AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 9, 2003
REGISTRATION NO. 333-107369
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GRAHAM PACKAGING COMPANY, L.P.
(Exact name of registrant co-issuer as specified in its charter)
DELAWARE 3085 23-2786688
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or organization) Classification Code Number) Identification Number)
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GPC CAPITAL CORP. I
(Exact name of registrant co-issuer as specified in its charter)
DELAWARE 3085 23-2952403
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or organization) Classification Code Number) Identification Number)
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GRAHAM PACKAGING HOLDINGS COMPANY
(Exact name of registrant parent guarantor as specified in its charter)
PENNSYLVANIA 3085 23-2553000
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or organization) Classification Code Number) Identification Number)
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2401 PLEASANT VALLEY ROAD
YORK, PENNSYLVANIA 17402
(717) 849-8500
(Address, including zip code, and telephone number, including area code, of
registrants' principal executive offices)
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PHILIP R. YATES
JOHN E. HAMILTON
2401 PLEASANT VALLEY ROAD
YORK, PENNSYLVANIA 17402
(717) 849-8500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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WITH A COPY TO:
EDWARD P. TOLLEY III, ESQ.
SIMPSON THACHER & BARTLETT LLP
425 LEXINGTON AVENUE
NEW YORK, NY 10017
(212) 455-2000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
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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, please 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. [ ]
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CALCULATION OF REGISTRATION FEE
=======================================================================================================================
MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
BE REGISTERED REGISTERED PER NOTE PRICE (1) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------
8 3/4% Series B Senior Subordinated Notes
due 2008 (2) .......................... $100,000,000 100% $100,000,000 $8,090(3)
- -----------------------------------------------------------------------------------------------------------------------
Guarantee (4) .......................... $100,000,000 (5) (5) (5)
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended.
(2) Co-issued by Graham Packaging Company, L.P. and GPC Capital Corp. I.
(3) Pursuant to Rule 457(p), the full amount of the registration fee was
fully offset from the $9,200 filing fee which was previously paid in
connection with the registrants' registration statement filed by the
registrants on May 30, 2002 (File No. 333-89430) which was withdrawn on
April 10, 2003.
(4) Guarantee by Graham Packaging Holdings Company of the 8 3/4% Senior
Subordinated Notes due 2008.
(5) Pursuant to Rule 457(n) under the Securities Act of 1933, as amended, no
separate registration fee is payable for the guarantee of the Senior
Notes due 2010, which is being registered concurrently.
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THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS DECLARED EFFECTIVE. THIS
PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR
SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED DECEMBER 9, 2003
CONFIDENTIAL
PROSPECTUS
[GRAPHIC OMITTED]
$100,000,000
GRAHAM PACKAGING COMPANY, L.P.
GPC CAPITAL CORP. I
Offer to exchange all outstanding 8 3/4% Senior Subordinated Notes due
2008 for an equal amount of 8 3/4% Series B Senior Subordinated Notes due 2008,
which have been registered under the Securities Act of 1933.
THE EXCHANGE OFFER
o We will exchange all outstanding notes that are validly tendered and not
validly withdrawn for an equal principal amount of exchange notes that are
freely tradeable in integral multiples of $1,000.
o You may withdraw tenders of outstanding notes at any time prior to the
expiration of the exchange offer.
o The exchange offer expires at 12:00 a.m., New York City time, on , 2003,
unless extended. We do not currently intend to extend the expiration date.
o The exchange of outstanding notes for exchange notes in the exchange offer
will not be a taxable event for U.S. federal income tax purposes.
o We will not receive any proceeds from the exchange offer.
THE EXCHANGE NOTES
o The exchange notes are being offered in order to satisfy certain of our
obligations under the registration rights agreement entered into in
connection with the placement of the outstanding notes.
o The terms of the exchange notes to be issued in the exchange offer are
substantially identical to the outstanding notes, except that the exchange
notes will be freely tradeable.
RESALES OF EXCHANGE NOTES
o The exchange notes may be sold in the over-the-counter market, in
negotiated transactions or through a combination of such methods. We do
not plan to list the exchange notes on a national market.
If you are a broker-dealer and you receive exchange notes for your own
account, you must acknowledge that you will deliver a prospectus in connection
with any resale of such exchange notes. By making such acknowledgment, you will
not be deemed to admit that you are an "underwriter" under the Securities Act
of 1933, as amended. Broker-dealers may use this prospectus in connection with
any resale of exchange notes received in exchange for outstanding notes where
such outstanding notes were acquired by the broker-dealer as a result of
market-making activities or trading activities. We have agreed that we will
make this prospectus available to such broker-dealer for use in connection with
any such resale. A broker-dealer may not participate in the exchange offer with
respect to outstanding notes acquired other than as a result of market-making
activities or trading activities. See "Plan of Distribution."
As of September 28, 2003, the issuers had $633.4 million of senior
indebtedness outstanding, $105.2 million of unused borrowings available under
their revolving credit facility and $225.0 million aggregate principal amount
of indebtedness equal in right of payment to the notes, and Graham Packaging
Holdings Company, our parent guarantor, had $169.0 million of senior
indebtedness outstanding and no indebtedness equal in right of payment to the
notes. The issuers and Graham Packaging Holdings Company have not issued, and
do not have any current arrangements to issue, any indebtedness that is
subordinated to the notes.
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 13 OF
THIS PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
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The date of this prospectus is , 2003.
No action is being taken in any jurisdiction outside of the United States
to permit a public offering of the notes or possession or distribution of this
prospectus in any other jurisdiction. Persons who come into possession of this
prospectus in jurisdictions outside the United States are required to inform
themselves about and to observe any restrictions as to this offering and the
distribution of this prospectus applicable to that jurisdiction.
All brand names and trademarks appearing in this prospectus are the
property of their respective holders.
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PROSPECTUS SUMMARY
This summary highlights key information contained elsewhere in this
prospectus, but it may not contain all of the information that is important to
you. To better understand this offering, you should read this entire prospectus
carefully, including the "Risk Factors" section and the financial statements
and the notes to those statements, which are included elsewhere in this
prospectus.
OUR COMPANY
We are a worldwide leader in the design, manufacture and sale of
customized blow molded plastic containers for the branded food and beverage,
household and personal care and automotive lubricants markets and currently
operate 56 manufacturing facilities throughout North America, Europe and South
America. Our primary strategy is to operate in select markets in which we will
benefit from the growing conversion to high performance plastic packaging from
more commodity packaging. We target branded consumer product manufacturers for
whom customized packaging design is a critical component in their efforts to
differentiate their products to consumers. We initially pursue these conversion
opportunities with one or two major consumer product companies that we expect
will lead the conversion to plastic packaging in a particular category. We
utilize our innovative design, engineering and technological capabilities to
deliver highly customized, high performance products to our customers in these
areas in order to distinguish and increase sales of their branded products.
With leading positions in each of our core businesses, we believe we are well
positioned to continue to benefit from the conversion trend to value added
plastic packaging that is still emerging on a global basis and that offers us
opportunities for attractive margins and returns on investment.
We have an extensive blue-chip customer base that includes many of the
world's largest branded consumer products companies. More than 40% of our
manufacturing facilities are located on-site at our customers' plants, which we
believe provides a competitive advantage in maintaining and expanding customer
relationships. The majority of our sales are made pursuant to long-term
customer contracts, which include resin pass-through provisions that provide
for substantially all increases and decreases in the cost of resin to be passed
on to customers, thus mitigating the effect of resin price movements on our
profitability.
For the year ended December 31, 2002 and the nine months ended September
28, 2003, our net sales were $906.7 million and $737.7 million, respectively;
our net income was $7.6 million and $9.7 million, respectively; our covenant
compliance EBITDA, as described in "--Management's Discussion and Analysis of
Financial Condition and Results of Operations", was $198.2 million and $155.9
million, respectively; and our net interest expense was $81.8 million and $74.4
million, respectively. As of September 28, 2003, our total debt was $1,127.4
million.
OUR MARKETS
The food and beverage, household and personal care and automotive
lubricants markets represented 56.9%, 20.5% and 22.6%, respectively, of our net
sales for the year ended December 31, 2002.
FOOD AND BEVERAGE. We produce containers for shelf-stable, refrigerated
and frozen juices, non-carbonated juice drinks, teas, isotonics, yogurt and
nutritional drinks, toppings, sauces, jellies and jams. Our food and beverage
customers include Arizona, Cadbury, Campbell Soup, Dannon (known as Danone in
Europe), Heinz, Hershey, Minute Maid, Nestle, Ocean Spray Cranberries, PepsiCo,
Quaker Oats, TreeTop, Tropicana, Unilever and Welch's. We believe, based on
internal estimates, that we have the leading domestic market position in
plastic containers for juice, frozen concentrate, pasta sauce and yogurt drinks
and the leading position in Europe for plastic containers for yogurt drinks.
Our food and beverage sales have grown at a compound annual growth rate of
22.3% from fiscal 1998 through fiscal 2002. We believe we are strategically
positioned to benefit from the estimated 60% of the domestic hot-fill food and
beverage market that has yet to convert to plastic and also to take advantage
of evolving domestic and international conversion opportunities like snack
foods and adult nutritional beverages.
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HOUSEHOLD AND PERSONAL CARE. We are a leading supplier of plastic
containers for products such as liquid fabric care, dish care, hard-surface
cleaners, hair care and body wash. Our household and personal care customers
include Colgate-Palmolive, The Dial Corporation, Henkel, Johnson & Johnson,
L'Oreal, Procter & Gamble, Reckitt Benckiser and Unilever.
AUTOMOTIVE LUBRICANTS. We believe, based on internal estimates, that we
are the number one supplier of one quart/one liter plastic motor oil containers
in the United States, Canada and Brazil, supplying most of the motor oil
producers in these countries, with an approximate 80% U.S. market share, based
on 2002 unit sales. Our automotive customers include Ashland, Castrol,
ChevronTexaco, ExxonMobil, Petrobras, Petro-Canada and Shell Oil Company. We
have been producing automotive lubricants containers since the conversion to
plastic began over 20 years ago and over the years have expanded our market
share and maintained margins by partnering with our customers to improve
product quality and reduce costs through design improvement, reduced container
weight and manufacturing efficiencies.
OUR STRENGTHS
STRATEGIC FOCUS ON THE RAPIDLY GROWING CUSTOM PLASTIC CONTAINER
INDUSTRY. Consumer preferences for plastic packaging, technological
advancements and improved economics have accelerated the conversion to plastic
containers from other materials. We believe our leading technology, product
innovation, efficient manufacturing operations and strong customer
relationships will enable us to capitalize on continuing global trends of
conversions to plastic containers.
LEADERSHIP POSITION IN CORE MARKETS. We enjoy leading positions in all of
our core markets. Our leadership positions in our core markets have enabled us
to utilize high-speed production systems and achieve significant economies of
scale, thereby making us a low-cost manufacturer.
SUPERIOR PRODUCT DESIGN AND DEVELOPMENT CAPABILITIES. We have demonstrated
significant success in designing innovative plastic containers that require
customized features. We believe that our innovative packaging increases demand
for our customers' products, especially for our food and beverage customers,
and stimulates consumer demand and drives further conversion to plastic
packaging. We have received design awards for packages that we developed for
Welch's, Tropicana, Hershey, Unilever and Nestle.
SUCCESSFUL BUSINESS MODEL UTILIZING ON-SITE FACILITIES. More than 40% of
our manufacturing facilities are located on-site at our customers' plants.
On-site facilities enable us to foster long-term customer relationships,
facilitate just-in-time inventory management and generate significant savings
opportunities through process re-engineering, thereby eliminating costly
shipping charges and reducing working capital needs.
DIVERSIFIED BLUE-CHIP CUSTOMER BASE. We have an extensive blue-chip
customer base that includes many of the world's largest branded consumer
products companies.
EXPERIENCED MANAGEMENT TEAM. Our management team is very experienced in
the packaging industry and has a track record of growing our company,
implementing new packaging technology, entering new markets and maintaining and
expanding our blue-chip customer base.
OUR STRATEGY
We intend to expand our leadership position in select value-added plastic
packaging opportunities by maintaining our position at the forefront of the
plastic conversion trend. We seek to achieve this objective by pursuing the
following strategies:
LEVERAGE OUR DESIGN AND DEVELOPMENT CAPABILITIES TO CAPITALIZE ON
CONVERSIONS TO PLASTIC CONTAINERS.
o Focus on innovative design features, and specialized performance and
material requirements
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o Target product categories that demand value-added packaging and that
will benefit from conversion to plastics
o Work with leading consumer product companies to initiate a conversion
that we expect will stimulate conversion throughout a product category
MAINTAIN AND EXPAND POSITION WITH KEY CUSTOMERS.
o Deliver superior customer service
o Develop innovative and distinctive packaging designs
o Open new on-site facilities
o Continue to improve our low-cost manufacturing operations
o Expand globally alongside key customers
TARGET CAPITAL INVESTMENT AND EXPAND OUR ON-SITE PLANT NETWORK.
o Focus investment in selected high growth product categories based upon
internal target return requirements
o Expand our on-site network globally with existing and new customers
o Consider select investments, joint ventures and strategic acquisitions
to complement growth objectives
RISKS RELATED TO THE EXCHANGE OFFER AND OUR BUSINESS
Before you tender your outstanding notes in the exchange offer, you should
be aware that there are various risks related to, among other things: transfer
restrictions on the outstanding notes; restrictive covenants in our debt
agreements; our substantial leverage; increases in resin prices or decreases in
resin supply; foreign currency fluctuations; reliance on our largest customers;
the declining domestic motor oil business; environmental liabilities;
Blackstone's control of our company; our dependence on key personnel; making
new acquisitions; labor relations; access to blow molding equipment; and the
issuers' ability to repurchase the notes upon a change of control. For more
information about these and other risks, please read "Risk Factors". You should
carefully consider these risk factors together with all of the other
information in this prospectus.
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Our principal executive offices are located at 2401 Pleasant Valley Road,
York, Pennsylvania 17402, telephone (717) 849-8500.
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SUMMARY OF TERMS OF THE EXCHANGE OFFER
On May 28, 2003, we completed the private offering of the outstanding
notes. References to the "notes" in this prospectus are references to both the
outstanding notes and the exchange notes. This prospectus is part of a
registration statement covering the exchange of the outstanding notes for the
exchange notes.
We and our parent guarantor entered into a registration rights agreement
with Deutsche Bank Securities Inc. and Citigroup Global Markets Inc., the
initial purchasers, in the private offering in which we and our parent
guarantor agreed to deliver to you this prospectus as part of the exchange
offer and we agreed to complete the exchange offer within 290 days after the
date of original issuance of the outstanding notes. You are entitled to
exchange in the exchange offer your outstanding notes for exchange notes which
are identical in all material respects to the outstanding notes except:
o the exchange notes have been registered under the Securities Act; and
o the exchange notes are not entitled to certain registration rights which
are applicable to the outstanding notes under the registration rights
agreement.
The Exchange Offer.......... We are offering to exchange up to $100,000,000
aggregate principal amount of our 8 3/4% Series B
Senior Subordinated Notes due 2008, which we
refer to in this prospectus as the exchange
notes, for up to $100,000,000 million aggregate
principal amount of our 8 3/4% Senior
Subordinated Notes due 2008, which we refer to in
this prospectus as the outstanding notes.
Outstanding notes may be exchanged only in
integral multiples of $1,000.
Resale...................... Based on an interpretation by the staff of the
SEC set forth in no-action letters issued to
third parties, we believe that the exchange notes
issued pursuant to the exchange offer in exchange
for outstanding notes may be offered for resale,
resold and otherwise transferred by you without
compliance with the registration and prospectus
delivery provisions of the Securities Act,
provided that you are acquiring the exchange
notes in the ordinary course of your business and
that you have not engaged in, do not intend to
engage in, and have no arrangement or
understanding with any person to participate in,
a distribution of the exchange notes.
Each participating broker-dealer that receives
exchange notes for its own account pursuant to
the exchange offer in exchange for outstanding
notes that were acquired as a result of
market-making or other trading activity must
acknowledge that it will deliver a prospectus in
connection with any resale of the exchange
notes. See "Plan of Distribution."
Any holder of outstanding notes who:
o does not acquire exchange notes in the
ordinary course of its business; or
o tenders in the exchange offer with the
intention to participate, or for the purpose of
participating, in a distribution of exchange
notes;
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cannot rely on the position of the staff of the
SEC enunciated in Exxon Capital Holdings
Corporation, Morgan Stanley & Co. Incorporated
or similar no-action letters and, in the absence
of an exemption therefrom, must comply with the
registration and prospectus delivery
requirements of the Securities Act in connection
with the resale of the exchange notes.
Expiration Date; Withdrawal
of Tender................... The exchange offer will expire at 12:00 a.m.,
New York City time, on , 2003, or such later
date and time to which we extend it (the
"expiration date"). We do not currently intend to
extend the expiration date. A tender of
outstanding notes pursuant to the exchange offer
may be withdrawn at any time prior to the
expiration date. Any outstanding notes not
accepted for exchange for any reason will be
returned without expense to the tendering holder
promptly after the expiration or termination of
the exchange offer.
Certain Conditions to the
Exchange Offer.............. The exchange offer is subject to customary
conditions, which we may waive. All conditions,
other than those conditions subject to government
approvals, will be satisfied or waived prior to
the expiration of the exchange offer. Please read
the section captioned "The Exchange Offer --
Certain Conditions to the Exchange Offer" of this
prospectus for more information regarding the
conditions to the exchange offer.
Procedures for Tendering
Outstanding Notes........... If you wish to accept the exchange offer, you
must complete, sign and date the accompanying
letter of transmittal, or a facsimile of the
letter of transmittal according to the
instructions contained in this prospectus and the
letter of transmittal. You must also mail or
otherwise deliver the letter of transmittal, or a
facsimile of the letter of transmittal, together
with the outstanding notes and any other required
documents, to the exchange agent at the address
set forth on the cover page of the letter of
transmittal. If you hold outstanding notes
through The Depository Trust Company, or DTC, and
wish to participate in the exchange offer, you
must comply with the Automated Tender Offer
Program procedures of DTC, by which you will
agree to be bound by the letter of transmittal.
By signing, or agreeing to be bound by the letter
of transmittal, you will represent to us that,
among other things:
o any exchange notes that you receive will be
acquired in the ordinary course of your
business;
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o you have no arrangement or understanding with
any person or entity to participate in a
distribution of the exchange notes; and
o if you are a broker-dealer that will receive
exchange notes for your own account in exchange
for outstanding notes that were acquired as a
result of market-making activities, that you
will deliver a prospectus, as required by law,
in connection with any resale of such exchange
notes.
Special Procedures for
Beneficial Owners........... If you are a beneficial owner of outstanding
notes which are registered in the name of a
broker, dealer, commercial bank, trust company or
other nominee, and you wish to tender such
outstanding notes in the exchange offer, you
should contact such registered holder promptly
and instruct such registered holder to tender on
your behalf. If you wish to tender on your own
behalf, you must, prior to completing and
executing the letter of transmittal and
delivering your outstanding notes, either make
appropriate arrangements to register ownership of
the outstanding notes in your name or obtain a
properly completed bond power from the registered
holder. The transfer of registered ownership may
take considerable time and may not be able to be
completed prior to the expiration date.
Guaranteed Delivery
Procedures................... If you wish to tender your outstanding notes and
your outstanding notes are not immediately
available or you cannot deliver your outstanding
notes, the letter of transmittal or any other
documents required by the letter of transmittal
or comply with the applicable procedures under
DTC's Automated Tender Offer Program prior to the
expiration date, you must tender your outstanding
notes according to the guaranteed delivery
procedures set forth in this prospectus under
"The Exchange Offer -- Guaranteed Delivery
Procedures."
Effect on Holders of
Outstanding Notes........... As a result of the making of, and upon
acceptance for exchange of all validly tendered
outstanding notes pursuant to the terms of the
exchange offer, we will have fulfilled a covenant
contained in the registration rights agreement
and, accordingly, there will be no increase in
the interest rate on the outstanding notes under
the circumstances described in the registration
rights agreement. If you are a holder of
outstanding notes and you do not tender your
outstanding notes in the exchange offer, you will
continue to hold such outstanding notes and you
will be entitled to all the rights and
limitations applicable to the outstanding notes
in the indenture, except for any rights under the
registration rights agreement that by their terms
terminate upon the consummation of the exchange
offer.
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To the extent that outstanding notes are
tendered and accepted in the exchange offer, the
trading market for outstanding notes could be
adversely affected.
Consequences of Failure to
Exchange.................... All untendered outstanding notes will continue
to be subject to the restrictions on transfer
provided for in the outstanding notes and in the
indenture. In general, the outstanding 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. Other than in connection with
the exchange offer, we do not currently
anticipate that we will register the outstanding
notes under the Securities Act.
Certain Income
Tax Considerations.......... The exchange of outstanding notes for exchange
notes in the exchange offer will not be a taxable
event for United States federal income tax
purposes. See "Material United States Federal
Income Tax Consequences".
Use of Proceeds............. We will not receive any cash proceeds from the
issuance of exchange notes pursuant to the
exchange offer.
Exchange Agent.............. The Bank of New York is the exchange agent for
the exchange offer. The address and telephone
number of the exchange agent are set forth in the
section captioned "The Exchange Offer -- Exchange
Agent" of this prospectus.
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SUMMARY OF TERMS OF THE EXCHANGE NOTES
The summary below describes the principal terms of the exchange notes.
Certain of the terms and conditions described below are subject to important
limitations and exceptions. The "Description of the Notes" section of this
prospectus contains a more detailed description of the terms and conditions of
the exchange notes.
Issuers..................... Graham Packaging Company, L.P. and GPC Capital
Corp. I. GPC Capital Corp. I, a wholly-owned
subsidiary of Graham Packaging Company, L.P., has
only nominal assets, does not currently conduct
any operations and was formed solely to act as a
co-issuer of the $225 million aggregate principal
amount of senior subordinated notes due 2008
issued in 1998 and the new notes.
Securities Offered.......... $100 million aggregate principal amount of
8 3/4% Series B senior subordinated notes due
2008. The exchange notes will be identical in all
respects to, and will trade as a single series
with, the $150 million aggregate principal amount
of the publicly registered 8 3/4% senior
subordinated notes due 2008 which were issued
September 8, 1998.
Use of Proceeds............. We will not receive any proceeds from any sale
of the exchange notes.
Maturity.................... January 15, 2008.
Interest Rate............... 8 3/4% per year (calculated using a 360-day
year).
Interest Payment Dates...... January 15 and July 15, beginning on July 15,
2003. Interest will accrue from May 28, 2003.
Guarantees.................. Graham Packaging Holdings Company has
guaranteed the outstanding notes on an unsecured
senior subordinated basis. Graham Packaging
Holdings Company will, and certain of our
existing and future subsidiaries may, guarantee
the exchange notes on an unsecured senior
subordinated basis. Upon the issue date of the
exchange notes offered by this prospectus, Graham
Packaging Holdings Company will be the only
guarantor. The guarantee will be subordinated in
right of payment to Graham Packaging Holdings
Company's senior indebtedness. Additionally,
since Graham Packaging Company, L.P. is the sole
source of revenue for Graham Packaging Holdings
Company it is not likely that Graham Packaging
Holdings Company will be able to make payments in
respect of the notes if Graham Packaging Company,
L.P. is unable to satisfy its payment
obligations. As a result, the Graham Packaging
Holdings Company guarantee is of limited value.
Ranking..................... The outstanding notes are, and the exchange
notes will be, unsecured senior subordinated
obligations of the issuers and
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will rank junior to the issuers' existing and
future senior debt. The guarantees of the
outstanding notes by the guarantors are, and the
guarantees of the exchange notes will be,
subordinated to the existing and future senior
debt of the guarantors. The outstanding notes
rank, and the exchange notes will rank, equal in
right of payment to the issuers' $225.0 million
aggregate principal amount of senior
subordinated notes issued in February 1998. As
of September 28, 2003, the issuers had $633.4
million of senior debt outstanding and $105.2
million of unused borrowings available under
their new senior credit agreement, and their
parent guarantor had $169.0 million of senior
debt and no debt that was equal in right of
payment to its guarantee of the notes.
Optional Redemption......... The issuers may redeem some or all of the
outstanding notes and the exchange notes at any
time at the redemption prices listed in the
"Description of the Notes" section of this
prospectus under the heading "Optional
Redemption", plus accrued and unpaid interest to
the date of redemption.
Change of Control Offer..... If the issuers or their parent company
experience a change in control, the issuers must
offer to repurchase the outstanding notes and the
exchange notes at 101% of their face amount plus
accrued and unpaid interest to the repurchase
date, if any.
The issuers might not be able to pay you the
required price for notes you present to the
issuers at the time of a change of control,
because:
o the issuers might not have enough funds at
that time; or
o the terms of the issuers' senior debt may
prevent the issuers from paying.
Asset Sale Proceeds......... If the issuers engage in asset sales, they
generally must either invest the net cash
proceeds from those sales in their business
within a specified period of time, repay senior
debt or make an offer to purchase a principal
amount of the outstanding notes and the exchange
notes and other existing notes equal to the
excess net cash proceeds. The purchase price of
the notes will be 100% of their principal amount,
plus accrued and unpaid interest.
Indenture Provisions........ The indenture governing the outstanding notes
and the exchange notes contains covenants that,
among other things, will limit the issuers' and
most or all of their subsidiaries' ability to:
o incur additional debt;
o make restricted payments, including paying
dividends or distributions on capital stock;
9
o make certain investments or acquisitions;
o create liens on their assets;
o engage in transactions with affiliates;
o merge or consolidate or transfer substantially
all of their assets; and
o transfer and sell assets.
These covenants are subject to a number of
important limitations and exceptions.
10
SUMMARY FINANCIAL DATA
The following table sets forth summary historical consolidated financial
data for Graham Packaging Holdings Company. You should read this information
together with the financial statements appearing elsewhere in this prospectus
and the information under "Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
----------------------------------- ------------------------------
SEPTEMBER 29, SEPTEMBER 28,
2000 2001 2002 2002 2003
----------- ----------- ----------- --------------- --------------
(IN MILLIONS)
STATEMENT OF OPERATIONS DATA:
Net sales (1) ........................................ $ 842.6 $ 923.1 $ 906.7 $ 695.0 $ 737.7
Gross profit (1) ..................................... 134.5 151.9 164.1 131.7 138.5
Selling, general and administrative expenses ......... 56.2 58.2 63.8 45.8 48.3
Impairment charges (2) ............................... 21.1 38.0 5.1 4.3 0.6
Special charges and unusual items (3) ................ 1.1 0.2 -- -- --
------- ------- -------- -------- --------
Operating income ..................................... 56.1 55.5 95.2 81.6 89.6
Interest expense, net (4) ............................ 101.7 98.5 81.8 61.9 74.4
Other expense (income), net .......................... 0.2 0.2 0.1 0.2 (0.6)
Minority interest .................................... (0.6) 0.5 1.7 1.1 1.1
Income tax provision (5) ............................. 0.4 0.3 4.0 2.3 5.0
------- ------- -------- -------- --------
Net (loss) income .................................... $ (45.6) $ (44.0) $ 7.6 $ 16.1 $ 9.7
======== ======== ======== ======== ========
AS OF
SEPTEMBER 28, 2003
-------------------
BALANCE SHEET DATA:
Cash and cash equivalents ............... $ 7.3
Total assets ............................ 868.0
Total debt .............................. 1,127.4
Partners' capital (deficit) (6) ......... ( 436.0)
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
-------------------------------- ------------------------------
SEPTEMBER 29, SEPTEMBER 28,
2000 2001 2002 2002 2003
---------- ---------- ---------- --------------- --------------
(IN MILLIONS)
OTHER FINANCIAL DATA:
Cash flows from (used in):
Operating activities ................................. $ 90.9 $ 52.5 $ 92.4 $ 66.2 $ 33.4
Investing activities ................................. (164.7) (77.2) (96.6) (74.4) (70.0)
Financing activities ................................. 78.4 24.3 1.3 7.7 35.8
Depreciation and amortization (7) ..................... 66.2 71.7 75.8 56.6 52.6
Capital expenditures (excluding acquisitions) ......... 163.4 74.3 92.4 70.3 70.1
Investments (including acquisitions) (8) .............. 0.1 0.2 -- -- --
Ratio of earnings to fixed charges (9) ................ -- -- 1.1x 1.3x 1.2x
See accompanying notes.
11
- ----------
(1) Net sales increase or decrease based on fluctuations in resin prices.
Consistent with industry practice and/or as permitted under agreements
with our customers, substantially all resin price changes are passed
through to customers by means of corresponding changes in product
pricing. Therefore, our dollar gross profit has been substantially
unaffected by fluctuations in resin prices. However, a sustained increase
in resin prices, to the extent that those costs are not passed on to the
end-customer, would make plastic containers less economical for our
customers and could result in a slower pace of conversions to plastic
containers.
(2) Includes impairment charges recorded on long-lived and other assets of
$16.3 million, $28.9 million, $5.1 million, $4.3 million and $0.6 million
for the years ended December 31, 2000, 2001 and 2002 and the nine months
ended September 29, 2002 and September 28, 2003, respectively, and
goodwill of $4.8 million and $9.1 million for the years ended December
31, 2000 and 2001, respectively.
(3) Includes compensation costs related to our 1998 recapitalization.
(4) The nine months ended September 28, 2003 includes the effects of the
refinancing of our prior senior credit agreement, which resulted in the
write-off of debt issuance fees of $6.2 million.
(5) As a limited partnership, Graham Packaging Holdings Company is not
subject to U.S. federal income taxes or most state income taxes. Instead,
taxes are assessed to its partners based on their distributive share of
its income. Our 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) As a result of the 1998 recapitalization, as of September 28, 2003 Graham
Packaging Holdings Company had negative net worth for accounting
purposes. However, in the 1998 recapitalization, Blackstone and an
institutional investor paid $208.3 million in cash for 85% of the
partnership interests of Graham Packaging Holdings Company and the Graham
family retained a 15% interest which, based on the amount paid by
Blackstone and the institutional investor, had an implied value of $36.8
million. In addition, on each of September 29, 2000 and March 29, 2001,
Graham Packaging Holdings Company's equity owners made equity
contributions to it of $50.0 million.
(7) Depreciation and amortization excludes amortization of debt issuance
fees, which is included in interest expense, net, and impairment charges.
(8) On March 30, 2001, we acquired an additional 1% interest in Masko Graham,
bringing our total interest to 51%. The total purchase price for the 51%
interest, excluding direct costs of the acquisition, net of liabilities
assumed, was $1.3 million. Amounts shown under the caption "Investments
(including acquisitions)" represent cash paid, net of cash acquired in
the acquisitions. We accounted for this transaction under the purchase
method of accounting. Results of operations are included since March 30,
2001.
(9) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings before income taxes, minority interest,
income from equity investees and extraordinary items, plus fixed charges
and amortization of capitalized interest less interest capitalized. Fixed
charges include interest expense on all indebtedness, interest
capitalized, amortization of debt issuance 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 $49.1 million and $44.2 million for the years
ended December 31, 2000 and 2001, respectively.
12
RISK FACTORS
You should carefully consider the risks described below, together with the
other information in this prospectus, before you make a decision to tender
outstanding notes in the exchange offer. If any of the events described in the
risk factors below actually occur, our business, financial condition, operating
results and prospects could be materially adversely affected, which in turn
could adversely affect our ability to repay the notes.
RISKS RELATED TO THE EXCHANGE OFFER
IF YOU CHOOSE NOT TO EXCHANGE YOUR OUTSTANDING NOTES, THE PRESENT TRANSFER
RESTRICTIONS WILL REMAIN IN FORCE AND THE MARKET PRICE OF YOUR OUTSTANDING
NOTES COULD DECLINE.
If you do not exchange your outstanding notes for exchange notes under the
exchange offer, then you will continue to be subject to the transfer
restrictions on the outstanding notes as set forth in the prospectus
distributed in connection with the private offering of the outstanding notes.
In general, the outstanding notes may not be offered or sold unless they are
registered or exempt from registration under the Securities Act and applicable
state securities laws. Except as required by the registration rights agreement,
we do not intend to register resales of the outstanding notes under the
Securities Act. You should refer to "Prospectus Summary -- Summary of Terms of
the Exchange Offer" and "The Exchange Offer" for information about how to
tender your outstanding notes.
The tender of outstanding notes under the exchange offer will reduce the
principal amount of the outstanding notes outstanding, which may have an
adverse effect upon, and increase the volatility of, the market price of the
outstanding notes due to reduction in liquidity.
RISKS RELATED TO OUR BUSINESS
OUR DEBT AGREEMENTS CONTAIN RESTRICTIONS THAT MAY LIMIT OUR FLEXIBILITY IN
OPERATING OUR BUSINESS.
Our new senior credit agreement and our indentures contain a number of
significant covenants that, among other things, restrict our ability to dispose
of assets, repay other indebtedness, incur additional indebtedness, pay
dividends, prepay subordinated indebtedness, incur liens, make capital
expenditures, investments or acquisitions, engage in mergers or consolidations,
engage in transactions with affiliates and otherwise restrict our activities.
In addition, under our new senior credit agreement, we are required to satisfy
specified financial ratios and tests. Our ability to comply with those
provisions may be affected by events beyond our control, and we may not be able
to meet those tests. The breach of any of these covenants could result in a
default under our new senior credit agreement and the lenders could elect to
declare all amounts borrowed under our new senior credit agreement, together
with accrued interest, to be due and payable and could proceed against any
collateral securing that indebtedness.
OUR AVAILABLE CASH AND ACCESS TO ADDITIONAL CAPITAL MAY BE LIMITED BY OUR
SUBSTANTIAL LEVERAGE.
We are highly leveraged. As of September 28, 2003, Graham Packaging
Holdings Company had consolidated indebtedness of $1,127.4 million and
partners' deficit of $436.0 million and its annual net interest expense for
2002 was $81.8 million. As of September 28, 2003, $693.9 million of our total
indebtedness was incurred under floating interest rates arrangements, $400.0
million of which was subject to interest rate swaps which fixed the interest
rate. As a result, as of September 28, 2003, $293.9 million of our indebtedness
was subject to floating interest rates. A 1% increase in interest rates would
increase our annual interest payments on this debt by approximately $2.9
million. Availability under our new revolving credit facility as of September
28, 2003, was $105.2 million. We intend to fund our operating activities and
capital expenditures in part through borrowings under our new revolving credit
facility. Our new senior credit agreement and our indentures permit us to incur
additional indebtedness, subject to certain limitations. All loans outstanding
under our new revolving credit facility are scheduled to be repaid in February
2008 or, if earlier, the maturity of the term loan facility and our scheduled
annual principal repayments for the term loan under the new senior credit
agreement would be as follows:
13
o 2003 -- $2.0 million
o 2004 -- $4.0 million
o 2005 -- $20.0 million
o 2006 -- $45.0 million
o 2007 -- $45.0 million
o 2008 -- $200.0 million
o 2009 -- $200.0 million
o 2010 -- $54.0 million
The term loan facility and revolving credit facility will become due on
July 15, 2007 if the $225.0 million of the issuers' previously existing senior
subordinated notes have not been refinanced by January 15, 2007. The term loan
facility will become due on July 15, 2008 if the existing 10 3/4% senior
discount notes of Graham Packaging Holdings Company have not been refinanced by
January 15, 2008. In addition, if the outstanding notes and the exchange notes
offered hereby are not refinanced prior to July 15, 2007 then the term loan
facility will mature on that date.
In addition to the $100.0 million of outstanding notes, the issuers have
outstanding $225.0 million of notes that mature in 2008. Graham Packaging
Holdings Company has outstanding $169.0 million of senior discount notes that
mature in 2009, which had a fully accreted value of $169.0 million as of
September 28, 2003.
Our high degree of leverage could have important consequences to you,
including, but not limited to, the following:
o our ability to refinance existing indebtedness or to obtain additional
financing for working capital, capital expenditures, acquisitions,
general corporate purposes or other purposes may be impaired in the
future;
o a substantial portion of our cash flow from operations must be
dedicated to the payment of principal and interest on our
indebtedness, thereby reducing the funds available to us for other
purposes, including capital expenditures necessary for maintenance of
our facilities and for the growth of our business;
o some of our borrowings are and will continue to be at variable rates
of interest, which expose us to the risk of increased interest rates;
o we may be substantially more leveraged than some of our competitors,
which may place us at a competitive disadvantage; and
o our substantial degree of leverage may hinder our ability to adjust
rapidly to changing market conditions and could make us more
vulnerable in the event of a downturn in general economic conditions
or in our business.
INCREASES IN RESIN PRICES AND REDUCTIONS IN RESIN SUPPLIES COULD
SIGNIFICANTLY SLOW OUR GROWTH AND DISRUPT OUR OPERATIONS.
We depend on large quantities of PET, high-density polyethylene, also
known as HDPE, and other resins in manufacturing our products. One of our
primary strategies is to grow our business by capitalizing on the conversion
from glass, metal and paper containers to plastic containers. A sustained
increase in resin prices, to the extent that those costs are not passed on to
the end-consumer, would make plastic containers less economical for our
customers and could result in a slower pace of conversions to plastic
containers. Historically, we have passed through substantially all increases
and decreases in the cost of resins to our customers through contractual
provisions and standard industry practice; however, if we are not able to do so
in the future and there are sustained increases in resin prices, our operating
margins could be affected adversely. Furthermore, if we cannot obtain
sufficient amounts of resin from any of our suppliers, or if there is a
substantial increase in oil or natural gas prices, and as a result an increase
in resin prices, we may have difficulty obtaining alternate sources quickly and
economically, and our operations and profitability may be impaired.
14
OUR INTERNATIONAL OPERATIONS SUBJECT US TO RISKS RELATED TO FOREIGN
CURRENCIES AND LOCAL LAWS IN SEVERAL COUNTRIES.
We have significant operations outside the United States in the form of
wholly-owned subsidiaries, cooperative joint ventures and other arrangements.
Our 21 manufacturing facilities outside of the United States are located in
Argentina (3), Belgium (1), Brazil (4), Canada (2), France (3), Hungary (1),
Mexico (3), Poland (2), Spain (1) and Turkey (1). As a result, we are subject
to risks associated with operating in foreign countries, including fluctuations
in currency exchange rates (recently in Argentina in particular), imposition of
limitations on conversion of foreign currencies into dollars or remittance of
dividends and other payments by foreign subsidiaries, imposition or increase of
withholding and other taxes on remittances and other payments by foreign
subsidiaries, labor relations problems, hyperinflation in some foreign
countries and imposition or increase of investment and other restrictions by
foreign governments or the imposition of environmental or employment laws. We
typically price our products in our foreign operations in local currencies. As
a result, an increase in the value of the dollar relative to the local
currencies of profitable foreign subsidiaries can have a negative effect on our
profitability. Exchange rate fluctuations decreased comprehensive income by
$10.4 million for each of the years ended December 31, 2000 and 2001, increased
comprehensive income by $12.5 million for the year ended December 31, 2002 and
increased comprehensive income by $13.6 million for the nine months ended
September 28, 2003. The above-mentioned risks in Europe, North America and
South America may hurt our ability to generate revenue in those regions in the
future.
WE WOULD LOSE A SIGNIFICANT SOURCE OF REVENUES AND PROFITS IF WE LOST ANY
OF OUR LARGEST CUSTOMERS.
PepsiCo, through its Gatorade, Tropicana, and Dole product lines, is our
largest customer. These product lines collectively accounted for approximately
16.4% of our net sales for the year ended December 31, 2002 and approximately
14.9% of our net sales for the nine months ended September 28, 2003. For the
nine months ended September 28, 2003, each of Dannon and The Dial Corporation
also accounted for more than 10% of our total sales. If any of PepsiCo, Dannon
or The Dial Corporation terminated its relationship with us it could have a
material adverse effect upon our business, financial position or results of
operations. We are not the sole supplier of plastic packaging to any of these
companies. Additionally, in 2002 our top 20 customers comprised over 82% of our
net sales. If any of our largest customers terminated its relationship with us,
we would lose a significant source of revenues and profits. Additionally, the
loss of one of our largest customers could result in our having excess capacity
if we are unable to replace that customer. This could result in our having
excess overhead and fixed costs. This could also result in our selling, general
and administrative expenses and capital expenditures representing increased
portions of our revenues.
OUR CONTRACTS WITH CUSTOMERS GENERALLY DO NOT REQUIRE THEM TO PURCHASE ANY
MINIMUM AMOUNTS OF PRODUCTS FROM US, SO CUSTOMERS MAY NOT PURCHASE AMOUNTS
THAT MEET OUR EXPECTATIONS.
The majority of our sales are made pursuant to long-term customer purchase
orders and contracts. Our existing customers' purchase orders and contracts
typically vary from two to ten years. Prices under these arrangements are tied
to market standards and therefore vary with market conditions. The contracts,
including those with PepsiCo, generally are requirements contracts which do not
obligate the customer to purchase any given amount of product from us.
Accordingly, despite the existence of supply contracts with our customers,
although in the past our customers have not purchased amounts under supply
contracts that in the aggregate are materially lower than what we have
expected, we face the risk that in the future customers will not continue to
purchase amounts that meet our expectations.
OUR PROFITABILITY COULD DECLINE IF WE FAIL TO INCREASE OUR EFFICIENCY IN
THE DECLINING DOMESTIC MOTOR OIL BUSINESS.
We forecast that the domestic one quart motor oil business will decline
between 2% to 3% 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.
15
In the past, we have encountered pricing pressures on several existing
contracts that came up for renewal. Our domestic automotive lubricants business
generated net sales of $183.2 million and $147.5 million for the year ended
December 31, 2002 and the nine months ended September 28, 2003, respectively,
which accounted for approximately 20% of our total net sales for each of those
periods. We could experience further declines in domestic demand for, and
prices of, plastic packaging for motor oil. Although we have been able over
time to partially offset pricing pressures by reducing our cost structure and
making the manufacturing process associated with our domestic automotive
business more efficient, we may not be able to continue to do so in the future.
OUR OPERATIONS COULD EXPOSE US TO SUBSTANTIAL ENVIRONMENTAL COSTS AND
LIABILITIES.
We must comply with a variety of 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, regulated materials and waste, and impose liability for the costs of
investigating and cleaning up, and damages resulting from, present and past
spills, disposals, or other releases of hazardous substances or materials.
These domestic and international environmental laws can be complex and may
change often, the compliance expenses 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 of
1980, as amended, also known as "Superfund" in the United States, impose
strict, and in some cases, joint and several, liability on specified
responsible parties for the investigation and cleanup of contaminated soil,
groundwater and buildings, and liability for damages to natural resources, at a
wide range of properties. As a result, contamination at properties that we
formerly owned or operated, as well as contamination at properties that we
currently own or operate, as well as contamination at properties to which we
sent hazardous substances, may result in our liability under environmental
laws. As a manufacturer, we have 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 our properties or as a
result of our operations. We could, in the future, incur a material liability
resulting from the costs of complying with environmental laws or any claims
concerning noncompliance, or liability from contamination.
In addition, a number of governmental authorities both in the United
States and abroad have considered or are expected to consider legislation aimed
at reducing the amount of plastic wastes disposed. Programs have included
mandating certain rates of recycling and/or the use of recycled materials,
imposing deposits or taxes on plastic packaging material, and requiring
retailers or manufacturers to take back packaging used for their products.
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 our business. Some consumer products companies, including some of our
customers, have responded to these governmental initiatives and to perceived
environmental concerns of consumers by using containers made in whole or in
part of recycled plastic. Future legislation and initiatives could adversely
affect us in a manner that would be material.
BLACKSTONE CONTROLS US AND MAY HAVE CONFLICTS OF INTEREST WITH US OR YOU IN
THE FUTURE.
Blackstone indirectly controls 85% of the partnership interests in Graham
Packaging Holdings Company. Pursuant to the partnership agreement of Graham
Packaging Holdings Company, holders of a majority of the partnership interests
generally have the sole power, subject to certain exceptions, to take actions
on behalf of Graham Packaging Holdings Company, including the appointment of
management and the entering into of mergers, sales of substantially all assets
and other extraordinary transactions. For example, Blackstone could cause the
issuers to make acquisitions that increase the amount of our indebtedness that
is senior to the notes or to sell revenue-generating assets, impairing our
ability to make payments under the notes. Additionally, Blackstone is in the
business of making investments in companies and may from time to time acquire
and hold interests in businesses that compete directly or indirectly with us.
Blackstone may also pursue acquisition opportunities that may be complementary
to our business, and as a result, those acquisition opportunities may not be
available to us.
16
OUR ABILITY TO OPERATE OUR COMPANY EFFECTIVELY COULD BE IMPAIRED IF WE LOST
KEY PERSONNEL.
Our success 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 our ability to operate our business and implement our strategies
effectively. In particular, the loss of the services provided by G. Robinson
Beeson, Scott G. Booth, John E. Hamilton, Roger M. Prevot, Ashok Sudan and
Philip R. Yates, among others, could have a material adverse effect on the
management of our company. We do not maintain "key" person insurance on any of
our executive officers.
IF WE MAKE ACQUISITIONS IN THE FUTURE, WE MAY EXPERIENCE ASSIMILATION
PROBLEMS AND DISSIPATION OF MANAGEMENT RESOURCES AND WE MAY NEED TO INCUR
ADDITIONAL INDEBTEDNESS.
Our future growth may be a function, in part, of acquisitions of other
consumer goods packaging businesses. To the extent that we grow through
acquisitions, we will face the operational and financial risks commonly
encountered with that type of a strategy. We would also face operational risks,
such as failing to assimilate the operations and personnel of the acquired
businesses, disrupting our ongoing business, dissipating our limited management
resources and impairing relationships with employees and customers of the
acquired business as a result of changes in ownership and management.
Additionally, we have incurred indebtedness to finance past acquisitions, and
we would likely incur additional indebtedness to finance future acquisitions,
as permitted under our new senior credit agreement and our indentures, in which
case we would also face certain financial risks associated with the incurring
of additional indebtedness to make an acquisition, such as reducing our
liquidity, access to capital markets and financial stability.
Additionally, the types of acquisitions we will be able to make are
limited by our new senior credit agreement, which limits the amount that we may
pay for an acquisition to $40 million plus additional amounts based on an
unused available capital expenditure limit, certain proceeds from new equity
issuances and other amounts.
OUR OPERATIONS AND PROFITABILITY COULD SUFFER IF WE EXPERIENCE LABOR
RELATIONS PROBLEMS.
Approximately 41% of our employees worldwide are covered by collective
bargaining or similar agreements which expire at various times in each of the
next several years. We believe that we have satisfactory relations with our
unions and, therefore, anticipate reaching new agreements on satisfactory terms
as the existing agreements expire. We may not be able to reach new agreements
without a work stoppage or strike and any new agreements that are reached may
not be reached on terms satisfactory to us. A prolonged work stoppage or strike
at any one of our manufacturing facilities could have a material adverse effect
on our results of operations.
OUR ABILITY TO EXPAND OUR OPERATIONS COULD BE ADVERSELY AFFECTED IF WE LOSE
ACCESS TO ADDITIONAL BLOW MOLDING EQUIPMENT.
Access to blow molding technology is important to our ability to expand
our operations. Our primary blow molding technology is supplied by Graham
Engineering and the Sidel Group. If we are unable to obtain new blow molding
equipment from either of these manufacturers, our ability to expand our
operations may be materially and adversely affected in the short-term until
alternative sources of technology could be arranged.
RISKS RELATED TO THE NOTES
THE NOTES ARE UNSECURED AND SUBORDINATED TO OUR SENIOR INDEBTEDNESS, AND AS
A RESULT WE MAY NOT BE ABLE TO SATISFY OUR OBLIGATIONS UNDER THE NOTES
AFTER SATISFYING OUR SENIOR DEBT OBLIGATIONS.
The outstanding notes are not and the exchange notes will not be secured
and will be subordinated in right of payment to all of the senior indebtedness
of the issuers, including indebtedness under our new senior credit agreement.
The notes will also be effectively subordinated to all existing and future
indebtedness of the issuers' subsidiaries, unless the subsidiaries guarantee
the notes in the future, as they may be required to do under the indenture, in
which case the notes will be contractually subordinated to the subsidiaries'
indebtedness. As of September 28, 2003, the issuers had
17
$633.4 million of senior debt outstanding, $105.2 million of unused borrowings
available under the new senior credit agreement and $225.0 million of debt
outstanding that was equal in right of payment to the notes, and our parent
guarantor had $169.0 million of senior debt outstanding and no debt that was
equal in right of payment to its guarantee of the notes. If the issuers become
insolvent or are liquidated, or if payment under our new senior credit
agreement or any of their other senior debt obligations is accelerated, lenders
and any other creditors who are holders of senior indebtedness would be
entitled to exercise the remedies available to them under applicable law and
will have a claim on the issuers' assets before the holders of the notes.
Substantially all of our domestic tangible and intangible assets are pledged as
collateral under our new senior credit agreement, which, if we were insolvent,
would also enable lenders under our new senior credit agreement to liquidate
our assets to satisfy their loans before other senior lenders or holders of the
notes could access our assets. Accordingly, there may not be sufficient assets
remaining after satisfying obligations under the senior debt to pay amounts due
on the notes. See "Description of Other Indebtedness--New Senior Credit
Agreement".
THE GRAHAM PACKAGING HOLDINGS COMPANY GUARANTEE IS OF LIMITED VALUE TO
INVESTORS.
The outstanding notes are and the exchange notes will be fully and
unconditionally guaranteed by Graham Packaging Holdings Company on a senior
subordinated basis. The guarantee is subordinated to all senior indebtedness of
Graham Packaging Holdings Company and effectively subordinated to all
indebtedness and other liabilities, including but not limited to trade
payables, of Graham Packaging Holdings Company's subsidiaries. The guarantee
will be subordinated in right of payment to all senior indebtedness of Graham
Packaging Holdings Company and effectively subordinated to all indebtedness and
other liabilities, including trade payables, of Graham Packaging Holdings
Company's subsidiaries, including the issuers. Additionally, since Graham
Packaging Company, L.P. is the sole source of revenue for Graham Packaging
Holdings Company, it is not likely that Graham Packaging Holdings Company will
be able to make payments in respect of the notes if Graham Packaging Company,
L.P. is unable to satisfy its payment obligations. As a result, the Graham
Packaging Holdings Company guarantee is of limited value.
THE ISSUERS MAY BE UNABLE TO PURCHASE YOUR NOTES UPON A CHANGE OF CONTROL.
Upon the occurrence of specified "change of control" events, the issuers
will be required to offer to purchase each holder's notes at a price of 101% of
their principal amount, plus accrued and unpaid interest, unless all notes have
been previously called for redemption. The issuers may not have sufficient
financial resources to purchase all of the outstanding notes and exchange notes
that holders tender upon a change of control offer. The occurrence of a change
of control could also constitute an event of default under our new senior
credit agreement and/or any future credit agreements. Our new credit facility
prohibits any such purchase or redemption, in which event the issuers would be
in default on the outstanding notes and exchange notes. See "Description of the
Notes--Change of Control".
THE EXCHANGE NOTES WILL NOT BE LISTED ON A NATIONAL SECURITIES EXCHANGE OR
QUOTED ON AN AUTOMATED INTER-DEALER QUOTATION SYSTEM, WHICH MAY LIMIT
LIQUIDITY OF THE NOTES.
The exchange notes will trade as a single class with the Issuer's existing
$150 million aggregate principal amount 8 3/4% senior subordinated notes due
2008. However, the market for the exchange notes may not continue to remain
active. We do not expect that either the existing notes nor the newly issued
exchange notes will be listed on a national securities exchange or quoted on an
automated inter-dealer quotation system. Historically, the market for
noninvestment grade debt has been subject to disruptions that have caused
substantial volatility in the prices of securities similar to the notes. The
market for the exchange notes may experience similar disruptions, and any such
disruptions may adversely affect the prices at which you may sell your notes.
