Registration No. 33-46499
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 6
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SILGAN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 3441;3085 06-1207662
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification Number)
organization) Code Numbers)
4 Landmark Square
Stamford, CT 06901
(203) 975-7110
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
Harley Rankin, Jr.
Silgan Corporation
4 Landmark Square
Stamford, CT 06901
(203) 975-7110
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
Frode Jensen, III, Esq.
Winthrop, Stimson, Putnam & Roberts
Financial Centre
695 East Main Street
P.O. Box 6760
Stamford, CT 06904-6760
(203) 348-2300
<PAGE>
SILGAN CORPORATION
Cross Reference Sheet
Pursuant to Item 501(b) of Regulation S-K
Form S-1 Part I Item Prospectus Location or Caption
1. Forepart of the Registration
Statement and Outside Front Cross Reference Page; Outside
Cover Page of Prospectus.................. Front Cover Page
2. Inside Front and Outside Back
Cover Page of Prospectus................. Inside Front Cover Page
3. Summary Information, Risk
Factors and Ratio of Earnings
to Fixed Charges......................... Prospectus Summary; Certain
Risk Factors; The Company;
Selected Financial Data
4. Use of Proceeds.......................... Not Applicable
5. Determination of Offering Price.......... Not Applicable
6. Dilution................................. Not Applicable
7. Selling Security Holders................. Not Applicable
8. Plan of Distribution..................... Market-Making Activities of
Morgan Stanley
9. Description of Securities Outside Front Cover Page;
to be Registered......................... Prospectus Summary;
Description of the 11-3/4%
Notes
10. Interests of Named Experts Certain Transactions; Legal
and Counsel.............................. Matters; Experts
11. Information With Respect Outside Front Cover Page;
to the Registrant........................ Prospectus Summary; Certain
Risk Factors; The Company;
Capitalization; Selected
Financial Data; Management's
Discussion and Analysis of
Financial Condition and
Results of Operations;
Business; Management;
Securities Ownership of
Certain Beneficial Owners and
Management; Certain
Transactions; Description of
Certain Indebtedness;
Description of Silgan Capital
Stock; Description of
Holdings Common Stock;
Description of the 11-3/4%
Notes; Financial Statements
12. Disclosure of Commission
Position on Indemnification
for Securities Act Liabilities........... Not Applicable
<PAGE>
PROSPECTUS
$135,000,000
Silgan Corporation
11-3/4% SENIOR SUBORDINATED NOTES DUE 2002
Interest payable June 15 and December 15
The 11-3/4% Senior Subordinated Notes due 2002 (the "11-3/4% Notes") will
be redeemable at the option of Silgan Corporation (the "Company" or
"Silgan"), in whole or in part, at any time on or after June 15, 1997,
initially at 105.875% of their principal amount plus accrued interest,
declining to 100% of their principal amount plus
accrued interest on or after June 15, 1999.
-------------------------
The 11-3/4% Notes were originally sold by the Company to the public in 1992
as part of a plan of the Company and Silgan Holdings Inc. ("Holdings"), the
Company's parent holding company, to refinance a substantial portion of their
indebtedness (the "Refinancing"). Because the Company is a holding company that
conducts all of its business through its subsidiaries, all existing and future
liabilities of the Company's subsidiaries will be effectively senior to the
11-3/4% Notes. As of March 31, 1995, the Company and its subsidiaries had
approximately $325.9 million of indebtedness and other liabilities effectively
senior to the 11-3/4% Notes, including approximately $182.3 million of Senior
Indebtedness (as defined in "Description of the 11-3/4% Notes--Subordination").
The Company has no indebtedness outstanding that is subordinated to the 11-3/4%
Notes. The indenture relating to the 11-3/4% Notes (the "Indenture") permits,
subject to certain limitations contained therein, the incurrence by the Company
and its subsidiaries of a substantial amount of additional indebtedness,
including Senior Indebtedness, and the payment by the Company of dividends to
Holdings. See "Certain Risk Factors--Secured Indebtedness," "--Holding Company
Structure and Subordination" and "--Ability of the Company to Incur Additional
Indebtedness" and "Description of the 11-3/4% Notes." The 11-3/4% Notes are
listed on the Pacific Stock Exchange. Although Morgan Stanley & Co. Incorporated
("Morgan Stanley") currently makes a market in the 11-3/4% Notes, it is not
obligated to do so and may discontinue or suspend its market-making activities
at any time. In addition, the liquidity of and trading market for 11-3/4% Notes
may be adversely affected by declines and volatility in the market for high
yield securities generally as well as by any changes in the Company's financial
performance and prospects. See "Certain Risk Factors--Trading Market for the
11-3/4% Notes."
SEE "CERTAIN RISK FACTORS" FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-------------------------
This Prospectus is to be used by Morgan Stanley & Co. Incorporated in
connection with offers and sales in market-making transactions at
negotiated prices relating to prevailing market prices at the time of
sale. Morgan Stanley & Co. Incorporated may act as principal
or agent in such transactions.
May 24, 1995
<PAGE>
No person is authorized in connection with any offering made hereby to give
any information or to make any representation other than as contained in this
Prospectus and, if given or made, such information or representation must not be
relied upon as having been authorized by the Company or Morgan Stanley. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy by any person in any jurisdiction in which it is unlawful for such person to
make such an offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall imply under any circumstances that the information
contained herein is correct as of any date subsequent to the date hereof.
TABLE OF CONTENTS
Page
Additional Information................................................. 3
Prospectus Summary..................................................... 4
Certain Risk Factors.................................................... 10
The Company............................................................. 16
Capitalization.......................................................... 18
Selected Financial Data................................................. 19
Management's Discussion and
Analysis of Financial
Condition and Results
of Operations.......................................................... 23
Business................................................................ 33
Management.............................................................. 45
Securities Ownership of Certain Beneficial
Owners and Management................................................. 55
Certain Transactions.................................................... 56
Description of Certain Indebtedness..................................... 58
Description of Silgan Capital Stock..................................... 64
Description of Holdings Common Stock.................................... 65
Description of the 11-3/4% Notes........................................ 70
Certain Federal Income Tax Considerations............................... 98
Market-Making Activities of Morgan Stanley.............................. 102
Legal Matters........................................................... 102
Experts................................................................. 102
Index to Consolidated Financial Statements.............................. F-1
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<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (which term shall encompass
any amendment thereto) relating to the 11-3/4% Notes under the Securities Act of
1933, as amended (the "Securities Act"). For purposes hereof, the term
"Registration Statement" means the original Registration Statement and any and
all subsequent amendments thereto. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto to which reference is made hereby. Each reference made in this
Prospectus to a document filed as an exhibit to the Registration Statement is
qualified in its entirety by reference to such exhibit for a complete statement
of its provisions. Any interested party may inspect the Registration Statement,
without charge, at the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, DC 20549, and may obtain copies of all or any portion
of the Registration Statement from the Commission upon payment of the prescribed
fee. In addition, copies of any and all documents incorporated by reference in
this Prospectus (not including exhibits to such documents unless such exhibits
are specifically incorporated by reference into such documents) may be obtained,
without charge, from the Company by requesting such copies by mail or telephone
from Harold J. Rodriguez, Jr., Silgan Corporation, 4 Landmark Square, Stamford,
CT 06901, telephone number (203) 975-7110.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Commission. The
Registration Statement and the exhibits and schedules thereto, as well as all
such reports and other information filed by the Company with the Commission, can
be inspected and copied at prescribed rates at the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Washington, DC 20549, and at the
following Regional Offices of the Commission: New York Regional Office, 75 Park
Place, New York, New York 10007 and Chicago Regional Office, Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Such
reports and other information may also be inspected at the offices of the
Pacific Stock Exchange, 301 Pine Street, Suite 1104, San Francisco, California
94104.
The Indenture requires the Company, and the Company intends, to distribute
to the holders of the 11-3/4% Notes annual reports containing consolidated
financial statements and the related report of independent auditors and
quarterly reports containing unaudited consolidated financial statements for the
first three quarters of each fiscal year for so long as any 11-3/4% Notes are
outstanding.
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<PAGE>
PROSPECTUS SUMMARY
This Prospectus Summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto that appear elsewhere in
this Prospectus. Prospective investors should carefully consider the factors set
forth under the caption "Certain Risk Factors."
THE COMPANY
The Company is a major manufacturer of a broad range of steel and aluminum
containers for human and pet food . The Company also manufactures custom
designed plastic containers for health, personal care, food, beverage,
pharmaceutical and household chemical products in North America. In 1994, the
Company had net sales of $861.4 million.
Management believes that the Company is the sixth largest can producer and
one of the largest food can producers in North America, as well as one of the
largest producers in North America of custom designed plastic containers for
health and personal care products. The Company has grown rapidly since its
inception in 1987 primarily as a result of acquisitions, but also through
internally generated growth. In December 1993, Silgan's wholly owned subsidiary,
Silgan Containers Corporation ("Containers"), acquired the U.S. metal container
manufacturing business ("DM Can") of Del Monte Corporation ("Del Monte") . See
"Business--Company History."
The Company's strategy is to continue to increase its share of the North
American packaging market through acquisitions, as well as investment in
internally generated opportunities. The Company intends to focus particular
attention on those rigid metal and plastic container segments where operating
and market synergies are likely.
Metal Container Business
Management estimates that Containers is currently the sixth largest can
producer and one of the largest manufacturers of metal food containers in North
America. In 1994 Containers sold approximately 21% of all metal food containers
used in North America. Although the food can industry in North America is
relatively mature in terms of unit sales growth, Containers has realized
compound annual unit sales growth in excess of 12% since 1987. Types of
containers manufactured include those for vegetables, fruit, pet food, tomato
based products, evaporated milk and infant formula. Containers has agreements
(the "Nestle Supply Agreements") with Nestle Food Company ("Nestle") pursuant to
which Containers supplies substantially all of its metal container requirements,
and an agreement (the "DM Supply Agreement") with Del Monte pursuant to which
Containers supplies substantially all of its metal container requirements. In
addition to Nestle and Del Monte, Containers has multi-year supply arrangements
with other customers. The Company estimates that in excess of 80% of Containers'
sales in 1995 will be pursuant to such supply arrangements. See "Business--Sales
and Marketing."
Containers has focused on growth through acquisition followed by investment
in the acquired assets to achieve a low cost position in the food can segment.
Since its acquisition in 1987 of the metal container manufacturing division of
Nestle ("Nestle Can"), Containers has invested approximately $99 million in its
acquired manufacturing facilities and has spent approximately $67 million for
the acquisition of additional can manufacturing assets. As a result of these
efforts and management's focus on quality and service,
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<PAGE>
Containers has more than doubled its overall share of the food can segment in
terms of unit sales, from a share of approximately 10% in 1987 to a share of
approximately 21% in 1994.
Plastic Container Business
Management believes that the Company's wholly owned subsidiary, Silgan
Plastics Corporation ("Plastics"), is one of the leading manufacturers of custom
designed, high density polyethylene ("HDPE") and polyethylene terephthalate
("PET") containers sold in North America for health and personal care products.
HDPE containers manufactured by Plastics include personal care containers for
shampoos, conditioners, hand creams, lotions and cosmetics, household chemical
containers for scouring cleaners , specialty cleaning agents and lawn and garden
chemicals and pharmaceutical containers for tablets, laxatives and eye cleaning
solutions. Plastics manufactures PET custom medicinal and health care product
containers (such as mouthwash and cough syrup bottles), custom food product
containers (such as salad dressing and instant coffee bottles), and custom
non-carbonated soft drink beverage product containers (such as juice bottles) as
well as water and liquor bottles. See "Business--Products."
Plastics has grown primarily by strategic acquisition. From
a sales base of $89 million in 1987, Plastics' sales have grown at a compound
annual rate of 13% to $204 million in 1994. Plastics emphasizes value-added
design, fabrication and decoration of custom containers. Plastics is
aggressively pursuing opportunities in custom designed PET and HDPE containers
for which the market has been growing principally due to consumer preferences
for plastic containers. The Company believes it has equipment and technical
expertise to take advantage of these growth segments.
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<PAGE>
THE 11-3/4% NOTES
Original Issue .............................$135,000,000 principal amount
of 11-3/4% Senior Subordinated Notes
due 2002, originally issued on June
29, 1992.
Maturity ...................................June 15, 2002.
Interest Payment
Dates.................................. June 15 and December 15, commencing
December 15, 1992.
Optional Redemption ........................The 11-3/4% Notes may be
redeemed at the option of the
Company, in whole or in part, at any
time on or after June 15, 1997,
initially at 105.875% of their
principal amount plus accrued
interest, declining to 100% of such
principal amount plus accrued
interest on or after June 15, 1999.
Change of Control ..........................In the event of a Change
of Control (as defined under
"Description of the 11-3/4%
Notes--Certain Definitions"), each
holder of 11-3/4% Notes may require
the Company to repurchase such
11-3/4% Notes at 101% of the
principal amount thereof plus
accrued interest.
Ranking ....................................The 11-3/4% Notes are subordinated
in right of payment to all existing
and future Senior Indebtedness of
the Company. In addition, because
the Company is a holding company
that conducts all of its business
through its subsidiaries, all
existing and future liabilities of
its subsidiaries are effectively
senior to the 11-3/4% Notes. As of
March 31, 1995, the Company and its
subsidiaries had approximately
$325.9 million of indebtedness and
other liabilities effectively senior
to the 11-3/4% Notes, of which
approximately $182.3 million
constituted Senior Indebtedness.
See "Certain Risk Factors--Holding
Company Structure and Subordination"
and "Description of the 11-3/4%
Notes--Subordination."
Covenants ..................................The Indenture contains certain
covenants that, among other things,
direct the application of proceeds
from certain asset sales and limit
the ability of the Company and its
subsidiaries to incur indebtedness,
make certain payments with respect
to their capital stock, make
prepayments of certain indebtedness,
make loans or investments in
entities other than Restricted
Subsidiaries (as defined under
"Description of the 11-3/4% Notes
--Certain Definitions"), enter into
transactions with affiliates, engage
in mergers or consolidations and,
with respect to the Company's
Restricted Subsidiaries, issue
stock. See "Description of the
11-3/4% Notes--Covenants."
Listing ....................................The 11-3/4% Notes are listed on the
Pacific Stock Exchange.
CERTAIN RISK FACTORS
For a discussion of certain factors that should be considered in evaluating
an investment in the 11-3/4% Notes, see "Certain Risk Factors."
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<PAGE>
SUMMARY FINANCIAL DATA
The following summary historical consolidated financial data of the Company
were derived from, and should be read in conjunction with, the historical
financial statements of the Company that appear elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1995<F1> 1994
-------- -----
(Dollars in thousands)
(Unaudited)
<S> <C> <C>
Operating Data:
Net sales................................................................. $203,264 $186,243
Cost of goods sold....................................................... 174,265 163,520
------- -------
Gross profit............................................................... 28,999 22,723
Selling, general and administrative expenses............................... 9,399 8,598
------- -------
Income from operations..................................................... 19,600 14,125
Interest expense and other related financing costs........................ 9,415 8,369
------- -------
Income before income taxes................................................ 10,185 5,756
Income tax provision...................................................... 4,400 2,375
------- -------
Net income ............................................................... $ 5,785 $ 3,381
======= =======
Ratio of earnings to fixed charges<F2>..................................... 2.01 1.63
Balance Sheet Data (at end of period):
Fixed
assets..................................................................... $251,832 $285,738
Total assets............................................................... 531,437 527,917
Total long-term debt...................................................... 282,568 305,000
Common stockholder's equity.............................................. 70,530 56,459
Other Data:
EBDITA<F3>.................................................................. $ 28,802 $ 24,088
EBDITA as a percentage of net sales........................................ 14.2% 12.9%
Capital expenditures....................................................... 8,359 4,896
Depreciation and amortization<F4>........................................... 8,779 9,836
(footnotes follow)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
SUMMARY FINANCIAL DATA
Year Ended December 31,
-------------------------------------------------------------------
1994<F1><F5> 1993<F5> 1992 1991<F6> 1990
-------------- ---------- --------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales............................................ $861,374 $645,468 $630,039 $678,211 $657,537
Cost of goods sold.................................. 747,457 571,174 554,972 605,185 582,991
------- ------- ------- ------- -------
Gross profit......................................... 113,917 74,294 75,067 73,026 74,546
Selling, general and administrative
expenses......................................... 37,993 31,821 32,274 33,223 35,792
Reduction in carrying value of assets................ 16,729 -- -- -- --
------- ------- ------- ------- -------
Income from operations............................... 59,195 42,473 42,793 39,803 38,754
Interest expense and other related
financing costs.................................. 36,142 27,928 26,916 28,981 34,233
------- ------- ------- ------- -------
Income before income taxes........................... 23,053 14,545 15,877 10,822 4,521
Income tax provision <F7>............................ 11,000 6,300 2,200 1,500 1,579
------- ------- ------- ------- -------
Income before extraordinary charges and
cumulative effect of changes in accounting
principles..................................... 12,053 8,245 13,677 9,322 2,942
Extraordinary charges relating to early
extinguishment of debt........................... -- (841) (9,075) -- --
Cumulative effect of changes in accounting
principles, net of taxes <F8>.................... -- (9,951) -- -- --
------- ------- ------- ------- ------
Net income (loss).................................... 12,053 (2,547) 4,602 9,322 2,942
Preferred stock dividend requirements............... -- -- 2,745 3,889 3,356
------- ------- ------- ------- ------
Net income (loss) applicable to
common stockholder.............................. $12,053 $(2,547) $ 1,857 $ 5,433 $ (414)
======= ======= ======= ======= ======
Ratio of earnings to fixed charges <F2>............ 1.59 1.48 1.54 1.34 1.12
Balance Sheet Data (at end of period):
Fixed $251,810 $290,395 $223,879 $230,501 $244,672
assets...............................................
Total assets......................................... 500,677 492,064 382,154 382,330 434,439
Total long-term debt................................ 282,568 305,000 206,681 140,701 188,598
Redeemable preferred stock........................... -- -- -- 27,878 24,061
Common stockholder's equity......................... 63,345 52,803 32,775 46,642 41,209
Other Data:
EBDITA <F3>.......................................... $115,326 $76,769 $74,547 $72,651 $70,223
EBDITA as a percentage of net sales.................. 13.4% 11.9% 11.8% 10.7% 10.7%
Capital expenditures................................. $ 29,184 $42,480 $23,447 $21,834 $22,908
Depreciation and amortization <F4>................... $ 37,187 $33,818 $31,754 $32,848 $29,496
Number of employees (at end of period) <F9>.......... 4,000 3,330 3,340 3,560 4,330
(footnotes follow)
-8-
<PAGE>
Notes to Summary Financial Data
<FN>
<F1> Effective October 1, 1994, the Company extended the estimated useful
lives of certain fixed assets to more properly reflect the true economic
lives of the assets and to better align the Company's depreciable lives
with the predominate practice in its industry. For the three months
ended March 31, 1995, the change had the effect of decreasing
depreciation expense by $1.5 million and increasing net income by $0.9
million. For 1994, the change had the effect of decreasing depreciation
expense by $1.3 million and increasing net income by $0.8 million.
<F2> For purposes of computing the ratio of earnings to fixed charges,
earnings consist of income before income taxes plus fixed charges,
excluding capitalized interest, and fixed charges consist of interest,
whether expensed or capitalized, amortization of debt expense and
discount or premium relating to any indebtedness, whether expensed or
capitalized, and such portion of rental expense that is representative
of the interest factor.
<F3> "EBDITA" means consolidated net income before extraordinary charges,
cumulative effect of changes in accounting principles and preferred
stock dividends plus, to the extent reflected in the income statement
for the period for which consolidated net income is to be determined,
without duplication, (i) consolidated interest expense, (ii) income tax
expense, (iii) depreciation expense, (iv) amortization expense, (v)
expenses relating to postretirement health care costs which amounted to
$0.2 million and $0.1 million for the three months ended March 31, 1995
and 1994, respectively, and $0.7 million and $0.5 million for the years
ended December 31, 1994 and 1993, respectively, vi) charges relating to
the vesting of benefits under stock appreciation rights ("SARs") of $0.2
million and $0.1 million for the three months ended March 31, 1995 and
1994, respectively, and $1.5 million and $2.0 million in 1994 and 1990,
respectively, and (vii) the reduction in carrying value of assets of
$16.7 million in 1994. EBDITA is being presented by the Company as a
supplement to the discussion of the Company's operating income and cash
flow from operations analysis because the Company believes that certain
persons may find it to be useful in measuring the Company's performance
and ability to service its debt. EBDITA is not a substitute for
generally accepted accounting principles ("GAAP") operating and cash
flow data.
<F4> Depreciation and amortization excludes amortization of debt financing
costs.
<F5> On December 21, 1993, the Company acquired from Del Monte substantially
all of the fixed assets and certain working capital of its container
manufacturing business. The acquisition was accounted for as a purchase
transaction and the results of operations have been included with the
Company's historical results from the acquisition date. See
"Business--Company History." See Note 3 to the Notes to Consolidated
Financial Statements included elsewhere in this Prospectus.
<F6> On November 15, 1991, the Company sold its nonstrategic PET carbonated
beverage bottle business (the "PET Beverage Sale"). For 1991, sales from
the PET carbonated beverage business were $33.4 million. See "Business--
Company History."
<F7> Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
which requires the Company to provide for taxes as if it were a separate
taxpayer. The Company did not elect to restate its financial statements
for years prior to 1993, and calculated its tax provision on a separate
company basis with the exception of certain matters covered under a tax
allocation agreement with Holdings under which the Company obtained a
federal tax benefit for Holdings' tax losses.
<F8> During 1993, the Company adopted SFAS No. 106, "Employers Accounting for
Postretirement Benefits Other than Pensions" and SFAS No. 112,
"Employers Accounting for Postemployment Benefits." The Company elected
not to restate prior years' financial statements for these
pronouncements.
<F9> The number of employees at December 31, 1993 excludes 650 employees who
joined the Company on December 21, 1993 as a result of the acquisition
by Containers of DM Can.
[/FN]
</TABLE>
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<PAGE>
CERTAIN RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating an investment in
the 11-3/4% Notes.
High Leverage
The Company is highly leveraged primarily as a result of the financing of
the acquisitions of its metal and plastic container businesses. The Company is a
wholly owned subsidiary of Holdings, a holding company with no significant
assets or operations other than its investment in Silgan. Holdings is highly
leveraged as a result of the financing of its acquisition of all of the
outstanding stock of Silgan in June 1989. See "Business--Company History."
As of March 31, 1995, the Company's total indebtedness was approximately
$317.3 million, its total assets were $531.4 million and its common
stockholder's equity was $70.5 million. See "Capitalization."
Although the Company is prohibited under the terms of the credit agreement,
dated as of December 21, 1993, among the Company and certain of its
subsidiaries, the lenders named therein (the "Banks"), Bank of America National
Trust and Savings Association ("Bank of America"), as Co-Agent, and Bankers
Trust Company ("Bankers Trust"), as Agent (the "Credit Agreement"), from merging
with Holdings (and is also subject to restrictions under the Indenture and its
Senior Secured Floating Rate Notes due 1997 (the "Secured Notes") with respect
to such a merger) and the Company has no present intention of merging or
entering into a similar transaction with Holdings, the Company may in the future
seek any consents necessary to allow the Company to merge with Holdings. In the
event of such a merger, Holdings' 13-1/4% Senior Discount Debentures due 2002
(the "Holdings Discount Debentures") would become obligations of the Company
(subordinated in right of payment to the 11-3/4% Notes) and increase the total
indebtedness of the Company and reduce the Company's net worth. The Company
believes that if such a merger were to take place at this time, the Company
would be solvent, would continue to have sufficient capital to carry on its
business and would continue to be able to meet its obligations as they mature.
Restrictive Covenants under Financing Agreements
In connection with the incurrence of its indebtedness, the Company has
entered into instruments and agreements governing such indebtedness (the
"Financing Agreements"), which Financing Agreements contain numerous covenants,
including financial and operating covenants, certain of which are quite
restrictive. In particular, certain financial covenants become more restrictive
over time in anticipation of scheduled debt amortization and improved operating
results. Such covenants affect, and in many respects significantly limit or
prohibit, among other things, the ability of the Company to incur additional
indebtedness, create liens, sell assets, engage in mergers and acquisitions,
make certain capital expenditures and pay dividends. For a description of such
covenants, see "Description of Certain Indebtedness--Description of the Credit
Agreement" and "--Description of the Secured Notes" and "Description of the
11-3/4% Notes."
The ability of the Company and its subsidiaries to satisfy such covenants
and its other obligations (including scheduled reductions of their indebtedness
under the Credit Agreement and the Company's obligations under the Secured Notes
and the 11-3/4% Notes) depends upon, among other things, the future performance
of the Company and its subsidiaries, which will be subject to prevailing
economic conditions and to financial, business and other factors (including the
state of the economy and the financial markets, demand for the products of the
Company and its subsidiaries, costs of raw materials, legislative and regulatory
changes and other factors beyond the control of the Company and its
subsidiaries) affecting the business and operations of the Company and its
subsidiaries.
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<PAGE>
The factors described above could adversely affect the Company's ability to
meet its financial obligations, including its obligations to holders of the
11-3/4% Notes. These factors could also limit the ability of the Company to take
advantage of business and technological opportunities and to effect financings
and could otherwise restrict corporate activities.
Management believes that the Company will be able to comply with the
financial covenants and other restrictions in the Financing Agreements and that
it will have sufficient cash flow available from operations to meet its
obligations; however, there can be no assurance of such compliance or of the
availability of sufficient cash flow. If the Company anticipates that it will be
unable to comply with covenants in any Financing Agreement or that its cash flow
will be insufficient to meet its debt service, dividend and other operating
needs, the Company might be required to seek amendments or waivers to its
Financing Agreements, refinance its debts or dispose of assets. There can be no
assurance that any such action could be effected on satisfactory terms or would
be permitted under the terms of the Financing Agreements. In the event of a
default under the terms of any of the Financing Agreements, the obligees
thereunder would be permitted to accelerate the maturity of such obligations and
cause defaults under other obligations of the Company. Such defaults could be
expected to delay or preclude payment of principal of and/or interest on the
11-3/4% Notes.
Secured Indebtedness
At March 31, 1995, the Company and its subsidiaries had outstanding
approximately $182.3 million of indebtedness secured by assets of the Company
and its subsidiaries, including indebtedness under the Credit Agreement and the
Secured Notes. The Indenture permits the Company and its subsidiaries to incur
certain additional secured indebtedness. See "Description of the 11-3/4% Notes."
Holders of secured indebtedness of the Company, including the indebtedness under
the Credit Agreement and the Secured Notes, have claims with respect to the
assets of the Company and its subsidiaries constituting collateral that are
prior to the claims of holders of the 11-3/4% Notes. In the event of a default
on the 11-3/4% Notes or a bankruptcy, insolvency, liquidation, reorganization,
dissolution or other winding up of the Company, or upon the acceleration of any
Senior Indebtedness, such assets would be available to satisfy obligations with
respect to the indebtedness secured thereby before any payment therefrom could
be made on the 11-3/4% Notes. See "Description of Certain Indebtedness."
The indebtedness under the Credit Agreement and the Secured Notes is
secured by a pledge of assets of the Company and by pledges of the shares of
stock of the Company's subsidiaries. The indebtedness under the Credit Agreement
is also guaranteed by Holdings which guarantee is secured by a pledge of the
shares of stock of the Company. In addition, the Company's indebtedness under
the Credit Agreement and the Secured Notes is guaranteed by substantially all
the Company's subsidiaries and the obligations of each such subsidiary are
secured by substantially all the assets of each such subsidiary. The 11-3/4%
Notes are effectively subordinated to such pledges and guarantees.
Holding Company Structure and Subordination
The Company is a holding company with no significant assets other than its
investments in and advances to its subsidiaries. The operations of the Company
are conducted principally through each of its wholly owned operating
subsidiaries, Containers and Plastics. Therefore, the Company's ability to make
interest and principal payments is largely dependent upon the future performance
and the cash flow of such operating subsidiaries, which will be subject to
prevailing economic conditions and to financial, business and other factors
(including the state of the economy and the financial markets, demand for the
products of the Company and its subsidiaries, cost of raw materials, legislative
and regulatory changes and other factors beyond the control of such operating
subsidiaries) affecting the business and operations of such operating
subsidiaries. Because the Company's subsidiaries do not guarantee the payment of
principal of and interest on the 11-3/4% Notes, claims
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<PAGE>
of holders of the 11-3/4% Notes effectively will be subordinated to the claims
of creditors of such operating subsidiaries, including trade creditors, except
to the extent that the Company may be a creditor with recognized claims against
such operating subsidiaries. At March 31, 1995, the Company and its subsidiaries
had approximately $325.9 million of indebtedness and other liabilities
effectively senior to the 11-3/4% Notes.
The payment of principal on the 11-3/4% Notes is expressly subordinate to
all existing and future Senior Indebtedness of the Company, including borrowings
under the Credit Agreement and the obligations under the Secured Notes. Because
of such subordination, in the event of the Company's bankruptcy, insolvency,
liquidation, reorganization, dissolution or other winding up, or upon the
acceleration of any Senior Indebtedness, the Banks under the Credit Agreement
and the holders of the Secured Notes and any other Senior Indebtedness must be
paid in full before the holders of the 11-3/4% Notes may be paid. Payments on
the 11-3/4% Notes might not be permitted if a default under any Senior
Indebtedness exists or if such a default would result from any such payment. In
addition, although the Credit Agreement, the Indenture, the Secured Notes and
the Holdings Discount Debentures impose certain limitations on the ability of
the Company and its subsidiaries to incur additional indebtedness, the Company
and its subsidiaries are not prohibited under the Indenture from incurring
additional indebtedness, including additional Senior Indebtedness and other
indebtedness that is effectively senior to or pari passu with the 11-3/4% Notes.
At March 31, 1995, the Company had outstanding approximately $182.3 million of
Senior Indebtedness.
Ability of the Company to Provide Financial Support to Holdings
Since Holdings' only asset is its investment in Silgan, its ability to pay
interest on the Holdings Discount Debentures on and after December 15, 1996 (the
date on which interest is first payable on the Holdings Discount Debentures) may
depend upon its receipt of funds paid by dividend or otherwise loaned, advanced
or transferred by Silgan to Holdings. While Silgan has no legal obligation to
make such funds available, it is expected that Silgan will do so if it is
permitted under the agreements to which it shall then be a party and if it then
has sufficient funds available for such purpose. If sufficient funds to pay such
interest are not generated by the operations of Silgan's subsidiaries, Silgan or
Holdings may seek to borrow or otherwise finance the amount of such payments or
refinance the Holdings Discount Debentures.
Neither the Indenture nor the Secured Notes limits the ability of Silgan to
pay cash dividends to Holdings in order to enable Holdings to pay interest on
the Holdings Discount Debentures. The Credit Agreement presently prohibits
Silgan from paying dividends or otherwise transferring funds to Holdings in
order to service Holdings' indebtedness; however, the Credit Agreement matures
on September 15, 1996, prior to the date on which interest or principal is
payable on the Holdings Discount Debentures. Silgan expects to enter into a new
credit facility to replace the Credit Agreement on or before September 15, 1996
on terms which would not limit the ability of Silgan to transfer funds to
Holdings in order to enable Holdings to pay interest on the Holdings Discount
Debentures. However, there can be no assurance that Silgan will be able to enter
into a new credit facility on such terms. In such event, Silgan and Holdings
would consider pursuing alternative arrangements, including possible equity
and/or debt financings, to enable Holdings to meet its obligations. There can be
no assurance that any such alternative, if pursued, would be accomplished or
would enable Holdings to make timely payments of its obligations under the
Holdings Discount Debentures. The funding requirements of Holdings to service
its indebtedness (beginning in December 1996) will be met by Silgan through cash
generated by operations or borrowings or by Holdings through refinancings of its
existing indebtedness or additional debt or equity financings. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Capital Resources and Liquidity," and "Description of Certain
Indebtedness--Description of the Secured Notes" and "Description of the 11-3/4%
Notes."
In the event that Holdings fails to make any payment on the Holdings
Discount Debentures, the holders thereof would be permitted to accelerate
payment of all of the indebtedness evidenced thereby and seek any
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<PAGE>
remedy available to them under the indenture relating to the Holdings Discount
Debentures and applicable law. Any such action could result in the bankruptcy of
Holdings, cross defaults under the Company's indebtedness or other agreements
existing at such time, financial and operating difficulties for the Company and,
possibly, the bankruptcy of the Company. As of the date hereof, a default by
Holdings in the payment of any of its indebtedness constitutes a default under
the Holdings Guaranty (as defined under "Description of Certain
Indebtedness--Description of the Credit Agreement") and such a default under the
Holdings Guaranty would constitute a default under the Credit Agreement.
However, the Credit Agreement matures on September 15, 1996 and Holdings has no
payment obligations of any kind on its indebtedness until December 1996.
Nevertheless, Silgan expects to replace its working capital facility under the
Credit Agreement prior to or on September 15, 1996 and any new working capital
facility may require a guaranty by Holdings of Silgan's obligations under such
new working capital facility. The lender or lenders under such new facility may
require a guaranty by Holdings which provides that a payment default by Holdings
on any of its indebtedness would constitute a default under such guaranty and a
provision that a default under such guaranty by Holdings would constitute a
default under such new facility.
Ability of the Company to Incur Additional Indebtedness
Although the Credit Agreement (which matures on September 15, 1996) limits
the incurrence by Silgan and its subsidiaries of additional indebtedness, the
Indenture and the Secured Notes permit, subject to certain limitations, the
incurrence by Silgan and its subsidiaries of a substantial amount of additional
indebtedness, including additional Senior Indebtedness, indebtedness secured by
liens on Silgan's and its subsidiaries' assets and other indebtedness that is
pari passu with the 11-3/4% Notes. The Indenture permits the Company and its
subsidiaries to incur any indebtedness, including Senior Indebtedness and
secured indebtedness, if after giving effect to the incurrence of such
indebtedness the Company's Interest Coverage Ratio (as defined under
"Description of the 11-3/4% Notes--Certain Definitions") is at least 2.1 to 1.
For the twelve month period ended December 31, 1994, the Company's Interest
Coverage Ratio was 3.66 to 1. The Indenture also permits certain specified
additional indebtedness to be incurred by the Company and its subsidiaries.
Neither the Indenture nor any of the other Financing Agreements other than the
Credit Agreement prohibit the assumption by the Company of Holdings'
indebtedness, including the Holdings Discount Debentures, upon a merger of the
Company and Holdings if the Company's Interest Coverage Ratio after giving
effect to such a merger is 1.75 to 1. See "Description of the 11-3/4% Notes" and
"Description of Certain Indebtedness."
Risk of Fraudulent Transfer Liability; Certain State Law Considerations
The incurrence by the Company and its subsidiaries of indebtedness,
including the 11-3/4% Notes, may be limited by state and federal fraudulent
transfer laws. If a court in a lawsuit by an unpaid creditor or representative
of creditors of the Company, such as a trustee in bankruptcy or the Company as
debtor-in-possession, were to find that (i) there was actual intent to hinder,
delay or defraud creditors or (ii) the Company received less than reasonably
equivalent value for the indebtedness and that, at the time of or after and
giving effect to such incurrence, the Company (a) was insolvent, (b) was
rendered insolvent by reason of such incurrence, (c) was engaged in a business
or transaction for which the assets remaining constituted unreasonably small
capital or (d) intended to incur, or believed that it would incur, debts beyond
its ability to pay as such debts matured, such court could void such
indebtedness and order that the payments of interest and principal on such
indebtedness be returned to the Company or to a fund for the benefit of its
creditors.
The measure of insolvency for purposes of the foregoing will vary
depending upon the law of the jurisdiction that is being applied. Generally, an
entity would be considered insolvent if the sum of its debts is greater than all
of its property at a fair valuation, or if the present fair saleable value of
its assets is less than the amount that will be required to pay its probable
liability on its existing debts (including contingent liabilities) as they
become absolute and matured. The Company believes that the obligations under the
11-3/4%
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<PAGE>
Notes were incurred for proper purposes and in good faith and, based on the
Company's prospects and other financial information, the Company believes that
at the time of the incurrence of such obligations, the Company was solvent,
would continue to have sufficient capital to carry on its business and would
continue to be able to pay its debts as they matured. Furthermore, the Company
believes that the proceeds of the 11-3/4% Notes constitute reasonably equivalent
value or fair consideration therefor. There can be no assurance, however, that a
court would not determine that the Company was insolvent at the time and after
giving effect to the incurrence of the obligations under the 11-3/4% Notes. Nor
can there be any assurance that, regardless of whether the Company was solvent,
the incurrence of the obligations under the 11-3/4% Notes would not constitute a
fraudulent transfer on another of the criteria listed above.
Supply Agreements with Principal Customers
The Nestle Supply Agreements and the DM Supply Agreement provide
Containers with a potential market for a substantial portion of its can output
during the terms of these agreements. In 1994, approximately 26% of the
Company's sales were to Nestle and approximately 21% of the Company's sales were
to Del Monte. See "Business--Sales and Marketing."
Pursuant to the Nestle Supply Agreements, if Nestle receives a competitive
bid for any product supplied, Containers has the right to match such bid with
respect to the type and volume of cans over the period of the competitive bid.
In the event that Containers chooses not to match a competitive bid, Nestle may
purchase cans from the competitive bidder at the competitive bid price for the
term of the bid. Since 1990, Nestle has requested that Containers match certain
bids received from other potential suppliers. Containers agreed to match such
bids (which resulted in minor margin impact) and continues to supply
substantially all of the can requirements of the former Carnation operations of
Nestle. In the future, there can be no assurance that Containers will choose to
match any such bids or that, even if matched, such bids will be at a level
sufficient to allow Containers to maintain margins currently received. Until any
such bids are received by Nestle and submitted to the Company, the Company
cannot predict the effect, if any, of such bids upon its financial condition or
results of operations. Significant reductions of margins or the loss of
significant unit volume under the Nestle Supply Agreements could, however, have
a material adverse effect on the Company. Under the three Nestle Supply
Agreements that were recently extended through 2001, Nestle's right to receive
competitive bids is narrowly limited to certain circumstances. See
"Business--Sales and Marketing."
Under the DM Supply Agreement, after five (5) years, Del Monte may, under
certain circumstances, receive proposals with terms more favorable than those
under the DM Supply Agreement from independentcommercial can manufacturers for
the supply of containers of a type and quality similar to the metal containers
that Containers furnishes to Del Monte, which proposals shall be for the
remainder of the term of the DM Supply Agreement and for 100% of the annual
volume of containers at one or more of Del Monte's canneries. Containers has the
right to retain the business subject to its meeting the terms and conditions of
such competitive proposal. See "Business--Sales and Marketing."
Neither the Nestle Supply Agreements nor the DM Supply Agreement requires
the purchase of minimum amounts, and should Nestle's or Del Monte's demand
decrease, the Company's consolidated sales could decrease. In addition, should
Nestle terminate any of the Nestle Supply Agreements or Del Monte terminate the
DM Supply Agreement because of Containers' inability to meet quality or other
requirements, it is highly unlikely that the Company or its subsidiaries could
quickly replace the amount of sales represented thereby. Therefore, it is
probable that any such termination would have a material adverse effect on the
Company. See "Business--Sales and Marketing."
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<PAGE>
Competition
The manufacture and sale of metal and plastic containers is highly
competitive and many of the Company's competitors have substantially greater
financial resources than the Company and its subsidiaries. See
"Business--Competition."
Dependence on Key Personnel
The success of the Company depends to a large extent on a number of key
employees, and the loss of the services provided by them could materially
adversely affect the Company. In particular, the loss of the services provided
by R. Philip Silver, the Chairman of the Board and Co-Chief Executive Officer of
the Company, and D. Greg Horrigan, the President and Co-Chief Executive Officer
of the Company, could materially adversely affect the Company. However, the
Company's operations are conducted through its subsidiaries, Containers and
Plastics, each of which has its own independent management. S&H, Inc. ("S&H"), a
company wholly owned by Messrs. Silver and Horrigan, has agreed to provide
certain general management and administrative services to each of the Company,
Holdings, Containers and Plastics pursuant to management services agreements
which are effective through 1999. See "Certain Transactions--Management
Agreements" and "Description of Holdings Common Stock--Description of the
Holdings Organization Agreement."
Other Management Interests
In the future, Messrs. Silver and Horrigan, possibly together with Morgan
Stanley or its affiliates, may form additional corporations or partnerships or
enter into other transactions for the purpose of making other acquisitions. In
connection therewith, Messrs. Silver and Horrigan may provide certain general
management and administrative services to such corporations and partnerships.
Additionally, circumstances could arise in which the interests of Messrs. Silver
and Horrigan, Morgan Stanley and its affiliates and such new corporations or
partnerships could conflict with the interests of the Company.
Certain Interests of Affiliates
The Morgan Stanley Leveraged Equity Fund II, L.P. ("MSLEF II") owns 38.48%
of the outstanding voting common stock of Holdings. See "Securities Ownership of
Certain Beneficial Owners and Management--Certain Beneficial Owners of Holdings'
Capital Stock." The general partner of MSLEF II and Morgan Stanley are both
wholly owned subsidiaries of Morgan Stanley Group Inc. ("MS Group"), and two of
the directors of Holdings and the Company are officers of Morgan Stanley. As a
result of these relationships, MS Group and its affiliates will continue to have
significant influence over the management policies and corporate affairs of the
Company. Morgan Stanley also receives compensation for ongoing financial advice
to the Company and its affiliates. See "Certain Transactions" and "Market-Making
Activities of Morgan Stanley."
Certain decisions concerning the operations or financial structure of the
Company may present conflicts of interest between the owners of Holdings' common
stock and the holders of the 11-3/4% Notes. For example, if the Company
encounters financial difficulties, or is unable to pay its debts as they mature,
the interests of the Company's equity investors might conflict with those of the
holders of the 11-3/4% Notes. In addition, the equity investors may have an
interest in pursuing acquisitions, divestitures, financings or other
transactions that, in their judgment, could enhance their equity investment,
even though such transactions might involve risks to the holders of the 11-3/4%
Notes.
-15-
<PAGE>
Trading Market for the 11-3/4% Notes
The 11-3/4% Notes are listed on the Pacific Stock Exchange. Morgan Stanley
currently makes a market in the 11-3/4% Notes. However, it is not obligated to
do so, and any such market-making may be discontinued at any time without
notice, at its sole discretion. Therefore, no assurance can be given as to the
liquidity of, or the trading market for, the 11-3/4% Notes. See "Market-Making
Activities of Morgan Stanley."
The liquidity of, and trading market for, the 11-3/4% Notes may also be
adversely affected by declines and volatility in the market for high yield
securities generally as well as by any changes in the Company's financial
performance or prospects.
THE COMPANY
The Company is a major manufacturer of a broad range of steel and aluminum
containers for human and pet food . The Company also manufactures custom
designed plastic containers for health, personal care, food, beverage,
pharmaceutical and household chemical products in North America. In 1994, the
Company had net sales of $861.4 million.
Management believes that the Company is the sixth largest can producer and
one of the largest food can producers in North America, as well as one of the
largest producers in North America of custom designed plastic containers for
health and personal care products. The Company has grown rapidly since its
inception in 1987 primarily as a result of acquisitions, but also through
internally generated growth. In December 1993, Silgan's wholly owned subsidiary,
Containers, acquired the U.S. metal container manufacturing business of Del
Monte. See "Business--Company History."
The Company's strategy is to continue to increase its share of the North
American packaging market through acquisitions, as well as investment in
internally generated opportunities. The Company intends to focus particular
attention on those rigid metal and plastic container segments where operating
and market synergies are likely.
The Company is also engaged in the manufacture and sales of paper
containers primarily used by processors and packagers in the food industry.
The Company is a Delaware corporation formed in August 1987 as a holding
company to acquire interests in various packaging manufacturers. Prior to 1987,
the Company did not engage in any business. In June 1989, the Company became a
wholly owned subsidiary of Holdings, a Delaware corporation whose principal
asset is all of the outstanding common stock of the Company. See
"Business--Company History." The principal executive offices of Silgan are
located at 4 Landmark Square, Stamford, Connecticut 06901, telephone number
(203) 975-7110.
Metal Container Business
Management estimates that Containers is currently the sixth largest can
producer and one of the largest manufacturers of metal food containers in North
America. In 1994 Containers sold approximately 21% of all metal food containers
used in North America. Although the food can industry in North America is
relatively mature in terms of unit sales growth, Containers has realized
compound annual unit sales growth in excess of 12% since 1987. Types of
containers manufactured include those for vegetables, fruit, pet food, tomato
based products, evaporated milk and infant formula. Containers has agreements
with Nestle pursuant to which Containers supplies substantially all of its metal
container requirements , and an agreement with Del Monte
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<PAGE>
pursuant to which Containers supplies substantially all of its metal container
requirements. In addition to Nestle and Del Monte, Containers has multi-year
supply arrangements with other customers. The Company estimates that in excess
of 80% of Containers' sales in 1995 will be pursuant to such supply
arrangements. See "Business--Sales and Marketing."
Containers has focused on growth through acquisition followed by
investment in the acquired assets to achieve a low cost position in the food can
segment. Since its acquisition in 1987 of Nestle Can, Containers has invested
approximately $99 million in its acquired manufacturing facilities and has spent
approximately $67 million for the acquisition of additional can manufacturing
assets. As a result of these efforts and management's focus on quality and
service, Containers has more than doubled its overall share of the food can
segment in terms of unit sales, from a share of approximately 10% in 1987 to a
share of approximately 21% in 1994.
Plastic Container Business
Management believes that Plastics is one of the leading manufacturers of
custom designed HDPE and PET containers sold in North America for health and
personal care products. HDPE containers manufactured by Plastics include
personal care containers for shampoos, conditioners, hand creams, lotions and
cosmetics, household chemical containers for scouring cleaners , specialty
cleaning agents and lawn and garden chemicals and pharmaceutical containers for
tablets, laxatives and eye cleaning solutions. Plastics manufactures PET custom
medicinal and health care product containers (such as mouthwash and cough syrup
bottles), custom food product containers (such as salad dressing and instant
coffee bottles), and custom non- carbonated soft drink beverage product
containers (such as juice bottles) as well as water and liquor bottles. See
"Business--Products."
Plastics has grown primarily by strategic acquisition. From a
sales base of $89 million in 1987, Plastics' sales have grown at a compound
annual rate of 13% to $204 million in 1994. Plastics emphasizes value-added
design, fabrication and decoration of custom containers. Plastics is
aggressively pursuing opportunities in custom designed PET and HDPE containers
for which the market has been growing principally due to consumer preferences
for plastic containers. The Company believes it has equipment and technical
expertise to take advantage of these growth segments .
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<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization
of the Company as of March 31, 1995. This table should be read in conjunction
with the consolidated financial information of the Company, included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
March 31, 1995
--------------
(Dollars in Thousands)
<S> <C>
Short-term debt:
----------------
Current portion of term loans............................................................. $ 19,514
Working capital loans..................................................................... 15,200
-------
Total short-term debt <F1>........................................................ $ 34,714
=======
Long-term debt:
---------------
Term loans............................................................................... $ 97,568
Senior Secured Floating Rate Notes due 1997............................................... 50,000
11-3/4% Senior Subordinated Notes due 2002............................................... 135,000
-------
Total long-term debt <F1> $ 282,568
=======
Common stockholder's equity <F2>:
Class A common stock, $0.01 par value, 1,000 shares authorized,
1 share issued and outstanding.................................................... $ --
Class B common stock, $0.01 par value, 1,000 shares authorized,
1 share issued and outstanding.................................................... --
Class C common stock, $0.01 par value, 1,000 shares authorized,
no shares issued and outstanding................................................. --
Additional paid-in capital............................................................. 70,935
Accumulated deficit.................................................................... (405)
-------
Total common stockholder's equity................................................. $ 70,530
-------
Total capitalization...................................................................... $353,098
=======
----------------------
<FN>
<F1> See "Description of Certain Indebtedness" and "Description of the
11-3/4% Notes."
<F2> For a description of the common stock of Silgan, see "Description of
Silgan Capital Stock."
</FN>
</TABLE>
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<PAGE>
SELECTED FINANCIAL DATA
Set forth below are selected historical consolidated financial data of the
Company at March 31, 1995 and 1994 and for the three months then ended, and at
December 31, 1994, 1993, 1992, 1991 and 1990 and for the years then ended.
The selected historical consolidated financial data of the Company for the
three months ended March 31, 1995 and 1994 is unaudited but, in the opinion of
management, such information reflects all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the financial data for
the interim periods. The results for the interim periods presented are not
necessarily indicative of the results for the corresponding full years. The
selected historical consolidated financial data of the Company at December 31,
1994 and 1993 and for each of the three years in the period ended December 31,
1994 (with the exception of employee data) was derived from the historical
consolidated financial statements of the Company for such periods that were
audited by Ernst & Young LLP, independent auditors, whose report appears
elsewhere in this Prospectus. The selected consolidated historical financial
data at December 31, 1992, 1991 and 1990 and for the years ended December 31,
1991 and 1990 were derived from the historical audited consolidated financial
statements for such periods.
The selected historical consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the audited financial statements and accompanying
notes thereto included elsewhere in this Prospectus.
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<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
Three Months Ended March 31,
-------------------------------
1995<F1> 1994
--------- ------
(Dollars in thousands)
(Unaudited)
<S> <C> <C>
Operating Data:
Net sales................................................................. $203,264 $186,243
Cost of goods sold........................................................ 174,265 163,520
------- -------
Gross profit............................................................... 28,999 22,723
Selling, general and administrative expenses.............................. 9,399 8,598
------- -------
Income from operations..................................................... 19,600 14,125
Interest expense and other related financing costs........................ 9,415 8,369
------- -------
Income before income taxes................................................ 10,185 5,756
Income tax provision...................................................... 4,400 2,375
------- -------
Net income................................................................. $ 5,785 $ 3,381
======= =======
Ratio of earnings to fixed charges <F2>................................... 2.01 1.63
Balance Sheet Data (at end of period):
Fixed
assets..................................................................... $251,832 $285,738
Total assets............................................................... 531,437 527,917
Total long-term debt...................................................... 282,568 305,000
Common stockholder's equity.............................................. 70,530 56,459
Other Data:
EBDITA <F3>................................................................. $28,802 $ 24,088
EBDITA as a percentage of net sales........................................ 14.2% 12.9%
Capital expenditures....................................................... 8,359 4,896
Depreciation and amortization <F4>......................................... 8,779 9,836
(footnotes follow)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
Year Ended December 31,
---------------------------------------------------------------------
1994<F1><F5> 1993<F5> 1992 1991<F6> 1990
------------ --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales............................................ $861,374 $645,468 $630,039 $678,211 $657,537
Cost of goods sold.................................. 747,457 571,174 554,972 605,185 582,991
------- ------- ------- ------- -------
Gross profit......................................... 113,917 74,294 75,067 73,026 74,546
Selling, general and administrative
expenses......................................... 37,993 31,821 32,274 33,223 35,792
Reduction in carrying value of assets................ 16,729 -- -- -- --
------- ------- ------- ------- -------
Income from operations............................... 59,195 42,473 42,793 39,803 38,754
Interest expense and other related
financing costs.................................. 36,142 27,928 26,916 28,981 34,233
------- ------- ------- ------- -------
Income before income taxes........................... 23,053 14,545 15,877 10,822 4,521
Income tax provision <F7>............................ 11,000 6,300 2,200 1,500 1,579
------- ------- ------- ------- -------
Income before extraordinary charges and
cumulative effect of changes in accounting
principles..................................... 12,053 8,245 13,677 9,322 2,942
Extraordinary charges relating to early
extinguishment of debt........................... -- (841) (9,075) -- --
Cumulative effect of changes in accounting
principles, net of taxes <F8>.................... -- (9,951) -- -- --
------- ------- ------- ------- -------
Net income (loss).................................... 12,053 (2,547) 4,602 9,322 2,942
Preferred stock dividend requirements................ -- -- 2,745 3,889 3,356
------- ------- ------- ------- -------
Net income (loss) applicable to
common stockholder.............................. $12,053 $(2,547) $ 1,857 $ 5,433 $ (414)
======= ======= ======= ======= =======
Ratio of earnings to fixed charges <F2>............ 1.59 1.48 1.54 1.34 1.12
Balance Sheet Data (at end of period):
Fixed $251,810 $290,395 $223,879 $230,501 $244,672
assets...............................................
