GRAHAM PACKAGING HOLDINGS CO - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1999

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934

For the transition period from _______ to _____

Commission File Number: 333-53603-03

GRAHAM PACKAGING HOLDINGS COMPANY
(Exact name of registrant as specified in its charter)

Pennsylvania 23-2553000
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

2401 Pleasant Valley Road
York, Pennsylvania
(Address of principal executive offices)
17402
(zip code)
(717) 849-8500
(Registrant's telephone number, including area code)

Securities Registered pursuant to Section 12(b) of the Act: None

Securities Registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X]
No[ ].

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]

There is no established public trading market for any of the general or
limited partnership interests in the registrant. The aggregate market
value of the voting securities held by non-affiliates of the registrant
as of February 29, 2000 was $-0-. As of February 29, 2000, the general

partnership interests in the registrant were owned by BCP /Graham
Holdings L.L.C. and Graham Packaging Corporation, and the limited
partnership interests in the registrant were owned by BMP/Graham Holdings
Corporation and certain members of the family of Donald C. Graham and
entities controlled by them. See Item 12, "Security Ownership of Certain
Beneficial Owners and Management."

_______________
DOCUMENTS INCORPORATED BY REFERENCE

None.

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GRAHAM PACKAGING HOLDINGS COMPANY

INDEX

Page
Number

PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Item 1. Business . . . . . . . . . . . . . . . . . . . . . . 4
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . 27
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . 29
Item 4. Submission of Matters to a Vote of Security Holders . 30

PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . 30
Item 6. Selected Financial Data . . . . . . . . . . . . . . . 31
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . 35
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk . . . . . . . . . . . . . . . . . . . . 45
Item 8. Financial Statements and Supplementary Data . . . . . 48
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . 84

PART III

Item 10. Advisory Committee Members, Directors and Executive
Officers of the Registrant . . . . . . . . . . . . 84
Item 11. Executive Compensation . . . . . . . . . . . . . . . 89
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . 97
Item 13. Certain Relationships and Related Transactions . . . 99

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K . . . . . . . . . . . . . . . . . . . . . 108

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PART I

Item 1. Business

Unless the context otherwise requires, all references herein to the
"Company," with respect to periods prior to the recapitalization
described below (the "Recapitalization"), refer to the business
historically conducted by Graham Packaging Holdings Company ("Holdings")
(which served as the operating entity for the business prior to the
Recapitalization) and one of its predecessors (Graham Container
Corporation), together with Holdings' subsidiaries and certain
affiliates, and, with respect to periods subsequent to the
Recapitalization, refer to Holdings and its subsidiaries. Since the
Recapitalization, Graham Packaging Company, L.P. (the "Operating
Company") has been a wholly owned subsidiary of Holdings. All references
to the "Recapitalization" herein shall mean the collective reference to
the Recapitalization of Holdings and related transactions as described
under "The Recapitalization" below, including the initial borrowings
under the New Credit Agreement (as defined below), the Offerings (as
defined below) and the related uses of proceeds. References to
"Continuing Graham Partners" herein refer to Graham Packaging Corporation
("Graham GP Corp."), Graham Family Growth Partnership or affiliates
thereof or other entities controlled by Donald C. Graham and his family,
and references to "Graham Partners" refer to the Continuing Graham
Partners, Graham Engineering Corporation ("Graham Engineering") and the
other partners of Holdings (consisting of Donald C. Graham and certain
entities controlled by Mr. Graham and his family). Since July 27, 1998,
the Company's operations have included the operations of Graham
Emballages Plastiques S.A.; Graham Packaging U.K. Ltd.; Graham Plastpak
Plastik Ambalaj A.S. and Graham Packaging Deutschland GmbH, as a result
of the acquisition of selected plants of Crown Cork & Seal. Since July 1,
1999 the Company's operations have included the operations of Graham
Packaging Argentina S.A. as a result of the acquisition of selected
companies in Argentina. Since July 6, 1999 the Company's operations have
included the operations of PlasPET Florida, Ltd. as a result of an
investment made in a limited partnership. All references to "Management"
herein shall mean the management of the Company at the time in question,
unless the context indicates otherwise. In addition, unless otherwise
indicated, all sources for all industry data and statistics contained
herein are estimates contained in or derived from internal or industry
sources believed by the Company to be reliable.

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

All statements other than statements of historical facts included
in this Report on Form 10-K, including, without limitation, statements
regarding the future financial position, economic performance and results
of operations of the Company (as defined above), as well as the Company's
business strategy, budgets and projected costs and plans and objectives
of management for future operations, and the information referred to
under "Quantitative and Qualitative Disclosures About Market Risk" (Part
II, Item 7A), 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",

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"estimate", "anticipate", "believe", or "continue" or the negative
thereof or variations thereon or similar terminology. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, the Company can give no assurance that such
expectations will prove to have been correct. Important factors that
could cause actual results to differ materially from the issuers'
expectations include, without limitation, the high degree of leverage and
substantial debt service obligations of the Operating Company and
Holdings, the restrictive covenants contained in instruments governing
indebtedness of the Company, including the New Credit Agreement,
competition in the Company's markets, including the impact of possible
new technologies, a decline in the domestic motor oil business, risks
associated with the Company's international operations, the Company's
exposure to fluctuations in resin prices and its dependence on the supply
of resin, the Company's dependence on significant customers and the risk
that customers will not purchase the Company's products in the amounts
expected by the Company under their requirements contracts, the Company's
dependence on key employees and the material adverse effect that could
result from the loss of their services, the Company's dependence on
certain continuing relationships with Graham Engineering and other Graham
Partners and affiliates thereof, risks associated with environmental
regulation, risks associated with possible future acquisitions, risks
associated with hedging transactions, and the possibility that the
Company may not be able to achieve success in developing and expanding
its business, including, without limitation, the Company's hot-fill PET
plastic container business. See "--Certain Risks of the Business." All
written and oral forward-looking statements attributable to the Company,
or persons acting on its behalf, are expressly qualified in their
entirety by the cautionary statements set forth in this paragraph.

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General

The Company is a worldwide leader in the design, manufacture and
sale of customized blow molded rigid plastic bottles, as hereinafter
described. Holdings was formed under the name "Sonoco Graham Company" on
April 3, 1989 as a Pennsylvania limited partnership and changed its name
to "Graham Packaging Company" on March 28, 1991. The Operating Company
was formed under the name "Graham Packaging Holdings I, L.P." on
September 21, 1994 as a Delaware limited partnership. The predecessor to
Holdings controlled by the Continuing Graham Partners was formed in the
mid-1970's as a regional domestic custom plastic bottle supplier, using
the proprietary Graham Rotational Wheel.

Upon the Recapitalization, substantially all of the assets and
liabilities of Holdings were contributed to the Operating Company, and
subsequent to the Recapitalization, the primary business activity of
Holdings has consisted of its direct and indirect ownership of 100% of
the partnership interests in the Operating Company. Upon the
Recapitalization, the Operating Company and Holdings changed their names
to "Graham Packaging Company, L.P." and "Graham Packaging Holdings
Company," respectively.

The principal executive offices of the Company are located at 2401
Pleasant Valley Road, York, Pennsylvania 17402, Telephone (717) 849-8500.

The Company is managed in three operating segments: North America,
which includes the United States and Canada; Europe; and Latin America.
Each operating segment includes three major service lines: Automotive,
Food and Beverage, and Household Cleaning and Personal Care.

The Company's customized blow molded rigid plastic bottles are made
primarily from high density polyethylene ("HDPE") and polyethylene
terephthalate ("PET") resins. The Company's customers include many of the
world's largest branded consumer products companies for whom customized
packaging design is a critical component in their efforts to
differentiate their products to the consumer in the (i) automotive, (ii)
food and beverage and (iii) household cleaning and personal care products
businesses. With leading positions in each of its businesses, the Company
has been a major beneficiary of the trend of conversion from glass, paper
and metal containers to plastic packaging and has grown its net sales
over the past 17 years at a compounded annual growth rate ("CAGR") of
over 23%. In contrast to the carbonated soft drink bottle business, the
businesses in which the Company operates are characterized by more
specialized technology, a greater degree of customized packaging, shorter
production runs, higher growth rates and more attractive profit margins.

In order to position itself to further capitalize on the conversion
trend, the Company has made substantial capital expenditures since 1992,
particularly in the fast growing hot-fill PET area for shelf-stable
(i.e., unrefrigerated) beverages. In addition, Management believes, based
on internal estimates, that the Company has distinguished itself as a
leader in locating its manufacturing plants on-site at its customers'
packaging facilities and has over one-third of its 56 facilities at on-
site locations. The many benefits of on-site plants, in addition to the
Company's track record of innovative design, superior customer service
and low cost manufacturing processes, help account for the fact that the

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Company has enjoyed long-standing relationships averaging 16 years with
its top 20 customers. For the year ended December 31, 1999, over 76% of
the Company's net sales were generated by its top 20 customers, the
majority of which were under long-term contracts (i.e., with terms of
between one and ten years) and the remainder of which were customers with
whom the Company has been doing business for over 15 years on average.
For the year ended December 31, 1999, the Company generated net sales and
Adjusted EBITDA (as defined in Note 8 to "Selected Financial Data" (Item
6) below) of $716.1 million and $149.1 million, respectively.

Automotive. The Company is the preeminent supplier of one quart
HDPE motor oil containers in the United States, producing over 1.4
billion units in 1999, which Management believes, based on internal
estimates, represents approximately 73% of the one quart motor oil
containers produced domestically. The Company is a supplier of such
containers to many of the top domestic producers of motor oil, including
Ashland Inc. ("Ashland," producer of Valvoline motor oil), Castrol Inc.
("Castrol"), Chevron Corporation ("Chevron"), Equilon Enterprises LLC
("Equilon", an alliance between Texaco Inc., "Texaco", and Shell Oil
Company, "Shell"), Pennzoil-Quaker State Company ("Pennzoil-Quaker
State", the result of the merger between Pennzoil Products Company,
"Pennzoil", and The Quaker State Corporation, "Quaker State"), and Sun
Company, Inc. ("Sun Company"). Management believes the Company is the
sole supplier of one quart motor oil containers to five of these
producers. The Company also manufactures containers for other automotive
products, such as antifreeze and automatic transmission fluid.
Capitalizing on its leading position in the U.S., the Company has
expanded its operations in Latin America. In Brazil, where Management
believes, based on internal estimates, that the Company is among the
largest independent suppliers of plastic packaging for motor oil, the
Company currently operates five plants. In addition to benefiting from
the conversion to plastic packaging for motor oil in Latin America,
Management believes that the Company will benefit from the general growth
in the automotive business in this region as the number of motor vehicles
per person increases. For the years ended December 31, 1997, 1998 and
1999, the Company generated approximately 37.6%, 32.1% and 29.0%,
respectively, of its net sales from the automotive container business.

Food & Beverage. In the food and beverage business, the Company
produces both HDPE and PET containers for customers for whom customized
packaging design is a critical component of their efforts to
differentiate their products to the consumer. From 1993 through December
31, 1999, the Company grew its food and beverage business at a CAGR of
81%. This substantial growth has been driven by the rapid conversion of
metal, glass and paper containers to plastic bottles, as the superior
functionality, safety and improving economics of plastic became more
apparent and preferred by consumers. The Company is a leader in the
production of HDPE containers for non-carbonated chilled juice and juice
drinks and certain liquid foods that utilize HDPE resins. From 1992
through December 31, 1999, the Company invested over $244 million in
capital expenditures to build a strategic nationwide plant network and to
develop the specialized bottle manufacturing processes necessary to
produce the PET bottles required for the hot-fill packaging of non-
refrigerated, shelf-stable juices and juice drinks. The hot-fill process,
in which bottles are filled at between 180 degrees and 190 degrees
Fahrenheit to kill bacteria, permits the shipment and display of juices

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and juice drinks in a shelf-stable state. The manufacturing process for
hot-fill PET packaging is significantly more demanding than that used for
cold-fill carbonated soft drink containers, and typically involves
shorter production runs, greater shape complexity and close production
integration with customers. The Company's largest customers in the food
and beverage business include Clement-Pappas & Company, Inc. ("Clement-
Pappas"), Groupe Danone ("Danone"), Hershey Foods Corporation
("Hershey's"), Northland Cranberries, Inc. ("Northland Cranberries"),
Ocean Spray Cranberries, Inc. ("Ocean Spray"), The Quaker Oats Company
("Quaker Oats"), Tree Top Inc. ("Tree Top"), Tropicana Products, Inc.
("Tropicana") and Welch Foods, Inc. ("Welch's"). For the years ended
December 31, 1997, 1998 and 1999 the Company generated approximately
28.9%, 37.6% and 45.1%, respectively, of its net sales from the food and
beverage business.

Household Cleaning & Personal Care ("HC/PC"). The Company is a
leading supplier of HDPE custom bottles to the North American HC/PC
products business which includes products such as hair care, liquid
fabric care, dish care and hard surface cleaners. By focusing on its
customized product design capability, the Company provides its HC/PC
customers with a key component in their efforts to differentiate products
on store shelves. The Company's largest customers in this sector include
Colgate-Palmolive Company ("Colgate-Palmolive"), The Dial Corp. ("Dial"),
Henkel KGaA ("Henkel"), Johnson & Johnson ("J&J"), L'Oreal S.A.
("L'Oreal"), The Procter & Gamble Company ("Procter & Gamble") and
Unilever NV ("Unilever"). The Company is pursuing significant growth
opportunities both domestically and internationally associated with the
continued conversion to HDPE packaging of both household cleaners and
personal care products. The Company continues to benefit as liquid fabric
care products, which are packaged in plastic containers, capture an
increased share from powdered detergents, which are predominantly
packaged in cardboard. For the years ended December 31, 1997, 1998 and
1999 the Company generated approximately 33.5%, 30.3% and 25.9%,
respectively, of its net sales from the HC/PC business.

Additional information regarding business segments is provided in
Note 19 of the Notes to Financial Statements.

Products

The Company currently designs, manufactures and sells customized
HDPE and PET blow-molded rigid plastic bottles, thermo-formed rigid
plastic containers and injection molded caps and spouts, primarily for
the automotive, food and beverage and HC/PC products businesses. The
Company's custom packaging involves a high degree of design and
engineering to accommodate complex bottle shapes (e.g., handles, view
stripes, pouring features and customized labeling) and performance and
material requirements (e.g., hot-fill capability, recycled material usage
and multiple layering).

HDPE containers, which are non-transparent, are utilized to package
products such as motor oil, fabric care, dish care, personal care
products, certain food products, chilled juices and juice drinks. The
Company's HDPE containers are designed with custom features, such as
specially designed shapes, handles and pouring spouts which differentiate
customers' products to consumers. Such containers may consist of a single

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layer of plastic or multiple layers for specialized uses. Customers
request multi-layer containers for a variety of reasons, including the
increased differentiation of the packaging (such as oxygen barrier
layering properties), the desire to include recycled materials in the
product's packaging and the reduction of cost by limiting the use of
colorants to a single exterior layer. The Company operates one of the
largest HDPE recycling plants in North America and more than 70% of its
North American HDPE units produced contain post-consumer recycled HDPE
bottles.

PET containers, which are transparent, are utilized for products
where glass-like clarity is valued and that require shelf stability, such
as carbonated soft drinks ("CSD"), juice, juice drinks, isotonics and
teas. CSD producers are the largest users of PET containers, and the
cold-fill manufacturing process used for this application is
characterized by long production runs and standardized technology due to
a low degree of product differentiation through package design. By
contrast, the hot-fill manufacturing process used for the Company's
products is characterized by shorter production runs, high customization
to facilitate greater packaging differentiation and the ability to
withstand the high temperatures under which the containers are filled.

Customers

Substantially all of the Company's sales are made to major branded
consumer products companies and oil companies located across the United
States and in foreign countries. The Company's customers demand a high
degree of packaging design and engineering to accommodate complex bottle
shapes, performance requirements, materials, speed to market and reliable
delivery. As a result, many customers opt for long-term contracts, many
of which have terms of one to ten years. A majority of the Company's top
20 customers are under long-term contracts. The Company's contracts
typically contain provisions allowing for price adjustments based on the
market price of resins and colorants, energy and labor costs, among
others, and contain, in certain cases, the Company's right of first
refusal to meet a competing third party bid to supply the customer.

In many cases, the Company is the sole supplier of its customer's
custom plastic bottle requirements nationally, regionally or for a
specific brand. For the year ended December 31, 1999 the Company had only
one customer (Unilever) that accounted for over 10% of the Company's
total net sales (10.2% for the year ended December 31, 1999). For the
year ended December 31, 1999 the Company's twenty largest customers, who
accounted for over 76% of net sales, were, in alphabetical order:

Customer Business Company Customer
Since
- ----------- -------- ----------------

Ashland Automotive Early 1970's
Castrol Automotive Late 1960's
Chevron Automotive Early 1970's

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Clement Pappas Food & Beverage Mid 1990's
Colgate-Palmolive HC/PC Mid 1980's
Danone Food & Beverage Late 1970's
Dial HC/PC Early 1990's
Equilon Automotive Early 1970's
Hershey's Food & Beverage Mid 1980's
Northland Cranberries Food & Beverage Late 1990's
Ocean Spray Food & Beverage Early 1990's
Pennzoil-Quaker State Automotive Early 1970's
Petrobras Distribuidora S.A. Automotive Early 1990's
Procter & Gamble HC/PC Early 1980's
Quaker Oats Food & Beverage Late 1990's
Sun Company Automotive Early 1960's
Tree Top Food & Beverage Early 1990's
Tropicana Food & Beverage Mid 1980's
Unilever HC/PC, Food & Beverage Early 1970's
Welch's Food & Beverage Early 1990's

These companies include their predecessors, if applicable, and the
dates may reflect customer relationships initiated by predecessors
to the Company or entities acquired by the Company.
Ashland is the producer of Valvoline motor oil.

Foreign Operations

The Company has significant operations outside the United States in
the form of wholly owned subsidiaries, cooperative joint ventures and
other arrangements. The Company has 23 plants located in countries
outside of the United States, including Argentina (3), Brazil (5), Canada
(4), France (4), Germany (1), Hungary (1), Italy (2), Poland (1), Turkey
(1), and the United Kingdom (1).

Brazil, Argentina and Mexico. In Brazil, the Company operates four
on-site plants for motor oil packaging, including for Petrobras
Distribuidora S.A., the national oil company of Brazil. The Company also
operates an off-site plant for its motor oil and agricultural and
chemical businesses. On April 30, 1997, the Company acquired 80% of
certain assets and assumed 80% of certain liabilities of Rheem-Graham
Embalagens Ltda. in Brazil. Graham Packaging do Brasil Industria e
Comercio S.A. ("Graham Packaging do Brasil") is the current name of the
Company's subsidiary in Brazil. In February 1998, the Company acquired
the residual 20% ownership interest in Graham Packaging do Brasil. In
Argentina, the Company has purchased 100% of the capital stock of Dodisa,
S.A., Amerpack, S.A., Lido Plast, S.A. and Lido Plast San Luis, S.A.
(collectively "Lido Plast"). In Mexico, the Company has 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.

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Western Europe. The Company has an on-site plant in Hungary and nine
off-site plants in France, Germany, Italy, Turkey and the United Kingdom,
all for the production of liquid food HDPE containers, HC/PC,
automotive and agricultural chemical products.

Poland. Through Masko Graham Spolka Z.O.O ("Masko Graham Joint
Venture") , a 50% owned joint venture in Poland, the Company manufactures
HDPE bottles for HC/PC and liquid food products.

Competition

The Company faces substantial competition across its product lines
from a number of well-established businesses operating both regionally
and internationally. The Company's primary competitors include Owens-
Illinois, Inc., Ball Corporation, Crown Cork & Seal Company, Inc.,
Consolidated Container Company LLC (which was formed in 1999 by combining
the former Franklin Plastics and Plastic Containers owned by Suiza Foods
Corporation and Reid Plastics), Plastipak, Inc., Silgan Holdings Inc.
(successor to Silgan Corporation), Schmalbach-Lubeca Plastic Containers
USA Inc., American National Can, Inc. and Alpla Werke Alwin Lehner GmbH.
Several of these competitors are larger and have greater financial and
other resources than the Company. Management believes that the Company's
long-term success is largely dependent on its ability to provide superior
levels of service, its speed to market and its ability to develop product
innovations and improve its production technology and expertise through
its applied design and development capability. Other important
competitive factors include rapid delivery of products, production
quality and price.

Marketing and Distribution

The Company's sales are made through its own direct sales force;
agents or brokers are not utilized to conduct sales activities with
customers or potential customers. Sales activities are conducted from the
Company's corporate headquarters in York, Pennsylvania and from field
sales offices located, among other places, in Houston, Texas; Cincinnati,
Ohio; Levittown, Pennsylvania; Burlington, Ontario; Mississauga, Ontario;
Montreal, Quebec; Paris, France; Buenos Aires, Argentina; Rio de Janeiro
and Sao Paulo, Brazil; Milan, Italy and Sulejowek, Poland. The Company's
products are typically delivered by truck, on a daily basis, in order to
meet its customers' just-in-time delivery requirements, except in the
case of on-site operations. In many cases, the Company's on-site
operations are integrated with their customers' manufacturing operations
so that deliveries are made, as needed, by direct conveyance to the
customers' filling lines.

Design and Development

Design and development constitutes an important part of the
Company's competitive advantage both in the design, development and
enhancement of new customized products and in the creation of
manufacturing technologies to improve production efficiency. The Company
is actively involved with its customers in the design and introduction of
new packaging features, including the design of special wheel molds. In
general, extrusion wheel molds are only able to run on the machines for

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which they are built, thus encouraging customers to retain the Company as
their primary packaging provider. Management believes that the Company's
design and development capabilities, coupled with the support of Graham
Engineering in the design of blow molding wheels and recycling systems,
has positioned the Company as the packaging design and development leader
in the industry. Pursuant to the Equipment Sales Agreement, Graham
Engineering will continue to provide engineering, consulting and other
services and sell to the Company certain proprietary blow molding wheels.
Over the past several years, the Company has received and has filed for
numerous patents. See "--The Recapitalization," "--Intellectual
Property"; and "Certain Relationships and Related Transactions--Certain
Business Relationships--Equipment Sales Agreement" (Item 13).

Manufacturing

A critical component of the Company's strategy is to locate its
manufacturing plants on-site, at its largest customers' manufacturing
operations, to provide the highest possible servicing levels, to reduce
expensive shipping and handling charges and to heighten production and
distribution efficiencies. The Company is a leader in providing on-site
manufacturing arrangements, with over a third of its 56 facilities on-
site at customers' facilities. See "Properties" (Item 2). Within its 56
plants, the Company runs over 400 production lines. As necessary, the
Company dedicates particular production lines within a plant to better
service its customers. The Company's plants generally operate 24 hours a
day, five to seven days a week, although not every production line is run
constantly. When customer demand requires, the Company runs its plants
seven days a week.

In the blow molding process used for HDPE applications, resin
pellets are blended with colorants or other necessary additives and fed
into the extrusion machine, which uses heat and pressure to form the
resin into a round hollow tube of molten plastic called a parison. Bottle
molds mounted radially on a wheel capture the parison as it leaves the
extruder. Once inside the mold, air pressure is used to blow the parison
into the bottle shape of the mold. In the 1970's, the Company introduced
the Graham Wheel. The Graham Wheel is a single parison, electro-
mechanical rotary blow molding technology designed for its speed,
reliability and ability to use virgin resins, high barrier resins and
recycled resins simultaneously without difficulty. The Company has
achieved very low production costs, particularly in plants housing Graham
Wheels. While certain of the Company's competitors also use wheel
technology in their production lines, the Company has developed a number
of proprietary improvements which Management believes permit the
Company's wheels to operate at higher speeds and with greater efficiency
in the manufacture of containers with one or more special features, such
as multiple layers and in-mold labeling.

In the stretch blow molding process used for hot-fill PET
applications, resin pellets are fed into a Husky injection molding
machine that uses heat and pressure to mold a test tube shaped parison or
"preform." The preform is then fed into the Sidel blow molder where it is
re-heated to allow it to be formed through a stretch blow molding process
into a final container. During this re-heat and blow process, special
steps are taken to induce the temperature resistance needed to withstand

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high temperatures on customer filling lines. Management believes that the
Husky injection molders and Sidel blow molders used by the Company are
widely recognized as the leading technologies for high speed production
of hot-fill PET containers and have replaced less competitive
technologies used initially in the manufacture of hot-fill PET
containers. Management believes that equipment for the production of
cold-fill containers can be refitted to accommodate the production of
hot-fill containers. However, such refitting has only been accomplished
at a substantial cost and has proven to be substantially less efficient
than the Company's equipment for producing hot-fill PET containers.

The Company maintains a program of quality control with respect to
suppliers, line performance and packaging integrity for its containers.
The Company's production lines are equipped with various types of
automatic inspection machines that electronically inspect containers for
dimensional conformity, flaws and various other performance requirements.
Additionally, product samples are inspected and tested by Company
employees on the production line for proper dimensions and performance
and are also inspected and audited after packaging. Containers that do
not meet quality standards are crushed and recycled as raw materials. The
Company monitors and updates its inspection programs to keep pace with
modern technologies and customer demands. Quality control laboratories
are maintained at each manufacturing facility to test characteristics of
the products and compliance with quality standards.

The Company has highly modernized equipment in its plants,
consisting primarily of the proprietary rotational wheel systems, sold to
the Company by Graham Engineering, and shuttle systems, both of which are
used for HDPE blow molding systems, and Husky/Sidel heat-set stretch blow
molding systems for custom hot-fill juice bottles. The Company is also
pursuing design and development initiatives in barrier and aseptic
technologies to strengthen its position in the food and beverage
business. In the past, the Company has achieved substantial cost savings
in its manufacturing process by productivity and process enhancements,
including increasing line speeds, utilizing recycled products, reducing
scrap and optimizing plastic volume requirements for each product's
specifications. Management estimates that the Company's operating
efficiencies are among the highest in the industry.

Total capital expenditures for 1997, 1998 and 1999 were
approximately $53.2 million, $133.9 million and $171.0 million,
respectively. Management believes that capital investment to maintain
and upgrade property, plant and equipment is important to remain
competitive. Management estimates that the annual capital expenditures
required to maintain the Company's current facilities are currently
approximately $30 million per year. Additional capital expenditures
beyond this amount will be required to expand capacity.

Raw Materials

HDPE and PET resins constitute the primary raw materials used to
manufacture the Company's products. These materials are available from a
number of suppliers, and the Company is not dependent upon any single
supplier for any of these materials. Based on the Company's experience,
Management believes that adequate quantities of these materials will be
available to supply all of its customers' needs, but there can be no

-13-

assurance that they will continue to be available in adequate supply in
the future. In general, the Company's dollar gross profit is
substantially unaffected by fluctuations in resin prices because industry
practice and the Company's contractual arrangements with its customers
permit changes in resin prices to be passed through to customers by means
of corresponding changes in product pricing. In addition, the Company
manages its inventory of HDPE and PET to minimize its exposure to
fluctuations in the price of these resins.

Through its wholly owned subsidiary, Graham Recycling Company, L.P.
("Graham Recycling"), the Company operates one of the largest HDPE bottle
recycling plants in North America, and more than 70% of its North
American HDPE units produced contain recycled HDPE bottles. The recycling
plant is located near the Company's headquarters in York, Pennsylvania.

The Recapitalization

The recapitalization (the "Recapitalization") of Holdings was
consummated on February 2, 1998 pursuant to an Agreement and Plan of
Recapitalization, Redemption and Purchase, dated as of December 18, 1997
(the "Recapitalization Agreement"), by and among (i) Holdings, (ii) the
Graham Partners, and (iii) BMP/Graham Holdings Corporation, a Delaware
corporation ("Investor LP") formed by Blackstone Capital Partners III
Merchant Banking Fund L.P. (together with its affiliates, "Blackstone"),
and BCP/Graham Holdings L.L.C., a Delaware limited liability company and
a wholly owned subsidiary of Investor LP ("Investor GP" and, together
with Investor LP, the "Equity Investors").

On February 2, 1998, as part of the Recapitalization, the Operating
Company and GPC Capital Corp. I ("CapCo I" and, together with the
Operating Company, the "Company Issuers") consummated an offering (the
"Senior Subordinated Offering") pursuant to Rule 144A under the
Securities Act of 1933, as amended (the "Securities Act"), of their
Senior Subordinated Notes Due 2008, consisting of $150,000,000 aggregate
principal amount of their 8 3/4% Senior Subordinated Notes Due 2008,
Series A (the "Fixed Rate Senior Subordinated Old Notes"), and
$75,000,000 aggregate principal amount of their Floating Interest Rate
Subordinated Term Securities Due 2008, Series A ("FIRSTS"SM) (the
"Floating Rate Senior Subordinated Old Notes" and, together with the
Fixed Rate Senior Subordinated Old Notes, the "Senior Subordinated Old
Notes"). ("FIRSTS" is a service mark of DB Alex. Brown LLC (formerly BT
Alex. Brown Incorporated))

On February 2, 1998, as part of the Recapitalization, Holdings and
GPC Capital Corp. II ("CapCo II" and, together with the Holdings, the
"Holdings Issuers", which when referred to with the Company Issuers will
collectively be referred to as the "Issuers") consummated an offering
(the "Senior Discount Offering" and, together with the Senior
Subordinated Offering, the "Offerings") pursuant to Rule 144A under the
Securities Act of $169,000,000 aggregate principal amount at maturity of
their 10 3/4% Senior Discount Notes Due 2009, Series A (the "Senior
Discount Old Notes" and, together with the Senior Subordinated Old Notes,
the "Old Notes").