18
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
All statements other than statements of historical facts included in this
prospectus, including statements regarding our future financial position,
economic performance and results of operations, as well as our business
strategy, budgets and projected costs and plans and objectives of management
for future operations, and the information referred to under "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Quantitative and Qualitative Disclosures about Market Risk", 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 similar terminology. Although we believe that the expectations reflected in
our forward-looking statements are reasonable, expectations may prove to have
been incorrect. Important factors that could cause actual results to differ
materially from our expectations include, without limitation:
o the restrictive covenants contained in instruments governing our
indebtedness;
o our high degree of leverage and substantial debt service obligations;
o our exposure to fluctuations in resin prices and our dependence on
resin supplies;
o risks associated with our international operations;
o our dependence on significant customers and the risk that customers
will not purchase our products in the amounts expected by us under our
requirements contracts;
o a decline in the domestic motor oil business;
o risks associated with environmental regulation;
o the possibility that Blackstone's interests will conflict with ours;
o our dependence on our key management and our labor force and the
material adverse effect that could result from the loss of their
services;
o risks associated with possible future acquisitions; and
o our dependence on blow molding equipment providers.
See "Risk Factors". All forward-looking statements attributable to us, or
persons acting on our behalf, are expressly qualified in their entirety by the
cautionary statements set forth in this paragraph.
19
ORGANIZATIONAL STRUCTURE
The following chart shows our organizational structure:
Blackstone and Management Graham
Other Investors Family
97.3% 2.7% 100%
-------------------
BMP/Graham Options
Holdings Corp. for 4.2%
------------------- 14% LP ------------------
Graham
Packaging
Corporation
------------------
100% 81% LP
------------------
BCP/Graham
Holdings LLC
------------------
1% GP
4% GP -----------------------------------------------
Graham Packaging Holdings Company
(co-issuer of the senior discount notes,
guarantor of the previously issued senior
subordinated notes, the outstanding notes
and the exchange notes offered hereby)
-----------------------------------------------
100% 100%
------------------------- ----------------
GPC Capital Corp. II GPC Opco GP, LLC
(co-issuer of the senior 99% ----------------
discount notes)
------------------------- 1%
-----------------------------------------------
Graham Packaging Company, L.P.
(co-issuer of the previously issued
senior subordinated notes, the
outstanding notes and the exchange
notes offered hereby)
-----------------------------------------------
100%
--------------------------------
------------------------- -------------------
GPC Capital Corp. I GP = General Partner Interest
(co-issuer of the Operating
previously issued senior Subsidiaries LP = Limited Partner Interest
subordinated notes,
the outstanding notes ------------------- --------------------------------
and the exchange notes
offered hereby)
-------------------------
Our organizational and capital structures are based on our February 1998
recapitalization transaction, in which the Graham Family sold a controlling
interest in Graham Packaging Holdings Company to affiliates of The Blackstone
Group. The principal components and consequences of the recapitalization
included the following:
o A change in the name of the predecessor company to Graham Packaging
Holdings Company;
o The contribution by Graham Packaging Holdings Company of substantially
all of its assets and liabilities to the operating company, Graham
Packaging Company, L.P.;
o The contribution by certain Graham Family entities to us of their
ownership interests in some of our partially-owned subsidiaries and
some real estate used but not owned by us;
o The initial borrowing by Graham Packaging Company, L.P. of $403.5
million under the prior senior credit agreement;
o The issuance in 1998 of $225.0 million of senior subordinated notes by
Graham Packaging Company, L.P., and $100.6 million gross proceeds
($169.0 million aggregate principal amount at maturity) senior
discount notes by Graham Packaging Holdings Company and GPC Capital
Corp. II;
20
o The repayment by Graham Packaging Company, L.P. of substantially all
of our then-existing indebtedness;
o The distribution by Graham Packaging Company, L.P. to Graham Packaging
Holdings Company 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 Graham Packaging Holdings Company of some of its
partnership interests held by the Graham Family entities for $429.6
million;
o The purchase by Blackstone, DB Capital Investors, L.P., which at the
time was an affiliate of an initial purchaser in this offering, and
members of management, of partnership interests in Graham Packaging
Holdings Company held by the Graham Family entities for $208.3
million;
o The repayment by the Graham Family entities of amounts owed to Graham
Packaging Holdings Company under $20.2 million of promissory notes;
o The recognition of additional compensation expense under an equity
appreciation plan;
o The payment of bonuses and other cash payments and the granting of
certain equity awards to members of management; and
o The payment of a $6.2 million tax distribution by Graham Packaging
Holdings Company on November 2, 1998 to Graham Family entities for tax
periods prior to the recapitalization.
In addition to Blackstone's equity investment in 1998, on each of
September 29, 2000 and March 29, 2001, it made an equity contribution of $39.3
million to Graham Packaging Holdings Company, bringing Blackstone's total
equity investment in our company to $273.8 million. Blackstone does not have
any other investments in our company. Additionally, in connection with the 1998
recapitalization, we entered into a monitoring agreement with Blackstone under
which we pay Blackstone a $1.0 million annual fee.
Blackstone and the Graham entities will not receive any payments out of
the proceeds from this offering.
21
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange
notes. In consideration for issuing the exchange notes as contemplated in this
prospectus, we will receive in exchange a like principal amount of outstanding
notes, the terms of which are identical in all material respects to the
exchange notes. The outstanding notes surrendered in exchange for the exchange
notes will be retired and canceled and cannot be reissued. Accordingly,
issuance of the exchange notes will not result in any change in our
capitalization.
We did not receive any of the net proceeds from the offering of the
outstanding notes. The issuers issued the outstanding notes to Deutsche Bank
Trust Company Americas and Citicorp North America Inc., affiliates of the
initial purchasers of the outstanding notes, in exchange for, and in full
satisfaction of, $100 million aggregate principal amount of tranche II term
loans then outstanding under our new senior credit agreement. The tranche II
term loans had been incurred as part of a refinancing of indebtedness
outstanding under our prior senior credit agreement. As a result of the
exchange, no tranche II term loans are outstanding and the LIBOR and ABR
margins on the revolving credit facility decreased from 3.75% to 3.50% and from
2.75% to 2.50%, respectively and the LIBOR and ABR margins on the tranche I
term loans decreased from 4.25% to 4.00% and from 3.25% to 3.00%, respectively.
If the outstanding notes and the exchange notes offered hereby are not
refinanced prior to July 15, 2007 then the term loan facility will mature on
such date.
22
CAPITALIZATION
The following table sets forth the cash and cash equivalents and the
consolidated capitalization of Graham Packaging Holdings Company and Graham
Packaging Company, L.P. as of September 28, 2003.
SEPTEMBER 28, 2003
------------------------------
GRAHAM
PACKAGING GRAHAM
HOLDINGS PACKAGING
COMPANY COMPANY, L.P.
------------- --------------
(IN THOUSANDS)
Cash and cash equivalents .......................................... $ 7,316 $ 7,316
========== ==========
Long-term debt, including current portion:
Senior credit agreement
Revolving credit facilities (1) ................................ $ 43,000 $ 43,000
Tranche I term loan ............................................ 570,000 570,000
8 3/4% senior subordinated notes due 2008 issued in 1998 ........ 150,000 150,000
8 3/4% senior subordinated notes due 2008 issued in 2003 ........ 100,000 100,000
Floating rate senior subordinated notes due 2008 ................ 75,000 75,000
10 3/4% senior discount notes due 2009 (2) ...................... 169,000 --
Other debt ...................................................... 20,414 20,414
---------- ----------
Total debt ......................................................... 1,127,414 958,414
---------- ----------
Partners' capital (deficit):
Partners' capital (deficit) ..................................... (410,622) (236,662)
Notes and interest receivable for ownership interests ........... (2,709) --
Accumulated other comprehensive loss ............................ (22,632) (22,632)
---------- ----------
Total partners' capital (deficit) .................................. (435,963) (259,294)
---------- ----------
Total capitalization ............................................ $ 691,451 $ 699,120
========== ==========
- ----------
(1) A maximum of $150.0 million is available for borrowing under our new
revolving credit facility. See "Description of Other Indebtedness".
(2) The senior discount notes accreted to $169.0 million aggregate principal
amount on January 15, 2003 and will pay cash interest semi-annually from
July 15, 2003 until maturity.
23
SELECTED FINANCIAL DATA
The following tables set forth the selected historical consolidated
financial data and other operating data of Graham Packaging Holdings Company
for and at the end of each of the years in the five-year period ended December
31, 2002, which are derived from the audited financial statements of Graham
Packaging Holdings Company, and for the nine months ended September 29, 2002
and September 28, 2003, which are derived from the unaudited consolidated
financial statements of Graham Packaging Holdings Company which, in the opinion
of management, include all adjustments, consisting only of usual recurring
adjustments, necessary for 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" and the financial statements
included elsewhere in this prospectus.
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
----------------------------------------------------------- ------------------------------
SEPTEMBER 29, SEPTEMBER 28,
1998 1999 2000 2001 2002 2002 2003
----------- ----------- ----------- ----------- ----------- --------------- --------------
(IN MILLIONS)
STATEMENT OF OPERATIONS
DATA:
Net sales (1) ....................... $ 602.4 $ 731.6 $ 842.6 $ 923.1 $ 906.7 $ 695.0 $ 737.7
Gross profit (1) .................... 115.4 142.7 134.5 151.9 164.1 131.7 138.5
Selling, general and administrative
expenses ........................... 37.8 48.0 56.2 58.2 63.8 45.8 48.3
Impairment charges (2) .............. -- -- 21.1 38.0 5.1 4.3 0.6
Special charges and unusual items (3) 24.2 4.6 1.1 0.2 -- -- --
------- -------- ------- ------- -------- -------- --------
Operating income .................... 53.4 90.1 56.1 55.5 95.2 81.6 89.6
Recapitalization expenses ........... 11.8 -- -- -- -- -- --
Interest expense, net (4) ........... 68.0 87.5 101.7 98.5 81.8 61.9 74.4
Other (income) expense, net ......... (0.2) (0.7) 0.2 0.2 0.1 0.2 (0.6)
Minority interest ................... -- (0.5) (0.6) 0.5 1.7 1.1 1.1
Income tax provision (5) ............ 1.1 2.5 0.4 0.3 4.0 2.3 5.0
------- -------- ------- ------- -------- -------- --------
(Loss) income before extraordinary
item ............................... (27.3) 1.3 (45.6) (44.0) 7.6 16.1 9.7
Extraordinary loss (6) .............. 0.7 -- -- -- -- -- --
------- -------- ------- ------- -------- -------- --------
Net (loss) income (7) ............... $ (28.0) $ 1.3 $ (45.6) $ (44.0) $ 7.6 $ 16.1 $ 9.7
======== ======== ======== ======== ======== ======== ========
AS OF DECEMBER 31,
---------------------------------------------------------------
1998 1999 2000 2001 2002
----------- ------------ ------------ ------------ ------------
BALANCE SHEET DATA: (IN MILLIONS)
Deferred income tax assets -- long
term ................................... $ 2.1 $ 1.2 $ -- $ 0.2 $ --
Total assets ............................ 596.7 741.2 821.3 758.6 798.3
Total debt .............................. 875.4 1,017.1 1,060.2 1,052.4 1,070.6
Partners' capital (deficit) (8) ......... (438.8) (458.0) (464.4) (485.1) (460.3)
AS OF
------------------------------
SEPTEMBER 29, SEPTEMBER 28,
2002 2003
--------------- --------------
BALANCE SHEET DATA:
Deferred income tax assets -- long
term ................................... $ 0.6 $ --
Total assets ............................ 791.5 868.0
Total debt .............................. 1,072.4 1,127.4
Partners' capital (deficit) (8) ......... (459.8) (436.0)
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
------------------------------------------------------ ------------------------------
SEPTEMBER 29, SEPTEMBER 28,
1998 1999 2000 2001 2002 2002 2003
---------- ---------- ---------- ---------- ---------- --------------- --------------
(IN MILLIONS)
OTHER FINANCIAL DATA:
Cash flows from (used in):
Operating activities ..................... $ 41.8 $ 55.5 $ 90.9 $ 52.5 $ 92.4 $ 66.2 $ 33.4
Investing activities ..................... (181.2) (181.8) (164.7) (77.2) (96.6) (74.4) (70.0)
Financing activities ..................... 139.7 126.2 78.4 24.3 1.3 7.7 35.8
Depreciation and amortization (9) ......... 39.3 53.2 66.2 71.7 75.8 56.6 52.6
Capital expenditures (excluding
acquisitions) ............................ 133.9 171.0 163.4 74.3 92.4 70.3 70.1
Investments (including acquisitions) (10) . 45.2 10.3 0.1 0.2 -- -- --
Ratio of earnings to fixed charges (11) ... -- 1.0x -- -- 1.1x 1.3x 1.2x
See accompanying notes.
24
- ----------
(1) Net sales increase or decrease based on fluctuations in resin prices.
Consistent with industry practice and/or as permitted under agreements
with our customers, substantially all resin price changes are passed
through to customers by means of corresponding changes in product
pricing. Therefore, our dollar gross profit has been substantially
unaffected by fluctuations in resin prices. However, a sustained increase
in resin prices, to the extent that those costs are not passed on to the
end-customer, would make plastic containers less economical for our
customers and could result in a slower pace of conversions to plastic
containers.
(2) Includes impairment charges recorded on long-lived and other assets of
$16.3 million, $28.9 million, $5.1 million, $4.3 million and $0.6 million
for the years ended December 31, 2000, 2001 and 2002 and the nine months
ended September 29, 2002 and September 28, 2003, respectively, and
goodwill of $4.8 million and $9.1 million for the years ended December
31, 2000 and 2001, respectively.
(3) Includes compensation costs related to our 1998 recapitalization, global
restructuring, systems conversion, aborted acquisition and other costs.
(4) The nine months ended September 28, 2003 includes the effects of the
refinancing of our prior senior credit agreement, which resulted in the
write-off of debt issuance fees of $6.2 million.
(5) As a limited partnership, Graham Packaging Holdings Company is not
subject to U.S. federal income taxes or most state income taxes. Instead,
taxes are assessed to its partners based on their distributive share of
its income. Graham Packaging Holdings Company made tax distributions to
its partners in 1998 and 1999 to reimburse them for tax liabilities. Our
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 costs incurred, including the write-off of unamortized debt
issuance fees, in connection with the early extinguishment of debt.
(7) Effective June 28, 1999, we changed our method of valuing inventories for
our domestic operations from the LIFO method to the FIFO method as over
time it more closely matches revenues with costs. The FIFO method more
accurately reflects the costs related to the actual physical flow of raw
materials and finished goods inventory. Accordingly, we believe the FIFO
method of valuing inventory will result in a better measurement of
operating results. All previously reported results have been restated to
reflect the retroactive application of the accounting change as required
by generally accepted accounting principles. The accounting change
increased net loss for the year ended December 31, 1998 by $2.0 million.
(8) As a result of the 1998 recapitalization, as of September 28, 2003 Graham
Packaging Holdings Company had negative net worth for accounting
purposes. However, in the 1998 recapitalization, Blackstone and an
institutional investor paid $208.3 million in cash for 85% of the
partnership interests of Graham Packaging Holdings Company and the Graham
family retained a 15% interest which, based on the amount paid by
Blackstone and the institutional investor, had an implied value of $36.8
million. In addition, on each of September 29, 2000 and March 29, 2001,
Graham Packaging Holdings Company's equity owners made equity
contributions to it of $50.0 million.
(9) Depreciation and amortization excludes amortization of debt issuance
fees, which is included in interest expense, net, and impairment charges.
(10) In April 1997, we acquired 80% of the operating assets and liabilities of
Rheem-Graham Embalagens Ltda. for $20.3 million, excluding direct costs
of the acquisition. The remaining 20% was purchased in February 1998. In
July 1998, we acquired selected plastic container manufacturing
operations of Crown, Cork & Seal located in France, Germany, the United
Kingdom and Turkey for $38.9 million, excluding direct costs of the
acquisition, net of liabilities assumed. On April 26, 1999, we acquired
51% of the operating assets of PlasPET Florida, Ltd. We became the
general partner on July 6, 1999, and on October 9, 2001 acquired the
remaining 49%. The total purchase price for the 100% interest, excluding
direct costs of the acquisition, net of liabilities assumed, was $3.1
million. On July 1, 1999, we acquired selected companies located in
Argentina for $8.1 million, excluding direct costs of the acquisition,
net of liabilities assumed. On March 30, 2001, we acquired an additional
1% interest in Masko Graham, bringing our total interest to 51%. The
total purchase price for the 51% interest, excluding direct costs of the
acquisition, net of liabilities assumed, was $1.3 million. Amounts shown
under the caption "Investments (including acquisitions)" represent cash
paid, net of cash acquired in the acquisitions. We accounted for these
transactions under the purchase method of accounting. Results of
operations are included since the respective dates of the acquisitions.
(11) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings before income taxes, minority interest,
income from equity investees and extraordinary items, plus fixed charges
and amortization of capitalized interest less interest capitalized. Fixed
charges include interest expense on all indebtedness, interest
capitalized, amortization of debt issuance 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 $28.7 million, $49.1 million and $44.2 million for
the years ended December 31, 1998, 2000 and 2001, respectively.
25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Financial Data" and the consolidated financial statements of the current parent
company of the issuers, Graham Packaging Holdings Company, appearing elsewhere
in this prospectus.
OVERVIEW
We are a worldwide leader in the design, manufacture and sale of
customized blow molded plastic containers for the branded food and beverage,
household and personal care, and automotive lubricants markets and currently
operate 56 manufacturing facilities throughout North America, Europe and South
America. Our primary strategy is to operate in select markets that will
position us to benefit from the growing conversion to high performance plastic
packaging from more commodity packaging.
We believe that critical success factors to our business are our ability
to:
o serve the complex packaging demands of our customers which include
some of the world's largest branded consumer products companies;
o 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
o make the correct investments in plant and technology necessary to
satisfy the two factors mentioned above.
We believe that the area with the greatest opportunity for growth
continues to be in producing containers for the food and beverage market
because of the continued conversion to plastic packaging, including the demand
for containers for juices, juice drinks, nutritional beverages, sports drinks,
teas, yogurt drinks, snacks and other food products. We have established
ourselves as the market leader in the value-added segment for hot-fill PET
containers. Recently, we have been a leading participant in the rapid growth of
the yogurt drinks market where we manufacture containers using polyolefin
resins. Since the beginning of 1999, we have invested over $165.0 million in
capital expenditures in the polyolefin area of the food and beverage market.
For the year ended December 31, 2002, our sales of polyolefin containers grew
to $171.8 million from $117.7 million in 1999.
Excluding business impacted by the European restructuring, our household
and personal care container business continues to grow, as package conversion
trends continue from other packaging forms in some of our product lines. We
continue to benefit as liquid fabric care detergents, which are packaged in
plastic containers, capture an increased share from powdered detergents, which
are predominantly packaged in paper-based containers. We have upgraded our
machinery to new larger, more productive blow molders to standardize production
lines, improve flexibility and reduce manufacturing costs.
Our North American one quart motor oil container business is in a mature
industry. We have been able to partially offset pricing pressures by renewing
or extending contracts, improving manufacturing efficiencies, line speeds,
labor efficiency and inventory management and reducing container weight and
material spoilage. Unit volume in the one quart motor oil industry decreased
approximately 1% in 2002 as compared to 2001; annual volumes declined an
average of approximately 1% to 2% in prior years. We believe that the domestic
one quart motor oil container business will continue to decline approximately
2% to 3% annually for the next several years but believe that there are
significant volume opportunities for automotive product business in foreign
countries, particularly in South America. In 2002, we were awarded 100% of the
U.S. one quart volume requirements for Shell Oil Company (Shell, Pennzoil and
Quaker State branded motor oils). This award includes supplying from a facility
on-site with Shell Oil Company in Newell, West Virginia. ExxonMobil also
awarded us in 2002 100% of its one quart volume requirements for one of its
U.S. filling plants, located in Port Allen, Louisiana. ExxonMobil was not a
U.S. customer prior to this award.
26
We currently operate 21 manufacturing facilities outside of the United
States, either on our own or through joint ventures, in Argentina, Belgium,
Brazil, Canada, France, Hungary, Mexico, Poland, Spain and Turkey. Over the
past few years, we have expanded our international operations with the addition
of new plants in France, Belgium, Spain, Poland, Mexico and Argentina. On March
30, 2001, we increased our interest in Masko Graham, our Polish operation, from
50% to 51%.
Changes in international economic conditions require that we continually
review our operations and make restructuring changes when it is deemed
appropriate. In the past few years, we restructured our operations as follows:
In our North American operations in 2001, we closed our facility in Anjou,
Quebec, Canada and in 2002 closed another plant in Burlington, Ontario, Canada.
Business from these facilities was consolidated into other North American
facilities as a result of these closures.
In our European operations, we committed to restructuring changes in the
United Kingdom, France, Italy and Germany as follows. In 2000, we experienced a
decline in our operations in the United Kingdom and France. In the United
Kingdom, this reduction in business was the result of the loss of a key
customer due to a consolidation of its filling requirements to a smaller number
of locations, several of which were not within an economical shipping distance
from our U.K. facilities. As a result, during the latter portion of 2001, we
committed to a plan to close our plant in the United Kingdom. This plant was
closed during 2002. During the latter portion of 2001, we also committed to a
plan to sell or close certain plants in France. During 2002, one facility in
France was sold. Another facility in France was closed in the second quarter of
2003. In the third quarter of 2001, we experienced a loss of business at our
plant in Sovico, Italy. During the latter portion of 2001, we committed to a
plan to sell or close our plants in Italy. In 2002, we sold both of our plants
in Italy. During the latter portion of 2001, as a part of our European
restructuring plans, we committed to a plan to sell or close plants in Germany.
On March 31, 2003, we sold our two German plants.
In our South American operations in the first half of 2001, we experienced
a downturn in financial performance in our operations in Argentina and, later
in 2001, our operations in Argentina were subjected to the severe downturn in
the Argentine economy.
For the nine months ended September 28, 2003, 84.6% of our net sales were
generated by our top twenty customers, the majority of which were under
long-term contracts with terms up to ten years; the remainder of which were
generated by customers with whom we have been doing business for over 12 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 us. We had sales to one customer
which exceeded 10% of total sales in each of the nine months ended September
29, 2002 and September 28, 2003. Our sales to this customer were 17.5% and
14.9% of total sales for the nine months ended September 29, 2002 and September
28, 2003, respectively. We also had sales to two other customers which exceeded
10% of total sales for the nine months ended September 28, 2003. Our sales to
these customers were 10.8% and 10.2% of total sales for the nine months ended
September 28, 2003. For the nine months ended September 28, 2003, approximately
77% of the sales to these three customers were made in North America.
Based on industry data, the following table summarizes average market
prices per pound of PET and HDPE resins in North America during 2000, 2001 and
2002 and during the first nine months of 2002 and 2003:
YEAR FIRST NINE MONTHS
------------------------------------ -----------------------
2000 2001 2002 2002 2003
---------- ---------- ---------- ---------- ----------
PET .......... $ 0.62 $ 0.65 $ 0.58 $ 0.59 $ 0.65
HDPE ......... 0.44 0.43 0.41 0.40 0.49
In general, our dollar gross profit is substantially unaffected by
fluctuations in the prices of PET and HDPE resins, the primary raw materials
for our products, because industry practice and
27
agreements with our customers permit substantially all resin price changes to
be passed through to customers by means of corresponding changes in product
pricing. Consequently, we believe that our cost of goods sold, as well as other
expense items, should not be analyzed solely on a percentage of net sales
basis. A sustained increase in resin prices, to the extent that those costs are
not passed on to the end-consumer, would make plastic containers less
economical for our customers and could result in a slower pace of conversions
to plastic containers.
Graham Packaging Holdings Company does not pay U.S. federal income taxes
under the provisions of the Internal Revenue Code, as the distributive share of
the applicable income or loss is included in the tax returns of the partners.
We may make tax distributions to our partners to reimburse them for such tax
obligations, if any. Our foreign operations are subject to tax in their local
jurisdictions. Most of these entities have historically incurred net operating
losses.
On August 11, 2003 we implemented an organizational restructuring,
primarily focused on North American Food and Beverage and administrative
support, that is expected to enhance market effectiveness and improve the
ongoing cost base. The restructuring included severing 39 employees. We
estimate the effect of these actions will reduce 2003 operating income by a net
of approximately $2.6 million, including one-time reorganization expenses of
approximately $3.3 million, which includes $2.4 million of severance related
costs and $0.9 million of relocation and recruitment costs, offset by cost
savings of approximately $0.7 million. For 2004, we estimate a net increase in
operating income of approximately $2.5 million as a result of this
reorganization.
RESULTS OF OPERATIONS
The following tables set forth the major components of our net sales and
our net sales expressed as a percentage of total net sales:
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
2000 2001 2002
---------------------- ---------------------- ----------------------
(IN MILLIONS)
North America(1) ..... $ 667.2 79.2% $ 742.5 80.4% $ 745.0 82.2%
Europe ............... 146.2 17.3 154.3 16.7 138.5 15.3
South America(1) ..... 29.2 3.5 26.3 2.9 23.2 2.5
-------- ----- -------- ----- -------- -----
Total Net Sales ...... $ 842.6 100.0% $ 923.1 100.0% $ 906.7 100.0%
======== ===== ======== ===== ======== =====
NINE MONTHS ENDED
---------------------------------------------
SEPTEMBER 29, 2002 SEPTEMBER 28, 2003
---------------------- ----------------------
(IN MILLIONS)
North America(1) ..... $ 570.6 82.1% $ 611.1 82.8%
Europe ............... 106.8 15.4 108.4 14.7
South America(1) ..... 17.6 2.5 18.2 2.5
-------- ----- -------- -----
Total Net Sales ...... $ 695.0 100.0% $ 737.7 100.0%
======== ===== ======== =====
- ----------
(1) Beginning January 1, 2002, the North America segment has included Mexico
and the Latin America segment became the South America segment. 2001 net
sales in Mexico, which are included in South America, are insignificant.
There were no operations in Mexico prior to 2001.
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
2000 2001 2002
---------------------- ---------------------- ----------------------
(IN MILLIONS)
Food & Beverage ..... $ 416.2 49.4% $ 511.6 55.4% $ 515.4 56.9%
Household &
Personal Care ...... 210.6 25.0 208.5 22.6 186.0 20.5
Automotive .......... 215.8 25.6 203.0 22.0 205.3 22.6
-------- ----- -------- ----- -------- -----
Total Net Sales ..... $ 842.6 100.0% $ 923.1 100.0% $ 906.7 100.0%
======== ===== ======== ===== ======== =====
NINE MONTHS ENDED
---------------------------------------------
SEPTEMBER 29, 2002 SEPTEMBER 28, 2003
---------------------- ----------------------
(IN MILLIONS)
Food & Beverage ..... $ 397.9 57.2% $ 432.5 58.6%
Household &
Personal Care ...... 143.1 20.6 142.5 19.3
Automotive .......... 154.0 22.2 162.7 22.1
-------- ----- -------- -----
Total Net Sales ..... $ 695.0 100.0% $ 737.7 100.0%
======== ===== ======== =====
NINE MONTHS ENDED SEPTEMBER 28, 2003 COMPARED TO NINE MONTHS ENDED SEPTEMBER 29,
2002
Net Sales. Net sales for the nine months ended September 28, 2003
increased $42.7 million, or 6.1%, to $737.7 million from $695.0 million for the
nine months ended September 29, 2002. The increase in sales was primarily due
to an increase in resin pricing combined with a 6.9% increase in units sold,
principally due to additional food and beverage container business where units
increased by 16.8%. These increases were partially offset by our restructuring
process in Europe which included the
28
sale or closing of seven non-strategic locations, all of which were sold or
closed as of September 28, 2003. Excluding business impacted by the European
restructuring, sales and unit volume for the nine months ended September 28,
2003 would have increased approximately 10% compared to the sales and unit
volume for the nine months ended September 29, 2002. On a geographic basis,
sales for the nine months ended September 28, 2003 in North America increased
$40.5 million or 7.1% from the nine months ended September 29, 2002 and
included higher units sold of 4.5%. North American sales in the food and
beverage business, the household and personal care business and the automotive
lubricants business contributed $21.3 million, $8.5 million and $10.7 million,
respectively, to the increase. Units sold in North America increased by 14.2%
in the food and beverage business, decreased by 18.4% in the household and
personal care business and decreased by 1.0% in the automotive lubricants
business. Sales for the nine months ended September 28, 2003 in Europe
increased $1.6 million, or 1.5%, from the nine months ended September 29, 2002.
The increase in sales was primarily due to exchange rate changes of
approximately $16.6 million and an 11.2% increase in units sold, partially
offset by the European restructuring. Excluding business impacted by the
European restructuring, sales in Europe for the nine months ended September 28,
2003 would have increased $23.1 million, or approximately 28%, compared to
sales for the nine months ended September 29, 2002 and unit volume in Europe
would have increased approximately 22% compared to the same period last year.
Sales in South America for the nine months ended September 28, 2003 increased
$0.6 million or 3.4% from the nine months ended September 29, 2002, in part due
to an increase in units sold of 6.5% offset by exchange rate changes of
approximately $2.8 million.
Gross Profit. Gross profit for the nine months ended September 28, 2003
increased $6.8 million to $138.4 million from $131.6 million for the nine
months ended September 29, 2002. Gross profit for the nine months ended
September 28, 2003 decreased $5.9 million in North America, increased $13.2
million in Europe and decreased $0.5 million in South America, when compared to
the nine months ended September 29, 2002. The increase in gross profit resulted
primarily from an increase in unit volume and strong operating performance
related to ongoing business in Europe of $6.7 million, a net reduction of
restructuring and customer consolidation expenses in North America and Europe
of $4.7 million, a net reduction in project costs of $1.7 million and exchange
rate gains in Europe of approximately $2.5 million, offset by a decrease in
gross profit related to ongoing business in North America of $8.6 million.
Selling, General & Administrative Expenses. Selling, general and
administrative expenses for the nine months ended September 28, 2003 increased
$2.5 million to $48.3 million from $45.8 million for the nine months ended
September 29, 2002. The increase was primarily due to an increase in North
America, offset by decreases in Europe and South America. The increase in North
America was primarily due to an increase in the allowance for doubtful accounts
of $2.3 million related to potential losses for one of our larger customers,
Hi-Country, against which we have filed an involuntary Chapter 7 bankruptcy
petition, expansion into Mexico and an increase in product development
expenses, partially offset by a decrease in compensation-related expenses. The
decrease in Europe was primarily due to reductions in non-recurring charges,
expatriate-related costs and costs related to locations in Europe that were
sold during 2002 and 2003, partially offset by an increase in expenses due to
exchange rates. The non-recurring charges were $4.5 million and $3.7 million
for the nine months ended September 29, 2002 and September 28, 2003,
respectively, comprised primarily of costs related to the postponed equity
offering and concurrent transactions ($2.6 million) and global reorganization
costs ($1.9 million) for the nine months ended September 29, 2002 and global
reorganization costs ($3.1 million) and other costs ($0.6 million) for the nine
months ended September 28, 2003. Selling, general and administrative expenses
as a percent of sales decreased to 6.5% of sales for the nine months ended
September 28, 2003 from 6.6% of sales for the nine months ended September 29,
2002. Excluding non-recurring charges, selling, general and administrative
expenses as a percent of sales increased to 6.0% of sales for the nine months
ended September 28, 2003 from 5.9% of sales for the nine months ended September
29, 2002.
Impairment Charges. Due to our commitment to a plan to sell our operations
in Germany, we evaluated the recoverability of our assets in Germany. We
adjusted the carrying values of these assets
29
to the lower of their carrying values or their estimated fair values less costs
to sell, resulting in an impairment charge of $4.3 million and $0.4 million for
the nine months ended September 29, 2002 and September 28, 2003, respectively.
These assets were disposed of on March 31, 2003.
Due to a significant change in the ability to utilize certain assets in
the United States, we evaluated the recoverability of these assets. For these
assets to be disposed of, we adjusted the carrying values to the lower of their
carrying values or their estimated fair values less costs to sell, resulting in
an impairment charge of $0.2 million for the nine months ended September 28,
2003.
Interest Expense, Net. Interest expense, net increased $12.5 million to
$74.4 million for the nine months ended September 28, 2003 from $61.9 million
for the nine months ended September 29, 2002. The increase was primarily
related to the refinancing of our prior senior credit agreement, which resulted
in the write-off of debt issuance fees of $6.2 million, and higher LIBOR
margins under our new senior credit agreement, partially offset by a decline in
interest rates.
Other expense (income), net. Other income was $0.6 million for the nine
months ended September 28, 2003 as compared to other expense of $0.2 million
for the nine months ended September 29, 2002. The higher income was primarily
due to higher foreign exchange gains in the nine months ended September 28,
2003 as compared to the nine months ended September 29, 2002.
Minority Interest. Minority interest increased $0.1 million to $1.1
million for the nine months ended September 28, 2003 from $1.0 million for the
nine months ended September 29, 2002.
Income Tax Provision. Income tax provision increased $2.7 million to $5.0
million for the nine months ended September 28, 2003 from $2.3 million for the
nine months ended September 29, 2002. The increase was primarily related to
increased taxable earnings in certain of our European subsidiaries for the nine
months ended September 28, 2003 as compared to the nine months ended September
29, 2002.
Net Income (Loss). Primarily as a result of factors discussed above, net
income was $9.7 million for the nine months ended September 28, 2003 compared
to net income of $16.1 million for the nine months ended September 29, 2002.
2002 COMPARED TO 2001
Net Sales. Net sales for the year ended December 31, 2002 decreased $16.4
million or 1.8% to $906.7 million from $923.1 million for the year ended
December 31, 2001. The decrease in sales was primarily due to a decrease in
resin pricing combined with our restructuring process in Europe, which includes
the sale or closing of seven non-strategic locations of which four locations had
already been sold or closed in 2002, partially offset by a 7.6% increase in
units sold, principally due to additional food and beverage container business
where units increased by 11.8%. Excluding business impacted by the European
restructuring, sales for the year ended December 31, 2002 would have increased
approximately 3% compared to the sales for the year ended December 31, 2001 and
unit volume would have increased approximately 14%. On a geographic basis, sales
for the year ended December 31, 2002 in North America increased $2.5 million or
0.3% from the year ended December 31, 2001 and included higher units sold of
9.1%. North American sales in the food and beverage business and the automotive
business contributed $3.2 million and $4.0 million, respectively, to the
increase, while sales in the household and personal care business were $4.7
million lower. Units sold in North America increased by 12.3% in the food and
beverage business, 1.8% in the household and personal care business and 7.6% in
the automotive lubricants business. Sales for the year ended December 31, 2002
in Europe decreased $15.8 million or 10.2% from the year ended December 31,
2001. The decrease in sales is primarily due to the European restructuring.
Overall, the European sales reflected a 5.3% increase in units sold. Exchange
rate changes increased sales by approximately $5.5 million. Excluding business
impacted by the European restructuring, sales in Europe for the year ended
December 31, 2002 would have increased approximately $23.2 million compared to
sales for the year ended December 31, 2001 and unit volume in Europe would have
increased approximately 25% compared to the same period last year. Sales in
South America for the year ended December 31, 2002 decreased $3.1 million or
11.8% for the year ended December 31, 2001, primarily due to unfavorable
30
exchange rate changes of approximately $11.0 million, partially offset by a
3.1% increase in units sold and increased pricing principally due to a pass
through of increased costs.
Gross Profit. Gross profit for the year ended December 31, 2002 increased
$12.2 million to $164.1 million from $151.9 million for the year ended December
31, 2001. Gross profit for the year ended December 31, 2002 increased $15.5
million in North America, decreased $4.1 million in Europe and increased $0.8
million in South America when compared to the year ended December 31, 2001. The
increase in gross profit resulted primarily from the higher sales volume and
strong operating performance in all three of our geographic segments being
partially offset by restructuring and customer consolidation expenses in Europe
of approximately $15.8 million and exchange rate losses in South America of
approximately $2.3 million.
Selling, General & Administrative Expenses. Selling, general and
administrative expenses for the year ended December 31, 2002 increased $5.5
million to $63.8 million from $58.3 million for the year ended December 31,
2001. The increase in 2002 selling, general and administrative expenses was
primarily due to an increase in certain non-recurring charges, which were $5.6
million and $1.0 million for the years ended December 31, 2002 and December 31,
2001, respectively, comprised primarily of costs related to the postponed
equity offering and concurrent transactions ($3.0 million) and global
reorganization costs ($2.6 million) for the year ended December 31, 2002 and
global reorganization costs ($0.8 million) for the year ended December 31,
2001. As a percent of sales, selling, general and administrative expenses
increased to 7.0% of sales in 2002 from 6.3% of sales in 2001. Excluding
non-recurring charges, as a percent of sales, selling, general and
administrative expenses increased to 6.4% of sales in 2002 from 6.2% of sales
in 2001.
Impairment Charges. During 2002, we evaluated the recoverability of our
long-lived assets in the following locations (with the operating segment under
which it reports in parentheses) due to indicators of impairment as follows:
o Germany (Europe) -- our commitment to a plan to sell this location;
and
o Certain plant in Louisiana (North America) -- our commitment to a plan
to close this location.
During 2001, we evaluated the recoverability of our long-lived assets in
the following locations (with the operating segment under which it reports in
parentheses) due to indicators of impairment as follows:
o Argentina (South America) -- operating losses and cash flow deficits
experienced, the loss or reduction of business and the severe downturn
in the Argentine economy;
o Italy (Europe) -- operating losses and reduction of business, as well
as our commitment to a plan to sell these locations;
o Certain plants in France (Europe) -- our commitment to a plan to sell
or close these locations;
o Bad Bevensen, Germany (Europe) -- our commitment to a plan to sell or
close this location;
o United Kingdom (Europe) -- our commitment to a plan to close this
location;
o Burlington, Canada (North America) -- our commitment to a plan to
close this location; and
o Turkey (Europe) -- a significant change in the ability to utilize
certain assets.
For assets to be held and used, we determined that the undiscounted cash
flows were below the carrying value of certain long-lived assets in these
locations. Accordingly, we adjusted the carrying values of these long-lived
assets in these locations to their estimated fair values, resulting in
impairment charges of $4.1 million for the year ended December 31, 2001. For
assets to be disposed of, we adjusted the carrying values of these long-lived
assets in these locations to the lower of their carrying values or their
estimated fair values less costs to sell, resulting in impairment charges of
$5.1 million and $24.8 million for the years ended December 31, 2002 and 2001,
respectively. These assets have a remaining carrying amount as of December 31,
2002 of $0.4 million. Similarly, we evaluated the recoverability of our
enterprise goodwill applicable to these locations, and consequently
31
recorded impairment charges of $9.1 million for the year ended December 31,
2001. Goodwill was evaluated for impairment and the resulting impairment charge
recognized based on a comparison of the related net book value of the location
to projected discounted future cash flows of the location.
As of December 31, 2002, certain assets in Germany, the United Kingdom and
the United States were held for disposal. Operating loss for Germany for each
of the three years ended December 31, 2002, 2001 and 2000 was $4.3 million,
$12.5 million and $1.7 million, respectively. Discrete financial information is
not available for the other location whose assets are held for disposal.
Special Charges and Unusual Items. There were no special charges and
unusual items in 2002. In 2001 special charges and unusual items related to
compensation costs related to our 1998 recapitalization.
Interest Expense, Net. Interest expense, net decreased $16.7 million to
$81.8 million for the year ended December 31, 2002 from $98.5 million for the
year ended December 31, 2001. The decrease was primarily related to lower
interest rates in 2002 compared to 2001. Interest expense, net includes $16.7
million and $15.0 million of interest on the senior discount notes for the years
ended December 31, 2002 and 2001, respectively.
Other Expense (Income). Other expense (income) was $0.1 million for the
year ended December 31, 2002 as compared to $0.2 million for the year ended
December 31, 2001.
Minority Interest. Minority interest increased $1.2 million to $1.7
million for the year ended December 31, 2002 from $0.5 million for the year
ended December 31, 2001, primarily related to additional earnings of Masko
Graham.
Income Tax Provision. Income tax provision increased $3.7 million to $4.0
million for the year ended December 31, 2002 from $0.3 million for the year
ended December 31, 2001. The increase was primarily related to increased
taxable earnings in certain of our European subsidiaries for the year ended
December 31, 2002 as compared to the year ended December 31, 2001.
Net Income (Loss). Primarily as a result of factors discussed above, net
income for the year ended December 31, 2002 was $7.6 million compared to net
loss of $44.0 million for the year ended December 31, 2001.
2001 COMPARED TO 2000
Net Sales. Net sales for the year ended December 31, 2001 increased $80.5
million to $923.1 million from $842.6 million for the year ended December 31,
2000. The increase in sales was primarily due to an increase in units sold.
Units sold increased by 18.7% for the year ended December 31, 2001 as compared
to the year ended December 31, 2000, primarily due to additional North American
food and beverage business, where units sold increased by 38.0%. On a
geographic basis, sales for the year ended December 31, 2001 in North America
were up $75.3 million or 11.3% from the year ended December 31, 2000. The North
American sales increase included higher units sold of 15.6%. North American
sales in the food and beverage business and the household and personal care
business contributed $83.2 million and $0.9 million, respectively, to the
increase, while sales in the automotive business were $8.8 million lower. Units
sold in North America increased by 38.0% in the food and beverage business, but
decreased by 0.8% in the household and personal care business and by 3.8% in
the automotive business. Sales for the year ended December 31, 2001 in Europe
were up $8.1 million or 5.5% from the year ended December 31, 2000, principally
in the food and beverage business. Overall, European sales reflected a 25.6%
increase in units sold. The growth in sales due to capital investments made in
recent periods was primarily offset by exchange rate changes of approximately
$5.0 million for the year ended December 31, 2001 compared to the year ended
December 31, 2000. Sales in Latin America for the year ended December 31, 2001
were down $2.9 million or 9.9% from the year ended December 31, 2000, primarily
due to exchange rate changes of approximately $5.9 million, offset by a 3.1%
increase in units sold.
Gross Profit. Gross profit for the year ended December 31, 2001 increased
$17.4 million to $151.9 million from $134.5 million for the year ended December
31, 2000. Gross profit for the year
32
ended December 31, 2001 increased $9.5 million in North America, increased $8.7
million in Europe and decreased $0.8 million in Latin America when compared to
the year ended December 31, 2000. The increase in gross profit resulted
primarily from higher sales volume in North America and Europe, along with
restructuring and customer consolidation in Europe. The continued economic
uncertainties in Argentina and exchange rate changes in Brazil of approximately
$1.1 million were contributing factors to the decrease in the Latin American
gross profit.
Selling, General & Administrative Expenses. Selling, general and
administrative expenses for the year ended December 31, 2001 increased $2.0
million to $58.2 million from $56.2 million for the year ended December 31,
2000. The increase in selling, general and administrative expenses is due
primarily to overall growth in the business, offset by lower non-recurring
charges for the year ended December 31, 2001 compared to the year ended
December 31, 2000. As a percent of sales, selling, general and administrative
expenses increased to 6.2% of sales in 2001 from 5.9% in 2000, excluding
non-recurring charges, and decreased to 6.3% of sales for the year ended
December 31, 2001 from 6.7% for the year ended December 31, 2000, including
non-recurring charges.
Impairment Charges. During 2001, we evaluated the recoverability of our
long-lived assets in the following locations (with the operating segment under
which it reports in parentheses) due to indicators of impairment as follows:
o Argentina (Latin America) -- operating losses and cash flow deficits
experienced, the loss or reduction of business and the severe downturn
in the Argentine economy;
o Italy (Europe) -- operating losses and reduction of business, as well
as our commitment to a plan to sell these locations;
o Certain plants in France (Europe) -- our commitment to a plan to sell
or close these locations;
o Bad Bevensen, Germany (Europe) -- our commitment to a plan to sell or
close this location;
o United Kingdom (Europe) -- our commitment to a plan to close this
location;
o Burlington, Canada (North America) -- our commitment to a plan to
close this location; and
o Turkey (Europe) -- a significant change in the ability to utilize
certain assets.
During 2000, we evaluated the recoverability of our long-lived assets in
the following locations (with the operating segment under which it reports in
parentheses) due to indicators of impairment as follows:
o United Kingdom (Europe) -- operating losses experienced and projected;
o Certain plants in France (Europe) -- operating losses experienced and
projected;
o Anjou, Canada (North America) -- operating losses experienced and
projected; and
o Brazil (Latin America) -- a significant change in the ability to
utilize certain assets.
For assets we continued to hold and use, we determined that the
undiscounted cash flows were below the carrying value of certain long-lived
assets in these locations. Accordingly, we adjusted the carrying values of
these long-lived assets to their estimated fair values, resulting in impairment
charges of $4.1 million and $15.8 million for the years ended December 31, 2001
and 2000, respectively. For assets to be disposed of, we adjusted the carrying
values of these long-lived assets to the lower of their carrying values or
their estimated fair values less costs to sell, resulting in impairment charges
of $24.8 million and $0.5 million for the years ended December 31, 2001 and
2000, respectively. These assets have a remaining carrying amount as of
December 31, 2001 of $0.1 million. Similarly, we evaluated the recoverability
of our enterprise goodwill, and consequently recorded impairment charges of
$9.1 million and $4.8 million for the years ended December 31, 2001 and 2000,
respectively. Goodwill was evaluated for impairment and the resulting
impairment charge recognized based on a comparison of the related net book
value of the enterprise to projected discounted future cash flows of the
enterprise.
33
As of December 31, 2001, all of the assets in Italy and certain assets in
France, Germany, the United Kingdom and Canada were held for disposal.
Operating (loss) income for the United Kingdom for the three years ended
December 31, 2001, 2000 and 1999 was $(3.7) million, $(9.1) million and $1.7
million, respectively. Operating loss for Italy for the three years ended
December 31, 2001, 2000 and 1999 was $7.8 million, $1.5 million and $1.8
million, respectively. Discrete financial information is not available for the
other locations whose assets are held for disposal.
Special Charges and Unusual Items. In 2001 and 2000, special charges and
unusual items of $0.2 million and $1.1 million, respectively, related to
compensation costs related to our 1998 recapitalization.
Interest Expense, Net. Interest expense, net decreased $3.2 million to
$98.5 million for the year ended December 31, 2001 from $101.7 million for the
year ended December 31, 2000. The decrease was primarily related to lower
interest rates in 2001 compared to 2000. Interest expense, net includes $15.0
million and $13.6 million of interest on our senior discount notes for the
years ended December 31, 2001 and 2000, respectively.
Other Expense (Income). Other expense (income) was $0.2 million for the
year ended December 31, 2001 as compared to $0.3 million for the year ended
December 31, 2000. The lower loss was due primarily to a higher foreign
exchange gain in the year ended December 31, 2001 as compared to the year ended
December 31, 2000.
Minority Interest. Minority interest increased $1.1 million to $0.5
million for the year ended December 31, 2001 from $(0.6) million for the year
ended December 31, 2000, primarily related to additional earnings of Masko
Graham and reduced losses of PlasPET Florida, Ltd.
Net Loss. Primarily as a result of factors discussed above, net loss for
the year ended December 31, 2001 was $44.0 million compared to net loss of
$45.6 million for the year ended December 31, 2000.
EFFECT OF CHANGES IN EXCHANGE RATES
In general, our results of operations are affected by changes in foreign
exchange rates. Subject to market conditions, we price our products in our
foreign operations in local currencies. As a result, a decline in the value of
the U.S. dollar relative to the local currencies of profitable foreign
subsidiaries can have a favorable effect on our profitability, and an increase
in the value of the U.S. dollar relative to the local currencies of profitable
foreign subsidiaries can have a negative effect on our profitability. Exchange
rate fluctuations decreased comprehensive income by $10.4 million for each of
the years ended December 31, 2000 and 2001, increased comprehensive income by
$12.5 million for the year ended December 31, 2002 and increased comprehensive
income by $13.6 million for the nine months ended September 28, 2003.
LIQUIDITY AND CAPITAL RESOURCES
In 2000, 2001 and 2002, we generated a total of $235.7 million of cash from
operations, $7.2 million from increased indebtedness and $97.7 million from
capital contributions. This $340.6 million was primarily used to fund $330.2
million of capital expenditures, $0.3 million of investments, $4.2 million of
expenditures for the sales of businesses, $0.9 million of debt issuance fee
payments and $5.0 million of other net uses. In the nine months ended September
28, 2003, we funded, through our various borrowing arrangements and operating
activities, $70.0 million of investing activities, consisting of $70.1 million
of capital expenditures, offset by $0.1 million of proceeds from the sale of our
German operations.
Our new senior credit agreement currently consists of one term loan to
Graham Packaging Company, L.P. with term loan commitments totaling $570.0
million and a revolving loan facility to Graham Packaging Company, L.P.
totaling $150.0 million. The obligations of Graham Packaging Company, L.P.
under the new senior credit agreement are guaranteed by Graham Packaging
Holdings Company and certain other subsidiaries of Graham Packaging Holdings
Company. The term loan is
34
payable in quarterly installments and requires payments of $2.0 million in 2003,
$4.0 million in 2004, $20.0 million in 2005, $45.0 million in 2006, $45.0
million in 2007, $200.0 million in 2008, $200.0 million in 2009 and $54.0
million in 2010. We expect to fund scheduled debt repayments from cash from
operations and unused lines of credit. The revolving loan facility expires on
the earlier of February 14, 2008 and the term loan maturity date. The term loan
and revolving loan facility will become due on July 15, 2007 if the $325.0
million of senior subordinated notes due 2008 have not been refinanced by
January 15, 2007. The term loan will become due on July 15, 2008 if the senior
discount notes have not been refinanced by January 15, 2008.
On May 28, 2003, we issued $100.0 million aggregate principal amount of
the original notes. The original notes were issued in exchange for, and in full
satisfaction of, $100.0 million aggregate principal amount of tranche II term
loans then outstanding under our new senior credit agreement.
The 1998 recapitalization included the issuance of $225.0 million of
senior subordinated notes due 2008 and the issuance of $169.0 million aggregate
principal amount at maturity of senior discount notes due 2009 which yielded
gross proceeds of $100.6 million. At September 28, 2003, the aggregate accreted
value of the senior discount notes was $169.0 million. The senior subordinated
notes are unconditionally guaranteed on a senior subordinated basis by Graham
Packaging Holdings Company and mature on January 15, 2008, with interest
payable on $150.0 million at a fixed rate of 8.75% and with interest payable on
$75.0 million at LIBOR plus 3.625%. The senior discount notes mature on January
15, 2009, with cash interest payable semi-annually beginning July 15, 2003 at
10.75%. The effective interest rate to maturity on the senior discount notes is
10.75%.
At September 28, 2003, our total indebtedness was $1,127.4 million.
Our unused lines of credit at December 31, 2001 and 2002 were $132.9
million and $97.9 million, respectively. The unused line of credit under our
new senior credit agreement at September 28, 2003 was $105.2 million.
Substantially all of our unused lines of credit have no major restrictions and
are provided under notes between us and the lending institution.
Our new senior credit agreement and our indentures contain a number of
significant covenants that, among other things, restrict our ability to dispose
of assets, repay other indebtedness, incur additional indebtedness, pay
dividends, prepay subordinated indebtedness, incur liens, make capital
expenditures, investments or acquisitions, engage in mergers or consolidations,
engage in transactions with affiliates and otherwise restrict our activities.
In addition, under our new senior credit agreement, we are required to satisfy
specified financial ratios and tests. Covenant compliance EBITDA is used to
determine our compliance with many of these covenants.
Covenant compliance 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. Covenant compliance
EBITDA is calculated in our new senior credit agreement and our indentures by
adding minority interest, extraordinary items, interest expense, interest
income, income taxes, depreciation and amortization expense, impairment
charges, the ongoing $1.0 million per year fee paid pursuant to the Blackstone
monitoring agreement, non-cash equity in earnings of joint ventures, other
non-cash charges, recapitalization expenses, special charges and unusual items
and certain other charges to net (loss) income.
Covenant compliance EBITDA was $162.1 million, $175.7 million, $202.9
million, $156.9 million and $157.7 million for the years ended December 31,
2000, 2001 and 2002, and the nine-month periods ended September 29, 2002 and
September 28, 2003, respectively. All of the components of covenant compliance
EBITDA for these periods, to the extent applicable in any given period, are
derived from information presented in our financial statements included
elsewhere in this prospectus, other than non-cash equity in earnings of joint
ventures and other non-cash charges and certain other charges. For the years
ended December 31, 2000, 2001 and 2002, and the nine-month periods ended
September 29, 2002 and September 28, 2003 non-cash equity in (earnings) loss of
joint ventures was
35
$(0.1) million, $0.2 million, $0.0 million, $0.0 million and $0.0 million,
respectively, and other non-cash charges and certain other charges (which
includes global reorganization, project startup costs, systems conversion,
aborted acquisition, legal and other costs) was $16.9 million, $9.3 million,
$25.8 million, $13.9 million and $13.7 million, respectively.