Total assets......................................... 500,677 492,064 382,154 382,330 434,439
Total long-term debt................................ 282,568 305,000 206,681 140,701 188,598
Redeemable preferred stock........................... -- -- -- 27,878 24,061
Common stockholder's equity......................... 63,345 52,803 32,775 46,642 41,209
Other Data:
EBDITA <F3>.......................................... $115,326 $76,769 $74,547 $72,651 $70,223
EBDITA as a percentage of net sales.................. 13.4% 11.9% 11.8% 10.7% 10.7%
Capital expenditures................................. $ 29,184 $42,480 $23,447 $21,834 $22,908
Depreciation and amortization <F4>................... $ 37,187 $33,818 $31,754 $32,848 $29,496
Number of employees (at end of period) <F9>.......... 4,000 3,330 3,340 3,560 4,330
(footnotes follow)
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<PAGE>
Notes to Summary Financial Data
<FN>
<F1> Effective October 1, 1994, the Company extended the estimated useful lives
of certain fixed assets to more properly reflect the true economic lives
of the assets and to better align the Company's depreciable lives with the
predominate practice in its industry. For the three months ended March 31,
1995, the change had the effect of decreasing depreciation expense by $1.5
million and increasing net income by $0.9 million. For 1994, the change
had the effect of decreasing depreciation expense by $1.3 million and
increasing net income by $0.8 million.
<F2> For purposes of computing the ratio of earnings to fixed charges,
earnings consist of income before income taxes plus fixed charges,
excluding capitalized interest, and fixed charges consist of interest,
whether expensed or capitalized, amortization of debt expense and discount
or premium relating to any indebtedness, whether expensed or capitalized,
and such portion of rental expense that is representative of the interest
factor.
<F3> "EBDITA" means consolidated net income before extraordinary charges,
cumulative effect of changes in accounting principles and preferred
stock dividends plus, to the extent reflected in the income statement for
the period for which consolidated net income is to be determined, without
duplication, (i) consolidated interest expense, (ii) income tax expense,
(iii) depreciation expense, (iv) amortization expense, (v) expenses
relating to postretirement health care costs which amounted to $0.2 million
and $0.1 million for the three months ended March 31, 1995 and 1994,
respectively, and $0.7 million and $0.5 million for the years ended
December 31, 1994 and 1995, respectively, (vi) charges relating to the
vesting of benefits under SARs of $0.2 million and $0.1 million for the
three months ended March 31, 1995 and 1994, respectively, and $1.5 million
and $2.0 million in 1994 and 1990, respectively, and (vii) the reduction
in carrying value of assets of $16.7 million in 1994. EBDITA is being
presented by the Company as a supplement to the discussion of the
Company's operating income and cash flow from operations analysis because
the Company believes that certain persons may find it to be useful
in measuring the Company's performance and ability to service its
debt. EBDITA is not a substitute for GAAP operating and cash flow data.
<F4> Depreciation and amortization excludes amortization of debt financing
costs.
<F5> On December 21, 1993, the Company acquired from Del Monte substantially
all of the fixed assets and certain working capital of its container
manufacturing business. The acquisition was accounted for as a purchase
transaction and the results of operations have been included with the
Company's historical results from the acquisition date. See
"Business--Company History." See Note 3 to the Notes to Consolidated
Financial Statements included elsewhere in this Prospectus.
<F6> On November 15, 1991, the Company completed the PET Beverage Sale. For
1991, sales from the PET carbonated beverage business were $33.4 million.
See "Business--Company History."
<F7> Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting
for Income Taxes," which requires the Company to provide for taxes as if
it were a separate taxpayer. The Company did not elect to restate its
financial statements for years prior to 1993, and calculated its tax
provision on a separate company basis with the exception of certain
matters covered under a tax allocation agreement with Holdings under which
the Company obtained a federal tax benefit for Holdings' tax losses.
<F8> During 1993, the Company adopted SFAS No. 106, "Employers Accounting
for Postretirement Benefits Other than Pensions" and SFAS No. 112,
"Employers Accounting for Postemployment Benefits." The Company elected
not to restate prior years' financial statements for these pronouncements.
<F9> The number of employees at December 31, 1993 excludes 650 employees who
joined the Company on December 21, 1993 as a result of the acquisition by
Containers of DM Can.
[/FN]
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company has focused on growth through acquisitions followed by
investment in the acquired assets to gain production efficiencies and provide
internal growth. Since the Company's inception in 1987, the metal food can
business, which had sales of $647 million in 1994, has realized compound annual
growth of 12% through both internal growth and acquisitions of food can
businesses, including the acquisition of Del Monte's captive can manufacturing
operations in December 1993. The Company believes that its investments have
enabled it to achieve a low cost position in the food can segment. To contain
costs, the Company closed two smaller, higher cost metal container facilities in
1992 and another smaller facility in early 1995 . The Company believes that the
addition of the Del Monte facilities has created further cost reduction
opportunities through plant rationalization as well as line reconfiguration and
production scheduling. The Company expects that these cost reduction
opportunities, which began to be implemented in late 1994, will be fully
realized by 1997. To enhance its competitive position, the Company has
maintained a stable customer base by entering into multi-year supply
arrangements with a majority of its metal food can customers. Such arrangements
generally provide for pricing changes in accordance with cost change formulas,
thereby reducing the Company's exposure to the volatility of raw material prices
but also limiting the Company's ability to increase prices. The arrangement to
supply substantially all of Del Monte's metal container requirements in the
United States under the DM Supply Agreement extends to 2002 and the arrangement
to supply a majority of Nestle's domestic metal container requirements under the
Nestle Supply Agreements extends through 2001. The Company estimates that in
excess of 80% of its 1995 metal container sales will be subject to long term
contracts.
The plastic container business has grown from a sales base of $89 million
in 1987 to $204 million in 1994. In 1989, the Company made four acquisitions of
plastic container manufacturers to improve its competitive position in the
plastic container segment. As a result of these acquisitions, the Company
implemented an aggressive consolidation and rationalization program during the
period from 1991 through 1993, closing three manufacturing facilities and
consolidating the technical and administrative functions of its plastic
container business. The full benefit of the consolidation and rationalization
program was not realized until 1994. The Company is aggressively pursuing
opportunities in custom designed PET and HDPE containers for which the market
has been growing principally due to consumer preferences for plastic containers.
The Company believes it has equipment and technical expertise to take advantage
of these growth segments.
Summary results for the Company's two business segments, metal and plastic
containers, for the three months ended March 31, 1995 and 1994 and for the
calendar years 1994, 1993 and 1992 are provided below. See Note 13 of the Notes
to Consolidated Financial Statements which are included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
---------------------------- --------------------------------------------------
1995 1994 1994 1993 1992
------ ------- ------ ------ ------
(Dollars in millions)
<S> <C> <C> <C> <C> <C>
Net sales:
Metal containers and other $144.7 $136.3 $657.1 $459.2 $437.4
Plastic containers 58.6 50.0 204.3 186.3 192.6
----- ----- ----- ----- -----
Consolidated $203.3 $ 186.3 $861.4 $645.5 $630.0
===== ===== ===== ===== =====
Operating profit:
Metal containers and other $15.9 $12.2 $67.0 $42.3 $40.7
Plastic containers 4.3 2.0 9.4 0.6 2.3
Reduction in asset value<F1> -- -- (16.7) -- --
Corporate expense (0.6) (0.1) (0.5) (0.4) (0.2)
----- ----- ----- ----- -----
Consolidated $19.6 $14.1 $59.2 $42.5 $42.8
===== ===== ===== ===== =====
-----------------------------
<FN>
<F1> $7.2 million of this charge for 1994 is allocable to the metal container
business and $9.5 million is allocable to the plastic container business.
</FN>
</TABLE>
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<PAGE>
For interim reporting purposes, the accounting period for the metal
container business ends on the last Friday of the month. As a result, the 1995
operating results for the metal container business include activity for six more
days than in 1994, which had the effect of increasing both sales and operating
profit for this segment. The accounting period for the plastic container
business ends on the last day of each month, and, accordingly, it reported
activity for the same period in both 1995 and 1994.
This discussion should be read in conjunction with the selected financial
data, the historical statements of operations and the notes thereto included
elsewhere in this Prospectus.
Results of Operations
Three Months Ended March 31, 1995 Compared with Three Months Ended March
31, 1994.
Consolidated net sales increased $17.0 million, or 9.1%, to $203.3 million
for the three months ended March 31, 1995, as compared to $186.3 million for the
same period in 1994. This increase resulted from the generation of greater sales
by the plastic container business, along with the additional sales realized by
the metal container business because of its longer reporting period.
Net sales for the metal container business (including paper containers)
were $144.7 million for the three months ended March 31, 1995, an increase of
$8.4 million (6.2%) over net sales of $136.3 million for the same period in
1994. As compared to the first three months of the prior year, net sales of
metal cans increased $9.3 million (6.5%) for the first three months of 1995 due
to greater unit volume. Sales to Nestle increased $8.5 million (16.8%) due to an
increase in unit sales for most product lines of Nestle's business, while sales
to Del Monte were $4.7 million (13.2%) higher than 1994 because first quarter
1994 sales were reduced to adjust for excess finished goods inventory acquired
upon the purchase in December 1993 of DM Can. Sales to other customers decreased
$3.9 million (8.2%) principally due to the earlier shipment of containers to
certain vegetable pack customers in 1994. Sales of paper containers included in
the metal container segment declined $0.9 million to $2.1 million during 1995.
Net sales for the plastic container business of $58.6 million during the
three months ended March 31, 1995 increased $8.6 million, or 17.2%, over net
sales of plastic containers of $50.0 million for the same period in 1994. This
increase was attributable to both higher average sales prices due to the pass
through of higher resin costs and increased unit sales to new and existing
customers.
Cost of goods sold was 85.7% of consolidated net sales ($174.3 million)
for the three months ended March 31, 1995, a decrease of 2.1 percentage points,
as compared to 87.8% of consolidated net sales ($163.5 million) for the same
period in 1994. The decrease in cost of goods sold as a percentage of
consolidated net sales principally resulted from lower per unit
manufacturing costs realized on higher sales and production volumes, improved
manufacturing efficiencies resulting from capital investment and the incurrence
of lower depreciation expense.
Selling, general and administrative expenses as a percentage of
consolidated net sales were 4.6% of net sales for the three months ended March
31, 1995 and 1994. The increase of $0.8 million in selling, general and
administrative expenses for the first three months of 1995 as compared to the
same period in the prior year resulted from increased administrative
requirements associated with DM Can. The Company did not fully staff for DM Can
until after the first quarter of 1994.
Income from operations as a percentage of consolidated net sales increased
2.0 percentage points to 9.6% ($19.6 million) for the three months ended March
31, 1995 , compared with 7.6% ($14.1 million) for
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<PAGE>
the same period in 1994. The increase in income from operations as a percentage
of sales was attributable to the aforementioned improvement in gross margin.
Income from operations as a percentage of net sales for the metal
container business increased 2.1 percentage points to 11.0% ($15.9 million)
during the first three months of 1995, as compared to the same period in the
prior year, principally due to lower per unit manufacturing costs realized on
greater unit volume and improved manufacturing efficiency as a result of capital
investment. Income from operations as a percentage of net sales attributable to
the plastic container business for the three months ended March 31, 1995 was
7.3% ($4.3 million), as compared to 4.1% ($2.0 million) for the same period in
1994. The improved operating performance of the plastic container business
resulted from improved manufacturing efficiency and from increased unit volume.
Interest expense increased by approximately $1.0 million to $9.4 million
for the three months ended March 31, 1995. The increase resulted from higher
average borrowing rates offset, in part, by lower average outstanding bank
borrowings.
The provisions for income taxes for the three months ended March 31, 1995
and 1994 provides for federal, state and foreign taxes as if the Company were a
separate taxpayer in accordance with SFAS No. 109, "Accounting for Income
Taxes."
As a result of the items discussed above, net income for the three months
ended March 31, 1995 was $5.8 million, $2.4 million greater than net income for
the three months ended March 31, 1994 of $3.4 million.
Year Ended December 31, 1994 Compared with Year Ended December 31, 1993.
Consolidated net sales increased $215.9 million, or 33.4%, to $861.4
million for the year ended December 31, 1994, as compared to $645.5 million for
the same period in 1993. Approximately 81% of this increase related to sales to
Del Monte pursuant to the DM Supply Agreement entered into by the Company on
December 21, 1993 to supply substantially all of Del Monte's metal container
requirements for a period of ten years. The remainder of this increase resulted
principally from greater unit sales in both the metal container and plastic
container businesses.
Net sales for the metal container business (including paper containers)
were $657.1 million for the year ended December 31, 1994, an increase of $197.9
million (43.1%) over net sales for the metal container business of $459.2
million for the same period in 1993. Sales of metal containers increased $201.6
million primarily as a result of the DM Supply Agreement, which represented
$174.7 million of this increase, an increase of $20.1 million (9.1%) in sales to
all other customers and an increase of $6.8 million (3.2%) in sales to Nestle.
Sales of metal containers increased principally from higher unit volume and
reflected continued growth in sales of pet food containers, as well as greater
sales to vegetable pack customers due to a larger than normal pack in 1994.
Sales of paper containers included in the metal container segment declined $3.7
million to $9.6 million during 1994.
Net sales for the plastic container business of $204.3 million during the
year ended December 31, 1994 increased $18.0 million, or 9.7%, over net sales of
plastic containers of $186.3 million for the same period in 1993. The increase
in net sales of plastic containers was attributable to increased unit sales to
new and existing customers, particularly PET customers, and to a lesser extent,
higher average sales prices due to the pass through of increased resin costs.
Cost of goods sold was 86.8% of consolidated net sales ($747.5 million)
for the year ended December 31, 1994, a decrease of 1.7 percentage points as
compared to 88.5% of consolidated net sales ($571.2 million) for
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<PAGE>
the same period in 1993. The decrease in cost of goods sold as a percentage of
consolidated net sales principally resulted from synergistic benefits resulting
from the acquisition of DM Can, lower per unit manufacturing costs realized on
higher sales and production volumes and improved manufacturing efficiencies in
the plastic container business resulting from larger cost reduction and
productivity investments in 1993.
Selling, general and administrative expenses as a percentage of
consolidated net sales declined 0.5 percentage points to 4.4% of consolidated
net sales ($38.0 million) for the year ended December 31, 1994, as compared to
4.9% ($31.8 million) for the same period in 1993. The decrease as a percentage
of consolidated net sales resulted principally from a modest increase in
selling, general and administrative functions relative to the increased sales
associated with the acquisition of DM Can, offset in part by an increase of $1.3
million in benefits accrued under stock appreciation rights agreements.
Income from operations as a percentage of consolidated net sales increased
0.3 percentage points to 6.9% ($59.2 million) for the year ended December 31,
1994, compared with 6.6% ($42.5 million) for the same period in 1993. During
1994 the Company incurred a charge of $16.7 million to write-down certain
properties held for sale to their net realizable value and to reduce the
carrying value of certain technologically obsolete and inoperable equipment.
Without giving effect to this nonrecurring charge, income from operations in
1994 would have been 8.8% ($75.9 million), an increase of 2.2 percentage points
as compared to 1993, and was principally attributable to the aforementioned
improvement in gross margin.
Income from operations as a percentage of net sales for the metal
container business (without giving effect to the $7.2 million charge to
write-down the carrying value of certain assets) increased 1.0% to 10.2% ($67.0
million) during 1994 as compared to 1993, principally due to operating synergies
realized from the acquisition of DM Can and lower per unit manufacturing costs
incurred as a result of higher production volumes in 1994. Income from
operations as a percentage of net sales attributable to the plastic container
business (without giving effect to the $9.5 million charge to write-down the
carrying value of certain assets) in 1994 was 4.6% ($9.4 million), as compared
to 0.3% ($0.6 million) in 1993. The improved operating performance of the
plastic container business resulted from production efficiencies realized as a
result of rationalizations and capital investment made in prior periods, and
lower unit manufacturing costs.
Interest expense increased by approximately $8.2 million to $36.1 million
for the year ended December 31, 1994. This increase resulted from the incurrence
of additional bank borrowings to finance the acquisition of DM Can and higher
average bank borrowing rates.
The provision for income taxes for the years ended December 31, 1994 and
1993 provides for taxes as if the Company were a separate taxpayer in accordance
with SFAS No. 109. As a result of a tax allocation agreement with Holdings,
Silgan obtains a tax benefit for Holdings' tax losses. This benefit is reflected
as a contribution to additional paid-in capital instead of a reduction in
federal income tax expense.
As a result of the items discussed above, net income for the year ended
December 31, 1994 was $12.1 million, $3.9 million greater than income before
extraordinary charges and cumulative effect of changes in accounting principles
for the year ended December 31, 1993 of $8.2 million.
In conjunction with the acquisition of DM Can in 1993, the Company incurred
an extraordinary charge of $0.8 million for the early extinguishment of debt.
Also, during 1993 the Company adopted SFAS No. 106, SFAS No. 109 and SFAS No.
112. The cumulative effect of these accounting changes, for years prior to 1993,
was to decrease net income by $10.0 million. As a result of these charges the
net loss for 1993 was $2.5 million.
-26-
<PAGE>
Year Ended December 31, 1993 Compared with Year Ended December 31, 1992.
Consolidated net sales increased $15.5 million, or 2.5%, to $645.5 million
for the year ended December 31, 1993, as compared to $630.0 million for the same
period in 1992. This increase resulted from greater unit sales by the metal
container business offset by a decline in sales volume of the plastic container
business.
Net sales for the metal container business (including paper containers)
were $459.2 million for the year ended December 31, 1993, an increase of $21.8
million (5.0%) over net sales for the metal container business of $437.4 million
for the same period in 1992. Sales of metal containers increased 4.7% in 1993,
primarily as a result of higher unit sales to non-vegetable pack customers and
to a lesser extent the purchase of an additional manufacturing facility in May
1993, offset in part, by a decline in sales to Nestle due to reduced demand and
lower unit sales to vegetable pack customers due to the extremely wet weather in
the summer of 1993. Sales of paper containers included in the metal container
segment increased $1.7 million to $13.3 million during 1993.
Net sales for the plastic container business of $186.3 million during the
year ended December 31, 1993 were $6.3 million lower than net sales of plastic
containers of $192.6 million for the same period in 1992. The decrease in net
sales of plastic containers was primarily attributable to lower unit sales to
existing customers due to soft market conditions.
Cost of goods sold was 88.5% of consolidated net sales ($571.2 million) for
the year ended December 31, 1993, as compared to 88.1% of consolidated net sales
($555.0 million) for the same period in 1992. The increase in cost of goods sold
as a percentage of consolidated net sales principally resulted from higher per
unit manufacturing costs incurred as a result of higher depreciation expense,
lost margin on outsourced cans due to capacity constraints in early 1993, offset
in part by improved manufacturing efficiency.
Selling, general and administrative expenses as a percentage of net sales
declined 0.2 percentage points to 4.9% of consolidated net sales ($31.8 million)
for the year ended December 31, 1993, as compared to 5.1% ($32.3 million) for
the same period in 1992. The decrease in selling, general and administrative
expenses as a percentage of consolidated net sales was principally attributable
to the maintenance of a constant level of expenditures on a greater sales base.
Income from operations as a percentage of consolidated net sales was 6.6%
($42.5 million) for the year ended December 31, 1993, as compared to 6.8% ($42.8
) for the same period in 1992. The decrease was principally attributable to the
aforementioned decline in gross margin.
Income from operations as a percentage of net sales for the metal
container business was 9.2% ($42.3 million) during 1993, as compared to 9.3%
($40.7 million) in 1992. Income from operations as a percentage of net sales
attributable to the plastic container business was 0.3% ($0.6 million) during
1993, as compared to 1.2% ($2.3 million) in 1992. The decline in operating
performance of the plastic container business resulted from production
inefficiencies incurred as a result of plant consolidations and higher per unit
manufacturing costs realized from reduced unit volume.
Interest expense increased by approximately $1.0 million to $27.9 million
for the year ended December 31, 1993. The increase was due to additional
indebtedness incurred by the Company as a result of the refinancing in June 1992
of the Company's debt and preferred stock and Holdings' debt, offset in part, by
lower average borrowing rates.
The provision for income taxes for 1993 of $6.3 million reflects the
adoption of SFAS No. 109 which requires the Company to provide for taxes as if
it were a separate taxpayer. Prior to the adoption of SFAS No.
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<PAGE>
109, the Company determined its income tax provision on a separate company basis
with the exception of certain matters covered under a tax allocation agreement
with Holdings under which Silgan obtained a federal income tax benefit for
Holdings' tax losses. For purposes of SFAS No. 109, the benefit of the tax
allocation agreement is reflected as a contribution to additional paid-in
capital instead of a reduction in federal income tax expense. For 1992, the
provision for income taxes of $2.2 million was comprised of state and foreign
components and recognized the benefit of certain deductions for federal income
tax that were available to Holdings.
Income before the extraordinary charge and cumulative effect of changes in
accounting principles for the year ended December 31, 1993 was $8.2 million, as
compared to $13.7 million for the year ended December 31, 1992. The decline in
income before the extraordinary charge and cumulative effects of changes in
accounting principles was principally the result of the change in the financial
reporting of income tax expense.
As a result of the refinancing of the Amended and Restated Credit Agreement
(as defined under "Business--Company History") in conjunction with the
acquisition of DM Can and the refinancing in June 1992 of the Company's debt and
preferred stock and Holdings' debt, the Company incurred extraordinary charges
of $0.8 million and $9.1 million for the early extinguishment of debt in 1993
and 1992, respectively. During 1993 the Company adopted SFAS No. 106, SFAS No.
109 and SFAS No. 112. The cumulative effect of these accounting changes was to
decrease net income by $3.2 million, $6.0 million and $0.8 million,
respectively.
Capital Resources and Liquidity
Silgan's liquidity requirements arise primarily from its obligations under
the indebtedness incurred in connection with its acquisitions and the
refinancing of such indebtedness, capital investment in new and existing
equipment and the funding of Silgan's seasonal working capital needs.
Historically, Silgan has met these liquidity requirements through cash flow
generated from operating activities and working capital borrowings. As described
below, beginning in December 1996 Silgan's liquidity requirements may also be
affected by the interest associated with Holdings' indebtedness.
For the first three months of 1995, capital expenditures of $8.3 million
and the repayment of $2.5 million of term loans were funded through the
borrowing of $2.6 million of working capital loans, cash provided from
operations of $3.7 million, proceeds of $3.2 million realized from the sale of
assets, and the use of $1.3 million of outstanding cash balances. The Company's
earnings before depreciation, interest, taxes and amortization for the three
months ended March 31, 1995 increased by $4.7 million over the same period in
the prior year to $28.8 million . However, cash provided by operations during
the first three months of 1995 declined slightly from the same period in 1994
because there was a greater increase in working capital needs in 1995. During
the first three months of 1995, working capital needs increased due to increased
accounts receivable as a result of greater sales and increased inventories as a
result of the planned 1995 acceleration of finished goods production.
During 1994, cash generated from operations of $47.3 million along with
working capital borrowings of $10.4 million were used to fund capital
expenditures of $27.9 million (net of proceeds of $1.3 million), make mandatory
debt repayments of $20.5 million, pay $6.9 million to former shareholders in
partial settlement of outstanding litigation and increase cash balances by $2.4
million. In late 1994, the Company entered into a program to accelerate the
purchase of certain raw materials prior to anticipated 1995 price increases. As
a result, at December 31, 1994 inventories were approximately $14 million higher
than the prior year. There was not a corresponding increase in trade payables,
however, because the advance purchase of raw materials was paid for prior to
year-end through additional working capital borrowings. The trade receivable
balance increased at December 31, 1994 as compared to the prior year-end
principally as a result of the DM Supply Agreement, which became effective on
December 21, 1993.
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<PAGE>
On December 21, 1993 Silgan, Containers and Plastics entered into the
Credit Agreement to finance the acquisition of DM Can and to refinance and repay
in full all amounts owing under the Amended and Restated Credit Agreement. In
conjunction therewith the Banks loaned the Company $60.0 million of A Term
Loans, $80.0 million of B Term Loans and $29.8 million of Working Capital Loans
(each as defined in "Description of Certain Indebtedness--Description of Credit
Agreement"). In addition, Holdings issued and sold 250,000 shares of its Class B
common stock, par value $.01 per share (the " Holdings Class B Stock"), for
$15.0 million and, in turn, contributed such amount to Silgan. With these
proceeds, the Company (i) repaid $41.5 million of term loans and $60.8 million
of working capital loans under the Amended and Restated Credit Agreement; (ii)
acquired from Del Monte substantially all the fixed assets and certain working
capital of Del Monte's container manufacturing business for approximately $73
million; and (iii) paid fees and expenses of $8.9 million.
For 1993, the Company used cash generated from operations of $48.3 million
and available cash balances of $2.5 million to fund capital expenditures of
$42.5 million, repay working capital loans of $7.2 million (in addition to
working capital loans which were repaid with proceeds from the Credit
Agreement), and pay $1.1 million of term loans. During the year, the Company
increased its annual amount of capital spending in order to reduce costs and to
add incremental production capacity. The increase in inventory at December 31,
1993 as compared to the prior year principally resulted from the inventory
acquired as part of the acquisition of DM Can.
To improve their financial flexibility, Silgan and Holdings completed the
Refinancing in 1992. The Refinancing (i) lowered Holdings' consolidated average
cost of indebtedness by retiring Silgan's 14% Senior Subordinated Notes due 1997
(the "14% Notes") and Holdings' Senior Reset Debentures due 2004 (the "Holdings
Reset Debentures") with new indebtedness bearing lower interest rates, (ii)
improved Silgan's liquidity and ability to further repay its indebtedness by
eliminating Silgan's obligation to pay cash dividends on Silgan's 15% Cumulative
Exchangeable Preferred Stock (the "Preferred Stock") through the redemption by
Silgan on August 16, 1992 of all of the outstanding Preferred Stock (the
"Preferred Stock Redemption") and by deferring for an additional two years
(until December 1996) and reducing the cash interest requirements on Holdings'
indebtedness, (iii) provided Holdings with additional financial flexibility by
eliminating restrictions in the indenture relating to the 14% Notes on Silgan's
ability to pay dividends to Holdings in order to fund interest payments on
Holdings' indebtedness through the redemption by Silgan on August 28, 1992 of
all of the outstanding 14% Notes (the "14% Notes Redemption") and (iv) extended
the average length of maturity of Silgan's indebtedness by issuing the 11-3/4%
Notes and the Secured Notes to refinance $30 million of bank term loans and the
14% Notes.
In connection with the Refinancing, Silgan received $174.7 million in
proceeds from the issuance of the Secured Notes and 11-3/4% Notes, net of debt
issuance costs of $10.3 million. Silgan repaid a $25.2 million advance from
Holdings and made a $15.7 million dividend payment to Holdings, for an aggregate
payment of $40.9 million which was used by Holdings, together with the proceeds
received from the sale of the Discount Debentures, to redeem the Holdings Reset
Debentures. In addition, Silgan repaid $30 million of term loans under the
Credit Agreement. On August 16, 1992, the Company paid $31.5 million to redeem
the Preferred Stock. On August 28, 1992, the Company paid $89.3 million to
redeem the 14% Notes. Approximately $17 million of working capital loans were
borrowed to complete such redemptions.
In addition to the borrowing of working capital loans used to effect the
Refinancing, Silgan borrowed working capital loans of $2.2 million during the
year ended December 31, 1992 which, along with cash provided by operations
during 1992 of $34.4 million, were used principally to fund capital expenditures
of $23 million, to make bank term loan repayments of $10.2 million (in addition
to the term loan repayment made in connection with the Refinancing), to pay cash
dividends of $1.1 million on the Preferred Stock and to increase outstanding
cash balances by $2.3 million.
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Since a portion of the proceeds realized from the Credit Agreement on
December 21, 1993 were used to repay working capital loans under the Amended and
Restated Credit Agreement, the Company was able to reduce the amount of its
commitment for working capital loans. Under the Credit Agreement, the commitment
for working capital loans was reduced by $41 million to $70 million. As of March
31, 1995, the outstanding principal amount of working capital loans was $15.2
million and, subject to a borrowing base limitation and taking into account
outstanding letters of credit, the unused portion of working capital commitments
at such date was $49.1 million.
Because the Company sells metal containers used in vegetable and fruit
processing, its sales are seasonal. As is common in the packaging industry, the
Company must access working capital to build inventory and then carry accounts
receivable for some customers beyond the end of the summer and fall packing
season. Seasonal accounts are generally settled by year end. Due to the
Company's seasonal requirements, the Company expects to incur short term
indebtedness to finance its Working Capital Requirements, and it is estimated
that approximately $40 million of the working capital revolver, including
letters of credit, will be utilized at its peak in July 1995.
In addition to its operating cash needs, the Company's cash requirements
over the next several years are anticipated to consist primarily of (i) annual
capital expenditures of $35 million to $40 million (approximately $15 million of
which is nondiscretionary in each year), (ii) principal amortization payments of
A Term Loans under the Credit Agreement of approximately $20 million in each of
1995 and 1996, (iii) expenditures of approximately $7 million associated with
the rationalization of facilities related to the acquisition of DM Can, (iv) the
scheduled maturity on September 15, 1996 of the Working Capital Loans and $80
million of B Term Loans under the Credit Agreement, (v) payments by Silgan to
Holdings to fund Holdings' semi-annual cash interest requirements of $18.2
million on the Discount Debentures commencing in December 1996, (vi) the
scheduled maturity of the $50 million principal amount of the Secured Notes in
1997, (vii) the Company's interest requirements (including interest on working
capital loans, the principal amount of which will vary depending upon seasonal
requirements, the Secured Notes and bank term loans, all of which bear
fluctuating rates of interest, and the 11-3/4% Notes) and (viii) payments of
approximately $14 million for federal and state tax liabilities beginning in
1995 (assuming the redemption of the Discount Debentures at maturity) and
increasing annually thereafter by approximately $2 million.
The Company is a wholly owned subsidiary of Holdings, a holding company
with no significant assets or operations other than its investment in and
advances to Silgan. Holdings is highly leveraged as a result of the indebtedness
that it incurred in connection with the 1989 Mergers. See "Business--Company
History." Holdings' principal liabilities are the Discount Debentures and its
guaranty of the Credit Agreement. Because Holdings' indebtedness does not
require payment of interest until December 1996 and because the Company has not
in the past provided funds to Holdings to pay interest on Holdings'
indebtedness, the Company's liquidity has not been, and until December 1996 is
not expected to be, affected by Holdings' indebtedness.
Interest on the Discount Debentures is payable at a rate of 13-1/4% per
annum from and after June 15, 1996, and commencing on December 15, 1996
semi-annual interest payments of $18.2 million will be required to be made
thereon. Since Holdings' only asset is its investment in Silgan, its ability to
pay interest on the Discount Debentures on and after December 15, 1996 (the date
on which interest is first payable on the Discount Debentures) may depend upon
its receipt of funds paid by dividend or otherwise loaned, advanced or
transferred by Silgan to Holdings. While Silgan has no legal obligation to make
such funds available, it is expected that Silgan will do so if it is permitted
under the agreements to which it shall then be a party and if it then has
sufficient funds available for such purpose. If sufficient funds to pay such
interest are not generated by the operations of Silgan's subsidiaries, Silgan or
Holdings may seek to borrow or otherwise finance the amount of such payments or
refinance the Discount Debentures. Neither the Indenture for the 11-3/4% Notes
nor the Secured Notes limits the ability of Silgan to pay cash dividends to
Holdings in order to enable Holdings
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to pay interest on the Discount Debentures. The Credit Agreement presently
prohibits Silgan from paying dividends or otherwise transferring funds to
Holdings in order to service Holdings' indebtedness; however, the Credit
Agreement matures on September 15, 1996, prior to the date on which interest or
principal is payable on the Discount Debentures. Silgan expects to enter into a
new credit facility to replace the Credit Agreement on or before September 15,
1996 on terms which would not limit the ability of Silgan to transfer funds to
Holdings in order to enable Holdings to pay interest on the Discount Debentures.
However, there can be no assurance that Silgan will be able to enter into a new
credit facility on such terms. In such event, Silgan and Holdings would consider
pursuing alternative arrangements, including possible equity and/or debt
financings, to enable Holdings to meet its obligations. There can be no
assurance that any such alternative, if pursued, would be accomplished or would
enable Holdings to make timely payments of its obligations under the Discount
Debentures. The funding requirements of Holdings to service its indebtedness
(beginning in December 1996) will be met by Silgan through cash generated by
operations or borrowings or by Holdings through refinancings of its existing
indebtedness or additional debt or equity financings.
In addition to any financing effected as described above, Silgan and/or
Holdings may consider refinancing all or any part of their respective
indebtedness through other debt financings and/or equity financings, including a
public offering of equity. Any such financings would depend upon the market
conditions existing at the time and would have to be effected in compliance with
Silgan's and/or Holdings', as the case may be, agreements in respect of their
respective indebtedness.
The Discount Debentures represent "applicable high yield discount
obligations" ("AHYDOs") within the meaning of Section 163(i) of the Internal
Revenue Code of 1986, as amended (the "Code"). Accordingly, the tax deduction
which would otherwise be available to Holdings in respect of the accretion of
interest on the Discount Debentures during their noncash interest period ending
June 15, 1996 ($109.6 million) has been and will continue to be deferred, which,
in turn, will increase the taxable income of Holdings and reduce the after-tax
cash flows of Holdings. However, as a result of Holdings' utilization of its net
operating loss carryforward, which , as of December 31, 1994, amounts to
approximately $75 million for regular federal income tax purposes, the effect of
such deferral on the regular federal income taxes of Holdings has been and will
continue to be mitigated until such net operating loss carryforward is fully
utilized.
In 1993, Holdings became subject to alternative minimum tax ("AMT") and,
due to the utilization of its AMT net operating loss carryforwards, incurred an
AMT liability at a rate of 2%. In 1994, Holdings fully utilized its AMT loss
carryforward . Accordingly, in 1995 and thereafter, Holdings will incur an AMT
liability at a rate of 20% (or the applicable rate then in effect). The AMT paid
is allowed (subject to certain limitations) as an indefinite credit carryover
against Holdings' regular tax liability in the future when and if Holdings'
regular tax liability exceeds the AMT liability.
The deferred accreted interest will not be deductible until the redemption,
retirement or other repayment of the Discount Debentures (other than with stock
or debt of Holdings or a related party). Until the deferred accreted interest is
deductible, except to the extent the net operating loss carryforward is
available, Holdings will realize taxable income sooner and in a greater amount
than if the deferred accreted interest on the Discount Debentures were
deductible as it accretes. Depending upon its tax position and financial
condition and the benefit which may be available through the deduction of the
deferred accreted interest, Holdings could decide in the future to refinance the
Discount Debentures or a portion thereof prior to their stated maturity date. In
such event, the full amount of the deferred accreted interest (applicable to the
Discount Debentures retired) should be deductible under the carryback and
carryforward rules under the Code unless the holders of the Discount Debentures
receive stock or debt of Holdings or a related party in exchange for the
Discount Debentures. No assurance can be given that Holdings will be able to
refinance the Discount Debentures at such time; however, management believes
that application of the AHYDO rules will not have a material adverse effect on
Holdings' financial condition or ability to repay the Discount Debentures. In
addition, the Internal
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Revenue Service (the "IRS") has broad authority to issue regulations under the
AHYDO rules with retroactive effect to prevent the avoidance of the purposes of
those rules through agreements to borrow amounts due under a debt instrument or
other arrangements, and thus these regulations, when issued, may affect the
timing or availability of the tax deductions for original issue discount on the
Discount Debentures.
Management believes that cash generated by operations and funds from
working capital borrowings under the Credit Agreement will be sufficient to meet
the Company's expected operating needs, planned capital expenditures and debt
service requirements until the maturity of the working capital facility under
the Credit Agreement on September 15, 1996. Management also believes that it
will be able to replace the working capital facility under the Credit Agreement
with another facility on or prior to September 15, 1996 on terms which will be
acceptable to the Company. However, there can be no assurance that the Company
will be able to replace its working capital facility. In such event, the Company
could be required to consider alternative equity or debt financings in order to
meet its cash needs. The ability of the Company to effect any such financing and
the extent to which the Company may seek or be required to obtain additional
financing will depend upon a variety of factors, including the future
performance of the Company and its subsidiaries, which will be subject to
prevailing economic conditions and to financial, business and other factors
(including the state of the economy and the financial markets, demand for the
products of the Company and its subsidiaries, costs of raw materials,
legislative and regulatory changes and other factors beyond the control of the
Company and its subsidiaries) affecting the business and operations of the
Company and its subsidiaries as well as prevailing interest rates, actual
amounts expended for capital expenditures and other corporate purposes and the
timing and amount of debt prepayments or redemptions.
The Credit Agreement, the Secured Notes and the indentures relating to the
11-3/4% Notes and the Discount Debentures each contain restrictive covenants
that, among other things, limit the Company's ability to incur debt, sell assets
and engage in certain transactions. Management does not expect these limitations
to have a material effect on the Company's business or results of operations.
The Company is in compliance with all financial and operating covenants
contained in such financing agreements and believes that it will continue to be
in compliance during 1995 with all such covenants.
Effect of Interest Rate Fluctuations and Inflation
Because the Company has indebtedness which bears interest at floating
rates, the Company's financial results will be sensitive to changes in
prevailing interest rates. To mitigate the effect of significant changes in
interest rates, the Company may enter into interest rate hedge agreements (with
counterparties that, in the Company's judgment, have sufficient
creditworthiness) with respect to a portion of its floating rate indebtedness.
At March 31, 1995, the Company was not a party to any interest rate hedge
agreement.
Historically, inflation has not had a material effect on the Company,
other than to increase its cost of borrowing. In general, the Company has been
able to increase the sales prices of its products to reflect any increases in
the prices of raw materials.
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BUSINESS
General
The Company is a major manufacturer of a broad range of steel and aluminum
containers for human and pet food . The Company also manufactures custom
designed plastic containers for health, personal care, food, beverage,
pharmaceutical and household chemical products in North America. In 1994, the
Company had net sales of $861.4 million.
Management believes that the Company is the sixth largest can producer and
one of the largest food can producers in North America, as well as one of the
largest producers in North America of custom designed plastic containers for
health and personal care products. The Company has grown rapidly since its
inception in 1987 primarily as a result of acquisitions, but also through
internally generated growth. In December 1993, Silgan's wholly owned subsidiary,
Containers, acquired the U.S. metal container manufacturing business of Del
Monte. See "--Company History" below.
The Company's strategy is to continue to increase its
share of the North American packaging market through acquisitions, as well as
investment in internally generated opportunities. The Company intends to focus
particular attention on those rigid metal and plastic container segments where
operating and market synergies are likely.
The Company is also engaged in the manufacture and sales of paper
containers primarily used by processors and packagers in the food industry.
Metal Container Business
Management estimates that Containers is currently the sixth largest can
producer and one of the largest manufacturers of metal food containers in North
America. In 1994 Containers sold approximately 21% of all metal food containers
used in North America. Although the food can industry in North America is
relatively mature in terms of unit sales growth, Containers has realized
compound annual unit sales growth in excess of 12% since 1987. Types of
containers manufactured include those for vegetables, fruit, pet food, tomato
based products, evaporated milk and infant formula. Containers has agreements
with Nestle pursuant to which Containers supplies substantially all of its metal
container requirements , and an agreement with Del Monte pursuant to which
Containers supplies substantially all of its metal container requirements. In
addition to Nestle and Del Monte, Containers has multi-year supply arrangements
with other customers. The Company estimates that in excess of 80% of Containers'
sales in 1995 will be pursuant to such supply arrangements. See "--Sales and
Marketing" below.
Containers has focused on growth through acquisition followed by
investment in the acquired assets to achieve a low cost position in the food can
segment. Since its acquisition in 1987 of Nestle Can, Containers has invested
approximately $99 million in its acquired manufacturing facilities and has spent
approximately $67 million for the acquisition of additional can manufacturing
assets. As a result of these efforts and management's focus on quality and
service, Containers has more than doubled its overall share of the food can
segment in terms of unit sales, from a share of approximately 10% in 1987 to a
share of approximately 21% in 1994.
Plastic Container Business
Management believes that Plastics is one of the leading manufacturers of
custom designed HDPE and PET containers sold in North America for health and
personal care products. HDPE containers manufactured by
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Plastics include personal care containers for shampoos, conditioners, hand
creams, lotions and cosmetics, household chemical containers for scouring
cleaners , specialty cleaning agents and lawn and garden chemicals and
pharmaceutical containers for tablets, laxatives and eye cleaning solutions.
Plastics manufactures PET custom medicinal and health care product containers
(such as mouthwash and cough syrup bottles), custom food product containers
(such as salad dressing and instant coffee bottles), and custom non- carbonated
soft drink beverage product containers (such as juice bottles) as well as water
and liquor bottles. See "--Products" below.
Plastics has grown primarily by strategic acquisition. From a sales base of
$89 million in 1987, Plastics' sales have grown at a compound annual rate of 13%
to $204 million in 1994. Plastics emphasizes value-added design, fabrication and
decoration of custom containers. Plastics is aggressively pursuing opportunities
in custom designed PET and HDPE containers for which the market has been growing
principally due to consumer preferences for plastic containers. The Company
believes it has equipment and technical expertise to take advantage of these
growth segments .
Products
Metal Container Business
The Company is engaged in the manufacture and sale of steel and aluminum
containers that are used primarily by processors and packagers for human and pet
food . Types of containers manufactured include those for vegetables, fruit, pet
food, tomato based products, evaporated milk and infant formula. The Company
does not produce cans for use in the beer or soft drink industries. Cans are
produced in a variety of sizes, ranging in diameter from 2-1/8 inches to 6-3/16
inches and in height from 1-7/16 inches to 7 inches.
Plastic Container Business
The Company is also engaged in the manufacture and sale of plastic
containers primarily used for health, personal care, food, beverage (other than
carbonated soft drinks), pharmaceutical and household chemical products. Plastic
containers are produced by converting thermoplastic materials into containers
ranging in size from 1/2 to 96 ounces. Emphasis is on value-added design,
fabrication and decoration of the containers. The Company designs and
manufactures a wide range of containers for health and personal care products
such as shampoos, hand creams , lotions and mouthwash. Because these products
are characterized by short product life and a demand for creative packaging, the
containers manufactured for these products generally have more sophisticated
designs and decorations. Food and beverage containers are designed and
manufactured (generally to unique specifications for a specific customer) to
contain products such as salad dressing, coffee, juice, water and liquor.
Household chemical containers are designed and manufactured to contain polishes,
specialty cleaning agents, lawn and garden chemicals and liquid household
products. Pharmaceutical containers are designed and manufactured (either in a
generic or in a custom-made form) to contain tablets, solutions and similar
products for the ethical and over-the-counter markets.
Manufacturing and Production
As is the practice in the industry, most of the Company's can and plastic
container customers provide it with annual estimates of products and quantities
pursuant to which periodic commitments are given. Such estimates enable the
Company to effectively manage production and control working capital
requirements. At December 31, 1994, Containers had in excess of 80% of its
projected 1995 sales under multi-year contracts. Plastics has written purchase
orders or contracts for containers with the majority of its customers. In
general, these purchase orders and contracts are for containers made from
proprietary molds and are for a duration of 2 to 5 years. Both Containers and
Plastics schedule their production to meet their customers' requirements.
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Because the production time for the Company's products is short, the backlog of
customer orders in relation to sales is not significant.
Metal Container Business
The Company uses three basic processes to produce cans. The traditional
three-piece method requires three pieces of flat metal to form a cylindrical
body with a welded side seam, a bottom and a top. The Company uses a welding
process for the side seam of three-piece cans to achieve a superior seal. High
integrity of the side seam is further assured by the use of sophisticated
electronic weld monitors and organic coatings that are thermally cured by
induction and convection processes. The other two methods of producing cans
start by forming a shallow cup that is then formed into the desired height using
either the draw and iron process or the draw and redraw process. Using the draw
and redraw process, the Company manufactures steel and aluminum two-piece cans,
the height of which does not exceed the diameter. For cans the height of which
is greater than the diameter, the Company manufactures steel two-piece cans by
using a drawing and ironing process. Quality and stackability of such cans are
comparable to that of the shallow two-piece cans described above. Can bodies and
ends are manufactured from thin, high-strength aluminum alloys and steels by
utilizing proprietary tool and die designs and selected can making equipment.
The Company's manufacturing operations include cutting, coating, lithographing,
fabricating, assembling and packaging finished cans.
Plastic Container Business
The Company utilizes two basic processes to produce plastic bottles. In the
blow extrusion molding process, pellets of plastic resin are heated and extruded
into a tube of plastic. A two-piece metal mold is then closed around the plastic
tube and high pressure air is blown into it causing a bottle to form in the
mold's shape. In the injection blow molding process, pellets of plastic resin
are heated and injected into a mold, forming a plastic preform. The plastic
preform is then blown into a bottle-shaped metal mold, creating a plastic
bottle.
The Company believes that its proprietary equipment for the production of
HDPE containers is particularly well-suited for the use of post-consumer
recycled ("PCR") resins because of the relatively low capital costs required to
convert its equipment from the use of virgin resins.
The Company's decorating methods for its plastic products include (i) silk
screen decoration, which enables the application of images in multiple colors to
the bottle, (ii) post- molded decoration, which uses paper labels applied to the
bottles with glue , (iii) pressure-sensitive decoration, which applies a plastic
film label to a post-molded bottle by pressing against the bottle and (iv)
in-mold labeling, which applies a plastic film label to the bottle during the
blowing process. The Company has state-of-the-art decorating equipment,
including, management believes, one of the largest sophisticated decorating
facilities in the Midwest, which allows the Company to custom-design new
products with short lead times.
Raw Materials
The Company does not believe that it is materially dependent upon any
single supplier for any of its raw materials and, based upon the existing
arrangements with suppliers discussed above, its current and anticipated
requirements and market conditions, the Company believes that it has made
adequate provisions for acquiring raw materials. Although increases in the
prices of raw materials have generally been passed along to the Company's
customers, the inability to do so in the future could have a significant impact
on the Company's operating margins.
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Metal Container Business
The Company uses tin plated and chromium plated steel, aluminum, copper
wire, organic coatings, lining compound and inks in the manufacture and
decoration of its metal can products. The Company's steel and other material
requirements are supplied through purchase orders with suppliers with whom the
Company, through its predecessors, has long-term relationships . If its
suppliers fail to deliver under their arrangements, the Company would be forced
to purchase raw materials on the open market, and no assurances can be given
that it would be able to make such purchases at prices which would allow it to
remain competitive. The Company has a contract to obtain the majority of its
requirements for aluminum from a supplier at prices that are subject to
adjustment based on formulas and market conditions. Such contract expires in
1996. The Company believes that it would be able to satisfy its requirements for
aluminum from other suppliers in the event of the loss of its current supplier.
The Company believes that it will be able to purchase sufficient quantities of
steel and aluminum can sheet for the foreseeable future.
Plastic Container Business
The raw materials used by the Company for the manufacture of plastic
containers are primarily resins in pellet form such as HDPE- PCR and virgin HDPE
and PET and, to a lesser extent, low density polyethylene, extrudable polyester
terephthalate, polyethylene terephthalate glycol, polypropylene, polyvinyl
chloride and medium density polyethylene. The Company's resin requirements are
acquired through multi-year arrangements for specific quantities of resins with
several major suppliers of resins. The price the Company pays for resin raw
materials is not fixed and is subject to market pricing. Currently, demand for
PET exceeds supplies of PET. However, the Company has long-term arrangements for
PET with a number of producers and, as a result, believes that it has adequate
supply commitment for PET to satisfy its current business and obligations to
customers. The Company anticipates that there will be new capacity for PET
beginning in mid-to-late 1995 and into 1996. The Company believes that the
successful start-up of such announced new capacity will bring supply of and
demand for PET into better balance in 1996. However, delays in the availability
of such new capacity could have an adverse impact on the Company's plans for
growth in its plastic containers business in 1996. The Company believes that it
will be able to purchase sufficient quantities of other resins (including HDPE)
for the foreseeable future.
Sales and Marketing
The Company markets its products in most areas of North America primarily
by a direct sales force and through a large network of distributors. Because of
the high cost of transporting empty containers, the Company generally sells to
customers within a 300 mile radius of its manufacturing plants. See also
"--Competition" below.
In 1994, 1993 and 1992, the Company's metal container business accounted
for approximately 76%, 71% and 69%, respectively, of the Company's total sales,
and the Company's plastic container business accounted for approximately 24%,
29% and 31%, respectively, of the Company's total sales. In 1994, 1993 and 1992,
approximately 26%, 34% and 37%, respectively, of the Company's sales were to
Nestle and in 1994 approximately 21% of the Company's sales were to Del Monte.
No other customer accounted for more than 10% of the Company's total sales
during such years.
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Metal Container Business
Management believes that the Company is currently the sixth largest can
producer and one of the largest food can producers in North America. In 1994,
Containers sold approximately 21% of all metal food containers in North America.
Containers has entered into multi-year supply arrangements with many of its
customers, including Nestle and Del Monte. The Company estimates that in excess
of 80% of its metal container sales in 1995 will be pursuant to such
arrangements.
