Registration No. 33-46499
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 7
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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 Industrial Classification Identification
or organization) Code Numbers) Number)
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)
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Copy to:
Frank W. Hogan, III, Esq.
Winthrop, Stimson, Putnam & Roberts
Financial Centre
695 East Main Street
P.O. Box 6760
Stamford, CT 06904-6760
(203) 348-2300
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<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 Cover Page of
Prospectus................................ Cross Reference Page; Outside
Front Cover Page
2. Inside Front and Outside Back Cover
Pages 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 to be
Registered................................ Outside Front Cover Page;
Prospectus Summary;
Description of the 11-3/4%
Notes
10. Interests of Named Experts and Counsel.... Certain Transactions; Legal
Matters; Experts
11. Information With Respect to the
Registrant................................ Outside Front Cover Page;
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
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Interest payable June 15 and December 15
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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, 1996, the Company and its subsidiaries had
approximately $776.8 million of indebtedness and other liabilities effectively
senior to the 11-3/4% Notes, including approximately $502.0 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."
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SEE "CERTAIN RISK FACTORS" FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
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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.
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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 29, 1996
<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.
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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 ...................................................... 38
Management .................................................... 50
Securities Ownership of Certain Beneficial
Owners and Management ........................................ 59
Certain Transactions .......................................... 60
Description of Certain Indebtedness ........................... 62
Description of Silgan Capital Stock ............................ 71
Description of Holdings Common Stock ........................... 71
Description of the 11-3/4% Notes ............................... 77
Certain Federal Income Tax Considerations ..................... 104
Market-Making Activities of Morgan Stanley ................... 107
Legal Matters ................................................ 108
Experts ...................................................... 108
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
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 1995, the
Company had net sales of approximately $1.1 billion.
On August 1, 1995, the Company's wholly owned subsidiary, Silgan
Containers Corporation ("Containers"), acquired from American National Can
Company ("ANC") substantially all of the assets of ANC's Food Metal and
Specialty business ("AN Can") for approximately $349 million. See
"Business--Company History." AN Can manufactures and sells metal food containers
and rigid plastic containers for a variety of food products and metal caps and
closures for food and beverage products. The acquisition of AN Can has enabled
the Company to diversify its customer base and geographic presence. The Company
believes that the acquisition of AN Can will also result in the realization of
cost savings for the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." On a pro forma basis after
giving effect to the acquisition of AN Can, in 1995 the Company would have had
net sales of approximately $1.4 billion.
Management believes that the Company is the sixth largest can producer
and the largest food can producer 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 addition to the acquisition of AN Can in August
1995, Containers acquired the U.S. metal container manufacturing business ("DM
Can") of Del Monte Corporation ("Del Monte") in December 1993. 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
synergies are likely.
Metal Container Business
Management estimates that Containers is currently the sixth largest can
producer and the largest manufacturer of metal food containers in North America.
In 1995, Containers sold
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<PAGE>
approximately 28% of all metal food containers used in the United States. On a
pro forma basis after giving effect to the acquisition of AN Can, in 1995
Containers would have sold approximately 36% of all metal food containers sold
in the United States. Although the food can industry in the United States is
relatively mature in terms of unit sales growth, Containers, on a pro forma
basis after giving effect to the acquisition of AN Can, has realized compound
annual unit sales growth in excess of 16% since 1987. Types of containers
manufactured include those for vegetables, fruit, pet food, meat, tomato based
products, coffee, soup, seafood, 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
approximately 80% of Containers' sales in 1996 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 $131
million in its acquired manufacturing facilities and has spent approximately
$307 million for the acquisition of additional can manufacturing facilities and
equipment. As a result of these efforts and management's focus on quality and
service, Containers has more than tripled 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 36% in 1995, on a pro forma basis after giving effect to
the acquisition of AN Can.
Containers also manufacturers and sells certain specialty packaging
items, including metal caps and closures, plastic bowls and paper containers
primarily used by processors and packagers in the food industry. In 1995, the
Company had sales of specialty items of approximately $37 million.
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 , cosmetics and toiletries,
household chemical containers for scouring cleaners, specialty cleaning agents ,
lawn and garden chemicals and pharmaceutical containers for tablets, laxatives
and eye cleaning solutions. Plastics manufactures PET custom containers for
mouthwash , liquid soap, skin care lotions, gastrointestinal and respiratory
products, pourable and viscous salad dressings, condiments, instant coffees,
premium water and liquor. 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
12% to $220 million in 1995. 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, 1996, the Company and its subsidiaries
had approximately $776.8 million of indebtedness
and other liabilities effectively senior to the
11-3/4% Notes, of which approximately $502.0
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 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.
Three Months Ended March 31,
------------------------------
1996 1995
------ ------
(Dollars in thousands)
(Unaudited)
Operating Data:
Net sales........................................ $279,860 $203,264
Cost of goods sold............................... 243,313 174,265
------- -------
Gross profit..................................... 36,547 28,999
Selling, general and administrative expenses..... 12,647 9,399
------- -------
Income from operations........................... 23,900 19,600
Interest expense and other related financing
costs........................................... 15,823 9,415
------- --------
Income before income taxes....................... 8,077 10,185
Income tax provision............................. 3,300 4,400
------- --------
Net income ...................................... $ 4,777 $ 5,785
======= ========
Ratio of earnings to fixed charges(a)............ 1.48 2.01
Balance Sheet Data (at end of period):
Fixed assets.................................... $491,177 $251,832
Total assets.................................... 989,331 531,437
Total long-term debt............................ 549,610 282,568
Common stockholder's equity..................... 77,533 70,530
Other Data:
EBDITA(b)....................................... $ 40,285 $ 28,802
EBDITA as a percentage of net sales............. 14.4% 14.2%
Capital expenditures............................ 18,558 8,359
Depreciation and amortization(c)................ 15,439 8,779
(footnotes follow)
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<PAGE>
<TABLE>
<CAPTION>
SUMMARY FINANCIAL DATA
Year Ended December 31,
-----------------------
1995<F4> 1994<F5> 1993<F5> 1992 1991<F6>
--------- --------- --------- ------ ---------
(Dollars in thousands)
Operating Data:
<S> <C> <C> <C> <C> <C>
Net sales................................ $1,101,905 $861,374 $645,468 $630,039 $678,211
Cost of goods sold....................... 970,491 748,290 571,174 554,972 605,185
------- ------- ------- ------- -------
Gross profit............................. 131,414 113,084 74,294 75,067 73,026
Selling, general and administrative
expenses.............................. 45,734 37,160 31,821 32,274 33,223
Reduction in carrying value of assets.... 14,745 16,729 -- -- --
------ ------- ------ ------ ------
Income from operations................... 70,935 59,195 42,473 42,793 39,803
Interest expense and other related
financing costs....................... 52,462 36,142 27,928 26,916 28,981
------ ------ ------ ------ ------
Income before income taxes............... 18,473 23,053 14,545 15,877 10,822
Income tax provision <F7>................ 8,700 11,000 6,300 2,200 1,500
------ ------ ------ ------ ------
Income before extraordinary charges and
cumulative effect of changes in
accounting principles................. 9,773 12,053 8,245 13,677 9,322
Extraordinary charges relating to early
extinguishment of debt................ (2,967) -- (841) (9,075) --
Cumulative effect of changes in
accounting principles, net of taxes <F8>. -- -- (9,951) -- --
----- ------ ----- ----- -----
Net income (loss)........................ 6,806 12,053 (2,547) 4,602 9,322
Preferred stock dividend requirements.... -- -- -- 2,745 3,889
----- ------ ----- ----- -----
Net income (loss) applicable to
common stockholder.................... $ 6,806 $12,053 $(2,547) $ 1,857 $ 5,433
========= ======== ====== ======= =======
Ratio of earnings to fixed charges <F1>.. 1.33 1.59 1.48 1.54 1.34
Balance Sheet Data (at end of period):
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<PAGE>
Fixed assets............................. $487,301 $251,810 $290,395 $223,879 $230,501
Total assets............................. 946,319 500,148 492,064 382,154 382,330
Total long-term debt..................... 549,610 282,568 305,000 206,681 140,701
Redeemable preferred stock............... -- -- -- -- 27,878
Common stockholder's equity.............. 70,456 63,345 52,803 32,775 46,642
Other Data:
EBDITA <F2>............................... $133,141 $115,326 $76,769 $74,547 $72,651
EBDITA as a percentage of net sales....... 12.1% 13.4% 11.9% 11.8% 10.7%
Capital expenditures...................... $ 51,897 $ 29,184 $42,480 $23,447 $21,834
Depreciation and amortization <F3>........ $ 45,388 $ 37,187 $33,818 $31,754 $32,848
Number of employees (at end of period)<F9> 5,110 4,000 3,330 3,340 3,560
(footnotes follow)
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<PAGE>
Notes to Summary Financial Data
<FN>
<F1> 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.
<F2> "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
$0.7 million and $0.2 million for the three months ended March 31, 1996
and 1995, respectively, and $1.7 million, $0.7 million and $0.5 million
for the years ended December 31, 1995, 1994 and 1993, respectively,
(vi) charges relating to the vesting of benefits under stock
appreciation rights ("SARs") of $0.2 million for each of the three
months ended March 31, 1996 and 1995, and $0.4 million and $1.5 million
in 1995 and 1994, respectively, and (vii) the reduction in carrying
value of assets of $14.7 million and $16.7 million in 1995 and 1994,
respectively. 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.
<F3> Depreciation and amortization excludes amortization of debt financing
costs.
<F4> On August 1, 1995, the Company acquired from ANC substantially all of
the assets of ANC's Food Metal and Specialty 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 Note 3 to the Consolidated Financial
Statements included elsewhere in this Prospectus.
<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 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 has not elected to restate its financial
statements for years prior to 1993, and has 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.
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<PAGE>
<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, 1995 includes approximately
1,400 employees who joined the Company on August 1, 1995 as a result of
the acquisition by Containers of AN Can. 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, 1996, the Company's total indebtedness was approximately
$637.0 million, its total assets were $989.3 million and its common
stockholder's equity was $77.5 million. See "Capitalization."
Under the terms of the credit agreement, dated as of August 1, 1995 (the
"Credit Agreement"), among the Company and certain of its subsidiaries, the
lenders named therein (the "Banks"), Bankers Trust Company ("Bankers Trust"), as
Administrative Agent and as a Co-Arranger, and Bank of America Illinois ("Bank
of America"), as Documentation Agent and as a Co-Arranger, the Company is
prohibited from merging with Holdings unless, among other things, Holdings'
13-1/4% Senior Discount Debentures due 2002 (the "Holdings Discount Debentures")
have been repaid in full and Holdings does not have outstanding any Refinancing
Indebtedness (as defined in the Credit Agreement). The Company is also subject
to restrictions under the Indenture with respect to a merger with Holdings.
Although the Company has no present intention of merging or entering into a
similar transaction with Holdings, the Company may in the future determine that
it is in its best interest to merge with Holdings. In the event of such a
merger, so long as such a merger is permitted under the Company's agreements
governing its indebtedness, Holdings' indebtedness (including any indebtedness
which might be incurred in order to repurchase or otherwise refinance 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.
See "Description of Certain Indebtedness--Description of the Credit Agreement"
and "Description of the 11-3/4% Notes."
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<PAGE>
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 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
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<PAGE>
description of such covenants, see "Description of Certain
Indebtedness--Description of the Credit Agreement" 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 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.
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, 1996, the Company and its subsidiaries had outstanding
approximately $502.0 million of indebtedness under the Credit Agreement secured
by assets of the Company and its subsidiaries . The Indenture permits the
Company and its subsidiaries to incur certain additional secured indebtedness
under certain circumstances. See "--Ability of the Company to Incur Additional
Indebtedness" below and "Description of the 11-3/4% Notes." The Company is
actively considering incurring additional lower cost indebtedness , which may be
secured indebtedness, to fund the redemption by Holdings of a portion of the
Holdings Discount Debentures. Under the Credit Agreement, the Banks 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 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
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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 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, 1996, the Company and its subsidiaries had
approximately $776.8 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 . 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 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 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. The Company is
actively considering incurring additional lower cost indebtedness, which may be
Senior Indebtedness, to fund the redemption by Holdings of a portion of the
Holdings Discount Debentures. At March 31, 1996, the Company had outstanding
approximately $502.0 million of Senior Indebtedness.
Ability of the Company to Provide Financial Support to Holdings
Since Holdings' only asset is its investment in Silgan, Holdings ability
to pay interest 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. Interest on the Holdings Discount Debentures will be payable in
cash at a rate of 13-1/4% per annum from and after June 15, 1996. Commencing on
December 15, 1996, semi-annual interest payments of up to $13.0 million (which
amount will be reduced to the extent that any Holdings Discount Debentures are
redeemed) will be required to be made on the Holdings Discount Debentures. While
Silgan has no legal obligation to make such funds available, it is expected that
Silgan will do so if it then has sufficient funds available for such purpose. If
sufficient funds to pay such interest are not generated by the operations of
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<PAGE>
Silgan's subsidiaries, Silgan or Holdings may seek to borrow or otherwise
finance the amount of such payments or refinance the Holdings Discount
Debentures.
The Credit Agreement permits Silgan to pay cash dividends and to advance
funds to Holdings in order to enable Holdings to pay interest on the Holdings
Discount Debentures, so long as amounts due under the Credit Agreement have not
been accelerated or an event of default thereunder does not exist or would not
result therefrom. The Indenture does not limit the ability of Silgan to pay cash
dividends or to advance funds to Holdings in order to enable Holdings to pay
interest on the Holdings Discount Debentures. Management believes that the
funding requirements of Holdings to service its indebtedness 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 ."
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 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. 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.
Ability of the Company to Incur Additional Indebtedness
Although the Credit Agreement limits the incurrence by Silgan and its
subsidiaries of additional indebtedness, the Indenture permits, 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
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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, 1995, the
Company's Interest Coverage Ratio was 2.8 to 1. The Indenture also permits
certain specified additional indebtedness to be incurred by the Company and its
subsidiaries. The Indenture does not 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." The Company's secured
indebtedness will increase, effective June 15, 1996, by $17.4 million, which
amount the Company will borrow under its working capital facility under the
Credit Agreement to fund the redemption by Holdings on such date of $17.4
million aggregate principal amount of the Holdings Discount Debentures.
Additionally, the Company is actively considering incurring additional lower
cost indebtedness, which indebtedness may be Senior Indebtedness and/or secured
by liens on the assets of the Company and its subsidiaries, to fund the
redemption by Holdings of a portion of the Holdings Discount Debentures. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Capital Resources and Liquidity."
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% 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 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 1995, approximately 21% of the
Company's sales were to Nestle and approximately 15% of the Company's sales were
to Del Monte. On a pro forma basis after giving effect to the acquisition of AN
Can, in 1995 approximately 17% and 11% of the Company's sales would have been to
Nestle and Del Monte, respectively. See "Business--Sales and Marketing."
Under the Nestle Supply Agreements that were extended through 2001
(representing approximately 70% of the Company's 1995 unit sales to Nestle),
Nestle has the right to receive
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competitive bids under narrowly limited circumstances, and Containers has the
right to match any such bids. If Containers matches a competitive bid, it may
result in reduced sales prices to Nestle with respect to the cans that are the
subject of such 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. The Company cannot predict
the effect, if any, of such bids upon its financial condition or results of
operations. The Company is currently engaged in discussions with Nestle
regarding the pricing and the extension of the term for certain can requirements
under these Nestle Supply Agreements . On a pro forma basis after giving effect
to the acquisition of AN Can, such can requirements would have represented
approximately 6% of the Company's 1995 sales. See "Business--Sales and
Marketing."
The term of the other Nestle Supply Agreements expires in August 1997. The
Company has commenced discussions with Nestle with respect to the continuation
beyond 1997 of the other Nestle Supply Agreements, which would have represented
approximately 6% of the Company's sales in 1995 on a pro forma basis after
giving effect to the acquisition of AN Can. Although the Company intends to make
every effort to extend these Nestle Supply Agreements on reasonable terms and
conditions, there can be no assurance that these Nestle Supply Agreements will
be extended. See "Business--Sales and Marketing."
Under the DM Supply Agreement, beginning in December 1998 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 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, which could result in lower sales
prices to Del Monte with respect to the containers that are the subject 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."
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."
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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 June 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.
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."
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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 1995, the Company had net sales
of approximately $1.1 billion.
On August 1, 1995, the Company's wholly owned subsidiary, Containers,
acquired from ANC substantially all of the assets of ANC's Food Metal and
Specialty business for approximately $349 million. See "Business--Company
History." AN Can manufactures and sells metal food containers and rigid plastic
containers for a variety of food products and metal caps and closures for food
and beverage products. The acquisition of AN Can has enabled the Company to
diversify its customer base and geographic presence. The Company believes that
the acquisition of AN Can will also result in the realization of cost savings
for the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." On a pro forma basis after giving effect
to the acquisition of AN Can, in 1995 the Company would have had net sales of
approximately $1.4 billion.
Management believes that the Company is the sixth largest can producer and
the largest food can producer 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 addition to the acquisition of AN Can in August 1995,
Containers acquired the U.S. metal container manufacturing business of Del Monte
in December 1993. 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
synergies are likely.
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.
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Metal Container Business
Management estimates that Containers is currently the sixth largest can
producer and the largest manufacturer of metal food containers in North America.
In 1995, Containers sold approximately 28% of all metal food containers used in
the United States. On a pro forma basis after giving effect to the acquisition
of AN Can, in 1995 Containers would have sold approximately 36% of all metal
food containers sold in the United States. Although the food can industry in the
United States is relatively mature in terms of unit sales growth, Containers, on
a pro forma basis after giving effect to the acquisition of AN Can, has realized
compound annual unit sales growth in excess of 16% since 1987. Types of
containers manufactured include those for vegetables, fruit, pet food, meat,
tomato based products, coffee, soup, seafood, 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 approximately 80% of Containers' sales in 1996 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 $131 million in its acquired manufacturing facilities and has
spent approximately $307 million for the acquisition of additional can
manufacturing facilities and equipment. As a result of these efforts and
management's focus on quality and service, Containers has more than tripled 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 36% in 1995, on a pro
forma basis after giving effect to the acquisition of AN Can.
Containers also manufacturers and sells certain specialty packaging items,
including metal caps and closures, plastic bowls and paper containers primarily
used by processors and packagers in the food industry. In 1995, the Company had
sales of specialty items of approximately $37 million.
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 ,
cosmetics and toiletries, household chemical containers for scouring cleaners,
specialty cleaning agents , lawn and garden chemicals and pharmaceutical
containers for tablets, laxatives and eye cleaning solutions. Plastics
manufactures PET custom containers for mouthwash , liquid soap, skin care
lotions, gastrointestinal and respiratory products, pourable and viscous salad
dressings, condiments, instant coffees, premium water and liquor. 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
12% to $220 million in 1995. 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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CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization
of the Company as of March 31, 1996. This table should be read in conjunction
with the consolidated financial information of the Company, included elsewhere
in this Prospectus.
March 31, 1996
--------------
(Dollars in thousands)
Short-term debt:
- ----------------
Current portion of term loans........................ $27,192
Working capital loans................................ 60,150
------
Total short-term debt (a).................... $87,342
======
Long-term debt:
- --------------
Term loans........................................... $414,610
11-3/4% Senior Subordinated Notes due 2002........... 135,000
-------
Total long-term debt (a)..................... $549,610
=======
Common stockholder's equity (b):
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......................... 75,935
Retained earnings.................................. 1,598
------
Total common stockholder's equity............. $77,533
======
Total capitalization.................................. $627,143
=======
- ----------------------
(a) See "Description of Certain Indebtedness" and "Description of the
11-3/4% Notes."
(b) For a description of the common stock of Silgan, see "Description of
Silgan Capital Stock."
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SELECTED FINANCIAL DATA
Set forth below are selected historical consolidated financial data of
the Company at March 31, 1996 and 1995 and for the three months then ended, and
at December 31, 1995, 1994, 1993, 1992 and 1991 and for the years then ended.
The selected historical consolidated financial data of the Company for
the three months ended March 31, 1996 and 1995 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,
1995 and 1994 and for each of the three years in the period ended December 31,
1995 (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, 1993, 1992 and 1991 and for the years ended December 31,
1992 and 1991 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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SELECTED FINANCIAL DATA
Three Months Ended March 31,
------------------------------
1996 1995
------ ------
(Dollars in thousands)
(Unaudited)
Operating Data:
Net sales........................................ $279,860 $203,264
Cost of goods sold............................... 243,313 174,265
------- -------
Gross profit..................................... 36,547 28,999
Selling, general and administrative expenses..... 12,647 9,399
------ ------
Income from operations........................... 23,900 19,600
Interest expense and other related financing
costs........................................... 15,823 9,415
------ ------
Income before income taxes....................... 8,077 10,185
Income tax provision............................. 3,300 4,400
----- ------
Net income....................................... $ 4,777 $ 5,785
======= =======
Ratio of earnings to fixed charges (a)........... 1.48 2.01
Balance Sheet Data (at end of period):
Fixed assets..................................... $491,177 $251,832
Total assets..................................... 989,331 531,437
Total long-term debt............................. 549,610 282,568
Common stockholder's equity...................... 77,533 70,530
Other Data:
EBDITA (b)....................................... $ 40,285 $28,802
EBDITA as a percentage of net sales.............. 14.4% 14.2%
Capital expenditures............................. 18,558 8,359
Depreciation and amortization (c)................ 15,439 8,779
(footnotes follow)
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<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
Year Ended December 31,
--------------------------
1995<F4> 1994<F5> 1993<F5> 1992 1991<F6>
--------- -------- --------- ------ ---------
(Dollars in thousands)
Operating Data:
<S> <C> <C> <C> <C> <C>
Net sales................................. $1,101,905 $861,374 $645,468 $630,039 $678,211
Cost of goods sold........................ 970,491 748,290 571,174 554,972 605,185
------- ------- ------- ------- -------
Gross profit.............................. 131,414 113,084 74,294 75,067 73,026
Selling, general and administrative
expenses............................... 45,734 37,160 31,821 32,274 33,223
Reduction in carrying value of assets..... 14,745 16,729 -- -- --
------ ------ ------ ------ ------
Income from operations.................... 70,935 59,195 42,473 42,793 39,803
Interest expense and other related
financing costs........................ 52,462 36,142 27,928 26,916 28,981
------ ------ ------ ------ ------
Income before income taxes................ 18,473 23,053 14,545 15,877 10,822
Income tax provision <F7>................. 8,700 11,000 6,300 2,200 1,500
------ ------ ------ ------ ------
Income before extraordinary charges and
cumulative effect of changes in
accounting principles.................. 9,773 12,053 8,245 13,677 9,322
Extraordinary charges relating to early
extinguishment of debt................. (2,967) -- (841) (9,075) --
Cumulative effect of changes in
accounting principles, net of
taxes <F8>............................. -- -- (9,951) -- --
----- ------ ----- ------ -----
Net income (loss)......................... 6,806 12,053 (2,547) 4,602 9,322
Preferred stock dividend requirements..... -- -- -- 2,745 3,889
----- ------ ----- ----- -----
Net income (loss) applicable to
common stockholder..................... $ 6,806 $12,053 $(2,547) $ 1,857 $ 5,433
======= ====== ===== ====== =======
Ratio of earnings to fixed charges <F1>... 1.33 1.59 1.48 1.54 1.34
Balance Sheet Data (at end of period):
-26-
<PAGE>
Fixed assets.............................. $487,301 $251,810 $290,395 $223,879 $230,501
Total assets.............................. 946,319 500,148 492,064 382,154 382,330
Total long-term debt...................... 549,610 282,568 305,000 206,681 140,701
Redeemable preferred stock................ -- -- -- -- 27,878
Common stockholder's equity............... 70,456 63,345 52,803 32,775 46,642
Other Data:
EBDITA <F2>............................... $133,141 $115,326 $76,769 $74,547 $72,651
EBDITA as a percentage of net sales....... 12.1% 13.4% 11.9% 11.8% 10.7%
Capital expenditures...................... $ 51,897 $ 29,184 $42,480 $23,447 $21,834
Depreciation and amortization <F3>........ $ 45,388 $ 37,187 $33,818 $31,754 $32,848
Number of employees (at end of
period) <F9>............................ 5,110 4,000 3,330 3,340 3,560
(footnotes follow)
-27-
<PAGE>
<FN>
Notes to Selected Financial Data
<F1> 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.
<F2> "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
$0.7 million and $0.2 million for the three months ended March 31, 1996
and 1995, respectively, and $1.7 million, $0.7 million and $0.5 million
for the years ended December 31, 1995, 1994 and 1993, respectively,
(vi) charges relating to the vesting of benefits under SARs of $0.2
million for each of the three months ended March 31, 1996 and 1995, and
$0.4 million and $1.5 million in 1995 and 1994, respectively, and (vii)
the reduction in carrying value of assets of $14.7 million and $16.7
million in 1995 and 1994, respectively. 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.
<F3> Depreciation and amortization excludes amortization of debt financing
costs.
<F4> On August 1, 1995, the Company acquired from ANC substantially all of
the assets of ANC's Food Metal and Specialty 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 Note 3 to the Consolidated Financial
Statements included elsewhere in this Prospectus.
<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 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 has not
elected to restate its financial statements for years prior to 1993,
and has 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.
-28-
<PAGE>
<F9> The number of employees at December 31, 1995 includes approximately
1,400 employees who joined the Company on August 1, 1995 as a result of
the acquisition by Containers of AN Can. 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>
-29-
<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 container
business, which had sales of $882 million in 1995, has realized compound annual
growth of 16% through both acquisitions of food can businesses and internal
growth. Since 1993, the Company has made two significant acquisitions. On August
1, 1995 the Company acquired AN Can and in December 1993 the Company acquired DM
Can. On a pro forma basis after giving effect to the acquisition of AN Can,
sales for the Company's metal container business would have been $1.2 billion in
1995. Since 1987, the Company, on a pro forma basis after giving effect to the
acquisition of AN Can, has realized compound annual sales growth in its metal
food container business in excess of 21%.
The Company believes that its investments have enabled it to achieve a low
cost position in the food can segment. To further enhance its low cost position,
the Company has realized cost reduction opportunities through plant
rationalization and equipment investment as well as from improved production
scheduling and line reconfiguration. Since 1992, the Company has closed nine
smaller, higher cost metal container facilities, including six facilities that
were closed in 1995 as a result of the integration of the manufacturing
operations of DM Can. Management believes that the acquisition of AN Can, which
has seventeen manufacturing facilities, provides the Company with further cost
reduction opportunities not only through production and manufacturing synergies
which it will realize from the combined operations but also through the
integration of the selling, general and administrative operations of AN Can into
the Company's existing metal container business. The Company anticipates it will
fully realize the benefits of integrating these selling and administrative
functions and certain of the manufacturing synergies by late 1996. On the other
hand, benefits which may be realized by rationalization of plant operations will
not occur before 1997. Because AN Can has higher labor costs than the Company's
existing metal container business and any benefits realized from plant
rationalizations will not occur until after 1996, the Company expects that the
gross margin for its metal container business in 1996 will decline modestly from
its historical rate.