In connection with the Recapitalization, the Issuers entered into
Registration Rights Agreements with the Initial Purchasers of the Old

-14-

Notes, pursuant to which the Issuers agreed to exchange the respective
issues of Old Notes for Notes having the same terms but registered under
the Securities Act and not containing the restrictions on transfer that
are applicable to the Old Notes.

Pursuant to the related Registration Rights Agreement, on September
8, 1998, the Company Issuers consummated exchange offers (the "Senior
Subordinated Exchange Offers"), pursuant to which the Company Issuers
issued $150,000,000 aggregate principal amount of their 8 3/4% Senior
Subordinated Notes Due 2008, Series B (the "Fixed Rate Senior
Subordinated Exchange Notes"), and $75,000,000 aggregate principal amount
of their Floating Interest Rate Subordinated Term Securities Due 2008,
Series B (the "Floating Rate Senior Subordinated Exchange Notes" and,
together with the Fixed Rate Senior Subordinated Exchange Notes, the
"Senior Subordinated Exchange Notes"), which were registered under the
Securities Act, in exchange for equal principal amounts of Fixed Rate
Senior Subordinated Old Notes and Floating Rate Senior Subordinated Old
Notes, respectively. The Senior Subordinated Old Notes and the Senior
Subordinated Exchange Notes are herein collectively referred to as the
"Senior Subordinated Notes." Pursuant to the applicable Registration
Rights Agreement, on September 8, 1998, the Holdings Issuers consummated
an exchange offer (the "Senior Discount Exchange Offer"), pursuant to
which the Holdings Issuers issued $169,000,000 aggregate principal amount
at maturity of their 10 3/4% Senior Discount Notes Due 2009, Series B
(the "Senior Discount Exchange Notes" and, together with the Senior
Discount Old Notes, the "Senior Discount Notes"), which were registered
under the Securities Act, in exchange for an equal principal amount at
maturity of Senior Discount Old Notes.

The Senior Subordinated Notes were issued under an Indenture dated
as of February 2, 1998 (the "Senior Subordinated Indenture") between the
Company Issuers, Holdings, as guarantor, and United States Trust Company
of New York, as Trustee. The Senior Discount Notes (together with the
Senior Subordinated Notes, the " Notes") were issued under an Indenture
dated as of February 2, 1998 (the "Senior Discount Indenture" and
together with the Senior Subordinated Indenture, the "Indentures")
between the Holdings Issuers and The Bank of New York, as Trustee. The
Senior Subordinated Old Notes were, and the Senior Subordinated Exchange
Notes are, fully and unconditionally guaranteed by Holdings on a senior
subordinated basis.

The other principal components of the Recapitalization included the
following transactions:

- The contribution by Holdings of substantially all of its
assets and liabilities to the Operating Company;

- The contribution by certain Graham Partners to the Operating
Company of their ownership interests in certain partially
owned subsidiaries and certain real estate used but not owned
by Holdings and its subsidiaries (the "Graham Contribution");

- The initial borrowing by the Operating Company of $403.5
million (the "Bank Borrowings") in connection with the New
Credit Agreement by and among the Operating Company, Holdings
and a syndicate of lenders (see "Management's Discussion and

-15-

Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" (Item 7);

- The repayment by the Operating Company of substantially all of
the existing indebtedness and accrued interest of Holdings and
its subsidiaries (approximately $264.9 million);

- The distribution by the Operating Company to Holdings of all
of the remaining net proceeds of the Bank Borrowings and the
Senior Subordinated Offering (other than amounts necessary to
pay certain fees and expenses and payments to Management)
which, in aggregate, were approximately $313.7 million;

- The repayment by the Graham Partners of $21.2 million owed to
Holdings under certain promissory notes;

- The redemption by Holdings of certain partnership interests in
Holdings held by the Graham Partners for $429.6 million;

- The purchase by the Equity Investors of certain partnership
interests in Holdings held by the Graham Partners for $208.3
million; and

- The payment of certain bonuses and other cash payments and the
granting of certain equity awards to senior and middle level
Management.

Upon the consummation of the Recapitalization, Investor LP owned an
81% limited partnership interest in Holdings, Investor GP owned a 4%
general partnership interest in Holdings, and the Continuing Graham
Partners retained a 1% general partnership interest and a 14% limited
partnership interest in Holdings. Upon the consummation of the
Recapitalization, Holdings owned a 99% limited partnership interest in
the Operating Company, and GPC Opco GP LLC ("Opco GP"), a wholly owned
subsidiary of Holdings, owned a 1% general partnership interest in the
Operating Company. Following the consummation of the Recapitalization,
certain members of Management owned an aggregate of approximately 3% of
the outstanding common stock of Investor LP, which constitutes
approximately a 2.6% interest in Holdings. In addition, an affiliate of
DB Alex. Brown LLC and Deutsche Bank AG (which acted as Initial
Purchasers of the Old Notes in the Offerings) acquired approximately a
4.8% equity interest in Investor LP. See "Security Ownership of Certain
Beneficial Owners and Management" (Item 12).

CapCo I, a wholly owned subsidiary of the Operating Company, and
CapCo II, a wholly owned subsidiary of Holdings, were incorporated in
Delaware in January 1998. The sole purpose of CapCo I is to act as co-
obligor of the Senior Subordinated Notes and as co-borrower under the New
Credit Agreement. The sole purpose of CapCo II is to act as co-obligor of
the Senior Discount Notes and as co-guarantor with Holdings under the New
Credit Agreement. CapCo I and CapCo II have only nominal assets, do not
conduct any operations and did not receive any proceeds of the Offerings.
Accordingly, investors in the Notes must rely on the cash flow and assets
of the Operating Company or the cash flow and assets of Holdings, as the
case may be, for payment of the Notes.

-16-

Pursuant to the Recapitalization Agreement, the Graham Partners
have agreed that neither they nor their affiliates will, subject to
certain exceptions, for a period of five years from and after the
Closing, engage in the manufacture, assembly, design, distribution or
marketing for sale of rigid plastic containers for the packaging of
consumer products less than ten liters in volume.

The Recapitalization Agreement contains various representations,
warranties, covenants and conditions. The representations and warranties
generally did not survive the Closing. The Graham Partners have agreed to
indemnify Holdings in respect of any claims by Management with respect to
the adequacy of the Management awards and, subject to a limit of $12.5
million on payments by the Graham Partners, 50% of certain specified
environmental costs in excess of $5.0 million.

Pursuant to the Recapitalization Agreement, upon the Closing,
Holdings entered into the Equipment Sales Agreement, the Consulting
Agreement and Partners Registration Rights Agreement (each as defined)
described under "Certain Relationships and Related Transactions" (Item
13).

SUMMARY OF SOURCES AND USES OF FUNDS

The following table sets forth a summary of the sources and uses of
the funds associated with the Recapitalization.

AMOUNT
------
(In Millions)

SOURCE OF FUNDS:
Bank Borrowings $403.5
Senior Subordinated Notes 225.0
Senior Discount Notes 100.6
Equity investments and retained equity 245.0
Repayment of Promissory notes 21.2
Available cash 1.7
------

Total $997.0
======

USES OF FUNDS:
Repayment of existing indebtedness $264.9
Redemption by Holdings of existing partnership interests 429.6
Purchase by Equity Investors of existing partnership
interests 208.3
Partnership interests retained by Continuing Graham
Partners 36.7
Payments to Management 15.4
Transaction costs and expenses 42.1
------
Total $997.0
======

-17-

Included $150.0 million of Fixed Rate Senior Subordinated Old Notes
and $75.0 million of Floating Rate Senior Subordinated Old Notes.
Included a $208.3 million equity investment made by Blackstone and
Management in the Equity Investors and a $36.7 million retained
partnership interest of the Continuing Graham Partners. In
addition, an affiliate of DB Alex. Brown LLC and Bankers Trust
International PLC, two of the Initial Purchasers, acquired
approximately a 4.8% equity interest in Investor LP. See "Security
Ownership of Certain Beneficial Owners and Management" (Item 12).
Included $264.5 million of existing indebtedness and $0.4 million
of accrued interest.

Employees

As of December 31, 1999, the Company had approximately 4,000
employees, 2,300 of which were located in the United States.
Approximately 80% of the Company's employees are hourly wage employees,
42% of whom are represented by various labor unions and are covered by
various collective bargaining agreements that expire between March 2000
and April 2004. During the past three years, the Company's subsidiary in
France, Graham Packaging France, S.A.S., has experienced on several
occasions labor stoppages, none of which exceeded one day in duration.
Management believes that it enjoys good relations with the Company's
employees.

Environmental Matters

The Company and its operations, both in the U.S. and abroad, are
subject to national, state, provincial and/or local laws and regulations
that impose limitations and prohibitions on the discharge and emission
of, and establish standards for the use, disposal, and management of,
certain materials and waste, and impose liability for the costs of
investigating and cleaning up, and certain damages resulting from,
present and past spills, disposals, or other releases of hazardous
substances or materials (collectively, "Environmental Laws").
Environmental Laws can be complex and may change often, capital and
operating expenses to comply can be significant, and violations may
result in substantial fines and penalties. In addition, Environmental
Laws such as the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA" also known as "Superfund") in the United States,
impose liability on several grounds for the investigation and cleanup of
contaminated soil, groundwater, and buildings, and for damages to natural
resources, at a wide range of properties: for example, contamination at
properties formerly owned or operated by the Company as well as at
properties the Company currently owns or operates, and properties to
which hazardous substances were sent by the Company, may result in
liability for the Company under Environmental Laws. The Company is not
aware of any material noncompliance with the Environmental Laws currently
applicable to it and is not the subject of any material claim for
liability with respect to contamination at any location. For its
operations to comply with Environmental Laws, the Company has incurred

-18-

and will continue to incur costs, which were not material in fiscal 1999
and are not expected to be material in the future.

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 plastic wastes disposed of. Such programs
have included, for example, mandating certain rates of recycling and/or
the use of recycled materials, imposing deposits or taxes on plastic
packaging material, and/or requiring retailers or manufacturers to take
back packaging used for their products. Such legislation, as well as
voluntary initiatives similarly aimed at reducing the level of plastic
wastes, could reduce the demand for certain plastic packaging, result in
greater costs for plastic packaging manufacturers, or otherwise impact
the Company's business. Some consumer products companies (including
certain customers of the Company) have responded to these governmental
initiatives and to perceived environmental concerns of consumers by, for
example, using bottles made in whole or in part of recycled plastic. The
Company operates one of the largest HDPE recycling plants in North
America and more than 70% of its North American HDPE units produced
contain recycled HDPE bottles. To date these initiatives and developments
have not materially or adversely affected the Company.

Intellectual Property

The Company holds various patents and trademarks. While in the
aggregate its patents are of material importance to its business, the
Company believes that its business is not dependent upon any one of such
patents or trademarks. The Company also relies on unpatented proprietary
know-how and continuing technological innovation and other trade secrets
to develop and maintain its competitive position. There can be no
assurance, however, that others will not obtain knowledge of such
proprietary know-how through independent development or other access by
legal means. In addition to its own patents and proprietary know-how, the
Company is a party to certain licensing arrangements and other agreements
authorizing the Company to use certain other proprietary processes, know-
how and related technology and/or to operate within the scope of certain
patents owned by other entities. The Company also has licensed or sub-
licensed certain intellectual property rights to third parties.

Certain Risks of the Business

Substantial Leverage. Upon the consummation of the
Recapitalization, the Operating Company and Holdings became highly
leveraged. The New Credit Agreement, as amended by the Amendment (as
defined below), includes four term loans to the Operating Company
totaling up to $570.0 million, a $155.0 million Revolving Credit
Facility, and a $100.0 million Growth Capital Revolving Credit Facility.
The Indentures (as defined) permit the Issuers to incur additional
indebtedness, subject to certain limitations. The annual debt service
requirements for the Company are as follows: 2000--$24.4 million; 2001--
$21.1 million; 2002--$25.7 million; 2003--$28.1 million; and 2004--$186.1
million. The Company can incur $75 million in additional indebtedness
beyond the amount of the New Credit Agreement. The Company does not
anticipate that this additional indebtedness would be expressly
subordinated to other indebtedness. Accordingly, if incurred at the

-19-

Operating Company level, such additional indebtedness would be senior to
the Operating Company's Senior Subordinated Notes, and the Senior
Discount Notes of Holdings would be structurally subordinated to such
additional indebtedness.

The Issuers' high degree of leverage could have important
consequences to the holders of the Notes, including, but not limited to,
the following: (i) the Issuers' ability to obtain additional financing
for working capital, capital expenditures, acquisitions, general
corporate purposes or other purposes may be impaired in the future; (ii)
a substantial portion of the Issuers' cash flow from operations must be
dedicated to the payment of principal and interest on their indebtedness,
thereby reducing the funds available to the Issuers for other purposes,
including capital expenditures necessary for maintenance of the Company's
facilities and for the growth of its businesses; (iii) certain of the
Issuers' borrowings are and will continue to be at variable rates of
interest, which exposes the Issuers to the risk of increased interest
rates; (iv) the indebtedness outstanding under the New Credit Agreement
is secured and matures prior to the maturity of the Notes; (v) the
Issuers may be substantially more leveraged than certain of their
competitors, which may place the Issuers at a competitive disadvantage;
and (vi) the Issuers' substantial degree of leverage, as well as the
covenants contained in the Indentures and the New Credit Agreement, may
hinder their ability to adjust rapidly to changing market conditions and
could make them more vulnerable in the event of a downturn in general
economic conditions or in their business.

Ability to Service Debt. The Issuers' ability to make scheduled
payments or to refinance their obligations with respect to their
indebtedness will depend on their financial and operating performance,
which, in turn, is subject to prevailing economic conditions and to
certain financial, business and other factors beyond their control. If
the Issuers' cash flow and capital resources are insufficient to fund
their respective debt service obligations, they may be forced to reduce
or delay planned expansion and capital expenditures, sell assets, obtain
additional equity capital or restructure their debt. There can be no
assurance that the Issuers' operating results, cash flow and capital
resources will be sufficient for payment of their indebtedness. In the
absence of such operating results and resources, the Issuers could face
substantial liquidity problems and might be required to dispose of
material assets or operations to meet their respective debt service and
other obligations, and there can be no assurance as to the timing of such
sales or the proceeds which the Issuers could realize therefrom. In
addition, because the Operating Company's obligations under the New
Credit Agreement will bear interest at floating rates, an increase in
interest rates could adversely affect, among other things, the Operating
Company's ability to meet its debt service obligations. In the future,
the Operating Company will be required to make the following scheduled
principal payments on the Term Loans under the New Credit Agreement:
2000--$15.0 million; 2001--$20.0 million; 2002--$25.0 million; 2003--
$27.5 million; 2004--$93.0 million; 2005--$64.9 million; 2006--$242.7
million; and 2007--$74.0 million. The Term Loan Facilities under the New
Credit Agreement shall be prepaid, subject to certain conditions and
exceptions, with (i) 100% of the net proceeds of any incurrence of
indebtedness, subject to certain exceptions, by Holdings or its
subsidiaries, (ii) 75% of the net proceeds of issuances of equity,

-20-

subject to certain exceptions, after the Closing by Holdings or any of
its subsidiaries, (iii) 100% of the net proceeds of certain asset
dispositions, (iv) 50% of the annual excess cash flow (as such term is
defined in the New Credit Agreement) of Holdings and its subsidiaries on
a consolidated basis and (v) 100% of the net proceeds from any
condemnation and insurance recovery events, subject to certain
reinvestment rights. Outstanding balances under the Revolving Credit
Facility and Growth Capital Revolving Credit Facility are payable in
2004.

Additionally, if the Issuers were to sustain a decline in their
operating results or available cash, they could experience difficulty in
complying with the covenants contained in the New Credit Agreement, the
Indentures or any other agreements governing future indebtedness. The
failure to comply with such covenants could result in an event of default
under these agreements, thereby permitting acceleration of such
indebtedness as well as indebtedness under other instruments that contain
cross-acceleration and cross-default provisions.

Holding Company Structure; Structural Subordination of Senior
Discount Exchange Notes. Holdings is a holding company which has no
significant assets other than its direct and indirect partnership
interests in the Operating Company. CapCo II, a wholly owned subsidiary
of Holdings, was formed for the purpose of serving as a co-issuer of the
Senior Discount Notes and has no operations or assets from which it will
be able to repay the Senior Discount Notes. Accordingly, the Holdings
Issuers must rely entirely upon distributions from the Operating Company
to generate the funds necessary to meet their obligations, including the
payment of Accreted Value or principal and interest on the Senior
Discount Notes. The Senior Subordinated Indenture and the New Credit
Agreement contain significant restrictions on the ability of the
Operating Company to distribute funds to Holdings. There can be no
assurance that the Senior Subordinated Indenture, the New Credit
Agreement or any agreement governing indebtedness that refinances such
indebtedness or other indebtedness of the Operating Company will permit
the Operating Company to distribute funds to Holdings in amounts
sufficient to pay the Accreted Value or principal or interest on the
Senior Discount Notes when the same become due (whether at maturity, upon
acceleration or otherwise).

The only significant assets of Holdings are its partnership
interests in the Operating Company. All such interests are pledged by
Holdings as collateral under the New Credit Agreement. Therefore, if
Holdings were unable to pay the Accreted Value or principal or interest
on the Senior Discount Notes, the ability of the holders of the Senior
Discount Notes to proceed against the partnership interests of the
Operating Company to satisfy such amounts would be subject to the prior
satisfaction in full of all amounts owing under the New Credit Agreement.
Any action to proceed against such partnership interests by or on behalf
of the holders of Senior Discount Notes would constitute an event of
default under the New Credit Agreement entitling the lenders thereunder
to declare all amounts owing thereunder to be immediately due and
payable, which event would in turn constitute an event of default under
the Senior Subordinated Indenture, entitling the holders of the Senior
Subordinated Notes to declare the principal and accrued interest on the
Senior Subordinated Notes to be immediately due and payable. In addition,

-21-

as secured creditors, the lenders under the New Credit Agreement would
control the disposition and sale of the Operating Company partnership
interests after an event of default under the New Credit Agreement and
would not be legally required to take into account the interests of
unsecured creditors of Holdings, such as the holders of the Senior
Discount Notes, with respect to any such disposition or sale. There can
be no assurance that the assets of Holdings after the satisfaction of
claims of its secured creditors would be sufficient to satisfy any
amounts owing with respect to the Senior Discount Notes.

The Senior Discount Notes will be effectively subordinated to all
existing and future claims of creditors of Holdings' subsidiaries,
including the lenders under the New Credit Agreement, the holders of the
Senior Subordinated Notes and trade creditors. As described above, the
rights of the Holdings Issuers and their creditors, including the holders
of the Senior Discount Notes, to realize upon the assets of Holdings or
any of its subsidiaries upon any such subsidiary's liquidation (and the
consequent rights of the holders of the Senior Discount Notes to
participate in the realization of those assets) will be subject to the
prior claims of the lenders under the New Credit Agreement and the
creditors of Holdings' subsidiaries including in the case of the
Operating Company, the lenders under the New Credit Agreement and the
holders of the Senior Subordinated Notes. In such event, there may not be
sufficient assets remaining to pay amounts due on any or all of the
Senior Discount Notes then outstanding. Under the New Credit Agreement,
the Operating Company is subject to restrictions on the payment of
dividends or other distributions to Holdings; provided that, subject to
certain limitations, the Operating Company may pay dividends or other
distributions to Holdings (i) in respect of overhead, tax liabilities,
legal, accounting and other professional fees and expenses, (ii) to fund
purchases and redemptions of equity interests of Holdings or Investor LP
held by then present or former officers or employees of Holdings, the
Operating Company or their Subsidiaries (as defined) or by any employee
stock ownership plan upon such person's death, disability, retirement or
termination of employment or other circumstances with certain annual
dollar limitations and (iii) to finance, starting on July 15, 2003, the
payment of cash interest payments on the Senior Discount Notes.

The Senior Subordinated Notes and all amounts owing under the New
Credit Agreement will mature prior to the maturity of the Senior Discount
Notes. The Senior Discount Indenture requires that any agreements
governing indebtedness that refinances the Senior Subordinated Notes or
the New Credit Agreement not contain restrictions on the ability of the
Operating Company to make distributions to Holdings that are more
restrictive than those contained in the Senior Subordinated Indenture or
the New Credit Agreement, respectively. There can be no assurance that if
the Operating Company is required to refinance the Senior Subordinated
Notes or any amounts under the New Credit Agreement, it will be able to
do so upon acceptable terms, if at all.

Subordination of Senior Subordinated Notes and Holdings Guarantee.
The Senior Subordinated Notes are unsecured obligations of the Company
Issuers that are subordinated in right of payment to all Senior
Indebtedness of the Company Issuers, including all indebtedness under the
New Credit Agreement. The Indentures and the New Credit Agreement will
permit the Operating Company to incur additional Senior Indebtedness,

-22-

provided that certain conditions are met, and the Operating Company
expects from time to time to incur additional Senior Indebtedness. In the
event of the insolvency, liquidation, reorganization, dissolution or
other winding up of the Company Issuers or upon a default in payment with
respect to, or the acceleration of, or if a judicial proceeding is
pending with respect to any default under, any Senior Indebtedness, the
lenders under the New Credit Agreement and any other creditors who are
holders of Senior Indebtedness must be paid in full before a holder of
the Senior Subordinated Notes may be paid. Accordingly, there may be
insufficient assets remaining after such payments to pay principal or
interest on the Senior Subordinated Notes. In addition, under certain
circumstances, no payments may be made with respect to the principal of
or interest on the Senior Subordinated Notes if a default exists with
respect to certain Senior Indebtedness. CapCo I, a wholly owned
subsidiary of the Operating Company, was formed solely for the purpose of
serving as a co-issuer of the Senior Subordinated Notes and has no
operations or assets from which it will be able to repay the Senior
Subordinated Notes. Accordingly, the Company Issuers must rely entirely
upon the cash flow and assets of the Operating Company to generate the
funds necessary to meet their obligations, including the payment of
principal and interest on the Senior Subordinated Notes.

The Senior Subordinated Notes are fully and unconditionally
guaranteed by Holdings on a senior subordinated basis. The Holdings
Guarantee is subordinated to all senior indebtedness of Holdings and
effectively subordinated to all indebtedness and other liabilities
(including but not limited to trade payables) of Holdings' subsidiaries.
Because the Holdings Guarantee will be subordinated in right of payment
to all senior indebtedness of Holdings and effectively subordinated to
all indebtedness and other liabilities (including trade payables) of
Holdings' subsidiaries (including the Operating Company), investors
should not rely on the Holdings Guarantee in evaluating an investment in
the Senior Subordinated Exchange Notes.

Restrictive Debt Covenants. The New Credit Agreement and the
Indentures contain a number of significant covenants that, among other
things, restrict the ability of the Issuers to dispose of assets, repay
other indebtedness, incur additional indebtedness, pay dividends, prepay
subordinated indebtedness (including, in the case of the New Credit
Agreement, the Notes), incur liens, make capital expenditures and make
certain investments or acquisitions, engage in mergers or consolidations,
engage in certain transactions with affiliates and otherwise restrict the
activities of the Issuers. In addition, under the New Credit Agreement,
the Operating Company is required to satisfy specified financial ratios
and tests. The ability of the Operating Company to comply with such
provisions may be affected by events beyond the Operating Company's
control, and there can be no assurance that the Operating Company will
meet those tests. The breach of any of these covenants could result in a
default under the New Credit Agreement. In the event of any such default,
depending upon the actions taken by the lenders, the Issuers could be
prohibited from making any payments of principal or interest on the
Notes. In addition, the lenders could elect to declare all amounts
borrowed under the New Credit Agreement, together with accrued interest,
to be due and payable and could proceed against the collateral securing
such indebtedness. If the Senior Indebtedness were to be accelerated,
there can be no assurance that the assets of the Operating Company would

-23-

be sufficient to repay in full that indebtedness and the other
indebtedness of the Operating Company.

Risks Associated with International Operations. The Company has
significant operations outside the United States in the form of wholly
owned subsidiaries, cooperative joint ventures and other arrangements.
The Company has 23 plants located in countries outside of the United
States, including Argentina (3), Brazil (5), Canada (4), France (4),
Germany (1), Hungary (1), Italy (2), Poland (1), Turkey (1), and the
United Kingdom (1). As a result, the Company is subject to risks
associated with operating in foreign countries, including fluctuations in
currency exchange rates (recently in Brazil in particular), imposition of
limitations on conversion of foreign currencies into dollars or
remittance of dividends and other payments by foreign subsidiaries,
imposition or increase of withholding and other taxes on remittances and
other payments by foreign subsidiaries, labor relations problems,
hyperinflation in certain foreign countries and imposition or increase of
investment and other restrictions by foreign governments or the
imposition of environmental or employment laws. In addition, the
Company's operations in France have undergone extensive restructuring
over the past three years and have been less profitable than its other
businesses. To date, the above factors in Europe, North America and Latin
America have not had a material impact on the Company's operations, but
no assurance can be given that such risks will not have a material
adverse effect on the Company in the future.

Exposure to Fluctuations in Resin Prices and Dependence on Resin
Supplies. The Company uses large quantities of HDPE and PET resins in
manufacturing its products. While the Company historically has been able
to pass through changes in the cost of resins to its customers due to
contractual provisions and standard industry practice, the Company may
not be able to do so in the future and significant increases in the price
of resin could adversely affect the Company's operating margins and
growth plans. Furthermore, a significant increase in resin prices could
slow the pace of conversions from paper, glass and metal containers to
plastic containers to the extent that such costs are passed on to the
consumer.

Dependence on Significant Customer. The Company's largest customer
(Unilever) accounted for approximately 10% of the Company's net sales for
the twelve months ended December 31, 1999. The termination by such
customer of its relationship with the Company could have a material
adverse effect upon the Company's business, financial position or results
of operations. The Company's existing customers' purchase orders and
contracts typically vary from one to ten years. Prices under these
arrangements are tied to market standards and therefore vary with market
conditions. The contracts generally are requirements contracts which do
not obligate the customer to purchase any given amount of product from
the Company. Accordingly, notwithstanding the existence of certain supply
contracts, the Company faces the risk that customers will not purchase
the amounts expected by the Company pursuant to such supply contracts.

Dependence on Key Personnel. The success of the Company depends to
a large extent on a number of key employees, and the loss of the services
provided by them could have a material adverse effect on the Company. In
particular, the loss of the services provided by G. Robinson Beeson,

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Scott G. Booth, John E. Hamilton, Philippe LeJeune, Geoffrey R. Lu, Roger
M. Prevot, George W. Stevens and Philip R. Yates, among others, could
have a material adverse effect on the Company. The Company does not
maintain "key" person insurance on any of its senior employees.

Relationship with Graham Affiliates. The relationship of the
Company with Graham Engineering and Graham Capital Corporation ("Graham
Capital"), or their successors or assigns, is material to the business of
the Company. To date, certain affiliates of the Graham Partners have
provided important equipment, technology and services to Holdings and its
subsidiaries. Upon the Recapitalization, Holdings entered into the
Equipment Sales Agreement (as defined) with Graham Engineering, pursuant
to which Graham Engineering will provide the Company with the Graham
Wheel and related technical support, and the Consulting Agreement (as
defined) with Graham Capital, pursuant to which Graham Capital will
provide the Company with certain consulting services. The obligations of
Holdings to make payments to the Graham affiliates under the Equipment
Sales Agreement and the Consulting Agreement would be unsubordinated
obligations of Holdings. Accordingly, such obligations would be pari
passu with the Senior Discount Notes and would be structurally
subordinated to the Senior Subordinated Notes. If any such agreements
were terminated prior to their scheduled terms or if the relevant Graham
affiliate fails to comply with any such agreement, the business,
financial condition and results of operations of the Company could be
materially and adversely affected.

