<PAGE>
As filed with the Securities and Exchange Commission on July 31, 1998
Registration No. 333-53603
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GRAHAM PACKAGING COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3085 23-2786688
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
------------------------
GPC CAPITAL CORP. I
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3085 23-2952403
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
------------------------
GRAHAM PACKAGING HOLDINGS COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PENNSYLVANIA 3085 23-2553000
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
------------------------
GPC CAPITAL CORP. II
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3085 23-2952404
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
------------------------
PHILIP R. YATES
JOHN E. HAMILTON
1110 EAST PRINCESS STREET 1110 EAST PRINCESS STREET
YORK, PENNSYLVANIA 17403 YORK, PENNSYLVANIA 17403
(717) 849-8500 (717) 849-8500
(ADDRESS, INCLUDING ZIP CODE, AND (NAME, ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANTS' INCLUDING AREA CODE, OF AGENT FOR
PRINCIPAL EXECUTIVE OFFICES) SERVICE)
------------------------
With a copy to:
WILSON S. NEELY, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 455-2000
------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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SUBJECT TO COMPLETION DATED JULY 31, 1998
PRELIMINARY PROSPECTUS
GRAHAM PACKAGING COMPANY
AND
GPC CAPITAL CORP. I
OFFER TO EXCHANGE UP TO $150,000,000 OF THEIR
8 3/4% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B, AND $75,000,000 OF THEIR
FLOATING INTEREST RATE SUBORDINATED TERM SECURITIES DUE 2008 (FIRSTS(SERVICE
MARK)*), SERIES B
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
FOR ANY AND ALL OF THEIR OUTSTANDING
8 3/4% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A, AND ANY AND ALL OF THEIR
OUTSTANDING FLOATING INTEREST RATE SUBORDINATED TERM SECURITIES DUE 2008
(FIRSTS(SERVICE MARK)*), SERIES A
GRAHAM PACKAGING HOLDINGS COMPANY
AND
GPC CAPITAL CORP. II
OFFER TO EXCHANGE UP TO $169,000,000 OF THEIR
10 3/4% SENIOR DISCOUNT NOTES DUE 2009, SERIES B,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
FOR ANY AND ALL OF THEIR OUTSTANDING
10 3/4% SENIOR DISCOUNT NOTES DUE 2009, SERIES A
THE EXCHANGE OFFERS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON SEPTEMBER
2, 1998, UNLESS EXTENDED.
Graham Packaging Company (the 'Operating Company') and GPC Capital Corp. I
('CapCo I' and, together with the Operating Company, the 'Company Issuers'),
hereby offer, upon the terms and subject to the conditions set forth in this
Prospectus and the related Letters of Transmittal (which together constitute the
'Senior Subordinated Exchange Offers'), (i) to exchange an aggregate of up to
$150,000,000 principal amount of 8 3/4% Senior Subordinated Notes Due 2008,
Series B (the 'Fixed Rate Senior Subordinated Exchange Notes'), of the Company
Issuers for an equal principal amount of the issued and outstanding 8 3/4%
Senior Subordinated Notes Due 2008, Series A (the 'Fixed Rate Senior
Subordinated Old Notes' and, together with the Fixed Rate Senior Subordinated
Exchange Notes, the 'Fixed Rate Senior Subordinated Notes'), of the Company
Issuers from the Holders thereof and (ii) to exchange an aggregate of up to
$75,000,000 principal amount of 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'), of the Company Issuers for an equal
principal amount of the issued and outstanding Floating Interest Rate
Subordinated Term Securities Due 2008, Series A (the 'Floating Rate Senior
Subordinated Old Notes' and, together with the Fixed Rate Senior Subordinated
Old Notes, the 'Senior Subordinated Old Notes'), of the Company Issuers from the
Holders thereof. The Floating Rate Senior Subordinated Exchange Notes and the
Floating Rate Senior Subordinated Old Notes are herein sometimes collectively
called the 'Floating Rate Senior Subordinated Notes,' and the Fixed Rate Senior
Subordinated Notes and the Floating Rate Senior Subordinated Notes are herein
sometimes collectively called the 'Senior Subordinated Notes.'
Graham Packaging Holdings Company ('Holdings') and GPC Capital Corp. II
('CapCo II' and, together with Holdings, the 'Holdings Issuers', which together
with the Company Issuers are herein sometimes collectively called the
'Issuers'), hereby offer, upon the terms and subject to the conditions set forth
in this Prospectus and the related Letter of Transmittal (which together
constitute the 'Senior Discount Exchange Offer'), to exchange an aggregate of up
to $169,000,000 principal amount at maturity of 10 3/4% Senior Discount Notes
Due 2009, Series B (the 'Senior Discount Exchange Notes'), of the Holdings
Issuers for an equal principal amount of the issued and outstanding 10 3/4%
Senior Discount Notes Due 2009, Series A (the 'Senior Discount Old Notes' and,
together with the Senior Discount Exchange Notes, the 'Senior Discount Notes'),
of the Holdings Issuers from the Holders thereof. (Continued on next page.)
SEE 'RISK FACTORS,' BEGINNING ON PAGE 25, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY INVESTORS IN CONNECTION WITH THE EXCHANGE
OFFERS AND AN INVESTMENT IN THE SENIOR SUBORDINATED EXCHANGE NOTES OR THE SENIOR
DISCOUNT EXCHANGE NOTES.
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THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is July 31, 1998.
* FIRSTS is a service mark of BT Alex. Brown Incorporated.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
(Continued from cover page)
The Company Issuers and the Holdings Issuers are herein sometimes
collectively called the 'Issuers'; the Senior Subordinated Exchange Offer
relating to the Fixed Rate Senior Subordinated Notes is herein sometimes called
the 'Fixed Rate Senior Subordinated Exchange Offer'; the Senior Subordinated
Exchange Offer relating to the Floating Rate Senior Subordinated Notes is herein
sometimes called the 'Floating Rate Senior Subordinated Exchange Offer'; the
Senior Subordinated Exchange Offers and the Senior Discount Exchange Offer are
herein sometimes collectively called the 'Exchange Offers'; the Senior
Subordinated Exchange Notes and the Senior Discount Exchange Notes are herein
sometimes collectively called the 'Exchange Notes'; the Senior Subordinated Old
Notes and the Senior Discount Old Notes are herein sometimes collectively called
the 'Old Notes'; and the Senior Subordinated Notes and the Senior Discount Notes
are herein sometimes collectively called the 'Notes'.
As of the date of this Prospectus, $150,000,000 aggregate principal amount
of the Fixed Rate Senior Subordinated Old Notes and $75,000,000 aggregate
principal amount of the Floating Rate Senior Subordinated Old Notes is
outstanding. The terms of the Fixed Rate Senior Subordinated Exchange Notes and
the Floating Rate Senior Subordinated Exchange Notes are identical in all
material respects to the terms of the Fixed Rate Senior Subordinated Old Notes
and the Floating Rate Senior Subordinated Old Notes, respectively, except that
the Senior Subordinated Exchange Notes have been registered under the Securities
Act of 1933, as amended (the 'Securities Act'), and therefore will not bear
legends restricting their transfer and will not contain certain provisions
providing for an increase in the interest rate on the Senior Subordinated Old
Notes under certain circumstances described in the Senior Subordinated
Registration Rights Agreement (as hereinafter defined), which provisions will
terminate as to all of the Senior Subordinated Notes upon the consummation of
the Senior Subordinated Exchange Offers. While the Operating Company and CapCo I
are jointly and severally liable for the obligations under the Senior
Subordinated Notes, CapCo I, a wholly owned subsidiary of the Operating Company,
has only nominal assets, does not conduct any operations and was formed solely
to act as a co-issuer of the Senior Subordinated Notes.
As of the date of this Prospectus, $169,000,000 aggregate principal amount
at maturity of the Senior Discount Old Notes is outstanding. The Senior Discount
Old Notes were issued at a substantial discount from their principal amount so
as to generate gross proceeds to the Holdings Issuers of $100,612,460. See
'Certain U.S. Federal Income Tax Considerations.' The terms of the Senior
Discount Exchange Notes are identical in all material respects to the terms of
the Senior Discount Old Notes, except that the Senior Discount Exchange Notes
have been registered under the Securities Act and therefore will not bear
legends restricting their transfer and will not contain certain provisions
providing for an increase in the interest rate on the Senior Discount Old Notes
under certain circumstances described in the Senior Discount Registration Rights
Agreement (as hereinafter defined), which provisions will terminate as to all of
the Senior Discount Notes upon the consummation of the Senior Discount Exchange
Offer. While Holdings and CapCo II are jointly and severally liable for the
obligations under the Senior Discount Notes, CapCo II, a wholly owned subsidiary
of Holdings, has only nominal assets, does not conduct any operations and was
formed solely to act as a co-issuer of the Senior Discount Notes.
Each of the Indentures (as hereinafter defined) under which the Notes have
been or will be issued provides that all obligations under the Indentures, the
Notes, the Holdings Guarantee and the Old Holdings Guarantee (as each is
hereinafter defined) (and all notes and guarantees issued in exchange therefor)
shall be expressly non-recourse to the partners of Holdings in their capacities
as such, and that, by purchasing the Notes, each holder of Notes waives any
liability of any partner of Holdings under the Indentures, the Notes, the
Holdings Guarantee and the Old Holdings Guarantee (and all notes and guarantees
issued in exchange therefor). See 'Risk Factors,' 'The Recapitalization,' 'The
Issuers' and 'Security Ownership' in this Prospectus.
Interest on the Senior Subordinated Exchange Notes will accrue from the
last Interest Payment Date on which interest was paid on the Senior Subordinated
Old Notes so surrendered or, if no interest has been paid on such Notes, from
February 2, 1998, and will be payable semiannually in arrears on January 15 and
July 15 of each year, commencing on the first such date to occur after the
effective date of the applicable Senior Subordinated Exchange Offer, at the rate
of 8 3/4% per annum in the case of the Fixed Rate Senior Subordinated Exchange
Notes and at a rate per annum equal to LIBOR (as defined) plus 3 5/8% in the
case of the Floating Rate
ii
<PAGE>
Senior Subordinated Exchange Notes. Interest on the Floating Rate Senior
Subordinated Exchange Notes will be reset semiannually. The Senior Subordinated
Exchange Notes will mature on January 15, 2008.
The Senior Subordinated Exchange Notes will be general unsecured
obligations of the Company Issuers and will be subordinated in right of payment
to all existing and future Senior Indebtedness (as defined) of the Company
Issuers. As of March 29, 1998, after giving effect to the Recapitalization, the
Offerings and the initial borrowings under the New Credit Facility (as defined),
the Company Issuers had $414.7 million of Senior Indebtedness outstanding. In
addition, the Senior Subordinated Exchange Notes will be effectively
subordinated to all indebtedness and other liabilities (including trade
payables) of the Operating Company's subsidiaries. As of March 29, 1998, after
giving effect to the Recapitalization, the Offerings and the initial borrowings
under the New Credit Facility, such subsidiaries had total liabilities of $38.4
million, including indebtedness of $5.1 million. The Senior Subordinated
Exchange Notes will rank pari passu with any future senior subordinated
indebtedness of the Company Issuers and will rank senior to all other
subordinated indebtedness of the Company Issuers. The Senior Subordinated
Exchange Notes will be unconditionally guaranteed by Holdings (the 'Holdings
Guarantee') on a senior subordinated basis, and Holdings hereby offers to issue
the Holdings Guarantee with respect to all Senior Subordinated Exchange Notes
issued in the Senior Subordinated Exchange Offers in exchange for Holdings'
outstanding guarantees (the 'Old Holdings Guarantee') of the Senior Subordinated
Old Notes. The Old Holdings Guarantee is, and the Holdings Guarantee will be,
full and unconditional. 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, investors should not rely on the Holdings
Guarantee in evaluating an investment in the Senior Subordinated Exchange Notes.
See 'Use of Proceeds,' 'Unaudited Pro Forma Financial Information' and
'Description of the New Credit Facility.'
The Fixed Rate Senior Subordinated Exchange Notes will be redeemable, in
whole or in part, at the option of the Company Issuers, on or after January 15,
2003 at the redemption prices set forth herein, plus accrued and unpaid interest
to the date of redemption. The Floating Rate Senior Subordinated Exchange Notes
will be redeemable, in whole or in part, at the option of the Company Issuers,
at any time, at the redemption prices set forth herein plus accrued and unpaid
interest to the date of redemption. The Fixed Rate Senior Subordinated Exchange
Notes are not redeemable by the Company Issuers prior to January 15, 2003,
except that, at any time on or prior to January 15, 2001, the Company Issuers,
at their option, may redeem, with the net cash proceeds of one or more Equity
Offerings (as defined), Fixed Rate Senior Subordinated Notes up to an aggregate
principal amount equal to 40% of the aggregate principal amount of the Fixed
Rate Senior Subordinated Old Notes originally issued, at a redemption price
equal to 108.750% of the principal amount thereof, plus accrued and unpaid
interest to the date of redemption; provided that Fixed Rate Senior Subordinated
Notes in an aggregate principal amount equal to at least 60% of the aggregate
principal amount of the Fixed Rate Senior Subordinated Old Notes originally
issued remains outstanding immediately following such redemption.
Upon a Change of Control (as defined), each holder of Senior Subordinated
Exchange Notes will have the right to require the Company Issuers to repurchase
such holder's Senior Subordinated Exchange Notes at a price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest to the repurchase
date. In addition, in the event of certain Asset Sales (as defined), the Company
Issuers will be obligated to offer to repurchase the Senior Subordinated
Exchange Notes at a price equal to 100% of the principal amount thereof, plus
accrued and unpaid interest to the repurchase date. See 'Description of the
Senior Subordinated Exchange Notes.'
Cash interest on the Senior Discount Exchange Notes will not accrue until
January 15, 2003. Thereafter, interest on the Senior Discount Exchange Notes
will accrue from January 15, 2003 at the rate of 10 3/4% per annum on the
principal amount at maturity of the Senior Discount Exchange Notes, and will be
payable semiannually in arrears on January 15 and July 15 of each year,
commencing July 15, 2003. The Senior Discount Exchange Notes will mature on
January 15, 2009.
The Senior Discount Exchange Notes will be redeemable, in whole or in part,
at the option of the Holdings Issuers on or after January 15, 2003 at the
redemption prices set forth herein, plus accrued and unpaid interest to the date
of redemption. The Senior Discount Exchange Notes are not redeemable by the
Holdings Issuers prior to January 15, 2003, except that, at any time on or prior
to January 15, 2001, the Holdings Issuers, at their option,
iii
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may redeem, with the net cash proceeds of one or more Equity Offerings, Senior
Discount Notes up to an aggregate principal amount at maturity equal to 40% of
the aggregate principal amount at maturity of the Senior Discount Old Notes
originally issued, at a redemption price equal to 110.750% of the Accreted Value
(as defined) thereof; provided that Senior Discount Notes in an aggregate
principal amount equal to at least 60% of the aggregate principal amount at
maturity of the Senior Discount Old Notes originally issued remains outstanding
immediately following such redemption. See 'Description of the Senior Discount
Exchange Notes-- Redemption.'
Upon a Change of Control (as defined), each holder of Senior Discount
Exchange Notes will have the right to require the Holdings Issuers to repurchase
such holder's Senior Discount Exchange Notes at a price equal to 101% of the
Accreted Value thereof, plus accrued and unpaid interest, if any, to the
repurchase date. In addition, in the event of certain Asset Sales (as defined),
the Holdings Issuers will be obligated to offer to repurchase the Senior
Discount Exchange Notes, at a price equal to 100% of the Accreted Value thereof,
plus accrued and unpaid interest, if any, to the repurchase date. See
'Description of the Senior Discount Exchange Notes.'
The Senior Discount Exchange Notes will be general unsecured obligations of
the Holdings Issuers and will rank pari passu in right of payment with all
existing and future senior indebtedness of the Holdings Issuers and senior in
right of payment to all subordinated obligations of the Holdings Issuers. Since
Holdings is a holding company and conducts its business through subsidiaries,
the Senior Discount Exchange Notes will be effectively subordinated to all
indebtedness and other liabilities (including trade payables) of Holdings'
subsidiaries. Investors in the Senior Discount Exchange Notes will have no claim
against Holdings' principal subsidiary, the Operating Company, or any of its
subsidiaries. As of March 29, 1998, after giving effect to the Recapitalization,
the Offerings and the initial borrowings under the New Credit Facility, such
subsidiaries had total liabilities of $757.8 million, including indebtedness of
$641.5 million. See 'Use of Proceeds,' 'Unaudited Pro Forma Financial
Information' and 'Description of the New Credit Facility.'
The Old Notes were issued and sold on February 2, 1998 in transactions (the
'Offerings') not registered under the Securities Act in reliance upon an
exemption from the registration requirements thereof. In general, the Old Notes
may not be offered or sold unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act. The Senior Subordinated Exchange Notes and the Senior Discount
Exchange Notes are being offered hereby in order to satisfy certain obligations
of the Holdings Issuers contained in the Senior Subordinated Registration Rights
Agreement and the Senior Discount Registration Rights Agreement, respectively.
Based on interpretations by the Staff of the Securities and Exchange Commission
(the 'Commission') set forth in no-action letters issued to third parties, the
Issuers believe that the Exchange Notes issued pursuant to the respective
Exchange Offers in exchange for the respective series of Old Notes may be
offered for resale, resold or otherwise transferred by any holder thereof (other
than any such holder that is an 'affiliate' of the Issuers of such Exchange
Notes within the meaning of Rule 405 promulgated under the Securities Act)
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such Exchange Notes are acquired in the
ordinary course of such holder's business, such holder has no arrangement with
any person to participate in the distribution of such Exchange Notes and neither
such holder nor any such other person is engaging in or intends to engage in a
distribution of such Exchange Notes. However, the Issuers have not sought, and
do not intend to seek, their own no-action letter, and there can be no assurance
that the Staff of the Commission would make a similar determination with respect
to the Exchange Offers. Notwithstanding the foregoing, each broker-dealer that
receives Exchange Notes for its own account pursuant to an Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letters of Transmittal state that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an 'underwriter' within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with any resale of Exchange Notes received in
exchange for such Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities (other than Old Notes acquired directly from the Issuers thereof). A
broker-dealer may not participate in any of the Exchange Offers with respect to
Old Notes acquired other than as a result of market-making activities or other
trading activities. The respective Issuers have agreed that, for a period of 90
days after the date of this Prospectus, they will make this Prospectus available
to any broker-dealer for use in connection with any such resale. See 'Plan of
Distribution.'
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The Old Notes are designated for trading in the Private Offerings, Resales
and Trading through Automated Linkages ('PORTAL') market. There is no
established trading market for the Senior Subordinated Exchange Notes or the
Senior Discount Exchange Notes. The respective Issuers currently do not intend
to list any of the Exchange Notes on any securities exchange or to seek approval
for quotation of the Exchange Notes through any automated quotation system.
Accordingly, there can be no assurance as to the development or liquidity of any
market for any of the Exchange Notes.
The respective Exchange Offers are not conditioned upon any minimum
aggregate principal amount of any series of Old Notes being tendered for
exchange. The date of acceptance and exchange of each series of Old Notes (each
an 'Exchange Date') will be the fourth business day following the applicable
Expiration Date (as hereinafter defined). Old Notes tendered pursuant to an
Exchange Offer may be withdrawn at any time prior to the applicable Expiration
Date. The Senior Subordinated Exchange Offers will expire at 5:00 p.m., New York
City Time, on September 2, 1998 (the date of expiration of each Senior
Subordinated Exchange Offer, as extended, being herein called a 'Senior
Subordinated Expiration Date'), and the Senior Discount Exchange Offer will
expire at 5:00 p.m., New York City Time, on September 2, 1998 (as extended, the
'Senior Discount Expiration Date' and, together with the Senior Subordinated
Expiration Dates, the 'Expiration Dates'). The Issuers do not currently intend
to extend any of the Expiration Dates.
The respective Issuers will not receive any proceeds from any of the
Exchange Offers. The Company Issuers and the Holdings Issuers will pay all of
the expenses incident to the Senior Subordinated Exchange Offers and the Senior
Discount Exchange Offer, respectively. The Issuers used all of the proceeds from
the Offerings to (i) redeem certain partnership interests in Holdings pursuant
to the recapitalization transaction described herein (the 'Recapitalization');
(ii) repay substantially all of the existing debt of Holdings and its
subsidiaries; (iii) pay certain bonuses and other cash payments to certain
members of Management; and (iv) pay related transaction fees and expenses. Since
the consummation of the Recapitalization, the Issuers have been controlled by
Blackstone Capital Partners III Merchant Banking Fund L.P. and its affiliates
(collectively, 'Blackstone'). See 'The Recapitalization' and 'Security
Ownership.'
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AVAILABLE INFORMATION
The Issuers have filed with the Commission a Registration Statement on Form
S-4 (together with all amendments, exhibits, schedules and supplements thereto,
the 'Registration Statement') under the Securities Act with respect to the
Exchange Notes being offered hereby. This Prospectus, which forms a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement. For further information with respect to the Issuers and
the Exchange Notes, reference is made to the Registration Statement. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and, where such contract or other
document is an exhibit to the Registration Statement, each such statement is
qualified in all respects by the provisions in such exhibit, to which reference
is hereby made. The Issuers are not currently subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the 'Exchange
Act'). Upon completion of the Exchange Offers, the Holdings Issuers will be
subject to the information requirements of the Exchange Act and, in accordance
therewith, will file periodic reports and other information with the Commission.
The Registration Statement, such reports and other information can be inspected
and copied at the Public Reference Section of the Commission located at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549 and at
regional public reference facilities maintained by the Commission located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material, including copies of all or any portion of the Registration
Statement, can be obtained from the Public Reference Section of the Commission
at prescribed rates. Such material may also be accessed electronically by means
of the Commission's home page on the Internet (http://www.sec.gov). In addition,
pursuant to the Indentures covering the Notes, the Issuers have agreed that the
Holdings Issuers shall file with the Commission and provide to the Holders of
the Notes the annual reports and the information, documents and other reports
otherwise required pursuant to Section 13 of the Exchange Act. Such requirements
may be satisfied through the filing and provision of such documents and reports
which would otherwise be required pursuant to Section 13 in respect of the
Holdings Issuers.
UNTIL OCTOBER 29, 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
FORWARD-LOOKING STATEMENTS
ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS
PROSPECTUS, INCLUDING, WITHOUT LIMITATION, STATEMENTS REGARDING THE ISSUERS'
FUTURE FINANCIAL POSITION, 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 ISSUERS
BELIEVE THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, THEY 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') ARE
DISCLOSED UNDER 'RISK FACTORS' AND ELSEWHERE IN THIS PROSPECTUS, INCLUDING,
WITHOUT LIMITATION, IN CONJUNCTION WITH THE FORWARD-LOOKING STATEMENTS INCLUDED
IN THIS PROSPECTUS. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE ISSUERS, OR PERSONS ACTING ON ANY OF THEIR BEHALF, ARE
EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS. SECTION
27A(b)(2)(D) OF THE SECURITIES ACT AND SECTION 21E(b)(2)(D) OF THE EXCHANGE ACT
PROVIDE THAT THE 'SAFE HARBOR' PROVISIONS FOR FORWARD-LOOKING STATEMENTS
PROVIDED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 DO NOT APPLY TO
INITIAL PUBLIC OFFERINGS.
<PAGE>
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by, and
should be read in conjunction with, the more detailed information and financial
statements appearing elsewhere in this Prospectus. Unless the context otherwise
requires, all references in this Prospectus to the 'Company,' with respect to
periods prior to 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 Holdings and its subsidiaries. Since the
Recapitalization, the Operating Company has been a wholly owned subsidiary of
Holdings. See the chart entitled 'Summary of Ownership Structure since the
Recapitalization' on page 10 of this Prospectus. All references to the
Recapitalization herein shall mean the collective reference to the
recapitalization of Holdings and related transactions as described under 'The
Recapitalization,' including the initial borrowings under the New Credit
Facility, the Offerings 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). 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.
THE COMPANY
Graham Packaging Company is a worldwide leader in the design and
manufacture of customized blow-molded rigid plastic bottles for 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. The Company's products are made primarily from high
density polyethylene ('HDPE') and polyethylene terephthalate ('PET') resins for
customers 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 15 years at a 24% compounded annual growth
rate ('CAGR'). 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 47 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 not lost a major customer in the last three years. For the year
ended December 31, 1997, approximately 77% of the Company's net sales were
generated by its top 20 customers, approximately 60% 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, 1997, the Company
generated net sales and Adjusted EBITDA (as defined) of $521.7 million and $89.8
million, respectively, and for the three months ended March 29, 1998, the
Company generated net sales and Adjusted EBITDA of $134.4 million and $25.3
million, respectively.
As a result of the Recapitalization, the Company has a high degree of
leverage, which could impair the Company's ability to obtain additional
financing and/or reduce funds available for working capital, capital
expenditures, acquisitions, general corporate or other purposes. The Company's
substantial leverage could place it at a competitive disadvantage and hinder its
ability to adjust rapidly to changing market conditions and could
2
<PAGE>
make the Company more vulnerable in the event of a downturn in the general
economic conditions or in its business. The Company could also be adversely
impacted by increased interest rates on its variable interest rate borrowings.
For the three months ended March 29, 1998, the earnings of the Operating Company
and Holdings would have been inadequate to cover fixed charges by approximately
$0.8 million and $3.9 million, respectively.
Automotive. The Company is the preeminent supplier of one quart HDPE motor
oil containers in the United States, producing over 1.5 billion units in 1997,
which Management believes, based on internal estimates, represents 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
Amoco Corporation ('Amoco'), Ashland Inc. ('Ashland,' producer of Valvoline
motor oil), Castrol, Inc. ('Castrol'), Chevron Corporation ('Chevron'), Pennzoil
Products Company ('Pennzoil'), Shell Oil Company ('Shell Oil'), Sun Company,
Inc. ('Sun Company') and Texaco, Inc. ('Texaco'), and is the sole supplier of
one quart motor oil containers to five of these producers, based on Management's
internal estimates. Unit volume in the domestic one quart motor oil business has
been declining at approximately 2% per year and, as a result, the Company has
experienced competitive price pressure in this business throughout 1995, 1996
and 1997. 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. The domestic one quart motor
oil business is forecasted to decline between 1-2% measured by unit volume per
year for the next five years. 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 is expanding 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 four plants
and recently signed an agreement to operate one additional plant. 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. In 1994, the ratio of passenger cars to people was 1 to
13.2 in Brazil, while in the U.S. the ratio was 1 to 1.8. For the year ended
December 31, 1997 and the three months ended March 29, 1998, the Company
generated approximately 37.6% and 33.5%, 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 1992 through December 31, 1997, the Company grew its food and
beverage business at a CAGR of 67%. 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. 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, 1997, the Company invested
over $99 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 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. Industry sources forecast that the hot-fill PET
juice and juice drink container business, upon which the Company focuses, will
enjoy a CAGR of over 40% between 1996 and 2000. The Company's largest customers
in the food and beverage business include Groupe Danone ('Danone'), Hershey
Foods Corporation ('Hershey's'), The Minute Maid Company ('Minute Maid'), Nestle
Food Company ('Nestle's'), 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 year ended
December 31, 1997 and the three months ended March 29, 1998, the Company
generated approximately 28.9% and 34.2%, respectively, of its net sales from the
food and beverage business.
Household Cleaning & Personal Care. The Company is a leading supplier of
HDPE custom bottles to the North American household cleaning and personal care
('HC/PC') products business which includes products such as shampoo, liquid
laundry detergent, tub and tile cleaner and dishwashing liquid. By focusing on
its
3
<PAGE>
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 laundry detergents, which are packaged in plastic containers,
capture an increased share from powdered detergents, which are predominantly
packaged in cardboard. For the year ended December 31, 1997 and the three months
ended March 29, 1998, the Company generated approximately 33.5% and 32.3%,
respectively, of its net sales from the HC/PC business.
COMPANY STRENGTHS
Management believes the Company has the following key competitive
strengths:
Strong Relationships and Long-Term Contracts with Diversified Blue Chip
Customer Base. The Company has enjoyed long-standing relationships averaging 16
years with its top twenty customers, who generated 77% of the Company's net
sales in 1997. These customers include many of the world's leading branded
consumer product companies and motor oil companies. Management attributes these
close relationships to the Company's creative design and engineering
capabilities, high level of customer service, high quality products, efficient
manufacturing, reliable delivery, speed to market and experienced and stable
management team and workforce. The Company supplies several of these customers
with 100% of their plastic packaging needs nationally, regionally or for a
specific brand, including Valvoline motor oil, Tropicana orange juice, Cascade
dishwashing gel and Purex laundry detergent. As another example of customer
loyalty, substantially all contracts which have come up for renewal in the last
three fiscal years have been extended.
Premier Custom Package Designer. The Company has centered its growth
strategy upon customers that require custom, as opposed to stock, plastic
containers as a critical component of their marketing efforts. The production of
custom containers involves a high degree of design, engineering and
manufacturing complexity in terms of bottle shapes, production tolerance and
performance requirements. The Company's ability to design and manufacture highly
customized packaging has enabled it to secure long-term contractual commitments
and to continue to enjoy a history of stable and steadily increasing orders from
its top customers at attractive profit margins. Management intends to apply this
core custom manufacturing capability in growth businesses, such as hot-fill PET
packaging, that require the same degree of customization and manufacturing
expertise as the Company's existing HDPE packaging business.
On-Site Facilities. More than one-third of the Company's 47 plants are
located on-site at its customers' plants, which is substantially greater than
any of its competitors. On-site plants enable the Company to work more closely
with its customers, facilitating just-in-time inventory management, generating
significant savings opportunities through process re-engineering, eliminating
costly shipping and handling charges, reducing working capital needs and
fostering the development of long-term customer relationships. The benefits of
on-site manufacturing result in increased profitability for both the Company and
its customers, and partially accounts for the fact that the Company has never
lost an on-site relationship.
Leading Positions. The Company is the preeminent domestic supplier of
motor oil containers, with what Management believes, based on internal
estimates, is an approximate 73% share of the domestic one quart motor oil
container business. The Company has become a leading manufacturer of hot-fill
PET containers for juice and juice drinks in North America after only
approximately five years in the business and is also a leading supplier in North
America of custom HDPE containers for juice and juice drinks and HDPE custom
plastic bottles in the HC/PC business.
Strong Industry Fundamentals and Growth Prospects. Management believes
that the businesses in which the Company operates exhibit strong fundamental
characteristics and growth prospects including (i) the domestic and
international trend in the conversion to plastic packaging from other materials
(including the conversion of the hot-fill domestic juice and juice drinks
business which is only 14% converted to plastic), (ii) the non-cyclical nature
of end-use products for which the Company designs and manufactures packaging
(including motor oil, juices, laundry detergents and shampoos, among others),
(iii) long-term relationships which yield efficiencies in situations where
customers integrate their operations with packaging suppliers, particularly in
on-site situations and (iv) attractive margins inherent in the complex design
and engineering capabilities that are required in these businesses.
4
<PAGE>
Significant Investment in Manufacturing Systems. Management believes that
the Company's investment in its manufacturing systems throughout its 28 U.S.
plants and 13 international plants provides it with a competitive advantage.
From 1992 through December 31, 1997, the Company invested approximately $64
million to maintain its asset base, approximately $200 million to improve the
efficiency of its existing operations and expand capacity and approximately $53
million to acquire several businesses in its effort to diversify globally. From
1992 through December 31, 1997, the Company made capital expenditures of over
$99 million relating to the hot-fill PET business. Management anticipates
achieving higher Adjusted EBITDA margins in the next few years in the hot-fill
PET business through the leveraging of this investment, as fixed manufacturing
and selling, general and administrative ('SG&A') costs are absorbed by higher
sales. As a result of the Company's on-site strategy and long-term contractual
relationships, capital expenditures are typically associated directly with
specific contracts with customers, which allows Management to more effectively
allocate its investment capital.
Favorable Supplier Relationships. HDPE and PET resins are the principal
raw materials used to manufacture the Company's products. Because the Company is
among the largest purchasers of bottle-grade HDPE resins for blow molding in the
world, it is able to secure advantageous supply arrangements. In addition, the
Company has limited exposure to fluctuations in the price of these raw materials
because it can pass through price adjustments to its customers due to
contractual provisions and standard industry practice. While the Company
historically has been able to pass through changes in the cost of resins to its
customers, the Company may not be able to do so in the future and significant
increases in the price of resins could adversely affect the Company's operating
margins and growth plans. See 'Business--Raw Materials.'
Experienced Management Team. The Company is led by an experienced team of
senior managers with a track record of achieving profitable growth, maintaining
the Company's blue chip customer base, introducing differentiated product
designs and entering new businesses. The Company's top 20 managers average over
15 years of work experience in the packaging industry and 13 years at the
Company. Since the Recapitalization, the Company's senior managers have owned an
equity investment in Investor LP (the entity through which Blackstone holds its
interest in Holdings), that approximates a 2.6% indirect equity interest in
Holdings, and will be awarded options, subject to certain performance based and
other vesting provisions, representing an additional equity interest in
Holdings. In addition, the Continuing Graham Partners retained a 1% general
partnership interest and a 14% limited partnership interest in Holdings, which
interests were valued at $36.7 million at the consummation of the
Recapitalization. See 'The Recapitalization,' 'Management--Management Option
Plan' and 'Security Ownership'.
BUSINESS STRATEGY
The Company's objective is to capitalize on its position as a leading
custom blow molded plastic container supplier. The Company seeks to achieve this
objective by pursuing the following strategies:
Capitalize on Conversion to Plastic Containers. The Company intends to
grow both domestically and internationally by continuing to capitalize on the
industry trend toward the conversion from glass, metal and paper to plastic
containers, which Management believes is being driven by consumer demand, price
competitiveness and superior functionality. As one of the leading domestic
suppliers of hot-fill PET containers, the Company is poised to take advantage of
the rapid conversion from glass to plastic in the juice and juice drink
business, 86% of which has not yet been converted. In addition to opportunities
in the domestic hot-fill PET arena, Management believes that additional
conversions to HDPE packaging will occur in areas such as frozen juice
concentrate (currently packaged entirely in metal and cardboard containers), 64
ounce juices (a large portion of which is currently packaged in cardboard
containers) and motor oil (particularly in Latin America).
Maintain and Expand Position with Key Customers. The Company plans to
maintain and expand its position with global branded consumer products companies
that require highly customized features to differentiate their products on store
shelves. Central to this strategy are the continued (i) delivery of superior
customer service, (ii) location of facilities on-site, (iii) innovation in
packaging design, (iv) operation through long-term contracts and (v) provision
of low cost manufacturing processes. The termination of relationships with the
Company's key customers could have a material adverse effect upon the Company's
business, financial position or results of operations.
Pursue Acquisitions and Strategic Joint Ventures. Management believes that
there are major synergistic acquisition, joint venture and other opportunities
across the Company's businesses. As described below under
'--Recent Developments', the Company recently completed an acquisition which
includes operations in France, Germany, the United Kingdom and Turkey, primarily
related to the food and beverage and HC/PC
5
<PAGE>
businesses. The Company is also reviewing an additional opportunity in Brazil,
primarily in the HC/PC business and is considering the establishment of
operations in Argentina, primarily in the food and beverage and HC/PC businesses
and in Russia in the HC/PC business. The Company has pursued and intends to
continue to pursue such opportunities (i) to complement its existing businesses
through product line expansion, (ii) to strengthen its competitive position as a
domestic leader and (iii) to facilitate the penetration of new and developing
business areas and geographic territories. Furthermore, Management believes that
it can improve the profitability of acquired entities through economies of
scale, by leveraging the Company's existing strengths and by expanding the
acquired entities' access to international markets through the Company's
existing international presence.
Capture Global Growth Opportunities with Improved Profitability. Since
1992, the Company has expanded globally both through acquisitions and by
accompanying its existing customers into new territories. Following the
Company's entrance into Western Europe, as well as its subsequent expansion into
Brazil, Canada and Poland, the Company's international operations have grown
substantially to 21.2% of net sales for the year end December 31, 1997 and to
21.7% of net sales for the three months ended March 29, 1998. Management
believes that the global trend in the conversion to plastic packaging will
continue, particularly in the developing world as consumer economies expand and
industrialization continues. The Company is subject to the risks associated with
operating in foreign countries, including fluctuations in currency exchange
rates, imposition of limitations on conversion of foreign currencies into
dollars or remittance of dividends or other payments by foreign subsidiaries,
imposition or increase of withholding and other tax remittances and other
payments by foreign subsidiaries, labor relations problems, hyperinflation in
certain foreign countries, the imposition or increase of investment and other
restrictions by foreign governments or the imposition of environmental or
employment laws. Currently, profitability levels from international operations
are lower than in the U.S., and Management intends to improve these margins,
particularly in France.
RECENT DEVELOPMENTS
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 and in the March 29, 1998 unaudited
condensed consolidated financial statements. See 'Business--JCI Litigation' and
Notes 13 and 17 to the Combined Financial Statements as of December 31, 1997 and
1996 and for each of the three years in the period ended December 31, 1997 and
Note 9 to the Condensed Financial Statements.
The Company has recently acquired selected plastic bottle manufacturing
operations of Crown, Cork & Seal located in France, Germany, the United Kingdom
and Turkey, primarily related to the food and beverage and HC/PC businesses, for
a total purchase price of approximately $42 million. In addition, the Company
plans to acquire two plastic bottle manufacturing operations in South America,
primarily in the food and beverage and HC/PC businesses, for a total of
approximately $28 million. Significant terms of the final purchase agreements
for the South American acquisitions have been agreed to in principle, although
the Company has not executed a definitive agreement with respect to these
acquisitions and continues to perform due diligence.
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 formed by Blackstone
('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').
On February 2, 1998, as part of the Recapitalization, Graham Packaging
Company (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 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 (the 'Floating Rate Senior
Subordinated Old Notes' and, together with the Fixed
6
<PAGE>
Rate Senior Subordinated Old Notes, the 'Senior Subordinated Old Notes').
Pursuant to the Senior Subordinated Exchange Offers, the Company Issuers are
offering to exchange $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 Old Notes, the 'Senior Subordinated Exchange
Notes'), for equal principal amounts of Fixed Rate Senior Subordinated Old Notes
and Floating Rate Senior Subordinated Old Notes, respectively.
On February 2, 1998, as part of the Recapitalization, Holdings and GPC
Capital Corp. II ('CapCo II' and, together with the Operating Company, 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'). Pursuant to the Senior Discount
Exchange Offer, the Holdings Issuers are offering to exchange $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'), for an equal
principal amount at maturity of Senior Discount Old Notes.
The other principal components of the Recapitalization included the
following transactions:
o The contribution by Holdings of substantially all of its assets and
liabilities to the Operating Company;
o 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');
o The initial borrowing by the Operating Company of $403.5 million (the
'Bank Borrowings') in connection with the New Credit Facility by and
among the Operating Company, Holdings and a syndicate of lenders, as
described under 'Description of the New Credit Facility';
o 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);
o 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;
o The repayment by the Graham Partners of $21.2 million owed to Holdings
under certain promissory notes;
o The redemption by Holdings of certain partnership interests in Holdings
held by the Graham Partners for $429.6 million;
o The purchase by the Equity Investors of certain partnership interests in
Holdings held by the Graham Partners for $208.3 million; and
o 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. See 'The Recapitalization' and
'The Issuers.' 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.'
7
<PAGE>
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.
<TABLE>
<CAPTION>
AMOUNT
-------------
(IN MILLIONS)
<S> <C>
SOURCES 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
-------------
Total.............................................................................................. $ 997.0
-------------
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
-------------
Total.............................................................................................. $ 997.0
-------------
-------------
</TABLE>
- ------------------
(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.'
(3) Included $264.5 million of existing indebtedness and $0.4 million of accrued
interest.
8
<PAGE>
SUMMARY OF CASH FLOWS ASSOCIATED WITH THE RECAPITALIZATION
The following table sets forth a summary of the cash flows associated with
the Recapitalization. See the discussion of the principal components of the
Recapitalization under '--The Recapitalization' on page 7.
- ------------------- -------------------- --------------------
Blackstone(1) Management Continuing Graham
Partners
- ------------------- -------------------- --------------------
| 97% |3% | |
--------------- | | |
| | 100%| |
---------------------------- | |
BMP/Graham Holdings | |
Corporation ("Investor LP") | |
---------------------------- | |
100%| 81% LP| | |
| | ------------- |
| | | |
----------------------- | ------------------------------ |
BCP/Graham Holdings | Graham Packaging Corporation |
L.L.C. ("Investor GP") | ("Graham GP Corp.") |
----------------------- | ------------------------------ |
4% GP| | |1% GP |
| | | ---------------
| | | | 14% LP
----------------------------------------------------
Graham Packaging Holdings
Company ("Holdings")
----------------------------------------------------
| | |
---------- | --------
|100% | 100%|
| 99% LP| |
-------------------- | -------------------
GPC Capital Corp. II | GPC Opco GP, L.L.C.
("CapCo II") | ("Opco GP")
------------------ | -------------------
| | 1% GP
| --------------
| |
-------------------------------
Graham Packaging Company
(the "Operating Company")
-------------------------------
| |
---------- --------
| 100% |
--------------------- ------------------
GPC Capital Corp. I Other
("CapCo I") Subsidiaries
--------------------- -------------------
- ------------------
1 The Equity Investors are Investor LP and Investor GP.
2 The Graham Partners are: Donald C. Graham, Graham Recycling Corporation,
Graham Capital Corporation, Graham Engineering Corporation, Graham Packaging
Corporation and Graham Family Growth Partnership.
9
<PAGE>
SUMMARY OF OWNERSHIP STRUCTURE SINCE THE RECAPITALIZATION
The following chart sets forth a summary of the ownership structure of
Holdings, the Operating Company and certain other parties following the
consummation of the Recapitalization:
- ------------------- -------------------- --------------------
Blackstone(1) Management Continuing Graham
Partners
- ------------------- -------------------- --------------------
| 97% |3% | |
--------------- | | |
| | 100%| |
---------------------------- | |
BMP/Graham Holdings | |
Corporation ("Investor LP") | |
---------------------------- | |
100%| 81% LP| | |
| | ------------- |
| | | |
----------------------- | ------------------------------ |
BCP/Graham Holdings | Graham Packaging Corporation |
L.L.C. ("Investor GP") | ("Graham GP Corp.") |
----------------------- | ------------------------------ |
4% GP| | |1% GP |
| | | ---------------
| | | | 14% LP
----------------------------------------------------
Graham Packaging Holdings
Company ("Holdings")
----------------------------------------------------
| | |
---------- | --------
|100% | 100%|
| 99% LP| |
-------------------- | -------------------
GPC Capital Corp. II | GPC Opco GP, L.L.C.
("CapCo II") | ("Opco GP")
------------------ | -------------------
| | 1% GP
| --------------
| |
-------------------------------
Graham Packaging Company
(the "Operating Company")
-------------------------------
| |
---------- --------
| 100% |
--------------------- ------------------
GPC Capital Corp. I Other
("CapCo I") Subsidiaries
--------------------- -------------------
- ------------------
(1) An affiliate of BT Alex. Brown Incorporated and Bankers Trust International
PLC acquired approximately a 4.8% equity interest in the voting securities
of Investor LP. See 'Security Ownership.'
10
<PAGE>
THE SENIOR SUBORDINATED EXCHANGE OFFERS
<TABLE>
<S> <C>
The Senior Subordinated Exchange
Offers............................. The Company Issuers are offering to exchange pursuant to the Senior
Subordinated Exchange Offers (i) up to $150,000,000 aggregate principal
amount of their Fixed Rate Senior Subordinated Exchange Notes for a like
aggregate principal amount of their Fixed Rate Senior Subordinated Old
Notes, and (ii) up to $75,000,000 aggregate principal amount of their
Floating Rate Senior Subordinated Exchange Notes for a like aggregate
principal amount of their Floating Rate Senior Subordinated Old Notes. The
terms of the Fixed Rate Senior Subordinated Exchange Notes and the
Floating Rate Senior Subordinated Exchange Notes are identical in all
material respects (including principal amount, interest rate and maturity)
to the terms of the Fixed Rate Senior Subordinated Old Notes and the
Floating Rate Senior Subordinated Old Notes, respectively, for which they
may be exchanged pursuant to the Senior Subordinated Exchange Offers,
except that the Senior Subordinated Exchange Notes are freely
transferrable by Holders thereof (other than as provided herein), and are
not subject to any covenant regarding registration under the Securities
Act. The Senior Subordinated Exchange Notes will be unconditionally
guaranteed by Holdings (the 'Holdings Guarantee') on a senior subordinated
basis, and Holdings hereby offers to issue the Holdings Guarantee with
respect to all Senior Subordinated Exchange Notes issued in the Senior
Subordinated Exchange Offers in exchange for Holdings' outstanding
guarantees (the ' Old Holdings Guarantee') of the Senior Subordinated Old
Notes. See 'The Senior Subordinated Exchange Offers.'
No Minimum Condition................. The Senior Subordinated Exchange Offers are not conditioned upon any
minimum aggregate principal amount of Senior Subordinated Old Notes being
tendered for exchange.
Senior Subordinated Expiration Dates;
Withdrawal of Tenders.............. The Fixed Rate Senior Subordinated Exchange Offer will expire at 5:00
p.m., New York City time, on September 2, 1998 (the 'Fixed Rate Senior
Subordinated Expiration Date'), and the Floating Rate Senior Subordinated
Exchange Offer will expire at 5:00 p.m., New York City time, on September
2, 1998 (the 'Floating Rate Senior Subordinated Expiration Date' and,
together with the Fixed Rate Senior Subordinated Expiration Date, the
'Senior Subordinated Expiration Dates'), unless the applicable Senior
Subordinated Exchange Offer is extended, in which case the term 'Fixed
Rate Senior Subordinated Expiration Date' or 'Floating Rate Senior
Subordinated Expiration Date' means the latest date and time to which the
Fixed Rate Senior Subordinated Exchange Offer or the Floating Rate Senior
Subordinated Exchange Offer, as the case may be, is extended. The Company
Issuers do not currently intend to extend either of the Senior
Subordinated Expiration Dates. Tenders may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the applicable Senior Subordinated
Expiration Date. See 'The Senior Subordinated Exchange Offers--Withdrawal
Rights.'
Senior Subordinated Exchange Date.... The date of acceptance for exchange of the Senior Subordinated Old Notes
will be the fourth business day following the applicable Senior
Subordinated Expiration Date.
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
Conditions to the Senior Subordinated
Exchange
Offers............................. Each of the Senior Subordinated Exchange Offers is subject to certain
customary conditions, which may be waived by the Company Issuers. The
Company Issuers currently expect that each of the conditions will be
satisfied and that no waivers will be necessary. See 'The Senior
Subordinated Exchange Offers--Certain Conditions to the Senior
Subordinated Exchange Offers.' The Company Issuers reserve the right to
terminate or amend either Senior Subordinated Exchange Offer at any time
prior to the applicable Senior Subordinated Expiration Date upon the
occurrence of any such condition.
Procedures for Tendering Senior
Subordinated Old Notes............. Each Holder wishing to accept the applicable Senior Subordinated Exchange
Offer must complete, sign and date the applicable Letter of Transmittal,
or a facsimile thereof, in accordance with the instructions contained
herein and therein, and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with the applicable Senior
Subordinated Old Notes and any other required documentation to the Senior
Subordinated Exchange Agent at the address set forth therein. See 'The
Senior Subordinated Exchange Offers--Procedures for Tendering Senior
Subordinated Old Notes' and 'Plan of Distribution.'
Use of Proceeds...................... There will be no proceeds to the Company Issuers from the exchange of
Senior Subordinated Notes pursuant to the Senior Subordinated Exchange
Offers.
Federal Income Tax
Considerations..................... The exchange of Notes pursuant to the Senior Subordinated Exchange Offers
will not be a taxable event for federal income tax purposes. See 'Certain
U.S. Federal Income Tax Considerations.'
Special Procedures for Beneficial
Owners............................. Any beneficial owner whose Senior Subordinated Old Notes are registered in
the name of a broker, dealer, commercial bank, trust company or other
nominee and who wishes to tender should contact such registered holder
promptly and instruct such registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to tender on such
beneficial owner's own behalf, such beneficial owner must, prior to
completing and executing the applicable Letter of Transmittal and
delivering the Senior Subordinated Old Notes, either make appropriate
arrangements to register ownership of the Senior Subordinated Old Notes in
such beneficial owner's name or obtain a properly completed bond power
from the registered holder. The transfer of registered ownership may take
considerable time. See 'The Senior Subordinated Exchange
Offers--Procedures for Tendering Senior Subordinated Old Notes.'
Guaranteed Delivery Procedures....... Holders of Senior Subordinated Old Notes who wish to tender their Senior
Subordinated Old Notes and whose Senior Subordinated Old Notes are not
immediately available or who cannot deliver their Senior Subordinated Old
Notes, the applicable Letter of Transmittal or any other documents
required by such Letter of Transmittal to the Senior Subordinated Exchange
Agent prior to the applicable Expiration Date must tender their Senior
Subordinated Old Notes according to the guaranteed delivery procedures set
forth in 'The Senior Subordinated
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
Exchange Offers--Procedures for Tendering Senior Subordinated Old Notes.'
Acceptance of Senior Subordinated Old
Notes and Delivery of Senior
Subordinated Exchange Notes........ The Company Issuers will accept for exchange any and all Senior
Subordinated Old Notes which are properly tendered in the Senior
Subordinated Exchange Offers prior to 5:00 p.m., New York City time, on
the applicable Senior Subordinated Expiration Date. The Senior
Subordinated Exchange Notes issued pursuant to the Senior Subordinated
Exchange Offers will be delivered promptly following the applicable Senior
Subordinated Expiration Date. See 'The Senior Subordinated Exchange
Offers--Acceptance of Senior Subordinated Old Notes for Exchange; Delivery
of Senior Subordinated Exchange Notes.'
Effect on Holders of Senior
Subordinated Old Notes............. As a result of the making of, and upon acceptance for exchange of all
validly tendered Senior Subordinated Old Notes pursuant to the terms of
the Senior Subordinated Exchange Offers, the Company Issuers will have
fulfilled a covenant contained in the Registration Rights Agreement (the
'Senior Subordinated Registration Rights Agreement') dated as of February
2, 1998 among the Company Issuers, Holdings, as guarantor, and BT Alex.
Brown Incorporated, Bankers Trust International PLC, Lazard Freres & Co.
L.L.C. and Salomon Brothers Inc (the 'Initial Purchasers'), and,
accordingly, there will be no increase in the interest rate on the Senior
Subordinated Old Notes pursuant to the terms of the Senior Subordinated
Registration Rights Agreement, and the holders of the Senior Subordinated
Old Notes will have no further registration or other rights under the
Senior Subordinated Registration Rights Agreement. Holders of the Senior
Subordinated Old Notes who do not tender their Senior Subordinated Old
Notes in the Senior Subordinated Exchange Offers will continue to hold
such Senior Subordinated Old Notes and will be entitled to all the rights
and limitations applicable thereto under the Indenture dated as of
February 2, 1998 (the 'Senior Subordinated Indenture') between the Company
Issuers and United States Trust Company of New York, as Trustee, relating
to the Senior Subordinated Old Notes and the Senior Subordinated Exchange
Notes, except for any such rights under the Senior Subordinated
Registration Rights Agreement that by their terms terminate or cease to
have further effectiveness as a result of the making of, and the
acceptance for exchange of all validly tendered Senior Subordinated Old
Notes pursuant to, the Senior Subordinated Exchange Offers.
Consequence of Failure to Exchange... Holders of Senior Subordinated Old Notes who do not exchange their Senior
Subordinated Old Notes for Senior Subordinated Exchange Notes pursuant to
the Senior Subordinated Exchange Offers will continue to be subject to the
restrictions on transfer of such Senior Subordinated Old Notes provided
for in the Senior Subordinated Old Notes and in the Senior Subordinated
Indenture and as set forth in the legend on the Senior Subordinated Old
Notes. In general, the Senior Subordinated Old Notes may not be offered or
sold, unless registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
Issuers do not currently anticipate that they will register the Senior
Subordinated Old Notes under the Securities Act. To the extent that Senior
Subordinated Old Notes are tendered and accepted in the Senior
Subordinated Exchange Offers, the trading market for untendered Senior
Subordinated Old Notes could be adversely affected.
Senior Subordinated Exchange Agent... United States Trust Company of New York is serving as exchange agent (the
'Senior Subordinated Exchange Agent') in connection with the Senior
Subordinated Exchange Offers. See 'The Senior Subordinated Exchange
Offers-Senior Subordinated Exchange Agent.'
</TABLE>
TERMS OF THE SENIOR SUBORDINATED EXCHANGE NOTES
<TABLE>
<S> <C>
Securities Offered................... $150,000,000 aggregate principal amount of 8 3/4% Senior Subordinated
Notes Due 2008, Series B (referred to herein as the 'Fixed Rate Senior
Subordinated Exchange Notes').
$75,000,000 aggregate principal amount of Floating Interest Rate
Subordinated Term Securities Due 2008, Series B (referred to herein as the
'Floating Rate Senior Subordinated Exchange Notes').
Issuers.............................. Graham Packaging Company and GPC Capital Corp. I.
Maturity Date........................ January 15, 2008.
Interest Payment Dates............... Interest on the Senior Subordinated Exchange Notes will accrue from the
last Interest Payment Date to which interest was paid on the related
series of Senior Subordinated Old Notes, or if no interest has been paid
on the Senior Subordinated Old Notes, from February 2, 1998. Interest will
be payable semi-annually in arrears on January 15 and July 15 of each
year, commencing on the first such date to occur after the applicable
Senior Subordinated Exchange Date. The Fixed Rate Senior Subordinated
Exchange Notes will bear interest at the rate of 8 3/4% per annum. The
Floating Rate Senior Subordinated Exchange Notes will bear interest at a
rate per annum equal to LIBOR plus 3 5/8%. Interest on the Floating Rate
Senior Subordinated Exchange Notes will be reset semi-annually.
Ranking.............................. The Senior Subordinated Exchange Notes will be general unsecured
obligations of the Company Issuers and will be subordinated in right of
payment to all existing and future Senior Indebtedness of the Company
Issuers. As of March 29, 1998, after giving effect to the
Recapitalization, the Company Issuers and the Operating Company's
subsidiaries had $414.7 million of Senior Indebtedness outstanding. In
addition, the Senior Subordinated Exchange Notes will be effectively
subordinated to all indebtedness and other liabilities (including trade
payables) of the Operating Company's subsidiaries. As of March 29, 1998,
after giving effect to the Recapitalization, such subsidiaries had total
liabilities of $38.4 million, including indebtedness of $5.1 million. In
addition, at March 29, 1998, the Operating Company had additional
borrowing availability of approximately $242.0 million under the New
Credit Facility subject to certain customary drawing conditions relating
to the Revolving Credit Facility (as defined) and certain other
conditions, including required equity contributions relating to the Growth
Capital Revolving Facility (as defined). See 'Use of Proceeds,' 'Unaudited
Pro Forma Financial Information' and 'Description of the New Credit
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
Facility.' The Senior Subordinated Exchange Notes will rank pari passu
with any future senior subordinated indebtedness of the Company Issuers
and will rank senior to all other subordinated indebtedness of the Company
Issuers. See 'Use of Proceeds,' 'Unaudited Pro Forma Financial
Information' and 'Description of the New Credit Facility.'
Optional Redemption.................. The Fixed Rate Senior Subordinated Exchange Notes will be redeemable, in
whole or in part, at the option of the Company Issuers on or after January
15, 2003 at the redemption prices set forth herein, plus accrued and
unpaid interest to the date of redemption. The Fixed Rate Senior
Subordinated Exchange Notes are not redeemable by the Company Issuers
prior to January 15, 2003, except that, at any time on or prior to January
15, 2001, the Company Issuers, at their option, may redeem, with the net
cash proceeds of one or more Equity Offerings, Fixed Rate Senior
Subordinated Notes up to an aggregate principal amount equal to 40% of the
aggregate principal amount of the Fixed Rate Senior Subordinated Old Notes
originally issued, at a redemption price equal to 108.750% of the
principal amount thereof, plus accrued and unpaid interest to the date of
redemption; provided that Fixed Rate Senior Subordinated Notes in an
aggregate principal amount equal to at least 60% of the aggregate
principal amount of the Fixed Rate Senior Subordinated Old Notes
originally issued remains outstanding immediately following such
redemption. The Floating Rate Senior Subordinated Exchange Notes will be
redeemable, in whole or in part, at the option of the Company Issuers, at
any time, at the redemption prices set forth herein, plus accrued and
unpaid interest, if any, to the date of redemption. See 'Description of
the Senior Subordinated Exchange Notes--Redemption.'
Change of Control.................... Upon a Change of Control, each holder of Senior Subordinated Exchange
Notes will have the right to require the Company Issuers to repurchase
such holder's Senior Subordinated Exchange Notes at a price equal to 101%
of the principal amount thereof, plus accrued and unpaid interest to the
repurchase date. See 'Description of the Senior Subordinated Exchange
Notes--Change of Control.'
Guarantees........................... The Senior Subordinated Exchange Notes will be fully and unconditionally
guaranteed by Holdings on a senior subordinated basis. The Holdings
Guarantee will be subordinated in right of payment to all senior
indebtedness of Holdings ($102.3 million at March 29, 1998) and
effectively subordinated to all indebtedness and other liabilities
(including but not limited to trade payables) of Holdings' subsidiaries
($757.8 million at March 29, 1998). Investors should not rely on the
Holdings Guarantee in evaluating an investment in the Senior Subordinated
Exchange Notes. See 'Risk Factors--Subordination of Senior Subordinated
Exchange Notes' and 'Holdings Guarantee.'
Certain Covenants.................... The Senior Subordinated Indenture contains certain covenants with respect
to the Operating Company and its subsidiaries that restrict, among other
things, (a) the incurrence of additional indebtedness, (b) the payment of
dividends and other restricted payments, (c) the creation of certain
liens, (d) the use of proceeds from sales of assets and subsidiary stock,
and (e) transactions with affiliates. The Senior Subordinated Indenture
also restricts the ability of the Company Issuers to consolidate or merge
with or into, or to transfer all or substantially all of their assets to,
another person. In addition, under certain circumstances, the Company
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
Issuers will be required to offer to purchase the Senior Subordinated
Exchange Notes, in whole or in part, with the proceeds of certain Asset
Sales, at a purchase price equal to 100% of the principal amount thereof,
plus accrued and unpaid interest to the repurchase date. These
restrictions and requirements are subject to a number of important
qualifications and exceptions. See 'Description of the Senior Subordinated
Exchange Notes--Certain Covenants.'
Absence of Market.................... The Senior Subordinated Exchange Notes are new securities for which there
is currently no established market. Accordingly, there can be no assurance
as to the development or liquidity of any market for the Senior
Subordinated Exchange Notes. The Company Issuers do not intend to list the
Senior Subordinated Exchange Notes on any securities exchange or to seek
approval for quotation of the Senior Subordinated Exchange Notes on any
automated quotation system.
No Recourse to Holdings Partners; No
Personal Liability of Directors,
Officers, Employees and
Stockholders....................... The Senior Subordinated Indenture under which the Senior Subordinated
Notes have been or will be issued provides that all obligations under the
Senior Subordinated Indenture, the Senior Subordinated Notes, the Holdings
Guarantee and the Old Holdings Guarantee (and all notes and guarantees
issued in exchange therefor) shall be expressly non-recourse to the
partners of Holdings in their capacities as such, and that, by purchasing
the Senior Subordinated Notes, each holder of Senior Subordinated Notes
waives any liability of any partner of Holdings under the Senior
Subordinated Indenture, the Senior Subordinated Notes, the Holdings
Guarantee and the Old Holdings Guarantee (and all notes and guarantees
issued in exchange therefor). No director, officer, employee, incorporator
or stockholder of the Company Issuers (or any Guarantor (as defined) under
any Guarantee (as defined) that has been or may be issued with respect to
the Senior Subordinated Notes) shall have any liability for any
obligations of the Company Issuers (or any such Guarantor) under the
Senior Subordinated Notes or the Indenture (or any such Guarantee) or any
claim based on, in respect of, or by reason of such obligation, or their
creation. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the Commission that such a
waiver is against public policy.
</TABLE>
For additional information regarding the Senior Subordinated Exchange
Notes, see 'Description of the Senior Subordinated Exchange Notes.'
16
<PAGE>
THE SENIOR DISCOUNT EXCHANGE OFFER
<TABLE>
<S> <C>
The Senior Discount Exchange Offer........ The Holdings Issuers are offering to exchange pursuant to the Senior
Discount Exchange Offer up to $169,000,000 aggregate principal amount
of their Senior Discount Exchange Notes for a like aggregate
principal amount of their Senior Discount Old Notes. The terms of the
Senior Discount Exchange Notes are identical in all material respects
(including principal amount, interest rate and maturity) to the terms
of the Senior Discount Old Notes for which they may be exchanged
pursuant to the Senior Discount Exchange Offer, except that the
Senior Discount Exchange Notes are freely transferrable by Holders
thereof (other than as provided herein), and are not subject to any
covenant regarding registration under the Securities Act. See 'The
Senior Discount Exchange Offer.'
No Minimum Condition...................... The Senior Discount Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Senior Discount Old Notes being
tendered for exchange.
Senior Discount Expiration Date;
Withdrawal of Tenders................... The Senior Discount Exchange Offer will expire at 5:00 p.m., New York
City time, on September 2, 1998, unless the Senior Discount Exchange
Offer is extended, in which case the term 'Senior Discount Expiration
Date' means the latest date and time to which the Senior Discount
Exchange Offer is extended. The Holdings Issuers do not currently
intend to extend the Senior Discount Expiration Date. Tenders may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the
Senior Discount Expiration Date. See 'The Senior Discount Exchange
Offer--Withdrawal Rights.'
Exchange Date............................. The date of acceptance for exchange of the Senior Discount Old Notes
will be the fourth business day following the Senior Discount
Expiration Date.
Conditions to the Senior Discount Exchange
Offer................................... The Senior Discount Exchange Offer is subject to certain customary
conditions, which may be waived by the Holdings Issuers. The Holdings
Issuers currently expect that each of the conditions will be
satisfied and that no waivers will be necessary. See 'The Senior
Discount Exchange Offer--Certain Conditions to the Senior Discount
Exchange Offer.' The Holdings Issuers reserve the right to terminate
or amend the Senior Discount Exchange Offer at any time prior to the
Senior Discount Expiration Date upon the occurrence of any such
condition.
Procedures for Tendering Senior Discount
Old Notes............................... Each Holder wishing to accept the Senior Discount Exchange Offer must
complete, sign and date the Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions contained herein and
therein, and mail or otherwise deliver such Letter of Transmittal, or
such facsimile, together with the Senior Discount Old Notes and any
other required documentation to the Senior Discount Exchange Agent at
the address set forth therein. See 'The Senior Discount Exchange
Offer--Procedures for Tendering Senior Discount Old Notes' and 'Plan
of Distribution.'
</TABLE>
17
<PAGE>
<TABLE>
<S> <C>
Use of Proceeds........................... There will be no proceeds to the Holdings Issuers from the exchange
of Notes pursuant to the Senior Discount Exchange Offer.
Federal Income Tax Consequences........... The exchange of Notes pursuant to the Senior Discount Exchange Offer
will not be a taxable event for federal income tax purposes. See
'Certain U.S. Federal Income Tax Consequences.'
Special Procedures for Beneficial
Owners.................................. Any beneficial owner whose Senior Discount Old Notes are registered
in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should contact such registered
holder promptly and instruct such registered holder to tender on such
beneficial owner's behalf. If such beneficial owner wishes to tender
on such beneficial owner's own behalf, such beneficial owner must,
prior to completing and executing the Letter of Transmittal and
delivering the Senior Discount Old Notes, either make appropriate
arrangements to register ownership of the Senior Discount Old Notes
in such beneficial owner's name or obtain a properly completed bond
power from the registered holder. The transfer of registered
ownership may take considerable time. See 'The Senior Discount
Exchange Offer--Procedures for Tendering Senior Discount Old Notes.'
Guaranteed Delivery Procedures............ Holders of Senior Discount Old Notes who wish to tender their Senior
Discount Old Notes and whose Senior Discount Old Notes are not
immediately available or who cannot deliver their Senior Discount Old
Notes, the Letter of Transmittal or any other documents required by
the Letter of Transmittal to the Senior Discount Exchange Agent prior
to the Expiration Date must tender their Senior Discount Old Notes
according to the guaranteed delivery procedures set forth in 'The
Senior Discount Exchange Offer--Procedures for Tendering Senior
Discount Old Notes.'
Acceptance of Senior Discount Old Notes
and Delivery of Senior Discount Exchange
Notes................................... The Holdings Issuers will accept for exchange any and all Senior
Discount Old Notes which are properly tendered in the Senior Discount
Exchange Offer prior to 5:00 p.m., New York City time, on the Senior
Discount Expiration Date. The Senior Discount Exchange Notes issued
pursuant to the Senior Discount Exchange Offer will be delivered
promptly following the Senior Discount Expiration Date. See 'The
Senior Discount Exchange Offer-- Acceptance of Senior Discount Old
Notes for Exchange; Delivery of Senior Discount Exchange Notes.'
Effect on Holders of Senior Discount Old
Notes................................... As a result of the making of, and upon acceptance for exchange of all
validly tendered Senior Discount Old Notes pursuant to the terms of
this Senior Discount Exchange Offer, the Holdings Issuers will have
fulfilled a covenant contained in the Registration Rights Agreement
(the 'Senior Discount Registration Rights Agreement') dated as of
February 2, 1998 among the Holdings Issuers and the Initial
Purchasers, and, accordingly, there will be no increase in the
interest rate on the Senior Discount Old Notes pursuant to the terms
of the Registration Rights Agreement, and the holders of the Senior
Discount Old Notes will have no further registration or other rights
</TABLE>
18
<PAGE>
<TABLE>
<S> <C>
under the Senior Discount Registration Rights Agreement. Holders of
the Senior Discount Old Notes who do not tender their Senior Discount
Old Notes in the Senior Discount Exchange Offer will continue to hold
such Senior Discount Old Notes and will be entitled to all the rights
and limitations applicable thereto under the Indenture dated as of
February 2, 1998 (the 'Senior Discount Indenture') between the
Holdings Issuers and The Bank of New York, as Trustee, relating to
the Senior Discount Old Notes and the Senior Discount Exchange Notes,
except for any such rights under the Senior Discount Registration
Rights Agreement that by their terms terminate or cease to have
further effectiveness as a result of the making of, and the
acceptance for exchange of all validly tendered Senior Discount Old
Notes pursuant to, the Senior Discount Exchange Offer.
Consequence of Failure to Exchange........ Holders of Senior Discount Old Notes who do not exchange their Senior
Discount Old Notes for Senior Discount Exchange Notes pursuant to the
Senior Discount Exchange Offer will continue to be subject to the
restrictions on transfer of such Senior Discount Old Notes provided
for in the Senior Discount Old Notes and in the Senior Discount
Indenture and as set forth in the legend on the Senior Discount Old
Notes. In general, the Senior Discount Old Notes may not be offered
or sold, unless registered under the Securities Act, except pursuant
to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Holdings
Issuers do not currently anticipate that they will register the
Senior Discount Old Notes under the Securities Act. To the extent
that Senior Discount Old Notes are tendered and accepted in the
Senior Discount Exchange Offer, the trading market for untendered
Senior Discount Old Notes could be adversely affected.
Senior Discount Exchange Agent............ The Bank of New York is serving as exchange agent (the 'Senior
Discount Exchange Agent') in connection with the Senior Discount
Exchange Offer. See 'The Senior Discount Exchange Offer-- Senior
Discount Exchange Agent.'
</TABLE>
TERMS OF THE SENIOR DISCOUNT EXCHANGE NOTES
<TABLE>
<S> <C>
Securities Offered........................ $169,000,000 aggregate principal amount at maturity of 10 3/4% Senior
Discount Notes Due 2009, Series B, having an approximate Accreted
Value at May 26, 1998 equal to 61.6% of the principal amount at
maturity thereof.
Issuers................................... Graham Packaging Holdings Company and GPC Capital Corp. II.
Maturity Date............................. January 15, 2009.
Interest Payment Dates.................... Cash interest on the Senior Discount Exchange Notes will not accrue
until January 15, 2003. Thereafter, interest on the Senior Discount
Exchange Notes will accrue from January 15, 2003 and will be payable
semi-annually in arrears on January 15 and July 15 of each year,
commencing July 15, 2003.
Ranking................................... The Senior Discount Exchange Notes will be general unsecured
obligations of the Holdings Issuers and will rank pari passu in right
</TABLE>
19
<PAGE>
<TABLE>
<S> <C>
of payment with all existing and future senior indebtedness of the
Holdings Issuers and senior in right of payment to all subordinated
obligations of the Holdings Issuers. Since Holdings is a holding
company and conducts its business through subsidiaries, the Senior
Discount Exchange Notes will be effectively subordinated to all
indebtedness and other liabilities (including trade payables) of
Holdings' subsidiaries. As of March 29, 1998, after giving effect to
the Recapitalization, such subsidiaries had total liabilities of
$757.8 million, including indebtedness of $641.5 million. See 'Use of
Proceeds,' 'Unaudited Pro Forma Financial Information' and
'Description of the New Credit Facility.'
Optional Redemption....................... The Senior Discount Exchange Notes will be redeemable, in whole or in
part, at the option of the Holdings Issuers on or after January 15,
2003 at the redemption prices set forth herein, plus accrued and
unpaid interest to the date of redemption. The Senior Discount
Exchange Notes are not redeemable by the Holdings Issuers prior to
January 15, 2003, except that, at any time on or prior to January 15,
2001, the Holdings Issuers, at their option, may redeem, with the net
cash proceeds of one or more Equity Offerings, Senior Discount Notes
up to an aggregate principal amount at maturity equal to 40% of the
aggregate principal amount at maturity of the Senior Discount Old
Notes originally issued, at a redemption price equal to 110.750% of
the Accreted Value (as defined) thereof; provided that Senior
Discount Notes in an aggregate principal amount equal to at least 60%
of the aggregate principal amount at maturity of the Senior Discount
Old Notes originally issued remains outstanding immediately following
such redemption. See 'Description of the Senior Discount Exchange
Notes-- Redemption.'
Change of Control......................... Upon a Change of Control, each holder of Senior Discount Exchange
Notes will have the right to require the Holdings Issuers to
repurchase such holder's Senior Discount Exchange Notes at a price
equal to 101% of the Accreted Value thereof, plus accrued and unpaid
interest, if any, to the repurchase date. See 'Description of the
Exchange Notes--Change of Control.'
Guarantees................................ None.
Certain Covenants......................... The Senior Discount Indenture contains certain covenants with respect
to Holdings and its subsidiaries that restrict, among other things,
(a) the incurrence of additional indebtedness, (b) the payment of
dividends and other restricted payments, (c) the creation of certain
liens, (d) the use of proceeds from sales of assets and subsidiary
stock, and (e) transactions with affiliates. The Senior Discount
Indenture also restricts the ability of the Holdings Issuers to
consolidate or merge with or into, or to transfer all or
substantially all of their assets to, another person. In addition,
under certain circumstances, the Holdings Issuers will be required to
offer to purchase the Senior Discount Exchange Notes, in whole or in
part, with the proceeds of certain Asset Sales, at a price equal to
100% of the Accreted Value thereof, plus accrued and unpaid interest,
if any, to the repurchase date. These restrictions and requirements
are subject to a number of important qualifications and
</TABLE>
20
<PAGE>
<TABLE>
<S> <C>
exceptions. See 'Description of the Senior Discount Exchange
Notes--Certain Covenants.'
Absence of Market......................... The Senior Discount Exchange Notes are new securities for which there
is currently no established market. Accordingly, there can be no
assurance as to the development or liquidity of any market for the
Senior Discount Exchange Notes. The Holdings Issuers do not intend to
list the Senior Discount Exchange Notes on any securities exchange or
to seek approval for quotation of the Senior Discount Exchange Notes
on any automated quotation system.
No Personal Liability of Directors,
Officers, Employees and Stockholders.... The Senior Discount Indenture under which the Senior Discount Notes
have been or will be issued provides that all obligations under the
Senior Discount Indenture and the Senior Discount Notes (and all
notes issued in exchange therefor) shall be expressly non-recourse to
the partners of Holdings in their capacities as such, and that, by
purchasing the Senior Discount Notes, each holder of Senior Discount
Notes waives any liability of any partner of Holdings under the
Senior Discount Indenture and the Senior Discount Notes (and all
notes issued in exchange therefor). No director, officer, employee,
incorporator or stockholder of the Holdings Issuers (or any Guarantor
(as defined) under any Guarantee (as defined) that may be issued with
respect to the Senior Discount Notes) shall have any liability for
any obligations of the Holdings Issuers (or any such Guarantor) under
the Senior Discount Exchange Notes or the Senior Discount Indenture
(or any such Guarantee) or any claim based on, in respect of, or by
reason of such obligation, or their creation. Such waiver may not be
effective to waive liabilities under the federal securities laws and
it is the view of the Commission that such a waiver is against public
policy.
</TABLE>
For additional information regarding the Senior Discount Exchange Notes,
see 'Description of the Senior Discount Exchange Notes.'
USE OF PROCEEDS
The gross proceeds of the Offerings were used to (i) redeem certain
partnership interests in Holdings pursuant to the Recapitalization; (ii) repay
substantially all of the existing debt of Holdings and its subsidiaries; (iii)
pay certain bonuses and other cash payments to certain members of Management;
and (iv) pay related transaction fees and expenses. See 'The Recapitalization'
and 'Use of Proceeds.'
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RISK FACTORS
See 'Risk Factors' for a discussion of certain factors that should be
considered in evaluating an investment in the Notes.
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth summary historical combined financial data
for the Graham Packaging Group (as described below) for and at the end of each
of the years in the three-year period ended December 31, 1997, and summary pro
forma financial data for Holdings and the Operating Company for the three month
period ended March 29, 1998. The summary historical combined financial data for
each of the three years in the period ended December 31, 1997 are derived from
the Graham Packaging Group's combined financial statements as of and for each of
the three years in the period ended December 31, 1997. The combined financial
statements as of December 31, 1995, 1996 and 1997 and for each of the three
years in the period ended December 31, 1997 have been audited by Ernst & Young
LLP, independent auditors. The combined financial statements of Graham Packaging
Group have been prepared to include Holdings and its subsidiaries and the
ownership interests and real estate constituting the Graham Contribution for all
periods that the operations were under common control. The pro forma financial
information reflects the Recapitalization in the manner described under
'Unaudited Pro Forma Financial Information.' The pro forma financial information
is not necessarily indicative of either future results of operations or the
results that might have occurred if the foregoing transactions had been
consummated on the indicated dates.
The following table should be read in conjunction with 'Unaudited Pro Forma
Financial Information,' 'Management's Discussion and Analysis of Financial
Condition and Results of Operations', the Combined Financial Statements of
Graham Packaging Group, including the related notes thereto, and the Condensed
Financial Statements, including the related notes thereto, included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 29, 1998(2,12)
---------------------------- ---------------------
1995(1) 1996 1997(2) PRO FORMA
------- ------ ------- ---------------------
OPERATING
HOLDINGS COMPANY
-------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales(3)...................................................... $ 466.8 $459.7 $ 521.7 $134.4 $ 134.4
Gross margin(3)................................................... 66.8 77.2 84.4 24.6 24.6
Selling, general and administrative expenses...................... 35.5 35.5 34.9 8.5 8.5
Special charges and unusual items(4).............................. 5.9 7.0 24.4 1.6 1.6
Operating income.................................................. 25.4 34.7 25.1 14.5 14.5
Interest expense, net............................................. 16.2 14.5 13.4 18.1 15.0
Other expense (income), net....................................... (11.0) (1.0) 0.7 0.2 0.2
Income tax (benefit) expense(5)................................... (0.3) -- 0.6 -- --
Minority interest................................................. -- -- 0.2 -- --
Extraordinary loss(6)............................................. 1.8 -- -- -- --
------- ------ ------- -------- ---------
Net income (loss)................................................. 18.7 21.2 10.2 (3.8) (0.7)
------- ------ ------- -------- ---------
------- ------ ------- -------- ---------
OTHER DATA:
Cash flows provided by (used in):
Operating activities............................................ $ 60.5 $ 68.0 $ 66.9 $ 1.3 $ 1.3
Investing activities............................................ (68.4) (32.8) (72.3) (16.6) (16.6)
Financing activities............................................ 9.2 (34.6) 9.5 30.8 30.8
Adjusted EBITDA(7)................................................ 77.1 90.6 89.8 25.3 25.3
Capital expenditures.............................................. 68.6 31.3 53.2 13.5 13.5
Investments(8).................................................... 3.2 1.2 19.0 3.0 3.0
Depreciation and amortization(9).................................. 45.7 48.2 41.0 9.2 9.2
Ratio of earnings to fixed charges(10)............................ 2.0x 2.2x 1.6x -- --
Pro forma ratio of Adjusted EBITDA to cash interest expense,
net ............................................................ 1.79x 1.79x
BALANCE SHEET DATA:
Working capital(11)............................................... $ 18.0 $ 17.0 $ 2.4 $ 6.9 $ 6.9
Total assets...................................................... 360.7 338.8 385.5 423.8 423.8
Total debt........................................................ 257.4 240.5 268.5 743.8 641.5
Partners'/owners' equity (deficit)................................ 15.3 16.8 0.3 (436.3) (339.0)
</TABLE>
(Footnotes on next page)
22
<PAGE>
(Footnotes from previous page)
- ------------------
(1) In September 1993, Graham Packaging Group acquired an interest in
Commercial Packaging UK Ltd. (the 'UK Operations') for $0.6 million. In
July 1995, Graham Packaging Group acquired an additional interest in its UK
Operations for $1.1 million and subsequently sold those interests for $5.6
million, recognizing a gain of $4.4 million in 1995. 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.
(2) In April 1997, Graham Packaging Group acquired 80% of certain assets and
assumed 80% of certain liabilities of Rheem-Graham Embalagens Ltda. in
Brazil for $20.3 million (excluding direct costs of the acquisition). The
remaining 20% was purchased in February 1998. These transactions were
accounted for under the purchase method of accounting. Results of
operations are included in the historical amounts since the dates of
acquisitions.