In 1987, the Company, through Containers, and Nestle entered into the
Nestle Supply Agreements pursuant to which Containers has agreed to supply
Nestle with, and Nestle has agreed to purchase from Containers, substantially
all of the can requirements of the former Carnation operations of Nestle for a
period of ten years, subject to certain conditions. In 1994, the term of three
of the Nestle Supply Agreements (representing approximately 70% of the Company's
1994 unit sales to Nestle) was extended through 2001.
The Nestle Supply Agreements provide for certain prices and specify that
such prices will be increased or decreased based upon cost change formulas set
forth therein. The Nestle Supply Agreements contain provisions that require
Containers to maintain certain levels of product quality, service and delivery
in order to retain the Nestle business. In the event of a breach of a particular
Nestle Supply Agreement, Nestle may terminate such Nestle Supply Agreement but
the other Nestle Supply Agreements would remain in effect.
Under the three Nestle Supply Agreements which were recently extended
through 2001, Nestle has the right to receive competitive bids under narrowly
limited circumstances, and Containers has the right to match any such bids.
Under the other six Nestle Supply Agreements, if Nestle receives a competitive
bid for any product supplied thereunder, Containers has the right to match such
bid with respect to the type and volume of cans over the period of the
competitive bid. In either case, in the event that Containers chooses not to
match a competitive bid, Nestle may purchase cans from the competitive bidder at
the competitive bid price for the term of the bid. Since 1990, under the
original Nestle Supply Agreements Nestle has requested that Containers match
certain bids received from other potential suppliers. Containers agreed to match
such bids (which resulted in minor margin impact) and continues to supply
substantially all of the can requirements of the former Carnation operations of
Nestle. In the future, there can be no assurance that Containers will choose to
match any such bids or that, even if matched, such bids will be at a level
sufficient to allow Containers to maintain margins currently received. Until any
such bids are received by Nestle and submitted to the Company, the Company
cannot predict the effect, if any, of such bids upon its financial condition or
results of operations. Significant reductions of margins or the loss of
significant unit volume under the Nestle Supply Agreements could, however, have
a material adverse effect on the Company.
On December 21, 1993, Containers and Del Monte entered into the DM Supply
Agreement. Under the DM Supply Agreement, Del Monte has agreed to purchase from
Containers, and Containers has agreed to sell to Del Monte, 100% of Del Monte's
annual requirements for metal containers to be used for the packaging of food
and beverages in the United States and not less than 65% of Del Monte's annual
requirements of metal containers for the packaging of food and beverages at Del
Monte's Irapuato, Mexico facility, subject to certain limited exceptions.
The DM Supply Agreement provides for certain prices for all metal
containers supplied by Containers to Del Monte thereunder and specifies that
such prices will be increased or decreased based upon specified cost change
formulas.
Under the DM Supply Agreement, after five years, Del Monte may, under
certain circumstances, receive proposals with terms more favorable than those
under the DM Supply Agreement from independent commercial can manufacturers for
the supply of containers of a type and quality similar to the metal containers
that
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Containers furnishes to Del Monte, which proposals shall be for the remainder of
the term of the DM Supply Agreement and for 100% of the annual volume of
containers at one or more of Del Monte's canneries. Containers has the right to
retain the business subject to the terms and conditions of such competitive
proposal.
The sale of metal containers to vegetable pack customers is seasonal and
monthly revenues increase during the months of June through October. As is
common in the packaging industry, the Company must build inventory and then
carry accounts receivable for some seasonal vegetable pack customers beyond the
end of the harvest season. Consistent with industry practice, such customers may
return unused containers. Historically, such returns have been minimal.
Plastic Container Business
The Company is one of the leading manufacturers of custom designed HDPE
and PET containers sold in North America. The Company markets its plastic
containers in most areas of North America through a direct sales force and
through a large network of distributors. More than 70% of the Company's plastic
containers are sold for health and personal care products, such as hair care,
oral care, pharmaceutical and other health care applications. The Company's
customers in these product segments include Helene Curtis Inc., Procter & Gamble
Co., Avon Products, Inc., Jergens Inc., Warner-Lambert Company and Pfizer Inc.
The Company also manufacturers plastic containers for food and beverage
products, such as salad dressings, mustard, mayonnaise, coffee and premium
bottled water. Customers in these product segments include Procter & Gamble Co.,
Kraft General Foods Inc. and General Mills, Inc.
As part of its marketing strategy, the Company has arrangements to sell
some of its plastic products to distributors, which in turn sell such products
primarily to small-size regional customers. Plastic containers sold to
distributors are manufactured by using generic molds with decoration, color and
neck finishes added to meet the distributors' individual requirements. The
distributors' warehouses and their sales personnel enable the Company to market
and inventory a wide range of such products to a variety of customers.
Plastics has written purchase orders or contracts for containers with the
majority of its customers. In general, these purchase orders and contracts are
for containers made from proprietary molds and are for a duration of 2 to 5
years.
Competition
The packaging industry is highly competitive. The Company competes in this
industry with other packaging manufacturers as well as fillers, food processors
and packers who manufacture containers for their own use and for sale to others.
The Company attempts to compete effectively through the quality of its products,
pricing and its ability to meet customer requirements for delivery, performance
and technical assistance. The Company also pursues market niches such as the
manufacture of easy-open ends and special feature cans, which may differentiate
the Company's products from its competitors' products.
Because of the high cost of transporting empty containers, the Company
generally sells to customers within a 300 mile radius of its manufacturing
plants. Strategically located existing plants give the Company an advantage over
competitors from other areas, and the Company would be disadvantaged by the loss
or relocation of a major customer. As of April 30, 1995, the Company operated 33
manufacturing facilities, geographically dispersed throughout the United States
and Canada, that serve the distribution needs of its customers.
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Metal Container Business
Management believes that the metal food containers segment is mature. Some
self-manufacturers have sold or closed can manufacturing operations and entered
into long-term supply agreements with the new owners or with commercial can
manufacturers. Of the commercial metal can manufacturers, American National Can
Company, Crown Cork and Seal Company, Inc. and Ball Corporation are the
Company's most significant competitors.
Although metal containers face continued competition from plastic, paper
and composite containers, management believes that metal containers are superior
to plastic and paper containers in applications where the contents are processed
at high temperatures, where the contents are packaged in large or institutional
quantities (14 to 64 oz.) or where long-term storage of the product is
desirable. Such applications include canned vegetables, fruits, meats and pet
foods. These sectors are the principal areas for which the Company manufactures
its products.
Plastic Container Business
Plastics competes with a number of large national producers of health,
personal care, food, beverage, pharmaceutical and household chemical plastic
container products, including Owens-Brockway Plastics Products, a division of
Owens-Illinois, Inc., Constar Plastics Inc., a subsidiary of Crown Cork and Seal
Company, Inc., Johnson Controls Inc., Continental Plastics Inc. and Plastipak
Packaging Inc. In order to compete effectively in the constantly changing market
for plastic bottles, the Company must remain current with, and to some extent
anticipate innovations in, resin composition and applications and changes in the
manufacturing of plastic bottles.
Employees
As of December 31, 1994, the Company employed approximately 670 salaried
and 3,330 hourly employees on a full time basis. Approximately 63% of the
Company's hourly plant employees are represented by one of the following unions:
(i) Sheet Metal Workers International Association, (ii) International
Association of Machinists and Aerospace Workers, (iii) The International
Brotherhood of Teamsters, (iv) The United Steel Workers of America, (v)
Industrial, Technical & Professional Employees Union, (vi) The Glass, Molders,
Pottery, Plastics and Allied Workers International Union, (vii) The United
Rubber, Cork and Plastic Workers of America and (viii) Oil, Chemical & Atomic
Workers International Union.
The Company's labor contracts expire at various times between 1995 and
1999. Contracts covering approximately 8% of the Company's hourly employees
presently expire during 1995. The Company expects no significant changes in its
relations with these unions. Management believes that its relationship with its
employees is good.
Regulation
The Company is subject to federal, state and local environmental laws and
regulations. In general, these laws and regulations limit the discharge of
pollutants into the air and water and establish standards for the treatment,
storage, and disposal of solid and hazardous waste. The Company believes that
all of its facilities are either in compliance in all material respects with all
presently applicable environmental laws and regulations or are operating in
accordance with appropriate variances, delayed compliance orders or similar
arrangements.
In addition to costs associated with regulatory compliance, the Company
may be held liable for alleged environmental damage associated with the past
disposal of hazardous substances. Generators of hazardous
-39-
<PAGE>
substances disposed of at sites at which environmental problems are alleged to
exist, as well as the owners of those sites and certain other classes of
persons, are subject to claims under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 ("CERCLA") regardless of fault or the
legality of the original disposal. Liability under CERCLA and under many similar
state statutes is joint and several, and, therefore, any responsible party may
be held liable for the entire cleanup cost at a particular site. Other state
statutes may impose proportionate rather than joint and several liability. The
federal Environmental Protection Agency or a state agency may also issue orders
requiring responsible parties to undertake removal or remedial actions at
certain sites. Pursuant to the agreement relating to the acquisition in 1987 of
Nestle Can, the Company has assumed liability for the past waste disposal
practices of Nestle Can. The Company has received notice that it is one of many
potentially responsible parties (or similarly designated parties) for cleanup of
hazardous waste at a site to which it (or its predecessor Nestle Can) is alleged
to have shipped such waste and at which the Company's share of cleanup costs
could exceed $100,000. See "--Legal Proceedings" below.
Pursuant to the agreement relating to the acquisition in 1987 from
Monsanto Company ("Monsanto") of substantially all of the business and related
fixed assets and inventory of Monsanto's plastic containers business ("Monsanto
Plastic Containers"), Monsanto has agreed to indemnify the Company for
substantially all of the costs attributable to the past waste disposal practices
of Monsanto Plastic Containers. In connection with the acquisition of DM Can,
Del Monte has agreed to indemnify the Company for a period of three years for
substantially all of the costs attributable to any noncompliance by DM Can with
any environmental law prior to the closing, including all of the costs
attributable to the past waste disposal practices of DM Can.
The Company is subject to the Occupational Safety and Health Act and other
laws regulating noise exposure levels in the production areas of its plants.
Management does not believe that any of the matters described above
individually or in the aggregate will have a material effect on the Company's
capital expenditures, earnings, financial position or competitive position.
Research and Technology
Metal Container Business
The Company's research, product development and product engineering
efforts relating to its metal containers are conducted at its research center at
Oconomowoc, Wisconsin and at other plant locations.
Plastic Container Business
The Company's research, product development and product engineering
efforts with respect to its plastic containers are currently performed by its
manufacturing and engineering personnel located at its Norcross, Georgia
facility. In addition to its own research and development staff, the Company
participates in arrangements with four non-U.S. plastic container manufacturers
that call for an exchange of technology among these manufacturers. Pursuant to
these arrangements, the Company licenses its blow molding technology to such
manufacturers.
Company History
The Company was organized in August 1987 as a holding company to acquire
interests in various packaging manufacturers. On August 31, 1987, the Company,
through Containers, purchased from Nestle the business and related assets and
working capital of Nestle Can for approximately $151 million in cash and the
assumption of substantially all of the liabilities of Nestle Can. Also on August
31, 1987, the Company, through
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<PAGE>
Plastics, purchased from Monsanto substantially all the business and related
fixed assets and inventory of Monsanto Plastic Containers for approximately $43
million in cash and the assumption of certain liabilities of Monsanto Plastic
Containers. To finance these acquisitions and to pay related fees and expenses,
the Company issued common stock, preferred stock and senior subordinated notes
and borrowed amounts under its credit agreement.
During 1988, Containers acquired from The Dial Corporation its metal
container manufacturing division known as the Fort Madison Can Company ("Fort
Madison"), and from Nestle its carton manufacturing division known as the
Seaboard Carton Division ("Seaboard").
During 1989, Plastics acquired Aim Packaging, Inc. ("Aim") and Fortune
Plastics, Inc. ("Fortune") in the United States, and Express Plastic Containers
Limited ("Express") in Canada, to improve its competitive position in the HDPE
container segment.
Holdings was organized in April 1989 as a holding company to acquire all
of the outstanding common stock of the Company. On June 30, 1989, Silgan
Acquisition, Inc. ("Acquisition"), a wholly owned subsidiary of Holdings, merged
with and into the Company, and the Company became a wholly owned subsidiary of
Holdings (the "1989 Mergers").
In 1989, the Company acquired the business and related assets of Amoco
Container Company ("Amoco Container"). In November 1991, Plastics sold its
nonstrategic PET carbonated beverage bottle business, exiting that commodity
business.
In 1992, Silgan and Holdings completed the Refinancing pursuant to a plan
to improve their financial flexibility. The Refinancing included the following:
(i) the public offering (the "11-3/4% Notes Offering") in June 1992 by Silgan of
$135 million principal amount of the 11-3/4% Notes; (ii) the private placement
in June 1992 by Silgan of $50 million principal amount of the Secured Notes with
certain institutional investors; (iii) the public offering in June 1992 by
Holdings of the Holdings Discount Debentures for an aggregate amount of proceeds
of $165.4 million (the "Holdings Debentures Offering"); (iv) the amendment of
the Amended and Restated Credit Agreement, dated as of August 31, 1987, as
amended (the "Amended and Restated Credit Agreement") among Silgan and certain
of its subsidiaries, the lenders named therein and Bankers Trust, as agent,
followed by the prepayment in June 1992 by Silgan of $30 million of term loans
and the borrowing by Silgan of approximately $17 million of working capital
loans under the Amended and Restated Credit Agreement; (v) the 14% Notes
Redemption; (vi) the Preferred Stock Redemption; (vii) the repayment by Silgan
of a $25.2 million advance from Holdings and the payment to Holdings of a $15.7
million dividend; (viii) the payment by Holdings in cash of $15.3 million of
interest payable on July 1, 1992 on the Holdings Reset Debentures; (ix) the
redemption by Holdings in July 1992 of all of the outstanding Holdings Reset
Debentures ; and (x) the payment of transaction fees and expenses relating to
the Refinancing. Additionally, in June 1992 Aim, Fortune and certain other
subsidiaries of Plastics were merged into Plastics.
On December 21, 1993, Containers acquired from Del Monte substantially all
of the fixed assets and certain working capital of Del Monte's container
manufacturing business in the United States for a purchase price of
approximately $73 million and the assumption of certain limited liabilities. To
finance the acquisition, (i) Silgan, Containers and Plastics (collectively, the
"Borrowers") entered into the Credit Agreement with the Banks, Bank of America,
as Co-Agent, and Bankers Trust, as Agent, and (ii) Holdings issued and sold to
Mellon Bank, N.A., as trustee for First Plaza Group Trust, a group trust
established under the laws of the State of New York ("First Plaza"), 250,000
shares of Holdings Class B Stock (the "Holdings Stock"), for a purchase price of
$60.00 per share and an aggregate purchase price of $15 million. Additionally,
Silgan, Containers and Plastics borrowed term and working capital loans under
the Credit Agreement to refinance and repay in full all amounts owing under the
Amended and Restated Credit Agreement.
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<PAGE>
Properties
Silgan's and Holdings' principal executive offices are located at 4
Landmark Square, Stamford, Connecticut 06901. The administrative headquarters
and principal places of business for Containers and Plastics are located at
21800 Oxnard Street, Woodland Hills, California 91367 and 14515 N. Outer Forty,
Chesterfield, Missouri 63017, respectively. All of these offices are leased by
the Company.
The Company owns and leases properties for use in the ordinary course of
business. Such properties consist primarily of 20 metal container manufacturing
facilities, 12 plastic container manufacturing facilities and one paper
container manufacturing facility. Seventeen of these facilities are owned and 16
are leased by the Company. The leases expire at various times through 2020. Some
of these leases provide
renewal options .
Below is a list of the Company's operating facilities, including attached
warehouses, as of April 30, 1995 for its metal container business:
Approximate
Building Area
Location (square feet)
-------- -------------
Kingsburgh, CA 37,783 (leased)
Modesto, CA 35,585 (leased)
Riverbank, CA 167,000
Stockton, CA 243,500
Stockton, CA 71,785 (leased)
Broadview, IL 85,000
Rochelle, IL 175,000
Ft. Dodge, IA 49,500 (leased)
Fort Madison, IA 66,000
Mt. Vernon, MO 100,000
St. Joseph, MO 173,725
Hillsboro, OR 47,000
Cambridge Springs, 55,000
PA
Crystal City, TX 26,045 (leased)
Smithfield, UT 105,000
Toppenish, WA 98,000
Menomonee Falls, WI 116,000
Menomonie, WI 60,000 (leased)
Oconomowoc, WI 105,200
Plover, WI 44,495 (leased)
Waupun, WI 212,000
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<PAGE>
Below is a list of the Company's operating facilities, including attached
warehouses, as of April 30, 1995 for its plastic container business:
Approximate
Building Area
Location (square feet)
---------- -------------
Anaheim, CA 127,000 (leased)
Deep River, CT 140,000
Monroe, GA 117,000
Norcross, GA 59,000 (leased)
Ligonier, IN 388,000 (leased)
Seymour, IN 406,000
Franklin, KY 122,000 (leased)
Louisville, KY 30,000 (leased)
Port Clinton, OH 336,000 (leased)
Langhorne, PA 156,000 (leased)
Mississauga, Ontario 80,000 (leased)
Mississauga, Ontario 60,000 (leased)
The Company owns and leases certain other warehouse facilities that are
detached from its manufacturing facilities. In addition, the Company owns two
other properties that it is not currently using and intends to sell . All of the
Company's facilities are subject to liens in favor of the Banks.
The Company believes that its plants, warehouses and other facilities are
in good operating condition, adequately maintained, and suitable to meet its
present needs and future plans. The Company believes that it has sufficient
capacity to satisfy the demand for its products in the foreseeable future. To
the extent that the Company needs additional capacity, management believes that
the Company can convert certain facilities to continuous operation or make the
appropriate capital expenditures to increase capacity.
Legal Proceedings
Complaints and Appraisal Petition Arising Out of the 1989 Mergers.
Contemporaneous with the merger of Silgan into a subsidiary of Holdings in June
1989, certain holders of 1,050,000 shares of Silgan Class B common stock filed
two actions in the Court of Chancery of the State of Delaware (the "Chancery
Court") alleging that Silgan and certain affiliates, officers and directors
breached fiduciary duties in implementing the 1989 Mergers. One of the actions
was voluntarily dismissed without prejudice of the right to reinstate the action
upon the conclusion of the appraisal proceeding described below. The second
action was dismissed following settlement.
In 1989, the same Silgan stockholders also sought appraisal of the value of
their shares of Class B common stock pursuant to Section 262 of the Delaware
General Corporation Law. Following discovery, and settlement with the holders of
650,000 shares of Class B common stock, trial of the appraisal with respect to
the remaining 400,000 shares of Class B common stock was conducted during the
week of November 28, 1994. Post-trial briefing has been completed and the matter
is before the court for decision .
Management believes that the consideration offered in the 1989 Mergers
fully reflected the value of Silgan's Class B common stock and that the ultimate
resolution of the appraisal proceeding will not have a material effect on the
financial condition or results of operations of the Company or Holdings.
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<PAGE>
Katell/Desert Complaint. On November 6, 1991, Gerald L. Katell ("Katell")
and Desert Equities, Inc. ("Desert"), who are limited partners of The Morgan
Stanley Leveraged Equity Fund, L.P. ("MSLEF"), filed a consolidated complaint in
the Chancery Court (the "Katell/Desert Complaint") against a number of
defendants, including Holdings and Silgan. (The plaintiffs previously had filed
similar complaints in the New York Supreme Court, but the complaints were
dismissed on the grounds that, in the interests of substantial justice, the
actions should be heard in the courts of Delaware.) The plaintiffs allege, among
other things, that the general partners of MSLEF breached duties owed to the
limited partners by selling MSLEF's investment in Silgan at a grossly inadequate
price. Holdings and Silgan are named as defendants in Court III of such amended
complaint, which charges them with aiding and abetting breaches of fiduciary
duty by MSLEF and the general partners. The plaintiffs claim damages in the
amount of $4.67 million.
After full briefing and oral argument on a motion by defendants to dismiss
the amended complaint filed by plaintiffs, the court dismissed all claims
against Holdings and Silgan by memorandum opinion and order dated January 14,
1993. The court denied plaintiffs' motion to reargue the dismissal by order
dated March 29, 1993. Because the Katell/Desert Complaint continues against
certain other defendants, the plaintiffs' right to appeal the dismissal of the
claims against Silgan and Holdings has not yet expired.
Management believes that there is no factual basis for the allegations and
claims contained in the Katell/Desert Complaint. Management also believes that
the lawsuit is without merit and intends to defend the lawsuit vigorously. In
addition, management believes that the ultimate resolution of these matters and
the appraisal proceedings will not have a material effect on the financial
condition or results of operations of the Company or Holdings.
Summer del Caribe. On October 17, 1989, the State of California, on behalf
of the California Department of Health Services, filed a suit in the United
States District Court for the Northern District of California against the owners
and operators of a recycling facility operated by Summer del Caribe, Inc., Dale
Summer and Lynn Rodich. The complaint also named 16 can manufacturing companies,
including Silgan, that had sent small amounts of solder dross to the facility
for recycling as "Responsible Parties" under the California Superfund statute.
The Company is one of 16 defendant can companies participating in a steering
committee. The steering committee has actively undertaken a feasibility study
which was approved by the California Department of Toxic Substances in June
1994. The Company has agreed with the other can company defendants that Silgan's
apportioned share of cleanup costs would be 6.72% of the total cost of cleanup.
On March 14, 1995, the court approved the Consent Order settling the case and
reaffirming Silgan's 6.72% apportioned share of the cleanup costs. Although the
total cost of cleanup has not yet been determined, the Company understands that
the State of California's current worst case estimate of total cleanup costs for
all parties is $5.5 million. The steering committee believes that the cost to
remediate will be less than one-half the government's estimate. Accordingly, the
Company believes its maximum exposure is not greater than 6.72% of $3 million,
or approximately $202,000.
Other. Other than the actions mentioned above, there are no other pending
legal proceedings, other than ordinary routine litigation incidental to the
business of the Company, to which the Company is a party or to which any of its
properties are subject.
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<PAGE>
MANAGEMENT
Directors and Executive Officers of the Company and Holdings
The current directors and executive officers of the Company and Holdings
and their respective ages, positions and principal occupations, five-year
employment history and other directorships held are furnished below:
Age at Five-Year Employment
April 30, History and Other Directorships
Name and Position 1995 Held
----------------- -------- -------------------------------
Philip Silver 52 Prior to forming S&H, Inc. "S&H") in
Chairman of the Board and 1987, President of Continental Can
Co-Chief Executive Officer Company from June 1983 to August
of Holdings and Silgan since 1986; consultant to packaging
March 1994; formerly President industry from August 1986 to August
of Holdings and Silgan; 1987; Vice Chairman of the Board and
Director of Holdings since Director of Sweetheart Holdings Inc.
April 1989 and of Silgan since and Sweetheart Cup Company, Inc.
August 1987; Chairman of the from September 1989 to January 1991;
Board of Plastics since March Chairman of the Board and Director
1994; Director of Containers and of the Board and Director of
Plastics since August 1987. Sweetheart Holdings Inc. and
Sweetheart Cup Company, Inc. from
January 1991 through August 1993;
Director, Johnstown America
Corporation.
D. Greg Horrigan 51 Prior to forming S&H in 1987,
President and Co-Chief Executive Executive Vice President and
Officer of Holdings and Silgan Operating Officer of Continental Can
since March 1994; formerly Company from 1984 to 1987; Chairman
Chairman of the Board of Holdings of the Board and Director of
and Silgan; Director of Holdings Sweetheart Holdings Inc. and
since April 1989 and of Silgan Sweethear Cup Company, Inc. from
since August 1987; Chairman of the September 1989 to January 1991; Vice
Board of Containers since August Chairman of and Director of
1987; Director of Containers and Sweetheart Holdings Inc. and
Plastics since August 1987. Sweetheart Cup Company, Inc. from
January 1991 through August 1993.
-45-
<PAGE>
Age at Five-Year Employment
April 30, History and Other Directorships
Name and Position 1995 Held
----------------- -------- -------------------------------
James S. Hoch 35 Executive Director of Morgan
Director of Silgan since Stanley & Co., Ltd. since 1994;
January 1991; Vice President and Principal of Morgan Stanley & Co.
Assistant Secretary of Silgan Incorporated since 1993; Vice
since 1987; Director, Vice President of Morgan Stanley & Co.
President and Assistant Secretary Incorporated from 1991 to 1993.
of Holdings since January 1991; Director of Sullivan and
Director, Vice President and Communications, Inc., Sullivan
Assistant Secretary of Containers Graphics, Inc. and Nokia Aluminium
since January 1991; Director, Vice Ox.
President and Assistant Secretary
of Plastics since January 1991.
Robert H. Niehaus 39 Managing Director of Morgan
Vice President, Assistant Stanley & Co. Incorporated since
Secretary and Director of January 1, 1990; Principal of
Silgan since August 1987; Vice Morgan Stanley & Co. Incorporated
President, Assistant Secretary from 1988 to 1989. Vice President
and Director of Containers and and Director of MSLEF II, Inc.
Plastics since August 1987; since January 1990; Vice Chairman
Vice President, Assistant Secretary of MSCP III since January 1994.
and Director of Holdings since April 1989. Director of American Italian
Pasta Company, Collings Farm,
Inc., Fort Howard Corporation, PSF
Finance Holdings, Inc., Randall's
Food Markets, Inc., Waterford
Crystal Ltd. and Waterford
Wedgewood UK plc.
Harley Rankin, Jr. 55 Prior to joining the Company,
Executive Vice President and Senior Vice President and Chief
Chief Financial Financial Financial Officer of Armtek
Officer of Silgan since Corporation; prior to Armtek
January 1989; Treasurer of Corporation, Vice President and
Silgan since January Chief Financial Officer of
1992; Vice President of Continental Can Company from
Containers and Plastics November 1984 to August 1986.
since January 1989; Treasurer Vice President, Chief Financial
of Plastics since January 1994; Officer and Treasurer of
Executive Vice President and Sweetheart Holdings Inc. and Vice
Chief Financial Officer of President of Sweetheart Cup
Holdings since April 1989; Company, Inc. from September 1989
Treasurer of Holdings since to August 1993.
January 1992.
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<PAGE>
Age at Five-Year Employment
April 30, History and Other Directorships
Name and Position 1995 Held
----------------- -------- -------------------------------
Harold J. Rodriguez, Jr. 39 Employed by Ernst & Young
Vice President of Silgan from 1978 to 1987, last
and Holdings since March serving as Senior Manager
1994; Vice President of specializing in taxation.
Containers and Plastics Controller, Assistant
since March 1994; Secretary and Assistant
Controller and Assistant Treasurer of Sweetheart
Treasurer of Silgan and Holdings Inc. and Assistant
Holdings since March 1990; Secretary and Assistant
Assistant Controller and Treasurer of Sweetheart Cup
Assistant Treasurer of Company, Inc. from September
Holdings from April 1989 to 1989 to August 1993.
March 1990; Assistant
Controller and Assistant
Treasurer of Silgan from
October 1987 to March 1990.
Management of Metal Container Business
In addition to the persons listed under "--Directors and Executive Officers
of the Company and Holdings" above, the following are the principal executive
officers of Containers:
Age at Five-Year Employment
April 30, History and Other Directorships
Name and Position 1995 Held
----------------- -------- -------------------------------
James D. Beam 52 Vice President -
President and a non-voting Marketing & Sales of
Director of Containers Containers from September
since July 1990. 1987 to July 1990; Vice
President and General
Manager of Continental
Can Company, Western Food
Can Division, from March
1986 to September 1987.
Gerald T. Wojdon 59 General Manager of
Vice President - Operations Manufacturing of the Can
and Assistant Secretary of Division of The Carnation
Containers since September Company from August 1982
1987. to August 1987.
Gary M. Hughes 53 Vice President, Sales and
Vice President - Sales & Marketing of the Beverage
Marketing of Containers Division of Continental
since July 1990. Can Company from February
1988 to July 1990; prior
to February 1988, was
employed by Continental
Can in various regional
sales positions.
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<PAGE>
Age at Five-Year Employment
April 30, History and Other Directorships
Name and Position 1995 Held
----------------- -------- -------------------------------
Dennis Nerstad 57 Vice President of
Vice President - Production Containers from December
Services of Containers 1993 to June 1994. Vice
since July 1994. President - Distribution
and Container Manufacturing
of Del Monte from August
1989 to December 1993;
Director of Container
Manufacturing of Del
Monte from November 1983
to July 1989; prior to
1983, employed by Del
Monte in various regional
and plant positions.
Management of Plastic Container Business
In addition to the persons listed under "--Directors and Executive Officers
of the Company and Holdings" above, the following are the principal executive
officers of Plastics:
Age at Five-Year Employment
April 30, History and Other Directorships
Name and Position 1995 Held
----------------- -------- -------------------------------
Russell F. Gervais 51 President and Chief Executive
President and non- Officer of Aim Packaging,
voting Director of Inc. from March 1984 to
Plastics since September 1989.
December 1992; Vice
President - Sales &
Marketing of
Plastics from
September 1989 until
December 1992.
Howard H. Cole 49 Manager of Personnel of
Vice President and Monsanto Engineered Products
Assistant Secretary Division f the Monsanto
of Plastics since Company from April 1986 to
September 1987. September 1987.
Charles Minarik 57 President of Wheaton
Vice President - Industries Plastics Group
Operations and from February 1991 to August
Commercial 1992; Vice President -
Development of Marketing of Constar
Plastics since May International, Inc. from
1993. March 1983 to February 1991.
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<PAGE>
Age at Five-Year Employment
April 30, History and Other Directorships
Name and Position 1995 Held
----------------- -------- -------------------------------
Alan H. Koblin 43 Vice President of Churchill
Vice President - Industries from 1990 to 1992.
Sales & Marketing of
Plastics since 1994,
Director of Sales &
Marketing of
Plastics from 1992
to 1994.
Colleen J. Jones 35 Audit Manager, Arthur Young &
Vice President - Company from July 1982 to
Finance and Chief July 1989.
Financial Officer of
Plastics since
January 1995,
Assistant Secretary
of Plastics since
November 1993,
Corporate Controller
of Plastics from
October 1993 to
January 1995,
Manager - Finance of
Plastics from July
1989 to October
1993.
Executive Compensation.
The following table sets forth information concerning the annual and
long term compensation for services rendered in all capacities to the Company
and its subsidiaries during the fiscal years ended December 31, 1994, 1993 and
1992 of those persons who at December 31, 1994 were (i) the Chief Executive
Officer of the Company and (ii) the other four most highly compensated executive
officers of the Company and its subsidiaries. No director of the Company or its
subsidiaries receives any compensation for serving as a director of the Company
or its subsidiaries. See "Certain Transactions--Management Agreements."
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<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Annual Compensation Compensation
------------------------------------------- ------------
Awards
------
Other Securities
Annual Underlying Stock All Other
Name and Principal Position Year Salary<F1><F2> Bonus<F1><F3> Compensation Options/SARs<F4> Compensation<F5>
--------------------------- ---- -------------- ------------ ------------ ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
R. Philip Silver 1994 $ 1,684,135 - - - -
(Chairman of the Board and 1993 1,608,799 - - - -
Co-Chief Executive Officer of 1992 1,528,844 - - - -
the Company and Chairman of
the Board of Plastics)
D. Greg Horrigan 1994 1,684,135 - - - -
(President and Co-Chief 1993 1,608,799 - - - -
Executive Officer of the 1992 1,528,844 - - - -
Company and Chairman of the
Board of Containers)
Harley Rankin, Jr. 1994 384,930 - - 6,000 -
(Executive Vice President, 1993 347,598 - - - -
Chief Financial Officer and 1992 324,407 - - - -
Treasurer of the
Company and Vice President of
Containers and Plastics)
James D. Beam 1994 354,375 $169,092 - - $32,491
(President of Containers) 1993 239,949 65,277 - - 24,883
1992 231,949 65,497 - - 24,215
Russell F. Gervais 1994 218,553 83,300 - 600 -
(President of Plastics) 1993 210,000 - - - -
1992 165,585 - - - -
-------------------
<FN>
<F1> The compensation of Messrs. Horrigan, Silver, Rankin and Rodriguez
reflects amounts as earned and was paid by S&H. Such persons received no
direct compensation from Holdings, the Company or their respective
subsidiaries. See "Certain Transactions--Management Agreements."
<F2> The salaries of Messrs. Beam and Gervais were paid by Containers and
Plastics, respectively.
<F3> Bonuses of Messrs. Beam and Gervais were earned by them in such year and
paid in the following year, pursuant to the Silgan Containers
Corporation Performance Incentive Plan and the Silgan Plastics
Corporation Incentive Plan, respectively. Under such plans, executive
officers and other key employees of Containers and Plastics may be
awarded cash bonuses provided that such company achieves certain
assigned financial targets.
<F4> Reflects options to purchase, and tandem SARs relating to, shares of
Holdings Class C common stock, par value $.01 per share (the "Holdings
Class C Stock") granted under the Silgan Holdings Inc. Second Amended
and Restated 1989 Stock Option Plan (the "Holdings Plan") in the case of
Mr. Rankin, and shares of Plastics' common stock granted under the
Silgan Plastics Corporation 1994 Stock Option Plan (the "Plastics Plan")
in the case of Mr. Gervais. Such options and tandem SARs become
exercisable ratably over a five-year period beginning on January 1,
1995.
<F5> Reflects amounts contributed by Containers under the Silgan Containers
Corporation Deferred Incentive Savings Plan (the "Savings Plan").
Containers contributes to the Savings Plan an amount each year based on
its profits for such year, as determined by Containers' board of
directors. Such contribution is allocated proportionately to
participants in accordance with their compensation. A participant's
allocable share of such contribution becomes fully vested after five
years of service or, if earlier, upon reaching age 55, death, total and
permanent disability or termination on account of the sale or closure of
a work facility.
[/FN]
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at
Assumed Annual Rates of Stock
Individual Grants Price Appreciation for Option Term <F3>
----------------- ---------------------------------------
Number of Percent of Total
Securities Options/SARs
Underlying Granted to Exercise or
Option/SARs Employees in Base Price
Name Granted (#) Fiscal Year ($/Sh) Expiration Date 5% ($) 10% ($)
---- ----------- --------------- ----------- --------------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
R. Philip Silver......... -- -- -- -- -- --
D. Greg Horrigan......... -- -- -- -- -- --
Harley Rankin, Jr. <F1>.. 6,000 66.67% $60.71 December 31, 2003 $229,080 $580,060
James D. Beam............ -- -- -- -- -- --
Russell F. Gervais <F2>.. 600 66.67% $126.00 December 31, 2003 $47,544 $120,486
-------------------
<FN>
<F1> Reflects options to purchase, and tandem SARs relating to, shares of Holdings Class C Stock granted under the Holdings Plan.
<F2> Reflects options to purchase, and tandem SARs relating to, shares of Plastics' common stock granted under the Plastics Plan.
In the event of a public offering by Holdings or a change of control of Holdings, such options and tandem SARs would be
converted into options and tandem SARs under the Holdings Plan as provided in the Plastics Plan.
<F3> The 5% and 10% assumed annual rates of appreciation were set by the Securities and Exchange Commission and are not
intended to forecast future appreciation, if any, of the stock underlying such options. If such stock does not increase in
value, then these option and tandem SAR grants will be valueless.
</FN>
</TABLE>
<TABLE>
<CAPTION>
OPTION/SAR VALUES AT DECEMBER 31, 1994
--------------------------------------
Value of Unexercised
Number of Unexercised in-the-Money
Options/SARs at Options/SARs at
December 31, 1994 December 31, 1994
----------------- -----------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
R. Philip Silver..................... -- -- -- --
D. Greg Horrigan..................... -- -- -- --
Harley Rankin, Jr. <F1>.............. 11,200 4,800 -- --
James D. Beam <F2><F3>............... 432 48 $1,109,854 $59,209
Russell F. Gervais <F4>.............. 120 480 -- --
-------------------
<FN>
<F1> Options are for, and tandem SARs relate to, shares of Holdings Class C
Stock. Value is determined based upon the excess of the book value of
Holdings Class C Stock from the date of grant over the exercise price.
In the event of a public offering by Holdings or a change of control of
Holdings, value would be based on fair market value as provided in the
Holdings Plan.
<F2> Options are for, and tandem SARs relate to, shares of Containers' common
stock. As of December 31, 1994, 13,754 shares of Containers' common
stock are issued and outstanding and an additional 1,200 shares of
Containers' common stock are authorized for issuance under the Silgan
Containers Corporation Second Amended and Restated 1989 Stock Option
Plan (the "Containers Plan"). Value is determined based upon the excess
of the book value of Containers' common stock from the date of grant,
less the portion of parent debt allocable to Containers, over the
exercise price. In the event of a public offering by Holdings or a
change of control of Holdings, such options and tandem SARs would be
converted into options and tandem SARs
-51-
<PAGE>
under the Holdings Plan as provided in the Containers Plan, and value
would be based on fair market value as determined under the Holdings
Plan.
<F3> 240 options and tandem SARs were granted in June 1989 under the
Containers Plan and an additional 240 options and tandem SARs were
granted in July 1990 under the Containers Plan. The book value, as
computed under the Containers Plan, for the shares underlying the
options and tandem SARs exceeds the exercise price therefor.
<F4> Options are for, and tandem SARs relate to, shares of Plastics' common
stock. As of December 31, 1994, 13,800 shares of Plastics' common stock
are issued and outstanding and an additional 1,200 shares of Plastics'
common stock are authorized for issuance under the Plastics Plan. The
options and related SARs are not exercisable until a public offering by
Holdings or a change of control of Holdings shall have occurred. At the
time of such public offering or change of control, such options and
tandem SARs would be converted into options and tandem SARs under the
Holdings Plan as provided in the Plastics Plan, and value would be based
upon the fair market value of such options and tandem SARs as determined
under the Holdings Plan.
</FN>
</TABLE>
Pension Plans
The Company has established pension plans (the "Pension Plans") covering
substantially all of the salaried employees of Containers and Plastics,
respectively, including the executive officers (the "Containers Pension Plan"
and the "Plastics Pension Plan," respectively). The Pension Plans are defined
benefit plans intended to be qualified pension plans under Section 401(a) of the
Code, under which pension costs are determined annually on an actuarial basis
with contributions made accordingly.
Certain salaried employees of Containers, including Containers' executive
officers, were covered by the Carnation Employees Plan Number Two for United
States Employees (the "Carnation Pension Plan") immediately prior to the
acquisition of Nestle Can. The Containers Pension Plan recognizes prior service
under the Carnation Pension Plan for purposes of eligibility, vesting and
benefit accrual. The benefits payable at retirement under, or upon vested
termination from, the Containers Pension Plan are based on the benefit formula
and all other factors then in effect under the Containers Pension Plan applied
to all combined pension service. Such benefit shall be offset by the accrued
benefit, if any, such employee is entitled to receive under the Carnation
Pension Plan as of August 31, 1987. In connection with the acquisition of DM
Can, employees of Del Monte that were employed by Containers are also covered by
the Containers Pension Plan. Generally, the Containers Pension Plan credits such
employees with their prior service with Del Monte for purposes of eligibility,
vesting and benefit accrual.
The Containers Pension Plan was amended effective July 1, 1994 to eliminate
mandatory employee contributions, and to substantially revise the benefit
formula. The new formula is based on a percentage of the participant's average
base pay over the final three years of employment, multiplied by the
participant's years of service (not to exceed 35). The particular percentage
applied in the formula depends on when the participant's services were performed
and on whether the participant's average base salary exceeds "covered
compensation" (the average of Social Security wage bases for the 35 years
preceding retirement). For service performed through June 30, 1994, the
percentage is 1.3% up to covered compensation, and 1.75% above covered
compensation. For service performed after June 30, 1994, the percentage is .75%
up to covered compensation, and 1.2% above covered compensation. In no event
will a participant's benefit be less than the benefit accrued as of June 30,
1994 under the prior benefit formula. Average base pay used in the benefit
formula consists of a participant's base salary exclusive of any bonus, overtime
or other extra compensation. A participant becomes fully vested after five years
of service or upon reaching age 55, if earlier.
The following table illustrates the estimated annual normal retirement
benefits that are payable under the Containers Pension Plan based upon the final
pay formula. Such benefit levels assume retirement at age 65, the years of
service shown, continued existence of the Containers Pension Plan without
substantial change and payment in the form of a single life annuity and includes
benefits, if any, payable under the Carnation Pension Plan which will be paid by
that plan.
-52-
<PAGE>
<TABLE>
<CAPTION>
Containers Pension Plan Table
-----------------------------
Years of Service
Final Average ----------------------------------------------------------------------------------------------------------
Earnings 10 15 20 25 30 35
------------ --------- --------- --------- --------- --------- --------
<C> <C> <C> <C> <C> <C> <C>
$ 50,000 $ 7,130 $ 10,640 $ 14,260 $ 17,830 $ 21,390 $ 24,960
75,000 11,510 17,260 23,010 28,760 34,520 40,270
100,000 15,880 23,820 31,760 39,700 47,640 55,580
125,000 20,260 30,380 40,510 50,640 60,770 70,890
150,000 24,630 36,950 49,260 61,580 73,890 86,210
175,000 29,010 43,510 58,010 72,510 87,020 101,520
200,000 33,380 50,070 66,760 83,450 100,140 116,830
225,000 37,760 56,630 75,510 94,390 113,270 132,140
</TABLE>
Pursuant to Section 401(a)(17) of the Code, there is a limit on the amount
of annual compensation which can be taken into account under the Containers
Pension Plan. The dollar limit on compensation for 1993 was $235,840. The dollar
limit on compensation for 1994 is $150,000. The dollar limit, where applicable,
will reduce the amount of benefits payable to highly compensated participants in
the Containers Pension Plan.
As of December 31, 1994, the years of credited service under the Containers
Pension Plan for the eligible executive officer named in the Summary
Compensation Table is as follows: James D. Beam, 7 .
Certain salaried employees of Plastics, including Plastics' executive
officers, were covered by the Monsanto Company Salaried Employees' Pension Plan
(the "Monsanto Pension Plan") immediately prior to the acquisition of Monsanto
Plastic Containers. The Plastics Pension Plan recognizes prior service under the
Monsanto Pension Plan for purposes of eligibility, vesting and benefit accrual.
The benefits payable at retirement under, or upon vested termination from, the
Plastics Pension Plan are based on the benefit formula and all other factors
then in effect under the Plastics Pension Plan applied to all combined pension
service. Such benefit is offset by the accrued benefit, if any, such employee is
entitled to receive under the Monsanto Pension Plan as of August 31, 1987.
Under the Plastics Pension Plan, pensions are based on the greatest of
(i) years of benefit service multiplied by 1.4% of Average Earnings, which is
defined as the greater of (a) average compensation received during the final 36
months of employment or (b) average compensation received during the highest
three of the final five calendar years of employment; (ii) years of benefit
service multiplied by 1.5% of Average Earnings less a 50% social security
offset; or (iii) years of benefit service multiplied by $30.00. For employees
hired between April 1, 1986 and September 1, 1987, the formula is the greater of
(i) years of benefit service multiplied by 1.2% of Average Earnings; or (ii)
years of benefit service multiplied by 1.5% of Average Earnings less a 50%
social security offset. For employees hired after September 1, 1987, the formula
is years of benefit service multiplied by 1.1% of Average Earnings. Average
Earnings under the Plastics Pension Plan is a participant's total cash income
before deduction for contributions, if any, to a plan pursuant to Section 401(k)
of the Code or Section 125 of the Code less any moving expense allowance but, in
no event, shall Average Earnings exceed 125% of base pay of the participant. A
participant becomes fully vested after five years of service or attainment of
Normal Retirement Age (as defined under the Plastics Pension Plan), if earlier.
The following table illustrates the estimated annual normal retirement
benefits that are payable under the Plastics Pension Plan based upon the greater
of 1.4% of Average Earnings, without reduction for social security or other
offset amounts, or 1.5% of Average Earnings less a 50% social security offset.
Such benefit levels assume retirement age at 65, the years of service shown,
continued existence of the Plastics Pension Plan without substantial change and
payment in the form of a single life annuity and includes benefits, if any,
payable under the Monsanto Pension Plan which will be paid by that plan.
-53-
<PAGE>
<TABLE>
<CAPTION>
Plastics Pension Plan Table
---------------------------
Years of Service
Final Average ---------------------------------------------------------------------------------------------------------
Earnings 10 15 20 25 30 35
------------- ----------- --------- --------- --------- --------- --------
<C> <C> <C> <C> <C> <C> <C>
$ 50,000 $ 7,000 $ 10,550 $ 14,000 $ 17,500 $ 21,000 $ 24,500
75,000 10,500 15,750 21,000 26,250 31,500 36,750
100,000 14,000 21,000 28,000 35,000 42,000 49,000
125,000 17,500 26,250 35,000 43,750 52,500 61,250
150,000 21,000 31,500 42,000 52,500 63,000 73,950
175,000 24,500 36,750 49,000 61,250 73,950 87,075
200,000 28,000 42,000 56,000 70,200 85,200 100,200
225,000 31,500 47,250 63,000 79,575 96,450 113,325
</TABLE>
Pursuant to Section 401(a)(17) of the Code, there is a limit on the amount
of annual compensation which can be taken into account under the Plastics
Pension Plan. The dollar limit on compensation for 1993 was $235,840. The dollar
limit on compensation for 1994 is $150,000. The dollar limit, where applicable,
will reduce the amount of benefits payable to highly compensated participants in
the Plastics Pension Plan.
As of December 31, 1994, the years of credited service under the Plastics
Pension Plan for the eligible executive officer named in the Summary
Compensation Table is as follows: Russell F. Gervais, 5 .
Certain Employment Agreements
Certain executive officers and other key employees of Containers and
Plastics (including Messrs. Beam and Gervais) have executed employment
agreements. The initial term of each such employment agreement is generally
three years from its effective date and is automatically extended for successive
one year periods unless terminated pursuant to the terms of such agreement. Each
such employment agreement provides for, among other things, a minimum severance
benefit equal to base salary and benefits for, in most cases, a period of one
year (or the remainder of the term of the agreement, if longer) (i) if the
employee is terminated by his employer for any reason other than disability or
for cause as specified in the agreement or (ii) if the employee voluntarily
terminates employment due to a demotion and, in some cases, significant
relocation, all as specified in the agreement.
The foregoing summaries of the various benefit plans and agreements of
the Company are qualified by reference to such plans and agreements, copies of
certain of which have been filed as exhibits to this Prospectus.
-54-
<PAGE>
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Certain Beneficial Owners of Silgan's Capital Stock
All of the outstanding shares of common stock of Silgan, consisting of
one share of Class A common stock, par value $.01 per share (the "Silgan Class A
Stock"), and one share of Class B common stock, par value $.01 per share (the
"Silgan Class B Stock"), are owned by Holdings. Holdings' address is 4 Landmark
Square, Stamford, CT 06901.
Certain Beneficial Owners of Holdings' Capital Stock
The following table sets forth, as of April 30, 1995, certain
information with respect to the beneficial ownership by certain persons and
entities of outstanding shares of capital stock of Holdings:
<TABLE>
<CAPTION>
Number of Shares of Each Class of Percentage Ownership of
Holdings Common Stock Owned Holdings Common Stock
Class A Class B Class C Class A Class B Class C Consolidated <F1>
------- ------- ------- ------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
R. Philip Silver <F2>............ 208,750 -- -- 50% -- -- 19.24%
D. Greg Horrigan <F2>............ 208,750 -- -- 50% -- -- 19.24%
James S. Hoch <F3>............... -- -- -- -- -- -- --
Robert H. Niehaus <F3>........... -- -- -- -- -- -- --
Harley Rankin, Jr.<F4>........... -- -- 11,200<F5> -- -- 16.77% --
James D. Beam <F6>............... -- -- -- -- -- -- --
Russell F. Gervais <F7>.......... -- -- -- -- -- -- --
The Morgan Stanley Leveraged
Equity Fund II, L.P. <F8>....... -- 417,500 -- -- 62.55% -- 38.48%
Mellon Bank, N.A., as trustee for
First Plaza Group Trust <F9>.... -- 250,000 -- -- 37.45% -- 23.04%
All officers and directors as a
group........................... 417,500 -- 16,800<F5> 100% -- 25.15%<F10> 38.48%
-------------------
<FN>
<F1> This column reflects the percentage ownership of voting common stock
that would exist if Holdings Class A common stock, par value $.01 per
share (the "Holdings Class A Stock") and Holdings Class B Stock were
treated as a single class. Holdings Class C Stock generally does not
have voting rights and is not included in the percentage ownership
reflected in this column. See "Description of Holdings Common
Stock--General" below.
<F2> Director of Holdings and Silgan. Messrs. Silver and Horrigan are
parties to a voting agreement pursuant to which they have agreed to
use their best efforts to vote their shares as a block. The address
for such person is 4 Landmark Square, Stamford, CT 06901.
<F3> Director of Holdings and Silgan. The address for such person is
c/o Morgan Stanley & Co. Incorporated, 1221 Avenue of the Americas,
New York, NY 10020.
<F4> The address for such person is 4 Landmark Square, Stamford, CT 06901.
<F5> Reflects shares that may be acquired through the exercise of vested
stock options granted pursuant to the Holdings Plan.
-55-
<PAGE>
<F6> Options to purchase shares of common stock of Containers and
tandem SARs have been granted to such person pursuant to the
Containers Plan. Pursuant to the Containers Plan, such options may be
converted into stock options of Holdings (and the Containers' common
stock issuable upon exercise of such options may be converted into
common stock of Holdings) in the event of a public offering of any of
Holdings' common stock or a change of control of Holdings. The address
for such person is 21800 Oxnard Street, Woodland Hills, CA 91367.
<F7> Options to purchase shares of common stock of Plastics and tandem SARs
have been granted to such person pursuant to the Plastics Plan.
Pursuant to the Plastics Plan, such options may be converted into
stock options of Holdings in the event of a public offering of any of
Holdings' common stock or a change of control of Holdings. The address
for such person is 14515 N. Outer Forty, Chesterfield, MO 63017.
<F8> The address for The Morgan Stanley Leveraged Equity Fund II, L.P., is
1221 Avenue of the Americas, New York, NY 10020.
<F9> The address for First Plaza Group Trust is c/o General Motors
Investment Management Corporation, 767 Fifth Avenue, New York, NY
10153. Mellon Bank, N.A. ("Mellon") acts as the trustee for First
Plaza, a trust under and for the benefit of certain employee benefit
plans of General Motors Corporation ("GM") and its subsidiaries. These
shares may be deemed to be owned beneficially by General Motors
Investment Management Corporation ("GMIMCo"), a wholly owned
subsidiary of GM. GMIMCo is serving as First Plaza's investment
manager with respect to these shares and in that capacity it has the
sole power to direct Mellon as to the voting and disposition of these
shares. Because of Mellon's limited role, beneficial ownership of the
shares by Mellon is disclaimed.