Although employee termination costs associated with plant rationalizations
and administrative workforce reductions and other plant exit costs associated
with the acquisition of AN Can have been accrued through purchase accounting
adjustments, the Company has incurred in 1995 and will be incurring in 1996
other non-recurring costs which under current accounting pronouncements will be
charged against operating income. These costs, which include redundant charges
related to the integration of the administrative and general functions as well
as costs associated with plant rearrangement and clean-up, were $3.2 million in
1995 and are expected to be approximately $4.0 million in 1996.
To enhance its competitive position, the Company believes that it 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 December 2003 and the
arrangement to supply a majority of Nestle's domestic metal container
requirements under the Nestle Supply Agreements extends through 2001. Revenues
from these two
-30-
<PAGE>
customers represented approximately 45% of net sales by the Company's metal
container
business in 1995. The acquisition of AN Can has enabled the Company to diversify
its customer base and expand its domestic geographic presence. Similar to the
Company's existing metal container business, AN Can has multi-year supply
arrangements with many of its metal food container customers. As a result, the
Company estimates that approximately 80% of its 1996 metal container sales will
be subject to long term contracts. Furthermore, on a pro forma basis after
giving effect to the acquisition of AN Can, for 1995 the Company's sales to
Nestle and Del Monte would have declined to 33% of the Company's total metal
container sales.
The Company believes that it is likely that the unit volume for its metal
container business, on a pro forma basis after giving effect to the acquisition
of AN Can, will decline in 1996 and possibly in 1997 from the aggregate volumes
realized by Silgan and AN Can on a stand-alone basis. The Company believes that
certain customers, who had a majority of their can requirements supplied by
Silgan and AN Can, will seek additional suppliers. Additionally, the Company is
negotiating the extension of supply arrangements with many customers, including
the supply arrangements with Nestle that expire in 1997, representing
approximately 6% of the Company's sales in 1995 on a pro forma basis after
giving effect to the acquisition of AN Can. There can be no assurance that the
Company will be successful in its efforts to maintain this volume on the same
terms and conditions that currently exist.
The plastic container business has grown from a sales base of $89 million
in 1987 to $220 million in 1995. In 1989, the Company acquired four 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. An
additional facility was closed in 1995. To gain further production efficiencies,
the Company has made significant capital investment in its plastic container
business over the past few years. In 1994, the Company began to realize the
benefits of the consolidation and rationalization program as well as the capital
investment program. Currently, 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 that it has equipment and technical expertise to take
advantage of these growth segments.
In conjunction with the acquisition of AN Can, Silgan, Containers and
Plastics entered into a $675.0 million credit facility with various banks to
finance the acquisition of AN Can and the resulting increased seasonal working
capital needs of the Company's metal container business, to refinance in full
amounts owing under the Company's previous credit facility, to repay Silgan's
Senior Secured Floating Rate Notes due 1997 (the "Secured Notes") and to permit
the Company to advance to Holdings up to $75.0 million for the repurchase or
redemption by Holdings of Holdings Discount Debentures. Although the Company
lowered its interest rate spread under its new credit facility by 1/2%, the
Company's total interest expense will increase significantly from historical
amounts because the acquisition of AN Can was financed entirely through bank
borrowings and additional bank borrowings were or will be advanced to Holdings
on a non-interest bearing basis to fund Holdings' repurchase or redemption of
Holdings Discount Debentures as permitted under the Credit Agreement. See
"Description of Certain Indebtedness--Description of the Credit Agreement." In
addition, the Company is actively considering incurring additional lower cost
indebtedness to fund the redemption by Holdings of a portion of the Holdings
Discount Debentures. See "--Capital Resources and Liquidity," below.
-31-
<PAGE>
Results of Operations - Three Months
Summary historical results for the Company's two business segments, metal
and plastic containers, for the three months ended March 31, 1996 and 1995 and
summary pro forma results for the Company and AN Can for the three months ended
March 31, 1995 (after giving effect to the acquisition of AN Can as of the
beginning of 1995) are provided below.
The pro forma data includes the historical results of the Company and AN
Can and reflects the effect of purchase accounting adjustments based on
preliminary appraisals and valuations, the financing of the acquisition of AN
Can, the refinancing of certain of the Company's debt obligations, and certain
other adjustments as if these events occurred as of the beginning of the period
presented. The pro forma adjustments are based upon available information and
upon certain assumptions that the Company believes are reasonable. The purchase
price allocation will be finalized within one year of the closing of the
acquisition of AN Can and may differ from that used for the pro forma data.
Differences between actual and preliminary valuations, actuarially computed
employee benefit costs, and expenses associated with plant rationalizations may
cause adjustments to the AN Can purchase price allocation. The unaudited pro
forma combined financial data do not purport to represent what the Company's
financial position or results of operations would actually have been had these
transactions in fact occurred on the date or at the beginning of the period
indicated, or to project the Company's financial position or results of
operations for any future date or period. The pro forma information presented
should be read in conjunction with the historical results of operations of the
Company for the quarters ended March 31, 1996 and 1995.
Three Months Ended March 31,
----------------------------
Historical Pro Forma
---------------------- -----------
1996 1995 1995
------ ------ ------
(Dollars in millions)
Net sales:
Metal containers and other $226.4 $144.7 $253.3
Plastic containers 53.5 58.6 58.6
----- ----- -----
Consolidated $279.9 $203.3 $311.9
===== ===== =====
Operating profit:
Metal containers and other $ 19.8 $ 15.9 $ 24.4
Plastic containers 4.2 4.3 4.3
Corporate expense (0.1) (0.6) (0.6)
----- ----- -----
Consolidated $ 23.9 $ 19.6 $ 28.1
===== ===== =====
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<PAGE>
The discussion below should be read in conjunction with the selected financial
data, the historical statements of operations and the notes thereto included
elsewhere in this Prospectus.
Historical Three Months Ended March 31, 1996 Compared with Historical
Three Months Ended March 31, 1995.
Consolidated net sales increased $76.6 million, or 37.7%, to $279.9
million for the three months ended March 31, 1996, as compared to net sales of
$203.3 million for the same three months in the prior year. This increase
resulted primarily from net sales generated by the AN Can operations offset, in
part, by lower net sales of metal containers to Silgan's existing customer base
and lower net sales of plastic containers.
Net sales for the metal container business (including net sales for its
specialty business of $22.6 million) were $226.4 million for the three months
ended March 31, 1996, an increase of $81.7 million from net sales of $144.7
million for the same period in 1995. Net sales of metal cans of $203.8 million
for the three months ended March 31, 1996 were $61.2 million greater than net
sales of metal cans of $142.6 million for the same period in 1995. This increase
resulted principally from net sales of metal cans generated by the AN Can
operations of $85.6 million during the first three months of 1996. The decline
in sales of metal containers to Silgan's existing customers of $24.4 million
during the first quarter of 1996 as compared to the first quarter of 1995 was
primarily attributable to lower unit volume. Approximately half of the decline
reflects the expected production and shipment of vegetable pack cans in the
second and third quarters of 1996 as compared to the first quarter of 1995, and
the remainder of the decline relates to lower unit sales of containers other
than vegetable containers.
Sales of specialty items included in the metal container segment increased
$20.5 million to $22.6 million during the three months ended March 31, 1996 as
compared to the same period in 1995, due to additional sales generated in 1996
by the operations acquired from AN Can.
Net sales for the plastic container business of $53.5 million during the
three months ended March 31, 1996 decreased $5.1 million from net sales of $58.6
million for the same period in 1995. This decline in net sales resulted
-33-
<PAGE>
principally from the pass through of lower resin costs .
Cost of goods sold as a percentage of consolidated net sales was 86.9%
($243.3 million) for the three months ended March 31, 1996, an increase of 1.2
percentage points as compared to 85.7% ($174.3 million) for the same period in
1995. The increase in cost of goods sold as a percentage of net sales was
primarily attributable to the higher cost base of the AN Can operations and
increased per unit manufacturing costs resulting from lower can production
volumes, offset, in part, by improved operating efficiencies due to plant
consolidations and synergies realized from the AN Can acquisition.
Selling, general and administrative expenses as a percentage of
consolidated net sales declined 0.1 percentage points to 4.5% ($12.6 million)
for the three months ended March 31, 1996, as compared to 4.6% ($9.4 million)
for the three months ended March 31, 1995. The decrease in selling, general and
administrative expenses as a percentage of net sales principally reflects the
expected lower administrative expense realized from the integration of AN Can
and the Company, despite the incurrence of redundant costs during the
integration. The Company expects that its selling, general and administration
costs as a percentage of sales will continue to decline in 1996 as it completes
the integration of the administrative functions of its metal container business.
Income from operations as a percentage of consolidated net sales was 8.5%
($23.9 million) for the three months ended March 31, 1996, as compared with 9.6%
($19.6 million) for the same period in 1995. The decline in income from
operations as a percentage of consolidated net sales was primarily attributable
to the aforementioned decline in gross margin.
Income from operations as a percentage of net sales for the metal
container business was 8.8% ($19.8 million) for the three months ended March 31,
1996, as compared to 11.0% ($15.9 million) for the same period in the prior
year. The decrease in income from operations as a percentage of net sales for
the metal container business principally resulted from higher per unit
manufacturing costs incurred as a result of lower production volume and lower
margins realized on sales made from AN Can facilities due to their higher cost
base.
-34-
<PAGE>
Income from operations as a percentage of net sales for the plastic
container business was 7.9% ($4.2 million) for the three months ended March 31,
1996, as compared to 7.3% ($4.3 million) for the same period in 1995. The
operating performance of the plastic container business improved as a result of
production planning and scheduling efficiencies and benefits realized from
capital investment.
Interest expense increased $6.4 million to $15.8 million for the three
months ended March 31, 1996, principally as a result of increased borrowings to
finance the acquisition of AN Can and the repurchase of a portion of Holdings
Discount Debentures, offset, in part, by slightly lower average borrowing rates.
The provisions for income taxes for the three months ended March 31, 1996
and 1995 provide 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, 1996 was $4.8 million, as compared to $5.8 million for the three
months ended March 31, 1995.
Historical Three Months Ended March 31, 1996 Compared with Pro Forma Three
Months Ended March 31, 1995
Consolidated net sales for the three months ended March 31, 1996 declined
$32.0 million as compared to pro forma consolidated net sales for the same
period in the prior year. The decrease in net sales was attributable to a
decline in net sales to Silgan's existing customers of $24.4 million due to the
expected production and shipment of vegetable pack cans in the second and third
quarters of 1996 as compared to the first quarter of 1995 and lower unit sales
of containers other than vegetable containers, lower sales from the AN Can
facilities of $4.9 million principally due to a customer shifting to self
manufacturing, and lower sales of plastic containers due to the pass through of
lower resin costs, offset, in part, by higher sales of specialty packaging
products.
Income from operations as a percentage of consolidated net sales for the
three months ended March 31, 1996 was 8.5% ($23.9 million) as compared to pro
forma income from operations as a percentage of consolidated net sales of 9.0%
($28.1 million) for the three months ended March 31, 1995. Management believes
that the decrease in income from operations for the three months ended March 31,
1996 as compared to pro forma income from operations for the same period in the
prior year was attributable to increased per unit costs realized on lower
production and sales volumes offset by the realization of greater than
anticipated manufacturing synergies and slightly lower selling, general and
administrative expenses.
Results of Operations - Year End
Summary historical results for the Company's two business segments, metal
and plastic containers, for the calendar years ended December 31, 1995, 1994 and
1993 and summary pro forma results for the Company and AN Can for the calendar
years ended December 31, 1995 and 1994 are provided below.
The pro forma data includes the historical results of the Company and AN
Can and reflects the effect of purchase accounting adjustments based on
preliminary appraisals and valuations, the financing of the acquisition of AN
Can, the refinancing of certain of the Company's debt obligations, and certain
other adjustments as if these events occurred as of the beginning of the period
presented. The pro forma adjustments are based upon available information and
upon certain assumptions that the Company believes are reasonable. The purchase
price allocation will be finalized within one year of the closing of the
acquisition of AN Can and may differ
-35-
<PAGE>
from that used for the pro forma data. Differences between actual and
preliminary valuations, actuarially computed employee benefit costs, and
expenses associated with plant rationalizations may cause adjustments to the AN
Can purchase price allocation. The unaudited pro forma combined financial data
do not purport to represent what the Company's financial position or results of
operations would actually have been had these transactions in fact occurred on
the date or at the beginning of the period indicated, or to project the
Company's financial position or results of operations for any future date or
period. The pro forma information presented should be read in conjunction with
the historical results of operations of the Company for the years ended December
31, 1995 and 1994.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
Historical Pro Forma
--------------------------------------- ----------------------
1995 1994 1993 1995 1994
------ ------ ------ ------ -----
(Dollars in millions)
Net Sales:
<S> <C> <C> <C> <C> <C>
Metal containers and other $ 882.3 $657.1 $459.2 $1,184.8 $1,253.7
Plastic containers 219.6 204.3 186.3 219.6 204.3
------- ----- ----- ------- -------
Consolidated $1,101.9 $861.4 $645.5 $1,404.4 $1,458.0
======= ===== ===== ======= =======
Operating Profit:
Metal containers and other $ 72.9 $ 67.0 $ 42.3 $100.4 $115.6
Plastic containers 13.2 9.4 0.6 13.2 9.4
Reduction in asset value <F1> (14.7) (16.7) - (14.7) (23.8)
Write-down of goodwill <F2> - - - - (26.7)
Restructuring expense <F3> - - - - (10.1)
Corporate expense (0.5) (0.5) (0.4) (0.2) (0.4)
------ ----- ----- ----- -----
Consolidated $ 70.9 $ 59.2 $ 42.5 $ 98.7 $ 64.0
===== ===== ===== ===== =====
- ---------------------------
<FN>
<F1> Included in the historical and pro forma income from operations of the
Company are charges incurred for the reduction of the carrying value of
certain underutilized equipment to net realizable value of $14.7 million
in 1995 allocable to the metal container business, and of $16.7 million in
1994, of which $7.2 million was allocable to the metal container business
and $9.5 million to the plastic container business. Additionally, pro
forma income from operations for 1994 includes a charge of $7.1 million
for the write-down of certain technologically obsolete equipment by AN
Can.
<F2> Included in the historical financial information of AN Can as of December
31, 1994 is a charge of $26.7 million for the write-down of goodwill.
<F3> Included in the pro forma income from operations for 1994 is a charge
incurred by AN Can of $10.1 million for shut down costs necessary to
realign the assets of the business more closely with the existing customer
base.
</FN>
</TABLE>
The discussion below should be read in conjunction with the selected
financial data, the historical statements of operations and the notes thereto
included elsewhere in this Prospectus.
Historical Year Ended December 31, 1995 Compared with Historical Year
Ended December 31, 1994.
Consolidated net sales increased $240.5 million, or 27.9%, to $1.1 billion
for the year ended December 31, 1995, as compared to net sales of $861.4 million
for the same period in 1994. This increase resulted from net sales of $264.3
million generated by AN Can since its acquisition and a $15.3 million increase
in sales of plastic containers offset, in part, by a decline in sales of metal
containers to Silgan's existing customer base of $39.1 million.
-36-
<PAGE>
Net sales for the metal container business (including its specialty
business) were $882.3 million for the year ended December 31, 1995, an increase
of $225.2 million from net sales of $657.1 million for the same period in 1994.
Excluding net sales of metal cans of $236.0 million generated by AN Can since
its acquisition, net sales of metal cans to Silgan's customers were $609.5
million during the year ended December 31, 1995, as compared to $647.5 million
for the same period in 1994. Net sales to Silgan's customers in 1995 decreased
principally due to lower unit volume resulting from the below normal 1995
vegetable pack offset, in part, by slightly higher sales prices due to the pass
through of raw material cost increases.
Sales of specialty items included in the metal container segment increased
$27.2 million to $36.8 million during the year ended December 31, 1995 as
compared to the same period in 1994, due to the acquisition of AN Can which
generated sales of $28.3 million of specialty items since its acquisition.
Net sales for the plastic container business of $219.6 million during the
year ended December 31, 1995 increased $15.3 million over net sales of $204.3
million for the same period in 1994. This increase was attributable to increased
unit sales for new customer products and to higher average sales prices due to
the pass through of higher average resin costs.
Cost of goods sold as a percentage of consolidated net sales was 88.1%
($970.5 million) for the year ended December 31, 1995, an increase of 1.2
percentage points as compared to 86.9% ($748.3 million) for the same period in
1994. The increase in cost of goods sold as a percentage of net sales
principally resulted from increased per unit manufacturing costs resulting from
reduced can production volumes, lower margins realized on certain products due
to competitive market conditions and lower margins on sales made by AN Can,
offset, in part, by improved manufacturing operating efficiencies due to plant
consolidations and lower depreciation expense due to a change in the estimated
useful life of certain equipment.
Selling, general and administrative expenses as a percentage of
consolidated net sales declined 0.2 percentage points to 4.1% ($45.7 million)
for the year ended December 31, 1995 as compared to 4.3% ($37.2 million) for the
year ended December 31, 1994. The decrease in selling, general and
administrative expenses as a percentage of net sales resulted from the Company's
continued control of these expenses in respect of the Company's existing
business, offset partially by a temporarily higher level of expenses incurred
during the integration of AN Can. The Company expects that its selling, general
and administration costs as a percentage of sales will continue to decline in
1996 as it completes the integration of the administrative functions of its
metal container business.
Income from operations as a percentage of consolidated net sales was 6.4%
($70.9 million) for the year ended December 31, 1995, as compared with 6.9%
($59.2 million) for the same period in 1994. Included in income from operations
were charges for the write-off of certain underutilized assets of $14.7 million
and $16.7 million in 1995 and 1994, respectively. Without giving effect to these
charges, income from operations as a percentage of consolidated net sales would
have declined 1.0% in 1995, primarily as a result of the aforementioned decline
in gross margin.
Income from operations as a percentage of net sales for the metal
container business (without giving effect to charges of $14.7 million and $7.2
million in 1995 and 1994, respectively, to adjust the carrying value of certain
assets) was 8.3% ($72.9 million) for the year ended December 31, 1995, as
compared to 10.2% ($67.0 million) for the same period in the prior year. The
decrease in income from operations as a percentage of net sales principally
resulted from higher per unit manufacturing costs realized on lower production
volume, lower margins realized on certain products due to competitive market
conditions, inefficiencies caused by work stoppages at two of the Company's
California facilities, and lower margins realized on sales made by AN Can.
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Income from operations as a percentage of net sales attributable to the
plastic container business (without giving effect to the charge of $9.5 million
in 1994 to adjust the carrying value of certain assets) was 6.0% ($13.2 million)
for the year ended December 31, 1995, as compared to 4.6% ($9.4 million) for the
same period in 1994. The operating performance of the plastic container business
improved as a result of production planning and scheduling efficiencies and
benefits realized from capital investment, offset, in part, by increased unit
production costs incurred as a result of an inventory reduction program.
Interest expense increased $16.4 million to $52.5 million for the year
ended December 31, 1995, principally as a result of increased borrowings to
finance the acquisition of AN Can, to fund a non-interest bearing advance to
Holdings of $57.6 million and to fund higher working capital needs as a result
of the increased seasonality of the Company's metal container business, and
higher average interest rates.
The provisions for income taxes for the year ended December 31, 1995 and
1994 provide 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, income before the extraordinary
charge for the year ended December 31, 1995 was $9.8 million, as compared to
$12.1 million for the year ended December 31, 1994.
As a result of the early extinguishment of amounts owed under its secured
debt facilities, the Company incurred an extraordinary charge of $3.0 million
(net of tax of $2.1 million) in 1995.
Historical Year Ended December 31, 1994 Compared with Historical 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, and an increase of $26.9 million in sales to
all other customers . 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 specialty items 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 as a percentage of consolidated net sales was 86.9%
($748.3 million) for the year ended December 31, 1994, a decrease of 1.6
percentage points as compared to 88.5% of consolidated net sales ($571.2
million) for the same period in 1993. The decrease in cost of goods sold as
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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 0.6 percentage points to 4.3% of consolidated
net sales ($37.2 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 SARs.
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 provide 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.
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Pro Forma Year Ended December 31, 1995 Compared with Pro Forma Year Ended
December 31, 1994
Consolidated net sales for the year ended December 31, 1995 declined $53.6
million as compared to pro forma consolidated net sales for the prior year. The
decrease in net sales was primarily attributable to lower unit volume resulting
from the below normal 1995 vegetable pack.
Income from operations as a percentage of consolidated net sales (before
unusual charges) for the year ended December 31, 1995 was 8.1% ($113.4 million)
as compared to pro forma income from operations as a percentage of consolidated
net sales (before unusual charges) for the year ended December 31, 1994 of 8.5%
($124.6 million). Management believes that the decrease
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in income from operations was primarily attributable to lower demand in 1995 for
vegetable pack containers
.
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 will also be
affected by the interest associated with Holdings' indebtedness.
On August 1, 1995, Silgan, Containers and Plastics entered into a $675.0
million credit facility with various banks to finance the acquisition by
Containers of AN Can, to refinance and repay in full all amounts owing under the
credit agreement, dated as of December 21, 1993 among Silgan and certain of its
subsidiaries, the lenders from time to time party thereto, Bank of America
National Trust and Savings Association ("Bank of America National Trust"), as
Co-Agent, and Bankers Trust, as Agent (the "1993 Credit Agreement"), and under
the Secured Notes and to make non-interest bearing advances to Holdings in an
amount not to exceed $75.0 million for the repurchase of a portion of the
Holdings Discount Debentures. The Credit Agreement provides the Company with
$225.0 million of A term loans, $225.0 million of B term loans and a working
capital facility which will provide the Company with borrowing availability of
up to $225.0 million. With the proceeds received from the Credit Agreement, the
Company (i) repaid $117.1 million of term loans under the 1993 Credit Agreement,
(ii) repaid in full $50.0 million of its Secured Notes, (iii) acquired from ANC
substantially all of the fixed assets and working capital of AN Can for $348.8
million (excluding $15.2 million for the St. Louis operations which the Company
expects to purchase by mid-1996), and (iv) incurred debt issuance costs of $19.3
million.
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The Credit Agreement provides the Company with improved financial
flexibility by (i) enabling Silgan to transfer funds to Holdings for payment by
Holdings of cash interest on the Holdings Discount Debentures, (ii) extending
the maturity of the Company's secured debt facilities until December 31, 2000,
(iii) lowering the interest rate spread on its floating rate borrowings by 1/2%,
as well as providing for further interest rate reductions in the event the
Company attains certain financial targets, and (iv) lowering Holdings'
consolidated average cost of indebtedness by permitting Silgan to advance up to
$75.0 million to Holdings with borrowings under the Credit Agreement, which
amounts are to be used by Holdings to repurchase or redeem a portion of the
Holdings Discount Debentures.
The Credit Agreement permits Silgan, at any time prior to June 30, 1996,
to borrow up to $75.0 million of working capital loans to fund the repurchase or
redemption by Holdings of Holdings Discount Debentures. The commitment under the
Credit Agreement for working capital loans was initially $150.0 million, and
increases at the time and by the amount of any such advances made by Silgan.
During 1995, Silgan advanced $57.6 million to Holdings for the repurchase by
Holdings of a portion of its outstanding Holdings Discount Debentures, thereby
increasing the commitment under the revolving credit facility to $207.6 million
by year end. The Company intends to advance to Holdings $17.4 million through
borrowings of working capital loans to enable Holdings to redeem $17.4 million
principal amount of Holdings Discount Debentures on June 15, 1996, increasing
the Company's working capital facility to $225.0 million at such time.
For the first three months of 1996, net borrowings of working capital
loans of $53.1 million and proceeds of $1.5 million from the sale of assets were
used to fund $31.2 million of the Company's operating activities, capital
expenditures of $18.6 million, the repayment of $0.9 million of term loans, and
increase cash balances by $3.9 million. The Company's earnings before
depreciation, interest, taxes and amortization ("EBDITA") for the three months
ended March 31, 1996 increased by $11.5 million to $40.3 million in comparison
to the same period in 1995. The increase in EBDITA principally reflected the
generation of additional cash earnings from the AN Can operations.
For the three months ended March 31, 1996, the operating cash flow of the
Company declined from the same period in the prior year primarily as a result of
the increased working capital needed, mainly for inventory, to support the AN
Can operations. Inventories increased due to the normal seasonal build while
accounts receivable declined from year-end as a result of lower sales volume in
1996 and the payment by certain customers of amounts due at year-end in early
1996. The decline in trade accounts payable is attributable to the adoption by
Silgan of vendor payment terms similar to AN Can.
Management believes that the average working capital needs of the combined
operations of the Company and AN Can for 1996 as compared to the pro forma
combined operations in the prior year will decline predominately as a result of
carrying a lower amount of finished goods inventory due to scheduling production
closer to the summer seasonal peak and the change in vendor payment terms
referred to above.
During 1995, cash generated from operations of $209.6 million (including
cash of $112.0 million generated by AN Can since August 1, 1995), proceeds of
$3.5 million realized from the sale of assets and a decrease of $0.6 million in
cash balances were used to repay $142.8 million of working capital borrowings
used to fund the acquisition of AN Can, fund capital expenditures of $51.9
million, repay $9.7 million of term loans and $5.5 million of working capital
loans, and make payments to former shareholders of $3.8 million in full
settlement of outstanding litigation (which has been charged against equity).
The Company's EBDITA for the
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year ended December 31, 1995 increased by $17.8 million to $133.1 million as
compared to 1994. The increase in EBDITA reflected the generation of additional
cash earnings from AN Can since its acquisition on August 1, 1995, offset by a
decline in the cash earnings of the Company's existing business principally as a
result of lower unit volume due to the below normal 1995 vegetable pack.
For the year ended December 31, 1995, the operating cash flow of the
Company increased significantly from the prior year due to the generation of
cash by AN Can since its acquisition on August 1, 1995 and the adoption by
Silgan of similar year-end vendor payment terms to those of AN Can. At December
31, 1995, the trade receivable balance of AN Can was $44.2 million ($90.2
million on August 1, 1995), the inventory balance was $98.9 million ($137.9
million on August 1, 1995), and the trade payables balance was $58.2 million
($64.2 million on August 1, 1995).
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.
On December 21, 1993, Silgan, Containers and Plastics entered into the
1993 Credit Agreement to finance the acquisition of DM Can and to refinance and
repay in full all amounts owing under the Company's previous 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.
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 its previous 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 1993 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.
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Because the Company sells metal containers used in vegetable and fruit
processing, its sales are seasonal. As a result, a significant portion of the
Company's revenues are generated in the first nine months of the year. 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. The acquisition of AN Can increased Silgan's seasonal metal
containers business, and as a result the Company increased the amount of working
capital loans available to it under its credit facility to $225.0 million. 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 $170 million of the working capital revolver, including
letters of credit, will be utilized at its peak in June 1996.
As of March 31, 1996, the outstanding principal amount of working capital
loans was $60.2 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 $141.3 million.