(3) 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.
(4) Represents certain legal, restructuring and systems conversion costs. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and the Combined Financial Statements of Graham Packaging
Group, including the related notes thereto, for further discussion.
(5) As a limited partnership, Holdings is 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.
(6) Represents the write-off of unamortized deferred financing fees in
connection with the early extinguishment of debt. The write-off of deferred
financing fees associated with the retirement of outstanding indebtedness
on February 2, 1998 totalling $0.7 million has been excluded from the pro
forma results of operations for the three months ended March 29, 1998.
(7) 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 (as defined), 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 (1) above. Adjusted EBITDA is included in this
Prospectus to provide additional information with respect to the ability of
Holdings and the Operating Company to satisfy their debt service, capital
expenditures 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 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.
(8) Investments includes the acquisitions made by Graham Packaging Group in the
UK and Brazil described in notes (1) and (2) above. In addition, in 1995,
the Company paid $1.9 million for a 50% interest in the Masko-Graham Joint
Venture (the 'Masko-Graham Joint Venture') in Poland and committed to make
loans to the Masko-Graham Joint Venture of up to $1.9 million. In 1996, the
Company loaned $1.0 million to the Masko-Graham Joint Venture. The
Masko-Graham Joint Venture is accounted for under the equity
23
<PAGE>
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 acquisitions.
(9) Depreciation and amortization excludes amortization of deferred financing
fees, which is included in interest expense, net.
(10) 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 on a pro forma basis for the three
months ended March 29, 1998 by $3.9 million for Holdings and $0.8 million
for the Operating Company.
(11) Working capital is defined as current assets (less cash and cash
equivalents) minus current liabilities (less current maturities of
long-term debt).
(12) In February 1998, the Recapitalization occurred.
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<PAGE>
RISK FACTORS
Holders of Old Notes should consider carefully, in addition to the other
information contained in this Prospectus, the following factors before deciding
to tender Old Notes in the Exchange Offers. The risk factors set forth below are
generally applicable to the Old Notes as well as the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the applicable Exchange Offer will continue to be subject to the
restrictions on transfer of such Old Notes as set forth in the legend thereon.
In general, Old Notes may not be offered or sold unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act and applicable
state securities laws. The respective Issuers do not currently intend to
register the Old Notes under the Securities Act. Based on interpretations by the
staff of the Commission, the Issuers believe that Exchange Notes issued pursuant
to the applicable Exchange Offer in exchange for Old Notes may be offered for
resale, resold or otherwise transferred by Holders thereof (other than any such
Holder which is an 'affiliate' of the Issuers thereof within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such Old
Notes were acquired in the ordinary course of such Holders' business and such
Holders have no arrangement with any person to participate in the distribution
of such Exchange Notes. Each broker-dealer that receives Exchange Notes for its
own account in exchange for Old Notes, where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See 'Plan of Distribution.' To the
extent that Old Notes are tendered and accepted in the applicable Exchange
Offer, the trading market for untendered and tendered but unaccepted Old Notes
will be adversely affected.
SUBSTANTIAL LEVERAGE
Upon the consummation of the Recapitalization, the Operating Company and
Holdings became highly leveraged. As of March 29, 1998, after giving effect to
the Recapitalization, as described in the Unaudited Pro Forma Financial
Information, (i) the Operating Company and its consolidated subsidiaries had an
aggregate of $641.5 million of outstanding indebtedness and a partners' deficit
of $339.0 million, and the Operating Company's earnings would have been
inadequate to cover fixed charges by approximately $0.8 million for the three
months ended March 29, 1998; and (ii) Holdings and its consolidated subsidiaries
had an aggregate of $743.8 million of outstanding indebtedness and a partners'
deficit of $436.3 million, and Holdings' earnings would have been inadequate to
cover fixed charges by approximately $3.9 million for the three months ended
March 29, 1998. The New Credit Facility includes a $155.0 million Revolving
Credit Facility (of which $13.0 million had been drawn down at March 29, 1998),
and a $100.0 million Growth Capital Revolving Facility. The Indentures (as
defined) permit the Issuers to incur additional indebtedness, subject to certain
limitations. The annual debt service requirements for the Company are as
follows: 1998--$4,771,000; 1999--$3,334,000; 2000--$13,333,000;
2001--$18,337,000; and 2002--$23,469,000. The Company can incur $45 million in
additional indebtedness beyond the amount of the New Credit Facility. 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. See
'Unaudited Pro Forma Combined Financial Information,' 'Capitalization,'
'Description of the Senior Subordinated Exchange Notes,' 'Description of the
Senior Discount Notes' and the Combined Financial Statements of Graham Packaging
Group, including the related notes thereto.
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 Facility 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
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<PAGE>
Credit Facility, 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. See 'Description of the New
Credit Facility,' 'Description of the Senior Subordinated Exchange Notes' and
'Description of the Senior Discount Exchange Notes.'
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
Facility 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. The Operating Company will be required to
make scheduled principal payments on the Term Loans under the New Credit
Facility commencing in 1998, as follows: 1998--$3,200,000; 1999--$3,200,000;
2000-- $13,200,000; 2001--$18,200,000; 2002--$23,200,000; 2003--$25,700,000;
2004--$91,200,000; 2005-- $63,137,500; 2006--$120,612,500; and
2007--$33,350,000. The Term Loan Facilities under the New Credit Facility 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 Facility) 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. See 'Description of the New Credit Facility,' 'Unaudited Pro
Forma Financial Information,' 'Capitalization,' 'Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources' and the Combined Financial Statements of Graham Packaging Group,
including the related notes thereto.
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 Facility, 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.
HOLDING COMPANY STRUCTURE; STRUCTURAL SUBORDINATION OF SENIOR DISCOUNT EXCHANGE
NOTES
Holdings is a holding company which has no significant assets other than
its direct and indirect partnership interests in the Operating Company. CapCo
II, a wholly owned subsidiary of Holdings, was formed for the purpose of serving
as a co-issuer of the Senior Discount Notes and has no operations or assets from
which it will be able to repay the Senior Discount Notes. Accordingly, the
Holdings Issuers must rely entirely upon distributions from the Operating
Company to generate the funds necessary to meet their obligations, including the
payment of Accreted Value or principal and interest on the Senior Discount
Notes. The Senior Subordinated Indenture and the New Credit Facility contain
significant restrictions on the ability of the Operating Company to distribute
funds to Holdings. There can be no assurance that the Senior Subordinated
Indenture, the New Credit Facility or any agreement governing indebtedness that
refinances such indebtedness or other indebtedness of the Operating Company will
permit the Operating Company to distribute funds to Holdings in amounts
sufficient to pay the Accreted Value or principal or interest on the Senior
Discount Notes when the same become due (whether at maturity, upon acceleration
or otherwise).
The only significant assets of Holdings are the partnership interests in
the Operating Company owned by it. All such interests are pledged by Holdings as
collateral under the New Credit Facility. Therefore, if Holdings were unable to
pay the Accreted Value or principal or interest on the Senior Discount Notes,
the ability of the holders of the Senior Discount Notes to proceed against the
partnership interests of the Operating Company to
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<PAGE>
satisfy such amounts would be subject to the prior satisfaction in full of all
amounts owing under the New Credit Facility. Any action to proceed against such
partnership interests by or on behalf of the holders of Senior Discount Notes
would constitute an event of default under the New Credit Facility entitling the
lenders thereunder to declare all amounts owing thereunder to be immediately due
and payable, which event would in turn constitute an event of default under the
Senior Subordinated Indenture, entitling the holders of the Senior Subordinated
Notes to declare the principal and accrued interest on the Senior Subordinated
Notes to be immediately due and payable. In addition, as secured creditors, the
lenders under the New Credit Facility would control the disposition and sale of
the Operating Company partnership interests after an event of default under the
New Credit Facility and would not be legally required to take into account the
interests of unsecured creditors of Holdings, such as the holders of the Senior
Discount Notes, with respect to any such disposition or sale. There can be no
assurance that the assets of Holdings after the satisfaction of claims of its
secured creditors would be sufficient to satisfy any amounts owing with respect
to the Senior Discount Notes.
The Senior Discount Notes will be effectively subordinated to all existing
and future claims of creditors of Holdings' subsidiaries, including the lenders
under the New Credit Facility, the holders of the Senior Subordinated Notes and
trade creditors. At March 29, 1998, after giving effect to the Recapitalization,
such subsidiaries had approximately $757.8 million of total liabilities,
including approximately $641.5 million of indebtedness. As described above, the
rights of the Holdings Issuers and their creditors, including the holders of the
Senior Discount Notes, to realize upon the assets of Holdings or any of its
subsidiaries upon any such subsidiary's liquidation (and the consequent rights
of the holders of the Senior Discount Notes to participate in the realization of
those assets) will be subject to the prior claims of the lenders under the New
Credit Facility and the creditors of Holdings' subsidiaries including in the
case of the Operating Company, the lenders under the New Credit Facility and the
holders of the Senior Subordinated Notes. In such event, there may not be
sufficient assets remaining to pay amounts due on any or all of the Senior
Discount Notes then outstanding. Under the New Credit Facility, 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.
The Senior Subordinated Notes and all amounts owing under the New Credit
Facility will mature prior to the maturity of the Senior Discount Notes. The
Senior Discount Indenture requires that any agreements governing indebtedness
that refinances the Senior Subordinated Notes or the New Credit Facility not
contain restrictions on the ability of the Operating Company to make
distributions to Holdings that are more restrictive than those contained in the
Senior Subordinated Indenture or the New Credit Facility, respectively. There
can be no assurance that if the Operating Company is required to refinance the
Senior Subordinated Notes or any amounts under the New Credit Facility, it will
be able to do so upon acceptable terms, if at all.
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 Facility.
As of March 29, 1998, after giving effect to the Recapitalization, the Company
Issuers had $414.7 million of Senior Indebtedness outstanding. In addition, the
Senior Subordinated Notes are effectively subordinated to all indebtedness and
other liabilities (including trade payables) of the Operating Company's
subsidiaries. As of March 29, 1998, after giving effect to the Recapitalization,
such subsidiaries had total liabilities of $38.4 million, including indebtedness
of $5.1 million. In addition, at March 29, 1998, the Operating Company had
additional borrowing availability of approximately $242.0 million under the New
Credit Facility. The Indentures and the New Credit Facility 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 Facility 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
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<PAGE>
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. See 'Description of the Senior Subordinated
Notes--Subordination.' 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 Old Notes are, and the Senior Subordinated Exchange
Notes will be, fully and unconditionally guaranteed by Holdings on a senior
subordinated basis. The Old Holdings Guarantee is, and the Holdings Guarantee
will be, subordinated to all senior indebtedness of Holdings ($102.3 million at
March 29, 1998) and effectively subordinated to all indebtedness and other
liabilities (including but not limited to trade payables) of Holdings'
subsidiaries ($757.8 million at March 29, 1998). 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 Facility 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 Facility, 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 Facility, 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. To the extent that the Operating
Company does not achieve the pro forma estimates with respect to its operations,
it may not be in compliance with certain of the covenants included in the New
Credit Facility. See 'Unaudited Pro Forma Financial Information.' The breach of
any of these covenants could result in a default under the New Credit Facility.
See 'Description of the New Credit Facility.' 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. See 'Description
of the Senior Subordinated Exchange Notes-- Subordination' and '--Holding
Company Structure; Structural Subordination of Senior Discount Exchange Notes.'
In addition, the lenders could elect to declare all amounts borrowed under the
New Credit Facility, 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. See 'Description of the New
Credit Facility,' 'Description of the Senior Subordinated Exchange Notes' and
'Description of the Senior Discount Exchange Notes.'
COMPETITION
The manufacture and sale of plastic containers are highly competitive, and
several of the Company's competitors are larger and have substantially greater
financial resources than the Company. In particular, price competition can be an
important factor and may affect the Company's results of operations. In
addition, the Company could face increased competition in its hot-fill PET
business if manufacturers of cold-fill containers were able to refit their
machines to produce hot-fill PET bottles. To date, such refitting efforts have
proved to be expensive and substantially less efficient than the Company's
equipment for producing hot-fill PET containers. No assurance can be given,
however, that new technologies will not be created to allow such refitting at
lower costs and greater efficiencies than exist today. See
'Business--Competition.'
DECLINE IN DOMESTIC MOTOR OIL BUSINESS
The domestic one quart motor oil business is forecasted to decline between
1-2% measured by unit volume per year for the next five years due to several
factors, including, but not limited to, the decreased need of motor oil changes
in new automobiles and the growth in retail automotive fast lubrication and
fluid maintenance service centers (such as Jiffy Lube Service Centers). The
Company has encountered pricing pressures on several existing contracts that
have come up for renewal. For the twelve months ended December 31, 1997, the
Company
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generated net sales of $177.5 million in the domestic automotive business, which
represented 34.0% of the Company's revenues for that period. Although the
Company has been able over time to partially offset these margin declines
through international expansion (e.g., in Brazil) and by reducing its cost
structure and making more efficient the manufacturing process associated with
its domestic automotive business, no assurance can be given that the Company
will be able to continue to do so in the future. Further declines in domestic
demand for and prices of plastic packaging for motor oil could have a material
adverse effect on the Company's results of operations, financial condition and
cash flow. See 'Business--Automotive' and 'Business--Industry
Overview--Automotive.'
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 19 plants located in countries outside the United
States, including Canada (4), Brazil (4), France (5), Germany (1), Italy (2),
Poland (1), Turkey (1) and the United Kingdom (1), with two plants pending. For
the twelve months ended December 31, 1997, net sales of the Company's products
outside the United States totalled approximately $110.7 million, representing
approximately 21.2% of the Company's net sales for such period. As a result, the
Company is subject to risks associated with operating in foreign countries,
including fluctuations in currency exchange rates, 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 have not had a material impact on the Company's operations in
Europe, North America and South America, but no assurance can be given that such
risks will not have a material adverse effect on the Company in the future. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations,' 'Business--Facilities' and 'Business--Foreign Operations.'
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. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations' and 'Business-- Raw Materials.'
DEPENDENCE ON SIGNIFICANT CUSTOMER
The Company's largest customer (Unilever) accounted for approximately 13.8%
of the Company's net sales for the twelve months ended December 31, 1997. 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. See 'Business--Customers.'
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, Alex H. Everhart, John E. Hamilton,
Geoffrey R. Lu, Roger M. Prevot 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.
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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. See
'Certain Relationships and Related Party Transactions--Certain Business
Relationships.'
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. As a manufacturer, the Company has an inherent
risk of liability under Environmental Laws both with respect to ongoing
operations and with respect to contamination that may have occurred in the past
on its properties or as a result of its operations. There can be no assurance
that the costs of complying with Environmental Laws, any claims concerning
noncompliance, or liability with respect to contamination will not in the future
adversely affect the Company in a manner that could be material.
In addition, 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.
There can be no assurance that such legislation and initiatives will not in the
future adversely affect the Company in a manner that could be material. See
'Business--Environmental Matters.'
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). See 'Use of Proceeds.'
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
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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. See 'The Recapitalization' and 'The Partnership
Agreements--Holdings Partnership Agreement.'
LIMITATION ON CHANGE IN CONTROL
The Indentures require the Company Issuers and the Holdings Issuers, in the
event of a Change of Control (as defined under 'Description of the Senior
Subordinated Notes' and 'Description of the Senior Discount Notes'), to offer to
repurchase the Senior Subordinated Notes or the Senior Discount Notes,
respectively, at a purchase price equal to 101% of the principal amount thereof
or the Accreted Value thereof, respectively, plus, in each case, accrued and
unpaid interest, if any, to the repurchase date. See 'Description of the Senior
Subordinated Exchange Notes--Change of Control' and 'Description of the Senior
Discount Exchange Notes-- Change of Control.'
The Change of Control purchase features of the Notes may in certain
circumstances discourage or make more difficult a sale or takeover of Holdings.
In addition, the New Credit Facility will, and other indebtedness may, contain
prohibitions of certain events which would constitute a Change of Control.
Furthermore, the exercise by the holders of the Notes, or if issued, the
Exchange Notes, of their right to require the Issuers to repurchase the Old
Notes or the Exchange Notes may cause a default under the New Credit Facility or
such other indebtedness, even if the Change of Control does not. Finally, there
can be no assurance that the Issuers will have
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the financial resources necessary to purchase the Notes upon a Change of
Control. See 'Description of the Senior Subordinated Notes' and 'Description of
the Senior Discount Notes.'
LACK OF PUBLIC MARKET FOR THE NOTES; RESTRICTIONS ON TRANSFERABILITY
The Exchange Notes are being offered to the holders of the Old Notes. The
Old Notes were offered and sold in February 1998 to a small number of
institutional investors in reliance upon an exemption from registration under
the Securities Act and applicable state securities laws. Therefore, although the
Old Notes are eligible for trading in the PORTAL market of the National
Association of Securities Dealers, Inc., the Old Notes may be transferred or
resold only in a transaction registered under or exempt from the Securities Act
and applicable state securities laws.
The Exchange Notes generally will be permitted to be resold or otherwise
transferred by each holder without the requirement of further registration. Each
series of Exchange Notes, however, constitutes a new issue of securities with no
established trading market. The Exchange Offers will not be conditioned upon any
minimum or maximum aggregate principal amount of Notes being tendered for
exchange. The Issuers do not intend to apply for a listing of any series of the
Exchange Notes on a securities exchange or an automated quotation system, and
there can be no assurance as to the liquidity of markets that may develop for
the Exchange Notes, the ability of the holders of the Exchange Notes to sell
their Exchange Notes or the price at which such holders would be able to sell
their Exchange Notes. If markets for the Exchange Notes were to exist, the
Exchange Notes could trade at prices that may be lower than the initial market
values thereof depending on many factors. The liquidity of, and trading market
for, the Exchange Notes may be adversely affected by movements of interest
rates, the performance of the Company and general declines in the market for
similar securities. Such a decline may adversely affect such liquidity and
trading market independent of the financial performance of, and prospects for,
the Company. The Initial Purchasers are not obligated to make a market in any of
the Notes, and any market making with respect to the Notes may be discontinued
at any time without notice. In addition, such market making activity may be
limited during the pendency of the Exchange Offers or the effectiveness of a
shelf registration statement in lieu thereof. See 'Transfer Restrictions' and
'Plan of Distribution.'
In the case of non-exchanging holders of Old Notes, no assurance can be
given as to the liquidity of any trading market for the Old Notes following the
Exchange Offers.
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 Facility 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.
JCI LITIGATION
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 have been
consolidated for all purposes. The Company has answered the complaints, denying
infringement and misappropriation in all respects and asserting various
defenses, including invalidity
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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 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 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 and in the March 29, 1998 unaudited condensed consolidated financial
statements. The cash paid in settlement was funded by draw-downs under the New
Credit Facility. See 'Business--Legal Proceedings' and Notes 13 and 17 to the
Combined Financial Statements as of December 31, 1997 and 1996 and for each of
the three years in the period ended December 31, 1997 and Note 9 to the
Condensed Financial Statements.
HEDGING TRANSACTIONS
The Company engages in the following ongoing hedging transactions, as
disclosed in Note 1 to the Combined Financial Statements of Graham Packaging
Group: (i) the two interest rate swap agreements entered into subsequent to
December 31, 1997 as further described in Note 6 to the Combined Financial
Statements of Graham Packaging Group; and (ii) French Franc forward exchange
contracts which have been entered into subsequent to December 31, 1997 to hedge
the exchange rate exposure on transactions denominated in that currency. The
transactions in French franc contracts related to the purchase by U.S.-based
entities of equipment manufactured by an unrelated French company.
ORIGINAL ISSUE DISCOUNT CONSEQUENCES
The Senior Discount Notes will be deemed to be issued at a substantial
discount from their principal amount. Consequently, the purchasers of Senior
Discount Notes generally will be required to include amounts in gross income for
federal income tax purposes in advance of receipt of the cash payments to which
the income is attributable. Holders of Senior Discount Notes are urged to
consult their tax advisors for a more detailed discussion of the federal income
tax consequences of the purchase, ownership and disposition of the Senior
Discount Notes.
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements concerning the
Company's operations, economic performance and financial condition, including,
in particular, the likelihood of the Company's success in developing and
expanding its business, including, but not limited to, the Company's hot-fill
PET plastic container business. These statements are based upon a number of
assumptions and estimates which are inherently subject to significant
uncertainties and contingencies, many of which are beyond the control of the
Company, and reflect future business decisions which are subject to change. Some
of these assumptions inevitably will not materialize, and unanticipated events
will occur which will affect the Company's results.
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THE RECAPITALIZATION
The terms and conditions of the Recapitalization are set forth in the
Recapitalization Agreement by and among Holdings, the Graham Partners and the
Equity Investors. The summary set forth below of the terms of the
Recapitalization Agreement is qualified in its entirety by reference to all the
provisions of the Recapitalization Agreement, a copy of which has been filed as
an exhibit to the Registration Statement of which this Prospectus forms a part.
THE OFFERINGS
On February 2, 1998, as part of the Recapitalization, 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. Pursuant to the Senior Subordinated Exchange Offers, the
Company Issuers are offering to exchange up to $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.
On February 2, 1998, as part of the Recapitalization, the Holdings Issuers
consummated an offering pursuant to Rule 144A under the Securities Act of
$169,000,000 aggregate principal amount at maturity of Senior Discount Old
Notes. Pursuant to the Senior Discount Exchange Offer, the Holdings Issuers are
offering to exchange up to $169,000,000 aggregate principal amount at maturity
of their Senior Discount Exchange Notes for an equal principal amount of Senior
Discount Old Notes.
RECAPITALIZATION AGREEMENT
Upon the consummation of the Recapitalization, Investor LP acquired an 81%
limited partnership interest in Holdings, Investor GP acquired 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. Also upon consummation of the Recapitalization, Holdings owned a 99%
limited partnership interest in the Operating Company, and Opco GP, a wholly
owned subsidiary of Holdings, acquired a 1% general partnership interest in the
Operating Company.
As provided in the Recapitalization Agreement, immediately prior to the
consummation of the Recapitalization (the 'Closing'), (i) Holdings contributed
to the Operating Company substantially all of its assets and liabilities (other
than its partnership interests in the Operating Company, the capital stock of
CapCo II and the membership interests in Opco GP) and (ii) the Graham
Contribution was made.
Upon the Closing, (i) substantially all outstanding indebtedness of
Holdings and its subsidiaries was repaid, (ii) certain limited and general
partnership interests in Holdings held by the Graham Partners were redeemed by
Holdings for $429.6 million (the 'Redemption Consideration'), (iii) certain
limited and general partnership interests in Holdings held by the Graham
Partners were purchased by the Equity Investors for $208.3 million (the
'Purchase Consideration') and (iv) the Graham Partners repaid all amounts
outstanding under certain promissory notes held by Holdings. In addition,
contemporaneously with the Recapitalization, the Operating Company paid certain
bonuses and other cash payments, and certain equity awards were granted, to
senior and middle level management ('Management Awards'). See 'Use of Proceeds'
and 'Management--Management Awards.'
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
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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 Party Transactions.'
SUMMARY OF OWNERSHIP STRUCTURE AFTER THE RECAPITALIZATION
The following chart sets forth a summary of the ownership structure of
Holdings, the Operating Company and certain other parties following the
consummation of the Recapitalization:
--------------- $208.3 million --------------------
Equity ---------------------------------- Graham Partners2
Investors1 Purchase of existing --------------------
--------------- partnership interests
$21.2 million
Repayment of
promissory notes $429.6 million
Redemption of existing
partnership interests
Transaction costs
and expenses ----------------------------
$5.9 million Holdings ----------------
---------------------------- $100.6 million Senior
| Discount Notes
|
Distribution | $313.7 million
|
Repayment of |
existing indebtedness ----------------------
$264.9 million $403.5 million Bank Borrowings
------------------------------
Payments to Management $225.0 million Senior
$15.4 million Operating Company Subordinated Notes
- ------------------------ ------------------------------
Fees and expenses $1.7 million Available Cash
$36.2 million ------------------------------
- ------------------------- ---------------------
- ------------------
(1) An affiliate of BT Alex. Brown Incorporated and Bankers Trust International
PLC acquired approximately a 4.8% equity interest in the voting securities
of Investor LP. See 'Security Ownership.'
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THE ISSUERS
Holdings, together with its subsidiaries, is a worldwide leader in the
design, manufacture and sale of customized HDPE and PET blow molded rigid
plastic bottles, as described under 'Business.' 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 Operating Company was formed under the name 'Graham Packaging Holdings
I, L.P.' on September 21, 1994 as a Delaware limited partnership. 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 since 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.
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 solely for the purpose of acting as co-obligors of the Senior Subordinated
Notes and the Senior Discount Notes, respectively. 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 should look only
to the cash flow and assets of the Operating Company or the cash flow and assets
of Holdings for payment of the Notes. See 'The Recapitalization' and 'Security
Ownership.'
The principal executive offices of the Issuers are located at 1110 East
Princess Street, York, Pennsylvania 17403, Telephone: (717) 849-8500.
USE OF PROCEEDS
There will be no proceeds to the Issuers from the exchange of Notes
pursuant to the Exchange Offers. Upon the consummation of the Recapitalization,
the proceeds from the Offerings of $325.6 million were used, together with the
initial borrowings under the New Credit Facility (the 'Bank Borrowings'), as
follows: (i) approximately $264.9 million was used to repay substantially all of
the existing indebtedness, plus accrued interest, of Holdings and its
subsidiaries, (ii) approximately $408.4 million was used by Holdings to redeem
existing partnership interests in Holdings (net of repayment by the Graham
Partners of $21.2 million owed to Holdings under certain promissory notes),
(iii) approximately $15.4 million was used to make certain cash payments to
Management pursuant to the Recapitalization Agreement and (iv) approximately
$42.1 million was used to fund costs and expenses associated with the
Recapitalization. In addition, the equity investment of approximately $208.3
million by Blackstone and Management in the Equity Investors was used to
purchase existing partnership interests in Holdings.
The existing indebtedness that was repaid at the Closing included (i)
indebtedness outstanding under Holdings' existing $125.0 million term loan
facility ('Existing Term Facility') and (ii) indebtedness outstanding under
Holdings' existing $225.0 million revolving credit facility ('Existing Revolving
Facility,' and together with the Existing Term Facility, the 'Existing Credit
Facility'), all of which indebtedness was assumed by the Operating Company prior
to the Recapitalization and repaid by the Operating Company upon the Closing. If
they had not been repaid at the Closing, the term loan under the Existing Term
Facility would have matured in annual installments beginning March 1998 through
March 2000, and the Existing Revolving Facility would have matured in April
2000. The average interest rate on the Existing Credit Facility was
approximately 5.9% per annum. See 'The Recapitalization ' and 'Capitalization.'
36
<PAGE>
The following table sets forth a summary of the sources and uses of funds
associated with the Recapitalization.
<TABLE>
<CAPTION>
AMOUNT
-------------
(IN MILLIONS)
<S> <C>
SOURCES 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
-------------
Total.............................................................................................. $ 997.0
-------------
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
-------------
Total.............................................................................................. $ 997.0
-------------
-------------
</TABLE>
- ------------------
(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' and 'Private Placement.'
(3) Included $264.5 million of existing indebtedness and $0.4 million of accrued
interest.
37
<PAGE>
CAPITALIZATION
The following table sets forth the cash and cash equivalents and the
consolidated capitalization of Holdings and the Operating Company as of March
29, 1998. This table should be read in conjunction with 'The Recapitalization,'
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and the consolidated financial statements of Holdings and the
related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 29, 1998
---------------------
OPERATING
HOLDINGS COMPANY
-------- ---------
(IN MILLIONS)
<S> <C> <C>
Cash and cash equivalents.................................................................. $ 4.2 $ 4.2
-------- ---------
-------- ---------
Total debt (including current maturities):
New Credit Facility:
Revolving Credit Facilities(1)........................................................ $ 13.0 $ 13.0
Tranche A term loans.................................................................. 75.0 75.0
Tranche B term loans.................................................................. 175.0 175.0
Tranche C term loans.................................................................. 145.0 145.0
Senior Subordinated Notes(2)............................................................... 225.0 225.0
Senior Discount Notes...................................................................... 102.3 --
Other debt................................................................................. 8.5 8.5
-------- ---------
Total debt............................................................................ 743.8 641.5
Partners' equity (deficit)................................................................. (436.3) (339.0 )
-------- ---------
Total capitalization.................................................................. $ 307.5 $ 302.5
-------- ---------
-------- ---------
</TABLE>
- ------------------
(1) At March 29, 1998, the Operating Company had the ability, subject to
customary borrowing conditions, to borrow up to $142.0 million under the
Revolving Credit Facility and up to $100.0 million under the Growth Capital
Revolving Facility. Amounts drawn under the Growth Capital Revolving
Facility require matching equity investments from the principal equity
holders of Holdings. See 'Description of the New Credit Facility.'
(2) Includes $150.0 million of Fixed Rate Senior Subordinated Notes and $75.0
million of Floating Rate Senior Subordinated Notes.
38
<PAGE>
GRAHAM PACKAGING COMPANY
GRAHAM PACKAGING HOLDINGS COMPANY
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The accompanying unaudited pro forma financial information of Holdings and
the Operating Company has been prepared by applying pro forma adjustments to the
historical combined financial statements of Graham Packaging Group ('GP Group')
(as described below) and, in the case of the three months ended March 29, 1998,
the consolidated financial statements of Holdings. The combined financial
statements of GP Group have been prepared to include Holdings and its
subsidiaries and the ownership interests and real estate constituting the Graham
Contribution (which contribution was made to the Operating Company prior to the
Closing) for all periods that the operations were under common control, and
therefore the Graham Contribution is not included in the pro forma adjustments.
See 'The Recapitalization.' The pro forma adjustments give effect to the
following aspects of the Recapitalization (the 'Transactions'):
o The contribution by Holdings of substantially all of its assets and
liabilities to the Operating Company (the 'Holdings Contribution')
o The Bank Borrowings and the Offerings
o The repayment of substantially all of the existing indebtedness of
Holdings and its subsidiaries
o The redemption of certain general and limited partnership interests in
Holdings
o The repayment of promissory notes owed to Holdings by certain Graham
Partners
o The payments to Management
o The payment of fees and expenses related to the Transactions
The accompanying unaudited pro forma statements of operations also give
effect to the acquisition of certain assets and the assumption of certain
liabilities of Rheem-Graham Embalagens Ltda. in Brazil (the 'Brazil
Acquisition').
The unaudited pro forma statements of operations for the year ended
December 31, 1997 and the three months ended March 29, 1998 give effect to the
Transactions and the Brazil Acquisition as if they had occurred on January 1,
1997. The adjustments, which are based upon available information and upon
certain assumptions that Management believes are reasonable, are described in
the accompanying notes. The pro forma financial data do not purport to represent
what the results of operations of Holdings or the Operating Company would
actually have been had the Transactions and the Brazil Acquisition in fact
occurred on the assumed dates or to project the results of operations of
Holdings or the Operating Company for any future period or date.
A pro forma balance sheet as of March 29, 1998 is not presented since the
Transactions occurred on February 2, 1998. Accordingly, the March 29, 1998
historical consolidated balance sheet of Holdings includes the events described
in the first paragraph above.
The Recapitalization has been accounted for as a recapitalization of
Holdings and as a transaction between entities under common control for the
Holdings Contribution, which will have no impact on the historical basis of the
assets and liabilities of Holdings or the Operating Company. The Brazil
Acquisition has been accounted for using the purchase method of accounting. The
total purchase cost was allocated to the assets acquired and liabilities assumed
based on their respective fair values.
This unaudited pro forma financial information should be read in
conjunction with 'The Recapitalization,' 'Use of Proceeds,' 'Management's
Discussion and Analysis of Financial Condition and Results of Operations,' the
Combined Financial Statements of the Graham Packaging Group (including the
accompanying notes thereto) and the unaudited consolidated financial statements
of Holdings (including the accompanying notes thereto) and other financial
information included elsewhere in this Prospectus.
39
<PAGE>
GRAHAM PACKAGING COMPANY
GRAHAM PACKAGING HOLDINGS COMPANY
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
----------------------
BRAZIL OPERATING
GP GROUP ACQUISITION ADJUSTMENTS(A) HOLDINGS COMPANY(A)
-------- ----------- -------------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net sales........................................ $521.7 $ 7.5 $ -- $529.2 $529.2
Cost of goods sold............................... 437.3 5.3 0.3(b) 442.9 442.9
-------- ----------- ------- -------- ----------
Gross margin..................................... 84.4 2.2 (0.3) 86.3 86.3
Selling, general and administrative expense...... 34.9 0.6 2.0(c) 37.5 37.5
Special charges and unusual items................ 24.4 -- -- 24.4 24.4
-------- ----------- ------- -------- ----------
Operating income (loss).......................... 25.1 1.6 (2.3) 24.4 24.4
Interest expense, net............................ 13.4 0.1 57.6(d) 71.1 59.6
Other (income) expense net....................... 0.7 -- -- 0.7 0.7
Minority interest................................ 0.2 -- (0.2)(e) -- --
-------- ----------- ------- -------- ----------
Income (loss) before income taxes and
extraordinary items............................ 10.8 1.5 (59.7) (47.4) (35.9)
Income tax expense (benefit)..................... 0.6 0.2 -- 0.8 0.8
-------- ----------- ------- -------- ----------
Income (loss) before extraordinary items......... $ 10.2 $ 1.3 $(59.7)(f) $(48.2) $(36.7)
-------- ----------- ------- -------- ----------
-------- ----------- ------- -------- ----------
OTHER DATA:
Cash flows provided by (used in):
Operating activities........................... $ 66.9 $ 1.8 $(45.0) $ 23.7 $ 23.7
Investing activities........................... (72.3) (0.2) -- (72.5) (72.5)
Financing activities........................... 9.5 (1.5) -- 8.0 8.0
Adjusted EBITDA(g)............................... 89.8 2.1 (1.0) 90.9 90.9
Capital expenditures............................. 53.2 0.2 -- 53.4 53.4
Depreciation and amortization.................... 41.0 0.5 0.3 41.8 41.8
Cash interest expense, net....................... 13.1 0.1 43.0 56.2 56.2
Pro forma ratios of earnings to fixed
charges(h)..................................... -- --
</TABLE>
See accompanying notes.
40
<PAGE>
GRAHAM PACKAGING COMPANY
GRAHAM PACKAGING HOLDINGS COMPANY
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 29, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
HOLDINGS ADJUSTMENTS(A)
-------- --------------
<S> <C> <C>
Net sales......................................... $134.4 $ --
Cost of goods sold................................ 109.8 --
-------- -------
Gross margin...................................... 24.6 --
Selling, general and administrative expense....... 8.4 0.1(c)
Special charges and unusual items................. 14.9 (13.3)(f)
-------- -------
Operating income (loss)........................... 1.3 13.2
Interest expense, net............................. 11.9 6.2(d)
Other (income) expense net........................ 0.2 --
Recapitalization expenses......................... 11.5 (11.5)(f)
Minority interest................................. -- --
-------- -------
Income (loss) before taxes and extraordinary
items........................................... (22.3) 18.5
Income tax expense................................ --
-------- -------
Income (loss) before extraordinary item........... $(22.3) $ 18.5
-------- -------
-------- -------
OTHER DATA:
Cash flows provided by (used in):
Operating activities............................ $(17.1) $ 18.4
Investing activities............................ (16.6) --
Financing activities............................ 30.8 --
Adjusted EBITDA(g)................................ 25.3 --
Capital expenditures.............................. 13.5 --
Depreciation and amortization..................... 9.2 --
Cash interest expense, net........................ 9.2 4.9
Pro forma ratios of earnings to fixed
charges(h)......................................
<CAPTION>
PRO FORMA
---------------------
OPERATING
HOLDINGS COMPANY(A)
-------- ----------
<S> <C> <C>
Net sales.........................................$ 134.4 $134.4
Cost of goods sold................................ 109.8 109.8
-------- ----------
Gross margin...................................... 24.6 24.6
Selling, general and administrative expense....... 8.5 8.5
Special charges and unusual items................. 1.6 1.6
-------- ----------
Operating income (loss)........................... 14.5 14.5
Interest expense, net............................. 18.1 15.0
Other (income) expense net........................ 0.2 0.2
Recapitalization expenses......................... -- --
Minority interest................................. -- --
-------- ----------
Income (loss) before taxes and extraordinary
items........................................... (3.8 ) (0.7)
Income tax expense................................ -- --
-------- ----------
Income (loss) before extraordinary item...........$ (3.8 ) $ (0.7)
-------- ----------
-------- ----------
OTHER DATA:
Cash flows provided by (used in):
Operating activities............................$ 1.3 $ 1.3
Investing activities............................ (16.6 ) (16.6)
Financing activities............................ 30.8 30.8
Adjusted EBITDA(g)................................ 25.3 25.3
Capital expenditures.............................. 13.5 13.5
Depreciation and amortization..................... 9.2 9.2
Cash interest expense, net........................ 14.1 14.1
Pro forma ratios of earnings to fixed
charges(h)...................................... -- --
</TABLE>
See accompanying notes.
41
<PAGE>
GRAHAM PACKAGING COMPANY
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
(a) The pro forma statements of operations of the Operating Company include all
of the same adjustments made for Holdings noted below except interest
expense and deferred financing fee amortization expense related to the
Senior Discount Notes described in the table under note (d).
(b) Represents incremental depreciation based on the fair values of property and
equipment acquired in the Brazil Acquisition, using an estimated useful life
of 15 years.
(c) Represents a $1.0 million annual fee expected to be paid to Graham Family
Growth Partnership under the Holdings Partnership Agreement and a $1.0
million annual monitoring fee expected to be paid to an affiliate of
Blackstone. See 'The Partnership Agreements' and 'Certain Relationships and
Related Party Transactions.'
The unaudited pro forma statements of operations do not include any
reduction of selling, general and administrative expenses as a result of the
elimination of certain historical management fees charged by other Graham
companies to Holdings (which totaled $2.8 million for the year ended
December 31, 1997 and $0.1 million for the three months ended March 29,
1998), or any incremental expense as a result of fees expected to be
incurred by Holdings under the Consulting Agreement or the Equipment Sales
Agreement. See 'Certain Relationships and Related Party Transactions.'
(d) Represents the net adjustment to interest expense as a result of the Bank
Borrowings and the Offerings, calculated as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1997 MARCH 29, 1998
--------------------- ---------------------
OPERATING OPERATING
HOLDINGS COMPANY HOLDINGS COMPANY
-------- --------- -------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Fixed Rate Senior Subordinated Notes(1)..................... $ 13.1 $ 13.1 $ 3.3 $ 3.3
Floating Rate Senior Subordinated Notes(2).................. 6.9 6.9 1.7 1.7
Senior Credit Facilities:
Revolving Credit Facility(3).............................. 0.7 0.7 0.2 0.2
Tranche A term loans(4)................................... 5.9 5.9 1.5 1.5
Tranche B term loans(5)................................... 14.7 14.7 3.7 3.7
Tranche C term loans(6)................................... 12.5 12.5 3.1 3.1
Commitment fees(7)........................................ 1.2 1.2 0.3 0.3
Other(8).................................................... 1.2 1.2 0.3 0.3
-------- --------- -------- ---------
Cash interest expense....................................... 56.2 56.2 14.1 14.1
Senior Discount Notes(9).................................... 11.1 -- 3.0 --
Amortization of deferred financing costs(10)................ 3.8 3.4 1.0 0.9
-------- --------- -------- ---------
Pro forma interest expense.................................. 71.1 59.6 18.1 15.0
Less historical net interest expense(11).................... (13.5) (13.5) (11.9) (11.9)
-------- --------- -------- ---------
Net adjustment.............................................. $ 57.6 $ 46.1 $ 6.2 $ 3.1
-------- --------- -------- ---------
-------- --------- -------- ---------
</TABLE>
- ------------------
(1) Represents interest on the $150.0 million Fixed Rate Senior Subordinated
Notes using an interest rate of 8.75%.
(2) Represents interest on the $75.0 million Floating Rate Senior Subordinated
Notes using an interest rate of 9.25%.
(Footnotes continued on next page)
42
<PAGE>
GRAHAM PACKAGING COMPANY
GRAHAM PACKAGING HOLDINGS COMPANY--(CONTINUED)
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
(Footnotes continued from previous page)
(3) Represents interest on the Revolving Credit Facility and the Growth Capital
Revolving Facility using an interest rate of 7.88%, based on the $8.5
million drawdown at the Closing.
(4) Represents interest on the $75.0 million Tranche A term loans using an
assumed interest rate of 7.88%.
(5) Represents interest on the $175.0 million Tranche B term loans using an
assumed interest rate of 8.38%.
(6) Represents interest on the $145.0 million Tranche C term loans using an
assumed interest rate of 8.63%.
(7) Represents a 0.5% commitment fee on the unused portions of the Revolving
Credit Facility.
(8) Represents historical interest on $8.5 million of indebtedness and capital
lease obligations which were not repaid.
(9) Represents the accretion to Accreted Value on the Senior Discount Notes
using an interest rate of 10.75% applied to the $100.6 million gross
proceeds compounded semi-annually.
(10) Represents amortization of deferred financing costs of $31.0 million (of
which $26.0 million was recorded by the Operating Company) over the term of
related debt (six years for the Revolving Credit Facilities and Tranche A
term loans, eight years for Tranche B term loans, nine years for Tranche C
term loans, 10 years for the Senior Subordinated Notes and 11 years for the
Senior Discount Notes).
(11) Represents the elimination of historical net interest expense.
A 0.125% increase or decrease in the assumed interest rate would change the
pro forma interest expense on floating rate debt as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 29, 1998
----------------- ------------------
(IN MILLIONS)
<S> <C> <C>
Floating Rate Senior Subordinated Notes........................ $ 0.1 $0.0
New Credit Facility............................................ 0.5 0.1
----- -----
Total........................................................ $ 0.6 $0.1
----- -----
----- -----
</TABLE>
(e) Represents the elimination of 20% minority interest in the earnings of the
Company's subsidiary in Brazil, as the Company purchased such minority
interest on February 1998.
(f) The pro forma statements of operations for the year ended December 31, 1997
do not include any adjustments for the following non-recurring charges,
which Holdings and the Operating Company incurred at Closing. Such amounts
are recorded in the historical consolidated Statements of Operations for the
three months ended March 29, 1998 and are deducted as an adjustment in
determining pro forma income (loss) for the period:
<TABLE>
<CAPTION>
HOLDINGS OPERATING COMPANY
-------- -----------------
(IN MILLIONS)
<S> <C> <C>
Payments to Management(1)................................................ $ 11.9 $11.9
License intangible(2).................................................... 1.4 1.4
-------- ------
Special charges and unusual items(3)..................................... 13.3 13.3
Recapitalization expenses(3)............................................. 11.5 10.5
-------- ------
Total.................................................................. $ 24.8 $23.8
-------- ------
-------- ------
</TABLE>
- ------------------
(1) Represents $12.4 million in bonuses and other cash payments paid to
Management, net of $0.5 million accrued as of Closing. Holdings and the
Operating Company also expect to pay $4.6 million of stay bonuses
(Footnotes continued on next page)
43
<PAGE>
GRAHAM PACKAGING COMPANY
GRAHAM PACKAGING HOLDINGS COMPANY--(CONTINUED)
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
(Footnotes continued from previous page)
to certain employees over one to three years and to take a total non-cash
charge of $6.1 million relating to Management's equity purchase, which is
expected to be expensed over the three-year vesting period. See
'Management--Management Awards.'
(2) Represents the non-cash write-off of certain intangibles associated with a
license agreement with a Graham affiliate that terminated at Closing and was
replaced by the Equipment Sales Agreement. See 'Certain Relationships and
Related Party Transactions.'
(3) Represents fees and expenses associated with the Recapitalization and
associated financings.
(g) 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 venture, other non-cash charges, Recapitalization expenses
and special charges and unusual items. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' and Combined
Financial Statements of Graham Packaging Group (including the accompanying
notes thereto).
Pro forma Adjusted EBITDA is calculated as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1997 MARCH 29, 1998
--------------------- ---------------------
OPERATING OPERATING
HOLDINGS COMPANY HOLDINGS COMPANY
-------- --------- -------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Income (loss) before extraordinary item..................... $(48.2) $ (36.7) $ (3.8) $ (0.7)
Interest expense, net....................................... 71.1 59.6 18.1 15.0
Income tax expense (benefit)................................ 0.8 0.8 -- --
Depreciation and amortization............................... 41.8 41.8 9.2 9.2
Fees paid pursuant to the Monitoring Agreement.............. 1.0 1.0 0.3 0.3
Equity income in earnings of joint venture.................. (0.2) (0.2) (0.1) (0.1)
Non-cash compensation....................................... 0.2 0.2 -- --
Special charges and unusual items........................... 24.4 24.4 1.6 1.6
-------- --------- -------- ---------
Pro forma Adjusted EBITDA................................... $ 90.9 $ 90.9 $ 25.3 $ 25.3
-------- --------- -------- ---------
-------- --------- -------- ---------
</TABLE>
Adjusted EBITDA is included in this Prospectus 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.
(h) For purposes of determining the pro forma 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 debt issuance
costs, 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 on a pro forma basis for Holdings
and the Operating Company, respectively, by $48.0 million and $36.5 million
for the year ended December 31, 1997 and by $3.9 million and $0.8 million
for the three months ended March 29, 1998.
44
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth certain selected historical combined
financial data for the Graham Packaging Group for and at the end of each of the
years in the five-year period ended December 31, 1997 and as of and for the
three-month period ended March 30, 1997 and certain selected historical
consolidated financial data for Holdings as of and for the three-month period
ended March 29, 1998. The selected historical combined financial data for each
of the five years in the period ended December 31, 1997 are derived from the
Graham Packaging Group's combined 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 combined financial statements of Graham Packaging
Group have been prepared 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 combined financial data as of December 31, 1993 and 1994,
for the year ended December 31, 1993 and as of and for the three months ended
March 30, 1997 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 results for the three months ended March 29,
1998 are not necessarily indicative of the results for the full year 1998. The
selected historical consolidated financial data as of and for the three months
ended March 29, 1998 were derived from the unaudited consolidated financial
statements of Holdings 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', the
combined financial statements of Graham Packaging Group, including the related
notes thereto, and the consolidated financial statements of Holdings, including
the related notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, ----------------------
------------------------------------------------------- MARCH 30, MARCH 29,
1993(2) 1994(14)(15) 1995(3) 1996 1997(4) 1997 1998(1)(4)
------- ------------ ------- ------ ------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales(5)............................ $338.7 $396.0 $466.8 $459.7 $521.7 $ 116.5 $ 134.4
Gross margin(5)......................... 58.8 69.5 66.8 77.2 84.4 17.8 24.6
Selling, general and administrative
expenses.............................. 23.3 29.7 35.5 35.5 34.9 8.3 8.4
Special charges and unusual items(6).... 8.7 -- 5.9 7.0 24.4 1.5 14.9
Operating income........................ 26.8 39.8 25.4 34.7 25.1 8.0 1.3
Interest expense, net................... 21.1 12.5 16.2 14.5 13.4 3.3 11.9
Other expense (income), net............. -- (0.2) (11.0 ) (1.0) 0.7 0.3 0.2
Recapitalization expenses............... -- -- -- -- -- -- 11.5
Income tax expense (benefit)(7)......... 0.1 (0.3) (0.3 ) -- 0.6 -- --
Minority interest....................... -- -- -- -- 0.2 -- --
Extraordinary loss(8)................... 15.1 -- 1.8 -- -- -- 0.7
------- ------------ ------- ------ ------- --------- ---------
Net income (loss)....................... $ (9.5 ) $ 27.8 $ 18.7 $ 21.2 $ 10.2 $ 4.4 $ (23.0)
------- ------------ ------- ------ ------- --------- ---------
------- ------------ ------- ------ ------- --------- ---------
OTHER DATA:
Cash flows provided by (used in):
Operating activities.................. $ 49.3 $ 74.6 $ 60.5 $ 68.0 $ 66.9 $ 6.8 $ (17.1)
Investing activities.................. (63.2 ) (53.0) (68.4 ) (32.8) (72.3 ) (8.5) (16.6)
Financing activities.................. 9.4 (26.2) 9.2 (34.6) 9.5 0.9 30.8
Adjusted EBITDA(9)...................... 77.4 81.3 77.1 90.6 89.8 19.1 25.3
Capital expenditures.................... 31.5 53.8 68.6 31.3 53.2 8.5 13.5
Investments(10)......................... 28.0 -- 3.2 1.2 19.0 -- 3.0
Depreciation and amortization(11)....... 41.9 41.3 45.7 48.2 41.0 9.9 9.2
Ratio of earnings to fixed
charges(12)........................... 1.2 x 2.7x 2.0 x 2.2x 1.6 x 2.1x --
BALANCE SHEET DATA:
Working capital(13)..................... $ 21.3 $ 16.6 $ 18.0 $ 17.0 $ 2.4 $ 22.9 $ 6.9
Total assets............................ 306.5 332.5 360.7 338.8 385.5 337.7 423.8
Total debt.............................. 252.0 233.3 257.4 240.5 268.5 237.7 743.8
Partners'/owners' equity (deficit)...... (8.3 ) 15.6 15.3 16.8 0.3 20.4 (436.3)
</TABLE>
(Footnotes continued on next page)
45
<PAGE>
(Footnotes continued from previous page)
- ------------------
(1) In February 1998 the Recapitalization occurred.
(2) During 1993, the following acquisitions were completed: (i) In April 1993,
Graham Packaging Group acquired all of the outstanding stock of PLAX, Inc.,
a Canadian corporation, for $2.1 million. (ii) In June 1993, Graham
Packaging Group acquired all of the outstanding stock of Seprosy, S.A., a
French company for $27.3 million. (iii) In October 1993, Graham Packaging
Group acquired an interest in Commercial Packaging UK Ltd. (the 'UK
Operations') for $0.6 million. The above transactions were accounted for
under the purchase method of accounting. Results of operations are included
since the acquisition date.
(3) 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.
(4) 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. These transactions were accounted for
under the purchase method of accounting. Results of operations are included
since the dates of acquisitions.
(5) 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.
(6) Represent certain legal, restructuring and systems conversion costs and,
with respect to the three months ended March 29, 1998, Recapitalization
compensation costs. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations' and the Combined Financial Statements
of Graham Packaging Group, including the related notes thereto, and the
consolidated financial statements of Holdings, including the related notes
thereto for further discussion.
(7) As a limited partnership, Holdings is 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.
(8) Represents costs incurred (including the write-off of unamortized deferred
financing fees) in connection with the early extinguishment of debt.
(9) 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 (3) above. Adjusted EBITDA is included in this Prospectus 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.
(Footnotes continued on next page)
46
<PAGE>
(Footnotes continued from previous page)
- ------------------
(10) Investments include the acquisitions made by Graham Packaging Group in
Italy, Canada, France, the UK and Brazil described in notes (1) to (4)
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.
(11) Depreciation and amortization excludes amortization of deferred financing
fees, which is included in interest expense, net.
(12) 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 $22.4 million for the three months
ended March 29, 1998.
(13) Working capital is defined as current assets (less cash and cash
equivalents) minus current liabilities (less current maturities of
long-term debt).
(14) 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.
(15) Balance sheet data at December 31, 1994 were derived from unaudited
financial statements.
47
<PAGE>
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
'Risk Factors,' 'Unaudited Pro Forma Combined Financial Information' 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
Historical Financial Data,' the Combined Financial Statements of Graham
Packaging Group, including the related notes thereto, and the consolidated
financial statements of Holdings, including the related notes thereto, appearing
elsewhere in this Prospectus and 'Unaudited Pro Forma Financial Information'.
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.
In 1992, the Company established a business plan that continues in a
modified form today. Management believed that the Company needed to profitably
grow and diversify within the custom rigid plastic sector of the packaging
industry and, to accomplish this goal, believed that it could rely on two of the
Company's core strengths, its technological capability in the innovation, design
and manufacture of customized plastic packaging and its strong relationships
with a group of customers who were the leading consumer branded products
companies in the world. Management implemented a strategy of (i) making
substantial investments in research and development, technology and machinery to
capture high margin sales growth from the rapid conversion to plastic packaging
and to meet its customers growing and complex packaging demands, (ii) expanding
in selected arenas in North America, such as in the food and beverage business,
and overseas, such as in the automotive and HC/PC product businesses, and (iii)
increasing efficiencies in its manufacturing processes, labor utilization and
procurement of raw materials.
In 1992, the Company's net sales to its automotive, food and beverage and
HC/PC product businesses were split 67.9%, 4.2% and 27.9%, respectively, and
were generated predominantly in the U.S. In 1997, this allocation between the
Company's three businesses had changed to 37.6%, 28.9% and 33.5%, respectively,
with 21.2% of the Company's net sales coming from operations outside the U.S.
The primary factors that drove this diversification were increased sales of
plastic packaging to the food and beverage businesses in North America and the
growth of the Company's food and beverage business which has grown at a CAGR of
67%.
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 2% per year and, as a result, the Company has
experienced competitive price pressures in this business throughout 1995, 1996
and 1997. 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 signed agreements
to operate two additional plants in Brazil, one of which is now in production.
48
<PAGE>
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 1997 the Company has invested over $99
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, 1997 sales of hot-fill PET containers had
grown to $92.2 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, Italy, Poland, Turkey and the United
Kingdom. The Company began its international expansion in 1992, with the
acquisition of Pozzoli, s.r.l. on May 30, 1992 in Italy and the acquisition of
Seprosy S.A. ('Seprosy', a wholly owned subsidiary of Danone S.A., formerly
Groupe BSN, on June 1, 1993 and renamed Graham Packaging France, S.A., ('Graham
Packaging France')). The Company considered the Seprosy acquisition to be a
strategic investment to serve its expanding customer base and to establish the
Company in the global packaging business. Management was aware, however, that
Seprosy was incurring excessive overhead and SG&A costs and operated in a highly
competitive environment. Consequently, Management created a plan to restructure
Graham Packaging France operations in two phases and in compliance with French
law and regulations. These plans resulted in restructuring charges of $2.6
million, $3.3 million and $0.8 million in 1993, 1995 and 1996, respectively. In
1997, Graham Packaging France was still not profitable and as a result the
Company implemented a program designed to improve manufacturing and workforce
efficiencies for a total cost of approximately $2.0 million. Management is
continuing to focus on its operations in France, which remains a competitive
arena and suffers from a lagging economy, and is seeking to improve the
profitability of that business unit. As described under 'Prospectus
Summary--Recent Developments,' the Company recently acquired its operations in
Germany, Turkey and the United Kingdom and additional operations in France.
In the year ended December 31, 1997, approximately 77% of the Company's net
sales were generated by the top twenty customers, approximately 60% 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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED
----------------------- --------------------------------
1995 1996 1997 MARCH 30, 1997 MARCH 29, 1998
----- ----- ----- -------------- --------------
<S> <C> <C> <C> <C> <C>
PET................................................... $0.77 $0.63 $0.50 $ 0.43 $ 0.52
HDPE.................................................. 0.45 0.41 0.46 0.46 0.42
</TABLE>
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 performed as a percentage of net
sales.
49
<PAGE>
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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, -------------------------------
---------------------------------------------------------------- MARCH 29,
1995 1996 1997 MARCH 30, 1997 1998
-------------------- -------------------- -------------------- -------------------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Automotive.................. $ 202.4 43.4% $ 180.9 39.4% $ 196.4 37.6% $ 43.9 37.7% $ 45.0
Food & Beverage............. 96.2 20.6 116.4 25.3 150.6 28.9 31.0 26.6 46.0
HC/PC....................... 168.2 36.0 162.4 35.3 174.7 33.5 41.6 35.7 43.4
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total Net Sales............. $ 466.8 100.0% $ 459.7 100.0% $ 521.7 100.0% $ 116.5 100.0% $ 134.4
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
<S> <C>
Automotive.................. 33.5%
Food & Beverage............. 34.2
HC/PC....................... 32.3
---------
Total Net Sales............. 100.0%
---------
---------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, -------------------------------
---------------------------------------------------------------- MARCH 29,
NET SALES 1995 1996 1997 MARCH 30, 1997 1998
-------------------- -------------------- -------------------- -------------------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
North America............... $ 380.9 81.6% $ 381.9 83.1% $ 440.0 84.3% $ 99.5 85.4% $ 112.3
Europe...................... 85.9 18.4 77.8 16.9 67.4 12.9 17.0 14.6 17.2
Latin America............... -- -- -- -- 14.3 2.8 -- -- 4.9
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total Net Sales............. $ 466.8 100.0% $ 459.7 100.0% $ 521.7 100.0% $ 116.5 100.0% $ 134.4
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
NET SALES
<S> <C>
North America............... 83.6%
Europe...................... 12.8
Latin America............... 3.6
---------
Total Net Sales............. 100.0%
---------
---------
</TABLE>
THREE MONTHS ENDED MARCH 29, 1998 COMPARED TO THREE MONTHS ENDED MARCH 30, 1997
Net Sales. Net sales for the three months ended March 29, 1998 increased
$17.9 million to $134.4 million from $116.5 million for the three months ended
March 30, 1997. The increase in net sales was primarily due to a 14.1% increase
in unit volume and a 16.4% increase in resin pounds sold. Net sales also
increased as a result of changes in product mix, partially offset by a net
decrease in average resin prices. The most significant geographic increase in
net sales was in North America, where sales in three months ended March 29, 1998
were $12.8 million or 12.9% greater than in the three months ended March 30,
1997. The North American sales increase included higher unit volume of 9% and
higher pounds sold of 15%. North American sales in the U.S. food and beverage
business contributed $13.6 million to the increase, while sales in the
automotive business were $2.3 million lower. Additionally, sales for the three
months ended March 29, 1998 included a $4.9 million contribution as a result of
the Company's investment in its Latin American subsidiary. Sales for the three
months ended March 29, 1998 in Europe were up $0.2 million or 1.2% from the
three months ended March 30, 1997. Overall, European sales reflected a 23.7%
increase in units and a 2.2% increase in pounds sold.
Gross Profit. Gross profit for the three months ended March 29, 1998
increased $6.8 million to $24.6 million from $17.8 million for the three months
ended March 30, 1997. The increase in gross profit resulted primarily from the
higher sales volume as compared to the prior year period. Gross profit in North
America was up $6.6 million or 37.7%, including increases in all product
businesses, while European gross profit was down $0.4 million. In addition,
gross profit for the three months ended March 29, 1998 included $0.6 million
from the Company's Latin American subsidiary.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended March 29, 1998 increased $0.1
million to $8.4 million from $8.3 million for the three months ended March 30,
1997. As a percent of sales, selling, general and administrative expense
declined to 6.3% in 1998 from 7.1% in 1997. The decline is primarily due to
lower costs in Europe of $0.5 million as a result of the elimination of
duplicative costs incurred prior to the Recapitalization and to the favorable
impact of foreign currency translation due to the weakening French Franc and
Italian Lire. Additionally, selling, general and administrative expenses were
$0.2 million lower in North America as a result of the Company's continued
effort to control these costs. Offsetting the decreases in 1998 selling, general
and administrative expenses is the inclusion of $0.8 million from the Company's
Latin America subsidiary.
Special Charges and Unusual Items. Special charges and unusual items
increased $13.4 million to $14.9 million for the three months ended March 29,
1998 from $1.5 million for the three months ended March 30, 1997. Special
charges and unusual items in the three months ended March 29, 1998 included
costs related to year 2000 system conversion expenditures of $0.4 million (see
'--Information Systems Initiative' for a further
50
<PAGE>
discussion), Recapitalization compensation costs and the write-off of
unamortized licensing fees of $1.4 million. The special charges and unusual
items in the three months ended March 30, 1997 reflect non-recurring legal fees
related to the JCI Schmalbach-Lubeca litigation.
Recapitalization Expenses. Recapitalization expenses for the three months
ended March 29, 1998 included transaction fees of $11.1 million and costs
associated with the termination of interest rate collar and swap agreements of
$0.4 million.
Interest Expense Net. Interest expense, net increased $8.6 million to $11.9
million for the three months ended March 29, 1998 from $3.3 million for the
three months ended March 30, 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 decreased $0.1 million to
$0.2 million for the three months ended March 29, 1998 from $0.3 million for the
three months ended March 30, 1997. The lower expense was due primarily to a
lower foreign currency exchange loss in the three months ended March 29, 1998 as
compared to the comparable 1997 period.
Extraordinary Loss. The extraordinary loss for the three months ended March
29, 1998 reflected the write-off of unamortized debt issuance fees associated
with the early extinguishment of debt resulting from the Recapitalization.
Net Income. Primarily as a result of factors discussed above, net loss for
the three months ended March 29, 1998 was $23.0 million compared to net income
of $4.4 million for the three months ended March 30, 1997.
Adjusted EBITDA. Primarily as a result of factors discussed above, Adjusted
EBITDA for the three months ended March 29, 1998 increased by 32.5% to $25.3
million from $19.1 million for the three months ended March 30, 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-
51
<PAGE>
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 $1.7 million in
1997 to $0.7 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.
1996 COMPARED TO 1995
Net Sales. Net sales in 1996 decreased $7.1 million to $459.7 million from
$466.8 million in 1995. The decrease in net sales included a 0.3% decrease in
unit volume coupled with the effect of bottle mix and resin price changes. On a
geographic basis, the lower sales were primarily due to a decrease in revenues
in the European unit of $8.1 million or 9.4% partially offset by higher sales in
North America of $1.0 million. The lower European sales in 1996 reflect the 1995
disposition of the Company's subsidiary in England and lower sales in France and
Italy. The slightly higher North American sales were due to a combined 6% gain
in volume, attributable mainly to the food and beverage business unit and a
shift in product mix which was offset by lower pricing, itself primarily due to
lower resin prices.
Gross Profit. Gross profit in 1996 increased $10.4 million to $77.2 million
from $66.8 million in 1995. This increase was primarily the result of a change
in product mix to more profitable products, primarily in North America where the
raw material component of the cost of products sold, as a percentage of sales,
decreased to 39.1% from 43.5%, and an exceptionally strong fourth quarter
performance which included a $1.6 million favorable adjustment to the estimated
statutory retirement indemnity accrual in France. Gross profit in the fourth
quarter of 1996 represented more than 25% of total 1996 gross profit, only a
portion of which is explained by the above mentioned adjustment. This
improvement was partially offset by a decrease in 1996 gross profit in Europe,
primarily due to lower volumes in Italy and the sale of the Company's subsidiary
in England in 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in 1996 of $35.5 million remained constant with those in
1995, which included $0.4 million related to the Company's subsidiary in
England. The generally flat selling, general and administrative expenses
reflected the Company's efforts to control these costs.
Interest Expense, Net. Interest expense, net decreased $1.7 million to
$14.5 million in 1996 from $16.2 million in 1995. This decrease was primarily
the result of lower borrowings coupled with a lower average rate of interest on
outstanding borrowings.
Special Charges and Unusual Items. Special charges and unusual items
increased $1.1 million to $7.0 million in 1996 from $5.9 million in 1995.
Special charges and unusual items in 1996 included $6.3 million in unusual legal
fees and $0.7 million of restructuring charges relating to the European
operations while 1995 special charges and unusual items included $2.6 million in
unusual legal fees and $3.3 million restructuring charges relating to the
European operations.
Other (Income) Expense, Net. Other (income) expense, net decreased to
$(1.0) million in 1996 from $(11.0) million in 1995. This decrease is due
primarily to the 1995 gain of $4.4 million recorded on the disposition of the
52
<PAGE>
Company's subsidiary in England, 1995 one-time technical support services income
of $6.4 million which was offset by greater 1996 foreign exchange gains and
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
1996 increased 13.4% to $21.2 million from $18.7 million in 1995.
Adjusted EBITDA. Primarily as a result of factors discussed above, Adjusted
EBITDA in 1996 increased by 17.5% to $90.6 million from $77.1 million in 1995.
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 1995, 1996,
1997 or the three months ended March 29, 1998, although exchange rates in France
and Italy changed 15% and 14% respectively from December 31, 1996 to December
31, 1997.
INFORMATION SYSTEMS INITIATIVE
The Company has 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 has decided to replace all
of its core application systems, including its financial accounting system,
manufacturing operation system and payroll and human resources system.
During 1997, the Company expensed $0.5 million associated with its
information systems evaluation and assessment and expects to incur during 1998
through the year 2000, approximately $8.0 million to purchase, test and install
new software as well as incur internal staff costs, consulting fees and other
expenses.
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. The ability of 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.
DERIVATIVES
The Company enters into interest rate collar and 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 collar and swap
agreements is accrued as interest rates change and recognized as an adjustment
to interest expense related to the Credit Agreement, which was not material in
1995, 1996 and 1997.
LIQUIDITY AND CAPITAL RESOURCES
In 1995, 1996 and 1997, the Company generated $195.4 million of cash from
operations, $52.7 million from increased indebtedness and $3.4 million of net
proceeds from the sale of the UK Operations. This $251.5 million was primarily
used to fund $153.1 million of capital expenditures, $23.4 million of
investments, make distributions of $66.8 million to the Company's partners and
for $8.2 million of other net uses. In the three months ended March 29, 1998,
the Company funded, through its various borrowing arrangements, $17.1 million of
operating activities and $16.6 million of investing activities, including $13.5
million of capital expenditures and $3.0 million of investments.
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On February 2, 1998, the Company refinanced the majority of its existing
credit facilities in connection with the Recapitalization, requiring the
repayment of $264.9 million of existing indebtedness, and entered into the New
Credit Facility. The New Credit Facility consisted of three term loans totaling
$395 million and two revolving loan facilities totaling $255 million, of which
$8.5 million was initially borrowed. The Recapitalization also included the
issuance of $225 million of Senior Subordinated Old Notes and $100.6 million
gross proceeds of Senior Old Discount Notes ($169 million aggregate principal
amount at maturity). Additionally, the Recapitalization included net
distributions to owners of $409.3 million and debt issuance costs of $30.9
million. See 'Description of the New Credit Facility.'
At March 29, 1998, the Company's outstanding indebtedness was $743.8
million. The Company's debt service obligations could have important
consequences to holders of the Notes. See 'Risk Factors--Substantial Leverage',
'Risk Factors--Ability to Service Debt' and 'Risk Factors--Holding Company
Structure; Structural Subordination of Senior Discount Exchange Notes.'
During 1998, the Company expects to incur capital expenditures of
approximately $160 million, of which approximately $17.0 million will be related
to maintaining its plant and operations and $6.5 million will be related to a
new MIS system in North America. However, total capital expenditures for 1998
may vary significantly depending on the timing of growth related opportunities.
The purchase price of approximately $42 million for the completed acquisition
and the proposed aggregate purchase price of approximately $28 million for the
two planned acquisitions described under 'Prospectus Summary--Recent
Developments' are not included in the $160 million estimate referred to above.
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
Facility. The Company's planned capital expenditures and acquisition activity
will require an amendment to its New Credit Facility to provide additional
financing, and the Company is currently negotiating such an amendment with its
lenders.
Under the New Credit Facility, 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 and in the March 29, 1998 unaudited condensed
consolidated financial statements. The cash paid in settlement was funded by
drawdowns under the New Credit Facility. See Notes 13 and 17 to the Combined
Financial Statements as of December 31, 1997 and 1996 and for each of the three
years in the period ended December 31, 1997 and Note 9 to the Condensed
Financial Statements.
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 June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ('Statement 131').
Statement 131 establishes standards for the way that public business enterprises
report selected information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. Statement 131 is effective for financial statements for fiscal years
beginning after December 15, 1997, and therefore, the Company will adopt the new
requirements
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in 1998, which will require retroactive disclosure. Management has not completed
its review of Statement 131 and has not determined the impact adoption will have
on the Company's financial statement disclosures.
In March 1998, the AICPA issued 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
currently capitalizes certain external costs and expenses all other costs as
incurred. The Company has not yet assessed what the impact of the SOP will be on
the Company's future earnings or financial position.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, Employers' Disclosures about Pensions
and Other Post-Retirement Benefits. This standard revises employers' disclosures
about pensions and other post-retirement plans, but does not change the
measurement or recognition of those plans. This standard will be effective for
the Company's financial statements for the year ended December 31, 1998.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. This Statement 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 review of Statement No. 133 and has not
determined the impact adoption will have on the Company's financial statements.
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BUSINESS
GENERAL
Graham Packaging Company is a worldwide leader in the design and
manufacture of customized blow-molded rigid plastic bottles for 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. The Company's products are made primarily from HDPE
and PET resins for customers 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 15 years at a 24% CAGR. 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 47 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 not lost a major customer in the last three years. For the year
ended December 31, 1997, approximately 77% of the Company's net sales were
generated by its top 20 customers, approximately 60% 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, 1997, the Company
generated net sales and Adjusted EBITDA of $521.7 million and $89.8 million,
respectively, and for the three months ended March 29, 1998, the Company
generated net sales and Adjusted EBITDA of $134.4 million and $25.3 million,
respectively.
Automotive. The Company is the preeminent supplier of one quart HDPE motor
oil containers in the United States, producing over 1.5 billion units in 1997,
which Management believes, based on internal estimates, represents 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
Amoco, Ashland, Castrol, Chevron, Pennzoil, Shell Oil, Sun Company and Texaco,
and is the sole supplier of one quart motor oil containers to five of these
producers, based on Management's internal estimates. 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 is expanding 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 four plants and recently signed an agreement to operate one
additional plant. 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. In 1994, the ratio of
passenger cars to people was 1 to 13.2 in Brazil, while in the U.S. the ratio
was 1 to 1.8. For the year ended December 31, 1997 and the three months ended
March 29, 1998, the Company generated approximately 37.6% and 33.5%,
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 1992 through December 31, 1997, the Company grew its food and
beverage business at a CAGR of 67%. 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. 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, 1997, the Company invested
over $99 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 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
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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. Industry sources forecast that the hot-fill PET
juice and juice drink container business, upon which the Company focuses, will
enjoy a CAGR of over 40% between 1996 and 2000. The Company's largest customers
in the food and beverage business include Danone, Hershey's, Minute Maid,
Nestle's, Ocean Spray, Seneca, Tree Top, Tropicana and Welch's. For the year
ended December 31, 1997 and the three months ended March 29, 1998, the Company
generated approximately 28.9% and 34.2%, respectively, of its net sales from the
food and beverage business.
Household Cleaning & Personal Care. The Company is a leading supplier of
HDPE custom bottles to the North American HC/PC products business which includes
products such as shampoo, liquid laundry detergent, tub and tile cleaner and
dishwashing liquid. 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 Clorox, Colgate-Palmolive, Dial, J&J, L'Oreal, Procter & Gamble
and 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 laundry detergents, which are packaged in
plastic containers, capture an increased share from powdered detergents, which
are predominantly packaged in cardboard. For the year ended December 31, 1997
and the three months ended March 29, 1998, the Company generated approximately
33.5% and 32.3%, respectively, of its net sales from the HC/PC business.
COMPANY STRENGTHS
Management believes that the Company has the following key competitive
strengths:
Strong Relationships and Long-term Contracts with Diversified Blue Chip
Customer Base. The Company has enjoyed long-standing relationships averaging 16
years with its top twenty customers, which generated 77% of the Company's net
sales in 1997. These customers include many of the world's leading branded
consumer product companies and motor oil companies. Management attributes these
close relationships to the Company's creative design and engineering
capabilities, high level of customer service, high quality products, efficient
manufacturing, reliable delivery, speed to market and experienced and stable
management team and workforce. The Company supplies several of these customers
with 100% of their plastic packaging needs nationally, regionally or for a
specific brand, including Valvoline motor oil, Tropicana orange juice, Cascade
dishwashing gel and Purex laundry detergent. As another example of customer
loyalty, substantially all contracts which have come up for renewal in the last
three fiscal years have been extended.
Premier Custom Package Designer. The Company has centered its growth
strategy upon customers that require custom, as opposed to stock, plastic
containers as a critical component of their marketing efforts. The production of
custom containers involves a high degree of design, engineering and
manufacturing complexity in terms of bottle shapes, production tolerance and
performance requirements. The Company's ability to design and manufacture highly
customized packaging has enabled it to secure long-term contractual commitments
and to continue to enjoy a history of stable and steadily increasing orders from
its top customers at attractive profit margins. Management intends to apply this
core custom manufacturing capability in growth businesses, such as hot-fill PET
packaging, that require the same degree of customization and manufacturing
expertise as the Company's existing HDPE packaging business.
On-Site Facilities. More than one-third of the Company's 47 plants are
located on-site at its customers' plants, which is substantially greater than
any of its competitors. On-site plants enable the Company to work more closely
with its customers, facilitating just-in-time inventory management, generating
significant savings opportunities through process re-engineering, eliminating
costly shipping and handling charges, reducing working capital needs, and
fostering the development of long-term customer relationships. The benefits of
on-site manufacturing result in increased profitability for both the Company and
its customers, and partially account for the fact that the Company has never
lost an on-site relationship.
Leading Positions. The Company is the preeminent domestic supplier of motor
oil containers, with what Management believes, based on internal estimates, is
an approximate 73% share of the domestic one quart motor oil container business.
The Company has become a leading manufacturer of hot-fill PET containers for
juice and juice drinks in North America after only approximately five years in
the business and is also a leading supplier in
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North America of custom HDPE containers for juice and juice drinks and HDPE
custom plastic bottles in the HC/PC business.
Strong Industry Fundamentals and Growth Prospects. Management believes that
the businesses in which the Company operates exhibit strong fundamental
characteristics and growth prospects, including the following:
o Plastic Conversion Trend. Industry analysts project the domestic
hot-fill PET container business for juice, juice drinks, teas and
isotonics will grow at a CAGR of approximately 30% over the next several
years, driven by the continuing trend of converting glass, metal and
paper packaging to plastic containers, and that the hot-fill PET
container business for juice and juice drinks, where the Company's
beverage business is primarily focused, will grow at a CAGR of over 40%
for the next several years. To date, 78% of the domestic juice, juice
drinks, teas and isotonics business has yet to convert to plastics,
while in juice and juice drinks, 86% of the business has yet to convert.
Unlike the carbonated soft drink ('CSD') business, which is currently
characterized by standardized packaging, long production runs,
overcapacity and lower profit margins, the HDPE and hot-fill PET
container businesses require a high degree of customization, shorter
production runs, are expanding rapidly and enjoy higher profit margins.
Conversions to plastics in Latin America and Eastern Europe are
continuing as plastic penetration in these countries is considerably
less advanced than it is in the United States, where the conversion of
motor oil cans to plastic containers is nearly complete. Due to its
leading position in the HDPE and hot-fill PET packaging businesses,
Management believes it is well positioned to capture the continued
conversions to plastics in its business.
o Non-Cyclical End Use Products. Management believes that demand for the
products packaged in containers produced by the Company (such as motor
oil, juices, laundry detergents and shampoos, among others) is
non-cyclical because, in general, these products are known to be staple
and not luxury items. Accordingly, downturns in the general economy are
not expected to impact the consumption of such products significantly.
o Stable Customer Relationships. Management believes that the custom
plastic packaging industry is characterized by long-term relationships
between packaging manufacturers and their customers due to (i) the need
for joint package design between manufacturer and customer, (ii) the
integrated nature of package manufacturing and customers' filling
processes and (iii) the fact that the blow molds used by packaging
manufacturers are created specifically for and are typically funded by
the customer and, in many cases, can only be utilized on the machine for
which they were designed. Because of the expense and lead time
associated with the above, Management believes that many plastic
packaging customers have an incentive to retain their primary packaging
provider.
o Attractive Margin Products. The custom plastic packaging business has
been characterized by attractive profit margins, in comparison to the
business for stock containers, as a result of the design and engineering
complexity of bottle shapes (e.g., handles, view stripes, pouring
features and customized labeling) and the performance and material
requirements (e.g., hot-fill capability, recycled material usage,
multiple layering and flavor and oxygen barriers) for such products.
Management believes that the plastic packaging industry will continue to
offer attractive margins.
Significant Investment in Manufacturing Systems. Management believes that
the Company's investment in its manufacturing systems throughout its 28 U.S.
plants and 19 international plants provides it with a competitive advantage.
Between 1992 and 1997, the Company invested approximately $64 million to
maintain its asset base, approximately $200 million to improve the efficiency of
its existing operations and expand capacity and approximately $53 million to
acquire several businesses in its effort to diversify globally. From 1992
through December 31, 1997, the Company made capital expenditures of over $99
million relating to the hot-fill PET business. Management anticipates achieving
higher Adjusted EBITDA margins in the next few years in the hot-fill PET
business through the leveraging of this investment, as fixed manufacturing and
SG&A costs are absorbed by higher sales. As a result of the Company's on-site
strategy and long-term contractual relationships, capital expenditures are
typically associated directly with specific contracts with customers, which
allows Management to more effectively allocate its investment capital.
Favorable Supplier Relationships. HDPE and PET resins are the principal raw
materials used to manufacture the Company's products. Because the Company is
among the largest purchasers of bottle-grade HDPE resins for blow molding in the
world, it is able to secure advantageous supply arrangements. In addition,
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the Company has limited its exposure to fluctuations in the price of these raw
materials because it can pass through price adjustments to its customers due to
contractual provisions and standard industry practice. See '--Raw Materials'
herein.
Experienced Management Team. The Company is led by an experienced team of
senior managers with a track record of achieving profitable growth, maintaining
the Company's blue chip customer base, introducing differentiated product
designs and entering new businesses. The Company's top 20 managers average over
15 years of work experience in the packaging industry and 13 years at the
Company. Following the Recapitalization, the Company's senior managers own an
equity investment in Investor LP (the entity through which Blackstone holds its
interest in Holdings), that approximates a 2.6% indirect equity interest in
Holdings, and will be awarded options, subject to certain performance based and
other vesting provisions, representing an additional equity interest in
Holdings. In addition, the Continuing Graham Partners retained a 1% general
partnership interest and 14% limited partnership interest in Holdings, which
were valued at $36.7 million at the consummation of the Recapitalization. See
'The Recapitalization,' 'Management,' 'Security Ownership' and
'Management--Management Option Plan.'
