-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vq2C8oMYzSexirOhYwIr6zRu1QWMkuJuM5VAmf8CF4mnggl7oAnfBbtavx9GeSu4 JDO/dkxjKwOpsiuiEXX5OA== 0000931763-99-003438.txt : 19991220 0000931763-99-003438.hdr.sgml : 19991220 ACCESSION NUMBER: 0000931763-99-003438 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991003 FILED AS OF DATE: 19991217 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BWAY CORP CENTRAL INDEX KEY: 0000943897 STANDARD INDUSTRIAL CLASSIFICATION: METAL CANS [3411] IRS NUMBER: 363624491 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-12415 FILM NUMBER: 99777127 BUSINESS ADDRESS: STREET 1: 8607 ROBERTS DR STREET 2: STE 250 CITY: ATLANTA STATE: GA ZIP: 30350 BUSINESS PHONE: 4045870888 MAIL ADDRESS: STREET 1: 8607 ROBERTS DRIVE SUITE 250 CITY: ATLANTA STATE: GA ZIP: 30350 FORMER COMPANY: FORMER CONFORMED NAME: BROCKWAY STANDARD HOLDINGS CORP DATE OF NAME CHANGE: 19950413 10-K405 1 BWAY CORPORATION United States SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K [ X ] Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the Fiscal Year Ended October 3, 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 0-26178 BWAY Corporation (Exact name of registrant as specified in its charter) DELAWARE (State or other jurisdiction of incorporation or organization) 36-3624491 (I.R.S. Employer Identification No.) 8607 Roberts Drive, Suite 250 Atlanta, Georgia 30350 (Address of principal executive offices, including zip code) 770-645-4800 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $0.01 per share, registered on the New York Stock Exchange. 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 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) As of November 30, 1999, the aggregate market value of the voting stock held by non-affiliates of BWAY Corporation was approximately $35,819,470. As of November 30, 1999, there were 9,309,024 shares of BWAY Corporation's Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Certain portions of BWAY Corporation's Proxy Statement to be mailed to stockholders on or about January 15, 2000 for the Annual Meeting of Stockholders to be held on February 25, 2000 are incorporated in Part III hereof by reference. BWAY CORPORATION TABLE OF CONTENTS
Page ----------------- PART I Item 1. Business 1 Item 2. Properties 7 Item 3. Legal Proceedings and Regulatory Matters 8 Item 4. Submission of Matters to a Vote of Security Holders 8 PART II Item 5. Market for the Company's Common Equity and Related Stockholder Matters 8 Item 6. Selected Financial Data 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 18 Item 8. Financial Statements and Supplementary Data 19 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 19 PART III Item 10. Directors and Executive Officers of the Registrant 19 Item 11. Executive Compensation 19 Item 12. Security Ownership of Certain Beneficial Owners and Management 19 Item 13. Certain Relationships and Related Transactions 19 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 19 ii
BWAY CORPORATION AND SUBSIDIARIES FORM 10-K ANNUAL REPORT FOR THE FISCAL YEAR ENDED OCTOBER 3, 1999 PART I Item 1. Business -------- General BWAY Corporation ("BWAY") is a holding company whose significant subsidiaries, Brockway Standard, Inc. ("BSI"), Milton Can Company, Inc. ("MCC") and BMAT, Inc. ("BMAT"), (collectively the "Company") are leading developers, manufacturers, and marketers of steel containers for the general line category of the North American container industry. The Company also provides related material center services (coating, lithography, and metal shearing) for its internal purposes and also external customers. On November 9, 1998 the Company acquired substantially all of the assets of United States Can Company's ("U.S. Can") metal services operations, making the Company a leading provider of material center services. The references in this report to market positions or market share are based on information derived from annual reports, trade publications and management estimates which the Company believes to be reliable. In January 1989, BWAY and BSI were formed to purchase the metal container business of Owens-Illinois Corporation ("Owens-Illinois"). In June 1995, BWAY (formerly known as Brockway Standard Holdings Corporation) completed an initial public offering ("Initial Public Offering") of its common stock, par value $.01 per share (the "Common Stock"). The Company operates on a 52/53-week fiscal year ending on the Sunday closest to September 30 of the applicable year. For simplicity of presentation, the Company has presented year-ends as September 30 and all other periods as the nearest month end, with the exception of pages F1 - F28. Metal containers are currently utilized for three product categories: beverage, food and general line (which includes containers for such products as aerosol, paint and varnish, and automotive products). Management estimates, based on industry data published by the Can Manufacturers Institute and the United States Bureau of Statistics, that 1998 industry shipments totaled approximately 103 billion units to the beverage category, 32 billion units to the food category and 4 billion units to the general line category. Although the general line category constitutes approximately 3% of the unit volume of metal containers, management estimates that it represents approximately 10% of the metal can industry revenues. Few companies compete in all three product categories, and most of the companies which produce beverage and food cans do not compete in the general line product categories. The Company's principal products include a wide variety of steel cans and pails used for packaging paint and related products, lubricants, cleaners, roof and driveway sealants, food (principally coffee, vegetable oil and vegetable shortening) and household and personal care aerosol products. The Company also manufactures steel ammunition boxes and provides material center services. The Company's products are typically coated on the inside to customer specifications based on intended use and are either decorated on the outside to customer specifications or sold undecorated. The Company markets its products primarily in North America. The Company's sales to customers located outside of the United States were less than 5 percent for both fiscal 1998 and fiscal 1999. Sales are made either by the Company's direct sales force, third party distributors or sales agents. Sales growth has been accomplished primarily through acquisitions in the general line and material center services categories and to a lesser extent, expanded market penetration in the sales of existing products and new product development. Acquisitions The Company completed two strategic acquisitions during fiscal 1996, one strategic acquisition during fiscal 1997 and one strategic acquisition during fiscal 1999. The operating results for the following acquisitions have been included in the Company's consolidated financial 1 statements since the dates of acquisition. Milton Can - On May 28, 1996, a subsidiary of BWAY ("BSNJ") acquired all of the outstanding stock of Milton Can Company, Inc. ("Milton Can") (the "BSNJ Acquisition"). This acquisition provided geographic expansion for the Company into the northeast United States, enabling the Company to provide expanded coverage for many of its products and to many of its customers. The acquired business had revenues of approximately $55 million for the year ended December 31, 1995, and operated three facilities. The Company paid the shareholders of Milton Can approximately $29 million in approximately equal portions of cash and BWAY stock, and the Company assumed approximately $12.3 million of debt of the acquired company, which was retired by the Company at the time of acquisition. The transaction was accounted for using the purchase method of accounting. Subsequent to the acquisition, as part of the Company's 3R strategic initiatives to rationalize, re-engineer and re-capitalize, the Company closed one facility and announced plans to close a second facility in fiscal 1999, acquired in the BSNJ Acquisition. The Elizabeth, New Jersey (Northeast Tinplate) facility was closed in the second quarter of fiscal 1999. Davies Can - On June 17, 1996, a subsidiary of BWAY ("BSO") acquired substantially all of the assets of the Davies Can division of the Van Dorn Company, a wholly-owned subsidiary of Crown Cork & Seal Company, Inc. (the "BSO Acquisition"). This acquisition provided geographic expansion for the Company into the northeast and midwest United States, enabling the Company to provide expanded coverage for many of its products and to many of its customers. The acquired business had revenues of approximately $55 million for the year ended December 31, 1995, and operated three facilities. The Company paid approximately $42 million in cash for the assets. The transaction was accounted for using the purchase method of accounting. Subsequent to the acquisition, as part of the Company's 3R strategic initiatives, the Company closed two of the facilities acquired in the BSO Acquisition. Ball Aerosol - On October 28, 1996, the Company acquired substantially all of the assets related to the metal aerosol can business from Ball Metal Food Container Corporation, a wholly owned subsidiary of Ball Corporation (the "Ball Aerosol Acquisition"). The assets consist of a facility in Cincinnati which includes a material center and substantially all the assets used in connection with the marketing, distribution, selling, manufacturing, designing, and engineering of metal aerosol cans. The Company paid approximately $42.4 million for the acquired business. The purchase method of accounting was used to establish and record a new cost basis for the assets acquired and liabilities assumed. The excess of the aggregate purchase price over the aggregate fair market value of net identifiable assets acquired was approximately $23 million. U.S. Can Metal Services Operations - On November 9, 1998, the Company acquired substantially all of the assets and assumed certain of the liabilities of the United States Can Company's metal services operations (the "U.S. Can Acquisition"). The purchase price was approximately $27.7 million in cash after adjustments for working capital. The acquisition included three operating plants and one non-operating plant. The acquired facilities operated two different businesses, coating and lithography, which is part of the Company's core business, and tinplate metal services which is not a business of the Company. The purchase method of accounting was used to establish and record a new cost basis for the assets acquired and liabilities assumed and an allocation of the purchase price was finalized at October 3, 1999. The operating results for the acquired business have been included in the Company's consolidated financial statements since the date of acquisition except for the tinplate services business, which was sold as described below. As of October 3, 1999, the excess aggregate purchase price over the aggregate fair market value of net identifiable assets acquired was $10.8 million and is being amortized over 40 years. On November 17, 1998, the Company signed a binding letter of intent to sell the acquired tinplate services business. Anticipating the sale of the tinplate metal services business, the Company closed the Brookfield, Ohio location in March 1999 and closed the Chicago Metal operations in September 1999. The tinplate services business primarily purchases, processes, and sells nonprime steel to third party customers. The Company finalized the sale of the tinplate services business to Arbon Steel and Service Company in the fourth quarter of fiscal 1999. The Company excluded from results of operations tinplate metal services business losses of $4.4 million, including interest expense of $0.7 million, for the year ended October 3, 1999. Management has committed to a plan to exit certain activities of the acquired facilities and integrate acquired assets and businesses with BWAY facilities. In connection with the recording of the purchase, the Company established a reorganization liability of approximately $11 million. The reorganization liability includes $1.8 million in severance, $5.5 million in facility closing costs, and $3.7 million in equipment demolition costs. The 2 reorganization liability represents the direct incremental costs expected to be incurred, which have no future economic benefit to the Company. During fiscal 1999, the Company has charged $0.4 million in severance, $2.9 million in facility closing costs and $1.5 million in demolition costs. In connection with the plant closures, the plan called for the termination of 308 employees. The Company has one remaining facility, the Chicago Service Division, scheduled to close in the fourth quarter of fiscal 2000. The operating results for the acquisitions have been included in the Company's consolidated financial statements since the dates of acquisition. Products and Markets The Company participates in the container market and related material center services business and currently holds leading positions in the sale of most of its general line products, other than aerosol cans, and holds a strong position in the sale of coffee and vegetable oil cans. The Company does not sell beverage containers. The Company also manufactures steel ammunition boxes. On November 9, 1998, the Company acquired substantially all of the assets of U.S. Can's metal services operations, making the Company a leading provider of material center services. The following table sets forth the percentage of net sales of the Company contributed by the product lines indicated for fiscal 1999, 1998 and 1997. The Company's sales distribution by product line has been affected to some extent by the recent acquisitions. Percentage of the Company's Net Sales - ------------------------------------- Year Ended September 30, ----------------------- Product 1999 1998 1997 ------- ---- ---- ---- General Line Containers 70% 80% 84% Food Cans 11% 13% 13% Material Center Services 16% 2% 0% Ammunition Boxes 3% 5% 3% ---- ---- ---- Total 100% 100% 100% General Line Products The primary uses for the Company's containers are for paint and related products, lubricants, cleaners, roof and driveway sealants, charcoal lighter fluid, household and personal care products. Specific products include round cans with rings and plugs (typical paint cans), oblong or ''F'' style cans (typical paint thinner cans), specialty cans (typical PVC or rubber cement cans, brake fluid and other automotive after-market products cans and an assortment of other specialty containers), and pails. The Company produces a full line of these products to serve the specific requirements of a wide range of customers. The Company's products are typically coated on the inside to customer specifications based on intended use, and are either decorated on the outside to customer specifications or sold undecorated. Most of the Company's products are manufactured in facilities that are strategically located to allow the Company to deliver product to customer filling locations for such products within a one day transit time. Paint Cans. The Company produces round paint cans in sizes ranging from one- quarter pint to one gallon, with one-gallon paint cans representing the majority of all paint can sales. Oblong or "F" Style Cans. Oblong or "F" style cans are typically used for packaging paint thinners, lacquer thinners, turpentine, deglossers and similar paint related products, charcoal lighter fluid, waterproofing products, and vegetable oil. The Company produces oblong cans in sizes ranging from three ounces to one imperial gallon. Specialty Cans. Utility cans include small screw top cans, which typically have an applicator, or brush attached to a screw cap and is used for PVC pipe cleaner, PVC cement and rubber cement. Cone top cans are typically used for packaging specialty oils and automotive after-market products including brake fluid, gasoline additives and 3 radiator flushes. The Company also produces various specialty containers. Aerosol Cans. Aerosol cans are typically used for packaging various household and industrial products, including paint and related products, personal care products, lubricants and insecticides. The Company produces a variety of sizes, which are generally decorated to customer specifications. Pails. Pails are typically used for packaging paint and related products, roof and driveway sealants, marine coatings, vegetable oil, and water repellent. Pails may be either ''closed head'' for easy pouring products, or ''open head'' for more viscous products, with a lid which is crimped on after filling. The Company manufactures steel pails in sizes ranging from 2.5 to 7 gallons. Food Products/Coffee Cans The Company produces cans for coffee and vegetable oil, with coffee accounting for the majority of sales. The Company produces coffee cans in sizes commonly referred to as 1 pound, 2 pound and 3 pound, and various smaller specialty coffee can sizes and shapes. Coffee cans are generally sold to nationally known coffee processing and marketing companies. The Company does not sell sanitary food cans in which soups, stews, vegetables, pie fillings and other foods are actually cooked in the can. Materials Center Services The Company provides materials center services for its can assembly facilities and third party customers. To enhance its offering of materials center services, the Company has made significant capital investments in state-of-the-art lithography and coating equipment. Ammunition Boxes The Company manufactures a variety of ammunition boxes. These containers provide a hermetic seal, are coated with a corrosion-resistant finish and are used to package small arms ammunitions and other ordnance products. The Company sells ammunition boxes to the U.S. Department of Defense as well as to major domestic and foreign producers of ordnance. Customers The Company sells its products to a large number of customers in numerous industry sectors. Sales to the Company's ten largest customers accounted for approximately 42% of sales in fiscal 1999. During fiscal 1999, sales to any specific customer did not equal or exceed 10% of sales during the period. Raw Materials The Company's principal raw materials consist of tinplate, blackplate and cold rolled steel, various coatings, inks and compounds. Steel products represent the largest component of raw material costs. Essentially all of the Company's products are manufactured from tinplate steel, except for pails and ammunition boxes, which are manufactured from blackplate and cold rolled steel. Various domestic and foreign steel producers supply the Company with tinplate steel. Procurement from suppliers depends on the suppliers' product offering, product quality, service and price. Because a significant number of reliable suppliers produce the steel used in the Company's process, management believes that it would be able to obtain adequate replacement supplies in the market should one of the current suppliers discontinue supplying the Company. The Company has historically worked with other companies to lower the overall cost of its steel purchases. The Company intends to pursue alternative strategies to lower raw material cost in fiscal 2000. During fiscal 1999, the Company increased its purchases of tinplate and cold rolled products from foreign sources, a practice the Company expects to continue during fiscal 2000. Tinplate consumers typically negotiate late in the calendar year for the next calendar year on terms of volumes and price. Terms agreed to have historically held through the following year, but there is no assurance that this practice will remain unchanged in the future. Steel prices have historically been adjusted as of January 1 of a calendar year. Most tinplate, blackplate and cold rolled steel products have announced price increases for January 1, 2000. 4 In addition to steel products, the Company purchases various coatings, inks, and compounds used in the manufacturing process. Based on ready availability of these materials in the past and the number of current manufacturers, management does not anticipate any shortages or supply problems in the future. Seasonality Sales of certain of the Company's products are to some extent seasonal, with sales levels generally higher in the second half of the Company's fiscal year. Environmental, Health and Safety Matters The Company is subject to a broad range of federal, state and local environmental and workplace health and safety requirements, including those governing discharges to air and water, the handling and disposal of solid and hazardous wastes, and the remediation of contamination associated with the releases of hazardous substances. The Company believes that it is in substantial compliance with all material environmental, health and safety requirements. In the course of its operations, the Company handles hazardous substances. As is the case with any industrial operation, if a release of hazardous substances occurs on or from the Company's facilities or at offsite waste disposal sites, the Company may be required to remedy such release. There were no material capital expenditures relating to environmental compliance in fiscal 1999, and, other than certain expenses at the Company's Homerville, Georgia facility discussed below, none are expected for fiscal 2000. Environmental investigations voluntarily conducted by the Company at its Homerville, Georgia facility in 1993 and 1994 detected certain conditions of soil and groundwater contamination, that management believes predated the Company's 1989 acquisition of the facility from Owens-Illinois. Such pre-1989 contamination is subject to indemnification by Owens-Illinois. The Company and Owens-Illinois have entered into supplemental agreements establishing procedures for investigation and remediation of the contamination. In 1994, the Georgia Department of Natural Resources ("DNR") determined that further investigation must be completed before DNR decides whether corrective action is needed. On August 25, 1999, DNR signed a consent order that had been submitted by the Company and Owens-Illinois. The consent order establishes a schedule for completing such investigation and remediation (all but a small portion of such investigation and remediation to be completed and funded by Owens-Illinois). In addition, at Homerville, the Company entered into a consent order with DNR on April 22, 1999, related to certain industrial wastewater and cooling water discharges that exceeded allowable limits. The Company anticipates capital expenditures in the neighborhood of $200,000 in fiscal 2000 to comply with the consent order. Management does not believe that the final resolution of either matter at Homerville will have a material adverse effect on the results of operations or financial condition of the Company. The Company (and in some cases, predecessors to the Company) have from time to time received requests for information or notices of potential responsibility pursuant to the Comprehensive Environmental Response, Compensation and Liability Act (`CERCLA") with respect to certain waste disposal sites utilized by former or current facilities of the Company or its various predecessors. To the Company's knowledge, all such matters which have not been resolved are, subject to certain limitations, indemnified by the sellers of the relevant Company affiliates, and all such unresolved matters have been accepted for indemnification by such sellers. Management believes that none of these matters will have a material adverse effect on the results of operations or financial condition of the Company. Because liability under CERCLA is retroactive, it is possible that in the future the Company may incur liability with respect to other sites. Competition The markets for the Company's products are competitive and the Company faces competition from a number of sources in most of its product lines. Competition is based primarily on price, quality, service, and, to a lesser extent, product innovation. The Company believes that its low cost of production and high quality products, the geographic location of the Company facilities which provide national coverage for most products to most customers, and its commitment to strong customer relationships enable it to compete effectively. 5 Manufacturers of steel containers have historically faced competition from other materials, primarily plastic, glass, and aluminum. Steel containers offer a number of significant advantages over alternative materials, including fire safety (critical in many products packaged in paint, oblong and specialty cans), the capacity for vacuum packaging (important to coffee producers) and ability to contain aggressive products (primarily certain solvent-based products). Employees As of October 3, 1999, the Company employed approximately 1,693 hourly employees and 483 salaried employees. Of the 1,693 hourly employees, 1,029 are non-union and the remaining 664 are covered by eight separate collective bargaining agreements. During fiscal 1999, in connection with the US Can Acquisition, certain subsidiaries of the Company added 80 salaried employees and 308 hourly employees. Of the 308 hourly employees approximately 270 are covered by collective bargaining agreements with either the Graphic Communications Workers International Union or the United Steelworkers of America. During the second quarter of fiscal 1999, the Company ceased operations at the Brookfield, Ohio facility following the U.S. Can Acquisition. This closing resulted in the elimination of approximately 32 hourly positions and 14 salaried positions at this facility. On August 3, 1999, the Company reached an agreement with the International Brotherhood of Teamsters, Local 714 at its Franklin Park (Chicago), Illinois facility affecting approximately 60 employees at this facility. The contract is retroactive to June 8, 1999 and is effective through March 3, 2003. The Company also negotiated extensions of its agreement with Local 458-3M of the Graphic Communication Workers International Union through October 31, 1999, affecting approximately 15 employees at this facility. On November 22, 1999, the Company implemented its last, best, and final offer for a new collective bargaining agreement, and since then the Union has been working under the implemented terms. On November 24, 1999, the Union filed an administrative action with the National Labor Relations Board challenging the lawfulness of the Company's implementation of its last, best, and final offer. The Company and the Union continue to meet in an effort to reach a collective bargaining agreement. On August 11, 1999, the Company reached an agreement with United Steelworkers of America, Local 3911-11 with respect to the discontinuance of the Chicago Metal operations, effective September 30, 1999, at the Company's Chicago Service Division facility in Chicago, Illinois. The discontinued operations resulted in the elimination of approximately 56 hourly positions and 22 salaried positions at this facility. Subsequent to fiscal 1999, the Company negotiated an agreement with the Graphics Communications Workers International Union, Local 458-3M concerning the discontinuance of the Chicago Litho operations at the Company's Chicago Service Division facility, which is scheduled for closing in the fourth quarter of fiscal 2000. 6 Item 2. Properties ---------- The following table sets forth certain information with respect to the Company's headquarters and significant manufacturing plants as of November 30, 1999.
General Approximate Location Character Square Footage Type of Interest - -------- --------- -------------- ---------------- Alsip, Illinois (1) Manufacturing 102,000 Owned Atlanta, Georgia (Headquarters) Office 24,000 Leased Brookfield, Ohio (1) Manufacturing 130,000 Leased Chicago, Illinois (Kilbourn) Manufacturing 141,000 Owned Chicago, Illinois (Chicago Service) (1) Manufacturing 271,000 Owned Cincinnati, Ohio Manufacturing 467,000 Leased Dallas, Texas (Thompson) Manufacturing 110,000 Owned Dallas, Texas (Southwestern) Manufacturing 88,000 Owned Elizabeth, New Jersey Manufacturing 157,000 Leased Elizabeth, New Jersey (Northeast Tinplate) Manufacturing 42,000 Leased Fontana, California Manufacturing 72,000 Leased Franklin Park, Illinois Manufacturing 115,000 Leased Garland, Texas Manufacturing 108,000 Leased Homerville, Georgia Manufacturing 395,000 Owned Memphis, Tennessee Manufacturing 75,000 Leased Picayune, Mississippi Manufacturing 60,000 Leased Trenton, New Jersey (1) Manufacturing 105,000 Leased York, Pennsylvania Manufacturing 97,000 Owned
(1) On November 9, 1998 the Company acquired substantially all of the assets of U.S. Can Company's metal services operations. These properties were added as a result of that acquisition. In June 1998, management approved a restructuring plan to close three facilities as part of the Company's rationalization initiatives. The facility in Solon, Ohio was closed during the fourth quarter of fiscal 1998 and sold during the second quarter of fiscal 1999. The Elizabeth, New Jersey (Northeast Tinplate) facility was closed during the second quarter of fiscal 1999 and subleased for the remainder of the lease term. The Dallas, Texas (Thompson) facility is scheduled to close during the second quarter of fiscal 2000. The Company is actively marketing the Thompson facility for sale. Subsequent to the U.S. Can Acquisition in November 1998, the Company announced its plan to close the acquired Brookfield, Ohio facility. The Brookfield, Ohio plant was closed during the second quarter of fiscal 1999 and the Company is actively seeking to sublease that facility. The Company also announced plans to close the Chicago Metal and Chicago Litho operations at the Chicago Service Division facility in Chicago, Illinois, also acquired in the U.S. Can Acquisition, and is currently evaluating disposition alternatives. A third acquired facility located in Alsip, Illinois, which was not operating at the time of acquisition, is also being evaluated for disposition. On August 20, 1999, the Company sold and leased back its Cincinnati, Ohio manufacturing facility. The sales price was $10.4 million. After deducting closing costs of $0.6 million, the Company recorded a deferred gain on the sale of $2.3 million, which will be amortized over the life of the lease. The amortization of the deferred gain recorded in earnings for the year ending October 3, 1999 was $13 thousand. The lease term is 20 years with annual lease payments of approximately $1.1 million. The lease has two 5-year renewal terms that run consecutively after the basic term. The lease is accounted for as an operating lease for financial reporting purposes. The Company believes its properties are generally in good condition, well maintained and suitable for their intended use. 7 Item 3. Legal Proceedings ----------------- The Company is involved in certain proceedings relating to environmental matters as described under Item 1. "Business - Environmental, Health and Safety Matters." The Company is also involved in legal proceedings from time to time in the ordinary course of its business. There are no such currently pending proceedings, which are expected to have a material adverse effect on the Company. Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- No matters were submitted during the fourth quarter of fiscal 1999 to a vote of security holders of the Company through the solicitation of proxies or otherwise. PART II Item 5. Market for the Company's Common Equity and Related Stockholder Matters ---------------------------------------------------------------------- As of December 3, 1999, there were 87 holders of record of the Common Stock. Because BWAY is a holding company, its ability to pay dividends is substantially dependent upon the receipt of dividends or other payments from its subsidiaries. The Company's Credit Agreement dated June 17, 1996, as amended (the "Credit Agreement"), among BWAY and certain subsidiaries, BT Alex.Brown (formerly Bankers Trust Company) and Bank of America (formerly NationsBank, N.A.) and various other lenders, restricts the ability of BWAY and its subsidiaries to pay dividends or make other restricted payments in an amount greater than $8.7 million, and places certain restrictions on the Company with regard to incurring additional indebtedness, other than certain specified indebtedness. In addition, the Company's Indenture dated April 11, 1997 (the "Indenture") also restricts the ability of BWAY and its subsidiaries to pay dividends or make other payments, and places certain restrictions on the Company with regard to incurring additional indebtedness, other than certain specified indebtedness. Any future determination to pay dividends will be made by the Board of Directors in light of the Company's earnings, financial position, capital requirements, credit agreements, indentures, business strategies and such other factors as the Board of Directors deems relevant at such time. The Company has not otherwise paid any cash distributions or other dividends on the Common Stock and presently intends to retain its earnings to finance the development of its business for the foreseeable future. The Company repurchased $1.0 million of its common stock during fiscal 1999 under the Company's common stock repurchase program. The Company's Common Stock was traded on the Nasdaq National Market under the symbol "BWAY" through November 19, 1996. Since November 20, 1996, the Company's common stock has been traded on the New York Stock Exchange under the symbol "BY". The table below sets forth the high and low sales price information for the Common Stock for each quarter of fiscal 1998 and fiscal 1999. On August 19, 1997 the Company's Board of Directors declared a three-for-two stock split of the Company's Common Stock effected in the form of a stock dividend which was paid on September 22, 1997 to stockholders of record on September 2, 1997. All price information set forth below has been adjusted to reflect the stock dividend. 8
Fiscal Quarter High Low -------------- ---- --- First quarter, 1998 $25.63 $18.75 Second quarter, 1998 $26.25 $20.13 Third quarter, 1998 $26.94 $19.00 Fourth quarter, 1998 $23.13 $12.38 First quarter, 1999 $18.31 $11.50 Second quarter, 1999 $16.00 $10.88 Third quarter, 1999 $15.88 $11.38 Fourth quarter, 1999 $13.69 $ 8.50
Item 6. Selected Financial Data ----------------------- The selected historical consolidated financial data as of and for each of the years in the five years ended September 30, 1999 have been derived from the audited consolidated financial statements of the Company. The results of operations include the results of acquisitions described under "Business-- Acquisitions" contained in Item 1 of this report and have been included in the Company's consolidated financial statements from the date of the respective acquisitions. The selected consolidated financial data is qualified by, and should be read in conjunction with, ''Management's Discussion and Analysis of Financial Condition and Results of Operations'' contained in Item 7 of this report and with the Company's consolidated financial statements and the related notes thereto included in Item 8 of this report. 9
Fiscal Year Ended September 30, (1) ------------------------------------------------------------ 1999 (2) 1998 1997 (3) 1996 (4) 1995 -------- -------- -------- -------- -------- Income Statement Data: NET SALES $467,099 $401,089 $402,150 $283,105 $247,480 -------- -------- -------- -------- -------- COSTS, EXPENSES AND OTHER Cost of products sold (excluding depreciation and amortization) 404,492 336,588 341,406 236,741 208,091 Depreciation and amortization 17,246 13,465 13,024 7,425 5,940 Selling and administrative expense 19,678 22,748 19,651 14,589 10,335 Restructuring and impairment Charge (5) (6) 11,532 12,860 Interest expense, net 14,733 13,021 10,649 4,872 5,211 Gain on curtailment of postretirement benefits (1,861) (5,828) AB Leasing fees, expenses and termination (7) 3,384 Other, net 33 127 998 (340) (275) -------- -------- -------- -------- -------- Total costs, expenses, and other 456,182 395,620 379,900 276,147 232,686 INCOME BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING 10,917 5,469 22,250 6,958 14,794 Provision for income taxes 5,290 2,789 9,146 3,239 6,021 -------- -------- -------- -------- -------- INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING 5,627 2,680 13,104 3,719 8,773 -------- -------- -------- -------- -------- Extraordinary loss resulting from the extinguishment of debt, net of tax benefit of $1,683 (8) (2,535) INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING 5,627 2,680 13,104 1,184 8,773 -------- -------- -------- -------- -------- CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR SYSTEMS DEVELOPMENT COSTS - Net of related tax benefit of $823 (9) (1,161) -------- -------- -------- -------- -------- NET INCOME $ 5,627 $ 1,519 $ 13,104 $ 1,184 $ 8,773 ======== ======== ======== ======== ======== BASIC EARNINGS PER COMMON SHARE DATA: Income before extraordinary item and accounting change $ 0.60 $ 0.28 $ 1.33 $ 0.40 $ 1.24 Extraordinary item (0.27) Cumulative effect of change in accounting (0.12) -------- -------- -------- -------- -------- Net income $ 0.60 $ 0.16 $ 1.33 $ 0.13 $ 1.24 ======== ======== ======== ======== ======== DILUTED EARNINGS PER COMMON SHARE DATA: Income before extraordinary item and accounting change $ 0.60 $ 0.27 $ 1.31 $ 0.40 $ 1.23 Extraordinary item (0.27) Cumulative effect of change in accounting (0.12) -------- -------- -------- -------- -------- Net Income $ 0.60 $ 0.15 $ 1.31 $ 0.13 $ 1.23 ======== ======== ======== ======== ======== WEIGHTED AVERAGE BASIC COMMON SHARES OUTSTANDING 9,323 9,527 9,817 9,373 7,097 ======== ======== ======== ======== ======== WEIGHTED AVERAGE DILUTED COMMON SHARES OUTSTANDING 9,453 9,959 9,983 9,407 7,104 ======== ======== ======== ======== ========
10
Fiscal Year Ended September 30, (1) ------------------------------------------------ 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- Balance Sheet Data: Working capital $ 14,146 $ 737 $ 6,890 $ 22,280 $ 38,811 Property, plant and equipment, net 144,716 133,960 123,617 94,800 67,668 Total assets 362,023 313,711 316,377 245,133 167,958 Long-term debt (including current 146,500 122,272 115,532 95,198 50,218 Maturities) Stockholders' equity 82,053 77,188 85,466 72,629 65,837
(1) The Company operates on a 52/53-week fiscal year ending on the Sunday closest to September 30 of the applicable year. For simplicity of presentation, the Company has presented year-ends as September 30. (2) The results of operations for the year ending September 30, 1999 include the results from the November 9, 1998 acquisition of substantially all of the assets of the material center service business of U.S. Can Company. (3) The results of operations for the year ending September 30, 1997 include the results from the October 28, 1996 acquisition of substantially all of the assets of the aerosol can business of Ball Metal Food Container Corporation. (4) The results of operations for the year ending September 30, 1996 include the results from the following acquisitions: On May 28, 1996, BWAY acquired all of the stock of Milton Can Company. On June 17, 1996, BSI acquired substantially all of the assets of the Davies Can Division of the Van Dorn Company. (5) During the fourth quarter of fiscal 1996, the Company recorded a restructuring and impairment charge related to the write-off of fixed assets due to the consolidation of manufacturing processes related to the fiscal 1996 acquisitions. (6) During the third quarter of fiscal 1998, the Company recorded a restructuring and impairment charge related to the closure of three plants, the elimination of an internal transportation department and the write-off of equipment at several operating locations which were impaired due primarily to changes in manufacturing processes. See Note 13 of the Notes to Consolidated Financial Statements set forth in Item 8. (7) The Company was party to a management agreement (the ''Management Agreement'') with AB Leasing and Management, Inc. (''AB Leasing'') whereby the Company paid to AB Leasing an annual fee (the ''AB Leasing Fee'') based upon a formula, plus reimbursement for expenses. The Company and AB Leasing terminated the Management Agreement upon the consummation of the Initial Public Offering. Pursuant to the termination agreement the Company issued 199,500 shares of Common Stock to AB Leasing prior to the effectiveness of the Initial Public Offering. The Company recorded a non-recurring, non- cash, pre-tax charge to operations of $1,995,000 in connection therewith in the period in which such shares were issued. (8) The Company recorded an extraordinary loss related to the prepayment of the $50 million principal amount of 8.35% Senior Secured Notes during the third quarter of fiscal 1996. (9) On November 20, 1997 the FASB's Emerging Issues Task Force (EITF) issued a consensus on the accounting treatment of certain information systems and process reengineering costs. The Company is involved in a business information systems and process reengineering project that is subject to this pronouncement. Based on the EITF consensus, $2.0 million of the previously capitalized costs associated with this project were expensed in the first fiscal quarter of 1998, as a change in accounting. A one-time charge of $1.2 million after tax or $0.12 per diluted share for the cumulative effect of this new accounting interpretation for business information systems and process reengineering activities reduced 1998 year-to-date net earnings. 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results ----------------------------------------------------------------------- of Operations - ------------- The following discussion should be read in conjunction with the Company's consolidated financial statements and related notes thereto included elsewhere in Item 8 of this report. General Industry The Company currently derives substantially all of its revenues from the sale of steel containers manufactured at the Company's plants and related material center services. The packaging market in which the Company competes is generally mature and stable. Management believes that companies that have managed sustained growth in these markets have typically accomplished this growth primarily through acquisitions. Industry consolidation has occurred during recent years. Sales Growth The Company's net sales have grown from approximately $402.2 million in fiscal 1997 to approximately $467.1 million in fiscal 1999, primarily as a result of the U.S. Can Acquisition during this period. The U.S. Can Acquisition has strengthened and expanded the Company's position in key product and geographic markets and, through consolidation, have enabled the Company to achieve operating synergies. Raw Materials The largest component of cost of sales is tinplate steel, which is currently supplied by large, national manufacturers and, to a lesser extent, foreign manufacturers. Tinplate prices have historically been negotiated once per year, with changes effective January 1, and have typically remained stable for the subsequent one-year period. The Company has historically worked with other companies to lower the overall cost of its steel purchases. The Company intends to pursue alternative strategies to lower raw material cost in fiscal 2000. During fiscal 1999, the Company increased its purchases of tinplate and cold rolled products from foreign sources, a practice the Company expects to continue during fiscal 2000. Tinplate consumers typically negotiate late in the year for the next calendar year on terms of volumes and price. Terms agreed to have historically held through the following year, but there is no assurance that this practice will remain unchanged in the future. Steel prices have historically been adjusted as of January 1 of a calendar year. Most tinplate, blackplate and cold rolled steel producers have announced price increases effective January 1, 2000. The Company has historically arranged for raw material price increases which are lower than those publicly announced by its suppliers, although there can be no assurances that this practice will continue. Gross Profit Margins Continuous advances in manufacturing productivity and cost reduction have been critical to the industry and the Company's ability to improve gross profit margins. The Company's objective is to improve margins by maximizing synergies through employment of the Company's 3R strategic initiative to Rationalize, Reengineer and Recapitalize acquired businesses and by capital investments. The Company's gross profit margin as a percentage of net sales declined to 13.4% in fiscal 1999 from 16.1% in fiscal 1998. The decline resulted primarily from sales associated with the U.S. Can Acquisition where gross profit margins as a percentage of net sales has historically been lower than the Company's existing businesses, costs associated with the Company's rationalization initiatives and costs associated with capital project implementations. 12 Results of Operations Year ended September 30, 1999 (fiscal 1999) compared to year ended September 30, 1998 (fiscal 1998). Net Sales. Net sales for fiscal 1999 were $467.1 million, an increase of $66.0 million or 16.5% from $401.1 million in fiscal 1998. The increase in net sales was primarily attributable to the fiscal 1999 U.S. Can Acquisition. The Company's net sales for fiscal 1999, excluding the effect of the U.S. Can Acquisition, declined approximately 2.5% from fiscal 1998. Cost of Products Sold. Cost of products sold (excluding depreciation and amortization) in fiscal 1999 was $404.5 million, an increase of $67.9 million, or 20.2%, from $336.6 million in fiscal 1998. The increase is primarily attributable to increased sales from the U.S. Can Acquisition, start-up costs of new equipment and plant rationalization costs. Cost of products sold as a percent of sales increased to 86.6% in fiscal 1999 from 83.9% in fiscal 1998. The increase is primarily attributable to the incremental sales from the U.S. Can Acquisition where cost of products sold as a percent of sales has historically been higher than the Company's existing operations, to start-up costs for new equipment (particularly within the Company's material center business) and to costs associated with the Company's rationalization initiatives at can assembly operations, primarily in the Northeast and Southwest. The rationalization process for the Company's Northeast and Southwest facilities is progressing at a slower rate than initially planned. Ongoing delays in construction, equipment relocations and the hiring and training of new employees has contributed to the increase in costs and is expected to continue through the first half of fiscal 2000. The Company is focused on rationalizing these facilities in the most cost effective manner possible; however, the aforementioned delays coupled with production startup and efficiencies have hampered this process. These additional costs more than offset realized savings resulting from the Company's purchasing initiatives. Income before Income Taxes, Extraordinary Item and Cumulative Effect of Change in Accounting. Income before income taxes, extraordinary item and cumulative effect of change in accounting for fiscal 1999 was $10.9 million, an increase of $5.4 million, from $5.5 million in fiscal 1998, when the Company recorded a restructuring charge of $11.5 million. Fiscal 1999 income before income taxes, extraordinary items and cumulative effect of change in accounting decreased by $6.1 million from fiscal 1998, excluding the effect of the fiscal 1998 restructuring charge. This decrease resulted primarily from higher costs of products sold (lower gross margins) as described above, higher interest expense, and higher depreciation and amortization, partially offset by lower selling and administrative expenses. Additionally, the Company recognized in fiscal 1998 a $1.9 million gain on curtailment of postretirement benefits. Depreciation and amortization increased from $13.5 million in fiscal 1998 to $17.2 million in fiscal 1999 due the U.S. Can Acquisition and as a result of capital spending. Selling and administrative expense of $19.7 million for fiscal 1999 decreased from $22.7 million in fiscal 1998. Interest expense, net, increased to $14.7 million in fiscal 1999 from $13.0 million in fiscal 1998 primarily due to increased borrowings under the Company's credit agreement to finance the U.S. Can Acquisition and fund the Company's capital expenditure program. (See Liquidity and Capital Resources). Net Income. Net Income for fiscal 1999 was $5.6 million, an increase of $4.1 million from fiscal 1998. The change results from the factors discussed above. Year ended September 30, 1998 (fiscal 1998) compared to year ended September 30, 1997 (fiscal 1997). Net Sales. Net sales for fiscal 1998 were $401.1 million, a decrease of $1.1 million or 0.3% from $402.2 million in fiscal 1997. The Company's sales were adversely affected during fiscal 1998 by a generally weaker paint and related products season. Cost of Products Sold. Cost of products sold (excluding depreciation and amortization) in fiscal 1998 was $336.6 million, a decrease of $4.8 million, or 1.4%, from $341.4 million in fiscal 1997. The decrease is primarily attributable to lower unit volume combined with lower operating costs. Cost of products sold as a percent of net sales decreased to 83.9% in fiscal 1998 from 84.9% in fiscal 1997. The decrease is primarily attributable to the Company's strategic initiative to lower operating costs and improve margins, and from a more favorable pricing 13 environment. Although certain employee termination costs in connection with plant rationalizations, administrative workforce reductions, and other plant exit costs associated with acquisitions were accrued for through purchase accounting adjustments, the Company incurred during fiscal 1997 and fiscal 1998 other non-recurring costs which, in accordance with current accounting pronouncements, were charged against operating income. Restructuring and Impairment Charge. In June 1998, the Company recorded a restructuring and impairment charge related to the closure of three plants, the elimination of an internal transportation department and the write-off of equipment at several operating locations which were impaired due primarily to changes in manufacturing processes. The 1998 restructuring and impairment charge totaled $11.5 million and consisted of the following: $7.8 million related to the closure of the plants and transportation department and $3.7 million related to other asset impairments. The $7.8 million related to the plant and transportation department closures includes $2.1 million for severance costs, $2.2 million for other facility closure costs and $3.5 million for asset impairments related to the plant shut-downs. Income before Income Taxes, Extraordinary Item and Cumulative Effect of Change in Accounting. Income before income taxes, extraordinary items and cumulative effect of change in accounting for fiscal 1998 was $5.5 million, a decrease of $16.8 million, or 75%, from $22.3 million in fiscal 1997, due primarily to the Company recording a restructuring charge of $11.5 million (before taxes). Depreciation and amortization increased from $13.0 million in fiscal 1997 to $13.5 million in fiscal 1998 as a result of increased capital spending. Selling and administrative expense of $19.7 million for fiscal 1997 increased $3.1 million in fiscal 1998, primarily due to building corporate infrastructure to support acquisitions and continued execution of growth plans. Interest expense, net, increased to $13.0 million in fiscal 1998 from $10.6 million in fiscal 1997 due to interest on borrowings for ongoing working capital and a higher effective interest rate associated with the Company's issuance in the third quarter of fiscal 1997 of $100 million of unsecured senior subordinated notes (see Liquidity and Capital Resources). Net Income. Net Income for fiscal 1998 was $1.5 million, a decrease of $11.6 million from fiscal 1997. The decline resulted from the factors mentioned above. Seasonality Sales of certain of the Company's products are to some extent seasonal, with sales levels generally higher in the second half of the Company's fiscal year. Liquidity and Capital Resources On November 2, 1998 the Company and its lenders executed an amendment to the Company's Credit Agreement, which modified certain restrictive financial covenants and provided greater flexibility with respect to certain investments in joint ventures. Additionally, the Company exercised its option to increase the available borrowing limit to $125 million. As part of the November 2, 1998 amendment, the lenders waived the Company's financial covenant violation (interest coverage ratio) for the quarter ended September 27, 1998. The Credit Agreement currently provides that the Company and its subsidiaries can borrow up to $125 million, and gives the Company an option to increase its borrowing limit by an additional $25 million, provided certain conditions are met. Interest rates under the Credit Agreement are based on rate margins ("Rate Margin") for either the prime rate as announced by Bank of America (formerly NationsBank, N.A.) from time to time or LIBOR plus an applicable rate spread, at the option of the Company. The applicable rate margin is determined on a quarterly basis by a review of the Company's leverage ratio. Loans under the Credit Agreement are unsecured and can be repaid at the option of the Company without premium or penalty. The Credit Agreement is subject to certain restrictive covenants, including financial covenants which require the Company to maintain a certain minimum level of net worth and certain leverage ratios. In addition, the Company is restricted in its ability to pay dividends and make other restricted payments. The Credit Agreement expires June 17, 2002. Subsequent to fiscal 1999 year end, the Company and its lenders executed an amendment to the Company's credit agreement which modifies the interest coverage ratio. The Company is in compliance with all of the Credit Agreement covenants at fiscal 1999 year end. During the third quarter of fiscal 1997, the Company issued $100 million of 10 1/4% Senior Subordinated Notes due 2007. The notes have an interest rate of 101/4%, payable semi-annually on April 15 and October 15. Net proceeds of approximately $96 million from the issuance of the notes were used to reduce borrowings on the 14 Company's Credit Agreement. The Company completed the registration of its 101/4% Senior Subordinated Notes due 2007, Series B under the Securities Act in February 1998 and consummated its offer to exchange these Series B notes for all outstanding Series A notes in March 1998. During fiscal 1999, net cash provided by operating activities was $24.5 million which was comprised primarily of net income ($5.6 million), depreciation and amortization ($17.3 million) and deferred income taxes ($7.1 million). Changes in assets and liabilities reduced net cash provided by operating activities by $6.1 million. During fiscal 1998, net cash provided by operating activities was $25.6 million which was comprised primarily of net income ($1.5 million), depreciation and amortization ($13.5 million), and a restructuring and impairment charge ($11.5 million). Changes in assets and liabilities reduced net cash provided by operating activities by $1.9 million. During fiscal 1999, the Company used $46.5 million for investing activities. The Company made $33.2 million of capital expenditures primarily for equipment to improve manufacturing processes, new coating and lithography equipment to support growth, and hardware and software to address the Year 2000 issue and improve administrative and manufacturing systems. The Company used $27.7 million for the U.S. Can Acquisition. During fiscal 1998, the Company used $32.9 million for investing activities. The Company made $33.8 million of capital expenditures primarily for equipment to improve manufacturing processes, new coating and lithography equipment to support growth, and hardware and software to address the Year 2000 issue and improve administrative and manufacturing systems. During fiscal 1999, net cash provided by financing activities was $20.4 million. Net borrowings under the Company's Credit Agreement were $24.9 million. Net purchases of treasury stock were $.8 million. Additionally, unpresented bank drafts increased $2.9 million. During fiscal 1998, net cash provided by financing activities was $8.2 million. Net borrowings under the Company's Credit Agreement were $8.1 million. The Company purchased $11.1 million of treasury stock during fiscal 1998, and issued $1.0 million of treasury stock for options exercised. Additionally, unpresented bank drafts increased $11.6 million. Cash and cash equivalents were $2.3 million at the beginning of fiscal 1999, and were $.7 million at the end of fiscal 1999. Cash and cash equivalents were $1.4 million at the beginning of fiscal 1998, and were $2.3 million at the end of fiscal 1998. At October 3, 1999, the Company was restricted in its ability to pay dividends and make other restricted payments in an amount greater than approximately $8.7 million. The Company's subsidiaries are restricted in their ability to transfer funds to the Company, except for funds to be used to effect approved acquisitions, pay dividends in specified amounts, reimburse the Company for operating and other expenditures made on behalf of the subsidiaries and repay permitted intercompany indebtedness. Management believes that cash provided from operations, borrowings available under the Credit Agreement, and borrowings under the Indenture will provide it with sufficient liquidity to meet its operating needs and continue the Company's capital expenditure initiatives for the next twelve months. Impact of the Year 2000 Issue The Year 2000 issue is the result of potential problems with computer systems or any equipment with computer chips that use dates where the date has been stored as just two digits (e.g. 98 for 1998). On January 1, 2000, any clock or date-recording mechanism that utilize date sensitive software using only two digits to represent the year may recognize a date using 00 as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing significant disruption of operations, including among other things a temporary inability to process transactions, send invoices, or engage in similar activities. The Year 2000 issue can arise at any point in the Company's supply, manufacturing, processing, distribution and financial chains. Any disruptions in the above stated 15 chains of the Company could have a material adverse affect on the Company's financial condition and results of operations. The Company determined that it would be required to replace or modify significant portions of its business application software so that its computer systems would properly utilize dates beyond December 31, 1999. The Company presently believes that with conversions to new systems and modifications to existing software the Year 2000 issue can be mitigated with regard to the Company's material business application software. However, if such modifications and conversions are not made, or are not timely, the Year 2000 issue could have a material adverse impact on the operations of the Company. During 1998, the Company initiated the implementation of Enterprise Resource Planning (ERP) software to replace the Company's core business applications, which support sales and customer service, manufacturing, distribution, and finance and accounting. The ERP software was selected to add functionality and efficiency in the business processes of the Company in the normal course of upgrading its systems to address its business needs. In addition, the Company established a Year 2000 Steering Committee in May 1998 to analyze and assess the remainder of its business not addressed by the ERP software. The Steering Committee has executive officers of the Company as its members. The Steering Committee is responsible for the formulation of the Company's Year 2000 project. The scope of the Steering Committee's responsibilities covers all material computer systems, computer and network hardware, production process controllers, office equipment, access control, maintenance machinery, telephone systems, products it sells, critical vendors and customers. The Steering Committee identified those IT systems that were considered mission critical to the business. Of the identified mission critical systems, the Company is currently instituting remediation through a global ERP software implementation. All other systems are presently being replaced or upgraded to adequately address the Year 2000 issue. Approximately 99% of the mission critical systems have been remediated as of December 1, 1999. The Company anticipates that the remaining mission critical implementations, along with other non-compliant systems will be completed by December 31, 1999. Critical systems have been tested on an ongoing basis during the second half of calendar 1999 to ensure Year 2000 Compliance. During 1999, the Company has performed a comprehensive review and evaluation of embedded systems within its manufacturing facilities. This evaluation is ongoing and is intended to inventory and evaluate embedded systems and their Year 2000 compliance and associated risk. Upgrades and replacements have been performed as needed and incurred as a part of normal maintenance programs. Associated costs were not significant. The Company cannot fully eliminate the potential impact on all embedded system non-compliance; however, at present the overall risk appears to be low. The Company has communicated with all of its significant suppliers and large customers to determine the extent to which the Company is vulnerable to those third parties' failure to remediate their own Year 2000 issues. The Company can give no guarantee that the systems of other companies on which the Company's systems rely will be converted on time or that a failure to convert by another company or a conversion that is incompatible with the Company's systems would not have a material adverse effect on the Company. The Company is currently utilizing, and will continue to utilize, internal and external resources to implement, reprogram or replace, and test software and related assets affected by the Year 2000 issue. The Company completed the majority of its efforts in this area by the end of fiscal 1999, leaving adequate time to assess and correct any significant issues that may materialize. As of the end of fiscal 1999, the Company has incurred approximately $22 million for ERP system upgrades and replacements related to the Year 2000 project. The total remaining cost of the ERP system and the Year 2000 project is estimated at $3 - 5 million and is being funded through operating cash flows. Of the total project cost, approximately $23 - 25 million is attributable to the purchase and implementation of the new hardware and software, which will be capitalized. The remainder will be expensed as incurred and is not expected to have a material effect on the results of operations during any quarterly or annual reporting period. 