Registration No. 333-9979
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ON
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SILGAN HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1269834
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4 Landmark Square
Stamford, CT 06901
(203) 975-7110
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Frank W. Hogan, III, Esq.
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)
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Copy to:
G. William Sisley, 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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PROSPECTUS
$56,206,000
SILGAN HOLDINGS INC.
13-1/4% SUBORDINATED DEBENTURES DUE 2006
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Interest on the 13-1/4% Subordinated Debentures due 2006 (the "Debentures")
is payable semi-annually in cash (or, on or prior to July 15, 2000,
in additional Debentures, at the option of the Company) in arrears
on January 15 and July 15 of each year.
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The Debentures will be redeemable at any time on or after July 15, 2000
at the option of Silgan Holdings Inc. (the "Company"), in whole or in part,
initially at 109.938% of their principal amount, plus accrued interest,
declining ratably to 100% of their principal amount, plus accrued interest, on
or after July 15, 2003. In addition, at any time on or prior to July 15, 2000,
the Company may redeem all (but not less than all) of the outstanding Debentures
at a redemption price equal to 110% of their principal amount, plus accrued
interest, with the net proceeds of any sale by the Company of its common stock
(the "Common Stock").
An aggregate principal amount of $56,206,000 of the Debentures was
originally issued by the Company on June 13, 1997 in exchange (the "Preferred
Stock Exchange") for all of the Company's then outstanding 13-1/4% Exchangeable
Preferred Stock Mandatorily Redeemable 2006 (the "Exchangeable Preferred
Stock").
The Debentures are subordinated indebtedness of the Company,
subordinated to all existing and future Senior Indebtedness (as defined in
"Description of Debentures--Certain Definitions") of the Company. Additionally,
because the Company is a holding company that conducts all of its business
through its subsidiaries, all existing and future liabilities of the Company's
subsidiaries will be effectively senior to the Debentures. As of July 31, 1997,
the Company and its subsidiaries had approximately $909.1 million of
indebtedness outstanding that was effectively senior to the Debentures, all of
which constituted Senior Indebtedness and approximately $609.1 million of which
was secured by the assets of the Company and its subsidiaries. At June 30, 1997,
the Company's subsidiaries also had other liabilities of approximately $269.7
million, all of which would be effectively senior to the Debentures. 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 "Risk Factors--Holding Company Structure and Subordination," "--Ability of
the Company to Incur Additional Indebtedness" and "Description of Debentures."
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 similar securities generally as
well as by any changes in the Company's financial performance and prospects. See
"Risk Factors--Trading Market for the Debentures."
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SEE "RISK FACTORS" ON PAGE 7 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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This Prospectus is to be used by Morgan Stanley & Co. Incorporated
in connection with offers and sales in market-making transactions
at negotiated prices relating to prevailing market prices at the
time of sale. Morgan Stanley & Co. Incorporated may act as
principal or agent in such transactions.
September 12, 1997
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No person is authorized in connection with any offering made hereby to
give any information or to make any representation other than as contained in
this Prospectus and, if given or made, such information or representation must
not be relied upon as having been authorized by the Company or Morgan Stanley.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy by any person in any jurisdiction in which it is unlawful for such
person to make such an offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall imply under any circumstances that
the information contained herein is correct as of any date subsequent to the
date hereof.
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TABLE OF CONTENTS
Page
Available Information................................................. 2
Information Incorporated by Reference................................. 3
Prospectus Summary.................................................... 4
Risk Factors.......................................................... 7
The Company........................................................... 14
Ratio of Earnings to Fixed Charges.................................... 17
Description of Debentures............................................. 18
Certain United States Federal Income Tax Considerations............... 45
Market-Making Activities of Morgan Stanley............................ 49
Legal Matters......................................................... 50
Experts............................................................... 50
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4, as amended by a Registration
Statement on Form S-3, 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 to which reference is made hereby. Each reference made in this
Prospectus to a document filed as an exhibit to the Registration Statement is
qualified in its entirety by reference to such exhibit for a complete statement
of its provisions.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Commission.
The Registration Statement and the exhibits and schedules thereto, as well as
all such reports and other information filed by the Company with the Commission,
can be inspected and copied at prescribed rates at the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, DC 20549, and at the
following Regional Offices of the Commission: New York Regional Office, 7 World
Trade Center, New York, New York 10048 and Chicago Regional Office, CitiCorp
Center, 500 West Madison Street, Chicago, Illinois 60661. In addition, the
Commission maintains a Web site that contains reports and other information
regarding registrants, such as the Company, that file electronically with the
Commission. The address of such Web site is "http://www.sec.gov".
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The Indenture requires the Company 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.
INFORMATION INCORPORATED BY REFERENCE
The following documents have been filed by the Company with the
Commission pursuant to the Exchange Act and are incorporated herein by reference
and made a part of this Prospectus:
1. Annual Report on Form 10-K for the fiscal year ended December 31, 1996
(File No. 000-22117).
2. Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1997
(File No. 000-22117).
3. Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1997
(File No. 000-22117).
4. Current Report on Form 8-K dated January 27, 1997 (File No. 33-28409).
5. Current Report on Form 8-K dated February 5, 1997 (File No. 33-28409).
6. Current Report on Form 8-K dated February 20, 1997 (File No. 000-22117).
7. Current Report on Form 8-K dated May 21, 1997 (File No. 000-22117).
8. Current Report on Form 8-K dated June 9, 1997 (File No. 000-22117).
9. Current Report on Form 8-K dated August 7, 1997 (File No. 000-22117).
All documents subsequently filed by the Company with the Commission
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this Prospectus shall be deemed to be incorporated by reference into
this Prospectus and to be a part hereof from the date of such filing. Any
statement contained in a document incorporated or deemed to be incorporated by
reference in this Prospectus shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement contained herein or
in any other subsequently filed document which also is or is deemed to be
incorporated by reference in this Prospectus modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person
to whom this Prospectus is delivered, upon written or oral request of such
person, a copy of any and all of the information that has been incorporated by
reference into this Prospectus (not including exhibits to the information unless
such exhibits are specifically incorporated by reference into such information).
Requests for information should be addressed to: Silgan Holdings Inc., 4
Landmark Square, Stamford, CT 06901, Attention: General Counsel (Telephone
Number (203) 975-7110).
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information contained elsewhere in
this Prospectus and the consolidated financial statements of the Company,
including the notes thereto, and the other information incorporated by reference
herein. Unless otherwise indicated or unless the context otherwise requires, all
references to the "Company" are to Silgan Holdings Inc., a Delaware corporation,
and, where appropriate, its subsidiaries. Certain of the information contained
in this summary and elsewhere in this Prospectus, and certain information
incorporated by reference into this Prospectus, including information with
respect to the Company's financial results and condition, expected operations,
cost savings, future liquidity, plans and strategy for its business and related
financing, are forward-looking statements. For a discussion of the important
factors that could cause actual results to differ materially from the
forward-looking statements, see "Risk Factors."