BUSINESS STRATEGY
The Company's objective is to capitalize on its position as a leading
custom blow molded plastic container supplier. The Company seeks to achieve this
objective by pursuing the following strategies:
Capitalize on Conversion to Plastic Containers. The Company intends to grow
both domestically and internationally by continuing to capitalize on the
industry trend toward the conversion from glass, metal and paper to plastic
containers, which Management believes is being driven by consumer demand, price
competitiveness and superior functionality. As one of the leading domestic
suppliers of hot-fill PET containers, the Company is poised to take advantage of
the rapid conversion from glass to plastic in the juice and juice drink
business, 86% of which has not yet been converted. In addition to opportunities
in the domestic hot-fill PET arena, Management believes that additional
conversions to HDPE packaging will occur in areas such as frozen juice
concentrate (currently packaged entirely in metal and cardboard containers), 64
ounce juices (a large portion of which is currently packaged in cardboard
containers) and motor oil (particularly in Latin America).
Maintain and Expand Position with Key Customers. The Company plans to
maintain and expand its position with global branded consumer products companies
that require highly customized features to differentiate their products on store
shelves. Central to this strategy are the continued (i) delivery of superior
customer service, (ii) location of facilities on-site, (iii) innovation in
packaging design, (iv) operation through long-term contracts and (v) provision
of low cost manufacturing processes.
Pursue Acquisitions and Strategic Joint Ventures. Management believes that
there are major synergistic acquisition, joint venture and other opportunities
across the Company's businesses. As described under
'--Recent Developments', the Company recently completed an acquisition which
includes operations in France, Germany, the United Kingdom and Turkey, primarily
related to the food and beverage and HC/PC businesses. The Company is also
reviewing an additional opportunity in Brazil, primarily in the HC/PC business
and is considering the establishment of operations in Argentina, primarily in
the food and beverage and HC/PC businesses and in Russia in the HC/PC business.
The Company has pursued and intends to continue to pursue such opportunities (i)
to complement its existing businesses through product line expansion, (ii) to
strengthen its competitive position as a domestic leader and (iii) to facilitate
the penetration of new and developing business areas and geographic territories.
Furthermore, Management believes that it can improve the profitability of
acquired entities through economies of scale, by leveraging the Company's
existing strengths and by expanding the acquired entities' access to
international markets through the Company's existing international presence.
Capture Global Growth Opportunities with Improved Profitability. Since
1992, the Company has expanded globally both through acquisitions and by
accompanying its existing customers into new territories. Following the
Company's entrance into Western Europe, as well as its subsequent expansion into
Brazil, Canada and Poland, the Company's international operations have grown
substantially to 21.2% of net sales for the year ended December 31, 1997 and
21.7% for the three months ended March 29, 1998. Management believes that the
global trend in the conversion to plastic packaging will continue, particularly
in the developing world as consumer economies expand and industrialization
continues. Currently, profitability levels from international operations are
lower than in the U.S., and Management intends to improve these margins,
particularly in France. As described
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under 'Prospectus Summary--Recent Developments,' the Company recently acquired
operations in Germany, Turkey and the United Kingdom and additional operations
in France.
INDUSTRY OVERVIEW
Based on industry estimates for 1997, the estimated $72 billion domestic
packaging industry is comprised of paper (corrugated and folding) (38%),
flexible packaging (23%), metal cans (17%), plastic bottles (10%), glass
containers (6%) and closures (6%). Within the global rigid packaging business,
the Company competes exclusively in selected niches as described below.
Automotive. Management estimates, based on internal data, that the domestic
business for motor oil that is packaged in one quart containers approximates two
billion quarts per year. The domestic business is converted to plastic and
entirely customized, which represents a dramatic shift from the early 1980's
when the domestic business consisted exclusively of non-custom composite cans.
Based on internal estimates, Management expects 1-2% unit volume declines per
year in the U.S. motor oil container sector over the next five years as new
automobiles require less frequent motor oil changes and retail automotive fast
lubrication and fluid maintenance service centers (such as Jiffy-Lube service
centers) continue to grow in popularity. Management believes that the increase
in the use of plastic packaging for motor oil internationally is attributable to
the continued conversion from composite and metal cans to customized plastic
containers and the increase in the purchase of motor vehicles as these countries
continue to industrialize. In 1994, the ratio of automobiles to individuals was
approximately 1 to 13.2 in Brazil, whereas that same ratio in the U.S. was
approximately 1 to 1.8. In addition, the international business is more
fragmented with a limited number of sizable competitors and many small, local
suppliers.
Food & Beverage. The domestic food and beverage packaging business is
estimated to be 200 billion units per year and largely consists of plastic,
glass, metal and rigid paper containers. The Company focuses primarily on
subsets of the juice and juice drink non-carbonated beverage container industry,
which consist of (i) shelf-stable juices and juice drinks, (ii) chilled juices,
(iii) frozen juice concentrate, (iv) teas and (v) isotonics. Based on 1996
industry data, the aggregate size of these subsets is estimated to be
approximately 20.0 billion units per year with approximately 16% plastic
penetration. This business is comparatively fragmented and service-oriented with
multiple food and beverage companies that require value-added services and
customized packaging from their container manufacturers.
Hot-fill PET packaging for non-carbonated juices and juice drinks
approximates 1.0 billion units and is expected to grow at a CAGR of over 40%
from 1996 to 2000 due primarily to the conversion to plastics. The conversion
trend in the food and beverage sector is driven by price, functionality and
greater consumer satisfaction with plastic bottles due to several factors,
including their lighter weight, lower susceptibility to breakage (in comparison
to glass containers), custom designed spouts and built-in handles, lower
manufacturing costs (except for some single-serve applications) and superior
presentation on store shelves (which many branded consumer products companies
believe afford greater product differentiation). Penetration of PET hot-fill
containers in the non-carbonated juice and juice drink business is forecasted to
continue to grow from its current level of 14% today to approximately 44% by the
year 2000, driven largely by consumer demand for the superior functionality and
safety of plastic, a declining cost differential between plastic and glass
containers and improved manufacturing technology which enables the cost-
efficient manufacture of hot-fill PET bottles in single-serve sizes.
Household Cleaning & Personal Care. The domestic HC/PC business
approximates 5.0 billion units per year, approximately 38% of which represents
personal care products and 62% represents household products. In the United
States, the HC/PC packaging business is forecasted to grow moderately. In
selected segments, such as laundry detergents, where conversion to plastic
containers is at an earlier stage, higher growth rates have been achieved
historically. As a percentage of the total laundry detergent business, liquid
laundry detergents, which utilize plastic packaging, have grown from
approximately 38% of the business in 1992 to 52% of the business in 1996,
representing a CAGR of 5.6%. In the developing world, the packaging of HC/PC
products is expected to grow due to the expansion of consumer economies, the
entrance of global branded consumer products companies (and their new product
introductions) and the continued conversion to plastic from paper or glass.
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
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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, laundry detergents, dishwashing liquids, 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 HDPE packaging products contain 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, 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.
The Company's net sales for the year ended December 31, 1992, for the year
ended December 31, 1997 and for the three months ended March 29, 1998 in each of
its three largest businesses are set forth below.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1992 DECEMBER 31, 1997 MARCH 29, 1998
------------------------------ ------------------------------ ------------------------------
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
BUSINESS NET SALES NET SALES NET SALES NET SALES NET SALES
- ----------------------------- ------------- ------------- ------------- ------------- -------------
NET SALES (IN MILLIONS) (IN MILLIONS)
-------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Automotive................... $ 185.9 67.9% $ 196.4 37.6% $ 45.0 33.5%
Food & Beverage.............. 11.6 4.2 150.6 28.9 46.0 34.2
Household Cleaning & Personal
Care....................... 76.3 27.9 174.7 33.5 43.4 32.3
------------- ------ ------------- ------ ------------- ------
Total...................... $ 273.8 100.0% $ 521.7 100.0% $ 134.4 100.0%
------------- ------ ------------- ------ ------------- ------
------------- ------ ------------- ------ ------------- ------
</TABLE>
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. Fourteen 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, 1997 and the three months ended March 29,
1998, the Company had only one customer (Unilever) that accounted for over 10%
of the Company's total net sales (13.8% for each period). For the year ended
December 31, 1997 and the three months ended
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<PAGE>
March 29, 1998, the Company's twenty largest customers, who accounted for
approximately 77% and 78% of net sales for these periods, respectively, were, in
alphabetical order:
<TABLE>
<CAPTION>
CUSTOMER(1) BUSINESS COMPANY CUSTOMER SINCE(1)
- --------------------------------- --------------------------------- ---------------------------------
<S> <C> <C>
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
Hershey's Food & Beverage Mid 1980's
Ocean Spray Food & Beverage Early 1990's
Pennzoil Automotive Early 1970's
Petrobras Distribuidora S.A. Automotive Early 1990's
Procter & Gamble HC/PC Early 1980's
Quaker State Automotive Early 1970's
Shell Oil Automotive Early 1970's
Sun Company Automotive Early 1960's
Texaco Automotive Early 1970'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
</TABLE>
- ------------------
(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 19 plants located in countries outside of the
United States, including Canada (4), Brazil (4), France (5), Germany (1), Italy
(2), Poland (1), Turkey (1) and the United Kingdom (1). The Company also plans
to open a plant in Hungary and an additional plant in Brazil. For the year ended
December 31, 1997 and the three months ended March 29, 1998, the Company's
operations outside of the United States represented approximately 21.2% and
21.7%, respectively, of the Company's net sales.
Brazil and Argentina. In Brazil, the Company operates three 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 and has
entered into an agreement to operate one more plant. 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 one on-site plant in France 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. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations.'
Poland. Through Masko-Graham, a 50% owned joint venture in Poland, the
Company manufactures HDPE bottles for HC/PC and the liquid food products.
62
<PAGE>
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, Inc., which agreed on or about January 15, 1998 to be 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 research 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, Bristol, Pennsylvania,
Burlington, 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.
RESEARCH AND DEVELOPMENT
Research 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 development and research abilities, 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 28 patents and has filed for 42 additional patents.
During the year ended December 31, 1997, the Company designed over 200 new
custom containers and molds. See 'The Recapitalization,' 'Certain Relationships
and Related Party Transactions--Certain Business Relationships-- Equipment Sales
Agreement' and '--Intellectual Property' herein.
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 on-site
manufacturing arrangements, with over a third of its 47 facilities on-site at
customers' facilities, substantially more than its competitors. See
'--Facilities' herein. Within its 47 plants, the Company runs over 300
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 days a week, although not every
production line is run constantly. When customer demand requires, the Company
runs its plants seven days a week.
63
<PAGE>
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 parisons as they leave 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 developed and 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 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. 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 all 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 research 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 1995, 1996 and 1997 were approximately $68.6 million, $31.3
million and $53.2 million, respectively. Management estimates that the annual
capital expenditure required to maintain the Company's current facilities will
be approximately $20 million per year, and 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
64
<PAGE>
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 HDPE packaging products
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 at the Company's headquarters
in York, Pennsylvania.
FACILITIES
The Company currently owns or leases 47 plants located in the United
States, Canada, Brazil, France, Germany, Italy, Poland, Turkey and the United
Kingdom, not including the two Lido Plast-Graham joint venture facilities which
are wholly owned and operated by its joint venture partner. Seventeen of the
Company's packaging plants are located on-site at customer plants. In addition,
the Company operates one plant in Poland pursuant to a joint venture arrangement
where the Company owns a 50% interest. The Company is currently planning to
bring two new plants into production in 1998. The Company's corporate
headquarters are in multiple facilities located in York, Pennsylvania, totalling
approximately 45,000 square feet. 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.
<TABLE>
<CAPTION>
ON SITE SIZE
LOCATION OR OFF SITE LEASED/OWNED (SQ. FT.)
- ---------------------------------------------------------------------- ----------- --------------- ---------
<S> <C> <C> <C>
U.S. Packaging Facilities
1. York, Pennsylvania*............................................... Off Site Owned 395,554
York, Pennsylvania(a)............................................. N/A Leased 45,000
2. Maryland Heights, Missouri........................................ Off Site Owned 308,961
3. Emigsville, Pennsylvania.......................................... Off Site Leased 148,300
4. Levittown, Pennsylvania........................................... Off Site Leased 148,000
5. Rancho Cucamonga, California...................................... Off Site Leased 143,063
6. Santa Ana, California............................................. Off Site Owned 127,680
7. Muskogee, Oklahoma................................................ Off Site Leased 125,000
8. Woodridge, Illinois............................................... Off Site Leased 124,137
9. Atlanta, Georgia.................................................. Off Site Leased 112,400
10. Cincinnati, Ohio.................................................. Off Site Leased 103,119
11. Berkeley, Missouri*............................................... Off Site Owned 75,000
12. Selah, Washington................................................. On Site Owned 70,000
13. Cambridge, Ohio................................................... On Site Leased 57,000
14. Shreveport, Louisiana............................................. On Site Leased 56,400
15. Whiting, Indiana.................................................. On Site Leased 56,000
16. Richmond, California.............................................. Off Site Leased 54,985
17. Houston, Texas.................................................... Off Site Owned 52,500
18. New Kensington, Pennsylvania...................................... On Site Leased 48,000
19. Bradford, Pennsylvania............................................ Off Site Leased 44,000
20. Port Allen, Louisiana............................................. On Site Leased 44,000
21. N. Charleston, South Carolina..................................... On Site Leased 40,000
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
ON SITE SIZE
LOCATION OR OFF SITE LEASED/OWNED (SQ. FT.)
- ---------------------------------------------------------------------- ----------- --------------- ---------
22. Jefferson, Louisiana.............................................. On Site Leased 37,000
<S> <C> <C> <C>
23. Vicksburg, Mississippi............................................ On Site Leased 31,200
24. Bordentown, New Jersey............................................ On Site Leased 30,000
25. Tulsa, Oklahoma................................................... On Site Leased 28,500
26. Wapato, Washington................................................ Off Site Leased 20,300
27. Bradenton, Florida................................................ On Site Leased 12,191
Canadian Packaging Facilities
28. Burlington, Ontario, Canada*...................................... Off Site Owned 145,200
Burlington, Ontario, Canada(a)*................................... N/A Owned 4,800
29. Mississauga, Ontario, Canada*..................................... Off Site Owned 78,416
30. Anjou, Quebec, Canada*............................................ Off Site Owned 44,875
31. Toronto, Ontario, Canada.......................................... On Site N/A 5,000
European Packaging Facilities
32. Asieres, France................................................... On Site Leased 15,000
33. Assevent, France.................................................. Off Site Owned 186,470
34. Bad Bevensen, Germany............................................. Off Site Owned 80,000
35. Blyes, France..................................................... Off Site Owned 89,000
36. Campochiaro, Italy................................................ Off Site Owned 93,200
37. Istanbul, Turkey.................................................. Off Site Owned 50,000
38. Meaux, France..................................................... Off Site Owned 80,000
39. Noeux-les-Mines, France........................................... Off Site Owned 120,000
40. Sovico (Milan), Italy............................................. Off Site Owned 74,500
41. Sulejowek, Poland(b).............................................. Off Site Owned 82,700
42. Wrexham, UK....................................................... Off Site Owned 120,000
Latin American Packaging Facilities
43. Sao Paulo, Brazil................................................. Off Site Leased 23,440
44. Rio de Janeiro, Brazil............................................ On Site Owned/Leased(c ) 20,000
Rio de Janeiro, Brazil(a)......................................... N/A Leased 1,650
45. Santos, Brazil.................................................... On Site Leased 5,400
46. Rio de Janeiro, Brazil............................................ On Site N/A 10,000
Graham Recycling
47. York, Pennsylvania*............................................... Off Site Owned 44,416
Graham Affiliated Packaging Facilities (Lido Plast-Graham--Joint
Venture)(d)
48. Buenos Aires, Argentina........................................... Off Site N/A N/A
49. San Luis, Argentina............................................... Off Site N/A N/A
</TABLE>
- ------------------
(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.'
(Footnotes continued on next page)
66
<PAGE>
(Footnotes continued from previous page)
* Contributed to the Operating Company as part of the Graham Contribution.
With respect to the Berkeley, Missouri facility (Location 11 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.
EMPLOYEES
At March 29, 1998, the Company had approximately 2,937 employees, 1,826 of
which were located in the United States. Approximately 75% of the Company's
employees are hourly wage employees, 39% of whom are members of various labor
unions and are covered by collective bargaining agreements that expire between
May 1998 and April 2001. 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
1997 and are not expected to be material in the future. See 'Risk
Factors--Environmental Matters.'
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 HDPE
packaging products contain recycled HDPE bottles. To date these initiatives and
developments have not materially and adversely affected the Company. See 'Risk
Factors--Environmental Matters.'
INTELLECTUAL PROPERTY
The Company owns approximately 16 unexpired U.S. patents and three
trademarks. Approximately 15 patent applications are currently pending at the
United States Patent and Trademark Office. In addition, twelve foreign patents
have been issued and 27 are pending. While a presumption of validity exists with
respect to issued U.S. patents, the Company cannot assure that any of its
patents will not be challenged, invalidated, circumvented or rendered
unenforceable. Furthermore, the Company cannot assure the issuance of any
pending patent
67
<PAGE>
application, or that if patents are issued, such patents will provide meaningful
protection against competitors or against competitive technologies. While the
Company holds the various patents and trademarks summarized above, it 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.
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 have been
consolidated for all purposes. The Company 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. The Company 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 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 and in the March 29, 1998 unaudited condensed consolidated financial
statements. The cash paid in settlement was funded by drawdowns under the New
Credit Facility. See Notes 13 and 17 to the Combined Financial Statements as of
December 31, 1997 and 1996 and for each of the three years in the period ended
December 31, 1997 and Note 9 to the Condensed Financial Statements.
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<PAGE>
MANAGEMENT
ADVISORY COMMITTEE MEMBERS AND EXECUTIVE OFFICERS
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.'
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------ --- ------------------------------------------------
<S> <C> <C>
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................................. 50 President and Chief Executive Officer of the
Operating Company
G. Robinson Beeson.............................. 49 Senior Vice President and General Manager,
Automotive of the Operating Company
Scott G. Booth.................................. 41 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
Geoffrey R. Lu.................................. 43 Vice President and General Manager, Latin
America of the Operating Company
Alex H. Everhart................................ 37 Senior Vice President and General Manager,
Europe of the Operating Company
John E. Hamilton................................ 39 Senior Vice President, Finance and
Administration of the Operating Company
Chinh E. Chu.................................... 31 Member of the Advisory Committee of Holdings
Howard A. Lipson................................ 34 Member of the Advisory Committee of Holdings
Simon P. Lonergan............................... 29 Member of the Advisory Committee of Holdings
</TABLE>
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.
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.
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<PAGE>
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.
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.
Alex H. Everhart has served as Senior Vice President or Vice President and
General Manager, Europe of the Operating Company since the Recapitalization.
From November 1994 to the Recapitalization, Mr. Everhart served as Vice
President and General Manager, Canada of the Company. Prior to 1994, Mr.
Everhart served as Vice President, MIS of the Company.
John E. Hamilton has served as Senior Vice President, Finance and
Administration or Vice President, Finance and Administration of the Operating
Company since the Recapitalization. Since the Recapitalization, Mr. Hamilton has
also served as Vice President Finance and Administration, Treasurer and
Secretary of Opco GP and of various subsidiaries of the Operating Company or
their general partner, 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. 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.
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.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth all cash compensation paid to the Chief
Executive Officer and four other most highly compensated executive officers of
the Company (the 'Named Executive Officers') for the year ended December 31,
1997, and their respective titles at December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------- AWARDS
OTHER ANNUAL --------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) EAUS(#)(3) COMPENSATION
- ---------------------------------------- ---- -------- -------- --------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
William H. Kerlin, Jr.(4)
Chief Executive Officer............... 1997 $140,000 $ 70,000 $ 2,750 -- --
Philip R. Yates
President and Chief Operating
Officer, North America................ 1997 250,000 120,000 6,991 -- --
Jean F. Rubie(5)
President and Chief Operating
Officer, Europe....................... 1997 250,000 120,000 -- -- $330,000
Roger M. Prevot
Vice President and General
Manager, Food & Beverage.............. 1997 164,275 72,000 4,181 150 --
John E. Hamilton
Vice President, Finance and
Administration........................ 1997 133,300 60,000 9,514 100 --
</TABLE>
- ------------------
(1) Represents bonus accrued in 1996 and paid in 1997 under Company's annual
discretionary bonus plan.
(2) Represents contributions to the Company's 401(k) plan and amounts
attributable to both group term life insurance and personal use of company
automobiles.
(3) Represents the number (#) of equity appreciation units awarded under
Holdings' former equity appreciation plan (which was cancelled upon the
Closing). See '--EAU Grants in Last Fiscal Year' and '--Management Awards.'
(4) Mr. Kerlin, who is compensated solely by Graham Capital, provides 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.
(5) Mr. Rubie's compensation was paid solely by Graham Capital and another
affiliate of the Graham Partners. The amount set forth under 'All Other
Compensation' for Mr. Rubie was a special bonus related to acquisition
activity in Europe. Since the Recapitalization, Mr. Rubie has not been
employed by the Company.
EQUITY APPRECIATION UNITS
Set forth below is certain information with respect to the equity
appreciation units ('EAUs') granted in 1997 under Holdings former equity
appreciation plan (which was cancelled upon the Closing). Under this plan,
10,000 units represented the right to cash payments equal to 1% of the equity
appreciation of Holdings from the date of grant. See '--Management Awards.'
71
<PAGE>
EAU GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
- ---------------------------------------------------------------------------------------------------- ANNUAL RATES OF
PERCENT OF APPRECIATION OVER
TOTAL EAU'S FIVE YEARS
GRANTED TO EXERCISE OF --------------------
EAU'S EMPLOYEES IN BASE PRICE EXPIRATION 5% 10%
NAME GRANTED(#) FISCAL YEAR ($/EAU) DATE ($) ($)
- ------------------------------- ---------- ------------ ----------- ---------- ------- --------------------
<S> <C> <C> <C> <C> <C> <C>
William H. Kerlin, Jr.......... -- -- -- -- -- --
Philip R. Yates................ -- -- -- -- -- --
Jean F. Rubie.................. -- -- -- -- -- --
Roger M. Prevot................ 150 11.2% $431.04 None $17,863 $ 39,473
John E. Hamilton............... 100 7.5% 431.04 None 11,909 26,315
</TABLE>
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, Prevot and Hamilton. 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
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<PAGE>
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 that Mr. Yates' employment is terminated by the
Company, without 'just cause' (as defined in the SIP), 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. No grants
have yet been made under the Option Plan.
The exercise price per Unit 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.
PENSION PLANS
In the year ended December 31, 1997 and the three months ended March 29,
1998, the Company participated in a noncontributory, defined benefit pension
plan sponsored by Graham Engineering 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 10 to the Combined Financial Statements of Graham
Packaging Group for each of the three years in the period ended December 31,
1997.
73
<PAGE>
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
<TABLE>
<CAPTION>
YEARS OF SERVICE
---------------------------------------------------
REMUNERATION 15 20 25 30 35
- ----------------------------------------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
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 four Named Executive Officers who participated in the plan. Mr. Rubie
did not participate in the plan. The estimated credited years of service for the
year ended December 31, 1997 for each of the four Named Executive Officers
participating in the plan was as follows: William H. Kerlin, Jr., 20 years;
Philip R. Yates, 26 years; Roger M. Prevot, 10 years; and John E. Hamilton, 14
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 provides 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 transfer is
expected to be completed in 1998.
401(K) PLAN
During 1997 and the three months ended March 29, 1998, the Company also
participated in a defined contribution plan under Internal Revenue Code Section
401(k) sponsored by Graham Engineering, which covered all U.S. employees of the
Company except those represented by a collective bargaining unit. The Company's
contributions were determined as a specified percentage of employee
contributions, subject to certain maximum limitations. The Company's costs for
this plan for 1995, 1996, and 1997 were $668,000, $722,000 and $742,000,
respectively. See Note 10 to the Combined Financial Statements of Graham
Packaging Group for each of the three years in the period ended December 31,
1997.
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.
COMPENSATION OF DIRECTORS AND CERTAIN PARTNERS
The members of the Boards of Directors of CapCo I and CapCo II and Investor
LP are not compensated for their services except that each is reimbursed for his
reasonable expenses in performing his duties as such.
Under the Holdings Partnership Agreement, the Advisory Committee is
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
74
<PAGE>
whom shall be appointed from time to time by the other general partners. The
Advisory Committee serves solely in an advisory role and does not have any power
to act for or bind Holdings. 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. The
Monitoring Agreement provides that Holdings will pay to Blackstone an annual
Monitoring Fee of $1.0 million. Under the Holdings Partnership Agreement, the
general partners of Holdings are entitled to reimbursement for their expenses in
performing their obligations thereunder. See 'The Partnership Agreements' and
'Certain Relationships and Related Party Transactions.'
SECURITY OWNERSHIP
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 'The Recapitalization,' 'The
Partnership Agreements' and 'Certain Relationships and Related Party
Transactions,' and for a chart of the ownership structure of Holdings, the
Operating Company and certain other parties following the Recapitalization, see
'The Recapitalization--Summary of Ownership Structure After the
Recapitalization.'
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE
ISSUER OF BENEFICIAL OWNER TYPE OF INTEREST INTEREST
- ----------------------------------------------- -------------------------------- -------------------- ----------
<S> <C> <C> <C>
Graham Packaging Company....................... Holdings Limited Partnership 99%
Opco GP(1) General Partnership 1%
GPC Capital Corp. I............................ Operating Company Common Stock 100%
Graham Packaging Holdings Company.............. Investor LP(2) Limited Partnership 81%
Investor GP(2) General Partnership 4%
Graham Family entities(3) Limited Partnership 14%
Graham Packaging Corporation(3) General Partnership 1%
GPC Capital Corp. II........................... Holdings Common Stock 100%
</TABLE>
- ------------------
(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.
75
<PAGE>
THE PARTNERSHIP AGREEMENTS
The summaries of the Partnership Agreements set forth below set forth the
material terms of the respective Partnership Agreements. However, such summaries
are not complete and are qualified in their entirety by reference to all
provisions of the Partnership Agreements. Copies of the Partnership Agreements
are exhibits to the Registration Statement of which this Prospectus is a part.
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.
76
<PAGE>
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
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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.
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CERTAIN RELATIONSHIPS AND RELATED PARTY 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 the Registration Statement of which this Prospectus is a part.
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.
Donald C. Graham and Jean Rubie are 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 $3.5 million for such equipment for the year ended December
31, 1997. Prior to the Recapitalization, Mr. Rubie served as General Manager,
Europe, of the Company.
Graham Engineering has supplied both services and equipment to the Company.
The Company paid Graham Engineering approximately $11.3 million for such
services and equipment for the year ended December 31, 1997.
The Company has provided certain services to Graham Engineering. Graham
Engineering paid the Company approximately $1.0 million for such services for
the year ended December 31, 1997. In addition, in the fourth quarter of 1997,
the Company sold certain bottle manufacturing equipment to Graham Engineering
for approximately $3.4 million, and Graham Engineering sold such equipment to
Banco SRL S.A., a Brazilian commercial bank ('Banco SRL'), transmitting the
manufacturer's warranty on such equipment in a transaction financed by the
Company. The equipment is currently operated by the Company at a customer's
facility in Rio de Janeiro, Brazil, such equipment having been leased by the
customer from Banco SRL.
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 Facility entered into in connection with the
Recapitalization, for which it received customary commitment and other fees and
compensation. See 'Description of the New Credit Facility.' Pursuant to the
Purchase Agreement
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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
For a description of the Operating Company Partnership Agreement and the
Holdings Partnership Agreement, including certain fees payable by Holdings
thereunder, see 'The Partnership Agreements.'
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.
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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.
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DESCRIPTION OF THE NEW CREDIT FACILITY
The summary of the New Credit Facility set forth below does not purport to
be complete and is qualified in its entirety by reference to all the provisions
of the definitive Credit Agreement governing the New Credit Facility. A copy of
such Credit Agreement is an exhibit to the Registration Statement of which this
Prospectus is a part.
GENERAL
As part of the Recapitalization, the Operating Company entered into a
credit facility (the 'New Credit Facility') with Bankers Trust Company ('BT'),
as administrative agent, and the several lenders parties thereto. The New Credit
Facility consists of term loan facilities (the 'Term Loan Facilities') in an
aggregate principal amount of $395.0 million, a revolving credit facility (the
'Revolving Credit Facility') in an aggregate principal amount of up to $155.0
million and a revolving credit facility in an aggregate principal amount of up
to $100.0 million (the 'Growth Capital Revolving Facility,' and, together with
the Term Loan Facilities and the Revolving Facility, the 'Facilities'). The
following is a summary description of the principal terms of the New Credit
Facility and is subject to, and qualified in its entirety by reference to, the
definitive agreement, which is filed as an exhibit to the Registration Statement
and incorporated herein by reference.
All obligations of the Operating Company under the New Credit Facility are
unconditionally and irrevocably guaranteed jointly and severally by Holdings and
each of Holdings' present and future domestic subsidiaries (other than the
Operating Company) ('Loan Guarantors'). Indebtedness under the New Credit
Facility is secured by a first priority perfected security interest in (i) all
of the capital stock, partnership interests and promissory notes owned by the
Operating Company and the Loan Guarantors of their domestic subsidiaries and up
to 65% of the equity interests of material foreign subsidiaries and (ii)
substantially all other tangible and intangible assets (including receivables,
contract rights, securities, patents, trademarks, other intellectual property,
inventory, equipment and certain fee owned real estate) owned by the Operating
Company and each Loan Guarantor.
TERM LOAN FACILITIES
The Term Loan Facilities consist of three tranches of term loans in an
aggregate principal amount of $395.0 million. The Tranche A term loans are in an
aggregate principal amount of $75.0 million, the Tranche B term loans are in an
aggregate principal amount of $175.0 million, and the Tranche C term loans are
in an aggregate principal amount of $145.0 million. The loans under the Term
Loan Facilities (the 'Term Loans') were made in a single drawing at the Closing
of the Recapitalization. The Tranche A term loans will mature on the sixth
anniversary of the Closing, the Tranche B term loans will mature on the eighth
anniversary of the Closing, and the Tranche C term loans will mature on the
ninth anniversary of the Closing. Installments of the Tranche A term loans will
be due in equal quarterly amounts totalling $10.0 million in year 3, $15.0
million in year 4, $20.0 million in year 5, and $30.0 million in year 6.
Installments of the Tranche B term loans will be due in aggregate principal
amounts per annum equal to 1% of the initial aggregate principal amount of
Tranche B term loans for the first six years after the Closing and the remaining
amount of Tranche B term loans will be due in eight quarterly amortization
payments in the seventh and eighth years after the Closing. Installments of the
Tranche C term loans will be due in aggregate principal amounts per annum equal
to 1% of the initial aggregate principal amount of Tranche C term loans for the
first eight years after the Closing and the remaining amount of Tranche C term
loans will be due in four quarterly amortization payments in the ninth year
after the Closing.
REVOLVING CREDIT FACILITY
The Revolving Credit Facility consists of a revolving credit facility in an
aggregate principal amount of $155.0 million. The Operating Company is entitled
to draw amounts under the Revolving Credit Facility for general corporate
purposes. The Revolving Credit Facility includes sub-limits for letters of
credit and swingline loans ('Swingline Loans'). The Revolving Credit Facility
will mature on the sixth anniversary of the Closing.
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GROWTH CAPITAL REVOLVING CREDIT FACILITY
The Growth Capital Revolving Facility consists of a revolving credit
facility in an aggregate principal amount of $100.0 million. The Operating
Company is entitled to draw amounts under the Growth Capital Revolving Facility
for capital expenditure requirements and to finance acquisitions and
investments, provided that loans under the Growth Capital Revolving 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. The Growth Capital Revolving Facility
will mature on the sixth anniversary of the Closing.
AVAILABILITY
The full amount of the Term Loan Facilities was drawn in a single drawing
at the Closing, and $8.5 million was drawn under the Revolving Credit Facility
at the Closing. The loans under the Revolving Credit Facility and the Growth
Capital Revolving Facility (the 'Revolving Loans' and 'Growth Capital Loans,'
respectively, and, together with the Term Loans, the 'Loans') are subject to
various conditions precedent typical of bank facilities of this type and may be
borrowed, repaid and reborrowed after the Closing. Utilization under the Growth
Capital Revolving Facility will be matched by equity contributions, as described
above.
INTEREST RATES
The Operating Company may elect that all or a portion of the Loans, other
than the Swingline Loans, bear interest at the eurodollar rate (the 'Eurodollar
Rate') plus the applicable interest margin, or the base rate (the 'Base Rate')
plus the applicable interest margin. The Base Rate is defined as the higher of
(i) the overnight federal funds rate, plus 1/2% and (ii) the prime lending rate
of BT. The Eurodollar Rate is defined as the rate at which eurodollar deposits
for one, two, three or six months or (if and when available to all of the
relevant lenders) nine or twelve months are offered to BT in the London
interbank eurodollar market. The applicable interest margin for Tranche A term
loans, Revolving Loans and Growth Capital Loans is 1.25% for Base Rate loans and
2.25% for Eurodollar Rate loans. The applicable interest margin for Tranche B
term loans is 1.75% for Base Rate loans and 2.75% for Eurodollar Rate loans. The
applicable interest margin for Tranche C term loans is 2.00% for Base Rate loans
and 3.00% for Eurodollar Rate loans. The interest margins for the Loans are
subject to reduction, as long as no default or event of default exists under the
New Credit Facility based on the leverage ratio. Interest accrues quarterly on
Base Rate Loans.
MANDATORY AND OPTIONAL REPAYMENT
The Term Loan Facilities 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 Facility) 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. The foregoing mandatory prepayments will first be applied pro rata to
reduce outstanding Tranche A, Tranche B and Tranche C term loans (and to
installments of each Tranche on a pro rata basis or, in the case of prepayments
based on excess cash flow, in direct order of maturity), provided, however, that
at the Operating Company's election, (i) up to $30 million in the aggregate of
mandatory prepayments (to the extent based on annual excess cash flow) and
voluntary prepayments will be applied first to prepay outstanding Tranche A term
loans and, to the extent in excess thereof, as otherwise provided herein for
mandatory prepayments and (ii) at any time that Tranche A term loans are
outstanding, the holders of Tranche B term loans and Tranche C term loans may
decline to accept voluntary or mandatory prepayment of Tranche B term loans or
Tranche C term loans, as the case may be, and such amounts shall be applied to
the Tranche A term loans. Prepayments in excess of the amount of outstanding
term loans will be applied (i) first, to reduce the commitments under the Growth
Capital Revolving Facility (and, in the case of any reduction of commitments
pursuant to this clause (i), a like principal amount of Growth Capital Revolving
loans, to the extent then outstanding, shall also be required to be prepaid at
such time) and (ii) second, to reduce the commitments under the Revolving Credit
Facility. The New Credit Facility provides that the Operating Company may
voluntarily
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prepay loans in whole or in part without penalty, subject to minimum
prepayments. Prepayments of Eurodollar Rate Loans shall be subject to
reimbursement of the lenders' breakage and redeployment costs. Optional
prepayments of the Term Loans will be applied pro rata to reduce outstanding
Tranche A, Tranche B and Tranche C term loans (and to installments of each
Tranche in the direct order).
COVENANTS
The New Credit Facility contains certain covenants and other requirements
of Holdings and its subsidiaries. The affirmative covenants provide for, among
other things, mandatory reporting by Holdings of financial and other information
to the administrative agent and notice by Holdings to the agent upon the
occurrence of certain events. The affirmative covenants also include standard
covenants requiring Holdings and its subsidiaries to operate its business in an
orderly manner and consistent with past practice and requiring maintenance of
interest rate protection.
The New Credit Facility also contains certain negative covenants and
restrictions on actions by Holdings and its subsidiaries, including, without
limitation, restrictions on indebtedness, liens, guarantee obligations, mergers,
asset dispositions, investments, loans, advances, acquisitions, dividends and
other restricted junior payments, transactions with affiliates, changes in
business conducted and prepayments and amendments of subordinated indebtedness.
The New Credit Facility also requires Holdings and its subsidiaries to meet
certain financial covenants.
EVENTS OF DEFAULT
The New Credit Facility specifies certain customary events of default
including, without limitation, non-payment of principal, non-payment of interest
or fees (with a customary grace period), violation of covenants, inaccuracy of
representations and warranties in any material respect, cross-default to certain
other indebtedness, bankruptcy and insolvency events, material judgments,
violations of the Employee Retirement Income Security Act of 1974, as amended,
change of control transactions, failure to maintain security interests,
invalidity or asserted invalidity of credit documents, including guarantees and
failure of the New Credit Facility and guarantees thereof to be senior in right
of payment.
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THE SENIOR SUBORDINATED EXCHANGE OFFERS
GENERAL
The Company Issuers hereby offer, upon the terms and subject to the
conditions set forth in this Prospectus and in the applicable Letters of
Transmittal (which together constitute the Senior Subordinated Exchange Offers),
(i) to exchange an aggregate of up to $150,000,000 principal amount of their
Fixed Rate Senior Subordinated Exchange Notes for an equal principal amount of
their issued and outstanding Fixed Rate Senior Subordinated Old Notes, and (ii)
to exchange an aggregate of up to $75,000,000 principal amount of their Floating
Rate Senior Subordinated Exchange Notes for an equal principal amount of their
issued and outstanding Floating Rate Senior Subordinated Old Notes, in each case
properly tendered on or prior to the applicable Senior Subordinated Expiration
Date and not withdrawn as permitted pursuant to the procedures described below.
This Prospectus and the Letter of Transmittal related to the Fixed Rate Senior
Subordinated Notes together constitute the Fixed Rate Senior Subordinated
Exchange Offer, and this Prospectus and the Letter of Transmittal related to the
Floating Rate Senior Subordinated Notes together constitute the Floating Rate
Senior Subordinated Exchange Offer. The Senior Subordinated Exchange Notes will
be unconditionally guaranteed by Holdings (the 'Holdings Guarantee') on a senior
subordinated basis. Upon the terms and subject to the conditions set forth in
this Prospectus and in the applicable Letter of Transmittal, Holdings hereby
offers to issue the Holdings Guarantee with respect to all Senior Subordinated
Exchange Notes issued in the Senior Subordinated Exchange Offers in exchange for
Holdings' outstanding guarantees (the 'Old Holdings Guarantee') of the Senior
Subordinated Old Notes. Throughout this Prospectus, references to the Senior
Subordinated Exchange Offers include the offer of Holdings to exchange the
Holdings Guarantee for the Old Holdings Guarantee, whether so expressed or not.
Throughout this Prospectus, references to the 'Letter of Transmittal' refer to
the form of Letter of Transmittal that is applicable to the Fixed Rate Senior
Subordinated Notes, the Floating Rate Senior Subordinated Notes or the Senior
Discount Notes, as the context requires, whether so expressed or not. The Senior
Subordinated Exchange Offers are being made with respect to all of the Senior
Subordinated Old Notes.
As of the date of this Prospectus, $150,000,000 aggregate principal amount
of Fixed Rate Senior Subordinated Old Notes is outstanding and $75,000,000
aggregate principal amount of Floating Rate Senior Subordinated Old Notes is
outstanding. This Prospectus and the applicable Letters of Transmittal are first
being sent on or about August 3, 1998, to all holders of Senior Subordinated Old
Notes known to the Company Issuers. The Company Issuers' obligation to accept
Senior Subordinated Old Notes for exchange pursuant to the Senior Subordinated
Exchange Offers is subject to certain conditions set forth under 'Certain
Conditions to the Senior Subordinated Exchange Offers' below. The Company
Issuers currently expect that each of the conditions will be satisfied and that
no waivers will be necessary.
PURPOSE OF THE SENIOR SUBORDINATED EXCHANGE OFFERS
The Senior Subordinated Old Notes were issued on February 2, 1998 in
transactions exempt from the registration requirements of the Securities Act.
Accordingly, the Senior Subordinated Old Notes may not be reoffered, resold, or
otherwise transferred unless so registered or unless an applicable exemption
from the registration and prospectus delivery requirements of the Securities Act
is available.
In connection with the issuance and sale of the Senior Subordinated Old
Notes, the Company Issuers and Holdings, as guarantor, entered into the Senior
Subordinated Registration Rights Agreement, which requires the Company Issuers
and Holdings to file with the Commission a registration statement relating to
the Senior Subordinated Exchange Offers not later than 120 days after the date
of issuance of the Senior Subordinated Old Notes and to use their best efforts
to cause the registration statement relating to the Senior Subordinated Exchange
Offers to become effective under the Securities Act not later than 180 days
after the date of issuance of the Senior Subordinated Old Notes. In addition,
the Senior Subordinated Registration Rights Agreement provides for certain
remedies if the Senior Subordinated Exchange Offers are not consummated or a
shelf registration statement with respect to Senior Subordinated Old Notes is
not made effective within the time periods specified therein. See 'Senior
Subordinated Exchange Offers; Senior Subordinated Registration Rights.' A copy
of the Senior Subordinated Registration Rights Agreement has been filed as an
exhibit to the Registration Statement.
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The Senior Subordinated Exchange Offers are being made by the Company
Issuers to satisfy their obligations with respect to the Senior Subordinated
Registration Rights Agreement. The term 'holder,' with respect to the Senior
Subordinated Exchange Offers, means any person in whose name Senior Subordinated
Old Notes are registered on the books of the Company Issuers or any other person
who has obtained a properly completed bond power from the registered holder, or
any person whose Senior Subordinated Old Notes are held of record by The
Depository Trust Company or its nominee. Other than pursuant to the Senior
Subordinated Registration Rights Agreement, the Company Issuers and Holdings are
not required to file any registration statement to register any outstanding
Senior Subordinated Old Notes. Holders of Senior Subordinated Old Notes who do
not tender their Senior Subordinated Old Notes or whose Senior Subordinated Old
Notes are tendered but not accepted would have to rely on exceptions to the
registration requirements under the securities laws, including the Securities
Act, if they wish to sell their Senior Subordinated Old Notes.
The Company Issuers are making the Senior Subordinated Exchange Offers in
reliance on the position of the Staff of the Commission as set forth in certain
interpretive letters addressed to third parties in other transactions. However,
the Company Issuers have not sought their own interpretive letter and there can
be no assurance that the Staff would make a similar determination with respect
to the Senior Subordinated Exchange Offers as it has in such interpretive
letters to third parties. Based on these interpretations by the Staff, the
Company Issuers believe that the Senior Subordinated Exchange Notes issued
pursuant to the Senior Subordinated Exchange Offers in exchange for Senior
Subordinated Old Notes may be offered for resale, resold and otherwise
transferred by a Holder (other than any Holder who is a broker-dealer or an
'affiliate' of the Company Issuers or Holdings within the meaning of Rule 405 of
the Securities Act) without further compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such
Senior Subordinated Exchange Notes are acquired in the ordinary course of such
Holder's business and that such Holder is not participating, and has no
arrangement or understanding with any person to participate, in a distribution
(within the meaning of the Securities Act) of such Senior Subordinated Exchange
Notes. See '--Resale of Senior Subordinated Exchange Notes.' Each broker-dealer
that receives Senior Subordinated Exchange Notes for its own account in exchange
for Senior Subordinated Old Notes, where such Senior Subordinated Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Senior Subordinated Exchange Notes. See 'Plan
of Distribution.'
TERMS OF THE EXCHANGE
The Company Issuers hereby offer, subject to the conditions set forth
herein and in the applicable Letters of Transmittal accompanying this
Prospectus, (i) to exchange $1,000 principal amount of Fixed Rate Senior
Subordinated Exchange Notes for each $1,000 principal amount of their issued and
outstanding Fixed Rate Senior Subordinated Old Notes, and (ii) to exchange
$1,000 principal amount of Floating Rate Senior Subordinated Exchange Notes for
each $1,000 principal amount of their issued and outstanding Floating Rate
Senior Subordinated Old Notes, in each case properly tendered on or prior to the
applicable Senior Subordinated Expiration Date and not withdrawn as permitted
pursuant to the procedures described below. The terms of the Fixed Rate Senior
Subordinated Exchange Notes and the Floating Rate Senior Subordinated Exchange
Notes are identical in all material respects to the terms of the Fixed Rate
Senior Subordinated Old Notes and the Floating Rate Senior Subordinated Old
Notes, respectively, for which they may be exchanged pursuant to the applicable
Senior Subordinated Exchange Offer, except that the Senior Subordinated Exchange
Notes will generally be freely transferable by holders thereof and will not be
subject to any covenant regarding registration. The Fixed Rate Senior
Subordinated Exchange Notes and the Floating Rate Senior Subordinated Exchange
Notes will evidence the same indebtedness as the Fixed Rate Senior Subordinated
Old Notes and the Floating Rate Senior Subordinated Old Notes, respectively, and
will be entitled to the benefits of the Senior Subordinated Indenture. See
'Description of Senior Subordinated Exchange Notes.'
The Senior Subordinated Exchange Offers are not conditioned upon any
minimum aggregate principal amount of Senior Subordinated Old Notes being
tendered for exchange.
The Company Issuers have not requested, and do not intend to request, an
interpretation by the Staff of the Commission with respect to whether the Senior
Subordinated Exchange Notes issued pursuant to the Senior Subordinated Exchange
Offers in exchange for the Senior Subordinated Old Notes may be offered for
sale, resold
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or otherwise transferred by any holder without compliance with the registration
and prospectus delivery provisions of the Securities Act. Instead, based on an
interpretation by the Staff of the Commission set forth in a series of no-action
letters issued to third parties, the Company Issuers believe that Senior
Subordinated Exchange Notes issued pursuant to the Senior Subordinated Exchange
Offers in exchange for Senior Subordinated Old Notes may be offered for sale,
resold and otherwise transferred by any holder of such Senior Subordinated
Exchange Notes (other than any such holder that is a broker-dealer or is an
'affiliate' of the Company Issuers or Holdings within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such Senior
Subordinated Exchange Notes are acquired in the ordinary course of such holder's
business and such holder has no arrangement or understanding with any person to
participate in the distribution of such Senior Subordinated Exchange Notes and
neither such holder nor any other such person is engaging in or intends to
engage in a distribution of such Senior Subordinated Exchange Notes. Since the
Commission has not considered the Senior Subordinated Exchange Offers in the
context of a no-action letter, there can be no assurance that the Staff of the
Commission would make a similar determination with respect to the Senior
Subordinated Exchange Offers. Any holder who is an affiliate of the Company
Issuers or who tenders in the Senior Subordinated Exchange Offers for the
purpose of participating in a distribution of the Senior Subordinated Exchange
Notes cannot rely on such interpretation by the Staff of the Commission and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. Each holder, other
than a broker-dealer, must acknowledge that it is not engaged in, and does not
intend to engage in, a distribution of Senior Subordinated Exchange Notes. Each
broker-dealer that receives Senior Subordinated Exchange Notes for its own
account in exchange for Senior Subordinated Old Notes, where such Senior
Subordinated Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Senior
Subordinated Exchange Notes. A broker-dealer may not participate in the Senior
Subordinated Exchange Offers with respect to Senior Subordinated Old Notes
acquired other than as a result of market-making activities or other trading
activities. See 'Plan of Distribution.'
Interest on the Senior Subordinated Exchange Notes will accrue from the
last Interest Payment Date on which interest was paid on the Senior Subordinated
Old Notes so surrendered or, if no interest has been paid on such Notes, from
February 2, 1998.
Tendering holders of the Senior Subordinated Old Notes will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of the Senior
Subordinated Old Notes pursuant to the Senior Subordinated Exchange Offers.
EXPIRATION DATES; EXTENSION; TERMINATION; AMENDMENT
The Fixed Rate Senior Subordinated Exchange Offer will expire at 5:00 p.m.,
New York City time, on September 2, 1998 (the 'Fixed Rate Senior Subordinated
Expiration Date'), and the Floating Rate Senior Subordinated Exchange Offer will
expire at 5:00 p.m., New York City time, on September 2, 1998 (the 'Floating
Rate Senior Subordinated Expiration Date' and, together with the Fixed Rate
Senior Subordinated Expiration Date, the 'Senior Subordinated Expiration
Dates'), unless the applicable Senior Subordinated Exchange Offer is extended,
in which case the term 'Fixed Rate Senior Subordinated Expiration Date' or
'Floating Rate Senior Subordinated Expiration Date' means the latest date and
time to which the Fixed Rate Senior Subordinated Exchange Offer or the Floating
Rate Senior Subordinated Exchange Offer, as the case may be, is extended. The
Fixed Rate Senior Subordinated Expiration Date and the Floating Rate Senior
Subordinated Expiration Date will each be at least 20 business days after the
commencement of the related Senior Subordinated Exchange Offer in accordance
with Rule 14e-1(a) under the Exchange Act. The Company Issuers expressly reserve
the right, at any time or from time to time, to extend the period of time during
which either the Fixed Rate Senior Subordinated Exchange Offer or the Floating
Rate Senior Subordinated Exchange Offer is open, and thereby delay acceptance
for exchange of any Fixed Rate Senior Subordinated Old Notes or Floating Rate
Senior Subordinated Old Notes, as the case may be, by giving oral or written
notice to the Senior Subordinated Exchange Agent and by timely public
announcement no later than 9:00 a.m. New York City time, on the next business
day after the applicable Senior Subordinated Expiration Date previously in
effect. During any such extension, all Senior Subordinated Old Notes previously
tendered will remain subject to the applicable Senior Subordinated Exchange
Offer unless properly withdrawn. The Company Issuers do not anticipate extending
either Senior Subordinated Expiration Date.
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The Company Issuers expressly reserve the right to (i) terminate or amend
either Senior Subordinated Exchange Offer and not to accept for exchange any
Senior Subordinated Old Notes not theretofore accepted for exchange upon the
occurrence of any of the events specified below under 'Certain Conditions to the
Senior Subordinated Exchange Offers' which have not been waived by the Company
Issuers and (ii) amend the terms of the Senior Subordinated Exchange Offers in
any manner which, in their good faith judgment, is advantageous to the holders
of the Senior Subordinated Old Notes, whether before or after any tender of
Senior Subordinated Old Notes. If any such termination or amendment occurs, the
Company Issuers will notify the Senior Subordinated Exchange Agent and will
either issue a press release or give oral or written notice to the holders of
the Senior Subordinated Old Notes as promptly as practicable.
For purposes of the Senior Subordinated Exchange Offers, a 'business day'
means any day other than Saturday, Sunday or a date on which banking
institutions are required or authorized by New York State law to be closed, and
consists of the time period from 12:01 a.m. through 12:00 midnight, New York
City time. Unless the Company Issuers terminate the applicable Senior
Subordinated Exchange Offer prior to 5:00 p.m., New York City time, on the
related Senior Subordinated Expiration Date, the Company Issuers will exchange
the applicable Senior Subordinated Exchange Notes for Senior Subordinated Old
Notes on such Senior Subordinated Exchange Date.
PROCEDURES FOR TENDERING SENIOR SUBORDINATED OLD NOTES
The tender to the Company Issuers of Senior Subordinated Old Notes by a
holder thereof as set forth below and the acceptance thereof by the Company
Issuers will constitute a binding agreement between the tendering holder and the
Company Issuers upon the terms and subject to the conditions set forth in this
Prospectus and in the applicable Letter of Transmittal.
A holder of Senior Subordinated Old Notes may tender the same by (i)
properly completing and signing the applicable Letter of Transmittal or a
facsimile thereof (all references in this Prospectus to a Letter of Transmittal
shall be deemed to include a facsimile thereof) and delivering the same,
together with the certificate or certificates representing the Senior
Subordinated Old Notes being tendered and any required signature guarantees and
any other documents required by such Letter of Transmittal, to the Senior
Subordinated Exchange Agent at its address set forth below on or prior to the
applicable Senior Subordinated Expiration Date (or complying with the procedure
for book-entry transfer described below) or (ii) complying with the guaranteed
delivery procedures described below.
THE METHOD OF DELIVERY OF SENIOR SUBORDINATED OLD NOTES, LETTERS OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO INSURE TIMELY DELIVERY. NO SENIOR
SUBORDINATED OLD NOTES OR LETTERS OF TRANSMITTAL SHOULD BE SENT TO THE COMPANY
ISSUERS.
If tendered Senior Subordinated Old Notes are registered in the name of the
signer of the Letter of Transmittal and the Senior Subordinated Exchange Notes
to be issued in exchange therefor are to be issued (and any untendered Senior
Subordinated Old Notes are to be reissued) in the name of the registered holder
(which term, for the purposes described herein, shall include any participant in
The Depository Trust Company (also referred to as a 'book-entry transfer
facility') whose name appears on a security listing as the owner of Senior
Subordinated Old Notes), the signature of such signer need not be guaranteed. In
any other case, the tendered Senior Subordinated Old Notes must be endorsed or
accompanied by written instruments of transfer in form satisfactory to the
Company Issuers and duly executed by the registered holder, and the signature on
the endorsement or instrument of transfer must be guaranteed by a bank, broker,
dealer, credit union, savings association, clearing agency or other institution
(each an 'Eligible Institution') that is a member of a recognized signature
guarantee medallion program within the meaning of Rule 17Ad-15 under the
Exchange Act. In addition, if the Senior Subordinated Exchange Notes and/or
Senior Subordinated Old Notes not exchanged are to be delivered to an address
other than that of the registered holder appearing on the applicable note
register for such Senior Subordinated Old Notes, the signature on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
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The Senior Subordinated Exchange Agent will make a request within two
business days after the date of receipt of this Prospectus to establish accounts
with respect to the Senior Subordinated Old Notes at the book-entry transfer
facility for the purpose of facilitating the Senior Subordinated Exchange
Offers, and subject to the establishment thereof, any financial institution that
is a participant in the book-entry transfer facility's system may make
book-entry delivery of Senior Subordinated Old Notes by causing such book-entry
transfer facility to transfer such Senior Subordinated Old Notes into the Senior
Subordinated Exchange Agent's account with respect to the Senior Subordinated
Old Notes in accordance with the book-entry transfer facility's procedures for
such transfer. Although delivery of Senior Subordinated Old Notes may be
effected through book-entry transfer into the Senior Subordinated Exchange
Agent's account at the book-entry transfer facility, an appropriate Letter of
Transmittal with any required signature guarantee and all other required
documents must in each case be transmitted to and received or confirmed by the
Senior Subordinated Exchange Agent at its address set forth below on or prior to
the applicable Senior Subordinated Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures.
If a holder desires to accept either Senior Subordinated Exchange Offer and
time will not permit the applicable Letter of Transmittal or Senior Subordinated
Old Notes to reach the Senior Subordinated Exchange Agent before the applicable
Senior Subordinated Expiration Date or the procedure for book-entry transfer
cannot be completed on a timely basis, a tender may be effected if the Senior
Subordinated Exchange Agent has received at its address set forth below on or
prior to the applicable Senior Subordinated Expiration Date, a letter, telegram
or facsimile transmission (receipt confirmed by telephone and an original
delivered by guaranteed overnight courier) from an Eligible Institution setting
forth the name and address of the tendering holder, the names in which the
Senior Subordinated Old Notes are registered and, if possible, the certificate
numbers of the Senior Subordinated Old Notes to be tendered, and stating that
the tender is being made thereby and guaranteeing that within three business
days after the applicable Senior Subordinated Expiration Date, the Senior
Subordinated Old Notes in proper form for transfer (or a confirmation of
book-entry transfer of such Senior Subordinated Old Notes into the Senior
Subordinated Exchange Agent's account at the book-entry transfer facility), will
be delivered by such Eligible Institution together with a properly completed and
duly executed Letter of Transmittal (and any other required documents). Unless
Senior Subordinated Old Notes being tendered by the above-described method are
deposited with the Senior Subordinated Exchange Agent within the time period set
forth above (accompanied or preceded by a properly completed Letter of
Transmittal and any other required documents), the Company Issuers may, at their
option, reject the tender. Copies of the forms of notice of guaranteed delivery
('Notice of Guaranteed Delivery') relating to the Fixed Rate Senior Subordinated
Notes and the Floating Rate Senior Subordinated Notes, respectively, which may
be used by Eligible Institutions for the purposes described in this paragraph
are available from the Senior Subordinated Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Senior Subordinated Old Notes (or a confirmation of
book-entry transfer of such Senior Subordinated Old Notes into the Senior
Subordinated Exchange Agent's account at the book-entry transfer facility) is
received by the Senior Subordinated Exchange Agent, or (ii) the applicable
Notice of Guaranteed Delivery or letter, telegram or facsimile transmission to
similar effect (as provided above) from an Eligible Institution is received by
the Senior Subordinated Exchange Agent. Issuances of Senior Subordinated
Exchange Notes in exchange for Senior Subordinated Old Notes tendered pursuant
to a Notice of Guaranteed Delivery or letter, telegram or facsimile transmission
to similar effect (as provided above) by an Eligible Institution will be made
only against deposit of the applicable Letter of Transmittal (and any other
required documents) and the tendered Senior Subordinated Old Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Senior Subordinated Old Notes tendered for exchange
will be determined by the Company Issuers in their sole discretion, which
determination shall be final and binding. The Company Issuers reserve the
absolute right to reject any and all tenders of any particular Senior
Subordinated Old Notes not properly tendered or not to accept any particular
Senior Subordinated Old Notes which acceptance might, in the judgment of the
Company Issuers or their counsel, be unlawful. The Company Issuers also reserve
the absolute right to waive any defects or irregularities or conditions of the
Senior Subordinated Exchange Offers as to any particular Senior Subordinated Old
Notes either before or after the applicable Senior Subordinated Expiration Date
(including the right to waive the ineligibility of any holder who seeks to
tender Senior Subordinated Old Notes in the Senior Subordinated
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Exchange Offers). The interpretation of the terms and conditions of the Senior
Subordinated Exchange Offers (including the applicable Letter of Transmittal and
the instructions thereto) by the Company Issuers shall be final and binding on
all parties. Unless waived, any defects or irregularities in connection with
tenders of Senior Subordinated Old Notes for exchange must be cured within such
reasonable period of time as the Company Issuers shall determine. Neither the
Company Issuers, the Senior Subordinated Exchange Agent nor any other person
shall be under any duty to give notification of any defect or irregularity with
respect to any tender of Senior Subordinated Old Notes for exchange, nor shall
any of them incur any liability for failure to give such notification.
If a Letter of Transmittal is signed by a person or persons other than the
registered holder or holders of Senior Subordinated Old Notes, such Senior
Subordinated Old Notes must be endorsed or accompanied by appropriate powers of
attorney, in either case signed exactly as the name or names of the registered
holder or holders appear on the Senior Subordinated Old Notes.
If a Letter of Transmittal or any Senior Subordinated Old Notes or powers
of attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by the Company Issuers, proper evidence satisfactory to the
Company Issuers of their authority to so act must be submitted.
By tendering, each holder will represent to the Company Issuers that, among
other things, the Senior Subordinated Exchange Notes acquired pursuant to the
Senior Subordinated Exchange Offers are being acquired in the ordinary course of
business of the person receiving such Senior Subordinated Exchange Notes,
whether or not such person is the holder, that neither the holder nor any such
other person has an arrangement or understanding with any person to participate
in the distribution of such Senior Subordinated Exchange Notes and that neither
the holder nor any such other person is an 'affiliate,' as defined under Rule
405 of the Securities Act, of the Company Issuers or Holdings, or if it is an
affiliate it will comply with the registration and prospectus requirements of
the Securities Act to the extent applicable.
Each broker-dealer that receives Senior Subordinated Exchange Notes for its
own account in exchange for Senior Subordinated Old Notes where such Senior
Subordinated Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities must acknowledge that it
will deliver a prospectus in connection with any resale of such Senior
Subordinated Exchange Notes. See 'Plan of Distribution.'
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
Each Letter of Transmittal contains, among other things, the following
terms and conditions, which are part of the related Senior Subordinated Exchange
Offer.
The party tendering Notes for exchange (the 'Transferor') exchanges,
assigns and transfers the Senior Subordinated Old Notes to the Company Issuers
and irrevocably constitutes and appoints the Senior Subordinated Exchange Agent
as the Transferor's agent and attorney-in-fact to cause the Senior Subordinated
Old Notes to be assigned, transferred and exchanged. The Transferor represents
and warrants that it has full power and authority to tender, exchange, assign
and transfer the Senior Subordinated Old Notes and to acquire Senior
Subordinated Exchange Notes issuable upon the exchange of such tendered Notes,
and that, when the same are accepted for exchange, the Company Issuers will
acquire good and unencumbered title to the tendered Senior Subordinated Old
Notes, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim. The Transferor also warrants that it will,
upon request, execute and deliver any additional documents deemed by the Senior
Subordinated Exchange Agent or the Company Issuers to be necessary or desirable
to complete the exchange, assignment and transfer of tendered Senior
Subordinated Old Notes or transfer ownership of such Senior Subordinated Old
Notes on the account books maintained by a book-entry transfer facility. The
Transferor further agrees that acceptance of any tendered Senior Subordinated
Old Notes by the Company Issuers and the issuance of Senior Subordinated
Exchange Notes in exchange therefor shall constitute performance in full by the
Company Issuers of certain of their obligations under the Senior Subordinated
Registration Rights Agreement. All authority conferred by the Transferor will
survive the death or incapacity of the Transferor and every obligation of the
Transferor shall be binding upon the heirs, legal representatives, successors,
assigns, executors and administrators of such Transferor.
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The Transferor certifies that it is not an 'affiliate' of the Company
Issuers or Holdings within the meaning of Rule 405 under the Securities Act and
that it is acquiring the Senior Subordinated Exchange Notes offered hereby in
the ordinary course of such Transferor's business and that such Transferor has
no arrangement with any person to participate in the distribution of such Senior
Subordinated Exchange Notes. Each holder, other than a broker-dealer, must
acknowledge that it is not engaged in, and does not intend to engage in, a
distribution of Senior Subordinated Exchange Notes. Each Transferor which is a
broker-dealer receiving Senior Subordinated Exchange Notes for its own account
must acknowledge that it will deliver a prospectus in connection with any resale
of such Senior Subordinated Exchange Notes. By so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an 'underwriter' within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Senior Subordinated Exchange Notes
received in exchange for Senior Subordinated Old Notes where such Senior
Subordinated Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company Issuers will,
for a period of 90 days after the applicable Senior Subordinated Expiration
Date, make copies of this Prospectus available to any broker-dealer for use in
connection with any such resale.
WITHDRAWAL RIGHTS
Tenders of Senior Subordinated Old Notes may be withdrawn at any time prior
to the applicable Senior Subordinated Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission (receipt confirmed by telephone) or letter must
be received by the Senior Subordinated Exchange Agent at the address set forth
herein prior to the applicable Senior Subordinated Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having tendered the
Senior Subordinated Old Notes to be withdrawn (the 'Depositor'), (ii) identify
the Senior Subordinated Old Notes to be withdrawn (including the certificate
number or numbers and principal amount of such Senior Subordinated Old Notes),
(iii) specify the principal amount of Senior Subordinated Old Notes to be
withdrawn, (iv) include a statement that such holder is withdrawing his election
to have such Senior Subordinated Old Notes exchanged, (v) be signed by the
holder in the same manner as the original signature on the Letter of Transmittal
by which such Senior Subordinated Old Notes were tendered or as otherwise
described above (including any required signature guarantees) or be accompanied
by documents of transfer sufficient to have the Senior Subordinated Trustee
under the Senior Subordinated Indenture register the transfer of such Senior
Subordinated Old Notes into the name of the person withdrawing the tender and
(vi) specify the name in which any such Senior Subordinated Old Notes are to be
registered, if different from that of the Depositor. The Senior Subordinated
Exchange Agent will return the properly withdrawn Senior Subordinated Old Notes
promptly following receipt of notice of withdrawal.
If Senior Subordinated Old Notes have been tendered pursuant to the
procedure for book-entry transfer, any notice of withdrawal must specify the
name and number of the account at the book-entry transfer facility to be
credited with the withdrawn Senior Subordinated Old Notes or otherwise comply
with the book-entry transfer facility procedure. All questions as to the
validity of notices of withdrawals, including time of receipt, will be
determined by the Company Issuers and such determination will be final and
binding on all parties.
Any Senior Subordinated Old Notes so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the applicable Senior
Subordinated Exchange Offer. Any Senior Subordinated Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in the case of
Senior Subordinated Old Notes tendered by book-entry transfer into the Senior
Subordinated Exchange Agent's account at the book-entry transfer facility
pursuant to the book-entry transfer procedures described above, such Senior
Subordinated Old Notes will be credited to an account with such book-entry
transfer facility specified by the holder) as soon as practicable after
withdrawal, rejection of tender or termination of the applicable Senior
Subordinated Exchange Offer. Properly withdrawn Senior Subordinated Old Notes
may be retendered by following one of the procedures described under
'--Procedures for Tendering Senior Subordinated Old Notes' above at any time on
or prior to the applicable Senior Subordinated Expiration Date.
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ACCEPTANCE OF SENIOR SUBORDINATED OLD NOTES FOR EXCHANGE; DELIVERY OF SENIOR
SUBORDINATED EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Senior
Subordinated Exchange Offers, the Company Issuers will accept, promptly on the
Senior Subordinated Exchange Date, all Senior Subordinated Old Notes properly
tendered and will issue the Senior Subordinated Exchange Notes promptly after
such acceptance. See '--Certain Conditions to the Senior Subordinated Exchange
Offers' below. For purposes of the Senior Subordinated Exchange Offers, the
Company Issuers shall be deemed to have accepted properly tendered Senior
Subordinated Old Notes for exchange when, as and if the Company Issuers have
given oral or written notice thereof to the Senior Subordinated Exchange Agent.
For each Senior Subordinated Old Note accepted for exchange, the holder of
such Senior Subordinated Old Note will receive a Senior Subordinated Exchange
Note having a principal amount equal to that of the surrendered Senior
Subordinated Old Note.
In all cases, issuance of Senior Subordinated Exchange Notes for Senior
Subordinated Old Notes that are accepted for exchange pursuant to either of the
Senior Subordinated Exchange Offers will be made only after timely receipt by
the Senior Subordinated Exchange Agent of certificates for such Senior
Subordinated Old Notes or a timely book-entry confirmation of such Senior
Subordinated Old Notes into the Senior Subordinated Exchange Agent's account at
the book-entry transfer facility, a properly completed and duly executed Letter
of Transmittal and all other required documents. If any tendered Senior
Subordinated Old Notes are not accepted for any reason set forth in the terms
and conditions of the applicable Senior Subordinated Exchange Offer or if Senior
Subordinated Old Notes are submitted for a greater principal amount than the
holder desires to exchange, such unaccepted or non-exchanged Senior Subordinated
Old Notes will be returned without expense to the tendering holder thereof (or,
in the case of Senior Subordinated Old Notes tendered by book-entry transfer
into the Senior Subordinated Exchange Agent's account at the book-entry transfer
facility pursuant to the book-entry transfer procedures described above, such
non-exchanged Senior Subordinated Old Notes will be credited to an account
maintained with such book-entry transfer facility specified by the holder) as
promptly as practicable after the expiration of the applicable Senior
Subordinated Exchange Offer.
CERTAIN CONDITIONS TO THE SENIOR SUBORDINATED EXCHANGE OFFERS
Notwithstanding any other provision of the Senior Subordinated Exchange
Offers, or any extension of the Senior Subordinated Exchange Offers, the Company
Issuers shall not be required to accept for exchange, or to issue Senior
Subordinated Exchange Notes in exchange for, any Senior Subordinated Old Notes
and may terminate or amend either Senior Subordinated Exchange Offer (by oral or
written notice to the Senior Subordinated Exchange Agent or by a timely press
release) if at any time before the acceptance of such Senior Subordinated Old
Notes for exchange or the exchange of the Senior Subordinated Exchange Notes for
such Senior Subordinated Old Notes, any of the following conditions exist:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency or regulatory authority or any
injunction, order or decree is issued with respect to such Senior
Subordinated Exchange Offer which, in the sole judgment of the Company
Issuers, might materially impair the ability of the Company Issuers to
proceed with the Senior Subordinated Exchange Offer or have a material
adverse effect on the contemplated benefits of such Senior Subordinated
Exchange Offer to the Company Issuers; or
(b) any change (or any development involving a prospective change)
shall have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of the Company Issuers that, in the sole judgment of the Company
Issuers, is or may be adverse to the Company Issuers, or the Company
Issuers shall have become aware of facts that have or may have adverse
significance with respect to the value of the Senior Subordinated Old Notes
or the Senior Subordinated Exchange Notes or that may, in the sole judgment
of the Company Issuers, materially impair the contemplated benefits of such
Senior Subordinated Exchange Offer to the Company Issuers; or
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(c) any law, rule or regulation or applicable interpretations of the
Staff of the Commission is issued or promulgated which, in the good faith
determination of the Company Issuers, does not permit the Company Issuers
to effect such Senior Subordinated Exchange Offer; or
(d) any governmental approval has not been obtained, which approval
the Company Issuers, in their sole discretion, deem necessary for the
consummation of such Senior Subordinated Exchange Offer; or
(e) there shall have been proposed, adopted or enacted any law,
statute, rule or regulation (or an amendment to any existing law, statute,
rule or regulation) which, in the sole judgment of the Company Issuers,
might materially impair the ability of the Company Issuers to proceed with
such Senior Subordinated Exchange Offer or have a material adverse effect
on the contemplated benefits of such Senior Subordinated Exchange Offer to
the Company Issuers; or
(f) there shall occur a change in the current interpretation by the
Staff of the Commission which permits the Senior Subordinated Exchange
Notes issued pursuant to such Senior Subordinated Exchange Offer in
exchange for Senior Subordinated Old Notes to be offered for resale, resold
and otherwise transferred by holders thereof (other than any such holder
that is an 'affiliate' of the Company Issuers or Holdings within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act
provided that such Senior Subordinated Exchange Notes are acquired in the
ordinary course of such holders' business and such holders have no
arrangement with any person to participate in the distribution of such
Senior Subordinated Exchange Notes; or
(g) there shall have occurred (i) any general suspension of,
shortening of hours for, or limitation on prices for, trading in securities
on any national securities exchange or in the over-the-counter market
(whether or not mandatory), (ii) any limitation by any governmental agency
or authority which may adversely affect the ability of the Company Issuers
to complete the transactions contemplated by such Senior Subordinated
Exchange Offer, (iii) a declaration of a banking moratorium or any
suspension of payments in respect of banks by Federal or state authorities
in the United States (whether or not mandatory), (iv) a commencement of a
war, armed hostilities or other international or national crisis directly
or indirectly involving the United States, (v) any limitation (whether or
not mandatory) by any governmental authority on, or other event having a
reasonable likelihood of affecting, the extension of credit by banks or
other lending institutions in the United States, or (vi) in the case of any
of the foregoing existing at the time of the commencement of the Senior
Subordinated Exchange Offers, a material acceleration or worsening thereof.
The Company Issuers expressly reserve the right to terminate either Senior
Subordinated Exchange Offer and not accept for exchange any of the related
Senior Subordinated Old Notes upon the occurrence of any of the foregoing
conditions (which represent all of the material conditions to the acceptance by
the Company Issuers of such Senior Subordinated Old Notes which are properly
tendered). In addition, the Company Issuers may amend either Senior Subordinated
Exchange Offer at any time prior to the applicable Senior Subordinated
Expiration Date if any of the conditions set forth above occurs. Moreover,
regardless of whether any of such conditions has occurred, the Company Issuers
may amend either Senior Subordinated Exchange Offer in any manner which, in
their good faith judgment, is advantageous to holders of the related Senior
Subordinated Old Notes.
The foregoing conditions are for the sole benefit of the Company Issuers
and may be asserted by the Company Issuers regardless of the circumstances
giving rise to any such condition or may be waived by the Company Issuers in
whole or in part at any time and from time to time in their sole discretion. The
failure by the Company Issuers at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right and each such right shall
be deemed an ongoing right which may be asserted at any time and from time to
time. If the Company Issuers waive or amend the foregoing conditions, they will,
if required by law, extend the applicable Subordinated Exchange Offer for a
minimum of five business days from the date that the Company Issuers first give
notice, by public announcement or otherwise, of such waiver or amendment, if
such Senior Subordinated Exchange Offer would otherwise expire within such five
business-day period. Any determination by the Company Issuers concerning the
events described above will be final and binding upon all parties.
In addition, the Company Issuers will not accept for exchange any Senior
Subordinated Old Notes tendered, and no Senior Subordinated Exchange Notes will
be issued in exchange for any such Senior Subordinated Old Notes, if at such
time any stop order shall be threatened or in effect with respect to the
Registration Statement of
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which this Prospectus constitutes a part or the qualification of the Senior
Subordinated Indenture under the Trust Indenture Act of 1939, as amended. In any
such event, the Company Issuers are required to use every reasonable effort to
obtain the withdrawal of any stop order at the earliest possible time.
The Senior Subordinated Exchange Offers are not conditioned upon any
minimum principal amount of Senior Subordinated Old Notes being tendered for
exchange.
SENIOR SUBORDINATED EXCHANGE AGENT
United States Trust Company of New York has been appointed as the Senior
Subordinated Exchange Agent for the Senior Subordinated Exchange Offers. All
executed Letters of Transmittal related to either Senior Subordinated Exchange
Offer should be directed to the Senior Subordinated Exchange Agent at one of the
addresses set forth below:
<TABLE>
<S> <C>
By Overnight Courier: By Registered or Certified Mail:
United States Trust Company of New York United States Trust Company of New York
770 Broadway P.O. Box 844
13th Floor Attn: Corporate Trust Services
New York, New York 10003 Cooper Station
Attn: Corporate Trust Services New York, New York 10276-0844
By Hand: By Facsimile (Eligible Institutions Only):
United States Trust Company of New York (212) 420-6152
111 Broadway Confirm by Telephone
Lower Level (800) 548-6565
Attn: Corporate Trust Services
New York, New York 10006
</TABLE>
Questions and requests for assistance, requests for additional copies of
this Prospectus or of either Letter of Transmittal related to the Senior
Subordinated Notes and requests for Notices of Guaranteed Delivery related to
the Senior Subordinated Notes should be directed to the Senior Subordinated
Exchange Agent at the address and telephone number set forth in the applicable
Letter of Transmittal.
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ON THE APPLICABLE LETTER OF
TRANSMITTAL, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN
THE ONE SET FORTH ON SUCH LETTER OF TRANSMITTAL, WILL NOT CONSTITUTE A VALID
DELIVERY.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The Company Issuers have not retained any dealer-manager in connection with
the Senior Subordinated Exchange Offers and will not make any payments to
brokers, dealers or others soliciting acceptances of the Senior Subordinated
Exchange Offers. The Company Issuers, however, will pay the Senior Subordinated
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith. The
Company Issuers will also pay brokerage houses and other custodians, nominees
and fiduciaries the reasonable out-of-pocket expenses incurred by them in
forwarding copies of this and other related documents to the beneficial owners
of the Senior Subordinated Old Notes and in handling or forwarding tenders for
their customers.
The estimated cash expenses to be incurred in connection with the Senior
Subordinated Exchange Offers will be paid by the Company Issuers and are
estimated in the aggregate to be approximately $650,000, including fees
and expenses of the Senior Subordinated Exchange Agent or the Senior
Subordinated Trustee, registration fees, and accounting, legal, printing and
related fees and expenses.
No person has been authorized to give any information or to make any
representations in connection with the Senior Subordinated Exchange Offers other
than those contained in this Prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by the
Company Issuers. Neither the delivery of this Prospectus nor any exchange made
hereunder shall, under any circumstances, create
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any implication that there has been no change in the affairs of the Company
Issuers since the respective dates as of which information is given herein. The
Senior Subordinated Exchange Offers are not being made to (nor will tenders be
accepted from or on behalf of) holders of Senior Subordinated Old Notes in any
jurisdiction in which the making of the applicable Senior Subordinated Exchange
Offer or the acceptance thereof would not be in compliance with the laws of such
jurisdiction. However, the Company Issuers may, at their discretion, take such
action as they may deem necessary to make the Senior Subordinated Exchange
Offers in any such jurisdiction and extend the Senior Subordinated Exchange
Offers to holders of Senior Subordinated Old Notes in such jurisdiction. In any
jurisdiction in which the securities or 'blue sky' laws require the Senior
Subordinated Exchange Offers to be made by a licensed broker or dealer, the
Senior Subordinated Exchange Offers are being made on behalf of the Company
Issuers by one or more registered brokers or dealers which are licensed under
the laws of such jurisdiction.
TRANSFER TAXES
The Company Issuers will pay all transfer taxes, if any, applicable to the
exchange of Senior Subordinated Old Notes pursuant to the applicable Senior
Subordinated Exchange Offer. If, however, certificates representing Senior
Subordinated Exchange Notes or Senior Subordinated Old Notes for principal
amounts not tendered or accepted for exchange are to be delivered to, or are to
be issued in the name of, any person other than the registered holder of the
Senior Subordinated Old Notes tendered, or if tendered Senior Subordinated Old
Notes are registered in the name of any person other than the person signing the
applicable Letter of Transmittal, or if a transfer tax is imposed for any reason
other than the exchange of Senior Subordinated Old Notes pursuant to the
applicable Senior Subordinated Exchange Offer, then the amount of any such
transfer taxes (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted with the applicable Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
ACCOUNTING TREATMENT
The Senior Subordinated Exchange Notes will be recorded at the carrying
value of the Senior Subordinated Old Notes as reflected in the Company Issuers'
accounting records on the date of the exchange. Accordingly, no gain or loss for
accounting purposes will be recognized by the Company Issuers upon the exchange
of Senior Subordinated Exchange Notes for Senior Subordinated Old Notes.
Expenses incurred in connection with the issuance of the Senior Subordinated
Exchange Notes will be amortized over the term of the Senior Subordinated
Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Senior Subordinated Old Notes who do not exchange their Senior
Subordinated Old Notes for Senior Subordinated Exchange Notes pursuant to the
Senior Subordinated Exchange Offers will continue to be subject to the
restrictions on transfer of such Senior Subordinated Old Notes as set forth in
the legend thereon. Senior Subordinated Old Notes not exchanged pursuant to the
Senior Subordinated Exchange Offers will continue to remain outstanding in
accordance with their terms. In general, the Senior Subordinated Old Notes may
not be offered or sold unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company Issuers do not
currently anticipate that they will register the Senior Subordinated Old Notes
under the Securities Act.
