Registration No. 33-47632
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
POST-EFFECTIVE AMENDMENT NO. 7
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
SILGAN HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Delaware 3441;3085 06-1269834
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification Number)
organization) Code Numbers)
4 Landmark Square
Stamford, CT 06901
(203) 975-7110
(Address, including zip code, and telephone
number, including area code, of registrant's
principal executive offices)
Harley Rankin, Jr.
Silgan Holdings Inc.
4 Landmark Square
Stamford, CT 06901
(203) 975-7110
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------------
Copy to:
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 HOLDINGS INC.
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
Debentures
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 the Debentures;
Description of Holdings
Common Stock; Description of
Certain Silgan Indebtedness;
Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................. Not Applicable
<PAGE>
PROSPECTUS
$213,340,000
Silgan Holdings Inc.
13-1/4% SENIOR DISCOUNT DEBENTURES DUE 2002
--------------------
No interest on the 13-1/4% Senior Discount Debentures due
2002 (the "Debentures") will accrue prior to June 15, 1996.
Thereafter, interest on the Debentures will be payable on June
15 and December 15, commencing December 15, 1996.
---------------------
The Debentures were sold at a substantial discount from their principal
amounts. See "Certain Federal Income Tax Considerations" for a discussion of the
federal income tax treatment of the Debentures under the original issue discount
rules. Interest on the Debentures will be payable in cash at a rate of 13-1/4%
per annum from and after June 15, 1996.
The Debentures may be redeemed at any time at the option of Silgan
Holdings Inc. ("Holdings," and together with its subsidiaries, the "Company"),
in whole or in part, at 100% of their principal amount plus accrued interest. In
1995, $61.66 million aggregate principal amount of the Debentures were
repurchased by the Company and cancelled. On June 15, 1996, $17.4 million
aggregate principal amount of the Debentures will be redeemed by Holdings.
Additionally, the Company is actively considering redeeming a portion of the
outstanding Debentures with lower cost indebtedness. The Company is also
considering refinancing all or a portion of the remaining Debentures through
other debt 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 the Company's agreements in respect
of its indebtedness.
An aggregate principal amount of $275 million of the Debentures were
originally sold by Holdings to the public in 1992 as part of a plan of the
Company to refinance a substantial portion of its indebtedness (the
"Refinancing"). The Debentures are pari passu with other unsecured
unsubordinated indebtedness of Holdings. Because Holdings is a holding company
that conducts all of its business through its subsidiaries, all existing and
future liabilities of Holdings' subsidiaries will be effectively senior to the
Debentures. As of March 31, 1996, Silgan Corporation, a wholly owned subsidiary
of Holdings ("Silgan"), and its subsidiaries had approximately $911.8 million of
indebtedness and other liabilities effectively senior to the Debentures, all of
which constituted Senior Indebtedness (as defined in "Description of the
Debentures--Subordination Upon Certain Events") and approximately $502.0 million
of which was secured by the assets of the Company. The indenture relating to the
Debentures (the "Indenture") permits, subject to certain limitations contained
therein, the incurrence by the Company of a substantial amount of additional
indebtedness, including Senior Indebtedness. See "Certain Risk Factors--Holding
Company Structure and Subordination Upon Certain Events," "--Ability of the
Company to Incur Additional Indebtedness" and "Description of the Debentures."
The ability of Holdings to pay interest in cash on the Debentures may
depend upon the ability of Silgan to pay dividends, or otherwise loan, advance
or transfer funds, to Holdings. See "Certain Risk Factors--Ability of Silgan to
Provide Financial Support to Holdings." Although Morgan Stanley & Co.
Incorporated ("Morgan Stanley") currently makes a market in the Debentures, 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 the
Debentures 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 Debentures."
--------------------
SEE "CERTAIN RISK FACTORS" FOR INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus is to be used by Morgan Stanley & Co.
Incorporated in connection with offers and sales in
market-making transactions at negotiated prices relating to
prevailing market prices at the time of sale. Morgan Stanley & Co.
Incorporated may act as principal or agent in such transactions.
May 29, 1996
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<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 Holdings or Morgan Stanley. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy by any person in any jurisdiction in which it is unlawful for such person to
make such an offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall imply under any circumstances that the information
contained herein is correct as of any date subsequent to the date hereof.
--------------------
TABLE OF CONTENTS
Page
----
Additional Information................................ 3
Prospectus Summary.................................... 4
Certain Risk Factors.................................. 11
The Company........................................... 18
Capitalization........................................ 20
Selected Financial Data............................... 21
Management's Discussion and Analysis of
Financial Condition and Results of Operations........ 25
Business.............................................. 39
Management............................................ 51
Securities Ownership of Certain Beneficial
Owners and Management............................... 60
Certain Transactions................................. 61
Description of the Debentures........................ 63
Description of Holdings Common Stock................. 91
Description of Certain Silgan Indebtedness........... 97
Certain Federal Income Tax Considerations............ 106
Market-Making Activities of Morgan Stanley........... 111
Legal Matters......................................... 112
Experts............................................... 112
Index to Consolidated Financial Statements............ F-1
--------------------
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<PAGE>
ADDITIONAL INFORMATION
Holdings 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 Debentures 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 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 Holdings by requesting such copies by mail or telephone
from Harold J. Rodriguez, Jr., Silgan Holdings Inc., 4 Landmark Square,
Stamford, CT 06901, telephone number (203) 975-7110.
Holdings 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 Holdings 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.
The Indenture requires Holdings to file with the Commission 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 Debentures are outstanding.
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<PAGE>
PROSPECTUS SUMMARY
This Prospectus Summary is qualified in its entirety by the more
detailed information and financial statements and notes thereto that appear
elsewhere in this Prospectus. Prospective investors should carefully consider
the factors set forth under the caption "Certain Risk Factors."
THE COMPANY
The Company is a major manufacturer of a broad range of steel and
aluminum containers for human and pet food. The Company also manufactures custom
designed plastic containers for health, personal care, food, beverage,
pharmaceutical and household chemical products in North America. In 1995, the
Company had net sales of approximately $1.1 billion.
On August 1, 1995, Silgan'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. Silgan 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 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%
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<PAGE>
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 Silgan'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 DEBENTURES
Original Issue.......... $275,000,000 principal amount ($165,434,500
proceeds amount) of 13-1/4% Senior Discount
Debentures due 2002, originally issued on June 29,
1992. As of May 15, 1996, there was $213,340,000
face amount of the Debentures outstanding. On June
15, 1996, Holdings will redeem $17.4 million
principal amount of the Debentures. See
"Description of the Debentures."
Maturity................ December 15, 2002.
Interest................ The Debentures were offered at a substantial
discount from their principal amount, and there
will not be any payment of interest on the
Debentures prior to December 15, 1996. For a
discussion of the federal income tax treatment of
the Debentures under the original issue discount
rules, see "Certain Federal Income Tax
Considerations." From and after June 15, 1996, the
Debentures bear interest, which is payable in cash,
at a rate of 13-1/4% per annum.
Interest Payment
Dates................... June 15 and December 15, commencing December 15,
1996.
Optional Redemption..... The Debentures may be redeemed 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.
Change of Control....... In the event of a Change of Control (as defined
under "Description of the Debentures--Certain
Definitions"), each holder of Debentures may
require Holdings to repurchase such Debentures at
101% of the Accreted Value (as defined under
"Description of the Debentures--Certain
Definitions") thereof plus accrued interest (if
any).
Ranking................. The Debentures are senior indebtedness of Holdings,
ranking pari passu with Holdings' obligations under
all other senior indebtedness and senior in right
of payment to all existing and future subordinated
indebtedness of Holdings. However, since all of the
operations of Holdings are conducted through its
subsidiaries, all existing and future liabilities
of its subsidiaries are effectively senior in right
of payment to the Debentures. As of March 31, 1996,
Silgan and its subsidiaries had approximately
$911.8 million of indebtedness and other
liabilities effectively senior to the Debentures.
Ranking in the
Event of a Holdings
Merger.................. In the event of a Holdings Merger (as defined under
"Description of the Debentures--Certain
Definitions") or similar transaction between
Holdings and Silgan, or upon the assumption by
Silgan of the Debentures, the Debentures will be
subordinated in right of payment
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<PAGE>
to all Senior Indebtedness of the Successor
Corporation (as defined under "Description of the
Debentures--Subordination Upon Certain Events")
existing on the date of such transaction or assumed
or incurred thereafter. If a Holdings Merger or
similar transaction between Holdings and Silgan had
occurred on March 31, 1996 or if Silgan had assumed
the Debentures at such date, there would have been
$637.0 million of indebtedness that would have
constituted Senior Indebtedness and approximately
$911.8 million of indebtedness and other
liabilities effectively senior to the Debentures.
See "Certain Risk Factors--Holding Company
Structure and Subordination Upon Certain Events"
and "Description of the Debentures--Subordination
Upon Certain Events."
Covenants............... The Indenture contains certain covenants that,
among other things, direct the application of
proceeds from certain asset sales and limit the
ability of Holdings and its subsidiaries to incur
indebtedness, pay dividends or make other
distributions on its capital stock or purchase,
redeem or retire shares of capital stock of
Holdings or any of its subsidiaries, make
prepayments of certain indebtedness, and make loans
or investments in entities other than Restricted
Subsidiaries (as defined under "Description of the
Debentures--Certain Definitions"), enter into
transactions with affiliates, engage in mergers or
consolidations, and, with respect to Restricted
Subsidiaries (as defined under "Description of the
Debentures--Certain Definitions"), issue stock. See
"Description of the Debentures--Covenants."
CERTAIN RISK FACTORS
For a discussion of certain factors that should be considered in
evaluating an investment in the Debentures, see "Certain Risk Factors."
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<PAGE>
SUMMARY FINANCIAL DATA
The following summary historical consolidated financial data of Holdings
were derived from, and should be read in conjunction with, the historical
financial statements of Holdings that appear elsewhere in this Prospectus. The
following summary historical consolidated financial data of Silgan were derived
from, and should be read in conjunction with, the historical financial
statements of Silgan.
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
(Dollars in thousands)
(Unaudited)
Operating Data:
Net sales........................................... $279,860 $203,264
Cost of goods sold.................................. 243,314 174,265
------- -------
Gross profit........................................ 36,546 28,999
Selling, general and administrative expenses........ 12,830 10,168
------- -------
Income from operations.............................. 23,716 18,831
Interest expense and other related financing costs.. 22,573 17,251
------- -------
Income before income taxes.......................... 1,143 1,580
Income tax provision................................ 1,000 3,000
------ ------
Net income (loss)................................... $ 143 $ (1,420)
======= ========
Ratio of earnings to fixed charges (a).............. 1.05 1.09
Balance Sheet Data (at end of period):
Fixed assets........................................ $491,177 $251,832
Total assets........................................ 942,754 534,489
Total long-term debt................................ 757,501 518,280
Common stockholders' deficiency..................... (179,661) (159,418)
Other Data:
EBDITA (b).......................................... $40,102 $ 28,033
EBDITA as a percentage of net sales................. 14.3% 13.8%
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............................... 46,848 37,997 32,495 32,809 33,733
Reduction in carrying value of assets..... 14,745 16,729 -- -- --
------- ------- ------- ------- ------
Income from operations.................... 69,821 58,358 41,799 42,258 39,293
Interest expense and other related
financing costs........................ 80,710 65,789 54,265 57,091 55,996
Minority interest expense................. -- -- -- 2,745 3,889
------- ------- ------- ------ -------
Loss before income taxes.................. (10,889) (7,431) (12,466) (17,578) (20,592)
Income tax provision...................... 5,100 5,600 1,900 2,200 --
------- ------ ------- -------- ------
Loss before extraordinary
charges and cumulative effect of
changes in accounting principles....... (15,989) (13,031) (14,366) (19,778) (20,592)
Extraordinary charges relating to
early extinguishment of debt........... (5,817) -- (1,341) (23,597) --
Cumulative effect of changes in
accounting principles <F7>............. -- -- (6,276) -- --
-------- -------- -------- ------- -------
Net loss.................................. $(21,806) $(13,031) $(21,983) $(43,375) $(20,592)
======== ======== ======== ======== ========
Deficiency of earnings available to cover
fixed charges and preferred stock
dividends <F1>......................... $10,889 $7,431 $12,466 $17,578 $20,592
Balance Sheet Data (at end of
period):
Fixed assets.............................. $487,301 $251,810 $290,395 $223,879 $230,501
Total assets.............................. 900,046 504,292 497,633 389,035 390,693
Total long-term debt...................... 750,873 510,763 505,718 383,232 315,461
Redeemable preferred stock of Silgan
(minority interest of Holdings)........ -- -- -- -- 27,878
Deficiency in stockholders' equity........ (179,804) (157,998) (144,967) (137,984) (94,609)
Other Data:
EBDITA <F2>............................... $132,428 $114,489 $76,095 $74,012 $72,141
EBDITA as a percentage of net sales....... 12.0% 13.3% 11.8% 11.7% 10.6%
Capital expenditures...................... $51,897 $ 29,184 $42,480 $23,447 $21,834
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Depreciation and amortization <F3>........ $45,388 $ 37,187 $33,818 $31,754 $32,848
Number of employees (at end of
period)<F8>............................ 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 and the
deficiency of earnings available to cover fixed charges, earnings consist
of income (loss) before income taxes plus fixed charges, excluding
capitalized interest, and fixed charges consist of interest, whether
expensed or capitalized, minority interest expense, 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 (including minority 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 $0.8 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 . For 1991, sales from the PET carbonated beverage
business were $33.4 million. See "Business--Company History."
<F7> During 1993, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 106, "Employers Accounting for Postretirement
Benefits Other than Pensions," SFAS No. 109, "Accounting for Income Taxes"
and SFAS No. 112, "Employers Accounting for Postemployment Benefits." The
Company did not elect to restate prior years' financial statements for any
of these pronouncements.
<F8> 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
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<PAGE>
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 Debentures.
Holding Company Structure and Subordination Upon Certain Events
Holdings is a holding company with no significant assets other than its
investment in and advances to Silgan. The operations of Holdings are conducted
principally through Silgan's operating subsidiaries, Containers and Plastics,
each of which is a wholly owned subsidiary of Silgan. Therefore, Holdings'
ability to pay interest on the Debentures when interest thereon becomes due and
payable and to pay the principal of the Debentures at maturity 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, costs 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 Silgan and its subsidiaries do not
guarantee the payment of principal of and interest on the Debentures, claims of
holders of the Debentures effectively will be subordinated to the claims of
creditors of Silgan and its subsidiaries, including claims of the lenders (the
"Banks") named in the credit agreement dated as of August 1, 1995 among Silgan
and certain of its subsidiaries, the Banks, Bankers Trust Company ("Bankers
Trust"), as Administrative Agent and Co-Arranger, and Bank of America Illinois
("Bank of America"), as Documentation Agent and Co-Arranger (the "Silgan Credit
Agreement"), which is guaranteed directly by all of the operating subsidiaries
of Silgan, claims of holders of Silgan's 11-3/4% Senior Subordinated Notes due
2002 (the "11-3/4% Notes") and claims of trade creditors, except to the extent
that Holdings may be a creditor with recognized claims against Silgan or such
subsidiaries. As a result, in the event of Silgan's insolvency, liquidation,
reorganization, dissolution or other winding up, or upon acceleration of certain
of Silgan's indebtedness, holders of Silgan's indebtedness (including the Banks
and the holders of the 11-3/4% Notes) must be paid in full before holders of the
Debentures may be paid. Although the Silgan Credit Agreement, the 11-3/4% Notes
and the Debentures impose certain limitations on Silgan's and its subsidiaries'
ability to incur additional indebtedness, the Indenture does not prohibit Silgan
and its subsidiaries from incurring additional indebtedness. See "Description of
Debentures--Covenants." At March 31, 1996, Silgan and its subsidiaries had
$911.8 million of indebtedness and other liabilities that were effectively
senior to the Debentures.
In the event of a Holdings Merger or any similar transaction between
Holdings and Silgan or the assumption by Silgan of the Debentures, the
Debentures will be subordinated in right of payment to all existing and future
Senior Indebtedness of the Successor Corporation, including indebtedness under
the Silgan Credit Agreement and the 11-3/4% Notes. Other than as set forth in
the previous sentence, the Debentures will be senior indebtedness of Holdings
ranking pari passu with other senior indebtedness of Holdings and senior in
right of payment to all future subordinated indebtedness of Holdings. Because of
such subordination, in the event of the Successor Corporation's bankruptcy,
insolvency, liquidation, reorganization, dissolution or other winding up, or
upon acceleration of certain indebtedness of the Successor Corporation, holders
of Senior Indebtedness must be paid in full before holders of the Debentures may
be paid. Although other instruments and agreements governing the indebtedness of
the Successor Corporation, including indebtedness under the Silgan Credit
Agreement and the 11-3/4% Notes, may impose certain limitations on the Successor
Corporation's ability to incur additional indebtedness (including Senior
Indebtedness), the Indenture does not prohibit the Successor Corporation from
incurring additional indebtedness
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(including Senior Indebtedness). As of March 31, 1996, Holdings had total
consolidated liabilities of approximately $1,122.4 million, including Silgan's
outstanding aggregate liabilities of approximately $637.0 million that
constituted Senior Indebtedness and indebtedness and other liabilities of
approximately $911.8 million that were effectively senior to the Debentures in
the event of a Holdings Merger or any similar transaction between Holdings and
Silgan or the assumption by Silgan of the Debentures. A Holdings Merger or any
similar transaction between Holdings and Silgan is not permitted under the
Silgan Credit Agreement so long as any of the Debentures are outstanding.
High Leverage; Stockholders' Deficiency
The Company is highly leveraged primarily as a result of the financing
of the acquisitions of its metal and plastic container businesses and as a
result of the sale by Holdings in 1989 of its Senior Reset Debentures due 2004
(the "Holdings Reset Debentures") in connection with the 1989 Mergers (as
defined in "Business--Company History") and the refinancing of the Holdings
Reset Debentures and incurrence of additional indebtedness pursuant to the
Debentures in connection with the Refinancing. See "Business--Company History."
Holdings has also guaranteed the obligations and liabilities of Silgan and its
subsidiaries under the Silgan Credit Agreement. See "Description of Certain
Silgan Indebtedness--Description of the Silgan Credit Agreement." Also, Holdings
has a common stockholders' deficiency. As of March 31, 1996, Holdings'
stockholders' deficiency was $179.7 million. See "Capitalization." Additionally,
Holdings' ratio of earnings to fixed charges for the three months ended March
31, 1996 was 1.05. For the year ended December 31, 1995, Holdings' earnings
before fixed charges were less than its fixed charges by $10.9 million.
Holdings' high level of indebtedness and common stockholders' deficiency pose
substantial risks to purchasers of the Debentures.
Ability of Silgan to Provide Financial Support to Holdings
Interest on the 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 Debentures are redeemed) will be required to be
made on the Debentures.
Since Holdings' only asset is its investment in Silgan, its ability to
pay interest on the 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 and its subsidiaries, Holdings or Silgan may seek to borrow
or otherwise finance the amount of such payments or refinance the Debentures.
The Silgan Credit Agreement permits Silgan to pay cash dividends and to
advance funds to Holdings in order to enable Holdings to pay interest on the
Debentures, so long as amounts due under the Silgan Credit Agreement have not
been accelerated or an event of default thereunder does not exist or would not
result therefrom. The 11-3/4% Notes do 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 Debentures.
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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" and "Description of Certain Silgan Indebtedness--Description of the
11-3/4% Notes."
Restrictive Covenants under Financing Agreements
In connection with the incurrence of their indebtedness, Silgan and
Holdings have 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 also 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
description of such covenants, see "Description of Certain Silgan Indebtedness"
and "Description of the Debentures."
The ability of the Company to satisfy such covenants and its other
obligations (including scheduled reductions of its indebtedness under the Silgan
Credit Agreement and its obligations under the 11-3/4% Notes and the Debentures)
depends upon, among other things, the future financial performance of Silgan 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, costs of raw
materials, legislative and regulatory changes and other factors beyond the
control of the Company) affecting the business and operations of Silgan 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 Debentures. These factors could also limit the ability
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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
Debentures.
Secured Indebtedness
As of March 31, 1996, the Company had outstanding approximately $502.0
million of indebtedness under the Silgan Credit Agreement secured by assets of
Silgan and its subsidiaries . The Indenture permits the Company to incur certain
additional secured indebtedness under certain circumstances. See "--Ability of
the Company to Incur Additional Indebtedness" below and "Description of the
Debentures." Holders of secured indebtedness of the Company, including the
indebtedness under the Silgan Credit Agreement , have claims with respect to the
assets of the Company constituting collateral that are prior to the claims of
holders of the Debentures. In the event of a default on the Debentures 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
Debentures. See " --Holding Company Structure and Subordination Upon Certain
Events" above and "Description of Certain Silgan Indebtedness."
The indebtedness under the Silgan Credit Agreement is secured by a
pledge of assets of Silgan and by pledges of the shares of stock of Silgan's
subsidiaries. The indebtedness under the Silgan Credit Agreement is also
guaranteed by Holdings which guarantee is secured by a pledge of the shares of
stock of Silgan. In addition, Silgan's indebtedness under the Silgan Credit
Agreement is guaranteed by substantially all of Silgan's subsidiaries and the
obligations of each such subsidiary are secured by substantially all the assets
of each such subsidiary. The Debentures are effectively subordinated to such
pledges and guarantees as well as all other indebtedness and liabilities of
Silgan and its subsidiaries.