The Company
The Company is a leading North American manufacturer of consumer goods
packaging products that currently produces (i) steel and aluminum containers for
human and pet food, (ii) custom designed plastic containers for personal care,
health, food, pharmaceutical and household chemical products and (iii) specialty
packaging items, including metal caps and closures, aluminum roll-on closures,
plastic bowls and paper containers used by processors in the food industry. The
Company is the largest manufacturer of metal food containers in North America,
with a unit sale market share for the twelve months ended December 31, 1996 of
36% in the United States. The Company is also a leading manufacturer of plastic
containers in North America for personal care products and a major manufacturer
of metal closures for food and beverage products. The Company's strategy is to
grow its existing businesses and expand into other segments by applying its
expertise in acquiring, financing, integrating and efficiently operating
consumer goods packaging businesses.
The Company was founded in 1987 by its current Co-Chief Executive
Officers. Since its inception, the Company has acquired thirteen businesses,
including the acquisitions of substantially all of the assets of the Food Metal
and Specialty business ("AN Can") of American National Can Company ("ANC") in
August 1995 for a purchase price of approximately $362.0 million (including net
working capital of approximately $156.0 million) and the U.S. metal container
manufacturing business ("DM Can") of Del Monte Corporation ("Del Monte") in
December 1993 for a purchase price of approximately $73.3 million (including net
working capital of approximately $21.9 million). Recently, the Company acquired
the North American aluminum roll-on closure business of Alcoa Closure Systems
International, Inc. ("Alcoa"), and the North American plastic container business
of Rexam plc and Rexam Plastics Inc. ("Rexam") for an aggregate purchase price
of $42.7 million, and Finger Lakes Packaging Company, Inc. ("Finger Lakes"), the
metal food container manufacturing subsidiary of Curtice Burns Foods, Inc.
("Curtice Burns"), for a purchase price of $29.9 million.
The Company's strategy has enabled it to rapidly increase its net sales
and income from operations. The Company's net sales have increased from $630.0
million in 1992 to $1,405.7 million in 1996, representing a compound annual
growth rate of approximately 22%. During this period, the Company's income from
operations increased from $42.2 million in 1992 to $123.3 million in 1996,
representing a compound annual growth rate of approximately 31%, while the
Company's income from operations as a percentage of net sales increased 2.1
percentage points from 6.7% to 8.8% over the same period. The Company's net
sales increased $50.0 million to $657.0 million for the six months ended June
30, 1997 as compared to the same period in the prior year, and its income from
operations, before consideration of the noncash stock option charge incurred in
connection with the Company's initial public offering of its Common Stock in
February 1997, increased from $58.0 million to $70.5 million over the same
period.
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The Debentures
Debentures........... $56,206,000 principal amount of 13-1/4% Subordinated
Debentures due 2006.
Maturity............. July 15, 2006
Interest............. Interest on the Debentures is payable semiannually in
cash (or, on or prior to July 15, 2000, in additional
Debentures, at the option of the Company) in arrears on
January 15 and July 15 of each year.
Optional
Redemption.... On or after July 15, 2000, the Debentures will be
redeemable, at the option of the Company, in whole or in
part, initially at 109.938% of their principal amount,
plus accrued interest to the redemption date, declining
ratably to 100% of their principal amount, plus accrued
interest to the redemption date. In addition, at any
time, or from time to time, on or prior to July 15,
2000, the Company may, at its option, redeem all (but
not less than all) outstanding Debentures at a
redemption price equal to 110% of the principal amount
thereof, plus accrued interest to the redemption date,
with the proceeds of one or more sales of Common Stock.
See "Description of Debentures--Optional Redemption."
Ranking.............. The Debentures are subordinated indebtedness of the
Company, subordinated to the prior payment when due of
the principal of, premium, if any, and accrued interest
on, all existing and future Senior Indebtedness of the
Company (including indebtedness under the Credit
Agreement (as defined in "Risk Factors--Secured
Indebtedness") and the Company's 9% Senior Subordinated
Debentures due 2009 (the "Senior Debentures")). In
addition, the Debentures are effectively subordinated to
all liabilities (including trade payables) of the
Company's subsidiaries. As of July 31, 1997, the Company
and its subsidiaries had $909.1 million of Senior
Indebtedness outstanding (consisting of $609.1 million
of indebtedness under the Credit Agreement (all of which
is secured by the assets of the Company and its
subsidiaries) and $300 million principal amount of
Senior Debentures), and at June 30, 1997, the Company's
subsidiaries had approximately $269.7 million of other
liabilities, all of which would be effectively senior to
the Debentures. See "Risk Factors--Holding Company
Structure and Subordination" and "Description of
Debentures--Subordination."
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Certain Covenants.... The Indenture contains certain covenants which, among
other things, restrict or limit the ability of the
Company and its Restricted Subsidiaries (as defined in
"Description of Debentures--Certain Definitions") to
incur additional indebtedness; pay dividends or make
distributions in respect of their capital stock;
purchase, redeem or otherwise acquire for value shares
of their capital stock; make any voluntary or optional
principal payments or voluntary or optional redemption,
repurchase, defeasance or other acquisition or
retirement for value of any Indebtedness (as defined in
"Description of Debentures--Certain Definitions")
subordinated to the Debentures; make investments in any
affiliate or Unrestricted Subsidiary (as defined in
"Description of Debentures--Certain Definitions") of the
Company; enter into transactions with shareholders or
affiliates; create restrictions on the ability of
Restricted Subsidiaries of the Company to make certain
payments; issue or sell stock of Restricted
Subsidiaries; engage in sales of assets; and engage in
mergers or consolidations. See "Description of
Debentures--Covenants."
Change of Control.... Upon a Change of Control (as defined in "Description of
Debentures--Certain Definitions"), the Company will be
required to make an offer to purchase the Debentures at
a purchase price equal to 101% of their principal amount
on the date of purchase, plus accrued interest to the
date of purchase. See "Description of
Debentures--Covenants--Change of Control."
Risk Factors
For a discussion of certain factors that should be considered in
evaluating an investment in the Debentures, see "Risk Factors" beginning on page
7.
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RISK FACTORS
An investment in the Debentures involves a high degree of risk. The
following risk factors, together with the other information set forth in this
Prospectus and appearing in the documents incorporated by reference herein,
should be considered when evaluating an investment in the Debentures.
Certain information contained in this Prospectus and in documents
incorporated or deemed to be incorporated by reference in this Prospectus,
including information regarding the Company's financial results and condition,
expected operations, cost savings, future liquidity, plans and strategy for its
business and related financing, which are not historical facts, are forward
looking statements within the meaning of the Federal securities laws. Such
forward looking statements involve known and unknown risks and uncertainties,
including, but not limited to, factors described in this Prospectus and in
documents incorporated or deemed to be incorporated by reference in this
Prospectus, and should not be regarded as representations or guarantees of the
Company. Accordingly, the Company's actual financial results and condition,
operations, cost savings, liquidity, plans and strategy for its business and
related financing could differ materially from the information expressed or
implied in such forward looking statements.
