both of which are used for HDPE blow molding systems, and Husky/Sidel heat-set stretch blow molding systems for custom hot-fill juice bottles. The Company is also pursuing design and development initiatives in barrier and aseptic technologies to strengthen its position in the food and beverage business. In the past, the Company has achieved substantial cost savings in its manufacturing process by productivity and process enhancements, including increasing line speeds, utilizing recycled products, reducing scrap and optimizing plastic volume requirements for each product's specifications. Management estimates that the Company's operating efficiencies are among the highest in the industry. Management believes that capital investment to maintain and upgrade property, plant and equipment is important to remain competitive. Total capital expenditures for 1996, 1997 and 1998 were approximately $31.3 million, $53.2 million and $133.9 million, respectively. Management estimates that the annual capital expenditure required to maintain the Company's current facilities are approximately $20 million per year. Additional capital expenditures beyond this amount will be required to expand capacity. Raw Materials HDPE and PET resins constitute the primary raw materials used to manufacture the Company's products. These materials are available from a number of suppliers, and the Company is not dependent upon any single supplier for any of these materials. Based on the Company's experience, Management believes that adequate quantities of these materials will be available to supply all of its customers' needs, but there can be no assurance that they will continue to be available in adequate supply in the future. In general, the Company's dollar gross profit is substantially unaffected by fluctuations in resin prices because industry practice and the Company's contractual arrangements with its customers permit changes in resin prices to be passed through to customers by means of corresponding changes in product pricing. In addition, the Company manages its inventory of HDPE and PET to minimize its exposure to fluctuations in the price of these resins. Through its wholly owned subsidiary, Graham Recycling Company ("Graham Recycling"), the Company operates one of the largest HDPE bottle recycling plants in North America, and more than 60% of its North American HDPE units produced contain recycled HDPE bottles. Management believes that the Company can extend its recycling technology to take advantage of further opportunities in the HDPE and PET businesses. The recycling plant is located near the Company's headquarters in York, Pennsylvania. The Recapitalization The recapitalization (the "Recapitalization") of Holdings was consummated on February 2, 1998 pursuant to an Agreement and Plan of Recapitalization, Redemption and Purchase, dated as of December 18, 1997 (the "Recapitalization Agreement"), by and among (i) Holdings, (ii) the Graham Partners, and (iii) BMP/Graham Holdings Corporation, a Delaware corporation ("Investor LP") formed by Blackstone Capital Partners III Merchant Banking Fund L.P. (together with its affiliates, "Blackstone"), and BCP/Graham Holdings L.L.C., a Delaware limited liability company and a wholly owned subsidiary of Investor LP ("Investor GP" and, together with Investor LP, the "Equity Investors"). On February 2, 1998, as part of the Recapitalization, the Operating Company and GPC Capital Corp. I ("CapCo I" and, together with the Operating Company, the "Company Issuers") consummated an offering (the "Senior Subordinated Offering") pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), of their Senior Subordinated Notes Due 2008, consisting of $150,000,000 aggregate principal amount of their 8 3/4% Senior Subordinated Notes Due 2008, Series A (the "Fixed Rate Senior Subordinated Old Notes"), and $75,000,000 aggregate principal amount of their Floating Interest Rate Subordinated Term Securities Due 2008, Series A ("FIRSTS" SM) (the "Floating Rate Senior Subordinated Old Notes" and, together with the Fixed Rate Senior Subordinated Old Notes, the "Senior Subordinated Old Notes"). ( "FIRSTS" is a service mark of BT Alex. Brown Incorporated.) On February 2, 1998, as part of the Recapitalization, Holdings and GPC Capital Corp. II ("CapCo II" and, together with Holdings, the "Holdings Issuers", which when referred to with the Company Issuers will collectively be referred to as the "Issuers") consummated an offering (the "Senior Discount Offering" and, together with the Senior Subordinated Offering, the "Offerings") pursuant to Rule 144A under the Securities Act of $169,000,000 aggregate principal amount at maturity of their 10 3/4% Senior Discount Notes Due 2009, Series A (the "Senior Discount Old Notes" and, together with the Senior Subordinated Old Notes, the "Old Notes"). In connection with the Recapitalization, the Issuers entered into Registration Rights Agreements with the Initial Purchasers of the Old Notes, pursuant to which the Issuers agreed to exchange the respective issues of Old Notes for Notes having the same terms but registered under the Securities Act and not containing the restrictions on transfer that are applicable to the Old Notes. Pursuant to the related Registration Rights Agreement, on September 8, 1998, the Company Issuers consummated exchange offers (the "Senior Subordinated Exchange Offers"), pursuant to which the Company Issuers issued $150,000,000 aggregate principal amount of their 8 3/4% Senior Subordinated Notes Due 2008, Series B (the "Fixed Rate Senior Subordinated Exchange Notes"), and $75,000,000 aggregate principal amount of their Floating Interest Rate Subordinated Term Securities Due 2008, Series B (the "Floating Rate Senior Subordinated Exchange Notes" and, together with the Fixed Rate Senior Subordinated Exchange Notes, the "Senior Subordinated Exchange Notes"), which were registered under the Securities Act, in exchange for equal principal amounts of Fixed Rate Senior Subordinated Old Notes and Floating Rate Senior Subordinated Old Notes, respectively. The Senior Subordinated Old Notes and the Senior Subordinated Exchange Notes are herein collectively referred to as the "Senior Subordinated Notes." Pursuant to the applicable Registration Rights Agreement, on September 8, 1998, the Holdings Issuers consummated an exchange offer (the "Senior Discount Exchange Offer"), pursuant to which the Holdings Issuers issued $169,000,000 aggregate principal amount at maturity of their 10 3/4% Senior Discount Notes Due 2009, Series B (the "Senior Discount Exchange Notes" and, together with the Senior Discount Old Notes, the "Senior Discount Notes"), which were registered under the Securities Act, in exchange for an equal principal amount at maturity of Senior Discount Old Notes. The Senior Subordinated Notes were issued under an Indenture dated as of February 2, 1998 (the "Senior Subordinated Indenture") between the Company Issuers, Holdings, as guarantor, and United States Trust Company of New York, as Trustee. The Senior Discount Notes (together with the Senior Subordinated Notes, the " Notes") were issued under an Indenture dated as of February 2, 1998 (the "Senior Discount Indenture" and together with the Senior Subordinated Indenture, the "Indentures") between the Holdings Issuers and The Bank of New York, as Trustee. The Senior Subordinated Old Notes were, and the Senior Subordinated Exchange Notes are, fully and unconditionally guaranteed by Holdings on a senior subordinated basis. The other principal components of the Recapitalization included the following transactions: - - The contribution by Holdings of substantially all of its assets and liabilities to the Operating Company; - - The contribution by certain Graham Partners to the Operating Company of their ownership interests in certain partially owned subsidiaries and certain real estate used but not owned by Holdings and its subsidiaries (the "Graham Contribution"); - - The initial borrowing by the Operating Company of $403.5 million (the "Bank Borrowings") in connection with the New Credit Agreement by and among the Operating Company, Holdings and a syndicate of lenders (see "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Liquidity and Capital Resources" (Item 7) ; - - The repayment by the Operating Company of substantially all of the existing indebtedness and accrued interest of Holdings and its subsidiaries (approximately $264.9 million); - - The distribution by the Operating Company to Holdings of all of the remaining net proceeds of the Bank Borrowings and the Senior Subordinated Offering (other than amounts necessary to pay certain fees and expenses and payments to Management) which, in aggregate, were approximately $313.7 million; - - The repayment by the Graham Partners of $21.2 million owed to Holdings under certain promissory notes; - - The redemption by Holdings of certain partnership interests in Holdings held by the Graham Partners for $429.6 million; - - The purchase by the Equity Investors of certain partnership interests in Holdings held by the Graham Partners for $208.3 million; and - - The payment of certain bonuses and other cash payments and the granting of certain equity awards to senior and middle level Management. Upon the consummation of the Recapitalization, Investor LP owned an 81% limited partnership interest in Holdings, Investor GP owned a 4% general partnership interest in Holdings, and the Continuing Graham Partners retained a 1% general partnership interest and a 14% limited partnership interest in Holdings. Upon the consummation of the Recapitalization, Holdings owned a 99% limited partnership interest in the Operating Company, and GPC Opco GP LLC ("Opco GP"), a wholly owned subsidiary of Holdings, owned a 1% general partnership interest in the Operating Company. Following the consummation of the Recapitalization, certain members of Management owned an aggregate of approximately 3% of the outstanding common stock of Investor LP, which constitutes approximately a 2.6% interest in Holdings. In addition, an affiliate of BT Alex. Brown Incorporated and Bankers Trust International PLC (which acted as Initial Purchasers of the Old Notes in the Offerings) acquired approximately a 4.8% equity interest in Investor LP. See "Security Ownership of Certain Beneficial Owners and Management" (Item 12). CapCo I, a wholly owned subsidiary of the Operating Company, and CapCo II, a wholly owned subsidiary of Holdings, were incorporated in Delaware in January 1998. The sole purpose of CapCo I is to act as co- obligor of the Senior Subordinated Notes and as co-borrower under the New Credit Agreement. The sole purpose of CapCo II is to act as co-obligor of the Senior Discount Notes and as co-guarantor with Holdings under the New Credit Agreement. CapCo I and CapCo II have only nominal assets, do not conduct any operations and did not receive any proceeds of the Offerings. Accordingly, investors in the Notes must rely on the cash flow and assets of the Operating Company or the cash flow and assets of Holdings, as the case may be, for payment of the Notes. Pursuant to the Recapitalization Agreement, the Graham Partners have agreed that neither they nor their affiliates will, subject to certain exceptions, for a period of five years from and after the Closing, engage in the manufacture, assembly, design, distribution or marketing for sale of rigid plastic containers for the packaging of consumer products less than ten liters in volume. The Recapitalization Agreement contains various representations, warranties, covenants and conditions. The representations and warranties generally did not survive the Closing. The Graham Partners have agreed to indemnify Holdings in respect of any claims by Management with respect to the adequacy of the Management awards and, subject to a limit of $12.5 million on payments by the Graham Partners, 50% of certain specified environmental costs in excess of $5.0 million. Pursuant to the Recapitalization Agreement, upon the Closing, Holdings entered into the Equipment Sales Agreement, the Consulting Agreement and Partners Registration Rights Agreement (each as defined) described under "Certain Relationships and Related Transactions" (Item 13). SUMMARY OF SOURCES AND USES OF FUNDS The following table sets forth a summary of the sources and uses of the funds associated with the Recapitalization. AMOUNT (In Millions) SOURCE OF FUNDS: Bank Borrowings . . . . . . . . . . . . . . . . . . . . . . $403.5 Senior Subordinated Notes(1) . . . . . . . . . . . . . . . 225.0 Senior Discount Notes . . . . . . . . . . . . . . . . . . . 100.6 Equity investments and retained equity(2) . . . . . . . . . 245.0 Repayment of Promissory notes . . . . . . . . . . . . . . . 21.2 Available cash . . . . . . . . . . . . . . . . . . . . . . 1.7 ------ $997.0 Total . . . . . . . . . . . . . . . . . . . . . . . . ====== USES OF FUNDS: Repayment of existing indebtedness(3) . . . . . . . . . . . $264.9 Redemption by Holdings of existing partnership interests . 429.6 Purchase by Equity Investors of existing partnership interests . . . . . . . . . . . . . . . . . . . . . . . . . 208.3 Partnership interests retained by Continuing Graham Partners . . . . . . . . . . . . . . . . . . . . . . . . . 36.7 Payments to Management . . . . . . . . . . . . . . . . . . 15.4 Transaction costs and expenses . . . . . . . . . . . . . . 42.1 ------ $997.0 Total . . . . . . . . . . . . . . . . . . . . . . . . ====== (1) Included $150.0 million of Fixed Rate Senior Subordinated Old Notes and $75.0 million of Floating Rate Senior Subordinated Old Notes. (2) Included a $208.3 million equity investment made by Blackstone and Management in the Equity Investors and a $36.7 million retained partnership interest of the Continuing Graham Partners. In addition, an affiliate of BT Alex. Brown Incorporated and Bankers Trust International PLC, two of the Initial Purchasers, acquired approximately a 4.8% equity interest in Investor LP. See "Security Ownership of Certain Beneficial Owners and Management" (Item 12). (3) Included $264.5 million of existing indebtedness and $0.4 million of accrued interest. Employees As of December 31, 1998, the Company had approximately 3650 employees, 2000 of which were located in the United States. Approximately 75% of the Company's employees are hourly wage employees, 50% of whom are members of various labor unions and are covered by collective bargaining agreements that expire between April 1999 and March 2004. During the past three years, the Company's subsidiary in France, Graham Packaging France, has experienced on several occasions labor stoppages, none of which exceeded one day in duration. Management believes that it enjoys good relations with the Company's employees. Environmental Matters The Company and its operations, both in the U.S. and abroad, are subject to national, state, provincial and/or local laws and regulations that impose limitations and prohibitions on the discharge and emission of, and establish standards for the use, disposal, and management of, certain materials and waste, and impose liability for the costs of investigating and cleaning up, and certain damages resulting from, present and past spills, disposals, or other releases of hazardous substances or materials (collectively, "Environmental Laws"). Environmental Laws can be complex and may change often, capital and operating expenses to comply can be significant, and violations may result in substantial fines and penalties. In addition, Environmental Laws such as the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA" also known as "Superfund"), in the United States, impose liability on several grounds for the investigation and cleanup of contaminated soil, groundwater, and buildings, and for damages to natural resources, at a wide range of properties: for example, contamination at properties formerly owned or operated by the Company as well as at properties the Company currently owns or operates, and properties to which hazardous substances were sent by the Company, may result in liability for the Company under Environmental Laws. The Company is not aware of any material noncompliance with the Environmental Laws currently applicable to it and is not the subject of any material claim for liability with respect to contamination at any location. For its operations to comply with Environmental Laws, the Company has incurred and will continue to incur costs, which were not material in fiscal 1998 and are not expected to be material in the future. A number of governmental authorities both in the U.S. and abroad have considered or are expected to consider legislation aimed at reducing the amount of plastic wastes disposed of. Such programs have included, for example, mandating certain rates of recycling and/or the use of recycled materials, imposing deposits or taxes on plastic packaging material, and/or requiring retailers or manufacturers to take back packaging used for their products. Such legislation, as well as voluntary initiatives similarly aimed at reducing the level of plastic wastes, could reduce the demand for certain plastic packaging, result in greater costs for plastic packaging manufacturers, or otherwise impact the Company's business. Some consumer products companies (including certain customers of the Company) have responded to these governmental initiatives and to perceived environmental concerns of consumers by, for example, using bottles made in whole or in part of recycled plastic. The Company operates one of the largest HDPE recycling plants in North America and more than 60% of its North American HDPE units produced contain recycled HDPE bottles. To date these initiatives and developments have not materially and adversely affected the Company. Intellectual Property The Company holds various patents and trademarks. While in the aggregate its patents are of material importance to its business, the Company believes that its business is not dependent upon any one of such patents or trademarks. The Company also relies on unpatented proprietary know-how and continuing technological innovation and other trade secrets to develop and maintain its competitive position. There can be no assurance, however, that others will not obtain knowledge of such proprietary know-how through independent development or other access by legal means. In addition to its own patents and proprietary know-how, the Company is a party to certain licensing arrangements and other agreements authorizing the Company to use certain other proprietary processes, know- how and related technology and/or to operate within the scope of certain patents owned by other entities. The Company also has licensed or sub- licensed certain intellectual property rights to third parties. Certain Risks of the Business Substantial Leverage. Upon the consummation of the Recapitalization, the Operating Company and Holdings became highly leveraged. The New Credit Agreement, as amended by the Amendment (as defined below), includes four term loans to the Operating Company totaling up to $570.0 million, a $155.0 million Revolving Credit Facility, and a $100.0 million Growth Capital Revolving Credit Facility. The Indentures (as defined) permit the Issuers to incur additional indebtedness, subject to certain limitations. The annual debt service requirements for the Company and Holdings are as follows: 1999--$11.9 million; 2000--$15.2 million; 2001--$20.2 million; 2002--$25.8 million; and 2003 $28.9 million. The Company can incur $75 million in additional indebtedness beyond the amount of the New Credit Agreement. The Company does not anticipate that this additional indebtedness would be expressly subordinated to other indebtedness. Accordingly, if incurred at the Operating Company level, such additional indebtedness would be senior to the Operating Company's Senior Subordinated Notes, and the Senior Discount Notes of Holdings would be structurally subordinated to such additional indebtedness. The Issuers' high degree of leverage could have important consequences to the holders of the Notes, including, but not limited to, the following: (i) the Issuers' ability to obtain additional financing for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes may be impaired in the future; (ii) a substantial portion of the Issuers' cash flow from operations must be dedicated to the payment of principal and interest on their indebtedness, thereby reducing the funds available to the Issuers for other purposes, including capital expenditures necessary for maintenance of the Company's facilities and for the growth of its businesses; (iii) certain of the Issuers' borrowings are and will continue to be at variable rates of interest, which exposes the Issuers to the risk of increased interest rates; (iv) the indebtedness outstanding under the New Credit Agreement is secured and matures prior to the maturity of the Notes; (v) the Issuers may be substantially more leveraged than certain of their competitors, which may place the Issuers at a competitive disadvantage; and (vi) the Issuers' substantial degree of leverage, as well as the covenants contained in the Indentures and the New Credit Agreement, may hinder their ability to adjust rapidly to changing market conditions and could make them more vulnerable in the event of a downturn in general economic conditions or in their business. Ability to Service Debt. The Issuers' ability to make scheduled payments or to refinance their obligations with respect to their indebtedness will depend on their financial and operating performance, which, in turn, is subject to prevailing economic conditions and to certain financial, business and other factors beyond their control. If the Issuers' cash flow and capital resources are insufficient to fund their respective debt service obligations, they may be forced to reduce or delay planned expansion and capital expenditures, sell assets, obtain additional equity capital or restructure their debt. There can be no assurance that the Issuers' operating results, cash flow and capital resources will be sufficient for payment of their indebtedness. In the absence of such operating results and resources, the Issuers could face substantial liquidity problems and might be required to dispose of material assets or operations to meet their respective debt service and other obligations, and there can be no assurance as to the timing of such sales or the proceeds which the Issuers could realize therefrom. In addition, because the Operating Company's obligations under the New Credit Agreement will bear interest at floating rates, an increase in interest rates could adversely affect, among other things, the Operating Company's ability to meet its debt service obligations. In the future, the Operating Company will be required to make the following scheduled principal payments on the Term Loans under the New Credit Agreement: 1999--$5.0 million; 2000--$15.0 million; 2001--$20.0 million; 2002--$25.0 million; 2003--$27.5 million; 2004--$93.0 million; 2005--$64.9 million; 2006--$242.7 million; and 2007--$74.0 million. The Term Loan Facilities under the New Credit Agreement shall be prepaid, subject to certain conditions and exceptions, with (i) 100% of the net proceeds of any incurrence of indebtedness, subject to certain exceptions, by Holdings or its subsidiaries, (ii) 75% of the net proceeds of issuances of equity, subject to certain exceptions, after the Closing by Holdings or any of its subsidiaries, (iii) 100% of the net proceeds of certain asset dispositions, (iv) 50% of the annual excess cash flow (as such term is defined in the New Credit Agreement) of Holdings and its subsidiaries on a consolidated basis and (v) 100% of the net proceeds from any condemnation and insurance recovery events, subject to certain reinvestment rights. Outstanding balances under the Revolving Credit Facility and Growth Capital Revolving Credit Facility are payable in 2004. Additionally, if the Issuers were to sustain a decline in their operating results or available cash, they could experience difficulty in complying with the covenants contained in the New Credit Agreement, the Indentures or any other agreements governing future indebtedness. The failure to comply with such covenants could result in an event of default under these agreements, thereby permitting acceleration of such indebtedness as well as indebtedness under other instruments that contain cross-acceleration and cross-default provisions. Subordination of Senior Subordinated Notes and Holdings Guarantee. The Senior Subordinated Notes are unsecured obligations of the Company Issuers that are subordinated in right of payment to all Senior Indebtedness of the Company Issuers, including all indebtedness under the New Credit Agreement. The Indentures and the New Credit Agreement will permit the Operating Company to incur additional Senior Indebtedness, provided that certain conditions are met, and the Operating Company expects from time to time to incur additional Senior Indebtedness. In the event of the insolvency, liquidation, reorganization, dissolution or other winding up of the Company Issuers or upon a default in payment with respect to, or the acceleration of, or if a judicial proceeding is pending with respect to any default under, any Senior Indebtedness, the lenders under the New Credit Agreement and any other creditors who are holders of Senior Indebtedness must be paid in full before a holder of the Senior Subordinated Notes may be paid. Accordingly, there may be insufficient assets remaining after such payments to pay principal or interest on the Senior Subordinated Notes. In addition, under certain circumstances, no payments may be made with respect to the principal of or interest on the Senior Subordinated Notes if a default exists with respect to certain Senior Indebtedness. CapCo I, a wholly owned subsidiary of the Operating Company, was formed solely for the purpose of serving as a co-issuer of the Senior Subordinated Notes and has no operations or assets from which it will be able to repay the Senior Subordinated Notes. Accordingly, the Company Issuers must rely entirely upon the cash flow and assets of the Operating Company to generate the funds necessary to meet their obligations, including the payment of principal and interest on the Senior Subordinated Notes. The Senior Subordinated Notes are fully and unconditionally guaranteed by Holdings on a senior subordinated basis. The Holdings Guarantee is subordinated to all senior indebtedness of Holdings and effectively subordinated to all indebtedness and other liabilities (including but not limited to trade payables) of Holdings' subsidiaries. Because the Holdings Guarantee will be subordinated in right of payment to all senior indebtedness of Holdings and effectively subordinated to all indebtedness and other liabilities (including trade payables) of Holdings' subsidiaries (including the Operating Company), investors should not rely on the Holdings Guarantee in evaluating an investment in the Senior Subordinated Exchange Notes. Restrictive Debt Covenants. The New Credit Agreement and the Indentures contain a number of significant covenants that, among other things, restrict the ability of the Issuers to dispose of assets, repay other indebtedness, incur additional indebtedness, pay dividends, prepay subordinated indebtedness (including, in the case of the New Credit Agreement, the Notes), incur liens, make capital expenditures and make certain investments or acquisitions, engage in mergers or consolidations, engage in certain transactions with affiliates and otherwise restrict the activities of the Issuers. In addition, under the New Credit Agreement, the Operating Company is required to satisfy specified financial ratios and tests. The ability of the Operating Company to comply with such provisions may be affected by events beyond the Operating Company's control, and there can be no assurance that the Operating Company will meet those tests. The breach of any of these covenants could result in a default under the New Credit Agreement. In the event of any such default, depending upon the actions taken by the lenders, the Issuers could be prohibited from making any payments of principal or interest on the Notes. In addition, the lenders could elect to declare all amounts borrowed under the New Credit Agreement, together with accrued interest, to be due and payable and could proceed against the collateral securing such indebtedness. If the Senior Indebtedness were to be accelerated, there can be no assurance that the assets of the Operating Company would be sufficient to repay in full that indebtedness and the other indebtedness of the Operating Company. Risks Associated with International Operations. The Company has significant operations outside the United States in the form of wholly owned subsidiaries, cooperative joint ventures and other arrangements. The Company has 21 plants located in countries outside the United States, including Canada (4), Brazil (5), France (5), Germany (1), Hungary (1), Italy (2), Poland (1), Turkey (1) and the United Kingdom (1). As a result, the Company is subject to risks associated with operating in foreign countries, including fluctuations in currency exchange rates (recently in Brazil in particular), imposition of limitations on conversion of foreign currencies into dollars or remittance of dividends and other payments by foreign subsidiaries, imposition or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries, labor relations problems, hyperinflation in certain foreign countries and imposition or increase of investment and other restrictions by foreign governments or the imposition of environmental or employment laws. In addition, the Company's operations in France have undergone extensive restructuring over the past three years and have been less profitable than its other businesses. To date, the above factors in Europe, North America and Latin America have not had a material impact on the Company's operations, but no assurance can be given that such risks will not have a material adverse effect on the Company in the future. Exposure to Fluctuations in Resin Prices and Dependence on Resin Supplies. The Company uses large quantities of HDPE and PET resins in manufacturing its products. While the Company historically has been able to pass through changes in the cost of resins to its customers due to contractual provisions and standard industry practice, the Company may not be able to do so in the future and significant increases in the price of resin could adversely affect the Company's operating margins and growth plans. Furthermore, a significant increase in resin prices could slow the pace of conversions from paper, glass and metal containers to plastic containers to the extent that such costs are passed on to the consumer. Dependence on Significant Customer. The Company's largest customer (Unilever) accounted for approximately 12% of the Company's net sales for the twelve months ended December 31, 1998. The termination by such customer of its relationship with the Company could have a material adverse effect upon the Company's business, financial position or results of operations. The Company's existing customers' purchase orders and contracts typically vary from one to ten years. Prices under these arrangements are tied to market standards and therefore vary with market conditions. The contracts generally are requirements contracts which do not obligate the customer to purchase any given amount of product from the Company. Accordingly, notwithstanding the existence of certain supply contracts, the Company faces the risk that customers will not purchase the amounts expected by the Company pursuant to such supply contracts. Dependence on Key Personnel. The success of the Company depends to a large extent on a number of key employees, and the loss of the services provided by them could have a material adverse effect on the Company. In particular, the loss of the services provided by G. Robinson Beeson, Scott G. Booth, John E. Hamilton, Philippe LeJeune, Geoffrey R. Lu, Roger M. Prevot, George W. Stevens and Philip R. Yates, among others, could have a material adverse effect on the Company. The Company does not maintain "key" person insurance on any of its employees. Relationship with Graham Affiliates. The relationship of the Company with Graham Engineering and Graham Capital Corporation ("Graham Capital"), or their successors or assigns, is material to the business of the Company. To date, certain affiliates of the Graham Partners have provided important equipment, technology and services to Holdings and its subsidiaries. Upon the Recapitalization, Holdings entered into the Equipment Sales Agreement (as defined) with Graham Engineering, pursuant to which Graham Engineering will provide the Company with the Graham Wheel and related technical support, and the Consulting Agreement (as defined) with Graham Capital, pursuant to which Graham Capital will provide the Company with certain consulting services. The obligations of Holdings to make payments to the Graham affiliates under the Equipment Sales Agreement and the Consulting Agreement would be unsubordinated obligations of Holdings. Accordingly, such obligations would be pari passu with the Senior Discount Notes and would be structurally subordinated to the Senior Subordinated Notes. If any such agreements were terminated prior to their scheduled terms or if the relevant Graham affiliate fails to comply with any such agreement, the business, financial condition and results of operations of the Company could be materially and adversely affected. Fraudulent Conveyance. In connection with the Recapitalization, the Operating Company made a distribution to Holdings of $313.7 million of the net proceeds of the Senior Subordinated Offering and the Bank Borrowings, and Holdings redeemed certain partnership interests held by the Graham Partners for $429.6 million (without giving effect to payment by the Graham Partners of $21.2 million owed to Holdings under certain promissory notes). If a court in a lawsuit brought by an unpaid creditor of one of the Issuers or a representative of such creditor, such as a trustee in bankruptcy, or one of the Issuers as a debtor-in-possession, were to find under relevant federal and state fraudulent conveyance statutes that such Issuer had (a) actual intent to defraud or (b) did not receive fair consideration or reasonably equivalent value for the distribution from the Operating Company to Holdings or for incurring the debt, including the Notes, in connection with the financing of the Recapitalization, and that, at the time of such incurrence, such Issuer (i) was insolvent, (ii) was rendered insolvent by reason of such incurrence, (iii) was engaged in a business or transaction for which the assets remaining with such Issuer constituted unreasonably small capital or (iv) intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they matured, such court could void such Issuer's obligations under the Notes, subordinate the Notes to other indebtedness of such Issuer or take other action detrimental to the holders of the Notes. The measure of insolvency for these purposes varies depending upon the law of the jurisdiction being applied. Generally, however, a company would be considered insolvent for these purposes if the sum of the company's debts (including contingent debts) were greater than the fair saleable value of all the company's property, or if the present fair saleable value of the company's assets were less than the amount that would be required to pay its probable liability on its existing debts as they become absolute and matured. Moreover, regardless of solvency or the adequacy of consideration, a court could void an Issuer's obligations under the Notes, subordinate the Notes to other indebtedness of such Issuer or take other action detrimental to the holders of the Notes if such court determined that the incurrence of debt, including the Notes, was made with the actual intent to hinder, delay or defraud creditors. The Issuers believe that the indebtedness represented by the Notes was incurred for proper purposes and in good faith without any intent to hinder, delay or defraud creditors, that the Issuers received reasonably equivalent value or fair consideration for incurring such indebtedness, that the Issuers were prior to the issuance of the Notes and, after giving effect to the issuance of the Notes and the use of proceeds in connection with the Recapitalization, continued to be, solvent under the applicable standards (notwithstanding the negative net worth and insufficiency of earnings to cover fixed charges for accounting purposes that will result from the Recapitalization) and that the Issuers have and will have sufficient capital for carrying on their businesses and are and will be able to pay their debts as they mature. There can be no assurance, however, as to what standard a court would apply in order to evaluate the parties' intent or to determine whether the Issuers were insolvent at the time, or rendered insolvent upon consummation, of the Recapitalization or the sale of the Notes or that, regardless of the method of valuation, a court would not determine that an Issuer was insolvent at the time, or rendered insolvent upon consummation, of the Recapitalization. In rendering their opinions in connection with the Offerings, counsel for the Issuers and counsel for the Initial Purchasers did not express any opinion as to the applicability of federal or state fraudulent conveyance laws. Control by Blackstone. Since the consummation of the Recapitalization, Blackstone has indirectly controlled approximately 80% of the general partnership interests in Holdings. Pursuant to the Holdings Partnership Agreement (as defined), holders of a majority of the general partnership interests generally have the sole power, subject to certain exceptions, to take actions on behalf of Holdings, including the appointment of management and the entering into of mergers, sales of substantially all assets and other extraordinary transactions. There can be no assurance that the interests of Blackstone will not conflict with the interests of holders of the Notes. Risks Associated with Possible Future Acquisitions. The Company's future growth may be a function, in part, of acquisitions of other consumer goods packaging businesses. To finance such acquisitions, the Operating Company or Holdings would likely incur additional indebtedness, as permitted under the New Credit Agreement and the Indentures. To the extent that it grows through acquisition, the Company will face the operational and financial risks commonly encountered with such a strategy. The Company would face certain operational risks, including but not limited to failing to assimilate the operations and personnel of the acquired businesses, disrupting the Company's ongoing business, dissipating the Company's limited management resources and impairing relationships with employees and customers of the acquired business as a result of changes in ownership and management. Customer satisfaction or performance problems at a single acquired firm could have a materially adverse impact on the reputation of the Company as a whole. Depending on the size of the acquisition, it can take up to two to three years to completely integrate an acquired business into the acquiring company's operations and systems and realize the full benefit of the integration. Moreover, during the early part of this integration period, the operating results of the acquiring business may decrease from results attained prior to the acquisition. The Company would also face certain financial risks associated with the incurring of additional indebtedness to make the acquisition, such as reducing its liquidity, access to capital markets and financial stability. Item 2. Properties The Company currently owns or leases 51 plants located in the United States, Canada, Brazil, France, Germany, Hungary, Italy, Poland, Turkey and the United Kingdom, not including the Lido Plast-Graham joint venture facilities which are wholly owned and operated by its joint venture partner. Twenty of the Company's packaging plants are located on- site at customer plants. The Company's operation in Poland is pursuant to a joint venture arrangement where the Company owns a 50% interest. Currently, the Company's corporate headquarters are in multiple facilities located in York, Pennsylvania, totaling approximately 45,000 square feet. In early 1999, the Company will be consolidating and relocating its headquarters to a 58,000 square foot facility located in York, Pennsylvania. The Company believes that its plants, which are of varying ages and types of construction, are in good condition, are suitable for the Company's operations and generally provide sufficient capacity to meet the Company's requirements for the foreseeable future. The following table sets forth the location of the Company's plants and administrative facilities, whether on-site or off-site, whether leased or owned, and their approximate current square footage. On Site Size Location Or Off Site Leased/Owned (Sq. ft.) ----------- ------------ ------- U.S. Packaging Facilities 1. York, Pennsylvania* Off Site Owned 395,554 2. York, Pennsylvania Off Site Leased 110,270 York, Pennsylvania (a) N/A Leased 45,000 3. Maryland Heights, Missouri Off Site Owned 308,961 4. Atlanta, Georgia On Site Leased 165,000 5. Atlanta, Georgia Off Site Leased 112,400 6. Emigsville, Pennsylvania Off Site Leased 148,300 7. Levittown, Pennsylvania Off Site Leased 148,000 8. Rancho Cucamonga, Off Site Leased 143,063 California 9. Santa Ana, California Off Site Owned 127,680 10. Muskogee, Oklahoma Off Site Leased 125,000 11. Woodridge, Illinois Off Site Leased 124,137 12. Cincinnati, Ohio Off Site Leased 103,119 13. Berkeley, Missouri * Off Site Owned 75,000 14. Selah, Washington On Site Owned 70,000 15. Cambridge, Ohio On Site Leased 57,000 16. Shreveport, Louisiana On Site Leased 56,400 17. Whiting, Indiana (e) On Site Leased 56,000 18. Richmond, California Off Site Leased 54,985 19. Houston, Texas Off Site Owned 52,500 20. New Kensington, On Site Leased 48,000 Pennsylvania 21. Bradford, Pennsylvania Off Site Leased 44,000 22. Port Allen, Louisiana On Site Leased 44,000 23. N. Charleston, South On Site Leased 40,000 Carolina 24. Jefferson, Louisiana On Site Leased 37,000 25. Vicksburg, Mississippi On Site Leased 31,200 26. Bordentown, New Jersey On Site Leased 30,000 27. Tulsa, Oklahoma On Site Leased 28,500 28. Wapato, Washington Off Site Leased 20,300 29. Bradenton, Florida On Site Leased 12,191 Canadian Packaging Facilities 30. Burlington, Ontario, Off Site Owned 145,200 Canada * Burlington, Ontario, N/A Owned 4,800 Canada (a) * 31. Mississauga, Ontario, Off Site Owned 78,416 Canada * 32. Anjou, Quebec, Canada * Off Site Owned 44,875 33. Toronto, Ontario, Canada On Site N/A 5,000 European Packaging Facilities 34. Asnieres, France (f) On Site Leased 15,000 35. Assevent, France Off Site Owned 186,470 36. Bad Bevensen, Germany Off Site Owned 80,000 37. Blyes, France Off Site Owned 89,000 38. Campochiaro, Italy Off Site Owned 93,200 39. Istanbul, Turkey Off Site Owned 50,000 40. Meaux, France Off Site Owned 80,000 41. Noeux-les-Mines, France Off Site Owned 120,000 42. Nyirbator, Hungary On Site Leased 5,000 Rueil, Paris, France(a) Off Site Leased 4,300 43. Sovico (Milan), Italy Off Site Leased 74,500 44. Sulejowek, Poland (b) Off Site Owned 83,700 45. Wrexham UK Off Site Owned 120,000 Latin American Packaging Facilities 46. Sao Paulo, Brazil Off Site Leased 23,440 47. Rio de Janeiro, Brazil On Site Owned/Leased (c) 20,000 Rio de Janeiro, Brazil (a) N/A Leased 1,650 48. Santos, Brazil On Site Leased 5,400 49. Rio de Janeiro, Brazil On Site N/A 10,000 50. Rio de Janeiro, Brazil On Site Leased 16,685 Graham Recycling 51. York, Pennsylvania * Off Site Owned 44,416 Graham Affiliated Packaging Facilities (Lido Plast-Graham--Joint Venture) (d) 52. Buenos Aires, Argentina Off Site N/A N/A 53. San Luis, Argentina Off Site N/A N/A (a) This indicates an administrative facility. (b) This facility is owned by the Masko-Graham Joint Venture, in which the Company holds a 50% interest. (c) The building is owned; land is leased. (d) The Lido Plast-Graham facilities are owned and operated by the Company's joint venture partner, Lido Plast, in which the Company does not own any interest. See "--Foreign Operations" (Item 1) (e) Facility closed at the end of February 1999. (f) Facility to close at the end of March 1999. * Contributed to the Operating Company as part of the Graham Contribution. With respect to the Berkeley, Missouri facility (Location 13 in the table above), a manufacturing plant, warehouse and parcel of land, the latter two of which are not listed in the table above, were contributed to the Operating Company as part of the Graham Contribution. Item 3. Legal Proceedings The Company is party to various litigation matters arising in the ordinary course of business. The ultimate legal and financial liability of the Company with respect to such litigation cannot be estimated with certainty, but Management believes, based on its examination of such matters, experience to date and discussions with counsel, that such ultimate liability will not be material to the business, financial condition or results of operations of the Company. Holdings was sued in May 1995 for alleged patent infringement, trade secret misappropriation and other related state law claims by Hoover Universal, Inc., a subsidiary of Johnson Controls, Inc. ("JCI"), in the U.S. District Court for the Central District of California, Case No. CV- 95-3331 RAP (BQRx). JCI alleged that the Company was misappropriating or threatened to misappropriate trade secrets allegedly owned by JCI relating to the manufacture of hot-fill PET plastic containers through the hiring of JCI employees, and alleged that the Company infringed two patents owned by JCI by manufacturing hot-fill PET plastic containers for several of its largest customers using a certain "pinch grip" structural design. In December 1995, JCI filed a second lawsuit alleging infringement of two additional patents, which relate to a ring and base structure for hot-fill PET plastic containers. The two suits were consolidated for all purposes. The Company answered the complaints, denying infringement and misappropriation in all respects and asserting various defenses, including invalidity and unenforceability of the patents at issue based upon inequitable conduct on the part of JCI in prosecuting the relevant patent applications before the U.S. Patent Office and anticompetitive patent misuse by JCI. The Company also asserted counterclaims against JCI alleging violations of federal antitrust law, based upon certain agreements regarding market division allegedly entered into by JCI with another competitor and other alleged conduct engaged in by JCI allegedly intended to raise prices and limit competition. In March 1997, JCI's plastic container business was acquired by Schmalbach-Lubeca Plastic Containers USA Inc. ("Schmalbach-Lubeca"). Schmalbach-Lubeca and certain affiliates were joined as successors to JCI and as counter-claim defendants. On March 10, 1998, the U.S. District Court in California entered summary judgment in favor of JCI and against the Company regarding infringement of two patents, but did not resolve certain issues related to the patents including certain of the Company's defenses. On March 6, 1998, the Company also filed suit against Schmalbach-Lubeca in Federal Court in Delaware for infringement of the Company's patent concerning pinch grip bottle design. On April 24, 1998, the parties to the litigation reached an understanding on the terms of a settlement of all claims in all of the litigation with JCI and Schmalbach-Lubeca, subject to agreement upon and execution of a formal settlement agreement. In June 1998, the Company finalized the settlement of the JCI-Schmalbach-Lubeca litigation. The amounts paid in settlement, as well as estimated litigation expenses and professional fees did not differ materially from the amounts accrued in Special Charges and Unusual Items in respect thereof for the year ended December 31, 1997. The cash paid in settlement was funded by drawdowns under the New Credit Agreement. See Note 18 to the Financial Statements (Item 8). Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of security holders during the fourth quarter of 1998. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Because Holdings is a limited partnership, equity interests in Holdings take the form of general and limited partnership interests. There is no established public trading market for any of the general or limited partnership interests in Holdings. There are two owners of general partner interests in Holdings: Investor GP and Graham Packaging Corporation. The limited partnership interests in Holdings are owned by Investor LP and two Graham family entities. See Item 12, "Security Ownership of Certain Beneficial Owners and Management." Opco GP is the sole owner of a general partnership interest in the Operating Company, and Holdings is the sole owner of a limited partnership interest in the Operating Company. The Operating Company owns all of the outstanding capital stock of CapCo I. Holdings owns all of the outstanding capital stock of CapCo II. Holdings has made distributions to its partners totaling the amounts set forth in the Statements of Partners' Capital/Owners' Equity (Deficit) included in Item 8 of this Report, during the periods indicated therein. Under the New Credit Agreement, the Operating Company is subject to restrictions on the payment of dividends and other distributions to Holdings, as described in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations -Liquidity and Capital Resources." As indicated under Item 1, "Business---The Recapitalization", upon the Closing of the Recapitalization, (i) certain limited and general partnership interests in Holdings held by the Graham Partners were redeemed by Holdings for $429.6 million, and (ii) certain limited and general partnership interests in Holdings held by the Graham Partners were purchased by the Equity Investors for $208.3 million. As indicated under Item 1, "Business---The Recapitalization", upon the Closing of the Recapitalization on February 2, 1998, the Company Issuers consummated an offering pursuant to Rule 144A under the Securities Act of their Senior Subordinated Notes Due 2008, consisting of $150,000,000 aggregate principal amount of their Fixed Rate Senior Subordinated Old Notes and $75,000,000 aggregate principal amount of their Floating Rate Senior Subordinated Old Notes. On February 2, 1998, as part of the Recapitalization, the Holdings Issuers also consummated an offering pursuant to Rule 144A under the Securities Act of $169,000,000 aggregate principal amount at maturity of their Senior Discount Old Notes. Pursuant to the Purchase Agreement dated January 23, 1998 (the "Purchase Agreement"), the Initial Purchasers, BT Alex. Brown Incorporated, Bankers Trust International PLC, Lazard Freres & Co. LLC and Salomon Brothers Inc, purchased the Senior Subordinated Old Notes at a price of 97.0% of the principal amount, for a discount of 3% from the initial offering price of 100% or a total discount of $6,750,000. Pursuant to the Purchase Agreement, the Initial Purchasers purchased the Senior Discount Old Notes at a price of 57.173% of the principal amount for a discount of 2.361% from the initial offering price of 59.534% or a total discount of $3,990,090. Pursuant to the Purchase Agreement, the Issuers also reimbursed the Initial Purchasers for certain expenses. Pursuant to the Senior Subordinated Exchange Offers, on September 8, 1998, the Company Issuers exchanged $150,000,000 aggregate principal amount of their Fixed Rate Senior Subordinated Exchange Notes and $75,000,000 aggregate principal amount of their Floating Rate Senior Subordinated Exchange Notes for equal principal amounts of Fixed Rate Senior Subordinated Old Notes and Floating Rate Senior Subordinated Old Notes, respectively. Pursuant to the Senior Discount Exchange Offer, on September 8, 1998, the Holdings Issuers exchanged $169,000,000 aggregate principal amount at maturity of their Senior Discount Exchange Notes for an equal principal amount of Senior Discount Old Notes. The Senior Subordinated Old Notes were, and the Senior Subordinated Exchange Notes are, fully and unconditionally guaranteed by Holdings on a senior subordinated basis. Item 6. Selected Financial Data The following table sets forth certain selected historical financial data for the Company for and at the end of each of the years in the five-year period ended December 31, 1998. The selected historical financial data for each of the four years in the period ended December 31, 1997 are derived from the Graham Packaging Group's combined financial statements. The selected historical financial data for the year ended December 31, 1998 are derived from the Operating Company's financial statements. The combined financial statements as of December 31, 1995, 1996 and 1997 and for each of the four years in the period ended December 31, 1997 have been audited by Ernst & Young LLP, independent auditors. The consolidated financial statements as of, and for the year ended, December 31, 1998 have been audited by Deloitte & Touche LLP, independent auditors. The combined financial statements of Graham Packaging Group (as defined in Note 1 to the Financial Statements (Item 8)) have been prepared for periods prior to the Recapitalization to include Holdings and its subsidiaries and the ownership interests and real estate constituting the Graham Contribution (as defined) for all periods that the operations were under common control. The selected historical financial data as of December 31, 1994, were derived from the unaudited combined financial statements of Graham Packaging Group which, in the opinion of Management, include all adjustments (consisting only of usual recurring adjustments) necessary for a fair presentation of such data. The following table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" (Item 7) and the combined financial statements of Graham Packaging Group, including the related notes thereto, and the consolidated financial statements of the Operating Company, including the related notes thereto, included under Item 8.