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Ability of the Company to Incur Additional Indebtedness
Although the Silgan Credit Agreement limits the incurrence by the
Company of additional indebtedness and prohibits any transaction pursuant to
which Silgan becomes the direct obligor on the Debentures, the 11-3/4% Notes and
the Indenture permit, subject to certain limitations, the incurrence by Holdings
and its subsidiaries of a substantial amount of additional indebtedness,
including additional Senior Indebtedness, indebtedness secured by liens on the
Company's assets and other indebtedness that is effectively senior to or pari
passu with the Debentures. For example, the Indenture permits Silgan and its
subsidiaries to incur indebtedness, which would be effectively senior to the
Debentures, including secured indebtedness, if after giving effect to the
incurrence of such indebtedness, Silgan's Interest Coverage Ratio (as defined
under "Description of the Debentures--Certain Definitions") is at least 2.1 to
1. For the twelve month period ended December 31, 1995, Silgan's Interest
Coverage Ratio was 2.83 to 1. The Indenture also permits Holdings to incur any
indebtedness, including Senior Indebtedness, if, after giving effect to the
incurrence of such indebtedness, Holdings' Interest Coverage Ratio is at least
1.75 to 1. For the twelve month period ended December 31, 1995, Holdings'
Interest Coverage Ratio was 1.79 to 1. The Indenture also permits certain
specified additional indebtedness to be incurred by Holdings including up to an
additional $50 million of any type of indebtedness. See "Description of Certain
Silgan Indebtedness" and "Description of the Debentures." The Company is
actively considering redeeming a portion of the outstanding Debentures with
lower cost indebtedness, which indebtedness may be Senior Indebtedness and/or
secured by liens on the assets of the Company. The Company is also considering
refinancing all or a portion of the remaining Debentures through other debt
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 the Company's agreements in respect of
its indebtedness.
Certain Federal Income Tax Consequences
For federal income tax purposes, a holder of a Debenture is required to
include in income as interest original issue discount ("OID") as such OID
accrues, although no cash payments of interest will be made on the Debentures
prior to December 15, 1996. See "Certain Federal Income Tax Considerations."
However, because of their yield, the Debentures are subject to the high yield
discount obligation rules of the Internal Revenue Code of 1986, as amended (the
"Code"), and thus Holdings is not able to deduct interest, including OID,
accruing on the Debentures until such interest and OID is paid in cash or
property (other than stock or debt of Holdings or a related party). See "Certain
Federal Income Tax Considerations." Accordingly, for periods to June 15, 1996,
tax deductions that would otherwise be available to Holdings in respect of the
Debentures will be deferred, reducing the after-tax cash flows of Holdings and
its subsidiaries until the maturity of the Debentures or upon the earlier
repayment of the Debentures in cash or qualified property. Holdings has been
utilizing its regular and alternative minimum tax net operating loss
carryforwards available to the Company to offset (but not eliminate) the effect
of such deferral, but since the Company has fully utilized its alternative
minimum tax net operating loss carryforwards, only its regular tax net operating
loss carryforwards are currently available for that purpose. See "Certain
Federal Income Tax Considerations."
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The accrued interest on the $61.7 million aggregate face amount of the
Debentures repurchased by Holdings in 1995 will be deductible by the Company,
reducing the federal income taxes payable by the Company for 1995. Additionally,
the Company will be allowed to deduct for 1996 the accrued interest on the $17.4
million aggregate principal amount of Debentures to be redeemed on June 15,
1996. From and after June 15, 1996, interest on the Debentures accrues at a rate
of 13-1/4% per annum, and Holdings will begin making semi-annual interest
payments on the Debentures on December 15, 1996, which interest payments will be
deductible by the Company. See "--Ability of Silgan to Provide Financial Support
to Holdings" above and "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 Holdings and its subsidiaries of indebtedness,
including the Debentures, and Silgan's ability to make distributions to Holdings
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 Holdings, such
as a trustee in bankruptcy or Holdings as debtor-in-possession, were to find
that (i) there was actual intent to hinder, delay or defraud creditors or (ii)
Holdings received less than reasonably equivalent value for the indebtedness and
that, at the time of or after and giving effect to such incurrence, Holdings (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 Holdings 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. Holdings believes that the obligations under the
Debentures were incurred for proper purposes and in good faith and, based on
Holdings' prospects and other financial information, Holdings believes that at
the time of the incurrence of such obligations, Holdings 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, Holdings believes that
the proceeds of the Debentures constitute reasonably equivalent value or fair
consideration therefor. There can be no assurance, however, that a court would
not determine that Holdings was insolvent at the time and after giving effect to
the incurrence of the obligations under the Debentures. Nor can there be any
assurance that, regardless of whether Holdings was solvent, the incurrence of
the obligations under the Debentures 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 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.
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<PAGE>
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. See "Business--Competition."
Dependence on Key Personnel
The success of the Company depends to a large extent on a number of key
employees, and the loss of the services provided by them could materially
adversely affect the Company. In particular, the loss of the services provided
by R. Philip Silver, the Chairman of the Board and Co-Chief Executive Officer of
Holdings and Silgan, and D. Greg Horrigan, the President and Co-Chief Executive
Officer of Holdings and Silgan, could
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materially adversely affect the Company. However, the Company's operations are
conducted through 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 Holdings, Silgan, 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 Silgan 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 Debentures. For example, if the Company
encounters financial difficulties, or is unable to pay its debts as they mature,
the interests of the Holdings' equity investors might conflict with those of the
holders of the Debentures. 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
Debentures.
Trading Market for the Debentures
Morgan Stanley currently makes a market in the Debentures. 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 Debentures. See
"Market-Making Activities of Morgan Stanley."
The liquidity of, and trading market for, the Debentures 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.
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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, Silgan'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. Silgan 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.
Holdings is a Delaware corporation organized in April 1989, that, in
June 1989, through certain mergers acquired all of the outstanding common stock
of Silgan. Holdings' principal asset is all of the outstanding capital stock of
Silgan. Prior to June 30, 1989, Holdings did not engage in any business. Silgan
is a Delaware corporation formed in August 1987 as a holding company to acquire
interests in various packaging manufacturers. See "Business--Company History."
The principal executive offices of Holdings are located at 4 Landmark Square,
Stamford, Connecticut 06901, telephone number (203) 975-7110.
Metal Container Business
Management estimates that Containers is currently the sixth largest can
producer and 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%
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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 Holdings as of March 31, 1996. This table should be read in
conjunction with the consolidated financial information of Holdings 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
13-1/4% Senior Discount Debentures due 2002...... 207,891
-------
Total long-term debt (a)....................... $757,501
=======
Deficiency in stockholders' equity:
Common stock (b)............................... $ 12
Additional paid-in capital..................... 33,606
Accumulated deficit............................ (213,279)
-------
Total deficiency in stockholders' equity.. $(179,661)
-------
Total capitalization............................. $577,840
=======
- ----------------------
(a) See "Description of Certain Silgan Indebtedness" and "Description of the
Debentures."
(b) For a description of the common stock of Holdings, see "Description of
Holdings Common Stock--General."
-23-
<PAGE>
SELECTED FINANCIAL DATA
Set forth below are selected historical consolidated financial data of
Holdings 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 Holdings 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 Holdings 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) were derived from the historical
consolidated financial statements of Holdings for such periods that were audited
by Ernst & Young LLP, independent auditors, whose report appears elsewhere in
this Prospectus. The selected historical consolidated financial data of Holdings
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 of Holdings 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.
-24-
<PAGE>
SELECTED FINANCIAL DATA
Three Months Ended March 31,
----------------------------
1995 1996
---- ----
(Dollars in thousands)
(Unaudited)
Operating Data:
Net sales............................................ $279,860 $203,264
Cost of goods sold................................... 243,314 174,265
------- -------
Gross profit......................................... 36,546 28,999
Selling, general and administrative expenses......... 12,830 10,168
------ ------
Income from operations............................... 23,716 18,831
Interest expense and other related financing costs... 22,573 17,251
------ ------
Income (loss) before income taxes.................... 1,143 1,580
Income tax provision................................. 1,000 3,000
----- -----
Net income (loss).................................... $ 143 $ (1,420)
Ratio of earnings to fixed charges (a)............... 1.05 1.09
Balance Sheet Data (at end of period):
Fixed assets......................................... $491,177 $251,832
Total assets......................................... 942,754 534,489
Total long-term debt................................. 757,501 518,280
Common stockholders' deficiency...................... (179,661) (159,418)
Other Data:
EBDITA (b)........................................... $40,102 $ 28,033
EBDITA as a percentage of net sales.................. 14.3% 13.8%
Capital expenditures................................. 18,558 8,359
Depreciation and amortization (c).................... 15,439 8,779
(footnotes follow)
-25-
<PAGE>
<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.................................. 46,848 37,997 32,495 32,809 33,733
Reduction in carrying value of assets..... 14,745 16,729 -- -- --
------- ------ ------- -------- -------
Income from operations.................... 69,821 58,358 41,799 42,258 39,293
Interest expense and other related
financing.costs........................ 80,710 65,789 54,265 57,091 55,996
Minority interest expense................. -- -- -- 2,745 3,889
-------- ------- ------- ------ ------
Loss before income taxes.................. (10,889) (7,431) (12,466) (17,578) (20,592)
Income tax provision...................... 5,100 5,600 1,900 2,200 --
------ ------ ------- -------- -------
Loss before extraordinary
charges and cumulative effect of
changes in accounting principles....... (15,989) (13,031) (14,366) (19,778) (20,592)
Extraordinary charges relating to
early extinguishment of debt........... (5,817) -- (1,341) (23,597) --
=======
Cumulative effect of changes in
accounting principles <F7>............. -- -- (6,276) -- --
------- -------- ------- --------- --------
Net loss.................................. $(21,806) $(13,031) $(21,983) $(43,375) $(20,592)
Deficiency of earnings available to cover
fixed charges and preferred stock
dividends <F1>......................... $10,889 $7,431 $12,466 $17,578 $20,592
Balance Sheet Data (at end of
period):
Fixed assets.............................. $487,301 $251,810 $290,395 $223,879 $230,501
Total assets.............................. 900,046 504,292 497,633 389,035 390,693
Total long-term debt...................... 750,873 510,763 505,718 383,232 315,461
Redeemable preferred stock of Silgan
(minority interest of Holdings)........ -- -- -- -- 27,878
Deficiency in stockholders' equity........ (179,804) (157,998) (144,967) (137,984) (94,609)
Other Data:
EBDITA <F2>............................... $132,428 $114,489 $76,095 $74,012 $72,141
-26-
<PAGE>
EBDITA as a percentage of net sales....... 12.0% 13.3% 11.8% 11.7% 10.6%
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) <F8>........................... 5,110 4,000 3,330 3,340 3,560
(footnotes follow)
-27-
<PAGE>
Notes to Selected Financial Data
<FN>
<F1> For purposes of computing the ratio of earnings to fixed charges and the
deficiency of earnings available to cover fixed charges, earnings consist
of income (loss) before income taxes plus fixed charges, excluding
capitalized interest, and fixed charges consist of interest, whether
expensed or capitalized, minority interest expense, 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 (including minority 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 $0.8 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 Notes to Holdings'
Consolidated Financial Statements included elsewhere in this Prospectus.
<F6> On November 15, 1991, the Company sold its nonstrategic PET carbonated
beverage bottle business. For 1991, sales from the PET carbonated beverage
business were $33.4 million. See "Business--Company History."
<F7> During 1993, the Company adopted SFAS No. 106, "Employers Accounting for
Postretirement Benefits Other than Pensions," SFAS No. 109, "Accounting for
Income Taxes" and SFAS No. 112, "Employers Accounting for Postemployment
Benefits." The Company did not elect to restate prior years' financial
statements for any of these pronouncements.
<F8> 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
-28-
<PAGE>
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 Silgan'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
-30-
<PAGE>
extends through 2001. Revenues from these two 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 the Company and AN Can on a stand-alone basis. The
Company believes that certain customers, who had a majority of their can
requirements supplied by the Company 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
Silgan to advance to Holdings up to $75.0 million for the repurchase or
redemption by Holdings of 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 its
Debentures as permitted under the Silgan Credit Agreement. See "Description of
Certain Silgan Indebtedness--Description of Silgan Credit Agreement."
In 1995, $61.66 million aggregate principal amount of the Debentures
were repurchased by the Company and cancelled. On June 15, 1996, $17.4 million
aggregate principal amount of the Debentures will be redeemed by Holdings.
Additionally, the Company is actively considering redeeming a portion of the
-31-
<PAGE>
outstanding Debentures with lower cost indebtedness. The Company is also
considering refinancing all or a portion of the remaining Debentures through
other debt 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 the Company's agreements in respect
of its indebtedness. See "--Capital Resources and Liquidity," below.
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 (0.3) (1.4) (1.4)
---- ---- ----
Consolidated $ 23.7 $ 18.8 $ 27.3
===== ===== =====
-32-
<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 the Company'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 the Company'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.
-33-
<PAGE>
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
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 0.4 percentage points to 4.6% ($12.8 million)
for the three months ended March 31, 1996, as compared to 5.0% ($10.2 million)
for the three months ended March 31, 1995. The decrease in selling, general and
administrative expenses as a percentage of net sales 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, and lower
corporate legal and administrative costs. 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% ($23.7 million) for the three months ended March 31, 1996, as compared with
9.2% ($18.8 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
-34-
<PAGE>
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.
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 $5.3 million to $22.6 million for the three
months ended March 31, 1996, principally as a result of increased borrowings to
finance the acquisition of AN Can, offset, in part, by the benefit realized from
the purchase of a portion of the Debentures with proceeds from the Company's
lower cost credit facility and slightly lower average bank borrowing rates.
The provisions for income taxes for the three months ended March 31,
1996 and 1995 are comprised of federal, state and foreign income taxes currently
payable.
As a result of the items discussed above, net income for the three
months ended March 31, 1996 was $0.1 million, $1.5 million greater than the loss
of $1.4 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 the Company'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% ($23.7 million) as compared to
pro forma income from operations as a percentage of consolidated net sales of
8.8% ($27.3 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.
-35-
<PAGE>
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 years ended December 31, 1995 and 1994.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------
Historical Pro Forma
------------------------------------------------ ------------------------------
1995 1994 1993 1995 1994
------ ------ ------ ------ -----
(Dollars in millions)
<S> <C> <C> <C> <C> <C>
Net Sales:
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 (1.6) (1.3) (1.1) (1.5) (1.4)
----- ----- ----- ----- -----
Consolidated $ 69.8 $ 58.4 $ 41.8 $ 97.4 $ 63.0
===== ===== ===== ===== =====
---------------------------
<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.
-36-
<PAGE>
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.
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 the Company'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 the Company'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 4.2% ($46.8 million)
for the year ended December 31, 1995 as compared to 4.4% ($38.0 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
6.3% ($69.8 million) for the year ended December 31, 1995, as compared with 6.8%
($58.4 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%
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($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.
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, including amortization of debt financing costs,
increased by approximately $14.9 million to $80.7 million for the year ended
December 31, 1995, principally as a result of increased borrowings to finance
the acquisition of AN Can 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. Accretion of interest on the Debentures in 1995
approximated the prior year's accretion due to the repurchase of $61.7 million
face amount of Debentures in the third quarter of 1995.
The provisions for income taxes for the years ended December 31, 1995
and 1994 were comprised of federal, state and foreign income taxes currently
payable. The decrease in the provision for income taxes in 1995 reflects a
decrease in federal income taxes currently payable due to the deductibility of
accrued interest on the Debentures that were repurchased in 1995.
As a result of the items discussed above, net loss before the
extraordinary charge for the year ended December 31, 1995 was $16.0 million, as
compared to a net loss of $13.0 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 $5.8
million (net of tax of $2.6 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.
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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 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 4.4% of consolidated
net sales ($38.0 million) for the year ended December 31, 1994, as compared to
5.0% ($32.5 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 6.8% ($58.4 million) for the year ended
December 31, 1994, compared with 6.5% ($41.8 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 8.7% ($75.1 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, including amortization of debt financing costs,
increased by approximately $11.5 million to $65.8 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, higher average bank borrowing
rates, higher accretion of interest on the Debentures and increased charges for
the amortization of debt financing costs.
The provisions for income taxes for the years ended December 31, 1994
and 1993 were comprised of federal, state and foreign income taxes currently
payable. The increase in the provision for income taxes in 1994 reflects an
increase in federal income taxes currently payable. During 1994, the Company
fully utilized its alternative minimum tax net operating loss carryovers and,
therefore, was subject to tax at the rate of 20% on its alternative minimum
taxable income.
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As a result of the items discussed above, the net loss for the year
ended December 31, 1994 was $13.0 million, $1.4 million less than the loss
before extraordinary charges and cumulative effect of changes in accounting
principles for the year ended December 31, 1993 of $14.4 million.
In conjunction with the acquisition of DM Can in 1993, the Company
incurred an extraordinary charge of $1.3 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 $6.3 million. As a result of these charges,
the net loss for 1993 was $22.0 million.
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 8.0% ($112.1
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% ($123.6 million) . Management believes that the decrease in income
from operations was primarily attributable to lower demand in 1995 for vegetable
pack containers.
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.
Capital Resources and Liquidity
The Company'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 the Company's seasonal working capital needs.
Historically, the Company has met these liquidity requirements through cash flow
generated from operating activities and working capital borrowings. As described
below, beginning in December 1996 the Company'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 "Silgan 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
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million for the repurchase or redemption of a portion of the Debentures. The
Silgan 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 Silgan Credit Agreement, the Company (i) repaid
$117.1 million of term loans under the Silgan 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.
The Silgan 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 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 the Company's average cost
of indebtedness by permitting the repurchase or redemption of up to $75.0
million of Debentures with borrowings under the Silgan Credit Agreement.
The Silgan Credit Agreement permits Silgan, at any time prior to June
30, 1996, to borrow up to $75.0 million of working capital loans to advance to
Holdings to fund the repurchase or redemption by Holdings of Debentures. The
commitment under the Silgan 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
Debentures, thereby increasing the commitment under the revolving credit
facility to $207.6 million by year end. Silgan 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 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 $12.1 million to $40.1 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 the Company 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
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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. The Company's EBDITA for the year ended
December 31, 1995 increased by $17.9 million to $132.4 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 of
Silgan 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
Silgan 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. 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 $48.1
million and available cash balances of $2.7 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 Silgan 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 $140.7 million.
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In addition to its operating cash needs, the Company'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 Silgan 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 associated with plant rationalizations and administrative
workforce reductions, other plant exit costs and employee relocation costs of AN
Can, (iv) the Company'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, the 11-3/4% Notes and semi-annual cash interest payments of up to
$13.0 million (which amount may be reduced depending upon the principal amount
of Debentures outstanding) on the Debentures commencing in December 1996, and
(v) payments of approximately $10.0 million for federal and state tax
liabilities in 1996 (assuming the redemption of the remainder of the Debentures
at maturity) and increasing annually thereafter .
Interest on the Debentures is payable at a rate of 13-1/4% per annum
from and after June 15, 1996, and commencing on December 15, 1996 semi-annual
interest payments of 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 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 Debentures. The Silgan
Credit Agreement permits Silgan to pay cash dividends and to advance funds to
Holdings in order to enable Holdings to pay interest on the Debentures, so long
as amounts due under the Silgan 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 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.
In addition to the $17.4 million of Debentures to be redeemed on June
15, 1996, the Company is actively considering redeeming a portion of the
outstanding Debentures with lower cost indebtedness. Further, the Company is
considering
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refinancing all or a portion of the remaining 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 the Company's agreements in respect
of its indebtedness.
The Debentures represent "applicable high yield discount obligations"
("AHYDOs") within the meaning of Section 163(i) of the Code . Accordingly, the
tax deduction which would otherwise be available to Holdings in respect of the
accretion of interest, including OID, on the 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 Debentures will not be deductible
until the redemption, retirement or other repayment of the Debentures (other
than with stock or debt of Holdings or a related party). During 1995, Holdings
repurchased $61.66 million face amount of 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 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 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 Debentures were deductible as it accretes. In the event
Holdings redeems, retires or otherwise repays the Debentures or a portion
thereof prior to their stated maturity date , the full amount of the deferred
accreted interest (applicable to the Debentures retired) should be deductible
under the carryback and carryforward rules under the Code unless the holders of
the Debentures receive stock or debt of Holdings or a related party in exchange
for the Debentures. No assurance can be given that Holdings will be able to
refinance the 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 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
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these regulations, when issued, may affect the timing or availability of the tax
deductions for original issue discount on the Debentures.
From and after June 15, 1996, interest on the Debentures accrues at a
rate of 13-1/4% per annum, and Holdings will begin making semi-annual interest
payments on the Debentures on December 15, 1996 and on each interest payment
date thereafter. See "Certain Risk Factors--Ability of Silgan to Provide
Financial Support to Holdings." Accordingly, while the tax deductions that would
otherwise be available to Holdings in respect of the Debentures for periods
prior to June 15, 1996 will be deferred until the maturity of the Debentures or
upon the earlier redemption, retirement or repayment of the Debentures in cash
or qualified property, Holdings will begin making deductible interest payments
on the Debentures on December 15, 1996. See "Certain Risk Factors--Ability of
Silgan to Provide Financial Support to Holdings."
Management believes that cash generated by operations and funds from
working capital borrowings under the Silgan 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 Silgan Credit Agreement and the indentures relating to the 11-3/4%
Notes and the 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.
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 had
$844.8 million of indebtedness outstanding, of which $502.0 million was
indebtedness bearing interest at
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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 15 to the Consolidated Financial
Statements of the Company included elsewhere in this Prospectus.
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, Silgan'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
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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. Silgan 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.
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
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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 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
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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.
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.
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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 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
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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. 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.
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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.
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
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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 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.
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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 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
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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
Silgan was organized in August 1987 as a holding company to acquire
interests in various packaging manufacturers. On August 31, 1987, Silgan,
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, Silgan, through Plastics, purchased from Monsanto substantially all
the business and related fixed assets and inventory of Monsanto Plastic
Containers for approximately $43 million in cash and the assumption of certain
liabilities of Monsanto Plastic Containers. To finance these acquisitions and to
pay related fees and expenses, Silgan 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 Silgan. On June 30, 1989, Silgan
Acquisition, Inc. ("Acquisition"), a wholly owned subsidiary of
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Holdings, merged with and into Silgan, and Silgan 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, Holdings and Silgan 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 (the "Silgan Notes Offering") and the public offering in June 1992 by
Holdings of the 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 Silgan 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 Silgan
1993 Credit Agreement to refinance and repay in full all amounts owing under
their previous credit agreement.
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 Silgan Credit
Agreement with the Banks, Bankers Trust, as Administrative Agent and
Co-Arranger, and Bank of America, as Documentation Agent and Co-Arranger. The
Company used funds borrowed under the Silgan 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 Silgan 1993 Credit Agreement and the Secured
Notes. Additionally, Silgan has used borrowings under the Silgan Credit
Agreement to make non-interest bearing advances to Holdings to enable Holdings
to purchase $61.66 million face amount of the Debentures, which Debentures have
been canceled. Further, Silgan intends to use working capital borrowings under
the Silgan Credit Agreement to fund Holdings' redemption of $17.4 million
principal amount of the Debentures on June 15, 1996.