<F10>Bankers Trust New York Corporation ("BTNY") beneficially owns 50,000
shares of Holdings Class C Stock.
[/FN]
</TABLE>
See "Description of Holdings Common Stock" for additional information
about the common stock of Holdings, the holders thereof and certain arrangements
among them.
CERTAIN TRANSACTIONS
Management Agreements
Holdings, Silgan, Containers and Plastics each entered into an amended
and restated management services agreement dated as of December 21, 1993
(collectively, the "Management Agreements") with S&H to replace in its entirety
its existing management services agreement, as amended, with S&H. Pursuant to
the Management Agreements, S&H provides Holdings, Silgan, Containers and
Plastics and their respective subsidiaries with general management and
administrative services (the "Services"). The Management Agreements provide for
payments to S&H (i) on a monthly basis, of $5,000 plus an amount equal to 2.475%
of consolidated earnings before depreciation, interest and taxes of Holdings and
its subsidiaries ("Holdings EBDIT"), for such calendar month until Holdings
EBDIT for the calendar year shall have reached an amount set forth in the
Management Agreements for such calendar year (the "Scheduled Amount") and 1.65%
of Holdings EBDIT for such calendar month to the extent that Holdings EBDIT for
the calendar year shall have exceeded the Scheduled Amount but shall not have
been greater than an amount (the "Maximum Amount") set forth in the Management
Agreements (the "Monthly Management Fee") and (ii) on a quarterly basis, of an
amount equal to 2.475% of Holdings EBDIT for such calendar quarter until
Holdings EBDIT for the calendar year shall have reached the Scheduled Amount and
1.65% of Holdings EBDIT for such calendar quarter to the extent that Holdings
EBDIT for the calendar year shall have exceeded the Scheduled Amount but shall
not have been greater than the Maximum Amount (the "Quarterly Management Fee").
The Scheduled Amount was
-56-
<PAGE>
$71.5 million for the calendar year 1994 and increases by $6.0 million for each
year thereafter. The Maximum Amount is $90.197 million for the calendar year
1994, $95.758 million for the calendar year 1995, $98.101 million for the
calendar year 1996, $100.504 million for the calendar year 1997, $102.964
million for the calendar year 1998 and $105.488 million for the calendar year
1999. The Management Agreements provide that upon receipt by Silgan of a notice
from Bankers Trust that certain events of default under the Credit Agreement
have occurred, the Quarterly Management Fee shall continue to accrue, but shall
not be paid to S&H until the fulfillment of certain conditions, as set forth in
the Management Agreements.
The Management Agreements continue in effect until the earliest of: (i)
the completion of an IPO (as defined in "Description of Holdings Common
Stock--Description of the Holdings Organization Agreement"); (ii) June 30, 1999;
(iii) at the option of each of the respective companies, the failure or refusal
of S&H to perform its obligations under the Management Agreements, if such
failure continues unremedied for more than 60 days after written notice of its
existence shall have been given; (iv) at the option of MSLEF II (a) if S&H or
Holdings is declared insolvent or bankrupt or a voluntary bankruptcy petition is
filed by either of them, (b) upon the occurrence of any of the following events
with respect to S&H or Holdings if not cured, dismissed or stayed within 45
days: the filing of an involuntary petition in bankruptcy, the appointment of a
trustee or receiver or the institution of a proceeding seeking a reorganization,
arrangement, liquidation or dissolution, (c) if S&H or Holdings voluntarily
seeks a reorganization or arrangement or makes an assignment for the benefit of
creditors or (d) upon the death or permanent disability of both of Messrs.
Silver and Horrigan; and (v) the occurrence of a Change of Control (as defined
in the Restated Certificate of Incorporation of Holdings and as described under
"Description of Holdings Common Stock--General").
In addition to the management fees described above, the Management
Agreements provide for the payment to S&H on the closing date of the IPO of an
amount, if any (the "Additional Amount") equal to the sum of the present values,
calculated for each year or portion thereof, of (i) the amount of the annual
management fee for such year or portion thereof that otherwise would have been
payable to S&H for each such year or portion thereof for the period beginning as
of the time of the IPO and ending on June 30, 1999 (the "Remaining Term")
pursuant to the provisions described in the preceding paragraph but for the
occurrence of the IPO, minus (ii) the amount payable to S&H for the Remaining
Term at the rate of $2.0 million per year. The Management Agreements further
provide that the amounts described in clause (i) of the first sentence of this
paragraph will be calculated based upon S&H's good faith projections of Holdings
EBDIT for each such year (or portion thereof) during the Remaining Term (the
"Estimated Fees"), which projections shall be made on a basis consistent with
S&H's past projections. The difference between the amount of Estimated Fees for
any particular year and $2 million shall be discounted to present value at the
time of the IPO using a discount rate of eight percent (8%) per annum,
compounded annually.
Additionally, the Management Agreements provide that Holdings, Silgan,
Containers, Plastics and their respective subsidiaries shall reimburse S&H, on a
monthly basis, for all out-of-pocket expenses paid by S&H in providing the
Services, including fees and expenses to consultants, subcontractors and other
third parties, in connection with such Services. All fees and expenses paid to
S&H under each of the Management Agreements are credited against amounts paid to
S&H under the other Management Agreements. Under the terms of the Management
Agreements, Holdings, Silgan, Containers and Plastics have agreed, subject to
certain exceptions, to indemnify S&H and its affiliates, officers, directors,
employees, subcontractors, consultants or controlling persons against any
losses, damages, costs and expenses they may sustain arising in connection with
the Management Agreements.
The Management Agreements also provide that S&H may select a consultant,
subcontractor or agent to provide the Services. S&H has retained Morgan Stanley
to render financial advisory services to S&H. In
-57-
<PAGE>
connection with such retention, S&H has agreed to pay Morgan Stanley a fee equal
to 9.1% of the fees paid to S&H under the Management Agreements.
The Credit Agreement does not permit the payment of fees under the
Management Agreements above amounts provided for therein.
For the years ended December 31, 1994, 1993 and 1992 , pursuant to the
arrangements described above, S&H earned aggregate fees, including reimbursable
expenses and fees payable to Morgan Stanley, of $5.0 million, $4.4 million and
$4.2 million, respectively, from the Company, Holdings, Containers and Plastics,
and during 1994, 1993 and 1992 Morgan Stanley earned fees of $383,000, $337,000
and $324,000 , respectively.
Other
In connection with the 1989 Mergers, subject to the provisions of
Delaware law, the Company agreed to indemnify each director, officer, employee,
fiduciary and agent of the Company, Containers, Plastics and its subsidiaries
and their respective affiliates against costs, expenses, judgments, fines,
losses, claims, damages and settlements (except for any settlement effected
without the Company's written consent) in connection with any claims, actions,
suits, proceedings or investigations arising out of or related to the 1989
Mergers or their financing, including certain liabilities arising under the
federal securities laws.
Simultaneously with the consummation of the 1989 Mergers, a tax
allocation agreement was entered into by Holdings, the Company, Plastics and
Containers that permits the Company and its subsidiaries to use the tax benefits
provided by the debt of Holdings and permits funds to be provided to Holdings
from the Company and its subsidiaries in an amount equal to the federal and
state tax liabilities of Holdings, as the parent of the consolidated group
consisting of Holdings, the Company and its subsidiaries. Such tax allocation
agreement has been amended and restated from time to time to include new members
of the consolidated group.
In connection with the Amended and Restated Credit Agreement under the
Refinancing, the lenders thereunder (including Bankers Trust) received certain
fees amounting to $1.4 million. In connection with the Refinancing, Morgan
Stanley received as compensation for its services as underwriter for the 11-3/4%
Notes Offering and the Holdings Debentures Offering and as initial purchaser of
the Secured Notes an aggregate of $11.5 million. In connection with the Credit
Agreement entered into in December 1993, the Banks (including Bankers Trust)
received certain fees amounting to $8.1 million.
G. William Sisley, Secretary of the Company and Holdings, is a partner
in the law firm of Winthrop, Stimson, Putnam & Roberts. Winthrop, Stimson,
Putnam & Roberts provides legal services to Holdings, the Company and the
Company's subsidiaries.
DESCRIPTION OF CERTAIN INDEBTEDNESS
Description of the Credit Agreement
The following is a summary of the terms of the Credit Agreement.
The Available Credit Facility. Pursuant to the Credit Agreement, an
aggregate of (i) $39.0 million of term loans designated as A Term Loans (the "A
Term Loans") and (ii) $78.1 million of term
-58-
<PAGE>
loans designated as B Term Loans (the "B Term Loans," together with the A Term
Loans, the "Term Loans") are outstanding and owing to the Banks by Silgan, and
the Banks have agreed to lend to Containers and Plastics up to an aggregate of
$70.0 million of working capital loans (the "Working Capital Loans").
To secure the obligations of the Borrowers under the Credit Agreement:
(i) Silgan pledged to the Banks all of the capital stock of Containers and
Plastics held by Silgan; (ii) Containers pledged to the Banks all of the capital
stock of the California-Washington Can Corporation ("CW Can") held by
Containers; (iii) Plastics pledged to the Banks 65% of the capital stock of
827599 Ontario Inc. ("Canadian Holdco") held by Plastics; (iv) Silgan,
Containers, Plastics and CW Can each granted to the Banks security interests in
substantially all of their respective real and personal property; and (v)
Holdings pledged to the Banks all of the capital stock of Silgan held by
Holdings. Such collateral (other than the collateral described in (v)) also
secures on an equal and ratable basis the Secured Notes, subject to
intercreditor arrangements. Holdings and each of the Borrowers have guaranteed
on a secured basis all of the obligations of the Borrowers under the Credit
Agreement.
The aggregate amount of Working Capital Loans which may be outstanding
at any time is, subject to a borrowing base limitation, the sum of (i) 85% of
eligible accounts receivable and (ii) 50% of eligible inventory of Containers,
Plastics and CW Can.
Each of the Term Loans and each of the Working Capital Loans, at the
respective Borrower's election, consists of loans designated as Eurodollar rate
loans or as base rate loans. Subject to certain conditions, each of the Term
Loans and each of the Working Capital Loans can be converted from a base rate
loan into a Eurodollar rate loan and vice versa.
As of March 31, 1995, the outstanding principal amount of the A Term
Loans, the B Term Loans and the Working Capital Loans under the Credit Agreement
were $39.0 million, $78.1 million and $15.2 million, respectively.
Payment of Loans. Generally, the Working Capital Loans can be borrowed,
repaid and reborrowed from time to time until September 15, 1996, on which date
all Working Capital Loans mature. Amounts repaid under the Term Loans cannot be
reborrowed.
The B Term Loans mature on September 15, 1996 and are payable in full on
such date. The remaining outstanding principal amount of the A Term Loans is
payable in installments as follows:
<TABLE>
<CAPTION>
A Term Loan
Scheduled Repayment Date Amount
<S> <C>
September 30, 1995.................................................... $ 4,878,400
December 31, 1995..................................................... $14,635,200
September 15, 1996.................................................... $19,513,600
</TABLE>
The Term Loans and Working Capital Loans may be prepaid, without penalty
or premium, at any time. The Term Loans are required to be prepaid, and the
working capital commitment may be required to be reduced, upon the occurrence
of, among other things, certain asset sales and certain sales of equity by
Silgan or Holdings and to the extent of 75% of Excess Cash Flow (as defined in
the Credit Agreement).
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Interest and Fees. Interest on the Term Loans and the Working Capital
Loans is payable at certain margins over certain rates as summarized below.
Interest on base rate loans accrues at floating rates of the Applicable
Margin (as defined in the Credit Agreement), plus the highest of (i) 1/2 of 1%
in excess of a formula rate based on the offering rate for negotiable
certificates of deposit with a three month maturity, (ii) 1/2 of 1% in excess of
the Federal Funds Rate, and (iii) Bankers Trust's then applicable prime lending
rate. Interest on Eurodollar rate loans accrues at floating rates of the
Applicable Margin over a formula rate determined with reference to the rate
offered by Bankers Trust for dollar deposits in the New York interbank
Eurodollar market.
Each of Containers and Plastics has agreed to jointly and severally pay
to the Banks, on a quarterly basis, a commitment commission calculated as 0.50%
per annum on the daily average unused portion of the Banks' working capital
commitment in respect of the Working Capital Loans until such working capital
commitment is terminated.
Containers and Plastics are required to pay to the Banks, on a quarterly
basis, a letter of credit fee of 3.0% per annum on the daily average stated
amount of each letter of credit issued for the account of Containers or
Plastics. Containers and Plastics are also required to pay to Bankers Trust, on
a quarterly basis, a facing fee of 1/4 of 1% per annum on the daily average
stated amount of each letter of credit issued for the account of Containers or
Plastics.
Certain Covenants. The Credit Agreement contains numerous financial and
operating covenants, under which the Company must operate. Failure to comply
with any of such covenants permits the Banks to accelerate, subject to the terms
of the Credit Agreement, the maturity of all amounts outstanding under the
Credit Agreement.
The Credit Agreement restricts or limits each of the Borrowers' and
their respective subsidiaries' abilities: (i) to create certain liens; (ii) to
consolidate, merge or sell its assets and to purchase assets; (iii) to pay
dividends on, or repurchase shares of, its capital stock, except that, among
other things: (a) Silgan may pay dividends to Holdings under certain
circumstances; (b) Containers and Plastics may pay dividends to Silgan as long
as they remain wholly owned subsidiaries of Silgan, CW Can may pay dividends to
Containers, Canadian Holdco may pay dividends to Plastics and Express may pay
dividends to Canadian Holdco; and (c) Silgan may repurchase or redeem stock
options or SARs, issued to management of Containers and Plastics under certain
circumstances; (iv) to lease real and personal property; (v) to create
additional indebtedness, except for, among other things: (a) certain
indebtedness existing on the date of the Credit Agreement; (b) indebtedness of
Containers to Plastics or Plastics to Containers; and (c) Silgan's indebtedness
represented by the Secured Notes, the 11-3/4% Notes and by the intercompany
notes; (vi) to make certain advances, investments and loans, except for, among
other things: (a) loans from Silgan to each of Containers and Plastics
represented by intercompany notes; (b) loans from Containers to Plastics or from
Plastics to Containers; and (c) loans from Containers and/or Plastics to Silgan
not exceeding $15 million in aggregate principal amount outstanding at any time;
(vii) to enter into transactions with affiliates; (viii) to make certain capital
expenditures, except for, among other things, capital expenditures which do not
exceed in the aggregate for the Borrowers, such amounts, during such periods, as
set forth below:
<TABLE>
<CAPTION>
Period Amount
<S> <C>
Calendar year ended December 31, 1995............................................ $30,000,000
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Calendar year ended December 31, 1996............................................ $30,000,000
</TABLE>
; provided, however, that to the extent capital expenditures made during any
period set forth above are less than the amounts set forth opposite such period
such amount may be carried forward and utilized to make capital expenditures in
the immediately succeeding calendar year (accordingly, additional capital
expenditures of $9.8 million that were permitted to be made in 1994 may be
carried forward and utilized in 1995); (ix) to make any voluntary payments,
prepayments, acquire for value, redeem or exchange, among other things, any
11-3/4% Notes or Secured Notes, or to make certain amendments to the 11-3/4%
Notes, the Secured Notes, the Borrowers' or their respective subsidiaries'
respective certificates of incorporation and by-laws, or to certain other
agreements; (x) with certain exceptions, to have any subsidiaries other than
Containers and Plastics with respect to Silgan, CW Can with respect to
Containers, and Canadian Holdco and Express with respect to Plastics; (xi) with
certain exceptions, to permit its respective subsidiaries to issue capital
stock; (xii) to permit its respective subsidiaries to create limitations on the
ability of any such subsidiary to (a) pay dividends or make other distributions,
(b) make loans or advances, or (c) transfer assets; and (xiii) to engage in any
business other than the packaging business.
The Credit Agreement requires that Silgan own not less than 90% of the
outstanding common stock of Containers and Plastics and 100% of all other
outstanding capital stock of Containers and Plastics.
The Credit Agreement requires that the ratio of Consolidated Current
Assets (as defined below) to Consolidated Current Liabilities (as defined below)
of any of the Borrowers may not, at any time, be less than 2:1 and that the
ratio of Bank EBITDA (as defined below) to Interest Expense (as defined below)
for any of the Borrowers may not be, for any period of four consecutive fiscal
quarters (taken as one accounting period) ending during a period set forth
below, less than the ratio set forth opposite such period below:
<TABLE>
<CAPTION>
Period Ratio
<S> <C>
January 1, 1995 to and including December 31, 1995............................... 3.00:1
January 1, 1996 to and including September 30, 1996.............................. 3.40:1
</TABLE>
In addition, the ratio of Total Indebtedness (as defined below) to Consolidated
Net Worth (as defined below) of any of the Borrowers is not permitted to exceed
on any date set forth below the ratio set forth opposite such date:
<TABLE>
<CAPTION>
Period................................................................. Ratio
<S> <C>
December 31, 1995................................................................ 3.25:1
August 31, 1996.................................................................. 2.75:1
</TABLE>
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"Bank EBITDA" means for any period, EBIT, adjusted by adding thereto the
amount of all depreciation and amortization of intangibles (including covenants
not to compete), goodwill and loan fees that were deducted in arriving at EBIT
for such period.
"Consolidated Current Assets" means the current assets of Silgan and its
subsidiaries determined on a consolidated basis, provided that the unused
amounts of commitments for Working Capital Loans shall also be included as a
current asset of Silgan in making such determination.
"Consolidated Current Liabilities" means the current liabilities of
Silgan and its subsidiaries determined on a consolidated basis, provided that
the current portion of loans, and accrued interest thereon, under the Credit
Agreement, the current portion of any loans made by Silgan to Containers or
Plastics, the current portion of, and accrued interest on, the Secured Notes and
the 11-3/4% Notes from the last interest payment date shall not be considered
current liabilities for the purposes of making such determination.
"Consolidated Net Worth" means the Net Worth of Silgan and its
subsidiaries determined on a consolidated basis, and "Net Worth" of any person
means the sum of its capital stock, capital in excess of par or stated value of
shares of its capital stock, retained earnings (without giving effect to any
noncash adjustments resulting from changes in value of employee stock options),
and any other account which, in accordance with generally accepted accounting
principles, constitutes stockholders' equity, less treasury stock.
"EBIT" means for any period, the consolidated net income of Silgan and
its subsidiaries, before interest expense and provision for taxes and without
giving effect to any extraordinary noncash gains or extraordinary noncash losses
and gains from sales of assets (other than sales of inventory in the ordinary
course of business), any noncash adjustments resulting from changes in value of
employee stock options.
"Indebtedness" means, as to any person, without duplication, (i) all
indebtedness (including principal, interest, fees and charges) of such person
for borrowed money or for the deferred purchase price of property or services,
(ii) the face amount of all letters of credit issued for the account of such
person and all drafts drawn thereunder, (iii) all liabilities secured by any
lien on any property owned by such person, whether or not such liabilities have
been assumed by such person, (iv) the aggregate amount required to be
capitalized under leases under which such person is the lessee and (v) all
contingent obligations of such person.
"Interest Expense" means, for any period, the total consolidated
interest expense of Silgan and its subsidiaries for such period.
"Total Indebtedness" means the aggregate Indebtedness of Silgan and its
subsidiaries determined on a consolidated basis, provided that there shall be
excluded, in making such determination, indebtedness consisting of capitalized
lease obligations existing as of the effective date of the Credit Agreement.
For purposes of all computations to determine compliance with the
financial covenants under the Credit Agreement, such computations are to be made
utilizing the accounting principles and policies in conformity with those used
to prepare Silgan's audited financial statements for the fiscal year ended
December 31, 1992, for purposes of determining the Net Worth of Silgan, no
effect is given to the Allowed Reduction (as defined in the Credit Agreement).
The ability of Holdings to take certain actions is restricted or limited
pursuant to the terms of the Silgan Holdings Guaranty, dated as of June 30,
1989, as amended, made by Holdings in favor of the Banks and Bankers Trust, as
agent (the "Holdings Guaranty"). The Holdings Guaranty restricts or limits
Holdings' ability to, among other things: (i) create certain liens, (ii) incur
additional indebtedness, (iii) consolidate, merge or
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sell its assets and to purchase or lease assets, (iv) pay dividends, (v) make
loans or advances and (vi) engage in any business other than holding Silgan's
common stock and making certain investments.
Events of Default. Events of default under the Credit Agreement include,
with respect to each of the Borrowers, as the case may be, among others: (i) the
failure to pay any principal on the Term Loans or the Working Capital Loans, the
failure to reimburse drawings under any letters of credit when due or the
failure to pay within two business days after the date such payment is due
interest on the Term Loans, the Working Capital Loans or any unpaid drawings
under any letter of credit or any fees or other amounts owing under the Credit
Agreement (collectively, a "Payment Default"); (ii) any failure to pay amounts
due under certain other agreements or any defaults that result in or permit the
acceleration of certain other indebtedness; (iii) subject to certain limited
exceptions, the breach of any covenants, representations or warranties contained
in the Credit Agreement or any related document; (iv) certain events of
bankruptcy, insolvency or dissolution; (v) the occurrence of certain judgments,
writs of attachment or similar process against any of the Borrowers or any of
their respective subsidiaries; (vi) the occurrence of certain ERISA related
liabilities; (vii) a default under or invalidity of the guarantees (including an
event of default under the Holdings Guaranty) or of the security interests
granted to the Banks pursuant to the Credit Agreement; (viii) the failure of
Holdings to own 100% of the capital stock of Silgan (other than the Preferred
Stock); and (ix) a Change of Control (as defined in the Holdings Guaranty, the
Secured Notes Purchase Agreement (as defined below), the indenture relating to
the 11-3/4% Notes or the Indenture) shall occur; and (x) the requirement that
Silgan repurchase 25% or more of the aggregate principal amount of the Secured
Notes then outstanding or any 11-3/4% Note or Holdings Discount Debenture as a
result of a Change of Control (as defined in the agreements and indentures
relating thereto).
Upon the occurrence of any event of default under the Credit Agreement,
the Banks are permitted, among other things, to accelerate the maturity of the
Term Loans and Working Capital Loans and of all outstanding indebtedness under
the Credit Agreement and terminate their commitment to make any further Working
Capital Loans or to issue any letters of credit.
Description of the Secured Notes
The Secured Notes, which were issued on June 29, 1992 pursuant to a
secured notes purchase agreement (as such agreement may be amended from time to
time, the "Secured Notes Purchase Agreement"), constitute senior indebtedness of
the Company, are limited to an aggregate principal amount of $50 million, and
mature on June 30, 1997. The Secured Notes are secured by a first lien (subject
to permitted liens) on substantially all of the assets of the Company and its
subsidiaries. Such collateral also secures on an equal and ratable basis,
subject to certain intercreditor arrangements, all other Secured Obligations (as
defined in the Secured Notes Purchase Agreement), including indebtedness of the
Company and its subsidiaries under the Credit Agreement. In addition, the
obligations of the Company under the Secured Notes and the Secured Notes
Purchase Agreement are guaranteed by Containers and Plastics.
The Secured Notes bear interest at a rate of three-month LIBOR plus 300
basis points.
The Secured Notes are redeemable at the option of the Company at par
plus accrued and unpaid interest to the redemption date. Net cash proceeds from
(i) certain asset sales and (ii) the issuance of capital stock by any Restricted
Subsidiary (as defined in the Secured Notes Purchase Agreement) of the Company,
are required to be applied to prepay the Secured Notes and indebtedness under
the Credit Agreement on a pro rata basis, subject to certain exceptions. In the
event of a Change of Control (as defined in the Secured Notes Purchase
Agreement), each holder of a Secured Note has the right to require the Company
to repurchase such holder's Secured Notes at a purchase price equal to 100% of
the principal amount thereof plus accrued interest.
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<PAGE>
The Secured Notes contain certain restrictive covenants including,
subject to certain exceptions, the following: (i) limitations on the ability of
the Company and its Restricted Subsidiaries to grant liens on any property; (ii)
limitations on the ability of the Company and its Restricted Subsidiaries to
incur indebtedness; (iii) limitations on payments of dividends and purchases of
the capital stock of the Company and its Restricted Subsidiaries; (iv)
restrictions on repayments of subordinated indebtedness; (v) limitations on
investments by the Company or any Restricted Subsidiary in affiliates of the
Company or in any Unrestricted Subsidiary (as defined in the Secured Notes
Purchase Agreement); (vi) limitations on the incurrence by the Company and its
Restricted Subsidiaries of any restriction on the ability of any Restricted
Subsidiaries to pay dividends or repay any indebtedness owed to, or transfer any
property or assets to, the Company or any Restricted Subsidiary; (vii)
limitations on transactions with affiliates; and (viii) limitations on the
Company's ability to effect certain mergers, consolidations and transfers of
assets. The covenants referred to in clauses (ii) through (viii) above are
substantially similar to the comparable covenants that are contained in the
Indenture, except that the covenant referred to in clause (ii) above is more
restrictive than the comparable covenant contained in the Indenture and becomes
even more restrictive over the term of the Secured Notes. However, none of the
covenants relating to the Secured Notes are more restrictive upon the Company or
any Restricted Subsidiary than the corresponding restrictive covenant in the
Credit Agreement. See "--Description of the Credit Agreement" above and
"Description of the 11-3/4% Notes."
Events of default under the Secured Notes include: (i) failure to pay
principal or premium, if any, when due, or to pay interest within 30 days of
when due; (ii) failure by the Company to comply with any of its covenants or
agreements under the Secured Notes and the continuance of such failure for 30
days after written notice; (iii) an acceleration of certain other indebtedness
of the Company; (iv) certain events of bankruptcy of the Company or any
Significant Subsidiary (as defined in the Secured Notes Purchase Agreement); and
(v) a judgment is rendered against the Company or certain Subsidiaries for an
amount in excess of $5 million which is not discharged within 60 days.
Description of Holdings Discount Debentures
Holdings sold the Holdings Discount Debentures in a public offering on
June 29, 1992. The Holdings Discount Debentures were offered at a substantial
discount from their principal amount and there is no payment of interest on the
Holdings Discount Debentures prior to December 15, 1996. From and after June 15,
1996, the Holdings Discount Debentures bear interest, payable in cash, at a rate
of 13-1/4% per annum. The gross proceeds to Holdings from the offering of the
Holdings Discount Debentures were $165.4 million. The Holdings Discount
Debentures are redeemable at any time, at the option of Holdings, in whole or in
part, at 100% of their principal amount plus accrued interest (if any) to the
redemption date. In the event of a Change of Control (as defined in the
indenture relating to the Holdings Discount Debentures (the "Debentures
Indenture")), each holder of Holdings Discount Debentures may require Holdings
to repurchase such Holdings Discount Debentures at 101% of the Accreted Value
(as defined in the Debentures Indenture) plus accrued interest (if any).
In the event of a Holdings Merger (as defined in the Debentures
Indenture) or similar transaction between Holdings and Silgan, or upon the
assumption by Silgan of the Holdings Discount Debentures, the Holdings Discount
Debentures will be subordinated in right of payment to all existing and future
Senior Indebtedness (as defined in the Debentures Indenture) of the Successor
Corporation (as defined in the Debentures Indenture) existing on the date of
such transaction or assumed or incurred thereafter. The Debentures Indenture
contains certain covenants that, among other things, direct the application of
proceeds from certain asset sales, limit the ability of Holdings and its
subsidiaries to incur indebtedness, make certain payments with respect to their
capital stock, make prepayments of certain indebtedness, make loans or
investments in entities other than Restricted Subsidiaries (as defined in the
Debentures Indenture), enter into
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<PAGE>
transactions with affiliates, engage in mergers or consolidations, and the
ability of the Restricted Subsidiaries to issue stock.
DESCRIPTION OF SILGAN CAPITAL STOCK
Under Silgan's Restated Certificate of Incorporation, Silgan has
authority to issue 1,000 shares of Silgan Class A Stock, par value $.01 per
share, 1,000 shares of Silgan Class B Stock, par value $.01 per share, and 1,000
shares of Silgan Class C common stock, par value $.01 per share (the "Silgan
Class C Stock"). The Company currently has one share of Silgan Class A Stock and
one share of Silgan Class B Stock outstanding, which shares were issued to
Holdings on June 30, 1989 in conjunction with the effectiveness of the 1989
Mergers. No shares of Silgan Class C Stock are currently outstanding.
DESCRIPTION OF HOLDINGS COMMON STOCK
General
Certain of the statements contained herein are summaries of the detailed
provisions of the Restated Certificate of Incorporation of Holdings (the
"Certificate of Incorporation") and are qualified in their entirety by reference
to the Certificate of Incorporation, a copy of which is filed herewith.
Under the Certificate of Incorporation, Holdings has authority to issue
500,000 shares of Holdings Class A Stock, 667,500 shares of Holdings Class B
Stock and 1,000,000 shares of Holdings Class C Stock. Holdings has an aggregate
of 1,135,000 shares of common stock outstanding as follows: (i) 417,500 shares
of Holdings Class A Stock; (ii) 667,500 shares of Holdings Class B Stock; and
(iii) 50,000 shares of Holdings Class C Stock. Except as described below, the
rights, privileges and powers of Holdings Class A Stock and Holdings Class B
Stock are identical, with each share of each class being entitled to one vote on
all matters to come before the stockholders of Holdings.
Until the occurrence of a Change of Control (as defined in the
Certificate of Incorporation and as described below), the affirmative vote of
the holders of not less than a majority of the outstanding shares of Holdings
Class A Stock and Holdings Class B Stock, voting as separate classes, shall be
required for the approval of any matter to come before the stockholders of
Holdings, except that (i) the holders of a majority of the outstanding shares of
Holdings Class A Stock, voting as a separate class, have the sole right to vote
for the election and removal of three directors (the directors elected by the
holders of Holdings Class A Stock being referred to herein as "Class A
Directors"); (ii) the holders of a majority of the outstanding shares of
Holdings Class B Stock, voting as a separate class, have the sole right to vote
for the election and removal of all directors other than the Class A Directors
(the directors elected by the holders of Holdings Class B Stock being referred
to herein as "Class B Directors"); and (iii) the vote of not less than a
majority of the outstanding shares of Holdings Class B Stock shall be required
in certain circumstances set forth in the Certificate of Incorporation. The
holders of Holdings Class C Stock have no voting rights except as provided by
applicable law and except that such holders are entitled to vote as a separate
class on certain amendments to the Certificate of Incorporation as provided
therein. In the event Holdings sells shares of any class of its common stock to
the public, the distinctions between Holdings Class A Stock and Holdings Class B
Stock terminate, the powers, including voting powers, of Holdings Class A Stock
and Holdings Class B Stock shall be identical upon compliance with certain
provisions contained in the Certificate of Incorporation, and any Regulated
Stockholder (generally defined to mean banks) will be entitled to convert all
shares of Holdings Class C Stock held by such
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<PAGE>
stockholder into the same number of shares of Holdings Class B Stock (or
Holdings Class A Stock to the extent such Holdings Class C Stock was issued upon
conversion of Holdings Class A Stock).
After a Change of Control, the affirmative vote of the holders of not
less than a majority of the outstanding shares of Holdings Class A Stock and
Holdings Class B Stock, voting together as a single class, will be required for
the approval of any matter to come before the stockholders of Holdings, except
that the provisions described in clauses (i) and (ii) in the preceding paragraph
shall continue to apply from and after a Change of Control, and except as
otherwise provided in the Certificate of Incorporation with respect to its
amendment. Also, after a Change of Control, the number of Class B Directors will
be increased to five.
In the event that a vacancy among the Class A Directors or the Class B
Directors occurs at any time prior to the election of directors at the next
scheduled annual meeting of stockholders, the vacancy shall be filled, in the
case of the Class A Directors, by either (i) the vote of the holders of a
majority of the outstanding shares of Holdings Class A Stock, at a special
meeting of stockholders, or (ii) by written consent of the holders of a majority
of the outstanding shares of Holdings Class A Stock, and, in the case of the
Class B Directors, by either (i) the vote of the holders of a majority of the
outstanding shares of Holdings Class B Stock at a special meeting or
stockholders, or (ii) by written consent of the holders of a majority of the
outstanding shares of the Holdings Class B Stock.
A "Change of Control" is defined in the Certificate of Incorporation to
include the occurrence of any of the following events: (i) Messrs. Silver and
Horrigan shall collectively own, directly or indirectly, less than one-half of
the aggregate number of outstanding shares of Holdings Class A Stock owned by
them directly or indirectly on June 30, 1989 on a common stock equivalent basis,
or (ii) the acceleration of the indebtedness under the Credit Agreement or the
Holdings Discount Debentures, as a result of the occurrence of an event of
default thereunder relating to a payment default or a financial covenant event
of default.
Description of the Holdings Organization Agreement
Concurrently with the issuance and sale to First Plaza of the Holdings
Stock, Holdings, MSLEF II, BTNY, First Plaza and Messrs. R. Philip Silver and D.
Greg Horrigan entered into the Amended and Restated Organization Agreement dated
as of December 21, 1993 (the "Holdings Organization Agreement") that provides
for the termination of the Organization Agreement dated as of June 30, 1989 by
and among Holdings, MSLEF II, BTNY and Messrs. Silver and Horrigan (except for
the indemnification provisions thereof, which provisions survive) and for the
investment by First Plaza in Holdings and the relationships among the
stockholders and between the stockholders and Holdings. Certain of the
statements contained herein are summaries of the detailed provisions of the
Holdings Organization Agreement and are qualified in their entirety by reference
to the Holdings Organization Agreement.
The Holdings Organization Agreement prohibits the disposition of
Holdings' common stock without the prior written consent of Messrs. Silver and
Horrigan and MSLEF II, except for (i) dispositions to affiliates (which, in the
case of First Plaza, includes any successor or underlying trust, and which, in
the case of MSLEF II, does not include any person which is not an Investment
Entity (as defined below)), (ii) dispositions to certain family members of
Messrs. Silver and Horrigan or trusts for the benefit of those family members,
(iii) dispositions to certain parties , subject to certain other rights of first
refusal discussed below, (iv) the sale by First Plaza to Holdings of all of the
Holdings Stock acquired by First Plaza on December 21, 1993, upon the exercise
of Holdings' call option as described below, and (v) dispositions in connection
with an initial public offering of the common stock of Holdings, as described
below.
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Any transfer of Holdings' common stock (other than transfers described in
clauses (iv) and (v) of the preceding sentence) will be void unless the
transferee agrees in writing prior to the proposed transfer to be bound by the
terms of the Holdings Organization Agreement.
Under the Holdings Organization Agreement, MSLEF II may effect a sale of
stock to an Investment Entity (generally defined as any person who (i) is
primarily engaged in the business of investing in securities of other companies
and not taking an active role in the management or operations of such companies
and (ii) does not permit the participation or involvement in any way in the
business or affairs of Holdings of a person who is engaged in a business not
described in clause (i)) or, in the event of certain defaults under the amended
and restated management services agreement by and between S&H, a company wholly
owned by Messrs. Silver and Horrigan, and Holdings (as described under "Certain
Transactions--Management Agreements"), to a third party, in each case, if it
first offers such stock to: (a) Holdings, (b) the Group (defined generally to
mean, collectively, Messrs. Silver and Horrigan and their respective affiliates
and certain related family transferees and estates, with Mr. Silver and his
affiliates and certain related family transferees and estates being deemed to be
collectively one member of the Group, and Mr. Horrigan and his affiliates and
certain related family transferees and estates being deemed to be collectively
one member of the Group) and (c) BTNY, in each case on the same terms and
conditions as the proposed sale to an Investment Entity or the proposed third
party sale. In addition, in any such sale by MSLEF II, BTNY and First Plaza must
be given the opportunity to sell the same percentage of its stock to such
Investment Entity or third party. Each member of the Group may transfer shares
of stock to a third party if such holder first offers such shares to: (a) the
other member of the Group, (b) Holdings, (c) MSLEF II and (d) BTNY, in each case
on the same terms and conditions as the proposed third party sale. BTNY may
effect a sale of stock to a third party if it first offers such shares to: (a)
Holdings, (b) MSLEF II and (c) the Group, in each case on the same terms and
conditions as the proposed third party sale.
Under the Holdings Organization Agreement, either MSLEF II or the Group
has the right to require a recapitalization transaction. A recapitalization
transaction is defined as any transaction (such as a merger, consolidation,
exchange of securities or liquidation) involving Holdings pursuant to which
MSLEF II and the Group retain their proportionate ownership interest in the
surviving entity if the following conditions are met: (i) the value of any
securities of the surviving entity acquired or retained by the party not
initiating the recapitalization transaction does not exceed 67% of the
difference between (x) the value of such securities and any cash received by
such party and (y) all taxes payable as a result of the transaction, (ii) if
MSLEF II initiates the recapitalization transaction and will not own all the
voting equity securities of the surviving entity not owned by the Group, the
Group shall have the right to purchase such securities, (iii) if the Group
initiates the recapitalization transaction and will not own all of the voting
equity securities of the surviving entity, MSLEF II shall have the right to
purchase such securities, and (iv) the majority in principal amount of the
indebtedness incurred in connection with such transaction shall be held for at
least one year by persons not affiliated with either MSLEF II or any member of
the Group.
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At any time prior to December 21, 1998, Holdings has the right and
option to purchase from First Plaza, and First Plaza shall have the obligation
to sell to Holdings, all (but not less than all) of the Holdings Stock for a
price per share equal to the greater of (i) $120 per share and (ii) the purchase
price necessary to yield on an annual basis a compound return on investment of
forty percent (40%). The number of shares subject to such call and the call
purchase price shall be proportionately adjusted to take into account any stock
dividend, stock split, combination of shares, subdivision or other
recapitalization of the capital stock of Holdings.
The Holdings Organization Agreement provides that at any time after June
15, 1996, the holders of a majority of the issued and outstanding shares of
Holdings Class A Stock and Holdings Class B Stock (considered together as a
class) may by written notice to Holdings require Holdings to pursue the first
public offering of Holdings' common stock pursuant to an effective registration
statement (an "IPO") on the terms and conditions provided in the Holdings
Organization Agreement. In addition to the portion of the IPO which shall
consist of shares of Holdings' common stock to be sold by Holdings, the IPO may
also include a secondary tranche consisting of shares of Holdings' common stock
to be sold by stockholders of Holdings.
Pursuant to the provisions of the Holdings Organization Agreement, each
of MSLEF II, BTNY, First Plaza and Messrs. Silver and Horrigan has agreed to
take all action (including voting its shares of Holdings' common stock) to
approve the adoption of the Restated Certificate of Incorporation of Holdings,
as amended, the Amended and Restated By-laws of Holdings, and the Amended and
Restated Management Services Agreement (the "Post-IPO Management Services
Contract"), in each case substantially in the form agreed to pursuant to the
Holdings Organization Agreement and in each case to become effective at the time
an IPO is completed. The Post-IPO Management Services Contract provides, among
other things, for the payment to S&H of management fees of $2.0 million annually
plus reimbursement of expenses. See "Certain Transactions--Management
Agreements."
Pursuant to the provisions of the Holdings Organization Agreement, MSLEF
II has agreed that it will not vote its shares of Holdings Class B Stock in
favor of any changes in the Certificate of Incorporation or By-laws of Holdings
which would adversely affect the rights of First Plaza, unless First Plaza has
consented in writing to such change. In addition, so long as First Plaza shall
hold not less than 18.73% of the issued and outstanding shares of Holdings Class
B Stock, First Plaza shall have the right to nominate one of the Class B
Directors to be elected at each annual meeting of stockholders in accordance
with the provisions of the Certificate of Incorporation, and the holders of
Holdings Class B Stock parties to the Holdings Organization Agreement have
agreed to vote their shares of Holdings Class B Stock in favor of such nominee.
In addition, in the event that First Plaza, MSLEF II or BTNY shall
purchase any shares of Holdings Class A Stock, such purchaser has agreed that it
will vote such shares in accordance with the directions of the "holders of a
majority of the shares of Class A Stock held by the Group" (defined generally to
mean the holders of a majority of the aggregate of 417,500 shares of Holdings
Class A Stock held by Messrs. Silver and Horrigan at December 21, 1993, which at
the time of any such determination have been continuously and are held by the
Group) until such time as a Change of Control has occurred. In the event that
Messrs. Silver or Horrigan shall purchase any shares of Holdings Class B Stock,
such purchaser agrees that it will vote such shares in accordance with the
directions of MSLEF II, unless MSLEF II and First Plaza (together with their
respective affiliates) shall hold directly or indirectly less than one-half of
the aggregate number of shares of Holdings Class B Stock held by MSLEF II and
First Plaza immediately following the issuance and sale of the Holdings Stock to
First Plaza on December 21, 1993.
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Pursuant to the terms of the Holdings Organization Agreement, Holdings
entered into an amended and restated management services agreement with S&H, a
corporation wholly owned by Messrs. Silver and Horrigan. See "Certain
Transactions--Management Agreements."
The Holdings Organization Agreement terminates upon the earlier of (i)
the mutual agreement of the parties, (ii) such time as it becomes unlawful,
(iii) the completion of an IPO, and (iv) June 30, 1999. The parties may agree to
extend the term of the Holdings Organization Agreement.
Description of the Holdings Stockholders Agreement
Concurrently with the issuance and sale to First Plaza of the Holdings
Stock, Holdings, MSLEF II, BTNY, First Plaza and Messrs. Silver and Horrigan
entered into a Stockholders Agreement dated as of December 21, 1993 (the
"Stockholders Agreement") that provides for certain prospective rights and
obligations among the stockholders and between the stockholders and Holdings.
The operative provisions of the Stockholders Agreement do not take effect until
after the occurrence of an IPO, at which time the Holdings Organization
Agreement will have terminated in accordance with its terms as described above
under "Description of the Holdings Organization Agreement." Certain of the
statements contained herein are summaries of the detailed provisions of the
Stockholders Agreement and are qualified in their entirety by reference to the
Stockholders Agreement.
The Stockholders Agreement provides that for a period of eight years
after the IPO, each of MSLEF II and First Plaza shall have the right to demand
two separate registrations of its shares of Holdings' common stock (equalling a
total of four separate demand registrations); provided, however, that such
demand right will terminate as to MSLEF II or First Plaza, as the case may be,
at such time as MSLEF II or First Plaza, as the case may be, together with its
affiliates, owns less than five percent of the issued and outstanding shares of
Holdings' common stock at any time. If, at any time or from time to time for a
period of eight years after the IPO, Holdings shall determine to register
Holdings' common stock (other than in connection with certain non-underwritten
offerings), Holdings will offer each of MSLEF II, BTNY, First Plaza and Messrs.
Silver and Horrigan the opportunity to register shares of Holdings' common stock
it holds in a "piggyback registration."
The Stockholders Agreement prohibits the transfer prior to June 30, 1999
(or, in the case of any restriction applicable to First Plaza, December 21,
1998) by MSLEF II, First Plaza or Messrs. Silver or Horrigan of Holdings' common
stock without the prior written consent of Messrs. Silver and Horrigan and MSLEF
II, except for (i) transfers made in connection with a public offering or a Rule
144 Open Market Transaction (as defined in the Stockholders Agreement), (ii)
transfers made to an affiliate, which, in the case of a transfer by First Plaza
or MSLEF II to an affiliate, must be an Investment Entity (defined generally to
be any person who is primarily engaged in the business of investing in
securities of other companies and not taking an active role in the management or
operations of such companies), (iii) transfers made to certain family members of
Messrs. Silver and Horrigan or trusts for the benefit of those family members,
(iv) certain transfers by First Plaza to a third party that comply with certain
rights of first refusal of the Group and MSLEF II set forth in the Stockholders
Agreement, (v) certain transfers by MSLEF II to an Investment Entity or, in the
event of certain defaults under the amended and restated management services
agreement between S&H and Holdings, to a third party, that comply with certain
rights of first refusal of the Group set forth in the Stockholders Agreement,
(vi) certain transfers by either member of the Group to a third party that
comply with certain rights of first refusal of the other member of the Group and
MSLEF II set forth in the Stockholders Agreement, and (vii) in the case of MSLEF
II, a distribution of all or substantially all of the shares of Holdings' common
stock then owned by MSLEF II to the partners of MSLEF II (a "MSLEF
Distribution"). Notwithstanding the foregoing, MSLEF II may pledge its shares of
Holdings' common stock to a lender or lenders reasonably acceptable to Holdings
to secure a loan or loans to MSLEF II. In the event of any proposed foreclosure
of
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such pledge, such shares will be subject to certain rights of first refusal of
the Group set forth in the Stockholders Agreement.
The Stockholders Agreement provides that until December 21, 1998, for so
long as MSLEF II and its affiliates (excluding the limited partners of MSLEF II
who may acquire shares of Holdings' common stock from MSLEF II in a MSLEF
Distribution) shall hold at least one-half of the number of shares of Holdings'
common stock held by MSLEF II on December 21, 1993 (as adjusted, if necessary,
to take into account any stock dividend, stock split, combination of shares,
subdivision or recapitalization of the capital stock of Holdings), the parties
and their Restricted Voting Transferees (as defined in the Stockholders
Agreement) shall use their best efforts (including to vote any shares of
Holdings' common stock owned or controlled by such person or otherwise) to cause
the nomination and election of two (2) members of the Board of Directors of
Holdings to be chosen by MSLEF II; provided, however, that each such nominee
shall be (i) either an employee of Morgan Stanley whose primary responsibility
is managing investments for MSLEF II (or a successor or related partnership) or
(ii) a person reasonably acceptable to the Group not engaged in (as a director,
officer, employee, agent or consultant or as a holder of more than five percent
of the equity securities of) a business competitive with that of Holdings.
In addition, until December 21, 1998, for so long as the Group shall
hold at least one-half of the number of shares of Holdings' common stock held by
it in the aggregate on December 21, 1993 (as adjusted, if necessary, to take
into account any stock dividend, stock split, combination of shares, subdivision
or recapitalization of the capital stock of Holdings), the parties and their
Restricted Voting Transferees shall use their best efforts (including to vote
any shares of Holdings' common stock owned or controlled by such person or
otherwise) to cause the nomination and election of two (2) individuals nominated
by the "holders of a majority of the shares of [c]ommon [s]tock held by the
Group" (as such phrase is defined in the Stockholders Agreement) as members of
the Board of Directors of Holdings; provided, however, that at least one (1) of
such nominees shall be Mr. Silver or Mr. Horrigan and the other person, if not
Mr. Silver or Mr. Horrigan, shall be a person reasonably acceptable to MSLEF II,
so long as MSLEF II and its affiliates (other than any affiliate which is not an
Investment Entity and excluding the limited partners of MSLEF II who may acquire
shares of Holdings' common stock from MSLEF II in a MSLEF distribution) shall
hold at least one-half of the number of shares of Holdings' common stock held by
MSLEF II at December 21, 1993 (as adjusted, if necessary, to take into account
any stock dividend, stock split, combination of shares, subdivision or
recapitalization of the capital stock of Holdings).
Subject to the terms of the preceding two paragraphs, for so long as the
Group shall hold at least one-half of the number of shares of Holdings' common
stock held by it in the aggregate at December 21, 1993 (as adjusted, if
necessary, to take into account any stock dividend, stock split, combination of
shares, subdivision or recapitalization of the capital stock of Holdings), First
Plaza and its Restricted Voting Transferees shall vote all shares of Holdings'
common stock held by them in favor of any other directors standing for election
to Holdings' Board of Directors for whom the holders of a majority of the shares
of Holdings' common stock held by the Group shall direct First Plaza to vote.
The Stockholders Agreement further provides that until December 21,
1998, MSLEF II and its Restricted Voting Transferees shall vote all shares of
Holdings' common stock held by them against any unsolicited merger, or sale of
Holdings' business or its assets, if such transaction is opposed by the holders
of a majority of the shares of common stock held by the Group, unless as of the
applicable record date for such vote, the Group holds less than ninety percent
(90%) of the number of shares of Holdings' common stock held by it in the
aggregate at December 21, 1993 (as adjusted, if necessary, to take into account
any stock dividend, stock split, combination of shares, subdivision or
recapitalization of the capital stock of Holdings). Until December 21, 1998,
First Plaza and its Restricted Voting Transferees shall vote all shares of
common stock
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held by them against any unsolicited merger, or sale of Holdings' business or
its assets, if such transaction is opposed by the holders of a majority of the
shares of common stock held by the Group; provided, however, that First Plaza
and its Restricted Voting Transferees shall not be required to vote their shares
of Holdings' common stock in accordance with the foregoing if (i) in connection
with such merger or sale, (x) First Plaza and its Restricted Voting Transferees
propose to sell or otherwise transfer all of their shares of Holdings' common
stock to a third party for aggregate cash consideration of less than $10 million
and (y) the Group and/or MSLEF II has not exercised their right of first refusal
in respect of such sale or transfer by First Plaza or such right of first
refusal in respect of the shares of Holdings' common stock held by First Plaza
shall have terminated, or (ii) as of the applicable record date for such vote,
the Group holds less than ninety percent (90%) of the number of shares of
Holdings' common stock held by it in the aggregate at December 21, 1993 (as
adjusted, if necessary, to take into account any stock dividend, stock split,
combination of shares, subdivision or recapitalization of the capital stock of
Holdings).
DESCRIPTION OF THE 11-3/4% NOTES
The 11-3/4% Notes were issued under an Indenture, dated as of June 29,
1992, between the Company and Shawmut Bank, N.A., as Trustee (the "Trustee"). A
copy of the Indenture is filed as an exhibit to the Registration Statement of
which this Prospectus is a part and is available as described under "Additional
Information." The following summaries of certain provisions of the Indenture do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all the provisions of the Indenture, including the
definitions of certain terms therein and those terms made a part thereof by the
Trust Indenture Act of 1939, as amended. Wherever particular Sections or defined
terms of the Indenture not otherwise defined herein are referred to, such
Sections or defined terms are incorporated herein by reference. Capitalized
terms used herein that are not otherwise defined shall have the meanings
assigned to them in the Indenture.
General
The 11-3/4% Notes are unsecured senior subordinated obligations of the
Company, limited to $135 million aggregate principal amount, and mature on June
15, 2002. Each 11-3/4% Note bears interest at the rate per annum shown on the
front cover of this Prospectus from June 29, 1992 or from the most recent
Interest Payment Date to which interest has been paid or provided for, payable
semiannually (to Holders of record at the close of business on the June 1 or
December 1 immediately preceding the Interest Payment Date) on June 15 and
December 15 of each year, commencing December 15, 1992. Principal of, premium,
if any, and interest on the 11-3/4% Notes are payable, and the 11-3/4% Notes may
be exchanged or transferred, at the office or agency of the Company in the
Borough of Manhattan, The City of New York (which shall initially be the office
of Shawmut Trust Company, at 40 Broad Street, New York, New York 10004);
provided that, at the option of the Company, payment of interest may be made by
check mailed to the address of the Holders as such address appears in the
Security Register. (Sections 2.01, 2.03 and 2.05)
The 11-3/4% Notes are issuable only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple of $1,000.