The breach of covenants in our new senior credit agreement that are tied
to ratios based on covenant compliance EBITDA could result in a default under
that agreement and the lenders could elect to declare all amounts borrowed due
and payable. Any such acceleration would also result in a default under our
indentures. Additionally, under our debt agreements, our ability to engage in
activities such as incurring additional indebtedness, making investments and
paying dividends is also tied to ratios based on covenant compliance EBITDA.
Our new senior credit agreement requires that Graham Packaging Company, L.P.
maintain a covenant compliance EBITDA to cash interest ratio starting at a
minimum of 2.25x and a net debt to covenant compliance EBITDA ratio starting at
a maximum of 5.50x, in each case for the most recent four quarter period. For
the four quarters ended September 28, 2003, Graham Packaging Company, L.P.'s
covenant compliance EBITDA to cash interest ratio and net debt to covenant
compliance EBITDA ratio were 3.1x and 4.7x, respectively. For the years ended
December 31, 2000, 2001 and 2002, Graham Packaging Company, L.P.'s covenant
compliance EBITDA to cash interest ratios were 1.9x, 2.2x and 3.3x,
respectively, and Graham Packaging Company, L.P.'s net debt to covenant
compliance EBITDA ratios were 5.7x, 5.1x and 4.4x, respectively, in each case
under the prior senior credit agreement. The ability of Graham Packaging
Company, L.P. to incur additional debt and make certain restricted payments
under our indentures is tied to a covenant compliance EBITDA to interest
expense ratio of 1.75 to 1, except that Graham Packaging Company, L.P. may
incur certain debt and make certain restricted payments without regard to the
ratio, such as up to $650 million under the credit agreement and investments
equal to 10% of Graham Packaging Company, L.P.'s total assets. For the four
quarters ended September 28, 2003, Graham Packaging Company, L.P.'s covenant
compliance EBITDA to interest expense ratio under the indentures was 3.1x. For
the years ended December 31, 2000, 2001 and 2002, the covenant compliance
EBITDA to interest expense ratios under the indentures were 1.9x, 2.2x and
3.3x, respectively.
Substantially all of our domestic tangible and intangible assets are
pledged as collateral pursuant to the terms of our new senior credit agreement.
As market conditions warrant, we and our major equityholders, including
Blackstone Capital Partners III Merchant Bank Fund L.P. and its affiliates, may
from time to time repurchase debt securities issued by us, in privately
negotiated or open market transactions, by tender offer or otherwise.
Our total capital expenditures, excluding acquisitions, for 2000, 2001 and
2002 were $163.4 million, $74.3 million and $92.4 million, respectively and
$70.3 million and $70.1 million for the
nine months ended September 29, 2002 and September 28, 2003, respectively. We
believe that capital investment to maintain and upgrade property, plant and
equipment is important to remain competitive. We estimate that on average the
annual capital expenditures required to maintain our facilities are
approximately $25 million per year. Additional capital expenditures beyond this
amount will be required to expand capacity.
For the fiscal year 2003, we expect to incur approximately $110.0 million
of capital investments and for the fiscal year 2004, we expect to incur
approximately $135.0 million of capital investments. However, total capital
investments will depend on the size and timing of growth related opportunities.
Our principal sources of cash to fund ongoing operations and capital
requirements have been and are expected to continue to be net cash provided by
operating activities and borrowings under our new senior credit agreement. We
believe that these sources will be sufficient to fund our ongoing operations
and our foreseeable capital requirements. The owners of the 49% minority
interest in Masko Graham have indicated their intentions of exercising their
put option for us to buy their 49% interest, and therefore, included in the
$110.0 million estimate of capital investments for 2003 is $16.0 million
related to this buyout option. This amount is estimated and is subject to a
defined formula which is based upon several factors, but we feel this amount is
a reasonable estimate for this
36
buyout option. If these owners do not exercise their put option in 2003, the
$16.0 million related to this buyout option may occur, instead, in 2004. In
connection with plant expansion and improvement programs, we had commitments
for capital investments of approximately $28.7 million at December 31, 2002.
Under our new senior credit agreement, the issuers are subject to
restrictions on the payment of dividends or other distributions to Graham
Packaging Holdings Company, except that the issuers may pay dividends or other
distributions to it:
o in respect of overhead, tax liabilities, legal, accounting and other
professional fees and expenses;
o to fund purchases and redemptions of equity interests of Graham
Packaging Holdings Company held by then present or former officers or
employees of Graham Packaging Holdings Company, Graham Packaging
Company, L.P. or its subsidiaries or by any employee stock ownership
plan upon that person's death, disability, retirement or termination
of employment or other circumstances with annual dollar limitations;
and
o to finance the payment of cash interest by us on the senior discount
notes or any notes issued pursuant to a refinancing of the senior
discount notes.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The following table sets forth our contractual obligations and commitments
as of December 31, 2002:
PAYMENTS DUE IN FISCAL YEAR
-------------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS TOTAL 2003 2004 AND 2005 2006 AND 2007 2008 AND BEYOND
- ------------------------------------- ------------- ---------- --------------- --------------- ----------------
(IN MILLIONS)
Long-term debt ...................... $ 1,056.2 $ 30.5 $ 314.7 $ 317.4 $ 393.6
Capital lease obligations ........... 14.4 2.4 3.9 7.6 0.5
Operating leases .................... 71.3 15.9 24.3 13.3 17.8
Capital expenditures ................ 28.7 28.7 -- -- --
---------- ------- -------- -------- --------
Total contractual cash obligations . $ 1,170.6 $ 77.5 $ 343.0 $ 338.2 $ 411.9
========== ======= ======== ======== ========
Long-term debt amounts above have not been adjusted to reflect the new
senior credit agreement and this offering.
TRANSACTIONS WITH AFFILIATES
Our relationship with Graham Engineering is significant to our business.
It provides us with equipment, technology and services. We are a party to an
equipment sales, service and licensing agreement with Graham Engineering, under
which Graham Engineering will provide us with the Graham Wheel, which is an
extrusion blow molding machine, and related technical support. We paid Graham
Engineering approximately $25.1 million, $23.8 million and $20.2 million for
such services and equipment for the years ended December 31, 2000, 2001 and
2002, respectively, and approximately $8.2 million for the nine months ended
September 28, 2003.
On July 9, 2002, we and Graham Engineering amended our equipment sales,
service and licensing agreement to, among other things, (i) limit our existing
rights in exchange for a perpetual license in the event Graham Engineering
proposes to sell its rotary extrusion blow molding equipment business or assets
to certain of our significant competitors; (ii) clarify that our exclusivity
rights under the equipment sales, service and licensing agreement do not apply
to certain new generations of Graham Engineering equipment; (iii) provide
Graham Engineering certain recourse in the event we decide to buy certain high
output extrusion blow molding equipment from any supplier other than Graham
Engineering; and (iv) obligate us, retroactive to January 1, 2002 and subject
to certain credits and carry-fowards, to make payments for products and
services to Graham Engineering in the amount of
37
at least $12 million per calendar year, or else pay Graham Engineering a
shortfall payment. The minimum purchase commitment for 2002 was met and we do
not expect to be required to make a shortfall payment relative to our purchases
for 2003.
Innopack, S.A., minority shareholder of Graham Innopack de Mexico S. de
R.L. de C.V., has supplied goods and related services to us, for which we paid
approximately $1.1 million and $5.4 million for the years ended December 31,
2001 and 2002, respectively, and approximately $2.1 million for the nine months
ended September 28, 2003.
Graham Family Growth Partnership has supplied management services to us
since 1998. We paid Graham Family Growth Partnership approximately $1.0 million
for its services for each of the years ended December 31, 2000 and 2001,
approximately $1.1 million for the year ended December 31, 2002, including the
$1.0 million per year fee paid pursuant to the Holdings Partnership Agreement,
and approximately $0.8 million for the nine months ended September 28, 2003.
Blackstone has supplied management services to us since 1998. We paid
Blackstone approximately $1.0 million for its services for each of the years
ended December 31, 2000 and 2001, approximately $1.1 million for the year ended
December 31, 2002, including the $1.0 million per year fee paid pursuant to the
Blackstone Monitoring Agreement, and approximately $0.7 million for the nine
months ended September 28, 2003.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable in accordance with Statement of Financial Accounting Standards
("SFAS") 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
We use a probability-weighted estimate of the future undiscounted net cash
flows of the related asset or asset grouping over the remaining life in
measuring whether the assets are recoverable. Any impairment loss, if
indicated, is measured on the amount by which the carrying amount of the asset
exceeds the estimated fair value of the asset. When fair values are not
available, we estimate fair value using the probability-weighted expected
future cash flows discounted at a risk-free rate. We believe that this policy
is critical to the financial statements, particularly when evaluating
long-lived assets for impairment. Varying results of this analysis are possible
due to the significant estimates involved in our evaluations.
Derivatives
On January 1, 2001 we adopted SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS 138. These standards
establish accounting and reporting for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. All derivatives, whether designated in hedging relationships or
not, are required to be recorded on the balance sheet at fair value. If the
derivative is designated as a fair value hedge, the changes in the fair value
of the derivative and the hedged item will be recognized in earnings. If the
derivative is designated as a cash flow hedge, the effective portion of the
change in the fair value of the derivative will be recorded in other
comprehensive income and will be recognized in the income statement when the
hedged item affects earnings. On January 1, 2001, in connection with the
adoption of SFAS 133, we recorded $0.4 million in other comprehensive income as
a cumulative transition adjustment for derivatives designated as cash flow
hedges prior to adopting SFAS 133. We have entered into interest rate swap
agreements to hedge the exposure to increasing rates with respect to our prior
senior credit agreement. These interest rate swaps are accounted for as cash
flow hedges. The effective portion of the change in the fair value of the
interest rate swaps is recorded in other comprehensive income and was an
unrealized gain of $6.9 million for the year ended December 31, 2002, with a
cumulative $6.2 million unrealized loss recorded within other comprehensive
income as of December 31, 2002.
38
During 2003 we entered into four new interest rate swap agreements, under
which we receive variable interest based on the Eurodollar Rate (the applicable
interest rate offered to banks in the London interbank eurocurrency market) and
pay fixed interest at a weighted average rate of 2.60%, on $400 million of term
loans. The interest rate swaps are accounted for as cash flow hedges. The
effective portion of the change in the fair value of the new interest rate
swaps is recorded in other comprehensive income and was an unrealized loss of
$5.3 million for the nine months ended September 28, 2003. Approximately 39% of
the amount recorded within other comprehensive income is expected to be
recognized as interest expense in the next twelve months. Failure to properly
document our interest rate swaps effective hedges would result in income
statement recognition of all or part of the cumulative $5.3 million unrealized
loss recorded in other comprehensive income as of September 28, 2003.
We entered into interest rate swap agreements to hedge the exposure to
increasing rates with respect to our prior senior credit agreement. These
interest rate swaps were accounted for as cash flow hedges. In connection with
the closing of the new senior credit agreement on February 14, 2003 these swaps
no longer qualified for hedge accounting. As such, we recorded a non-cash
charge of approximately $4.8 million within interest expense as a result of the
reclassification into expense of the remaining unrealized loss on these
interest rate swap agreements. These interest rate swap agreements expired at
various points through September 2003. The effective portion of the change in
fair value of these swaps from January 1, 2003 to February 14, 2003 was
recorded in other comprehensive income and was an unrealized gain of $1.5
million. The change in fair value of these swaps after February 14, 2003 was
recognized in earnings and resulted in a reduction of interest expense of $4.8
million for the nine months ended September 28, 2003.
SFAS 133 defines new requirements for designation and documentation of
hedging relationships as well as ongoing effectiveness assessments in order to
use hedge accounting. For a derivative that does not qualify as a hedge,
changes in fair value will be recognized in earnings. Continued use of hedge
accounting is dependent on management's adherence to this accounting policy.
Failure to properly document our interest rate swaps as cash flow hedges would
result in income statement recognition of all or part of any future unrealized
gain or loss recorded in other comprehensive income. The potential income
statement impact resulting from a failure to adhere to this policy makes this
policy critical to the financial statements.
We also enter into forward exchange contracts, when considered
appropriate, to hedge the exchange rate exposure on transactions that are
denominated in a foreign currency. These forward contracts are accounted for as
fair value hedges. During the years ended December 31, 2001 and 2002, we
recognized no net gain or loss in earnings as a result of fair value hedges. We
had no outstanding forward exchange contracts as of December 31, 2002.
Benefit Plan Accruals
We have several defined benefit plans, under which participants earn a
retirement benefit based upon a formula set forth in the plan. We record
expense related to these plans using actuarially determined amounts that are
calculated under the provisions of SFAS 87, "Employer's Accounting for
Pensions." Key assumptions used in the actuarial valuations include the
discount rate and the anticipated rate of return on plan assets. These rates
are based on market interest rates, and therefore, fluctuations in market
interest rates could impact the amount of pension expense recorded for these
plans. See note 12 to the financial statements.
For disclosure of all of our significant accounting policies see note 1 to
the financial statements.
NEW ACCOUNTING PRONOUNCEMENTS
On April 30, 2002, SFAS 145, "Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections" was approved
by the Financial Accounting
39
Standards Board ("FASB"). As a result, gains and losses from extinguishment of
debt are classified as extraordinary items only if they meet the criteria in
Accounting Principles Board Opinion 30. We adopted SFAS 145 on January 1, 2003
and the adoption of SFAS 145 did not have a significant impact on our results
of operations or financial position.
On January 1, 2003, we adopted SFAS 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This standard requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing or other exit or disposal activity. SFAS
146 is to be applied prospectively to exit or disposal activities initiated
after December 31, 2002. The adoption of SFAS 146 did not have a significant
impact on our results of operations or financial position.
In December 2002, SFAS 148, "Accounting for Stock-Based Compensation --
Transition and Disclosure" was issued by the FASB. This standard amends SFAS
123 to provide alternative methods of transition for a voluntary change to the
fair value method of accounting for stock-based employee compensation. In
addition, this standard amends the disclosure requirements of SFAS 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. We do not believe that adoption
of SFAS 148 will have a significant impact on our results of operations or
financial position.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities." FIN 46 establishes accounting and disclosure requirements
for ownership interests in entities that have certain financial or ownership
characteristics (sometimes known as "Special Purpose Entities"). FIN 46 is
applicable for variable interest entities created after January 31, 2003 and
becomes effective in the first fiscal year or interim accounting period ending
after December 15, 2003 for variable interest entities created before February
1, 2003. We adopted FIN 46 on June 30, 2003 and the adoption of FIN 46 did not
have a significant impact on our results of operations or financial position.
In April 2002, the FASB issued SFAS 149 "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This statement amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
133. This statement is effective for contracts entered into or modified, and
for hedging relationships designated after June 30, 2003. Other provisions of
this statement that related to SFAS 133 Implementation Issues should continue
to be applied in accordance with their respective effective dates. We adopted
SFAS 149 on July 1, 2003 and the adoption of SFAS 149 did not have a
significant impact on our results of operations or financial position.
In May 2003, the FASB issued SFAS 150 "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This
statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. This statement is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003, except for mandatorily
redeemable financial instruments of nonpublic entities and mandatorily
redeemable non-controlling interests in subsidiaries. The FASB is addressing
certain implementation issues associated with SFAS 150. On October 29, 2003,
the FASB decided to defer the recognition and measurement provisions of SFAS
150 related to mandatorily redeemable financial instruments representing
non-controlling interests in subsidiaries included in consolidated financial
statements. We will continue to monitor the actions of the FASB and assess the
impact, if any, on our consolidated financial statements. The effective
provisions of SFAS 150 did not have a significant impact on our results of
operations or financial position.
In May 2003, the Emerging Issues Task Force ("EITF") reached a consensus
on EITF 01-8 "Determining Whether an Arrangement Contains a Lease." EITF 01-8
provides guidance for
40
determining whether an arrangement contains a lease that is within the scope of
SFAS 13 and is effective for arrangements initiated after the beginning of the
first interim period beginning after May 28, 2003. Arrangements initiated after
June 29, 2003 will be accounted for in accordance with EITF 01-8.
SUBSEQUENT EVENTS
On September 29, 2003 we sold our vacant building located in Burlington,
Ontario, Canada, and as a result expect to realize a gain on the sale of
approximately $3.0 million.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We had significant long and short-term debt commitments outstanding as of
December 31, 2002. These on-balance sheet financial instruments, to the extent
they provide for variable rates of interest, expose us to interest rate risk.
We manage our interest rate risk by entering into interest rate swap
agreements. All of our derivative financial instrument transactions are entered
into for non-trading purposes.
To the extent that our financial instruments, including derivative
instruments, expose us to interest rate risk and market risk, they are
presented in the tables below. For variable rate debt obligations, the tables
present principal cash flows and related actual weighted average interest rates
as of December 31, 2002 and 2001. For fixed-rate debt obligations, the
following tables present principal cash flows and related weighted average
interest rates by maturity dates. For interest rate swap agreements, the table
presents notional amounts and the interest rates by expected (contractual)
maturity dates for the pay rate and actual interest rates at December 31, 2002
and 2001 for the receive rate.
EXPECTED MATURITY DATE OF LONG-TERM DEBT (INCLUDING CURRENT PORTION) AND
INTEREST RATE SWAP AGREEMENTS AT DECEMBER 31, 2002
---------------------------------------------------------------------------------------------
2003 2004 2005 2006 2007 THEREAFTER TOTAL
------------ ------------- ------------ ------------- ------------ ------------ -------------
(IN THOUSANDS)
Interest rate sensitive
liabilities:
Variable rate borrowings,
including short-term
amounts .................... $ 32,942 $ 250,732 $ 67,914 $ 244,896 $ 80,046 $ 75,720 $ 752,250
Average interest rate ...... 4.31% 3.62% 3.92% 4.05% 4.38% 5.56% 4.09%
Fixed rate borrowings ....... -- -- -- -- -- $318,377 $ 318,377
Average interest rate ...... -- -- -- -- -- 9.81% 9.81%
Total interest rate
sensitive liabilities ..... $ 32,942 $ 250,732 $ 67,914 $ 244,896 $ 80,046 $394,097 $1,070,627
======== ========= ======== ========= ======== ======== ==========
Derivatives matched
against liabilities:
Pay fixed swaps ............ $300,000 -- -- -- -- -- $ 300,000
Pay rate ................... 5.25% -- -- -- -- -- 5.25%
Receive rate ............... 1.33 -- -- -- -- -- 1.33
FAIR VALUE
DECEMBER 31,
2002
-------------
(IN THOUSANDS)
Interest rate sensitive
liabilities:
Variable rate borrowings,
including short-term
amounts .................... $ 752,250
Average interest rate ......
Fixed rate borrowings ....... $ 318,345
Average interest rate ......
Total interest rate
sensitive liabilities ..... $1,070,595
==========
Derivatives matched
against liabilities:
Pay fixed swaps ............ $ (6,237)
Pay rate ...................
Receive rate ...............
41
EXPECTED MATURITY DATE OF LONG-TERM DEBT (INCLUDING CURRENT PORTION) AND
INTEREST RATE SWAP AGREEMENTS AT DECEMBER 31, 2001
---------------------------------------------------------------------------------------------
2002 2003 2004 2005 2006 THEREAFTER TOTAL
------------ ------------ ------------- ------------ ------------- ------------ -------------
(IN THOUSANDS)
Interest rate sensitive
liabilities:
Variable rate borrowings,
including short-term
amounts .................... $ 30,585 $ 31,610 $ 220,147 $ 67,476 $ 245,041 $ 155,894 $ 750,753
Average interest rate ...... 5.65% 4.74% 4.65% 4.78% 4.87% 6.26% 5.11%
Fixed rate borrowings ....... -- -- -- -- -- $ 301,638 $ 301,638
Average interest rate ...... -- -- -- -- -- 9.76% 9.76%
Total interest rate
sensitive liabilities ..... $ 30,585 $ 31,610 $ 220,147 $ 67,476 $ 245,041 $ 457,532 $1,052,391
======== ======== ========= ======== ========= ========= ==========
Derivatives matched
against liabilities:
Pay fixed swaps ............ $200,000 $300,000 -- -- -- -- $ 500,000
Pay rate ................... 5.81% 5.25% -- -- -- -- 5.47%
Receive rate ............... 1.94 2.99 -- -- -- -- 2.57
FAIR VALUE
DECEMBER 31,
2001
--------------
(IN THOUSANDS)
Interest rate sensitive
liabilities:
Variable rate borrowings,
including short-term
amounts .................... $ 750,753
Average interest rate ......
Fixed rate borrowings ....... $ 247,490
Average interest rate ......
Total interest rate
sensitive liabilities ..... $ 998,243
=========
Derivatives matched
against liabilities:
Pay fixed swaps ............ $ (13,145)
Pay rate ...................
Receive rate ...............
Long-term debt amounts above have not been adjusted to reflect the new
senior credit agreement.
There were no forward exchange contracts outstanding as of December 31,
2002 or December 31, 2001.
42
BUSINESS
We are a worldwide leader in the design, manufacture and sale of
customized blow molded plastic containers for the branded food and beverage,
household and personal care and automotive lubricants markets and currently
operate 56 manufacturing facilities throughout North America, Europe and South
America. Our primary strategy is to operate in select markets that will
position us to benefit from the growing conversion to high performance plastic
packaging from more commodity packaging. We target branded consumer product
manufacturers for whom customized packaging design is a critical component in
their efforts to differentiate their products to consumers. We initially pursue
these attractive product areas with one or two major consumer products
companies in each category that we expect will lead the conversion to plastic
packaging for that category. We utilize our innovative design, engineering and
technological capabilities to deliver highly customized, high performance
products to our customers in these areas in order to distinguish and increase
sales of their branded products. We collaborate with our customers through
joint initiatives in product design and cost reduction, and innovative
operational arrangements, which include on-site manufacturing facilities.
From fiscal 1998 through fiscal 2002, we grew net sales at a compounded
annual growth rate of over 10% as a result of our capital investment and focus
on the high growth food and beverage conversions from glass, paper and metal
containers to plastic packaging. With leading positions in each of our core
businesses, we believe we are well positioned to continue to benefit from the
plastic conversion trend that is still emerging on a global basis and offers us
opportunities for attractive margins and returns on investment.
We have an extensive blue-chip customer base that includes many of the
world's largest branded consumer products companies such as Castrol, Dannon,
Dial, PepsiCo, Quaker Oats, Shell Oil Company, Tropicana, Unilever, Valvoline
and Welch's. More than 40% of our manufacturing facilities are located on-site
at our customers' plants, which we believe provides a competitive advantage in
maintaining and growing customer relationships. The majority of our sales are
made pursuant to long-term customer contracts, which include resin pass-through
provisions that substantially mitigate the effect of resin price movements on
our profitability. Our containers are made from various plastic resins,
including polyethylene terephthalate, or PET, high density polyethylene, or
HDPE, and polypropylene, or PP. In 2002, our top 20 customers comprised over
82% of our net sales and have been customers of ours for an average of 15
years. During 2002, we generated 82.2%, 15.3% and 2.5% of our net sales in
North America, Europe and South America, respectively.
The combination of leading technology, product innovation, efficient
manufacturing operations and strong customer relationships, including on-site
facilities, has enabled us to consistently generate strong volume growth,
margins and returns on invested capital.
OUR MARKETS
We are a leading supplier of plastic packaging in each of our three
primary end-use markets: food and beverage; household and personal care; and
automotive lubricants.
Food and Beverage -- 56.9% of our net sales for the year ended December 31,
2002
We produce containers for shelf-stable, refrigerated and frozen juices,
non-carbonated juice drinks, teas, isotonics, yogurt and nutritional drinks,
toppings, sauces, jellies and jams. Our business focuses on major consumer
products companies that emphasize distinctive, high-performance packaging in
their selected business lines that are undergoing rapid conversion to plastic
from other packaging materials. We believe, based on internal estimates, that
we have the leading domestic market position for plastic containers for juice,
frozen concentrate, pasta sauce and yogurt drinks and the leading position in
Europe for plastic containers for yogurt drinks. We believe that this
leadership position creates significant opportunities for us to participate in
the anticipated conversion to plastic in the wider nutritional drink market. We
are also one of only three domestic market participants that are leading
large-scale product conversions to hot-fill PET containers.
43
Our customers include a large number of major food and beverage companies
which produce a variety of brand name products. Select customers include:
CUSTOMER SELECTED BRAND(S) / PRODUCTS(S)
- ------------------------- ------------------------------------------------------------------------------------------------------
FOOD AND BEVERAGE
Apple & Eve Apple & Eve (Registered Trademark) / Beverages
Arizona Arizona (Registered Trademark) / Beverages
Cadbury Snapple (Registered Trademark) and Elements (Registered Trademark) /Beverages
Campbell Soup Liebig (Registered Trademark) / Ready-to-Serve Soups; V-8 (Registered Trademark) / Juice; Splash
(Registered Trademark) / Beverages
Clement Pappas Packer of leading store brands / Beverages
Dannon Danimals (Registered Trademark) and Actimel (Registered Trademark) / Yogurt and Nutritional Drinks
Heinz Heinz (Registered Trademark) / Ketchup
Hershey Hershey's (Registered Trademark) / Toppings
Knouse Foods Lucky Leaf (Registered Trademark) and Musselman's (Registered Trademark) / Beverages and Applesauce
Minute Maid Hi-C (Registered Trademark) / Juice Drinks; Nestea (Registered Trademark) and Powerade (Registered
Trademark) / Beverages
Mrs. Clarks Foods Various leading store brands / Beverages
National Fruit Whitehouse (Registered Trademark) / Beverages
Nestle Quik (Registered Trademark) / Toppings and Milk Mix; Nescafe (Registered Trademark) / Instant
Premium Coffee;
Juicy Juice (Registered Trademark) / Juices
Northland Northland (Registered Trademark) and Seneca (Registered Trademark) /Juices
Ocean Spray Cranberries Ocean Spray (Registered Trademark) / Beverages
Old Orchard Old Orchard (Registered Trademark) / Beverages
PepsiCo Dole (Registered Trademark) / Beverages
Quaker Oats Gatorade (Registered Trademark) / Beverages
Tropicana Tropicana (Registered Trademark) and Twister (Registered Trademark) / Beverages
Sunsweet Sunsweet (Registered Trademark) / Juices
Tree Top Tree Top (Registered Trademark) / Beverages and Applesauce; Seneca (Registered Trademark) /
Applesauce
Unilever Ragu (Registered Trademark) / Pasta Sauces; Amora (Registered Trademark) / Sauces and Condiments
Welch's Welch's (Registered Trademark) / Beverages, Jams, Jellies and Frozen Concentrate;
Bama (Registered Trademark) / Jams and Jellies
CUSTOMER MATERIAL TYPE
- ------------------------- -------------------------
FOOD AND BEVERAGE
Apple & Eve Hot-fill PET
Arizona Hot-fill PET / PP
Cadbury Hot-fill PET
Campbell Soup Hot-fill PET / HDPE
Clement Pappas Hot-fill PET
Dannon HDPE
Heinz PP
Hershey HDPE
Knouse Foods Hot-fill PET
Minute Maid HDPE / Hot-fill PET
Mrs. Clarks Foods Hot-fill PET
National Fruit Hot-fill PET
Nestle HDPE / Hot-fill PET
Northland Hot-fill PET
Ocean Spray Cranberries Hot-fill PET
Old Orchard Hot-fill PET
PepsiCo Hot-fill PET
Quaker Oats Hot-fill PET
Tropicana Hot-fill PET / HDPE / PP
Sunsweet Hot-fill PET
Tree Top Hot-fill PET
Unilever Hot-fill PET / PP
Welch's Hot-fill PET / HDPE
From fiscal 1998 through fiscal 2002, our food and beverage sales grew at
a compound annual growth rate of 22.3%, benefitting primarily from the rapid
market conversion to plastic containers. As a result of technological
innovations, PET containers can be used in "hot-fill" food and beverage
applications where the container must withstand filling temperatures of over
180 degrees Fahrenheit in an efficient and cost-effective manner. We have been
a leader in the conversion of multi-serve juices that has occurred during the
last few years, and we helped initiate the conversion of containers for
single-serve juice drinks, frozen juice concentrate and wide-mouth PET
containers for sauces, jellies and jams. Our highly customized hot-fill PET
containers allow for the shipment and display of food and beverage products in
a non-refrigerated state, in addition to possessing the structural integrity to
withstand extreme filling conditions. Our oxygen barrier PET container coating
and our multi-layer barrier technologies also extend the shelf life and protect
the quality and flavor of our customers' products.
We have established ourselves as the market leader in the value-added
segment for hot-fill PET containers. Given the strength of our existing
customer base, our recent capital investments and our technological and design
capabilities, we believe that we are well positioned to benefit from the
estimated 60% of the domestic hot-fill food and beverage market that has yet to
convert to plastic. In addition, we believe that significant conversion
opportunities exist in hot-fill product lines that have just begun to convert
to plastic and from international conversion opportunities like snack foods and
adult nutritional beverages.
44
Household and Personal Care -- 20.5% of our net sales for the year ended
December 31, 2002
In our household and personal care container business, we are a leading
supplier of plastic containers for products such as liquid fabric care, dish
care, hard-surface cleaners, hair care and body wash. We continue to benefit as
liquid fabric care detergents, which are packaged in plastic containers,
capture an increasing share from powdered detergents, which are predominantly
packaged in paper-based containers.
Select household and personal care customers include:
CUSTOMER SELECTED BRAND(S) / PRODUCTS(S)
- ---------------------------- ---------------------------------------------------------------------------------------------------
HOUSEHOLD AND PERSONAL CARE
Colgate Palmolive Ajax (Registered Trademark) , Fab (Registered Trademark) and Dynamo (Registered Trademark) /
Fabric Care; Octagon (Registered Trademark) / Dish Care
The Dial Corporation Purex (Registered Trademark) / Fabric Care; Dial (Registered Trademark) / Personal Care
Henkel Dishcare, Hard-Surface Cleaners, Household Cleaners and Personal Care
Johnson & Johnson Johnson & Johnson (Registered Trademark) / Hair Care
Procter & Gamble Mr. Clean (Registered Trademark) / Household Cleaners; Cascade (Registered Trademark) / Dish
Care; Febreze (Registered Trademark) / Fabric Care
Reckitt Benckiser Vanish (Registered Trademark) / Household Cleaners
Unilever All (Registered Trademark) , Wisk (Registered Trademark) , Surf (Registered Trademark) and
Snuggle (Registered Trademark) / Fabric Care; Dove (Registered Trademark) , Suave (Registered Tradem
2000 (Registered Trademark) / Personal Care; Elida Gibbs (Registered Trademark) and Faberge
(Registered Trademark) / Hair Care
CUSTOMER MATERIAL TYPE
- ---------------------------- ----------------
HOUSEHOLD AND PERSONAL CARE
Colgate Palmolive HDPE
The Dial Corporation PET / HDPE / PP
Henkel PET / HDPE / PP
Johnson & Johnson HDPE
Procter & Gamble PET / HDPE / PP
Reckitt Benckiser PET / HDPE
Unilever PET / HDPE / PP
Automotive Lubricants -- 22.6% of our net sales for the year ended December
31, 2002
We believe, based on internal estimates, that we are the number one
supplier of one quart/one liter HDPE motor oil containers in the United States,
Canada and Brazil, supplying most of the motor oil producers in these
countries, with an approximate 80% market share in the United States, based on
2002 unit sales. Additionally, in 2002 we were awarded 100% of the U.S. one
quart volume requirements for Shell Oil Company (Shell, Pennzoil and Quaker
State branded motor oils) and 100% of ExxonMobil's one quart volume
requirements for one of its U.S. filling plants. We have been producing
automotive lubricants containers since the conversion to plastic began over 20
years ago and over the years have expanded our market share and maintained
margins by partnering with our customers to improve product quality and jointly
reduce costs through design improvement, reduced container weight and
manufacturing efficiencies. Our joint product design and cost efficiency
initiatives with our customers have also strengthened our service and customer
relationships.
We expanded our operations into portions of South America to take
advantage of the growth resulting from the ongoing conversion from composite
cans to plastic containers for motor oil as well as the increasing number of
motor vehicles per person in that region. We anticipate similar growth
opportunities for us in other economically developing markets where the use of
motorized vehicles is rapidly growing. We also manufacture containers for other
automotive products, such as antifreeze and automatic transmission fluids.
Our major automotive lubricants customers include:
CUSTOMER SELECTED BRAND(S) / PRODUCTS(S)
- ---------------------- ---------------------------------------------------------------------------------------------------------
AUTOMOTIVE LUBRICANTS
Ashland Valvoline (Registered Trademark) , Napa (Registered Trademark) and CarQuest (Registered Trademark) /
Motor Oil; Zerex (Registered Trademark) / Antifreeze
Castrol Castrol (Registered Trademark) and Syntec (Registered Trademark) / Motor Oil; Super Clean (Registered
Trademark) / Heavy Duty Cleaner
ChevronTexaco Chevron (Registered Trademark) , Texaco (Registered Trademark) and Havoline (Registered Trademark) /
Motor Oil
ExxonMobil Mobil (Registered Trademark) and Exxon (Registered Trademark) / Motor Oil
Petrobras Petrobras (Registered Trademark) / Motor Oil
Petro-Canada Petro-Canada (Registered Trademark) / Motor Oil
Shell Oil Company Shell (Registered Trademark) / Motor Oil and Antifreeze; Pennzoil (Registered Trademark) and Quaker
State (Registered Trademark) / Motor Oil
CUSTOMER MATERIAL TYPE
- ---------------------- --------------
AUTOMOTIVE LUBRICANTS
Ashland HDPE
Castrol HDPE
ChevronTexaco HDPE
ExxonMobil HDPE
Petrobras HDPE
Petro-Canada HDPE
Shell Oil Company HDPE
45
OUR STRENGTHS
STRATEGIC FOCUS ON RAPIDLY GROWING CUSTOM PLASTIC CONTAINER
INDUSTRY. Changing consumer preferences and technological advancements have
accelerated the conversion to plastic containers from other materials. The
advantages of plastic containers, such as their lighter weight, shatter
resistance, resealability and ease of opening and dispensing, as well as the
improved economics and performance of plastics, have resulted from
technological enhancements. We have been a leader domestically in the
conversion to plastic packaging for many major product categories such as
shelf-stable, chilled and frozen concentrate juices, food products, liquid
laundry detergent, household cleaners and motor oil, and believe we are well
positioned to benefit from the large number of containers which have yet to be
converted to plastic. Our growing international presence positions us well to
capitalize on growth in plastic packaging overseas which we expect, in many
markets, to be driven by conversions similar to those experienced in the United
States.
While some of our competitors have significant plastic container
operations, they also tend to have large concentrations of sales and capital
invested in lower growth and declining packaging materials such as glass, metal
and paper, or tend to produce more commodity-like plastic packaging with low
value-added design and performance characteristics.
LEADERSHIP POSITION IN CORE MARKETS. We enjoy leading positions in all of
our core markets. We believe, based on internal estimates, that we have the
leading domestic market position for plastic containers for juice, frozen
concentrate, pasta sauce and yogurt drinks and the leading position in Europe
for plastic containers for yogurt drinks. We are one of only three domestic
market participants that are leading large-scale product conversions to
hot-fill PET containers. We also believe, based on internal estimates, that we
have the number one market position in the one quart/one liter motor oil
container markets in the United States, Canada and Brazil. Our leadership
positions in our core markets have enabled us to utilize high-speed production
systems and achieve significant economies of scale, thereby making us a low
cost manufacturer.
SUPERIOR PRODUCT DESIGN AND DEVELOPMENT CAPABILITIES. Our ability to
develop new, innovative containers to meet the design and performance
requirements of our customers has established us as a market leader. We have
demonstrated significant success in designing innovative plastic containers
that require customized features such as complex shapes, reduced weight,
handles, grips, view stripes, pouring features and graphic-intensive customized
labeling, and often must meet specialized performance and structural
requirements such as hot-fill capability, recycled material usage, oxygen
barriers, flavor protection and multi-layering. In addition to increasing
demand for our customers' products, we believe that our innovative packaging
stimulates consumer demand and drives further conversion to plastic packaging.
Consequently, our strong design capabilities have been especially important to
our food and beverage customers, who generally use packaging to differentiate
and add value to their brands while spending less on promotion and advertising.
We have been awarded significant contracts based on these unique product design
capabilities that we believe set us apart from our competition. Some of our
recent design and conversion successes include:
o hot-fill containers with oxygen barrier coating for conversion from
glass bottles of Tropicana Season's Best brand, PepsiCo's Dole brand
and Welch's brand juices;
o hot-fill PET wide-mouth jars for Ragu pasta sauce, Seneca and Treetop
applesauce and Welch's jellies and jams;
o HDPE frozen juice container for Welch's in the largely unconverted
metal and paper-composite can markets;
46
o the debut of single and multi-serve, brand-distinctive, custom plastic
beverage packages, such as: Gatorade 10 ounce, Danimals 100 milliliter
and 93 milliliter yogurt drinks, Snapple Tea 20 ounce and Tropicana
Twister 1.75 liter containers;
o stand-up, pop-up extruded HDPE tube for Unilever's South American hair
care products; and
o blow-molded polypropylene pots for Danone's spoonable yogurts in
Europe.
Our innovative designs have also been recognized by a number of customers
and industry organizations, including our Flexa Tube (2003 DuPont Gold
Achievement Award and 2003 AmeriStar design award), Coca-Cola Quatro bottle
(2002 Mexican Packaging Association), Sabritas (Pepsi/Frito-lay), Be-Light
bottle (2002 Mexican Packaging Association), Welch's Spreads jars (2000
AmeriStar design award), Ragu Pasta Sauce jars (2000 AmeriStar and WorldStar
design awards), Hershey's Moolennium Syrup bottle (2000 AmeriStar and WorldStar
design awards) and our complete product line of single-serve hot-fill barrier
PET containers (2000 AmeriStar and WorldStar design awards).
SUCCESSFUL BUSINESS MODEL UTILIZING ON-SITE FACILITIES. More than 40% of
our 56 operating manufacturing facilities are located on-site at our customers'
plants, creating innovative operational arrangements. On-site plants enable us
to work more closely with our 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 long-term customer relationships. In many
cases, our on-site operations are integrated with our customers' manufacturing
operations so that deliveries are made, as needed, by direct conveyance to the
customers' filling lines. Since the beginning of 1998, we have established 14
new on-site facilities at customers' facilities, including the first on-site
plant for Gatorade, which we believe is one of the largest hot-fill PET
customers in the world and seven new on-site plants in seven countries for
Danone. We have also established an on-site pre-form plant at one of our resin
supplier's facilities, which is unique in our industry and further demonstrates
our innovative operational strategies. This plant supplies container pre-forms
that are blown into containers at our blow molding facilities, enabling us to
improve the quality and cost of our end products.
DIVERSIFIED BLUE-CHIP CUSTOMER BASE. We have enjoyed long-standing
relationships with most of our larger customers, with 82.5% of our net sales
generated by our top 20 customers in 2002. The majority of these customers are
under long-term contracts, with whom we have been doing business for an average
of 15 years. We are the leading custom plastic packaging supplier in several
geographic regions and/or for several brands of most of our top customers. In
addition, we are a sole source provider for many of our top customers. We have
strengthened our customer relationships by forming joint initiatives with our
customers relating to product design, cost-savings and production quality
efforts. These efforts have led to awards by several of our major customers,
including the Chevron Quality Achievement Award, the Dial Corporation Select
Supplier Award for Quality, the Association of Post Consumer Plastic Recyclers
Partners for Change Award and the Ocean Spray New Technology Award. In
addition, we were named Ocean Spray's Technology Supplier of the Year for 2001
and Welch's Supplier of the Year for 2000.
EXPERIENCED MANAGEMENT TEAM. We have a talented senior management team,
which has a track record of growing our company, implementing new packaging
technology, entering new markets and maintaining and expanding our blue-chip
customer base. Our executive officers have an average of 25 years work
experience in the packaging industry and 20 years with us. As of December 31,
2002, management owned a 2.3% equity interest in us and had options
representing an additional 3.6% equity interest in Graham Packaging Holdings
Company.
OUR STRATEGY
We intend to expand our leadership position in select value-added plastic
packaging opportunities by maintaining our position at the forefront of the
plastic conversion trend. We seek to achieve this objective by pursuing the
following strategies:
47
LEVERAGE OUR DESIGN AND ENGINEERING EXPERTISE TO CAPITALIZE ON CONVERSION
TO PLASTIC CONTAINERS. We have demonstrated significant success in designing
innovative, and often patented, plastic containers that add value through
innovative design shapes and features, such as reduced weight, handles, grips,
view stripes, pouring features, graphic-intensive customized labeling and
customized blow molding and specialized performance and structural
requirements, such as hot-fill capability, oxygen barriers, flavor protection,
recycled material usage and multi-layering. We seek to compete in select
plastic packaging areas which provide us with profitable, high-growth
opportunities to supply our customers with customized value-added packaging
that can increase demand for their products and help to accelerate the general
plastic conversion trend. Significant opportunities exist in the United States
and abroad to capture an even greater share of anticipated large scale plastic
conversions in areas such as chilled, frozen and hot-fill beverages and
hot-fill PET for shelf-stable food products including pickles, sauces, jellies
and jams. In addition, we believe that significant conversion opportunities
exist for product lines that have not yet begun to convert to plastic, but
would benefit from distinctive product design and improved performance.
MAINTAIN AND EXPAND POSITION WITH KEY CUSTOMERS. We plan to maintain and
expand our 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:
o delivery of superior customer service;
o development of innovative and distinctive packaging designs;
o opening of new on-site facilities;
o ongoing improvement of our low-cost manufacturing operations;
o global expansion alongside key customers; and
o proprietary technology development.
TARGETED CAPITAL INVESTMENT AND EXPANSION OF OUR ON-SITE PLANT NETWORK. We
expect to continue our disciplined approach to capital investments, whereby we
carefully evaluate new business initiatives and our ability to generate
targeted returns on new capital invested. As part of this strategy, we intend
to expand our on-site network of manufacturing facilities with both existing
and new customers. We will continue to focus on identifying opportunities both
domestically and internationally where on-site relationships would provide a
strategic benefit for both us and our customers and further strengthen our
relationship. Fifteen out of twenty-two domestic and international facilities
that we have established since the beginning of 1998 have been located on-site
at customer and vendor facilities. We are currently evaluating additional
on-site facilities with several of our customers. In addition to our primary
strategy of organic growth, we plan to consider select investments, joint
ventures and strategic acquisitions to complement our growth objectives as
opportunities arise.
COMPANY HISTORY
Graham Container Corporation was formed in the early 1970s, by Donald C.
Graham, in York, Pennsylvania as a manufacturer of plastic containers. In April
1989, Graham Container and Sonoco Products Company merged their plastic
container operations into Sonoco Graham Company, owned 60% by Graham and 40% by
Sonoco. In April 1991, Graham Container acquired Sonoco Products' interest in
the jointly-owned company and changed its name to Graham Packaging Company,
L.P. Graham Packaging Company, L.P. expanded internationally during the 1990s,
acquiring, taking majority interests in, or entering into joint ventures with,
a variety of established off-shore packaging businesses.
The Graham family sold a controlling interest in Graham Packaging Holdings
Company to affiliates of The Blackstone Group in February 1998 in a
recapitalization transaction. The principal components and consequences of the
recapitalization included the following:
o A change in the name of the predecessor company to Graham Packaging
Holdings Company;
48
o The contribution by Graham Packaging Holdings Company of substantially
all of its assets and liabilities to the operating company, Graham
Packaging Company, L.P.;
o The contribution by certain Graham Family entities to us of their
ownership interests in some of our partially-owned subsidiaries and
some real estate used but not owned by us;
o The initial borrowing by Graham Packaging Company, L.P. of $403.5
million under our prior senior credit agreement;
o The issuance of $225.0 million of senior subordinated notes by the
issuers and $100.6 million gross proceeds ($169.0 million aggregate
principal amount at maturity) senior discount notes by Graham
Packaging Holdings Company;
o The repayment by Graham Packaging Company, L.P. of substantially all
of our then-existing indebtedness;
o The distribution by Graham Packaging Company, L.P. to Graham Packaging
Holdings Company 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 Graham Packaging Holdings Company of some of its
partnership interests held by the Graham Family entities for $429.6
million;
o The purchase by Blackstone, DB Capital Investors, L.P., which at the
time was an affiliate of an initial purchaser in this offering, and
members of management, of partnership interests in Graham Packaging
Holdings Company held by the Graham Family entities for $208.3
million;
o The repayment by the Graham Family entities of amounts owed to Graham
Packaging Holdings Company under $20.2 million of promissory notes;
o The recognition of additional compensation expense under an equity
appreciation plan;
o The payment of bonuses and other cash payments and the granting of
certain equity awards to members of management; and
o The payment of a $6.2 million tax distribution by Graham Packaging
Holdings Company on November 2, 1998 to Graham Family entities for tax
periods prior to the recapitalization.
Since 1998, we have continued to expand our operations, both domestically
and internationally, through capital expenditures and through acquisitions.
CUSTOMERS
Substantially all of our sales are made to major branded consumer products
companies. Our customers demand a high degree of packaging design and
engineering to accommodate complex container shapes, performance and material
requirements and quick and reliable delivery. As a result, many customers opt
for long-term contracts, many of which have terms up to ten years. A majority
of our top 20 customers are under long-term contracts and accounted for over
82% of our net sales in 2002. Our contracts typically contain provisions
allowing for price adjustments based on the market price of resins and
colorants and in some cases the cost of energy and labor, among other factors.
In many cases, we are the sole supplier of our customers' custom plastic
container requirements nationally, regionally or for a specific brand. For the
year ended December 31, 2002, PepsiCo, through its Gatorade, Tropicana and Dole
product lines, accounted for 16.4% of our total net sales and was the only
customer that accounted for over 10% of our net sales for the year. PepsiCo
acquired Quaker Oats, which produces Gatorade, in 2001. Our sales to PepsiCo
were $98.9 million in 2000, $160.8 million in 2001 and $148.9 million in 2002,
which includes our sales to Quaker Oats prior to the acquisition.
49
INTERNATIONAL OPERATIONS
We have significant operations outside the United States in the form of
wholly owned subsidiaries, cooperative joint ventures and other arrangements.
We have 21 manufacturing facilities located in countries outside of the United
States, including Argentina (3), Belgium (1), Brazil (4), Canada (2), France
(3), Hungary (1), Mexico (3), Poland (2), Spain (1) and Turkey (1).
Argentina and Brazil. In Brazil, we have three on-site plants for motor
oil packaging, including one for Petrobras Distribuidora S.A., the national oil
company of Brazil. We also have an off-site plant in Brazil for our motor oil
and agricultural and chemical container businesses. In Argentina, we purchased
100% of the capital stock of Dodisa, S.A., Amerpack, S.A., Lido Plast, S.A. and
Lido Plast San Luis, S.A. in July 1999. In April 2000, Dodisa, S.A., Amerpack,
S.A. and Lido Plast, S.A. were dissolved without liquidation and merged into
Graham Packaging Argentina, S.A. In June 2000, in order to maximize efficiency,
we shifted some of the volume produced for Brazilian customers from our
Argentine operations to our Brazilian facilities and consolidated business in
Argentina, resulting in the closure of one facility.
Mexico. In December 1999, we entered into a joint venture agreement with
Industrias Innopack, S.A. de C.V. to manufacture, sell and distribute custom
plastic containers in Mexico, the Caribbean and Central America. We have two
on-site plants and one off-site plant in Mexico.
Europe. We have an on-site plant in each of Belgium, France, Hungary,
Poland and Spain and four off-site plants in France, Poland and Turkey, for the
production of plastic containers for liquid food, household and personal care,
automotive and agricultural chemical products. Through Masko Graham Spolka
Z.O.O., a 51% owned joint venture in Poland, we manufacture HDPE containers for
household and personal care and liquid food products.
Canada. We have one off-site facility and one on-site facility in Canada
to service Canadian and northern U.S. customers. Both facilities are near
Toronto. These facilities produce products for all three of our target end-use
markets.
Additional geographical operating segment information is provided in the
financial statements included in the prospectus.
COMPETITION
We face substantial regional and international competition across our
product lines from a number of well-established businesses. Our primary
competitors include Owens-Illinois, Inc., Ball Corporation, Constar
International Inc., Consolidated Container Company LLC, Plastipak, Inc., Silgan
Holdings Inc., Amcor Limited, Pechiney Plastic Packaging, Inc. and Alpla Werke
Alwin Lehner GmbH. Several of these competitors are larger and have greater
financial and other resources than we do. We believe long-term success is
dependent on our ability to provide superior levels of service, our speed to
market and our ability to develop product innovations and improve our
production technology and expertise. Other important competitive factors
include rapid delivery of products, production quality and price.
MARKETING AND DISTRIBUTION
Our sales are made through our own direct sales force; agents or brokers
are not utilized to conduct sales activities with customers or potential
customers. Sales activities are conducted from our corporate headquarters in
York, Pennsylvania and from field sales offices located in Houston, Texas;
Levittown, Pennsylvania; Maryland Heights, Missouri; Mississauga, Ontario,
Canada; Rancho Cucamonga, California; Paris, France; Buenos Aires, Argentina;
Sao Paulo, Brazil; and Sulejowek, Poland. Our products are typically delivered
by truck, on a daily basis, in order to meet our customers' just-in-time
delivery requirements, except in the case of on-site operations. In many cases,
our on-site operations are integrated with our customers' manufacturing
operations so that deliveries are made, as needed, by direct conveyance to the
customers' filling lines.
50
MANUFACTURING
A critical component of our strategy is to locate manufacturing facilities
on-site, reducing expensive shipping and handling charges and increasing
production and distribution efficiencies. We are a leader in providing on-site
manufacturing arrangements, with over 40% of our 56 operating manufacturing
facilities on-site at customer and vendor facilities. Within these 56 plants,
we operate over 350 production lines. We sometimes dedicate particular
production lines within a plant to better service customers. Our plants
generally operate 24 hours a day, five to seven days a week, although not every
production line is run constantly. When customer demand requires, we run our
plants seven days a week. Our manufacturing historically has not been subject
to large seasonal fluctuations.
In the blow molding process used for HDPE applications, resin pellets are
blended with colorants or other necessary additives and fed into the extrusion
machine, which uses heat and pressure to form the resin into a round hollow
tube of molten plastic called a parison. Bottle molds mounted radially on a
wheel capture the parison as it leaves the extruder. Once inside the mold, air
pressure is used to blow the parison into the bottle shape of the mold. In the
1970s, we introduced the Graham Wheel. The Graham Wheel is an
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. We have achieved very low production
costs, particularly in plants housing Graham Wheels. While certain of our
competitors also use wheel technology in their production lines, we have
developed a number of proprietary improvements which we believe permit our
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 an injection molding machine that uses heat and
pressure to mold a test tube shaped parison or "preform." The preform is then
fed into a 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. We believe
that the injection molders and blow molders we use 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. We believe 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 our equipment for
producing hot-fill PET containers.
We maintain a program of quality control with respect to suppliers, line
performance and packaging integrity for our containers. Our production lines
are equipped with various automatic inspection machines that electronically
inspect containers. Additionally, we inspect and test our product samples on
the production line for proper dimensions and performance. We also inspect our
products after packaging. We crush and recycle containers not meeting our
standards. We monitor and update our inspection programs to keep pace with
modern technologies and customer demands. Quality control laboratories are
maintained at each manufacturing facility to test our products.
We have highly modernized equipment in our plants, consisting primarily of
rotational wheel systems and shuttle systems, both of which are used for HDPE
and PP blow molding, and injection-stretch blow molding systems for value-added
PET containers. We are also pursuing development initiatives in barrier
technologies to strengthen our position in the food and beverage container
business. In the past, we have achieved substantial cost savings in our
manufacturing process through productivity and process enhancements, including
increasing line speeds, utilizing recycled products, reducing scrap and
optimizing plastic volume requirements for each product's specifications.
Total capital expenditures for 2000 were $163.4 million, for 2001 $74.3
million and for 2002 $92.4 million. We believe that capital investment to
maintain and upgrade property, plant and equipment is important to remain
competitive. We estimate that on average the annual capital expenditures
51
required to maintain our current facilities are approximately $25 million per
year. Capital expenditures for the nine months ended September 28, 2003 were
$70.1 million. For 2003, we expect to make capital investments of approximately
$110 million and for 2004, approximately $135.0 million.