-58-
<PAGE>
Properties
Holdings' and Silgan's 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.
-59-
<PAGE>
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
-60-
<PAGE>
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 its
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 the Company'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 Holdings and Silgan
The current directors and executive officers of Holdings and Silgan,
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 in 1987,
Chairman of the Board President of Continental Can
and Co-Chief Executive Company from June 1983 to
Officer of Holdings and August 1986; consultant to
Silgan since March packaging industry from
1994; formerly August 1986 to August 1987;
President of Holdings Vice Chairman of the Board
and Silgan; Director of and Director of Sweetheart
Holdings since April Holdings Inc. and Sweetheart
1989 and of Silgan Cup Company, Inc. from
since August 1987; September 1989 to January
Chairman of the Board 1991; Chairman of the Board
of Plastics since March and Director of Sweetheart
1994; Director of Holdings Inc. and Sweetheart
Containers and Plastics Cup Company, Inc. from
since August 1987. January 1991 through August
1993; Director, Johnstown
America Corporation.
D. Greg Horrigan 52 Prior to forming S&H in 1987,
President and Co-Chief Executive Vice President and
Executive Officer of Operating Officer of
Holdings and Silgan Continental Can Company
since March 1994; from 1984 to 1987; Chairman
formerly Chairman of of the Board and Director of
the Board of Holdings Sweetheart Holdings Inc. and
and Silgan; Director of Sweetheart Cup Company,
Holdings since April Inc. from September 1989 to
1989 and of Silgan January 1991; Vice Chairman
since August 1987; of the Board and Director of
Chairman of the Board Sweetheart Holdings Inc. and
of Containers since Sweetheart Cup Company,
August 1987; Director Inc. from January 1991
of Containers and through August 1993.
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
since January 1991; 1994; Principal of Morgan
Director of Silgan since Stanley since 1993; Vice
January 1991; Director President of Morgan Stanley &
of Containers and Co. Incorporated from 1991 to
Plastics since January 1993 and of MSLEF II since
1991; Vice President 1991. Director of Sullivan
and Assistant Secretary Communications, Inc.,
of Holdings from Sullivan Graphics, Inc., Nokia
January 1991 to Aluminium Oy, Kabelmedia
December 1995; Vice GmbH and Sita
President and Assistant Telecommunications Holdings
Secretary of Silgan from N.V.
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
Director of Silgan since 1982. Vice President and
August 1987; Director Director of MSLEF II, Inc.
of Containers and since January 1990; Vice
Plastics since August Chairman and Director of
1987; Vice President MSCP III since January 1994.
and Assistant Secretary Director of American Italian
of Holdings from April Pasta Company, Fort Howard
1989 to December Corporation, PSF Finance
1995; Vice President Holdings, Inc., Randall's Food
and Assistant Secretary Markets, Inc. and Waterford
of Silgan from April Crystal Ltd., and Chairman of
1989 to December Waterford Wedgewood UK
1995; Vice President plc.
and Assistant Secretary
of Containers and
Plastics from August
1987 to December
1995.
-65-
<PAGE>
Age at
April 15, Five-Year Employment
Name and Position 1996 History and Other Directorships Held
----------------- --------- ------------------------------------
Harley Rankin, Jr. 56 Prior to joining the Company,
Executive Vice Senior Vice President and
President and Chief Chief Financial Officer of
Financial Officer of Armtek Corporation; prior to
Holdings since April Armtek Corporation, Vice
1989; Treasurer of President and Chief Financial
Holdings since January Officer of Continental Can
1992; Executive Vice Company from November
President and Chief 1984 to August 1986. Vice
Financial Officer of President, Chief Financial
Silgan since January Officer and Treasurer of
1989; Treasurer of Sweetheart Holdings Inc. and
Silgan since January Vice President of Sweetheart
1992; Vice President of Cup Company, Inc. from
Containers and Plastics September 1989 to August
since January 1989; 1993.
Treasurer of Plastics
from January 1994 to
December 1994.
Harold J. Rodriguez, Jr. 40 Employed by Ernst & Young from 1978 to
Vice President of 1987, last serving as Senior Manager
Holdings and Silgan specializing in taxation. Controller,
since March 1994; Vice Assistant Secretary and Assistant
President of Containers Treasurer of Sweetheart Holdings Inc.
and Plastics since and Assistant Secretary and Assistant
March 1994; Controller Treasurer of Sweetheart Cup Company,
and Assistant Treasurer Inc. from September 1989 to August
of Holdings and Silgan 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
Vice President of January 1990 to July 1995,
Holdings and Silgan last serving as Senior Vice
since January 1996; President and General
employed by Containers Manager, Food Metal and
to manage the ANC Specialty, North America;
transition from August prior to ANC, President of the
1995 to December beverage packaging operations
1995. of Continental Can Company.
-66-
<PAGE>
Management of Metal Container Business
In addition to the persons listed under "--Directors and Executive
Officers of Holdings and Silgan" above, the following are the principal
executive officers of Containers:
Age at
April 15, Five-Year Employment
Name and Position 1996 History and Other Directorships
---------------- --------- -------------------------------
Held
----
James D. Beam 53 Vice President - Marketing & Sales
President and a of Containers from September 1987
non-voting Director to July 1990; Vice President and
of Containers since General Manager of Continental
July 1990. Can Company, Western Food Can
Division, from March 1986 to
September 1987.
Gerald T. Wojdon 60 General Manager of Manufacturing
Vice President - of the Can Division of The
Operations and Carnation Company from August
Assistant Secretary 1982 to August 1987.
of Containers since
September 1987.
Gary M. Hughes 53 Vice President, Sales and
Vice President - Marketing of the Beverage Division
Sales & Marketing of Continental Can Company from
of Containers since February 1988 to July 1990; prior
July 1990. to February 1988, was employed
by Continental Can in various
regional sales positions.
Dennis Nerstad 58 Vice President of Containers from
Vice President - December 1993 to June 1994.
Production Services Vice President - Distribution and
of Containers since Container Manufacturing of Del
July 1994. 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 September 1990 to October 1995.
Containers since From August 1977 to August 1990,
October 1995. 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 Holdings and Silgan" 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- Officer of Aim Packaging, Inc.
voting Director of from March 1984 to September
Plastics since 1989.
December 1992; Vice
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 Company from April 1986 to
September 1987. September 1987.
Charles Minarik 58 President of Wheaton Industries
Vice President - Plastics Group from February
Operations and 1991 to August 1992; Vice
Commercial President-Marketing of Constar
Development of International Inc. from March
Plastics since May 1983 to February 1991.
1993.
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 - Company from July 1982 to July
Finance and Chief 1989.
Financial 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.
-68-
<PAGE>
Executive Compensation.
The following table sets forth information concerning the annual and
long term compensation for services rendered in all capacities to the Company
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 Holdings and
(ii) the other four most highly compensated executive officers of Holdings and
its subsidiaries. No director of Holdings or its subsidiaries receives any
compensation for serving as a director of Holdings 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 - - - -
Holdings and Silgan 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 Holdings 1993 1,608,799 - - - -
and Silgan 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 Holdings and
Silgan 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, Silgan or their respective
subsidiaries. See "Certain Transactions--Management Agreements."
<F2> The salaries of Messrs. Beam and Gervais were paid by Containers and
Plastics, respectively.
<F3> Bonuses of Messrs. Beam and Gervais were earned by them in such year and
paid in the following year, pursuant to the Silgan Containers
Corporation Performance Incentive Plan and the Silgan Plastics
Corporation Incentive Plan,
-70-
<PAGE>
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 Savings 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 Options/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
-----------------------------
Final Average Years of Service
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
---------------------------
Final Average Years of Service
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 Holdings' Capital Stock
The following table sets forth, as of April 30, 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
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
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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.
<F10> Bankers Trust New York Corporation ("BTNY") beneficially owns 50,000
shares of Holdings Class C Stock.
[/FN]
</TABLE>
See "Description of Holdings Common Stock" for additional information
about the common stock of Holdings, the holders thereof and certain arrangements
among them.
CERTAIN TRANSACTIONS
Management Agreements
Holdings, Silgan, Containers and Plastics each entered into an amended
and restated management services agreement dated as of December 21, 1993
(collectively, the "Management Agreements") with S&H to replace in its entirety
its existing management services agreement, as amended, with S&H. Pursuant to
the Management Agreements, S&H provides Holdings, Silgan, Containers and
Plastics and their respective subsidiaries with general management and
administrative services (the "Services"). The Management Agreements provide for
payments to S&H (i) on a monthly basis, of $5,000 plus an amount equal to 2.475%
of consolidated earnings before depreciation, interest and taxes of Holdings and
its subsidiaries ("Holdings EBDIT"), for such calendar month until Holdings
EBDIT for the calendar year shall have reached an amount set forth in the
Management Agreements for such calendar year (the "Scheduled Amount") and 1.65%
of Holdings EBDIT for such calendar month to the extent that Holdings EBDIT for
the calendar year shall have exceeded the Scheduled Amount but shall not have
been greater than an amount (the "Maximum Amount") set forth in the Management
Agreements 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
under the Silgan 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
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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 Silgan Credit Agreement does not permit the payment of fees under
the Management Agreements above amounts provided for therein.
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 Holdings, Silgan, Containers and Plastics, and
during 1995, 1994 and 1993 Morgan Stanley earned fees of $409,000, $383,000 and
$337,000 , respectively.
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Other
In connection with the 1989 Mergers, subject to the provisions of
Delaware law, Silgan agreed to indemnify each director, officer, employee,
fiduciary and agent of Silgan, 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
Silgan'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, Silgan, Plastics and
Containers that permits Silgan and its subsidiaries to use the tax benefits
provided by the debt of Holdings and permits funds to be provided to Holdings
from Silgan 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, Silgan 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 Holdings and Silgan, is a partner in the
law firm of Winthrop, Stimson, Putnam & Roberts. Winthrop, Stimson, Putnam &
Roberts provides legal services to Holdings, Silgan and their subsidiaries.
DESCRIPTION OF THE DEBENTURES
The Debentures were issued under the Indenture, dated as of June 29,
1992, between Holdings and Fleet National Bank (formerly The Connecticut
National Bank), 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.
For federal income tax purposes, Holders are required to recognize
interest income in respect of the Debentures in the form of original issue
discount in advance of the receipt of cash payments attributable to interest
income on such Debentures. See "Certain Federal Income Tax Considerations" for
important information concerning the federal income tax considerations
associated with the Debentures.
During 1995, $61.66 million face amount of the Debentures were
repurchased by Holdings and were cancelled. On June 15, 1996, Holdings will
redeem $17.40 million principal amount of the Debentures. Accordingly, at June
15, 1996, $195.94 million principal amount of the Debentures will be
outstanding.
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General
The Debentures are unsecured obligations of Holdings and mature on
December 15, 2002. Although for federal income tax purposes a significant amount
of original issue discount, taxable as ordinary income, will be recognized by a
Holder as such discount accrues from the issue date of the Debentures, no
interest is payable on the Debentures prior to December 15, 1996. Interest on
the Debentures will accrue at the rate per annum shown on the front cover of
this Prospectus from June 15, 1996 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 June 1 or December 1 immediately
preceding the Interest Payment Date) on June 15 and December 15 of each year,
commencing December 15, 1996. Principal of, premium, if any, and interest on the
Debentures are payable, and the Debentures may be exchanged or transferred, at
the office or agency of Holdings 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 Holdings,
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 Debentures 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 Debentures, but Holdings 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 upon Certain Events
The Debentures are senior indebtedness of Holdings, ranking pari passu
with Holdings' obligations under all other senior indebtedness of Holdings and
senior in right of payment to all existing and future subordinated indebtedness
of Holdings. However, since all of the operations of Holdings are conducted
through its subsidiaries, the liabilities of its subsidiaries are effectively
senior in right of payment to the Debentures. As of March 31, 1996, Silgan and
its subsidiaries had approximately $911.8 million of indebtedness and other
liabilities effectively senior to the Debentures. See "Capitalization."
In the event that the Debentures become obligations of any Successor
Corporation, whether as a result of (i) a Holdings Merger, (ii) the sale of all
or substantially all of the property and assets of Silgan or its successors to
Holdings, and the assumption by Holdings of all or substantially all of the
liabilities of Silgan or its successors or (iii) the assumption by Silgan or its
successors of Indebtedness represented by the Debentures, all Subordinated
Obligations, including the Debentures, will be subordinated in right of payment
to all Senior Indebtedness of such Successor Corporation existing on the date of
such transaction or assumed or incurred thereafter. As of March 31, 1996, if an
event as described in clause (i), (ii) or (iii) of the preceding sentence had
occurred on such date or if Silgan had assumed the Debentures at such date,
there would have been approximately $637.0 million of Indebtedness that would
have constituted Senior Indebtedness and approximately $911.8 million of
Indebtedness and other liabilities effectively senior to the Debentures. See
"Certain Risk Factors--Holding Company Structure and Subordination Upon Certain
Events." Other than as set forth in this paragraph, the Debentures are not
subordinated by their terms to any other existing or future Indebtedness of
Holdings or its successors.
To the extent any payment of Senior Indebtedness (whether by or on
behalf of the Successor Corporation, 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
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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 obligations 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 Successor Corporation 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 Successor Corporation,
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 Successor Corporation on account of
Subordinated Obligations, or any payment to acquire any of the Debentures for
cash, property or securities, or any distribution with respect to the Debentures
of any cash, property or securities. Before any payment may be made by or on
behalf of the Successor Corporation of any Subordinated Obligations upon any
such dissolution, winding up, liquidation or reorganization, any payment or
distribution of assets or securities of the Successor Corporation 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 Successor Corporation 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 Successor
Corporation of Subordinated Obligations, whether pursuant to the terms of the
Debentures 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 Silgan 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 Silgan Credit Agreement results from the acceleration of the
Debentures, from and after the date of such acceleration, no payment of
Subordinated Obligations may be made by or on behalf of the Successor
Corporation upon or in respect of the Debentures 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 majority in principal amount of
such other Designated Senior Indebtedness then outstanding), no payment of
Subordinated Obligations may be made by or on behalf of the Successor
Corporation upon or in respect of the Debentures 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
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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 Debentures 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 Silgan 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 Silgan Credit Agreement) that
existed or was continuing (it being acknowledged that any subsequent action that
would give rise to an event of default pursuant to any provision under which an
event of default previously existed or was continuing shall constitute a new
event of default for this purpose) on the date of the commencement of any
Payment Blockage Period with respect to the Designated Senior Indebtedness
initiating such Payment Blockage Period shall be, or be made, the basis for the
commencement of a second Payment Blockage Period by the representative for, or
the holders of, such Designated Senior Indebtedness, whether or not within a
period of 360 consecutive days, unless such event of default shall have been
cured or waived for a period of not less than 90 consecutive days. (Article Ten)
By reason of the subordination provisions described above, in the event
of liquidation or insolvency, creditors of the Successor Corporation who are not
holders of Senior Indebtedness or of the Debentures may recover less, ratably,
than holders of Senior Indebtedness and may recover more, ratably, than Holders
of the Debentures.
"Successor Corporation" is defined to mean (i) the surviving entity of
any Holdings Merger, (ii) Silgan, upon the assumption by Silgan of the
liabilities of Holdings represented by the Debentures or (iii) any successor
corporation to Silgan that becomes the successor obligor on the Debentures,
whether by merger, consolidation, sale of assets, assumption of liabilities or
otherwise. (Section 1.01)
"Senior Indebtedness" is defined to mean the following obligations of
the Successor Corporation: (i) all Indebtedness and other monetary obligations
of the Successor Corporation under the Silgan Credit Agreement, the 11-3/4%
Notes (including any agreement pursuant to which the 11-3/4% Notes are issued),
any Interest Rate Agreement or any Currency Agreement, (ii) all other
Indebtedness of the Successor Corporation (other than Indebtedness evidenced by
the Debentures), 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 Debentures and (iii) all fees, expenses
and indemnities payable in connection with the Silgan Credit Agreement, the
11-3/4% Notes (including any agreement pursuant to which the 11-3/4% Notes are
issued) and, if applicable, Currency Agreements and Interest Rate Agreements;
provided that the term "Senior Indebtedness" shall not include (a) any
Indebtedness of the Successor Corporation that, when Incurred and without
respect to any election under Section 1111(b) of the United States Bankruptcy
Code, was without recourse to the Successor Corporation, (b) any Indebtedness of
the Successor Corporation to a Subsidiary of the Successor Corporation or to a
joint venture in which the Successor Corporation has an interest, (c) any
Indebtedness of the Successor Corporation (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 in
"--Covenants" below, (d) any repurchase, redemption or other obligation in
respect of Redeemable Stock, (e) any Indebtedness to any employee or officer of
the Successor Corporation or any of its Subsidiaries, (f) any liability for
federal, state, local or other taxes owed or owing by the Successor Corporation
or (g) any Trade Payables. "Senior Indebtedness" also includes interest accruing
subsequent to events of bankruptcy of
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the Successor Corporation 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 Silgan Credit Agreement , including refinancings thereof if it is
specifically designated by Holdings, Silgan or the Successor Corporation 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 Holdings, Silgan or the Successor Corporation in the
instrument creating or evidencing such Senior Indebtedness as "Designated Senior
Indebtedness." (Section 1.01)
Optional Redemption
The Debentures are redeemable at any time, at Holdings' option, in whole
or in part, 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 a Redemption Price equal to 100% of their principal amount plus
accrued and unpaid interest, if any, 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). (Sections 3.01 and 3.04)
Selection. In the case of any partial redemption, selection of the
Debentures for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Debentures are listed or, if the Debentures 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 Debenture of $1,000 in original principal amount or less shall be
redeemed in part. If any Debenture is to be redeemed in part only, the notice of
redemption relating to such Debenture shall state the portion of the principal
amount thereof to be redeemed. A new Debenture in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Debenture. (Sections 3.03 and 3.04)
The Holdings Guaranty (as defined in "Description of Certain Silgan
Indebtedness--Description of the Silgan Credit Agreement") contains a covenant
prohibiting the optional redemption of the Debentures, except that such covenant
permits the optional redemption of the Debentures provided that the sources of
funds used to effect any such optional redemption are derived solely from (i)
proceeds from one or more registered public equity offerings by Holdings of its
common stock or (ii) cash dividends or other advances received from Silgan as
permitted under limited circumstances under the Silgan Credit Agreement. See
"Description of Certain Silgan Indebtedness--Description of the Silgan 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)
"Accreted Value" is defined to mean an amount in respect of each
outstanding Debenture equal to the sum of (i) the issue price of such Debenture
as determined in accordance with Section 1273 of the Internal Revenue Code plus
(ii) the aggregate of the portions of the original issue discount (the excess of
the amounts considered as part of the "stated redemption price at maturity" of
such Debenture within the meaning of Section
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1273(a)(2) of the Internal Revenue Code or any successor provision, whether
denominated as principal or interest, over the issue price of such Debenture)
that shall theretofore have accrued pursuant to Section 1272 of the Internal
Revenue Code (without regard to Section 1272(a)(7) of the Internal Revenue Code)
from the date of issue of such Debenture (a) for each six month or shorter
period ending June 15 or December 15 prior to the date of determination and (b)
for the shorter period, if any, from the end of the immediately preceding six
month period, as the case may be, to the date of determination plus (iii)
accrued interest to the date such Accreted Value is paid (without duplication of
any amount set forth in (ii) above), minus all amounts theretofore paid in
respect of such Debenture, which amounts are considered as part of the "stated
redemption price at maturity" of such Debenture within the meaning of Section
1273(a)(2) of the Internal Revenue Code or any successor provision (whether such
amounts paid were denominated principal or interest).
"Adjusted Consolidated Net Income" is defined to mean, for any period,
the aggregate net income (or loss) of any Person and its consolidated
Subsidiaries for such period determined in conformity with GAAP; provided that
the following items shall be excluded in computing Adjusted Consolidated Net
Income (without duplication): (i) the net income (or loss) of such Person (other
than a Subsidiary of such Person) in which any other Person (other than such
Person or any of its Subsidiaries) has a joint interest, except to the extent of
the amount of dividends or other distributions actually paid to such Person or
any of its Subsidiaries by such other Person during such period; (ii) solely for
the purposes of calculating the amount of Restricted Payments that may be made
pursuant to clause (C) of the first paragraph of the "Limitation on Restricted
Payments" covenant described in "--Covenants" below (and in such case, except to
the extent includible pursuant to clause (i) above), the net income (or loss) of
such Person accrued prior to the date it becomes a Subsidiary of any other
Person or is merged into or consolidated with such other Person or any of its
Subsidiaries or all or substantially all of the property and assets of such
Person are acquired by such other Person or any of its Subsidiaries; (iii) the
net income (or loss) of any Subsidiary of any Person to the extent that the
declaration or payment of dividends or similar distributions by such Subsidiary
of such net income is not at the time permitted by the operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to such Subsidiary; (iv) any gains or
losses (on an after-tax basis) attributable to Asset Sales; (v) any amounts paid
or accrued as dividends on Preferred Stock of such Person or Preferred Stock of
any Subsidiary of such Person; (vi) any amounts reducing Adjusted Consolidated
Net Income resulting from payments made to holders of stock options or stock
appreciation rights resulting from the 1989 Mergers; and (vii) all extraordinary
gains and extraordinary losses; provided that, solely for the purposes of
calculating the Interest Coverage Ratio (and in such case, except to the extent
includible pursuant to clause (i) above), "Adjusted Consolidated Net Income" of
Holdings shall include the amount of all cash dividends received by Holdings or
any Subsidiary of Holdings 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 the 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 Holdings or any
Subsidiary of Holdings.
"Asset Acquisition" is defined to mean (i) an investment by Holdings or
any of its Subsidiaries in any other Person pursuant to which such Person shall
become a Subsidiary of Holdings or any of its Subsidiaries or shall be merged
into or consolidated with Holdings or any of its Subsidiaries or (ii) an
acquisition by Holdings or any of its Subsidiaries of the property and assets of
any Person other than Holdings or any of its Subsidiaries that constitute
substantially all of an operating unit or business of such Person.