In addition to its operating cash needs, Silgan's cash requirements over
the next several years consist primarily of (i) annual capital expenditures of
$45.0 to $55.0 million, (ii) scheduled principal amortization payments of term
loans under the Credit Agreement of $27.3 million , $37.3 million, $52.3
million, $52.3 million and $102.5 million over the next five years,
respectively, (iii) expenditures of approximately $30.0 million over the next
three years
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associated with plant rationalizations and administrative workforce reductions,
other plant exit costs and employee relocation costs of AN Can, (iv) Silgan's
interest requirements (including interest on working capital loans, the
principal amount of which will vary depending upon seasonal requirements, and
the term loans, all of which bear fluctuating rates of interest, and the 11-
3/4% Notes), (v) dividends and/or advances to Holdings to fund semi-annual cash
interest payments of up to $13.0 million (which amount may be reduced depending
upon the principal amount of Holdings Discount Debentures outstanding) on the
Holdings Discount Debentures commencing in December 1996, and (vi) payments of
approximately $10.0 million for federal and state tax liabilities in 1996
(assuming the redemption of the remainder of the Holdings Discount Debentures at
maturity) and increasing annually thereafter.
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 Holdings 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 Holdings Discount Debentures is payable at a rate of
13-1/4% per annum from and afte June 15, 1996, and commencing on December 15,
1996 semi-annual interest payments of up to $13.0 million will be required to be
made thereon. Since Holdings' only asset is its investment in Silgan, its
ability to pay interest 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 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. The Credit Agreement permits Silgan to pay cash
dividends and to advance funds to Holdings in order to enable Holdings to pay
interest on the Holdings Discount Debentures, so long as amounts due under the
Credit Agreement have not been accelerated or an event of default thereunder
does not exist or would not result therefrom. The Indenture for the 11-3/4%
Notes does not limit the ability of Silgan to pay cash dividends or to advance
funds to Holdings in order to enable Holdings to pay interest on the Holdings
Discount Debentures. Management believes that the funding requirements of
Holdings to service its indebtedness 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.
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The Company is actively considering refinancing a portion of the Holdings
Discount Debentures with lower cost indebtedness. Further, Silgan and Holdings
are considering refinancing all or a portion of the remaining Holdings Discount
Debentures through other debt financings and/or equity financings, including a
public offering of equity. Any such financings will depend upon the market
conditions existing at the time and will 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 Holdings 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, including original issue discount ("OID"), on the Holdings Discount
Debentures during their noncash interest period ending June 15, 1996
(approximately $85.0 million) has been and will continue to be deferred,
increasing the taxable income of Holdings and reducing the after-tax cash flows
of Holdings, until such interest and OID is paid in cash or property (other than
stock or debt of Holdings or a related party). However, as a result of Holdings'
utilization of its net operating loss carryforward, which, as of December 31,
1995, amounts to approximately $100.0 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 Holdings incurred, 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 on the Holdings Discount Debentures will
not be deductible until the redemption, retirement or other repayment of the
Holdings Discount Debentures (other than with stock or debt of Holdings or a
related party). During 1995, Holdings repurchased $61.66 million face amount of
Holdings Discount Debentures, providing Holdings with an allowable deduction of
approximately $18.0 million for the amount of interest accreted on such
indebtedness. On June 15, 1996, Holdings will redeem $17.4 million principal
amount of the Holdings Discount Debentures, providing Holdings with an allowable
deduction of approximately $6.7 million for the amount of interest accreted on
such amount of indebtedness. If Holdings redeems additional Holdings Discount
Debentures in 1996, the allowable deduction available to Holdings for 1996 for
deferred accreted interest will increase. 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 Holdings Discount Debentures were
deductible as it accretes. In the event Holdings redeems, retires or otherwise
repays Holdings Discount Debentures or a portion thereof prior to their stated
maturity date, the full amount of the deferred accreted interest (applicable to
the Holdings Discount Debentures retired) should be deductible under the
carryback and carryforward rules under
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the Code unless the holders of the Holdings Discount Debentures receive stock or
debt of Holdings or a related party in exchange for the Holdings Discount
Debentures. No assurance can be given that Holdings will be able to refinance
the Holdings Discount Debentures ; 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 Holdings Discount Debentures. In
addition, the Internal 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 Holdings Discount Debentures.
From and after June 15, 1996, interest on the Holdings Discount Debentures
accrues at a rate of 13-1/4% per annum, and Holdings will begin making
semi-annual interest payments on the Holdings Discount Debentures on December
15, 1996 and on each interest payment date thereafter. See "Certain Risk
Factors--Ability of the Company to Provide Financial Support to Holdings."
Accordingly, while the tax deductions that would otherwise be available to
Holdings in respect of the Holdings Discount Debentures for periods prior to
June 15, 1996 will be deferred until the maturity of the Holdings Discount
Debentures or upon the earlier redemption, retirement or repayment of the
Holdings Discount Debentures in cash or qualified property, Holdings will begin
making deductible interest payments on the Holdings Discount Debentures on
December 15, 1996. See "Certain Risk Factors--Ability of the Company to Provide
Financial Support to Holdings."
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 for the foreseeable future.
The Credit Agreement and the indentures relating to the 11-3/4% Notes and
the Holdings 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 1996 with all such covenants.
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Effect of Interest Rate Fluctuations and Inflation
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.
Because the Company has indebtedness which bears interest at floating
rates, the Company's financial results will be sensitive to changes in
prevailing market rates of interest. As of March 31, 1996, the Company and
Holdings had $844.8 million of indebtedness outstanding, of which $502.0 million
was indebtedness bearing interest at floating rates. To mitigate the effect of
interest rate fluctuations, the Company entered into interest rate swap
agreements during the first quarter of 1996 whereby floating rate interest was
exchanged for fixed rates of interest ranging from 8.1% to 8.6%. The notional
principal amounts of these agreements totaled $100.0 million and mature in the
year 1999. Depending upon market conditions, the Company may enter into
additional interest rate swap agreements or other interest rate hedge agreements
(with counterparties that, in the Company's judgment, have sufficient
creditworthiness) during 1996 to hedge its exposure against interest rate
volatility.
New Accounting Pronouncements
Long-Lived Asset Impairment. The Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of" in the first quarter of 1996. Under SFAS No. 121, impairment losses will be
recognized when events or changes in circumstances indicate that the
undiscounted cash flows generated by assets are less than the carrying value of
such assets. Impairment losses are then measured by comparing the fair value of
assets to their carrying amount. There were no impairment losses recognized
during the first quarter of 1996 as a result of the adoption of SFAS No. 121.
See Note 5 to the Consolidated Financial Statements of the Company included
elsewhere in this Prospectus.
Stock-Based Compensation. In October 1995, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 123, "Accounting for Stock-Based
Compensation", effective for the 1996 fiscal year. Under SFAS No. 123,
compensation expense for all stock-based compensation plans would be recognized
based on the fair value of the options at the date of grant using an option
pricing model. As permitted under SFAS No. 123, the Company may either adopt the
new pronouncement or follow the current accounting methods as prescribed under
Accounting Principles Board ("APB") No. 25. The Company has not elected to adopt
SFAS No. 123 and continues to recognize compensation expense in accordance with
APB No. 25. In addition, the Company will be required to include in its year end
financial statements pro forma information regarding compensation expense
recognizable under SFAS No. 123. See Note 16 to the Consolidated Financial
Statements of the Company included elsewhere in this Prospectus.
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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 1995, the Company had net sales
of approximately $1.1 billion.
On August 1, 1995, the Company's wholly owned subsidiary, Containers,
acquired from ANC substantially all of the assets of ANC's Food Metal and
Specialty business for approximately $349 million. See "--Company History"
below. AN Can manufactures and sells metal food containers and rigid plastic
containers for a variety of food products and metal caps and closures for food
and beverage products. The acquisition of AN Can has enabled the Company to
diversify its customer base and geographic presence. The Company believes that
the acquisition of AN Can will also result in the realization of cost savings
for the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." On a pro forma basis after giving effect
to the acquisition of AN Can, in 1995 the Company would have had net sales of
approximately $1.4 billion.
Management believes that the Company is the sixth largest can producer and
the largest food can producer 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 addition to the acquisition of AN Can in August 1995,
Containers acquired the U.S. metal container manufacturing business of Del Monte
in December 1993. 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
synergies are likely.
Metal Container Business
Management estimates that Containers is currently the sixth largest can
producer and the largest manufacturer of metal food containers in North America.
In 1995, Containers sold approximately 28% of all metal food containers used in
the United States. On a pro forma basis after giving effect to the acquisition
of AN Can, in 1995 Containers would have sold approximately 36% of all metal
food containers sold in the United States. Although the food can industry in the
United States is relatively mature in terms of unit sales growth, Containers, on
a pro forma basis after giving effect to the acquisition of AN Can, has realized
compound annual unit sales growth in excess of 16% since 1987. Types of
containers manufactured include those for vegetables, fruit, pet food, meat,
tomato based products, coffee, soup, seafood, 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 approximately 80% of Containers' sales in 1996 will be pursuant to such
supply arrangements. See "--Sales and Marketing," below.
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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 $131 million in its acquired manufacturing facilities and has
spent approximately $307 million for the acquisition of additional can
manufacturing facilities and equipment. As a result of these efforts and
management's focus on quality and service, Containers has more than tripled 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 36% in 1995, on a pro
forma basis after giving effect to the acquisition of AN Can.
Containers also manufacturers and sells certain specialty packaging items,
including metal caps and closures, plastic bowls and paper containers primarily
used by processors and packagers in the food industry. In 1995, the Company had
sales of specialty items of approximately $37 million.
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 ,
cosmetics and toiletries, household chemical containers for scouring cleaners,
specialty cleaning agents , lawn and garden chemicals and pharmaceutical
containers for tablets, laxatives and eye cleaning solutions. Plastics
manufactures PET custom containers for mouthwash , liquid soap, skin care
lotions, gastrointestinal and respiratory products, pourable and viscous salad
dressings, condiments, instant coffees, premium water and liquor. 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
12% to $220 million in 1995. 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, meat, tomato based products, coffee, soup, seafood, evaporated milk and
infant formula. The Company does not produce cans for use in the beer or soft
drink industries.
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
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Company designs and manufactures a wide range of containers for health and
personal care products such as shampoos, conditioners, hand creams, lotions,
cosmetics and toiletries, liquid soap, gastrointestinal and respiratory
products, 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, condiments, instant coffee, premium 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, 1995, Containers had approximately 80% of its
projected 1996 sales under multi-year contracts. Plastics has 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. 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.
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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 to utilize multi-layer container construction.
The Company's decorating methods for its plastic products include (1)
in-mold labeling which applies a paper or plastic film label to the bottle
during the blowing process and (2) post-mold decoration. Post-mold decoration
includes (i) silk screen decoration which enables the applications of images in
multiple colors to the bottle, (ii) pressure sensitive decoration which uses a
plastic film or paper label applied by pressure, (iii) heat transfer decoration
which uses a plastic film or plastic coated paper label applied by heat, and
(iv) hot stamping decoration which transfers images from a die using metallic
foils. 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 , 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.
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 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 comparable prices or terms. 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
polyethylene 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. The Company
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believes that it will be able to purchase sufficient quantities of resins 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 1995, 1994 and 1993 , the Company's metal container business accounted
for approximately 80%, 76% and 71% , respectively, of the Company's total sales,
and the Company's plastic container business accounted for approximately 20%,
24% and 29% , respectively, of the Company's total sales. On a pro forma basis
after giving effect to the acquisition of AN Can, metal and plastic containers
in 1995 would have accounted for approximately 84% and 16% of the Company's
total sales, respectively. In 1995, 1994 and 1993, approximately 21%, 26% and
34%, respectively, of the Company's sales were to Nestle and in 1995 and 1994
approximately 15% and 21%, respectively, of the Company's sales were to Del
Monte. On a pro forma basis after giving effect to the acquisition of AN Can, in
1995 approximately 17% and 11% of the Company's sales would have been to Nestle
and Del Monte, respectively. No other customer accounted for more than 10% of
the Company's total sales during such years.
Metal Container Business
Management believes that the Company is currently the sixth largest can
producer and the largest food can producer in North America. In 1995, Containers
sold approximately 28% of all metal food containers in the United States.
Containers has entered into multi-year supply arrangements with many of its
customers, including Nestle and Del Monte. The Company estimates that
approximately 80% of its metal container sales in 1996 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 1995, sales of metal cans
by the Company to Nestle were $236.0 million.
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.
In 1994, the term of certain of the Nestle Supply Agreements (representing
approximately 70% of the Company's 1995 unit sales to Nestle) was extended
through 2001. Under these Nestle Supply Agreements , Nestle has the right to
receive competitive bids under narrowly limited circumstances, and Containers
has the right to match any such bids.
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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. The Company cannot predict the effect, if any, of such bids
upon its financial condition or results of operations. The Company is currently
engaged in discussions with Nestle regarding the pricing and the extension of
the term for certain can requirements under these Nestle Supply Agreements. On a
pro forma basis after giving effect to the acquisition of AN Can, such can
requirements would have represented approximately 6% of the Company's 1995
sales.
The Company has also commenced discussions with Nestle with respect to the
continuation beyond 1997 of the other Nestle Supply Agreements, which would have
represented approximately 6% of the Company's sales in 1995 on a pro forma basis
after giving effect to the acquisition of AN Can. Although the Company intends
to make every effort to extend these Nestle Supply Agreements on reasonable
terms and conditions, there can be no assurance that these Nestle Supply
Agreements will be extended.
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. In
1995, sales of metal containers by the Company to Del Monte were $159.4 million.
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, beginning in December 1998, 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 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 and fruit processors 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 customers beyond the end of the
season. The acquisition of AN Can increased the Company's seasonal metal
container business. Consistent with industry practice, such customers may return
unused containers. Historically, such returns have been minimal.
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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., Andrew Jergens Inc., Chesebrough-Ponds USA Co., Dial
Corp., Warner-Lambert Company and Pfizer Inc. The Company also manufactures
plastic containers for food and beverage products, such as salad dressings,
condiments, instant coffee and premium water and liquor. 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 March 31, 1996, the Company operated 44
manufacturing facilities, geographically dispersed throughout the United States
and Canada, that serve the distribution needs of its customers.
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, Crown Cork and Seal
Company, Inc. and Ball Corporation are the Company's most significant national
competitors. As an alternative to purchasing cans from commercial can
manufacturers, customers have the ability to invest in equipment to
self-manufacture their cans.
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
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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, 1995, the Company employed approximately 940 salaried
and 4,170 hourly employees on a full-time basis, including approximately 1,400
employees who joined the Company on August 1, 1995 as a result of the
acquisition of AN Can. Approximately 63% of the Company's hourly plant employees
are represented by a variety of unions.
The Company's labor contracts expire at various times between 1996 and
2008. Contracts covering approximately 12% of the Company's hourly employees
presently expire during 1996. 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 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
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Company has assumed liability for the past waste disposal practices of Nestle
Can. In 1989, the Company 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. In connection with
the acquisition of AN Can, subject to certain limitations, ANC has agreed to
indemnify the Company for a period of three years for the costs attributable to
any noncompliance by AN Can with any environmental law prior to the closing,
including costs attributable to the past waste disposal practices of AN Can.
The Company is subject to the Occupational Safety and Health Act and other
laws regulating noise exposure levels and other safety and health concerns 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 currently conducted at its research
centers at Oconomowoc, Wisconsin; Neenah, Wisconsin and at other plant
locations. The Company is building a state-of-the-art research facility in
Oconomowoc, Wisconsin in order to consolidate its two main research centers into
one facility.
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 three 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 Plastics, purchased from Monsanto substantially
all the business and related fixed assets and inventory of
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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, and from
Nestle its carton manufacturing division known as the Seaboard Carton Division.
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 . 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 public
offering in June 1992 by Silgan of $135 million principal amount of 11-3/4%
Notes and the public offering in June 1992 by Holdings of the Holdings Discount
Debentures for an aggregate amount of proceeds of $165.4 million . 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 1993 Credit Agreement with the lenders from time
to time party thereto, Bank of America National Trust, as Co-Agent, and Bankers
Trust, as Agent, and (ii) Holdings issued and sold to Mellon Bank, N.A.
("Mellon"), 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 1993
Credit Agreement to refinance and repay in full all amounts owing under their
previous credit agreement.
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On August 1, 1995, Containers acquired from ANC substantially all of the
assets of ANC's Food Metal and Specialty business for a purchase price of
approximately $349 million and the assumption of specific limited liabilities.
To finance the acquisition, the Borrowers entered into the Credit Agreement with
the Banks, Bankers Trust, as Administrative Agent and Co-Arranger, and Bank of
America Illinois, as Documentation Agent and Co-Arranger. The Company used funds
borrowed under the Credit Agreement to finance in full the purchase price for
its acquisition of AN Can and to refinance and repay in full all amounts owing
under the 1993 Credit Agreement and the Secured Notes. Additionally, the Company
has used borrowings under the Credit Agreement to make non-interest bearing
advances to Holdings to enable Holdings to purchase $61.7 million face amount of
the Holdings Discount Debentures, which Holdings Discount Debentures have been
canceled. Further, the Company intends to use working capital borrowings under
the Credit Agreement to fund Holdings' redemption of $17.4 million principal
amount of the Holdings Discount Debentures on June 15, 1996.
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 30 metal container manufacturing
facilities, 11 plastic container manufacturing facilities and 3 specialty
packaging manufacturing facilities. Nineteen of these facilities are owned and
25 are leased by the Company. The leases expire at various times through 2020.
Some of these leases provide renewal options.
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Below is a list of the Company's operating facilities, including attached
warehouses, as of March 31, 1996 for its metal container business:
Approximate
Building Area
Location (square feet)
-------- -------------
City of Industry, CA 50,000 (leased)
Kingsburgh, CA 37,783 (leased)
Modesto, CA 35,585 (leased)
Modesto, CA 128,000 (leased)
Modesto, CA 150,000 (leased)
Riverbank, CA 167,000
San Leandro, CA 200,000 (leased)
Stockton, CA 243,500
Broadview, IL 85,000
Hoopeston, IL 323,000
Rochelle, IL 175,000
Waukegan, IL 40,000 (leased)
Woodstock, IL 160,000 (leased)
Evansville, IN 188,000
Hammond, IN 160,000 (leased)
Laporte, IN 144,000 (leased)
Fort Madison, IA 66,000
Ft. Dodge, IA 49,500 (leased)
Savage, MN 160,000
St. Paul, MN 470,000
West Point, MS 25,000 (leased)
Mt. Vernon, MO 100,000
Northtown, MO 112,000 (leased)
St. Joseph, MO 173,725
Edison, NJ 280,000
Crystal City, TX 26,045 (leased)
Toppenish, WA 98,000
Vancouver, WA 127,000 (leased)
Menomonee Falls, WI 116,000
Menomonie, WI 60,000 (leased)
Oconomowoc, WI 105,200
Plover, WI 58,000 (leased)
Waupun, WI 212,000
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In addition to the above facilities, the Company intends to purchase
from ANC its St. Louis, MO facility by June 1996.
Below is a list of the Company's operating facilities, including attached
warehouses, as of March 31, 1996 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 284,000 (leased)
Ligonier, IN 193,000
Seymour, IN 406,000
Franklin, KY 122,000 (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. 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
-61-
<PAGE>
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.
-62-
<PAGE>
Other than the action mentioned above, there are no other material pending
legal proceedings to which the Company is a party or to which any of its
properties are subject.
-63-
<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
April 15, Five-Year Employment
Name and Position 1996 History and Other Directorships Held
----------------- -------- -------------------------------------
R. Philip Silver 53 Prior to forming S&H, Inc. in
Chairman of the Board 1987, President of Continental Can
and Co-Chief Company from June 1983 to
Executive Officer of August 1986; consultant to
Holdings and Silgan packaging industry from August
since March 1994; 1986 to August 1987; Vice
formerly President of Chairman of the Board and
Holdings and Silgan; Director of Sweetheart Holdings
Director of Holdings Inc. and Sweetheart Cup Company,
since April 1989 and Inc. from September 1989 to
of Silgan since August January 1991; Chairman of the
1987; Chairman of the Board and Director of Sweetheart
Board of Plastics since Holdings Inc. and Sweetheart Cup
March 1994; Director Company, Inc. from January 1991
of Containers and through August 1993; Director,
Plastics since August Johnstown America Corporation.
1987.
D. Greg Horrigan 52 Prior to forming S&H in 1987,
President and Co- Executive Vice President and
Chief Executive Operating Officer of Continental
Officer of Holdings Can Company from 1984 to 1987;
and Silgan since Chairman of the Board and
March 1994; formerly Director of Sweetheart Holdings
Chairman of the Board Inc. and Sweetheart Cup Company,
of Holdings and Inc. from September 1989 to
Silgan; Director of January 1991; Vice Chairman of
Holdings since April the Board and Director of
1989 and of Silgan Sweetheart Holdings Inc. and
since August 1987; Sweetheart Cup Company, Inc.
Chairman of the Board from January 1991 through August
of Containers since 1993.
August 1987; Director
of Containers and
Plastics since August
1987.
-64-
<PAGE>
Age at
April 15, Five-Year Employment
Name and Position 1996 History and Other Directorships Held
----------------- -------- -------------------------------------
James S. Hoch 36 Executive Director of Morgan
Director of Holdings Stanley & Co., Ltd. since 1994;
since January, 1991;
Director of Silgan Principal of Morgan Stanley since
since January 1991; 1993; Vice President of Morgan
Director of Containers Stanley & Co. Incorporated from
and Plastics since 1991 to 1993 and of MSLEF II since
January 1991; Vice 1991. Director of Sullivan
President and Assistant Communications, Inc., Sullivan
Secretary of Silgan Graphics, Inc., Nokia Aluminum Oy,
from 1987 to Kabelmedia GmbH and Sita
December 1995; Vice Telecommunications Holdings N.V.
President and Assistant
Secretary of Holdings
from January 1991 to
December 1995; Vice
President and Assistant
Secretary of
Containers and
Plastics from January
1991 to December
1995.
Robert H. Niehaus 40 Managing Director of Morgan
Director of Holdings Stanley since January 1, 1990;
since April 1989; joined Morgan Stanley in 1982.
Director of Silgan Vice President and Director of
since August 1987; MSLEF II, Inc. since January
Director of Containers 1990; Vice Chairman and Director
and Plastics since of MSCP III since January 1994.
August 1987; Vice Director of American Italian Pasta
President and Assistant Company, Fort Howard
Secretary of Silgan Corporation, PSF Finance
from August 1987 to Holdings, Inc., Randall's Food
December 1995; Vice Markets, Inc. and Waterford
President and Assistant Crystal Ltd., and Chairman of
Secretary of Waterford Wedgewood UK plc.
Containers and
Plastics from August
1987 to December
1995; Vice President
and Assistant
Secretary of Holdings
from April 1989 to
December 1995.
Harley Rankin, Jr. 56 Prior to joining the Company,
Executive Vice Senior Vice President and Chief
President and Chief Financial Officer of Armtek
Financial Officer of Corporation; prior to Armtek
Silgan since January Corporation, Vice President and
1989; Treasurer of Chief Financial Officer of
Silgan since January Continental Can Company from
1992; Vice President November 1984 to August 1986.
of Containers and Vice President, Chief Financial
Plastics since January Officer and Treasurer of
1989; Treasurer of Sweetheart Holdings Inc. and Vice
Plastics from January President of Sweetheart Cup
1994 to December Company, Inc. from September
1994; Executive Vice 1989 to August 1993.
President and Chief
Financial Officer of
Holdings since April
1989; Treasurer of
Holdings since January
1992.
-65-
<PAGE>
Age at
April 15, Five-Year Employment
Name and Position 1996 History and Other Directorships Held
----------------- -------- -------------------------------------
Harold J. Rodriguez, Jr. 40 Employed by Ernst & Young from
Vice President of 1978 to 1987, last serving as
Silgan and Holdings Senior Manager specializing in
since March 1994; taxation. Controller, Assistant
Vice President of Secretary and Assistant Treasurer
Containers and of Sweetheart Holdings Inc. and
Plastics since March Assistant Secretary and Assistant
1994; Controller and Treasurer of Sweetheart Cup
Assistant Treasurer of Company, Inc. from September
Silgan and Holdings 1989 to August 1993.
since March 1990;
Assistant Controller
and Assistant
Treasurer of Holdings
from April 1989 to
March 1990; Assistant
Controller and
Assistant Treasurer of
Silgan from October
1987 to March 1990.
Glenn A. Paulson 52 Employed by ANC from January
Vice President of 1990 to July 1995, last serving as
Silgan and Holdings Senior Vice President and General
since January 1996; Manager, Food Metal and
employed by Specialty, North America; prior to
Containers to manage ANC, President of the beverage
the ANC transition packaging operations of
from August 1995 to Continental Can Company.
December 1995.
-66-
<PAGE>
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 15, History and Other Directorships
Name and Position 1996 Held
----------------- --------- -------------------------------
James D. Beam 53 Vice President - Marketing &
President and a Sales of Containers from
non-voting Director of September 1987 to July 1990;
Containers since July Vice President and General
1990. Manager of Continental Can
Company, Western Food Can
Division, from March 1986 to
September 1987.
Gerald T. Wojdon 60 General Manager of
Vice President - Manufacturing of the Can
Operations and Division of The Carnation
Assistant Secretary of Company from August 1982 to
Containers since August 1987.
September 1987.
Gary M. Hughes 53 Vice President, Sales and
Vice President - Sales Marketing of the Beverage
& Marketing of
Containers since July Division of Continental Can
1990. Company from February 1988 to
July 1990; prior to February
1988, was employed by
Continental Can in various
regional sales positions.
Dennis Nerstad 58 Vice President of Containers
Vice President - from December 1993 to June
Production Services of 1994. Vice President -
Containers since July Distribution and Container
1994. 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.
Joseph A. Heaney 43 Controller, Food Metal and
Vice President - Specialty Division of ANC from
Finance of Containers September 1990 to October 1995.
since October 1995. From August 1977 to August
1990, employed by ANC and
American Can Company in
various divisional, regional and
plant finance/accounting
positions.
-67-
<PAGE>
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
April 15, Five-Year Employment
Name and Position 1996 History and Positions
----------------- --------- ---------------------
Russell F. Gervais 52 President and Chief Executive
President and non-voting Officer of Aim Packaging,
Director of Plastics since Inc. from March 1984 to
December 1992; Vice September 1989.
President - Sales &
Marketing of Plastics
from September 1989
until December 1992.
Howard H. Cole 50 Manager of Personnel of
Vice President and Monsanto Engineered Products
Assistant Secretary of Division of the Monsanto
Plastics since September Company from April 1986 to
1987. September 1987.
Charles Minarik 58 President of Wheaton
Vice President - Industries Plastics Group from
Operations and February 1991 to August
Commercial 1992; Vice President -
Development of Plastics Marketing of Constar
since May 1993. International, Inc. from March
1983 to February 1991.
Alan H. Koblin 44 Vice President of Churchill
Vice President - Sales & Industries from 1990 to 1992.
Marketing of Plastics
since 1994, Director of
Sales & Marketing of
Plastics from 1992 to
1994.
Colleen J. Jones 36 Audit Manager, Arthur Young
Vice President - Finance & Company from July 1982 to
and Chief Financial July 1989.
Officer of Plastics since
December 1994,
Assistant Secretary of
Plastics since November
1993, Corporate
Controller of Plastics
from October 1993 to
December 1994,
Manager - Finance of
Plastics from July 1989
to October 1993.
Executive Compensation.
-68-
<PAGE>
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, 1995, 1994 and
1993 of those persons who at December 31, 1995 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."