High Leverage; Deficiency in Stockholders' Equity
The Company is highly leveraged primarily as a result of the financing
of the acquisitions of its metal and plastic container businesses. At July 31,
1997, the Company had approximately $965.3 million of total consolidated
indebtedness. The Company will likely incur additional indebtedness in the
future to finance acquisitions that it may make and any resulting increased
operating needs. See "--Ability of the Company to Incur Additional Indebtedness"
and "--Risks Associated with Growth Strategy." Additionally, as of June 30,
1997, the Company's deficiency in stockholders' equity was $84.9 million. A
significant amount of the Company's cash flow must be used to service the
Company's debt and therefore cannot be used in the Company's business. The
Company's high level of indebtedness and deficiency in stockholders' equity pose
substantial risks to holders of the Debentures.
Secured Indebtedness
The indebtedness under the Credit Agreement dated as of July 29, 1997
among the Company and certain of its subsidiaries, the lenders from time to time
party thereto (the "Banks"), Bankers Trust Company, as administrative agent and
as a co-arranger, Bank of America National Trust & Savings Association, as
syndication agent and as a co-arranger, Goldman Sachs Credit Partners L.P., as
co-documentation agent and as a co-arranger, and Morgan Stanley Senior Funding,
Inc., as co-documentation agent and as a co-arranger (as amended from time to
time, the "Credit Agreement") is secured by substantially all of the assets of
the Company and the stock of the Company's subsidiaries. The Credit Agreement
provides the Company with a total senior secured credit facility of $1.0
billion, which includes $450.0 million of term loans (all of which have been
incurred) and $550.0 million of revolving loans. In addition, under the Credit
Agreement the Banks have approved an increase of up to $200.0 million in the
amount of revolving loans available to the Company, with any such increase to be
funded by one or more of the Banks that elect to participate in such increase
but with no Bank being obligated to participate in any such increase. Revolving
loans under the Credit Agreement are available to the Company for its working
capital and general corporate purposes (including permitted acquisitions) and
generally may be borrowed, repaid and reborrowed. At July 31, 1997,
approximately $609.1 million of the Company's and its subsidiaries' indebtedness
was outstanding under the Credit Agreement and was secured by the assets of the
Company 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" and "Description of Debentures."
Under the Credit Agreement, the Banks have claims with respect to the
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assets of the Company constituting collateral and the stock of the Company's
subsidiaries that are prior to the claims of holders of the Debentures. In
addition, the Company's indebtedness under the Credit Agreement is guaranteed on
a secured basis by substantially all of the Company's subsidiaries. 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 (including the Company's indebtedness
under the Credit Agreement), such assets and stock would be available to satisfy
obligations with respect to the indebtedness under the Credit Agreement before
any payment therefrom could be made on the Debentures. To the extent such assets
were not sufficient to repay indebtedness under the Credit Agreement as well as
any other Senior Indebtedness, the holders thereof would have a claim against
the Company that is senior to any claims of the holders of the Debentures. See
"--Holding Company Structure and Subordination" and "Description of
Debentures--Subordination."
Holding Company Structure and Subordination
The Company is a holding company with no significant assets other than
its investments in and advances to its subsidiaries. The operations of the
Company are conducted through each of its wholly owned operating subsidiaries,
Silgan Containers Corporation ("Containers") and Silgan Plastics Corporation
("Plastics"). Therefore, the Company's ability to make interest and principal
payments on the Debentures 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 their
products, cost of raw materials, legislative and regulatory changes and other
factors beyond the control of such operating subsidiaries) affecting the
business and operations of such operating subsidiaries. Because the Company's
subsidiaries do not guarantee the payment of principal of or interest on the
Debentures, claims of holders of the Debentures effectively will be subordinated
to the claims of creditors of such operating subsidiaries, including trade
creditors, except to the extent that the Company may be a creditor with
recognized claims against such operating subsidiaries. At July 31, 1997,
excluding intercompany indebtedness, the Company's subsidiaries had
approximately $159.1 million of indebtedness (consisting of indebtedness under
the Credit Agreement) effectively senior to the Debentures. See "--Secured
Indebtedness," "--Ability of the Company to Incur Additional Indebtedness" and
"Description of Debentures--Subordination." In addition, the Company's
subsidiaries had other liabilities of approximately $269.7 million at June 30,
1997, all of which would be effectively senior to the Debentures.
The payment of principal on the Debentures is expressly subordinate to
the indebtedness under the Credit Agreement, the Senior Debentures and all other
future Senior Indebtedness of the Company. Because of such subordination, in the
event of the Company's bankruptcy, insolvency, liquidation, reorganization,
dissolution or other winding up, or upon the acceleration of any Senior
Indebtedness, the Banks under the Credit Agreement, the holders of the Senior
Debentures and any other holder of Senior Indebtedness must be paid in full
before the holders of the Debentures may be paid. Payments on the Debentures
might not be permitted if a default under any Senior Indebtedness exists or if
such a default would result from any such payment. In addition, although the
Credit Agreement and the Indenture impose certain limitations on the ability of
the Company to incur additional indebtedness, the Company is not prohibited
under the Indenture from incurring additional indebtedness, including additional
Senior Indebtedness, secured indebtedness and other indebtedness that is
effectively senior to or pari passu with the Debentures. At July 31, 1997, the
Company had outstanding approximately $909.1 million of Senior Indebtedness
(consisting of indebtedness under the Credit Agreement and the Senior
Debentures).
Ability of the Company to Incur Additional Indebtedness
Under the Credit Agreement, Containers and Plastics have available to
them up to $550 million of revolving loans which generally may be borrowed,
repaid and reborrowed from time to time. As of July 31, 1997, there were $159.1
million of revolving loans outstanding under the Credit Agreement. The Company
is generally permitted under the Credit Agreement to borrow revolving loans for
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working capital and general corporate purposes, including to make permitted
acquisitions. Although the Credit Agreement limits the incurrence by the Company
and it subsidiaries of additional indebtedness, the Indenture permits the
Company and it subsidiaries to incur a substantial amount of indebtedness in
addition to the Debentures, the Senior Debentures and the indebtedness that may
be incurred under the Credit Agreement, including additional Senior
Indebtedness, secured indebtedness and other indebtedness that would effectively
be senior to the Debentures. For example, the Indenture permits the Company and
it subsidiaries to incur any indebtedness if, after giving effect to the
incurrence of such indebtedness, the Company's Interest Coverage Ratio (as
defined under "Description of Debentures--Certain Definitions") is at least 1.75
to 1. For the twelve month period ended June 30, 1997, the Company's Interest
Coverage Ratio was 2.8 to 1. See "Description of
Debentures--Covenants--Limitation on Indebtedness." The Company and it
subsidiaries may make additional acquisitions in the future and may finance such
acquisitions with additional indebtedness, including Senior Indebtedness,
secured indebtedness and indebtedness effectively senior to the Debentures, as
permitted under its instruments and agreements governing its indebtedness.