Fraudulent Conveyance. In connection with the Recapitalization,
the Operating Company made a distribution to Holdings of $313.7 million
of the net proceeds of the Senior Subordinated Offering and the Bank
Borrowings, and Holdings redeemed certain partnership interests held by
the Graham Partners for $429.6 million (without giving effect to payment
by the Graham Partners of $21.2 million owed to Holdings under certain
promissory notes). If a court in a lawsuit brought by an unpaid creditor
of one of the Issuers or a representative of such creditor, such as a
trustee in bankruptcy, or one of the Issuers as a debtor-in-possession,
were to find under relevant federal and state fraudulent conveyance
statutes that such Issuer had (a) actual intent to defraud or (b) did not
receive fair consideration or reasonably equivalent value for the
distribution from the Operating Company to Holdings or for incurring the
debt, including the Notes, in connection with the financing of the
Recapitalization, and that, at the time of such incurrence, such Issuer
(i) was insolvent, (ii) was rendered insolvent by reason of such
incurrence, (iii) was engaged in a business or transaction for which the
assets remaining with such Issuer constituted unreasonably small capital
or (iv) intended to incur, or believed that it would incur, debts beyond
its ability to pay such debts as they matured, such court could void such
Issuer's obligations under the Notes, subordinate the Notes to other
indebtedness of such Issuer or take other action detrimental to the
holders of the Notes.

The measure of insolvency for these purposes varies depending upon
the law of the jurisdiction being applied. Generally, however, a company
would be considered insolvent for these purposes if the sum of the
company's debts (including contingent debts) were greater than the fair
saleable value of all the company's property, or if the present fair
saleable value of the company's assets were less than the amount that

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would be required to pay its probable liability on its existing debts as
they become absolute and matured. Moreover, regardless of solvency or the
adequacy of consideration, a court could void an Issuer's obligations
under the Notes, subordinate the Notes to other indebtedness of such
Issuer or take other action detrimental to the holders of the Notes if
such court determined that the incurrence of debt, including the Notes,
was made with the actual intent to hinder, delay or defraud creditors.

The Issuers believe that the indebtedness represented by the Notes
was incurred for proper purposes and in good faith without any intent to
hinder, delay or defraud creditors, that the Issuers received reasonably
equivalent value or fair consideration for incurring such indebtedness,
that the Issuers were prior to the issuance of the Notes and, after
giving effect to the issuance of the Notes and the use of proceeds in
connection with the Recapitalization, continued to be, solvent under the
applicable standards (notwithstanding the negative net worth and
insufficiency of earnings to cover fixed charges for accounting purposes
that will result from the Recapitalization) and that the Issuers have and
will have sufficient capital for carrying on their businesses and are and
will be able to pay their debts as they mature. There can be no
assurance, however, as to what standard a court would apply in order to
evaluate the parties' intent or to determine whether the Issuers were
insolvent at the time, or rendered insolvent upon consummation, of the
Recapitalization or the sale of the Notes or that, regardless of the
method of valuation, a court would not determine that an Issuer was
insolvent at the time, or rendered insolvent upon consummation, of the
Recapitalization.

In rendering their opinions in connection with the Offerings,
counsel for the Issuers and counsel for the Initial Purchasers did not
express any opinion as to the applicability of federal or state
fraudulent conveyance laws.

Control by Blackstone. Since the consummation of the
Recapitalization, Blackstone has indirectly controlled approximately 80%
of the general partnership interests in Holdings. Pursuant to the
Holdings Partnership Agreement (as defined), holders of a majority of the
general partnership interests generally have the sole power, subject to
certain exceptions, to take actions on behalf of Holdings, including the
appointment of management and the entering into of mergers, sales of
substantially all assets and other extraordinary transactions. There can
be no assurance that the interests of Blackstone will not conflict with
the interests of holders of the Notes.

Risks Associated with Possible Future Acquisitions. The Company's
future growth may be a function, in part, of acquisitions of other
consumer goods packaging businesses. To finance such acquisitions, the
Operating Company or Holdings would likely incur additional indebtedness,
as permitted under the New Credit Agreement and the Indentures. To the
extent that it grows through acquisition, the Company will face the
operational and financial risks commonly encountered with such a
strategy. The Company would face certain operational risks, including but
not limited to failing to assimilate the operations and personnel of the
acquired businesses, disrupting the Company's ongoing business,
dissipating the Company's limited management resources and impairing
relationships with employees and customers of the acquired business as a

-26-

result of changes in ownership and management. Customer satisfaction or
performance problems at a single acquired firm could have a materially
adverse impact on the reputation of the Company as a whole. Depending on
the size of the acquisition, it can take up to two to three years to
completely integrate an acquired business into the acquiring company's
operations and systems and realize the full benefit of the integration.
Moreover, during the early part of this integration period, the operating
results of the acquiring business may decrease from results attained
prior to the acquisition. The Company would also face certain financial
risks associated with the incurring of additional indebtedness to make
the acquisition, such as reducing its liquidity, access to capital
markets and financial stability.

Item 2. Properties

The Company currently owns or leases 56 plants located in the
United States, Canada, Brazil, Argentina, France, Germany, Hungary,
Italy, Poland, Turkey and the United Kingdom. Nineteen of the Company's
packaging plants are located on-site at customer plants. The Company's
operation in Poland is pursuant to a joint venture arrangement where the
Company owns a 50% interest. In 1999, the Company consolidated and
relocated its headquarters to a 58,144 square foot facility located in
York, Pennsylvania. The Company believes that its plants, which are of
varying ages and types of construction, are in good condition, are
suitable for the Company's operations and generally provide sufficient
capacity to meet the Company's requirements for the foreseeable future.

The following table sets forth the location of the Company's plants
and administrative facilities, whether on-site or off-site, whether
leased or owned, and their approximate current square footage.

On Site Size
Location Or Off Site Leased/Owned (Sq. ft.)
- -------- ----------- ------------ ---------

U.S. Packaging Facilities
1. York, Pennsylvania Off Site Owned 395,554
2. York, Pennsylvania Off Site Leased 110,270
York, Pennsylvania N/A Leased 58,144
3. Maryland Heights, Missouri Off Site Owned 308,961
4. Atlanta, Georgia On Site Leased 165,000
5. Atlanta, Georgia Off Site Leased 112,400
6. Emigsville, Pennsylvania Off Site Leased 148,300
7. Levittown, Pennsylvania Off Site Leased 148,000
8. Rancho Cucamonga, California Off Site Leased 143,063
9. Santa Ana, California Off Site Owned 127,680
10. Muskogee, Oklahoma Off Site Leased 125,000
11. Woodridge, Illinois Off Site Leased 124,137
12. Cincinnati, Ohio Off Site Leased 111,669
13. Berkeley, Missouri Off Site Owned 75,000
14. Selah, Washington On Site Owned 170,553
15. Cambridge, Ohio On Site Leased 57,000
16. Shreveport, Louisiana On Site Leased 56,400
17. Richmond, California Off Site Leased 54,985

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18. Houston, Texas Off Site Owned 52,500
19. New Kensington, Pennsylvania On Site Leased 48,000
20. Bradford, Pennsylvania Off Site Leased 90,350
21. Port Allen, Louisiana On Site Leased 44,000
22. N. Charleston, South Carolina On Site Leased 40,000
23. Jefferson, Louisiana On Site Leased 58,799
24. Vicksburg, Mississippi On Site Leased 31,200
25. Bordentown, New Jersey On Site Leased 30,000
26. Tulsa, Oklahoma On Site Leased 28,500
27. Wapato, Washington Off Site Leased 20,300
28. Bradenton, Florida On Site Leased 12,191
29. Darlington, South Carolina On Site Leased 43,200
30. Holland, Michigan Off Site Leased 168,128
31. Lakeland, Florida Off Site Leased 35,000
32. Rancho Cucamonga, California Off Site Leased 11,328

Canadian Packaging Facilities
33. Burlington, Ontario, Canada Off Site Owned 145,200
Burlington, Ontario, Canada N/A Owned 4,800
34. Mississauga, Ontario, Canada Off Site Owned 78,416
35. Anjou, Quebec, Canada Off Site Owned 44,875
36. Toronto, Ontario, Canada On Site N/A 5,000

European Packaging Facilities
37. Assevent, France Off Site Owned 186,470
38. Bad Bevensen, Germany Off Site Owned/Leased 80,000
39. Blyes, France Off Site Owned 89,000
40. Campochiaro, Italy Off Site Owned 93,200
41. Istanbul, Turkey Off Site Owned 50,000
42. Meaux, France Off Site Owned 80,000
43. Noeux-les-Mines, France Off Site Owned 120,000
44. Nyirbator, Hungary On Site Leased 5,000
Rueil, Paris, France N/A Leased 4,300
45. Sovico (Milan), Italy Off Site Leased 74,500
46. Sulejowek, Poland Off Site Owned 83,700
47. Wrexham UK Off Site Owned 120,000

Latin American Packaging Facilities
48. Sao Paulo, Brazil Off Site Leased 69,892
49. Rio de Janeiro, Brazil On Site Owned/Leased 22,604
Rio de Janeiro, Brazil N/A Leased 1,650
50. Santos, Brazil On Site Leased 5.800
51. Rio de Janeiro, Brazil On Site N/A 11,000
52. Rio de Janeiro, Brazil On Site Leased 16,685
53. Buenos Aires, Argentina Off Site Leased 15,791
54. Buenos Aires, Argentina Off Site Owned 33,524
55. San Luis, Argentina Off Site Owned 80,000

Graham Recycling
56. York, Pennsylvania Off Site Owned 44,416
____________________

This indicates an administrative facility
This facility is owned by the Masko-Graham Joint Venture, in which
the Company holds a 50% interest

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The building is owned; land is leased
These facilities are leased by PlasPET Florida, Ltd., in which the
Company (through Sub GP) holds a 51% interest

Substantially all domestic tangible and intangible assets of the Company
are pledged as collateral pursuant to the terms of the New Credit
Agreement and Amendment.

Contributed to the Operating Company as part of the Graham
Contribution. With respect to the Berkeley, Missouri facility
(Location 13 in the table above), a manufacturing plant, warehouse
and parcel of land, the latter two of which are not listed in the
table above, were contributed to the Operating Company as part of
the Graham Contribution.

Item 3. Legal Proceedings

The Company is party to various litigation matters arising in the
ordinary course of business. The ultimate legal and financial liability
of the Company with respect to such litigation cannot be estimated with
certainty, but Management believes, based on its examination of such
matters, experience to date and discussions with counsel, that such
ultimate liability will not be material to the business, financial
condition or results of operations of the Company.

Holdings was sued in May 1995 for alleged patent infringement,
trade secret misappropriation and other related state law claims by
Hoover Universal, Inc., a subsidiary of Johnson Controls, Inc. ("JCI"),
in the U.S. District Court for the Central District of California, Case
No. CV-95-3331 RAP (BQRx). JCI alleged that the Company was
misappropriating or threatened to misappropriate trade secrets allegedly
owned by JCI relating to the manufacture of hot-fill PET plastic
containers through the hiring of JCI employees, and alleged that the
Company infringed two patents owned by JCI by manufacturing hot-fill PET
plastic containers for several of its largest customers using a certain
"pinch grip" structural design. In December 1995, JCI filed a second
lawsuit alleging infringement of two additional patents, which relate to
a ring and base structure for hot-fill PET plastic containers. The two
suits were consolidated for all purposes. The Company answered the
complaints, denying infringement and misappropriation in all respects and
asserting various defenses, including invalidity and unenforceability of
the patents at issue based upon inequitable conduct on the part of JCI in
prosecuting the relevant patent applications before the U.S. Patent
Office and anticompetitive patent misuse by JCI. The Company also
asserted counterclaims against JCI alleging violations of federal
antitrust law, based upon certain agreements regarding market division
allegedly entered into by JCI with another competitor and other alleged
conduct engaged in by JCI allegedly intended to raise prices and limit
competition. In March 1997, JCI's plastic container business was acquired
by Schmalbach-Lubeca Plastic Containers USA Inc. ("Schmalbach-Lubeca").
Schmalbach-Lubeca and certain affiliates were joined as successors to JCI
and as counter-claim defendants.

On March 10, 1998, the U.S. District Court in California entered
summary judgment in favor of JCI and against the Company regarding
infringement of two patents, but did not resolve certain issues related
to the patents including certain of the Company's defenses. On March 6,

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1998, the Company also filed suit against Schmalbach-Lubeca in Federal
Court in Delaware for infringement of the Company's patent concerning
pinch grip bottle design. On April 24, 1998, the parties to the
litigation reached an understanding on the terms of a settlement of all
claims in all of the litigation with JCI and Schmalbach-Lubeca, subject
to agreement upon and execution of a formal settlement agreement. In June
1998, the Company finalized the settlement of the JCI-Schmalbach-Lubeca
litigation. The amounts paid in settlement, as well as estimated
litigation expenses and professional fees did not differ materially from
the amounts accrued in Special Charges and Unusual Items in respect
thereof for the year ended December 31, 1997. The cash paid in settlement
was funded by drawdowns under the New Credit Agreement. See Note 18 to
the Financial Statements (Item 8).

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the
fourth quarter of 1999.

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters

Because Holdings is a limited partnership, equity interests in
Holdings take the form of general and limited partnership interests.
There is no established public trading market for any of the general or
limited partnership interests in Holdings.

There are two owners of general partner interests in Holdings:
Investor GP and Graham Packaging Corporation. The limited partnership
interests in Holdings are owned by Investor LP and a Graham family
entity. See Item 12, "Security Ownership of Certain Beneficial Owners and
Management."

Opco GP is the sole owner of a general partnership interest in the
Operating Company, and Holdings is the sole owner of a limited
partnership interest in the Operating Company.

The Operating Company owns all of the outstanding capital stock of
CapCo I. Holdings owns all of the outstanding capital stock of CapCo II.

Holdings has made distributions to its partners totaling the
amounts set forth in the Statements of Partners' Capital/Owners' Equity
(Deficit) included in Item 8 of this Report, during the periods indicated
therein.

Under the New Credit Agreement, the Operating Company is subject to
restrictions on the payment of dividends and other distributions to
Holdings, as described in Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."

As indicated under Item 1, "Business--The Recapitalization", upon
the Closing of the Recapitalization, (i) certain limited and general
partnership interests in Holdings held by the Graham Partners were
redeemed by Holdings for $429.6 million, and (ii) certain limited and

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general partnership interests in Holdings held by the Graham Partners
were purchased by the Equity Investors for $208.3 million.

As indicated under Item 1, "Business--The Recapitalization", upon
the Closing of the Recapitalization on February 2, 1998, the Company
Issuers consummated an offering pursuant to Rule 144A under the
Securities Act of their Senior Subordinated Notes Due 2008, consisting of
$150,000,000 aggregate principal amount of their Fixed Rate Senior
Subordinated Old Notes and $75,000,000 aggregate principal amount of
their Floating Rate Senior Subordinated Old Notes. On February 2, 1998,
as part of the Recapitalization, the Holdings Issuers also consummated an
offering pursuant to Rule 144A under the Securities Act of $169,000,000
aggregate principal amount at maturity of their Senior Discount Old
Notes. Pursuant to the Purchase Agreement dated January 23, 1998 (the
"Purchase Agreement"), the Initial Purchasers, DB Alex. Brown LLC,
Bankers Trust International PLC, Lazard Freres & Co. LLC and Salomon
Brothers Inc, purchased the Senior Subordinated Old Notes at a price of
97.0% of the principal amount, for a discount of 3% from the initial
offering price of 100% or a total discount of $6,750,000. Pursuant to the
Purchase Agreement, the Initial Purchasers purchased the Senior Discount
Old Notes at a price of 57.173% of the principal amount for a discount of
2.361% from the initial offering price of 59.534% or a total discount of
$3,990,090. Pursuant to the Purchase Agreement, the Issuers also
reimbursed the Initial Purchasers for certain expenses. Pursuant to the
Senior Subordinated Exchange Offers, on September 8, 1998, the Company
Issuers exchanged $150,000,000 aggregate principal amount of their Fixed
Rate Senior Subordinated Exchange Notes and $75,000,000 aggregate
principal amount of their Floating Rate Senior Subordinated Exchange
Notes for equal principal amounts of Fixed Rate Senior Subordinated Old
Notes and Floating Rate Senior Subordinated Old Notes, respectively.
Pursuant to the Senior Discount Exchange Offer, on September 8, 1998, the
Holdings Issuers exchanged $169,000,000 aggregate principal amount at
maturity of their Senior Discount Exchange Notes for an equal principal
amount of Senior Discount Old Notes. The Senior Subordinated Old Notes
were, and the Senior Subordinated Exchange Notes are, fully and
unconditionally guaranteed by Holdings on a senior subordinated basis.

Item 6. Selected Financial Data

The following table sets forth certain selected historical
financial data for the Company for and at the end of each of the years in
the five-year period ended December 31, 1999. The selected historical
financial data for each of the three years in the period ended December
31, 1997 are derived from the Graham Packaging Group's combined financial
statements. The selected historical financial data for each of the two
years in the period ended December 31, 1999 are derived from Holdings'
financial statements. The combined financial statements (prior to restatement
for the change in accounting for the inventory costs, as described in note (13)
to the following table) as of December 31, 1995, 1996 and 1997 and for each of
the three years in the period ended December 31, 1997 have been audited by
Ernst & Young LLP, independent auditors. The consolidated financial statements
as of, and for the years ended, December 31, 1998 and 1999 have been audited by
Deloitte & Touche LLP, independent auditors. The combined financial
statements of Graham Packaging Group (as defined in Note 1 to the
Financial Statements (Item 8)) have been prepared for periods prior to
the Recapitalization to include Holdings and its subsidiaries and the
ownership interests and real estate constituting the Graham Contribution

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(as defined) for all periods that the operations were under common
control. The following table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" (Item 7) and the combined financial statements of Graham
Packaging Group, including the related notes thereto, and the
consolidated financial statements of Holdings, including the related
notes thereto, included under Item 8.

Year Ended December 31,
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(In millions)

INCOME STATEMENT DATA
Net sales $466.8 $459.7 $521.7 $ 588.1 $ 716.1
Gross profit 67.0 77.0 84.7 115.4 142.7
Selling, general and administrative expenses 35.5 35.5 34.9 37.8 48.0
Special charges and unusual items 5.9 7.0 24.4 24.2 4.6
Operating income 25.6 34.5 25.4 53.4 90.1
Interest expense, net 16.2 14.5 13.4 68.0 87.5
Other expense (income), net (11.0) (1.0) 0.7 (0.2) (0.7)
Recapitalization expenses -- -- -- 11.8 --
Income tax expense (benefit) (0.3) -- 0.6 1.1 2.5
Minority interest -- -- 0.2 -- (0.5)
Extraordinary loss 1.8 -- -- 0.7 --
------ ------ ------ ------- -------
Net income (loss) $ 18.9 $ 21.0 $ 10.5 $ (28.0) $ 1.3
====== ====== ====== ======= =======

OTHER DATA:
Cash flows provided by (used in):
Operating activities $ 60.5 $ 68.0 $ 66.9 $ 41.8 $ 55.5
Investing activities (68.4) (32.8) (72.3) (181.2) (181.8)
Financing activities 9.2 (34.6) 9.5 139.7 126.2
Adjusted EBITDA 77.3 90.4 90.1 117.7 149.1
Capital expenditures 68.6 31.3 53.2 133.9 171.0
Investments 3.2 1.2 19.0 45.2 10.3
Depreciation and amortization 45.7 48.2 41.0 39.3 53.2
Ratio of earnings to fixed charges 2.0x 2.2x 1.6x -- 1.0x

BALANCE SHEET DATA:
Working capital (deficit) (as defined) $ 19.9 $ 18.7 $ 4.4 $ (5.5) $ 10.6
Total assets 362.6 340.5 387.5 596.7 741.2
Total debt 257.4 240.5 268.5 875.4 1,017.1
Partners' capital/owners' equity (deficit) 17.2 18.5 2.3 (438.8) (458.0)

See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" (Item 7) and the
Financial Statements of Holdings, including the related notes
thereto (Item 8).
In July 1995, Graham Packaging Group acquired an additional
interest in its UK Operations and subsequently sold its
interests for $5.6 million, recognizing a gain of $4.4

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million. In addition, Graham Packaging Group entered into an
agreement with the purchaser of its UK Operations and recorded
$6.4 million of non-recurring technical support services
income. Both the gain and the technical support services
income are included in other expense (income), net.
In April 1997, Graham Packaging Group acquired 80% of certain
assets and assumed 80% of certain liabilities of Rheem-Graham
Embalagens Ltda. for $20.3 million (excluding direct costs of
the acquisition). The remaining 20% was purchased in February
1998. In July 1998, Graham Packaging Group acquired selected
plastic bottle manufacturing operations of Crown, Cork & Seal
located in France, Germany, the United Kingdom and Turkey for
$38.9 million (excluding direct costs of the acquisition), net
of liabilities assumed. On April 26, 1999, Graham Packaging
Group acquired 51% of the operating assets of PlasPET Florida,
Ltd., while becoming the general partner on July 6, 1999, for
$1.1 million (excluding direct costs of the acquisition), net
of liabilities assumed, subject to certain contingent
considerations. On July 1, 1999, Graham Packaging Group
acquired selected companies located in Argentina for $8.0
million, net of liabilities assumed, subject to certain
contingent considerations. These transactions were accounted
for under the purchase method of accounting. Results of
operations are included since the dates of acquisitions.
Net sales increase or decrease based on fluctuations in resin
prices as industry practice and the Company's agreements with
its customers permit price changes to be passed through to
customers by means of corresponding changes in product
pricing. Therefore, the Company's dollar gross profit is
substantially unaffected by fluctuations in resin prices.
In 1997, represents certain legal, restructuring and systems
conversion costs. In 1998, represents certain recapitalization
compensation, restructuring, systems conversion, aborted
acquisition and legal costs. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations"
(Item 7) and the Financial Statements of Holdings, including
the related notes thereto (Item 8).
As a limited partnership, Holdings is not subject to U.S.
federal income taxes or most state income taxes. Instead, such
taxes are assessed to Holdings' partners based on the income
of Holdings. Holdings makes tax distributions to its partners
to reimburse them for such tax liabilities. The Company's
foreign operations are subject to tax in their local
jurisdictions. Most of these entities have historically had
net operating losses and recognized minimal tax expense.
Represents costs incurred (including the write-off of
unamortized deferred financing fees) in connection with the
early extinguishment of debt.
Adjusted EBITDA is not intended to represent cash flow from
operations as defined by generally accepted accounting
principles and should not be used as an alternative to net
income as an indicator of operating performance or to cash
flow as a measure of liquidity. "Adjusted EBITDA" is defined
as earnings before minority interest, extraordinary items,
interest expense, interest income, income taxes, depreciation

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and amortization expense, fees paid pursuant to the Monitoring
Agreement, non-cash equity income in earnings of joint
ventures, other non-cash charges, Recapitalization expenses
and special charges and unusual items. Also in 1995, Adjusted
EBITDA excludes the $4.4 million gain on the sale of the UK
operations and the related $6.4 million technical support
services income as described in note (2) above. Adjusted
EBITDA is included in this Report to provide additional
information with respect to the ability of Holdings and the
Operating Company to satisfy their debt service, capital
expenditure and working capital requirements and because
certain covenants in Holdings' and the Operating Company's
borrowing arrangements are tied to similar measures. While
Adjusted EBITDA and similar variations thereof are frequently
used as a measure of operations and the ability to meet debt
service requirements, these terms are not necessarily
comparable to other similarly titled captions of other
companies due to the potential inconsistencies in the method
of calculation.
Investments include the acquisitions made by Graham Packaging
Group in the U.S., Italy, France, the UK, Brazil, Argentina,
Germany and Turkey described in notes (2) and (3) above. In
addition, in 1995, the Company paid $1.9 million for a 50%
interest in the Masko-Graham Joint Venture in Poland and
committed to make loans to the Joint Venture of up to $1.9
million. In 1996, the Company loaned $1.0 million to the Joint
Venture. The Joint Venture is accounted for under the equity
method of accounting, and its earnings are included in other
expense (income), net. Amounts shown under this caption
represent cash paid, net of cash acquired in the acquisitions.
Depreciation and amortization excludes amortization of
deferred financing fees, which is included in interest
expense, net.
For purposes of determining the ratio of earnings to fixed
charges, earnings are defined as earnings before income taxes,
minority interest and extraordinary items, plus fixed charges.
Fixed charges include interest expense on all indebtedness,
amortization of deferred financing fees, and one-third of
rental expense on operating leases representing that portion
of rental expense deemed to be attributable to interest.
Earnings were insufficient to cover fixed charges by $26.3
million for the year ended December 31, 1998.
Working capital is defined as current assets (less cash and
cash equivalents) minus current liabilities (less current
maturities of long-term debt).
Effective June 28, 1999, the Company changed its method of
valuing inventories for its 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 cost related to the actual physical flow of raw materials
and finished goods inventory. Accordingly, the Company
believes 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

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accepted accounting principles. The accounting change
increased the net income for the year ended December 31, 1995
by $0.2 million, decreased the net income for the year ended
December 31, 1996 by $0.2 million, increased the net income
for the year ended December 31, 1997 by $0.3 million and
increased the net loss for the year ended December 31, 1998 by
$2.0 million.

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations

The following discussion and analysis of the results of operations
of the Company includes a discussion of periods before the consummation
of the Recapitalization. The discussion and analysis of such periods does
not reflect the significant impact that the Recapitalization has had on
the Company. See "Business--The Recapitalization" (Item 1) and the
section below under "--Liquidity and Capital Resources" for further
discussion relating to the impact that the Recapitalization has had and
may have on the Company. The following discussion should be read in
conjunction with "Selected Financial Data" (Item 6) and "Financial
Statements and Supplementary Data" (Item 8), including the related notes
thereto, appearing elsewhere in this Report. References to "Management"
should be understood in this section to refer to the Company's management
in the time periods in question.

Overview

The Company is a worldwide leader in the design, manufacture and
sale of customized blow-molded rigid plastic bottles for the automotive,
food and beverage and HC/PC products business. Management believes that
critical success factors to the Company's business are its ability to (i)
serve the complex packaging demands of its customers which include some
of the world's largest branded consumer products companies, (ii) forecast
trends in the packaging industry across product lines and geographic
territories (including those specific to the rapid conversion of
packaging products from glass, metal and paper to plastic), and (iii)
make the correct investments in plant and technology necessary to satisfy
the two factors mentioned above.

The Company's North American one-quart motor oil container business
is in a mature industry. Unit volume in the one-quart motor oil business
increased in 1999 as compared to 1998, despite a volume decline of 1-2%
in years previous to 1999. The company has been able to renew or extend
contracts by improving manufacturing efficiencies, lightweighting of
bottles, improving line speeds, reducing material spoilage, and improving
labor efficiency and inventory to partially offset pricing pressures.
Management believes that the decline in the domestic one-quart motor oil
business will continue for the next several years but believes that there
are significant volume opportunities for its automotive product business
in foreign countries, particularly those in Latin America. On April 30,
1997, the Company acquired 80% of certain assets and 80% of certain
liabilities of Rheem-Graham Embalagens Ltda., a leading supplier of

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bottles to the motor oil industry in Brazil, and on February 17, 1998
purchased the residual 20% ownership interest. The Company has since
signed agreements to operate two additional plants in Brazil, both of
which are now in production.

The Company's Household and Personal Care ("HC/PC") business
continues to grow, as package conversion trends continue from other
packaging forms in certain segments of the Company's product lines. The
Company continues to benefit as liquid fabric care products, which are
packaged in plastic containers, capture an increased share from powdered
detergents, which are predominantly packaged in cardboard. The Company
has upgraded its proprietary machinery to new larger blow molders to
standardize its production lines, improve flexibility and reduce
manufacturing costs.

Management believes that the area with the greatest opportunity for
growth continues to be in producing bottles for the North American food
and beverage business because of the continued conversion to plastic
packaging, and, in particular, the demand for hot-fill PET containers for
juices, juice drinks, sport drinks and teas. From 1992 to 1999 the
Company has invested over $244 million in capital expenditures to expand
its technology, machinery and plant structure to prepare for what
Management estimated would be the growth in this area. For the year ended
December 31, 1999 sales of hot-fill PET containers had grown to $201.4
million from negligible levels in 1993. In this business, the Company
continues to benefit from more experienced plant staff, improved line
speeds, higher absorption of SG&A and fixed overhead costs and improved
resin pricing and material usage.

Following its strategy to expand in selected international areas,
the Company currently operates, either on its own or through joint
ventures, in Argentina, Brazil, Canada, France, Germany, Hungary, Italy,
Poland, Turkey and the United Kingdom. Management believes that the
acquisition of manufacturing plants in Europe from Crown/CMB has provided
additional competitive scale to the Company's global sales efforts. In
addition, given the recent troubled economy in Latin America, and more
specifically Brazil, Management is closely monitoring its operations and
investment there.

For the year ended December 31, 1999, 76% of the Company's net
sales were generated by the top twenty customers, the majority of which
are under long-term contracts (i.e., with terms of between one and ten
years) and the remainder of which were generated by customers with whom
the Company has been doing business for over 15 years on average. Prices
under these arrangements are typically tied to market standards and,
therefore, vary with market conditions. In general the contracts are
requirements contracts that do not obligate the customer to purchase any
given amount of product from the Company.