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"Asset Disposition" is defined to mean the sale or other disposition by
Holdings or any of its Subsidiaries (other than to Holdings or another
Subsidiary of Holdings) of (i) all or substantially all of the Capital Stock of
any Subsidiary of Holdings or (ii) all or substantially all of the property and
assets that constitute an operating unit or business of Holdings 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 transaction) in one transaction or a series of related
transactions by such Person or any of its Subsidiaries to any Person other than
Holdings 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 Holdings; provided that sales or
other dispositions of inventory, receivables and other current assets shall not
be included within the meaning of such term.
"Average Life" is defined to mean, at any date of determination with
respect to any debt security, the quotient obtained by dividing (i) the sum of
the product of (a) the number of years from such date of determination to the
dates of each successive scheduled principal payment of such debt security and
(b) the amount of such principal payment by (ii) the sum of all such principal
payments.
"Bank Agent" is defined to mean Bankers Trust Company, as agent for the
Banks pursuant to the Silgan Credit Agreement, and any successor or successors
thereto.
"Banks" is defined to mean the lenders who are from time to time parties
to the Silgan Credit Agreement.
"Board of Directors" is defined to mean the Board of Directors of
Holdings 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. Silver, Mr. Horrigan 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
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of any period of two consecutive calendar years constituted the Board of
Directors (together with any new directors whose election by the Board of
Directors or whose nomination for election by Holdings' shareholders was
approved by a vote of at least two-thirds of the members of the Board of
Directors then still in office who either were members of the Board of Directors
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 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 Holdings and Silgan, (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 the Capital Stock of Holdings would be entitled to receive (other
than cash in lieu of fractional shares) solely Capital Stock of the holding
company in amounts proportionate to their holdings of Capital Stock of Holdings
immediately prior to such transaction, shall be excluded from the operation of
this clause (iii); or (iv) Holdings shall not beneficially own, directly or
indirectly, at least a majority of the issued and outstanding Voting Stock of
Silgan other than as a result of a Holdings Merger.
"Closing Date" is defined to mean the date on which the Debentures are
originally issued under the Indenture.
"Common Stock" is defined to mean, with respect to any Person, any and
all shares, interests, participations and 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
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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 Holdings 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 Holdings 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 Holdings and
its consolidated Subsidiaries prepared in conformity with GAAP.
"Consolidated Net Worth" is defined to mean, at any date of
determination, stockholders' equity as set forth on the most recently available
consolidated balance sheet of Holdings 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 Holdings 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).
"Currency Agreement" is defined to mean any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect Holdings or any of its Subsidiaries against fluctuations in currency
values to or under which Holdings 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 Holdings' 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 Financial Accounting Standard Nos. 106
and 109.
"Guarantee" is defined to mean any obligation, contingent or otherwise,
of any Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such other Person (whether
arising by virtue of partnership arrangements, or by agreement to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof
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(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 Debenture.
"Holdings Merger" is defined to mean the merger or consolidation of
Holdings and Silgan or either of their successors.
"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 Silgan 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 Holdings or has been merged with or into
Holdings or any Subsidiary of Holdings 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 Holdings 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 Holdings or any of its Subsidiaries against
fluctuations in interest rates to or under which Holdings 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 Holdings at the time that such Subsidiary of Holdings 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 Holdings 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 Holdings or any Subsidiary of
Holdings) and proceeds from the conversion of other property received when
converted to cash or cash equivalents, net of (i) brokerage commissions and
other fees and expenses (including fees and expenses of counsel and investment
bankers) related to such Asset Sale, (ii) provisions for all taxes (whether or
not such
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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 Holdings
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 Holdings or any Subsidiary of Holdings 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 Debentures, (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 Debentures 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
Debentures; provided that any Capital Stock that would not constitute Redeemable
Stock but for provisions thereof giving holders thereof the right to require
Holdings 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 Debentures 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 Debentures upon Change of
Control" covenants described in "--Covenants" below and such Capital Stock
specifically provides that Holdings will not repurchase or redeem any such
Capital Stock pursuant to such provisions prior to Holdings' repurchase of
Debentures required to be repurchased by Holdings under the "Limitation on Asset
Sales" and "Repurchase of Debentures upon Change of Control" covenants described
below.
"Restricted Subsidiary" is defined to mean any Subsidiary of Holdings other than
an Unrestricted Subsidiary.
"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.
"Significant Subsidiary" is defined to mean, at any date of
determination, any Subsidiary of Holdings that, together with its Subsidiaries,
(i) for the most recent fiscal year of Holdings, accounted for more than 10% of
the consolidated revenues of Holdings or (ii) as of the end of such fiscal year,
was the owner of more than 10% of the consolidated assets of Holdings, all as
set forth on the most recently available consolidated financial statements of
Holdings and its consolidated Subsidiaries for such fiscal year prepared in
conformity with GAAP.
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"Silgan Credit Agreement" is defined to mean the Credit Agreement dated
as of August 1, 1995, among Silgan, 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 thereof (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
Silgan whose obligations are Guaranteed by Silgan 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 Silgan Credit Agreement, such agreement shall only be the Silgan
Credit Agreement under the Indenture if a notice to that effect is delivered by
Holdings or Silgan to the Trustee and there shall be at any time only one debt
instrument that is the Silgan Credit Agreement under the Indenture.
"Silgan Indebtedness" is defined to mean any Indebtedness of Silgan or
any of its Subsidiaries (including, without limitation, any undrawn commitments
under the Silgan Credit Agreement) that is permitted to be Incurred under the
Silgan Note Indenture.
"Silgan Note Indenture" is defined to mean the indenture, dated as of
June 29, 1992, between Silgan and Shawmut Bank, N.A., as trustee, relating to
the 11-3/4% Notes, as it may be amended or supplemented from time to time by one
or more indentures supplemental thereto entered into pursuant to the applicable
provisions thereof.
"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 Holdings or any
Subsidiary of Holdings relating to Capital Stock of Holdings or any Subsidiary
of Holdings established and in effect from time to time, including, without
limitation, the Holdings Organization Agreement (as defined herein) or any stock
option plan, stock appreciation rights plan or other similar plan or agreement
for the benefit of employees of Holdings and its Subsidiaries.
"Subordinated Obligations" is defined to mean any principal of, premium,
if any, or interest on the Debentures payable pursuant to the terms of the
Debentures 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
Debentures or amounts corresponding to such principal, premium, if any, or
interest on the Debentures.
"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 Holdings or by one
or more other Subsidiaries of Holdings, 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 Holdings.
"Trade Payables" is defined to mean, with respect to any Person, any
accounts payable or any other indebtedness or monetary obligation to trade
creditors created, assumed or Guaranteed by such Person or any of its
Subsidiaries arising in the ordinary course of business in connection with the
acquisition of goods or services.
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"Transaction Date" is defined to mean, with respect to the Incurrence of
any Indebtedness by Holdings 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
Holdings 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 Holdings (including any newly acquired or newly formed
Subsidiary of Holdings) to be an Unrestricted Subsidiary unless such Subsidiary
owns any Capital Stock of, or owns or holds any Lien on any property of,
Holdings or any other Subsidiary of Holdings 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
Holdings; provided that immediately after giving effect to such designation (1)
Holdings could Incur $1.00 of additional Indebtedness under the first paragraph
in part (a) of the "Limitation on Indebtedness" covenant described in
"--Covenants" below and (2) no Event of Default, or any event that is, or after
the giving of notice or the passage of time or both would be an Event of
Default, shall have occurred and be continuing. Any such designation by the
Board of Directors shall be evidenced to the Trustee by filing promptly with the
Trustee a copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"Voting Stock" is defined to mean, with respect to any Person, Capital
Stock of any class or kind ordinarily having the power to vote for the election
of directors of such Person.
"Wholly Owned Subsidiary" is defined to mean, (i) with respect to Silgan
and Holdings, 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 Debentures are outstanding, Holdings shall
not, and shall not permit any Subsidiary (other than Silgan and its
Subsidiaries) to, Incur any Indebtedness (other than the Debentures 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 Holdings would be greater than 1.75:1.
Notwithstanding the foregoing, Holdings and its Subsidiaries (other than
Silgan and its Subsidiaries) may Incur each and all of the following: (i)
Indebtedness in an aggregate principal amount not to exceed $50 million
outstanding at any time; (ii) Indebtedness to Holdings or any Restricted
Subsidiary; (iii) Indebtedness issued in exchange for, or the net proceeds of
which are used to exchange, refinance or refund, outstanding Indebtedness, other
than Indebtedness Incurred under clauses (i) and (viii) 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 Debentures or other Indebtedness that is
subordinated in right of payment to the Debentures shall only be permitted under
this clause
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(iii) if: (A) in case the Debentures 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 Debentures, (B)
in case the Indebtedness to be exchanged, refinanced or refunded is subordinated
in right of payment to the Debentures, 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 Debentures at
least to the extent that the Indebtedness to be exchanged, refinanced or
refunded is subordinated in right of payment to the Debentures and (C) in case
the Debentures are exchanged, refinanced or refunded in part or the Indebtedness
to be exchanged, refinanced or refunded is subordinated in right of payment to
the Debentures, such Indebtedness (1) determined as of the date of Incurrence of
such new Indebtedness, does not mature prior to the Stated Maturity of the
Debentures, and the Average Life of such Indebtedness is at least equal to the
remaining Average Life of the Debentures and (2) by its terms or by the terms of
any agreement or instrument pursuant to which such Indebtedness is issued, is
not scheduled to pay interest in cash prior to the first Interest Payment Date;
and provided further that in no event may Indebtedness of Holdings that is pari
passu with, or subordinated in right of payment to, the Debentures be exchanged,
refinanced or refunded by means of Indebtedness of any Subsidiary of Holdings
pursuant to this clause (iii); (iv) Indebtedness issued in exchange for, or the
net proceeds of which are used to exchange, refinance or refund, Silgan
Indebtedness; provided that (A) 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
such new Indebtedness shall not exceed the principal amount of Silgan
Indebtedness exchanged, refinanced or refunded (plus premiums, if any, accrued
interest, fees and expenses) and (B) the Average Life of such new Indebtedness,
determined as of the date of Incurrence of such new Indebtedness, is at least
equal to the remaining Average Life of the Debentures; (v) Indebtedness Incurred
in connection with the purchase, redemption, acquisition, cancellation or other
retirement for value of shares of Capital Stock of Holdings, Silgan or any other
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 Debentures), 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 Debentures at
least to the extent that the Debentures are subordinated in right of payment to
Senior Indebtedness in the event of a Holdings Merger, (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 Holdings (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 Debentures upon a Change of
Control" covenants and such Indebtedness specifically provides that Holdings
will not repurchase or redeem such Indebtedness pursuant to such provisions
prior to Holdings' repurchase of the Debentures required to be repurchased by
Holdings under the "Limitation on Asset Sales" and "Repurchase of Debentures
upon a Change of Control" covenants) at any time prior to the Stated Maturity of
the Debentures and (C) the scheduled maturity of all principal of such
Indebtedness is beyond the Stated Maturity of the Debentures; (vi) Guarantees of
Indebtedness of Silgan and other Restricted Subsidiaries under the Silgan Credit
Agreement ; (vii) 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 Holdings outstanding at
any time other than as a result of fluctuations in foreign currency exchange
rates or by reason
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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 Holdings 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 Holdings, other
than Guarantees of Indebtedness Incurred by any Person acquiring all or any
portion of such business, assets or Subsidiary of Holdings for the purpose of
financing such acquisition; and (viii) unsecured Indebtedness of Holdings;
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 Debentures at least to the
extent that the Debentures are subordinated in right of payment to Senior
Indebtedness in the event of a Holdings Merger, (B) determined as of the date of
Incurrence of such Indebtedness, does not mature prior to the Stated Maturity of
the Debentures, and the Average Life of such Indebtedness is greater than the
remaining Average Life of the Debentures, (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
Holdings (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 Debentures upon a Change of Control" covenants and such
Indebtedness specifically provides that Holdings will not repurchase or redeem
such Indebtedness pursuant to such provisions prior to Holdings' repurchase of
the Debentures required to be repurchased by Holdings under the "Limitation on
Asset Sales" and "Repurchase of Debentures upon a Change of Control" covenants)
at any time prior to the Stated Maturity of the Debentures and (D) by its terms
or the terms of any agreement or instrument pursuant to which such Indebtedness
is issued, is not scheduled to pay interest in cash prior to the first Interest
Payment Date.
(b) So long as any of the Debentures are outstanding, Holdings shall not
permit Silgan or any Subsidiary of Silgan to Incur any Indebtedness unless (i)
after giving effect to the Incurrence of such Indebtedness and the receipt and
application of the proceeds therefrom, the Interest Coverage Ratio of Silgan
would be greater than 2.1:1 or (ii) such Indebtedness so Incurred by Silgan or
such Subsidiary of Silgan constitutes Silgan Indebtedness; provided, however,
that any Indebtedness so Incurred pursuant to clause (i) or (ii) above may not
prohibit the payment of dividends to Holdings in amounts sufficient to make
mandatory interest and principal payments due on the Debentures at the times and
in the amount due and payable, except (A) in the event of a payment default on
such Indebtedness or certain events of bankruptcy of Silgan or such Subsidiary
of Silgan or (B) in the event of a non-payment default on such Indebtedness in
respect of which the maturity of such other Indebtedness may be accelerated, and
then until the earlier of (1) the cure or waiver of such non-payment or (2) a
period of 160 days has elapsed, unless such non-payment default has resulted in
the acceleration of such Indebtedness; and provided further, however, that in
the event the Debentures become obligations of a Successor Corporation, nothing
in this part (b) shall prohibit the Successor Corporation from assuming or
otherwise becoming liable for existing Indebtedness of Holdings or its
Subsidiaries.
(c) Notwithstanding any other provision of this "Limitation on
Indebtedness" covenant, (i) the maximum amount of Indebtedness that Holdings,
Silgan or any of their respective Subsidiaries may Incur pursuant to this
"Limitation on Indebtedness" covenant shall not be deemed to be exceeded due
solely to the result of fluctuations in the exchange rates of currencies, (ii)
for purposes of calculating the amount of Indebtedness outstanding at any time
under clause (i) of the second paragraph in part (a) of this "Limitation on
Indebtedness" covenant, no amount of Indebtedness of Holdings, Silgan or any of
their respective Subsidiaries outstanding on the Closing Date shall be
considered to be outstanding and (iii) Holdings shall not Incur any Indebtedness
that is expressly subordinated to any other Indebtedness of Holdings unless such
Indebtedness, by its terms or the terms of any agreement or instrument pursuant
to which such Indebtedness is issued, is also expressly made subordinate to the
Debentures at least to the extent that it is subordinated to such other
Indebtedness.
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(d) For purposes of determining any particular amount of Indebtedness
under this "Limitation on Indebtedness" covenant, 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, (i)
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, Holdings, 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 and (ii)
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.
(e) Notwithstanding any of the foregoing, nothing in this "Limitation on
Indebtedness" covenant shall prohibit the occurrence of (i) a Holdings Merger,
(ii) the sale of all or substantially all of the property and assets of Silgan
or its successors to Holdings, and the assumption by Holdings of all or
substantially all of the liabilities of Silgan or its successors or (iii) the
assumption by Silgan or its successors of Indebtedness represented by the
Debentures. Immediately upon the occurrence of an event specified in clause (i),
(ii) or (iii) in this part (e), parts (a) and (c) (other than clause (i)) of
this "Limitation on Indebtedness" covenant shall be of no further force and
effect, all references to Silgan in part (b) of this "Limitation on
Indebtedness" covenant shall refer to the Successor Corporation and the Interest
Coverage Ratio of the Successor Corporation required by clause (i) in part (b)
of this "Limitation on Indebtedness" covenant shall be 1.75:1. (Section 4.03)
The Holdings Guaranty prohibits Holdings from Incurring Indebtedness
(other than a Guarantee under the Silgan Credit Agreement , the Shareholder
Subordinated Notes, and Indebtedness used to refinance the Debentures as
permitted under the Silgan Credit Agreement) other than the Debentures.
Limitation on Restricted Payments
So long as any of the Debentures are outstanding, Holdings 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 Holdings or another
Restricted Subsidiary, (ii) purchase, redeem, retire or otherwise acquire for
value, any shares of Capital Stock of Holdings, 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 Holdings 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 Holdings that is subordinated in
right of payment to the Debentures or (iv) make any Investment in any Affiliate
(other than Holdings 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) Holdings 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), (iii) and (iv) 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 Holdings (determined by excluding income resulting from the transfers
of assets received by Holdings or a Restricted Subsidiary from an Unrestricted
Subsidiary) accrued on a cumulative basis during the period (taken as one
accounting period) beginning on the
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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 Holdings from
the issuance and sale permitted by the Indenture of its Capital Stock to any
Person other than a Subsidiary of Holdings (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 Holdings subsequent to the
Closing Date, or from the issuance of any options, warrants or other rights to
acquire Capital Stock of Holdings (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 Debentures) 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 Holdings 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 Holdings 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) (A) the declaration and payment in cash of stated dividends on
the Silgan 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 the Silgan Preferred Stock, Containers Mirror Preferred Stock and
Plastics Mirror Preferred Stock, in each case in connection with the
Refinancing; (iii) 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; (iv) the redemption,
repurchase, defeasance or other acquisition or retirement for value of
Indebtedness that is subordinated in right of payment to the Debentures,
including premium, if any, and accrued and unpaid interest, with the proceeds of
Indebtedness Incurred under clauses (iv) or (ix) of the second paragraph in part
(a) of the "Limitation on Indebtedness" covenant; (v) the declaration and
payment of dividends on the Common Stock of Holdings or Silgan, following an
initial public offering of the Common Stock of Holdings or Silgan, as the case
may be, of up to 6% per annum of the net proceeds received by Holdings or
Silgan, as the case may be, in such initial public offering; (vi) the purchase,
redemption, acquisition, cancellation or other retirement for value of shares of
Capital Stock of Holdings, Silgan or any other 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 (vi) of the
second paragraph in part (a) of the "Limitation on Indebtedness" covenant; (vii)
the repurchase of Common Stock of Holdings or Silgan 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 Holdings or any Subsidiary of Holdings
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);
(viii) the acquisition of Indebtedness of Holdings that is subordinated in right
of payment to the Debentures in exchange for, or out of the proceeds of a
substantially concurrent issuance of, shares of the Capital Stock of Holdings or
Silgan (other than Redeemable Stock); and (ix) payments or distributions
pursuant to or in connection with a consolidation, merger
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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 Holdings; provided that, in the case of clauses
(iii), (v), (vi) and (ix), no Event of Default, or event or condition that after
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 Debentures are outstanding, Holdings 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 Holdings or any other Restricted Subsidiary,
(ii) pay any Indebtedness owed to Holdings or any other Restricted Subsidiary,
(iii) make loans or advances to Holdings or any other Restricted Subsidiary or
(iv) transfer, subject to certain exceptions, any of its property or assets to
Holdings or any other Restricted Subsidiary.
This covenant shall not restrict or prohibit any encumbrances or
restrictions existing: (i) in the Silgan Credit Agreement, the 11-3/4% Notes
(including any agreement pursuant to which the 11-3/4% Notes were issued), the
Holdings Reset Debentures (including any agreement pursuant to which the
Holdings Reset Debentures were issued), the Debentures (including any agreement
pursuant to which the Debentures were issued) 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) 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); (iii) with respect to any Person or the property or assets of
such Person acquired by Holdings 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; (iv) 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 Holdings
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 Holdings or any Restricted Subsidiary in any manner material to
Holdings or such Restricted Subsidiary; or (v) 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 Holdings 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 Holdings or any of its Subsidiaries that secure
Indebtedness of Holdings or any of its Subsidiaries. (Section 4.05)
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Limitation on Transactions with Shareholders and Affiliates
So long as any of the Debentures are outstanding, Holdings will not, and
will not permit any Subsidiary of Holdings 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 Holdings (other than the Bank Agent or any of its
Affiliates) or any Subsidiary of Holdings or with any Affiliate of Holdings or
any Subsidiary of Holdings, except upon fair and reasonable terms no less
favorable to Holdings or such Subsidiary of Holdings 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 Holdings and any Subsidiary of Holdings or between
Subsidiaries of Holdings; (ii) transactions (A) for which Holdings or any
Subsidiary of Holdings delivers to the Trustee a written opinion of a nationally
recognized investment banking firm stating that the transaction is fair to
Holdings or such Subsidiary of Holdings 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 Holdings or any Subsidiary of
Holdings; (iv) the payment of reasonable and customary regular fees to directors
of Holdings or any Subsidiary of Holdings who are not employees of Holdings or
such Subsidiary of Holdings; (v) any payments or other transactions pursuant to
any tax-sharing agreement between Holdings and Silgan or any other Person with
which Holdings is required or permitted to file a consolidated tax return or
with which Holdings 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 Holdings or any Subsidiary of Holdings 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 Holdings or any Subsidiary of Holdings; or (viii) any transaction
contemplated by any of the Stock Based Plans.
Notwithstanding any of the foregoing, nothing in this "Limitation on
Transactions with Shareholders and Affiliates" covenant shall prohibit the
occurrence of (i) a Holdings Merger, (ii) the sale of all or substantially all
of the property and assets of Silgan or its successors to Holdings, and the
assumption by Holdings of all or substantially all of the liabilities of Silgan
or its successors or (iii) the assumption by Silgan or its successors of
Indebtedness represented by the Debentures. Immediately upon the occurrence of
an event specified in clause (i), (ii) or (iii) of the preceding sentence, all
references to Holdings in this "Limitation on Transactions with Shareholders and
Affiliates" covenant shall refer to the Successor Corporation. (Section 4.06)
Limitation on the Issuance of Capital Stock of Restricted Subsidiaries
So long as any of the Debentures are outstanding, Holdings 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 Holdings or another
Restricted Subsidiary that is a Wholly Owned Subsidiary of Holdings, (ii)
pursuant to options on such Capital Stock granted to officers 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 unsubordinated
Indebtedness of Holdings or Indebtedness of such Restricted Subsidiary, in each
case owing to a Person other
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than Holdings 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 the business of, any Restricted Subsidiary and its Subsidiaries existing
on the date thereof.