-69-
<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 1995 $1,830,000 - - - -
(Chairman of the Board and 1994 1,684,135 - - - -
Co-Chief Executive Officer of 1993 1,608,799 - - - -
the Company and Chairman of
the Board of Plastics)
D. Greg Horrigan 1995 1,830,000 - - - -
(President and Co-Chief 1994 1,684,135 - - - -
Executive Officer of the 1993 1,608,799 - - - -
Company and Chairman of the
Board of Containers)
Harley Rankin, Jr. 1995 408,978 - - - -
(Executive Vice President, 1994 384,930 - - 6,000 -
Chief Financial Officer and 1993 347,598 - - - -
Treasurer of the
Company and Vice President of
Containers and Plastics)
James D. Beam 1995 361,200 - - - $66,394
(President of Containers) 1994 350,000 $169,092 - - 94,175
1993 239,949 65,277 - - 24,883
Russell F. Gervais 1995 226,000 59,000 - - 5,085
(President of Plastics) 1994 216,804 83,300 - 600 -
1993 210,000 - - - -
- -------------------
<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.
-70-
<PAGE>
<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 shares of Holdings Class C common stock,
par value $.01 per share (the "Holdings Class C Stock"), granted under
the Silgan Holdings Inc. Third Amended and Restated 1989 Stock Option
Plan (the "Holdings Plan") in the case of Mr. Rankin, and options to
purchase, and tandem SARs relating to, 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 are exercisable ratably over a five-year period beginning on
January 1, 1995.
<F5> In the case of Mr. Beam, includes for 1995 and 1994 amounts contributed
under the Silgan Containers Corporation Supplemental Executive
Retirement Plan (the "Supplemental Plan") and used to pay premiums for
split-dollar life insurance for Mr. Beam maintained in conjunction with
the Supplemental Plan and includes amounts contributed by Containers
under the Silgan Containers Corporation Deferred Incentive Corporation
Contributory Retirement Plan. In the case of Mr. Gervais, includes
amounts allocated to Mr. Gervais under the Silgan Plastics Corporation
Contributory Retirement Plan.
</FN>
</TABLE>
-71-
<PAGE>
<TABLE>
<CAPTION>
OPTION/SAR VALUES AT DECEMBER 31, 1995
--------------------------------------
Value of Unexercised
Number of Securities Underlying in-the-Money
Unexercised Option/SARs at Options/SARs at
December 31, 1995 December 31, 1995
----------------- ------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
R. Philip Silver............. -- -- -- --
D. Greg Horrigan............. -- -- -- --
Harley Rankin, Jr. <F1>...... 12,400 3,600 $250,000 --
James D. Beam <F2><F3>....... 480 -- 918,601 --
Russell F. Gervais <F4>...... 240 360 -- --
- -------------------
<FN>
<F1> Options are for shares of Holdings Class C Stock. Value is determined
based upon the excess of the fair market value of Holdings Class C Stock
(determined based on the most recent sale by Holdings of its stock) over
the exercise price. The most recent sale by Holdings of its stock closed
in December 1993 and was of Holdings Class B Stock. See
"Business--Company History" and "Security Ownership of Certain
Beneficial Owners and Management." Such value may not be indicative of
the value of Holdings Class B Stock on the date hereof or of Holdings
Class C Stock. In the event of a public offering by Holdings , value
would be based upon fair market value as determined under the Holdings
Plan.
<F2> Options are for, and tandem SARs relate to, shares of Containers' common
stock. As of December 31, 1995, 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 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, 1995, 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.
-72-
<PAGE>
The following table illustrates the estimated annual normal retirement
benefits that are payable under the Containers Pension Plan. 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 .
<TABLE>
<CAPTION>
Containers Pension Plan Table
-----------------------------
Years of Service
Final ------------------------------------------------------------------------------------
Average
Earnings 10 15 20 25 30 35
---------- ---- ---- ---- ---- ---- ----
<S> <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>
Benefits under the Containers Pension Plan are based on the
participant's average base pay (the "Salary" column in the Summary Compensation
Table) over the final three years of employment. The amount of average base pay
taken into account for any year is limited by Section 401(a)(17) of the Code,
which imposes a cap of $150,000 (to be indexed for inflation) on compensation
taken into account for 1994
-73-
<PAGE>
and later years (the limit for 1993 was $235,840).
As of December 31, 1995, 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, 8. Mr. Beam also participates
in the Supplemental Plan, which is designed to make up for benefits not payable
under the Containers Pension Plan due to Code limitations. Mr. Beam's benefits
under the Supplemental Plan are funded through a split-dollar life insurance
policy; income attributable to this life insurance policy is included in the
"All Other Compensation" column of the Summary Compensation Table.
The following table illustrates the estimated annual normal retirement
benefits that are payable under the Plastics Pension Plan. 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 .
-74-
<PAGE>
<TABLE>
<CAPTION>
Plastics Pension Plan Table
---------------------------
Years of Service
Final ------------------------------------------------------------------------------------
Average
Earnings 10 15 20 25 30 35
---------- ---- ---- ---- ---- ---- ----
<S> <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>
Benefits under the Plastics Pension Plan are based on the participant's
average total cash compensation (the "Salary" and "Bonus" columns in the Summary
Compensation Table) over the final 36 months of employment or over the highest
three of the final five calendar years of employment, which ever produces the
greater average compensation. In computing the average, compensation for any
year cannot exceed 125% of base pay. Compensation used in determining benefits
is also limited by Section 401(a)(17) of the Code, which imposes a cap of
$150,000 (to be indexed for inflation) on compensation taken into account for
1994 and later years (the limit for 1993 was $235,840).
Benefits under the Plastics Pension Plan may be offset by a social
security amount (the plan provides benefits based on the greater of three
formulas, only one of which provides for a social security offset). Each of the
benefit estimates in the above table is based on the formula that produces the
greatest benefit for individuals with the stated earnings and years of service.
As of December 31, 1995, 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, 6.
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.
Generally, these employment agreements provide 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.
-75-
<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 March 31, 1996, 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>............. -- -- 12,400<F5> -- -- 18.08% --
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 -- 18,600<F5> 100% -- 27.11%<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."
<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.
<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
-59-
<PAGE>
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 is c/o General Motors Investment Management
Corporation, 767 Fifth Avenue, New York, NY 10153. 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.
<FN>
<F10>Bankers Trust New York Corporation ("BTNY") beneficially owns 50,000 shares
of Holdings Class C Stock.
</TABLE>
[/FN]
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 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
$77.5 million for the calendar year 1995 and increases by $6.0 million for each
year thereafter. The Maximum Amount is $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
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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, 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 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.
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For the years ended December 31, 1995, 1994 and 1993 , pursuant to the
arrangements described above, S&H earned aggregate fees, including reimbursable
expenses and fees payable to Morgan Stanley, of $5.4 million, $5.0 million and
$4.4 million, respectively, from the Company, Holdings, Containers and Plastics,
and during 1995, 1994 and 1993 Morgan Stanley earned fees of $409,000, $383,000
and $337,000 , 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 refinancings of the Company's bank credit
agreement in 1995 and 1993, the banks thereunder (including Bankers Trust)
received certain fees amounting to $17.2 million and $8.1 million in 1995 and
1993, respectively.
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, the
Banks loaned to Silgan (i) $225,000,000 of term loans designated as "A Term
Loans" and (ii) $225,000,000 of term loans designated as "B Term Loans" (the A
Term Loans and the B Term Loans being herein collectively referred to as the
"Term Loans") , and agreed to lend to Containers or Plastics up to an aggregate
of $225,000,000 of revolving loans (the " Revolving Loans"). As part of the
Revolving Loans, Bankers Trust agreed to lend to Containers or Plastics up to an
aggregate of $10,000,000 of revolving loans (the "Swingline Loans") and to
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issue to Containers or Plastics for the account of Containers or Plastics up to
an aggregate of $20,000,000 of letters of credit, such Swingline Loans and
letters of credit outstanding being deducted from the amount of Revolving Loans
available to be borrowed by Containers or Plastics.
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) Plastics pledged to the Banks 65% of the capital
stock of 827599 Ontario Inc. ("Canadian Holdco") held by Plastics; (iii)
Containers pledged to the Banks all of the capital stock of SCCW Can Corporation
("SCCW Can"), a California corporation and a wholly owned subsidiary of
Containers, held by Containers; (iv) Containers pledged to the Banks all of the
capital stock of California-Washington Can Corporation ("C-W Can"), a California
corporation and a wholly owned subsidiary of Containers, held by Containers;
(v) Silgan, Containers, Plastics , C-W Can and SCCW Can each granted to the
Banks security interests in substantially all of their respective real and
personal property; and (vi) Holdings pledged to the Banks all of the capital
stock of Silgan held by Holdings.
The aggregate amount of Revolving Loans which may be outstanding at any
time is subject to a borrowing base limitation of the sum of (i) 85% of eligible
accounts receivable of Containers and its subsidiaries and Plastics and (ii) 50%
of eligible inventory of Containers and its subsidiaries and Plastics.
Each of the Term Loans and each of the Revolving Loans, at the
respective Borrower's election, consists of loans designated as Eurodollar rate
loans or as Base Rate (as defined in the Credit Agreement) loans. Subject to
certain conditions, each of the Term Loans and each of the Revolving Loans can
be converted from a Base Rate loan into a Eurodollar rate loan and vice versa.
As of March 31, 1996, the outstanding principal amounts of A Term Loans,
B Term Loans and the Revolving Loans under the Credit Agreement were $219.5
million, $222.3 million and $60.2 million, respectively.
Payment of Loans. Generally, the Revolving Loans can be borrowed, repaid
and reborrowed from time to time until December 31, 2000, on which date all
Revolving Loans mature and are payable in full. Amounts repaid under the Term
Loans cannot be reborrowed.
The A Term Loans mature on December 31, 2000 and are payable in
installments as follows:
A Term Loan
Installment Repayment Date Principal Amount
-------------------------- ----------------
December 31, 1996.................. $24,946,471
December 31, 1997.................. 34,925,059
December 31, 1998.................. 49,892,942
December 31, 1999.................. 49,892,942
December 31, 2000.................. 59,871,530
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The B Term Loans mature on March 15, 2002 and are payable in
installments as follows:
B Term Loan
Installment Repayment Date Principal Amount
-------------------------- ----------------
December 31, 1996.................. $ 2,245,185
December 31, 1997.................. 2,245,185
December 31, 1998.................. 2,245,185
December 31, 1999.................. 2,245,185
December 31, 2000.................. 42,409,001
December 31, 2001.................. 99,785,884
March 15, 2002..................... 71,097,430
Under the Credit Agreement, Silgan is required to repay the Terms Loans
(pro rata for each tranche of Term Loans) in an amount equal to 50% of Silgan's
Excess Cash Flow (as defined in the Credit Agreement) in any fiscal year during
the Credit Agreement (beginning with the 1996 fiscal year). Additionally, Silgan
is required to repay the Term Loans (pro rata for each tranche of Term Loans) in
an amount equal to 80% of the net sale proceeds received from certain asset
sales (increasing to 100% of such net sale proceeds under certain circumstances
as described in the Credit Agreement) and 100% of the net equity proceeds
received from certain sales of equity (subject to certain exceptions permitting
Silgan and/or Holdings to use net equity proceeds to repay certain of their
other indebtedness or to repurchase certain outstanding capital stock of
Holdings), decreasing to 50% of net equity proceeds received after the
occurrence of certain events as described in the Credit Agreement, all as
provided in the Credit Agreement.
Interest and Fees. Interest on the Term Loans and the Revolving Loans is
payable at certain margins over certain rates as summarized below.
Interest on Term Loans maintained as Base Rate loans accrues at floating
rates of 1.5% less the then applicable Interest Reduction Discount (as defined
below) (in the case of A Term Loans) and 2% (in the case of B Term Loans) over
the Base Rate. Interest on Term Loans maintained as Eurodollar rate loans
accrues at floating rates of 2.5% less the then applicable Interest Reduction
Discount (in the case of A Term Loans) and 3% (in the case of B Term Loans) over
a formula rate (the "Eurodollar Rate") determined with reference to the rate
offered by Bankers Trust for dollar deposits in the New York interbank
Eurodollar market. Interest on Revolving Loans maintained as (i) Base Rate loans
accrues at floating rates of 1.5%, less the then applicable Interest Reduction
Discount, plus the Base Rate or (ii) Eurodollar Rate loans accrues at floating
rates of 2.5%, less the then applicable Interest Reduction Discount, plus the
Eurodollar Rate.
Under the Credit Agreement, Silgan agreed to pay to the Banks, on a
quarterly basis, a commitment commission calculated as 1/2 of 1% per annum on
the daily average term loan commitment of the Banks until such commitment is
terminated. Each of Containers and Plastics has agreed to jointly and severally
pay to the Banks, on a quarterly basis, a
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commitment commission calculated as 1/2 of 1% (decreasing to 3/8 of 1% under
certain circumstances, as set forth in the Credit Agreement) per annum on the
daily average unused portion of the Banks' revolving commitment in respect of
the Revolving Loans until such revolving commitment is terminated. Additionally,
Containers and Plastics are required to pay to the Banks, on a quarterly basis
in arrears, a letter of credit fee at a rate per annum of 2.5% less the then
applicable Interest Reduction Discount, and to pay to Bankers Trust a facing fee
of 1/4 of 1% per annum, each on the average daily stated amount of each letter
of credit issued for the account of Containers or Plastics , respectively.
Certain Covenants. The Credit Agreement contains numerous financial and
operating covenants, under which Silgan and its subsidiaries 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, except that
Holdings and Silgan may merge under certain limited circumstances and Silgan and
its subsidiaries may make certain purchases of assets and/or stock, all as
provided in the Credit Agreement; (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, including (1) dividends
in amounts to allow Holdings to pay interest due on the Holdings Discount
Debentures, (2) dividends of up to $75,000,000, provided that such dividends are
paid to Holdings on or prior to June 30, 1996 and are used by Holdings to
repurchase or redeem the Holdings Discount Debentures, (3) dividends with the
proceeds from Retained Excess Cash Flow (as defined in the Credit Agreement),
Refinancing Indebtedness (as defined below) issued by Silgan, or any registered
public equity offering by Silgan, provided that such dividends are used by
Holdings to repurchase, redeem or repay the Holdings Discount Debentures or any
Refinancing Indebtedness issued by Holdings, (4) dividends under certain
circumstances as provided in the Credit Agreement to enable Holdings to
repurchase certain of its outstanding capital stock, and (5) dividends in
amounts and at the times as provided in the Credit Agreement after the
consummation of a registered public equity offering by Holdings; (b) Containers
and Plastics may pay dividends to Silgan as long as they remain wholly owned
subsidiaries of Silgan, Canadian Holdco may pay dividends to Plastics, and
Express may pay dividends to Canadian Holdco; (c) Containers and Plastics may
repurchase or redeem its respective stock options (or common stock issuable upon
exercise thereof) or SARs issued to its management under certain circumstances;
and (d) Silgan may pay dividends to the holders of its common stock in amounts
and at the times as provided in the Credit Agreement after the consummation of a
registered public equity offering by Silgan; (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 (including
Silgan's indebtedness represented by the 11-3/4% Notes and by intercompany
notes); (b) indebtedness of Containers to Plastics or Plastics to Containers;
(c) unsecured subordinated indebtedness of Silgan, the proceeds of which are
used to refinance, repay or redeem 11-3/4% Notes ; and (d) under certain limited
circumstances, unsecured subordinated indebtedness of Silgan, the proceeds of
which are used by Silgan to pay a dividend to Holdings, which dividend is then
used by Holdings to refinance, redeem or repay the Holdings Discount Debentures
or any Refinancing Indebtedness of Holdings; (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; (c) loans from
Containers and/or Plastics to Silgan not exceeding $25 million in aggregate
principal amount outstanding at any time; and (d) certain limited acquisitions
and investments as provided in the Credit Agreement; (vii) to enter into
transactions with affiliates;
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(viii) to make certain capital expenditures, except for, among other things,
capital expenditures which do not exceed in the aggregate for the Borrowers $65
million for each calendar year during the term of the Credit Agreement;
provided, however, that to the extent capital expenditures made during any
period are less than the amounts that are permitted to be made during such
period, such amount may be carried forward and utilized to make capital
expenditures in the immediately succeeding calendar year (except that no more
than $10,000,000 of capital expenditures can be carried forward from 1995 to
1996), with any such amount being deemed utilized first in such succeeding
calendar year; (ix) except as otherwise permitted under the Credit Agreement, to
make any voluntary payments, prepayments, acquire for value, redeem or exchange,
among other things, any 11-3/4% Notes , any of the Holdings Discount Debentures,
or any Refinancing Indebtedness, or to make certain amendments to the 11-3/4%
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, C-W Can and SCCW 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; (xiii) to engage in any business other than
the packaging business; and (xiv) to designate indebtedness as "Designated
Senior Indebtedness" for purposes of the 11-3/4% Notes or any Refinancing
Indebtedness issued by Silgan.
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)
may not, at any time, be less than 1.75:1, and that the ratio of EBITDA (as
defined below) to Interest Expense (as defined below) may not be, for any period
of four consecutive fiscal quarters (beginning with the period of four
consecutive fiscal quarters ending December 31, 1995) (in each case, taken as
one accounting period) ended during a period set forth below, less than the
ratio set forth opposite such period below:
Period Ratio
------ -----
Fiscal quarter ending June 30, 1996........................... 1.70:1
Fiscal quarter ending September 30, 1996...................... 1.75:1
Fiscal quarter ending December 31, 1996....................... 1.80:1
Fiscal quarter ending March 31, 1997.......................... 1.80:1
Fiscal quarter ending June 30, 1997........................... 1.80:1
Fiscal quarter ending September 30, 1997...................... 1.80:1
Fiscal quarter ending December 31, 1997....................... 1.90:1
Fiscal quarter ending March 31, 1998.......................... 1.90:1
Fiscal quarter ending June 30, 1998........................... 1.90:1
Fiscal quarter ending September 30, 1998...................... 1.90:1
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Fiscal quarter ending December 31, 1998....................... 2.00:1
Fiscal quarter ending March 31, 1999.......................... 2.00:1
Fiscal quarter ending June 30, 1999........................... 2.00:1
Fiscal quarter ending September 30, 1999...................... 2.00:1
Fiscal quarter ending December 31, 1999....................... 2.20:1
Fiscal quarter ending March 31, 2000.......................... 2.20:1
Fiscal quarter ending June 30, 2000........................... 2.20:1
Fiscal quarter ending September 30, 2000...................... 2.20:1
Fiscal quarter ending December 31, 2000....................... 2.40:1
Fiscal quarter ending March 31, 2001.......................... 2.40:1
Fiscal quarter ending June 30, 2001........................... 2.40:1
Fiscal quarter ending September 30, 2001...................... 2.40:1
Fiscal quarter ending December 31, 2001....................... 2.50:1
and each fiscal quarter thereafter
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In addition, the Credit Agreement requires that the Leverage Ratio (as defined
below) for any Test Period (as defined below) ended on the last day of a fiscal
quarter set forth below is not permitted to exceed the ratio set forth opposite
such fiscal quarter below:
Date Ratio
---- -----
Fiscal quarter ending June 30, 1996........................... 5.10:1
Fiscal quarter ending September 30, 1996...................... 5.10:1
Fiscal quarter ending December 31, 1996....................... 4.60:1
Fiscal quarter ending March 31, 1997.......................... 4.60:1
Fiscal quarter ending June 30, 1997........................... 4.60:1
Fiscal quarter ending September 30, 1997...................... 4.60:1
Fiscal quarter ending December 31, 1997....................... 4.30:1
Fiscal quarter ending March 31, 1998.......................... 4.30:1
Fiscal quarter ending June 30, 1998........................... 4.30:1
Fiscal quarter ending September 30, 1998...................... 4.30:1
Fiscal quarter ending December 31, 1998....................... 4.00:1
Fiscal quarter ending March 31, 1999.......................... 4.00:1
Fiscal quarter ending June 30, 1999........................... 4.00:1
Fiscal quarter ending September 30, 1999...................... 4.00:1
Fiscal quarter ending December 31, 1999....................... 3.75:1
Fiscal quarter ending March 31, 2000.......................... 3.75:1
Fiscal quarter ending June 30, 2000........................... 3.75:1
Fiscal quarter ending September 30, 2000...................... 3.75:1
Fiscal quarter ending December 31, 2000....................... 3.50:1
Fiscal quarter ending March 31, 2001.......................... 3.50:1
Fiscal quarter ending June 30, 2001........................... 3.50:1
Fiscal quarter ending September 30, 2001...................... 3.50:1
Fiscal quarter ending December 31, 2001....................... 3.00:1
and each fiscal quarter thereafter
"Consolidated Current Assets" means the current assets of Holdings and
its subsidiaries determined on a consolidated basis, provided that the unused
amounts of commitments for Revolving Loans are included as current assets of
Holdings in making such determination.
"Consolidated Current Liabilities" means the current liabilities of
Holdings and its subsidiaries determined on a consolidated basis, provided that
the current portion of loans
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under the Credit Agreement, the current portion of any loans made by Silgan to
Containers or Plastics, and accrued interest on the current portion of loans
under the Credit Agreement, the 11-3/4% Notes, the Holdings Discount Debentures
or any Refinancing Indebtedness from the last regularly scheduled interest
payment date shall not be considered current liabilities for the purposes of
making such determination.
" EBIT" means for any period the consolidated net income of Holdings 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 or losses from sales of assets (other than sales of inventory in the
ordinary course of business), or any noncash adjustments resulting from changes
in value of employee stock options .
"EBITDA" means for any period, EBIT, adjusted by adding thereto the
amount of all depreciation and all amortization of intangibles (including
covenants not to compete), goodwill and loan fees that were deducted in arriving
at EBIT for such period.
"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 Holdings and its subsidiaries for such period (without giving effect
to any amortization of up-front fees and expenses in connection with any debt
issuance).
"Interest Reduction Discount" means initially zero, and, from and after
September 30, 1996, the percentage set forth in clause (A), (B), (C), (D), (E)
or (F) below to the extent applicable:
(A) 1/4 of 1% if, but only if, the Modified Leverage Ratio (as defined
below) for the current Test Period is less than or equal to 3.75:1.00 and none
of the conditions set forth in clauses (B) through (F) below are satisfied;
(B) 1/2 of 1% if, but only if, the Modified Leverage Ratio for the
current Test Period is less than or equal to 3.375:1.00 and none of the
conditions set forth in clauses (C) through (F) below are satisfied;
(C) 3/4 of 1% if, but only if, the Modified Leverage Ratio for the
current Test Period is less than or equal to 3.00:1.00 and none of the
conditions set forth in clauses (D) through (F) below are satisfied;
(D) 1% if, but only if, the Modified Leverage Ratio for the current Test
Period is less than or equal to 2.625:1.00 and neither of the conditions set
forth in clause (E) or (F) below is satisfied;
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(E) 1-1/4% if, but only if, the Modified Leverage Ratio for the current
Test Period is less than or equal to 2.25:1.00 and the condition set forth in
clause (F) below is not satisfied; or
(F) 1-1/2% if, but only if, the Modified Leverage Ratio for the current
Test Period is less than or equal to 1.875:1.00.
Notwithstanding anything to the contrary above in this definition, (i) if
Silgan's long-term Indebtedness receives a stated "senior implied" rating of at
least BBB- from Standard & Poor's Ratings Group or at least Baa3 from Moody's
Investors Service, Inc., then from the date that is the first business day of
the fiscal quarter of Silgan following the fiscal quarter containing the first
date that either such rating is announced and for so long as such rating remains
in effect, the Interest Reduction Discount will be 1-1/2% and (ii) the Interest
Reduction Discount will be reduced to zero at all times when a default or an
event of default under the Credit Agreement exists.
"Letter of Credit Outstandings" means, at any time, the sum of (i) the
aggregate stated amount of all outstanding letters of credit issued under the
Credit Agreement and (ii) the amount of all unpaid drawings for letters of
credit issued under the Credit Agreement.
"Leverage Ratio" means, for any period, the ratio of (x) the sum of (I)
Total Indebtedness (as defined below) (excluding Revolving Outstandings (as
defined below)) as of the last day of such period plus (II) the Revolving
Outstandings on the December 31st immediately preceding the last day of such
period (or, in the case of a Test Period ended on December 31 in any fiscal
year, the Revolving Outstandings on such December 31) to (y) EBITDA for then the
most recently ended Test Period.
"Modified Leverage Ratio" means, at any time, the ratio of (x) the sum of
(I) Total Consolidated Term Debt (as defined below) at such time plus (II) the
Revolving Outstandings on the December 31st immediately preceding the last day
of the applicable period (or, in the case of a Test Period ended on December 31
in any fiscal year, the Revolving Outstandings on such December 31) to (y)
EBITDA for the then most recently ended Test Period.
"Refinancing Indebtedness" means (i) any Indebtedness incurred as
permitted by the Credit Agreement the proceeds of which are used to refinance,
redeem or repay outstanding 11-3/4% Notes, Holdings Discount Debentures and/or
any Refinancing Indebtedness previously issued by Holdings or (ii) any
Indebtedness of Holdings incurred pursuant to the Holdings Guaranty (as defined
below) the proceeds of which are used to refinance, redeem or repay outstanding
Holdings Discount Debentures.
"Revolving Outstandings" means, at any time, the sum of the aggregate
principal amount of Revolving Loans and Swingline Loans then outstanding plus
the aggregate amount of all Letter of Credit Outstandings at such time.
"Test Period" shall mean each period of four consecutive fiscal quarters
of Holdings (in each case taken as one accounting period), provided that the
first Test Period shall end on December 31, 1995.
"Total Consolidated Term Debt" means, at any time, the sum of (1) the
aggregate principal amount of Term Loans then outstanding, (2) the aggregate
accreted principal amount of Holdings Discount Debentures then outstanding, (3)
the aggregate principal amount of 11-3/4% Notes then outstanding, (4) the
aggregate principal amount (or accreted amount if issued at a discount) of all
Refinancing Indebtedness then outstanding, (5) the aggregate principal amount of
all Indebtedness then outstanding that was assumed in connection with an
acquisition permitted under the Credit Agreement, and (6) the aggregate
principal amount of certain
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promissory notes then outstanding that were issued by Holdings pursuant to the
Holdings Guaranty which notes provide for the current payment of interest in
cash.
"Total Indebtedness" means the aggregate Indebtedness of Holdings and its
subsidiaries determined on a consolidated basis, provided that , in making such
determination, Indebtedness consisting of capitalized lease obligations existing
as of the effective date of the Credit Agreement or permitted to be incurred
pursuant to the Credit Agreement are excluded.
For purposes of the various computations under the Credit Agreement,
including the ratio of EBITDA to Interest Expense and the Leverage Ratio, (i)
all computations utilize accounting principles in conformity with those used to
prepare the statements of consolidated and consolidating financial condition of
Holdings and its subsidiaries and Silgan and its subsidiaries at December 31,
1994 and the related consolidated and consolidating statements of income and
cash flow of Holdings and its subsidiaries and Silgan and its subsidiaries for
the fiscal year ended December 31, 1994, as audited by Ernst & Young LLP, and
(ii) no effect is given to certain other matters as provided in the Credit
Agreement.