Based on industry data, the following table summarizes average
market prices per pound of PET and HDPE resins over a twelve month period
in North America:

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Year Ended December 31,
-----------------------
1997 1998 1999
---- ---- ----

PET $0.50 $0.53 $0.54

HDPE 0.46 0.37 0.41

In general, the Company's dollar gross profit is substantially
unaffected by fluctuations in the prices of HDPE and PET resins, the
primary raw materials for the Company's products, because industry
practice and the Company's agreements with its customers permit price
changes to be passed through to customers by means of corresponding
changes in product pricing. Consequently, the Company believes that the
cost of goods sold, as well as certain other expense items, should not be
analyzed as a percentage of net sales.

Results of Operations

The following tables set forth the major components of the
Company's net sales and such net sales expressed as a percentage of total
revenues:

Year Ended December 31,
-----------------------
(In Millions)
1997 1998 1999
---- ---- ----

Automotive $196.4 37.6% $188.7 32.1% $ 207.7 29.0%
Food & Beverage 150.6 28.9% 221.1 37.6% 323.1 45.1%
HC/PC 174.7 33.5% 178.3 30.3% 185.3 25.9%
------ ----- ------ ----- ------ -----

Total Net Sales $521.7 100.0% $588.1 100.0% $ 716.1 100.0%
====== ===== ====== ===== ====== =====

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Year Ended December 31,
-----------------------
(In Millions)
1997 1998 1999
---- ---- ----

North America $440.0 84.3% $465.3 79.1% $ 555.0 77.5%
Europe 67.4 12.9% 100.8 17.2% 136.7 19.1%
Latin America 14.3 2.8% 22.0 3.7% 24.4 3.4%
------ ----- ------ ----- ------ -----

Total Net Sales $521.7 100.0% $588.1 100.0% $ 716.1 100.0%
====== ===== ====== ===== ====== =====

1999 Compared to 1998

Net Sales. Net sales for the year ended December 31, 1999
increased $128.0 million to $716.1 million from $588.1 million for the
year ended December 31, 1998. The increase in sales was primarily due to
a 22.1% increase in resin pounds sold. On a geographic basis, sales for
the year ended December 31, 1999 in North America were up $89.7 million
or 19.3% from the year ended December 31, 1998. The North American sales
increase included higher pounds sold of 16.0%. North American sales in
the automotive, food and beverage and HC/PC businesses contributed $9.5
million, $76.0 million and $4.2 million, respectively, to the increase.
Sales for the year ended December 31, 1999 in Europe were up $35.9
million or 35.6% from the year ended December 31, 1998, principally in
the food & beverage business, primarily due to a full year of the
Company's new European subsidiaries which were acquired in July 1998.
Overall, European sales reflected a 53.4% increase in pounds sold.
Additionally, sales in Latin America for the year ended December 31, 1999
were up $2.4 million.

Gross Profit. Gross profit for the year ended December 31, 1999
increased $27.3 million to $142.7 million from $115.4 million for the
year ended December 31, 1998. The increase in gross profit resulted
primarily from the higher sales volume as compared to the prior year.
Gross profit in North America was up $23.2 million or 21.6%.
Additionally, gross profit increased $3.2 million in Europe and $0.9
million in Latin America.

Selling, General & Administrative Expenses. Selling, general and
administrative expenses for the year ended December 31, 1999 increased
$10.2 million to $48.0 million from $37.8 million for the year ended
December 31, 1998. The dollar increase in 1999 selling, general and
administrative expenses is due to a full year of the Company's new
European subsidiaries which were acquired in July 1998, and the inclusion
of the Company's newly acquired North American and Latin American
subsidiaries and overall growth of the business, primarily in North
America. As a percent of sales, selling, general and administrative
expenses increased to 6.7% of sales in 1999 from 6.4% in 1998.

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Special Charges and Unusual Items. In 1999, special charges and
unusual items included $2.7 million related to recapitalization
compensation costs (see "Business--The Recapitalization" (Item 1) for a
further discussion of the recapitalization compensation), $0.6 million of
restructuring charges relating to the operations in Europe and $1.3 million
in costs related to year 2000 system conversion (see "--Information
Systems Initiative" for a further discussion). In 1998, special charges
and unusual items included $20.6 million related to recapitalization
compensation costs, $1.9 million of restructuring charges relating to the
operations in Europe ($1.2 million) and in North America ($0.7 million),
$1.0 million in costs related to year 2000 system conversion, $0.4
million of aborted acquisition cost, and $0.3 million of legal fees.

Recapitalization Expenses. Recapitalization expenses in the year
ended December 31, 1998 of $11.8 million relate to the Recapitalization
that occurred on February 2, 1998 and also include transaction fees and
costs associated with the termination of interest rate collar and swap
agreements.

Interest Expense, Net. Interest expense, net increased $19.5
million to $87.5 million (including $12.4 million of non-cash interest on
the Senior Discount Notes) for the year ended December 31, 1999 from
$68.0 million for the year ended December 31, 1998. The increase was
primarily related to increased debt levels in 1999 compared to 1998.

Other (Income) Expense. Other (income) expense was $(0.7) million
for the year ended December 31, 1999 as compared to $(0.1) million for
the year ended December 31, 1998. The higher income was due primarily to
higher foreign exchange gain in the year ended December 31, 1999 as
compared to the year ended December 31, 1998.

Net Income (loss). Primarily as a result of factors discussed
above, net income for the year ended December 31, 1999 was $1.3 million
compared to net loss of $28.0 million for the year ended December 31,
1998.

Adjusted EBITDA. Primarily as a result of factors discussed above,
Adjusted EBITDA (as defined in Item 6) in 1999 increased 26.7% to $149.1
million from $117.7 million in 1998.

1998 Compared to 1997

Net Sales. Net sales for the year ended December 31, 1998
increased $66.4 million to $588.1 million from $521.7 million for the
year ended December 31, 1997. The increase in sales was primarily due to
a 12.4% increase in resin pounds sold and changes in product mix. These
increases were partially offset by a net decrease in average resin
prices. On a geographic basis, sales for the year ended December 31, 1998
in North America were up $25.3 million or 5.8% from the year ended
December 31, 1997. The North American sales increase included higher
pounds sold of 8.4%. North American sales in the food and beverage
business contributed $48.5 million to the increase, while North American
sales in the automotive business and HC/PC business were $14.4 million
and $8.8 million lower respectively. Approximately 76% of the decrease in
North American sales in the automotive business and approximately all of

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the decrease in North American sales in the HC/PC business were
attributable to declining resin pricing. Sales for the year ended
December 31, 1998 in Europe were up $33.4 million or 49.6% from the year
ended December 31, 1997, principally in the food & beverage and HC/PC
businesses, primarily due to the inclusion of the Company's newly-
acquired European subsidiaries. Overall, European sales reflected a 40.2%
increase in pounds sold. Additionally, sales in Latin America for the
year ended December 31, 1998 were up $7.7 million primarily as a result
of the Company's investment in its Latin American subsidiary in the
second quarter of 1997.

Gross Profit. Gross profit for the year ended December 31, 1998
increased $30.7 million to $115.4 million from $84.7 million for the year
ended December 31, 1997. The increase in gross profit resulted primarily
from the higher sales volume as compared to the prior year, continued
operational improvements and the favorable impact of lower depreciation.
Gross profit in North America was up $25.1 million or 30.7%.
Additionally, gross profit increased $3.9 million in Europe and $1.7
million in Latin America.

Selling, General & Administrative Expenses. Selling, general and
administrative expenses for the year ended December 31, 1998 increased
$2.9 million to $37.8 million from $34.9 million for the year ended
December 31, 1997. As a percent of sales, selling, general and
administrative expenses declined to 6.4% of sales in 1998 from 6.7% in
1997 generally due to the leveraging of costs that are fixed in nature on
higher sales. The dollar increase in 1998 selling, general and
administrative expenses is due primarily to the inclusion of the
Company's Latin American subsidiary and the newly-acquired European
subsidiaries which were acquired in the second quarter of 1997 and the
third quarter of 1998, respectively.

Special Charges and Unusual Items. In 1998, special charges and
unusual items included $20.6 million related to recapitalization
compensation costs (see "Business--The Recapitalization" (Item 1) for a
further discussion of the recapitalization compensation), $1.9 million of
restructuring charges relating to the operations in Europe ($1.2 million)
and in North America ($0.7 million), $1.0 million in costs related to
year 2000 system conversion (see "--Information Systems Initiative" for a
further discussion), $0.4 million of aborted acquisition costs, and $0.3
million of legal fees. In 1997, special charges and unusual items
included $22.7 million of legal fees and amounts expected to be paid in
settlement related to the JCI-Schmalbach-Lubeca litigation, $1.2 million
of restructuring charges relating to operations in Europe ($0.7 million)
and in North America ($0.5 million), and $0.5 million in costs related to
year 2000 system conversion.

Recapitalization Expenses. Recapitalization expenses of $11.8
million relate to the Recapitalization that occurred on February 2, 1998
and also include transaction fees and costs associated with the
termination of interest rate collar and swap agreements.

Interest Expense, Net. Interest expense, net increased $54.6
million to $68.0 million (including $10.1 million of non-cash interest on
the Senior Discount Notes) for the year ended December 31, 1998 from
$13.4 million for the year ended December 31, 1997. The increase was

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primarily related to the increase in debt resulting from the
Recapitalization and higher average interest rates associated with the
new debt.

Other (Income) Expense. Other (income) expense was $(0.1) million
for the year ended December 31, 1998 as compared to $0.8 million for the
year ended December 31, 1997. The higher income was due primarily to
lower foreign exchange loss in the year ended December 31, 1998 as
compared to the year ended December 31, 1997.

Net Income (loss). Primarily as a result of factors discussed
above, net loss for the year ended December 31, 1998 was $28.0 million
compared to net income of $10.5 million for the year ended December 31,
1997.

Adjusted EBITDA. Primarily as a result of factors discussed above,
Adjusted EBITDA (as defined in Item 6) in 1998 increased 30.6% to $117.7
million from $90.1 million in 1997.

Effect of Changes in Exchange Rates

In general, the Company's results of operations are affected by
changes in foreign exchange rates. Subject to market conditions, the
Company prices its products in its foreign operations in local
currencies. As a result, a decline in the value of the U.S. dollar
relative to these other currencies can have a favorable effect on the
profitability of the Company, and an increase in the value of the dollar
relative to these other currencies can have a negative effect on the
profitability of the Company. Exchange rate fluctuations
increased/(decreased) comprehensive income by $1.9 million, $3.3 million
and ($22.3 million) for the years ended December 31, 1997, 1998 and 1999,
respectively.

Euro Conversion

On January 1, 1999, eleven of fifteen member countries of the
European Economic Union fixed conversion rates between their existing
currencies ("legacy currencies") and one common currency, the euro. The
euro trades on currency exchanges and may be used in business
transactions. Conversion to the euro eliminated currency exchange rate
risk between the member countries. Beginning in January 2002, new euro-
denominated bills and coins will be issued and the legacy currencies will
be withdrawn from circulation.

The Company is actively addressing the many areas involved with the
introduction of the euro, including information management, finance,
legal and tax. This review includes the conversion of information
technology, and business and financial systems, and evaluation of
currency risk, as well as the impact on the pricing and distribution of
the Company's products.

One outcome of the introduction of the euro is the trend toward
more uniform pricing in all European markets, including those that have
not adopted the euro as their common currency. The Company believes the
effect of the introduction of the euro, as well as any related cost of

-41-

conversion, will not have a material adverse impact on its financial
statements.

Information Systems Initiative

The Company assembled a team of professionals and consultants to
ensure that significant Year 2000 issues which might have had a material
impact on the Company's results of operations, liquidity or financial
position were timely identified and any resulting remediation timely
resolved.

The Company completed an evaluation and assessment to ensure that
its information technology ("IT") systems and related hardware would be
year 2000 compliant. As a part of this process, the Company engaged
outside consultants in 1997 to assist with the evaluation and assessment
of its information systems requirements and the selection and
implementation of enterprise resource planning software. As a result of
this evaluation and assessment, the Company decided to replace all of its
core application systems, including its financial accounting system,
manufacturing operation system and North American payroll and human
resources system. The Company's core system conversion was completed on
time, and the conversion process was successful in the Company's North
American operations and in the Company's European operations both of
which were scheduled for conversion in 1999. For the Company's Italian
and Latin American operations, the existing software was modified to
allow for uninterrupted business operations until such conversion can be
completed. The conversion in the Company's Italian and Latin American
operations is expected to be completed in year 2000 and year 2001,
respectively.

During 1999, 1998 and 1997, the Company expensed $1.3 million, $1.0
million and $0.5 million, respectively, associated with its information
systems evaluation, assessment and implementation. As of December 31,
1999, $7.3 million related to the purchase and installation of software
and hardware has been capitalized.

The Company also completed an evaluation and assessment to ensure
that its non-IT systems, namely its manufacturing equipment, were Year
2000 compliant. Since entering the year 2000, the Company has not
experienced any major disruptions to its business nor is it aware of any
significant year 2000 related disruptions impacting its customers or
suppliers.

The company will continue to monitor its critical systems over the
next several months but does not anticipate any significant impact due to
year 2000 exposures from its internal systems or from the activities of
its suppliers and customers. However, in forming a total assessment, the
degree to which all critical third parties with whom the Company
transacts business have adequately addressed their year 2000 issues is
outside of the Company's control. There can be no assurance that the
failure of such third parties to have adequately addressed their year
2000 issues will not have a future material adverse effect on the
Company.

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Derivatives

The Company enters into interest rate swap agreements to hedge the
exposure to increasing rates with respect to the New Credit Agreement.
The differential to be paid or received as a result of these swap
agreements is accrued as interest rates change and recognized as an
adjustment to interest expense related to the New Credit Agreement. The
Company also enters into forward exchange contracts, when appropriate, to
hedge the exchange rate exposure on transactions that are denominated in
a foreign currency.

Liquidity and Capital Resources

In 1997, 1998 and 1999 the Company generated $164.2 million of cash
from operations and $758.9 million from increased indebtedness. This
$923.1 million was primarily used to fund $358.1 million of capital
expenditures, $74.5 million of investments, make distributions of $34.9
million to the Company's partners, make a $409.3 million recapitalization
cash distribution to owners (net of owner note repayments), make $39.2
million of debt issuance fee payments and for $7.1 million of other net
uses.

On February 2, 1998, the Company refinanced the majority of its
existing credit facilities in connection with the Recapitalization and
entered into a new Credit Agreement (the "New Credit Agreement") with a
consortium of banks. The New Credit Agreement was amended on August 13,
1998 (the "Amendment") to provide for an additional Term Loan Borrowing
of up to an additional $175 million which can be drawn in two
installments (of which $175 million was drawn and outstanding as of
December 31, 1999). The New Credit Agreement and the Amendment consist of
four term loans to the Operating Company totaling $570 million and two
revolving loan facilities to the Operating Company totaling $255 million.
The obligations of the Operating Company under the New Credit Agreement
and Amendment are guaranteed by Holdings and certain other subsidiaries
of Holdings. The term loans are payable in quarterly installments through
January 31, 2007, and require payments of $15.0 million in 2000, $20.0
million in 2001, $25.0 million in 2002, $27.5 million in 2003 and $93.0
million in 2004. The Company expects to fund scheduled debt repayments from
cash from operations and unused lines of credit. The revolving loan
facilities expire on January 31, 2004. Interest is payable at (a) the
"Alternate Base Rate" (the higher of the Prime rate or the Federal Funds Rate
plus 0.50%) plus a margin ranging from 0% to 2.00%; or (b) the "Eurocurrency
Rate" (the applicable interest rate offered to banks in the London
interbank eurocurrency market) plus a margin ranging from 0.625% to 3.0%.
A commitment fee ranging from 0.20% to 0.50% is due on the unused portion of
the revolving loan commitment. As part of the Amendment to the New Credit
Agreement, if certain events of default were to occur, or if the Company's
Net Leverage Ratio were above 5.15:1.0 at March 31, 2000, Blackstone has
agreed to make an equity contribution to the Company through the
administrative agent of up to $50 million. The Company's Net Leverage
Ratio being above 5.15:1.0 at March 31, 2000 is not an event of
default under the New Credit Agreement. In addition, the New Credit
Agreement and Amendment contain certain affirmative and negative covenants
as to the operations and financial condition of the Company, as well as
certain restrictions on the payment of dividends and other distributions
to Holdings.

The Company is currently discussing with its bank lenders a proposed
Second Amendment to the New Credit Agreement and a proposed First Amendment
to the Capital Call Agreement (collectively, the "Second Amendment"). Among

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other things, the Second Amendment would change the date as of which the
Company's Net Leverage Ratio is measured for purposes of determining whether
Blackstone is required to make the above-mentioned equity contribution
from March 31, 2000 to September 30, 2000; allow a pro forma adjustment to
the Net Leverage Ratio to include the receipt of net cash proceeds from any
registered public offering occurring after September 30, 2000 but before
October 31, 2000; change the terms under which the Company can access
$100 million of Growth Capital Revolving Loans from a dollar for dollar
equity match to a capital call with various test dates based on certain
leverage tests for quarters ending on or after June 30, 2001, which would
provide for up to an additional $50 million equity contribution by
Blackstone; allow the proceeds of the equity contribution (if required)
to be applied to the Revolving Credit Loans; increase the top level of the
interest rate pricing grid by 25 basis points; and change certain covenants,
principally to increase the amount of permitted capital expenditures in 2000
and subsequent years. The Second Amendment requires approval by Lenders
having more than 50% of the sum of all loans and unused commitments
and there is no assurance that such approval will be obtained.

The Recapitalization also included the issuance of $225 million of
Senior Subordinated Notes of the Operating Company and $100.6 million
gross proceeds of Senior Discount Notes ($169 million aggregate principal
amount at maturity). The Senior Subordinated Notes are unconditionally
guaranteed on a senior subordinated basis by Holdings and mature on
January 15, 2008, with interest payable on $150 million at a fixed rate
of 8.75% and with cash interest payable on $75 million at LIBOR plus
3.625%. The Senior Discount Notes mature on January 15, 2009, with cash
interest payable quarterly beginning January 15, 2003 at 10.75%. The
effective interest rate to maturity on the Senior Discount Notes is
10.75%. Additionally, the Recapitalization included net distributions to
owners of $409.3 million and debt issuance costs of $32.4 million. At
December 31, 1999, the Company's outstanding indebtedness was $1,017
million.

Unused lines of credit at December 31, 1999 and 1998 were $168.3 million
and 325.1 million, respectively. Substantially all unused lines of credit
have no major restrictions, except as described in Item 13, and are provided
under notes between the Company and the lending institution.

During 2000, the Company expects to incur capital expenditures that
are similar in nature and size to those incurred in 1999. However, total
capital expenditures for 2000 may vary significantly depending on the
timing of growth related opportunities. The Company's principal sources
of cash to fund capital requirements will be net cash provided by
operating activities and borrowings under the New Credit Agreement.

Total capital expenditures for 1997, 1998, and 1999 were
approximately $53.2 million, $133.9 million and $171.0 million,
respectively. Management believes that capital investment to maintain and
upgrade property, plant and equipment is important to remain competitive.
Management estimates that the annual capital expenditure required to
maintain the Company's current facilities are currently approximately $30
million per year. Additional capital expenditures beyond this amount will be
required to expand capacity.

Under the New Credit Agreement, the Operating Company is subject to
restrictions on the payment of dividends or other distributions to
Holdings; provided that, subject to certain limitations, the Operating
Company may pay dividends or other distributions to Holdings (i) in
respect of overhead, tax liabilities, legal, accounting and other
professional fees and expenses, (ii) to fund purchases and redemptions of
equity interests of Holdings or Investor LP held by then present or
former officers or employees of Holdings, the Operating Company or their
Subsidiaries (as defined) or by any employee stock ownership plan upon
such person's death, disability, retirement or termination of employment
or other circumstances with certain annual dollar limitations and (iii)

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to finance, starting on July 15, 2003, the payment of cash interest
payments on the Senior Discount Notes.

In June 1998, the Company finalized the settlement of the JCI-
Schmalbach-Lubeca litigation. The amounts paid in settlement, as well as
estimated litigation expenses and professional fees did not differ
materially from the amounts accrued in Special Charges and Unusual Items
in respect thereof for the year ended December 31, 1997. The cash paid in
settlement was funded by drawdowns under the New Credit Agreement. See
Notes 7 and 18 to the Financial Statements as of December 31, 1999 and
1998 and for each of the three years in the period ended December 31,
1999 (Item 8).

The Company does not pay U.S. federal income taxes under the
provisions of the Internal Revenue Code, as the applicable income or loss
is included in the tax returns of the partners. The Company may make tax
distributions to its partners to reimburse them for such tax obligations,
if any. The Company's foreign operations are subject to tax in their
local jurisdictions. Most of these entities have historically incurred
net operating losses.

New Accounting Pronouncements Not Yet Adopted

In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities".
This standard establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts (collectively referred to as derivatives) and for
hedging activities. It requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position
and measure those instruments at fair value.

In June 1999, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of Effective
Date of FASB Statement No. 133." This Standard defers the effective date
of FASB Statement No. 133 ("SFAS No. 133") to all fiscal quarters and all
fiscal years beginning after June 15, 2000. Management has not completed
its review of SFAS No. 133 and has not determined the impact adoption
will have on the Company's results of operations or financial position.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

As a result of the Recapitalization, the Company has significant
long and short-term debt commitments outstanding as of December 31, 1999.
These on-balance sheet financial instruments, to the extent they provide
for variable rates of interest, expose the Company to interest rate risk.
The Company manages its interest rate risk by entering into interest rate
swap agreements. All of the Company's derivative financial instrument
transactions are entered into for non-trading purposes.

To the extent that the Company's financial instruments, including
off-balance sheet derivative instruments, expose the Company to interest
rate risk and market risk, they are presented in the table below. For
variable rate debt obligations, the table presents principal cash flows
and related actual weighted average interest rates as of December 31,

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1999. For fixed rate debt obligations, the table presents 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, 1999 for the receive rate.
Note 8 to the Financial Statements should be read in conjunction with the
table below.

Expected Maturity Date of Long-Term Debt (Including Current Portion) and
Interest Rate Swap Agreements at December 31, 1999 (In thousands) Fair
------------------------------------------------------------------------ Value
December
2000 2001 2002 2003 2004 Thereafter Total 31, 1999

Interest rate sensitive
liabilities:
Variable rate borrowings,
including short-term amounts 24,369 21,133 25,729 28,149 186,101 458,524 744,005 744,005
Average interest rate 7.18% 9.38% 7.88% 7.84% 8.28% 8.67%
Fixed rate borrowings -- -- -- -- -- 273,092 273,092 256,670
Average interest rate -- -- -- -- -- 9.60%
24,369 21,133 25,729 28,149 186,101 731,616 1,017,097 1,000,675
====== ======= ======= ======= ======= ======= ========= =========
Derivatives matched against
liabilities: -- 150,000 200,000 100,000 -- -- 450,000 9,283
Pay fixed swaps
Pay rate -- 5.51% 5.81% 5.77% -- -- -- --
Receive rate -- 6.47% 6.47% 6.47% -- -- -- --

-46-

Expected Maturity Date of Long-Term Debt (Including Current Portion) and
Interest Rate Swap Agreements at December 31, 1999 (In thousands) Fair Value
------------------------------------------------------------------------ December
1999 2000 2001 2002 2003 Thereafter Total 31, 1998

Interest rate sensitive
liabilities:
Variable rate borrowings,
including short-term amounts 11,929 15,192 20,208 25,771 28,905 512,695 614,700 614,700
Average interest rate 6.39% 7.46% 7.41% 7.36% 7.28% 8.02%
Fixed rate borrowings -- -- -- -- -- 260,697 260,697 271,400
Average interest rate -- -- -- -- -- 9.60%
11,929 15,192 20,208 25,771 28,905 773,392 875,397 886,100
====== ====== ======= ======= ======= ======= ======= =======
Derivatives matched against
liabilities: -- -- 150,000 200,000 100,000 -- 450,000 (8,784)
Pay fixed swaps
Pay rate -- -- 5.51% 5.81% 5.77% -- -- --
Receive rate -- -- 5.56% 5.56% 5.56% -- -- --

The Company also enters into forward exchange contracts, when
considered appropriate, to hedge foreign exchange rate exposure on
transactions that are denominated in a foreign currency. See Note 8 to
the Financial Statements.

-47-

Item 8. Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS
Page
Number

Reports of Independent Auditors 49

Audited Financial Statements 51

Balance Sheets at December 31, 1999 and 1998 51

Statements of Operations for the years ended December 31, 52
1999, 1998 and 1997

Statements of Partners' Capital/Owners' Equity (Deficit) for 53
the years ended December 31, 1999, 1998 and 1997

Statements of Cash Flows for the years ended December 31, 55
1999, 1998 and 1997

Notes to Financial Statements 57

-48-

INDEPENDENT AUDITORS' REPORT

To the Owners
Graham Packaging Holdings Company

We have audited the accompanying consolidated balance sheets of
Graham Packaging Holdings Company as of December 31, 1999 and 1998, and
the related consolidated statements of operations, partners'
capital/owners' equity (deficit), and cash flows for the years then
ended. Our audit also included financial statement schedules I and II (as
they pertain to 1999 and 1998) listed in the index at Item 14(a). These
financial statements and schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements and 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 1999 and 1998 consolidated financial
statements present fairly, in all material respects, the financial
position of the Company as of December 31, 1999 and 1998, and the results
of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, the related financial statement
schedules (as they pertain to 1999 and 1998), when considered in relation
to the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.

As discussed in Note 5 to the consolidated financial statements, in
1999 the Company changed its method of accounting for inventory from the
LIFO method to the FIFO method and, retroactively, restated the 1998 and
1997 consolidated financial statements for the change.

We also audited the adjustment described in Note 5 that was applied
to restate the 1997 combined financial statements to give retroactive
effect to the change in method of accounting for inventory from the LIFO
method to the FIFO method. In our opinion, such adjustment is appropriate
and has been properly applied.

DELOITTE & TOUCHE LLP

Philadelphia, Pennsylvania
March 22, 2000

-49-

REPORT OF INDEPENDENT AUDITORS

The Owners
Graham Packaging Group

We have audited the accompanying combined statements of operations,
partners' capital/owners' equity (deficit), and cash flows (prior to
restatement for the change in accounting for inventory costs, as
described in Note 5) of the entities and operations listed in Note 1,
collectively referred to as the Graham Packaging Group, for the year
ended December 31, 1997. Our audit also included financial statement
Schedule II (as it pertains to 1997) as listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of
the Group's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audit.

We conducted our audit in accordance with auditing standards
generally accepted in the United States. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for
our opinion.

In our opinion, the financial statements (prior to restatement for
the change in accounting for inventory costs, as described in Note 5)
referred to above present fairly, in all material respects, the combined
results of operations and cash flows of the entities and operations
listed in Note 1, for the year ended December 31, 1997, in conformity
with accounting principles generally accepted in the United States. Also,
in our opinion, the related financial statement Schedule II, when
considered in relation to the basic 1997 financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.

/s/ Ernst & Young LLP

Harrisburg, Pennsylvania
March 23, 1998,
except for the matters discussed in the last paragraph
of Note 14 and the next to last paragraph of Note 18,
as to which the date is April 24, 1998

-50-

GRAHAM PACKAGING HOLDINGS COMPANY
BALANCE SHEETS
(In thousands)

December 31,
1999 1998
Consolidated Consolidated

ASSETS
Current assets:
Cash and cash equivalents $ 5,983 $ 7,476
Accounts receivable, net 108,766 87,618
Inventories 52,847 41,247
Prepaid expenses and other current assets 17,138 14,587
--------- ---------

Total current assets 184,734 150,928
Property, plant and equipment:
Machinery and equipment 663,001 560,585
Land, buildings, and leasehold improvements 95,636 85,462
Construction in progress 129,421 105,541
--------- ---------

888,058 751,588
Less accumulated depreciation and amortization 391,312 364,896
--------- ---------
496,746 386,692
Other assets 59,769 59,127
--------- ---------
Total assets $ 741,249 $ 596,747
========= =========
LIABILITIES AND PARTNERS' CAPITAL/OWNERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ 94,906 $ 77,485
Accrued expenses 73,269 71,431
Current portion of long-term debt 24,370 11,929
--------- ---------
Total current liabilities 192,545 160,845
Long-term debt 992,730 863,468
Other non-current liabilities 13,327 11,228
Minority interest 618 --
Commitments and contingent liabilities (See Notes 17 and 18) -- --
Partners' capital/owners' equity (deficit):
Partners'/owners' capital (439,123) (442,271)
Accumulated other comprehensive income (18,848) 3,477
--------- ---------
Total partners' capital/owners' equity (deficit) (457,971) (438,794)
--------- ---------
Total liabilities and partners' capital/owners' equity (deficit) $ 741,249 $ 596,747
========= =========

See accompanying notes to financial statements.