Year Ended December 31, ----------------------- 1994 (13)(14) 1995 (2) 1996 1997(3) 1998(3) ------------- -------- ---- -------- ------- (In millions) INCOME STATEMENT DATA Net Sales (4) $ 396.0 $ 466.8 $ 459.7 $ 521.7 $ 588.1 Gross Margin (4) 69.5 66.8 77.2 84.4 117.4 Selling, general and administrative expenses 29.7 35.5 35.5 34.9 37.8 Special charges and unusual items (5) -- 5.9 7.0 24.4 24.2 Operating income 39.8 25.4 34.7 25.1 55.4 Interest expense, net 12.5 16.2 14.5 13.4 57.4 Other expense (income), net (0.2) (11.0) (1.0) 0.7 (0.1) Recapitalization expenses (1) -- -- -- -- 10.8 Income tax expense (benefit) (6) (0.3) (0.3) -- 0.6 1.1 Minority interest -- -- -- 0.2 -- Extraordinary loss (7) -- 1.8 -- -- 0.7 Net income (loss) $ 27.8 $ 18.7 $ 21.2 $ 10.2 $ (14.5) ======== ======== ======== ======== ======== OTHER DATA: Cash flows provided by (used in): Operating activities $ 74.6 $ 60.5 $ 68.0 $ 66.9 $ 35.8 Investing activities (53.0) (68.4) (32.8) (72.3) (181.2) Financing activities (26.2) 9.2 (34.6) 9.5 145.6 Adjusted EBITDA (8) 81.3 77.1 90.6 89.8 119.7 Capital expenditures 53.8 68.6 31.3 53.2 133.9 Investments (9) -- 3.2 1.2 19.0 45.2 Depreciation and amortization (10) 41.3 45.7 48.2 41.0 39.3 Ratio of earnings to fixed charges (11) 2.7x 2.0x 2.2x 1.6x -- BALANCE SHEET DATA: Working capital (as defined) (12) $ 16.6 $ 18.0 $ 17.0 $ 2.4 $ 1.5 Total assets 332.5 360.7 338.8 385.5 598.7 Total debt 233.3 257.4 240.5 268.5 764.7 Partners' capital/owners' equity (deficit) 15.6 15.3 16.8 0.3 (326.2) (1) See "Management Discussion and Analysis of Financial Condition and Results of Operations" (Item 7) and the Financial Statements, including the related notes thereto (Item 8). (2) In July 1995, Graham Packaging Group acquired an additional interest in its UK Operations and subsequently sold its interests for $5.6 million, recognizing a gain of $4.4 million. In addition, Graham Packaging Group entered into an agreement with the purchaser of its UK Operations and recorded $6.4 million of non-recurring technical support services income. Both the gain and the technical support services income are included in other expense (income), net. (3) In April 1997, Graham Packaging Group acquired 80% of certain assets and assumed 80% of certain liabilities of Rheem-Graham Embalagens Ltda. for $20.3 million (excluding direct costs of the acquisition). The remaining 20% was purchased in February 1998. In July 1998, Graham Packaging Group acquired selected plastic bottle manufacturing operations of Crown, Cork & Seal located in France, Germany, the United Kingdom and Turkey for $41.0 million (excluding direct costs of the acquisition), net of liabilities assumed, subject to certain adjustments. These transactions were accounted for under the purchase method of accounting. Results of operations are included since the dates of acquisitions. (4) Net sales increase or decrease based on fluctuations in resin prices as industry practice and the Company's agreements with its customers permit price changes to be passed through to customers by means of corresponding changes in product pricing. Therefore, the Company's dollar gross profit is substantially unaffected by changes in resin prices. (5) In 1997, represents certain legal, restructuring and systems conversion costs. In 1998, represents certain recapitalization compensation, restructuring, systems conversion, aborted acquisition and legal costs. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" (Item 7) and the Financial Statements of the Operating Company, including the related notes thereto (Item 8). (6) As limited partnerships, Holdings and the Operating Company are not subject to U.S. federal income taxes or most state income taxes. Instead, such taxes are assessed to Holdings' partners based on the income of Holdings. Holdings makes tax distributions to its partners to reimburse them for such tax liabilities. The Company's foreign operations are subject to tax in their local jurisdictions. Most of these entities have historically had net operating losses and recognized minimal tax expense. (7) Represents costs incurred (including the write-off of unamortized deferred financing fees) in connection with the early extinguishment of debt. (8) Adjusted EBITDA is not intended to represent cash flow from operations as defined by generally accepted accounting principles and should not be used as an alternative to net income as an indicator of operating performance or to cash flow as a measure of liquidity. "Adjusted EBITDA" is defined as earnings before minority interest, extraordinary items, interest expense, interest income, income taxes, depreciation and amortization expense, fees paid pursuant to the Monitoring Agreement, non-cash equity income in earnings of joint ventures, other non-cash charges, Recapitalization expenses and special charges and unusual items. Also in 1995, Adjusted EBITDA excludes the $4.4 million gain on the sale of the UK operations and the related $6.4 million technical support services income as described in note (2) above. Adjusted EBITDA is included in this Report to provide additional information with respect to the ability of Holdings and the Operating Company to satisfy their debt service, capital expenditure and working capital requirements and because certain covenants in Holdings' and the Operating Company's borrowing arrangements are tied to similar measures. While Adjusted EBITDA and similar variations thereof are frequently used as a measure of operations and the ability to meet debt service requirements, these terms are not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation. (9) Investments include the acquisitions made by Graham Packaging Group in Italy, Canada, France, the UK, Brazil, Germany and Turkey described in notes (2) and (3) above. In addition, in 1995, the Company paid $1.9 million for a 50% interest in the Masko-Graham Joint Venture in Poland and committed to make loans to the Joint Venture of up to $1.9 million. In 1996, the Company loaned $1.0 million to the Joint Venture. The Joint Venture is accounted for under the equity method of accounting, and its earnings are included in other expense (income), net. Amounts shown under this caption represent cash paid, net of cash acquired in the acquisitions. (10) Depreciation and amortization excludes amortization of deferred financing fees, which is included in interest expense, net. (11) For purposes of determining the ratio of earnings to fixed charges, earnings are defined as earnings before income taxes, minority interest and extraordinary items, plus fixed charges. Fixed charges include interest expense on all indebtedness, amortization of deferred financing fees, and one-third of rental expense on operating leases representing that portion of rental expense deemed to be attributable to interest. Earnings were insufficient to cover fixed charges by $12.7 million for the year ended December 31, 1998. (12) Working capital is defined as current assets (less cash and cash equivalents) minus current liabilities (less current maturities of long-term debt). (13) In 1994, the Company adopted the Last-In-First-Out (LIFO) method of accounting for certain inventories which had the effect of reducing net income by $1.7 million. (14) Balance sheet data at December 31, 1994 were derived from unaudited financial statements.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of the results of operations of the Company includes a discussion of periods before the consummation of the Recapitalization. The discussion and analysis of such periods does not reflect the significant impact that the Recapitalization has had on the Company. See "Business -The Recapitalization," and the section below under "--Liquidity and Capital Resources" for further discussion relating to the impact that the Recapitalization has had and may have on the Company. The following discussion should be read in conjunction with "Selected Financial Data" (Item 6) and "Financial Statements and Supplementary Data" (Item 8), including the related notes thereto, appearing elsewhere in this Report. References to "Management" should be understood in this section to refer to the Company's management in the time periods in question. Overview The Company is a worldwide leader in the design, manufacture and sale of customized blow-molded rigid plastic bottles for the automotive, food and beverage and HC/PC products business. Management believes that critical success factors to the Company's business are its ability to (i) serve the complex packaging demands of its customers which include some of the world's largest branded consumer products companies, (ii) forecast trends in the packaging industry across product lines and geographic territories (including those specific to the rapid conversion of packaging products from glass, metal and paper to plastic), and (iii) make the correct investments in plant and technology necessary to satisfy the two forces mentioned above. The Company's North American one quart motor oil container business is in a mature industry. Unit volume in the one quart motor oil business has been declining at approximately 1-2% per year and, as a result, the Company has experienced competitive price pressures in this business throughout 1996, 1997 and 1998. The Company has reduced prices on contracts that have come up for renewal to maintain its competitive position and has been able to partially offset these price reductions by improving manufacturing efficiencies, light-weighting of bottles, improving line speeds, reducing material spoilage and by improving labor efficiency and inventory. Management believes that the decline in the domestic one-quart motor oil business will continue for the next several years but believes that there are significant volume opportunities for its automotive product business in foreign countries, particularly those in Latin America. On April 30, 1997, the Company acquired 80% of certain assets and 80% of certain liabilities of Rheem-Graham Embalagens Ltda., a leading supplier of bottles to the motor oil industry in Brazil, and on February 17, 1998 purchased the residual 20% ownership interest. The Company has since signed agreements to operate two additional plants in Brazil, both of which are now in production. The Company's Household and Personal Care ("HC/PC") business continues to grow, as package conversion trends continue from other packaging forms, in certain segments of the Company's product lines. The Company continues to benefit as liquid fabric care products, which are packaged in plastic containers, capture an increased share from powdered detergents, which are predominantly packaged in cardboard. The Company has upgraded its proprietary machinery to new larger blow molders to standardize its production lines , improve flexibility and reduce manufacturing costs. Management believes that the area with the greatest opportunity for growth continues to be in producing bottles for the North American food and beverage business because of the continued conversion to plastic packaging, and, in particular, the demand for hot-fill PET containers for juices, juice drinks, sport drinks and teas. From 1992 to 1998 the Company has invested over $166 million in capital expenditures to expand its technology, machinery and plant structure to prepare for what Management estimated would be the growth in this area. For the year ended December 31, 1998 sales of hot-fill PET containers had grown to $134.4 million from negligible levels in 1993. In this business, the Company continues to benefit from more experienced plant staff, improved line speeds, higher absorption of SG&A and fixed overhead costs and improved resin pricing and material usage. Following its strategy to expand in selected international areas, the Company currently operates, either on its own or through joint ventures, in Argentina, Brazil, Canada, France, Germany, Hungary, Italy, Poland, Turkey and the United Kingdom. Management is focusing on its operations in France, which is a competitive arena and suffers from a lagging economy, and is seeking to improve the profitability in that country. The Company recently acquired its operations in Germany, Turkey and the United Kingdom and additional operations in France. Management believes that the recent acquisition of manufacturing plants in Europe from Crown/CMB has provided additional competitive scale to the Company's global sales efforts. In addition, given the recent troubled economy in Latin America, and more specifically Brazil, management is closely monitoring its operations and investment there. For the year ended December 31, 1998, over 70% of the Company's net sales were generated by the top twenty customers, the majority of which are under long-term contracts (i.e., with terms of between one and ten years) and the remainder of which were generated by customers with whom the Company has been doing business for over 10 years on average. Prices under these arrangements are typically tied to market standards and, therefore, vary with market conditions. In general the contracts are requirements contracts that do not obligate the customer to purchase any given amount of product from the Company. Based on industry data, the following table summarizes average market price per pound of PET and HDPE resins: Year Ended December 31, ---------------------------------- 1996 1997 1998 -------- -------- -------- PET $0.63 $0.50 $0.53 HDPE 0.41 0.46 0.37 In general, the Company's dollar gross profit is substantially unaffected by fluctuations in the prices of HDPE and PET resins, the primary raw materials for the Company's products, because industry practice and the Company's agreements with its customers permit price changes to be passed through to customers by means of corresponding changes in product pricing. Consequently, Management believes that an analysis of the cost of goods sold, as well as certain other expense items, should not be analyzed as a percentage of net sales. Results of Operations The following tables set forth the major components of the Company's net sales and such net sales expressed as a percentage of total revenues: Year Ended December 31, ----------------------- (In Millions) 1996 1997 1998 ---- ---- ---- Automotive $180.9 39.4% $196.4 37.6% $188.7 32.1% Food & Beverage 116.4 25.3% 150.6 28.9% 221.1 37.6% HC/PC 162.4 35.3% 174.7 33.5% 178.3 30.3% ------ ---- ------ ---- ------ ---- Total Net Sales $459.7 100.0% $521.7 100.0% $588.1 100.0% ====== ===== ====== ===== ====== ===== Year Ended December 31, ----------------------- (In Millions) 1996 1997 1998 ----- ---- ---- North America $381.9 83.1% $440.0 84.3% $465.3 79.1% Europe 77.8 16.9% 67.4 12.9% 100.8 17.2% Latin America -- -- 14.3 2.8% 22.0 3.7% ------ ------ ------ ----- ------ ------ Total Net Sales $459.7 100.0% $521.7 100.0% $588.1 100.0% ====== ===== ====== ===== ====== ===== 1998 Compared to 1997 Net Sales. Net sales for the year ended December 31, 1998 increased $66.4 million to $588.1 million from $521.7 million for the year ended December 31, 1997. The increase in sales was primarily due to a 12.4% increase in resin pounds sold and changes in product mix. These increases were partially offset by a net decrease in average resin prices. On a geographic basis, sales for the year ended December 31, 1998 in North America were up $25.3 million or 5.8% from the year ended December 31, 1997. The North American sales increase included higher pounds sold of 8.4%. North American sales in the food and beverage business contributed $48.5 million to the increase, while North American sales in the automotive business and HC/PC business were $14.4 million and $8.8 million lower respectively. Approximately 76% of the decrease in North American sales in the automotive business and approximately all of the decrease in North American sales in the HC/PC business were attributable to declining resin pricing. Sales for the year ended December 31, 1998 in Europe were up $33.4 million or 49.6% from the year ended December 31, 1997, principally in the food & beverage and HC/PC businesses, primarily due to the inclusion of the Company's newly- acquired European subsidiaries. Overall, European sales reflected a 40.2% increase in pounds sold. Additionally, sales in Latin America for the year ended December 31, 1998 were up $7.7 million primarily as a result of the Company's investment in its Latin American subsidiary in the second quarter of 1997. Gross Profit. Gross profit for the year ended December 31, 1998 increased $33.0 million to $117.4 million from $84.4 million for the year ended December 31, 1997. The increase in gross profit resulted primarily from the higher sales volume as compared to the prior year, continued operational improvements and the favorable impact of lower depreciation. Gross profit in North America was up $27.4 million or 33.6%. Additionally, gross profit increased $3.9 million in Europe and $1.7 million in Latin America. Selling, General & Administrative Expenses. Selling, general and administrative expenses for the year ended December 31, 1998 increased $2.9 million to $37.8 million from $34.9 million for the year ended December 31, 1997. As a percent of sales, selling, general and administrative expenses declined to 6.4% of sales in 1998 from 6.7% in 1997 generally due to the leveraging of costs that are fixed in nature on higher sales. The dollar increase in 1998 selling, general and administrative expenses is due primarily to the inclusion of the Company's Latin American subsidiary and the newly-acquired European subsidiaries which were acquired in the second quarter of 1997 and the third quarter of 1998, respectively. Special Charges and Unusual Items. In 1998, special charges and unusual items included $20,609,000 related to recapitalization compensation costs (see "Business -- The Recapitalization" for a further discussion of the recapitalization compensation), $1,960,000 of restructuring charges relating to the operations in Europe ($1,220,000) and in North America ($740,000), $963,000 in costs related to year 2000 system conversion (see "-- Information Systems Initiative" for a further discussion), $427,000 of aborted acquisition costs, and $285,000 of legal fees. In 1997, special charges and unusual items included $22,624,000 of legal fees and amounts expected to be paid in settlement related to the JCI-Schmalbach-Lubeca litigation, $1,222,000 of restructuring charges relating to operations in Europe ($746,000) and in North America ($476,000), and $515,000 in costs related to year 2000 system conversion. Recapitalization Expenses. Recapitalization expenses of $10.8 million relate to the Recapitalization that occurred on February 2, 1998 and also include transaction fees and costs associated with the termination of interest rate collar and swap agreements. Interest Expense, Net. Interest expense, net increased $44.0 million to $57.4 million for the year ended December 31, 1998 from $13.4 million for the year ended December 31, 1997. The increase was primarily related to the increase in debt resulting from the Recapitalization and higher average interest rates associated with the new debt. Other (Income) Expense. Other (income) expense was $(0.1) million for the year ended December 31, 1998 as compared to $0.8 million for the year ended December 31, 1997. The higher income was due primarily to lower foreign exchange loss in the year ended December 31, 1998 as compared to the year ended December 31, 1997. Net Income (loss). Primarily as a result of factors discussed above, net loss for the year ended December 31, 1998 was $14.5 million compared to net income of $10.2 million for the year ended December 31, 1997. Adjusted EBITDA. Primarily as a result of factors discussed above, Adjusted EBITDA in 1998 increased 33.3% to $119.7 million from $89.8 million in 1997. 1997 Compared to 1996 Net Sales. Net Sales in 1997 increased $62.0 million to $521.7 million from $459.7 million in 1996. The increase in net sales was primarily due to the effects of a 6.5% increase in unit volume and an 11.7% increase in resin pounds sold. Net sales also increased as a result of the effect of net resin price increases and changes in product mix. The most significant geographic increase in net sales was in North America, where sales in 1997 were $58.1 million or 15.2% higher than in 1996. The North American sales increase includes higher unit volume of 9% and higher pounds sold of 15%. North American sales in the food and beverage business contributed $32.9 million of the increase while the HC/PC business contributed $18.2 million. Additionally, 1997 sales included a $14.3 million contribution as a result of the Company's investment in its Latin American subsidiary. Sales in Europe in 1997 declined $10.4 million or 13.4% from 1996, primarily due to $9.1 million in foreign currency translation due to the weakening of the French Franc and Italian Lire. Overall, European sales reflected a decline of 1.7% in unit volume and 6.9% in pounds sold, primarily in the HC/PC product line. Gross Profit. Gross profit in 1997 increased $7.2 million to $84.4 million from $77.2 million in 1996. The increase in gross profit resulted from the higher sales volume in 1997 as compared to the prior year and from the favorable impact of lower depreciation. Gross profit in North America was up $10.6 million or 15.0%, while European gross profit was down $5.7 million due primarily to lower sales volumes. In addition, 1997 gross profit included $2.3 million from the Company's Latin American subsidiary. Selling, General and Administrative Expenses. Selling, general and administrative expenses in 1997 decreased $0.6 million to $34.9 million from $35.5 million in 1996. Selling, general and administrative expenses, as a percentage of sales, declined to 6.7% in 1997 from 7.7% in 1996. The decrease was due to the favorable impact of foreign currency translation due to the weakening French Franc and Italian Lire in Europe, where selling, general and administrative expenses were $1.8 million lower in 1997 than in 1996, partially offset by $1.0 million from the Company's Latin American subsidiary and higher North American expenses of $0.2 million. Special Charges and Unusual Items. Special charges and unusual items increased $17.4 million to $24.4 million in 1997 compared to $7.0 million in 1996. Special charges and unusual items included non-recurring legal fees in both years, and in 1997, amounts expected to be paid in settlement of the JCI Schmalbach-Lubeca litigation, aggregating $22.6 million in 1997 and $6.3 million in 1996. Special charges and unusual items also included $0.7 million of restructuring charges relating to the European operations in each year, while 1997 special charges and unusual items also included $0.5 million related to restructuring of North American operations and $0.5 million related to year 2000 system conversion expenditures. See "--Information Systems Initiative" for a further discussion. Interest Expense, Net. Interest expense, net decreased 7.6% to $13.4 million in 1997 from $14.5 million in 1996. The decrease was primarily the result of a lower average interest rate in 1997, partially offset by higher borrowings during the same period. Other (Income) Expense, Net. Other (income) expense changed $1.8 million in 1997 to $0.8 million of net expense from $1.0 million of net income in 1996. Other (income) expense included foreign currency exchange losses of $1.0 million in 1997 compared to foreign exchange gains of $0.7 million in 1996. In addition, other (income) expense included equity in income of Masko Graham, the Company's joint venture in Poland. Net Income. Primarily as a result of factors discussed above, net income in 1997 decreased $11.0 million to $10.2 million from $21.2 million in 1996. Adjusted EBITDA. Primarily as a result of factors discussed above, Adjusted EBITDA in 1997 decreased 0.9% to $89.8 million from $90.6 million in 1996. Effect of Changes in Exchange Rates In general, the Company's results of operations are affected by changes in foreign exchange rates. Subject to market conditions, the Company prices its products in its foreign operations in local currencies. As a result, a decline in the value of the U.S. dollar relative to these other currencies can have a favorable effect on the profitability of the Company, and an increase in the value of the dollar relative to these other currencies can have a negative effect on the profitability of the Company. Exchange rate fluctuations did not have a material effect on the financial results of the Company in 1996, 1997 or 1998. Information Systems Initiative The Company has assembled a team of professionals and consultants to ensure that significant Year 2000 issues which might have a material impact on the Company's results of operations, liquidity or financial position are timely identified and any resulting remediation timely resolved. The Company completed an evaluation and assessment to ensure that its information systems and related hardware will be year 2000 compliant. As a part of this process, the Company engaged outside consultants in 1997 to assist with the evaluation and assessment of its information systems requirements and the selection and implementation of enterprise resource planning software. As a result of this evaluation and assessment, the Company decided to replace all of its core application systems, including its financial accounting system, manufacturing operation system and payroll and human resources system. Currently the Company is in the process of converting its core application systems. The Company expects to complete the testing and training phases of the core application systems conversion by the end of April 1999. The conversion in the Company's North American operations is expected to be completed by the end of the second quarter of 1999. The conversion in the Company's European operations will immediately follow the North American conversion and is expected to be completed by the end of 1999. The conversion in the Company's Latin American operations is not expected to be completed until after 1999. For the Company's Latin American operations, and if for some unforeseen reason the Company is unable to complete the conversion of its IT systems on the timetable previously described for the North American and European operations, the existing software will be modified to allow for uninterrupted business operations until such conversion can be completed. During 1998 and 1997, the Company expensed $1.0 million and $0.5 million, respectively, associated with its information systems evaluation and assessment and capitalized $5.5 million related to the purchase of software and hardware. The Company expects to incur during 1999 through the year 2000, approximately $12.6 million to purchase, test and install new software as well as incur internal staff costs, consulting fees and other expenses. Based on the extensive reviews completed to date, the Company is not aware of any conditions that will result in an interruption to production capacity. In addition, all critical material suppliers are either year 2000 compliant or have plans that will achieve these goals by the end of 1999. The Company expects to have its remediation efforts completed by the end of 1999, and does not expect any material impact on its results of operations, liquidity or financial position due to incomplete or untimely resolution of the year 2000 issue. As stated, critical material vendors are, or will be year 2000 compliant by the end of 1999. However, in forming a total assessment, the ability of all critical third parties with whom the Company transacts business to adequately address their year 2000 issues is outside of the Company's control. There can be no assurance that the failure of such third parties to adequately address their year 2000 issues would not have a material adverse effect on the Company. Risks to the Company include the possible interruption of production and negative effects on cash flow associated with reduced sales, increased production costs and reduced customer collections. While there are issues beyond the control of the Company, where practical, contingency plans are being implemented. Contingency plans, such as switching transportation modes, reviewing year-end inventory levels by plant and performing record keeping functions on a manual basis are being formulated. Derivatives The Company enters into interest rate swap agreements to hedge the exposure to increasing rates with respect to the New Credit Agreement. The differential to be paid or received as a result of these swap agreements is accrued as interest rates change and recognized as an adjustment to interest expense related to the New Credit Agreement. The Company also enters into forward exchange contracts, when appropriate, to hedge the exchange rate exposure on transactions that are denominated in a foreign currency. Liquidity and Capital Resources In 1996, 1997 and 1998, the Company generated $170.7 million of cash from operations and $518.2 million from increased indebtedness. This $688.9 million was primarily used to fund $218.4 million of capital expenditures, $65.4 million of investments, make distributions of $49.0 million to the Company's partners (all of which was distributed prior to the Recapitalization), make a $314.5 million Recapitalization cash distribution to Holdings, make $34.1 million of debt issuance fee payments and for $7.5 million of other net uses. On February 2, 1998, the Company refinanced the majority of its existing credit facilities in connection with the Recapitalization and entered into a new Credit Agreement (the "New Credit Agreement") with a consortium of banks. The New Credit Agreement was amended on August 13, 1998 (the "Amendment") to provide for an additional Term Loan Borrowing of up to an additional $175 million which can be drawn in two installments (of which $75 million was drawn and outstanding as of December 31, 1998 and the remaining $100 million was drawn in February 1999). A commitment fee of .75% is due on the unused portion. The New Credit Agreement and the Amendment consist of four term loans to the Operating Company totaling up to $570 million and two revolving loan facilities to the Operating Company totaling $255 million. The obligations of the Operating Company under the New Credit Agreement and Amendment are guaranteed by Holdings and certain other subsidiaries of Holdings. The term loans are payable in quarterly installments through January 31, 2007, and require payments of $5.0 million in 1999, $15.0 million in 2000, $20.0 million in 2001, $25.0 million in 2002 and $27.5 million in 2003. The revolving loan facilities expire on January 31, 2004. Interest is payable at (a) the "Alternate Base Rate" (the higher of the Prime rate or the Federal Funds Rate plus 0.50%) plus a margin ranging from 0% to 2.00%; or (b) the "Eurocurrency Rate" (the applicable interest rate offered to banks in the London interbank eurocurrency market) plus a margin ranging from 0.625% to 3.0%. A commitment fee ranging from 0.20% to 0.50% is due on the unused portion of the revolving loan commitment. As part of the Amendment to the New Credit Agreement, if certain events of default were to occur (including, without limitation, if the Company's Net Leverage Ratio were above 5.15:1.0 at March 31, 2000), Blackstone has agreed to make an equity contribution to the Company through the administrative agent of up to $50 million. In addition, the New Credit Agreement and Amendment contain certain affirmative and negative covenants as to the operations and financial condition of the Company, as well as certain restrictions on the payment of dividends and other distributions to Holdings. The Recapitalization also included the issuance of $225 million of Senior Subordinated Old Notes by the Company Issuers, and debt issuance costs to the Operating Company of approximately $26.9 million. At December 31, 1998, the outstanding indebtedness of the Operating Company and its subsidiaries was $764.7 million. During 1999, the Company expects to incur capital expenditures that are similar in nature and size to those incurred in 1998. However, total capital expenditures for 1999 may vary significantly depending on the timing of growth related opportunities. The Company's principal sources of cash to fund capital requirements will be net cash provided by operating activities and borrowings under the New Credit Agreement. Management believes that capital investment to maintain and upgrade property, plant and equipment is important to remain competitive. Total capital expenditures for 1996, 1997 and 1998 were approximately $31.3 million, $53.2 million and $133.9 million, respectively. Management estimates that the annual capital expenditure required to maintain the Company's current facilities are approximately $20 million per year. Additional capital expenditures beyond this amount will be required to expand capacity. Under the New Credit Agreement, the Operating Company is subject to restrictions on the payment of dividends or other distributions to Holdings; provided that, subject to certain limitations, the Operating Company may pay dividends or other distributions to Holdings (i) in respect of overhead, tax liabilities, legal, accounting and other professional fees and expenses, (ii) to fund purchases and redemptions of equity interests of Holdings or Investor LP held by then present or former officers or employees of Holdings, the Operating Company or their Subsidiaries (as defined) or by any employee stock ownership plan upon such person's death, disability, retirement or termination of employment or other circumstances with certain annual dollar limitations and (iii) to finance, starting on July 15, 2003, the payment of cash interest payments on the Senior Discount Notes. In June 1998, the Company finalized the settlement of the JCI- Schmalbach-Lubeca litigation. The amounts paid in settlement, as well as estimated litigation expenses and professional fees did not differ materially from the amounts accrued in Special Charges and Unusual Items in respect thereof for the year ended December 31, 1997. The cash paid in settlement was funded by drawdowns under the New Credit Agreement. See Notes 7 and 18 to the Financial Statements as of December 31, 1998 and 1997 and for each of the three years in the period ended December 31, 1998 (Item 8). The Company does not pay U.S. federal income taxes under the provisions of the Internal Revenue Code, as the applicable income or loss is included in the tax returns of the partners. The Company makes tax distributions to its partners to reimburse them for such tax obligations. The Company's foreign operations are subject to tax in their local jurisdictions. Most of these entities have historically incurred net operating losses. New Accounting Pronouncements Not Yet Adopted In March 1998, the AICPA issued Statement of Position ("SOP") 98-1, "Accounting For the Costs of Computer Software Developed For or Obtained For Internal-Use." The SOP is effective for the Company on January 1, 1999. The SOP will require the capitalization of certain costs incurred after the date of adoption in connection with developing or obtaining software for internal use. The Company has not yet assessed what the impact of the SOP will be on the Company's future earnings or financial position. In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up Activities." The SOP is effective for the Company on January 1, 1999. The SOP requires costs of start-up activities and organization costs to be expensed as incurred. The Company does not expect the adoption of the SOP to have a significant impact on the Company's results of operations or financial position. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This Standard establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This Standard is effective for the Company's financial statements for all quarters in the year beginning January 1, 2000. Management has not completed its assessment of SFAS No. 133 and has not determined the impact adoption will have on the Company's results of operations or financial position. Item 7A. Quantitative and Qualitative Disclosures About Market Risk As a result of the Recapitalization, the Company has significant long and short-term debt commitments outstanding as of December 31, 1998. These on-balance sheet financial instruments, to the extent they provide for variable rates of interest, expose the Company to interest rate risk. The Company manages its interest rate risk by entering into interest rate swap agreements. All of the Company's derivative financial instrument transactions are entered into for non-trading purposes. To the extent that the Company's financial instruments, including off-balance sheet derivative instruments, expose the Company to interest rate risk and market risk, they are presented in the table below. For variable rate debt obligations, the table presents principal cash flows and related actual weighted average interest rates as of December 31, 1998. For the fixed rate debt obligation, the table presents principal cash flows and the related interest rate by maturity date. For interest rate swap agreements, the table presents notional amounts and the interest rates by expected (contractual) maturity dates for the pay rate and actual interest rates at December 31, 1998 for the receive rate. Note 8 to the Financial Statements should be read in conjunction with the table below.
(In thousands) Expected Maturity Date of Long-Term Debt (Including Current Portion) and Interest Rate Swap Agreements at December 31, 1998 Fair Value ------------------------------------------------------ December 31, 1999 2000 2001 2002 2003 Thereafter Total 1998 --------- --------- --------- ------- --------- ----------- --------- ----------- Interest rate sensitive liabilities: Variable rate borrowings, including short-term amounts . . . . . . . . . . . 11,929 15,192 20,208 25,771 28,905 512,695 614,700 614,700 Average interest rate . . . . 6.39% 7.46% 7.41% 7.36% 7.28% 8.02% Fixed rate borrowings . . . . . -- -- -- -- -- 150,000 150,000 152,300 Interest rate . . . . . . . . -- -- -- -- -- 8.75 -- -- --------- --------- --------- ------- --------- ----------- --------- ----------- 11,929 15,192 20,208 25,771 28,905 662,695 764,700 767,000 ====== ====== ====== ====== ====== ====== ======= ======= Derivatives matched against liabilities: Pay fixed swaps . . . . . . . . -- -- 150,000 200,000 100,000 -- 450,000 (8,784) Pay rate . . . . . .. . . . . -- -- 5.51% 5.81% 5.77% -- -- -- Receive rate . . . . . . .. . -- -- 5.56% 5.56% 5.56% -- -- -- The Company also enters into forward exchange contracts, when considered appropriate, to hedge foreign exchange rate exposure on transactions that are denominated in a foreign currency. See Note 8 to the Financial Statements.
Item 8. Financial Statements and Supplementary Data INDEX TO FINANCIAL STATEMENTS Page Number Reports of Independent Auditors 52 Audited Financial Statements 54 Balance Sheets at December 31, 1998 and 1997 54 Statements of Operations for the years ended December 31, 1998, 1997 and 1996 55 Statements of Partners' Capital/Owners' Equity (Deficit) for the years ended December 31, 1998, 1997 and 1996 56 Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 57 Notes to Financial Statements 58 INDEPENDENT AUDITORS' REPORT To the Owners Graham Packaging Company We have audited the accompanying consolidated balance sheet of Graham Packaging Company as of December 31, 1998, and the related consolidated statements of operations, partners' capital/owners' equity (deficit), and cash flows for the year then ended. Our audit also included financial statement schedule II (as it pertains to 1998) as listed in the index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, such 1998 consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 1998, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule (as it pertains to 1998), when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Philadelphia, Pennsylvania March 19, 1999 REPORT OF INDEPENDENT AUDITORS The Owners Graham Packaging Group We have audited the accompanying combined balance sheet of the entities and operations listed in Note 1, collectively referred to as the Graham Packaging Group, as of December 31, 1997, and the related combined statements of operations, partners' capital/owners' equity (deficit), and cash flows for each of the two years in the period ended December 31, 1997. Our audits also included financial statement Schedule II (as it pertains to 1997 and 1996) as listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Group's management. Our responsibility is to express an opinion on these financial statements and schedule 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 combined financial position of the entities and operations listed in Note 1, at December 31, 1997, and the combined results of their operations and their cash flows for each of the two years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement Schedule II, when considered in relation to the basic 1997 and 1996 financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP Harrisburg, Pennsylvania March 23, 1998, except for the matters discussed in the last paragraph of Note 14 and the next to last paragraph of Note 18, as to which the date is April 24, 1998 GRAHAM PACKAGING COMPANY BALANCE SHEETS (In thousands)
December 31, ----------------------- 1998 1997 Consolidated Combined ------------ -------- ASSETS Current assets: Cash and cash equivalents $ 7,476 $ 7,218 Accounts receivable, net 94,590 69,295 Inventories 41,247 32,236 Prepaid expenses and other current assets 14,587 9,198 -------- -------- Total current assets 157,900 117,947 Property, plant, and equipment: Machinery and equipment 560,585 478,534 Land, buildings, and leasehold improvements 85,462 68,146 Construction in progress 105,541 41,230 -------- -------- 751,588 587,910 Less accumulated depreciation and amortization 364,896 327,614 -------- -------- 386,692 260,296 Other assets 54,080 7,248 -------- -------- Total assets $598,672 $385.491 ======== ======== LIABILITIES AND PARTNERS' CAPITAL/OWNERS' EQUITY (DEFICIT) Current Liabilities: Accounts payable $ 77,485 $ 56,547 Accrued expenses 71,431 51,814 Current portion of long-term debt 11,929 4,771 -------- -------- Total current liabilities 160,845 113,132 Long-term debt 752,771 263,694 Other non-current liabilities 11,228 3,345 Minority interest -- 4,983 Commitments and contingent liabilities -- -- Partners' capital/owners' equity (deficit): Partners'/owners' capital (329,649) 20,383 Notes receivable for ownership interests -- (20,240) Accumulated other comprehensive income 3,477 194 -------- -------- Total partners' capital/owners' equity (deficit) (326,172) 337 -------- -------- Total liabilities and partners' capital/owners' equity (deficit) $598,672 $385,491 ======== ========
See accompanying notes to financial statements. GRAHAM PACKAGING COMPANY STATEMENTS OF OPERATIONS (In thousands)
Year Ended December 31, ----------------------- 1998 1997 1996 Consolidated Combined Combined --- --- --- Net sales $588,131 $521,707 $ 459,740 Cost of goods sold 470,762 437,301 382,547 -------- -------- -------- Gross profit 117,369 84,406 77,193 Selling, general, and administrative expenses 37,765 34,882 35,472 Special charges and unusual items 24,244 24,361 7,037 -------- -------- -------- Operating income 55,360 25,163 34,684 Recapitalization expenses 10,769 -- -- Interest expense 57,833 14,940 15,686 Interest income (371) (1,510) (1,233) Other (income) expense (122) 755 (977) Minority interest -- 165 -- -------- -------- -------- Income (loss) before income taxes and extraordinary item (12,749) 10,813 21,208 Income tax provision (benefit) 1,092 600 (24) -------- -------- -------- Income (loss) before extraordinary item (13,841) 10,213 21,232 Extraordinary loss from early extinguishment of debt 675 -- -- -------- -------- -------- Net income (loss) $(14,516) $ 10,213 $ 21,232 ======== ======== ========
See accompanying notes to financial statements. GRAHAM PACKAGING COMPANY STATEMENTS OF PARTNERS' CAPITAL/OWNERS' EQUITY (DEFICIT) (In thousands)
Partners' Notes Accumulated Capital/ Receivable Other Owners' for Ownership Comprehensive Equity Interests Income Total --- --- --- --- Combined balance at January 1, 1996 $ 37,822 $(20,240) $ (2,326) $ 15,256 --------- -------- -------- --------- Net income for the year 21,232 -- -- 21,232 Cumulative translation adjustment -- -- 656 656 --------- Comprehensive income 21,888 --------- Cash distributions to owners (20,339) -- -- (20,339) --------- -------- -------- --------- Combined balance at December 31, 1996 38,715 (20,240) (1,670) 16,805 --------- Net income for the year 10,213 -- -- 10,213 Cumulative translation adjustment -- -- 1,864 1,864 --------- Comprehensive income 12,077 --------- Cash distributions to owners (28,737) -- -- (28,737) Other 192 -- -- 192 --------- -------- -------- --------- Combined balance at December 31, 1997 20,383 (20,240) 194 337 --------- Net loss for the year (14,516) -- -- (14,516) Cumulative translation adjustment -- -- 3,283 3,283 --------- Comprehensive income (11,233) --------- Cash distributions to owners (624) -- -- (624) Recapitalization (334,892) 20,240 -- (314,652) --------- -------- -------- --------- Consolidated balance at December 31, 1998 $(329,649) -- $ 3,477 $(326,172) ========= ======== ======== =========
See accompanying notes to financial statements. GRAHAM PACKAGING COMPANY STATEMENTS OF CASH FLOWS (In thousands)
Year Ended December 31, ------------------------------------------------- 1998 1997 1996 Consolidated Combined Combined --- --- --- Operating activities: Net income (loss) $(14,516) $ 10,213 $ 21,232 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 39,281 41,039 48,218 Amortization of debt issuance fees 3,362 320 216 Extraordinary loss 675 -- -- Write-off of license fees 1,436 -- -- Minority interest -- 165 -- Equity in earnings of joint venture (274) (200) (257) Foreign currency transaction (gain) loss 43 1,124 (1,045) Other non-current assets and liabilities 450 565 (1,499) Other non-cash recapitalization expense 3,419 -- Changes in operating assets and liabilities, net of acquisitions of businesses: Accounts receivable (8,538) (10,918) (996) Inventories (2,770) (3,605) 1,773 Prepaid expenses and other current assets (4,025) (3,935) 3,751 Accounts payable and accrued expenses 17,291 32,137 (3,375) -------- -------- -------- Net cash provided by operating activities 35,834 66,905 68,018 Investing activities: Net purchases of property, plant, and equipment (133,912) (53,173) (31,252) Acquisitions of Brazilian and European businesses, net of cash acquired (45,152) (19,016) -- Joint ventures and other investments -- -- (1,239) Other (2,130) (88) (271) -------- -------- -------- Net cash used in investing activities (181,194) (72,277) (32,762) Financing activities: Proceeds from issuance of long-term debt 1,029,799 174,049 117,528 Payment of long-term debt (271,068) (136,430) (131,321) Recapitalization debt repayments (264,410) -- -- Recapitalization owner note repayments 20,240 -- -- Recapitalization cash distributions to owners (334,717) -- -- Other cash distributions to owners (624) (28,073) (20,339) Debt issuance fees (33,592) -- (541) Other -- -- 51 -------- -------- -------- Net cash provided by (used in) financing activities 145,628 9,546 (34,622) Effect of exchange rate changes (10) (387) 352 -------- -------- -------- Increase in cash and cash equivalents 258 3,787 986 Cash and cash equivalents at beginning of year 7,218 3,431 2,445 -------- -------- -------- Cash and cash equivalents at end of year $ 7,476 $ 7,218 $ 3,431 ======== ======== ========
See accompanying notes to financial statements. GRAHAM PACKAGING COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 1. Summary of Significant Accounting Policies Principles of Consolidation and Combination The consolidated and combined financial statements include the operations of Graham Packaging Company L.P., a Delaware limited partnership formerly known as Graham Packaging Holdings I, L.P. (the "Operating Company"); Graham Packaging Italy, S.r.L.; Graham Packaging France Partners; Graham Packaging Poland, L.P.; Graham Packaging do Brasil Industria e Comercio S.A.; Graham Packaging Canada Limited; Graham Recycling Company L.P.; subsidiaries thereof; and land and buildings that were used in the operations, owned by the control group of owners and contributed to the Graham Packaging Group (as hereinafter defined). Prior to February 2, 1998, these operations of the Graham Packaging Group were under common control by virtue of ownership by the Donald C. Graham family. These entities and assets, and Holdings (as hereinafter defined) for periods prior to the Recapitalization that occurred on February 2, 1998, are collectively referred to in these financial staements as Graham Packaging Group (the "Group") For periods prior to the Recapitalization, the financial statements and references to the "Group" relate to the Group on a combined basis and include the accounts and results of operations that were then conducted through Holdings (as hereinafter defined). (See Note 2.) The combined financial statements include the accounts and results of operations of the Group for all periods that the operations were under common control. All amounts in the combined financial statements are those reported in the historic financial statements of the individual operations. With respect to the periods subsequent to the Recapitalization that occurred on February 2, 1998, the consolidated financial statements and references to the "Group" relate to the Operating Company and its subsidiaries on a consolidated basis. Such consolidated financial statements include GPC Capital Corp. I, a wholly owned subsidiary of the Operating Company. The purpose of GPC Capital Corp. I is solely to act as co-obligor of the Senior Subordinated Notes and as co-borrower under the New Credit Agreement. GPC Capital Corp. I has only nominal assets and does not conduct any independent operations. Furthermore, since July 27, 1998 the consolidated financial statements include the operations of Graham Emballages Plastiques S.A.; Graham Packaging U.K. Ltd.; Graham Plastpak Plastic, Ambalaj A.S.; and Graham Packaging Deutschland Gmbh as a result of the acquisition of selected plants of Crown Cork & Seal (see Note 3). All significant intercompany accounts and transactions have been eliminated in the consolidated and combined financial statements. No separate financial statements are presented for GPC Capital Corp. I. As indicated above, GPC Capital Corp. I has no independent operations, and Management has determined that separate financial statements for GPC GRAHAM PACKAGING COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 1998 Capital Corp. I would not be material to investors. The Operating Company is a wholly owned subsidiary of Graham Packaging Holdings Company, a Pennsylvania limited partnership formerly known as Graham Packaging Company ("Holdings"). Holdings has fully and unconditionally guaranteed the Senior Subordinated Notes of the Operating Company and GPC Capital Corp. I on a senior subordinated basis. Description of Business The Group sells plastic packaging products to large, multinational companies in the automotive, food and beverage, and household cleaning and personal care industries. The Group has manufacturing facilities in the United States, Canada, United Kingdom, France, Germany, Italy, Poland, Turkey, Hungary and Brazil. Investment in Joint Venture The Group accounts for its investment in a joint venture in Poland under the equity method of accounting. Revenue Recognition Sales are recognized as products are shipped and upon passage of title to the customer and as services are rendered. Cash and Cash Equivalents The Group considers cash and investments with a maturity of three months or less when purchased to be cash and cash equivalents. Inventories Inventories are stated at the lower of cost or market with cost determined by the last-in, first-out (LIFO) and first-in, first-out (FIFO) methods. Property, Plant and Equipment Property, plant, and equipment are stated at cost. Depreciation and amortization are computed by the straight-line method over the estimated useful lives of the various assets ranging from 3 to 31.5 years. Lease amortization is included in depreciation expense. Interest costs are capitalized during the period of construction of capital assets as a component of the cost of acquiring those assets. Other Assets Other assets include debt issuance fees, goodwill and license fees for which amortization is computed by the straight-line method over the term of the related debt for debt issuance fees, twenty years for goodwill and from five to ten years for license fees. Accumulated amortization on goodwill is $342,000 as of December 31, 1998. Long-Lived Assets Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Any impairment loss, if indicated, is measured on the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. GRAHAM PACKAGING COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 1998 Derivatives The Group enters into interest rate swap agreements to hedge the exposure to increasing rates with respect to its Credit Agreement. The differential to be paid or received as a result of these swap agreements is accrued as interest rates change and recognized as an adjustment to interest expense related to the Credit Agreement. The Group also enters into forward exchange contracts, when considered appropriate, to hedge the exchange rate exposure on transactions that are denominated in a foreign currency. During 1997, the Group used a combination of interest rate collar and swap agreements. Foreign Currency Translation The Group uses the local currency as the functional currency for all foreign operations. All assets and liabilities of foreign operations are translated into U.S. dollars at year-end exchange rates. Income statement items are translated at average exchange rates prevailing during the year. The resulting translation adjustments are included in Accumulated Other Comprehensive Income as a component of partners' capital/ owners' equity. Comprehensive Income As of January 1, 1998, the Group adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement had no impact on the Group's net income or partners' capital/ owners' equity. SFAS No. 130 requires foreign currency translation adjustments, which prior to adoption were reported separately in partners' capital/owners' equity, to be included in other comprehensive income and added with net income to determine total comprehensive income which is displayed in the Statements of Partners' Capital/Owners' Equity (Deficit). Prior year financial statements have been reclassified to conform to the requirements of SFAS No. 130. Income Taxes The Group does not pay U.S. federal income taxes under the provisions of the Internal Revenue Code, as the applicable income or loss is included in the tax returns of the partners/owners. For the Group's foreign operations subject to tax in their local jurisdictions, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse. Segment Disclosure The Group adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", which requires certain information to be reported about operating segments on a basis consistent with the Group's internal reporting structure (see Note 19). GRAHAM PACKAGING COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 1998 Management Option Plan The Group accounts for equity based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". SFAS No. 123, "Accounting For Stock Based Compensation", established accounting and disclosure requirements using a fair-value based method of accounting for equity based employee compensation plans. The Group has elected to remain on its current method of accounting as described above and has adopted the disclosure requirements of SFAS No. 123. 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 amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Reclassifications Certain reclassifications have been made to the 1997 and 1996 financial statements to conform to the 1998 presentation. New Accounting Pronouncements Not Yet Adopted In March 1998, the AICPA issued Statement of Postion ("SOP") 98-1, Accounting For the Costs of Computer Software Developed For or Obtained For Internal-Use. The SOP is effective for the Group on January 1, 1999. The SOP will require the capitalization of certain costs incurred after the date of adoption in connection with developing or obtaining software for internal-use. The Group has not yet assessed what the impact of the SOP will be on the Group's future earnings or financial position. In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up Activities." The SOP is effective for the Group on January 1, 1999. The SOP requires costs of start-up activities and organization costs to be expensed as incurred. The Group does not expect the adoption of the SOP to have a significant impact on the Group's results of operations or financial position. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This Standard establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This Standard is effective for the Group's financial statements for all quarters in the year beginning January 1, 2000. Management has not completed its assessment of SFAS No. 133 and has not determined the impact adoption will have on the Group's results of operations or financial position. GRAHAM PACKAGING COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 1998 2. Recapitalization Pursuant to an Agreement and Plan of Recapitalization, Redemption and Purchase, dated as of December 18, 1997 (the "Recapitalization Agreement"), (i) Holdings, (ii) the owners of the Group (the "Graham Partners") and (iii) BMP/Graham Holdings Corporation, a Delaware corporation formed by Blackstone Capital Partners III Merchant Banking Fund L.P. ("Investor LP"), and BCP/Graham Holdings L.L.C., a Delaware limited liability company and a wholly owned subsidiary of Investor LP ("Investor GP" and together with Investor LP, the "Equity Investors") agreed to a recapitalization of Holdings (the "Recapitalization"). Closing under the Recapitalization Agreement occurred on February 2, 1998. The principal components and consequences of the Recapitalization included the following: - - A change in the name of Holdings to Graham Packaging Holdings Company; - - The contribution by Holdings of substantially all of its assets and liabilities to the Operating Company, which was renamed "Graham Packaging Company"; - - The contribution by certain Graham Partners to the Group of their ownership interests in certain partially-owned subsidiaries of Holdings and certain real estate used but not owned by Holdings and its subsidiaries; - - The initial borrowing by the Operating Company of $403.5 million (the "Bank Borrowings") in connection with the New Credit Agreement entered into by and among the Operating Company, Holdings and a syndicate of lenders; - - The issuance of $225 million Senior Subordinated Notes by the Operating Company and $100.6 million gross proceeds ($169 million aggregate principal amount at maturity) Senior Discount Notes by Holdings. A wholly owned subsidiary of each of the Operating Company and Holdings serves as co-issuer with its parent for its respective issue of Notes; - - The repayment by the Operating Company of substantially all of the existing indebtedness and accrued interest of Holdings and its subsidiaries; - - The distribution by the Operating Company to Holdings of all of the remaining net proceeds of the Bank Borrowings and the Senior Subordinated Notes (other than amounts necessary to pay certain fees and expenses and payments to Management); - - The redemption by Holdings of certain partnership interests in Holdings held by the Graham Partners for $429.6 million; - - The purchase by the Equity Investors of certain partnership interests in Holdings held by the Graham Partners for $208.3 million; GRAHAM PACKAGING COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 1998 - - The repayment by the Graham Partners of amounts owed to Holdings under the $20.2 million promissory notes; - - The recognition of additional compensation expense under the Equity Appreciation Plan; - - The payment of certain bonuses and other cash payments and the granting of certain equity awards to senior and middle level management; - - The execution of various other agreements among the parties; and - - The payment of a $6.2 million tax distribution by the Operating Company on November 2, 1998 to certain Graham Partners for tax periods prior to the Recapitalization. As a result of the consummation of the Recapitalization, Investor LP owns an 81% limited partnership interest in Holdings, and Investor GP owns a 4% general partnership interest in Holdings. Certain Graham Partners or affiliates thereof or other entities controlled by Donald C. Graham and his family, have retained a 1% general partnership interest and a 14% limited partnership interest in Holdings. Additionally, Holdings owns a 99% limited partnership interest in the Operating Company, and GPC Opco GP L.L.C., a wholly owned subsidiary of Holdings, owns a 1% general partnership interest in the Operating Company. As a result of the Recapitalization, the Group incurred charges of approximately $27 million related to the issuance of debt which will be recognized as interest expense over 6 to 11 years based upon the terms of the related debt instruments. In addition, Recapitalization expenses of approximately $24 million, which related to transaction fees, expenses, compensation, unamortized licensing fees and costs associated with the termination of the interest rate collar and swap agreements were incurred. The Recapitalization also resulted in the write-off of unamortized debt issuance fees which is reflected as an extraordinary loss in the financial statements. Compensation expense totaling $10.7 million, of which $6.8 million had been expensed as of December 31, 1998, related to stay bonuses and the granting of certain ownership interests to management which will be recognized over a period up to three years from the date of the Recapitalization. See Note 14. 3. Acquisitions Purchase of Certain Plants of Crown, Cork & Seal: On July 27, 1998 the Company acquired selected plastic bottle manufacturing operations of Crown, Cork & Seal located in France, Germany, the United Kingdom and Turkey for a total purchase price (including acquisition-related costs) of $42.2 million, net of liabilities assumed, subject to certain adjustments. The acquisition was recorded under the purchase method of accounting and accordingly, the results of operations of the acquired operations are included in the financial statements of the Group beginning on July 27, 1998. The initial purchase price has been allocated on a preliminary basis to assets acquired and liabilities assumed based on estimated fair values. Negotiations regarding the final purchase price are still ongoing which GRAHAM PACKAGING COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 1998 could result in a reduction of the purchase price which is not expected to be significant. Goodwill is being amortized over 20 years on the straight-line basis. The initial allocated fair value of assets acquired and liabilities assumed is summarized as follows (in thousands): Current assets $21,771 Property, plant and equipment 29,597 Other assets 2,379 Goodwill 16,230 ------- Total 69,977 Less liabilities assumed 27,820 ------- Net cost of acquisition $42,157 ======= Purchase of Rheem-Graham Embalagens, Ltda: On April 30, 1997, Graham Packaging do Brasil Industria e Comercio S.A., then a wholly owned subsidiary of Holdings with no operations, and owners of Holdings, acquired 80% of the operating assets of Rheem-Graham Embalagens Ltda., which manufactures and sells plastic packaging products, from Rheem Empreendimentos Industrialis e Comerciais. Rheem Empreendimentos Industrialis e Comerciais contributed the remaining 20% of the operating assets of Rheem-Graham Embalagens Ltda. in exchange for a 20% minority interest in Graham Packaging do Brasil Industria e Comercio S.A. The purchase price related to the 80% of the operating assets of Rheem-Graham Embalagens Ltda. was approximately $21.1 million, which was funded through borrowings under the Group's bank facilities. The acquisition was recorded under the purchase method of accounting and accordingly, the results of operations of the business acquired by Graham Packaging do Brasil Industria e Comercio S.A. are included in the financial statements of the Group beginning on April 30, 1997, less a minority interest amount equal to 20% of Graham Packaging do Brasil Industria e Comercio S.A. owned by the unaffiliated entity. The purchaseprice has been allocated to assets acquired and liabilities assumed based upon fair values on the date of acquisition. The fair value of assets and liabilities acquired and contributed to Graham Packaging do Brasil Industria e Comercio S.A. during 1997 is summarized as follows (in thousands): Net working capital $2,451 Property, plant and equipment 23,679 ------- $26,130 ======= In February 1998, the Group acquired the remaining 20% minority interest of $4,983,000 in Graham Packaging do Brasil Industria e Comercio S.A. from Rheem Empreendimentos Industrialis e Comerciais for $2,995,000. The difference of $1,988,000 has been recorded as a reduction of the carrying amount of property, plant & equipment. GRAHAM PACKAGING COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 1998 Pro Forma Information The following table sets forth unaudited pro forma results of operations, assuming that both of the above acquisitions had taken place at the beginning of each period presented: . Year Ended December 31, -------------------------- 1998 1997 -------- -------- (In thousands) Net sales $631,567 $600,507 Net income Loss) (17,776) 4,128 These unaudited pro forma results have been prepared for comparative purposes only and include certain adjustments, such as additional depreciation expense as a result of a step-up in the basis of fixed assets and increased interest expense on acquisition debt. They do not purport to be indicative of the results of operations which actually would have resulted had the combinations been in effect at the beginning of each period presented or of future results of operations of the entities. 4. Accounts Receivable Accounts receivable are presented net of an allowance for doubtful accounts of $1,435,000 and $1,635,000 at December 31, 1998 and 1997 respectively. Management performs ongoing credit evaluations of its customers and generally does not require collateral. The Group's sales to one customer, which exceeded 10% of total sales in each of the past three years, were 12%, 14% and 12% for the years ended December 31, 1998, 1997 and 1996, respectively. For the year ended December 31, 1998, approximately 67%, 24% and 9% of the sales to this customer were made in the United States, Europe and Canada, respectively. 5. Inventories Inventories consisted of the following: December 31, ---------------------- 1998 1997 -------- -------- (In thousands) Finished goods $23,497 $18,759 Raw materials and parts 17,750 15,447 ------- ------- 41,247 34,206 Less LIFO allowance -- 1,970 ------- ------- $41,247 $32,236 ======= ======= The December 31, 1998 and 1997 inventories valued using the LIFO method totaled $23,269,000 and $22,446,000 respectively. GRAHAM PACKAGING COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 1998 6. Accrued Expenses Accrued expenses consisted of the following: December 31, ------------------------- 1998 1997 -------- -------- (In thousands) Accrued employee compensation and benefits $19,983 $16,305 Special charges and unusual items 7,744 18,472 Accrued Interest 16,736 512 Other 26,968 16,525 ------- ------- $71,431 $51,814 ======= ======= 7. Debt Arrangements Long-term debt consisted of the following: December 31, ----------------------- 1998 1997 -------- -------- (In thousands) Credit Agreement: Term loan $466,800 $125,000 Revolving loan 61,000 132,179 Revolving credit facilities 7,055 6,653 Senior Subordinated Notes 225,000 -- Other 4,845 4,633 -------- -------- 764,700 268,465 Less amounts classified as current 11,929 4,771 -------- -------- $752,771 $263,694 ======== ======== On February 2, 1998, as discussed in Note 2 to the Financial Statements, the Group refinanced the majority of its existing credit facilities in connection with the Recapitalization and entered into a new Credit Agreement (the "New Credit Agreement") with a consortium of banks. The New Credit Agreement was amended on August 13, 1998 (the "Amendment") to provide for an additional Term Loan Borrowing of up to an additional $175 million which can be drawn in two installments (of which $75 million was drawn and outstanding as of December 31, 1998). A commitment fee of .75% is due on the unused portion. The New Credit Agreement and the Amendment consist of four term loans to the Operating Company totaling up to $570 million and two revolving loan facilities to the Operating Company totaling $255 million. The obligations of the Operating Company under the New Credit Agreement and Amendment are guaranteed by Holdings and certain other subsidiaries of Holdings. The term loans are payable in quarterly installments through January 31, 2007, and require payments of $5.0 million in 1999, $15.0 million in 2000, $20.0 million in 2001, $25.0 million in 2002 and $27.5 million in 2003. The revolving loan facilities expire on January 31, 2004. Interest is payable at (a) the "Alternate Base Rate" (the higher of the Prime Rate or the Federal Funds Rate plus 0.50%) plus a margin ranging from 0% to 2.00%; or (b) the "Eurocurrency Rate" (the applicable interest rate offered to banks in the London interbank eurocurrency market) plus a margin ranging from 0.625% to 3.00%. A commitment fee ranging from 0.20% to 0.50% is due on the unused portion of the revolving loan commitment. As part of the Amendment to the New Credit Agreement, if certain events of default were to occur (including, without limitation, if the Group's Net Leverage Ratio were above 5.15:1.0 at March 31, 2000), Blackstone has agreed to GRAHAM PACKAGING COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 1998 make an equity contribution to the Group through the administrative agent of up to $50 million. In addition, the New Credit Agreement and Amendment contain certain affirmative and negative covenants as to the operations and financial condition of the Group, as well as certain restrictions on the payment of dividends and other distributions to Holdings. The Recapitalization also included the issuance of $225 million in Senior Subordinated Notes of the Operating Company. The Senior Subordinated Notes are unconditionally guaranteed on a senior subordinated basis by Holdings and mature on January 15, 2008, with interest payable on $150 million at a fixed rate of 8.75% and with interest payable on $75 million at LIBOR plus 3.625%. At December 31, 1998, the Operating Company had entered into three U.S. Dollar interest rate swap agreements that effectively fix the Eurocurrency Rate on $450 million of the term loans, on $200 million through April 9, 2002 at 5.8075%, on $100 million through April 9, 2003 at 5.77% and on $150 million through September 10, 2001 at 5.5075%. Under the New Credit Agreement and Amendment, the Operating Company is subject to restrictions on the payment of dividends or other distributions to Holdings; provided that, subject to certain limitations, the Operating Company may pay dividends or other distributions to Holdings (i) in respect of overhead, tax liabilities, legal, accounting and other professional fees and expenses, (ii) to fund purchases and redemptions of equity interests of Holdings or Investor LP held by their present or former officers or employees of Holdings, the Operating Company or their Subsidiaries (as defined) or by any employee stock ownership plan upon such person's death, disability, retirement or termination of employment or other circumstances with certain annual dollar limitations and (iii) to finance starting on July 15, 2003, the payment of cash interest payments on the Senior Discount Notes. On September 8, 1998, the Operating Company and GPC Capital Corp. I consummated exchange offers for all of their outstanding Senior Subordinated Notes Due 2008 which had been issued on February 2, 1998 (the "Senior Subordinated Old Notes") and issued in exchange therefor their Senior Subordinated Notes Due 2008, Series B (the "Senior Subordinated Exchange Notes"). Each issue of Senior Subordinated Exchange Notes has the same terms as the corresponding issue of Senior Subordinated Old Notes, except that the Senior Subordinated Exchange Notes are registered under the Securities Act of 1933 and do not include the restrictions on transfer applicable to the Senior Subordinated Old Notes. The Senior Subordinated Old Notes were, and the Senior Subordinated Exchange Notes are, fully and unconditionally guaranteed by Holdings on a senior subordinated basis. GRAHAM PACKAGING COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 1998 The Group's effective rate on the outstanding borrowings under the term loan and revolving loan was 7.73% and 6.03% at December 31, 1998 and 1997, respectively. The Group had several variable-rate revolving credit facilities denominated in U.S. Dollars, French Francs and Italian Lire, with aggregate available borrowings at December 31, 1998 equivalent to $15.9 million. The Group's average effective rate on borrowings of $7.1 million on these credit facilities at December 31, 1998 was 4.95%. The Group's average effective rate on borrowings of $6.7 million on these credit facilities at December 31, 1997 was 6.70%. Interest paid during 1998, 1997 and 1996, net of amounts capitalized of $2,639,000, $615,000 and $572,000 respectively, totaled $41,985,000, $14,900,000 and $15,868,000 respectively. Based upon the repayment terms under the New Credit Agreement, maturities of long-term debt for the succeeding five years are as follows: 1999--$11.9 million; 2000--$15.2 million; 2001--$20.2 million; 2002--$25.8 million; 2003--$28.9 million. 8. Fair Value of Financial Instruments and Derivatives The following methods and assumptions were used to estimate the fair values of each class of financial instruments: Cash and Cash Equivalents, Accounts Receivable and Accounts Payable The fair values of these financial instruments approximate their carrying amounts. Long-Term Debt The fair values of the variable-rate, long-term debt instruments approximate their carrying amounts. The fair value of other long-term debt was based on market price information and was estimated using discounted cash flow analyses based on current incremental borrowing rates for similar types of borrowing arrangements. Other long-term debt at December 31, 1998 consisted of approximately $150 million of fixed- rate debt instruments. The fair value of this long-term debt, including the current portion, was approximately $152.3 million at December 31, 1998. The fair value of other long-term debt at December 31, 1997 approximates the carrying amounts. Derivatives The Group is exposed to market risk from changes in interest rates and currency exchange rates. The Group manages these exposures on a consolidated basis and enters into various derivative transactions for selected exposure areas. The financial impacts of these hedging instruments are offset by corresponding changes in the underlying exposures being hedged. The Group does not hold or issue derivative financial instruments for trading purposes. GRAHAM PACKAGING COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 1998 Interest rate swap agreements are used to hedge exposure to interest rates associated with the Group's Credit Agreement. Under these agreements, the Group agrees to exchange with a third party at specified intervals, the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount. The interest rate differential is reflected as an adjustment to interest expense over the life of the interest rate swap agreements. The following table presents information for all interest rate instruments. The notional amount does not necessarily represent amounts exchanged by the parties and, therefore is not a direct measure of the Group's exposure to credit risk. The fair value approximates the cost to settle the outstanding contracts. The carrying value, which represents accrued interest due to counterparties under swap agreements, was not material. 1998 1997(1) --------- --------- (in thousands) Notional amount $450,000 $179,045 Fair value (8,784) 354 (1) The Group used a combination of interest rate collar and swap agreements in 1997. Although derivatives are an important component of the Group's interest rate management program, their incremental effect on interest expense for 1998, 1997 and 1996 was not material. The Group manufactures and sells its products in a number of countries throughout the world and, as a result, is exposed to movements in foreign currency exchange rates. The Group utilizes foreign currency hedging activities to protect against volatility associated with purchase commitments that are denominated in foreign currencies for machinery, equipment and other items created in the normal course of business. The terms of these contracts are generally less than one year. Gains and losses related to qualifying hedges of foreign currency firm commitments or anticipated transactions are deferred in other current assets and are included in the basis of the underlying transactions. To the extent that a qualifying hedge is terminated or ceases to be effective as a hedge, any deferred gains and losses up to that point continue to be deferred and are included in the basis of the underlying transaction. At December 31, 1998 the Group had foreign currency forward exchange contracts totalling $5,793,000, with a fair value of $5,936,000. The deferred gains and losses on these instruments were not material. There were no similar instruments at December 31, 1997. GRAHAM PACKAGING COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 1998 Credit risk arising from the inability of a counterparty to meet the terms of the Group's financial instrument contracts is generally limited to the amounts, if any, by which the counterparty's obligations exceed the obligations of the Group. It is the Group's policy to enter into financial instruments with a diversity of creditworthy counterparties. Therefore, the Group does not expect to incur material credit losses on its risk management or other financial instruments. 9. Lease Commitments The Group was a party to various leases involving real property and equipment during 1998, 1997 and 1996. Total rent expense for operating leases amounted to $10,627,000 in 1998, $9,599,000 in 1997 and $8,432,000 in 1996. Minimum future lease obligations on long-term noncancelable operating leases in effect at December 31, 1998, are as follows: 1999--$5,620,000; 2000--$4,213,000; 2001--$3,261,000; 2002-- $2,425,000; 2003--$1,900,000; and thereafter--$4,155,000. 10. Transactions with Affiliates Transactions with entities affiliated through common ownership included the following: Year Ended December 31, ----------------------- 1998 1997 1996 (In thousands) Equipment purchases from affiliates $22,045 $11,104 $5,223 Management services provided by affiliates, including management, legal, tax, accounting, insurance, treasury, and employee benefits administration services $2,071 $2,820 $2,623 Management services provided and sales to Graham Engineering Corporation, including engineering services and raw materials $1,414 $945 $739 Interest income on notes receivable from owners $103 $1,026 $1,026 Account balances with affiliates include the following: Year Ended December 31, ----------------------- 1998 1997 -------- -------- (In thousands) Accounts receivable $1,116 $361 Prepaid expenses and other current assets -- 917 Accounts payable 2,804 3,470 GRAHAM PACKAGING COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 1998 Certain land and buildings included in the accompanying financial statements were leased by the Group from the control group of owners under operating leases until the assets were contributed to the Group. The lease payments totaling zero in 1998, and approximately $2.6 million in 1997 and $2.8 million in 1996 are classified as distributions to owners in the accompanying financial statements. The depreciation and operating expenses related to the land and buildings are included in the operations of the Group. Certain of the real property leased from the control group was contributed to the Group as part of the Recapitalization and the related leases were terminated. 11. Pension Plans Substantially all employees of the Group participate in noncontributory, defined benefit or defined contribution pension plans. The defined benefit plan covering salaried employees provides retirement benefits based on the final five years average compensation, while plans covering hourly employees provide benefits based on years of service. The Group's policy is to fund the normal cost plus amounts required to amortize actuarial gains and losses and prior service costs over a period of ten years. Plan assets consist of a diversified portfolio including U.S. Government securities, certificates of deposit issued by commercial banks, and domestic common stocks and bonds. Prior to the Recapitalization, the Group participated in a plan sponsored by an affiliated company. As part of the Recapitalization, the Group's portion of pension obligations and related plan assets were spun off into a newly established plan. The transactions resulted in a one-time allocation of additional plan assets. Effective December 31, 1998, the Group adopted SFAS No. 132, "Employers' Disclosures about Pensions and other Postretirement Benefits." SFAS No. 132 does not change the measurement or recognition of these plans, but revises the disclosure requirements for pension and other postretirement benefit plans for all years presented. The following table sets forth the change in the Group's benefit obligation and pension plan assets at market value for the years ended December 31, 1998 and 1997:
1998 1997 ----------------- ----------------- Change in benefit obligation: Benefit obligation at beginning of year $(15,018) $(11,898) Service cost (1,628) (1,317) Interest cost (1,120) (947) Benefits paid 276 158 Change in benefit payments due to experience (109) (37) Increase in benefit obligation due to change in discount (1,975) (958) rate Increase in benefit obligation due to plan change (385) (19) -------- -------- Benefit obligation at end of year (19,959) (15,018) Change in plan assets: Plan assets at market value at beginning of year 12,092 9,489 Actual return on plan assets 1,914 850 Employer contribution 1,997 1,911 Benefits paid (276) (158) Acquisitions (spin off from affiliated company) 1,424 -------- -------- Plan assets at market value at end of year 17,151 12,092 Funded status (2,808) (2,926) Unrecognized net actuarial loss (338) (4) Unrecognized prior service cost 785 446 -------- -------- Accrued pension expense $(2,361) $(2,484) ======== ========