The ability of Holdings to take certain actions is restricted or limited
pursuant to the terms of the Second Amended and Restated Guaranty, dated as of
June 30, 1989, as amended and restated as of June 18, 1992, as further amended
and restated as of December 21, 1993, and as further amended and restated as of
August 1, 1995, made by Holdings in favor of the Banks , Bankers Trust, as
Administrative Agent and as a Co-Arranger, and Bank of America, as Documentation
Agent and as a Co-Arranger (the "Holdings Guaranty"). The Holdings Guaranty
restricts or limits Holdings' ability to, among other things: (i) create certain
liens, (ii) incur additional indebtedness, except that, among other things,
Holdings may incur unsecured subordinated Indebtedness the proceeds of which are
used to refinance, redeem or repay the Holdings Discount Debentures or any
Refinancing Indebtedness of Holdings, (iii) consolidate, merge or sell its
assets and purchase or lease assets, except that Holdings may merge with Silgan
to the extent that such merger is permitted under the Credit Agreement, (iv) pay
dividends, except that, among other things, Holdings may pay dividends to the
holders of its common stock in amounts and at the times as provided in the
Credit Agreement after the consummation of a registered public equity offering
by Holdings, (v) make loans or advances, except that, among other things,
Holdings may make advances to Silgan as permitted under the Credit Agreement,
and (vi) engage in any business other than holding Silgan's common stock and
certain other limited matters permitted by the Holdings Guaranty.
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 Revolving 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 Revolving Loans or any unpaid drawings under any
letter of credit or any fees or other amounts owing under the Credit Agreement;
(ii) subject to certain limited exceptions, 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;
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(ix) a Change of Control (as defined in the Credit Agreement) shall occur; and
(x) the requirement that Silgan repurchase any 11-3/4% Note or that Holdings
repurchase any Holdings Discount Debenture, in any case 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 the Revolving Loans and all other outstanding indebtedness under
the Credit Agreement and terminate their commitment to make any further
Revolving Loans or to issue any letters of credit.
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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 . 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 transactions with affiliates, engage in
mergers or consolidations, and the ability of the Restricted Subsidiaries to
issue stock.
In 1995, $61.7 million aggregate principal amount of the Holdings
Discount Debentures were repurchased by Holdings and cancelled. On June 15,
1996, $17.4 million aggregate principal amount of the Holdings Discount
Debentures will be redeemed by Holdings. Accordingly, at June 15, 1996, $195.9
million aggregate principal amount of the Debentures will be outstanding.
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,
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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 Class A Holdings Stock, 667,500 shares of Holdings Class B
Stock and 1,000,000 shares of Holding 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 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.
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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. 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
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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.
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
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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.
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
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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 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
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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 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).
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 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), 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 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). Until December 21, 1998,
First Plaza and its Restricted Voting Transferees shall vote all shares of
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; 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 Fleet National Bank (formerly 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.
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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)
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 . At
March 31, 1996, $502.0 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
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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 pursuant to which the maturity
thereof may be accelerated and (a) upon receipt by the Trustee of written notice
from the Bank Agent or (b) if such event of default under the Credit Agreement
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 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 or under
clause (i)(b) of this paragraph shall not bar the commencement of another
Payment Blockage Period by the Bank Agent 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
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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, 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 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 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 , 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)
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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:
Redemption
Year Price
---- ----------
1997...................................... 105.8750%
1998...................................... 102.9375%
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 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 permits the optional redemption by Silgan of the
11-3/4% Notes so long as at such time, no default under the Credit Agreement
then exists or would result therefrom and the sources of funds used therefor are
derived solely from net equity proceeds from one or more registered public
equity offerings by Holdings or Silgan of its common stock, Retained Excess Cash
Flow and/or Refinancing Indebtedness (as defined in the Credit Agreement) . See
"Description of Certain Indebtedness--Description of the Credit Agreement ."
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
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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 (as defined below); (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 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.
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"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 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,
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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 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.
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"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
August 1, 1995, among the Company, Containers, Plastics, the Banks party
thereto, the Bank Agent, Bank of America Illinois, as Documentation Agent and
Bankers Trust Company and Bank of America Illinois, as Co-Arrangers, 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.
"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
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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 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 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
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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 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
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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 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.
"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, 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 (including the exhibits thereto) as in effect on the date of the
Indenture.
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"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.
"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.
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"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 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
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
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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 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;
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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 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 the Credit Agreement ; (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 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 the Banks 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 . (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 , or to offer to repay in full all such Indebtedness and to repay the
Indebtedness of each Bank who has accepted such offer or (ii) obtain the
requisite consents under the Credit Agreement 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") .
(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 , such
declaration shall not become effective until the earlier of (i) five Business
Days after receipt of the Acceleration Notice by the Bank Agent and the Company
or (ii) acceleration of the Indebtedness under the Credit Agreement ; 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:
(A) (B) (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
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.
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 contains 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 . See "Description of Certain Indebtedness--Description of the
Credit Agreement ."
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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
Fleet National Bank (formerly 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 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
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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 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 OID. If these aggregation rules were to
apply, the 11-3/4% Notes could be treated as having OID 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 OID 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 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 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
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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 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
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<PAGE>
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 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.
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<PAGE>
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, 1995 and 1994, and for each of the three years in the period ended December
31, 1995 appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein and 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.
The financial statements of American National Can Company's Food Metal &
Specialty Division as of December 31, 1994 and 1993, and for each of the three
years in the period ended December 31, 1994, included in this Prospectus and
Registration Statement have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
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<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
SILGAN CORPORATION:
Report of Independent Auditors..............................................F- 3
Consolidated Balance Sheets at December 31, 1995 and 1994...................F- 4
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994 and 1993........................................F- 5
Consolidated Statements of Common Stockholder's Equity for
the years ended December 31, 1995, 1994 and 1993.......................F- 6
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993........................................F- 7
Notes to Consolidated Financial Statements..................................F- 9
Condensed Unaudited Consolidated Balance Sheets at
March 31, 1996 and 1995..................................................F-38
Condensed Unaudited Consolidated Statements of Operations
for the three months ended March 31, 1996 and 1995.....................F-39
Condensed Unaudited Consolidated Statements of Cash Flows
for the three months ended March 31, 1996 and 1995.....................F-40
Notes to Condensed Unaudited Consolidated Financial Statements..............F-41
AMERICAN NATIONAL CAN COMPANY'S FOOD METAL &
SPECIALTY DIVISION:
Report of Independent Accountants...........................................F-44
Balance Sheets at December 31, 1994 and 1993................................F-45
Statements of Operations for the years ended
December 31, 1994, 1993 and 1992.........................................F-46
Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992.........................................F-47
Notes to Financial Statements...............................................F-48
Unaudited Balance Sheets at June 30, 1995 and 1994..........................F-64
Unaudited Statements of Operations for the six months
ended June 30, 1995 and 1994.............................................F-65
F-1
<PAGE>
Unaudited Statements of Cash Flows for the six months
ended June 30, 1995 and 1994.............................................F-66
Notes to Unaudited Financial Statements.....................................F-67
ADDITIONAL FINANCIAL INFORMATION:
Silgan Corporation:
Pro Forma Unaudited Condensed Statements of Operations for the
year ended December 31, 1995 and for the three months ended
March 31, 1995...........................................................F-68
Notes to Pro Forma Unaudited Condensed Statements of Operations.............F-71
F-2
<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, 1995 and 1994, 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, 1995. 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, 1995 and 1994, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
As discussed in Notes 2 and 13 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, Connecticut
March 8, 1996
F-3
<PAGE>
SILGAN CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
(Dollars in thousands)
Assets 1995 1994
Current assets:
Cash and cash equivalents $ 2,092 $ 2,665
Accounts receivable, less allowances for
doubtful accounts of $4,843 and $1,557 for
1995 and 1994, respectively 109,929 64,700
Inventories 210,471 122,429
Prepaid expenses and other current assets 5,731 8,044
Total current assets 328,223 197,838
Property, plant and equipment, net 487,301 251,810
Goodwill, net 43,562 30,009
Other assets 29,637 20,491
Advance to Parent 57,596 -
Total assets $946,319 $500,148
Liabilities and Stockholder's Equity
Current liabilities:
Trade accounts payable $138,195 $ 36,845
Accrued payroll and related costs 32,805 26,019
Accrued interest payable 4,358 1,713
Other accrued expenses 43,062 17,013
Bank working capital loans 7,100 12,600
Current portion of long-term debt 28,140 21,968
Total current liabilities 253,660 116,158
Long-term debt 549,610 282,568
Deferred income taxes 3,017 13,017
Other long-term liabilities 69,576 25,060
Stockholder's equity:
Common stock ($0.01 par value per share;
3,000 shares authorized, 2 shares issued) - -
Additional paid-in capital 73,635 69,535
Retained earnings (deficit) (3,179) (6,190)
Total stockholder's equity 70,456 63,345
Total liabilities and stockholder's equity $946,319 $500,148
See accompanying notes.
F-4
<PAGE>
SILGAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1995, 1994 and 1993
(Dollars in thousands)
1995 1994 1993
Net sales $1,101,905 $861,374 $645,468
Cost of goods sold 970,491 748,290 571,174
Gross profit 131,414 113,084 74,294
Selling, general and
administrative expenses 45,734 37,160 31,821
Reduction in carrying value of assets 14,745 16,729 -
Income from operations 70,935 59,195 42,473
Interest expense and other
related financing costs 52,462 36,142 27,928
Income before income taxes 18,473 23,053 14,545
Income tax provision 8,700 11,000 6,300
Income before extraordinary
charges and cumulative effect of
changes in accounting principles 9,773 12,053 8,245
Extraordinary charges relating to early
extinguishment of debt, net of taxes (2,967) - (841)
Cumulative effect of changes in accounting
principles, net of taxes - - (9,951)
Net income (loss) $ 6,806 $12,053 $(2,547)
See accompanying notes.
F-5
<PAGE>
SILGAN CORPORATION
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
For the years ended December 31, 1995, 1994 and 1993
(Dollars in thousands)
Total
Additional Retained common
Common paid-in earnings stockholder's
stock capital (deficit) equity
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
Tax benefit realized from Parent - 4,100 - 4,100
Net income - - 6,806 6,806
Payments to former
shareholders - - (3,795) (3,795)
Balance at December 31, 1995 $ - $73,635 $ (3,179) $70,456
See accompanying notes.
F-6
<PAGE>
SILGAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1995, 1994 and 1993
(Dollars in thousands)
1995 1994 1993
Cash flows from operating activities:
Net income (loss) $ 6,806 $ 12,053 $ (2,547)
Adjustments to reconcile net
income (loss) to net cash provided
by operating activities:
Depreciation 42,217 35,392 31,607
Amortization 7,488 6,404 4,817
Reduction in carrying value of assets 14,745 16,729 -
Contribution by Parent for federal
income tax provision 4,100 5,400 7,575
Extraordinary charges relating
to early extinguishment of debt 4,943 - 1,341
Cumulative effect of changes in
accounting principles - - 6,276
Changes in assets and liabilities,
net of effect of acquisitions:
(Increase) decrease in accounts
receivable (1,011) (21,267) 707
Decrease (increase) in inventories 10,852 (16,741) (4,316)
Increase in trade accounts payable 43,108 4,478 3,757
Working capital provided by AN Can
since acquisition date 85,213 - -
Other, net (decrease) increase (8,825) 4,887 (886)
Total adjustments 202,830 35,282 50,878
Net cash provided by operating
activities 209,636 47,335 48,331
Cash flows from investing activities:
Acquisition of ANC's Food Metal &
Specialty business (348,762) - -
Acquisition of Del Monte Can
Manufacturing Assets - 519 (73,865)
Capital expenditures (51,897) (29,184) (42,480)
Proceeds from sale of assets 3,541 765 262
Net cash used in investing activities $(397,118) $(27,900 $(116,083)
Continued on following page.
F-7
<PAGE>
SILGAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the years ended December 31, 1995, 1994 and 1993
(Dollars in thousands)
1995 1994 1993
Cash flows from financing activities:
Borrowings under working capital loans $669,260 $393,250 $328,050
Repayments under working capital loans (674,760) (382,850) (366,250)
Proceeds from issuance of long-term debt 450,000 - 140,000
Repayments of long-term debt (176,910) (20,464) (42,580)
Capital contribution by Parent - - 15,000
Payments to former shareholders (3,795) (6,911) -
Advance to Parent (57,596) - -
Debt financing costs (19,290) - (8,935)
Net cash provided (used) by financing
activities 186,909 (16,975) 65,285
Net increase (decrease) in cash and
cash equivalents (573) 2,460 (2,467)
Cash and cash equivalents at
beginning of year 2,665 205 2,672
Cash and cash equivalents at
end of year $ 2,092 $ 2,665 $ 205
Supplementary data:
Interest paid $ 45,293 $ 30,718 $ 25,733
Income taxes paid, net of refunds 8,967 2,588 722
See accompanying notes.
F-8
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
1. Basis of Presentation
Silgan Corporation ("Silgan", or the "Company"), a corporation which was
formed in 1987 to acquire interests in various packaging manufacturers, is
a wholly-owned subsidiary of Silgan Holdings Inc. ("Holdings", or the
"Parent"). The Parent is 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"). Since 1993, Silgan has
made two significant acquisitions. Silgan acquired the U. S. metal
container manufacturing business of Del Monte Corporation ("Del Monte") in
1993 and it acquired the Food Metal and Specialty business from American
National Can Company ("ANC") in 1995. Both acquisitions were accounted for
using the purchase method of accounting (see Note 3 - Acquisitions).
The Company, together with its wholly-owned subsidiaries Silgan Containers
Corporation ("Containers") and Silgan Plastics Corporation ("Plastics"), is
predominantly engaged in the manufacture and sale of steel and aluminum
containers for human and pet food products and also manufactures custom
designed plastic containers used for health and personal care products.
Principally, all of the Company's businesses are based in the United
States. Foreign subsidiaries are not significant to the consolidated
results of operations or financial position of the Company.
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 statement amounts are translated
at the average of monthly exchange rates.
Certain reclassifications have been made to prior year's financial
statements to conform with current year presentation.
F-9
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
2. Summary of Significant Accounting Policies (continued)
Cash and cash equivalents
Cash equivalents represent short-term, highly liquid investments having
original maturities of three months or less from the time of purchase. The
carrying values of these assets approximate their fair values. As a result
of the Company's cash management system, checks issued and presented to the
banks for payment may create negative cash balances. Checks outstanding in
excess of related cash balances totaling approximately $30.0 million at
December 31, 1995 and $5.4 million at December 31, 1994 are included in
trade accounts payable.
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).
Property, Plant, and Equipment
Property, plant and equipment are stated at historical cost less
accumulated depreciation. Major renewals and betterments that extend the
life of an asset are capitalized and repairs and maintenance expenditures
are charged to expense as incurred. Depreciation is computed using the
straight-line method over their estimated useful lives. The principal
estimated useful lives are 35 years for buildings and range between 3 to 18
years for machinery and equipment. Leasehold improvements are amortized
over the shorter of the life of the related asset or the life of the lease.
Goodwill
The Company has classified as goodwill the cost in excess of fair value of
net assets acquired in purchase transactions. Goodwill is stated at cost
less accumulated amortization. Amortization is computed on a straight-line
basis over periods ranging from 20 to 40 years. The Company periodically
evaluates the existence of goodwill impairment to access 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 reduction in values were to occur.
F-10
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
2. Summary of Significant Accounting Policies (continued)
Other Assets
Other assets consist principally of debt issuance costs which are being
amortized on a straight-line basis over the terms of the related debt
agreements (5 to 10 years). Other intangible assets are amortized over
their expected useful lives using the straight-line method.
Income Taxes
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standard ("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. Under SFAS No. 109, the Company recognizes a federal tax
benefit from the losses of Holdings which is reflected as a contribution to
additional paid-in capital. Due to the adoption of SFAS No. 109 in 1993,
the Company recorded a cumulative charge to earnings and a credit to paid-
in-capital of $6.0 million for the difference in methods up to the date of
adoption.
Postemployment Benefits
During 1993, the Company adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits". SFAS No. 112 requires accrual accounting for
employee benefits that are paid between the termination of active
employment but prior to retirement. Such benefits include salary
continuation, disability, severance, and health care. 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 carrying amounts for cash, accounts receivable, accounts payable, and
other accrued liabilities are reflected in the financial statements and
reasonably approximate fair value due to the short maturity of these items.
The carrying value for short and long-term debt also approximates fair
value but may vary due to changing market conditions. Methods and
assumptions used to estimate fair value and the fair value of the Company's
debt instruments are disclosed in Note 10.
F-11
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
2. Summary of Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities,
revenues and expenses, as well as footnote disclosures in the financial
statements. Actual results may differ from those estimates.
3. Acquisitions
During the three years ended December 31, 1995, the Company made two
acquisitions, as discussed below. Both were accounted for using the
purchase method of accounting and the results of operations have been
included with the Company's results from the respective acquisition dates.
The excess of the purchase price over the fair value of net assets acquired
was allocated to goodwill.
Fiscal year 1995 acquisition
On August 1, 1995, Containers acquired from ANC substantially all of the
fixed assets and working capital, and assumed certain specified limited
liabilities, of ANC's Food Metal & Specialty business ("AN Can"), which
manufactures, markets and sells metal food containers and rigid plastic
containers for a variety of food products and metal caps and closures for
food and beverage products. The purchase price for the assets acquired and
the assumption of certain specified liabilities, including related
transaction costs, was $364.0 million (including $15.2 million for the
operations of ANC's St. Louis, MO facility which the Company intends to
purchase by mid-1996 upon completion of a rationalization project
undertaken at that location).
F-12
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
3. Acquisitions (continued)
Fiscal year 1995 acquisition (continued)
The purchase price was allocated to the tangible and identifiable assets
acquired and liabilities assumed based upon their estimated fair values as
determined from preliminary appraisals and valuations which management
believes are reasonable. The purchase price allocation will be finalized
within one year of the acquisition date. Differences between actual and
preliminary valuations will cause adjustments to the AN Can purchase price
allocation as shown below. Estimated items subject to change include
employee benefit costs and termination costs associated with plant
rationalization and administrative workforce reductions and other plant
exit costs. The aggregate purchase price and its preliminary allocation to
the assets and liabilities is as follows for AN Can (dollars in thousands):
Net working capital acquired $155,967
Property, plant and equipment 240,079
Goodwill 14,832
Deferred tax asset 10,000
Other liabilities assumed (56,916)
$363,962
Set forth below are the Company's summary unaudited pro forma results of
operations for the years ended December 31, 1995 and 1994. The pro forma
results include the historical results of the Company and AN Can and
reflect the effect of purchase accounting adjustments based on preliminary
appraisals and valuations, the financing of the acquisition, the
refinancing of the Company's debt obligations, and certain other
adjustments as if these events occurred as of the beginning of the periods
presented. The pro forma data does not purport to represent what the
Company's results of operations actually would have been if the operations
were combined as of January 1, 1995 or 1994, or to project the Company's
results of operations for any future period.
1995 1994
(Dollars in thousands)
Net sales $1,404,382 $1,457,968
Income from operations 98,674 (1) 63,980 (2)
Income (loss) before income taxes 32,333 (3,572)
Net income (loss) 18,033 (2,107)
F-13
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
3. Acquisitions (continued)
Fiscal year 1995 acquisition (continued)
(1) Included in pro forma income from operations for the year ended
December 31, 1995 is a charge incurred by the Company of $14.7 million
to adjust the carrying value of certain underutilized machinery and
equipment at Silgan facilities (existing prior to the AN Can
acquisition) to net realizable value.
(2) Included in pro forma income from operations for the year ended
December 31, 1994 are charges incurred by AN Can of $10.1 million for
shut down costs necessary to realign the assets of the business more
closely with the existing customer base, $16.7 million related to
Silgan and $7.1 million related to AN Can to adjust the carrying value
of certain technologically obsolete and inoperable equipment to
realizable value, and $26.7 million for the write-down of goodwill by
AN Can.
Fiscal year 1993 acquisition
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 ("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 detail of the assets acquired is as follows (dollars in
thousands):
Net working capital $ 21,944
Property, plant and equipment 47,167
Goodwill 13,729
Other liabilities assumed (9,494)
$ 73,346
F-14
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
4. Inventories
The components of inventories at December 31, 1995 and 1994 consist of the
following:
1995 1994
(Dollars in thousands)
Raw materials $ 46,027 $ 38,575
Work-in-process 24,869 19,045
Finished goods 135,590 63,409
Spare parts and other 6,344 1,621
212,830 122,650
Adjustment to value inventory
at cost on the LIFO method (2,359) (221)
$210,471 $122,429
The amount of inventory recorded on the first-in first-out method at
December 31, 1995 and 1994 was $14.9 million and $6.5 million,
respectively.
5. Property, Plant, and Equipment
Property, plant, and equipment consist of the following:
1995 1994
(Dollars in thousands)
Land $ 6,355 $ 3,707
Buildings and improvements 68,860 51,665
Machinery and equipment 584,526 346,061
Construction in progress 33,764 18,124
693,505 419,557
Accumulated depreciation and amortization (206,204) (167,747)
Property, plant and equipment, net $487,301 $251,810
For the years ended December 31, 1995, 1994, and 1993, depreciation expense
was $42.2 million, $35.4 million, and $31.6 million respectively. The
total amount of repairs and maintenance expense was $26.9 million in 1995,
$19.9 million in 1994, and $17.1 million in 1993.
F-15
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
5. Property, Plant, and Equipment (continued)
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 the industry. The change had the effect of
decreasing depreciation expense in 1994 by approximately $1.3 million and
increasing net income by $0.8 million.
Based upon a review of its depreciable assets, the Company determined that
certain adjustments were necessary to properly reflect net realizable
values. In 1995, the Company recorded a write-down of $14.7 million for
the excess of carrying value over estimated realizable value of machinery
and equipment at existing facilities which have become underutilized due to
excess capacity. In 1994, charges of $16.7 million were recorded which
included $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 for technologically obsolete and inoperable machinery and
equipment.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" which is
effective for the 1996 fiscal year. As required by this standard,
impairment losses will be recognized when events or changes in
circumstances indicate that the fair value of identified assets is less
than the carrying amount. In making such a determination, the Company will
compare the undiscounted cash flows generated by specified assets to the
carrying value of such assets. The Company will adopt SFAS No. 121 in 1996
and believes the effect of adoption will not be material.
6. Goodwill
Goodwill amortization charged to operations was $1.3 million in 1995; $1.2
million in 1994; and $0.5 million in 1993. Accumulated amortization of
goodwill at December 31, 1995, 1994, and 1993 was $5.0 million; $3.7
million; and $2.5 million, respectively.
F-16
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
7. Advance to Parent
During the year ended December 31, 1995, the Company advanced to Holdings,
on a non-interest bearing basis, $57.6 million. Holdings used the advance
to purchase $61.7 million face amount of Holdings' 13 1/4% Senior Discount
Debentures ("Discount Debentures"). The Company is currently permitted
under its debt facilities to make further advances of up to $17.4 million
to fund additional repurchases by Holdings of its Discount Debentures prior
to June 30, 1996.
8. Other Assets
Other assets at December 31, 1995 and 1994 consist of the following:
1995 1994
(Dollars in thousands)
Debt issuance costs $25,021 $18,092
Other 10,202 9,519
35,223 27,611
Less: accumulated amortization (5,586) (7,120)
$29,637 $20,491
During 1995, as part of the acquisition of AN Can and the related
refinancing of its secured debt facilities, the Company wrote off $4.9
million of unamortized debt issuance costs and capitalized $19.3 million in
new debt issuance costs. Amortization expense relating to debt issuance
for the years ended December 31, 1995, 1994, and 1993 was $4.3
million, $4.6 million, and $2.6 million, respectively.
9. Short-Term Borrowings and Long-Term Debt
The Company has a working capital revolving credit facility which it uses
to finance its seasonal liquidity needs. As of December 31, 1995 and 1994,
the Company had $7.1 million and $12.6 million of working capital loans
outstanding, respectively.
F-17
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
9. Short-Term Borrowings and Long-Term Debt (continued)
Long-term debt consists of the following:
1995 1994
(Dollars in thousands)
Bank A Term Loans $220,000 $ 39,845
Bank B Term Loans 222,750 79,691
Senior Secured Floating Rate Notes due
June 30, 1997 - 50,000
11 3/4% Senior Subordinated Notes due
June 15, 2002 135,000 135,000
577,750 304,536
Less: Amounts due within one year 28,140 21,968
$549,610 $282,568
The aggregate annual maturities of long-term debt at December 31, 1995 are
as follows (dollars in thousands):
1996 $ 28,140
1997 37,170
1998 52,138
1999 52,138
2000 102,281
2001 and thereafter 305,883
$ 577,750
1995 Bank Credit Agreement
Effective August 1, 1995, the Company, Containers, and Plastics entered
into a $675.0 million credit agreement (the "Credit Agreement") with
various banks to finance the acquisition by Containers of AN Can, to
refinance and repay in full all amounts owing under the previous bank
credit agreement and the Company's Senior Secured Notes and to make non-
interest bearing advances to Holdings in an amount not to exceed $75.0
million for the repurchase of a portion of Holding's Discount Debentures.
In connection with the refinancing of the credit agreement, the Company
incurred a charge of $3.0 million (net of taxes of $2.1 million) in 1995
for the early extinguishment of amounts owed under existing secured debt
facilities.
F-18
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
9. Short-Term Borrowings and Long-Term Debt (continued)
1995 Bank Credit Agreement (continued)
The Credit Agreement provided the Company with (i) $225.0 million of A Term
Loans, (ii) $225.0 million of B Term Loans, and (iii) a working capital
revolving credit facility of up to $225.0 million ("Working Capital
Loans"). The Company used proceeds from the Credit Agreement to repay
$117.1 million of term loans under the previous bank credit agreement,
repay in full $50.0 million of its Senior Secured Notes due 1997, acquire
AN Can for $348.8 million (excluding $15.2 million for the St. Louis
operations which the Company expects to purchase by mid-1996), advance
$57.6 million to Holdings, and incur debt issuance costs of $19.3 million.
The A Term Loans mature on December 31, 2000, and the B Term Loans mature
on March 15, 2002. During 1995, principal repayments of $5.0 million were
made on the A Term Loans and $2.3 million on the B Term Loans. Principal
is to be repaid on each term loan in installments in accordance with the
Credit Agreement until maturity.
As defined in the Credit Agreement, the Company is required to repay the
term loans (ratably allocated between the A Term Loans and the B Term
Loans) in an amount equal to 80% of the net sale proceeds from certain
asset sales and up to 100% of the net equity proceeds from certain sales of
equity. In addition, effective for the year ended December 31, 1996 and
each year thereafter during the term of the Credit Agreement, the Company
is required to pre-pay the term loans (ratably allocated between the A Term
Loans and the B Term Loans) in an amount equal to 50% of the Company's
excess cash flow. Amounts repaid under the term loans cannot be
reborrowed.