PRODUCTS AND RAW MATERIALS
PET containers, which are generally transparent, are utilized for products
where glasslike clarity is valued and shelf stability is required, such as
carbonated soft drinks, juice, juice drinks and teas. HDPE containers, which
are nontransparent, are utilized to package products such as motor oil, fabric
care, dish care and personal care products, some food products, chilled juices
and frozen juice concentrates.
PET and HDPE resins constitute the primary raw materials used to make our
products. These materials are available from a number of suppliers, and we are
not dependent upon any single supplier. We maintain what we believe is an
adequate inventory to meet demands, but there is no assurance this will be true
in the future. Our gross profit has historically been substantially unaffected
by fluctuations in resin prices because industry practice permits substantially
all changes in resin prices to be passed through to customers through
appropriate changes in product pricing. However, a sustained increase in resin
prices, to the extent that those costs are not passed on to the end-consumer,
would make plastic containers less economical for our customers and could
result in a slower pace of conversions to plastic containers.
Through our wholly owned subsidiary, Graham Recycling Company, L.P., we
operate one of the largest HDPE bottles-to-bottles recycling plants in the
world, and more than 73% of our North American HDPE units produced contain
recycled HDPE bottles. The recycling plant is located near our headquarters in
York, Pennsylvania.
EMPLOYEES
As of December 31, 2002, we had approximately 3,900 employees, 2,400 of
which were located in the United States. Approximately 79% of our employees are
hourly wage employees, 51% of whom are represented by various labor unions and
are covered by various collective bargaining agreements that expire between
February 2004 and June 2008. We believe that we enjoy good relations with our
employees.
ENVIRONMENTAL MATTERS
Our 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, regulated materials and waste, and impose
liability for the costs of investigating and cleaning up, and damages resulting
from, present and past spills, disposals, or other releases of hazardous
substances or materials. 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 of 1980, as amended, also known as "Superfund"
in the United States, impose strict, and in some cases, joint and several,
liability on responsible parties for the investigation and cleanup of
contaminated soil, groundwater and buildings, and liability for damages to
natural resources, at a wide range of properties. Contamination at properties
that we formerly owned or operated as well as at properties that we currently
own or operate, and properties to which we sent hazardous substances, may
result in our liability under environmental laws. We are not aware of any
material noncompliance with the environmental laws currently applicable to us
and we are not the subject of any material claim for liability with respect to
contamination at any location. Based on existing information, we believe that
it is not reasonably likely that losses related to our known environmental
liabilities, in aggregate, will be material to our financial position, results
of operations, liquidity or cash flows. For our operations to comply with
environmental laws, we have incurred and will continue to incur costs, which
were not material in fiscal 2002 and are not expected to be material in the
future.
52
A number of governmental authorities both in the U.S. and abroad have
considered, are expected to consider or have passed legislation aimed at
reducing the amount of disposed plastic wastes. Those programs have included,
for example, mandating 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. That
legislation, as well as voluntary initiatives similarly aimed at reducing the
level of plastic wastes, could reduce the demand for plastic packaging, result
in greater costs for plastic packaging manufacturers or otherwise impact our
business. Some consumer products companies, including some of our customers,
have responded to these governmental initiatives and to perceived environmental
concerns of consumers by using bottles made in whole or in part of recycled
plastic. We operate one of the largest HDPE bottles-to-bottles recycling plants
in the world and more than 73% of our HDPE units produced in North America
contain materials from recycled HDPE bottles. We believe that to date these
initiatives and developments have not materially adversely affected us.
INTELLECTUAL PROPERTY
We hold various patents and trademarks. While in the aggregate our patents
are of material importance to our business, we believe that our business is not
dependent upon any one patent or trademark. We also rely on unpatented
proprietary know-how and continuing technological innovation and other trade
secrets to develop and maintain our competitive position. Others could,
however, obtain knowledge of this proprietary know-how through independent
development or other access by legal means. In addition to our own patents and
proprietary know-how, we are a party to licensing arrangements and other
agreements authorizing us to use other proprietary processes, know-how and
related technology and/or to operate within the scope of certain patents owned
by other entities. The duration of our licenses generally ranges from 9 to 20
years. In some cases licenses granted to us are perpetual and in other cases
the term of the license is related to the life of the patent associated with
the license. We also have licensed or sublicensed some of our intellectual
property rights to third parties.
PROPERTIES
We currently own or lease 57 plants, and currently operate 56 plants,
located in the United States, Canada, Argentina, Brazil, Belgium, France,
Hungary, Mexico, Poland, Spain, and Turkey. Twenty-five of our plants are
located on-site at customer and vendor facilities. Our operations in Poland and
Mexico are pursuant to joint venture arrangements where we own more than a 50%
interest. We believe that our plants, which are of varying ages and types of
construction, are in good condition, are suitable for our operations and
generally are expected to provide sufficient capacity to meet our requirements
for the foreseeable future.
The following table sets forth the location of our plants and
administrative facilities, whether on-site or off-site, whether leased or
owned, and their approximate current square footage.
ON-SITE SIZE
LOCATION OR OFF-SITE LEASED/OWNED (SQUARE FEET)
- ------------------------------------ ------------- -------------- --------------
U.S. Packaging Facilities (a)
- ------------------------------------
1. York, Pennsylvania Off-Site Owned 395,554
2. Maryland Heights, Missouri Off-Site Owned 308,961
3. Holland, Michigan Off-Site Leased 218,128
4. York, Pennsylvania Off-Site Leased 210,370
5. Selah, Washington On-Site Owned 170,553
6. Atlanta, Georgia On-Site Leased 165,000
7. Montgomery, Alabama Off-Site Leased 150,143
8. Emigsville, Pennsylvania Off-Site Leased 148,300
9. Levittown, Pennsylvania Off-Site Leased 148,000
10. Evansville, Indiana Off-Site Leased 146,720
11. Rancho Cucamonga, California Off-Site Leased 143,063
53
ON-SITE SIZE
LOCATION OR OFF-SITE LEASED/OWNED (SQUARE FEET)
- ------------------------------------- ------------- --------------------- --------------
12. Santa Ana, California Off-Site Owned 127,680
13. Muskogee, Oklahoma Off-Site Leased 125,000
14. Cincinnati, Ohio Off-Site Leased 111,669
15. Atlanta, Georgia Off-Site Leased 111,600
16. Jefferson, Louisiana Off-Site Leased 109,407
17. Woodridge, Illinois Off-Site Leased 103,382
18. Casa Grande, Arizona (b) Off-Site Leased 100,000
19. Bradford, Pennsylvania Off-Site Leased 90,350
20. Berkeley, Missouri Off-Site Owned 75,000
21. Cambridge, Ohio On-Site Leased 57,000
22. Port Allen, Louisiana On-Site Leased 56,721
23. Shreveport, Louisiana On-Site Leased 56,400
24. Richmond, California Off-Site Leased 55,256
25. Houston, Texas Off-Site Owned 52,500
26 Newell, West Virginia On-Site Leased 50,000
27. Lakeland, Florida Off-Site Leased 49,000
28. New Kensington, Pennsylvania On-Site Leased 48,000
29. N. Charleston, South Carolina On-Site Leased 45,000
30. Darlington, South Carolina On-Site Leased 43,200
31. Bradenton, Florida On-Site Leased 33,605
32. Vicksburg, Mississippi On-Site Leased 31,200
33. Bordentown, New Jersey On-Site Leased 30,000
34. West Jordan, Utah On-Site Leased 25,573
35. Wapato, Washington Off-Site Leased 20,300
Canadian Packaging Facilities
- -------------------------------------
36. Mississauga, Ontario Off-Site Owned 78,416
37. Toronto, Ontario On-Site (d) 5,000
Mexican Packaging Facilities
- -------------------------------------
38. Mexicali (e) Off-Site Leased 59,700
39 Irapuato On-Site (d) 58,130
40. Tlaxcala On-Site (d) 5,400
European Packaging Facilities (c)
- -------------------------------------
41. Assevent, France Off-Site Owned 186,000
42. Sulejowek, Poland (f) Off-Site Owned 83,700
43. Meaux, France Off-Site Owned 80,000
44. Aldaia, Spain On-Site Leased 75,350
45. Istanbul, Turkey Off-Site Owned 50,000
46. Villecomtal, France On-Site Leased 22,790
47. Rotselaar, Belgium On-Site Leased 15,070
48. Bierun, Poland (f) On-Site Leased 10,652
49. Nyirbator, Hungary On-Site Leased 5,000
South American Packaging Facilities
- -------------------------------------
50. Sao Paulo, Brazil Off-Site Leased 70,290
51. Buenos Aires, Argentina Off-Site Owned 33,524
52. Rio de Janeiro, Brazil On-Site Owned/Leased (g) 25,840
53. Longchamps, Argentina On-Site Owned/Leased (g) 21,530
54. Rio de Janeiro, Brazil On-Site Leased 16,685
55. Rio de Janeiro, Brazil On-Site (d) 11,000
56. San Luis, Argentina Off-Site Owned 8,070
Graham Recycling
- -------------------------------------
57. York, Pennsylvania Off-Site Owned 44,416
54
ON-SITE SIZE
LOCATION OR OFF-SITE LEASED/OWNED (SQUARE FEET)
- ---------------------------- ------------- -------------- --------------
Administrative Facilities
- ----------------------------
o York, Pennsylvania N/A Leased 83,373
o Blyes, France N/A Leased 9,741
o Rueil, Paris, France N/A Leased 4,300
o Mexico City, Mexico N/A Leased 360
- ----------
(a) Substantially all of our domestic tangible and intangible assets are
pledged as collateral pursuant to the terms of our new senior credit
agreement.
(b) This facility is not yet operational.
(c) We currently have on the market for sale our vacant facility located
in Noeux les Mines, France.
(d) We operate these on-site facilities without leasing the space we
occupy.
(e) This facility is leased by Industrias Graham Innopack S.de.R.L. de
C.V., in which Graham Packaging Latin America, LLC holds a 50%
interest.
(f) These facilities are owned by Masko Graham, in which we hold a 51%
interest through Graham Packaging Poland L.P.
(g) The building is owned and the land is leased.
LEGAL PROCEEDINGS
We are party to various litigation matters arising in the ordinary course
of business. We cannot estimate with certainty our ultimate legal and financial
liability with respect to litigation, but we believe, based on our examination
of these matters, our experience to date and our discussions with counsel, that
ultimate liability from our various litigation matters will not be material to
our business, financial condition, results of operations or cash flows.
55
MANAGEMENT
ADVISORY COMMITTEE MEMBERS AND EXECUTIVE OFFICERS
Set forth below are the names, ages as of August 31, 2003 and positions
with our company of the members of the Advisory Committee of Graham Packaging
Holdings Company and the executive officers of Graham Packaging Company, L.P.
NAME AGE POSITION
- -------------------- ----- -----------------------------------------------------------
Philip R. Yates 55 Chief Executive Officer and Chairman of the Advisory
Committee
Roger M. Prevot 44 President and Chief Operating Officer
John E. Hamilton 44 Chief Financial Officer
G. Robinson Beeson 55 Senior Vice President and General Manager, North America
Automotive and South America
Scott G. Booth 47 Senior Vice President and General Manager, North America
Household and Personal Care
Ashok Sudan 50 Senior Vice President and General Manager, Global Food and
Beverage
Jay W. Hereford 53 Vice President, Finance and Information Technology
Chinh E. Chu 36 Member of the Advisory Committee
Charles E. Kiernan 58 Member of the Advisory Committee
Howard A. Lipson 39 Member of the Advisory Committee
Gary G. Michael 62 Member of the Advisory Committee
David A. Stonehill 34 Member of the Advisory Committee
Philip R. Yates has served as our Chief Executive Officer and Chairman of
our Advisory Committee since February 2000. From February 1998 until February
2000, Mr. Yates served as the Chief Executive Officer and President. Prior to
February 1998, Mr. Yates served as our President and Chief Operating Officer.
Roger M. Prevot has served as our President and Chief Operating Officer
since February 2000. From February 1998 to February 2000, Mr. Prevot served as
Senior Vice President or Vice President and General Manager, Food and Beverage.
Prior to February 1998, Mr. Prevot served as our Vice President and General
Manager, U.S. Food and Beverage.
John E. Hamilton has served as our Chief Financial Officer since January
1999. From February 1998 to January 1999, Mr. Hamilton served as our Senior
Vice President or Vice President, Finance and Administration. Prior to February
1998, Mr. Hamilton served as our Vice President, Finance and Administration,
North America.
G. Robinson Beeson has served as our Senior Vice President and General
Manager, Automotive and South America; Senior Vice President and General
Manager, Automotive; or Vice President and General Manager, Automotive since
February 1998. Prior to February 1998, Mr. Beeson served as our Vice President
and General Manager, U.S. Automotive.
Scott G. Booth has served as our Senior Vice President and General
Manager, Household and Personal Care since February 1998. Prior to February
1998, Mr. Booth served as our Vice President and General Manager, U.S.
Household and Personal Care.
Ashok Sudan has served as our Senior Vice President and General Manager,
Global Food and Beverage; Senior Vice President and General Manager, Europe and
North America Food and Beverage Polyolefins; or Vice President and General
Manager, Europe since September 1, 2000. Prior to September 1, 2000, Mr. Sudan
served as Vice President Operations, Food and Beverage/PET; a position he
entered in 1998. Prior to that Mr. Sudan held various management positions in
manufacturing.
56
Jay W. Hereford has served as our Vice President, Finance and Information
Technology since June 2002. From November 1998 until June 2002, Mr. Hereford
served as Vice President, Finance and Administration. Prior to joining us in
November 1998, Mr. Hereford served as Vice President, Treasurer and Chief
Financial Officer of Continental Plastic Containers, Inc. from 1992 until
November 1998.
Chinh E. Chu is a Senior Managing Director of Blackstone, which he joined
in 1990. Mr. Chu currently serves on the Boards of Directors of Haynes
International, Inc. and Nycomed Holdings. Mr. Chu has served as a Member of our
Advisory Committee since February 1998.
Charles E. Kiernan has been a Member of the Advisory Committee since July
2002. Mr. Kiernan was the Executive Vice President and a Member of the
Executive Council for Aramark Corporation from 1998 to 2000, where he served as
President of the Food and Support Services unit. Prior to 1998, Mr. Kiernan was
employed by Duracell from 1986 to 1997. He served as the President and Chief
Operating Officer of Duracell International Inc. from 1994 to 1997, during
which time he also served as a Director of the company, and President of
Duracell North America from 1992 to 1994. Mr. Kiernan served as a member of the
Board of Trustees of the National Urban League.
Howard A. Lipson is a Senior Managing Director of Blackstone, which he
joined in 1988. Mr. Lipson has served as a Member of our Advisory Committee
since 1998. Since joining Blackstone in 1988, Mr. Lipson has been responsible
for and involved in the execution of Blackstone's purchase of Six Flags (a
joint venture with TimeWarner), the acquisition of Graham Packaging Company,
L.P., and Blackstone's investments in Universal Orlando, Allied Waste
Industries, Volume Services America, Mega Bloks, UCAR, US Radio, Transtar and
Columbia House Holdings Inc. among others. Mr. Lipson currently serves as
Director of Allied Waste Industries, Volume Services America, Mega Bloks,
Universal Orlando and Columbia House Holdings Inc. Prior to joining Blackstone,
Mr. Lipson was a member of the Mergers and Acquisitions Group of Salomon
Brothers Inc. Mr. Lipson graduated with honors from the Wharton School of the
University of Pennsylvania.
Gary Michael has been a Member of our Advisory Committee since October
2002. Mr. Michael currently serves as Interim President of the University of
Idaho, effective June 9, 2003. Prior to this position, he served as Chairman of
the Board and Chief Executive Officer of Albertson's, Inc., a national food and
drug retailer from February 1991 until his retirement in April 2001. Prior to
that he served as Vice Chairman, Executive Vice President and Senior Vice
President of Finance of Albertson's and served on the Board of Directors from
1979 until his retirement. Mr. Michael is a past Chairman of the Federal
Reserve Bank of San Francisco and is a long-time member of the Financial
Executives Institute. He currently serves as a Director of Questar, Inc., Boise
Cascade Corp., IdaCorp, Harrah's Entertainment, Inc. and The Clorox Company.
David A. Stonehill is a principal of Blackstone, which he joined in 2000.
Mr. Stonehill has served as a Member of the Advisory Committee since July 2000.
Mr. Stonehill currently serves as a Director of Universal Orlando and Columbia
House Holdings Inc. Prior to joining Blackstone, Mr. Stonehill served as a
Senior Vice President at Chartwell Investments Inc. where he had been employed
since 1996.
Except as described above, there are no arrangements or understandings
between any Member of our Advisory Committee or executive officer and any other
person pursuant to which that person was elected or appointed as a Member of
our Advisory Committee or executive officer.
EXECUTIVE COMPENSATION
The following table sets forth all cash compensation paid to our chief
executive officer and our four other most highly compensated executive
officers, or named executive officers, for the fiscal years
57
ended December 31, 2000, 2001 and 2002, and their respective titles at December
31, 2002. Our philosophy is to compensate all employees at levels competitive
with the market to enable us to attract, retain and motivate all employees.
From time to time, the compensation committee will review our compensation
structure through an examination of compensation information for comparable
companies and certain broader based data, compiled by us and by compensation
and other consulting firms. In 2000, the compensation committee utilized
William M. Mercer Incorporated to conduct a full review of our compensation
structure which was recently updated by them in May 2003.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------------- ---------------------------------------------
AWARDS PAYOUTS
------------------------- -------------------
OTHER RESTRICTED SECURITIES ALL
BONUS ANNUAL STOCK UNDERLYING LTIP OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY EARNED (1) COMP. AWARDS OPTIONS PAYOUTS COMP.(2)
- ----------------------------- ------ ----------- ------------ -------- ------------ ------------ --------- ---------
Philip R. Yates ............. 2002 $465,492 $816,348 $-- $-- -- $-- $5,140
Chief Executive Officer 2001 435,011 630,766 -- -- -- -- 4,260
2000 397,070 -- -- -- -- -- 4,258
Roger M. Prevot ............. 2002 325,894 505,559 -- -- -- -- 4,150
President and Chief Operating 2001 315,672 400,380 -- -- 14.0 -- 3,600
Officer(3) 2000 285,427 -- -- -- -- -- 3,843
John E. Hamilton ............ 2002 226,244 292,486 -- -- -- -- 4,062
Chief Financial Officer 2001 219,154 231,635 -- -- -- -- 3,774
2000 201,966 -- -- -- -- -- 3,752
G. Robinson Beeson .......... 2002 210,518 297,693 -- -- -- -- 4,305
Senior Vice President and 2001 204,390 200,000 -- -- -- -- 3,999
General Manager, North 2000 192,176 -- -- -- -- -- 3,964
America Automotive
and South America
Scott G. Booth .............. 2002 202,786 286,021 -- -- -- -- 4,125
Senior Vice President and 2001 198,557 150,000 -- -- -- -- 3,837
General Manager, North 2000 188,866 -- -- -- -- -- 3,737
America Household and
Personal Care
- ----------
(1) Represents bonus earned in the current year and paid in March of the
following year under our annual discretionary bonus plan.
(2) Represents contributions to our 401(k) plan, amounts attributable to
group term life insurance and payment of relocation costs.
(3) Roger M. Prevot has served as President and Chief Operating Officer since
February 8, 2000. Prior to February 8, 2000 Mr. Prevot served as Senior
Vice President or Vice President and General Manager, Food and Beverage.
MANAGEMENT AWARDS
In February 1998, we made cash payments to approximately 20 senior level
managers equal to approximately $7.0 million, which represented the aggregate
value payable under our former equity appreciation plan and additional cash
bonuses.
In February 1998, we granted to approximately 100 middle level managers
stay bonuses aggregating approximately $4.6 million, which were paid over a
period of three years.
58
In February 1998, we 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 those managers in respect of
the awards described in this paragraph. In addition, (a) we made additional
cash payments to those managers equal to approximately $3.1 million, which were
used by the recipients to purchase shares of restricted common stock of
BMP/Graham Holdings Corp., a limited partner of Graham Packaging Holdings
Company and (b) each recipient was granted the same number of additional
restricted shares as the shares purchased pursuant to clause (a). Those
restricted shares vest over a period of three years.
As a result of such equity awards and other adjustments, management owns
an aggregate of approximately 2.7% of the outstanding common stock of
BMP/Graham Holdings Corp., which constitutes approximately a 2.3% interest in
Graham Packaging Holding Company.
SUPPLEMENTAL INCOME PLAN
Mr. Yates is the sole participant in the Graham Engineering Corporation
Amended Supplemental Income Plan, or SIP. Graham Packaging Company, L.P.
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. 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 that benefit would not begin
until Mr. Yates attained age 65. In the event that we terminate Mr. Yates'
employment 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.
OPTION PLAN
In February 1998, Graham Packaging Holdings Company adopted the option
plan which provided for the grant of options to purchase units in Graham
Packaging Holdings Company. The Option Plan provides for the grant to
management employees and non-employee directors, advisors, consultants and
other individuals providing services to us of options to purchase limited
partnership interests in Graham Packaging Holdings Company equal to 0.01% of
Graham Packaging Holdings Company at the date of the recapitalization in 1998,
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 631.0 units, representing a total of up to 4.5% of the equity of Graham
Packaging Holdings Company.
The option plan is intended to advance our best interests by allowing
employees, consultants and other individuals who provide services to us to
acquire an ownership interest in us, thereby motivating them to contribute to
our success and to remain employed by us.
In general, 50% of the options vest and become exercisable in 20%
increments annually over five years so long as the holder of the option is
still an employee on the vesting date, which options are referred to as "time
options;" and 50% of the options vest and become exercisable in 20% increments
annually over five years so long as we achieve specified earnings targets for
each year, although these options do become exercisable in full without regard
to our achievement of these targets on the ninth anniversary of the date of
grant, so long as the holder of the option is still an employee on that date,
which options are referred to as "performance options." The exercise price per
unit shall be at or above the fair market value of a unit on the date of grant.
The number and type of units covered by outstanding options and exercise prices
may be adjusted to reflect certain events such as recapitalizations, mergers or
reorganizations of or by us.
A committee of the board of directors administers the option plan,
including the determination of the individuals to whom grants will be made, the
number of units subject to each grant and the various terms of the grants. The
committee may provide that an option cannot be exercised after the merger or
consolidation of our company into another company or corporation, the exchange
of all or substantially all of our assets for the securities of another
corporation, the acquisition by a corporation
59
of 80% or more of the partnership interest of our company or the liquidation or
dissolution of our company, and if the committee so provides, it will also
provide either by the terms of the option or by a resolution adopted prior to
the occurrence of a merger, consolidation, exchange, acquisition, liquidation
or dissolution, that, for ten business days prior to that event, the option
will be exercisable as to all units subject thereto, notwithstanding anything
to the contrary in any provisions of that option and that, upon the occurrence
of an event, the option will terminate and be of no further force or effect.
The committee may also provide that even if the option shall remain exercisable
after any event, from and after the event, any of the options 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 that
event by the holder of a number of partnership interests for which that option
could have been exercised immediately prior to that event. In addition, most
time options become fully vested and exercisable upon the occurrence of a
change of control of our company, as that term is defined in the option plan.
No suspension, termination or amendment of or to the option plan will
materially and adversely affect the rights of any participant with respect to
options issued hereunder prior to the date of suspension, termination or
amendment without the consent of the holder.
Option Grants in Last Fiscal Year
In January 2002, we granted four members of our management options to
purchase an aggregate of 18.9 units of Graham Packaging Holdings Company. In
addition, on October 1, 2002 we granted two Advisory Board members options to
purchase an aggregate of 31.0 units of Graham Packaging Holdings Company. None
of the options granted were to our named executive officers.
The following table sets forth certain information with respect to the
total options granted to the named executive officers at December 31, 2002.
TOTAL OPTION GRANTS AT DECEMBER 31, 2002
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED VALUE OF OPTIONS AT END OF
OPTIONS AT END OF UNEXERCISED IN THE FISCAL YEAR
NAME FISCAL YEAR MONEY OPTIONS EXERCISABLE
- -------------------------------------- ------------------- -------------------- ------------------
Philip R. Yates ...................... 77.4 $-- 59.2
Chief Executive Officer
66.7 -- 43.1
Roger M. Prevot ......................
President and Chief Operating Officer
48.5 -- 35.1
John E. Hamilton .....................
Chief Financial Officer
36.2 -- 27.7
G. Robinson Beeson ...................
Senior Vice President and General
Manager, North America Automotive
and South America
36.2 -- 27.7
Scott G. Booth .......................
Senior Vice President and General
Manager, North America Household
and Personal Care
60
The following table sets forth equity compensation plan information at
December 31, 2002.
EQUITY COMPENSATION PLAN INFORMATION
(a) (b) (c)
--- --- ---
Number of securities
Number of remaining available for
securities to be future issuance under equity
issued upon Weighted-average compensation plans
exercise of exercise price of (excluding securities
Plan category outstanding options outstanding options reflected in column(a))
- ----------------------- ------------------------ ------------------------ ---------------------------------
Equity compensation
plans approved by
security holders 531.0 $25,977 0.0
Equity compensation
plans not approved
by security holders N/A N/A N/A
----- ------- ---
Total 531.0 $25,977 0.0
===== ======= ===
PENSION PLANS
In the year ended December 31, 2002, Graham Packaging Holdings Company
participated in a noncontributory, defined benefit pension plan for salaried
and hourly employees other than employees covered by collectively bargained
plans. Graham Packaging Holdings Company also sponsored other noncontributory
defined benefit plans under collective bargaining agreements. These plans
covered substantially all of our 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 12 to the
financial statements for information regarding the pension plans for each of
the last three years for the period ended December 31, 2002 included elsewhere
in this prospectus.
The following table shows estimated annual benefits upon retirement under
the defined benefit plan for salaried employees, based on the final five years
average compensation and years of service, as specified therein:
PENSION PLAN TABLE
YEARS OF SERVICE
--------------------------------------------------------------
REMUNERATION 15 20 25 30 35
- ---------------- ---------- ---------- ---------- ---------- ----------
$ 125,000 $ 26,449 $ 35,266 $ 44,082 $ 52,899 $ 54,461
150,000 32,449 43,266 54,082 64,899 66,774
175,000 38,449 51,266 64,082 76,899 79,086
200,000 44,449 59,266 74,082 88,899 91,399
225,000 50,449 67,266 84,082 100,899 103,711
250,000 56,449 75,266 94,082 112,899 116,024
300,000 68,449 91,266 114,082 136,899 140,649
400,000 92,449 123,266 154,082 184,899 189,899
450,000 104,449 139,266 174,082 208,899 214,524
500,000 116,449 155,266 194,082 232,899 239,149
Note: The amounts shown are based on 2002 covered compensation of $39,451 for
an individual born in 1937. In addition, these figures do not reflect the
salary limit of $200,000 and benefit limit under the plan's normal form
of $160,000 in 2002.
61
The compensation covered by the defined benefit plan for salaried
employees is an amount equal to "total wages". This amount includes the annual
salary and bonus amounts shown in the Summary Compensation Table above for the
five named executive officers who participated in the plan. The estimated
credited years of service for the year ended December 31, 2002 for each of the
five named executive officers participating in the plan was as follows: Philip
R. Yates, 31 years; Roger M. Prevot, 15 years; John E. Hamilton, 19 years; G.
Robinson Beeson, 27 years; and Scott G. Booth, 14 years. Benefits under the
plan are computed on the basis of straight-life annuity amounts. Amounts set
forth in the pension plan table are not subject to deduction for Social
Security or other offset amounts.
401(K) PLAN
During 2002, Graham Packaging Holdings Company also participated in a
defined contribution plan under Internal Revenue Code Section 401(k), which
covered all of our U.S. employees except those represented by a collective
bargaining unit. Graham Packaging Holdings Company also sponsored other
noncontributory defined contribution plans under collective bargaining
agreements. Our contributions were determined as a specified percentage of
employee contributions, subject to certain maximum limitations. Costs for the
salaried and non-collective bargaining hourly plan for 2000, 2001 and 2002 were
$1.0 million, $1.1 million and $1.2 million, respectively.
EMPLOYMENT AGREEMENTS
On June 27, 2002, we entered into employment agreements with Messrs.
Yates, Prevot, Hamilton, Beeson and Booth. The term of each agreement is for
one year but automatically extends for an additional year unless either party
gives 90 days written notice prior to the end of the term. These contracts were
automatically extended for another year on June 27, 2003. Under each agreement,
the executive is entitled to a base salary and an annual bonus based on the
achievement of performance criteria established by our board. In the event that
an executive is terminated by us without cause (as defined in each agreement),
(including our election not to renew the term so that the term ends prior to
the fifth anniversary of the agreement), or the executive resigns with good
reason (as defined in the agreement), the executive will be entitled to (1)
full vesting of all equity awards granted to the executive, (2) a pro rata
bonus for the year of termination, (3) monthly payments for a period of 24
months (36 months with respect to Mr. Yates following a change of control (as
defined in the agreement)) of the executive's base salary and average annual
bonus, (4) continued health and dental benefits for a period of 24 months and
(5) outplacement services for a period of 12 months. If we elect not to extend
the term so that the term ends following the fifth anniversary of the
agreement, upon executive's termination of employment, executive will be
entitled to the same benefits described above except that the executive will
only be entitled to continued monthly payments and health and dental benefits
for a period of 12 months, rather than 24 months. During the term and for a
period of 18 months following the term (12 months if the executive's employment
is terminated due to our election not to renew the term so that the term ends
following the fifth anniversary of the agreement), each executive is subject to
a covenant not to compete with us or solicit our clients or employees. Each
executive has also covenanted not to reveal our confidential information during
the term of employment or thereafter and to assign to us any inventions created
by the executive while employed by us. With respect to the employment
agreements of Messrs. Yates, Prevot and Hamilton, if any payments by us to the
executive would result in an excise tax under Section 280G of the Internal
Revenue Code, the executive will be entitled to an additional payment so that
the executive will receive an amount equal to the payments the executive would
be entitled to receive without the imposition of the excise tax.
62
RELATED PARTY TRANSACTIONS
TRANSACTIONS WITH THE GRAHAM FAMILY AND AFFILIATES
We have engaged in a number of transactions with entities controlled by or
affiliated with Donald C. Graham, a previous chairman of the Advisory Committee
of Graham Packaging Holdings Company, and/or members of his immediate family.
Mr. Graham resigned as a member of the Advisory Committee on November 15, 2002.
These entities controlled by Mr. Graham and/or members of his immediate family
include Graham Capital Company, Graham Engineering Corporation, Graham Family
Growth Partnership, Graham Packaging Corporation and York Transportation and
Leasing, Inc.
We and Graham Engineering entered into an equipment sales, service and
licensing agreement in 1998, which provides that, with specified exceptions:
o Graham Engineering will sell to us and our affiliates some of Graham
Engineering's larger-sized proprietary extrusion blow molding wheel
systems, or 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 us as the percentage mark-up historically
offered by Graham Engineering to us and is as favorable as the mark-up
on comparable equipment offered to other parties;
o each party will provide consulting services to the other party at
hourly rates ranging from $60 to $200, (adjusted annually for
inflation); and
o Graham Engineering will grant to us a nontransferable, nonexclusive,
perpetual, royalty-free right and license to use technology.
Subject to exceptions and conditions, including the condition that we
purchase high output extrusion blow molding equipment, described in the
equipment sales, service and licensing agreement, we and our 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 February 2, 1998 and any other
country in or to which we have produced or shipped extrusion blow molded
plastic containers 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. Since December 31, 1998, both
parties have had the right to terminate the other party's right to receive
consulting services. Effective January 21, 2000 we terminated Graham
Engineering's rights to receive consulting services from us.
Graham Engineering supplies us with services and equipment. We paid Graham
Engineering approximately $8.2 million, $25.1 million, $23.8 million and $20.2
million for services and equipment for the nine months ended September 28, 2003
and the years ended December 31, 2000, 2001, and 2002, respectively.
On July 9, 2002, we and Graham Engineering amended our equipment sales,
service and licensing agreement to, among other things, (i) modify our existing
rights in exchange for a perpetual license in the event Graham Engineering
proposes to sell its rotary extrusion blow molding equipment business or assets
to certain of our significant competitors; (ii) clarify that our exclusivity
rights under the equipment sales, service and licensing agreement do not apply
to certain new generations of Graham Engineering equipment; (iii) provide
Graham Engineering with an opportunity to bid for sales of certain high output
extrusion blow molding equipment to us, including allowing Graham Engineering
to demonstrate that its equipment is substantially equivalent to equipment
manufactured by third parties and, if applicable, provide Graham Engineering
with a summary of reasons why we decided to buy any such equipment from any
supplier other than Graham Engineering; and (iv) obligate us retroactive to
January 1, 2002 and subject to certain credits and carry-forwards, to make
payments for products and services to Graham Engineering in the amount of at
least $12 million per calendar year, or else pay Graham Engineering a shortfall
payment. The minimum purchase commitment for 2002 was met and we do not expect
to be required to make a shortfall payment relative to our purchases for 2003.
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Graham Family Growth Partnership has supplied advisory services to us
since February 1998. We paid Graham Family Growth Partnership approximately
$0.8 million for services for the nine months ended September 28, 2003,
approximately $1.0 million for each of the years ended December 31, 2000 and
2001 and approximately $1.1 million for the year ended December 31, 2002,
including the $1.0 million fee paid pursuant to the Graham Packaging Holdings
Company partnership agreement.
Innopack, S.A., minority shareholder of Graham Innopack de Mexico S. de
R.L. de C.V., has supplied us with goods, for which we paid approximately $1.1
million, $5.4 million and $2.1 million for the years ended December 31, 2001
and 2002 and the nine months ended September 28, 2003, respectively.
On each of September 29, 2000 and March 29, 2001, the Graham family made
an equity contribution of $7.5 million to Graham Packaging Holdings Company.
MANAGEMENT STOCKHOLDERS AGREEMENT
Blackstone, our company and members of our management are party to a
Management Stockholders' Agreement, dated as of February 3, 1998. Under the
terms of that agreement, members of management acquired shares of BMP/Graham
Holdings Corporation, a limited partner in Graham Packaging Holdings Company,
in connection with our 1998 recapitalization.
OTHER TRANSACTIONS WITH BLACKSTONE
Under the terms of a monitoring agreement entered into among Blackstone,
us and Graham Packaging Company, L.P., Blackstone receives a monitoring fee of
$1.0 million per annum, and will be reimbursed for reasonable out-of-pocket
expenses. We paid Blackstone approximately $0.7 million for the nine months
ended September 28, 2003, approximately $1.0 million for each of the two years
ended December 31, 2000 and 2001 and approximately $1.1 million for the year
ended 2002. In the future, an affiliate or affiliates of Blackstone may receive
customary fees for advisory and other services rendered to us. If those
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.
On each of September 29, 2000 and March 29, 2001, Blackstone made an
equity contribution of $39.3 million to Graham Packaging Holdings Company,
bringing Blackstone's total equity investment in our company to $273.8 million.
TRANSACTIONS WITH INITIAL PURCHASERS AND AFFILIATES
In 1998, DB Capital Investors, LP, which at the time was an affiliate of
Deutsche Bank Securities Inc., acquired approximately a 4.8% equity interest in
BMP/Graham Holdings Corporation in connection with the recapitalization. On
February 20, 2003, Deutsche Bank AG and its affiliates sold an 80% interest in
the general partner of DB Capital Investors, L.P. to the DB Capital management
team and other third-party investors but retained a 20% limited partnership
interest in the general partner of DB Capital Investors, L.P. (which is now
called MidOcean Capital Investors, L.P.). In addition, affiliates of Deutsche
Bank Securities Inc. and Citigroup Global Markets Inc. were initial purchasers
of the senior subordinated notes due 2008 and the senior discount notes due
2009. Deutsche Bank Trust Company Americas (formerly Bankers Trust Company), an
affiliate of Deutsche Bank Securities Inc., acted as administrative agent and
provided a portion of the financing under our prior senior credit agreement
entered into in connection with the recapitalization in 1998, as well as our
new senior credit agreement, for which it received customary commitment and
other fees and compensation. In addition, an affiliate of Citigroup Global
Markets Inc. is the syndication agent and a lender under our new senior credit
agreement. Prior to the offering of the outstanding notes, Deutsche Bank Trust
Company Americas received $65 million aggregate principal amount of the
outstanding notes in exchange for $65 million aggregate principal amount of
tranche II term loans under our new senior credit agreement.
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LOANS TO MANAGEMENT
At December 31, 2002, we had loans outstanding to certain management
employees of $2.6 million, including loans to Philip R. Yates $1.0 million,
Roger M. Prevot $0.5 million, John E. Hamilton $0.2 million, G. Robinson Beeson
$0.3 million, Scott G. Booth $0.3 million, Ashok Sudan $0.1 million and other
individuals totaling $0.2 million. These loans were made in connection with the
capital call payments made on September 29, 2000 and March 29, 2001 pursuant to
the capital call agreement dated as of August 13, 1998. The proceeds from the
loans were used to buy stock in BMP/Graham Holdings Corp. to avoid any
management ownership dilution at the time of the capital call payments. The
loans mature on September 29, 2007 and March 29, 2008, respectively, and accrue
interest at a rate of 6.22%. The loans are secured by a pledge of the stock
purchased by the loans and by a security interest in any bonus due and payable
to the respective borrowers on or after the maturity date of the loans.
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THE EXCHANGE OFFER
GENERAL
The Issuers hereby offer, upon the terms and subject to the conditions set
forth in this prospectus and in the accompanying letter of transmittal (which
together constitute the exchange offer), to exchange up to $100.0 million
aggregate principal amount of our 8 3/4% Senior Subordinated Notes due 2008,
which we refer to in this prospectus as the outstanding notes, for a like
aggregate principal amount of our 8 3/4% Series B Senior Subordinated Notes due
2008, which we refer to in this prospectus as the exchange notes, properly
tendered on or prior to the expiration date and not withdrawn as permitted
pursuant to the procedures described below. The exchange offer is being made
with respect to all of the outstanding notes.
As of the date of this prospectus, $100.0 million aggregate principal
amount of the outstanding notes is outstanding. This prospectus, together with
the letter of transmittal, is first being sent on or about , 2003, to all
holders of outstanding notes known to us. Our obligation to accept outstanding
notes for exchange pursuant to the exchange offer is subject to certain
conditions set forth under "Certain Conditions to the Exchange Offer" below. We
currently expect that each of the conditions will be satisfied and that no
waivers will be necessary.
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We have entered into a registration rights agreement with the initial
purchasers of the outstanding notes in which we agreed, under some
circumstances, to file a registration statement relating to an offer to
exchange the outstanding notes for exchange notes. We also agreed to use our
reasonable best efforts to cause the exchange offer registration statement to
become effective under the Securities Act as promptly as practicable, but in no
event later than 260 days after the closing date and keep the exchange offer
registration statement effective for not less than 30 business days. The
exchange notes will have terms substantially identical to the outstanding
notes, except that the exchange notes will not contain terms with respect to
transfer restrictions, registration rights and additional interest for failure
to observe certain obligations in the registration rights agreement. The
outstanding notes were issued on May 28, 2003.
Under certain circumstances set forth in the registration rights
agreement, we will use our reasonable best efforts to cause the SEC to declare
effective a shelf registration statement with respect to the resale of the
outstanding notes and keep the statement, effective until the earlier of (i)
two years after the closing date and (ii) such time as all of the applicable
notes have been sold thereunder.
If we fail to comply with certain obligations under the registration
rights agreement, we will be required to pay additional interest to holders of
the outstanding notes.
Each holder of outstanding notes that wishes to exchange outstanding notes
for transferable exchange notes in the exchange offer will be required to make
the following representations:
o any exchange notes will be acquired in the ordinary course of its
business;
o the holder will have no arrangements or understanding with any person
to participate in the distribution of the outstanding notes or the
exchange notes within the meaning of the Securities Act;
o the holder is not an "affiliate," as defined in Rule 405 of the
Securities Act, of ours;
o if the holder is not a broker-dealer, that it is not engaged in, and
does not intend to engage in, the distribution of the exchange notes;
and
o if the holder is a broker-dealer, that it will receive exchange notes
for its own account in exchange for outstanding notes that were
acquired as a result of market-making activities or other trading
activities and that it will be required to acknowledge that it will
deliver a prospectus in connection with any resale of the exchange
notes. See "Plan of Distribution."
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RESALE OF EXCHANGE NOTES
Based on interpretations of the SEC staff set forth in no action letters
issued to unrelated third parties, we believe that exchange notes issued under
the exchange offer in exchange for outstanding notes may be offered for resale,
resold and otherwise transferred by any exchange note holder without compliance
with the registration and prospectus delivery provisions of the Securities Act,
if:
o the holder is not an "affiliate" of ours within the meaning of Rule
405 under the Securities Act;
o the exchange notes are acquired in the ordinary course of the holder's
business; and
o the holder does not intend to participate in the distribution of the
exchange notes.
Any holder who tenders in the exchange offer with the intention of
participating in any manner in a distribution of the exchange notes:
o cannot rely on the position of the staff of the SEC enunciated in
Exxon Capital Holdings Corporation or similar interpretive letters;
and
o must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale
transaction.
This prospectus may be used for an offer to resell, for the resale or for
other retransfer of exchange notes only as specifically set forth in this
prospectus. With regard to broker-dealers, only broker-dealers that acquired
the outstanding notes as a result of market-making activities or other trading
activities may participate in the exchange offer. Each broker-dealer that
receives exchange notes for its own account in exchange for outstanding notes,
where the outstanding notes were acquired by the 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 the exchange notes.
Please read the section captioned "Plan of Distribution" for more details
regarding the transfer of exchange notes.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the accompanying letter of transmittal, we will accept for exchange any
outstanding notes properly tendered and not withdrawn prior to the expiration
date. We will issue $1,000 principal amount of exchange notes in exchange for
each $1,000 principal amount of outstanding notes surrendered under the
exchange offer. Outstanding notes may be tendered only in integral multiples of
$1,000.
The form and terms of the exchange notes will be substantially identical
to the form and terms of the outstanding notes except the exchange notes will
be registered under the Securities Act, will not bear legends restricting their
transfer and will not provide for any additional amounts upon our failure to
fulfill our obligations under the registration rights agreement to file, and
cause to be effective, a registration statement. The exchange notes will
evidence the same debt as the outstanding notes. The exchange notes will be
issued under and entitled to the benefits of the same indenture that authorized
the issuance of the outstanding notes.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of outstanding notes being tendered for exchange.
As of the date of this prospectus, $100.0 million aggregate principal
amount of the outstanding notes are outstanding. This prospectus and a letter
of transmittal are being sent to all registered holders of outstanding notes.
There will be no fixed record date for determining registered holders of
outstanding notes entitled to participate in the exchange offer.
We intend to conduct the exchange offer in accordance with the provisions
of the exchange offer and registration rights agreement, the applicable
requirements of the Securities Act and the Exchange Act and the rules and
regulations of the SEC. Outstanding notes that are not tendered for exchange in
the exchange offer will remain outstanding and continue to accrue interest and
will be entitled to
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the rights and benefits the holders have under the indenture relating to the
outstanding notes, except for any rights under the exchange offer and
registration rights agreement that by their terms terminate upon the
consummation of the exchange offer.
We will be deemed to have accepted for exchange properly tendered
outstanding notes when we have given oral or written notice of the acceptance
to the exchange agent. The exchange agent will act as agent for the tendering
holders for the purposes of receiving the exchange notes from us and delivering
exchange notes to the holders. Under the terms of the exchange offer and
registration rights agreement, we reserve the right to amend or terminate the
exchange offer, and not to accept for exchange any outstanding notes not
previously accepted for exchange, upon the occurrence of any of the conditions
specified below under the caption "-- Certain Conditions to the Exchange
Offer."
Holders who tender outstanding notes in the exchange offer 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
outstanding notes. We will pay all charges and expenses, other than certain
applicable taxes described below, in connection with the exchange offer. It is
important that you read the section labeled "-- Fees and Expenses" below for
more details regarding fees and expenses incurred in the exchange offer.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The exchange offer will expire at 12:00 a.m., New York City time on ,
2003, unless in our sole discretion we extend it.
In order to extend the exchange offer, we will notify the exchange agent
orally or in writing of any extension. We will notify the registered holders of
outstanding notes of the extension no later than 9:00 a.m., New York City time,
on the business day after the previously scheduled expiration date.
We reserve the right, in our sole discretion:
o to extend the exchange offer or to terminate the exchange offer and to
refuse to accept outstanding notes not previously accepted if any of
the conditions set forth below under "-- Certain Conditions to the
Exchange Offer" have not been satisfied, by giving oral or written
notice of the delay, extension or termination to the exchange agent;
o under the terms of the exchange offer and registration rights
agreement, to amend the terms of the exchange offer in any manner; or
o to delay accepting for exchange any outstanding notes in the event we
amend or extend the exchange offer.
Any delay in acceptance, extension, termination, or amendment will be
followed as promptly as practicable by oral or written notice to the registered
holders of outstanding notes. If we amend the exchange offer in a manner that
we determine constitutes a material change, we will promptly disclose the
amendment in a manner reasonably calculated to inform the holder of outstanding
notes of the amendment.
Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment
of the exchange offer, we will have no obligation to publish, advertise, or
otherwise communicate any public announcement, other than by making a release
to a financial news service by 9 a.m. Eastern time on the next business day
after the scheduled expiration date of the exchange offer and meeting the
requirements of Rule 14e-1(d) of the Exchange Act.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Despite any other term of the exchange offer, we will not be required to
accept for exchange, or exchange any exchange notes for, any outstanding notes,
and we may terminate the exchange offer as provided in this prospectus before
accepting any outstanding notes for exchange if in our reasonable judgment:
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o the exchange notes to be received will not be tradable by the holder.
without restriction under the Securities Act, the Securities Exchange
Act and without material restrictions under the blue sky or securities
laws of substantially all of the states of the United States;
o the exchange offer, or the making of any exchange by a holder of
outstanding notes, would violate applicable law or any applicable
interpretation of the staff of the SEC: or
o any action or proceeding has been instituted or threatened in any
court or by or before any governmental agency with respect to the
exchange offer that, in our judgment, would reasonably be expected to
impair our ability to proceed with the exchange offer.
In addition, we will not be obligated to accept for exchange the
outstanding notes of any holder that has not made to us:
o the representations described under "-- Purpose and Effect of the
Exchange Offer," "-- Procedures for Tendering" and "Plan of
Distribution"; and
o such other representations as may be reasonably necessary under
applicable SEC rules, regulations or interpretations to make available
to it an appropriate form for registration of the exchange notes under
the Securities Act.
We expressly reserve the right, at any time or at various times, to extend
the period of time during which the exchange offer is open. Consequently, we
may delay acceptance of any outstanding notes by giving oral or written notice
of the extension to their holders. During any such extensions, all notes
previously tendered will remain subject to the exchange offer, and we may
accept them for exchange upon the expiration of the exchange offer. We will
return any outstanding notes that we do not accept for exchange for any reason
without expense to their tendering holder promptly after the expiration or
termination of the exchange offer.
We expressly reserve the right to amend or terminate the exchange offer,
and to reject for exchange any outstanding notes not previously accepted for
exchange, upon the occurrence of any of the conditions of the exchange offer
specified above. We will give oral or written notice of any extension,
amendment, nonacceptance, or termination to the holders of the outstanding
notes as promptly as practicable.
These conditions are for our sole benefit and we may assert them
regardless of the circumstances that may give rise to them or waive them in
whole or in part at any or at various times in our sole discretion. If we fail
at any time to exercise any of the foregoing rights, this failure will not
constitute a waiver of this right. Each right will be deemed an ongoing right
that we may assert at any time or at various times prior to the expiration of
the exchange offer. All conditions to the exchange offer, other than those
conditions subject to government approvals, will be satisfied or waived prior
to the expiration of the exchange offer.
In addition, we will not accept for exchange any outstanding notes
tendered, and will not issue exchange notes in exchange for any outstanding
notes, if at the time any stop order will be threatened or in effect with
respect to the registration statement of which this prospectus constitutes a
part or the qualification of the indenture under the Trust Indenture Act.
PROCEDURES FOR TENDERING
Only a holder of outstanding notes may tender the outstanding notes in the
exchange offer. To tender in the exchange offer, a holder must:
o complete, sign and date the accompanying letter of transmittal, or a
facsimile of the letter of transmittal; have the signature on the
letter of transmittal guaranteed if the letter of transmittal so
requires; and mail or deliver the letter of transmittal or facsimile
to the exchange agent prior to the expiration date; or
o comply with DTC's Automated Tender Offer Program procedures described
below.
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In addition, either:
o the exchange agent must receive the outstanding notes along with the
accompanying letter of transmittal; or
o the exchange agent must receive, prior to the expiration date, a
timely confirmation of book-entry transfer of the outstanding notes
into the exchange agent's account at DTC according to the procedures
for book-entry transfer described below or a properly transmitted
agent's message; or
o the holder must comply with the guaranteed delivery procedures
described below.
To be tendered effectively, the exchange agent must receive any physical
delivery of a letter of transmittal and other required documents at the address
set forth below under "-- Exchange Agent" prior to the expiration date.
The tender by a holder that is not withdrawn prior to the expiration date
will constitute an agreement between the holder and us in accordance with the
terms and subject to the conditions set forth in this prospectus and in the
accompanying letter of transmittal.
The method of delivery of outstanding notes, the letter of transmittal and
all other required documents to the exchange agent is at the holder's election
and risk. Rather than mail these items, we recommend that holders use an
overnight or hand delivery service. In all cases, holders should allow
sufficient time to assure delivery to the exchange agent before the expiration
date. Holders should not send the letter of transmittal or outstanding notes to
us. Holders may request their respective brokers, dealers, commercial banks,
trust companies or other nominees to effect the above transactions for them.
Any beneficial owner whose outstanding notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact the registered holder promptly and instruct it
to tender on the owners behalf. If the beneficial owner wishes to tender on its
own behalf, it must, prior to completing and executing the accompanying letter
of transmittal and delivering its outstanding notes either:
o make appropriate arrangements to register ownership of the outstanding
notes in such owner's name; or
o obtain a properly completed bond power from the registered holder of
outstanding notes.
The transfer of registered ownership may take considerable time and may
not be completed prior to the expiration date.
Signatures on a letter of transmittal or a notice of withdrawal described
below must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the
United States or another "eligible institution" within the meaning of Rule
17Ad-15 under the Exchange Act, unless the outstanding notes are tendered:
o by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the
accompanying letter of transmittal; or
o for the account of an eligible institution.
If the accompanying letter of transmittal is signed by a person other than
the registered holder of any outstanding notes listed on the outstanding notes,
the outstanding notes must be endorsed or accompanied by a properly completed
bond power. The bond power must be signed by the registered holder as the
registered holder's name appears on the outstanding notes and an eligible
institution must guarantee the signature on the bond power.
If the accompanying letter of transmittal or any outstanding notes or bond
powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others
70
acting in a fiduciary or representative capacity, these persons should so
indicate when signing. Unless waived by us, they should also submit evidence
satisfactory to us of their authority to deliver the accompanying letter of
transmittal.
The exchange agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may use DTC's Automated Tender Offer
Program to tender. Participants in the program may, instead of physically
completing and signing the accompanying letter of transmittal and delivering it
to the exchange agent, transmit their acceptance of the exchange offer
electronically. They may do so by causing DTC to transfer the outstanding notes
to the exchange agent in accordance with its procedures for transfer. DTC will
then send an agent's message to the exchange agent. The term "agent's message"
means a message transmitted by DTC, received by the exchange agent and forming
part of the book-entry confirmation, to the effect that:
o DTC has received an express acknowledgment from a participant in its
Automated Tender Offer Program that is tendering outstanding notes
that are the subject of the book-entry confirmation;
o the participant has received and agrees to be bound by the terms of
the accompanying letter of transmittal, or, in the case of an agent's
message relating to guaranteed delivery, that the participant has
received and agrees to be bound by the applicable notice of guaranteed
delivery; and
o the agreement may be enforced against that participant.