Participation in the Senior Subordinated Exchange Offers is voluntary, and
holders of Senior Subordinated Old Notes should carefully consider whether to
participate. Holders of Senior Subordinated Old Notes are urged to consult their
financial and tax advisors in making their own decision on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Senior Subordinated Old Notes pursuant to the terms of, the
Senior Subordinated Exchange Offers, the Company Issuers will have fulfilled a
covenant contained in the Senior Subordinated Registration Rights Agreement.
Holders of Senior Subordinated Old Notes who do not tender their Senior
Subordinated Old Notes in the applicable Senior Subordinated Exchange Offer will
continue to hold such Senior Subordinated Old Notes and will be entitled to all
the rights and limitations applicable thereto under the Senior Subordinated
Indenture, except for any such rights
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under the Senior Subordinated Registration Rights Agreement that by their terms
terminate or cease to have further effectiveness as a result of the making of
the Senior Subordinated Exchange Offers. All untendered Senior Subordinated Old
Notes will continue to be subject to the restrictions on transfer set forth in
the Senior Subordinated Indenture. To the extent that Senior Subordinated Old
Notes are tendered and accepted in the Senior Subordinated Exchange Offers, the
trading market for untendered Senior Subordinated Old Notes could be adversely
affected.
The Company Issuers may in the future seek to acquire, subject to the terms
of the Senior Subordinated Indenture, untendered Senior Subordinated Old Notes
in open-market or privately-negotiated transactions, through subsequent exchange
offers or otherwise. The Company Issuers have no present plan to acquire any
Senior Subordinated Old Notes which are not tendered in the Senior Subordinated
Exchange Offers.
RESALE OF SENIOR SUBORDINATED EXCHANGE NOTES
The Company Issuers are making the Senior Subordinated Exchange Offers in
reliance on the position of the Staff of the Commission as set forth in certain
interpretive letters addressed to third parties in other transactions. However,
the Company Issuers have not sought their own interpretive letter and there can
be no assurance that the Staff would make a similar determination with respect
to the Senior Subordinated Exchange Offers as it has in such interpretive
letters to third parties. Based on these interpretations by the Staff, the
Company Issuers believe that the Senior Subordinated Exchange Notes issued
pursuant to the Senior Subordinated Exchange Offers in exchange for Senior
Subordinated Old Notes may be offered for resale, resold and otherwise
transferred by a Holder (other than any Holder who is a broker-dealer or an
'affiliate' of the Company Issuers or Holdings within the meaning of Rule 405 of
the Securities Act) without further compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such
Senior Subordinated Exchange Notes are acquired in the ordinary course of such
Holder's business and that such Holder is not participating, and has no
arrangement or understanding with any person to participate, in a distribution
(within the meaning of the Securities Act) of such Senior Subordinated Exchange
Notes. However, any holder who is an 'affiliate' of the Company Issuers or
Holdings who has an arrangement or understanding with respect to the
distribution of the Senior Subordinated Exchange Notes to be acquired pursuant
to the Senior Subordinated Exchange Offers, or any broker-dealer who purchased
Senior Subordinated Old Notes from the Company Issuers to resell pursuant to
Rule 144A or any other available exemption under the Securities Act (i) could
not rely on the applicable interpretations of the Staff and (ii) must comply
with the registration and prospectus delivery requirements of the Securities
Act. A broker-dealer who holds Senior Subordinated Old Notes that were acquired
for its own account as a result of market-making or other trading activities may
be deemed to be an 'underwriter' within the meaning of the Securities Act and
must, therefore, deliver a prospectus meeting the requirements of the Securities
Act in connection with any resale of Senior Subordinated Exchange Notes. Each
such broker-dealer that receives Senior Subordinated Exchange Notes for its own
account in exchange for Senior Subordinated Old Notes, where such Senior
Subordinated Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge in the
applicable Letter of Transmittal that it will deliver a prospectus in connection
with any resale of such Senior Subordinated Exchange Notes. See 'Plan of
Distribution.'
In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the Senior Subordinated Exchange Notes may not be offered or sold
unless they have been registered or qualified for sale in such jurisdiction or
an exemption from registration or qualification is available and is complied
with. The Company Issuers have agreed, pursuant to the Senior Subordinated
Registration Rights Agreement and subject to certain specified limitations
therein, to register or qualify the Senior Subordinated Exchange Notes for offer
or sale under the securities or blue sky laws of such jurisdictions as any
holder of the Senior Subordinated Exchange Notes reasonably requests. Such
registration or qualification may require the imposition of restrictions or
conditions (including suitability requirements for offerees or purchasers) in
connection with the offer or sale of any Senior Subordinated Exchange Notes.
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THE SENIOR DISCOUNT EXCHANGE OFFER
GENERAL
The Holdings Issuers hereby offer, upon the terms and subject to the
conditions set forth in this Prospectus and in the applicable Letter of
Transmittal (which together constitute the Senior Discount Exchange Offer), to
exchange up to $169,000,000 aggregate principal amount at maturity of their
Senior Discount Exchange Notes for a like aggregate principal amount at maturity
of their Senior Discount Old Notes properly tendered on or prior to the Senior
Discount Expiration Date and not withdrawn as permitted pursuant to the
procedures described below. Throughout this Prospectus, references to the
'Letter of Transmittal' refer to the form of Letter of Transmittal that is
applicable to the Senior Discount Notes, the Fixed Rate Senior Subordinated
Notes or the Floating Rate Senior Subordinated Notes, as the context requires,
whether so expressed or not. The Senior Discount Exchange Offer is being made
with respect to all of the Senior Discount Old Notes.
As of the date of this Prospectus, $169,000,000 aggregate principal amount
at maturity of Senior Discount Old Notes is outstanding. This Prospectus and the
applicable Letter of Transmittal are first being sent on or about August 3,
1998, to all holders of Senior Discount Old Notes known to the Holdings Issuers.
The Holdings Issuers' obligation to accept Senior Discount Old Notes for
exchange pursuant to the Senior Discount Exchange Offer is subject to certain
conditions set forth under 'Certain Conditions to the Senior Discount Exchange
Offer' below. The Holdings Issuers currently expect that each of the conditions
will be satisfied and that no waivers will be necessary.
PURPOSE OF THE SENIOR DISCOUNT EXCHANGE OFFER
The Senior Discount Old Notes were issued on February 2, 1998 in a
transaction exempt from the registration requirements of the Securities Act.
Accordingly, the Senior Discount Old Notes may not be reoffered, resold, or
otherwise transferred unless so registered or unless an applicable exemption
from the registration and prospectus delivery requirements of the Securities Act
is available.
In connection with the issuance and sale of the Senior Discount Old Notes,
the Holdings Issuers entered into the Senior Discount Registration Rights
Agreement, which requires the Holdings Issuers to file with the Commission a
registration statement relating to the Senior Discount Exchange Offer not later
than 120 days after the date of issuance of the Senior Discount Old Notes, and
to use its best efforts to cause the registration statement relating to the
Senior Discount Exchange Offer to become effective under the Securities Act not
later than 180 days after the date of issuance of the Senior Discount Old Notes.
In addition, the Senior Discount Registration Rights Agreement provides for
certain remedies if the Senior Discount Exchange Offer is not consummated or a
shelf registration statement with respect to Senior Discount Old Notes is not
made effective within the time periods specified therein. See 'Senior Discount
Exchange Offer; Senior Discount Registration Rights.' A copy of the Senior
Discount Registration Rights Agreement has been filed as an exhibit to the
Registration Statement.
The Senior Discount Exchange Offer is being made by the Holdings Issuers to
satisfy their obligations with respect to the Senior Discount Registration
Rights Agreement. The term 'holder,' with respect to the Senior Discount
Exchange Offer, means any person in whose name Senior Discount Old Notes are
registered on the books of the Holdings Issuers or any other person who has
obtained a properly completed bond power from the registered holder, or any
person whose Senior Discount Old Notes are held of record by The Depository
Trust Company or its nominee. Other than pursuant to the Senior Discount
Registration Rights Agreement, the Holdings Issuers are not required to file any
registration statement to register any outstanding Senior Discount Old Notes.
Holders of Senior Discount Old Notes who do not tender their Senior Discount Old
Notes or whose Senior Discount Old Notes are tendered but not accepted would
have to rely on exceptions to the registration requirements under the securities
laws, including the Securities Act, if they wish to sell their Senior Discount
Old Notes.
The Holdings Issuers are making the Senior Discount Exchange Offer in
reliance on the position of the Staff of the Commission as set forth in certain
interpretive letters addressed to third parties in other transactions. However,
the Holdings Issuers have not sought their own interpretive letter and there can
be no assurance that the Staff would make a similar determination with respect
to the Senior Discount Exchange Offer as it has in such
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interpretive letters to third parties. Based on these interpretations by the
Staff, the Holdings Issuers believe that the Senior Discount Exchange Notes
issued pursuant to the Senior Discount Exchange Offer in exchange for Senior
Discount Old Notes may be offered for resale, resold and otherwise transferred
by a Holder (other than any Holder who is a broker-dealer or an 'affiliate' of
the Holdings Issuers within the meaning of Rule 405 of the Securities Act)
without further compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such Senior Discount Exchange
Notes are acquired in the ordinary course of such Holder's business and that
such Holder is not participating, and has no arrangement or understanding with
any person to participate, in a distribution (within the meaning of the
Securities Act) of such Senior Discount Exchange Notes. See '--Resale of Senior
Discount Exchange Notes.' Each broker-dealer that receives Senior Discount
Exchange Notes for its own account in exchange for Senior Discount Old Notes,
where such Senior Discount Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Senior
Discount Exchange Notes. See 'Plan of Distribution.'
TERMS OF THE EXCHANGE
The Holdings Issuers hereby offer to exchange, subject to the conditions
set forth herein and in the applicable Letter of Transmittal accompanying this
Prospectus, $1,000 in principal amount at maturity of Senior Discount Exchange
Notes for each $1,000 principal amount at maturity of the Senior Discount Old
Notes, properly tendered on or prior to the Senior Discount Expiration Date and
not withdrawn as permitted pursuant to the procedures described below. The terms
of the Senior Discount Exchange Notes are identical in all material respects to
the terms of the Senior Discount Old Notes for which they may be exchanged
pursuant to the Senior Discount Exchange Offer, except that the Senior Discount
Exchange Notes will generally be freely transferable by holders thereof and will
not be subject to any covenant regarding registration. The Senior Discount
Exchange Notes will evidence the same indebtedness as the Senior Discount Old
Notes and will be entitled to the benefits of the Senior Discount Indenture. See
'Description of Senior Discount Exchange Notes.'
The Senior Discount Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Senior Discount Old Notes being tendered for
exchange.
The Holdings Issuers have not requested, and do not intend to request, an
interpretation by the Staff of the Commission with respect to whether the Senior
Discount Exchange Notes issued pursuant to the Senior Discount Exchange Offer in
exchange for the Senior Discount Old Notes may be offered for sale, resold or
otherwise transferred by any holder without compliance with the registration and
prospectus delivery provisions of the Securities Act. Instead, based on an
interpretation by the Staff of the Commission set forth in a series of no-action
letters issued to third parties, the Holdings Issuers believe that Senior
Discount Exchange Notes issued pursuant to the Senior Discount Exchange Offer in
exchange for Senior Discount Old Notes may be offered for sale, resold and
otherwise transferred by any holder of such Senior Discount Exchange Notes
(other than any such holder that is a broker-dealer or is an 'affiliate' of the
Holdings Issuers within the meaning of Rule 405 under the Securities Act)
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such Senior Discount Exchange Notes are
acquired in the ordinary course of such holder's business and such holder has no
arrangement or understanding with any person to participate in the distribution
of such Senior Discount Exchange Notes and neither such holder nor any other
such person is engaging in or intends to engage in a distribution of such Senior
Discount Exchange Notes. Since the Commission has not considered the Senior
Discount Exchange Offer in the context of a no-action letter, there can be no
assurance that the Staff of the Commission would make a similar determination
with respect to the Senior Discount Exchange Offer. Any holder who is an
affiliate of the Holdings Issuers or who tenders in the Senior Discount Exchange
Offer for the purpose of participating in a distribution of the Senior Discount
Exchange Notes cannot rely on such interpretation by the Staff of the Commission
and must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Each holder, other
than a broker-dealer, must acknowledge that it is not engaged in, and does not
intend to engage in, a distribution of Senior Discount Exchange Notes. Each
broker-dealer that receives Senior Discount Exchange Notes for its own account
in exchange for Senior Discount Old Notes, where such Senior Discount Old Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Senior Discount Exchange Notes. A
broker-dealer may
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not participate in the Senior Discount Exchange Offer with respect to Senior
Discount Old Notes acquired other than as a result of market-making activities
or other trading activities. See 'Plan of Distribution.'
Cash interest on the Senior Discount Exchange Notes will not accrue until
January 15, 2003. Thereafter, interest on the Senior Discount Exchange Notes
will accrue from January 15, 2003 at the rate of 10 3/4% per annum on the
principal amount at maturity of the Senior Discount Exchange Notes, and will be
payable semiannually in arrears on January 15 and July 15 of each year,
commencing July 15, 2003.
Tendering holders of the Senior Discount Old Notes will not be required to
pay brokerage commissions or fees or, subject to the instructions in the
applicable Letter of Transmittal, transfer taxes with respect to the exchange of
the Senior Discount Old Notes pursuant to the Senior Discount Exchange Offer.
SENIOR DISCOUNT EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENT
The Senior Discount Exchange Offer will expire at 5:00 p.m., New York City
time, on September 2, 1998, unless the Holdings Issuers, in their sole
discretion, have extended the period of time for which the Senior Discount
Exchange Offer is open (such date, as it may be extended, is referred to herein
as the 'Senior Discount Expiration Date' and, together with the Senior
Subordinated Expiration Dates, the 'Expiration Dates.') . The Senior Discount
Expiration Date will be at least 20 business days after the commencement of the
Senior Discount Exchange Offer in accordance with Rule 14e-1(a) under the
Exchange Act. The Holdings Issuers expressly reserve the right, at any time or
from time to time, to extend the period of time during which the Senior Discount
Exchange Offer is open, and thereby delay acceptance for exchange of any Senior
Discount Old Notes, by giving oral or written notice to the Senior Discount
Exchange Agent and by timely public announcement no later than 9:00 a.m. New
York City time, on the next business day after the previously scheduled Senior
Discount Expiration Date. During any such extension, all Senior Discount Old
Notes previously tendered will remain subject to the Senior Discount Exchange
Offer unless properly withdrawn. The Holdings Issuers do not anticipate
extending the Senior Discount Expiration Date.
The Holdings Issuers expressly reserve the right to (i) terminate or amend
the Senior Discount Exchange Offer and not to accept for exchange any Senior
Discount Old Notes not theretofore accepted for exchange upon the occurrence of
any of the events specified below under 'Certain Conditions to the Senior
Discount Exchange Offer' which have not been waived by the Holdings Issuers and
(ii) amend the terms of the Senior Discount Exchange Offer in any manner which,
in their good faith judgment, is advantageous to the holders of the Senior
Discount Old Notes, whether before or after any tender of the Senior Discount
Old Notes. If any such termination or amendment occurs, the Holdings Issuers
will notify the Senior Discount Exchange Agent and will either issue a press
release or give oral or written notice to the holders of the Senior Discount Old
Notes as promptly as practicable.
For purposes of the Senior Discount Exchange Offer, a 'business day' means
any day other than Saturday, Sunday or a date on which banking institutions are
required or authorized by New York State law to be closed, and consists of the
time period from 12:01 a.m. through 12:00 midnight, New York City time. Unless
the Holdings Issuers terminate the Senior Discount Exchange Offer prior to 5:00
p.m., New York City time, on the Senior Discount Expiration Date, the Holdings
Issuers will exchange the Senior Discount Exchange Notes for the Senior Discount
Old Notes on the Senior Discount Exchange Date.
PROCEDURES FOR TENDERING SENIOR DISCOUNT OLD NOTES
The tender to the Holdings Issuers of Senior Discount Old Notes by a holder
thereof as set forth below and the acceptance thereof by the Holdings Issuers
will constitute a binding agreement between the tendering holder and the
Holdings Issuers upon the terms and subject to the conditions set forth in this
Prospectus and in the applicable Letter of Transmittal.
A holder of Senior Discount Old Notes may tender the same by (i) properly
completing and signing the applicable Letter of Transmittal or a facsimile
thereof (all references in this Prospectus to the Letter of Transmittal shall be
deemed to include a facsimile thereof) and delivering the same, together with
the certificate or certificates representing the Senior Discount Old Notes being
tendered and any required signature guarantees and any other documents required
by the applicable Letter of Transmittal, to the Senior Discount Exchange
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Agent at its address set forth below on or prior to the Senior Discount
Expiration Date (or complying with the procedure for book-entry transfer
described below) or (ii) complying with the guaranteed delivery procedures
described below.
THE METHOD OF DELIVERY OF SENIOR DISCOUNT OLD NOTES, LETTERS OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF
SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL PROPERLY
INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO INSURE TIMELY DELIVERY. NO SENIOR DISCOUNT OLD NOTES OR
LETTERS OF TRANSMITTAL SHOULD BE SENT TO THE HOLDINGS ISSUERS.
If tendered Senior Discount Old Notes are registered in the name of the
signer of the Letter of Transmittal and the Senior Discount Exchange Notes to be
issued in exchange therefor are to be issued (and any untendered Senior Discount
Old Notes are to be reissued) in the name of the registered holder (which term,
for the purposes described herein, shall include any participant in The
Depository Trust Company (also referred to as a 'book-entry transfer facility')
whose name appears on a security listing as the owner of Senior Discount Old
Notes), the signature of such signer need not be guaranteed. In any other case,
the tendered Senior Discount Old Notes must be endorsed or accompanied by
written instruments of transfer in form satisfactory to the Holdings Issuers and
duly executed by the registered holder, and the signature on the endorsement or
instrument of transfer must be guaranteed by a bank, broker, dealer, credit
union, savings association, clearing agency or other institution (each an
'Eligible Institution') that is a member of a recognized signature guarantee
medallion program within the meaning of Rule 17Ad-15 under the Exchange Act. In
addition, if the Senior Discount Exchange Notes and/or Senior Discount Old Notes
not exchanged are to be delivered to an address other than that of the
registered holder appearing on the note register for the Senior Discount Old
Notes, the signature on the Letter of Transmittal must be guaranteed by an
Eligible Institution.
The Senior Discount Exchange Agent will make a request within two business
days after the date of receipt of this Prospectus to establish accounts with
respect to the Senior Discount Old Notes at the book-entry transfer facility for
the purpose of facilitating the Senior Discount Exchange Offer, and subject to
the establishment thereof, any financial institution that is a participant in
the book-entry transfer facility's system may make book-entry delivery of Senior
Discount Old Notes by causing such book-entry transfer facility to transfer such
Senior Discount Old Notes into the Senior Discount Exchange Agent's account with
respect to the Senior Discount Old Notes in accordance with the book-entry
transfer facility's procedures for such transfer. Although delivery of Senior
Discount Old Notes may be effected through book-entry transfer into the Senior
Discount Exchange Agent's account at the book-entry transfer facility, an
appropriate Letter of Transmittal with any required signature guarantee and all
other required documents must in each case be transmitted to and received or
confirmed by the Senior Discount Exchange Agent at its address set forth below
on or prior to the Senior Discount Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures.
If a holder desires to accept the Senior Discount Exchange Offer and time
will not permit a Letter of Transmittal or Senior Discount Old Notes to reach
the Senior Discount Exchange Agent before the Senior Discount Expiration Date or
the procedure for book-entry transfer cannot be completed on a timely basis, a
tender may be effected if the Senior Discount Exchange Agent has received at its
address set forth below on or prior to the Senior Discount Expiration Date, a
letter, telegram or facsimile transmission (receipt confirmed by telephone and
an original delivered by guaranteed overnight courier) from an Eligible
Institution setting forth the name and address of the tendering holder, the
names in which the Senior Discount Old Notes are registered and, if possible,
the certificate numbers of the Senior Discount Old Notes to be tendered, and
stating that the tender is being made thereby and guaranteeing that within three
business days after the Senior Discount Expiration Date, the Senior Discount Old
Notes in proper form for transfer (or a confirmation of book-entry transfer of
such Senior Discount Old Notes into the Senior Discount Exchange Agent's account
at the book-entry transfer facility), will be delivered by such Eligible
Institution together with a properly completed and duly executed Letter of
Transmittal (and any other required documents). Unless Senior Discount Old Notes
being tendered by the above-described method are deposited with the Senior
Discount Exchange Agent within the time period set forth above (accompanied or
preceded by a properly completed Letter of Transmittal and any other required
documents), the Holdings Issuers may, at their option, reject the tender. Copies
of the notice of guaranteed delivery ('Notice of
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Guaranteed Delivery') which may be used by Eligible Institutions for the
purposes described in this paragraph are available from the Senior Discount
Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Senior Discount Old Notes (or a confirmation of book-entry
transfer of such Senior Discount Old Notes into the Senior Discount Exchange
Agent's account at the book-entry transfer facility) is received by the Senior
Discount Exchange Agent, or (ii) a Notice of Guaranteed Delivery or letter,
telegram or facsimile transmission to similar effect (as provided above) from an
Eligible Institution is received by the Senior Discount Exchange Agent.
Issuances of Senior Discount Exchange Notes in exchange for Senior Discount Old
Notes tendered pursuant to a Notice of Guaranteed Delivery or letter, telegram
or facsimile transmission to similar effect (as provided above) by an Eligible
Institution will be made only against deposit of the applicable Letter of
Transmittal (and any other required documents) and the tendered Senior Discount
Old Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Senior Discount Old Notes tendered for exchange will
be determined by the Holdings Issuers in their sole discretion, which
determination shall be final and binding. The Holdings Issuers reserve the
absolute right to reject any and all tenders of any particular Senior Discount
Old Notes not properly tendered or not to accept any particular Senior Discount
Old Notes which acceptance might, in the judgment of the Holdings Issuers or
their counsel, be unlawful. The Holdings Issuers also reserve the absolute right
to waive any defects or irregularities or conditions of the Senior Discount
Exchange Offer as to any particular Senior Discount Old Notes either before or
after the Senior Discount Expiration Date (including the right to waive the
ineligibility of any holder who seeks to tender Senior Discount Old Notes in the
Senior Discount Exchange Offer). The interpretation of the terms and conditions
of the Senior Discount Exchange Offer (including the applicable Letter of
Transmittal and the instructions thereto) by the Holdings Issuers shall be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Senior Discount Old Notes for exchange must be cured
within such reasonable period of time as the Holdings Issuers shall determine.
Neither the Holdings Issuers, the Senior Discount Exchange Agent nor any other
person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Senior Discount Old Notes for
exchange, nor shall any of them incur any liability for failure to give such
notification.
If the Letter of Transmittal is signed by a person or persons other than
the registered holder or holders of Senior Discount Old Notes, such Senior
Discount Old Notes must be endorsed or accompanied by appropriate powers of
attorney, in either case signed exactly as the name or names of the registered
holder or holders appear on the Senior Discount Old Notes.
If the Letter of Transmittal or any Senior Discount Old Notes or powers of
attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by the Holdings Issuers, proper evidence satisfactory to the
Holdings Issuers of their authority to so act must be submitted.
By tendering, each holder will represent to the Holdings Issuers that,
among other things, the Senior Discount Exchange Notes acquired pursuant to the
Senior Discount Exchange Offer are being acquired in the ordinary course of
business of the person receiving such Senior Discount Exchange Notes, whether or
not such person is the holder, that neither the holder nor any such other person
has an arrangement or understanding with any person to participate in the
distribution of such Senior Discount Exchange Notes and that neither the holder
nor any such other person is an 'affiliate,' as defined under Rule 405 of the
Securities Act, of the Holdings Issuers, or if it is an affiliate it will comply
with the registration and prospectus requirements of the Securities Act to the
extent applicable.
Each broker-dealer that receives Senior Discount Exchange Notes for its own
account in exchange for Senior Discount Old Notes where such Senior Discount Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities must acknowledge that it will deliver a
prospectus in connection with any resale of such Senior Discount Exchange Notes.
See 'Plan of Distribution.'
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TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Senior Discount Exchange Offer.
The party tendering Notes for exchange (the 'Transferor') exchanges,
assigns and transfers the Senior Discount Old Notes to the Holdings Issuers and
irrevocably constitutes and appoints the Senior Discount Exchange Agent as the
Transferor's agent and attorney-in-fact to cause the Senior Discount Old Notes
to be assigned, transferred and exchanged. The Transferor represents and
warrants that it has full power and authority to tender, exchange, assign and
transfer the Senior Discount Old Notes and to acquire Senior Discount Exchange
Notes issuable upon the exchange of such tendered Notes, and that, when the same
are accepted for exchange, the Holdings Issuers will acquire good and
unencumbered title to the tendered Senior Discount Old Notes, free and clear of
all liens, restrictions, charges and encumbrances and not subject to any adverse
claim. The Transferor also warrants that it will, upon request, execute and
deliver any additional documents deemed by the Senior Discount Exchange Agent or
the Holdings Issuers to be necessary or desirable to complete the exchange,
assignment and transfer of tendered Senior Discount Old Notes or transfer
ownership of such Senior Discount Old Notes on the account books maintained by a
book-entry transfer facility. The Transferor further agrees that acceptance of
any tendered Senior Discount Old Notes by the Holdings Issuers and the issuance
of Senior Discount Exchange Notes in exchange therefor shall constitute
performance in full by the Holdings Issuers of certain of their obligations
under the Senior Discount Registration Rights Agreement. All authority conferred
by the Transferor will survive the death or incapacity of the Transferor and
every obligation of the Transferor shall be binding upon the heirs, legal
representatives, successors, assigns, executors and administrators of such
Transferor.
The Transferor certifies that it is not an 'affiliate' of the Holdings
Issuers within the meaning of Rule 405 under the Securities Act and that it is
acquiring the Senior Discount Exchange Notes offered hereby in the ordinary
course of such Transferor's business and that such Transferor has no arrangement
with any person to participate in the distribution of such Senior Discount
Exchange Notes. Each holder, other than a broker-dealer, must acknowledge that
it is not engaged in, and does not intend to engage in, a distribution of Senior
Discount Exchange Notes. Each Transferor which is a broker-dealer receiving
Senior Discount Exchange Notes for its own account must acknowledge that it will
deliver a prospectus in connection with any resale of such Senior Discount
Exchange Notes. By so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an 'underwriter' within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Senior Discount Exchange Notes received in exchange for Senior
Discount Old Notes where such Senior Discount Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Holdings Issuers will, for a period of 90 days after the Senior
Discount Expiration Date, make copies of this Prospectus available to any
broker-dealer for use in connection with any such resale.
WITHDRAWAL RIGHTS
Tenders of Senior Discount Old Notes may be withdrawn at any time prior to
the Senior Discount Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission (receipt confirmed by telephone) or letter must
be received by the Senior Discount Exchange Agent at the address set forth
herein prior to the Senior Discount Expiration Date. Any such notice of
withdrawal must (i) specify the name of the person having tendered the Senior
Discount Old Notes to be withdrawn (the 'Depositor'), (ii) identify the Senior
Discount Old Notes to be withdrawn (including the certificate number or numbers
and principal amount of such Senior Discount Old Notes), (iii) specify the
principal amount of Senior Discount Old Notes to be withdrawn, (iv) include a
statement that such holder is withdrawing his election to have such Senior
Discount Old Notes exchanged, (v) be signed by the holder in the same manner as
the original signature on the Letter of Transmittal by which such Senior
Discount Old Notes were tendered or as otherwise described above (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee under the Senior Discount Indenture register the
transfer of such Senior Discount Old Notes into the name of the person
withdrawing the tender and (vi) specify the name in which any such Senior
Discount Old
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Notes are to be registered, if different from that of the Depositor. The Senior
Discount Exchange Agent will return the properly withdrawn Senior Discount Old
Notes promptly following receipt of notice of withdrawal.
If Senior Discount Old Notes have been tendered pursuant to the procedure
for book-entry transfer, any notice of withdrawal must specify the name and
number of the account at the book-entry transfer facility to be credited with
the withdrawn Senior Discount Old Notes or otherwise comply with the book-entry
transfer facility procedure. All questions as to the validity of notices of
withdrawals, including time of receipt, will be determined by the Holdings
Issuers and such determination will be final and binding on all parties.
Any Senior Discount Old Notes so withdrawn will be deemed not to have been
validly tendered for exchange for purposes of the Senior Discount Exchange
Offer. Any Senior Discount Old Notes which have been tendered for exchange but
which are not exchanged for any reason will be returned to the holder thereof
without cost to such holder (or, in the case of Senior Discount Old Notes
tendered by book-entry transfer into the Senior Discount Exchange Agent's
account at the book-entry transfer facility pursuant to the book-entry transfer
procedures described above, such Senior Discount Old Notes will be credited to
an account with such book-entry transfer facility specified by the holder) as
soon as practicable after withdrawal, rejection of tender or termination of the
Senior Discount Exchange Offer. Properly withdrawn Senior Discount Old Notes may
be retendered by following one of the procedures described under '--Procedures
for Tendering Senior Discount Old Notes' above at any time on or prior to the
Senior Discount Expiration Date.
ACCEPTANCE OF SENIOR DISCOUNT OLD NOTES FOR EXCHANGE; DELIVERY OF SENIOR
DISCOUNT EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Senior Discount
Exchange Offer, the Holdings Issuers will accept, promptly on the Senior
Discount Exchange Date, all Senior Discount Old Notes properly tendered and will
issue the Senior Discount Exchange Notes promptly after such acceptance. See
'--Certain Conditions to the Senior Discount Exchange Offer' below. For purposes
of the Senior Discount Exchange Offer, the Holdings Issuers shall be deemed to
have accepted properly tendered Senior Discount Old Notes for exchange when, as
and if the Holdings Issuers have given oral or written notice thereof to the
Senior Discount Exchange Agent.
For each Senior Discount Old Note accepted for exchange, the holder of such
Senior Discount Old Note will receive a Senior Discount Exchange Note having a
principal amount equal to that of the surrendered Senior Discount Old Note.
In all cases, issuance of Senior Discount Exchange Notes for Senior
Discount Old Notes that are accepted for exchange pursuant to the Senior
Discount Exchange Offer will be made only after timely receipt by the Senior
Discount Exchange Agent of certificates for such Senior Discount Old Notes or a
timely book-entry confirmation of such Senior Discount Old Notes into the Senior
Discount Exchange Agent's account at the book-entry transfer facility, a
properly completed and duly executed Letter of Transmittal and all other
required documents. If any tendered Senior Discount Old Notes are not accepted
for any reason set forth in the terms and conditions of the Senior Discount
Exchange Offer or if Senior Discount Old Notes are submitted for a greater
principal amount than the holder desires to exchange, such unaccepted or
non-exchanged Senior Discount Old Notes will be returned without expense to the
tendering holder thereof (or, in the case of Senior Discount Old Notes tendered
by book-entry transfer into the Senior Discount Exchange Agent's account at the
book-entry transfer facility pursuant to the book-entry transfer procedures
described above, such non-exchanged Senior Discount Old Notes will be credited
to an account maintained with such book-entry transfer facility specified by the
holder) as promptly as practicable after the expiration of the Senior Discount
Exchange Offer.
CERTAIN CONDITIONS TO THE SENIOR DISCOUNT EXCHANGE OFFER
Notwithstanding any other provision of the Senior Discount Exchange Offer,
or any extension of the Senior Discount Exchange Offer, the Holdings Issuers
shall not be required to accept for exchange, or to issue Senior Discount
Exchange Notes in exchange for, any Senior Discount Old Notes and may terminate
or amend the Senior Discount Exchange Offer (by oral or written notice to the
Senior Discount Exchange Agent or by a timely press release) if at any time
before the acceptance of such Senior Discount Old Notes for exchange or the
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exchange of the Senior Discount Exchange Notes for such Senior Discount Old
Notes, any of the following conditions exist:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency or regulatory authority or any
injunction, order or decree is issued with respect to the Senior Discount
Exchange Offer which, in the sole judgment of the Holdings Issuers, might
materially impair the ability of the Holdings Issuers to proceed with the
Senior Discount Exchange Offer or have a material adverse effect on the
contemplated benefits of the Senior Discount Exchange Offer to the Holdings
Issuers; or
(b) any change (or any development involving a prospective change)
shall have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of the Holdings Issuers that, in the sole judgment of the
Holdings Issuers, is or may be adverse to the Holdings Issuers, or the
Holdings Issuers shall have become aware of facts that have or may have
adverse significance with respect to the value of the Senior Discount Old
Notes or the Senior Discount Exchange Notes or that may, in the sole
judgment of the Holdings Issuers, materially impair the contemplated
benefits of the Senior Discount Exchange Offer to the Holdings Issuers; or
(c) any law, rule or regulation or applicable interpretations of the
Staff of the Commission is issued or promulgated which, in the good faith
determination of the Holdings Issuers, does not permit the Holdings Issuers
to effect the Senior Discount Exchange Offer; or
(d) any governmental approval has not been obtained, which approval
the Holdings Issuers, in their sole discretion, deem necessary for the
consummation of the Senior Discount Exchange Offer; or
(e) there shall have been proposed, adopted or enacted any law,
statute, rule or regulation (or an amendment to any existing law, statute,
rule or regulation) which, in the sole judgment of the Holdings Issuers,
might materially impair the ability of the Holdings Issuers to proceed with
the Senior Discount Exchange Offer or have a material adverse effect on the
contemplated benefits of the Senior Discount Exchange Offer to the Holdings
Issuers; or
(f) there shall occur a change in the current interpretation by the
Staff of the Commission which permits the Senior Discount Exchange Notes
issued pursuant to the Senior Discount Exchange Offer in exchange for
Senior Discount Old Notes to be offered for resale, resold and otherwise
transferred by holders thereof (other than any such holder that is an
'affiliate' of the Holdings Issuers within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act provided that such Senior
Discount Exchange Notes are acquired in the ordinary course of such
holders' business and such holders have no arrangement with any person to
participate in the distribution of such Senior Discount Exchange Notes; or
(g) there shall have occurred (i) any general suspension of,
shortening of hours for, or limitation on prices for, trading in securities
on any national securities exchange or in the over-the-counter market
(whether or not mandatory), (ii) any limitation by any governmental agency
or authority which may adversely affect the ability of the Holdings Issuers
to complete the transactions contemplated by the Senior Discount Exchange
Offer, (iii) a declaration of a banking moratorium or any suspension of
payments in respect of banks by Federal or state authorities in the United
States (whether or not mandatory), (iv) a commencement of a war, armed
hostilities or other international or national crisis directly or
indirectly involving the United States, (v) any limitation (whether or not
mandatory) by any governmental authority on, or other event having a
reasonable likelihood of affecting, the extension of credit by banks or
other lending institutions in the United States, or (vi) in the case of any
of the foregoing existing at the time of the commencement of the Senior
Discount Exchange Offer, a material acceleration or worsening thereof.
The Holdings Issuers expressly reserve the right to terminate the Senior
Discount Exchange Offer and not accept for exchange any Senior Discount Old
Notes upon the occurrence of any of the foregoing conditions (which represent
all of the material conditions to the acceptance by the Holdings Issuers of
properly tendered Senior Discount Old Notes). In addition, the Holdings Issuers
may amend the Senior Discount Exchange Offer at any time prior to the Senior
Discount Expiration Date if any of the conditions set forth above occurs.
Moreover, regardless of whether any of such conditions has occurred, the
Holdings Issuers may amend the Senior Discount
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Exchange Offer in any manner which, in their good faith judgment, is
advantageous to holders of the Senior Discount Old Notes.
The foregoing conditions are for the sole benefit of the Holdings Issuers
and may be asserted by the Holdings Issuers regardless of the circumstances
giving rise to any such condition or may be waived by the Holdings Issuers in
whole or in part at any time and from time to time in their sole discretion. The
failure by the Holdings Issuers at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right and each such right shall
be deemed an ongoing right which may be asserted at any time and from time to
time. If the Holdings Issuers waive or amend the foregoing conditions, they
will, if required by law, extend the Senior Discount Exchange Offer for a
minimum of five business days from the date that the Holdings Issuers first give
notice, by public announcement or otherwise, of such waiver or amendment, if the
Senior Discount Exchange Offer would otherwise expire within such five
business-day period. Any determination by the Holdings Issuers concerning the
events described above will be final and binding upon all parties.
In addition, the Holdings Issuers will not accept for exchange any Senior
Discount Old Notes tendered, and no Senior Discount Exchange Notes will be
issued in exchange for any such Senior Discount Old Notes, if at such time any
stop order shall be threatened or in effect with respect to the Registration
Statement of which this Prospectus constitutes a part or the qualification of
the Senior Discount Indenture under the Trust Indenture Act of 1939, as amended.
In any such event, the Holdings Issuers are required to use every reasonable
effort to obtain the withdrawal of any stop order at the earliest possible time.
The Senior Discount Exchange Offer is not conditioned upon any minimum
principal amount of Senior Discount Old Notes being tendered for exchange.
SENIOR DISCOUNT EXCHANGE AGENT
The Bank of New York has been appointed as the Senior Discount Exchange
Agent for the Senior Discount Exchange Offer. All executed Letters of
Transmittal should be directed to the Senior Discount Exchange Agent at one of
the addresses set forth below:
<TABLE>
<S> <C>
By Hand or Overnight Delivery: By Registered or Certified Mail:
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street, 7E
Corporate Trust Services Window New York, New York 10286
Ground Level Attn: Odell Romeo, Reorganization Section
New York, New York 10286
Attn: Odell Romeo, Reorganization Section
By Facsimile (Eligible Institutions Only):
(212) 815-6339
Attn: Odell Romeo, Reorganization Section
Telephone: (212) 816-6777
</TABLE>
Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Senior Discount Exchange Agent at
the address and telephone number set forth in the Letter of Transmittal.
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ON THE LETTER OF TRANSMITTAL, OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE SET FORTH
ON THE LETTER OF TRANSMITTAL, WILL NOT CONSTITUTE A VALID DELIVERY.
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SOLICITATION OF TENDERS; FEES AND EXPENSES
The Holdings Issuers have not retained any dealer-manager in connection
with the Senior Discount Exchange Offer and will not make any payments to
brokers, dealers or others soliciting acceptances of the Senior Discount
Exchange Offer. The Holdings Issuers, however, will pay the Senior Discount
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith. The
Holdings Issuers will also pay brokerage houses and other custodians, nominees
and fiduciaries the reasonable out-of-pocket expenses incurred by them in
forwarding copies of this and other related documents to the beneficial owners
of the Senior Discount Old Notes and in handling or forwarding tenders for their
customers.
The estimated cash expenses to be incurred in connection with the Senior
Discount Exchange Offer will be paid by the Holdings Issuers and are estimated
in the aggregate to be approximately $600,000, including fees and
expenses of the Senior Discount Exchange Agent and the Senior Discount Trustee,
registration fees, and accounting, legal, printing and related fees and
expenses.
No person has been authorized to give any information or to make any
representations in connection with the Senior Discount Exchange Offer other than
those contained in this Prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by the
Holdings Issuers. Neither the delivery of this Prospectus nor any exchange made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Holdings Issuers since the respective dates
as of which information is given herein. The Senior Discount Exchange Offer is
not being made to (nor will tenders be accepted from or on behalf of) holders of
Senior Discount Old Notes in any jurisdiction in which the making of the Senior
Discount Exchange Offer or the acceptance thereof would not be in compliance
with the laws of such jurisdiction. However, the Holdings Issuers may, at their
discretion, take such action as they may deem necessary to make the Senior
Discount Exchange Offer in any such jurisdiction and extend the Senior Discount
Exchange Offer to holders of Senior Discount Old Notes in such jurisdiction. In
any jurisdiction in which the securities or 'blue sky' laws require the Senior
Discount Exchange Offer to be made by a licensed broker or dealer, the Senior
Discount Exchange Offer is being made on behalf of the Holdings Issuers by one
or more registered brokers or dealers which are licensed under the laws of such
jurisdiction.
TRANSFER TAXES
The Holdings Issuers will pay all transfer taxes, if any, applicable to the
exchange of Senior Discount Old Notes pursuant to the Senior Discount Exchange
Offer. If, however, certificates representing Senior Discount Exchange Notes or
Senior Discount Old Notes for principal amounts not tendered or accepted for
exchange are to be delivered to, or are to be issued in the name of, any person
other than the registered holder of the Senior Discount Old Notes tendered, or
if tendered Senior Discount Old Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Senior Discount Old Notes
pursuant to the Senior Discount Exchange Offer, then the amount of any such
transfer taxes (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted with the applicable Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
ACCOUNTING TREATMENT
The Senior Discount Exchange Notes will be recorded at the carrying value
of the Senior Discount Old Notes as reflected in the Holdings Issuers'
accounting records on the date of the exchange. Accordingly, no gain or loss for
accounting purposes will be recognized by the Holdings Issuers upon the exchange
of Senior Discount Exchange Notes for Senior Discount Old Notes. Expenses
incurred in connection with the issuance of the Senior Discount Exchange Notes
will be amortized over the term of the Senior Discount Exchange Notes.
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CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Senior Discount Old Notes who do not exchange their Senior
Discount Old Notes for Senior Discount Exchange Notes pursuant to the Senior
Discount Exchange Offer will continue to be subject to the restrictions on
transfer of such Senior Discount Old Notes as set forth in the legend thereon.
Senior Discount Old Notes not exchanged pursuant to the Senior Discount Exchange
Offer will continue to remain outstanding in accordance with their terms. In
general, the Senior Discount Old Notes may not be offered or sold unless
registered under the Securities Act, except pursuant to an exemption from, or in
a transaction not subject to, the Securities Act and applicable state securities
laws. The Holdings Issuers do not currently anticipate that they will register
the Senior Discount Old Notes under the Securities Act.
Participation in the Senior Discount Exchange Offer is voluntary, and
holders of Senior Discount Old Notes should carefully consider whether to
participate. Holders of Senior Discount Old Notes are urged to consult their
financial and tax advisors in making their own decision on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Senior Discount Old Notes pursuant to the terms of, the Senior
Discount Exchange Offer, the Holdings Issuers will have fulfilled a covenant
contained in the Senior Discount Registration Rights Agreement. Holders of
Senior Discount Old Notes who do not tender their Senior Discount Old Notes in
the Senior Discount Exchange Offer will continue to hold such Senior Discount
Old Notes and will be entitled to all the rights and limitations applicable
thereto under the Senior Discount Indenture, except for any such rights under
the Senior Discount Registration Rights Agreement that by their terms terminate
or cease to have further effectiveness as a result of the making of this Senior
Discount Exchange Offer. All untendered Senior Discount Old Notes will continue
to be subject to the restrictions on transfer set forth in the Senior Discount
Indenture. To the extent that Senior Discount Old Notes are tendered and
accepted in the Senior Discount Exchange Offer, the trading market for
untendered Senior Discount Old Notes could be adversely affected.
The Holdings Issuers may in the future seek to acquire, subject to the
terms of the Senior Discount Indenture, untendered Senior Discount Old Notes in
open-market or privately-negotiated transactions, through subsequent exchange
offers or otherwise. The Holdings Issuers have no present plan to acquire any
Senior Discount Old Notes which are not tendered in the Senior Discount Exchange
Offer.
RESALE OF SENIOR DISCOUNT EXCHANGE NOTES
The Holdings Issuers are making the Senior Discount Exchange Offer in
reliance on the position of the Staff of the Commission as set forth in certain
interpretive letters addressed to third parties in other transactions. However,
the Holdings Issuers have not sought their own interpretive letter and there can
be no assurance that the Staff would make a similar determination with respect
to the Senior Discount Exchange Offer as it has in such interpretive letters to
third parties. Based on these interpretations by the Staff, the Holdings Issuers
believe that the Senior Discount Exchange Notes issued pursuant to the Senior
Discount Exchange Offer in exchange for Senior Discount Old Notes may be offered
for resale, resold and otherwise transferred by a Holder (other than any Holder
who is a broker-dealer or an 'affiliate' of the Holdings Issuers within the
meaning of Rule 405 of the Securities Act) without further compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided that such Senior Discount Exchange Notes are acquired in the ordinary
course of such Holder's business and that such Holder is not participating, and
has no arrangement or understanding with any person to participate, in a
distribution (within the meaning of the Securities Act) of such Senior Discount
Exchange Notes. However, any holder who is an 'affiliate' of the Holdings
Issuers or who has an arrangement or understanding with respect to the
distribution of the Senior Discount Exchange Notes to be acquired pursuant to
the Senior Discount Exchange Offer, or any broker-dealer who purchased Senior
Discount Old Notes from the Holdings Issuers to resell pursuant to Rule 144A or
any other available exemption under the Securities Act (i) could not rely on the
applicable interpretations of the Staff and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act. A
broker-dealer who holds Senior Discount Old Notes that were acquired for its own
account as a result of market-making or other trading activities may be deemed
to be an 'underwriter' within the meaning of the Securities Act and must,
therefore, deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of Senior Discount Exchange Notes. Each such
broker-dealer that receives Senior Discount Exchange Notes for its own account
in exchange for Senior
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Discount Old Notes, where such Senior Discount Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge in the applicable Letter of Transmittal that it
will deliver a prospectus in connection with any resale of such Senior Discount
Exchange Notes. See 'Plan of Distribution.'
In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the Senior Discount Exchange Notes may not be offered or sold
unless they have been registered or qualified for sale in such jurisdiction or
an exemption from registration or qualification is available and is complied
with. The Holdings Issuers have agreed, pursuant to the Senior Discount
Registration Rights Agreement and subject to certain specified limitations
therein, to register or qualify the Senior Discount Exchange Notes for offer or
sale under the securities or blue sky laws of such jurisdictions as any holder
of the Senior Discount Exchange Notes reasonably requests. Such registration or
qualification may require the imposition of restrictions or conditions
(including suitability requirements for offerees or purchasers) in connection
with the offer or sale of any Senior Discount Exchange Notes.
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DESCRIPTION OF THE SENIOR SUBORDINATED EXCHANGE NOTES
The Senior Subordinated Old Notes were issued and the Senior Subordinated
Exchange Notes offered hereby will be issued under an Indenture dated as of
February 2, 1998 (the 'Senior Subordinated Indenture') by and between the
Company Issuers, Holdings, as guarantor, and United States Trust Company of New
York, as trustee (the 'Senior Subordinated Trustee'). The Fixed Rate Senior
Subordinated Exchange Notes and the Floating Rate Senior Subordinated Exchange
Notes will be treated as a single class of securities and will be issued under
the Senior Subordinated Indenture. Any Senior Subordinated Old Notes that remain
outstanding after the completion of the Senior Subordinated Exchange Offers,
together with the Senior Subordinated Exchange Notes issued in connection with
the Senior Subordinated Exchange Offers, will also be treated as a single class
of securities under the Senior Subordinated Indenture. All references to the
'Senior Subordinated Notes' in the following summary and elsewhere herein shall
mean the collective reference to the Fixed Rate Senior Subordinated Exchange
Notes, the Floating Rate Senior Subordinated Exchange Notes, the Fixed Rate
Senior Subordinated Old Notes and the Floating Rate Senior Subordinated Old
Notes. The following summary of certain provisions of the Senior Subordinated
Indenture sets forth the material terms of the Senior Subordinated Indenture.
However, such summary is not complete and is subject to, and is qualified in its
entirety by reference to, the Trust Indenture Act of 1939, as amended (the
'TIA'), and to all of the provisions of the Senior Subordinated Indenture,
including the definitions of certain terms therein and those terms made a part
of the Senior Subordinated Indenture by reference to the TIA as in effect on the
date of the Senior Subordinated Indenture. The definitions of certain
capitalized terms used in the following summary that relate solely to the
Floating Rate Senior Subordinated Notes are set forth below under '--Floating
Rate Senior Subordinated Notes,' and the definitions of certain other
capitalized terms used in the following summary that relate to all Senior
Subordinated Notes are set forth below under '--Certain Definitions.' For
purposes of this section, references to the 'Company' mean the Operating
Company, and the terms 'Company' and 'Company Issuers' do not include their
respective Subsidiaries. The Senior Subordinated Indenture is an exhibit to the
Registration Statement of which this Prospectus is a part.
GENERAL
On February 2, 1998 (the 'Issue Date'), the Company Issuers issued
$150,000,000 aggregate principal amount of Fixed Rate Senior Subordinated Old
Notes, and $75,000,000 aggregate principal amount of Floating Rate Senior
Subordinated Old Notes under the Senior Subordinated Indenture. The terms of the
Fixed Rate Senior Subordinated Exchange Notes and the Floating Rate Senior
Subordinated Exchange Notes are identical in all material respects to the terms
of the Fixed Rate Senior Subordinated Old Notes and the Floating Rate Senior
Subordinated Old Notes, respectively, for which they may be exchanged, except
for certain transfer restrictions and registration and other rights relating to
the exchange of the Senior Subordinated Old Notes for Senior Subordinated
Exchange Notes. The Senior Subordinated Trustee will authenticate and deliver
Fixed Rate Senior Subordinated Exchange Notes and Floating Rate Senior
Subordinated Exchange Notes for original issue only in exchange for a like
principal amount of Fixed Rate Senior Subordinated Old Notes and Floating Rate
Senior Subordinated Old Notes, respectively. The Fixed Rate Senior Subordinated
Exchange Notes and the Floating Rate Senior Subordinated Exchange Notes will be
treated as a single class of securities under the Senior Subordinated Indenture.
Any Senior Subordinated Old Notes that remain outstanding after the completion
of the Senior Subordinated Exchange Offers, together with the Senior
Subordinated Exchange Notes issued in connection with the Senior Subordinated
Exchange Offers, will also be treated as a single class of securities under the
Senior Subordinated Indenture. Accordingly, all references herein to specified
percentages in aggregate principal amount of the outstanding Senior Subordinated
Exchange Notes shall be deemed to mean, at any time after the Senior
Subordinated Exchange Offers are consummated, such percentage in aggregate
principal amount of the Senior Subordinated Old Notes and Senior Subordinated
Exchange Notes then outstanding.
The Senior Subordinated Exchange Notes will be unsecured obligations of the
Company Issuers, ranking subordinate in right of payment to all Senior
Indebtedness of the Company Issuers.
The Senior Subordinated Exchange Notes will be issued in fully registered
form only, without coupons, in denominations of $1,000 and integral multiples
thereof. Initially, the Senior Subordinated Trustee will act as Paying Agent and
Registrar for the Senior Subordinated Exchange Notes. The Senior Subordinated
Exchange Notes may be presented for registration of transfer and exchange at the
offices of the Registrar, which initially
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will be the Senior Subordinated Trustee's corporate trust office. The Company
Issuers may change any Paying Agent and Registrar without notice to holders of
the Senior Subordinated Exchange Notes (the 'Holders'). The Company Issuers will
pay principal (and premium, if any) on the Senior Subordinated Exchange Notes at
the Senior Subordinated Trustee's corporate office in New York, New York. At the
Company Issuers' option, interest may be paid at the Senior Subordinated
Trustee's corporate trust office or by check mailed to the registered addresses
of Holders.
PRINCIPAL, MATURITY AND INTEREST
The Senior Subordinated Notes are limited to $325,000,000 aggregate
principal amount at any time outstanding. Pursuant to the Senior Subordinated
Exchange Offers, an aggregate of up to $225,000,000 aggregate principal amount
of Senior Subordinated Exchange Notes may be issued, consisting of $150,000,000
principal amount of Fixed Rate Senior Subordinated Exchange Notes and
$75,000,000 principal amount of Floating Rate Senior Subordinated Exchange
Notes. Such Senior Subordinated Exchange Notes may be issued solely in exchange
for the $150,000,000 aggregate principal amount of Fixed Rate Senior
Subordinated Old Notes and $75,000,000 aggregate principal amount of Floating
Rate Senior Subordinated Old Notes which were issued on February 2, 1998.
The Senior Subordinated Exchange Notes will mature on January 15, 2008.
Interest on the Senior Subordinated Exchange Notes will be payable semiannually
in cash on each January 15 and July 15, commencing on the first such date to
occur after the effective date of the applicable Senior Subordinated Exchange
Offer. Interest will be payable to the persons who are registered Holders at the
close of business on the January 1 or July 1 immediately preceding the
applicable interest payment date. Interest on each Senior Subordinated Exchange
Note will accrue (A) from the later of (i) the last interest payment date on
which interest was paid on the Senior Subordinated Old Note surrendered in
exchange therefor or (ii) if the Senior Subordinated Old Note is surrendered for
exchange on a date in a period which includes the record date for an interest
payment date to occur on or after the date of such exchange and as to which
interest will be paid, the date of such interest payment date or (B) if no
interest has been paid on such Senior Subordinated Old Note, from the Issue
Date.
The Senior Subordinated Exchange Notes will not be entitled to the benefit
of any mandatory sinking fund.
FIXED RATE SENIOR SUBORDINATED EXCHANGE NOTES
Interest on the Fixed Rate Senior Subordinated Exchange Notes will accrue
at the rate of 8 3/4% per annum.
FLOATING RATE SENIOR SUBORDINATED EXCHANGE NOTES
The Floating Rate Senior Subordinated Exchange Notes will bear interest at
a rate per annum, reset semi-annually, equal to LIBOR (as defined) plus 3 5/8%,
as determined by the Calculation Agent (the 'Calculation Agent'), which shall
initially be the Senior Subordinated Trustee.
'LIBOR,' with respect to an Interest Period, will be the rate (expressed
as a percentage per annum) for deposits in United States dollars for a six-month
period beginning on the second London Banking Day (as defined) after the
Determination Date (as defined) that appears on Telerate Page 3750 (as defined)
as of 11:00 a.m., London time, on the Determination Date. If Telerate Page 3750
does not include such a rate or is unavailable on a Determination Date, LIBOR
for the Interest Period shall be the arithmetic mean of the rates (expressed as
a percentage per annum) for deposits in a Representative Amount (as defined) in
United States dollars for a six-month period beginning on the second London
Banking Day after the Determination Date that appears on Reuters Screen LIBO
Page (as defined) as of 11:00 a.m., London time, on the Determination Date. If
Reuters Screen LIBO Page does not include two or more rates or is unavailable on
a Determination Date, the Calculation Agent will request the principal London
office of each of four major banks in the London interbank market, as selected
by the Calculation Agent, to provide such bank's offered quotation (expressed as
a percentage per annum), as of approximately 11:00 a.m., London time, on such
Determination Date, to prime banks in the London interbank market for deposits
in a Representative Amount in United States dollars for a six-month period
beginning on the second London Banking Day after the Determination Date. If at
least two such offered quotations are so provided, LIBOR for the Interest Period
will be the arithmetic mean of such quotations. If fewer than two such
quotations are so provided, the Calculation Agent will request each of three
major banks in New
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York City, as selected by the Calculation Agent, to provide such bank's rate
(expressed as a percentage per annum), as of approximately 11:00 a.m., New York
City time, on such Determination Date, for loans in a Representative Amount in
United States dollars to leading European banks for a six-month period beginning
on the second London Banking Day after the Determination Date. If at least two
such rates are so provided, LIBOR for the Interest Period will be the arithmetic
mean of such rates. If fewer than two such rates are so provided, then LIBOR for
the Interest Period will be LIBOR in effect with respect to the immediately
preceding Interest Period.
'Interest Period' means the period commencing on and including an interest
payment date and ending on and including the day immediately preceding the next
succeeding interest payment date, with the exception that the first Interest
Period shall commence on and include February 2, 1998 and end on and include
July 14, 1998.
'Determination Date,' with respect to an Interest Period, will be the
second London Banking Day preceding the first day of the Interest Period.
'London Banking Day' is any day in which dealings in United States dollars
are transacted or, with respect to any future date, are expected to be
transacted in the London interbank market.
'Representative Amount' means a principal amount of not less than U.S.
$1,000,000 for a single transaction in the relevant market at the relevant time.
'Telerate Page 3750' means the display designated as 'Page 3750' on the
Dow Jones Telerate Service (or such other page as may replace Page 3750 on that
service).
'Reuters Screen LIBO Page' means the display designated as page 'LIBO' on
The Reuters Monitor Money Rates Service (or such other page as may replace the
LIBO page on that service).
Subject to the provisions relating to the date from which interest will
accrue on the Senior Subordinated Exchange Notes as described under
'--Principal, Maturity and Interest' above, the amount of interest for each day
that the Floating Rate Senior Subordinated Exchange Notes are outstanding (the
'Daily Interest Amount') will be calculated by dividing the interest rate in
effect for such day by 360 and multiplying the result by the principal amount of
the Floating Rate Senior Subordinated Exchange Notes. Subject to such provisions
described under '--Principal, Maturity and Interest' above, the amount of
interest to be paid on the Floating Rate Senior Subordinated Exchange Notes for
each Interest Period will be calculated by adding the Daily Interest Amounts for
each day in the Interest Period.
All percentages resulting from any of the above calculations will be
rounded, if necessary, to the nearest one hundred-thousandth of a percentage
point, with five one-millionths of a percentage point being rounded upwards
(e.g., 9.876545% (or .09876545) being rounded to 9.87655% (or .0987655)) and all
dollar amounts used in or resulting from such calculations will be rounded to
the nearest cent (with one-half cent being rounded upwards).
The interest rate on the Floating Rate Senior Subordinated Exchange Notes
will in no event be higher than the maximum rate permitted by New York law as
the same may be modified by United States law of general application. Under
current New York law, the maximum rate of interest is 25% per annum on a simple
interest basis. This limit may not apply to Floating Rate Senior Subordinated
Exchange Notes in which $2,500,000 or more has been invested.
The Calculation Agent will, upon the request of the holder of any Floating
Rate Senior Subordinated Exchange Note, provide the interest rate then in effect
with respect to the Floating Rate Senior Subordinated Exchange Notes. All
calculations made by the Calculation Agent in the absence of manifest error will
be conclusive for all purposes and binding on the Company Issuers, Holdings, as
guarantor, and the Holders of the Floating Rate Senior Subordinated Exchange
Notes.
REDEMPTION
Optional Redemption. The Fixed Rate Senior Subordinated Exchange Notes
will be redeemable, at the Company Issuers' option, in whole at any time or in
part from time to time, on and after January 15, 2003, upon not less than 30 nor
more than 60 days' notice, at the following redemption prices (expressed as
percentages of
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the principal amount thereof) if redeemed during the twelve-month period
commencing on January 15 of the year set forth below, plus, in each case,
accrued and unpaid interest thereon to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- -------------------------------------------------------------- ----------
<S> <C>
2003.......................................................... 104.375%
2004.......................................................... 102.917%
2005.......................................................... 101.458%
2006 and thereafter........................................... 100.000%
</TABLE>
The Floating Rate Senior Subordinated Exchange Notes will be redeemable, at
the Company Issuers' option, in whole or in part from time to time, upon not
less than 30 nor more than 60 days' notice, at the following redemption prices
(expressed as percentages of the principal amount thereof) if redeemed during
the twelve-month period commencing on January 15 of the year set forth below,
plus, in each case, accrued and unpaid interest thereon, to the date of
redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- -------------------------------------------------------------- ----------
<S> <C>
1998.......................................................... 105.000%
1999.......................................................... 104.000%
2000.......................................................... 103.000%
2001.......................................................... 102.000%
2002.......................................................... 101.000%
2003 and thereafter........................................... 100.000%
</TABLE>
Optional Redemption of Fixed Rate Senior Subordinated Exchange Notes upon
Equity Offerings. At any time, or from time to time, on or prior to January 15,
2001, the Company Issuers may, at their option, use the net cash proceeds of one
or more Equity Offerings by the Company (or by Holdings to the extent such
proceeds are contributed to the Company) to redeem Fixed Rate Senior
Subordinated Notes up to an aggregate principal amount equal to 40% of the
aggregate principal amount of the Fixed Rate Senior Subordinated Old Notes
originally issued, at a redemption price equal to 108.750% of the principal
amount thereof, plus accrued and unpaid interest to the date of redemption;
provided that Fixed Rate Senior Subordinated Notes in an aggregate principal
amount equal to at least 60% of the aggregate principal amount of the Fixed Rate
Senior Subordinated Old Notes originally issued remains outstanding immediately
following such redemption. In order to effect the foregoing redemption with the
proceeds of any Equity Offering, the Company Issuers shall make such redemption
not more than 120 days after the consummation of any such Equity Offering.
SELECTION AND NOTICE OF REDEMPTION
If less than all of the Senior Subordinated Exchange Notes are to be
redeemed at any time or if more Senior Subordinated Exchange Notes are tendered
pursuant to an Asset Sale Offer or a Change of Control Offer than the Company
Issuers are required to purchase, then the selection of such Senior Subordinated
Exchange Notes for redemption or purchase, as the case may be, will be made by
the Senior Subordinated Trustee in compliance with the requirements of the
principal national securities exchange, if any, on which such Senior
Subordinated Exchange Notes are listed, or, if such Senior Subordinated Exchange
Notes are not so listed, on a pro rata basis, by lot or by such other method as
the Senior Subordinated Trustee shall deem fair and appropriate (and in such
manner as complies with applicable legal requirements); provided that no Senior
Subordinated Exchange Notes of $1,000 or less shall be purchased or redeemed in
part.
Notices of purchase or redemption shall be mailed by first class mail,
postage prepaid, at least 30 but not more than 60 days before the purchase or
redemption date to each Holder of Senior Subordinated Exchange Notes to be
purchased or redeemed at such Holder's registered address. If any Senior
Subordinated Exchange Note is to be purchased or redeemed in part only, any
notice of purchase or redemption that relates to such Senior Subordinated
Exchange Note shall state the portion of the principal amount thereof that has
been or is to be purchased or redeemed.
A new Senior Subordinated Exchange Note in principal amount equal to the
unpurchased or unredeemed portion of any Senior Subordinated Exchange Note
purchased or redeemed in part will be issued in the name of the Holder thereof
upon cancellation of the original Senior Subordinated Exchange Note. On and
after the purchase or redemption date unless the Company Issuers default in
payment of the purchase or redemption price,
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interest shall cease to accrue on Senior Subordinated Exchange Notes or portions
thereof purchased or called for redemption.
SUBORDINATION
The payment of all Obligations on the Senior Subordinated Notes is
subordinated in right of payment to the prior payment in full in cash or Cash
Equivalents of all Obligations on Senior Indebtedness. Upon any payment or
distribution of assets of either of the Company Issuers of any kind or
character, whether in cash, property or securities, to creditors upon any
liquidation, dissolution, winding up, reorganization, assignment for the benefit
of creditors or marshaling of assets of either of the Company Issuers or in a
bankruptcy, reorganization, insolvency, receivership or other similar proceeding
relating to either of the Company Issuers or their respective property, whether
voluntary or involuntary, all Obligations due or to become due upon all Senior
Indebtedness shall first be paid in full in cash or Cash Equivalents, or such
payment duly provided for to the satisfaction of the holders of Senior
Indebtedness, before any payment or distribution of any kind or character is
made on account of any Obligations on the Senior Subordinated Notes, or for the
acquisition of any of the Senior Subordinated Notes for cash or property or
otherwise (except that holders of the Senior Subordinated Notes may receive
Permitted Junior Securities and payments from a trust described under 'Legal
Defeasance and Covenant Defeasance' below so long as, on the date or dates the
respective amounts were paid into the trust, such payments were made with
respect to the Senior Subordinated Notes without violating the subordination
provisions described herein). If any default occurs and is continuing in the
payment when due, whether at maturity, upon any redemption, by acceleration or
otherwise, of any principal of, interest on, unpaid drawings for letters of
credit issued in respect of, or regularly accruing fees with respect to, any
Senior Indebtedness, no payment of any kind or character shall be made by or on
behalf of either of the Company Issuers or any other Person on either of their
behalf with respect to any Obligations on the Senior Subordinated Notes or to
acquire any of the Senior Subordinated Notes for cash or property or otherwise
(except that holders of the Senior Subordinated Notes may receive payments from
a trust described under '--Legal Defeasance and Covenant Defeasance' below so
long as, on the date or dates the respective amounts were paid into the trust,
such payments were made with respect to the Senior Subordinated Notes without
violating the subordination provisions described herein).
In addition, if any other event of default occurs and is continuing with
respect to any Designated Senior Indebtedness, as such event of default is
defined in the instrument creating or evidencing such Designated Senior
Indebtedness, permitting the holders of such Designated Senior Indebtedness then
outstanding to accelerate the maturity thereof and if the Representative for the
respective issue of Designated Senior Indebtedness gives written notice of the
event of default to the Senior Subordinated Trustee (a 'Default Notice'), then,
unless and until all events of default have been cured or waived or have ceased
to exist or the Senior Subordinated Trustee receives notice from the
Representative for the respective issue of Designated Senior Indebtedness
terminating the Blockage Period (as defined), during the 180 days after the
delivery of such Default Notice (the 'Blockage Period'), neither of the Company
Issuers nor any other Person on either of their behalf shall (x) make any
payment of any kind or character with respect to any Obligations on the Senior
Subordinated Notes or (y) acquire any of the Senior Subordinated Notes for cash
or property or otherwise (except that holders of the Senior Subordinated Notes
may receive payments from a trust described under '--Legal Defeasance and
Covenant Defeasance' below so long as, on the date or dates the respective
amounts were paid into the trust, such payments were made with respect to the
Senior Subordinated Notes without violating the subordination provisions
described herein). Notwithstanding anything herein to the contrary, in no event
will a Blockage Period extend beyond 180 days from the date the Default Notice
is delivered and only one such Blockage Period may be commenced within any 360
consecutive days. No event of default which existed or was continuing on the
date of the commencement of any Blockage Period with respect to the Designated
Senior Indebtedness shall be, or be made, the basis for commencement of a second
Blockage Period by the Representative of such Designated Senior Indebtedness
whether or not within a period of 360 consecutive days, unless such event of
default shall have been cured or waived for a period of not less than 90
consecutive days (it being acknowledged that any subsequent action, or any
breach of any financial covenants for a period commencing after the date of
commencement of such Blockage Period that, in either case, would give rise to an
event of default pursuant to any provisions under which an event of default
previously existed or was continuing shall constitute a new event of default for
this purpose).
By reason of such subordination, in the event of the insolvency of either
of the Company Issuers, creditors of the Company Issuers who are not holders of
Senior Indebtedness, including the Holders of the Senior Subordinated Notes, may
recover less, ratably, than holders of Senior Indebtedness.
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COMPANY ISSUERS' STRUCTURE
The Company is a wholly owned operating subsidiary of Holdings, and CapCo I
is a subsidiary corporation of the Company with no material operations of its
own and only limited assets.
NO RECOURSE TO HOLDINGS PARTNERS; NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS,
EMPLOYEES AND STOCKHOLDERS
The Senior Subordinated Indenture under which the Senior Subordinated Notes
have been or will be issued provides that all obligations under the Senior
Subordinated Indenture, the Senior Subordinated Notes, the Holdings Guarantee
and the Old Holdings Guarantee (and all notes and guarantees issued in exchange
therefor) shall be expressly non-recourse to the partners of Holdings in their
capacities as such, and that, by purchasing the Senior Subordinated Notes, each
holder of Senior Subordinated Notes waives any liability of any partner of
Holdings under the Senior Subordinated Indenture, the Senior Subordinated Notes,
the Holdings Guarantee and the Old Holdings Guarantee (and all notes and
guarantees issued in exchange therefor). No director, officer, employee,
incorporator or stockholder of the Company Issuers or any Guarantor shall have
any liability for any obligations of the Company Issuers or the Guarantors under
the Senior Subordinated Exchange Notes, the Guarantees or the Senior
Subordinated Indenture or any claim based on, in respect of, or by reason of
such obligation, or their creation. Such waiver may not be effective to waive
liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
HOLDINGS GUARANTEE
The obligations of the Company Issuers under the Senior Subordinated
Exchange Notes and the Senior Subordinated Indenture will be fully and
unconditionally guaranteed (the 'Holdings Guarantee') on a senior subordinated
basis by Holdings. The Holdings Guarantee will be subordinated in right of
payment to all Senior Indebtedness of Holdings to the same extent that the
Senior Subordinated Notes are subordinated to Senior Indebtedness of the Company
Issuers. Since Holdings is a holding company with no significant operations, the
Holdings Guarantee provides little, if any, additional credit support for the
Senior Subordinated Exchange Notes, and investors should not rely on the
Holdings Guarantee in evaluating an investment in the Senior Subordinated
Exchange Notes.
CHANGE OF CONTROL
The Senior Subordinated Indenture provides that upon the occurrence of a
Change of Control, each Holder will have the right to require that the Company
Issuers purchase all or a portion of such Holder's Senior Subordinated Exchange
Notes pursuant to the offer described below (the 'Change of Control Offer'), at
a purchase price equal to 101% of the principal amount thereof plus accrued
interest to the date of purchase.
The Senior Subordinated Indenture provides that, prior to the mailing of
the notice referred to below, but in any event within 30 days following any
Change of Control, the Company Issuers covenant to (i) repay in full and
terminate all commitments under Indebtedness under the New Credit Facility and
all other Senior Indebtedness the terms of which require repayment upon a Change
of Control or offer to repay in full and terminate all commitments under all
Indebtedness under the New Credit Facility and all other such Senior
Indebtedness and to repay the Indebtedness owed to each lender which has
accepted such offer or (ii) obtain the requisite consents under the New Credit
Facility and all other Senior Indebtedness to permit the repurchase of the
Senior Subordinated Exchange Notes as provided below. The Company Issuers shall
first comply with the covenant in the immediately preceding sentence before they
shall be required to repurchase Senior Subordinated Notes pursuant to the
provisions described below. The Company Issuers' failure to comply with the
covenant described in the second preceding sentence or the immediately
succeeding paragraph shall constitute an Event of Default described in clause
(iii) (and not in clause (ii)) under 'Events of Default' below.
Within 30 days following the date upon which the Change of Control
occurred, the Company Issuers must send, by first class mail, a notice to each
Holder, with a copy to the Senior Subordinated Trustee, which notice shall
govern the terms of the Change of Control Offer. Such notice shall state, among
other things, the purchase date, which must be no earlier than 30 days nor later
than 60 days from the date such notice is mailed, other than as may be required
by law (the 'Change of Control Payment Date'). Holders electing to have a Senior
Subordinated Note purchased pursuant to a Change of Control Offer will be
required to surrender the Senior
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Subordinated Note, with the form entitled 'Option of Holder to Elect Purchase'
on the reverse of the Senior Subordinated Note completed, to the paying agent
('Paying Agent') at the address specified in the notice prior to the close of
business on the third Business Day prior to the Change of Control Payment Date.
If a Change of Control Offer is made, there can be no assurance that the
Company Issuers will have available funds sufficient to pay the Change of
Control purchase price for all the Senior Subordinated Exchange Notes that might
be delivered by Holders seeking to accept the Change of Control Offer. In the
event that the Company Issuers are required to purchase outstanding Senior
Subordinated Exchange Notes pursuant to a Change of Control Offer, the Company
Issuers expect that they would seek third party financing to the extent they do
not have available funds to meet their purchase obligations. However, there can
be no assurance that the Company Issuers would be able to obtain such financing.
Neither the Board of Directors of either Company Issuer nor the Senior
Subordinated Trustee may waive the covenant relating to a Holder's right to
repurchase upon a Change of Control. Restrictions in the Senior Subordinated
Indenture described herein on the ability of the Company Issuers to incur
additional Indebtedness, to grant Liens on their property, to make Restricted
Payments and to make Asset Sales may also make more difficult or discourage a
takeover of Holdings or the Company Issuers, whether favored or opposed by the
management of Holdings or the Company Issuers. Consummation of any such
transaction in certain circumstances may require redemption or repurchase of the
Senior Subordinated Exchange Notes, and there can be no assurance that the
Company Issuers or the acquiring party will have sufficient financial resources
to effect such redemption or repurchase. Such restrictions and the restrictions
on transactions with Affiliates may, in certain circumstances, make more
difficult or discourage any leveraged buyout of Holdings, either of the Company
Issuers or any of their respective Subsidiaries by the management of Holdings or
the respective Company Issuers. While such restrictions cover a wide variety of
arrangements which have traditionally been used to effect highly leveraged
transactions, the Senior Subordinated Indenture may not afford the Holders of
Senior Subordinated Exchange Notes protection in all circumstances from the
adverse aspects of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction.
The Company Issuers will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Senior Subordinated Exchange Notes pursuant to a Change of Control
Offer. To the extent that the provisions of any securities laws or regulations
conflict with the 'Change of Control' provisions of the Senior Subordinated
Indenture, the Company Issuers shall comply with the applicable securities laws
and regulations and shall not be deemed to have breached their obligations under
the 'Change of Control' provisions of the Senior Subordinated Indenture by
virtue thereof.
CERTAIN COVENANTS
The Senior Subordinated Indenture contains, among others, the following
covenants:
Limitations on Incurrence of Indebtedness and Issuance of Disqualified
Stock. (i) The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, 'incur' and
collectively, an 'incurrence') any Indebtedness (including Acquired
Indebtedness), (ii) the Company and any Guarantor will not issue any shares of
Disqualified Stock and (iii) the Company will not permit any of its Restricted
Subsidiaries that are not Guarantors (other than CapCo I) to issue any shares of
preferred stock; provided, however, that the Company and any Guarantor may incur
Indebtedness (including Acquired Indebtedness) or issue shares of Disqualified
Stock if the Fixed Charge Coverage Ratio for the Company's and the Restricted
Subsidiaries' most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock is issued would
have been at least 1.75 to 1.00 (determined on a pro forma basis (including a
pro forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred, or the Disqualified Stock had been issued, as
the case may be, and the application of proceeds therefrom had occurred at the
beginning of such four-quarter period).
The foregoing limitations do not apply to: (a) the incurrence by the
Company or its Restricted Subsidiaries of Indebtedness under the New Credit
Facility and the issuance and creation of letters of credit and banker's
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acceptances thereunder (with letters of credit and banker's acceptances being
deemed to have a principal amount equal to the face amount thereof) up to an
aggregate principal amount of $650.0 million outstanding at any one time; (b)
the incurrence by the Company Issuers of Indebtedness represented by the Senior
Subordinated Notes in an aggregate principal amount not to exceed $225,000,000;
(c) Indebtedness existing on the Issue Date (other than Indebtedness described
in clauses (a) and (b)); (d) Indebtedness (including Capitalized Lease
Obligations) incurred by the Company or any of its Restricted Subsidiaries, to
finance the purchase, lease or improvement of property (real or personal) or
equipment (whether through the direct purchase of assets or the Capital Stock of
any Person owning such assets) in an aggregate principal amount which, when
aggregated with the principal amount of all other Indebtedness then outstanding
and incurred pursuant to this clause (d) and including all Refinancing
Indebtedness incurred to refund, refinance or replace any other Indebtedness
incurred pursuant to this clause (d), does not exceed 15% of Total Assets at the
time of the respective incurrence; (e) Indebtedness incurred by the Company or
any of its Restricted Subsidiaries constituting reimbursement obligations with
respect to letters of credit issued in the ordinary course of business,
including without limitation, letters of credit in respect of workers'
compensation claims or self-insurance, or other Indebtedness with respect to
reimbursement type obligations regarding workers' compensation claims; (f)
Indebtedness arising from agreements of the Company or a Restricted Subsidiary
providing for indemnification, adjustment of purchase price or similar
obligations, in each case, incurred or assumed in connection with the
disposition of any business, assets or a Subsidiary, other than guarantees of
Indebtedness incurred by any Person acquiring all or any portion of such
business, assets or a Subsidiary for the purpose of financing such acquisition;
(g) Indebtedness of the Company to a Restricted Subsidiary; provided that any
such Indebtedness shall be subordinated in right of payment to the Senior
Subordinated Notes; provided further that any subsequent issuance or transfer of
any Capital Stock or any other event which results in any such Restricted
Subsidiary ceasing to be a Restricted Subsidiary or any other subsequent
transfer of any such Indebtedness (except to the Company or another Restricted
Subsidiary) shall be deemed, in each case to be an incurrence of such
Indebtedness; (h) shares of preferred stock of a Restricted Subsidiary issued to
the Company or another Restricted Subsidiary; provided that any subsequent
issuance or transfer of any Capital Stock or any other event which results in
any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any
other subsequent transfer of any such shares of preferred stock (except to the
Company or another Restricted Subsidiary) shall be deemed, in each case to be an
issuance of such shares of preferred stock; (i) Indebtedness of a Restricted
Subsidiary to the Company or another Restricted Subsidiary; provided that if a
Guarantor incurs such indebtedness from a Restricted Subsidiary that is not a
Guarantor, such Indebtedness shall be subordinated in right of payment to the
Guarantee of such Guarantor; and provided, further, that any subsequent transfer
of any such Indebtedness (except to the Company or another Restricted
Subsidiary) shall be deemed, in each case to be an incurrence of such
Indebtedness; (j) Hedging Obligations that are incurred in the ordinary course
of business (1) for the purpose of fixing or hedging interest rate risk with
respect to any Indebtedness that is permitted by the terms of the Senior
Subordinated Indenture to be outstanding; (2) for the purpose of fixing or
hedging currency exchange rate risk with respect to any currency exchanges; or
(3) for the purpose of fixing or hedging commodity price risk with respect to
any commodity purchases; (k) obligations in respect of performance and surety
bonds and completion guarantees provided by the Company or any Restricted
Subsidiary in the ordinary course of business; (l) Indebtedness of any Guarantor
in respect of such Guarantor's Guarantee; (m) Indebtedness or Disqualified Stock
of the Company and any of its Restricted Subsidiaries not otherwise permitted
hereunder in an aggregate principal amount or liquidation preference, which when
aggregated with the principal amount and liquidation preference of all other
Indebtedness and Disqualified Stock then outstanding and incurred pursuant to
this clause (m), does not exceed $50.0 million at any one time outstanding; (n)
(i) any guarantee by the Company or by any Restricted Subsidiary that is a
Guarantor of Indebtedness or other obligations of the Company or any of the
Company's Restricted Subsidiaries so long as the incurrence of such Indebtedness
incurred by such Restricted Subsidiary or the Company, as the case may be, is
permitted under the terms of the Senior Subordinated Indenture and (ii) any
Excluded Guarantee of a Restricted Subsidiary; (o) the incurrence by the Company
or any of its Restricted Subsidiaries of Indebtedness which serves to refund,
refinance or restructure any Indebtedness incurred as permitted under the first
paragraph of this covenant, this clause (o) and clauses (b) and (c) above and
(q) below, or any Indebtedness issued to so refund, refinance or restructure
such Indebtedness including additional Indebtedness incurred to pay premiums and
fees in connection therewith (the 'Refinancing Indebtedness') prior to its
respective maturity; provided, however, that such Refinancing Indebtedness (i)
has a Weighted Average Life to Maturity at the time such Refinancing
Indebtedness is incurred which is not less than the remaining
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Weighted Average Life to Maturity of the Indebtedness being refunded or
refinanced, (ii) to the extent such Refinancing Indebtedness refinances
Indebtedness subordinated or pari passu to the Senior Subordinated Notes, such
Refinancing Indebtedness is subordinated or pari passu to the Senior
Subordinated Notes at least to the same extent as the Indebtedness being
refinanced or refunded and (iii) shall not include (x) Indebtedness of a
Restricted Subsidiary that is not a Guarantor that refinances Indebtedness of
the Company or (y) Indebtedness of the Company or a Restricted Subsidiary that
refinances Indebtedness of an Unrestricted Subsidiary; and provided further that
subclauses (i) and (ii) of this clause (o) will not apply to any refunding or
refinancing of any Senior Indebtedness; (p) other Indebtedness in an amount not
greater than twice the amount of Permanent Qualified Equity Contributions after
the Issue Date at any one time outstanding; and (q) Indebtedness or Disqualified
Stock of Persons that are acquired by the Company or any of its Restricted
Subsidiaries or merged into a Restricted Subsidiary in accordance with the terms
of the Senior Subordinated Indenture; provided that such Indebtedness or
Disqualified Stock is not incurred in contemplation of such acquisition or
merger; and provided further that after giving effect to such acquisition,
either (i) the Company would be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first sentence of this covenant or (ii) the Fixed Charge Coverage Ratio is
greater than immediately prior to such acquisition.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of permitted Indebtedness described in clauses (a) through (q) above
or is entitled to be incurred pursuant to the first paragraph of this covenant,
the Company shall, in its sole discretion, classify such item of Indebtedness in
any manner that complies with this covenant and such item of Indebtedness will
be treated as having been incurred pursuant to only one of such clauses or
pursuant to the first paragraph hereof. Accrual of interest, the accretion of
accreted value and the payment of interest in the form of additional
Indebtedness will not be deemed to be an incurrence of Indebtedness for purposes
of this covenant.