F-19
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
9. Short-Term Borrowings and Long-Term Debt (continued)
1995 Bank Credit Agreement (continued)
The Credit Agreement provides Containers and Plastics, together, a
revolving credit facility of $225.0 million for working capital needs. The
commitment under the Credit Agreement for Working Capital Loans was
initially $150.0 million. This initial commitment will increase at the time
and by the amount of any advances made by the Company to Holdings for the
repurchase of its Discount Debentures (up to a maximum commitment of $225.0
million). As of December 31, 1995, the Company had advanced $57.6 million
to Holdings, thereby increasing the commitment under the revolving credit
facility to $207.6 million. After taking into account outstanding letters
of credit of $6.6 million and Working Capital Loans of $7.1 million, the
borrowings available under the revolving credit facility were $193.9
million at December 31, 1995. In addition to borrowings of Working Capital
Loans, the Company may utilize up to a maximum of $20.0 million in letters
of credit as long as the aggregate amount of borrowings and letters of
credit outstanding does not exceed the amount of the commitment. The
aggregate amount of Working Capital Loans and letters of credit which may
be outstanding at any time is also limited to the aggregate of 85% of
eligible accounts receivable and 50% of eligible inventory. Working
Capital Loans may be borrowed, repaid, and reborrowed over the life of the
Credit Agreement until final maturity on December 31, 2000.
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 higher of (i) 1/2 of 1% in excess of Adjusted Certificate of
Deposit Rate, or (ii) Bankers Trust Company's prime lending rate. Base
Rate borrowings bear interest at the Base Rate plus 1.50%, in the case of A
Term Loans and Working Capital Loans; and 2.0%, in the case of B Term
Loans. Eurodollar Rate borrowings bear interest at the Eurodollar Rate
plus 2.50% in the case of A Term Loans and Working Capital Loans; and 3.0%,
in the case of B Term Loans. At December 31, 1995, the interest rate for
Base Rate borrowings was 10.0 % and the interest rate for Eurodollar Rate
borrowings ranged between 8.1875% and 8.9375%.
For 1995, 1994 and 1993, respectively, the average amount of borrowings of
Working Capital Loans was $67.6 million, $14.4 million and $51.9 million;
the average annual interest rate paid on such borrowings was 8.9%, 8.4%,
and 6.0%; and the highest amount of such borrowings at any month-end was
$184.0 million, $43.9 million, and $80.3 million.
F-20
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
9. Short-Term Borrowings and Long-Term Debt (continued)
1995 Bank Credit Agreement (continued)
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 revolving credit facility as well as a 2.75% 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 real and personal property of the Borrowers. 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, investments, 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.
1993 Bank Credit Agreement
Effective December 21, 1993, the Company, Containers, and Plastics entered
into a credit agreement with a group of banks for $140.0 million in term
loans and $70.0 million in working capital loans to finance in part the
acquisition of DM Can and repay $41.6 million of term loans owed under a
previous bank credit agreement. In addition, Holdings issued and sold
250,000 shares of its Class B Common Stock for $15.0 million and, in turn,
contributed such amount to the Company. As a result of the early
extinguishment of debt, the Company incurred a charge of $0.8 million (net
of taxes of $0.5 million).
According to the terms of this bank credit agreement, 80% of amounts
received from the sale or disposal of assets was to be used to repay term
loans. Prior to the refinancing and repayment of this bank facility, an
additional principal payment of $2.5 million was made early in 1995 from
net proceeds received from asset sales.
F-21
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
9. Short-Term Borrowings and Long-Term Debt (continued)
Senior Secured Floating Rate Notes
The Company redeemed its Senior Secured Notes on August 30, 1995 for a
premium of $0.1 million.
11 3/4% Senior Subordinated Notes
The Company's 11 3/4% Senior Subordinated Notes (the "11 3/4% Notes") which
mature on June 15, 2002, represent unsecured general obligations,
subordinate in right of payment to obligations of the Company under the
Credit Agreement 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 terms of the existing Credit
Agreement.
10. Fair Value 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 fair value due to the
short duration of those investments.
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.
F-22
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
10. Fair Value of Financial Instruments (continued)
Letters of Credit: Fair values of the Company's outstanding letters of
credit are based on current contractual amounts outstanding.
The following table presents the carrying amounts and fair values of the
Company's financial instruments recorded at December 31, 1995 and 1994,
respectively (dollars in thousands):
1995 1994
Carrying Fair Carrying Fair
Amount Value Amount Value
Working Capital Facility $ 7,100 $ 7,100 $ 12,600$ 12,600
Current Portion of long-term
debt 28,140 28,140 21,968 21,968
Bank A Term Loans 220,000 220,000 39,845 39,845
Bank B Term Loans 222,750 222,750 79,691 79,691
Senior Secured Floating Rate
Notes due June 30, 1997 - - 50,000 50,000
11 3/4% Senior Subordinated
Notes due June 15, 2002 135,000 144,500 135,000 140,400
The Company has had limited involvement with derivative financial
instruments and does not use them for trading purposes. During 1995 and
1994, the Company was not party to any interest rate hedge agreements, nor
did it use derivative instruments to hedge commodity and foreign exchange
risks.
Subsequent to December 31, 1995, the Company entered into interest rate
swap agreements in order to manage its exposure to interest rate
fluctuations. These agreements effectively convert interest rate exposure
from variable rate to a fixed rate without the exchange of the underlying
principal amounts. The Company has agreed to pay fixed rates of interest
ranging from 8.1% to 8.6% on notional principal amounts totaling $100.0
million and which mature in the year 1999. Net payments or receipts under
these agreements will be recorded as adjustments to interest expense.
F-23
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
10. Fair Value of Financial Instruments (continued)
Concentration of Credit Risk
The Company derives a significant portion of its revenue from multi-year
supply agreements with many of its customers. Revenues from its two
largest customers accounted for approximately 36.0% of sales in 1995 and
47.3% in 1994. The receivable balances from these customers collectively
represented 28.2% and 34.4% of accounts receivable before allowances at
December 31, 1995 and 1994, respectively. As is common in the packaging
industry, the Company provides extended payment terms for some of its
customers due to the seasonality of the vegetable and fruit pack business.
Exposure to losses is dependent on each customer's financial position. The
Company performs ongoing credit evaluations of its customer's financial
condition and its receivables are not collateralized. The Company
maintains an allowance for doubtful accounts which management believes is
adequate to cover potential credit losses based on customer credit
evaluations, collection history, and other information.
11. Commitments
The Company has a number of noncancelable operating leases for office and
plant facilities, equipment and automobiles that expire at various dates
through 2020. Certain operating leases have renewal options. Minimum
future rental payments under these leases are (dollars in thousands):
1996 $13,442
1997 10,768
1998 7,973
1999 5,778
2000 4,928
2001 and thereafter 7,159
$50,048
Rent expense was approximately $10.8 million in 1995; $9.1 million in 1994;
and $8.0 million in 1993.
F-24
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
12. 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. Pension benefits are provided 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.
The following table sets forth the funded status of the Company's
retirement plans as of December 31:
Plans in which Plans in which
Assets Exceed Accumulated
Accumulated Benefits
Benefits Exceed Assets
1995 1994 1995 1994
(Dollars in thousands)
Actuarial present value of
benefit obligations:
Vested benefit obligations $12,135 $ 9,182 $31,465 $19,876
Non-vested benefit obligations 547 871 3,158 1,889
Accumulated benefit obligations 12,682 10,053 34,623 21,765
Additional benefits due to
future salary levels 5,667 5,358 7,132 3,557
Projected benefit obligations 18,349 15,411 41,755 25,322
Plan assets at fair value 12,988 11,612 23,535 17,249
Projected benefit obligation
in excess of plan assets 5,361 3,799 18,220 8,073
Unrecognized actuarial gain (loss) (165) 504 1,237 3,916
Unrecognized prior service costs (615) (665) (2,128) (2,461)
Additional minimum liability - - 1,990 1,677
Accrued pension liability
recognized in the balance sheet $ 4,581 $ 3,638 $19,319 $11,205
F-25
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
12. Retirement Plans (continued)
As of the AN Can acquisition date, the Company assumed an accrued pension
liability of $6.8 million related to the active employee population
transferred to the Company from AN Can. Under the terms of the
acquisition, ANC retained the liability for the retired population as of
August 1, 1995.
For certain pension plans with accumulated benefits in excess of plan
assets at December 31, 1995 and December 31, 1994, the balance sheet
reflects an additional minimum pension liability and related intangible
asset of $2.0 million and $1.7 million, respectively.
The components of net periodic pension costs for defined benefit plans are
as follows:
1995 1994 1993
(Dollars in thousands)
Service cost $ 3,067 $ 2,947 $ 1,809
Interest cost 3,887 3,334 2,144
Actual loss (return) on assets (7,284) 539 (1,784)
Net amortization and deferrals 5,008 (2,698) 317
Net periodic pension cost $ 4,678 $ 4,122 $ 2,486
During 1995, the Company recognized settlement and curtailment losses of
$0.4 million from the termination of participation in certain plans as a
result of plant closings and changes in pension benefit provisions. The
Company participates in several multi-employer pension plans which provide
defined benefits to certain of its union employees. The composition of
total pension cost for 1995, 1994, and 1993 in the Consolidated Statements
of Operations is as follows:
1995 1994 1993
(Dollars in thousands)
Net periodic pension cost $ 4,678 $ 4,122 $ 2,486
Settlement and curtailment losses, net 418 - -
Contributions to multi-employer
union plans 2,708 2,700 2,000
Total pension costs $ 7,804 $ 6,822 $ 4,486
F-26
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
12. Retirement Plans (continued)
The assumptions used in determining the actuarial present value of plan
benefit obligations as of December 31 are as follows:
1995 1994 1993
Discount rate 7.5% 8.5% 7.5%
Weighted average rate of
compensation increase 4.0% 4.5% 4.5%
Expected long-term rate of
return on plan assets 8.5% 8.5% 8.5%
The Company also sponsors defined contribution pension and profit sharing
plans covering substantially all employees. Company contributions to these
plans are based upon employee contributions and operating profitability.
Contributions charged to income for these plans were $1.7 million in 1995;
$2.5 million in 1994; and $1.5 million in 1993. The decline in defined
contributions in 1995 as compared to 1994 resulted from lower profit-
sharing contributions made for Company employees since target financial
objectives were not achieved. This decrease was partially offset by an
increase in the contribution base attributable to additional employee
participation as a result of the acquisition of AN Can.
13. 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 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. Retiree
health benefits are paid as covered expenses are incurred.
F-27
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
13. Postretirement Benefits Other than Pensions (continued)
The following table presents the funded status of the postretirement plans
and amounts recognized in the Company's balance sheet as of December 31:
1995 1994
(Dollars in thousands)
Accumulated postretirement benefit obligation:
Retirees $ 1,587 $ 1,183
Fully eligible active plan participants 11,647 1,521
Other active plan participants 14,770 2,577
Total accumulated postretirement
benefit obligation 28,004 5,281
Unrecognized net gain (2,929) (219)
Unrecognized prior service costs (298) (79)
Accrued postretirement benefit liability $ 24,777 $ 4,983
As of the AN Can acquisition date, the Company assumed a postretirement
benefit liability in the amount of $19.6 million for the active population
transferred to the Company from AN Can. Under the terms of the
acquisition, ANC retained the liability for the retired population as of
August 1, 1995.
Net periodic postretirement benefit cost includes the following components:
1995 1994
(Dollars in thousands)
Service cost $ 372 $ 321
Interest cost 1,097 412
Net amortization and deferral 42 (14)
Net periodic postretirement benefit cost $1,511 $ 719
The weighted average discount rates used to determine the accumulated
postretirement benefit obligation as of December 31, 1995 and 1994 were
7.5% and 8.5%, respectively. The net periodic postretirement benefit costs
were calculated using a discount rate ranging from 7.5% to 8.5% for 1995
and 8.5% for 1994. The assumed health care cost trend rate used in
measuring the accumulated postretirement benefit obligation ranged from
7.14% to 10.0% in 1995 and was 14% in 1994, declining to a rate ranging
from 5.0% to 6.0% in the year 2003 and thereafter.
F-28
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
13. Postretirement Benefits Other than Pensions (continued)
A 1% increase in the health care cost trend rate assumption would increase
the accumulated postretirement benefit obligation as of December 31, 1995
by approximately $3.7 million and increase the aggregate of the service and
interest cost components of the net periodic postretirement benefit cost
for 1995 by approximately $0.2 million.
14. Income Taxes
Income taxes for 1995, 1994, and 1993 reflect the adoption of SFAS No. 109
under which the Company provides for taxes as if it were a separate
taxpayer.
The components of income tax expense are as follows:
1995 1994 1993
(Dollars in thousands)
Current
Federal $ 500 $ 2,500 $ 300
State 1,900 3,200 1,900
Foreign 100 (100) (400)
2,500 5,600 1,800
Deferred
Federal 4,100 5,400 7,575
State - - 100
Foreign - - -
4,100 5,400 7,675
$ 6,600 $11,000 $9,475
Income tax expense is included in the financial statements as follows:
1995 1994 1993
(Dollars in thousands)
Income before
extraordinary charges
and accounting changes $ 8,700 $11,000 $ 6,300
Extraordinary charges (2,100) - (500)
Cumulative effect of
accounting changes - - 3,675
$ 6,600 $11,000 $9,475
F-29
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
14. Income Taxes (continued)
The income tax provision varied from that computed by using the U.S.
statutory rate as a result of the following:
1995 1994 1993
(Dollars in thousands)
Income tax provision at the
U.S. Federal income tax rate $ 6,466 $ 8,069 $ 5,091
State and foreign tax expense
net of Federal income benefit 1,625 2,015 1,235
Amortization of goodwill 471 576 154
Other 138 340 (180)
$ 8,700 $11,000 $ 6,300
Deferred income taxes reflect the net tax effect 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:
1995 1994
(Dollars in thousands)
Deferred tax liabilities:
Tax over book depreciation $27,800 $21,900
Book over tax basis of assets acquired 41,700 21,400
Other 3,900 4,100
Total deferred tax liabilities 73,400 47,400
Deferred tax assets:
Book reserves not yet deductible
for tax purposes 56,300 24,600
Net operating loss carryforwards 3,800 3,800
Benefit taken for Holdings' losses 10,200 5,500
Other 83 483
Total deferred tax assets 70,383 34,383
Net deferred tax liabilities $ 3,017 $13,017
F-30
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
14. Income Taxes (continued)
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 $0.5 million in 1995 and $1.5 million
in 1994.
On a consolidated basis, the Company and Holdings have net operating loss
carryforwards at December 31, 1995 of approximately $100.0 million which
are available to offset future consolidated taxable income of the group and
expire from 2001 through 2010. The Company and Holdings, on a consolidated
basis at December 31, 1995, have $3.9 million of alternative minimum tax
credits which are available indefinitely to reduce future tax payments for
regular federal income tax purposes.
At December 31, 1995 the Company, if reporting on a separate company basis,
would have had net operating loss carryforwards for Federal tax purposes of
approximately $8.0 million, which are subject to limitation under the
consolidated return regulations, and expire from 2001 to 2007.
F-31
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
15. Acquisition Reserves
In connection with the acquisition of AN Can, the Company plans to improve
operating efficiencies through production and facility consolidation and
through workforce reductions. As part of its preliminary purchase price
allocation, the Company established a reserve for $25.0 million which
primarily consists of $20.5 million for severance and $4.5 million of
facility exit costs. The provision for severance includes employee
termination benefits, such as, salary continuation, pension, and medical.
Plant exit costs include planned expenditures relating to facility shut
down, equipment removal, and compliance with environmental regulations.
During the year, $0.9 million of costs were expended for severance. As of
December 31, 1995, $7.1 million remained in other accrued expenses for
costs expected to be paid within one year and $17.0 million remained in
long term liabilities. Management believes that the operating improvements
will not be fully implemented until 1997 and the remaining reserve balance
will be adequate to cover anticipated costs.
16. 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 its 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.
F-32
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
16. Stock Option Plans (continued)
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.
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, the common stock at the then
pro forma book value.
At December 31, 1995, there were outstanding options for 936 shares under
the Containers plan and 1,200 shares under the Plastics plan. The exercise
prices per share range from $2,122 to $4,933 for the Containers options and
$126 to $993 for the Plastics options. The stock options and SARs generally
become exercisable ratably over a five-year period. At December 31, 1995,
there were 840 options/SARs exercisable under the Containers plan and 180
options/SARs exercisable under the Plastics plan. The Company incurred
charges relating to the vesting and payment of benefits under the stock
option plans of $0.4 million in 1995; $1.5 million in 1994; and $0.2
million in 1993.
In the event of a public offering of any of Holdings' capital stock or a
change in control of Holdings, (i) the options granted by Containers and
Plastics pursuant to the plans and (ii) any stock issued upon exercise of
such options issued by Containers are convertible into either stock options
or common stock of Holdings, as the case may be. The conversion of such
options or shares will be based upon a valuation of Holdings and an
allocation of such value among the subsidiaries after giving affect to,
among other things, that portion of the outstanding indebtedness of
Holdings allocable to each such subsidiary.
F-33
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
16. Stock Option Plans (continued)
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", effective for the 1996 fiscal year. Under SFAS No. 123,
compensation expense for all stock-based compensation plans would be
recognized based on the fair value of the options at the date of grant
using an option pricing model. As permitted under SFAS No. 123, the
Company may either adopt the new pronouncement or may continue to follow
the current accounting method as prescribed under APB Opinion No. 25,
"Accounting for Stock Issued to Employees". The Company does not intend to
adopt SFAS No. 123 for expense recognition purposes in 1996.
17. Stockholder's Equity
The Company's authorized capital stock consists of 1,000 shares each of
Class A, B, and C Common Stock ($.01 par value) and preferred stock. The
Company's outstanding capital stock at December 31, 1995 and 1994 consists
of 1 share of Class A Common Stock and 1 share of Class B Common Stock.
Both shares are issued to Holdings.
18. 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 Messr. Silver, the Chairman and Co-Chief Executive Officer
and Messr. Horrigan, the President and Co-Chief Executive Officer, of
Holdings and Silgan, S&H provides Holdings, 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 $5.4 million in
1995, $5.0 million in 1994, and $4.4 million in 1993 and was allocated,
based upon EBDIT, as a charge to operating income of each business segment.
Included in accounts payable at December 31, 1995 and 1994, was $0.1
million payable to S&H.
F-34
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
18. Related Party Transactions (continued)
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 refinancings and bank credit agreements entered into
during 1995 and 1993, the banks thereunder (including Bankers Trust
Company) received fees totaling $17.2 million in 1995 and $8.1 million in
1993.
19. Litigation
In connection with the acquisition by Holdings of Silgan as of June 30,
1989 (the "Merger"), a decision was rendered in 1995 by the Delaware Court
of Chancery with respect to appraisal proceedings filed by certain former
stockholders of 400,000 shares of stock of Silgan. Pursuant to that
decision, these former holders were awarded $5.94 per share, plus simple
interest at a rate of 9.5%. This award was less than the amount, $6.50 per
share, that these former holders would have received in the Merger. The
right of these former holders to appeal the Chancery Court's decision has
expired. In 1995, Silgan made a distribution to Holdings and payment was
tendered to these former holders for $3.8 million as reflected in the
Consolidated Statement of Common Stockholder's Equity. In 1994, prior to
the trial for appraisal, Holdings and the former holders of an additional
650,000 shares of stock of Silgan agreed to a settlement in respect of
their appraisal rights, and Silgan made a distribution to Holdings in order
to make a payment of $6.9 million, including interest, in respect of the
settlement.
With respect to a complaint filed by limited partners of The Morgan Stanley
Leveraged Equity Fund, L.P. against a number of defendants, including
Silgan and Holdings, all claims against Silgan and Holdings related to this
action were dismissed on January 14, 1993. The plaintiff's time to appeal
the dismissal of the claims against Silgan and Holdings expired following
the dismissal of the claims against certain other defendants in June 1995.
Other than the actions mentioned above, there are no other pending legal
proceedings to which the Company is a party or to which any of its
properties are subject which would have a material effect on the Company's
financial position.
F-35
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
20. 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.
1995
Metal container
& specialty(1) $ 882.3 $72.9 (2) $726.7 $31.6 $32.5
Plastic container 219.6 13.2 159.4 13.8 19.4
Consolidated $1,101.9 $86.1 $886.1 $45.4 $51.9
1994
Metal container
& specialty(1) $ 657.1 $67.0 (3) $335.3 $23.1 $16.9
Plastic container 204.3 9.4 (3) 162.8 14.1 12.3
Consolidated $ 861.4 $76.4 $498.1 $37.2 $29.2
1993
Metal container
& specialty(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
(1) Specialty packaging sales include closures, plastic bowls, and paper
containers used by processors and packagers in the food industry and
are not significant enough to be reported as a separate segment.
(2) Excludes charge for reduction in carrying value of assets of $14.7
million for metal container segment.
(3) Excludes charges for reduction in carrying value of assets of $7.2
million for metal container segment and $9.5 million for plastic
container segment, respectively.
F-36
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
20. Business Segment Information (continued)
Operating profit is reconciled to income before tax as follows (in
millions):
1995 1994 1993
Operating profit $ 86.1 $ 76.4 $ 42.9
Reduction in carrying
value of assets 14.7 16.7 -
Interest expense 52.5 36.1 27.9
Corporate 0.4 0.5 0.4
Income before income taxes $ 18.5 $ 23.1 $ 14.6
Identifiable assets are reconciled to total assets as follows (in
millions):
1995 1994 1993
Identifiable assets $886.1 $498.1 $490.4
Corporate assets 60.2 2.0 1.7
Total assets $946.3 $500.1 $492.1
Metal container and other segment sales to Nestle Food Company accounted
for 21.4%, 25.9% and 34.1%, of net sales of the Company during the years
ended December 31, 1995, 1994 and 1993, respectively. Similarly, sales to
Del Monte accounted for 14.5% and 21.4% of net sales of the Company during
the years ended December 31, 1995 and 1994, respectively.
F-37
<PAGE>
SILGAN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
March 31, March 31,
1996 1995
ASSETS
Current assets:
Cash and cash equivalents $ 5,980 $ 1,335
Accounts receivable, net 98,177 75,205
Inventories 254,092 148,501
Prepaid expenses and other current
assets 10,911 5,132
Total current assets 369,160 230,173
Property, plant and equipment, net 491,177 251,832
Goodwill, net 43,204 29,699
Other assets 28,194 19,733
Advance to Parent 57,596 -
$989,331 $531,437
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Trade accounts payable $113,674 $ 50,416
Accrued payroll and related costs 40,613 28,207
Accrued interest payable 8,340 5,713
Other accrued expenses 38,506 20,172
Bank working capital loans 60,150 15,200
Current portion of long-term debt 27,192 19,514
Total current liabilities 288,475 139,222
Long-term debt 549,610 282,568
Deferred income taxes 3,017 13,247
Other long-term liabilities 70,696 25,870
Stockholder's equity:
Additional paid-in capital 75,935 70,935
Retained earnings (deficit) 1,598 (405)
Total stockholder's equity 77,533 70,530
$989,331 $531,437
See accompanying notes.
F-38
<PAGE>
SILGAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands)
Three Months Ended
March 31, March 31,
1996 1995
Net sales $279,860 $203,264
Cost of goods sold 243,313 174,265
Gross profit 36,547 28,999
Selling, general and administrative expenses 12,647 9,399
Income from operations 23,900 19,600
Interest expense and other related financing costs 15,823 9,415
Income before income taxes 8,077 10,185
Income tax provision 3,300 4,400
Net income $ 4,777 $ 5,785
See accompanying notes.
F-39
<PAGE>
SILGAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Three Months Ended
March 31, March 31,
1996 1995
Cash flows from operating activities:
Net income $ 4,777 $ 5,785
Adjustments to reconcile net income to net
cash (used) provided by operating activities:
Depreciation 14,589 8,333
Amortization 1,836 1,598
Contribution by Parent for Federal income tax
provision 2,300 1,400
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 11,713 (10,025)
(Increase) in inventories (43,621) (26,072)
(Decrease) increase in trade accounts payable (24,521) 13,571
Other, net 1,776 9,075
Total adjustments (35,928) (2,120)
Net cash (used) provided by operating activities (31,151) 3,665
Cash flows from investing activities:
Capital expenditures (18,558) (8,359)
Proceeds from sale of assets 1,495 3,218
Net cash used in investing activities (17,063) (5,141)
Cash flows from financing activities:
Borrowings under working capital loans 210,350 89,710
Repayments under working capital loans (157,300) (87,110)
Repayment of term loans (948) (2,454)
Net cash provided by financing activities 52,102 146
Net increase (decrease) in cash and cash equivalents 3,888 (1,330)
Cash and cash equivalents at beginning of year 2,092 2,665
Cash and cash equivalents at end of period $ 5,980 $ 1,335
Supplementary data:
Interest paid $ 10,864 $ 4,304
Income taxes paid 214 2,648
See accompanying notes.
F-40
<PAGE>
SILGAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 1996 and 1995 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, 1996 and 1995 and December 31, 1995, the results
of operations for the three months ended March 31, 1996 and 1995, and the
statements of cash flows for the three months ended March 31, 1996 and
1995.
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, 1995.
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
lived Assets to be Disposed of" in the first quarter of 1996. Under SFAS
No. 121, impairment losses will be recognized when events or changes in
circumstances indicate that the undiscounted cash flows generated by the
assets are less than the carrying value of such assets. Impairment losses
are then measured by comparing the fair value of assets to their carrying
amount. There were no impairment losses recognized during the first
quarter of 1996 as a result of the adoption of SFAS No. 121.
F-41
<PAGE>
SILGAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 1996 and 1995 and for the
three months then ended is unaudited)
1. Basis of Presentation (continued)
The Company also adopted SFAS No. 123, "Accounting for Stock-Based
Compensation" for 1996. Under SFAS No. 123, compensation expense for all
stock-based compensation plans would be recognized based on the fair value
of the options at the date of grant using an option pricing model. As
permitted under SFAS No. 123, the Company may either adopt the new
pronouncement or follow the current accounting methods as prescribed under
APB No. 25. The Company has not elected to adopt SFAS No. 123 and
continues to recognize compensation expense in accordance with APB No. 25.
2. Inventories
Inventories consisted of the following (dollars in thousands):
March 31, March 31,
1996 1995
Raw materials $ 44,771 $ 31,063
Work-in-process 21,638 24,890
Finished goods 178,863 96,462
Spare parts and other 7,823 1,383
253,095 153,798
Adjustment to value inventory
at cost on the LIFO Method 997 (5,297)
$254,092 $148,501
F-42
<PAGE>
SILGAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 1996 and 1995 and for the
three months then ended is unaudited)
3. Acquisitions
Set forth below is the Company's summary unaudited pro forma results of
operations for the three months ended March 31, 1995. The unaudited pro
forma results of operations of the Company for the three months ended March
31, 1995 include the historical results of the Company and the Food Metal &
Specialty business of American National Can ("AN Can") for such period and
give effect to certain pro forma adjustments. The pro forma adjustments
made to the historical results of operations for March 31, 1995 reflect the
effect of purchase accounting adjustments based upon preliminary appraisals
and valuations, the financing of the acquisition by the Company, the
refinancing of the Company's secured debt obligations, and certain other
adjustments as if these events had occurred as of the beginning of the
1995. 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 January 1,
1995, or to project the Company's results of operations for any future
period (dollars in thousands):
Pro forma
March 31,
1995
Net sales $311,868
Income from operations 28,140
Income before income taxes 11,300
Net income 6,667
4. Advance to Parent
During the year ended December 31, 1995, the Company advanced to Silgan
Holdings Inc. ("Holdings" or "Parent"), on a non-interest bearing basis,
$57.6 million in order for Holdings to purchase $61.7 million face amount
of its 13 1/4% Senior Discount Debentures due 2002 ("Holdings'
Debentures"). In June of 1996, the Company intends to make an additional
non-interest bearing advance of $17.4 million to Holdings to fund the
redemption by Holdings of a portion of its Discount Debentures.