-51-

GRAHAM PACKAGING HOLDINGS COMPANY
STATEMENTS OF OPERATIONS
(In thousands)

Year Ended December 31,
1999 1998 1997
Consolidated Consolidated Combined
(as adjusted, Note 5) (as adjusted, Note 5)

Net sales $716,084 $588,131 $521,707
Cost of goods sold 573,431 472,731 437,001
-------- -------- --------

Gross profit 142,653 115,400 84,706
Selling, general, and administrative expenses 48,016 37,765 34,882
Special charges and unusual items 4,553 24,244 24,361
-------- -------- --------

Operating income 90,084 53,391 25,463
Recapitalization expenses -- 11,769 --
Interest expense 88,260 68,379 14,940
Interest income (786) (371) (1,510)
Other (income) expense (729) (122) 755
Minority interest (442) -- 165
-------- -------- --------

Income (loss) before income taxes and extraordinary item 3,781 (26,264) 11,113
Income tax provision 2,526 1,092 600
-------- -------- --------

Income (loss) before extraordinary item 1,255 (27,356) 10,513
Extraordinary loss from early extinguishment of debt -- 675 --
-------- -------- --------

Net income (loss) $ 1,255 $(28,031) $ 10,513
======== ======== ========

See accompanying notes to financial statements.

-52-

GRAHAM PACKAGING HOLDINGS COMPANY
STATEMENTS OF PARTNERS' CAPITAL/OWNERS' EQUITY (DEFICIT)
(In thousands)

Notes Accumulated
Partners'/ Receivable for Other
Owners' Ownership Comprehensive
Capital Interests Income Total

Combined balance at January 1, 1997, as previously
reported $ 38,715 $(20,240) $ (1,670) $ 16,805

Add adjustment for the cumulative effect of applying
retroactively the change in the accounting method
for valuing inventory from LIFO to FIFO (Note 5) 1,669 -- -- 1,669

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

Combined balance at January 1, 1997, as adjusted 40,384 (20,240) (1,670) 18,474

Net income for the year, as adjusted 10,513 -- -- 10,513
Cumulative translation adjustment -- -- 1,864 1,864
---------

Comprehensive income, as adjusted 12,377

Cash distributions to owners (28,737) -- -- (28,737)

Other 192 -- -- 192
--------- -------- -------- ---------

Combined balance at December 31, 1997, as adjusted 22,352 (20,240) 194 2,306

Net loss for the year, as adjusted (28,031) -- -- (28,031)
Cumulative translation adjustment -- -- 3,283 3,283
---------

Comprehensive income, as adjusted (24,748)

Cash distributions to owners (6,852) -- -- (6,852)

Recapitalization (429,740) 20,240 -- (409,500)
--------- -------- -------- ---------

Consolidated balance at December 31, 1998 (442,271) -- 3,477 (438,794)

Net income for the year 1,255 -- -- 1,255
Cumulative translation adjustment -- -- (22,325) (22,325)
---------

Comprehensive income (21,070)

-53-

Recapitalization 1,893 -- -- 1,893
--------- -------- -------- ---------

Consolidated balance at December 31, 1999 $(439,123) -- $(18,848) $(457,971)
========= ======== ======== =========

See accompanying notes to financial statements.

-54-

GRAHAM PACKAGING HOLDINGS COMPANY
STATEMENTS OF CASH FLOWS
(In thousands)

Year Ended December 31,
1999 1998 1997
Consolidated Consolidated Combined
(as adjusted, Note 5) (as adjusted, Note 5)

Operating activities:
Net income (loss) $ 1,255 $ (28,031) $ 10,513
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 53,247 39,281 41,039
Amortization of debt issuance fees 4,749 3,823 320
Accretion of senior discount notes 12,395 10,085 --
Extraordinary loss -- 675 --
Write-off of license fees -- 1,436 --
Minority interest (442) -- 165
Equity in earnings of joint venture (231) (274) (200)
Foreign currency transaction (gain) loss (11) 43 1,124
Other non-cash recapitalization expense 1,865 3,419 --
Changes in operating assets and liabilities, net of
acquisitions of businesses:
Accounts receivable (25,262) (1,565) (10,918)
Inventories (12,315) (801) (3,905)
Prepaid expenses and other current assets (2,955) (4,025) (3,935)
Other non-current assets and liabilities 1,099 450 565
Accounts payable and accrued expenses 22,131 17,291 32,137
--------- ---------- ---------
Net cash provided by operating activities 55,525 41,807 66,905

Investing activities:
Net purchases of property, plant, and equipment (170,972) (133,912) (53,173)
Acquisitions of/investments in businesses, net of cash
acquired (10,284) (45,152) (19,016)
Other (500) (2,130) (88)
--------- ---------- ---------
Net cash used in investing activities (181,756) (181,194) (72,277)

Financing activities:
Proceeds from issuance of long-term debt 480,462 1,130,411 174,049
Payment of long-term debt (354,152) (271,068) (136,430)
Recapitalization debt repayments -- (264,410) --
Recapitalization owner note repayments -- 20,240 --
Recapitalization cash distributions to owners -- (429,566) --
Other cash distributions to owners -- (6,852) (28,073)
Debt issuance fees (123) (39,100) --
--------- ---------- ---------
Net cash provided by financing activities 126,187 139,655 9,546

Effect of exchange rate changes (1,449) (10) (387)
--------- ---------- ---------

-55-

Increase (decrease) in cash and cash equivalents (1,493) 258 3,787
Cash and cash equivalents at beginning of year 7,476 7,218 3,431
--------- ---------- ---------
Cash and cash equivalents at end of year $ 5,983 $ 7,476 $ 7,218
========= ========== =========

See accompanying notes to financial statements.

-56-

GRAHAM PACKAGING HOLDING COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999

1. Summary of Significant Accounting Policies

Principles of Consolidation and Combination

The consolidated and combined 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.;
subsidiaries thereof; and land and buildings that were used in the
operations, owned by the control group of owners and contributed to the
Graham Packaging Group (as defined). Prior to February 2, 1998, these
operations of the Graham Packaging Group were under common control by
virtue of ownership by the Donald C. Graham family. In addition, the 1999
and 1998 consolidated financial statements of the Group 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 New 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 New Credit Agreement. GPC Capital Corp. I
and GPC Capital Corp. II have only nominal assets and do not conduct any
independent operations. Furthermore, since July 27, 1998 the consolidated
financial statements of the Group include the operations of Graham
Emballages Plastiques S.A.; Graham Packaging U.K. Ltd.; Graham Plastpak
Plastik Ambalaj A.S.; and Graham Packaging Deutschland GmbH as a result
of the acquisition of selected plants of Crown Cork & Seal. Since July 1,
1999 the consolidated financial statements of the Group include the
operations of Graham Packaging Argentina S.A. as a result of the
acquisition of companies in Argentina. Since July 6, 1999 the
consolidated financial statements of the Group include the operations of
PlasPET Florida, Ltd. as a result of an investment made in a limited
partnership. (Refer to Note 3 for a discussion of each of these
investments). These entities and assets are referred to collectively as
Graham Packaging Group (the "Group"). With respect to the periods
subsequent to the Recapitalization that occurred on February 2, 1998 (see
Note 2), the financial statements and references to the "Group" relate to
Holdings and its subsidiaries on a consolidated basis and for the period
prior to the Recapitalization to the "Group" on a combined basis. The
combined financial statements include the accounts and results of
operations of the Group for all periods that the operations were under
common control. All amounts in the financial statements are those
reported in the historic financial statements of the individual
operations. All significant intercompany accounts and transactions have
been eliminated in the consolidated and combined financial statements.

-57-

GRAHAM PACKAGING HOLDING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1999

Since the Recapitalization, Holdings has had no assets, liabilities
or operations other than its direct and indirect investments in the
Operating Company, its ownership of GPC Capital Corp. II and the Senior
Discount Notes and related unamortized issuance costs. 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 severely liable with GPC Capital Corp. II with
respect to all obligations on the Senior Discount Notes of Holdings and
GPC Capital Corp. II.

Description of Business

The Group sells plastic packaging products principally to large,
multinational companies in the automotive, food and beverage, and
household cleaning and personal care industries. The Group has
manufacturing facilities in the United States, Canada, United Kingdom,
France, Germany, Italy, Poland, Turkey, Hungary, Argentina and Brazil.

Investment in Joint Venture

The Group accounts for its investment in a joint venture in Poland
under the equity method of accounting.

Revenue Recognition

Sales are recognized as products are shipped and upon passage of
title to the customer and as services are rendered.

Cash and Cash Equivalents

The Group considers cash and investments with a maturity of three
months or less when purchased to be cash and cash equivalents.

Inventories

Inventories are stated at the lower of cost or market with cost
determined by the 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. Lease
amortization is included in depreciation expense. Interest costs are
capitalized during the period of construction of capital assets as a
component of the cost of acquiring these assets.

Other Assets

Other assets include debt issuance fees, goodwill, license fees and
other intangible assets. Debt issuance fees totaled $27.6 million and
$32.3 million as of December 31, 1999 and 1998, respectively. These
amounts are net of accumulated amortization of $8.5 million and $3.8
million as of December 31, 1999 and 1998, respectively. Amortization is
computed by the effective interest method over the term of the related
debt for debt issuance fees and by the straight-line method for goodwill,
license fees and other intangible assets. The term used in computing
amortization for goodwill is twenty years, and for license fees and other
intangible assets, from three to ten years. Accumulated amortization of

-58-

GRAHAM PACKAGING HOLDING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1999

goodwill was $1,885,000 and $342,000 as of December 31, 1999 and 1998,
respectively. Goodwill is reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the
goodwill may not be recoverable.

Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Any impairment loss, if indicated, is measured on
the amount by which the carrying amount of the asset exceeds the
estimated fair value of the asset.

Derivatives

The Group enters into interest rate swap agreements to hedge the
exposure to increasing rates with respect to its Credit Agreement. The
differential to be paid or received as a result of these swap agreements
is accrued as interest rates change and recognized as an adjustment to
interest expense related to the Credit Agreement. The Group also enters
into forward exchange contracts, when considered appropriate, to hedge
the exchange rate exposure on transactions that are denominated in a
foreign currency. During 1997, the Group used a combination of interest
rate collar and swap agreements to hedge interest rate risk.

Foreign Currency Translation

The Group uses the local currency as the functional currency for
all foreign operations. All assets and liabilities of foreign operations
are translated into U.S. dollars at year-end exchange rates. Income
statement items are translated at average exchange rates prevailing
during the year. The resulting translation adjustments are included in
accumulated other comprehensive income as a component of partners'
capital/owners' equity (deficit).

Comprehensive Income

Foreign currency translation adjustments are included in other
comprehensive income and added with net income to determine total
comprehensive income which is displayed in the Statements of Partners'
Capital/Owners' Equity (Deficit).

Income Taxes

The Group does not pay U.S. federal income taxes under the
provisions of the Internal Revenue Code, as the applicable income or loss
is included in the tax returns of the partners/owners. For the Group's
foreign operations subject to tax in their local jurisdictions, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and are measured using enacted tax rates expected to apply to
taxable income in the years in which the temporary differences are
expected to reverse.

-59-

GRAHAM PACKAGING HOLDING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1999

Management Option Plan

The Group accounts for equity based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees". SFAS No. 123,
"Accounting For Stock Based Compensation", established accounting and
disclosure requirements using a fair-value based method of accounting for
equity based employee compensation plans. The Group has elected to remain
on its current method of accounting as described above and has adopted
the disclosure requirements of SFAS No. 123.

Postemployment Benefits

The Group maintains a Supplemental Income Plan which provides
postemployment benefits to a certain employee of the Group. Accrued
postemployment benefits of $697,000 and $713,000 as of December 31, 1999
and 1998, respectively, were included in other non-current liabilities.

Computer Software Developed for Internal-Use

As of January 1, 1999, the Group adopted Statement of Position
("SOP") 98-1, "Accounting for Costs of Computer Software Developed for
Internal-Use." This SOP requires the capitalization of certain costs
incurred in connection with developing or obtaining software for internal
use. The adoption of this SOP did not have a significant impact on the
financial results of the Group for the year ended December 31, 1999.

Start-Up Activities

As of January 1, 1999, the Group adopted SOP 98-5, "Reporting on
the Costs of Start-Up Activities." This SOP requires costs of start-up
activities and organization costs to be expensed as incurred. The
adoption of this SOP did not have a significant impact on the financial
results of the Group for the year ended December 31, 1999.

Use of Estimates

The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from those estimates.

Reclassifications

Certain Reclassifications have been made to the 1998 financial
statements to conform to the 1999 presentation. These reclassifications
had no impact on the 1997 financial statement presentation.

New Accounting Pronouncements Not Yet Adopted

In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities".
This standard establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts (collectively referred to as derivatives) and for
hedging activities. It requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position
and measure those instruments at fair value.

In June 1999, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of Effective
Date of FASB Statement No. 133." This Standard defers the effective date
of FASB Statement No. 133 ("SFAS No. 133") to all fiscal quarters and all
fiscal years beginning after June 15, 2000. Management has not completed

-60-

GRAHAM PACKAGING HOLDING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1999

its review of SFAS No. 133 and has not determined the impact adoption
will have on the Group'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 owners of the Group (the "Graham
Partners") and (iii) BMP/Graham Holdings Corporation, a Delaware
corporation formed by Blackstone Capital Partners III Merchant Banking
Fund L.P. ("Investor LP"), and BCP/Graham Holdings L.L.C., a Delaware
limited liability company and a wholly owned subsidiary of Investor LP
("Investor GP" and together with Investor LP, the "Equity Investors")
agreed to a recapitalization of Holdings (the "Recapitalization").
Closing under the Recapitalization Agreement occurred on February 2,
1998.

The principal components and consequences of the Recapitalization
included the following:

- A change in the name of Holdings to Graham Packaging Holdings
Company;

- The contribution by Holdings of substantially all of its
assets and liabilities to the Operating Company, which was
renamed "Graham Packaging Company, L.P.";

- The contribution by certain Graham Partners to the Group of
their ownership interests in certain partially-owned
subsidiaries of Holdings and certain real estate used but not
owned by Holdings and its subsidiaries;

- The initial borrowing by the Operating Company of $403.5
million (the "Bank Borrowings") in connection with the New
Credit Agreement entered into by and among the Operating
Company, Holdings and a syndicate of lenders;

- The issuance of $225 million Senior Subordinated Notes by the
Operating Company and $100.6 million gross proceeds ($169
million aggregate principal amount at maturity) Senior
Discount Notes by Holdings. A wholly owned subsidiary of each
of the Operating Company and Holdings serves as co-issuer with
its parent for its respective issue of Notes;

- The repayment by the Operating Company of substantially all of
the existing indebtedness and accrued interest of Holdings and
its subsidiaries;

- The distribution by the Operating Company to Holdings of all
of the remaining net proceeds of the Bank Borrowings and the
Senior Subordinated Notes (other than amounts necessary to pay
certain fees and expenses and payments to Management);

- The redemption by Holdings of certain partnership interests in
Holdings held by the Graham Partners for $429.6 million;

-61-

GRAHAM PACKAGING HOLDING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1999

- The purchase by the Equity Investors of certain partnership
interests in Holdings held by the Graham Partners for $208.3
million;

- The repayment by the Graham Partners of amounts owed to
Holdings under the $20.2 million promissory notes;

- The recognition of additional compensation expense under the
Equity Appreciation Plan;

- The payment of certain bonuses and other cash payments and the
granting of certain equity awards to senior and middle level
management;

- The execution of various other agreements among the parties;
and

- The payment of a $6.2 million tax distribution by the
Operating Company on November 2, 1998 to certain Graham
Partners for tax periods prior to the Recapitalization.

As a result of the consummation of the Recapitalization, Investor
LP owns an 81% limited partnership interest in Holdings, and Investor GP
owns a 4% general partnership interest in Holdings. Certain Graham
Partners or affiliates thereof or other entities controlled by Donald C.
Graham and his family, have retained a 1% general partnership interest
and a 14% limited partnership interest in Holdings. Additionally,
Holdings owns a 99% limited partnership interest in the Operating
Company, and GPC Opco GP L.L.C., a wholly owned subsidiary of Holdings,
owns a 1% general partnership interest in the Operating Company.

As a result of the Recapitalization, the Group incurred charges of
approximately $32 million related to the issuance of debt which will be
recognized as interest expense over 6 to 11 years based upon the terms of
the related debt instruments. In addition, Recapitalization expenses of
approximately $25 million, which related to transaction fees, expenses,
compensation, unamortized licensing fees and costs associated with the
termination of the interest rate collar and swap agreements were
incurred. The Recapitalization also resulted in the write-off of
unamortized debt issuance fees, which is reflected as an extraordinary
loss in the financial statements. Compensation expense totaling $10.7
million, of which $9.6 million had been expensed as of December 31, 1999,
related to stay bonuses and the granting of certain ownership interests
to management which will be recognized over a period up to three years
from the date of the Recapitalization. See Note 14.

3. Acquisitions

Purchase of Certain Plants of Crown, Cork & Seal:

On July 27, 1998 the Company acquired selected plastic bottle
manufacturing operations of Crown, Cork & Seal located in France,
Germany, the United Kingdom and Turkey for a total purchase price
(including acquisition-related costs) of $41.4 million, net of
liabilities assumed. The acquisition was recorded under the purchase
method of accounting and accordingly, the results of operations of the
acquired operations are included in the financial statements of the Group

-62-

GRAHAM PACKAGING HOLDING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1999

beginning on July 27, 1998. The purchase price has been allocated to
assets acquired and liabilities assumed based on fair values. Goodwill is
being amortized over 20 years on the straight-line basis. The allocated
fair value of assets acquired and liabilities assumed is summarized as
follows (in thousands):

Current assets $21,965
Property, plant and equipment 29,845
Other assets 2,274
Goodwill 14,725
-------
Total 68,809
Less liabilities assumed 27,381
-------
Net cost of acquisition $41,428
=======

Purchase of Rheem-Graham Embalagens, Ltda:

On April 30, 1997, Graham Packaging do Brasil Industria e Comercio
S.A., then a wholly owned subsidiary of Holdings with no operations, and
owners of Holdings, acquired 80% of the operating assets of Rheem-Graham
Embalagens Ltda., which manufactures and sells plastic packaging
products, from Rheem Empreendimentos Industrialis e Comerciais. Rheem
Empreendimentos Industrialis e Comerciais contributed the remaining 20%
of the operating assets of Rheem-Graham Embalagens Ltda. in exchange for
a 20% minority interest in Graham Packaging do Brasil Industria e
Comercio S.A. The purchase price related to the 80% of the operating
assets of Rheem-Graham Embalagens Ltda. was approximately $21.1 million,
which was funded through borrowings under the Group's bank facilities.
The acquisition was recorded under the purchase method of accounting and
accordingly, the results of operations of the business acquired by Graham
Packaging do Brasil Industria e Comercio S.A. are included in the
financial statements of the Group beginning on April 30, 1997, less a
minority interest amount equal to 20% of Graham Packaging do Brasil
Industria e Comercio S.A. owned by the unaffiliated entity. The purchase
price has been allocated to assets acquired and liabilities assumed based
upon fair values on the date of acquisition. The fair value of assets and
liabilities acquired and contributed to Graham Packaging do Brasil
Industria e Comercio S.A. is summarized as follows (in thousands):

Net working capital $ 2,451
Property, plant and equipment 23,679
-------
$26,130
=======

-63-

GRAHAM PACKAGING HOLDING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1999

In February 1998, the Group acquired the remaining 20% minority interest
of $4,983,000 in Graham Packaging do Brasil Industria e Comercio S.A.
from Rheem Empreendimentos Industrialis e Comerciais for $2,995,000. The
difference of $1,988,000 has been recorded as a reduction of the carrying
amount of property, plant & equipment.

Purchase of Graham Packaging Argentina S.A.

On July 1, 1999 the Company acquired selected companies located in
Argentina for a total purchase price (including acquisition-related
costs) of $8.5 million, net of liabilities assumed, subject to certain
contingent consideration. The contingent consideration will be calculated
utilizing a predetermined formula based on the entities' performance
during a multi-year period ending December 31, 2000. If and when such
contingency is satisfied, additional goodwill will be recorded. The
acquisition was recorded under the purchase method of accounting and
accordingly, the results of operations of the acquired operations are
included in the financial statements of the Group beginning on July 1,
1999. The initial purchase price has been allocated to assets acquired
and liabilities assumed based on fair values. Goodwill is being
amortized over 20 years on the straight-line basis. The initial allocated
fair value of assets acquired and liabilities assumed is summarized as
follows (in thousands):

Current Assets . . . . . . . . . . . . . . . . . $ 2,831
Property, plant and equipment . . . . . . . . . . 4,840
Goodwill . . . . . . . . . . . . . . . . . . . . 9,044
-------

Total . . . . . . . . . . . . . . . . . . . . . . 16,715
Less liabilities assumed . . . . . . . . . . . . 8,244
-------

Net cost of acquisition . . . . . . . . . . . . . $ 8,471
=======

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, for a total purchase price (including acquisition-related costs) of
$1.2 million, net of liabilities assumed. The investment was accounted for
under the equity method of accounting prior to July 6, 1999. The acquisition
was recorded on July 6, 1999 under the purchase method of accounting and
accordingly, the results of operations of the acquired operations are
included in the financial statements of the Group

-64-

GRAHAM PACKAGING HOLDING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1999

beginning on July 6, 1999. The initial purchase price has been allocated
to assets acquired and liabilities assumed based on fair values. Goodwill
is being amortized over 20 years on the straight-line basis. The
allocated fair value of assets acquired and liabilities assumed is
summarized as follows (in thousands):

Current Assets . . . . . . . . . . . . . . . . . $ 443
Property, plant and equipment . . . . . . . . . . 4,689
Other Assets 132
Goodwill . . . . . . . . . . . . . . . . . . . . 2,841
------

Total . . . . . . . . . . . . . . . . . . . . . . 8,105
Less liabilities assumed . . . . . . . . . . . . 6,907
------

Net cost of acquisition . . . . . . . . . . . . . $1,198
======

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,
-----------------------
1999 1998
---- ----
(In thousands)

Net sales $721,756 $645,578
Net income (loss) (142) (29,334)

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.

-65-

GRAHAM PACKAGING HOLDING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1999

4. Accounts Receivable

Accounts receivable are presented net of an allowance for doubtful
accounts of $1,791,000 and $1,435,000 at December 31, 1999 and 1998,
respectively. Management performs ongoing credit evaluations of its
customers and generally does not require collateral.

The Group's sales to one customer, which exceeded 10% of total
sales in each of the past three years, were 10%, 12% and 14% for the
years ended December 31, 1999, 1998 and 1997, respectively. For the year
ended December 31, 1999, approximately 60%, 34% and 6% of the sales to
this customer were made in the United States, Europe and Canada,
respectively.

5. Inventories

Inventories consisted of the following:

December 31,
------------
1999 1998
---- ----
(In thousands)

Finished goods $32,551 $23,497
Raw materials and parts 20,296 17,750
------- -------
$52,847 $41,247
======= =======

Effective June 28, 1999, the Company changed its method of valuing
inventories for its 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 cost related to the actual physical
flow of raw materials and finished goods inventory. Accordingly, the
Company believes 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 the net loss for the year
ended December 31, 1998 by approximately $2.0 million and increased the
net income for the year ended December 31, 1997 by approximately $0.3
million. Prior to restatement, the LIFO reserve was $0.0 million at
December 31, 1998.

6. Accrued Expenses

Accrued expenses consisted of the following:

-66-

GRAHAM PACKAGING HOLDING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1999

December 31,
------------
1999 1998
---- ----
(In thousands)

Accrued employee compensation and benefits $21,116 $19,983
Special charges and unusual items 1,798 7,744
Accrued interest 21,432 16,736
Other 28,923 26,968
------- -------
$73,269 $71,431
======= =======

7. Debt Arrangements

Long-term debt consisted of the following:

December 31,
------------
1999 1998
---- ----
(In thousands)

Term loan $ 561,850 $466,800
Revolving loan 92,500 61,000
Revolving credit facilities 8,709 7,055
Senior Subordinated Notes 225,000 225,000
Senior Discount Notes 123,092 110,697
Other 5,949 4,845
----------- --------
1,017,100 875,397
Less amounts classified as current 24,370 11,929
----------- --------
$ 992,730 $863,468
=========== ========

On February 2, 1998, as discussed in Note 2 to the Financial
Statements, the Group refinanced the majority of its existing credit
facilities in connection with the Recapitalization and entered into a new
Credit Agreement (the "New Credit Agreement") with a consortium of banks.
The New Credit Agreement was amended on August 13, 1998 (the "Amendment")
to provide for an additional Term Loan Borrowing of an additional $175
million. The New Credit Agreement and the Amendment consist of four term
loans to the Operating Company totaling $570 million and two revolving
loan facilities to the Operating Company totaling $255 million. The unused
portion of the revolving loan facilities at December 31, 1999 and 1998 was
$162.5 million and $194.0 million, respectively.

-67-

GRAHAM PACKAGING HOLDING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1999

The obligations of the Operating Company under the New Credit Agreement
and Amendment are guaranteed by Holdings and certain other subsidiaries of
Holdings. The term loans are payable in quarterly installments through
January 31, 2007, and require payments of $15.0 million in 2000, $20.0
million in 2001, $25.0 million in 2002, $27.5 million in 2003 and $93.0
million in 2004. The revolving loan facilities expire on January 31,
2004. Interest is payable at (a) the "Alternate Base Rate" (the higher of
the Prime Rate or the Federal Funds Rate plus 0.50%) plus a margin
ranging from 0% to 2.00%; or (b) the "Eurocurrency Rate" (the applicable
interest rate offered to banks in the London interbank eurocurrency
market) plus a margin ranging from 0.625% to 3.00%. A commitment fee
ranging from 0.20% to 0.50% is due on the unused portion of the revolving
loan commitment. As part of the Amendment to the New Credit Agreement, if
certain events of default were to occur, or if the Group's Net Leverage Ratio
were above 5.15:1.0 at March 31, 2000, Blackstone has agreed to make an
equity contribution to the Group through the administrative agent of up to
$50 million. The Group's Net Leverage Ratio being above 5.15:1.0 at
March 31, 2000 is not an event of default under the New Credit Agreement.
In addition, the New Credit Agreement and Amendment contain certain
affirmative and negative covenants as to the operations and financial
condition of the Group, as well as certain restrictions on the payment of
dividends and other distributions to Holdings.

Substantially all domestic tangible and intangible assets of the Group are
pledged as collateral pursuant to the terms of the New Credit Agreement
and Amendment.

The Recapitalization also included the issuance of $225 million in
Senior Subordinated Notes of the Operating Company and $100.6 million
gross proceeds in Senior Discount Notes ($169 million aggregate principal
amount at maturity) of Holdings. The Senior Subordinated Notes are
unconditionally guaranteed on a senior subordinated basis by Holdings and
mature on January 15, 2008, with interest payable on $150 million at a
fixed rate of 8.75% and with interest payable on $75 million at LIBOR plus
3.625%. The Senior Discount Notes mature on January 15, 2009, with cash
interest payable beginning January 15, 2003 at 10.75%. The effective
interest rate to maturity on the Senior Discount Notes is 10.75%.

At December 31, 1999, the Operating Company had entered into three
U.S. Dollar interest rate swap agreements that effectively fix the
Eurocurrency Rate on $450 million of the term loans, on $200 million

-68-

GRAHAM PACKAGING HOLDING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1999

through April 9, 2002 at 5.8075%, on $100 million through April 9, 2003
at 5.77% and on $150 million through September 10, 2001 at 5.5075%.

Under the New Credit Agreement and Amendment, the Operating Company
is subject to restrictions on the payment of dividends or other
distributions to Holdings; provided that, subject to certain limitations,
the Operating Company may pay dividends or other distributions to
Holdings (i) in respect of overhead, tax liabilities, legal, accounting
and other professional fees and expenses, (ii) to fund purchases and
redemptions of equity interests of Holdings or Investor LP held by their
present or former officers or employees of Holdings, the Operating
Company or their Subsidiaries (as defined) or by any employee stock
ownership plan upon such person's death, disability, retirement or
termination of employment or other circumstances with certain annual
dollar limitations and (iii) to finance starting on July 15, 2003, the
payment of cash interest payments on the Senior Discount Notes.

On September 8, 1998, 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
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.

The Group's effective rate on the outstanding borrowings under the
term loan and revolving loan was 8.40% and 7.73% at December 31, 1999 and
1998, respectively.

The Group had several variable-rate revolving credit facilities
denominated in U.S. Dollars, French Francs and Italian Lire, with
aggregate available borrowings at December 31, 1999 equivalent to $14.5
million. The Group's average effective rate on borrowings of $8.7 million
on these credit facilities at December 31, 1999 was 8.53%. The Group's
average effective rate on borrowings of $7.1 million on these credit
facilities at December 31, 1998 was 4.95%.

Interest paid during 1999, 1998 and 1997, net of amounts
capitalized of $3,727,000, $2,639,000 and $615,000, respectively, totaled
$66,166,000, $41,985,000 and $14,900,000, respectively.