Significant actuarial assumptions used to develop the projected benefit obligations were as follows: December 31, -------------------- 1998 1997 Assumed discount rate 7.0% 7.5% Assumed rate of compensation increase (salaried plan) 5.0% 5.0% Expected return on plan assets 8.0% 8.0% The Group's net pension cost for its defined benefit pension plans includes the following components: Year Ended December 31, ------------------------------ 1998 1997 1996 --------- -------- ------- (In thousands) Service cost $1,628 $1,317 $1,349 Interest cost 1,120 947 793 Actual return on plan assets (1,914) (850) (320) Net amortization and deferral 1,041 135 (238) ------ ------ ------ Net periodic pension costs $1,875 $1,549 $1,584 ====== ====== ====== The Group sponsors a defined contribution plan under Internal Revenue Code Section 401(k) which covers all hourly and salaried employees other than employees represented by a collective bargaining unit. The Group also sponsored other defined contribution plans under collective bargaining agreements. The Group's contributions are determined as a specified percentage of employee contributions, subject to certain maximum limitations. The Group's cost for these plans for 1998, 1997, and 1996 were $787,000, $742,000 and $722,000 respectively. GRAHAM PACKAGING COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 1998 12. Partners' Capital/ Owners' Equity Owners' equity included the partners' capital and shareholders' equity of the various entities and operations included in the financial statements, as described in Note 1. Prior to the Recapitalization, as described in Note 2, owners' equity included the partners' capital and shareholders' equity of those entities and operations included in the combined financial statements. Effective January 1, 1994, pursuant to an ownership structure reorganization of Holdings and several affiliated entities, Holdings obtained 60% of the outstanding voting interests of GRAHAM PACKAGING COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 1998 members of the Group operating in France, Italy, and the United Kingdom. The remaining 40% of the outstanding voting interests was obtained directly by owners of Holdings. Also, Holdings obtained 99% of the voting interest in Graham Recycling Company L.P. During 1995, the members operating in France and Italy issued 100% of their nonvoting preferred interests to Holdings. At December 31, 1997, Holdings owned 100% of the outstanding stock of Graham Packaging Canada, Ltd., a Canadian limited liability company, 15.8% of the outstanding stock of Graham Packaging do Brasil Industria e Comercio S.A. and a 99% limited partnership interest in the Operating Company. The remaining 1% interest in Graham Recycling Company, L.P. and the Operating Company were owned directly by owners of Holdings. In addition, 64.2% of Graham Packaging do Brasil Industria e Comercio S.A. was owned directly by owners of Holdings and the remaining 20% was owned by an unrelated entity. As noted in Note 3, in February 1998, the group acquired the remaining 20% interest in Graham Packaging do Brasil Industria e Comercio S.A. At December 31, 1997, Holdings held notes receivable from limited partners of $20,240,000, bearing interest at 5.07% for partnership interests in it. The notes were classified as a reduction of owners' equity in the balance sheets. As a result of the Recapitalization (see note 2), this obligation was repaid by the limited partners in 1998. At December 31, 1998, Holdings owned a 99% direct limited partnership interest in the Operating Company. The remaining 1% interest in the Operating Company is owned as a general partnership interest by GPC Opco GP LLC, which is 100% owned by Holdings. The Operating Company in turn owns a 99% interest and, through its 100% owned subsidiary GP Sub GP, LLC, a 1% general partnership interest in the various entities and operations included in the financial statements, as described in Note 1, except for Graham Packaging Canada, Ltd. GPC Capital Corp. I and CMB Plastpak Plastic, Ambalaj Sanayi A.S., where the Operating Company owns 100% of the capital stock of these subsidiaries. In addition, Holdings owns 100% of the capital stock of GPC Capital Corp. II. As a result of the Recapitalization, any interests in these entities formerly held by owners of Holdings were contributed to Holdings , which in turn contributed these interests to the Operating Company. 13. Management Option Plan Pursuant to the Recapitalization Agreement, the Group has adopted the Graham Packaging Holdings Company Management Option Plan (the "Option Plan"). The Option Plan provides for the grant to certain management employees of Holdings and its subsidiaries of options ("Options") to purchase limited partnership interests in Holdings equal to 0.01% of Holdings (prior to any dilution resulting from any interests granted pursuant to the Option Plan), each 0.01% interest being referred to as a "Unit". The aggregate number of Units with respect to which Options may be granted under the Option Plan shall not exceed 500 Units, representing a total of up to 5% of the equity of Holdings. GRAHAM PACKAGING COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 1998 The exercise price per Unit shall be the fair market value of the 0.01% interest on the date of the grant. The number and type of Units covered by outstanding Options and exercise prices may be adjusted to reflect certain events such as recapitalizations, mergers or reorganizations of or by Holdings. The Option Plan is intended to advance the best interests of the Group by allowing such employees to acquire an ownership interest in the Group, thereby motivating them to contribute to the success of the Group and to remain in the employ of the Group. A committee has been appointed to administer the Option Plan, including, without limitation, the determination of the employees to whom grants will be made, the number of Units subject to each grant, and the various terms of such grants. As of December 31, 1998, 399.1 Unit Options have been granted at an exercise price of $25,789 per Unit. No options were vested, forfeited, cancelled or exercised as of December 31, 1998. The Group applies APB 25 in accounting for the Option Plan. The exercise price of the Unit equals the fair market value of the 0.01% interest on the date of the grant and, accordingly no compensation cost has been recognized under the provisions of APB 25 for Units granted. Under SFAS 123, compensation cost is measured at the grant date based on the value of the award and is recognized over the service (or vesting) period. Had compensation cost for the option plan been determined under SFAS 123, based on the fair market value at the grant dates, the Group's pro forma net loss for 1998 would have been reflected as follows: (In thousands) Net loss As reported $(14,516) Pro forma $(14,937) The fair value of each option Unit is estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for Units granted in 1998: pay out yield 0%, expected volatility of 0%, risk free interest rate of 5.558%, and expected life of 4.6 years. GRAHAM PACKAGING COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 1998 14. Special Charges and Unusual Items The special charges and unusual items were as follows:
Year Ended December 31, ------------------------------------- 1998 1997 1996 ------------- ---------- -------- (In thousands) Restructuring of facilities $ 1,960 $ 1,222 $ 754 Systems conversion 963 515 -- Litigation 285 22,624 6,283 Recapitalization compensation 20,609 -- -- Aborted acquisition costs 427 -- -- ------- ------- ------- $24,244 $ 24,361 $7,037 ======= ======= =======
In 1996, the Group incurred $754,000 to move assets from its plant in Lagnieu, France to Blyes, France, and in 1997, the Group incurred an additional $746,000 related to the restructuring of the facilities in France. Also in 1997, the Group incurred $476,000 in restructuring costs at its corporate offices. In 1998, the Group incurred restructuring charges of $1,960,000 related to the decision to close a plant in Whiting, Indiana and to restructure a plant in Blyes, France. Included in the $1,960,000 is $1,200,000 related to the legal liability of severing 51 employees at the Blyes plant in France and $350,000 related to the severing of 26 employees at the Whiting, Indiana plant. Additional severance costs of $1,000,000 are expected to be incurred in the first quarter of 1999 related to the restructuring of the Blyes plant. The systems conversion expenses relate to costs incurred by the Group as part of a multi-year project to ensure that its information systems and related hardware will be year 2000 compliant. The Group engaged outside consultants beginning in 1997 to assist with the evaluation and assessment of its information systems requirements and the selection and implementation of enterprise resource planning software. Recapitalization expenses included in special charges and unusual items relate to compensation and to write-off of unamortized licensing fees. Additionally, Recapitalization expenses relate to stay bonuses and the granting of certain ownership interests to Management pursuant to the terms of the Recapitalization (see Note 2), which are being recognized over a period of up to three years. GRAHAM PACKAGING COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 1998 The litigation costs in 1997 and 1996 are primarily costs incurred and accrued by the Group for legal fees in connection with the claims against the Group for alleged patent infringements and the counterclaims brought by the Group alleging violations of federal antitrust law by the plaintiffs and, for the year ended December 31, 1997, amounts expected to be paid in settlement of the claims in the JCI Schmalbach-Lubeca matter. See Note 18 to the Financial Statements. 15. Other (Income) Expense Other (income) expense consisted of the following:
Year Ended December 31, ------------------------------ 1998 1997 1996 -------- -------- -------- (In thousands) ------------------ Foreign exchange (gain) loss 152 $ 955 $ (720) Equity income in earnings of joint ventures (274) (200) (257) ------ ------ ------ $ (122) $ 755 $ (977) ------ ------ ------
16. Income Taxes Certain legal entities in the Group do not pay income taxes because their income is taxed to the owners. For those entities, the reported amount of their assets net of the reported amount of their liabilities are exceeded by the related tax bases of their assets net of liabilities by $482.6 million at December 31, 1998. The reported amount of their assets net of the reported amount of their liabilities exceeded the related tax bases of their assets net of liabilities by $14.8 million at December 31, 1997. Income of certain legal entities related principally to the foreign operations of the Group is taxable to the legal entities. The following table sets forth the deferred tax assets and liabilities that result from temporary differences between the reported amounts and the tax bases of the assets and liabilities of such entities: GRAHAM PACKAGING COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 1998
December 31, --------------------------------------------- 1998 1997 --------------------- --------------------- (In thousands) -------------- Deferred tax assets: Net operating loss carryforwards $ 24,654 $ 13,613 Accrued retirement indemnities 1,614 799 Inventories 582 253 Accruals and reserves 1,149 17 Capital leases 829 256 Other items 24 -------- -------- Gross deferred tax assets 28,852 14,938 Valuation allowance (13,903) (7,034) -------- -------- Net deferred tax assets 14,949 7,904 Deferred tax liabilities: Fixed Assets, principally due to differences in depreciation and assigned values 10,778 8,359 Goodwill 4,462 Other items 41 328 -------- -------- Gross deferred tax liabilities 15,281 8,687 -------- -------- Net deferred tax liabilities $ 332 $ 783 -------- --------
The valuation allowance reduces the Group's deferred tax assets to an amount that Management believes is more likely than not to be realized. The provision for income taxes at December 31, 1998 is comprised of $328,000 of current provision and $764,000 of deferred. The amounts relate entirely to the Group's foreign legal entities. The difference between the actual 1998 income tax provision computed by applying the U.S. federal statutory rate to earnings before income taxes is attributable to the following: Year Ended December 31, 1998 --------------- (In thousands) --------------- Taxes at U.S. federal statutory rate $(9,504) Partnership income not subject to federal income taxes 7,531 Foreign loss without current tax benefit 2,617 Other 448 ------- $1,092 ======= At December 31, 1998, the Group's various taxable entities had net operating loss carryforwards for purposes of reducing future taxable income by approximately $59.6 million, for which no benefit has been recognized. Of this amount, $15.9 million related to carryforwards that will expire, if unused, at various dates ranging from 1999 to 2003 and the remaining carryforwards have no expiration date. At December 31, 1998, the unremitted earnings of non-U.S. subsidiaries totalling $7.0 million were deemed to be permanently invested No deferred tax GRAHAM PACKAGING COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 1998 liability has been recognized with regard to the remittance of such earnings. If such earnings were remitted to the United States, approximately $260,000 of withholdings taxes would apply. 17. Commitments In connection with plant expansion and improvement programs, the Group had commitments for capital expenditures of approximately $33.0 million at December 31, 1998. 18. Contingencies and Legal Proceedings The Group is party to various litigation matters arising in the ordinary course of business. The ultimate legal and financial liability of the Group with respect to litigation cannot be estimated with certainty, but Management believes, based on its examination of such matters, experience to date and discussions with counsel, that such ultimate liability will not be material to the business, financial condition or results of operations of the Group. Holdings was sued in May, 1995, for alleged patent infringement, trade secret misappropriation and other related state law claims by Hoover Universal, Inc., a subsidiary of Johnson Controls, Inc. ("JCI"), in the U.S. District Court for the Central District of California (the "JCI Litigation"). JCI alleged that Holdings was misappropriating or threatened to misappropriate trade secrets allegedly owned by JCI relating to the manufacture of hot-fill PET plastic containers through the hiring of JCI employees and alleged that Holdings infringed two patents owned by JCI by manufacturing hot-fill PET plastic containers for several of its largest customers using a certain "pinch grip" structural design. In December, 1995, JCI filed a second lawsuit alleging infringement of two additional patents, which relate to a ring and base structure for hot-fill PET plastic containers. The two suits were consolidated for all purposes. Holdings has answered the complaints, denying infringement and misappropriation in all respects and asserting various defenses, including invalidity and unenforceability of the patents at issue based upon inequitable conduct on the part of JCI in prosecuting the relevant patent applications before the U.S. Patent Office and anticompetitive patent misuse by JCI. Holdings has also asserted counterclaims against JCI alleging violations of federal antitrust law, based upon certain agreements regarding market division allegedly entered into by JCI with another competitor and other alleged conduct engaged in by JCI allegedly intended to raise prices and limit competition in the market for hot-fill PET plastic containers. In March, 1997, JCI's plastic container business was acquired by Schmalbach-Lubeca Plastic Containers USA Inc. ("Schmalbach-Lubeca"). Schmalbach-Lubeca and certain affiliates were joined as successors to JCI and as counter-claim defendants. On March 10, 1998, the U.S. District Court in California entered summary judgment in favor of JCI and against the Group regarding infringement of two patents, but did not resolve certain issues related to the patents including certain of the Group's defenses. On March 6, 1998, the Group also filed suit against Schmalbach-Lubeca in Federal Court in Delaware for infringement of the Group's patent concerning pinch grip bottle design. On April 24, 1998, the parties to the litigation reached an understanding on the terms of a settlement of all claims in all of the litigation with JCI and Schmalbach-Lubeca, subject to agreement upon and execution of a formal settlement agreement. Management believed that the amounts that would ultimately be paid in settlement, as well as estimated litigation expenses and professional fees would not differ materially from the amounts accrued in Special Charges and Unusual Items in respect thereof for the year ended December 31, 1997. See Note 14 to the Financial Statements. In June 1998, the Group finalized the settlement of the JCI-Schmalbach-Lubeca litigation. The amounts paid in settlement as well as estimated litigation expenses and professional fees did not differ materially from the amounts accrued in special charges and unusual items in respect thereof in 1997. See Note 14 to the Financial Statements. GRAHAM PACKAGING COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 1998 19. Segment Information The Group has adopted SFAS No. 131, "Disclosures about Segments of a Business Enterprise and Related Information". The Group is managed in three operating segments: North America, which includes the United States and Canada; Europe and Latin America. The accounting policies of the segments are consistent with those described in Note 1. (In thousands) North Latin Year America Europe America Eliminations Total --- --- --- --- --- --- Net sales 1998 $465,317 $100,835 $21,979 $588,131 1997 439,977 67,408 14,322 521,707 1996 381,916 77,824 459,740 Special charges and unusual items 1998 $22,422 $ 1,572 $250 $24,244 1997 23,615 746 -- 24,361 1996 6,283 754 -- 7,037 Operating income (loss) 1998 $61,891 $(7,010) $479 $55,360 1997 34,393 (8,841) (389) 25,163 1996 39,606 (4,922) 34,684 Depreciation and amortization 1998 $31,384 $9,405 $2,315 $43,104 1997 33,065 6,436 1,858 41,359 1996 41,373 7,061 48,434 Interest expense (income), net 1998 $57,785 $(496) $173 $57,462 1997 11,191 1,517 722 13,430 1996 11,982 2,471 14,453 Income tax expense (benefit) 1998 $311 $781 $1,092 1997 28 572 600 1996 (24) (24) Identifiable assets 1998 $571,446 $172,553 $38,783 $(184,110) $598,672 1997 319,760 80,896 36,555 (51,720) 385,491 1996 294,516 85,152 (40,855) 338,813 Capital expenditures 1998 $114,048 $13,243 $6,621 $133,912 1997 33,471 11,018 8,684 53,173 1996 25,784 5,468 31,252 Extraordinary loss on extinguishment of debt 1998 $ 675 $ -- $ -- $ 675 1997 -- -- -- -- 1996 -- -- -- -- GRAHAM PACKAGING COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued) DECEMBER 31, 1998 Product Net Sales Information The following is supplemental information on net sales by product category (in millions): Household Cleaning & Food & Personal Automotive Beverage Care Total ---------- -------- ---------- ----- 1998 $188.7 $221.1 $178.3 $588.1 1997 196.4 150.6 174.7 521.7 1996 180.9 116.4 162.4 459.7 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Holdings, which is composed of the legal entities and operations that prior to the Recapitalization, which occurred on February 2, 1998, were known as the Graham Packaging Group (the "Group"), has engaged Deloitte & Touche LLP as its independent auditors for the year ending December 31, 1998 to replace the firm of Ernst & Young LLP, who were dismissed as auditors of Holdings effective April 30, 1998. The action was formalized by a resolution adopted by Investor GP, as general partner of Holdings, on July 10, 1998, but effective as of April 30, 1998. The reports of Ernst & Young LLP on the financial statements of the Group for the years ended December 31, 1997 and 1996 and for each of the two years in the period ended December 31, 1997 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles. In connection with the audits of the Group's financial statements for each of the two years in the period ended December 31, 1997 and in the subsequent interim period, there were no disagreements with Ernst & Young LLP on any matters of accounting principles or practices, financial statement disclosure, or auditing scope and procedures which, if not resolved to the satisfaction of Ernst & Young LLP would have caused Ernst & Young LLP to make reference to the matter in their report. PART III Item 10. Advisory Committee Members, Directors and Executive Officers of the Registrant The members of the Advisory Committee of Holdings and the executive officers of the Operating Company since the Recapitalization and their respective ages and positions are set forth in the table below. For a description of the Advisory Committee, see "The Partnership Agreements--Holdings Partnership Agreement." Name Age Position Donald C. Graham 65 Chairman of the Advisory Committee of Holdings William H. Kerlin, Jr. 47 Vice Chairman of the Advisory Committee of Holdings Philip R. Yates 51 President and Chief Executive Officer of the Operating Company John E. Hamilton 40 Chief Financial Officer of the Operating Company G. Robinson Beeson 50 Senior Vice President and General Manager, Automotive of the Operating Company Scott G. Booth 42 Senior Vice President and General Manager, Household Cleaning and Personal Care of the Operating Company Roger M. Prevot 39 Senior Vice President and General Manager, Food and Beverage of the Operating Company Philippe LeJeune 50 Senior Vice President and General Manager, Europe of the Operating Company George M. Lane 54 Senior Vice President Global Human Resources of the Operating Company Geoffrey R. Lu 43 Vice President and General Manager, Latin America of the Operating Company George W. Stevens 55 Vice President and General Manager, Canada of the Operating Company Robert M. Gibson 59 Vice President Global Procurement of the Operating Company Jay W. Hereford 48 Vice President, Finance and Administration of the Operating Company Chinh E. Chu 32 Member of the Advisory Committee of Holdings Howard A. Lipson 35 Member of the Advisory Committee of Holdings Simon P. Lonergan 30 Member of the Advisory Committee of Holdings Donald C. Graham has served as Chairman of the Advisory Committee of Holdings since the Recapitalization. From June 1993 to the Recapitalization, Mr. Graham served as Chairman of the Board of Directors of the Company. Prior to June 1993, Mr. Graham served as President of the Company. William H. Kerlin, Jr. has served as Vice Chairman of the Advisory Committee of Holdings since the Recapitalization. From October 1996 to the Recapitalization, Mr. Kerlin served as Vice Chairman of the Board of Directors and Chief Executive Officer of the Company. From 1994 to 1996, Mr. Kerlin served as Vice President of the Company and Vice Chairman of the Company. Prior to 1994, Mr. Kerlin served as Secretary of the Company. Philip R. Yates has served as President and Chief Executive Officer of the Operating Company since the Recapitalization. Since the Recapitalization, Mr. Yates has also served as President and Chief Executive Officer of Opco GP and of various subsidiaries of the Operating Company or their general partner, as President, Treasurer and Assistant Secretary of CapCo I and CapCo II, and as a member of the Boards of Directors of CapCo I and CapCo II. From April 1995 to the Recapitalization, Mr. Yates served as President and Chief Operating Officer of the Company. From 1994 to 1995, Mr. Yates served as President of the Company. Prior to 1994, Mr. Yates served in various management positions with the Company. John E. Hamilton has served as Chief Financial Officer or Senior Vice President, Finance and Administration or Vice President, Finance and Administration of the Operating Company since the Recapitalization. Since January 21, 1999, Mr. Hamilton has served as Chief Financial Officer of Opco GP and Holdings, and has served as Treasurer and Secretary of Opco GP and of various subsidiaries of the Operating Company or their general partner since the Recapitalization. Since the Recapitalization, Mr. Hamilton has served as Vice President, Secretary and Assistant Treasurer of CapCo I and CapCo II, and as a member of the Boards of Directors of CapCo I and CapCo II. Subsequent to the Recapitalization and until January 21, 1999, Mr. Hamilton served as Vice President, Finance and Administration of Opco GP and Holdings. From November 1992 to the Recapitalization, Mr. Hamilton served as Vice President, Finance and Administration, North America of the Company. Prior to 1992, Mr. Hamilton served in various management positions with the Company. G. Robinson Beeson has served as Senior Vice President or Vice President and General Manager, Automotive of the Operating Company since the Recapitalization. From July 1990 to the Recapitalization, Mr. Beeson served as Vice President and General Manager, U.S. Automotive of the Company. Scott G. Booth has served as Senior Vice President or Vice President and General Manager, Household Cleaning and Personal Care of the Operating Company since the Recapitalization. From July 1990 to the Recapitalization, Mr. Booth served as Vice President and General Manager, U.S. Household Cleaning and Personal Care of the Company. Roger M. Prevot has served as Senior Vice President or Vice President and General Manager, Food and Beverage of the Operating Company since the Recapitalization. From July 1990 to the Recapitalization, Mr. Prevot served as Vice President and General Manager, U.S. Food and Beverage of the Company. From June 1991 to October 1994, Mr. Prevot also served as President and General Manager of Graham Recycling. Philippe LeJeune has served as Senior Vice President and General Manager, Europe of the Operating Company since October 1998. Prior to joining the company. Mr. LeJeune served as Group Vice President, Plastic Bottles for Carnaud Metalbox SA from February 1997 to October 1998, as Vice President, South Europe for Danisco Flexible from December 1995 to February 1997 and as Division Director, CMB Flexibles for Carnaud Metal Box from February 1992 until December 1995. George M. Lane has served as Senior Vice President, Global Human Resources of the Operating Company since September 1998. From July 1990 to September 1998, Mr. Lane served as Vice President, Human Resources of the Operating Company. Geoffrey R. Lu has served as Vice President and General Manager, Latin America of the Operating Company since the Recapitalization. From May 1997 to the Recapitalization, Mr. Lu served as Vice President and General Manager, Latin America of the Company. From 1994 to 1997, Mr. Lu served as Director and General Manager, Latin America of the Company. Prior to 1994, Mr. Lu served as Director, Global Business Development of the Company. George W. Stevens has served as Vice President and General Manager, Canada of the Operating Company since March 1998. From August 1992 to March 1998, Mr. Stevens served as Director of Sales North America, Household Cleaning and Personal Care of the Operating Company. Robert M. Gibson has served as Vice President Global Procurement of the Operating Company since November 1998. Prior to that he served as Vice President Procurement for the Operating Company. Jay W. Hereford has served as Vice President, Finance and Administration, Assistant Treasurer and Assistant Secretary of the Operating Company since November 1998. Mr. Hereford has also served as Vice President, Finance and Administration, Assistant Treasurer and Assistant Secretary of Opco GP, and as Vice President, Secretary, Assistant Secretary and Assistant Treasurer of various subsidiaries of the Operating Company. Prior to joining the company, Mr. Hereford served as Vice President, Treasurer and Chief Financial Officer of Continental Plastic Containers, Inc. and Continental Caribbean Containers, Inc. from 1992 to November 1998. Chinh E. Chu is a Managing Director of The Blackstone Group L.P. which he joined in 1990. Since the Recapitalization, Mr. Chu has served as Vice President, Secretary and Assistant Treasurer of Investor LP and Investor GP, as a Vice President of CapCo I and CapCo II and as a member of the Boards of Directors of Investor LP, CapCo I and CapCo II. Prior to joining Blackstone, Mr. Chu was a member of the Mergers and Acquisitions Group of Salomon Brothers Inc from 1988 to 1990. He currently serves on the Boards of Directors of Prime Succession Inc., Roses, Inc. and Haynes International, Inc. Howard A. Lipson is Senior Managing Director of The Blackstone Group L.P. which he joined in 1988. Since the Recapitalization, Mr. Lipson has served as President, Treasurer and Assistant Secretary of Investor LP and Investor GP and as a member of the Board of Directors of Investor LP. Prior to joining Blackstone, Mr. Lipson was a member of the Mergers and Acquisitions Group of Salomon Brothers Inc. He currently serves on the Boards of Directors of Allied Waste Industries, Inc., Volume Services, Inc., AMF Group Inc., Ritvik Holdings Inc., Prime Succession Inc. and Roses, Inc. Simon P. Lonergan is an Associate of The Blackstone Group L.P. which he joined in 1996. Since the Recapitalization, Mr. Lonergan has served as Vice President, Assistant Secretary and Assistant Treasurer of Investor LP and Investor GP, as a Vice President of CapCo I and CapCo II and as a member of the Boards of Directors of Investor LP, CapCo I and CapCo II. Prior to joining Blackstone, Mr. Lonergan was an Associate at Bain Capital, Inc. and a Consultant at Bain and Co. He currently serves on the Board of Directors of CommNet Cellular, Inc. and the Advisory Committee of InterMedia Partners VI. The Boards of Directors of CapCo I and CapCo II are comprised of Philip R. Yates, John E. Hamilton, Chinh E. Chu and Simon P. Lonergan. The Board of Directors of Investor LP is comprised of Howard A. Lipson, Chinh E. Chu and Simon P. Lonergan. Except as described above, there are no arrangements or understandings between any director or executive officer and any other person pursuant to which such person was elected or appointed as a director or executive officer. Item 11. Executive Compensation The following table sets forth all cash compensation paid to the Chief Executive Officers and four other most highly compensated executive officers of the Company (the "Named Executive Officers") for the year ended December 31, 1998, and their respective titles at December 31, 1998. Summary Compensation Table
Annual Compensation Long-Term Compensation -------------------------------------- --------------------- Awards Payouts -------- (3) (4) (5) Restricted Name and Principal Position Other annual Stock LTIP All Other -------------------------------------- Year Salary Bonus Compensation Awards Payouts Compensation ---- ---------- ----------- ----------- --------- ---------- ------------ $ $ $ $ $ $ Philip R. Yates (1) 1998 300,019 100,474 -0- 3,866,000 2,225,000 4,800 Chief Executive Officer 1997 250,016 120,000 -0- -0- -0- 5,053 1996 237,109 90,000 -0- -0- -0- 4,194 William H. Kerlin, Jr. (2) 1998 12,000 6,000 -0- -0- -0- 240 Chief Executive Officer 1997 140,000 70,000 -0- -0- -0- 2,750 1996 135,900 67,950 -0- -0- -0- 2,670 John E. Hamilton 1998 158,520 132,864 -0- 688,000 400,000 3,586 Chief Financial Officer 1997 133,207 60,000 -0- -0- -0- 3,503 1996 121,336 50,000 -0- -0- -0- 3,386 G. Robinson Beeson 1998 164,719 138,273 -0- 1,074,000 500,000 4,194 Senior Vice President and General 1997 138,677 52,000 -0- -0- -0- 3,812 Manager, Automotive 1996 128,767 45,000 -0- -0- -0- 3,449 Scott G. Booth 1998 158,104 132,489 -0- 1,074,000 500,000 3,625 Senior Vice President and General 1997 132,463 52,000 -0- -0- -0- 3,600 Manager, Household Cleaning and 1996 118,973 40,000 -0- -0- -0- 3,409 Personal Care Roger M. Prevot 1998 194,404 164,169 -0- 1,933,000 750,000 3,554 Senior Vice President and General 1997 164,180 72,000 -0- -0- -0- 3,544 Manager, Food & Beverage 1996 154,813 60,000 -0- -0- -0- 3,440 (1) Philip R. Yates has served as Chief Executive Officer since the Recapitalization (see Item 10, Advisory Committee Members, Directors and Executive Officers of the Registrant). (2) William H. Kerlin, Jr. served as Chief Executive Officer prior to the Recapitalization (see Item 10, Advisory Committee Members, Directors and Executive Officers of the Registrant). Mr. Kerlin, who is compensated solely by Graham Capital, provided services to companies other than Holdings. Amounts set forth for Mr. Kerlin represent the portion of Mr. Kerlin's compensation allocable to Holdings based on the amount of services provided to Holdings. (3) Represents bonus paid in the current year, but accrued in the prior year under Company's annual discretionary bonus plan. (4) Represents cash payments to the named executive officers which was used by the recipients to purchase shares of restricted common stock of Investor LP, the value of a grant of the same number of additional restricted shares as the shares purchased and taxes payable in respect of these awards (see Management Awards). (5) Represents contributions to the Company's 401(k) plan and amounts attributable to group term life insurance.
Management Awards Pursuant to the Recapitalization Agreement, immediately prior to the Closing, Holdings made cash payments to approximately 20 senior level managers equal to approximately $7.0 million, which represented the aggregate value payable under Holdings' former equity appreciation plan (which was cancelled upon the Closing) and additional cash bonuses. Pursuant to the Recapitalization Agreement, immediately after the Closing, Holdings granted to approximately 100 middle level managers stay bonuses aggregating approximately $4.6 million, which are payable over a period of up to three years. Pursuant to the Recapitalization Agreement, immediately after the Closing, Holdings made additional cash payments to approximately 15 senior level managers equal to approximately $5.0 million, which represented additional cash bonuses and the taxes payable by such managers in respect of the awards described in this paragraph. In addition, (a) Holdings made additional cash payments to such managers equal to approximately $3.1 million, which was used by the recipients to purchase shares of restricted common stock of Investor LP and (b) each such recipient was granted the same number of additional restricted shares as the shares purchased pursuant to clause (a). Such restricted shares vest over a period of three years, and one-third of any forfeited shares will increase the Graham Partners' ownership interests in Holdings. As a result of such equity awards, Management owns an aggregate of approximately 3.0% of the outstanding common stock of Investor LP, which constitutes approximately a 2.6% interest in Holdings. Severance Agreements In connection with the Recapitalization, the Company entered into severance agreements with Messrs. Yates, Hamilton, Beeson, Booth, Prevot, Stevens and Lu. Such severance agreements provided that in the event a Termination Event (as defined therein) occurs, the executive shall receive: (i) a severance allowance equal to one year of salary (two years for Mr. Yates) payable in equal monthly installments over a one year period (two years for Mr. Yates); (ii) continued group health and life insurance coverage for one year (the executive's contribution for which would be the same contribution as similarly situated executives and would be deducted from the severance allowance payments); and (iii) a lump sum amount payable when the Company pays its executives bonuses, equal to the executive's target bonus, pro-rated to reflect the portion of the relevant year occurring prior to the executive's termination of employment. Supplemental Income Plan Mr. Yates is the sole participant in the Graham Engineering Corporation Amended Supplemental Income Plan (the "SIP"). Upon the Closing, the Operating Company assumed Graham Engineering's obligations under the SIP. The SIP provides that upon attaining age 65, Mr. Yates shall receive a fifteen-year annuity providing annual payments equal to 25% of his Final Salary (as defined therein). The SIP also provides that the annuity payments shall be increased annually by a 4% cost of living adjustment. The SIP permits Mr. Yates to retire at or after attaining age 55 without any reduction in the benefit (although such benefit would not begin until Mr. Yates attained age 65). In the event that Mr. Yates were to retire prior to attaining age 55 (the benefit would still commence at age 65), then the annuity payments would be reduced. In the event the Company, without "just cause" (as defined in the SIP) terminates Mr. Yates' employment, then upon attaining age 65, he would receive the entire annuity. The SIP provides for similar benefits in the event of a termination of employment on account of death or disability. Management Option Plan Pursuant to the Recapitalization Agreement, the Company has adopted the Graham Packaging Holdings Company Management Option Plan (the "Option Plan"). The Option Plan provides for the grant to management employees of Holdings and its subsidiaries of options ("Options") to purchase limited partnership interests in Holdings equal to 0.01% of Holdings (prior to any dilution resulting from any interests granted pursuant to the Option Plan) (each 0.01% interest being referred to as a "Unit"). The aggregate number of Units with respect to which Options may be granted under the Option Plan shall not exceed 500 Units, representing a total of up to 5% of the equity of Holdings. The exercise price per Unit for those Units granted is $25,789. The exercise price per Unit for Units not yet granted has yet to be determined. The number and type of Units covered by outstanding Options and exercise prices may be adjusted to reflect certain events such as recapitalizations, mergers or reorganizations of or by Holdings. The Option Plan is intended to advance the best interests of the Company by allowing such employees to acquire an ownership interest in the Company, thereby motivating them to contribute to the success of the Company and to remain in the employ of the Company. A committee (the "Committee") shall be appointed to administer the Option Plan, including, without limitation, the determination of the employees to whom grants will be made, the number of Units subject to each grant, and the various terms of such grants. The Committee may provide that an Option cannot be exercised after the merger or consolidation of Holdings into another company or corporation, the exchange of all or substantially all of the assets of Holdings for the securities of another corporation, the acquisition by a corporation of 80% or more of Holdings' partnership interest or the liquidation or dissolution of Holdings, and if the Committee so provides, it will also provide either by the terms of such Option or by a resolution adopted prior to the occurrence of such merger, consolidation, exchange, acquisition, liquidation or dissolution, that, for ten business days prior to such event, such Option shall be exercisable as to all Units subject thereto, notwithstanding anything to the contrary in any provisions of such Option and that, upon the occurrence of such event, such Option shall terminate and be of no further force or effect. The Committee may also provide that even if the Option shall remain exercisable after any such event, from and after such event, any such Option shall be exercisable only for the kind and amount of securities and other property (including cash), or the cash equivalent thereof, receivable as a result of such event by the holder of a number of partnership interests for which such Option could have been exercised immediately prior to such event. No suspension, termination or amendment of or to the Option Plan shall materially and adversely affect the rights of any participant with respect to Options issued hereunder prior to the date of such suspension, termination or amendment without the consent of such holder. The following table sets forth certain information with respect to Options granted to the Named Executive Officers for the year ended December 31, 1998. OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable Value At Assumed Annual Rates Of Stock Price Appreciation For Option Alternative: Individual Grants Term Grant Date Value -------------------------------------------- ------------------------- ----------------- Percent of Number of total Options/ Securities SARs Granted To Exercise Underlying Employees In or Base Expi- Grant Date Option/SARs Fiscal Price ration Present Name Granted (#) Year ($/Sh) Date 5% ($) 10% ($) Value $ - ------------------ -------------- ------------- -------- -------- ----------- ------------ ---------------- Philip R. Yates 63.8 16.0% $25,789 2/2/02 $1,035,000 $2,622,000 N/A Chief Executive Officer William H. Kerlin, 0 0% 0 " 0 0 N/A Jr. Chief Executive Officer John E. Hamilton 29.8 7.5% 25,789 " 483,000 1,225,100 N/A Chief Financial Officer G. Robinson Beeson 29.8 7.5% 25,789 " 483,000 1,225,000 N/A Senior Vice President and General Manager, Automotive Scott G. Booth 29.8 7.5% 25,789 " 483,000 1,225,000 N/A Senior Vice President and General Manager, Household Cleaning and Personal Care Roger M. Prevot 43.4 10.9% 25,789 " 704,000 1,784,000 N/A Senior Vice President and General Manager, Food & Beverage
Pension Plans In the year ended December 31, 1998, the Company participated in a noncontributory, defined benefit pension plan for salaried and hourly employees other than employees covered by collectively bargained plans. The Company also sponsored other noncontributory defined benefit plans under collective bargaining agreements. These plans covered substantially all of the Company's U.S. employees. The defined benefit plan for salaried employees provides retirement benefits based on the final five years average compensation and years of service, while plans covering hourly employees provide benefits based on years of service. See Note 11 to the Financial Statements of Graham Packaging Group for each of the three years in the period ended December 31, 1998. The following table shows estimated annual benefits upon retirement under the defined benefit plan for salaried employees, based on the final five years average compensation and years of service, as specified therein: Pension Plan Table Years of Service --------------------------------------------------------- Remuneration 15 20 25 30 35 -- -- -- -- -- 125,000 $27,198 $36,265 $45,331 $54,397 $55,959 150,000 33,198 44,265 55,331 66,397 68,272 175,000 39,198 52,265 66,331 78,387 80,584 200,000 45,198 60,265 75,331 90,397 92,897 225,000 51,198 68,265 85,331 102,397 105,209 250,000 57,198 76,265 95,331 114,397 117,522 300,000 69,198 92,265 115,331 138,397 142,147 400,000 93,198 124,265 155,331 186,397 191,397 450,000 105,198 140,265 176,331 210,397 216,022 500,000 117,198 156,265 195,331 234,397 240,647 Note: The amounts shown are based on 1998 covered compensation of $31,129 for an individual born in 1933. In addition, these figures do not reflect the salary limit of $160,000 and benefit limit under the plan's normal form of $130,000 in 1998. The compensation covered by the defined benefit plan for salaried employees is an amount equal to "Total Wages" (as defined). This amount includes the annual Salary and Bonus amounts shown in the Summary Compensation Table above for the five Named Executive Officers who participated in the plan. The estimated credited years of service for the year ended December 31, 1998 for each of the five Named Executive Officers participating in the plan was as follows: Philip R. Yates, 27 years; John E. Hamilton, 15 years; G. Robinson Beeson, 24 years; Scott G. Booth, 11 years; and Roger M. Prevot, 11 years. Benefits under the plan are computed on the basis of straight-life annuity amounts. Amounts set forth in the Pension Table are not subject to deduction for Social Security or other offset amounts. The Recapitalization Agreement provided that assets of the Graham Engineering defined benefit plan related to employees not covered by collective bargaining agreements will be transferred to a new non- contributory defined benefit plan sponsored by the Company for such employees. Such was completed in 1998. 401(k) Plan During 1998 the Company also participated in a defined contribution plan under Internal Revenue Code Section 401(k), which covered all U.S. employees of the Company except those represented by a collective bargaining unit. The Company also sponsored other noncontributory defined contribution plans under collective bargaining agreements. The Company's contributions were determined as a specified percentage of employee contributions, subject to certain maximum limitations. The Company's costs for the salaried and non-collective bargaining hourly plan for 1996, 1997, and 1998 were $722,000, $742,000 and $787,000 respectively. See Note 11 to the Financial Statements of Graham Packaging Group for each of the three years in the period ended December 31, 1998. Pursuant to the Recapitalization Agreement, assets of this plan related to Company employees were transferred to a new plan sponsored by the Company following the Closing of the Recapitalization. Item 12. Security Ownership of Certain Beneficial Owners and Management The following table and accompanying footnotes set forth certain information regarding beneficial ownership of the limited partnership and general partnership interests in the Issuers, as of the date hereof, by (i) each person who is known by the Issuers to own beneficially more than 5% of such interests, (ii) each member of the Advisory Committee of Holdings and each of the executive officers of the Operating Company and (iii) all members of the Advisory Committee of Holdings and the executive officers of the Operating Company as a group. For a more detailed discussion of certain ownership interests following the Recapitalization, see "Business The Recapitalization" (Item 1) and "Certain Relationships and Related Party Transactions" (Item 13). Name and Address of Beneficial Percentage Issuer Owner Type of Interest Interest - ----------------------- ----------------- --------------- ---------- Limited Graham Packaging Company Holdings Partnership 99% General Opco GP(1) Partnership 1% GPC Capital Corp. I Operating Company Common Stock 100% Graham Packaging Holdings Company Investor LP(2) Limited 81% Name and Address of Beneficial Percentage Issuer Owner Type of Interest Interest - ----------------------- ----------------- --------------- ---------- General Investor GP(2) Partnership 4% Graham Family Limited entities(3) Partnership 14% Graham Packaging General Corporation(3) Partnership 1% GPC Capital Corp. II Holdings Common Stock 100% (1) Opco GP is a wholly owned subsidiary of Holdings. (2) Investor GP is a wholly owned subsidiary of Investor LP. Upon the consummation of the Recapitalization, Blackstone, Blackstone Offshore Capital Partners III L.P. and Blackstone Family Investment Partnership III L.P. became, collectively, the beneficial owner of 100.0% of the common stock of Investor LP. Blackstone Management Associates III L.L.C. ("BMA") is the general partner of each of such entities. Messrs. Peter G. Peterson, Stephen A. Schwarzman and Howard A. Lipson are members of BMA, which has investment and voting control over the shares held or controlled by Blackstone. Each of such persons disclaims beneficial ownership of such shares. The address of each of the Equity Investors is c/o The Blackstone Group L.P., 345 Park Avenue, New York, New York 10154. Following the consummation of the Recapitalization, Blackstone transferred to Management approximately 3.0% of the common stock of Investor LP. See "Management--Management Awards." In addition, an affiliate of BT Alex. Brown Incorporated and Bankers Trust International PLC, two of the Initial Purchasers of the Old Notes, acquired approximately 4.8% of the common stock of Investor LP. After giving effect to these transactions, Blackstone's beneficial ownership of the common stock of Investor LP declined by a corresponding 3.0% and 4.8%, respectively, to approximately 92.2%. (3) Each of these entities is wholly owned, directly or indirectly, by the Graham family. The address of each of these entities is c/o Graham Capital Company, 1420 Sixth Avenue, York, Pennsylvania 17403. Item 13. Certain Relationships and Related Transactions The summaries of agreements set forth below do not purport to be complete and are qualified in their entirety by reference to all the provisions of such agreements. Copies of the Recapitalization Agreement, the Consulting Agreement, the Equipment Sales Agreement and the Partners Registration Rights Agreement are exhibits to this Report on Form 10-K. Transactions with Graham Partners and Others Prior to the Closing of the Recapitalization, Donald C. Graham, as lessor, and Holdings, as lessee, were parties to four lease agreements relating to two properties in Berkeley, Missouri and two properties in York, Pennsylvania. For the year ended December 31, 1997, the Company paid Donald C. Graham $2.0 million in the aggregate pursuant to such lease agreements. Upon the consummation of the Recapitalization, the real property subject to each such lease agreement was contributed to the Operating Company as part of the Graham Contribution. See "The Recapitalization." Prior to the Closing, York Transportation and Leasing, Inc. (an affiliate of the Graham Partners), as lessor, and Graham Packaging Canada, Ltd., as lessee, were parties to three lease agreements relating to properties located in Missassuaga, Ontario, Burlington, Ontario and Anjou, Quebec. For the year ended December 31, 1997, the Company paid York Transportation and Leasing $0.6 million in the aggregate pursuant to such lease agreements. Upon the Closing, the real property subject to each such lease agreement was contributed to the Operating Company as part of the Graham Contribution. See "The Recapitalization." Prior to the Closing, Graham GP Corp., Graham Capital and Graham Europe Limited (affiliates of the Graham Partners) were parties to management agreements, pursuant to which Donald C. Graham, William H. Kerlin, Jr. and others provided management services and served as executive officers of the Company. The Company paid $1.7 million for the year ended December 31, 1997 for such services. Prior to the Closing, Holdings, Graham Capital, Graham GP Corp. and York Transportation and Leasing were all parties to an Airplane Lease Agreement/Aircraft Sharing Agreement. The Company paid $0.3 million for the year ended December 31, 1997 pursuant to such agreement. For the year ended December 31, 1997, the Company also paid Viking Graham Corporation (an affiliate of the Graham Partners) $0.6 million for certain consulting services. All of the agreements described above were terminated upon the Closing. At the time of the Recapitalization, Donald C. Graham and Jean Rubie were each one-third owners of Techne Technipack Engineering Italia S.p.A. ("Techne"). Techne supplies shuttle blow-molders to many of the Company's non-U.S. facilities. The Company paid Techne approximately $5.2 million and $3.5 million for such equipment for the year ended December 31, 1998 and 1997, respectively. Prior to the Recapitalization, Mr. Rubie served as General Manager, Europe, of the Company. Subsequent to the Recapitalization, Mr. Graham sold his ownership interest in Techne. Graham Engineering has supplied both services and equipment to the Company. The Company paid Graham Engineering approximately $16.8 million and $11.3 million for such services and equipment for the years ended December 31, 1998 and 1997, respectively. The Company has provided certain services to Graham Engineering. Graham Engineering paid the Company approximately $1.4 million and $1.0 million for such services for the years ended December 31, 1998 and 1997, respectively. Graham Capital and Viking Graham, Inc.(an affiliate of the Graham Partners) has supplied management services to the Company. The Company paid Graham Capital and Viking Graham Inc. approximately $1.1 million for such services for the year ended December 31, 1998. Blackstone has supplied management services to the Company. The Company paid Blackstone approximately $1.0 million for such services for the year ended December 31, 1998. The Company has entered into an Airplane Time Sharing Agreement with Graham Capital Company. Other parties to the agreement were Graham Architectural Products Corporation, Viking Graham, Inc. and Graham Engineering Corporation. The Company paid $3,500 for the year ended December 31, 1998 pursuant to such agreement. An affiliate of BT Alex. Brown Incorporated and Bankers Trust International PLC, two of the Initial Purchasers of the Old Notes, acquired approximately a 4.8% equity interest in Investor LP. See "Security Ownership." Bankers Trust Company, an affiliate of BT Alex. Brown Incorporated and Bankers Trust International PLC, acted as administrative agent and provided a portion of the financing under the New Credit Agreement entered into in connection with the Recapitalization, for which it received customary commitment and other fees and compensation. The New Credit Agreement includes a $100 million Growth Capital Revolving Credit Facility under which the Operating Company is entitled to draw amounts for capital expenditure requirements and to finance acquisitions and investments; provided that loans under the Growth Capital Revolving Credit Facility may only be incurred to the extent that such loans are matched with equity contributions from the principal equity holders of Investor LP (which equity contributions shall, in turn, ultimately be contributed to the Operating Company) on a dollar-for- dollar basis. As part of the Amendment to the New Credit Agreement, if certain events of default were to occur (including, without limitation, if the Company's Net Leverage Ratio were above 5.15:1.0 at March 31, 2000), Blackstone has agreed to make an equity contribution to the Company through the administrative agent of up to $50 million. Pursuant to the Purchase Agreement dated January 23, 1998, the Initial Purchasers, BT Alex. Brown Incorporated, Bankers Trust International PLC, Lazard Freres & Co. LLC and Salomon Brothers Inc, purchased the Senior Subordinated Old Notes at a price of 97.0% of the principal amount, for a discount of 3% from the initial offering price of 100% or a total discount of $6,750,000. Pursuant to the Purchase Agreement, the Initial Purchasers purchased the Senior Discount Old Notes at a price of 57.173% of the principal amount, for a discount of 2.361% from the initial offering price of 59.534% or a total discount of $3,990,090. Pursuant to the Purchase Agreement, the Issuers also reimbursed the Initial Purchasers for certain expenses. The Partnership Agreements The Operating Company Partnership Agreement The Operating Company was formed under the name "Graham Packaging Holdings I, L.P." on September 21, 1994 as a limited partnership in accordance with the provisions of the Delaware Revised Uniform Limited Partnership Act. Upon the Closing of the Recapitalization, the name of the Operating Company was changed to "Graham Packaging Company." The Operating Company will continue until its dissolution and winding up in accordance with the terms of the Operating Company Partnership Agreement (as defined). Prior to the Recapitalization, Graham Recycling Corporation ("Recycling") was the sole general partner of the Operating Company and Holdings was the sole limited partner of the Operating Company. As provided in the Recapitalization Agreement, immediately prior to the Closing, Recycling contributed to Opco GP its general partnership interest in the Operating Company, and the partnership agreement of the Operating Company was amended and restated to reflect such substitution of sole general partner and certain other amendments (the "Operating Company Partnership Agreement"). Following the Closing, Holdings has remained the sole limited partner of the Operating Company. The purpose of the Operating Company is the sale and manufacturing of rigid plastic containers and any business necessary or incidental thereto. Management. The Operating Company Partnership Agreement provides that the general partner shall be entitled in its sole discretion and without the approval of the other partners to perform or cause to be performed all management and operational functions relating to the Operating Company and shall have the sole power to bind the Operating Company. The limited partner shall not participate in the management or control of the business. Exculpation and Indemnification. The Operating Company Partnership Agreement provides that neither the general partner nor any of its affiliates, nor any of its partners, shareholders, officers, directors, employees or agents, shall be liable to the Operating Company or any partner for any breach of the duty of loyalty or any act or omission not in good faith or which involves intentional misconduct or a knowing violation of law or the Operating Company Partnership Agreement. The Operating Company shall indemnify the general partner and its affiliates, and its partners, shareholders, officers, directors, employees and agents, from and against any claim or liability of any nature arising out of the assets or business of the Operating Company. Affiliate Transactions. The Operating Company may enter into transactions with any partner or any of its affiliates which is not prohibited by applicable law; provided that, any material transaction with any partner or any of its affiliates shall be on terms reasonably determined by the General Partner to be comparable to the terms which can be obtained from third parties. Transfers of Partnership Interests. The Operating Company Partnership Agreement provides that the limited partner shall not transfer its limited partnership interests. Dissolution. The Operating Company Partnership Agreement provides that the Operating Company shall be dissolved upon the earliest of (i) December 31, 2044, (ii) the sale, exchange or other disposition of all or substantially all of the Operating Company's assets, (iii) the withdrawal, resignation, filing of a certificate of dissolution or revocation of the charter or bankruptcy of a general partner, or the occurrence of any other event which causes a general partner to cease to be a general partner unless there shall be another general partner, (iv) the withdrawal, resignation, filing of a certificate of dissolution or revocation of the charter or bankruptcy of a limited partner, or the occurrence of any other event which causes a limited partner to cease to be a limited partner unless there shall be another limited partner, (v) the acquisition by a single person of all of the partnership interests in the Operating Company, (vi) the issuance of a decree of dissolution by a court of competent jurisdiction, or (vii) otherwise as required by applicable law. The Holdings Partnership Agreement Holdings was formed under the name "Sonoco Graham Company" on April 3, 1989 as a limited partnership in accordance with the provisions of the Pennsylvania Uniform Limited Partnership Act, and on March 28, 1991, Holdings changed its name to "Graham Packaging Company." Upon the Closing of the Recapitalization, the name of Holdings was changed to "Graham Packaging Holdings Company." Holdings will continue until its dissolution and winding up in accordance with the terms of the Holdings Partnership Agreement (as defined). As contemplated by the Recapitalization Agreement, upon the Closing, Graham Capital and its successors or assigns, Graham Family Growth Partnership, Graham GP Corp., Investor LP and Investor GP entered into a Fifth Amended and Restated Agreement of Limited Partnership (the "Holdings Partnership Agreement"). The general partners of the Partnership are Investor GP and Graham GP Corp. The limited partners of the Partnership are Graham Family Growth Partnership, Graham Capital and Investor LP. The purpose of Holdings is the sale and manufacturing of rigid plastic containers and any business necessary or incidental thereto. Management; Advisory Committee. The Holdings Partnership Agreement provides that the general partner elected by the general partner(s) holding a majority of the general partnership interests in Holdings (the "Managing General Partner") shall be entitled in its sole discretion and without the approval of the other partners to perform or cause to be performed all management and operational functions relating to Holdings and shall have the sole power to bind Holdings, except for certain actions in which the Managing General Partner shall need the approval of the other general partners. The limited partners shall not participate in the management or control of the business. The partnership and the general partners shall be advised by a committee (the "Advisory Committee") comprised of five individuals, three of whom shall be appointed from time to time by Investor GP and, for so long as the Continuing Graham Partners and their affiliates do not sell more than two-thirds of their partnership interests owned at the Closing, two of whom shall be appointed from time to time by the other general partners. Such committee shall serve solely in an advisory role and shall not have any power to act for or bind Holdings. Annual Fee. The Holdings Partnership Agreement provides that, so long as the Continuing Graham Partners and their affiliates do not sell more than two-thirds of their partnership interests owned at the Closing, Holdings will pay to Graham Family Growth Partnership an annual fee of $1.0 million. Exculpation and Indemnification. The Holdings Partnership Agreement provides that no general partner nor any of its affiliates, nor any of its respective partners, shareholders, officers, directors, employees or agents, shall be liable to Holdings or any of the limited partners for any act or omission, except resulting from its own willful misconduct or bad faith, any breach of its duty of loyalty or willful breach of its obligations as a fiduciary, or any breach of certain terms of the Holdings Partnership Agreement. Holdings shall indemnify the general partners and their affiliates, and their respective partners, shareholders, officers, directors, employees and agents, from and against any claim or liability of any nature arising out of the assets or business of Holdings. Affiliate Transactions. Holdings may not enter into any transaction with any partner or any of its affiliates unless the terms thereof are believed by the general partners to be in the best interests of Holdings and are intrinsically fair to Holdings and equally fair to each of the partners; provided that, Holdings may perform and comply with the Recapitalization Agreement, the Equipment Sales Agreement, the Consulting Agreement and the Monitoring Agreement (as defined). Transfers of Partnership Interests. The Holdings Partnership Agreement provides that, subject to certain exceptions including, without limitation, in connection with an IPO Reorganization (as defined) and the transfer rights described below, general partners shall not withdraw from Holdings, resign as a general partner, nor transfer their general partnership interests without the consent of all general partners, and limited partners shall not transfer their limited partnership interests. If any Continuing Graham Partner wishes to sell or otherwise transfer its partnership interests pursuant to a bona fide offer from a third party, Holdings and the Equity Investors must be given a prior opportunity to purchase such interests at the same purchase price set forth in such offer. If Holdings and the Equity Investors do not elect to make such purchase, then such Continuing Graham Partner may sell or transfer such partnership interests to such third party upon the terms set forth in such offer. If the Equity Investors wish to sell or otherwise transfer their partnership interests pursuant to a bona fide offer from a third party, the Continuing Graham Partners shall have a right to include in such sale or transfer a proportionate percentage of their partnership interests. If the Equity Investors (so long as they hold 51% or more of the partnership interests) wish to sell or otherwise transfer their partnership interests pursuant to a bona fide offer from a third party, the Equity Investors shall have the right to compel the Continuing Graham Partners to include in such sale or transfer a proportionate percentage of their partnership interests. Dissolution. The Holdings Partnership Agreement provides that Holdings shall be dissolved upon the earliest of (i) the sale, exchange or other disposition of all or substantially all of Holdings' assets (including pursuant to an IPO Reorganization), (ii) the withdrawal, resignation, filing of a certificate of dissolution or revocation of the charter or bankruptcy of a general partner, or the occurrence of any other event which causes a general partner to cease to be a general partner unless (a) the remaining general partner elects to continue the business or (b) if there is no remaining general partner, a majority-in- interest of the limited partners elect to continue the partnership, or (iii) such date as the partners shall unanimously elect. IPO Reorganization. "IPO Reorganization" means the transfer of all or substantially all of Holdings' assets and liabilities to CapCo II in contemplation of an initial public offering of the shares of common stock of CapCo II. The Holdings Partnership Agreement provides that, without the approval of each general partner, the IPO Reorganization may not be effected through any entity other than CapCo II. Tax Distributions. The Partnership Agreement requires certain tax distributions to be made. Partners Registration Rights Agreement Pursuant to the Recapitalization Agreement, upon the Closing, Holdings, CapCo II, the Continuing Graham Partners, the Equity Investors and Blackstone entered into a registration rights agreement (the "Partners Registration Rights Agreement"). Under the Partners Registration Rights Agreement, CapCo II will grant, with respect to the shares of its common stock to be distributed pursuant to an IPO Reorganization, (i) to the Continuing Graham Partners and their affiliates (and their permitted transferees of partnership interests in Holdings) two "demand" registrations after an initial public offering of the shares of common stock of CapCo II has been consummated and customary "piggyback" registration rights (except with respect to such initial public offering, unless Blackstone and its affiliates are selling their shares in such offering) and (ii) to the Equity Investors, Blackstone and their affiliates an unlimited number of "demand" registrations and customary "piggyback" registration rights. The Partners Registration Rights Agreement also provides that CapCo II will pay certain expenses of the Continuing Graham Partners, the Equity Investors, Blackstone and their respective affiliates relating to such registrations and indemnify them against certain liabilities which may arise under the Securities Act. See "The Partnership Agreements--Holdings Partnership Agreement." Certain Business Relationships Equipment Sales Agreement. Pursuant to the Recapitalization Agreement, upon the Closing, Holdings and Graham Engineering entered into the Equipment Sales, Service and Licensing Agreement ("Equipment Sales Agreement"), which provides that, with certain exceptions, (i) Graham Engineering will sell to Holdings and its affiliates certain of Graham Engineering's larger-sized proprietary extrusion blow molding wheel systems ("Graham Wheel Systems"), at a price to be determined on the basis of a percentage mark-up of material, labor and overhead costs that is as favorable to Holdings as the percentage mark-up historically offered by Graham Engineering to Holdings and is as favorable as the mark-up on comparable equipment offered to other parties, (ii) each party will provide consulting services to the other party at hourly rates ranging from $60 to $200 (adjusted annually for inflation) and (iii) Graham Engineering will grant to Holdings a nontransferable, nonexclusive, perpetual, royalty-free right and license to use certain technology. Subject to certain exceptions set forth in the Equipment Sales Agreement, Holdings and its affiliates will have the exclusive right to purchase, lease or otherwise acquire the applicable Graham Wheel Systems in North America and South America, the countries comprising the European Economic Community as of the Closing and any other country in or to which Holdings has produced or shipped extrusion blow molded plastic bottles representing sales in excess of $1.0 million in the most recent calendar year. The Equipment Sales Agreement terminates on December 31, 2007, unless mutually extended by the parties. After December 31, 1998, either party may terminate the other party's right to receive consulting services. Consulting Agreement. Pursuant to the Recapitalization Agreement, upon the Closing, Holdings and Graham Capital entered into a Consulting Agreement (the "Consulting Agreement"), pursuant to which Graham Capital will provide Holdings with general business, operational and financial consulting services at mutually agreed retainer or hourly rates (ranging from $200 to $750 per hour). The Consulting Agreement terminates on the second anniversary of the Closing, unless mutually extended by the parties. Promissory Notes of Graham Partners From 1994 through the Closing, there was outstanding $20.2 million principal amount of promissory notes owed by the Graham Partners to Holdings, which had been contributed by the Graham Partners as capital in Holdings. Such promissory notes (including accrued interest) were repaid in full in connection with the Recapitalization. For the year ended December 31, 1997, accrued interest income on the promissory notes was approximately $1.0 million. Payment of Certain Fees and Expenses In connection with the Recapitalization, Blackstone received a fee of approximately $9.3 million, and the Operating Company has reimbursed or will reimburse Blackstone for all out-of-pocket expenses incurred in connection with the Recapitalization. In addition, pursuant to a monitoring agreement (the "Monitoring Agreement") entered into among Blackstone, Holdings and the Operating Company, Blackstone will receive a monitoring fee equal to $1.0 million per annum, and will be reimbursed for certain out-of-pocket expenses. In the future, an affiliate or affiliates of Blackstone may receive customary fees for advisory and other services rendered to Holdings and its subsidiaries. If such services are rendered in the future, the fees will be negotiated from time to time on an arm's length basis and will be based on the services performed and the prevailing fees then charged by third parties for comparable services. PART IV Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K (a) The following Financial Statement Schedule isincluded herein: Schedule II - Valuation and Qualifying Accounts All other schedules are not submitted because they are not applicable or not required or because the required information is included in the financial statements or the notes thereto. (b) The following exhibits are filed herewith or incorporated herein by reference: Exhibit Number Description of Exhibit 2.1 -- Agreement and Plan of Recapitalization, Redemption and Purchase dated as of December 18, 1997, as amended as of January 29, 1998, by and among Graham Packaging Holdings Company, BCP/Graham Holdings L.L.C., BMP/Graham Holdings Corporation and the other parties named therein (incorporated herein by reference to Exhibit 2.1 to the Registration Statement on Form S-4 (File No. 333- 53603)). 2.2 -- Purchase Agreement dated January 23, 1998 among Graham Packaging Holdings Company, Graham Packaging Company, GPC Capital Corp. I, GPC Capital Corp. II, BT Alex. Brown Incorporated, Bankers Trust International PLC, Lazard Freres & Co. L.L.C. and Salomon Brothers Inc (incorporated herein by reference to Exhibit 2.2 to the Registration Statement on Form S-4 (File No. 333- 53603)). 2.3 -- Purchase Agreement between CarnaudMetalbox S.A. and Graham Packaging Company dated as of July 27, 1998. 3.1 -- Certificate of Limited Partnership of Graham Packaging Company (incorporated herein by reference to Exhibit 3.2 to the Registration Statement on Form S-4 (File No. 333- 53603)). 3.2 -- Amended and Restated Agreement of Limited Partnership of Graham Packaging Company dated as of February 2, 1998 (incorporated herein by reference to Exhibit 3.2 to the Registration Statement on Form S-4 (File No. 333- 53603)). 3.3 -- Certificate of Incorporation of GPC Capital Corp. I (incorporated herein by reference to Exhibit 3.3 to the Registration Statement on Form S-4 (File No. 333- 53603)). 3.4 -- By-Laws of GPC Capital Corp. I (incorporated herein by reference to Exhibit 3.4 to the Registration Statement on Form S-4 (File No. 333- 53603)). 3.5 -- Certificate of Limited Partnership of Graham Packaging Holdings Company (incorporated herein by reference to Exhibit 3.5 to the Registration Statement on Form S-4 (File No. 333- 53603)). 3.6 -- Fifth Amended and Restated Agreement of Limited Partnership of Graham Packaging Holdings Company dated as of February 2, 1998 (incorporated herein by reference to Exhibit 3.6 to the Registration Statement on Form S-4 (File No. 333- 53603)). 3.7 -- Certificate of Incorporation of GPC Capital Corp. II (incorporated herein by reference to Exhibit 3.7 to the Registration Statement on Form S-4 (File No. 333- 53603)). 3.8 -- By-Laws of GPC Capital Corp. II (incorporated herein by reference to Exhibit 3.8 to the Registration Statement on Form S-4 (File No. 333- 53603)). 4.1 -- Indenture dated as of February 2, 1998 among Graham Packaging Company and GPC Capital Corp. I and Graham Packaging Holdings Company, as guarantor, and United States Trust Company of New York, as Trustee, relating to the Senior Subordinated Notes Due 2008 of Graham Packaging Company and GPC Capital Corp. I, unconditionally guaranteed by Graham Packaging Holdings Company (incorporated herein by reference to Exhibit 4.1 to the Registration Statement on Form S-4 (File No. 333- 53603)). Exhibit Number Description of Exhibit 4.2 -- Form of 8 3/4% Senior Subordinated Note Due 2008, Series A (included in Exhibit 4.1)(incorporated herein by reference to Exhibit 4.2 to the Registration Statement on Form S-4 (File No. 333- 53603)). 4.3 -- Form of 8 3/4% Senior Subordinated Note Due 2008, Series B (included in Exhibit 4.1) (incorporated herein by reference to Exhibit 4.3 to the Registration Statement on Form S-4 (File No. 333- 53603)). 4.4 -- Form of Floating Interest Rate Term Security Due 2008, Series A (included in Exhibit 4.1) (incorporated herein by reference to Exhibit 4.4 to the Registration Statement on Form S-4 (File No. 333- 53603)). 4.5 -- Form of Floating Interest Rate Term Security Due 2008, Series B (included in Exhibit 4.1) (incorporated herein by reference to Exhibit 4.5 to the Registration Statement on Form S-4 (File No. 333- 53603)). 4.6 -- Registration Rights Agreement dated as of February 2, 1998 among Graham Packaging Company and GPC Capital Corp. I and Graham Packaging Holdings Company, as guarantor, and BT Alex. Brown Incorporated, Bankers Trust International PLC, Lazard Freres & Co. L.L.C. and Salomon Brothers Inc, relating to the Senior Subordinated Notes Due 2008 of Graham Packaging Company and GPC Capital Corp. I, unconditionally guaranteed by Graham Packaging Holdings Company (incorporated herein by reference to Exhibit 4.6 to the Registration Statement on Form S-4 (File No. 333- 53603)). 4.7 -- Indenture dated as of February 2, 1998 among Graham Packaging Holdings Company and GPC Capital Corp. II and The Bank of New York, as Trustee, relating to the Senior Discount Notes Due 2009 of Graham Packaging Holdings Company and GPC Capital Corp. II (incorporated herein by reference to Exhibit 4.7 to the Registration Statement on Form S-4 (File No. 333- 53603)). 4.8 -- Form of 10 3/4% Senior Discount Note Due 2009, Series A (included in Exhibit 4.7) (incorporated herein by reference to Exhibit 4.8 to the Registration Statement on Form S-4 (File No. 333- 53603)). 4.9 -- Form of 10 3/4% Senior Discount Note Due 2009, Series B (included in Exhibit 4.7) (incorporated herein by reference to Exhibit 4.9 to the Registration Statement on Form S-4 (File No. 333- 53603)). 4.10 -- Registration Rights Agreement dated as of February 2, 1998 among Graham Packaging Holdings Company, GPC Capital Corp. II, BT Alex. Brown Incorporated, Bankers Trust International PLC, Lazard Freres & Co. L.L.C. and Salomon Brothers Inc. relating to the Senior Discount Notes Due 2009 of Graham Packaging Holdings Company and GPC Capital Corp. II (incorporated herein by reference to Exhibit 4.10 to the Registration Statement on Form S-4 (File No. 333- 53603)). 10.1 -- Credit Agreement dated as of February 2, 1998 among Graham Packaging Holdings Company, Graham Packaging Company, GPC Capital Corp. I, the lending institutions identified in the Credit Agreement and the agents identified in the Credit Agreement (incorporated herein by reference to Exhibit 10.1 to the Registration Statement on Form S-4 (File No. 333- 53603)). 10.2 -- Consulting Agreement dated as of February 2, 1998 between Graham Packaging Holdings Company and Graham Capital Corporation (incorporated herein by reference to Exhibit 10.2 to the Registration Statement on Form S-4 (File No. 333- 53603)). 10.3 -- Equipment Sales, Service and License Agreement dated February 2, 1998 between Graham Engineering Corporation and Graham Packaging Holdings Company (incorporated herein by reference to Exhibit 10.3 to the Registration Statement on Form S-4 (File No. 333- 53603)). 10.4 -- Forms of Retention Incentive Agreement (incorporated herein by reference to Exhibit 10.4 to the Registration Statement on Form S-4 (File No. 333- 53603)). 10.5 -- Forms of Severance Agreement (incorporated herein by reference to Exhibit 10.5 to the Registration Statement on Form S-4 (File No. 333- 53603)). 10.6 -- Registration Rights Agreement by and among Graham Packaging Company, GPC Capital Corp. II, Graham Capital Corporation, Graham Family Growth Partnership, BCP/Graham Holdings L.L.C., BMP/Graham Holdings Corporation and the other parties named therein (incorporated herein by reference to Exhibit 10.6 to the Registration Statement on Form S-4 (File No. 333- 53603)). 10.7 -- Monitoring Agreement dated as of February 2, 1998 among Graham Packaging Holdings Company, Graham Packaging Company and Blackstone (incorporated herein by reference to Exhibit 10.7 to the Registration Statement on Form S-4 (File No. 333- 53603)). 10.8 -- Management Stockholders Agreement (incorporated herein by reference to Exhibit 10.8 to the Registration Statement on Form S-4 (File No. 333- 53603)). 10.9 -- Form of Equity Incentive Agreement (incorporated herein by reference to Exhibit 10.9 to the Registration Statement on Form S-4 (File No. 333- 53603)). 10.10 -- Stockholders' Agreement dated as of February 2, 1998 among Blackstone Capital Partners III Merchant Banking Fund L.P., Blackstone Offshore Capital Partners III L.P., Blackstone Family Investment Partners III, L.P., BMP/Graham Holdings Corporation, Graham Packaging Holdings Company, GPC Capital Corp. II and BT Investment Partners, Inc. (incorporated herein by reference to Exhibit 10.10 to the Registration Statement on Form S-4 (File No. 333- 53603)). 10.11 -- Graham Packaging Holdings Company Management Option Plan (incorporated herein by reference to Exhibit 10.11 to the Registration Statement on Form S-4 (File No. 333- 53603)). 10.12 -- First Amendment to Credit Agreement dated as of August 13, 1998. 21.1 -- Subsidiaries of Graham Packaging Company. 24 -- Power of Attorney--Page II- of Form 10-K. 27 -- Financial Data Schedule. 99.1 -- Form of Fixed Rate Senior Subordinated Letter of Transmittal (incorporated herein by reference to Exhibit to the Registration Statement on Form S-4 (File No. 333-53603)). 99.2 -- Form of Fixed Rate Senior Subordinated Notice of Guaranteed Delivery (incorporated herein by reference to Exhibit to the Registration Statement on Form S-4 (File No. 333- 53603)). 99.3 -- Form of Floating Rate Senior Subordinated Letter of Transmittal (incorporated herein by reference to Exhibit to the Registration Statement on Form S-4 (File No. 333-53603)). 99.4 -- Form of Floating Rate Senior Subordinated Notice of Guaranteed Delivery (incorporated herein by reference to Exhibit to the Registration Statement on Form S-4 (File No. 333- 53603)). 99.5 -- Form of Senior Discount Letter of Transmittal (incorporated herein by reference to Exhibit to the Registration Statement on Form S-4 (File No. 333- 53603)). 99.6 -- Form of Senior Discount Notice of Guaranteed Delivery (incorporated herein by reference to Exhibit to the Registration Statement on Form S-4 (File No. 333- 53603)). (c) Reports on Form 8-K No Reports on Form 8-K were required to be filed during the quarter ended December 31, 1998. . SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: March 31, 1999 GRAHAM PACKAGING COMPANY (Registrant) By: GPC Opco GP LLC, its General Partner By: /s/ John E. Hamilton ------------------------------------- Name: John E. Hamilton Title: Chief Financial Officer, Secretary and Treasurer (chief accounting officer and duly authorized officer) POWER OF ATTORNEY We, the undersigned officers of GPC Opco GP LLC, as general partner of Graham Packaging Company and directors of BMP/Graham Corporation, as sole member of BCP/Graham Holdings L.L.C., as the general partner of Graham Packaging Holdings Company, the sole member of GPC Opco GP LLC, do hereby constitute and appoint Philip R. Yates and John E. Hamilton, or either of them, our true and lawful attorneys and agents, to sign for us, or any of us, in our names in the capacities indicated below, any and all amendments to this report, and to cause the same to be filed with the Securities and Exchange Commission, granting to said attorneys, and each of them, full power and authority to do and perform any act and thing necessary or appropriate to be done in the premises, as fully to all intents and purposes as the undersigned could do if personally present, and we do hereby ratify and confirm all that said attorneys and agents, or either of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on the 31st day of March, 1999 by the following persons on behalf of the registrant and in the capacities indicated, with respect to GPC Opco GP LLC, as general partner of Graham Packaging Company, or BMP/Graham Holdings Corporation, as sole member of BCP/Graham Holdings L.L.C., which is a general partner of Graham Packaging Holdings Company, the sole member of GPC Opco GP LLC, as indicated below: Signature Title President and Chief Executive Officer /s/ Philip R. Yates (Principal Executive Officer) of GPC - --------------------------- Opco GP LLC. Philip R. Yates Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer /s/ John E. Hamilton and Principal Accounting Officer) of - --------------------------- GPC Opco GP LLC John E.Hamilton /s/ Howard A. Lipson Director of BMP/Graham Holdings - --------------------------- Corporation Howard A. Lipson /s/ Chinh E. Chu Director of BMP/Graham Holdings - --------------------------- Corporation Chinh E. Chu /s/ Simon P. Lonergan Director of BMP/Graham Holdings - --------------------------- Corporation Simon P. Lonergan SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT. No annual report to security holders covering the registrant's last fiscal year has been sent to security holders. No proxy statement, form of proxy or other proxy soliciting material has been sent to more than 10 of the registrant's security holders with respect to any annual or other meeting of security holders. SCHEDULE II GRAHAM PACKAGING COMPANY VALUATION AND QUALIFYING ACCOUNTS (In thousands)
Balance @ Balance @ beginning of end of Year ended December 31, 1998 year Additions Deductions Other(1) year --------------------------------- --------------- --------------- --------------- ------- ------------ Allowance for Doubtful Accounts $1,635 $32 $395 163 $1,435 Allowance for Inventory Losses 566 514 220 587 1,447 Year ended December 31, 1997 --------------------------------- Allowance for Doubtful Accounts 1,202 512 79 1,635 Allowance for Inventory Losses 901 75 410 566 Year ended December 31, 1996 --------------------------------- Allowance for Doubtful Accounts 619 816 233 1,202 Allowance for Inventory Losses 1,217 298 614 901 (1) Represents allowance attributable to entities acquired during 1998.