16 The Company's Year 2000 Steering Committee has developed contingency plans intended to mitigate the possible disruptions that may result from the Year 2000 issue. The company's contingency plans include the use of alternative suppliers and other appropriate measures necessary to operate its factories. The Company has made reasonable efforts to ensure key suppliers and customers have instituted some measure of readiness and has requested and received written response from each. In key operating areas, the Company has conducted meetings with suppliers to review Year 2000 plans and contingency options. Based on the Company's evaluation of supplier readiness, the Company does not believe stock piling of raw materials or increases in inventory levels is necessary. Internal contingency plans provide the necessary readiness to address most supply chain, manufacturing and delivery interruptions. The Company has instituted a formal communication network to handle all internal and external communications during January 2000. This network will provide on-call internal and external support to effect timely remediation of Year 2000 issues. The contingency plans and the related cost estimates will be revised as additional information becomes available or additional needs arise. The Company believes that the most reasonable and likely worst-case scenario for the Company with respect to the Year 2000 issue is the failure of a critical vendor, including but not limited to a utility or steel supplier, to provide required goods and/or services after December 31, 1999. Such a failure could result in temporary production outages and lost sales and profits. The Company believes that because of the geographic dispersion of its operations, it is unlikely an isolated third-party failure would have a material adverse effect on the Company's results of operations, financial condition, or cash flow. The Company also believes that the formulation of its contingency plans should provide reasonable measures to reduce the severity and length of any possible disruptions and losses. However, because the Company's Year 2000 issue compliance is dependent upon key third party readiness, there can be no assurance that the Company's Year 2000 issue compliance efforts will preclude a Year 2000 issue or a series of issues outside its direct control from adversely affecting its results of operations, financial condition, or cash flow. In addition, although not anticipated, any failure by the Company to correct critical internal computer systems before Year 2000 could also have such an adverse effect. The discussion of the Company's efforts, and management's expectations and estimates, concerning the Year 2000 issue contain forward-looking statements. The costs of the project and the timetable in which the Company plans to complete the Year 2000 compliance requirements are based on management's estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from these plans. In addition, there can be no assurances that there will be no adverse impact on the Company's relationships with its customers, vendors, or other persons internal to the Company's operations. Specific factors that might cause such material differences include, but are not limited to, unanticipated problems identified in the ongoing Year 2000 issue compliance review, costs for contingency plans, the availability and cost of internal and external resources to implement, reprogram, and replace and test the Company's software and other Year 2000 issue sensitive assets, the ability to locate and correct all relevant computer codes, and similar uncertainties. Environmental Matters For information regarding environmental matters, see Item 1. "Business - Environmental, Health and Safety Matters." Effect of Inflation Historically, the Company has generally been able to recover increased costs of raw materials through price increases for the Company's products, although there can be no assurances that this practice will continue. This ability, together with cost reductions achieved through line rationalization and productivity improvements, has mitigated the impact of inflation on the Company's results of operations. Management currently believes that inflation will not have a material adverse impact on the Company. 17 Recent Accounting Pronouncements In fiscal 1999, the Company adopted the provisions of SFAS 131, "Disclosures about Segments of an Enterprise and Related Information". This statement requires public companies to report financial and descriptive information about their reportable operating segments. The Company determined that it has a single reportable segment. In June 1998, the FASB issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities" This statement, effective for the Company's quarter beginning October 2, 2000, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. The statement requires the Company to recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. The Company has not completed the process of evaluating the impact that will result from adopting SFAS 133. The Company is therefore unable to discuss the impact that adoption of SFAS 133 will have on its financial position and results of operations when the standard is adopted. Note: This document contains forward-looking statements as encouraged by the Private Securities Litigation Reform Act of 1995. All statements contained in this document, other than historical information, are forward-looking statements. These statements represent management's current judgement on what the future holds. A variety of factors could cause business conditions and the Company's actual results to differ materially from those expected by the Company or expressed in the Company's forward-looking statements. These factors include without limitation, timing and cost of plant start-up and closure, the Company's ability to successfully integrate acquired businesses and implement its 3R strategic initiatives; labor unrest; changes in market price or market demand; changes in raw material costs or availability; loss of business from customers; unanticipated expenses; changes in financial markets; potential equipment malfunctions; the Company's ability to identify and remedy Year 2000 issues; the timing and costs of plant start-up and closures and the other factors discussed in the Company's filings with the Securities and Exchange Commission. Item 7A. Quantitative and Qualitative Disclosures about Market Risk ---------------------------------------------------------- The Company's Credit Agreement permits the Company to borrow up to $150 million provided certain conditions and restrictive financial covenants are met. Borrowings under the Credit Agreement bear interest at either the prime rate or LIBOR plus an applicable spread percentage at the option of the Company. The interest rate spread over LIBOR is determined each quarter based on the ratio of EBITDA to total debt. At October 3, 1999 the applicable spread was 1.5%. At October 3, 1999, the Company had borrowings under the Credit Agreement of $46.5 million that were subject to interest rate risk. Each 1.0% increase in interest rates would impact pretax earnings by $0.5 million at the $46.5 million debt level of October 3, 1999. 18 Item 8. Financial Statements and Supplementary Data ------------------------------------------- See the attached Consolidated Financial Statements pages F-1 through F-28. Item 9. Changes in and Disagreements With Accountants on Accounting and --------------------------------------------------------------- Financial Disclosure - -------------------- Inapplicable. PART III Item 10. Directors and Executive Officers -------------------------------- Incorporated by reference to the Company's 1999 Proxy Statement to be filed with the Commission. Item 11. Executive Compensation ---------------------- Incorporated by reference to the Company's 1999 Proxy Statement to be filed with the Commission. Item 12. Security Ownership of Certain Beneficial Owners and Management -------------------------------------------------------------- Incorporated by reference to the Company's 1999 Proxy Statement to be filed with the Commission. Item 13. Certain Relationships and Related Transactions ---------------------------------------------- Incorporated by reference to the Company's 1999 Proxy Statement to be filed with the Commission. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ---------------------------------------------------------------- The following documents are filed as a part of this report: (a) (1) The Consolidated Financial Statements included in Item 8 hereof and set forth on pages F-1 through F-28. (2) The Financial Statement Schedules listed in the Index to the Financial Statement Schedules. (3) The exhibits listed in the Index to Exhibits. (b) Reports on Form 8 - K. The Company did not file any Reports on Form 8 - K during the fourth quarter of fiscal 1999. 19 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BWAY CORPORATION By /s/ Warren J. Hayford ------------------------------------------------- Warren J. Hayford Chairman of the Board and Chief Executive Officer Date: December 17, 1999 -------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated on December 16, 1999.
Signatures Title - ---------- ----- /s/ Warren J. Hayford Chairman of the Board, Chief Executive Officer and Director - ------------------------------------ (Principal Executive Officer) Warren J. Hayford /s/ John T. Stirrup President, Chief Operating Officer and Director - ------------------------------------ John T. Stirrup /s/ James W. Milton Executive Vice President and Director - ------------------------------------ James W. Milton /s/ John M. Casey Executive Vice President and Chief Financial Officer - ------------------------------------ (Principal Financial Officer) John M. Casey /s/ Kevin C. Kern Vice President and Corporate Controller - ------------------------------------ (Principal Accounting Officer) Kevin C. Kern /s/ Jean-Pierre Ergas Non-executive Vice Chairman and Director - ------------------------------------ Jean-Pierre Ergas /s/ Thomas A. Donahoe Director - ------------------------------------ Thomas A. Donahoe /s/ Alexander P. Dyer Director - ------------------------------------ Alexander P. Dyer /s/ John E. Jones Director - ------------------------------------ John E. Jones /s/ John W. Puth Director - ------------------------------------ John W. Puth
20 INDEPENDENT AUDITORS' REPORT Board of Directors of BWAY Corporation: We have audited the accompanying consolidated balance sheets of BWAY Corporation and subsidiaries (the "Company") as of October 3, 1999 and September 27, 1998 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended October 3, 1999. Our audits also included the financial statement schedules listed in the Index to the financial statements. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of October 3, 1999 and September 27, 1998 and the results of its operations and its cash flows for each of the three years in the period ended October 3, 1999 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects, the information set forth therein. Atlanta, Georgia November 24, 1999 F-1 BWAY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
- ----------------------------------------------------------------------------------------------- October 3, September 27, ASSETS 1999 1998 CURRENT ASSETS: Cash and cash equivalents $ 696 $ 2,303 Accounts receivable, net of allowance for doubtful accounts of $506 and $533 52,868 35,574 Inventories, net 49,031 39,723 Current income taxes receivable 3,598 2,387 Deferred tax asset 4,612 4,251 Assets held for sale 4,818 5,377 Other current assets 2,803 1,712 -------- -------- Total current assets 118,426 91,327 PROPERTY, PLANT, AND EQUIPMENT - Net 144,716 133,960 OTHER ASSETS: Goodwill, net of accumulated amortization of $9,852 and $7,514 79,366 70,234 Intangible assets, net 10,774 12,045 Deferred financing costs, net of accumulated amortization of $1,995 and $1,247 3,727 4,298 Other assets 5,014 1,847 -------- -------- Total other assets 98,881 88,424 -------- -------- $362,023 $313,711 ======== ========
F-2 BWAY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
- ---------------------------------------------------------------------------------------------- October 3, September 27, LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998 CURRENT LIABILITIES: Accounts payable $ 65,377 $ 57,095 Accrued salaries and wages 9,104 9,740 Accrued interest 5,171 4,798 Accrued rebates 8,753 5,959 Current maturities of long-term debt 672 Other current liabilities 15,875 12,326 -------- -------- Total current liabilities 104,280 90,590 LONG-TERM DEBT 146,500 121,600 LONG-TERM LIABILITIES: Deferred income taxes 17,667 15,118 Other 11,523 9,215 -------- -------- Total long-term liabilities 29,190 24,333 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value, authorized 5,000,000 shares Common stock, $.01 par value; authorized 24,000,000 shares, issued 9,851,002 shares 99 99 Additional paid-in capital 37,202 37,395 Retained earnings 55,819 50,192 -------- -------- 93,120 87,686 Less treasury stock, at cost, 541,978 and 490,384 shares 11,067 10,498 -------- -------- Total stockholders' equity 82,053 77,188 -------- -------- $362,023 $313,711 ======== ========
See notes to consolidated financial statements. F-3 BWAY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
- ------------------------------------------------------------------------------------------------------------------ Year Ended --------------------------------------------- October 3, September 27, September 28, 1999 1998 1997 NET SALES $ 467,099 $ 401,089 $ 402,150 COSTS, EXPENSES, AND OTHER: Cost of products sold (excluding depreciation and amortization) 404,492 336,588 341,406 Depreciation and amortization 17,246 13,465 13,024 Selling and administrative expense 19,678 22,748 19,651 Restructuring and impairment charge 11,532 Interest expense, net 14,733 13,021 10,649 Gain on curtailment of postretirement benefits (1,861) (5,828) Other, net 33 127 998 ---------- ---------- ---------- Total costs, expenses, and other 456,182 395,620 379,900 ---------- ---------- ---------- INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING 10,917 5,469 22,250 PROVISION FOR INCOME TAXES 5,290 2,789 9,146 ---------- ---------- ---------- INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING 5,627 2,680 13,104 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR SYSTEMS DEVELOPMENT COSTS - Net of related tax benefit of $823 (1,161) ---------- ---------- ---------- NET INCOME $ 5,627 $ 1,519 $ 13,104 ========== ========== ========== BASIC EARNINGS PER COMMON SHARE: Income before cumulative effect of change in accounting $ 0.60 $ 0.28 $ 1.33 Cumulative effect of change in accounting (0.12) ---------- ---------- ---------- Net income $ 0.60 $ 0.16 $ 1.33 ========== ========== ========== DILUTED EARNINGS PER COMMON SHARE: Income before cumulative effect of change in accounting $ 0.60 $ 0.27 $ 1.31 Cumulative effect of change in accounting (0.12) ---------- ---------- ---------- Net income $ 0.60 $ 0.15 $ 1.31 ========== ========== ========== WEIGHTED AVERAGE BASIC COMMON SHARES OUTSTANDING 9,322,738 9,527,120 9,817,323 ========== ========== ========== WEIGHTED AVERAGE DILUTED COMMON SHARES OUTSTANDING 9,452,757 9,958,537 9,982,574 ========== ========== ==========
See notes to consolidated financial statements. F-4 BWAY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands)
- ------------------------------------------------------------------------------------------------------------------------------------ Number of Shares ------------------- Additional Common Treasury Common Paid-In Retained Treasury Stock Stock Stock Capital Earnings Stock Total BALANCE - September 29, 1996 6,565 (33) $ 66 $ 37,612 $ 35,569 $ (618) $72,629 Net income 13,104 13,104 Issuance of common stock for 3-for-2 stock split 3,283 (17) 33 (33) Issuance of treasury stock under employee savings plan 43 830 830 Purchase of treasury stock, net (45) (1,147) (1,147) Stock options exercised 3 50 50 ----- ---- ----- -------- -------- -------- ------- BALANCE - September 28, 1997 9,851 (52) 99 37,629 48,673 (935) 85,466 Net income 1,519 1,519 Purchase of treasury stock, net (507) (11,117) (11,117) Issuance of treasury stock for stock options exercised 69 (505) 1,554 1,049 Tax benefit of stock options exercised 271 271 ----- ---- ----- -------- -------- -------- ------- BALANCE - September 27, 1998 9,851 (490) 99 37,395 50,192 (10,498) 77,188 Net income 5,627 5,627 Purchase of treasury stock, net (56) (156) (662) (818) Issuance of treasury stock for stock options exercised 4 (37) 93 56 ----- ---- ----- -------- -------- -------- ------- BALANCE - October 3, 1999 9,851 (542) $ 99 $ 37,202 $ 55,819 $(11,067) $ 82,053 ===== ==== ===== ======== ======== ========= ========
See notes to consolidated financial statements. F-5 BWAY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
- ----------------------------------------------------------------------------------------------------------------------------- Year Ended -------------------------------------------- October 3, September 27, September 28, 1999 1998 1997 OPERATING ACTIVITIES: Net income $ 5,627 $ 1,519 $ 13,104 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 13,355 9,880 8,860 Amortization of goodwill and other intangibles 3,891 3,585 4,164 Amortization of deferred financing costs 748 706 458 Gain on curtailment of postretirement benefits (1,861) (5,828) Cumulative effect of change in accounting principle (net) 1,161 Provision for doubtful accounts (27) (47) 190 Restructuring and impairment charge 11,532 Loss (gain) on disposition of property, plant, and equipment (103) (23) 1,397 Deferred income taxes 7,094 1,009 2,996 Changes in assets and liabilities, net of effects of business acquisitions: Accounts receivable (5,484) 6,279 2,953 Inventories (5,098) 6,892 (1,088) Other assets (1,553) 2,569 1,268 Accounts payable 8,041 (9,051) 13,539 Accrued liabilities (826) (5,958) 249 Income taxes, net (1,213) (2,631) 2,851 -------- -------- -------- Net cash provided by operating activities 24,452 25,561 45,113 INVESTING ACTIVITIES: Acquisitions, net of cash acquired (27,892) 463 (41,619) Capital expenditures (33,230) (33,826) (22,961) Proceeds from disposition of property, plant, and equipment 14,626 484 Other 302 -------- -------- -------- Net cash used in investing activities (46,495) (32,879) (64,278) (Continued)
F-6 BWAY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
- ------------------------------------------------------------------------------------------------------------------- Year Ended ------------------------------------------- October 3, September 27, September 28, 1999 1998 1997 FINANCING ACTIVITIES: Net borrowings (repayments) under bank revolving credit agreement $ 24,900 $ 8,100 $(80,293) Proceeds from issuance of Notes 100,000 Repayments on long-term debt (672) (1,181) (165) Increase (decrease) in unpresented bank drafts (2,853) 11,556 4,208 Purchases of treasury stock, net (818) (11,117) (1,147) Financing costs incurred (177) (160) (3,966) Issuance of treasury stock for options exercised 56 1,049 50 -------- -------- -------- Net cash provided by financing activities 20,436 8,247 18,687 -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,607) 929 (478) CASH AND CASH EQUIVALENTS: Beginning of year 2,303 1,374 1,852 -------- -------- -------- End of year $ 696 $ 2,303 $ 1,374 ======== ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid (refunded) during the year for: Interest $ 14,961 $ 13,981 $ 5,666 ======== ======== ======== Income taxes $ (591) $ 4,412 $ 4,774 ======== ======== ======== Details of businesses acquired were as follows: Fair value of assets acquired $ 47,861 $ $ 61,259 Liabilities assumed (19,969) (18,890) Long-term note issued (750) Working capital adjustments 463 -------- -------- -------- Net cash paid for acquisitions $ 27,892 $ 463 $ 41,619 ======== ======== ======== NONCASH INVESTING AND FINANCING ACTIVITIES: Amounts owed for capital expenditures $ 929 $ 2,393 $ 4,140 ======== ======== ======== Note receivable from sale of assets $ 2,440 ======== Common stock issued under employee savings plan $ 830 ========
See notes to consolidated financial statements. F-7 BWAY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF OCTOBER 3, 1999 AND SEPTEMBER 27, 1998 AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED OCTOBER 3, 1999 - -------------------------------------------------------------------------------- 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Operations - BWAY Corporation ("BWAY") is a holding company whose subsidiaries, Brockway Standard, Inc., Milton Can Company, Inc., Brockway Standard (New Jersey), Inc., BMAT, Inc., and Brockway Standard (Canada), Inc. (collectively the "Company") manufacture and distribute metal containers and provide materials center services in the United States and Canada. Principles of Consolidation - The consolidated financial statements of the Company include the accounts of BWAY and its wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. Fiscal Year - The Company operates on a 52/53-week fiscal year ending on the Sunday closest to September 30 of the applicable year. Common Stock - On September 22, 1997, the Company increased the number of shares of common stock outstanding through a 3-for-2 stock split, effected in the form of a common stock dividend on the Company's issued and outstanding shares. Accordingly, per share and share data have been adjusted to give retroactive effect to the stock split for all periods presented. Cash and Cash Equivalents - For purposes of the presentation of the consolidated statements of cash flows, the Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Inventories - Inventories are carried at the lower of cost or market, with cost determined under the last-in, first-out (LIFO) method of inventory valuation. Property, Plant, and Equipment - Property, plant, and equipment is recorded at cost. Depreciation is provided over the estimated useful lives of the assets on a straight-line basis for financial reporting purposes. Expenditures for major renewals and replacements are capitalized. Expenditures for maintenance and repairs are charged to income as incurred. When property items are retired or otherwise disposed of, amounts applicable to such units are removed from the related asset and accumulated depreciation accounts and any resulting gain or loss is credited or charged to income. Useful lives are as follows: Buildings and improvements 10-30 years Machinery and equipment 5-15 years Furniture and fixtures 5-7 years Computer systems 1-7 years F-8 Interest is capitalized in connection with the installation of major machinery and equipment acquisitions. The capitalized interest is recorded as part of the cost of the asset to which it relates and is amortized over the asset's estimated useful life. In fiscal 1999,1998, and 1997, $0.6 million, $1.5 million, and $.3 million of interest cost was capitalized, respectively. Computer Information Systems - Costs directly associated with the initial purchase, development, and implementation of computer information systems are capitalized and included in property, plant, and equipment. Such costs are amortized on a straight-line basis over the expected useful life of the systems, principally five to seven years. Ongoing maintenance costs of computer information systems are expensed as incurred. Intangible Assets - Intangible assets consist of identifiable intangibles (trademarks, customer lists, and covenants not-to-compete) and goodwill. Identifiable intangibles are amortized over the term of the agreement (5 to 7 years) or estimated useful life (2 to 17 years). Goodwill is amortized on a straight-line basis over the estimated useful life (20 to 40 years). Deferred Financing Costs - Deferred financing costs are being amortized over the term of the related loan agreement using the straight-line method, which approximates the effective yield method. Revenue Recognition - The Company recognizes revenue at the time the product is shipped to the customer. Accrued Rebates - The Company enters into contractual agreements for rebates on certain products with its customers. As sales occur, a provision for rebates is recorded as a reduction to arrive at net sales and is accrued on the balance sheet. Income Taxes - The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") 109, "Accounting for Income Taxes." SFAS 109 requires, among other things, the use of the liability method of computing deferred income taxes. Under the liability method, the effect of changes in corporate tax rates on deferred income taxes is recognized currently as an adjustment to income tax expense. The liability method also requires that deferred tax assets or liabilities be recorded based on the difference between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of - The Company reviews for impairment, on a quarterly basis, long-lived assets and certain identifiable intangibles whenever events or changes in circumstances indicate that the carrying amount of any asset may not be reasonable based on estimates of future undiscounted cash flows. In the event of an impairment, the asset is written down to its fair market value. Impairment of goodwill and write-down, if any, is measured based on estimates of future undiscounted cash flows including interest charges. Assets to be disposed of are recorded at the lower of net book value or fair market value less cost to sell at the date management commits to a plan of disposal and are classified as Assets Held for Sale on the Consolidated Balance Sheet. Disclosures About Fair Value of Financial Instruments - A summary of the fair value of the Company's financial instruments and the methods and significant assumptions used to estimate those values is as follows: Short-term Financial Instruments - The fair value of short-term financial instruments, including cash and cash equivalents, trade accounts receivable and payable, certain accrued liabilities, and current F-9 maturities of long-term debt approximates their carrying amounts in the financial statements due to the short maturity of such instruments. Long-Term Debt - The fair value of the variable rate Credit Agreement borrowings approximates the carrying amount since the currently effective rates reflect market rates. The fair value of publicly traded fixed rate subordinated notes payable is based on the quoted market price. Accounting Change - On November 20, 1997, the Financial Accounting Standards Board's ("FASB") Emerging Issues Task Force ("EITF") issued a consensus on the accounting treatment of certain information systems and process reengineering costs. The Company was involved in a business information systems and process reengineering project that was subject to this pronouncement. Based on the EITF consensus, $2.0 million of the previously capitalized costs associated with this project were expensed in the first fiscal quarter of 1998 as a change in accounting. Accounting for Stock Options - The Company adopted SFAS 123, "Accounting for Stock-Based Compensation," as of September 28, 1997. As permitted under the statement, the Company has continued to account for stock-based compensation under the intrinsic value method prescribed in Accounting Principles Board Opinion 25, "Accounting for Stock Issued to Employees." Compensation cost for employees' and directors' stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of grant over the exercise price amount an employee or director must pay to acquire the stock. Earnings Per Common Share - Earnings per common share are based on the weighted average number of common shares and common stock equivalents outstanding during each year presented, including vested and unvested shares issued under the Company's previous management stock purchase plan and the dilutive effect of the shares from the amended plan. Common stock equivalents represent the dilutive effect of the assumed exercise of the outstanding stock options. Segments - In fiscal 1999, the Company adopted the provisions of SFAS 131, "Disclosures about Segments of an Enterprise and Related Information. This statement requires public companies to report financial and descriptive information about their reportable operating segments. The Company determined that it has a single reportable segment. New Accounting Pronouncement - In June 1998, the FASB issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." This statement, effective for the Company's quarter beginning October 2, 2000, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. The statement requires the Company to recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. The Company has not completed the process of evaluating the impact that will result from adopting SFAS 133. The Company is therefore unable to discuss the impact that adoption of SFAS 133 will have on its financial position and results of operations when the standard is adopted. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-10 2. ACQUISITIONS Ball Aerosol - On October 28, 1996, the Company acquired substantially all of the assets related to the metal aerosol can business from Ball Metal Food Container Corporation, a wholly owned subsidiary of Ball Corporation. The assets consist of a facility in Cincinnati which includes a material center and substantially all the assets used in connection with the marketing, distribution, selling, manufacturing, designing, and engineering of metal aerosol cans. The Company paid approximately $42.4 million for the acquired business. The purchase method of accounting was used to establish and record a new cost basis for the assets acquired and liabilities assumed. The excess of the aggregate purchase price over the aggregate fair market value of net identifiable assets acquired was approximately $23 million. U. S. Can Metal Services Operations - On November 9, 1998, the Company acquired substantially all of the assets and assumed certain of the liabilities of the United States Can Company's metal services operations ("U.S. Can Metal Services"). The purchase price was approximately $27.7 million in cash after adjustments for working capital. The acquisition included three operating plants and one non-operating plant. The acquired facilities operated two different businesses, coating and lithography which is part of the Company's core business, and tinplate metal services which is not a business of the Company. On November 17, 1998, the Company signed a binding letter of intent to sell the tinplate services business. Anticipating the sale of the tinplate metal services business, the Company closed the Brookfield, Ohio location in March, 1999 and closed the Chicago Metal location in September, 1999 The purchase method of accounting was used to establish and record a new cost basis for the assets acquired and liabilities assumed, and an allocation of the purchase price was finalized at October 3, 1999. The operating results for U.S. Can Metal Services have been included in the Company's consolidated financial statements since the date of acquisition except for the tinplate services business which was sold as described below. As of October 3, 1999, the excess aggregate purchase price over the aggregate fair market value of net identifiable assets acquired was $10.8 million and is being amortized over 40 years. The Company completed the sale of the tinplate services business in the fourth quarter of fiscal 1999. In connection with the sale, the Company received a note receivable recorded at $2.4 million. No gain was recognized. The tinplate services business primarily purchased, processed and sold nonprime steel to third party customers. The Company excluded tinplate metal services business losses of $4.4 million, including interest expense of $0.7 million, from results of operations for the year ended October 3, 1999. Management committed to a plan to exit certain activities of the acquired facilities and integrate acquired assets and businesses with BWAY facilities. In connection with the recording of the purchase, the Company established a reorganization liability of approximately $11 million. The reorganization liability includes $1.8 million in severance, $5.5 million in facility closing costs, and $3.7 million in equipment demolition costs. The reorganization liability represents the direct incremental costs expected to be incurred, which have no future economic benefit to the Company. During fiscal 1999, the Company has charged $0.4 million in severance, $2.9 million in facility closing costs and $1.5 million in demolition costs. In connection with the plant closures, the plan called for the termination of 308 employees. As of October 3, 1999, 191 employees have been terminated. The Company has one remaining facility scheduled to close in the fourth quarter of fiscal 2000. F-11 The reorganization liability, which is included in other current liabilities, at October 3, 1999 includes the following (in thousands): Facility closure costs $2.6 Severance and benefits costs 1.3 Demolition costs 2.3 ---- $6.2 ==== The operating results for the U. S. Can Metal Services and Ball Aerosol acquisitions have been included in the Company's consolidated financial statements since the dates of acquisition. The following unaudited pro forma results assume the acquisitions of U.S. Can Metal Services, excluding tinplate services, and Ball Aerosol occurred at the beginning of the fiscal year ended October 3, 1999 and September 28, 1997, after giving affect to certain pro forma adjustments. The adjustments were made to reflect the goodwill amortization cost in excess of the net assets acquired, increased interest expense, and the estimated related income tax effects (In thousands, except per share amounts) Year Ended --------------------------------------------- October 3, September 27, September 28, 1999 1998 1997 (U. S. Can Metal Services) (Ball Aerosol) Net sales $476,149 $401,089 $406,476 Net income 5,374 1,519 13,202 Basic earnings per common share 0.58 0.16 1.34 Diluted earnings per common share 0.57 0.15 1.32 The unaudited pro forma financial information is not necessarily indicative of the operating results that would have occurred had the acquisitions been consummated as of the beginning of the period presented, nor is it necessarily indicative of future operating results. 3. INVENTORIES Inventories consist of the following (in thousands): October 3, September 27, 1999 1998 Inventories at FIFO cost: Raw materials $ 7,950 $ 6,555 Work-in-progress 30,543 22,695 Finished goods 10,538 10,696 ------- ------- 49,031 39,946 LIFO reserve 546 (223) Market reserve (546) ------- ------- Inventories, net $49,031 $39,723 ======= ======= F-12 4. PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment consist of the following (in thousands): October 3, September 27, 1999 1998 Land $ 1,649 $ 2,979 Building and improvements 12,631 16,202 Machinery and equipment 131,283 107,041 Furniture, fixtures, and information technology 26,114 11,022 Construction-in-progress 17,041 30,259 -------- -------- 188,718 167,503 Less accumulated depreciation (44,002) (33,543) -------- -------- Property, plant, and equipment - net $144,716 $133,960 ======== ======== 5. INTANGIBLE ASSETS Intangible assets consist of the following (in thousands): October 3, September 27, 1999 1998 Customer lists $ 7,753 $ 7,486 Tradename 4,704 4,704 Noncompete agreements 4,509 4,494 ------- ------- 16,966 16,684 Less accumulated amortization (6,192) (4,639) ------- ------- Intangible assets, net $10,774 $12,045 ======= ======= 6. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES Included in accounts payable and accrued salaries and wages at October 3, 1999 and September 27, 1998 are bank drafts issued and outstanding for which no rights of offset exist to cash and cash equivalents, as follows (in thousands): October 3, September 27, 1999 1998 Bank drafts issued and outstanding included in: Accounts payable $20,464 $22,027 Accrued salaries and wages 1,136 2,426 ------- ------- Bank drafts $21,600 $24,453 ======= ======= F-13 7. LONG-TERM DEBT Long-term debt consists of the following (in thousands):
October 3, September 27, 1999 1998 Senior Subordinated Notes $100,000 $100,000 Credit Agreement 46,500 21,600 Other borrowings 672 -------- -------- 146,500 122,272 Less current maturities of long-term debt 672 -------- -------- Long-term debt $146,500 $121,600 ======== ========
Senior Subordinated Notes On April 11, 1997, the Company received the net proceeds of approximately $96 million from a private placement of $100 million 10 1/4% Senior Subordinated Notes due 2007 (the "Notes"). Interest on the Notes is payable semi-annually in arrears on April 15 and October 15 of each year, commencing on October 15, 1997. The Notes are general unsecured senior subordinated obligations of the Company and are effectively subordinated to all secured indebtedness, as defined, of the Company to the extent of the value of the assets securing any such indebtedness. The Notes are redeemable, in whole or in part, at the option of the Company, on or after April 15, 2002 at the prices specified in the Notes (105.125% on April 15, 2002 declining annually to 100% on April 15, 2005). In addition, until April 15, 2000, the Company may, at its option, redeem up to 33 1/3% of the aggregate principal amount of the Notes originally issued at a redemption price equal to 110 1/4% of the principal amount thereof, plus accrued and unpaid interest to the date of redemption, with the net cash proceeds of one or more public or private sales of common stock of the Company, subject to certain provisions of the indenture. Upon the occurrence of a Change in Control, as defined in the Notes, the Company will be required to make an offer to repurchase the Notes at 101% of the principal amount plus accrued and unpaid interest to the date of repurchase. The Notes contain certain restrictive covenants, including limitations on asset sales, additional indebtedness, and mergers. Under the Notes' convenants, the Company is restricted in its ability to pay shareholder dividends and other restricted payments in an amount greater than $8.7 million at October 3, 1999. During fiscal 1998, the Company filed a registration statement and exchanged the Notes for the Company's 10 1/4% Senior Subordinated Notes due 2007, Series B (the "Exchange Notes"). BWAY is a holding company with no independent operations, although it incurs expenses on behalf of its operating subsidiaries. BWAY has no significant assets other than the common stock of its subsidiaries. The Exchange Notes are fully and unconditionally guaranteed on a joint and several basis by certain of the Company's direct and indirect subsidiaries. The subsidiary guarantors are wholly owned by BWAY and constitute all of the direct and indirect subsidiaries of BWAY except for four subsidiaries that are, individually and in the aggregate, inconsequential. Separate financial statements of the subsidiary guarantors are not presented because management has determined that they would not be material to investors. F-14 Credit Agreement In October 1997, the Company amended its Credit Agreement with Deutsche Bank (formerly Bankers Trust Company) and Bank of America (formerly NationsBank, N.A.) (the "Credit Agreement"). The amendment lowered the borrowing limit from $150 million to $100 million. The amendment provides the Company with lower interest rate margins and greater flexibility with regard to investments in acquisitions, joint ventures and other subsidiaries. The amendment also provides the Company with a second option to increase the borrowing limit by another $25 million for a maximum borrowing limit of $150 million, provided certain conditions are met and provided that only one $25 million increase occur in any twelve-month period. The amendment also extends the expiration of the Credit Agreement one year to June 17, 2002. On November 2, 1998, the Company and its lenders executed another amendment to the Credit Agreement which modified certain restrictive covenants and provided greater flexibility with respect to investments in joint ventures. Additionally, the Company exercised its option to increase the available borrowing limit to $125 million from $100 million. The Credit Agreement currently allows the Company to borrow up to $125 million or $150 million if certain conditions are met. The interest rates under the Credit Agreement are based on rate margins for either prime rate as announced by Bank of America from time to time ("Prime") or LIBOR plus an applicable rate spread, at the option of the Company. The applicable rate margin is determined on a quarterly basis by a review of the Company's leverage ratio. The Company's borrowing rate is 7.2% at October 3, 1999, and 7.0% atSeptember 27, 1998. Loans under the Credit Agreement are unsecured and can be prepaid at the option of the Company without premium or penalty. The Credit Agreement is subject to certain restrictive covenants, including covenants which require the Company to maintain a certain minimum level of net worth and a maximum ratio for leverage indebtedness. Under this agreement, BWAY is restricted in its ability to pay shareholder dividends and other restricted payments in an amount greater than approximately $8.7 million at October 3, 1999 and to incur additional indebtedness. The Company's subsidiaries are restricted in their ability to transfer funds to the Company, except for funds to be used to effect approved acquisitions, pay dividends, reimburse the Company for operating and other expenditures made on behalf of the subsidiaries and repay permitted intercompany indebtedness. Scheduled maturities of long-term debt as of October 3, 1999 are as follows (in thousands):
Fiscal Year 2002 $ 46,500 Thereafter 100,000 -------- $146,500 ========
The fair value of long-term debt at October 3, 1999 and September 27, 1998 was estimated at $148.1 million and $126.6 million, respectively. F-15 8. STOCKHOLDERS' EQUITY Earnings Per Share - The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for income before the cumulative effect of change in accounting:
(In thousands, except share and per share amounts) Year Ended ------------------------------------------- October 3, September 27, September 28, 1999 1998 1997 Numerator for Basic and Diluted Earnings per Share: Income before Cumulative Effect of Change in Accounting $ 5,627 $ 2,680 $ 13,104 ========== ========== ========== Denominator: Denominator for basic earnings per share for income available to common stockholders 9,322,738 9,527,120 9,817,323 Effect of Dilutive Stock Options 130,019 431,417 165,251 ---------- ---------- ---------- Denominator for diluted earnings per share for income available to common stockholders 9,452,757 9,958,537 9,982,574 ========== ========== ========== Earnings per Common Share: Basic $ 0.60 $ 0.28 $ 1.33 ========== ========== ========== Diluted $ 0.60 $ 0.27 $ 1.31 ========== ========== ==========
Stock Option Plans In June 1995, the Company adopted the Company's 1995 Long-Term Incentive Plan and the Formula Plan for Non-Employee Directors (the "Formula Plan") for certain directors, officers, employees, and consultants of the Company and its subsidiaries. In February 1997, the Company i) adopted the Amended and Restated 1995 Long-Term Incentive Plan which increased the aggregate number of shares of common stock authorized for issuance thereunder from 735,000 to 1,125,000, and ii) froze the Formula Plan with only 45,000 of the available 150,000 shares of common stock being granted thereunder. In February 1998, the Company adopted the Second Amended and Restated 1995 Long-Term Incentive Plan (the "Amended Plan") which further increased the aggregate number of shares of common stock authorized for issuance thereunder from 1,125,000 to 1,425,000. In February 1998, the Company adopted the third amendment and restatement of the Amended Plan (as so amended and restated, the "Current Plan") which further increased the aggregate number of shares of common stock authorized for issuance thereunder from 1,425,000 to 1,825,000.The options generally become exercisable in installments of 33% per year on each of the first through third anniversaries of the grant. The Current Plan will terminate on May 31, 2005 unless sooner terminated by the Board. Termination of the Current Plan will not affect grants made prior to termination. The Current Plan authorizes grants of stock options to participants from time to time as determined by the Management Resources, Nominating and Compensation Committee of the Board. Options granted under the Current Plan may be incentive stock options as described in Section 422 of the Internal Revenue Code, non-qualified stock options, or a combination thereof. F-16 As of October 3, 1999, September 27, 1998, and September 28, 1997, the fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: expected dividends of 0.0%, expected volatility 52.33% in 1999, 37.67% in 1998, and 30% in 1997, risk-free interest of 6.58%, and expected lives of 6.0 years. A summary of the status of the Company's two stock option plans as of October 3, 1999 and changes during fiscal 1997, 1998, and 1999 is presented below:
Weighted Average Exercise Fixed Options Shares Price Outstanding at September 29, 1996 892,800 $11.52 Granted 66,300 14.06 Forfeited (12,600) 12.67 Exercised (4,200) 11.87 ---------- Outstanding at September 28, 1997 942,300 11.72 Granted 332,900 20.48 Forfeited (14,800) 19.26 Exercised (69,400) 12.16 ---------- Outstanding at September 27, 1998 1,191,000 14.05 Granted 448,274 14.77 Forfeited (36,752) 20.68 Exercised (4,500) 12.67 ---------- Outstanding at October 3, 1999 1,598,022 14.07 ========== Exercisable at September 28, 1997 368,100 10.99 ========== Exercisable at September 27, 1998 592,500 11.37 ========== Exercisable at October 3, 1999 883,155 12.70 ========== Weighted average grant date fair value of options granted during the year ended October 3, 1999 $ 8.51 ========== Weighted average grant date fair value of options granted during the year ended September 27, 1998 $ 13.08 ========== Weighted average grant date fair value of options granted during the year ended September 28, 1997 $ 6.15 ==========
F-17 The following table summarizes information about stock options outstanding at October 3, 1999:
Weighted Number Average Weighted Number Outstanding at Remaining Average Exercisable at Range of October 3, Contractual Exercise October 3, Exercise Prices 1999 Life Price 1999 $9.25 - 10.00 263,011 5.8 $ 9.67 259,344 10.01 - 11.00 48,000 5.9 10.68 39,900 11.01 - 12.00 26,700 7.0 11.67 2,100 12.01 - 13.00 653,856 7.5 12.59 429,456 13.01 - 14.00 14,042 9.5 13.26 14.01 - 15.00 57,000 7.8 14.35 33,000 16.01 - 17.00 233,072 9.1 16.50 18.01 - 19.00 42,000 7.9 18.17 28,000 19.01 - 20.00 215,100 7.2 19.38 72,376 21.01 - 22.00 15,900 8.4 21.38 5,301 26.01 - 26.50 29,341 6.9 26.50 13,678 --------- --- ------ ------- 1,598,022 7.4 $14.07 883,155 ========= === ====== =======
The fair value of options granted during the years ended October 3, 1999, September 27, 1998, and September 28, 1997 was $3.8 million, $4.4 million, and $.4 million, respectively. The Company applies Accounting Principles Board Opinion 25 and related Interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized for its fixed stock option plans. Had compensation cost for the Company's stock option plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of FASB Statement 123, the Company's net income and earnings per share for each of the three years in the period ended October 3, 1999 would have been reduced to the pro forma amounts indicated below:
1999 1998 1997 Net income (loss) to common shareholders (in thousands): As reported $5,627 $1,519 $13,104 ====== ====== ======= Pro forma $3,006 $ (289) $12,316 ====== ====== ======= Net income per common and common equivalent share: Basic earnings per common share: As reported $ 0.60 $ 0.16 $ 1.33 ====== ====== ======= Pro forma $ 0.32 $(0.03) $ 1.25 ====== ====== ======= Diluted earnings per common share: As reported $ 0.60 $ 0.15 $ 1.31 ====== ====== ======= Pro forma $ 0.32 $(0.03) $ 1.23 ====== ====== =======
F-18 Shareholder Rights Plan The Company has a Shareholder Rights Plan, amended through November 26, 1997 (the "Rights Plan"), under which a preferred share purchase right is presently attached to and trades with each outstanding share of the Company's common stock. The rights become exercisable and transferable apart from the common stock after a person or group other than an Exempt Person (as defined in the Rights Plan), without the Company's consent, acquires beneficial ownership of, or the right to obtain beneficial ownership of, 15% or more of the Company's common stock or ten business days after a person or group announces or commences a tender offer or exchange offer that could result in 15% ownership. Once exercisable, each right entitles the holder to purchase one fifteen-hundredth share of Junior Participating Series A Preferred Stock at an exercise price of $60 per share subject to adjustment to prevent dilution. The rights have no voting power and no current dilutive effect on earnings per common share. The rights expire on June 15, 2005 and are redeemable at the discretion of the Board of Directors at $.01 per share. If a person acquires 15% ownership, except in an offer approved by the Company under the Rights Plan, then each right not owned by the acquirer or related parties will entitle its holder to purchase, at the right's exercise price, additional shares of common stock or common stock equivalents. In addition, after an acquirer obtains 15% ownership, if the Company is involved in certain mergers, business combinations, or asset sales, each right not owned by the acquirer or related persons will entitle its holder to purchase, at the right's exercise price, additional shares of common stock of the other party to the transaction. 9. INCOME TAXES The Company files a consolidated federal income tax return. Deferred income taxes are provided to recognize the differences between the carrying amount of assets and liabilities for financial statement purposes and the amounts used for income tax purposes. F-19 Components of net deferred tax liability are as follows (in thousands):
October 3, September 27, 1999 1998 Deferred tax liabilities: Property, plant, and equipment $24,561 $20,243 Inventory 1,249 Intangible assets 1,372 802 Other 626 657 ------- ------- 27,808 21,702 Deferred tax assets: Restructuring reserves 4,369 3,327 Employee benefits 6,005 4,732 Customer claims/rebates 1,854 891 Inventory 475 Accounts receivable 221 186 Other 2,304 1,224 ------- ------- 14,753 10,835 ------- ------- Net deferred tax liability $13,055 $10,867 ======= ======= Net current deferred tax asset $(4,612) $(4,251) Net noncurrent deferred tax liability 17,667 15,118 ------- ------- $13,055 $10,867 ======= =======
The provision for income taxes is reconciled with the federal statutory rate as follows (dollars in thousands):
1999 1998 1997 -------------- --------------- ----------------- Amount % Amount % Amount % Income tax at federal statutory rate $3,821 35.0% $1,914 35.0% $7,788 35.0% State income taxes, net of federal income tax benefit 382 3.5% 275 5.0% 549 2.5% Nondeductible amortization of intangibles 734 6.7% 600 11.0% 754 3.4% Other 353 3.2% 55 0.2% ------ ---- ------ ---- ------ ---- $5,290 48.4% $2,789 51.0% $9,146 41.1% ====== ==== ====== ==== ====== ====
F-20 The components of the provision for income taxes are as follows (in thousands):
October 3, September 27, September 28, 1999 1998 1997 Current: Federal $(1,640) $1,473 $ 9,569 State (164) 307 1,449 Deferred 7,094 1,009 (1,872) ------- ------ ------- $ 5,290 $2,789 $ 9,146 ======= ====== =======
As of October 3, 1999, the Company has recognized deferred tax benefits of $1.1 million related to alternative minimum tax carryforwards which have no expiration date. 10. LEASE COMMITMENTS The Company leases warehouses, office space, equipment, and vehicles under operating leases. Rent expense during each of the last three fiscal years was approximately $4.5 million (1999), $3.4 million (1998), and $4.2 million (1997). On August 20, 1999, the Company sold and leased back its Cincinnati manufacturing facility. The sales price was $10.4 million. After deducting closing costs of $0.6 million, the Company recorded a deferred gain on the sale of $2.3 million which will be amortized over the life of the lease. The amortization of the deferred gain recorded in earnings for the year ending October 3, 1999 was $13,000. The lease term is 20 years with annual lease payments of approximately $1.1 million. The lease has two 5 year renewal terms that run consecutively after the basic term. The lease is accounted for as an operating lease for financial reporting purposes. At October 3, 1999, future minimum rental payments under noncancelable operating leases are as follows (in thousands):
Operating Fiscal Year Leases 2000 $ 5,339 2001 4,822 2002 4,187 2003 3,127 2004 2,929 Thereafter 18,289 ------- Total minimum lease payments $38,693 =======
F-21 11. PROFIT SHARING AND PENSION PLANS The Company has qualified profit sharing and savings plans for specified employees. These plans are contributory defined contribution plans which provide for employee contributions with a Company matching provision, and for certain employees a deferred profit sharing component funded by the Company. The Company's net contributions to the profit sharing and savings plans for each of the last three fiscal years were approximately $1.3 million (1999), $.9 million (1998), and $.7 million (1997). BSNJ has a noncontributory defined benefit pension plan covering a majority of its salaried employees. The plan provides benefit payments using a formula based on an employee's compensation and length of service. BSNJ funds the plan in amounts equal to the minimum funding requirements of the Employee Retirement Income Security Act of 1974, plus additional amounts as BSNJ actuarial consultants advise to be appropriate and as management approves from time to time. The Company froze this plan effective December 31, 1996. On January 1, 1998, the Company amended the plan to cover substantially all nonunion employees. The plan provides for a contribution of 4% of each participant's wages. Participant account balances earn interest at 6% per annum. Effective July 31, 1998, the Company amended the plan to terminate the plan on that date. All participants became fully vested in their accounts on July 31, 1998. On July 29, 1999 the Company received approval to distribute the assets in the plan to the participants. Substantially all assets were distributed in November, 1999. The periodic net expense (income) is comprised of the following:
Year Ended ------------------------------------------ October 3, September 27, September 28, 1999 1998 1997 Service cost - benefits earned during the period $ $2,294,900 $ 31,100 Interest cost on projected benefit obligation 307,500 284,100 191,300 Actual return on assets (158,400) (261,400) (399,800) Net amortization and deferral (301,200) (135,000) --------- ---------- --------- Net pension expense (income) $(152,100) $2,182,600 $(177,400) ========= ========== =========
F-22 The following table shows the plan's funded status and amounts recognized in the balance sheet:
Year Ended --------------------------- October 3, September 27, 1999 1998 Actuarial present value of benefit obligations - Vested $ 3,754,200 $ 4,439,100 =========== =========== Accumulated benefit obligation $ 3,754,200 $ 4,439,100 =========== =========== Fair value of plan assets $ 4,357,700 $ 5,077,100 Projected benefit obligation (3,754,200) (4,439,100) ----------- ----------- Funded status 603,500 638,000 Unrecognized net gain (470,300) (656,900) Unrecognized prior service cost Prepaid (accrued) pension expense $ 133,200 $ (18,900) =========== =========== The actuarial assumptions used were: Discount rate 7.75% 7.00% =========== =========== Rate of increase in compensation levels 0.00% 0.00% =========== =========== Expected return on assets 9.00% 9.00% =========== ===========
Most of BSNJ's union employees are covered under multi-employer defined benefit plans administered by the union. Total contributions charged to expense for such plans are $.3 million for the year ended October 3, 1999, $.4 million for the year ended September 27, 1998, and $.7 million for the year ended September 28, 1997. In connection with the acquisition of MCC, the Company assumed three defined benefit postretirement medical plans. These plans are noncontributory and provide certain medical benefits after retirement to covered union employees. In June 1997, the Company and employees belonging to one union representing approximately 50% of the employees at MCC reached a new collective bargaining agreement. One of the provisions of the new agreement eliminates postretirement medical benefits provided by the Company which resulted in the recording of a curtailment gain of approximately $5.8 million. In fiscal 1998, the Company reached new collective bargaining agreements with unions representing approximately 34% of the hourly employees at the Cincinnati, Ohio facility. The provisions of the new agreements substantially eliminate unvested postretirement medical benefits provided by the Company which resulted in the recording of curtailment gains of approximately $1.9 million. F-23 As of October 3, 1999, in accordance with the terms of two applicable collective bargaining agreements, the Company continues to offer postretirement medical coverage to certain union employees who retire from employment at MCC.