F-43
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
American National Can Company
In our opinion, the accompanying balance sheets and the related statements
of operations and of cash flows present fairly, in all material respects,
the financial position of the Food Metal & Specialty Division (the
"Division"), a division of American National Can Company, at December 31,
1994 and 1993, and the 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. 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 of these statements in accordance
with generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note 2 to the financial statements, the Division changed
its method of accounting for postemployment benefits in 1994 and
postretirement benefits in 1993. Also, as discussed in Note 2 to the
financial statements, the Division changed its method of evaluating the
recoverability of goodwill in 1994.
Price Waterhouse LLP
Chicago, Illinois
September 14, 1995
F-44
<PAGE>
FOOD METAL & SPECIALTY DIVISION
BALANCE SHEETS
(Dollars in thousands)
December 31,
1994 1993
ASSETS
CURRENT ASSETS:
Cash $ 7 $ 8
Accounts receivable, less allowances of
$732 in 1994 and $92 in 1993 (Note 3) 45,578 38,597
Inventories (Notes 2 and 4) 120,963 96,713
Deferred income taxes (Notes 2 and 7) 19,287 26,400
Other 7,747 1,123
TOTAL CURRENT ASSETS 193,582 162,841
PROPERTY, PLANT AND EQUIPMENT, net
(Notes 2 and 5) 208,157 247,137
GOODWILL, less accumulated amortization
of $56,704 in 1994 and $25,045 in 1993
(Notes 1 and 2) 146,363 178,022
OTHER ASSETS 2,140 7,624
TOTAL ASSETS $550,242 $595,624
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable $ 93,058 $ 82,040
Accrued liabilities (Notes 9 and 13) 55,819 79,333
Long-term obligations under capital leases
to be paid within one year (Note 6) 50 87
TOTAL CURRENT LIABILITIES 148,927 161,460
LONG-TERM LIABILITIES:
Long-term obligations under capital
leases (Note 6) 1,113 1,163
Deferred income taxes (Notes 2 and 7) 19,684 29,897
Other (Notes 12 and 13) 61,026 73,052
TOTAL LONG-TERM LIABILITIES 81,823 104,112
COMMITMENTS AND CONTINGENCIES (Note 15) - -
EQUITY:
Equity adjustment for minimum pension
liability (Note 10) ( 500) ( 246)
Investments by and advances from ANC
(Note 3) 319,992 330,298
TOTAL EQUITY 319,492 330,052
TOTAL LIABILITIES AND EQUITY $550,242 $595,624
See accompanying notes to financial statements.
F-45
<PAGE>
FOOD METAL & SPECIALTY DIVISION
STATEMENTS OF OPERATIONS
(Dollars in thousands)
Year Ended December 31,
1994 1993 1992
NET SALES (Note 16) $596,594 $578,081 $698,699
OPERATING COSTS AND EXPENSES:
Cost of goods sold (excluding
depreciation and amortization) 516,286 508,434 630,764
Depreciation and amortization of
property, plant and equipment
(Note 2) 17,073 23,692 27,965
Selling, general and administrative
expenses (Note 3) 26,446 31,304 39,826
Research and development expenses 5,594 4,779 8,302
Net postretirement benefit expense
(Note 11) 37,030 37,356 16,312
Restructuring expenses (Note 13) 10,100 4,588
Amortization of goodwill (Note 2) 31,659 5,009 5,009
Financial expense, net (Notes 3 and 8) 2,255 2,565 9,883
Other, net (Note 14) 7,112 3,827 786
653,555 616,966 743,435
LOSS BEFORE TAXES AND CUMULATIVE
EFFECT OF CHANGES IN ACCOUNTING
PRINCIPLES ( 56,961) ( 38,885) ( 44,736)
BENEFIT (PROVISION) FOR INCOME TAXES
(Notes 2 and 7):
Current 7,448 40,646 19,980
Deferred 2,356 ( 27,507) ( 4,565)
9,804 13,139 15,415
LOSS BEFORE CUMULATIVE EFFECT OF
CHANGES IN ACCOUNTING PRINCIPLES ( 47,157) ( 25,746) ( 29,321)
CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES, net of tax
(Note 2) ( 914) ( 139,983) -
NET LOSS ($ 48,071) ($165,729) ($ 29,321)
See accompanying notes to financial statements.
F-46
<PAGE>
FOOD METAL & SPECIALTY DIVISION
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended December 31,
1994 1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($48,071) ($165,729) ($29,321)
Adjustments to reconcile net loss
to net cash provided from (used
in) operating activities:
Cumulative effect of changes in
accounting principles 914 139,983
Depreciation and amortization 48,732 28,701 32,974
Provision for restructuring 10,100 4,588
Provision for asset writedowns 7,110
Provision (benefit) for deferred
income taxes ( 2,356) 27,507 4,565
Other adjustments to net loss 281 3,907 1,250
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable ( 7,273) 14,572 ( 227)
(Increase) decrease in
inventories ( 24,891) 19,817 33,762
(Increase) decrease in other
current assets ( 6,624) 173 319
Decrease in other assets 6,989 448 4,804
Decrease in accounts payable
and other liabilities ( 35,595) ( 33,779) ( 50,350)
NET CASH PROVIDED FROM (USED IN)
OPERATING ACTIVITIES ( 50,684) 35,600 2,364
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ( 10,153) ( 17,723) ( 9,594)
Proceeds from sale of property, plant
and equipment 10,557 2,921 25,659
Transfer of property, plant and
equipment to (from) other ANC
business units 12,601 715 ( 223)
NET CASH PROVIDED FROM (USED IN)
INVESTING ACTIVITIES 13,005 ( 14,087) 15,842
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of obligations under capital
leases ( 87) ( 116) ( 147)
Increase (decrease) in advances from
ANC (Note 3) 37,765 ( 21,398) ( 18,534)
NET CASH PROVIDED FROM (USED IN)
FINANCING ACTIVITIES 37,678 ( 21,514) ( 18,681)
NET DECREASE IN CASH ( 1) ( 1) ( 475)
CASH, beginning of year 8 9 484
CASH, end of year $ 7 $ 8 $ 9
See accompanying notes to financial statements.
F-47
<PAGE>
FOOD METAL & SPECIALTY DIVISION
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
Note 1 - Organization and Basis of Presentation
Food Metal & Specialty Division (the "Division") is a division of American
National Can Company ("ANC") which is an indirect majority-owned subsidiary
of Pechiney Corporation, a Delaware corporation. Pechiney Corporation is a
wholly-owned subsidiary of Pechiney International S.A., which is a
majority-owned subsidiary of Pechiney S.A., a French corporation.
ANC, including the operations of the Division, was acquired by Pechiney
Corporation on December 31, 1988. As a result of the acquisition, the
tangible assets and liabilities of the Division were adjusted to their fair
values as of the date of acquisition and an allocated portion of the
purchase price and related expenses incurred by Pechiney Corporation to
acquire ANC, together with the resultant goodwill related to the Division
and amortization thereof, have been pushed down to the Division's financial
statements.
The accompanying financial statements reflect the "carve-out" financial
position, results of operations and cash flows of the Division for the
periods presented. The financial information included herein does not
necessarily reflect what the financial position and results of operations
of the Division would have been had it operated as a stand alone entity
during the periods covered, and may not be indicative of future operations
or financial position.
Note 2 - Summary of Significant Accounting Policies
Revenue Recognition
Revenues are recognized when goods are shipped.
Financial Instruments
The carrying value of the Division's financial instruments, primarily
receivables and payables, generally approximates fair value.
Inventories
Inventories are stated at the lower of cost or market. The costs of
inventories other than spare parts were determined by the first-in, first-
out (FIFO) method. Costs of spare parts inventories were determined by the
weighted average method.
F-48
<PAGE>
FOOD METAL & SPECIALTY DIVISION
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
Property, Plant and Equipment
Property, plant and equipment is stated at cost (as adjusted in connection
with the acquisition of ANC by Pechiney Corporation) including interest
incurred on funds borrowed during the period that major items are prepared
for their intended use. Capitalized leases are stated at the lesser of the
present value of future minimum lease payments or the fair value of the
leased property. Depreciation and amortization are computed using the
straight-line method.
During 1994, the Division performed a study of the economic lives of its
fixed assets and determined that the useful lives of certain asset
categories were generally longer than the lives used for depreciation
purposes. Therefore, the Division extended the estimated depreciable lives
of certain categories of property, plant and equipment (mainly machinery
and equipment used in the production process), by a maximum of two years,
effective January 1, 1994. The effect of this change in estimate reduced
1994 depreciation expense and net loss by $3,203 and $1,957, respectively.
Goodwill
Goodwill consists of an allocated portion of the Pechiney Corporation
acquisition costs in excess of the fair value of the net assets of the
Division (see Note 1). Goodwill is amortized on a straight-line method
over forty years.
In addition to the normal charge for the year, Pechiney Corporation and
ANC, in 1994, revised their method of evaluating goodwill resulting in a
writedown of $26,650 relating to the Division. A review of the carrying
value of goodwill in the light of recent profitability trends of certain
assets and current market values resulted in this additional charge.
Other Postretirement and Postemployment Benefits
Effective January 1, 1993, the Division adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions" ("SFAS 106") which requires that the
projected cost of all healthcare and other nonpension benefits provided by
the Division to its retired employees and their dependents be accrued
during an employees' period of service rather than expensed as paid. The
cumulative effect of this change in accounting for postretirement benefits
resulted in a non-cash, after-tax charge in 1993 of $139,983 (net of
$89,122 of income tax benefits). This cumulative effect represents the
actuarial present value of all future medical and life insurance benefits
to be paid to active employees and employees who retired subsequent to the
F-49
<PAGE>
FOOD METAL & SPECIALTY DIVISION
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
date of the acquisition by Pechiney Corporation (see Note 1) based on
services rendered to date. The amount of the cumulative effect recorded by
the Division at January 1, 1993 was determined (a) for active employees on
the basis of an actuarial valuation and (b) for retired employees by
applying the pro rata allocation relationship for determining
postretirement benefit expense for retired employees as described in Note
11, to the total accumulated postretirement benefit obligation for
retired employees of ANC after reduction for the remaining portion of the
liability established at the date of acquisition by Pechiney Corporation
for employees who had retired at that date. Additional expense for 1993
due to the adoption of SFAS 106 exclusive of the cumulative effect was
$20,873.
Prior to 1993, the Division accounted for health care and other non-pension
benefits for retired employees on the cash basis except for benefits of
employees who were retired as of the date of the acquisition by Pechiney
Corporation (see Note 11).
Effective January 1, 1994, the Division adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" ("SFAS 112"). This standard requires that the projected costs of
all benefits the Division provides to former or inactive employees (and
their covered dependents) before their retirement be accrued at the time
they are terminated or become inactive. The cumulative effect of this
change in accounting for postemployment benefits resulted in a non-cash,
after-tax charge in 1994 of $914 (net of $582 of income tax benefits).
There was no impact on pre-tax earnings in 1994 as a result of complying
with SFAS 112.
Income Taxes
The Division is included as part of ANC in the consolidated U.S. federal
income tax return of Pechiney Corporation. The provision for income taxes
is computed on the taxable income or loss of the Division on a stand-alone
basis. For financial reporting purposes, income tax benefits are
recognized based upon amounts currently recognized by ANC which credits the
Division for the tax benefits resulting from the inclusion of the
Division's losses in the consolidated return.
The Division accounts for income taxes based on the asset and liability
approach in accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes". The asset and liability approach
requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the
financial reporting and the tax bases of assets and liabilities.
F-50
<PAGE>
FOOD METAL & SPECIALTY DIVISION
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
The liability for the current portion of the tax provision is transferred
to the Investments by and advances from ANC account at the end of each
year. The deferred income tax assets and liabilities have been included in
the accompanying balance sheets.
Note 3 - Related Party Transactions
ANC provides the Division certain data processing, human resources,
purchasing, credit, accounting and tax services. An allocation of the
estimated costs of these services is charged directly to the Division each
month by ANC using varying allocation bases (primarily number of
transactions processed). The allocation process is consistent with the
methodology used by ANC to allocate costs of similar services provided to
its other business units. The costs for these services are negotiated and
agreed to by both the Division and ANC each year, and in the opinion of
management are reasonable. The allocated costs of these services, which
aggregated $7,110 in 1994, $9,241 in 1993 and $16,153 in 1992, were
reflected in selling, general and administrative expenses in the
accompanying statements of operations.
ANC maintains a centralized cash management system and substantially all
cash receipts and disbursements are recorded at the corporate level. The
Division is charged or credited for the net of cash receipts and
disbursements each month.
The Division incurs a monthly charge for interest expense from ANC based on
a formula which takes into consideration its percentage of certain assets
and liabilities in relation to the total for ANC of these assets and
liabilities (see Note 8).
The following table sets forth the activity in the Investments by and
advances from ANC account for the years ended December 31, 1994, 1993 and
1992:
1994 1993 1992
Balance, beginning of year $330,298 $377,442 $425,297
Net loss ( 48,071)( 165,729)( 29,321)
Charges/advances from ANC, net,
including in 1993, $139,983 relating
to a cumulative effect of a change
in accounting principle 37,765 118,585 ( 18,534)
Balance, end of year $319,992 $330,298 $377,442
F-51
<PAGE>
FOOD METAL & SPECIALTY DIVISION
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
ANC maintains agreements with certain banks to sell trade accounts
receivable, with limited recourse, on a revolving basis. The agreements
specify certain eligibility criteria for receivables that are sold,
including credit quality and maturity. At December 31, 1994 and 1993, a
portion of the Division's receivables were included in the eligible pool of
receivables sold by ANC. The balance sheets reflect all Division
receivables, including those in the eligible pool.
Note 4 - Inventories
Inventories at December 31, 1994 and 1993 consist of the following:
1994 1993
Raw materials $ 43,466 $13,968
Work-in-process 6,143 6,147
Finished goods 60,515 64,952
Machine spare parts 10,839 11,646
$120,963 $96,713
Note 5 - Property, Plant and Equipment
Property, plant and equipment at December 31, 1994 and 1993 consists of the
following:
Estimated
1994 1993 Useful Life
Land $ 25,680 $ 31,260 -
Buildings and improvements 59,876 60,912 40 years
Machinery and equipment 229,333 256,286 3 to 20 years
Less: Accumulated
depreciation ( 106,732)( 101,321)
$208,157 $247,137
Property, plant and equipment includes assets held for sale with a net book
value of $39,439 and $35,539 at December 31, 1994 and 1993, respectively.
At December 31, 1994 and 1993, the Division has available restructuring
reserves of $12,423 and $7,829, respectively, to cover the estimated losses
to be incurred on the disposal of these assets (see Note 13).
F-52
<PAGE>
FOOD METAL & SPECIALTY DIVISION
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
Note 6 - Leases
The Division leases manufacturing, warehouse and office facilities and
certain equipment. Future minimum lease payments required under capital
leases and operating leases having initial or remaining noncancelable lease
terms in excess of one year are set forth below. Such future minimum lease
payments have not been reduced by sublease rentals to be received
subsequent to December 31, 1994 of $4,385 for operating leases:
Capital Operating
Leases Leases
1995 $ 154 $ 4,116
1996 154 3,603
1997 154 3,366
1998 154 2,769
1999 153 2,226
Thereafter 1,529 5,736
Total minimum rentals 2,298 $21,816
Less amount representing interest ( 1,135)
Present value of future minimum
payments 1,163
Less current portion ( 50)
Long-term obligations under
capital leases $1,113
Rental expense under operating leases for the years ended December 31,
1994, 1993 and 1992 was as follows:
1994 1993 1992
Gross rental expense $5,568 $6,418 $4,597
Less sublease rental income 652 865 419
$4,916 $5,553 $4,178
F-53
<PAGE>
FOOD METAL & SPECIALTY DIVISION
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
Note 7 - Income Taxes
The income tax benefit (provision) for the years ended December 31, 1994,
1993 and 1992 was as follows:
1994 1993 1992
Current income taxes:
Federal $ 6,299 $34,376 $16,898
State 1,149 6,270 3,082
7,448 40,646 19,980
Deferred income taxes 2,356 ( 27,507) ( 4,565)
$ 9,804 $13,139 $15,415
The provision for taxes on income differed from the U.S. statutory rate for
the years ended December 31, 1994, 1993 and 1992 for the following reasons:
1994 1993 1992
Statutory tax rate 35.0% 35.0% 35.0%
State and local taxes, net
of federal benefit 1.7 3.3 3.4
Goodwill amortization (19.5) ( 4.5) ( 3.9)
17.2% 33.8% 34.5%
Deferred tax assets (liabilities) were comprised of the following at
December 31, 1994 and 1993:
1994 1993
Deductible temporary differences:
Restructuring reserve $20,043 $32,034
Environmental reserve 9,229 9,393
Employee benefits 6,191 7,589
Workers' compensation 5,031 4,533
Inventories 3,122 2,750
Other 1,073 1,370
Total 44,689 57,669
Taxable temporary differences:
Property, plant and equipment ( 45,086) ( 61,166)
Net deferred tax liability ($ 397) ($ 3,497)
F-54
<PAGE>
FOOD METAL & SPECIALTY DIVISION
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
Note 8 - Financial Expenses, net
Financial expenses for the years ended December 31, 1994, 1993 and 1992
consist of the following:
1994 1993 1992
Interest expense:
Allocated from ANC
(Note 3) $ 2,986 $ 3,099 $10,698
Interest imputed on
obligations under
capital leases 75 123 135
Capitalized interest ( 582) ( 211) ( 732)
Total interest expense 2,479 3,011 10,101
Interest income ( 224) ( 446) ( 218)
Financial expenses, net $ 2,255 $ 2,565 $ 9,883
Note 9 - Accrued Liabilities
The components of accrued liabilities at December 31, 1994 and 1993 were as
follows:
1994 1993
Restructuring reserve (Note 13) $20,000 $37,000
Accrued payroll and employee benefits 18,219 22,278
Workers' compensation liability 12,932 11,652
Accrued taxes other than payroll 2,155 2,926
Payable to fixed asset vendors 1,903 2,692
Accrued quality claims - 1,900
Pension liabilities (Note 10) 542 668
Other 68 217
$55,819 $79,333
Note 10 - Pension Liabilities
The Division sponsors defined benefit retirement plans covering certain
hourly employees of the Division. The Division's remaining hourly
employees are included in ANC-sponsored defined benefit plans or multi-
employer union plans. The Division's salaried employees are included in
defined benefit and defined contribution plans which cover substantially
all of the salaried employees of ANC. The ANC-sponsored plans for salaried
F-55
<PAGE>
FOOD METAL & SPECIALTY DIVISION
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
employees provide benefits that are based on employees' years of service
and compensation during employment with the Division. The Division through
ANC makes contributions to the defined benefit plans at least equal to the
minimum funding requirements under the Employee Retirement Income Security
Act of 1974 (ERISA).
Net periodic cost (income) for defined benefit and defined contribution
plans for the years ended December 31, 1994, 1993 and 1992 was as follows:
1994 1993 1992
Division-sponsored hourly
plans ($ 340) $ 184 $ 370
ANC-sponsored plans:
Active hourly employees 4,558 7,279 8,222
Active salaried employees 2,865 3,267 2,894
Retired hourly employees 2,075 7,635 7,191
Retired salaried employees ( 995) ( 419) ( 542)
Multi-employer union plans 148 169 200
$ 8,311 $18,115 $18,335
Net periodic pension cost (income) for the Division-sponsored hourly plans
for 1994, 1993 and 1992 included the following components:
1994 1993 1992
Service cost - benefits
earned during the period $ 286 $ 350 $ 429
Interest cost on projected
benefit obligation 722 835 886
Actual return on assets -
loss (gain) 272 ( 1,795) ( 544)
Net amortization and deferral ( 1,620) 794 ( 401)
Net periodic pension cost
(income) ($ 340) $ 184 $ 370
Pension expense for active employees of the Division participating in the
ANC-sponsored plans was allocated based on an actuarial valuation. Pension
expense (income) for the Division's retirees participating in ANC-sponsored
plans was based on a pro-rata allocation of active Division participants to
total actives in each ANC-sponsored plan.
F-56
<PAGE>
FOOD METAL & SPECIALTY DIVISION
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
For the years 1992 through 1994, the discount rate used to determine the
actuarial present value of the projected benefit obligation was 8.0%, the
expected rate of return on plan assets was 10.0%, and the discount rate
used to determine the interest cost on the projected benefit obligation was
8.0%. The expected increase in future salaries for those plans using
future compensation assumptions ranged from 4.0% to 6.9% for 1994 and 6.0%
to 8.9% for 1993 and 1992.
All amortization is based upon the average remaining service period of
covered employees except for unrecognized prior service costs for benefit
improvements negotiated during the current period which are amortized over
six or ten years (twice the contract period).
The following table sets forth the funded status and amounts recognized for
the Division-sponsored hourly plans in the balance sheets at December 31,
1994 and 1993:
1 9 9 4 1 9 9 3
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
Actuarial present value of
benefit obligations:
Vested benefits $ 4,985 $ 3,434 $ 5,449 $ 2,576
Nonvested benefits 818 - 927 -
Accumulated benefit obligation 5,803 3,434 6,376 2,576
Excess of projected benefit
obligation over accumulated
benefit obligation 427 - 2,324 -
Projected benefit obligation 6,230 3,434 8,700 2,576
Plan assets at fair value 8,724 2,369 10,118 1,674
Funded status 2,494 ( 1,065) 1,418 ( 902)
Unrecognized prior service cost 3 - 5 -
Unrecognized net (gain) loss ( 1,319) 708 ( 643) 189
Additional minimum liability - ( 818) - ( 403)
Accrued pension asset
(liability) recognized in
the balance sheets $ 1,178 ($ 1,175) $ 780 ($ 1,116)
F-57
<PAGE>
FOOD METAL & SPECIALTY DIVISION
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
The plans' assets are held by several master trusts created for collective
investment of plans' funds. At December 31, 1994 and 1993, assets held by
the master trusts consisted primarily of common and preferred stocks,
corporate bonds, U.S. government obligations, pooled funds, real estate and
short-term investments.
At December 31, 1994 and 1993, equity adjustments of $500 and $246,
respectively, (net of taxes of $318 and $157, respectively) had been
recorded, representing the excess of the additional minimum pension
liability over the related unrecognized prior service cost for the
Division-sponsored plans.
The projected benefit obligation for the Division's active hourly and
salaried employees included in the ANC-sponsored defined benefit plans,
based on actuarial valuations, was approximately $102,000 at December 31,
1994 and $130,000 at December 31, 1993. Such obligations are not included
in the accompanying balance sheets.
Note 11 - Postretirement Benefits Other than Pensions
ANC sponsors healthcare and life insurance benefit plans for substantially
all of the Division's hourly and salaried employees and their dependents.
Certain of the plans require retiree contributions. The Division also
participates in several multi-employer union plans which provide
postretirement health care benefits to certain hourly employees.
The net postretirement benefit expense for active employees is based on an
actuarial valuation. For purposes of these financial statements, the net
postretirement benefit expense for retired employees of the Division
participating in the ANC-sponsored plans was computed based on a pro-rata
allocation of the number of Division employees that retired between 1989
and 1994 compared to the total number of employees covered by the plans who
retired during the same time period. This allocation method assumes that
the percentage of Division employees who retired prior to 1989, compared to
all employees who retired prior to 1989, approximates the percentage
calculated above. Management believes that this method of allocation is
reasonable. Total postretirement benefit expense for retired employees of
ANC participating in the ANC-sponsored plans was determined by actuarial
valuation.
F-58
<PAGE>
FOOD METAL & SPECIALTY DIVISION
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
The net postretirement benefit expense for 1994, 1993 and 1992 included the
following:
1994 1993 1992
In accordance with SFAS 106:
Allocated portion of service and
interest cost for the Division's
active employees participating
in ANC-sponsored plans:
Active hourly employees $ 2,885 $ 2,642
Active salaried employees 990 895
Allocated portion of interest cost
for the Division's retired
employees participating in
ANC-sponsored plans:
Retired hourly employees 28,034 28,553
Retired salaried employees 4,830 5,026
36,739 37,116
Prior to adoption of SFAS 106:
Payments for employees retired
subsequent to the acquisition
by Pechiney Corporation $15,956
Division contributions to hourly
multi-employer union plans 291 240 356
Net postretirement benefit expense $37,030 $37,356 $16,312
These benefits are funded from current Division cash flows as claims are
paid.
The postretirement benefit obligation for active employees of the Division
included in ANC-sponsored plans, which was approximately $28,000 and
$25,500 for hourly employees and $8,900 and $8,000 for salaried employees
at December 31, 1994 and 1993, respectively, as determined by actuarial
valuation, is not reflected in the accompanying balance sheets. The
postretirement benefit obligation for retired hourly and salaried employees
of the Division are also not included in the accompanying balance sheets.
A discount rate of 8% was used for determining obligations and interest
costs.
F-59
<PAGE>
FOOD METAL & SPECIALTY DIVISION
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
The following table shows the other assumptions used to develop the
accumulated postretirement benefit obligation and the net post-retirement
benefit expense in 1994 and 1993.
Managed
Under Age Care Under Over Age
65 Age 65 65
Current year health care trend rate 10% 8% 8%
Ultimate trend rate 6% 6% 5%
Year ultimate trend rate is achieved 2001 2001 2001
A one percentage point increase in the assumed health care cost trend rates
would increase the postretirement benefit expense for the Division's active
and retired employees participating in the ANC-sponsored plans by
approximately $2,600 for the year ended December 31, 1994.
Note 12 - Other Long-Term Liabilities
The components of other long-term liabilities at December 31, 1994 and 1993
were as follows:
1994 1993
Restructuring reserve (Note 13) $32,725 $45,351
Environmental reserve (Note 15) 23,726 24,147
Accrued employee benefits 3,813 2,808
Deferred incentive compensation 762 746
$61,026 $73,052
F-60
<PAGE>
FOOD METAL & SPECIALTY DIVISION
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
Note 13 - Restructuring
The Division has implemented a restructuring program to close certain
plants, modify plant operations and consolidate and transfer production
processes between locations. As a result of the restructuring program,
nine plants have been closed or reorganized since 1991 resulting in the
reduction of approximately 1,100 employees through December 31, 1994. The
Division recorded a restructuring provision in June, 1992 of $4,588 which
represented the loss incurred on the sale of property of a closed facility.
In December, 1994, the Division recorded an additional provision of $10,100
for two plants still in the process of being closed or reorganized which
will result in the elimination of approximately 70 additional positions by
the end of 1995.
The following table sets forth the activity in the restructuring reserve
for 1994 and 1993 and the reserve balances at December 31, 1994 and 1993
which are included in accrued liabilities and other long-term liabilities
in the accompanying balance sheets.