EX-2.3 2 Exhibit 2.3 PURCHASE AGREEMENT This PURCHASE AGREEMENT ("Agreement") of this 27th day of July 1998, between Graham Packaging Company, a limited partnership organized under the laws of the State of Delaware of the United States of America, whose head office is located at 1100 East Princess Street, York PA 17403, ("Buyer") and CarnaudMetalbox S.A., a French societe anonyme, having a corporate capital of FRF 529,486,300, whose head office is located at 67, rue Arago, 93400 Saint Ouen, registered with the Registry of Commerce and Companies of Bobigny under number B 775 721 996 ("Seller"), which acts (x) as owner of the French Shares and the Turkish Shares, (y) as controlling shareholder of Societe de Participation CarnaudMetalbox, a French societe anonyme having a corporate capital of FRF 290,050,200, whose head office is located at 67 rue Arago, 93400 Saint-Ouen, registered with the Registry of Commerce and Companies of Bobigny under number B 389 579 012 ("SPC") with respect to the Aggregate Closing Date Intragroup Indebtedness and of CMB Germany with respect to actions to be taken by CMB Germany and (z) as affiliate of CMB U.K. with respect to actions to be taken by CMB U.K. R E C I T A L S: WHEREAS, Seller and Seller's affiliates hold directly or indirectly the following assets and shares: (i) 100% of the issued and outstanding shares and voting rights, less one (1) share, that is 470,499 shares ("French Shares") of CMB Plastique S.A., a French societe anonyme, having a corporate capital of FRF 47,050,000, whose head office is located at 67, rue Arago, 93400 Saint Ouen, registered with the Registry of Commerce and Companies of Bobigny under number B 342 952 694 ("CMB France") and which owns and operates two plants located at Meaux ("Meaux Plant") and Noeux-les-Mines ("Noeux Plant") and an in-house bottle manufacturing facility located at Asnieres ("Asnieres Facility") engaged in the manufacture of plastic products identified in Schedule 0.1 attached hereto ("Plastic Products"); (ii) 100% of the issued and outstanding shares and voting rights of CarnaudMetalbox plc, a corporation organized under the laws of England, having a corporate capital of (Pound Sterling)85,000,000, whose head office is located at Downsview Road, Wantage, Oxfordshire ("CMB U.K."), and which owns a plant, formerly operated by CMB Bottles and Closures plc ("CMB&C"), located at Wrexham (said plant, together with other fixed and movable assets, contracts, goodwill and real property related to the conduct of the business at the plant which are to be transferred and associated liabilities which are to be assumed pursuant to the U.K. Asset Purchase Agreement attached hereto as Exhibit IV, and are more fully described therein, the "U.K. Plant") engaged in the manufacture of Plastic Products identified in Schedule 0.1 attached hereto; (iii) 100% of the issued and outstanding shares and voting rights of Raku GmbH, a corporation organized under the laws of Germany, having a corporate capital of DM 3,100,000, whose head office is located at Im Woehr 2, 76437 Rastatt ("CMB Germany") and which owns and operates a plant located at Bad Bevensen engaged in the manufacture of Plastic Products identified in Schedule 0.1 attached hereto (said plant, together with other fixed and movable assets, contracts, goodwill and real property related to the conduct of business at the plant which are to be transferred and associated liabilities which are to be assumed pursuant to the German Asset Purchase Agreement attached as Exhibit II, and are more fully described therein, the "German Plant"); (iv) 100% of the issued and outstanding shares and voting rights, that is 80,000,000 shares ("Turkish Shares") of CMB Plastpak Plastic, Ambalaj Sanayi A.S., a corporation organized under the laws of Turkey, having a corporate capital of TL 80,000,000,000, whose head office is located at Firuzkoeyue Ba lar Mevkii, Avcilar, Istanbul ("CMB Turkey") and which owns and operates one plant located at Istanbul ("Istanbul Plant") engaged in the manufacture of Plastic Products identified in Schedule 0.1 attached hereto; WHEREAS, Seller desires to sell or cause to sell to Buyer, or an affiliate of Buyer, and Buyer desires to purchase, or cause its designated affiliate to purchase, all of the French Shares and the Turkish Shares (collectively the "Shares") and the U.K. Plant and the German Plant (sometimes collectively the "Plants") for the Purchase Price (as hereinafter defined) and Seller agrees to sell, or cause its designated affiliate to sell to Buyer, or an affiliate of Buyer, and Buyer agrees to purchase or cause its designated affiliate to purchase the Aggregate Closing Date Intragroup Indebtedness (as hereinafter defined), all upon the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties hereto agree as follows: ARTICLE 1 PURCHASE AND SALE OF SHARES, PLANTS AND AGGREGATE CLOSING DATE INTRAGROUP INDEBTEDNESS. 1.1 Purchase of Shares, Plants and Aggregate Closing Date Intragroup Indebtedness. Subject to the terms and conditions hereof, Seller agrees to sell, assign and transfer or to cause to sell, assign and transfer, as the case may be, to Buyer or an affiliate of Buyer and Buyer agrees to purchase or cause its designated affiliate to purchase from Seller, on the Closing Date and at the Closing (as defined in Section S.1 hereof), (i) the Shares, (ii) the Plants, comprising the tangible and intangible assets, -2- rights, properties, contracts and liabilities described herein, in the form of the real property deed of conveyance, and the asset purchase agreements attached hereto as Exhibits I, II, III and IV, and to be executed and delivered at the Closing, and (iii) the Aggregate Closing Date Intragroup Indebtedness (as defined in Section 1.2.1(b) hereof). 1.2 Purchase Price and Payment. 1.2.1 Purchase Price for Shares and Plants. (a) The aggregate purchase price for the Shares and the Plants payable at Closing shall be equal to: (i) thirty-seven million five hundred thousand U.S. Dollars (US$37,500,000), minus (ii) the estimated amount of Aggregate Closing Date Intragroup Indebtedness, minus (iii) the estimated amount of Closing Date Third Party Financial Indebtedness, plus (iv) the estimated amount of Reimbursed Capital Expenditures, plus (v) the estimated amount of Reimbursed Restructuring Costs, plus (vi) interest on the net amount of items (i) through (v) above from July 1, 1998 to the Closing Date at the Agreed Interest Rate (as defined at Section 1.2.2 below). (b) As used in this Agreement, "Aggregate Closing Date Intragroup Indebtedness" shall mean the principal amount of aggregate Intragroup indebtedness and accrued interest thereon of CMB France and CMB Turkey to Seller and/or its affiliates, determined as of the Closing Date, the amount of which was equal to approximately US$14.482 million at December 31, 1997. "Closing Date Third Party Financial Indebtedness" shall mean any indebtedness, other than the Aggregate Closing Date Intragroup Indebtedness, owed by CMB France or CMB Turkey, or to be assumed by Buyer or its affiliates in respect of the Plants as of the Closing Date and which (i) is owed to banks or other financial institutions or third party lenders, in full or partial repayment of amounts advanced up to the Closing Date (including both the current and longterm portions of such indebtedness); or (ii) constitutes capital lease obligations under U.S. GAAP (as defined in Section 1.2.3) for buildings, goods or equipment provided or made available to CMB France, CMB Turkey or the Plants up to the Closing Date including future payments to be made in satisfaction of such capital lease obligations, the net amount of which was equal to approximately US$707,000 at December 31, 1997. "Reimbursed Capital Expenditures" shall mean capital expenditures which have been invoiced on or after January 1, 1998 to and including the Effective Date to CMB U.K. or CMB Germany (in respect of the Plants) or to CMB France or CMB Turkey, with respect to those 1998 capital expenditure projects identified at Schedule 1.2.1 (b) hereto (and shall include amounts disbursed as deposits in respect thereof in 1997). "Reimbursed Restructuring Costs" shall mean, with respect to the German Plant, those costs incurred to and including the Effective Date in respect of restructuring of the labor force and with respect to CMB France such costs actually paid, as more fully itemized at Schedule 1.2.1(b) (such costs including in each case non-capitalized costs in addition to direct payments to employees). The parties have agreed that, for -3- the purposes of the calculation set forth above in this Section 1.2.1, the Reimbursed Capital Expenditures plus the Reimbursed Restructuring Costs shall not exceed US$8,400,000 and the Reimbursed Restructuring Costs shall not exceed US$3,000,000. (c) The net amount of items (i), minus (ii), minus (iii), plus (iv), plus (v), plus (vi) as estimated immediately prior to the Closing Date is herein referred to as the "Unadjusted Purchase Price". The allocation of the Unadjusted Purchase Price among the French Shares, the Turkish Shares, the U.K. Plant and the German Plant, and the estimated allocation of the Aggregate Closing Date Intragroup Indebtedness, is set forth in Schedule 1.2.1(c) attached hereto. Seller shall receive the Unadjusted Purchase Price, the estimated amount of the Aggregate Closing Date Intragroup Indebtedness and the Post-Closing Adjustment Amount (or shall pay the Post-Closing Adjustment Amount, as defined in Section 1.2.6 hereof) in its own name and on its own behalf with respect to the French Shares, the Turkish Shares, in the name and on behalf of SPC with respect to the Aggregate Closing Date Intragroup Indebtedness, and (to the extent payment is not made and received directly by the relevant local affiliates) in the name and on behalf of CMB Germany and CMB U.K. with respect to the German Plant and the U.K. Plant. 1.2.2 General Method of Payment. The payment of the Unadjusted Purchase Price, the Aggregate Closing Date Intragroup Indebtedness, the Post- Closing Adjustment Amount and all other cash payments under this Agreement shall be made to the receiving party by depositing, by bank wire transfer, the required amount in immediately available funds in an account designated by the receiving party for such purpose (or, at the option of the receiving party, by certified or bank check). Without prejudice to the provisions of Section 1.2.7, all sums payable hereunder which are not paid in a timely fashion shall bear interest, in U.S. Dollars and net of withholding tax, at the rate per annum equal to LIBOR for deposits of three months duration plus one hundred (100) basis points ("Agreed Interest Rate") from and including the day payment was due through and including the day payment is made. 1.2.3 Base Balance Sheets. Attached hereto as Schedule 1.2.3 are (i) unaudited pro forma balance sheets of the assets and liabilities of the German Plant (including all German assets to be transferred and all liabilities to be assumed pursuant to the German Asset Purchase Agreement) and the U.K. Plant (including all U.K. assets to be transferred and all liabilities to be assumed pursuant to the U.K. Asset Purchase Agreement) as at December 31, 1997, (respectively the "German and U.K. Pro-Forma Base Balance Sheets") and (ii) the unaudited balance sheets of CMB France and CMB Turkey as at December 31, 1997 (respectively the "French and Turkish Base Balance Sheets") (the German and U.K. Pro-Forma Base Balance Sheets and the French and Turkish Base Balance Sheets being referred to collectively as the "Base Balance Sheets"). The Base Balance Sheets have been prepared in accordance with generally accepted accounting principles in the United States -4- ("U.S. GAAP") as applied by Seller's group for such year-end ("Seller's Accounting Principles"). The German and U.K. Pro Forma Base Balance Sheets reflect as assets and liabilities only such categories thereof as will constitute Transferred Assets and Transferred Liabilities (as defined in the deed of conveyance and asset purchase agreements attached hereto as Exhibits I, II, III and IV). 1.2.4 Effective Date Balance Sheets and Closing Statements. As soon as practicable and, in any event, not later than seventy-five (75) calendar days after the Closing, Seller shall deliver to Buyer (i) unaudited pro-forma balance sheets of the Plants as of June 30, 1998 ("Effective Date") and unaudited balance sheets of CMB France and CMB Turkey as of the Effective Date ("Effective Date Balance Sheets") together with (ii) statements ("Closing Statements") setting forth (A) the amount of the Pro Forma Year-to- Effective Date Net Income (as defined in Section 1.2.6(c) below), Net Working Capital as of the Effective Date (as defined in Section 1.2.6(c) hereof), Reimbursed Capital Expenditures, Reimbursed Restructuring Costs, Aggregate Closing Date Intragroup Indebtedness and Closing Date Third Party Financial Indebtedness, (B) any adjustment to the Base Balance Sheets or Effective Date Balance Sheets required to appropriately reflect, consistently between the Base Balance Sheets and Effective Date Balance Sheets, pension or retirement liabilities in accordance with FAS 87 and FAS 106 of U.S. GAAP and (C) the resulting Post-Closing Adjustment Amount, if any, determined in accordance with Section 1.2.6(a) hereof. The Effective Date Balance Sheets shall be prepared on a basis consistent with the Base Balance Sheets. Buyer's independent accountant, Deloitte Touche Tohmatsu ("Buyer's Auditor"), on behalf of Buyer, shall have access to all work papers prepared by Seller, and any other documents, accounting records or evidence of financial transactions as they consider necessary in connection with the audit of the Effective Date Balance Sheets and the Closing Statements. 1.2.5 Disputes Regarding Effective Date Balance Sheets and Closing Statements. (a) As soon as practicable and, in any event, not later than sixty (60) calendar days after the delivery to Buyer of the Effective Date Balance Sheets and the Closing Statements, Buyer shall have reviewed such documents. Unless Buyer notifies Seller in writing within such period of any objection to the Effective Date Balance Sheets and/or the Closing Statements, specifying in reasonable detail the items and amounts subject to such objection ("Disputed Items"), the Effective Date Balance Sheets and the Closing Statements (including the Post-Closing Adjustment Amount, if any, shown thereon) shall be conclusive and binding on Buyer. If within such period Buyer notifies Seller in writing of any such objection, then Buyer and Seller shall use reasonable efforts for thirty (30) calendar days after the expiration of such initial period to resolve in good faith their differences and agree upon any adjustments to the Effective Date Balance Sheets and/or the Closing Statements (including any Post-Closing Adjustment Amount shown thereon). Any Disputed Items which are not resolved by the mutual agreement -5- of Buyer and Seller within such thirty-day period shall be submitted for resolution to the Paris, France office of KPMG, or, if KPMG shall not accept such mission, to another internationally recognized independent certified public accounting firm mutually acceptable to Seller and Buyer ("Independent Accounting Firm"). Seller and Buyer shall instruct the Independent Accounting Firm to limit its examination to the unresolved Disputed Items, to resolve any Disputed Items affecting the Effective Date Balance Sheets and/or the Closing Statements in such manner as to preserve the conformity of the Effective Date Balance Sheets and/or the Closing Statements with the requirements described in Sections 1.2.4 and 1.2.6(c) hereof and to use its best efforts to make its determination thereon within twenty (20) calendar days after its engagement hereunder. The resolution of any such previously unresolved Disputed Items by such accounting firm shall be made in a writing delivered to Buyer and Seller as promptly as practicable (which writing shall set forth the amount of any Post-Closing Adjustment Amount as finally determined) and shall be final, conclusive and binding upon Seller and Buyer in accordance with Article 1592 of the French Civil Code. The fees and expenses charged by the Independent Accounting Firm with respect to Disputed Items shall be borne by the non-prevailing party or pro-rated between the parties to the extent the resolution thereof involves an allocation between the parties of the amount of the Disputed Items. (b) The Effective Date Balance Sheets and the Closing Statements to which Buyer does not object as provided in Section 1.2.5(a) hereof, or to which Seller and Buyer agree, or as otherwise conclusively determined pursuant to Section 1.2.5(a) hereof (such final form of the Effective Date Balance Sheets and the Closing Statements being referred to herein respectively as the "Final French, U.K., Turkish and German Effective Date Balance Sheets" or sometimes collectively "Final Effective Date Balance Sheets") and the Final Closing Statements shall be used in determining the Post-Closing Adjustment Amount. 1.2.6 Determination of any Post-Closing Adjustment Amount. (a) The payment of a post-closing adjustment and the amount thereof, if any, shall be determined as follows: (i) If the Pro Forma Year-to-Effective Date Net Income (as defined in Section 1.2.6(c) hereof) is a positive amount (profit), said amount shall be credited to Seller for purposes of the calculation of the Post-Closing Adjustment Amount. (ii) If the Pro Forma Year-to-Effective Date Net Income is a negative amount (loss), said amount (expressed as a positive number) shall be credited to Buyer for the purposes of the calculation of the Post-Closing Adjustment Amount. -6- (iii) If the Net Working Capital as of the Effective Date exceeds US$1,413,000, said excess shall be credited to Seller for purposes of the calculation of the Post-Closing Adjustment Amount. (iv) If the Net Working Capital as of the Effective Date is less than US$1,413,000, said deficit shall be credited to Buyer for the purposes of the calculation of the Post-Closing Adjustment Amount. (v) To the extent the sum of the Aggregate Closing Date Intragroup Indebtedness and the Closing Date Third Party Financial Indebtedness (expressed as positive numbers) minus the sum of the Reimbursed Capital Expenditures and the Reimbursed Restructuring Costs (expressed as positive numbers) as finally determined on the Closing Statements shall exceed the result of such amounts as estimated for the purposes of Section 1.2.1 above, said excess shall be credited to Buyer for the purposes of the calculation of the Post-Closing Adjustment Amount (provided always that the sum of Reimbursed Capital Expenditures and Reimbursed Restructuring Costs for purposes hereof shall not exceed US$8,400,000 and that Reimbursed Restructuring Costs shall not exceed US$3,000,000). (vi) To the extent the sum of the Aggregate Closing Date Intragroup Indebtedness and the Closing Date Third Party Financial Indebtedness (expressed as positive numbers) minus the sum of the Reimbursed Capital Expenditures and the Reimbursed Restructuring Costs (expressed as positive numbers) as finally determined on the Closing Statements shall be less than the result of such amounts as estimated for the purposes of Section 1.2.1 above, said deficit shall be credited to Seller for the purposes of the calculation of the Post Closing Adjustment Amount (provided always that the sum of Reimbursed Capital Expenditures and Reimbursed Restructuring Costs for purposes hereof shall not exceed US$8,400,000 and that Reimbursed Restructuring Costs shall not exceed US$3,000,000). (b) The net amount due to Buyer by Seller or to Seller by Buyer as the case may be, resulting from the calculations set forth at paragraph (a) (i) through (vi) above, shall constitute the "Post Closing Adjustment Amount". (c) As used in this Agreement, the "Pro Forma Year-to-Effective Date Net Income" shall mean the combined pro forma net income (loss) of CMB France, CMB Turkey, the German Plant and the U.K. Plant from January 1, 1998 to June 30, 1998 determined in accordance with the Hyperion reporting system that services as the basis for the Base Balance Sheets attached hereto at Schedule 1.2.6(c). "Net Working Capital as of the Base Balance Sheet Date" and "Working Capital as of the Effective Date" shall respectively equal the sum of inventories plus accounts receivables plus Intragroup receivables plus -7- prepaid accounts plus other current and non-current assets minus accounts payables minus Intragroup payables minus accruals minus other current and non-current liabilities, as set forth on the respective Base Balance Sheets or the Effective Date Balance Sheets, all as defined and determined in accordance with Schedule 1.2.6(c) hereto. For the avoidance of doubt, Schedule 1.2.6(c) hereto sets forth hypothetical determination of the Post- Closing Adjustment Amount. (d) The Post-Closing Adjustment shall be allocated among Seller (with respect to the French and Turkish Shares), CMB Germany (with respect to the German Plant), CMB U.K. (with respect to the U.K. Plant) and SPC (with respect to the Aggregate Closing Date Intragroup Indebtedness), in accordance with the respective individual adjustments comprising the Post-Closing Adjustment, and shall be debited or credited, as the case may be, to Seller, CMB Germany, CMB U.K. or SPC. Buyer shall apply such allocation of the Post- Closing Adjustment on a basis consistent with that determined pursuant to the above. 1.2.7 Payment of Purchase Price and Aggregate Closing Date Intragroup Indebtedness. The Purchase Price and the Aggregate Closing Date Intragroup Indebtedness shall be paid as follows: (a) At the Closing, Buyer shall pay (or procure the payment of) to Seller an amount equal to the Unadjusted Purchase Price plus estimated amount of the Aggregate Closing Date Intragroup Indebtedness, all as set forth at Section 1.2.1 above (such payment to be received by Seller as set forth in Section 1.2.1(c) above). (b) Within sixty (60) calendar days after Seller's delivery of the Effective Date Balance Sheets to Buyer, the estimated amount of any Post- Closing Adjustment Amount, minus any amount of any Disputed Items, shall be paid to or by Seller, as the case may be. The remaining unpaid amount of any Post-Closing Adjustment Amount, if any, shall be paid to or by Seller (such payment to be paid or received by Seller as set forth in Section 1.2.1(c) above), as the case may be, within ten (10) calendar days of the resolution of all Disputed Items and determination of the Final Effective Date Balance Sheets in accordance with Section 1.2.5 hereof together with interest accruing on such amount, in U.S. Dollars and net of withholding tax, at the rate per annum equal to LIBOR for deposits of three months duration plus one hundred (100) basis points from the date on which the Post-Closing Adjustment Amount was paid for undisputed items to and including the date the remaining unpaid amounts in respect of Disputed Items of any Post-Closing Adjustment Amount is paid. The Unadjusted Purchase Price as finally adjusted in accordance with the terms hereof is hereinafter referred to as the "Purchase Price" and the Aggregate Closing Date Intragroup Indebtedness as finally adjusted in accordance with the terms hereof is hereinafter referred to as the "Aggregate Closing Date Intragroup Indebtedness". -8- 1.2.8 Maximum Closing Date Third Party Financial Indebtedness and Aggregate Closing Date Intragroup Indebtedness. (a) It is understood and agreed that, to the extent Closing Date Third Party Financial Indebtedness shall exceed the sum of (i) thirty-seven million five hundred thousand U.S. Dollars (US$37,500,000) plus (ii) the maximum amount of Reimbursed Capital Expenditures (as set forth in Section 1.2.1 above) plus (iii) the maximum amount of Reimbursed Restructuring Costs (as set forth in Section 1.2.1 above) then (x) the Purchase Price will be equal to one U.S. Dollar (US$1.00) and (y) the Aggregate Closing Date Intragroup Indebtedness shall be transferred for consideration of one U.S. Dollar (US$1.00) and (z) Seller shall relieve and hold harmless Buyer and its affiliates from any liability for Closing Date Third Party Financial Indebtedness in excess of such sum. (b) It is further understood and agreed that the maximum amount payable in consideration of the Aggregate Closing Date Intragroup Indebtedness shall not exceed the sum of (i) thirty-seven million five hundred thousand U.S. Dollars (US$37,500,000) plus (ii) the maximum amount of Reimbursed Capital Expenditures (as set forth in Section 1.2.1 above) plus (iii) the maximum amount of Reimbursed Restructuring Costs (as set forth in Section 1.2.1 above) minus (iv) the Closing Date Third Party Financial Indebtedness. 1.2.9 Payment of Seller's and Seller's Affiliates Intragroup Charges. Seller shall cause to be invoiced to and booked in the June 1998 accounts of CMB France, CMB Turkey, CMB U.K. (with respect to the U.K. Plant), and CMB Germany (with respect to the German Plant), all CarnaudMetalbox Intragroup charges (including without limitation accrued interest on the Aggregate Closing Date Intragroup Indebtedness and management, head office and other such charges). ARTICLE 2 REPRESENTATIONS AND WARRANTIES 2.1 Representations and Warranties of Seller. Except in the case of representations and warranties made as of a specific date, which shall be deemed made as of such date, Seller's representations and warranties are made as of the date hereof and as of the Closing Date. All representations and warranties made herein relating to CMB Germany and CMB U.K. shall be deemed limited to Transferred Assets, Transferred Liabilities and to the operations of the German Plant and the U.K. Plant, as the case may be, exclusively, and, for the avoidance of doubt, representations and warranties with respect to CMB U.K. shall as appropriate -9- be deemed to relate to the business and assets of the U.K. Plant conducted previously by CMB&C. The parties hereby acknowledge that the Seller makes no representations and gives no warranties as to the Transferred Assets, Transferred Liabilities and operations of the U.K. Plant (the "U.K. Representations and Warranties") provided that the Seller will procure that CMB U.K. will make such U.K. Representations and give such U.K. Warranties to the affiliate of Buyer party to the U.K. Asset Purchase Agreement in accordance with the terms of the U.K. Asset Purchase Agreement. 2.1.1 Corporate Status. (a) Seller. Seller is duly organized and validly existing under the laws of France and has all requisite corporate power to own its properties and carry on its business as now conducted. (b) France, CMB U.K., CMB Germany and CMB Turkey. Each of CMB France, CMB U.K., CMB Germany and CMB Turkey is duly organized and validly existing under the laws of jurisdiction and has all requisite corporate power to own its properties and carry on its businesses now conducted. A copy of their memorandum, articles and by-laws as of the date hereof is annexed hereto as Schedule 2.1.1(b). Except as disclosed in Schedule 2.1.1(b), all of the statutory books, registers and corporate documents required by applicable regulations of each of CMB France and CMB Turkey have been kept by them in accordance with all applicable laws and regulations and are all up-to-date and remain in their possession at their respective registered of rices. (c) Except as disclosed in Schedule 2.1.1(c), the directors and officers of each of CMB France and CMB Turkey have been validly appointed in accordance with applicable laws and regulations and their respective memorandum, articles and by-laws in each respective jurisdiction and all board and shareholder resolutions have been validly adopted. 2.1.2 Share Capital of CMB France and CMB Turkey. The share capital of each of CMB France and CMB Turkey is set forth in their memorandum, articles and by-laws, respective copies of which are annexed hereto as Schedule 2.1.1(b). Except pursuant hereto or as may be provided in their memorandum, articles and by-laws, all of the shares of CMB France and CMB Turkey are fully paid-up and validly issued and are not subject to any calls or assessments and are not encumbered by any pledge or other charge of whatsoever kind, are freely transferable and have never been the subject of any litigation, claim or demand. Except pursuant hereto, no option, priority right, preference or pre-emption arrangement exists over the shares of CMB France and CMB Turkey. At the Closing, there will be no commitments providing for the issuance of any additional shares of capital stock of CMB France or CMB Turkey (with or without voting rights), or providing for the issuance of -10- securities convertible into shares of capital stock or providing for the issuance of other securities. CMB France and CMB Turkey have not made any public offering of debt or equity securities. 2.1.3 Title to Shares, U.K. Plant and German Plant. At the Closing, Seller will have full ownership and valid legal title to the French Shares and the Turkish Shares and to all of the rights afforded thereby, free of all options, guarantees and any other encumbrances. Except as set forth in Schedule 2.1.3 hereto and except for Permitted Liens (as defined in Section 2.1.11 hereof), CMB U.K. will have full ownership and valid legal title to the U.K. Plant free of all liens and encumbrances and CMB Germany will have full ownership and valid legal title to the German Plant, free of all liens and encumbrances. 2.1.4 Authority, Restrictions and Conflicts. (a) Seller, with respect to the French and Turkish Shares, CMB U.K. with respect to the U.K. Plant, CMB Germany with respect to the German Plant and SPC, with respect to the Aggregate Closing Date Intragroup Indebtedness, have full corporate power and authority to enter into this Agreement and any other documents contemplated hereby and save as set out in Schedule 2.1.4(a) to transfer, assign and deliver or cause to transfer, assign and deliver, as the case may be, the Shares, the U.K. Plant, the German Plant and the Aggregate Closing Date Intragroup Indebtedness as provided in this Agreement. Except as disclosed in Schedule 2.1.4 (a) such delivery will convey to Buyer full ownership and legal title to the Shares, the U.K. Plant, the German Plant and the Aggregate Closing Date Intragroup Indebtedness. (b) The consummation of the transactions contemplated by this Agreement will not be in violation of the charter documents of the Seller, SPC, CMB U.K. or CMB Germany. (c) There is no lawsuit, arbitration or proceeding pending or, to the Seller's knowledge, threatened against Seller, SPC, CMB U.K. or CMB Germany which might prevent the consummation of any of the transactions contemplated by this Agreement, and except as set forth in Schedule 2.1.4(c), no approval or authorization of any Governmental Entity (as defined at Section 3.3.5 hereof), or of any third party is required in connection with the execution, delivery and performance of this Agreement and the other documents contemplated hereby or thereby. (d) Except as set forth at Schedule 2.1.4(d) hereto, neither the execution nor performance of this Agreement will conflict with, or result in a breach of, or give rise to an event of default under, or require the consent of a person under, or enable a person to terminate, or relieve a person from any obligation under an agreement, contract or commitment to which CMB France or CMB Turkey is a party, or relating to the operation of the U.K. Plant and the German Plant. -11- 2.1.5 Financial Statements. (a) Subject to any adjustment that may be required pursuant to Section 1.2.4(ii)(B), the Base Balance Sheets have been, and the Effective Date Balance Sheets will be prepared by Seller in accordance with U.S. GAAP and Seller's Accounting Principles (as disclosed to Buyer as part of the data room documents) applied consistently to the preparation of the Base Balance Sheets and the Effective Date Balance Sheets. Subject to any adjustment that may be required pursuant to Section 1.2.4(ii)(B), the Base Balance Sheets do and the Effective Date Balance Sheets will fairly present, in accordance with U.S. GAAP, the financial position of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Germany (with respect to the German Plant) and CMB Turkey as of the respective dates specified therein. (b) Attached hereto at Schedule 2.1.5(b) are the respective December 31, 1997 certified statutory accounts of each of CMB France and CMB Turkey (the "Statutory Accounts"). The Statutory Accounts have been prepared on a basis consistent with each such company's past practice and in compliance with the law and applicable standards, principles and practices of each respective jurisdiction. (c) Except as disclosed in Schedule 2.1.5(c) or save to the extent reserved against in the Base Balance Sheets or identified in the notes thereto or as adjusted pursuant to Section 1.2.4(ii)(B), there are no contingent or off-balance sheet liabilities (whether or not required to be disclosed under U.S. GAAP) as of December 31, 1997 and no such liabilities arising subsequent to such date and through the Closing Date. 2.1.6 Subsidiaries. Except as set forth in Schedule 2.1.6, none of CMB France and CMB Turkey has any subsidiaries or directly or indirectly owns any capital stock of or any other equity interests in any corporation, partnership, or other person, or is a member of or a participant in any partnership, joint venture or similar enterprise or any other entity of whatsoever nature and have never held any shareholding in any entity in respect of which the retiring shareholder remains liable vis-a-vis third parties for the whole or part of the debts in such entity prior to its departure. 2.1.7 Material Actions. Since December 31, 1997, except as set forth in Schedule 2.1.7 hereto, or in this Agreement: (a) each of CMB France, CMB U.K. with respect to the U.K. Plant, CMB Turkey and CMB Germany with respect to the German Plant has been reasonably managed ("en bon pere de famille") consistent with past practice, and has: (i) not incurred any obligation or liability or entered into any transaction with a third party entailing an aggregate payment obligation -12- or liability in excess of US$500,000 or with any officers, directors, or affiliates; (ii) not permitted or allowed any Real Property (as defined in Section 2.1.9 hereof) or any Movable Property (as defined in Section 2.1.10 hereof) or any intangible property (including any fonds de commerce) to be mortgaged, pledged or subjected to any other encumbrance, except for any Permitted Liens; (iii) not sold, transferred or purchased or committed to sell, transfer or purchase (except as disclosed in Schedule 1.2.1(b)), any fixed asset having a book value in excess of US$20,000 individually per item, whether or not in the ordinary course of business; (iv) not acquired or agreed to acquire any share capital or other equity or debt securities of any other business or entered into any licensing agreement or joint venture in relation to the operation of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey or CMB Germany (with respect to the German Plant); (v) not declared or paid dividends or any other distributions; (vi) complied with all labor, tax, economic, customs, transport, environment, hygiene or other regulations non-compliance with which could have a material adverse effect on any of the operations of CMB France, CMB U.K. with respect to the U.K. Plant, CMB Turkey or CMB Germany with respect to the German Plant; (vii) not recruited or dismissed any Executives (as defined in Section 9.11 hereof), except as disclosed in Schedule 2.1.7 or materially amended the terms of any employment contract with any Executive; (viii) not suffered any damage, destruction or casualty loss, whether or not covered by insurance, adversely affecting the assets, liabilities, business or prospects of each of CMB France, CMB U.K. with respect to the U.K. Plant, CMB Turkey and CMB Germany with respect to the German Plant; (ix) not amended or modified the bylaws of any of CMB France and CMB Turkey nor altered in any way any of its share capital; (x) not changed its accounting methods or made or changed any tax elections, changed any method of accounting with respect to taxes, or settled or compromised any tax liability; -13- (xi) not failed to pay premiums under, or have allowed coverage to lapse, under the property, casualty and liability insurance policies identified at Section 2.1.12(a)(xiii); or (xii) not settled or compromised any claim brought against, or by, CMB France or CMB Turkey or the Plants other than for fair value. (b) There has been no Material Adverse Change (as defined in Section 9.11 hereof). 2.1.8 Intellectual and Industrial Property. (a) Schedule 2.1.8(a) hereto contains a true and complete list (including inter alia application and registration dates, application and registration numbers, expiration dates) of each requested or registered patent, trademark, design, copyright and any other intellectual or industrial property rights including without limitation molds ("Molds"), technology, and trade secrets, said list identifying those items (i) owned by CMB France or CMB Turkey ("Owned Intellectual Property Rights"), (ii) owned by Seller, any of Seller's affiliates, CMB Germany or CMB U.K. and used in or necessary for the operations of CMB France, CMB Turkey or the Plants as presently conducted ("Affiliated Intellectual Property Rights") and (iii) owned by any other party and licensed to CMB France, CMB Turkey, CMB Germany or CMB U.K. or otherwise used in the operations of CMB France, CMB Turkey or the Plants as presently conducted ("Third Party Intellectual Property Rights") (collectively referred to hereinafter as the "Intellectual Property Rights") (it being understood and agreed between the parties that Buyer has relied, without independent investigation, on Seller's representation as to the Owned Intellectual Property, Affiliated Intellectual Property Rights and Third Party Intellectual Property Rights, notwithstanding any documents delivered by Seller to Buyer, in the due diligence process). (b) The use of Owned Intellectual Property Rights, the Affiliated Intellectual Property Rights and the Molds do not, and to Seller's knowledge, the use of other Third Party Intellectual Property Rights do not, infringe any other prior rights held by any other entity. (c) CMB France and CMB Turkey have valid rights to their company name, title to their trade names and title to the Owned Intellectual Property Rights; Seller, Seller's affiliates, CMB Germany and CMB U.K. have valid title to the Affiliated Intellectual Property Rights; and all of such entities have carried out all necessary formalities, have paid all amounts and taken all necessary steps to maintain and protect such Intellectual Property Rights and except as set forth in Schedule 2.1.8(c), such Intellectual Property Rights are not subject to any other charge, restriction, tax, condition or payment obligation. -14- (d) All licenses pursuant to which Affiliated Intellectual Property Rights or Third Party Intellectual Property Rights are made available to CMB France, CMB Turkey or the Plants are valid, binding and enforceable, have not been pledged, encumbered or assigned, and none of CMB France, CMB Turkey or the Plants is in default thereunder. (e) No action, proceeding, claim, suit, threat or other similar risk relating to the infringement or breach of any Intellectual Property Rights has been initiated or filed by Seller, any of Seller's affiliates, or CMB France, CMB U.K., CMB Turkey and CMB Germany against any third party. (f) Except as set forth in Schedule 2.1.8(f), no action, claim, suit or proceedings or notice of any such action, claim, suit, or proceedings or any threat or similar risk relating to the infringement or breach of any third party's intellectual or industrial property rights has been made against CMB France, CMB U.K., CMB Turkey or CMB Germany or any other party which may have an effect on CMB France, CMB Turkey or the Plants and to Seller's knowledge none is threatened and no fact or omission may serve as a basis for any such claim. (g) None of the Owned Intellectual Property Rights nor the Affiliated Intellectual Property Rights is mortgaged or pledged or is the subject of co-ownership with third parties. 2.1.9 Real Property; Leases of Real Property. (a) Schedule 2.1.9(a) hereto contains a brief description of the real property which is owned by CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey or CMB Germany (with respect to the German Plant) indicating any mortgages granted in respect thereof ("Owned Real Property") or leased by any of them ("Leased Real Property") (the Owned Real Property and the Leased Real Property collectively herein the "Real Property"). The Real Property constitutes all the real property which CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) use to perform their activities as they presently exist. Each of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) has and as of the Closing will have, all easements and rights of ingress and egress necessary for utilities and services and for all operations conducted on the Real Property. (b) Except as disclosed in Schedule 2.1.9(b), CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) have valid freehold or leasehold interests in, and quiet enjoyment of, the Real Property. (c) Except as set forth in Schedule 2.1.9(c), CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) have not granted any lease or sub-lease or any other right -15- of occupation over the Real Property, all the Real Property being used for their own needs and business activities and does not include any private accommodation including employee accommodations and there is no person in possession or occupation of or who has any right or interest in the Real Property. (d) Except as set forth in Schedule 2.1.9(d), CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) have no right or obligation to purchase, sell, lease or have leased to them any real property whatsoever. (e) Except as set forth in Schedule 2.1.9(e): CMB France enjoys commercial ownership (propriete commerciale) in respect of the Leased Real Property which is not subject to any financial lease and no Leased Real Property has been tacitly renewed; and CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) have not been parties to any transfer of any leases for the five year period preceding the Closing Date and CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) do not have any liabilities vis-a-vis third parties in respect of the previous leases entered into by them. (f) CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) are and have been in compliance with regulations relating to the construction, occupation and use of the Real Property and, in particular, with all orders, specifications, rules of co-ownership and internal regulations together with all relevant legislation or regulations. (g) Except as set forth in Schedule 2.1.9(g), no easement exists over the Real Property other than those resulting from the natural position of the Real Property and the town planning rules applying thereto and those indicated in the title deeds of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant). (h) Except as set forth in Schedule 2.1.9(h), all demolition permits, building permits and all other necessary declarations or authorizations and approvals ("Permit") have been properly sought, obtained and published as far as the building of each Real Property is concerned and all works relating thereto, including any exceeding of any of the permitted plot ratios and/or any legal density limits of any applicable laws, regulations or decisions of any applicable authority. The Permits are not subject to any objection or claim whatsoever (including any claim for withdrawal or cancellation) by any third party during the legal time-limits and all such legal time-limits have now expired. All corresponding certificates of conformity relating to Permits issued within the past ten years have been obtained. -16- (i) Except as set forth in Schedule 2.1.9(i), the Real Property is in a satisfactory state of repair, maintenance and functioning, normal wear and tear excepted, free of all major defects and subject to appropriate security measures. All reserves made at the time of the delivery of the Real Property have been released. Each of the Real Property is in accordance with the regulations currently in force (in particular with regard to security, hygiene and work conditions as well as any opening authorizations) which are applicable to the activities of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) as they presently exist. (j) Each Real Property is covered by the insurance policies fully in force as described in Schedule 2.1.9(j), which policies will cover the Real Property through but not beyond the Closing Date. (k) CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) are not in default under any of their agreements in respect of Real Property, all such agreements are valid, binding and enforceable by each of them, and further, all rents, charges, property taxes, rental payments and other costs which may be due or will become due by CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) have been paid or an appropriate provision has been made. 2.1.10 Movable Property. (a) Schedule 2.1.10(a) hereto contains true and complete lists of the owned movable property (excluding inventory) ("Owned Movable Property") and leased movable property with annual lease payments greater than US$50,000 ("Leased Movable Property") (Owned Movable and Leased Movable Property, collectively the "Movable Property"). (b) Except as set forth in Schedule 2.1.10(b), all Owned Movable Property included in the Base Balance Sheets or Effective Date Balance Sheets with a non-nominal residual value and all Leased Movable Property and all other leased movable property is in satisfactory working condition, normal wear and tear and periodic repair and maintenance excepted, and has been regularly and routinely maintained and complies with all applicable laws and regulations. (c) The Owned Movable Property and the Leased Movable Property constitute substantially all the movable property necessary to conduct the business of CMB France, CMB Turkey, the U.K. Plant and the German Plant as presently conducted, and except as set forth at Schedule 2.1.10(c) there are no other material items of movable property so necessary. 2.1.11 Title to Property. At the Closing, each of CMB France, CMB U.K., CMB Turkey and CMB Germany will have full ownership and valid legal title (immuable et incommutable) to all Owned Real Property and Owned Movable -17- Property and CMB France will have full ownership and valid legal title (immuable et incommutable) to its fonds de commerce and such fonds de commerce shall be validly registered with the appropriate registry of commerce. Except as set forth in Schedule 2.1.11, such Owned Real Property and Owned Movable Property is freely transferable (without any restriction or limitation whatsoever) and free of any lien, mortgage, pledge, security interest, promise, option, right of pre-emption or any other encumbrance except for Permitted Liens. As used in this Agreement, the term "Permitted Liens" shall mean, collectively, any liens of any nature whatsoever and with respect to Real Property, all easements, servitudes and rights of way, arising and continuing in the ordinary course of business or by operation of law for obligations which are not delinquent and which do not materially affect the value of the property or the usefulness thereof to any of CMB France, CMB U.K., CMB Turkey and CMB Germany. Permitted Liens shall not include mortgages on real property, pledges of shares or nantissements de fonds de commerce or analogous security interests. 2.1.12 Material Contracts and Commitments. (a) Schedule 2.1.12(a) lists all contracts, obligations or undertakings (excluding employee contracts which are the subject of Section 2.1.18 below and real property contracts which are the subject of Section 2.1.9 above) (copies of which have been made available to Buyer) entered into by CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey or CMB Germany (with respect to the German Plant) ("Material Contracts") which remain in effect on the date hereof and which are: (i) contracts made in the ordinary course of business involving estimated total future payments or receipts on an annual basis in excess of US$250,000; (ii) consulting or personal services agreements which have an aggregate future liability in excess of US$100,000; (iii) any non-competition, confidentiality or secrecy agreements, and any other agreements which restrict the carrying on of the business of CMB France or CMB Turkey as conducted on the date hereof or, with respect to the U.K. Plant and the German Plant, materially restricts the use or exploitation of the Transferred Assets; (iv) dealership, manufacturer's representative, distributor, or agency agreements terminable upon notice of more than ninety (90) days or requiring a termination indemnity; (v) contracts or commitments for capital expenditures involving estimated total future payments in excess of US$20,000; -18- (vi) partnership or joint venture agreements; (vii) mortgages, pledges, charges, conditional sales contracts, security agreements, factoring agreements or other similar agreements other than Permitted Liens; (viii) agreements, contracts or other instruments under which CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey or CMB Germany (with respect to the German Plant) has borrowed any money from, or issued any note, bond, debenture or other evidence of indebtedness to, any person; (ix) agreements, contracts or other instruments under which (i) any person has directly or indirectly guaranteed, to Seller's knowledge, any indebtedness, liabilities or obligations of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) or (ii) CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey or CMB Germany (with respect to the German Plant) has directly or indirectly guaranteed any indebtedness, liabilities or obligations of any person (in each case, other than endorsements for the purpose of collection in the ordinary course of business or product warranties); (x) agreements, contracts or other instruments under which CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey or CMB Germany (with respect to the German Plant) has, directly or indirectly, made any advance, loan, extension of credit (other than standard trade credit) or capital contribution to, or other investment in, any person in excess of US$50,000; (xi) agreements, contracts, commitments or undertakings presently in effect, whether or not fully performed, between CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) and any of their respective officers, directors, Executives or affiliates; (xii) agreements, contracts or other instruments including a change of control provision; (xiii) property, casualty and liability and other insurance policies provided by third party carriers, coverage under which is available to CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey, or CMB Germany (with respect to the German Plant) which are in effect up to but not beyond the Closing Date; (xiv) agreements, obligations or undertakings that constitute onerous or loss contracts which would be required to be reserved against -19- on the financial statements of any of such companies in accordance with U.S. GAAP; or (xv) grants or subsidies made to it by a body (including without limitation any Governmental Entity). (b) Except as disclosed at Schedule 2.1.12(b), the Material Contracts are valid, binding and enforceable obligations of the parties thereto; CMB France, CMB Turkey, CMB U.K. (with respect to the U.K. Plant) and CMB Germany (with respect to the German Plant) are not in default under any of the material terms of the Material Contracts (entailing a right to termination, penalties, or modification of its terms); and to Seller's knowledge, CMB France, CMB Turkey, CMB U.K. (with respect to the U.K. Plant) and CMB Germany (with respect to the German Plant) are not in default under any other contract or obligation other than the Material Contracts. (c) Set forth in Schedule 2.1.12(c) is a list of sales by month, since January 1, 1997 and through the month preceding the signature date hereof, of the top twenty customers of CMB France, and the top ten customers of each of CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant). Not later than 7 calendar days prior to the date hereof, Seller has made available to Buyer for inspection copies of firm commitment letters of intent, bottle supply contracts, and other relevant customer contracts, and shall make available to Buyer terms and conditions of supply purchase and sale relating to such suppliers. Except as disclosed in Schedule 2.1.12(c), Seller has no knowledge that any of such suppliers has expressed its intention to suspend or materially reduce its level of business with any of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey or CMB Germany (with respect to the German Plant) with the effect of reducing annual sales revenue from that customer of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) by more than 20% or by more than US$200,000 per product. (d) Except as set forth in Schedule 2.1.12(d), each of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) is not liable to repay an investment or other grant or subsidy made to it by a body (including without limitation any Governmental Entity). 2.1.13 Inventory. (a) Save to the extent reserved against on the Effective Date Balance Sheets, or as set forth in Schedule 2.1.13(a), the inventory, including in particular all finished products, raw materials, goods in production or processing, packaging materials and supplies, samples, displays, publicity and promotional materials of CMB France and CMB Turkey and the inventory of CMB U.K. and CMB Germany included in the Transferred Assets ("Inventories"), all appropriately identified, will consist of items -20- usable and saleable in the ordinary course and comply with specifications and are not defective or unfit for their usual purpose. All finished goods that have been shipped to customers comply with specifications and are not defective or unfit for their usual purpose. (b) as set forth in Schedule 2.1.13(b), since January 1, 1997, there have not been any product returns that have generated claims in excess of US$20,000, recalls, or any post-sale warnings issued by CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey or CMB Germany (with respect to the German Plant) nor any products which fail to comply with their terms of sale. 2.1.14 No Lawsuits. (a) Except as set forth on Schedule 2.1.14(a), there is no pending claim that has been made by any person against any of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey or CMB Germany (with respect to the German Plant) for an individual account of more than twenty thousand U.S. Dollars (US$20,000). (b) Except as set forth on Schedule 2.1.14(b), there is (and there has been for the last two years) no lawsuit, arbitration or other proceeding (civil or criminal or of any other nature) in any jurisdiction pending or, to Seller's knowledge threatened, against or brought by any of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) or, to Seller's knowledge, any person for whose acts or defaults any of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) may be vicariously liable, and sufficient provision has been made in the Base Balance Sheets and will be made in the Effective Date Balance Sheets to cover such risks. (c) To the Seller's knowledge, no fact or circumstance exists which might give rise to any proceeding of any nature in any jurisdiction involving CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) or a person for whose acts or defaults CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) may be vicariously liable. (d) Except as set forth on Schedule 2.1.14(d) there is no outstanding judgment, order, decree, arbitral award or decision of a court, tribunal, arbitrator or governmental agency in any jurisdiction against CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) or, to Seller's knowledge, a person for whose acts or defaults CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) may be vicariously liable. -21- (e) Except as disclosed in Schedule 2.1.14(e), there is and has been no governmental or other investigation, inquiry or disciplinary proceeding concerning CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) in any jurisdiction and none is pending or threatened. To the Seller's knowledge, no fact or circumstance exists which might give rise to an investigation, inquiry or proceeding of that type. 2.1.15 No Broker. Seller and its agents have incurred no obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or other similar payment in connection with this Agreement. 2.1.16 Governmental Permits; Compliance with Laws. (a) Each of the material permits and authorizations necessary to the conduct of the business of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) as heretofore conducted is listed on Schedule 2.1.16(a), and is valid and in full force and effect. At the Closing Date, CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) will hold all governmental or regulatory permits and authorizations which are required for the conduct of their business as currently being conducted. No notices have been received by any of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey or CMB Germany (with respect to the German Plant) relating to any modification, termination or cancellation of, and none of them is in violation of the terms and conditions of, any such permits or authorizations. Except as set forth in Schedule 2.1.16(a), the Seller is not aware that any permits and authorizations necessary to the conduct of the business of NIB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) may be terminated in a period of one year following the Closing Date. Except as set forth in Schedule 2.1.16(a), since January 1, 1998, none of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey or CMB Germany (with respect to the German Plant) has received any complaint, citation or notice of violation from any Governmental Entity and, to the Seller's knowledge, none is threatened, alleging that any of them has violated any laws or regulations of Governmental Entities applicable to any of them. Furthermore, CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Germany (with respect to the German Plant) has not received any complaint, citation or notice of violation from any Governmental Entity before January 1, 1998 which remains unresolved. The representations contained in this Section 2.1.16 as they relate to Environmental Laws (as defined at Section 2.1.17(c) hereof) are qualified by the representations and disclosures of Seller made pursuant to Section 2.1.17 hereunder. (b) Each of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) has conducted -22- its business and dealt with its assets in accordance with all applicable legal and administrative requirements in any jurisdiction. (c) Except as set forth in Schedule 2.1.16(c), neither the execution nor performance of this Agreement will result in CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) losing the benefit of any permit, authorization, or license listed in Schedule 2.1.16(a), subject to continued compliance with terms thereof. 2.1.17 Environmental Matters. (a) Except as set forth in Schedule 2.1.17(a) hereto which includes the Phase I surveys conducted at the Meaux Plant, the Noeux Plant, the U.K. Plant and the German Plant dated 30 April 1998: (i) each of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) holds and is in material compliance with, and as of the Closing each of them will hold and will be in material compliance with, all permits and authorizations required to conduct its business under Environmental Laws, (ii) no proceedings have been initiated or to Seller's knowledge are pending which would lead to their revocation, modification or suspension, (iii) each of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) is in material compliance with, and at the Closing will be in material compliance with all Environmental Laws, including without limitation all restrictions, conditions, standards, limit values, prohibitions, requirements, obligations, schedules and timetables contained in the Environmental Laws, (iv) the state of preservation of asbestos used in the construction of the Real Property is not such as to require removal or other remediation works to be carried out pursuant to Environmental Laws, and there is no asbestos in the materials stored or handled in the Real Property and each of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) has complied with all Environmental Laws in this respect, (v) none of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) has received any written communication from any person, including an Environmental Authority alleging that any of them is not in compliance in any material respect with any Environmental Laws or otherwise may be liable under any Environmental Law including, without limitation, liability for Remedial Action, and (vi) no arbitral, judicial or administrative proceedings have been initiated or are, to Seller's knowledge, threatened to be initiated by any Environmental Authority (as defined in Section 2.1.17(b) herein) or third party regarding any act or activity carried out by CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey or CMB Germany (with respect to the German Plant) which may have caused pollution to the air, water, soil or subsoil or any other nuisance which may affect the environment or create a hazard for health and safety. -23- (b) Schedule 2.1.17(b) hereto contains: (i) a list of material environmental permits and authorizations necessary for the conduct of the business of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant), (ii) a description of the waste disposal practices of each of them, including the names of owners and operators of each location to which waste had been sent for treatment, storage or disposal, (iii) a list of Hazardous Materials used or generated by each of them, (iv) copies of material environmental instructions by Governmental Entities received by any of them, and (v) a list and description of the location of all underground tanks, sumps or pits at the Real Property currently or formerly used to contain Hazardous Materials or Contaminants (as defined below), on a continuous basis. Seller and each of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) have fully and accurately disclosed to Buyer all material environmental studies, investigations and audits of which either of them has knowledge concerning the Sites (as defined in Section 8.4(b)) including in particular, the ERM summary reports dated January, June and July 1996, copies of which were delivered to Buyer. As used in this Agreement, the term "Environmental Laws" means any and all applicable treaties, EU legislation, laws (which in England and Wales shall include the common law), regulations, decrees, ministerial instructions (including French "circulaires ministerielles" to the extent they are legally binding), instructions of Environmental Authorities to the extent legally binding, judgments, permits, authorizations, binding agreements relating to the protection of the environment, health and safety, or common law nuisance, in each case as in effect on the date hereof in France with respect to CMB France, in the United Kingdom with respect to the U.K. Plant, in Turkey with respect to CMB Turkey and in Germany with respect to the German Plant. As used in this Agreement, the term "Environmental Authorities" means any local, regional, national or federal department, agency, ministry or any similar body having jurisdiction over environmental laws. As used in this Agreement, the term "Contaminants" means those substances whose Releases (as defined below) are regulated by, or form the basis of, liability under any Environmental Laws. As used in this Agreement, the term "Hazardous Materials" means all materials or substances regulated as explosive, flammable, toxic or radioactive pursuant to any Environmental Laws. As used in this Agreement, the term "Release" means any spill, emission, leaking, pumping, injection, deposit, or discharge of any Contaminant in, onto, or through the environment (including ambient air, surface water, groundwater, or soils). 