Year Ended ---------------------------- October 3, September 27, 1999 1998 Change in benefit obligation Benefit obligation at beginning of year $ 5,899,329 7,562,173 Service cost 29,319 29,319 Interest cost 392,493 412,028 Actuarial gain (948,165) 95,074 Curtailment gain (1,860,771) Benefits paid (207,870) (338,494) --------------------------- Benefit obligation at end of year $ 5,165,106 $ 5,899,329 =========================== Change in plan assets Fair value of plan assets at beginning of year - - Actual return on plan assets - - Employer contribution 207,870 338,494 Benefits paid (207,870) (338,494) --------------------------- Fair value of plan assets at end of year $ - $ - =========================== Funded status (5,165,106) (5,899,329) Unrecognized net actuarial loss (853,091) 95,074 --------------------------- Prepaid (accrued) benefit cost $(6,018,197) $(5,804,255) =========================== Weighted-average assumptions as of year end Discount rate 7.50% 6.75% ===========================
For measurement purposes, a 10% annual rate of increase in the post 65 per capita cost of covered health care benefits and a 8.5% annual rate of increase in the pre 65 per capita cost of covered health care benefits were assumed for 1999 and 1998. The rates were assumed to decrease by .5% per year to 5% and remain at that level thereafter. F-24
Year Ended ------------------------- October 3, September 27, 1999 1998 Components of net periodic benefit cost Service cost on benefits earned $ 29,319 29,319 Interest cost on accumulated postretirement benefit obligation 392,493 412,028 ----------------------- Net periodic benefit cost 421,812 441,347 Curtailment gain - (1,860,771) ----------------------- Net effect charged to results from continuing operations $421,812 $(1,419,424) =======================
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage point change in assumed health care cost trends would have the following effects:
Year Ended -------------------------- October 3, September 27, 1999 1998 One-Percentage Point Increase: Effect of Total Service and Interest Cost Components $ 56,215 $ 62,974 Effect on postretirement benefit obligation 645,576 880,047 One-Percentage Point Decrease: Effect of Total Service and Interest Cost Components (32,313) (51,175) Effect on postretirement benefit obligation (534,802) (715,705)
12. RELATED PARTY TRANSACTIONS BSNJ leases its primary operating facility under an operating lease from a partnership in which certain members of the Company's management are partners. The lease, which is for a five-year period ended September 30, 1999 with renewal options and carried a monthly lease payment of $52,547. The Company exercised the first five year option through September 30, 2004 with a monthly lease payment of $56,391 beginning in fiscal year 2000. 13. RESTRUCTURING AND IMPAIRMENT CHARGE On June 3, 1998, the Board of Directors approved a restructuring plan to improve operating efficiencies. The plan involves the rationalization of three existing facilities, the shift of related production to other facilities, and the elimination of an internal transportation department. The facilities closed in fiscal 1999 were Solon (Ohio) and Northeast Tin Plate (New Jersey). The facility scheduled for closure in fiscal 2000 is Farmer's Branch (Texas). The 1998 restructuring and impairment charge totaled $11.5 million and consisted of the following: $7.8 million related to the closure F-25 of the plants and transportation department and $3.7 million related to other asset impairments. The $7.8 million related to the plant and transportation department closure includes $2.1 million for severance costs, $2.2 million for other facility closure costs and $3.5 million for asset impairments related to the plant shut-downs. During fiscal 1998, the Company charged the restructuring reserve approximately $1.7 million for severance benefits, $6.6 million for other asset impairments and $.5 million for facility closing costs. In conjunction with the plant closures, the plan called for the termination of 234 employees. As of October 3, 1999, 210 employees have been terminated. During fiscal 1999, the Company charged $.3 million in severance and $1.9 million in facility closing costs. The remaining balance in the 1998 restructuring liability is $.5 million at October 3, 1999. In connection with the fiscal 1999 acquisition of U.S. Can Metal Services, the Company provided a reserve for costs to exit the tinplate services business. See Note 2. 14. ASSETS HELD FOR SALE In connection with the closure of the plants in 1998 and 1999, $3.4 million of real property is held for sale at October 3, 1999. This property includes $.6 million of land and $2.8 million of buildings. Additionally, the Company holds $1.4 million in equipment for sale at October 3, 1999. During the second quarter of fiscal 1999, the company sold the Solon, Ohio facility for $4.5 million resulting in a net gain of $.2 million. At September 27, 1998, $5.4 million of real property is held for sale. This property included land of $.8 million and buildings of $4.6 million. In connection with the fiscal 1999 acquisition of U.S. Can Metal Services, the Company provided a reserve for costs to exit the tinplate services business. See Note 2. 15. CONTINGENCIES Environmental The Company continues to monitor and evaluate on an ongoing and regular basis its compliance with applicable environmental laws and regulations. Liabilities for noncapital expenditures are recorded when environmental remediation is probable and the costs can be reasonably estimated. The Company believes that it is in substantial compliance with all material federal, state, and local environmental requirements. The Company (and, in some cases, predecessors to the Company) has, from time to time, received requests for information or notices of potential responsibility pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") with respect to certain waste disposal sites utilized by former or current facilities of the Company or its various predecessors. To the Company's knowledge, all such matters which have not been resolved are, subject to certain limitations, indemnified by the sellers of the relevant Company affiliates, and all such unresolved matters have been accepted for indemnification by such sellers. Because liability under CERCLA is retroactive, it is possible that in the future the Company may incur liability with respect to other sites. F-26 Environmental investigations voluntarily conducted by the Company at its Homerville, Georgia facility in 1993 and 1994 detected certain conditions of soil and groundwater contamination, that management believes predated the Company's 1989 acquisition of the facility from Owens-Illinois. Such pre- 1989 contamination is subject to indemnification by Owens-Illinois. The Company and Owens-Illinois have entered into supplemental agreements establishing procedures for investigation and remediation of the contamination. In 1994, the Georgia Department of Natural Resources ("DNR") determined that further investigation must be completed before DNR decides whether corrective action is needed. On August 25, 1999, DNR signed a consent order that had been submitted by the Company and Owens-Illinois. The consent order establishes a schedule for completing such investigation and remediation by Owens-Illinois. Separately, the Company entered into a consent order with DNR on April 22, 1999, related to certain industrial wastewater and cooling water discharges that exceeded allowable limits. The Company anticipates capital expenditures of approximately $200,000 in fiscal 2000 to comply with the consent order. Management believes that none of these matters will have a material adverse effect on the results of operations or financial condition of the Company in light of both the potential indemnification obligations of others to the Company and the Company's understanding of the underlying potential liability. Letters of Credit At October 3, 1999, a bank had issued standby letters of credit on behalf of BWAY in the aggregate amount of $1.3 million in favor of BWAY's workers' compensation insurer. 16. CUSTOMERS The Company sells its metal containers to a large number of customers in numerous industry sectors. To reduce credit risk, the Company sets credit limits and performs ongoing credit evaluations. Sales to the Company's ten largest customers amounted to approximately 42% (1999), 36% (1998), and 38% (1997) of the Company's sales including sales to one customer of 8.5% (1999), 9.5% (1998), and 10% (1997). Although the Company's exposure to credit risk associated with nonpayment is affected by conditions with the customers' industries, the balances are substantially current and are within terms and limits established by the Company. The Company sells its products and services primarily in North America. In fiscal 1999, 1998, and 1997, the Company's sales to customers located outside the United States were less than five percent of total net sales. The following is a summary of revenue for the Company's products and services: Year Ended ----------------------------------------- October 3, September 27, September 28, 1999 1998 1997 General line containers $326,970 $320,871 $337,806 Food cans 51,380 52,142 52,280 Material center services 74,736 8,022 Ammunition boxes 14,013 20,054 12,064 -------- -------- -------- $467,099 $401,089 $402,150 ======== ======== ======== F-27 17. QUARTERLY INFORMATION (UNAUDITED) (In thousands, except per share data)
First Second Third Fourth Fiscal Year 1999: Quarter Quarter Quarter Quarter Net sales $104,986 $121,536 $123,109 $117,468 ======== ======== ======== ======== Gross profit (exclusive of depreciation and amortization) $ 15,685 $ 19,032 $ 16,252 $ 11,638 ======== ======== ======== ======== Net income (loss) $ 1,407 $ 3,284 $ 1,876 $ (940) ======== ======== ======== ======== Basic earnings (loss) per common share $ 0.15 $ 0.35 $ 0.20 $ (0.10) ======== ======== ======== ======== Diluted earnings (loss) per common share $ 0.15 $ 0.35 $ 0.20 $ (0.10) ======== ======== ======== ======== Fiscal Year 1998: Net sales $ 92,114 $101,165 $107,010 $100,800 ======== ======== ======== ======== Gross profit (exclusive of depreciation and amortization) $ 15,482 $ 17,346 $ 19,314 $ 12,359 ======== ======== ======== ======== Net income (loss) $ 1,035 $ 3,946 $ (4,026) $ 564 ======== ======== ======== ======== Basic earnings (loss) per common share $ 0.11 $ 0.42 $ (0.42) $ 0.05 ======== ======== ======== ======== Diluted earnings (loss) per common share $ 0.10 $ 0.40 $ (0.40) $ 0.05 ======== ======== ======== ========
F-28 INDEX TO FINANCIAL STATEMENT SCHEDULES Schedule I - Condensed Financial Statements of BWAY Corporation. . S-2 Schedule II - Condensed Valuation and Qualifying Accounts BWAY Corporation And Subsidiaries . . . . . . . . . . . S-6 S-1 SCHEDULE I - CONDENSED FINANCIAL STATEMENTS OF BWAY CORPORATION CONDENSED BALANCE SHEETS (In Thousands)
ASSETS: October 3, September 27, 1999 1998 ------------------------ ----------------------- Investments in subsidiaries $199,813 $157,137 Property, Plant and Equipment - net 20,430 3,571 Intercompany receivable 35,304 Other assets 13,239 1,217 ------------------------ ----------------------- $233,482 $197,229 ======================== ======================= LIABILITIES: Intercompany payable $ 9,517 Other liabilities 41,912 $ 20,041 Long Term Debt 100,000 100,000 ------------------------ ----------------------- 151,429 120,041 ------------------------ ----------------------- STOCKHOLDERS' EQUITY: Common stock 99 99 Additional paid-in capital 37,202 37,395 Retained earnings 55,819 50,192 ------------------------ ----------------------- 93,120 87,686 Less treasury stock, at cost (11,067) (10,498) ------------------------ ----------------------- Total stockholders' equity 82,053 77,188 $233,482 $197,229 ======================== =======================
S-2 SCHEDULE I - CONDENSED FINANCIAL STATEMENTS OF BWAY CORPORATION CONDENSED STATEMENTS OF INCOME (In Thousands)
October 3, September September 28, 1999 1998 1997 ---------------- ------------- ----------------- Management fees charged to subsidiaries $ 0 $ 3,427 $ 1,545 Interest expense,net (11,160) (10,250) (5,125) Other income/(expense),net (6,890) (17,745) 151 ---------------- ------------- ----------------- Income before income taxes and equity in undistributed earnings of subsidiaries (18,050) (24,568) (3,429) Income tax (expense)/benefit (8,747) (12,530) 695 ---------------- ------------- ----------------- Income before equity in undistributed earnings of subsidiaries (9,303) (12,038) (4,124) Equity in undistributed earnings of subsidiaries 14,930 14,718 17,228 Cumulative effect of change in accounting for systems development costs - net of related tax benefit of $823 (1,161) ---------------- ------------- ----------------- Net income $ 5,627 $ 1,519 $13,104 ================ ============= =================
S-3 SCHEDULE I - CONDENSED FINANCIAL STATEMENTS OF BWAY CORPORATION CONDENSED STATEMENTS OF CASH FLOWS (In Thousands)
Year Ended ---------------------------------------------------------- October 3, September 27, September 28, 1999 1998 1997 ----------------- ---------------- ---------------- OPERATING ACTIVITIES: Net income $ 5,627 $ 1,519 $ 13,104 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed earnings of subsidiaries (14,930) (14,718) (17,228) Changes in assets and liabilities: Other assets (4,542) (1,037) 78 Other liabilities 16,095 17,969 793 Income tax receivable (1,211) Intercompany payable 44,816 9,634 46,381 ---------------- --------------- --------------- Net cash provided by operating activities 45,855 13,367 43,128 ---------------- --------------- --------------- INVESTING ACTIVITIES: Acquisitions, net of cash acquired (27,746) (3,570) (42,154) Capital Expenditures (16,859) ---------------- --------------- --------------- Net cash used in investing activities (44,605) (3,570) (42,154) ---------------- --------------- --------------- FINANCING ACTIVITIES: Purchase of treasury stock (818) (9,563) (1,147) Other 56 (234) ---------------- --------------- --------------- Net cash used in financing activities (762) (9,797) (1,147) ---------------- --------------- --------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 488 0 (173) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 0 0 173 ---------------- --------------- --------------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 488 $ 0 $ 0 ================ =============== ===============
S-4
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Year Ended ----------------------------------------------------- October 3, September 28 September 28, 1999 1998 1997 ----------------- ------------- --------------- Cash paid (received) during the year for: Income taxes $(9,724) $ 4,765 $ 695 ----------------- ------------- --------------- Interest $11,033 $10,250 $5,125 ----------------- ------------- --------------- NONCASH INVESTING AND FINANCING ACTIVITIES: Common stock issued under employee savings plan $ 830 ===============
S-5 SCHEDULE II - CONDENSED VALUATION AND QUALIFYING ACCOUNTS BWAY CORPORATION AND SUBSIDIARIES (In Thousands)
Additions Balance at Charged to Balance at Beginning Costs and End Description of Period Expenses Deductions of Period - --------------------------------------- -------------- --------------- ---------------- -------------- Allowance for doubtful accounts: Year ended September 28, 1997 $390 $350 $160(1) $580 Year ended September 27, 1998 580 33 80(1) 533 Year ended October 3, 1999 533 (3) 24(1) 506 Additions Balance at Charged to Balance at Beginning Costs and End Description of Period Expenses Deductions of Period - --------------------------------------- -------------- --------------- ---------------- -------------- Restructuring Reserve: Year ended September 28, 1997 0 0 Year ended September 27, 1998 0 11,532 8,822 2,710 Year ended October 3, 1999 2,710 154 2,394 470 Additions Balance at Charged to Balance at Beginning Costs and End Description of Period Expenses Deductions of Period - --------------------------------------- -------------- --------------- ---------------- -------------- Reorganization Reserve: Year ended September 28, 1997 4,781 4,600 6,293 3,088 Year ended September 27, 1998 3,088 1,184 1,904 Year ended October 3, 1999 1,904 11,037 6,524 6,417 ____________ (1) Deductions from the allowance for doubtful accounts represent the net write-off of uncollectable accounts receivable.
S-6
INDEX TO EXHIBITS ------------------------------------------------ Exhibit Description of Document No. 3.1 Amended and Restated Certificate of Incorporation of the Company. (3) 3.2 Amended and Restated By-laws of the Company (1) 3.3 Rights Agreement dated as of June 9, 1995 between the Company and Harris Trust and Savings Bank, as Rights Agent (1) 3.4 Amendments to Rights Agreement dated as of February 12, 1996 between the Company and Harris Trust and Savings Bank, as Rights Agent (3) 3.5 Amendment No. 2 to Rights Agreement dated as of August 19, 1997 between the Company and Harris Trust and Savings Bank, as Rights Agent (9) 3.6 Amendment No.2 to Rights Agreement, dated as of November 26, 1997, between the Company and Harris Trust and Savings Bank. (9) 4.1 Form of certificate representing shares of Common Stock of the Company (2) 4.2 Credit Agreement dated June 17, 1996 by and among BWAY Corporation, Brockway Standard, Inc., Milton Can Company, Inc., the additional borrowers, BT Alex.Brown Incorporated (formerly known as Bankers Trust Company) and NationsBank, N.A. (4) 4.3 Third Amendment To Credit Agreement dated November 2, 1998 among BWAY Corporation, its subsidiaries, Bankers Trust Company and NationsBank, N.A. (14) 4.4 Master Assignment and Consent Agreement and First Amendment to Credit Agreement dated as of August 15, 1996, and Second Amendment to Credit Agreement dated as of October 15, 1997 between BWAY Corporation, Brockway Standard, Inc., Milton Can Company, Inc., the additional borrowers, BT Alex.Brown Incorporated (formerly known as Bankers Trust (11) Company), and NationsBank, N.A. 4.5 Indenture dated as of April 11, 1997 among the Company, the subsidiary guarantors named therein and Harris Savings and Trust Company, as trustee (6) 4.6 Forms of Series A and Series B 101/4% Senior Subordinated Notes (contained in Exhibit 4.3 as Exhibit A and B thereto, respectively) (6)
1
4.7 Form of Guarantee (contained in Exhibit 4.3 as Exhibit F thereto) (6) 4.8 Registration Rights Agreement dated as of April 11, 1997 among the Company, the subsidiary guarantors named therein, BT Alex.Brown Incorporated (formerly known as Bankers Trust Company), Bear, Stearns & Co. (6) Inc., and NationsBanc Capital Markets, Inc. 4.9 Fourth Amendment To Credit Agreement dated December 16, 1999 among BWAY Corporation, its subsidiaries, BT Alex.Brown Incorporated (formerly known as Bankers Trust Company) and Bank of America (formerly known as NationsBank, N.A.) (14) The Registrant will furnish to the Commission, upon request, each instrument defining the rights of holders of long-term debt of the Registrant and its subsidiaries where the amount of such debt does not exceed 10 percent of the total assets of the Registrant and its subsidiaries on a consolidated basis. 10.1 Asset Purchase Agreement dated December 19, 1988 between BS Holdings Corporation, BW Plastics, Inc., BW-Morrow Plastics, Inc. and Owens-Illinois Group, Inc. (1) 10.2 Registration Agreement dated as of January 30, 1989 between BS Holdings Corporation and certain stockholders (1) 10.3 Acquisition Agreement dated as of March 4, 1993 between Ellisco Inc. and BSI (1) 10.4 Stock Purchase Agreement dated April 27, 1993 among Armstrong Industries, Inc., its stockholders, Armstrong Containers, Inc. and (1) BSI 10.5 Asset Purchase Agreement dated May 26, 1993 among DK Containers, Inc., Dennis Dyck, Robert Vrhel, Mohan Patel and BSI (1) 10.6 Employment Agreement between the Company and Warren J. Hayford, dated as of June 1, 1995 * (1) 10.7 Employment Agreement between the Company and John T. Stirrup, dated as of June 1, 1995 * (1) 10.8 Memorandum of Agreement dated October 11, 1993 between The Folgers Company and BSI ** (1) 10.9 Contract and Lease dated September 3, 1968, between the City of Picayune, Mississippi and Standard Container Company (1)
2
10.10 Lease dated February 24, 1995 between Tab Warehouse Fontana II and BSI (1) 10.11 Garland, Texas Industrial Net Lease dated January 14, 1985 between MRM Associates and Armstrong Containers, Inc. (1) 10.12 Gross Lease Agreement dated August 10, 1990 between Colonel Estates Joint Venture and BSI (1) 10.13 Lease dated February 11, 1991 between Curto Reynolds Oelerich Inc. and Armstrong Containers, Inc. (1) 10.14 Lease Agreement dated November 16, 1996 between Shelby Distribution Park and Brockway Standard, Inc., as amended December 26, 1996. (11) 10.15 Lease dated August 9, 1991 between DK Containers, Inc. and Smith Barney Birtcher Institutional Fund-I Limited Partnership and (1) the First Amendment thereto 10.16 Lease dated September 2, 1994 between Division Street Partners, L.P. and BSNJ (8) 10.17 Employee Stock Purchase Agreement dated March 4, 1994 among BS Holdings Corporation, Perry Schwartz, Mid-America Group, Ltd., Warren J. Hayford and Daniel P. Casey * (1) 10.18 Agreement, dated May 15, 1995, between BSI and Owens-Illinois, Inc. Pursuant to (S) 9.9 (d) of the December 19, 1988 Stock Purchase Agreement (1) 10.19 Settlement Agreement, dated June 30, 1997 between BWAY Corporation and Owens-Illinois (11) Group, Inc. 10.20 Brockway Standard Holdings Corporation Formula Plan for Non-Employee Directors * (1) 10.21 Cooperation Agreement between Ball Corporation and BWAY Corporation, dated January 4, 1996. (3) 10.22 Merger Agreement with Milton Can Company, Inc., dated March 12, 1996. (3) 10.23 Amendment #1 to the Merger Agreement with Milton Can Company, Inc., dated April 30, 1996 (3) 10.24 Asset Purchase Agreement dated April 29, 1996, between Brockway Standard, Inc., BWAY Corporation, Van Dorn Company and Crown Cork & Seal Company, Inc. (3) 10.25 Employment Agreement between the Company and David P. Hayford, dated as of June 15, 1995 * (4)
3
10.26 Employment Agreement between the Company and James W. Milton, dated as of May 28, 1996 * (4) 10.27 Amended and Restated Registration Rights Agreement dated as of May 28, 1996, between BWAY Corporation and certain shareholders. (4) 10.28 Asset Purchase Agreement dated October 6, 1996, between Brockway Standard (New Jersey), Inc. (formerly known as Milton Can Company, Inc.), BWAY Corporation, Ball Metal Food Container Corp., and Ball Corporation (5) 10.29 Amendment No. 1 to the Asset Purchase Agreement dated October 28, 1996 between Milton Can Company, Inc., BWAY Corporation, Ball Metal Food Container Corp., and Ball (5) Corporation 10.30 Purchase Agreement dated as of April 8, 1997 among the Company, the subsidiary guarantors named therein, BT Alex. Brown Incorporated (formerly known as Bankers Trust Company), Bear, Stearns & Co. Inc. and NationsBanc (6) Capital Markets, Inc. 10.31 Brockway Standard (Ohio), Inc. Bargaining Unit Savings Plan * (7) 10.32 Employment Agreement between the Company and John M. Casey * (9) 10.33 Employment Agreement between the Company and John T. Stirrup B Amendment No. 1 * (10) 10.34 Employment Agreement between the Company and David P. Hull * (10) 10.35 BWAY Corporation Second Amended and Restated 1995 Long-Term Incentive Plan (10) 10.36 Asset Purchase Agreement between BMAT, Inc. and the United States Can Company dated November 9, 1998. (12) 10.37 Employment Agreement between the Company and John T. Stirrup - Amendment No. 2* (13) 10.38 Employment Agreement and Options Agreement between the Company and Warren J. Hayford - Omnibus Amendment* (14) 10.39 Employment Agreement between the Company and Jean-Pierre M. Ergas, dated as of January 1, (14) 2000* 10.40 BWAY Corporation Third Amended and Restated 1995 Long-Term Incentive Plan (14)
4
10.41 Lease Agreement dated August 20, 1999 between CRICBW Anderson Trust and Milton Can Company (14) 10.42 Lease Agreement dated September 15, 1999 between Division Street Partners, L.P. and (14) BSNJ 21.1 Subsidiaries of the Company 27.1 Financial Data Schedule
____________________________ * Management contract or compensatory plan or arrangement. ** Confidential treatment requested. (1) Incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 33-91114). (2) Incorporated by reference to the Company's Form 10-K for the fiscal year ending October 1, 1995 (File No. 0-26178). (3) Incorporated by reference to the Company's Form 10-Q for the period ending March 31, 1996 (File No. 0-26178). (4) Incorporated by reference to the Company's Form 10-Q for the period ending June 30, 1996 (File No. 0-26178). (5) Incorporated by reference to the Company's Current Report on Form 8-K filed on November 12, 1996 (File No. 0-26178). (6) Incorporated by reference to the Company's Registration Statement on Form S-4 (File No. 333-26013). (7) Incorporated by reference to the Company's Registration Statement on Form S-8 (File No. 333-39225). (8) Incorporated by reference to the Company's Form 10-K for the fiscal year ending September 29, 1996 (File No. 0-26178). (9) Incorporated by reference to the Company's Form 10-Q for the period ending December 28, 1997 (File No. 0-26178). (10) Incorporated by reference to the Company's Form 10-Q for the period ending March 29, 1998 (File No. 0-26178). (11) Incorporated by reference to the Company's Form 10-K for the fiscal year ending September 28, 1997 (File No. 0-26178). (12) Incorporated by reference to the Company's Current Report on Form 8-K filed on November 9, 1998 (File No. 0-26178). (13) Incorporated by reference to the Company's Form 10-Q for the period ending July 4, 1999 (File No. 0-26178). (14) Incorporated by reference to the Company's Form 10-K for the fiscal year ending October 3, 1999 (File No. 0-26178). 5 EX-4.9 2 FOURTH AMENDMENT TO CREDIT AGREEMENT EXHIBIT 4.9 FOURTH AMENDMENT TO CREDIT AGREEMENT THIS FOURTH AMENDMENT TO CREDIT AGREEMENT, dated as of December 16, 1999 (this "Agreement"), is by and among BWAY CORPORATION, a Delaware corporation --------- ("BWAY"), BROCKWAY STANDARD, INC., a Delaware corporation ("Brockway"), BROCKWAY ---- -------- STANDARD (NEW JERSEY), INC., a Delaware corporation (formerly named Milton Can Company, Inc.) ("Brockway New Jersey"), MILTON CAN COMPANY, INC., a Delaware ------------------- corporation ("Milton"), BMAT, INC., a Delaware corporation ("BMAT"), CHICAGO ------ ---- SERVICE DIVISION, INC., a Delaware corporation ("CSD"), CHICAGO METAL --- DECORATING, INC., a Delaware corporation ("CMD"), BROOKFIELD SERVICE DIVISION, --- INC., a Delaware corporation ("BSD"), TRENTON METAL DECORATING, INC., a Delaware --- corporation ("TMD"), the Lenders parties to the Credit Agreement referred to --- below (the "Lenders"), BANKERS TRUST COMPANY, as Administrative Agent and ------- Syndication Agent, and BANK OF AMERICA, N.A. (formerly NationsBank, N.A.), successor to NATIONSBANK, N.A. (SOUTH), as Documentation Agent and Paying Agent. RECITALS: WHEREAS, BWAY, Brockway, Brockway New Jersey, Milton, BMAT, CSD, CMD, BSD, TMD, the Agents and the Existing Lenders are parties to that certain Credit Agreement dated as of June 17, 1996, as amended by the Master Assignment and Consent Agreement and First Amendment to Credit Agreement dated as of August 15, 1996, the Second Amendment to Credit Agreement dated as of October 15, 1997 and the Third Amendment to Credit Agreement dated as of November 2, 1998 (as amended, restated, supplemented or otherwise modified and in effect from time to time, the "Credit Agreement"); and ---------------- WHEREAS, BWAY and the Borrowers have requested the Agents and the Lenders to amend the Credit Agreement in certain respects as set forth herein and the Agents and the Lenders are agreeable to the same, subject to the terms and conditions set forth herein; NOW THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the parties hereto agree as follows: SECTION 1. DEFINED TERMS. Unless otherwise defined herein, all ------------- capitalized terms used herein shall have the meanings given them in the Credit Agreement. SECTION 2. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is, as of ------------------------------ the Effective Date (as defined below), hereby amended as follows: (a) Section 5.3.2 of the Credit Agreement is hereby amended by ------------- deleting the table appearing at the end of the first paragraph of such Section in its entirety and substituting therefor the following:
Interest "Fiscal Quarter Coverage Ratio -------------- -------------- Fiscal Quarters ending on or prior to June 30, 1998 2.75:1.00 Fiscal Quarters ending on September 27, 1998 through June 30, 1999 2.50:1.00 Fiscal Quarter ending on September 30, 1999 2.75:1.00 Fiscal Quarters ending on December 31, 1999 through June 30, 2000 2.25:1.00 All Fiscal Quarters ending after June 30, 2000 2.75:1.00"
SECTION 3. AMENDMENT FEE. In consideration of the execution of this ------------- Agreement by the Agents and the Lenders, the Borrowers hereby agree to pay each Lender which executes this Agreement on or prior to December 16, 1999 a fee (the "Amendment Fee") in an amount equal to such Lender's Revolving Loan Commitment ------------- multiplied by 0.25%. SECTION 4. CONDITIONS PRECEDENT TO EFFECTIVENESS OF AGREEMENT. This -------------------------------------------------- Agreement shall become effective upon the date (the "Effective Date") each of -------------- the following conditions have been satisfied: (a) Execution and Delivery. BWAY, the Borrowers, the Agents and the ---------------------- Required Lenders shall have executed and delivered this Agreement. (b) No Defaults. No Unmatured Event of Default or Event of Default ----------- under the Credit Agreement (as amended hereby) shall have occurred and be continuing. (c) Representations and Warranties. The representations and warranties ------------------------------ of BWAY and the Borrowers contained in this Agreement, the Credit Agreement (as amended hereby) and the other Loan Documents shall be true and correct in all material respects as of the Effective Date, with the same effect as though made on such date, except to the extent that any such representation or warranty expressly refers to an earlier date, in which case such representation or warranty shall be true and correct in all material respects as of such earlier date. (d) Payment of Amendment Fee. The Borrowers shall have paid in full ------------------------ to the Administrative Agent, for ratable distribution to those Lenders that have signed this Agreement on or prior to December 16, 1999, an amount equal to the Amendment Fee, and any other separately agreed upon fees. 2 (e) Reaffirmation of Guaranty. Each Guarantor Subsidiary shall have ------------------------- executed and delivered a Reaffiramation of Guaranty in the form attached hereto as Exhibit A. --------- SECTION 5. REPRESENTATIONS AND WARRANTIES. ------------------------------ (a) BWAY and each Borrower represents and warrants (i) that it has full power and authority to enter into this Agreement and perform its obligations hereunder in accordance with the provisions hereof, (ii) that this Agreement has been duly authorized, executed and delivered by such party and (iii) that this Agreement constitutes the legal, valid and binding obligation of such party, enforceable against such party in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally and by general principles of equity. (b) BWAY and each Borrower represents and warrants that the following statements are true and correct: (i) The representations and warranties contained in the Credit Agreement and each of the other Loan Documents are and will be true and correct in all material respects on and as of the Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties expressly refer to an earlier date, in which case they were true and correct in all material respects on and as of such earlier date. (ii) No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Agreement that would constitute an Event of Default or an Unmatured Event of Default. (iii) The execution, delivery and performance of this Agreement by each of BWAY and each Borrower do not and will not violate its respective certificate or articles of incorporation or by-laws, any law, rule, regulation, order, writ, judgment, decree or award applicable to it or any contractual provision to which it is a party or to which it or any of its property is subject. (iv) No authorization or approval or other action by, and no notice to or filing or registration with, any governmental authority or regulatory body is required in connection with its execution, delivery and performance of this Agreement and all agreements, documents and instruments executed and delivered pursuant to this Agreement. SECTION 6. REFERENCES TO AND EFFECT ON THE CREDIT AGREEMENT. ------------------------------------------------ (a) On and after the Effective Date each reference in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein," or words of like import, and each reference to the Credit Agreement in the Loan Documents and all other documents (the "Ancillary Documents") delivered in connection with the ------------------- Credit Agreement shall mean and be a reference to the Credit Agreement as amended hereby. 3 (b) Except as specifically amended above, the Credit Agreement, the Loan Documents and all other Ancillary Documents shall remain in full force and effect and are hereby ratified and confirmed. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of the Lenders or the Agents under the Credit Agreement, the Loan Documents or the Ancillary Documents. SECTION 7. EXECUTION IN COUNTERPARTS. This Agreement may be executed in ------------------------- counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. Delivery of an executed counterpart of a signature page of this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 8. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND BE ------------- CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE INTERNAL CONFLICTS OF LAWS PROVISIONS THEREOF. SECTION 9. HEADINGS. Section headings in this Agreement are included -------- herein for convenience of reference only and shall not constitute a part of this Agreement for any other purposes. SECTION 10. FEES AND EXPENSES. The Borrowers hereby acknowledge that all ----------------- costs, fees and expenses as described in Section 11.4 of the Credit Agreement ------------ incurred by the Administrative Agent and its counsel with respect to this Agreement and the documents and transactions contemplated hereby shall be for the account of the Borrowers. [signature pages to follow] 4 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective officers thereunto duly authorized as of the date above first written. BWAY CORPORATION BROCKWAY STANDARD, INC. By:________________________________ By:________________________________ Name:______________________________ Name:______________________________ Title:_____________________________ Title:_____________________________ MILTON CAN COMPANY, INC. BMAT, INC. By:________________________________ By:_______________________________ Name:______________________________ Name:_____________________________ Title:_____________________________ Title:____________________________ BROCKWAY STANDARD (NEW JERSEY), INC. CHICAGO SERVICE DIVISION, INC. By:________________________________ By:_______________________________ Name:______________________________ Name:_____________________________ Title:_____________________________ Title:____________________________ CHICAGO METAL DECORATING, INC. BROOKFIELD SERVICE DIVISION, INC. By:________________________________ By:_______________________________ Name:______________________________ Name:_____________________________ Title:_____________________________ Title:____________________________ TRENTON METAL DECORATING, INC. By:________________________________ Name:______________________________ Title:_____________________________ Fourth Amendment to Credit Agreement BANKERS TRUST COMPANY, individually and as Administrative Agent, Syndication Agent and Facing Agent By:___________________________________ Name:_________________________________ Title:________________________________ Fourth Amendment to Credit Agreement BANK OF AMERICA, N.A. (formerly NationsBank, N.A.), successor to NATIONSBANK, N.A. (SOUTH), individually and as Documentation Agent and Paying Agent By:____________________________________ Name:__________________________________ Title:_________________________________ Fourth Amendment to Credit Agreement HARRIS TRUST AND SAVINGS BANK, individually and as Co-Agent By:____________________________________ Name:__________________________________ Title:_________________________________ Fourth Amendment to Credit Agreement FIRST UNION, formerly CORESTATES BANK, N.A. By:____________________________________ Name:__________________________________ Title:_________________________________ Fourth Amendment to Credit Agreement THE BANK OF NOVA SCOTIA By:___________________________________ Name:_________________________________ Title:________________________________ Fourth Amendment to Credit Agreement PNC BANK, NATIONAL ASSOCIATION By:____________________________________ Name:__________________________________ Title:_________________________________ Fourth Amendment to Credit Agreement WACHOVIA BANK, N.A. By:____________________________________ Name:__________________________________ Title:_________________________________ Fourth Amendment to Credit Agreement NATIONAL CITY BANK, KENTUCKY By:____________________________________ Name:__________________________________ Title:_________________________________ Fourth Amendment to Credit Agreement SUNTRUST BANK, ATLANTA, individually and as Co-Agent By:____________________________________ Name:__________________________________ Title:_________________________________ Fourth Amendment to Credit Agreement THE BANK OF NEW YORK By:____________________________________ Name:__________________________________ Title:_________________________________ Fourth Amendment to Credit Agreement BANK OF TOKYO-MITSUBISHI LIMITED, ATLANTA AGENCY By:____________________________________ Name:__________________________________ Title:_________________________________ Fourth Amendment to Credit Agreement EXHIBIT A REAFFIRMATION OF GUARANTY ------------------------- Each of the undersigned acknowledges receipt of the Credit Agreement dated as of June 17, 1996, as amended by the Master Assignment and Consent Agreement and First Amendment to Credit Agreement dated as of August 15, 1996, the Second Amendment to Credit Agreement dated as of October 15, 1997, the Third Amendment to Credit Agreement dated as of November 2, 1998 and the Fourth Amendment to Credit Agreement dated as of December 16, 1999 (as so amended, the "Credit Agreement"), by and among BWAY Corporation, a Delaware corporation, ---------------- Brockway Standard Inc., a Delaware corporation, Brockway Standard (New Jersey), Inc., a Delaware corporation, Milton Can Company, Inc., a Delaware corporation, BMAT, Inc., a Delaware corporation, Chicago Service Division, Inc., a Delaware corporation, Chicago Metal Decorating, Inc., a Delaware corporation, Brookfield Service Division, Inc., a Delaware corporation, Trenton Metal Decorating, Inc., a Delaware corporation, Bankers Trust Company, as Administrative Agent and Syndication Agent, Bank of America, N.A. (formerly NationsBank, N.A.), successor to NationsBank, N.A. (South), as Documentation Agent and Paying Agent, and the financial institutions party thereto as lenders, and each of the undersigned consents to the Credit Agreement (as so amended) and each of the amendments, consents and waivers referenced therein, and hereby reaffirms its obligations under the Subsidiary Guaranty (as such term is defined in the Credit Agreement) executed by the undersigned. Dated as of December 16, 1999 ARMSTRONG CONTAINERS, INC. MILTON METAL GRAPHICS, INC. By:________________________________ By:________________________________ Name:______________________________ Name:______________________________ Title:_____________________________ Title:_____________________________ NORTHEAST TINPLATE COMPANY, INC. By:________________________________ Name:______________________________ Title:_____________________________ Fourth Amendment to Credit Agreement EX-10.38 3 OMNIBUS AMENDMENT EXHIBIT 10.38 OMNIBUS AMENDMENT TO WARREN HAYFORD'S EMPLOYMENT AGREEMENT AND OPTION AGREEMENTS This OMNIBUS AMENDMENT TO WARREN HAYFORD'S EMPLOYMENT AGREEMENT AND OPTION AGREEMENTS, dated as of November 23, 1999 (this "Amendment"), is entered into by and between Warren J. Hayford (the "Executive") and BWAY Corporation, a Delaware corporation (the "Company"). The Company and the Executive are referred to collectively herein as the "Parties" and individually as a "Party." WHEREAS, the Executive and the Company are parties to an Employment Agreement, dated as of June 1, 1995 (the "Employment Agreement"); WHEREAS, the Company granted to the Executive as of May 17, 1997, pursuant to the Company's Amended and Restated 1995 Long-Term Incentive Plan (as further amended and restated, the "Plan"), options to acquire 37,500 shares (as adjusted to reflect a 3-for-2 stock split) of the common stock of the Company (the "May 1997 Options"); WHEREAS, the Company granted to the Executive as of August 19, 1997, pursuant to the Plan, options to acquire 37,500 shares (as adjusted to reflect a 3-for-2 stock split) of the common stock of the Company (the "August 1997 Options"); WHEREAS, the Company granted to the Executive as of November 16, 1998, pursuant to the Plan, options to acquire 36,667 shares of the common stock of the Company (the "November 1998 Options" and, together with the May 1997 Options and the August 1997 Options, the "Options"); and WHEREAS, the Company and the Executive desire to amend the Employment Agreement and the Options, effective as of the date hereof, in anticipation of the Executive's planned retirement as Chief Executive Officer of the Company on December 31, 1999. NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto agree as follows: 1. Position, Duties and Place of Employment. Paragraph 2 of the ---------------------------------------- Employment Agreement is hereby amended by adding the following: "Upon Executive's December 31, 1999 retirement as Chief Executive Officer and an employee of the Company and continuing for so long as Executive is a member of the Board, Executive shall have the title of Vice-Chairman of the Board." 2. Base Salary, Bonus and Benefits. Paragraph 3(a) of the Employment ------------------------------- Agreement is hereby amended by adding the following: "Notwithstanding the immediately preceding sentence, and in light of Executive's December 31, 1999 retirement as Chief Executive Officer and an employee, the Board may, following the end of the Company's fiscal year 2000, award Executive a bonus equal to 25% of the bonus Executive would otherwise have received pursuant to the immediately preceding sentence had Executive served as Chief Executive Officer of the Company for the entire fiscal year 2000 if, as determined by the board in its sole judgment, Executive has met the goals and objectives approved by the Board for such year." 3. Term. Paragraphs 4(a) through 4(e) of the Employment Agreement are ---- hereby replaced by the following: "(a) The Employment Period shall end on December 31, 1999. (b) Executive shall be entitled to receive his Base Salary through December 31, 1999. Except as provided in paragraph 3(a) and paragraph 5, all of Executive's rights to participate in any of the Company's employee benefit programs or receive bonuses hereunder shall cease on December 31, 1999, except for benefits required by law." 4. Supplemental Retirement Benefit. Paragraphs 5(a) through 5(d) of the ------------------------------- Employment Agreement are hereby replaced by the following: "(a) Eligibility. The Executive shall be entitled to receive a monthly ----------- supplemental retirement benefit for services rendered to the Company, the amount of which shall be determined in accordance with this paragraph 5. (b) Amount. The amount of the monthly supplemental retirement benefit ------ payable to the Executive shall be equal to $13,125, which is an amount equal to 1/12th of 35% of Executive's Base Salary of $450,000 in effect on December 31, 1999, and the Executive's "Retirement Date" shall be December 31, 1999. (c) Commencement and Duration. Payment of the Executive's monthly ------------------------- supplemental retirement benefit shall commence as of the first day of the calendar month that begins coincident with or immediately after the date on which the Executive attains age 74. Monthly payments shall continue to be made to the Executive as of the first day of each subsequent month, with the last payment to be made for the month during which Executive's death occurs." 5. Executive Representations. Executive hereby remakes the ------------------------- representations set forth in paragraph 11 of the Employment Agreement, except that all references to "the Agreement" therein shall be deemed to be references to the Agreement as amended hereby. 2 6. Option Vesting After Termination of Employment. Paragraph 2(b)(ii) ---------------------------------------------- of each of the Options is hereby replaced by the following: "(ii) If the Optionee retires from employment with the Company and does not continue to serve as a director of the Company after such retirement, the Optionee's NQOs shall be vested and fully exercisable with respect to that portion of the Optionee's NQOs that were exercisable on the date of the Optionee's retirement (subject to the terms of the Plan) for a period of up to five years after the date of such retirement but in no event after the expiration of the NQO; provided the Optionee does not engage in Competition (as defined in the Plan) during such five year period unless he or she receives written consent to do so from the board of directors of the Company or the Committee. Any portion of the Optionee's NQOs that were not exercisable on the date of such retirement shall expire and be forfeited." Paragraph 2(b) of each of the Options is hereby further amended by adding the following new subparagraph (iv) thereto: "(iv) If the Optionee retires from employment with the Company and continues to serve as a director of the Company after such retirement, the Optionee's NQOs shall continue to vest as set forth in the second sentence of this option grant; provided the Optionee does not engage in Competition (as defined in the Plan) during such vesting period unless he or she receives written consent to do so from the board of directors of the Company or the Committee. If, after the Optionee's retirement from employment with the Company, the Optionee ceases, at any time, to serve as a director of the Company, the Optionee's NQOs shall be vested and fully exercisable with respect to that portion of the Optionee's NQOs that were exercisable on the date the Optionee first ceased to serve as a director (subject to the terms of the Plan) for a period of up to five years after the date of such cessation but in no event after the expiration of the NQO; provided the Optionee does not engage in Competition (as defined in the Plan) during such five year period unless he or she receives written consent to do so from the board of directors of the Company or the Committee. Any portion of the Optionee's NQOs that were not exercisable on the date the Optionee first ceased to serve as a director shall expire and be forfeited." 7. Effect; Entire Agreement. Except as amended by this Amendment, the ------------------------ Employment Agreement and each of the Options remain in full force and effect. The Employment Agreement, each of the Options, and this Amendment constitute the entire agreements between the Parties and supersede any prior understandings, agreements or representations by or between the Parties, written or oral, that may have related in any way to the subject matter hereof. * * * * * 3 IN WITNESS WHEREOF, the Parties have executed this Omnibus Amendment to Warren Hayford's Employment Agreement and Option Agreements as of the date first written above. BWAY CORPORATION By: /s/ Blair Schlossberg --------------------- Its: VP & General Counsel --------------------- EXECUTIVE /s/ Warren J. Hayford -------------------------- Warren J. Hayford 4 EX-10.39 4 EMPLOYMENT AGREEMENT, JPM ERGAS EXHIBIT 10.39 EMPLOYMENT AGREEMENT THIS AGREEMENT is made as of January 1, 2000, between BWAY Corporation, a Delaware corporation (the "Company"), and Jean-Pierre M. Ergas ("Executive"). ------- --------- The Company and Executive are referred to collectively herein as the "Parties" ------- and individually as a "Party". ----- In consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Employment. The Company shall employ Executive, and Executive accepts ---------- employment with the Company, upon the terms and conditions set forth in this Agreement for the period beginning on the date hereof (the "Employment Date") --------------- and ending as provided in Section 4 (the "Employment Period"). ----------------- 2. Position and Duties. During the Employment Period, Executive shall be ------------------- Chief Executive Officer of the Company and shall render such administrative and other executive services to the Company and its Subsidiaries as the Company's board of directors (the "Board") may from time to time direct. Executive shall ----- report directly to the Board and not to any other officer of the Company. During the Employment Period, the Company shall nominate, and use best efforts to re-elect, Executive to serve as a member of the Board and as Chairman of the Board. Executive shall devote his best efforts and his full business time and attention (except for permitted vacation periods and reasonable periods of illness or other incapacity and except for non-executive directorships currently held by Executive as reflected in the Company's Fiscal Year 1998 Proxy Statement or approved by the Board) to the business and affairs of the Company and its Subsidiaries. Executive shall perform his duties and responsibilities to the best of his abilities in a diligent, trustworthy, businesslike and efficient manner. Executive's principal place of employment shall be at the Company's or its Subsidiaries' offices in Winnetka, Illinois, and Executive will not be required to move his principal place of employment more than 25 miles from Chicago without prior written consent. For purposes of this Agreement, "Subsidiaries" shall mean any corporation of which the securities having a ------------ majority of the voting power in electing directors are, at the time of determination, owned by the Company, directly or through one of more Subsidiaries. 