We will determine in our sole discretion all outstanding questions as to
the validity, form, eligibility, including time or receipt, acceptance of
tendered outstanding notes and withdrawal of tendered outstanding notes. Our
determination will be final and binding. We reserve the absolute right to
reject any outstanding notes not properly tendered or any outstanding notes the
acceptance of which would, in the opinion of our counsel, be unlawful. We also
reserve the right to waive any defects or irregularities as to particular
outstanding notes. Our interpretation of the terms and conditions of the
exchange offer, including the instructions in the accompanying letter of
transmittal, will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of outstanding notes must
be cured within such time as we will determine. Although we intend to notify
holders of defects or irregularities with respect to tenders of outstanding
notes, neither we, the exchange agent, nor any other person will incur any
liability for failure to give the notification. Tenders of outstanding notes
will not be deemed made until any defects or irregularities have been cured or
waived. Any outstanding notes received by the exchange agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned to their holder without cost to the tendering
holder, unless otherwise provided in the letter of transmittal, promptly
following the expiration date.
In all cases, we will issue exchange notes for outstanding notes that we
have accepted for exchange under the exchange offer only after the exchange
agent timely receives:
o outstanding notes or a timely book-entry confirmation of the
outstanding notes into the exchange agent's account at DTC; and
o a properly completed and duly executed letter of transmittal and all
other required documents or a properly transmitted agent's message.
By signing the accompanying letter of transmittal or authorizing the
transmission of the agent's message, each tendering holder of outstanding notes
will represent or be deemed to have represented to us that, among other things:
o any exchange notes that the holder receives will be acquired in the
ordinary course of its business;
o the holder has no arrangement or understanding with any person or
entity to participate in the distribution of the exchange notes;
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o if the holder is not a broker-dealer, that it is not engaged in and
does not intend to engage in the distribution of the exchange notes;
o if the holder is a broker-dealer that will receive exchange notes for
its own account in exchange for outstanding notes that were acquired
as a result of market-making activities or other trading activities,
that it will deliver a prospectus, as required by law, in connection
with any resale of any exchange notes. See "Plan of Distribution"; and
o the holder is not an "affiliate," as defined in Rule 405 of the
Securities Act, of ours or, if the holder is an affiliate, it will
comply with any applicable registration and prospectus delivery
requirements of the Securities Act.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with
respect to the outstanding notes at DTC for purposes of the exchange offer
promptly after the date of this prospectus. Any financial institution
participating in DTC's system may make book-entry delivery of outstanding notes
by causing DTC to transfer the outstanding notes into the exchange agent's
account at DTC in accordance with DTC's procedures for transfer. Holders of
outstanding notes who are unable to deliver confirmation of the book-entry
tender of their outstanding notes into the exchange agent's account at DTC or
all other documents required by the letter of transmittal to the exchange agent
on or prior to the expiration date must tender their outstanding notes
according to the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders wishing to tender their outstanding notes but whose outstanding
notes are not immediately available or who cannot deliver their outstanding
notes, the accompanying letter of transmittal or any other available required
documents to the exchange agent or comply with the applicable procedures under
DTC's Automated Tender Offer Program prior to the expiration date may tender
if:
o the tender is made through an eligible institution;
o prior to the expiration date, the exchange agent receives from the
eligible institution either a properly completed and duly executed
notice of guaranteed delivery, by facsimile transmission, mail or hand
delivery, or a properly transmitted agent's message and notice of
guaranteed delivery:
o setting forth the name and address of the holder, the registered
number(s) of the outstanding notes and the principal amount of
outstanding notes tendered;
o stating that the tender is being made thereby; and
o guaranteeing that, within three New York Stock Exchange trading
days after the expiration date, the accompanying letter of
transmittal, or facsimile thereof, together with the outstanding
notes or a book-entry confirmation, and any other documents
required by the accompanying letter of transmittal will be
deposited by the eligible institution with the exchange agent;
and
o the exchange agent receives the properly completed and executed letter
of transmittal, or facsimile thereof, as well as all tendered
outstanding notes in proper form for transfer or a book-entry
confirmation, and all other documents required by the accompanying
letter of transmittal, within three New York Stock Exchange trading
days after the expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery will
be sent to holders who wish to tender their outstanding notes according to the
guaranteed delivery procedures set forth above.
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WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, holders of outstanding
notes may withdraw their tenders at any time prior to the expiration date.
For a withdrawal to be effective:
o the exchange agent must receive a written notice of withdrawal, which
notice may be by telegram, telex, facsimile transmission or letter of
withdrawal at one of the addresses set forth below under "-- Exchange
Agent", or
o holders must comply with the appropriate procedures of DTC's Automated
Tender Offer Program system.
Any notice of withdrawal must:
o specify the name of the person who tendered the outstanding notes to
be withdrawn;
o identify the outstanding notes to be withdrawn, including the
principal amount of the outstanding notes; and
o where certificates for outstanding notes have been transmitted,
specify the name in which the outstanding notes were registered, if
different from that of the withdrawing holder.
If certificates for outstanding notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of the
certificates, the withdrawing holder must also submit:
o the serial numbers of the particular certificates to be withdrawn; and
o a signed notice of withdrawal with signatures guaranteed by an
eligible institution unless the holder is an eligible institution.
If outstanding notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at DTC to be credited with the withdrawn
outstanding notes and otherwise comply with the procedures of that facility. We
will determine all questions as to the validity, form and eligibility,
including time of receipt, of the notices, and our determination will be final
and binding on all parties. We will deem any outstanding notes so withdrawn not
to have been validly tendered for exchange for purposes of the exchange offer.
Any outstanding notes that have been tendered for exchange but that are not
exchanged for any reason will be returned to their holder without cost to the
holder, or, in the case of outstanding notes tendered by book-entry transfer
into the exchange agent's account at DTC according to the procedures described
above, the outstanding notes will be credited to an account maintained with DTC
for outstanding notes, promptly after withdrawal, rejection of tender or
termination of the exchange offer. Properly withdrawn, outstanding notes may be
retendered by following one of the procedures described under "--Procedures for
Tendering" above at any time on or prior to the expiration date.
EXCHANGE AGENT
The Bank of New York has been appointed as exchange agent for the exchange
offer. You should direct questions and requests for assistance, requests for
additional copies of this prospectus or for the letter of transmittal and
requests for the notice of guaranteed delivery to the exchange agent as
follows:
73
BY REGISTERED OR CERTIFIED MAIL: BY FACSIMILE: BY HAND OR OVERNIGHT DELIVERY:
The Bank of New York The Bank of New York The Bank of New York
Corporate Trust Operations Corporate Trust Operations Corporate Trust Operations
Reorganization Unit Reorganization Unit Reorganization Unit
101 Barclay Street--7E 101 Barclay Street 101 Barclay Street--Lobby Window
New York, NY 10286 New York, NY 10286 New York, NY 10286
Attn: Ms. Carolle Montreuil Attn: Ms. Carolle Montreuil Attn: Ms. Carolle Montreuil
(212) 298-1915
CONFIRM RECEIPT OF FACSIMILE
BY TELEPHONE
(212) 815-5920
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT
CONSTITUTE A VALID DELIVERY OF THE LETTER OF TRANSMITTAL.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal
solicitation is being made by mail; however, we may make additional
solicitations by telephone or in person by our officers and regular employees
and those of our affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptance of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses.
Under the terms of the registration rights agreement affiliates of the
initial purchasers of the outstanding notes will reimburse us for any such
expenses we incur in connection with the exchange offer.
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of
outstanding notes under the exchange offer. The tendering holder, however, will
be required to pay any transfer taxes, whether imposed on the registered holder
or any other person, if:
o certificates representing outstanding 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
outstanding notes tendered;
o tendered outstanding notes are registered in the name of any person
other than the person signing the letter of transmittal; or
o a transfer tax is imposed for any reason other than the exchange of
outstanding notes under the exchange offer.
If satisfactory evidence of payment of the taxes is not submitted with the
letter of transmittal, the amount of the transfer taxes will be billed to that
tendering holder.
Holders who tender their outstanding notes for exchange will not be
required to pay any transfer taxes. However, holders who instruct us to
register exchange notes in the name of, or request that outstanding notes not
tendered or not accepted in the exchange offer be returned to, a person other
than the registered tendering holder will be required to pay any applicable
transfer tax.
Under the terms of the registration rights agreement affiliates of the
initial purchasers of the outstanding notes will reimburse us for any transfer
taxes we pay.
74
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of outstanding notes who do not exchange their outstanding notes
for exchange notes under the exchange offer will remain subject to the
restrictions on transfer of the outstanding notes:
o as set forth in the legend printed on the notes as a consequence of
the issuance of the outstanding notes under the exemption from, or in
transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws; and
o otherwise as set forth in the offering memorandum distributed in
connection with the private offering of the outstanding notes.
In general, you may not offer or sell the outstanding notes unless they
are registered under the Securities Act, or if the offer or sale is exempt from
registration under the Securities Act and applicable state securities laws.
Except as required by the registration rights agreement, we do not intend to
register resales of the outstanding notes under the Securities Act. Based on
interpretations of the SEC staff, exchange notes issued under the exchange
offer may be offered for resale, resold or otherwise transferred by their
holders (other than any holder that is our "affiliate" within the meaning of
Rule 405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that the holders
acquired the exchange notes in the ordinary course of the holders' business and
the holders have no arrangement or understanding with respect to the
distribution of the exchange notes to be acquired in the exchange offer. Any
holder who tenders in the exchange offer for the purpose of participating in a
distribution of the exchange notes:
o cannot rely on the applicable interpretations of the SEC; and
o must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale
transaction.
ACCOUNTING TREATMENT
We will record the exchange notes in our accounting records at the same
carrying value as the outstanding notes, which is the aggregate principal
amount, as reflected in our accounting records on the date of exchange.
Accordingly, we will not recognize any gain or loss for accounting purposes in
connection with the exchange offer. We will record the expenses of the exchange
offer as incurred.
OTHER
Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your own decision on what action to take.
We may in the future seek to acquire untendered outstanding notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. However, we have no present plans to acquire any outstanding
notes that are not tendered in the exchange offer or to file a registration
statement to permit resales of any untendered outstanding notes.
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DESCRIPTION OF THE NOTES
The outstanding notes, which we refer to in this description as the Senior
Subordinated Notes, were issued and the exchange notes will be issued under an
indenture, dated as of February 2, 1998, which we refer to as the Senior
Subordinated Indenture, by and among Graham Packaging Company, L.P., GPC
Capital Corp. I, Graham Packaging Holdings Company, as guarantor, and The Bank
of New York (formerly United States Trust Company of New York), as trustee. The
terms of the exchange notes will be substantially identical to those of the
Senior Subordinated Notes described below. The issuers previously issued
$150,000,000 aggregate principal amount of publicly registered Senior
Subordinated Notes under the Senior Subordinated Indenture, which we refer to
in this prospectus as the existing notes and $75,000,000 aggregate principal
amount of Floating Rate Subordinated Term Securities due 2008 under the Senior
Subordinated Indenture. The exchange notes will be identical in all respects
to, and will trade as a single series with, the outstanding notes. The Senior
Subordinated Indenture is governed by the Trust Indenture Act of 1939, or the
TIA. The following summary describes the material provisions of the Senior
Subordinated Indenture. For purposes of this section, the word "Company" refers
solely to Graham Packaging Company, L.P., and does not include any of its
subsidiaries or its parent company. In this description, references to the
"Company Issuers" refer only to Graham Packaging Company, L.P., and GPC Capital
Corp. I, and not to any of their respective subsidiaries or their parent
company.
GENERAL
The Senior Subordinated Notes are unsecured obligations of the Company
Issuers, ranking subordinate in right of payment to all of the Company Issuers'
Senior Indebtedness.
The Senior Subordinated Notes were issued in fully registered form only,
without coupons, in denominations of $1,000 and integral multiples of $1,000.
PRINCIPAL, MATURITY AND INTEREST
The Senior Subordinated Notes are limited to $325,000,000 aggregate
principal amount. $100,000,000 of Senior Subordinated Notes were issued as the
outstanding notes on May 28, 2003. $225,000,000 of Senior Subordinated Notes
were issued on February 2, 1998 and exchanged for $225,000,000 aggregate
principal amount of registered notes on September 8, 1998. The Senior
Subordinated Notes will mature on January 15, 2008. Interest on the Senior
Subordinated Notes 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 or July 1 immediately preceding the
applicable interest payment date. Interest on the Senior Subordinated Notes
will accrue from the most recent date on which interest has been paid or, if no
interest has been paid, from and including the date of issuance.
The Senior Subordinated Notes will not be entitled to the benefit of any
mandatory sinking fund.
Interest on the Senior Subordinated Notes will accrue at the rate of 83/4%
per year.
REDEMPTION
Optional Redemption. The Senior Subordinated Notes will be redeemable at
the Company Issuers' option, in whole at any time or in part from time to time,
on or after January 15, 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, if any, to the date of redemption.
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YEAR PERCENTAGE
- -------------------------------- ------------
2003 ........................ 104.375%
2004 ........................ 102.917%
2005 ........................ 101.458%
2006 and thereafter ......... 100.000%
The Company Issuers may decide to redeem the notes if they are able to
reduce their leverage or are able to refinance the Senior Subordinated Notes on
more favorable terms, and if their or the Guarantor's other debt agreements
permit them to do so. The Company Issuers' decision to redeem Senior
Subordinated Notes will be based upon, among other factors, available interest
rates on indebtedness that the Company Issuers would incur to refinance the
Senior Subordinated Notes, the applicable redemption price, the Company
Issuers' liquidity and the ability to use funds to redeem Senior Subordinated
Notes in compliance with the financial covenants in the Company Issuers' and
the Guarantor's debt agreements.
SELECTION AND NOTICE OF REDEMPTION
If less than all of the Senior Subordinated Notes are to be redeemed at
any time or if more Senior Subordinated 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 Notes for
redemption or purchase, as the case may be, will be made by the trustee in
compliance with the requirements, if any, of the principal national securities
exchange on which the Senior Subordinated Notes are listed, or, if such Senior
Subordinated Notes are not so listed, on a pro rata basis, by lot or by such
other method as the trustee deems fair and appropriate (and in such manner as
complies with applicable legal requirements); provided that no Senior
Subordinated 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 Notes to be purchased or
redeemed at such holder's registered address. If any Senior Subordinated Note
is to be purchased or redeemed in part only, any notice of purchase or
redemption that relates to such Senior Subordinated Note shall state the
portion of the principal amount thereon that has been or is to be purchased or
redeemed.
A new Senior Subordinated Note in principal amount equal to the
unpurchased or unredeemed portion of any Senior Subordinated Note purchased or
redeemed in part will be issued in the name of the holder thereof upon
cancellation of the original Senior Subordinated Note. On and after the
purchase or redemption date, unless the Company Issuers default in payment of
the purchase or redemption price, interest shall cease to accrue on 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 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
77
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 trustee (a "Default Notice"), then, unless and
until all events of default have been cured or waived or have ceased to exist
or the 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" 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.
As of September 28, 2003, the Issuers had $633.4 million of Senior
Indebtedness outstanding, $105.2 million of unused borrowings available under
the New Credit Facility and $225.0 million aggregate principal amount of Pari
Passu Indebtedness, and Graham Packaging Holdings Company, our parent
guarantor, had $169.0 million of Senior Indebtedness outstanding and no Pari
Passu Indebtedness. The Issuers and Graham Packaging Holdings Company have not
issued, and do not have any current arrangements to issue, any Subordinated
Indebtedness.
COMPANY ISSUERS' STRUCTURE
The Company is a wholly owned operating subsidiary of Graham Packaging
Holdings Company, which we sometimes refer to in this section as "Holdings",
and CapCo I is a subsidiary corporation of the Company with no material
operations of its own and only limited assets.
78
GRAHAM PACKAGING HOLDINGS COMPANY GUARANTEE
The obligations of the Company Issuers under the Senior Subordinated Notes
and the Senior Subordinated Indenture will be fully and unconditionally
guaranteed on a senior subordinated basis by Graham Packaging Holdings Company,
the parent of the Company Issuers. The guarantee will be subordinated to all
Senior Indebtedness of Graham Packaging Holdings Company to the same extent
that the Senior Subordinated Notes are subordinated to Senior Indebtedness of
the Company Issuers. Additionally, since the Company is the Guarantor's sole
source of revenue, it is not likely that the Guarantor will be able to make
payments in respect of the Senior Subordinated Notes if Graham Packaging
Company, L.P. is unable to satisfy its payment obligations. As a result, we
believe that you should not rely on the guarantee in evaluating an investment
in the Senior Subordinated 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 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 shall: (1) repay in full and terminate
all commitments under Indebtedness under the New Credit Facility and all other
such 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 (2) obtain the requisite consents under the New Credit
Facility and all other Senior Indebtedness to permit the repurchase of the
Senior Subordinated 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 may constitute an Event of Default described in clause (3)
(and not in clause (2)) under "Events of Default" below.
Within 30 days following the date upon which the Change of Control
occurred, the Company Issuers shall send, by first class mail, a notice to each
holder, with a copy to the trustee, which notice shall govern the terms of the
Change of Control Offer. Such notice shall state, among other things, the
purchase date, must be no earlier than 30 days nor later than 60 days from the
date that 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 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 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 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 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
79
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
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 or, either of the Company Issuers or any of their
respective Subsidiaries by the management of Graham Packaging Company Inc. 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 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 to the repurchase of Senior
Subordinated 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 our 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. (1) 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), (2) the Company and any Guarantor will not issue any shares of
Disqualified Stock and (3) 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 and its
Restricted Subsidiaries' most recently ended four full fiscal quarters for
which internal financial statements are available immediately preceding the
date on which the 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 will 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 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
80
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)(1) 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
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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 (2) 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 (1) 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, (2) 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 (3) 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 (1) and (2) 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 (1)
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 (2) 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:
(1) 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);
(2) purchase or otherwise acquire or retire for value any Equity
Interests of the Company;
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(3) 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
(4) make any Restricted Investment (all such payments and other
actions set forth in clauses (1) through (4) 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 (1), (2) (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), (5), (6), (9) and (10) of the next succeeding paragraph, but
excluding all other Restricted Payments permitted by the next succeeding
paragraph), is less than the sum of
(1) 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
(2) 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 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
(3) 100% of the aggregate amount of contributions to the capital of
the Company since the Issue Date (other than Excluded Contributions), plus
(4) 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
(5) 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:
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(1) 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;
(2)(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;
(3) 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;
(4) 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 (4) do 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 (1) 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 (2)
the cash proceeds of key man life insurance policies received by the
Company and its Restricted Subsidiaries after the Issue Date;
(5) 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";
(6) 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 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;
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(7) investments in Unrestricted Subsidiaries having an aggregate fair
market value, taken together with all other Investments made pursuant to
this clause (7) 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);
(8) 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;
(9) the payment of dividends on the Company's Common Stock (or the
payment to Holdings to fund the payment by Holdings of dividends on
Holdings' 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;
(10) 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
(10) shall not exceed (1) $15.0 million on or prior to the second
anniversary of the Issue Date or (2) $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";
(11) Investments that are made with Excluded Contributions;
(12) other Restricted Payments in an aggregate amount not to exceed
$15.0 million;
(13) 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");
(14) 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;
(15) Restricted Payments made on the Issue Date contemplated by the
Recapitalization Agreement; and
(16) 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 (7), (9), (10), (12) and (14) (other than
with respect to Defaults and Events of Default set forth in clause (3) or
(6) 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
85
under clauses (1), (2) (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), (5), (6), (9) and (10) shall be included.
As of the Issue Date, all of the Company's Subsidiaries will be 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 will only be 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 (7), (11) or
(12)) 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.
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, (1)
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,
(2) to make 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 (3) 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
86
Subordinated Indenture will provide 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 (1) 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 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 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.
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)(1) pay dividends or make any other distributions to the Company or
any of its Restricted Subsidiaries on their Capital Stock or with respect
to any other interest or participation in, or measured by, its profits, or
(2) 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;
87
(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.
The Senior Subordinated Indenture will provide 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
88
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 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 (1) 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"); (2) 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 trustee; (3) immediately after such transaction no Default
or Event of Default shall have occurred and be continuing; (4) 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 (5) the Company shall have delivered to the 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 (3) and (4), (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 (1) such
Guarantor is the surviving
89
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"); (2) 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 trustee; (3) immediately
after such transaction no Default or Event of Default shall have occurred and
be continuing; and (4) the Guarantor shall have delivered or caused to be
delivered to the 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 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 will not apply to the following:
(1) transactions between or among the Company and/or any of its
Restricted Subsidiaries;
(2) Restricted Payments permitted by the provisions of the Senior
Subordinated Indenture described above under the covenant "Limitation on
Restricted Payments";
(3) the payment of annual management, consulting, monitoring and
advisory fees and related expenses to Blackstone, Graham Packaging
Corporation and their respective Affiliates;
(4) 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;
(5) 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;
(6) transactions in which the Company or any of its Restricted
Subsidiaries, as the case may be, delivers to the 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;
(7) payments or loans to employees or consultants which are approved
by a majority of the Board of Directors of the Company in good faith;
(8) 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;
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(9) 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 (9) 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;
(10) the payment of all fees, expenses, bonuses and awards related to
the transactions contemplated by the Recapitalization Agreement, including
fees to Blackstone; and
(11) 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.
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 (1) 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 (2) 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.
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Reports to Holders. The Company Issuers will deliver to the 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 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 trustee and the holders, in each case within
15 days after the time the Company 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. 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. 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":
(1) 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);
(2) 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);
(3) 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 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);
(4) the failure to pay at final maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount
of any Indebtedness of the Company or any 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;
92
(5) 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 nonappealable, 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;
(6) 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
(7) 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
(7) with respect to the Company) shall occur and be continuing, the 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 trustee specifying the respective Event of Default and that it
is a "notice of acceleration" (the "Acceleration Notice"), and the same (1)
shall become immediately due and payable or (2) 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
(7) 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 trustee or the holders.
The Senior Subordinated Indenture will provide 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 (1) if the rescission would not conflict with any judgment
or decree, (2) 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, (3) 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 (4) if the Company has paid the trustee its reasonable compensation and
reimbursed the 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 trustee, the
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 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
trustee or exercising any trust or power conferred on the trustee.
Under the Senior Subordinated Indenture, the Company is required to
provide an Officers' Certificate to the 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.
93
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 (1) 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, (2) 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, (3) the rights, powers, trust, duties and immunities of the trustee
and the Company Issuers' obligations in connection therewith and (4) 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 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:
(1) the Company must irrevocably deposit with the 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;
(2) in the case of Legal Defeasance, the Company shall have delivered
to the trustee an opinion of counsel in the United States reasonably
acceptable to the 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;
(3) in the case of Covenant Defeasance, the Company shall have
delivered to the 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;
(4) 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;
(5) 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;
94
(6) the Company shall have delivered to the trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the holders 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;
(7) the Company shall have delivered to the trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with;
(8) the Company shall have delivered to the 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
(9) 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 (1) 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 trustee for cancellation
and (2) the Company has paid all other sums payable under the Senior
Subordinated Indenture by the Company.
MODIFICATION OF THE SENIOR SUBORDINATED INDENTURE
From time to time, the Company Issuers and the 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 trustee, adversely
affect the rights of any of the holders in any material respect. In formulating
its opinion on such matters, the 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:
(1) reduce the amount of Senior Subordinated Notes whose holders must
consent to an amendment;
(2) 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;
(3) 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;
(4) make any Senior Subordinated Notes payable in money other than
that stated in the Senior Subordinated Notes;
(5) 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;
95
(6) 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
(7) 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.
THE SENIOR SUBORDINATED TRUSTEE
The Senior Subordinated Indenture provides that, except during the
continuance of an Event of Default, the trustee will perform only such duties
as are specifically set forth in the Senior Subordinated Indenture. During the
existence of an Event of Default, the 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 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 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 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, (1)
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 (2) 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 (1) 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 (2) 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,
96
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.
"CapCo I" means GPC Capital Corp. I, a Delaware corporation.
"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 (1) in the case of a corporation, corporate stock,
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited) and (4) 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 (1) U.S. dollars (and foreign currency exchanged
into U.S. dollars within 180 days), (2) securities issued or directly and fully
guaranteed or insured by the U.S. Government or any agency or instrumentality
thereof, (3) 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, (4) repurchase obligations for underlying securities
of the types described in clauses (2) and (3) entered into with any financial
institution meeting the qualifications specified in clause (3) above, (5)
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, (6)
investment funds investing 95% of their assets in securities of the types
described in clauses (1)-(5) above, (7) 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 (8) Indebtedness or preferred stock issued by
Persons with a rating of "A" or higher from S&P or "A-2" or higher from
Moody's.
"Change of Control" means the occurrence of any of the following: (1) 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
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Related Parties; or (2) 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 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
98
basis; provided, however, that (1) any net after-tax extraordinary gains or
losses (less all fees and expenses relating thereto) shall be excluded, (2) 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, (3) the Net Income for such period shall not include the cumulative
effect of a change in accounting principles during such period, (4) 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, (5)
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, (6)
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, (7) 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, (8) 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 (9) 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,
(1) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (2) 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 (3) 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."
"Designated Senior Indebtedness" means (1) 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 (2)) and (2) any other
Indebtedness constituting Senior
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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 (1) public offerings with respect to the Common Stock registered on
Form S-8 and (2) 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
100
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 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
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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.
"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 (1) currency exchange or interest rate swap agreements,
currency exchange or interest rate cap agreements and currency exchange or
interest rate collar agreements and (2) other agreements or arrangements
designed to protect such Person against fluctuations in currency exchange or
interest rates or commodity prices.
"Holdings" means Graham Packaging Holdings Company, until a successor
shall have become such pursuant to the applicable provisions of the Senior
Subordinated Indenture and thereafter "Holdings" shall mean such successor and
shall include, in any event, CapCo II following any reorganization of Holdings
in connection with its initial public offering.
"Indebtedness" means, with respect to any Person, (a) any indebtedness of
such Person, whether or not contingent (1) in respect of borrowed money, (2)
evidenced by bonds, notes, debentures or similar instruments or letters of
credit or bankers' acceptances (or, without double counting, reimbursement
agreements in respect thereof), (3) 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 (4) 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 (1) securities issued or directly and
fully guaranteed or insured by the United States government or any agency or
instrumentality thereof (other than Cash Equivalents), (2) 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
102
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 (3) investments in any fund that invests
exclusively in investments of the type described in clauses (1) and (2) 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," (1)
"Investments" shall include the portion (proportionate to the Company's equity
interest in its 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 (2) 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 (i.e.,
February 2, 1998).
"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
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 (1) 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
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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 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 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.
"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 (1) such Person becomes a Restricted Subsidiary or (2) 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 (1) 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
104
a bankruptcy, workout, reorganization or recapitalization of the issuer of such
other Investment or accounts receivable or (2) 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 (3) and (11) 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 (1) 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 (2) 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:
(1) 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;
(2) 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;
(3) 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
105
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;
(4) 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;
(5) 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;
(6) Liens securing Indebtedness under Hedging Obligations;
(7) 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;
(8) 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;
(9) 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
(10) 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.
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"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
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 (1) any Indebtedness of Holdings, the Company
or a Guarantor to a Subsidiary thereof, (2) 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), (3) 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), (4) Indebtedness represented
by Disqualified Stock, (5) any liability for federal, state, local or other
taxes owed or owing, (6) 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 (6) 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), (7) Indebtedness
which, when incurred and without respect to any election under Section 1111 (b)
of Title II, United States Code, is without recourse to Holdings, the Company
or a Guarantor, as the case may be, and (8) 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.
107
"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, (1) 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 (2) 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 the Company and its
Restricted Subsidiaries, as shown on the most recent balance sheet of the
Company.
"Unrestricted Subsidiary" means (1) 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 (2) 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, (1) 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 (2) 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 trustee by promptly filing with the 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 (1) 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
(2) 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 and one or
more Wholly-Owned Subsidiaries of such Person.
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DESCRIPTION OF OTHER INDEBTEDNESS
NEW SENIOR CREDIT AGREEMENT
On February 14, 2003, we entered into a new senior credit agreement with
the following terms and conditions:
The new senior credit agreement consists of a term loan to the issuers
with initial term loan commitments totaling $570.0 million and a revolving loan
facility to the issuers totaling $150.0 million. Unused availability under the
revolving credit facility at September 28, 2003 was $105.2 million. The
obligations of the issuers under the new senior credit agreement are guaranteed
by Graham Packaging Holdings Company and its domestic subsidiaries. The term
loan is payable in quarterly installments through 2010, and will require
payments of $2.0 million in 2003, $4.0 million in 2004, $20.0 million in 2005,
$45.0 million in 2006, $45.0 million in 2007, $200.0 million in 2008, 200.0
million in 2009, and $54.0 million in 2010. The term loan facility will become
due on July 15, 2007 if the existing $225.0 million senior subordinated notes
due 2008 have not been refinanced prior to January 15, 2007. The term loan
facility will become due on July 15, 2008 if the existing 103/4% senior
discount notes of Graham Packaging Holdings Company have not been refinanced by
January 15, 2008. In addition, if the outstanding notes and the exchange notes
offered hereby are not refinanced by July 15, 2007 then the term loan facility
will mature on such date. The revolving loan facility expires on the earlier of
February 14, 2008 and the final term loan maturity date. Substantially all of
our domestic tangible and intangible assets are pledged as collateral pursuant
to the terms of the new senior credit agreement.
In addition, the new senior credit agreement contains affirmative,
financial and negative covenants relating to our operations and financial
condition, including restrictions on the payment of dividends and other
distributions to Graham Packaging Holdings Company. The financial covenants
require us to maintain, in each case subject to adjustments as set forth in the
new senior credit agreement: (1) a minimum cash interest coverage ratio (based
on the ratio of Graham Packaging Company, L.P.'s consolidated EBITDA to
consolidated cash interest expense) starting at 2.25x, with step-ups over time
and (2) a maximum net leverage ratio (based on the ratio of Graham Packaging
Company, L.P.'s consolidated indebtedness for borrowed money, capital leases
and deferred purchase price of property and services, less cash and cash
equivalents in excess of $5 million, to consolidated EBITDA) starting at 5.50x,
with step-downs over time. The negative covenants in the new senior credit
agreement limit the ability of Graham Packaging Holdings Company and its
subsidiaries to incur indebtedness and guarantee obligations; create liens;
engage in sale/leasebacks; make investments, acquisitions and advances; merge
or consolidate; sell, lease or otherwise transfer assets; pay dividends and
make distributions; engage in transactions with affiliates; engage in certain
businesses; modify our organizational documents and certain debt documents;
prepay certain indebtedness; enter agreements restricting the ability of a
subsidiary to pay dividends or make distributions or advances to Graham
Packaging Company, L.P. and certain of its subsidiaries; make capital
expenditures; or change our or any of our subsidiaries' name, jurisdiction or
type of organization and related matters without prior notice to the
administrative agent under the new senior credit agreement; in each case
subject to exceptions set forth in the new senior credit agreement.
The capital expenditures covenant in the new senior credit agreement
limits our consolidated capital expenditures to $175 million per fiscal year;
subject to carry forward of certain unused amounts and increases based on
certain new cash equity received by Graham Packaging Company, L.P. and certain
excess cash flow and certain debt and equity and asset sale net proceeds which
are not required to be used to repay the new senior credit agreement, and
subject to reduction to the extent acquisitions are made utilizing the unused
available capital expenditure limit, all as more fully described in the new
senior credit agreement.
The investment covenant in the new senior credit agreement generally
limits the aggregate amount of consideration that Graham Packaging Holdings
Company and its subsidiaries may pay in connection with the acquisition of any
business to $40 million plus additional amounts based on the unused available
capital expenditure limit, certain new cash equity received by Graham Packaging
Company, L.P. plus certain excess cash flow and certain debt and equity and
asset sale net proceeds
109
which are not required to be used to repay our new senior credit agreement, all
as more fully described in our new senior credit agreement. The investment
covenant contains other exceptions for permitted investments which might be
available for the acquisition of a company. Our new senior credit agreement is
also subject to mandatory prepayment under certain circumstances from excess
cash flow and the net proceeds of certain asset sales and the issuance of
certain debt and equity, all as more fully described in our new senior credit
agreement.
Under our new senior credit agreement, we are generally prohibited from
paying dividends, and the issuers will be subject to restrictions on the
payment of dividends or other distributions to Graham Packaging Holdings
Company; provided that, subject to limitations, the issuers may pay dividends
or other distributions to Graham Packaging Holdings Company in respect of
overhead, tax liabilities, legal, accounting and other professional fees and
expenses, to fund purchases and redemptions of equity interests held by present
or former officers or employees or by any employee stock ownership plan upon
that person's death, disability, retirement or termination of employment or
pursuant to contracted obligations or other circumstances with annual dollar
limitations and to finance the payment of cash interest due semi-annually on
the senior discount notes.
Our senior credit agreement may be amended at any time in accordance with
the terms thereof.
SENIOR DISCOUNT NOTES AND SENIOR SUBORDINATED NOTES
In February 1998, the issuers issued $225.0 million of senior subordinated
notes and Graham Packaging Holdings Company and GPC Capital Corp. II issued
$169.0 million aggregate principal amount at maturity of senior discount notes,
with gross proceeds of $100.6 million. The senior subordinated notes are
unconditionally guaranteed on a senior subordinated basis by us and mature on
January 15, 2008, with interest payable on $150.0 million at a fixed rate of
8.75% and with interest payable on $75.0 million at LIBOR plus 3.625%. The
senior discount notes mature on January 15, 2009, with cash interest payable
semi-annually beginning July 15, 2003 at 10.75%. The effective interest rate to
maturity on the senior discount notes is 10.75%.
The fixed rate senior subordinated notes may be redeemed at any time, in
whole or in part, on or after January 15, 2003 at a redemption price equal to
104.375% of the principal amount of the notes in the first year and declining
yearly to par at January 15, 2006, plus accrued and unpaid interest and
liquidated damages, if any, to the date of redemption. The floating rate senior
subordinated notes may be redeemed at any time, in whole or in part, from the
date of issue at a redemption price equal to 105% of the principal amount of
the notes in the first year and declining yearly to par at January 15, 2003,
plus accrued and unpaid interest and liquidated damages, if any, to the date of
redemption. The senior discount notes may be redeemed at any time, in whole or
in part, on or after January 15, 2003 at a redemption price equal to 105.375%
of the principal amount of the notes in the first year and declining yearly to
par at January 15, 2006, plus accrued and unpaid interest and liquidated
damages, if any, to the date of redemption.
Upon the occurrence of a change of control, each holder of senior
subordinated notes, or senior discount notes, as appropriate, will have the
right to require us or Graham Packaging Company, L.P. as applicable, to
repurchase that holder's notes at a price equal to 101% of their principal
amount, or accreted value, as applicable, plus accrued and unpaid interest to
the repurchase date.
The indentures governing the senior subordinated notes and the senior
discount notes contain covenants that, among other things, limit our ability
to:
o incur additional indebtedness or issue specified types of capital
stock;
o repay other indebtedness;
o pay dividends or make other distributions;
o repurchase equity interests;
o consummate asset sales;
110
o incur liens;
o allow our subsidiaries to make dividend payments;
o merge or consolidate with any other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of our
assets or those of subsidiaries;
o enter into transactions with affiliates; and
o enter into guarantees of indebtedness.
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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 Graham Packaging
Holdings Company and each of the executive officers of Graham Packaging
Company, L.P. and (iii) all members of the Advisory Committee of Graham
Packaging Holdings Company and the executive officers of Graham Packaging
Company, L.P. as a group.
NAME AND ADDRESS PERCENTAGE
ISSUER OF BENEFICIAL OWNER TYPE OF INTEREST INTEREST
Graham Packaging Graham Packaging Holdings
Company, L.P. Company Limited Partnership 99%
Opco GP(1) General Partnership 1%
GPC Capital Corp. I Graham Packaging Company, L.P. Common Stock 100%
Graham Packaging BMP/Graham Holdings
Holdings Company Corporation(2) Limited Partnership 81%
BCP/Graham Holdings L.L.C.(2) General Partnership 4%
GPC Holdings, L.P.(3) Limited Partnership 14%
Graham Packaging Corporation(3) General Partnership 1%
(1) Opco GP is a wholly owned subsidiary of Graham Packaging Holdings
Company.
(2) BCP/Graham Holdings L.L.C. is a wholly owned subsidiary of BMP/Graham
Holdings Corporation. Blackstone beneficially owns approximately 92.5% of
the common stock of BMP/Graham Holdings Corporation. Blackstone
Management Associates III L.L.C. ("BMA") is the general partner of each
of such entities. Messrs. Howard A. Lipson and Chinh E. Chu are members
of BMA, which has investment and voting control over the shares held or
controlled by Blackstone, and as such may be deemed to share beneficial
ownership of such shares. Messrs. Peter G. Peterson and Stephen A.
Schwarzman are the founding members of BMA and as such may be deemed to
share beneficial ownership of the shares held or controlled by
Blackstone. Each of such persons disclaims beneficial ownership of such
shares. The address of each of BMP/Graham Holdings Corporation and
BCP/Graham Holdings L.L.C. is c/o The Blackstone Group L.P., 345 Park
Avenue, New York, New York 10154. Management owns approximately 2.7% of
the common stock of BMP/Graham Holdings Corporation. In addition,
MidOcean Capital Investors, L.P., owns approximately 4.8% of the common
stock of BMP/Graham Holdings Corporation.
(3) GPC Holdings, L.P. and Graham Packaging Corporation are wholly owned,
directly or indirectly, by the Graham family. The address of both is c/o
Graham Capital Company, 1420 Sixth Avenue, York, Pennsylvania 17403.
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MATERIAL UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES
EXCHANGE OF NOTES
The exchange of outstanding notes for exchange notes in the exchange offer
will not constitute a taxable event to 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 outstanding
note and the basis of the exchange note will be the same as the basis of the
outstanding note immediately before the exchange.
IN ANY EVENT, PERSONS CONSIDERING THE EXCHANGE OF OUTSTANDING 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.
The following summary describes the material U.S. federal income tax
consequences of the ownership of exchange notes as of the date hereof. This
discussion deals only with exchange notes, except where noted, held as capital
assets. It does not deal with special situations, such as those of dealers in
securities or currencies, financial institutions, partnerships or other
pass-through entities, regulated investment companies, real estate investment
trusts, tax-exempt entities, insurance companies, persons holding exchange
notes as a part of a hedging, integrated, conversion or constructive sale
transaction or a straddle, traders in securities that elect to use a
mark-to-market method of accounting for their securities holdings, holders
liable for alternative minimum tax or U.S. holders (as defined below) of
exchange notes whose "functional currency" is not the U.S. dollar. Special
rules may apply to certain non-U.S. holders (as defined below), such as
"controlled foreign corporations", "passive foreign investment companies",
"foreign personal holding companies" and certain expatriates that are subject
to special treatment under the Internal Revenue Code of 1986, as amended (the
"Code"). Furthermore, the discussion below is based upon the provisions of the
Code, and regulations, rulings and judicial decisions thereunder as of the date
hereof, and such authorities may be repealed, revoked or modified (possibly
with retroactive effect) so as to result in U.S. federal income tax
consequences different from those discussed below. PERSONS CONSIDERING THE
OWNERSHIP OF EXCHANGE NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING
THE U.S. FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR
SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER OTHER U.S. FEDERAL TAX
LAWS (SUCH AS ESTATE AND GIFT TAX LAWS) AND UNDER THE LAWS OF ANY OTHER TAXING
JURISDICTION.
As used herein, a "U.S. holder" of an exchange note means a holder that is
for U.S. federal income tax purposes (1) a citizen or resident of the United
States, (2) a corporation created or organized in or under the laws of the
United States or any political subdivision thereof, (3) an estate the income of
which is subject to U.S. federal income taxation regardless of its source or
(4) a trust if it (A) is subject to the primary supervision of a court within
the United States and one or more U.S. persons has the authority to control all
substantial decisions of the trust, or (B) has a valid election in effect under
applicable U.S. Treasury regulations to be treated as a U.S. person. A
"non-U.S. holder" is an individual, corporation, trust or estate that is not a
U.S. holder.
If a partnership holds our exchange notes, the tax treatment of a partner
will generally depend upon the status of the partner and the activities of the
partnership. If you are a partner of a partnership holding our exchange notes,
you should consult your tax advisors.
CONSEQUENCES TO U.S. HOLDERS
Interest
Stated interest on an exchange note will generally be taxable to a U.S.
holder as ordinary income at the time it is paid or accrued in accordance with
the U.S. holder's method of accounting for tax purposes.
113
Market Discount
If a U.S. Holder purchased a note for an amount that is less than its
stated redemption price at maturity, the amount of the difference will be
treated as "market discount" for United States federal income tax purposes,
unless such difference is less than a specified de minimis amount. Under the
market discount rules, a U.S. Holder will be required to treat any principal
payment on, or any gain on the sale, exchange, redemption, retirement or other
disposition of, an exchange note as ordinary income to the extent of the market
discount which has not previously been included in income and is treated as
having accrued on such exchange note at the time of such payment or
disposition. In addition, the U.S. Holder may be required to defer, until the
maturity of the exchange note or its earlier disposition in a taxable
transaction, the deduction of all or a portion of the interest expense on any
indebtedness incurred or continued to purchase or carry such exchange note.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the exchange, unless the
U.S. Holder elects to accrue on a constant interest method. A U.S. Holder of an
exchange note may elect to include market discount in income currently as it
accrues (on either a ratable or constant interest method), in which case the
rule described above regarding deferral of interest deductions will not apply.
Amortizable Bond Premium
A U.S. Holder that purchased a note for an amount in excess of the sum of
all amounts payable on the exchange note after the purchase date other than
qualified stated interest will be considered to have purchased the exchange
note at a "premium." A U.S. Holder generally may elect to amortize the premium
over the remaining term of the exchange note on a constant yield method as an
offset to interest when includible in income under the U.S. Holder's regular
accounting method. Bond premium on an exchange note held by a U.S. Holder that
does not make such an election will decrease the gain or increase the loss
otherwise recognized on disposition of the exchange note.
Sale, Exchange, Redemption, Retirement or Other Disposition of Exchange
Notes
A U.S. holder's tax basis in an exchange note will be the U.S. holder's
cost therefor, increased by any market discount previously included in income
and reduced by any amortized premium and cash payments on the exchange note
other than stated interest. Except as described above with respect to market
discount, upon the sale, exchange, redemption, retirement or other disposition
of an exchange note, a U.S. holder will recognize gain or loss equal to the
difference between the amount realized upon the sale, exchange, retirement,
redemption or other disposition (less an amount equal to any accrued and unpaid
interest which will be treated as a payment of interest for federal income tax
purposes to the extent not so previously included in income) and the adjusted
tax basis of the exchange note. Such gain or loss will be capital gain or loss.
Capital gains of individuals derived in respect of capital assets held for more
than one year are eligible for reduced rates of taxation. The deductibility of
capital losses is subject to limitations.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to payments of
principal, interest, and premium paid on exchange notes and to the proceeds of
sale of an exchange note paid to U.S. Holders other than certain exempt
recipients (such as corporations). A backup withholding tax will apply to such
payments if the U.S. Holder fails to provide a taxpayer identification number
or certification of other exempt status or fails to report in full dividend and
interest income.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against such holder's United States federal income tax
liability provided the required information is furnished to the Internal
Revenue Service.
CONSEQUENCES TO NON-U.S. HOLDERS
Under present U.S. federal income and estate tax law, and subject to the
discussion below concerning backup withholding:
114
(a) No withholding of U.S. federal income tax will be required with
respect to the payment by Graham Packaging Company, L.P. or any paying
agent of interest on an exchange note owned by a non-U.S. holder under the
"portfolio interest rule", provided that (1) interest paid on the exchange
note is not effectively connected with the beneficial owner's conduct of a
trade or business in the U.S., (2) the beneficial owner does not actually
or constructively own 10% or more of the total combined voting power of all
classes of stock of GPC Capital Corp. I entitled to vote or 10% or more of
the capital or profits interest in Graham Packaging Company, L.P. (or
Graham Packaging Holdings Company) in each case within the meaning of
section 871(h)(3) of the Code and the regulations thereunder, (3) the
beneficial owner is not a controlled foreign corporation that is related to
Graham Packaging Holdings Company or the issuers within the meaning of
Section 881(c)(3)(C), (4) the beneficial owner is not a bank whose receipt
of interest on an exchange note is described in section 881(c)(3)(A) of the
Code and (5) the beneficial owner satisfies the statement requirement
(described generally below) set forth in section 871(h) and section 881(c)
of the Code and the regulations thereunder.
(b) No withholding of U.S. federal income tax generally will be
required with respect to any gain realized by a non-U.S. holder upon the
sale, exchange, retirement or other disposition of an exchange note.
(c) An exchange note beneficially owned by an individual who at the
time of death is a non-U.S. holder will not be subject to U.S. federal
estate tax as a result of such individual's death, provided that such
individual does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of GPC Capital Corp. I
entitled to vote, or 10% or more of the capital or profits interest in
Graham Packaging Company, L.P. (or Graham Packaging Holdings Company) in
each case within the meaning of section 871(h)(3) of the Code and provided
that the interest payments with respect to such exchange note would not
have been, if received at the time of such individual's death, effectively
connected with the conduct of a U.S. trade or business by such individual.
To satisfy the requirement referred to in (a)(5) above, the beneficial
owner of such exchange note, or a financial institution holding the exchange
note on behalf of such owner, must provide, in accordance with specified
procedures, a paying agent on the exchange notes with a statement to the effect
that the beneficial owner is not a U.S. holder. These requirements will be met
if (1) the beneficial owner provides his name and address, and certifies, under
penalties of perjury, that he is not a U.S. holder on an Internal Revenue
Service Form W-8BEN or (2) a financial institution holding the exchange note on
behalf of the beneficial owner certifies, under penalties of perjury, that such
statement has been received by it and furnishes a paying agent with a copy
thereof. The statement requirement referred to in (a)(5) above may also be
satisfied with other documentary evidence with respect to an offshore account
or through certain foreign intermediaries. Special certification and other
rules apply to non-U.S. holders that are pass-through entities.
If a non-U.S. holder cannot satisfy the requirements of the "portfolio
interest" exception described in (a) above, payments of interest made to such
non-U.S. holder will be subject to a 30% withholding tax unless the beneficial
owner of the exchange note provides Graham Packaging Holdings Company or its
paying agent, as the case may be, with a properly executed (1) Internal Revenue
Service Form W-8BEN claiming an exemption from or reduction in withholding
under the benefit of an applicable income tax treaty or (2) Internal Revenue
Service Form W-8ECI stating that interest paid on the exchange note is not
subject to withholding tax because it is effectively connected with the
beneficial owner's conduct of a trade or business in the United States.
Alternative documentation may be applicable.
If a non-U.S. holder is engaged in a trade or business in the United
States and interest on the exchange note is effectively connected with the
conduct of such trade or business, the non-U.S. holder, although exempt from
the withholding tax, provided that the certification requirements discussed
above are satisfied, will be subject to U.S. federal income tax on that
interest on a net income basis in
115
the same manner as if it were a U.S. holder. In addition, if such holder is a
foreign corporation, it may be subject to a branch profits tax equal to 30% (or
lesser rate under an applicable treaty) of its effectively connected earnings
and profits for the taxable year, subject to adjustments.
Any gain realized upon the sale, exchange, retirement or other disposition
of an exchange note will not be subject to U.S. federal income tax unless (1)
such gain or income is effectively connected with the conduct of a trade or
business in the United States by the non-U.S. holder, or (2) in the case of a
non-U.S. holder who is an individual, such individual is present in the United
States for 183 days or more in the taxable year of such sale, exchange,
retirement or other disposition, and other conditions are met. With respect to
gain described in (1) above, in the case of corporate holders, an additional
branch profits tax may apply.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Graham Packaging Holdings Company must report annually to the Internal
Revenue Service and to each non-U.S. holder the amount of interest paid on an
exchange note and the amount of tax withheld with respect to those payments.
Copies of the information returns reporting those interest payments and
withholding may also be made available to the tax authorities in the country in
which the non-U.S. holder resides under the provisions of an applicable income
tax treaty.
Backup withholding will not be required for interest payments made by
Graham Packaging Holdings Company or any paying agent to non-U.S. holders if a
statement described in (a)(5) above has been received and the payor does not
have actual knowledge or reason to know that the beneficial owner is a U.S.
holder.
Backup withholding and information reporting may apply to the proceeds of
the sale of an exchange note (including a redemption or retirement) within the
United States or conducted through U.S. related financial intermediaries unless
the statement described in (a)(5) above has been received and the payor does
not have actual knowledge or reason to know that the beneficial owner is a U.S.
holder or the holder otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against such non-U.S. holder's U.S. federal income tax
liability provided the required information is furnished to the Internal
Revenue Service.
116
CERTAIN ERISA CONSIDERATIONS
The following is a summary of certain considerations associated with the
purchase of the notes by employee benefit plans that are subject to Title I of
ERISA, plans, individual retirement accounts and other arrangements that are
subject to Section 4975 of the Code or provisions under any federal, state,
local, non-U.S. laws or Similar Laws, and entities whose underlying assets are
considered to include "plan assets" of such plans, accounts and arrangements
(each, a "Plan")
GENERAL FIDUCIARY MATTERS
ERISA and the Code impose certain duties on persons who are fiduciaries of
a Plan subject to Title I of ERISA or Section 4975 of the Code (an "ERISA
Plan") and prohibit certain transactions involving the assets of an ERISA Plan
and its fiduciaries or other interested parties. Under ERISA and the Code, any
person who exercises any discretionary authority or control over the
administration of such an ERISA Plan or the management or disposition of the
assets of such an ERISA Plan, or who renders investment advice for a fee or
other compensation to such an ERISA Plan, is generally considered to be a
fiduciary of the ERISA Plan.
In considering an investment in the notes of a portion of the assets of
any Plan, a fiduciary should determine whether the investment is in accordance
with the documents and instruments governing the Plan and the applicable
provisions of ERISA, the Code or any Similar Law relating to a fiduciary's
duties to the Plan including, without limitation, the prudence,
diversification, delegation of control and prohibited transaction provisions of
ERISA, the Code and any other applicable Similar Laws
PROHIBITED TRANSACTION ISSUES
Section 406 of ERISA and Section 4975 of the Code prohibit ERISA Plans
from engaging in specified transactions involving plan assets with persons or
entities who are "parties in interest," within the meaning of ERISA, or
"disqualified persons," within the meaning of Section 4975 of the Code, unless
an exemption is available. A party in interest or disqualified person who
engaged in a non-exempt prohibited transaction may be subject to excise taxes
and other penalties and liabilities under ERISA and the Code. In addition, the
fiduciary of the ERISA Plan that engaged in such a non-exempt prohibited
transaction may be subject to penalties and liabilities under ERISA and the
Code. The acquisition and/or holding of notes by an ERISA Plan with respect to
which the Issuer, the Joint Book Running Managers, the Underwriter, or the
Guarantors is considered a party in interest or a disqualified person may
constitute or result in a direct or indirect prohibited transaction under
Section 406 of ERISA and/or Section 4975 of the Code, unless the investment is
acquired and is held in accordance with an applicable statutory, class or
individual prohibited transaction exemption. In this regard, the U.S.
Department of Labor (the "DOL") has issued prohibited transaction class
exemptions, or "PTCEs," that may apply to the acquisition and holding of the
notes. These class exemptions include, without limitation, PTCE 84-14
respecting transactions determined by independent qualified professional asset
managers, PTCE 90-1 respecting insurance company pooled separate accounts, PTCE
91-38 respecting bank collective investment funds, PTCE 95-60 respecting life
insurance company general accounts and PTCE 96-23 respecting transactions
determined by in-house asset managers, although there can be no assurance that
all of the conditions of any such exemptions will be satisfied.
Because of the foregoing, the notes should not be purchased or held by any
person investing "plan assets" of any Plan, unless such purchase and holding
will not constitute a non-exempt prohibited transaction under ERISA and the
Code or similar violation of any applicable Similar Laws.
REPRESENTATION
Accordingly, by acceptance of a note, each purchaser and subsequent
transferee of a note will be deemed to have represented and warranted that
either (i) no portion of the assets used by such purchaser or transferee to
acquire and hold the notes constitutes assets of any Plan or (ii) the
117
purchase and holding of the notes by such purchaser or transferee will not
constitute a non-exempt prohibited transaction under Section 406 of ERISA or
Section 4975 of the Code or similar violation under any applicable Similar
Laws.