Refinancing Risk
Under the Credit Agreement, revolving loans generally may be borrowed,
repaid and reborrowed from time to time until December 31, 2003, on which date
all such revolving loans mature and are payable in full. Additionally, A term
loans under the Credit Agreement are payable in installments through December
31, 2003, and B term loans under the Credit Agreement are payable in
installments through June 30, 2005. The Company will have to refinance all of
its indebtedness under the Credit Agreement prior to the maturity of the
Debentures. The Company's ability to do so will depend on, among other things,
its financial condition at the time, the restrictions in the instruments
governing its then outstanding indebtedness, and other factors, including market
conditions, which are beyond the control of the Company. There can be no
assurance that the Company will be able to refinance the Credit Agreement, and
if the Company is unable to effect any such refinancing, the Company's ability
to make payments of cash interest and principal on the Debentures would be
adversely affected. In addition, the Debentures permit the Company to incur a
substantial amount of additional indebtedness, which may mature and need to be
refinanced prior to the maturity date of the Debentures. See "--Ability of the
Company to Incur Additional Indebtedness."
Restrictive Covenants under Financing Agreements
In connection with the incurrence of its indebtedness, the Company has
entered into instruments and agreements governing such indebtedness, consisting
principally of the Credit Agreement, the Indenture and the indenture in respect
of the Senior Debentures (collectively, the "Financing Agreements"). The
Financing Agreements contain numerous restrictive covenants, including financial
and operating covenants, certain of which financial covenants become more
restrictive over time in anticipation of scheduled debt amortization and
improved operating results. Such covenants affect, and in many respects limit,
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 and make other payments in respect of its
capital stock.
The ability of the Company to satisfy such covenants and its other
obligations (including scheduled reductions of its indebtedness under the Credit
Agreement and its obligations under the Debentures and the Senior Debentures)
depends upon, among other things, the future performance of the Company, 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 the Company.
The factors described above could adversely affect the Company's
ability to meet its financial obligations, including obligations to holders of
the Debentures. These factors could also limit the ability of the Company to
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take advantage of business and investment opportunities and to effect financings
and could otherwise restrict corporate activities of the Company.
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 any covenants in any Financing Agreement or that its cash
flow will be insufficient to meet its debt service and other operating needs, it
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. See "--Secured
Indebtedness" and "--Holding Company Structure and Subordination."
Risks Associated with Growth Strategy
Historically, the Company has grown predominantly through acquisitions.
The Company's future growth will depend in large part on additional acquisitions
of consumer goods packaging businesses. To finance such acquisitions, the
Company may incur additional indebtedness, including indebtedness under the
Credit Agreement and other Senior Indebtedness, secured indebtedness and
indebtedness effectively senior to the Debentures, as permitted under the
Financing Agreements. See "--Ability of the Company to Incur Additional
Indebtedness." In pursuing its strategy of growth through acquisitions, the
Company will face risks commonly encountered with such a strategy. These risks
include failing to assimilate the operations and personnel of the acquired
businesses, disrupting the Company's ongoing business, dissipating the Company's
limited management resources, and impairing relationships with employees and
customers of the acquired business as a result of changes in ownership and
management. During the early part of this integration period, the operating
results of an acquired business may decrease from results attained prior to the
acquisition. Moreover, additional indebtedness incurred to make acquisitions
could adversely affect the Company's liquidity and financial stability.
Reliance on Major Customers
Containers has agreements (the "Nestle Supply Agreements") with Nestle
Food Company ("Nestle") pursuant to which Containers supplies a majority of
Nestle's metal container requirements, and an agreement with Del Monte (the "DM
Supply Agreement") pursuant to which Containers supplies substantially all of
Del Monte's metal container requirements. The Nestle Supply Agreements and the
DM Supply Agreement provide Containers with a potential market for a substantial
portion of its metal container output during the terms of these agreements.
Approximately 17% and 12% of the Company's sales in 1996 were to Nestle and Del
Monte, respectively. Certain of the Nestle Supply Agreements (representing
approximately 10% of the Company's 1996 sales) have been extended through 2004
in return for certain price concessions by the Company. The Company believes
that these price concessions will not have a material adverse effect on its
results of operations. The remaining Nestle Supply Agreements (representing
approximately 6% of the Company's 1996 sales) continue through 1997. However,
the Company has the right to submit a bid to Nestle, and to match any bid
received by Nestle, for the 1998 supply year with respect to the metal
containers that are the subject of such Nestle Supply Agreements. There can be
no assurance that any such bid by the Company will be made at sales prices
equivalent to those currently in effect or otherwise on terms similar to those
currently in effect. In addition, the Company cannot predict the effect, if any,
on its results of operations of matching or not matching any such bids. Under
certain limited circumstances, Del Monte, beginning in December 1998, and
Nestle, beginning in January 2000 (with respect to all of the metal containers
supplied under the Nestle Supply Agreements that have been extended through
2004), may receive competitive bids, and Containers has the right to match any
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such bids. If Containers matches a competitive bid, it may result in reduced
sales prices with respect to the metal containers that are the subject of such
competitive bid. In the event that Containers chooses not to match a competitive
bid, such metal containers may be purchased from the competitive bidder at the
competitive bid price for the term of the bid. The Company's results of
operations could be adversely affected if the Company loses significant unit
sales to Nestle and/or Del Monte as a result of a competitive bid or otherwise.
Neither the Nestle Supply Agreements nor the DM Supply Agreement require the
purchase of minimum amounts, and should Nestle's or Del Monte's demand decrease,
the Company's consolidated sales could decrease. The loss by the Company of
either Nestle or Del Monte as a customer would have a material adverse effect on
the Company's results of operations.
Dependence on Agricultural Harvest; Seasonality
The Company's metal container business sales are dependent, in part,
upon the vegetable, tomato and fruit harvests in the midwest and western regions
of the United States. The size and quality of these harvests varies from year to
year, depending in large part upon the weather conditions in those regions, and
the Company's results of operations could be impacted accordingly. The Company's
results of operations could be materially adversely affected in a year in which
crop yields are substantially lower than normal in either of the prime
agricultural regions of the United States in which the Company operates.
Because the Company sells metal containers used in fruit and vegetable
pack processing, its sales are seasonal. As is common in the packaging industry,
the Company must access working capital to build inventory and then carry
accounts receivable for some customers beyond the end of the summer and fall
packing season. Seasonal accounts are generally settled by year end. Due to the
Company's seasonal requirements, the Company expects to incur short term
indebtedness by borrowing revolving loans under the Credit Agreement to finance
its working capital requirements.
Potential Fraudulent Conveyance Liability
Various laws enacted for the protection of creditors may apply to the
incurrence by the Company of its indebtedness, including the Debentures, and the
use of the proceeds therefrom. If a court in a lawsuit by an unpaid creditor or
representative of creditors of the Company, such as a trustee in bankruptcy or
the Company as debtor in possession, were to find that, at the time of the
issuance of the Debentures in the Preferred Stock Exchange (or the issuance of
the Exchangeable Preferred Stock and the use of the proceeds therefrom), the
Company (i) was insolvent or rendered insolvent by reason thereof, (ii) was
engaged in a business or transaction for which the assets remaining with the
Company constituted or constitute unreasonably small capital, (iii) intended to,
or believed that it would, incur debts beyond its ability to pay such debts as
they matured or (iv) intended to hinder, delay or defraud its creditors, such
court could, under state or federal fraudulent conveyance law, void the
Debentures and order all payments made by the Company with respect thereto to be
returned to it or to a fund for the benefit of its creditors.