3. Base Salary, Bonus and Benefits. ------------------------------- (a) During the Employment Period, Executive's base salary shall be $450,000 per annum or such higher rate as the Board designates from time to time (the "Base Salary"). The Base Salary shall be payable in regular installments in ----------- accordance with the Company's general payroll practices. The Board shall review Executive's performance in January 2002 and at the end of each twenty-four month period thereafter during the Employment Period. Based on such review, the Board may, in its sole discretion, increase or decrease the Base Salary (but not below $450,000). Following the end of each fiscal year during the Employment Period, the Board may award the Executive a bonus for such year based on Executive's performance, the amount of which will be - 1 - determined by the Board in its sole judgment. Executive's "target" under the Company's Officer Incentive Plan shall be fifty percent (50%) of Base Salary with a maximum of one-hundred percent (100%) of Base Salary. For fiscal year 2000, Executive shall receive a bonus under the Officer Incentive Plan equal to one-hundred percent (100%) of his Base Salary allocable to the portion of fiscal year 2000 during which Executive was employed. For fiscal year 2001, Executive's bonus under the Officer Incentive Plan for the first quarter of fiscal year 2001 shall be 100% of Executive's Base Salary allocable to such first quarter and Executive's bonus for the remaining three quarters of fiscal year 2001 shall be as provided for above based on Executive's performance in an amount determined by the Board in its sole judgment. (b) In addition to the Base Salary and any bonuses payable to Executive pursuant to Section 3(a), during the Employment Period Executive shall be entitled to participate in the Company's 1995 Third Amended and Restated Long-Term Incentive Plan (the "Plan") and all of the Company's other employee ---- benefit programs for which senior executive employees of the Company are generally eligible, and Executive shall be entitled to four (4) weeks of paid vacation each year. With regard to the Company's periodic grant of options to officers and key personnel, Executive shall be recommended to the Board to receive a minimum of 36,667 options for each year during the Employment Period commencing in fiscal year 2001. The Board will review Executive's performance each year during the Employment Period prior to the periodic grant of options and, in its discretion, may grant Executive additional options if Executive's performance warrants the grant of additional options. (c) The Company shall reimburse Executive for all reasonable expenses incurred by him in the course of performing his duties under this Agreement which are consistent with the Company's policies in effect from time to time with respect to travel, entertainment and other business expenses, subject to the Company's requirements with respect to reporting and documentation of such expenses. In addition, the Company shall reimburse Executive for Executive's wife purchasing and utilizing five (5) round trip business class tickets to France for each year during the Employment Period. 4. Term. ---- (a) The Employment Period shall end on the third anniversary of the Employment Date; provided that (i) the Employment Period shall terminate prior to such date upon Executive's resignation, death or permanent disability or incapacity (as determined by the Board in its good faith judgment) and (ii) the Employment Period may be terminated by the Company at any time before or after such date for Cause (as defined below) or without Cause. Notwithstanding anything in this Section 4(a) to the contrary, the Employment Period shall continue after the third anniversary of the Employment Date on a year to year basis unless either party hereto provides the other six (6) month's prior written notice of its desire to terminate this Agreement. (b) If the Employment Period is terminated (or deemed terminated under Section 4(e) hereof) by the Company without Cause prior to the third anniversary of the Employment Date, subject to the limitations set forth below, Executive shall be entitled to receive his Base Salary plus (to the extent not otherwise paid) his maximum bonus (100% of Base Salary) in respect of fiscal year - 2 - 2000 and his "target" bonuses in respect of fiscal year 2001 and 2002 (or if his target bonuses have not yet been set for either of such fiscal years, an amount equal to 50% of his Base Salary at the date of termination in lieu of the "target" bonus for either such fiscal year), and health, disability and life insurance benefits, payable until the later of the third anniversary of the Employment Date or the second anniversary of the date of such termination, so long as Executive has not breached in any material respects the provisions of Sections 5, 6 and 7 hereof. In any event, the aggregate payments to Executive on termination (or deemed termination) of the Employment Period by the Company without Cause shall not be less than the sum of his annual Base Salary at the rate in effect at the date of termination, his "target" bonus for the fiscal year in question at the date of termination and one year's health, disability and life insurance benefits. The amounts payable pursuant to this Section 4(b) shall be reduced by the amount of any compensation Executive receives with respect to any other employment during the period in which the Company is making such payments to Executive or, in the event the Employment Period is terminated as a result of Executive's permanent disability or incapacity, by the amount Executive receives with respect to any Company disability policy. Upon request from time to time, Executive shall furnish the Company with a true and complete certificate specifying any such compensation due to or received by him. Executive has no obligation to seek employment during the period that he is receiving compensation pursuant to this Section 4(b). (c) If the Employment Period is terminated by the Company for Cause or is terminated pursuant to clause 4 (a) (i) above, Executive shall be entitled to receive his Base Salary through the date of termination. (d) Except as provided in Section 4(b), 11 (to the extent due and payable by the Company pursuant to the terms hereof) and 12 (to the extent due and payable by the Company pursuant to the terms hereof), all of Executive's rights to fringe benefits and bonuses hereunder (if any) accruing after the termination of the Employment Period shall cease upon such termination, except for benefits required by United States law. (e) Notwithstanding anything in Section 4(c) to the contrary, the Company shall be deemed to have terminated the Employment Period without Cause in the event that (i) Executive is no longer Chief Executive Officer or is asked to report other than directly to the Board, (ii) Executive resigns as a result of any other material breach of this Agreement by the Company which is not cured by the Company within 30 days after Executive delivers written notice of such breach to the Board and General Counsel, (iii) the Company terminates the Employment Period as a result of the permanent disability or incapacity of Executive pursuant to 4(a) (i) above, or (iv) the shareholders of the Company fail to elect (or remove) Executive as a member of the Board during the Employment Period or the Board fails to elect (or removes) Executive as Chairman of the Board during the Employment Period. After a Change in Control, if the Company terminates the Employment Period for any reason, such termination shall be deemed to be a termination by the Company without Cause. (f) "Cause" shall mean (i) a material breach of this Agreement by ----- Executive, (ii) the conviction of the Executive by a court of competent jurisdiction of a felony or a crime involving moral turpitude, (iii) conduct which, if known to the general public, would likely bring the Company - 3 - or any of its Subsidiaries into substantial public disgrace or disrepute, (iv) substantial and repeated failure to perform duties as reasonably directed by the Board or (v) gross negligence or willful misconduct with respect to the Company or any of its Subsidiaries. "Change in Control" shall occur upon (x) the ----------------- acquisition by any person or group of persons (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (the "Exchange Act")), other than Warren J. Hayford ------------ and his affiliates and associates, of more than thirty-five percent (35%) of the Company's Common Stock, (y) the election of a majority of directors to the Board that were not recommended to the stockholders by the Board, or (z) the sale of a majority of the assets of the Company and its Subsidiaries taken as a whole not approved or agreed to by Executive. 5. Confidential Information. Executive acknowledges that the information, ------------------------ observations and data obtained by him while employed by the Company concerning the business or affairs of the Company or any Subsidiary ("Confidential ------------ Information") are the property of the Company or such Subsidiary. Therefore, - ----------- Executive agrees that he shall not disclose to any unauthorized person or use for his own account any Confidential Information without the prior written consent of the Board, unless and to the extent that the aforementioned matters become generally known to and available for use by the public other than as a result of Executive's acts or omissions to act. Nothing herein shall prevent Executive from making (i) any disclosure that is required by applicable law or the order of a court of competent jurisdiction, or (ii) any disclosure, in good faith, to properly fulfill Executive's duties under this Agreement (including, but not limited to, in connection with treasury and investor relations functions). Executive shall deliver to the Company at the termination of the Employment Period, or at any other time the Company may request, all memoranda, notes, plans, records, reports, computer tapes and software and other documents and data (and copies thereof) relating to the Confidential Information, Work Product or the business of the Company or any Subsidiary which he may then possess or have under his control. 6. Inventions and Patents. Executive agrees that all inventions, ---------------------- innovations, improvements, developments, methods, designs, analyses, drawings, reports, and all similar or related information which relates to the Company's or any of its Subsidiaries' actual or anticipated business, research and development or existing or future products or services and which are conceived, developed or made by Executive while employed by the Company ("Work Product") ------------ belong to the Company or such Subsidiary. Executive shall promptly disclose such Work Product to the Board and perform all actions reasonably requested by the Board (whether during or after the Employment Period) to establish and confirm such ownership (including, without limitation, assignments, consents, powers of attorney and other instruments). 7. Non-Compete, Non-Solicitation. ----------------------------- (a) Executive acknowledges that in the course of his employment with the Company he will become familiar with the Company's and it Subsidiaries' trade secrets and with other Confidential Information concerning the Company and the Subsidiaries and that his services will be of special, unique and extraordinary value to the Company and the Subsidiaries. Therefore, Executive agrees that, during the Employment Period and during the period that Executive is receiving compensation pursuant to Section 4(b) (but in no event for a period of less than eighteen - 4 - months after the termination of the Employment Period, whether or not Executive is receiving compensation pursuant to Section 4(b) (the "Noncompete Period"), he ----------------- shall not directly or indirectly own, manage, control, participate in, consult with, render services for, or in any manner engage in any business competing with the businesses of the Company or its Subsidiaries as such businesses exist or are in process on the date of the termination of Executive's employment, within any geographical area in which the Company or its Subsidiaries engage or plan to engage in such businesses. Nothing herein shall prohibit Executive from being a passive owner of not more than 2% of the outstanding stock of any class of a corporation which is publicly traded, so long as Executive has no active participation in the business of such corporation. (b) During the Noncompete Period, Executive shall not directly or indirectly (i) induce or attempt to induce any management or professional level employee of the Company or any Subsidiary to leave the employ of the Company or such Subsidiary, or in any way interfere with the relationship between the Company or any Subsidiary and any such employee thereof, (ii) hire any person who was such an employee of the Company or any Subsidiary at any time during the Employment Period, or (iii) induce or attempt to induce any customer, supplier, licensee or other business relation of the Company or any Subsidiary to cease doing business with the Company or such Subsidiary, or in any way interfere with the relationship between any such customer, supplier, licensee or business relation and the Company or any Subsidiary. 8. Enforcement. If, at the time of enforcement of Section 5, 6 or 7, a ----------- court holds that the restrictions stated herein are unreasonable under circumstances then existing, the Parties agree that the maximum period, scope or geographical area reasonable under such circumstances shall be substituted for the stated period, scope or area. Because Executive's services are unique and because Executive has access to Confidential Information and Work Product, the Parties agree that money damages would be an inadequate remedy for any breach of this Agreement. Therefore, in the event of a breach or threatened breach of this Agreement, the Company or its successors or assigns may, in addition to other rights and remedies existing in their favor, apply to any court of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce, or prevent any violations of, the provisions hereof (without posting a bond or other security). 9. Executive Representations. Executive hereby represents and warrants to ------------------------- the Company that (i) the execution, delivery and performance of this Agreement by Executive does not and will not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which Executive is a party or by which he is bound, (ii) Executive is not a party to or bound by any employment agreement, noncompete agreement or confidentiality agreement with any other person or entity and (iii) upon the execution and delivery of this Agreement by the Company, this Agreement shall be the valid and binding obligation of Executive, enforceable in accordance with its terms. 10. Indemnification of Executive. The Company shall indemnify and hold ---------------------------- harmless Executive from all losses and claims incurred in connection with any actions taken by Executive in his capacity as an officer or director of the Company or any of its Subsidiaries in accordance with, and to the fullest extent permitted under, Delaware General Corporation Law as in effect from time to time. - 5 - 11. Supplemental Retirement Benefit ------------------------------- (a) Eligibility. If the Executive's employment by the Company terminates ----------- after the first anniversary of the Employment Date for any reason other than for Cause (the effective date of such termination hereinafter referred to as the Executive's "Retirement Date") and Executive fully complies with Sections 7(a) --------------- and 7(b) hereof, the Executive shall be entitled to receive a monthly supplemental retirement benefit for services rendered to the Company, the amount of which shall be determined in accordance with this Section 11. (b) Amount. The amount of the monthly supplemental retirement benefit ------ payable to the Executive shall be equal to the sum obtained by multiplying one hundred fifteen and 74/100 dollars ($115.74) by the number of months of the Employment Period up to a maximum of four thousand one hundred sixty-six and 67/100 dollars ($4,166.67) (the "Monthly Retirement Payment"). -------------------------- (c) Commencement and Duration. Payment of the Executive's monthly ------------------------- supplemental retirement benefit shall commence as of the first day of the calendar month that begins coincident with or immediately after the date on which the Executive attains the age of 65. Monthly payments shall continue to be made to the Executive as of the first day of each subsequent month, with the last payment to be made for the month during which the Executive's death occurs. 12. Surviving Spouse Benefit ------------------------ (a) Eligibility. In the event the Executive's current spouse survives the ----------- Executive (the "Surviving Spouse"), she shall be entitled to receive a monthly ---------------- death benefit as described in this Section 12. (b) Amount. The amount of the monthly death benefit payable to the ------ Surviving Spouse shall be equal to fifty percent (50%) of the Monthly Retirement Payment that the Executive was receiving (if any) at the time of his death under Section 11. (c) Commencement and Duration. Payment of the Surviving Spouse's monthly ------------------------- death benefit shall commence as of the first day of the calendar month that begins immediately after Executive's date of death. Monthly payments shall continue to be made to the Surviving Spouse as of the first day of each subsequent month, with the last payment to be made for the month during which the Surviving Spouse's death occurs. 13. General Provisions. ------------------ (a) Notices. All notices, requests, demands, claims, and other ------- communications hereunder shall be in writing. Any notice, request, demand, claim or other communication hereunder shall be deemed duly given when delivered personally to the recipient, telecopied to the intended recipient at the telecopy number set forth therefor below, or sent to the recipient by reputable express courier service (charges prepaid) and addressed to the intended recipient as set forth below: - 6 - If to the Company: - ----------------- BWAY Corporation 8607 Roberts Drive, Suite 250 Atlanta, Georgia 30350 Telephone: 770/645-4829 Attention: General Counsel If to Executive: - --------------- Mr. Jean-Pierre Ergas 1100 N. Lake Shore Drive, Apartment 34-B Chicago, IL 60611 Telephone: 312/649-9460 Any Party may send any notice, request, demand, claim or other communication hereunder to the intended recipient at the address set forth above using any other means, but no such notice, request, demand, claim or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient. Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Party notice in the manner herein set forth. (b) Legal and Accounting Fees. The Company shall pay or reimburse Executive ------------------------- for all of Executive's reasonable and actual legal and accounting fees and disbursements in connection with the negotiation and preparation of this Agreement. (c) Severability. Whenever possible, each provision of this Agreement shall ------------ be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. (d) Entire Agreement. This Agreement (including the documents referred to ---------------- herein) constitutes the entire agreement between the Parties and supersedes any prior understandings, agreements or representations by or between the Parties, written or oral, that may have related in any way to the subject matter hereof. (e) Counterparts. This Agreement may be executed in separate counterparts, ------------ each of which is deemed to be an original and all of which taken together constitute one and the same agreement. (f) Successors and Assigns. Except as otherwise provided herein, this ---------------------- Agreement shall bind and inure to the benefit of and be enforceable by Executive, the Company and their respective successors, heirs, executors, administrators and assigns; provided that the rights and - 7 - obligations of Executive under this Agreement shall not be assignable without the prior written consent of the Company. (g) Choice of Law. All questions concerning the construction, ------------- validity and interpretation of this Agreement shall be governed by and construed in accordance with the domestic laws of the State of Illinois without giving effect to any choice or conflict of law provision or rule (whether of the State of Illinois or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Illinois. (h) Amendment and Waiver. The provisions of this Agreement may be -------------------- amended and waived only with the prior written consent of the Company and Executive. (i) Survival. Sections 5, 6, 7, 8, 10, 11, 12 and 13 shall survive -------- and continue in full force in accordance with their terms notwithstanding any termination of the Employment Period. (j) Arbitration. Executive shall execute the Company's form ----------- arbitration agreement. IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first written above. BWAY CORPORATION By /s/ Warren J. Hayford ----------------------------------- Its Chairman ---------------------------------- J. P. ERGAS ------------------------------------- Executive Sept. 09, 1999 - 8 - EX-10.40 5 THIRD 1995 LONG-TERM INCENTIVE PLAN EXHIBIT 10.40 BWAY CORPORATION THIRD AMENDED AND RESTATED 1995 LONG-TERM INCENTIVE PLAN ----------------------------- Recitals -------- This third amendment amends and restates the Amended and Restated 1995 Long-Term Incentive Plan established in June 1995 and amended in August 1996 and November 1997 to increase the aggregate number of shares of common stock that may be issued under this Plan to 1,825,000 shares. 1. Purpose. ------- This plan shall be known as the BWAY Corporation Third Amended and Restated 1995 Long-Term Incentive Plan (the "Plan"). The purpose of the Plan shall be to promote the long-term growth and profitability of BWAY Corporation (the "Company") and its subsidiaries by (i) providing certain directors, officers, employees and consultants of the Company and its subsidiaries with incentives to maximize stockholder value and otherwise contribute to the success of the Company and (ii) enabling the Company to attract, retain and reward the best available persons for positions of substantial responsibility. Grants of incentive or nonqualified stock options, stock appreciation rights ("SARs") in tandem with options, restricted stock, performance awards, or any combination of the foregoing may be made under the Plan. 2. Definitions. ----------- (a) "Board of Directors" and "Board" mean the board of directors of BWAY ------------------ Corporation. (b) "Cause" means the occurrence of one of the following events: ----- (i) Conviction of a felony or any crime or offense lesser than a felony involving the property of the Company or a subsidiary; or (ii) Conduct that has caused demonstrable and serious injury to the Company or a subsidiary, monetary or otherwise; or (iii) Willful refusal to perform or substantial disregard of duties properly assigned, as determined by the Company. -1- (c) "Change in Control" means the occurrence of one of the following ----------------- events: (i) if any "person" or "group" as those terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), other than an Exempt Person, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities; or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director whose election by the Board or nomination for election by the Company's stockholders was approved by at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election was previously so approved, cease for any reason to constitute a majority thereof; or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in all or a portion of the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets, other than a sale to an Exempt Person. (d) "Code" means the Internal Revenue Code of 1986, as amended. ---- (e) "Committee" means the compensation committee of the Board. The --------- membership of the Committee shall be constituted so as to comply at all times with the applicable requirements of Rule 16b-3 under the Exchange Act and Section 162(m) of the Code. (f) "Competition" is deemed to occur if a person whose employment with the ----------- Company or its subsidiaries has terminated obtains a position as a full time or part-time -2- employee of, as a member of the board of directors of, or as a consultant or advisor with or to, or acquires an ownership interest in excess of 5% of, a corporation, partnership, firm or other entity that engages in any of the businesses of the Company or any subsidiary with which the person was involved in a management role at any time during his or her last five years of employment with the Company or any subsidiary. (g) "Disability" means a permanent and total disability as defined in the ---------- Company's Long-Term Disability Plan or as otherwise approved by the Committee. (h) "Exchange Act" means the Securities Exchange Act of 1934, as amended. ------------ (i) "Exempt Person" means (i) the Chairman of the Company on the effective ------------- date of this Plan, (ii) any person who owns 15% or more of the outstanding shares of Common Stock on the effective date of this Plan, (iii) any person (or group of related persons) that becomes the owner of 15% or more of the outstanding shares of Common Stock as a result of a gift or bequest from a person included in (i) or (ii) above, (iv) any person, entity or group under the control of any party included in clause (i), (ii) or (iii), and (v) a trustee or other fiduciary holding securities under an employee benefit plan of the Company. (j) "Fair Market Value" of a share of Common Stock of the Company means, ----------------- with respect to the date in question, the officially-quoted closing selling price of the stock on the Nasdaq National Market (the "Market") or if the Common Stock is not listed or quoted in the Market, the Fair Market Value shall be the fair value of the Common Stock determined in good faith by the Board; provided, however, that when shares received upon exercise of an option are immediately sold in the open market, the net sale price received may be used to determine the Fair Market Value of any shares used to pay the exercise price or withholding taxes and to compute the withholding taxes. (k) "Incentive Stock Option" means an option conforming to the requirements ---------------------- of Section 422 of the Code. (l) "Non-Employee Director" has the meaning given to such term in Rule --------------------- 16b-3 under the Exchange Act. (m) "Nonqualified Stock Option" means any stock option other than an ------------------------- Incentive Stock Option. -3- (n) "Retirement" means retirement as defined under the Company's Pension ---------- Plan or termination of one's employment on retirement with the approval of the Committee. (o) "Subsidiary" means a corporation or other entity of which outstanding ---------- shares or ownership interest representing 50% or more of the combined voting power of such corporation or other entity are owned directly or indirectly by the Company. 3. Administration. -------------- The Plan shall be administered by the Committee. The Committee shall consist of at least two Non-Employee Directors. Subject to the provisions of the Plan, the Committee shall be authorized to (i) select persons to participate in the Plan, (ii) determine the form and substance of grants made under the Plan to each participant, and the conditions and restrictions, if any, subject to which such grants will be made, (iii) interpret the Plan and (iv) adopt, amend, or rescind such rules and regulations for carrying out the Plan as it may deem appropriate. Decisions of the Committee on all matters relating to the Plan shall be in the Committee's sole discretion and shall be conclusive and binding on all parties. The validity, construction, and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with applicable federal and state laws and rules and regulations promulgated pursuant thereto. 4. Shares Available for the Plan. ------------------------------ Subject to adjustments as provided in Section 15, an aggregate of 1,825,000 shares of Common Stock, par value $.01 per share, of the Company (hereinafter the "Shares") may be issued pursuant to the Plan. Such Shares may be in whole or in part authorized and unissued, or shares which have been reacquired by the Company and held as treasury shares. If any grant under the Plan expires or terminates unexercised, becomes unexercisable or is forfeited as to any Shares, such unpurchased or forfeited Shares shall thereafter be available for further grants under the Plan unless, in the case of options granted under the Plan, related SARs are exercised. Without limiting the generality of the foregoing provisions of this Section 4 or the generality of the provisions of Sections 3, 6 or 17 or any other section of this Plan, the Committee may, at any time or from time to time, and on such terms and conditions (that are consistent -4- with and not in contravention of the other provisions of this Plan) as the Committee may, in its sole discretion, determine, enter into agreements (or take other actions with respect to the options) for new options containing terms (including exercise prices) more (or less) favorable than the outstanding options. 5. Participation. ------------- Participation in the Plan shall be limited to those directors (including Non-Employee Directors) and officers, employees and consultants of the Company and its Subsidiaries selected by the Committee. Nothing in the Plan or in any grant thereunder shall confer any right on an employee to continue in the employ of the Company or shall interfere in any way with the right of the Company to terminate an employee at any time. Incentive Stock Options or Nonqualified Stock Options, SARs in tandem with options, restricted stock awards, performance awards, or any combination thereof, may be granted to such persons and for such number of Shares as the Committee shall determine (such individuals to whom grants are made being sometimes herein called "optionees" or "grantees" as the case may be). A grant of any type made hereunder in any one year to an eligible employee shall neither guarantee nor preclude a further grant of that or any other type to such employee in that year or subsequent years. 6. Incentive and Nonqualified Options. ---------------------------------- The Committee may from time to time grant to eligible participants Incentive Stock Options, Nonqualified Stock Options, or any combination thereof. In any one calendar year, the Committee shall not grant to any one participant, options to purchase a number of shares of Common Stock in excess of 375,000. The options granted shall take such form as the Committee shall determine, subject to the following terms and conditions. (a) Price. The price per Share deliverable upon the exercise of each option ----- ("exercise price") shall be established by the Committee, except that in the case of the grant of any Incentive Stock Option, the exercise price may not be less than 100% of the Fair Market Value of the Shares at the close of the market on the day next preceding grant of the option unless otherwise permitted by Section 422 of the Code. In the case of the grant of any Incentive Stock Option to an employee who, at the time of the grant, owns -5- more than 10% of the total combined voting power of all classes of stock of the Company or any of its Subsidiaries, such price per Share, if required by the Code, shall not be less that 110% of the Fair Market Value of the Shares at the close of the market on the day next preceding grant of the option. (b) Payment. Options may be exercised in whole or in part, upon payment of ------- the exercise price of the Shares to be acquired. Payment shall be made in cash (including check, bank draft or money order) or, in the discretion of the Committee, (i) in cash and/or shares of Common Stock and/or by delivery of the optionee's promissory note (if in accordance with policies approved by the Committee), or (ii) by special arrangement through a broker selected by the Committee. The fair market value of shares of Common Stock tendered on exercise of options shall be the Fair Market Value of such shares as of the close of the market on the day next preceding exercise of the option. (c) Withholding Tax. Unless otherwise determined by the Committee, a --------------- participant may elect to deliver shares of Common Stock (or have the company withhold shares acquired upon exercise of the option) to satisfy in whole or in part, the amount the Company is required to withhold for taxes in connection with the exercise of an option. Such election must be made on or before the date the amount of tax to be withheld is determined. Once made, the election shall be irrevocable. The fair market value of the shares to be withheld or delivered will be the Fair Market Value as of the close of the market on the day next preceding the date the amount of tax to be withheld is determined. (d) Terms of Options. The term during which each option may be exercised ---------------- shall be determined by the Committee, but, except as otherwise provided herein, in no event shall an option be exercisable in whole or in part in the case of a Nonqualified Stock Option, more than ten years and one day from the date it is granted or, in the case of an Incentive Stock Option, ten years from the date it is granted; and, in the case of the grant of an Incentive Stock Option to an employee who at the time of the grant owns more than 10% of the total combined voting power of all classes of stock of the Company or any of its Subsidiaries, in no event shall such option be exercisable, if required by the Code, more than five years from the date of the grant. All rights to purchase shares pursuant to an option shall, unless sooner terminated, expire at the date designated by the Committee. The Committee shall determine the date on which each option shall become exercisable and may provide -6- that an option shall become exercisable in installments. The shares constituting each installment may be purchased in whole or in part at any time after such installment becomes exercisable, subject to such minimum exercise requirements as are designated by the Committee. Unless otherwise provided herein or in the terms of the related grant, an optionee may exercise an option only if he or she is, and has been continuously since the date the option was granted, a director, officer or employee of the Company or a Subsidiary. Prior to the exercise of the option and delivery of the Shares represented thereby, the optionee shall have no right to any dividends or be entitled to any voting rights on any Shares covered by outstanding options. (e) Limitations on Grants. If required by the Code, the aggregate Fair --------------------- Market Value (determined as of the grant date) of Shares for which an Incentive Stock Option is exercisable for the first time during any calendar year may not exceed $100,000. (f) Termination of Employment; Change in Control. -------------------------------------------- (i) If a participant ceases to be a director, officer or employee of the Company or any Subsidiary due to death or Disability, all of the participant's options, and SARs shall become fully vested and exercisable and shall remain so for a period of one year from the date of termination of employment, but in no event after the expiration date of the option. Notwithstanding the foregoing, if the Disability giving rise to the termination of employment is not within the meaning of Section 422(e)(3) of the Code, Incentive Stock Options not exercised by such participant within 90 days after the date of termination of employment will cease to qualify as Incentive Stock Options and will be treated as Nonqualified Stock Options under the Plan if required to be so treated under the Code. (ii) If a participant ceases to be a director, officer or employee of the Company or a Subsidiary upon the occurrence of his or her Retirement, (A) each of his or her options and SARs that was exercisable on the date of Retirement shall remain exercisable for, and shall otherwise terminate at the end of, a period of up to five years after the date of Retirement, but in no event after the expiration date of the option; provided that the participant does not engage in Competition during such five-year period unless he or she receives written consent to do so from the Board or the Committee, and (B) all of the participant's options and SARs that were not exercisable on the date of Retirement shall be forfeited immediately upon such cessation. -7- Notwithstanding the foregoing, Incentive Stock Options not exercised by such participant within 90 days after Retirement will cease to qualify as Incentive Stock Options and will be treated as Nonqualified Stock Options under the Plan if required to be so treated under the Code. (iii) If a participant ceases to be a director, officer or employee of the Company or a Subsidiary due to Cause, all of his or her options and SARs shall be forfeited immediately upon such cessation. (iv) Unless otherwise determined by the Committee, if a participant ceases to be an employee of the Company or a Subsidiary for any reason other than death, Disability, Retirement or Cause, (A) each of his or her options and SARs that was exercisable on the date of termination shall remain exercisable for, and shall otherwise terminate at the end of, a period of 90 days after the date of termination of employment, but in no event after the expiration date of the option; provided that participant does not engage in Competition during such 90-day period unless he or she receives written consent to do so from the Board or the Committee, and (B) all of the participant's options and SARs that were not exercisable on the date of such termination shall be forfeited. (v) If there is a Change in Control of the Company, all of the participant's options and SARs shall become fully vested and exercisable. 7. Stock Appreciation Rights. ------------------------- The Committee shall have the authority to grant SARs under this Plan to any optionee, either at the time of grant of an option or thereafter by amendment to an option. The exercise of an option shall result in an immediate forfeiture of its related SAR to the extent the option is exercised, and the exercise of an SAR shall cause an immediate forfeiture of its related option to the extent the SAR is exercised. SARs shall be subject to such other terms and conditions as the Committee may specify. An SAR shall expire at the same time as the related option expires and shall be transferable only when, and under the same conditions as, the related option is transferable. SARs shall be exercisable only when, to the extent and on the conditions that the related option is exercisable. No SAR may be exercised unless the Fair Market Value of a share of Common Stock of the Company on the date of exercise -8- exceeds the exercise price of the option to which the SAR corresponds. Upon the exercise of an SAR, the optionee shall be entitled to a distribution in an amount equal to the difference between the Fair Market Value of a share of Common Stock of the Company on the date of exercise and the exercise price of the option to which the SAR is related multiplied by the number of Shares as to which the SAR is exercised. The Committee shall decide whether such distribution shall be in cash, in shares, or in a combination thereof. All SARs will be exercised automatically on the last day prior to the expiration date of the related option, so long as the Fair Market Value of a share of the Company's Common Stock on that date exceeds the exercise price of the related option. 8. Restricted Stock. ---------------- The Committee may at any time and from time to time grant Shares of restricted stock under the Plan to such participants and in such amounts as it determines. Each grant of restricted stock shall specify the applicable restrictions on such Shares, the duration of such restrictions (which shall be at least one year), and the time or times at which such restrictions shall lapse with respect to all or a specified number of Shares that are part of the grant. The participant will be required to deposit Shares with the Company during any period of restriction thereon and to execute a blank stock power therefor. Except as otherwise provided by the Committee, during such period of restriction the participant shall have all of the rights of a holder of Common Stock, including but not limited to the rights to receive dividends (or amounts equivalent to dividends) and to vote. Except as otherwise provided by the Committee, on a Change in Control or on termination of a grantee's employment due to death, Disability or Retirement with the consent of the Company during any period of restriction all restrictions on Shares granted to such grantee shall lapse. On termination of a grantee's employment for any other reason, all restricted stock granted to such grantee on which the restrictions have not lapsed shall be forfeited to the Company. -9- 9. Performance Awards. ------------------ Performance awards may be granted on a contingent basis to participants at any time and from time to time as determined by the Committee. The Committee shall have complete discretion in determining the size and composition of performance awards so granted to a participant and the appropriate period over which performance is to be measured ("performance cycle"). Performance awards may include (i) specific dollar-value target awards (ii) performance units, the value of each such unit being determined by the Committee at the time of issuance, and/or (iii) performance Shares, the value of each such Share being equal to the Fair Market Value of a share of the Company's Common Stock. The value of each performance award may be fixed or it may be permitted to fluctuate based on a performance factor (e.g., return on equity) selected by the Committee. The Committee shall establish performance goals and objectives for each performance cycle on the basis of such criteria and objectives as the Committee may select from time to time. During any performance cycle, the Committee shall have the authority to adjust the performance goals and objectives for such cycle for such reasons as it deems equitable. The Committee shall determine the portion of each performance award that is earned by a participant on the basis of the Company's performance over the performance cycle in relation to the performance goals for such cycle. The earned portion of a performance award may be paid out in Shares, cash, or a combination of both, as the Committee may determine. A participant must be an employee of the Company at the end of the performance cycle in order to be entitled to payment of a performance award issued in respect of such cycle; provided, however, that, except as otherwise determined by the Committee, if a participant ceases to be an employee of the Company upon the occurrence of his or her death, Retirement, or Disability prior to the end of the performance cycle, the participant shall earn a proportionate portion of the performance award based upon the elapsed portion of the performance cycle and the Company's performance over that portion of such cycle. In the event of a Change in Control, a participant shall earn no less than the portion of the performance award that the participant would have earned if the performance -10- cycle(s) had terminated as of the date of the Change in Control. 10. Withholding Taxes. ----------------- The Company may require, as a condition to any grant or exercise under the Plan or to the delivery of certificates for Shares issued hereunder, that the grantee pay to the Company, in cash, any federal, state or local taxes of any kind required by law to be withheld with respect to any grant or any delivery of Shares. The Company, to the extent permitted or required by law, shall have the right to deduct from any payment of any kind (including salary or bonus) otherwise due to a grantee any federal, state or local taxes of any kind required by law to be withheld with respect to any grant or to the delivery of Shares under the Plan, or to retain or sell without notice a sufficient number of the Shares to be issued to such grantee to cover any such taxes, provided that the Company shall not sell any such Shares if such sale would be considered a sale by such grantee for purposes of Section 16 of the Exchange Act that is not exempt from matching thereunder. 11. Written Agreement; Vesting. -------------------------- Each employee to whom a grant is made under the Plan shall enter into a written agreement with the Company that shall contain such provisions, including without limitation vesting requirements, consistent with the provisions of the Plan, as may be approved by the Committee. Unless the Committee determines otherwise, no grant under this Plan may be exercised within six months of the date such grant is made. -11- 12. Transferability. --------------- Except as set forth in the next sentence of this Section 12, and unless the agreement pursuant to which a grant is made provides otherwise, an option, tandem SAR, performance award, or restricted stock granted under the Plan shall not be transferable by an employee other than by operation of a death beneficiary designation made by the employee in accordance with rules established by the Committee, by will or the applicable laws of descent and distribution and shall be exercisable during the employee's lifetime only by him or her or his or her guardian or legal representative if the employee is legally incompetent. Notwithstanding the foregoing, except to the extent that it would cause the Plan to fail to meet the conditions required to be met under Rule 16b- 3 under the Exchange Act, the Committee shall have the power and authority to provide, as a term of any Nonqualified Stock Option granted under the Plan, that such Nonqualified Stock Option may be transferred without consideration by the Non-Employee Director or the optionee, as applicable, to a member or members of his or her immediate family (i.e., a child, children, grandchild, grandchildren or spouse) and/or to a trust or trusts for the benefit of an immediate family member or family members. 13. Listing and Registration. ------------------------ If the Committee determines that the listing, registration or qualification upon any securities exchange or under any law of Shares subject to any option, SAR, performance award, or restricted stock grant is necessary or desirable as a condition of, or in connection with, the granting of same or the issue or purchase of Shares thereunder, no such option or SAR may be exercised in whole or in part, no such performance award paid out and no Shares issued unless such listing, registration or qualification is effected free of any conditions not acceptable to the Committee. 14. Transfer of Employee. -------------------- Transfer of an employee from the Company to a Subsidiary, from a Subsidiary to the Company, and from one Subsidiary to another shall not be considered a termination of employment; nor shall it be considered a termination of employment if an employee is placed on military or sick leave or such other leave of absence which is considered by the Committee as continuing intact the employment relationship. -12- 15. Adjustments. ----------- In the event of a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, distribution of assets, or any other change in the corporate structure or shares of the Company, the Committee shall make such adjustment as it deems appropriate in the number and kind of Shares or other property reserved for issuance under the Plan, in the number and kind of Shares or other property covered by grants made under the Plan, and in the exercise price of outstanding options. In the event of any merger, consolidation or other reorganization in which the Company is not the surviving or continuing corporation or in which a Change in Control is to occur, all of the Company's obligations regarding options, SARs performance awards, and restricted stock that were granted hereunder and that are outstanding on the date of such event shall, on such terms as may be approved by the Committee prior to such event, be assumed by the surviving or continuing corporation or canceled in exchange for property (including cash). 