2.1.18 Transferred Employees; Employee Benefits; Health and Safety. (a) Schedule 2.1.18(a) hereto contains: (A) a true and complete list identifying by age, seniority, classification and remuneration (including all bonuses of whatever kind, payments in kind), (i) the employees (including all directors and other officers) of CMB France (excluding, however, Head Office Employees as-defined at Section 3.1.5), CMB Turkey and -24- the Plants as of March 31, 1998 ("Transferred Employees"), and (ii) any person working for CMB France, CMB Turkey or the Plants who has been provided by a third party including any affiliate of the Seller. Such list indicates the date of termination of the fixed term contracts (if any), and the date on which contracts for employees provided by third parties terminate together with the identity of such third party (if any) and any Transferred Employees who have tendered their resignation. Furthermore, such list sets out the period of time which remains, for any Transferred Employee subject to an indeterminable contract who has been issued with or has issued a notice of termination; (B) a true and complete list of any increase or decision to increase, taken in the twelve (12) months prior to the date hereof, the general level of compensation in addition to any increase or decision, taken in the twelve (12) months prior to the date hereof, to increase the level of individual compensation of a Transferred Employee by more than US$5,000 per annum; (C) a true and complete list as of March 31, 1998 of (i) the Transferred Employees having borrowed sums from any of CMB France, CMB U.K., CMB Turkey and CMB Germany or their affiliates, the amounts of such borrowings and the outstanding principal amounts as of such date and (ii) all protected Transferred Employees in accordance with any law or regulation of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant); (D) a definition of any and all pension or retirement benefits, bonus, profit sharing, stock purchase or stock option plans, company savings plans or employee funds concerning the Transferred Employees together with particulars of any obligation of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) to provide death, disability or medical benefits put in place to the benefit of the Transferred Employees (collectively, "Benefit Plans"); (E) a true and complete list of any collective bargaining agreement or any other collective agreement, internal rules, code of conduct or other manual containing internal procedures and regulations with respect to the Transferred Employees; (F) a copy of the contracts of employment (including amendments hereto) for the Executives who are Transferred Employees; and (G) standard form of labor contracts. (b) CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) conform and have conformed in all respects, to the law, applicable regulations and all mandatory statutory or regulatory requirements (including all collective agreements) with respect to the Transferred Employees (including, with respect to the German Plant, Section 613a of the Burgerliches Gesetzbuch). (c) The Benefit Plans (excluding the U.K. pension plan) conform and have conformed with the law, applicable regulations and all mandatory or statutory requirements and have not been subject, up to the Closing Date, to any requalification or reassessment by any tax or any other social administration. All contributions payable and due by CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to -25- the German Plant) for the Benefit Plans have been duly paid or provisions have been duly made in respect thereof. (d) The standard form of labor contracts contained in Schedule 2.1.18(a) have been applied consistently without any significant modification and CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) are not in breach of (i) any clause of such standard form contracts and (ii) any of the contracts of employment for the Executives which comply with all applicable law and regulations and with the applicable collective agreements. All salaries, commissions, bonuses, other payments and repayments and payment of expenses and generally all sums due to the beneficiaries of such contracts, and, more generally, to all of the Transferred Employees as at the Closing Date, have been duly and fully paid or a provision has been duly made in respect thereof. Save as reserved against on the Effective Date Balance Sheets, CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) have no outstanding obligations vis-a-vis their former employees (including all directors and other officers). (e) CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) have not granted any employment advantage, subsidy or bonus whatsoever except as set forth in Schedule 2.1.18(a) and have not entered into any pay agreement outside their usual field of business activities, and no Transferred Employee of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) benefits from any particular advantage (whether or not in case of termination of his contract) differing from the general provisions of the standard form contracts or the contracts of employment for the executives. (f) CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) have at all times, up to the Closing Date complied with all social security regulations in force. CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) are up to date in the payment of their contributions relating to social security, family allowances and the various organizations dealing with retirement and unemployment and, more generally, with all other contribution, installment or payment connected with social welfare. No claim, investigation or dispute exists in connection with any of the social welfare organizations as at the date hereof. (g) France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) have at all times, up to the Closing Date, complied with all the rules and regulations in force in connection with personnel representation. -26- (h) Except as disclosed at Schedule 2.1.18(h), CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (in respect of the German Plant) are not in the process of making any individual or group redundancies or "social plan" or dismissing or transferring any of their Transferred Employees for whatever reason and have not made any individual or group redundancies or "social plan" or transferred any of their Transferred Employees during the past twelve (12) months. (i) Except as disclosed at Schedule 2.1.18(i), CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (in respect of the German Plant) have not made any binding offer for employment which remains outstanding to any person who would have the status of Executive. (j) Except as set forth in Schedule 2.1.18(j), there has not been during the last three (3) years, nor is there currently pending or, to Seller's knowledge, threatened, any strike or work stoppage. (k) Except as set forth in Schedule 2.1.18(k), there is no lawsuit, arbitration, formal or informal settlement or proceeding pending and Seller has no knowledge of any such proceeding or settlement, threatened against any of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) in connection with any of the Transferred Employees, which would have an adverse effect on their business, and sufficient provision has been made in the Base Balance Sheets and will be made in the Effective Date Balance Sheets to cover such risks. (l) Except as set forth in Schedule 2.1.18(1), each of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) is in compliance with all health and safety laws and regulations issued by any Governmental Entities. 2.1.19 Taxes. (a) Each of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) are and have been for the applicable statute of limitations period in complete compliance with all tax regulations. (b) Except as set forth in Schedule 2.1.19(b)(i), each of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) has filed with the appropriate Governmental Entities all tax returns and all formalities or documents imposed by the tax regulations required to be filed in respect of their activities and each of them has paid all taxes shown or claimed to be due (whether or not shown as due on such tax returns or documents) thereon within the required time limits or have constituted, and will constitute, sufficient or have registered and will register sufficient charges to be paid, (excluding deferred taxes that reflect the difference between book value and tax basis in assets and liabilities), in the Base Balance Sheets -27- and in the Effective Date Balance Sheets. These returns or documents have for the applicable statute of limitations period been and remain true and complete and do not contain any errors, omissions or inaccurate statements. Except as set forth in Schedule 2.1.19(b)(ii), none of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) is a party to any action or proceeding by any Governmental Entity for assessment and collection of taxes, nor has any of them received notice of any claim for such assessment and collection of taxes in respect of its activities. (c) The basis and the amount of tax which each of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey, and CMB Germany (with respect to the German Plant) has owed or still owes, have for the applicable statute of limitations period been properly determined in compliance with the tax regulations and are not liable to be corrected or reassessed. (d) Each of CMB France, CMB Turkey, CMB U.K. (with respect to the U.K. Plant) and CMB Germany (with respect to the German Plant) has available all the documents needed to justify the information contained in the returns or documents referred in paragraph (b) above as well as the applied tax regulations. Each of CMB France and CMB Turkey has available all the documents necessary to justify the existence and the amount of any tax losses that remain available to be carried forward in accordance with the applicable regulations (if any), whatever be the original financial year, of any tax credits or claims it may have against any tax or administrative authority whatsoever which it has used (by deduction or otherwise) or obtained reimbursement in the past or which it could use (by deduction or otherwise) or could obtain reimbursement in the future (it being understood that neither of CMB France nor CMB Turkey shall be entitled to seek reimbursement or compensation from Seller or any of Seller's affiliates of tax losses incurred by any of them and transferred to a consolidated tax group during those tax periods in which they were included in such consolidated tax group). (e) None of CMB France, nor CMB Turkey have concluded any deed or have been party to any transaction which is likely to be reassessed, rejected or requalified for the reason that the company had attempted to evade, circumvent or diminish its tax obligations or that of another person or was not acting in its own corporate interest (acte anorrnal de gestion). (f) CMB France and CMB Turkey have never been party to a transfer, sale, exchange, contribution or transfer of any sort whatsoever for which each or all of them would not have paid registration, contribution or transfer taxes, stamp duties or real estate publicity taxes, that it would be legally or contractually liable to pay after the Closing Date. (g) Except as-set forth in Schedule 2.1.19(g), the transfer of the Shares will not in and of itself involve any taxation at the expense of CMB -28- France or CMB Turkey or the loss of carryforward tax losses or any rights of a fiscal nature. CMB Turkey and CMB France do not benefit from any particular tax regime which could cease or be questioned in particular by the transfer of their Shares or by reason of any act or omission prior to the Closing Date. (h) CMB France and CMB Turkey do not benefit, nor have benefited from, by reason of a transaction made prior to the Closing Date, a suspension, postponement or deferral of tax. (i) Except as set forth at Schedule 2.1.19(i), the value of the assets and liabilities shown in the year-end 1997 statutory accounts of each of CMB France and CMB Turkey corresponds to the fiscal value of the said assets and liabilities at the date of establishment of such accounts. (j) Each of CMB France and CMB Turkey are and always have been exclusively resident in their countries of incorporation for tax purposes. 2.1.20 Disclosure. To the Seller's knowledge, none of the information contained in the representations, warranties or covenants of Seller set forth in this Agreement, in the Schedules hereto or in any of the certificates, lists, documents, exhibits or other instruments delivered or to be delivered to the Buyer as contemplated by any provision of this Agreement, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein, in light of the circumstances under which they were made and when taken as a whole not misleading. 2.1.21 Bankruptcy and Liquidation. CMB France, CMB U.K., CMB Turkey and CMB Germany are not and have never been subject to any winding up, liquidation, administration or dissolution procedure of any nature and have never had a suspension of their payments. CMB France, CMB U.K., CMB Turkey and CMB Germany are not and have never been subject to any composition procedure. 2.1.22 Competition. (a) Undertakers and orders. CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) have not given in the past two (2) years an undertaking or written assurance which is still in force to a Governmental Entity including any authority of the European Communities or of any jurisdiction. CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) are not currently affected by an order or regulation made by a decision of the Commission of the European Communities or by a competition authority Many jurisdiction. (b) Investigations. CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) have -29- not received in the past two (2) years a communication or request for information from or by the Commission of the European Communities or by or from a competition authority of any other jurisdiction. No agreement, arrangement or conduct (by omission or otherwise) of CMB France, CMB U.K., CMB Turkey and CMB Germany has been in the past two (2) years the subject of an investigation, report or decision by any of those persons or bodies. 2.1.23 Binding Effect. This Agreement is a legal, valid, and binding obligation of Seller, enforceable against it in accordance with its terms. 2.2 Representations and Warranties of Buyer. Except in the case of representations and warranties made as of a specific date, which shall be deemed made as of such date, Buyer's representations and warranties to Seller are made as of the date hereof and as of the Closing Date. 2.2.1 Corporate Status. Buyer is a partnership duly organized and validly existing under the laws of the State of Delaware (USA), and has all requisite corporate power to own its properties and carry on its business as now being conducted. 2.2.2 No Broker. Buyer and its agents have incurred no obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or other similar payment in connection with this Agreement. 2.2.3 Authority and Restrictions. (a) Buyer has full corporate power and authority to enter into this Agreement and any other documents contemplated hereby and to pay the Purchase Price and the Aggregate Closing Date Intragroup Indebtedness as provided in this Agreement. (b) The consummation of the transactions contemplated by this Agreement will not result in a breach in any material respect of, or give rise to a right of termination of, any Material Contract, material permit or authorization to which Buyer is subject or a party, or violate any of the provisions of the charter documents of Buyer. 2.2.4 No Lawsuits; Consents. There is no lawsuit, arbitration or proceeding pending or, to the knowledge of Buyer, threatened against Buyer which might prevent the consummation of any of the transactions contemplated by this Agreement, and except as set forth in Schedule 2.2.4, no approval or authorization of any Governmental Entity or of any third party on the part of Buyer is required in connection with the execution, delivery and performance of this Agreement and the other documents contemplated hereby and thereby. -30- 2.2.5 Execution and Effect of Agreement. Buyer and its designated affiliates, as the case may be, have the full corporate power and authority to enter into this Agreement and the other documents contemplated hereby. The execution and delivery of this Agreement, and other document contemplated hereby and the consummation of the transactions contemplated hereby have been duly authorized by the necessary corporate action of Buyer, and this Agreement constitutes a valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms. 2.2.6 Financial Capacity. Buyer and its designated affiliates, as the case may be, have adequate financial resources to complete the transactions contemplated hereby and pay the Purchase Price and Aggregate Closing Date Intragroup Indebtedness and the commitments of Buyer herein are not subject to the obtaining of third party financing. 2.2.7 Access to Data Room Documents. Buyer acknowledges that it has enjoyed full and complete access to the documents made available to it in the data room of Seller and has reviewed each of such documents; a list of such documents is set forth at Schedule 2.2.7 hereto. Buyer also acknowledges that it has had the opportunity to conduct a due diligence review of each of CMB France, CMB Turkey, the U.K. Plant and the German Plant, that it has had access to confidential documents, data and other materials pertaining to CMB France, CMB Turkey, the U.K. Plant and the German Plant and that it has visited the sites of each of CMB France, CMB Turkey, the U.K. Plant and the German Plant and met with key employees. ARTICLE 3 COVENANTS 3.1 Covenants of Seller. Seller hereby covenants and agrees as follows: 3.1.1 Business in Ordinary Course. Except as contemplated by this Agreement or as otherwise disclosed in Schedule 3.1.1, during the period from the date hereof to the Closing Date, Seller will cause each of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) to conduct their business in the ordinary course of business consistent with past practice and to maintain their corporate books, records and accounts in compliance with law. Without limiting the generality of the foregoing and except as otherwise expressly provided in this Agreement or as otherwise disclosed in Schedule 3.1.1, during the period from the date hereof to the Closing Date, neither Seller nor CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) with respect to their businesses will take any action which will cause the representations and warranties contained in -31- Section 2.1.7 not to be true and correct as of the Closing Date, without the prior written consent of Buyer, which consent Buyer agrees will not unreasonably be withheld. 3.1.1 Perform Contracts; Comply with Permits. Except to the extent performance would prove commercially unreasonable, and in such event after prior consultation with Buyer, each of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey and CMB Germany (in respect of the German Plant) shall perform or cause to be performed on a timely basis and in compliance with the terms thereof all obligations to be performed under all the contracts, leases and documents relating to their properties and business and shall comply with all permits, authorizations and licenses. 3.1.2 Disclosure and Supplemental Disclosure. Seller has prepared the Schedules and shall prepare any additional Schedules as set forth below in good faith and with reasonable care and diligence. At any time prior to the Closing Date, Seller shall be entitled to supplement or amend the Schedules or add additional Schedules with respect to any matter herein, necessary to supply, correct or update any information called for under this Agreement. Seller shall provide to Buyer not less than five (5) days prior to the Closing Date amended and supplemented Schedules with respect to matters to be disclosed as of the date of delivery. No such Schedule addition, supplement or amendment shall be deemed to qualify, supplement or amend Seller's representations or warranties (including for a Material Adverse Change) unless Seller shall agree to indemnify Buyer on a dollar for dollar basis (without application of Section 7.4(b) with respect to such matters. If the matters disclosed therein reflect or constitute, individually or in the aggregate, a Material Adverse Change (as defined in Section 9.11 hereof): Buyer's sole remedy in the event it shall not accept such addition, supplement or amendment shall be the termination of this Agreement without liability or indemnity in accordance with Section 6.1(b) hereof and Seller shall have the termination right set forth at Section 4.2.4 below. 3.1.3 Repurchase of Certain Inventory. Seller hereby covenants and agrees that in the event that Buyer is unable (despite its best commercial efforts) to use, sell, market, or otherwise dispose of for value those finished products and raw materials including "master batch" products within six (6) months after the Closing Date, such products having been in the inventories of CMB France, CMB U.K. (with respect to the U.K. Plant), CMB Turkey or CMB Germany (with respect to the German Plant) on the Closing Date and included on the Effective Date Balance Sheets, Buyer may submit a written claim to Seller at the end of the above time period, and Seller upon receipt of such written claim within the above time periods, shall repurchase or procure the repurchase of the products within thirty (30) calendar days from Buyer for value equal to net book value at the time of Closing. At Seller's request, Buyer shall deliver the products to Seller or Seller's designated affiliate within thirty (30) calendar days at Buyer's expense. -32- 3.1.4 Head Office. On or prior to the Closing Date, Seller shall cause those employees of CMB France listed at Schedule 3.1.5 and who are dedicated to Seller's head office ("Head Office Employees") to be transferred to Seller or another of Seller's affiliates and shall hold Buyer harmless without regard to the limitations set forth at Section 7.4 from and against any liabilities in connection with such employees. 3.1.5 Interim Management Reports. During the period from the date hereof up to the Closing Date, Seller shall deliver, or cause to be delivered, to Buyer promptly upon their availability in accordance with Seller's internal reporting practices the periodic monthly balance sheets and income statements with respect to CMB France, CMB Turkey and the Plants. 3.1.6 Capital Expenditures and Restructuring Costs. Seller hereby covenants and agrees that: (a) the sum of Reimbursed Capital Expenditures plus other capital expenditures relating to the 1998 capital expenditure projects identified at Schedule 1.2.1(b) (and including amounts disbursed as deposits in respect thereof in 1997) committed but not invoiced plus Reimbursed Restructuring Costs in respect of the Plants, CMB France and CMB Turkey shall not exceed US$8,400,000 at the Closing Date; and (b) the sum of Reimbursed Restructuring Costs plus other costs committed but not invoiced in respect of the restructuring as more fully itemized at Schedule 1.2.1(b) of CMB France and the German Plant shall not exceed US$3,000,000 at the Closing Date. 3.1.7 Non-competition. Seller shall refrain, and shall cause its affiliates to refrain, for a period equal to the duration of the respective product design covered by the Molds, from competing, directly or indirectly, with Buyer or its affiliates for customers orders in respect of such product designs, provided, however, that such covenant shall not apply to shampoo and shower gel packages and bottles. 3.1.8 Post-Closing Transitional Services. For a period of ninety (90) days after the Closing, Buyer may request, and Seller shall provide, such transitional, operational, commercial, financial and administrative services at CMB France, CMB Turkey, the U.K. and German Plants as may be reasonably required, at a mutually agreed rate reflecting Seller's actual all-in costs. Seller agrees that Mr. Gregory, Mr. Laurin and Mr. Lejeune shall be made available, where and when possible, to the Buyer for the purposes of providing information and advice, which shall not conflict with the business of Seller and particularly the personal care sector, during a transition period commencing immediately after the Closing and ending on 30 September 1998. To the extent that any of the employees covered are still in the employment of Seller Group, the Buyer shall pay the Seller's costs in providing that information and advice. -33- 3.1.9 Real Estate Formalities. On or before November 30, 1998, Seller undertakes to carry out the necessary formalities with the French administration such as land registries, tax authorities and any other administrative body so that the title of CMB France to the freehold properties situated in Meaux, Noeux-les-Mines and Labourse is regular and binding and enforceable vis-a-vis third parties and to bear all the subsequent costs and fees which may be due in this respect. In the event that the necessary formalities as referred to herein are not completed by December 31, 1998, a penalty of US$1,700 per week payable monthly in arrears will be owed by Seller to Buyer until the last formalities have been completed notwithstanding Schedule 7.4(e) hereto, unless Seller shall demonstrate that such non-completion is not due to Seller's failure to take any required action or carry out any required formality or that Buyer shall not have rendered all assistance reasonably required in connection herewith. 3.1.10 Intellectual Property Formalities. On or before September 30, 1998, Seller undertakes to provide or to cause to provide to Buyer all the necessary documents which will allow Buyer to register with INPI and any other administrative body all the changes in respect of the ownership of the French Patent number 89 06 814 including without limitation the original merger agreement and copies of company searches and minutes of meetings showing changes in the company name. Seller shall hold CMB France harmless from and against for any damages, losses or expenses which result from the fact that the above mentioned documents are not provided to Buyer thus preventing the valid registration of the above-mentioned changes. 3.1.11 Release of Inscription. On or before October 31, 1998, Seller shall undertake all formalities required to obtain the release (mainlevee) of Inscription No 97PT1259 of July 30, 1997 for the benefits of the French Treasury in the amount of FF 127,468 set forth in the Etat Sommaire des Inscriptions of the Tribunal de Commerce of Meaux. 3.1.12 Transfer of share. On or before December 31, 1998, at the latest, Seller shall cause to be transferred and conveyed to Buyer or Buyer's designee, at Seller's sole cost and expense, one (1) share of CMB France currently registered in the name of B.A.P. (a former affiliate of Seller, in liquidation). Seller shall promptly undertake all necessary steps, including with the Commissaire a Execution du plan and the juge commissaire, to effectuate such transfer and conveyance. 3.1.13 Books and Records. Promptly after the date hereof, Seller shall deliver and/or cause to be delivered to Buyer all such corporate books and records (or excerpts thereof) as shall relate exclusively or substantially exclusively to CMB France, CMB Turkey, the German Plant or the U.K. Plant provided that Seller shall be entitled to retain copies of such books and records to the extent necessary or appropriate for the purposes of ongoing regulatory and tax reporting and compliance. -34- 3.1.14 ION Bottle Design License. Seller shall exert its best efforts to cause CMB Germany to conclude negotiations with ION regarding the bottle design commissioned for Kraft, pursuant to which CMB Germany shall obtain a license assignable or sub-licensable to Seller's German affiliate (with a sub-license to Seller's affiliate Zeller as regards the closure), without cost or expense to Buyer Group. 3.2 Covenants of Buyer. 3.2.1 Fulfillment of Assumed Liabilities. Buyer shall, and shall cause its affiliates to, fulfill and perform the terms of the deed of conveyance and the asset purchase agreements and to indemnify and hold harmless Seller and its affiliates from and against any breach or violation by Buyer or its affiliates of any and all contracts, liabilities, obligations and undertakings transferred and assumed under the deed of conveyance and the asset purchase agreements. 3.2.2 Change of Company Name and Discontinuation of Use of Trademarks and Tradenames. (a) Buyer hereby covenants and agrees that, Buyer and its affiliate shall not acquire hereunder any right to use the "CMB", "CarnaudMetalbox", "Raku", "Crown" or "Carnaud" names and logos or the stylized "R" logo utilized by CMB Germany ("CMB Names"), Buyer shall not and shall procure that its affiliates do not send out invoices bearing the CMB Names and that Buyer shall use its best commercial efforts to promptly remove the CMB Names from all products, packaging, shipping materials, stationery, literature, invoices, marketing materials and any other materials which are sent by Buyer and/or Buyer's affiliates to third parties, and in any event shall remove the CMB Names from all products, packaging, shipping materials, stationery, literature, invoices, marketing materials and any other materials no later than the six (6) month anniversary of this Agreement. (b) Buyer covenants that it shall remove or cause to be removed the CMB Names from all Moulds, it being understood by the parties that Buyer shall remove the CMB Names from at least one (1) Mould per plant per week. Buyer shall remove or cause to be removed within three (3) months after signature of this Agreement any sign or other marking containing the CMB Names from buildings, trucks or any other property. (c) Buyer covenants that it shall take the necessary steps to change the corporate name of CMB France and CMB Turkey promptly after the Closing Date. 3.2.3 Best Commercial Efforts Regarding Certain Inventory. Buyer hereby covenants and agrees that it shall or procure that its affiliates shall take all actions necessary to use, sell, remarket or otherwise dispose of for value the finished products, raw materials and the "master batch" products and in the inventory of CMB France, CMB U.K. (with respect to the -35- U.K. Plant), CMB Turkey and CMB Germany (with respect to the German Plant) as reflected on the Effective Date Balance Sheets. [3.2.4 reserved] 3.2.5 Capital Expenditures and Restructuring Costs. Buyer hereby covenants and agrees to pay and satisfy, and/or to cause its affiliates to pay and satisfy, those invoices, commitments or other payment obligations of the Plants, CMB France and CMB Turkey in respect of the capital expenditures and restructuring costs described at Section 3.1.7 above, subject to the maximum amounts set forth therein. 3.3 Mutual Covenants. Each of Seller and Buyer covenants and agrees as follows: 3.3.1 No Solicitation of Employees. Except for those employees agreed to in writing by the parties hereto prior to Closing, for a period of three (3) years after the Closing, the parties shall refrain, directly or indirectly through their respective present or future affiliates, from employing, engaging, soliciting or seeking to employ or engage any person who at the Closing Date or within a period of eighteen (18) months prior to such date had been an employee of the other party or any of the other party's affiliates, unless such employee was previously terminated by the party or any of the party's affiliates. 3.3.2 Environmental Remediation. Buyer hereby undertakes to carry out, and Seller undertakes to fund, the environmental remediation with respect to those items set forth in Schedule 3.3.2. Such schedule sets forth the estimated cost of such remediation with respect to each such item. Seller shall, as and when expenditures are incurred by Buyer or its affiliates in respect of such remediation, reimburse such expenditures upon presentation of reasonable documentation. Seller may, at its option, pay directly any third party suppliers or contractors upon presentation of invoices. With respect to direct costs of Buyer or its affiliates (employee costs, materials, etc.), such direct costs shall be determined by mutual agreement but shall not exceed Buyer's actual direct cost. Buyer shall carry out the remedial action through the most cost effective means. Buyer shall reimburse to Seller any amounts received by Buyer or its affiliates in excess of the actual costs incurred and Seller shall in no event be required to fund or reimburse aggregate remediation in excess of the aggregate agreed amount set forth in Schedule 3.3.2; it being understood that any excess resulting from the actual cost of a particular item being lower than its estimated cost may be used to fund any other item above its estimated cost. 3.3.3 Publicity. Seller and Buyer agree that, from the date hereof through the Closing Date, no public release or announcement concerning the transactions contemplated hereby shall be issued by either party without -36- the prior consent of the other party (which consent shall not be unreasonably withheld), except as such release or announcement may be required by law or the rules or regulations of any Governmental Entity, in which case the party required to make the release or announcement shall allow the other party reasonable time to comment on such release or announcement in advance of such issuance. Notwithstanding the foregoing, Seller and Buyer shall be entitled to proceed with all information and consultation procedures required under relevant labor law regulations or collective bargaining agreements. Seller and Buyer shall consult with each other concerning the means by which the Seller's employees, customers, and suppliers and others having dealings with the Seller will be informed of the contemplated transactional and Buyer will have the right to be present for any such communication. 3.3.4 Commercially Reasonable Efforts. Subject to the terms and conditions of this Agreement, each party shall use its commercially reasonable efforts to cause each of the conditions to Closing to be fulfilled, the Closing to occur and relations with customers, suppliers, Transferred Employees and Governmental Entities to be coordinated, during the transitional period. 3.3.5 Cooperation. (a) Each of Buyer and Seller shall furnish or cause to be furnished after the Closing, upon reasonable written notice, to the other and its employees, counsel, auditors and representatives access, during normal business hours, to such information and assistance relating to CMB France, CMB U.K., CMB Turkey and the German Plant as is reasonably necessary for financial reporting and accounting matters, the preparation and filing of any tax returns, reports or forms or the defense of any tax claim or assessment as well as the preparation of any filing or submission which is necessary under any applicable legislation, rules or regulations. Seller and Buyer shall keep each other apprised of the status of any communication with, and any inquiries or requests for additional information from, any foreign or domestic antitrust or competition authority or Governmental Entity, and shall comply promptly with any such inquiries or requests. Each of Seller and Buyer shall use its best efforts to obtain any clearance required under any applicable legislation, rules or regulations for the purchase and sale of the Shares. All such antitrust and other requisite consents of Governmental Entities as may be so required, are set forth in Schedule 3.3.5 hereto (collectively, "Governmental Consents"). As used in this Agreement, the term "Governmental Entity" means any State or local authority or any court of competent jurisdiction, administrative agency or commission or other governmental authority or instrumentality, domestic or foreign, including any court, administrative agency, commission or other organ of the European Union. Each party shall reimburse the other for reasonable out-of-pocket third party costs and expenses incurred in assisting the other pursuant to this Section 3.3.5. Neither party shall be required by this Section 3.3.5 to take any action that would unreasonably interfere with the conduct of its business or unreasonably disrupt its normal operations (or, in the case of -37- Buyer, the business or operations of CMB France, CMB U.K., CMB Turkey and CMB Germany (with respect to the German Plant). (b) To the extent that consent to the assignment of any contracts of the U.K. Plant or the German Plant shall not have been obtained at the Closing Date, Seller and Buyer shall cause their respective affiliates to comply with the relevant terms of the U.K. Asset Purchase Agreement and the German Asset Purchase Agreement, respectively. 3.3.6 Confidentiality. Each of the parties hereto shall treat the contents of this Agreement as confidential and shall refrain from disclosing this Agreement, in whole or in part to any third party, except as required by any laws or regulations of Governmental Entities. 3.3.7 CMB Turkey. The parties shall cooperate with respect to the calling of Board and Shareholders meetings of CMB Turkey to inter alia acknowledge the resignation of directors, appoint new directors designated by Buyers, change authorized signatories and bank powers and change the corporate name. [3.3.8 reserved] [3.3.9 reserved 3.3.10 Filing on Form 8-K. Seller shall cooperate with Buyer in connection with the preparation of combined financial statements for the year ended December 31, 1997 for incorporation in the filing on Form 8-K which Buyer (or Buyer's parent) is obligated to make with the United States Securities and Exchange Commission. The audit of these combined financial statements will be carried out by Price Waterhouse at Buyer's expense and such financial statements shall be delivered to Buyer within sixty (60) days after the Closing Date. 3.3.11 Regulatory Filings. The parties shall cooperate with respect to all filings with any applicable foreign or domestic antitrust or competition authority or Governmental Entity required for the transactions contemplated hereby and shall comply with all supplemental information requests in connection therewith in order to obtain the requisite approval from the appropriate authorities on or prior to the Closing Date, and shall make all filings with the competent authorities required for approval of a foreign investment. -38- ARTICLE 4 CONDITIONS 4.1 Conditions to Obligations of Buyer. The obligations of Buyer to complete the purchase or cause the completion of the purchase of the Shares, the Plants and the Aggregate Closing Date Intragroup Indebtedness on the Closing Date are subject to the following conditions: [4.1.1 reserved] [4.1.2 reserved] 4.1.3 Required Consents. The material regulatory and contractual consents, which the parties by mutual agreement deem necessary for purposes of the continuity of operations of the U.K. Plant and the German Plant, as set forth at Schedule 4.1.3 hereto ("Required Consents") shall have been obtained. 4.2 Conditions to Obligations of Seller. The obligations of Seller to complete or procure the completion of the sale of the Shares, the Plants and the Aggregate Closing Date Intragroup Indebtedness on the Closing Date are subject to the following conditions: [4.2.1 reserved] [4.2.2 reserved] [4.2.3 reserved] 4.2.4 No Material Adverse Change. There shall have been no Material Adverse Change since the date hereof (except that Seller shall not be entitled to invoke this condition to the extent (a) it shall willfully and wrongfully have caused such Material Adverse Change or (b) Buyer shall have waived any right to indemnification with respect thereto). 4.3 Mutual Conditions. 4.3.1 Governmental Consents. All required Governmental Consents shall have been obtained. 4.3.2 Related Agreements. The parties hereto shall have executed the Related Agreements attached hereto as Exhibits I through V. -39- ARTICLE 5 CLOSING 5.1 Closing. The closing hereunder ("Closing") shall take place at the offices of Jones, Day, Reavis & Pogue, 480 avenue Louise, Brussels 1050, Belgium, on July 23, 1998, or at such other place and at such other time and date as may be mutually agreed upon in writing by Buyer and Seller ("Closing Date"). 5.2 Deliveries. At the Closing: 5.2.1 Seller's Deliveries. Seller shall deliver, or shall cause to be delivered, to Buyer the following: (a) Duly signed and completed share transfer forms in favor of Buyer or its designee(s) for all of the French Shares and the share certificates representing the Turkish Shares duly signed and endorsed in favor of the Buyer or its nominee. (b) The share transfer registers and the stockholder registers of CMB France and the sharebook of CMB Turkey. (c) The minutes of all meetings of shareholders and directors of CMB France, CMB U.K., CMB Turkey, CMB Germany and SPC with respect to any required corporate authorization for the transaction contemplated hereby. (d) A letter of resignation signed by each of the directors of CMB France and CMB Turkey. (e) The notice calling a meeting of the Board of Directors of CMB France on July 27, 1998, to inter alia: (A) acknowledge the resignation of their directors, (B) appoint new directors, whose names shall be communicated by Buyer to Seller, and (C) transfer the registered head office of CMB France. (f) Corporate approvals of CMB Germany and CMB U.K. approving the sale of the German Plant and the U.K. Plant, respectively. (g) [reserved] (h) Certificate of a duly authorized officer of Seller attesting that (i) all persons listed in Schedule S.2.1(h) duly authorized to perform banking transactions for the account of CMB France or CMB Turkey at banks or financial institutions in which CMB France or CMB Turkey has an account are no longer authorized to perform such transactions, and (ii) all powers of -40- attorney granted to persons listed in Schedule 5.2.1(h) empowering them to act on behalf of CMB France or CMB Turkey have been revoked. 5.2.2 Buyer's Deliveries. Buyer shall deliver, or shall cause to be delivered, to Seller the following: (a) The payment of the Unadjusted Purchase Price by bank wire transfer in immediately available funds or certified or bank check as set forth at Section 1.2 hereof, to the account previously designated by Seller to Buyer. (b) The payment by bank wire transfer in immediately available funds of the estimated amount of the Aggregate Closing Date Intragroup Indebtedness as set forth in Section 1.2.1. (c) [reserved] 5.2.3 Mutual Deliveries. Buyer and Seller shall deliver, or shall cause to be delivered, to the other party the following: (a) Executed counterparts of each of the Related Agreements. (b) Copy of the approval of the transaction contemplated hereby by the appropriate authorities. (c) Duly executed powers of attorney or other evidence of authority authorizing the signatory to execute all documents contemplated hereby. (d) Acte de Cession de Creance evidencing the transfer of repayment obligations of the respective debtors for their portion of Aggregate Closing Date Intragroup Indebtedness executed by the Seller and by Buyer's designee(s). ARTICLE 6 TERMINATION 6.1 Termination. This Agreement may only be terminated (a) by mutual written consent of the parties hereto; (b) by Buyer, if any of the conditions provided for in Sections 4.1 or 4.3 of this Agreement has not been met by July 31, 1998 and has not been waived by Buyer by such date; or (c) by Seller, if any of the conditions provided for in Sections 4.2 or 4.3 of this Agreement has not been met by July 31, 1998 and has not been waived by Seller by such date; in each such case, and save as otherwise provided at Section 6.2(c) below, such termination shall be without liability or indemnity. -41- 6.2 Consequences. If this Agreement is terminated and the transactions contemplated hereby are abandoned as described in this Article 6: (a) this Agreement shall become void and of no further force or effect, except for the provisions of (i) Section 9.5 relating to certain expenses, (ii) Section 3.3.3 relating to publicity, (iii) Sections 2.1.15 and 2.2.2 relating to broker's fees and (iv) this Section 6.2; (b) all confidential information provided by either party to the other shall be returned to such first party or, upon such first party's instruction, destroyed; and (c) neither party shall be liable to the other party, save for willful and wrongful breach of covenant. ARTICLE 7 INDEMNIFICATION 7.1 Indemnification by Seller Group. Subject to the terms and conditions of this Agreement (and, with respect to Environmental Indemnifiable Losses subject to Article 8 hereof), Seller Group (as defined in Section 7.8) agrees to indemnify and hold Buyer Group (as defined in Section 7.8) harmless from and against any liabilities, damages, losses or costs resulting from any and all liabilities, obligations, damages (excluding, however, incidental or consequential damages) (i.e. only dommage direct), deficiencies, losses, claims, actions, lawsuits, proceedings, judgments, demands, costs (including costs of posting bank guarantees and securities) and penalties (including reasonable attorneys' fees) ("Indemnifiable Losses") suffered or incurred by Buyer Group and resulting from (i) any breach of representation or warranty of Seller Group contained in this Agreement (except to the extent waived in writing by Buyer Group pursuant to this Agreement) or (ii) any breach of covenant on the part of Seller Group whether or not a mutual covenant contained in this Agreement, it being understood that Seller Group shall not be liable for any Indemnifiable Loss resulting from a change in law after Closing, and that Buyer Group waives any other remedy than those provided by this Article 7 and Article 8, which shall constitute Buyer Group's exclusive remedy in respect of any Indemnifiable Losses. 7.2 Indemnification by Buyer Group. Subject to the terms and conditions of this Agreement (and, with respect to Environmental Indemnifiable Losses, subject to Article 8 hereof), Buyer Group agrees to indemnify and hold Seller Group harmless from and against any and all Indemnifiable Losses suffered or incurred by Seller Group resulting from (i) -42- any breach of representation or warranty of Buyer Group contained in this Agreement (except to the extent waived in writing by Seller Group pursuant to this Agreement), or (ii) any breach of covenant on the part of Buyer Group contained in this Agreement whether or not a mutual covenant, it being understood that Buyer Group shall not be liable for any Indemnifiable Loss resulting from a change in the law after Closing and that Seller Group waives any other remedy other than those provided by this Article 7 and Article 8, which shall constitute Seller Group's exclusive remedy in respect of any Indemnifiable Losses. 7.3 When Payable. (a) Indemnification under this Article 7 shall be payable with respect to any claim concerning an Indemnifiable Loss upon the later of (a) the date any payment is required to be made in respect of any Third Party Claim (as defined in Article 7.5 hereof), (b) the resolution of such claim by mutual agreement between Seller Group and Buyer Group, or (c) the final settlement of such claim by the arbitration award as provided pursuant to Section 9.4. (b) Notwithstanding paragraph (a) above, with respect to Third Party Claims, if the Indemnifying Party shall have acknowledged its obligation to indemnify the Indemnified Party and shall have assumed the defense of such Third Party Claim pursuant to Section 7.5(b) below, then the Indemnifying Party shall be obligated to make all payments and post all such bonds, guarantees and securities as may be required by administrative authorities, courts or tribunals having jurisdiction. 7.4 Limitations on Indemnification. (a) Neither the indemnification obligations of Seller Group under Section 7.1 above (save as regards indemnification obligations of Seller Group for any Environmental Indemnifiable Losses as to which Section 8.7 shall apply) nor the indemnification obligations of Buyer Group under Section 7.2 (save as regards indemnification obligations of Buyer Group for any Environmental Indemnifiable Loss as to which Section 8.2 shall apply) shall exceed in the aggregate three million two hundred thousand U.S. Dollars (US$3,200,000). Notwithstanding the foregoing, any Indemnifiable Loss for: (i) breach of representations and warranties under Section 2.1.19; (ii) Indemnifiable Liabilities for Discontinued Operations; (iii) Non-Operational Indemnifiable Liabilities for Continued Operation (as such terms are defined in Section 9.11); and (iv) Disclosed Indemnifiable Losses (as identified in Schedule 7.4(b) hereto) shall not be subject to the limitation set forth above. (b) (i) No claim in respect of any individual event or occurrence (it being understood that any series of events or occurrences arising out of the same or substantially similar and related facts and circumstances shall be treated as one individual event or occurrence) shall be deemed to give rise to an Indemnifiable Loss (other than an Environmental Indemnifiable Loss, as to which Section 8.7 shall apply) unless and until the liability, -43- loss or damage claimed exceeds ten thousand U.S. Dollars (US$10,000), (subject to clause (ii) below); and (ii) no party shall be entitled to make a claim hereunder unless and until the aggregate amount of claims for Indemnifiable Losses (other than an Environmental Indemnifiable Loss, as to which Section 8.7 shall apply) under clause (i) above exceeds the equivalent of two hundred thousand U.S. Dollars (US$200,000) and then only to the extent of the excess. Notwithstanding the foregoing, Seller Group shall indemnify and hold harmless Buyer Group on a dollar for dollar basis from and against Disclosed Indemnifiable Losses (as identified in Schedule 7.4(b) hereto). (c) Subject to paragraph (b) above, with respect to Non- Operational Indemnifiable Liabilities for Continued Operations, Seller Group shall indemnify and hold harmless Buyer Group for Indemnifiable Losses, up to an aggregate amount of Indemnifiable Losses of five hundred thousand U.S. Dollars (US$500,000). To the extent such Indemnifiable Losses exceed in the aggregate five hundred thousand U.S. Dollars (US$500,000) but do not exceed in the aggregate three million U.S. Dollars (US$3,000,000), Seller Group shall indemnify and hold harmless Buyer Group for fifty percent of such tranche of Indemnifiable Losses. To the extent such Indemnifiable Losses exceed three million U.S. Dollars (US$3,000,000) in the aggregate, Seller Group shall indemnify and hold harmless Buyer Group for one hundred percent of such tranche of Indemnifiable Losses. (d) Notwithstanding paragraphs (a) through (c) above, each party shall indemnify and hold harmless the other party on a dollar for dollar basis from and against Indemnifiable Losses arising out of any breach of covenant. 7.5 Procedures Relating to Indemnification of Third Party Claims. (a) In order for a party ("Indemnified Party") to be entitled to any indemnification of any Indemnified Loss provided for under this Agreement (including claims for Environmental Indemnifiable Losses) in respect of, arising out of or involving a claim or demand made by any third party against the Indemnified Party ("Third Party Claim"), such Indemnified Party must notify the other party ("Indemnifying Party") in writing, and in reasonable detail, of the Third Party Claim within thirty (30) business days after receipt by such Indemnified Party of written notice of the Third Party Claim provided that for the purpose of this Agreement, any tax reassessment notice shall be considered as a Third Party Claim and any Third Party Claim relating to tax shall be notified to the Indemnifying Party within ten (10) business days of their receipt by the Indemnified Party. Thereafter, the Indemnified Party shall deliver to the Indemnifying Party, within ten (10) business days after the Indemnified Party's receipt thereof, copies of all notices and documents (including court papers) received by the Indemnified Party from the Third Party relating to the Third Party Claim, provided, however, that the Indemnified Party's non-compliance with such notice periods shall not -44- preclude its right to indemnification if the interests of the Indemnifying Party shall not have been prejudiced or adversely affected. If the Indemnifying Party shall have suffered such prejudice or adverse effect, the Indemnified Party may nevertheless claim partial indemnification if it sustains the burden of proof that a portion of the Indemnifiable Loss was not attributable to such non-compliance with notice periods. (b) If a Third Party Claim is made against an Indemnified Party, the Indemnifying Party shall be entitled to participate in the defense thereof and, if it so chooses and acknowledges its obligation to indemnify the Indemnified Party therefor, to assume the defense thereof with counsel selected by the Indemnifying Party at its own expense; provided, however, that such counsel is not reasonably objected to by the Indemnified Party. Should the Indemnifying Party so elect to assume the defense of a Third Party Claim, (x) the Indemnifying Party shall not be liable to the Indemnified Party for legal expenses subsequently incurred by the Indemnified Party in connection with the defense thereof and (y) the limitations on indemnification set forth at Section 7.4(a) above shall not apply and the cap set forth in Section 8.7 shall not apply (but the percentages set forth in Schedule 8.7 shall continue to apply up to the cap amount). If the Indemnifying Party assumes such defense, the Indemnified Party shall have the right to participate in the defense thereof and to employ counsel, at its own expense, separate from the counsel employed by the Indemnifying Party, it being understood that the Indemnifying Party shall be liable for the fees and expenses of counsel employed by the Indemnified Party for any period during which the Indemnifying Party has failed to assume the defense thereof (other than during the period prior to the time the Indemnified Party shall have given notice of the Third Party Claim as provided above). (c) If the Indemnifying Party so elects to assume the defense of any Third Party Claim, all of the Indemnified Parties shall cooperate with the Indemnifying Party in the defense or prosecution thereof. Such cooperation shall include (upon the Indemnifying Party's request) the retention and the provision to the Indemnifying Party of records and information to the extent practicable which are reasonably relevant to such Third Party Claim, and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. If the Indemnifying Party shall have assumed the defense of a Third Party Claim, the Indemnified Party shall not admit any liability with respect to, or settle, compromise or discharge, such Third Party Claim without the Indemnifying Party's prior written consent (which consent shall not be unreasonably withheld). If the Indemnifying Party shall have assumed the defense of a Third Party Claim, the Indemnified Party shall agree to any settlement, compromise or discharge of a Third Party Claim which the Indemnifying Party may recommend and which by its terms obligates the Indemnifying Party to pay the full amount of the liability in connection with such Third Party Claim, which releases the Indemnified Parties completely in -45- connection with such Third Party Claim and which would not otherwise adversely affect the Indemnified Parties. (d) If the Indemnifying Party does not elect to assume the defense of the Third Party Claim, the Indemnified Party shall have the conduct of the Third Party Claim and shall be entitled to settle such claim at such time and upon such terms as the Indemnified Party deems fair and reasonable without prejudice to any right of indemnification it may have against the Indemnifying Party, provided that at least ten (10) business days before such settlement becomes effective, the Indemnified Party notifies (the "Notification") the Indemnifying Party of the amount of the proposed settlement (the "Proposed Settlement Amount"). Within the ten (10) business days following the sending of the Notification, the Indemnifying Party may deliver to the Indemnified Party (a) a notice disputing the Proposed Settlement Amount (a "Disapproval Notice") or (b) a notice approving the Proposed Settlement Amount (an "Approval Notice"). If no notice is received by the Indemnified Party within ten business days following the sending by it of the Notification, the Indemnifying Party shall be deemed to have delivered an Approval Notice. Delivery by the Indemnifying Party of an Approval Notice shall constitute an admission by the Indemnifying Party of an obligation by it to indemnify the Indemnified Party subject to the limitations set forth in Section 7.4. If the Indemnified Party delivers a Disapproval Notice, it shall immediately assume the defense of the Third Party Claim and in which case the provisions of (b) and (c) above will apply. (e) If the Indemnifying Party has not assumed defense of a Third Party Claim and the liability of the Indemnified Party (or of CMB France, U.K. Plant, CMB Turkey or the German Plant) in respect of such Third Party Claim is determined by a judgment of a Court or Tribunal (which is not final), the provisions of paragraph (d) above shall apply except that the Indemnified Party shall inform the Indemnifying Party within ten (10) business days of notification of the said judgment and the Proposed Settlement Amount shall mean the amount determined in the said judgment. In this event, the provisions of (d) shall also apply mutatis mutandis. 7.6 Survival of Indemnification. (a) The right of each of Seller Group or Buyer Group to make a claim for a breach of the other party's representations or warranties under this Agreement, shall survive the Closing Date for a period expiring on July 31, 2000, provided (i) claims for indemnification pursuant to representations relating to Transferred Employees shall survive for a period of five (5) years after the Closing Date; (ii) claims for breach of Section 2.1.3, Section 2.1.9(b) (other than the representation as to quiet enjoyment, which shall be subject to the general survival period stipulated above this proviso) and/or Section 2.1.19 shall survive for a period of three (3) months after the expiry of the applicable statute of limitations; (iii) claims for Environmental Indemnifiable Losses shall be governed by Section 8.8 hereof; (iv) claims for -46- indemnification in respect of Indemnifiable Liabilities for Discontinued Operations and Non-Operational Indemnifiable Liabilities for Continued Operations shall survive for a period of seven (7) years after the Closing Date and (v) Disclosed Indemnifiable Losses shall not be subject to any survival limitation. Subject to Section 7.5 above as regards procedures for Third Party Claims, in order for a party to claim indemnification hereunder, it must notify the other party in writing, and in reasonable detail, of the nature of the claim within thirty (30) business days of the date such first party shall have actual knowledge of the facts or circumstances giving rise to the claim, provided, however, that the Indemnified Party's noncompliance with such notice periods shall not preclude its right to indemnification if the interests of the Indemnifying Party shall not have been prejudiced or adversely affected. If the Indemnifying Party shall have suffered such prejudice or adverse effect, the Indemnified Party may nevertheless claim partial indemnification if it sustains the burden of proof that a portion of the Indemnifiable Loss was not attributable to such non-compliance with notice periods. (b) Any claim made in accordance with (a) above, shall survive the expiry of the applicable statute of limitations period until final settlement of such claim. (c) The covenants of the parties contained in this Agreement shall survive indefinitely, save to the extent a specific time period is identified in the relevant covenant. 7.7 Miscellaneous Provisions. (a) The amount of any indemnity payable hereunder on account of an Indemnifiable Loss shall be reduced by any insurance proceeds actually received by the Indemnified Party with respect thereto, and further reduced by the value of any net tax benefit or tax savings realized by the Indemnified Party as a result of or related to the foregoing (including without limitation a tax deduction or loss, basis adjustment and/or shifting of income, deductions, gains, loss and/or credits), and increased by any tax incurred by the Indemnified Party as a result of or related to the foregoing so that the net amount retained by the Indemnified Party after tax corresponds to the amount of the Indemnifiable Loss (including without limitation any tax related to the inclusion, if required by law, in gross income of insurance proceeds or a payment pursuant hereto). (b) The increase in tax incurred by the Indemnified Party shall be determined by computing the tax with such increase and without such increase. The reduction of the tax losses of the Indemnified Party should be treated as an increase in tax for the purposes of this paragraph. (c) The amount of any indemnity payable hereunder on account of any Indemnifiable Loss shall be increased by interest calculated thereon as -47- provided for in Section 1.2.2 in cash for the period which runs from the date on which any Indemnifiable Loss was actually incurred by the Indemnified Party to the date on which the indemnity is actually paid. (d) Any indemnity payment by Seller Group to Buyer Group on account of an Indemnifiable Loss shall be understood to constitute damages and not a reduction in purchase price (except that such payments under the U.K. Asset Purchase Agreement shall be deemed a reduction in purchase price). Such payment by Seller Group shall be made to the Buyer Group or directly to any other entity designated by the Buyer Group or in respect of a Third Party Claim upon Buyer Group's request, directly to the third party claimant concerned. (e) None of CMB France or CMB Turkey shall be entitled to seek reimbursement or compensation from Seller Group or any of Seller Group's affiliates for tax losses incurred by any of them and transferred to a consolidated tax group during those tax periods in which they were included in such consolidated tax group. 7.8 Seller Group and Buyer Group. "Seller Group" shall include the Seller, CMB Germany and CMB U.K. represented by Seller duly authorized. "Buyer Group" shall include Buyer, Graham Packaging Europe S.A.S., Graham Packaging Deutschland GmbH and Graham Packaging U.K. Limited represented by Buyer duly authorized. For the purposes of indemnification, actions for breach of representations and warranties contained in Article 2 hereof and brought under this Article 7 or Article 8 hereunder, or for breach of any covenant herein, it is understood and agreed between parties that the respective Indemnifying Party and Indemnified Party shall be the member of the Buyer Group and Seller Group, or Seller Group and Buyer Group, as the case may be, with respect to which the Indemnifiable Loss is suffered and the parties shall covenant to cause their respective affiliates to make or receive indemnity payments accordingly. Any representations, warranties and indemnities contained in the U.K. Asset Purchase Agreement and the German Asset Purchase Agreement shall be deemed comprised within and subject to this Article 7 and Article 8 hereunder, shall not modify or increase the Buyer Group's or the Seller Group's aggregate obligations hereunder for breach of representation or warranty and shall in no event give rise to a double- recovery. Seller and Buyer each hereby covenant to cause the members of their respective groups to fulfill the obligations contained on this Article 7 and Article 8 hereunder and in the respective local asset purchase agreements, and each of them hereby irrevocably and unconditionally guarantees such fulfillment by them. -48- ARTICLE 8 ENVIRONMENTAL INDEMNIFICATION 8.1 Environmental Indemnification by Seller Group. (a) Seller Group agrees to indemnify and hold harmless Buyer Group from and against any and all Environmental Indemnifiable Losses (as defined at Section 8.3 below) suffered or incurred by Buyer Group resulting from (a) any breach of representation or warranty of Seller Group, and (b) any Remedial Action (as defined at Section 8.3 below) that is required to be taken on account of a Third Party Claim for which responsibility is to be borne by Seller Group in accordance with Section 8.4, it being understood that (i) Seller Group shall not be liable for any Environmental Indemnifiable Loss resulting from a change in Environmental Laws after Closing and that (ii) Buyer Group waives any other remedy than those provided by this Article 8, which shall constitute Buyer Group's exclusive remedy in respect of any Environmental Indemnifiable Losses. (b) Seller Group's liability for Environmental Indemnifiable Losses with respect to or arising out of these items identified at Schedule 3.3.2 shall be as defined in Section 3.3.2 and such Section 3.2.2 shall constitute Buyer Group's exclusive remedy in respect such items. (c) Buyer Group and Seller Group hereby agree and acknowledge that the Seller Group shall not be liable for any (i) environmental condition for such time period during the survival period set forth at Section 8.8 below as which such condition has not yet given rise to an action by any Environmental Authorities or Third Party Claim, and that does not pose an immediate significant hazard to human health or the environment, (ii) any unknown environmental liability to the extent discovered through Non-Permitted Testing (as defined below), or (ii) any response or corrective action which is required or arises as a result of any decision to vacate, sell, convey, shut down, reduce or cease operations at or modify any site after Closing, to the extent such response or corrective action exceeds that which would have been required had the site continued its existing industrial operations as currently conducted. "Non-Permitted Testing" means any and all environmental sampling, testing or analysis of the ambient air, soils, groundwater, surface waters, interior of the building or any building component that is directly, or indirectly, voluntarily initiated by Buyer Group or their affiliates that is not required to respond to a manifest or patent environmental condition, it being understood that any sampling, testing or analysis required under any Environmental Law shall not constitute a Non-Permitted Testing. (d) Notwithstanding the limitations set out in Section 8.7, Seller Group agrees to indemnify and hold harmless Buyer Group against any breach of Environmental Laws disclosed under Schedule 2.1.17(a) in relation to the Asnieres Facility and agrees to bear without limitation all costs, -49- consequences and liabilities arising therefrom including but not limited to any Remedial Actions which may be required by Environmental Authorities upon termination of activities on the Asnieres Facility; provided that operations of CMB France at the Asnieres Facility shall have been wound up on or before June 30, 1999, failing which the limitations set forth in Section 8.7 shall apply. 8.2 Environmental Indemnification by Buyer Group. Buyer Group agrees to indemnify and hold Seller Group harmless from and against any and all Environmental Indemnifiable Losses suffered or incurred by Seller Group resulting from any Remedial Action that is required to be taken on account of a Third Party Claim for which responsibility is to be borne by Buyer Group in accordance with Section 8.4, it being understood that Seller Group waives any other remedy than those provided by this Article 8, which shall constitute Seller Group's exclusive remedy in respect of any Environmental Indemnifiable Losses. 8.3 Environmental Indemnifiable Losses. "Environmental Indemnifiable Losses" shall mean and be deemed to include Indemnifiable Losses required to be taken on account of Third Party Claims arising from any breach of any of the representations and warranties set forth at Section 2.1.17 and more generally arising from any harm or damage to the environment, including the atmosphere, ground soil, subsoil and surface and subsoil waterbodies and any Remedial Action required under relevant Environmental Law in connection herewith. "Remedial Action" shall mean the removal, investigation, cure, containment, neutralization, or remediation of any Release in each case as required by the relevant Environmental Laws or in order to respond to a significant hazard to human health or the environment. 