Equipment
Standby
and Writedown
Employee Project of Sales
Costs Costs Assets Proceeds Total
Balance at 12/31/92 $87,514 $31,101 $38,264 ($29,685) $127,194
1993 Activity (31,780) (12,313) ( 2,725) 1,975 ( 44,843)
Balance at 12/31/93 55,734 18,788 35,539 ( 27,710) 82,351
1994 Provision 4,310 150 13,550 ( 7,910) 10,100
1994 Activity (31,183) ( 7,497) ( 9,650) 8,604 ( 39,726)
Balance at 12/31/94 $28,861 $11,441 $39,439 ($27,016) $ 52,725
Employee costs primarily include employee separation costs to be incurred
upon plant closures, such as severance and unemployment benefits to be paid
to terminated employees and pension and retiree medical benefits based on
actuarial valuation.
Equipment standby and project costs include costs associated with the
modification of certain facilities, transferring equipment between
locations and the ongoing costs of maintaining certain plants and equipment
from the expected closing date to the estimated sale date.
F-61
<PAGE>
FOOD METAL & SPECIALTY DIVISION
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
As a result of closing certain facilities, the restructuring reserve
includes a provision to record any excess assets at their estimated
realizable values. Anticipated proceeds from the sales of certain
facilities and excess machinery and equipment have been used to offset the
total costs associated with the restructuring program.
Substantially all of these costs will be incurred over the next three
years.
Note 14 - Asset Writedowns
In 1994, the Division recorded a write down of various assets aggregating
$7,110 due to the technological obsolescence of machinery and equipment
used in the production process and machinery and equipment which was
purchased for the manufacture of a new product which was unsuccessful. The
writedown has been included in Other, net in the accompanying statements of
operations.
Note 15 - Contingencies
The Division is involved in litigation and in administrative proceedings
and investigations in various jurisdictions. A number of such matters
involve the Division, ANC and other parties related to environmental
remediation costs.
It is the Division's policy to accrue environmental cleanup costs when it
is probable that a liability has been incurred and an amount is reasonably
estimable. As assessments and cleanups proceed, these liabilities are
reviewed periodically and adjusted as additional information becomes
available. The liabilities can change substantially due to such factors as
additional information on the nature or extent of contamination, methods of
remediation required, and other actions by governmental agencies or private
parties.
At December 31, 1994, the Division has recorded an environmental reserve of
$23,726 which includes $737 for plant locations that are currently in
operation. The remaining reserve of $22,989 includes plant locations which
have been closed and environmental sites that are located somewhere other
than a plant location (landfills, solvent recovery sites, dump sites,
etc.). The majority of these costs are expected to be paid out within the
next 10 years, however, certain costs could be incurred for up to 30 years.
F-62
<PAGE>
FOOD METAL & SPECIALTY DIVISION
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
While the Division's liability, if any, with respect to all pending suits
and claims cannot be determined at this time, it is the opinion of
management that the outcome of any such matters, and all of them combined,
will not have a material adverse effect on the Division's financial
position or results of operations.
Note 16 - Major Customers
The Division had gross sales in excess of 10% to one customer in 1994 and
1993 amounting to approximately $63,900 and $62,000, respectively.
Note 17 - Subsequent Event
On August 1, 1995, Silgan Containers Corporation ("Silgan") acquired from
ANC substantially all of the net operating assets of the Division for cash
of approximately $336,300. The purchase agreement specifies that certain
additional assets will be sold to Silgan upon completion of a restructuring
project at one of the operating plants, but no later than December 31,
1996. Upon completion of this transaction, ANC will no longer actively
sell products in the food metal & specialty markets.
F-63
<PAGE>
FOOD METAL & SPECIALTY DIVISION
BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
June 30, 1995 June 30, 1994
ASSETS
CURRENT ASSETS:
Cash $ 6 $ 7
Accounts receivable, less allowances
of $465 in 1995 and $380 in 1994 74,681 73,445
Inventories 160,574 141,836
Deferred income taxes 18,928 23,197
Other 3,331 4,791
TOTAL CURRENT ASSETS 257,520 243,276
PROPERTY, PLANT AND EQUIPMENT, net 191,060 218,770
GOODWILL, less accumulated amortization
of $58,856 in 1995 and $27,550 in 1994 144,211 175,517
OTHER ASSETS 2,145 4,559
TOTAL ASSETS $594,936 $642,122
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable $ 71,223 $ 77,385
Accrued liabilities 46,769 62,689
Long-term obligations under capital leases
to be paid within one year 53 53
TOTAL CURRENT LIABILITIES 118,045 140,127
LONG-TERM LIABILITIES:
Long-term obligations under capital leases 1,086 1,138
Deferred income taxes 17,061 18,773
Other 61,030 73,389
TOTAL LONG-TERM LIABILITIES 79,177 93,300
COMMITMENTS AND CONTINGENCIES - -
EQUITY:
Equity adjustment for minimum pension
liability ( 500) ( 246)
Investments by and advances from ANC 398,214 408,941
TOTAL EQUITY 397,714 408,695
TOTAL LIABILITIES AND EQUITY $594,936 $642,122
See accompanying notes to financial statements.
F-64
<PAGE>
FOOD METAL & SPECIALTY DIVISION
STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands)
Six Months Ended June 30,
1995 1994
NET SALES $245,052 $256,343
OPERATING COSTS AND EXPENSES:
Cost of goods sold (excluding
depreciation and amortization) 205,307 220,556
Depreciation and amortization of
property, plant and equipment 8,473 10,526
Selling, general and administrative
expenses 13,314 14,331
Research and development expenses 1,979 2,184
Net postretirement benefit expense 17,974 18,484
Amortization of goodwill 2,152 2,505
Financial expense, net 6,258 1,116
Other, net 142 96
255,599 269,798
LOSS BEFORE TAXES AND CUMULATIVE
EFFECT OF CHANGES IN ACCOUNTING
PRINCIPLES ( 10,547) ( 13,455)
BENEFIT (PROVISION) FOR INCOME TAXES:
Current 991 ( 3,090)
Deferred 2,265 7,340
3,256 4,250
LOSS BEFORE CUMULATIVE EFFECT OF
CHANGES IN ACCOUNTING PRINCIPLES ( 7,291) ( 9,205)
CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES ( 914)
NET LOSS ($ 7,291) ($ 10,119)
See accompanying notes to financial statements.
F-65
<PAGE>
FOOD METAL & SPECIALTY DIVISION
STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Six Months Ended June 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($ 7,291) ($ 10,119)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Cumulative effect of changes in
accounting principles 914
Depreciation and amortization 10,625 13,031
Benefit for deferred income taxes ( 2,265) ( 7,340)
Other adjustments to net loss 39 343
Changes in assets and liabilities:
Increase in accounts receivable ( 29,044) ( 32,465)
Increase in inventories ( 39,626) ( 41,076)
Decrease (increase) in other
current assets 5,631 ( 8,130)
Decrease in other assets 268 6,760
Decrease in accounts payable
and other liabilities ( 31,852) ( 22,559)
NET CASH USED IN OPERATING
ACTIVITIES ( 93,515) ( 100,641)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ( 2,993) ( 4,238)
Proceeds from sale of property, plant
and equipment 1,176 9,033
Transfer of property, plant and
equipment to other ANC business units 9,846 9,856
NET CASH PROVIDED FROM INVESTING
ACTIVITIES 8,029 14,651
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of obligations under capital
leases ( 24) ( 59)
Increase in advances from ANC 85,509 86,048
NET CASH PROVIDED FROM FINANCING
ACTIVITIES 85,485 85,989
NET DECREASE IN CASH ( 1) ( 1)
CASH, beginning of period 7 8
CASH, end of period $ 6 $ 7
See accompanying notes to financial statements.
F-66
<PAGE>
FOOD METAL & SPECIALTY DIVISION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Financial Statements
Results of operations for any interim period are not necessarily indicative
of results of any other periods or for the year. The financial statements
as of June 30, 1995 and 1994 and for the six month periods then ended are
unaudited, but in the opinion of management include all adjustments
necessary for a fair presentation of results for such periods. These
financial statements should be read in conjunction with the audited
financial statements and related notes for the three years ended December
31, 1994.
Note 2 - Inventories
Inventories at June 30, 1995 and 1994 consist of the following:
1995 1994
Raw materials $ 25,180 $ 25,469
Work-in-process 774 813
Finished goods 124,466 104,771
Machine spare parts 10,154 10,783
$160,574 $141,836
Note 3 - Subsequent Event
On August 1, 1995, Silgan Containers Corporation ("Silgan") acquired from
ANC substantially all of the net operating assets of the Division for cash
of approximately $336,300. The purchase agreement specifies that certain
additional assets will be sold to Silgan upon completion of a restructuring
project at one of the operating plants, but no later than December 31,
1996. Upon completion of this transaction, ANC will no longer actively
sell products in the food metal and specialty markets.
F-67
<PAGE>
SILGAN CORPORATION
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
AND NARRATIVE DISCLOSURE
(REFLECTING THE ACQUISITION OF AMERICAN NATIONAL CAN COMPANY'S
FOOD METAL & SPECIALTY DIVISION)
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
Introductory Note
Set forth below is the Company's unaudited pro forma condensed statements
of operations for the year ended December 31, 1995 and the three months
ended March 31, 1995. The unaudited pro forma results of operations of the
Company for the twelve months ended December 31, 1995 and the three months
ended March 31, 1995 include the historical results of the Company and the
Food Metal & Specialty business of American National Can Company ("AN Can")
for such periods and give effect to certain pro forma adjustments. The pro
forma adjustments made to the historical results of operations reflect the
effect of purchase accounting adjustments based upon preliminary appraisals
and valuations, the financing of the acquisition by the Company, the
refinancing of certain of the Company's debt obligations, and certain other
adjustments as if these events had occurred as of the beginning of 1995.
The unaudited pro forma condensed statements of operations of the Company
include adjustments for depreciation, goodwill amortization and interest
expense (including debt amortization) based upon the allocated cost of the
acquisition of AN Can and its related financing. In addition, pro forma
adjustments have been made to reflect manufacturing cost savings which will
be realized upon the combination of the Company's and ANC's can
manufacturing operations, as well as reduced SG&A expenditures which will
be realized from the planned integration of sales, administrative and
research functions of the Company and ANC.
As required, the Company has not given pro forma effect to the anticipated
benefits it will realize as a result of the planned rationalization of its
plant operations. The Company will not begin to realize these benefits
until late 1996.
The pro forma adjustments are based upon available information and upon
certain assumptions that the Company believes are reasonable. The final
purchase price allocation for the AN Can acquisition may differ what was
originally anticipated, although it is not expected that the final purchase
price allocation will differ materially. The pro forma financial data do
not purport to represent what the Company's financial position or results
of operations would actually have been had such transactions been completed
at the beginning of the periods presented, or to project Silgan's financial
position or results of operations at any future date or for any future
period.
F-68
<PAGE>
SILGAN CORPORATION
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(Dollars in thousands)
ANC Food
Metal & Pro Forma
Historical Specialty Adjustments Pro Forma
(a)
Net sales $1,101,905 $ 302,477 $ - $1,404,382
2,282 (b)
214 (c)
239 (d)
Cost of goods sold 970,491 266,156 ( 4,666)(e) 1,234,716
Gross profit 131,414 36,321 1,931 169,666
74 (b)
Selling, general and 39 (d)
administrative expenses 45,735 17,982 ( 7,584)(f) 56,246
Reduction in asset carrying
value 14,745 - -
14,745
Income from operations 70,934 18,339 9,402 98,675
Interest expense and other
related financing costs 52,462 7,476 6,404 (g)(h) 66,342
Income before income taxes 18,472 10,863 2,998 32,333
Income tax provision 8,700 4,023 1,577 (i) 14,300
Income before
extraordinary item (j) $ 9,772 $ 6,840 $ 1,421 $ 18,033
F-69
<PAGE>
SILGAN CORPORATION
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995
(Dollars in thousands)
ANC Food
Metal & Pro Forma
Historical Specialty Adjustments Pro Forma
(a)
Net sales $ 203,264 $ 108,604 $ - $ 311,868
699 (b)
122 (c)
(6,296)(d)
Cost of goods sold 174,265 102,351 ( 2,000)(e) 269,141
Gross profit 28,999 6,253 7,475 42,727
107 (b)
Selling, general and ( 966)(d)
administrative expenses 9,399 9,297 (3,250)(f) 14,587
Income (loss) from
operations 19,600 (3,044) 11,584 28,140
Interest expense and other
related financing costs 9,415 3,031 4,394 (g)(h) 16,840
Income (loss) before
income taxes 10,185 ( 6,075) 7,190 11,300
Income tax provision
(benefit) 4,400 ( 2,353) 2,586 (i) 4,633
Income (loss) before
extraordinary item (j) $ 5,785 $ ( 3,722) $ 4,604 $ 6,667
F-70
<PAGE>
SILGAN CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
AND THREE MONTHS ENDED MARCH 31, 1995
(a) Restated ANC Food Metal & Specialty Business financial information to
conform to Silgan's presentation.
(b) Increased depreciation charge from historical amount based upon the
estimated fair values of property, plant and equipment acquired with
estimated useful life of 25 years for buildings and improvements and
5-11 years for machinery and equipment.
(c) Decreased charge for amortization of goodwill from historical amount
to reflect amortization of estimated excess fair value over net book
value of assets acquired over 40-year period.
(d) Elimination of pension and post-retirement medical expense for retired
AN Can employees because related obligations were not assumed by
Silgan.
(e) Decreased cost of goods sold for benefits expected from the
integration of ANC Food Metal & Specialty Business with Silgan's
existing can manufacturing operation.
(f) Decrease in the cost of administrative support services which will be
realized as a result of the integration of the ANC Food Metal &
Specialty Business and Silgan's sales, administrative and research
functions.
(g) Estimated increase in interest expense due to additional bank
borrowings of approximately $420 million at rates ranging from 8.38%
to 8.63%, which approximates the Company's current bank borrowing
rates, to finance the acquisition of AN Can and to fund the Company's
average working capital requirements plus the advance to Holdings for
the repurchase of $75.0 million of Holdings' 13 1/4% Senior Discount
Debentures.
(h) Amortization of deferred financing fees of $19.3 million on new debt
over six-year term less elimination of amortization of debt costs on
retired debt.
(i) Adjustment for estimated effective income tax rate as calculated in
accordance with SFAS No. 109 applied to pro forma income before income
taxes.
(j) The pro forma statement of operations does not reflect the
extraordinary charge resulting from the write-off of unamortized
deferred financing costs.
F-71
<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 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).
4.3 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).
II-1
<PAGE>
Exhibit
Number Description
- ------- -----------
4.4 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 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).
10.8 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).
10.9 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).
10.10 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).
10.11 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).
10.12 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).
10.13 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).
10.14 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).
10.15 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).
10.16 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).
10.17 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
II-3
<PAGE>
Exhibit
Number Description
- ------- -----------
Company's Registration Statement on Form S-1, dated January
11, 1988, Registration Statement No. 33-18719).
10.18 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).
10.19 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).
10.20 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).
10.21 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).
10.22 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).
10.23 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).
10.24 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).
10.25 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,
dated March 18, 1992, Registration Statement No. 33-46499)
(Portions of this Exhibit are subject to confidential
treatment pursuant to order of the Commission).
10.26 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,
II-4
<PAGE>
Exhibit
Number Description
- ------- ------------
dated January 11, 1988, Registration Statement No. 33-18719)
(Portions of this Exhibit are subject to confidential
treatment pursuant to order of the Commission).
10.27 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).
10.28 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).
10.29 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).
10.30 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).
10.31 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).
10.32 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).
10.33 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).
10.34 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 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).
10.35 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,
II-5
<PAGE>
Exhibit
Number Description
- ------- ------------
dated January 11, 1988, Registration Statement No. 33-18719)
(Portions of this Exhibit are subject to confidential
treatment pursuant to order of the Commission).
10.36 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).
10.37 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).
10.38 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).
10.39 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).
10.40 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).
10.41 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).
10.42 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).
10.43 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,
dated March 18, 1992, Registration Statement No. 33-46499)
(Portions of this Exhibit are subject to confidential
treatment pursuant to order of the Commission).
10.44 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,
II-6
<PAGE>
Exhibit
Number Description
- ------- -----------
dated January 11, 1988, Registration Statement No. 33-18719)
(Portions of this Exhibit are subject to confidential
treatment pursuant to order of the Commission).
10.45 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).
10.46 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).
10.47 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).
10.48 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).
10.49 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).
II-7
<PAGE>
Exhibit
Number Description
- ------- -----------
10.50 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).
10.51 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).
10.52 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).
10.53 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).
10.54 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).
10.55 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).
10.56 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).
10.57 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).
10.58 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).
II-8
<PAGE>
Exhibit
Number Description
- ------- -----------
10.59 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).
10.60 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).
10.61 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).
10.62 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).
10.63 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).
10.64 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).
10.65 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).
10.66 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
Post-Effective Amendment No. 6 to the Company's Registration
Statement on Form S-1, dated August 20, 1990, Registration
Statement No. 33-18719).
10.67 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).
II-9
<PAGE>
Exhibit
Number Description
- ------- -----------
10.68 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).
10.69 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).
10.70 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).
10.71 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).
10.72 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).
10.73 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).
10.74 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).
10.75 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).
10.76 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).
10.77 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).
II-10
<PAGE>
Exhibit
Number Description
- ------- -----------
10.78 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).
10.79 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).
10.80 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).
10.81 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).
10.82 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).
10.83 Silgan Holdings Inc. Third Amended and Restated 1989 Stock
Option Plan (incorporated by reference to Exhibit 10.84
filed with Holdings' Annual Report on Form 10-K for the year
ended December 31, 1995, Commission File No. 33- 28409).
10.84 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).
10.85 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).
10.86 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).
II-11
<PAGE>
Exhibit
Number Description
- ------- ------------
10.87 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).
10.88 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).
10.89 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).
10.90 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).
10.91 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).
10.92 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).
10.93 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).
10.94 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).
II-12
<PAGE>
Exhibit
Number Description
- ------- -----------
(Portions of this Exhibit are subject to an application for
confidential treatment filed with the Commission.)
10.95 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.)
10.96 Credit Agreement, dated as of August 1, 1995, among Silgan,
Containers, Plastics, the lenders from time to time party
thereto, Bankers Trust Company, as Administrative Agent and
as a Co-Arranger, and Bank of America Illinois, as
Documentation Agent and as a Co-Arranger (incorporated by
reference to Exhibit 2 filed with Holdings' Current Report
on Form 8-K, dated August 14, 1995, Commission File No.
33-28409).
10.97 Amended and Restated Holdings Guaranty, dated as of August
1, 1995, made by Holdings (incorporated by reference to
Exhibit 4 filed with Holdings' Current Report on Form 8-K,
dated August 14, 1995, Commission File No. 33-28409).
10.98 Amended and Restated Borrowers Guaranty, dated as of August
1, 1995, made by Silgan, Containers, Plastics,
California-Washington Can Corporation and SCCW Can
Corporation (incorporated by reference to Exhibit 3 filed
with Holdings' Current Report on Form 8-K, dated August 14,
1995, Commission File No. 33-28409).
10.99 Asset Purchase Agreement, dated as of June 2, 1995, between
ANC and Containers (incorporated by reference to Exhibit 1
filed with Holdings' Current Report on Form 8-K, dated
August 14, 1995, Commission File No. 33-28409).
*12.1 Computations of Ratio of Earnings to Fixed Charges for the
three months ended March 31, 1996 and 1995.
*12.2 Computations of Ratio of Earnings to Fixed Charges for the
years ended December 31, 1995, 1994, 1993, 1992 and 1991.
21 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21 filed with Silgan's Annual Report on Form 10-K
for the year ended December 31, 1995, Commission File No.
1-11200).
*23.1 Consent of Ernst & Young LLP.
*23.2 Consent of Price Waterhouse LLP.
*24 Power of Attorney (included on signature page).
II-13
<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-14
<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, 1995 and 1994....S-2
Condensed Statements of Operations for the years ended
December 31, 1995, 1994 and 1993......................S-3
Condensed Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993......................S-4
II. Schedules of Valuation and Qualifying Accounts for the
years ended
December 31, 1995, 1994 and 1993..........................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-15
<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 29, 1996.
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 29, 1996
- --------------------
(R. Philip Silver)
President, Co-Chief Executive
/s/ D. Greg Horrigan Officer and Director May 29, 1996
- --------------------
(D. Greg Horrigan)
<PAGE>
/s/ James S. Hoch Director May 29, 1996
- -----------------
(James S. Hoch)
/s/ Robert H. Niehaus Director May 29, 1996
- ---------------------
(Robert H. Niehaus)
Executive Vice President, Chief
Financial Officer and Treasurer
/s/ Harley Rankin, Jr. (Principal Financial Officer) May 29, 1996
- ----------------------
(Harley Rankin, Jr.)
Vice President, Controller and
Assistant Treasurer
/s/ Harold J. Rodriguez, Jr. (Principal Accounting Officer) May 29, 1996
- ----------------------------
(Harold J. Rodriguez, Jr.)
<PAGE>
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, 1995 and 1994, and for each of the
three years in the period ended December 31, 1995, and have issued our
report thereon dated March 8, 1996 (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, Connecticut
March 8, 1996
S-1
<PAGE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF SILGAN CORPORATION
CONDENSED BALANCE SHEETS
December 31, 1995 and 1994
(Dollars in thousands)
ASSETS
1995 1994
Current assets:
Cash and cash equivalents $ 29 $ 155
Notes receivable-subsidiaries 28,140 21,968
Interest receivable-subsidiaries 4,342 1,699
Other current assets 70 -
Total current assets 32,581 23,822
Investment in and other amounts due
from subsidiaries 26,181 70,947
Notes receivable-subsidiaries 553,682 286,640
Amount receivable from parent 59,771 1,244
Other assets 518 793
$672,733 $383,446
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of term loans $ 28,140 $ 21,968
Accrued interest payable 4,342 1,699
Accrued expenses 1,457 356
Total current liabilities 33,939 24,023
Long-term debt 549,610 282,568
Amounts payable to subsidiaries 14,890 11,148
Other long-term liabilities 3,838 2,362
Stockholder's equity:
Common stock - -
Additional paid-in capital 73,635 69,535
Retained earnings (deficit) (3,179) (6,190)
Total stockholder's equity 70,456 63,345
$672,733 $383,446
See Notes to Consolidated Financial Statements for Silgan Corporation
appearing elsewhere in this Registration Statement.
S-2
<PAGE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF SILGAN CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
For the years ended December 31, 1995, 1994 and 1993
(Dollars in thousands)
1995 1994 1993
Net sales $ - $ - $ -
Cost of goods sold - - -
Gross profit - - -
Selling, general and administrative
expenses 416 543 368
Loss from operations (416) (543) (368)
Equity in earnings (losses) of
consolidated subsidiaries 8,731 13,445 (7,570)
Other income (expense) (1,219) (651) 1,480
Interest expense and other related
financing costs (41,822) (30,039) (19,899)
Interest income-subsidiaries 41,699 29,841 23,940
Income (loss) before income taxes 6,973 12,053 (2,417)
Income tax provision - - -
Income (loss) before extraordinary
charges 6,973 12,053 (2,417)
Extraordinary charges relating to
early extinguishment of debt (167) - (130)
Net income (loss) $ 6,806 $12,053 $(2,547)
See Notes to Consolidated Financial Statements for Silgan Corporation
appearing elsewhere in this Registration Statement.
S-3
<PAGE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF SILGAN CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1995, 1994 and 1993
(Dollars in thousands)
1995 1994 1993
Cash flows from operating activities: $ 3,668 $ 7,005 $ 359
Cash flows from investing activities:
(Increase) decrease in notes
receivable-subsidiaries (273,214) 35,462 (117,515)
(Increase) in investment
in subsidiaries - (14,998) -
Cash dividends received from
subsidiaries 57,596 - -
Net cash provided (used) by
investing activities (215,618) 20,464 (117,515)
Cash flows from financing activities:
Proceeds from issuance of long-term
debt 450,000 - 140,000
Repayments of long-term debt (176,786) (20,464) (37,985)
Capital contribution by Parent - - 15,000
Payments to former shareholders (3,795) (6,911) -
Advance to Parent (57,596) - -
Net cash provided (used) by
financing activities 211,823 (27,375) 117,015
Net increase (decrease) in cash
and cash equivalents (127) 94 (141)
Cash and cash equivalents at
the beginning of year 155 61 202
Cash and cash equivalents at
end of year $ 28 $ 155 $ 61
See Notes to Consolidated Financial Statements for Silgan Corporation
appearing elsewhere in this Registration Statement.
S-4
<PAGE>
SCHEDULE II
SILGAN CORPORATION
SCHEDULES OF VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 1995, 1994 and 1993
(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, 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
For the year ended
December 31, 1995:
Allowance for
doubtful accounts
receivable $1,557 $ 295 $3,872 (2) $ 881 $4,843
(1) Uncollectible accounts written off, net of recoveries.
(2) Represents allowance for doubtful accounts receivable assumed upon the
acquisition of AN Can.
S-5
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit
- ----------- -------
12.1 Computations of Ratio of Earnings to Fixed Charges for the
three months ended March 31, 1996 and 1995.
12.2 Computations of Ratio of Earnings to Fixed Charges for the
years ended December 31, 1995, 1994, 1993, 1992 and 1991 .
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Price Waterhouse 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, 1996 March 31, 1995
-------------- --------------
(Dollars in Thousands)
<S> <C> <C>
Income before income taxes....................... $ 8,077 $10,185
Add:
Interest expense and amortization
of debt expense....................... 15,823 9,415
Rental expense representative of
the interest factor................... 1,120 660
------- -------
Income as adjusted................... $25,020 $20,260
======= =======
Fixed charges:
Interest expense and amortization
of debt expense...................... $15,823 $ 9,415
Rental expense representative of
the interest factor.................. 1,120 660
------- -------
Total fixed charges..................... $16,943 $10,075
======= =======
Ratio of earnings to fixed charges .............. 1.48 2.01
======= =======
</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,
--------------------------------------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Income before income taxes................... $18,473 $23,053 $14,545 $15,877 $10,822
Add:
Interest expense and amortization
of debt expense..................... 52,462 36,142 27,928 26,916 28,981
Rental expense representative of
the interest factor................. 3,607 3,047 2,666 2,659 2,431
------ ------ ------- ------ ------
Income as adjusted.................. $74,542 $62,242 $45,139 $45,452 $42,234
======= ======= ======= ======= =======
Fixed Charges:
Interest expense and amortization
of debt expense..................... $52,462 $36,142 $27,928 $26,916 $28,981
Rental expense representative of
the interest factor................. 3,607 3,047 2,666 2,659 2,431
------ ------ ------ ------ ------
Total fixed charges................. $56,069 $39,189 $30,594 $29,575 $31,412
======= ======= ======= ======= =======
Ratio of earnings to fixed charges........... 1.33 1.59 1.48 1.54 1.34
</TABLE>
EXHIBIT 23.1
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 18, 1996 with
respect to the consolidated financial statements of Silgan Corporation included
in the Post-Effective Amendment No. 7 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 29, 1996
EXHIBIT 23.2
Consent of Independent Accountants
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 7 to the Registration Statement of Silgan
Corporation on Form S-1 of our report dated September 14, 1995 relating to the
financial statements of the Food Metal & Specialty Division of American National
Can Company, as of December 31, 1994 and 1993 and for each of the three years in
the period ended December 31, 1994, which appears in such Prospectus. We also
consent to the reference to us under the heading "Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
May 28, 1996