Limitation on Restricted Payments. The Company will not, and will not cause
or permit any of its Restricted Subsidiaries to, directly or indirectly: (i)
declare or pay any dividend or make any distribution on account of the Company's
or any of its Restricted Subsidiaries' Equity Interests (other than (A)
dividends or distributions by the Company payable in Equity Interests (other
than Disqualified Stock) of the Company or (B) dividends or distributions by a
Restricted Subsidiary so long as, in the case of any dividend or distribution
payable on or in respect of any class or series of securities issued by a
Restricted Subsidiary other than a Wholly Owned Restricted Subsidiary, the
Company or a Restricted Subsidiary receives at least its pro rata share of such
dividend or distribution in accordance with its Equity Interests in such class
or series of securities); (ii) purchase or otherwise acquire or retire for value
any Equity Interests of the Company; (iii) make any principal payment on, or
redeem, repurchase, defease or otherwise acquire or retire for value in each
case, prior to any scheduled repayment, or maturity, any Subordinated
Indebtedness (other than (A) the payment, redemption, repurchase, defeasance,
acquisition or retirement of Subordinated Indebtedness in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in any case due within one year of the date of such payment, redemption,
repurchase, defeasance, acquisition or retirement and (B) Indebtedness permitted
under clauses (g) and (i) of the covenant described under 'Limitations on
Incurrence of Indebtedness and Issuance of Disqualified Stock'); or (iv) make
any Restricted Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as 'Restricted
Payments'), unless, at the time of such Restricted Payment: (a) no Default or
Event of Default shall have occurred and be continuing or would occur as a
consequence thereof; (b) immediately after giving effect to such transaction on
a pro forma basis, the Company could incur $1.00 of additional Indebtedness
under the provisions of the first paragraph of 'Limitations on Incurrence of
Indebtedness and Issuance of Disqualified Stock'; and (c) such Restricted
Payment, together with the aggregate amount of all other Restricted Payments
made by the Company and its Restricted Subsidiaries after the Issue Date
(including Restricted Payments permitted by clauses (i), (ii) (with respect to
the repurchase, retirement or other acquisition of Retired Capital Stock
pursuant to clause (a) thereof and the payment of dividends on Retired Capital
Stock pursuant to clause (b) thereof), (v), (vi), (ix) and (x) of the next
succeeding paragraph, but excluding all other Restricted Payments permitted by
the next succeeding paragraph), is less than the sum of (i) 50% of the
cumulative Consolidated Net Income of the Company for the period (taken as one
accounting period) from the first day after the Issue Date to the date of such
Restricted Payment (or, in the case such Consolidated Net Income for such period
is a deficit, minus 100% of such deficit), plus (ii) 100% of the aggregate net
proceeds, including cash and the fair market value of property other than cash
(as determined in good faith by the Company), received by the Company since the
Issue Date from the issue or
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sale of Equity Interests of the Company (including Refunding Capital Stock (as
defined) but excluding Disqualified Stock), including such Equity Interests
issued upon conversion of Indebtedness or upon exercise of warrants or options,
plus (iii) 100% of the aggregate amount of contributions to the capital of the
Company since the Issue Date (other than Excluded Contributions), plus (iv) 100%
of the aggregate amount received in cash and the fair market value of property
other than cash (as determined in good faith by the Company) received from (A)
the sale or other disposition (other than to the Company or a Restricted
Subsidiary) of Restricted Investments made by the Company and its Restricted
Subsidiaries or (B) the sale (other than to the Company or a Restricted
Subsidiary) of the Capital Stock of an Unrestricted Subsidiary, plus (v) in case
any Unrestricted Subsidiary has been redesignated a Restricted Subsidiary or has
been merged, consolidated or amalgamated with or into, transfers or conveys
assets to, or is liquidated into, the Company or a Restricted Subsidiary, the
fair market value (as determined in good faith by the Company) of such
Investment in such Unrestricted Subsidiary at the time of such redesignation,
combination or transfer (or of the assets transferred or conveyed, as
applicable), after deducting any Indebtedness associated with the Unrestricted
Subsidiary so designated or combined or with the assets so transferred or
conveyed.
The foregoing provisions will not prohibit: (i) the payment of any dividend
or distribution within 60 days after the date of declaration thereof, if at the
date of declaration such payment would have complied with the provisions of the
Senior Subordinated Indenture; (ii) (a) the repurchase, retirement or other
acquisition of any Equity Interests (the 'Retired Capital Stock') or
Subordinated Indebtedness of the Company in exchange for, or out of the proceeds
of the substantially concurrent sale (other than to a Restricted Subsidiary) of,
Equity Interests of the Company (other than any Disqualified Stock) or
contributions to the common equity capital of the Company (the 'Refunding
Capital Stock'), and (b) the declaration and payment of dividends on the Retired
Capital Stock out of the proceeds of the substantially concurrent sale (other
than to a Restricted Subsidiary) of Refunding Capital Stock; (iii) the
redemption, repurchase or other acquisition or retirement of Subordinated
Indebtedness of the Company made by exchange for, or out of the proceeds of the
substantially concurrent sale of, new Indebtedness of the Company so long as (A)
the principal amount of such new Indebtedness does not exceed the principal
amount of and accrued and unpaid interest on the Subordinated Indebtedness being
so redeemed, repurchased, acquired or retired for value (plus the amount of any
premium required to be paid under the terms of the instrument governing the
Subordinated Indebtedness being so redeemed, repurchased, acquired or retired),
(B) such Indebtedness is subordinated to the Senior Subordinated Notes at least
to the same extent as such Subordinated Indebtedness so purchased, exchanged,
redeemed, repurchased, acquired or retired for value, (C) such Indebtedness has
a final scheduled maturity date equal to or later than the final scheduled
maturity date of the Subordinated Indebtedness being so redeemed, repurchased,
acquired or retired and (D) such Indebtedness has a Weighted Average Life to
Maturity equal to or greater than the remaining Weighted Average Life to
Maturity of the Subordinated Indebtedness being so redeemed, repurchased,
acquired or retired; (iv) the repurchase, retirement or other acquisition for
value (or a dividend or distribution to fund any such repurchase, retirement or
other acquisition) of Equity Interests of the Company, Holdings or Investor LP
held by any future, present or former employee, director or consultant of the
Company or any Subsidiary pursuant to any management equity plan or stock option
plan or any other management or employee benefit plan or agreement; provided,
however, that the aggregate amounts paid under this clause (iv) does not exceed
in any calendar year $5.0 million (with unused amounts in any calendar year
being carried over to succeeding calendar years subject to a maximum (without
giving effect to the following proviso) of $10.0 million in any calendar year);
provided further, that such amount in any calendar year may be increased by an
amount not to exceed (i) the cash proceeds from the sale of Equity Interests of
the Company (or of Holdings or Investor LP which are contributed to the Company)
to members of management, directors or consultants of the Company and its
Subsidiaries that occurs after the Issue Date (provided that such proceeds have
not been included with respect to determining whether a previous Restricted
Payment was permitted pursuant to the first paragraph of this covenant) plus
(ii) the cash proceeds of key man life insurance policies received by the
Company and its Restricted Subsidiaries after the Issue Date; (v) the
declaration and payment of dividends or distributions to holders of any class or
series of Disqualified Stock of the Company or any of its Restricted
Subsidiaries issued or incurred in accordance with the covenant entitled
'Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock';
(vi) the declaration and payment of dividends or distributions to holders of any
class or series of Designated Preferred Stock; provided, however, that for the
most recently ended four full fiscal quarters for which internal financial
statements are available preceding the date of declaration of any such dividend
or distribution, after giving effect
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to such dividend or distribution as a Fixed Charge on a pro forma basis, the
Company and its Restricted Subsidiaries would have had a Fixed Charge Coverage
Ratio of at least 1.75 to 1.00; (vii) Investments in Unrestricted Subsidiaries
having an aggregate fair market value, taken together with all other Investments
made pursuant to this clause (vii) that are at that time outstanding, not to
exceed $15.0 million at the time of such Investment (with the fair market value
of each Investment being measured at the time made and without giving effect to
subsequent changes in value); (viii) repurchases of (or a dividend or
distribution to fund the repurchases of) Equity Interests of the Company,
Holdings or Investor LP deemed to occur upon exercise of stock options if such
Equity Interests represent a portion of the exercise price of such options; (ix)
the payment of dividends on the Company's Common Stock (or the payment to
Holdings to fund the payment by Holdings of dividends on Holding's Common Stock)
following the first public offering of Common Stock of the Company or Holdings,
as the case may be, after the Issue Date, of up to 6% per annum of the net
proceeds received by the Company or contributed to the Company by Holdings, as
the case may be, in such public offering; (x) the repurchase, retirement or
other acquisition for value after the first anniversary of the Issue Date (or
dividend or distribution to fund the repurchase, retirement or other acquisition
of) of Equity Interests of Holdings, the Company or Investor LP in existence on
the Issue Date and which are not held by Blackstone or any of their Affiliates
or the Management Group on the Issue Date (including any Equity Interests issued
in respect of such Equity Interests as a result of a stock split,
recapitalization, merger, combination, consolidation or otherwise, but excluding
any management equity plan or stock option plan or similar agreement), provided
that (A) the aggregate amounts paid under this clause (x) shall not exceed (I)
$15.0 million on or prior to the second anniversary of the Issue Date or (II)
$30.0 million at any time after the second anniversary of the Issue Date and (B)
after giving effect thereto, the Company would be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first sentence of the covenant described under
'Limitations on Incurrence of Indebtedness and Issuance of Disqualified Stock';
(xi) Investments that are made with Excluded Contributions; (xii) other
Restricted Payments in an aggregate amount not to exceed $15.0 million; (xiii)
the payment of any dividend or distribution on Equity Interests of the Company
to the extent necessary to permit direct or indirect beneficial owners of such
Equity Interests to receive tax distributions in an amount equal to the taxable
income of the Company allocated to a partner multiplied by the highest combined
federal and state income tax rate (including, to the extent applicable,
alternative minimum tax) solely as a result of the Company (and any intermediate
entity through which such holder owns such Equity Interests) being a partnership
or similar pass-through entity for federal income tax purposes ('Permitted Tax
Distributions'); (xiv) the payment of dividends or distributions to Holdings to
fund cash interest payments on the Senior Discount Notes commencing July 15,
2003 in accordance with the terms of the Senior Discount Notes; (xv) Restricted
Payments made on the Issue Date contemplated by the Recapitalization Agreement;
and (xvi) any dividend or distribution to Holdings in respect of overhead
expenses, legal, accounting, Commission reporting and other professional fees
and expenses of Holdings that are directly attributable to the operations of the
Company and its Restricted Subsidiaries; provided, however,that at the time of,
and after giving effect to, any Restricted Payment permitted under clauses
(vii), (ix), (x), (xii) and (xiv) (other than with respect to Defaults and
Events of Default set forth in clause (iii) or (vi) under 'Events of Default'),
no Default or Event of Default shall have occurred and be continuing or would
occur as a consequence thereof; and provided further that for purposes of
determining the aggregate amount expended for Restricted Payments in accordance
with clause (c) of the immediately preceding paragraph, only the amounts
expended under clauses (i), (ii) (with respect to the repurchase, retirement or
other acquisition of Retired Capital Stock pursuant to clause (a) thereof and
the payment of dividends on Retired Capital Stock pursuant to clause (b)
thereof), (v), (vi), (ix) and (x) shall be included.
As of the Issue Date, all of the Company's Subsidiaries were Restricted
Subsidiaries. The Company will not permit any Unrestricted Subsidiary to become
a Restricted Subsidiary except pursuant to the second to last sentence of the
definition of 'Unrestricted Subsidiary.' For purposes of designating any
Restricted Subsidiary as an Unrestricted Subsidiary, all outstanding Investments
by the Company and its Restricted Subsidiaries (except to the extent repaid) in
the Subsidiary so designated will be deemed to be Restricted Payments in an
amount determined as set forth in the last sentence of the definition of
'Investments.' Such designation is only permitted if a Restricted Payment in
such amount would be permitted at such time (whether pursuant to the first
paragraph of this covenant or under clause (vii), (xi) or (xii)) and if such
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
Unrestricted Subsidiaries will not be subject to any of the restrictive
covenants set forth in the Senior Subordinated Indenture.
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Limitation on Asset Sales. The Company will not, and will not cause or
permit any of its Restricted Subsidiaries to, cause, make or suffer to exist an
Asset Sale, unless (x) the Company or its Restricted Subsidiary, as the case may
be, receives consideration at the time of such Asset Sale at least equal to the
fair market value (as determined in good faith by the Company) of the assets
sold or otherwise disposed of and (y) at least 75% of the consideration therefor
received by the Company or such Restricted Subsidiary, as the case may be, is in
the form of cash or Cash Equivalents; provided that the amount of (a) any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet or in the notes thereto) of the Company or any Restricted
Subsidiary (other than liabilities that are by their terms subordinated to the
Senior Subordinated Notes) that are assumed by the transferee of any such assets
without recourse to the Company or any of the Restricted Subsidiaries, (b) any
notes or other obligations received by the Company or such Restricted Subsidiary
from such transferee that are converted by the Company or such Restricted
Subsidiary into cash (to the extent of the cash received) within 180 days
following the closing of such Asset Sale, (c) any Designated Noncash
Consideration received by the Company or any of its Restricted Subsidiaries in
such Asset Sale having an aggregate fair market value, taken together with all
other Designated Noncash Consideration received pursuant to this clause (c) that
is at that time outstanding, not to exceed 15% of Total Assets at the time of
the receipt of such Designated Noncash Consideration (with the fair market value
of each item of Designated Noncash Consideration being measured at the time
received and without giving effect to subsequent changes in value) and (d) any
assets received in exchange for assets related to a Similar Business of
comparable market value in the good faith determination of, the Board of
Directors of the Company, shall be deemed to be cash for purposes of this
provision.
Within 365 days after the Company's or any Restricted Subsidiary's receipt
of the Net Proceeds of any Asset Sale, the Company or such Restricted Subsidiary
may apply the Net Proceeds from such Asset Sale, at its option, (i) to
permanently reduce Obligations under the New Credit Facility (and to
correspondingly reduce commitments with respect thereto) or other Senior
Indebtedness or Pari Passu Indebtedness (provided that if the Company shall so
reduce Obligations under Pari Passu Indebtedness, it will equally and ratably
reduce Obligations under the Senior Subordinated Notes if the Senior
Subordinated Notes are then redeemable or, if the Senior Subordinated Notes may
not be then redeemed, the Company shall make an offer (in accordance with the
procedures set forth below for an Asset Sale Offer) to all Holders to purchase
at 100% of the principal amount thereof the amount of Senior Subordinated Notes
that would otherwise be redeemed) or Indebtedness of a Restricted Subsidiary,
(ii) to an investment in any one or more businesses, capital expenditures or
acquisitions of other assets in each case, used or useful in a Similar Business
and/or (iii) to make an investment in properties or assets that replace the
properties and assets that are the subject of such Asset Sale. Pending the final
application of any such Net Proceeds, the Company or such Restricted Subsidiary
may temporarily reduce Indebtedness under a revolving credit facility, if any,
or otherwise invest such Net Proceeds in Cash Equivalents or Investment Grade
Securities. The Senior Subordinated Indenture provides that any Net Proceeds
from the Asset Sale that are not invested as provided and within the time period
set forth in the first sentence of this paragraph (it being understood that any
portion of such Net Proceeds used to make an offer to purchase Senior
Subordinated Notes, as described in clause (i) above, shall be deemed to have
been invested whether or not such offer is accepted) will be deemed to
constitute 'Excess Proceeds.' When the aggregate amount of Excess Proceeds
exceeds $15.0 million, the Company Issuers shall make an offer to all Holders of
Senior Subordinated Notes (an 'Asset Sale Offer') to purchase the maximum
principal amount of Senior Subordinated Notes, that is an integral multiple of
$1,000, that may be purchased out of the Excess Proceeds at an offer price in
cash in an amount equal to 100% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the date fixed for the closing of such offer, in
accordance with the procedures set forth in the Senior Subordinated Indenture.
The Company Issuers will commence an Asset Sale Offer with respect to Excess
Proceeds within ten Business Days after the date that Excess Proceeds exceeds
$15.0 million by mailing the notice required pursuant to the terms of the Senior
Subordinated Indenture, with a copy to the Senior Subordinated Trustee. To the
extent that the aggregate amount of Senior Subordinated Notes tendered pursuant
to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any
remaining Excess Proceeds for general corporate or partnership purposes. If the
aggregate principal amount of Senior Subordinated Notes surrendered by Holders
thereof exceeds the amount of Excess Proceeds, the Senior Subordinated Trustee
shall select the Senior Subordinated Notes to be purchased in the manner
described under the caption 'Selection and Notice of Redemption' above. Upon
completion of any such Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
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The Company Issuers will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws or regulations are applicable in connection with the repurchase
of the Senior Subordinated Notes pursuant to an Asset Sale Offer. To the extent
that the provisions of any securities laws or regulations conflict with the
provisions of the Senior Subordinated Indenture, the Company Issuers will comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations described in the Senior Subordinated Indenture by
virtue thereof.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or consensual
restriction on the ability of any Restricted Subsidiary to: (a)(i) pay dividends
or make any other distributions to the Company or any of its Restricted
Subsidiaries (1) on their Capital Stock or (2) with respect to any other
interest or participation in, or measured by, its profits, or (ii) pay any
Indebtedness owed to the Company or any of its Restricted Subsidiaries; (b) make
loans or advances to the Company or any of its Restricted Subsidiaries; or (c)
sell, lease or transfer any of its properties or assets to the Company or any of
its Restricted Subsidiaries; except (in each case) for such encumbrances or
restrictions existing under or by reason of: (1) contractual encumbrances or
restrictions in effect on the Issue Date, including pursuant to the New Credit
Facility and its related documentation and the Senior Discount Indenture; (2)
the Senior Subordinated Indenture and the Senior Subordinated Notes; (3)
purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature discussed in clause (c) above on
the property so acquired; (4) applicable law or any applicable rule, regulation
or order; (5) any agreement or other instrument of a Person acquired by the
Company or any Restricted Subsidiary in existence at the time of such
acquisition (but not created in contemplation thereof), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired; (6) contracts for the sale of assets, including, without limitation,
customary restrictions with respect to a Subsidiary pursuant to an agreement
that has been entered into for the sale or disposition of all or substantially
all of the Capital Stock or assets of such Subsidiary; (7) secured Indebtedness
otherwise permitted to be incurred pursuant to the covenants described under
'Limitations on Incurrence of Indebtedness and Issuance of Disqualified Stock'
and 'Limitation on Liens' that limit the right of the debtor to dispose of the
assets securing such Indebtedness; (8) restrictions on cash or other deposits or
net worth imposed by customers under contracts entered into in the ordinary
course of business; (9) other Indebtedness of Foreign Subsidiaries permitted to
be incurred subsequent to the Issue Date pursuant to the provisions of the
covenant described under 'Limitations on Incurrence of Indebtedness and Issuance
of Disqualified Stock'; (10) customary provisions in joint venture agreements
and other similar agreements entered into in the ordinary course of business;
(11) customary provisions contained in leases and other agreements entered into
in the ordinary course of business; (12) any encumbrances or restrictions of the
type referred to in clauses (a), (b) and (c) above imposed by any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings of the contracts, instruments or obligations
referred to in clauses (1) through (11) above, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings are, in the good faith judgment of the Board of
Directors (or the general partners with regard to a partnership) of such Company
Issuer engaged in such transaction, no more restrictive with respect to such
dividend and other payment restrictions than those contained in the dividend or
other payment restrictions prior to such amendment, modification, restatement,
renewal, increase, supplement, refunding, replacement or refinancing; (13) any
encumbrances or restrictions that are no more restrictive than those contained
in the New Credit Facility as in effect on the Issue Date; or (14) which will
not in the aggregate cause the Company Issuers not to have the funds necessary
to pay the principal of, premium, if any, or interest on, the Senior
Subordinated Notes.
Limitation on Liens. The Company will not, and will not cause or permit any
of its Restricted Subsidiaries to, directly or indirectly create, incur, assume
or suffer to exist any Lien (other than a Permitted Lien) that secures any Pari
Passu Indebtedness or Subordinated Indebtedness on any asset or property of the
Company or such Restricted Subsidiary, or any income or profits therefrom, or
assign or convey any right to receive income therefrom, unless the Senior
Subordinated Notes are equally and ratably secured with the obligations so
secured or until such time as such obligations are no longer secured by a Lien.
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The Senior Subordinated Indenture provides that no Guarantor will directly
or indirectly create, incur, assume or suffer to exist any Lien (other than a
Permitted Lien) that secures any Pari Passu Indebtedness or Subordinated
Indebtedness of such Guarantor on any asset or property of such Guarantor or any
income or profits therefrom, or assign or convey any right to receive income
therefrom, unless the Guarantee of such Guarantor is equally and ratably secured
with the obligations so secured or until such time as such obligations are no
longer secured by a Lien.
Limitation on Other Senior Subordinated Indebtedness. The Company will not,
and will not permit any Restricted Subsidiary that is a Guarantor to, directly
or indirectly, incur any Indebtedness (including Acquired Indebtedness) that is
subordinate in right of payment to any Indebtedness of the Company or any
Indebtedness of any Restricted Subsidiary that is a Guarantor, as the case may
be, unless such Indebtedness is either (a) pari passu in right of payment with
the Senior Subordinated Notes or such Guarantor's Guarantee, as the case may be
or (b) subordinate in right of payment to the Senior Subordinated Notes, or such
Guarantor's Guarantee, as the case may be, in the same manner and at least to
the same extent as the Senior Subordinated Notes are subordinate to Senior
Indebtedness or such Guarantor's Guarantee is subordinate to such Guarantor's
Senior Indebtedness, as the case may be.
Merger, Consolidation and Sale of Assets. The Company may not consolidate
or merge with or into or wind up into (whether or not the Company is the
surviving entity), or sell, assign, transfer, lease, convey or otherwise dispose
of all or substantially all of its properties or assets in one or more related
transactions, to any Person unless (i) the Company is the surviving entity or
the Person formed by or surviving any such consolidation or merger (if other
than the Company) or to which such sale, assignment, transfer, lease, conveyance
or other disposition will have been made is a corporation, partnership or
limited liability company organized or existing under the laws of the United
States, any state thereof, the District of Columbia, or any territory thereof
(the Company or such Person, as the case may be, being herein called the
'Successor Company'); (ii) the Successor Company (if other than the Company or
CapCo I) expressly assumes all the obligations of the Company under the Senior
Subordinated Indenture and the Senior Subordinated Notes pursuant to a
supplemental indenture or other documents or instruments in form reasonably
satisfactory to the Senior Subordinated Trustee; (iii) immediately after such
transaction no Default or Event of Default shall have occurred and be
continuing; (iv) immediately after giving pro forma effect to such transaction,
as if such transaction had occurred at the beginning of the applicable
four-quarter period, either (A) the Successor Company (if other than CapCo I)
would be permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the first sentence of the
covenant described under 'Limitations on Incurrence of Indebtedness and Issuance
of Disqualified Stock' or (B) the Fixed Charge Coverage Ratio for the Successor
Company (if other than CapCo I) and its Restricted Subsidiaries would be greater
than such ratio for the Company and its Restricted Subsidiaries immediately
prior to such transaction; and (v) the Company shall have delivered to the
Senior Subordinated Trustee an Officers' Certificate and an opinion of counsel,
each stating that such consolidation, merger or transfer and such supplemental
indenture (if any) comply with the Senior Subordinated Indenture. The Successor
Company will succeed to, and be substituted for, the Company under the Senior
Subordinated Indenture and the Senior Subordinated Notes. Notwithstanding the
foregoing clauses (iii) and (iv), (a) any Restricted Subsidiary may consolidate
with, merge into or transfer all or part of its properties and assets to the
Company or to another Restricted Subsidiary and (b) the Company may merge with
or transfer all of its properties and assets to an Affiliate incorporated or
formed solely for the purpose of either reincorporating or reforming the Company
in another State of the United States or changing the legal structure of the
Company to a corporation so long as the amount of Indebtedness of the Company
and its Restricted Subsidiaries is not increased thereby (it being understood
that after the transfer of such property and assets for the purpose of changing
its legal structure to a corporation, the Company may dissolve).
Each Guarantor, if any, shall not, and the Company will not permit a
Guarantor to, consolidate or merge with or into or wind up into (whether or not
such Guarantor is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions to, any Person unless (i) such
Guarantor is the surviving corporation or the Person formed by or surviving any
such consolidation or merger (if other than such Guarantor) or to which such
sale, assignment, transfer, lease, conveyance or other disposition will have
been made is a corporation, partnership or limited liability company organized
or existing under the laws of the United States, any state thereof, the District
of
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Columbia, or any territory thereof (such Guarantor or such Person, as the case
may be, being herein called the 'Successor Guarantor'); (ii) the Successor
Guarantor (if other than such Guarantor) expressly assumes all the obligations
of such Guarantor under the Senior Subordinated Indenture and such Guarantor's
Guarantee pursuant to a supplemental indenture or other documents or instruments
in form reasonably satisfactory to the Senior Subordinated Trustee; (iii)
immediately after such transaction no Default or Event of Default shall have
occurred and be continuing; and (iv) the Guarantor shall have delivered or
caused to be delivered to the Senior Subordinated Trustee an Officers'
Certificate and an opinion of counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture (if any) comply with the
Senior Subordinated Indenture. The Successor Guarantor will succeed to, and be
substituted for, such Guarantor under the Senior Subordinated Indenture and such
Guarantor's Guarantee.
Limitations on Transactions with Affiliates. (a) The Company will not, and
will not cause or permit any of its Restricted Subsidiaries to, make any payment
to, or sell, lease, transfer or otherwise dispose of any of its properties or
assets to, or purchase any property or assets from, or enter into or make or
amend any transaction, contract, agreement, understanding, loan, advance or
guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an
'Affiliate Transaction') involving aggregate consideration in excess of $5.0
million, unless (a) such Affiliate Transaction is on terms that are not
materially less favorable to the Company or the relevant Restricted Subsidiary
than those that would have been obtained in a comparable transaction by the
Company or such Restricted Subsidiary with an unrelated Person and (b) with
respect to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $10.0 million, the Company
delivers to the Senior Subordinated Trustee a resolution adopted by the majority
of the Board of Directors of the Company, approving such Affiliate Transaction
and set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (a) above.
The foregoing provisions do not apply to the following: (i) transactions
between or among the Company and/or any of its Restricted Subsidiaries; (ii)
Restricted Payments permitted by the provisions of the Senior Subordinated
Indenture described above under the covenant 'Limitation on Restricted
Payments'; (iii) the payment of annual management, consulting, monitoring and
advisory fees and related expenses to Blackstone, Graham Packaging Corporation
and their respective Affiliates; (iv) the payment of reasonable and customary
fees paid to, and indemnity provided on behalf of, officers, directors,
employees or consultants of the Company or any Restricted Subsidiary; (v)
payments by the Company or any of its Restricted Subsidiaries to Blackstone and
its Affiliates made for any financial advisory, financing, underwriting or
placement services or in respect of other investment banking activities,
including, without limitation, in connection with acquisitions or divestitures
which payments are approved by, the majority of the Board of Directors of the
Company, in good faith; (vi) transactions in which the Company or any of its
Restricted Subsidiaries, as the case may be, delivers to the Senior Subordinated
Trustee a letter from an Independent Financial Advisor stating that such
transaction is fair to the Company or such Restricted Subsidiary from a
financial point of view or meets the requirements of clause (a) of the preceding
paragraph; (vii) payments or loans to employees or consultants which are
approved by a majority of the Board of Directors of the Company in good faith;
(viii) any agreement as in effect as of the Issue Date or any amendment thereto
(so long as any such amendment is not disadvantageous to the holders of the
Senior Subordinated Notes in any material respect) or any transaction
contemplated thereby; (ix) the existence of, or the performance by the Company
or any Restricted Subsidiary of its obligations under the terms of, the
Recapitalization Agreement, or any agreement contemplated thereunder (including
any registration rights agreement or purchase agreement related thereto) to
which it is a party as of the Issue Date and any similar agreements which it may
enter into thereafter; provided, however, that the existence of, or the
performance by the Company or any Restricted Subsidiary of obligations under any
future amendment to any such existing agreement or under any similar agreement
entered into after the Issue Date shall only be permitted by this clause (ix) to
the extent that the terms of any such amendment or new agreement are not
otherwise disadvantageous to the Holders of the Senior Subordinated Notes in any
material respect; (x) the payment of all fees, expenses, bonuses and awards
related to the transactions contemplated by the Recapitalization Agreement,
including fees to Blackstone; and (xi) transactions with customers, clients,
suppliers, or purchasers or sellers of goods or services, in each case in the
ordinary course of business and otherwise in compliance with the terms of the
Senior Subordinated Indenture which are fair to the Company and its Restricted
Subsidiaries, in the reasonable determination of the majority of the Board of
Directors of the Company, or are on terms at least as favorable as might
reasonably have been obtained at such time from an unaffiliated party.
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Limitations on Guarantees of Indebtedness by Restricted Subsidiaries. (a)
The Company will not permit any Restricted Subsidiary to guarantee the payment
of any Indebtedness of the Company or any Indebtedness of any other Restricted
Subsidiary unless such Restricted Subsidiary simultaneously executes and
delivers a supplemental indenture to the Senior Subordinated Indenture providing
for a guarantee of payment of the Senior Subordinated Notes by such Restricted
Subsidiary, except that (A) if the Senior Subordinated Notes are subordinated in
right of payment to such Indebtedness, the Guarantee under the supplemental
indenture shall be subordinated to such Restricted Subsidiary's guarantee with
respect to such Indebtedness substantially to the same extent as the Senior
Subordinated Notes are subordinated to such Indebtedness under the Senior
Subordinated Indenture and (B) if such Indebtedness is by its express terms
subordinated in right of payment to the Senior Subordinated Notes, any such
guarantee of such Restricted Subsidiary with respect to such Indebtedness shall
be subordinated in right of payment to such Restricted Subsidiary's Guarantee
with respect to the Senior Subordinated Notes substantially to the same extent
as such Indebtedness is subordinated to the Senior Subordinated Notes; provided
that this paragraph (a) shall not be applicable to any guarantee by any
Restricted Subsidiary (x) that (A) existed at the time such Person became a
Restricted Subsidiary of the Company and (B) was not incurred in connection
with, or in contemplation of, such Person becoming a Restricted Subsidiary of
the Company or (y) that guarantees the payment of Obligations of the Company or
any Restricted Subsidiary under the New Credit Facility or any other bank
facility which is designated as Senior Indebtedness and any refunding,
refinancing or replacement thereof, in whole or in part, provided that such
refunding, refinancing or replacement thereof constitutes Senior Indebtedness
and is not incurred pursuant to a registered offering of securities under the
Securities Act or a private placement of securities (including under Rule 144A)
pursuant to an exemption from the registration requirements of the Securities
Act (other than securities issued pursuant to any bank or similar credit
facility (including the New Credit Facility), which private placement provides
for registration rights under the Securities Act (any guarantee excluded by
operations of this clause (y) being an 'Excluded Guarantee').
(b) Notwithstanding the foregoing and the other provisions of the Senior
Subordinated Indenture, any Guarantee by a Restricted Subsidiary of the Senior
Subordinated Notes shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person not an Affiliate of the Company, of all of the Company's Capital
Stock in, or all or substantially all of the assets of, such Restricted
Subsidiary (which sale, exchange or transfer is not prohibited by the Senior
Subordinated Indenture) or (ii) the release or discharge of the guarantee which
resulted in the creation of such Guarantee, except a discharge or release by or
as a result of payment under such guarantee.
Reports to Holders. The Company Issuers will deliver to the Senior
Subordinated Trustee within 15 days after the filing of the same with the
Commission, copies of the quarterly and annual reports and of the information,
documents and other reports, if any, which the Company Issuers are required to
file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
The Senior Subordinated Indenture further provides that, notwithstanding
that the Company Issuers may not be subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act or otherwise report on an annual and
quarterly basis on forms provided for such annual and quarterly reporting
pursuant to rules and regulations promulgated by the Securities and Exchange
Commission (the 'Commission'), the Senior Subordinated Indenture will require
the Company Issuers to file with the Commission (and provide the Senior
Subordinated Trustee and Holders with copies thereof, without cost to each
Holder, within 15 days after it files them with the Commission), (a) within 90
days after the end of each fiscal year, annual reports on Form 10-K (or any
successor or comparable form) containing the information required to be
contained therein (or required in such successor or comparable form); (b) within
45 days after the end of each of the first three fiscal quarters of each fiscal
year, reports on Form 10-Q (or any successor or comparable form); (c) promptly
from time to time after the occurrence of an event required to be therein
reported, such other reports on Form 8-K (or any successor or comparable form);
and (d) any other information, documents and other reports which the Company
Issuers would be required to file with the Commission if they were subject to
Section 13 or 15(d) of the Exchange Act; provided, however, that the Company
Issuers shall not be so obligated to file such reports with the Commission if
the Commission does not permit such filing, in which event the Company Issuers
will make available such information to prospective purchasers of Senior
Subordinated Notes, in addition to providing such information to the Senior
Subordinated Trustee and the Holders, in each case within 15 days after the time
the Company Issuers
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would be required to file such information with the Commission, if they were
subject to Sections 13 or 15(d) of the Exchange Act. The above reporting
requirements with respect to the Company Issuers may be satisfied through the
filing and provision of such reports, information and documents by the Holdings
Issuers in lieu of the Company Issuers. Notwithstanding the foregoing, such
requirements shall be deemed satisfied (x) prior to April 30, 1998, if the
Holdings Issuers deliver to the Senior Subordinated Trustee and the holders of
the Senior Subordinated Notes on or prior to such date copies of the audited
financial statements of the Holdings Issuers and (y) prior to May 31, 1998, by
filing with the Commission and delivering to the Senior Subordinated Trustee and
the holders of the Senior Subordinated Notes on or prior to such date a
registration statement under the Securities Act that contains the information
that would be required in a Form 10-K for the Holdings Issuers for the year
ended December 31, 1997 and a Form 10-Q for the Holdings Issuers for the quarter
ended March 31, 1998. The Company Issuers will also comply with the other
provisions of TIA Section 314(a).
EVENTS OF DEFAULT
The following events are defined in the Senior Subordinated Indenture as 'Events
of Default':
(i) the failure to pay interest on any Senior Subordinated Notes when
the same becomes due and payable and the default continues for a period of
30 days (whether or not such payment shall be prohibited by the
subordination provisions of the Senior Subordinated Indenture);
(ii) the failure to pay the principal on any Senior Subordinated
Notes, when such principal becomes due and payable, at maturity, upon
redemption or otherwise (including the failure to make a payment to
purchase Senior Subordinated Notes tendered pursuant to a Change of Control
Offer or an Asset Sale Offer which has actually been made) (whether or not
such payment shall be prohibited by the subordination provisions of the
Senior Subordinated Indenture);
(iii) a default in the observance or performance of any other covenant
or agreement contained in the Senior Subordinated Indenture which default
continues for a period of 60 days after the Company receives written notice
specifying the default (and demanding that such default be remedied) from
the Senior Subordinated Trustee or the Holders of at least 25% of the
outstanding principal amount of the Senior Subordinated Notes (except in
the case of a default with respect to the 'Merger, Consolidation and Sale
of Assets' covenant, which will constitute an Event of Default with such
notice requirement but without such passage of time requirement);
(iv) the failure to pay at final maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount
of any Indebtedness of the Company or any Significant Restricted
Subsidiary, or the acceleration of the final stated maturity of any such
Indebtedness if the aggregate principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in
default for failure to pay principal at final maturity or which has been
accelerated, aggregates $20.0 million or more at any time;
(v) one or more judgments in an aggregate amount in excess of $20.0
million shall have been rendered against the Company or any Significant
Restricted Subsidiary and such judgments remain undischarged, unpaid or
unstayed for a period of 60 days after such judgment or judgments become
final and non-appealable, and in the event such judgment is covered by
insurance, an enforcement proceeding has been commenced by any creditor
upon such judgment or decree which is not promptly stayed;
(vi) any Guarantee by a Significant Restricted Subsidiary shall become
null or void or unenforceable (other than in accordance with the terms of
the Senior Subordinated Indenture) or any such Guarantor shall deny its
obligations under its Guarantee; or
(vii) certain events of bankruptcy affecting the Company or any of its
Significant Restricted Subsidiaries.
If an Event of Default (other than an Event of Default specified in clause
(vii) with respect to the Company) shall occur and be continuing, the Senior
Subordinated Trustee or the Holders of at least 25% in principal amount of
outstanding Senior Subordinated Notes may declare the principal of and
accrued interest on all the Senior Subordinated Notes to be due and payable
by notice in writing to the Company and the Senior
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Subordinated Trustee specifying the respective Event of Default and that it
is a 'notice of acceleration' (the 'Acceleration Notice'), and the same (i)
shall become immediately due and payable or (ii) if there are any amounts
outstanding under the New Credit Facility, shall become immediately due and
payable upon the first to occur of an acceleration under the New Credit
Facility or 5 Business Days after receipt by the Company and the
Representative under the New Credit Facility of such Acceleration Notice,
but only if such Event of Default is then continuing. If an Event of Default
specified in clause (vii) with respect to the Company occurs, then the
principal of and any accrued interest on the Senior Subordinated Notes shall
ipso facto become immediately due and payable without any further action by
the Senior Subordinated Trustee or the Holders.
The Senior Subordinated Indenture provides that, at any time after a
declaration of acceleration with respect to the Senior Subordinated Notes as
described in the preceding paragraph, the Holders of a majority in principal
amount of the Senior Subordinated Notes may rescind and cancel such declaration
and its consequences (i) if the rescission would not conflict with any judgment
or decree, (ii) if all existing Events of Default have been cured or waived
except nonpayment of principal or interest that has become due solely because of
the acceleration, (iii) to the extent the payment of such interest is lawful,
interest on overdue installments of interest and overdue principal, which has
become due otherwise than by such declaration of acceleration, has been paid and
(iv) if the Company has paid the Senior Subordinated Trustee its reasonable
compensation and reimbursed the Senior Subordinated Trustee for its expenses,
disbursements and advances. No such rescission shall affect any subsequent
Default or impair any right consequent thereto.
The Holders of a majority in principal amount of the Senior Subordinated
Notes may waive any existing Default or Event of Default under the Senior
Subordinated Indenture, and its consequences, except a default in the payment of
the principal of or interest on any Senior Subordinated Notes.
Holders of the Senior Subordinated Notes may not enforce the Senior
Subordinated Indenture or the Senior Subordinated Notes except as provided in
the Senior Subordinated Indenture and under the TIA. Subject to the provisions
of the Senior Subordinated Indenture relating to the duties of the Senior
Subordinated Trustee, the Senior Subordinated Trustee is under no obligation to
exercise any of its rights or powers under the Senior Subordinated Indenture at
the request, order or direction of any of the Holders, unless such Holders have
offered to the Senior Subordinated Trustee reasonable indemnity. Subject to all
provisions of the Senior Subordinated Indenture and applicable law, the Holders
of a majority in aggregate principal amount of the then outstanding Senior
Subordinated Notes have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Senior Subordinated
Trustee or exercising any trust or power conferred on the Senior Subordinated
Trustee.
Under the Senior Subordinated Indenture, the Company is required to provide
an Officers' Certificate to the Senior Subordinated Trustee promptly upon it
obtaining knowledge of any Default or Event of Default (provided that such
certification shall be provided at least annually whether or not the Company
knows of any Default or Event of Default) that has occurred and, if applicable,
describe such Default or Event of Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company Issuers may, at their option and at any time, elect to have
their obligations discharged with respect to the outstanding Senior Subordinated
Notes ('Legal Defeasance'). Such Legal Defeasance means that the Company Issuers
shall be deemed to have paid and discharged the entire indebtedness represented
by the outstanding Senior Subordinated Notes, except for (i) the rights of
Holders to receive payments in respect of the principal of, premium, if any, and
interest on the Senior Subordinated Notes when such payments are due, (ii) the
Company Issuers' obligations with respect to the Senior Subordinated Notes
concerning issuing temporary Senior Subordinated Notes, registration of Senior
Subordinated Notes, mutilated, destroyed, lost or stolen Senior Subordinated
Notes and the maintenance of an office or agency for payments, (iii) the rights,
powers, trust, duties and immunities of the Senior Subordinated Trustee and the
Company Issuers' obligations in connection therewith and (iv) the Legal
Defeasance provisions of the Senior Subordinated Indenture. In addition, the
Company Issuers may, at their option and at any time, elect to have the
obligations of the Company Issuers released with respect to certain covenants
that are described in the Senior Subordinated Indenture ('Covenant Defeasance')
and
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thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Senior Subordinated Notes. In
the event Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, reorganization and insolvency events) described under
'Events of Default' will no longer constitute an Event of Default with respect
to the Senior Subordinated Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Senior Subordinated Trustee, in
trust, for the benefit of the Holders cash in U.S. dollars, non-callable U.S.
government obligations, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the
Senior Subordinated Notes on the stated date for payment thereof or on the
applicable redemption date, as the case may be; (ii) in the case of Legal
Defeasance, the Company shall have delivered to the Senior Subordinated Trustee
an opinion of counsel in the United States reasonably acceptable to the Senior
Subordinated Trustee confirming that (A) the Company Issuers have received from,
or there has been published by, the Internal Revenue Service a ruling or (B)
since the date of the Senior Subordinated Indenture, there has been a change in
the applicable federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel shall confirm that, the Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
such Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, the Company shall have delivered to the Senior Subordinated Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the 123rd
day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance
shall not result in a breach or violation of, or constitute a default under the
Senior Subordinated Indenture (and shall not conflict with the subordination
provisions contained herein at the time the respective payments are made into
the respective defeasance trust) or any other material agreement or instrument
to which the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries are bound; (vi) the Company shall have
delivered to the Senior Subordinated Trustee an Officers' Certificate stating
that the deposit was not made by the Company with the intent of preferring the
Holders over any other creditors of the Company or with the intent of defeating,
hindering, delaying or defrauding any other creditors of the Company or others;
(vii) the Company shall have delivered to the Senior Subordinated Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance or the
Covenant Defeasance have been complied with; (viii) the Company shall have
delivered to the Senior Subordinated Trustee an opinion of counsel (which may be
subject to customary assumptions and exclusions) to the effect that after the
123rd day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; and (ix) certain other customary
conditions precedent are satisfied.
SATISFACTION AND DISCHARGE
The Senior Subordinated Indenture will be discharged and will cease to be
of further effect (except as to surviving rights or registration of transfer or
exchange of the Senior Subordinated Notes, as expressly provided for in the
Senior Subordinated Indenture) as to all outstanding Senior Subordinated Notes
when (i) either (a) all the Senior Subordinated Notes theretofore authenticated
and delivered (except lost, stolen or destroyed Senior Subordinated Notes which
have been replaced or paid and Senior Subordinated Notes for whose payment money
has theretofore been deposited in trust or segregated and held in trust by the
Company Issuers and thereafter repaid to the Company Issuers or discharged from
such trust) have been delivered to the Senior Subordinated Trustee for
cancellation or (b) all Senior Subordinated Notes not theretofore delivered to
the Senior Subordinated Trustee for cancellation have become due and payable and
the Company has irrevocably deposited or caused to be deposited with the Trustee
funds in an amount sufficient to pay and discharge the entire Indebtedness on
the Senior Subordinated Notes not theretofore delivered to the Senior
Subordinated Trustee for cancellation, for principal of, premium, if any, and
interest on the Senior Subordinated Notes to the date of deposit together with
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irrevocable instructions from the Company directing the Senior Subordinated
Trustee to apply such funds to the payment thereof at maturity or redemption, as
the case may be; (ii) the Company has paid all other sums payable under the
Senior Subordinated Indenture by the Company; and (iii) the Company has
delivered to the Senior Subordinated Trustee an Officers' Certificate and an
opinion of counsel stating that all conditions precedent under the Senior
Subordinated Indenture relating to the satisfaction and discharge of the Senior
Subordinated Indenture have been complied with.
MODIFICATION OF THE SENIOR SUBORDINATED INDENTURE
From time to time, the Company Issuers and the Senior Subordinated Trustee,
without the consent of the Holders, may amend the Senior Subordinated Indenture
for certain specified purposes, including curing ambiguities, defects or
inconsistencies, so long as such change does not, in the opinion of the Senior
Subordinated Trustee, adversely affect the rights of any of the Holders in any
material respect. In formulating its opinion on such matters, the Senior
Subordinated Trustee will be entitled to rely on such evidence as it deems
appropriate, including, without limitation, solely on an opinion of counsel.
Other modifications and amendments of the Senior Subordinated Indenture may be
made with the consent of the Holders of a majority in principal amount of the
then outstanding Senior Subordinated Notes issued under the Senior Subordinated
Indenture, except that, without the consent of each Holder affected thereby, no
amendment may: (i) reduce the amount of Senior Subordinated Notes whose Holders
must consent to an amendment; (ii) reduce the rate of or change or have the
effect of changing the time for payment of interest, including defaulted
interest, on any Senior Subordinated Notes; (iii) reduce the principal of or
change or have the effect of changing the fixed maturity of any Senior
Subordinated Notes, or change the date on which any Senior Subordinated Notes
may be subject to redemption or repurchase, or reduce the redemption or
repurchase price therefor; (iv) make any Senior Subordinated Notes payable in
money other than that stated in the Senior Subordinated Notes; (v) make any
change in provisions of the Senior Subordinated Indenture protecting the right
of each Holder to receive payment of principal of and interest on such Senior
Subordinated Note on or after the due date thereof or to bring suit to enforce
such payment, or permitting Holders of a majority in principal amount of Senior
Subordinated Notes to waive Defaults or Events of Default; (vi) amend, change or
modify in any material respect the obligation of the Company Issuers to make and
consummate a Change of Control Offer in the event of a Change of Control or make
and consummate an Asset Sale Offer with respect to any Asset Sale that has been
consummated or modify any of the provisions or definitions with respect thereto;
or (vii) modify or change any provision of the Senior Subordinated Indenture or
the related definitions affecting the subordination or ranking of the Senior
Subordinated Notes in a manner which adversely affects the Holders.
GOVERNING LAW
The Senior Subordinated Indenture provides that it and the Senior
Subordinated Notes will be governed by, and construed in accordance with, the
laws of the State of New York but without giving effect to applicable principles
of conflicts of law to the extent that the application of the law of another
jurisdiction would be required thereby.
THE SENIOR SUBORDINATED TRUSTEE
The Senior Subordinated Indenture provides that, except during the
continuance of an Event of Default, the Senior Subordinated Trustee will perform
only such duties as are specifically set forth in the Senior Subordinated
Indenture. During the existence of an Event of Default, the Senior Subordinated
Trustee will exercise such rights and powers vested in it by the Senior
Subordinated Indenture, and use the same degree of care and skill in its
exercise as a prudent man would exercise or use under the circumstances in the
conduct of his own affairs.
The Senior Subordinated Indenture and the provisions of the TIA contain
certain limitations on the rights of the Senior Subordinated Trustee, should it
become a creditor of either of the Company Issuers, to obtain payments of claims
in certain cases or to realize on certain property received in respect of any
such claim as security or otherwise. Subject to the TIA, the Senior Subordinated
Trustee will be permitted to engage in other transactions; provided that if the
Senior Subordinated Trustee acquires any conflicting interest as described in
the TIA, it must eliminate such conflict or resign.
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CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Senior Subordinated Indenture. Reference is made to the Senior Subordinated
Indenture for the full definition of all such terms, as well as any other terms
used herein for which no definition is provided.
'Acquired Indebtedness' means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person and (ii) Indebtedness secured by
a Lien encumbering any asset acquired by such specified Person.
'Affiliate' of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, 'control'
(including, with correlative meanings, the terms 'controlling,' 'controlled by'
and 'under common control with'), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
'Asset Sale' means (i) the sale, conveyance, transfer or other disposition
(whether in a single transaction or a series of related transactions) of
property or assets (including by way of a sale and leaseback) of the Company or
any Restricted Subsidiary thereof (each referred to in this definition as a
'disposition') or (ii) the issuance or sale of Equity Interests of any
Restricted Subsidiary (whether in a single transaction or a series of related
transactions), in each case, other than: (a) a disposition of Cash Equivalents
or Investment Grade Securities or obsolete or worn out equipment in the ordinary
course of business; (b) the disposition of all or substantially all of the
assets of the Company in a manner permitted pursuant to the provisions described
above under 'Certain Covenants--Merger, Consolidation and Sale of Assets' or any
disposition that constitutes a Change of Control pursuant to the Senior
Subordinated Indenture; (c) any Restricted Payment that is permitted to be made,
and is made, under the covenant described above under 'Limitation on Restricted
Payments;' (d) any disposition of assets with an aggregate fair market value of
less than $2.0 million; (e) any disposition of property or assets by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Restricted Subsidiary; (f) any exchange of like property
pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended, for
use in a Similar Business; (g) any financing transaction with respect to
property built or acquired by the Company or any of its Restricted Subsidiaries
after the Issue Date including, without limitation, sale-leasebacks and asset
securitizations; (h) foreclosures on assets; and (i) any sale of Equity
Interests in, or Indebtedness or other securities of, an Unrestricted
Subsidiary.
'Blackstone' means Blackstone Capital Partners III Merchant Banking Fund
L.P. and its Affiliates.
'Board of Directors' means, as to any Person, the board of directors of
such Person (or, if such Person is a partnership, the board of directors or
other governing body of the general partner of such Person) or any duly
authorized committee thereof.
'Board Resolution' means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
(or, if such Person is a partnership, its general partner) to have been duly
adopted by the Board of Directors of such Person and to be in full force and
effect on the date of such certification, and delivered to the Trustee.
'Business Day' means a day that is not a Saturday, a Sunday or a day on
which banking institutions in New York, New York are not required to be open.
'Capitalized Lease Obligation' means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized and reflected as a liability on
a balance sheet in accordance with GAAP.
'Capital Stock' means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests
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(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
'Cash Equivalents' means (i) U.S. dollars (and foreign currency exchanged
into U.S. dollars within 180 days), (ii) securities issued or directly and fully
guaranteed or insured by the U.S. Government or any agency or instrumentality
thereof, (iii) certificates of deposit, time deposits and eurodollar time
deposits with maturities of one year or less from the date of acquisition,
bankers' acceptances with maturities not exceeding one year and overnight bank
deposits, in each case with any commercial bank having capital and surplus in
excess of $500.0 million, (iv) repurchase obligations for underlying securities
of the types described in clauses (ii) and (iii) entered into with any financial
institution meeting the qualifications specified in clause (iii) above, (v)
commercial paper rated A-1 or the equivalent thereof by Moody's or S&P and in
each case maturing within one year after the date of acquisition, (vi)
investment funds investing 95% of their assets in securities of the types
described in clauses (i)-(v) above, (vii) readily marketable direct obligations
issued by any state of the United States of America or any political subdivision
thereof having one of the two highest rating categories obtainable from either
Moody's or S&P and (viii) Indebtedness or preferred stock issued by Persons with
a rating of 'A' or higher from S&P or 'A2' or higher from Moody's.
'Change of Control' means the occurrence of any of the following: (i) the
sale, lease or transfer, in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries,
taken as a whole, to a Person other than the Permitted Holders and their Related
Parties; or (ii) the Company becomes aware (by way of a report or any other
filing pursuant to Section 13(d) of the Exchange Act, proxy, vote, written
notice or otherwise) of the acquisition by any Person or group (within the
meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any
successor provision), including any group acting for the purpose of acquiring,
holding or disposing of securities (within the meaning of Rule 13d-5(b)(1) under
the Exchange Act), other than the Permitted Holders and their Related Parties,
in a single transaction or in a related series of transactions, by way of
merger, consolidation or other business combination or purchase, of beneficial
ownership (within the meaning of Rule 13d-3 under the Exchange Act, or any
successor provision) of 50% or more of the total voting power of the Voting
Stock of the Company.
'Common Stock' of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common equity, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common equity.
'Consolidated Depreciation and Amortization Expense' means with respect to
any Person for any period, the total amount of depreciation and amortization
expense of such Person and its Restricted Subsidiaries for such period on a
consolidated basis and otherwise determined in accordance with GAAP.
'Consolidated EBITDA' means, with respect to any Person for any period, the
Consolidated Net Income of such Person for such period plus (a) provision for
taxes based on income or profits of such Person, or Permitted Tax Distributions
made by such Person, for such period deducted in computing Consolidated Net
Income, plus (b) Consolidated Interest Expense of such Person for such period to
the extent the same was deducted in calculating such Consolidated Net Income,
plus (c) Consolidated Depreciation and Amortization Expense of such Person for
such period to the extent such depreciation and amortization expense was
deducted in computing Consolidated Net Income, plus (d) any fees, expenses or
charges related to any Equity Offering, Permitted Investment, acquisition or
recapitalization or Indebtedness permitted to be incurred by the Senior
Subordinated Indenture (whether or not successful) and fees, expenses or charges
related to the transactions contemplated by the Recapitalization Agreement
(including fees to Blackstone), plus (e) the amount of any non-recurring charges
(including any one-time costs incurred in connection with acquisitions after the
Issue Date) deducted in such period in computing Consolidated Net Income, plus
(f) without duplication, any other non-cash charges reducing Consolidated Net
Income for such period (excluding any such charge which requires an accrual of a
cash reserve for anticipated cash charges for any future period), plus (g) the
amount of any minority interest expense deducted in calculating Consolidated Net
Income, plus (h) special charges and unusual items during any period ending on
or prior to the second anniversary of the Issue Date not to exceed $15.0 million
in the aggregate, plus (i) the amount of management, consulting monitoring and
advisory fees paid to Blackstone and its Affiliates during such period not to
exceed $1.0 million during any four quarter period, less, without duplication
(j) non-cash items
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increasing Consolidated Net Income of such Person for such period (excluding any
items which represent the reversal of any accrual of, or cash reserve for,
anticipated cash charges in any prior period).
'Consolidated Interest Expense' means, with respect to any Person for any
period, the sum, without duplication, of: (a) consolidated interest expense of
such Person and its Restricted Subsidiaries for such period, to the extent such
expense was deducted in computing Consolidated Net Income (including
amortization of original issue discount, the interest component of Capitalized
Lease Obligations and net payments and receipts (if any) pursuant to Hedging
Obligations to the extent included in Consolidated Interest Expense and
excluding amortization of deferred financing fees), (b) consolidated capitalized
interest of such Person and its Restricted Subsidiaries for such period, whether
paid or accrued and (c) on and after January 15, 2004, the interest expense of
Holdings with respect to the Senior Discount Notes.
'Consolidated Net Income' means, with respect to any Person for any period,
the aggregate of the Net Income, of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis; provided, however, that (i) any net
after-tax extraordinary gains or losses (less all fees and expenses relating
thereto) shall be excluded, (ii) any increase in the cost of sales or other
incremental expenses resulting from purchase accounting in relation to any
acquisition, net of taxes, shall be excluded, (iii) the Net Income for such
period shall not include the cumulative effect of a change in accounting
principles during such period, (iv) any net after-tax income (loss) from
discontinued operations and any net after-tax gains or losses on disposal of
discontinued operations shall be excluded, (v) any net after-tax gains or losses
(less all fees and expenses relating thereto) attributable to asset dispositions
other than in the ordinary course of business (as determined in good faith by
the Company) shall be excluded, (vi) the Net Income for such period of any
Person that is not a Subsidiary, or is an Unrestricted Subsidiary, or that is
accounted for by the equity method of accounting, shall be included only to the
extent of the amount of dividends or distributions or other payments paid in
cash (or to the extent converted into cash) to the referent Person or a
Restricted Subsidiary thereof in respect of such period, (vii) the Net Income of
any Person acquired in a pooling of interests transaction shall not be included
for any period prior to the date of such acquisition, (viii) the Net Income for
such period of any Restricted Subsidiary shall be excluded to the extent that
the declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of its Net Income is not at the date of determination
permitted without any prior governmental approval (which has not been obtained)
or, directly or indirectly, by the operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule, or governmental
regulation applicable to that Restricted Subsidiary or its stockholders, unless
such restriction with respect to the payment of dividends or in similar
distributions has been legally waived and (ix) the Net Income for such period of
the Company and its Restricted Subsidiaries shall be decreased by the amount of
Permitted Tax Distributions during such period.
'Contingent Obligations' means, with respect to any Person, any obligation
of such Person guaranteeing any leases, dividends or other obligations that do
not constitute Indebtedness ('primary obligations') of any other Person (the
'primary obligor') in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(i) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (ii) to advance or supply funds (A) for the
purchase or payment of any such primary obligation or (B) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, or (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation against loss in respect thereof.
'Default' means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
'Designated Noncash Consideration' means the fair market value of noncash
consideration received by the Company or any of its Restricted Subsidiaries in
connection with an Asset Sale that is so designated as Designated Noncash
Consideration pursuant to an Officers' Certificate, setting forth the basis of
such valuation, less the amount of cash or Cash Equivalents received in
connection with a subsequent sale of such Designated Noncash Consideration.
'Designated Preferred Stock' means preferred stock of the Company (other
than Disqualified Stock) that is issued for cash (other than to a Restricted
Subsidiary) and is so designated as Designated Preferred Stock, pursuant to an
Officers' Certificate, on the issuance date thereof, the cash proceeds of which
are excluded from the calculation set forth in clause (c) of the covenant
described under 'Limitation on Restricted Payments.'
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'Designated Senior Indebtedness' means (i) Indebtedness under or in respect
of the New Credit Facility (except that any Indebtedness which represents a
partial refinancing of Indebtedness theretofore outstanding pursuant to the New
Credit Facility, rather than a complete refinancing thereof, shall only
constitute Designated Senior Indebtedness if such partial refinancing meets the
requirements of succeeding clause (ii)) and (ii) any other Indebtedness
constituting Senior Indebtedness which, at the time of determination, has an
aggregate principal amount or accreted value of at least $25.0 million and is
specifically designated in the instrument evidencing such Senior Indebtedness as
'Designated Senior Indebtedness' by the Company Issuers.
'Disqualified Stock' means, with respect to any Person, any Capital Stock
of such Person which, by its terms (or by the terms of any security into which
it is convertible or for which it is putable or exchangeable), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, in each case prior to the maturity date of the
Senior Subordinated Notes; provided, however, that if such Capital Stock is
issued to any employee or to any plan for the benefit of employees of the
Company or any of its Subsidiaries or by any such plan to such employees, such
Capital Stock shall not constitute Disqualified Stock solely because it may be
required to be repurchased by the Company or such Subsidiary in order to satisfy
applicable statutory or regulatory obligations or as a result of such employee's
death or disability.
'Equity Interests' means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
'Equity Offering' means any public or private sale of common stock or
preferred stock of the Company or Holdings (other than Disqualified Stock),
other than (i) public offerings with respect to the Common Stock registered on
Form S-8 and (ii) any such public or private sale the proceeds of which have
been designated by the Company as an Excluded Contribution or Permanent
Qualified Equity Contributions.
'Exchange Act' means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder.
'Excluded Contributions' means the net cash proceeds received by the
Company after the Issue Date from (a) contributions to its common equity capital
and (b) the sale (other than to a Subsidiary or to any management equity plan or
stock option plan or any other management or employee benefit plan or agreement
of the Company or any of its Subsidiaries) of Capital Stock (other than
Disqualified Stock) of the Company, in each case designated as Excluded
Contributions pursuant to an Officers' Certificate, the cash proceeds of which
are excluded from the calculation set forth in paragraph (c) of the 'Limitation
on Restricted Payments' covenant.
'fair market value' means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction.
'Fixed Charge Coverage Ratio' means, with respect to any Person for any
period, the ratio of Consolidated EBITDA of such Person for such period to the
Fixed Charges of such Person for such period. In the event that the Company or
any of its Restricted Subsidiaries incurs, assumes, guarantees or redeems any
Indebtedness (other than in the case of revolving credit borrowings, in which
case interest expense shall be computed based upon the average daily balance of
such Indebtedness during the applicable period) or issues or redeems preferred
stock subsequent to the commencement of the period for which the Fixed Charge
Coverage Ratio is being calculated but prior to the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the 'Calculation Date'),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter period. With respect to any Calculation
Date that occurs on or after January 15, 2003 and prior to January 15, 2004, the
Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to the
interest expense of Holdings with respect to the Holdings Senior Discount Notes
as if such interest expense was Consolidated Interest Expense of the Company.
For purposes of making the computation referred to above, Investments,
acquisitions, dispositions, mergers, consolidations and discontinued operations
(as determined in accordance with GAAP) that have been made by the Company or
any of its Restricted Subsidiaries during the four-quarter reference period or
subsequent to such reference period and on or prior to or simultaneously with
the Calculation Date shall be calculated on a pro forma basis assuming that all
such Investments, acquisitions, dispositions, discontinued operations, mergers
and consolidations (and the reduction of any associated fixed charge obligations
and the change in Consolidated EBITDA resulting therefrom) had occurred on the
first day of the four-quarter reference period. If since the beginning of such
period any Person (that subsequently became a Restricted Subsidiary or was
merged with or into the Company or any Restricted Subsidiary since the beginning
of such period) shall have made any
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Investment, acquisition, disposition, discontinued operation, merger or
consolidation that would have required adjustment pursuant to this definition,
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
thereto for such period as if such Investment, acquisition, disposition,
discontinued operation, merger or consolidation had occurred at the beginning of
the applicable four-quarter period. For purposes of this definition, whenever
pro forma effect is to be given to a transaction, the pro forma calculations
shall be made as determined in good faith by a responsible financial or
accounting officer of the Company. If any Indebtedness bears a floating rate of
interest and is being given pro forma effect, the interest on such Indebtedness
shall be calculated as if the rate in effect on the Calculation Date had been
the applicable rate for the entire period (taking into account any Hedging
Obligations applicable to such Indebtedness). Interest on a Capitalized Lease
Obligation shall be deemed to accrue at an interest rate reasonably determined
by a responsible financial or accounting officer of the Company to be the rate
of interest implicit in such Capitalized Lease Obligation in accordance with
GAAP. For purposes of making the computation referred to above, interest on any
Indebtedness under a revolving credit facility computed on a pro forma basis
shall be computed based upon the average daily balance of such Indebtedness
during the applicable period. Interest on Indebtedness that may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rate, shall be deemed to have been
based upon the rate actually chosen, or, if none, then based upon such optional
rate chosen as the Company may designate. Any such pro forma calculation may
include adjustments in the reasonable determination of the Company as set forth
in an Officers' Certificate, to (i) reflect operating expense reductions
reasonably expected to result from any acquisition or merger or (ii) eliminate
the effect of any extraordinary accounting event with respect to any acquired
Person on Consolidated Net Income.
'Fixed Charges' means, with respect to any Person for any period, the sum
of (a) Consolidated Interest Expense of such Person for such period and (b) the
product of (x) all cash dividend payments (excluding items eliminated in
consolidation) on any series of Disqualified Stock of such Person or its
Restricted Subsidiaries and (y) (A) if such Person is not a taxable entity for
U.S. federal income tax purposes, one, or (B) if such Person is an entity
taxable for U.S. federal income tax purposes, a fraction, the numerator of which
is one and the denominator of which is one minus the then current effective
consolidated federal, state and local tax rate of such Person, expressed as a
decimal.
'Foreign Subsidiary' means a Restricted Subsidiary not organized or
existing under the laws of the United States, any State thereof, the District of
Columbia, or any territory thereof.
'GAAP' means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issue Date. For the purposes of the
Senior Subordinated Indenture, the term 'consolidated' with respect to any
Person shall mean such Person consolidated with its Restricted Subsidiaries, and
shall not include any Unrestricted Subsidiary.
'Government Securities' means securities that are (a) direct obligations of
the United States of America for the timely payment of which its full faith and
credit is pledged or (b) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such Government Securities
or a specific payment of principal of or interest on any such Government
Securities held by such custodian for the account of the holder of such
depository receipt; provided that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the holder of
such depository receipt from any amount received by the custodian in respect of
the Government Securities or the specific payment of principal of or interest on
the Government Securities evidenced by such depository receipt.
'guarantee' means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness or other obligations.
'Guarantee' means any guarantee of the obligations of the Company Issuers
under the Senior Subordinated Indenture and the Senior Subordinated Notes by any
Restricted Subsidiary in accordance with the provisions of the Senior
Subordinated Indenture. When used as a verb, 'Guarantee' shall have a
corresponding meaning.
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'Guarantor' means any Restricted Subsidiary that incurs a Guarantee;
provided that upon the release and discharge of such Restricted Subsidiary from
its Guarantee in accordance with the Senior Subordinated Indenture, such
Restricted Subsidiary shall cease to be a Guarantor.
'Hedging Obligations' means, with respect to any Person, the obligations of
such Person under (i) currency exchange or interest rate swap agreements,
currency exchange or interest rate cap agreements and currency exchange or
interest rate collar agreements and (ii) other agreements or arrangements
designed to protect such Person against fluctuations in currency exchange or
interest rates or commodity prices.
'Indebtedness' means, with respect to any Person, (a) any indebtedness of
such Person, whether or not contingent (i) in respect of borrowed money, (ii)
evidenced by bonds, notes, debentures or similar instruments or letters of
credit or bankers' acceptances (or, without double counting, reimbursement
agreements in respect thereof), (iii) representing the balance deferred and
unpaid of the purchase price of any property (including Capitalized Lease
Obligations), except any such balance that constitutes a trade payable or
similar obligation to a trade creditor, in each case accrued in the ordinary
course of business or (iv) representing any Hedging Obligations, if and to the
extent of any of the foregoing Indebtedness (other than letters of credit and
Hedging Obligations) that would appear as a liability upon a balance sheet
(excluding the footnotes thereto) of such Person prepared in accordance with
GAAP, (b) to the extent not otherwise included, any obligation by such Person to
be liable for, or to pay, as obligor, guarantor or otherwise, on the
Indebtedness of another Person (other than by endorsement of negotiable
instruments for collection in the ordinary course of business) and (c) to the
extent not otherwise included, Indebtedness of another Person secured by a Lien
on any asset owned by such Person (whether or not such Indebtedness is assumed
by such Person); provided, however, that Contingent Obligations incurred in the
ordinary course of business shall be deemed not to constitute Indebtedness.
'Independent Financial Advisor' means an accounting, appraisal, investment
banking firm or consultant to Persons engaged in Similar Businesses of
nationally recognized standing that is, in the good faith determination of the
Company, qualified to perform the task for which it has been engaged.
'Investment Grade Securities' means (i) securities issued or directly and
fully guaranteed or insured by the United States government or any agency or
instrumentality thereof (other than Cash Equivalents), (ii) debt securities or
debt instruments with a rating of BBB- or higher by S&P or Baa3 or higher by
Moody's or the equivalent of such rating by such rating organization, or, if no
rating of S&P or Moody's then exists, the equivalent of such rating by any other
nationally recognized securities rating agency, but excluding any debt
securities or instruments constituting loans or advances between and among the
respective Company Issuers and their respective Subsidiaries, and (iii)
investments in any fund that invests exclusively in investments of the type
described in clauses (i) and (ii) which fund may also hold immaterial amounts of
cash pending investment and/or distribution.
'Investments' means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of loans (including
guarantees), advances or capital contributions (excluding accounts receivable,
trade credit, advances to customers, commission, travel and similar advances to
officers and employees made in the ordinary course of business), purchases or
other acquisitions for consideration of Indebtedness, Equity Interests or other
securities issued by any other Person and investments that are required by GAAP
to be classified on the balance sheet (excluding the footnotes thereto) of such
Person in the same manner as the other investments included in this definition
to the extent such transactions involve the transfer of cash or other property.
For purposes of the definition of 'Unrestricted Subsidiary' and the covenant
described under 'Certain Covenants--Limitation on Restricted Payments,' (i)
'Investments' shall include the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of a
Subsidiary of the Company at the time that such Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent 'Investment' in an Unrestricted Subsidiary equal to an
amount (if positive) equal to (x) the Company's 'Investment' in such Subsidiary
at the time of such redesignation less (y) the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of such Subsidiary at the time of such redesignation; and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as determined
in good faith by the Company.
'Issue Date' means the closing date for the sale and original issuance of
the Senior Subordinated Notes under the Senior Subordinated Indenture.
'Lien' means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under
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applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell or give a security interest in and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction); provided that in no event shall an operating lease be
deemed to constitute a Lien.
'Management Group' means the group consisting of the executive officers of
the Company.
'Moody's' means Moody's Investors Service, Inc.
'Net Income' means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends.
'Net Proceeds' means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
Designated Noncash Consideration received in any Asset Sale), net of the direct
costs relating to such Asset Sale and the sale or disposition of such Designated
Noncash Consideration (including, without limitation, legal, accounting and
investment banking fees, and brokerage and sales commissions), and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements related thereto), amounts required
to be applied to the repayment of principal, premium (if any) and interest on
Indebtedness required (other than required by clause (i) of the second paragraph
of 'Certain Covenants--Limitation on Asset Sales') to be paid as a result of
such transaction and any deduction of appropriate amounts to be provided by the
Company as a reserve in accordance with GAAP against any liabilities associated
with the asset disposed of in such transaction and retained by the Company after
such sale or other disposition thereof, including, without limitation, pension
and other post-employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations associated with
such transaction.
'New Credit Facility' means that certain credit facility among Bankers
Trust Company, the Company and certain of its Subsidiaries and affiliates and
the lenders from time to time party thereto, together with any related
documents, instruments and agreements executed in connection therewith
(including, without limitation, any guaranty agreements and security documents),
in each case as such credit facility and related documents, instruments and
agreements may be amended (including any amendment and restatement thereof),
supplemented or otherwise modified from time to time, including any agreement
extending the maturity of, refinancing, replacing or otherwise restructuring
(including increasing the amount of available borrowings thereunder or adding
additional obligors or guarantors thereunder) all or any portion of the
Indebtedness under such credit facility or any successor or replacement credit
facility and whether by the same or any other agent, lender or group of lenders.
'Obligations' means all obligations for principal, interest, penalties,
fees, indemnifications, reimbursements (including, without limitation,
reimbursement obligations with respect to letters of credit and banker's
acceptances), damages and other liabilities payable under the documentation
governing any Indebtedness; provided that Obligations with respect to the Senior
Subordinated Notes shall not include fees or indemnifications in favor of the
Senior Subordinated Trustee and other third parties other than the holders of
the Senior Subordinated Notes.
'Officer' of any Person means the Chairman of the Board, the President, any
Executive Vice President, Senior Vice President or Vice President, the Treasurer
or the Secretary of such Person.
'Officers' Certificate' of any Person means a certificate signed on behalf
of such Person by two Officers of such Person, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of such Person that meets the requirements set
forth in the Senior Subordinated Indenture.
'Pari Passu Indebtedness' means with respect to the Senior Subordinated
Notes or a Guarantee, Indebtedness which ranks pari passu in right of payment to
the Senior Subordinated Notes or such Guarantee, as the case may be.
'Permanent Qualified Equity Contributions' means net cash proceeds to the
Company in the form of contributions to the common equity capital of the Company
or from the sale (other than to a Subsidiary of the Company or to any management
equity plan or stock option plan or any other management or employee benefit
plan of the Company or any of its Subsidiaries) of Capital Stock (other than
Disqualified Stock) of the Company, in each case designated as Permanent
Qualified Equity Contributions pursuant to an Officers' Certificate, the cash
proceeds of which are excluded from the calculation set forth in paragraph (c)
of the 'Limitation on Restricted Payments' covenant.
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'Permitted Holders' means Blackstone and any of its Affiliates.
'Permitted Investments' means (a) any Investment in the Company or any
Restricted Subsidiary; (b) any Investment in cash and Cash Equivalents or
Investment Grade Securities; (c) any Investment by the Company or any Restricted
Subsidiary in a Person that is a Similar Business if as a result of such
Investment (i) such Person becomes a Restricted Subsidiary or (ii) such Person,
in one transaction or a series of related transactions, is merged, consolidated
or amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Restricted Subsidiary; (d)
any Investment in securities or other assets not constituting cash or Cash
Equivalents and received in connection with an Asset Sale made pursuant to the
provisions of 'Certain Covenants--Limitation on Asset Sales' or any other
disposition of assets not constituting an Asset Sale; (e) any Investment
existing on the Issue Date; (f) advances to employees not in excess of $10.0
million outstanding at any one time, in the aggregate; (g) any Investment
acquired by the Company or any of its Restricted Subsidiaries (i) in exchange
for any other Investment or accounts receivable held by the Company or any such
Restricted Subsidiary in connection with or as a result of a bankruptcy,
workout, reorganization or recapitalization of the issuer of such other
Investment or accounts receivable or (ii) as a result of a foreclosure by the
Company or any of its Restricted Subsidiaries with respect to any secured
Investment or other transfer of title with respect to any secured Investment in
default; (h) Hedging Obligations permitted under clause (j) of the 'Limitation
of Incurrence of Indebtedness and Issuance of Disqualified Stock' covenant; (i)
loans and advances to officers, directors and employees for business-related
travel expenses, moving expenses and other similar expenses, in each case
incurred in the ordinary course of business; (j) any Investment in a Similar
Business (other than an Investment in an Unrestricted Subsidiary) having an
aggregate fair market value, taken together with all other Investments made
pursuant to this clause (j) that are at that time outstanding, not to exceed 10%
of Total Assets at the time of such Investment (with the fair market value of
each Investment being measured at the time made and without giving effect to
subsequent changes in value); (k) Investments the payment for which consists of
Equity Interests of the Company (other than Disqualified Stock); provided,
however, that such Equity Interests will not increase the amount available for
Restricted Payments under clause (c) of the 'Limitation on Restricted Payments'
covenant; (l) additional Investments having an aggregate fair market value,
taken together with all other Investments made pursuant to this clause (l) that
are at that time outstanding, not to exceed $10.0 million (with the fair market
value of each Investment being measured at the time made and without giving
effect to subsequent changes in value); (m) any transaction to the extent it
constitutes an Investment that is permitted by and made in accordance with the
provisions of clauses (iii) and (xi) of the second paragraph of the covenant
described under 'Certain Covenants--Transactions with Affiliates'; (n) any
Investment by Restricted Subsidiaries in other Restricted Subsidiaries; (o)
Investments consisting of the licensing or contribution of intellectual property
pursuant to joint marketing arrangements with other Persons; and (p) Investments
consisting of purchases and acquisitions of inventory, supplies, materials and
equipment or licenses or leases of intellectual property, in any case, in the
ordinary course of business.
'Permitted Junior Securities' shall mean debt or equity securities of a
Company Issuer or any successor corporation issued pursuant to a plan of
reorganization or readjustment of a Company Issuer that are subordinated to the
payment of all then outstanding Senior Indebtedness at least to the same extent
that the Senior Subordinated Notes are subordinated to the payment of all Senior
Indebtedness on the Issue Date, so long as (i) the effect of the use of this
defined term in the subordination provisions described under the caption
'Subordination' is not to cause the Senior Subordinated Notes to be treated as
part of (a) the same class of claims as the Senior Indebtedness or (b) any class
of claims pari passu with, or senior to, the Senior Indebtedness for any payment
or distribution in any case or proceeding or similar event relating to the
liquidation, insolvency, bankruptcy, dissolution, winding up or reorganization
of a Company Issuer and (ii) to the extent that any Senior Indebtedness
outstanding on the date of consummation of any such plan or reorganization or
readjustment are not paid in full in cash on such date, either (a) the holders
of any such Senior Indebtedness not so paid in full in cash have consented to
the terms of such plan or reorganization or readjustment of (b) such holders
receive securities which constitute Senior Indebtedness and which have been
determined by the relevant court to constitute satisfaction in full in money or
money's worth of any Senior Indebtedness not paid in full in cash.