The measure of insolvency for purposes of the foregoing would vary
depending upon the law of the jurisdiction being applied. Generally, however, a
company would be considered insolvent if the sum of such company's debts were
greater than all of such company's property at a fair valuation or if the
present saleable value of the company's assets were less than the amount that
would be required to pay its probable liability on its existing debts (including
contingent liabilities) as they become absolute and matured. Accordingly, the
Company does not believe that the fact that its liabilities exceed the book
value of its assets, as reflected on its balance sheet (which is not based on
fair saleable value or fair value), would be a significant factor in any
fraudulent conveyance analysis.
The Company believes that, at the time of the issuance of the
Debentures in the Preferred Stock Exchange (and the issuance of the Exchangeable
Preferred Stock and the use of the proceeds therefrom), the Company did not come
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within any of the clauses (i) through (iv) above and that therefore the issuance
of the Debentures did not constitute a fraudulent transfer. These beliefs are
based on management's analysis of, among other things, internal cash flow
projections based on the Company's historical financial information and
historical valuations of certain assets and liabilities of the Company. There
can be no assurance, however, that a court passing on such questions would agree
with the Company's analysis.
Certain Federal Income Tax Consequences of the Debentures
The Debentures were issued with original issue discount ("OID") for
U.S. federal income tax purposes. Accordingly, holders of the Debentures will be
required to accrue such OID into income over the entire term of the Debentures,
and may not treat the receipt of stated interest on the Debentures as interest
income for U.S. federal income tax purposes. The Debentures are subject to the
rules for "applicable high yield discount obligations" ("AHYDOS"). As a result,
the Company's deduction for OID on the Debentures will be deferred and a portion
of such deduction will be disallowed. For a discussion of these and other tax
issues, see "Certain United States Federal Income Tax Considerations."
Competition
The manufacture and sale of metal and plastic containers is highly
competitive and certain of the Company's competitors have greater financial
resources than the Company. In particular, price competition can be an important
factor and may affect the Company's results of operations.
Dependence on Key Personnel
The success of the Company depends to a large extent on a number of key
employees, and the loss of the services provided by them could materially
adversely affect the Company. In particular, the loss of the services provided
by R. Philip Silver, the Chairman of the Board and Co-Chief Executive Officer of
the Company, and D. Greg Horrigan, the President and Co-Chief Executive Officer
of the Company, could materially adversely affect the Company. However, the
Company's operations are conducted through Containers and Plastics, each of
which has its own independent management. S&H Inc., a company wholly owned by
Messrs. Silver and Horrigan, has agreed to provide certain general management
and administrative services to each of the Company, Containers and Plastics
pursuant to management services agreements.
Certain Interests of Stockholders
The Morgan Stanley Leveraged Equity Fund II, L.P. ("MSLEF II") owns
30.9% of the Common Stock. The general partner of MSLEF II and Morgan Stanley
are both wholly owned subsidiaries of Morgan Stanley, Dean Witter, Discover and
Co. ("Morgan Stanley Dean Witter"), and two directors of the Company are
employees of Morgan Stanley. As a result of these relationships and certain
agreements with Messrs. Silver and Horrigan, Morgan Stanley Dean Witter and its
affiliates will continue to have significant influence over the management
policies and corporate affairs of the Company. Additionally, Morgan Stanley
receives compensation for ongoing financial advice to the Company and its
affiliates, and Morgan Stanley Senior Funding, Inc., an affiliate of Morgan
Stanley Dean Witter, receives certain fees and other amounts from the Company in
its capacity as a co-arranger, co-documentation agent and one of the several
Banks under the Credit Agreement.
Certain decisions concerning the operations or financial structure of the
Company may present conflicts of interest between the owners of 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
holders of Common Stock might conflict with those of the holders of the
Debentures. In addition, the holders of Common Stock may have an interest in
pursuing acquisitions, divestitures, financings or other transactions that, in
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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 activities 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 similar
securities generally as well as by any changes in the Company's financial
performance or prospects.
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THE COMPANY
General
The Company is a leading North American manufacturer of consumer goods
packaging products that currently produces (i) steel and aluminum containers for
human and pet food, (ii) custom designed plastic containers for personal care,
health, food, pharmaceutical and household chemical products and (iii) specialty
packaging items, including metal caps and closures, aluminum roll-on closures,
plastic bowls and paper containers used by processors in the food industry. The
Company is the largest manufacturer of metal food containers in North America,
with a unit sale market share for the twelve months ended December 31, 1996 of
36% in the United States. The Company is also a leading manufacturer of plastic
containers in North America for personal care products and a major manufacturer
of metal closures for food and beverage products. The Company's strategy is to
grow its existing businesses and expand into other segments by applying its
expertise in acquiring, financing, integrating and efficiently operating
consumer goods packaging businesses.
The Company was founded in 1987 by its current Co-Chief Executive
Officers. Since its inception, the Company has acquired thirteen businesses,
including the acquisitions of AN Can in August 1995 for a purchase price of
approximately $362.0 million (including net working capital of approximately
$156.0 million) and DM Can in December 1993 for a purchase price of
approximately $73.3 million (including net working capital of approximately
$21.9 million). Recently, the Company acquired the North American aluminum
roll-on closure business of Alcoa and the North American plastic container
business of Rexam for an aggregate purchase price of $42.7 million, and Finger
Lakes, the metal food container manufacturing subsidiary of Curtice Burns, for a
purchase price of $29.9 million.
The Company's strategy has enabled it to rapidly increase its net sales
and income from operations. The Company's net sales have increased from $630.0
million in 1992 to $1,405.7 million in 1996, representing a compound annual
growth rate of approximately 22%. During this period, the Company's income from
operations increased from $42.2 million in 1992 to $123.3 million in 1996,
representing a compound annual growth rate of approximately 31%, while the
Company's income from operations as a percentage of net sales increased 2.1
percentage points from 6.7% to 8.8% over the same period. The Company's net
sales increased $50.0 million to $657.0 million for the six months ended June
30, 1997 as compared to the same period in the prior year, and its income from
operations, before consideration of the noncash stock option charge incurred in
connection with the Company's initial public offering of its Common Stock in
February 1997, increased from $58.0 million to $70.5 million over the same
period.
The principal executive offices of the Company are located at 4
Landmark Square, Stamford, Connecticut 06901, telephone number (203) 975-7110.