The annual debt service requirements of the Group for the
succeeding five years are as follows: 2000--$24.4 million; 2001--$21.1

-69-

GRAHAM PACKAGING HOLDING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1999

million; 2002--$25.7 million; 2003--$28.1 million and 2004--$186.1
million.

8. Fair Value of Financial Instruments and Derivatives

The following methods and assumptions were used to estimate the
fair values of each class of financial instruments:

Cash and Cash Equivalents, Accounts Receivable and Accounts Payable

The fair values of these financial instruments approximate their
carrying amounts.

Long-Term Debt

The fair values of the variable-rate, long-term debt instruments
approximate their carrying amounts. The fair value of other long-term
debt was based on market price information and was estimated using
discounted cash flow analyses based on current incremental borrowing
rates for similar types of borrowing arrangements. Other long-term debt
includes the Senior Discount Notes and $150 million of Senior
Subordinated Notes and totaled approximately $273.1 million and $260.7
million at December 31, 1999 and 1998, respectively. The fair value of
this long-term debt, including the current portion, was approximately
$256.7 million and $271.4 million at December 31, 1999 and 1998,
respectively.

Derivatives

The Group is exposed to market risk from changes in interest rates
and currency exchange rates. The Group manages these exposures on a
consolidated basis and enters into various derivative transactions for
selected exposure areas. The financial impacts of these hedging
instruments are offset by corresponding changes in the underlying
exposures being hedged. The Group does not hold or issue derivative
financial instruments for trading purposes.

Interest rate swap agreements are used to hedge exposure to
interest rates associated with the Group's Credit Agreement. Under these
agreements, the Group agrees to exchange with a third party at specified
intervals, the difference between fixed and variable interest amounts
calculated by reference to an agreed-upon notional principal amount. The
interest rate differential is reflected as an adjustment to interest
expense over the life of the interest rate swap agreements.

The following table presents information for all interest rate
instruments. The notional amount does not necessarily represent amounts
exchanged by the parties and, therefore is not a direct measure of the
Group's exposure to credit risk. The fair value approximates the cost to
settle the outstanding contracts. The carrying value, which represents
accrued interest due to counterparties under swap agreements, was not
significant.

-70-

GRAHAM PACKAGING HOLDING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1999

1999 1998
(in thousands) ---- ----

Notional amount $450,000 $450,000
Fair value 9,283 (8,784)

Although derivatives are an important component of the Group's
interest rate management program, their incremental effect on interest
expense for 1999, 1998 and 1997 was not significant.

The Group manufactures and sells its products in a number of
countries throughout the world and, as a result, is exposed to movements
in foreign currency exchange rates. The Group utilizes foreign currency
hedging activities to protect against volatility associated with purchase
commitments that are denominated in foreign currencies for machinery,
equipment and other items created in the normal course of business. The
terms of these contracts are generally less than one year.

Gains and losses related to qualifying hedges of foreign currency
firm commitments or anticipated transactions are deferred in other
current assets and are included in the basis of the underlying
transactions. To the extent that a qualifying hedge is terminated or
ceases to be effective as a hedge, any deferred gains and losses up to
that point continue to be deferred and are included in the basis of the
underlying transaction. There were no currency forward contracts
outstanding at December 31, 1999. At December 31, 1998 the Group had
foreign currency forward exchange contracts totaling $5,793,000 with a
fair value of $5,936,000. The deferred gains and losses on these
instruments were not significant.

Credit risk arising from the inability of a counterparty to meet
the terms of the Group's financial instrument contracts is generally
limited to the amounts, if any, by which the counterparty's obligations
exceed the obligations of the Group. It is the Group's policy to enter
into financial instruments with a diversity of creditworthy
counterparties. Therefore, the Group does not expect to incur material
credit losses on its risk management or other financial instruments.

9. Lease Commitments

The Group was a party to various leases involving real property and
equipment during 1999, 1998 and 1997. Total rent expense for operating
leases amounted to $13,505,000 in 1999, $10,627,000 in 1998 and
$9,599,000 in 1997. Minimum future lease obligations on long-term
noncancelable operating leases in effect at December 31, 1999, are as
follows: 2000--$8,516,000; 2001--$7,909,000; 2002--$6,993,000; 2003--
$5,887,000; 2004--$4,636,000; and thereafter--$8,619,000.

10. Transactions with Affiliates

Transactions with entities affiliated through common ownership
included the following:

-71-

GRAHAM PACKAGING HOLDING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1999

Year Ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
(In thousands)

Equipment purchases from affiliates $20,367 $22,045 $11,104

Management services provided by affiliates, including
management, legal, tax, accounting, insurance, treasury, and
employee benefits administration services $ 2,028 $ 2,071 $ 2,820

Management services provided and sales to Graham Engineering
Corporation, including engineering services and raw materials $ 2,453 $ 1,414 $ 945

Interest income on notes receivable from owners -- $ 103 $ 1,026

Account balances with affiliates include the following:

Year Ended December 31,
-----------------------
1999 1998
---- ----
(In thousands)

Accounts receivable $529 $1,116
Accounts payable $513 $2,804

Certain land and buildings included in the accompanying financial
statements were leased by the Group from the control group of owners
under operating leases until the assets were contributed to the Group.
The lease payments totaling zero in 1999 and 1998 and approximately $2.6
million in 1997 are classified as distributions to owners in the
accompanying financial statements. The depreciation and operating
expenses related to the land and buildings are included in the operations
of the Group. Certain of the real property leased from the control group
was contributed to the Group as part of the Recapitalization and the
related leases were terminated.

11. Pension Plans

Substantially all employees of the Group participate in
noncontributory, defined benefit or defined contribution pension plans.

-72-

GRAHAM PACKAGING HOLDING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1999

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 Group's policy is to fund the normal cost plus amounts
required to amortize actuarial gains and losses and prior service costs
over a period of ten years. U.S. Plan assets consist of a diversified
portfolio including U.S. Government securities, certificates of deposit
issued by commercial banks, and domestic common stocks and bonds.

Prior to the Recapitalization, the Group participated in a plan
sponsored by an affiliated company. As part of the Recapitalization, the
Group's portion of pension obligations and related plan assets were spun
off into a newly established plan. The transactions resulted in a one-
time allocation of additional plan assets.

The following table sets forth the change in the Group's benefit
obligation and pension plan assets at market value for the years ended
December 31, 1999 and 1998:

1999 1998
---- ----

Change in benefit obligation: (In thousands)
Benefit obligation at beginning of year $(23,568) $(17,690)
Service cost (2,034) (1,738)
Interest cost (1,640) (1,356)
Benefits paid 436 437
Change in benefit payments due to experience (10) (903)
Effect of exchange rate changes (207) 210
Decrease (increase) in benefit obligation due to change in discount rate 2,149 (1,863)
Increase in benefit obligation due to plan experience (221) (112)
Increase in benefit obligation due to plan change (347) (553)
-------- --------
Benefit obligation at end of year $(25,442) $(23,568)

Change in plan assets:
Plan assets at market value at beginning of year $ 20,263 $ 14,871
Actual return on plan assets 2,832 2,299
Foreign currency exchange rate changes 196 (198)
Employer contribution 1,882 2,304
Benefits paid (436) (437)
Acquisitions (spin off from affiliated company) (84) 1,424
-------- --------
Plan assets at market value at end of year 24,653 20,263

Funded status (789) (3,305)
Unrecognized net actuarial loss (2,948) 135
Unrecognized prior service cost 1,244 981
-------- --------
Accrued pension expense $ (2,493) $ (2,189)
======== ========

-73-

GRAHAM PACKAGING HOLDING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1999

The accrued pension expense of $2,493,000 at December 31, 1999 consists
of $2,806,000 accrued pension expense for the U.S. Plan and $313,000 prepaid
pension asset for the Canadian Plan. The accrued pension expense of $2,189,000
at December 31, 1998 consists of $2,362,000 accrued pension expense for the
U.S. Plan and $173,000 prepaid pension asset for the Canadian Plan.

The projected benefit obligations for these plans were determined
using discount rates of 7.5 percent as of December 31, 1999 and 7.0
percent as of December 31, 1998 in the United States and 7.0 percent as
of December 31, 1999 and 1998 in Canada. The assumed long-term rate of
return on United States plan assets for 1999 and 1998 was 8.0 percent and
for Canadian plan assets was 8.0 percent for 1999 and 8.75 percent for
1998. The weighted average rate of increase used for future compensation
levels was 5.0 percent for 1999, 1998 and 1997 in the United States and
5.0 percent for 1999 and 6.5 percent for 1998 and 1997 in Canada.

The Group's net pension cost for its defined benefit pension plans
includes the following components:

Year Ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
(In thousands)

Service cost $2,033 $ 1,738 $ 1,415
Interest cost 1,640 1,356 1,176
Net investment return on plan assets (2,839) (2,167) (1,082)
Net amortization and deferral 1,366 1,032 121
------ ------- -------

Net periodic pension costs $2,200 $ 1,959 $ 1,630

====== ======= =======

The Group sponsors a defined contribution plan under Internal
Revenue Code Section 401(k) which covers all hourly and salaried
employees other than employees represented by a collective bargaining
unit. The Group also sponsored other defined contribution plans under
collective bargaining agreements. The Group's contributions are
determined as a specified percentage of employee contributions, subject
to certain maximum limitations. The Group's costs for these plans for
1999, 1998, and 1997 were $875,000, $804,000 and $742,000, respectively.

12. Partners' Capital/Owners' Equity

Owners' equity included the partners' capital and shareholders'
equity of the various entities and operations included in the financial
statements, as described in Note 1. Prior to the Recapitalization, as
described in Note 2, owners' equity included the partners' capital and
shareholders' equity of those entities and operations included in the
combined financial statements. Effective January 1, 1994, pursuant to an
ownership structure reorganization of Holdings and several affiliated
entities, Holdings obtained 60% of the outstanding voting interests of
members of the Group operating in France, Italy, and the United Kingdom.
The remaining 40% of the outstanding voting interests was obtained
directly by owners of Holdings. Also, Holdings obtained 99% of the voting
interest in Graham Recycling Company, L.P. During 1995, the members

-74-

GRAHAM PACKAGING HOLDING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1999

operating in France and Italy issued 100% of their nonvoting preferred
interests to Holdings.

At December 31, 1997, Holdings owned 100% of the outstanding stock
of Graham Packaging Canada, Ltd., a Canadian corporation, 15.8% of the
outstanding stock of Graham Packaging do Brasil Industria e Comercio S.A.
and a 99% limited partnership interest in the Operating Company. The
remaining 1% interest in Graham Recycling Company, L.P. and the Operating
Company were owned directly by owners of Holdings. In addition, 64.2% of
Graham Packaging do Brasil Industria e Comercio S.A. was owned directly
by owners of Holdings and the remaining 20% was owned by an unrelated
entity. As noted in Note 3, in February 1998, the Group acquired the
remaining 20% interest in Graham Packaging do Brasil Industria e Comercio
S.A.

At December 31, 1997, Holdings held notes receivable from limited
partners of $20,240,000, bearing interest at 5.07% for partnership
interests in it. The notes were classified as a reduction of owners'
equity in the balance sheets. As a result of the Recapitalization (see
note 2), this obligation was repaid by the limited partners in 1998.

At December 31, 1998, Holdings owned a 99% direct limited
partnership interest in the Operating Company. The remaining 1% interest
in the Operating Company is owned as a general partnership interest by
GPC Opco GP LLC, which is 100% owned by Holdings. The Operating Company
in turn owns a 99% interest and, through its 100% owned subsidiary GP Sub
GP, LLC, a 1% general partnership interest in the various entities and
operations included in the financial statements, as described in Note 1,
except for Graham Packaging Canada, Ltd., GPC Capital Corp. I, Graham
Plastpak Plastik Ambalaj A.S., where the Operating Company owns 100% of
the capital stock of these subsidiaries. In addition, Holdings owns 100%
of the capital stock of GPC Capital Corp. II. As a result of the
Recapitalization, any interests in these entities formerly held by owners
of Holdings were contributed to Holdings, which in turn contributed these
interests to the Operating Company.

At December 31, 1999, Holdings owned a 99% direct limited
partnership interest in the Operating Company. The remaining 1% interest
in the Operating Company is owned as a general partnership interest by
GPC Opco GP LLC, which is 100% owned by Holdings. The Operating Company
in turn owns a 99% interest and, through its 100% owned subsidiary GP Sub
GP, LLC, a 1% general partnership interest in the various entities and
operations included in the Financial statements, as described in Note 1,
except for Graham Packaging Argentina S.A., Graham Packaging Canada,
Ltd., GPC Capital Corp. I, and Graham Plastpak Plastik Ambalaj A.S.,
where the Operating Company owns 100% of the capital stock of these
subsidiaries and PlasPET Florida, Ltd. where the Operating Company owns a
51% general partnership interest. In addition, Holdings owns 100% of the
capital stock of GPC Capital Corp. II.

13. Management Option Plan

Pursuant to the Recapitalization Agreement, the Group has adopted
the Graham Packaging Holdings Company Management Option Plan (the "Option
Plan").

-75-

GRAHAM PACKAGING HOLDING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1999

The Option Plan provides for the grant to certain management
employees of Holdings and its subsidiaries of options ("Options") to
purchase limited partnership interests in Holdings equal to 0.01% of
Holdings (prior to any dilution resulting from any interests granted
pursuant to the Option Plan), each 0.01% interest being referred to as a
"Unit". The aggregate number of Units with respect to which Options may
be granted under the Option Plan shall not exceed 500 Units, representing
a total of up to 5% of the equity of Holdings.

The exercise price per Unit shall be at or above the fair market
value of the 0.01% interest on the date of the grant. The number and type
of Units covered by outstanding Options and exercise prices may be
adjusted to reflect certain events such as recapitalizations, mergers or
reorganizations of or by Holdings. The Option Plan is intended to advance
the best interests of the Group by allowing such employees to acquire an
ownership interest in the Group, thereby motivating them to contribute to
the success of the Group and to remain in the employ of the Group.

A committee has been appointed to administer the Option Plan,
including, without limitation, the determination of the employees to whom
grants will be made, the number of Units subject to each grant, and the
various terms of such grants. As of December 31, 1998, 399.1 Unit Options
were granted at an exercise price of $25,789 per unit. No options were
vested, forfeited, canceled or exercised as of December 31, 1998. During
1999, 22.8 Unit Options were forfeited and 123.7 were granted. As of
December 31, 1999, 500 Unit Options were granted at an exercise price of
$25,789 per unit and 131.7 of the 500 were vested.

The Group applies APB 25 in accounting for the Option Plan. The
exercise price of the Unit equals the fair market value of the 0.01%
interest on the date of the grant and, accordingly no compensation cost
has been recognized under the provisions of APB 25 for Units granted.
Under SFAS 123, compensation cost is measured at the grant date based on
the value of the award and is recognized over the service (or vesting)
period. Had compensation cost for the option plan been determined under
SFAS 123, based on the fair market value at the grant dates, the Group's
pro forma net income (loss) for 1999 and 1998 would have been reflected
as follows (in thousands):

1999 1998
---- ----

As reported $1,255 $(28,031)
Pro forma 727 (28,452)

The fair value of each option Unit is estimated on the date of the
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions used for Units granted in 1998: pay out
yield 0%, expected volatility of 0%, risk free interest rate of 5.558%,
and expected life of 4.6 years; and for Units granted in 1999: pay out

-76-

GRAHAM PACKAGING HOLDING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1999

yield 0%, expected volatility of 0%, risk free interest rate of 4.57%,
and expected life of 3.6 years.

14. Special Charges and Unusual Items

The special charges and unusual items were as follows:

Year Ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
(In thousands)

Restructuring of facilities $ 552 $ 1,960 $ 1,222
Systems conversion 1,304 963 515
Litigation -- 285 22,624
Recapitalization compensation 2,669 20,609 --
Aborted acquisition costs 28 427 --
------ -------- -------

$4,553 $ 24,244 $24,361
====== ======== =======

In 1997, the Group incurred $746,000 related to the restructuring
of the facilities in France and $476,000 in restructuring costs at its
corporate offices. In 1998, the Group incurred restructuring charges of
$1,960,000 related to the decision to close a plant in Whiting, Indiana
and to restructure a plant in Blyes, France. Included in the $1,960,000
is $1,200,000 related to the legal liability of severing 51 employees at
the Blyes plant in France and $350,000 related to the severing of 26
employees at the Whiting, Indiana plant. In 1999, the Group incurred an
additional $552,000 related to the plant closure in Whiting, Indiana and
the facility restructuring in Blyes, France. The amount of the charges
paid as of December 31, 1999 related to the restructuring of the facility
in Blyes, France that began in 1998 was $1,480,000. The remaining accrual
for this restructuring as of December 31, 1999 is $385,000.

The systems conversion expenses relate to costs incurred by the
Group as part of a multi-year project to ensure that its information
systems and related hardware would be year 2000 compliant. The Group
engaged outside consultants beginning in 1997 to assist with the
evaluation and assessment of its information systems requirements and the
selection and implementation of enterprise resource planning software.

Recapitalization expenses included in special charges and unusual
items relate to compensation and to write-off of unamortized licensing
fees. Additionally, Recapitalization expenses relate to stay bonuses and
the granting of certain ownership interests to Management pursuant to the
terms of the Recapitalization (see Note 2), which are being recognized
over a period of up to three years.

-77-

GRAHAM PACKAGING HOLDING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1999

The litigation costs in 1997 are primarily costs incurred and accrued
by the Group for legal fees in connection with the claims against the Group
for alleged patent infringements and the counterclaims brought by the Group
alleging violations of federal antitrust law by the plaintiffs and amounts
expected to be paid in settlement of the claims in the JCI-Schmalbach-Lubeca
matter. See Note 18 to the Financial Statements.

15. Other (Income) Expense

Other (income) expense consisted of the following:

Year Ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
(In Thousands)

Foreign exchange (gain) loss $ (333) $ 196 $ 955
Equity income in earnings of joint ventures (231) (274) (200)
Other (165) (44) --
------ ------ ------
$ (729) $ (122) $ 755
====== ====== ======

16. Income Taxes

Certain legal entities in the Group do not pay income taxes because
their income is taxed to the owners. For those entities, the reported
amount of their assets net of the reported amount of their liabilities
are exceeded by the related tax bases of their assets net of liabilities
by $426.4 million at December 31, 1999 and $482.6 million at December 31,
1998.

Income of certain legal entities related principally to the foreign
operations of the Group is taxable to the legal entities. The following
table sets forth the deferred tax assets and liabilities that result from
temporary differences between the reported amounts and the tax bases of
the assets and liabilities of such entities:

-78-

GRAHAM PACKAGING HOLDING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1999

December 31,
------------
1999 1998
---- ----
(In thousands)

Deferred tax assets:
Net operating loss carryforwards $24,672 $24,654
Fixed assets, principally due to differences in depreciation
and assigned values 1,165 2,063
Accrued retirement indemnities 1,184 1,614
Inventories 670 582
Accruals and reserves 223 1,149
Capital leases 638 829
Other items 80 24
------- -------
Gross deferred tax assets 28,632 30,915
Valuation allowance (14,545) (13,903)
------- -------
Net deferred tax assets 14,087 17,012

Deferred tax liabilities:
Fixed assets, principally due to differences in depreciation
and assigned values 11,966 10,778
Goodwill 2,807 4,462
Other items 57 41
------- -------
Gross deferred tax liabilities 14,830 15,281
------- -------
Net deferred tax (assets) liabilities $ 743 $(1,731)
======= =======

Deferred tax assets of $1.2 million in 1999 and $2.1 million in
1998 are included in other assets. Deferred tax liabilities of $1.9
million in 1999 and $0.3 million in 1998 are included in accrued
expenses.

The valuation allowance reduces the Group's deferred tax assets to
an amount that Management believes is more likely than not to be
realized.

The 1999 provision for income taxes is comprised of $0.5 million of
current provision and $2.0 million of deferred. The amounts relate
entirely to the Group's foreign legal entities.

The difference between the 1999 actual income tax provision and an
amount computed by applying the U.S. federal statutory rate to earnings
before income taxes is attributable to the following:

-79-

GRAHAM PACKAGING HOLDING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1999

Year Ended December 31,
-----------------------
1999 1998
---- ----
(In thousands)

Taxes at U.S. federal statutory rate $ 1,323 $ (9,504)
Partnership income not subject to federal income taxes (1,178) 7,531
Foreign loss without current tax benefit 2,050 2,617
Other 331 448
-------- --------
$ 2,526 $ 1,092
======== ========

At December 31, 1999, the Group's various taxable entities had net
operating loss carryforwards for purposes of reducing future taxable
income by approximately $24.7 million, for which no benefit has been
recognized. Of this amount, $4.7 million related to carryforwards that
will expire, if unused, at various dates ranging from 2000 to 2004 and
the remaining carryforwards have no expiration date.

At December 31, 1999, the unremitted earnings of non-U.S.
subsidiaries totaling $11.1 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 $325,000 of withholdings taxes would apply.

17. Commitments

In connection with plant expansion and improvement programs, the
Group had commitments for capital expenditures of approximately $34.5
million at December 31, 1999.

18. Contingencies and Legal Proceedings

The Group is party to various litigation matters arising in the
ordinary course of business. The ultimate legal and financial liability
of the Group with respect to litigation cannot be estimated with
certainty, but Management believes, based on its examination of such
matters, experience to date and discussions with counsel, that such
ultimate liability will not be material to the business, financial
condition or results of operations of the Group.

Holdings was sued in May, 1995, for alleged patent infringement,
trade secret misappropriation and other related state law claims by
Hoover Universal, Inc., a subsidiary of Johnson Controls, Inc. ("JCI"),
in the U.S. District Court for the Central District of California (the
"JCI Litigation"). JCI alleged that Holdings was misappropriating or
threatened to misappropriate trade secrets allegedly owned by JCI

-80-

GRAHAM PACKAGING HOLDING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1999

relating to the manufacture of hot-fill PET plastic containers through
the hiring of JCI employees and alleged that Holdings infringed two
patents owned by JCI by manufacturing hot-fill PET plastic containers for
several of its largest customers using a certain "pinch grip" structural
design. In December 1995, JCI filed a second lawsuit alleging
infringement of two additional patents, which relate to a ring and base
structure for hot-fill PET plastic containers. The two suits were
consolidated for all purposes. Holdings has answered the complaints,
denying infringement and misappropriation in all respects and asserting
various defenses, including invalidity and unenforceability of the
patents at issue based upon inequitable conduct on the part of JCI in
prosecuting the relevant patent applications before the U.S. Patent
Office and anticompetitive patent misuse by JCI. Holdings has also
asserted counterclaims against JCI alleging violations of federal
antitrust law, based upon certain agreements regarding market division
allegedly entered into by JCI with another competitor and other alleged
conduct engaged in by JCI allegedly intended to raise prices and limit
competition in the market for hot-fill PET plastic containers. In March
1997, JCI's plastic container business was acquired by Schmalbach-Lubeca
Plastic Containers USA Inc. ("Schmalbach-Lubeca"). Schmalbach-Lubeca and
certain affiliates were joined as successors to JCI and as counter-claim
defendants.

On March 10, 1998, the U.S. District Court in California entered
summary judgment in favor of JCI and against the Group regarding
infringement of two patents, but did not resolve certain issues related
to the patents including certain of the Group's defenses. On March 6,
1998, the Group also filed suit against Schmalbach-Lubeca in Federal
Court in Delaware for infringement of the Group's patent concerning pinch
grip bottle design. On April 24, 1998, the parties to the litigation
reached an understanding on the terms of a settlement of all claims in
all of the litigation with JCI and Schmalbach-Lubeca, subject to
agreement upon and execution of a formal settlement agreement. Management
believed that the amounts that would ultimately be paid in settlement, as
well as estimated litigation expenses and professional fees, would not
differ materially from the amounts accrued in Special Charges and Unusual
Items in respect thereof for the year ended December 31, 1997. See Note
14 to the Financial Statements.

In June 1998, the Group finalized the settlement of the JCI-
Schmalbach-Lubeca litigation. The amounts paid in settlement as well as
estimated litigation expenses and professional fees did not differ
materially from the amounts accrued in special charges and unusual items
in respect thereof in 1997. See Note 14 to the Financial Statements.

-81-

GRAHAM PACKAGING HOLDING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1999

19. Segment Information

The Group has adopted SFAS No. 131, "Disclosures about Segments of
a Business Enterprise and Related Information". The Group is organized
and managed on a geographical basis in three operating segments: North
America, which includes the United States and Canada, Europe and Latin
America. The accounting policies of the segments are consistent with
those described in Note 1.

(In thousands)

North Latin
Year America Europe America Eliminations Total
---- ------- ------ ------- ------------ -----

Net sales 1999 $554,967 $136,748 $24,369 $716,084
1998 465,317 100,835 21,979 588,131
1997 439,977 67,408 14,322 521,707

Special charges and unusual items 1999 $ 3,750 $848 $(45) $4,553
1998 22,245 1,572 427 24,244
1997 23,615 746 -- 24,361

Operating income (loss) 1999 $92,962 $(4,250) $1,372 $90,084
1998 59,922 (7,010) 479 53,391
1997 34,693 (8,841) (389) 25,463

Depreciation and amortization 1999 $44,023 $11,294 $2,679 $57,996
1998 31,384 9,405 2,315 43,104
1997 33,065 6,436 1,858 41,359

Interest expense (income), net 1999 $88,142 $(629) $(39) $ 87,474
1998 68,331 (496) 173 68,008
1997 11,191 1,517 722 13,430

Income tax expense (benefit) 1999 $521 $859 $1,146 $2,526
1998 -- 311 781 1,092
1997 -- 28 572 600

Identifiable assets 1999 $724,985 $169,028 $43,545 $(196,309) $741,249
1998 569,521 172,553 38,783 (184,110) 596,747
1997 321,729 80,896 36,555 (51,720) 387,460

Capital expenditures 1999 $137,825 $31,381 $1,766 $170,972
1998 114,048 13,243 6,621 133,912
1997 33,471 11,018 8,684 53,173

Extraordinary loss from early 1999 $-- $-- $-- $--
extinguishment of debt 1998 675 -- -- 675
1997 -- -- -- --

-82-

GRAHAM PACKAGING HOLDING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1999

Product Net Sales Information

The following is supplemental information on net sales by product
category (in millions):

Food & Household Cleaning
Automotive Beverage & Personal Care Total
---------- -------- ------------------ -----

1999 $207.7 $323.1 $185.3 $716.1
1998 188.7 221.1 178.3 588.1
1997 196.4 150.6 174.7 521.7

-83-

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

Holdings, which is composed of the legal entities and operations
that prior to the Recapitalization, which occurred on February 2, 1998,
were known as the Graham Packaging Group (the "Group"), has engaged
Deloitte & Touche LLP as its independent auditors for the years ending
December 31, 1999 and 1998 to replace the firm of Ernst & Young LLP, who
were dismissed as auditors of Holdings effective April 30, 1998. The
action was formalized by a resolution adopted by Investor GP, as general
partner of Holdings, on July 10, 1998, but effective as of April 30,
1998.

The report of Ernst & Young LLP on the financial statements of the
Group for the year ended December 31, 1997 did not contain an adverse
opinion or a disclaimer of opinion and was not qualified or modified as
to uncertainty, audit scope, or accounting principles.

In connection with the audit of the Group's financial statements
for the year ended December 31, 1997 and in the subsequent interim
period, there were no disagreements with Ernst & Young LLP on any matters
of accounting principles or practices, financial statement disclosure, or
auditing scope and procedures which, if not resolved to the satisfaction
of Ernst & Young LLP would have caused Ernst & Young LLP to make
reference to the matter in their report.

PART III

Item 10. Advisory Committee Members, Directors and Executive Officers
of the Registrant

The members of the Advisory Committee of Holdings and the executive
officers of the Operating Company and their respective ages and positions
at December 31, 1999 are set forth in the table below. For a description
of the Advisory Committee, see "The Partnership Agreements--Holdings
Partnership Agreement."

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

Donald C. Graham 66 Chairman of the Advisory Committee of
Holdings
William H. Kerlin, Jr. 48 Vice Chairman of the Advisory Committee
of Holdings
Philip R. Yates 52 President and Chief Executive Officer of
the Operating Company
John E. Hamilton 41 Chief Financial Officer of the Operating
Company
G. Robinson Beeson 51 Senior Vice President and General
Manager, Automotive of the Operating
Company

-84-

Scott G. Booth 43 Senior Vice President and General
Manager, Household Cleaning and Personal
Care of the Operating Company
Roger M. Prevot 40 Senior Vice President and General
Manager, Food and Beverage of the
Operating Company
Philippe LeJeune 51 Senior Vice President and General
Manager, Europe of the Operating Company
George M. Lane 55 Senior Vice President Global People
Resources of the Operating Company
Geoffrey R. Lu 44 Vice President and General Manager,
Latin America of the Operating Company
George W. Stevens 56 Vice President and General Manager,
Canada of the Operating Company
Robert M. Gibson 60 Vice President Global Procurement of the
Operating Company
Jay W. Hereford 49 Vice President, Finance and
Administration of the Operating Company
Chinh E. Chu 33 Member of the Advisory Committee of
Holdings
Howard A. Lipson 36 Member of the Advisory Committee of
Holdings
Simon P. Lonergan 31 Member of the Advisory Committee of
Holdings

Donald C. Graham has served as Chairman of the Advisory Committee
of Holdings since the Recapitalization. From June 1993 to the
Recapitalization, Mr. Graham served as Chairman of the Board of Directors
of the Company. Prior to June 1993, Mr. Graham served as President of the
Company.