(Section 2.02) No service charge shall be made for any registration of transfer
or exchange of 11-3/4% Notes, but the Company may require payment of a sum
sufficient to cover any transfer tax or other similar governmental charge
payable in connection therewith. (Section 2.05)
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Subordination
The payment of the Senior Subordinated Obligations is, to the extent set
forth in the Indenture, subordinated in right of payment to the prior payment in
full, in cash or cash equivalents, of all Senior Indebtedness (as defined
below), including the Company's obligations under the Credit Agreement and the
Secured Notes. At March 31, 1995, $182.3 million of Senior Indebtedness of the
Company was outstanding. See "Capitalization."
To the extent any payment of Senior Indebtedness (whether by or on
behalf of the Company, as proceeds of security or enforcement of any right of
setoff or otherwise) is declared to be fraudulent or preferential, set aside or
required to be paid to any receiver, trustee in bankruptcy, liquidating trustee,
agent or other similar Person under any bankruptcy, insolvency, receivership,
fraudulent conveyance or similar law, then, if such payment is recovered by, or
paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent
or other similar Person, the Senior Indebtedness or part thereof originally
intended to be satisfied shall be deemed to be reinstated and outstanding as if
such payment had not occurred. To the extent the obligation to repay any Senior
Indebtedness is declared to be fraudulent, invalid, or otherwise set aside under
any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law,
then the obligation so declared fraudulent, invalid or otherwise set aside (and
all other amounts that would come due with respect thereto had such obligations
not been so affected) shall be deemed to be reinstated and outstanding as Senior
Indebtedness for all purposes of the Indenture as if such declaration,
invalidity or setting aside had not occurred. Upon any payment or distribution
of assets or securities of the Company of any kind or character, whether in
cash, property or securities, upon any dissolution or winding up or total or
partial liquidation or reorganization of the Company, whether voluntary or
involuntary or in bankruptcy, insolvency, receivership or other proceedings, all
amounts due or to become due upon all Senior Indebtedness (including any
interest accruing subsequent to an event of bankruptcy, whether or not such
interest is an allowed claim enforceable against the debtor under the United
States Bankruptcy Code) shall first be paid in full, in cash or cash equivalents
before the Holders or the Trustee on behalf of the Holders shall be entitled to
receive any payment by the Company on account of any Senior Subordinated
Obligations, or any payment to acquire any of the 11-3/4% Notes for cash,
property or securities, or any distribution with respect to the 11-3/4% Notes of
any cash, property or securities. Before any payment may be made by or on behalf
of the Company of any Senior Subordinated Obligations upon any such dissolution,
winding up, liquidation or reorganization, any payment or distribution of assets
or securities of the Company of any kind or character, whether in cash, property
or securities, to which the Holders or the Trustee on behalf of the Holders
would be entitled, but for the subordination provisions of the Indenture, shall
be made by the Company or by any receiver, trustee in bankruptcy, liquidating
trustee, agent or other similar Person making such payment or distribution, or
by the Holders or the Trustee if received by them or it, directly to the holders
of the Senior Indebtedness (pro rata to such holders on the basis of the
respective amounts of Senior Indebtedness held by such holders) or their
representatives, or to the trustee or trustees under any indenture pursuant to
which any such Senior Indebtedness may have been issued, as their respective
interests appear, to the extent necessary to pay all such Senior Indebtedness in
full, in cash or cash equivalents after giving effect to any concurrent payment,
distribution or provision therefor, to or for the holders of such Senior
Indebtedness.
No direct or indirect payment by or on behalf of the Company of Senior
Subordinated Obligations, whether pursuant to the terms of the 11-3/4% Notes or
upon acceleration or otherwise, shall be made if, at the time of such payment,
there exists a default in the payment of all or any portion of the obligations
on any Senior Indebtedness, and such default shall not have been cured or waived
or the benefits of this sentence waived by or on behalf of the holders of such
Senior Indebtedness. In addition, during the continuance of any other event of
default with respect to (i) the Credit Agreement or the Secured Notes pursuant
to which the maturity thereof may be accelerated and (a) upon receipt by the
Trustee of written notice from the Bank Agent
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or, if there is no Credit Agreement in effect, from an authorized representative
of the Requisite Secured Noteholders or (b) if such event of default under the
Credit Agreement or the Secured Notes results from the acceleration of the
11-3/4% Notes, from and after the date of such acceleration, no payment of
Senior Subordinated Obligations may be made by or on behalf of the Company upon
or in respect of the 11-3/4% Notes for a period (a "Payment Blockage Period")
commencing on the earlier of the date of receipt of such notice or the date of
such acceleration and ending 159 days thereafter (unless such Payment Blockage
Period shall be terminated by written notice to the Trustee from the Bank Agent
or, if there is no Credit Agreement in effect, from an authorized representative
of the Requisite Secured Noteholders or such event of default has been cured or
waived) or (ii) any other Designated Senior Indebtedness pursuant to which the
maturity thereof may be accelerated, upon receipt by the Trustee of written
notice from the trustee or other representative for the holders of such other
Designated Senior Indebtedness (or the holders of at least a majority in
principal amount of such other Designated Senior Indebtedness then outstanding),
no payment of Senior Subordinated Obligations may be made by or on behalf of the
Company upon or in respect of the 11-3/4% Notes for a Payment Blockage Period
commencing on the date of receipt of such notice and ending 119 days thereafter
(unless, in each case, such Payment Blockage Period shall be terminated by
written notice to the Trustee from such trustee or other representatives for
such holders). Not more than one Payment Blockage Period may be commenced with
respect to the 11-3/4% Notes during any period of 360 consecutive days; provided
that, subject to the limitation contained in the next sentence, the commencement
of a Payment Blockage Period by the representatives for, or the holders of,
Designated Senior Indebtedness other than under the Credit Agreement, the
Secured Notes or under clause (i)(b) of this paragraph shall not bar the
commencement of another Payment Blockage Period by the Bank Agent or, if there
is no Credit Agreement in effect, by an authorized representative of the
Requisite Secured Noteholders within such period of 360 consecutive days.
Notwithstanding anything in the Indenture to the contrary, there must be 180
consecutive days in any 360-day period in which no Payment Blockage Period is in
effect. No event of default (other than an event of default pursuant to the
financial maintenance covenants under the Credit Agreement) that existed or was
continuing (it being acknowledged that any subsequent action that would give
rise to an event of default pursuant to any provision under which an event of
default previously existed or was continuing shall constitute a new event of
default for this purpose) on the date of the commencement of any Payment
Blockage Period with respect to the Designated Senior Indebtedness initiating
such Payment Blockage Period shall be, or be made, the basis for the
commencement of a second Payment Blockage Period by the representative for, or
the holders of, such Designated Senior Indebtedness, whether or not within a
period of 360 consecutive days, unless such event of default shall have been
cured or waived for a period of not less than 90 consecutive days. (Article Ten)
By reason of the subordination provisions described above, in the event
of liquidation or insolvency, creditors of the Company who are not holders of
Senior Indebtedness or of the 11-3/4% Notes may recover less ratably than
holders of Senior Indebtedness and may recover more ratably than Holders of the
11-3/4% Notes.
"Senior Indebtedness" is defined to mean the following obligations of
the Company: (i) all Indebtedness and other monetary obligations of the Company
under the Credit Agreement, the Secured Notes (including the Secured Notes
Purchase Agreement), any Interest Rate Agreement or any Currency Agreement, (ii)
all other Indebtedness of the Company (other than Indebtedness evidenced by the
11-3/4% Notes), including principal and interest on such Indebtedness, unless
such Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such Indebtedness is issued, is pari passu with, or
subordinated in right of payment to, the 11-3/4% Notes and (iii) all fees,
expenses and indemnities payable in connection with the Credit Agreement, the
Secured Notes (including the Secured Notes Purchase Agreement) and, if
applicable, Currency Agreements and Interest Rate Agreements; provided that the
term "Senior Indebtedness" shall not include (a) any Indebtedness of the Company
that, when Incurred and without respect to any election under Section 1111(b) of
the United States Bankruptcy Code, was without recourse to the Company, (b) any
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Indebtedness of the Company to a Subsidiary of the Company or to a joint venture
in which the Company has an interest, (c) any Indebtedness of the Company (other
than such Indebtedness already described in clause (i) above) of the type
described in clause (ii) above and not permitted by the "Limitation on
Indebtedness" covenant described below, (d) in the event the Holdings Discount
Debentures become obligations of the Company (or any Person becoming the
successor obligor on the 11-3/4% Notes), Indebtedness under the Holdings
Discount Debentures, which shall be subordinated in right of payment to the
11-3/4% Notes, (e) any repurchase, redemption or other obligation in respect of
Redeemable Stock, (f) any Indebtedness to any employee or officer of the Company
or any of its Subsidiaries, (g) any liability for federal, state, local or other
taxes owed or owing by the Company and (h) any Trade Payables. "Senior
Indebtedness" also includes interest accruing subsequent to events of bankruptcy
of the Company and its Subsidiaries at the rate provided for in the document
governing such Indebtedness, whether or not such interest is an allowed claim
enforceable against the debtor in a bankruptcy case under federal bankruptcy
law. (Section 1.01)
"Designated Senior Indebtedness" is defined to mean (i) Indebtedness
under the Credit Agreement and the Secured Notes (including the Secured Notes
Purchase Agreement), including refinancings thereof if it is specifically
designated by the Company in the instrument creating or evidencing such
refinancing Indebtedness that such refinancing Indebtedness constitutes
"Designated Senior Indebtedness" and (ii) any other Indebtedness constituting
Senior Indebtedness that, at any date of determination, has an aggregate
principal amount of at least $25 million and is specifically designated by the
Company in the instrument creating or evidencing such Senior Indebtedness as
"Designated Senior Indebtedness." (Section 1.01)
Except as set forth in the Indenture, the subordination provisions
described above will cease to be applicable to the 11-3/4% Notes upon any
defeasance of the 11-3/4% Notes as described under "--Defeasance" below.
(Article Eight)
Optional Redemption
The 11-3/4% Notes are redeemable at any time, at the Company's option,
in whole or in part, on or after June 15, 1997 and prior to maturity, upon not
less than 30 nor more than 60 days' prior notice mailed by first class mail to
each Holder's last address as it appears in the Security Register, at the
following Redemption Prices (expressed in percentages of principal amount) plus
accrued interest to the Redemption Date (subject to the right of Holders of
record on the relevant Regular Record Date to receive interest due on an
Interest Payment Date that is on or prior to the Redemption Date), if redeemed
during the 12-month period commencing on or after June 15 of the years set forth
below:
<TABLE>
<CAPTION>
Redemption
Year Price
<S> <C>
1997............................................................................. 105.8750%
1998............................................................................. 102.9375%
</TABLE>
and after June 15, 1999, at 100% of principal amount. (Sections 3.01 and 3.04)
Selection. In the case of any partial redemption, selection of the
11-3/4% Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
11-3/4% Notes are listed or, if the 11-3/4% Notes are not listed on a national
securities exchange, on a pro rata basis, by lot or by such other method as the
Trustee in its sole discretion shall deem to be fair and appropriate; provided
that no Note of $1,000 in original principal amount or less shall be redeemed in
part. If any 11-3/4% Note is to be redeemed in part only, the notice of
redemption relating to such 11-3/4% Note shall state the portion of the
principal amount thereof to be redeemed. A new 11-3/4% Note in principal
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amount equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original 11-3/4% Note. (Sections 3.03
and 3.04)
The Credit Agreement and the Secured Notes each contain a covenant
prohibiting the optional redemption of the 11-3/4% Notes. See "Description of
Certain Indebtedness--Description of the Credit Agreement" and "--Description of
the Secured Notes."
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definitions of all such terms as well as any other
capitalized terms used herein for which no definition is provided. (Section
1.01)
"Adjusted Consolidated Net Income" is defined to mean, for any period,
the aggregate net income (or loss) of any Person and its consolidated
Subsidiaries for such period determined in conformity with GAAP; provided that
the following items shall be excluded in computing Adjusted Consolidated Net
Income (without duplication): (i) the net income (or loss) of such Person (other
than a Subsidiary of such Person) in which any other Person (other than such
Person or any of its Subsidiaries) has a joint interest, except to the extent of
the amount of dividends or other distributions actually paid to such Person or
any of its Subsidiaries by such other Person during such period; (ii) solely for
the purposes of calculating the amount of Restricted Payments that may be made
pursuant to clause (c) of the first paragraph of the "Limitation on Restricted
Payments" covenant described below (and in such case, except to the extent
includible pursuant to clause (i) above), the net income (or loss) of such
Person accrued prior to the date it becomes a Subsidiary of any other Person or
is merged into or consolidated with such other Person or any of its Subsidiaries
or all or substantially all of the property and assets of such Person are
acquired by such other Person or any of its Subsidiaries; (iii) the net income
(or loss) of any Subsidiary of any Person to the extent that the declaration or
payment of dividends or similar distributions by such Subsidiary of such net
income is not at the time permitted by the operation of the terms of its charter
or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Subsidiary; (iv) any gains or losses
(on an after-tax basis) attributable to Asset Sales; (v) any amounts paid or
accrued as dividends on Preferred Stock of such Person or Preferred Stock of any
Subsidiary of such Person; (vi) any amounts reducing Adjusted Consolidated Net
Income resulting from payments made to holders of stock options or stock
appreciation rights resulting from the 1989 Mergers; and (vii) all extraordinary
gains and extraordinary losses; provided that, solely for the purposes of
calculating the Interest Coverage Ratio (and in such case, except to the extent
includible pursuant to clause (i) above), "Adjusted Consolidated Net Income" of
the Company shall include the amount of all cash dividends received by the
Company or any Subsidiary of the Company from an Unrestricted Subsidiary.
"Affiliate" is defined to mean, as applied to any Person, any other
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with, such Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as applied to any Person, is
defined to mean the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise. For
purposes of this definition, neither the Bank Agent nor any Bank nor any
affiliate of any of them shall be deemed to be an Affiliate of the Company or
any Subsidiary of the Company.
"Asset Acquisition" is defined to mean (i) an investment by the Company
or any of its Subsidiaries in any other Person pursuant to which such Person
shall become a Subsidiary of the Company or any of its Subsidiaries or shall be
merged into or consolidated with the Company or any of its Subsidiaries or (ii)
an
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acquisition by the Company or any of its Subsidiaries of the property and assets
of any Person other than the Company or any of its Subsidiaries that constitute
substantially all of an operating unit or business of such Person.
"Asset Disposition" is defined to mean the sale or other disposition by
the Company or any of its Subsidiaries (other than to the Company or another
Subsidiary of the Company) of (i) all or substantially all of the Capital Stock
of any Subsidiary of the Company or (ii) all or substantially all of the
property and assets that constitute an operating unit or business of the Company
or any of its Subsidiaries.
"Asset Sale" is defined to mean, with respect to any Person, any sale,
transfer or other disposition (including by way of merger, consolidation or
sale-leaseback transactions) in one transaction or a series of related
transactions by such Person or any of its Subsidiaries to any Person other than
the Company or any of its Subsidiaries of (i) all or any of the Capital Stock of
any Subsidiary of such Person, (ii) all or substantially all of the property and
assets of an operating unit or business of such Person or any of its
Subsidiaries or (iii) any other property and assets of such Person or any of its
Subsidiaries outside the ordinary course of business of such Person or such
Subsidiary and, in each case, that is not governed by the provisions in the
Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the property and assets of the Company; provided that sales
or other dispositions of inventory, receivables and other current assets shall
not be included within the meaning of such term.
"Average Life" is defined to mean, at any date of determination with
respect to any debt security, the quotient obtained by dividing (i) the sum of
the product of (a) the number of years from such date of determination to the
dates of each successive scheduled principal payment of such debt security and
(b) the amount of such principal payment by (ii) the sum of all such principal
payments.
"Bank Agent" is defined to mean Bankers Trust Company, as agent for the
Banks pursuant to the Credit Agreement, and any successor or successors thereto.
"Banks" is defined to mean the lenders who are from time to time parties
to the Credit Agreement.
"Board of Directors" is defined to mean the Board of Directors of the
Company or any committee of such Board of Directors duly authorized to act under
the Indenture.
"Business Day" is defined to mean any day except a Saturday, Sunday or
other day on which commercial banks in The City of New York, or in the city of
the Corporate Trust Office of the Trustee, are authorized by law to close.
"Capital Stock" is defined to mean, with respect to any Person, any and
all shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of capital stock of such Person which is
outstanding or issued on or after the date of the Indenture, including, without
limitation, all Common Stock and Preferred Stock.
"Capitalized Lease" is defined to mean, as applied to any Person, any
lease of any property (whether real, personal or mixed) of which the discounted
present value of the rental obligations of such Person as lessee, in conformity
with GAAP, is required to be capitalized on the balance sheet of such Person;
and "Capitalized Lease Obligation" is defined to mean the rental obligations, as
aforesaid, under such lease.
"Change of Control" is defined to mean such time as (i) (a) a "person"
or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange
Act), other than MSLEF II, Mr. Horrigan, Mr. Silver and their
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respective Affiliates, becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act) of more than 35% of the total voting power of the then
outstanding Voting Stock of Holdings and (b) MSLEF II, Mr. Horrigan, Mr. Silver
and their respective Affiliates beneficially own, directly or indirectly, less
than 25% of the total voting power of the then outstanding Voting Stock of
Holdings; (ii) individuals who at the beginning of any period of two consecutive
calendar years constituted the board of directors of Holdings (together with any
new directors whose election by the board of directors of Holdings or whose
nomination for election by the Holdings' shareholders was approved by a vote of
at least two-thirds of the members of the board of directors of Holdings then
still in office who either were members of the board of directors of Holdings at
the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
members of the board of directors of Holdings then in office; (iii) (a) Holdings
merges into or consolidates with any other Person or sells, conveys, transfers,
leases or otherwise disposes of, all or substantially all of its property and
assets to any Person or (b) any Person merges into Holdings, in either case
pursuant to a transaction in which any Voting Stock of Holdings outstanding
immediately prior to the effectiveness thereof is reclassified or changes into
or is exchanged for cash, securities or other property; provided that any
merger, consolidation, sale, transfer, lease or other disposition (1) between
the Company and Holdings, (2) between Holdings and any of its Subsidiaries or
between Subsidiaries (including, without limitation, the reincorporation of
Holdings in another jurisdiction) or (3) for the purpose of creating a public
holding company for Holdings in which all holders of Holdings' Capital Stock
would be entitled to receive (other than cash in lieu of fractional shares)
solely Capital Stock of the holding company in amounts proportionate to their
holdings of Capital Stock of Holdings immediately prior to such transaction,
shall be excluded from the operation of this clause (iii); or (iv) Holdings
shall not beneficially own, directly or indirectly, at least a majority of the
issued and outstanding Voting Stock of the Company other than as a result of a
merger or consolidation of Holdings and the Company.
"Closing Date" is defined to mean the date on which the 11-3/4% Notes
are originally issued under the Indenture.
"Common Stock" is defined to mean, with respect to any Person, any and
all shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of common stock of such Person which is
outstanding or issued on or after the date of the Indenture, including, without
limitation, all series and classes of such common stock.
"Consolidated EBITDA" is defined to mean, with respect to any Person for
any period, the sum of the amounts for such period of (i) Adjusted Consolidated
Net Income, (ii) Consolidated Interest Expense, (iii) income taxes (other than
income taxes (either positive or negative) attributable to extraordinary and
non-recurring gains or losses or sales of assets), (iv) depreciation expense,
(v) amortization expense and (vi) all other noncash items reducing Adjusted
Consolidated Net Income, less all noncash items increasing Adjusted Consolidated
Net Income, all as determined on a consolidated basis for such Person and its
Subsidiaries in conformity with GAAP; provided that, if a Person has any
Subsidiary that is not a Wholly Owned Subsidiary of such Person, Consolidated
EBITDA of such Person shall be reduced by an amount equal to (a) the Adjusted
Consolidated Net Income of such Subsidiary multiplied by (b) the quotient of (1)
the number of shares of outstanding Common Stock of such Subsidiary not owned on
the last day of such period by such Person or any Subsidiary of such Person
divided by (2) the total number of shares of outstanding Common Stock of such
Subsidiary on the last day of such period.
"Consolidated Interest Expense" is defined to mean, with respect to any
Person for any period, the aggregate amount of interest in respect of
Indebtedness (including amortization of original issue discount on any
Indebtedness and the interest portion of any deferred payment obligation,
calculated in accordance with the effective interest method of accounting; all
commissions, discounts and other fees and charges owed with
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respect to letters of credit and bankers' acceptance financing; and the net
costs associated with Interest Rate Agreements) and all but the principal
component of rentals in respect of Capitalized Lease Obligations paid, accrued
or scheduled to be paid or accrued by such Person during such period; excluding,
however, (i) any amount of such interest of any Subsidiary of such Person if the
net income (or loss) of such Subsidiary is excluded in the calculation of
Adjusted Consolidated Net Income for such Person pursuant to clause (iii) of the
definition thereof (but only in the same proportion as the net income (or loss)
of such Subsidiary is excluded from the calculation of Adjusted Consolidated Net
Income for such Person pursuant to clause (iii) of the definition thereof), (ii)
any premiums, fees and expenses (and any amortization thereof) payable in
connection with the 1989 Mergers and the Refinancing and (iii) amortization of
any other deferred financing costs, all as determined on a consolidated basis in
conformity with GAAP.
"Consolidated Net Tangible Assets" is defined to mean the total amount
of assets of the Company and its Subsidiaries (less applicable depreciation,
amortization and other valuation reserves), except to the extent resulting from
write-ups of capital assets (excluding write-ups in connection with accounting
for acquisitions in conformity with GAAP), after deducting therefrom (i) all
current liabilities of the Company and its consolidated Subsidiaries (excluding
intercompany items) and (ii) all goodwill, trade names, trademarks, patents,
unamortized debt discount and expense and other like intangibles, all as set
forth on the most recently available consolidated balance sheet of the Company
and its consolidated Subsidiaries prepared in conformity with GAAP.
"Consolidated Net Worth" is defined to mean, at any date of
determination, stockholders' equity as set forth on the most recently available
consolidated balance sheet of the Company and its consolidated Subsidiaries
(which shall be as of a date not more than 60 days prior to the date of such
computation), less any amounts attributable to Redeemable Stock or any equity
security convertible into or exchangeable for Indebtedness, the cost of treasury
stock and the principal amount of any promissory notes receivable from the sale
of Capital Stock of the Company or any of its Subsidiaries, each item to be
determined in conformity with GAAP (excluding the effects of foreign currency
exchange adjustments under Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 52).
"Credit Agreement" is defined to mean the Credit Agreement dated as of
December 21, 1993, among the Company, Containers, Plastics, the Banks party
thereto, Bank of America, as Co-Agent, and the Bank Agent, together with the
related documents thereto (including, without limitation, any Guarantees and
security documents), in each case as such agreements may be amended (including
any amendment and restatement thereof), supplemented, replaced or otherwise
modified from time to time, including any agreement extending the maturity of,
refinancing or otherwise restructuring (including, but not limited to, the
inclusion of additional borrowers thereunder that are Subsidiaries of the
Company whose obligations are Guaranteed by the Company thereunder and who are
included as additional borrowers thereunder) all or any portion of the
Indebtedness under such agreement or any successor agreement; provided that,
with respect to any agreement providing for the refinancing of Indebtedness
under the Credit Agreement, such agreement shall only be the Credit Agreement
under the Indenture if a notice to that effect is delivered by the Company to
the Trustee and there shall be at any time only one debt instrument that is the
Credit Agreement under the Indenture.
"Currency Agreement" is defined to mean any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect the Company or any of its Subsidiaries against fluctuations in currency
values to or under which the Company or any of its Subsidiaries is a party or a
beneficiary on the date of the Indenture or becomes a party or a beneficiary
thereafter.
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"GAAP" is defined to mean generally accepted accounting principles in
the United States of America as in effect as of the date of the Indenture
applied on a basis consistent with the principles, methods, procedures and
practices employed in the preparation of the Company's audited financial
statements, including, without limitation, those set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity as
approved by a significant segment of the accounting profession. All ratios and
computations based on GAAP contained in the Indenture shall be computed in
conformity with GAAP, except that calculations made for purposes of determining
compliance with the terms of the covenants described below and other provisions
of the Indenture shall be made without giving effect to (i) the amortization of
any expenses incurred in connection with the 1989 Mergers or the Refinancing,
(ii) except as otherwise provided, the amortization of any amounts required or
permitted by Accounting Principles Board Opinion Nos. 16 and 17 and (iii) any
charges associated with the adoption of Statement No. 106 or Statement No. 109.
"Guarantee" is defined to mean any obligation, contingent or otherwise,
of any Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such other Person (whether
arising by virtue of partnership arrangements, or by agreement to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided that the term "Guarantee" shall
not include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Holder" is defined to mean the registered holder of any 11-3/4% Note.
"Incur" is defined to mean, with respect to any Indebtedness, to incur,
create, issue, assume, Guarantee or otherwise become liable for or with respect
to, or become responsible for, the payment of, contingently or otherwise, such
Indebtedness; provided that neither the accrual of interest (whether such
interest is payable in cash or kind) nor the accretion of original issue
discount shall be considered an Incurrence of Indebtedness.
"Indebtedness" is defined to mean, with respect to any Person at any
date of determination (without duplication), (i) all indebtedness of such Person
for borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto), (iv) all obligations of such
Person to pay the deferred and unpaid purchase price of property or services,
which purchase price is due more than six months after the date of placing such
property in service or taking delivery and title thereto or the completion of
such services, except Trade Payables, (v) all obligations of such Person as
lessee under Capitalized Leases, (vi) all Indebtedness of other Persons secured
by a Lien on any asset of such Person, whether or not such Indebtedness is
assumed by such Person; provided that the amount of such Indebtedness shall be
the lesser of (a) the fair market value of such asset at such date of
determination and (b) the amount of such Indebtedness, (vii) all Indebtedness of
other Persons Guaranteed by such Person to the extent such Indebtedness is
Guaranteed by such Person, (viii) all obligations of such Person in respect of
borrowed money under the Credit Agreement, the Secured Notes (including the
Secured Notes Purchase Agreement) and any Guarantees thereof and (ix) to the
extent not otherwise included in this definition, all obligations of such Person
under Currency Agreements and Interest Rate Agreements. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and the maximum
liability, upon the occurrence of the contingency giving rise
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to the obligation, of any contingent obligations at such date; provided that the
amount outstanding at any time of any Indebtedness issued with original issue
discount is the face amount of such Indebtedness less the remaining unamortized
portion of the original issue discount of such Indebtedness at such time as
determined in conformity with GAAP.
"Interest Coverage Ratio" is defined to mean, with respect to any Person
on any Transaction Date, the ratio of (i) the aggregate amount of Consolidated
EBITDA of such Person for the four fiscal quarters for which financial
information in respect thereof is available immediately prior to such
Transaction Date to (ii) the aggregate Consolidated Interest Expense of such
Person during such four fiscal quarters. In making the foregoing calculation,
(a) pro forma effect shall be given to (1) any Indebtedness Incurred subsequent
to the end of the four-fiscal-quarter period referred to in clause (i) and prior
to the Transaction Date (other than Indebtedness Incurred under a revolving
credit or similar arrangement to the extent of the commitment thereunder (or
under any predecessor revolving credit or similar arrangement) on the last day
of such period), (2) any Indebtedness Incurred during such period to the extent
such Indebtedness is outstanding at the Transaction Date and (3) any
Indebtedness to be Incurred on the Transaction Date, in each case as if such
Indebtedness had been Incurred on the first day of such four-fiscal-quarter
period and after giving effect to the application of the proceeds thereof; (b)
Consolidated Interest Expense attributable to interest on any Indebtedness
(whether existing or being Incurred) computed on a pro forma basis and bearing a
floating interest rate shall be computed as if the rate in effect on the date of
computation (taking into account any Interest Rate Agreement applicable to such
Indebtedness if such Interest Rate Agreement has a remaining term in excess of
12 months) had been the applicable rate for the entire period; (c) there shall
be excluded from Consolidated Interest Expense any Consolidated Interest Expense
related to any amount of Indebtedness that was outstanding during such
four-fiscal-quarter period or thereafter but which is not outstanding or which
is to be repaid on the Transaction Date, except for Consolidated Interest
Expense accrued (as adjusted pursuant to clause (b)) during such
four-fiscal-quarter period under a revolving credit or similar arrangement to
the extent of the commitment thereunder (or under any successor revolving credit
or similar arrangement) on the Transaction Date; (d) pro forma effect shall be
given to Asset Dispositions and Asset Acquisitions that occur during such
four-fiscal-quarter period or thereafter and prior to the Transaction Date
(including any Asset Acquisition to be made with the Indebtedness Incurred
pursuant to clause (i) above) as if they had occurred on the first day of such
four-fiscal-quarter period; (e) with respect to any such four-fiscal-quarter
period commencing prior to the Refinancing, the Refinancing shall be deemed to
have taken place on the first day of such period; and (f) pro forma effect shall
be given to asset dispositions and asset acquisitions that have been made by any
Person that has become a Subsidiary of the Company or has been merged with or
into the Company or any Subsidiary of the Company during the four-fiscal-quarter
period referred to above or subsequent to such period and prior to the
Transaction Date and that would have been Asset Dispositions or Asset
Acquisitions had such transactions occurred when such Person was a Subsidiary of
the Company as if such asset dispositions or asset acquisitions were Asset
Dispositions or Asset Acquisitions that occurred on the first day of such
period.
"Interest Rate Agreement" is defined to mean any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement designed to protect the Company or any of its Subsidiaries
against fluctuations in interest rates to or under which the Company or any of
its Subsidiaries is a party or a beneficiary on the date of the Indenture or
becomes a party or a beneficiary thereafter.
"Investment" is defined to mean any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of any Person or its
Subsidiaries) or other extension of credit or capital contribution to (by means
of any transfer of cash or other property to others or any payment for property
or services for the account or use of others), or any
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purchase or acquisition of Capital Stock, bonds, notes, debentures or other
similar instruments issued by any other Person. For purposes of the definition
of "Unrestricted Subsidiary" and the "Limitation on Restricted Payments"
covenant described below, (i) "Investment" shall include the fair market value
of the net assets of any Subsidiary of the Company at the time that such
Subsidiary of the Company is designated an Unrestricted Subsidiary and shall
exclude the fair market value of the net assets of any Unrestricted Subsidiary
at the time that such Unrestricted Subsidiary is designated a Subsidiary of the
Company and (ii) any property transferred to or from an Unrestricted Subsidiary
shall be valued at its fair market value at the time of such transfer, in each
case as determined by the Board of Directors in good faith.
"Lien" is defined to mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof, any sale with recourse against the seller or any Affiliate of the
seller, or any agreement to give any security interest).
"Net Cash Proceeds" is defined to mean, with respect to any Asset Sale,
the proceeds of such Asset Sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any Subsidiary
of the Company) and proceeds from the conversion of other property received when
converted to cash or cash equivalents, net of (i) brokerage commissions and
other fees and expenses (including fees and expenses of counsel and investment
bankers) related to such Asset Sale, (ii) provisions for all taxes (whether or
not such taxes will actually be paid or are payable) as a result of such Asset
Sale computed without regard to the consolidated results of operations of the
Company and its Subsidiaries, taken as a whole, (iii) payments made to repay
Indebtedness or any other obligation outstanding at the time of such Asset Sale
that either (a) is secured by a Lien on the property or assets sold or (b) is
required to be paid as a result of such sale and (iv) appropriate amounts to be
provided by the Company or any Subsidiary of the Company as a reserve against
any liabilities associated with such Asset Sale, including, without limitation,
pension and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as determined in conformity with GAAP.
"Person" is defined to mean an individual, a corporation, a partnership,
an association, a trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Preferred Stock" is defined to mean, with respect to any Person, any
and all shares, interests, participations or other equivalents (however
designated, whether voting or non-voting) of preferred or preference stock of
such Person which is outstanding or issued on or after the date of the
Indenture, including, without limitation, the Silgan Preferred Stock.
"Redeemable Stock" is defined to mean any class or series of Capital
Stock of any Person that by its terms or otherwise is (i) required to be
redeemed prior to the Stated Maturity of the 11-3/4% Notes, (ii) redeemable at
the option of the holder of such class or series of Capital Stock at any time
prior to the Stated Maturity of the 11-3/4% Notes or (iii) convertible into or
exchangeable for Capital Stock referred to in clause (i) or (ii) above or
Indebtedness having a scheduled maturity prior to the Stated Maturity of the
11-3/4% Notes; provided that any Capital Stock that would not constitute
Redeemable Stock but for provisions thereof giving holders thereof the right to
require the Company to repurchase or redeem such Capital Stock upon the
occurrence of an "asset sale" or a "change of control" occurring prior to the
Stated Maturity of the 11-3/4% Notes shall not constitute Redeemable Stock if
the "asset sale" or "change of control" provision applicable to such Capital
Stock is no more favorable to the holders of such Capital Stock than the
provisions contained in
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the "Limitation on Asset Sales" and "Repurchase of Notes upon Change of Control"
covenants described below and such Capital Stock specifically provides that the
Company will not repurchase or redeem any such Capital Stock pursuant to such
provisions prior to the Company's repurchase of 11-3/4% Notes required to be
repurchased by the Company under the "Limitation on Asset Sales" and "Repurchase
of Notes upon Change of Control" covenants described below.
"Restricted Subsidiary" is defined to mean any Subsidiary of the Company
other than an Unrestricted Subsidiary.
"Requisite Secured Noteholders" means a majority in aggregate principal
amount of outstanding Secured Notes.
"Senior Subordinated Obligations" is defined to mean any principal of,
premium, if any, or interest on the 11-3/4% Notes payable pursuant to the terms
of the 11-3/4% Notes or upon acceleration, including any amounts received upon
the exercise of rights of rescission or other rights of action (including claims
for damages) or otherwise, to the extent relating to the purchase price of the
11-3/4% Notes or amounts corresponding to such principal, premium, if any, or
interest on the 11-3/4% Notes.
"Shareholder Subordinated Notes" shall have the same meaning given such
term in the Amended and Restated Credit Agreement (including the exhibits
thereto) as in effect on the date of the Indenture.
"Significant Subsidiary" is defined to mean, at any date of
determination, any Subsidiary of the Company that, together with its
Subsidiaries, (i) for the most recent fiscal year of the Company, accounted for
more than 10% of the consolidated revenues of the Company or (ii) as of the end
of such fiscal year, was the owner of more than 10% of the consolidated assets
of the Company, all as set forth on the most recently available consolidated
financial statements of the Company and its consolidated Subsidiaries for such
fiscal year prepared in conformity with GAAP.
"Stated Maturity" is defined to mean, with respect to any debt security
or any installment of interest thereon, the date specified in such debt security
as the fixed date on which any principal of such debt security or any such
installment of interest is due and payable.
"Stock Based Plan" is defined to mean any stock option plan, stock
appreciation rights plan or other similar plan or agreement of the Company or
any Subsidiary of the Company relating to Capital Stock of Holdings, the Company
or any Subsidiary of the Company established and in effect from time to time,
including, without limitation, the Holdings Organization Agreement or any stock
option plan, stock appreciation rights plan or other similar plan or agreement
for the benefit of employees of the Company and its Subsidiaries.
"Subsidiary" is defined to mean, with respect to any Person, any
corporation, association or other business entity of which more than 50% of the
outstanding Voting Stock is owned, directly or indirectly, by the Company or by
one or more other Subsidiaries of the Company, or by such Person and one or more
other Subsidiaries of such Person; provided that, except as the term
"Subsidiary" is used in the definition of "Unrestricted Subsidiary" described
below, an Unrestricted Subsidiary shall not be deemed to be a Subsidiary of the
Company.
"Trade Payables" is defined to mean, with respect to any Person, any
accounts payable or any other indebtedness or monetary obligation to trade
creditors created, assumed or Guaranteed by such Person or any of its
Subsidiaries arising in the ordinary course of business in connection with the
acquisition of goods or services.
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"Transaction Date" is defined to mean, with respect to the Incurrence of
any Indebtedness by the Company or any of its Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"Unrestricted Subsidiary" is defined to mean (i) any Subsidiary of the
Company that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property
of, the Company or any other Subsidiary of the Company that is not a Subsidiary
of the Subsidiary to be so designated; provided that either (a) the Subsidiary
to be so designated has total assets of $1,000 or less or (b) if such Subsidiary
has assets greater than $1,000, that such designation would be permitted under
the "Limitation on Restricted Payments" covenant described below. The Board of
Directors may designate any Unrestricted Subsidiary to be a Subsidiary of the
Company; provided that immediately after giving effect to such designation (1)
the Company could Incur $1.00 of additional Indebtedness under the first
paragraph in part (a) of the "Limitation on Indebtedness" covenant described
below and (2) no Event of Default, or any event that is, or after the giving of
notice or the passage of time or both would be, an Event of Default, shall have
occurred and be continuing. Any such designation by the Board of Directors shall
be evidenced to the Trustee by filing promptly with the Trustee a copy of the
Board Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"Voting Stock" is defined to mean, with respect to any Person, Capital
Stock of any class or kind ordinarily having the power to vote for the election
of directors of such Person.
"Wholly Owned Subsidiary" is defined to mean, (i) with respect to
Holdings and the Company, Plastics and Containers, and (ii) with respect to any
Person, any Subsidiary of such Person if all of the Common Stock or other
similar equity ownership interests (but not including Preferred Stock) in such
Subsidiary (other than any director's qualifying shares or Investments by
foreign nationals mandated by applicable law) is owned directly or indirectly by
such Person.
Covenants
Limitation on Indebtedness
(a) So long as any of the 11-3/4% Notes are outstanding, the Company
shall not Incur any Indebtedness (other than the 11-3/4% Notes, the Secured
Notes (including the Secured Notes Purchase Agreement) and Indebtedness existing
on the Closing Date) unless after giving effect to the Incurrence of such
Indebtedness and the receipt and application of the proceeds therefrom, the
Interest Coverage Ratio of the Company would be greater than 2.1:1.
Notwithstanding the foregoing, the Company may Incur each and all of the
following: (i) Indebtedness outstanding at any time in an aggregate principal
amount not to exceed the sum of (a) the aggregate outstanding Indebtedness and
unutilized commitment on the Closing Date under the Amended and Restated Credit
Agreement plus (b) an aggregate amount not to exceed $85 million outstanding at
any time; provided that if Indebtedness Incurred under this clause (i) is
exchanged, refinanced or refunded with Indebtedness of Holdings that is Incurred
under clause (v) of the second paragraph of part (a) of Section 4.03 of the
Indenture relating to the Holdings Discount Debentures, the aggregate amount of
Indebtedness permitted to be Incurred under this clause (i) shall be reduced by
the principal amount (or, if such indebtedness provides for an amount less than
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the principal amount thereof to be due and payable upon a declaration of
acceleration thereof, the original issue price) of the Indebtedness issued by
Holdings; (ii) Indebtedness to any Restricted Subsidiary; (iii) Indebtedness
Incurred after the date of the Indenture the net proceeds of which are used to
retire the Holdings Discount Debentures; provided that such Indebtedness (A) by
its terms or by the terms of any agreement or instrument pursuant to which such
Indebtedness is issued, is expressly made subordinate in right of payment to the
11-3/4% Notes at least to the extent that the 11-3/4% Notes are subordinated to
Senior Indebtedness and (B) determined as of the date of Incurrence of such
Indebtedness, does not mature prior to the Stated Maturity of the 11-3/4% Notes,
and the Average Life of such Indebtedness is greater than the remaining Average
Life of the 11-3/4% Notes; (iv) Indebtedness issued in exchange for, or the net
proceeds of which are used to exchange, refinance or refund, outstanding
Indebtedness of the Company, other than Indebtedness Incurred under clauses (i),
(v) and (x) and any refinancings thereof, in an amount (or, if such new
Indebtedness provides for an amount less than the principal amount thereof to be
due and payable upon a declaration of acceleration thereof, with an original
issue price) not to exceed the amount so exchanged, refinanced or refunded (plus
premiums, accrued interest, fees and expenses); provided that Indebtedness the
proceeds of which are used to exchange, refinance or refund the 11-3/4% Notes or
other Indebtedness of the Company that is subordinated in right of payment to
the 11-3/4% Notes shall only be permitted under this clause (iv) if: (A) in case
the 11-3/4% Notes are exchanged, refinanced or refunded in part, such
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such Indebtedness is issued, is expressly made pari passu
with, or subordinate in right of payment to, the remaining 11-3/4% Notes, (B) in
case the Indebtedness to be exchanged, refinanced or refunded is subordinated in
right of payment to the 11-3/4% Notes, such Indebtedness, by its terms or by the
terms of any agreement or instrument pursuant to which such Indebtedness is
issued, is expressly made subordinate in right of payment to the 11-3/4% Notes
at least to the extent that the Indebtedness to be exchanged, refinanced or
refunded is subordinated in right of payment to the 11-3/4% Notes and (C) in
case the 11-3/4% Notes are exchanged, refinanced or refunded in part or the
Indebtedness to be exchanged, refinanced or refunded is subordinated in right of
payment to the 11-3/4% Notes, such Indebtedness, determined as of the date of
Incurrence of such new Indebtedness, does not mature prior to the Stated
Maturity of the 11-3/4% Notes, and the Average Life of such Indebtedness is at
least equal to the remaining Average Life of the 11-3/4% Notes; and provided
further that in no event may Indebtedness of the Company that is pari passu
with, or subordinated in right of payment to, the 11-3/4% Notes be exchanged,
refinanced or refunded by means of Indebtedness of any Subsidiary of the Company
pursuant to this clause (iv); (v) Indebtedness to Holdings in an aggregate
amount not to exceed $30 million outstanding at any time; provided that such
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such Indebtedness is issued, is expressly made subordinate in
right of payment to the 11-3/4% Notes at least to the extent that the 11-3/4%
Notes are subordinated to Senior Indebtedness; (vi) in the event the Holdings
Discount Debentures or any other Indebtedness of Holdings become obligations of
the Company (or any Person becoming the successor obligor on the 11-3/4% Notes),
the Holdings Discount Debentures or such other Indebtedness of Holdings; (vii)
Indebtedness Incurred in connection with the purchase, redemption, acquisition,
cancellation or other retirement for value of shares of Capital Stock of
Holdings, the Company or any Restricted Subsidiary, options on any such shares
or related stock appreciation rights or similar securities held by officers or
employees or former officers or employees (or their estates or beneficiaries
under their estates) and which were issued pursuant to any Stock Based Plan,
upon death, disability, retirement, termination of employment or pursuant to the
terms of such Stock Based Plan or any other agreement under which such shares of
Capital Stock, options, related rights or similar securities were issued;
provided that (A) such Indebtedness (other than any Shareholder Subordinated
Notes, which must be pari passu with, or subordinated in right of payment to,
the 11-3/4% Notes), by its terms or by the terms of any agreement or instrument
pursuant to which such Indebtedness is issued, is expressly made subordinate in
right of payment to the 11-3/4% Notes at least to the extent that the 11-3/4%
Notes are subordinated in right of payment to Senior Indebtedness, (B) such
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such Indebtedness is issued, provides that no payments of
principal of such Indebtedness by way of sinking fund, mandatory
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redemption or otherwise (including defeasance) may be made by the Company
(including, without limitation, at the option of the holder thereof other than
an option given to a holder pursuant to an "asset sale" or a "change of control"
provision that is no more favorable to the holders of such Indebtedness than the
provisions contained in the "Limitation on Asset Sales" and "Repurchase of Notes
upon a Change of Control" covenants and such Indebtedness specifically provides
that the Company will not repurchase or redeem such Indebtedness pursuant to
such provisions prior to the Company's repurchase of the 11-3/4% Notes required
to be repurchased by the Company under the "Limitation on Asset Sales" and
"Repurchase of Notes upon a Change of Control" covenants) at any time prior to
the Stated Maturity of the 11-3/4% Notes and (C) the scheduled maturity of all
principal of such Indebtedness is beyond the Stated Maturity of the 11-3/4%
Notes; (viii) Indebtedness (A) in respect of performance bonds, bankers'
acceptances and surety or appeal bonds provided in the ordinary course of
business, (B) under Currency Agreements and Interest Rate Agreements; provided
that in the case of Currency Agreements that relate to other Indebtedness, such
Currency Agreements do not increase the Indebtedness of the Company outstanding
at any time other than as a result of fluctuations in foreign currency exchange
rates or by reason of fees, indemnities and compensation payable thereunder and
(C) arising from agreements providing for indemnification, adjustment of
purchase price or similar obligations, or from Guarantees or letters of credit,
surety bonds or performance bonds securing any obligations of the Company or any
of its Subsidiaries pursuant to such agreements, in any case Incurred in
connection with the disposition of any business, assets or Subsidiary of the
Company, other than Guarantees of Indebtedness Incurred by any Person acquiring
all or any portion of such business, assets or Subsidiary of the Company for the
purpose of financing such acquisition; (ix) Indebtedness in respect of letters
of credit (other than letters of credit issued pursuant to the Credit Agreement)
in an aggregate amount not to exceed $15 million outstanding at any time; and
(x) Indebtedness in an aggregate amount not to exceed $10 million outstanding at
any time; provided that such Indebtedness, (A) by its terms or by the terms of
any agreement or instrument pursuant to which such Indebtedness is issued, is
expressly made subordinate in right of payment to the 11-3/4% Notes at least to
the extent that the 11-3/4% Notes are subordinated in right of payment to Senior
Indebtedness, (B) determined as of the date of Incurrence of such Indebtedness,
does not mature prior to the Stated Maturity of the 11-3/4% Notes, and the
Average Life of such Indebtedness is greater than the remaining Average Life
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of the 11-3/4% Notes and (C) by its terms or by the terms of any agreement or
instrument pursuant to which such Indebtedness is issued, provides that no
payments of principal of such Indebtedness by way of sinking fund, mandatory
redemption or otherwise (including defeasance) may be made by the Company
(including, without limitation, at the option of the holder thereof other than
an option given to a holder pursuant to an "asset sale" or "change of control"
provision that is no more favorable to the holders of such Indebtedness than the
provisions contained in the "Limitation on Asset Sales" and "Repurchase of Notes
upon a Change of Control" covenants and such Indebtedness specifically provides
that the Company will not repurchase or redeem such Indebtedness pursuant to
such provisions prior to the Company's repurchase of the 11-3/4% Notes required
to be repurchased by the Company under the "Limitation on Asset Sales" and
"Repurchase of Notes upon a Change of Control" covenants) at any time prior to
the Stated Maturity of the 11-3/4% Notes.
(b) So long as any of the 11-3/4% Notes are outstanding, the Company
shall not permit any Restricted Subsidiary to Incur any Indebtedness (other than
Indebtedness existing on the Closing Date) other than the following: (i)
Indebtedness under the Credit Agreement in an aggregate amount not to exceed the
amount referred to in clause (i) of the second paragraph in part (a) of this
"Limitation on Indebtedness" covenant; (ii) Guarantees of Indebtedness of the
Company and other Restricted Subsidiaries under (A) the Credit Agreement and (B)
the Secured Notes; (iii) Indebtedness issued in exchange for, or the net
proceeds of which are used to refinance or refund outstanding Indebtedness
(including the amount of any undrawn commitments) of a Restricted Subsidiary,
other than Indebtedness Incurred under clause (i) of this part (b) and any
refinancings thereof, in an amount (or, if such new Indebtedness provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration thereof, the original issue price) not to exceed the
amount so exchanged, refinanced or refunded (plus premiums, accrued interest,
fees and expenses); (iv) Indebtedness to the Company or to another Restricted
Subsidiary; and (v) Indebtedness of the type permitted to be Incurred by the
Company pursuant to clauses (viii) and (ix) of the second paragraph in part (a)
of this "Limitation on Indebtedness" covenant; provided that, in the case of
clause (i) in this part (b) and this clause (v), the Company would be permitted
to Incur such Indebtedness at the time thereunder after giving effect to
subclause (C) in part (c) of this "Limitation on Indebtedness" covenant.
(c) For purposes of determining any particular amount of Indebtedness
under this "Limitation on Indebtedness" covenant, (i) Indebtedness Incurred
pursuant to the Amended and Restated Credit Agreement prior to or on the Closing
Date shall be treated as Incurred pursuant to clause (i) of the second paragraph
in part (a) of this "Limitation on Indebtedness" covenant and (ii) Guarantees
of, or obligations with respect to letters of credit supporting, Indebtedness
otherwise included in the determination of such particular amount shall not be
included. For purposes of determining compliance with this "Limitation on
Indebtedness" covenant, (A) in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in the above
clauses, the Company, in its sole discretion, shall classify such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in one of such clauses, (B) the amount of Indebtedness issued at a
price that is less than the principal amount thereof shall be equal to the
amount of the liability in respect thereof determined in conformity with GAAP
and (C) Indebtedness Incurred pursuant to clause (i) or (v) in part (b) of this
"Limitation on Indebtedness" covenant shall be treated as having been Incurred
by the Company pursuant to the applicable clause in part (a) of this "Limitation
on Indebtedness" covenant for purposes of determining the remaining availability
thereunder. (Section 4.03)
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Limitation on Restricted Payments
So long as any of the 11-3/4% Notes are outstanding, the Company will
not, and will not permit any Restricted Subsidiary to, directly or indirectly,
(i) declare or pay any dividend or make any distribution on its Capital Stock
(other than dividends or distributions payable solely in shares of its or such
Restricted Subsidiary's Capital Stock (other than Redeemable Stock) of the same
class held by such holders or in options, warrants or other rights to acquire
such shares of Capital Stock) held by Persons other than the Company or another
Restricted Subsidiary, (ii) purchase, redeem, retire or otherwise acquire for
value, any shares of Capital Stock of the Company, any Restricted Subsidiary or
any Unrestricted Subsidiary (including options, warrants or other rights to
acquire such shares of Capital Stock) held by Persons other than the Company or
another Restricted Subsidiary, (iii) make any voluntary or optional principal
payment, or voluntary or optional redemption, repurchase, defeasance or other
acquisition or retirement for value, of Indebtedness of the Company that is
subordinated in right of payment to the 11-3/4% Notes or (iv) make any
Investment in any Affiliate (other than the Company or a Restricted Subsidiary)
or Unrestricted Subsidiary (such payments or any other actions described in
clauses (i) through (iv) being collectively "Restricted Payments") if at the
time of and after giving effect to the proposed Restricted Payment: (a) an Event
of Default or event that, after the giving of notice or lapse of time or both
would become an Event of Default, shall have occurred and be continuing, (b) the
Company could not Incur at least $1.00 of Indebtedness under the first paragraph
in part (a) of the "Limitation on Indebtedness" covenant or (c) the aggregate
amount expended for all Restricted Payments (the amount so expended, if other
than in cash, to be determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution) after the
date of the Indenture (other than any Restricted Payments described in clauses
(ii), (iv), (v) (other than subclause (A)), (vi), (vii), (xiii) and (xiv) of the
second paragraph of this "Limitation on Restricted Payments" covenant) shall
exceed the sum of (1) 50% of the aggregate amount of Adjusted Consolidated Net
Income (or, if Adjusted Consolidated Net Income is a loss, minus 100% of such
amount) of the Company (determined by excluding income resulting from the
transfers of assets received by the Company or a Restricted Subsidiary from an
Unrestricted Subsidiary) accrued on a cumulative basis during the period (taken
as one accounting period) beginning on the first day of the month immediately
following the Closing Date and ending on the last day of the last fiscal quarter
preceding the Transaction Date plus (2) the aggregate net proceeds (including
the fair market value of noncash proceeds, as determined in good faith by the
Board of Directors) received by the Company from the issuance and sale permitted
by the Indenture of its Capital Stock to any Person other than a Subsidiary of
the Company (not including Redeemable Stock), including an issuance or sale
permitted by the Indenture for cash or other property upon the conversion of any
Indebtedness of the Company subsequent to the Closing Date, or from the issuance
of any options, warrants or other rights to acquire Capital Stock of the Company
(in each case, exclusive of any Redeemable Stock or any options, warrants or
other rights that are redeemable at the option of the holder, or are required to
be redeemed, prior to the Stated Maturity of the 11-3/4% Notes) plus (3) an
amount equal to the net reduction in Investments in Unrestricted Subsidiaries
resulting from payments of interest on Indebtedness, dividends, repayments of
loans or advances, or other transfers of assets, in each case to the Company or
any Restricted Subsidiary from Unrestricted Subsidiaries, or from redesignations
of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as
provided in the definition of "Investments"), not to exceed in the case of any
Unrestricted Subsidiary the amount of Investments previously made by the Company
or any Restricted Subsidiary in such Unrestricted Subsidiary plus (4) $13
million.