Notwithstanding any of the foregoing, nothing in this "Limitation on the
Issuance of Capital Stock of Restricted Subsidiaries" covenant shall prohibit
the occurrence of (i) a Holdings Merger, (ii) the sale of all or substantially
all of the property and assets of Silgan or its successors to Holdings, and the
assumption by Holdings of all or substantially all of the liabilities of Silgan
or its successors or (iii) the assumption by Silgan or its successors of
Indebtedness represented by the Debentures. Immediately upon the occurrence of
an event specified in clause (i), (ii) or (iii) of the preceding sentence, all
references to Holdings in this "Limitation on the Issuance of Capital Stock of
Restricted Subsidiaries" covenant shall refer to the Successor Corporation.
(Section 4.07)
Repurchase of Debentures 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 Debentures by Holdings in cash pursuant
to the offer described below (the "Change of Control Offer") at a purchase price
equal to 101% of the Accreted Value, 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, Holdings covenants to, or to
cause Silgan to, (i) repay in full all Indebtedness under the Silgan Credit
Agreement, the 11-3/4% Notes and, upon the occurrence of an event specified in
clause (i), (ii) or (iii) of paragraph (e) of this "Repurchase of Debentures
upon Change of Control" covenant, any Senior Indebtedness, or to offer to repay
in full all such Indebtedness and to repay the Indebtedness of each Bank and
each holder of 11-3/4% Notes and, upon the occurrence of an event specified in
clause (i), (ii) or (iii) of paragraph (e) of this "Repurchase of Debentures
upon Change of Control" covenant, any Senior Indebtedness, who has accepted such
offer or (ii) obtain the requisite consents under the Silgan Credit Agreement
and the 11-3/4% Notes to permit the repurchase of the Debentures as provided for
in the succeeding paragraph. Holdings shall first comply with the covenant in
the preceding sentence before it shall be required to repurchase Debentures
pursuant to this "Repurchase of Debentures upon Change of Control" covenant.
(b) Within 30 days of the Change of Control, Holdings 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 Debentures upon Change of Control" covenant and that all
Debentures 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 Debenture not tendered will continue to
accrue interest pursuant to its terms; (iv) that, unless Holdings defaults in
the payment of the Change of Control Payment, any Debenture 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 Debenture
purchased pursuant to the Change of Control Offer will be required to surrender
such Debenture, together with the form entitled "Option of the Holder to Elect
Purchase" on the reverse side of such Debenture 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
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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 Debentures delivered for purchase and a statement that such
Holder is withdrawing his election to have such Debentures purchased; and (vii)
that Holders whose Debentures are being purchased only in part will be issued
new Debentures equal in principal amount to the unpurchased portion of the
Debentures surrendered; provided that each Debenture purchased and each new
Debenture issued shall be in an original principal amount of $1,000 or integral
multiples thereof.
(c) On the Change of Control Payment Date, Holdings shall: (i) accept
for payment Debentures 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 Debentures or portions thereof so accepted; and (iii)
deliver, or cause to be delivered, to the Trustee, all Debentures or portions
thereof so accepted together with an Officers' Certificate specifying the
Debentures or portions thereof accepted for payment by Holdings. The Paying
Agent shall promptly mail, to the Holders of Debentures so accepted, payment in
an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such Holders a new Debenture equal in principal amount
to any unpurchased portion of the Debentures surrendered; provided that each
Debenture purchased and each new Debenture issued shall be in an original
principal amount of $1,000 or integral multiples thereof. Holdings 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
Debentures upon Change of Control" covenant, the Trustee shall act as Paying
Agent.
(d) Holdings 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 Debentures upon Change of Control" covenant and Holdings is
required to repurchase Debentures as described above.
(e) Notwithstanding any of the foregoing, nothing in this "Repurchase of
Debentures upon Change of Control" covenant shall prohibit the occurrence of (i)
a Holdings Merger, (ii) the sale of all or substantially all of the property and
assets of Silgan or its successors to Holdings, and the assumption by Holdings
of all or substantially all of the liabilities of Silgan or its successors or
(iii) the assumption by Silgan or its successors of Indebtedness represented by
the Debentures. Immediately upon the occurrence of an event specified in clause
(i), (ii) or (iii) of the preceding sentence, all references to Holdings in this
"Repurchase of Debentures upon a Change of Control" covenant shall refer to the
Successor Corporation. (Section 4.08)
Limitation on Asset Sales
(a) In the event and to the extent that the Net Cash Proceeds received
by Holdings 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 Holdings or any Restricted Subsidiary to Holdings 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 Holdings and its
Subsidiaries has been prepared), then Holdings 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 Holdings and its Subsidiaries
has been prepared) (A) apply an amount equal to such excess Net Cash Proceeds to
repay unsubordinated Indebtedness of Holdings or Indebtedness of such Restricted
Subsidiary, in each case owing to a Person other than Holdings 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
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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 the business of, Holdings 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, Holdings must, not later than the
fifteenth Business Day of such month, make an offer (an "Excess Proceeds Offer")
to purchase from the Holders on a pro rata basis an aggregate principal amount
of Debentures equal to the Excess Proceeds on such date, at a purchase price
equal to 101% of the Accreted Value, plus accrued interest (if any) to the date
of purchase (the "Excess Proceeds Payment"); provided, however, that if the
Debentures become obligations of a Successor Corporation no Excess Proceeds
Offer shall be required to be commenced with respect to the Debentures until the
Business Day following the date that payments are made pursuant to a similar
offer that is made to holders of the 11-3/4% Notes with respect to the 11-3/4%
Notes, and need not be commenced if the Excess Proceeds remaining after
application to the 11-3/4% Notes purchased in the offer made to the holders of
the 11-3/4% Notes are less than $5 million; and provided further, however, that
no Debentures may be purchased under this "Limitation on Asset Sales" covenant
unless the Successor Corporation shall have purchased all 11-3/4% Notes tendered
pursuant to the offers applicable thereto.
(c) Holdings 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
Debentures 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 Debenture not
tendered will continue to accrue interest pursuant to its terms; (iv) that,
unless Holdings defaults in the payment of the Excess Proceeds Payment, any
Debenture 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 Debenture purchased pursuant to the Excess Proceeds Offer
will be required to surrender the Debenture, together with the form entitled
"Option of the Holder to Elect Purchase" on the reverse side of the Debenture
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 Debentures delivered for purchase and a
statement that such Holder is withdrawing his election to have such Debentures
purchased; and (vii) that Holders whose Debentures are being purchased only in
part will be issued new Debentures equal in principal amount to the unpurchased
portion of the Debentures surrendered; provided that each Debenture purchased
and each new Debenture issued shall be in an original principal amount of $1,000
or integral multiples thereof.
(d) On the Excess Proceeds Payment Date, Holdings shall: (i) accept for
payment on a pro rata basis Debentures 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 Debentures or portions thereof so accepted; and
(iii) deliver, or cause to be delivered, to the Trustee, all Debentures or
portions thereof so accepted, together with an Officers' Certificate specifying
the Debentures or portions thereof accepted for payment by Holdings. The
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Paying Agent shall promptly mail to the Holders of Debentures so accepted
payment in an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such Holders a new Debenture equal in principal amount
to any unpurchased portion of the Debenture surrendered; provided that each
Debenture purchased and each new Debenture issued shall be in an original
principal amount of $l,000 or integral multiples thereof. Holdings 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) Holdings 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 Holdings under this "Limitation on Asset Sales" covenant and Holdings is
required to repurchase Debentures as described above.
(f) Notwithstanding the foregoing, nothing in this "Limitation on Asset
Sales" covenant shall prohibit the occurrence of (i) a Holdings Merger, (ii) the
sale of all or substantially all of the property and assets of Silgan or its
successors to Holdings, and the assumption by Holdings of all or substantially
all of the liabilities of Silgan or its successors or (iii) the assumption by
Silgan or its successors of Indebtedness represented by the Debentures.
Immediately upon the occurrence of an event specified in clause (i), (ii) or
(iii) of the preceding sentence, all references to Holdings in this "Limitation
on Asset Sales" covenant shall refer to the Successor Corporation. (Section
4.09)
Events of Default
An "Event of Default" occurs with respect to the Debentures if: (i)
Holdings defaults in the payment of principal of (or premium, if any, on) any
Debenture 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, if such provisions are then
applicable; (ii) Holdings defaults in the payment of interest on any Debenture
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, if such provisions are then applicable; (iii)
Holdings defaults in the performance of or breaches any other covenant or
agreement of Holdings in the Indenture or under the Debentures, 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
Debentures; (iv) there occurs with respect to any issue or issues of
Indebtedness of Holdings 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 Holdings 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
Holdings 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 Holdings 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 Holdings or
any Significant Subsidiary or for all or substantially all of the property and
assets of Holdings or any Significant Subsidiary
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or (c) the winding up or liquidation of the affairs of Holdings 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) Holdings 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
Holdings or any Significant Subsidiary or for all or substantially all of the
property and assets of Holdings or any Significant Subsidiary or (c) effects any
general assignment for the benefit of creditors; (viii) Holdings 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 Holdings or Silgan)
occurs and is continuing under the Indenture, the Trustee thereunder or the
Holders of at least 25% of the aggregate principal amount of the Debentures then
outstanding, by written notice to Holdings (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
Debentures then outstanding shall, declare the Default Amount to be immediately
due and payable. In the event any such declaration of acceleration occurs as a
result of (i) a Holdings Merger, (ii) the sale of all or substantially all of
the property and assets of Silgan or its successors to Holdings, and the
assumption by Holdings of all or substantially all of the liabilities of Silgan
or its successors or (iii) the assumption by Silgan or its successors of
Indebtedness represented by the Debentures, if the Silgan Credit Agreement or
any agreement pursuant to which any Senior Indebtedness that has refinanced the
Indebtedness under the Silgan Credit Agreement is in effect, such declaration
shall not become effective until the earlier of (A) five Business Days after
receipt of the Acceleration Notice by the Bank Agent and Holdings or (B)
acceleration of the Indebtedness under the Silgan Credit Agreement ; provided
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 (A) and
(B). 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 Holdings 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
Holdings or Silgan, the Default Amount 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 aggregate principal amount of the
outstanding Debentures, by written notice to Holdings and to the Trustee, may
waive all past defaults and rescind and annul a declaration of acceleration and
its consequences if (1) all existing Events of Default, other than the
non-payment of the principal of, premium, if any, and interest on the Debentures
that have become due solely by such declaration of acceleration, have been cured
or waived and (2) the rescission would not conflict with any judgment or decree
of a court of competent
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jurisdiction. (Sections 6.02 and 6.04) For information as to the waiver of
defaults, see "--Modification and Waiver."
"Default Amount" is defined to mean an amount in respect of each
outstanding Debenture equal to the sum of (i) the issue price of such Debenture
as determined in accordance with Section 1273 of the Internal Revenue Code plus
(ii) the aggregate of the portions of the original issue discount (the excess of
the amounts considered as part of the "stated redemption price at maturity" of
such Debenture within the meaning of Section 1273(a)(2) of the Internal Revenue
Code or any successor provision, whether denominated as principal or interest,
over the issue price of such Debenture) that shall theretofore have accrued
pursuant to Section 1272 of the Internal Revenue Code (without regard to Section
1272(a)(7) of the Internal Revenue Code) from the date of issue of such
Debenture (a) for each six month or shorter period ending June 15 or December 15
prior to the date of declaration of acceleration and (b) for the shorter period,
if any, from the end of the immediately preceding six month period, as the case
may be, to the date of declaration of acceleration plus (iii) accrued interest
to the date such Default Amount is paid (without duplication of any amount set
forth in clause (ii) above), less all amounts theretofore paid in respect of
such Debenture, which amounts are considered as part of the "stated redemption
price at maturity" of such Debenture within the meaning of Section 1273(a)(2) of
the Internal Revenue Code or any successor provision (whether such amounts paid
were denominated principal or interest). (Section 1.01)
The Holders of at least a majority in aggregate principal amount of the
outstanding Debentures 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 Debentures 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 Debentures 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 Debentures 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 Debentures, or
to bring suit for the enforcement of any such payment, on or after the
respective due dates expressed in its Debentures, which rights shall not be
impaired or affected without the consent of the Holder. (Section 6.07)
The Indenture requires certain officers of Holdings 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 Holdings and its Subsidiaries and
Holdings' and its Subsidiaries' performance under the Indenture and that
Holdings 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. Holdings is also obligated to notify the
Trustee of any default or defaults in the performance of any covenants or
agreements under the Indenture. (Section 4.14)
Consolidation, Merger and Sale of Assets
Holdings 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 Holdings; provided
that, in connection with any merger of Holdings with any
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Restricted Subsidiary that is a Wholly Owned Subsidiary of Holdings, no
consideration (other than common stock in the surviving Person or Holdings)
shall be issued or distributed to the stockholders of Holdings) or permit any
Person to merge with or into Holdings, unless: (i) Holdings shall be the
continuing Person, or the Person (if other than Holdings) formed by such
consolidation or into which Holdings is merged or that acquired or leased such
property and assets of Holdings 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 Holdings on all of the Debentures 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 Holdings (or any Person becoming the successor obligor on the
Debentures) is at least 1:1; provided that if the Interest Coverage Ratio of
Holdings before giving effect to such transaction is within the range set forth
in column (A) below, then the Interest Coverage Ratio of Holdings (or any Person
becoming the successor obligor on the Debentures) 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 Holdings 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 Holdings (or any
Person becoming the successor obligor on the Debentures) 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,
Holdings (or any Person that becomes the successor obligor on the Debentures)
shall have a Consolidated Net Worth equal to or greater than the Consolidated
Net Worth of Holdings immediately prior to such transaction; and (v) Holdings
delivers to the Trustee an Officer's 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 does not
apply to, and the Interest Coverage Ratio required by clause (iii) of this
"Consolidation, Merger and Sale of Assets" covenant (A) shall be 1.75:1 with
respect to, (1) a Holdings Merger, (2) the sale of all or substantially all of
the property and assets of Silgan or its successors to Holdings, and the
assumption by Holdings of all or substantially all of the liabilities of Silgan
or its successors or (3) the assumption by Silgan or its successors of
Indebtedness represented by the Debentures and (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 Holdings; 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)
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Defeasance
Defeasance and Discharge. The Indenture provides that Holdings will be
deemed to have paid and will be discharged from any and all obligations in
respect of the Debentures and the provisions of the Indenture will no longer be
in effect with respect to the Debentures on the 123rd day after the deposit
described below (except for, among other matters, certain obligations to
register the transfer or exchange of the Debentures, to replace stolen, lost or
mutilated Debentures, to maintain paying agencies and to hold monies for payment
in trust) if, among other things, (A) Holdings 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 Debentures on the Stated Maturity of such payments
in accordance with the terms of the Indenture and the Debentures, (B) Holdings
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 Holdings' 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 IRS 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 IRS 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
Holdings is a party or by which Holdings is bound, (D) the Successor Corporation
is not prohibited from making payments in respect of the Debentures by the
provisions described under "Subordination Upon Certain Events," above and (E) if
at such time the Debentures are listed on a national securities exchange,
Holdings has delivered to the Trustee an Opinion of Counsel to the effect that
the Debentures 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 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 under "Subordination Upon Certain Events"
shall not 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 Debentures on the Stated Maturity of such payments
in accordance with the terms of the Indenture and the Debentures, the
satisfaction of the provisions described in clauses (B)(ii), (C), (D) and (E) of
the preceding paragraph and the delivery by Holdings 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 Holdings
exercises its option to omit compliance with certain covenants and provisions of
the Indenture with respect to the Debentures as described
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in the immediately preceding paragraph and the Debentures 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 Debentures at the
time of their Stated Maturity but may not be sufficient to pay amounts due on
the Debentures at the time of the acceleration resulting from such Event of
Default. However, Holdings shall remain liable for such payments.
Modification and Waiver
Modifications and amendments of the Indenture may be made by Holdings
and the Trustee with the consent of the Holders of not less than a majority in
aggregate principal amount of the outstanding Debentures; 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 Debenture, (ii) reduce the principal amount of,
premium, if any, or interest on, any Debenture, (iii) change the place or
currency of payment of principal of, premium, if any, or interest on, any
Debenture, (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 Debenture, (v) modify the subordination
provisions in a manner adverse to the Holders, (vi) reduce the above-stated
percentage of outstanding Debentures 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 Debentures or (viii) reduce
the percentage of aggregate principal amount of outstanding Debentures 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 Debentures may waive compliance by Holdings with certain restrictive
provisions of the Indenture. (Section 9.02)
The Holdings Guaranty contains a covenant prohibiting Holdings 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
Silgan Credit Agreement. See "Description of Certain Silgan
Indebtedness--Description of the Silgan Credit Agreement."
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 Debentures, or for any
claim based thereon or otherwise in respect thereof, and no recourse under or
upon any obligation, covenant or agreement of Holdings contained in the
Indenture or in any of the Debentures, 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 Holdings or of any Successor Corporation. Each Holder, by accepting such
Debenture, waives and releases all such liability. (Section 11.09)
Concerning the Trustee
Fleet National Bank (formerly The Connecticut National Bank) 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
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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. (Article
Seven)
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 Holdings, 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.
DESCRIPTION OF HOLDINGS COMMON STOCK
General
Certain of the statements contained herein are summaries of the
detailed provisions of the Restated Certificate of Incorporation of Holdings
(the "Certificate of Incorporation") and are qualified in their entirety by
reference to the Certificate of Incorporation, a copy of which is filed
herewith.
Under the Certificate of Incorporation, Holdings has authority to issue
500,000 shares of Holdings Class A Stock, 667,500 shares of Holdings Class B
Stock and 1,000,000 shares of Holdings Class C Stock. Holdings has an aggregate
of 1,135,000 shares of common stock outstanding as follows: (i) 417,500 shares
of Holdings Class A Stock; (ii) 667,500 shares of Holdings Class B Stock; and
(iii) 50,000 shares of Holdings Class C Stock. Except as described below, the
rights, privileges and powers of Holdings Class A Stock and Holdings Class B
Stock are identical, with each share of each class being entitled to one vote on
all matters to come before the stockholders of Holdings.
Until the occurrence of a Change of Control (as defined in the
Certificate of Incorporation and as described below), the affirmative vote of
the holders of not less than a majority of the outstanding shares of Holdings
Class A Stock and Holdings Class B Stock, voting as separate classes, shall be
required for the approval of any matter to come before the stockholders of
Holdings, except that (i) the holders of a majority of the outstanding shares of
Holdings Class A Stock, voting as a separate class, have the sole right to vote
for the election and removal of three directors (the directors elected by the
holders of Holdings Class A Stock being referred to herein as "Class A
Directors"); (ii) the holders of a majority of the outstanding shares of
Holdings Class B Stock, voting as a separate class, have the sole right to vote
for the election and removal of all directors other than the Class A Directors
(the directors elected by the holders of Holdings Class B Stock being referred
to herein as "Class B Directors"); and (iii) the vote of not less than a
majority of the outstanding shares of Holdings Class B Stock shall be required
in certain circumstances set forth in the Certificate of Incorporation. The
holders of Holdings Class C Stock have no voting rights except as provided by
applicable law and except that such holders are entitled to vote as a separate
class on certain amendments to the Certificate of Incorporation as provided
therein. In the event Holdings sells shares of any class of its common stock to
the public, the distinctions between Holdings Class A Stock and Holdings Class B
Stock terminate, the powers, including voting powers, of Holdings Class A Stock
and Holdings Class B Stock shall be identical upon compliance with certain
provisions contained in the Certificate of Incorporation, and any Regulated
Stockholder (generally defined to mean banks) will be entitled to convert all
shares of Holdings Class C Stock held by such 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
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provisions described in clauses (i) and (ii) in the preceding paragraph shall
continue to apply from and after a Change of Control, and except as otherwise
provided in the Certificate of Incorporation with respect to its amendment.
Also, after a Change of Control, the number of Class B Directors will be
increased to five.
In the event that a vacancy among the Class A Directors or the Class B
Directors occurs at any time prior to the election of directors at the next
scheduled annual meeting of stockholders, the vacancy shall be filled, in the
case of the Class A Directors, by either (i) the vote of the holders of a
majority of the outstanding shares of Holdings Class A Stock, at a special
meeting of stockholders, or (ii) by written consent of the holders of a majority
of the outstanding shares of Holdings Class A Stock, and, in the case of the
Class B Directors, by either (i) the vote of the holders of a majority of the
outstanding shares of Holdings Class B Stock at a special meeting or
stockholders, or (ii) by written consent of the holders of a majority of the
outstanding shares of the Holdings Class B Stock.
A "Change of Control" is defined in the Certificate of Incorporation to
include the occurrence of any of the following events: (i) Messrs. Silver and
Horrigan shall collectively own, directly or indirectly, less than one-half of
the aggregate number of outstanding shares of Holdings Class A Stock owned by
them directly or indirectly on June 30, 1989 on a common stock equivalent basis,
or (ii) the acceleration of the indebtedness under the Silgan Credit Agreement
or the 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
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and restated management services agreement by and between S&H, a company wholly
owned by Messrs. Silver and Horrigan, and Holdings (as described under "Certain
Transactions--Management Agreements"), to a third party, in each case, if it
first offers such stock to: (a) Holdings, (b) the Group (defined generally to
mean, collectively, Messrs. Silver and Horrigan and their respective affiliates
and certain related family transferees and estates, with Mr. Silver and his
affiliates and certain related family transferees and estates being deemed to be
collectively one member of the Group, and Mr. Horrigan and his affiliates and
certain related family transferees and estates being deemed to be collectively
one member of the Group) and (c) BTNY, in each case on the same terms and
conditions as the proposed sale to an Investment Entity or the proposed third
party sale. In addition, in any such sale by MSLEF II, BTNY and First Plaza must
be given the opportunity to sell the same percentage of its stock to such
Investment Entity or third party. Each member of the Group may transfer shares
of stock to a third party if such holder first offers such shares to: (a) the
other member of the Group, (b) Holdings, (c) MSLEF II and (d) BTNY, in each case
on the same terms and conditions as the proposed third party sale. BTNY may
effect a sale of stock to a third party if it first offers such shares to: (a)
Holdings, (b) MSLEF II and (c) the Group, in each case on the same terms and
conditions as the proposed third party sale.