William H. Kerlin, Jr. has served as Vice Chairman of the Advisory
Committee of Holdings since the Recapitalization. From October 1996 to
the Recapitalization, Mr. Kerlin served as Vice Chairman of the Board of
Directors and Chief Executive Officer of the Company. From 1994 to 1996,
Mr. Kerlin served as Vice President of the Company and Vice Chairman of
the Company. Prior to 1994, Mr. Kerlin served as Secretary of the
Company.

Philip R. Yates has served as Chief Executive Officer of the
Operating Company and Opco GP since February 8, 2000. Prior to February
8, 2000 Mr. Yates served as President and Chief Executive Officer of the
Operating Company since the Recapitalization. Since the Recapitalization,
Mr. Yates has also served as President and Chief Executive Officer of
Opco GP and of various subsidiaries of the Operating Company or their
general partner, as President, Treasurer and Assistant Secretary of CapCo
I and CapCo II, and as a member of the Boards of Directors of CapCo I and
CapCo II. From April 1995 to the Recapitalization, Mr. Yates served as
President and Chief Operating Officer of the Company. From 1994 to 1995,
Mr. Yates served as President of the Company. Prior to 1994, Mr. Yates
served in various management positions with the Company.

John E. Hamilton has served as Chief Financial Officer or Senior
Vice President, Finance and Administration or Vice President, Finance and
Administration of the Operating Company since the Recapitalization. Since

-85-

January 21, 1999, Mr. Hamilton has served as Chief Financial Officer of
the Operating Company, Opco GP and Holdings, and has served as Treasurer
and Secretary of Opco GP and of various subsidiaries of the Operating
Company or their general partner since the Recapitalization. Since the
Recapitalization, Mr. Hamilton has served as Vice President, Secretary
and Assistant Treasurer of CapCo I and CapCo II, and as a member of the
Boards of Directors of CapCo I and CapCo II. Subsequent to the
Recapitalization and until January 21, 1999, Mr. Hamilton served as Vice
President, Finance and Administration of Opco GP and Holdings. From
November 1992 to the Recapitalization, Mr. Hamilton served as Vice
President, Finance and Administration, North America of the Company.
Prior to 1992, Mr. Hamilton served in various management positions with
the Company.

G. Robinson Beeson has served as Senior Vice President or Vice
President and General Manager, Automotive of the Operating Company since
the Recapitalization. From July 1990 to the Recapitalization, Mr. Beeson
served as Vice President and General Manager, U.S. Automotive of the
Company.

Scott G. Booth has served as Senior Vice President or Vice
President and General Manager, Household Cleaning and Personal Care of
the Operating Company since the Recapitalization. From July 1990 to the
Recapitalization, Mr. Booth served as Vice President and General Manager,
U.S. Household Cleaning and Personal Care of the Company.

Roger M. Prevot has served as President & Chief Operating Officer
of the Operating Company and Opco GP 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 of the Operating Company
since the Recapitalization. From July 1990 to the Recapitalization, Mr.
Prevot served as Vice President and General Manager, U.S. Food and
Beverage of the Company. From June 1991 to October 1994, Mr. Prevot also
served as President and General Manager of Graham Recycling.

Philippe LeJeune has served as Senior Vice President and General
Manager, Europe of the Operating Company since October 1998. Prior to
joining the company, Mr. LeJeune served as Group Vice President, Plastic
Bottles for Carnaud Metalbox SA from February 1997 to October 1998, as
Vice President, South Europe, for Danisco Flexible from December 1995 to
February 1997 and as Division Director, CMB Flexibles, for Carnaud Metal
Box from February 1992 until December 1995.

George M. Lane has served as Senior Vice President, Global People
Resources of the Operating Company since September 1998. From July 1990
to September 1998, Mr. Lane served as Vice President, Human Resources of
the Operating Company.

Geoffrey R. Lu has served as Vice President and General Manager,
Latin America of the Operating Company since the Recapitalization. From
May 1997 to the Recapitalization, Mr. Lu served as Vice President and
General Manager, Latin America of the Company. From 1994 to 1997, Mr. Lu
served as Director and General Manager, Latin America of the Company.
Prior to 1994, Mr. Lu served as Director, Global Business Development of
the Company.

-86-

George W. Stevens has served as Vice President and General Manager,
Canada of the Operating Company since March 1998. From August 1992 to
March 1998, Mr. Stevens served as Director of Sales North America,
Household Cleaning and Personal Care of the Operating Company.

John A. Buttermore has served as Vice President and General
Manager, Food & Beverage of the Operating Company since February 8, 2000.
Prior to February 8, 2000 Mr. Buttermore served as Vice President Market
Development of the Operating Company which he joined November 1, 1998.

Robert M. Gibson has served as Vice President Global Procurement of
the Operating Company since November 1998. Prior to that he served as
Vice President Procurement for the Operating Company.

Jay W. Hereford has served as Vice President, Finance and
Administration, Assistant Treasurer and Assistant Secretary of the
Operating Company since November 1998. Mr. Hereford has also served as
Vice President, Finance and Administration, Assistant Treasurer and
Assistant Secretary of Opco GP, and as Vice President, Secretary,
Assistant Secretary and Assistant Treasurer of various subsidiaries of
the Operating Company. Prior to joining the company, Mr. Hereford served
as Vice President, Treasurer and Chief Financial Officer of Continental
Plastic Containers, Inc. and Continental Caribbean Containers, Inc. from
1992 to November 1998.

Chinh E. Chu has been a Senior Managing Director of The Blackstone
Group, L.P. since January 1, 2000. Prior to January 1, 2000 Mr. Chu
served as a Managing Director of The Blackstone Group L.P., which he
joined in 1990. Since the Recapitalization, Mr. Chu has served as Vice
President, Secretary and Assistant Treasurer of Investor LP and Investor
GP, as a Vice President of CapCo I and CapCo II and as a member of the
Boards of Directors of Investor LP, CapCo I and CapCo II. Prior to
joining Blackstone, Mr. Chu was a member of the Mergers and Acquisitions
Group of Salomon Brothers Inc from 1988 to 1990. He currently serves on
the Boards of Directors of Prime Succession Inc., Roses, Inc. and Haynes
International, Inc.

Howard A. Lipson is Senior Managing Director of The Blackstone
Group L.P., which he joined in 1988. Since the Recapitalization, Mr.
Lipson has served as President, Treasurer and Assistant Secretary of
Investor LP and Investor GP and as a member of the Board of Directors of
Investor LP. Prior to joining Blackstone, Mr. Lipson was a member of the
Mergers and Acquisitions Group of Salomon Brothers Inc. He currently
serves on the Boards of Directors of Allied Waste Industries, Inc.,
Volume Services, Inc., AMF Group Inc., Ritvik Holdings Inc., Prime
Succession Inc. and Roses, Inc.

Simon P. Lonergan has been a Principal of The Blackstone Group,
L.P. since January 1, 2000. Mr. Lonergan was previously an Associate of
The Blackstone Group L.P., which he joined in 1996. Since the
Recapitalization, Mr. Lonergan has served as Vice President, Assistant
Secretary and Assistant Treasurer of Investor LP and Investor GP, as a
Vice President of CapCo I and CapCo II and as a member of the Boards of
Directors of Investor LP, CapCo I and CapCo II. Prior to joining
Blackstone, Mr. Lonergan was an Associate at Bain Capital, Inc. and a
Consultant at Bain and Co. He currently serves on the Board of Directors

-87-

of CommNet Cellular, Inc. and the Advisory Committee of InterMedia
Partners VI.

The Boards of Directors of CapCo I and CapCo II are comprised of
Philip R. Yates, John E. Hamilton, Chinh E. Chu and Simon P. Lonergan.
The Board of Directors of Investor LP is comprised of Howard A. Lipson,
Chinh E. Chu and Simon P. Lonergan.

Except as described above, there are no arrangements or
understandings between any director or executive officer and any other
person pursuant to which such person was elected or appointed as a
director or executive officer.

-88-

Item 11. Executive Compensation

The following table sets forth all cash compensation paid to the
Chief Executive Officer and four other most highly compensated executive
officers of the Company (the "Named Executive Officers") for the year
ended December 31, 1999, and their respective titles at December 31,
1999.

Summary Compensation Table

Long-term
Annual Compensation Compensation
------------------- ------------
Awards Payouts
------ -------

Restricted Securities
Other annual Stock Underlying LTIP All Other
Year Salary Bonus Compensation Awards Options Payouts Compensation

Philip R. Yates 1999 310,978 300,000 -0- -0- 13.6 -0- 4,417
Chief Executive Officer 1998 300,019 100,474 -0- 3,866,000 63.8 2,225,000 4,800
1997 250,016 120,000 -0- -0- -0- -0- 5,053

John E. Hamilton 1999 171,098 160,500 -0- -0- 18.7 -0- 3,553
Chief Financial Officer 1998 158,520 132,864 -0- 688,000 29.8 400,000 3,586
1997 133,207 60,000 -0- -0- -0- -0- 3,503

G. Robinson Beeson 1999 173,214 125,066 -0- -0- 6.4 -0- 3,879
Senior Vice President and 1998 164,719 138,273 -0- 1,074,000 29.8 500,000 4,194
General Manager Automotive 1997 138,677 52,000 -0- -0- -0- -0- 3,812

Scott G. Booth 1999 171,518 120,089 -0- -0- 6.4 -0- 3,557
Senior Vice President and 1998 158,104 132,489 -0- 1,074,000 29.8 500,000 3,625
General Manager Household 1997 132,463 52,000 -0- -0- -0- -0- 3,600
Cleaning and Personal Care

Roger M. Prevot 1999 202,999 196,500 -0- -0- 9.3 -0- 3,606
President and Chief Operating 1998 194,404 164,169 -0- 1,933,000 43.4 750,000 3,554
Officer 1997 164,180 72,000 -0- -0- -0- -0- 3,544

Represents bonus paid in the current year, but accrued in the prior
year under Company's annual discretionary bonus plan.

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Represents cash payments to the named executive officers which were
used by the recipients to purchase shares of restricted common
stock of Investor LP, the value of a grant of the same number of
additional restricted shares as the shares purchased and taxes
payable in respect of these awards (see Management Awards).

Represents contributions to the Company's 401(k) plan and amounts
attributable to group term life insurance.

Roger M. Prevot has served as President and Chief Operating Officer
of the Operating Company and Opco GP since February 8, 2000. Prior
to February 8, 2000 Mr. Prevot served as Senior Vice President and
General Manager, Food & Beverage.

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Management Awards

Pursuant to the Recapitalization Agreement, immediately prior to
the Closing, Holdings made cash payments to approximately 20 senior level
managers equal to approximately $7.0 million, which represented the
aggregate value payable under Holdings' former equity appreciation plan
(which was canceled upon the Closing) and additional cash bonuses.

Pursuant to the Recapitalization Agreement, immediately after the
Closing, Holdings granted to approximately 100 middle level managers stay
bonuses aggregating approximately $4.6 million, which are payable over a
period of up to three years.

Pursuant to the Recapitalization Agreement, immediately after the
Closing, Holdings made additional cash payments to approximately 15
senior level managers equal to approximately $5.0 million, which
represented additional cash bonuses and the taxes payable by such
managers in respect of the awards described in this paragraph. In
addition, (a) Holdings made additional cash payments to such managers
equal to approximately $3.1 million, which was used by the recipients to
purchase shares of restricted common stock of Investor LP and (b) each
such recipient was granted the same number of additional restricted
shares as the shares purchased pursuant to clause (a). Such restricted
shares vest over a period of three years, and one-third of any forfeited
shares will increase the Graham Partners' ownership interests in
Holdings.

As a result of such equity awards, Management owns an aggregate of
approximately 3.0% of the outstanding common stock of Investor LP, which
constitutes approximately a 2.6% interest in Holdings.

Severance Agreements

In connection with the Recapitalization, the Company entered into
severance agreements with Messrs. Yates, Hamilton, Beeson, Booth, Prevot,
Stevens and Lu. Such severance agreements provided that in the event a
Termination Event (as defined therein) occurs, the executive shall
receive: (i) a severance allowance equal to one year of salary (two years
for Mr. Yates) payable in equal monthly installments over a one year
period (two years for Mr. Yates); (ii) continued group health and life
insurance coverage for one year (the executive's contribution for which
would be the same contribution as similarly situated executives and would
be deducted from the severance allowance payments); and (iii) a lump sum
amount payable when the Company pays its executives bonuses, equal to the
executive's target bonus, pro-rated to reflect the portion of the
relevant year occurring prior to the executive's termination of
employment.

Supplemental Income Plan

Mr. Yates is the sole participant in the Graham Engineering
Corporation Amended Supplemental Income Plan (the "SIP"). Upon the
Closing, the Operating Company assumed Graham Engineering's obligations
under the SIP. The SIP provides that upon attaining age 65, Mr. Yates

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shall receive a fifteen-year annuity providing annual payments equal to
25% of his Final Salary (as defined therein). The SIP also provides that
the annuity payments shall be increased annually by a 4% cost of living
adjustment. The SIP permits Mr. Yates to retire at or after attaining age
55 without any reduction in the benefit (although such benefit would not
begin until Mr. Yates attained age 65). In the event that Mr. Yates were
to retire prior to attaining age 55 (the benefit would still commence at
age 65), then the annuity payments would be reduced. In the event the
Company, without "just cause" (as defined in the SIP) terminates Mr.
Yates' employment, then upon attaining age 65, he would receive the
entire annuity. The SIP provides for similar benefits in the event of a
termination of employment on account of death or disability.

Management Option Plan

Pursuant to the Recapitalization Agreement, the Company has adopted
the Graham Packaging Holdings Company Management Option Plan (the "Option
Plan").

The Option Plan provides for the grant to management employees of
Holdings and its subsidiaries of options ("Options") to purchase limited
partnership interests in Holdings equal to 0.01% of Holdings (prior to
any dilution resulting from any interests granted pursuant to the Option
Plan) (each 0.01% interest being referred to as a "Unit"). The aggregate
number of Units with respect to which Options may be granted under the
Option Plan shall not exceed 500 Units, representing a total of up to 5%
of the equity of Holdings.

The exercise price per Unit for those Units granted is $25,789. The
number and type of Units covered by outstanding Options and exercise
prices may be adjusted to reflect certain events such as
recapitalizations, mergers or reorganizations of or by Holdings. The
Option Plan is intended to advance the best interests of the Company by
allowing such employees to acquire an ownership interest in the Company,
thereby motivating them to contribute to the success of the Company and
to remain in the employ of the Company.

A committee (the "Committee") shall be appointed to administer the
Option Plan, including, without limitation, the determination of the
employees to whom grants will be made, the number of Units subject to
each grant, and the various terms of such grants. The Committee may
provide that an Option cannot be exercised after the merger or
consolidation of Holdings into another company or corporation, the
exchange of all or substantially all of the assets of Holdings for the
securities of another corporation, the acquisition by a corporation of
80% or more of Holdings' partnership interest or the liquidation or
dissolution of Holdings, and if the Committee so provides, it will also
provide either by the terms of such Option or by a resolution adopted
prior to the occurrence of such merger, consolidation, exchange,
acquisition, liquidation or dissolution, that, for ten business days
prior to such event, such Option shall be exercisable as to all Units
subject thereto, notwithstanding anything to the contrary in any
provisions of such Option and that, upon the occurrence of such event,
such Option shall terminate and be of no further force or effect. The
Committee may also provide that even if the Option shall remain

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exercisable after any such event, from and after such event, any such
Option shall be exercisable only for the kind and amount of securities
and other property (including cash), or the cash equivalent thereof,
receivable as a result of such event by the holder of a number of
partnership interests for which such Option could have been exercised
immediately prior to such event. No suspension, termination or amendment
of or to the Option Plan shall materially and adversely affect the rights
of any participant with respect to Options issued hereunder prior to the
date of such suspension, termination or amendment without the consent of
such holder.

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The following table sets forth certain information with respect to
Options granted to the Named Executive Officers for the year ended
December 31, 1999.

OPTION GRANTS IN LAST FISCAL YEAR

Potential Realizable
Value
At Assumed Annual
Rates
Of Stock Price
Appreciation For Alternative:
Individual Grants Option Grant Date
Term Value
Percent of
total
Number of Options
Securities Granted To
Underlying Employees Exercise
Options In or Base Grant Date
Granted Fiscal Price Expiration Present
Name (#) Year ($/Sh) Date 5%($) 10%($) Value $
---- ---------- ---------- -------- ---------- ----- ------ ----------

Philip R. Yates 13.6 11.0% $25,789 1/1/09 $221,000 $559,000 N/A
Chief Executive Officer

John E. Hamilton 18.7 15.1% 25,789 " 303,000 769,000 N/A
Chief Financial Officer

G. Robinson 6.4 5.2% 25,789 " 104,000 263,000 N/A
Beeson
Senior Vice President and
General Manager, Automotive

Scott G. Booth 6.4 5.2% 25,789 " 104,000 263,000 N/A
Senior Vice President and General
Manager, Household Cleaning and
Personal Care

Roger M. Prevot 9.3 7.5% 25,789 " 151,000 382,000 N/A
President and Chief Operating Officer

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The following table sets forth certain information with respect to
the total Options granted to the Named Executive Officers at December 31,
1999.

TOTAL OPTION GRANTS AT DECEMBER 31, 1999

Number of
Securities
Underlying
Unexercised Value of
Options at End Unexercised In Options at End of
of the Money Fiscal Year
Name Fiscal Year Options Exercisable
---- -------------- --------------- -----------------

Philip R. Yates 77.4 $ 0 20.5
Chief Executive
Officer
John E. Hamilton 48.5 $ 0 10.8
Chief Financial
Officer
G. Robinson Beeson 36.2 $ 0 9.6
Senior Vice
President and
General Manager,
Automotive
Scott G. Booth 36.2 $ 0 9.6
Senior Vice
President and
General Manager,
Household Cleaning
and Personal Care
Roger M. Prevot 52.7 $ 0 14.0
President and
Chief Operating
Officer

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Pension Plans

In the year ended December 31, 1999, the Company participated in a
noncontributory, defined benefit pension plan for salaried and hourly
employees other than employees covered by collectively bargained plans.
The Company also sponsored other noncontributory defined benefit plans
under collective bargaining agreements. These plans covered substantially
all of the Company's U.S. employees. The defined benefit plan for
salaried employees provides retirement benefits based on the final five
years average compensation and years of service, while plans covering
hourly employees provide benefits based on years of service. See Note 11
to the Financial Statements of Graham Packaging Group for each of the
three years in the period ended December 31, 1999.

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
15 20 25 30 35
Remuneration --- --- --- --- ---

125,000 $27,025 $36,033 $45,041 $54,049 $55,612
150,000 33,025 44,033 55,041 66,049 67,924
175,000 39,025 52,033 66,041 78,049 80,237
200,000 45,025 60,033 75,041 90,049 92,549
225,000 51,025 68,033 85,041 102,049 104,862
250,000 57,025 76,033 95,041 114,049 117,174
300,000 69,025 92,033 115,041 138,049 141,799
400,000 93,025 124,033 155,041 186,049 191,049
450,000 105,025 140,033 175,041 210,049 215,674
500,000 117,025 156,033 195,041 234,049 240,299

Note: The amounts shown are based on 1999 covered compensation of
$33,060 for an individual born in 1934. In addition, these figures do not
reflect the salary limit of $160,000 and benefit limit under the plan's
normal form of $130,000 in 1999.

The compensation covered by the defined benefit plan for salaried
employees is an amount equal to "Total Wages" (as defined). This amount
includes the annual Salary and Bonus amounts shown in the Summary
Compensation Table above for the five Named Executive Officers who
participated in the plan. The estimated credited years of service for the
year ended December 31, 1999 for each of the five Named Executive

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Officers participating in the plan was as follows: Philip R. Yates, 28
years; John E. Hamilton, 16 years; G. Robinson Beeson, 25 years; Scott G.
Booth, 12 years; and Roger M. Prevot, 12 years. Benefits under the plan
are computed on the basis of straight-life annuity amounts. Amounts set
forth in the Pension Table are not subject to deduction for Social
Security or other offset amounts.

The Recapitalization Agreement provided that assets of the Graham
Engineering defined benefit plan related to employees not covered by
collective bargaining agreements will be transferred to a new non-
contributory defined benefit plan sponsored by the Company for such
employees. Such was completed in 1999.

401(k) Plan

During 1999 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
1997, 1998, and 1999 were $742,000, $804,000, and $875,000, respectively.
See Note 11 to the Financial Statements of Graham Packaging Group for
each of the three years in the period ended December 31, 1999.

Pursuant to the Recapitalization Agreement, assets of this plan
related to Company employees were transferred to a new plan sponsored by
the Company following the Closing of the Recapitalization.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The following table and accompanying footnotes set forth certain
information regarding beneficial ownership of the limited partnership and
general partnership interests in the Issuers, as of the date hereof, by
(i) each person who is known by the Issuers to own beneficially more than
5% of such interests, (ii) each member of the Advisory Committee of
Holdings and each of the executive officers of the Operating Company and
(iii) all members of the Advisory Committee of Holdings and the executive
officers of the Operating Company as a group. For a more detailed
discussion of certain ownership interests following the Recapitalization,
see " Business--The Recapitalization" (Item 1) and "Certain Relationships
and Related Party Transactions" (Item 13).

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Name and Address Type of Percentage
Issuer of Beneficial Owner Interest Interest
- ------ ------------------- -------- ----------

Graham Packaging Company, L.P. Holdings Limited 99%
Partnership
Opco GP General 1%
Partnership
GPC Capital Corp. I Operating Company Common Stock 100%
Graham Packaging Holdings Company Investor LP Limited 81%
Investor GP General 4%
Partnership
GPC Holdings, L.P. Limited 14%
Partnership
Graham Packaging General 1%
Corporation Partnership
GPC Capital Corp. II Holdings Common Stock 100%

Opco GP is a wholly owned subsidiary of Holdings.
Investor GP is a wholly owned subsidiary of Investor LP. Upon the
consummation of the Recapitalization, Blackstone, Blackstone
Offshore Capital Partners III L.P. and Blackstone Family Investment
Partnership III L.P. became, collectively, the beneficial owner of
100.0% of the common stock of Investor LP. Blackstone Management
Associates III L.L.C. ("BMA") is the general partner of each of
such entities. Messrs. Peter G. Peterson, Stephen A. Schwarzman and
Howard A. Lipson are members of BMA, which has investment and
voting control over the shares held or controlled by Blackstone.
Each of such persons disclaims beneficial ownership of such shares.
The address of each of the Equity Investors is c/o The Blackstone
Group L.P., 345 Park Avenue, New York, New York 10154. Following
the consummation of the Recapitalization, Blackstone transferred to
Management approximately 3.0% of the common stock of Investor LP.
See "Management--Management Awards." In addition, an affiliate of
DB Alex. Brown LLC and Deutsche Bank AG, two of the Initial
Purchasers of the Old Notes, acquired approximately 4.8% of the
common stock of Investor LP. After giving effect to these
transactions, Blackstone's beneficial ownership of the common stock
of Investor LP declined by a corresponding 3.0% and 4.8%,
respectively, to approximately 92.2%.

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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Item 13. Certain Relationships and Related Transactions

The summaries of agreements set forth below do not purport to be
complete and are qualified in their entirety by reference to all the
provisions of such agreements. Copies of the Recapitalization Agreement,
the Consulting Agreement, the Equipment Sales Agreement and the Partners
Registration Rights Agreement are exhibits to this Report on Form 10-K.

Transactions with Graham Partners and Others

Prior to the Closing of the Recapitalization, Donald C. Graham, as
lessor, and Holdings, as lessee, were parties to four lease agreements
relating to two properties in Berkeley, Missouri and two properties in
York, Pennsylvania. For the year ended December 31, 1997, the Company
paid Donald C. Graham $2.0 million in the aggregate pursuant to such
lease agreements. Upon the consummation of the Recapitalization, the real
property subject to each such lease agreement was contributed to the
Operating Company as part of the Graham Contribution. See "The
Recapitalization."

Prior to the Closing, York Transportation and Leasing, Inc. (an
affiliate of the Graham Partners), as lessor, and Graham Packaging
Canada, Ltd., as lessee, were parties to three lease agreements relating
to properties located in Mississauga, Ontario, Burlington, Ontario and
Anjou, Quebec. For the year ended December 31, 1997, the Company paid
York Transportation and Leasing $0.6 million in the aggregate pursuant to
such lease agreements. Upon the Closing, the real property subject to
each such lease agreement was contributed to the Operating Company as
part of the Graham Contribution. See "The Recapitalization."

Prior to the Closing, Graham GP Corp., Graham Capital and Graham
Europe Limited (affiliates of the Graham Partners) were parties to
management agreements, pursuant to which Donald C. Graham, William H.
Kerlin, Jr. and others provided management services and served as
executive officers of the Company. The Company paid $1.7 million for the
year ended December 31, 1997 for such services.

Prior to the Closing, Holdings, Graham Capital, Graham GP Corp. and
York Transportation and Leasing were all parties to an Airplane Lease
Agreement/Aircraft Sharing Agreement. The Company paid $0.3 million for
the year ended December 31, 1997 pursuant to such agreement.

For the year ended December 31, 1997, the Company also paid Graham
Partners, Inc. (formerly known as Viking Graham Corporation, an affiliate
of the Graham Partners) $0.6 million for certain consulting services.

All of the agreements described above were terminated upon the
Closing.

At the time of the Recapitalization, Donald C. Graham and Jean
Rubie were each one-third owners of Techne Technipack Engineering Italia
S.p.A. ("Techne"). Techne supplies shuttle blow-molders to many of the
Company's non-U.S. facilities. The Company paid Techne approximately $5.2
million and $3.5 million for such equipment for the year ended December
31, 1998 and 1997, respectively. Prior to the Recapitalization, Mr. Rubie

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served as General Manager, Europe, of the Company. During 1998 and
subsequent to the Recapitalization, Mr. Graham sold his ownership
interest in Techne.

Graham Engineering has supplied both services and equipment to the
Company. The Company paid Graham Engineering approximately $20.4 million,
$16.8 million and $11.3 million for such services and equipment for the
years ended December 31, 1999, 1998 and 1997, respectively.

The Company has provided certain services to Graham Engineering.
Graham Engineering paid the Company approximately $2.5 million, $1.4
million and $1.0 million for such services for the years ended December
31, 1999, 1998 and 1997, respectively.

Graham Family Growth Partnership and Graham Partners, Inc. have supplied
management services to the Company since the Recapitalization. The Company paid
Graham Family Growth Partnership and Graham Partners, Inc. approximately
$1.0 million and $1.1 million for such services for the years ended
December 31, 1999 and 1998, respectively.

Blackstone has supplied management services to the Company since
the Recapitalization. The Company paid Blackstone approximately $1.0
million for such services for each of the two years ended December 31,
1999 and 1998.

The Company has entered into an Airplane Time-Sharing Agreement
with Graham Capital Company in conjunction with the Recapitalization.
Other parties to the agreement were Graham Architectural Products
Corporation, Graham Partners, Inc., Western Industries, Inc. and Graham
Engineering Corporation. The Company paid $18,000 and $3,500 for the
years ended December 31, 1999 and 1998, respectively, pursuant to such
agreement.

An affiliate of BT Alex. Brown Incorporated and Bankers Trust
International PLC, two of the Initial Purchasers of the Old Notes,
acquired approximately a 4.8% equity interest in Investor LP. See
"Security Ownership." Bankers Trust Company, an affiliate of BT Alex.
Brown Incorporated and Bankers Trust International PLC, acted as
administrative agent and provided a portion of the financing under the
New Credit Agreement entered into in connection with the
Recapitalization, for which it received customary commitment and other
fees and compensation.

The New Credit Agreement includes a $100 million Growth Capital
Revolving Credit Facility under which the Operating Company is entitled
to draw amounts for capital expenditure requirements and to finance
acquisitions and investments; provided that loans under the Growth
Capital Revolving Credit Facility may only be incurred to the extent that
such loans are matched with equity contributions from the principal
equity holders of Investor LP (which equity contributions shall, in turn,
ultimately be contributed to the Operating Company) on a dollar-for-
dollar basis.

As part of the Amendment to the New Credit Agreement, if certain
events of default were to occur, or if the Company's Net Leverage Ratio were

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above 5.15:1.0 at March 31, 2000, Blackstone has agreed to make an equity
contribution to the Company through the administrative agent of up to
$50 million. The Company's Net Leverage Ratio being above 5.15:1.0 at
March 31, 2000 is not an event of default under the New Credit Agreement.