16. Termination and Modification of the Plan. ---------------------------------------- The Board of Directors, without further approval of the stockholders, may modify or terminate the Plan, except that no modification shall become effective without prior approval of the stockholders of the Company if stockholder approval would be required for continued compliance with the performance-based compensation exception of Section 162(m) of the Code. -13- 17. Amendment or Substitution of Awards under the Plan. -------------------------------------------------- The terms of any outstanding award under the Plan may be amended from time to time by the Committee in its discretion in any manner that it deems appropriate (including, but not limited to, acceleration of the date of exercise of any award and/or payments thereunder); provided that no such amendment shall adversely affect in a material manner any right of a participant under the award without his written consent, unless the Committee determines in its discretion that there have occurred or are about to occur significant changes in the participant's position, duties or responsibilities, or significant changes in economic, legislative, regulatory, tax, accounting or cost/benefit conditions which are determined by the Committee in its discretion to have or to be expected to have a substantial effect on the performance of the Company, or any subsidiary, affiliate, division or department thereof, on the Plan or on any award under the Plan. However, the Committee may not reduce the exercise price of an outstanding option. The Committee may, in its discretion, permit holders of awards under the Plan to surrender outstanding awards in order to exercise or realize rights under other awards, or in exchange for the grant of new awards, or require holders of awards to surrender outstanding awards as a condition precedent to the grant of new awards under the Plan. The Committee may amend or modify the grant of any outstanding option, tandem SAR, performance award, or restricted stock in any manner to the extent that the Committee would have had the authority to make such grant as so modified or amended, including without limitation to change the date or dates as of which (i) an option or SAR becomes exercisable, (ii) a performance award is to be determined or paid, or (iii) restrictions on Shares are to be removed. No modification may be made that would materially adversely affect any grant previously made under the Plan without the approval of the grantee. The Committee shall be authorized to make minor or administrative modifications to the Plan as well as modifications to the Plan that may be dictated by requirements of federal or state laws applicable to the Company or that may be authorized or made desirable by such laws. -14- 18. Commencement Date; Termination Date. ----------------------------------- The Board and the stockholders initially approved the Plan as of June, 1995. In August 1996, the Board approved an amendment and restatement of the Plan, which the stockholders approved in February 1997. In November 1997, the Board approved a second amendment and restatement of the Plan, which the stockholders approved in February 1998. In November 1998, the Board approved a third amendment and restatement of the Plan. Unless previously terminated upon the adoption of a resolution of the Board terminating the Plan, the Plan shall terminate at the close of business on May 31, 2005. No termination of the Plan shall materially and adversely affect any of the rights or obligations of any person, without his consent, under any grant of options or other incentives theretofore granted under the Plan. -15- STOCK OPTION PLAN PROPOSAL Term The Plan will terminate on May 31, 2005 unless sooner terminated by the Board. Termination of the Plan will not affect grants made prior to termination, but no grants will be made after termination. Administration The Plan is administered by the Committee. Subject to the terms of the Plan, the Committee has authority to (i) select employees to participate in the Plan, (ii) determine the form of grants and the conditions and restrictions, if any, subject to which grants will be made and become payable under the Plan, (iii) construe and interpret the Plan, and (iv) adopt, amend or rescind such rules and regulations and make such other determinations for carrying out the Plan, as the Committee deems necessary or appropriate. Eligibility Directors, officers, employees and consultants of the Company and its subsidiaries selected by the Committee may participate in the Plan. Selection for participation with respect to one form of award under the Plan does not automatically result in selection for participation with respect to other forms of awards under the Plan unless such result is specified by the Committee or by the terms of the Plan. -16- EX-10.41 6 LEASE AGREEMENT, CRICBW ANDERSON TRUST EXHIBIT 10.41 LEASE AGREEMENT between CRICBW ANDERSON TRUST, a Delaware business trust, as Lessor and MILTON CAN COMPANY, INC., a Delaware corporation, as Lessee Dated as of August 20, 1999 TABLE OF CONTENTS 1. Demise; Title: Condition ................................................ 1 ------------------------ 2. Term .................................................................... 2 ---- 3. Rent .................................................................... 2 ---- 4. Use ..................................................................... 3 --- 5. Net Lease: Nonterminability ............................................. 4 --------------------------- 6. Taxes and Other Charges; Law and Agreements ............................. 6 ------------------------------------------- 7. Liens; Subordinations ................................................... 8 --------------------- 8. Indemnification; Fees and Expenses ..................................... 10 ---------------------------------- 9. Environmental Matters .................................................. 11 --------------------- 10. Maintenance and Repair; Additions ...................................... 16 --------------------------------- 11. Trade Fixtures ......................................................... 19 -------------- 12. Condemnation and Casualty .............................................. 20 ------------------------- 13. Insurance .............................................................. 23 --------- 14. Financial Statements; Certificates ..................................... 27 ---------------------------------- 15. Purchase Procedure ..................................................... 28 ------------------ 16. Quiet Enjoyment ........................................................ 29 --------------- 17. Survival ............................................................... 29 -------- 18. Subletting; Assignment ................................................. 29 ---------------------- 19. Advances by Lessor ..................................................... 30 ------------------ 20. Conditional Limitations - Events of De Fault and Remedies .............. 30 --------------------------------------------------------- 21. Granting of Easements, Etc. ............................................ 34 --------------------------- i 22. Intentionally Omitted/Not Applicable ................................... 34 ------------------------------------ 23. Rent Reset ............................................................. 34 ---------- 24. Notices ................................................................ 38 ------- 25. Estoppel Certificates .................................................. 39 --------------------- 26. No Merger .............................................................. 39 --------- 27. Surrender .............................................................. 39 --------- 28. Separability ........................................................... 40 ------------ 29. Signs; Showing ......................................................... 40 -------------- 30. Waiver of Trial by Jury ................................................ 40 ----------------------- 31. Recording .............................................................. 40 --------- 32. Miscellaneous .......................................................... 40 ------------- 33. Additional Provisions Relating to Leased Property ...................... 41 ------------------------------------------------- APPENDIX I Definitions SCHEDULE A Description of Leased Property SCHEDULE B Lease Data SCHEDULE C Termination Values; Reinvestment Premium SCHEDULE D Permitted Encumbrances SCHEDULE E Trade Fixtures SCHEDULE F Subordination, Non-Disturbance and Attornment Agreement SCHEDULE G Estoppel Letter SCHEDULE H Market Rent SCHEDULE I Scheduled Capital Improvements ii THIS LEASE, dated as of the date specified in Item 1 of Schedule B (as amended from time to time, this Lease), is made between the Lessor specified in Item 2 of Schedule B (Lessor), as lessor, having an office at the address set forth in Item 3 of Schedule B, and the Lessee specified in Item 3 of Schedule B (herein, together with any entity succeeding thereto by consolidation, merger or acquisition of its assets substantially as an entirety, called Lessee), having an address at the address set forth in Item 3 of Schedule B, both parties intending to be legally bound. Capitalized terms not otherwise defined when they first appear are defined in Appendix I 1. Demise Title Condition. Lessor hereby leases to Lessee, and Lessee hereby ---------------------- leases from Lessor, subject to the terms hereof, all of Lessor's right, title and interest in (i) the parcel of land (the Land) described in Schedule A hereto, (ii) all buildings and improvements now or hereafter existing on the Land and fixtures appurtenant thereto (the Improvements) and (iii) all easements, rights and appurtenances thereto (the Land, Improvements and all such easements, rights and appurtenances, collectively called the Leased Property). The parties acknowledge that the Leased Property was acquired by Lessor from an affiliate of Lessee immediately prior hereto. The Leased Property is leased in its present condition without representation or warranty by Lessor. Lessee has examined the Leased Property and Lessor's title thereto, and has found the same to be satisfactory for all purposes. LESSOR HAS NOT MADE AN INSPECTION OF THE LEASED PROPERTY AND MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE LEASED PROPERTY OR THE LOCATION, USE, DESCRIPTION, DESIGN, MERCHANTABILITY, FITNESS FOR USE FOR A PARTICULAR PURPOSE, CONDITION OR DURABILITY THEREOF, OR AS TO QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN; AND ALL RISKS INCIDENTAL TO THE LEASED PROPERTY SHALL BE BORNE BY LESSEE. LESSOR SHALL NOT HAVE ANY RESPONSIBILITY OR LIABILITY WITH RESPECT TO ANY DEFECT OR DEFICIENCY OF ANY NATURE IN THE LEASED PROPERTY OR ANY PORTION THEREOF, WHETHER PATENT OR LATENT, AND LESSOR SHALL NOT HAVE ANY RESPONSIBILITY OR LIABILITY FOR ANY DIRECT OR INDIRECT DAMAGE TO PERSONS OR PROPERTY RESULTING THEREFROM OR FOR LESSEE'S LOSS OF USE OF THE LEASED PROPERTY OR ANY PORTION THEREOF OR ANY INTERRUPTION IN LESSEE'S BUSINESS CAUSED BY LESSEE'S INABILITY TO USE THE LEASED PROPERTY OR ANY PORTION THEREOF FOR ANY REASON WHATSOEVER EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED IN THIS LEASE. LESSOR ACKNOWLEDGES RECEIPT OF THE PROPERTY CONDITION SURVEY. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN NEGOTIATED AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION BY LESSOR OF, AND LESSOR DOES HEREBY DISCLAIM, ANY AND ALL WARRANTIES BY LESSOR, EXPRESS OR IMPLIED WITH RESPECT TO THE LEASED PROPERTY OR ANY PORTION THEREOF, WHETHER ARISING PURSUANT TO THE UNIFORM COMMERCIAL CODE OR ANY OTHER LAW NOW OR HEREAFTER IN EFFECT OR OTHERWISE 2. Term ---- (a) Subject to the provisions hereof, Lessee shall have and hold the Leased Property for a term (the Basic Term) which shall, begin on the commencement date specified in Item 4 of Schedule B (the Commencement Date) and end at midnight on the basic term expiration date set forth in Item 5 of Schedule B (the Basic Term Expiration Date) unless sooner terminated or extended as hereinafter expressly provided. (b) So long as no Event of Default shall have occurred and be continuing on the last day of the then current Term, Lessee may elect to extend and renew the Term for five (5) additional terms, the first such additional term to be ten (10) years and the second through fifth such additional terms to be five (5) years each (Renewal Terms). Each such election shall be exercised by Lessee not less than the later of (x) 30 days after Lessor delivers to Lessee a "Reminder Notice" (hereafter defined) and (y) 270 days prior to the expiration of the then current Term, by written notice to Lessor, which notice shall include the name and address of Lessee's designated appraiser for determination of the fair market rent in accordance with Schedule H of this Lease. A Reminder Notice shall be a notice from Lessor to Lessee, delivered no sooner than 450 days prior to the expiration of the then current term, advising Lessee of its next renewal right hereunder. Either party, upon request of the other, will execute and acknowledge, in form suitable for recording, an instrument confirming any such extension. Time shall be of the essence with respect to the giving of notice by Lessee of its election to extend any Term. 3. Rent ---- (a) During the Term, Lessee shall pay the rent provided in Item 7 of Schedule B (Basic Rent) to Lessor (or to such other party as Lessor may from time to time specify in writing) by check, at such place, within the continental United States, as Lessor may from time to time designate to Lessee in writing. Basic Rent shall be payable by Lessee in installments in the amounts set forth in Item 7 of Schedule B and (except for the first payment of Basic Rent which shall be due and payable on the date of commencement of the Basic Term) shall be due and payable on the dates specified in item 7 of Schedule B (Installment Payment Dates) and shall constitute Basic Rent for the periods specified in said item 7. If any Installment Payment Date -2- falls on a day which is not a Business Day, Basic Rent shall be due and payable on the immediately following Business Day. (b) All amounts which Lessee is required to pay or discharge pursuant to this Lease in addition to Basic Rent (including, without limitation, amounts payable as the purchase price for the Leased Property pursuant to Articles 9 and 12, and any amounts payable pursuant to Article 12, 19 or 23 hereof or as liquidated damages pursuant to Article 20) together with every penalty, overdue interest and cost which may be added for nonpayment or late payment thereof, shall constitute additional rent hereunder (Additional Rent). In the event of any failure by Lessee to pay or discharge any Additional Rent, Lessor shall have all rights, powers and remedies provided for herein or by law or otherwise in the case of nonpayment of Basic Rent. Lessee shall, unless otherwise requested by Lessor, pay Additional Rent directly to the Person entitled thereto. Lessee also covenants to pay to Lessor on demand as Additional Rent, interest at a rate (the Overdue Rate), calculated on the basis of a 360-day year of twelve equal months, equal to the greater of (i) twelve percent (12%) per annum or (ii) four percent (4%) per annum over the prime rate reported from time to time in the Money Rates Section of The Wall Street Journal, or if not included in such publication, The New York Times, or if not included in such publication the average prime rate published from time to time in another business newspaper, or business section of a newspaper, of national standing chosen by Lessor, but in no event greater than the maximum rate not prohibited by applicable law, on (i) all overdue installments of Basic Rent from the due date thereof until paid in full, (ii) all overdue amounts of Additional Rent, arising out of obligations which Lessor shall have paid on behalf of Lessee pursuant hereto from the date of such payment by Lessor until paid in full and (iii) each other sum required to be paid by Lessee hereunder which is overdue, including without limitation, amounts payable as the purchase price for the Leased Property pursuant to Articles 9 and 23, and any amounts payable pursuant to Article 12, 19 or 23 or as liquidated damages pursuant to Article 20, from the date such sum was due until the date received by the Person entitled thereto. Lessee also covenants to pay to Lessor on demand as Additional Rent, a late fee equal to 5% of any Basic Rent or Additional Rent which has not been paid within 10 days after the same is due. In the event any Basic Rent or Additional Rent is collected by or through an attorney, as Additional Rent, Lessee agrees to pay all costs of collection, including, but not limited to, attorney's fees, and to reimburse Lessor for any costs of collection, including without limitation, attorney's fees, incurred by Lessor's Mortgagee. 4. Use. Lessee may use the Leased Property for any lawful purpose in its --- current primary business operations (the "Original Uses") and for any other lawful use provided such other lawful use (i) does not have a material, adverse impact on the value of the Leased Property, (ii) is consistent with the business uses of other properties located in the same general area as the Leased Property, and (iii) does not result in, or increase the likelihood of, a material decline in the value of the Leased -3- Property or materially increase the risk of loss to Lessor (such as by increasing the potential exposure to hazardous substances or by adversely affecting the ability of the owner to use the Leased Property for the Original Uses due to the potential loss of then existing "grandfathered" zoning status). Lessee may not cease operation at the Leased Property unless (i) no Event of Default exists hereunder and Lessee satisfies the Credit Rating Test (defined in Article 12(c), and (ii) such cessation will not adversely affect the right of the owner of the Leased Property under existing state or zoning laws concerning the discontinuance of non-conforming uses or structures to (A) rebuild the Improvement in the event of a casualty to substantially the same condition as they existed prior to any such casualty and (B) conduct the same use, in the event of a casualty at the Leased Property as conducted by Lessee prior to cessation of its operations. Such cessation of operations will not affect the insurance coverage required to be maintained hereunder, which Lessee agrees to maintain in full force and effect: 5. Net Lease; Nonterminability. --------------------------- (a) This Lease is an absolutely "net lease" and Lessee shall pay all Basic Rent and Additional Rent without notice, demand, counterclaim, set-off, deduction, or defense, and without abatement, suspension, deferment, diminution or reduction, free from any charges, assessments, impositions, expenses or deductions of any and every kind or nature whatsoever. All costs, expenses and obligations of every kind and nature whatsoever relating to the Leased Property and the appurtenances thereto and the use and occupancy thereof by Lessee or anyone claiming by, through or under Lessee as lessee hereunder which may arise or become due during or with respect to the Term shall be paid by Lessee. Lessee assumes the sole responsibility for the condition, use, operation, maintenance and management of the Leased Property and Lessor shall have no responsibility in respect thereof and shall have no liability for damage to the property of Lessee or any sublessee of Lessee or anyone claiming by, through or under Lessee for any reason whatsoever, unless such damage is caused by the negligence or intentional wrongful acts of Lessor or Lessor's agents, contractors, invitees or employees. (b) Without limiting the generality of the foregoing, during the Term of this Lease, Lessee shall perform all of the obligations of the sublessor under any subleases affecting all or any part of the Leased Property which Lessee may hereinafter enter into as sublessor to the extent that Lessee's failure to perform such obligations could result in the occurrence of an Event of Default under this Lease. Lessee acknowledges and agrees that its obligations hereunder, including, without limitation, its obligations to pay Basic Rent and Additional Rent, shall be unconditional and irrevocable under any and all circumstances and shall not be subject to cancellation, termination, modification or repudiation by Lessee except as expressly set forth in paragraph (h) of Article 9, paragraph (C) of Article 12 and paragraph (e) of Article 23 with respect to the termination of this Lease. Except as expressly provided in -4- paragraph (h) of Article 9, paragraph (c) of Article 12 or paragraph (e) of Article 23, this Lease shall not terminate, nor shall Lessee have any right to terminate this Lease, and Lessee shall perform all obligations hereunder, including the payment of all Basic Rent and Additional Rent, without notice, demand, counterclaim, set-off, deduction, defense or recoupment, and without abatement, suspension, deferment, diminution or reduction for any reason, including, without limitation, any past, present or future claims which Lessee may have against the Lessor, its mortgagee, their respective successors and assigns or any other Person for any reason whatsoever; any defect in the Leased Property or any portion thereof, or in the title, condition, design, construction, durability or fitness for a particular use thereof; any damage to or destruction or loss of all or part of the Leased Property; any restriction, deprivation (including eviction) or prevention of, or any interference with or interruption of, any use or occupancy of the Leased Property (whether due to any defect in or failure of Lessor's title to the Leased Property, any lien or otherwise, except for liens directly caused by Lessor without Lessee's consent and which are not otherwise the responsibility of Lessee under the express terms hereof); any condemnation, requisition or other taking or sale of the use, occupancy or title to the Leased Property; any action, omission or breach on the part of Lessor under this Lease or under any other agreement between Lessor and Lessee, or any other indebtedness or liability, howsoever and whenever arising, of Lessor, any assignee of Lessor, or Lessee to any other Person, or by reason of insolvency, bankruptcy or similar proceedings by or against Lessor, or any assignee of Lessor, or Lessee; the inadequacy or inaccuracy of the description of the Leased Property or the failure to demise and let to Lessee the property intended to be leased hereby; Lessee's acquisition of ownership of the Leased Property (as to any obligation arising prior to or incident to such acquisition and any obligation intended to survive such acquisition including, without limitation, the payment of the full purchase price in strict accordance with the terms hereof); any sale or other disposition of the Leased Property; the impossibility or illegality of performance by Lessor or Lessee or both; the failure of Lessor to deliver possession of the Leased Property; any action of any court, administrative agency or other governmental authority; or any other cause, whether similar or dissimilar to the foregoing, any present or future law notwithstanding; it being the intention of the parties hereto that all Basic Rent and Additional Rent payable by Lessee hereunder shall continue to be payable in all events and in the manner and at the times herein provided, without notice or demand, unless the obligation to pay the same shall be terminated pursuant to the express provisions of this Lease. (c) Lessee will remain obligated under this Lease in accordance with its terms, and will not take any action to terminate (except as expressly provided in Articles 9, 12 and 23 of this Lease), rescind or avoid this Lease for any reason, notwithstanding any bankruptcy, insolvency, reorganization, liquidation, dissolution or other proceeding affecting Lessor, or any assignee of Lessor, or any action with respect to this Lease which may be taken by any receiver, trustee or liquidator, or -5- any assignee of Lessor or by any court in any such proceeding. Lessee waives all rights at any time conferred by statute or otherwise to quit, terminate or surrender this Lease or the Leased Property or to any abatement, reduction, deferment or set-off of any Basic Rent, Additional Rent or other sum payable hereunder, or for damage, loss or expense suffered by Lessee on account of any cause referred to in this Article 5 or otherwise. (d) Lessor and Lessee agree that this Lease is an operating lease and does not represent a financing arrangement Each party shall reflect the transaction represented hereby in all applicable books, records and reports (including income tax filings) in a manner consistent with "operating lease" treatment rather than "financing" treatment 6. Taxes and Other Charges: Law and Agreements. ------------------------------------------- (a) Lessee shall pay and discharge, on or before the last day upon which the same may be paid without interest or penalty, all taxes, including any tax based upon or measured by gross rentals or receipts from the Leased Property, assessments, levies, fees, water and sewer rents, utility charges, maintenance charges and other governmental and similar charges, and all other liens or charges whatsoever which may be or become a lien against the Leased Property (excluding any Mortgages or other liens created by, through or under Lessor without Lessee's consent and which are not otherwise the responsibility of Lessee under the express terms hereof), general and special, ordinary or extraordinary, and whether or not the same shall have been within the express contemplation of the parties hereto, and any interest and penalties thereon, which are levied or assessed or are otherwise due during the Term (collectively, Taxes and Impositions) against (i) Lessor and which relate to Lessor's ownership of the Leased Property, the use, occupancy, operation or possession of the Leased Property or any part thereof or the transactions contemplated by this Lease, including, if applicable, (a) state franchise or doing business taxes or the like, but only those relating to or resulting solely from Lessor's ownership of the Leased Property and not any other property or any other activity of Lessor, and (b) transfer taxes relating solely to the sale of the Leased Property to or from Lessee or its affiliates or in connection with Lessor's or Lessor's Mortgagee's exercise of remedies after an Event of Default, (ii) the Leased Property or this Lease or the interest of Lessee or Lessor therein, (iii) Basic Rent or Additional Rent or other sums payable by Lessee hereunder, (iv) the use, occupancy, construction, repair or rebuilding of the Leased Property or any portion thereof, or (v) gross receipts from the Leased Property. If any tax and assessment levied or assessed against the Leased Property may legally be paid in installments, Lessee shall have the option to pay such tax or assessment in installments; provided, however, that upon the termination of the Term Lessee shall pay any such tax or assessment which it has been paying in installments in full, on or prior to such termination date. Nothing in this Lease shall require payment by Lessee of any franchise, estate, inheritance, succession, transfer (other -6- than as set forth above), net income or profits taxes of Lessor (other than any gross receipts or similar taxes imposed or levied upon, assessed against or measured by the Basic Rent, Additional Rent or any other sums payable by Lessee hereunder or levied upon or assessed against the Leased Property), any taxes imposed by any state or local government on, or measured by, the net income of Lessor, unless any such tax is in lieu of or a substitute for any other tax or assessment upon or with respect to the Leased Property, in which case such tax would be payable by Lessee hereunder. Lessee shall furnish Lessor and Lessor's Mortgagee with receipts (or if receipts are not available, with copies of cancelled checks evidencing payment with receipts to follow promptly after they become available) showing payment of Taxes and Impositions prior to the applicable delinquency date therefor. Except with respect to taxes or assessments paid by Lessee in installments as set forth above, taxes, assessments, fees, water and sewer rents and other governmental charges which are payable by Lessee shall be apportioned between Lessor and Lessee as of the date on which this Lease terminates. Lessee shall establish and maintain the Tax and Insurance Reserve Fund at the times required by and pursuant to the terms of Article 13. (b) Lessee shall pay all charges for utility, communication and other services to the extent rendered or used during the Term on or about the Leased Property, whether or not payment therefor shall become due after the Term. (C) At Lessee's cost and expense, Lessee shall perform and comply with all laws, rules, orders, ordinances, regulations and requirements now or hereafter enacted or promulgated, of every government and municipality and of any agency thereof having jurisdiction over the Leased Property, and with all restrictions under any reciprocal easement agreement, development agreement or similar agreement, relating to the Leased Property, or the improvements thereon, or the facilities or equipment thereon or therein, or the streets, sidewalks, vaults, vault spaces, curbs and gutters adjoining the Leased Property, or the appurtenances to the Leased Property, or the franchises and privileges connected therewith, whether or not such shall now exist or shall hereafter be enacted or promulgated, and whether or not such are within the present contemplation of Lessor or Lessee (collectively, Legal Requirements), whether or not such Legal Requirements shall necessitate structural changes, improvements, interference with use and enjoyment of the Leased Property, replacements or repairs, extraordinary as well as ordinary. Lessee shall, at Lessee's cost and expense, perform and comply with the terms of any easement granted or released pursuant to Article 21. Lessee shall, at its expense, comply with all provisions of insurance policies required pursuant to Article 13, and with the provisions of all contracts, agreements, instruments and restrictions affecting the Leased Property or any part thereof or its ownership, occupancy, use, operation or possession. Lessor will not enter into any contracts affecting the Leased Property with which Lessee is bound to comply, without Lessee's consent, not to be -7- unreasonably withheld. Lessee shall comply with the terms of and perform its obligations under any consent of Lessee to any assignment of this Lease to Lessor's Mortgagee. This subsection shall not apply to Lessee's compliance with laws relating to Environmental Laws, which are exclusively addressed by Article 9 hereof. (d) Notwithstanding the provisions of this Article 6 and Article 7, if no default or Event of Default shall have occurred and be continuing, Lessee shall have the right to contest, in good faith and at its expense, by appropriate legal proceedings (including through abatement proceedings), any Taxes or Impositions, and/or any Legal Requirement affecting the Leased Property, and to postpone payment of or compliance with the same during the pendency of such contest, provided that (i) the commencement and continuation of such proceedings shall suspend the collection thereof from, and suspend the enforcement thereof against, Lessor and the Leased Property, (ii) no, part of the Leased Property nor any Basic Rent or Additional Rent shall be interfered with or shall be in danger of being sold, forfeited, attached or lost, (iii) Lessee shall promptly and diligently prosecute such contest to a final settlement or conclusion, (iv) there shall be no risk of the imposition of civil or criminal liability or penalty on Lessor or Lessor's Mortgagee for failure to comply therewith, (v) Lessee shall satisfy any Legal Requirements, including, if required, that the Taxes and Impositions be paid in full before being contested, (vi) Lessee shall have set aside adequate reserves (which Lessor may at its option require to be placed in escrow with a Depository), for the payment of Taxes and Impositions, together with all interests and penalties, and (vii) Lessee shall have furnished Lessor such security as may be required in the proceeding to insure the payment of any Taxes and Impositions, together with all interest and penalties thereon. Lessee shall pay any and all judgments, decrees and costs (including all attorneys' fees and expenses) in connection with any such contest and shall, promptly after the final determination of such contest, fully pay and discharge the amounts which shall be levied, assessed, charged or imposed or be determined to be payable therein or in connection therewith, together with all penalties, fines, interest, costs and expenses thereof or in connection therewith, and perform all acts the performance of which shall be ordered or decreed as a result thereof. Lessor shall cooperate in good faith with Lessee with respect to any such contest, at Lessee's sole cost and expense, and provided such cooperation shall not create any risk of liability to Lessor, its trustees or beneficiaries. 7. Liens; Subordinations --------------------- (a) Lessee represents and warrants that on the date of delivery of this Lease, fee simple title in the Leased Property was vested in Lessor subject only to Permitted Encumbrances. Subject to the provisions of paragraph (d) of Article 6, Lessee will promptly, but in any event no later than 30 days after its Actual Knowledge of the filing thereof but in any event prior to the enforcement of the same, at its own expense remove and discharge of record, by bond or otherwise, any charge, lien, security interest or encumbrance upon the Leased Property, upon any -8- Basic Rent, or upon any Additional Rent which arises for any reason (except for liens arising out of the act or omission of Lessor without the consent of Lessee), including all liens which arise out of Lessee's possession, use, operation and occupancy of the Leased Property, but not including any Permitted Encumbrances. Nothing contained in this Lease shall be construed as constituting the consent or request of Lessor, express or implied, to or for the performance by any contractor, laborer, materialman, or vendor of any labor or services or for the furnishing of any materials for any construction, alteration, addition, repair or demolition of or to the Leased Property or any part thereof. Notice is hereby given that Lessor will not be liable for any labor, services or materials furnished or to be furnished to Lessee, or to anyone holding an interest in the Leased Property or any part thereof through or under Lessee, and that no mechanic's or other liens for any such labor, services or materials shall attach to or affect the interest of Lessor in and to the Leased Property. If Lessee shall fail to discharge any charge, lien, security interest or encumbrance within the time period permitted by this Lease, Lessor may discharge the same by payment or bond or both, and Lessee will repay to Lessor, upon demand, any and all amounts paid therefor, or by reason of any liability on such bond, and also any and all reasonable incidental expenses, including reasonable attorneys' fees, incurred by Lessor in connection therewith together with interest on all such amounts calculated at the Overdue Rate. (b) This Lease shall be subject and subordinate to all present and future mortgages (Mortgages) on the fee interest in the Leased Property and to all advances made upon the security thereof, provided that the holder of the Mortgage shall execute and deliver to Lessee an agreement (SNDA Agreement), in form substantially similar to Schedule F hereto, providing that such holder will recognize this Lease and not disturb Lessee's possession of the Leased Property in the event of foreclosure if no Event of Default is then in existence; and concurrently therewith Lessee shall execute and deliver an estoppel certificate in form substantially similar to Schedule G hereto. Lessee agrees, upon receipt of such SNDA Agreement, to execute such further reasonable instrument(s) as may be necessary to subordinate this Lease to the lien of any such Mortgage, and also to execute such instrument(s) recognizing the assignment of this Lease or the Basic Rent, Additional Rent, and other sums payable by Lessee hereunder to the holder of any such Mortgage. The term "Mortgage" shall include deeds of trust or any other similar lien documents. (C) Lessee agrees to attorn, from time to time, to the holder of each Mortgage and/or the holder of such subsequent mortgage, or any purchaser of the Leased Property, for the remainder of the Term, provided that such holder or such purchaser, shall then be entitled to possession of the Leased Property subject to the provisions of this Lease. The provisions of this subsection shall inure to the benefit of such holder or such purchaser, shall apply notwithstanding that, as a matter of law, this Lease may terminate upon the foreclosure of the Mortgage (in which event the parties shall execute a new lease for the remainder of the Term on the same terms set forth herein), shall be self-operative upon any such demand, and no further -9- instrument shall be required to give effect to said provisions. Each such party, however, upon demand of the other, hereby agrees to execute, from time to time, instruments in confirmation of the foregoing provisions hereof, reasonably satisfactory to the requesting party acknowledging such subordination, non- disturbance and attornment as are provided herein and setting forth the terms and conditions of its tenancy. B. Indemnification; Fees and Expenses. ---------------------------------- (a) Lessee shall protect, defend and indemnify Lessor, Lessor's Mortgagee, the successors and assigns of either, the beneficial owners of any of the foregoing and the trustees, beneficiaries, partners, shareholders, officers, directors, agents or employees of Lessor, Lessor's Mortgagee or any such successor or assign or beneficial owner (each an Indemnified Party and collectively, the Indemnified Parties), against and hold the Indemnified Parties harmless from all liabilities, losses, damages, costs, expenses (including reasonable attorneys' fees and expenses), claims, demands or judgments of any nature (a) arising or alleged to arise from or in connection with the condition, use, operation, maintenance, subletting and management of the Leased Property, (b) relating to the Leased Property and the appurtenances thereto and the use and occupancy thereof by Lessee or anyone claiming by, through or under Lessee or (c) arising or alleged to arise from or in connection with any of the following events: (i) any injury to, or death of, any person or any damage to or loss of property on or adjacent to the Leased Property or growing out of or directly or indirectly connected with, ownership, use, nonuse, occupancy, operation, possession, condition, construction, repair or rebuilding of the Leased Property or adjoining property, sidewalks, streets or ways or resulting, from the condition of any thereof; (ii) any claims by third parties resulting from any violation or alleged violation by Lessee of (A) any provision of this Lease, or (B) any Legal Requirement, or (C) any other lease or agreement relating to the Leased Property, or (D) any contract or agreement to which Lessee is a party or any restriction, law, ordinance or regulation, affecting the Leased Property or the ownership, use, nonuse, occupancy, condition, operation, possession, construction, repair or rebuilding thereof or of adjoining property, sidewalks, streets or ways; (iii) any contest permitted by Article 6; or (iv) Lessee's failure to pay in accordance with the terms and provisions hereof any item of Additional Rent or other sums payable by Lessee hereunder. Lessee shall not be liable in any case to any Indemnified Party for any liabilities, obligations, claims, damages, penalties, causes of action, costs or expenses to the extent that they result from the gross negligence or willful misconduct of such Indemnified Party. If Lessor, Lessor's Mortgagee, or any agent of Lessor or Lessor's Mortgagee, or any other Indemnified Party, shall be made a party to any such litigation commenced against Lessee, and if Lessee, at its expense, shall fail to provide Lessor or Lessor's Mortgagee or its agent or other Indemnified Party with counsel reasonably acceptable to such party, Lessee shall pay all costs and reasonable attorney's fees and expenses -10- incurred or paid by Lessor or Lessor's Mortgagee or its agent or other Indemnified Party in connection with such litigation. (b) The representations, warranties and obligations of Lessee, and the rights and remedies of each Indemnified Party under this Article 8, are in addition to and not in limitation of any other representations, warranties, obligations, rights and remedies provided in this Lease or otherwise at law or in equity, and shall survive the expiration or termination of this Lease. (c) This Article 8 shall not affect the respective rights, obligations and remedies of the parties with respect to Environmental Laws or Hazardous Substances, which are governed exclusively by Article 9 hereof. 9. Environmental Matters. ---------------------- (a) Lessee represents and warrants and covenants to the Indemnified Parties that (i) at all times during the Term of this Lease, (x) the Leased Property, Lessee, all sublessees and any assignees of Lessee, and all other parties claiming by, through, or under Lessee, shall comply with all applicable Environmental Laws; (y) Lessee, all sublessees and any assignees of Lessee, and all other parties claiming by, through, or under Lessee, shall have obtained all permits, licenses, and any other authorizations required to conduct its or their operations at the Leased Property that are required under all applicable Environmental Laws and Lessee, all sublessees and any assignees of Lessee, and all other parties claiming by, through, or under Lessee, shall be in compliance with the same; and (z) to the extent required by applicable Environmental Laws, Lessee shall remove and dispose of any Hazardous Substances present on the Leased Property not in compliance with applicable Environmental Laws; (ii) except as disclosed in the Environmental Site Assessment: the Leased Property is in compliance in all material respects with applicable Environmental Laws; no Hazardous Substances are or have been discharged, generated, treated, disposed of, or stored on, incorporated in or removed or transported from the Leased Property except in compliance in all material respects with applicable Environmental Laws or as disclosed in the Environmental Site Assessment. Except as disclosed in the Environmental Site Assessment: no material notices, complaints or orders of violation or non-compliance of any nature whatsoever regarding alleged violations of, or strict liability under, Environmental Laws have been issued to Lessee or, to the best of its knowledge, to any Person regarding the Leased Property, and Lessee has no Actual Knowledge that any material federal, state or local governmental environmental investigation nor any material legal action by a private party is pending or threatened, in each case with -11- regard to the Leased Property or any use thereof or any alleged material violation of Environmental Laws with regard to the Leased Property; no liens have been placed upon the Leased Property in connection with any actual or alleged liability under any Environmental Laws; (iii) except as disclosed in the Environmental Site Assessment: the Leased Property has not been used by Lessee or, to the best of Lessee's knowledge, by any other Person and will not be used during the Term of this Lease to generate, manufacture, refine, produce or process any Hazardous Substance or to store, handle, treat, dispose, transfer or transport any Hazardous Substance other than normal and lawful uses of such Hazardous Substances in compliance in all material respects with Environmental Laws which activities have not had and will not have any material adverse effect upon the Leased Property; (iv) except as set forth in the Environmental Site Assessment no pits, lagoons, ponds, or other surface impoundments, above ground tanks or other containment structures have been or will be constructed, operated or maintained in or on the Leased Property in violation in any material respect of applicable Environmental Laws and no underground storage tanks exist or will be constructed, operated or maintained in or on the Leased Property except in compliance in all material respects with Environmental Laws; to the best of Lessee's knowledge, there is presently no asbestos nor asbestos-containing material (except commercially produced product in non-friable bonded form in floor, ceiling or wall materials which is in good condition, the presence of which complies with all Environmental Laws; Lessee shall deliver to Lessor within sixty (60) days from the date hereof, and thereafter implement a written asbestos-containing material operations and maintenance plan for any such identified or presumed asbestos-containing materials, which addresses 29 C.F.R. 1910 et seq. (the "Asbestos 0 & M Plan") such written plan to be in form and -- --- content reasonably acceptable to Lessor and Lessor's Mortgagee) nor any PCB-containing equipment, including PCB-containing transformers, located in, on, at or under the Leased Property nor will any of the foregoing be located in, on, at or under the Leased Property at any time during the Term of this Lease; (v) except as set forth in the Environmental Site Assessment: other than lawful quantities in connection with Lessee's use of the Leased Property in compliance in all material respects with Environmental Laws, to Lessee's Actual Knowledge the Leased Property is free of Hazardous Substances at, in, on, over or under the Leased Property, regardless of the source of any such Hazardous Substances; and (vi) to Lessee's Actual Knowledge, the Environmental Site Assessment is true, correct and complete, and contains no misstatement of fact or omission of any fact which would make the statements contained therein untrue, incomplete or misleading in any material respect. -12- (b) Promptly upon obtaining Actual Knowledge thereof, Lessee shall give to Lessor notice of the occurrence of any of the following, in each case relating to the Leased Property or the use, occupancy or operation thereof in respect of any Environmental Law: (i) the failure of the Leased Property, Lessee, any sublessee or assignee of Lessee or invitee of Lessee, or any other party claiming by, through, or under Lessee, to comply therewith in any manner whatsoever; (ii) the issuance to Lessee, or any sublessee of any portion of the Leased Property or any assignee of Lessee, or any other party claiming by, through, or under Lessee, of any notice, complaint or order of violation or non-compliance therewith of any nature whatsoever; (iii) any notice of a pending or threatened investigation thereunder; (iv) any notice from any governmental agency requiring any corrective action with respect to the Leased Property thereunder; or (v) any notice or other communication with respect to a pending or threatened governmental or private party action relating to violation thereof. (c) At any time (i) if Lessor receives notice that an adverse change in the environmental condition of the Leased Property has occurred or that an adverse environmental condition with respect to the Leased Property has been discovered, Lessor shall give notice thereof to Lessee, and if Lessee shall not (A) diligently connanence to cure such condition, to the extent necessary to meet Legal Requirements to comply fully with applicable Environmental Laws, or to prevent a material diminution in the fair market value of the Leased Property related to the environmental condition, within 30 days after receipt of such notice (or such shorter period as may be required by law or in the event of an emergency), provided that if such cure cannot be completed with diligence within such 30 day period, and so long as Lessee is performing such cure with reasonable diligence, the time period within which such cure may be completed shall be extended for such period as may be reasonably necessary to complete such cure with diligence, provided the same shall be subject to Lessor's approval and is consistent with the requirements of applicable law, and (B) thereafter diligently prosecute to completion such cure, or (ii) in any event after an Event of Default has occurred and is continuing hereunder or if Lessor or Lessor's Mortgagee has reasonable cause to believe that Lessor is in default or has permitted a default hereunder or that there has been a material adverse change in the environmental condition of the Leased Property, Lessor may cause to be performed or direct Lessee to cause to be performed an environmental audit or site assessment of the Leased Property and the then uses thereof reasonable in scope under the circumstances, and may take such actions as it may deem necessary to cure such condition or to cause the Leased Property to comply with any Environmental Laws. Notwithstanding the foregoing, Lessor may not exercise its rights under clause (ii) above more than once in any twelve month period, unless an Event of Default has occurred during such period, in which event such limitation shall not be applicable. Such environmental audit or site assessment shall be performed by an engineer qualified by law and experience to perform the same and satisfactory to Lessor and Lessor's Mortgagee, shall include a review of the uses of the Leased Property and -13- compliance of the same with all Environmental Laws, and shall include an estimate of the cost to cure any breach or default in Lessee's covenants hereunder. All costs and expenses incurred by Lessor or Lessor's Mortgagee in connection with such environmental audit or assessment and any remediation required shall be paid by Lessee upon demand and shall bear interest after 30 days after demand therefor at the Overdue Rate. Such audit or assessment shall be addressed to Lessor and Lessor's Mortgagee and shall provide expressly that they can rely on its findings. Except as required by law, the results of such audit or assessment shall not be disclosed to third parties by Lessor or Lessor's Mortgagee without the prior written consent of Lessee. (d) Subject to the provisions of paragraph (d) of Article 6 hereof, in the event of a violation of or the discovery of a violation of