The foregoing discussion is general in nature and is not intended to be
all inclusive. Due to the complexity of these rules and the penalties that may
be imposed upon persons involved in non-exempt prohibited transactions, it is
particularly important that fiduciaries, or other persons considering
purchasing the notes on behalf of, or with the assets of, any Plan, consult
with their counsel regarding the potential applicability of ERISA, Section 4975
of the Code and any Similar Laws to such investment and whether an exemption
would be applicable to the purchase and holding of the notes.
118
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of the 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 outstanding notes where the outstanding notes were acquired as a
result of market-making activities or other trading activities. To the extent
any such broker-dealer participates in the exchange offer and so notifies us,
or causes us to be so notified in writing, we have agreed that for a period of
180 days after the date of this prospectus, we 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 letter of transmittal.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own
accounts pursuant to the exchange offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the exchange notes or a combination of these
methods of resale, at market prices prevailing at the time of resale, at prices
related to the prevailing market prices or negotiated prices. Any resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any broker-dealer
or the purchasers of any exchange notes. Any broker-dealer that resells
exchange notes that were received by it for its own account pursuant to the
exchange offer and any broker or dealer that participates in a distribution of
the exchange notes may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any resale of exchange notes and any
commissions or concessions received by these persons may be deemed to be
underwriting compensation under the Securities Act. The 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.
We have agreed to pay all expenses incident to the exchange offer,
including the expenses of one counsel for the holders of the outstanding notes,
other than commissions or concessions of any brokers or dealers and will
indemnify the holders of outstanding notes, including any broker-dealers,
against certain liabilities, including liabilities under the Securities Act.
By its acceptance of the exchange offer, any broker-dealer that receives
exchange notes pursuant to the exchange offer hereby agrees to notify us prior
to using the prospectus in connection with the sale or transfer of exchange
notes, and acknowledges and agrees that, upon receipt of notice from us 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 therein not misleading or which may
impose upon us disclosure obligations that may have a material adverse effect
on us (which notice we agree to deliver promptly to such broker-dealer) such
broker-dealer will suspend use of this prospectus until we have notified such
broker-dealer that delivery of this prospectus may resume and has furnished
copies of any amendment or supplement to this prospectus to such broker-dealer.
119
LEGAL MATTERS
The validity of the exchange notes offered hereby and other legal matters
relating to this offering will be passed upon for us by Simpson Thacher &
Bartlett LLP, New York, New York. An investment vehicle comprised of selected
partners of Simpson Thacher & Bartlett LLP, members of their families, related
persons and others owns an interest representing less than 1% of the capital
commitments of funds controlled by our sponsor, The Blackstone Group.
EXPERTS
The consolidated financial statements of Graham Packaging Holdings Company
as of December 31, 2002 and 2001 and for each of the three years in the period
ended December 31, 2002, included in this prospectus and the related financial
statement schedules included elsewhere in the registration statement have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein and are included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
Graham Packaging Holdings Company files annual, quarterly and special
reports and other information with the Securities and Exchange Commission. You
may read our Commission filings over the Internet at the Commission's website
at http://www.sec.gov. You may also read and copy documents at the Commission's
public reference room at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for
further information on the public reference room.
120
INDEX TO FINANCIAL STATEMENTS
PAGE
NUMBER
------
Independent Auditors' Report ............................................................. F-2
Audited Financial Statements ............................................................. F-3
Consolidated Balance Sheets at December 31, 2001 and 2002 ............................... F-3
Consolidated Statements of Operations for the years ended December 31, 2000, 2001 and
2002 .................................................................................. F-4
Consolidated Statements of Partners' Capital (Deficit) for the years ended December 31,
2000, 2001 and 2002 ................................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 2001
and 2002 .............................................................................. F-6
Notes to Consolidated Financial Statements ............................................... F-7
Unaudited Condensed Consolidated Financial Statements .................................... F-31
Condensed Consolidated Balance Sheets at December 31, 2002 and September 28, 2003 ....... F-31
Condensed Consolidated Statements of Operations for the three and nine months ended
September 29, 2002 and September 28, 2003 ............................................. F-32
Condensed Consolidated Statements of Partners' Capital (Deficit) for the year ended
December 31, 2002 and the nine months ended September 28, 2003 ........................ F-33
Condensed Consolidated Statements of Cash Flows for the nine months ended
September 29, 2002 and September 28, 2003 ............................................. F-34
Notes to Condensed Consolidated Financial Statements .................................... F-35
F-1
INDEPENDENT AUDITORS' REPORT
To the Partners
Graham Packaging Holdings Company
We have audited the accompanying consolidated balance sheets of Graham
Packaging Holdings Company and subsidiaries (the "Company") as of December 31,
2002 and 2001, and the related consolidated statements of operations, partners'
capital (deficit), and cash flows for each of the three years in the period
ended December 31, 2002. Our audits also included the financial statement
schedules I and II listed in the Index at Item 21(a). These financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
2002 and 2001, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
February 14, 2003
(November 20, 2003 as to Note 21)
F-2
GRAHAM PACKAGING HOLDINGS COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31,
---------------------------
2001 2002
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ........................................... $ 9,032 $ 7,299
Accounts receivable, net ............................................ 90,182 97,933
Inventories ......................................................... 60,476 62,660
Prepaid expenses and other current assets ........................... 14,054 18,289
--------- ---------
Total current assets ................................................. 173,744 186,181
Property, plant and equipment:
Machinery and equipment ............................................. 883,692 954,088
Land, buildings and leasehold improvements .......................... 97,578 102,211
Construction in progress ............................................ 39,689 22,043
--------- ---------
1,020,959 1,078,342
Less accumulated depreciation and amortization ...................... 471,374 500,380
--------- ---------
Property, plant and equipment, net ................................... 549,585 577,962
Goodwill ............................................................. 6,400 5,566
Other non-current assets ............................................. 28,832 28,602
--------- ---------
Total assets ......................................................... $758,561 $798,311
========= =========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Current liabilities:
Accounts payable .................................................... $ 95,749 $ 77,022
Accrued expenses .................................................... 79,381 92,210
Current portion of long-term debt ................................... 30,585 7,992
--------- ---------
Total current liabilities ............................................ 205,715 177,224
Long-term debt ....................................................... 1,021,806 1,062,635
Other non-current liabilities ........................................ 13,582 14,655
Minority interest .................................................... 2,512 4,104
Commitments and contingent liabilities (see Notes 18 and 19) ......... -- --
Partners' capital (deficit):
General partners .................................................... (21,147) (20,769)
Limited partners .................................................... (406,764) (399,580)
Notes and interest receivable for ownership interests ............... (2,443) (2,593)
Accumulated other comprehensive income (loss) ....................... (54,700) (37,365)
--------- ---------
Total partners' capital (deficit) .................................... (485,054) (460,307)
--------- ---------
Total liabilities and partners' capital (deficit) .................... $758,561 $798,311
========= =========
See accompanying notes to financial statements.
F-3
GRAHAM PACKAGING HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-------------------------------------------
2000 2001 2002
------------- ------------- -----------
Net sales ............................................... $ 842,551 $ 923,068 $906,705
Cost of goods sold ...................................... 708,037 771,201 742,604
--------- --------- --------
Gross profit ............................................ 134,514 151,867 164,101
Selling, general, and administrative expenses ........... 56,200 58,230 63,732
Impairment charges ...................................... 21,056 37,988 5,129
Special charges and unusual items ....................... 1,118 147 --
--------- --------- --------
Operating income ........................................ 56,140 55,502 95,240
Interest expense ........................................ 102,202 99,052 82,080
Interest income ......................................... (509) (612) (296)
Other expense ........................................... 265 199 179
Minority interest ....................................... (623) 530 1,713
--------- --------- --------
(Loss) income before income taxes ....................... (45,195) (43,667) 11,564
Income tax provision .................................... 442 303 4,002
--------- --------- --------
Net (loss) income ....................................... $ (45,637) $ (43,970) $ 7,562
========= ========= ========
Net (loss) income allocated to General Partners ......... $ (2,282) $ (2,198) $ 378
Net (loss) income allocated to Limited Partners ......... $ (43,355) $ (41,772) $ 7,184
See accompanying notes to financial statements.
F-4
GRAHAM PACKAGING HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
(IN THOUSANDS)
NOTES AND
INTEREST ACCUMULATED
RECEIVABLE FOR OTHER
GENERAL LIMITED OWNERSHIP COMPREHENSIVE
PARTNERS PARTNERS INTERESTS INCOME (LOSS) TOTAL
------------- -------------- ---------------- --------------- --------------
Consolidated balance at January 1,
2000 ..................................... $(21,705) $(417,418) $ -- $ (18,848) $(457,971)
Net loss for the year .................... (2,282) (43,355) -- -- (45,637)
Cumulative translation adjustment ........ -- -- -- (10,387) (10,387)
---------
Comprehensive income (loss) .............. (56,024)
Capital contribution ..................... 2,500 47,500 (1,147) -- 48,853
Recapitalization (unearned
compensation expense) .................. 36 727 -- -- 763
-------- --------- -------- --------- ---------
Consolidated balance at December 31,
2000 ..................................... (21,451) (412,546) (1,147) (29,235) (464,379)
Net loss for the year .................... (2,198) (41,772) -- -- (43,970)
Cumulative effect of change in
accounting for derivatives ............. -- -- -- 392 392
Changes in fair value of derivatives ..... -- -- -- (13,537) (13,537)
Additional minimum pension liability...... -- -- -- (1,937) (1,937)
Cumulative translation adjustment ........ -- -- -- (10,383) (10,383)
---------
Comprehensive income (loss) .............. (69,435)
Capital contribution ..................... 2,500 47,500 (1,146) -- 48,854
Interest on notes receivable for
ownership interests .................... -- -- (150) -- (150)
Recapitalization (unearned
compensation expense) .................. 2 54 -- -- 56
-------- --------- -------- --------- ---------
Consolidated balance at December 31,
2001 ..................................... (21,147) (406,764) (2,443) (54,700) (485,054)
Net income for the year .................. 378 7,184 -- -- 7,562
Changes in fair value of derivatives ..... -- -- -- 6,909 6,909
Additional minimum pension liability...... -- -- -- (2,051) (2,051)
Cumulative translation adjustment ........ -- -- -- 12,477 12,477
---------
Comprehensive income ..................... 24,897
Interest on notes receivable for
ownership interests .................... -- -- (150) -- (150)
-------- --------- -------- --------- ---------
Consolidated balance at December 31,
2002 ..................................... $(20,769) $(399,580) $ (2,593) $ (37,365) $(460,307)
======== ========= ======== ========= =========
See accompanying notes to financial statements.
F-5
GRAHAM PACKAGING HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
---------------------------------------------
2000 2001 2002
------------- ------------- -------------
Operating activities:
Net (loss) income ....................................... $ (45,637) $ (43,970) $ 7,562
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization ......................... 66,200 71,707 75,840
Impairment charges .................................... 21,056 37,988 5,129
Amortization of debt issuance fees .................... 4,658 4,637 4,572
Accretion of Senior Discount Notes .................... 13,588 14,959 16,739
Minority interest ..................................... (623) 530 1,713
Equity in (earnings) loss of joint venture ............ (63) 246 --
Foreign currency transaction loss ..................... 292 219 27
Interest receivable for ownership interests ........... -- (150) (150)
Other non-cash Recapitalization expense ............... 763 56 --
Changes in operating assets and liabilities, net of
acquisitions/sales of businesses:
Accounts receivable ................................... (6,898) 21,029 (6,265)
Inventories ........................................... (13,753) 4,020 (4,017)
Prepaid expenses and other current assets ............. 4,191 (2,151) (3,879)
Other non-current assets and liabilities .............. (1,406) (7,180) (414)
Accounts payable and accrued expenses ................. 48,523 (49,453) (4,488)
---------- ---------- ----------
Net cash provided by operating activities ................ 90,891 52,487 92,369
Investing activities:
Net purchases of property, plant and equipment .......... (163,429) (74,315) (92,437)
Acquisitions of/investments in businesses, net of
cash acquired ......................................... (109) (163) --
Net expenditures for sales of businesses ................ -- -- (4,193)
Other ................................................... (1,145) (2,680) --
---------- ---------- ----------
Net cash used in investing activities .................... (164,683) (77,158) (96,630)
Financing activities:
Proceeds from issuance of long-term debt ................ 443,496 708,542 496,227
Payment of long-term debt ............................... (412,986) (733,202) (494,880)
Notes receivable for ownership interests ................ (1,147) (1,146) --
Capital contributions ................................... 50,000 50,000 --
Contributions (to) from minority shareholders ........... 68 (15) --
Debt issuance fees and other ............................ (1,038) 106 --
---------- ---------- ----------
Net cash provided by financing activities ................ 78,393 24,285 1,347
Effect of exchange rate changes .......................... (740) (426) 1,181
---------- ---------- ----------
Increase (decrease) in cash and cash equivalents ......... 3,861 (812) (1,733)
Cash and cash equivalents at beginning of year ........... 5,983 9,844 9,032
---------- ---------- ----------
Cash and cash equivalents at end of year ................. $ 9,844 $ 9,032 $ 7,299
========== ========== ==========
See accompanying notes to financial statements.
F-6
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the operations of Graham
Packaging Holdings Company, a Pennsylvania limited partnership formerly known
as Graham Packaging Company ("Holdings"); Graham Packaging Company, L.P., a
Delaware limited partnership formerly known as Graham Packaging Holdings I,
L.P. (the "Operating Company"); Graham Packaging Italy, S.r.L.; Graham
Packaging France Partners; Graham Packaging Poland, L.P.; Graham Packaging do
Brasil Industria e Comercio S.A.; Graham Packaging Canada Limited; Graham
Recycling Company, L.P.; Graham Packaging U.K. Ltd.; Graham Plastik Ambalaj
A.S.; Graham Packaging Deutschland GmbH; Graham Packaging Argentina S.A.;
Graham Innopack de Mexico S. de R.L. de C.V.; Graham Packaging Belgium S.A.;
Graham Packaging Iberica S.L.; subsidiaries thereof; and land and buildings
that were used in the operations, owned by the control group of owners and
contributed to the Company (as defined below). In addition, the consolidated
financial statements of the Company include GPC Capital Corp. I, a wholly owned
subsidiary of the Operating Company and GPC Capital Corp. II, a wholly owned
subsidiary of Holdings. The purpose of GPC Capital Corp. I is solely to act as
co-obligor with the Operating Company under the Senior Subordinated Notes (as
herein defined) and as co-borrower with the Operating Company under the Senior
Credit Agreement (as herein defined), and the purpose of GPC Capital Corp. II
is solely to act as co-obligor with Holdings under the Senior Discount Notes
and as co-guarantor with Holdings of the Senior Credit Agreement. GPC Capital
Corp. I and GPC Capital Corp. II have only nominal assets and do not conduct
any independent operations. Since March 30, 2001 the consolidated financial
statements of the Company include the operations of Masko Graham Spolka Z.O.O.
("Masko Graham") as a result of acquiring an additional 1% interest, for a
total of 51% interest, in a joint venture. (Refer to Note 3 for a discussion of
this investment). These entities and assets are referred to collectively as
Graham Packaging Holdings Company (the "Company"). All significant intercompany
accounts and transactions have been eliminated in the consolidated financial
statements.
Since the Recapitalization (as herein defined -- see Note 2), 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,
which has only nominal assets and does not conduct any independent operations,
and its obligations under the Senior Discount Notes and related unamortized
issuance costs. Holdings has fully and unconditionally guaranteed the Senior
Subordinated Notes of the Operating Company and GPC Capital Corp. I on a senior
subordinated basis. Holdings is jointly and severally liable with GPC Capital
Corp. II with respect to all obligations on the Senior Discount Notes (as
herein defined) and GPC Capital Corp. II. The Operating Company is the sole
source of revenue for Holdings and GPC Capital Corp. II. As a result, Holdings
and GPC Capital Corp. II rely on distributions from the Operating Company to
satisfy all of their debt obligations.
Description of Business
The Company sells plastic packaging products principally to large,
multinational companies in the food and beverage, household and personal care
and automotive lubricants industries. The Company has manufacturing facilities
in Argentina, Belgium, Brazil, Canada, France, Germany, Hungary, Mexico,
Poland, Spain, Turkey and the United States.
Revenue Recognition
The Company recognizes revenue when the title and risk of loss have passed
to the customer, there is persuasive evidence of an arrangement, delivery has
occurred, the sales price is determinable and collectability is reasonably
assured. Revenue typically is recognized at time of shipment. Sales are
recorded net of discounts, rebates and returns.
F-7
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2002
Shipping and Handling Costs
Shipping and handling costs are included as a component of cost of goods
sold in the consolidated statements of operations.
Cash and Cash Equivalents
The Company considers cash and investments with an initial maturity of
three months or less when purchased to be cash and cash equivalents.
Inventories
Inventories include material, labor and overhead and are stated at the
lower of cost or market with cost determined by the first-in, first-out
("FIFO") method (see Note 5).
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation and
amortization are computed by the straight-line method over the estimated useful
lives of the various assets ranging from 3 to 31.5 years. Interest costs are
capitalized during the period of construction of capital assets as a component
of the cost of acquiring these assets.
Goodwill
Prior to January 1, 2002, the Company amortized goodwill under the
straight-line method over 20 years. On January 1, 2002, the Company adopted
Statement of Financial Accounting Standards ("SFAS") 142, "Goodwill and Other
Intangible Assets." SFAS 142 changes the accounting for goodwill from an
amortization method to an impairment-only approach. Amortization of goodwill,
including goodwill recorded in past business combinations, ceased upon adoption
of this statement. The Company has completed the transitional goodwill
impairment test as of January 1, 2002 and determined that there was no
impairment loss to be recognized upon adoption of SFAS 142. Goodwill is
reviewed for impairment on an annual basis and whenever events or changes in
circumstances indicate that the carrying amount of the goodwill may not be
recoverable. See Notes 6, 20 and 22.
Other Non-current Assets
Other non-current assets primarily include debt issuance fees, notes
receivable and prepaid pension assets. Debt issuance fees totaled $19.3 million
and $14.7 million as of December 31, 2001 and 2002, respectively. These amounts
are net of accumulated amortization of $17.8 million and $22.4 million as of
December 31, 2001 and 2002, respectively. Amortization is computed by the
effective interest method over the term of the related debt.
Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable in accordance with SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." The Company uses a probability-weighted
estimate of the future undiscounted net cash flows of the related asset or
asset grouping over the remaining life in measuring whether the assets are
recoverable. Any impairment loss, if indicated, is measured on the amount by
which the carrying amount of the asset exceeds the estimated fair value of the
asset. When fair values are not available, the Company estimates fair value
using the probability-weighted expected future cash flows discounted at a
risk-free rate.
F-8
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2002
Derivatives
On January 1, 2001 the Company adopted SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS 138. These
standards establish accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. All derivatives, whether designated in hedging
relationships or not, are required to be recorded on the balance sheet at fair
value. If the derivative is designated as a fair value hedge, the changes in
the fair value of the derivative and the hedged item will be recognized in
earnings. If the derivative is designated as a cash flow hedge, the effective
portion of the change in the fair value of the derivative will be recorded in
other comprehensive income ("OCI") and will be recognized in the income
statement when the hedged item affects earnings. On January 1, 2001, in
connection with the adoption of SFAS 133, the Company recorded $0.4 million in
OCI as a cumulative transition adjustment for derivatives designated as cash
flow hedges prior to adopting SFAS 133. The Company entered into interest rate
swap agreements to hedge the exposure to increasing rates with respect to its
Existing Senior Credit Agreement. These interest rate swaps were accounted for
as cash flow hedges. The effective portion of the change in the fair value of
the interest rate swaps is recorded in OCI and was an unrealized gain of $6.9
million for the year ended December 31, 2002, with a cumulative $6.2 million
unrealized loss recorded within OCI as of December 31, 2002. In connection with
the closing of the Senior Credit Agreement on February 14, 2003 the Company
expects to record a non-cash charge of approximately $4.8 million as a result
of the reclassification into expense of the remaining unrealized loss on
interest rate swap agreements applicable to indebtedness under the Existing
Senior Credit Agreement.
On February 14, 2003 the Company entered into three new interest rate swap
agreements beginning March 24, 2003, under which the Company receives variable
interest based on the Eurodollar Rate (hereinafter defined) and pays fixed
interest at a weighted average rate of 2.54% on $300 million of the term loans
through March 24, 2006. SFAS 133 defines new requirements for designation and
documentation of hedging relationships as well as ongoing effectiveness
assessments in order to use hedge accounting. For a derivative that does not
qualify as a hedge, changes in fair value will be recognized in earnings.
Continued use of hedge accounting is dependent on Management's adherence to
this accounting policy. Failure to properly document the Company's interest
rate swaps as cash flow hedges would result in income statement recognition of
all or part of any future unrealized gain or loss recorded in OCI. The
potential income statement impact resulting from a failure to adhere to this
policy makes this policy critical to the financial statements.
The Company also enters into forward exchange contracts, when considered
appropriate, to hedge the exchange rate exposure on transactions that are
denominated in a foreign currency. These forward contracts are accounted for as
fair value hedges. During the years ended December 31, 2001 and 2002, there was
no net gain or loss recognized in earnings as a result of fair value hedges.
The Company has no outstanding forward exchange contracts as of December 31,
2002.
Benefit Plan Accruals
The Company has several defined benefit plans, under which participants
earn a retirement benefit based upon a formula set forth in the plan. The
Company records expense related to these plans using actuarially determined
amounts that are calculated under the provisions of SFAS 87, "Employer's
Accounting for Pensions."
Foreign Currency Translation
The Company uses the local currency as the functional currency for all
foreign operations, except as noted below. All assets and liabilities of such
foreign operations are translated into U.S. dollars at
F-9
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2002
year-end exchange rates. Income statement items are translated at average
exchange rates prevailing during the year. The resulting translation
adjustments are included in accumulated other comprehensive income as a
component of partners' capital (deficit). Exchange gains and losses arising
from transactions denominated in foreign currencies other than the functional
currency of the entity entering into the transactions are included in current
operations. For operations in highly inflationary economies, the Company
remeasures such entities' financial statements as if the functional currency
was the U.S. dollar.
Comprehensive Income
Foreign currency translation adjustments, changes in fair value of
derivatives designated and accounted for as cash flow hedges and additional
minimum pension liability adjustments are included in OCI and added with net
income to determine total comprehensive income, which is displayed in the
Consolidated Statements of Partners' Capital (Deficit). Cumulative foreign
currency translation loss adjustments totaled $39.7 million and $27.2 million
as of December 31, 2001 and December 31, 2002, respectively. Cumulative losses
on derivatives designated and accounted for as cash flow hedges totaled $13.1
million and $6.2 million as of December 31, 2001 and December 31, 2002,
respectively. Minimum pension liability loss adjustments totaled $1.9 million
and $4.0 million as of December 31, 2001 and December 31, 2002, respectively.
Income Taxes
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. For the Company'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.
Management Option Plan
The Company accounts for equity based compensation to employees using the
intrinsic value method prescribed in Accounting Principles Board Opinion
("APB") 25, "Accounting for Stock Issued to Employees." SFAS 123, "Accounting
For Stock Based Compensation," established accounting and disclosure
requirements using a fair-value based method of accounting for equity based
employee compensation plans. As of December 31, 2002, the Company has elected
to remain on its current method of accounting as described above and has
adopted the disclosure requirements of SFAS 123.
Postemployment Benefits
The Company maintains a supplemental income plan, which provides
postemployment benefits to a certain employee of the Company. Accrued
postemployment benefits of approximately $1.1 million and $1.2 million as of
December 31, 2001 and 2002, respectively, were included in other non-current
liabilities.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the U.S. 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-10
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2002
Reclassifications
Certain reclassifications have been made to the 2000 and 2001 financial
statements to conform to the 2002 presentation.
New Accounting Pronouncements Not Yet Adopted
On April 30, 2002, SFAS 145, "Rescission of FASB Statements No. 4, 44 and
64, Amendment of FASB Statement No. 13, and Technical Corrections" was approved
by the Financial Accounting Standards Board ("FASB"). As a result, gains and
losses from extinguishment of debt are classified as extraordinary items only
if they meet the criteria in Accounting Principles Board Opinion 30. The
Company adopted SFAS 145 on January 1, 2003 and the adoption of SFAS 145 did
not have a significant impact on its results of operations or financial
position.
On July 30, 2002, SFAS 146, "Accounting for Costs Associated with Exit or
Disposal Activities" was issued by the FASB. This standard requires companies
to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing or other exit or disposal activity. SFAS
146 is to be applied prospectively to exit or disposal activities initiated
after December 31, 2002. The Company adopted SFAS 146 on January 1, 2003 and
the adoption of SFAS 146 did not have a significant impact on its results of
operations or financial position.
In December 2002, SFAS 148, "Accounting for Stock-Based Compensation --
Transition and Disclosure" was issued by the FASB. This standard amends SFAS
123 to provide alternative methods of transition for a voluntary change to the
fair value method of accounting for stock-based employee compensation. In
addition, this standard amends the disclosure requirements of SFAS 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. Management does not believe that
adoption of SFAS 148 will have a significant impact on the Company's results of
operations or financial position.
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 then owners of the Company (the "Graham Entities") and (iii)
BMP/Graham Holdings Corporation, a Delaware corporation ("Investor LP") formed
by Blackstone Capital Partners III Merchant Banking Fund L.P., 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 ("Closing").
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, L.P.";
o The contribution by certain Graham Entities to the Company of their
ownership interests in certain partially-owned subsidiaries of
Holdings and certain real estate used but not owned by Holdings and
its subsidiaries;
F-11
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2002
o The initial borrowing by the Operating Company of $403.5 million (the
"Bank Borrowings") in connection with the Existing Senior Credit
Agreement entered into by and among the Operating Company, Holdings
and a syndicate of lenders;
o The issuance of $225.0 million Senior Subordinated Notes by the
Operating Company and $100.6 million gross proceeds ($169.0 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 Entities for $429.6 million;
o The purchase by the Equity Investors of certain partnership interests
in Holdings held by the Graham Entities for $208.3 million;
o The repayment by the Graham Entities of amounts owed to Holdings under
the $20.2 million promissory notes;
o The recognition of additional compensation expense under an 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;
o The execution of various other agreements among the parties; and
o The payment of a $6.2 million tax distribution by the Operating
Company on November 2, 1998 to certain Graham Entities for tax periods
prior to the Recapitalization.
As a result of the consummation of the Recapitalization, Investor LP owns
an 81% limited partnership interest in Holdings and Investor GP owns a 4%
general partnership interest in Holdings. Certain Graham Entities 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.
3. ACQUISITIONS
Investment in Limited Partnership of PlasPET Florida, Ltd.
On April 26, 1999 the company acquired 51% of the operating assets of
PlasPET Florida, Ltd., while becoming the general partner on July 6, 1999, and
on October 9, 2001 acquired the remaining 49%, for a total purchase price
(including acquisition-related costs) of $3.3 million, net of liabilities
assumed. The investment was accounted for under the equity method of accounting
prior to July 6, 1999. The original acquisition was recorded on July 6, 1999
under the purchase method of accounting and, accordingly, the results of
operations of the acquired operations are consolidated in the financial
statements of the Company for all periods presented. The purchase price has
been allocated to assets acquired and liabilities assumed based on fair values.
The allocated fair value of assets acquired and liabilities assumed is
summarized as follows (in thousands):
F-12
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2002
Current assets ........................ $ 479
Property, plant and equipment ......... 4,689
Other assets .......................... 1,052
Goodwill .............................. 4,032
-------
Total ................................. 10,252
Less liabilities assumed .............. 6,906
-------
Net cost of acquisition ............... $ 3,346
=======
Purchase of additional 1% interest in Masko Graham Joint Venture
On March 30, 2001 the Company acquired an additional 1% interest in Masko
Graham Joint Venture ("Masko Graham") for a total interest of 51%. The total
purchase price (including acquisition-related costs) for the entire 51%
interest in the operating assets was $1.4 million, net of liabilities assumed.
The investment was accounted for under the equity method of accounting prior to
March 30, 2001. The acquisition was recorded on March 30, 2001 under the
purchase method of accounting and, accordingly, the results of operations of
Masko Graham are consolidated in the financial statements of the Company
beginning on March 30, 2001. The purchase price has been allocated to assets
acquired and liabilities assumed based on fair values. The allocated fair value
of assets acquired and liabilities assumed is summarized as follows (in
thousands):
Current assets ........................ $ 3,743
Property, plant and equipment ......... 8,210
Goodwill .............................. 954
-------
Total ................................. 12,907
Less liabilities assumed .............. 11,474
-------
Net cost of acquisition ............... $ 1,433
=======
Pro Forma Information
The following table sets forth unaudited pro forma results of operations,
assuming that all of the above acquisitions had taken place at the beginning of
each period presented:
YEAR ENDED DECEMBER 31,
-----------------------
2000 2001
----------- -----------
(IN THOUSANDS)
Net sales .......... $ 851,946 $ 925,782
Net (loss) ......... (46,415) (44,102)
These unaudited pro forma results have been prepared for comparative
purposes only and include certain adjustments, such as additional depreciation
expense as a result of a step-up in the basis of fixed assets and increased
interest expense on acquisition debt. They do not purport to be indicative of
the results of operations which actually would have resulted had the
combinations been in effect at the beginning of each period presented, or of
future results of operations of the entities.
4. ACCOUNTS RECEIVABLE
Accounts receivable are presented net of an allowance for doubtful
accounts of $2.4 million and $4.3 million at December 31, 2001 and 2002,
respectively. Management performs ongoing credit evaluations of its customers
and generally does not require collateral.
F-13
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2002
The Company had sales to two customers which exceeded 10.0% of total sales
in any of the past three years. The Company's sales to one customer were 11.7%,
17.4% and 16.4% of total net sales for the years ended December 31, 2000, 2001
and 2002, respectively. For the year ended December 31, 2002, nearly all sales
to this customer were made in North America. The Company's sales to another
customer were 11.4%, 9.4% and 7.8% of total net sales for the years ended
December 31, 2000, 2001 and 2002, respectively. For the year ended December 31,
2002, approximately 73%, 25% and 2% of the sales to this customer were made in
North America, Europe and South America, respectively.
5. INVENTORIES
Inventories consisted of the following:
DECEMBER 31,
-----------------------
2001 2002
---------- ----------
(IN THOUSANDS)
Finished goods .................. $43,403 $43,786
Raw materials and parts ......... 17,073 18,874
------- -------
$60,476 $62,660
======= =======
6. IMPAIRMENT CHARGES
During 2000, the Company evaluated the recoverability of its long-lived
assets in the following locations (with the operating segment under which it
reports in parentheses) due to indicators of impairment as follows:
o United Kingdom (Europe) -- operating losses experienced and projected;
o Certain plants in France (Europe) -- operating losses experienced and
projected;
o Anjou, Canada (North America) -- operating losses experienced and
projected; and
o Brazil (Latin America) -- a significant change in the ability to
utilize certain assets.
During 2001, the Company evaluated the recoverability of its long-lived
assets in the following locations (with the operating segment under which it
reports in parentheses) due to indicators of impairment as follows:
o Argentina (Latin America) -- operating losses and cash flow deficits
experienced, the loss or reduction of business and the severe downturn
in the Argentine economy;
o Italy (Europe) -- operating losses and reduction of business, as well
as the Company's commitment to a plan to sell these locations;
o Certain plants in France (Europe) -- the Company's commitment to a
plan to sell or close these locations;
o Bad Bevensen, Germany (Europe) -- the Company's commitment to a plan
to sell or close this location;
o United Kingdom (Europe) -- the Company's commitment to a plan to close
this location;
o Burlington, Canada (North America) -- the Company's commitment to a
plan to close this location; and
o Turkey (Europe) -- a significant change in the ability to utilize
certain assets.
F-14
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2002
During 2002, the Company evaluated the recoverability of its long-lived
assets in the following locations (with the operating segment under which it
reports in parentheses) due to indicators of impairment as follows:
o Germany (Europe) -- the Company's commitment to a plan to sell this
location; and
o Certain plant in Louisiana (North America) -- the Company's commitment
to a plan to close this location.
For assets to be held and used, the Company determined that the
undiscounted cash flows were below the carrying value of certain long-lived
assets in these locations. Accordingly, the Company adjusted the carrying
values of these long-lived assets in these locations to their estimated fair
values, resulting in impairment charges of $15.8 million and $4.1 million for
the years ended December 31, 2000 and 2001, respectively. For assets to be
disposed of, the Company adjusted the carrying values of these long-lived
assets in these locations to the lower of their carrying values or their
estimated fair values less costs to sell, resulting in impairment charges of
$0.5 million, $24.8 million and $5.1 million for the years ended December 31,
2000, 2001 and 2002, respectively. These assets have a remaining carrying
amount as of December 31, 2002 of $0.4 million. Similarly, the Company
evaluated the recoverability of its enterprise goodwill applicable to these
locations, and consequently recorded impairment charges of $4.8 million and
$9.1 million for the years ended December 31, 2000 and 2001, respectively.
Goodwill was evaluated for impairment and the resulting impairment charge
recognized based on a comparison of the related net book value of the location
to projected discounted future cash flows of the location.
As of December 31, 2002, certain assets in Germany, the United Kingdom and
the United States were held for disposal. Operating loss for Germany for each
of the three years ended December 31, 2000, 2001 and 2002 was $1.7 million,
$12.5 million and $4.3 million, respectively. Discrete financial information is
not available for the other location whose assets are held for disposal.
7. ACCRUED EXPENSES
Accrued expenses consisted of the following:
DECEMBER 31,
-----------------------
2001 2002
---------- ----------
(IN THOUSANDS)
Accrued employee compensation and benefits ......... $23,930 $36,062
Accrued interest ................................... 12,361 11,120
Accrued sales allowance ............................ 8,612 9,919
Other .............................................. 34,478 35,109
------- -------
$79,381 $92,210
======= =======
For the year ended December 31, 2001, the Company incurred costs of
employee termination benefits in Burlington, Canada of $0.9 million, which
included the legal liability of severing 139 employees, in the United Kingdom
of $0.6 million, which included the legal liability of severing 26 employees
and in Bad Bevensen, Germany of $0.6 million, which included the legal
liability of severing 22 employees. The Company terminated 35 of these
employees as of December 31, 2001. The remaining 152 employees were terminated
during the year ended December 31, 2002. For the year ended December 31, 2002,
the Company incurred costs of employee termination benefits in the United
Kingdom of $1.7 million, which included the legal liability of severing 67
employees, all of which were terminated as of December 31, 2002. In addition,
for the year ended December 31, 2002,
F-15
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2002
the Company incurred costs of employee termination benefits in Blyes and Noeux
les Mines, France of $9.0 million, which included the legal liability of
severing 155 employees. The Company terminated 25 of these employees as of
December 31, 2002. Substantially all of the cash payments for these termination
benefits are expected to be made by June 30, 2004. The following table reflects
a rollforward of the reorganization costs, primarily included in accrued
employee compensation and benefits (in thousands):
EUROPE & UNITED
NORTH AMERICA BURLINGTON, KINGDOM GERMANY FRANCE
REDUCTION CANADA REDUCTION REDUCTION REDUCTION
IN FORCE SHUTDOWN IN FORCE IN FORCE IN FORCE TOTAL
--------------- ------------- ----------- ----------- ---------- -----------
Reserves at December 31, 2000....... $ 3,605 $ -- $ -- $ -- $ -- $ 3,605
(Decrease) increase in reserves..... (442) 895 595 564 -- 1,612
Cash payments ...................... (2,756) -- (595) -- -- (3,351)
-------- ------ -------- ------ ------ --------
Reserves at December 31, 2001....... $ 407 $ 895 $ -- $ 564 $ -- $ 1,866
(Decrease) increase in reserves..... (185) 29 1,706 (47) 9,015 10,518
Cash payments ...................... (149) (888) (1,706) (517) -- (3,260)
-------- ------ -------- ------ ------ --------
Reserves at December 31, 2002....... $ 73 $ 36 $ -- $ -- $9,015 $ 9,124
======== ====== ======== ====== ====== ========
8. DEBT ARRANGEMENTS
Long-term debt consisted of the following:
DECEMBER 31,
-----------------------------
2001 2002
------------- -------------
(IN THOUSANDS)
Term loan .................................. $ 526,950 $ 502,000
Revolving loan ............................. 125,000 155,500
Revolving credit facilities ................ 5,111 3,483
Senior Subordinated Notes .................. 225,000 225,000
Senior Discount Notes ...................... 151,638 168,377
Capital leases ............................. 16,041 14,400
Other ...................................... 2,651 1,867
---------- ----------
1,052,391 1,070,627
Less amounts classified as current ......... 30,585 7,992
---------- ----------
$1,021,806 $1,062,635
========== ==========
On February 2, 1998, as discussed in Note 2, the Company refinanced the
majority of its existing credit facilities in connection with the
Recapitalization and entered into a senior credit agreement (the "Existing
Senior Credit Agreement") with a consortium of banks. All of the existing
indebtedness under the Existing Senior Credit Agreement was refinanced on
February 14, 2003 when the Operating Company, Holdings, CapCo I and a syndicate
of lenders entered into a new senior credit agreement (the "Senior Credit
Agreement"). The Senior Credit Agreement consists of two term loans to the
Operating Company with initial term loan commitments totaling $670.0 million
(the "Term Loans" or "Term Loan Facilities") and a $150.0 million revolving
credit facility (the "Revolving Credit Loans"). The obligations of the
Operating Company under the Senior Credit Agreement are guaranteed by Holdings
and certain other subsidiaries of Holdings. After giving effect to the February
14, 2003 Senior Credit Agreement, the Term Loans are payable in quarterly
installments and require payments of $2.5 million in 2003, $5.0 million in
2004, $25.0 million in 2005, $50.0 million in 2006, $50.0 million
F-16
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2002
in 2007, $235.0 million in 2008 and $134.5 million in 2009. The Revolving
Credit Loan facilities expire on the earlier of February 14, 2008 and the Term
Loan maturity date. 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 1.75% to 3.25%; or (b) the "Eurodollar Rate" (the applicable
interest rate offered to banks in the London interbank eurocurrency market)
plus a margin ranging from 2.75% to 4.25%. A commitment fee of 0.50% is due on
the unused portion of the revolving loan commitment. In addition, the Senior
Credit Agreement contains certain affirmative and negative covenants as to the
operations and financial condition of the Company, as well as certain
restrictions on the payment of dividends and other distributions to Holdings.
As of December 31, 2002 and the closing of the Senior Credit Agreement on
February 14, 2003, the Company was in compliance with all covenants.
Substantially all domestic tangible and intangible assets of the Company
are pledged as collateral pursuant to the terms of the Senior Credit Agreement.
The Recapitalization also included the issuance of $225.0 million in
Senior Subordinated Notes of the Operating Company and $100.6 million gross
proceeds in Senior Discount Notes ($169.0 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 $150.0 million at a fixed rate of 8.75% and with
interest payable on $75.0 million at LIBOR plus 3.625%. The Senior Discount
Notes mature on January 15, 2009, with cash interest payable beginning to
accrue on January 15, 2003 at 10.75%. The effective interest rate to maturity
on the Senior Discount Notes is 10.75%.
At December 31, 2002, the Operating Company had entered into three
interest rate swap agreements, under which the Company receives variable
interest based on the Eurodollar Rate and pays fixed interest, on $300.0
million of the Term Loans, on $100.0 million through April 9, 2003 at a fixed
rate of 5.77% and on $200.0 million through September 10, 2003 at a fixed rate
of 4.99%. On February 14, 2003 the Operating Company entered into three new
interest rate swap agreements beginning March 24, 2003, under which the Company
receives variable interest based on the Eurodollar Rate and pays fixed interest
at a weighted average rate of 2.54%, on $300 million of the Term Loans through
March 24, 2006.
On September 8, 1998, Holdings and GPC Capital Corp. II consummated an
exchange offer for all of their outstanding Senior Discount Notes Due 2009
which had been issued on February 2, 1998 (the "Senior Discount Old Notes") and
issued in exchange therefor their Senior Discount Notes Due 2009, Series B (the
"Senior Discount Exchange Notes"), and the Operating Company and GPC Capital
Corp. I consummated exchange offers for all of their outstanding Senior
Subordinated Notes Due 2008 which had been issued on February 2, 1998 (the
"Senior Subordinated Old Notes" and, together with the Senior Discount Old
Notes, the "Old Notes") and issued in exchange therefor their Senior
Subordinated Notes Due 2008, Series B (the "Senior Subordinated Exchange Notes"
and, together with the Senior Discount Exchange Notes, the "Exchange Notes").
Each issue of Exchange Notes has the same terms as the corresponding issue of
Old Notes, except that the Exchange Notes are registered under the Securities
Act of 1933, as amended, and do not include the restrictions on transfer
applicable to the Old Notes. The Senior Subordinated Old Notes were, and the
Senior Subordinated Exchange Notes are, fully and unconditionally guaranteed by
Holdings on a senior subordinated basis.
Under the Senior Credit Agreement and the Indenture governing the Exchange
Notes, 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:
F-17
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2002
o in respect of overhead, tax liabilities, legal, accounting and other
professional fees and expenses;
o 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 that person's death,
disability, retirement or termination of employment or other
circumstances with annual dollar limitations; and
o to finance the payment of cash interest on the Senior Discount Notes
or any notes issued pursuant to the refinancing of the Senior Discount
Notes.
The Company's weighted average effective rate on the outstanding
borrowings under the Term Loans and Revolving Credit Loans was 4.70% and 3.80%
at December 31, 2001 and 2002, respectively, excluding the effect of interest
rate swaps.
The Company had several variable-rate revolving credit facilities
denominated in U.S. Dollars, French Francs and Polish Zloty, with aggregate
available borrowings at December 31, 2002 equivalent to $2.5 million. The
Company's average effective rate on borrowings of $5.1 million on these credit
facilities at December 31, 2001 was 11.64%.The Company's average effective rate
on borrowings of $3.5 million on these credit facilities at December 31, 2002
was 15.8%.
Interest paid during 2000, 2001 and 2002, net of amounts capitalized of
$4.2 million, $2.6 million and $1.5 million, respectively, totaled $90.6
million, $81.9 million and $62.0 million, respectively.
After giving effect to the February 14, 2003 Senior Credit Agreement, the
annual debt service requirements of the Company for the succeeding five years
are as follows: 2003--$8.0 million; 2004--$7.3 million; 2005--$28.0 million;
2006--$52.2 million; and 2007--$56.0 million.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS AND DERIVATIVES
The following methods and assumptions were used to estimate the fair
values of each class of financial instruments:
Cash and Cash Equivalents, Accounts Receivable and Accounts Payable
The fair values of these financial instruments approximate their carrying
amounts.
Long-Term Debt
The fair values of the variable-rate, long-term debt instruments
approximate their carrying amounts. The fair value of other long-term debt was
based on market price information. Other long-term debt includes the Senior
Discount Notes and $150.0 million of Senior Subordinated Notes and totaled
approximately $301.6 million and $318.4 million at December 31, 2001 and 2002,
respectively. The fair value of this long-term debt, including the current
portion, was approximately $247.5 million and $318.3 million at December 31,
2001 and 2002, respectively.
Derivatives
The Company is exposed to market risk from changes in interest rates and
currency exchange rates. The Company manages these exposures on a consolidated
basis and enters into various derivative transactions for selected exposure
areas. The financial impacts of these hedging instruments are offset by
corresponding changes in the underlying exposures being hedged. The Company
does not hold or issue derivative financial instruments for trading purposes.
F-18
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2002
Interest rate swap agreements are used to hedge exposure to interest rates
associated with the Company's Senior Credit Agreement. Under these agreements,
the Company agrees to exchange with a third party at specified intervals the
difference between fixed and variable interest amounts calculated by reference
to an agreed-upon notional principal amount. Interest rate swaps are recorded
on the balance sheet in accrued expenses and other non-current liabilities at
fair value. The effective portion of cash flow hedges are recorded in OCI.
The following table presents information for all interest rate swaps. The
notional amount does not necessarily represent amounts exchanged by the parties
and, therefore is not a direct measure of the Company's exposure to credit
risk. The fair value approximates the cost to settle the outstanding contracts.
DECEMBER 31,
-------------------------
2001 2002
----------- -----------
(IN THOUSANDS)
Notional amount ................. $ 500,000 $300,000
Fair value -- liability ......... (13,145) (6,237)
Derivatives are an important component of the Company's interest rate
management program, leading to acceptable levels of variable interest rate
risk. Due to sharply declining interest rates in 2001 and 2002, the effect of
derivatives was to increase interest expense by $7.0 million and $12.5 million
for 2001 and 2002, respectively, compared to an entirely unhedged variable rate
debt portfolio. The incremental effect on interest expense for 2000 was not
significant.
The Company manufactures and sells its products in a number of countries
throughout the world and, as a result, is exposed to movements in foreign
currency exchange rates. The Company utilizes foreign currency hedging
activities to protect against volatility associated with purchase commitments
that are denominated in foreign currencies for machinery, equipment and other
items created in the normal course of business. The terms of these contracts
are generally less than one year.
Gains and losses related to qualifying hedges of foreign currency firm
commitments or anticipated transactions are accounted for in accordance with
SFAS 133. There were no currency forward contracts outstanding at December 31,
2001 or December 31, 2002.
Credit risk arising from the inability of a counterparty to meet the terms
of the Company's financial instrument contracts is generally limited to the
amounts, if any, by which the counterparty's obligations exceed the obligations
of the Company. It is the Company's policy to enter into financial instruments
with a diversity of creditworthy counterparties. Therefore, the Company does
not expect to incur material credit losses on its risk management or other
financial instruments.
10. LEASE COMMITMENTS
The Company was a party to various leases involving real property and
equipment during 2000, 2001 and 2002. Total rent expense for operating leases
amounted to $19.9 million in 2000, $22.2 million in 2001 and $22.9 million in
2002. Minimum future lease obligations on long-term noncancelable operating
leases in effect at December 31, 2002 are as follows: 2003--$15.9 million;
2004--$13.7 million; 2005--$10.6 million; 2006--$6.9 million; 2007--$6.4
million; and thereafter--$17.8 million. Minimum future lease obligations on
capital leases in effect at December 31, 2002 are as follows: 2003--$2.4
million; 2004--$1.8 million; 2005--$2.1 million; 2006--$1.9 million; 2007--$5.7
million; and thereafter--$0.5 million. The gross amount of assets under capital
leases was $20.3 million and $20.8 million as of December 31, 2001 and 2002,
respectively.
F-19
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2002
11. TRANSACTIONS WITH AFFILIATES
Transactions with entities affiliated through common ownership included
the following:
YEAR ENDED DECEMBER 31,
------------------------------------
2000 2001 2002
---------- ---------- ----------
(IN THOUSANDS)
Equipment and related services purchased from affiliates .......... $25,103 $23,838 $20,220
Goods and related services purchased from affiliates .............. $ -- $ 1,066 $ 5,380
Management services provided by affiliates, including
management, legal, tax, accounting, insurance, treasury and
employee benefits administration services ........................ $ 2,020 $ 2,034 $ 2,250
Services provided and sales to affiliates, including administrative
services, engineering services and raw materials ................. $ 51 $ 2 $ 759
Loans to Management for equity contribution ....................... $ 1,147 $ 1,146 --
Interest income on notes receivable from owners ................... $ -- $ 150 $ 150
Account balances with affiliates include the following:
YEAR ENDED DECEMBER 31,
-----------------------
2001 2002
---------- ----------
(IN THOUSANDS)
Accounts receivable ........................................... $ -- $ 1,425
Accounts payable .............................................. $1,964 $14,469
Notes and interest receivable for ownership interests ......... $2,443 $ 2,593
12. PENSION PLANS
Substantially all employees of the Company participate in noncontributory,
defined benefit or defined contribution pension plans.
The U.S. 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
Company'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.
U.S. plan assets consist of a diversified portfolio including domestic common
stocks and bonds, U.S. Government securities and certificates of deposit issued
by commercial banks.
The following table sets forth the change in the Company's benefit
obligation and pension plan assets at market value for the years ended December
31, 2001 and 2002:
2001 2002
------------- -------------
(IN THOUSANDS)
Change in benefit obligations:
- ---------------------------------------------------------
Benefit obligation at beginning of year .............. $ (37,606) $ (43,768)
Service cost ......................................... (2,804) (2,786)
Interest cost ........................................ (2,668) (3,023)
Benefits paid ........................................ 812 857
Employee contribution ................................ (167) (54)
Change in benefit payments due to experience ......... (414) 90
Effect of exchange rate changes ...................... 497 (910)
Curtailments ......................................... 123 1,365
Settlements .......................................... -- (320)
F-20
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2002
2001 2002
------------- -------------
(IN THOUSANDS)
Increase in benefit obligation due to change in discount rate ........... (2,668) (2,721)
Decrease in benefit obligation due to plan experience ................... 1,365 790
Increase in benefit obligation due to plan change ....................... (238) (1,720)
--------- ---------
Benefit obligation at end of year ....................................... $ (43,768) $ (52,200)
========= =========
Change in plan assets:
- -----------------------------------------------------------------------------
Plan assets at market value at beginning of year ........................ $ 33,498 $ 33,616
Actual return on plan assets ............................................ (2,599) (1,961)
Foreign currency exchange rate changes .................................. (426) 748
Employer contribution ................................................... 3,783 3,346
Employee contribution ................................................... 167 54
Benefits paid ........................................................... (807) (852)
--------- ---------
Plan assets at market value at end of year .............................. $ 33,616 $ 34,951
========= =========
Funded status ........................................................... $ (10,152) $ (17,249)
Unrecognized net actuarial gain ......................................... 6,571 11,692
Unrecognized prior service cost ......................................... 1,701 3,237
--------- ---------
Net amount recognized ................................................... $ (1,880) $ (2,320)
========= =========
Amounts recognized in the statement of financial position consist of:
- -----------------------------------------------------------------------------
Prepaid benefit cost ................................................... $ -- $ 164
Accrued benefit liability .............................................. (4,888) (9,782)
Intangible asset ....................................................... 1,071 3,310
Accumulated other comprehensive income ................................. 1,937 3,988
--------- ---------
Net amount recognized ................................................... $ (1,880) $ (2,320)
========= =========
The net amount recognized of $1.9 million at December 31, 2001 consists of
$3.4 million accrued pension expense, $1.0 million intangible asset, and $1.2
million accumulated other comprehensive income for the United States plan, $0.6
million accrued pension expense, $0.1 million intangible assets and $0.7
million accumulated other comprehensive income for the Canadian plan, $0.1
million accrued pension expense for the United Kingdom plan, and $0.8 million
accrued pension expense for the German plan. The net amount recognized of $2.3
million at December 31, 2002 consists of $8.0 million accrued pension expense,
$3.2 million intangible asset, and $3.2 million accumulated other comprehensive
income for the U.S. plan, $0.2 million prepaid pension asset for the United
Kingdom plan, $1.0 million accrued pension expense for the German plan and $0.8
million accrued pension expense, $0.1 million intangible asset, and $0.8
million accumulated other comprehensive income for the Canadian plan.
ACTUARIAL ASSUMPTIONS
------------------------------------------------
UNITED
U.S. CANADA KINGDOM GERMANY
---------- ---------- --------- ----------
Discount rate:
2000 .................................. 7.75% 7.00% 5.50% 6.00%
2001 .................................. 7.25% 6.50% 5.50% 6.00%
2002 .................................. 6.75% 6.50% 5.50% 5.25%
Long-term rate of return on plan assets:
2000 .................................. 9.00% 8.00% 7.75% N/A
2001 .................................. 9.00% 8.00% 7.75% N/A
2002 .................................. 9.00% 8.00% 4.50% N/A
F-21
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2002
ACTUARIAL ASSUMPTIONS
---------------------------------------------------
UNITED
U.S. CANADA KINGDOM GERMANY
---------- ---------- ------------ ----------
Weighted average rate of increase for future
compensation levels:
2000 ...................................... 5.00% 5.00% 4.00% 3.00%
2001 ...................................... 4.75% 5.00% 4.00% 3.00%
2002 ...................................... 4.50% 5.00% N/A 2.00%
The Company's net pension cost for its defined benefit pension plans
includes the following components:
YEAR ENDED DECEMBER 31,
---------------------------------------
2000 2001 2002
----------- ----------- -----------
(IN THOUSANDS)
Service cost ................................. $ 2,731 $ 2,804 $ 2,786
Interest cost ................................ 2,319 2,668 3,023
Net investment return on plan assets ......... (153) 318 1,574
Curtailment (gain) loss ...................... -- 310 (66)
Net amortization and deferral ................ (2,497) (3,054) (3,930)
Settlement loss .............................. -- -- 320
-------- -------- --------
Net periodic pension costs ................... $ 2,400 $ 3,046 $ 3,707
======== ======== ========
The assumed return on plan assets noted above represents a forward
projection of the average rate of earnings expected on the pension assets. This
rate is used in the calculation of assumed rate of return on plan assets, a
component of the net periodic pension expense. As of December 31, 2002, the
Company has lowered the assumed rate of return on plan assets in the United
States to 8.75 percent. This revised assumed rate of return will be used for
fiscal 2003 net periodic pension expense.