'Permitted Liens' means the following types of Liens:
(i) judgment Liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;
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(ii) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation;
(iii) purchase money Liens to finance property or assets of the
Company or any Restricted Subsidiary acquired in the ordinary course of
business; provided, however, that (A) the related purchase money
Indebtedness shall not exceed the cost of such property or assets and shall
not be secured by any property or assets of the Company or any Restricted
Subsidiary other than the property and assets so acquired and (B) the Lien
securing such Indebtedness shall be created within 180 days of such
acquisition;
(iv) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
(v) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(vi) Liens securing Indebtedness under Hedging Obligations;
(vii) Liens securing Acquired Indebtedness incurred in accordance with
the 'Limitations on Incurrence of Indebtedness and Issuance of Disqualified
Stock' covenant; provided that (A) such Liens secured such Acquired
Indebtedness at the time of and prior to the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary thereof and were not
granted in connection with, or in anticipation of, the incurrence of such
Acquired Indebtedness by the Company or a Restricted Subsidiary thereof and
(B) such Liens do not extend to or cover any property or assets of the
Company or any of the Restricted Subsidiaries other than the property or
assets that secured the Acquired Indebtedness prior to the time such
Indebtedness became Acquired Indebtedness of the Company or such Restricted
Subsidiary and are no more favorable to the lienholders than those securing
the Acquired Indebtedness prior to the incurrence of such Acquired
Indebtedness by the Company or such Restricted Subsidiary;
(viii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens
imposed by law incurred in the ordinary course of business for sums not yet
delinquent or being contested in good faith, if such reserve or other
appropriate provision, if any, as shall be required by GAAP shall have been
made in respect thereof;
(ix) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of Social Security, including any Lien securing letters of
credit issued in the ordinary course of business, consistent with past
practice in connection therewith, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
and
(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements, including
rights of offset and set off.
'Person' means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
'Recapitalization Agreement' means the Agreement and Plan of
Recapitalization, Redemption and Purchase, dated as of December 18, 1997 by and
among the Company, BMP/Graham Holdings Corporation and the other parties
thereto.
'Related Parties' means any Person controlled by a Permitted Holder,
including any partnership of which a Permitted Holder or its Affiliates is the
general partner.
'Representative' means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Indebtedness; provided that
if, and for so long as, any Designated Senior Indebtedness lacks such a
representative, then the Representative for such Designated Senior Indebtedness
shall at all times constitute the holders of a majority in outstanding principal
amount of such Designated Senior Indebtedness in respect of any Designated
Senior Indebtedness.
'Restricted Investment' means an Investment other than a Permitted
Investment.
'Restricted Subsidiary' means, at any time, any direct or indirect
Subsidiary of the Company that is not then an Unrestricted Subsidiary; provided,
however, that upon the occurrence of an Unrestricted Subsidiary
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ceasing to be an Unrestricted Subsidiary, such Subsidiary shall be included in
the definition of 'Restricted Subsidiary.'
'S&P' means Standard and Poor's Ratings Group.
'Securities Act' means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
'Senior Indebtedness' means the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of Holdings, the Company Issuers or such Guarantor, whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
Holdings Guarantee, the Senior Subordinated Notes or the Guarantee of such
Guarantor. Without limiting the generality of the foregoing, 'Senior
Indebtedness' shall also include the principal of, premium, if any, interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
to the extent such interest is an allowed claim under applicable law) on, and
all other amounts owing in respect of, (x) all monetary obligations (including
guarantees thereof) of every nature of Holdings, the Company Issuers or a
Guarantor under the New Credit Facility, including, without limitation,
obligations to pay principal and interest, reimbursement obligations under
letters of credit, fees, expenses, indemnities and Hedging Obligations related
thereto, in each case whether outstanding on the Issue Date or thereafter
incurred and (y) all monetary obligations (including guarantees thereof) of
every nature of the Company Issuers, Holdings and any Guarantor with respect to
Hedging Obligations, in each case whether outstanding on the Issue Date or
thereafter incurred. Notwithstanding the foregoing, 'Senior Indebtedness' shall
not include (i) any Indebtedness of Holdings, the Company or a Guarantor to a
Subsidiary thereof, (ii) Indebtedness to, or guaranteed on behalf of, any
director, officer or employee of Holdings, the Company or a Guarantor or any
Subsidiary thereof (including, without limitation, amounts owed for
compensation), (iii) Indebtedness to trade creditors and other amounts incurred
in connection with obtaining goods, materials or services (other than amounts
incurred under the New Credit Facility), (iv) Indebtedness represented by
Disqualified Stock, (v) any liability for federal, state, local or other taxes
owed or owing, (vi) that portion of any Indebtedness incurred in violation of
the Senior Subordinated Indenture provisions set forth under 'Limitations on
Incurrence of Indebtedness and Issuance of Disqualified Stock' (but, as to any
such obligation, no such violation shall be deemed to exist for purposes of this
clause (vi) if the holder(s) of such obligation or their representative shall
have received an Officers' Certificate of the Company to the effect that the
incurrence of such Indebtedness does not (or, in the case of revolving credit
Indebtedness, that the incurrence of the entire committed amount thereof at the
date on which the initial borrowing thereunder is made would not) violate such
provisions of the Senior Subordinated Indenture), (vii) Indebtedness which, when
incurred and without respect to any election under Section 1111(b) of Title 11,
United States Code, is without recourse to Holdings, the Company or a Guarantor,
as the case may be and (viii) any Indebtedness which is, by its express terms,
subordinated in right of payment to any other Indebtedness of Holdings, the
Company or a Guarantor, as the case may be.
'Significant Restricted Subsidiary' means any Restricted Subsidiary that
would be a 'significant subsidiary' of the Company as defined in Article 1, Rule
1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such
Regulation is in effect on the date hereof.
'Similar Business' means a business, the majority of whose revenues are
derived from the manufacture, marketing or sale of containers or any business or
activity that is reasonably similar thereto or a reasonable extension,
development or expansion thereof or ancillary thereto.
'Subordinated Indebtedness' means with respect to the Senior Subordinated
Notes or a Guarantee, any Indebtedness of the Company or a Guarantor, as the
case may be, which is by its terms subordinated in right of payment to the
Senior Subordinated Notes or the Guarantee of such Guarantor, as the case may
be.
'Subsidiary' means, with respect to any Person, (i) any corporation,
association, or other business entity (other than a partnership) of which more
than 50% of the total voting power of shares of Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time of determination owned or
controlled, directly or indirectly, by such Person or one or more of the other
Subsidiaries of that Person or a combination thereof and (ii) any partnership,
joint venture, limited liability company or similar entity of which (x) more
than 50% of the capital accounts, distribution rights, total equity and voting
interests or general or limited partnership interests, as applicable, are owned
or controlled,
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directly or indirectly, by such Person or one or more of the other Subsidiaries
of that Person or a combination thereof whether in the form of membership,
general, special or limited partnership or otherwise and (y) such Person or any
Wholly Owned Restricted Subsidiary of such Person is a controlling general
partner or otherwise controls such entity.
'Total Assets' means the total consolidated assets of the Company and its
Restricted Subsidiaries, as shown on the most recent balance sheet of the
Company.
'Unrestricted Subsidiary' means (i) any Subsidiary of the Company which at
the time of determination is an Unrestricted Subsidiary (as designated by the
Board of Directors of the Company, as provided below) and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors of the Company may designate
any Subsidiary of the Company (including any existing Subsidiary and any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless
such Subsidiary or any of its Subsidiaries owns any Equity Interests of, or
owns, or holds any Lien on, any property of, the Company or any Subsidiary
thereof (other than any Subsidiary of the Subsidiary to be so designated),
provided that each Subsidiary to be so designated and its Subsidiaries have not
at the time of designation, and do not thereafter, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable with respect to any
Indebtedness pursuant to which the lender has recourse to any of the assets of
the Company or any of its Restricted Subsidiaries. The Board of Directors of the
Company may designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that, immediately after giving effect to such designation, (i) the
Company could incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test described under 'Certain Covenants--Limitations
on Incurrence of Indebtedness and Issuance of Disqualified Stock' or (ii) the
Fixed Charge Coverage Ratio for the Company and its Restricted Subsidiaries
would be greater than such ratio for the Company and its Restricted Subsidiaries
immediately prior to such designation, in each case on a pro forma basis taking
into account such designation. Any such designation by the Board of Directors of
the Company shall be notified by the Company to the Senior Subordinated Trustee
by promptly filing with the Senior Subordinated Trustee a copy of the board
resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
'Voting Stock' of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
'Weighted Average Life to Maturity' means, when applied to any Indebtedness
or Disqualified Stock, as the case may be, at any date, the quotient obtained by
dividing (i) the sum of the products of the number of years from the date of
determination to the date of each successive scheduled principal payment of such
Indebtedness or redemption or similar payment with respect to such Disqualified
Stock multiplied by the amount of such payment, by (ii) the sum of all such
payments.
'Wholly Owned Restricted Subsidiary' is any Wholly Owned Subsidiary that is
a Restricted Subsidiary.
'Wholly Owned Subsidiary' of any Person means a Subsidiary of such Person
100% of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.
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DESCRIPTION OF THE SENIOR DISCOUNT EXCHANGE NOTES
The Senior Discount Old Notes were issued and the Senior Discount Exchange
Notes offered hereby will be issued under an indenture dated as of February 2,
1998 (the 'Senior Discount Indenture' and, together with the Senior Subordinated
Indenture, the 'Indentures') by and between the Holdings Issuers and The Bank of
New York, as trustee (the 'Senior Discount Trustee'). Any Senior Discount Old
Notes that remain outstanding after the completion of the Senior Discount
Exchange Offer, together with the Senior Discount Exchange Notes issued in
connection with the Senior Discount Exchange Offer, will be treated as a single
class of securities under the Senior Discount Indenture. The following summary
of certain provisions of the Senior Discount Indenture sets forth the material
terms of the Senior Discount Indenture. However, such summary is not complete
and is subject to, and is qualified in its entirety by reference to, the Trust
Indenture Act of 1939, as amended (the 'TIA'), and to all of the provisions of
the Senior Discount Indenture, including the definitions of certain terms
therein and those terms made a part of the Senior Discount Indenture by
reference to the TIA as in effect on the date of the Senior Discount Indenture.
The definitions of certain capitalized terms used in the following summary are
set forth below under '--Certain Definitions.' For purposes of this section,
references to 'Holdings' and the 'Holdings Issuers' do not include their
respective Subsidiaries. The Senior Discount Indenture is an exhibit to the
Registration Statement of which this Prospectus is a part.
GENERAL
On February 2, 1998, the Holdings Issuers issued $169,000,000 aggregate
principal amount at maturity of Senior Discount Old Notes under the Indenture.
The terms of the Senior Discount Exchange Notes are identical in all material
respects to the Senior Discount Old Notes, except for certain transfer
restrictions and registration and other rights relating to the exchange of the
Senior Discount Old Notes for Senior Discount Exchange Notes. The Trustee will
authenticate and deliver Senior Discount Exchange Notes for original issue only
in exchange for a like principal amount of Senior Discount Old Notes. Any Senior
Discount Old Notes that remain outstanding after the completion of the Senior
Discount Exchange Offer, together with the Senior Discount Exchange Notes issued
in connection with the Senior Discount Exchange Offer, will be treated as a
single class of securities under the Senior Discount Indenture. Accordingly, all
references herein to specified percentages in aggregate principal amount of the
outstanding Senior Discount Exchange Notes shall be deemed to mean, at any time
after the Senior Discount Exchange Offer is consummated, such percentage in
aggregate principal amount of the Senior Discount Old Notes and Senior Discount
Exchange Notes then outstanding.
The Senior Discount Exchange Notes will be unsecured obligations of the
Holdings Issuers, ranking pari passu in right of payment to all unsubordinated
obligations of the Holdings Issuers.
The Senior Discount Exchange Notes will be issued in fully registered form
only, without coupons, in denominations of $1,000 principal amount at maturity
and integral multiples thereof. Initially, the Senior Discount Trustee will act
as Paying Agent and Registrar for the Senior Discount Exchange Notes. The Senior
Discount Exchange Notes may be presented for registration of transfer and
exchange at the offices of the Registrar, which initially will be the Senior
Discount Trustee's principal corporate trust office. The Holdings Issuers may
change any Paying Agent and Registrar without notice to holders of the Senior
Discount Exchange Notes (the 'Holders'). The Holdings Issuers will pay principal
(and premium, if any) on the Senior Discount Exchange Notes at the Senior
Discount Trustee's principal corporate office in New York, New York. At the
Holdings Issuers' option, interest may be paid at the Senior Discount Trustee's
principal corporate trust office or by check mailed to the registered addresses
of Holders.
PRINCIPAL, MATURITY AND INTEREST
The Senior Discount Notes are limited in aggregate principal amount at
maturity to $169,000,000 at any time outstanding. Pursuant to the Senior
Discount Exchange Offer, an aggregate of up to $169,000,000 aggregate principal
amount at maturity of Senior Subordinated Exchange Notes may be issued. Such
Senior Discount Exchange Notes may be issued solely in exchange for the
$169,000,000 aggregate principal amount at maturity of Senior Discount Old Notes
which were issued on February 2, 1998.
The Senior Discount Exchange Notes will mature on January 15, 2009. Cash
interest on the Senior Discount Exchange Notes will not accrue prior to January
15, 2003. Thereafter, interest on the Senior Discount Exchange
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Notes will accrue from January 15, 2003 at the rate of 10 3/4% per annum and
will be payable semiannually in cash on each January 15 and July 15, commencing
on July 15, 2003, to the persons who are registered Holders at the close of
business on the January 1 and July 1 immediately preceding the applicable
interest payment date.
The Senior Discount Exchange Notes will not be entitled to the benefit of
any mandatory sinking fund.
REDEMPTION
Optional Redemption. The Senior Discount Exchange Notes will be
redeemable, at the Holdings Issuers' option, in whole at any time or in part
from time to time, on and after January 15, 2003, upon not less than 30 nor more
than 60 days' notice, at the following redemption prices (expressed as
percentages of the principal amount at maturity thereof) if redeemed during the
twelve-month period commencing on January 15 of the year set forth below, plus,
in each case, accrued and unpaid interest thereon, if any, to the date of
redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- -------------------------------------------------------------- ----------
<S> <C>
2003.......................................................... 105.375%
2004.......................................................... 103.583
2005.......................................................... 101.792
2006 and thereafter........................................... 100.000
</TABLE>
Optional Redemption upon Equity Offerings. At any time, or from time to
time, on or prior to January 15, 2001, the Holdings Issuers may, at their
option, use the net cash proceeds of one or more Equity Offerings by Holdings to
redeem Senior Discount Notes up to an aggregate principal amount at maturity
equal to 40% of the aggregate principal amount at maturity of the Senior
Discount Old Notes originally issued, at a redemption price equal to 110.750% of
the Accreted Value thereof; provided that Senior Discount Notes in an aggregate
principal amount equal to at least 60% of the aggregate principal amount at
maturity of the Senior Discount Old Notes originally issued remains outstanding
immediately following such redemption. In order to effect the foregoing
redemption with the proceeds of any Equity Offering, the Holdings Issuers shall
make such redemption not more than 120 days after the consummation of any such
Equity Offering.
SELECTION AND NOTICE OF REDEMPTION
If less than all of the Senior Discount Exchange Notes are to be redeemed
at any time or if more Senior Discount Exchange Notes are tendered pursuant to
an Asset Sale Offer or a Change of Control Offer than the Holdings Issuers are
required to purchase, then the selection of such Senior Discount Exchange Notes
for redemption or purchase, as the case may be, will be made by the Senior
Discount Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which such Senior Discount Exchange Notes are
listed, or, if such Senior Discount Notes are not so listed, on a pro rata
basis, by lot or by such other method as the Senior Discount Trustee shall deem
fair and appropriate (and in such manner as complies with applicable legal
requirements); provided that no Senior Discount Notes of $1,000 principal amount
at maturity or less shall be purchased or redeemed in part.
Notices of purchase or redemption shall be mailed by first class mail,
postage prepaid, at least 30 but not more than 60 days before the purchase or
redemption date to each Holder of Senior Discount Notes to be purchased or
redeemed at such Holder's registered address. If any Senior Discount Exchange
Note is to be purchased or redeemed in part only, any notice of purchase or
redemption that relates to such Senior Exchange Discount Note shall state the
portion of the principal amount thereof that has been or is to be purchased or
redeemed.
A new Senior Exchange Discount Note in principal amount at maturity equal
to the unpurchased or unredeemed portion of any Senior Discount Note purchased
or redeemed in part will be issued in the name of the Holder thereof upon
cancellation of the original Senior Discount Exchange Note. On and after the
purchase or redemption date unless the Holdings Issuers default in payment of
the purchase or redemption price, Accreted Value shall cease to accrete or
interest shall cease to accrue on Senior Discount Exchange Notes or portions
thereof purchased or called for redemption.
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HOLDINGS ISSUERS' STRUCTURE
Holdings is a holding company with no material operations of its own.
Accordingly, Holdings is dependent upon the distribution of the earnings of its
Subsidiaries, whether in the form of dividends, advances or payments on account
of intercompany obligations, to service its debt obligations. In addition, the
claims of the Holders of Senior Discount Exchange Notes are subject to the prior
payment of all liabilities (whether or not for borrowed money) and to any
preferred stock interest of such Subsidiaries. There can be no assurance that,
after providing for all prior claims, there would be sufficient assets available
from its Subsidiaries to satisfy the claims of the Holders of Senior Discount
Exchange Notes. CapCo II is a subsidiary corporation of Holdings with no
material operations of its own.
NO RECOURSE TO HOLDINGS PARTNERS; NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS,
EMPLOYEES AND STOCKHOLDERS
The Senior Discount Indenture under which the Senior Discount Notes have
been or will be issued provides that all obligations under the Senior Discount
Indenture and the Senior Discount Notes (and all notes issued in exchange
therefor) shall be expressly non-recourse to the partners of Holdings in their
capacities as such, and that, by purchasing the Senior Discount Notes, each
holder of Senior Discount Notes waives any liability of any partner of Holdings
under the Senior Discount Indenture and the Senior Discount Notes (and all notes
issued in exchange therefor). No director, officer, employee, incorporator or
stockholder of the Holdings Issuers or any Guarantor shall have any liability
for any obligations of the Holdings Issuers or the Guarantors under the Senior
Discount Exchange Notes, the Guarantees or the Senior Discount Indenture or any
claim based on, in respect of, or by reason of such obligation, or their
creation. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the Commission that such a waiver
is against public policy.
CHANGE OF CONTROL
The Senior Discount Indenture provides that upon the occurrence of a Change
of Control, each Holder will have the right to require that the Holdings Issuers
purchase all or a portion of such Holder's Senior Discount Exchange Notes
pursuant to the offer described below (the 'Change of Control Offer'), at a
purchase price equal to 101% of the Accreted Value thereof, plus accrued
interest, if any, to, the date of purchase.
The Senior Discount Indenture provides that, prior to the mailing of the
notice referred to below, but in any event within 30 days following any Change
of Control, the Holdings Issuers covenant to (i) repay in full and terminate all
commitments under Indebtedness under the New Credit Facility and all other
Indebtedness of Holdings' Restricted Subsidiaries the terms of which require
repayment upon a Change of Control or offer to repay in full and terminate all
commitments under all Indebtedness under the New Credit Facility and all other
such Indebtedness of Holdings' Restricted Subsidiaries and to repay the
Indebtedness owed to each lender which has accepted such offer or (ii) obtain
the requisite consents under the New Credit Facility and all other Indebtedness
of Holdings' Restricted Subsidiaries to permit the repurchase of the Senior
Discount Exchange Notes as provided below. The Holdings Issuers shall first
comply with the covenant in the immediately preceding sentence before they shall
be required to repurchase Senior Discount Notes pursuant to the provisions
described below. The Holdings Issuers' failure to comply with the covenant
described in the second preceding sentence or the immediately succeeding
paragraph shall constitute an Event of Default described in clause (iii) (and
not in clause (ii)) under 'Events of Default' below.
Within 30 days following the date upon which the Change of Control
occurred, the Holdings Issuers must send, by first class mail, a notice to each
Holder, with a copy to the Senior Discount Trustee, which notice shall govern
the terms of the Change of Control Offer. Such notice shall state, among other
things, the purchase date, which must be no earlier than 30 days nor later than
60 days from the date such notice is mailed, other than as may be required by
law (the 'Change of Control Payment Date'). Holders electing to have a Senior
Discount Note purchased pursuant to a Change of Control Offer will be required
to surrender the Senior Discount Note, with the form entitled 'Option of Holder
to Elect Purchase' on the reverse of the Note completed, to the paying agent
('Paying Agent') at the address specified in the notice prior to the close of
business on the third Business Day prior to the Change of Control Payment Date.
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If a Change of Control Offer is made, there can be no assurance that the
Holdings Issuers will have available funds sufficient to pay the Change of
Control purchase price for all the Senior Discount Exchange Notes that might be
delivered by Holders seeking to accept the Change of Control Offer. In the event
that the Holdings Issuers are required to purchase outstanding Senior Discount
Exchange Notes pursuant to a Change of Control Offer, the Holdings Issuers
expect that they would seek third party financing to the extent they do not have
available funds to meet their purchase obligations. However, there can be no
assurance that the Holdings Issuers would be able to obtain such financing.
Neither the Board of Directors of either Holdings Issuer nor the Senior
Discount Trustee may waive the covenant relating to a Holder's right to
repurchase upon a Change of Control. Restrictions in the Senior Discount
Indenture described herein on the ability of the Holdings Issuers to incur
additional Indebtedness, to grant Liens on their property, to make Restricted
Payments and to make Asset Sales may also make more difficult or discourage a
takeover of Holdings, whether favored or opposed by the management of Holdings.
Consummation of any such transaction in certain circumstances may require
redemption or repurchase of the Senior Discount Exchange Notes, and there can be
no assurance that the Holdings Issuers or the acquiring party will have
sufficient financial resources to effect such redemption or repurchase. Such
restrictions and the restrictions on transactions with Affiliates may, in
certain circumstances, make more difficult or discourage any leveraged buyout of
Holdings or any of its Subsidiaries by the management of Holdings. While such
restrictions cover a wide variety of arrangements which have traditionally been
used to effect highly leveraged transactions, the Senior Discount Indenture may
not afford the Holders of Senior Discount Exchange Notes protection in all
circumstances from the adverse aspects of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction.
The Holdings Issuers will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Senior Discount Exchange Notes pursuant to a Change of Control
Offer. To the extent that the provisions of any securities laws or regulations
conflict with the 'Change of Control' provisions of the Senior Discount
Indenture, the Holdings Issuers shall comply with the applicable securities laws
and regulations and shall not be deemed to have breached their obligations under
the 'Change of Control' provisions of the Senior Discount Indenture by virtue
thereof.
CERTAIN COVENANTS
The Senior Discount Indenture contains, among others, the following
covenants:
Limitations on Incurrence of Indebtedness and Issuance of Disqualified
Stock. Holdings will not, and will not cause or permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, 'incur' and collectively, an 'incurrence') any
Indebtedness (including Acquired Indebtedness) or issue any shares of
Disqualified Stock; provided, however, that Holdings and any Restricted
Subsidiary may incur Indebtedness (including Acquired Indebtedness) or issue
shares of Disqualified Stock if the Fixed Charge Coverage Ratio for Holdings'
and the Restricted Subsidiaries' most recently ended four full fiscal quarters
for which internal financial statements are available immediately preceding the
date on which such additional Indebtedness is incurred or such Disqualified
Stock is issued would have been at least 1.75 to 1.00 (determined on a pro forma
basis (including a pro forma application of the net proceeds therefrom), as if
the additional Indebtedness had been incurred, or the Disqualified Stock had
been issued, as the case may be, and the application of proceeds therefrom had
occurred at the beginning of such four-quarter period).
The foregoing limitations do not apply to: (a) the incurrence by Holdings
or its Restricted Subsidiaries of Indebtedness under the New Credit Facility and
the issuance and creation of letters of credit and banker's acceptances
thereunder (with letters of credit and banker's acceptances being deemed to have
a principal amount equal to the face amount thereof) up to an aggregate
principal amount of $650.0 million outstanding at any one time; (b) the
incurrence by the Holdings Issuers of Indebtedness represented by the Senior
Discount Notes; (c) Indebtedness of Holdings and its Restricted Subsidiaries
existing on the Issue Date (other than Indebtedness described in clauses (a) and
(b)) including the Senior Subordinated Notes and Holdings' guarantee thereof
(and any future guarantees thereof); (d) Indebtedness (including Capitalized
Lease Obligations) incurred by Holdings
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or any of its Restricted Subsidiaries, to finance the purchase, lease or
improvement of property (real or personal) or equipment (whether through the
direct purchase of assets or the Capital Stock of any Person owning such assets)
in an aggregate principal amount which, when aggregated with the principal
amount of all other Indebtedness then outstanding and incurred pursuant to this
clause (d) and including all Refinancing Indebtedness (as defined below)
incurred to refund, refinance or replace any other Indebtedness incurred
pursuant to this clause (d), does not exceed 15% of Total Assets at the time of
the respective incurrence; (e) Indebtedness incurred by Holdings or any of its
Restricted Subsidiaries constituting reimbursement obligations with respect to
letters of credit issued in the ordinary course of business, including without
limitation, letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims; (f) Indebtedness arising
from agreements of Holdings or a Restricted Subsidiary providing for
indemnification, adjustment of purchase price or similar obligations, in each
case, incurred or assumed in connection with the disposition of any business,
assets or a Subsidiary, other than guarantees of Indebtedness incurred by any
Person acquiring all or any portion of such business, assets or a Subsidiary for
the purpose of financing such acquisition; (g) Indebtedness of Holdings to a
Restricted Subsidiary; provided that any such Indebtedness shall be subordinated
in right of payment to the Senior Discount Notes; provided further that any
subsequent issuance or transfer of any Capital Stock or any other event which
results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary
or any other subsequent transfer of any such Indebtedness (except to Holdings or
another Restricted Subsidiary) shall be deemed, in each case to be an incurrence
of such Indebtedness; (h) shares of preferred stock of a Restricted Subsidiary
issued to Holdings or another Restricted Subsidiary; provided that any
subsequent issuance or transfer of any Capital Stock or any other event which
results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary
or any other subsequent transfer of any such shares of preferred stock (except
to Holdings or another Restricted Subsidiary) shall be deemed, in each case to
be an issuance of such shares of preferred stock; (i) Indebtedness of a
Restricted Subsidiary to Holdings or another Restricted Subsidiary; provided
that any subsequent transfer of any such Indebtedness (except to Holdings or
another Restricted Subsidiary) shall be deemed, in each case to be an incurrence
of such Indebtedness; (j) Hedging Obligations that are incurred in the ordinary
course of business (1) for the purpose of fixing or hedging interest rate risk
with respect to any Indebtedness that is permitted by the terms of the Senior
Discount Indenture to be outstanding; (2) for the purpose of fixing or hedging
currency exchange rate risk with respect to any currency exchanges; or (3) for
the purpose of fixing or hedging commodity price risk with respect to any
commodity purchases; (k) obligations in respect of performance and surety bonds
and completion guarantees provided by Holdings or any Restricted Subsidiary in
the ordinary course of business; (l) Indebtedness of any Guarantor in respect of
such Guarantor's Guarantee; (m) Indebtedness or Disqualified Stock of Holdings
and any of its Restricted Subsidiaries not otherwise permitted hereunder in an
aggregate principal amount or liquidation preference, which when aggregated with
the principal amount and liquidation preference of all other Indebtedness and
Disqualified Stock then outstanding and incurred pursuant to this clause (m),
does not exceed $75.0 million at any one time outstanding; (n) (i) any guarantee
by Holdings or any of its Restricted Subsidiaries of Indebtedness or other
obligations of any of Holdings' Restricted Subsidiaries and any guarantee by a
Restricted Subsidiary that is a Guarantor of Indebtedness of Holdings so long as
the incurrence of such Indebtedness incurred by such Restricted Subsidiary or
Holdings, as the case may be, is permitted under the terms of the Senior
Discount Indenture and (ii) any Excluded Guarantee of a Restricted Subsidiary;
(o) the incurrence by Holdings or any of its Restricted Subsidiaries of
Indebtedness which serves to refund, refinance or restructure any Indebtedness
incurred as permitted under the first paragraph of this covenant, this clause
(o) and clauses (b) and (c) above and (q) below, or any Indebtedness issued to
so refund, refinance or restructure such Indebtedness including additional
Indebtedness incurred to pay premiums and fees in connection therewith (the
'Refinancing Indebtedness') prior to its respective maturity; provided, however,
that such Refinancing Indebtedness (i) has a Weighted Average Life to Maturity
at the time such Refinancing Indebtedness is incurred which is not less than the
remaining Weighted Average Life to Maturity of the Indebtedness being refunded
or refinanced, (ii) to the extent such Refinancing Indebtedness refinances
Indebtedness subordinated or pari passu to the Senior Discount Notes, such
Refinancing Indebtedness is subordinated or pari passu to the Senior Discount
Notes at least to the same extent as the Indebtedness being refinanced or
refunded and (iii) shall not include (x) Indebtedness of a Restricted Subsidiary
that is not a Guarantor that refinances Indebtedness of Holdings or (y)
Indebtedness of Holdings or a Restricted Subsidiary that refinances Indebtedness
of an Unrestricted Subsidiary; and provided further that subclauses (i) and (ii)
of this clause (o) will not apply to any refunding or refinancing of any
Indebtedness of a Restricted Subsidiary; (p) other Indebtedness in an amount not
greater than
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twice the amount of Permanent Qualified Equity Contributions after the Issue
Date at any one time outstanding; and (q) Indebtedness or Disqualified Stock of
Persons that are acquired by Holdings or any of its Restricted Subsidiaries or
merged into a Restricted Subsidiary in accordance with the terms of the Senior
Discount Indenture; provided that such Indebtedness or Disqualified Stock is not
incurred in contemplation of such acquisition or merger; and provided further
that after giving effect to such acquisition, either (i) Holdings would be
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first sentence of this
covenant or (ii) the Fixed Charge Coverage Ratio is greater than immediately
prior to such acquisition.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of permitted Indebtedness described in clauses (a) through (q) above
or is entitled to be incurred pursuant to the first paragraph of this covenant,
Holdings shall, in its sole discretion, classify such item of Indebtedness in
any manner that complies with this covenant and such item of Indebtedness will
be treated as having been incurred pursuant to only one of such clauses or
pursuant to the first paragraph hereof. Accrual of interest, the accretion of
accreted value and the payment of interest in the form of additional
Indebtedness will not be deemed to be an incurrence of Indebtedness for purposes
of this covenant.
Limitation on Restricted Payments. Holdings will not, and will not cause
or permit any of its Restricted Subsidiaries to, directly or indirectly: (i)
declare or pay any dividend or make any distribution on account of Holdings' or
any of its Restricted Subsidiaries' Equity Interests (other than (A) dividends
or distributions by Holdings payable in Equity Interests (other than
Disqualified Stock) of Holdings or (B) dividends or distributions by a
Restricted Subsidiary so long as, in the case of any dividend or distribution
payable on or in respect of any class or series of securities issued by a
Restricted Subsidiary other than a Wholly Owned Restricted Subsidiary, Holdings
or a Restricted Subsidiary receives at least its pro rata share of such dividend
or distribution in accordance with its Equity Interests in such class or series
of securities); (ii) purchase or otherwise acquire or retire for value any
Equity Interests of Holdings; (iii) make any principal payment on, or redeem,
repurchase, defease or otherwise acquire or retire for value in each case, prior
to any scheduled repayment, or maturity, any Subordinated Indebtedness (other
than (A) the payment, redemption, repurchase, defeasance, acquisition or
retirement of Subordinated Indebtedness in anticipation of satisfying a sinking
fund obligation, principal installment or final maturity, in any case due within
one year of the date of such payment, redemption, repurchase, defeasance,
acquisition or retirement and (B) Indebtedness permitted under clauses (g) and
(i) of the covenant described under 'Limitations on Incurrence of Indebtedness
and Issuance of Disqualified Stock'); or (iv) make any Restricted Investment
(all such payments and other actions set forth in clauses (i) through (iv) above
being collectively referred to as 'Restricted Payments'), unless, at the time of
such Restricted Payment: (a) no Default or Event of Default shall have occurred
and be continuing or would occur as a consequence thereof; (b) immediately after
giving effect to such transaction on a pro forma basis, Holdings could incur
$1.00 of additional Indebtedness under the provisions of the first paragraph of
'Limitations on Incurrence of Indebtedness and Issuance of Disqualified Stock';
and (c) such Restricted Payment, together with the aggregate amount of all other
Restricted Payments made by Holdings and its Restricted Subsidiaries after the
Issue Date (including Restricted Payments permitted by clauses (i), (ii) (with
respect to the repurchase, retirement or other acquisition of Retired Capital
Stock pursuant to clause (a) thereof and the payment of dividends on Retired
Capital Stock pursuant to clause (b) thereof), (v), (vi), (ix) and (x) of the
next succeeding paragraph, but excluding all other Restricted Payments permitted
by the next succeeding paragraph), is less than the sum of (i) 50% of the
cumulative Consolidated Net Income of Holdings for the period (taken as one
accounting period) from the first day after the Issue Date to the date of such
Restricted Payment (or, in the case such Consolidated Net Income for such period
is a deficit, minus 100% of such deficit), plus (ii) 100% of the aggregate net
proceeds, including cash and the fair market value of property other than cash
(as determined in good faith by the Holdings Issuers), received by Holdings
since the Issue Date from the issue or sale of Equity Interests of Holdings
(including Refunding Capital Stock (as defined) but excluding Disqualified
Stock), including such Equity Interests issued upon conversion of Indebtedness
or upon exercise of warrants or options, plus (iii) 100% of the aggregate amount
of contributions to the capital of Holdings since the Issue Date (other than
Excluded Contributions), plus (iv) 100% of the aggregate amount received in cash
and the fair market value of property other than cash (as determined in good
faith by Holdings) received from (A) the sale or other disposition (other than
to Holdings or a Restricted Subsidiary) of Restricted Investments made by
Holdings and its Restricted Subsidiaries or (B) the sale (other than to Holdings
or a Restricted Subsidiary) of the Capital Stock of an
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Unrestricted Subsidiary, plus (v) in case any Unrestricted Subsidiary has been
redesignated a Restricted Subsidiary or has been merged, consolidated or
amalgamated with or into, transfers or conveys assets to, or is liquidated into,
Holdings or a Restricted Subsidiary, the fair market value (as determined in
good faith by Holdings) of such Investment in such Unrestricted Subsidiary at
the time of such redesignation, combination or transfer (or of the assets
transferred or conveyed, as applicable), after deducting any Indebtedness
associated with the Unrestricted Subsidiary so designated or combined or with
the assets so transferred or conveyed.
The foregoing provisions will not prohibit: (i) the payment of any dividend
or distribution within 60 days after the date of declaration thereof, if at the
date of declaration such payment would have complied with the provisions of the
Senior Discount Indenture; (ii) (a) the repurchase, retirement or other
acquisition of any Equity Interests (the 'Retired Capital Stock') or
Subordinated Indebtedness of Holdings in exchange for, or out of the proceeds of
the substantially concurrent sale (other than to a Restricted Subsidiary) of,
Equity Interests of Holdings (other than any Disqualified Stock) or
contributions to the common equity capital of Holdings (the 'Refunding Capital
Stock'), and (b) the declaration and payment of dividends on the Retired Capital
Stock out of the proceeds of the substantially concurrent sale (other than to a
Restricted Subsidiary) of Refunding Capital Stock; (iii) the redemption,
repurchase or other acquisition or retirement of Subordinated Indebtedness of
Holdings made by exchange for, or out of the proceeds of the substantially
concurrent sale of, new Indebtedness of Holdings so long as (A) the principal
amount of such new Indebtedness does not exceed the principal amount of and
accrued and unpaid interest on the Subordinated Indebtedness being so redeemed,
repurchased, acquired or retired for value (plus the amount of any premium
required to be paid under the terms of the instrument governing the Subordinated
Indebtedness being so redeemed, repurchased, acquired or retired), (B) such
Indebtedness is subordinated to the Senior Discount Notes at least to the same
extent as such Subordinated Indebtedness so purchased, exchanged, redeemed,
repurchased, acquired or retired for value, (C) such Indebtedness has a final
scheduled maturity date equal to or later than the final scheduled maturity date
of the Subordinated Indebtedness being so redeemed, repurchased, acquired or
retired and (D) such Indebtedness has a Weighted Average Life to Maturity equal
to or greater than the remaining Weighted Average Life to Maturity of the
Subordinated Indebtedness being so redeemed, repurchased, acquired or retired;
(iv) the repurchase, retirement or other acquisition for value (or a dividend or
distribution to fund any such repurchase, retirement or other acquisition) of
Equity Interests of Holdings or Investor LP held by any future, present or
former employee, director or consultant of Holdings or any Subsidiary of
Holdings pursuant to any management equity plan or stock option plan or any
other management or employee benefit plan or agreement; provided, however, that
the aggregate amounts paid under this clause (iv) does not exceed in any
calendar year $5.0 million (with unused amounts in any calendar year being
carried over to succeeding calendar years subject to a maximum (without giving
effect to the following proviso) of $10.0 million in any calendar year);
provided further, that such amount in any calendar year may be increased by an
amount not to exceed (i) the cash proceeds from the sale of Equity Interests of
Holdings (or of Investor LP which are contributed to Holdings) to members of
management, directors or consultants of Holdings and its Subsidiaries that
occurs after the Issue Date (provided that such proceeds have not been included
with respect to determining whether a previous Restricted Payment was permitted
pursuant to the first paragraph of this covenant) plus (ii) the cash proceeds of
key man life insurance policies received by Holdings and its Restricted
Subsidiaries after the Issue Date; (v) the declaration and payment of dividends
or distributions to holders of any class or series of Disqualified Stock of
Holdings or any of its Restricted Subsidiaries issued or incurred in accordance
with the covenant entitled 'Limitation on Incurrence of Indebtedness and
Issuance of Disqualified Stock'; (vi) the declaration and payment of dividends
to holders of any class or series of Designated Preferred Stock; provided,
however, that for the most recently ended four full fiscal quarters for which
internal financial statements are available preceding the date of declaration of
any such dividend or distribution, after giving effect to such dividend or
distribution as a Fixed Charge on a pro forma basis, Holdings and its Restricted
Subsidiaries would have had a Fixed Charge Coverage Ratio of at least 1.75 to
1.00; (vii) Investments in Unrestricted Subsidiaries having an aggregate fair
market value, taken together with all other Investments made pursuant to this
clause (vii) that are at that time outstanding, not to exceed $15.0 million at
the time of such Investment (with the fair market value of each Investment being
measured at the time made and without giving effect to subsequent changes in
value); (viii) repurchases of (or a dividend or distribution to fund repurchases
of) Equity Interests of Holdings or Investor LP deemed to occur upon exercise of
stock options if such Equity Interests represent a portion of the exercise price
of such options; (ix) the payment of dividends on Holding's Common Stock
following the first public offering of Common Stock of Holdings after the Issue
Date
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of up to 6% per annum of the net proceeds received by Holdings in such public
offering; (x) the repurchase, retirement or other acquisition for value after
the first anniversary of the Issue Date (or a dividend or distribution to fund
the repurchase, retirement or other acquisition of) of Equity Interests of
Holdings or Investor LP in existence on the Issue Date and which are not held by
Blackstone or any of their Affiliates or the Management Group on the Issue Date
(including any Equity Interests issued in respect of such Equity Interests as a
result of a stock split, recapitalization, merger, combination, consolidation or
otherwise, but excluding any management equity plan or stock option plan or
similar agreement), provided that (A) the aggregate amounts paid under this
clause (x) shall not exceed (I) $15.0 million on or prior to the second
anniversary of the Issue Date or (II) $30.0 million at any time after the second
anniversary of the Issue Date and (B) after giving effect thereto, Holdings
would be permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the first sentence of the
covenant described under 'Limitations on Incurrence of Indebtedness and Issuance
of Disqualified Stock'; (xi) Investments that are made with Excluded
Contributions; (xii) other Restricted Payments in an aggregate amount not to
exceed $15.0 million; (xiii) the payment of any dividend or distribution on
Equity Interests of Holdings to the extent necessary to permit direct or
indirect beneficial owners of such Equity Interests to receive tax distributions
in an amount equal to the taxable income of Holdings allocated to a partner
multiplied by the highest combined federal and state income tax rate (including,
to the extent applicable, alternative minimum tax) solely as a result of
Holdings (and any intermediate entity through which such holder owns such Equity
Interests) being a partnership or similar pass-through entity for federal income
tax purposes ('Permitted Tax Distributions'); and (xiv) Restricted Payments made
on the Issue Date contemplated by the Recapitalization Agreement; provided,
however, that at the time of, and after giving effect to, any Restricted Payment
permitted under clauses (vii), (ix), (x) and (xii), no Default or Event of
Default shall have occurred and be continuing or would occur as a consequence
thereof; and provided further that for purposes of determining the aggregate
amount expended for Restricted Payments in accordance with clause (c) of the
immediately preceding paragraph, only the amounts expended under clauses (i),
(ii) (with respect to the repurchase, retirement or other acquisition of Retired
Capital Stock pursuant to clause (a) thereof and the payment of dividends on
Retired Capital Stock pursuant to clause (b) thereof), (v), (vi), (ix) and (x),
shall be included.
As of the Issue Date, all of Holdings' Subsidiaries were Restricted
Subsidiaries. Holdings will not permit any Unrestricted Subsidiary to become a
Restricted Subsidiary except pursuant to the second to last sentence of the
definition of 'Unrestricted Subsidiary.' For purposes of designating any
Restricted Subsidiary as an Unrestricted Subsidiary, all outstanding Investments
by Holdings and its Restricted Subsidiaries (except to the extent repaid) in the
Subsidiary so designated will be deemed to be Restricted Payments in an amount
determined as set forth in the last sentence of the definition of 'Investments.'
Such designation is only permitted if a Restricted Payment in such amount would
be permitted at such time (whether pursuant to the first paragraph of this
covenant or under clause (vii), (xi) or (xii)) and if such Subsidiary otherwise
meets the definition of an Unrestricted Subsidiary. Unrestricted Subsidiaries
will not be subject to any of the restrictive covenants set forth in the Senior
Discount Indenture.
Limitation on Asset Sales. Holdings will not, and will not cause or permit
any of its Restricted Subsidiaries to, cause, make or suffer to exist an Asset
Sale, unless (x) Holdings or its Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the fair
market value (as determined in good faith by Holdings) of the assets sold or
otherwise disposed of and (y) at least 75% of the consideration therefor
received by Holdings or such Restricted Subsidiary, as the case may be, is in
the form of cash or Cash Equivalents; provided that the amount of (a) any
liabilities (as shown on Holdings' or such Restricted Subsidiary's most recent
balance sheet or in the notes thereto) of Holdings or any Restricted Subsidiary
(other than liabilities that are by their terms subordinated to the Senior
Discount Notes) that are assumed by the transferee of any such assets without
recourse to Holdings or any of the Restricted Subsidiaries, (b) any notes or
other obligations received by Holdings or such Restricted Subsidiary from such
transferee that are converted by Holdings or such Restricted Subsidiary into
cash (to the extent of the cash received) within 180 days following the closing
of such Asset Sale, (c) any Designated Noncash Consideration received by
Holdings or any of its Restricted Subsidiaries in such Asset Sale having an
aggregate fair market value, taken together with all other Designated Noncash
Consideration received pursuant to this clause (c) that is at that time
outstanding, not to exceed 15% of Total Assets at the time of the receipt of
such Designated Noncash Consideration (with the fair market value of each item
of Designated Noncash Consideration being measured at the time received and
without
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giving effect to subsequent changes in value) and (d) any assets received in
exchange for assets related to a Similar Business of comparable market value in
the good faith determination of, the Board of Directors of Holdings, shall be
deemed to be cash for purposes of this provision.
Within 365 days after Holdings' or any Restricted Subsidiary's receipt of
the Net Proceeds of any Asset Sale, Holdings or such Restricted Subsidiary may
apply the Net Proceeds from such Asset Sale, at its option, (i) to permanently
reduce Obligations under the New Credit Facility (and to correspondingly reduce
commitments with respect thereto) or other Indebtedness of a Restricted
Subsidiary or Pari Passu Indebtedness (provided that if Holdings shall so reduce
Obligations under Pari Passu Indebtedness, it will equally and ratably reduce
Obligations under the Senior Discount Notes if the Senior Discount Notes are
then redeemable or, if the Senior Discount Notes may not be then redeemed,
Holdings shall make an offer (in accordance with the procedures set forth below
for an Asset Sale Offer) to all Holders to purchase at 100% of the Accreted
Value thereof the amount of Senior Discount Notes that would otherwise be
redeemed), (ii) to an investment in any one or more businesses, capital
expenditures or acquisitions of other assets in each case, used or useful in a
Similar Business and/or (iii) to make an investment in properties or assets that
replace the properties and assets that are the subject of such Asset Sale.
Pending the final application of any such Net Proceeds, Holdings or such
Restricted Subsidiary may temporarily reduce Indebtedness under a revolving
credit facility, if any, or otherwise invest such Net Proceeds in Cash
Equivalents or Investment Grade Securities. The Senior Discount Indenture
provides that any Net Proceeds from the Asset Sale that are not invested as
provided and within the time period set forth in the first sentence of this
paragraph (it being understood that any portion of such Net Proceeds used to
make an offer to purchase Senior Discount Notes, as described in clause (i)
above, shall be deemed to have been invested whether or not such offer is
accepted) will be deemed to constitute 'Excess Proceeds.' When the aggregate
amount of Excess Proceeds exceeds $15.0 million, the Holdings Issuers shall make
an offer to all Holders of Senior Discount Notes (an 'Asset Sale Offer') to
purchase the maximum principal amount at maturity of Senior Discount Notes, that
is an integral multiple of $1,000, that may be purchased out of the Excess
Proceeds at an offer price in cash in an amount equal to 100% of the Accreted
Value thereof, plus accrued and unpaid interest, if any, to, the date fixed for
the closing of such offer, in accordance with the procedures set forth in the
Senior Discount Indenture. The Holdings Issuers will commence an Asset Sale
Offer with respect to Excess Proceeds within ten Business Days after the date
that Excess Proceeds exceeds $15.0 million by mailing the notice required
pursuant to the terms of the Senior Discount Indenture, with a copy to the
Trustee. To the extent that the aggregate Accreted Value of Senior Discount
Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds,
Holdings may use any remaining Excess Proceeds for general corporate or
partnership purposes. If the Accreted Value of Senior Discount Notes surrendered
by Holders thereof exceeds the amount of Excess Proceeds, the Senior Discount
Trustee shall select the Senior Discount Notes to be purchased in the manner
described under the caption 'Selection and Notice of Redemption' above. Upon
completion of any such Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
The Holdings Issuers will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws or regulations are applicable in connection with the repurchase
of the Senior Discount Notes pursuant to an Asset Sale Offer. To the extent that
the provisions of any securities laws or regulations conflict with the
provisions of the Senior Discount Indenture, the Holdings Issuers will comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations described in the Senior Discount Indenture by
virtue thereof.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. Holdings will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or consensual
restriction on the ability of any Restricted Subsidiary to: (a)(i) pay dividends
or make any other distributions to Holdings or any of its Restricted
Subsidiaries (1) on their Capital Stock or (2) with respect to any other
interest or participation in, or measured by, its profits, or (ii) pay any
Indebtedness owed to Holdings or any of its Restricted Subsidiaries; (b) make
loans or advances to Holdings or any of its Restricted Subsidiaries; or (c)
sell, lease or transfer any of its properties or assets to Holdings or any of
its Restricted Subsidiaries; except (in each case) for such encumbrances or
restrictions existing under or by reason of: (1) contractual encumbrances or
restrictions in effect on the Issue Date, including pursuant to the New Credit
Facility and its related documentation and the Senior Subordinated Indenture;
(2) the Senior Discount Indenture and the Senior Discount Notes; (3) purchase
money obligations for
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property acquired in the ordinary course of business that impose restrictions of
the nature discussed in clause (c) above on the property so acquired; (4)
applicable law or any applicable rule, regulation or order; (5) any agreement or
other instrument of a Person acquired by Holdings or any Restricted Subsidiary
in existence at the time of such acquisition (but not created in contemplation
thereof), which encumbrance or restriction is not applicable to any Person, or
the properties or assets of any Person, other than the Person, or the property
or assets of the Person, so acquired; (6) contracts for the sale of assets,
including, without limitation, customary restrictions with respect to a
Subsidiary pursuant to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of such
Subsidiary; (7) secured Indebtedness otherwise permitted to be incurred pursuant
to the covenants described under 'Limitations on Incurrence of Indebtedness and
Issuance of Disqualified Stock' and 'Limitation on Liens' that limit the right
of the debtor to dispose of the assets securing such Indebtedness; (8)
restrictions on cash or other deposits or net worth imposed by customers under
contracts entered into in the ordinary course of business; (9) other
Indebtedness of Foreign Subsidiaries permitted to be incurred subsequent to the
Issue Date pursuant to the provisions of the covenant described under
'Limitations on Incurrence of Indebtedness and Issuance of Disqualified Stock';
(10) customary provisions in joint venture agreements and other similar
agreements entered into in the ordinary course of business; (11) customary
provisions contained in leases and other agreements entered into in the ordinary
course of business; (12) any encumbrances or restrictions of the type referred
to in clauses (a), (b) and (c) above imposed by any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings of the contracts, instruments or obligations referred to in clauses
(1) through (11) above, provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings are, in the good faith judgment of the Board of Directors of
Holdings, no more restrictive with respect to such dividend and other payment
restrictions than those contained in the dividend or other payment restrictions
prior to such amendment, modification, restatement, renewal, increase,
supplement, refunding, replacement or refinancing; (13) any encumbrances or
restrictions that are no more restrictive than those contained in the New Credit
Facility as in effect on the Issue Date or (14) which will not in the aggregate
cause Holdings not to have the funds necessary to pay the principal of, premium,
if any, or interest on, the Senior Discount Notes.
Limitation on Liens. Holdings will not directly or indirectly create,
incur, assume or suffer to exist any Lien (other than a Permitted Lien) that
secures any Indebtedness of Holdings on any asset or property of Holdings, or
any income or profits therefrom, or assign or convey any right to receive income
therefrom, unless the Senior Discount Notes are equally and ratably secured with
the obligations so secured or until such time as such obligations are no longer
secured by a Lien.
The Senior Subordinated Indenture provides that no Guarantor will directly
or indirectly create, incur, assume or suffer to exist any Lien (other than a
Permitted Lien) that secures any guarantee of Indebtedness of Holdings by such
Guarantor on any asset or property of such Guarantor or any income or profits
therefrom, or assign or convey any right to receive income therefrom, unless the
Guarantee of such Guarantor is equally and ratably secured with the obligations
so secured or until such time as such guarantee is no longer secured by a Lien.
Merger, Consolidation and Sale of Assets. Holdings may not consolidate or
merge with or into or wind up into (whether or not Holdings is the surviving
entity), or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions, to any Person unless (i) Holdings is the surviving entity or the
Person formed by or surviving any such consolidation or merger (if other than
Holdings) or to which such sale, assignment, transfer, lease, conveyance or
other disposition will have been made is a corporation, partnership or limited
liability company organized or existing under the laws of the United States, any
state thereof, the District of Columbia, or any territory thereof (Holdings or
such Person, as the case may be, being herein called the 'Successor Company');
(ii) the Successor Company (if other than Holdings or CapCo II) expressly
assumes all the obligations of Holdings under the Senior Discount Indenture and
the Senior Discount Notes pursuant to a supplemental indenture or other
documents or instruments in form reasonably satisfactory to the Senior Discount
Trustee; (iii) immediately after such transaction no Default or Event of Default
shall have occurred and be continuing; (iv) immediately after giving pro forma
effect to such transaction, as if such transaction had occurred at the beginning
of the applicable four-quarter period, either (A) the Successor Company (if
other than CapCo II) would be permitted to incur at least $1.00 of additional
Indebtedness pursuant
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to the Fixed Charge Coverage Ratio test set forth in the first sentence of the
covenant described under 'Limitations on Incurrence of Indebtedness and Issuance
of Disqualified Stock' or (B) the Fixed Charge Coverage Ratio for the Successor
Company (if other than CapCo II) and its Restricted Subsidiaries would be
greater than such ratio for Holdings and its Restricted Subsidiaries immediately
prior to such transaction; and (v) Holdings shall have delivered to the Senior
Discount Trustee an Officers' Certificate and an opinion of counsel, each
stating that such consolidation, merger or transfer and such supplemental
indenture (if any) comply with the Senior Discount Indenture. The Successor
Company will succeed to, and be substituted for, Holdings under the Senior
Discount Indenture and the Senior Discount Notes. Notwithstanding the foregoing
clauses (iii) and (iv), (a) any Restricted Subsidiary may consolidate with,
merge into or transfer all or part of its properties and assets to Holdings or
to another Restricted Subsidiary and (b) Holdings may merge with or transfer all
of its properties and assets to an Affiliate incorporated or formed solely for
the purpose of either reincorporating or reforming Holdings in another State of
the United States or changing the legal structure of Holdings to a corporation
so long as the amount of Indebtedness of Holdings and its Restricted
Subsidiaries is not increased thereby (it being understood that after the
transfer of such property and assets for the purpose of changing legal structure
to a corporation, Holdings may dissolve).
Each Guarantor, if any, shall not, and Holdings will not permit a Guarantor
to, consolidate or merge with or into or wind up into (whether or not such
Guarantor is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions to, any Person unless (i) such
Guarantor is the surviving corporation or the Person formed by or surviving any
such consolidation or merger (if other than such Guarantor) or to which such
sale, assignment, transfer, lease, conveyance or other disposition will have
been made is a corporation, partnership or limited liability company organized
or existing under the laws of the United States, any state thereof, the District
of Columbia, or any territory thereof (such Guarantor or such Person, as the
case may be, being herein called the 'Successor Guarantor'); (ii) the Successor
Guarantor (if other than such Guarantor) expressly assumes all the obligations
of such Guarantor under the Senior Discount Indenture and such Guarantor's
Guarantee pursuant to a supplemental indenture or other documents or instruments
in form reasonably satisfactory to the Senior Discount Trustee; (iii)
immediately after such transaction no Default or Event of Default shall have
occurred and be continuing; and (iv) the Guarantor shall have delivered or
caused to be delivered to the Senior Discount Trustee an Officers' Certificate
and an opinion of counsel, each stating that such consolidation, merger or
transfer and such supplemental indenture (if any) comply with the Senior
Discount Indenture. The Successor Guarantor will succeed to, and be substituted
for, such Guarantor under the Senior Discount Indenture and such Guarantor's
Guarantee.
Limitations on Transactions with Affiliates. (a) Holdings will not, and
will not cause or permit any of its Restricted Subsidiaries to, make any payment
to, or sell, lease, transfer or otherwise dispose of any of its properties or
assets to, or purchase any property or assets from, or enter into or make or
amend any transaction, contract, agreement, understanding, loan, advance or
guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an
'Affiliate Transaction') involving aggregate consideration in excess of $5.0
million, unless (a) such Affiliate Transaction is on terms that are not
materially less favorable to Holdings or the relevant Restricted Subsidiary than
those that would have been obtained in a comparable transaction by Holdings or
such Restricted Subsidiary with an unrelated Person and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $10.0 million, Holdings delivers to the
Senior Discount Trustee a resolution adopted by the majority of the Board of
Directors of Holdings, approving such Affiliate Transaction and set forth in an
Officers' Certificate certifying that such Affiliate Transaction complies with
clause (a) above.
The foregoing provisions do not apply to the following: (i) transactions
between or among Holdings and/or any of its Restricted Subsidiaries; (ii)
Restricted Payments permitted by the provisions of the Senior Discount Indenture
described above under the covenant 'Limitation on Restricted Payments'; (iii)
the payment of annual management, consulting, monitoring and advisory fees and
related expenses to Blackstone, Graham Packaging Corporation and their
respective Affiliates; (iv) the payment of reasonable and customary fees paid
to, and indemnity provided on behalf of, officers, directors, employees or
consultants of Holdings or any Restricted Subsidiary; (v) payments by Holdings
or any of its Restricted Subsidiaries to Blackstone and its Affiliates made for
any financial advisory, financing, underwriting or placement services or in
respect of other investment
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banking activities, including, without limitation, in connection with
acquisitions or divestitures which payments are approved by, the majority of the
Board of Directors of Holdings, in good faith; (vi) transactions in which
Holdings or any of its Restricted Subsidiaries, as the case may be, delivers to
the Senior Discount Trustee a letter from an Independent Financial Advisor
stating that such transaction is fair to Holdings or such Restricted Subsidiary
from a financial point of view or meets the requirements of clause (a) of the
preceding paragraph; (vii) payments or loans to employees or consultants which
are approved by a majority of the Board of Directors of Holdings, in good faith;
(viii) any agreement as in effect as of the Issue Date or any amendment thereto
(so long as any such amendment is not disadvantageous to the holders of the
Senior Discount Notes in any material respect) or any transaction contemplated
thereby; (ix) the existence of, or the performance by Holdings or any Restricted
Subsidiary of its obligations under the terms of, the Recapitalization
Agreement, or agreement contemplated thereunder (including any registration
rights agreement or purchase agreement related thereto) to which it is a party
as of the Issue Date and any similar agreements which it may enter into
thereafter; provided, however, that the existence of, or the performance by
Holdings or any Restricted Subsidiary of obligations under any future amendment
to any such existing agreement or under any similar agreement entered into after
the Issue Date shall only be permitted by this clause (ix) to the extent that
the terms of any such amendment or new agreement are not otherwise
disadvantageous to the Holders of the Senior Discount Notes in any material
respect; (x) the payment of all fees, expenses, bonuses and awards related to
the transactions contemplated by the Recapitalization Agreement, including fees
to Blackstone; and (xi) transactions with customers, clients, suppliers, or
purchasers or sellers of goods or services, in each case in the ordinary course
of business and otherwise in compliance with the terms of the Senior Discount
Indenture which are fair to Holdings and its Restricted Subsidiaries, in the
reasonable determination of the majority of the Board of Directors of Holdings,
or are on terms at least as favorable as might reasonably have been obtained at
such time from an unaffiliated party.
Limitations on Guarantees of Indebtedness by Restricted Subsidiaries. (a)
Holdings will not permit any Restricted Subsidiary to guarantee the payment of
any Indebtedness of Holdings unless such Restricted Subsidiary simultaneously
executes and delivers a supplemental indenture to the Senior Discount Indenture
providing for a guarantee of payment of the Senior Discount Notes by such
Restricted Subsidiary, except that if such Indebtedness is by its express terms
subordinated in right of payment to the Senior Discount Notes, any such
guarantee of such Restricted Subsidiary with respect to such Indebtedness shall
be subordinated in right of payment to such Restricted Subsidiary's Guarantee
with respect to the Senior Discount Notes substantially to the same extent as
such Indebtedness is subordinated to the Senior Discount Notes; provided that
this paragraph (a) shall not be applicable to any guarantee by any Restricted
Subsidiary (x) that (A) existed at the time such Person became a Restricted
Subsidiary of Holdings and (B) was not incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary of Holdings or
(y) that guarantees the payment of Obligations of Holdings under the New Credit
Facility or any other bank facility which is Pari Passu Indebtedness of Holdings
and any refunding, refinancing or replacement thereof, in whole or in part,
provided that such refunding, refinancing or replacement thereof constitutes
Pari Passu Indebtedness of Holdings and is not incurred pursuant to a registered
offering of securities under the Securities Act or a private placement of
securities (including under Rule 144A) pursuant to an exemption from the
registration requirements of the Securities Act (other than Securities issued
pursuant to a bank or similar credit facility (including the New Credit
Facility)), which private placement provides for registration rights under the
Securities Act (any guarantee excluded by operations of this clause (y) being an
'Excluded Guarantee').
(b) Notwithstanding the foregoing and the other provisions of the Senior
Discount Indenture, any Guarantee by a Restricted Subsidiary of the Senior
Discount Notes shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer
to any person not an Affiliate of Holdings, of all of Holdings' Capital Stock
in, or all or substantially all of the assets of, such Restricted Subsidiary
(which sale, exchange or transfer is not prohibited by the Senior Discount
Indenture) or (ii) the release or discharge of the guarantee which resulted in
the creation of such Guarantee, except a discharge or release by or a result of
payment under such Guarantee.
Reports to Holders. The Holdings Issuers will deliver to the Senior
Discount Trustee within 15 days after the filing of the same with the
Commission, copies of the quarterly and annual reports and of the information,
documents and other reports, if any, which the Holdings Issuers are required to
file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
The Senior Discount Indenture further provides that,
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notwithstanding that the Holdings Issuers may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act or otherwise report on
an annual and quarterly basis on forms provided for such annual and quarterly
reporting pursuant to rules and regulations promulgated by the Securities and
Exchange Commission (the 'Commission'), the Senior Discount Indenture will
require the Holdings Issuers to file with the Commission (and provide the Senior
Discount Trustee and Holders with copies thereof, without cost to each Holder,
within 15 days after it files them with the Commission), (a) within 90 days
after the end of each fiscal year, annual reports on Form 10-K (or any successor
or comparable form) containing the information required to be contained therein
(or required in such successor or comparable form); (b) within 45 days after the
end of each of the first three fiscal quarters of each fiscal year, reports on
Form 10-Q (or any successor or comparable form); (c) promptly from time to time
after the occurrence of an event required to be therein reported, such other
reports on Form 8-K (or any successor or comparable form); and (d) any other
information, documents and other reports which the Holdings Issuers would be
required to file with the Commission if they were subject to Section 13 or 15(d)
of the Exchange Act; provided, however, that the Holdings Issuers shall not be
so obligated to file such reports with the Commission if the Commission does not
permit such filing, in which event the Holdings Issuers will make available such
information to prospective purchasers of Senior Discount Notes, in addition to
providing such information to the Senior Discount Trustee and the Holders, in
each case within 15 days after the time the Holdings Issuers would be required
to file such information with the Commission, if they were subject to Sections
13 or 15(d) of the Exchange Act. Notwithstanding the foregoing, such
requirements shall be deemed satisfied (x) prior to April 30, 1998, if the
Holdings Issuers deliver to the Senior Discount Trustee and the holders of the
Senior Discount Notes on or prior to such date copies of the audited financial
statements of the Holdings Issuers and (y) prior to May 31, 1998, by filing with
the Commission and delivering to the Senior Discount Trustee and the holders of
the Senior Discount Notes on or prior to such date a registration statement
under the Securities Act that contains the information that would be required in
a Form 10-K for the Holdings Issuers for the year ended December 31, 1997 and a
Form 10-Q for the Holdings Issuers for the quarter ended March 31, 1998. The
Holdings Issuers will also comply with the other provisions of TIA Section
314(a).
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EVENTS OF DEFAULT
The following events are defined in the Senior Discount Indenture as
'Events of Default':
(i) the failure to pay interest on any Senior Discount Notes when the
same becomes due and payable and the default continues for a period of 30
days;
(ii) the failure to pay the Accreted Value of or the principal on any
Senior Discount Notes, when the same becomes due and payable, at maturity,
upon redemption or otherwise (including the failure to make a payment to
purchase Senior Discount Notes tendered pursuant to a Change of Control
Offer or an Asset Sale Offer which has actually been made);
(iii) a default in the observance or performance of any other covenant
or agreement contained in the Senior Discount Indenture which default
continues for a period of 60 days after Holdings receives written notice
specifying the default (and demanding that such default be remedied) from
the Senior Discount Trustee or the Holders of at least 25% of the
outstanding principal amount of the Senior Discount Notes (except in the
case of a default with respect to the 'Merger, Consolidation and Sale of
Assets' covenant, which will constitute an Event of Default with such
notice requirement but without such passage of time requirement);
(iv) the failure to pay at final maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount
of any Indebtedness of Holdings or any Significant Restricted Subsidiary,
or the acceleration of the final stated maturity of any such Indebtedness
if the aggregate principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness in default for failure to
pay principal at final maturity or which has been accelerated, aggregates
$20.0 million or more at any time;
(v) one or more judgments in an aggregate amount in excess of $20.0
million shall have been rendered against Holdings or any Significant
Restricted Subsidiary and such judgments remain undischarged, unpaid or
unstayed for a period of 60 days after such judgment or judgments become
final and non-appealable, and in the event such judgment is covered by
insurance, an enforcement proceeding has been commenced by any creditor
upon such judgment or decree which is not promptly stayed;
(vi) any Guarantee by a Significant Restricted Subsidiary shall become
null or void or unenforceable (other than in accordance with the terms of
the Senior Discount Indenture) or any such Guarantor shall deny its
obligations under its Guarantee; or
(vii) certain events of bankruptcy affecting Holdings or any of its
Significant Restricted Subsidiaries.
If an Event of Default (other than an Event of Default specified in clause (vii)
with respect to Holdings) shall occur and be continuing, the Senior Discount
Trustee or the Holders of at least 25% in principal amount of outstanding Senior
Discount Notes may declare the Accreted Value of and accrued interest, if any,
on all the Senior Discount Notes to be due and payable by notice in writing to
Holdings and the Senior Discount Trustee specifying the respective Event of
Default and that it is a 'notice of acceleration' (the 'Acceleration Notice'),
and the same (i) shall become immediately due and payable or (ii) if there are
any amounts outstanding under the New Credit Facility, shall become immediately
due and payable upon the first to occur of an acceleration under the New Credit
Facility or 5 Business Days after receipt by Holdings and the Agent under the
New Credit Facility of such Acceleration Notice, but only if such Event of
Default is then continuing. If an Event of Default specified in clause (vii)
with respect to Holdings occurs, then the Accreted Value of and any accrued
interest on the Senior Discount Notes shall ipso facto become immediately due
and payable without any further action, by the Senior Discount Trustee or the
Holders.
The Senior Discount Indenture provides that, at any time after a
declaration of acceleration with respect to the Senior Discount Notes as
described in the preceding paragraph, the Holders of a majority in principal
amount at maturity of the Senior Discount Notes may rescind and cancel such
declaration and its consequences (i) if the rescission would not conflict with
any judgment or decree, (ii) if all existing Events of Default have been cured
or waived except nonpayment of Accreted Value or interest that has become due
solely because of the acceleration, (iii) to the extent the payment of such
interest is lawful, interest on overdue installments of interest
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and overdue principal, which has become due otherwise than by such declaration
of acceleration, has been paid and (iv) if Holdings has paid the Senior Discount
Trustee its reasonable compensation and reimbursed the Senior Discount Trustee
for its expenses, disbursements and advances. No such rescission shall affect
any subsequent Default or impair any right consequent thereto.
The Holders of a majority in principal amount at maturity of the Senior
Discount Notes may waive any existing Default or Event of Default under the
Senior Discount Indenture, and its consequences, except a default in the payment
of the Accreted Value of or interest on any Senior Discount Notes.
Holders of the Senior Discount Notes may not enforce the Senior Discount
Indenture or the Senior Discount Notes except as provided in the Senior Discount
Indenture and under the TIA. Subject to the provisions of the Senior Discount
Indenture relating to the duties of the Senior Discount Trustee, the Senior
Discount Trustee is under no obligation to exercise any of its rights or powers
under the Senior Discount Indenture at the request, order or direction of any of
the Holders, unless such Holders have offered to the Senior Discount Trustee
reasonable indemnity. Subject to all provisions of the Senior Discount Indenture
and applicable law, the Holders of a majority in aggregate principal amount at
maturity of the then outstanding Senior Discount Notes have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the Senior Discount Trustee or exercising any trust or power conferred on the
Senior Discount Trustee.
Under the Senior Discount Indenture, Holdings is required to provide an
Officers' Certificate to the Senior Discount Trustee promptly upon Holdings
obtaining knowledge of any Default or Event of Default (provided that such
certification shall be provided at least annually whether or not Holdings knows
of any Default or Event of Default) that has occurred and, if applicable,
describe such Default or Event of Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Holdings Issuers may, at their option and at any time, elect to have
their obligations discharged with respect to the outstanding Senior Discount
Notes ('Legal Defeasance'). Such Legal Defeasance means that the Holdings
Issuers shall be deemed to have paid and discharged the entire indebtedness
represented by the outstanding Senior Discount Notes, except for (i) the rights
of Holders to receive payments in respect of the principal of, premium, if any,
and interest on the Senior Discount Notes when such payments are due, (ii) the
Holdings Issuers' obligations with respect to the Senior Discount Notes
concerning issuing temporary Senior Discount Notes, registration of Senior
Discount Notes, mutilated, destroyed, lost or stolen Senior Discount Notes and
the maintenance of an office or agency for payments, (iii) the rights, powers,
trust, duties and immunities of the Senior Discount Trustee and the Holdings
Issuers' obligations in connection therewith and (iv) the Legal Defeasance
provisions of the Senior Discount Indenture. In addition, the Holdings Issuers
may, at their option and at any time, elect to have the obligations of the
Holdings Issuers released with respect to certain covenants that are described
in the Senior Discount Indenture ('Covenant Defeasance') and thereafter any
omission to comply with such obligations shall not constitute a Default or Event
of Default with respect to the Senior Discount Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, reorganization and insolvency events) described under 'Events of
Default' will no longer constitute an Event of Default with respect to the
Senior Discount Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
Holdings must irrevocably deposit with the Senior Discount Trustee, in trust,
for the benefit of the Holders cash in U.S. dollars, non-callable U.S.
government obligations, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the
Senior Discount Notes on the stated date for payment thereof or on the
applicable redemption date, as the case may be; (ii) in the case of Legal
Defeasance, Holdings shall have delivered to the Senior Discount Trustee an
opinion of counsel in the United States reasonably acceptable to the Senior
Discount Trustee confirming that (A) the Holdings Issuers have received from, or
there has been published by, the Internal Revenue Service a ruling or (B) since
the date of the Senior Discount Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
such Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Legal Defeasance had not occurred; (iii) in the case of
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Covenant Defeasance, Holdings shall have delivered to the Senior Discount
Trustee an opinion of counsel in the United States reasonably acceptable to the
Trustee confirming that the Holders will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Covenant Defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period ending
on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant
Defeasance shall not result in a breach or violation of, or constitute a default
under the Senior Discount Indenture or any other material agreement or
instrument to which Holdings or any of its Subsidiaries is a party or by which
Holdings or any of its Subsidiaries are bound; (vi) Holdings shall have
delivered to the Senior Discount Trustee an Officers' Certificate stating that
the deposit was not made by Holdings with the intent of preferring the Holders
over any other creditors of Holdings or with the intent of defeating, hindering,
delaying or defrauding any other creditors of Holdings or others; (vii) Holdings
shall have delivered to the Senior Discount Trustee an Officers' Certificate and
an opinion of counsel, each stating that all conditions precedent provided for
or relating to the Legal Defeasance or the Covenant Defeasance have been
complied with; (viii) Holdings shall have delivered to the Senior Discount
Trustee an opinion of counsel to the effect that after the 91st day following
the deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; and (ix) certain other customary conditions precedent are
satisfied.
SATISFACTION AND DISCHARGE
The Senior Discount Indenture will be discharged and will cease to be of
further effect (except as to surviving rights or registration of transfer or
exchange of the Senior Discount Notes, as expressly provided for in the Senior
Discount Indenture) as to all outstanding Senior Discount Notes when (i) either
(a) all the Senior Discount Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Senior Discount Notes for whose payment money has theretofore been deposited in
trust or segregated and held in trust by the Holdings Issuers and thereafter
repaid to the Holdings Issuers or discharged from such trust) have been
delivered to the Senior Discount Trustee for cancellation or (b) all Senior
Discount Notes not theretofore delivered to the Senior Discount Trustee for
cancellation have become due and payable and Holdings has irrevocably deposited
or caused to be deposited with the Trustee funds in an amount sufficient to pay
and discharge the entire Indebtedness on the Senior Discount Notes not
theretofore delivered to the Senior Discount Trustee for cancellation, for
principal of, premium, if any, and interest on the Senior Discount Notes to the
date of deposit together with irrevocable instructions from Holdings directing
the Senior Discount Trustee to apply such funds to the payment thereof at
maturity or redemption, as the case may be; (ii) Holdings has paid all other
sums payable under the Senior Discount Indenture by Holdings; and (iii) Holdings
has delivered to the Senior Discount Trustee an Officers' Certificate and an
opinion of counsel stating that all conditions precedent under the Senior
Discount Indenture relating to the satisfaction and discharge of the Senior
Discount Indenture have been complied with.
MODIFICATION OF THE SENIOR DISCOUNT INDENTURE
From time to time, the Holdings Issuers and the Senior Discount Trustee,
without the consent of the Holders, may amend the Senior Discount Indenture for
certain specified purposes, including curing ambiguities, defects or
inconsistencies, so long as such change does not, in the opinion of the Senior
Discount Trustee, adversely affect the rights of any of the Holders in any
material respect. In formulating its opinion on such matters, the Senior
Discount Trustee will be entitled to rely on such evidence as it deems
appropriate, including, without limitation, solely on an opinion of counsel.
Other modifications and amendments of the Senior Discount Indenture may be made
with the consent of the Holders of a majority in principal amount at maturity of
the then outstanding Senior Discount Notes issued under the Senior Discount
Indenture, except that, without the consent of each Holder affected thereby, no
amendment may: (i) reduce the amount of Senior Discount Notes whose Holders must
consent to an amendment; (ii) reduce the rate of or change or have the effect of
changing the time for payment of interest, including defaulted interest, on any
Senior Discount Notes, or change or have the effect of changing the definition
of Accreted Value; (iii) reduce the principal of or change or have the effect of
changing the fixed maturity of any Senior Discount Notes, or change the date on
which any Senior Discount
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Notes may be subject to redemption or repurchase, or reduce the redemption or
repurchase price therefor; (iv) make any Senior Discount Notes payable in money
other than that stated in the Senior Discount Notes; (v) make any change in
provisions of the Senior Discount Indenture protecting the right of each Holder
to receive payment of principal or Accreted Value of and interest on such Senior
Discount Note on or after the due date thereof or to bring suit to enforce such
payment, or permitting Holders of a majority in principal amount at maturity of
Senior Discount Notes to waive Defaults or Events of Default; (vi) amend, change
or modify in any material respect the obligation of the Holdings Issuers to make
and consummate a Change of Control Offer in the event of a Change of Control or
make and consummate an Asset Sale Offer with respect to any Asset Sale that has
been consummated or modify any of the provisions or definitions with respect
thereto; or (vii) modify or change any provision of the Senior Discount
Indenture or the related definitions affecting the ranking of the Senior
Discount Notes in a manner which adversely affects the Holders.
GOVERNING LAW
The Senior Discount Indenture provides that it and the Senior Discount
Notes will be governed by, and construed in accordance with, the laws of the
State of New York but without giving effect to applicable principles of
conflicts of law to the extent that the application of the law of another
jurisdiction would be required thereby.
THE SENIOR DISCOUNT TRUSTEE
The Senior Discount Indenture provides that, except during the continuance
of an Event of Default, the Senior Discount Trustee will perform only such
duties as are specifically set forth in the Senior Discount Indenture. During
the existence of an Event of Default, the Senior Discount Trustee will exercise
such rights and powers vested in it by the Senior Discount Indenture, and use
the same degree of care and skill in its exercise as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
The Senior Discount Indenture and the provisions of the TIA contain certain
limitations on the rights of the Senior Discount Trustee, should it become a
creditor of either of the Holdings Issuers, to obtain payments of claims in
certain cases or to realize on certain property received in respect of any such
claim as security or otherwise. Subject to the TIA, the Senior Discount Trustee
will be permitted to engage in other transactions; provided that if the Trustee
acquires any conflicting interest as described in the TIA, it must eliminate
such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Senior Discount Indenture. Reference is made to the Senior Discount Indenture
for the full definition of all such terms, as well as any other terms used
herein for which no definition is provided.
'Accreted Value' means as of any date prior to January 15, 2003, an amount
per $1,000 principal amount at maturity of the Senior Discount Notes that is
equal to the sum of (a) the initial offering price of each Senior Discount Note
and (b) the portion of the excess of the principal amount at maturity of each
Senior Discount Note over such initial offering price which shall have been
amortized through such date, such amount to be so amortized on a daily basis and
compounded semi-annually on each January 15, and July 15 at the rate of 10 3/4%
per annum from the Issue Date through the date of determination computed on the
basis of a 360-day year of twelve 30-day months.
'Acquired Indebtedness' means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person and (ii) Indebtedness secured by
a Lien encumbering any asset acquired by such specified Person.
'Affiliate' of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, 'control'
(including, with correlative meanings, the terms 'controlling,' 'controlled by'
and 'under common control with'), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power
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to direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise.
'Asset Sale' means (i) the sale, conveyance, transfer or other disposition
(whether in a single transaction or a series of related transactions) of
property or assets (including by way of a sale and leaseback) of Holdings or any
Restricted Subsidiary thereof (each referred to in this definition as a
'disposition') or (ii) the issuance or sale of Equity Interests of any
Restricted Subsidiary (whether in a single transaction or a series of related
transactions), in each case, other than: (a) a disposition of Cash Equivalents
or Investment Grade Securities or obsolete or worn out equipment in the ordinary
course of business; (b) the disposition of all or substantially all of the
assets of Holdings in a manner permitted pursuant to the provisions described
above under 'Certain Covenants--Merger, Consolidation and Sale of Assets' or any
disposition that constitutes a Change of Control pursuant to the Senior Discount
Indenture; (c) any Restricted Payment that is permitted to be made, and is made,
under the covenant described above under 'Limitation on Restricted Payments;'
(d) any disposition of assets with an aggregate fair market value of less than
$2.0 million; (e) any disposition of property or assets by a Restricted
Subsidiary to Holdings or by Holdings or a Restricted Subsidiary to a Restricted
Subsidiary; (f) any exchange of like property pursuant to Section 1031 of the
Internal Revenue Code of 1986, as amended, for use in a Similar Business; (g)
any financing transaction with respect to property built or acquired by Holdings
or any of its Restricted Subsidiaries after the Issue Date including, without
limitation, sale-leasebacks and asset securitizations; (h) foreclosures on
assets; and (i) any sale of Equity Interests in, or Indebtedness or other
securities of, an Unrestricted Subsidiary.