8.4 Responsibility for Remedial Action. (a) Seller Group shall bear responsibility for any Remedial Action to the extent the Release(s) giving rise to the requirement of Remedial Action relate solely to the operation of the Sites (as defined at Section 8.4 (b)) prior to the Closing. Buyer Group shall bear responsibility for Remedial Action pursuant to Section 8.2 to the extent the Release(s) giving rise to the requirement of Remedial Action relate solely to the operation of the Sites after the Closing Date. To the extent the Release(s) giving rise to the requirement of Remedial Action relate to the operation of the Sites both prior to and after the Closing Date, responsibility for such Remedial Action shall be allocated between Seller Group and Buyer Group, Seller Group bearing responsibility for Remedial Action with respect to that portion of Release(s) originating prior to the Closing Date even though manifestations thereof occurred after the Closing Date and Buyer Group bearing responsibility for Remedial Action with respect to that portion of Release(s) originating subsequent to such date. Any dispute regarding die allocation of responsibility under this Section 8.4 that cannot be resolved by good faith negotiation among the parties shall be submitted to such independent environmental consulting group as may be -50- mutually agreed between Buyer and Seller. Such consulting group shall make a determination as to the appropriate allocation of responsibility for Remedial Action, based upon its evaluation of the respective responsibilities of the parties as regards the relevant Releases that are subject of the Remedial Action. The fees and expenses of such consulting group shall be shared equally by the parties. Any dispute regarding the choice of the environmental consulting group shall be resolved according to the procedure set forth at Section 9.4 below. The parties hereto agree that for the purposes of this Agreement the appropriate remediation standard shall be the most cost effective method to achieve the least stringent cleanup or remediation imposed by the relevant Environmental Law. (b) For the duration of Seller Group's indemnification obligation hereunder, Buyer Group shall inform Seller Group of the results of all measurements and sampling of Contaminants on the sites of Meaux, Noeux and Asnieres in France, Wrexham in the United Kingdom, Bad Bevensen in Germany and Istanbul in Turkey (the "Sites") as may be undertaken by Buyer Group, pursuant to 8.4(a) above, but Buyer Group shall not undertake any action with relevant Environmental Authorities that may give rise to an enquiry, proceeding or claim with respect to Remedial Action or a potential Environmental Indemnifiable Loss unless Buyer has previously informed Seller in writing and consulted with Seller in such regard (except that Buyer shall not be prohibited from taking such urgent actions as may be required to comply with Environmental Laws or prevent an imminent hazard to human health or the environment). Buyer shall inform Seller of any Release on the Sites from and after the Closing Date, and any material changes in the use of raw materials and/or industrial procedures or processes to the extent such changes may be relevant to any required allocation of responsibility pursuant to paragraph (a) above. 8.5 Procedures with respect to Remedial Actions. (a) Subject to the terms and conditions of Section 7.5 of the Agreement, if a Third Party Claim is made against an Indemnified Party with respect to an Environmental Indemnifiable Loss or Remedial Action for which responsibility is to be borne wholly or partially by the Indemnifying Party, the Indemnifying Party shall be entitled to participate in discussions and negotiations conducted between the Indemnified Party and the relevant third party or Environmental Authority as regards the Third Party Claim and in particular as regards any proposed Remedial Action. To this effect, the Indemnified Party shall promptly inform the Indemnifying Party of any pending or threatened claim or enforcement action, and notify in advance and afford the Indemnifying Party the opportunity to participate in any proposed meeting or discussion with such third party or Environmental Authority. The Indemnified Party shall also provide to the Indemnifying Party all relevant information and documents received from such third party or Environmental Authority as required by this Agreement. In instances where the Indemnifying Party is the Seller, the Indemnifying Party shall have the right to visit the Real Property of the -51- Sites concerned and the premises concerned and to conduct or cause to be conducted (at its own expense) an environmental inspection of the Real Property of the Sites concerned. (b) Before initiating any Remedial Action, the Indemnified Party shall agree with the Indemnifying Party as regards the scope, nature, methodology and cost of such Remedial Action in accordance with Environmental Laws. To this effect, the Indemnified Party and the Indemnifying Party shall mutually prepare a written document describing in detail the timing, scope, nature, methodology and cost of Remedial Actions to be taken regarding the Third Party Claim ("Claim"). The Plan shall also include the name of the entity in charge of the conduct of the Remedial Actions. Any amendment to the Plan shall be made through the written consent of both parties. The Indemnifying Party shall not be liable to indemnify the Indemnified Party for any and all Remedial Actions made outside the scope of the Plan. In case of dispute regarding the Plan, the parties shall cause an independent environmental consulting firm mutually agreeable to them, to conduct an environmental inspection in order to set forth the nature, timing, scope, methodology and cost of the Remedial Action. The Indemnifying Party shall be entitled to monitor or cause an independent consultant of its choice to monitor the conduct of the Remedial Actions until full completion. Any dispute regarding the choice of the environmental consulting group shall be resolved according to the procedure set forth at Section 9.4 below. 8.6 Access. Seller shall be entitled to visit the Real Property and the premises concerned, at least four times a year at dates mutually agreed with Buyer, during the period of survival of indemnification defined at Section 8.7 below. 8.7 Limitations on Environmental Indemnification. (a) Except as provided in Section 8.1(b),with respect to the Sites, Seller Group shall indemnify and hold harmless Buyer Group for Environmental Indemnifiable Losses in accordance with the percentages set forth in Schedule 8.7 hereto (it being understood that any series of events or occurrences arising out of the same or substantially similar events or occurrences shall be treated as one individual event or occurrence) and up to and including an aggregate amount of claims for Environmental Indemnifiable Losses of twelve million U.S. Dollars (US$12,000,000). 8.8 Survival of Indemnification. The right of any party to make a claim for Environmental Indemnifiable Losses shall survive the Closing Date for a period of five (5) years, provided however that any representations and warranties with respect to which a claim for breach has been notified by Buyer within such five-year period shall survive the expiry of such period until final settlement of such claim. -52- ARTICLE 9 MISCELLANEOUS 9.1 Notices. Any notices or other communications required or permitted hereunder shall be sufficiently given if in writing and personally delivered or sent by registered or certified mail, return receipt requested, postage prepaid, or if sent by facsimile transmission with confirmation of receipt addressed as follows or to such other address as the parties shall have given notice of pursuant hereto: Buyer: Graham Packaging Company 1100 East Princess Street, York, PA 17403, USA Attn: Philip R. Yates Telecopy: (1) 717-849-4269 With copy to: Clifford Chance 112 avenue Kleber 75116 Paris Attn: Yves Wehrli Telecopy: (33-1) 44-05-52-00 Seller: CarnaudMetalbox S.A. 67 rue Arago 93400 Saint Ouen Attn: General Counsel Telecopy: (33-1) 49-18-45-08 With copy to: Jones, Day, Reavis & Pogue 120, rue du Faubourg Saint Honore 75008 Paris Attn: Wesley R. Johnson, Jr. I i Telecopy: (33-1) 56-59-39-38 9.2 Entire Agreement; Hierarchy of Agreements. (a) This Agreement and the Schedules and the Exhibits hereto represent the entire understanding and agreement of the parties and supersede all prior agreements, understandings or arrangements among the parties hereto with respect to the subject matter hereof and can be amended, supplemented or changed, and any provision hereof can be waived, only by written instrument making specific reference to this Agreement signed by the party against whom enforcement of such amendment, supplement, modification or waiver is sought. Buyer acknowledges that Seller has made no representation or warranty to Buyer, and that Buyer has relied on no representation or warranty, other than those specifically set forth herein. -53- (b) In the event of any conflict or discrepancy between this Agreement and the terms of any of the other agreements the forms of which are set forth as Exhibits hereto, the terms of this Agreement shall prevail. 9.3 Section Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 9.4 Applicable Law/Disputes. This Agreement shall be governed by and construed and enforced in accordance with the laws of France. All disputes arising in connection with this Agreement shall be exclusively and finally settled by arbitration as defined by the terms of an Arbitration Agreement entered into on the date hereof to which the parties agree to be bound. Save as regards the German Real Property, with respect to which the jurisdiction of the competent German court shall apply, the parties shall cause their respective German affiliates to subject any disputes to the arbitration proceeding described in the Arbitration Agreement, to adhere to the clause compromissoire set forth therein, and to refrain from taking any action before the German courts. 9.5 Expenses. Whether or not the transactions contemplated hereby are consummated, the parties hereto shall pay their own respective expenses provided that all transfer taxes in connection with the purchase of the Shares, the German Plant, the U.K. Plant and all notarial costs and expenses in connection with the transactions contemplated by this Agreement be allocated as set forth in Schedule 9.5 promptly after the date hereof (and with respect to U.K. stamp duty to be borne by Seller, not later from ten (10) days hereafter). 9.6 Waiver. Any party may, by written notice to another party: (a) extend the time for the performance of any of the obligations or other actions of such other party; (b) waive any inaccuracies in the representations of such other party contained in this Agreement; or (c) waive compliance with any of the agreements of such other party contained in this Agreement or waive or consent to the modification of performance of any of the obligations of such other party. Except as specifically provided in Section 3.1.3, no other action taken pursuant to this Agreement, including without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representation, warranty, condition, or agreement contained herein, except if provided otherwise in writing by the parties. 9.7 Severability. If at any time subsequent to the date hereof, any provisions of this Agreement shall be held by any court of competent jurisdiction to be illegal, void or unenforceable, such provision shall be of no force and effect, but if feasible the illegality or unenforceability of -54- such provision shall have no effect upon and shall not impair the enforceability of any other provision of this Agreement. 9.8 Incorporation by Reference; Disclosure Schedules. The Schedules and Exhibits to this Agreement constitute integral parts of this Agreement and are hereby incorporated into this Agreement by this reference. A disclosure in a given Schedule (but not any documentary attachment) shall be deemed a disclosure for the purposes of each other representation, warranty and Schedule to which it may relate provided that the disclosure so made in such Schedule is reasonably and substantially apparent. The Seller agrees that no additional attachments to the Schedules disclosed after close of business on Wednesday 22 July, 1998 with respect to the U.K. Plant shall form part of the attachments to the Schedules except for Schedules 0.1, 1.2.1(b) and 1.2.1(c). 9.9 Counterparts. This Agreement shall be executed in two counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. 9.10 Assignment. The rights and obligations under this Agreement may not be assigned or delegated by any party hereto, in whole or in part, to any third party without the prior written consent of the other party hereto; provided however, that prior to the Closing Date, Buyer may assign its rights and obligations hereunder to a wholly owned subsidiary if Buyer, as a condition to such assignment, irrevocably and unconditionally guarantees the full performance of the obligations of such assignee; provided further, that any merger, consolidation, spin-off, liquidation or other corporate reorganization with respect to CMB France, CMB Turkey or the Plants shall not extinguish or limit Seller's obligations under the representations, warranties, covenants and indemnities to the successors-in-interest of such corporate reorganization provided that such successors-in-interest are, or are wholly-owned and controlled by, affiliates of Buyer which are affiliates as of the date hereof. It is further understood and agreed that CMB France and CMB Turkey shall be third party beneficiaries (stipulation pour autrui) of the representations, warranties and indemnities of Seller hereunder to the extent any breach thereof constituted Indemnifiable Loss suffered by CMB France or CMB Turkey. 9.11 Certain Definitions. For purposes of this Agreement, the term: (a) "affiliate" of any person means any other person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the first mentioned person. A person shall be deemed to control another person if such person owns, directly or indirectly, 50% or more of the voting rights of the second mentioned person, -55- and the general partner of a partnership shall be deemed to control such partnership; (b) "business day" means any day other than a Saturday, Sunday or a public bank holiday in France; (c) "enforceability", "binding and enforceable in accordance with its terms" or terms of similar import, where they describe an obligation of a party to any agreement, shall be deemed in all cases to be subject to applicable bankruptcy, fraudulent conveyance, insolvency, reorganization or other similar laws now or hereafter in effect or by legal or equitable principles relating to or limiting creditors' rights generally; (d) "Executive" or "Executives" shall mean any Transferred Employee with an annual base salary greater than US$50,000 or equivalent thereof; (e) "Indemnifiable Liabilities for Discontinued Operations" shall mean any liabilities, including environmental liabilities, of CMB France or CMB Turkey related to the operations of CMB France or CMB Turkey sold or discontinued prior to the date hereof (including without limitation those previously located at Nimes, Marseille and Vitrolles, France); (f) "material" when used in the representations and warranties in connection with CMB France, CMB U.K., CMB Turkey and/or the German Plant shall mean material to any of the German Plant, the Meaux Plant, the Noeux Plant or the U.K. Plant; "Material Adverse Change" shall mean any change in the business of CMB France, the U.K. Plant, CMB Turkey and the German Plant which, for the purposes hereof, shall be deemed not to comprise changes that result from general economic or political conditions or other conditions affecting the packaging industry generally that are materially adverse to the financial condition or results of operations of any of the Meaux Plant, the Noeux Plant, the U.K. Plant, CMB Turkey and the German Plant and that shall not have been cured by Seller at or before the Closing Date; (g) "Non-Operational Indemnifiable Liabilities for Continued Operations" shall mean undisclosed contingent financial liabilities of CMB France or CMB Turkey, that (i) constitute a breach of Section 2.1.5(c) hereof but of no other representation or warranty hereunder; (ii) were incurred outside of the ordinary course of their respective businesses; and (iii) were either not authorized by board or shareholder actions or not recorded in the books and accounting records of the respective business. (h) "person" means an individual, corporation, partnership, association, trust or any unincorporated organization; -56- (i) "Related Agreements" means collectively the German Real Property Deed of Conveyance, the German Asset Purchase Agreement, the U.K. Real Property Deed of Conveyance, the U.K. Asset Purchase Agreement, the License Agreement and the Arbitration Agreement, attached hereto in Exhibits I through VI; (j) "Tax" or "Taxation" used in this agreement means any taxes, duties, rights, deductions, contributions, levies or charges, including especially income tax withholding tax, deduction, indirect taxes, local taxes, VAT, registration or stamp duties, custom duties imposed or collected by any State or local authority, national or supra-national, or any other organization and includes the interests, penalties, fines, reassessments and other related charges; (k) "Tax regulation" used in this agreement means tax or customs laws as well as decrees, orders, memorandums or other texts of application or interpretation of the said laws applicable in a given country as well as any international treaty (including the derivative law -directives, regulations or others -of this treaty); (l) "to Seller's knowledge" or terms of similar import shall mean Seller's after due inquiry of those individuals listed on Schedule 9.11(l); 9.12 Exchange rate. (a) For purposes of establishing the Effective Date Balance Sheets and the Closing Statements, the French franc, Turkish lira, British pound sterling and German mark amounts shall be converted into U.S. Dollars at the respective closing exchange rates applied by Seller for purposes of its December 1997 month-end consolidated group closing. For purposes of calculating the Post-Closing Adjustment Amount, the Base Balance Sheets shall be restated in U.S. Dollar terms by applying such respective December 1997 month-end exchange rates to the French franc, Turkish lira, British pound sterling and German mark amounts that formed the basis of the respective Base Balance Sheets. (b) For purposes of applying the various dollar limits to Indemnifiable Losses and Environmental Indemnifiable Losses, claims brought and denominated in French francs, Turkish lira, British pound sterling and German mark amounts shall be converted into U.S. Dollars by applying the respective December 1997 month-end exchange rates referred to above. 9.13 Guarantees of Buyer and Seller. (a) In consideration of the Seller causing CMB UK to enter into the UK Asset Purchase Agreement the Buyer hereby guarantees to the Seller on behalf of CMB U.K. the performance and observance by Graham Packaging U.K. Limited (the "U.K. Buyer") of all its obligations, undertakings, warranties, indemnities and covenants in -57- accordance with the U.K. Asset Purchase Agreement. If and whenever the U.K. Buyer defaults for any reason whatsoever in the performance of any obligation or liability undertaken by it in accordance with the U.K. Asset Purchase Agreement, the Buyer shall perform (or procure performance of) and satisfy (or procure the satisfaction of) the obligation or liability in regard to which such default has been made in the manner prescribed by this Agreement. The guarantee is to be a continuing security to the Seller for all obligations, commitments, warranties, undertakings, indemnities and covenants on the part of the U.K. Buyer under or pursuant to the U.K. Asset Purchase Agreement notwithstanding any settlement of account or other matter or thing whatsoever. (b) In consideration of Buyer causing Graham Packaging U.K. Limited to enter into the U.K. Asset-Purchase Agreement, the Seller hereby guarantees to the Buyer the performance and observance by CMB U.K. ("U.K. Seller") of all its obligations, undertakings, warranties, indemnities and covenants in accordance with the U.K. Asset Purchase Agreement. If and whenever U.K. Seller defaults for any reason whatsoever in the performance of any obligation or liability undertaken by it in accordance with the U.K. Asset Purchase Agreement, the Seller shall perform (or procure performance of) and satisfy (or procure the satisfaction of) the obligation or liability in regard to which such default has been made in the manner prescribed by this Agreement. The guarantee is to be a continuing security to the Buyer for all obligations, commitments, warranties, undertakings, indemnities and covenants on the part of the U.K. Seller under or pursuant to the U.K. Asset Purchase Agreement notwithstanding any settlement of account or other matter or thing whatsoever. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement, as of the day and year first above written. CarnaudMetalbox S.A. By:_______________________ Title:_____________________ Graham Packaging Company By:_______________________ Title:_____________________ -58- LIST OF EXHIBITS Exhibit I: German Real Property Deed of Conveyance Exhibit II: German Asset Purchase Agreement Exhibit III: U.K. Asset Purchase Agreement (Short-form) Exhibit IV: License Agreement Exhibit V: Arbitration Agreement -1- LIST OF SCHEDULES Schedule 0.1: List of Plastic Products Schedule 1.2.1(b): Reimbursed Capital Expenditures and Reimbursed Restructuring Costs Schedule 1.2.1(c): Allocation of the Unadjusted Purchase Price, estimated Aggregate Closing Date Intragroup Indebtedness and Post-Closing Adjustment Schedule 1.2.3: Base Balance Sheets Schedule 1.2.6(c): Hypothetical determination of Post-Closing Adjustment Amount Schedule 2.1.1(b): Memorandum, Articles and By-Laws of CMB France, CMB U.K., CMB Germany and CMB Turkey Schedule 2.1.1(c): Appointment of Directors and officers Schedule 2.1.3: Title to Shares and Plants Schedule 2.1.4(a): Restrictions on Title to Shares and Plants Schedule 2.1.4(c): Governmental Approvals and Authorizations Schedule 2.1.4(d): Event of Default Schedule 2.1.5(b): Statutory Accounts of CMB France and CMB Turkey Schedule 2.1.5(c): Contingent or Off-Balance Sheet Liabilities Schedule 2.1.6: Subsidiaries Schedule 2.1.7: Material Actions since December 31, 1997 Schedule 2.1.8(a): List of Intellectual Property Rights Schedule 2.1.8(c): Restrictions on Intellectual Property Rights Schedule 2.1.8(f): Intellectual Property Infringement Actions Schedule 2.1.9(a): Description of Real Property Schedule 2.1.9(b): Restrictions on Freehold Interests -1- Schedule 2.1.9(c): Lease of Real Property, Use of Real Property, etc. Schedule 2.1.9(d): Purchase, Sale, Lease, Sub-Lease Obligations relating to Real Property Schedule 2.1.9(e): Transfer Lease Schedule 2.1.9(g): Easements Schedule 2.1.9(h): Building Permits Schedule 2.1.9(i): State of Real Property Schedule 2.1.9(j): Insurance Policies regarding Real Property Schedule 2.1.10(a): List of Movable Property Schedule 2.1.10(b): State of Owned Movable Property Schedule 2.1.10(c): Other movable property Schedule 2.1.11: List of Encumbrances on Owned Real Property or Owned Movable Property Schedule 2.1.12(a): List of Material Contracts Schedule 2.1.12(b): List of invalid, non-binding, unenforceable Material Contracts Schedule 2.1.12(c) List of the Top Customer Orders and Products Intention to Suspend or Reduce Level of Business Schedule 2.1.12(d): Grants and Subsidies Schedule 2.1.13(a): Certain Inventory Schedule 2.1.13(b): List of Product Returns, Recalls or Post-Sale Warnings Schedule 2.1.14(a): List of Litigation over US$20,000 Schedule 2.1.14(b): Pending or Threatened Litigation; Vicarious Liability Claims Schedule 2.1.14(d): Outstanding Judgment; Vicarious Liability Judgments -2- Schedule 2.1.14(e): Governmental Investigation and Proceedings Schedule 2.1.16(a): Governmental Permits and compliance with laws Schedule 2.1.16(c): Permits which may be withdrawn or revoked Schedule 2.1.17(a): Non-compliance with Environmental Laws and Phase I Survey Schedule 2.1.17(b): List of Environmental Permits and Environmental Disclosure Schedule 2.1.18(a): Transferred Employees, Employee Compensation and Benefit Plans Schedule 2.1.18(h): Social Plans Schedule 2.1.18(i): Binding Offers to Executives Schedule 2.1.18(l): Strike and Work Stoppage Schedule 2.1.18(k): Employee Litigation Schedule 2.1.18(1): Compliance with Health & Safety terms Schedule 2.1.19(b)(i): Non-compliance with tax filing obligations Schedule 2.1.19(b)(ii): Tax Assessment Actions or Proceedings Schedule 2.1.19(g): Taxes Resulting from Transfer of Shares Schedule 2.1.19(i): Fiscal Value Schedule 2.2.4: Governmental Entity Consents Schedule 2.2.7: List of Data Room Documents Schedule 3.1.1: Business not in the Ordinary Course Schedule 3.1.5: List of Seller's Head Office Employees Schedule 3.3.2: Environmental Remedial Actions Schedule 3.3.5: Governmental Consents Schedule 3.3.7: Work Force Reduction Plans -3- Schedule 3.3.11: Regulatory Filings Schedule 4.1.3: Required Consents Schedule 5.2.1(h): Persons authorized to perform banking transactions; Powers of Attorney Schedule 7.4(b): Disclosed Indemnifiable Losses Schedule 8.7: Environmental Indemnification Schedule Schedule 9.5: Allocation of Expenses Schedule 9.1 l(j): Seller's Knowledge [Exhibits and Schedules omitted. Schedules will be furnished supplementally to the Commission upon request, subject to any request for confidential treatment.] -4- PURCHASE AGREEMENT by and between CarnaudMetalbox S.A. and Graham Packaging Company Dated July 27, 1998 EX-10.12 3 Exhibit 10.12 FIRST AMENDMENT TO CREDIT AGREEMENT FIRST AMENDMENT TO CREDIT AGREEMENT (this "First Amendment"), dated as of August 13, 1998, among GRAHAM PACKAGING HOLDINGS COMPANY, a Pennsylvania limited partnership ("Holdings"), GRAHAM PACKAGING COMPANY, a Delaware limited partnership (the "Borrower"), GPC CAPITAL CORP. I, a Delaware corporation (the "Co-Borrower"), the various Lenders party to the Credit Agreement referred to below, NATIONSBANK, N.A., as documentation agent (in such capacity, the "Documentation Agent"), BANKERS TRUST COMPANY, as administrative agent (in such capacity, the "Administrative Agent"), as syndication agent (in such capacity, the "Syndication Agent") and as collateral agent (in such capacity, the "Collateral Agent") for the Lenders, and BANKERS TRUST COMPANY, as fronting bank (in such capacity, the "Fronting Bank"). All capitalized terms used herein and not otherwise defined shall have the respective meanings provided such terms in the Credit Agreement referred to below. W I T N E S S E T H: WHEREAS, Holdings, the Borrower, the Co-Borrower, the Lenders, the Agents and the Fronting Bank are parties to a Credit Agreement, dated as of February 2, 1998 (as amended, modified or supplemented to, but not including, the date hereof, the "Credit Agreement"); and WHEREAS, the parties hereto wish to amend the Credit Agreement as herein provided; NOW, THEREFORE, it is agreed: I. Amendments to Credit Agreement. 1. The fourth paragraph of the Credit Agreement is hereby amended by deleting said paragraph in its entirety and by inserting in lieu thereof the following new paragraph: "The Borrower has requested the Lenders to extend credit, subject to the terms and conditions herein, in the form of (a) Tranche A Term Loans on the Closing Date, in an aggregate principal amount not in excess of $75,000,000, (b) Tranche B Term Loans on the Closing Date, in an aggregate principal amount not in excess of $175,000,000, (c) Tranche C Term Loans on the Closing Date, in an aggregate principal amount not in excess of $145,000,000, (d) Tranche D Term Loans on up to two Tranche D Term Loan Borrowing Dates, in an aggregate principal amount not in excess of $175,000,000, (e) Revolving Loans and Swingline Loans at any time and from time to time prior to the Revolving Credit Maturity Date, in an aggregate principal amount at any time outstanding not in excess of the difference between (i) $155,000,000 and (ii) the Revolving L/C Exposure at such time, (f) Letters of Credit, at any time and from time to time prior to the Revolving Credit Maturity Date, in an aggregate stated amount at any time outstanding not in excess of $50,000,000 and (g) Growth Capital Revolving Loans at any time and from time to time prior to the Growth Capital Maturity Date, in an aggregate principal amount at any time outstanding not in excess of $100,000,000." 2. The fifth paragraph of the Credit Agreement is hereby amended by deleting said paragraph in its entirety and by inserting in lieu thereof the following new paragraph: "The proceeds of the Tranche A Term Loans, the Tranche B Term Loans and the Tranche C Term Loans will be used on the Closing Date, together with (a) up to $15,000,000 of the proceeds of Revolving Loans, (b) the cash obtained by Investor LP and Investor GP as described in clause (a) of the second preceding paragraph and (c) the proceeds of the issuance of the Holdings Discount Notes and Senior Subordinated Notes, solely (i) to effect the Purchase and Redemption, (ii) to effect the Refinancing and (iii) to pay related fees, expenses and other transaction costs. The proceeds of the Tranche D Term Loans will be used to repay outstanding Revolving Loans, to finance Permitted Business Acquisitions and Capital Expenditures and for general corporate purposes. The proceeds of Revolving Loans (except as described above) will be used for general corporate purposes. The Letters of Credit and Swingline Loans will be used for general corporate purposes. The proceeds of the Growth Capital Revolving Loans shall be utilized by the Borrower and its Subsidiaries to make Capital Expenditures, acquisitions and investments, in each case as herein provided." 3. Section 1.01 of the Credit Agreement is hereby amended by deleting the definitions of "ABR Margin", "Fund", "LIBOR Margin", "Loan Documents", "Mortgages", "Revolving Credit Commitment", "Security Documents", "Term Commitments" and "Tranche" appearing therein and by inserting the following new definitions in the appropriate alphabetical order: "ABR Margin" shall mean for Tranche A Term Loans, Tranche B Term Loans, Tranche C Term Loans, Tranche D Term Loans, Revolving Loans, Growth Capital Revolving Loans and Swingline Loans, the rate per annum set forth under the relevant column heading opposite such Loans as set forth on Schedule A hereto. "Asset Disposition" shall mean any sale, transfer or other disposition by Holdings, the Borrower or any of their respective Subsidiaries to any person other than the Borrower or any Subsidiary Guarantor of any asset, the Net Proceeds from which exceed $10,000,000. "Assumed Note" shall mean that certain demand note (as amended from time to time) issued by CMB Plastique S.A. in the face principal amount of 106,229,000 French francs (approximately $16,800,000). "Blackstone Capital Partners" shall mean Blackstone Capital Partners III Merchant Banking Fund L.P., a Delaware limited partnership. "Blackstone Family Partnership" shall mean Blackstone Family Investment Partnership III L.P., a Delaware limited partnership. -2- "Blackstone Offshore Partners" shall mean Blackstone Offshore Capital Partners III L.P., a Cayman Islands limited partnership. "Capital Call Agreement" shall mean the Capital Call Agreement, substantially in the form of Exhibit K, among Blackstone Capital Partners, Blackstone Offshore Partners, Blackstone Family Partnership, Investor LP, Holdings, the Borrower, the Administrative Agent and the Collateral Agent. "Capital Call Contributions" shall mean the capital contributions made (or deemed made) by Blackstone Capital Partners, Blackstone Offshore Partners, Blackstone Family Partnership and/or Investor LP to Holdings (which capital contributions are, in turn, contributed (or deemed contributed) by Holdings to the Borrower) from time to time pursuant to the Capital Call Agreement. "Converted Foreign Debt" shall mean Indebtedness (or any portion thereof) which (x) constitutes Indebtedness of a Foreign Subsidiary of the Borrower to the Borrower or a domestic Subsidiary of the Borrower and (y) is converted into (or otherwise accounted for as) equity (in accordance with GAAP) of such Foreign Subsidiary of the Borrower. "Designated Business Acquisitions" shall mean the acquisition of all or substantially all the assets of, or shares or other equity interests in, the following persons (or any subsequent investment made in a previously acquired Designated Business Acquisition): (i) Graham Emballages Plastiques France S.A. (f/k/a CMB Plastique S.A.), (ii) Graham Packaging U.K. Ltd. (f/k/a CarnaudMetalbox plc), (iii) CMB Plastpak Plastic, Ambalaj Sanayi A.S., (iv) Graham Packaging Deutschland GmbH (f/k/a Raku GmbH), (v) Euroflex Industria e Comercio Ltda., (vi) Cimplast S.A.C.I., (vii) Lido Plast S.A., (viii) Amerpack S.A., (ix) Dodisa S.A. and (x) Lido Plast San Luis S.A. "First Amendment" shall mean the First Amendment, dated as of August 13, 1998, to this Agreement. "First Amendment Effective Date" shall mean the date the First Amendment becomes effective in accordance with its terms. "Fund" shall mean Blackstone Capital Partners III Merchant Banking Fund L.P., a Delaware limited partnership, and Blackstone Offshore Capital Partners III L.P., a Cayman Islands limited partnership. "Information Systems and Equipment" means, with respect to any person, all computer hardware, firmware and software, as well as other information processing systems, or any equipment containing embedded microchips, whether directly owned, licensed, leased, operated or otherwise controlled by such person, including through third-party service providers, and which, in whole or in part, are -3- used, operated, relied upon, or integral to, such person's conduct of its business. "IRB Financing" shall mean the incurrence by the Borrower and its domestic Subsidiaries of industrial revenue bond financing the proceeds of which shall be used to finance the construction (or expansion) of an on-site (or near-site) Quaker Oats plant facility in the State of Georgia. "IRB Financing Documents" shall mean each of the agreements and documents entered into in connection with the IRB Financing. "LIBOR Margin" shall mean for Tranche A Term Loans, Tranche B Term Loans, Tranche C Term Loans, Tranche D Term Loans, Revolving Loans and Growth Capital Revolving Loans, the rate per annum set forth under the relevant column heading opposite such Loans as set forth on Schedule A hereto. "Loan Documents" shall mean this Agreement, the Letters of Credit, the Guarantee Agreements, the Security Documents and, after the execution and delivery thereof pursuant to the terms of this Agreement, any Note and the Capital Call Agreement. "Mortgage Amendments" shall have the meaning provided such term in the First Amendment. "Mortgages" shall mean the mortgages, deeds of trust, assignments of leases and rents and other security documents (in each case as amended pursuant to the respective Mortgage Amendment) delivered pursuant to clause (i) of Section 4.02(h) or pursuant to Section 5.11, each substantially in the form of Exhibit E. "Permitted Refinancing Indebtedness" means any Indebtedness of the Borrower or a Subsidiary of the Borrower issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund (collectively, to "Refinance"), Indebtedness permitted by Section 6.01(j) (or previous refinancings thereof constituting Permitted Refinancing Indebtedness) of the Borrower or such Subsidiary of the Borrower, as the case may be, provided that (i) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness so Refinanced (plus unpaid accrued interest and premium thereon), (ii) the average life to maturity of such Permitted Refinancing Indebtedness is greater than or equal to that of the Indebtedness being Refinanced, (iii) if the Indebtedness being Refinanced is subordinated in right of payment to the Obligations under this Agreement, such Permitted Refinancing Indebtedness shall be subordinated in right of payment to such Obligations on terms at least as favorable to the Lenders as those contained in the documentation governing the Indebtedness being Refinanced, (iv) no Permitted Refinancing Indebtedness shall have different obligors, or greater guarantees or security, than the -4- Indebtedness being Refinanced and (v) if the Indebtedness being Refinanced is secured by any collateral (whether equally and ratably with, or junior to, the Secured Parties or otherwise), such Permitted Refinancing Indebtedness may be secured by such collateral (including any collateral pursuant to after-acquired property clauses to the extent any such collateral secured the Indebtedness being Refinanced) on terms no less favorable to the Secured Parties than those contained in the documentation governing the Indebtedness being Refinanced. "Pro Forma Basis" shall mean, as to any person, for any events as described in clauses (ii) and (iii) below which occur subsequent to the commencement of a period for which the financial effect of such events is being calculated, and giving effect to the events for which such calculation is being made, such calculation as will give pro forma effect to such events as if same had occurred at the beginning of such period of calculation, and (i) for purposes of the foregoing calculation, each transaction giving rise to the need to calculate the pro forma effect to any of the following events shall be assumed to have occurred on the first day of the four consecutive fiscal quarter period last ended on or before the occurrence of the respective event for which such pro forma effect is being determined (the "Reference Period"); (ii) in making any determination of EBITDA, (x) pro forma effect shall be given to any Asset Disposition and to any Permitted Business Acquisition (or any similar transaction or transactions which require a waiver or consent of the Required Lenders pursuant to Section 6.05), in each case which occurred during the Reference Period (or, in the case of determinations made pursuant to the definition of Permitted Business Acquisition contained herein, occurring during the Reference Period or thereafter and through and including the date upon which the respective Permitted Business Acquisition is consummated) as if such Asset Disposition, Permitted Business Acquisition or other transaction, as the case may be, occurred on the first day of the Reference Period and (y) to the extent applicable, effect shall be given to the first proviso to the definition of Net Leverage Ratio or the first proviso to Section 6.11, as the case may be; and (iii) in making any determination on a Pro Forma Basis, (x) all Indebtedness (including Indebtedness incurred or assumed and for which the financial effect is being calculated, whether incurred under this Agreement or other- wise, but excluding normal fluctuations in revolving indebtedness incurred for working capital purposes and not to finance any acquisition) incurred or permanently repaid during the Reference Period (or, in the case of determinations made pursuant to the definition of Permitted Business Acquisition contained herein, occurring during the Reference Period or -5- thereafter and through and including the date upon which the respective Permitted Business Acquisition is consummated) shall be deemed to have been incurred or repaid at the beginning of such period and (y) Interest Expense of such person attributable to interest on any Indebtedness, for which pro forma effect is being given as provided in preceding clause (x), bearing floating interest rates shall be computed on a pro forma basis as if the rates which would have been in effect during the period for which pro forma effect is being given had been actually in effect during such periods. Pro forma calculations made pursuant to the definition of Pro Forma Basis shall be determined in good faith by a Responsible Officer of the Borrower and may include adjustments, in the reasonable determination of the Borrower as set forth in an officers' certificate, to (i) reflect operating expense reductions reasonably expected to result from any acquisition, merger or Asset Disposition or (ii) eliminate the effect of any extraordinary accounting event with respect to any acquired person or assets on Consolidated Net Income. "Reference Period" shall have the meaning provided in the definition of Pro Forma Basis. "Revolving Credit Commitment" shall mean, with respect to each Lender, the amount set forth opposite such Lender's name on Schedule 2.01 directly below the column entitled "Revolving Credit Commitment" or in the Assignment and Acceptance pursuant to which such Lender assumed its Revolving Credit Commitment, as applicable, as the same may be reduced from time to time pursuant to Section 2.09 and pursuant to assignments by such Lender pursuant to Section 9.04. "Security Documents" shall mean the Mortgages, the Security Agreement, the Intellectual Property Security Agreement, the Pledge Agreement, the Capital Call Agreement and each of the security agreements, mortgages and other instruments and documents executed and delivered pursuant to any of the foregoing or pursuant to Section 5.11. "Term Commitments" shall mean the Tranche A Term Loan Commitments, the Tranche B Term Loan Commitments, the Tranche C Term Loan Commitments and the Tranche D Term Loan Commitments. "Test Period" shall mean, on any date of determination, the period of four consecutive fiscal quarters of the Borrower then last ended (taken as one accounting period), provided that in the case of determinations made pursuant to the first proviso to the definition of Net Leverage Ratio or the first proviso to Section 6.11, the Test Period shall instead constitute the respective two or three fiscal quarter period being tested as described in said provisos. -6- "Total Available Growth Capital Commitment" shall mean, at any time, the aggregate amount of Available Growth Capital Commitments, as in effect at such time. "Total Tranche D Term Loan Commitment" shall mean, at any time, the aggregate amount of the Tranche D Term Loan Commitments, as in effect at such time. "Tranche" shall mean the respective facility and commitments utilized in making Loans hereunder, with there being seven separate Tranches, i.e., Tranche A Term Loans, Tranche B Term Loans, Tranche C Term Loans, Tranche D Term Loans, Revolving Loans, Growth Capital Revolving Loans and Swingline Loans. "Tranche D Maturity Date" shall mean January 31, 2007. "Tranche D Syndication Date" shall mean that date upon which the Administrative Agent determines in its sole discretion (and notifies the Borrower) that the primary syndication (and resultant addition of institutions as Lenders pursuant to Section 9.04) relating to Tranche D Term Loan Commitments has been completed. "Tranche D Term Borrowing" shall mean a Borrowing comprised of Tranche D Term Loans. "Tranche D Term Loan Borrowing Date" shall have the meaning provided in Section 2.01(a)(iv). "Tranche D Term Loan Commitment" shall mean with respect to each Lender, the commitment of such Lender to make Tranche D Term Loans hereunder as set forth in Section 2.01(a)(iv), as the same may be reduced from time to time pursuant to Section 2.09. "Tranche D Term Loan Installment Date" shall have the meaning provided in Section 2.11(a). "Tranche D Term Loans" shall mean the term loans made by the Lenders to the Borrower pursuant to Section 2.01(a)(iv). "Year 2000 Compliant" means, with respect to any Information Systems and Equipment, that such Information Systems and Equipment accurately process date data (including, but not limited to, calculating, comparing and sequencing), before, during and after the year 2000, as well as same and multi-century dates, or between the years 1999 and 2000, taking into account all leap years, including the fact that the year 2000 is a leap year, and further, that when used in combination with, or interfacing with, other Information Systems and Equipment, shall accurately accept, release and exchange date data, and shall in all material respects continue to function in the same manner as it performs as of the date hereof and shall not otherwise impair the accuracy or functionality of any Information Systems and Equipment. -7- 4. The definition of "Available Investment Basket Amount" appearing in Section 1.01 of the Credit Agreement is hereby amended by deleting the reference to "Section 6.01(j)" therein and by inserting in lieu thereof a reference to "Section 6.04(j)". 5. The definition of "Capital Expenditures" appearing in Section 1.01 of the Credit Agreement is hereby amended by inserting, immediately at the end thereof, the following new sentence: "Notwithstanding anything to the contrary contained above and for avoidance of doubt, it is expressly understood and agreed that, to the extent not otherwise included above, Capital Expenditures shall include (without duplication of amounts) the aggregate outstanding principal amount of all IRB Financings incurred under Section 6.01(w)." 6. The definition of "Designated Capital Contributions" appearing in Section 1.01 of the Credit Agreement is hereby amended by inserting, immediately after the phrase "pursuant to Section 7.02" appearing in the last sentence thereof, the phrase "or by way of Capital Call Contributions". 7. The definition of "Indebtedness" appearing in Section 1.01 of the Credit Agreement is hereby amended by deleting the parenthetical set forth in clause (d) thereof and by inserting in lieu thereof the following new parenthetical: "(other than current trade liabilities and current intercompany liabilities (but not any refinancings, extensions, renewals or replacements thereof) incurred in the ordinary course of business and maturing within 365 days after the incurrence thereof)". 8. The definition of "Net Leverage Ratio" appearing in Section 1.01 of the Credit Agreement is hereby amended by inserting, immediately at the end of the first sentence thereof, the following new proviso: ", provided, further, to the extent any Asset Disposition or any Permitted Business Acquisition (or any similar transaction or transactions which require a waiver or a consent of the Required Lenders pursuant to Section 6.05) has occurred during the relevant Test Period, EBITDA shall be determined for the respective Test Period on a Pro Forma Basis for such occurrences". 9. The definition of "Net Proceeds" appearing in Section 1.01 of the Credit Agreement is hereby amended by inserting, immediately after the phrase "Designated Capital Contributions" appearing in sub- clause (ii) of the parenthetical set forth in clause (c) thereof, the phrase "and Capital Call Contributions". 10. The definition of "Permitted Business Acquisition" appearing in Section 1.01 of the Credit Agreement is hereby amended by (i) in clause (d)(i) thereof, deleting the term "pro forma basis" appearing therein and inserting in lieu thereof the phrase "Pro Forma -8- Basis", (ii) in clause (e) thereof, inserting the following parenthetical at the end thereof: "(it being understood and agreed that the foregoing restriction in this clause (e) shall not be applicable with respect to any proposed Designated Business Acquisition so long as after giving effect to such proposed Designated Business Acquisition the aggregate consideration paid (or payable) in connection with all Designated Business Acquisitions theretofore effected (and including such proposed Designated Business Acquisition) shall not have exceeded $110,000,000)" and (iii) deleting the last sentence thereof in its entirety. 11. Section 2.01 of the Credit Agreement is hereby amended by deleting clauses (a), (b) and (d)(iv) thereof in their entirety and by inserting in lieu thereof the following new clauses (a), (b) and (d)(iv), respectively: "(a) Subject to the terms and conditions and relying upon the representations and warranties of Holdings and the Borrower herein set forth, each Lender agrees, severally and not jointly: (i) to make a Tranche A Term Loan to the Borrower on the Closing Date, in a principal amount not to exceed the Tranche A Term Loan Commitment set forth opposite its name on Schedule 2.01, as the same may be reduced from time to time pursuant to Section 2.09; (ii) to make a Tranche B Term Loan to the Borrower on the Closing Date in a principal amount not to exceed the Tranche B Term Loan Commitment set forth opposite its name on Schedule 2.01, as the same may be reduced from time to time pursuant to Section 2.09; (iii) to make a Tranche C Term Loan to the Borrower on the Closing Date in a principal amount not to exceed the Tranche C Term Loan Commitment set forth opposite its name on Schedule 2.01, as the same may be reduced from time to time pursuant to Section 2.09; and (iv) to make Tranche D Term Loans to the Borrower, at the Borrower's option, (x) on a single date occurring on, or within two Business Days after, the First Amendment Effective Date and (y) on a single date on any date during the six month period immediately subsequent to the First Amendment Effective Date (each date upon which Tranche D Term Loans are made being herein referred to as a "Tranche D Term Loan Borrowing Date"), in an aggregate principal amount not to exceed the Tranche D Term Loan Commitment set forth opposite its name on Schedule 2.01, as the same may be reduced from time to time pursuant to Section 2.09, provided that on the date specified in preceding clause (x), the Borrower shall be required to incur at least $50,000,000 aggregate principal amount of Tranche D Term Loans." -9- "(b) Subject to the terms and conditions and relying upon the representations and warranties of Holdings and the Borrower herein set forth, each Lender agrees, severally and not jointly, to make Revolving Loans to the Borrower, at any time and from time to time on or after the date hereof, and until the earlier of the Revolving Credit Maturity Date and the termination of the Revolving Credit Commitment of such Lender in accordance with the terms hereof, in an aggregate principal amount at any time outstanding that will not result in such Lender's Revolving Credit Exposure at such time exceeding the Revolving Credit Commitment of such Lender at such time, as the same may be reduced from time to time pursuant to Section 2.09, provided that the aggregate principal amount of Revolving Loans made to the Borrower on the Closing Date shall not exceed $15,000,000." "(d) (iv) In the case of Revolving Loans made by Lenders other than the Swingline Lender under the immediately preceding paragraph (iii), each such Lender shall make the amount of its Revolving Loan available to the Administrative Agent, in same day funds, at the office of the Administrative Agent located at 130 Liberty Street, New York, New York, not later than 1:00 p.m., New York City time, on the Business Day next succeeding the date such notice is given. The proceeds of such Revolving Loans shall be immediately delivered to the Swingline Lender (and not to the Borrower) and applied to repay the Refunded Swingline Loans. On the day such Revolving Loans are made, the Swingline Lender's Applicable Percentage of the Refunded Swingline Loans shall be deemed to be paid with the proceeds of a Revolving Loan made by the Swingline Lender and such portion of the Swingline Loans deemed to be so paid shall no longer be outstanding as Swingline Loans and shall be outstanding as a Revolving Loan of the Swingline Lender. The Borrower authorizes the Administrative Agent and the Swingline Lender to charge the Borrower's account with the Administrative Agent (up to the amount available in such account) in order to pay immediately to the Swingline Lender the amount of such Refunded Swingline Loans to the extent amounts received from Lenders, including amounts deemed to be received from the Swingline Lender, are not sufficient to repay in full such Refunded Swingline Loans. If any portion of any such amount paid (or deemed to be paid) to the Swingline Lender should be recovered by or on behalf of the Borrower from the Swingline Lender in bankruptcy, by assignment for the benefit of creditors or otherwise, the loss of the amount so recovered shall be ratably shared among all Lenders in the manner contemplated by Section 2.17. Subject to the compliance by the Swingline Lender with the provisions of subparagraph (vii) below, each Lender's obligation to make the Revolving Loans referred to in this paragraph shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right that such Lender may have against the Swingline Lender, the Borrower or any other person for any reason whatsoever; (B) the occurrence or continuance of an Event of Default or a Default; (C) any adverse change in the condition (financial or otherwise) of Holdings or any of its -10- Subsidiaries; (D) any breach of this Agreement by Holdings, the Borrower or any other Lender; or (E) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. Nothing in this Section 2.01(d) shall be deemed to relieve any Lender from its obligation to fulfill its Commitments hereunder or to prejudice any rights that the Borrower may have against any Lender as a result of any default by such Lender hereunder." 12. Section 2.02 of the Credit Agreement is hereby amended by deleting clauses (b) and (e) thereof in their entirety and by inserting in lieu thereof the following new clauses (b) and (e), respectively: "(b) Subject to Sections 2.08 and 2.14, each Borrowing shall be comprised entirely of ABR Loans or (except in the case of Swingline Loans or as set forth in the second proviso to this sentence) Eurodollar Loans as the Borrower may request pursuant to Section 2.03. Each Lender may at its option make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan, provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement and such Lender shall not be entitled to any amounts payable under Section 2.13 or Section 2.19 in respect of increased costs arising as a result of such exercise, provided, further, that prior to the earlier of (x) the 35th day after the Closing Date and (y) the Syndication Date, the following restrictions shall apply to each Tranche (other than Tranche D Term Loans): (I) no Loans may be incurred as Eurodollar Loans prior to the fifth day after the Closing Date and (II) no more than one borrowing under each Tranche of Revolving Loans and Growth Capital Revolving Loans may be incurred as Eurodollar Loans, each of which borrowings of Eurodollar Loans shall be incurred on the fifth day after the Closing Date and have a one month Interest Period, provided, further, that prior to the earlier of (A) the 35th day after the First Amendment Effective Date and (B) the Tranche D Syndication Date, no more than one borrowing of Tranche D Term Loans may be incurred as Eurodollar Loans, which borrowing of Eurodollar Loans shall be incurred on the fifth day after the First Amendment Effective Date and have a one month Interest Period. Borrowings of more than one Type may be outstanding at the same time; provided, however, that the Borrower shall not be entitled to request any Borrowing that, if made, would result in more than 25 Eurodollar Borrowings outstanding hereunder at any time. For purposes of the foregoing, Borrowings having different Interest Periods, regardless of whether they commence on the same date, shall be considered separate Borrowings." "(e) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request any Borrowing if the Interest Period requested with respect thereto would end after the Tranche A Maturity Date, Tranche B Maturity Date, Tranche C Maturity Date, Tranche D Maturity Date, Revolving Credit Maturity Date or Growth Capital Maturity Date, as applicable." -11- 13. Section 2.05 of the Credit Agreement is hereby amended by deleting clauses (a) and (c) thereof in their entirety and by inserting in lieu thereof the following new clauses (a) and (c), respectively: "(a) The Borrower agrees to pay to each Lender (other than any Defaulting Lender), through the Administrative Agent, on the last day of March, June, September and December in each year, and on the date on which the Commitments of all the Lenders shall be terminated as provided herein, a commitment fee (a "Commitment Fee") on the average daily unused amount of the Commitments of such Lender during the preceding quarter (or other period ending with the date on which the last of the Commitments of such Lender shall be terminated) at (x) in the case of Tranche D Term Loan Commitments, a rate equal to 0.75% per annum and (y) in the case of all other Commitments, either (i) a rate equal to 0.50% per annum or (ii) for any such period commencing on or after the date of the Borrower's delivery to the Administrative Agent of the Borrower's consolidated financial statements for the second full fiscal quarter of the Borrower commencing after the Closing Date, at the rate per annum effective for each day in such period as set forth on Schedule A. All Commitment Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days. For the purpose of calculating any Lender's Commitment Fee, the outstanding Swingline Loans during the period for which such Lender's Commitment Fee is calculated shall be deemed to be zero. The Commitment Fee due to each Lender shall commence to accrue on the Closing Date (or in the case of Tranche D Term Loan Commitments, the First Amendment Effective Date) and shall cease to accrue on the date on which the last of the Commitments of such Lender shall be terminated as provided herein." "(c) The Borrower agrees to pay to the Administrative Agent, for its own account, the fees set forth in the Fee Letter dated as of December 18, 1997 and in the Fee Letter dated as of July 11, 1998, at the times specified therein (the "Administrative Agent Fees")." 14. Section 2.06 of the Credit Agreement is hereby amended by deleting said Section in its entirety and inserting in lieu thereof the following new Section 2.06: "SECTION 2.06. Interest on Loans. (a) Subject to the provisions of paragraph (c) below and Section 2.07, the Loans comprising each ABR Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, when determined by reference to the Prime Rate and over a year of 360 days at all other times) at a rate per annum equal to the Alternate Base Rate plus, in the case of (i) Tranche A Term Loans, Revolving Loans, Swingline Loans or Growth Capital Revolving Loans, 1.25%, (ii) Tranche B Term Loans, 1.75% or (iii) Tranche C Term Loans or Tranche D Term Loans, 2.00%. -12- (b) Subject to the provisions of paragraph (c) below and Section 2.07, the Loans comprising each Eurodollar Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus, in the case of (i) Tranche A Term Loans, Revolving Loans or Growth Capital Revolving Loans, 2.25%, (ii) Tranche B Term Loans, 2.75% or (iii) Tranche C Term Loans or Tranche D Term Loans, 3.00%. (c) Subject to the provisions of Section 2.07, Tranche A Term Loans, Tranche B Term Loans, Tranche C Term Loans, Tranche D Term Loans, Revolving Loans, Swingline Loans and Growth Capital Revolving Loans comprising any ABR Borrowing or Eurodollar Borrowing shall bear interest (computed as set forth in paragraph (a) or (b) above, as applicable) for any date on or after the date of the Borrower's delivery to the Administrative Agent of the Borrower's consolidated financial statements for the second full fiscal quarter of the Borrower commencing after the Closing Date, at a rate per annum equal to the Alternate Base Rate or the Adjusted LIBO Rate, as applicable, plus the ABR Margin or the LIBOR Margin, as applicable, effective for such date as set forth on Schedule A. (d) Interest on each Loan shall be payable on the Interest Payment Dates applicable to such Loan except as otherwise provided in this Agreement. The applicable Alternate Base Rate or Adjusted LIBO Rate for each Interest Period or day within an Interest Period, as the case may be, shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. The Administrative Agent shall give the Borrower prompt notice of each such determination." 15. Section 2.09 of the Credit Agreement is hereby amended by deleting clauses (a) and (c) thereof in their entirety and by inserting in lieu thereof the following new clauses (a) and (c), respectively: "(a) (i) The Tranche A Term Loan Commitments, Tranche B Term Loan Commitments and Tranche C Term Loan Commitments shall be automatically and permanently terminated at 5:00 p.m., New York City time, on the Closing Date. The Tranche D Term Loan Commitments shall be automatically and permanently (x) reduced at 5:00 p.m., New York City time, on each date on which Tranche D Term Loans are incurred (after giving effect to the making of Tranche D Term Loans on such date), in an amount equal to the aggregate principal amount of Tranche D Term Loans incurred on such date, (y) terminated at 5:00 p.m., New York City time, in their entirety on the date occurring on the earlier of (A) six calendar months after the First Amendment Effective Date and (B) the second Tranche D Term Loan Borrowing Date, in each case, after giving effect to the making of any Tranche D Term Loans on or prior to such date and (z) prior to the termination of the Tranche D Term Loan Commitments as provided in preceding clause (y), be reduced from time to time to -13- the extent required by Section 2.11. The Total Revolving Credit Commitment shall be automatically and permanently terminated at 5:00 p.m., New York City time, on the Revolving Credit Maturity Date. The Total Growth Capital Commitment shall be automatically and permanently terminated at 5:00 p.m., New York City time, on the Growth Capital Maturity Date. (ii) The Commitments (and the Term Commitments, Revolving Credit Commitments, Growth Capital Commitments, Swingline Loan Commitment and Revolving L/C Commitment of each Lender) shall terminate in their entirety on March 31, 1998 unless the Closing Date shall have occurred on or prior to such date." "(c) In addition to any other mandatory commitment reductions pursuant to this Section 2.09, on each date after the Closing Date upon which a mandatory prepayment of Term Loans pursuant to Section 2.12(c) and/or (d) is required (and exceeds in amount the aggregate principal amount of Term Loans then outstanding) or would be required if Term Loans were then outstanding, the amount required to be applied pursuant to said Section (determined as if an unlimited amount of Term Loans were actually outstanding) in excess of the aggregate principal amount of Term Loans then outstanding shall be applied (x) first, to permanently reduce the Total Tranche D Term Loan Commitment as then in effect, (y) second, to the extent in excess of the amount pursuant to preceding clause (x), to permanently reduce the Total Growth Capital Commitment as then in effect and (z) third, to the extent in excess of the amount applied pursuant to preceding clauses (x) and (y), to permanently reduce the Total Revolving Credit Commitment." 16. Section 2.10 of the Credit Agreement is hereby amended by deleting clause (viii) thereof in its entirety and by inserting in lieu thereof the following new clause (viii): "(viii) (A) with respect to each Tranche (other than Tranche D Term Loans), prior to the earlier of (i) the 35th day after the Closing Date and (ii) the Syndication Date, conversions of ABR Loans into Eurodollar Loans may only be made if the conversion is effective on the fifth day after the Closing Date and otherwise in accordance with Section 2.02(b) and (B) with respect to Tranche D Term Loans, prior to the earlier of (i) the 35th day after the First Amendment Effective Date and (ii) the Tranche D Syndication Date, conversions of ABR Loans into Eurodollar Loans may only be made if the conversion is effective on the fifth day after the First Amendment Effective Date and otherwise in accordance with Section 2.02(b)." 17. Section 2.11 of the Credit Agreement is hereby amended by (i) in clause (a)(iii) thereof, deleting the parenthetical contained therein and by inserting in lieu thereof the following new parenthetical: "(each such date being called a "Tranche C Term Loan Installment Date")", -14- (ii) inserting, immediately after the amortization table contained in clause (a)(iii) thereof, the following new clause (iv): "(iv) The Tranche D Term Borrowings shall be payable as to principal in the amounts and on the dates set forth below (each such date being called a "Tranche D Term Loan Installment Date" and, together with the Tranche A Term Loan Installment Dates, the Tranche B Term Loan Installment Dates and the Tranche C Term Loan Installment Dates, the "Installment Dates"): Tranche D Term Loan Date Amount March 31, 1999 $ 437,500 June 30, 1999 $ 437,500 September 30, 1999 $ 437,500 December 31, 1999 $ 437,500 March 31, 2000 $ 437,500 June 30, 2000 $ 437,500 September 30, 2000 $ 437,500 December 31, 2000 $ 437,500 March 31, 2001 $ 437,500 June 30, 2001 $ 437,500 September 30, 2001 $ 437,500 December 31, 2001 $ 437,500 March 31, 2002 $ 437,500 June 30, 2002 $ 437,500 September 30, 2002 $ 437,500 December 31, 2002 $ 437,500 March 31, 2003 $ 437,500 June 30, 2003 $ 437,500 September 30, 2003 $ 437,500 December 31, 2003 $ 437,500 March 31, 2004 $ 437,500 June 30, 2004 $ 437,500 September 30, 2004 $ 437,500 December 31, 2004 $ 437,500 March 31, 2005 $ 437,500 June 30, 2005 $ 437,500 September 30, 2005 $ 437,500 December 31, 2005 $ 437,500 March 31, 2006 $40,687,500 June 30, 2006 $40,687,500 September 30, 2006 $40,687,500 January 31, 2007 $40,687,500 ; provided that in the event the aggregate principal amount of Tranche D Term Loans incurred (irrespective of any repayments or prepayments of any such Tranche D Term Loans) at the time that the Tranche D Term Loan Commitments are terminated in accordance with Section 2.09 is less than $175,000,000, an amount equal to such difference shall be applied to reduce the then remaining -15- scheduled installments (as determined on the date the Tranche D Term Loan Commitments are terminated) set forth above in the table above pro rata based on the then remaining principal amount of each such amount.", (iii) deleting clause (b) thereof in its entirety and by inserting in lieu thereof the following new clause (b): "(b) Except as set forth in paragraphs (c) and (d) below, (i) all Net Proceeds, Capital Call Contributions and Excess Cash Flow to be applied at any time to prepay Term Borrowings pursuant to Sections 2.12(c) and (d), respectively, shall be applied to the Tranche A Term Borrowings, Tranche B Term Borrowings, Tranche C Term Borrowings and Tranche D Term Borrowings ratably in accordance with the respective principal amounts outstanding thereof; and (ii) each prepayment of principal of the Term Borrowings pursuant to Section 2.12(a) shall be applied to the Tranche A Term Borrowings, the Tranche B Term Borrowings, the Tranche C Term Borrowings and the Tranche D Term Borrowings ratably in accordance with the respective outstanding principal amounts thereof. Such prepayments made pursuant to Section 2.12(a) and prepayments made pursuant to Section 2.12(d) shall reduce scheduled payments required under paragraph (a) above, of the respective Tranches of Term Loans required to be repaid, after the date of such prepayment in the scheduled order of maturity and such prepayments made pursuant to Section 2.12(c) shall reduce scheduled payments required under paragraph (a) above, of the respective Tranches of Term Loans required to be repaid, after the date of such prepayment on a pro rata basis. To the extent not previously paid, all Tranche A Term Borrowings shall be due and payable on the Tranche A Maturity Date, all Tranche B Term Borrowings shall be due and payable on the Tranche B Maturity Date, all Tranche C Term Borrowings shall be due and payable on the Tranche C Maturity Date and all Tranche D Term Borrowings shall be due and payable on the Tranche D Maturity Date. Each payment of Borrowings pursuant to this Section 2.11 shall be accompanied by accrued interest on the principal amount paid to but excluding the date of payment." and (iv) deleting clause (d) thereof in its entirety and by inserting in lieu thereof the following new clause (d): "(d) Any Lender holding Tranche B Term Loans, Tranche C Term Loans or Tranche D Term Loans may, to the extent Tranche A Term Borrowings are outstanding, elect on not less than one Business Day's prior written notice to the Administrative Agent with respect to (i) any optional prepayment made pursuant to -16- Section 2.12(a), if the Borrower shall have consented to the availability of such election pursuant to this Section 2.11(d), or (ii) any mandatory prepayment made pursuant to Section 2.12(c) or (d), not to have such prepayment applied to such Lender's Tranche B Term Loans, Tranche C Term Loans or Tranche D Term Loans, as the case may be, until all Tranche A Term Borrowings shall have been paid in full, in which case the amount not so applied shall be applied to prepay Tranche A Term Borrowings, and shall reduce scheduled payments under Section 2.11(a) after the date of any prepayment on the same basis as is provided for the respective types of payments pursuant to Section 2.11(b)." 