any Environmental Law by Lessee, any sublessee of any portion of the Leased Property, any assignee of Lessee or any invitee of Lessee, or any other Person claiming by, through, or under Lessee, or resulting from Lessee's failure to comply with this Article 9, Lessee shall promptly perform all remedial actions to clean up, contain, or remove any Hazardous Substances on, under or in the Leased Property in accordance with, and as required by, applicable Environmental Laws and otherwise to cure any such violation of any Environmental Law, all at Lessee's sole cost and expense. Lessee shall determine the nature and scope of all such required remedial actions within 30 days after obtaining Actual Knowledge of any such violation and shall complete all such actions within 120 days following the date that the nature and scope of such required remedial actions are identified, provided that if such remedial actions cannot be completed with diligence within such 120 day period, and so long as Lessee is performing such remedial actions with due diligence, the time within which such remedial actions may be completed shall be extended for such period as may be reasonably necessary to complete such remedial action with diligence, provided the same shall be subject to Lessor's approval and consistent with the requirements of applicable law. If, as a result of any such violation, a lien attaches to the Leased Property that takes priority over the lien of the Mortgage, Lessee shall promptly, and in any event within 10 days after the attachment of any such lien, discharge or contest such lien in accordance with Article 6(d) and post a bond or deposit an irrevocable letter of credit with Lessor's Mortgagee, in either event satisfactory in form and substance and with a surety or obligor satisfactory to Lessor's Mortgagee and in an amount sufficient to discharge such lien. Reference is made to those certain agreements and indemnities made by Ball Metal Food Container Corp. and Ball Corporation (collectively, "Ball") to Lessee with respect to environmental matters affecting the Leased Property pursuant to a certain Asset Purchase Agreement dated October 6, 1996 between Lessee and Ball (the "Ball Environmental Indemnities"). Lessee agrees that it will not knowingly waive or terminate any material right under the Ball Environmental Indemnities without Lessor's consent, that it will give notice to Lessor of all claims and demands made by -14- Lessee under the Ball Environmental Indemnities (whether or not they relate to the Leased Property or to other property covered thereby), and will keep Lessor reasonably informed of the status of any remediation or investigation of hazardous materials made by Ball, Lessee or any affiliate of Lessee with respect to the Leased Property or any other property adjacent to or in the vicinity of the Leased Property, and will provide to Lessor copies of all reports, test results and other material non-privileged written documentation in its possession or control from time to time relating to any such remediation or investigation. Lessee agrees to implement a routine monitoring program as recommended by the Environmental Site Assessment and promptly to provide all results, data, reports and work product from such program to Lessor. (e) Lessee agrees to indemnify, defend and hold harmless each Indemnified Party from and against any and all losses which may be suffered or incurred by, or asserted against such Indemnified Party to the extent arising directly or indirectly out of, (i) the use, storage, transportation, disposal, treatment, release, threatened release, discharge, emission, generation or presence of any Hazardous Substances at, from, on, over, under or in the Leased Property occurring before or during the Term of the Lease, regardless of whether a claim is brought or loss suffered or incurred before, during or after the Term of this Lease and regardless of the source of any such Hazardous Substances, or (ii) any default in. the performance of any obligation under this Article 9 or any violation of any Environmental Law with respect to the Leased Property or by Lessee or any Person claiming by, through or under Lessee, or resulting from Lessee's failure to comply with this Article 9, except to the extent any such losses arise out of the gross negligence or willful misconduct of Lessor. Lessee agrees to execute and to cause Guarantor to execute and deliver to Lessor's Mortgagee such separate instrument of indemnity with respect to environmental matters as Lessor's Mortgagee may reasonably require (the "Mortgagee Indemnity"), provided that in the event of any conflict in the terms, conditions or enforcement of the indemnification provided for in this Section 9(e) and the Mortgagee Indemnity, the terms, conditions and enforcement of the Mortgagee Indemnity shall take precedence. (f) The obligations and liabilities of Lessee with respect to each Indemnified Party, actual or contingent, under this Article 9 and relating to the period through the end of the Term, whether arising before or after the Term, shall survive such termination of this Lease or the abandonment of the Leased Property by Lessee and repayment of the Notes, or any acquisition or disposition of the Leased Property, whether pursuant to subparagraph (h), below, or otherwise, except with respect to events and circumstances resulting solely from the acts of any Person other than Lessee, any Affiliate of Lessee, or any Person claiming by or through Lessee or any such Affiliate and occurring after the foreclosure of the lien of the Mortgage and the sale of the Leased Property pursuant to such foreclosure. -15- (g) In the event that Lessee is in default of any obligation under this Article 9, such default occurs on or before September 15, 2011, and Lessor reasonably believes that the cost to cure such default will exceed $3,000,000 then, in addition to and not in limitation of, all other rights of Lessor hereunder and without regard to whether such default constitutes an Event of Default, Lessor may by written notice to Lessee (an Article 9 Notice) require Lessee to purchase the Leased Property in the manner and under the terms of Article 15. If Lessor requires Lessee to purchase the Leased Property pursuant to this Article, then Lessee shall purchase the Leased Property on an Installment Payment Date specified by Lessor not less than 30 nor more than 90 days after the giving of the Article 9 Notice for a purchase price equal to the Termination Value as of the date of such purchase plus the Reinvestment Premium. (h) Lessee shall use commercially reasonable efforts to comply with all of the obligations of the insured (other than the obligation to pay premiums, which shall be the responsibility of Lessor) arising under that certain insurance obtained by Lessor from United Capitol Insurance Company, and any renewals or replacements thereof, for the mutual benefit of Lessor and Lessor's Mortgagee, during the entire term of this Lease. The Environmental Insurance Policy shall contain such provisions as Lessor deems necessary or desirable to protect its interest and shall be satisfactory in form and substance to Lessor. In the event that, during the twelve months prior to the last year that the Environmental Insurance Policy remains in effect, there is an "Environmental Contamination Discovery," as that term is defined in the Environmental Insurance Policy, Lessor may at its option purchase an "Extended Reporting Option;' as that term is defined in the Environmental Insurance Policy, and the obligations of Lessee arising under this Section 9(i) shall apply to such Extended Reporting Option. In the event the terms within quotes in this paragraph are not defined in the Environmental Insurance Policy, then they shall have the meaning commonly used in the industry. 10. Maintenance and Repair; Additions. --------------------------------- (a) Lessee will, at its cost and expense, keep and maintain the Leased Property, including all buildings, and any altered, rebuilt, additional or substituted buildings, and other improvements, in the same condition as on the date of this Lease, ordinary wear and tear excepted, and (except as otherwise provided in paragraph (c) of Article 12) will make all structural and non-structural, and ordinary and extraordinary changes, repairs and replacements, foreseen or unforeseen, which may be required, whether or not caused by its act or omission, to be made upon or in connection with the improvements to the Leased Property in order to keep the same in such condition, including taking action necessary to maintain the Leased Property -16- in compliance with Legal Requirements (other than Environmental Laws, which are solely governed by Article 9 hereof.) Without limiting the foregoing, Lessee acknowledges and agrees that its obligation as aforesaid shall include the roof replacement and asphalt paving described in the Property Condition Survey. Lessee shall keep the Leased Property orderly and free and clear of rubbish. Lessor shall not be required to maintain, alter, repair, rebuild or replace any improvements on the Leased Property or to maintain the Leased Property, and Lessee expressly waives the right to make repairs at the expense of Lessor pursuant to any law at any time in effect. Lessor shall have no obligation to incur any expense of any kind or character in connection with the management, operation or maintenance of the Leased Property during the Term of the Lease. Lessee shall use and operate the Leased Property or cause it to be used and operated only by personnel authorized by Lessee and Lessee shall use reasonable precautions to prevent loss or damage to the Leased Property from fire and other hazards. (b) If any Improvements shall encroach upon any property, street or right- of-way adjoining or adjacent to the Leased Property, or shall violate any restrictive covenant affecting the Leased Property or any part thereof, or shall impair the rights of others under or obstruct any easement or right-of-way to which the Leased Property is subject (excluding, however, covenants, easements or rights-of-way granted by Lessor after commencement of the Term without the consent of Lessee), then, promptly after the written request of Lessor or any Person affected by any such encroachment, violation, impairment or obstruction, Lessee shall, at its expense, either (i) obtain effective waivers or settlements of all claims, liabilities and damages resulting from each such encroachment, violation, impairment or obstruction or (ii) make such changes in the Improvements and take such other action as shall be necessary to remove such encroachments or obstructions and to end such violations or impairments, including, if necessary, the alteration or removal of any Improvement. Any such alteration or removal shall be made to the same extent as if such alteration or removal were an alteration under the provisions of paragraphs (c) or (d) of this Article 10 and there shall be no abatement of rent by reason of such alteration or removal. (c) Lessee shall have the right to make non-structural alterations, modifications or improvements to the Improvements and the Land and to make any alterations, additions, modifications or improvements to the Leased Property whether or not structurally integrated with the existing Improvements, the cost of which in any instance is $250,000 or less (a Minor Addition) without Lessor's consent; provided, however, that prior to commencing any addition having a potential cost exceeding $250,000, Lessee shall have delivered to Lessor and Lessor's Mortgagee (A) a certificate of a structural engineer licensed in the state in which the Leased Property is located and (B) a certificate of an officer of Lessee certifying that such Minor Addition, if constructed in accordance with the proposed plans and specifications, copies of which shall be delivered to Lessor and Lessor's Mortgagee, will not -17- adversely affect the structural integrity of the Improvements or materially impair the utility, fair market value, useful life or operation of the Leased Property and will conform with the character and quality of the existing Improvements and all Legal Requirements (including, without limitation, the Americans with Disabilities Act), provided that no such Certificate under clause (A) above shall be required for any addition which does not involve the preparation of plans and specifications. All Minor Additions will be constructed in a good and workmanlike manner using a quality of material and workmanship at least as good as to the original work or installation of the Improvements and in compliance with all applicable Legal Requirements and will be completed in a commercially reasonable time period. Each Minor Addition shall be made at the sole cost and expense of Lessee, may not be encumbered by Lessee and (other than Trade Fixtures) shall become the property of Lessor and subject to this Lease, provided that Lessee may remove any Minor Addition which is non-structural, provided Lessee repairs any damage resulting from such removal. No Minor Addition or other alteration or addition which does not satisfy all of the foregoing requirements of this subparagraph (c) shall be made without Lessor's written consent, which will not be unreasonably withheld, conditioned or delayed. Lessee agrees to complete the repairs, replacements and improvements to the Leased Property described on Schedule I (the "Scheduled Capital Improvements") in accordance with the provisions of this Article 10 no later than one year from the date hereof, except that the parking lot resurface work identified in Schedule I (the "Immediate Repair Work") shall be completed no later than six (6) months from the date hereof, and the roof repair work identified in Schedule I shall be completed no later than eighteen (18) months from the date hereof Lessee represents and warrants to Lessor that the estimated cost to complete such Scheduled Capital Improvements is as set forth on Schedule I. Lessor and Lessee acknowledge that, without limiting Lessor's other rights hereunder, in the event that the Immediate Repair Work is not completed within six (6) months from the date hereof, Lessee shall immediately deposit with Lessor an amount (the "Escrow Funds") equal to the lesser of (A) Fifty-Five Thousand Dollars ($55,000.00) or (B) one hundred twenty-five percent (125%) of the cost to complete the Immediate Repair Work as determined in writing by EMG, such determination to be made at Lessee's sole cost and expense. Lessor shall cause the Escrow Funds to be released to Lessee upon satisfaction of the Completion Conditions (hereafter defined) with respect to the Immediate Repair Work. Lessee agrees to provide no later than the date by when each Scheduled C4pital Improvement is to be completed the following: -18- (i) an affidavit from Lessee certifying that the Lessee has completed the Scheduled Capital Improvement and that all costs in connection therewith have been paid, together with copies of receipts for paid invoices. (ii) copies of building permits, certificates of occupancy or other certificates issued by governmental authorities, if any, in connection with the work performed. (iii) a letter from the entity which prepared the Property Condition Survey, addressed to Lessor and Lessor's Mortgagee, confirming that the applicable Scheduled Capital Improvements have been completed in a good and workmanlike manner. The delivery of the items described in clauses (i) through (iii) above shall, with respect to each particular Scheduled Capital Improvement, constitute satisfaction of the "Completion Conditions." Lessor and Lessee agree that, notwithstanding anything to the contrary set forth in this Lease, the Scheduled Capital Improvements may be completed without Lessee being required to comply with clauses (A) and (B) of the first sentence of Section 10(C) hereof. (d) All work done in accordance with this Article 10 shall comply with the requirements of all insurance policies required to be maintained by Lessee hereunder. 11. Trade Fixtures. Lessor acknowledges and agrees that all personal property, -------------- trade fixtures, machinery and equipment, including the items of trade fixtures, machinery and equipment described in Schedule E (but specifically excluding Improvements, electrical, plumbing, HVAC and other building systems and other replacements of fixtures, machinery and equipment which are the property of Lessor) hereto are and shall remain the property of Lessee (Trade Fixtures) and be treated as "trade fixtures" for the purposes of this Lease and Lessee shall remove the same from the Leased Property at any time prior to the termination of this Lease, and Lessee shall repair any damage to the Leased Property resulting from such removal. Lessee may, at its own cost and expense, install or place or reinstall or replace upon or remove from the Leased Property any such Trade Fixtures. Any such Trade Fixtures shall not become the property of Lessor. Replacements of fixtures, machinery and equipment which are property of the Lessor shall be of at least equal quality to the replaced fixtures, machinery and equipment as of the Commencement Date, reasonable wear and tear excepted. Lessor agrees, at Lessee's expense, to confirm that it has no interest in, and to waive any right to place a lien against, any Trade Fixtures. -19- 12. Condemnation and Casualty. ------------------------- (a) Lessee hereby assumes all risk of loss, damage or destruction, whether (i) by fire or hazard or casualty, or the theft of all or any portion of the Leased Property (a Casualty) or (ii) by taking, condemnation, seizure, confiscation or requisition of use or title of all or any portion of the Leased Property by any governmental body or authority or any Person legally vested with such powers (a Taking; a Taking and a Casualty are each sometimes referred to as a Destruction). Lessee hereby assigns to Lessor any award or insurance or other payment to which Lessee may become entitled by reason of its interest in the Leased Property (other than any award or insurance or other payment made to Lessee specifically made for interruption of business, moving expenses or Trade Fixtures; hereinafter referred to as Lessee's Loss), if the Leased Property, or any portion thereof, is damaged, destroyed, lost or taken in a Taking or a Casualty. If a Destruction with respect to the Leased Property occurs, the Lessee shall give Lessor and Lessor's Mortgagee prompt written notice thereof, and describe in reasonable detail in each case the circumstances of the Taking or Casualty and the damage to or loss of the Leased Property. So long as no Event of Default has occurred and is continuing, and provided Lessee satisfies the Credit Rating Test and the Restoration Test (defined in Section 12(c) hereof) Lessee shall at its cost and expense, in the name and on behalf of the Lessor, Lessee, Lessor's Mortgagee or otherwise, appear in any such proceeding or other action, negotiate, accept and prosecute any claim for any award, compensation, insurance proceeds or other payment on account of any such Casualty or Taking and, subject to paragraph (b) below, cause each such award, compensation, insurance proceeds or other payment to be paid to Lessor's Mortgagee, if any, and otherwise, to Lessor. Lessee shall use commercially reasonable efforts to achieve the maximum award or other recoveries obtainable under the circumstances. Any negotiated awards, settlement or recoveries shall be subject to Lessor's and Lessor's Mortgagee's prior written approval. Lessor may appear in any such proceeding or other action in a manner consistent with the foregoing and if an Event of Default then exists hereunder, the reasonable costs and expenses of any such appearance shall be borne by Lessee and payable to Lessor as Additional Rent. Lessee shall promptly inform Lessor of all settlement offers. If an Event of Default has occurred and is continuing, or if Lessee does not satisfy the Credit Rating Test or the Restoration Test, Lessor's Mortgagee (or if there be none, Lessor) shall have the right at Lessee's cost to negotiate, adjust and settle awards, settlements and recoveries without Lessee's approval. (b) If there shall be a Destruction affecting the Leased Property or any part thereof, then Lessee shall give prompt written notice of such Destruction to Lessor and Lessor's Mortgagee, including a description thereof in reasonable detail. Thereafter, Lessee shall, at Lessee's own cost and expense, proceed with diligence and promptness (i) to carry out any work necessary to make the Leased Property safe and secure, and (ii) to restore, repair, replace, rebuild and/or improve the Leased -20- Property in order to restore the Leased Property, as nearly as practicable, to a condition not less than the condition required to be maintained hereunder immediately prior to such Destruction. All construction work shall be undertaken and completed in the same manner as if the same were a Minor Addition, but subject to the reasonable requirements of Lessor's Mortgagee as provided for in clause (ii) below, including, without limitation, review and approval of plans and specifications to confirm consistency with the requirements of the Lease. The foregoing obligations of Lessee so to restore, repair, replace and/or rebuild the Leased Property shall not be applicable (but the foregoing obligations of Lessee to make the Leased Property safe and secure shall be applicable) if Lessor terminates the Lease pursuant to paragraph (c). Basic Rent and Additional Rent shall not abate hereunder by reason of any Destruction affecting the Leased Property, and this Lease shall continue in full force and effect and Lessee shall continue to perform and fulfill all of Lessee's obligations, covenants and agreements hereunder notwithstanding such Destruction. The Net Award (as defined in Appendix I) shall be applied to effect compliance with Lessee's obligations hereunder. If the Net Award is less than the estimated cost of restoring or rebuilding the Improvements to the condition required in this paragraph (b) (as reasonably determined by Lessor at Lessee's expense), then, unless such estimated cost is less than the Restoration Threshold Amount, Lessee shall deposit the amount by which such estimated cost exceeds the Net Award with the Depositary (as defined below) or shall post an equivalent bond or other security reasonably satisfactory in form and substance to Lessor and Lessor's Mortgagee issued by a surety, bank or other Person satisfactory to Lessor and Lessor's Mortgagee, whereupon such deposit or bonded amount shall be part of the Net Award for purposes of paragraph (b) of this Article 12. If the Net Award does not exceed $25,000 (the Restoration Threshold Amount, provided that so long as no Event of Default has occurred and is continuing and Lessee satisfies the Credit Rating Test, the Restoration Threshold Amount shall. be $500,000) then the Net Award shall be promptly paid to Lessee to be applied to the repair and rebuilding required by this paragraph (b). If the Net Award exceeds the Restoration Threshold Amount then: (i) the full amount thereof shall be paid to a depositary (the Depositary). The Depositary shall be (a) Lessor's Mortgagee or its servicer, or (b) a bank or trust company selected by Lessor and approved by Lessor's Mortgagee, and reasonably satisfactory to Lessee, and which has an issuer credit rating (hereafter, "credit rating") from S&P or Moody's (or any successor to either entity) of "A" or "A2", respectively, or better. The Depositary shall have no affirmative obligation to prosecute a determination of the amount of, or to effect the collection of, any insurance proceeds or condemnation award or awards. Moneys so received by the Depositary shall be held by the Depositary in trust separately for the uses and purposes provided in this Lease. To the extent not available to be paid from the Net -21- Award, fees and expenses payable to the Depositary shall be paid by Lessee as Additional Rent. (ii) Payments of the Net Award for the actual costs and expenses incurred by Lessee in connection with such repair and rebuilding shall be made to Lessee by the Depositary after written notice to the Depositary, with a copy to Lessor, setting forth in reasonable detail all of such costs and expenses actually incurred by Lessee, provided that draws shall be made no more frequently than on a monthly basis. Lessee shall comply with the reasonable requirements of Lessor's Mortgagee, if any, with respect to the distribution of any Net Award by the Depositary, including without limitation that Lessor's Mortgagee shall have received applicable lien waivers, architect's certificates and title insurance endorsements, and that no Event of Default shall have occurred and be continuing hereunder. (c) Notwithstanding the foregoing, if there is any Destruction and either (i) at the time of such Destruction, Guarantor has a credit rating from S&P of "BB-" or better and, if the Credit Rating is BB- a watch position of neutral or better (the "Credit Rating Test"), and the value of the Leased Property immediately following such Destruction is less than 50% of its value immediately prior to such Destruction, or (ii) at the time of such Destruction or at any time thereafter until the Leased Property is restored pursuant to this Article 12, there shall be an Event of Default or any monetary default shall exist (Lessee having no rights to an abatement or reduction of Basic Rent, Additional Rent or other sums due hereunder), or (iii) Lessee fails to deliver to Lessor within six months of the Destruction an architect's certificate satisfactory to Lessor that restoration of the Leased Property is capable of being completed with reasonable diligence by the Outside Restoration Date and such failure continues for 20 days after Lessee's Actual knowledge or such failure, or (iv) Lessor fails to complete such restoration by the Outside Restoration Date (clauses (iii) and (iv) being referred to as the "Restoration Test") then, at the option of Lessor, upon notice from Lessor of any such event which makes specific reference to this Article 12(c) and the invocation of the offer provisions hereinafter provided for, Lessor may require Lessee to make and Lessee shall be deemed to have made an offer to purchase the Leased Property in the manner and under the terms of Article 15 on the Installment Payment Date first occurring thirty (30) days after Lessor's acceptance of such offer for a purchase price equal to the Termination Value as of the date of purchase plus the Reinvestment Premium, less in all events the Net Award actually received by Lessor or Lessor's Mortgagee (and Lessor shall assign to Lessee any other Net Award.) Lessor shall have sixty (60) days after such offer to accept or reject it, and if it fails to act, it shall be deemed to have accepted such offer. No rejection of such offer shall be effective unless consented to by Lessor's Mortgagee. If Lessor rejects such offer, this Lease shall terminate on the Installment Payment Date first occurring thirty (30) days after such rejection, and the entire Net Award shall be retained by Lessor. -22- For purposes hereof, the "Outside Restoration Date" shall mean 18 months after the Destruction, subject to extension by Lessor of not more than 90 days to the extent that restoration is delayed due to acts of God, unavailability of materials, strike, or further Destruction. (d) Notwithstanding any other provision to the contrary contained in this Article 12, in the event of a temporary condemnation, this Lease shall remain in full force and effect (including without limitation the obligation of Lessee to continue to pay Basic Rent and Additional Rent) and the Lessee shall be obligated to continue to pay Basic Rent and Additional Rent and Lessee shall be entitled to the Net Award allowable to such temporary condemnation; except that any portion of the Net Award allocable to the time period after the expiration or termination of the Term shall be paid to Lessor. 13. Insurance. --------- (a) Lessee shall, at its cost and expense, maintain or cause to be maintained valid and enforceable insurance of the following character and shall cause to be delivered to Lessor and Lessor's Mortgagee annual certificates of the insurers as to such coverage and shall comply with the requirements of this Article 13 (Insurance Requirements): (i) "all risks" property insurance covering the Leased Property and all replacements and additions thereto, and all building materials and other property which constitute part of the Leased Property in a manner consistent with insurance maintained by Lessee on properties similar to the Leased Property and in any event in amounts not less than the actual replacement cost of the Leased Property less Land and other uninsurable items, subject to an agreed value endorsement (to be updated annually), together with a replacement cost endorsement and an endorsement providing for law and ordinance coverage, all of such insurance to have a deductible not greater than $25,000. (ii) public liability insurance covering legal liability on an "occurrence" basis against claims for bodily injury, death or property damage, occurring on, in or about the Leased Property and the adjoining land, streets, sidewalks or ways occurring as a result of construction and use and occupancy of facilities located on the Leased Property or as a result of the construction thereof or the use of products or materials manufactured, processed, constructed or sold, or services rendered, on the Leased Property, in the minimum amount of $5,000,000 (or such higher amount as Lessor may reasonably require from time to time) with respect to any one occurrence, accident or disaster or incidence of negligence and with a maximum deductible reasonably acceptable to Lessor. -23- (iii) Worker's compensation insurance (or other similar insurance or self insurance program permitted and in compliance with the laws of the state in which the Leased Property is located) covering all Persons employed in connection with any work done on or about the Leased Property with respect to which claims for death or bodily injury could be asserted against Lessor, Lessee or the Leased Property, complying with the laws of the state in which the Leased Property is located. (iv) if any portion of the Leased Property is located in an area designated by the Federal Emergency Management Association as having special flood hazards, flood insurance in the maximum available amount under the Flood Disaster Protection Act of 1973 and otherwise meeting the requirements of the Federal Insurance Administration. (v) business interruption insurance in amounts sufficient to compensate Lessor for all Basic Rent, Additional Rent or other income hereunder during a period not less than twelve (12) months, the amount of such coverage to be adjusted annually to reflect the Basic Rent, Additional Rent and other income payable during the succeeding twelve (12) month period. (vi) Such other insurance, in such amounts, against such risks, and with such other provisions as is customarily and generally maintained by operators of similar properties, including insurance against loss or damage from explosion of steam boilers, air conditioning equipment, high pressure piping, machinery and equipment, pressure vessels or similar apparatus. Such insurance shall be written by insurance companies with a general policyholder's service rating of not less than "A" and a financial rating of not less than "XI" as rated in the most currently available Best's Insurance Reports, and with claims paying ability rating from S&P and Moody's of "A" (or "AA" with respect to policies described under subparagraph v) or better and which are legally qualified to issue such insurance in the state where the Leased Property is located, and otherwise satisfactory to Lessor. Insurance certificates evidencing the coverage required above shall be deposited with the Lessor by Lessee on the date hereof and thereafter no less frequently than annually. With respect to the policies described under subparagraphs (i) (ii), (iv), (v) and, if applicable, (vi), the Lessee also shall deliver insurance certificates evidencing the coverage required under said subparagraphs to the Lessor's Mortgagee, naming the Lessor's Mortgagee as the certificate holder. The form and substance of such certificates shall be satisfactory to Lessor and Lessor's Mortgagee and shall be issued by the insurer. -24- All policies of property insurance provided for herein shall name the Lessor as loss payee and Lessor's Mortgagee as loss payee, mortgagee and additional insured, as its interest may appear, and all liability policies shall name the Lessor and the Lessor's Mortgagee as additional insured, as their interests may appear and the policies required under subparagraphs (i), (iv), and (v) above shall identify the Lessor as the owner of the Leased Property. In addition, all policies of insurance required under this Lease shall contain a standard mortgagee clause form endorsement naming the Lessor's Mortgagee as loss payee, mortgagee and additional insured; and any provisions in such insurance for risk retention by Lessee shall be subject to the reasonable approval of Lessor and Lessor's Mortgagee. All policies required under this Article 13 shall provide that (i) the insurance evidenced thereby shall not be canceled or materially modified without at least thirty (30) days' prior written notice from the insurance carrier to the Lessor and the Lessor's Mortgagee, and (ii) no claims shall be paid thereunder without ten (10) days' advance written notice to the Lessor and the Lessor's Mortgagee. Furthermore, the Lessee shall be required to deliver certificates of all insurance required under this Article 13 at least thirty (30) days prior to the earlier of the expiration of the existing insurance period or the due date for all premiums for the renewal of such policies. All insurance policies and endorsements shall be for a term of not less than one year and shall be fully prepaid and nonassessable. The Lessee shall not obtain any separate or additional insurance which is contributing in the event of loss unless the Lessor and the Lessor's Mortgagee are each insured thereunder (as their interests may appear) and the policies therefor are satisfactory to the Lessor and the Lessor's Mortgagee. (b) Any Net Award arising out of a Destruction remaining after Lessee has repaired and/or improved the Leased Property pursuant to paragraph (b) of Article 12 shall be paid to Lessor. (c) Every insurance policy maintained pursuant to this Lease shall (i) provide that the issuer waives all rights of subrogation against Lessor, any successor to Lessor's interests in the Leased Property and Lessor's Mortgagee; and (ii) provide that 30 days' advance written notice of cancellation, material modification, termination or lapse of coverage shall be given to Lessor and Lessor's Mortgagee and that such insurance, as to the interest of Lessor and Lessor's Mortgagee, shall not be invalidated by any foreclosure or any other proceedings relating to the Leased Property, nor by any change in the title ownership of the Leased Property, nor by use or occupation of the Leased Property for purposes more hazardous than are permitted by such policy; and (iii) be primary and without right or provision of contribution as to any other insurance carried by Lessor or any other interested party; and (iv) in the event any insuring company is not domiciled within the United States of America, include a United States Service of Suit clause (providing any actions against the insurer by the named insured or Lessor are conducted within the jurisdiction of the United States of America). So long as each policy of insurance -25- complies with clause (i) above, Lessor and Lessee each waive all rights of subrogation against the other, to the extent of applicable insurance coverage. (d) Lessee shall comply with all of the terms and Conditions of each insurance policy maintained pursuant to the terms of this Lease. (e) If at any time an Event of Default has occurred and is continuing and Lessor has not terminated this Lease as set forth in Article 20, or if at any time the credit rating assigned to Lessee by S&P is "B" or less, (and if such credit rating is raised from "B" to a higher level, until the next time real estate taxes are payable with respect to the Leased Property), Lessee shall on demand pay to Lessor or Lessor's Mortgagee on the same day of each month that Basic Rent is due hereunder a monthly payment in such amount as Lessor or Lessor's Mortgagee reasonably determines to be necessary to create and maintain a reserve fund from which to pay before they become due all Taxes and Impositions, and all premiums on insurance required to be maintained by Lessee pursuant to Article 13 hereof (the "Tax and Insurance Reserve Fund"). All such sums shall be held by Lessor or Lessor's Mortgagee free of trust and without interest to Lessee, and may be commingled with other funds. Any excess reserve shall be credited against subsequent reserve payments required hereunder, and any deficiency shall be paid by Lessee upon demand, but in no event later than five (5) days before the date when such Taxes and Impositions and insurance premiums shall become delinquent. To the extent that adequate funds for Taxes and Impositions have been paid to create a reserve fund, Lessor shall, on not less than 15 days' written request of Lessee, cause the same to be applied to Taxes and Impositions payable by Lessee hereunder. Any unapplied portion of the Tax and Insurance Reserve Fund shall be returned to Lessee within thirty (30) days after the expiration of the Term or termination of this Lease, provided there exists no breach of any undertaking of Lessee, it being agreed that this provision shall survive termination of this Lease. Upon the occurrence of any Event of Default by Lessee hereunder, Lessee agrees that Lessor may apply all or any portion of the Tax and Insurance Reserve Fund to any obligation of Lessee hereunder. If all or any portion of the Tax and Insurance Reserve Fund is applied to any obligation of Lessee hereunder, Lessee shall immediately upon request of Lessor restore the Tax and Insurance Reserve Fund to its original amount. Lessee shall not have the right to call upon Lessor to apply all or any portion of the Tax and Insurance Reserve Fund to cure any default or fulfill, any obligation of Lessee hereunder, but such use shall be solely in the discretion of Lessor. Upon any conveyance of the Leased Property by Lessor, the Tax and Insurance Reserve Fund shall be delivered by Lessor to Lessor's transferee, and upon such delivery, Lessee releases Lessor herein named of any and all liability with respect to the fund, its application and return, and Lessee agrees to look solely to such transferee with respect thereto. The provisions of the previous sentence shall also apply to subsequent transferees. -26- 14. Financial Statements; Certificates. Lessee will cause to be delivered to ---------------------------------- Lessor and Lessor's Mortgagee the following financial statements of Guarantor. (i) as soon as practicable, copies of all such financial statements, proxy statements, notices, other communications, and reports as Guarantor shall send to its shareholders and other information generally made available to banks and other lenders (exclusive of proprietary information); (ii) for any period that Guarantor is a public company, as soon as practicable, copies of all regular, current or periodic reports (including reports on Form 10-K, Form 8-K and Form 10-Q) which Guarantor is or may be required to file with the Securities and Exchange Commission or any governmental body or agency succeeding to the functions of the Securities and Exchange Commission; and (iii) if Guarantor shall no longer be a public company required to file such reports with the Securities and Exchange Commission then within 120 days after the end of each fiscal year, and within 60 days after the end of any other fiscal quarter, a consolidated statement of earnings, and a consolidated statement of changes in financial position, a consolidated statement of stockholders' equity, and a consolidated balance sheet of Guarantor as at the end of each such year or fiscal quarter, setting forth in each case in comparative form the corresponding consolidated figures from the preceding annual audit or corresponding fiscal quarter in the prior fiscal year, as appropriate, all in reasonable detail and satisfactory in scope to Lessor and Lessor's Mortgagee, and certified to Guarantor as to the annual consolidated statements by independent public accountants of recognized national standing selected by Guarantor, whose certificate shall be based upon an examination conducted in accordance with generally accepted auditing standards and the application of such tests as said accountants deem necessary under the circumstances; and Concurrently with the delivery of annual financial statements pursuant hereto, Lessee will cause to be delivered to Lessor and Lessor's Mortgagee a certificate by an Executive Officer of Lessee detailing capital improvements made to the Leased Property during the prior calendar year and a projection of such matters for the next calendar year. In addition, Lessee agrees and agrees to cause Guarantor upon prior written request to meet with Lessor and Lessor's Mortgagee during normal business hours at mutually convenient times, from time to time, to discuss this Lease and such information about Lessee's and Guarantor's business and financial condition requested by Lessor. Lessor shall have the right to share any information delivered to the Lessor pursuant to this Section 14, or otherwise with Lessor's Mortgagee, potential mortgagees, rating agencies, servicers, potential purchasers of the Leased Property or a beneficial interest -27- therein and all other parties having a legitimate business purpose for reviewing the same. 15. Purchase Procedure. ------------------ (a) In the event of the purchase of Lessor's interest in the Leased Property by Lessee pursuant to any provision of this Lease, the terms and conditions of this Article 15 shall apply. (b) On the dosing date fixed for the purchase of Lessor's interest in the Leased Property. (i) Lessee shall pay to Lessor, or as Lessor directs, in lawful money of the United States-in-immediately available funds, at Lessor's address hereinabove stated or at any other place in the United States which Lessor may designate, an amount equal to the purchase price described in such provision; (ii) Lessor shall execute and deliver to Lessee a limited warranty deed, sufficient to convey insurable title to the Leased Property, and an assignment and such other instrument or instruments as may be appropriate and customary in accordance with prevailing local conveyancing practices which shall transfer all of Lessor's interest in the Leased Property, including, without limitation, a bill of sale to the extent applicable, in each case free and clear of any Mortgage or liens (except the liens described in (C) below), but subject to (A) any encumbrances existing on the first day of the Term, (B) Permitted Encumbrances (other than any Mortgage and any assignments of this Lease), (C) all liens, encumbrances, charges, exceptions and restrictions attaching to the Leased Property after the beginning of the Term (other than those created or caused by or through Lessor without the consent of Lessee, and other than any Mortgage and any assignments of this Lease), and (D) all Legal Requirements; (iii) Lessee shall pay all reasonable charges incident to such transfer or the termination of the Lease which are incurred by Lessor, Lessor's Mortgagee or Lessee, including but not limited to all transfer taxes, conveyance fees, recording fees, escrow fees, title insurance premiums and federal, state and local taxes (except for any net income or profit taxes of Lessor or Lessor's Mortgagee) and reasonable attorneys' fees and expenses of Lessor's counsel and counsel to Lessor's Mortgagee; (iv) Lessee shall pay to Lessor all Basic Rent, Additional Rent and other sums payable by Lessee under this Lease, due and payable through the date Lessee purchases Lessor's interest in the Leased Property; and (v) Lessor's transfer of its ownership in the Leased Property shall be on an as-is basis, without any representation or warranty, either express or implied, -28- as to the design, condition, quality, capacity, merchantability, habitability, durability, suitability or fitness of the Leased Property for any particular purpose, or any other matter concerning the Leased Property or any portion thereof. 16. Quiet Enjoyment. So long as no Event of Default under this Lease shall have --------------- occurred and be continuing, Lessor covenants that Lessee shall and may at all times peaceably and quietly have, hold and enjoy the Leased Property during the Term of this Lease. Notwithstanding the preceding sentence, (a) Lessor may exercise its rights and remedies under Article 20 and (b) Lessor, Lessor's Mortgagee, or their agents may enter upon and inspect the Leased Property, during normal business hours after 24-hours' written notice. So long as no Event of Default exists hereunder, a representative of Lessee shall be permitted to be present during the entry and inspection set forth in clause (b). Any failure by Lessor to comply with the foregoing warranty shall not give Lessee any right to cancel or terminate this Lease, or to abate, reduce or make deduction from or off-set against any Basic Rent, as hereinafter defined, or Additional Rent or other sum payable under this Lease, or to fail to perform or observe any other covenant, agreement or obligation hereunder or to recover any damages against Lessor resulting therefrom. Subject to the foregoing sentence, Lessee shall have the right to obtain injunctive or other relief against Lessor for breach of the aforesaid covenant of peaceful and quiet possession and enjoyment of the Leased Property. 17. Survival. In the event of the termination of this Lease as herein provided, -------- the obligations and liabilities of Lessee, actual or contingent, under this Lease which arose at or prior to such termination shall survive such termination. 18. Subletting; Assignment. ---------------------- (a) Lessee may sublet the Leased Property or any portion thereof, or assign its interest in this Lease, provided that. (i) No Event of Default under this Lease has occurred and is continuing on the date of such sublease or assignment; and (ii) Each sublease or assignment shall expressly be made subject to the provisions hereof. (b) No such sublease or assignment shall affect or reduce any obligations of Lessee or any Guarantor, or the rights of Lessor hereunder, and all obligations of Lessee hereunder shall continue in full effect as the obligations of a principal and not of a guarantor or surety, as though no subletting or assignment had been made. (c) Lessee shall, at least 10 days prior to the execution of any such sublease or assignment, deliver to Lessor a certificate of an Executive Officer stating the uses -29- permitted under such sublease or assignment, and within 10 days after such execution, a conformed copy thereof and of any short form lease or memorandum of lease which has been prepared for recording purposes. (d) Neither this Lease nor the Term of this Lease shall be mortgaged by Lessee, nor shall Lessee mortgage or pledge the interest of Lessee in and to any sublease of the Leased Property or any portion thereof or the rental payable thereunder. Any such mortgage or pledge, and any sublease or assignment not permitted by this Article 18, shall be void. (e) Lessee shall pay as Additional Rent to Lessor on demand all reasonable costs and expenses of Lessor and Lessor's Mortgagee (including attorneys' fees) in reviewing or executing any instrument pursuant to this Article 18. 19. Advances by Lessor. If Lessee shall fail to make or perform any payment or ------------------ act required by this Lease, then, upon ten (10) Business Days' notice to Lessee (or upon shorter notice or no notice, to the extent necessary to meet an emergency or a governmental limitation), Lessor may at its option make such payment or perform such act for the account of Lessee, and Lessor shall not thereby be deemed to have waived any default or released Lessee from any obligation hereunder. Amounts so paid by Lessor and all incidental costs and expenses (including reasonable attorneys' fees and expenses) incurred in connection with such payment or performance shall constitute Additional Rent and shall be paid by Lessee to Lessor on demand. 