The foregoing provision shall not be violated by reason of: (i) the
payment of any dividend within 60 days after the date of declaration thereof if,
at the date of declaration, such payment would comply with the foregoing
provision; (ii) the declaration and payment of dividends (or the making of loans
or advances) to Holdings for the purpose of and in an amount not to exceed the
amount necessary for the payment in cash of the interest expense on outstanding
Holdings Discount Debentures as such interest becomes due and payable;
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(iii) in the event the Holdings Discount Debentures become obligations of the
Company (or any Person becoming the successor obligor on the 11-3/4% Notes), the
voluntary or optional principal payment, or the redemption, repurchase,
defeasance or other acquisition or retirement for value, of the Holdings
Discount Debentures prior to their Stated Maturity; provided that, at the time
of the redemption, repurchase, defeasance, acquisition or retirement thereof,
the Interest Coverage Ratio of the Company (or any Person becoming the successor
obligor on the 11-3/4% Notes) would be greater than 1.75:1; (iv) (A) the
declaration and payment in cash of stated dividends on the Preferred Stock and
the Containers Mirror Preferred Stock and Plastics Mirror Preferred Stock (each
as defined in the Amended and Restated Credit Agreement) and (B) the redemption,
repurchase or other acquisition for value of Preferred Stock, Containers Mirror
Preferred Stock and Plastics Mirror Preferred Stock, in each case in connection
with the Refinancing; (v) the declaration and payment of dividends (or the
making of loans or advances) to Holdings (A) for the redemption, repurchase,
defeasance or other acquisition or retirement for value of the Holdings Discount
Debentures prior to their Stated Maturity; provided that, at the time of the
declaration thereof, the Interest Coverage Ratio of the Company would be greater
than 1.75:1, (B) in an aggregate amount not to exceed $2 million per annum for
reasonable expenses (including all reasonable professional fees and expenses in
connection with market making activities in the Holdings Discount Debentures or
complying with its reporting obligations or as may be required by law) incurred
in the ordinary course of business and (C) in an amount not to exceed the amount
necessary for the payment of any liability of the Company in connection with
federal, state, local or foreign taxes; (vi) the making of Investments in an
Unrestricted Subsidiary in an aggregate amount not to exceed $10 million
outstanding at any time; provided that the aggregate amount of Investments in
all of the Unrestricted Subsidiaries does not exceed $30 million outstanding at
any time; (vii) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of payment to
the 11-3/4% Notes, including premium, if any, and accrued and unpaid interest,
with the proceeds of Indebtedness Incurred under clauses (iii), (iv) and (x) of
the second paragraph in part (a) of the "Limitation on Indebtedness" covenant;
(viii) the declaration and payment of dividends on the Common Stock of the
Company, following an initial public offering of the Common Stock of the
Company, of up to 6% per annum of the net proceeds received by the Company in
such initial public offering; (ix) the purchase, redemption, acquisition,
cancellation or other retirement for value of shares of Capital Stock of
Holdings, the Company or any Restricted Subsidiary, options on any such shares
or related stock appreciation rights or similar securities held by officers or
employees or former officers or employees (or their estates or beneficiaries
under their estates) and which were issued pursuant to any Stock Based Plan,
upon death, disability, retirement, termination of employment or pursuant to the
terms of such Stock Based Plan or any other agreement under which such shares of
Capital Stock, options, related rights or similar securities were issued;
provided that the aggregate cash consideration paid for such purchase,
redemption, acquisition, cancellation or other retirement for value of such
shares of Capital Stock, options, related rights or similar securities after the
date of the Indenture does not exceed $13 million and that any additional
consideration in excess of such $13 million is in the form of Indebtedness that
would be permitted to be Incurred under clause (vii) of the second paragraph in
part (a) of the "Limitation on Indebtedness" covenant; (x) the repurchase of
Common Stock of the Company followed immediately by the reissuance thereof for
consideration in an amount at least equal to the consideration paid to acquire
such stock, or the redemption, repurchase or other acquisition for value of
Capital Stock of the Company or any Subsidiary of the Company in exchange for,
or with the proceeds of a substantially concurrent offering of, other shares of
the Capital Stock of such entity (other than Redeemable Stock); (xi) the
acquisition of Indebtedness of the Company that is subordinated in right of
payment to the 11-3/4% Notes in exchange for, or out of the proceeds of a
substantially concurrent issuance of, shares of the Capital Stock of the Company
(other than Redeemable Stock); (xii) payments or distributions pursuant to or in
connection with a consolidation, merger or transfer of assets that complies with
the provisions of the Indenture applicable to mergers, consolidations and
transfers of all or substantially all of the property and assets of the Company;
(xiii) the repayment prior to August 31, 1992 of advances or loans from Holdings
in order to allow Holdings to pay interest on and redeem Holdings Reset
Debentures in connection with the Refinancing; or (xiv) the declaration and
payment of dividends (or the
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making of loans and advances) to Holdings for the redemption, repurchase,
defeasance or other acquisition or retirement for value of the Holdings Reset
Debentures in connection with the Refinancing; provided that, in the case of
clauses (ii), (iii), (v) (other than subclause (C)), (vi), (viii), (ix), (xii),
(xiii) and (xiv), no Event of Default, or event that through the giving of
notice or lapse of time or both would become an Event of Default, shall have
occurred and be continuing or shall occur as a consequence thereof. (Section
4.04)
Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries
So long as any of the 11-3/4% Notes are outstanding, the Company will
not, and will not permit any Restricted Subsidiary to, create or otherwise cause
or suffer to exist or become effective any consensual encumbrance or restriction
of any kind on the ability of any Restricted Subsidiary to (i) pay dividends or
make any other distributions permitted by applicable law on any Capital Stock of
such Restricted Subsidiary owned by the Company or any other Restricted
Subsidiary, (ii) pay any Indebtedness owed to the Company or any other
Restricted Subsidiary, (iii) make loans or advances to the Company or any other
Restricted Subsidiary or (iv) transfer, subject to certain exceptions, any of
its property or assets to the Company or any other Restricted Subsidiary.
This covenant shall not restrict or prohibit any encumbrances or
restrictions existing: (i) in the Credit Agreement, the Secured Notes (including
the Secured Notes Purchase Agreement) or any other agreements in effect on the
Closing Date, including extensions, refinancings, renewals or replacements
thereof; provided that the encumbrances and restrictions in any such extensions,
refinancings, renewals or replacements are no less favorable in any material
respect to the Holders than those encumbrances or restrictions that are then in
effect and that are being extended, refinanced, renewed or replaced; (ii) in the
event the Holdings Discount Debentures become obligations of the Company (or any
Person becoming the successor obligor on the 11-3/4% Notes), in the Holdings
Discount Debentures; (iii) under or by reason of applicable law, rule or
regulation (including, without limitation, applicable currency control laws and
applicable state corporate statutes restricting the payment of dividends in
certain circumstances); (iv) under any other agreement providing for the
Incurrence of Indebtedness; provided that the encumbrances and restrictions in
any such agreement are no less favorable in any material respect to the Holders
than those encumbrances and restrictions contained in the Credit Agreement as of
the Closing Date; (v) with respect to any Person or the property or assets of
such Person acquired by the Company or any Restricted Subsidiary and existing at
the time of such acquisition, which encumbrances or restrictions are not
applicable to any Person or the property or assets of any Person other than such
Person or the property or assets of such Person so acquired; (vi) in the case of
clause (iv) of the first paragraph of this "Limitation on Dividend and Other
Payment Restrictions Affecting Restricted Subsidiaries" covenant, (A) that
restrict in a customary manner the subletting, assignment or transfer of any
property or asset that is a lease, license, conveyance or contract or similar
property or asset, (B) by virtue of any transfer of, agreement to transfer,
option or right with respect to, or Lien on, any property or assets of the
Company or any Restricted Subsidiary not otherwise prohibited by the Indenture
or (C) arising or agreed to in the ordinary course of business and that do not,
individually or in the aggregate, detract from the value of the property or
assets of the Company or any Restricted Subsidiary in any manner material to the
Company or such Restricted Subsidiary; or (vii) with respect to any Restricted
Subsidiary and imposed pursuant to an agreement that has been entered into for
the sale or disposition of all or substantially all of the Capital Stock of, or
property and assets of, such Restricted Subsidiary. Nothing contained in this
"Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant shall prevent the Company or any Restricted Subsidiary
from (1) entering into any agreement permitting the incurrence of Liens
otherwise permitted under the Indenture or (2) restricting the sale or other
disposition of property or assets of the Company or any of its Subsidiaries that
secure Indebtedness of the Company or any of its Subsidiaries. (Section 4.05)
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Limitation on Senior Subordinated Indebtedness
So long as any of the 11-3/4% Notes are outstanding, the Company will
not Incur any Indebtedness, other than the 11-3/4% Notes, that is expressly made
subordinate in right of payment to any Senior Indebtedness unless such
Indebtedness is either pari passu with, or subordinate in right of payment to,
the 11-3/4% Notes pursuant to provisions substantially similar to those
contained in Article Ten of the Indenture; provided, however, that the foregoing
limitation shall not apply to distinctions between categories of Senior
Indebtedness that exist by reason of any Liens or Guarantees arising or created
in respect of some but not all Senior Indebtedness or by reason of intercreditor
agreements between (i) the holders of the Secured Notes and the Banks or (ii)
the Banks and/or the holders of the Secured Notes, on the one hand, and the
holders of or representatives for other Senior Indebtedness, the proceeds of
which other Senior Indebtedness are used to refinance Indebtedness under the
Credit Agreement and/or the Secured Notes, on the other hand. (Section 4.06)
Limitation on Transactions with Shareholders and Affiliates
So long as any of the 11-3/4% Notes are outstanding, the Company will
not, and will not permit any Subsidiary of the Company to, directly or
indirectly, enter into, renew or extend any transaction (including, without
limitation, the purchase, sale, lease or exchange of property or assets, or the
rendering of any service) with any holder (or any Affiliate of such holder) of
5% or more of any class of Capital Stock of the Company (other than Holdings and
the Bank Agent or any of its Affiliates) or any Subsidiary of the Company or
with any Affiliate of the Company (other than Holdings) or any Subsidiary of the
Company, except upon fair and reasonable terms no less favorable to the Company
or such Subsidiary of the Company than could be obtained in a comparable
arm's-length transaction with a Person that is not such a holder or an
Affiliate.
The foregoing limitation does not limit, and shall not apply to: (i) any
transaction between the Company and any Subsidiary of the Company or between
Subsidiaries of the Company; (ii) transactions (A) for which the Company or any
Subsidiary of the Company delivers to the Trustee a written opinion of a
nationally recognized investment banking firm stating that the transaction is
fair to the Company or such Subsidiary of the Company from a financial point of
view or (B) approved by a majority of the disinterested members of the Board of
Directors; (iii) the payment of fees pursuant to the Management Agreements or
pursuant to any similar management contracts entered into by the Company or any
Subsidiary of the Company; (iv) the payment of reasonable and customary regular
fees to directors of the Company or any Subsidiary of the Company who are not
employees of the Company or such Subsidiary of the Company; (v) any payments or
other transactions pursuant to any tax-sharing agreement between the Company and
Holdings or any other Person with which the Company is required or permitted to
file a consolidated tax return or with which the Company is or could be part of
a consolidated group for tax purposes; (vi) any Restricted Payments not
prohibited by the "Limitation on Restricted Payments" covenant; (vii) the
payment of fees to Morgan Stanley, S&H or their respective Affiliates for
financial, advisory, consulting or investment banking services that the Board of
Directors deems to be advisable or appropriate for the Company or any Subsidiary
of the Company to obtain (including the payment to Morgan Stanley of any
underwriting discounts or commissions or placement agency fees) in connection
with the issuance and sale of any securities by the Company or any Subsidiary of
the Company; or (viii) any transaction contemplated by any of the Stock Based
Plans. (Section 4.07)
Limitation on the Issuance of Capital Stock of Restricted Subsidiaries
So long as any 11-3/4% Notes are outstanding, the Company will not
permit any Restricted Subsidiary to, directly or indirectly, issue or sell any
shares of its Capital Stock (including options, warrants or other rights to
purchase shares of such Capital Stock) except (i) to the Company or another
Restricted Subsidiary that is a Wholly Owned Subsidiary of the Company, (ii)
pursuant to options on such Capital Stock granted to officers
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and directors of such Restricted Subsidiary, (iii) if, immediately after giving
effect to such issuance or sale, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary or (iv) in connection with an initial public
offering of the Common Stock of such Restricted Subsidiary; provided that,
within 12 months after the date the Net Cash Proceeds of such initial public
offering are received by such Restricted Subsidiary, such Restricted Subsidiary
shall (a) apply an amount equal to such Net Cash Proceeds to repay Senior
Indebtedness or Indebtedness of such Restricted Subsidiary, in each case owing
to a Person other than the Company or any of its Subsidiaries, (b) apply an
amount equal to such Net Cash Proceeds to the repurchase of Indebtedness
pursuant to mandatory repurchase or repayment provisions applicable to such
Indebtedness or (c) invest an equal amount, or the amount not so applied
pursuant to subclause (a) (or enter into a definitive agreement committing to so
invest within 12 months of the date of such agreement), in property or assets
that (as determined in good faith by the Board of Directors, whose determination
shall be conclusive and evidenced by a Board Resolution) are of a nature or type
or are used in a business (or in a company having property and assets of a
nature or type, or engaged in a business) similar or related to the nature or
type of the property and assets of, or to the business of, any Restricted
Subsidiary and its Subsidiaries existing on the date thereof.
(Section 4.08).
Repurchase of 11-3/4% Notes upon Change of Control
(a) In the event of a Change in Control, each Holder shall have the
right to require the repurchase of its 11-3/4% Notes by the Company in cash
pursuant to the offer described below (the "Change of Control Offer") at a
purchase price equal to 101% of the principal amount thereof, plus accrued
interest (if any) to the date of purchase (the "Change of Control Payment").
Prior to the mailing of the notice to Holders provided for in the succeeding
paragraph, but in any event within 30 days following any Change of Control, the
Company covenants to (i) repay in full all Indebtedness under the Credit
Agreement and the Secured Notes, or to offer to repay in full all such
Indebtedness and to repay the Indebtedness of each Bank and each holder of
Secured Notes who has accepted such offer or (ii) obtain the requisite consents
under the Credit Agreement and the Secured Notes to permit the repurchase of the
11-3/4% Notes as provided for in the succeeding paragraph. The Company shall
first comply with the covenant in the preceding sentence before it shall be
required to repurchase 11-3/4% Notes pursuant to this "Repurchase of Notes upon
Change of Control" covenant.
(b) Within 30 days of the Change of Control, the Company shall mail a
notice to the Trustee and each Holder stating: (i) that a Change of Control has
occurred, that the Change of Control Offer is being made pursuant to this
"Repurchase of Notes upon Change of Control" covenant and that all 11-3/4% Notes
validly tendered will be accepted for payment; (ii) the purchase price and the
date of purchase (which shall be a Business Day no earlier than 30 days nor
later than 60 days from the date such notice is mailed) (the "Change of Control
Payment Date"); (iii) that any 11-3/4% Note not tendered will continue to accrue
interest; (iv) that, unless the Company defaults in the payment of the Change of
Control Payment, any 11-3/4% Note accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of Control Payment
Date; (v) that Holders electing to have any 11-3/4% Note purchased pursuant to
the Change of Control Offer will be required to surrender such 11-3/4% Note,
together with the form entitled "Option of the Holder to Elect Purchase" on the
reverse side of such 11-3/4% Note completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the Business Day
immediately preceding the Change of Control Payment Date; (vi) that Holders will
be entitled to withdraw their election if the Paying Agent receives, not later
than the close of business on the third Business Day immediately preceding the
Change of Control Payment Date, a telegram, telex, facsimile transmission or
letter setting forth the name of such Holder, the principal amount of 11-3/4%
Notes delivered for purchase and a statement that such Holder is withdrawing his
election to have such 11-3/4% Notes purchased; and (vii) that Holders whose
11-3/4% Notes are being purchased only in part will be issued new 11-3/4% Notes
equal in principal amount to the
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unpurchased portion of the 11-3/4% Notes surrendered; provided that each 11-3/4%
Note purchased and each new 11-3/4% Note issued shall be in an original
principal amount of $1,000 or integral multiples thereof.
(c) On the Change of Control Payment Date, the Company shall: (i) accept
for payment 11-3/4% Notes or portions thereof tendered pursuant to the Change of
Control Offer; (ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all 11-3/4% Notes or portions thereof so accepted; and (iii)
deliver, or cause to be delivered, to the Trustee, all 11-3/4% Notes or portions
thereof so accepted together with an Officers' Certificate specifying the
11-3/4% Notes or portions thereof accepted for payment by the Company. The
Paying Agent shall promptly mail, to the Holders of 11-3/4% Notes so accepted,
payment in an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such Holders a new 11-3/4% Note equal in principal
amount to any unpurchased portion of the 11-3/4% Notes surrendered; provided
that each 11-3/4% Note purchased and each new 11-3/4% Note issued shall be in an
original principal amount of $1,000 or integral multiples thereof. The Company
will publicly announce the results of the Change of Control Offer on or as soon
as practicable after the Change of Control Payment Date. For purposes of this
"Repurchase of 11-3/4% Notes upon Change of Control" covenant, the Trustee shall
act as Paying Agent.
(d) The Company will comply with Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in the event that a Change of Control occurs under
this "Repurchase of 11-3/4% Notes upon Change of Control" covenant and the
Company is required to repurchase 11-3/4% Notes as described above. (Section
4.09)
Limitation on Asset Sales
(a) In the event and to the extent that the Net Cash Proceeds received
by the Company or any Restricted Subsidiary from one or more Asset Sales
occurring on or after the Closing Date in any period of 12 consecutive months
(other than Asset Sales by the Company or any Restricted Subsidiary to the
Company or another Restricted Subsidiary) exceed 15% of Consolidated Net
Tangible Assets in any one fiscal year (determined as of the date closest to the
commencement of such 12-month period for which a consolidated balance sheet of
the Company and its Subsidiaries has been prepared), then the Company shall, or
shall cause such Restricted Subsidiary to, (i) within 12 months after the date
Net Cash Proceeds so received exceed 15% of Consolidated Net Tangible Assets in
any one fiscal year (determined as of the date closest to the commencement of
such 12-month period for which a consolidated balance sheet of the Company and
its Subsidiaries has been prepared) (A) apply an amount equal to such excess Net
Cash Proceeds to repay Senior Indebtedness or repay Indebtedness of such
Restricted Subsidiary, in each case owing to a Person other than the Company or
any of its Subsidiaries or (B) invest an equal amount, or the amount not so
applied pursuant to subclause (A) (or enter into a definitive agreement
committing to so invest within 12 months of the date of such agreement), in
property or assets that (as determined in good faith by the Board of Directors,
whose determination shall be conclusive and evidenced by a Board Resolution) are
of a nature or type or are used in a business (or in a company having property
and assets of a nature or type, or engaged in a business) similar or related to
the nature or type of the property and assets of, or to the business of, the
Company and its Subsidiaries existing on the date thereof and (ii) apply such
excess Net Cash Proceeds (to the extent not applied pursuant to clause (i)) as
provided in the following paragraphs of this "Limitation on Asset Sales"
covenant. The amount of such excess Net Cash Proceeds required to be applied (or
to be committed to be applied) during such 12-month period as set forth in
subclause (A) or (B) of the preceding sentence and not applied as so required by
the end of such period shall constitute "Excess Proceeds."
(b) If, as of the first day of any calendar month, the aggregate amount
of Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as
defined below) totals at least $5 million, the Company must, not later than the
fifteenth Business Day of such month, make an offer (an "Excess Proceeds Offer")
to
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purchase from the Holders on a pro rata basis an aggregate principal amount of
11-3/4% Notes equal to the Excess Proceeds on such date, at a purchase price
equal to 101% of the principal amount thereof, plus accrued interest (if any) to
the date of purchase (the "Excess Proceeds Payment"); provided, however, that no
Excess Proceeds Offer shall be required to be commenced with respect to the
11-3/4% Notes until the Business Day following the date that payments are made
pursuant to a similar offer that is made to holders of the Secured Notes with
respect to the Secured Notes and need not be commenced if the Excess Proceeds
remaining after application to the Secured Notes purchased in the offer made to
the holders of the Secured Notes are less than $5 million; and provided further,
however, that no 11-3/4% Notes may be purchased under this "Limitation on Asset
Sales" covenant unless the Company shall have purchased all Secured Notes
tendered pursuant to the offer applicable thereto.
(c) The Company shall commence an Excess Proceeds Offer by mailing a
notice to the Trustee and each Holder stating: (i) that the Excess Proceeds
Offer is being made pursuant to this "Limitation on Asset Sales" covenant and
that all 11-3/4% Notes validly tendered will be accepted for payment on a pro
rata basis; (ii) the purchase price and the date of purchase (which shall be a
Business Day no earlier than 30 days nor later than 60 days from the date such
notice is mailed) (the "Excess Proceeds Payment Date"); (iii) that any 11-3/4%
Note not tendered will continue to accrue interest; (iv) that, unless the
Company defaults in the payment of the Excess Proceeds Payment, any 11-3/4% Note
accepted for payment pursuant to the Excess Proceeds Offer shall cease to accrue
interest after the Excess Proceeds Payment Date; (v) that Holders electing to
have any 11-3/4% Note purchased pursuant to the Excess Proceeds Offer will be
required to surrender such 11-3/4% Note, together with the form entitled "Option
of the Holder to Elect Purchase" on the reverse side of such 11-3/4% Note
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day immediately preceding the Excess
Proceeds Payment Date; (vi) that Holders will be entitled to withdraw their
election if the Paying Agent receives, not later than the close of business on
the third Business Day immediately preceding the Excess Proceeds Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name of such
Holder, the principal amount of 11-3/4% Notes delivered for purchase and a
statement that such Holder is withdrawing his election to have such 11-3/4%
Notes purchased; and (vii) that Holders whose 11-3/4% Notes are being purchased
only in part will be issued new 11-3/4% Notes equal in principal amount to the
unpurchased portion of the 11-3/4% Notes surrendered; provided that each 11-3/4%
Note purchased and each new 11-3/4% Note issued shall be in an original
principal amount of $1,000 or integral multiples thereof.
(d) On the Excess Proceeds Payment Date, the Company shall: (i) accept
for payment on a pro rata basis 11-3/4% Notes or portions thereof tendered
pursuant to the Excess Proceeds Offer; (ii) deposit with the Paying Agent money
sufficient to pay the purchase price of all 11-3/4% Notes or portions thereof so
accepted; and (iii) deliver, or cause to be delivered, to the Trustee, all
11-3/4% Notes or portions thereof so accepted, together with an Officers'
Certificate specifying the 11-3/4% Notes or portions thereof accepted for
payment by the Company. The Paying Agent shall promptly mail to the Holders of
11-3/4% Notes so accepted payment in an amount equal to the purchase price, and
the Trustee shall promptly authenticate and mail to such Holders a new 11-3/4%
Note equal in principal amount to any unpurchased portion of the 11-3/4% Note
surrendered; provided that each 11-3/4% Note purchased and each new 11-3/4% Note
issued shall be in an original principal amount of $l,000 or integral multiples
thereof. The Company will publicly announce the results of the Excess Proceeds
Offer as soon as practicable after the Excess Proceeds Payment Date. For
purposes of this "Limitation on Asset Sales" covenant, the Trustee shall act as
the Paying Agent.
(e) The Company will comply with Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in the event that such Excess Proceeds are received
by the Company under this "Limitation on Asset Sales" covenant and the Company
is required to repurchase 11-3/4% Notes as described above. (Section 4.10)
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Events of Default
An "Event of Default" occurs with respect to the 11-3/4% Notes if: (i)
the Company defaults in the payment of principal of (or premium, if any, on) any
Note when the same becomes due and payable at maturity, upon acceleration,
redemption or otherwise, whether or not such payment is prohibited by the
subordination provisions of the Indenture; (ii) the Company defaults in the
payment of interest on any Note when the same becomes due and payable, and such
default continues for a period of 30 days, whether or not such payment is
prohibited by the subordination provisions of the Indenture; (iii) the Company
defaults in the performance of or breaches any other covenant or agreement of
the Company in the Indenture or under the 11-3/4% Notes, and such default or
breach continues for a period of 30 consecutive days after written notice by the
Trustee or the Holders of 25% or more in aggregate principal amount of the
11-3/4% Notes; (iv) there occurs with respect to any issue or issues of
Indebtedness of the Company and/or any Significant Subsidiary having an
outstanding principal amount of $5 million or more individually or $10 million
or more in the aggregate for all such issues of the Company and/or any
Significant Subsidiary, whether such Indebtedness now exists or shall hereafter
be created, an event of default that has caused the holder thereof to declare
such Indebtedness to be due and payable prior to its Stated Maturity and such
Indebtedness has not been discharged in full or such acceleration has not been
rescinded or annulled within 30 days of such acceleration; (v) any final
judgment or order (not covered by insurance) for the payment of money in excess
of $5 million individually or $10 million or more in the aggregate for all such
final judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not so covered) shall be rendered against the
Company or any Significant Subsidiary and shall not be discharged, and there
shall be any period of 60 consecutive days following entry of the final judgment
or order in excess of $5 million individually or that causes the aggregate
amount for all such final judgments or orders outstanding against all such
Persons to exceed $10 million during which a stay of enforcement of such final
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect; (vi) a court having jurisdiction in the premises enters a decree or
order for (a) relief in respect of the Company or any Significant Subsidiary in
an involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, (b) appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the Company or
any Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (c) the winding up or
liquidation of the affairs of the Company or any Significant Subsidiary and, in
each case, such decree or order shall remain unstayed and in effect for a period
of 60 consecutive days; (vii) the Company or any Significant Subsidiary (a)
commences a voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or consents to the entry of an order for
relief in an involuntary case under any such law, (b) consents to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (c) effects any general
assignment for the benefit of creditors; (viii) the Company and/or one or more
Significant Subsidiaries fails to make (a) at the final (but not any interim)
fixed maturity of any issue of Indebtedness a principal payment of $5 million or
more or (b) at the final (but not any interim) fixed maturity of more than one
issue of such Indebtedness principal payments aggregating $10 million or more
and, in the case of clause (a), such defaulted payment shall not have been made,
waived or extended within 30 days of the payment default and, in the case of
clause (b), all such defaulted payments shall not have been made, waived or
extended within 30 days of the payment default that causes the amount described
in clause (b) to exceed $10 million; or (ix) there occurs the nonpayment of any
two or more items of Indebtedness that would constitute at the time of such
nonpayments, but for the individual amounts of such Indebtedness, an Event of
Default under clause (iv) or clause (viii) above, or both, and which items of
Indebtedness aggregate $10 million or more. (Section 6.01)
If an Event of Default (other than an Event of Default specified in
clause (vi) or (vii) above that occurs with respect to the Company) occurs and
is continuing under the Indenture, the Trustee thereunder or the
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Holders of at least 25% of the aggregate principal amount of the 11-3/4% Notes
then outstanding, by written notice to the Company (and to the Trustee if such
notice is given by the Holders (the "Acceleration Notice")), may, and the
Trustee at the request of the Holders of at least 25% in aggregate principal
amount of the 11-3/4% Notes then outstanding shall, declare the entire unpaid
principal of, premium, if any, and accrued interest on the 11-3/4% Notes to be
immediately due and payable. Upon a declaration of acceleration, such principal,
premium, if any, and accrued interest shall be immediately due and payable;
provided that, for so long as the Credit Agreement is in effect or any Secured
Notes are outstanding, such declaration shall not become effective until the
earlier of (i) five Business Days after receipt of the Acceleration Notice by
the Bank Agent, the Company and the agent for the holders of the Secured Notes
(which shall be the Bank Agent unless and until the holders of a majority in
principal amount of Secured Notes designate another agent in writing to the
Company and the Trustee) or (ii) acceleration of the Indebtedness under the
Credit Agreement or the Secured Notes; and provided further that such
acceleration shall automatically be rescinded and annulled without any further
action required on the part of the Holders in the event that any and all Events
of Default specified in the Acceleration Notice under the Indenture shall have
been cured, waived or otherwise remedied as provided in the Indenture prior to
the expiration of the period referred to in the preceding clauses (i) and (ii).
In the event of a declaration of acceleration because an Event of Default set
forth in clause (iv), (viii) or (ix) above has occurred and is continuing, such
declaration of acceleration shall be automatically rescinded and annulled if the
event of default triggering such Event of Default pursuant to clause (iv),
(viii) or (ix) shall be remedied, cured by the Company and/or such Significant
Subsidiary or waived by the holders of the relevant Indebtedness within 60 days
after the declaration of acceleration with respect thereto. If an Event of
Default specified in clause (vi) or (vii) above occurs with respect to the
Company, all unpaid principal of, premium, if any, and accrued interest on the
11-3/4% Notes then outstanding shall become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder.
The Holders of at least a majority in principal amount of the outstanding
11-3/4% Notes, by written notice to the Company and to the Trustee, may waive
all past defaults and rescind and annul a declaration of acceleration and its
consequences if (i) all existing Events of Default, other than the non-payment
of the principal of, premium, if any, and interest on the 11-3/4% Notes that
have become due solely by such declaration of acceleration, have been cured or
waived and (ii) the rescission would not conflict with any judgment or decree of
a court of competent jurisdiction. (Sections 6.02 and 6.04) For information as
to the waiver of defaults, see "--Modification and Waiver" below.
The Holders of at least a majority in aggregate principal amount of the
outstanding 11-3/4% Notes may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that the Trustee is advised by counsel conflicts with law or the
Indenture, that may involve the Trustee in personal liability or that the
Trustee determines in good faith may be unduly prejudicial to the rights of
Holders not joining in the giving of such direction. (Section 6.05) A Holder may
not pursue any remedy with respect to the Indenture or the 11-3/4% Notes unless:
(i) the Holder gives to the Trustee written notice of a continuing Event of
Default; (ii) the Holders of at least 25% in aggregate principal amount of
outstanding 11-3/4% Notes make a written request to the Trustee to pursue the
remedy; (iii) such Holder or Holders offer to the Trustee indemnity satisfactory
to the Trustee against any costs, liability or expense; (iv) the Trustee does
not comply with the request within 60 days after receipt of the request and the
offer of indemnity; and (v) during such 60-day period, the Holders of a majority
in aggregate principal amount of the outstanding 11-3/4% Notes do not give the
Trustee a direction that is inconsistent with the request. (Section 6.06)
However, such limitations do not apply to the right of any Holder to receive
payment of the principal of, premium, if any, or interest on its 11-3/4% Notes,
or to bring suit for the enforcement of any such payment, on or after the
respective due dates expressed in its 11-3/4% Notes, which rights shall not be
impaired or affected without the consent of the Holder. (Section 6.07)
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The Indenture requires certain officers of the Company to certify, on or
before a date not more than 120 days after the end of each fiscal year, that a
review has been conducted of the activities of the Company and its Subsidiaries
and the Company's and its Subsidiaries' performance under the Indenture and that
the Company has fulfilled all obligations thereunder, or, if there has been a
default in the fulfillment of any such obligation, specifying each such default
and the nature and status thereof. The Company is also obligated to notify the
Trustee of any default or defaults in the performance of any covenants or
agreements under the Indenture. (Section 4.15)
Consolidation, Merger and Sale of Assets
The Company shall not consolidate with, merge with or into, or sell,
convey, transfer, lease or otherwise dispose of all or substantially all of its
property and assets (as an entirety or substantially as an entirety in one
transaction or a series of related transactions) to, any Person (other than a
Restricted Subsidiary that is a Wholly Owned Subsidiary of the Company with a
positive net worth; provided that, in connection with any merger of the Company
with any Restricted Subsidiary that is a Wholly Owned Subsidiary of the Company,
no consideration (other than common stock in the surviving Person or the
Company) shall be issued or distributed to the stockholders of the Company) or
permit any Person to merge with or into the Company, unless: (i) the Company
shall be the continuing Person, or the Person (if other than the Company) formed
by such consolidation or into which the Company is merged or that acquired or
leased such property and assets of the Company shall be a corporation organized
and validly existing under the laws of the United States of America or any
jurisdiction thereof and shall expressly assume, by supplemental indenture,
executed and delivered to the Trustee, in form satisfactory to the Trustee, all
of the obligations of the Company on all of the 11-3/4% Notes and under the
Indenture; (ii) immediately after giving effect to such transaction, no Event of
Default, and no event that after the giving of notice or lapse of time or both
will become an Event of Default, shall have occurred and be continuing; (iii)
immediately after giving effect to such transaction on a pro forma basis, the
Interest Coverage Ratio of the Company (or any Person becoming the successor
obligor on the 11-3/4% Notes) is at least 1:1; provided that if the Interest
Coverage Ratio of the Company before giving effect to such transaction is within
the range set forth in column (A) below, then the Interest Coverage Ratio of the
Company (or any Person becoming the successor obligor on the 11-3/4% Notes)
shall be at least equal to the lesser of (1) the ratio determined by multiplying
the percentage set forth in column (B) below by the Interest Coverage Ratio of
the Company prior to such transaction and (2) the ratio set forth in column (C)
below:
<TABLE>
<CAPTION>
(A) (B) (C)
--- --- ---
<C> <C> <C>
1.11:1 to 1.99:1......................... 90% 1.5:1
2.00:1 to 2.99:1......................... 80% 2.1:1
3.00:1 to 3.99:1......................... 70% 2.4:1
4.00:1 or more........................... 60% 2.5:1
</TABLE>
and provided further that, if the Interest Coverage Ratio of the Company (or any
Person becoming the successor obligor on the 11-3/4% Notes) is 3:1 or more, the
calculation in the preceding proviso shall be inapplicable and such transaction
shall be deemed to have complied with the requirements of this clause (iii);
(iv) immediately after giving effect to such transaction on a pro forma basis,
the Company (or any Person that becomes the successor obligor on the 11-3/4%
Notes) shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transaction; and
(v) the Company delivers to the Trustee an Officers' Certificate (attaching the
arithmetic computations to demonstrate compliance with clauses (iii) and (iv))
and an Opinion of Counsel, in each case stating that such consolidation, merger
or transfer and such supplemental indenture comply with this provision and that
all conditions precedent provided for herein relating to such transaction have
been complied with; provided, however, that clause (iv) of this covenant (A)
does not apply to, and the Interest Coverage Ratio required by clause (iii) of
this "Consolidation,
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Merger and Sale of Assets" covenant shall be 1.75:1 with respect to, any
consolidation of the Company (or any Person becoming the successor obligor on
the 11-3/4% Notes) with, or merger of the Company (or any Person becoming the
successor obligor on the 11-3/4% Notes) with or into, or any sale, conveyance,
transfer, lease or other disposition of all or substantially all of the property
and assets of the Company (or any Person becoming the successor obligor on the
11-3/4% Notes) or Holdings (or its successor) to, Holdings (or its successor) or
the Company (or any Person becoming the successor obligor on the 11-3/4% Notes),
as the case may be, or (B) does not apply if, in the good faith determination of
the Board of Directors, whose determination shall be evidenced by a Board
Resolution, the principal purpose of such transaction is to change the state of
incorporation of the Company; and provided further, however, that any such
transaction shall not have as one of its purposes the evasion of the limitations
of this covenant. (Section 5.01)
Defeasance
Defeasance and Discharge. The Indenture provides that the Company will
be deemed to have paid and will be discharged from any and all obligations in
respect of the 11-3/4% Notes on the 123rd day after the deposit referred to
below, and the provisions of the Indenture will no longer be in effect with
respect to the 11-3/4% Notes (except for, among other matters, certain
obligations to register the transfer or exchange of the 11-3/4% Notes, to
replace stolen, lost or mutilated 11-3/4% Notes, to maintain paying agencies and
to hold monies for payment in trust) if, among other things, (A) the Company has
deposited with the Trustee, in trust, money and/or U.S. Government Obligations
that through the payment of interest and principal in respect thereof in
accordance with their terms will provide money in an amount sufficient to pay
the principal of, premium, if any, and accrued interest on the 11-3/4% Notes on
the Stated Maturity of such payments in accordance with the terms of the
Indenture and the 11-3/4% Notes, (B) the Company has delivered to the Trustee
(i) either an Opinion of Counsel to the effect that Holders will not recognize
income, gain or loss for federal income tax purposes as a result of the
Company's exercise of its option under this "Defeasance" provision and will be
subject to federal income tax on the same amount and in the same manner and at
the same times as would have been the case if such deposit, defeasance and
discharge had not occurred, which Opinion of Counsel must be accompanied by a
ruling of the Internal Revenue Service to the same effect or a change in
applicable federal income tax law after the date of the Indenture or a ruling
directed to the Trustee received from the Internal Revenue Service to the same
effect as the aforementioned Opinion of Counsel and (ii) an Opinion of Counsel
to the effect that the creation of the defeasance trust does not violate the
Investment Company Act of 1940 and after the passage of 123 days following the
deposit, the trust fund will not be subject to the effect of Section 547 of the
United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor
Law, (C) immediately after giving effect to such deposit on a pro forma basis,
no Event of Default, or event that after the giving of notice or lapse of time
or both would become an Event of Default, shall have occurred and be continuing
on the date of such deposit or during the period ending on the 123rd day after
the date of such deposit, and such deposit shall not result in a breach or
violation of, or constitute a default under, any other agreement or instrument
to which the Company is a party or by which the Company is bound, (D) the
Company is not prohibited from making payments in respect of the 11-3/4% Notes
by the provisions described under "--Subordination," above and (E) if at such
time the 11-3/4% Notes are listed on a national securities exchange, the Company
has delivered to the Trustee an Opinion of Counsel to the effect that the
11-3/4% Notes will not be delisted as a result of such deposit, defeasance and
discharge. (Section 8.02)
Defeasance of Certain Covenants and Certain Events of Default. The
Indenture further provides that the provisions of the Indenture will no longer
be in effect with respect to clauses (iii) and (iv) under "--Consolidation,
Merger and Sale of Assets" and all the covenants described herein under
"--Covenants," clause (iii) under "--Events of Default" with respect to such
covenants and clauses (iii) and (iv) under "--Consolidation, Merger and Sale of
Assets," and clauses (iv), (v) and (viii) under "--Events of Default" shall be
deemed not to be Events of Default, and the provisions described herein under
"--Subordination" shall not
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apply, upon, among other things, the deposit with the Trustee, in trust, of
money and/or U.S. Government Obligations that through the payment of interest
and principal in respect thereof in accordance with their terms will provide
money in an amount sufficient to pay the principal of, premium, if any, and
accrued interest on the 11-3/4% Notes on the Stated Maturity of such payments in
accordance with the terms of the Indenture and the 11-3/4% Note, the
satisfaction of the provisions described in clauses (B)(ii), (C), (D) and (E) of
the preceding paragraph and the delivery by the Company to the Trustee of an
Opinion of Counsel to the effect that, among other things, the Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit and defeasance of certain covenants and Events of Default and will
be subject to federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred. (Section 8.03)
Defeasance and Certain Other Events of Default. In the event the Company
exercises its option to omit compliance with certain covenants and provisions of
the Indenture with respect to the 11-3/4% Notes as described in the immediately
preceding paragraph and the 11-3/4% Notes are declared due and payable because
of the occurrence of an Event of Default that remains applicable, the amount of
money and/or U.S. Government Obligations on deposit with the Trustee will be
sufficient to pay amounts due on the 11-3/4% Notes at the time of their Stated
Maturity but may not be sufficient to pay amounts due on the 11-3/4% Notes at
the time of the acceleration resulting from such Event of Default. However, the
Company shall remain liable for such payments.
The Credit Agreement and the Secured Notes each contain a covenant
prohibiting defeasance of the 11-3/4% Notes. See "Description of Certain
Indebtedness--Description of the Credit Agreement" and "--Description of the
Secured Notes."
Modification and Waiver
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of not less than a majority in
aggregate principal amount of the outstanding 11-3/4% Notes; provided, however,
that no such modification or amendment may, without the consent of each Holder
affected thereby, (i) change the Stated Maturity of the principal of, or any
installment of interest on, any 11-3/4% Note, (ii) reduce the principal amount
of, premium, if any, or interest on, any 11-3/4% Note, (iii) change the place or
currency of payment of principal of, premium, if any, or interest on, any
11-3/4% Note, (iv) impair the right to institute suit for the enforcement of any
payment on or after the Stated Maturity (or, in the case of a redemption, on or
after the Redemption Date) of any 11-3/4% Note, (v) modify the subordination
provisions in a manner adverse to the Holders, (vi) reduce the above-stated
percentage of outstanding 11-3/4% Notes the consent of whose Holders is
necessary to modify or amend the Indenture, (vii) waive a default in the payment
of principal of, premium, if any, or interest on the 11-3/4% Notes or (viii)
reduce the percentage of aggregate principal amount of outstanding 11-3/4% Notes
the consent of whose Holders is necessary for waiver of compliance with certain
provisions of the Indenture or for waiver of certain defaults. (Section 9.02)
The Holders of a majority in aggregate principal amount of the
outstanding 11-3/4% Notes may waive compliance by the Company with certain
restrictive provisions of the Indenture. (Section 9.02)
The Credit Agreement and the Secured Notes each contain a covenant
prohibiting the Company from consenting to any modification of the Indenture or
waiver of any provision thereof without the consent of a specified percentage of
the lenders under the Credit Agreement and the holders of the Secured Notes. See
"Description of Certain Indebtedness--Description of the Credit Agreement" and
"--Description of the Secured Notes."
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No Personal Liability of Incorporators, Shareholders, Officers, Directors or
Employees
The Indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on any of the 11-3/4% Notes, or for any claim
based thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company contained in the Indenture or
in any of the 11-3/4% Notes, or because of the creation of any Indebtedness
represented thereby, shall be had against any incorporator, or past, present or
future shareholder, officer, director, employee or controlling person of the
Company or of any successor thereof. Each Holder, by accepting such Note, waives
and releases all such liability. (Section 11.09)
Concerning the Trustee
Shawmut Bank, N.A. acts as Trustee under the Indenture.
The Indenture provides that, except during the continuance of an Event
of Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. If an Event of Default has occurred and is continuing,
the Trustee will exercise such rights and powers vested in it under such
Indenture and use the same degree of care and skill in its exercise as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs. (Section 7.01)
The provisions of the Trust Indenture Act of 1939, as amended,
incorporated by reference in the Indenture contain limitations on the rights of
the Trustee thereunder, should it become a creditor of the Company, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions; provided, however, that if it
acquires any conflicting interest, it must eliminate such conflict or resign.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain federal income tax
considerations relevant to the purchase, ownership and disposition of the
11-3/4% Notes but does not purport to be a complete analysis of all the
potential tax effects of such purchase, ownership and disposition. This summary
is based upon the Code, Treasury regulations, proposed regulations, IRS rulings
and judicial decisions in effect at the time the 11-3/4% Notes were originally
issued in June 1992. The proposed OID regulations in effect at that time were
issued in 1986 (and amended in 1989 and 1991) (the "1986 Proposed Regulations").
The 1986 Proposed Regulations, which were ambiguous in certain respects, were
withdrawn as of December 21, 1992 and replaced by new proposed OID regulations
issued on that date (the "1992 Proposed Regulations"). The 1992 Proposed
Regulations, which substantially revised the 1986 Proposed Regulations , were
replaced by final regulations issued on January 27, 1994 (the "Final
Regulations"), which generally followed the 1992 Proposed Regulations. However,
the IRS has stated that it will allow taxpayers to treat the 1986 Proposed
Regulations as authority under Code Section 6662 for debt instruments issued
prior to December 22, 1992, and, accordingly, the discussion below remains
applicable to the
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11-3/4% Notes to that extent.
This information is directed only to investors who will hold the 11-3/4%
Notes as "capital assets" within the meaning of Section 1221 of the Code. It
does not address all aspects of the federal income tax consequences of holding
11-3/4% Notes that may be relevant to a particular investor in the context of
such investor's individual investment circumstance or to investors in special
tax situations, such as life insurance companies, banks, tax-exempt
organizations, dealers in securities and foreign persons or foreign entities.
This summary does not discuss tax consequences under state, local, or foreign
tax laws. Persons considering the purchase of 11-3/4% Notes should consult with
their own tax advisors concerning the application of United States federal
income tax laws, as well as the laws of any state, local or foreign taxing
jurisdictions, to their particular situations.
The following discussion, subject to the qualifications stated herein,
describes the material federal income tax considerations relevant to the
purchase, ownership and disposition of the 11-3/4% Notes and constitutes the
opinion of Winthrop, Stimson, Putnam & Roberts, counsel to Silgan. Such opinion
represents its best legal judgment, but it will not be binding on the IRS or the
courts. Silgan has not sought, nor does it intend to seek, a ruling from the IRS
that its position as reflected in the following discussion will be accepted by
the IRS.
Interest on 11-3/4% Notes. Subject to the discussion in the next
succeeding paragraph, a holder of an 11-3/4% Note is required to include in
income the stated interest on the 11-3/4% Note in accordance with the holder's
method of tax accounting. A holder of an 11-3/4% Note using the cash method of
accounting for tax purposes generally is required to include such interest in
income when cash payments are actually received (or made available for receipt
if earlier) by the holder. A holder of an 11-3/4% Note using the accrual method
of accounting for tax purposes generally is required to include such interest in
income as it accrues. Further, if a holder purchases an 11-3/4% Note on or after
April 4, 1994, such holder may be entitled to elect to treat all interest on the
Debenture as OID (the "Constant Yield Election"). For this purpose, "interest"
includes stated interest, OID and market discount (as such may be adjusted by
amortization of premium; see "--Bond Premium" below). Once made, the election
cannot be revoked without IRS consent, and in certain circumstances may cause
deemed elections for all of such holder's debt instruments purchased at a market
discount or premium. See "--Market Discount" and "--Bond Premium" below. Holders
are urged to consult with their tax advisors with regard to the advisability of
making such an election.
If a holder owns the 11-3/4% Notes and either the Secured Notes or the
Holdings Discount Debentures, or, possibly, if a holder owns only the 11-3/4%
Notes but the 11-3/4% Notes are not traded on an established securities market,
the 1986 Proposed Regulations could, under certain circumstances, be interpreted
to require that some or all of such notes and debentures be aggregated and
treated as a single debt instrument for purposes of computing original issue
discount. If these aggregation rules were to apply, the 11-3/4% Notes could be
treated as having original issue discount and cash basis taxpayers who hold the
11-3/4% Notes could be required to report stated interest on the 11-3/4% Notes
as original issue discount on an accrual basis prior to the receipt of cash
attributable to that stated interest.
In any event, a holder of the 11-3/4% Notes who does not also hold
either the Secured Notes or the Holdings Discount Debentures should not be
subject to these aggregation rules if the 11-3/4% Notes are treated as
separately traded on an established securities market. Moreover, absent further
clarification of the 1986
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Proposed Regulations, the Company does not intend to treat any of the 11-3/4%
Notes as being subject to these aggregation rules.
Since the issue price of the 11-3/4% Notes equals their stated
redemption price at maturity (i.e., their principal amount) and the Company does
not intend to treat any of the 11-3/4% Notes as being subject to the aggregation
rules (discussed above), the remaining discussion set forth below assumes that
the 11-3/4% Notes were not issued with original issue discount. Prospective
purchasers of the 11-3/4% Notes are advised to consult their own tax advisors
with respect to the existence of original issue discount and the consequences
thereof.
Disposition of Securities. Upon a redemption, sale or exchange of an
11-3/4% Note, a holder will recognize gain or loss measured by the difference
between the amount received in exchange therefor (other than the portion
received for accrued but unpaid interest which portion is treated as interest
received) and such holder's adjusted tax basis in the 11-3/4% Note. Except to
the extent the market discount rules described below apply, any gain or loss
recognized on the redemption, sale or exchange of an 11-3/4% Note will be
long-term capital gain or loss if such 11-3/4% Note is held as a capital asset
for the applicable long-term holding period (currently, more than one year) at
the time of such redemption, sale or exchange. A holder's initial tax basis in
an 11-3/4% Note will be equal to the price paid for such 11-3/4% Note and may be
subject to adjustment as described below under market discount and bond premium.
Market Discount. The sale of the 11-3/4% Notes may be affected by the
market discount provisions of the Code. Generally, market discount will exist to
the extent a holder's purchase price for an 11-3/4% Note (presumably exclusive
of the portion attributable to accrued but unpaid interest) is less than the
principal amount of the 11-3/4% Note. Under a statutory de minimis rule,
however, market discount on a debt instrument will be considered to be zero for
purposes of the rules discussed below if such market discount is less than 0.25%
of the principal amount of the debt instrument at maturity multiplied by the
number of complete years (that is, rounding down for partial years) to maturity
(after the holder acquires the instrument).