The Company is currently discussing with its bank lenders a proposed
Second Amendment to the New Credit Agreement and a proposed First Amendment
to the Capital Call Agreement (collectively, the "Second Amendment"). Among

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other things, the Second Amendment would change the date as of which the
Company's Net Leverage Ratio is measured for purposes of determining whether
Blackstone is required to make the above-mentioned equity contribution
from March 31, 2000 to September 30, 2000; allow a pro forma adjustment to
the Net Leverage Ratio to include the receipt of net cash proceeds from any
registered public offering occurring after September 30, 2000 but before
October 31, 2000; change the terms under which the Company can access
$100 million of Growth Capital Revolving Loans from a dollar for dollar
equity match to a capital call with various test dates based on certain
leverage tests for quarters ending on or after June 30, 2001, which would
provide for up to an additional $50 million equity contribution by
Blackstone; allow the proceeds of the equity contribution (if required)
to be applied to the Revolving Credit Loans; increase the top level of the
interest rate pricing grid by 25 basis points; and change certain covenants,
principally to increase the amount of permitted capital expenditures in 2000
and subsequent years. The Second Amendment requires approval by Lenders
having more than 50% of the sum of all loans and unused commitments
and there is no assurance that such approval will be obtained.

Pursuant to the Purchase Agreement dated January 23, 1998, the
Initial Purchasers, BT Alex. Brown Incorporated, Bankers Trust
International PLC, Lazard Freres & Co. LLC and Salomon Brothers Inc,
purchased the Senior Subordinated Old Notes at a price of 97.0% of the
principal amount, for a discount of 3% from the initial offering price of
100% or a total discount of $6,750,000. Pursuant to the Purchase
Agreement, the Initial Purchasers purchased the Senior Discount Old Notes
at a price of 57.173% of the principal amount, for a discount of 2.361%
from the initial offering price of 59.534% or a total discount of
$3,990,090. Pursuant to the Purchase Agreement, the Issuers also
reimbursed the Initial Purchasers for certain expenses.

The Partnership Agreements

The Operating Company Partnership Agreement

The Operating Company was formed under the name "Graham Packaging
Holdings I, L.P." on September 21, 1994 as a limited partnership in
accordance with the provisions of the Delaware Revised Uniform Limited
Partnership Act. Upon the Closing of the Recapitalization, the name of
the Operating Company was changed to "Graham Packaging Company, L.P." The
Operating Company will continue until its dissolution and winding up in
accordance with the terms of the Operating Company Partnership Agreement
(as defined).

Prior to the Recapitalization, Graham Recycling Corporation
("Recycling") was the sole general partner of the Operating Company and
Holdings was the sole limited partner of the Operating Company. As
provided in the Recapitalization Agreement, immediately prior to the
Closing, Recycling contributed to Opco GP its general partnership
interest in the Operating Company, and the partnership agreement of the
Operating Company was amended and restated to reflect such substitution
of sole general partner and certain other amendments (the "Operating
Company Partnership Agreement"). Following the Closing, Holdings has
remained the sole limited partner of the Operating Company.

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The purpose of the Operating Company is the sale and manufacturing
of rigid plastic containers and any business necessary or incidental
thereto.

Management. The Operating Company Partnership Agreement provides
that the general partner shall be entitled in its sole discretion and
without the approval of the other partners to perform or cause to be
performed all management and operational functions relating to the
Operating Company and shall have the sole power to bind the Operating
Company. The limited partner shall not participate in the management or
control of the business.

Exculpation and Indemnification. The Operating Company Partnership
Agreement provides that neither the general partner nor any of its
affiliates, nor any of its partners, shareholders, officers, directors,
employees or agents, shall be liable to the Operating Company or any
partner for any breach of the duty of loyalty or any act or omission not
in good faith or which involves intentional misconduct or a knowing
violation of law or the Operating Company Partnership Agreement. The
Operating Company shall indemnify the general partner and its affiliates,
and its partners, shareholders, officers, directors, employees and
agents, from and against any claim or liability of any nature arising out
of the assets or business of the Operating Company.

Affiliate Transactions. The Operating Company may enter into
transactions with any partner or any of its affiliates which is not
prohibited by applicable law; provided that, any material transaction
with any partner or any of its affiliates shall be on terms reasonably
determined by the General Partner to be comparable to the terms which can
be obtained from third parties.

Transfers of Partnership Interests. The Operating Company
Partnership Agreement provides that the limited partner shall not
transfer its limited partnership interests.

Dissolution. The Operating Company Partnership Agreement provides
that the Operating Company shall be dissolved upon the earliest of (i)
December 31, 2044, (ii) the sale, exchange or other disposition of all or
substantially all of the Operating Company's assets, (iii) the
withdrawal, resignation, filing of a certificate of dissolution or
revocation of the charter or bankruptcy of a general partner, or the
occurrence of any other event which causes a general partner to cease to
be a general partner unless there shall be another general partner, (iv)
the withdrawal, resignation, filing of a certificate of dissolution or
revocation of the charter or bankruptcy of a limited partner, or the
occurrence of any other event which causes a limited partner to cease to
be a limited partner unless there shall be another limited partner, (v)
the acquisition by a single person of all of the partnership interests in
the Operating Company, (vi) the issuance of a decree of dissolution by a
court of competent jurisdiction, or (vii) otherwise as required by
applicable law.

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The Holdings Partnership Agreement

Holdings was formed under the name "Sonoco Graham Company" on April
3, 1989 as a limited partnership in accordance with the provisions of the
Pennsylvania Uniform Limited Partnership Act, and on March 28, 1991,
Holdings changed its name to "Graham Packaging Company." Upon the Closing
of the Recapitalization, the name of Holdings was changed to "Graham
Packaging Holdings Company." Holdings will continue until its dissolution
and winding up in accordance with the terms of the Holdings Partnership
Agreement (as defined).

As contemplated by the Recapitalization Agreement, upon the
Closing, Graham Capital and its successors or assigns, Graham Family
Growth Partnership, Graham GP Corp., Investor LP and Investor GP entered
into a Fifth Amended and Restated Agreement of Limited Partnership (the
"Holdings Partnership Agreement"). The general partners of the
Partnership are Investor GP and Graham GP Corp. The limited partners of
the Partnership are Graham Family Growth Partnership, Graham Capital and
Investor LP.

The purpose of Holdings is the sale and manufacturing of rigid
plastic containers and any business necessary or incidental thereto.

Management; Advisory Committee. The Holdings Partnership Agreement
provides that the general partner elected by the general partner(s)
holding a majority of the general partnership interests in Holdings (the
"Managing General Partner") shall be entitled in its sole discretion and
without the approval of the other partners to perform or cause to be
performed all management and operational functions relating to Holdings
and shall have the sole power to bind Holdings, except for certain
actions in which the Managing General Partner shall need the approval of
the other general partners. The limited partners shall not participate in
the management or control of the business.

The partnership and the general partners shall be advised by a
committee (the "Advisory Committee") comprised of five individuals, three
of whom shall be appointed from time to time by Investor GP and, for so
long as the Continuing Graham Partners and their affiliates do not sell
more than two-thirds of their partnership interests owned at the Closing,
two of whom shall be appointed from time to time by the other general
partners. Such committee shall serve solely in an advisory role and shall
not have any power to act for or bind Holdings.

Annual Fee. The Holdings Partnership Agreement provides that, so
long as the Continuing Graham Partners and their affiliates do not sell
more than two-thirds of their partnership interests owned at the Closing,
Holdings will pay to Graham Family Growth Partnership an annual fee of
$1.0 million.

Exculpation and Indemnification. The Holdings Partnership
Agreement provides that no general partner nor any of its affiliates, nor
any of its respective partners, shareholders, officers, directors,
employees or agents, shall be liable to Holdings or any of the limited
partners for any act or omission, except resulting from its own willful
misconduct or bad faith, any breach of its duty of loyalty or willful
breach of its obligations as a fiduciary, or any breach of certain terms
of the Holdings Partnership Agreement. Holdings shall indemnify the

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general partners and their affiliates, and their respective partners,
shareholders, officers, directors, employees and agents, from and against
any claim or liability of any nature arising out of the assets or
business of Holdings.

Affiliate Transactions. Holdings may not enter into any
transaction with any partner or any of its affiliates unless the terms
thereof are believed by the general partners to be in the best interests
of Holdings and are intrinsically fair to Holdings and equally fair to
each of the partners; provided that, Holdings may perform and comply with
the Recapitalization Agreement, the Equipment Sales Agreement, the
Consulting Agreement and the Monitoring Agreement (as defined).

Transfers of Partnership Interests. The Holdings Partnership
Agreement provides that, subject to certain exceptions including, without
limitation, in connection with an IPO Reorganization (as defined) and the
transfer rights described below, general partners shall not withdraw from
Holdings, resign as a general partner, nor transfer their general
partnership interests without the consent of all general partners, and
limited partners shall not transfer their limited partnership interests.

If any Continuing Graham Partner wishes to sell or otherwise
transfer its partnership interests pursuant to a bona fide offer from a
third party, Holdings and the Equity Investors must be given a prior
opportunity to purchase such interests at the same purchase price set
forth in such offer. If Holdings and the Equity Investors do not elect to
make such purchase, then such Continuing Graham Partner may sell or
transfer such partnership interests to such third party upon the terms
set forth in such offer. If the Equity Investors wish to sell or
otherwise transfer their partnership interests pursuant to a bona fide
offer from a third party, the Continuing Graham Partners shall have a
right to include in such sale or transfer a proportionate percentage of
their partnership interests. If the Equity Investors (so long as they
hold 51% or more of the partnership interests) wish to sell or otherwise
transfer their partnership interests pursuant to a bona fide offer from a
third party, the Equity Investors shall have the right to compel the
Continuing Graham Partners to include in such sale or transfer a
proportionate percentage of their partnership interests.

Dissolution. The Holdings Partnership Agreement provides that
Holdings shall be dissolved upon the earliest of (i) the sale, exchange
or other disposition of all or substantially all of Holdings' assets
(including pursuant to an IPO Reorganization), (ii) the withdrawal,
resignation, filing of a certificate of dissolution or revocation of the
charter or bankruptcy of a general partner, or the occurrence of any
other event which causes a general partner to cease to be a general
partner unless (a) the remaining general partner elects to continue the
business or (b) if there is no remaining general partner, a majority-in-
interest of the limited partners elect to continue the partnership, or
(iii) such date as the partners shall unanimously elect.

IPO Reorganization. "IPO Reorganization" means the transfer of all
or substantially all of Holdings' assets and liabilities to CapCo II in
contemplation of an initial public offering of the shares of common stock
of CapCo II. The Holdings Partnership Agreement provides that, without

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the approval of each general partner, the IPO Reorganization may not be
effected through any entity other than CapCo II.

Tax Distributions. The Partnership Agreement requires certain tax
distributions to be made.

Partners Registration Rights Agreement

Pursuant to the Recapitalization Agreement, upon the Closing,
Holdings, CapCo II, the Continuing Graham Partners, the Equity Investors
and Blackstone entered into a registration rights agreement (the
"Partners Registration Rights Agreement"). Under the Partners
Registration Rights Agreement, CapCo II will grant, with respect to the
shares of its common stock to be distributed pursuant to an IPO
Reorganization, (i) to the Continuing Graham Partners and their
affiliates (and their permitted transferees of partnership interests in
Holdings) two "demand" registrations after an initial public offering of
the shares of common stock of CapCo II has been consummated and customary
"piggyback" registration rights (except with respect to such initial
public offering, unless Blackstone and its affiliates are selling their
shares in such offering) and (ii) to the Equity Investors, Blackstone and
their affiliates an unlimited number of "demand" registrations and
customary "piggyback" registration rights. The Partners Registration
Rights Agreement also provides that CapCo II will pay certain expenses of
the Continuing Graham Partners, the Equity Investors, Blackstone and
their respective affiliates relating to such registrations and indemnify
them against certain liabilities, which may arise under the Securities
Act. See "The Partnership Agreements--Holdings Partnership Agreement."

Certain Business Relationships

Equipment Sales Agreement. Pursuant to the Recapitalization
Agreement, upon the Closing, Holdings and Graham Engineering entered into
the Equipment Sales, Service and Licensing Agreement ("Equipment Sales
Agreement"), which provides that, with certain exceptions, (i) Graham
Engineering will sell to Holdings and its affiliates certain of Graham
Engineering's larger-sized proprietary extrusion blow molding wheel
systems ("Graham Wheel Systems"), at a price to be determined on the
basis of a percentage mark-up of material, labor and overhead costs that
is as favorable to Holdings as the percentage mark-up historically
offered by Graham Engineering to Holdings and is as favorable as the
mark-up on comparable equipment offered to other parties, (ii) each party
will provide consulting services to the other party at hourly rates
ranging from $60 to $200 (adjusted annually for inflation) and (iii)
Graham Engineering will grant to Holdings a nontransferable,
nonexclusive, perpetual, royalty-free right and license to use certain
technology. Subject to certain exceptions set forth in the Equipment
Sales Agreement, Holdings and its affiliates will have the exclusive
right to purchase, lease or otherwise acquire the applicable Graham Wheel
Systems in North America and South America, the countries comprising the
European Economic Community as of the Closing and any other country in or
to which Holdings has produced or shipped extrusion blow molded plastic
bottles representing sales in excess of $1.0 million in the most recent

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calendar year. The Equipment Sales Agreement terminates on December 31,
2007, unless mutually extended by the parties. After December 31, 1998,
either party may terminate the other party's right to receive consulting
services. Effective January 21, 2000 Holdings terminated Graham
Engineering's rights to receive consulting services from Holdings.

Consulting Agreement. Pursuant to the Recapitalization Agreement,
upon the Closing, Holdings and Graham Capital entered into a Consulting
Agreement (the "Consulting Agreement"), pursuant to which Graham Capital
will provide Holdings with general business, operational and financial
consulting services at mutually agreed retainer or hourly rates (ranging
from $200 to $750 per hour). The Consulting Agreement terminates on the
second anniversary of the Closing, unless mutually extended by the
parties.

Promissory Notes of Graham Partners

From 1994 through the Closing, there was outstanding $20.2 million
principal amount of promissory notes owed by the Graham Partners to
Holdings, which had been contributed by the Graham Partners as capital in
Holdings. Such promissory notes (including accrued interest) were repaid
in full in connection with the Recapitalization. For the year ended
December 31, 1997, accrued interest income on the promissory notes was
approximately $1.0 million.

Payment of Certain Fees and Expenses

In connection with the Recapitalization, Blackstone received a fee
of approximately $9.3 million, and the Operating Company has reimbursed
or will reimburse Blackstone for all out-of-pocket expenses incurred in
connection with the Recapitalization. In addition, pursuant to a
monitoring agreement (the "Monitoring Agreement") entered into among
Blackstone, Holdings and the Operating Company, Blackstone will receive a
monitoring fee equal to $1.0 million per annum, and will be reimbursed
for certain out-of-pocket expenses. In the future, an affiliate or
affiliates of Blackstone may receive customary fees for advisory and
other services rendered to Holdings and its subsidiaries. If such
services are rendered in the future, the fees will be negotiated from
time to time on an arm's length basis and will be based on the services
performed and the prevailing fees then charged by third parties for
comparable services.

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PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K

(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
- ------ ----------------------

2.1 - Agreement and Plan of Recapitalization, Redemption and
Purchase dated as of December 18, 1997, as amended as of
January 29, 1998, by and among Graham Packaging Holdings
Company, BCP/Graham Holdings L.L.C., BMP/Graham Holdings
Corporation and the other parties named therein (incorporated
herein by reference to Exhibit 2.1 to the Registration
Statement on Form S-4 (File No. 333-53603-03)).

2.2 - Purchase Agreement dated January 23, 1998 among Graham
Packaging Holdings Company, Graham Packaging Company, L.P.,
GPC Capital Corp. I, GPC Capital Corp. II, BT Alex. Brown
Incorporated, Bankers Trust International PLC, Lazard Freres &
Co. L.L.C. and Salomon Brothers Inc (incorporated herein by
reference to Exhibit 2.2 to the Registration Statement on Form
S-4 (File No. 333-53603-03)).

2.3 - Purchase Agreement between CarnaudMetalbox S.A. and Graham
Packaging Company, L.P. dated as of July 27, 1998
(incorporated herein by reference to Exhibit 2.3 to the Annual
Report on Form 10-K for the fiscal year ended December 31,
1998 (File No. 333-53603-03)).

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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)).

3.6 - Fifth Amended and Restated Agreement of Limited Partnership of
Graham Packaging Holdings Company dated as of February 2, 1998
(incorporated herein by reference to Exhibit 3.6 to the
Registration Statement on Form S-4 (File No. 333-53603-03)).

3.7 - Certificate of Incorporation of GPC Capital Corp. II
(incorporated herein by reference to Exhibit 3.7 to the
Registration Statement on Form S-4 (File No. 333-53603-03)).

3.8 - By-Laws of GPC Capital Corp. II (incorporated herein by
reference to Exhibit 3.8 to the Registration Statement on Form
S-4 (File No. 333-53603-03)).

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 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, Series A
(included in Exhibit 4.1) (incorporated herein by reference to
Exhibit 4.2 to the Registration Statement on Form S-4 (File
No. 333-53603-03)).

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4.3 - Form of 8 3/4% Senior Subordinated Note Due 2008, Series B
(included in Exhibit 4.1) (incorporated herein by reference to
Exhibit 4.3 to the Registration Statement on Form S-4 (File
No. 333-53603-03)).

4.4 - Form of Floating Interest Rate Term Security Due 2008, Series
A (included in Exhibit 4.1) (incorporated herein by reference
to Exhibit 4.4 to the Registration Statement on Form S-4 (File
No. 333-53603-03)).

4.5 - Form of Floating Interest Rate Term Security Due 2008, Series
B (included in Exhibit 4.1) (incorporated herein by reference
to Exhibit 4.5 to the Registration Statement on Form S-4 (File
No. 333-53603-03)).

4.6 - Registration Rights Agreement 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 BT
Alex. Brown Incorporated, Bankers Trust International PLC,
Lazard Freres & Co. L.L.C. and Salomon Brothers Inc, relating
to the Senior Subordinated Notes Due 2008 of Graham Packaging
Company, L.P. and GPC Capital Corp. I, unconditionally
guaranteed by Graham Packaging Holdings Company (incorporated
herein by reference to Exhibit 4.6 to the Registration
Statement on Form S-4 (File No. 333-53603-03)).

4.7 - Indenture dated as of February 2, 1998 among Graham Packaging
Holdings Company and GPC Capital Corp. II and The Bank of New
York, as Trustee, relating to the Senior Discount Notes Due
2009 of Graham Packaging Holdings Company and GPC Capital
Corp. II (incorporated herein by reference to Exhibit 4.7 to
the Registration Statement on Form S-4 (File No. 333-53603-
03)).

4.8 - Form of 10 3/4% Senior Discount Note Due 2009, Series A
(included in Exhibit 4.7) (incorporated herein by reference to
Exhibit 4.8 to the Registration Statement on Form S-4 (File
No. 333-53603-03)).

4.9 - Form of 10 3/4% Senior Discount Note Due 2009, Series B
(included in Exhibit 4.7) (incorporated herein by reference to
Exhibit 4.8 to the Registration Statement on Form S-4 (File
No. 333-53603-03)).

4.10 - Registration Rights Agreement dated as of February 2, 1998
among Graham Packaging Holdings Company, GPC Capital Corp. II,
BT Alex. Brown Incorporated, Bankers Trust International PLC,
Lazard Freres & Co. L.L.C. and Salomon Brothers Inc. relating
to the Senior Discount Notes Due 2009 of Graham Packaging
Holdings Company and GPC Capital Corp. II (incorporated herein
by reference to Exhibit 4.10 to the Registration Statement on
Form S-4 (File No. 333-53603-03)).

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10.1 - Credit Agreement dated as of February 2, 1998 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 Registration Statement on Form S-4 (File No. 333-53603-
03)).

10.2 - Consulting Agreement dated as of February 2, 1998 between
Graham Packaging Holdings Company and Graham Capital
Corporation (incorporated herein by reference to Exhibit 10.2
to the Registration Statement on Form S-4 (File No. 333-53603-
03)).

10.3 - Equipment Sales, Service and License Agreement dated February
2, 1998 between Graham Engineering Corporation and Graham
Packaging Holdings Company (incorporated herein by reference
to Exhibit 10.3 to the Registration Statement on Form S-4
(File No. 333-53603-03)).

10.4 - Forms of Retention Incentive Agreement (incorporated herein by
reference to Exhibit 10.4 to the Registration Statement on
Form S-4 (File No. 333-53603-03)).

10.5 - Forms of Severance Agreement (incorporated herein by reference
to Exhibit 10.5 to the Registration Statement on Form S-4
(File No. 333-53603-03)).

10.6 - Registration Rights Agreement by and among Graham Packaging
Company, L.P., GPC Capital Corp. II, Graham Capital
Corporation, Graham Family Growth Partnership, BCP /Graham
Holdings L.L.C., BMP/Graham Holdings Corporation and the other
parties named therein (incorporated herein by reference to
Exhibit 10.6 to the Registration Statement on Form S-4 (File
No. 333-53603-03)).

10.7 - 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)).

10.8 - Management Stockholders Agreement (incorporated herein by
reference to Exhibit 10.8 to the Registration Statement on
Form S-4 (File No. 333-53603-03)).

10.9 - Form of Equity Incentive Agreement (incorporated herein by
reference to Exhibit 10.9 to the Registration Statement on
Form S-4 (File No. 333-53603-03)).

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10.10 - Stockholders' Agreement dated as of February 2, 1998 among
Blackstone Capital Partners III Merchant Banking Fund L.P.,
Blackstone Offshore Capital Partners III L.P., Blackstone
Family Investment 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)).

10.11 - Graham Packaging Holdings Company Management Option Plan
(incorporated herein by reference to Exhibit 10.11 to the
Registration Statement on Form S-4 (File No. 333-53603-03)).

10.12 - First Amendment to Credit Agreement dated as of August 13,
1998 (incorporated herein by reference to Exhibit 10.12 to the
Annual Report on Form 10-K for the fiscal year ended December
31, 1998 (File No. 333-53603-03)).

18 - Letter re Change in Accounting Principles (incorporated herein
by reference to Exhibit 18 to the Quarterly Report on Form 10-
Q for the quarterly period ended September 26, 1999 (File No.
333-53603-03)).

21.1 - Subsidiaries of Graham Packaging Holdings Company.

24 - Power of Attorney--Page II- of Form 10-K.

27 - Financial Data Schedule

99.1 - Form of Fixed Rate Senior Subordinated Letter of Transmittal
(incorporated herein by reference to Exhibit 99.1 to the
Registration Statement on Form S-4 (File No. 333-53603-03)).

99.2 - Form of Fixed Rate Senior Subordinated Notice of Guaranteed
Delivery (incorporated herein by reference to Exhibit 99.2 to
the Registration Statement on Form S-4 (File No. 333-53603-
03)).

99.3 - Form of Floating Rate Senior Subordinated Letter of
Transmittal (incorporated herein by reference to Exhibit 99.3
to the Registration Statement on Form S-4 (File No. 333-53603-
03)).

99.4 - Form of Floating Rate Senior Subordinated Notice of Guaranteed
Delivery (incorporated herein by reference 99.4 to Exhibit to
the Registration Statement on Form S-4 (File No. 333-53603-
03)).

99.5 - Form of Senior Discount Letter of Transmittal (incorporated
herein by reference to Exhibit 99.5 to the Registration
Statement on Form S-4 (File No. 333-53603-03)).

99.6 - Form of Senior Discount Notice of Guaranteed Delivery
(incorporated herein by reference to Exhibit 99.6 to the
Registration Statement on Form S-4 (File No. 333-53603-03)).

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(c) Reports on Form 8-K

No Reports on Form 8-K were required to be filed during the quarter
ended December 31, 1999.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned hereunto duly
authorized.

Dated: March 23, 2000

GRAHAM PACKAGING HOLDINGS COMPANY
(Registrant)

By: BCP/Graham Holdings L.L.C., its General Partner

By: /s/ John E. Hamilton
Name: John E. Hamilton
Title: Vice President, Finance and
Administration (chief accounting
officer and duly authorized officer)

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POWER OF ATTORNEY

We, the undersigned officers of BCP/Graham Holdings L.L.C., as
general partner of Graham Packaging Holdings Company, and directors of
BMP/Graham Corporation, as sole member of BCP/Graham Holdings L.L.C., as
the general partner of Graham Packaging Holdings Company, do hereby
constitute and appoint Philip R. Yates and John E. Hamilton, or either of
them, our true and lawful attorneys and agents, to sign for us, or any of
us, in our names in the capacities indicated below, any and all
amendments to this report, and to cause the same to be filed with the
Securities and Exchange Commission, granting to said attorneys, and each
of them, full power and authority to do and perform any act and thing
necessary or appropriate to be done in the premises, as fully to all
intents and purposes as the undersigned could do if personally present,
and we do hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed on the 23rd day of March, 2000 by the
following persons on behalf of the registrant and in the capacities
indicated, with respect to BCP/Graham Holdings L.L.C., as general
partner of Graham Packaging Holdings Company, or BMP/Graham Holdings
Corporation, as sole member of BCP/Graham Holdings L.L.C., as indicated
below:

Signature Title
--------- -----

/s/ Howard A. Lipson President, Treasurer and Assistant Secretary
Howard A. Lipson (Principal Executive Officer) of BCP/Graham
Holdings L.L.C.

/s/ John E. Hamilton Vice President, Finance and Administration
John E. Hamilton (Principal Financial Officer and Principal
Accounting Officer) of BCP/Graham Holdings
L.L.C.

/s/ Howard A. Lipson Director of BMP/Graham Holdings Corporation
Howard A. Lipson

/s/ Chinh E. Chu Director of BMP/Graham Holdings Corporation
Chinh E. Chu

/s/ Simon P. Lonergan Director of BMP/Graham Holdings Corporation
Simon P. Lonergan

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SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT.

No annual report to security holders covering the registrant's last
fiscal year has been sent to security holders. No proxy statement, form
of proxy or other proxy soliciting material has been sent to more than 10
of the registrant's security holders with respect to any annual or other
meeting of security holders.

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SCHEDULE I

GRAHAM PACKAGING HOLDINGS COMPANY
REGISTRANT'S CONDENSED FINANCIAL STATEMENTS
(In thousands)

BALANCE SHEET December 31, 1999 December 31, 1998
- -------------

Assets
Current assets $ -- $ --
Intangible assets, net 4,877 5,047
-------- --------
Total assets $ 4,877 $ 5,047
======== ========
Liabilities and Partners' Capital
Current liabilities $ 6,977 $ 6,972
Long-term Debt 123,092 110,697
Investment in subsidiary 332,779 326,172
-------- --------
Total liabilities 462,848 443,841
Partners' capital (457,971) (438,794)
-------- --------
Total liabilities and partners' capital $ 4,877 $ 5,047
======== ========

STATEMENTS OF OPERATIONS Year Ended December Year Ended December
- ------------------------ 31, 1999 31, 1998
(as adjusted, Note 5)

Equity in earnings of subsidiaries $13,825 $ (16,485)
Recapitalization expenses -- (1,000)
Interest expense (12,565) (10,546)
Other (5) --
-------- --------
Net Loss $ 1,255 $(28,031)
======== ========

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g116

STATEMENTS OF OPERATIONS Year Ended December Year Ended December
- ------------------------ 31, 1999 31, 1998
(as adjusted, Note 5)

Operating activities:
Net income (loss) $ 1,255 $(28,031)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Amortization of debt issuance costs 170 462
Accretion of senior discount notes 12,395 10,085
Changes in current liabilities 5 6,972
Equity income in subsidiaries (13,825) 16,485
-------- --------
Net cash provided by operating activities -- 5,973
Investing activities:
Investments in a Business -- 314,477
-------- --------
Net cash provided by investing activities -- 314,477
Financing activities:
Borrowings on long-term debt -- 100,612
Cash distributions to Partners -- (415,554)
Debt issuance fees -- (5,508)
-------- --------
Net cash used in financing activities -- (320,450)
-------- --------
Increase in cash and cash equivalents -- --
-------- --------
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.

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SCHEDULE II

GRAHAM PACKAGING HOLDINGS COMPANY
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)

Year ended December 31, 1999 Balance @ Balance @ end
beginning of year Additions Deductions Other of year

Allowance for Doubtful Accounts $1,435 $420 $97 $33 $1,791
Allowance for Inventory Losses 1,447 297 461 -- 1,283

Year ended December 31, 1998

Allowance for Doubtful Accounts $1,635 $32 $395 $163 $1,435
Allowance for Inventory Losses 566 514 220 587 1,447

Year ended December 31, 1997

Allowance for Doubtful Accounts $1,202 $512 $ 79 $ -- $1,635
Allowance for Inventory Losses 901 75 410 -- 566

Represents allowance attributable to entities acquired during 1999
and 1998.

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