'Blackstone' means Blackstone Capital Partners III Merchant Banking Fund
L.P. and its Affiliates.
'Board of Directors' means, as to any Person, the board of directors of
such Person (or, if such Person is a partnership, the board of directors or
other governing body of the general partner of such Person) or any duly
authorized committee thereof.
'Board Resolution' means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
(or, if such Person is a partnership, its general partner) to have been duly
adopted by the Board of Directors of such Person and to be in full force and
effect on the date of such certification, and delivered to the Trustee.
'Business Day' means a day that is not a Saturday, a Sunday or a day on
which banking institutions in New York, New York are not required to be open.
'Capitalized Lease Obligation' means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized and reflected as a liability on
a balance sheet in accordance with GAAP.
'Capital Stock' means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
'Cash Equivalents' means (i) U.S. dollars (and foreign currency exchanged
into U.S. dollars within 180 days), (ii) securities issued or directly and fully
guaranteed or insured by the U.S. Government or any agency or instrumentality
thereof, (iii) certificates of deposit, time deposits and eurodollar time
deposits with maturities of one year or less from the date of acquisition,
bankers' acceptances with maturities not exceeding one year and overnight bank
deposits, in each case with any commercial bank having capital and surplus in
excess of $500.0 million, (iv) repurchase obligations for underlying securities
of the types described in clauses (ii) and (iii) entered into with any financial
institution meeting the qualifications specified in clause (iii) above, (v)
commercial paper rated A-1 or the equivalent thereof by Moody's or S&P and in
each case maturing within one year after the date of acquisition, (vi)
investment funds investing 95% of their assets in securities of the types
described in clauses (i)-(v) above, (vii) readily marketable direct obligations
issued by any state of the United States of America or any political subdivision
thereof having one of the two highest rating categories obtainable from either
Moody's or S&P and (viii) Indebtedness or preferred stock issued by Persons with
a rating of 'A' or higher from S&P or 'A2' or higher from Moody's.
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'Change of Control' means the occurrence of any of the following: (i) the
sale, lease or transfer, in one or a series of related transactions, of all or
substantially all of the assets of Holdings and its Restricted Subsidiaries,
taken as a whole, to a Person other than the Permitted Holders and their Related
Parties; or (ii) Holdings becomes aware (by way of a report or any other filing
pursuant to Section 13(d) of the Exchange Act, proxy, vote, written notice or
otherwise) of the acquisition by any Person or group (within the meaning of
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor
provision), including any group acting for the purpose of acquiring, holding or
disposing of securities (within the meaning of Rule 13d-5(b)(1) under the
Exchange Act), other than the Permitted Holders and their Related Parties, in a
single transaction or in a related series of transactions, by way of merger,
consolidation or other business combination or purchase, of beneficial ownership
(within the meaning of Rule 13d-3 under the Exchange Act, or any successor
provision) of 50% or more of the total voting power of the Voting Stock of
Holdings.
'Common Stock' of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common equity, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common equity.
'Consolidated Depreciation and Amortization Expense' means with respect to
any Person for any period, the total amount of depreciation and amortization
expense of such Person and its Restricted Subsidiaries for such period on a
consolidated basis and otherwise determined in accordance with GAAP.
'Consolidated EBITDA' means, with respect to any Person for any period, the
Consolidated Net Income of such Person for such period plus (a) provision for
taxes based on income or profits of such Person, or Permitted Tax Distributions
made by such Person, for such period deducted in computing Consolidated Net
Income, plus (b) Consolidated Interest Expense of such Person for such period to
the extent the same was deducted in calculating such Consolidated Net Income,
plus (c) Consolidated Depreciation and Amortization Expense of such Person for
such period to the extent such depreciation and amortization expense was
deducted in computing Consolidated Net Income, plus (d) any fees, expenses or
charges related to any Equity Offering, Permitted Investment, acquisition or
recapitalization or Indebtedness permitted to be incurred by the Senior Discount
Indenture (whether or not successful) and fees, expenses or charges related to
the transactions contemplated by the Recapitalization Agreement (including fees
to Blackstone), plus (e) the amount of any non-recurring charges (including any
one-time costs incurred in connection with acquisitions after the Issue Date)
deducted in such period in computing Consolidated Net Income, plus (f) without
duplication, any other non-cash charges reducing Consolidated Net Income for
such period (excluding any such charge which requires an accrual of a cash
reserve for anticipated cash charges for any future period), plus (g) the amount
of any minority interest expense deducted in calculating Consolidated Net
Income, plus (h) special charges and unusual items during any period ending on
or prior to the second anniversary of the Issue Date not to exceed $15.0 million
in the aggregate, plus (i) the amount of management, consulting monitoring and
advisory fees paid to Blackstone and its Affiliates during such period not to
exceed $1.0 million during any four quarter period, less, without duplication
(j) non-cash items increasing Consolidated Net Income of such Person for such
period (excluding any items which represent the reversal of any accrual of, or
cash reserve for, anticipated cash charges in any prior period).
'Consolidated Interest Expense' means, with respect to any Person for any
period, the sum, without duplication, of: (a) consolidated interest expense of
such Person and its Restricted Subsidiaries for such period, to the extent such
expense was deducted in computing Consolidated Net Income (including
amortization of original issue discount, the interest component of Capitalized
Lease Obligations and net payments and receipts (if any) pursuant to Hedging
Obligations to the extent included in Consolidated Interest Expense and
excluding amortization of deferred financing fees and (b) consolidated
capitalized interest of such Person and its Restricted Subsidiaries for such
period, whether paid or accrued ; provided, however, that Consolidated Interest
Expense of Holdings shall not include the interest with respect to the Senior
Discount Notes until January 15, 2003.
'Consolidated Net Income' means, with respect to any Person for any period,
the aggregate of the Net Income, of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis; provided, however, that (i) any net
after-tax extraordinary gains or losses (less all fees and expenses relating
thereto) shall be excluded, (ii) any increase in the cost of sales or other
incremental expenses resulting from purchase
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accounting in relation to any acquisition, net of taxes, shall be excluded,
(iii) the Net Income for such period shall not include the cumulative effect of
a change in accounting principles during such period, (iv) any net after-tax
income (loss) from discontinued operations and any net after-tax gains or losses
on disposal of discontinued operations shall be excluded, (v) any net after-tax
gains or losses (less all fees and expenses relating thereto) attributable to
asset dispositions other than in the ordinary course of business (as determined
in good faith by Holdings) shall be excluded, (vi) the Net Income for such
period of any Person that is not a Subsidiary, or is an Unrestricted Subsidiary,
or that is accounted for by the equity method of accounting, shall be included
only to the extent of the amount of dividends or distributions or other payments
paid in cash (or to the extent converted into cash) to the referent Person or a
Restricted Subsidiary thereof in respect of such period, (vii) the Net Income of
any Person acquired in a pooling of interests transaction shall not be included
for any period prior to the date of such acquisition, (viii) the Net Income for
such period of any Restricted Subsidiary shall be excluded to the extent that
the declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of its Net Income is not at the date of determination
permitted without any prior governmental approval (which has not been obtained)
or, directly or indirectly, by the operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule, or governmental
regulation applicable to that Restricted Subsidiary or its stockholders, unless
such restriction with respect to the payment of dividends or in similar
distributions has been legally waived; provided that such Net Income shall not
be so excluded in calculating Consolidated Net Income (a) as a component of
Consolidated EBITDA for purposes of calculating the Fixed Charge Coverage Ratio
in determining whether (I) a Restricted Subsidiary can incur additional
Indebtedness or issue Disqualified Stock or (II) Holdings can incur $1.00 of
Indebtedness for purposes of (A) clause (b) of the first paragraph or clauses
(vi) and (x) of the second paragraph of the covenant 'Limitation on Restricted
Payments', (B) clause (iv) of the covenant 'Merger, Consolidation and Sale of
Assets' or (C) the definition of 'Unrestricted Subsidiary' or (b) for purposes
of clause (c) of the first paragraph of the covenant 'Limitation on Restricted
Payments' in determining whether a Restricted Investment can be made (including
the designation of a Subsidiary as an Unrestricted Subsidiary) and (ix) the Net
Income for such period of Holdings and its Restricted Subsidiaries shall be
decreased by the amount of Permitted Tax Distributions during such period.
'Contingent Obligations' means, with respect to any Person, any obligation
of such Person guaranteeing any leases, dividends or other obligations that do
not constitute Indebtedness ('primary obligations') of any other Person (the
'primary obligor') in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(i) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (ii) to advance or supply funds (A) for the
purchase or payment of any such primary obligation or (B) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, or (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation against loss in respect thereof.
'Default' means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
'Designated Noncash Consideration' means the fair market value of noncash
consideration received by Holdings or any of its Restricted Subsidiaries in
connection with an Asset Sale that is so designated as Designated Noncash
Consideration pursuant to an Officers' Certificate, setting forth the basis of
such valuation, less the amount of cash or Cash Equivalents received in
connection with a subsequent sale of such Designated Noncash Consideration.
'Designated Preferred Stock' means preferred stock of Holdings or a
Restricted Subsidiary (other than Disqualified Stock) that is issued for cash
(other than to a Restricted Subsidiary) and is so designated as Designated
Preferred Stock, pursuant to an Officers' Certificate, on the issuance date
thereof, the cash proceeds of which are excluded from the calculation set forth
in clause (c) of the covenant described under 'Limitation on Restricted
Payments.'
'Disqualified Stock' means, with respect to any Person, any Capital Stock
of such Person which, by its terms (or by the terms of any security into which
it is convertible or for which it is putable or exchangeable), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, in each case prior to the maturity
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date of the Senior Discount Notes; provided, however, that if such Capital Stock
is issued to any employee or to any plan for the benefit of employees of
Holdings or any of its Subsidiaries or by any such plan to such employees, such
Capital Stock shall not constitute Disqualified Stock solely because it may be
required to be repurchased by Holdings or such Subsidiary in order to satisfy
applicable statutory or regulatory obligations or as a result of such employee's
death or disability.
'Equity Interests' means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
'Equity Offering' means any public or private sale of common stock or
preferred stock of Holdings (other than Disqualified Stock), other than (i)
public offerings with respect to the Common Stock registered on Form S-8 and
(ii) any such public or private sale the proceeds of which have been designated
by Holdings as an Excluded Contribution or Permanent Qualified Equity
Contributions.
'Exchange Act' means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder.
'Excluded Contributions' means the net cash proceeds received by Holdings
after the Issue Date from (a) contributions to its common equity capital and (b)
the sale (other than to a Subsidiary or to any management equity plan or stock
option plan or any other management or employee benefit plan or agreement of
Holdings or any of its Subsidiaries) of Capital Stock (other than Disqualified
Stock) of Holdings, in each case designated as Excluded Contributions pursuant
to an Officers' Certificate, the cash proceeds of which are excluded from the
calculation set forth in paragraph (c) of the 'Limitation on Restricted
Payments' covenant.
'fair market value' means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction.
'Fixed Charge Coverage Ratio' means, with respect to any Person for any
period, the ratio of Consolidated EBITDA of such Person for such period to the
Fixed Charges of such Person for such period. In the event that Holdings or any
of its Restricted Subsidiaries incurs, assumes, guarantees or redeems any
Indebtedness (other than in the case of revolving credit borrowings, in which
case interest expense shall be computed based upon the average daily balance of
such Indebtedness during the applicable period) or issues or redeems preferred
stock subsequent to the commencement of the period for which the Fixed Charge
Coverage Ratio is being calculated but prior to the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the 'Calculation Date'),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter period. With respect to any Calculation
Date that occurs on or after January 15, 2003 and prior to January 15, 2004, the
Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to the
interest expense of Holdings with respect to the Senior Discount Notes. For
purposes of making the computation referred to above, Investments, acquisitions,
dispositions, mergers, consolidations and discontinued operations (as determined
in accordance with GAAP) that have been made by Holdings or any of its
Restricted Subsidiaries during the four-quarter reference period or subsequent
to such reference period and on or prior to or simultaneously with the
Calculation Date shall be calculated on a pro forma basis assuming that all such
Investments, acquisitions, dispositions, discontinued operations, mergers and
consolidations (and the reduction of any associated fixed charge obligations and
the change in Consolidated EBITDA resulting therefrom) had occurred on the first
day of the four-quarter reference period. If since the beginning of such period
any Person (that subsequently became a Restricted Subsidiary or was merged with
or into Holdings or any Restricted Subsidiary since the beginning of such
period) shall have made any Investment, acquisition, disposition, discontinued
operation, merger or consolidation that would have required adjustment pursuant
to this definition, then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect thereto for such period as if such Investment,
acquisition, disposition, discontinued operation, merger or consolidation had
occurred at the beginning of the applicable four-quarter period. For purposes of
this definition, whenever pro forma effect is to be given to a transaction, the
pro forma calculations shall be made as determined in good faith by a
responsible financial or accounting officer of Holdings. If any Indebtedness
bears a floating rate of interest and is being given pro forma effect, the
interest on such Indebtedness shall be calculated
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as if the rate in effect on the Calculation Date had been the applicable rate
for the entire period (taking into account any Hedging Obligations applicable to
such Indebtedness). Interest on a Capitalized Lease Obligation shall be deemed
to accrue at an interest rate reasonably determined by a responsible financial
or accounting officer of Holdings to be the rate of interest implicit in such
Capitalized Lease Obligation in accordance with GAAP. For purposes of making the
computation referred to above, interest on any Indebtedness under a revolving
credit facility computed on a pro forma basis shall be computed based upon the
average daily balance of such Indebtedness during the applicable period.
Interest on Indebtedness that may optionally be determined at an interest rate
based upon a factor of a prime or similar rate, a eurocurrency interbank offered
rate, or other rate, shall be deemed to have been based upon the rate actually
chosen, or, if none, then based upon such optional rate chosen as Holdings may
designate. Any such pro forma calculation may include adjustments in the
reasonable determination of Holdings as set forth in an Officers' Certificate,
to (i) reflect operating expense reductions reasonably expected to result from
any acquisition or merger or (ii) eliminate the effect of any extraordinary
accounting event with respect to any acquired Person on Consolidated Net Income.
'Fixed Charges' means, with respect to any Person for any period, the sum
of (a) Consolidated Interest Expense of such Person for such period and (b) the
product of (x) all cash dividend payments (excluding items eliminated in
consolidation) on any series of Disqualified Stock of such Person or its
Restricted Subsidiaries and (y) (A) if such Person is not a taxable entity for
U.S. federal income tax purposes, one, or (B) if such Person is an entity
taxable for U.S. federal income tax purposes, a fraction, the numerator of which
is one and the denominator of which is one minus the then current effective
consolidated federal, state and local tax rate of such Person, expressed as a
decimal.
'Foreign Subsidiary' means a Restricted Subsidiary not organized or
existing under the laws of the United States, any State thereof, the District of
Columbia, or any territory thereof.
'GAAP' means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issue Date. For the purposes of the
Senior Discount Indenture, the term 'consolidated' with respect to any Person
shall mean such Person consolidated with its Restricted Subsidiaries, and shall
not include any Unrestricted Subsidiary.
'Government Securities' means securities that are (a) direct obligations of
the United States of America for the timely payment of which its full faith and
credit is pledged or (b) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such Government Securities
or a specific payment of principal of or interest on any such Government
Securities held by such custodian for the account of the holder of such
depository receipt; provided that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the holder of
such depository receipt from any amount received by the custodian in respect of
the Government Securities or the specific payment of principal of or interest on
the Government Securities evidenced by such depository receipt.
'guarantee' means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness or other obligations.
'Guarantee' means any guarantee of the obligations of the Holdings Issuers
under the Senior Discount Indenture and the Senior Discount Notes by any
Restricted Subsidiary in accordance with the provisions of the Senior Discount
Indenture. When used as a verb, 'Guarantee' shall have a corresponding meaning.
'Guarantor' means any Restricted Subsidiary that incurs a Guarantee;
provided that upon the release and discharge of such Restricted Subsidiary from
its Guarantee in accordance with the Senior Discount Indenture, such Restricted
Subsidiary shall cease to be a Guarantor.
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'Hedging Obligations' means, with respect to any Person, the obligations of
such Person under (i) currency exchange or interest rate swap agreements,
currency exchange or interest rate cap agreements and currency exchange or
interest rate collar agreements and (ii) other agreements or arrangements
designed to protect such Person against fluctuations in currency exchange or
interest rates or commodity prices.
'Indebtedness' means, with respect to any Person, (a) any indebtedness of
such Person, whether or not contingent (i) in respect of borrowed money, (ii)
evidenced by bonds, notes, debentures or similar instruments or letters of
credit or bankers' acceptances (or, without double counting, reimbursement
agreements in respect thereof), (iii) representing the balance deferred and
unpaid of the purchase price of any property (including Capitalized Lease
Obligations), except any such balance that constitutes a trade payable or
similar obligation to a trade creditor, in each case accrued in the ordinary
course of business or (iv) representing any Hedging Obligations, if and to the
extent of any of the foregoing Indebtedness (other than letters of credit and
Hedging Obligations) that would appear as a liability upon a balance sheet
(excluding the footnotes thereto) of such Person prepared in accordance with
GAAP, (b) to the extent not otherwise included, any obligation by such Person to
be liable for, or to pay, as obligor, guarantor or otherwise, on the
Indebtedness of another Person (other than by endorsement of negotiable
instruments for collection in the ordinary course of business) and (c) to the
extent not otherwise included, Indebtedness of another Person secured by a Lien
on any asset owned by such Person (whether or not such Indebtedness is assumed
by such Person); provided, however, that Contingent Obligations incurred in the
ordinary course of business shall be deemed not to constitute Indebtedness.
'Independent Financial Advisor' means an accounting, appraisal, investment
banking firm or consultant to Persons engaged in Similar Businesses of
nationally recognized standing that is, in the good faith determination of
Holdings, qualified to perform the task for which it has been engaged.
'Investment Grade Securities' means (i) securities issued or directly and
fully guaranteed or insured by the United States government or any agency or
instrumentality thereof (other than Cash Equivalents), (ii) debt securities or
debt instruments with a rating of BBB- or higher by S&P or Baa3 or higher by
Moody's or the equivalent of such rating by such rating organization, or, if no
rating of S&P or Moody's then exists, the equivalent of such rating by any other
nationally recognized securities rating agency, but excluding any debt
securities or instruments constituting loans or advances between and among the
respective Company Issuers and their respective Subsidiaries, and (iii)
investments in any fund that invests exclusively in investments of the type
described in clauses (i) and (ii) which fund may also hold immaterial amounts of
cash pending investment and/or distribution.
'Investments' means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of loans (including
guarantees), advances or capital contributions (excluding accounts receivable,
trade credit, advances to customers, commission, travel and similar advances to
officers and employees made in the ordinary course of business), purchases or
other acquisitions for consideration of Indebtedness, Equity Interests or other
securities issued by any other Person and investments that are required by GAAP
to be classified on the balance sheet (excluding the footnotes thereto) of such
Person in the same manner as the other investments included in this definition
to the extent such transactions involve the transfer of cash or other property.
For purposes of the definition of 'Unrestricted Subsidiary' and the covenant
described under 'Certain Covenants--Limitation on Restricted Payments,' (i)
'Investments' shall include the portion (proportionate to Holdings' equity
interest in such Subsidiary) of the fair market value of the net assets of a
Subsidiary of Holdings at the time that such Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, Holdings shall be deemed to continue to
have a permanent 'Investment' in an Unrestricted Subsidiary equal to an amount
(if positive) equal to (x) Holdings' 'Investment' in such Subsidiary at the time
of such redesignation less (y) the portion (proportionate to Holdings' equity
interest in such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time of such redesignation; and (ii) any property transferred
to or from an Unrestricted Subsidiary shall be valued at its fair market value
at the time of such transfer, in each case as determined in good faith by
Holdings.
'Issue Date' means the closing date for the sale and original issuance of
the Senior Discount Notes under the Senior Discount Indenture.
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'Lien' means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction);
provided that in no event shall an operating lease be deemed to constitute a
Lien.
'Management Group' means the group consisting of the executive officers of
Holdings.
'Moody's' means Moody's Investors Service, Inc.
'Net Income' means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends.
'Net Proceeds' means the aggregate cash proceeds received by Holdings or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
Designated Noncash Consideration received in any Asset Sale), net of the direct
costs relating to such Asset Sale and the sale or disposition of such Designated
Noncash Consideration (including, without limitation, legal, accounting and
investment banking fees, and brokerage and sales commissions), and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements related thereto), amounts required
to be applied to the repayment of principal, premium (if any) and interest on
Indebtedness required (other than required by clause (i) of the second paragraph
of 'Certain Covenants--Limitation on Asset Sales') to be paid as a result of
such transaction and any deduction of appropriate amounts to be provided by
Holdings as a reserve in accordance with GAAP against any liabilities associated
with the asset disposed of in such transaction and retained by Holdings after
such sale or other disposition thereof, including, without limitation, pension
and other post-employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations associated with
such transaction.
'New Credit Facility' means that certain credit facility among Bankers
Trust Company, the Company and certain of its Subsidiaries and affiliates and
the lenders from time to time party thereto, together with any related
documents, instruments and agreements executed in connection therewith
(including, without limitation, any guaranty agreements and security documents),
in each case as such credit facility and related documents, instruments and
agreements may be amended (including any amendment and restatement thereof),
supplemented or otherwise modified from time to time, including any agreement
extending the maturity of, refinancing, replacing or otherwise restructuring
(including increasing the amount of available borrowings thereunder or adding
additional obligors or guarantors thereunder) all or any portion of the
Indebtedness under such credit facility or any successor or replacement credit
facility and whether by the same or any other agent, lender or group of lenders.
'Obligations' means all obligations for principal, interest, penalties,
fees, indemnifications other than fees and indemnifications in favor of the
Senior Discount Trustee and other third parties), reimbursements (including,
without limitation, reimbursement obligations with respect to letters of credit
and banker's acceptances), damages and other liabilities payable under the
documentation governing any Indebtedness.
'Officer' of any Person means the Chairman of the Board, the President, any
Executive Vice President, Senior Vice President or Vice President, the Treasurer
or the Secretary of such Person.
'Officers' Certificate' of any Person means a certificate signed on behalf
of such Person by two Officers of such Person, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of such Person that meets the requirements set
forth in the Senior Discount Indenture.
'Pari Passu Indebtedness' means, with respect to the Senior Discount Notes
or a Guarantee, Indebtedness which ranks pari passu in right of payment to the
Senior Discount Notes or such Guarantee, as the case may be.
'Permanent Qualified Equity Contributions' means net cash proceeds to the
Company in the form of contributions to the common equity capital of the Company
or from the sale (other than to a Subsidiary of the
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Company or to any management equity plan or stock option plan or any other
management or employee benefit plan of the Company or any of its Subsidiaries)
of Capital Stock (other than Disqualified Stock) of the Company, in each case
designated as Permanent Qualified Equity Contributions pursuant to an Officers'
Certificate, the cash proceeds of which are excluded from the calculation set
forth in paragraph (c) of the 'Limitation on Restricted Payments' covenant.
'Permitted Holders' means Blackstone and any of its Affiliates.
'Permitted Investments' means (a) any Investment in Holdings or any
Restricted Subsidiary; (b) any Investment in cash and Cash Equivalents or
Investment Grade Securities; (c) any Investment by Holdings or any Restricted
Subsidiary in a Person that is a Similar Business if as a result of such
Investment (i) such Person becomes a Restricted Subsidiary or (ii) such Person,
in one transaction or a series of related transactions, is merged, consolidated
or amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, Holdings or a Restricted Subsidiary; (d) any
Investment in securities or other assets not constituting cash or Cash
Equivalents and received in connection with an Asset Sale made pursuant to the
provisions of 'Certain Covenants--Limitation on Asset Sales' or any other
disposition of assets not constituting an Asset Sale; (e) any Investment
existing on the Issue Date; (f) advances to employees not in excess of $10.0
million outstanding at any one time, in the aggregate; (g) any Investment
acquired by Holdings or any of its Restricted Subsidiaries (i) in exchange for
any other Investment or accounts receivable held by Holdings or any such
Restricted Subsidiary in connection with or as a result of a bankruptcy,
workout, reorganization or recapitalization of the issuer of such other
Investment or accounts receivable or (ii) as a result of a foreclosure by
Holdings or any of its Restricted Subsidiaries with respect to any secured
Investment or other transfer of title with respect to any secured Investment in
default; (h) Hedging Obligations permitted under clause (j) of the 'Limitation
of Incurrence of Indebtedness and Issuance of Disqualified Stock' covenant; (i)
loans and advances to officers, directors and employees for business-related
travel expenses, moving expenses and other similar expenses, in each case
incurred in the ordinary course of business; (j) any Investment in a Similar
Business (other than an Investment in an Unrestricted Subsidiary) having an
aggregate fair market value, taken together with all other Investments made
pursuant to this clause (j) that are at that time outstanding, not to exceed 10%
of Total Assets at the time of such Investment (with the fair market value of
each Investment being measured at the time made and without giving effect to
subsequent changes in value); (k) Investments the payment for which consists of
Equity Interests of Holdings (other than Disqualified Stock); provided, however,
that such Equity Interests will not increase the amount available for Restricted
Payments under clause (c) of the 'Limitation on Restricted Payments' covenant;
(l) additional Investments having an aggregate fair market value, taken together
with all other Investments made pursuant to this clause (l) that are at that
time outstanding, not to exceed $10.0 million at the time of such Investment
(with the fair market value of each Investment being measured at the time made
and without giving effect to subsequent changes in value); (m) any transaction
to the extent it constitutes an Investment that is permitted by and made in
accordance with the provisions of clauses (iii) and (xi) of the second paragraph
of the covenant described under 'Certain Covenants--Transactions with
Affiliates'; (n) any Investment by Restricted Subsidiaries in other Restricted
Subsidiaries; (o) Investments consisting of the licensing or contribution of
intellectual property pursuant to joint marketing arrangements with other
Persons; and (p) Investments consisting of purchases and acquisitions of
inventory, supplies, materials and equipment or licenses or leases of
intellectual property, in any case, in the ordinary course of business.
'Permitted Liens' means the following types of Liens:
(i) judgment Liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;
(ii) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation;
(iii) purchase money Liens to finance property or assets of Holdings
or any Restricted Subsidiary acquired in the ordinary course of business;
provided, however, that (A) the related purchase money
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Indebtedness shall not exceed the cost of such property or assets and shall
not be secured by any property or assets of Holdings or any Restricted
Subsidiary other than the property and assets so acquired and (B) the Lien
securing such Indebtedness shall be created within 180 days of such
acquisition;
(iv) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
(v) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(vi) Liens securing Indebtedness under Hedging Obligations;
(vii) Liens securing Acquired Indebtedness incurred in accordance with
the 'Limitations on Incurrence of Indebtedness and Issuance of Disqualified
Stock' covenant; provided that (A) such Liens secured such Acquired
Indebtedness at the time of and prior to the incurrence of such Acquired
Indebtedness by Holdings or a Restricted Subsidiary thereof and were not
granted in connection with, or in anticipation of, the incurrence of such
Acquired Indebtedness by Holdings or a Restricted Subsidiary thereof and
(B) such Liens do not extend to or cover any property or assets of Holdings
or any of the Restricted Subsidiaries other than the property or assets
that secured the Acquired Indebtedness prior to the time such Indebtedness
became Acquired Indebtedness of Holdings or such Restricted Subsidiary and
are no more favorable to the lienholders than those securing the Acquired
Indebtedness prior to the incurrence of such Acquired Indebtedness by
Holdings or such Restricted Subsidiary;
(viii) Liens securing obligations under the New Credit Facility;
(ix) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(x) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business, consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money); and
(xi) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual or warranty requirements, including
rights of offset and set off.
'Person' means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
'Recapitalization Agreement' means the Agreement and Plan of
Recapitalization, Redemption and Purchase, dated as of December 18, 1997 by and
among the Company, BMP/Graham Holdings Corporation and the other parties
thereto.
'Related Parties' means any Person controlled by a Permitted Holder,
including any partnership of which a Permitted Holder or its Affiliates is the
general partner.
'Restricted Investment' means an Investment other than a Permitted
Investment.
'Restricted Subsidiary' means, at any time, any direct or indirect
Subsidiary of Holdings that is not then an Unrestricted Subsidiary; provided,
however, that upon the occurrence of an Unrestricted Subsidiary ceasing to be an
Unrestricted Subsidiary, such Subsidiary shall be included in the definition of
'Restricted Subsidiary.'
'S&P' means Standard and Poor's Ratings Group.
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'Securities Act' means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
'Significant Restricted Subsidiary' means any Restricted Subsidiary that
would be a 'significant subsidiary' of Holdings as defined in Article 1, Rule
1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such
Regulation is in effect on the date hereof.
'Similar Business' means a business, the majority of whose revenues are
derived from the manufacture, marketing or sale of containers or any business or
activity that is reasonably similar thereto or a reasonable extension,
development or expansion thereof or ancillary thereto.
'Subordinated Indebtedness' means with respect to the Senior Discount Notes
or a Guarantee, any Indebtedness of Holdings or a Guarantor, as the case may be,
which is by its terms subordinated in right of payment to the Senior Discount
Notes or the Guarantee of such Guarantor, as the case may be.
'Subsidiary' means, with respect to any Person, (i) any corporation,
association, or other business entity (other than a partnership) of which more
than 50% of the total voting power of shares of Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time of determination owned or
controlled, directly or indirectly, by such Person or one or more of the other
Subsidiaries of that Person or a combination thereof and (ii) any partnership,
joint venture, limited liability company or similar entity of which (x) more
than 50% of the capital accounts, distribution rights, total equity and voting
interests or general or limited partnership interests, as applicable, are owned
or controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person or a combination thereof whether in the form
of membership, general, special or limited partnership or otherwise and (y) such
Person or any Wholly Owned Restricted Subsidiary of such Person is a controlling
general partner or otherwise controls such entity.
'Total Assets' means the total consolidated assets of Holdings and its
Restricted Subsidiaries, as shown on the most recent balance sheet of Holdings.
'Unrestricted Subsidiary' means (i) any Subsidiary of Holdings which at the
time of determination is an Unrestricted Subsidiary (as designated by the Board
of Directors of Holdings, as provided below) and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors of Holdings may designate any
Subsidiary of Holdings (including any existing Subsidiary and any newly acquired
or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such
Subsidiary or any of its Subsidiaries owns any Equity Interests of, or owns, or
holds any Lien on, any property of, Holdings or any Subsidiary thereof (other
than any Subsidiary of the Subsidiary to be so designated), provided that each
Subsidiary to be so designated and its Subsidiaries have not at the time of
designation, and do not thereafter, create, incur, issue, assume, guarantee or
otherwise become directly or indirectly liable with respect to any Indebtedness
pursuant to which the lender has recourse to any of the assets of Holdings or
any of its Restricted Subsidiaries. The Board of Directors of Holdings may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that, immediately after giving effect to such designation, (i) Holdings could
incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test described under 'Certain Covenants--Limitations on
Incurrence of Indebtedness and Issuance of Disqualified Stock' or (ii) the Fixed
Charge Coverage Ratio for Holdings and its Restricted Subsidiaries would be
greater than such ratio for Holdings and its Restricted Subsidiaries immediately
prior to such designation, in each case on a pro forma basis taking into account
such designation. Any such designation by the Board of Directors of Holdings
shall be notified by Holdings to the Senior Discount Trustee by promptly filing
with the Senior Discount Trustee a copy of the Board Resolution giving effect to
such designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
'Voting Stock' of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
'Weighted Average Life to Maturity' means, when applied to any Indebtedness
or Disqualified Stock, as the case may be, at any date, the quotient obtained by
dividing (i) the sum of the products of the number of years from the date of
determination to the date of each successive scheduled principal payment of such
Indebtedness
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or redemption or similar payment with respect to such Disqualified Stock
multiplied by the amount of such payment, by (ii) the sum of all such payments.
'Wholly Owned Restricted Subsidiary' is any Wholly Owned Subsidiary that is
a Restricted Subsidiary.
'Wholly Owned Subsidiary' of any Person means a Subsidiary of such Person
100% of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.
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SENIOR SUBORDINATED EXCHANGE OFFERS;
SENIOR SUBORDINATED REGISTRATION RIGHTS
The summary set forth below of certain provisions of the Senior
Subordinated Registration Rights Agreement sets forth the material terms of the
Senior Subordinated Registration Rights Agreement. However, such summary is not
complete and is qualified in its entirety by reference to all the provisions of
the Senior Subordinated Registration Rights Agreement. The Senior Subordinated
Registration Rights Agreement is an exhibit to the Registration Statement of
which this Prospectus is a part.
On February 2, 1998, the Company Issuers, Holdings, as guarantor, and the
Initial Purchasers entered into a registration rights agreement (the 'Senior
Subordinated Registration Rights Agreement'). In the Senior Subordinated
Registration Rights Agreement, the Company Issuers and Holdings agree, for the
benefit of holders of the Senior Subordinated Old Notes, that they will, at
their expense, use their reasonable best efforts to (i) within 120 days after
the Issue Date, file a registration statement on an appropriate registration
form (the 'Senior Subordinated Registration Statement') with the Commission with
respect to registered offers (the 'Senior Subordinated Exchange Offers') to
exchange the Fixed Rate Senior Subordinated Old Notes and the Floating Rate
Senior Subordinated Old Notes for the Fixed Rate Senior Subordinated Exchange
Notes and the Floating Rate Senior Subordinated Exchange Notes, respectively,
which will have terms (including a guarantee of Holdings) substantially
identical to the terms of the Fixed Rate Senior Subordinated Old Notes and the
Floating Rate Senior Subordinated Old Notes, respectively (except that the
Senior Subordinated Exchange Notes will not contain terms with respect to the
transfer restrictions) and (ii) cause the Senior Subordinated Registration
Statement to be declared effective under the Securities Act within 180 days
after the Issue Date. Upon the Senior Subordinated Registration Statement being
declared effective, the Company Issuers and Holdings will offer to all holders
of Fixed Rate Senior Subordinated Old Notes and Floating Rate Senior
Subordinated Old Notes an opportunity to exchange their securities for a like
principal amount of Fixed Rate Senior Subordinated Exchange Notes or Floating
Rate Senior Subordinated Exchange Notes, as the case may be. The Company Issuers
and Holdings will keep the Senior Subordinated Exchange Offers open for
acceptance for not less than 20 business days (or longer if required by
applicable law) after the date on which notice of the Senior Subordinated
Exchange Offers is mailed to the holders. For each Fixed Rate Senior
Subordinated Old Note or Floating Rate Senior Subordinated Old Note surrendered
for exchange pursuant to the Senior Subordinated Exchange Offers, the holder of
such Fixed Rate Senior Subordinated Old Note or Floating Rate Senior
Subordinated Old Note will receive a Fixed Rate Senior Subordinated Exchange
Note or Floating Rate Senior Subordinated Exchange Note, as the case may be,
having a principal amount equal to that of the surrendered Senior Subordinated
Old Note. Interest on each Senior Subordinated Exchange Note will accrue (A)
from the later of (i) the last interest payment date on which interest was paid
on the Senior Subordinated Old Note surrendered in exchange therefor or (ii) if
the Senior Subordinated Old Note is surrendered for exchange on a date in a
period which includes the record date for an interest payment date to occur on
or after the date of such exchange and as to which interest will be paid, the
date of such interest payment date or (B) if no interest has been paid on such
Senior Subordinated Old Note, from the Issue Date.
Under existing interpretations of the Commission contained in several
no-action letters to third parties, the Senior Subordinated Exchange Notes will
be freely transferable by holders thereof (other than affiliates of the Company
Issuers or Holdings) after the Senior Subordinated Exchange Offers without
further registration under the Securities Act; provided, however, that each
holder that wishes to exchange its Senior Subordinated Old Notes for Senior
Subordinated Exchange Notes will be required to represent (i) that any Senior
Subordinated Exchange Notes to be received by it will be acquired in the
ordinary course of its business, (ii) that at the time of the commencement of
the Senior Subordinated Exchange Offers, it has no arrangement or understanding
with any person to participate in the distribution (within the meaning of
Securities Act) of the Senior Subordinated Exchange Notes in violation of the
Securities Act, (iii) that it is not an 'affiliate' (as defined in Rule 405
promulgated under the Securities Act) of the Company Issuers or Holdings, (iv)
if such holder is not a broker-dealer, that it is not engaged in, and does not
intend to engage in, the distribution of Senior Subordinated Exchange Notes and
(v) if such holder is a broker-dealer (a 'Participating Broker-Dealer') that
will receive Senior Subordinated Exchange Notes for its own account in exchange
for Senior Subordinated Old Notes that were acquired as a result of
market-making or other trading activities, that it will deliver a prospectus in
connection with any resale of such Senior Subordinated Exchange Notes. The
Commission has taken the position
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that Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to the Senior Subordinated Exchange Notes (other than
a resale of an unsold allotment from the original sale of the Senior
Subordinated Old Notes) with the prospectus contained in the Senior Subordinated
Registration Statement. The Company Issuers and Holdings will agree to make
available, during the period required by the Securities Act, a prospectus
meeting the requirements of the Securities Act for use by Participating
Broker-Dealers and other persons, if any, with similar prospectus delivery
requirements for use in connection with any resale of Senior Subordinated
Exchange Notes.
If, (i) because of any change in law or in currently prevailing
interpretations of the Staff of the Commission, the Company Issuers and Holdings
are not permitted to effect the Senior Subordinated Exchange Offers, (ii) the
Senior Subordinated Exchange Offers are not consummated within 210 days of the
Issue Date or (iii) in the case of any holder that participates in the Senior
Subordinated Exchange Offers, such holder does not receive Senior Subordinated
Exchange Notes on the date of the exchange that may be sold without restriction
under state and federal securities laws (other than due solely to the status of
such holder as an affiliate of the Company Issuers or Holdings within the
meaning of the Securities Act), then in each case, the Company Issuers and
Holdings will (x) promptly deliver to the holders and the applicable Trustee
written notice thereof and (y) at their sole expense, (a) as promptly as
practicable, file a shelf registration statement covering resales of the Senior
Subordinated Old Notes (the 'Senior Subordinated Shelf Registration Statement'),
(b) use their reasonable best efforts to cause the Senior Subordinated Shelf
Registration Statement to be declared effective under the Securities Act and (c)
use their reasonable best efforts to keep effective the Senior Subordinated
Shelf Registration Statement until the earlier of two years after the Issue Date
or such time as all of the applicable Senior Subordinated Old Notes have been
sold thereunder. The Company Issuers and Holdings will, in the event that a
Senior Subordinated Shelf Registration Statement is filed, provide to each
holder copies of the prospectus that is a part of the Senior Subordinated Shelf
Registration Statement, notify each such holder when the Senior Subordinated
Shelf Registration Statement for the Senior Subordinated Old Notes has become
effective and take certain other actions as are required to permit unrestricted
resales of the Senior Subordinated Old Notes. A holder that sells Senior
Subordinated Old Notes pursuant to the Senior Subordinated Shelf Registration
Statement will be required to be named as a selling securityholder in the
related prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in connection
with such sales and will be bound by the provisions of the Senior Subordinated
Registration Rights Agreement that are applicable to such Holder (including
certain indemnification rights and obligations).
If the Company Issuers and Holdings fail to comply with the above
provisions or if the Senior Subordinated Registration Statement or the Senior
Subordinated Shelf Registration Statement fails to become effective, then, as
liquidated damages, additional interest (the 'Additional Interest') shall become
payable in respect of the Senior Subordinated Old Notes as follows:
(i) if (A) the Senior Subordinated Registration Statement is not filed
with the Commission within 120 days following the Issue Date or (B)
notwithstanding that the Company Issuers and Holdings have consummated or
will consummate the Senior Subordinated Exchange Offers, the Company
Issuers and Holdings are required to file a Senior Subordinated Shelf
Registration Statement and such Senior Subordinated Shelf Registration
Statement is not filed on or prior to the 60th day following the date on
which the obligation to file such Senior Subordinated Shelf Registration
Statement arises, then commencing on the day after either such required
filing date, Additional Interest shall accrue on the principal amount of
the Senior Subordinated Old Notes at a rate of .25% per annum for the first
90 days immediately following each such filing date, such Additional
Interest rate increasing by an additional .25% per annum at the beginning
of each subsequent 90-day period; or
(ii) if (A) the Senior Subordinated Registration Statement is not
declared effective by the Commission within 180 days following the Issue
Date or (B) notwithstanding that the Company Issuers and Holdings have
consummated or will consummate the Senior Subordinated Exchange Offers, the
Company Issuers and Holdings are required to file a Senior Subordinated
Shelf Registration Statement and such Senior Subordinated Shelf
Registration Statement is not declared effective by the Commission on or
prior to the 120th day following the date on which the obligation to file
such Senior Subordinated Shelf Registration Statement arises, then,
commencing on the day after either such required effective date, Additional
Interest shall accrue on the principal amount of the Senior Subordinated
Old Notes at a rate of .25% per annum for
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the first 90 days immediately following such date, such Additional Interest
rate increasing by an additional .25% per annum at the beginning of each
subsequent 90-day period; or
(iii) if (A) the Company Issuers and Holdings have not exchanged
Senior Subordinated Exchange Notes for all Senior Subordinated Old Notes
validly tendered in accordance with the terms of the Senior Subordinated
Exchange Offers on or prior to the later of the 45th day after the date on
which the Senior Subordinated Registration Statement was declared effective
or the 210th day after the Issue Date or (B) if applicable, the Senior
Subordinated Shelf Registration Statement has been declared effective and
such Senior Subordinated Shelf Registration Statement ceases to be
effective at any time prior to the second anniversary of the Issue Date
(other than as a result of a Suspension Period (as defined) and other than
after such time as all Senior Subordinated Old Notes have been disposed of
thereunder), then Additional Interest shall accrue on the principal amount
of the Senior Subordinated Old Notes at a rate of .25% per annum for the
first 90 days commencing on (x) the 46th or 211th, as the case may be, day
after such effective date, in the case of (A) above, or (y) the day such
Senior Subordinated Shelf Registration Statement ceases to be effective in
the case of (B) above (or in the event of a Suspension Period, on the
earlier of the last day of such Suspension Period or the 60th day after
notice of such Suspension Period), such Additional Interest rate increasing
by an additional .25% per annum at the beginning of each subsequent 90-day
period; provided, however, that the Additional Interest rate on the Senior
Subordinated Old Notes may not exceed in the aggregate 1.0% per annum;
provided, further, however, that (1) upon the filing of the Senior
Subordinated Registration Statement or a Senior Subordinated Shelf
Registration Statement (in the case of clause (i) above), (2) upon the
effectiveness of the Senior Subordinated Registration Statement or a Senior
Subordinated Shelf Registration Statement (in the case of clause (ii)
above), or (3) upon the exchange of Senior Subordinated Exchange Notes for
all Senior Subordinated Old Notes tendered (in the case of clause (iii) (A)
above), or upon the effectiveness of the Senior Subordinated Shelf
Registration Statement which had ceased to remain effective (other than as
a result of a Suspension Period) (in the case of clause (iii) (B) above),
Additional Interest on the Senior Subordinated Old Notes as a result of
such clause (or the relevant subclause thereof), as the case may be, shall
cease to accrue. Any amounts of Additional Interest due pursuant to clause
(i), (ii) or (iii) above will be payable in cash on the same original
interest payment dates as provided in the terms of the Senior Subordinated
Old Notes.
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SENIOR DISCOUNT EXCHANGE OFFER;
SENIOR DISCOUNT REGISTRATION RIGHTS
The summary set forth below of certain provisions of the Senior Discount
Registration Rights Agreement sets forth the material terms of the Senior
Discount Registration Rights Agreement. However, such summary is not complete
and is qualified in its entirety by reference to all the provisions of the
Senior Discount Registration Rights Agreement. The Senior Discount Registration
Rights Agreement is an exhibit to the Registration Statement of which this
Prospectus is a part.
On February 2, 1998, the Holdings Issuers and the Initial Purchasers
entered into a registration rights agreement (the 'Senior Discount Registration
Rights Agreement' and, together with the Senior Subordinated Registration Rights
Agreement, the 'Registration Rights Agreements'). In the Senior Discount
Registration Rights Agreement, the Holdings Issuers agree, for the benefit of
holders of the Senior Discount Old Notes, that they will, at their expense, use
their reasonable best efforts to (i) within 120 days after the Issue Date, file
a registration statement on an appropriate registration form (the 'Senior
Discount Registration Statement') with the Commission with respect to a
registered offer (the 'Senior Discount Exchange Offer') to exchange the Senior
Discount Old Notes for Senior Discount Exchange Notes, which will have terms
substantially identical to the terms of the Senior Discount Old Notes (except
that the Senior Discount Exchange Notes will not contain terms with respect to
the transfer restrictions) and (ii) cause the Senior Discount Registration
Statement to be declared effective under the Securities Act within 180 days
after the Issue Date. Upon the Senior Discount Registration Statement being
declared effective, the Holdings Issuers will offer to all holders of the Senior
Discount Old Notes an opportunity to exchange their securities for a like
principal amount at maturity of the Senior Discount Exchange Notes. The Holdings
Issuers will keep the Senior Discount Exchange Offer open for acceptance for not
less than 20 business days (or longer if required by applicable law) after the
date notice of the Senior Discount Exchange Offer is mailed to the holders. For
each Senior Discount Old Note surrendered for exchange pursuant to the Senior
Discount Exchange Offer, the Holder of such Senior Discount Old Note will
receive a Senior Discount Exchange Note having an Accreted Value and a principal
amount at maturity equal to that of the surrendered Senior Discount Old Note.
Under existing interpretations of the Commission contained in several
no-action letters to third parties, the Senior Discount Exchange Notes will be
freely transferable by holders thereof (other than affiliates of the Holdings
Issuers) after the Senior Discount Exchange Offer without further registration
under the Securities Act; provided, however, that each Holder that wishes to
exchange its Senior Discount Old Notes for Senior Discount Exchange Notes will
be required to represent (i) that any Senior Discount Exchange Notes to be
received by it will be acquired in the ordinary course of its business, (ii)
that at the time of the commencement of the Senior Discount Exchange Offer it
has no arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of the Senior Discount
Exchange Notes in violation of the Securities Act, (iii) that it is not an
'affiliate' (as defined in Rule 405 promulgated under the Securities Act) of the
Holdings Issuers, (iv) if such holder is not a broker-dealer, that it is not
engaged in, and does not intend to engage in, the distribution of Senior
Discount Exchange Notes and (v) if such holder is a Participating Broker-Dealer
that will receive Senior Discount Exchange Notes for its own account in exchange
for Senior Discount Old Notes that were acquired as a result of market-making or
other trading activities, that it will deliver a prospectus in connection with
any resale of such Senior Discount Exchange Notes. The Commission has taken the
position that Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to the Senior Discount Exchange Notes (other than a
resale of an unsold allotment from the original sale of the Senior Discount Old
Notes) with the prospectus contained in the Senior Discount Registration
Statement. The Holdings Issuers agree to make available, during the period
required by the Securities Act, a prospectus meeting the requirements of the
Securities Act for use by Participating Broker-Dealers and other persons, if
any, with similar prospectus delivery requirements for use in connection with
any resale of Senior Discount Exchange Notes.
If, (i) because of any change in law or in currently prevailing
interpretations of the Staff of the Commission, the Holdings Issuers are not
permitted to effect a Senior Discount Exchange Offer, (ii) the Senior Discount
Exchange Offer is not consummated within 210 days of the Issue Date, or (iii) in
the case of any holder that participates in the Senior Discount Exchange Offer,
such holder does not receive Senior Discount Exchange Notes on the date of the
exchange that may be sold without restriction under state and federal securities
laws
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(other than due solely to the status of such holder as an affiliate of the
Holdings Issuers within the meaning of the Securities Act), then in each case,
the Holdings Issuers will (x) promptly deliver to the holders and the Trustee
written notice thereof and (y) at their sole expense, (a) as promptly as
practicable, file a shelf registration statement covering resales of the Senior
Discount Old Notes (the 'Senior Discount Shelf Registration Statement'), (b) use
their reasonable best efforts to cause the Senior Discount Shelf Registration
Statement to be declared effective under the Securities Act and (c) use their
reasonable best efforts to keep effective the Senior Discount Shelf Registration
Statement until the earlier of two years after the Issue Date or such time as
all of the applicable Senior Discount Old Notes have been sold thereunder. The
Holdings Issuers will, in the event that a Senior Discount Shelf Registration
Statement is filed, provide to each holder copies of the prospectus that it is a
part of the Senior Discount Shelf Registration Statement, notify each such
holder when the Senior Discount Shelf Registration Statement for the Senior
Discount Old Notes has become effective and take certain other actions as are
required to permit unrestricted resales of the Senior Discount Old Notes. A
holder that sells Senior Discount Old Notes pursuant to the Senior Discount
Shelf Registration Statement will be required to be named as a selling
securityholder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Senior Discount Registration Rights Agreement that are
applicable to such holder (including certain indemnification rights and
obligations).
If the Holdings Issuers fail to comply with the above provisions or if the
Senior Discount Registration Statement or the Senior Discount Shelf Registration
Statement fails to become effective, then, as liquidated damages, Additional
Interest shall become payable in cash in respect of the Senior Discount Old
Notes, whether or not cash interest is otherwise payable with respect to the
Senior Discount Old Notes, as follows:
(i) if (A) the Senior Discount Registration Statement is not filed
with the Commission within 120 days following the Issue Date or (B)
notwithstanding that the Holdings Issuers have consummated or will
consummate a Senior Discount Exchange Offer, the Holdings Issuers are
required to file a Senior Discount Shelf Registration Statement and such
Senior Discount Shelf Registration Statement is not filed on or prior to
the 60th day following the date on which the obligation to file such Senior
Discount Shelf Registration Statement arises, then commencing on the day
after either such required filing date, Additional Interest shall accrue on
the average Accreted Value of the Senior Discount Old Notes at a rate of
.25% per annum for the first 90 days immediately following each such filing
date, such Additional Interest rate increasing by an additional .25% per
annum at the beginning of each subsequent 90-day period; or
(ii) if (A) the Senior Discount Registration Statement is not declared
effective by the Commission within 180 days following the Issue Date or (B)
notwithstanding that the Holdings Issuers have consummated or will
consummate a Senior Discount Exchange Offer, the Holdings Issuers are
required to file a Senior Discount Shelf Registration Statement and such
Senior Discount Shelf Registration Statement is not declared effective by
the Commission on or prior to the 120th day following the date on which the
obligation to file such Senior Discount Shelf Registration Statement
arises, then, commencing on the day after either such required effective
date, Additional Interest shall accrue on the average Accreted Value of the
Senior Discount Old Notes at a rate of .25% per annum for the first 90 days
immediately following such date, such Additional Interest rate increasing
by an additional .25% per annum at the beginning of each subsequent 90-day
period; or
(iii) if (A) the Holdings Issuers have not exchanged Senior Discount
Exchange Notes for all Senior Discount Old Notes validly tendered in
accordance with the terms of the Senior Discount Exchange Offer on or prior
to the later of the 45th day after the date on which the Senior Discount
Registration Statement was declared effective or the 210th day after the
Issue Date or (B) if applicable, the Senior Discount Shelf Registration
Statement has been declared effective and such Senior Discount Shelf
Registration Statement ceases to be effective at any time prior to the
second anniversary of the Issue Date (other than as a result of a
Suspension Period (as defined) and other than after such time as all Senior
Discount Old Notes have been disposed of thereunder), then Additional
Interest shall accrue on the average Accreted Value of the Senior Discount
Old Notes at a rate of .25% per annum for the first 90 days commencing on
(x) the 46th or the 211th, as the case may be, day after such effective
date, in the case of (A) above, or (y) the day such Senior Discount Shelf
Registration Statement ceases to be effective in the case of (B) above (or
in the event of a Suspension Period, on the earlier of the last day of such
Suspension Period or the 60th day after notice of
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such Suspension Period), such Additional Interest rate increasing by an
additional .25% per annum at the beginning of each subsequent 90-day
period; provided, however, that the Additional Interest rate on the Senior
Discount Old Notes may not exceed in the aggregate 1.0% per annum;
provided, further, however, that (1) upon the filing of the Senior Discount
Registration Statement or a Senior Discount Shelf Registration Statement
(in the case of clause (i) above), (2) upon the effectiveness of the Senior
Discount Registration Statement or a Senior Discount Shelf Registration
Statement (in the case of clause (ii) above), or (3) upon the exchange of
Senior Discount Exchange Notes for all Senior Discount Old Notes tendered
(in the case of clause (iii) (A) above), or upon the effectiveness of the
Senior Discount Shelf Registration Statement which had ceased to remain
effective (other than as a result of a Suspension Period) (in the case of
clause (iii) (B) above), Additional Interest on the Senior Discount Old
Notes as a result of such clause (or the relevant subclause thereof), as
the case may be, shall cease to accrue.
Any amounts of Additional Interest due pursuant to clause (i), (ii) or
(iii) above will be payable in cash on January 15 and July 15 of each year
during which such Additional Interest is payable, commencing with the first such
date to occur after the obligation to pay Additional Interest arises.
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BOOK ENTRY; DELIVERY AND FORM
The certificates representing the Senior Subordinated Exchange Notes and
the Senior Discount Exchange Notes will be issued in fully registered form. The
Fixed Rate Senior Subordinated Exchange Notes, the Floating Rate Senior
Subordinated Exchange Notes and the Senior Discount Exchange Notes will each
initially be represented by a single, permanent global Exchange Note, in
definitive, fully registered form without interest coupons (each a 'Global
Exchange Note') and will be deposited with the applicable Trustee as custodian
for The Depository Trust Company, New York, New York ('DTC') and registered in
the name of a nominee of DTC.
DTC has advised the Issuers as follows:
DTC is a limited purpose trust company organized under the laws of the
State of New York, a 'banking organization' within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a 'clearing corporation'
within the meaning of the Uniform Commercial Code and a 'Clearing Agency'
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities for its participants (the 'Participants') and
facilitate the clearance and settlement of securities transactions between
Participants through electronic book-entry changes in accounts of its
Participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and certain other organizations. Indirect
access to the DTC system is available to others such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly ('indirect participants').
So long as DTC, or its nominee, is the registered owner or holder of the
Fixed Rate Senior Subordinated Exchange Notes, the Floating Rate Senior
Subordinated Exchange Notes and the Senior Discount Exchange Notes, DTC or such
nominee, as the case may be, will be considered the sole owner or holder of the
Fixed Rate Senior Subordinated Exchange Notes, the Floating Rate Senior
Subordinated Exchange Notes and the Senior Discount Exchange Notes represented
by such Global Exchange Notes for all purposes under the respective Indentures.
No beneficial owner of an interest in any Global Exchange Note will be able to
transfer that interest except in accordance with DTC's procedures, in addition
to those provided for under the applicable Indenture.
Payments of the principal of, premium if any, and interest on, the
respective Global Exchange Notes will be made to DTC or its nominee, as the case
may be, as the registered owner thereof. None of the Company Issuers, the
Holdings Issuers, Holdings as guarantor, the Senior Subordinated Trustee, the
Senior Discount Trustee or any paying agent will have any responsibility or
liability for any aspect of the records, relating to or payments made on account
of beneficial ownership in any of the Global Exchange Notes or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interest.
The respective Issuers expect that DTC or its nominee, upon receipt of any
payment of principal, premium, if any, and interest (including liquidated
damages) on any Global Exchange Note, will credit Participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of such Global Exchange Note as shown on the records of DTC
or its nominee. The Issuers also expect that payments by participants to owners
of beneficial interests in any Global Exchange Note held through such
Participants will be governed by standing instructions and customary practice,
as is now the case with securities held for the accounts of customers registered
in the names of nominees for such customers. Such payments will be the
responsibility of such Participants.
Transfers between Participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same-day funds. If a holder requires physical delivery of a
Certificated Security for any reason, including to sell Exchange Notes to
persons in states which require physical delivery of the Exchange Notes, or to
pledge such securities, such holder must transfer its interest in the applicable
Global Exchange Note, in accordance with the normal procedures of DTC and with
the procedures set forth in the applicable Indenture.
DTC has advised the respective Issuers that it will take any action
permitted to be taken by a holder of Exchange Notes (including the presentation
of Exchange Notes for exchange as described below) only at the direction of one
or more Participants to whose account the DTC interests in the applicable Global
Exchange Note are credited and only in respect of such portion of the aggregate
principal amount of Exchange Notes as to which
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such Participant or Participants has or have given such direction. However, if
there is an Event of Default under the applicable Indenture, DTC will exchange
the related Global Exchange Note for Certificated Securities, which it will
distribute to its Participants.
Upon the issuance of each Global Exchange Note, DTC or its custodian will
credit, on its internal system, the respective principal amount of the
individual beneficial interests represented by such Global Exchange Note to the
accounts of persons who have accounts with such depositary. Ownership of
beneficial interests in each Global Exchange Note will be limited to
Participants or persons who hold interests through Participants. Ownership of
beneficial interests in each Global Exchange Note will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
DTC or its nominee (with respect to interests of Participants) and the records
of Participants (with respect to interests of persons other than Participants).
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Exchange Notes among Participants, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company Issuers, Holdings, as guarantor,
the Holdings Issuers, the Senior Subordinated Trustee nor the Senior Discount
Trustee will have any responsibility for the performance by DTC or its
Participants or indirect participants of their respective obligations under the
rules and procedures governing their operations.
If DTC is at any time unwilling or unable to continue as a depositary for
any Global Exchange Note and a successor depositary is not appointed by the
related Issuers within 90 days, Certificated Securities will be issued in
exchange for such Global Exchange Note.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to any of the Exchange Offers must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. A broker-dealer may not
participate in any Exchange Offer with respect to Old Notes acquired other than
as a result of market-making activities or other trading activities. To the
extent any such broker-dealer participates in any Exchange Offer and so notifies
the applicable Issuers, or causes such Issuers to be so notified in writing, the
Issuers have agreed that for a period of 90 days after the date of this
Prospectus, they will make this Prospectus, as amended or supplemented,
available to such broker-dealer for use in connection with any such resale, and
will promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the applicable Letter of Transmittal. In addition, until October 29, 1998 (90
days after the date of this Prospectus), all dealers effecting transactions in
the Exchange Notes may be required to deliver a prospectus.
The Issuers will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to any of the Exchange Offers may be sold from time to time in
one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at prevailing market prices at the time
of resale, at prices related to such prevailing market prices or at negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer or the purchasers of any such Exchange
Notes. Any broker-dealer that resells Exchange Notes that were received by it
for its own account pursuant to any of the Exchange Offers and any broker or
dealer that participates in a distribution of such Exchange Notes may be deemed
to be an 'underwriter' within the meaning of the Securities Act, and any profit
on any such resale of Exchange Notes and any commissions or concessions received
by any such persons may be deemed to be underwriting compensation under the
Securities Act. Each Letter of Transmittal states that, by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an 'underwriter' within the meaning of the Securities Act.
The Issuers have agreed to pay all expenses incident to each of the
Exchange Offers (other than commissions and concessions of any broker-dealers),
subject to certain prescribed limitations, and will indemnify the holders of the
Old Notes against certain liabilities, including certain liabilities that may
arise under the Securities Act.
By its acceptance of any Exchange Offer, any broker-dealer that receives
Exchange Notes pursuant to such Exchange Offer hereby agrees to notify the
applicable Issuers prior to using this Prospectus in connection with the sale or
transfer of Exchange Notes, and acknowledges and agrees that, upon receipt of
notice from the applicable Issuers of the happening of any event which makes any
statement in this Prospectus untrue in any material respect or which requires
the making of any changes in this Prospectus in order to make the statements
herein not misleading or which may impose upon the Issuers disclosure
obligations that may have a material adverse effect on the Issuers (which notice
the Issuers agree to deliver promptly to such broker-dealer), such broker-dealer
will suspend use of this Prospectus until the Issuers have notified such
broker-dealer that delivery of this Prospectus may resume and have furnished
copies of any amendment or supplement to this Prospectus to such broker-dealer.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The exchange of Senior Subordinated Old Notes or Senior Discount Old Notes
for Senior Subordinated Exchange Notes or Senior Discount Exchange Notes, as the
case may be, in the applicable Exchange Offer should not constitute a taxable
event to the holders. Consequently, no gain or loss will be recognized by a
holder upon receipt of an Exchange Note, the holding period of the Exchange Note
will include the holding period of the Old Note for which it is exchanged and
the basis of the Exchange Note will be the same as the basis of the Old Note for
which it is exchanged immediately before the exchange.
In any event, persons considering the exchange of Old Notes for Exchange
Notes should consult their own tax advisors concerning the United States federal
income tax consequences in light of their particular situations as well as any
consequences arising under the laws of any other taxing jurisdiction.
CHANGE IN INDEPENDENT ACCOUNTANTS
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 combined financial statements of
the Group for the years ended December 31, 1997 and 1996 and for each of the
three 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 combined 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.
LEGAL MATTERS
Certain legal matters relating to the Exchange Offers will be passed upon
for the Issuers by Simpson Thacher & Bartlett, New York, New York, and certain
legal matters relating to Pennsylvania law will be passed upon for the Issuers
by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania.
EXPERTS
The combined financial statements and schedule of Graham Packaging Group at
December 31, 1997 and 1996, and for each of the three years in the period ended
December 31, 1997 appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors............................................................................. F-2
Audited Combined Financial Statements
Combined Balance Sheets at December 31, 1996 and 1997...................................................... F-3
Combined Statements of Income for the years ended December 31, 1995, 1996 and 1997......................... F-4
Combined Statements of Owners' Equity for the years ended December 31, 1995, 1996 and 1997................. F-5
Combined Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997..................... F-6
Notes to Combined Financial Statements..................................................................... F-7
Unaudited Condensed Financial Statements
Condensed Balance Sheets at December 31, 1997 and March 29, 1998........................................... F-21
Condensed Statements of Operations for the three months ended March 30, 1997 and
March 29, 1998........................................................................................... F-22
Condensed Statements of Partners' Capital/Owners' Equity (Deficit) for the year ended December 31, 1997
and the three months ended March 29, 1998................................................................ F-23
Condensed Statements of Cash Flows for the three months ended
March 30, 1997 and March 29, 1998........................................................................ F-24
Notes to Condensed Financial Statements.................................................................... F-25
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Owners
Graham Packaging Group
We have audited the accompanying combined balance sheets of the entities and
operations listed in Note 1, collectively referred to as the Graham Packaging
Group, as of December 31, 1996 and 1997, and the related combined statements of
income, owners' equity, and cash flows for each of the three years in the period
ended December 31, 1997. Our audit also included the financial statement
schedule listed in the Index at Item 21(b). 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, 1996 and 1997, and the combined
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic 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 Notes 13 and 17, as to which
the date is April 24, 1998
F-2
<PAGE>
GRAHAM PACKAGING GROUP
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 3,431 $ 7,218
Accounts receivable..................................................................... 59,903 69,295
Inventories............................................................................. 28,918 32,236
Prepaid expenses and other current assets............................................... 6,442 9,198
-------- --------
Total current assets...................................................................... 98,694 117,947
Property, plant, and equipment:
Machinery and equipment................................................................. 439,770 478,534
Land, buildings, and leasehold improvements............................................. 70,100 68,146
Construction in progress................................................................ 24,642 41,230
-------- --------
534,512 587,910
Less accumulated depreciation and amortization.......................................... 303,156 327,614
-------- --------
231,356 260,296
Other assets.............................................................................. 8,763 7,248
-------- --------
Total assets.............................................................................. $338,813 $385,491
-------- --------
-------- --------
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Accounts payable........................................................................ $ 47,814 $ 56,547
Accrued expenses........................................................................ 30,462 51,814
Current portion of long-term debt....................................................... 5,150 4,771
-------- --------
Total current liabilities................................................................. 83,426 113,132
Long-term debt............................................................................ 235,366 263,694
Other non-current liabilities............................................................. 3,216 3,345
Minority interest......................................................................... -- 4,983
Owners' equity:
Owners' capital......................................................................... 38,715 20,383
Notes receivable for ownership interests................................................ (20,240) (20,240)
Other comprehensive income.............................................................. (1,670) 194
-------- --------
Total owners' equity...................................................................... 16,805 337
-------- --------
Total liabilities and owners' equity...................................................... $338,813 $385,491
-------- --------
-------- --------
</TABLE>
See accompanying notes.
F-3
<PAGE>
GRAHAM PACKAGING GROUP
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales.................................................................... $466,766 $459,740 $521,707
Cost of goods sold........................................................... 399,946 382,547 437,301
-------- -------- --------
66,820 77,193 84,406
Selling, general, and administrative expenses................................ 35,540 35,472 34,882
Special charges and unusual items............................................ 5,904 7,037 24,361
-------- -------- --------
Operating income............................................................. 25,376 34,684 25,163
Interest expense............................................................. 18,178 15,686 14,940
Interest income.............................................................. (1,999) (1,233) (1,510)
Other (income) expense....................................................... (11,048) (977) 755
Minority interest............................................................ -- -- 165
-------- -------- --------
Income before income taxes and extraordinary item............................ 20,245 21,208 10,813
Income tax provision (benefit)............................................... (288) (24) 600
-------- -------- --------
Income before extraordinary item............................................. 20,533 21,232 10,213
Extraordinary loss from early extinguishment of debt......................... 1,859 -- --
-------- -------- --------
Net income................................................................... $ 18,674 $ 21,232 $ 10,213
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes.
F-4
<PAGE>
GRAHAM PACKAGING GROUP
COMBINED STATEMENTS OF OWNERS' EQUITY
<TABLE>
<CAPTION>
NOTES
RECEIVABLE FOR OTHER
OWNERS' OWNERSHIP COMPREHENSIVE
CAPITAL INTERESTS INCOME TOTAL
-------- -------------- ------------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at January 1, 1995................................. $ 37,512 $(20,240) $(1,715) $ 15,557
--------
Net income for the year.................................. 18,674 -- -- 18,674
Cumulative translation adjustment........................ -- -- (611) (611)
--------
Comprehensive income..................................... 18,063
--------
Cash distributions to owners............................. (18,364) -- -- (18,364)
-------- -------------- ------------- --------
Balance at December 31, 1995............................... 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)
-------- -------------- ------------- --------
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
-------- -------------- ------------- --------
Balance at December 31, 1997............................... $ 20,383 $(20,240) $ 194 $ 337
-------- -------------- ------------- --------
-------- -------------- ------------- --------
</TABLE>
See accompanying notes.
F-5
<PAGE>
GRAHAM PACKAGING GROUP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating activities:
Net income............................................................... $ 18,674 $ 21,232 $ 10,213
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization....................................... 45,696 48,218 41,039
Amortization of debt issuance fees.................................. 379 216 320
Extraordinary loss.................................................. 1,859 -- --
Gain on disposition of business..................................... (4,415) -- --
Minority interest................................................... -- -- 165
Equity income in earnings of joint venture.......................... (125) (257) (200)
Foreign currency transaction (gain) loss............................ 364 (1,045) 1,124
Other non-current assets and liabilities............................ (364) (1,499) 565
Changes in operating assets and liabilities, net of acquisition
of business:
Accounts receivable................................................. (5,203) (996) (10,918)
Inventories......................................................... (1,790) 1,773 (3,605)
Prepaid expenses and other current assets........................... 329 3,751 (3,935)
Accounts payable and accrued expenses............................... 5,072 (3,375) 32,137
--------- --------- ---------
Net cash provided by operating activities.................................. 60,476 68,018 66,905
Investing activities:
Net purchases of property, plant, and equipment.......................... (68,639) (31,252) (53,173)
Proceeds from disposition of subsidiary, net of cash sold................ 3,440 -- --
Acquisition of Brazilian business........................................ -- -- (19,016)
Joint ventures and other investments..................................... (3,185) (1,239) --
Other.................................................................... -- (271) (88)
--------- --------- ---------
Net cash used in investing activities...................................... (68,384) (32,762) (72,277)
Financing activities:
Proceeds from issuance of long-term debt................................. 399,699 117,528 174,049
Payment of long-term debt................................................ (370,833) (131,321) (136,430)
Cash distributions to owners............................................. (18,364) (20,339) (28,073)
Debt issuance fees....................................................... (1,285) (541) --
Other.................................................................... -- 51 --
--------- --------- ---------
Net cash (used in) provided by financing activities........................ 9,217 (34,622) 9,546
Effect of exchange rate changes............................................ (118) 352 (387)
--------- --------- ---------
Increase in cash and cash equivalents...................................... 1,191 986 3,787
Cash and cash equivalents at beginning of year............................. 1,254 2,445 3,431
--------- --------- ---------
Cash and cash equivalents at end of year................................... $ 2,445 $ 3,431 $ 7,218
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes.
F-6
<PAGE>
GRAHAM PACKAGING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination
The combined financial statements include the operations of Graham
Packaging Holdings Company, a Pennsylvania limited partnership formerly known as
Graham Packaging Company ('Holdings'); Graham Packaging Italy, an Italian SRL;
Graham Packaging France Partners, G.P.; Graham Packaging Poland, L.P.; Graham
Packaging do Brasil Industriais e Comerciais S.A.; Graham Packaging Canada,
Ltd., a Canadian limited liability company; Graham Packaging Company, a Delaware
limited partnership formerly known as Graham Packaging Holdings I, L.P. (the
'Operating Company'); 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 Group (see Note 19 to the Combined Financial
Statements). Prior to February 2, 1998, these operations were under common
control by virtue of ownership by the Donald C. Graham family. 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 are
those reported in the historical financial statements of the individual
operations. All significant intercompany accounts and transactions have been
eliminated in the combined financial statements. These entities and assets are
collectively referred to as Graham Packaging Group (the 'Group'). With respect
to the periods subsequent to the Recapitalization on February 2, 1998,
references to the 'Group' refer to Holdings and its subsidiaries.
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, France, Italy, Poland 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 on the basis of 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.
F-7
<PAGE>
GRAHAM PACKAGING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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 and otherwise for periods ranging
principally from five to ten years.
Derivatives
The Group enters into interest rate collar and 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 collar and 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 appropriate, to
hedge the exchange rate exposure on transactions that are denominated in a
foreign currency. The Group enters into foreign currency borrowings to hedge the
net income exposure from translating certain intercompany accounts and the
foreign currency net asset exposure of foreign operations.
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 recorded as a separate component of
owners' equity.
Comprehensive Income
As of January 1, 1998, the Group adopted Statement of Financial Accounting
Standards No. 130 ('Statement 130'), Reporting Comprehensive Income. Statement
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 owners' equity. Statement 130 requires foreign currency
translation adjustments, which prior to adoption were reported separately in
owners' equity, to be included in other comprehensive income and added with net
income to determine total comprehensive income which is displayed in the
Combined Statements of Owners' Equity. Prior year financial statements have been
reclassified to conform to the requirements of Statement 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 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.
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.
F-8
<PAGE>
GRAHAM PACKAGING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Reclassifications
Certain reclassifications have been made to the 1995 and 1996 financial
statements to conform to the 1997 presentation.
New Accounting Pronouncements Not Yet Adopted
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information
('Statement 131'). Statement 131 establishes standards for the way that public
business enterprises report selected information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Statement 131 is effective for financial
statements for fiscal years beginning after December 15, 1997, and therefore,
the Group will adopt the new requirements in 1998, which will require
retroactive disclosure. Management has not completed its review of Statement 131
and has not determined the impact adoption will have on the Group's financial
statements.
In March 1998, the AICPA issued 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
currently capitalizes certain external costs and expenses all other costs as
incurred. The Group has not yet assessed what the impact of the SOP will be on
the Group's future earnings or financial position.
2. PURCHASE OF RHEEM-GRAHAM EMBALAGENS, LTDA.
On April 30, 1997, Graham Packaging do Brasil Industriais e Comerciais
S.A., then a wholly owned subsidiary, with no operations, of Holdings 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 Industriais e Comerciais 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 Industriais e Comerciais S.A. are included in the combined
financial statements of the Group beginning on April 30, 1997, less a minority
interest amount equal to 20% of Graham Packaging do Brasil Industriais e
Comerciais S.A. owned by the unaffiliated entity. The purchase price 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 Industriais e Comerciais S.A. is
summarized as follows (in thousands):
<TABLE>
<S> <C>
Net working capital............................................ $ 2,451
Property, plant and equipment.................................. 23,679
-------
$26,130
-------
-------
</TABLE>
F-9
<PAGE>
GRAHAM PACKAGING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
2. PURCHASE OF RHEEM-GRAHAM EMBALAGENS, LTDA.--(CONTINUED)
The following table sets forth unaudited pro forma combined results of
operations assuming that the acquisition had taken place on January 1, 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1997
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
Net sales......................................................... $482,840 $529,207
Net income........................................................ 22,368 10,647
</TABLE>
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, increased
interest expense on acquisition debt, and a 20% minority interest reduction in
earnings of Graham Packaging do Brasil Industriais e Comerciais S.A. relating to
the interest in the company owned by an unaffiliated entity. They do not purport
to be indicative of the results of operations which actually would have resulted
had the combination been in effect on January 1, 1996, or of future results of
operations of the combined entities.
In February 1998, the Group acquired the remaining 20% minority interest in
Graham Packaging do Brasil Industriais e Comerciais S.A. from Rheem
Empreendimentos Industrialis e Comerciais for $2,995,000.
3. ACCOUNTS RECEIVABLE
Accounts receivable are presented net of an allowance for doubtful accounts
of $1,202,000 and $1,635,000 at December 31, 1996 and 1997 respectively.
Management performs ongoing credit evaluations of its customers and generally
does not require collateral.
The Group's sales to two customers, each of which exceeded 10% of total
sales in 1995 and one of which exceeded 10% of total sales in 1996 and 1997,
totaled 23%, 22% and 22% for the years ended December 31, 1995, 1996 and 1997,
respectively. On an annual basis, approximately 80%, 13% and 7% of the sales to
these two customers were made in the United States, Europe and Canada,
respectively.
4. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Finished goods.......................................................... $15,770 $18,759
Raw materials and parts................................................. 14,818 15,447
------- -------
30,588 34,206
Less LIFO allowance..................................................... 1,670 1,970
------- -------
$28,918 $32,236
------- -------
------- -------
</TABLE>
The December 31, 1996 and 1997 inventories valued using the LIFO method
totaled $19,570,000 and $22,446,000, respectively.
F-10
<PAGE>
GRAHAM PACKAGING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
5. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accrued employee compensation and benefits.......................... $14,037 $16,305
Special charges and unusual items................................... 1,667 18,472
Other............................................................... 14,758 17,037
------- -------
$30,462 $51,814
------- -------
------- -------
</TABLE>
6. DEBT ARRANGEMENTS
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1996 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Credit agreement:
Term loan......................................................... $125,000 $125,000
Revolving loan.................................................... 101,662 132,179
Revolving credit facilities....................................... 8,080 6,653
Other............................................................. 5,774 4,633
-------- --------
240,516 268,465
Less amounts classified as current.................................. 5,150 4,771
-------- --------
$235,366 $263,694
-------- --------
-------- --------
</TABLE>
In 1995, the Group refinanced its existing credit agreement and executed a
new $350 million Credit Agreement with a consortium of banks. The Credit
Agreement consisted of a term loan of $125 million and a revolving loan
providing availability of $225 million. The term loan was payable in annual
installments beginning March 31, 1998 through March 31, 2000. The revolving loan
was scheduled to expire on April 18, 2000. The refinancing resulted in an
extraordinary charge to income of $1,859,000 in 1995. This extraordinary charge
consisted of the write-off of unamortized debt issuance fees.
The Group's effective rate on the outstanding borrowings under the term
loan and revolving loan was 5.78% and 6.03% at December 31, 1996 and 1997,
respectively.
At December 31, 1997, the Group had two U.S. Dollar interest rate swap
agreements outstanding which effectively fixed the Eurocurrency Rate on the term
loan, through the duration of such loan. The average rate of the two U.S. Dollar
interest rate swap agreements at December 31, 1997, was 5.55%. At December 31,
1997, the U.S. Dollar Eurocurrency Rate was 6.0%.
At December 31, 1997, the Group had a French Franc interest rate swap
agreement which effectively fixed the Eurocurrency Rate at 4.59% on a notional
amount of French Franc denominated borrowings equivalent to $37,500,000 through
April, 2000. The Group had also entered into a French Franc interest rate collar
agreement that set a minimum and maximum Eurocurrency Rate at 3.5% and 6.52%,
respectively, on a notional amount of French Franc denominated borrowings
equivalent to $16,700,000. At December 31, 1997, the French Franc Eurocurrency
Rate was 3.61%.
The Group had several variable-rate revolving credit facilities denominated
in U.S. Dollars, French Francs and Italian Lire, with aggregate available
borrowings equivalent to $16,200,000. The Group's average effective
F-11
<PAGE>
GRAHAM PACKAGING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
6. DEBT ARRANGEMENTS--(CONTINUED)
rate on borrowings of $8,080,000 on these credit facilities was 6.25% at
December 31, 1996. The Group's average effective rate on borrowings of
$6,653,000 on these credit facilities was 6.70% at December 31, 1997.
Interest paid during 1995, 1996 and 1997, net of amounts capitalized of
$869,000, $572,000 and $615,000, respectively, totaled $18,115,000, $15,868,000
and $14,900,000, respectively.
On February 2, 1998, as discussed in Note 19 to the Combined 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 consists of three term loans to the Operating Company totaling $395
million and two revolving loan facilities to the Operating Company totaling $255
million. The obligations of the Operating Company under the New Credit Agreement
are guaranteed by Holdings and certain other subsidiaries of Holdings. The term
loans are payable in quarterly installments beginning June 30, 1998 through
January 31, 2007, and require payments of $3,200,000 in 1998, $3,200,000 in
1999, $13,200,000 in 2000, $18,200,000 in 2001 and $23,200,000 in 2002. 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. In addition, the New Credit Agreement contains
certain affirmative and negative covenants as to the operations and financial
condition of the Group. The Group's effective Eurocurrency rate on initial
outstanding borrowings of $403,530,000 under the New Credit Agreement was 8.36%.
The refinancing resulted in the write-off of unamortized debt issuance fees and
costs associated with the termination of the interest rate collar and swap
agreements, which resulted in a corresponding charge to earnings of $1.1 million
in 1998.