Generally, holders of an 11-3/4% Note who acquire the 11-3/4% Note with
market discount will be required to treat any gain realized upon the sale or
other disposition of such 11-3/4% Note as ordinary income to the extent of the
market discount that accrued (but was not previously included in income) during
the period such holder held the 11-3/4% Note. Market discount on a debt
instrument generally accrues on a straight-line basis in equal daily portions
or, at the election of the holder, under a constant interest method. If a holder
disposes of an 11-3/4% Note in any transaction other than a sale, exchange or
involuntary conversion (for example, as a gift), that holder generally is
treated as having an amount realized equal to the fair market value of the
11-3/4% Note and will be required to recognize as ordinary income any gain on
disposition to the extent of the accrued and previously unrecognized market
discount. As a result of this rule, a holder may be required to recognize
ordinary income on the disposition of an 11-3/4% Note, even though the
disposition would not otherwise be taxable.
Generally, if a holder incurs or continues indebtedness for the purpose
of purchasing or carrying an 11-3/4% Note acquired at a market discount, the
"net direct interest expense" arising from the indebtedness is allowed as a
current deduction only to the extent it exceeds the portion of market discount
allocable to the days during the year which the 11-3/4% Note was held by such
holder. Net direct interest expense is the excess, if any, of the amount of
interest paid or accrued during the taxable year on such indebtedness over the
aggregate amount of interest (including OID, if any) includible in gross income
for the taxable year with respect to the 11-3/4% Note. Net direct interest
expense that exceeds the amount currently deductible is allowable as a deduction
in any subsequent year, to the extent it does not exceed net interest income
(that is, interest income on the 11-3/4% Note (including OID, if any) less
interest on indebtedness incurred or continued to purchase
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or carry the 11-3/4% Note) for such year, if a proper election is made.
Disallowed interest deductions, if any, remaining at the time of any taxable
disposition of the 11-3/4% Note would be treated as interest paid or accrued in
the year of disposition.
A holder may elect to include market discount in income as such discount
accrues with a corresponding increase in the holder's tax basis in the 11-3/4%
Note. If a holder so elects, the foregoing rules regarding the treatment as
ordinary income of gain upon a disposition of an 11-3/4% Note, and regarding the
deferral of interest deductions on indebtedness incurred or continued to
purchase or carry an 11-3/4% Note, would not apply. Once made, such an election
applies to all debt obligations of the holder that are purchased at a market
discount on or after the first day of the first taxable year for which the
election is made, and all subsequent taxable years of the holder, unless the IRS
consents to a revocation of the election. Holders are urged to consult their own
tax advisors with regard to the advisability of making such an election or any
of the other elections with respect to market discount described above.
The market discount provisions also contain a rule providing that in the
case of a partial principal payment on a market discount bond, the holder must
include in income at the time of the partial principal payment the portion of
the unrecognized market discount that accrued prior to the receipt of such
payment (up to the amount of such payment). It is unclear whether this rule
would apply in the case of a partial redemption of an 11-3/4% Note acquired with
market discount.
Bond Premium. If a holder of an 11-3/4% Note acquires such 11-3/4% Note
at a cost in excess of its principal amount, the 11-3/4% Note will be purchased
at a premium. Under the bond premium rules contained in the Code, generally,
such holder should be entitled to elect to offset its interest income by an
allocable portion of the bond premium pursuant to Section 171 of the Code, with
a corresponding reduction to the holder's tax basis in the 11-3/4% Note, under a
constant yield method over the remaining term of the 11-3/4% Note. Such a holder
should consult a tax advisor to determine the advisability of such an election.
However, if the 11-3/4% Note is purchased at a time when the 11-3/4% Note may be
optionally redeemed for an amount that is in excess of its principal amount,
special rules would apply that could result in a deferral of the amortization of
bond premium until later in the term of the 11-3/4% Note. An election to
amortize bond premium applies to all taxable debt obligations then owned and
thereafter acquired by the holder and may be revoked only with the permission of
the IRS.
Backup Withholding. Under Section 3406 of the Code and applicable
Treasury regulations, a holder of an 11-3/4% Note may be subject to backup
withholding at a rate of 31% of certain amounts paid or deemed paid to the
holder unless such holder (a) is a corporation or comes within certain other
exempt categories and, when required, provides proof of such exemption or (b)
provides a correct taxpayer identification number, certifies that he has not
lost exemption from backup withholding, and has met the requirements for the
reporting of previous income set forth in the backup withholding rules. Holders
of 11-3/4% Notes should consult their tax advisors as to their qualification for
exemption from withholding and the procedure for obtaining such an exemption.
Amounts paid as backup withholding do not constitute an additional tax and will
be credited against the holder's federal income tax liability.
EXCEPT AS DISCUSSED ABOVE, NO INFORMATION IS PROVIDED HEREIN AS TO THE
TAX TREATMENT OF HOLDERS OF THE 11-3/4% NOTES UNDER APPLICABLE UNITED STATES OR
OTHER TAX LAWS. THE DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY
NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR SITUATION. FOR EXAMPLE,
THE DISCUSSION MAY NOT BE APPLICABLE WITH RESPECT TO HOLDERS WHO ARE NOT
CITIZENS OR RESIDENTS OF THE UNITED STATES. THEREFORE, PROSPECTIVE PURCHASERS OF
11-3/4% NOTES ARE URGED TO CONSULT WITH THEIR OWN
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TAX ADVISORS REGARDING THE PARTICULAR TAX CONSEQUENCES TO THEM OF ACQUIRING,
OWNING AND DISPOSING OF THE 11-3/4% NOTES, INCLUDING THE APPLICATION OF FEDERAL,
STATE, LOCAL AND FOREIGN AND OTHER TAX LAWS AND POSSIBLE FUTURE CHANGES IN SUCH
TAX LAWS.
MARKET-MAKING ACTIVITIES OF
MORGAN STANLEY
The Prospectus is to be used by Morgan Stanley in connection with offers
and sales of the 11-3/4% Notes in market-making transactions at negotiated
prices related to prevailing market prices at the time of sale. Morgan Stanley
may act as principal or agent in such transactions. Morgan Stanley has no
obligation to make a market in the 11-3/4% Notes, and may discontinue its
market-making activities at any time without notice, in its sole discretion.
Morgan Stanley acted as underwriter in connection with the original
offering of the 11-3/4% Notes and received an underwriting discount of
$4,050,000 in connection therewith.
As of the date of this Prospectus, MSLEF II owns 38.48% of the
outstanding voting common stock of Holdings. See "Securities Ownership of
Certain Beneficial Owners and Management--Certain Beneficial Owners of Holdings'
Capital Stock." Morgan Stanley also acted as the purchaser for the private
placement of the Secured Notes and the underwriter for the Holdings Debentures
Offering, for which it was paid an aggregate of $7,482,708. For a description of
certain transactions between the Company and Morgan Stanley and affiliates of
Morgan Stanley, see "Certain Transactions."
In connection with the original offering of the 11-3/4% Notes, the
Company agreed to indemnify Morgan Stanley, as the underwriter, and A.G. Edwards
& Sons, Inc., as a "qualified independent underwriter," against certain
liabilities, including liabilities under the Securities Act.
Morgan Stanley has provided, and continues to provide, investment
banking services to the Company and its affiliates.
LEGAL MATTERS
The legality of the 11-3/4% Notes has been passed on for the Company by
Winthrop, Stimson, Putnam & Roberts, Financial Centre, 695 East Main Street,
Stamford, Connecticut 06901. G. William Sisley, a partner in Winthrop, Stimson,
Putnam & Roberts, is Secretary of the Company and Holdings. Winthrop, Stimson,
Putnam & Roberts from time to time represents Morgan Stanley in connection with
certain legal matters unrelated to its representation of the Company.
EXPERTS
The consolidated financial statements of Silgan Corporation at December
31, 1994 and 1993, and for each of the three years in the period ended December
31, 1994 appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP
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, independent auditors, as set forth in their report thereon appearing elsewhere
herein and in the Registration Statement, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
SILGAN CORPORATION:
Report of Independent Auditors..............................................F-2
Consolidated Balance Sheets at December 31, 1994 and 1993...................F-3
Consolidated Statements of Operations for the years ended
December 31, 1994, 1993 and 1992..........................................F-4
Consolidated Statements of Common Stockholder's Equity for
the years ended December 31,
1994, 1993 and 1992........................................ ............F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992..........................................F-6
Notes to Consolidated Financial Statements................................. F-8
Condensed Unaudited Consolidated Balance Sheets at
March 31, 1995 and 1994..................................................F-31
Condensed Unaudited Consolidated Statements of Operations
for the three months ended
March 31, 1995 and 1994..................................................F-32
Condensed Unaudited Consolidated Statements of Cash Flows
for the three months ended March 31, 1995 and 1994......................F-33
Notes to Condensed Unaudited Consolidated Financial Statements.............F-34
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
Silgan Corporation
We have audited the accompanying consolidated balance sheets of Silgan
Corporation as of December 31, 1994 and 1993, and the related consolidated
statements of operations, common stockholder's equity and cash flows for
each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Silgan Corporation at December 31, 1994 and 1993, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
As discussed in Notes 2 and 6 to the consolidated financial statements,
in 1993 the Company changed its method of accounting for income taxes,
postemployment benefits and postretirement benefits other than pensions.
Ernst & Young LLP
Stamford, CT
March 17, 1995
F-2<PAGE>
SILGAN CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and 1993
(Dollars in thousands)
ASSETS 1994 1993
Current assets:
Cash and cash equivalents $ 2,665 $ 205
Accounts receivable, less allowances for
doubtful accounts of $1,557 and $1,084 for
1994 and 1993, respectively 65,229 44,409
Inventories 122,429 108,653
Prepaid expenses and other current assets 8,044 3,562
Total current assets 198,367 156,829
Property, plant and equipment, at cost:
Land 3,707 4,469
Buildings and improvements 51,665 56,087
Machinery and equipment 346,061 352,409
Construction in progress 18,124 19,894
419,557 432,859
Less accumulated depreciation and amortization (167,747) (142,464)
Net property, plant and equipment 251,810 290,395
Goodwill, net of amortization 30,009 24,175
Other assets 20,491 20,665
$500,677 $492,064
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Trade accounts payable $ 36,845 $ 31,913
Accrued payroll and related costs 26,019 20,523
Accrued interest payable 1,713 783
Accrued expenses and other current liabilities 17,542 11,094
Bank working capital loans 12,600 2,200
Current portion of long-term debt 21,968 20,000
Total current liabilities 116,687 86,513
Long-term debt 282,568 305,000
Deferred income taxes 13,017 13,017
Other long-term liabilities 25,060 34,731
Stockholder's equity:
Common stock ($0.01 par value per share;
3,000 shares authorized, 2 shares issued) - -
Additional paid-in capital 69,535 64,135
Retained earnings (deficit) (6,190) (11,332)
Total common stockholder's equity 63,345 52,803
$500,677 $492,064
See accompanying notes.
F-3<PAGE>
SILGAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1994, 1993 and 1992
(Dollars in thousands)
1994 1993 1992
Net sales $861,374 $645,468 $630,039
Cost of goods sold 747,457 571,174 554,972
Gross profit 113,917 74,294 75,067
Selling, general and
administrative expenses 37,993 31,821 32,274
Reduction in carrying value of assets 16,729 - -
Income from operations 59,195 42,473 42,793
Interest expense and other
related financing costs 36,142 27,928 26,916
Income before income taxes 23,053 14,545 15,877
Income tax provision 11,000 6,300 2,200
Income before extraordinary
charges and cumulative effects of
changes in accounting principles 12,053 8,245 13,677
Extraordinary charges relating to early
extinguishment of debt, net of taxes - (841) (9,075)
Cumulative effect of changes in accounting
principles, net of taxes - (9,951) -
Net income (loss) 12,053 (2,547) 4,602
Preferred stock dividend requirements - - 2,745
Net income (loss) applicable to
common stockholder $ 12,053 $ (2,547) $ 1,857
See accompanying notes.
F-4<PAGE>
SILGAN CORPORATION
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
For the years ended December 31, 1994, 1993 and 1992
(Dollars in thousands)
Total
Additional Retained common
Common paid-in Earnings stockholder's
stock capital (deficit) equity
Balance at December 31, 1991 $ - $41,560 $ 5,082 $46,642
Preferred stock dividend
requirements - - (2,745) (2,745)
Net income - - 4,602 4,602
Dividend to Parent - - (15,724) (15,724)
Balance at December 31, 1992 - 41,560 (8,785) 32,775
Capital contribution
by Parent - 15,000 - 15,000
Tax benefit realized
from Parent - 7,575 - 7,575
Net loss - - (2,547) (2,547)
Balance at December 31, 1993 - 64,135 (11,332) 52,803
Tax benefit realized
from Parent - 5,400 - 5,400
Net income - - 12,053 12,053
Payments to former shareholders - - (6,911) (6,911)
Balance at December 31, 1994 $ - $69,535 $(6,190) $63,345
See accompanying notes.
F-5<PAGE>
SILGAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1994, 1993 and 1992
(Dollars in thousands)
1994 1993 1992
Cash flows from operating activities:
Net income (loss) $ 12,053 $ (2,547) $ 4,602
Adjustments to reconcile net
income (loss) to net cash provided
by operating activities:
Depreciation 35,392 31,607 29,538
Amortization 6,404 4,817 4,424
Reduction in carrying value of assets 16,729 - -
Other items 792 (136) 1,215
Contribution by Parent for federal
income tax provision 5,400 7,575 -
Extraordinary charges relating
to early extinguishment of debt - 1,341 9,075
Cumulative effect of changes in
accounting principles - 6,276 -
Changes in assets and liabilities,
net of effect of acquisitions:
(Increase) decrease in accounts
receivable (21,293) 707 (8,705)
(Increase) decrease in inventories (16,741) (4,316) 5,541
Increase (decrease) in trade
accounts payable 4,478 3,757 (4,330)
Other, net 4,121 (750) (7,000)
Total adjustments 35,282 50,878 29,758
Net cash provided by operating
activities 47,335 48,331 34,360
Cash flows from investing activities:
Acquisition of Del Monte Can
Manufacturing Assets 519 (73,865) -
Capital expenditures (29,184) (42,480) (23,447)
Proceeds from sale of assets 765 262 429
Net cash used in investing activities (27,900) (116,083) (23,018)
Continued on following page.
F-6<PAGE>
SILGAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the years ended December 31, 1994, 1993 and 1992
(Dollars in thousands)
1994 1993 1992
Cash flows from financing activities:
Borrowings under working capital loans $393,250 $328,050 $316,050
Repayments under working capital loans (382,850) (366,250) (296,850)
Proceeds from issuance of long-term debt - 140,000 185,000
Reduction of long-term debt (20,464) (42,580) (125,205)
Premium paid on early retirement of debt - - (4,250)
Repayment of advance from Parent - - (25,200)
Capital contribution by Parent - 15,000 -
Payments to former shareholders (6,911) - -
Dividend to Parent - - (15,724)
Redemption of preferred stock - - (31,508)
Cash dividends paid on preferred stock - - (1,137)
Debt financing costs - (8,935) (10,250)
Net cash provided (used) by financing
activities (16,975) 65,285 (9,074)
Net increase (decrease) in cash and
cash equivalents 2,460 (2,467) 2,268
Cash and cash equivalents at
beginning of year 205 2,672 404
Cash and cash equivalents at
end of year $ 2,665 $ 205 $ 2,672
Supplementary data:
Interest paid $ 30,718 $ 25,733 $ 29,046
Income taxes paid, net of refunds 2,588 722 1,206
Additional preferred stock issued
in lieu of dividend - - 2,130
See accompanying notes.
F-7<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
1. Basis of Presentation
Silgan Corporation ("Silgan", together with its wholly owned subsidiaries,
Silgan Containers Corporation ("Containers") and Silgan Plastics
Corporation ("Plastics"), the "Company") is a wholly owned subsidiary of
Silgan Holdings Inc. ("Holdings" or "Parent"). Holdings is a company
controlled by Silgan management and The Morgan Stanley Leveraged Equity
Fund II, L.P. ("MSLEF II"), an affiliate of Morgan Stanley & Co.,
Incorporated ("MS & Co.").
The Company, a North American packaging manufacturer, is engaged in the
manufacture and sale of steel, aluminum and paperboard containers, mainly
to processors and packagers of food products, and the design, manufacture
and sale of various plastic containers, mainly for health, personal care,
food, beverage, pharmaceutical and household chemical products.
2. Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly-owned. All significant
intercompany transactions have been eliminated. Assets and liabilities of
the Company's foreign subsidiary are translated at rates of exchange in
effect at the balance sheet date. Income amounts are translated at the
average of monthly exchange rates.
Cash and cash equivalents
Cash equivalents represent investments with maturities of three months or
less from the time of purchase and are carried at cost which approximates
fair value due to the short maturities of those instruments.
Accounts Receivable
Accounts receivable consist primarily of amounts due from domestic
companies. Credit is extended based on an evaluation of the customer's
financial condition and collateral is not generally required. The Company
maintains an allowance for doubtful accounts at a level which management
believes is sufficient to cover potential credit losses.
F-8<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
2. Summary of Significant Accounting Policies (continued)
Inventories
Inventories are stated at the lower of cost or market (net realizable
value) and are principally accounted for by the last-in, first-out method
(LIFO). The components of inventories at December 31, 1994 and 1993
consist of the following (in thousands):
1994 1993
Raw materials and supplies $ 40,196 $ 26,458
Work-in-process 19,045 17,105
Finished goods 63,409 65,072
122,650 108,635
Adjustment to value inventory
at cost on the LIFO method (221) 18
$122,429 $108,653
The amount of inventory recorded on the first-in first-out method at
December 31, 1994 and 1993 was $6.5 million and $7.4 million, respectively.
Property, plant and equipment
Property, plant and equipment are recorded at historical cost and are
depreciated on the straight-line method over their estimated useful lives.
Major renewals and betterments are capitalized and maintenance and repair
expenditures are charged to expense as incurred. The total amount of
repairs and maintenance expense was $19.9 million in 1994; $17.1 million in
1993; and $15.0 million in 1992.
The principal estimated useful lives are 35 years for buildings and range
between 3 to 18 years for machinery and equipment. Effective October 1,
1994, the Company extended the estimated useful lives of certain fixed
assets to more properly reflect the true economic lives of the assets and
to better align the Company's depreciable lives with the predominate
practice in industry. The change had the effect of decreasing depreciation
expense for the fourth quarter and the year by approximately $1.3 million
and increasing net income by $0.8 million.
F-9<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
2. Summary of Significant Accounting Policies (continued)
Property, plant and equipment (continued)
Based upon a review of its depreciable assets, the Company determined, in
the fourth quarter of 1994, that certain adjustments were necessary to
properly reflect net realizable values. These adjustments include $2.6
million to write-down the excess carrying value over estimated realizable
value of various plant facilities held for sale and $14.1 million to reduce
the carrying value of certain technologically obsolete and inoperable
equipment.
Goodwill
The Company has classified as goodwill the cost in excess of fair value of
net assets acquired in purchase transactions. Goodwill is being amortized
on a straight-line basis over periods ranging between 20 and 40 years. The
Company periodically evaluates the existence of goodwill impairment to
assess whether goodwill is fully recoverable from projected, undiscounted
net cash flows of the related business unit. Impairments would be
recognized in operating results if a permanent diminution in value were to
occur. Goodwill amortization charged to operations was $1.2 million in
1994; $0.5 million in 1993; and $0.5 million in 1992. Accumulated
amortization of goodwill at December 31, 1994 and 1993 was $3.7 million and
$2.5 million, respectively.
Other Assets
Other assets consist principally of debt issuance costs which are being
amortized straight-line over the terms of the related debt agreements (3 to
10 years). The charge incurred for amortization of debt issuance cost was
$4.6 million in 1994; $2.6 million in 1993; and $2.2 million in 1992.
Other intangible assets are amortized over their expected useful lives
using the straight-line method.
Other assets at December 31, 1994 and 1993 consist of the following (in
thousands):
1994 1993
Debt issuance costs $18,092 $18,163
Other 9,519 4,396
27,611 22,559
Less: accumulated amortization (7,120) (1,894)
$20,491 $20,665
F-10<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
2. Summary of Significant Accounting Policies (continued)
Revenue Recognition
The Company recognizes revenue from product sales upon shipment to the
customer. As is common in the packaging industry, the Company must
manufacture containers for its seasonal pack customers throughout the year.
Revenue is recognized for such customers at the time insurable risk has
passed to the customer.
Income Taxes
Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting
for Income Taxes". Under SFAS No. 109, the liability method is used to
calculate deferred income taxes. The provision for income taxes includes
federal, state and foreign income taxes currently payable and those
deferred because of temporary differences between the financial statement
and tax bases of assets and liabilities. The Company had previously
reported under SFAS No. 96, "Accounting for Income Taxes". Under SFAS No.
96, the Company had recognized a federal income tax benefit from the tax
losses of Holdings. Under SFAS No. 109, this benefit will be reflected as
a contribution to additional paid-in capital instead of as a reduction of
income tax expense. As a result of this change, effective January 1, 1993,
the Company recorded a cumulative charge to earnings and a credit to paid-
in-capital of $6 million for the difference in methods up to the date of
adoption. As permitted by SFAS No. 109, the 1992 financial statements have
not been restated. See Note 7 - Income Taxes.
Postemployment Benefits
During 1993, the Company adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits". The cumulative effect as of January 1, 1993 of
this accounting change was to decrease net income by $0.8 million (after
related income taxes of $0.5 million).
Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
F-11<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
2. Summary of Significant Accounting Policies (continued)
Fair Values of Financial Instruments (continued)
Short and long-term debt: The carrying amounts of the Company's borrowings
under its working capital loans and variable-rate borrowings approximate
their fair value. The fair values of fixed-rate borrowings are based on
quoted market prices.
Letters of Credit: Fair values of the Company's outstanding letters of
credit are based on current contractual amounts outstanding.
Derivatives
The Company has limited involvement with derivative financial instruments
and does not use them for trading purposes. On occasion, the Company has
used interest rate hedge agreements to reduce the impact of increases in
interest rates on floating-rate long-term debt. During 1994 and 1993, the
Company was not party to any interest rate hedge agreements. In addition,
during 1994 and 1993, the Company did not use derivative instruments to
hedge its commodity and foreign exchange risks.
3. Acquisitions
On December 21, 1993, Containers acquired from Del Monte Corporation ("Del
Monte") substantially all of the fixed assets and certain working capital
of Del Monte's container manufacturing business in the United States ("DM
Can"). The final purchase price for the assets acquired and the assumption
of certain specified liabilities, including related transaction costs, was
$73.3 million. The acquisition was accounted for as a purchase transaction
and the results of operations have been included with the Company's results
from the acquisition date. During 1994, the Company finalized its purchase
price accounting, adjusting the fair value of assets acquired and
liabilities assumed to the amounts determined based upon final appraisals
and valuations. The excess of the purchase price over the fair value of
net assets acquired was allocated to goodwill. The aggregate purchase cost
and its allocation to the assets and liabilities is as follows (in
thousands):
Net working capital acquired $21,944
Property, plant and equipment 47,167
Goodwill 13,729
Other liabilities assumed (9,494)
$73,346
F-12<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
3. Acquisitions (continued)
Set forth below is the Company's summary unaudited pro forma results of
operations for the years ended December 31, 1993 and 1992. The unaudited
pro forma results of operations include the combined historical results of
DM Can and the Company after giving effect to certain pro forma
adjustments.
The pro forma adjustments to the historical results of operations reflect
the sales prices set forth in the supply agreement with Del Monte, the
effect of purchase accounting adjustments based upon appraisals and
valuations, the financing of the acquisition and certain other adjustments
as if these events had occurred as of the beginning of the periods
mentioned therein. The following unaudited pro forma results of operations
do not purport to represent what the Company's results of operations would
actually have been had the transactions in fact occurred on the dates
indicated, or to project the Company's results for any future period (in
thousands):
1993 1992
Net sales $818,614 $819,579
Income from operations 51,343 57,282
Income before income taxes 18,877 25,353
Income before extraordinary charges
and cumulative effect of accounting changes 10,844 22,301
Net income 52 13,226
4. Short-Term Borrowings and Long-Term Debt
1994 1993
(in thousands)
Short-term borrowings are as follows:
Bank Working Capital Loans $ 12,600 $ 2,200
Long-term debt consists of the following:
Bank A Term Loans $ 39,845 $ 60,000
Bank B Term Loans 79,691 80,000
Senior Secured Floating Rate Notes due
June 30, 1997 50,000 50,000
11 3/4% Senior Subordinated Notes due
June 15, 2002 135,000 135,000
304,536 325,000
Less: Amounts due within one year 21,968 20,000
$282,568 $305,000
F-13<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
4. Short-Term Borrowings and Long-Term Debt (continued)
The aggregate annual maturities of long-term debt at December 31, 1994 are
as follows (in thousands):
1995 $ 21,968
1996 97,568
1997 50,000
1998 -
1999 -
2000 and thereafter 135,000
$304,536
Bank Credit Agreement
On December 21, 1993, the Company, Containers and Plastics (the
"Borrowers") entered into a new credit agreement (the "Credit Agreement"),
with a group of banks to refinance in full amounts owing under the former
bank credit facility, which included $41.6 million of term loans, and to
finance, in part, the acquisition of DM Can. As a result of the early
extinguishment of debt, the Company incurred a charge of $0.8 million (net
of $0.5 million of taxes). Pursuant to the Credit Agreement, the Company
borrowed $60.0 million of A Term Loans and $80.0 million of B Term Loans.
The A Term Loans are payable each year in scheduled installments with the
final payment due September 15, 1996. The B Term Loans are payable in full
on September 15, 1996. Additionally, further repayments are required at
the time of certain asset sales or the issuance of equity. During 1994, in
addition to the $20.0 million mandatory payment, a repayment of $0.5
million was made upon the sale of certain assets.
The Credit Agreement also provides Containers and Plastics, together, with
a revolving credit facility of $70.0 million for working capital needs (the
"Working Capital Loans"). The aggregate amount of Working Capital Loans
which may be outstanding at anytime is limited to 85% of Containers' and
Plastics' eligible accounts receivable and 50% of Containers' and Plastics'
eligible inventory. In lieu of Working Capital Loans, Containers and
Plastics may request the issuance of up to $15.0 million of letters of
credit. At December 31, 1994, commitments under the revolving credit
facility of $51.9 million were available after taking into account
outstanding letters of credit of $5.5 million. The Working Capital Loans
can be borrowed, repaid and reborrowed from time-to-time until final
maturity on September 15, 1996.
F-14<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
4. Short-Term Borrowings and Long-Term Debt (continued)
Bank Credit Agreement (continued)
The borrowings under the Credit Agreement may be designated by the
respective Borrowers as Base Rate or Eurodollar Rate borrowings. The Base
Rate is the highest of (i) 1/2 of 1% in excess of Adjusted Certificate of
Deposit Rate, (ii) 1/2 of 1% in excess of the Federal Funds Rate or (iii)
Bankers Trust Company's prime lending rate. Base Rate borrowings bear
interest at the Base Rate plus 1.75%, in the case of A Term Loans; 2.0%, in
the case of Working Capital Loans; and 2.25%, in the case of B Term Loans.
Eurodollar Rate borrowings bear interest at the Eurodollar Rate plus 2.75%
in the case of A Term Loans; 3.0%, in the case of Working Capital Loans;
and 3.25%, in the case of B Term Loans. At December 31, 1994 the interest
rate for Base Rate borrowings ranged between 10 1/4% and 10 1/2% and for
Eurodollar Rate borrowings ranged between 8 5/8% and 10%.
For 1994, 1993 and 1992, respectively, the average amount of borrowings
under the Working Capital Loans was $14.4 million, $51.9 million and $44.5
million; the average annual interest rate paid on borrowings was 8.4%, 6.0%
and 6.3%; and the highest amount of such borrowings at any month-end was
$43.9 million, $80.3 million and $80.8 million.
The Credit Agreement provides for the payment of a commitment fee of 0.5%
per annum on the daily average unused portion of commitments available
under the Working Capital Loans as well as a 3 1/4% per annum fee on
outstanding Letters of Credit.
The indebtedness under the Credit Agreement is guaranteed by Holdings and
each of the Borrowers and secured by a security interest in substantially
all of the respective real and personal property of the Borrowers. Such
security interest also secures on an equal and ratable basis, subject to
certain intercreditor arrangements, the Senior Secured Notes.
Additionally, the stock of Silgan and the stock of principally all of its
subsidiaries have been pledged to the lenders under the Credit Agreement.
The Credit Agreement contains various covenants which limit or restrict,
among other things, indebtedness, liens, dividends, leases, capital
expenditures, and the use of proceeds from asset sales, as well as
requiring the Company to meet certain specified financial covenants. The
Company is currently in compliance with all covenants under the Credit
Agreement.
F-15<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
4. Short-Term Borrowings and Long-Term Debt (continued)
Senior Secured Floating Rate Notes
The Senior Secured Notes (the "Secured Notes") constitute senior
indebtedness of the Company and are secured by a first lien on
substantially all of the assets of the Company. Such collateral also
secures on an equal and ratable basis, subject to certain intercreditor
arrangements, all indebtedness of the Company under the Credit Agreement.
The Secured Notes mature on June 30, 1997 and bear interest, which is
payable quarterly, at a rate of three-month LIBOR plus 3%. The interest
rate is adjusted quarterly. The interest rate in effect at December 31,
1994 was 9.44%.
The Secured Notes are redeemable at the option of the Company at par plus
accrued and unpaid interest to the redemption date. Net cash proceeds from
certain asset sales and the issuance of capital stock by the Company are
required to be applied to prepay the Secured Notes and indebtedness under
the Credit Agreement on a pro rata basis, subject to certain exceptions.
The Secured Notes contain covenants which are comparable to or less
restrictive than those under the Credit Agreement.
11 3/4% Senior Subordinated Notes
The 11 3/4% Senior Subordinated Notes (the "11 3/4% Notes") which mature on
June 15, 2002, represent unsecured general obligations of Silgan,
subordinate in right of payment to obligations of the Company under the
Credit Agreement and the Secured Notes and effectively subordinate to all
of the obligations of the subsidiaries of the Company. Interest is payable
semi-annually on June 15 and December 15.
The 11 3/4% Notes are redeemable at the option of the Company, in whole or
in part, at any time during the twelve months commencing June 15 of the
following years at the indicated percentages of their principal amount,
plus accrued interest:
Redemption
Year Percentage
1997 105.8750%
1998 102.9375%
1999 and thereafter 100.0000%
The 11 3/4% Notes Indenture contains covenants which are comparable to or
less restrictive than those under the Credit Agreement and the Secured
Notes.
The estimated fair value of the 11 3/4% Notes at December 31, 1994, based
upon quoted market prices, was $140.4 million.
F-16<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
4. Short-Term Borrowings and Long-Term Debt (continued)
1992 Refinancing
Effective June 29, 1992, the Company and Holdings refinanced a significant
portion of their indebtedness (the "Refinancing"). The Refinancing
included a private placement by the Company of $50.0 million principal
amount of its Secured Notes and a public offering of $135.0 million
principal amount of the Company's 11 3/4% Notes. The proceeds from the
debt offerings, net of $10.3 million of transaction fees and expenses, were
used, in part, to redeem the Company's 14% Senior Subordinated Notes (the
"14% Notes") and 15% Cumulative Exchangeable Redeemable Preferred Stock
(the "Preferred Stock"). The Preferred Stock (300,083 shares) was redeemed
on August 16, 1992 at a redemption price of $105 per share plus accrued
dividends. The 14% Notes ($85.0 million aggregate principal amount) were
redeemed on August 28, 1992 at a redemption price of 105% of the principal
amount thereof plus accrued interest.
In conjunction with the Refinancing, the credit agreement among various
bank lenders was amended to, among other things, permit the Refinancing,
and the Company repaid $30.0 million of term loans thereunder. In
addition, the Company repaid the $25.2 million advance from Holdings and
advanced $16.0 million to Holdings. Upon completion of the redemption of
the 14% Notes, the Company paid a $15.7 million dividend to Holdings which
Holdings, along with additional cash earned on its short term investments
of proceeds received by it in connection with the Refinancing, used to
retire the outstanding advance from the Company. Such payments to
Holdings, along with the public offering by Holdings of its 13 1/4% Senior
Discount Debentures due 2002 (the "Discount Debentures") for an aggregate
amount of proceeds of $165.4 million, were used by Holdings to redeem its
Senior Reset Debentures due 2004 (the "Holdings Reset Debentures") on July
29, 1992.
As a result of the Refinancing, unamortized deferred financing costs
relating to the 14% Notes, the Preferred Stock and the repayment of bank
term loans totaling $3.3 million in the aggregate were written off in 1992
and, along with the redemption premiums of $5.8 million, are reflected as
an extraordinary charge. Since the Company was reporting under SFAS No.
96, there was no tax effect on this charge due to the tax allocation
arrangement with Holdings and Holdings' net operating loss position.
F-17<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
5. Retirement Plans
The Company sponsors pension and defined contribution plans which cover
substantially all employees, other than union employees covered by multi-
employer defined benefit pension plans under collective bargaining
agreements. The pension benefits are paid based on either a career
average, final pay or years of service formula. With respect to certain
hourly employees, pension benefits are provided for based on stated amounts
for each year of service. It is the Company's policy to fund accrued
pension and defined contribution costs in compliance with ERISA
requirements. Assets of the plans consist primarily of equity and bond
funds.
Based on the latest actuarial information available, the following table
sets forth the defined benefit plans funded status as of December 31 (in
thousands):
Plans in which
Assets Exceed Accumulated
Accumulated Benefits
Benefits Exceed Assets
1994 1993 1994 1993
Actuarial present value of
benefit obligations:
Vested benefit obligations $9,182 $6,771 $19,876 $12,325
Non-vested benefit obligations 871 579 1,889 521
Accumulated benefit obligations 10,053 7,350 21,765 12,846
Additional benefits due to
future salary levels 5,358 5,733 3,557 4,092
Projected benefit obligations 15,411 13,083 25,322 16,938
Plan assets at fair value 11,612 9,040 17,249 9,287
Projected benefit obligation
in excess of plan assets 3,799 4,043 8,073 7,651
Unrecognized actuarial gain (loss) 504 (798) 3,916 800
Unrecognized prior service costs (665) - (2,461)
(2,093)
Additional minimum liability - - 1,677 2,107
Unfunded pension liability
recognized in the balance sheet $ 3,638 $ 3,245 $11,205 $ 8,465
As required by SFAS No. 87, "Employers' Accounting for Pensions" the
Company recognized an additional pension liability and related intangible
asset of $1.7 million and $2.1 million for pension plans with accumulated
benefits in excess of plan assets as of December 31, 1994 and 1993,
respectively.
F-18<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
5. Retirement Plans (continued)
During 1994, Del Monte transferred fund assets of $8.9 million to the
Company, as calculated using a discount rate of 9%, in accordance with the
terms of the DM Can purchase agreement. In connection with the acquisition
of DM Can, the Company assumed defined benefit plan obligations, as
calculated using its 1993 discount rate of 7.5%, of $10.9 million.
The assumptions used in determining the actuarial present value of plan
benefit obligations as of December 31 are as follows:
1994 1993 1992
Discount rate 8.5% 7.5% 8.5%
Weighted average rate of
compensation increase 4.5% 4.5% 5.0 - 5.5%
Expected long-term rate of
return on plan assets 8.5% 8.5% 8.5%
The components of total pension expense for defined benefit plans are as
follows (in thousands):
1994 1993 1992
Service cost $2,947 $1,809 $1,722
Interest cost 3,334 2,144 2,101
Net amortization and deferrals (2,702) 500 75
Actual loss (return) on assets 539 (1,784) (891)
Other (gains) 4 (183) (183)
Net pension cost of defined
benefit plans $4,122 $2,486 $2,824
In addition, the Company participates in several multi-employer pension
plans which provide defined benefits to certain of its union employees.
The contributions to multi-employer plans were $2.7 million in 1994; $2.0
million in 1993; and $2.2 million in 1992. The Company also sponsors
defined contribution plans covering substantially all employees. Company
contributions to these plans are based upon employee contributions and, in
certain situations, are based upon operating profitability. Contributions
charged to income for these plans were $2.5 million in 1994; $1.5 million
in 1993; and $1.9 million in 1992.
F-19<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
6. Postretirement Benefits Other than Pensions
Effective January 1, 1993, the Company changed its method of accounting for
postretirement health care and other insurance benefits to conform to the
provisions of SFAS No. 106 "Employers' Accounting for Post Retirement
Benefits Other Than Pensions", which requires accrual of these benefits
over the period during which active employees become eligible for such
benefits. Previously, the Company recognized the cost of providing such
benefits on the pay-as-you-go basis. The Company elected to immediately
recognize a cumulative charge of $3.1 million (after related income taxes
of $1.9 million) for this change in accounting principle which represents
the accumulated postretirement benefit obligation existing as of January 1,
1993. The postretirement benefit cost for 1992 has not been restated.
The Company has defined benefit health care and life insurance plans that
provide postretirement benefits to certain employees. The plans are
contributory, with retiree contributions adjusted annually, and contain
cost sharing features including deductibles and coinsurance. The Company
does not fund these plans.
The following table presents the plan's funded status and amounts
recognized in the Company's balance sheet as of December 31 (in thousands):
1994 1993
Accumulated postretirement benefit obligation:
Retirees $1,183 $1,209
Fully eligible active plan participants 1,521 1,197
Other active plan participants 2,577 2,127
Total accumulated postretirement
benefit obligation 5,281 4,533
Unrecognized net gain or (loss) (219) (462)
Unrecognized prior service costs (79) -
Accrued postretirement benefit liability $4,983 $4,071
F-20<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
6. Postretirement Benefits Other than Pensions (continued)
Net periodic postretirement benefit cost include the following components
(in thousands):
1994 1993
Service cost $ 321 $ 152
Interest cost 412 326
Deferred loss 24 -
Other (gains) (38) -
Net periodic postretirement benefit cost $ 719 $ 478
The actuarial assumptions used in determining the accrued postretirement
benefit liability as of December 31 are as follows:
1994 1993
Discount rate 8.5% 7.5%
Weighted average rate of compensation
increase 4.5% 4.5%
The assumed health care cost trend used in measuring the accumulated
postretirement benefit obligation was 14% in 1994 and 15% in 1993,
ultimately declining to 6% in 2003 and remaining at that level thereafter.
A 1% increase in the trend rate assumption would increase the accumulated
postretirement benefit obligation as of December 31, 1994 by approximately
$0.1 million and increase the aggregate of the service and interest cost
components of the net periodic postretirement benefit cost for 1994 by
approximately $0.02 million.
7. Income Taxes
The income tax provision for 1994 and 1993 reflects the adoption of SFAS
No. 109 under which the Company provides for taxes as if it were a separate
taxpayer. The income tax provision for 1992 takes into consideration
certain matters covered under a tax allocation arrangement with Holdings,
under which the Company obtains a federal income tax benefit from Holdings'
tax losses.
F-21<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
7. Income Taxes (continued)
The income tax provision consists of the following (in thousands):
1994 1993 1992
Current
Federal $2,500 $ 300 $ -
State 3,200 1,900 1,705
Foreign (100) (400) 31
5,600 1,800 1,736
Deferred
Federal 5,400 4,100 -
State - 400 464
Foreign - - -
5,400 4,500 464
$11,000 $6,300 $2,200
The aggregate income tax provision varied from that computed by using the
U.S. statutory rate as a result of the following (in thousands):
1994 1993 1992
Income tax provision
at the U.S. federal
income tax rate $ 8,069 $5,091 $5,398
Income tax benefit realized
from Holdings - - (4,804)
State and foreign tax expense
net of federal income benefit 2,015 1,235 1,452
Amortization of goodwill 576 154 154
Other 340 (180) -
$11,000 $6,300 $2,200
F-22<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
7. Income Taxes (continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and assets
at December 31 are as follows (in thousands):
1994 1993
Deferred tax liabilities:
Tax over book depreciation $21,900 $20,700
Book over tax basis of assets acquired 21,400 24,000
Other 4,100 6,392
Total deferred tax liabilities 47,400 51,092
Deferred tax assets:
Book reserves not yet deductible
for tax purposes 24,600 20,700
Net operating loss carryforwards 3,800 7,800
Benefit taken for Holdings' losses 5,500 7,575
Other 483 2,000
Total deferred tax assets 34,383 38,075
Net deferred tax liabilities $13,017 $13,017
The Company files a consolidated Federal income tax return with Holdings.
In accordance with the tax allocation agreement, the Company is obligated
to reimburse Holdings for the use of Holdings' losses only to the extent
that Holdings has taxable income on a stand-alone basis. A liability has
not been established to the extent of the use of Holdings' losses since the
possibility of the ultimate payment for these benefits is considered
remote. Accordingly, the use of Holdings' losses has been accounted for as
a contribution of capital.
Also, in accordance with the tax allocation agreement, the Company is
required to reimburse Holdings for its allocable share of Holdings' tax
liability. The Company's share of Holdings' federal tax liability, for
alternative minimum tax, aggregated $1.5 million in 1994 and $0.3 million
in 1993.
F-23<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
7. Income Taxes (continued)
On a consolidated basis, the Company and Holdings have net operating loss
carryforwards at December 31, 1994 of approximately $75.0 million which are
available to offset future consolidated taxable income of the group and
expire from 2001 through 2008. The Company and Holdings, on a consolidated
basis at December 31, 1994, have $3.4 million of alternative minimum tax
credits which are available indefinitely to reduce future tax payments for
regular federal income tax purposes.
At December 31, 1994 the Company, if reporting on a separate company basis,
would have had net operating loss carryforwards for federal tax purposes of
approximately $9.0 million, which are subject to limitation under the
consolidated return regulations, and expire from 2001 to 2007.
8. Stock Option Plans
Containers and Plastics have established stock option plans for their key
employees pursuant to which options to purchase shares of common stock of
Holdings' and its subsidiaries and stock appreciation rights ("SARs") may
be granted.
Options granted under the plans may be either incentive stock options or
non qualified stock options. To date, all stock options granted have been
non qualified stock options. Under the plans, Containers and Plastics have
each reserved 1,200 shares of their common stock for issuance under their
respective plans. Containers has 13,764 shares and Plastics has 13,800
shares of $0.01 par value common stock currently issued, and all such
shares are owned by Silgan.
The SARs extend to all of the shares covered by the options and provide for
the payment to the holders of the options of an amount in cash equal to the
excess of, in the case of Containers' plan, the pro forma book value, as
defined, of a share of common stock (or in the event of a public offering
or a change in control (as defined), the fair market value of a share of
common stock) over the exercise price of the option, with certain
adjustments for the portion of vested stock appreciation rights not paid at
the time of the recapitalization in June, 1989; or, in the case of the
Plastics plan, in the event of a public offering or a change in control (as
defined), the fair market value of a share of common stock over the
exercise price of the option.
F-24<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
8. Stock Option Plans (continued)
Prior to a public offering or change in control, should an employee leave
the Company, Containers has the right to repurchase, and the employee has
the right to require Containers to repurchase, his common stock at the then
pro forma book value.
At December 31, 1994, there were outstanding options for 1,056 shares under
the Containers' plan and 900 shares under the Plastics' plan. The exercise
prices per share range from $2,122 to $4,933 for the Containers' options
and are $126 for the Plastics' options. The stock options and SARs
generally become exercisable ratably over a five year period. There were
720 options/SARs exercisable at December 31, 1994 under the Containers'
plan. At December 31, 1994, no options/SARs were exercisable under the
Plastics' plan. The Company incurred charges relating to the vesting and
payment of benefits under the stock option plans of $1.5 million in 1994;
$0.2 million in 1993; and $0.4 million in 1992.
In the event of a public offering of any of Holdings' capital stock or a
change in control of Holdings, (i) the options granted by Containers and
Plastics pursuant to the plans, or (ii) any stock issued upon exercise of
such options issued by Containers are convertible into either stock options
or common stock of Holdings, as the case may be. The conversion of such
options or shares will be based upon a valuation of Holdings and an
allocation of such value among the subsidiaries after giving affect to,
among other things, that portion of the outstanding indebtedness of
Holdings allocable to each such subsidiary.
9. Stockholder's Equity
Stockholder's equity includes the following classes of common stock ($.01
par value) and preferred stock:
Shares Shares Issued and Outstanding
Class Authorized December 31, 1994 and 1993
A 1,000 1
B 1,000 1
C 1,000 -
3,000 2
Preferred Stock 1,000 -
The outstanding shares are issued to Holdings.
F-25<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
9. Stockholder's Equity (continued)
In conjunction with the acquisition of DM Can in 1993, Holdings contributed
$15.0 million to the Company.
As of August 16, 1992, the Company redeemed its Preferred Stock. Until
such redemption, the Preferred Stock holders received cumulative
preferential dividends at the rate per annum of 15% per share calculated as
a percentage of $100. Dividends were, at the option of the Company, paid
in additional shares of Preferred Stock. During 1992, the Company issued
21,301 shares of Preferred Stock at $100 per share, representing its
Preferred Stock dividend requirement for the two quarters ended May 15,
1992. A cash dividend payment of $1.1 million was made for the quarter
ended August 15, 1992.
10. Commitments
The Company is committed under certain noncancelable operating leases for
office and plant facilities, equipment and automobiles. Certain operating
leases have renewal options. Minimum future rental payments under these
operating leases are (in thousands):
1995 $ 7,923
1996 6,856
1997 5,577
1998 4,006
1999 2,556
Thereafter 6,174
$33,092
Rental expense was approximately $9.1 million in 1994; $8.0 million in
1993; and $8.0 million in 1992.
F-26<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
11. Related Party Transactions
Pursuant to various management services agreements entered into between
Holdings, Silgan, Containers, Plastics, and S&H, Inc. ("S&H"), a company
wholly owned by Messrs. Silver and Horrigan, the Chairman of the Board and
President of Holdings and Silgan, respectively, S&H provides Holdings and
the Company and its subsidiaries with general management, supervision and
administrative services. In consideration for its services, S&H receives a
fee of 4.95% (of which 0.45% is payable to MS & Co.) of Holdings'
consolidated earnings before depreciation, amortization, interest and taxes
("EBDIT") until EBDIT has reached the Scheduled Amount set forth in the
Management Agreements and 3.3% (of which 0.3% is payable to MS & Co.) after
EBDIT has exceeded the Scheduled Amount up to the Maximum Amount as set
forth in the Management Agreements, plus reimbursement for all related out-
of-pocket expenses. The total amount incurred under the Management
Agreements was $5.0 million in 1994, $4.4 million in 1993, and $4.2 million
in 1992 and was allocated, based upon EBDIT, as a charge to operating
income of each business segment. Included in accounts payable at December
31, 1994 and 1993, was $0.1 million and $0.6 million, payable to S&H,
respectively.
Under the terms of the Management Agreements, the Company has agreed,
subject to certain exceptions, to indemnify S&H and any of its affiliates,
officers, directors, employees, subcontractors, consultants or controlling
persons against any loss or damage they may sustain arising in connection
with the Management Agreements.
In connection with the Credit Agreement entered into in 1993, the Banks
(including Bankers Trust) received certain fees amounting to $8.1 million.
In connection with the 1992 Refinancing, MS & Co. received as compensation
for its services as underwriter for the Secured Notes, the 11 3/4% Notes
and the Discount Debentures an aggregate of $11.5 million.
F-27<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
12. Litigation
On June 30, 1989, Holdings acquired all of the outstanding shares of Silgan
for $6.50 per share (the "Merger"). Contemporaneous with the Merger,
certain holders of 1,050,000 shares of Silgan Class B common stock filed
two actions in the Court of Chancery of the State of Delaware ("Chancery
Court") alleging that Silgan and certain affiliates, officers and directors
breached fiduciary duties in implementing the Merger. One of the actions
was voluntarily dismissed without prejudice of the right to reinstate the
action upon the conclusion of the appraisal proceeding described below.
The second action was dismissed following settlement.
The same Silgan stockholders also sought appraisal of the value of their
shares pursuant to Section 262 of the Delaware General Corporation Law.
Following discovery and settlement with the holders of 650,000 shares for
$6.9 million, including interest, trial of the appraisal with respect to
the remaining 400,000 shares of Class B common stock was conducted during
the week of November 28, 1994. Post-trial briefing is scheduled to be
completed on April 17, 1995.
Management believes that the consideration offered in the Merger fully
reflected the value of Silgan's Class B common stock and that the ultimate
resolution of the appraisal proceeding will not have a material effect on
the financial condition or results of operations of the Company or
Holdings.
Additionally, a complaint was filed by parties who are limited partners of
The Morgan Stanley Leveraged Equity Fund, L.P. ("MSLEF") against a number
of defendants including Silgan and Holdings. The complaint alleges, among
other things, that the general partners of MSLEF breached duties owed to
the limited partners by selling MSLEF's investment in Silgan at a grossly
inadequate price. The Court dismissed all claims against Silgan and
Holdings related to this action on January 14, 1993, and subsequently
upheld that dismissal after the plaintiff filed a motion for reargument.
Because this complaint continues against certain other defendants, the
plaintiff's right to appeal the dismissal of the claims against Silgan and
Holdings has not yet expired.
Management believes that there is no factual basis for the allegations and
claims contained in the complaint. Management also believes that the
lawsuit is without merit and they intend to defend the lawsuit vigorously.
In addition, management believes that the ultimate resolution of these
matters will not have a material effect on the financial condition or
results of operations of Silgan or Holdings.
F-28<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
12. Litigation (continued)
Other than the actions mentioned above there are no other pending legal
proceedings, other than ordinary routine litigation incidental to the
business of the Company, to which the Company is a party or to which any of
its properties are subject.
13. Business Segment Information
The Company is engaged in the packaging industry and operates principally
in two business segments. Both segments operate in North America. There
are no intersegment sales. Presented below is a tabulation of business
segment information for each of the past three years (in millions):
Net Oper. Identifiable Dep. & Capital
Sales Profit Assets Amort. Expend.
1994
Metal container & other(1) $657.1 $67.0(2) $335.9 $23.1 $16.9
Plastic container 204.3 9.4(2) 162.8 14.1 12.3
Consolidated $861.4 $76.4 $498.7 $37.2 $29.2
1993
Metal container & other(1) $459.2 $42.3 $324.5 $17.3 $25.3
Plastic container 186.3 0.6 165.9 16.5 17.2
Consolidated $645.5 $42.9 $490.4 $33.8 $42.5
1992
Metal container & other(1) $437.4 $40.7 $218.7 $16.4 $14.5
Plastic container 192.6 2.3 161.2 15.4 9.0
Consolidated $630.0 $43.0 $379.9 $31.8 $23.5
(1) Includes folding carton sales which are not significant enough to be
reported as a separate segment.
(2) Excludes charge for reduction in carrying value of assets of $7.2
million for metal container segment and $9.5 million for plastic
container segment.