Company History
The Company is a Delaware corporation, organized as a holding company
to acquire interests in various packaging manufacturers. The Company has
completed the following acquisitions:
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Acquired Business Year Products
- ----------------- ---- --------
Metal Container Manufacturing
division of Nestle..................... 1987 Metal food containers
Monsanto Company's plastic
container business..................... 1987 Plastic containers
Fort Madison Can Company of
The Dial Corporation................... 1988 Metal food containers
Seaboard Carton Division of Nestle....... 1988 Paper containers
Aim Packaging, Inc....................... 1989 Plastic containers
Fortune Plastics Inc..................... 1989 Plastic containers
Express Plastic Containers Limited....... 1989 Plastic containers
Amoco Container Company.................. 1989 Plastic containers
Del Monte's U.S. can manufacturing
operations............................. 1993 Metal food containers
Food Metal and Specialty business
of ANC................................. 1995 Metal food containers, metal
caps and closures and Omni
plastic containers
Finger Lakes, a subsidiary of
Curtice Burns.......................... 1996 Metal food containers
Alcoa's North American aluminum roll-on
closure business....................... 1997 Metal caps and closures
Rexam's North American plastic
container business..................... 1997 Plastic containers and closures
Business Strategy
The Company's philosophy, which has contributed to its strong
performance since inception, is based on: (i) a significant equity ownership by
management and an entrepreneurial approach to business, (ii) its low cost
producer position and (iii) its long-term customer relationships. The Company
has achieved a low cost producer status through (i) the maintenance of a flat,
efficient organizational structure, resulting in low selling, general and
administrative expenses as a percentage of total net sales, (ii) purchasing
economies, (iii) significant capital investments that have generated
manufacturing and production efficiencies, (iv) plant consolidations and
rationalizations and (v) the proximity of its plants to its customers. The
Company's philosophy has also been to develop long-term customer relationships
by acting in partnership with its customers, providing reliable quality and
service and utilizing its low cost producer position. This philosophy has
resulted in numerous long-term supply contracts, high retention of customers'
business and recognition from its customers, as demonstrated by many quality and
service awards.
The Company intends to enhance its position as a leading supplier of
consumer goods packaging products by pursuing a strategy designed to achieve
future growth and to increase its profitability and cash flow. The key
components of this strategy are to (i) increase the Company's market share in
its current business lines through acquisitions and internal growth, (ii) expand
into complementary business lines by applying the Company's acquisition and
operating expertise to other areas of the North American consumer goods
packaging market and (iii) improve the profitability of acquired businesses
through integration, rationalization and capital investments to enhance their
manufacturing and production efficiency.
The Company has increased its revenues and market share in the metal
container, plastic container and specialty markets through acquisitions and
internal growth. As a result of this strategy, the Company has diversified its
customer base, geographic presence and product line. The Company has more than
tripled its overall share of the U.S. metal food container market from
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approximately 10% in 1987 to approximately 36% for the twelve months ended
December 31, 1996. The Company's plastic container business has increased its
market position primarily through strategic acquisitions, from sales of $88.8
million in 1987 to $216.4 million in 1996. The Company has also expanded its
specialty business, most recently with its acquisition in April 1997 of the
North American aluminum roll-on closure business of Alcoa. Management believes
that certain industry trends exist which will enable the Company to continue to
acquire attractive businesses in its existing metal container, plastic container
and specialty markets. In pursuing its strategy, the Company seeks to acquire
businesses at reasonable cash flow multiples and to enhance profitability by
rationalizing plants, by improving manufacturing and production efficiencies and
through purchasing economies. The Company also expects to generate internal
growth due to its participation in certain higher growth segments of the
consumer goods packaging market.
Financing Strategy
The Company's stable and predictable cash flow, generated largely as a
result of its long-term customer relationships, has supported its financial
strategy of generally using debt to support its growth. Management has
successfully operated its business and pursued its growth strategy while
managing the Company's indebtedness. As the Company's revenues and income from
operations have increased and the Company's financial position has improved, the
Company has pursued a strategy to further improve its cash flow and its
operating and financial flexibility by refinancing its higher cost indebtedness
with lower cost indebtedness and equity and by extending the maturity of its
indebtedness. In addition to lowering the Company's interest expense on its
outstanding indebtedness and extending the maturities of the Company's
indebtedness, the Company's financing strategy has resulted in (i) an increase
in borrowings available to the Company under the Credit Agreement, which
borrowings are available as revolving loans and may be used by the Company for
permitted acquisitions and for general corporate purposes and (ii) improved
operating and financial flexibility for the Company as a result of changes in
covenants under the Financing Agreements which provide the Company with more
flexibility to, among other things, make acquisitions, pay dividends, repurchase
stock and refinance existing indebtedness.
Business Segments
The Company is a holding company that conducts its business through its
two wholly owned operating companies, Containers and Plastics.
Containers. For 1996, Containers had net sales of $1,189.3 million (85%
of the Company's net sales) and income from operations of $106.1 million (85% of
the Company's income from operations) (without giving effect to corporate
expense). Containers manufactures metal containers for vegetables, fruit, pet
food, meat, tomato based products, coffee, soup, seafood and evaporated milk.
The Company estimates that approximately 80% of Containers' sales in 1997 will
be pursuant to long-term supply arrangements. Containers also manufactures
certain specialty packaging items, including metal caps and closures, aluminum
roll-on closures, plastic bowls and paper containers used by processors in the
food industry. For 1996, Containers had net sales of specialty packaging items
of $90.7 million.
Plastics. For 1996, Plastics had net sales of $216.4 million (15% of
the Company's net sales) and income from operations of $18.4 million (15% of the
Company's income from operations) (without giving effect to corporate expense).
Plastics emphasizes value-added design, fabrication and decoration of custom
containers in its business. Plastics manufactures custom designed high density
polyethylene containers for health and personal care products, including
containers for shampoos, conditioners, hand creams, lotions, cosmetics and
toiletries, household chemical products, including containers for scouring
cleaners, cleaning agents and lawn and garden chemicals and pharmaceutical
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products, including containers for tablets, antacids and eye cleaning solutions.
Plastics also manufactures polyethylene terephthalate custom designed containers
for mouthwash, respiratory and gastrointestinal products, liquid soap, skin care
lotions, salad dressings, condiments, instant coffee, bottled water and liquor.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges,
or the deficiency of earnings available to cover fixed charges, as the case may
be, for the Company for the six month periods ended June 30, 1997 and 1996 and
for each of the five years ended December 31, 1996, 1995, 1994, 1993 and 1992.
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.
Six Months
Ended
June 30, Year Ended December 31,
-------- ---------------------------------
1997(1) 1996 1996 1995 1994 1993 1992
------ ---- ---- ---- ---- ---- ----
Ratio of earnings to
fixed charges................ 1.16 1.25 1.36 -- -- -- --
Deficiency of earnings available
to cover fixed charges
($ in millions) .............. -- -- -- $10.9 $7.4 $12.5 $17.5
- -------------
(1) Excluding the historical non-cash pre-tax stock option charge of $22.5
million recognized by the Company in the first quarter of 1997 in connection
with the Company's initial public offering of its Common Stock, the Company's
ratio of earnings to fixed charges for the six months ended June 30, 1997
would have been 1.68.