20. Conditional Limitations - Events of Default and Remedies. -------------------------------------------------------- (a) Any of the following occurrences or acts shall constitute an "Event of Default" under this Lease: (i) if Lessee shall (A) default in making payment of any installment of Basic Rent for more than 5 days following notice from Lessor of such default, (B) fail to timely pay any Taxes and Impositions pursuant to Article 6, (C) fail to keep in full force and effect the casualty or general liability insurance coverage required to be maintained by Lessee hereunder (D) default in its obligation to purchase the Leased Property when required to do so by any provision of this Lease or (E) default in making any payment of Additional Rent and such default shall continue for seven (7) days after notice from Lessor of such default; or (ii) if Lessee shall default in the performance of any other covenant, agreement or obligation on the part of Lessee to be performed under this Lease and such default shall continue for a period of 30 days after Actual Knowledge thereof; provided, however, that in the case of a default which can with reasonable diligence be remedied by Lessee, but not within a period of 30 days, if Lessee shall commence within such period of 30 days to remedy the default and thereafter shall prosecute -30- the remedying of such default with all reasonable diligence, the period of time after obtaining such Actual Knowledge of default within which to remedy the default shall be extended for such period not to exceed an additional 330 days as may be reasonable to remedy the same with all reasonable diligence; or (iii) if Lessee or any guarantor of Lessee's obligations under the Lease (Guarantor) shall file a petition of bankruptcy or for reorganization or for an arrangement pursuant to the Bankruptcy Code, or shall be adjudicated as bankrupt or become insolvent or shall make an assignment for the benefit of its creditors, or shall admit in writing its inability to pay its debts generally as they become due, or shall be dissolved, or shall suspend payment of its obligations, or shall take any corporate action in furtherance of any of the foregoing; or (iv) if a petition or answer shall be filed proposing the adjudication of Lessee or any Guarantor as bankrupt, or its reorganization pursuant to the Bankruptcy Code, and (A) Lessee shall consent to the filing thereof, or (B) such petition or answer shall not be discharged or denied within 60 days after the filing thereof; or (v) if a receiver, trustee or liquidator (or other similar official) shall be appointed for or take possession or charge of Lessee, or Lessee's estate or interest in the Leased Property, and shall not be discharged within 60 days thereafter, or if Lessee shall consent to or acquiesce in such appointment; or (vi) if the Leased Property shall have been left unattended, unsecured and without maintenance; or (vii) if any Guarantor shall default under the terms of any guaranty of this Lease beyond applicable grace or cure periods, if any. (viii) if Lessee shall fail to satisfy the Completion Conditions with respect to the Scheduled Capital Improvements within the applicable time periods provided for in Section 10(c); or (ix) if Lessee or any person conveying title to the Leased Property to Lessor or any Guarantor has made a material misrepresentation under this Lease or any Guaranty or any certificate or writing tendered in connection with the execution and delivery of this Lease; or (x) Lessee or Guarantor fails to comply with the provisions of any agreement of indemnification made hereunder or in connection with this Lease and such failure continues for ten (10) days after notice; or -31- (xi) Lessee fails to cure any violation of any Legal Requirement within 30 days of Actual Knowledge thereof, or such shorter period of time as may be provided for in any cure letter, demand, order or similar document from any governmental agency received by Lessee (the "Required Cure Date"), subject to extension of the Required Cure Date if Lessee diligently contests any such Legal Requirement in accordance with Article 6(d) hereof, so long as any security required by said Article is posted prior to the Required Cure Date; or (xii) Lessee fails to deliver to Lessor the Asbestos O & M Plan by the time required by Section 9(a)(iv) hereof, or fails to complete any Scheduled Capital Improvements by the time required by Section 10(c) hereof, or fails, and such failure is not cured within five (5) days following notice from Lessor, to timely make an escrow payment required by Section 10(c) hereof. (b) This Lease and the term and estate hereby granted are subject to the limitation that whenever an Event of Default shall have occurred and be continuing, Lessor may, at Lessor's option, elect to (i) re-enter the Leased Property, without notice, and remove all Persons and property therefrom, either by summary proceedings or by any suitable action or proceeding at law, or otherwise, without being liable to indictment, prosecution or damages therefor, and may have, hold and enjoy the Leased Property, together with the appurtenances thereto and the improvements thereon; and/or (ii) terminate this Lease at any time by giving notice in writing to Lessee, electing to terminate this Lease and specifying the date of termination, and the Term of this Lease shall expire by limitation at midnight on the date specified in such notice as fully and completely as if said date were the date originally fixed for the expiration of the Term, and Lessee shall thereupon quit and peacefully surrender the Leased Property to Lessor, without any payment therefor by Lessor. (c) In case of any such re-entry, termination and/or dispossession as provided in the immediately preceding paragraph, (i) the Basic Rent and Additional Rent shall become due thereupon and be paid up to the time of such re-entry, dispossession and/or termination, together with such expenses, including reasonable attorneys' fees, as Lessor shall incur in connection with such re-entry, termination and/or dispossession; and (ii) Lessor may in good faith relet the Leased Property or any part thereof (but shall be under no obligation to do so, except to the extent required by law) for its sole account without any duty to account therefor to Lessee, either in the name of Lessor or otherwise, for a term or terms which may, at Lessor's option, be equal to or less than or exceed the period which would otherwise have constituted the balance of the Term; (iii) Lessee shall also pay to Lessor the amount by which the Basic Rent exceeds the net amount, if any, of the rents collected on account of the leases of the Leased Property for each monthly period which would otherwise have constituted the Term, which amounts shall be paid in monthly installments by Lessee on the respective Installment Payment Dates specified therefor, -32- and any suit brought to collect said amounts for any period shall not prejudice in any way the rights of Lessor to collect the deficiency in any subsequent period by a similar action or proceeding; (iv) Lessee shall also pay to Lessor all other damages and expenses which Lessor shall reasonably have sustained by reason of the breach of any provision of this Lease, including without limitation reasonable attorneys' fees and expenses, brokerage commissions and expenses incurred in altering, repairing and putting the Leased Property in good order and condition and in preparing the same for reletting, which expenses shall be paid by Lessee as they are incurred by Lessor; and (v) at the option of Lessor exercised at any time, Lessor forthwith shall be entitled to recover from Lessee as liquidated damages, in addition to any other proper claims but in lieu of and not in addition to any amount which would thereafter have become payable under the preceding clause (iii), the Termination Value for the date on which Lessor demands such payment together with the Reinvestment Premium less the present value (using a discount rate of 8% per annum) of the fair market rental value of the Leased Property for the remainder of the Term. In calculating the rent reserved for the residue of the Term, there shall be included, in addition to the Basic Rent, all Additional Rent and the value of all other consideration agreed to be paid or performed by Lessee for said residue. Lessor, at Lessor's option, may make such alterations or decorations in the Leased Property as Lessor, in Lessor's sole judgment, considers advisable and necessary for the purpose of reletting the Leased Property; and the making of such alterations or decorations shall not operate or be construed to release Lessee from liability hereunder as aforesaid. (d) No receipt of moneys by Lessor from Lessee after a termination of this Lease by Lessor shall reinstate, continue or extend the Term of this Lease or affect any notice theretofore given to Lessee, or operate as a waiver of the right of Lessor to enforce the payment of Basic Rent and Additional Rent, and any Termination Value or related amounts to be paid by Lessee to Lessor for the purchase of the Leased Property then due or thereafter falling due, it being agreed that after the commencement of suit for possession of the Leased Property, or after final order or judgment for the possession of the Leased Property, Lessor may demand, receive and collect any moneys due or thereafter falling due without in any manner affecting such suit, order or judgment, all such moneys collected being deemed payments on account of the use and occupation of the Leased Property or, at the election of Lessor, on account of Lessee's liability hereunder. Lessee hereby waives any and all rights of redemption provided by any law, statute or ordinance now in effect or which may hereafter be enacted. (e) The word "re-enter", as used in this Lease, shall not be restricted to its technical legal meaning, but is used in the broadest sense. No such taking of possession of the Leased Property by Lessor shall constitute an election to terminate the Term of this Lease unless notice of such intention be given to Lessee or unless such termination be decreed by a court. -33- (f) If an action shall be brought by either party for the enforcement of any provision of this Lease, the prevailing party shall pay to the other party all reasonable costs and other expenses incurred by the prevailing party as a result thereof, including reasonable attorneys' fees and expenses. (g) No right or remedy herein conferred upon or reserved to Lessor is intended to be exclusive of any other right or remedy, and every right and remedy shall be cumulative and in addition to any other legal or equitable right or remedy given hereunder, or at any time existing. The failure of Lessor or Lessee to insist upon the strict performance of any provision or to exercise any option, right, power or remedy contained in this Lease shall not be construed as a waiver or a relinquishment thereof for the future. Receipt by Lessor of any Basic Rent or Additional Rent or any other sum payable hereunder with knowledge of the breach of any provision contained in this Lease shall not constitute a waiver of such breach. No waiver by Lessor or Lessee of any provision of this Lease shall be deemed to have been made unless made under signature of an authorized representative of such party. 21. Granting of Easements, Etc. If no Event of Default has occurred and is -------------------------- continuing, Lessee may from time to time in writing request Lessor to join with Lessee (at Lessee's cost and expense), to (i) grant easements, licenses, rights of way and other rights and privileges in the nature of easements for the purposes of providing utilities and the like to the Leased Property, (ii) release existing easements and appurtenances relating to the provision of utilities and the like to the Leased Property and (iii) execute and deliver any instrument, in form and substance reasonably acceptable to Lessor, necessary or appropriate to make or confirm such grants or releases to any Person, with or without consideration; provided that an Executive Officer of Lessee shall have certified to Lessor and Lessor's Mortgagee that such grant or release does not materially interfere with and is not materially detrimental to the conduct of business on the Leased Property and does not impair the usefulness or fair market value of the Leased Property, and was made for no or only nominal consideration. Notwithstanding the foregoing, Lessor and/or Lessor's Mortgagee may condition its consent to such action on being provided evidence satisfactory to each in its sole discretion that such action presents no material risk of liability, expense or adverse tax consequences to Lessor, Lessor's Mortgagee or the holder of any CMBS. Lessee shall pay as Additional Rent to Lessor on demand all reasonable costs and expenses of Lessor and Lessor's Mortgagee (including attorneys' fees) in reviewing or executing any instrument pursuant to this Article 21. 22. Intentionally Omitted/Not Applicable. ------------------------------------ 23. Rent Reset. In accordance with and subject to the provisions of this ---------- Section 23, Lessor and Lessee agree to (a) amend the Basic Rent payable hereunder from and after a date which is on or before the Year 10 Expiration Date (defined in Schedule B) -34- (the Basic Rent as so amended shall be hereinafter referred to as the Reset Rent), and (b) execute and deliver a Rent Reset Lease Amendment (hereinafter defined), both no later than the dates specified in subparagraphs (d) or (f) below, as applicable (the Rent Reset). (a) The Reset Rent payable by Lessee to Lessor from and after the effective date of the Rent Reset provided for in subparagraphs (d) or (f) below, as applicable, shall equal the sum of (i) the Fixed Amount (hereinafter defined), plus (ii) the Variable Amount (hereinafter defined). For purposes of this Section 23, the "Fixed Amount" shall equal $29,753.00 per month and the "Variable Amount" shall equal an amount per month for the remainder of the Basic Term from the effective date of the Rent Reset sufficient to amortize the sum of (x) $6,611,388.00 and (y) Lessor's estimate of the Closing Costs (defined in Section 23(g)) (the sum of (x) and (y) being referred to herein as the "Reset Amount") together with imputed interest on such Reset Amount at the Imputed Interest Rate (hereinafter defined) over an amortization period of 22 years. The "Imputed Interest Rate" used to calculate the Variable Amount portion of the Reset Rent shall reflect the actual or imputed interest rate at which Lessor is able to borrow the Reset Amount (as provided for in subparagraphs (b) and (c) below) from an Institutional Investor (defined in Appendix I) (such interest rate is hereafter referred to as the Lessor's Rate) pursuant to a non-recourse loan secured solely by a first mortgage encumbering the Leased Property together with a collateral assignment of this Lease, taking into account the creditworthiness of Lessee and Guarantor and the terms and conditions contained in this Lease. (b) No sooner than 240 days and no later than 180 days prior to the Year 10 Expiration Date, Lessor will specify in writing to Lessee (a Lessor's Year 10 Notice) the proposed Lessor's Rate, which shall be based upon a firm written commitment for financing (a Lessor's Loan) actually obtained by Lessor from an Institutional Investor (a Lessor's Loan Commitment), or if no such Lessor's Loan Commitment has been obtained, upon Lessor's determination as to what would have been Lessor's Rate had Lessee obtained such a firm written commitment, provided, -------- however, that if, in Lessor's judgment, no loan from an Institutional Investor - ------- on the terms specified in subparagraph (a) is or would be available, whether due to the creditworthiness of Lessee and Guarantor, the conditions of the capital markets generally, or any other matter not within Lessor's control, Lessor shall so specify in its Year 10 Lessor's Notice and the provisions of subparagraph (e) below shall apply. If the Lessor's Rate specified in Lessor's Year 10 Notice is based upon a Lessor's Loan Commitment, Lessor's Year 10 Notice shall also specify any commitment fees, rate lock fees and the like payable in connection with such Lessor's Loan Commitment (Lessor Loan Commitment Fees). -35- (c) If Lessor specifies a Lessor's Rate in its Lessor's Year 10 Notice, Lessee shall, within 45 days of Lessor's Year 10 Notice, notify Lessor that it either (i) accepts the Lessor's Rate so specified (subject to any change in such rate which occurs until any applicable rate lock or other Lessor Loan Commitment Fees necessary to fix the rate are paid by Lessee), and if such Lessor's Rate is based upon a Lessor's Loan Commitment, such acceptance shall be effective only if Lessee shall simultaneously pay any Lessor Loan Commitment Fees with such acceptance (which Lessor Loan Commitment fees shall be reimbursed to Lessee at the closing of the Lessor's Loan or if the Lessor's Loan fails to close due to the default of Lessor), or (ii) notify Lessor that it is not satisfied with the Lessor's Rate so specified, in which event Lessee will have the right to cause Lessor to use when calculating the Variable Amount of the Reset Rent a rate of interest (Lessee's Rate) specified in a firm written commitment from an Institutional Investor addressed to Lessor and obtained by Lessee no later than 90 days prior to the Year 10 Expiration Date at Lessee's sole cost and expense to provide financing (Lessee's Loan) in the amount of the Reset Amount (which may be modified by Lessee to the extent Lessee's estimate of Closing Costs is different from Lessor's, or if Lessee chooses not to finance Closing Costs), provided that (i) the terms of the Lessee's Loan are at least as favorable to Lessor as those provided for in subparagraph (b) and are subject only to commercially customary conditions to close (the cost of satisfaction and attempted satisfaction of which shall be the responsibility of Lessee as Additional Rent hereunder) and (ii) the Lessee Loan is without recourse to Lessor (the Lessee's Loan Commitment). (If Lessee fails to make an effective election pursuant to the immediately preceding sentence, it shall be deemed to have selected option (i)). If Lessee provides Lessor with a Lessee's Loan Commitment no later than 90 days prior to the Year 10 Expiration Date, Lessor will have the option either to (i) reject the Lessee's Loan Commitment but apply Lessee's Rate in establishing the Variable Amount of the Reset Rent or (ii) accept the Lessee's Loan Commitment, use reasonable efforts at Lessee's expense to close the loan described therein and, if the loan closes, apply the Lessee's Rate in calculating the Variable Amount of the Reset Rent. (d) On or before the date which is the earlier of (i) the date a Lessor's Loan or Lessee's Loan actually closes, or (ii) the date which is 30 days prior to the Year 10 Expiration Date (the Outside Date), Lessor and Lessee shall execute and deliver an amendment of this Lease (Rent Reset Lease Amendment) confirming the Basic Rent payable after the earlier to occur of the date a Lessor's Loan or a Lessee's Loan actually closes or the Year 10 Expiration Date, and establishing Termination Values which shall be equal to the sum from time to time of (x) $3,129,060.00, plus (y) the outstanding principal balance from time to time of Lessor's Loan or Lessee's Loan, as the case may be for the period from the Year 10 Expiration Date to the Year 20 Expiration Date. Subject to subparagraph (f) below, if for any reason, including without limitation a dispute between Lessor and Lessee as to the proper calculation of the Reset Rent, the Rent Reset Amendment is not entered into by such date, the provisions of subparagraph (e) below shall apply. -36- (e) If in any Year 10 Lessor's Notice Lessor states that it cannot state a Lessor's Rate, or if Lessee rejects the Lessor's Rate proposed by Lessor, and in either case Lessee does not obtain a Lessee's Loan Commitment by the date which is 90 days prior to the Year 10 Expiration Date, Lessee shall have the option to do one of the following, such option to be exercised by written notice to Lessor no later than 90 days prior to the Year 10 Expiration Date, and if it fails to elect either option by such date, it shall be deemed to have elected option 2 below. Further, if a Rent Reset Lease Amendment is not entered into by the date required by subparagraph (d) above, Lessee shall, no later than 10 days after such date elect one of the two options described below, and if it fails to elect either option by such date it shall be deemed to have elected option 2 below. 1. On the Year 10 Expiration Date, Lessee shall be obligated to make a final rent payment to Lessor in the amount of the Reset Amount included in Lessor's Year 10 Notice, and the Lease term shall expire on the Year 10 Expiration Date without any right of renewal, as if the Year 10 Expiration Date were the originally scheduled expiration date of the term of this Lease; or 2. On the Year 10 Expiration Date, Lessee shall be obligated to make a Basic Rent payment to Lessor in the amount of the Reset Amount included in Lessor's Year 10 Notice, Basic Rent payable after the Year 10 Expiration Date, until the Year 20 Expiration Date (defined in Schedule B), shall be the Fixed Amount per month, and Termination Values shall be established for the period from the Year 10 Expiration Date to the Year 20 Expiration Date which shall always be equal to $3,129,060.00. (f) Notwithstanding anything to the contrary contained herein, if the Variable Amount is based upon a Lessor's Loan Commitment or a Lessee's Loan Commitment, and the loan described in such commitment fails to close by the Outside Date for any reason other than the intentional default of Lessor hereunder, the Variable Amount shall be established based upon a Lessor's Year 10 Notice given promptly after the earlier of (i) the Outside Date and (ii) the expiration or termination of the applicable loan commitment, which notice shall specify a Lessor's Rate, and if Lessee is not satisfied with the Lessor's Rate specified in such Year 10 Notice or if such Notice specifies that Lessor is unable to establish a Lessor's Rate, the provisions of subparagraph (e) above shall apply, provided that if the Lessor's Year 10 Notice given under this subparagraph (f) is given less than 90 days prior to the Year 10 Expiration Date, Lessee shall have 10 days to elect which of the two options specified in subparagraph (e) shall govern (and if it fails to so elect, it shall be deemed to have elected option 2 under subparagraph (e)), and the Rent Reset Amendment described in subparagraph (e) shall be entered into no later than the later of 10 days after Lessee's election or deemed election of such option, or the date which is 30 days prior to the Year 10 Expiration Date. -37- (g) Subject to the provisions of this subsection (g), Lessee shall be responsible for all costs and expenses incurred by Lessor in closing or attempting to close any loan pursuant to this Article 23, in arranging for the repayment of any existing indebtedness which is paid off in connection with a Rent Reset (other than any prepayment premiums or penalties, which shall not be the responsibility of Lessee), and in Lessor's Performance of its obligations under this Section 23, including, without limitation, legal, accounting, mortgage brokerage, due diligence, title, and advisors' fees, expenses and premiums, and financing fees, origination fees, rate lock fees and the like payable under any Lessor's Loan Commitment which is the basis for a Lessor's Rate accepted or deemed accepted by Lessee, or any Lessee's Loan Commitment ("Closing Costs"). Lessor shall include its estimate of Closing Costs in the Reset Amount for the purposes of its Lessor's Year 10 Notice, which estimate shall be binding upon Lessor if Lessee accepts the Lessor's Rate specified in Lessor's Year 10 Notice. If Lessee arranges for a Lessee's Loan, it may include in the Reset Amount its estimate of such Closing Costs, but Lessee shall in all events be responsible for all Closing Costs, and to the extent the proceeds of Lessee's Loan are not available to pay all Closing Costs, the same shall be payable promptly when due as Additional Rent by Lessee. 24. Notices. All communications herein provided for or made pursuant hereto ------- shall be in writing and shall sent by (i) registered or certified mail, return receipt requested, and the giving of such communication shall be deemed complete on the third Business Day after the same is deposited in a United States Post Office with postage charges prepaid, (ii) reputable overnight delivery service with acknowledgment receipt returned, and the giving of such communication shall be deemed complete on the immediately succeeding Business Day after the same is deposited with such delivery service, (iii) legible fax with original to follow in due course (failure to send such original shall not affect the validity of such fax notice), and the giving of such communication shall be complete when such fax is received, or (iv) hand delivery: (a) if to Lessor, at the address set forth in Item 7 of Schedule B. (b) if to Lessee, at the address set forth in Item 8 of Schedule B. Lessor shall give notice to Lessee of the name and address of Lessor's Mortgagee, and Lessee shall deliver (in the manner described above) to such Lessor's Mortgagee at such address a copy of any notice given by Lessee to Lessor. No notice by Lessee to Lessor pursuant to the provisions of this Lease shall be deemed effective unless and until such notice is also so delivered to such Lessor's Mortgagee; and no notice by Lessor to Lessee pursuant to the provisions of this Lease shall be deemed effective unless and until such notice is joined in or consented to in writing by Lessor's Mortgagee. Either party, and Lessor's Mortgagee, may change the address where notices are to be sent by giving the other party (or parties) and Lessor's Mortgagee ten (10) days' prior written notice of such change. -38- 25. Estoppel Certificates. Each party hereto agrees that at any time and from --------------------- time to time during the term of this Lease, it will promptly, but in no event later than ten days after request by the other party hereto, execute, acknowledge and deliver to such other party a certificate stating, to the best of such party's knowledge, (a) that this Lease is unmodified and in force and effect (or if there have been modifications, that this Lease is in force and effect as modified, and setting forth any modifications); (b) the date to which Basic Rent, Additional Rent and other sums payable hereunder have been paid; (c) whether or not there is an existing default by Lessee in the payment of Basic Rent, Additional Rent or any other sum required to be paid hereunder, and whether or not there is any other existing default by Lessee with respect to which a notice of default has been served or of which the signer has Actual Knowledge, and, if there is any such default, specifying the nature and extent thereof; (d) whether or not there are any setoffs, defenses or counterclaims against enforcement of the obligations to be performed hereunder existing in favor of the party executing such certificate;(e) stating that Lessee is in possession of the Leased Property or setting forth the parties in possession and identifying the instruments pursuant to which they took possession; and (f) stating such other information with respect to the Leased Property and/or this Lease as may be reasonably requested. 26. No Merger. Lessee agrees that there shall be no merger of this Lease or of --------- any sublease under this Lease or of any leasehold or subleasehold estate hereby or thereby created with the fee or any other estate or ownership interest in the Leased Property or any part thereof by reason of the fact that the same entity may acquire or own or hold, directly or indirectly, (a) this Lease or any sublease or any leasehold or subleasehold estate created hereby or thereby or any interest in this Lease or any such sublease or in any such leasehold or subleasehold estate and (b) the fee estate or other estate or ownership interest in the Leased Property or any part thereof. 27. Surrender. --------- (a) Upon the expiration or earlier termination of the Term of this Lease, Lessee shall peaceably leave and surrender the Leased Property to Lessor in the same condition in which the Leased Property was originally received from Lessor on the Commencement Date, except as repaired, rebuilt, restored, altered or added to as required by or permitted by any provision of this Lease (ordinary wear and tear and the consequences of any Destruction resulting in the termination of this Lease pursuant to paragraph (c) of Article 12 hereof, and damages caused by Lessor excepted). Lessee shall remove from the Leased Property on or prior to such expiration or earlier termination all property situated thereon which is not the property of Lessor, and shall repair any damage caused by such removal. Property not so removed shall become the property of Lessor, and Lessor may cause such property to be removed from the Leased Property and disposed of, and Lessee shall pay the cost of any such removal and disposition and of repairing any damage caused by such removal. -39- (b) Except for surrender upon the expiration or earlier termination of the Term hereof, no surrender to Lessor of this Lease or of the Leased Property shall be valid or effective unless agreed to and accepted in writing by Lessor. 28. Separability. Each provision contained in this Lease shall be separate and ------------ independent and the breach of any such provision by Lessor shall not discharge or relieve Lessee from its obligation to perform each obligation of this Lease to be performed by Lessee. If any provision of this Lease or the application thereof to any Person or circumstance shall to any extent be invalid and unenforceable, the remainder of this Lease, or the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each provision of this Lease shall be valid and enforceable to the extent permitted by law. 29. Signs; Showing. During the three-month period preceding the date on which -------------- the then current Term of this Lease shall expire, Lessor may (a) place signs in reasonable locations on the grounds in front of the Leased Property advertising that the same will be available for rent or purchase, and (b) upon not less than twenty-four (24) hours notice to Lessee, show the Leased Property to prospective lessees or purchasers during normal business hours as Lessor may elect. 30. Waiver of Trial by Jury. Lessor and Lessee hereby waive trial by jury in ----------------------- any litigation brought by either against the other on any matter arising out of or in connected with this Lease or the Leased Property. 31. Recording. Lessor and Lessee will execute, acknowledge, deliver and cause --------- to be recorded or filed or, at Lessee's expense, registered and re-recorded, refiled or re-registered in the manner and place required by any present or future law, a memorandum thereof, and all other instruments, including, without limitation, releases and instruments of similar character, which shall be reasonably requested by Lessor or Lessee as being necessary or appropriate in order to protect their respective interests in the Leased Property. 32. Miscellaneous. This Lease shall be binding upon and shall inure to the ------------- benefit of and be enforceable by the parties hereto and their respective successors and assigns permitted hereunder. Concurrently with the execution and delivery of this Lease, Lessee shall cause to be delivered to Lessor and Lessor's Mortgagee an opinion of counsel to Lessee, satisfactory in form and substance to Lessor and Lessor's Mortgagee, as to the due authorization, execution and delivery of this Lease by Lessee and the validity, binding effect and enforceability as to Lessee of this Lease and such other matters relating to Lessee and this Lease as Lessor or Lessor's Mortgagee may reasonably request. This Lease may not be amended, changed, waived, discharged or terminated orally, but only by an instrument specifically evidencing an intent to amend signed by the party against whom enforcement thereof -40- is sought. No failure, delay, forbearance or indulgence on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, or as an acquiescence in any breach, nor shall any single or partial exercise of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. This Lease and the rights and obligations in respect hereof shall be governed by, and construed and interpreted in accordance with, the laws of the state within which the Leased Property is located. All headings are for reference only and shall not be considered as part of this Lease. This Lease may be executed in any number of counterparts, each of which shall be an original, and such counterparts together shall constitute but one and the same instrument. Lessee may cause to be performed any obligations of Lessee under this Lease in lieu of performing such obligation itself. 33. Additional Provisions Relating to Leased Property. The additional provisions ------------------------------------------------- set forth in Item 11 of Schedule B are hereby incorporated in this Lease and made a part hereof. IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease to be duly executed and delivered as of the date first written above. Lessor: Signed, Sealed, Acknowledged CRICBW ANDERSON TRUST, and Delivered in the Presence a Delaware business trust of the following Witnesses: /s/ Cara A. Ahola By: /s/ J. Charles Carlson - ------------------------------------ ------------------------------ Print Name: Cara A. Ahola J. Charles Carlson Administrative Trustee /s/ Andrea M. Cross - ------------------------------------ Print Name: Andrea M. Cross Lessee: Signed, Sealed, Acknowledged MILTON CAN COMPANY, INC., and Delivered in the Presence a Delaware corporation of the following Witnesses: /s/ Christopher Szarpa By: /s/ Blair G. Schlossberg - ------------------------------------ --------------------------------- Print Name: Christopher Szarpa Name: Blair G. Schlossberg Title: Secretary /s/ Kimberly Owenby - ------------------------------------ Print Name: Kimberly Owenby -41- COMMONWEALTH OF MASSACHUSETTS) )SS: COUNTY OF SUFFOLK ) The foregoing instrument was acknowledged before me the 20nd day of August, 1999 by J. Charles Carlson, Administrative Trustee of CRICBW ANDERSON TRUST, a business trust organized under the laws of Delaware, on behalf of the trust. MARILYN A. RUBBICO, NOTARY PUBLIC /s/ Marilyn A. Rubbico MY COMMISSION EXPIRES AUGUST 13, 2004 ------------------------------- Notary Public My commission expires: 8/13/04 STATE OF GEORGIA ) )SS: COUNTY OF FULTON ) The foregoing instrument was acknowledged before me the 19th day of August, 1999 by Blair G. Schlossberg as Secretary of Milton Can Company, Inc., a Delaware corporation, on behalf of the corporation. /s/ Julia L. Afflick ------------------------------- Notary Public My commission expires: Julia L. Afflick Notary Public, Dekalb County, Georgia My Commission Expires December 26, 2000 -42- APPENDIX I ---------- DEFINITIONS ----------- Actual Knowledge by the Lessee with respect to any matter means knowledge ---------------- of such matter by an Executive Officer. Actual Knowledge shall be presumed conclusively as to the content of any notice to Lessee made in accordance with the provisions of this Lease. Additional Rent is defined in paragraph (b) of Article 3. --------------- Affiliate with respect to any Person means any other Person controlling, --------- controlled by or under common control with such Person. Asbestos O & M Plan is defined in Subparagraph (a)(iv) of Article 9. ------------------- Bankruptcy Code means Title 11 of the United States Code or any other --------------- Federal or state bankruptcy, insolvency or similar law, now or hereafter in effect in the United States. Basic Rent is defined in paragraph (a) of Article 3. ---------- Basic Term is defined in paragraph (a) of Article 2. ---------- Basic Term Expiration Date is defined in paragraph (a) of Article 2. -------------------------- Business Day means any day except Saturdays, Sundays and the days in which ------------ banks located in the state of New York shall be closed. Casualty is defined in paragraph (a) of Article 12. -------- Closing means the closing for the acquisition of the Leased Property by ------- Lessor and the leasing of the Leased Property by Lessor to Lessee. Closing Costs are defined in paragraph (g) of Article 23. ------------- Completion Conditions is defined in paragraph (c) of Article 10. --------------------- Credit Rating is defined in paragraph (b)(i) of Section 12. ------------- Credit Rating Test is defined in paragraph (c) of Article 12. ------------------ DCR means Duff & Phelps Credit Rating Co. and any successor thereto. --- Depositary is defined in paragraph (b) of Article 12. ---------- -43- Destruction is defined in paragraph (a) of Article 12. ----------- Environmental Laws means and includes but shall not be limited to the ------------------ Resource Conservation and Recovery Act (42 U.S.C. (S)6901 et seq.). ------- as amended by the Hazardous and Solid Waste Amendments of 1984, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. (S)9601 et seq.), as amended by the Superfund Amendments and Reauthorization ------- Act of 1986, the Hazardous Materials Transportation Act (49 U.S.C. (S)1802 et -- seq.), the Toxic Substances Control Act (15 U.S.C. (S)2601 et seq.), Clean Air - ---- ------- Act (42 U.S.C. (S)7401 et seq.), the Clean Water Act (33 U.S.C. (S)1251 et seq.) ------- ------- the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. (S)136 et seq.) ------- the Occupational Safety and Health Act (29 U.S.C. (S)651 et seq.) and all ------ applicable federal, state and local environmental laws, including obligations under the common law, ordinances, rules, regulations and publications, as any of the foregoing may have been or may be from time to time amended, supplemented or supplanted, and any other federal, state or local laws, including obligations under the common law, ordinances, rules, regulations and publications, now or hereafter existing relating to regulation or control of Hazardous Substances or environmental protection, health and safety. Environmental Site Assessments means those certain reports entitled "Phase ------------------------------ I Environmental Site Assessment of Industrial Plant, 8200 Broadwell Road, Cincinnati, Ohio 45244, Loan No. TBD" EMG Project No. 55857, Date of Report August 17, 1999, On-Site Date April 22, 1999, prepared by EMG, "Phase II Environmental Assessment of the Industrial Plant, 8200 Broadwell Road, Cincinnati, Ohio 45244" prepared by EMG dated August 17, 1999, and "Environmental Assessment of Ball Corporation's Metal Food Container Facility, Cincinnati, Ohio," prepared by ENVIRON International Corporation, dated November, 1996, with respect to the environmental condition of the Leased Property. Escrow Funds is defined in paragraph (c) of Article 10. ------------ Executive Officer means the President, Executive Vice President, Treasurer, ----------------- Financial Vice President, Director of Real Estate or if such office does not exist, its closest equivalent. Fitch means Fitch Investors Service and any successor thereto. ----- Guarantor means BWAY Corporation, its successors and assigns, and any other --------- entity which guarantees the obligations of Lessee hereunder. Hazardous Substances means (i) those substances included within the -------------------- definitions of or identified as "hazardous substances", "hazardous materials", or "toxic substances" in or pursuant to, without limitation, the Comprehensive Environmental Response Compensation and Liability Act of 1980 (42 U.S.C. (S)9601 et seq.) (CERCLA), as amended by Superfund Amendments and Reauthorization Act of - ------- 1986 (Pub. L. 99-499, 100 Stat. 1613) (SARA), the Resource Conservation and Recovery Act of 1976 (42 U.S.C., (S)6901 et seq.) (RCRA), the Occupational ------- Safety and Health Act of 1970 (29 U.S.C. (S)651 et seq.) (OSHA), and the ------- -44- Hazardous Materials Transportation Act, 49 U.S.C. (S)1801 et seq., and in the ------ regulations promulgated pursuant to said laws, all as amended; (ii) those substances listed in the United States Department of Transportation Table (40 CFR 172101 and amendments thereto) or by the Environmental Protection Agency (or any successor agency) as hazardous substances (40 CFR Part 302 and amendments thereto); (iii) any material, waste or substance which is or contains (A) petroleum, including crude oil or any fraction thereof, natural gas, or synthetic gas usable for fuel or any mixture thereof, (B) asbestos, (C) polychlorinated biphenyls, (D) designated as "hazardous substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C (S)1251 et seq., (33 U.S.C (S)1321) ------ or listed pursuant to Section 307 of the Clean Water Act (33 U.S.C. (S)1317); (E) flammable explosives; (F) radioactive materials; and (iv) such other substances, materials and wastes which are or become regulated as hazardous, toxic or "special wastes" under applicable local, state or federal law, or the United States government, or which are classified as hazardous, toxic or as "special wastes" under federal, state or local laws or regulations. Immediate Repair Work is defined in paragraph (c) of Article 10. --------------------- Improvements is defined in Article 1. ------------ Indemnified Parties is defined in Article 8. ------------------- Installment Payment Dates is defined in paragraph (a) of Article 3. ------------------------- Institutional Investor means a bank, insurance company, a bank affiliate or ---------------------- wholly owned subsidiary of any such bank, or any other financial or lending institution organized under the laws of the United States or any state thereof or Canada or any province thereof with a net worth of at least $25,000,000, including, without limitation, a real estate investment trust and/or trust, corporation or other entity engaged in so-called conduit lending, or a public or private pension plan or institutionally managed fund having gross assets of at least $100,000,000. Insurance Requirements is defined in Article 13. ---------------------- Land is defined in Article 1. ---- Leased Property is defined in Article 1. --------------- Legal Requirements is defined in Article 6(c). ------------------ Lessee's Loss is defined in paragraph (a) of Article 12. ------------- Lessor's Mortgagee means any lender holding a lien (whether by mortgage, ------------------ deed of trust or otherwise) granted by Lessor on the Leased Property. The term "Lessor's Mortgagee" shall include the servicer and/or trustee with respect to the pool of collateral -45- for any commercial mortgage-backed securities or mortgage pass-through certificates or other securities evidencing a beneficial interest in a rated or unrated public offering or private placement (collectively, CMBSs) into which pool Lessor's mortgage or other lien instrument covering the Leased Property has been sold, assigned, transferred or pledged and also the issuer of such CMBSs. Any references in this Lease to Lessor's Mortgagee at a time, if any, when there is no Lessor's Mortgagee shall be construed to mean "Lessor's Mortgagee, if any." Loan Documents shall mean the Notes, the Mortgage and all documents related -------------- thereto. Market Rent is defined in Schedule H. ----------- Minor Addition is defined in paragraph (e) of Article 10. -------------- Moody's means Moody's Investor Services. ------- Mortgage is defined in paragraph (b) of Article 7. -------- Net Award means the entire award, compensation, insurance proceeds or other --------- payment, if any, on account of any Destruction, less any expenses reasonably incurred by Lessee, Lessor or Lessor's Mortgagee in obtaining and collecting such award, compensation insurance proceeds or other payment, and any cost and expense of either in connection with the administration of the distribution of the same and not already paid (or reimbursed) to Lessor or Lessor's Mortgage, plus any investment income earned with respect to the foregoing amounts. Note means the Note (or Notes) of Lessor secured by the "Mortgage" referred ---- to in the SNDA Agreement dated on or about the date of this Lease, and any notes issued in exchange or replacement thereof. The Note is secured by a mortgage lien on the Leased Property and by an assignment of Lessor's interest in this Lease. Officer's Certificate means a certificate executed by an Executive Officer --------------------- of Lessee. Original Uses is defined in Article 4. ------------- Outside Restoration Date is defined in paragraph (c) of Article 12. ------------------- Overdue Rate is defined in paragraph (b) of Article 3. ------------ Permitted Encumbrances means, with respect to the Leased Property: (a) ---------------------- rights reserved to or vested in any municipality or public authority to condemn, appropriate, recapture or designate a purchaser of the Leased Property; (b) any liens thereon for taxes, assessments and other governmental charges and any liens of mechanics, materialmen and laborers for work or services performed or material furnished in connection with the Leased -46- Property, which are not due and payable, or the amount or validity of which are being contested as permitted by Article 6 hereof; (c) easements, rights-of-way, servitudes, zoning laws, use regulations, and other similar reservations, rights and restrictions and other minor defects and irregularities in the title to the Leased Property existing on the Term Commencement Date or granted in accordance with Article 21 hereof; (d) the lien of any Lessor's Mortgagee and any assignment of this Lease as further security for the note or notes secured by such Mortgage; (e) all other matters affecting title existing on the date of this Lease as set forth in Schedule D. Person means any individual, corporation, partnership, joint venture, ------ association, joint stock company, trust, trustee of a trust, unincorporated organization or government or governmental authority, agency or political subdivision thereof. Property Condition Survey means that certain Property Condition Survey of ------------------------- Industrial Plant, 8200 Broadwell Road, Cincinnati, Ohio, EMG Project No. 55858, dated July 14, 1999, prepared by EMG, Baltimore, Maryland. Rating Agencies mean S&P, Fitch, DCR and Moody's. --------------- Reinvestment Premium means the amount computed in accordance with Schedule -------------------- C. Renewal Term is defined in paragraph (b) of Article 2. ------------ Rent Reset Lease Amendment is defined in Article 23. -------------------------- Reset Rent means the, Basic Rent payable once the Rent Reset has been ---------- determined. Restoration Test is defined in paragraph (c) of Article 12. ---------------- Restoration Threshold Amount is defined in paragraph (b) of Article 12. ---------------------------- S&P means Standard & Poor's Ratings Services. --- Sale Transaction means the sale of the Leased Property from Lessee to ---------------- Lessor on or about the date of this Lease. Taxes and Impositions is defined in paragraph (a) of Article 6. --------------------- Term means the Basic Term, plus any Renewal Term or Terms. ---- Termination Date is defined in paragraph (c) of Article 12. ---------------- Termination Value means the amount computed in accordance with Schedule C. ----------------- Trade Fixtures is defined in Article 11. -------------- -47- SCHEDULE A Description of Leased Property ---------------------------- (Follows This Page) -48- EXHIBIT A PARCEL 1 Situated in the State of Ohio, County of Hamilton, Township of Anderson, part of Military Survey No. 1575 and 1769 and being part of Registered Land Certificate No. 55873 and 170914 and being a parcel of land, now or formerly in the name of Milton Can Company as recorded in Deed Volume 7088, Page 2230 of the Hamilton County Records of Deeds, and more fully described as follows: Commencing for Reference at a Railroad Spike found in the centerline of Broadwell Road of the southwesterly corner of a parcel of land, now or formerly in the name of Dravo Basic Materials Company, Inc. as recorded in Registered Land Certificate No. 142078; Thence, South 65(d)09'09" East, along the centerline of Broadwell Road and the southwesterly line of said Certificate No. 142078, a distance of 1367.61 feet to the southwesterly corner of aforesaid Milton Can Company and the TRUE PLACE OF BEGINNING of the Parcel of land herein to be described; Thence, North 24(d)50'45" East, along a southeasterly line of said Certificate No. 142078, passing over an Iron Pin set of 25.00 feet a distance of 1267.30 feet to an "x" on a brass bar in a 6" concrete monument; Thence, South 65(d)00'14" East, along a southerly line of Certificate No. 142078, a distance of 934.63 feet to a "x" on an brass bar in a 6" concrete monument; Thence, North 56(d)33'00" East, along a southerly line of said Certificate No. 142078, a distance of 1164.33 feet to an "x" on a brass bar in a 6" concrete monument on the Westerly line of Norfolk and Western Railroad; Thence, South 04(d)30'00" West, along said Westerly line a distance of 109.09 feet to a "x" on a 1-1/8" Steel Bar found S 75(d)43'40" W 1.08': Thence, South 00(d)42'00" East, along said Westerly line a distance of 789.41 feet to a Iron Pin set; Thence, South 89(d)18'00" West, a distance of 304.49 feet to an Iron Pin set; Thence, South 24(d)04'23" West, a distance of 782.32 feet to an Iron Pin set; Thence, North 65(d)55'37" West, a distance of 597.16 feet to an Iron Pin set; Thence, South 25(d)14'17" West, a distance of 299.00 feet to a Railroad Spike set; Thence, North 65(d)05'57" West, a distance of 542.22 feet to an Iron Pin set; Thence, South 24(d)54'49" West, passing over an Iron Pin set at 225.45 a distance of 250.62 feet to a point in the centerline of Broadwell Road; Thence, North 58(d)'26'14" West, along the centerline of Broadwell Road a distance of 179.72 feet to a point; Thence, North 30(d)47'05" East, passing over an Iron Pin set at 25.00 feet a distance of 157.63 feet to an Iron Pin set; Thence, North 60(d)21'08" West, a distance of 79.19 feet to an Iron Pin set; Thence, South 29(d)12'36" West, passing over an Iron Pin set at 25.02 feet a distance of 155.10 feet to a point in the centerline of Broadwell Road; Thence, North 65(d)09'09" West, along the centerline of Broadwell Road, a distance 266.14 feet to the true place of beginning and containing 49.2749 acres (including 0.2555 acre within the right-of-way limits of Broadwell Road) of land, more or less as surveyed in May 1999 by Robert A. Dorner, Registered Professional Surveyor Number S-6943, for and on behalf of Bock & Clark, Inc. under Project Number 99033. PARCEL 2 Together with Reciprocal Easement and Restriction Agreement by and between Milton Can Company, Inc. and CRICBW Anderson Trust, dated ________ 1999, filed for record ______, 1999 and recorded in Volume ____, Page ___ of Hamilton County Records. SCHEDULE B Lease Data ---------- 1. Date of Lease: August 20, 1999 2. Lessor CRICBW Anderson Trust, a Delaware business trust c/o Corporate Realty Investment Company L.L.C. One Exeter Plaza, 11th Floor Boston, Massachusetts 02116 3. Lessee: Milton Can Company, a Delaware corporation c/o BWAY Corporation 8607 Roberts Drive, Suite 250 Atlanta, Georgia 30350 4. Commencement Date: August 20, 1999 5. Basic Term Expiration Date: August 31, 2019 6. Year 10 Expiration Date: August 31, 2009 Year 20 Expiration Date: August 31, 2019 7. Basic Rent shall be paid as follows: a. Basic Rent shall accrue for and be payable for the period from the Commencement Date through the last day of the month in which the Commencement Date occurs in the amount of $36,769.18, and shall be payable on the Commencement Date. Thereafter, Basic Rent that accrues and for which Lessee becomes liable for each calendar month during the period from the first day of the first full calendar month after the month in which the Commencement Date occurs through the last day of the calendar month in which the Year 10 Expiration Date occurs is payable in equal monthly installments of $91,922.95, on the 15th day of each month, commencing September 15, 1999, and on the 15th day of each month thereafter through and including August 15, 2019. Basic Rent payable pursuant to paragraph (e) of Article 23 on the Year 10 Expiration Date shall accrue and be payable on such date. b. If Basic Rent is reset in accordance with Article 23, Basic Rent shall be paid on the 15th day of each month in accordance with the Rent Reset Lease Amendment, defined in Article 23. C. On each of September 15, 2019 and the 15th day of each month thereafter relating to any Renewal Term, an amount equal to the applicable monthly -49- Market Rent determined in accordance with Schedule H In addition, a pro rated portion of such applicable Monthly Market Rent shall be payable on the first day of any Renewal Term for the period commencing on that day and ending on the last day of the month in which the applicable Renewal Term commences. 