F-29<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
13. Business Segment Information (continued)
Operating profit is reconciled to income before tax as follows (in
millions):
1994 1993 1992
Operating profit $76.4 $42.9 $43.0
Reduction in carrying
value of assets 16.7 - -
Interest and other
corporate expense 36.6 28.3 27.1
Income before income taxes $23.1 $14.6 $15.9
Identifiable assets are reconciled to total assets as follows (in
millions):
1994 1993 1992
Identifiable assets $498.7 $490.4 $379.9
Corporate assets 2.0 1.7 2.3
Total assets $500.7 $492.1 $382.2
Metal container and other segment sales to Nestle accounted for 25.9%,
34.1% and 36.5%, of net sales during the years ended December 31, 1994,
1993 and 1992, respectively. Similarly, sales to Del Monte accounted for
21.4% of net sales during the year ended December 31, 1994. At December
31, 1994 and 1993, 12.6% and 12.6% of the accounts receivable balance was
due from Nestle and at December 31, 1994, 21.9% of the accounts receivable
balance was due from Del Monte.
F-30<PAGE>
SILGAN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, March 31, Dec. 31,
1995 1994 1994
(unaudited)(unaudited)(audited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,335 $ 2,669 $ 2,665
Accounts receivable, net 75,205 68,188 65,229
Inventories 148,501 124,009 122,429
Prepaid expenses and other current
assets 5,132 3,515 8,044
Total current assets 230,173 198,381 198,367
Property, plant and equipment, net 251,832 285,738 251,810
Goodwill, net 29,699 23,878 30,009
Other assets 19,733 19,920 20,491
$531,437 $527,917 $500,677
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Trade accounts payable $ 50,416 $ 48,665 $ 36,845
Accrued payroll and related costs 28,207 25,263 26,019
Accrued interest payable 5,713 6,250 1,713
Accrued expenses and other current
liabilities 20,172 12,191 17,542
Bank working capital loans 15,200 5,800 12,600
Current portion of long-term debt 19,514 20,000 21,968
Total current liabilities 139,222 118,169 116,687
Long-term debt 282,568 305,000 282,568
Deferred income taxes 13,247 13,501 13,017
Other long-term liabilities 25,870 34,788 25,060
Common stockholder's equity:
Additional paid-in capital 70,935 65,935 69,535
Retained earnings (deficit) (405) (9,476) (6,190)
Total common stockholder's equity 70,530 56,459 63,345
$531,437 $527,917 $500,677
See accompanying notes.
F-31<PAGE>
SILGAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands)
Three Months Ended
March 31, March 31,
1995 1994
Net sales $203,264 $186,243
Cost of goods sold 174,265 163,520
Gross profit 28,999 22,723
Selling, general and administrative expenses 9,399 8,598
Income from operations 19,600 14,125
Interest expense and other related
financing costs 9,415 8,369
Income before income taxes 10,185 5,756
Income tax provision 4,400 2,375
Net income $ 5,785 $ 3,381
See accompanying notes.
F-32<PAGE>
SILGAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
March 31, March 31,
1995 1994
Cash flows from operating activities:
Net income $ 5,785 $ 3,381
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 8,333 9,376
Amortization 1,598 1,612
Other items 35 276
Contribution by Parent for federal income tax
provision 1,400 1,800
Changes in assets and liabilities:
(Increase) in accounts receivable (10,025) (23,878)
(Increase) in inventories (26,072) (15,356)
Increase in trade accounts payable 13,571 16,752
Increase in accrued interest payable 4,000 5,467
Other, net 5,040 5,855
Total adjustments (2,120) 1,904
Net cash provided by operating activities 3,665 5,285
Cash flows from investing activities:
Capital expenditures (8,359) (4,896)
Proceeds from sale of assets 3,218 -
Net cash used in investing activities (5,141) (4,896)
Cash flows from financing activities:
Borrowings under working capital loans 89,710 33,750
Repayments under working capital loans (87,110) (30,150)
Repayment of term loans (2,454) -
Payments to former shareholders - (1,525)
Net cash provided by financing activities 146 2,075
Net increase (decrease) in cash and cash equivalents (1,330) 2,464
Cash and cash equivalents at beginning of year 2,665 205
Cash and cash equivalents at end of period $ 1,335 $ 2,669
Supplementary data:
Interest paid $ 4,304 $ 1,786
Income taxes paid 2,648 138
See accompanying notes.
F-33<PAGE>
SILGAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 1995 and 1994 and for the
three months then ended is unaudited)
(Dollars in thousands)
1. Basis of Presentation
The accompanying condensed unaudited consolidated financial statements of
Silgan Corporation ("Silgan" or the "Company") have been prepared in
accordance with Rule 10-01 of Regulation S-X and, therefore, do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity
with generally accepted accounting principles. All adjustments of a
normal recurring nature have been made, including appropriate estimates
for reserves and provisions which are normally determined or settled at
year end. In the opinion of the Company, however, the accompanying
financial statements contain all adjustments (consisting solely of a
normal recurring nature) necessary to present fairly Silgan's financial
position as of March 31, 1995 and 1994 and December 31, 1994, the results
of operations for the three months ended March 31, 1995 and 1994, and the
statements of cash flows for the three months ended March 31, 1995 and
1994.
While the Company believes that the disclosures presented are adequate to
make the information not misleading, it is suggested that these financial
statements be read in conjunction with the financial statements and notes
included in Silgan's Annual Report on Form 10-K for the year ended
December 31, 1994.
Effective October 1, 1994, the Company extended the estimated useful lives
of certain fixed assets to more properly reflect the true economic lives
of such assets and to better align the Company's depreciable lives with
the predominate practice in its industry. The change had the effect of
decreasing depreciation expense for the first quarter of 1995 by $1.5
million and increasing net income by $0.9 million.
2. Inventories
Inventories consisted of the following:
March 31, March 31, Dec. 31,
1995 1994 1994
Raw materials and supplies $ 32,446 $ 27,274 $ 40,196
Work-in-process 24,890 20,481 19,045
Finished goods 96,462 74,444 63,409
153,798 122,199 122,650
Adjustment to value inventory
at cost on the LIFO Method (5,297) 1,810 (221)
$148,501 $124,009 $122,429
F-34<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits:
Exhibit
Number Description
3.1 Restated Certificate of Incorporation of the Company, as
amended (incorporated by reference to Exhibit 3.1 filed with
Silgan's Annual Report on Form 10-K for the year ended
December 31, 1993, Commission File No. 1-11200).
3.2 By-laws of the Company (incorporated by reference to Exhibit
3(ii) filed with the Company's Registration Statement on
Form S-1, dated January 11, 1988, Registration Statement No.
33-18719).
3.3 Restated Certificate of Incorporation of Holdings
(incorporated by reference to Exhibit 1 filed with Holdings'
Current Report on Form 8-K, dated March 25, 1994, Commission
File No.
33-28409).
3.4 By-laws of Holdings (incorporated by reference to Exhibit
3.4 filed with the Company's Registration Statement on Form
S-1, dated May 1, 1989, Registration Statement No.
33-28409).
4.1 Indenture dated as of June 29, 1992, between the Company and
Shawmut Bank, N.A., as Trustee, with respect to the 11-3/4%
Notes (incorporated by reference to Exhibit 1 filed with the
Company's Current Report on Form 8-K dated July 15, 1992,
Commission File No.
33-46499).
4.2 Secured Notes Purchase Agreement dated as of June 29, 1992,
between the Company and Morgan Stanley (incorporated by
reference to Exhibit 2 filed with the Company's Current
Report on Form 8-K dated July 15, 1992, Commission File No.
33-46499).
4.3 Indenture, dated as of June 29, 1992, between Holdings and
The Connecticut National Bank, as trustee, with respect to
the Holdings Discount Debentures (incorporated by reference
to Exhibit 1 filed with Holdings' Current Report on Form 8-K
dated July 15, 1992, Commission File No. 33-47632).
II-1
<PAGE>
Exhibit
Number Description
4.4 Form of the Company's 11-3/4% Senior Subordinated Notes due
2002 (incorporated by reference to Exhibit 4.5 filed with
Holdings' Annual Report on Form 10-K for the year ended
December 31, 1992, Commission File No. 33-28409).
4.5 Form of Holdings' 13-1/4% Senior Discount Debentures due
2002 (incorporated by reference to Exhibit 4.4 filed with
Holdings' Annual Report on Form 10-K for the year ended
December 31, 1992, Commission File No. 33-28409).
5 Opinion of Winthrop, Stimson, Putnam & Roberts as to the
legality of the 11-3/4% Notes (incorporated by reference to
Exhibit 5 filed with Amendment No. 4 to Silgan's
Registration Statement on Form S-1, dated June 19, 1992,
Registration Statement No. 33-46499).
8 Opinion of Winthrop, Stimson, Putnam & Roberts as to tax
matters (incorporated by reference to Exhibit 8 filed with
Post-Effective Amendment No. 1 to Silgan's Registration
Statement on Form S-1, dated June 18, 1993, Registration
Statement No. 33-46499).
10.1 Agreement for Purchase and Sale of Assets, dated as of June
18, 1987, between Carnation Company and Canaco Corporation
(Containers) (incorporated by reference to Exhibit 2(i)
filed with the Company's Registration Statement on Form S-1,
dated January 11, 1988, Registration Statement No.
33-18719).
10.2 First Amendment to Agreement for Purchase and Sale of
Assets, dated as of July 15, 1987, between Carnation Company
and Canaco Corporation (Containers) (incorporated by
reference to Exhibit 2(ii) filed with the Company's
Registration Statement on Form S-1, dated January 11, 1988,
Registration Statement No. 33-18719).
10.3 Second Amendment to Agreement for Purchase and Sale of
Assets, dated as of August 31, 1987, between Carnation
Company and Canaco Corporation (Containers) (incorporated by
reference to Exhibit 2(iii) filed with the Company's
Registration Statement on Form S-1, dated January 11, 1988,
Registration Statement No. 33-18719).
10.4 Asset Purchase Agreement, dated as of July 29, 1987, between
Plastico Corporation (Plastics) and Monsanto Company
(incorporated by reference to Exhibit 2(iv) filed with the
Company's Registration Statement on Form S-1, dated January
11, 1988, Registration
Statement No. 33-18719).
10.5 First Amendment to the Asset Purchase Agreement, dated as of
July 29, 1987, between Plastico Corporation (Plastics) and
Monsanto Company (incorporated by reference to Exhibit 2(v)
filed with the Company's Registration Statement on Form S-1,
dated January 11, 1988, Registration Statement No.
33-18719).
10.6 Agreement for Purchase and Sale of Assets, dated as of
September 27, 1988, between Carnation Company and Containers
(incorporated by reference to Exhibit 1 filed with the
Company's Current Report on Form 8-K, dated October 17,
1988).
II-2
<PAGE>
Exhibit
Number Description
10.7 Agreement for Purchase and Sale of Cartons, effective
October 1, 1988, between Containers and Carnation Company
(incorporated by reference to Exhibit 2 filed with the
Company's Current Report on Form 8-K, dated October 17,
1988).
10.8 Agreement for Sale and Purchase of Containers, dated as of
December 3, 1988, between Containers and Dial (incorporated
by reference to Exhibit 2 filed with the Company's Current
Report on Form 8-K, dated December 19, 1988).
10.9 Asset Purchase Agreement, dated as of November 7, 1988,
between Containers and Dial (incorporated by reference to
Exhibit 1 filed with the Company's Current Report on Form
8-K, dated December 19, 1988).
10.10 Amended and Restated Stock Purchase Agreement, dated as of
January 1, 1989, among Aim, certain shareholders of Aim, and
the Company (incorporated by reference to Exhibit 1 filed
with the Company's Current Report on Form 8-K, dated March
15, 1989).
10.11 Assignment and Assumption, dated as of March 1, 1989,
between the Company and InnoPak Plastics Corporation
(Plastics) (incorporated by reference to Exhibit 2 filed
with the Company's Current Report on Form 8-K, dated March
15, 1989).
10.12 Agreement for Purchase and Sale of Assets between Fortune
and InnoPak Plastics Corporation (Plastics) dated as of
March 1, 1989 (incorporated by reference to Exhibit 1 filed
with the Company's Current Report on Form 8-K, dated April
14, 1989).
10.13 Amendment to Agreement for Purchase and Sale of Assets,
dated as of March 30, 1989, between Fortune and InnoPak
Plastics Corporation (Plastics) (incorporated by reference
to Exhibit 2 to the Company's Current Report on Form 8-K,
dated April 14, 1989).
10.14 Assignment and Assumption Agreement, dated as of March 31,
1989, between InnoPak Plastics Corporation (Plastics) and
Fortune Acquisition Corporation (incorporated by reference
to Exhibit 3 to the Company's Current Report on Form 8-K,
dated April 14, 1989).
10.15 Agreement for Purchase and Sale of Shares between and among
InnoPak Plastics Corporation (Plastics), Gordon Malloch and
Jurgen Arnemann and Express, dated as of March 1, 1989
(incorporated by reference to Exhibit 5 to the Company's
Current Report on Form 8-K, dated April 14, 1989).
10.16 Amendment to Agreement for Purchase and Sale of Shares,
dated as of March 31 , 1989, among InnoPak Plastics
Corporation (Plastics), Express, Gordon Malloch and Jurgen
Arnemann (incorporated by reference to Exhibit 6 to the
Company's Current Report on Form 8-K, dated April 14, 1989).
II-3
<PAGE>
Exhibit
Number Description
10.17 Assignment and Assumption Agreement dated as of March 31,
1989, between InnoPak Plastics Corporation (Plastics) and
827598 Ontario Inc. (incorporated by reference to Exhibit 7
to the Company's Current Report on Form 8-K, dated April 14,
1989).
10.18 Employment Agreement, dated as of September 14, 1987,
between James Beam and Canaco Corporation (Containers)
(incorporated by reference to Exhibit 10(vi) filed with the
Company's Registration Statement on Form S-1, dated January
11, 1988, Registration
Statement No. 33-18719).
10.19 Amended and Restated Employment Agreement, dated as of June
18, 1987, between Gerald Wojdon and Canaco Corporation
(Containers) (incorporated by reference to Exhibit 10(vii)
filed with the Company's Registration Statement on Form S-1,
dated January 11, 1988, Registration Statement No.
33-18719).
10.20 Employment Agreement, dated as of September 1, 1989, between
the Company, InnoPak Plastics Corporation (Plastics),
Russell F. Gervais and Aim (incorporated by reference to
Exhibit 5 filed with the Company's Report on Form 8-K, dated
March 15, 1989).
10.21 Supply Agreement for Gridley, California effective August
31, 1987 (incorporated by reference to Exhibit 10(ix) filed
with the Company's Registration Statement on Form S-1, dated
January 11, 1988, Registration Statement No. 33-18719)
(Portions of this Exhibit are subject to confidential
treatment pursuant to order of the Commission).
10.22 Amendment to Supply Agreement for Gridley, California, dated
July 1, 1990 (incorporated by reference to Exhibit 10.27
filed with the Company's Registration Statement on Form S-1,
dated March 18, 1992, Registration Statement No. 33-46499)
(Portions of this Exhibit are subject to confidential
treatment pursuant to order of the Commission).
10.23 Supply Agreement for Gustine, California effective August
31, 1987 (incorporated by reference to Exhibit 10(x) filed
with the Company's Registration Statement on Form S-1, dated
January 11, 1988, Registration Statement No. 33-18719)
(Portions of this Exhibit are subject to confidential
treatment pursuant to order of the Commission).
10.24 Amendment to Supply Agreement for Gustine, California, dated
March 1, 1990 (incorporated by reference to Exhibit 10.29
filed with the Company's Registration Statement on Form S-1,
dated March 18, 1992, Registration Statement No. 33-46499)
(Portions of this Exhibit are subject to confidential
treatment pursuant to order of the Commission).
10.25 Supply Agreement for Hanford, California effective August
31, 1987 (incorporated by reference to Exhibit 10(xi) filed
with the Company's Registration Statement on Form S-1, dated
January 11, 1988, Registration Statement No. 33-18719)
(Portions of this Exhibit are subject to confidential
treatment pursuant to order of the Commission).
10.26 Amendment to Supply Agreement for Hanford, California, dated
July 1, 1990 (incorporated by reference to Exhibit 10.31
filed with the Company's Registration Statement on Form S-1,
II-4
<PAGE>
Exhibit
Number Description
dated March 18, 1992, Registration Statement No. 33-46499)
(Portions of this Exhibit are subject to confidential
treatment pursuant to order of the Commission).
10.27 Supply Agreement for Riverbank, California effective August
31, 1987 (incorporated by reference to Exhibit 10(xii) filed
with the Company's Registration Statement on Form S-1, dated
January 11, 1988, Registration Statement No. 33-18719)
(Portions of this Exhibit are subject to confidential
treatment pursuant to order of the Commission).
10.28 Supply Agreement for Woodland, California effective August
31, 1987 (incorporated by reference to Exhibit 10(xiii)
filed with the Company's Registration Statement on Form S-1,
dated January 11, 1988, Registration Statement No. 33-18719)
(Portions of this Exhibit are subject to confidential
treatment pursuant to order of the Commission).
10.29 Amendment to Supply Agreement for Woodland, California,
dated July 1, 1990 (incorporated by reference to Exhibit
10.34 filed with the Company's Registration Statement on
Form S-1, dated March 18, 1992, Registration Statement No.
33-46499) (Portions of this Exhibit are subject to
confidential treatment pursuant to order of the Commission).
10.30 Supply Agreement for Morton, Illinois, effective August 31,
1987 (incorporated by reference to Exhibit 10(vii) filed
with the Company's Registration Statement on Form S-1, dated
January 11, 1988, Registration Statement No. 33-18719)
(Portions of this Exhibit are subject to confidential
treatment pursuant to order of the Commission).
10.31 Amendment to Supply Agreement for Morton, Illinois, dated
July 1, 1990 (incorporated by reference to Exhibit 10.36
filed with the Company's Registration Statement on Form S-1,
dated March 18, 1992, Registration Statement No. 33-46499)
(Portions of this Exhibit are subject to confidential
treatment pursuant to order of the Commission).
10.32 Supply Agreement for Ft. Dodge, Iowa, effective August 31,
1987 (incorporated by reference to Exhibit 10(xiv) filed
with the Company's Registration Statement on Form S-1, dated
January 11, 1988, Registration Statement No. 33-18719)
(Portions of this Exhibit are subject to confidential
treatment pursuant to order of the Commission).
10.33 Amendment to Supply Agreement for Ft. Dodge, Iowa, dated
March 1, 1990 (incorporated by reference to Exhibit 10.38
filed with the Company's Registration statement on Form S-1,
dated March 18, 1992, Registration Statement No. 33-46499)
(Portions of this Exhibit are subject to confidential
treatment pursuant to order of the Commission).
10.34 Supply Agreement for Maysville, Kentucky, effective August
31, 1987 (incorporated by reference to Exhibit 10(xvi) filed
with the Company's Registration Statement on Form S-1, dated
January 11, 1988, Registration Statement No. 33-18719)
(Portions of this Exhibit are subject to confidential
treatment pursuant to order of the Commission).
10.35 Amendment to Supply Agreement for Maysville, Kentucky, dated
March 1, 1990 (incorporated by reference to Exhibit 10.40
filed with the Company's Registration Statement
II-5
<PAGE>
Exhibit
Number Description
on Form S-1, dated March 18, 1992, Registration Statement
No. 33-46499) (Portions of this Exhibit are subject to
confidential treatment pursuant to order of the Commission).
10.36 Supply Agreement for St. Joseph, Missouri, effective August
31, 1987 (incorporated by reference to Exhibit 10(xvii)
filed with the Company's Registration Statement on Form S-1,
dated January 11, 1988, Registration Statement No. 33-18719)
(Portions of this Exhibit are subject to confidential
treatment pursuant to order of the Commission).
10.37 Amendment to Supply Agreement for St. Joseph, Missouri,
dated March 1, 1990 (incorporated by reference to Exhibit
10.42 filed with the Company's Registration Statement on
Form S-1, dated March 18, 1992, Registration Statement No.
33-46499) (Portions of this Exhibit are subject to
confidential treatment pursuant to order of the Commission).
10.38 Supply Agreement for Trenton, Missouri, effective August 31,
1987 (incorporated by reference to Exhibit 10(xviii) filed
with the Company's Registration Statement on Form S-1, dated
January 11, 1988, Registration Statement No. 33-18719)
(Portions of this Exhibit are subject to confidential
treatment pursuant to order of the Commission).
10.39 Amendment to Supply Agreement for Trenton, Missouri, dated
March 1, 1990 (incorporated by reference to Exhibit 10.44
filed with the Company's Registration Statement on Form S-1,
dated March 18, 1992, Registration Statement No. 33-46499)
(Portions of this Exhibit are subject to confidential
treatment pursuant to order of the Commission).
10.40 Supply Agreement for South Dayton, New York, effective
August 31, 1987 (incorporated by reference to Exhibit
10(xix) filed with the Company's Registration Statement on
Form S-1, dated January 11, 1988, Registration Statement No.
33-18719) (Portions of this Exhibit are subject to
confidential treatment pursuant to order of the Commission).
10.41 Amendment to Supply Agreement for South Dayton, New York,
dated March 1, 1990 (incorporated by reference to Exhibit
10.46 filed with the Company's Registration Statement on
Form S-1, dated March 18, 1992, Registration Statement No.
33-46499) (Portions of this Exhibit are subject to
confidential treatment pursuant to order of the Commission).
10.42 Supply Agreement for Statesville, North Carolina, effective
August 31, 1987 (incorporated by reference to Exhibit 10(xx)
filed with the Company's Registration Statement on Form S-1,
dated January 11, 1988, Registration Statement No. 33-18719)
(Portions of this Exhibit are subject to confidential
treatment pursuant to order of the Commission).
10.43 Supply Agreement for Hillsboro, Oregon, effective August 31,
1987 (incorporated by reference to Exhibit 10(xxi) filed
with the Company's Registration Statement on Form S-1, dated
January 11, 1988, Registration Statement No. 33-18719)
(Portions of this Exhibit are subject to confidential
treatment pursuant to order of the Commission).
10.44 Amendment to Supply Agreement for Hillsboro, Oregon, dated
March 1, 1990 (incorporated by reference to Exhibit 10.49
filed with the Company's Registration Statement on Form S-1,
II-6
<PAGE>
Exhibit
Number Description
dated March 18, 1992, Registration Statement No. 33-46499)
(Portions of this Exhibit are subject to confidential
treatment pursuant to order of the Commission).
10.45 Supply Agreement for Moses Lake, Washington, effective
August 31, 1987 (incorporated by reference to Exhibit
10(xxii) filed with the Company's Registration Statement on
Form S-1, dated January 11, 1988, Registration Statement No.
33-18719) (Portions of this Exhibit are subject to
confidential treatment pursuant to order of the Commission).
10.46 Amendment to Supply Agreement for Moses Lake, Washington,
dated March 1, 1990 (incorporated by reference to Exhibit
10.51 filed with the Company's Registration Statement on
Form S-1, dated March 18, 1992, Registration Statement No.
33-46499) (Portions of this Exhibit are subject to
confidential treatment pursuant to order of the Commission).
10.47 Supply Agreement for Jefferson, Wisconsin, effective August
31, 1987 (incorporated by reference to Exhibit 10(xxiii)
filed with the Company's Registration Statement on Form S-1,
dated January 11, 1988, Registration Statement No. 33-18719)
(Portions of this Exhibit are subject to confidential
treatment pursuant to order of the Commission).
10.48 Amendment to Supply Agreement for Jefferson, Wisconsin,
dated March 1, 1990 (incorporated by reference to Exhibit
10.53 filed with the Company's Registration Statement on
Form S-1, dated March 18, 1992, Registration Statement No.
33-46499) (Portions of this Exhibit are subject to
confidential treatment pursuant to order of the Commission).
10.49 Supply Agreement for Seaboard, effective October 1, 1988
(incorporated by reference to Exhibit 2 filed with the
Company's Current Report on Form 8-K, dated October 17,
1988).
10.50 Supply Agreement for Fort Madison, dated as of December 3,
1988 (incorporated by reference to Exhibit 2 filed with the
Company's Current Report on Form 8-K, dated December 19,
1988).
10.51 Amendment to Supply Agreements dated November 17, 1989 for
Ft. Dodge, Iowa; Hillsboro, Oregon; Jefferson, Wisconsin;
St. Joseph, Missouri; and Trenton, Missouri (incorporated by
reference to Exhibit 10.49 filed with the Company's Annual
Report on Form 10-K for the year ended December 31, 1989,
Commission File No. 33-18719) (Portions of this Exhibit are
subject to confidential treatment pursuant to order of the
Commission).
10.52 Raw Materials Agreement, dated as of November 12, 1986, by
and between Carnation and Alcoa (incorporated by reference
to Exhibit 10(xxxix) filed with the Company's Registration
Statement on Form S-1, dated September 14, 1988,
Registration Statement No. 33-18719).
10.53 Assignment of Raw Materials Agreement, dated as of August
31, 1987, by and between Carnation and Alcoa (incorporated
by reference to Exhibit 10(xl) filed with the Company's
Post-Effective Amendment No. 4 to its Registration Statement
on Form S-1, dated September 14, 1988, Registration No.
33-18719).
II-7
<PAGE>
Exhibit
Number Description
10.54 Amendment to Raw Materials Agreement, dated February 21,
1990, by and between Containers and Alcoa (incorporated by
reference to Exhibit 10.52 filed with the Company's Annual
Report on Form 10-K for the year ended December 31, 1989,
Commission File No. 33-18719) (Portions of this Exhibit are
subject to confidential treatment pursuant to order of the
Commission).
10.55 InnoPak Plastics Corporation (Plastics) Pension Plan for
Salaried Employees (incorporated by reference to Exhibit
10.32 filed with the Company's Annual Report on Form 10-K
for the year ended December 31, 1988, Commission File No.
33-18719).
10.56 Containers Pension Plan for Salaried Employees (incorporated
by reference to Exhibit 10.34 filed with the Company's
Annual Report on Form 10-K for the year ended December 31,
1988, Commission File No. 33-18719).
10.57 Non-Competition Agreement, dated as of January 1, 1989,
among the Company, Aim, and certain shareholders of Aim
(incorporated by reference to Exhibit 4 filed with the
Company's Current Report on Form 8-K, dated March 15, 1989).
10.58 Lease, dated as of August 31, 1987, between Monsanto and
InnoPak Plastics Corporation (Plastics), concerning the land
and plant in Anaheim, California (incorporated by reference
to Exhibit 10(xxxi) filed with the Company's Post-Effective
Amendment No. 4 to its Registration Statement on Form S-1,
dated September 14, 1988, Registration No. 33-18719).
II-8
<PAGE>
Exhibit
Number Description
10.59 Express Guaranty dated as of March 31, 1989 (incorporated by
reference to Exhibit 10.66 to Holdings' Registration
Statement on Form S-1, dated May 1, 1989, Registration No.
33-28409).
10.60 Express Security Agreement dated as of March 31, 1989
(incorporated by reference to Exhibit 10.67 to Holdings'
Registration Statement on Form S-1, dated May 1, 1989,
Registration No. 33-28409).
10.61 Canadian Holdco Guaranty dated as of March 31, 1989
(incorporated by reference to Exhibit 10.68 to Holdings'
Registration Statement on Form S-1, dated May 1, 1989,
Registration No. 33-28409).
10.62 Canadian Holdco Pledge Agreement dated as of March 31, 1989
(incorporated by reference to Exhibit 10.69 to Holdings'
Registration Statement on Form S-1, dated May 1, 1989,
Registration No. 33-28409).
10.63 Canadian Acquisition Co. Guaranty dated as of March 31, 1989
(incorporated by reference to Exhibit 10.70 to Holdings'
Registration Statement on Form S-1, dated May 1, 1989,
Registration No. 33-28409).
10.64 Canadian Acquisition Co. Pledge Agreement dated as of March
31, 1989 (incorporated by reference to Exhibit 10.71 to
Holdings' Registration Statement on Form S-1, dated May 1,
1989, Registration No. 33-28409).
II-9
<PAGE>
Exhibit
Number Description
10.65 Agreement and Plan of Merger, dated as of April 28, 1989,
among Holdings, Acquisition and the Company (incorporated by
reference to Exhibit 2.6 to Holdings' Registration Statement
on Form S-1, dated May 1, 1989, Registration No. 33-28409).
10.66 Lease between Containers and Riverbank Venture dated May 1,
1990 (incorporated by reference to Exhibit 10.99 filed with
the Company's Annual Report on Form 10-K for the year ended
December 31, 1989, Commission File No. 33-18719).
10.67 Loan Agreement between The Iowa Department of Economic
Development, City of Iowa City and Iowa City Can
Manufacturing Company, dated November 17, 1988 (incorporated
by reference to Exhibit 10.100 filed with the Company's
Annual Report on Form 10-K for the year ended December 31,
1989, Commission File No. 33-18719).
10.68 Promissory Note and Promissory Note Agreement dated November
17, 1988 from Iowa City Can Manufacturing Company to the
City of Iowa City (incorporated by reference to Exhibit
10.101 filed with the Company's Annual Report on Form 10-K
for the year ended December 31, 1989, Commission File No.
33-18719).
10.69 Mortgage between City of Iowa City, Iowa City Can
Manufacturing Company and Michael Development dated January
5, 1990 (incorporated by reference to Exhibit 10.102 filed
with the Company's Annual Report on Form 10-K for the year
ended December 31, 1989, Commission File No. 33-18719).
10.70 Containers Master Equipment Lease with Decimus Corporation,
dated as of October 11, 1989 (incorporated by reference to
Exhibit 10.103 filed with the Company's Annual Report on
Form 10-K for the year ended December 31, 1989, Commission
File No. 33-18719).
10.71 Underwriting Agreement dated June 22, 1989 between Holdings
and Morgan Stanley (incorporated by reference to Exhibit 1
filed with Amendment No. 4 to Holdings' Registration
Statement on Form S-1, dated June 23, 1989, Registration
Statement No. 33-28409).
10.72 Amended and Restated Tax Allocation Agreement by and among
Holdings, the Company, Containers, InnoPak Plastics
Corporation (Plastics), Aim, Fortune, SPHI and Silgan PET
dated as of July 13, 1990 (incorporated by reference to
Exhibit 10.107 filed with Post-Effective Amendment No. 6 to
the Company's Registration Statement on Form S-1, dated
August 20, 1990, Registration Statement No. 33-18719).
10.73 Sublease Agreement between Amoco and PET Acquisition Corp.
(Silgan PET) dated July 24, 1989 (incorporated by reference
to Exhibit 10.111 filed with Post-Effective Amendment No. 6
to the Company's Registration Statement on Form S-1, dated
August 20, 1990, Registration Statement No. 33-18719).
10.74 Lease Agreement between the Trustees of Cabot 95 Trust and
Amoco Plastic Products Company dated August 16, 1978
(incorporated by reference to Exhibit 10.112 filed with
II-10
<PAGE>
Exhibit
Number Description
Post-Effective Amendment No. 6 to the Company's Registration
Statement on Form S-1, dated August 20, 1990, Registration
Statement No. 33-18719).
10.75 Contribution Agreement by and among Messrs. Silver,
Horrigan, Rankin and Rodriguez, MSLEF II and BTNY dated as
of July 13, 1990 (incorporated by reference to Exhibit 2
filed with the Company's Current Report on Form 8-K, dated
July 1990).
10.76 Asset Purchase Agreement, dated as of November 1, 1991 by
and among Silgan PET, Holdings and Sewell Plastics, Inc.
(incorporated by reference to Exhibit 1 filed with the
Company's Current Report on Form 8-K, dated December 2,
1991).
10.77 Inventory and Equipment Purchase Agreement, dated as of
November 1, 1991 by and among Silgan PET, Holdings and
Sewell Plastics, Inc. (incorporated by reference to Exhibit
2 filed with the Company's Current Report on Form 8-K, dated
December 2, 1991).
10.78 Letter Agreement, dated November 15, 1991, amending the
Asset Purchase Agreement dated as of November 1, 1991 by and
among Silgan PET, Holdings and Sewell Plastics, Inc.
(incorporated by reference to Exhibit 3 to the Company's
Current Report on Form 8-K, dated December 2, 1991).
10.79 Letter Agreement, dated November 15, 1991, amending the
Inventory and Equipment Purchase Agreement dated as of
November 1, 1991 by and among Silgan PET, Holdings and
Sewell Plastics, Inc. (incorporated by reference to Exhibit
4 filed with the Company's Current Report on Form 8-K, dated
December 2, 1991).
10.80 Letter Agreement, dated November 31, 1991, amending the
Inventory and Equipment Purchase Agreement dated as of
November 1, 1991 by and among Silgan PET, Holdings and
Sewell Plastics, Inc. (incorporated by reference to Exhibit
5 filed with the Company's Current Report on Form 8-K, dated
December 2, 1991).
10.81 Containers Deferred Incentive Savings Plan (incorporated by
reference to Exhibit 10.144 filed with the Company's
Registration Statement on Form S-1, dated March 18, 1992,
Registration Statement No. 33-46499).
10.82 Amended and Restated Pledge Agreement dated as of June 18,
1992, made by the Company (incorporated by reference to
Exhibit 5 filed with the Company's Current Report on Form
8-K, dated July 15, 1992, Commission File No. 33-46499).
10.83 Amended and Restated Pledge Agreement dated as of June 18,
1992, made by Containers and Plastics (incorporated by
reference to Exhibit 6 filed with the Company's Current
Report on Form 8-K, dated July 15, 1992, Commission File No.
33-46499).
II-11
<PAGE>
Exhibit
Number Description
10.84 Amended and Restated Pledge Agreement dated as of June 18,
1992, made by Holdings (incorporated by reference to Exhibit
7 filed with the Company's Current Report on Form 8-K, dated
July 15, 1992, Commission File No. 33-46499).
10.85 Amended and Restated Security Agreement dated as of June 18,
1992, among Plastics, Containers and Bankers Trust
(incorporated by reference to Exhibit 8 filed with the
Company's Current Report on Form 8-K, dated July 15, 1992,
Commission File No.
33-46499).
10.86 Subsidiaries Guarantee, dated as of June 29, 1992, of
Containers and Plastics (incorporated by reference to
Exhibit 11 filed with the Company's Current Report on Form
8-K, dated July 15, 1992, Commission File No. 33-46499).
10.87 Underwriting Agreement, dated June 22, 1992, between the
Company and Morgan Stanley with respect to the 11-3/4% Notes
(incorporated by reference to Exhibit 3 filed with the
Company's Current Report on Form 8-K, dated July 15, 1992,
Commission File No.
33-46499).
10.88 Silgan Containers Corporation Second Amended and Restated
1989 Stock Option Plan (incorporated by reference to Exhibit
10.100 filed with Post-Effective Amendment No. 2 to the
Company's Registration Statement on Form S-1, dated May 11,
1994, Commission File No. 33-46499).
10.89 Form of Containers Nonstatutory Restricted Stock Option and
Stock Appreciation Right Agreement (incorporated by
reference to Exhibit 10.100 filed with Holdings' Annual
Report on Form 10-K for the year ended December 31, 1992,
Commission File No. 33-28409).
10.90 Silgan Plastics Corporation 1994 Stock Option Plan
(incorporated by reference to Exhibit 10.102 filed with
Post-Effective Amendment No. 2 to the Company's Registration
Statement on Form S-1, dated May 11, 1994, Commission File
No. 33-46499).
10.91 Form of Plastics Nonstatutory Restricted Stock Option and
Stock Appreciation Right Agreement (incorporated by
reference to Exhibit 10.103 filed with Post-Effective
Amendment No. 2 to the Company's Registration Statement on
Form S-1, dated May 11, 1994, Commission File No. 33-46499).
II-12
<PAGE>
Exhibit
Number Description
10.92 Silgan Holdings Inc. Second Amended and Restated 1989 Stock
Option Plan (incorporated by reference to Exhibit 10.104
filed with Post-Effective Amendment No. 2 to the Company's
Registration Statement on Form S-1, dated May 11, 1994,
Commission File No. 33-46499).
10.93 Form of Holdings Nonstatutory Restricted Stock Option and
Stock Appreciation Right Agreement (incorporated by
reference to Exhibit 10.124 filed with Holdings' Annual
Report on Form 10-K for the year ended December 31, 1992,
Commission File No. 33-28409).
10.94 Purchase Agreement, dated as of September 3, 1993, between
Containers and Del Monte (incorporated by reference to
Exhibit 1 filed with Holdings' Current Report on Form 8-K,
dated January 5, 1994, Commission File No. 33-28409).
10.95 Amendment to Purchase Agreement, dated as of December 10,
1993, between Containers and Del Monte (incorporated by
reference to Exhibit 2 filed with Holdings' Current Report
on Form 8-K, dated January 5, 1994, Commission File No.
33-28409).
10.96 Amended and Restated Organization Agreement, dated as of
December 21, 1993, among R. Philip Silver, D. Greg Horrigan,
MSLEF II, BTNY, First Plaza and Holdings (incorporated by
reference to Exhibit 2 filed with Holdings' Current Report
on Form 8-K, dated March 25, 1994, Commission File No.
33-28409).
10.97 Stockholders Agreement, dated as of December 21, 1993, among
R. Philip Silver, D. Greg Horrigan, MSLEF II, BTNY, First
Plaza and Holdings (incorporated by reference to Exhibit 3
filed with Holdings' Current Report on Form 8-K, dated March
25, 1994, Commission File No. 33-28409).
10.98 Amended and Restated Management Services Agreement, dated as
of December 21, 1993, between S&H and Holdings (incorporated
by reference to Exhibit 4 filed with Holdings' Current
Report on Form 8-K, dated March 25, 1994, Commission File
No. 33-28409).
10.99 Amended and Restated Management Services Agreement, dated as
of December 21, 1993, between S&H and Silgan (incorporated
by reference to Exhibit 5 filed with Holdings' Current
Report on Form 8-K, dated March 25, 1994, Commission File
No. 33-28409).
10.100 Amended and Restated Management Services Agreement, dated as
of December 21, 1993, between S&H and Containers
(incorporated by reference to Exhibit 6 filed with Holdings'
Current Report on Form 8-K, dated March 25, 1994, Commission
File No. 33-28409).
10.101 Amended and Restated Management Services Agreement, dated as
of December 21, 1993, between S&H and Plastics (incorporated
by reference to Exhibit 7 filed with Holdings' Current
Report on Form 8-K, dated March 25, 1994, Commission File
No. 33-28409).
10.102 Stock Purchase Agreement, dated as of December 21, 1993,
between Holdings and First Plaza (incorporated by reference
to Exhibit 8 filed with Holdings' Current Report on Form
8-K, dated March 25, 1994, Commission File No. 33-28409).
II-13
<PAGE>
Exhibit
Number Description
10.103 Credit Agreement, dated as of December 21, 1993, among
Silgan, Containers, Plastics, the lenders from time to time
party thereto, Bank of America, as co-agent, and Bankers
Trust, as agent (incorporated by reference to Exhibit 9
filed with Holdings' Current Report on Form 8-K, dated March
25, 1994, Commission File No. 33-28409).
10.104 Amended and Restated Holdings Guaranty, dated as of December
21, 1993, made by Holdings (incorporated by reference to
Exhibit 10 filed with Holdings' Current Report on Form 8-K,
dated March 25, 1994, Commission File No. 33-28409).
10.105 Amended and Restated Borrowers Guaranty, dated as of
December 21, 1993, made by Silgan, Containers, Plastics and
California-Washington Can Corporation (incorporated by
reference to Exhibit 11 filed with Holdings' Current Report
on Form 8-K, dated March 25, 1994, Commission File No.
33-28409).
10.106 Supply Agreement, dated as of September 3, 1993, between
Containers and Del Monte (incorporated by reference to
Exhibit 10.118 filed with the Company's Annual Report on
Form 10-K for the year ended December 31, 1993, Commission
File No. 1-11200). (Portions of this Exhibit are subject to
an application for confidential treatment filed with the
Commission.)
10.107 Amendment to Supply Agreement, dated as of December 21,
1993, between Containers and Del Monte (incorporated by
reference to Exhibit 10.119 filed with the Company's Annual
Report on Form 10-K for the year ended December 31, 1993,
Commission File No. 1-11200). (Portions of this Exhibit are
subject to an application for confidential treatment filed
with the Commission.)
*12.1 Computations of Ratio of Earnings to Fixed Charges for the
three months ended March 31, 1995 and 1994.
*12.2 Computations of Ratio of Earnings to Fixed Charges for the
years ended December 31, 1994, 1993, 1992, 1991 and 1990.
21 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 22 filed with Silgan's Annual Report on Form 10-K
for the year ended December 31, 1993, Commission File No.
1-11200).
*23 Consent of Ernst & Young LLP.
*24 Power of Attorney (included on signature page).
II-14
<PAGE>
Exhibit
Number Description
25 Statement of Eligibility of Trustee (incorporated by
reference to Exhibit 26 filed with Amendment No. 3 to
Silgan's Registration Statement on Form S-1, dated June 8,
1992, Registration Statement No. 33-46499).
--------------------
* Filed herewith.
II-15
<PAGE>
(b) Financial Statement Schedules:
SILGAN CORPORATION
Report of Independent Auditors.........................................S-1
I. Condensed Financial Information of Silgan Corporation:
Condensed Balance Sheets at December 31, 1994 and 1993.........S-2
Condensed Statements of Operations for the years ended
December 31, 1994, 1993 and 1992.............................S-3
Condensed Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992.............................S-4
II. Schedules of Valuation and Qualifying Accounts for the
years ended December 31, 1994, 1993 and 1992...................S-5
All other financial statement schedules not listed have been omitted because
they are not applicable, or not required, or because the required information is
included in the consolidated financial statements or notes thereto.
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on May 24, 1995.
SILGAN CORPORATION
By /s/ R. Philip Silver
-----------------------------
R. Philip Silver
Chairman of the Board and
Co-Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose
signature appears below constitutes and appoints R. Philip Silver, D. Greg
Horrigan and Robert H. Niehaus, and each or any of them, his true and lawful
attorney-in-fact and to act for him and in his name, place and stead, in any and
all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same with all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting said attorney-in-fact and agent, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or any of them, or their or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
Chairman of the Board and
Co-Chief Executive Officer
/s/ R. Philip Silver (Principal Executive Officer) May 24, 1995
------------------------
(R. Philip Silver)
<PAGE>
President, Co-Chief Executive May 24, 1995
/s/ D. Greg Horrigan Officer and Director
------------------------
(D. Greg Horrigan)
Vice President, Assistant
/s/ James S. Hoch Secretary and Director May 24, 1995
------------------------
(James S. Hoch)
Vice President, Assistant
/s/ Robert H. Niehaus Secretary and Director May 24, 1995
------------------------
(Robert H. Niehaus)
Executive Vice President, Chief
Financial Officer and Treasurer
/s/ Harley Rankin, Jr. (Principal Financial Officer) May 24, 1995
------------------------
(Harley Rankin, Jr.)
Vice President, Controller and
Assistant Treasurer
/s/ Harold J. Rodriguez, Jr. (Principal Accounting Officer) May 24,1995
----------------------------
(Harold J. Rodriguez, Jr.)
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
Silgan Corporation
We have audited the accompanying consolidated financial statements of
Silgan Corporation as of December 31, 1994 and 1993, and for each of the
three years in the period ended December 31, 1994, and have issued our
report thereon dated March 17, 1995 (included elsewhere in this
Registration Statement). Our audits also included the financial statement
schedules listed in Item 16(b) of this Registration Statement. These
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
Ernst & Young LLP
Stamford, CT
March 17, 1995
S-1<PAGE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF SILGAN CORPORATION
CONDENSED BALANCE SHEETS
December 31, 1994 and 1993
(Dollars in thousands)
ASSETS
1994 1993
Current assets:
Cash and cash equivalents $ 155 $ 61
Notes receivable-subsidiaries 21,968 39,850
Interest receivable-subsidiaries 1,699 810
Other current assets - 214
Total current assets 23,822 40,935
Investment in and other amounts due
from subsidiaries 70,947 37,104
Notes receivable-subsidiaries 286,640 305,072
Amount receivable from parent 1,244 607
Other assets 793 950
$383,446 $384,668
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of term loans $ 21,968 $ 20,000
Accrued interest payable 1,699 763
Accrued expenses 356 1,268
Total current liabilities 24,023 22,031
Long-term debt 282,568 305,000
Amounts payable to subsidiaries 11,148 3,123
Other long-term liabilities 2,362 1,711
Stockholder's equity:
Common stock - -
Additional paid-in capital 69,535 64,135
Retained earnings (deficit) (6,190) (11,332)
Total stockholder's equity 63,345 52,803
$383,446 $384,668
See Notes to Consolidated Financial Statements for Silgan Corporation
appearing elsewhere in this Prospectus.
S-2<PAGE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF SILGAN CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
For the years ended December 31, 1994, 1993 and 1992
(Dollars in thousands)
1994 1993 1992
Net sales $ - $ - $ -
Cost of goods sold - - -
Gross profit - - -
Selling, general and administrative
expenses 543 368 239
Loss from operations (543) (368) (239)
Equity in earnings (losses) of
consolidated subsidiaries 13,445 (7,570) 6,148
Other income (expense) (651) 1,480 832
Interest expense and other related
financing costs (30,039) (19,899) (21,429)
Interest income-subsidiaries 29,841 23,940 19,313
Income (loss) before income taxes 12,053 (2,417) 4,625
Income tax provision - - -
Income (loss) before extraordinary
charges 12,053 (2,417) 4,625
Extraordinary charges relating to
early extinguishment of debt - (130) (23)
Net income (loss) 12,053 (2,547) 4,602
Preferred stock dividend requirements - - 2,745
Net income (loss) applicable
to common stockholder $12,053 $(2,547) $ 1,857
See Notes to Consolidated Financial Statements for Silgan Corporation
appearing elsewhere in this Prospectus.
S-3<PAGE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF SILGAN CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1994, 1993 and 1992
(Dollars in thousands)
1994 1993 1992
Cash flows from operating activities: $ 7,005 $ 359 $ 1,825
Cash flows from investing activities:
(Increase) decrease in notes
receivable-subsidiaries 35,462 (117,515) (39,323)
(Increase) decrease in investment
in subsidiaries (14,998) - 30,008
Cash dividends received from
subsidiaries - - 16,861
Net cash provided (used) by
investing activities 20,464 (117,515) 7,546
Cash flows from financing activities:
Proceeds from issuance of long-term debt - 140,000 185,000
Reduction of long-term debt (20,464) (37,985) (120,827)
Repayment of advance from Parent - - (25,200)
Capital contribution by Parent - 15,000 -
Payments to former shareholders (6,911) - -
Dividend to Parent - - (15,724)
Redemption of preferred stock - - (30,008)
Cash dividends paid on preferred stock - - (1,137)
Debt financing costs - - (1,301)
Net cash provided (used) by
financing activities (27,375) 117,015 (9,197)
Net increase (decrease) in cash
and cash equivalents 94 (141) 174
Cash and cash equivalents at
the beginning of year 61 202 28
Cash and cash equivalents at
end of year $ 155 $ 61 $ 202
See Notes to Consolidated Financial Statements for Silgan Corporation
appearing elsewhere in this Prospectus.
S-4<PAGE>
SCHEDULE II
SILGAN CORPORATION
SCHEDULES OF VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 1994, 1993 and 1992
(Dollars in thousands)
Column A Column B Column C Column D Column E
Additions
Charged
Balance at Charged to to other Balance
beginning costs and accounts Deductions at end of
Description of period expenses describe describe(1) period
For the year ended
December 31, 1992:
Allowance for
doubtful accounts
receivable $ 925 $ 815 $ - $ 97 $1,643
For the year ended
December 31, 1993:
Allowance for
doubtful accounts
receivable $1,643 $ 91 $ - $ 650 $1,084
For the year ended
December 31, 1994:
Allowance for
doubtful accounts
receivable $1,084 $ 621 $ 58 $ 206 $1,557
(1) Uncollectible accounts written off, net of recoveries.
S-5<PAGE>
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit
12.1 Computations of Ratio of Earnings to Fixed Charges for the
three months ended March 31, 1995 and 1994.
12.2 Computations of Ratio of Earnings to Fixed Charges for the
years ended December 31, 1994, 1993, 1992, 1991 and 1990.
23 Consent of Ernst & Young LLP.
24 Power of Attorney (included on signature page).
EXHIBIT 12.1
COMPUTATIONS OF RATIO OF EARNINGS TO FIXED CHARGES
The following table reflects the Company's computation of the ratio of
earnings to fixed charges for the periods indicated.
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31,1995 March 31, 1994
------------- --------------
(Dollars in Thousands)
<S> <C> <C>
Income before income taxes................................. $10,185 $ 5,756
Add:
Interest expense and amortization
of debt expense................................ 9,415 8,369
Rental expense representative of
the interest factor............................ 660 747
------- -------
Income as adjusted................................ $20,260 $ 14,872
======= =======
Fixed charges:
Interest expense and amortization
of debt expense................................ $ 9,415 $ 8,369
Rental expense representative of
the interest factor............................ 660 747
------- -------
Total fixed charges........................................ $10,075 $ 9,116
======= =======
Ratio of earnings to fixed charges ........................ 2.01 1.63
======= ======
</TABLE>
EXHIBIT 12.2
COMPUTATIONS OF RATIO OF EARNINGS TO FIXED CHARGES
The following table reflects the Company's computation of the ratio of
earnings to fixed charges for the periods indicated.
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1993 1992 1991 1990
----- ----- ----- ----- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Income before income taxes................. $23,053 $14,545 $15,877 $10,822 $ 4,521
Add:
Interest expense and amortization
of debt expense.................. 36,142 27,928 26,916 28,981 34,233
Rental expense representative of
the interest factor............... 3,047 2,666 2,659 2,431 2,312
------ ------- ------- ------- -------
Income as adjusted................ $62,242 $45,139 $45,452 $42,234 $41,066
======= ======= ======= ======= =======
Fixed Charges:
Interest expense and amortization
of debt expense................... $36,142 $27,928 $26,916 $28,981 $34,233
Rental expense representative of
the interest factor............... 3,047 2,666 2,659 2,431 2,312
------ ------- ------- ------- -------
Total fixed charges............... $39,189 $30,594 $29,575 $31,412 $36,545
======= ======= ======= ======= =======
Ratio of earnings to fixed charges......... 1.59 1.48 1.54 1.34 1.12
</TABLE>
EXHIBIT 23
Consent of Independent Auditors
We consent to the references to our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our reports dated March 17, 1995 with
respect to the consolidated financial statements of Silgan Corporation included
in the Post-Effective Amendment No. 6 to the Registration Statement (Form S-1,
No. 33-46499) and related Prospectus of Silgan Corporation for the registration
of $135,000,000 of 11 3/4% Senior Subordinated Notes Due 2002.
/s/ ERNST & YOUNG LLP
Stamford, Connecticut
May 22, 1995