18. Section 2.12(c) of the Credit Agreement is hereby amended by deleting said Section in its entirety and inserting in lieu thereof the following new Section 2.12(c): "(c) The Borrower shall apply all Net Proceeds and Capital Call Contributions promptly upon receipt thereof by Holdings, the Borrower or any of their Subsidiaries to prepay Term Borrowings in accordance with paragraphs (b) and (d) of Section 2.11, provided that to the extent Capital Call Contributions are required by the express terms of the Capital Call Agreement to be applied to outstanding obligations pursuant to this Agreement in a manner different from that provided above in this Section 2.12(c), such Capital Call Contributions shall be applied in accordance with the express requirements of the Capital Call Agreement." 19. Section 2.21 of the Credit Agreement is hereby amended by deleting the reference to "Revolving Commitment" therein and by inserting in lieu thereof a reference to "Revolving Credit Commitment". 20. Article III of the Credit Agreement is hereby amended by adding the following new section at the end thereof: "SECTION 3.25 Year 2000. Except to the extent the failure to do so, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, each of Holdings, the Borrower and each of their respective Subsidiaries has taken (or is taking) all reasonable measures (including reprogramming, remediation, internal testing and other corrective action) to ensure that all of its Information Systems and Equipment are Year 2000 Compliant. Furthermore, to the extent that such reprogramming, remediation, testing or other corrective action is required, the cost thereof, as well as the cost of the reasonably foreseeable consequences of failure of such Information Systems and Equipment to become Year 2000 Compliant, to Holdings and its Subsidiaries (including, without limitation, reprogramming errors and the failure of other systems or equipment) could not reasonably result in a Material Adverse Effect." -17- 21. Section 4.01 of the Credit Agreement is hereby amended by (i) inserting, immediately after clause (c) thereof, the following new clause (d): "(d) In the event of any Tranche D Term Borrowings, to the best of the knowledge of Holdings and the Borrower (in each case, after due inquiry), no Capital Call Event (as defined in the Capital Call Agreement) shall have theretofore occurred." and (ii) deleting the penultimate sentence thereof and inserting in lieu thereof the following new sentence: "Each Borrowing (including without limitation each Tranche D Term Borrowing) and each issuance of a Letter of Credit (except those specified in the parenthetical contained in the introductory paragraph of this Section 4.01) shall be deemed to constitute a representation and warranty by the Borrower on the date of such Borrowing or issuance, as the case may be, as to the matters specified in paragraphs (b) and (c) of this Section 4.01 and, with respect to any Tranche D Term Borrowings, as to the matter specified in paragraph (d) of this Section 4.01." 22. Section 6.01 of the Credit Agreement is hereby amended by (i) deleting clause (a) thereof and inserting in lieu thereof the following new clause (a): "(a) Indebtedness existing on the date hereof and set forth in Schedule 6.01, but not any extensions, renewals or replacements of such Indebtedness except (i) renewals and extensions expressly provided for in the agreements evidencing any such Indebtedness as the same are in effect on the date of this Agreement and (ii) refinancings and extensions of any such Indebtedness if the average life to maturity thereof is greater than or equal to that of the Indebtedness being refinanced or extended, provided that such extending, renewal or replacement Indebtedness shall not be (A) Indebtedness of an obligor that was not an obligor with respect to the Indebtedness being extended, renewed or refinanced or (B) in a principal amount which exceeds the Indebtedness being renewed, extended or refinanced (plus unpaid accrued interest and premium thereon), provided, further, that, for purposes of preceding sub-clause (ii), refinancings of Indebtedness thereunder shall include, with respect to any Indebtedness existing on the date hereof and set forth in Schedule 6.01 and which constitutes Converted Foreign Debt, incurrence of Indebtedness which would otherwise satisfy the requirements of this paragraph (a) of Section 6.01 assuming that such Converted Foreign Debt had not been converted into (or otherwise accounted for as) equity of the obligor and that such Converted Foreign Debt constitutes the Indebtedness being refinanced and is outstanding on the date of such incurrence of Indebtedness (provided, that no premium, interest, -18- penalties, fees, indemnification, reimbursements, damages or any other liabilities shall be attributable to, or deemed to have accrued or otherwise become due and payable with respect to, any such Converted Foreign Debt);", (ii) in clause (j) thereof, (x) deleting the phrase "paragraph (j) shall not at any time outstanding exceed $15,000,000" appearing therein and by inserting in lieu thereof the phrase "paragraph (j) (including the amount of any Permitted Refinancing Indebtedness incurred pursuant to the last parenthetical of this paragraph (j) of Section 6.01) shall not at any time outstanding exceed $25,000,000 (plus, upon the assumption of the Assumed Note by a Subsidiary of the Borrower, an amount equal to the aggregate principal amount (not to exceed 106,229,000 French francs) of the Assumed Note)" and (y) inserting the following parenthetical at the end thereof: "(it being understood and agreed that Permitted Refinancing Indebtedness incurred to refinance Indebtedness otherwise permitted under this paragraph (j), or refinancings thereof previously effected pursuant to this parenthetical, shall be permitted)", (iii) in clause (o) thereof, changing the reference therein to "$20,000,000" to "$50,000,000", (iv) deleting clause (v) thereof and inserting in lieu thereof the following new clause (v): "(v) Indebtedness of any Foreign Subsidiary that is a Subsidiary of the Borrower (which Subsidiary must be a Wholly Owned Subsidiary of the Borrower to the extent the aggregate principal amount of Indebtedness at any time outstanding pursuant to this clause (v) exceeds $30,000,000) to the Borrower or any domestic Subsidiary of the Borrower (which domestic Subsidiary must be a Wholly Owned Subsidiary of the Borrower to the extent the aggregate principal amount of Indebtedness at any time outstanding pursuant to this clause (v) exceeds $30,000,000) in an aggregate principal amount outstanding at any time not in excess of the higher of (i) $30,000,000 and (ii) the aggregate principal amount of Indebtedness necessary or desirable (as determined in good faith by the Borrower and such Foreign Subsidiary) to be incurred by such Foreign Subsidiary in connection with the consummation of the Designated Business Acquisitions; provided that if the Administrative Agent or Required Lenders so request, any such Indebtedness shall be evidenced by a promissory note which shall be in form and substance satisfactory to the Administrative Agent and which shall be pledged pursuant to the Pledge Agreement (so long as such pledge would not result in adverse tax consequences to Holdings, the Borrower or the applicable Subsidiary); it being understood and agreed that to the extent any Indebtedness incurred under this paragraph (v) of Section 6.01 in connection with the Designated Business Acquisitions constitutes at any time or from time to time Converted Foreign Debt, incurrence of Indebtedness shall be permitted hereunder to refinance such Converted Foreign Debt (assuming for purposes of succeeding clauses (i) through (iv), inclusive, that such Converted Foreign Debt had not been converted into (or otherwise accounted for as) equity of the obligor), provided that (i) the principal amount -19- of such refinancings does not exceed the principal amount of such Converted Foreign Debt, (ii) the average life to maturity of such refinancings is greater than or equal to that of such Converted Foreign Debt, (iii) if the Converted Foreign Debt is subordinated in right of payment to the Obligations under this Agreement, such refinancing shall be subordinated in right of payment to such Obligations on terms at least as favorable to the Lenders as those contained in the documentation governing the Converted Foreign Debt and (iv) no refinancings shall have different obligors or obligees (i.e., the obligees shall be the Borrower or any domestic Subsidiary of the Borrower (which domestic Subsidiary must be a Wholly Owned Subsidiary of the Borrower to the extent the aggregate principal amount of Indebtedness at any time outstanding pursuant to this clause (v) exceeds $30,000,000)), or greater guarantees or security, than the Converted Foreign Debt, provided, further, no premium, interest, penalties, fees, indemnification, reimbursements, damages or any other liabilities shall be attributable to, or deemed to have accrued or otherwise become due and payable with respect to, any such Converted Foreign Debt;", (v) redesignating clause "(w)" thereof as clause "(x)" thereof and changing the reference therein to clause "(v)" to "(w)" and (vi) inserting, immediately after clause (v) thereof, the following new clause: "(w) Indebtedness of the Borrower and its domestic Subsidiaries in respect of one or more IRB Financings so long as (i) the aggregate outstanding principal amount thereof does not at any time exceed $30,000,000 (as reduced by any repayments of principal thereof), (ii) such Indebtedness is incurred on or before the date occurring eighteen calendar months after the First Amendment Effective Date, (iii) no Default or Event of Default exists at the time of the incurrence of the respective IRB Financing or would result therefrom and (iv) all of the terms and conditions of the respective IRB Financing Documents (as well as the structure of the respective IRB Financing) are in form and substance satisfactory to the Administrative Agent (it being understood and agreed that promptly (A) upon any increase in the aggregate outstanding principal amount of IRB Financings from time to time on or before the date occurring eighteen calendar months after the First Amendment Effective Date or (B) upon request of the Administrative Agent, the Borrower shall deliver a certificate to the Administrative Agent, signed by a Responsible Officer of the Borrower and certifying as to (1) the aggregate principal amount of all IRB Financings theretofore incurred by the Borrower and its domestic Subsidiaries (irrespective of any repayments or prepayments of any such IRB Financings) and (2) if different than the amount set forth in immediately preceding sub-clause, the then aggregate outstanding principal amount of such IRB Financings); and". -20- 23. Section 6.02(d) of the Credit Agreement is hereby amended by inserting, immediately after the first reference therein to "Indebtedness", the following parenthetical: "(or Permitted Refinancing Indebtedness, in which case any such Lien shall be permitted subject to compliance with clause (iv) of the definition of Permitted Refinancing Indebtedness contained herein)". 24. Section 6.04 of the Credit Agreement is hereby amended by (i) in clause (k) thereof, changing the reference therein to "$20,000,000" to "$25,000,000", (ii) in clause (l) thereof, inserting the following parenthetical at the end thereof: "(it being understood and agreed that investments by the Borrower and its Subsidiaries in Foreign Subsidiaries that are Wholly Owned Subsidiaries of the Borrower shall be permitted to the extent necessary or desirable (as determined in good faith by the Borrower) to be made in connection with the Designated Business Acquisitions)", (iii) in clause (m) thereof, inserting, immediately after the reference to "Designated Capital Contributions" therein, the phrase "and Capital Call Contributions", (iv) in clause (r) thereof, deleting the word "and" at the end thereof and (v) inserting, immediately after clause (r) thereof, the following new clause: "(s) investments constituting Converted Foreign Debt permitted under Sections 6.01(a) and/or (v); and". 25. Section 6.07 of the Credit Agreement is hereby amended by (i) deleting clause (a) thereof and inserting in lieu thereof the following new clause (a): "(a) Sell or transfer any property or assets to, or purchase or acquire any property or assets from, or otherwise engage in any other transaction with, any of its Affiliates or any known direct or indirect holder of 10% or more of any class of capital stock of Holdings, unless such transaction forms a part of the Recapitalization or is (i) otherwise permitted (or required) under this Agreement or the Capital Call Agreement and (ii) upon terms no less favorable to Holdings, the Borrower or such Subsidiary, as the case may be, than it would obtain in a comparable arm's-length transaction with a person which was not an Affiliate, provided that the foregoing restriction shall not apply to (A) the payment to the Fund or any of its Affiliates or the Fund Affiliates of the monitoring and management fees referred to in paragraph (c) below or fees payable on the Closing Date or (B) the indemnification of directors of Holdings, the Borrower and their Subsidiaries in accordance with customary practice." and (ii) in clause (b) thereof, deleting sub-clause (viii) thereof in its entirety and inserting in lieu thereof the following new sub-clause (viii): -21- "(viii) any purchase by the Investors or the Continuing Partners of Equity Interests of Holdings or Investor LP (whether pursuant to the Capital Call Agreement or otherwise) or any purchase by Holdings of Equity Interests of the Borrower or any contribution by Holdings to the equity capital of the Borrower, provided that any Equity Interests of the Borrower purchased by Holdings shall be pledged to the Collateral Agent on behalf of the Lenders pursuant to the Pledge Agreement,". 26. Section 6.09 of the Credit Agreement is hereby amended by (i) in clause (b)(i) thereof, inserting, immediately before the phrase "any Holdings Discount Notes", the phrase "any IRB Financings (without the prior written consent of the Administrative Agent)," and (ii) in clause (b)(ii) thereof, (x) inserting, immediately before the first reference to the phrase "any Holdings Discount Notes", the phrase "any IRB Financings (without the prior written consent of the Administrative Agent)," and (y) inserting, immediately before the phrase "any Holdings Discount Notes Document", the phrase "any of the respective IRB Financing Documents,". 27. Section 6.10(a) of the Credit Agreement is hereby amended by deleting said Section in its entirety and inserting in lieu thereof the following new Section 6.10(a): "(a) (x) During the period (taken as one accounting period) from the Closing Date through and including December 31, 1998, the Borrower and its Subsidiaries may make Capital Expenditures in an aggregate amount not to exceed $200,000,000 and (y) during any fiscal year thereafter the Borrower and its Subsidiaries may make Capital Expenditures so long as the aggregate amount thereof does not exceed the amount set forth opposite such fiscal year below (provided that the amounts for such fiscal years set forth in clauses (x) and (y) hereof shall be reduced by any amounts used to make Permitted Business Acquisitions pursuant to clause (x) of the proviso to the definition of Permitted Business Acquisition Amount): Year Amount 1999 $140,000,000 2000 $110,000,000 2001 $ 90,000,000 2002 and each fiscal $ 80,000,000". year thereafter 28. Section 6.11 of the Credit Agreement is hereby amended by inserting, immediately after the phrase "December 31, 1998, multiplied by 4/3" appearing therein, the following additional proviso: -22- ", provided, further, to the extent any Asset Disposition or any Permitted Business Acquisition (or any similar transaction or transactions which require a waiver or a consent of the Required Lenders pursuant to Section 6.05) has occurred during the relevant Test Period, the Interest Coverage Ratio shall be determined for the respective Test Period on a Pro Forma Basis for such occurrences". 29. Section 7.01 of the Credit Agreement is hereby amended by (i) deleting the word "or" appearing at the end of clause (k) thereof, (ii) inserting the word "or" at the end of clause (l) thereof and (iii) inserting, immediately after clause (l) thereof, the following new clause (m): "(m) (i) the Capital Call Agreement or any material provision thereof shall cease to be in full force and effect, or Blackstone Capital Partners, Blackstone Offshore Partners, Blackstone Family Partnership, Investor LP, any Loan Party or any person acting by or on behalf of Blackstone Capital Partners, Blackstone Offshore Partners, Blackstone Family Partnership, Investor LP or any such Loan Party shall deny or disaffirm in writing its obligations under the Capital Call Agreement or Blackstone Capital Partners, Blackstone Offshore Partners, Blackstone Family Partnership, Investor LP, any Loan Party or any person acting on or behalf of Blackstone Capital Partners, Blackstone Offshore Partners, Blackstone Family Partnership, Investor LP or any such Loan Party shall default in the due performance or observance of any term, covenant or agreement on its part to be performed or observed pursuant to the Capital Call Agreement and such default shall continue unremedied for a period of 10 days or (ii) any representation, warranty or statement made (or deemed made) by Blackstone Capital Partners, Blackstone Offshore Partners, Blackstone Family Partnership or Investor LP in the Capital Call Agreement shall prove to be false or misleading in any material respect on the date as of which made or deemed made;". 30. Section 7.02 of the Credit Agreement is hereby amended by adding the following new clause (c) immediately at the end thereof: "(c) Limitation Regarding Capital Call Agreement. Notwithstanding anything herein to the contrary, it is understood and agreed that any increases to EBITDA pursuant to Section 7.02(a) shall have no effect (and shall not increase EBITDA) in measuring Financial Performance Covenants for purposes of determining compliance with the Capital Call Agreement." 31. Section 9.18 of the Credit Agreement is hereby amended by deleting the references to "(except, if any such Holdings Partner is a Loan Party, for such Loan Party's obligations under the Loan Documents)" appearing in clauses (a) and (b) thereof and by inserting in -23- lieu of each reference thereto a reference to "(except, if any such Holdings Partner is a Loan Party or is otherwise a party to any Loan Documents, for such person's obligations under such Loan Documents)". 32. The Credit Agreement is hereby amended by deleting Schedules A and 2.01 thereto in their entirety and by inserting in lieu thereof new Schedules A and 2.01, respectively, in the form of the respective such Schedules attached hereto. 33. The Credit Agreement is hereby amended by (i) deleting Exhibits A and B thereto in their entirety and by inserting in lieu thereof new Exhibits A and B, respectively, in the forms of the respective such Exhibits attached hereto and (ii) inserting new Exhibit K in the form of Exhibit K attached hereto. II. Acknowledgment with respect to Various Loan Documents. 1. For avoidance of doubt, the Borrower hereby acknowledges and confirms its due execution and delivery of all Loan Documents (each Loan Document as amended, modified or supplemented through and including the date hereof), including all instruments, financing statements, agreements, certificates and documents executed and delivered in connection therewith, and hereby ratifies all actions heretofore taken in connection therewith. 2. Each Loan Party, by its execution and delivery of a copy of this First Amendment, hereby consents to the extensions of credit pursuant to the Credit Agreement. Each Loan Party further acknowledges and agrees to the provisions of this First Amendment and hereby agrees for the benefit of the Lenders that all extensions of credit (including without limitation all Tranche D Term Loans) pursuant to the Credit Agreement (as same is amended by this First Amendment, and as same may be further amended, modified or supplemented from time to time) shall be fully entitled to all benefits of (and shall be fully guaranteed pursuant to) each of the Guarantee Agreements and shall be fully secured pursuant to, and in accordance with the terms of, all the Security Documents. III. Miscellaneous. 1. In order to induce the Lenders to enter into this First Amendment, each of Holdings and the Borrower hereby represents and warrants to each of the Lenders that (i) all representations and warranties contained in Section 3 of the Credit Agreement and in the other Loan Documents are true and correct in all material respects on and as of the First Amendment Effective Date and after giving effect to this First Amendment (unless such representations and warranties relate to a specific earlier date, in which case such representations and warranties shall be true and correct as of such earlier date) and (ii) there exists -24- no Default or Event of Default on the First Amendment Effective Date after giving effect to this First Amendment. 2. This First Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Loan Document. 3. This First Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Company and the Administrative Agent. 4. THIS FIRST AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 5. This First Amendment shall become effective on the date (the "First Amendment Effective Date") when: (a) Each Loan Party (including, without limitation, Holdings, the Borrower, the Co-Borrower and each Subsidiary Guarantor) and the Required Lenders shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by usage of facsimile transmission) same to the Administrative Agent at its office located at 130 Liberty Street, New York, New York; (b) Each of Blackstone Capital Partners, Blackstone Offshore Partners, Blackstone Family Partnership, Investor LP, Holdings and the Borrower shall have signed a counterpart of the Capital Call Agreement (whether the same or different counterparts) and shall have delivered (including by usage of facsimile transmission) same to the Administrative Agent at its office located at 130 Liberty Street, New York, New York, and the Capital Call Agreement shall be in full force and effect on such date and each document (including each Uniform Commercial Code financing statement) required by law or reasonably requested by the Administrative Agent to be filed, registered or recorded in order to create in favor of the Collateral Agent for the benefit of the Secured Parties a valid, legal and perfected first-priority security interest in and lien on the Collateral described in such agreement shall have been delivered to the Collateral Agent; (c) The Administrative Agent shall have received, on behalf of itself, the Syndication Agent, the Documentation Agent, the Collateral Agent, the Lenders and the Fronting Bank, a favorable written opinion, in form and substance satisfactory to the Administrative Agent, of special New York counsel, special Pennsylvania counsel and special Cayman Islands counsel for the various Loan Parties and the other parties (other than -25- the Administrative Agent and the Collateral Agent) to the Capital Call Agreement (each of which counsel shall be reasonably satisfactory to the Administrative Agent), in each case (i) dated the First Amendment Effective Date, (ii) addressed to the Fronting Bank, the Administrative Agent, the Syndication Agent, the Collateral Agent, the Documentation Agent and the Lenders and (iii) covering such matters incident to this First Amendment, the Capital Call Agreement and the transactions contemplated herein and therein as the Administrative Agent and the Required Lenders may reasonably request; (d) All legal matters incident to this First Amendment (including the borrowings and extensions of credit pursuant to the Credit Agreement as amended hereby), the Capital Call Agreement and the other Loan Documents shall be reasonably satisfactory to the Administrative Agent and the Required Lenders; (e) With respect to the Loan Parties, the Administrative Agent shall have received each of the following items: (i) a certificate of the Secretary or Assistant Secretary of each Loan Party dated the First Amendment Effective Date and certifying (x) that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors (or equivalent governing body) of such Loan Party (or, its managing general partner or managing member) authorizing the execution, delivery and performance of this First Amendment (and the Capital Call Agreement, in the case of Holdings and the Borrower) and the consummation of the transactions contemplated hereby, and that such resolutions have not been modified, rescinded or amended and are in full force and effect and (y) as to the incumbency and specimen signature of each officer executing this First Amendment (and the Capital Call Agreement, in the case of Holdings and the Borrower) on behalf of such Loan Party, (ii) a certificate of another officer as to the incumbency and specimen signature of the Secretary or Assistant Secretary executing the certificate pursuant to preceding clause (i), (iii) in the case of Holdings and the Borrower, a certificate as to the good standing of such person as of a recent date from the Secretary of State of the Commonwealth of Pennsylvania or the State of Delaware, as the case may be, and (iv) such other documents as the Administrative Agent and the Required Lenders may reasonably request, and all of the foregoing shall be reasonably acceptable to the Administrative Agent in its reasonable discretion; (f) With respect to each of Blackstone Capital Partners, Blackstone Offshore Partners, Blackstone Family Partnership and Investor LP, each of the following items shall have been made available (and be satisfactory) to the Administrative Agent: (i) a true and complete copy of the certificate or articles of incorporation, partnership agreement -26- or other constituent documents, including all amendments thereto, of such person, (x) in the case of a corporation, certified as of a recent date by the Secretary of State of the state of its organization, or (y) in the case of a partnership, certified by an authorized person of such person and (ii) a true and complete copy of the by-laws (or partnership agreement or other equivalent governing documents) of such person as in effect on the First Amendment Effective Date and at all times since a date prior to the date of the resolutions described in succeeding clause (g); (g) With respect to each of Blackstone Capital Partners, Blackstone Offshore Partners, Blackstone Family Partnership and Investor LP, the Administrative Agent shall have received each of the following items: (i) a certificate of an authorized person of such person dated the First Amendment Effective Date and certifying (x) that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors (or equivalent governing body) of such person (or, its managing general partner or managing member) authorizing the execution, delivery and performance of the Capital Call Agreement to which such person is a party and that such resolutions have not been modified, rescinded or amended and are in full force and effect, (y) that the certificate or articles of incorporation, partnership agreement or other constituent documents and by-laws of such person made available pursuant to clause (f) above have not been amended since the date of the last amendment thereto disclosed and (z) as to the incumbency and specimen signature of each person executing the Capital Call Agreement or any other document delivered in connection herewith on behalf of such person, (ii) a certificate of another authorized person as to the incumbency and specimen signature of the authorized person executing the certificate pursuant to (i) above, (iii) a certificate as to the good standing of such person as of a recent date from the applicable Governmental Authority and (iv) such other documents as the Administrative Agent and the Required Lenders may reasonably request, and all of the foregoing shall be reasonably acceptable to the Administrative Agent in its reasonable discretion; (h) The Administrative Agent shall have received a certificate of the Borrower, dated the First Amendment Effective Date and signed by the Borrower, confirming compliance with the conditions precedent set forth in paragraphs (b), (c) and (d) of Section 4.01; and (i) The Collateral Agent shall have received (i) fully executed counterparts of amendments (the "Mortgage Amendments"), in form and substance satisfactory to the Administrative Agent and the Required Lenders, to each of the Mortgages, together with evidence that counterparts of each of the Mortgage Amendments have been delivered to the title insurance company insuring the Lien of the Mortgages for recording in all places -27- to the extent necessary or, in the reasonable opinion of the Collateral Agent, desirable to effectively maintain a valid and enforceable first priority (subject to any Lien expressly permitted by Section 6.02 of the Credit Agreement) mortgage lien on each Mortgaged Property in favor of the Collateral Agent (or such other trustee as may be required or desired under local law) for the benefit of the Secured Parties, (ii) endorsements of the authorized issuing agent for title insurers reasonably satisfactory to the Collateral Agent to each policy or policies of title insurance relating to the Mortgages Properties assuring the Collateral Agent that each Mortgage is a valid and enforceable first priority mortgage lien on the respective Mortgaged Property, free and clear of all defects and encumbrances (except any Lien expressly permitted by Section 6.02 of the Credit Agreement) and (iii) such other documents as the Administrative Agent and the Required Lenders may reasonably request, and all of the foregoing shall be reasonably acceptable to the Administrative Agent in its reasonable discretion. Unless the Administrative Agent has received actual notice from any Lender that the conditions contained in this Section 5 of Part III have not been met to its satisfaction, upon the satisfaction of the conditions described in clauses (a) and (b) above and upon the Administrative Agent's good faith determination that the conditions described in clauses (c) through (i), inclusive, above have been met, then the First Amendment Effective Date shall have been deemed to have occurred, regardless of any subsequent determination that one or more of the conditions thereto had not been met (although the occurrence of the First Amendment Effective Date shall not release Holdings, the Borrower, any other Loan Party or any other relevant person from any liability for failure to satisfy one or more of the applicable conditions contained in this Section 5 of Part III). The Administrative Agent will give the Borrower and each Lender prompt written notice of the occurrence of the First Amendment Effective Date. 6. Promptly following any request from the Administrative Agent (and in any event within 60 days after receiving any such request), Holdings, the Borrower, the Co-Borrower and the other Loan Parties shall take such action or actions as may be reasonably requested by the Administrative Agent to protect and preserve any security interests created, or intended to be created, pursuant to the various Security Documents (including without limitation the Capital Call Agreement). It is understood and agreed by the parties hereto that the provisions of this Section 6 of Part III shall constitute a covenant and agreement for purposes of the Credit Agreement. 7. From and after the First Amendment Effective Date, all references in the Credit Agreement and each of the Loan Documents to the Credit Agreement shall be deemed to be references to the Credit Agreement as amended hereby. * * * -28- IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed by their respective authorized officers as of the day and year first above written. GRAHAM PACKAGING HOLDINGS COMPANY By: BCP/Graham Holdings L.L.C., its general partner By: /s/ John E. Hamilton ___________________________________ Name: John E. Hamilton Title: GRAHAM PACKAGING COMPANY By: GPC Opco GP LLC, its general partner By: /s/ John E. Hamilton ___________________________________ Name: John E. Hamilton Title: GPC CAPITAL CORP. I By: /s/ John E. Hamilton ___________________________________ Name: John E. Hamilton Title: BANKERS TRUST COMPANY, Individually, as Administrative Agent, as Syndication Agent and as Fronting Bank By: /s/ Mary Kay Coyle ___________________________________ Name: Mary Kay Coyle Title: Managing Director NATIONSBANK, N.A., Individually and as Documentation Agent By: /s/ Philip Durand ___________________________________ Name: Philip Durand Title: Vice President -29- ABN AMRO BANK, NV By: /s/ Roy D. Hasbrook ___________________________________ Name: Roy D. Hasbrook Title: Group Vice President and Director By: /s/ Louis K. McLinden, Jr. ___________________________________ Name: Louis K. McLinden, Jr. Title: Vice President AG CAPITAL FUNDING PARTNERS L.P. By: Angello Gordon & Co., L.P., as Investment Advisor By: /s/ Jeffrey H. Aronson ___________________________________ Name: Jeffrey H. Aronson Title: Managing Director ALLIANCE CAPITAL MANAGEMENT L.P., as Manager on behalf of ALLIANCE CAPITAL FUNDING, L.L.C. By: ALLIANCE CAPITAL MANAGEMENT CORPORATION, General Partner of Alliance Capital Management L.P. By: /s/ Kenneth G. Ostmann ___________________________________ Name: Kenneth G. Ostmann Title: Vice President AMARA-I FINANCE LIMITED By: /s/ Ian David Moore ___________________________________ Name: Ian David Moore Title: Director ARCHIMEDES FUNDING, L.L.C. By: ING Capital Advisors, Inc., as Collateral Manager By: /s/ Michael D. Hatley ___________________________________ Name: Michael D. Hatley Title: Senior Vice President -30- ARES LEVERAGED INVESTMENT FUND, L.P. By: Ares Management, L.P. General Partner By: /s/ Merritt S. Hooper ___________________________________ Name: Merritt S. Hooper Title: Vice President THE BANK OF NOVA SCOTIA By: /s/ J. Alan Edwards ___________________________________ Name: J. Alan Edwards Title: Authorized Signatory BANK OF TOKYO-MITSUBISHI TRUST COMPANY By: /s/ Nicholas J. Campbell ___________________________________ Name: Nicholas J. Campbell Title: Vice President THE CHASE MANHATTAN BANK By: /s/ Robert T. Sacks ___________________________________ Name: Robert T. Sacks Title: Managing Director CIBC, INC. By: /s/ Frank Fiorito ___________________________________ Name: Frank Fiorito Title: Authorized Signatory -31- CREDIT AGRICOLE INDOSUEZ By: /s/ Craig Welch ___________________________________ Name: Craig Welch Title: First Vice President By: /s/ Sarah McClintock ___________________________________ Name: Sarah McClintock Title: Vice President & Team Leader CONTINENTAL ASSURANCE COMPANY SEPARATE ACCOUNT (E) By: TCW Asset Management Company as Attorney-in-Fact By: /s/ Mark L. Gold ___________________________________ Name: Mark L. Gold Title: Managing Director By: /s/ Justin L. Driscoll ___________________________________ Name: Justin L. Driscoll Title: Senior Vice President CREDIT LYONNAIS, NEW YORK BRANCH By: /s/ Attila Koc ___________________________________ Name: Attila Koc Title: First Vice President CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC. As: Attorney-in-Fact and on behalf on First Allmerica Financial Life Insurance Company as Portfolio Manager By: /s/ Catherine C. McDermott ___________________________________ Name: Catherine C. McDermott Title: Principal -32- CYPRESSTREE INVESTMENT PARTNERS I, LTD. By: CypressTree Investment Management Company, Inc., as Portfolio Manager. By: /s/ Catherine C. McDermott ___________________________________ Name: Catherine C. McDermott Title: Principal DEEPROCK & COMPANY By: Eaton Vance Management, as investment advisor By: /s/ Scott H. Page ___________________________________ Name: Scott H. Page Title: Vice President DELANO COMPANY By: PACIFIC INVESTMENT MANAGEMENT COMPANY, as its Investment Advisor By: Illegible ___________________________________ Name: Title: FIRSTRUST BANK By: /s/ Edward D'Ancona ___________________________________ Name: Edward D'Ancona Title: Executive Vice President FIRST DOMINION FUNDING I By: /s/ Andrew H. Marshak ___________________________________ Name: Andrew H. Marshak Title: Authorized Signatory -33- FIRSTUNION NATIONAL BANK, successor by merger to Corestates Bank, N.A. By: /s/ Joan Anderson ___________________________________ Name: Joan Anderson Title: Vice President FRANKLIN FLOATING RATE TRUST By: /s/ Chauncey Lufkin ___________________________________ Name: Chauncey Lufkin Title: Vice President THE FUJI BANK, LTD. By: /s/ Teiji Teramoto ___________________________________ Name: Teiji Teramoto Title: Vice President & Manager GOLDMAN SACHS CREDIT PARTNERS L.P. By: /s/ Stephen B. Kim ___________________________________ Name: Stephen B. Kim Title: Authorized Signatory IMPERIAL BANK, a California banking corporation By: /s/ Ray Vadalma ___________________________________ Name: Ray Vadalma Title: Senior Vice President INDOSUEZ CAPITAL FUNDING IV, L.P. By: INDOSUEZ CAPITAL LUXEMBOURG, as Collateral Manager By: /s/ Denis Sergent ___________________________________ Name: Denis Sergent Title: Authorized Signatory -34- INDOSUEZ CAPITAL FUNDING IIA, LIMITED. By: INDOSUEZ CAPITAL LUXEMBOURG, as Collateral Manager By: /s/ Denis Sergent ___________________________________ Name: Denis Sergent Title: Authorized Signatory KZH-CRESCENT-2 CORPORATION By: /s/ Virginia Conway ___________________________________ Name: Virginia Conway Title: Authorized Agent KZH - CYPRESS TREE - I CORPORATION By: /s/ Virginia Conway ___________________________________ Name: Virginia Conway Title: Authorized Agent KZH HOLDING CORPORATION III By: /s/ Virginia Conway ___________________________________ Name: Virginia Conway Title: Authorized Agent KZH-SOLEIL CORPORATION By: /s/ Virginia Conway ___________________________________ Name: Virginia Conway Title: Authorized Agent THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED, New York Branch By: /s/ Koji Sasayama ___________________________________ Name: Koji Sasayama Title: Deputy General Manager -35- MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY By: /s/ Andrew Dickey ___________________________________ Name: Andrew Dickey Title: Managing Director MASSMUTUAL CORPORATE VALUE PARTNERS LIMITED By: MASSMUTUAL MUTUAL LIFE INSURANCE COMPANY, as Investment Manager By: /s/ Andrew Dickey ___________________________________ Name: Andrew Dickey Title: Managing Director MASSMUTUAL/DARBY CBO LLC By: MASSMUTUAL/DARBY CBO IM INC., as Investment Manager By: /s/ Andrew Dickey ___________________________________ Name: Andrew Dickey Title: Vice President MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY By: /s/ John B. Wheeler ___________________________________ Name: John B. Wheeler Title: Managing Director MASSMUTUAL HIGH YIELD PARTNERS II, L.L.C. By: HYP Management, Inc., as managing member By: /s/ John B. Wheeler ___________________________________ Name: John B. Wheeler Title: Vice President -36- MERRILL LYNCH DEBT STRATEGIES PORTFOLIO By: MERRILL LYNCH ASSET MANAGEMENT L.P, as Investment Advisor By: /s/ Joseph P. Matteo ___________________________________ Name: Joseph P. Matteo Title: Authorized Signatory MERRILL LYNCH GLOBAL INVESTMENT SERIES, INCOME STRATEGIES PORTFOLIO By: MERRILL LYNCH ASSET MANAGEMENT L.P, as Investment Advisor By: /s/ Joseph P. Matteo ___________________________________ Name: Joseph P. Matteo Title: Authorized Signatory MERRILL LYNCH PRIME RATE PORTFOLIO By: MERRILL LYNCH ASSET MANAGEMENT L.P, as Investment Advisor By: /s/ Joseph P. Matteo ___________________________________ Name: Joseph P. Matteo Title: Authorized Signatory MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By: /s/ Joseph P. Matteo ___________________________________ Name: Joseph P. Matteo Title: Authorized Signatory DEBT STRATEGIES FUND III, INC. By: /s/ Joseph P. Matteo ___________________________________ Name: Joseph P. Matteo Title: Authorized Signatory -37- METROPOLITAN LIFE INSURANCE COMPANY By: /s/ James R. Dingler ___________________________________ Name: James R. Dingler Title: Director THE MITSUBISHI TRUST AND BANKING CORPORATION By: /s/ Beatrice E. Kossodo ___________________________________ Name: Beatrice E. Kossodo Title: Senior Vice President ML BCO IV (CAYMAN) By: Highland Capital Management, L.P. as Collateral Manager By: /s/ Mark K. Okada ___________________________________ Name: Mark K. Okada Title: Executive Vice President ML CLO XV PILGRIM AMERICA (CAYMAN) LTD. By: PILGRIM AMERICA INVESTMENTS, INC., as its Investment Manager By: /s/ Jeffrey A. Bakalar ___________________________________ Name: Jeffrey A. Bakalar Title: Vice President MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST By: /s/ Peter Gewirtz ___________________________________ Name: Peter Gewirtz Title: Authorized Signatory -38- NATEXIS BANQUE BFCE By: /s/ Kevin McOwen ___________________________________ Name: Kevin McOwen Title: Assistant Treasurer By: Illegible ___________________________________ Name: Title: NORSE CBO, LTD. By: Peterson Capital Management, LLC as its Investment Advisor By: Peterson Capital Advisors, LLC its Manager and Pursuant to delegated authority By: /s/ Timothy S. Peterson ___________________________________ Name: Timothy S. Peterson Title: President NORTHERN LIFE INSURANCE COMPANY By: ING Capital Advisors Inc., as Investment Advisor By: /s/ Michael D. Hatley ___________________________________ Name: Michael D. Hatley Title: Senior Vice President OAK HILL SECURITIES FUND, L.P. By: Oak Hill Securities by GenPar, L.P. its General Partner By: Oak Hill Securities M.G.P., Inc., its General Partner By: /s/ Scott D. Krase ___________________________________ Name: Scott D. Krase Title: Vice President -39- OCTAGON LOAN TRUST By: Octagon Credit Investors, as manager By: /s/ Joyce C. DeLucca ___________________________________ Name: Joyce C. DeLucca Title: Managing Director Pam Capital Funding LP By: Highland Capital Management, L.P. as Collateral Manager By: /s/ Mark K. Okada ___________________________________ Name: Mark K. Okada Title: Executive Vice President PARIBAS By: /s/ David I. Canavan ___________________________________ Name: David I. Canavan Title: Director PARIBAS By: /s/ Sean Reddington ___________________________________ Name: Sean Reddington Title: Vice President PRESIDENT & FELLOWS OF HARVARD COLLEGE By: /s/ Timothy S. Peterson ___________________________________ Name: Timothy S. Peterson Title: Authorized Signatory By: /s/ Jack Meyer ___________________________________ Name: Jack Meyer Title: President and CEO -40- PRESIDENTIAL LIFE INSURANCE COMPANY By: /s/ Stanley Rubin ___________________________________ Name: Stanley Rubin Title: Senior Vice President THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: /s/ Thomas Cecka ___________________________________ Name: Thomas Cecka Title: Vice President SENIOR DEBT PORTFOLIO By: Boston Management and Research, as Investment Advisor By: /s/ Scott H. Page ___________________________________ Name: Scott H. Page Title: Vice President SOCIETE GENERALE By: /s/ Jerry Parisi ___________________________________ Name: Jerry Parisi Title: Director SOUTHERN PACIFIC BANK By: /s/ Cheryl A. Wasilewski ___________________________________ Name: Cheryl A. Wasilewski Title: Vice President SUMMIT BANK By: /s/ Bruce A. Gray ___________________________________ Name: Bruce A. Gray Title: Vice President -41- THE TRAVELERS INSURANCE COMPANY By: /s/ John W. Petchler ___________________________________ Name: John W. Petchler Title: Second Vice President VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST By: /s/ Jeffrey W. Maillet ___________________________________ Name: Jeffrey W. Maillet Title: Senior Vice President & Director Acknowledged and Agreed: GPC CAPITAL CORP. II GPC OPCO GP LLC GPC CAPITAL CORP. I GRAHAM PACKAGING POLAND, L.P., By: GPC Sub GP LLC, its general partner GRAHAM RECYCLING COMPANY, By: GPC Sub GP LLC, its general partner GRAHAM PACKAGING FRANCE PARTNERS, By: GPC Sub GP LLC, its general partner GRAHAM PACKAGING LATIN AMERICA, LLC GPC SUB GP LLC By: /s/ John E. Hamilton ___________________________________ Name: John E. Hamilton Title: On Behalf of each of the above Subsidiary Guarantors -42- SCHEDULE A
LIBOR Margin ABR Margin for Revolving LIBOR for Revolving ABR Margin Loans, Growth Margin for Loans, Growth for Capital Tranche C Capital Tranche C Revolving LIBOR Term Loans Revolving ABR Margin Term Loans Loans and Margin for and Loans and for and Tranche Tranche A Term Tranche B Tranche D Tranche A Tranche B D Term Commitment Level Net Leverage Ratio Loans Term Loans Term Loans Term Loans Term Loans Loans Fee ------ --------------------- ------------- --------- ---------- ------------ ----------- ---------- --------- 1 Greater than 5.5 to 2.25% 2.75% 3.00% 1.25% 1.75% 2.00 % 0.50% 1.00 2 Greater than 5.0 to 2.00% 2.50% 2.75% 1.00% 1.50% 1.75% 0.50% 1.00 but less than or equal to 5.5 to 1.00 3 Greater than 4.5 to 1.75% 2.25% 2.50% 0.75% 1.25% 1.50% 0.375% 1.00 but less than or equal to 5.0 to 1.00 4 Greater than 4.0 to 1.50% 2.00% 2.25% 0.50% 1.00% 1.25% 0.375% 1.00 but less than or equal to 4.5 to 1.00 5 Greater than 3.5 to 1.25% 1.75% 2.00% 0.25% 0.75% 1.00% 0.25% 1.00 but less than or equal to 4.0 to 1.00 6 Greater than 3.0 to 1.00% 1.50% 1.75% 0.0% 0.50% 0.75 % 0.25% 1.00 but less than or equal to 3.5 to 1.00 7 Greater than 2.5 to 0.75% 1.50% 1.75% 0.0% 0.50% 0.75 % 0.25% 1.00 but less than or equal to 3.0 to 1.00 8 Less than or equal to 0.625% 1.50% 1.75% 0.0% 0.50% 0.75 % 0.20% 2.5 to 1.00
The "LIBOR Margin", the "ABR Margin" and the Commitment Fee for any date shall be determined by reference to the Net Leverage Ratio as of the last day of the fiscal quarter most recently ended as of such date and any change shall become effective upon the delivery to the Administrative Agent of the financial statements to be delivered pursuant to Section 5.04 for the most recently ended fiscal quarter together with a certificate of a Responsible Officer of the Borrower (a) setting forth in -43- reasonable detail the calculation of the Net Leverage Ratio for the end of such fiscal quarter and (b) stating that the signer has reviewed the terms of this Agreement and the other Loan Documents and has made, or caused to be made under his or her supervision, a review in reasonable detail of the transactions and condition of Holdings, the Borrower and their Subsidiaries during the accounting period, and that the signer does not have knowledge of the existence as at the date of such officers' certificate of any Event of Default or Default. It is understood that the foregoing certificate of a Responsible Officer shall be permitted to be delivered prior to, but in no event later than, the time of the actual delivery of the financial statements required to be delivered pursuant to Section 5.04. Notwithstanding the foregoing, at any time during which (i) the Borrower has failed to deliver the certificate required under Section 5.04(c) with respect to a fiscal quarter following the date the delivery thereof is due or (ii) a Default or Event of Default is in existence, the Net Leverage Ratio shall be deemed, solely for the purposes of this Schedule A, to be greater than 5.5 to 1.00, until such time as the Borrower shall deliver such certificate. -44- SCHEDULE 2.01 COMMITMENTS AND OUTSTANDING PRINCIPAL OF TRANCHE A, B AND C TERM LOANS
Outstanding Principal of Outstanding Principal of Outstanding Principal of Tranche A Term Loans Tranche B Term Loans Tranche C Term Loans ------------------------ ------------------------- ------------------------- Bankers Trust Company $4,886,363.92 $27,252,604.29 $24,838,802.19 NationsBank, N.A. Goldman Sachs Credit Partners L.P. 2,272,727.28 The Bank of Nova Scotia 4,318,181.82 The Chase Manhattan Bank 4,318,181.82 Credit Lyonnais, New York Branch 4,318,181.82 Societe Generale 4,318,181.82 ABN AMRO Bank, N.V. 3,409,090.91 Bank of Tokyo-Mitsubishi Ltd. 3,181,818.18 Credit Agricole Indosuez 3,181,818.18 First Union 3,181,818.18 The Fuji Bank, Ltd. 3,181,818.18 The Imperial Bank 3,181,818.18 The Long-Term Credit Bank of Japan, 3,181,818.18 Limited The Mitsubishi Trust and Banking 3,181,818.18 Corporation Natexis Banque BFCE 2,386,363.63 2,452,734.38 2,032,265.63 National City Bank 3,181,818.18 The Prudential Insurance Company of 3,181,818.18 America Summit Bank 3,181,818.18 Southern Pacific Bank 2,272,727.27 Cypress Tree 2,272,727.00 5,450,520.84 2,258,072.92 AG Capital Funding 5,450,520.84 4,516,145.84 Alliance Capital 5,450,520.84 4,516,145.84 ARES Leveraged Investment Fund L.P. 5,450,520.84 4,516,145.84 Indosuez Capital Funding IV, L.P. 5,450,520.84 4,516,145.84 KZH Soleil Corporation (SunAmerica) 5,450,520.84 4,516,145.84 KZH Holding Corporation III - Oakmont 5,450,520.84 4,516,145.84 ML CLO XV Pilgrim 5,450,520.84 4,516,145.84 Morgan Stanley Dean Witter Prime Income 5,450,520.84 4,516,145.84 Trust Schedule prepared as at August 7, 1998. -1- Outstanding Principal of Outstanding Principal of Outstanding Principal of Tranche A Term Loans Tranche B Term Loans Tranche C Term Loans ------------------------ ------------------------- ------------------------- Octagon Credit Investors Loan Portfolio 5,450,520.84 4,516,145.84 Presidential Life Insurance Company 5,450,520.84 4,516,145.84 The Travelers Insurance Company 5,450,520.84 4,516,145.84 Van Kampen American Capital Prime Rate 5,450,520.84 4,516,145.84 Income Trust ML CBO IV (Cayman)/ Protective 5,000,000.00 2,180,208.34 1,806,458.34 Eaton Vance Senior Debt Portfolio 4,905,468.76 4,064,531.26 Merrill Lynch Inc Strategies Portfolio 4,905,468.76 4,064,531.26 Paribas 1,818,181.82 Archimedes 4,360,416.67 3,612,916.67 Delano Company 4,087,890.63 3,387,109.38 Firstrust 1,590,909.09 KZH-Crescent 2 Corporation 3,815,364.59 3,161,302.09 Indosuez Capital Funding IIA 2,734,375.00 2,265,625.00 First Dominion Funding I 2,725,260.42 2,258,072.92 Franklin Floating Rate Trust 2,725,260.42 2,258,072.92 KZH - Cypress Tree-1 2,725,260.42 2,258,072.92 Merrill Lynch Debt Strategies Portfolio 2,725,260.42 2,258,072.92 Merrill Lynch Prime Rate Portfolio 2,725,260.42 2,258,072.92 Merrill Lynch Senior Floating Rate Fund, Inc. Debt Strategies Fund III, Inc. PAM Capital (Protective) 2,725,260.42 2,258,072.92 Amara-1 2,725,260.42 2,258,072.92 Toronto Dominion 2,725,260.42 2,258,072.92 Eaton Vance Deeprock 545,052.08 451,614.58 Mass Mutual CVP 1,353,364.32 1,121,359.02 Harvard Management Company, Inc. 2,725,260.42 2,258,072.92 Northern Life Insurance Company 1,090,104.17 903,229.17 Massmutual Life 3,068,643.24 2,542,590.11 Massmutual/Darby CBO LLC 1,028,513.28 852,196.73 Massmutual High Yield Partners II Metropolitan Life Insurance Company 8,175,781.27 6,774,218.77 Oakhill Securities Fund 5,441,406.27 4,508,593.77 CIBC Inc. Continental Assurance Company 1,635,156.25 1,354,843.75 TOTAL: $75,000,000.00 $174,416,667.00 $144,516,667.00
-2-
Tranche D Term Revolving Credit Growth Capital Swingline Loan Loan Commitments Commitments Commitments Commitments ------------------- ------------------- ------------------- ------------------ Bankers Trust Company $81,000,000.00 $14,795,454.51 $9,545,454.57 $20,000,000.00 NationsBank, N.A. 10,333,333.33 6,666,666.67 Goldman Sachs Credit Partners L.P. 4,696,969.69 3,030,303.03 The Bank of Nova Scotia 8,924,242.42 5,757,575.76 The Chase Manhattan Bank 8,924,242.42 5,757,575.76 Credit Lyonnais, New York Branch 8,924,242.42 5,757,575.76 Societe Generale 8,924,242.42 5,757,575.76 ABN AMRO Bank, N.V. 7,045,454.55 4,545,454.54 Bank of Tokyo-Mitsubishi Ltd. 6,575,757.58 4,242,424.24 Credit Agricole Indosuez 6,575,757.58 4,242,424.24 First Union 6,575,757.58 4,242,424.24 The Fuji Bank, Ltd. 6,575,757.58 4,242,424.24 The Imperial Bank 6,575,757.58 4,242,424.24 The Long-Term Credit Bank of Japan, 6,575,757.58 4,242,424.24 Limited The Mitsubishi Trust and Banking 6,575,757.58 4,242,424.24 Corporation Natexis Banque BFCE 4,931,818.19 3,181,818.18 National City Bank 6,575,757.58 4,242,424.24 The Prudential Insurance Company of 6,575,757.58 4,242,424.24 America Summit Bank 6,575,757.58 4,242,424.24 Southern Pacific Bank 4,696,969.70 3,030,303.03 Cypress Tree AG Capital Funding Alliance Capital ARES Leveraged Investment Fund L.P. Indosuez Capital Funding IV, L.P. 6,750,000 KZH Soleil Corporation (SunAmerica) KZH Holding Corporation III - Oakmont ML CLO XV Pilgrim Morgan Stanley Dean Witter Prime Income 6,750,000 Trust Octagon Credit Investors Loan Portfolio 6,750,000 Presidential Life Insurance Company The Travelers Insurance Company 6,750,000 Van Kampen American Capital Prime Rate Income Trust ML CBO IV (Cayman)/ Protective Eaton Vance Senior Debt Portfolio Merrill Lynch Inc Strategies Portfolio Paribas 3,757,575.76 2,424,242.42 Archimedes Delano Company Firstrust 3,287,878.79 2,121,212.12 -3- Tranche D Term Revolving Credit Growth Capital Swingline Loan Loan Commitments Commitments Commitments Commitments ------------------- ------------------- ------------------- ------------------ KZH-Crescent 2 Corporation 6,250,000 Indosuez Capital Funding IIA First Dominion Funding I Franklin Floating Rate Trust 6,750,000 KZH - Cypress Tree-1 6,750,000 Merrill Lynch Debt Strategies Portfolio Merrill Lynch Prime Rate Portfolio Merrill Lynch Senior Floating Rate Fund, 7,000,000 Inc. Debt Strategies Fund III, Inc. 3,000,000 PAM Capital (Protective) Amara-1 Toronto Dominion Eaton Vance Deeprock Mass Mutual CVP Harvard Management Company, Inc. 3,000,000 Northern Life Insurance Company 2,750,000 Massmutual Life Massmutual/Darby CBO LLC 4,500,000 Massmutual High Yield Partners II 2,250,000 Metropolitan Life Insurance Company 6,750,000 Oakhill Securities Fund 6,750,000 CIBC Inc. 10,750,000 Continental Assurance Company 500,000 TOTAL: $175,000,000.00 $155,000,000.00 $100,000,000.00 $20,000,000.00
-4- EXHIBIT A FORM OF ASSIGNMENT AND ACCEPTANCE _________________________________________________________________________ Reference is made to the Credit Agreement described in Item 2 of Annex I hereto (as such Credit Agreement may hereafter be amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"). Unless defined in Annex I hereto, terms defined in the Credit Agreement are used herein as therein defined. BANKERS TRUST COMPANY (the "ASSIGNOR") and __________ (the "ASSIGNEE") hereby agree as follows: 1. The Assignor hereby sells and assigns to the Assignee without recourse and without representation or warranty (other than as expressly provided herein), and the Assignee hereby purchases and assumes from the Assignor, that interest in and to all of the Assignor's rights and obligations under the Credit Agreement as of the date hereof which represents the percentage interest specified in Item 4 of Annex I hereto (the "ASSIGNED SHARE") of all of the outstanding rights and obligations under the Credit Agreement relating to the facilities listed in Item 4 of Annex I hereto, including, without limitation, [(q) in the case of any assignment of all or any portion of the Total Tranche A Term Loan Commitment, all rights and obligations with respect to the Assigned Share of such Total Tranche A Term Loan Commitment,] [(r) in the case of any assignment of all or any portion of the Total Tranche B Term Loan Commitment, all rights and obligations with respect to the Assigned Share of such Total Tranche B Term Loan Commitment,] [(s) in the case of arty assignment of all or any portion of the Tranche C Term Loan Commitment, all rights and obligations Rich respect to the Assigned Share of such Total Tranche C Term Loan Commitment,]; [(t) in the case of any assignment of all or any portion of the Tranche D Term Loan Commitment, all rights and obligations with respect to the Assigned Share of such Total Tranche D Term Loan Commitment,] (u) in the case of any _______________ [FN] Delete bracketed language in Assignment and Acceptances executed after the termination of the Total Tranche A Term Loan Commitment. Delete bracketed language in Assignment and Acceptances executed after the termination of the Total Tranche B Term Loan Commitment. Delete bracketed language in Assignment and Acceptances executed after the termination of the Total Tranche C Term Loan Commitment. Delete bracketed language in Assignment and Acceptances executed after the termination of the Total Tranche D Term Loan Commitment. -1- assignment of outstanding Tranche A Term Loans, all rights and obligations with respect to the Assigned Share of such Tranche A Term Loans, (v) in the case of any assignment of outstanding Tranche B Term Loans, all rights and obligations with respect to the Assigned Share of such outstanding Tranche B Term Loans, (w) in the case of any assignment of outstanding Tranche C Term Loans, all rights and obligations with respect to Me Assigned Share of such outstanding Tranche C Term Loans, (x) in the case of any assignment of outstanding Tranche D Term Loans, all rights and obligations with respect to the Assigned Share of such outstanding Tranche D Term Loans, (y) in the case of any assignment of all or any portion of the Total Revolving Credit Commitment, all rights and obligations with respect to the Assigned Share of such Total Revolving Credit Commitment and of any outstanding loans and Letters of Credit and (z) in the case of any assignment of all or any portion of the Total Growth Capital Commitment, all rights and obligations with respect to the Assigned Share of such Total Growth Capital Commitment and any outstanding Growth Capital Revolving Loans. After giving effect to such sale and assignment, the Assignee's Revolving Credit Commitment, Growth Capital Commitment[, Tranche A Term Loan Commitment] [, Tranche B Term Loan Commitment] [, Tranche C Term Loan Commitment] [, Tranche D Term loran Commitment] and the amount of the outstanding Term Loans opting to the Assignee will be as set forth in Item 4 of Annex I hereto. 2. The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the other Loan Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or the other Loan Documents or any other instrument or document furnished pursuant thereto; and (iii) _______________ [FN] Delete bracketed language in Assignment and Acceptances executed after the termination of the Total Tranche A Term Loan Commitment. Delete bracketed language in Assignment and Acceptances executed after the termination of the Total Tranche B Term Loan Commitment. Delete bracketed language in Assignment and Acceptances executed after the termination of the Total Tranche C Term Loan Commitment. Delete bracketed language in Assignment and Acceptances executed after the termination of the Total Tranche D Term Loan Commitment. -2- makes no representation or warranty and assumes no responsibility with respect to the financial condition of Holdings, the Borrower or any of their Subsidiaries or the performance or observance by Holdings, the Borrower or any of their Subsidiaries of any of their obligations under the Credit Agreement or the other Loan Documents to which they are a party or any other instrument or document furnished pursuant thereto. 3. The Assignee (i) confirms that it has received a copy of the Credit Agreement and the other Loan Documents, together with copies of the financial statements referred to therein and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Administrative Agent, the Assignor or any other Lender or Agent and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) confirms that it is an Eligible Transferee under Section 9.04(b) of the Credit Agreement; (iv) appoints and authorizes the Administrative Agent and the Collateral Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement and the other Loan Documents as are delegated to the Administrative Agent and the Collateral Agent, as the case may be, by the terns thereof, together smith such powers as are reasonably incidental thereto; [and] (v) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement are required to be performed by it as a Lenders; and (vii) to the extent legally entitled to do so, attaches the forms described in Section 9.04(b) of the Credit Agreement]. 4. Following the execution of this Assignment and Acceptance by the Assignor and the Assignee, an executed original hereof (together with all attachments) will be delivered to the Administrative Agent. This Assignment and Acceptance shall be effective, unless otherwise specified in Item 5 of Annex I hereto (the "SETTLEMENT DATE"), upon the receipt of the consent of the Administrative Agent and/or the Borrower to the extent required by Section 9.04(b) of the Credit Agreements receipt by the Administrative Agent of the administrative fee referred to in such Section 9.04(b), and the registration of the transfer as provided by Section 9.05(c) of the Credit Agreement. 5. Upon the Settlement Date of this Assignment and Acceptance, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rifles and obligations of a Lender thereunder and under the other Loan _______________ [FN] Include if the Assignee is organized under the laws of a jurisdiction outside of the United States. -3- Documents and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement and the other Loan Documents except with respect to indemnification provisions under the Credit Agreement (including, without limitation, Sections 2.13, 2.15, 2.19 and 9.05). 6. It is agreed that the Assignee shall be entitled to (x) all interest on the Assigned Share of the Loans at the rates specified in Item 6 of Annex I; (y) all Commitment Fees (if applicable) on the Assigned Share of the Total Revolving Credit Commitment, Total Growth Capital Commitment and/or Total Term Loan Commitment (if not theretofore terminated) at the rate specified in Item 7 of Annex I hereto; and (z) all L/C Participation Fees (if applicable) on the Assignee's participation in all Genes of Credit at the rate specified in Item 8 of Annex I hereto, which, in each case, accrue on and after the Settlement Date, such interest and, if applicable, Commitment Fees and L/C Participation Fees, to be paid by the Administrative Agent directly to the Assignee. It is further agreed that all payments of principal made on the Assigned Share of the Loans which occur on and after the Settlement Date will be paid directly by the Administrative Agent to the Assignee. Upon the Settlement Date, the Assignee shall pay to the Assignor an amount specified by the Assignor in writing which represents the Assigned Share of the principal amount of the respective Loans made by the Assignor pursuant to the Credit Agreement which are outstanding on the Settlement Date, and which are being assigned hereunder. The Assignor and the Assignee shall make 811 appropriate adjustments in payments under the Credit Agreement for periods prior to the Settlement Date directly between themselves. 7. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. -4- IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Assignment and Acceptance as of the date first above written, such execution also being made on Annex I hereto. Accepted this _____ day of _________, 1998 BANKERS TRUST COMPANY, NAME OF ASSIGNEE, as Assignor as Assignee By: ____________________________ By: _________________________ ____________________________ _________________________ (Print Name and Title) (Print Name and Title) [Acknowledged and Agreed: BANKERS TRUST COMPANY, as Administrative Agent, Swingline Lender and Fronting Bank By: ____________________________ ____________________________ (Print Name and Title) GRAHAM PACKAGING COMPANY By: ____________________________ its managing general partner ____________________________ (Print Name and Title)] _______________ [FN] The consent of the Administrative agent and the Borrower required for assignments made as (and to the extent) provided in Section 9.04(b)(y)(ii) of the Credit Agreement. -5- ANNEX I _________________________________________________________________________ 1. Borrower: Graham Packaging Company 2. Name and Date of Credit Agreement: Credit Agreement, dated as of February 2, 1998, among Graham Packaging Holdings Company, a Pennsylvania limited partnership, Graham Packaging Company, a Delaware limited partnership (the "Borrower"), GPC CAPITAL CORP. I. a Delaware corporation (the "Co-Borrower"), certain financial institutions party thereto, NationsBanc Montgomery Securities L.L.C., as Documentation Agent, Bankers Trust Company, as Administrative Agent, as Syndication Agent as Collateral Agent and as Fronting Bank. 3. Date of Assignment and Acceptance: ___________, 1998 4. Amounts (as of date of Item #3 above):
a. b. c. ---------------- ---------------- ---------------- Aggregate Amount Amount for all Assigned of Assigned Lenders Share Share ---------------- ---------------- ---------------- [Total Tranche A Term Loan Commitment $ % $] [Total Tranche B Term Loan Commitment $ % $] [Total Tranche C Term Loan Commitment $ % $] [Total Tranche D Term Loan Commitment $ % $] _______________ This row should be deleted in the case of Assignment and Acceptances executed after the termination of the Total Tranche A Term Loan Commitment. This row should be deleted in the case of Assignment and Acceptances executed after the termination of the Total Tranche B Term Loan Commitment. This row should be deleted in the case of Assignment and Acceptances executed after the termination of the Total Tranche C Term Loan Commitment. This row should be deleted in the case of Assignment and Acceptances executed after the termination of the Total Tranche D Term Loan Commitment. Outstanding Principal of Tranche A $ % $ Term Loans -6- a. b. c. ---------------- ---------------- ---------------- Aggregate Amount Amount for all Assigned of Assigned Lenders Share Share ---------------- ---------------- ---------------- Outstanding Principal of Tranche B $ % $ Term Loans Outstanding Principal of Tranche C $ % $ Term Loans Outstanding Principal of Tranche D $ % $ Term Loans Revolving Credit Commitment $ % $ Growth Capital Revolving Commitment $ % $