Under the Holdings Organization Agreement, either MSLEF II or the Group
has the right to require a recapitalization transaction. A recapitalization
transaction is defined as any transaction (such as a merger, consolidation,
exchange of securities or liquidation) involving Holdings pursuant to which
MSLEF II and the Group retain their proportionate ownership interest in the
surviving entity if the following conditions are met: (i) the value of any
securities of the surviving entity acquired or retained by the party not
initiating the recapitalization transaction does not exceed 67% of the
difference between (x) the value of such securities and any cash received by
such party and (y) all taxes payable as a result of the transaction, (ii) if
MSLEF II initiates the recapitalization transaction and will not own all the
voting equity securities of the surviving entity not owned by the Group, the
Group shall have the right to purchase such securities, (iii) if the Group
initiates the recapitalization transaction and will not own all of the voting
equity securities of the surviving entity, MSLEF II shall have the right to
purchase such securities, and (iv) the majority in principal amount of the
indebtedness incurred in connection with such transaction shall be held for at
least one year by persons not affiliated with either MSLEF II or any member of
the Group.
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
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Agreement (the "Post-IPO Management Services Contract"), in each case
substantially in the form agreed to pursuant to the Holdings Organization
Agreement and in each case to become effective at the time an IPO is completed.
The Post-IPO Management Services Contract provides, among other things, for the
payment to S&H of management fees of $2.0 million annually plus reimbursement of
expenses. See "Certain Transactions--Management Agreements."
Pursuant to the provisions of the Holdings Organization Agreement,
MSLEF II has agreed that it will not vote its shares of Holdings Class B Stock
in favor of any changes in the Certificate of Incorporation or By-laws of
Holdings which would adversely affect the rights of First Plaza, unless First
Plaza has consented in writing to such change. In addition, so long as First
Plaza shall hold not less than 18.73% of the issued and outstanding shares of
Holdings Class B Stock, First Plaza shall have the right to nominate one of the
Class B Directors to be elected at each annual meeting of stockholders in
accordance with the provisions of the Certificate of Incorporation, and the
holders of Holdings Class B Stock parties to the Holdings Organization Agreement
have agreed to vote their shares of Holdings Class B Stock in favor of such
nominee.
In addition, in the event that First Plaza, MSLEF II or BTNY shall
purchase any shares of Holdings Class A Stock, such purchaser has agreed that it
will vote such shares in accordance with the directions of the "holders of a
majority of the shares of Class A Stock held by the Group" (defined generally to
mean the holders of a majority of the aggregate of 417,500 shares of Holdings
Class A Stock held by Messrs. Silver and Horrigan at December 21, 1993, which at
the time of any such determination have been continuously and are held by the
Group) until such time as a Change of Control has occurred. In the event that
Messrs. Silver or Horrigan shall purchase any shares of Holdings Class B Stock,
such purchaser agrees that it will vote such shares in accordance with the
directions of MSLEF II, unless MSLEF II and First Plaza (together with their
respective affiliates) shall hold directly or indirectly less than one-half of
the aggregate number of shares of Holdings Class B Stock held by MSLEF II and
First Plaza immediately following the issuance and sale of the Holdings Stock to
First Plaza on December 21, 1993.
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
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terminate as to MSLEF II or First Plaza, as the case may be, at such time as
MSLEF II or First Plaza, as the case may be, together with its affiliates, owns
less than five percent of the issued and outstanding shares of Holdings' common
stock at any time. If, at any time or from time to time for a period of eight
years after the IPO, Holdings shall determine to register Holdings' common stock
(other than in connection with certain non-underwritten offerings), Holdings
will offer each of MSLEF II, BTNY, First Plaza and Messrs. Silver and Horrigan
the opportunity to register shares of Holdings' common stock it holds in a
"piggyback registration."
The Stockholders Agreement prohibits the transfer prior to June 30,
1999 (or, in the case of any restriction applicable to First Plaza, December 21,
1998) by MSLEF II, First Plaza or Messrs. Silver or Horrigan of Holdings' common
stock without the prior written consent of Messrs. Silver and Horrigan and MSLEF
II, except for (i) transfers made in connection with a public offering or a Rule
144 Open Market Transaction (as defined in the Stockholders Agreement), (ii)
transfers made to an affiliate, which, in the case of a transfer by First Plaza
or MSLEF II to an affiliate, must be an Investment Entity (defined generally to
be any person who is primarily engaged in the business of investing in
securities of other companies and not taking an active role in the management or
operations of such companies), (iii) transfers made to certain family members of
Messrs. Silver and Horrigan or trusts for the benefit of those family members,
(iv) certain transfers by First Plaza to a third party that comply with certain
rights of first refusal of the Group and MSLEF II set forth in the Stockholders
Agreement, (v) certain transfers by MSLEF II to an Investment Entity or, in the
event of certain defaults under the amended and restated management services
agreement between S&H and Holdings, to a third party, that comply with certain
rights of first refusal of the Group set forth in the Stockholders Agreement,
(vi) certain transfers by either member of the Group to a third party that
comply with certain rights of first refusal of the other member of the Group and
MSLEF II set forth in the Stockholders Agreement, and (vii) in the case of MSLEF
II, a distribution of all or substantially all of the shares of Holdings' common
stock then owned by MSLEF II to the partners of MSLEF II (a "MSLEF
Distribution"). Notwithstanding the foregoing, MSLEF II may pledge its shares of
Holdings' common stock to a lender or lenders reasonably acceptable to Holdings
to secure a loan or loans to MSLEF II. In the event of any proposed foreclosure
of 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
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Agreement) as members of the Board of Directors of Holdings; provided, however,
that at least one (1) of such nominees shall be Mr. Silver or Mr. Horrigan and
the other person, if not Mr. Silver or Mr. Horrigan, shall be a person
reasonably acceptable to MSLEF II, so long as MSLEF II and its affiliates (other
than any affiliate which is not an Investment Entity and excluding the limited
partners of MSLEF II who may acquire shares of Holdings' common stock from MSLEF
II in a MSLEF Distribution) shall hold at least one-half of the number of shares
of Holdings' common stock held by MSLEF II at December 21, 1993 (as adjusted, if
necessary, to take into account any stock dividend, stock split, combination of
shares, subdivision or recapitalization of the capital stock of Holdings).
Subject to the terms of the preceding two paragraphs, for so long as
the Group shall hold at least one-half of the number of shares of Holdings'
common stock held by it in the aggregate at December 21, 1993 (as adjusted, if
necessary, to take into account any stock dividend, stock split, combination of
shares, subdivision or recapitalization of the capital stock of Holdings), First
Plaza and its Restricted Voting Transferees shall vote all shares of Holdings'
common stock held by them in favor of any other directors standing for election
to Holdings' Board of Directors for whom the holders of a majority of the shares
of Holdings' common stock held by the Group shall direct First Plaza to vote.
The Stockholders Agreement further provides that until December 21,
1998, MSLEF II and its Restricted Voting Transferees shall vote all shares of
Holdings' common stock held by them against any unsolicited merger, or sale of
Holdings' business or its assets, if such transaction is opposed by the holders
of a majority of the shares of common stock held by the Group, unless as of the
applicable record date for such vote, the Group holds less than ninety percent
(90%) of the number of shares of Holdings' common stock held by it in the
aggregate at December 21, 1993 (as adjusted, if necessary, to take into account
any stock dividend, stock split, combination of shares, subdivision or
recapitalization of the capital stock of Holdings). Until December 21, 1998,
First Plaza and its Restricted Voting Transferees shall vote all shares of
common stock 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 CERTAIN SILGAN INDEBTEDNESS
Description of the Silgan Credit Agreement
The following is a summary of the terms of the Silgan Credit Agreement.
The Available Credit Facility. Pursuant to the Silgan 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
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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 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 Silgan 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 Silgan 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 Silgan 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.
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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
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 Silgan 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 Silgan Credit Agreement) in any
fiscal year during the Silgan 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 Silgan 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 Silgan
Credit Agreement, all as provided in the Silgan 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
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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 Silgan 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 commitment commission calculated as
1/2 of 1% (decreasing to 3/8 of 1% under certain circumstances, as set forth in
the Silgan 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 Silgan 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 Silgan Credit Agreement, the maturity of
all amounts outstanding under the Silgan Credit Agreement.
The Silgan 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 Silgan 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 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 Debentures, (3) dividends with the proceeds from Retained Excess Cash
Flow (as defined in the Silgan 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 Debentures or any Refinancing Indebtedness issued by Holdings, (4)
dividends under certain circumstances as provided in the Silgan 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 Silgan 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
Silgan 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:
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(a) certain indebtedness existing on the date of the Silgan 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 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 Silgan Credit Agreement; (vii) to enter into
transactions with affiliates; (viii) to make certain capital expenditures,
except for, among other things, capital expenditures which do not exceed in the
aggregate for the Borrowers $65 million for each calendar year during the term
of the Silgan 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 Silgan
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
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 Silgan 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.
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The Silgan 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
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 Silgan 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 under the Silgan Credit Agreement, the current
portion of any loans made by Silgan to Containers or Plastics,
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and accrued interest on the current portion of loans under the Silgan Credit
Agreement, the 11-3/4% Notes, the 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;
(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
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(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 Silgan 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
Silgan Credit Agreement and (ii) the amount of all unpaid drawings for letters
of credit issued under the Silgan 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 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 Silgan Credit Agreement the proceeds of which are used to
refinance, redeem or repay outstanding 11-3/4% Notes, 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 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 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 Silgan Credit Agreement, and (6) the aggregate principal
amount of certain 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,
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Indebtedness consisting of capitalized lease obligations existing as of the
effective date of the Silgan Credit Agreement or permitted to be incurred
pursuant to the Silgan Credit Agreement are excluded.
For purposes of the various computations under the Silgan 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 Silgan 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 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 Silgan 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
Silgan 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 Silgan
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 Silgan 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 Silgan 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 Silgan 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 Silgan Credit Agreement; (viii)
the failure of Holdings to own 100% of the capital stock of Silgan; (ix) a
Change of Control (as defined in the Silgan 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).
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Upon the occurrence of any event of default under the Silgan 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 Silgan 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 the 11-3/4% Notes
Silgan sold the 11-3/4% Notes in a public offering on June 29, 1992. The
11-3/4% Notes bear interest at a rate of 11-3/4% per annum. The 11-3/4% Notes
are redeemable at any time on and after June 15, 1997 at the option of Silgan,
in whole or in part, 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. In the event of a Change of Control, each holder of the
11-3/4% Notes may require Silgan to repurchase its 11-3/4% Notes at 101% of the
principal amount plus accrued interest. The indenture relating to the 11-3/4%
Notes (the "11-3/4% Notes Indenture") contains certain covenants that, among
other things, direct the application of the proceeds from certain asset sales,
limit the ability of Silgan and its subsidiaries to incur indebtedness, make
certain payments with respect to their capital stock, make prepayments of
certain indebtedness, make loans or investments to entities other than
Restricted Subsidiaries (as defined in the 11-3/4% Notes Indenture), enter into
transactions with affiliates, engage in mergers or consolidations, and, with
respect to Silgan's subsidiaries, issue stock.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain federal income tax
consequences associated with the purchase, ownership and disposition of the
Debentures 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
on laws, Treasury regulations, proposed regulations, rulings and judicial
decisions in effect at the time the Debentures 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 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 OID regulations issued on January 27, 1994
(the "Final Regulations"), which generally followed the 1992 Proposed
Regulations.
This summary deals only with investors who will hold the Debentures as
"capital assets" within the meaning of Section 1221 of the Code (generally
property held for investment). It does not address all aspects of the federal
income tax consequences of holding Debentures that may be relevant to a
particular investor in the context of such investor's individual investment
circumstance or to investors in special tax situations, such as life insurance
companies, banks, tax-exempt organizations, dealers in securities and foreign
persons or foreign entities. This summary does not discuss tax consequences
under state, local, or foreign tax laws. Persons considering the purchase of
Debentures should consult 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 Debentures and constitutes the
opinion of Winthrop, Stimson, Putnam & Roberts, counsel to Holdings. Such
opinion represents its best legal judgment, but it will not be binding on the
IRS or the courts. Holdings adopted the positions described below as reflecting
the appropriate federal income tax treatment of the Debentures. Holdings 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.
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Certain provisions of the Code applicable to the issuance, purchase,
ownership and disposition of the Debentures were added or substantially modified
by legislation enacted at or about the time the Debentures were issued. Although
the 1986 Proposed Regulations addressed some aspects of these provisions, final
regulations, rulings or judicial decisions providing definitive guidance as to
the interpretation of certain relevant provisions did not exist at the time the
Debentures were originally issued. Moreover, the 1986 Proposed Regulations were
ambiguous in certain respects, and their potential application to the Debentures
was unclear in certain respects. While the Final Regulations resolve certain
issues raised by the 1986 Proposed Regulations, they are generally not
retroactive. Instead, 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 Debentures to that extent. However, the Final
Regulations apply to sales and exchanges that occur on or after April 4, 1994,
and may be relied upon for sales and exchanges that occur on or after December
22, 1992.
The discussion set forth below with respect to the tax treatment of the
holder relating to OID, market discount and premium assumes that the Debentures
are subject to the Applicable High Yield Discount Rules (as described below),
but that no portion of the tax deduction for OID will be disqualified and
treated as dividend income because their yield does not exceed six percentage
points plus the applicable Federal rate in effect as of the date of original
issue. For a discussion of the special tax treatment of holders of the
Debentures and Holdings because the Debentures are subject to such rules, see
the discussion below under "Applicable High Yield Discount Rules."
Original Issue Discount on the Debentures. The Debentures were issued
with "OID" within the meaning of Section 1273 of the Code. Holders of the
Debentures (including holders who are cash basis taxpayers) will be required to
include such OID in income as interest on a constant yield to maturity basis
prior to the receipt of cash attributable to such income as described below.
OID is the difference between a Debenture's "stated redemption price at
maturity" and its "issue price." The issue price of a Debenture is the initial
offering price to the public (excluding underwriters or wholesalers) at which
price a substantial amount of such Debentures were sold. The 1986 Proposed
Regulations state that the stated redemption price at maturity of a debt
instrument is the sum of its principal amount plus all other payments required
thereunder, other than "qualified periodic interest payments." The interest
payments on the Debentures do not constitute "qualified periodic interest
payments," and thus will be included along with principal in the stated
redemption price at maturity of the Debentures. As a result, each Debenture was
issued with OID in an amount equal to the excess of (i) the sum of its principal
amount and all stated interest payments over (ii) its issue price.
The Debentures had an issue price (for each $1,000 principal amount) of
$601.58. Based upon the discussion in the preceding paragraph, the stated
redemption price at maturity of the Debentures is $1,861.25 (for each $1,000
principal amount). Therefore, subject to the discussion below, the Debentures
had OID at original issue (for each $1,000 principal amount) in the amount of
$1,259.67.
A holder of a Debenture must include in income as interest the OID on the
Debenture as it accrues, but (except as discussed below with respect to market
discount) such holder will not be required to include in income any cash
payments received by such holder on the Debenture even if such payment is
denominated as interest. The amount required to be included in a holder's income
as OID in a taxable year will be determined by allocating to each day during
such taxable year on which the holder holds the Debenture a pro rata portion of
the OID on the Debenture attributable to the accrual period (that is, the
six-month period that ends on a day of the calendar year corresponding to the
maturity date or the date six months before such maturity date) in which such
day is included. The amount of OID attributable to an accrual period is the
product of (i) the adjusted issue price at the beginning of such accrual period
(that is, the issue price plus OID attributable to
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prior accrual periods (disregarding any reduction on account of an Acquisition
Premium (as defined below)) less any cash payments during such prior accrual
periods) multiplied by (ii) their yield to maturity of 13.25% (divided by the
number of accrual periods per year). If a holder pays an Acquisition Premium (as
defined below) for a Debenture, the amount of such premium will reduce the
amount of OID that such holder must include in income with regard to that
Debenture. Further, if a holder purchases a Debenture 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, market discount (as such may be adjusted by amortization
of premium and Acquisition Premium; see "--Acquisition 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 "--Acquisition Premium" below. Holders are urged to consult with their tax
advisors with regard to the advisability of making such an election.
Holdings' option to redeem the Debentures at any time after issuance at
100% of their principal amount plus accrued and unpaid interest to the
redemption date will be treated as a "call option" within the meaning of the
1986 Proposed Regulations. As a result, Holdings will be presumed under the 1986
Proposed Regulations to exercise its option to redeem the Debentures if, by
utilizing the date of exercise of the call option as the maturity date and the
amount for which the Debentures could be redeemed in accordance with the terms
of the redemption feature as the stated redemption price at maturity, the yield
on the Debentures would be lower than such yield would be if the option were not
exercised. Under this rule, Holdings' option to redeem the Debentures should not
be presumed exercised since the Debentures should have a yield of 13.25%,
compounded semi-annually, regardless of when they are called.
A holder's initial tax basis in a Debenture will be equal to the price
paid for such Debenture. A holder's basis in a Debenture will be increased by
the amount of any OID includible in the holder's income under the rules
discussed above (and by any market discount includible in the holder's income
under the rules described below) and decreased by any cash payments (other than
qualified periodic interest payments) received by such holder with respect to
the Debenture.
Additional Original Issue Discount Considerations. If a holder owns both
the Debentures and the 11-3/4% Notes, or possibly if a holder owns only the
Debentures, but the Debentures are not traded on an established securities
market, the 1986 Proposed Regulations could, under certain circumstances, be
interpreted to require that such debt instruments be aggregated and treated as a
single debt instrument for purposes of computing OID, which treatment could
result in a distortion in the amount of OID included in income by holders of the
Debentures. In any event, a holder of the Debentures who does not also hold the
11-3/4% Notes should not be subject to these aggregation rules if the Debentures
are treated as separately traded on an established securities market. Moreover,
absent further clarification of the 1986 Proposed Regulations, Holdings does not
intend to treat any of the Debentures as being subject to these aggregation
rules.
If Holdings is considered to have issued the Debentures with an intention
to call them prior to maturity, then any gain realized on the sale or redemption
of such Debentures would be treated as ordinary income to the extent that the
entire OID on the Debentures exceeded the OID previously includible in the
income of any holder (disregarding any reduction on account of an Acquisition
Premium). The 1986 Proposed Regulations do not describe what constitutes an
intention to call prior to maturity. Under the 1986 Proposed Regulations the
existence of provisions such as the optional call feature could be interpreted
by the IRS as indicating such an intention.
Disposition of Debentures. Generally any sale or redemption of Debentures
will result in taxable gain or loss equal to the difference between the amount
of cash or other property received and the holder's adjusted
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tax basis in the Debentures. Generally, a holder's adjusted tax basis will equal
the amount paid for the Debenture, adjusted as described above under the OID
rules and as described below under the rules relating to market discount and
premium. Except to the extent that the market discount rules described below
apply, such gain or loss generally would be capital gain or loss if the
Debentures were held as a capital asset and if at the time the Debentures were
issued Holdings did not have an intention to call the Debentures before
maturity. Any capital gain or loss would be long-term gain or loss if the
Debentures were held for the applicable long-term holding period (currently,
more than one year).
Market Discount. The sale of the Debentures 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 a Debenture is less than the revised issue
price of the Debenture. 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 stated
redemption price of the debt instrument at maturity (or possibly, in the case of
the Debentures, their revised issue price when acquired) multiplied by the
number of complete years (that is, rounding down for partial years) to maturity
(after the holder acquires the instrument). The revised issue price for a
Debenture equals the issue price plus the amount of OID includible in the income
of all holders for periods prior to a holder's acquisition (disregarding any
deduction on account of an Acquisition Premium), presumably less any cash
payments on the Debentures.
Generally, a holder of a Debenture who acquires the Debenture with market
discount will be required to treat any gain realized upon the sale or other
disposition of such Debenture 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 Debenture. 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 a Debenture 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 Debenture 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 a Debenture, even though the disposition would not otherwise be taxable.
If principal is paid in more than one installment, any partial principal
payment must be included in gross income as ordinary income to the extent such
payment does not exceed accrued market discount on the instrument. This rule
presumably would apply to a holder of a Debenture with market discount if such
Debenture were redeemed in part. Furthermore, if a cash payment that is
denominated as an interest payment is received, the holder must include in
income at the time such cash payment is received the portion of the unrecognized
market discount that accrued prior to the receipt of such cash payment (up to
the amount of such payment).
Generally, a holder of a Debenture who has acquired the Debenture with
market discount will also be required to defer deduction of a portion of
interest on debt incurred or continued to purchase or carry the Debenture until
disposition of the Debenture in a taxable transaction. If a holder incurs or
continues indebtedness to purchase or carry a Debenture acquired at a market
discount, "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 on which the Debenture was held
by the 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) includible in gross income for
the taxable year with respect to the Debenture. 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 Debenture, including OID, less interest on indebtedness
incurred or continued to purchase or carry the Debenture) for such year, if a
proper election is made. Disallowed interest
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deductions, if any, remaining at the time of any taxable disposition of the
Debenture 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
Debenture. If a holder so elects, the foregoing rules regarding the treatment as
ordinary income of gain upon a disposition of the Debenture and upon receipt of
certain cash payments, and regarding the deferral of interest deductions on
indebtedness related to a Debenture, 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 taxable year for which the
election is made, and all subsequent taxable years of the holder, unless the IRS
consents to a revocation of the election. Holders are urged to consult their own
tax advisors with regard to the advisability of making such an election, or any
of the other elections with respect to market discount (including the Constant
Yield Election) described above.
The market discount rules of the Code do not completely address the
treatment of market discount on a debt instrument having the deferred interest
feature of the Debentures, and Treasury regulations implementing the market
discount rules have not been promulgated. Therefore, the treatment of the
Debentures under those market discount rules is not entirely clear and holders
are urged to consult their own tax advisors in respect of such treatment.