The Company also participated in a defined contribution plan under
Internal Revenue Code Section 401(k), which covered all U.S. employees of the
Company except those represented by a collective bargaining unit. The Company
also sponsored other noncontributory defined contribution plans under
collective bargaining agreements. The Company's contributions were determined
as a specified percentage of employee contributions, subject to certain maximum
limitations. The Company's costs for the salaried and non-collective bargaining
hourly plan for 2000, 2001 and 2002 were $1.0 million, $1.1 million and $1.2
million, respectively.
13. PARTNERS' CAPITAL
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
below).
As contemplated by the Recapitalization Agreement, upon the Closing,
Graham Capital and its successors or assigns, Graham Family Growth Partnership,
Graham Packaging Corporation ("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 GPC
Holdings, L.P. ("Graham LP") and Investor LP.
F-22
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2002
Capital Accounts. A capital account is maintained for each partner on the
books of the Company. The Holdings Partnership Agreement provides that at no
time during the term of the partnership or upon dissolution and liquidation
thereof shall a limited partner with a negative balance in its capital account
have any obligation to Holdings or the other partners to restore such negative
balance. Items of partnership income or loss are allocated to the partners'
capital accounts in accordance with their percentage interests except as
provided in Section 704(c) of the Internal Revenue Code with respect to
contributed property where the allocations are made in accordance with the U.S.
Treasury regulations thereunder.
Distributions. The Holdings Partnership Agreement requires certain tax
distributions to be made if and when the Company has taxable income. Other
distributions shall be made in proportion to the partners' respective
percentage interests.
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 below) 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 either Graham GP Corp. and/or Graham LP (individually "Continuing
Graham Partner" and collectively the "Continuing Graham Partners") wishes to
sell or otherwise transfer its partnership interests pursuant to a bona fide
offer from a third party, Holdings and the Equity Investors must be given a
prior opportunity to purchase such interests at the same purchase price set
forth in such offer. If Holdings and the Equity Investors do not elect to make
such purchase, then such Continuing Graham Partner may sell or transfer such
partnership interests to such third party upon the terms set forth in such
offer. If the Equity Investors wish to sell or otherwise transfer their
partnership interests pursuant to a bona fide offer from a third party, the
Continuing Graham Partners shall have a right to include in such sale or
transfer a proportionate percentage of their partnership interests. If the
Equity Investors (so long as they hold 51% or more of the partnership
interests) wish to sell or otherwise transfer their partnership interests
pursuant to a bona fide offer from a third party, the Equity Investors shall
have the right to compel the Continuing Graham Partners to include in such sale
or transfer a proportionate percentage of their partnership interests.
Dissolution. The Holdings Partnership Agreement provides that Holdings
shall be dissolved upon the earliest of (i) the sale, exchange or other
disposition of all or substantially all of Holdings' assets (including pursuant
to an IPO Reorganization), (ii) the withdrawal, resignation, filing of a
certificate of dissolution or revocation of the charter or bankruptcy of a
general partner, or the occurrence of any other event which causes a general
partner to cease to be a general partner unless (a) the remaining general
partner elects to continue the business or (b) if there is no remaining general
partner, a majority-in-interest of the limited partners elect to continue the
partnership, or (iii) such date as the partners shall unanimously elect.
IPO Reorganization. "IPO Reorganization" means the transfer of all or
substantially all of Holdings' assets and liabilities to GPC Capital
Corporation II ("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.
14. MANAGEMENT OPTION PLAN
Pursuant to the Recapitalization Agreement, the Company has adopted the
Graham Packaging Holdings Company Management Option Plan (the "Option Plan").
F-23
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2002
The Option Plan provides for the grant to management employees of Holdings
and its subsidiaries and non-employee directors, advisors, consultants and
other individuals providing services to Holdings of options ("Options") to
purchase limited partnership interests in Holdings equal to 0.01% of Holdings
at the date of the Recapitalization (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 531.0 Units,
representing a total of up to 5% of the equity of Holdings.
The exercise price per Unit shall be at or above the fair market value of
a Unit on the date of grant. The number and type of Units covered by
outstanding Options and exercise prices may be adjusted to reflect certain
events such as recapitalizations, mergers or reorganizations of or by Holdings.
The Option Plan is intended to advance the best interests of the 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 has been appointed to administer the Option Plan, including,
without limitation, the determination of the employees to whom grants will be
made, the number of Units subject to each grant, and the various terms of such
grants. During 2000, 13.8 Unit Options were forfeited and none were granted.
During 2001, 51.1 Unit Options were forfeited and Options to purchase 46.0
Units were granted. During 2002, no Unit Options were forfeited and Options to
purchase 49.9 Units were granted. As of December 31, 2002, 531.0 Unit Options
were outstanding, 500.0 at an exercise price of $25,789 per Unit and 31.0 at an
exercise price of $29,013, and 341.9 Unit Options outstanding were vested, all
at an exercise price of $25,789.
A summary of the changes in the Unit Options outstanding under the Option
Plan as of December 31, 2000, 2001 and 2002 is as follows:
2000 2001 2002
--------------------------- --------------------------- --------------------------
UNITS WEIGHTED UNITS WEIGHTED UNITS WEIGHTED
UNDER AVERAGE UNDER AVERAGE UNDER AVERAGE
OPTION EXERCISE PRICE OPTION EXERCISE PRICE OPTION EXERCISE PRICE
---------- ---------------- ---------- ---------------- ---------- ---------------
Outstanding at beginning of
year .............................. 500.0 $25,789 486.2 $25,789 481.1 $25,789
Granted ............................ 0.0 25,789 46.0 25,789 49.9 27,792
Exercised .......................... 0.0 25,789 0.0 25,789 0.0 25,789
Forfeitures ........................ (13.8) 25,789 (51.1) 25,789 0.0 25,789
------ ------ -----
Outstanding at end of year ......... 486.2 25,789 481.1 25,789 531.0 25,977
====== ====== =====
The following table summarizes information relating to Unit Options
outstanding under the Option Plan at December 31, 2002:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- -------------------------------
OPTIONS WEIGHTED AVERAGE WEIGHTED OPTIONS WEIGHTED
EXERCISE OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
PRICES AT 12/31/02 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/02 EXERCISE PRICE
- -------------------- ------------- ------------------ ---------------- ------------- ---------------
$25,789 to $29,013 531.0 5.9 Years $25,977 341.9 $25,789
The Company applies APB 25 in accounting for the Option Plan. The exercise
price of the Unit was equal to or greater than the fair market value of a Unit
on the dates of the grants and, accordingly, no compensation cost has been
recognized under the provisions of APB 25 for Units granted. Under SFAS 123,
compensation cost is measured at the grant date based on the value of the
F-24
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2002
award and is recognized over the service (or vesting) period. Had compensation
cost for the option plan been determined under SFAS 123, based on the fair
market value at the grant dates, the Company's pro forma net (loss) income for
2000, 2001 and 2002 would have been reflected as follows (in thousands):
YEAR ENDED DECEMBER 31,
-----------------------------------------
2000 2001 2002
------------- ------------- ---------
(IN THOUSANDS)
As reported ......... $ (45,637) $ (43,970) $7,562
Pro forma ........... (46,150) (44,223) 7,057
The weighted average fair value at date of grant for options granted in
2001 and 2002 was $4,418 and $2,799 per Option, respectively. The fair value of
each Option is estimated on the date of the grant using the Minimum Value
option pricing model with the following weighted-average assumptions used for
Units granted in 2001: pay out yield 0%, expected volatility of 0%, risk free
interest rate of 4.22% and expected life of 4.5 years; and in 2002: pay out
yield 0%, expected volatility of 0%, risk free interest rate of 2.55% and
expected life of 4.5 years.
15. SPECIAL CHARGES AND UNUSUAL ITEMS
The special charges and unusual items were as follows:
YEAR ENDED DECEMBER 31,
--------------------------
2000 2001 2002
--------- ------ -----
(IN THOUSANDS)
Recapitalization compensation ......... $1,118 $147 $--
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). These expenses have been fully recognized over
the three years from the date of the Recapitalization.
16. OTHER EXPENSE
Other expense consisted of the following:
YEAR ENDED DECEMBER 31,
-------------------------------
2000 2001 2002
-------- ---------- -------
(IN THOUSANDS)
Foreign exchange loss (gain) ........................ $ 240 $ (176) $ 265
Equity in (earnings) loss of joint ventures ......... (63) 246 --
Other ............................................... 88 129 (86)
----- ------ -----
$ 265 $ 199 $ 179
===== ====== =====
17. INCOME TAXES
Certain legal entities in the Company do not pay income taxes because
their income is taxed to the owners. For those entities, the reported amount of
their assets net of the reported amount of their liabilities are exceeded by
the related tax bases of their assets net of liabilities by $271.7 million at
December 31, 2001 and $250.0 million at December 31, 2002.
Income of certain legal entities related principally to the foreign
operations of the Company 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:
F-25
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2002
DECEMBER 31,
---------------------------
2001 2002
------------ ------------
(IN THOUSANDS)
Deferred tax assets:
Net operating loss carryforwards ............................... $ 31,867 $ 42,080
Fixed assets, principally due to differences in depreciation and
assigned values .............................................. 7,703 7,012
Accrued retirement indemnities ................................. 1,069 972
Inventories .................................................... 434 48
Accruals and reserves .......................................... 383 3,548
Capital leases ................................................. 431 426
Other items .................................................... 300 569
--------- ---------
Gross deferred tax assets ....................................... 42,187 54,655
Valuation allowance ............................................. (34,565) (45,880)
--------- ---------
Net deferred tax assets ......................................... 7,622 8,775
Deferred tax liabilities:
Fixed assets, principally due to differences in depreciation and
assigned values .............................................. 8,025 10,442
Goodwill ....................................................... -- --
Other items .................................................... 143 77
--------- ---------
Gross deferred tax liabilities .................................. 8,168 10,519
--------- ---------
Net deferred tax liabilities .................................... $ 546 $ 1,744
========= =========
Current deferred tax assets of $0.3 million in 2001 and $0.3 million in
2002 are included in prepaid expenses and other current assets. Non-current
deferred tax assets of $0.2 million in 2001 and none in 2002 are included in
other assets. Current deferred tax liabilities of $0.1 million in 2001 and none
in 2002 are included in accrued expenses. Non-current deferred tax liabilities
of $1.0 million in 2001 and $2.0 million in 2002 are included in other
non-current liabilities.
The valuation allowance reduces the Company's deferred tax assets to an
amount that Management believes is more likely than not to be realized.
United States and foreign components of (loss) income before income taxes
are as follows:
YEAR ENDED DECEMBER 31,
-----------------------------------------
2000 2001 2002
------------- ------------ ------------
(IN THOUSANDS)
United States ......... $ (11,693) $ 6,777 $ 28,862
Foreign ............... (33,502) (50,444) (17,298)
--------- --------- ---------
$ (45,195) $ (43,667) $ 11,564
========= ========= =========
(Loss) income attributable to the United States is not subject to U.S.
federal income taxes. Holdings does not pay U.S. federal income taxes under the
provisions of the Internal Revenue Code, as the distributive share of the
applicable income or loss is included in the tax returns of Holdings' partners.
The 2002 provision for income taxes is comprised of $2.6 million of
current provision and $1.4 million of deferred provision. The amounts relate
entirely to the Company's foreign legal entities.
F-26
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2002
The difference between the 2002 actual income tax provision and an amount
computed by applying the U.S. federal statutory rate for corporations to
earnings before income taxes is attributable to the following:
YEAR ENDED DECEMBER 31,
------------------------------------------
2000 2001 2002
------------- ------------- ------------
(IN THOUSANDS)
Taxes at U.S. federal statutory rate .................. $ (15,818) $ (15,284) $ 4,048
Partnership income not subject to federal income taxes 4,146 281 (10,246)
Foreign loss without current tax benefit .............. 11,926 15,260 10,037
Other ................................................. 188 46 163
--------- --------- ---------
$ 442 $ 303 $ 4,002
========= ========= =========
At December 31, 2002, the Company's various taxable entities had net
operating loss carryforwards for purposes of reducing future taxable income by
approximately $122.9 million, for which no benefit has been recognized. Of this
amount, $47.7 million are related to carryforwards in France, Turkey and Canada
that will expire, if unused, at various dates ranging from 2003 to 2012, with
$2.0 million of these carryforwards expiring in 2003, $2.8 million in 2004,
$4.3 million in 2005, $14.2 million in 2006, $16.5 million in 2007 and $7.9
million from 2008 through 2012. The remaining carryforwards, which relate to
taxes in France ($71.1 million), Germany ($2.2 million) and Belgium ($1.9
million), have no expiration date.
At December 31, 2002, the unremitted earnings of non-U.S. subsidiaries
totaling $7.8 million were deemed to be permanently invested. No deferred tax
liability has been recognized with regard to the remittance of such earnings.
If such earnings were remitted to the United States, approximately $1.2 million
of withholding taxes would apply.
18. COMMITMENTS
In connection with plant expansion and improvement programs, the Company
had commitments for capital expenditures of approximately $28.7 million at
December 31, 2002.
19. CONTINGENCIES AND 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 these matters, experience to
date and discussions with counsel, that ultimate liability from the Company's
various litigation matters will not be material to the business, financial
condition, results of operations or cash flows of the Company.
On July 9, 2002, the Company and Graham Engineering amended the equipment
sales, service and licensing agreement to, among other things, (i) limit the
Company's existing rights in exchange for a perpetual license in the event
Graham Engineering proposes to sell its rotary extrusion blow molding equipment
business or assets to certain of the Company's significant competitors; (ii)
clarify that the Company's exclusivity rights under the equipment sales,
service and licensing agreement do not apply to certain new generations of
Graham Engineering equipment; (iii) provide Graham Engineering certain recourse
in the event the Company decides to buy certain high output extrusion blow
molding equipment from any supplier other than Graham Engineering; and (iv)
obligate the Company, retroactive to January 1, 2002 and subject to certain
credits and carry-forwards, to make payments for products and services to
Graham Engineering in the amount of at least $12.0 million per calendar year,
or else pay Graham Engineering a shortfall payment. The minimum purchase
commitment for 2002 has been met.
F-27
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2002
20. SEGMENT INFORMATION
The Company is organized and managed on a geographical basis in three
operating segments: North America, which includes the United States, Canada and
Mexico, Europe and South America. The accounting policies of the segments are
consistent with those described in Note 1. The Company's measure of profit or
loss is operating income (loss). Segment information for the three years ended
December 31, 2002, representing the reportable segments currently utilized by
the chief decision maker, was as follows:
NORTH SOUTH
YEAR AMERICA EUROPE (d) AMERICA ELIMINATIONS (b) TOTAL
------ ----------- ------------ ------------ ------------------ -----------
(IN THOUSANDS)
Net sales (a) .......................... 2000 $667,301 $ 146,189 $ 29,192 $ (131) $842,551
2001 742,450 154,268 26,350 923,068
2002 744,967 138,498 23,240 906,705
Special charges and unusual
items ................................. 2000 $ 1,118 $ -- $ -- $ 1,118
2001 147 -- -- 147
2002 -- -- -- --
Operating income (loss) (c) ............ 2000 $ 90,296 $ (32,009) $ (2,147) $ 56,140
2001 98,756 (37,707) (5,547) 55,502
2002 109,363 (16,159) 2,036 95,240
Depreciation and amortization .......... 2000 $ 56,518 $ 10,959 $ 3,381 $ 70,858
2001 62,584 10,800 2,960 76,344
2002 68,066 10,760 1,586 80,412
Impairment charges ..................... 2000 $ 461 $ 18,539 $ 2,056 $ 21,056
2001 1,135 31,274 5,579 37,988
2002 1,088 4,041 -- 5,129
Interest expense (income), net ......... 2000 $100,667 $ 878 $ 148 $101,693
2001 96,639 1,326 475 98,440
2002 80,389 1,439 (44) 81,784
Income tax expense (benefit) ........... 2000 $ 53 $ 542 $ (153) $ 442
2001 (998) 586 715 303
2002 631 2,529 842 4,002
Identifiable assets (a) ................ 2000 $843,908 $ 170,939 $ 39,763 $ (233,311) $821,299
2001 842,888 144,106 27,935 (256,368) 758,561
2002 910,731 153,834 18,463 (284,717) 798,311
Goodwill ............................... 2000 $ 2,784 $ 6,891 $ 7,881 $ 17,556
2001 3,515 1,203 1,682 6,400
2002 3,515 1,333 718 5,566
Capital expenditures, excluding
acquisitions .......................... 2000 $128,370 $ 32,729 $ 2,330 $ -- $163,429
2001 46,242 23,683 4,390 -- 74,315
2002 83,913 7,137 1,417 (30) 92,437
- ----------
(a) The Company's net sales for Europe include sales in France which
totaled approximately $106.5 million, $93.1 million and $74.8
million for 2000, 2001 and 2002, respectively. Identifiable assets
in France totaled approximately $114.6 million, $82.8 million and
$93.6 million as of December 31, 2000, 2001 and 2002, respectively.
(b) To eliminate intercompany balances, which include investments in the
operating segments and inter-segment receivables and payables.
F-28
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2002
(c) In 2002 the Company changed its measurement method used to determine
reported segment profit or loss by allocating certain selling,
general and administrative costs incurred in North America to Europe
and South America. The effect in 2002 was an increase in operating
income for North America of $4.3 million and decreases of $3.7
million and $0.6 million for Europe and South America, respectively.
(d) On March 28, 2002, the Company completed the sale of certain assets
and liabilities of its Italian operations for approximately $0.3
million. On July 31, 2002, the Company disposed of its operation in
Blyes, France, resulting in expenditures to the buyer of
approximately $4.5 million.
Product Net Sales Information
The following is supplemental information on net sales by product
category:
HOUSEHOLD
AND
FOOD AND PERSONAL
BEVERAGE CARE AUTOMOTIVE TOTAL
---------- ---------- ------------ -----------
(IN THOUSANDS)
2000 ......... $416,178 $210,569 $215,804 $842,551
2001 ......... 511,542 208,514 203,012 923,068
2002 ......... 515,375 185,975 205,355 906,705
21. CONDENSED GUARANTOR DATA
On May 28, 2003 the Operating Company and GPC Capital Corp. I co-issued
$100.0 million aggregate principal amount of 8 3/4% Senior Subordinated Notes
due 2008. The notes were issued under the February 2, 1998 Senior Subordinated
Indenture, under which the $225.0 million of Senior Subordinated Notes issued
in connection with the Recapitalization were issued. Holdings has fully and
unconditionally guaranteed these notes, as well as the previously issued Senior
Subordinated Notes, on a senior subordinated basis. Both the Operating Company
and GPC Capital Corp. I are wholly-owned subsidiaries of Holdings. The notes
were issued in exchange for, and in full satisfaction of, $100.0 million
aggregate principal amount of Tranche II term loans then outstanding under the
Company's Senior Credit Agreement.
The following unaudited condensed consolidating financial statements that
present the financial position, results of operations and cash flows of
Holdings, the Operating Company, non-guarantor subsidiaries and GPC Capital
Corp. I.
F-29
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2002
GRAHAM PACKAGING HOLDINGS COMPANY
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2001
(IN THOUSANDS)
GRAHAM GRAHAM
PACKAGING PACKAGING GPC
HOLDINGS COMPANY, NON- CAPITAL
COMPANY L.P. GUARANTORS CORP. I ELIMINATIONS CONSOLIDATED
------------- ------------- ------------ --------- -------------- -------------
ASSETS
Current assets:
Cash and cash equivalents .............. $ -- $ 3,732 $ 5,300 $ -- $ -- $ 9,032
Accounts receivable, net ............... -- 50,075 40,107 -- -- 90,182
Inventories ............................ -- 46,695 13,781 -- -- 60,476
Prepaid expenses and other current
assets ............................... -- 4,524 9,530 -- -- 14,054
---------- ---------- --------- ------ ----------- ----------
Total current assets .................... -- 105,026 68,718 -- -- 173,744
Property, plant and equipment, net ...... -- 426,378 123,207 -- -- 549,585
Goodwill ................................ -- 1,616 4,784 -- -- 6,400
Net intercompany ........................ -- 81,350 -- -- (81,350) --
Investment in subsidiaries .............. -- 57,878 -- -- (57,878) --
Other non-current assets ................ 4,068 24,249 515 -- -- 28,832
---------- ---------- --------- ------ ----------- ----------
Total assets ............................ $ 4,068 $ 696,497 $ 197,224 $ -- $ (139,228) $ 758,561
========== ========== ========= ====== =========== ==========
LIABILITIES AND PARTNERS'
CAPITAL (DEFICIT)
Current liabilities:
Accounts payable and accrued
expenses ............................. $ -- $ 127,654 $ 47,476 $ -- $ -- $ 175,130
Current portion of long-term debt....... -- 26,683 3,902 -- -- 30,585
---------- ---------- --------- ------ ----------- ----------
Total current liabilities ............... -- 154,337 51,378 -- -- 205,715
Long-term debt .......................... 151,639 866,331 3,836 -- -- 1,021,806
Other non-current liabilities ........... -- 6,319 7,263 -- -- 13,582
Investment in subsidiaries .............. 330,490 -- -- -- (330,490) --
Net intercompany ........................ 6,993 -- 74,357 -- (81,350) --
Minority interest ....................... -- -- 2,512 -- -- 2,512
Commitments and contingent
liabilities ............................ -- -- -- -- -- --
Partners' capital (deficit) ............. (485,054) (330,490) 57,878 -- 272,612 (485,054)
---------- ---------- --------- ------ ----------- ----------
Total liabilities and partners' capital
(deficit) .............................. $ 4,068 $ 696,497 $ 197,224 $ -- $ (139,228) $ 758,561
========== ========== ========= ====== =========== ==========
F-30
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2002
GRAHAM PACKAGING HOLDINGS COMPANY
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2002
(IN THOUSANDS)
GRAHAM GRAHAM
PACKAGING PACKAGING GPC
HOLDINGS COMPANY, NON- CAPITAL
COMPANY L.P. GUARANTORS CORP. I ELIMINATIONS CONSOLIDATED
------------- ------------- ------------ --------- -------------- -------------
ASSETS
Current assets:
Cash and cash equivalents .............. $ -- $ 1,781 $ 5,518 $ -- $ -- $ 7,299
Accounts receivable, net ............... -- 58,704 39,229 -- -- 97,933
Inventories ............................ -- 51,114 11,546 -- -- 62,660
Prepaid expenses and other current
assets ............................... -- 8,720 9,569 -- -- 18,289
---------- ---------- --------- ------ ----------- ----------
Total current assets .................... -- 120,319 65,862 -- -- 186,181
Property, plant and equipment, net ...... -- 439,354 138,608 -- -- 577,962
Goodwill ................................ -- 3,939 1,627 -- -- 5,566
Net intercompany ........................ -- 76,373 -- -- (76,373) --
Investment in subsidiaries .............. -- 58,959 -- -- (58,959) --
Other non-current assets ................ 3,595 23,169 1,838 -- -- 28,602
---------- ---------- --------- ------ ----------- ----------
Total assets ............................ $ 3,595 $ 722,113 $ 207,935 $ -- $ (135,332) $ 798,311
========== ========== ========= ====== =========== ==========
LIABILITIES AND PARTNERS'
CAPITAL (DEFICIT)
Current liabilities:
Accounts payable and accrued
expenses ............................. $ -- $ 103,685 $ 65,547 $ -- $ -- $ 169,232
Current portion of long-term debt....... -- 6,085 1,907 -- -- 7,992
---------- ---------- --------- ------ ----------- ----------
Total current liabilities ............... -- 109,770 67,454 -- -- 177,224
Long-term debt .......................... 168,378 893,019 1,238 -- -- 1,062,635
Other non-current liabilities ........... -- 7,855 6,800 -- -- 14,655
Investment in subsidiaries .............. 288,531 -- -- -- (288,531) --
Net intercompany ........................ 6,993 -- 69,380 -- (76,373) --
Minority interest ....................... -- -- 4,104 -- -- 4,104
Commitments and contingent
liabilities ............................ -- -- -- -- -- --
Partners' capital (deficit) ............. (460,307) (288,531) 58,959 -- 229,572 (460,307)
---------- ---------- --------- ------ ----------- ----------
Total liabilities and partners' capital
(deficit) .............................. $ 3,595 $ 722,113 $ 207,935 $ -- $ (135,332) $ 798,311
========== ========== ========= ====== =========== ==========
F-31
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2002
GRAHAM PACKAGING HOLDINGS COMPANY
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(IN THOUSANDS)
GRAHAM GRAHAM
PACKAGING PACKAGING GPC
HOLDINGS COMPANY, NON- CAPITAL
COMPANY L.P. GUARANTORS CORP. I ELIMINATIONS CONSOLIDATED
-------------- ------------- -------------- --------- -------------- -------------
Net sales ............................ $ -- $ 632,901 $ 209,650 $ -- $ -- $ 842,551
Cost of goods sold ................... -- 506,478 201,559 -- -- 708,037
---------- ---------- ---------- ------ --------- ----------
Gross profit ......................... -- 126,423 8,091 -- -- 134,514
Selling, general, and administrative
expenses ............................ 16 37,897 18,287 -- -- 56,200
Impairment charges ................... -- -- 21,056 -- -- 21,056
Special charges and unusual items .... -- 1,118 -- -- -- 1,118
---------- ---------- ---------- ------ --------- ----------
Operating (loss) income .............. (16) 87,408 (31,252) -- -- 56,140
Interest expense, net ................ 13,971 84,958 2,764 -- -- 101,693
Other expense, net ................... -- 41 224 -- -- 265
Equity in loss of subsidiaries ....... 31,650 34,059 -- -- (65,709) --
Minority interest .................... -- -- (623) -- -- (623)
---------- ---------- ---------- ------ --------- ----------
(Loss) income before income taxes .... (45,637) (31,650) (33,617) -- 65,709 (45,195)
Income tax provision ................. -- -- 442 -- -- 442
---------- ---------- ---------- ------ --------- ----------
Net (loss) income .................... $ (45,637) $ (31,650) $ (34,059) $ -- $ 65,709 $ (45,637)
========== ========== ========== ====== ========= ==========
F-32
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2002
GRAHAM PACKAGING HOLDINGS COMPANY
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
(IN THOUSANDS)
GRAHAM GRAHAM
PACKAGING PACKAGING GPC
HOLDINGS COMPANY, NON- CAPITAL
COMPANY L.P. GUARANTORS CORP. I ELIMINATIONS CONSOLIDATED
-------------- ------------- -------------- --------- -------------- -------------
Net sales .............................. $ -- $ 709,786 $ 213,282 $ -- $ -- $ 923,068
Cost of goods sold ..................... -- 571,036 200,165 -- -- 771,201
---------- ---------- ---------- ------ --------- ----------
Gross profit ........................... -- 138,750 13,117 -- -- 151,867
Selling, general, and administrative
expenses .............................. -- 39,350 18,880 -- -- 58,230
Impairment charges ..................... -- -- 37,988 -- -- 37,988
Special charges and unusual items ...... -- 147 -- -- -- 147
---------- ---------- ---------- ------ --------- ----------
Operating income (loss) ................ -- 99,253 (43,751) -- -- 55,502
Interest expense, net .................. 15,385 79,871 3,184 -- -- 98,440
Other (income) expense, net ............ -- (3,097) 3,296 -- -- 199
Equity in loss of subsidiaries ......... 28,585 51,064 -- -- (79,649) --
Minority interest ...................... -- -- 530 -- -- 530
---------- ---------- ---------- ------ --------- ----------
(Loss) income before income taxes ...... (43,970) (28,585) (50,761) -- 79,649 (43,667)
Income tax provision ................... -- -- 303 -- -- 303
---------- ---------- ---------- ------ --------- ----------
Net (loss) income ...................... $ (43,970) $ (28,585) $ (51,064) $ -- $ 79,649 $ (43,970)
========== ========== ========== ====== ========= ==========
F-33
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2002
GRAHAM PACKAGING HOLDINGS COMPANY
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2002
(IN THOUSANDS)
GRAHAM GRAHAM
PACKAGING PACKAGING GPC
HOLDINGS COMPANY, NON- CAPITAL
COMPANY L.P. GUARANTORS CORP. I ELIMINATIONS CONSOLIDATED
----------- ------------- -------------- --------- -------------- -------------
Net sales .............................. $ -- $ 710,244 $ 196,461 $ -- $ -- $ 906,705
Cost of goods sold ..................... -- 552,091 190,513 -- -- 742,604
--------- --------- ---------- ------ --------- ---------
Gross profit ........................... -- 158,153 5,948 -- -- 164,101
Selling, general, and administrative
expenses .............................. -- 49,013 14,719 -- -- 63,732
Impairment charges ..................... -- 1,088 4,041 -- -- 5,129
--------- --------- ---------- ------ --------- ---------
Operating income (loss) ................ -- 108,052 (12,812) -- -- 95,240
Interest expense, net .................. 17,212 63,027 1,545 -- -- 81,784
Other (income) expense, net ............ -- (338) 517 -- -- 179
Equity in (earnings) loss of
subsidiaries .......................... (24,774) 20,570 -- -- 4,204 --
Minority interest ...................... -- -- 1,713 -- -- 1,713
--------- --------- ---------- ------ --------- ---------
Income (loss) before income taxes ...... 7,562 24,793 (16,587) -- (4,204) 11,564
Income tax provision ................... -- 19 3,983 -- -- 4,002
--------- --------- ---------- ------ --------- ---------
Net income (loss) ...................... $ 7,562 $ 24,774 $ (20,570) $ -- $ (4,204) $ 7,562
========= ========= ========== ====== ========= =========
F-34
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2002
GRAHAM PACKAGING HOLDINGS COMPANY
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2000
(IN THOUSANDS)
GRAHAM GRAHAM
PACKAGING PACKAGING GPC
HOLDINGS COMPANY, NON- CAPITAL
COMPANY L.P. GUARANTORS CORP. I ELIMINATIONS CONSOLIDATED
----------- ------------- ------------ --------- -------------- -------------
Operating activities:
Net cash provided by operating
activities .............................. $ -- $ 65,190 $ 25,701 $ -- $ -- $ 90,891
Investing activities:
Net purchases of property, plant
and equipment ......................... -- (123,606) (39,823) -- -- (163,429)
Acquisition of/investment in a
business, net of cash acquired ........ (50,000) (18,044) 17,935 -- 50,000 (109)
Other ................................... -- (1,199) 54 -- -- (1,145)
--------- ---------- --------- ------ --------- ----------
Net cash (used in) provided by
investing activities .................... (50,000) (142,849) (21,834) -- 50,000 (164,683)
Financing activities:
Proceeds from issuance of
long-term debt ........................ -- 389,046 54,450 -- -- 443,496
Payment of long-term debt ............... -- (356,422) (56,564) -- -- (412,986)
Notes receivable for ownership
interests ............................. -- (1,147) -- -- -- (1,147)
Contributions ........................... 50,000 50,000 -- -- (50,000) 50,000
Contributions from minority
shareholders .......................... -- -- 68 -- -- 68
Debt issuance fees ...................... -- (1,038) -- -- -- (1,038)
--------- ---------- --------- ------ --------- ----------
Net cash provided by (used in)
financing activities .................... 50,000 80,439 (2,046) -- (50,000) 78,393
Effect of exchange rate changes .......... -- -- (740) -- -- (740)
--------- ---------- --------- ------ --------- ----------
Increase in cash and cash equivalents..... -- 2,780 1,081 -- -- 3,861
Cash and cash equivalents at
beginning of period ..................... -- 2,915 3,068 -- -- 5,983
--------- ---------- --------- ------ --------- ----------
Cash and cash equivalents at end of
period .................................. $ -- $ 5,695 $ 4,149 $ -- $ -- $ 9,844
========= ========== ========= ====== ========= ==========
F-35
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2002
GRAHAM PACKAGING HOLDINGS COMPANY
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2001
(IN THOUSANDS)
GRAHAM GRAHAM
PACKAGING PACKAGING GPC
HOLDINGS COMPANY, NON- CAPITAL
COMPANY L.P. GUARANTORS CORP. I ELIMINATIONS CONSOLIDATED
----------- ------------- ------------ --------- -------------- -------------
Operating activities:
Net cash provided by (used in)
operating activities .................. $ -- $ 93,144 $ (40,657) $ -- $ -- $ 52,487
Investing activities:
Net purchases of property, plant
and equipment ....................... -- (47,556) (26,759) -- -- (74,315)
Acquisition of/investment in a
business, net of cash acquired ...... (50,000) (73,954) 73,791 -- 50,000 (163)
Other ................................. -- (75) (2,605) -- -- (2,680)
--------- ---------- ---------- ------ --------- ----------
Net cash (used in) provided by
investing activities .................. (50,000) (121,585) 44,427 -- 50,000 (77,158)
Financing activities:
Proceeds from issuance of
long-term debt ...................... -- 349,350 359,192 -- -- 708,542
Payment of long-term debt ............. -- (371,830) (361,372) -- -- (733,202)
Notes receivable for ownership
interests ........................... -- (1,146) -- -- -- (1,146)
Contributions ......................... 50,000 50,000 -- -- (50,000) 50,000
Contributions to minority
shareholders ........................ -- -- (15) -- -- (15)
Debt issuance fees .................... -- 106 -- -- -- 106
--------- ---------- ---------- ------ --------- ----------
Net cash provided by (used in)
financing activities .................. 50,000 26,480 (2,195) -- (50,000) 24,285
Effect of exchange rate changes ........ -- -- (426) -- -- (426)
--------- ---------- ---------- ------ --------- ----------
(Decrease) increase in cash and cash
equivalents ........................... -- (1,961) 1,149 -- -- (812)
Cash and cash equivalents at
beginning of period ................... -- 5,693 4,151 -- -- 9,844
--------- ---------- ---------- ------ --------- ----------
Cash and cash equivalents at end of
period ................................ $ -- $ 3,732 $ 5,300 $ -- $ -- $ 9,032
========= ========== ========== ====== ========= ==========
F-36
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2002
GRAHAM PACKAGING HOLDINGS COMPANY
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2002
(IN THOUSANDS)
GRAHAM GRAHAM
PACKAGING PACKAGING GPC
HOLDINGS COMPANY, NON- CAPITAL
COMPANY L.P. GUARANTORS CORP. I ELIMINATIONS CONSOLIDATED
----------- ------------- ------------ --------- -------------- -------------
Operating activities:
Net cash provided by operating
activities ............................... $ -- $ 73,726 $ 18,643 $ -- $ -- $ 92,369
Investing activities:
Net purchases of property, plant
and equipment .......................... -- (63,945) (28,492) -- -- (92,437)
Acquisition of/investment in a
business, net of cash acquired ......... -- (17,210) 17,210 -- -- --
Net proceeds from sale of business........ -- -- (4,193) -- -- (4,193)
------ ---------- ---------- ------ ------ ----------
Net cash used in investing activities ..... -- (81,155) (15,475) -- -- (96,630)
Financing activities:
Proceeds from issuance of
long-term debt ......................... -- 277,950 218,277 -- -- 496,227
Payment of long-term debt ................ -- (272,472) (222,408) -- -- (494,880)
------ ---------- ---------- ------ ------ ----------
Net cash provided by (used in)
financing activities ..................... -- 5,478 (4,131) -- -- 1,347
Effect of exchange rate changes ........... -- -- 1,181 -- -- 1,181
------ ---------- ---------- ------ ------ ----------
(Decrease) increase in cash and cash
equivalents .............................. -- (1,951) 218 -- -- (1,733)
Cash and cash equivalents at
beginning of period ...................... -- 3,732 5,300 -- -- 9,032
------ ---------- ---------- ------ ------ ----------
Cash and cash equivalents at end of
period ................................... $ -- $ 1,781 $ 5,518 $ -- $ -- $ 7,299
====== ========== ========== ====== ====== ==========
F-37
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2002
22. GOODWILL
Effective January 1, 2002 the Company adopted SFAS 142. Therefore, the
Company has ceased to amortize goodwill beginning January 1, 2002.
SFAS 142 provides that prior year's results should not be restated. The
following table presents the Company's operating results for each of the two
years in the period ended December 31, 2001 reflecting the exclusion of
goodwill amortization expense:
YEAR ENDED DECEMBER 31,
-----------------------------
2000 2001
------------- -------------
(IN THOUSANDS)
Net (loss) as reported ......... $ (45,637) $ (43,970)
Goodwill amortization .......... 1,445 1,031
--------- ---------
As adjusted .................... $ (44,192) $ (42,939)
========= =========
F-38
GRAHAM PACKAGING HOLDINGS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
DECEMBER 31, SEPTEMBER 28,
2002 2003
-------------- --------------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents ................................ $ 7,299 $ 7,316
Accounts receivable, net ................................. 97,933 113,018
Inventories .............................................. 62,660 65,563
Prepaid expenses and other current assets ................ 18,289 19,665
---------- ----------
Total current assets ...................................... 186,181 205,562
Property, plant and equipment, net ........................ 577,962 610,364
Goodwill .................................................. 5,566 5,577
Other non-current assets .................................. 28,602 46,491
---------- ----------
Total assets .............................................. $ 798,311 $ 867,994
========== ==========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses .................... $ 169,232 $ 151,866
Current portion of long-term debt ........................ 7,992 8,951
---------- ----------
Total current liabilities ................................. 177,224 160,817
Long-term debt ............................................ 1,062,635 1,118,463
Other non-current liabilities ............................. 14,655 19,520
Minority interest ......................................... 4,104 5,157
Commitments and contingent liabilities (see Note 8) ....... -- --
Partners' capital (deficit) ............................... (460,307) (435,963)
---------- ----------
Total liabilities and partners' capital (deficit) ......... $ 798,311 $ 867,994
========== ==========
See accompanying notes to condensed consolidated financial statements.
F-39
GRAHAM PACKAGING HOLDINGS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------------- --------------------------------
SEPTEMBER 29, SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 28,
2002 2003 2002 2003
--------------- --------------- --------------- --------------
(IN THOUSANDS)
Net sales ........................... $227,123 $243,866 $695,031 $737,669
Cost of goods sold .................. 184,852 201,078 563,391 599,219
-------- -------- -------- --------
Gross profit ........................ 42,271 42,788 131,640 138,450
Selling, general, and administrative
expenses ........................... 16,839 17,431 45,787 48,271
Impairment charges .................. 4,266 -- 4,266 609
-------- -------- -------- --------
Operating income .................... 21,166 25,357 81,587 89,570
Interest expense, net ............... 20,253 21,739 61,931 74,403
Other expense (income), net ......... 221 245 176 (571)
Minority interest ................... 392 338 1,047 1,053
-------- -------- -------- --------
Income before income taxes .......... 300 3,035 18,433 14,685
Income tax provision ................ 1,378 1,792 2,292 4,958
-------- -------- -------- --------
Net (loss) income ................... $ (1,078) $ 1,243 $ 16,141 $ 9,727
======== ======== ======== ========
Net (loss) income allocated to
General Partners ................... $ (54) $ 62 $ 807 $ 486
Net (loss) income allocated to
Limited Partners ................... $ (1,024) $ 1,181 $ 15,334 $ 9,241
See accompanying notes to condensed consolidated financial statements.
F-40
GRAHAM PACKAGING HOLDINGS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
(UNAUDITED)
NOTES AND
INTEREST ACCUMULATED
RECEIVABLE FOR OTHER
GENERAL LIMITED OWNERSHIP COMPREHENSIVE
PARTNERS PARTNERS INTERESTS INCOME (LOSS) TOTAL
------------- -------------- ---------------- --------------- --------------
(IN THOUSANDS)
Consolidated balance at January 1,
2002 ................................. $ (21,147) $ (406,764) $ (2,443) $ (54,700) $ (485,054)
Net income for the year .............. 378 7,184 -- -- 7,562
Changes in fair value of
derivatives ........................ -- -- -- 6,909 6,909
Additional minimum pension
liability .......................... -- -- -- (2,051) (2,051)
Cumulative translation adjustment..... -- -- -- 12,477 12,477
----------
Comprehensive income ................. 24,897
Interest on notes receivable for
ownership interests ................ -- -- (150) -- (150)
--------- ---------- -------- --------- ----------
Consolidated balance at
December 31, 2002 .................... (20,769) (399,580) (2,593) (37,365) (460,307)
Net income for the period ............ 486 9,241 -- -- 9,727
Changes in fair value of
derivatives ........................ -- -- -- (3,850) (3,850)
Elimination of cash flow hedge
accounting for certain
instruments ........................ -- -- -- 4,783 4,783
Additional minimum pension
liability .......................... -- -- -- 237 237
Cumulative translation adjustment..... -- -- -- 13,563 13,563
----------
Comprehensive income ................. 24,460
Interest on notes receivable for
ownership interests ................ -- -- (116) -- (116)
--------- ---------- -------- --------- ----------
Consolidated balance at
September 28, 2003 ................... $ (20,283) $ (390,339) $ (2,709) $ (22,632) $ (435,963)
========= ========== ======== ========= ==========
See accompanying notes to condensed consolidated financial statements.
F-41
GRAHAM PACKAGING HOLDINGS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
------------------------------
SEPTEMBER 29, SEPTEMBER 28,
2002 2003
--------------- --------------
(IN THOUSANDS)
Operating activities:
Net income ............................................................. $ 16,141 $ 9,727
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization .......................................... 56,576 52,555
Amortization of debt issuance fees ..................................... 3,429 9,951
Impairment charges ..................................................... 4,266 609
Accretion of Senior Discount Notes ..................................... 12,429 623
Elimination of cash flow hedge accounting for certain instruments ...... -- 4,783
Minority interest ...................................................... 1,047 1,053
Foreign currency transaction gain ...................................... (13) (1,020)
Interest receivable for ownership interests ............................ (113) (116)
Changes in operating assets and liabilities, net of sales of businesses:
Accounts receivable .................................................. (15,765) (10,481)
Inventories .......................................................... (544) (2,314)
Prepaid expenses and other current assets ............................ (1,195) (874)
Other non-current assets and liabilities ............................. (812) (9,656)
Accounts payable and accrued expenses ................................ (9,211) (21,482)
---------- ----------
Net cash provided by operating activities ............................... 66,235 33,358
Investing activities:
Net purchases of property, plant and equipment ......................... (70,259) (70,137)
Net (expenditures for) proceeds from sales of businesses ............... (4,167) 133
---------- ----------
Net cash used in investing activities ................................... (74,426) (70,004)
Financing activities:
Proceeds from issuance of long-term debt ............................... 391,742 1,032,570
Payment of long-term debt .............................................. (384,055) (976,486)
Debt issuance fees ..................................................... -- (20,250)
---------- ----------
Net cash provided by financing activities ............................... 7,687 35,834
Effect of exchange rate changes ......................................... 790 829
---------- ----------
Increase in cash and cash equivalents ................................... 286 17
Cash and cash equivalents at beginning of period ........................ 9,032 7,299
---------- ----------
Cash and cash equivalents at end of period .............................. $ 9,318 $ 7,316
========== ==========
See accompanying notes to condensed consolidated financial statements.
F-42
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Graham Packaging Holdings Company ("Holdings"), a Pennsylvania limited
partnership, have been prepared in accordance with generally accepted
accounting principles for interim financial 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
consolidated financial statements. The condensed consolidated balance sheet as
of December 31, 2002 is derived from audited financial statements. The
condensed consolidated financial statements and notes included in this report
should be read in conjunction with the audited consolidated financial
statements and notes for the year ended December 31, 2002. The results of
operations for the nine months ended September 28, 2003 are not necessarily
indicative of the results to be expected for the full year ending December 31,
2003.
All entities and assets owned by Holdings are referred to collectively as
the "Company." Graham Packaging Company, L.P. is referred to as the "Operating
Company."
Derivatives
During 2003 the Company entered into four new interest rate swap
agreements, under which the Company receives variable interest based on the
Eurodollar Rate (hereinafter defined) and pays fixed interest at a weighted
average rate of 2.60%, on $400.0 million of term loans. The interest rate swaps
are accounted for as cash flow hedges. The effective portion of the change in
the fair value of the new interest rate swaps is recorded in other
comprehensive income ("OCI") and was an unrealized loss of $5.3 million for the
nine months ended September 28, 2003. Approximately 39% of the amount recorded
within OCI is expected to be recognized as interest expense in the next twelve
months. Failure to properly document the Company's interest rate swaps as
effective hedges would result in income statement recognition of all or part of
the cumulative $5.3 million unrealized loss recorded in OCI as of September 28,
2003.
The Company entered into interest rate swap agreements to hedge the
exposure to increasing rates with respect to its prior senior credit agreement.
These interest rate swaps were accounted for as cash flow hedges. In connection
with the closing of the Senior Credit Agreement (as hereinafter defined) on
February 14, 2003 these swaps no longer qualified for hedge accounting. As
such, the Company recorded a non-cash charge of approximately $4.8 million
within interest expense as a result of the reclassification into expense of the
remaining unrealized loss on these interest rate swap agreements. These
interest rate swap agreements expired at various points through September 2003.
The effective portion of the change in fair value of these swaps from January
1, 2003 to February 14, 2003 was recorded in OCI and was an unrealized gain of
$1.5 million. The change in fair value of these swaps after February 14, 2003
was recognized in earnings and resulted in a reduction of interest expense of
$4.8 million for the nine months ended September 28, 2003.
In April 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities." This Statement
amends and clarifies accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities
under SFAS 133. This Statement is effective for contracts entered into or
modified, and for hedging relationships designated after June 30, 2003. Other
provisions of this statement that related to SFAS 133 Implementation Issues
should continue to be applied in accordance with their respective effective
dates. The Company adopted SFAS 149 on July 1, 2003 and the adoption of SFAS
149 did not have a significant impact on its results of operations or financial
position.
F-43
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Comprehensive Income
Foreign currency translation adjustments, changes in fair value of
derivatives designated and accounted for as cash flow hedges and additional
minimum pension liability adjustments are included in OCI and added with net
income to determine total comprehensive income, which is displayed in the
Condensed Consolidated Statements of Partners' Capital (Deficit). Cumulative
foreign currency translation loss adjustments totaled $27.2 million and $13.6
million as of December 31, 2002 and September 28, 2003, respectively.
Cumulative losses on derivatives designated and accounted for as cash flow
hedges totaled $6.2 million and $5.3 million as of December 31, 2002 and
September 28, 2003, respectively. Minimum pension liability loss adjustments
totaled $4.0 million and $3.7 million as of December 31, 2002 and September 28,
2003, respectively.
Guarantees
In November 2002, the FASB issued FASB Interpretation No. ("FIN") 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 establishes requirements
for accounting and disclosure of guarantees issued to third parties for various
transactions. The accounting requirements of FIN 45 are applicable to
guarantees issued after December 31, 2002. The disclosure requirements of FIN
45 are applicable to financial statements issued for periods ending after
December 15, 2002. The Company adopted FIN 45 on January 1, 2003 and the
adoption of FIN 45 did not have a significant impact on its results of
operations or financial position.
Option Plan
In December 2002, the FASB issued SFAS 148, "Accounting For Stock-Based
Compensation -- Transition and Disclosure, An Amendment of FASB Statement No.
123." This Statement amends SFAS 123, "Accounting For Stock-Based
Compensation," to provide alternative methods of transition for an entity that
voluntarily changes to the fair value based method of accounting for
stock-based employee compensation. It also amends the disclosure provisions of
that Statement to require prominent disclosure about the effects on reported
net income of an entity's accounting policy decisions with respect to
stock-based employee compensation. Finally, this Statement amends Accounting
Principles Board Opinion ("APB") 28, "Interim Financial Reporting," to require
disclosure about those effects in interim financial information.
The Company applies APB 25 in accounting for its Option Plan. The exercise
price per Unit was equal to or greater than the fair market value of each Unit
on the dates of the grants and, accordingly, no compensation cost has been
recognized under the provisions of APB 25 for Units granted. Under SFAS 123,
compensation cost is measured at the grant date based on the value of the award
and is recognized over the service (or vesting) period. Had compensation cost
for the option plan been determined under SFAS 123, based on the fair market
value at the grant dates, the Company's pro forma net income for the three and
nine months ended September 29, 2002 and September 28, 2003 would have been
reflected as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------------- --------------------------------
SEPTEMBER 29, SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 28,
2002 2003 2002 2003
--------------- --------------- --------------- --------------
(IN THOUSANDS)
Net (loss) income, as reported ......... $ (1,078) $1,243 $16,141 $9,727
Deduct: Total stock-based
employee compensation expense
determined under fair value
based method for all awards .......... (126) (61) (379) (166)
-------- ------ ------- ------
Pro forma net (loss) income ............ $ (1,204) $1,182 $15,762 $9,561
======== ====== ======= ======
F-44
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
On March 31, 2003 the Option Plan was amended to provide for an additional
100.0 options that may be granted, resulting in an aggregate number of 631.0
options that may be granted under the Option Plan. On March 31, 2003 an
additional 90.8 options were granted. On August 11, 2003 3.6 options were
forfeited and on August 15, 2003 3.6 options were granted, resulting in an
aggregate number of 621.8 options outstanding.
Variable Interest Entities
In January 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities." FIN 46 establishes accounting and disclosure requirements
for ownership interests in entities that have certain financial or ownership
characteristics (sometimes known as "Special Purpose Entities"). FIN 46 is
applicable for variable interest entities created after January 31, 2003 and
becomes effective in the first fiscal year or interim accounting period ending
after December 15, 2003 for variable interest entities created before February
1, 2003. The Company adopted FIN 46 on June 30, 2003 and the adoption of FIN 46
did not have a significant impact on its results of operations or financial
position.
Financial Instruments
In May 2003, the FASB issued SFAS 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This
statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. This statement is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003, except for mandatorily
redeemable financial instruments of nonpublic entities and mandatorily
redeemable non-controlling interests in subsidiaries. The FASB is addressing
certain implementation issues associated with SFAS 150. On October 29, 2003,
the FASB decided to defer the recognition and measurement provisions of SFAS
150 related to mandatorily redeemable financial instruments representing
non-controlling interests in subsidiaries included in consolidated financial
statements. The Company will continue to monitor the actions of the FASB and
assess the impact, if any, on its consolidated financial statements. The
effective provisions of SFAS 150 did not have a material impact on the
Company's consolidated financial position and results of operations.
Leases
In May 2003, the Emerging Issues Task Force ("EITF") reached a consensus
on EITF 01-8, "Determining Whether an Arrangement Contains a Lease." EITF 01-8
provides guidance for determining whether an arrangement contains a lease that
is within the scope of SFAS 13 and is effective for arrangements initiated
after the beginning of the first interim period beginning after May 28, 2003.
Arrangements initiated after June 29, 2003 will be accounted for in accordance
with EITF 01-8.
Reclassifications
Certain reclassifications have been made to the 2002 financial statements
to conform to the 2003 presentation.