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DESCRIPTION OF DEBENTURES
The Debentures were issued under the Indenture between the Company and
State Street Bank & Trust Company (as successor to Fleet National Bank), as
trustee (the "Trustee"). The following summary of certain provisions of the
Indenture does not purport to be complete and is subject to, and is qualified in
its 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. The Indenture is filed as an exhibit to
the Registration Statement of which this Prospectus forms a part. Whenever
particular defined terms of the Indenture not otherwise defined herein are
referred to, such defined terms are incorporated herein by reference. For
definitions of certain capitalized terms used in the following summary, see
"--Certain Definitions."
General
The Debentures are subordinated, unsecured obligations of the Company.
The Debentures are and will be issued in fully registered form only, in
denominations of $1.00 and integral multiples thereof.
Principal of, premium, if any, and interest on the Debentures are
payable, and the Debentures may be presented for registration of transfer or
exchange, at the office of the Paying Agent and Registrar. At the Company's
option, interest, to the extent paid in cash, may be paid by check mailed to the
registered address of holders of the Debentures as shown on the register for the
Debentures. The Trustee currently acts as Paying Agent and Registrar. The
Company may change any Paying Agent and Registrar without prior notice to
Holders of the Debentures. Holders of the Debentures must surrender Debentures
to the Paying Agent to collect principal payments.
The Debentures will mature on July 15, 2006. Each Debenture bears
interest at the rate of 13-1/4% per annum. Interest is payable semi-annually in
cash (or, on or prior to July 15, 2000, in additional Debentures, at the option
of the Company) in arrears on each January 15 and July 15. Interest on the
Debentures is computed on the basis of a 360-day year of twelve 30-day months
and the actual number of days elapsed.
Because of the Company's option through July 15, 2000 to pay interest
on the Debentures by issuing additional Debentures, the Debentures will be
treated as issued with OID. Further, the Debentures will be subject to the
special rules for "applicable high yield discount obligations." See "Certain
United States Federal Income Tax Considerations."
Subordination
The Debentures are subordinated indebtedness of the Company,
subordinated in right of payment to all Senior Indebtedness, including pursuant
to the Credit Agreement and the Senior Debentures. In addition, since all of the
operations of the Company are conducted through its subsidiaries, the
liabilities of its subsidiaries will be effectively senior to the Debentures. As
of July 31, 1997, the Company had outstanding approximately $909.1 million of
Indebtedness that constituted Senior Indebtedness (consisting of Indebtedness
under the Credit Agreement and the Senior Debentures). In addition, the
Company's subsidiaries had other liabilities of approximately $269.7 million at
June 30, 1997, all of which would be effectively senior to the Debentures. See
"Risk Factors--Holding Company Structure and Subordination."
In the event that the Debentures become obligations of any Successor
Corporation, 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.
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To the extent any payment of Senior Indebtedness (whether by or on
behalf of the Company or a 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 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 Company or a 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 Company or a 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 or on behalf of the Company or a 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 Company or a 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
Company or a 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 Company or a 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 Company or a
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 Credit
Agreement pursuant to which the maturity thereof may be accelerated and (a) upon
receipt by the Trustee of written notice from the Bank Agent or (b) if such
event of default under the Credit Agreement results from the acceleration of the
Debentures, from and after the date of such acceleration, no payment of
Subordinated Obligations may be made by or on behalf of the Company or a
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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 a 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
Company or a 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 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 Credit Agreement
or under clause (i)(b) of this paragraph shall not bar the commencement of
another Payment Blockage Period by the Bank Agent within such period of 360
consecutive days. Notwithstanding anything in the Indenture to the contrary,
there must be 180 consecutive days in any 360-day period in which no Payment
Blockage Period is in effect. No event of default (other than an event of
default pursuant to the financial maintenance covenants under the Credit
Agreement) that existed or was continuing (it being acknowledged that any
subsequent action that would give rise to an event of default pursuant to any
provision under which an event of default previously existed or was continuing
shall constitute a new event of default for this purpose) on the date of the
commencement of any Payment Blockage Period with respect to the Designated
Senior Indebtedness initiating such Payment Blockage Period shall be, or be
made, the basis for the commencement of a second Payment Blockage Period by the
representatives 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.
By reason of the subordination provisions described above, in the event
of liquidation or insolvency, creditors of the Company or a 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.
Optional Redemption
The Debentures will be redeemable at any time on or after July 15,
2000, at the Company's option, in whole or in part, upon not less than 30 nor
more than 60 days' prior written notice mailed by first-class mail to each
holder's last address as it appears in the Security Register, at the redemption
prices (expressed as a percentage of the principal amount thereof) set forth
below, plus an amount in cash equal to all accumulated and unpaid interest
thereon to the redemption date, subject to the right of holders of record on the
relevant Regular Record Date to receive interest due on an Interest Payment Date
that is on or prior to the redemption date, if redeemed during the 12-month
period beginning July 15 of each of the years set forth below.
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Year Percentage
---- ----------
2000..................................... 109.938%
2001..................................... 106.625%
2002..................................... 103.313%
2003 and thereafter ..................... 100.000%
In addition, on or prior to July 15, 2000, the Company may redeem all
(but not less than all) outstanding Debentures, at a redemption price equal to
110% of the principal amount thereof, plus accrued and unpaid interest to the
redemption date, out of the net proceeds of any sale of its common stock,
provided that such redemption occurs within 180 days after consummation of such
sale.
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
$1.00 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.
Certain Definitions
Set forth below is a summary of certain of the defined terms used
herein and 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.
"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 (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; and (vi) all extraordinary gains and extraordinary losses;
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provided that, solely for the purposes of calculating the Interest Coverage
Ratio (and in such case, except to the extent includible pursuant to clause (i)
above), "Adjusted Consolidated Net Income" of the Company shall include the
amount of all cash dividends received by the Company or any Subsidiary of the
Company from an Unrestricted Subsidiary.
"Affiliate" is defined to mean, as applied to any Person, any other
Person directly or indirectly controlling, controlled by or under direct or
indirect common control with such Person. For 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 the Company or
any Subsidiary of the Company.
"Asset Acquisition" is defined to mean (i) an investment by the Company
or any of its Subsidiaries in any other Person pursuant to which such Person
shall become a Subsidiary of the Company or any of its Subsidiaries or shall be
merged into or consolidated with the Company or any of its Subsidiaries or (ii)
an acquisition by the Company or any of its Subsidiaries of the property and
assets of any Person other than the Company or any of its Subsidiaries that
constitute substantially all of an operating unit or business of such Person.
"Asset Disposition" is defined to mean the sale or other disposition by
the Company or any of its Subsidiaries (other than to the Company or another
Subsidiary of the Company) of (i) all or substantially all of the Capital Stock
of any Subsidiary of the Company or (ii) all or substantially all of the
property and assets that constitute an operating unit or business of the Company
or any of its Subsidiaries.