5. Settlement Date: _____________, 1998 6. Rate of Interest to the Assignee: As set forth in Section 2.06 of the Credit Agreement (unless otherwise agreed to by the Assignor and the Assignee) 7. Commitment Fees to the Assignee: As set forth in Section 2.05(a) of the Credit Agreement (unless otherwise agreed to by the Assignor and the Assignee) [FN] The Borrower and the Administrative Agent shall direct the entire amount of the interest to the Assignee at the rate set forth in Section 2.06 of the Credit Agreement, with the Assignor and Assignee effecting the agreed upon sharing of the interest through payments by the Assignee to the Assignor. Insert "NOT APPLICABLE" in lieu of text if no portion of the Total Revolving Credit Commitment or Total Growth Capital Commitment is being assigned. Otherwise, the Borrower and the Administrative Agent shall direct the entire amount of the Commitment Fees to the Assignee at the rate set forth in Section 2.05(a) of the Credit Agreement, with the Assignor and the Assignee effecting the agreed upon sharing of Commitment Fees through payment by the Assignee to the Assignor. -7- 8. L/C Participation Fees to the Assignee: As set forth in Section 2.05(b) of the Credit Agreement (unless otherwise agreed to by the Assignor and the Assignee) 9. Notice Instructions: ASSIGNOR Bankers Trust Company Loan Syndications Division One Bankers Trust Plaza, 14th Floor New York, NY 10006 Attention: Deborah Jacob Telephone: (212) 250-6514 Telecopier: (212) 250-7351/6029 Reference: Graham Packaging Company ASSIGNEE ____________________ ____________________ ____________________ Attention: Telephone: Telecopier: Reference: Graham Packaging Company 10. Payment Instructions: ASSIGNOR Bankers Trust Company ABA Number 021001033 Commercial Loan Division Account Number 99401268 Reference: Graham Packaging Company ASSIGNEE ____________________ ____________________ ____________________ Reference: Graham Packaging Company [FN] Insert "NOT APPLICABLE" in lieu of text if no portion of the Total Revolving Credit Commitment is being assigned. Otherwise, the Borrower and the Administrative Agent shall direct the entire amount of the L/C Participation Fees to the Assignee at the rate set forth in Section 2.05(b) of the Credit Agreement, with the Assignor and the Assignee effecting the agreed upon sharing of L/C Participation Fees through payment by the Assignee to the Assignor. -8- Accepted and Agreed: BANKERS TRUST COMPANY, NAME OF ASSIGNEE, By: _________________________ By: _________________________ _________________________ _________________________ (Print Name and Title) (Print Name and Title) -9- EXHIBIT B FORM OF BORROWING REQUEST Bankers Trust Company 130 Liberty Street New York, NY 10006 Attention of [ ] Telecopy No. (212) [ ] [Date] Ladies and Gentlemen: The undersigned, GRAHAM PACKAGING COMPANY (the "Borrower"), refers to the Credit Agreement, dated as of February 2, 1998 (as it may hereafter be amended, modified, extended or restated from time to time, the "Credit Agreement"), among GRAHAM PACKAGING HOLDINGS COMPANY, the Borrower, GPC CAPITAL CORP. I, as Co-Borrower, the various Lenders party thereto, NATIONSBANK, N.A., as Documentation Agent, BANKERS TRUST COMPANY, as Administrative Agent, as Syndication Agent and as Collateral Agent for the Lenders, and BANKERS TRUST COMPANY, as Fronting Bank. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement. The Borrower hereby gives you notice pursuant to Section 2.03 of the Credit Agreement that it requests a Borrowing under the Credit Agreement, and in that connection sets forth below the terms on which such Borrowing is requested to be made: (A) Type of Borrowing ___________________________________ (B) Interest rate basis ___________________________________ (C) Date of Borrowing (which must be a Business Day) ____________________________ (D) Funds are requested to be disbursed to the Borrower at: Bank Name: ____________________________________________ Bank Address: ____________________________________________ [FN] Term Borrowing, Revolving Credit Borrowing or Growth Capital Borrowing (and in the case of a Term Borrowing, specify the Commitments pursuant to which the Loans comprising such Borrowing are to be made). Eurodollar Borrowing or ABR Borrowing. -1- Account Number: ____________________________________________ (E) Principal Amount of Borrowing __________________________ (F) Interest Period and the last day thereof __________________________ GRAHAM PACKAGING COMPANY By: GPC Opco GP LLC, its managing general partner By: _______________________ Name: Title: Copy to: Bankers Trust Company, as Administrative Agent for the Lenders referred to above, 130 Liberty Street New York, NY 10006 Attention of [ ] [FN] In Dollars not less than $5,000,000 (and in an integral multiple of $1,000,000) or equal to the remaining available balance of the applicable Commitments or such other amounts as may be permitted by the Credit Agreement to refund Swingline Loans. Which shall be subject to the definition of the term "Interest Period" and end not later than the Revolving Credit Maturity Date, Growth Capital Maturity Date, Tranche A Maturity Date, Tranche B Maturity Date, Tranche C Maturity Date or Tranche D Maturity Date, as applicable. -2- EXHIBIT K FORM OF CAPITAL CALL AGREEMENT CAPITAL CALL AGREEMENT (as amended, supplemented or modified from time to time, this "Agreement"), dated as of August 13, 1998, among BLACKSTONE CAPITAL PARTNERS III MERCHANT BANKING FUND L.P., a Delaware limited partnership ("Blackstone Capital Partners"), BLACKSTONE OFFSHORE CAPITAL PARTNERS III L.P., a Cayman Islands limited partnership ("Blackstone Offshore Partners" and, together with Blackstone Capital Partners, being collectively referred to herein as the "Fund"), BLACKSTONE FAMILY INVESTMENT PARTNERSHIP III L.P., a Delaware limited partnership ("Blackstone Family Partnership"), BMP/GRAHAM HOLDINGS CORPORATION, a Delaware corporation ("Investor LP"), GRAHAM PACKAGING HOLDINGS COMPANY, a Pennsylvania limited partnership ("Holdings"), GRAHAM PACKAGING COMPANY, a Delaware limited partnership (the "Borrower"), BANKERS TRUST COMPANY, as administrative agent (the "Administrative Agent") for the benefit of the various lenders (the "Lenders") from time to time party to the Credit Agreement referred to below and BANKERS TRUST COMPANY, as collateral agent (the "Collateral Agent") for the benefit of the Secured Parties (as defined in the Security Agreement referred to below). All capitalized terms used herein and not otherwise defined shall have the respective meanings provided such terms in the Credit Agreement referred to below. W I T N E S S E T H : WHEREAS, Holdings, the Borrower, the Co-Borrower, the Lenders, the Agents and the Fronting Bank are parties to a Credit Agreement, dated as of February 2, 1998 (as amended, modified or supplemented from time to time, the "Credit Agreement"); WHEREAS, pursuant to the First Amendment to Credit Agreement, dated as of the date hereof (the "First Amendment"), the Agents and certain of the Lenders (the "Tranche D Lenders") have agreed to make available to the Borrower the Total Tranche D Term Loan Commitment in accordance with the terms thereof; WHEREAS, (i) prior to the date hereof, the Fund has formed Investor LP (which is wholly owned by the Fund, Blackstone Family Partnership and one or more other Investors) and (ii) as of the date hereof, (x) Investor LP has, directly and through one or more wholly- owned subsidiaries, acquired limited and general partnership interests in Holdings and owns (directly and indirectly) approximately 85% of the issued and outstanding Equity Interests of Holdings and (y) Holdings owns 100% of the issued and outstanding Equity Interests of the Borrower free and clear of any and all Liens (other than liens in favor of the Collateral Agent pursuant to the Pledge Agreement); WHEREAS, each of the Fund (and each of Blackstone Capital Partners and Blackstone Offshore Partners), Blackstone Family -1- Partnership, Investor LP, Holdings and the Borrower will obtain benefits as a result of the First Amendment and the making of Tranche D Term Loans to the Borrower under the Credit Agreement; WHEREAS, it is a condition precedent to the entering into the First Amendment and the making of Tranche D Term Loans to the Borrower under the Credit Agreement that each of the Fund, Blackstone Family Partnership, Investor LP, Holdings and the Borrower shall have executed and delivered this Agreement; and WHEREAS, in order to induce the Lenders to approve the First Amendment and the Agents and the Tranche D Lenders to make the Tranche D Term Loans provided for therein, each of the Fund, Blackstone Family Partnership, Investor LP, Holdings and the Borrower desires to execute and deliver this Agreement in order to satisfy the condition described in the immediately preceding recital; NOW, THEREFORE, it is agreed: 1. Certain Defined Terms. As used herein, the following terms shall have the following meanings: "Administrative Agent" shall have the meaning provided in the first paragraph of this Agreement. "Agreement" shall have the meaning provided in the first paragraph of this Agreement. "Blackstone Capital Partners" shall have the meaning provided in the first paragraph of this Agreement. "Blackstone Family Partnership" shall have the meaning provided in the first paragraph of this Agreement. "Blackstone Offshore Partners" shall have the meaning provided in the first paragraph of this Agreement. "Borrower" shall have the meaning provided in the first paragraph of this Agreement. "Capital Call Amount" shall mean, on any date of determination, an amount of cash equal to $50,000,000 (reduced by the aggregate amount of net cash equity proceeds (including without limitation net cash equity proceeds received through the public markets or other sources but in any event exclusive of (i) Designated Capital Contributions and (ii) contributions to capital to effect any exercise of Cure Rights pursuant to Section 7.02 of the Credit Agreement) which have been received after the date hereof by Holdings, and in turn contributed by Holdings to the equity of the Borrower; provided, however, no such reduction to the Capital Call Amount shall be effective if, on the date any cash equity proceeds of the type described in this parenthetical are received by Holdings or the Borrower, a Capital Call Event or any other Event of Default exists except to the extent the Capital Call Amount has -2- been applied strictly in accordance with Section 3 hereof) multiplied by a fraction (A) the numerator of which shall be the sum of (x) the aggregate principal amount of all Tranche D Term Loans incurred by the Borrower on or prior to the respective date of determination of the Capital Call Amount (irrespective of any repayments or prepayments of such Tranche D Term Loans) and (y) the aggregate principal amount of IRB Financings incurred by the Borrower and its domestic Subsidiaries on or prior to the respective date of determination of the Capital Call Amount (irrespective of any repayments or prepayments of any such IRB Financings), provided, however, notwithstanding anything to the contrary contained above, if the numerator would otherwise exceed $150,000,000, then the numerator shall be deemed to equal $150,000,000 and (B) the denominator of which shall be equal to $150,000,000. Notwithstanding the immediately preceding sentence, in the case of a Capital Call Event of the type described in clause (v)(x) of the definition thereof and provided that no Capital Call Event of the type described in any of clauses (i) through (iv), inclusive, of the definition thereof has theretofore occurred (and except as set forth in Section 2(a) hereof), the Capital Call Amount shall mean an amount of cash equal to the lesser of (x) the amount calculated pursuant to the immediately preceding sentence and (y) that amount which is necessary to be subtracted from Total Net Debt to cause the Net Leverage Ratio to be equal to or less than 5.15:1.0 in respect of the Test Period ending closest to March 31, 2000; it being expressly understood and agreed that the amount referred to in preceding clause (y) shall be determined without giving effect to any exercise of Cure Rights pursuant to Section 7.02 of the Credit Agreement (i.e., any increases to EBITDA pursuant to Section 7.02(a) of the Credit Agreement shall have no effect (and shall not increase EBITDA) in measuring the Net Leverage Ratio). Notwithstanding the foregoing to the contrary, on any date of determination, the Capital Call Amount shall at no time be less than $0. "Capital Call Event" shall mean: (i) the occurrence of an Event of Default pursuant to paragraph (h) or (i) of Section 7.01 of the Credit Agreement (other than with respect to Insignificant Subsidiaries); or (ii) the Loans then outstanding under the Credit Agreement shall have been declared by the Administrative Agent to be due and payable in whole or in part pursuant to the last paragraph of Section 7.01 of the Credit Agreement; or (iii) the commencement of an involuntary proceeding or the filing of an involuntary petition in a court of competent jurisdiction seeking (a) relief in respect of any of the Designated Capital Call Investors or Investor LP, or of a substantial part of the property or assets of such person under Title 11 of the United States Code, as now constituted or hereafter amended, or any other federal, state or foreign bankruptcy, insolvency, receivership or similar law, (b) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any of the Designated -3- Capital Call Investors or Investor LP or for a substantial part of the property or assets of such person or (c) the winding-up or liquidation of any of the Designated Capital Call Investors or Investor LP; and such proceeding or petition shall have continued undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; or (iv) any of the Designated Capital Call Investors or Investor LP shall have (a) voluntarily commenced any proceeding or filed any petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other federal, state or foreign bankruptcy, insolvency, receivership or similar law, (b) consented to the institution of, or failed to contest in a timely and appropriate manner, any proceeding or the filing of any petition described in preceding clause (a), (c) applied for or consented to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for such person or for a substantial part of its property or assets, (d) filed an answer admitting the material allegations of a petition filed against it in any such proceeding, (e) made a general assignment for the benefit of creditors, (f) become unable, admitted in writing its inability or fail generally to pay its debts as they become due or (g) taken any action for the purpose of effecting any of the foregoing; or (v) (x) the Net Leverage Ratio shall exceed 5.15:1.0 in respect of the Test Period ending closest to March 31, 2000 or (y) the financial statements (and the accompanying certification) with respect to the Test Period ending closest to March 31, 2000 shall have not been delivered to the Administrative Agent on or prior to the thirtieth day after same are due pursuant to Section 5.04 of the Credit Agreement; it being expressly understood and agreed that for purposes of this definition the Net Leverage Ratio shall be determined without giving effect to any exercise of Cure Rights pursuant to Section 7.02 of the Credit Agreement (i.e., any increases to EBITDA pursuant to Section 7.02(a) of the Credit Agreement shall have no effect (and shall not increase EBITDA) in measuring the Net Leverage Ratio). "Capital Call Percentages" shall mean (i) with respect to Blackstone Capital Partners, 79.785225%, (ii) with respect to Blackstone Offshore Partners, 14.214775% and (iii) Blackstone Family Partnership, 6.000000%, in each case as such Capital Call Percentage may be adjusted at any time and from time to time with the prior written consent of the Administrative Agent (with the consent of the Required Lenders). "Chattel Paper" shall have the meaning ascribed thereto in the Uniform Commercial Code in effect in the State of New York on the date hereof. -4- "Collateral" shall mean, collectively, this Agreement, all rights (including all contract rights and rights to receive payments and capital contributions) hereunder and all Proceeds (as defined in the Security Agreement) hereof and thereof. "Collateral Agent" shall have the meaning provided in the first paragraph of this Agreement. "Credit Agreement" shall have the meaning provided in the first recital of this Agreement. "Designated Capital Call Investors" shall mean, collectively, Blackstone Capital Partners, Blackstone Offshore Partners and Blackstone Family Partnership. "Event of Default" shall have the meaning provided in the Credit Agreement. "First Amendment" shall have the meaning provided in the second recital of this Agreement. "Fund" shall have the meaning provided in the first paragraph of this Agreement. "Grantors" shall mean, collectively, all of the parties to this Agreement (other than the Designated Capital Call Investors, the Collateral Agent and the Administrative Agent). "Holdings" shall have the meaning provided in the first paragraph of this Agreement. "Insignificant Subsidiary" shall mean, on any date of determination, any Subsidiary of Holdings which would not be a Significant Subsidiary (within the meaning of Rule 1-02(w) of Regulation S-X (as in effect on the date hereof, provided that each reference to "10 percent" appearing therein shall be deemed for purposes of this Agreement to be a reference to (i) "20 percent" on any date of determination occurring during the calendar year ending December 31, 1998, (ii) "17 1/2 percent" on any date of determination occurring during the calendar year ending December 31, 1999 and (iii) "15 percent" on any date of determination occurring during any calendar year thereafter) promulgated by the SEC) of Holdings. "Instruments" shall have the meaning ascribed thereto in the Uniform Commercial Code in effect in the State of New York on the date hereof. "Interest Rate Protection Agreements" shall mean any interest rate hedging agreement or arrangement designed to protect against fluctuations in interest rates entered into by the Borrower or a Subsidiary of the Borrower with any of the Other Creditors (as defined in the Security Agreement). -5- "Investment" shall mean a cash contribution made (or deemed made) by a Designated Capital Call Investor after the date hereof to the equity capital of Investor LP pursuant to this Agreement. "Investor LP" shall have the meaning provided in the first paragraph of this Agreement. "Lenders" shall have the meaning provided in the first paragraph of this Agreement. "Obligations" shall have the meaning provided in the Security Agreement. "Proportionate Share" of each Lender at any time shall mean a fraction (x) the numerator of which is the sum of (I) the aggregate principal amount of all Loans made by such Lender and then outstanding plus (II) the amount (if any) of such Lender's participation at such time in outstanding Swingline Loans and Letters of Credit and (y) the denominator of which is the sum of (I) the aggregate principal amount of all Loans then outstanding plus (II) the aggregate stated amount of all Letters of Credit at such time. "Secured Parties" shall have the meaning provided in the Security Agreement. "Security Agreement" shall mean the Security Agreement, dated as of February 2, 1998, among Holdings, the Borrower, each Subsidiary Guarantor and the Collateral Agent for the benefit of the Secured Parties, as same is amended, modified or supplemented from time to time. "Tranche D Lenders" shall have the meaning provided in the second recital of this Agreement. 2. (a) Each of the Designated Capital Call Investors hereby severally and not jointly agrees on an absolute, irrevocable and unconditional basis that, within 14 days after the occurrence of a Capital Call Event, it will make a payment (in cash) directly to the Administrative Agent in an amount equal to its Capital Call Percentage of the Capital Call Amount (determined as of the date of the occurrence of the Capital Call Event); it being understood and agreed that, in the case of a Capital Call Event of the type described in clause (v)(x) of the definition thereof, such 14-day period shall begin on the date on which financial statements (and as certified by an accounting firm or Financial Officer of Holdings or the Borrower, as the case may be, on behalf of Holdings or the Borrower, respectively) in respect of the Test Period ending closest to March 31, 2000 are made available pursuant to Section 5.04 of the Credit Agreement. In calculating the Capital Call Amount, EBITDA and Total Net Debt (and related calculations) shall be determined (except as otherwise expressly provided in the definition of Capital Call Event contained herein) in accordance with the Credit Agreement. -6- (b) To the extent the Designated Capital Call Investors are prohibited by operation of law from making Investments in Investor LP (which are contributed by Investor LP to the equity capital of Holdings which are further contributed by Holdings to the equity capital of the Borrower) as contemplated by Section 3(a) below due to any bankruptcy or similar proceeding relating to Investor LP or Holdings (or any of Holdings' Subsidiaries) or for any other reason whatsoever, then, at the election of the Administrative Agent (with the consent of the Required Lenders), the Designated Capital Call Investors' respective Investments shall instead be promptly made by means of the purchase by such Designated Capital Call Investors from each of the Lenders of a subordinated participation in such Lenders' outstanding Loans (including such Lenders' participations in outstanding Swingline Loans and Letters of Credit), pro rata among the Lenders based on their respective Proportionate Shares at such time, with such participations to be evidenced by a subordinated participation agreement in form and substance satisfactory to the Administrative Agent (it being expressly understood and agreed (and the subordinated participation agreement shall provide) that no payment or distribution of any kind or character, whether in cash, property, securities or otherwise, shall be made under any circumstances whatsoever with respect to any such subordinated participation until the date on which (i) all Commitments and Letters of Credit under the Credit Agreement shall have been terminated, (ii) all Obligations (except those evidenced by the subordinated participations purchased pursuant to this Section 3(b)) shall have been paid in full in cash in accordance with the requirements of the Credit Agreement (or the other Loan Documents) or the Interest Rate Protection Agreements, as the case may be, (iii) all Interest Rate Protection Agreements shall have been terminated and (iv) all Obligations (as defined in the Senior Subordinated Note Indenture and, for avoidance of doubt, including without limitation all obligations for principal, premium, interest, penalties, fees, indemnification, reimbursements, damages and other liabilities under the Senior Subordinated Note Indenture) on the Senior Subordinated Notes shall have been paid in full in cash (or such other payment provided for to the satisfaction of the holders of the Senior Subordinated Notes)). 3. (a) All payments received by the Administrative Agent pursuant to Section 2(a) above shall automatically be deemed (as of the date of receipt by the Administrative Agent of such respective payments) to be Investments by the respective Designated Capital Call Investors in Investor LP which have been further contributed (as cash) by Investor LP to the equity capital of Holdings which have been further contributed (as cash) by Holdings to the equity capital of the Borrower. (b) All payments received by the Administrative Agent pursuant to Section 2(a) above shall be promptly applied by it in the following manner: (i) if on (x) the date that payments are due and payable to the Administrative Agent pursuant to Section 2(a) above or (y) the date that any such payment is actually made to (and received by) the Administrative Agent, there exists (A) a -7- Default under paragraph (h) or (i) of Section 7.01 of the Credit Agreement (other than with respect to Insignificant Subsidiaries) or (B) a Capital Call Event of the type described in clause (i) or (ii) of the definition thereof, the Administrative Agent shall forward all such payments to the Collateral Agent, which shall promptly thereafter apply such payments in accordance with Section 7 of the Security Agreement as though same constituted a portion of the Collateral (as defined in the Security Agreement) thereunder; and (ii) to the extent that payments are not required to be applied pursuant to preceding clause (i), the Administrative Agent shall, on behalf of the Borrower, promptly apply same directly to the repayment of Term Loans pursuant to Section 2.12(c) of the Credit Agreement (and in accordance with paragraphs (b) and (d) of Section 2.11 of the Credit Agreement). (c) Each of the Designated Capital Call Investors, Investor LP, Holdings and the Borrower hereby consents on an absolute, irrevocable and unconditional basis to the application of the payments received by the Administrative Agent pursuant to Section 2(a) above in the manner contemplated by this Section 3. 4. All payments required to be made by any Designated Capital Call Investor, Investor LP, Holdings and/or the Borrower pursuant to this Agreement shall be made in Dollars and in immediately available funds, and shall be made on the same basis as provided in Sections 2.18 and 2.19 of the Credit Agreement; it being expressly understood and agreed that, without limiting the foregoing and for avoidance of doubt, (x) none of the Designated Capital Call Investors and Investor LP shall incur any additional or supplemental liabilities or obligations in connection with the application by the Administrative Agent (whether on behalf of the Borrower or otherwise) of any payments received by it pursuant to Section 3 above and (y) Holdings and the Borrower shall be liable for any and all additional or supplemental amounts required to be paid under the Credit Agreement (including without limitation Sections 2.13 and 2.19 of the Credit Agreement) and the other Loan Documents to the extent Holdings and/or the Borrower, as the case may be, would be so liable if repayment of Term Loans (as contemplated by Section 3 above) had been effectuated directly by the Borrower in accordance with the Credit Agreement and not by the Administrative Agent on behalf of the Borrower. 5. The obligations of each of the Designated Capital Call Investors and Investor LP hereunder are independent of the obligations of any Guarantor, the Borrower or any other party, and a separate action or actions may brought and prosecuted against any of the Designated Capital Call Investors and Investor LP whether or not an action is brought against any Guarantor, the Borrower or any other party and whether or not any Guarantor, the Borrower or any other party shall be joined in any such action or actions. Each of the Designated Capital Call Investors, Investor LP, Holdings and the Borrower waives, to the -8- fullest extent permitted by law, the benefit of statute of limitations affecting its liability hereunder or the enforcement hereof. 6. Each of the Designated Capital Call Investors, Investor LP, Holdings and the Borrower hereby waives notice of acceptance of this Agreement and notice of any liability to which it may apply, and waives presentment, demand of payment, protest, notice of dishonor, or nonpayment of any such liability, suit or taking of other action by Holdings and/or the Borrower (in the case of the Designated Capital Call Investors and Investor LP), the Collateral Agent, the Administrative Agent, any Secured Party or any Lender against, and any other notice to any such person or any other party liable thereon. 7. (a) As security for the prompt and complete payment and performance when due, whether at the stated maturity, by acceleration, upon one or more dates set for prepayment or otherwise of the Obligations, each of the Grantors hereby grants to the Collateral Agent, for the ratable benefit of the Secured Parties, a first priority security interest in the Collateral. Such security interests are granted as security only and shall not subject any Secured Party or the Collateral Agent to, or in any way alter or modify, any obligation or liability of any Grantor with respect to or arising out of the Collateral. All rights of the Collateral Agent hereunder, the security interest and all obligations of the Grantors hereunder shall be absolute, irrevocable and unconditional. (b) Each Grantor covenants and agrees with the Collateral Agent, for the ratable benefit of the Secured Parties, from and after the date of this Agreement until this Agreement and the security interests created hereby are terminated pursuant to Section 17 below: (i) If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any promissory note, other Instrument or Chattel Paper, such promissory note, Instrument or Chattel Paper shall be immediately delivered to the Collateral Agent, duly indorsed in a manner reasonably satisfactory to the Collateral Agent, to be held as Collateral pursuant to this Agreement. (ii) Each Grantor shall cause to be done the filing of UCC financing statements in the jurisdictions listed on Schedule I hereto with respect to it. Each Grantor shall maintain the security interests created by this Agreement as first priority perfected security interests and shall defend such security interests against all claims and demands of all persons whomsoever. (iii) At any time and from time to time, upon the written request of the Collateral Agent, and at the sole expense of a Grantor, such Grantor shall promptly and duly execute and deliver such further instruments and documents and take such further action as the Collateral Agent may reasonably request -9- for the purpose of obtaining or preserving the full benefits of this Section 7 and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statements under the Uniform Commercial Code in effect in any jurisdiction with respect to the security interests created hereby. (iv) No Grantor shall, except (x) upon prior written notice to the Collateral Agent and (y) if filings under the UCC or otherwise have been made which maintain in favor of the Collateral Agent a valid, legal and perfected security interest in the Collateral subject to no Liens, (1) change the location of its chief executive office and chief place of business from that specified on Schedule II hereto; or (2) change its (A) corporate name or any trade name used to identify it in its conduct of business or in the ownership of its properties, (B) identity or (C) corporate or partnership structure to such an extent that any financing statement filed in favor of the Collateral Agent in connection with this Agreement would become seriously misleading. (v) Each Grantor shall advise the Collateral Agent promptly, in reasonable detail, at its address set forth in Section 9.01 of the Credit Agreement or as set forth immediately below its signature below, as the case may be, of: (1) any Lien (other than security interests created hereby) on any material portion of the Collateral; and (2) the occurrence of any other event which could reasonably be expected to have a material adverse effect on the security interests created hereby or on the aggregate value of the Collateral. (vi) Notwithstanding anything to the contrary provided herein, the Collateral Agent assumes no liabilities with respect to any claims regarding each Grantor's ownership (or purported ownership) of, or rights or obligations (or purported rights or obligations) arising from, the Collateral or any use (or actual or alleged misuse) whether arising out of any past, current or future event, circumstance, act or omission or otherwise, or any claim, suit, loss, damage, expense or liability of any kind or nature arising out of or in connection with the Collateral. All of such liabilities shall, as between the Collateral Agent and the Grantors, be borne exclusively by the Grantors. (vii) The Borrower agrees to pay all expenses of the Collateral Agent and to indemnify the Collateral Agent with -10- respect to any and all losses, claims, damages, liabilities and related expenses in respect of this Agreement or the Collateral in each case to the same extent the Borrower is required to do so with respect to the Credit Agreement pursuant to Section 9.05 of the Credit Agreement. Any amounts payable as provided hereunder shall be additional Obligations secured hereby and by the Security Documents. Without prejudice to the survival of any other agreements contained herein, all indemnification and reimbursement obligations contained herein shall survive the payment in full of the principal and interest under the Credit Agreement, the expiration of the Letters of Credit and the termination of the Commitments, all Interest Rate Protection Agreements or this Agreement. (viii) A Grantor shall not (x) make or permit to be made an assignment, pledge or hypothecation of the Collateral, and shall grant no other security interest in such Collateral or (y) make or permit to be made any transfer of such Collateral, and shall remain at all times in possession thereof other than transfers to the Collateral Agent pursuant to the provisions hereof. (ix) Anything herein to the contrary notwithstanding, each Grantor shall remain liable under this Agreement to observe and perform all the conditions and obligations to be observed and performed by it hereunder, all in accordance with and pursuant to the terms and provisions of this Agreement. No Secured Party shall have any obligation or liability under this Agreement by reason of or arising out of this Agreement or the receipt by any such Secured Party of any payment relating to this Agreement pursuant hereto, nor shall any Secured Party be obligated in any manner to perform any of the obligations of a Grantor under or pursuant to this Agreement, to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party under this Agreement, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. (x) The parties hereto acknowledge that the Collateral Agent shall be entitled to exercise such remedies, powers and rights with respect to the Collateral as are set forth in Sections 7 (excluding Section 7.2 and, with respect to Investor LP, Sections 7.3(g) and 7.5 thereof) through 11, inclusive, of the Security Agreement and all provisions of such Sections of the Security Agreement relating to such remedies, powers and rights, together with all definitions therein applicable to such provisions, are hereby incorporated by reference as if set forth herein in their entirety, provided that: -11- (1) all references to "Grantor" or "Grantors" therein shall have the respective meanings ascribed thereto herein; (2) all references to "Collateral" therein shall have the meaning ascribed thereto herein; (3) all references to "the Contracts" therein shall be deemed to be references to "this Agreement" herein; (4) all references to "Default" or "Event of Default" therein shall be deemed to be references to "Capital Call Event" herein; (5) all references to "Section 17(a)" therein shall be deemed to be references to "Section 17 of this Agreement" herein; and (6) all references to "this Agreement", "herein", "hereunder" and words of similar import therein shall mean and be a reference to "this Agreement" as defined herein. (xi) Each Grantor waives and agrees not to assert any rights or privileges it may acquire under Section 9-112 of the Uniform Commercial Code as from time to time in effect in the State of New York. 8. The Collateral Agent, the Administrative Agent, the Secured Parties (or any of the Secured Parties) and/or the Lenders (or any of the Lenders) may (except as shall be required by applicable statute and cannot be waived) at any time and from time to time without the consent of, or notice to, any of the Designated Capital Call Investors, Investor LP, Holdings or the Borrower, in each case without incurring responsibility to any such person, without impairing or releasing the obligations of any such person hereunder, upon or without any terms or conditions and in whole or in part: (i) change the manner, place or terms of payment of, and/or change or extend the time of payment of, renew, alter or increase any of the Obligations, any security therefor, or any liability incurred directly or indirectly in respect thereof; (ii) take and hold security for the payment of the Obligations and sell, exchange, release, impair, surrender, realize upon or otherwise deal with in any manner and in any order any property by whomsoever at any time pledged or mortgaged to secure, or howsoever securing, the Obligations or any liabilities (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, and/or any offset there against; -12- (iii) exercise or refrain from exercising any rights against the Borrower, any other Loan Party or others or otherwise act or refrain from acting; (iv) settle or compromise any of the Obligations, any security therefor or any liability (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, and may subordinate the payment of all or any part thereof to the payment of any liability (whether due or not) of the Borrower to creditors of the Borrower other than the Secured Parties; (v) except as otherwise expressly provided herein, apply any sums by whomsoever paid or howsoever realized to any liability or liabilities of the Borrower to the Collateral Agent, the Administrative Agent, the Secured Parties or the Lenders regardless of what liability or liabilities of the Designated Capital Call Investors, Investor LP, Holdings or the Borrower remain unpaid; (vi) release or substitute any one or more endorsers, guarantors, Loan Parties or other obligors; (vii) consent to or waive any breach of, or any act, omission or default under, any of the Loan Documents or any of the instruments or agreements referred to therein, or otherwise amend, modify or supplement any of the Loan Documents or any of such other instruments or agreements, provided that no such consent, waiver, amendment, modification or supplement relating to the definition of "Net Leverage Ratio" shall be effective for purposes of this Agreement without the consent of the Designated Capital Call Investors and Investor LP; (viii) act or fail to act in any manner referred to in this Agreement which may deprive any of the Designated Capital Call Investors, Investor LP or Holdings of any right to subrogation against the Borrower to recover any payments made pursuant to this Agreement; (ix) pursue its rights and remedies under this Agreement and/or under any guaranty of all or any part of the Obligations in whatever order, or collectively, and the Collateral Agent, the Administrative Agent, the Secured Parties and the Lenders shall be entitled to the strict performance of each Designated Capital Call Investor, Investor LP, Holdings and the Borrower hereunder, notwithstanding any action taken (or not taken) by the Collateral Agent, the Administrative Agent, the Secured Parties and the Lenders to enforce any of its rights or remedies against any Designated Capital Call Investor, Investor LP, Holdings, the Borrower or any other person, for all or any part of the Obligations or any payment received under this Agreement or any other such guaranty; and/or -13- (x) take any other action which would, under otherwise applicable principles of common law, give rise to a legal or equitable discharge of any Designated Capital Call Investor, Investor LP, Holdings or the Borrower from its liabilities under this Agreement. 9. No invalidity, irregularity or unenforceability of all or any of the Loans, Letters of Credit and/or any of the other Obligations or of any security therefor shall affect, impair or be a defense to this Agreement, and the obligations of the Designated Capital Call Investors, Investor LP, Holdings and the Borrower hereunder shall be absolute, irrevocable and unconditional notwithstanding the occurrence of any event or the existence of any circumstance, including, without limitation, any bankruptcy or insolvency proceeding with respect to any Designated Capital Call Investor, Investor LP, Holdings or any of its Subsidiaries or any event or circumstance which would constitute a legal or equitable discharge, except payment in full in cash of all Obligations in accordance with the Credit Agreement (or the other Loan Documents) or the Interest Rate Protection Agreements, as the case may be. 10. In order to induce the Lenders (including the Tranche D Lenders) to enter into the First Amendment, each of the Designated Capital Call Investors, Investor LP, Holdings and the Borrower makes the following representations, warranties and agreements: (a) (i) Each of Blackstone Capital Partners, Blackstone Offshore Partners, Blackstone Family Partnership, Holdings and the Borrower is a duly organized and validly existing limited partnership in good standing under the laws of the State of Delaware (or, in the case of (x) Blackstone Offshore Partners, the Cayman Islands and (y) Holdings, the Commonwealth of Pennsylvania) and has the power and authority to own its property and assets and to transact the business in which it is engaged and presently proposes to engage and (ii) Investor LP is a duly organized and validly existing corporation in good standing under the laws of the State of Delaware and has the power and authority to own its property and assets and to transact the business in which it is engaged and presently proposes to engage. (b) Each of the Designated Capital Call Investors, Investor LP, Holdings and the Borrower has the full power and authority to grant the security interest in the Collateral pursuant hereto and to execute, deliver and perform the terms and provisions of this Agreement and has taken all necessary action to authorize the execution, delivery and performance by it of this Agreement. Each of the Designated Capital Call Investors, Investor LP, Holdings and the Borrower has duly executed and delivered this Agreement, and this Agreement constitutes its legal, valid and binding obligation enforceable against it in accordance with its terms, except to the extent that the enforceability hereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other -14- similar laws generally affecting creditors' rights and by equitable principles (regardless of whether enforcement is sought in equity or at law). (c) Neither the execution, delivery or performance by any of the Designated Capital Call Investors, Investor LP, Holdings or the Borrower of this Agreement, nor compliance by it with the terms and provisions hereof, nor the consummation of the transactions contemplated herein, (x) will contravene any provision of any applicable law, statute, rule or regulation or any applicable order, writ, injunction or decree of any court or governmental instrumentality, (y) will conflict with or result in any breach of any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the property or assets of such person pursuant to the terms of any indenture, mortgage, deed of trust, credit agreement, loan agreement or any other material agreement, contract or instrument to which it is a party or by which it or any of its property or assets is bound or to which it may be subject or (z) will violate any provision of any of the organizational documents of such person, in the case of each of the preceding sub-clauses, which could reasonably be expected to have (i) a materially adverse effect on the assets, business, operations, properties, liabilities, profits or condition (financial or otherwise) of such person, (ii) a material impairment of the ability of such person to perform any of its material obligations hereunder or (iii) an impairment of the validity or enforceability of, or a material impairment of the material rights, remedies or benefits available to the Lenders, the Secured Parties, the Administrative Agent or the Collateral Agent hereunder. (d) Other than the filing of financing statements in appropriate form in the jurisdictions specified on Schedule I hereto, no other order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption or any other action by, any Governmental Authority is or will be required to authorize, or is required in connection with, (x) the execution, delivery and performance of this Agreement or (y) the legality, validity, binding effect or enforceability of this Agreement. (e) This Agreement is effective to create in favor of the Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid and enforceable security interest in the Collateral and, upon the filing of financing statements in appropriate form in the jurisdictions specified on Schedule I hereto, this Agreement will constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Grantors in such Collateral and, subject to Section 9-306 of the Uniform Commercial Code, the Proceeds thereof, in each case prior and superior in right to any other person, other than with -15- respect to Liens expressly permitted by Section 6.02 of the Credit Agreement. (f) As of the First Amendment Effective Date (as defined in the First Amendment), each Grantor's chief executive office and chief place of business is located at the location listed on Schedule II hereto. (g) There are no actions, suits or proceedings pending or, to the knowledge of any of the Designated Capital Call Investors, Investor LP, Holdings and the Borrower, threatened (x) with respect to this Agreement or (y) that could reasonably be expected to (i) materially and adversely effect the business, operations, property, assets, liabilities or condition (financial or otherwise) of such person or (ii) have a material adverse effect on the rights or remedies of the Secured Parties, the Lenders, the Collateral Agent or the Administrative Agent hereunder or on the ability of such person to perform its obligations to the Secured Parties, the Lenders, the Collateral Agent or the Administrative Agent hereunder. (h) Each of the Designated Capital Call Investors, Investor LP, Holdings and the Borrower is in compliance with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property, except such noncompliances as could not, individually or in the aggregate, reasonably be expected to have a material adverse effect on either (i) the business, operations, property, assets, liabilities or condition (financial or otherwise) of such person or (ii) the rights or remedies of the Secured Parties, the Lenders, the Collateral Agent or the Administrative Agent hereunder or on its ability to perform its obligations hereunder. (i) (x) Each of Blackstone Capital Partners and Blackstone Offshore Partners (or, in each case, the general partner(s) thereof) has, and will at all times during the term of this Agreement have, the right to call cash capital contributions from the respective partners of Blackstone Capital Partners or Blackstone Offshore Partners, as the case may be, in amounts, and at times, sufficient to fund in a timely manner all of the respective obligations of Blackstone Capital Partners or Blackstone Offshore Partners, as the case may be, under this Agreement and (y) Blackstone Family Partnership has, and will at all times during the term of this Agreement have, sufficient assets to fund in a timely manner all of its obligations under this Agreement. 11. (a) Each of Blackstone Capital Partners and Blackstone Offshore Partners (and, in each case, the general partner(s) thereof) agrees to take all action as may be necessary so that, at all times prior to the satisfaction and release of all of the respective -16- obligations of Blackstone Capital Partners or Blackstone Offshore Partners, as the case may be, under this Agreement pursuant to Section 17 below, Blackstone Capital Partners or Blackstone Offshore Partners, as the case may be, (and/or, in each case, the general partner(s) thereof) shall have the right to call cash capital contributions from the respective partners of Blackstone Capital Partners or Blackstone Offshore Partners, as the case may be, in amounts, and at times, sufficient to fund in a timely manner all of the respective obligations of Blackstone Capital Partners or Blackstone Offshore Partners, as the case may be, under this Agreement. (b) Blackstone Family Partnership (and the general partner thereof) agrees to take all action as may be necessary so that, at all times prior to the satisfaction and release of all of its obligations under this Agreement pursuant to Section 17 below, Blackstone Family Partnership shall have sufficient assets to fund in a timely manner all of its obligations under this Agreement. 12. Blackstone Offshore Partners (and the general partners thereof) agrees to take all necessary actions (including without limitation all necessary authorizations, consents or approvals of, the giving of notice to, or the registration or filing with, or the taking of any other action in respect of, any governmental or judicial authority or agency in the Cayman Islands) prior to the 90th day after the First Amendment Effective Date to ensure (x) continued compliance by Blackstone Offshore Partners (and the general partners thereof) with all applicable Cayman Islands statutory requirements, (y) maintenance of existence and good standing of Blackstone Offshore Partners as an exempted limited partnership and (z) the authority of the General Partners to act on behalf of, and to bind, Blackstone Offshore Partners; it being understood and agreed that such actions shall specifically include, without limitation, (A) the establishment and maintenance of proper books of record and account in which full, true and correct entries in conformity with all requirements of applicable law shall be made of all dealings and transactions (including the entering into the Capital Call Agreement) in relation to the business and activities of Blackstone Offshore Partners and (B) the filing of all original documents and completion of the statutory registers in connection with recording Blackstone Services (Cayman) III LDC as the Administrative General Partner of Blackstone Offshore Partners. 13. No failure or delay on the part of the Collateral Agent, the Administrative Agent, any Secured Party, any Lender, any Designated Capital Call Investor, Investor LP, Holdings, the Borrower or any other Loan Party in exercising any right, power or privilege hereunder and no course of dealing between or among the Collateral Agent, the Administrative Agent, any Secured Party, any Lender, any Designated Capital Call Investor, Investor LP, Holdings, the Borrower or any other Loan Party shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights, powers and remedies herein expressly provided are cumulative and not exclusive of any rights, powers or -17- remedies which the Collateral Agent, the Administrative Agent, any Secured Party or any Lender would otherwise have. No notice to or demand on any Designated Capital Call Investor, Investor LP, Holdings or the Borrower in any case shall entitle such person to any other further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Collateral Agent, the Administrative Agent, any Secured Party or any Lender to any other or further action in any circumstances without notice or demand. 14. This Agreement shall be binding upon each Designated Capital Call Investor, Investor LP, Holdings and the Borrower, and their respective successors and assigns (including, without limitation, any executors or administrators) and shall inure to the benefit of the Collateral Agent, the Administrative Agent, the Secured Parties and the Lenders and their respective successors and assigns. Each of the Designated Capital Call Investors, Investor LP, Holdings and the Borrower acknowledges and agrees that this Agreement is made for the benefit of the Collateral Agent, the Administrative Agent, the Secured Parties and the Lenders and that the Collateral Agent, the Administrative Agent, the Secured Parties and/or the Lenders may enforce all of the obligations of the Designated Capital Call Investors, Investor LP, Holdings and the Borrower hereunder directly against them. Neither the Designated Capital Call Investors, Investor LP, Holdings nor the Borrower may assign any of its rights or obligations hereunder without the consent of the Required Lenders. 15. This Agreement is expressly made for the benefit of the Collateral Agent, the Administrative Agent, the Lenders and the Secured Parties. Neither this Agreement nor any provision hereof may be changed, modified, amended or waived except with the written consent of each Designated Capital Call Investor, Investor LP, Holdings, the Borrower, the Collateral Agent and the Administrative Agent (with the consent of the Required Lenders). 16. All notices and other communication hereunder shall be made at the addresses, in the manner and with the effect provided in Section 9.01 of the Credit Agreement (or, in the case of the Collateral Agent, Section 12 of the Security Agreement), provided that, for this purpose, the address of Blackstone Capital Partners, Blackstone Offshore Partners, Blackstone Family Partnership and Investor LP shall be the address specified immediately below its respective signature below. 17. (a) This Agreement and the security interests created hereby shall terminate and be of no further force and effect (except to the extent any party's obligations, if any, arising prior to such time hereunder have not theretofore been fulfilled) upon the earliest of (i) the occurrence of a Capital Call Event and the making of all of the required payments to the Administrative Agent pursuant to Section 2(a) above, (ii) so long as no Capital Call Event has theretofore occurred, the date on which Holdings or the Borrower delivers the applicable financial statements (and accompanying certification) pursuant to Section 5.04 of the Credit Agreement demonstrating to the reasonable satisfaction of the Administrative Agent that the Net Leverage Ratio did -18- not exceed 5.15:1.0 in respect of the Test Period ending closest to March 31, 2000 (so long as no Capital Call Event has theretofore occurred) and (iii) the date on which all Commitments and Letters of Credit under the Credit Agreement shall have been terminated, all Obligations shall have been repaid in full in cash in accordance with the requirements of the Credit Agreement (or the other Loan Documents) or the Interest Rate Protection Agreements, as the case may be, and all Interest Rate Protection Agreements shall have been terminated. Notwithstanding anything to the contrary contained herein, none of the Designated Capital Call Investors and Investor LP shall have any obligations under this Agreement in respect of a Capital Call Event of the type described in any of clauses (i) through (iv), inclusive, of the definition thereof, in each case if same occurs after March 31, 2000. (b) In connection with any termination pursuant to paragraph (a) above, (i) the Borrower shall, on behalf of the Grantors, deliver to the Collateral Agent a certificate signed by a Responsible Officer of the Borrower certifying that such termination is permitted pursuant to paragraph (a) of this Section 17, and the Collateral Agent shall be entitled (but not required) to conclusively rely thereon and in any event shall not incur any liability to any person in acting (or refraining from acting) in reliance thereon and (ii) the Collateral Agent shall execute and deliver to each Grantor, at the expense of such Grantor or the Borrower, all Uniform Commercial Code termination statements and similar documents that such Grantor shall reasonably request to evidence such termination. Any execution and delivery of termination statements or documents pursuant to this Section 17 shall be without recourse to or warranty by the Collateral Agent. 18. (a) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH DESIGNATED CAPITAL CALL INVESTOR, INVESTOR LP, HOLDINGS, THE BORROWER, THE COLLATERAL AGENT, THE ADMINISTRATIVE AGENT, THE SECURED PARTIES AND THE LENDERS HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE CITY, COUNTY AND STATE OF NEW YORK AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH DESIGNATED CAPITAL CALL INVESTOR, INVESTOR LP, HOLDINGS AND THE BORROWER HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS WITH RESPECT TO ANY SUCH ACTION OR PROCEEDING. EACH DESIGNATED CAPITAL CALL INVESTOR, INVESTOR LP, HOLDINGS AND THE BORROWER HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH COURTS LACK JURISDICTION OVER SUCH PERSON, AND AGREES NOT TO PLEAD OR CLAIM, IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT BROUGHT IN ANY OF THE AFORESAID COURTS, THAT ANY SUCH COURT LACKS JURISDICTION OVER SUCH PERSON. EACH DESIGNATED CAPITAL CALL INVESTOR, INVESTOR LP, HOLDINGS AND THE BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH PERSON, AT ITS ADDRESS FOR NOTICES PURSUANT TO SECTION 9.01 OF THE CREDIT AGREEMENT (OR, IN THE CASE OF THE COLLATERAL AGENT, -19- SECTION 12 OF THE SECURITY AGREEMENT) OR AS SET FORTH IMMEDIATELY BELOW ITS SIGNATURE BELOW, AS THE CASE MAY BE, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. EACH DESIGNATED CAPITAL CALL INVESTOR, INVESTOR LP, HOLDINGS AND THE BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION TO SUCH SERVICE OF PROCESS AND FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY ACTION OR PROCEEDING COMMENCED HEREUNDER THAT SERVICE OF PROCESS WAS IN ANY WAY INVALID OR INEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE COLLATERAL AGENT, THE ADMINISTRATIVE AGENT, ANY SECURED PARTY, ANY LENDER OR THE HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY DESIGNATED CAPITAL CALL INVESTOR, INVESTOR LP, HOLDINGS OR THE BORROWER IN ANY OTHER JURISDICTION. (c) EACH DESIGNATED CAPITAL CALL INVESTOR, INVESTOR LP, HOLDINGS AND THE BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (b) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH DESIGNATED CAPITAL CALL INVESTOR, INVESTOR LP, HOLDINGS AND THE BORROWER FURTHER IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN ANY COURT OR JURISDICTION, INCLUDING, WITHOUT LIMITATION, THOSE REFERRED TO IN CLAUSE (b) ABOVE, IN RESPECT OF ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT. 19. The Borrower hereby agrees to pay all reasonable out-of-pocket costs and expenses of each of the Collateral Agent, the Administrative Agent, each Secured Party and each Lender in connection with the administration and enforcement of this Agreement and the Borrower hereby agrees to pay all reasonable out-of-pocket costs and expenses of the Collateral Agent, the Administrative Agent in connection with any amendment, waiver or consent relating hereto (including, without limitation, in each case, the reasonable fees and disbursements of counsel employed by the Collateral Agent, the Administrative Agent, each Secured Party and each Lender, as the case may be), in each case within 10 Business Days after any request is made by the Collateral Agent, the Administrative Agent, any such Secured Party or any such Lender for any such payment. 20. If any of the Designated Capital Call Investors, Investor LP, Holdings or the Borrower shall default in the payment of the Capital Call Amount or any other amount becoming due hereunder, such person shall on demand from time to time pay interest, to the extent permitted by law, directly to the Administrative Agent on such defaulted amount for the period beginning on the date of such default up to (but not including) the date of actual payment (after as well as before judgment) at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the greater of (x) 2% per annum in excess of the rate applicable to Tranche D Term Loans maintained as ABR Loans (assuming same are outstanding under the Credit -20- Agreement) from time to time and (y) the rate which is 2% in excess of the rate then borne by such Loans (assuming same are outstanding under the Credit Agreement). Any such interest shall be applied by the Administrative Agent on the same basis and in the same manner as interest paid pursuant to Section 2.07 of the Credit Agreement. Notwithstanding the foregoing, if on the date the Capital Call Amount (or any portion thereof) shall have become due and payable hereunder the Designated Capital Call Investors are prohibited by operation of law from making Investments in Investor LP (which are contributed by Investor LP to the equity capital of Holdings which are further contributed by Holdings to the equity capital of the Borrower) as contemplated by Section 3(a) hereof due to any bankruptcy or similar proceeding relating to Investor LP or Holdings (or any of Holdings' Subsidiaries) or for any other reason whatsoever, no interest under this Section 20 shall accrue on the Capital Call Amount (or such portion thereof) for the period beginning on the date when the Capital Call Amount (or such portion thereof) shall have become due and payable hereunder up to (but not including) the earlier to occur of: (x) such legal prohibition on the ability of the Designated Capital Call Investors to make Investments in Investor LP shall, in the reasonable opinion of the Administrative Agent, cease to exist and (y) the Administrative Agent shall have exercised its election to require the Designated Capital Call Investors to purchase from the Lenders subordinated participations in the Loans in accordance with Section 2(b) hereof. 21. Each of the Administrative Agent and the Collateral Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by any person that the Administrative Agent or the Collateral Agent, as the case may be, believed to be the proper person, and, with respect to all legal matters pertaining to this Agreement and any other Loan Document and its duties hereunder and thereunder, upon advice of counsel selected by the Administrative Agent or the Collateral Agent, as the case may be. 22. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with each Designated Capital Call Investor, Investor LP, Holdings, the Borrower, the Collateral Agent and the Administrative Agent. 23. Notwithstanding anything contained herein to the contrary, each Lender, each Secured Party and each Agent agree that (a) in an action to collect any amounts due under, or otherwise in respect of, this Agreement, no future, current or former partner in Investor LP or in any Designated Capital Call Investor (except, if any such partner is a Loan Party or is otherwise a party to any Loan Documents, for such person's obligations under such Loan Documents) in its capacity as such will be personally liable for any amounts due or any other liability -21- under this Agreement, and no deficiency or personal judgment will be sought against any such partner in its capacity as such for payment of any amount contemplated herein and (b) no property or assets of any such future, current or former partner in Investor LP or in any Designated Capital Call Investor (except, if any such partner is a Loan Party or is otherwise a party to any Loan Documents, for such person's obligations under such Loan Documents) in its capacity as such shall be sold, levied upon or otherwise used to satisfy any judgment rendered in connection with any action brought with respect to this Agreement; provided, however, that nothing contained in this Section 23 shall (i) affect, limit, restrict or impair in any way whatsoever (x) the obligations and liability of the Designated Capital Call Investors or Investor LP hereunder as parties hereto or (y) the validity of the obligations evidenced by this Agreement, (ii) prevent the taking of any action permitted by law against any of the Designated Capital Call Investors, Investor LP, Holdings, the Borrower or any other Loan Party (or, in each case, their respective assets or the proceeds thereof) in respect of such obligations or (iii) in any way whatsoever affect or impair the right of any Agent, any Lender or any Secured Party to take any action permitted by law to realize upon any Collateral or any other collateral or security which may secure such obligations of the Designated Capital Call Investors or Investor LP or of Holdings, the Borrower or any other Loan Party. * * * -22- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. GRAHAM PACKAGING HOLDINGS COMPANY By: BCP/Graham Holdings L.L.C., its general partner By: ________________________________ Name: Title: GRAHAM PACKAGING COMPANY By: GPC Opco GP LLC, its general partner By: ________________________________ Name: Title: -23- BLACKSTONE CAPITAL PARTNERS III MERCHANT BANKING FUND L.P. By: Blackstone Management Associates III LLC, its general partner By: ________________________________ Name: Title: Address: -24- BLACKSTONE OFFSHORE CAPITAL PARTNERS III L.P. By: Blackstone Services (Cayman) III LDC, its general partner By: ________________________________ Name: Title: Address: By: Blackstone Management Associates III LLC, its general partner By: ________________________________ Name: Title: Address: -25- BLACKSTONE FAMILY INVESTMENT PARTNERSHIP III L.P. By: Blackstone Management Associates III LLC, its general partner By: ________________________________ Name: Title: Address: -26- BMP/GRAHAM HOLDINGS CORPORATION By: ________________________________ Name: Title: Address: -27- Accepted and Agreed to: BANKERS TRUST COMPANY, as Collateral Agent and as Administrative Agent By:_______________________________ Name: Title: -28- SCHEDULE I LIST OF JURISDICTIONS FOR UCC FILINGS -29- SCHEDULE II LIST OF CHIEF EXECUTIVE OFFICES AND CHIEF PLACES OF BUSINESS -30- EX-21.1 4 Exhibit 21.1 List of Subsidiaries of Graham Packaging Company Name Jurisdiction and Type of Formation GPC Capital Corp. I Delaware corporation GPC Sub GP LC Delaware limited liability company Graham Packaging Canada Ontario corporation Limited Graham Packaging France Pennsylvania general Partners partnership Graham Packaging France French S.A. Holdings S.A. Graham Packaging France, French S.A. S.A. Graham Packaging Italy, Italian S.r.L. S.r.L. S.I.P. Srl Italian S.r.L. -1- LIDO Plast-Graham SRL Argentine S.r.L. Graham Packaging Poland, Pennsylvania limited L.P. partnership Masko Graham Spolka Polish Ltda. Z.O.O. Graham Recycling Company Pennsylvania limited partnership Graham Packaging Latin Delaware limited liability America, LLC company Graham Brasil Brazilian Ltda. Participacoes Ltda. Graham Packaging do Brazilian S.A. Brasil Industria e Comercio S.A. Graham Packaging U.K. England corporation Ltd. Graham Packaging German LLC Deutschland Gmbh Graham Plastpak Plastic Turkish LLC Ambalaj A.S. Graham Packaging Europe French Societe S.A.S. Graham Emballages French corporation Plastiques S.A. Resin Rio Comercio Ltda. Brazil LLC Note: Certain foreign subsidiaries' statutory shares are not included in the Table above. -2- EX-27 5
5 1000 YEAR YEAR DEC-31-1997 DEC-31-1998 DEC-31-1997 DEC-31-1998 7,218 7,476 0 0 70,930 96,025 1,635 1,435 32,236 41,247 117,947 157,900 587,910 751,588 327,614 364,896 385,491 598,672 113,132 160,845 0 0 0 0 0 0 0 0 337 (326,172) 385,491 598,672 521,707 588,131 521,707 588,131 437,301 470,762 437,301 470,762 58,653 72,285 0 0 14,940 57,833 10,813 (12,749) 600 1,092 10,213 (13,841) 0 0 0 675 0 0 10,213 (14,516) 0 0 0 0
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