F-45
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
2. DEBT ARRANGEMENTS
Long-term debt consisted of the following:
DECEMBER 31, SEPTEMBER 28,
2002 2003
-------------- --------------
(IN THOUSANDS)
Term loans ............................................ $ 502,000 $ 570,000
Revolving Credit Facility ............................. 155,500 43,000
Foreign and other revolving credit facilities ......... 3,483 1,733
Senior Subordinated Notes ............................. 225,000 325,000
Senior Discount Notes ................................. 168,377 169,000
Capital leases ........................................ 14,400 13,143
Other ................................................. 1,867 5,538
---------- ----------
1,070,627 1,127,414
Less amounts classified as current .................... 7,992 8,951
---------- ----------
$1,062,635 $1,118,463
========== ==========
On February 14, 2003 the Company refinanced the majority of its prior
credit facilities and entered into a senior credit agreement (the "Senior
Credit Agreement") with a consortium of banks. The Senior Credit Agreement
consisted of two term loans to the Operating Company with initial term loan
commitments totaling $670.0 million (the "Term Loans" or "Term Loan
Facilities") and a $150.0 million revolving credit facility (the "Revolving
Credit Facility"). 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 1.75% to 3.25%; or (b) the "Eurodollar Rate" (the applicable
interest rate offered to banks in the London interbank eurocurrency market)
plus a margin ranging from 2.75% to 4.25%. The unused availability of the
Revolving Credit Facility under the Senior Credit Agreement at September 28,
2003 was $105.2 million. The Senior Credit Agreement contains certain
affirmative and negative covenants as to the operations and financial condition
of the Company, as well as certain restrictions on the payment of dividends and
other distributions to Holdings. On September 28, 2003 the Company was in
compliance with all covenants.
On May 28, 2003 the Company and GPC Capital Corp I issued $100.0 million
aggregate principal amount of 8 3/4% Senior Subordinated Notes due 2008 pursuant
to Rule 144A under the Securities Act of 1933, as amended. The notes were
issued under the February 2, 1998 Senior Subordinated Indenture. The notes were
issued in exchange for, and in full satisfaction of, $100.0 million aggregate
principal amount of Tranche II term loans then outstanding under the Company's
Senior Credit Agreement.
As a result of the refinancing on February 14, 2003 the Company incurred
debt issuance fees and other related costs of approximately $20 million, of
which $0.7 million were expensed and the remaining amount will be recognized as
interest expense over five to seven years based upon the terms of the related
debt instruments. Additionally, $5.5 million of deferred debt issuance fees
associated with the prior senior credit agreement were written off.
Interest paid during the nine months ended September 29, 2002 and
September 28, 2003, net of amounts capitalized, totaled $52.1 million and $64.8
million, respectively.
F-46
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
3. INVENTORIES
Inventories consisted of the following:
DECEMBER 31, SEPTEMBER 28,
2002 2003
-------------- --------------
(IN THOUSANDS)
Finished goods .................. $43,786 $41,508
Raw materials and parts ......... 18,874 24,055
------- -------
$62,660 $65,563
======= =======
4. IMPAIRMENT CHARGES
Due to the Company's commitment to a plan to sell its operations in
Germany, the Company evaluated the recoverability of its assets in Germany. The
Company adjusted the carrying values of these assets to the lower of their
carrying values or their estimated fair values less costs to sell, resulting in
an impairment charge of $4.3 million and $0.4 million for the nine months ended
September 29, 2002 and September 28, 2003, respectively. These assets were
disposed of on March 31, 2003.
Due to a significant change in the ability to utilize certain assets in
the U.S., the Company evaluated the recoverability of these assets. For these
assets to be disposed of, the Company adjusted the carrying values to the lower
of their carrying values or their estimated fair values less costs to sell,
resulting in an impairment charge of $0.2 million for the nine months ended
September 28, 2003.
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
DECEMBER 31, SEPTEMBER 28,
2002 2003
-------------- --------------
(IN THOUSANDS)
Accounts payable ................................... $ 77,022 $ 82,828
Accrued employee compensation and benefits ......... 36,062 23,675
Accrued interest ................................... 11,120 10,379
Accrued sales allowance ............................ 9,919 6,783
Other .............................................. 35,109 28,201
-------- --------
$169,232 $151,866
======== ========
For the year ended December 31, 2002, the Company incurred costs of
employee termination benefits in France of $9.0 million, which included the
legal liability of severing 149 employees. For the nine months ended September
28, 2003, the Company incurred additional costs of employee termination
benefits in France of $5.2 million. The Company terminated 147 of these
employees as of September 28, 2003. Substantially all of the cash payments for
these termination benefits are expected to be made by June 30, 2004. In
addition, for the nine months ended September 28, 2003, the Company incurred
costs of employee termination benefits in North America of $2.1 million, which
included the legal liability of severing 39 employees. The Company terminated
38 of these employees as of September 28, 2003. Substantially all of the cash
payments for these termination benefits are expected to be made by December 31,
2007. The disposal activities initiated in 2003 were accounted for in
accordance with SFAS 146. The following table reflects a rollforward of these
costs, primarily included in accrued employee compensation and benefits (in
thousands):
F-47
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
NORTH
FRANCE AMERICA
REDUCTION REDUCTION
IN FORCE IN FORCE TOTAL
----------- ---------- ------------
Reserves at December 31, 2002 .......... $ 9,015 $ -- $ 9,015
Increase in reserves ................... 5,177 2,068 7,245
Cash payments .......................... (11,590) (279) (11,869)
--------- ------ ---------
Reserves at September 28, 2003 ......... $ 2,602 $1,789 $ 4,391
========= ====== =========
6. INCOME TAXES
The Company does not pay United States 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. For the Company'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 2002 and 2003,
some of the Company's various taxable entities incurred additional net
operating losses for which no carryforward benefit has been recognized.
7. RENT EXPENSE
The Company is a party to various leases involving real property and
equipment. Total rent expense for operating leases amounted to $5.6 million and
$16.9 million for the three and nine months ended September 29, 2002,
respectively, and $5.5 million and $17.5 million for the three and nine months
ended September 28, 2003, respectively.
8. CONTINGENCIES
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 these matters, experience to
date and discussions with counsel, that ultimate liability from the Company's
various litigation matters will not be material to the business, financial
condition, results of operations or cash flows of the Company.
On July 9, 2002, the Company and Graham Engineering amended the equipment
sales, service and licensing agreement to, among other things, obligate the
Company, retroactive to January 1, 2002 and subject to certain credits and
carry-forwards, to make payments for products and services to Graham
Engineering in the amount of at least $12.0 million per calendar year, or else
pay Graham Engineering a shortfall payment. The Company does not expect to be
required to make a shortfall payment relative to its purchases for 2003.
9. CONDENSED GUARANTOR DATA
As of September 28, 2003 the Company's indebtedness included $325.0
million of Senior Subordinated Notes Due 2008, which were co-issued by the
Operating Company and GPC Capital Corp. I and fully and unconditionally
guaranteed on a senior subordinated basis by Holdings. Both the Operating
Company and GPC Capital Corp. I are wholly-owned subsidiaries of Holdings.
The following unaudited condensed consolidating financial statements
present the financial position, results of operations and cash flows of
Holdings, the Operating Company, non-guarantor subsidiaries and GPC Capital
Corp. I.
F-48
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
GRAHAM PACKAGING HOLDINGS COMPANY
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2002
(IN THOUSANDS)
GRAHAM GRAHAM
PACKAGING PACKAGING GPC
HOLDINGS COMPANY, NON- CAPITAL
COMPANY L.P. GUARANTORS CORP. I ELIMINATIONS CONSOLIDATED
------------- ------------- ------------ --------- -------------- -------------
ASSETS
Current assets:
Cash and cash equivalents .............. $ -- $ 1,781 $ 5,518 $ -- $ -- $ 7,299
Accounts receivable, net ............... -- 58,704 39,229 -- -- 97,933
Inventories ............................ -- 51,114 11,546 -- -- 62,660
Prepaid expenses and other current
assets ............................... -- 8,720 9,569 -- -- 18,289
---------- ---------- -------- ------ ---------- ----------
Total current assets .................... -- 120,319 65,862 -- -- 186,181
Property, plant and equipment, net ...... -- 439,354 138,608 -- -- 577,962
Goodwill ................................ -- 3,939 1,627 -- -- 5,566
Net intercompany ........................ -- 76,373 -- -- (76,373) --
Investment in subsidiaries .............. -- 58,959 -- -- (58,959) --
Other non-current assets ................ 3,595 23,169 1,838 -- -- 28,602
---------- ---------- -------- ------ ---------- ----------
Total assets ............................ $ 3,595 $ 722,113 $207,935 $ -- $ (135,332) $ 798,311
========== ========== ======== ====== ========== ==========
LIABILITIES AND PARTNERS'
CAPITAL (DEFICIT)
Current liabilities:
Accounts payable and accrued
expenses ............................. $ -- $ 103,685 $ 65,547 $ -- $ -- $ 169,232
Current portion of long-term debt....... -- 6,085 1,907 -- -- 7,992
---------- ---------- -------- ------ ---------- ----------
Total current liabilities ............... -- 109,770 67,454 -- -- 177,224
Long-term debt .......................... 168,378 893,019 1,238 -- -- 1,062,635
Other non-current liabilities ........... -- 7,855 6,800 -- -- 14,655
Investment in subsidiaries .............. 288,531 -- -- -- (288,531) --
Net intercompany ........................ 6,993 -- 69,380 -- (76,373) --
Minority interest ....................... -- -- 4,104 -- -- 4,104
Commitments and contingent
liabilities (see Note 8) ............... -- -- -- -- -- --
Partners' capital (deficit) ............. (460,307) (288,531) 58,959 -- 229,572 (460,307)
---------- ---------- -------- ------ ---------- ----------
Total liabilities and partners' capital
(deficit) .............................. $ 3,595 $ 722,113 $207,935 $ -- $ (135,332) $ 798,311
========== ========== ======== ====== ========== ==========
F-49
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
GRAHAM PACKAGING HOLDINGS COMPANY
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 28, 2003
(IN THOUSANDS)
GRAHAM GRAHAM
PACKAGING PACKAGING GPC
HOLDINGS COMPANY, NON- CAPITAL
COMPANY L.P. GUARANTORS CORP. I ELIMINATIONS CONSOLIDATED
------------- ------------- ------------ --------- -------------- -------------
ASSETS
Current assets:
Cash and cash equivalents .............. $ -- $ 524 $ 6,792 $ -- $ -- $ 7,316
Accounts receivable, net ............... -- 66,769 46,249 -- -- 113,018
Inventories ............................ -- 52,804 12,759 -- -- 65,563
Prepaid expenses and other current
assets ............................... -- 6,263 13,402 -- -- 19,665
---------- ---------- -------- ------ ---------- ----------
Total current assets .................... -- 126,360 79,202 -- -- 205,562
Property, plant and equipment, net ...... -- 451,234 159,130 -- -- 610,364
Goodwill ................................ -- 3,939 1,638 -- -- 5,577
Net intercompany ........................ -- 89,120 -- -- (89,120) --
Investment in subsidiaries .............. -- 76,585 -- -- (76,585) --
Other non-current assets ................ 3,211 42,905 375 -- -- 46,491
---------- ---------- -------- ------ ---------- ----------
Total assets ............................ $ 3,211 $ 790,143 $240,345 $ -- $ (165,705) $ 867,994
========== ========== ======== ====== ========== ==========
LIABILITIES AND PARTNERS'
CAPITAL (DEFICIT)
Current liabilities:
Accounts payable and accrued
expenses ............................. $ 3,886 $ 84,747 $ 63,233 $ -- $ -- $ 151,866
Current portion of long-term debt....... -- 7,394 1,557 -- -- 8,951
---------- ---------- -------- ------ ---------- ----------
Total current liabilities ............... 3,886 92,141 64,790 -- -- 160,817
Long-term debt .......................... 169,000 945,972 3,491 -- -- 1,118,463
Other non-current liabilities ........... -- 11,324 8,196 -- -- 19,520
Investment in subsidiaries .............. 259,294 -- -- -- (259,294) --
Net intercompany ........................ 6,994 -- 82,126 -- (89,120) --
Minority interest ....................... -- -- 5,157 -- -- 5,157
Commitments and contingent
liabilities (see Note 8) ............... -- -- -- -- -- --
Partners' capital (deficit) ............. (435,963) (259,294) 76,585 -- 182,709 (435,963)
---------- ---------- -------- ------ ---------- ----------
Total liabilities and partners' capital
(deficit) .............................. $ 3,211 $ 790,143 $240,345 $ -- $ (165,705) $ 867,994
========== ========== ======== ====== ========== ==========
F-50
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
GRAHAM PACKAGING HOLDINGS COMPANY
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 29, 2002
(IN THOUSANDS)
GRAHAM GRAHAM
PACKAGING PACKAGING GPC
HOLDINGS COMPANY, NON- CAPITAL
COMPANY L.P. GUARANTORS CORP. I ELIMINATIONS CONSOLIDATED
----------- ----------- ------------ --------- -------------- -------------
Net sales .............................. $ -- $178,951 $ 48,172 $ -- $ -- $227,123
Cost of goods sold ..................... -- 138,480 46,372 -- -- 184,852
-------- -------- -------- ------ -------- --------
Gross profit ........................... -- 40,471 1,800 -- -- 42,271
Selling, general, and administrative
expenses .............................. -- 13,311 3,528 -- -- 16,839
Impairment charges ..................... -- -- 4,266 -- -- 4,266
-------- -------- -------- ------ -------- --------
Operating income (loss) ................ -- 27,160 (5,994) -- -- 21,166
Interest expense, net .................. 4,397 15,603 253 -- -- 20,253
Other (income) expense, net ............ -- (33) 254 -- -- 221
Equity in (earnings) loss of
subsidiaries .......................... (3,319) 8,271 -- -- (4,952) --
Minority interest ...................... -- -- 392 -- -- 392
-------- -------- -------- ------ -------- --------
(Loss) income before income taxes ...... (1,078) 3,319 (6,893) -- 4,952 300
Income tax provision ................... -- -- 1,378 -- -- 1,378
-------- -------- -------- ------ -------- --------
Net (loss) income ...................... $ (1,078) $ 3,319 $ (8,271) $ -- $ 4,952 $ (1,078)
======== ======== ======== ====== ======== ========
GRAHAM PACKAGING HOLDINGS COMPANY
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 29, 2002
(IN THOUSANDS)
GRAHAM GRAHAM
PACKAGING PACKAGING GPC
HOLDINGS COMPANY, NON- CAPITAL
COMPANY L.P. GUARANTORS CORP. I ELIMINATIONS CONSOLIDATED
----------- ----------- ------------ --------- -------------- -------------
Net sales .............................. $ -- $544,563 $ 150,468 $ -- $ -- $695,031
Cost of goods sold ..................... -- 421,786 141,605 -- -- 563,391
--------- -------- --------- ------ --------- --------
Gross profit ........................... -- 122,777 8,863 -- -- 131,640
Selling, general, and administrative
expenses .............................. -- 34,393 11,394 -- -- 45,787
Impairment charges ..................... -- -- 4,266 -- -- 4,266
--------- -------- --------- ------ --------- --------
Operating income (loss) ................ -- 88,384 (6,797) -- -- 81,587
Interest expense, net .................. 12,784 47,676 1,471 -- -- 61,931
Other (income) expense, net ............ -- (193) 369 -- -- 176
Equity in (earnings) loss of
subsidiaries .......................... (28,925) 11,976 -- -- 16,949 --
Minority interest ...................... -- -- 1,047 -- -- 1,047
--------- -------- --------- ------ --------- --------
Income (loss) before income taxes ...... 16,141 28,925 (9,684) -- (16,949) 18,433
Income tax provision ................... -- -- 2,292 -- -- 2,292
--------- -------- --------- ------ --------- --------
Net income (loss) ...................... $ 16,141 $ 28,925 $ (11,976) $ -- $ (16,949) $ 16,141
========= ======== ========= ====== ========= ========
F-51
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
GRAHAM PACKAGING HOLDINGS COMPANY
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 28, 2003
(IN THOUSANDS)
GRAHAM GRAHAM
PACKAGING PACKAGING GPC
HOLDINGS COMPANY, NON- CAPITAL
COMPANY L.P. GUARANTORS CORP. I ELIMINATIONS CONSOLIDATED
----------- ----------- ------------ --------- -------------- -------------
Net sales .............................. $ -- $189,171 $54,695 $ -- $ -- $243,866
Cost of goods sold ..................... -- 155,426 45,652 -- -- 201,078
-------- -------- ------- ------ -------- --------
Gross profit ........................... -- 33,745 9,043 -- -- 42,788
Selling, general, and administrative
expenses .............................. -- 13,883 3,548 -- -- 17,431
-------- -------- ------- ------ -------- --------
Operating income ....................... -- 19,862 5,495 -- -- 25,357
Interest expense, net .................. 4,720 16,526 493 -- -- 21,739
Other (income) expense, net ............ -- (85) 330 -- -- 245
Equity in earnings of subsidiaries ..... (5,963) (2,542) -- -- 8,505 --
Minority interest ...................... -- -- 338 -- -- 338
-------- -------- ------- ------ -------- --------
Income (loss) before income taxes ...... 1,243 5,963 4,334 -- (8,505) 3,035
Income tax provision ................... -- -- 1,792 -- -- 1,792
-------- -------- ------- ------ -------- --------
Net income (loss) ...................... $ 1,243 $ 5,963 $ 2,542 $ -- $ (8,505) $ 1,243
======== ======== ======= ====== ======== ========
GRAHAM PACKAGING HOLDINGS COMPANY
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 28, 2003
(IN THOUSANDS)
GRAHAM GRAHAM
PACKAGING PACKAGING GPC
HOLDINGS COMPANY, NON- CAPITAL
COMPANY L.P. GUARANTORS CORP. I ELIMINATIONS CONSOLIDATED
----------- ----------- ------------ --------- -------------- -------------
Net sales .............................. $ -- $581,774 $155,895 $ -- $ -- $737,669
Cost of goods sold ..................... -- 467,527 131,692 -- -- 599,219
--------- -------- -------- ------ --------- --------
Gross profit ........................... -- 114,247 24,203 -- -- 138,450
Selling, general, and administrative
expenses .............................. -- 36,297 11,974 -- -- 48,271
Impairment charges ..................... -- 245 364 -- -- 609
--------- -------- -------- ------ --------- --------
Operating income ....................... -- 77,705 11,865 -- -- 89,570
Interest expense, net .................. 13,977 59,397 1,029 -- -- 74,403
Other (income) expense, net ............ -- (2,563) 1,992 -- -- (571)
Equity in earnings of subsidiaries ..... (23,704) (2,833) -- -- 26,537 --
Minority interest ...................... -- -- 1,053 -- -- 1,053
--------- -------- -------- ------ --------- --------
Income (loss) before income taxes ...... 9,727 23,704 7,791 -- (26,537) 14,685
Income tax provision ................... -- -- 4,958 -- -- 4,958
--------- -------- -------- ------ --------- --------
Net income (loss) ...................... $ 9,727 $ 23,704 $ 2,833 $ -- $ (26,537) $ 9,727
========= ======== ======== ====== ========= ========
F-52
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
GRAHAM PACKAGING HOLDINGS COMPANY
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 29, 2002
(IN THOUSANDS)
GRAHAM GRAHAM
PACKAGING PACKAGING GPC
HOLDINGS COMPANY, NON- CAPITAL
COMPANY L.P. GUARANTORS CORP. I ELIMINATIONS CONSOLIDATED
----------- ------------- ------------ --------- -------------- -------------
Operating activities:
Net cash provided by operating
activities ............................... $ -- $ 43,432 $ 22,803 $ -- $ -- $ 66,235
Investing activities:
Net purchases of property, plant
and equipment .......................... -- (50,697) (19,562) -- -- (70,259)
Acquisition of/investment in a
business ............................... -- (5,072) 5,072 -- -- --
Net expenditures for sales of
businesses ............................. -- -- (4,167) -- -- (4,167)
------ ---------- ---------- ------ ------ ----------
Net cash used in investing activities ..... -- (55,769) (18,657) -- -- (74,426)
Financing activities:
Proceeds from issuance of
long-term debt ......................... -- 223,789 167,953 -- -- 391,742
Payment of long-term debt ................ -- (212,757) (171,298) -- -- (384,055)
------ ---------- ---------- ------ ------ ----------
Net cash provided by (used in)
financing activities ..................... -- 11,032 (3,345) -- -- 7,687
Effect of exchange rate changes ........... -- -- 790 -- -- 790
------ ---------- ---------- ------ ------ ----------
(Decrease) increase in cash and cash
equivalents .............................. -- (1,305) 1,591 -- -- 286
Cash and cash equivalents at
beginning of period ...................... -- 3,732 5,300 -- -- 9,032
------ ---------- ---------- ------ ------ ----------
Cash and cash equivalents at end of
period ................................... $ -- $ 2,427 $ 6,891 $ -- $ -- $ 9,318
====== ========== ========== ====== ====== ==========
F-53
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
GRAHAM PACKAGING HOLDINGS COMPANY
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 28, 2003
(IN THOUSANDS)
GRAHAM GRAHAM
PACKAGING PACKAGING GPC
HOLDINGS COMPANY, NON- CAPITAL
COMPANY L.P. GUARANTORS CORP. I ELIMINATIONS CONSOLIDATED
----------- ------------- ------------ --------- -------------- -------------
Operating activities:
Net cash (used in) provided by
operating activities .................. $ (9,084) $ 33,754 $ 8,688 $ -- $ -- $ 33,358
Investing activities:
Net purchases of property, plant
and equipment ....................... -- (55,146) (14,991) -- -- (70,137)
Acquisition of/investment in a
business ............................ 9,084 (13,801) 4,717 -- -- --
Net (expenditures for) proceeds
from sale of business ............... -- (76) 209 -- -- 133
-------- ---------- --------- ------ ------ ----------
Net cash provided by (used in)
investing activities .................. 9,084 (69,023) (10,065) -- -- (70,004)
Financing activities:
Proceeds from issuance of
long-term debt ...................... -- 1,026,941 5,629 -- -- 1,032,570
Payment of long-term debt ............. -- (972,679) (3,807) -- -- (976,486)
Debt issuance fees .................... -- (20,250) -- -- -- (20,250)
-------- ---------- --------- ------ ------ ----------
Net cash provided by financing
activities ............................ -- 34,012 1,822 -- -- 35,834
Effect of exchange rate changes ........ -- -- 829 -- -- 829
-------- ---------- --------- ------ ------ ----------
(Decrease) increase in cash and cash
equivalents ........................... -- (1,257) 1,274 -- -- 17
Cash and cash equivalents at
beginning of period ................... -- 1,781 5,518 -- -- 7,299
-------- ---------- --------- ------ ------ ----------
Cash and cash equivalents at end of
period ................................ $ -- $ 524 $ 6,792 $ -- $ -- $ 7,316
======== ========== ========= ====== ====== ==========
10. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) for the three and nine months ended September
29, 2002 and September 28, 2003 was as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------- ------------------------------
SEPTEMBER 29, SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 28,
2002 2003 2002 2003
--------------- --------------- --------------- --------------
(IN THOUSANDS)
Net (loss) income ..................... $ (1,078) $ 1,243 $16,141 $ 9,727
Changes in fair value of derivatives .. 325 637 4,520 (3,850)
Elimination of cash flow hedge
accounting for certain instruments... -- -- -- 4,783
Additional minimum pension
liability ........................... 29 3 (6) 237
Cumulative translation adjustment ..... (4,616) (1,002) 4,666 13,563
-------- -------- -------- --------
Comprehensive income (loss) ........... $ (5,340) $ 881 $25,321 $ 24,460
======== ======== ======== ========
F-54
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
11. SEGMENT INFORMATION
The Company is organized and managed on a geographical basis in three
operating segments: North America (which includes the United States, Canada and
Mexico), Europe and South America. Segment information for the three and nine
months ended September 29, 2002 and September 28, 2003, representing the
reportable segments currently utilized by the chief operating decision maker,
was as follows:
NORTH SOUTH
AMERICA EUROPE AMERICA ELIMINATIONS TOTAL
----------- ---------- --------- -------------- -----------
(a) (b)
(IN THOUSANDS)
Net sales (c) Three months ended September 29, 2002 $187,746 $ 33,754 $ 5,623 $227,123
Three months ended September 28, 2003 200,372 36,349 7,145 243,866
Nine months ended September 29, 2002 570,661 106,787 17,583 695,031
Nine months ended September 28, 2003 611,103 108,369 18,197 737,669
Operating income Three months ended September 29, 2002 26,981 (6,452) 637 21,166
(loss) (d) Three months ended September 28, 2003 21,548 3,064 745 25,357
Nine months ended September 29, 2002 87,578 (7,885) 1,894 81,587
Nine months ended September 28, 2003 79,837 8,201 1,532 89,570
Depreciation and Three months ended September 29, 2002 16,771 5,611 366 22,748
amortization (e) Three months ended September 28, 2003 18,399 287 401 19,087
Nine months ended September 29, 2002 49,779 8,871 1,355 60,005
Nine months ended September 28, 2003 58,090 3,264 1,152 62,506
Impairment charges Three months ended September 29, 2002 -- 4,266 -- 4,266
Three months ended September 28, 2003 -- -- -- --
Nine months ended September 29, 2002 -- 4,266 -- 4,266
Nine months ended September 28, 2003 245 364 -- 609
Interest expense, net (e) Three months ended September 29, 2002 20,031 108 114 20,253
Three months ended September 28, 2003 21,499 170 70 21,739
Nine months ended September 29, 2002 60,576 1,092 263 61,931
Nine months ended September 28, 2003 73,633 519 251 74,403
Income tax provision Three months ended September 29, 2002 11 1,140 227 1,378
(benefit) Three months ended September 28, 2003 2 1,556 234 1,792
Nine months ended September 29, 2002 (375) 2,044 623 2,292
Nine months ended September 28, 2003 153 4,262 543 4,958
Identifiable assets (c) As of December 31, 2002 910,731 153,834 18,463 (284,717) 798,311
As of September 28, 2003 970,121 169,037 26,499 (297,663) 867,994
Goodwill As of December 31, 2002 3,515 1,333 718 5,566
As of September 28, 2003 3,515 1,298 764 5,577
Capital expenditures, Nine months ended September 29, 2002 63,616 5,366 1,304 (27) 70,259
excluding acquisitions Nine months ended September 28, 2003 60,413 4,481 5,265 (22) 70,137
- ----------
(a) On March 28, 2002, the Company completed the sale of certain assets
and liabilities of its Italian operations. During the 2nd quarter of
2002, the Company closed its plant in the United Kingdom. On July
31, 2002, the Company disposed of its operation in Blyes, France. On
March 31, 2003, the Company completed the sale of certain assets and
liabilities of its German operations. During the 2nd quarter of
2003, the Company closed its plant in Noeux les Mines, France.
(b) To eliminate intercompany balances, which include investments in the
operating segments and inter-segment receivables and payables.
F-55
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONCLUDED)
(c) The Company's net sales for Europe include sales in France which
totaled approximately $17.5 million and $18.7 million for the three
months ended September 29, 2002 and September 28, 2003,
respectively, and $57.0 million and $58.1 million for the nine
months ended September 29, 2002 and September 28, 2003,
respectively. Identifiable assets in France totaled approximately
$93.6 million and $96.1 million as of December 31, 2002 and
September 28, 2003, respectively.
(d) In the fourth quarter of 2002 the Company changed its measurement
method used to determine reported segment profit or loss by
allocating certain selling, general and administrative costs
incurred in North America to Europe and South America. The effect in
the three months ended September 28, 2003 was an increase in
operating income for North America of $0.5 million and decreases of
$0.4 million and $0.1 million for Europe and South America,
respectively, and the effect in the nine months ended September 28,
2003 was an increase in operating income for North America of $1.5
million and decreases of $1.2 million and $0.3 million for Europe
and South America, respectively.
(e) Includes amortization of debt issuance fees.
Product Net Sales Information
The following is supplemental information on net sales by product
category:
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------- ------------------------------
SEPTEMBER 29, SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 28,
2002 2003 2002 2003
--------------- --------------- --------------- --------------
(IN THOUSANDS)
Food and Beverage ............... $128,474 $142,421 $397,874 $432,447
Household and Personal Care ..... 47,319 47,034 143,094 142,487
Automotive Lubricants ........... 51,330 54,411 154,063 162,735
-------- -------- -------- --------
Total Net Sales ................. $227,123 $243,866 $695,031 $737,669
======== ======== ======== ========
12. SUBSEQUENT EVENT
On September 29, 2003 the Company sold its vacant building located in
Burlington, Ontario, Canada, and as a result expects to realize a gain on the
sale of approximately $3.0 million.
F-56
================================================================================
TABLE OF CONTENTS
PAGE
---------
Prospectus Summary ......................... 1
Risk Factors ............................... 13
Cautionary Notice Regarding
Forward-Looking Statements .............. 19
Organizational Structure ................... 20
Use of Proceeds ............................ 22
Capitalization ............................. 23
Selected Financial Data .................... 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations .............................. 26
Business ................................... 43
Management ................................. 56
Related Party Transactions ................. 63
The Exchange Offer ......................... 66
Description of the Notes ................... 76
Description of Other Indebtedness .......... 109
Security Ownership ......................... 112
Material United States Federal Income
Tax Consequences ........................ 113
Certain ERISA Considerations ............... 117
Plan of Distribution ....................... 119
Legal Matters .............................. 120
Experts .................................... 120
Additional Information ..................... 120
Index to Financial Statements .............. F-1
UNTIL , 2003 ( DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN
THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN UNDERWRITER
AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------------
PROSPECTUS
------------------------------------
$100,000,000
[GRAHAM PACKAGING COMPANY LOGO]
GRAHAM PACKAGING
COMPANY, L.P.
GPC CAPITAL CORP. I
OFFER TO EXCHANGE ALL OUTSTANDING
8 3/4% SENIOR SUBORDINATED
NOTES DUE 2008 FOR
8 3/4% SERIES B SENIOR
SUBORDINATED NOTES DUE 2008,
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933
, 2003
================================================================================
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 Graham Packaging Company, L.P. 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 Graham
Packaging Company, L.P. provides that Graham Packaging 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 Graham Packaging Company, L.P.,
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 Graham Packaging Company L.P. The
foregoing obligation of Graham Packaging Company L.P. will be satisfied only
out of the assets of Graham Packaging 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 Graham Packaging
Company L.P. further provides that Graham Packaging Company L.P. 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 Graham
Packaging Company L.P. The foregoing obligation of Graham Packaging Company
L.P. will be satisfied only out of the assets of Graham Packaging Company L.P.
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.
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.
Subject to any terms, conditions or restrictions set forth in the Limited
Partnership Agreement of Graham Packaging Holdings Company, 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,
II-1
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.
The Certificate of Incorporation and By-Laws of CapCo I provide for
mandatory indemnification of directors and officers on generally the same terms
as permitted by the Delaware General Corporation Law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following Financial Statement Schedules are included herein:
Schedule I -- Registrant's Condensed Financial Statements
Schedule II -- Valuation and Qualifying Accounts
All other schedules are not submitted because they are not applicable
or not required or because the required information is included in the
financial statements or the notes thereto.
(b) The following exhibits are filed herewith or incorporated herein by
reference:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- ---------------------------------------------------------------------------------------
3.1 Certificate of Limited Partnership of Graham Packaging Company, L.P. (incorporated
herein by reference to Exhibit 3.1 to the Registration Statement on Form S-4 (File No.
333-53603-03)).
3.2 Amended and Restated Agreement of Limited Partnership of Graham Packaging
Company, L.P. dated as of February 2, 1998 (incorporated herein by reference to
Exhibit 3.2 to the Registration Statement on Form S-4 (File No. 333-53603-03)).
3.3 Certificate of Incorporation of GPC Capital Corp. I (incorporated herein by reference
to Exhibit 3.3 to the Registration Statement on Form S-4 (File No. 333-53603-03)).
3.4 By-Laws of GPC Capital Corp. I (incorporated herein by reference to Exhibit 3.4 to
the Registration Statement on Form S-4 (File No. 333-53603-03))
3.5 Certificate of Limited Partnership of Graham Packaging Holdings Company
(incorporated herein by reference to Exhibit 3.5 to the Registration Statement on Form
S-4 (File No. 333-53603-03)).
II-2
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------------ ----------------------------------------------------------------------------------------
4.1 Indenture dated as of February 2, 1998 among Graham Packaging Company, L.P. and
GPC Capital Corp. I and Graham Packaging Holdings Company, as guarantor, and The
Bank of New York (formerly United States Trust Company of New York), as Trustee,
relating to the Senior Subordinated Notes Due 2008 of Graham Packaging Company,
L.P. and GPC Capital Corp. I, unconditionally guaranteed by Graham Packaging
Holdings Company (incorporated herein by reference to Exhibit 4.1 to the Registration
Statement on Form S-4 (File No. 333-53603-03)).
4.2 Form of 8 3/4% Senior Subordinated Note due 2008 (included in Exhibit 4.1).
4.3 Form of 8 3/4% Series B Senior Subordinated Note due 2008 (included in Exhibit 4.1).
4.4** Registration Rights Agreement, dated as of May 28, 2003 by and among Graham
Packaging Company, L.P. and GPC Capital Corp. I, Graham Packaging Holdings
Company, as guarantor, Deutsche Bank Trust Company Americas and Citicorp North
America Inc., as selling noteholders, and Deutsche Bank Securities Inc. and Citigroup
Global Markets Inc., as initial purchasers.
5.1** Opinion of Simpson Thacher & Bartlett LLP.
5.2** Opinion of Morgan, Lewis & Bockius LLP.
10.1 Credit Agreement dated as of February 14, 2003 among Graham Packaging Holdings
Company, Graham Packaging Company, L.P., GPC Capital Corp. I, the lending
institutions identified in the Credit Agreement and the agents identified in the Credit
Agreement (incorporated herein by reference to Exhibit 10.1 to the Annual Report on
Form 10-K filed February 25, 2003 (File No. 333-53603-03)).
10.2** First Amendment and Consent to Credit Agreement dated as of May 13, 2003.
10.3 Indenture dated as of February 2, 1998 among Graham Packaging Holdings Company
and GPC Capital Corp. II and The Bank of New York, as Trustee, relating to the
Senior Discount Notes Due 2009 of Graham Packaging Holdings Company and GPC
Capital Corp. II (incorporated herein by reference to Exhibit 4.7 to the Registration
Statement on Form S-4 (File No. 333-53603-03)).
10.4 Consulting Agreement dated as of February 2, 1998 between Graham Packaging
Holdings Company and Graham Capital Corporation (incorporated herein by reference
to Exhibit 10.2 to the Registration Statement on Form S-4 (File No. 333-53603-03)).
10.5 Equipment Sales, Service and License Agreement dated February 2, 1998 between
Graham Engineering Corporation and Graham Packaging Holdings Company
(incorporated herein by reference to Exhibit 10.3 to the Registration Statement on
Form S-4 (File No. 333-53603-03)).
10.6 Forms of Retention Incentive Agreement (incorporated herein by reference to Exhibit
10.4 to the Registration Statement on Form S-4 (File No. 333-53603-03)).
10.7 Forms of Severance Agreement (incorporated herein by reference to Exhibit 10.5 to
the Registration Statement on Form S-4 (File No. 333-53603-03)).
10.8 Monitoring Agreement dated as of February 2, 1998 among Graham Packaging
Holdings Company, Graham Packaging Company, L.P. and Blackstone (incorporated
herein by reference to Exhibit 10.7 to the Registration Statement on Form S-4 (File
No. 333-53603-03)).
10.9 Management Stockholders Agreement (incorporated herein by reference to Exhibit
10.8 to the Registration Statement on Form S-4 (File No. 333-53603-03)).
II-3
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------------ -------------------------------------------------------------------------------------
10.10 Form of Equity Incentive Agreement (incorporated herein by reference to Exhibit 10.9
to the Registration Statement on Form S-4 (File No. 333-53603-03)).
10.11 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 Partnership III, L.P., BMP/Graham Holdings
Corporation, Graham Packaging Holdings Company, GPC Capital Corp. II and BT
Investment Partners, Inc. (incorporated herein by reference to Exhibit 10.10 to the
Registration Statement on Form S-4 (File No. 333-53603-03)).
10.12 Graham Packaging Holdings Company Management Option Plan (incorporated herein
by reference to Exhibit 10.11 to the Registration Statement on Form S-4 (File No.
333-53603-03)).
10.13 Form of Employment Agreement dated as of June 27, 2002, between Graham
Packaging Holdings Company and Philip R. Yates (incorporated by reference to
Exhibit 10.16 to Amendment No. 2 to the Registration Statement on Form S-1 filed
July 10, 2002 (File No. 333-89022)).
10.14 Form of Employment Agreement dated as of June 27, 2002, between Graham
Packaging Holdings Company and Roger M. Prevot (incorporated by reference to
Exhibit 10.17 to Amendment No. 2 to the Registration Statement on Form S-1 filed
July 10, 2002 (File No. 333-89022)).
10.15 Form of Employment Agreement dated as of June 27, 2002, between Graham
Packaging Holdings Company and John E. Hamilton (incorporated by reference to
Exhibit 10.18 to Amendment No. 2 to the Registration Statement on Form S-1 filed
July 10, 2002 (File No. 333-89022)).
10.16 Form of Employment Agreement dated as of June 27, 2002, between Graham
Packaging Holdings Company and G. Robinson Beeson (incorporated by reference to
Exhibit 10.19 to Amendment No. 2 to the Registration Statement on Form S-1 filed
July 10, 2002 (File No. 333-89022)).
10.17 Form of Employment Agreement dated as of June 27, 2002, between Graham
Packaging Holdings Company and Scott G. Booth (incorporated by reference to
Exhibit 10.20 to Amendment No. 2 to the Registration Statement on Form S-1 filed
July 10, 2002 (File No. 333-89022)).
12.1** Statement of Ratio of Earnings to Fixed Charges.
23.1 Consent of Simpson Thacher & Bartlett LLP (included in Exhibit 5.1).
23.2* Consent of Deloitte & Touche LLP, Independent Auditors.
23.3 Consent of Morgan, Lewis & Bockius LLP (included in Exhibit 5.2).
24.1** Power of Attorney.
99.1** Form of Letter of Transmittal.
99.2** Form of Notice of Guaranteed Delivery.
99.3** Form of Letter to Nominees.
99.4** Form of Letter to Clients.
- ----------
* Filed herewith.
** Previously filed.
II-4
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1933, the
registrant has duly caused this amendment to the registration statement to be
signed by the undersigned, thereunto duly authorized, in York, Pennsylvania, on
December 9, 2003.
GRAHAM PACKAGING COMPANY, L.P.
(Registrant)
By: GPC Opco GP LLC, its General
Partner
By: /s/ John E. Hamilton
-----------------------------------
Name: John E. Hamilton
Title: Chief Financial Officer,
Secretary and Treasurer
POWER OF ATTORNEY AND SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
this amendment to the registration statement has been signed below by the
following persons in their capacities on the 9th day of December, 2003.
SIGNATURE TITLE
- ------------------------------------ ----------------------------------------------------
* Chief Executive Officer of GPC Opco GP LLC
------------------------------- (Principal Executive Officer)
Philip R. Yates
/s/ John E. Hamilton Chief Financial Officer, Secretary and Treasurer of
------------------------------- GPC Opco GP LLC (Principal Financial Officer and
John E. Hamilton Principal Accounting Officer)
* Director of BMP/Graham Holdings Corporation
-------------------------------
Howard A. Lipson
* Director of BMP/Graham Holdings Corporation
-------------------------------
Chinh E. Chu
* Director of BMP/Graham Holdings Corporation
-------------------------------
David A. Stonehill
*By: /s/ John E. Hamilton
-------------------------------
John E. Hamilton
Attorney-in-fact
II-6
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1933, the
registrant has duly caused this amendment to the registration statement to be
signed by the undersigned, thereunto duly authorized, in York, Pennsylvania, on
December 9, 2003.
GPC Capital Corp. I
By: /s/ John E. Hamilton
-----------------------------------
Name: John E. Hamilton
Title: Vice President, Secretary and
Assistant Treasurer
POWER OF ATTORNEY AND SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
this amendment to the registration statement has been signed below by the
following persons in their capacities on the 9th day of December, 2003.
SIGNATURE TITLE
- ------------------------------------ ------------------------------------------------------
* President, Treasurer and Assistant Secretary and
------------------------------- Director (Principal Executive Officer)
Philip R. Yates
/s/ John E. Hamilton Vice President, Secretary and Assistant Treasurer and
------------------------------- Director (Principal Financial Officer and Principal
John E. Hamilton Accounting Officer)
* Vice President and Director
-------------------------------
Chinh E. Chu
* Vice President and Director
-------------------------------
David A. Stonehill
By: /s/ John E. Hamilton
-------------------------------
John E. Hamilton
Attorney-in-fact
II-7
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1933, the
registrant has duly caused this amendment to the registration statement to be
signed by the undersigned, thereunto duly authorized, in York, Pennsylvania, on
December 9, 2003.
Graham Packaging Holdings Company
By: /s/ BCP/Graham Holdings L.L.C.,
its general partner
By: /s/ John E. Hamilton
-----------------------------
Name: John E. Hamilton
Title: Vice President, Finance
and Administration
POWER OF ATTORNEY AND SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
this amendment to the registration statement has been signed below by the
following persons in their capacities on the 9th day of December, 2003.
SIGNATURE TITLE
- ------------------------------------ ------------------------------------------------------
* President, Treasurer and Assistant Secretary and
------------------------------- Director of BMP/Graham Holdings Corporation
Howard A. Lipson (Principal Executive Officer)
/s/ John E. Hamilton Vice President, Finance and Administration (Principal
------------------------------- Financial Officer and Principal Accounting Officer)
John E. Hamilton
* Director of BMP/Graham Holdings Corporation
-------------------------------
Chinh E. Chu
* Director of BMP/Graham Holdings Corporation
-------------------------------
David A. Stonehill
By: /s/ John E. Hamilton
-------------------------------
John E. Hamilton
Attorney-in-fact
II-8
SCHEDULE I
GRAHAM PACKAGING HOLDINGS COMPANY
REGISTRANT'S CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS)
BALANCE SHEETS DECEMBER 31, 2001 DECEMBER 31, 2002
- ---------------------------------------------------- ------------------- ------------------
Assets:
Current assets ..................................... $ -- $ --
Intangible assets, net ............................. 4,068 3,595
---------- ----------
Total assets .................................... $ 4,068 $ 3,595
========== ==========
Liabilities and partners' capital:
Current liabilities ................................ $ 6,993 $ 6,993
Long-term debt ..................................... 151,639 168,378
Investment in subsidiary ........................... 330,490 288,531
---------- ----------
Total liabilities ............................... 489,122 463,902
Partners' capital .................................. (485,054) (460,307)
---------- ----------
Total liabilities and partners' capital ......... $ 4,068 $ 3,595
========== ==========
YEAR ENDED YEAR ENDED YEAR ENDED
STATEMENTS OF OPERATIONS DECEMBER 31, 2000 DECEMBER 31, 2001 DECEMBER 31, 2002
- ---------------------------------------------------------- --------------------- --------------------- ---------------------
Equity in (loss) earnings of subsidiaries ................ $(31,650) $(28,585) $24,774
Interest expense ......................................... (13,971) (15,385) (17,212)
Other .................................................... (16) -- --
-------- -------- --------
Net (loss) income ........................................ $(45,637) $(43,970) $ 7,562
======== ======== ========
YEAR ENDED YEAR ENDED YEAR ENDED
STATEMENTS OF CASH FLOWS DECEMBER 31, 2000 DECEMBER 31, 2001 DECEMBER 31, 2002
- ---------------------------------------------------------- --------------------- --------------------- ---------------------
Operating activities:
Net (loss) income ........................................ $(45,637) $(43,970) $ 7,562
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Amortization of debt issuance costs ..................... 383 426 473
Accretion of senior discount notes ...................... 13,588 14,959 16,739
Changes in current liabilities .......................... 16 -- --
Equity in loss (earnings) of subsidiaries ............... 31,650 28,585 (24,774)
-------- -------- --------
Net cash provided by operating activities ............... -- -- --
Investing activities:
Investments in a business ............................... (50,000) (50,000) --
-------- -------- --------
Net cash used in investing activities ................... (50,000) (50,000) --
Financing activities:
Capital contributions ................................... 50,000 50,000 --
-------- -------- --------
Net cash provided by financing activities ............... 50,000 50,000 --
-------- -------- --------
Increase in cash and cash equivalents .................... -- -- --
Cash and cash equivalents at beginning of period ......... -- -- --
-------- -------- --------
Cash and cash equivalents at end of period ............... -- -- --
======== ======== ========
Supplemental cash flow information:
Cash paid for interest .................................. $ -- $ -- $ --
- ----------
See footnotes to consolidated financial statements of Graham Packaging Holdings
Company.
S-1
SCHEDULE II
GRAHAM PACKAGING HOLDINGS COMPANY
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
BALANCE AT
BEGINNING BALANCE AT
OF YEAR ADDITIONS DEDUCTIONS OTHER (1) END OF YEAR
----------- ----------- ------------ ----------- ------------
YEAR ENDED DECEMBER 31, 2000
Allowance for doubtful accounts ......... $1,791 $ 319 $ 942 $-- $1,168
Allowance for inventory losses .......... 1,283 1,127 1,124 -- 1,286
YEAR ENDED DECEMBER 31, 2001
Allowance for doubtful accounts ......... $1,168 $2,128 $ 916 $23 $2,403
Allowance for inventory losses .......... 1,286 2,507 1,208 -- 2,585
YEAR ENDED DECEMBER 31, 2002
Allowance for doubtful accounts ......... $2,403 $2,566 $ 689 $-- $4,280
Allowance for inventory losses .......... 2,585 787 772 -- 2,600
- ----------
(1) Represents allowance attributable to entities acquired during 2001.
S-2
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ---------- -------------------------------------------------------------------------------------------
3.1 Certificate of Limited Partnership of Graham Packaging Company, L.P. (incorporated
herein by reference to Exhibit 3.1 to the Registration Statement on Form S-4 (File No.
333-53603-03)).
3.2 Amended and Restated Agreement of Limited Partnership of Graham Packaging
Company, L.P. dated as of February 2, 1998 (incorporated herein by reference to Exhibit
3.2 to the Registration Statement on Form S-4 (File No. 333-53603-03)).
3.3 Certificate of Incorporation of GPC Capital Corp. I (incorporated herein by reference to
Exhibit 3.3 to the Registration Statement on Form S-4 (File No. 333-53603-03)).
3.4 By-Laws of GPC Capital Corp. I (incorporated herein by reference to Exhibit 3.4 to the
Registration Statement on Form S-4 (File No. 333-53603-03))
3.5 Certificate of Limited Partnership of Graham Packaging Holdings Company (incorporated
herein by reference to Exhibit 3.5 to the Registration Statement on Form S-4 (File No.
333-53603-03)).
4.1 Indenture dated as of February 2, 1998 among Graham Packaging Company, L.P. and GPC
Capital Corp. I and Graham Packaging Holdings Company, as guarantor, and The Bank of
New York (formerly United States Trust Company of New York), as Trustee, relating to
the Senior Subordinated Notes Due 2008 of Graham Packaging Company, L.P. and GPC
Capital Corp. I, unconditionally guaranteed by Graham Packaging Holdings Company
(incorporated herein by reference to Exhibit 4.1 to the Registration Statement on Form S-4
(File No. 333-53603-03)).
4.2 Form of 8 3/4% Senior Subordinated Note due 2008 (included in Exhibit 4.1).
4.3 Form of 8 3/4% Series B Senior Subordinated Note due 2008 (included in Exhibit 4.1).
4.4** Registration Rights Agreement, dated as of May 28, 2003 by and among Graham
Packaging Company, L.P. and GPC Capital Corp. I, Graham Packaging Holdings Company,
as guarantor, Deutsche Bank Trust Company Americas and Citicorp North America Inc., as
selling noteholders, and Deutsche Bank Securities Inc. and Citigroup Global Markets Inc.,
as initial purchasers.
5.1** Opinion of Simpson Thacher & Bartlett LLP.
5.2** Opinion of Morgan, Lewis & Bockius LLP.
10.1 Credit Agreement dated as of February 14, 2003 among Graham Packaging Holdings
Company, Graham Packaging Company, L.P., GPC Capital Corp. I, the lending institutions
identified in the Credit Agreement and the agents identified in the Credit Agreement
(incorporated herein by reference to Exhibit 10.1 to the Annual Report on Form 10-K filed
February 25, 2003 (File No. 333-53603-03)).
10.2** First Amendment and Consent to Credit Agreement dated as of May 13, 2003.
10.3 Indenture dated as of February 2, 1998 among Graham Packaging Holdings Company and
GPC Capital Corp. II and The Bank of New York, as Trustee, relating to the Senior
Discount Notes Due 2009 of Graham Packaging Holdings Company and GPC Capital
Corp. II (incorporated herein by reference to Exhibit 4.7 to the Registration Statement on
Form S-4 (File No. 333-53603-03)).
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ---------- ------------------------------------------------------------------------------------------
10.4 Consulting Agreement dated as of February 2, 1998 between Graham Packaging Holdings
Company and Graham Capital Corporation (incorporated herein by reference to Exhibit
10.2 to the Registration Statement on Form S-4 (File No. 333-53603-03)).
10.5 Equipment Sales, Service and License Agreement dated February 2, 1998 between Graham
Engineering Corporation and Graham Packaging Holdings Company (incorporated herein
by reference to Exhibit 10.3 to the Registration Statement on Form S-4 (File No.
333-53603-03)).
10.6 Forms of Retention Incentive Agreement (incorporated herein by reference to Exhibit 10.4
to the Registration Statement on Form S-4 (File No. 333-53603-03)).
10.7 Forms of Severance Agreement (incorporated herein by reference to Exhibit 10.5 to the
Registration Statement on Form S-4 (File No. 333-53603-03)).
10.8 Monitoring Agreement dated as of February 2, 1998 among Graham Packaging Holdings
Company, Graham Packaging Company, L.P. and Blackstone (incorporated herein by
reference to Exhibit 10.7 to the Registration Statement on Form S-4 (File No.
333-53603-03)).
10.9 Management Stockholders Agreement (incorporated herein by reference to Exhibit 10.8 to
the Registration Statement on Form S-4 (File No. 333-53603-03)).
10.10 Form of Equity Incentive Agreement (incorporated herein by reference to Exhibit 10.9 to
the Registration Statement on Form S-4 (File No. 333-53603-03)).
10.11 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 Partnership III, L.P., BMP/Graham Holdings Corporation, Graham
Packaging Holdings Company, GPC Capital Corp. II and BT Investment Partners, Inc.
(incorporated herein by reference to Exhibit 10.10 to the Registration Statement on Form
S-4 (File No. 333-53603-03)).
10.12 Graham Packaging Holdings Company Management Option Plan (incorporated herein by
reference to Exhibit 10.11 to the Registration Statement on Form S-4 (File No.
333-53603-03)).
10.13 Form of Employment Agreement dated as of June 27, 2002, between Graham Packaging
Holdings Company and Philip R. Yates (incorporated by reference to Exhibit 10.16 to
Amendment No. 2 to the Registration Statement on Form S-1 filed July 10, 2002 (File No.
333-89022)).
10.14 Form of Employment Agreement dated as of June 27, 2002, between Graham Packaging
Holdings Company and Roger M. Prevot (incorporated by reference to Exhibit 10.17 to
Amendment No. 2 to the Registration Statement on Form S-1 filed July 10, 2002 (File No.
333-89022)).
10.15 Form of Employment Agreement dated as of June 27, 2002, between Graham Packaging
Holdings Company and John E. Hamilton (incorporated by reference to Exhibit 10.18 to
Amendment No. 2 to the Registration Statement on Form S-1 filed July 10, 2002 (File No.
333-89022)).
10.16 Form of Employment Agreement dated as of June 27, 2002, between Graham Packaging
Holdings Company and G. Robinson Beeson (incorporated by reference to Exhibit 10.19 to
Amendment No. 2 to the Registration Statement on Form S-1 filed July 10, 2002 (File No.
333-89022)).
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ---------- ----------------------------------------------------------------------------------------
10.17 Form of Employment Agreement dated as of June 27, 2002, between Graham Packaging
Holdings Company and Scott G. Booth (incorporated by reference to Exhibit 10.20 to
Amendment No. 2 to the Registration Statement on Form S-1 filed July 10, 2002 (File No.
333-89022)).
12.1** Statement of Ratio of Earnings to Fixed Charges.
23.1 Consent of Simpson Thacher & Bartlett LLP (included in Exhibit 5.1).
23.2* Consent of Deloitte & Touche LLP, Independent Auditors.
24.1** Power of Attorney.
99.1** Form of Letter of Transmittal.
99.2** Form of Notice of Guaranteed Delivery.
99.3** Form of Letter to Nominees.
99.4** Form of Letter to Clients.
- ----------
* Filed herewith.
** Previously filed.