8. Lessor's Address: c/o Corporate Realty Investment Company L.L.C. One Exeter Plaza, 11th Floor Boston, Massachusetts 02116 Fax: (617) 303-4440 Attention: Chief Operating Officer with a copy to: Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109 Fax: (617) 526-5000 Attention: William R. O'Reilly, Jr., Esq. 9. Lessee's Address: c/o BWAY Corporation 8607 Roberts Drive, Suite 250 Atlanta, Georgia 30350 Fax: (770) 587-0186 Attention: Chief Financial Officer with a copy to: Kirkland & Ellis 200 East Randolph Drive Chicago, Illinois 60601 Fax: (312) 881-2200 Attention: Gregory Spitzer, Esq. 10. Intentionally omitted. 11. Additional Provisions relating to Leased Property: A. Lessor covenants that it will not voluntarily convey its interest in the Leased Property prior to the expiration of the Term, or earlier termination of this Lease, to any individual or entity appearing on the list of competitors of Lessee (or of any Guarantor) listed below. For the purposes of this paragraph, "competitor" shall mean any individual or entity engaged in the business of aerosol can manufacturing. Lessee shall have the right to update such list of competitors from time to time, but not more than once in any six month period, by notice to Lessor. -50- The initial list of competitors, if any, is as follows: Ball Corporation Crown Cork & Seal Silgan Sonoco US. Can Corporation -51- SCHEDULE C Termination Values ------------------ The Termination Value is the applicable amount (in dollars) shown on the second column of the computer printout attached to this Schedule C and hereby made a part hereof. The numbers in the first column of such printout identify the monthly periods to which such Termination Value figures correspond. The Termination Value opposite number 0 in the first column is for the period commencing on the first day of the Term and ending on (and including) the last day of the month in which the Term commenced. Thereafter each number corresponds to the monthly period beginning on (and including) the first day of each succeeding calendar month and ending on (and including) the last day of such calendar month. Reinvestment Premium -------------------- The Reinvestment Premium shall mean: an amount equal to the difference between (x) the present value, as of the applicable date, of (i) during the period prior to and including the Year 10 Expiration Date, the remaining scheduled payments of Basic Rent from the applicable date through the Year 10 Expiration Date plus the Termination Value as of the Year 10 Expiration Date, or (ii) following the Year 10 Expiration Date, the remaining scheduled payments of Basic Rent from the applicable date through the Year 20 Expiration Date, plus the Termination Value as of the Year 20 Expiration Date, and in either case, determined by discounting such payments at the "Discount Rate" (as hereinafter defined), minus (y) the Termination Value actually paid. Discount Rate shall mean: the rate which, when compounded monthly, is equivalent to the "Treasury Rate" (hereinafter defined) when compounded semi-annually. The term Treasury Rate shall mean the yield calculated by the linear interpolation of the yields, as reported in Federal Reserve Statistical Release H.15-Selected Interest Rates under the heading U.S. Government Securities/Treasury Constant Maturities for the week ending prior to the applicable date, of U.S. Treasury constant maturities with maturity dates (one longer and one shorter) most nearly approximating the Year 10 Expiration Date (if the calculation is made prior thereto) or the Year 20 Expiration Date (if the calculation is made after the Year 10 Expiration Date). (In the event Release H.15 is no longer published, Lessor shall select a comparable publication to determine the Treasury Rate.) Lessor shall notify Lessee of the amount and the basis of determination of the required Reinvestment Premium. -52- EX-10.42 7 LEASE AGREEMENT EXHIBIT 10.42 LEASE AGREEMENT --------------- This LEASE AGREEMENT (this "Lease"), is made as of this 15th day of September, 1999, by and among DIVISION STREET PARTNERS, L.P., a New Jersey limited partnership ("Landlord"), with its office located at c/o William J. Milton, Jr., 321 Forest Drive South, Short Hills, New Jersey 07078, BROCKWAY STANDARD (NEW JERSEY), INC., a New Jersey corporation (the "Tenant"), with its office located at 580 Division Street, Elizabeth, Union County, New Jersey 07207, Attn: General Counsel, and Fairmount Realty, L.L.C., a New Jersey limited liability company ("Fairmount"), with its office located at c/o William J. Milton, Jr., 321 Forest Drive South, Short Hills, New Jersey 07078. RECITALS -------- WHEREAS, Landlord is the owner of the land, building and premises commonly known as 580 Division Street, in the City of Elizabeth, Union County, New Jersey 07207, and which is more particularly depicted in "Exhibit A" attached hereto and incorporated herein (the "Leased Premises"). WHEREAS, Fairmount is the owner of the land, building and premises commonly known as 860 Fairmount Avenue, which is more particularly depicted in "Exhibit A" (the "860 Premises"). WHEREAS, Landlord desires to lease the Leased Premises to Tenant, and Tenant desires to lease the Leased Premises from Landlord. WHEREAS, Landlord desires to reserve certain rights of access with respect to the 860 Premises in favor of Fairmount, and Tenant is willing to take the Leased Premises subject to such right of access. WHEREAS, Tenant desires to have an exclusive license to use certain parking spaces on the 860 Premises, and Fairmount is willing to grant such exclusive license to Tenant. NOW, THEREFORE, in consideration of the mutual covenants set forth in this Lease, and other good and valuable consideration, the receipt of which are hereby acknowledged, Landlord and Tenant hereby agree as follows: Section 1. PREMISES; RIGHT OF ACCESS; PARKING. - --------------------------------------------- 1.1 Landlord does hereby lease to Tenant, and Tenant does hereby lease from Landlord, the Leased Premises. 1.2 Fairmount and the tenant or other occupant of the 860 Premises (the "860 Premises Tenant") shall have a non-exclusive right of access for ingress and egress to the 860 Premises over that certain portion of the Leased Premises as shown on the attached Exhibit A (the "Right of Access"). Fairmount shall, at Fairmount's cost and expense, clearly demarcate or otherwise designate the boundaries of the Right of Access at the Leased Premises as depicted on Exhibit A. Fairmount shall maintain and repair the portion of the Leases Premises comprising the Right of Access to keep the same in reasonably good condition and repair, including, without limitation, removing snow and ice from the Right of Access. Tenant shall reimburse Fairmount, within ten (10) days after Fairmount's written demand, for Tenant's Proportionate Share of the costs and expenses incurred by Fairmount for such maintenance and repair; provided, however, that Tenant shall not be required to reimburse Fairmount for any work performed for or on behalf of the 860 Premises Tenant. For the purposes of this Lease, the terms "Fairmount's Proportionate Share" and "Tenant's Proportionate Share" (as the case may be) shall mean the proportion of the relative square footage of the buildings on the Leased Premises and the 860 Premises, as exists from time to time. The gate on Fairmount Avenue as depicted on Exhibit A either shall remain open at all times for access by the Tenant as well as the 860 Premises Tenant during regular business hours, and Fairmount shall furnish to Tenant as well as the 860 Premises Tenant a key to open said gate after ordinary business hours. Fairmount shall be responsible for ensuring that the 860 Premises Tenant shall not park any vehicles in nor obstruct or interfere with the Right of Access or the Parking Spaces. Tenant shall not park any vehicles in, or otherwise obstruct or interfere with, the Right of Access. Tenant and the 860 Premises Tenant shall comply with all reasonable rules and regulations promulgated by Fairmount in respect of the use and enjoyment of the Right of Access by both Tenant and the 860 Premises Tenant; provided, however, that the same shall apply uniformly to the Tenant and the 860 Premises Tenant and shall not materially interfere with Tenant's use, enjoyment and occupancy of the Leased Premises or the Parking Spaces. 1.3 Fairmount hereby grants Tenant a non-exclusive license to use eight (8) parking spaces as shown on the attached Exhibit A (the "Parking Spaces"). Fairmount shall, at Fairmount's cost and expense, clearly demarcate or otherwise designate the boundaries of the Parking Spaces as depicted on Exhibit A. Fairmount shall maintain and repair the Parking Spaces to keep the same in reasonably good condition and repair, including, without limitation, removing snow and ice from the Parking Spaces, and Tenant shall reimburse Fairmount, within ten (10) days after Fairmount's written demand, for such costs and expenses incurred by Fairmount. Section 2. TERM - --------------- 2.1 The initial term of this Lease shall be for a term of five (5) years starting on October 1, 1999, and ending on September 30, 2004 (the "Initial Term"). 2.2 The Tenant shall have the option to extend the Initial Term for one (1) additional five (5) year period commencing October 1, 2004 and ending September 30, 2009 (the "Renewal Term"). The annual rent for such Renewal Term shall be equal to the product of: (i) the annual -2- rent for the Initial Term as provided in Section 2.1, multiplied by (ii) a fraction, the numerator of which shall be the CPI for the most recent month for which the CPI is available prior to the commencement of the Renewal Term, and the denominator of which shall be the Base CPI. For purposes of this Section 2.2, (i) the term "CPI" shall mean the Consumer Price Index (All Urban Consumers)(All Items)(base year 1982-1984=100) for the U.S. City Average published by the Bureau of Labor Statistics, U.S. Department of Labor, or any comparable successor index appropriately adjusted, and (ii) the term "Base CPI" shall mean the CPI for the month of October, 1999. 2.3 For the purposes of this Lease, the "Term" shall mean collectively the Initial Term and the Renewal Term, provided that Tenant has exercised its option to extend pursuant to Section 2.2. SECTION 3. RENT AND TAXES - ------------------------- 3.1 Tenant agrees to pay to the Landlord as rent during the Initial Term of this Lease, the sum of $676,695.30 per year to be paid in monthly installments of $56,391.28 on or before the first day of each month beginning on October 1, 1999. 3.2 Tenant shall pay as additional rent all real estate taxes assessed with respect to the Leased Premises. Tenant shall pay such taxes directly to the applicable taxing authority. Notwithstanding the foregoing, if taxes upon rent shall be substituted in whole or in part for the present general real estate taxes, Tenant shall pay the taxes upon rent, but only to the extent to which they shall be substituted for said real estate taxes and only in such amounts as would be payable by the Landlord if the rent payable hereunder were the only rent subject to such taxes. 3.3 If Tenant fails to make any payment of rent or any other amount due and payable by Tenant to Landlord under this Lease within the Grace Period, then Tenant shall pay interest at the Prime Rate plus four percent (4%) on such amount for each day after the Grace Period that such amount remains unpaid. For the purposes of this Lease, (i) the term "Grace Period" shall mean five (5) days after the date such payment of rent or other amount first becomes due and payable; provided, however, that if Tenant fails to make any such payment of rent or any other amount within such five (5) day period at any time during a calendar year, then the Grace Period shall be reduced to two (2) days for the remainder of such calendar year, and (ii) the term "Prime Rate" shall mean the "prime rate" as published in the Wall Street Journal, or if no longer published in the Wall Street Journal, the prime rate of interest for the then largest commercial bank by capitalization in the State of New Jersey. SECTION 4. USE OF THE LEASED PREMISES - ------------------------------------- 4.1 The Leased Premises shall be used for the sole purpose of manufacturing and warehousing composite, metal and plastic containers or any other lawful purpose. -3- SECTION 5. MAINTENANCE AND REPAIRS - ---------------------------------- 5.1 Except for Landlord's maintenance and repair obligations set forth in this Section 5 and Fairmount's maintenance and repair obligations set forth in Sections 1.2 and 1.3, Tenant, at its cost and expense, shall maintain, and make all necessary repairs to keep, the Leased Premises in reasonably good order and condition, including, without limitation, maintaining and repairing the (i) loading docks, (ii) foundation and flooring occasioned by Tenant's installation, use or removal of fixtures and equipment used in connection with its use and occupancy of the Leased Premises, or storage of inventory such that the load placed on the floors exceeds normal use of concrete floors or as a result of the use of steel tires on forklift equipment, or as a result of Tenant's negligence or willful act in connection with the installation, use or removal of fixtures and equipment utilized in connection with its use and occupancy of the Leased Premises or storage of inventory, and (iii) the roof and roof membrane occasioned by Tenant's installation, use or removal of fixtures and equipment utilized in connection with its use and occupancy of the Leased Premises which shall void in whole or in part any roof or roof membrane warranty or guarantee obtained by Landlord. All such maintenance and repairs by Tenant shall be performed in a good and workmanlike manner. Tenant, at its cost and expense, shall arrange for snow and ice removal to the Leased Premises and for its own internal cleaning services and rubbish removal. 5.2 At the expiration of the Term or termination of this Lease, Tenant shall deliver the Leased Premises to Landlord in reasonably good order and condition, except for reasonable wear and tear or damage from any casualty. 5.3 Landlord, at its cost and expense, shall maintain, and make all necessary repairs and replacements to keep, the Structural Components of the buildings on the Leased Premises in reasonably good order and condition, except to the extent such damage to the Structural Components has been caused by the negligence of Tenant or its agents, sublessees, assignees, invitees or licensees. The term "Structural Components" shall mean the roof, steel structure, exterior walls, foundation, footings or subsurface support thereof, and load bearing columns and walls, including, without limitation, any dangerous or hazardous condition which would result from the foregoing. The Landlord's obligation set forth in this Section 5.3 shall be limited to the maintenance, repair and replacement of the Structural Components and shall not under any circumstances extend to any consequential damage resulting to any personal property of the Tenant, unless such damage is caused by Landlord's failure to maintain such Structural Components or unless such damage has been caused by the negligence or willful act of the Landlord or its employees or agents in carrying out such maintenance, repairs or replacements of the Structural Components. 6. ALTERATIONS AND IMPROVEMENTS - --------------------------------- Tenant may make such alterations, additions or improvements as may be reasonably necessary in the conduct of its business, provided however, that (i) Tenant shall provide prior notice to Landlord if Tenant undertakes any alterations, additions or improvements in excess of One Hundred Thousand and no/100 Dollars ($100,000.00), and (ii) Tenant may not make any alterations, -4- additions or improvements affecting in any material respect the Structural Components, without the written consent of the Landlord. Except for Tenant's trade fixtures and equipment, all such alterations, additions or improvements and systems, when made, installed in or attached to the Leased Premises, shall belong to and become the property of the Landlord and shall be surrendered with the Leased Premises upon the expiration or sooner termination of this Lease. 7. UTILITIES - -------------- 7.1 Except as set forth in Section 7.2, Tenant shall pay when due all the rents or charges for water, gas, electric, or other utilities (including garbage and industrial waste collection and removal) used by the Tenant, which are or may be assessed or imposed upon the Leased Premises or which are or may be charged to the Landlord by the suppliers thereof during the Term, and if not paid when due, such rents or charges shall be added to and become payable as additional rent within ten (10) days after written demand by Landlord. Landlord and Fairmount, at their cost and expense, prior to the commencement date of this Lease shall cause the appropriate utility service providers to install separate meters for utilities provided to the building on the Leased Premises and the 860 Premises; provided, however, that with respect to the water meter, the Tenant and Fairmount or the 860 Premises Tenant jointly shall take readings, or cause the appropriate utility provider to take readings, of the water sub-meter located in the 860 Premises at each time the utility provider takes readings of the water meter on the Leased Premises, and Fairmount or the 860 Premises Tenant shall reimburse Tenant within ten (10) days after written demand by Tenant for the water charges allocable to the 860 Premises based on such readings. 7.2 Tenant and Fairmount recognize that the sprinkler system in the 860 Premises is interconnected with the building on the Leased Premises. Fairmount and the 860 Premises Tenant acknowledge and agree that Tenant shall be responsible, at its cost and expense, for the maintenance and repair of the portion of the sprinkler system located on the Leased Premises, and Fairmount shall be responsible, at its cost and expense, for the maintenance and repair of the portion of the sprinkler system located on the 860 Premises. Fairmount shall reimburse Tenant, within ten (10) days after written demand from Tenant, but no more frequently than quarterly, for Fairmount's Proportionate Share of all costs and expenses incurred by Tenant for the sprinkler system which benefits the sprinkler system as a whole, and not just the portion of the sprinkler system located on the Leased Premises. 8. COMPLIANCE WITH LAWS - ------------------------- 8.1 Except as otherwise provided in Section 8.2, Tenant, at Tenant's cost and expense, shall comply in all material respects with all (i) statutes, laws, ordinances, rules, regulations, legally binding requirements and directives of the federal, state and municipal governmental authorities and of all their departments, bureaus and subdivisions, applicable to and affecting the Leased Premises or their use and occupancy, or the environmental condition of the Leased Premises, and (ii) orders, regulations, requirements and directives of the Board of Fire Underwriters or similar authority and of any insurance companies which have issued or are about to issue policies of insurance covering -5- the Leased Premises and its contents, for the prevention of fire or other casualty, damage or injury (collectively, the "Legal and Insurance Requirements"). Without limiting the generality of the foregoing, (i) Tenant shall comply with Tenant's obligations under the Industrial Site Recovery Act ("ISRA") which are triggered by the expiration of the Term or termination of this Lease, and Landlord shall cooperate in all reasonable respects with Tenant with respect to any such obligations of Tenant, and (ii) Landlord shall comply with Landlord's obligations under ISRA which are triggered by the expiration of the term or termination of this Lease and Tenant shall cooperate in all reasonable respects with Landlord with respect to any such obligations of Landlord. 8.2 Notwithstanding the foregoing in Section 8.1, Landlord, at its cost and expense, shall be responsible for the compliance with any Legal and Insurance Requirements to the extent that the condition resulting in a violation of such Legal and Insurance Requirements (i) would require any alterations, additions or improvements to the Structural Components, or (ii) existed prior to the commencement of Tenant's occupancy under any prior leases. 8.3 Fairmount, at Fairmount's cost and expense, shall comply in all material respects with all Legal and Insurance Requirements applicable to and affecting the use, occupancy or environmental condition of the Right of Access and Parking Spaces. 8.4 Tenant shall indemnify and save harmless Landlord from any fine, suit, claim, action, liability, damage, loss, cost or expense, including, without limitation, attorney's fees and court costs, of any kind arising out of or in any way connected with (i) any spills or discharges of hazardous substances or wastes at, onto or from the Leased Premises caused by Tenant or its employees or agents from and after May 28, 1996, until the earlier of the expiration of the Term or termination of this Lease, and (ii) Tenant's failure to comply with applicable environmental laws. 8.5 Landlord shall indemnify and save harmless Tenant from any fine, suit, claim, action, liability, damage, loss, cost or expense, including, without limitation, attorney's fees and court costs, of any kind arising out of or in any way connected with (i) any spills or discharges of hazardous substances or wastes at, onto or from the Leased Premises caused by Landlord or arising from facts, events or conditions prior to May 28, 1996, and (ii) Landlord's failure (or failure by any person or entity prior to the commencement date of this Lease) to comply with applicable environmental laws. 8.6 Fairmount shall indemnify and save harmless Tenant from any fine, suit, claim, action, liability, damage, loss, cost or expense, including, without limitation, attorney's fees and court costs, of any kind arising out of or in any way connected with (i) any spills or discharges of hazardous substances or wastes at, onto or from the Right of Access, Parking Spaces or the 860 Premises caused by Fairmount, the 860 Premises Tenant or its employees or agents, and (ii) the failure by Fairmount or the 860 Premises Tenant (or failure by any person or entity prior to the commencement date of this Lease) to comply with applicable environmental laws. -6- 9. LIABILITY INSURANCE AND INDEMNIFICATION - ------------------------------------------- 9.1 Tenant, at its cost and expense, shall obtain or provide and keep in full force for the benefit of the Landlord general public liability insurance, insuring Tenant, and naming Landlord as an additional insured, against any and all liability or claims of liability arising out of, occasioned by or resulting from any accident or otherwise in or about the Leased Premises, for injuries to any person or persons, for limits of not less than $5,000,000 for injuries to one person and $5,000,000 for injuries to more than one person, in any accident or occurrence, and for loss or damage to the property of any person or persons of not less than $500,000. 9.2 Tenant, at its cost and expense, shall obtain or provide and keep in full force for the benefit of the Landlord fire insurance, with an extended coverage endorsement, for damage to the building on the Leased Premises in an amount not less than ninety percent (90%) of the full replacement cost thereof. Landlord and Landlord's lender shall be named as loss payees thereunder. 9.3 The policies of insurance shall be written by a company or companies authorized to do business in the State of New Jersey. At least fifteen (15) days prior to the expiration or termination date of any policy, Tenant shall deliver a certificate of insurance for a renewal or replacement policy with proof of the payment of the premium therefor. Each of the policies required to be maintained by the Tenant herein shall contain a provision that the same may not be canceled or altered without a least fifteen (15) days prior written notice to the Landlord. 9.4 Tenant shall save, hold, and keep harmless and indemnify Landlord and its shareholders, directors, officers, employees and agents, and their respective heirs, legal representatives, successors and assigns (the "Landlord Indemnitees") from and for any and all liability, damage, loss, cost or expense (including, without limitation, attorney fees and court costs) incurred by any of the Landlord Indemnitees wholly or in part arising from or in connection with (i) any breach or default by Tenant of its duties or obligations under this Lease; (ii) any acts or omissions by the Tenant or the Tenant's employees, agents, guests, licensees, invitees or subtenants, or (iii) the use or occupancy of the Leased Premises by Tenant and the conduct of Tenant's business thereon. Tenant shall save, hold, and keep harmless and indemnify Fairmount, and their respective shareholders, directors, officers, employees and agents, and their respective heirs, legal representatives, successors and assigns (the "Fairmount Indemnitees") from and for any and all liability, damage, loss, cost or expense (including, without limitation, attorney fees and court costs) incurred by any of the Fairmount Indemnitees wholly or in part arising from or in connection with the use, enjoyment or occupancy of the Parking Spaces by Tenant or its employees or agents. 9.5 Landlord shall save, hold, and keep harmless and indemnify Tenant and its shareholders, directors, officers, employees and agents, and their respective heirs, legal representatives, successors and assigns (the "Tenant Indemnitees") from and for any and all liability, damage, loss, cost or expense (including, without limitation, attorney fees and court costs) incurred -7- by any of the Tenant Indemnitees wholly or in part arising from or in connection with (i) any breach or default by Landlord of its duties or obligations under this Lease, or (ii) the negligence or intentional misconduct by Landlord or its employees, agents, guests, licensees or invitees. 9.6 Fairmount shall save, hold, and keep harmless and indemnify the Tenant Indemnitees from and for any and all liability, damage, loss, cost or expense (including, without limitation, attorney fees and court costs) incurred by any of the Tenant Indemnitees wholly or in part arising from or in connection with (i) any breach or default by Fairmount of its duties or obligations under this Lease; (ii) the negligence or intentional misconduct by Fairmount or its employees, agents, guests, licensees or invitees; (iii) the use, occupancy or enjoyment of the Right of Access by Fairmount or the 860 Premises Tenant, or their respective employees, agents, guests, licensees, invitees or subtenants. 10. ASSIGNMENT AND SUBLETTING - ------------------------------ 10.1 The Tenant shall not, without the written consent of the Landlord, assign, mortgage or hypothecate this Lease, nor sublet or sublease the Leased Premises or any part thereof, which consent shall not be unreasonably withheld, conditioned or delayed. 10.2 Notwithstanding the foregoing in Section 10.1, Tenant shall have the right, without obtaining the Landlord's consent, to assign its interest in this Lease or to sublet or sublease the Leased Premises or any portion thereof, to an entity which: (i) controls, is controlled by, or is under common control with, Tenant, (ii) succeeds to Tenant's business by merger, consolidation or other form of corporate transaction, or (iii) has a net worth equal to or greater than the net worth of the Tenant as of the commencement date of this Lease. 11. SUBORDINATION AND NONDISTURBANCE; LANDLORD'S FINANCING; - ------------------------------------------------------------ ESTOPPEL CERTIFICATE -------------------- 11.1 This Lease is subject and subordinate to the lien of all mortgages which may now or hereafter affect the Leased Premises; provided, however, that Landlord shall obtain a non-disturbance agreement from the person or entity holding such lien in favor of Tenant, in form and substance satisfactory to Tenant (the "Non-Disturbance Agreement"). Upon Tenant's receipt of the Non- Disturbance Agreement, (i) Tenant, at Landlord's request, shall execute, acknowledge and deliver to Landlord, any instruments and certificates reasonably requested by Landlord to evidence, confirm or further effect such subordination. 11.2 If any prospective lender of Landlord which has committed to provide financing to be secured by the Premises or the rents under the Lease requests any amendments to any terms or provisions of this Lease as a condition of providing such financing, Tenant shall agree to such amendments requested by such prospective lender; provided, however, that Tenant shall not be required to consent to such amendments if the same (i) would affect any economic terms of the -8- Lease, or (ii) in Tenant's reasonable judgment, might adversely affect Tenant's use or enjoyment of the Premises. 11.3 Landlord and Tenant agree, within ten (10) days after written request by the other, to execute, acknowledge and deliver to and in favor of any proposed lender, purchaser, permitted assignee, subtenant or other person or entity, an estoppel certificate, in a form reasonably satisfactory to such proposed lender, purchaser, permitted assignee or sublessee, stating among other things: (i) whether this Lease is in full force and effect; (ii) whether this Lease has been modified or amended and, if so, identifying and describing any such modification or amendment; (iii) the date through which rent has been paid; and (iv) whether the party giving such certificate knows of any default on the part of the other party or has any claim against the other party and, if so, specifying the nature of such default or claim. 12. CONDEMNATION; EMINENT DOMAIN - --------------------------------- 12.1 If a Taking (as defined in Section 12.3) occurs with respect to the entire Leased Premises or any portion thereof which, in Tenant's reasonable judgment, materially interferes with Tenant's use, occupancy or enjoyment of the Leased Premises then this Lease shall terminate on the date on which the Leased Premises or such portion thereof is conveyed to the condemning authorities and Tenant shall be liable for the payment of rent only to the date of such conveyance. 12.2 If a Taking (as defined in Section 12.3) occurs with respect to a portion of the Leased Premises which, in Tenant's reasonable judgment, does not materially interfere with Tenant's use, occupancy or enjoyment of the Leased Premises, then this Lease shall terminate on the date on which the Leased Premises is conveyed to the condemning authorities only as to such portion of the Leased Premises is conveyed, and this Lease shall remain in full force and effect as to the portion of the Leased Premises not conveyed to the condemning authorities, provided, however, that the rent for such remaining portion shall be equitably abated. 12.3 For the purposes of this Section 12, the term "Taking" shall mean (i) the exercise by any governmental or other public authority, agency, body or public utility, of the right of eminent domain or condemnation proceedings, or if suit or other action shall be instituted for the taking or condemnation thereof, or (ii) if in lieu of any formal condemnation proceedings or actions, Landlord sale and conveyance or granting of an option to purchase the Leased Premises or any portion thereof, to the governmental or other public authority, agency, body or public utility, seeking to take said land and Leased Premises or any portion thereof. 12.4 Landlord shall have the right to receive all awards made in respect of any Taking and Tenant shall have no claim or right to claim or be entitled to any portion of such award, except to the extent a separate award is made to Tenant for the value of Tenant's leasehold estate or Tenant's trade fixtures, equipment or personal property on the Leased Premises. -9- 12.5 Tenant, at Landlord's expense, shall execute, acknowledge and deliver any instruments, as necessary or required to expedite any Taking or to effectuate a proper transfer of title to such governmental or other public authority, agency, body or public utility seeking to take or acquire the Leased Premises or any portion thereof. 13. FIRE AND OTHER CASUALTY - ---------------------------- 13.1 If a fire, the elements or other casualty (a "Casualty") results in damage to the Leased Premises, the Tenant shall give immediate notice to the Landlord. If the Leased Premises is partially damaged by a Casualty, Landlord shall repair the Leased Premises as soon as practicable to the same condition as existing prior to such Casualty, and Tenant's obligation to pay the rent shall be equitably abated until the Leased Premises have been repaired or restored to its condition existing prior to such Casualty, the amount of such abatement of rent depending upon the character and extent of damage and loss of use to the Tenant. 13.2 If (i) the Leased Premises are totally destroyed (which would require the razing of entire sidewalls of the building before reconstruction would be practical) or, (ii) the Leased Premises be so extensively and substantially damaged as to render them untenantable, then the rent shall be paid up to the time of such destruction and this Lease shall terminate. In no event however, shall the provisions of this clause become effective or be applicable, if the Casualty shall be the result of the negligence or intentional misconduct of Tenant or Tenant's agents, employees, guests, licensees, invitees or subtenants. In such case, Tenant's liability for the payment of the rent shall continue unabated for the remainder of the Term. 13.3 If Tenant shall have been insured against any Casualty, then the proceeds of such insurance shall be paid over to the Landlord to the extent of the Landlord's costs and expenses to make the repairs hereunder. 14. REIMBURSEMENT - ------------------ If Landlord, Tenant or Fairmount shall fail or refuse to comply with and perform any of its conditions and covenants in this Lease, the other party may, if it so elects, after ten (10) days written notice from such party to the non- complying party carry out and perform such conditions and covenants, at the cost and expense of the non-complying party. The cost and expense incurred by such party shall be payable by the non-complying party within ten (10) days after demand, or at the option of the party incurring such costs, shall be added to the installment of rent next due and payable, or reduced as an abatement of rent due and payable (as the case may be). This remedy shall be in addition to such other remedies the Landlord, Tenant or Fairmount may have hereunder by reason of the breach by the either party of any of the covenants and conditions contained in this Lease. -10- 15. INSPECTION AND REPAIRS - --------------------------- Landlord and Landlord's agents, employees or other representatives, shall have the right to enter into and upon the Leased Premises or any part thereof, at all reasonable hours with at least 24 hours prior written notice (except in the case of emergencies), for the purpose of examining the same and for making such repairs and replacements as required by Landlord under this Lease, or alterations, additions or improvements as may be necessary for the safety and preservation thereof. This clause shall not be deemed to be a covenant by the Landlord nor be construed to create an obligation on the part of the Landlord to make such inspection or repairs other than those obligations set forth in this Lease. 16. RIGHT TO EXHIBIT - --------------------- Tenant shall permit Landlord and Landlord's agents, employees or other representatives to show the Leased Premises to prospective purchasers at any time, and to prospective tenant during the last six (6) months of the Term, and Tenant agrees that on and after three (3) months before the expiration of the Term, Landlord and Landlord's agents, employees or other representatives shall have the right to place notices on the Leased Premises, offering the premises for rent or for sale. 17. REMOVAL OF TENANT'S PROPERTY - --------------------------------- Any equipment, fixtures, goods or other property of the Tenant, not removed by the Tenant upon the expiration of the Term or upon any quitting, vacating or abandonment of the Leased Premises by the Tenant, or in the case of a termination of this Lease and Tenant's eviction, within thirty (30) days after such termination and eviction, shall be considered as abandoned and the Landlord shall have the right, without any notice to the Tenant, to sell or otherwise dispose of the same, and shall not be accountable to Tenant for any part of the proceeds of such sale, if any. 18. REMEDIES UPON TENANT'S DEFAULT - ----------------------------------- 18.1 Any of the following shall be deemed an event of default by Tenant under this Lease: (i) The failure to make any payment of rent when due and payable if such failure continues for five (5) business days after written notice, or if Tenant has received two (2) or more notices within any twelve (12) month period, the failure to make any payment of rent within five (5) days after such rent is due and payable; (ii) Tenant's failure to perform any covenant or obligation of Tenant under this Lease and such failure shall continue for thirty (30) days after written notice, or if such default is not curable within a thirty (30) day period, Tenant fails to commence such cure within such thirty (30) day period or fails to diligently prosecute such cure to completion; -11- (iii) The Leased Premises shall be or become abandoned or deserted, vacated or vacant; or (iv) Tenant be adjudicated a bankrupt, insolvent or placed in receivership, or should proceedings be instituted by or against the Tenant for bankruptcy, insolvency, receivership, agreement of composition or assignment for the benefit of creditors which are not dismissed within thirty (30) days after filing. 18.2 Upon an event of default, Landlord, in addition to any other remedies herein contained or as may be permitted by law, may either 18.2.1 terminate Tenant's right to possession, and by any lawful means, re-enter the Leased Premises and have and again possess and enjoy the Leased Premises, re-let the Leased Premises and receive the rents therefor and apply the same, first to the payment of such expenses, reasonable attorney fees and costs, as the Landlord has reasonably incurred in re-entering and repossessing the same and in making such repairs and alteration as may be necessary; and second to the payment of the rents due hereunder, in which case Tenant shall remain liable for such rents as may be in arrears and also the rents as may accrue subsequent to the re-entry by Landlord, to the extent of the difference between the rents reserved hereunder and the rents, if any, received by the Landlord during the remainder of the unexpired term hereof, after deducting the aforementioned expenses, fees and costs; the same to be paid as such deficiencies arise and are ascertained each month, or 18.2.2 terminate the Lease with five (5) days notice in writing of the Landlord's intention so to do. Upon the giving of such notice, this Lease and the term thereof shall end on the date fixed in such notice as if the said date were the date originally fixed in this Lease for the expiration hereof, provided, however, that Tenant shall have the right to removed any of its trade fixtures, equipment or other personal property within thirty (30) days after the date of such termination, and Landlord shall have the right to remove all persons, goods, fixtures and chattels therefrom, by force or otherwise, without liability for damages, which are not removed by Tenant during such thirty (30) day period. 19. LIMITATION ON LANDLORD'S LIABILITY - --------------------------------------- Tenant acknowledges and agrees that Landlord shall not be liable for any damage or injury which is sustained by Tenant or any other person as a consequence of the failure, breakage, leakage or obstruction of the any of the building's electrical, plumbing or mechanical systems or utilities, except to the extent arising from or in connection with (i) any breach or default by Landlord of its duties or obligations under this Lease, or (ii) the negligence or intentional misconduct by Landlord or its employees, agents, guests, licensees or invitees. -12- 20. NON-WAIVER - --------------- The various rights, remedies, options and elections of Landlord, Tenant and Fairmount are cumulative, and the failure of such party to enforce the strict performance by the other party of its covenants and obligations under this Lease or to exercise any election or option or to resort or have recourse to any remedy provided in this Lease herein, at law or in equity, and the acceptance by Landlord of any installment of rent after any breach by the Tenant, in any one or more instances, shall not be construed or deemed to be a waiver or a relinquishment for the future by such party of any such covenants, obligations, rights, remedies, options or elections, but the same shall continue in full force and effect. 21. SEVERABILITY OF LEASE - -------------------------- The terms, conditions, covenants and provisions of this Lease shall be deemed to be severable. If any clause or provisions herein contained shall be adjudged to be invalid or unenforceable by a court of competent jurisdiction or by operation of any applicable law, it shall not affect the validity of any other clause or provision herein, but such other clauses or provisions shall remain in full force and effect. Landlord, Tenant or Fairmount may pursue the relief or remedy sought in any invalid clause, by conforming the said clause with the provisions of the statutes or the regulations of any governmental agency in such case made and provided as if the particular provisions of the applicable statutes or regulations were set forth herein at length. 22. NOTICES - ------------ All notices, demands, consents and other communication required under this Lease shall be given in writing and sent by: (i) personal delivery, (ii) mailing such notices by certified mail, return receipt requested, or (iii) nationally recognized overnight courier, to the address of the parties as shown at the head of this Lease, or to such other address as may be designated in writing, which notice of change of address shall be given in the same manner, and shall be deemed delivered upon (i) receipt by the party to whom such notice, or (ii) upon attempted delivery if the party to whom such notice is sent refuses delivery or is no longer at the address set for in the head of this Lease and failed to notify Landlord of its new address. Landlord, Tenant and Fairmount shall have the right to change their address for such notices, demands, consents and other communications by providing a notice pursuant to this Section 22 to the other parties to this Lease. 23. TITLE AND QUIET ENJOYMENT - ------------------------------ 23.1 Landlord represents and warrants that Landlord is the owner of the Leased Premises and has the right and authority to enter into, execute and deliver this Lease, and covenants that Tenant on paying the rent and performing its covenants and obligations herein contained, shall and may peaceably and quietly have, hold and enjoy the Leased Premises during the Term. -13- 23.2 Fairmount represents and warrants that Fairmount is the owner of the Parking Spaces and has the right and authority to enter into, execute and deliver this Lease, and covenants that Tenant on performing its covenants and obligations herein with respect to the Parking Spaces, shall and may peaceably and quietly have, hold and enjoy the Parking Spaces during the Term. 24. ENTIRE CONTRACT - -------------------- This Lease sets forth the entire understanding and agreement among Landlord, Tenant and Fairmount, and supersedes all prior or contemporaneous written or oral understandings or agreements. No amendments, additions, changes or modifications, renewals or extensions hereof, shall be binding unless set forth in writing and signed by Landlord and Tenant, and if such amendments affect any rights or obligations of Fairmount, by Fairmount as well. 25. MECHANIC'S LIENS - --------------------- If any mechanics' or other liens shall be created or filed against the Leased Premises by reason of labor performed or materials furnished for the Tenant in the erection, construction, completion, alteration, repair or addition to any building or improvement, Tenant, at Tenant's cost and expense, cause such lien or liens to be satisfied, bonded, or discharged of record together with any Notices of Intention that may have been filed within thirty (30) days after Tenant receives notice of such lien. 26. WAIVER OF SUBROGATION - -------------------------- Each party hereto waives any cause of action it might have against the other party on account of any liability, damage, loss, cost or expense that is insured against under any insurance policy to the extent of insurance proceeds paid under such insurance policy; provided, however, that this waiver shall be ineffective against any insurer of Landlord, Tenant or Fairmount to the extent such waiver is prohibited by the laws of the State of New Jersey. 27. INTERPRETATION - ------------------- In all references herein to any parties, persons, entities or corporations the use of any particular gender or the plural or singular number is intended to include the appropriate gender or number as the text of the within instrument may require. 28. SUCCESSORS AND ASSIGNS - --------------------------- All the terms, covenants and conditions herein contained shall be for and shall inure to the benefit of and shall bind Landlord, Tenant, Fairmount, and their respective and their heirs, executors, administrators, personal or legal representatives, successors and assigns. Fairmount shall incorporate its rights and obligations under this Lease into any lease agreement with the 860 Premises Tenant. -14- IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day and year first above written. LANDLORD: -------- DIVISION STREET PARTNERS, L.P., a New Jersey Limited Partnership By: DIVISION STREET REALTY CORP. a New Jersey Corporation Its: General Partner By: /s/ William J. Milton, Jr. -------------------------- Name: William J. Milton, Jr. Title: President TENANT: ------ BROCKWAY STANDARD (NEW JERSEY), INC., a New Jersey corporation By: /s/ Blair Schlossberg ---------------------------- Name: Blair Schlossberg ---------------------------- Title: Secretary & General Counsel ---------------------------- IN WITNESS WHEREOF, Fairmount has executed this Lease as of the day and year first above written only for the purposes of Sections 1.2, 1.3, 7.1, 7.2, 8.3, 8.6, 9.6, 14, 20, 21, 22, 23.2, 24, 26, 27 and 28. FAIRMOUNT: --------- FAIRMOUNT REALTY, L.L.C., a New Jersey Limited Liability Company By: /s/ William J. Milton, Jr. -------------------------- Name: William J. Milton, Jr. Title: Manager -15- EX-21.1 8 SUBSIDIARIES OF THE COMPANY SUBSIDIARIES OF THE COMPANY EXHIBIT 21.1 BWAY CORPORATION - ---------------- Brockway Standard, Inc. Armstrong Containers, Inc. Plate Masters, Inc. Milton Can Company, Inc. Brockway Standard (New Jersey), Inc. Northeast Tin Plate Company Milton Metal Graphics, Inc. BMAT, Inc. BMAT (Newtown), Inc. BMAT (MDD), Inc. Chicago Metal Decorating, Inc. Chicago Service Division, Inc. Brookfield Service Division, Inc. Trenton Metal Decorating, Inc. Brockway Standard (Canada), Inc. BWAY Foreign Sales Corporation The Company and most of its significant subsidiaries are Delaware corporations, except for Northeast Tin Plate Company (a New Jersey Corporation), Milton Metal Graphics, Inc. (an Illinois Corporation), BWAY Foreign Sales Corporation (incorporated in Barbados), and Brockway Standard (Canada), Inc. which is organized within the Ontario Province. EX-27.1 9 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS YEAR OCT-03-1999 OCT-03-1999 JUL-05-1999 SEP-28-1998 OCT-03-1999 OCT-03-1999 696 696 0 0 53,374 53,374 506 506 49,031 49,031 15,831 15,831 158,071 158,071 13,355 13,355 362,023 362,023 104,280 104,280 164,500 146,500 0 0 0 0 99 99 81,954 81,954 362,023 362,023 117,468 467,099 117,468 467,099 62,845 404,492 105,829 456,182 284 33 0 0 3,995 14,733 (504) 10,917 (436) 5,290 (940) 5,627 0 0 0 0 0 0 (940) 5,627 .10 .60 .10 .60
-----END PRIVACY-ENHANCED MESSAGE-----