Acquisition Premium. A purchaser of a Debenture who acquires such
Debenture at a cost in excess of its adjusted issue price and less than or equal
to (x) in the case of Debentures purchased before December 22, 1992, its stated
redemption price at maturity, reduced by the amount of any payment previously
made on the Debenture, and (y) in the case of Debentures purchased on or after
December 22, 1992, the sum of all amounts payable on the Debenture after the
purchase date, will be considered to have purchased such Debenture at an
"Acquisition Premium." Under the Acquisition Premium rules contained in the
Code, generally, such purchaser will be entitled to a reduction in the amount of
OID otherwise includible in income with respect to such Debenture. If a holder
purchases a Debenture for a cost in excess of (x) in the case of Debentures
purchased before December 22, 1992, its stated redemption price at maturity,
reduced by the amount of any payment previously made on the Debenture, and (y)
in the case of Debentures purchased on or after December 22, 1992, the sum of
all amounts payable on the Debenture after the purchase date, such holder should
consult a tax advisor to determine the advisability of an election, if
available, to amortize as an offset to interest income such excess as bond
premium pursuant to Code Section 171 (with a corresponding reduction to the
holder's tax basis in the Debenture). 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. Holders are
urged to consult with their own tax advisors as to the advisability of making
such an election (or the Constant Yield Election described above).
Applicable High Yield Discount Rules. Holdings will not be entitled to an
interest deduction in respect of a Debenture in the same amount and at the same
time that a taxable holder of Debentures would be required to include OID in its
gross income because the Debentures represent AHYDOs within the meaning of
Section 163(i) of the Code. Generally, an AHYDO is defined as a corporate debt
instrument with (i) a maturity date in excess of five years from its issue date,
(ii) a yield to maturity equal to, or in excess of, five percentage points plus
the "applicable federal rate" ("AFR") in effect for the month in which the debt
instrument is issued, and (iii) "significant OID." The AFR is a Treasury related
interest rate that changes from month to month and is published by the IRS for
long-term, mid-term, and short-term debt instruments, in each case, about two
weeks before becoming effective for a particular month.
Under Section 163(e)(5) and (i) of the Code, a corporate issuer of an
AHYDO generally is not allowed a deduction for the disqualified portion of the
OID on the obligation, and the remainder of the OID is not allowable as a
deduction until paid in cash or property (other than stock or debt of the issuer
or a related party).
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The "disqualified portion" of the OID is the lesser of (i) the amount of the OID
on the instrument or (ii) the portion of the total return on such instrument
that bears the same ratio to the total return as the "disqualified yield" bears
to the yield to maturity on the instrument. The term "disqualified yield" means
the portion of the yield that exceeds the AFR plus six percentage points. A
holder of an AHYDO must include OID in income under the general OID provisions
of the Code regardless of the deferral or disallowance of the interest deduction
to the issuer, except that, for purposes of the dividends received deduction,
corporate holders of AHYDOs would be treated as receiving distributions with
respect to the stock of the issuer (rather than interest) to the extent of the
disqualified portion of the OID and to the extent that such distribution would
have been treated as a dividend.
The Debentures have a term in excess of five years, a yield to maturity
of 13.25%, which exceeds five percentage points plus 7.74% (the AFR in effect
for June 1992) and bear significant OID. Thus, the Debentures will be treated as
AHYDOs and Holdings and holders of the Debentures will be subject to the rules
summarized above except that there will be no "disqualified portion" of OID
since their yield does not exceed the AFR plus six percentage points. As a
result, a portion of the tax deductions that would otherwise be available to
Holdings in respect of the Debentures have been and will be deferred (until
their maturity or sooner upon early repayment in cash or qualified property)
which, in turn, might reduce the after-tax cash flows of Holdings and its
subsidiaries. Holdings has been utilizing its regular and alternative minimum
tax net operating loss carryforwards available to the Company to offset (but not
eliminate) the effect of such deferral. The Company has fully utilized its
alternative minimum tax net operating loss carryforwards; thus, the deferral of
such interest deductions has increased Holdings' income for alternative minimum
tax purposes. However, Holdings still has available regular tax net operating
loss carryforwards, and the effect of such deferral on the regular federal
income tax of Holdings has been and will continue to be mitigated until such net
operating loss carryforwards are fully utilized. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Capital Resources
and Liquidity."
As explained above, because the Debentures' yield is less than the AFR
plus six percentage points, tax deductions for OID on the Debentures will be
deferred until paid in cash or qualified property, but should not be disallowed
under the AHYDO rules. Prospective purchasers should be aware, however, that the
IRS has broad authority to issue regulations under the AHYDO rules with
retroactive effect which may affect the timing or availability of tax deductions
for OID on the Debentures.
Backup Withholding. Under Section 3406 of the Code and applicable
Treasury regulations, a holder of a Debenture may be subject to backup
withholding at a rate of 31% of certain amounts paid or deemed paid (including
OID) to the holder unless such holder (i) is a corporation or comes within
certain other exempt categories and, when required, provides proof of such
exemption or (ii) 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 Debentures 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 DEBENTURES 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
DEBENTURES ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE
PARTICULAR TAX CONSEQUENCES TO THEM OF ACQUIRING, OWNING AND DISPOSING OF THE
DEBENTURES, INCLUDING THE APPLICATION OF FEDERAL, STATE, LOCAL AND FOREIGN TAX
LAWS AND POSSIBLE FUTURE CHANGES IN SUCH TAX LAWS.
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MARKET-MAKING ACTIVITIES OF
MORGAN STANLEY
The Prospectus is to be used by Morgan Stanley in connection with offers
and sales of the Debentures 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 Debentures, 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 Debentures and received an underwriting discount of $5,790,208
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 underwriter for the Silgan
Notes Offering and the purchaser for the private placement of the Secured Notes,
for which it was paid an aggregate of $5,742,500. For a description of certain
transactions between Holdings, and Morgan Stanley and affiliates of Morgan
Stanley, see "Certain Transactions."
In connection with the original offering of the Debentures, Holdings
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 Holdings and its affiliates.
LEGAL MATTERS
The legality of the Debentures has been passed on for Holdings 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 Holdings and Silgan. Winthrop, Stimson, Putnam
& Roberts from time to time represents Morgan Stanley in connection with certain
legal matters unrelated to its representation of Holdings.
EXPERTS
The consolidated financial statements of Silgan Holdings Inc. 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 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.
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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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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
SILGAN HOLDINGS INC.:
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 Deficiency in Stockholders' 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-40
Condensed Unaudited Consolidated Statements of Operations for the three
months ended March 31, 1996 and 1995.................................F-41
Condensed Unaudited Consolidated Statements of Cash Flows for the three
months ended March 31, 1996 and 1995..................................F-42
Notes to Condensed Unaudited Consolidated Financial Statements............F-43
SILGAN CORPORATION:
Report of Independent Auditors............................................F-46
Consolidated Balance Sheets at December 31, 1995 and 1994.................F-47
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994 and 1993.......................................F-48
Consolidated Statements of Common Stockholder's Equity for the years
ended December 31, 1995, 1994 and 1993.................................F-49
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993....................................................F-50
Notes to Consolidated Financial Statements................................F-52
F-1
<PAGE>
AMERICAN NATIONAL CAN COMPANY'S FOOD METAL &
SPECIALTY DIVISION:
Report of Independent Accountants.........................................F-81
Balance Sheets at December 31, 1994 and 1993..............................F-82
Statements of Operations for the years ended December 31, 1994,
1993 and 1992..........................................................F-83
Statements of Cash Flows for the years ended December 31, 1994,
1993 and 1992..........................................................F-84
Notes to Financial Statements.............................................F-85
Unaudited Balance Sheets at June 30, 1995 and 1994........................F-101
Unaudited Statements of Operations for the six months ended
June 30, 1995 and 1994.................................................F-102
Unaudited Statements of Cash Flows for the six months ended
June 30, 1995 and 1994.................................................F-103
Notes to Unaudited Financial Statements...................................F-104
ADDITIONAL FINANCIAL INFORMATION:
Silgan Holdings Inc.:
Pro Forma Unaudited Condensed Statements of Operations for the
year ended December 31, 1995 and for the three months ended
March 31, 1995.........................................................F-105
Notes to Pro Forma Unaudited Condensed Statements of Operations...........F-108
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Silgan Holdings Inc.
We have audited the accompanying consolidated balance sheets of Silgan
Holdings Inc. as of December 31, 1995 and 1994, and the related
consolidated statements of operations, deficiency in stockholders' 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 Holdings Inc. 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 12 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 HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
(Dollars in thousands)
1995 1994
Assets
Current assets:
Cash and cash equivalents $ 2,102 $ 2,682
Accounts receivable, less allowances for
doubtful accounts of $4,832 and $1,557 for
1995 and 1994, respectively 109,929 64,700
Inventories 210,471 122,429
Prepaid expenses and other current assets 5,801 8,044
Total current assets 328,303 197,855
Property, plant and equipment, net 487,301 251,810
Goodwill, net 53,562 30,009
Other assets 30,880 24,618
$900,046 $504,292
Liabilities and deficiency in stockholders' 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 43,457 21,976
Bank working capital loans 7,100 12,600
Current portion of long-term debt 28,140 21,968
Total current liabilities 254,055 121,121
Long-term debt 750,873 510,763
Deferred income taxes 6,836 6,836
Other long-term liabilities 68,086 23,570
Deficiency in stockholders' equity:
Common stock ($0.01 par value per share;
2,167,500 shares authorized, 1,135,000
shares issued and outstanding) 12 12
Additional paid-in capital 33,606 33,606
Accumulated deficit (213,422) (191,616)
Total deficiency in stockholders' equity (179,804) (157,998)
$900,046 $504,292
See accompanying notes.
F-4
<PAGE>
SILGAN HOLDINGS INC.
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 46,848 37,997 32,495
Reduction in carrying value of assets 14,745 16,729 -
Income from operations 69,821 58,358 41,799
Interest expense and other
related financing costs 80,710 65,789 54,265
Loss before income taxes (10,889) (7,431) (12,466)
Income tax provision 5,100 5,600 1,900
Loss before extraordinary
charges and cumulative effect of
changes in accounting principles (15,989) (13,031) (14,366)
Extraordinary charges relating to early
extinguishment of debt (5,817) - (1,341)
Cumulative effect of changes in accounting
principles - - (6,276)
Net loss $(21,806) $(13,031) $(21,983)
See accompanying notes.
F-5
<PAGE>
SILGAN HOLDINGS INC.
CONSOLIDATED STATEMENTS OF DEFICIENCY IN STOCKHOLDERS' EQUITY
For the years ended December 31, 1995, 1994 and 1993
(Dollars in thousands)
Total
Additional deficiency in
Common paid-in Accumulated stockholders'
stock capital deficit equity
Balance at December 31, 1992 $ 9 $18,609 $(156,602) $(137,984)
Issuance of 250,000 shares of
Class B Common Stock 3 14,997 - 15,000
Net loss - - (21,983) (21,983)
Balance at December 31, 1993 12 33,606 (178,585) (144,967)
Net loss - - (13,031) (13,031)
Balance at December 31, 1994 12 33,606 (191,616) (157,998)
Net loss - - (21,806) (21,806)
Balance at December 31, 1995 $ 12 $33,606 $(213,422) $(179,804)
See accompanying notes.
F-6
<PAGE>
SILGAN HOLDINGS INC.
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 loss $(21,806) $(13,031) $(21,983)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation 42,217 35,392 31,607
Amortization 8,083 7,075 5,488
Accretion of discount on discount
debentures 28,672 27,477 24,167
Reduction in carrying value of assets 14,745 16,729 -
Extraordinary charges relating
to early extinguishment of debt 6,301 - 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 (6,745) 7,221 1,091
Total adjustments 231,435 60,364 70,118
Net cash provided by operating
activities 209,629 47,333 48,135
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 HOLDINGS INC.
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
Proceeds from issuance of common stock - - 15,000
Repayments of long-term debt (234,506) (20,464) (42,580)
Debt financing costs (19,290) - (8,935)
Payments to former shareholders of Silgan (3,795) (6,911) -
Net cash provided (used) by financing
activities 186,909 (16,975) 65,285
Net increase (decrease) in cash and
cash equivalents (580) 2,458 (2,663)
Cash and cash equivalents at
beginning of year 2,682 224 2,887
Cash and cash equivalents at
end of year $ 2,102 $ 2,682 $ 224
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 HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
1. Basis of Presentation
Silgan Holdings Inc. ("Holdings", together with its wholly-owned
subsidiary, the "Company") is a company controlled by Silgan management and
The Morgan Stanley Leveraged Equity Fund II, L. P. ("MSLEF II"), an
affiliate of Morgan Stanley & Co., Incorporated ("MS & Co"). Holdings owns
all of the outstanding common stock of Silgan Corporation ("Silgan").
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 operating 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 HOLDINGS INC.
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 HOLDINGS INC.
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. The Company had previously reported under SFAS No. 96,
"Accounting for Income Taxes". There was no effect for the difference in
methods at 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 $1.3 million. There was no tax effect for this charge due to the
net operating loss position of the Company.
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 9.
F-11
<PAGE>
SILGAN HOLDINGS INC.
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 HOLDINGS INC.
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 24,832
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 97,415 (1) 62,893 (2)
Income (loss) before income taxes 8,730 (26,629)
Net income (loss) 1,530 (29,329)
F-13
<PAGE>
SILGAN HOLDINGS INC.
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 HOLDINGS INC.
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 HOLDINGS INC.
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 and increasing net income in 1994 by
approximately $1.3 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 HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
7. Other Assets
Other assets at December 31, 1995 and 1994 consist of the following:
1995 1994
(Dollars in thousands)
Debt issuance costs $30,148 $25,142
Other 8,027 8,275
38,175 33,417
Less: accumulated amortization (7,295) (8,799)
$30,880 $24,618
During 1995, as part of the acquisition of AN Can and the related
refinancing of its secured debt facilities and its Discount Debentures, the
Company wrote off $6.3 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 $4.9 million, $5.3 million, and $3.3 million, respectively.
8. 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.
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
13 1/4% Senior Subordinated Debentures due
December 15, 2002 201,263 228,195
779,013 532,731
Less: Amounts due within one year 28,140 21,968
$750,873 $510,763
F-17
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
8. Short-Term Borrowings and Long-Term Debt (continued)
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 507,146
$779,013
1995 Bank Credit Agreement
Effective August 1, 1995, Silgan, 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
Senior Secured Notes and to repurchase up to $75.0 million of its 13 1/4%
Senior Discount Debentures ("Discount Debentures"). In connection with
the refinancing of the Credit Agreement, the Company incurred a charge of
$5.8 million (net of taxes of $2.6 million) in 1995 for the early
extinguishment of amounts owed under existing secured debt facilities and
for the repurchase of a portion of its Discount Debentures.
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), repurchase
$57.6 million of its Discount Debentures, and incur debt issuance costs of
$19.3 million. The Company is currently permitted under the debt
facilities to make additional repurchases of its Discount Debentures prior
to June 30, 1996.
F-18
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
8. Short-Term Borrowings and Long-Term Debt (continued)
1995 Bank Credit Agreement (continued)
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. 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.
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 the Company repurchases its Discount Debentures (up to a
maximum commitment of $225.0 million). As of December 31, 1995, Holdings
had repurchased $57.6 million of Discount Debentures, 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 do 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.
F-19
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
8. Short-Term Borrowings and Long-Term Debt (continued)
1995 Bank Credit Agreement (continued)
The borrowings under the Credit Agreement may be designated by the
respective Borrowers as Base Rate or Eurodollar Rate borrowings. The Base
Rate is the 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.
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.
F-20
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
8. Short-Term Borrowings and Long-Term Debt (continued)
1993 Bank Credit Agreement
Effective December 21, 1993, Silgan, 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 Silgan. As a result of the early extinguishment
of debt, the Company incurred a net charge of $1.3 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.
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%
F-21
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
8. Short-Term Borrowings and Long-Term Debt (continued)
11 3/4% Senior Subordinated Notes (continued)
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.
13 1/4% Senior Discount Debentures
The 13 1/4% Senior Discount Debentures, which are due on December 15, 2002,
represent unsecured general obligations of Holdings, subordinate in right
of payment to the obligations of Silgan and its subsidiaries. The original
issue discount is being amortized through June 15, 1996 with a yield to
maturity of 13 1/4%. During the year ended December 31, 1995, the Company
repurchased $61.7 million face amount of its Discount Debentures for $57.6
million, including a premium of $2.0 million. The carrying amount at
December 31, 1995 of the Discount Debentures represents the face amount
less an unamortized discount of $12.1 million. From and after June 15,
1996, interest on the Discount Debentures will accrue on the principal
amount at the rate of 13 1/4% and be payable in cash semiannually. The
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 to the redemption date.
The Discount Debentures Indenture contains covenants which are comparable
to or less restrictive than those under the Credit Agreement and the 11
3/4% Notes.
9. 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.
F-22
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
9. Fair Value of Financial Instruments (continued)
Short and long-term debt: The carrying amounts of the Company's borrowings
under its working capital loans and variable-rate borrowings approximate
their fair value. The fair values of fixed-rate borrowings are based on
quoted market prices.
Letters of Credit: Fair values of the Company's outstanding letters of
credit are based on current contractual amounts outstanding.
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
13 1/4% Senior Subordinated
Debentures due
December 15, 2002 201,263 205,873 228,195 235,100
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 or foreign exchange
risks.
F-23
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
9. Fair Value of Financial Instruments (continued)
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 which mature in the year 1999. Net payments or receipts under
these agreements will be recorded as adjustments to interest expense.
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.
F-24
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
10. 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.
11. 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.
F-25
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
11. Retirement Plans (continued)
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
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.
F-26
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
11. Retirement Plans (continued)
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-27
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
11. 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.
12. 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 $5.0 million for this change in accounting
principle which represents the accumulated postretirement benefit
obligation existing as of January 1, 1993.
F-28
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
12. Postretirement Benefits Other than Pensions (continued)
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.
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 include 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
F-29
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
12. Postretirement Benefits Other than Pensions (continued)
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.
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.
13. Income Taxes
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 - - -
State - - 100
Foreign - - -
- - 100
$2,500 $5,600 $1,900
F-30
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
13. Income Taxes (continued)
Income tax expense is included in the financial statements as follows:
1995 1994 1993
(Dollars in thousands)
Income before
extraordinary charges $ 5,100 $ 5,600 $ 1,900
Extraordinary charges (2,600) - -
$ 2,500 $ 5,600 $ 1,900
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 benefit
at the U.S. Federal
income tax rate $(3,811) $(2,601) $(4,363)
State and foreign tax expense
net of Federal income benefit 1,820 2,015 1,235
Amortization of goodwill 471 576 154
Losses with no benefit 6,620 5,610 4,874
$ 5,100 $ 5,600 $ 1,900
F-31
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
13. Income Taxes (continued)
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 24,800
Deferred interest on high yield obligations 25,100 21,300
Net operating loss carryforwards 35,600 26,200
Other 1,200 4,100
Total deferred tax assets 118,200 76,400
Valuation allowance for deferred tax assets 51,636 35,836
Net deferred tax assets 66,564 40,564
Net deferred tax liabilities $ 6,836 $ 6,836
The Company files a consolidated Federal income tax return. At December
31, 1995, the Company has net operating loss carryforwards 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 had an
alternative minimum tax liability of $0.5 million in 1995 and $1.5
million in 1994. At December 31, 1995, the Company had $3.9 million of
alternative minimum tax credits which are available indefinitely to reduce
future tax payments for regular federal income tax purposes.
F-32
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
14. 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.
15. Stock Option Plans
Holdings, 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, Holdings has reserved 24,000
shares of its Class C Common Stock and Containers and Plastics have each
reserved 1,200 shares of their common stock for issuance under their
respective plans. Containers has 13,764 shares and Plastics has 13,800
shares of $0.01 par value common stock currently issued, and all such
shares are owned by Silgan.
F-33
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
15. Stock Option Plans (continued)
The SARs extend to the shares covered by the options for the Containers and
Plastics plans 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' plans,
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
Containers, 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 24,000 shares
under the Holdings plan, 936 shares under the Containers plan and 1,200
shares under the Plastics plan. The exercise prices per share range from
$35 to $61 for the Holdings options, range from $2,122 and $4,933 for the
Containers options and $126 to $943 for the Plastics options. The stock
options and SARs generally become exercisable ratably over a five-year
period. At December 31, 1995, there were 16,800 options exercisable under
the Holdings plans, 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 $0.8 million in 1995; $1.5 million in 1994; and $0.2
million in 1993.
In the event of a public offering of any of Holdings' capital stock or a
change in control of Holdings, (i) the options granted by Containers and
Plastics pursuant to the plans and (ii) any stock issued upon exercise of
such options issued by Containers are convertible into either stock options
or common stock of Holdings, as the case may be. The conversion of such
options or shares will be based upon a valuation of Holdings and an
allocation of such value among the subsidiaries after giving affect to,
among other things, that portion of the outstanding indebtedness of
Holdings allocable to each such subsidiary.
F-34
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
15. Stock Option Plans (continued)
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", effective for the 1996 fiscal year. Under SFAS No. 123,
compensation expense for all stock-based compensation plans would be
recognized based on the fair value of the options at the date of grant
using an option pricing model. As permitted under SFAS No. 123, the
Company may either adopt the new pronouncement or may continue to follow
the current accounting method as prescribed under APB. Opinion No. 25,
"Accounting for Stock Issued to Employees". The Company does not intend to
adopt SFAS No. 123 for expense recognition purposes in 1996.
16. Deficiency in Stockholders' Equity
Deficiency in stockholders' equity includes the following classes of common
stock ($.01 par value) and preferred stock:
Shares
Shares Issued and Outstanding
Class Authorized December 31, 1995 and 994
A 500,000 417,500
B 667,500 667,500
C 1,000,000 50,000
2,167,500 1,135,000
Preferred Stock 1,000,000 -
The rights, privileges and powers of the Class A Common Stock and the Class
B Common Stock are identical, with shares of each class being entitled to
one vote on all matters to come before the stockholders of Holdings. The
Class C common stockholders do not have voting rights except in certain
circumstances.
F-35
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
17. 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, Silgan 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.
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.
F-36
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
18. 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, and the Company has tendered payment of $3.8 million to these
former holders. In 1994, prior to the trial for appraisal, the Company 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 the
Company made 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 Holdings and Silgan 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-37
<PAGE>
SILGAN HOLDINGS INC.
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) $736.7 $31.6 $32.5
Plastic container 219.6 13.2 159.4 13.8 19.4
Consolidated $1,101.9 $86.1 $896.1 $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 the metal container segment.
(3)Excludes charges for reduction in carrying value of assets of $7.2
million for the metal container segment and $9.5 million for the
plastic container segment, respectively.