The Recapitalization also included the issuance of $225 million in Senior
Subordinated Notes of the Operating Company and $100.6 million gross proceeds in
Senior Discount Notes ($169 million aggregate principal amount at maturity) of
Holdings. 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
8.75% and with interest payable on $75 million at LIBOR plus 3.625% (9.25% at
February 2, 1998). The Senior Discount Notes mature on January 15, 2009, with
interest payable at 10.75%. Cash interest on the Senior Discount Notes does not
accrue until January 15, 2003.
Based upon the repayment terms under the New Credit Agreement, maturities
of long-term debt for the succeeding five years are as follows:
1998--$4,771,000; 1999--$3,334,000; 2000--$13,333,000; 2001-- $18,337,000;
2002--$23,469,000.
The Operating Company has entered into two U.S. Dollar interest rate swap
agreements that will, beginning April 9, 1998, effectively fix the Eurocurrency
Rate on $300 million of the term loans, on $200 million through April 9, 2002 at
5.8075% and on $100 million through April 9, 2003 at 5.77%.
F-12
<PAGE>
GRAHAM PACKAGING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
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
estimated using discounted cash flow analyses based on current incremental
borrowing rates for similar types of borrowing arrangements. The fair value of
other long-term debt, including the current portion, approximates the carrying
amounts at December 31, 1996 and 1997.
Interest Rate Collar and Swap Agreements
The fair value of the Group's interest rate collar and swap agreements was
approximately $680,000, and $354,000 as of December 31, 1996 and 1997,
respectively.
8. LEASE COMMITMENTS
The Group was a party to various leases involving real property and
equipment during 1995, 1996 and 1997. Total rent expense for operating leases
amounted to $8,991,000 in 1995; $8,432,000 in 1996 and $9,599,000 in 1997.
Minimum future lease obligations on long-term noncancelable operating leases in
effect at December 31, 1997, are as follows: 1998--$5,259,000; 1999--$4,159,000;
2000--$2,911,000; 2001--$2,236,000; 2002-- $1,516,000; and
thereafter--$2,213,000.
9. TRANSACTIONS WITH AFFILIATES
Transactions with entities affiliated through common ownership included the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996 1997
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Equipment purchases from affiliates....................................... $6,536 $5,223 $11,104
Management services provided by affiliates including management, legal,
tax, accounting, insurance, treasury, and employee benefits
administration services................................................. 2,411 2,623 2,820
Management services provided and sales to affiliates including engineering
services and raw materials.............................................. 758 742 945
Interest income on notes receivable from owners........................... 1,026 1,026 1,026
</TABLE>
Account balances with affiliates include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable................................................. $ 471 $ 361
Prepaid expenses and other current assets........................... 1,395 917
Accounts payable.................................................... 3,642 3,470
</TABLE>
F-13
<PAGE>
GRAHAM PACKAGING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
9. TRANSACTIONS WITH AFFILIATES--(CONTINUED)
Certain land and buildings included in the accompanying combined 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 approximately $2.8 million in 1995 and 1996 and $2.6 million
in 1997 are classified as distributions to owners in the accompanying combined
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.
10. PENSION PLANS
The Group participates in a noncontributory, defined benefit plan and a
defined contribution plan sponsored by an affiliate. In addition, the Group
sponsors other noncontributory defined benefit plans. These plans cover
substantially all of the Group's U.S. employees.
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.
The following table sets forth the Group's funded status for its defined
benefit pension plans:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation....................................... $ (8,167) $(10,164)
Nonvested benefits.............................................. (464) (757)
-------- --------
Accumulated benefit obligation.................................... (8,631) (10,921)
Effect of projected future salary increases....................... (3,267) (4,097)
-------- --------
Projected benefit obligation...................................... (11,898) (15,018)
Plan assets at market value....................................... 9,489 12,092
-------- --------
Projected benefit obligation in excess of plan assets............. (2,409) (2,926)
Unrecognized net gain from past experience different from that
assumed and effects of changes in assumptions................... (1,416) (440)
Unrecognized prior service cost................................... 471 446
Unrecognized net transition obligation............................ 508 436
-------- --------
Accrued pension expense........................................... $ (2,846) $ (2,484)
-------- --------
-------- --------
</TABLE>
F-14
<PAGE>
GRAHAM PACKAGING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
10. PENSION PLANS--(CONTINUED)
The Group's net pension cost for its defined benefit pension plans includes
the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost............................................................... $1,324 $1,349 $1,317
Interest cost.............................................................. 692 793 947
Actual return on plan assets............................................... (879) (320) (850)
Net amortization and deferral.............................................. 459 (238) 135
------ ------ ------
Net periodic pension costs................................................. $1,596 $1,584 $1,549
------ ------ ------
</TABLE>
Significant actuarial assumptions used to develop the projected benefit
obligations were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1997
---- ----
<S> <C> <C>
Assumed discount rate.......................................................... 8.0 % 7.5 %
Assumed rate of compensation increase (salaried plan).......................... 5.0 % 5.0 %
</TABLE>
Additionally, an expected rate of return on plan assets of 8.0% was used in
the determination of net pension cost in 1995, 1996, and 1997.
The Group participates in a defined contribution plan under Internal
Revenue Code Section 401(k) sponsored by an affiliate, which covers all U.S.
employees except those represented by a collective bargaining unit. The Group's
contributions are determined as a specified percentage of employee
contributions, subject to certain maximum limitations. The Group's cost for this
plan for 1995, 1996, and 1997 was $668,000, $722,000 and $742,000, respectively.
11. OWNERS' EQUITY
Owners' equity included the partners' capital and shareholders' equity of
the various entities and operations included in the combined financial
statements, as described in Note 1. 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 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 Industriais e Comerciais
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 Industriais e Comerciais S.A. was owned directly by owners
of Holdings and the remaining 20% was owned by an unrelated entity.
During 1995, Holdings and the affiliated owners of the Group member in the
United Kingdom sold their ownership interests to an unaffiliated company.
Holdings recognized a gain of $4.4 million based on the portion of the total
proceeds received for its ownership interests and the Group received $6.4
million for technical support services provided to the buyer. These amounts are
included in other income. The operating results of the United Kingdom operations
are included in the accompanying combined financial statements from January 1,
1995 through the date of disposition in 1995 and are not material.
F-15
<PAGE>
GRAHAM PACKAGING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
11. OWNERS' EQUITY--(CONTINUED)
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 combined balance
sheets.
12. EQUITY APPRECIATION PLAN
Holdings administers an equity appreciation incentive unit plan for certain
management level employees, which provides for the award of 'phantom units'
representing hypothetical investments in units of Holdings at no cost to the
employees. Under the terms of the plan, 1,000,000 equity appreciation units are
available of which 7,400 units were issued and outstanding as of December 31,
1997. These units change in value based on (i) earnings before interest, taxes,
depreciation and amortization and (ii) average net invested capital, as defined
in the Plan, with the corresponding charge being recognized as compensation
expense in the year of change. The liability of $468,000 at December 31, 1997 is
recorded in accrued expenses.
13. SPECIAL CHARGES AND UNUSUAL ITEMS
The special charges and unusual items were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996 1997
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Restructuring of facilities............................................... $3,262 $ 754 $ 1,222
Systems conversion........................................................ -- -- 515
Litigation................................................................ 2,642 6,283 22,624
------ ------ -------
$5,904 $7,037 $24,361
------ ------ -------
------ ------ -------
</TABLE>
The restructuring charges relate to the decision reached in 1995 to close
the Lagnieu, France plant. The Group incurred a charge of $3,262,000 to
terminate approximately 100 people at Lagnieu and to write off assets that had
no continuing use to the Group. In addition, 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. Approximately $630,000 of the
restructuring charges incurred remain accrued for actions that will be
substantially complete in 1998.
The systems conversion expenses relate to outside consulting costs incurred
by Holdings in 1997 as it commenced a project to evaluate and assess its
information systems and related hardware to ensure that they will be year 2000
compliant. As part of this process, the Group has engaged outside consultants to
assist with the evaluation and assessment of its information systems
requirements and the selection and implementation of enterprise resource
planning software.
The litigation costs 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 all claims in
the JCI Schmalbach-Lubeca matter. See Note 17 to the Combined Financial
Statements.
F-16
<PAGE>
GRAHAM PACKAGING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
14. OTHER (INCOME) EXPENSE
Other (income) expense consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996 1997
-------- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Foreign exchange (gain) loss............................................... $ (25) $(720) $ 955
Equity income in earnings of joint ventures................................ (125) (257) (200)
Gain on sale of subsidiary*................................................ (4,415) -- --
Technical support services*................................................ (6,411) -- --
Other...................................................................... (72) -- --
-------- ----- -----
$(11,048) $(977) $ 755
-------- ----- -----
-------- ----- -----
</TABLE>
- ------------------
* Relates to sale of United Kingdom operations described in Note 11 to the
Combined Financial Statements.
15. 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 exceeds the related tax
bases of their assets net of liabilities by $32.3 million and $14.8 million at
December 31, 1996 and 1997, respectively.
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:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................................................... $10,708 $13,613
Accrued retirement indemnities............................................................ 676 799
Inventories............................................................................... 450 253
Other items............................................................................... 323 273
------- -------
Gross deferred tax assets................................................................... 12,157 14,938
Valuation allowance......................................................................... (2,984) (7,034)
------- -------
Net deferred tax assets..................................................................... 9,173 7,904
Deferred tax liabilities:
Fixed Assets, principally due to differences in depreciation and assigned values.......... 9,092 8,359
Other items............................................................................... 129 328
------- -------
Gross deferred tax liabilities.............................................................. 9,221 8,687
------- -------
Net deferred tax liabilities................................................................ $ 48 $ 783
------- -------
------- -------
</TABLE>
At December 31, 1997, the Group's various taxable entities had net
operating loss carryforwards for purposes of reducing future taxable income by
approximately $32,998,000, for which no benefit has been recognized. Of this
amount, $12,414,000 related to carryforwards that will expire, if unused, at
various dates ranging from 1998 to 2002 and the remaining carryforwards have no
expiration date.
F-17
<PAGE>
GRAHAM PACKAGING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
16. COMMITMENTS
In connection with plant expansion and improvement programs, the Group had
commitments for capital expenditures of approximately $14,917,000 at December
31, 1997.
17. CONTINGENCIES
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 have been
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
believes that the amounts that will ultimately be paid in settlement, as well as
estimated litigation expenses and professional fees, will 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 13 to the Combined Financial
Statements.
F-18
<PAGE>
GRAHAM PACKAGING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
18. GEOGRAPHICAL REGION INFORMATION
Information by geographic area is as follows:
<TABLE>
<CAPTION>
UNITED LATIN
STATES CANADA EUROPE AMERICA ELIMINATIONS TOTAL
-------- ------- -------- ------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1995
Net sales................................. $355,790 $25,113 $ 85,863 $ -- $ -- $466,766
Net income (loss)......................... 28,119 1,248 (10,693) -- -- 18,674
Identifiable assets....................... 314,146 14,332 93,155 -- (60,980) 360,653
Year ended December 31, 1996
Net sales................................. $357,386 $24,530 $ 77,824 $ -- $ -- $459,740
Net income (loss)......................... 27,019 1,140 (6,927) -- -- 21,232
Identifiable assets....................... 319,403 18,910 88,106 -- (87,606) 338,813
Year ended December 31, 1997
Net sales................................. $411,031 $28,946 $ 67,408 $14,322 $ -- $521,707
Net income (loss)......................... 19,564 651 (10,794) 792 -- 10,213
Identifiable assets....................... 341,191 22,827 82,241 29,738 (90,506) 385,491
</TABLE>
19. SUBSEQUENT EVENTS
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:
o A change in the name of Holdings to Graham Packaging Holdings
Company;
o The contribution by Holdings of substantially all of its assets and
liabilities to the Operating Company, which was renamed 'Graham
Packaging Company';
o 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;
o 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;
o 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;
o The repayment by the Operating Company of substantially all of the
existing indebtedness and accrued interest of Holdings and its
subsidiaries;
F-19
<PAGE>
GRAHAM PACKAGING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
19. SUBSEQUENT EVENTS--(CONTINUED)
o 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);
o The redemption by Holdings of certain partnership interests in
Holdings held by the Graham Partners for $429.6 million;
o The purchase by the Equity Investors of certain partnership
interests in Holdings held by the Graham Partners for $208.3
million.
o The repayment by the Graham Partners of amounts owed to Holdings
under the $20.2 million promissory notes;
o The recognition of additional compensation expense under the Equity
Appreciation Plan;
o The payment of certain bonuses and other cash payments and the
granting of certain equity awards to senior and middle level
management; and
o The execution of various other agreements among the parties.
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.
Also, 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 of the Recapitalization, 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.
Pursuant to the Recapitalization Agreement, Holdings entered into an
Equipment Sales, Service and Licensing Agreement and a Consulting Agreement with
certain entities controlled by Donald C. Graham and members of his family and a
Partners Registration Rights Agreement with partners of Holdings and certain
other entities.
As a result of the Recapitalization, the Group incurred charges of
approximately $31 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, charges of approximately $34 million were
incurred, including cash payments of $30 million and non-cash charges of $4
million, which relate to transaction fees, expenses, compensation and
unamortized licensing fees which will be expensed immediately; and to deferred
compensation expense and stay bonuses which will be recognized by the Group over
a period up to three years.
The issuers of the Senior Subordinated Notes and the Senior Discount Notes
(the 'Notes') have agreed to file registration statements relating to exchange
offers pursuant to which other series of notes of the respective issuers covered
by such registration statements and containing substantially the same terms as
the Notes, would be offered in exchange for the Notes.
F-20
<PAGE>
GRAHAM PACKAGING HOLDINGS COMPANY
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 29,
1997 1998
------------ ---------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 7,218 $ 4,197
Accounts receivable................................................................. 69,295 80,712
Inventories......................................................................... 32,236 30,182
Prepaid expenses and other current assets........................................... 9,198 8,429
------------ ---------
Total current assets.................................................................. 117,947 123,520
Property, plant, and equipment, net................................................... 260,296 261,932
Other assets.......................................................................... 7,248 38,311
------------ ---------
Total assets.......................................................................... $385,491 $ 423,763
------------ ---------
------------ ---------
LIABILITIES AND PARTNERS' CAPITAL/OWNERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses............................................... $108,361 $ 112,393
Current portion of long-term debt................................................... 4,771 3,344
------------ ---------
Total current liabilities............................................................. 113,132 115,737
Long-term debt........................................................................ 263,694 740,448
Other non-current liabilities......................................................... 3,345 3,867
Minority interest..................................................................... 4,983 --
Commitments and contingencies......................................................... -- --
Partners' capital/Owners' equity (deficit):
Partners'/Owners' capital (deficit)................................................... 20,383 (435,784)
Notes receivable for ownership interests.............................................. (20,240) --
Other comprehensive income............................................................ 194 (505)
------------ ---------
Total Partners' capital/Owners' equity (deficit)...................................... 337 (436,289)
------------ ---------
Total liabilities and Partners' capital/Owners' equity (deficit)...................... $385,491 $ 423,763
------------ ---------
------------ ---------
</TABLE>
See accompanying notes.
F-21
<PAGE>
GRAHAM PACKAGING HOLDINGS COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------
MARCH 30, 1997 MARCH 29, 1998
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Net sales........................................................................ $116,460 $134,418
Cost of goods sold............................................................... 98,655 109,841
-------------- --------------
17,805 24,577
Selling, general, and administrative expenses.................................... 8,318 8,422
Special charges and unusual items................................................ 1,532 14,898
-------------- --------------
Operating income................................................................. 7,955 1,257
Recapitalization expenses........................................................ -- 11,496
Interest expense, net............................................................ 3,260 11,939
Other expense.................................................................... 329 161
-------------- --------------
Income (loss) before income taxes and extraordinary item......................... 4,366 (22,339)
Income tax provision............................................................. -- 8
-------------- --------------
Income (loss) before extraordinary item.......................................... 4,366 (22,347)
Extraordinary loss from early extinguishment of debt............................. -- 675
-------------- --------------
Net income (loss)................................................................ $ 4,366 $(23,022)
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes.
F-22
<PAGE>
GRAHAM PACKAGING HOLDINGS COMPANY
CONDENSED STATEMENTS OF PARTNERS' CAPITAL/OWNERS' EQUITY (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
NOTES
PARTNERS'/ RECEIVABLE
OWNERS' FOR OTHER
CAPITAL OWNERSHIP COMPREHENSIVE
(DEFICIT) INTERESTS INCOME TOTAL
---------- --------- ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at January 1, 1997................................. $ 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
---------- --------- ------------- ---------
Balance at December 31, 1997............................... 20,383 (20,240 ) 194 337
---------
Net loss for the period.................................. (23,022) -- -- (23,022)
Cumulative translation adjustment........................ -- -- (699) (699)
---------
Comprehensive income..................................... (23,721)
---------
Cash distributions to owners............................. (624) -- -- (624)
Recapitalization......................................... (432,521) 20,240 -- (412,281)
---------- --------- ------------- ---------
Balance at March 29, 1998.................................. $ (435,784) $ -- $ (505) $(436,289)
---------- --------- ------------- ---------
---------- --------- ------------- ---------
</TABLE>
See accompanying notes.
F-23
<PAGE>
GRAHAM PACKAGING HOLDINGS COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------
MARCH 30, 1997 MARCH 29, 1998
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Operating activities:
Net income (loss).............................................................. $ 4,366 $ (23,022)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................................... 9,878 9,243
Amortization of debt issuance fees.......................................... 78 661
Extraordinary loss.......................................................... -- 675
Write-off of license fees................................................... -- 1,436
Equity income in earnings of joint venture.................................. (41) (75)
Foreign currency transaction loss........................................... 87 10
Changes in operating assets and liabilities, net of
acquisition of business:
Accounts receivable....................................................... (3,068) (11,560)
Inventories............................................................... (2,188) 1,992
Prepaid expenses and other current assets................................. 732 889
Accounts payable and accrued expenses..................................... (3,023) 1,991
Changes in non-operating assets and liabilities............................. -- 622
-------------- --------------
Net cash provided by (used in) operating activities.............................. 6,821 (17,138)
Investing activities:
Net purchases of property, plant, and equipment................................ (8,532) (13,505)
Acquisition of Brazilian business.............................................. -- (2,995)
Other.......................................................................... (9) (66)
-------------- --------------
Net cash used in investing activities............................................ (8,541) (16,566)
Financing activities:
Net proceeds from issuance of long-term debt................................... 3,928 735,987
Recapitalization debt repayments............................................... -- (264,410)
Recapitalization owner note payments........................................... -- 20,240
Recapitalization cash distributions to owners.................................. -- (429,566)
Other cash distributions to owners............................................. (2,983) (624)
Debt issuance fees............................................................. -- (30,876)
-------------- --------------
Net cash provided by financing activities........................................ 945 30,751
Effect of exchange rate changes.................................................. 763 (68)
-------------- --------------
Decrease in cash and cash equivalents............................................ (12) (3,021)
Cash and cash equivalents at beginning of period................................. 3,431 7,218
-------------- --------------
Cash and cash equivalents at end of period....................................... $ 3,419 $ 4,197
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes.
F-24
<PAGE>
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 29, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Graham
Packaging Holdings Company have been prepared in accordance with generally
accepted accounting principles for interim financial statement information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X and
therefore do not include all of the information and footnotes required by
generally accepted accounting principles for complete annual financial
statements. In the opinion of management, all adjustments (consisting only of
usual recurring adjustments) considered necessary for a fair presentation are
reflected in the condensed financial statements. The condensed combined balance
sheet as of December 31, 1997, is derived from audited financial statements. The
condensed combined financial statements and notes thereto should be read in
conjunction with the combined financial statements and notes thereto for the
year ended December 31, 1997. The results of operations for the three months
ended March 29, 1998, are not necessarily indicative of the results to be
expected for the full year ending December 31, 1998.
The financial statements include the operations of Graham Packaging
Holdings Company, a Pennsylvania limited partnership formerly known as Graham
Packaging Company ('Holdings'); Graham Packaging Company, a Delaware limited
partnership formerly known as Graham Packaging Holdings I, L.P. (the 'Operating
Company'); Graham Packaging Italy, an Italian SRL; Graham Packaging France
Partners, G.P.; Graham Packaging Poland, L.P.; Graham Packaging do Brasil
Industriais e Commerciais S.A.; Graham Packaging Canada, Ltd. a Canadian limited
liability company; 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 Group. Prior to February 2, 1998, these
operations were under common control by virtue of ownership by the Donald C.
Graham family. These entities and assets are collectively referred to as Graham
Packaging Group (the 'Group'). With respect to the periods subsequent to the
Recapitalization on February 2, 1998, the condensed financial statements and
references to the 'Group' relate to Holdings and its subsidiaries on a
consolidated basis and for the period prior to the Recapitalization to the
'Group' on a combined basis. 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 historical financial statements of the
individual operations. All significant intercompany accounts and transactions
have been eliminated in the combined and consolidated financial statements.
Since the Recapitalization, Holdings has had no assets, liabilities or
operations other than its direct and indirect investments in the Operating
Company, its ownership of GPC Capital Corp. II and the Senior Discount Notes and
related unamortized issuance costs. GPC Capital Corp. II has no substantial
assets, does not conduct any operations and was formed solely to act as a
co-issuer of the Senior Discount Notes. Holdings has fully and unconditionally
guaranteed the Operating Company's Senior Subordinated Notes on a senior
subordinated basis. Separate financial statements for Holdings have not been
included because management has determined that they would not be material to
investors.
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:
o A change in the name of Holdings to Graham Packaging Holdings
Company;
F-25
<PAGE>
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
MARCH 29, 1998
2. RECAPITALIZATION--(CONTINUED)
o The contribution by Holdings of substantially all of its assets and
liabilities to the Operating Company, which was renamed 'Graham
Packaging Company';
o 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;
o 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;
o 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;
o The repayment by the Operating Company of substantially all of the
existing indebtedness and accrued interest of Holdings and its
subsidiaries;
o 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);
o The redemption by Holdings of certain partnership interests in
Holdings held by the Graham Partners for $429.6 million;
o The purchase by the Equity Investors of certain partnership
interests in Holdings held by the Graham Partners for $208.3
million;
o The repayment by the Graham Partners of amounts owed to Holdings
under the $20.2 million promissory notes;
o The recognition of additional compensation expense under the Equity
Appreciation Plan;
o The payment of certain bonuses and other cash payments and the
granting of certain equity awards to senior and middle level
management; and
o The execution of various other agreements among the parties.
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 $31 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 $24.8 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.
Recapitalization expenses in the condensed statement of operations for the three
months ended March 29, 1998 include transaction fees of $11.1 million and
termination costs associated with the interest rate collar and swap agreements
of $0.4 million. The Recapitalization also resulted in the write-off of
unamortized debt issuance fees which is reflected as an extraordinary loss in
the consolidated financial statements. The Group will also incur compensation
expense of $10.7 million related to stay bonuses and the granting of certain
ownership interests to management which will be recognized over a period up to
three years. See Note 8.
F-26
<PAGE>
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
MARCH 29, 1998
3. DEBT ARRANGEMENTS
On February 2, 1998, 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 consists of three term loans to the Operating Company
totaling $395 million and two revolving loan facilities to the Operating Company
totaling $255 million. The obligations of the Operating Company under the New
Credit Agreement are guaranteed by Holdings and certain other subsidiaries of
Holdings. The term loans are payable in quarterly installments beginning June
30, 1998 through January 31, 2007, and require payments of $3,200,000 in 1998,
$3,200,000 in 1999, $13,200,000 in 2000, $18,200,000 in 2001 and $23,200,000 in
2002. 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. In addition, the New Credit Agreement contains
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 and $100.6 million gross proceeds in
Senior Discount Notes ($169 million aggregate principal amount at maturity) of
Holdings. 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 8.75% and with interest payable on $75
million at LIBOR plus 3.625% (9.25% at February 2, 1998). The Senior Discount
Notes mature on January 15, 2009, with interest payable at 10.75%. Cash interest
on the Senior Discount Notes does not accrue until January 15, 2003.
The Operating Company has entered into two U.S. Dollar interest rate swap
agreements that will, beginning April 9, 1998, effectively fix the Eurocurrency
Rate on $300 million of the term loans, on $200 million through April 9, 2002,
at 5.8075% and on $100 million through April 9, 2003 at 5.77%.
4. RELATED PARTY TRANSACTIONS
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 of the Recapitalization,
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.
Also pursuant to the Recapitalization Agreement, Holdings entered into an
Equipment Sales, Service and Licensing Agreement and a Consulting Agreement with
certain entities controlled by Donald C. Graham and members of his family and a
Partners Registration Rights Agreement with partners of Holdings and certain
other entities. Additionally, Holdings has entered into a Monitoring Agreement
with Blackstone Management Partners III for advisory and consulting services.
5. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 MARCH 29, 1998
----------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Finished goods............................................ $18,759 $ 18,924
Raw materials and parts................................... 15,447 13,228
----------------- --------------
34,206 32,152
Less LIFO allowances...................................... 1,970 1,970
----------------- --------------
$32,236 $ 30,182
----------------- --------------
----------------- --------------
</TABLE>
F-27
<PAGE>
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
MARCH 29, 1998
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses included the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 MARCH 29, 1998
----------------- --------------
<S> <C> <C>
Accounts payable.......................................... $ 56,547 $ 48,822
Accrued employee compensation and benefits................ 16,305 12,445
Special charges and unusual items......................... 18,472 17,359
Other..................................................... 17,037 33,767
----------------- --------------
$ 108,361 $112,393
----------------- --------------
----------------- --------------
</TABLE>
7. 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 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. During 1998 and 1997, the Group's various taxable entities
incurred additional net operating loss carryforwards for which no benefit has
been recognized.
8. SPECIAL CHARGES AND UNUSUAL ITEMS
The special charges and unusual items recorded in the three months ended
March 30, 1997 and March 29, 1998 were as follows:
<TABLE>
<CAPTION>
1997 1998
----------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Systems conversion........................................ $ -- $ 366
Recapitalization expenses................................. -- 14,532
Litigation................................................ 1,532 --
------- --------------
$ 1,532 $ 14,898
------- --------------
------- --------------
</TABLE>
The systems conversion expenses relate to outside consulting costs incurred
by Holdings in 1998 as it commenced a project to evaluate and assess its
information systems and related hardware to ensure that they will be year 2000
compliant. As part of this process, the Group has engaged outside consultants 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 of $13.1 million and the write-off of unamortized
licensing fees of $1.4 million. 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.
The litigation costs 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. See Note 9.
9. CONTINGENCIES
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 liability will not be material to the
business, financial condition, results of operations or cash flows of the Group.
F-28
<PAGE>
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
MARCH 29, 1998
9. CONTINGENCIES--(CONTINUED)
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 have been
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. 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 and in the March 29, 1998 unaudited condensed consolidated financial
statements.
10. CONDENSED OPERATING COMPANY DATA
Condensed financial data for the Operating Company as of March 29, 1998, in
thousands of dollars, was as follows:
<TABLE>
<S> <C>
Current assets.................................................................... $123,520
Noncurrent assets................................................................. 295,292
Total assets...................................................................... 418,812
Current liabilities............................................................... 115,737
Noncurrent liabilities............................................................ 642,043
Partners' capital (deficit)....................................................... (338,968)
</TABLE>
Condensed financial data for the Operating Company for the three months
ended March 29, 1998, in thousands of dollars, was as follows:
<TABLE>
<S> <C>
Sales............................................................................. $134,418
Gross profit...................................................................... 24,577
Loss from continuing operations................................................... (19,614)
Net loss.......................................................................... (20,289)
</TABLE>
Condensed financial data of the Operating Company is not presented for
periods prior to February 2, 1998.
F-29
<PAGE>
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
MARCH 29, 1998
11. COMPREHENSIVE INCOME
Effective January 1, 1998, the Group adopted the provisions of Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income.
Comprehensive income for the three months ended March 30, 1997 and March 29,
1998, in thousands of dollars, was as follows:
<TABLE>
<CAPTION>
1997 1998
------ ---------
<S> <C> <C>
Net income (loss)....................................................... $4,366 $ (23,022)
Foreign currency translation adjustments................................ 2,221 (699)
------ ---------
Comprehensive income (loss)............................................. $6,587 $ (23,721)
------ ---------
------ ---------
</TABLE>
12. NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information
('Statement 131'). Statement 131 establishes standards for the way that public
business enterprises report selected information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Statement 131 is effective for financial
statements for fiscal years beginning after December 15, 1997, and therefore,
the Group will adopt the new requirements in 1998, which will require
retroactive disclosure. Management has not completed its review of Statement 131
and has not determined the impact adoption will have on the Group's financial
statement disclosures.
In March 1998, the AICPA issued 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
currently capitalizes certain external costs and expenses all other costs as
incurred. The Group has not yet assessed what the impact of the SOP will be on
the Group's future earnings or financial position.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132 Employers' Disclosures about Pensions
and Other Post Retirement Benefits. This standard revises employers' disclosures
about pensions and other post-retirement plans, but does not change the
measurement or recognition of those plans. This standard will be effective for
the Group's financial statements for the year ended December 31, 1998.
F-30
<PAGE>
- ------------------------------------------------------
------------------------------------------------------
- ------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT
RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN
OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE ISSUERS SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information............................ 1
Forward-Looking Statements....................... 1
Prospectus Summary............................... 2
Risk Factors..................................... 25
The Recapitalization............................. 34
Use of Proceeds.................................. 36
Capitalization................................... 38
Unaudited Pro Forma Financial Information........ 39
Selected Historical Financial Data............... 45
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 48
Business......................................... 56
Management....................................... 69
Security Ownership............................... 75
The Partnership Agreements....................... 76
Certain Relationships and Related Party
Transactions................................... 79
Description of the New Credit Facility........... 82
The Senior Subordinated Exchange Offers.......... 85
The Senior Discount Exchange Offer............... 97
Description of the Senior Subordinated Exchange
Notes.......................................... 109
Description of the Senior Discount Exchange
Notes.......................................... 140
Senior Subordinated Exchange Offers; Senior
Subordinated Registration Rights............... 168
Senior Discount Exchange Offer; Senior Discount
Registration Rights............................ 171
Book Entry; Delivery and Form.................... 174
Plan of Distribution............................. 176
Certain U.S. Federal Income Tax Considerations... 177
Change in Independent Accountants................ 177
Legal Matters.................................... 177
Experts.......................................... 177
Index to Financial Statements.................... F-1
</TABLE>
GRAHAM PACKAGING COMPANY
AND
GPC CAPITAL CORP. I
OFFER TO EXCHANGE UP TO $150,000,000 OF THEIR 8 3/4% SENIOR SUBORDINATED NOTES
DUE 2008, SERIES B, AND $75,000,000 OF THEIR FLOATING INTEREST RATE SUBORDINATED
TERM SECURITIES DUE 2008, SERIES B (FIRSTSSM*), WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT, FOR ANY AND ALL OF THEIR OUTSTANDING 8 3/4% SENIOR
SUBORDINATED NOTES DUE 2008, SERIES A, AND ANY AND ALL OF THEIR OUTSTANDING
FLOATING INTEREST RATE SUBORDINATED TERM SECURITIES DUE 2008, SERIES A
(FIRSTSSM*)
GRAHAM PACKAGING
HOLDINGS COMPANY
AND
GPC CAPITAL CORP. II
OFFER TO EXCHANGE UP TO $169,000,000 OF THEIR 10 3/4% SENIOR DISCOUNT NOTES DUE
2009, SERIES B, WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT, FOR ANY AND
ALL OF THEIR OUTSTANDING 10 3/4% SENIOR DISCOUNT NOTES DUE 2009, SERIES A
---------------------------
PROSPECTUS
---------------------------
JULY 31, 1998
* FIRSTS IS A SERVICE MARK OF BT ALEX. BROWN INCORPORATED.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Subject to any terms, conditions or restrictions set forth in the Limited
Partnership Agreement of the Operating Company, Section 17-108 of the Delaware
Revised Uniform Limited Partnership Act empowers a Delaware limited partnership
to indemnify and hold harmless any partner or other person from and against all
claims and demands whatsoever. The Partnership Agreement of the Operating
Company provides that the Operating Company will, defend and hold harmless, to
the fullest extent not prohibited by law, its general partner and each of its
affiliates and their respective partners, shareholders, officers, directors,
employees and agents, from and against any claim, loss or liability of any
nature whatsoever (including attorneys' fees) arising out of or in connection
with the assets or business of the Operating Company, unless the act or failure
to act giving rise to the claim for indemnification is determined by a court to
have constituted intentional misconduct or a knowing violation of law by such
person or (in the case of the general partner only) a breach by the general
partner of any of the material terms and provisions of the Partnership Agreement
of the Operating Company. The foregoing obligation of the Operating Company will
be satisfied only out of the assets of the Operating Company and under no
circumstances will any recourse be available against the general partner or any
other partner or the assets of any partner. The Partnership Agreement of the
Operating Company further provides that the Operating Company will indemnify
each partner from and against any damage, liability, loss, cost or deficiency
(including, but not limited to, reasonable attorneys' fees) which each such
partner pays or becomes obligated to pay on account of the imposition upon or
assessment against such partner of any obligation or liability of the Operating
Company. The foregoing obligation of the Operating Company will be satisfied
only out of the assets of the Operating Company and under no circumstances will
any recourse be available against the general partner or any other partner or
the assets of any partner with respect thereto.
Subject to any terms, conditions or restrictions set forth in the Limited
Partnership Agreement of Holdings, Section 8510 of the Pennsylvania Revised
Uniform Limited Partnership Act empowers a Pennsylvania limited partnership to
indemnify and hold harmless any partner or other person from and against all
claims and demands whatsoever. Indemnification shall not be made in any case
where the act or failure to act giving rise to the claim for indemnification is
determined by a court to have constituted willful misconduct or recklessness.
The Partnership Agreement of Holdings provides that no general partner nor any
of its affiliates nor any of its respective partners, shareholders, officers,
directors, employees or agents will be liable, in damages or otherwise, to
Holdings or to any of the limited partners for any act or omission on its or his
part, except for (i) any act or omission resulting from its own willful
misconduct or bad faith, (ii) any breach by the general partner of its duty of
loyalty and obligations under applicable law as a fiduciary to Holdings or (iii)
any breach by the general partner of any of the terms and provisions of the
Partnership Agreement of Holdings. Holdings will indemnify, defend and hold
harmless, to the fullest extent permitted by law, the general partners and each
of their affiliates and their respective partners, shareholders, officers,
directors, employees and agents, from and against any claim or liability of any
nature whatsoever arising out of or in connection with the assets or business of
Holdings, except where attributable to the willful misconduct or bad faith of
such individual or entity or where relating to a breach by the general partner
of its obligations as a fiduciary of Holdings or to a breach by the general
partner of any of the terms and provisions of the Partnership Agreement of
Holdings. Notwithstanding the foregoing and anything in the Partnership
Agreement of Holdings to the contrary, no general partner will be liable to
Holdings or its partners for monetary damages for breach of its fiduciary duties
or its duties set forth in Partnership Agreement of Holdings, in each case other
than a willful and flagrant breach thereof, or a breach of its duty of loyalty.
Expenses incurred by a partner or other person in defending any action or
proceeding against which indemnification may be made pursuant to the foregoing
shall be paid by the Operating Company in advance of the final disposition of
such action or proceeding upon receipt of an undertaking by or on behalf of such
person to repay such amount if it shall ultimately be determined that it is not
entitled to be indemnified by the Operating Company. In addition, the
Partnership Agreement of Holdings provides that Holdings will indemnify, to the
fullest extent not prohibited by law, each member of the advisory committee
against losses, claims, damages or liabilities arising from any act or omission
performed or omitted by him or her as a member of the advisory committee.
II-1
<PAGE>
Under Section 145 of the Delaware General Corporation Law (the 'Delaware
Law'), a corporation may indemnify its directors, officers, employees and agents
and its former directors, officers, employees and agents and those who serve, at
the corporation's request, in such capacity with another enterprise, against
expenses (including attorney's fees), as well as judgments, fines and
settlements in nonderivative lawsuits, actually and reasonably incurred in
connection with the defense of any action, suit or proceeding in which they or
any of them were or are made parties or are threatened to be made parties by
reason of their serving or having served in such capacity. The Delaware General
Corporation Law provides, however, that such person must have acted in good
faith and in a manner such person reasonably believed to be in (or not opposed
to) the best interests of the corporation and, in the right of the corporation,
where such person has been adjudged liable to the corporation, unless, and only
to the extent that a court determines that such person fairly and reasonably is
entitled to indemnity for costs the court deems proper in light of liability
adjudication. Indemnity is mandatory to the extent a claim, issue or matter has
been successfully defended.
The Certificate of Incorporation and By-Laws of CapCo I and CapCo II
provide for mandatory indemnification of directors and officers on generally the
same terms as permitted by the Delaware General Corporation Law.
Reference is made to the forms of Purchase Agreement, Senior Subordinated
Registration Rights Agreement and Senior Discount Registration Rights Agreement,
filed as Exhibits 2.2, 4.6 and 4.10, respectively, to this Registration
Statement, which provide for the indemnification of certain officers, directors
and other representatives of each of the Registrants or their partners signing
this Registration Statement and certain controlling persons of each of the
Registrants against certain liabilities (including those arising under the
Securities Act), in certain instances by the Initial Purchasers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
See the Exhibit Index included immediately preceding the exhibits to
this Registration Statement.
(b) Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts.
All other schedules have been omitted because they are not applicable or
not required or the required information is included in the financial statements
or notes thereto.
ITEM 22. UNDERTAKINGS.
The undersigned Registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereto), which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-2
<PAGE>
The undersigned Registrants hereby undertake as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed to be underwriters, in addition to the information
called for by the other Items of the applicable form.
The Registrants undertake that every prospectus: (i) that is filed pursuant
to the immediately preceding undertaking or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the foregoing provisions, or otherwise, the Registrants
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrants of expenses incurred
or paid by a director, officer or controlling person of a Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN YORK, PENNSYLVANIA, ON
JULY 30, 1998.
GRAHAM PACKAGING COMPANY
BY GPC OPCO GP LLC, ITS GENERAL
PARTNER
By: /s/ JOHN E. HAMILTON
----------------------------------
Name: John E. Hamilton
Title: Vice President, Finance and
Administration
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED ON THE 30TH DAY OF JULY, 1998 BY
THE FOLLOWING PERSONS 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:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------ ------------------------------------------------------------------
<S> <C>
* PHILIP R. YATES President and Chief Executive Officer (Principal Executive
- ------------------------------------------ Officer) of GPC Opco GP LLC
/s/ JOHN E. HAMILTON Vice President, Finance and Administration, Secretary and
- ------------------------------------------ Treasurer (Principal Financial Officer and Principal Accounting
John E. Hamilton Officer) of GPC Opco GP LLC
* HOWARD A. LIPSON Director of BMP/Graham Holdings Corporation
- ------------------------------------------
* CHINH E. CHU Director of BMP/Graham Holdings Corporation
- ------------------------------------------
* SIMON P. LONERGAN Director of BMP/Graham Holdings Corporation
- ------------------------------------------
*By: JOHN E. HAMILTON
-------------------------------------
John E. Hamilton
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN YORK, PENNSYLVANIA, ON
JULY 30, 1998.
GPC CAPITAL CORP. I
By: /s/ JOHN E. HAMILTON
----------------------------------
Name: John E. Hamilton
Title: Vice President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED ON THE 30TH DAY OF JULY, 1998 BY
THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED, WITH RESPECT TO GPC CAPITAL
CORP. I:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ------------------------------------------------------
<S> <C>
*PHILIP R. YATES President, Treasurer and Assistant Secretary and
- ------------------------------------------------------ Director (Principal Executive Officer)
/s/ JOHN E. HAMILTON Vice President, Secretary and Assistant Treasurer and
- ------------------------------------------------------ Director (Principal Financial Officer and Principal
John E. Hamilton Accounting Officer)
*CHINH E. CHU Director
- ------------------------------------------------------
*SIMON P. LONERGAN Director
- ------------------------------------------------------
By: /s/ JOHN E. HAMILTON
---------------------------------------------------
John E. Hamilton
Attorney-in-Fact
</TABLE>
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN YORK, PENNSYLVANIA, ON
JULY 30, 1998.
GRAHAM PACKAGING HOLDINGS COMPANY
By BCP/Graham Holdings L.L.C., its
General Partner
By: /s/ JOHN E. HAMILTON
---------------------------------
Name: John E. Hamilton
Title: Vice President, Finance and
Administration
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED ON THE 30TH DAY OF JULY, 1998 BY
THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED, WITH RESPECT TO BCP/GRAHAM
HOLDINGS L.L.C., AS GENERAL PARTNER OF GRAHAM PACKAGING HOLDINGS COMPANY, OR
BMP/GRAHAM HOLDINGS CORPORATION AS SOLE MEMBER OF BCP/GRAHAM HOLDINGS L.L.C., AS
INDICATED BELOW:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ------------------------------------------------------
<S> <C>
*HOWARD A. LIPSON President, Treasurer and Assistant Secretary
- ------------------------------------------------------ (Principal Executive Officer) of BCP/Graham Holdings
L.L.C.
/s/ JOHN E. HAMILTON Vice President, Finance and Administration, Assistant
- ------------------------------------------------------ Secretary and Assistant Treasurer (Principal Financial
John E. Hamilton Officer and Principal Accounting Officer) of
BCP/Graham Holdings L.L.C.
*HOWARD A. LIPSON Director of BMP/Graham Holdings Corporation
- ------------------------------------------------------
*CHINH E. CHU Director of BMP/Graham Holdings Corporation
- ------------------------------------------------------
*SIMON P. LONERGAN Director of BMP/Graham Holdings Corporation
- ------------------------------------------------------
* By /s/ JOHN E. HAMILTON
---------------------
John E. Hamilton
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN YORK, PENNSYLVANIA, ON
JULY 30, 1998.
GPC CAPITAL CORP. II
By: /s/ JOHN E. HAMILTON
-----------------------------
Name: John E. Hamilton
Title: Vice President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED ON THE 30TH DAY OF JULY, 1998 BY
THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED, WITH RESPECT TO GPC CAPITAL
CORP. II:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ------------------------------------------------------
<S> <C>
*PHILIP R. YATES President, Treasurer and Assistant Secretary and
- ------------------------------------------------------ Director (Principal Executive Officer)
/s/ JOHN E. HAMILTON Vice President, Secretary and Assistant Treasurer and
- ------------------------------------------------------ Director (Principal Financial Officer and Principal
John E. Hamilton Accounting Officer)
*CHINH E. CHU Director
- ------------------------------------------------------
*SIMON P. LONERGAN Director
- ------------------------------------------------------
By: /s/ JOHN E. HAMILTON
---------------------------------------------------
John E. Hamilton
Attorney-in-Fact
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
LLC, BMP/Graham Holdings Corporation and the other parties named therein.
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. LLC and Salomon Brothers Inc.
3.1* -- Certificate of Limited Partnership of Graham Packaging Company.
3.2* -- Amended and Restated Agreement of Limited Partnership of Graham Packaging Company dated as of
February 2, 1998.
3.3* -- Certificate of Incorporation of GPC Capital Corp. I.
3.4* -- By-Laws of GPC Capital Corp. I.
3.5* -- Certificate of Limited Partnership of Graham Packaging Holdings Company.
3.6* -- Fifth Amended and Restated Agreement of Limited Partnership of Graham Packaging Holdings Company
dated as of February 2, 1998.
3.7* -- Certificate of Incorporation of GPC Capital Corp. II.
3.8* -- By-Laws of GPC Capital Corp. II.
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.
4.2* -- Form of 8 3/4% Senior Subordinated Note Due 2008, Series A (included in Exhibit 4.1).
4.3* -- Form of 8 3/4% Senior Subordinated Note Due 2008, Series B (included in Exhibit 4.1).
4.4* -- Form of Floating Interest Rate Term Security Due 2008, Series A (included in Exhibit 4.1).
4.5* -- Form of Floating Interest Rate Term Security Due 2008, Series B (included in Exhibit 4.1).
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. LLC 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.
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.
4.8* -- Form of 10 3/4% Senior Discount Note Due 2009, Series A (included in Exhibit 4.7).
4.9* -- Form of 10 3/4% Senior Discount Note Due 2009, Series B (included in Exhibit 4.7).
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. LLC and Salomon Brothers Inc. relating to the Senior Discount Notes Due 2009 of Graham Packaging
Holdings Company and GPC Capital Corp. II.
5.1 -- Opinion of Simpson Thacher & Bartlett relating to the Senior Subordinated Notes.
5.2 -- Opinion of Morgan, Lewis & Bockius LLP relating to the Senior Subordinated Notes.
5.3 -- Opinion of Simpson Thacher & Bartlett relating to the Senior Discount Notes.
5.4 -- Opinion of Morgan, Lewis & Bockius LLP relating to the Senior Discount Notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
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.
10.2* -- Consulting Agreement dated as of February 2, 1998 between Graham Packaging Holdings Company and
Graham Capital Corporation.
10.3* -- Equipment Sales, Service and License Agreement dated February 2, 1998 between Graham Engineering
Corporation and Graham Packaging Holdings Company.
10.4* -- Forms of Retention Incentive Agreement.
10.5* -- Forms of Severance Agreement.
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 LLC, BMP/Graham Holdings
Corporation and the other parties named therein.
10.7* -- Monitoring Agreement dated as of February 2, 1998 among Graham Packaging Holdings Company, Graham
Packaging Company and Blackstone.
10.8* -- Management Stockholders Agreement.
10.9* -- Form of Equity Incentive Agreement.
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.
10.11 -- Graham Packaging Holdings Company Management Option Plan.
16.1* -- Letter of Ernst & Young LLP re: Change in Independent Accountants.
23.1 -- Consents of Simpson Thacher & Bartlett (included in its opinions filed as Exhibits 5.1 and 5.3
hereto).
23.2 -- Consents of Morgan, Lewis & Bockius LLP (included in its opinions filed as Exhibits 5.2 and 5.4
hereto).
23.3* -- Consent of Ernst & Young LLP, Independent Auditors.
24* -- Powers of Attorney--Pages II-4 through II-7 of the Registration Statement.
25.1* -- Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of United States
Trust Company of New York, as Trustee.
25.2* -- Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of The Bank of
New York, as Trustee.
27* -- Financial Data Schedule.
99.1* -- Form of Fixed Rate Senior Subordinated Letter of Transmittal.
99.2* -- Form of Fixed Rate Senior Subordinated Notice of Guaranteed Delivery.
99.3* -- Form of Floating Rate Senior Subordinated Letter of Transmittal.
99.4* -- Form of Floating Rate Senior Subordinated Notice of Guaranteed Delivery.
99.5* -- Form of Senior Discount Letter of Transmittal.
99.6* -- Form of Senior Discount Notice of Guaranteed Delivery.
</TABLE>
- ------------------
* Previously filed.
<PAGE>
EXHIBIT 5.1
[Letterhead of Simpson Thacher & Bartlett]
July 31, 1998
GRAHAM PACKAGING COMPANY
GPC CAPITAL CORP. I
GRAHAM PACKAGING HOLDINGS COMPANY
1110 East Princess Street
York, Pennsylvania 17403
Ladies and Gentlemen:
We have acted as special counsel to Graham Packaging Company, a
Delaware limited partnership (the "Operating Company"), GPC Capital Corp. I, a
Delaware corporation ("Capco I" and, together with the Operating Company, the
"Company Issuers"), Graham Packaging Holdings Company, a Pennsylvania limited
partnership ("Holdings"), and GPC Capital Corp. II, a Delaware corporation
(together with the Company Issuers and Holdings, the "Issuers"), in connection
with the Registration Statement on Form S-4, (File No. 333-53603) (the
"Registration Statement") filed by the Issuers with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), relating to, among other things, the issuance
by the Company Issuers of $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 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").
<PAGE>
GRAHAM PACKAGING COMPANY, ET AL. -2- July 31, 1998
The Fixed Rate Senior Subordinated Exchange Notes and the
Floating Rate Senior Subordinated Exchange Notes will be offered by the
Company Issuers in exchange (the "Senior Subordinated Exchanges") for
$150,000,000 aggregate principal amount of their outstanding 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 outstanding
Floating Interest Rate Term Securities Due 2008, Series A (together with the
Fixed Rate Senior Subordinated Old Notes, the "Senior Subordinated Old
Notes"), respectively. The Senior Subordinated Old Notes are unconditionally
guaranteed (the "Old Guarantees") by Holdings on a senior subordinated basis,
and Holdings will unconditionally guarantee (the "Holdings Guarantees") the
performance and payment of the obligations of the Company Issuers under the
Senior Subordinated Exchange Notes. Accordingly, as part of the Senior
Subordinated Exchanges, Holdings will issue the Holdings Guarantees in exchange
for the Old Guarantees. The Senior Subordinated Old Notes were, the Senior
Subordinated Exchange Notes will be and the Holdings Guarantees will be, issued
under an Indenture dated as of February 2, 1998 (the "Senior Subordinated
Indenture") by and among the Company Issuers, Holdings, as guarantor, and United
States Trust Company of New York, as trustee (the "Senior Subordinated
Trustee").
We have examined the Registration Statement and the Senior
Subordinated Indenture, which has been filed with the Commission as an exhibit
to the Registration Statement. In addition, we have examined, and have relied
as to matters of fact upon, originals or copies, certified or otherwise
identified to our satisfaction, of such corporate
<PAGE>
GRAHAM PACKAGING COMPANY, ET AL. -3- July 31, 1998
records, agreements, documents and other instruments and such certificates or
comparable documents of public officials and of officers and representatives
of the Company Issuers, and have made such other and further investigations,
as we have deemed relevant and necessary as a basis for the opinions
hereinafter set forth.
In such examination, we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals and the conformity to original
documents of all documents submitted to us as certified or photostatic copies,
and the authenticity of the originals of such latter documents.
Based upon the foregoing, and subject to the qualifications and
limitations stated herein, we are of the opinion that, assuming that the
Senior Subordinated Indenture constitutes a valid and legally binding
obligation of the Senior Subordinated Trustee, when (i) the Senior Subordinated
Indenture has been duly qualified under the Trust Indenture Act of 1939,
as amended,
<PAGE>
GRAHAM PACKAGING COMPANY, ET AL. -4- July 31, 1998
and (ii) the Senior Subordinated Exchange Notes have been duly executed and
issued by the Company Issuers and duly authenticated and delivered by the Senior
Subordinated Trustee in accordance with the provisions of the Senior
Subordinated Indenture upon the Senior Subordinated Exchanges and (iii) the
Holdings Guarantees have been duly executed and issued by Holdings under the
laws of the Commonwealth of Pennsylvania, the Senior Subordinated Exchange
Notes will constitute valid and legally binding obligations of the Company
Issuers, and the Holdings Guarantees will constitute valid and legally binding
obligations of Holdings.
Our opinions set forth in the preceding sentence are subject to
the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, general equitable principles (whether considered in a proceeding in
equity or at law) and an implied covenant of good faith and fair dealing.
We express no opinion as to the validity, legally binding
effect or enforceability of any provision of the Senior Subordinated
Registration Rights Agreement
<PAGE>
GRAHAM PACKAGING COMPANY, ET AL. -5- July 31, 1998
(as defined in the Registration Statement) or any provision of the Senior
Subordinated Indenture that requires or relates to payment of any interest at
a rate or in an amount which a court would determine in the circumstances
under applicable law to be commercially unreasonable or a penalty or a
forfeiture.
Insofar as the opinions expressed herein relate to, or are
dependent on matters governed by, the laws of the Commonwealth of
Pennsylvania, we have relied upon the opinion of Morgan, Lewis & Bockius LLP,
filed as Exhibit 5.2 to the Registration Statement.
We are members of the Bar of the State of New York and we do
not express any opinion herein concerning any law other than the law of the
State of New York, the federal law of the United States, the General
Corporation Law of the State of Delaware, the Revised Uniform Limited
Partnership Act of the State of Delaware, the Limited Liability Company Act of
the State of Delaware, including decisions of the Delaware courts interpreting
the foregoing Delaware statutes, and, to the extent set forth herein and in
reliance upon the aforesaid opinion of Morgan, Lewis & Bockius LLP, the laws of
the Commonwealth of Pennsylvania.
We hereby consent to the use of this opinion letter as Exhibit
5.1 to the Registration Statement and to the use of our name under the caption
"Legal Matters" in the Prospectus included in the Registration Statement.
Very truly yours,
/s/ Simpson Thacher & Bartlett
SIMPSON THACHER & BARTLETT
<PAGE>
EXHIBIT 5.2
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103
(215) 963-5000
Fax: (215) 963-5299
July 31, 1998
Graham Packaging Company
GPC Capital Corp. II
Graham Packaging Holdings Company
1110 East Princess Street
York, Pennsylvania 17403
Re: Senior Subordinated Notes Due 2008, Series B, and Floating
Rate Subordinated Term Securities Due 2008, Series B, of
Graham Packaging Company and GPC Capital Corp. I
Ladies and Gentlemen:
We have acted as special Pennsylvania counsel to Graham Packaging Company, a
Delaware limited partnership (formerly known as Graham Packaging Holdings I,
L.P.) (the "Operating Company"), GPC Capital Corp. I, a Delaware corporation
("CapCo I" and, together with the Operating Company, the "Company Issuers"), and
Graham Packaging Holdings Company, a Pennsylvania limited partnership (formerly
known as Graham Packaging Company) ("Holdings"), in connection with the
Registration Statement on Form S-4 (the "Registration Statement") filed by the
Issuers (as therein defined) with the Securities and Exchange Commission under
the Securities Act of 1933, as amended, relating, among other things, to the
issuance by the Company Issuers of $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 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").
The Fixed Rate Senior Subordinated Exchange Notes and the Floating Rate Senior
Subordinated Exchange Notes are to be offered by the Company Issuers in exchange
for $150,000,000 aggregate principal amount of their outstanding 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 outstanding Floating
Interest Rate Term Securities Due 2008, Series A (together with the Fixed Rate
Senior Subordinated Old Notes, the "Senior
<PAGE>
July 31, 1998
Page 2
Subordinated Old Notes"), respectively. The Senior Subordinated Old Notes are
unconditionally guaranteed (the "Old Guarantees") by Holdings on a senior
subordinated basis, and the Senior Subordinated Exchange Notes will be
unconditionally guaranteed (the "Holdings Guarantees") by Holdings on a senior
subordinated basis. The Senior Subordinated Old Notes were, and the Senior
Subordinated Exchange Notes will be, issued under an Indenture, dated as of
February 2, 1998 (the "Senior Subordinated Indenture"), among the Company
Issuers, Holdings, as guarantor, and United States Trust Company of New York, as
Trustee.
We have examined the Registration Statement and the Senior Subordinated
Indenture. We have also examined such certificates of public officials,
partnership documents and other certificates and instruments, and have made such
investigations of law, as we have deemed necessary in connection with the
opinions hereinafter set forth. In all examinations made by us in connection
with this opinion, we have assumed the genuineness of all signatures and the
conformity to the executed originals of all documents submitted to us as
conformed or photostatic copies and that each natural person who executed any of
such documents had sufficient legal capacity to do so.
Based upon the foregoing, and subject to the qualifications herein set forth, we
are of the opinion as of the date hereof that:
1. Holdings is a limited partnership duly formed and validly existing under the
laws of the Commonwealth of Pennsylvania and has full partnership power and
authority to execute and deliver the Senior Subordinated Indenture and the
Holdings Guarantees.
2. The Senior Subordinated Indenture has been duly authorized, executed and
delivered by Holdings.
3. The Holdings Guarantees have been duly authorized by Holdings under the
laws of the Commonwealth of Pennsylvania.
4. The issue and sale of the Senior Subordinated Exchange Notes and the Holdings
Guarantees by the Company Issuers and Holdings, respectively, will not violate
the partnership agreement or certificate of limited partnership of Holdings or
(assuming compliance with Pennsylvania securities or Blue Sky laws) any
Pennsylvania statute.
The foregoing opinions are subject to the following qualifications:
A. We have assumed that Holdings and the Company Issuers are engaged solely in
the businesses described in the Registration Statement.
B. Our opinions are subject to the effect of Pennsylvania laws regarding
fraudulent transfer or conveyance, including the Pennsylvania Uniform Fraudulent
Transfer Act, 12 P.S. ss.ss. 5101 et seq., and Section 8557 of the Pennsylvania
Revised Uniform Limited Partnership Act, 15 P.S. ss. 8557 (relating to
limitations on distributions to partners).
C. The foregoing opinions are limited to the law of the Commonwealth of
Pennsylvania, and we do not express any opinion on any other law.
<PAGE>
July 31, 1998
Page 3
We hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to our firm under the caption "Legal Matters" in
the Prospectus included therein. In rendering its opinion filed as Exhibit 5.1
to the Registration Statement, Simpson Thacher & Bartlett, special counsel to
the Company Issuers and Holdings, may rely upon this opinion as to the matters
of Pennsylvania law covered hereby.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
<PAGE>
EXHIBIT 5.3
[Letterhead of Simpson Thacher & Bartlett]
July 31, 1998
GRAHAM PACKAGING HOLDINGS COMPANY
GPC CAPITAL CORP. II
1110 East Princess Street
York, Pennsylvania 17403
Ladies and Gentlemen:
We have acted as special counsel to Graham Packaging Holdings
Company, a Pennsylvania limited partnership ("Holdings"), and GPC Capital
Corp. II, a Delaware corporation ("Capco II" and, together with Holdings, the
"Holdings Issuers"), in connection with the Registration Statement on Form S-4
(File No. 333-53603) (the "Registration Statement") filed by the Issuers (as
therein defined) with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), relating to, among other things, the issuance by the Holdings Issuers
of $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"). The
Senior Discount Exchange Notes will be offered by the Holdings Issuers in
exchange (the "Senior Discount Exchange") for $169,000,000 aggregate principal
amount at maturity of their outstanding 10 3/4% Senior Discount Notes Due
2009, Series A (the "Senior Discount Old Notes"). The Senior Discount Old
Notes were and the Senior Discount Exchange Notes will be issued under an
Indenture dated as of February 2, 1998 (the
<PAGE>
GRAHAM PACKAGING HOLDINGS COMPANY
GPC CAPITAL CORP. II -2- July 31, 1998
"Senior Discount Indenture") by and among the Holdings Issuers and The Bank of
New York, as trustee (the "Senior Discount Trustee").
We have examined the Registration Statement and the Senior
Discount Indenture, which has been filed with the Commission as an exhibit to
the Registration Statement. In addition, we have examined, and have relied as
to matters of fact upon, originals or copies, certified or otherwise
identified to our satisfaction, of such corporate records, agreements,
documents and other instruments and such certificates or comparable documents
of public officials and of officers and representatives of the Holdings
Issuers, and have made such other and further investigations, as we have
deemed relevant and necessary as a basis for the opinion hereinafter set
forth.
In such examination, we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals and the conformity to original
documents of all documents submitted to us as certified or photostatic copies,
and the authenticity of the originals of such latter documents.
Based upon the foregoing, and subject to the qualifications and
limitations stated herein, we are of the opinion that, assuming that the
Senior Discount Indenture constitutes a valid and legally binding obligation of
the Senior Discount Trustee, when (i) the Senior Discount Indenture has been
duly qualified under the Trust Indenture Act of 1939, as
<PAGE>
GRAHAM PACKAGING HOLDINGS COMPANY
GPC CAPITAL CORP. II -3- July 31, 1998
amended, (ii) the Senior Discount Exchange Notes have been duly executed and
issued by Holdings and Capco II and duly authenticated and delivered by the
Senior Discount Trustee in accordance with the provisions of the Senior Discount
Indenture upon the Senior Discount Exchange, the Senior Discount Exchange Notes
will constitute valid and legally binding obligations of the Holdings Issuers.
Our opinion set forth in the preceding sentence is subject to
the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, general equitable principles (whether considered in a proceeding in
equity or at law) and an implied covenant of good faith and fair dealing.
We express no opinion as to the validity, legally binding effect
or enforceability of any provision of the Senior Discount Registration Rights
Agreement (as
<PAGE>
GRAHAM PACKAGING HOLDINGS COMPANY
GPC CAPITAL CORP. II -4- July 31, 1998
defined in the Registration Statement) or any provision of the Senior Discount
Indenture that requires or relates to payment of any interest at a rate or in
an amount which a court would determine in the circumstances under applicable
law to be commercially unreasonable or a penalty or a forfeiture.
Insofar as the opinion expressed herein relates to, or is
dependent on matters governed by, the laws of the Commonwealth of
Pennsylvania, we have relied upon the opinion of Morgan, Lewis & Bockius LLP,
filed as Exhibit 5.4 to the Registration Statement.
We are members of the Bar of the State of New York and we do not
express any opinion herein concerning any law other than the law of the State of
New York, the federal law of the United States, the General Corporation Law of
the State of Delaware, the Limited Liability Company Act of the State of
Delaware, including decisions of the Delaware courts interpreting the foregoing
Delaware statutes, and, to the extent set forth herein and in reliance upon the
aforesaid opinion of Morgan, Lewis & Bockius LLP, the laws of the Commonwealth
of Pennsylvania.
We hereby consent to the use of this opinion letter as Exhibit
5.4 to the Registration Statement and to the use of our name under the caption
"Legal Matters" in the Prospectus included in the Registration Statement.
Very truly yours,
/s/ Simpson Thacher & Bartlett
SIMPSON THACHER & BARTLETT
<PAGE>
EXHIBIT 5.4
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103
(215) 963-5000
Fax: (215) 963-5299
July 31, 1998
Graham Packaging Holdings Company
GPC Capital Corp. II
1110 East Princess Street
York, Pennsylvania 17403
Re: 10 3/4% Senior Discount Notes Due 2009, Series B of Graham
Packaging Holdings Company and GPC Capital Corp. II
Ladies and Gentlemen:
We have acted as special Pennsylvania counsel for Graham Packaging Holdings
Company, a Pennsylvania limited partnership (formerly known as Graham Packaging
Company) ("Holdings"), in connection with the Registration Statement on Form S-4
(the "Registration Statement") filed by the Issuers (as therein defined) with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended, relating, among other things, to the issuance by Holdings and GPC
Capital Corp. II, a Delaware corporation ("CapCo II" and, together with
Holdings, the "Holdings Issuers"), of $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").
The Senior Discount Exchange Notes are to be offered by the Holdings Issuers in
exchange for $169,000,000 aggregate principal amount at maturity of their
outstanding 10 3/4% Senior Discount Notes Due 2009, Series A (the "Senior
Discount Old Notes"). The Senior Discount Old Notes were, and the Senior
Discount Exchange Notes will be, issued under an Indenture, dated as of February
2, 1998 (the "Senior Discount Indenture"), between the Holdings Issuers and The
Bank of New York, as Trustee.
We have examined the Registration Statement and the Senior Discount Indenture.
We have also examined such certificates of public officials, partnership
documents and other certificates and instruments, and have made such
investigations of law, as we have deemed necessary in connection with the
opinions hereinafter set forth. In all examinations made by us in connection
with this opinion, we have assumed the genuineness of all signatures and the
conformity to the executed originals of all documents submitted to us as
conformed or photostatic copies and that each natural person who executed any of
such documents had sufficient legal capacity to do so.
<PAGE>
July 31, 1998
Page 2
Based upon the foregoing, and subject to the qualifications herein set forth, we
are of the opinion as of the date hereof that:
1. Holdings is a limited partnership duly formed and validly existing under the
laws of the Commonwealth of Pennsylvania and has full partnership power and
authority to execute and deliver the Senior Discount Indenture and to issue and
deliver the Senior Discount Exchange Notes.
2. The Senior Discount Indenture has been duly authorized, executed and
delivered by Holdings.
3. The Senior Discount Exchange Notes have been duly authorized by Holdings
under the laws of the Commonwealth of Pennsylvania.
4. The issue and sale of the Senior Discount Exchange Notes by Holdings will not
violate the partnership agreement or certificate of limited partnership of
Holdings or (assuming compliance with Pennsylvania securities or Blue Sky laws)
any Pennsylvania statute.
The foregoing opinions are subject to the following qualifications:
A. We have assumed that Holdings is engaged solely in the businesses described
in the Registration Statement.
B. Our opinions are subject to the effect of Pennsylvania laws regarding
fraudulent transfer or conveyance, including the Pennsylvania Uniform Fraudulent
Transfer Act, 12 P.S. ss.ss. 5101 et seq., and Section 8557 of the Pennsylvania
Revised Uniform Limited Partnership Act, 15 P.S. ss. 8557 (relating to
limitations on distributions to partners).
C. The foregoing opinions are limited to the law of the Commonwealth of
Pennsylvania, and we do not express any opinion on any other law.
We hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to our firm under the caption "Legal Matters" in
the Prospectus included therein. In rendering its opinion filed as Exhibit 5.3
to the Registration Statement, Simpson Thacher & Bartlett, special counsel to
the Holdings Issuers, may rely upon this opinion as to the matters of
Pennsylvania law covered hereby.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
<PAGE>
Exhibit 10.11
GRAHAM PACKAGING HOLDINGS COMPANY
MANAGEMENT OPTION PLAN
This Management Option Plan is hereby adopted by the
Compensation Committee (the "Committee") of Graham Packaging Holdings
Company, a Pennsylvania limited partnership (the "Company"), as of the
Effective Date (as defined below).
ARTICLE I
PURPOSE OF PLAN
The Plan is adopted by the Committee for certain management
employees of the Company and its Subsidiaries as a part of the
compensation and incentive arrangements for such employees. The 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 and its Subsidiaries. It is
anticipated that the availability of limited partnership options under
the Plan will also enhance the Company's ability to attract and retain
individuals of exceptional talent to contribute to the sustained
progress, growth and profitability of the Company.
ARTICLE II
DEFINITIONS
For purposes of the Plan, except where the context clearly
indicates otherwise, the following terms shall have the meanings set
forth below:
"CEO" shall mean the Chief Executive Officer of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and any successor statute.
"Committee" shall mean the Compensation Committee of the
Company.
"Company" shall mean Graham Packaging Holdings Company, a
Pennsylvania limited partnership.
"Control" (including, with correlative meaning, all
conjugations thereof) shall mean with respect to any Person, the
ability of another Person to control or direct the actions or policies
of such first Person, whether by ownership of voting securities, by
contract or otherwise.
<PAGE>
2
"Effective Date" shall mean February 2, 1998.
"Employee" shall mean any employee of the Company or any of
its Subsidiaries.
"Fair Market Value" shall mean, with respect to any Unit,
(i) prior to an initial Public Offering, the fair market value
of a Unit as determined in good faith by the Committee based on the
value of the Company as a going concern, but without any discount with
respect to the minority ownership represented by such partnership
interest or the contractual restrictions on the Transfer of the Units.
(ii) on and after an initial Public Offering, the average of
the closing trading prices on the 20 business days immediately
preceding the day of the valuation.
"Grant Date" shall mean with respect to the initial grant of
Options hereunder, February 2, 1998, and thereafter shall mean the date an
Option is granted pursuant to this Plan.
"Option" shall mean an option granted under the Plan to
purchase Units.
"Option Agreement" shall mean the Option Agreement between a
Participant and the Company, substantially in the form of agreement attached
hereto as Exhibit A.
"Option Units" shall mean any Units issuable or issued by the
Company upon exercise of any Option by a Participant.
"Participant" shall mean any individual who holds an
outstanding Option granted under this Plan.
"Person" shall mean an individual, a partnership, a
corporation, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization and a governmental entity or any department, agency
or political subdivision thereof.
"Plan" shall mean this Management Option Plan, as amended from
time to time.
"Plan Year" shall mean initially the twelve month period
beginning January 1, 1998 and ending on December 31, 1998, and thereafter each
of the calendar years from 1999 through 2008.
"Public Offering" shall mean the sale of shares of common
stock of a successor to the Company pursuant to an effective registration
statement under the Securities Act, which results in an active trading market in
such common stock. If such common stock is listed on
<PAGE>
3
a national securities exchange or is quoted on the NASDAQ National Market, it
shall be deemed to be actively traded.
"Recapitalization" shall mean the recapitalization of the
Company pursuant to the Recapitalization Agreement.
"Recapitalization Agreement" shall mean the Agreement and Plan
of Recapitalization, Redemption and Purchase, dated as of December 18, 1997, by
and among Graham Packaging Company, Graham Packaging Corporation, Graham Family
Growth Partnership, Graham Engineering Corporation, Graham Capital Corporation,
Graham Recycling Corporation, Donald C. Graham, and BCP/Graham Holdings L.L.C.
and BMP/Graham Holdings Corporation.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Subsidiary" shall mean any corporation of which the Company
owns, directly or through one or more Subsidiaries, securities having a majority
of the ordinary voting power in electing the board of directors of such
corporation.
"Transfer" shall mean, with respect to any Option, the gift,
sale, assignment, transfer, pledge, hypothecation or other disposition (whether
for or without consideration and whether voluntary, involuntary or by operation
of law) of such Option or any interest therein.
"Unit" shall mean a limited partnership interest in the
Company equal to 0.01% of the Company as of February 2, 1998 (assuming the
issuance of all 500 Units covered by the Plan, but subject to dilution resulting
from other future issuances of equity).
ARTICLE III
LIMITATION ON AVAILABLE OPTION UNITS
3.1 Option Units. The aggregate number of Units with respect
to which Options may be granted under the Plan shall not exceed 500 Units;
provided, however, that the aggregate number of Units with respect to which
Options may be granted shall be subject to adjustment in accordance with the
provisions of Section 8.2 below.
3.2 Availability of Option Units. To the extent any Options
are forfeited, expire or are terminated prior to exercise, the Option Units in
respect of which such Options were issued shall become available for reissuance
to Employees of the Company and its Subsidiaries pursuant to this Plan or any
other plan or agreement approved by the Committee.
<PAGE>
4
ARTICLE IV
GRANT OF OPTIONS; OPTION TERMS
4.1 Options. Options shall be granted by the Committee to
Employees.
4.2 Exercise Price. The exercise price of Options granted
hereunder shall be the Fair Market Value of the Units subject to the Option,
determined as of the Grant Date.
4.3 Option Agreement. Each Option shall be evidenced by a
written Option Agreement, which shall be executed by the Optionee and an
authorized officer of the Company, and which shall contain such terms and
conditions as the Committee shall determine, consistent with the Plan.
4.4 Commencement of Exercisability. Options shall become
exercisable at such times and in such installments (which may be cumulative) as
the Committee shall provide in the terms of each individual Option Agreement.
4.5 Transfer of Options. Options may not be Transferred (other
than by will or descent).
ARTICLE V
EXERCISE OF OPTIONS
5.1 Right to Exercise. During the lifetime of a Participant,
Options may be exercised only by such Participant (except that, in the event of
his Disability, Options may be exercised by his or her legal guardian or legal
representative). In the event of the death of a Participant, exercise of Options
shall be made only by the executor or administrator of the deceased
Participant's estate or the Person or Persons to whom the deceased Participant's
rights under the Option shall pass by will or the laws of descent and
distribution.
5.2 Procedure for Exercise. Options may be exercised in whole
or in part with respect to any portion that is exercisable. To exercise an
Option, a Participant (or such other Person who shall be permitted to exercise
the Option as set forth in Section 5.1) must complete, sign and deliver to the
Company (to the attention of the Company's Secretary) a notice of exercise
substantially in the form attached hereto as Annex I (or in such other similar
form as the Committee may from time to time adopt and provide to a Participant)
(the "Exercise Notice"), together with payment in full of the Exercise Price
multiplied by the number of Units with respect to which the Option is exercised.
Payment of the Exercise Price shall be made in cash (including check, bank draft
or money order). A Participant's right to exercise the Option shall be subject
to the satisfaction of all conditions set forth in the Exercise Notice.
<PAGE>
5
5.3 Required Agreements. An election to exercise an Option
shall not become effective unless and until, a Participant executes a
counterpart of the Company's Agreement of Limited Partnership in order to become
bound thereby.
5.4 Withholding of Taxes. The Company shall withhold from any
Participant from any amounts due and payable by the Company to such Participant
(or secure payment from such Participant in lieu of withholding) the amount of
any withholding or other tax due from the Company with respect to any Option
Units issuable under the Plan, and the Company may defer such issuance unless
indemnified to its satisfaction.
ARTICLE VI
EXPIRATION OF OPTIONS
6.1 Expiration Date. Options shall expire at 5:00 p.m. Eastern
Standard Time on the day prior to the tenth anniversary of the Grant Date (the
"Expiration Date") or upon such earlier time as provided in the Option
Agreements.
ARTICLE VII
ADMINISTRATION
7.1 Plan Administrator. This Plan shall be administered by the
Committee; provided, however, that the Committee may delegate to the CEO
responsibility for the routine administration of the Plan.
7.2 Committee Option Grants. The Committee shall have the
authority to select Employees to receive Options and to grant Options to
Employees in such amounts as it shall determine, in its full discretion.
7.3 Committee Authority. The Committee shall have the sole and
complete responsibility and authority to (a) interpret and construe the terms of
this Plan. (b) correct any defect, error or omission or reconcile any
inconsistency in the Plan or in any Option granted hereunder, and (c) make all
other determinations and take all other actions necessary or advisable for the
implementation and administration of the Plan. The Committee's determinations on
matters within its authority shall be conclusive and binding upon the
Participants, the Company and all other Persons.
ARTICLE VIII
MISCELLANEOUS
8.1 Amendment, Suspension and Termination of Plan. No
suspension, termination or amendment of or to the Plan shall materially and
adversely affect the rights of
<PAGE>
6
any Participant with respect to Options issued hereunder prior to the date of
such suspension, termination or amendment without the consent of such holder.
8.2 Adjustments.
(a) Changes in Partnership. In the event of a merger,
reorganization, recapitalization, or combination, the Committee may make such
adjustments in the number and type of Units or shares authorized by the Plan,
the number and type of Units or shares covered by outstanding Options and
Exercise Prices specified therein and other amendments to the Plan as the
Committee, in good faith, determines to be appropriate and equitable.
(b) Merger or Consolidation. In its absolute discretion, and
on such terms and conditions as it deems appropriate, coincident with or after
the grant of any Option, the Committee may provide that such Option cannot be
exercised after the merger or consolidation of the Company into another company
or corporation, the exchange of all or substantially all of the assets of the
Company for the securities of another corporation, the acquisition by a
corporation of 80% or more of the Company's partnership interest or the
liquidation or dissolution of the Company, and if the Committee so provides, it
must 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; provided, however, that the Committee may also
provide, in its absolute discretion, 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.
8.3 No Right to Participate. Except as otherwise agreed to by
the Company, no Employee shall have a right to be selected as a Participant or,
having been so selected, to be selected again to receive a grant of Options.
8.4 No Employment Contract. Without derogating from any rights
any employee may have pursuant to independent contractual arrangements, nothing
in this Plan shall interfere with or limit in any way the right of the Company
or any of its Subsidiaries to terminate any Participant's employment at any time
(with or without Cause), nor confer upon any Participant any right to continued
employment by the Company or any of its Subsidiaries for any period of time or
to continue such employee's present (or any other) rate of compensation.
8.5 Construction of Plan. This terms of this Plan shall be
administered in accordance with the laws (excluding provisions related to
conflicts of laws) of the State of Pennsylvania.
<PAGE>
Annex I
EXERCISE NOTICE
(Applicable Prior to an Initial Public Offering)
This Exercise Notice (this "Notice") is given by the
undersigned participant ("Participant") to Graham Packaging Holdings Company, a
Pennsylvania limited partnership (the "Company"), in connection with the
Participant's exercise of an Option granted pursuant to the Company's Management
Option Plan, adopted ____________ (the "Plan") to purchase Option Units (as
defined in the Plan). Capitalized terms used but not defined herein shall have
the respective meanings ascribed to them in the Plan.
1. Purchase and Sale of Option Units.
(a) Upon delivery to the Company of (i) this Notice, (ii) the
aggregate Exercise Price for the Option Units purchased hereunder by
certified check, bank draft or money order made payable to "Graham
Packaging Holdings Company" and (iii) the Option to which the Option
Units relate, the Company shall sell and issue to Participant, the
Option Units that Participant elects to purchase hereunder.
(b) Notwithstanding the previous paragraph, Participant's
election to purchase Option Units hereunder shall not be valid unless
and until the Participant executes a counterpart of the Company's
Agreement of Limited Partnership in order to become bound thereby.
2. Effect of Exercise. Participant acknowledges and agrees
that:
(a) neither the issuance of the Option Units to
Participant nor any provision contained herein shall entitle
Participant to remain in the employment of the Company and its
Subsidiaries or affect the right of the Company to terminate
Participant's employment at any time for any reason;
(b) the Company shall have no duty or obligation
to disclose to Participant and Participant shall have no right
to be advised of, any material information regarding the
Company and its Subsidiaries in connection with the repurchase
of Option Units upon the termination of Participant's
employment with the Company and its Subsidiaries or as
otherwise provided hereunder; and
(c) the Company shall be entitled to withhold from
any amounts due and payable by the Company to Participant (or
secure payment from Participant in lieu of withholding) the
amount of any withholding or other tax due from the Company
with respect to such Option Units and the Company may defer
issuance until indemnified to its satisfaction.
<PAGE>
2
(d) The Option Units issued in connection herewith
hereunder, are issued as a part of the compensation and
incentive arrangements between the Company and Participant.
3. Restriction on Option Units. Participant acknowledges that
the Option Units being purchased hereunder are being issued pursuant to the
Plan, the terms and conditions of which are incorporated herein as if set forth
fully herein, and that such Option Units are subject to certain restrictions on
transfer, rights of repurchase and other provisions set forth in the Plan and
the agreement executed pursuant to Section 1(b) above (For Option Units).
<PAGE>
3
* * *
IN WITNESS WHEREOF, the Participant has executed this Notice
as of the date written below.
Number of Units Acquired: ---------
Aggregate Exercise Price: ---------
- -------------------------------- ----------------
Signature of Participant Date
- -------------------------------- ------------------------
Print Participant's Name Participant's Social
Security No.
Participant's Residence Address: Mailing Address, if different from
Residence Address:
- -------------------------------- -----------------------------
Street Street
- ----------------------------- ------------------------------
City State Zip Code City State Zip Code