F-38
<PAGE>
SILGAN HOLDINGS INC.
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 80.7 65.8 54.3
Corporate 1.5 1.3 1.1
Loss before income taxes $(10.8) $ (7.4) $(12.5)
Identifiable assets are reconciled to total assets as follows (in
millions):
1995 1994 1993
Identifiable assets $896.1 $498.1 $490.4
Corporate assets 3.9 6.2 7.2
Total assets $900.0 $504.3 $497.6
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-39
<PAGE>
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
March 31, March 31,
1996 1995
ASSETS
Current assets:
Cash and cash equivalents $ 5,991 $ 1,352
Accounts receivable, net 98,177 75,205
Inventories 254,092 148,501
Prepaid expenses and other current
assets 10,957 5,225
Total current assets 369,217 230,283
Property, plant and equipment, net 491,177 251,832
Goodwill, net 53,204 29,699
Other assets 29,156 22,675
$942,754 $534,489
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' 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 38,903 25,136
Bank working capital loans 60,150 15,200
Current portion of long-term debt 27,192 19,514
Total current liabilities 288,872 144,186
Long-term debt 757,501 518,280
Deferred income taxes 6,836 7,060
Other long-term liabilities 69,206 24,381
Deficiency in stockholders' equity:
Common stock 12 12
Additional paid-in capital 33,606 33,606
Accumulated deficit (213,279) (193,036)
Total deficiency in stockholders'
equity (179,661) (159,418)
$942,754 $534,489
See accompanying notes.
F-40
<PAGE>
SILGAN HOLDINGS INC.
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 243,314 174,265
Gross profit 36,546 28,999
Selling, general and administrative expenses 12,830 10,168
Income from operations 23,716 18,831
Interest expense and other related
financing costs 22,573 17,251
Income before income taxes 1,143 1,580
Income tax provision 1,000 3,000
Net income (loss) $ 143 $ (1,420)
See accompanying notes.
F-41
<PAGE>
SILGAN HOLDINGS INC.
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 (loss) $ 143 $(1,420)
Adjustments to reconcile net income (loss) to
net cash (used) provided by operating activities:
Depreciation 14,589 8,333
Amortization 1,958 1,766
Accretion of discount on discount debentures 6,628 7,517
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 1,961 9,995
Total adjustments (31,293) 5,085
Net cash (used) provided by operating activities (31,150) 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 in cash and cash equivalents 3,889 (1,330)
Cash and cash equivalents at beginning of year 2,102 2,682
Cash and cash equivalents at end of period $ 5,991 $ 1,352
Supplementary data:
Interest paid $ 10,864 $ 4,304
Income taxes paid 214 2,648
See accompanying notes.
F-42
<PAGE>
SILGAN HOLDINGS INC.
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
The accompanying condensed unaudited consolidated financial statements of
Silgan Holdings Inc. ("Holdings" 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 Holdings' 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 Holdings' 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-43
<PAGE>
SILGAN HOLDINGS INC.
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-44
<PAGE>
SILGAN HOLDINGS INC.
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 debt obligations, and certain other
adjustments as if these events had occurred as of the beginning of 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 27,308
Income before income taxes 4,728
Net income 1,078
4. 13 1/4% Senior Discount Debentures
On June 15, 1996, the Company will redeem $17.4 million face value of its
13 1/4% Senior Discount Debentures due 2002 ("Discount Debentures").
F-45
<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-46
<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-47
<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-48
<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-49
<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-50
<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-51
<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-52
<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-53
<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-54
<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-55
<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-56
<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-57
<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-58
<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-59
<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-60
<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-61
<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-62
<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-63
<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-64
<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-65
<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-66
<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-67
<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-68
<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-69
<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-70
<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-71
<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-72
<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-73
<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-74
<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-75
<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 $0.2
million in 1993.
In the event of a public offering of any of Holdings' capital stock or a
change in control of Holdings, (i) the options granted by Containers and
Plastics pursuant to the plans and (ii) any stock issued upon exercise of
such options issued by Containers are convertible into either stock options
or common stock of Holdings, as the case may be. The conversion of such
options or shares will be based upon a valuation of Holdings and an
allocation of such value among the subsidiaries after giving affect to,
among other things, that portion of the outstanding indebtedness of
Holdings allocable to each such subsidiary.
F-76
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
16. Stock Option Plans (continued)
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", effective for the 1996 fiscal year. Under SFAS No. 123,
compensation expense for all stock-based compensation plans would be
recognized based on the fair value of the options at the date of grant
using an option pricing model. As permitted under SFAS No. 123, the
Company may either adopt the new pronouncement or may continue to follow
the current accounting method as prescribed under APB Opinion No. 25,
"Accounting for Stock Issued to Employees". The Company does not intend to
adopt SFAS No. 123 for expense recognition purposes in 1996.
17. Stockholder's Equity
The Company's authorized capital stock consists of 1,000 shares each of
Class A, B, and C Common Stock ($.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-77
<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-78
<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-79
<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-80
<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-81
<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-82
<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-83
<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-84
<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-85
<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 Pichiney 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
date of the acquisition by Pechiney Corporation (see Note 1) based on
F-86
<PAGE>
FOOD METAL & SPECIALTY DIVISION
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
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 to ANC after deduction 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-87
<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-88
<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-89
<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-90
<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-91
<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 $79,333
Note 10 - Pension Liabilities
The Division sponsors defined benefit retirement plans covering certain
hourly employees of the Division. The Division's remaining hourly
employees are included in ANC-sponsored defined benefit plans or multi-
employer union plans. The Division's salaried employees are included in
defined benefit and defined contribution plans which cover substantially
all of the salaried employees of ANC. The ANC-sponsored plans for salaried
F-92
<PAGE>
FOOD METAL & SPECIALTY DIVISION
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
employees provide benefits that are based on employees' years of service
and compensation during employment with the Division. The Division through
ANC makes contributions to the defined benefit plans at least equal to the
minimum funding requirements under the Employee Retirement Income Security
Act of 1974 (ERISA).
Net periodic cost (income) for defined benefit and defined contribution
plans for the years ended December 31, 1994, 1993 and 1992 was as follows:
1994 1993 1992
Division-sponsored hourly
plans ($ 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-93
<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-94
<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-95
<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-96
<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-97
<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-98
<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-99
<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-100
<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-101
<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-102
<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-103
<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-104
<PAGE>
SILGAN HOLDINGS INC.
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 of AN Can 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 from 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 the
Company's financial position or results of operations at any future date
or for any future period.
F-105
<PAGE>
SILGAN HOLDINGS INC.
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)
361 (c)
239 (d)
Cost of goods sold 970,491 266,156 ( 4,666)(e) 1,234,863
Gross profit 131,414 36,321 1,784 169,519
74 (b)
Selling, general and 39 (d)
administrative expenses 46,848 17,982 ( 7,584)(f) 57,359
Reduction in asset carrying
value 14,745 - - 14,745
Income from operations 69,821 18,339 9,255 97,415
Interest expense and other
related financing costs 80,710 7,476 499 (g)(h) 88,685
Income (loss) before
income taxes (10,889) 10,863 8,756 8,730
Income tax provision
(benefit) 5,100 4,023 ( 1,923)(i) 7,200
Income (loss) before
extraordinary item (j) $ (15,989) $ 6,840 $ 10,679 $ 1,530
F-106
<PAGE>
SILGAN HOLDINGS INC.
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)
185 (c)
(6,296)(d)
Cost of goods sold 174,265 102,351 ( 2,000)(e) 269,204
Gross profit 28,999 6,253 7,412 42,664
107 (b)
Selling, general and ( 966)(d)
administrative expenses 10,168 9,297 (3,250)(f) 15,356
Income (loss) from
operations 18,831 (3,044) 11,521 27,308
Interest expense and other
related financing costs 17,251 3,031 2,298 (g)(h) 22,580
Income (loss) before
income taxes 1,580 ( 6,075) 9,223 4,728
Income tax provision
(benefit) 3,000 ( 2,353) 3,003 (i) 3,650
Income (loss) before
extraordinary item (j) $ ( 1,420) $ ( 3,722) $ 6,220 $ 1,078
F-107
<PAGE>
SILGAN HOLDINGS INC.
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 the Company'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 the
Company.
(e) Decreased cost of goods sold for benefits expected from the
integration of ANC Food Metal & Specialty Business with the Company'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 the Company's sales, administrative and
research functions.
(g) Estimated increase in interest expense due to additional bank
borrowings of approximately $420.0 million at rates ranging from 8.38%
to 8.88%, 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 repurchase of $75.0
million of the Company's 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-108
<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 Silgan, 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 Silgan (incorporated by reference to Exhibit
3(ii) filed with Silgan'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 Silgan'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 Holdings and
The Connecticut National Bank, as trustee, with respect to
the 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).
4.2 Indenture dated as of June 29, 1992, between Silgan and
Shawmut Bank, N.A., as Trustee, with respect to the 11-3/4%
Notes (incorporated by reference to Exhibit 1 filed with
Silgan's Current Report on Form 8-K dated July 15, 1992,
Commission File No. 33-46499).
4.3 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).
4.4 Form of Silgan'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
- ------- -----------
5 Opinion of Winthrop, Stimson, Putnam & Roberts as to the
legality of the Debentures (incorporated by reference to
Exhibit 5 filed with Amendment No. 3 to Holdings'
Registration Statement on Form S-1, dated June 19, 1992,
Registration Statement No. 33-47632).
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 Holdings' Registration
Statement on Form S-1, dated June 18, 1993, Registration
Statement No. 33-47632).
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 Silgan'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 Silgan'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 Silgan'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
Plastics Corporation (Plastics) and Monsanto Company
(incorporated by reference to Exhibit 2(iv) filed with
Silgan'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 Plastics Corporation (Plastics) and
Monsanto Company (incorporated by reference to Exhibit 2(v)
filed with Silgan'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 Silgan'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 Silgan'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 Silgan'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
Silgan (incorporated by reference to Exhibit 1 filed with
Silgan's Current Report on Form 8-K, dated March 15, 1989).
10.10 Assignment and Assumption, dated as of March 1, 1989,
between Silgan and InnoPak Plastics Corporation (Plastics)
(incorporated by reference to Exhibit 2 filed with Silgan'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 Silgan'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 Silgan'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 Silgan'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 Silgan'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 Silgan'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 Silgan'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
Silgan's
II-3
<PAGE>
Exhibit
Number Description
- ------- -----------
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 Silgan'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
Silgan, InnoPak Plastics Corporation (Plastics), Russell F.
Gervais and Aim (incorporated by reference to Exhibit 5
filed with Silgan'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 Silgan'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 Silgan'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 Silgan'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 Silgan'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 Silgan'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 Silgan'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 Silgan's Registration Statement on Form S-1, dated
II-4
<PAGE>
Exhibit
Number Description
- ------- -----------
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 Silgan'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 Silgan'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 Silgan'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 Silgan'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 Silgan'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 Silgan'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 Silgan'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 Silgan'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 Silgan's Registration Statement on Form S-1,
dated
II-5
<PAGE>
Exhibit
Number Description
- ------- -----------
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 Silgan'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 Silgan'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 Silgan'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 Silgan'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 Silgan'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 Silgan'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 Silgan'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 Silgan'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 Silgan's Registration Statement on Form
S-1, dated
II-6
<PAGE>
Exhibit
Number Description
- ------- -----------
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 Silgan'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 Silgan'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 Silgan'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
Silgan'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 Silgan'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 Silgan'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 Silgan'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 Silgan (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
Silgan'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 Silgan'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 Silgan'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 Silgan'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 Silgan'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, Silgan, 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 Silgan'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 Silgan'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 Silgan'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 Silgan'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 Silgan'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 Silgan'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 Silgan'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 Silgan'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 Silgan'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 Silgan'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 Silgan (incorporated by reference to Exhibit 5
filed with Silgan'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 Silgan'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 Silgan'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 Silgan'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
Holdings and Morgan Stanley with respect to the Discount
Debentures (incorporated by reference to Exhibit 2 filed
with Holdings' Current Report on Form 8-K dated July 15,
1992, Commission File No. 33-47632).
10.79 Underwriting Agreement, dated June 22, 1992, between Silgan
and Morgan Stanley with respect to the 11-3/4% Notes
(incorporated by reference to Exhibit 3 filed with Silgan's
Current Report on Form 8-K dated July 15, 1992, Commission
File No. 33-46499).
10.80 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).
10.81 Form of Containers Nonstatutory Restricted Stock Option and
Stock Appreciation Right Agreement (incorporated by
reference to Exhibit 10.120 filed with Holdings' Annual
Report on Form 10-K for the year ended December 31, 1992,
Commission File No. 33-28409).
10.82 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).
10.83 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).
10.84 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).
10.85 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).
10.86 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).
II-11
<PAGE>
Exhibit
Number Description
- ------- -----------
10.87 Amendment to Purchase Agreement, dated as of December 10,
1993, between Containers and Del Monte (incorporated by
reference to Exhibit 2 filed with Holdings' Current Report
on Form 8-K, dated January 5, 1994, Commission File No.
33-28409).
10.88 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).
10.89 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).
10.90 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).
10.91 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).
10.92 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).
10.93 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).
10.94 Stock Purchase Agreement, dated as of December 21, 1993,
between Holdings and First Plaza (incorporated by reference
to Exhibit 8 filed with Holdings' Current Report on Form
8-K, dated March 25, 1994, Commission File No. 33-28409).
II-12
<PAGE>
Exhibit
Number Description
- ------- -----------
10.95 Supply Agreement, dated as of September 3, 1993, between
Containers and Del Monte (incorporated by reference to
Exhibit 10.118 filed with Silgan'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 Amendment to Supply Agreement, dated as of December 21,
1993, between Containers and Del Monte (incorporated by
reference to Exhibit 10.119 filed with Silgan'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 .)
10.97 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).
10.98 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).
10.99 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).
10.100 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 Holdings' Ratio of Earnings to Fixed Charges
for the three months ended March 31, 1996 and 1995.
II-13
<PAGE>
Exhibit
Number Description
- ------- -----------
*12.2 Computations of Holdings' 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 Holdings' Annual Report on Form 10-K
for the year ended December 31, 1995, Commission File No.
33-28409).
*23.1 Consent of Ernst & Young LLP.
*23.2 Consent of Price Waterhouse LLP.
*24 Power of Attorney (included on signature page).
25 Statement of Eligibility of Trustee (incorporated by
reference to Exhibit 26 filed with Amendment No. 2 to
Holdings' Registration Statement on Form S-1, dated June 8,
1992, Registration Statement No. 33-47632).
- -------------------------
* Filed herewith.
II-14
<PAGE>
(b) Financial Statement Schedules:
-----------------------------
SILGAN HOLDINGS INC.
Report of Independent Auditors........................................S-1
I. Condensed Financial Information of Silgan Holdings Inc.:
Condensed Balance Sheet at December 31, 1995 and 1994......S-2
Condensed Statement of Operations for the years ended
December 31, 1995, 1994 and 1993....................S-3
Condensed Statement of Cash Flows for the years ended
December 31, 1995, 1994 and 1993..................... S-4
SILGAN CORPORATION
Report of Independent Auditors........................................S-5
I. Condensed Financial Information of Silgan Corporation:
Condensed Balance Sheets at December 31, 1995 and 1994.....S-6
Condensed Statements of Operations for the years ended
December 31, 1995, 1994 and 1993.....................S-7
Condensed Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993....................S-8
II. Schedules of Valuation and Qualifying Accounts for the
years ended December 31, 1995, 1994 and 1993...............S-9
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 HOLDINGS INC.
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
- --------- ----- ----
/s/ R. Philip Silver Chairman of the Board and
- --------------------
(R. Philip Silver) Co-Chief Executive Officer
(Principal Executive Officer) May 29,1996
/s/ D. Greg Horrigan
- --------------------
(D. Greg Horrigan) President, Co-Chief Executive
Officer and Director May 29, 1996
<PAGE>
Signature Title Date
- --------- ----- ----
/s/ James S. Hoch
- ----------------- Director May 29, 1996
(James S. Hoch)
/s/ Robert H. Niehaus
- --------------------- Director May 29, 1996
(Robert H. Niehaus)
/s/ Harley Rankin, Jr.
- ---------------------- Executive Vice Present, Chief
(Harley Rankin, Jr.) Financial Officer and Treasurer
(Principal Financial Officer) May 29, 1996
/s/ Harold J. Rodriguez, Jr.
- ---------------------------- Vice President, Controller and
(Harold J. Rodriguez, Jr.) Assistant Treasurer
(Principal Accounting Officer) May 29, 1996
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Silgan Holdings Inc.
We have audited the accompanying consolidated financial statements of
Silgan Holdings Inc. 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 HOLDINGS INC.
CONDENSED BALANCE SHEETS
December 31, 1995 and 1994
(Dollars in thousands)
ASSETS
1995 1994
Current assets:
Cash and cash equivalents $ 10 $ 17
Other current assets 70 -
Total current assets 80 17
Investment in and other amounts due
from subsidiary 76,636 69,526
Notes receivable-subsidiary 1,489 1,489
Debt issuance costs 3,418 5,372
$81,623 $76,404
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses $ 393 $ 4,963
Amount payable to subsidiary 59,771 1,244
Total current liabilities 60,164 6,207
Discount debentures 201,263 228,195
Deficiency in stockholders' equity:
Common stock 12 12
Additional paid-in capital 33,606 33,606
Accumulated deficit (213,422) (191,616)
Total deficiency in stockholders'
equity (179,804) (157,998)
$ 81,623 $ 76,404
See Notes to Consolidated Financial Statements for Silgan Holdings Inc.
appearing elsewhere in this Registration Statement.
S-2
<PAGE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF SILGAN HOLDINGS INC.
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 1,113 837 674
Loss from operations (1,113) (837) (674)
Equity in earnings of consolidated
subsidiaries 6,806 12,053 (2,547)
Interest expense and other related
financing costs (28,248) (29,647) (26,339)
Interest income - - 2
Loss before income taxes (22,555) (18,431) (29,558)
Income tax benefit 4,100 5,400 7,575
Loss before extraordinary charges (18,455) (13,031) (21,983)
Extraordinary charges relating to
early extinguishment of debt (3,351) - -
Net loss $(21,806) $(13,031) $(21,983)
See Notes to Consolidated Financial Statements for Silgan Holdings Inc.
appearing elsewhere in this Registration Statement.
S-3
<PAGE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF SILGAN HOLDINGS INC.
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: $ (7) $ (2) $ (196)
Cash flows from investing activities:
Investment in subsidiary - - (15,000)
Cash dividend received from subsidiary 3,795 6,911
Net cash provided (used) by
investing activities 3,795 6,911 (15,000)
Cash flows from financing activities:
Advance from subsidiary 57,596 - -
Proceeds from issuance of common stock - - 15,000
Repayment of long-term debt (57,596) - -
Payments to former shareholders
of Silgan (3,795) (6,911) -
Net cash provided (used) by
financing activities (3,795) (6,911) 15,000
Net decrease in cash and cash
equivalents (7) (2) (196)
Cash and cash equivalents at
the beginning of year 17 19 215
Cash and cash equivalents at
end of year $ 10 $ 17 $ 19
See Notes to Consolidated Financial Statements for Silgan Holdings Inc.
appearing elsewhere in this Registration Statement.
S-4
<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-5
<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-6
<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-7
<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-8
<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-9
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit
- ----------- -------
12.1 Computations of Holdings' Ratio of Earnings to Fixed Charges
for the three months ended March 31, 1996 and 1995.
12.2 Computations of Holdings' 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).
<PAGE>
EXHIBIT 12.1
COMPUTATIONS OF RATIO OF EARNINGS TO FIXED CHARGES
The following table reflects Silgan Holdings Inc.'s computations of ratio of
earnings to fixed charges for the periods indicated.
Three Months Three Months
Ended Ended
March 31, 1996 March 31, 1995
-------------- --------------
(Dollars in thousands)
Income (loss) before income taxes............ $ 1,143 $ 1,580
Add:
Interest expense and amortization
of debt expense................. 22,573 17,251
Rental expense representative of
the interest factor.............. 1,120 660
------ ------
Income as adjusted.............. $ 24,836 $ 19,491
======== ========
Fixed charges:
Interest expense and amortization
of debt expense.................. $ 22,573 $ 17,251
Rental expense representative of
the interest factor.............. 1,120 660
------ ------
Total fixed charges............. $ 23,693 $ 17,911
======== ========
Ratio of earnings to fixed charges........... 1.05 1.09
======= =======
<PAGE>
EXHIBIT 12.2
COMPUTATIONS OF RATIO OF EARNINGS TO FIXED CHARGES
The following table reflects Silgan Holdings Inc.'s computations of 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>
(Loss) before income taxes................ $(10,889) $(7,431) $(12,466) $(17,578) $(20,592)
Add:
Interest expense and amortization
of debt expense................ 80,710 65,789 54,265 57,091 55,996
Minority interest expense........ -- -- -- 2,745 3,889
Rental expense representative of
the interest factor............. 3,607 3,047 2,666 2,659 2,701
------ ------ ------ ------ ------
Income as adjusted................ $73,428 $61,405 $44,465 $44,917 $41,994
======= ======= ======= ======= =======
Fixed charges:
Interest expense and amortization
of debt expense................. $80,710 $65,789 $54,265 $57,091 $55,996
Minority interest expense......... -- -- -- 2,745 3,889
Rental expense representative of
the interest factor............. 3,607 3,047 2,666 2,659 2,701
------ ------ ------ ------ ------
Total fixed charges............... $84,317 $68,836 $56,931 $62,495 $62,586
======= ======= ======= ======= =======
Deficiency of earnings available to
cover fixed charges.................... $10,889 $ 7,431 $12,466 $17,578 $20,592
======= ======= ======= ======= =======
</TABLE>
<PAGE>
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 8, 1996 with
respect to the consolidated financial statements of Silgan Holdings Inc. and
Silgan Corporation included in the Post-Effective Amendment No. 7 to the
Registration Statement (Form S-1, No. 33-47632) and related Prospectus of Silgan
Holdings Inc. for the registration of its Senior Discount Debentures Due 2002.
/s/ ERNST & YOUNG LLP
Stamford, Connecticut
May 29, 1996
<PAGE>
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 Holdings
Inc. 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
<PAGE>