"Asset Sale" is defined to mean, with respect to any Person, any sale,
transfer or other disposition (including by way of merger, consolidation or
sale-leaseback transaction) in one transaction or a series of related
transactions by such Person or any of its Subsidiaries to any Person other than
the Company or any of its Subsidiaries of (i) all or any of the Capital Stock of
any Subsidiary of such Person, (ii) all or substantially all of the property and
assets of an operating unit or business of such Person or any of its
Subsidiaries or (iii) any other property and assets of such Person or any of its
Subsidiaries outside the ordinary course of business of such Person or such
Subsidiary and, in each case, that is not governed by the "Consolidation, Merger
and Sale of Assets" covenant described below; 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 a co-arranger
and administrative agent for the Banks pursuant to the Credit Agreement, and any
successor or successors thereto.
"Banks" is defined to mean the lenders which are from time to time
parties to the Credit Agreement.
"Board of Directors" is defined to mean the Board of Directors of the
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Company (or any successor to the Company) or any committee of such Board of
Directors duly authorized to act under the Indenture.
"Business Day" is defined to mean any day except a Saturday or 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 nonvoting) of capital stock of such Person, including, without
limitation, all Common Stock and Preferred Stock.
"Capitalized Lease" is defined to mean, as applied to any Person, any
lease of any property (whether real, personal or mixed) of which the discounted
present value of the rental obligations of such Person as lessee, in conformity
with GAAP, is required to be capitalized on the balance sheet of such Person;
and "Capitalized Lease Obligation" is defined to mean the rental obligations, as
aforesaid, under such lease.
"Change of Control" is defined to mean such time as (i) (a) a "person"
or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange
Act), other than MSLEF II, Mr. Horrigan, Mr. Silver and their respective
Affiliates, becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of more than 40% of the total voting power of the then outstanding
Voting Stock of the Company 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 the Company; or
(ii) individuals who at the beginning 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 the
Company's 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.
"Closing Date" is defined to mean June 13, 1997.
"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 nonvoting) of common stock of such Person 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 nonrecurring 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.
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"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 interest method of accounting; all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing; and the net costs associated with
Interest Rate Agreements) and all but the principal component of rentals in
respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid
or accrued by such Person during such period; excluding, however, (i) any amount
of such interest of any Subsidiary of such Person if the net income (or loss) of
such Subsidiary is excluded in the calculation of Adjusted Consolidated Net
Income for such Person pursuant to clause (iii) of the definition thereof (but
only in the same proportion as the net income (or loss) of such Subsidiary is
excluded from the calculation of Adjusted Consolidated Net Income for such
Person pursuant to clause (iii) of the definition thereof), (ii) any premiums,
fees and expenses (and any amortization thereof) payable in connection with the
Refinancing and (iii) amortization of any other deferred financing costs, all as
determined on a consolidated basis in conformity with GAAP.
"Consolidated Net Tangible Assets" is defined to mean the total amount
of assets of the Company and its Subsidiaries (less applicable depreciation,
amortization and other valuation reserves), except to the extent resulting from
write-ups of capital assets (excluding write-ups in connection with accounting
for acquisitions in conformity with GAAP), after deducting therefrom (i) all
current liabilities of the Company and its consolidated Subsidiaries (excluding
intercompany items) and (ii) all goodwill, trade names, trademarks, patents,
unamortized debt discount and expense and other like intangibles, all as set
forth on the most recently available consolidated balance sheet of the Company
and its consolidated Subsidiaries prepared in conformity with GAAP.
"Consolidated Net Worth" is defined to mean, at any date of
determination, stockholders' equity as set forth on the most recently available
consolidated balance sheet of the Company and its consolidated Subsidiaries
(which shall be as of a date not more than 60 days prior to the date of such
computation), less any amounts attributable to Redeemable Stock or any equity
security convertible into or exchangeable for Indebtedness, the cost of treasury
stock and the principal amount of any promissory notes receivable from the sale
of Capital Stock of the Company or any of its Subsidiaries, each item to be
determined in conformity with GAAP (excluding the effects of foreign currency
exchange adjustments under Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 52).
"Credit Agreement" is defined to mean the Credit Agreement, dated as of
July 29, 1997, among the Company, Containers, Plastics, certain other
subsidiaries of any of them, the Banks party thereto, the Bank Agent, Bank of
America National Trust & Savings Association, as a co-arranger and as
syndication agent, and Goldman Sachs Credit Partners L.P. and Morgan Stanley
Senior Funding, Inc., as co-documentation agents and each as a co-arranger,
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 the Company whose obligations are Guaranteed by the Company
thereunder and who are included as additional borrowers thereunder) all or any
portion of the Indebtedness under such agreement or any successor agreement;
provided that, with respect to any agreement providing for the refinancing of
Indebtedness under the Credit Agreement, such agreement shall only be the Credit
Agreement under the Indenture if a notice to that effect is delivered by the
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Company to the Trustee and there shall be at any time only one debt instrument
that is the Credit Agreement under the Indenture.
"Currency Agreement" is defined to mean any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect the Company or any of its Subsidiaries against fluctuations in currency
values to or under which the Company or any of its Subsidiaries is a party or a
beneficiary on the date of the Indenture or becomes a party or a beneficiary
thereafter.
"Designated Senior Indebtedness" is defined to mean (i) Indebtedness
under the Credit Agreement, including refinancings thereof and (ii) any other
Indebtedness constituting Senior Indebtedness that, at any date of
determination, has an aggregate principal amount of at least $50 million and is
specifically designated by the Company or a Successor Corporation in the
instrument creating or evidencing such Senior Indebtedness as "Designated Senior
Indebtedness."
"GAAP" is defined to mean generally accepted accounting principles in
the United States of America as in effect as of the Closing Date applied on a
basis consistent with the principles, methods, procedures and practices employed
in the preparation of the Company's audited financial statements, including,
without limitation, those set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as approved by
a significant segment of the accounting profession. All ratios and computations
based on GAAP contained in the Indenture shall be computed in conformity with
GAAP, except that calculations made for purposes of determining compliance with
the terms of the covenants described below and other provisions of the Indenture
shall be made without giving effect to (i) the amortization of any expenses
incurred in connection with the Refinancing, and (ii) except as otherwise
provided, the amortization of any amounts required or permitted by Accounting
Principles Board Opinion Nos. 16 and 17.
"Guarantee" is defined to mean any obligation, contingent or otherwise,
of any Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay or advance or supply funds for the purchase or
payment of such Indebtedness or other obligation of such other Person (whether
arising by virtue of partnership arrangements, or by agreement to keep well, to
purchase assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided that the term "Guarantee" shall
not include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"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
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reimbursement obligations with respect thereto), (iv) all obligations of such
Person to pay the deferred and unpaid purchase price of property or services,
which purchase price is due more than six months after the date of placing such
property in service or taking delivery and title thereto or the completion of
such services, except Trade Payables, (v) all obligations of such Person as
lessee under Capitalized Leases, (vi) all Indebtedness of other Persons secured
by a Lien on any asset of such Person, whether or not such Indebtedness is
assumed by such Person; provided that the amount of such Indebtedness shall be
the lesser of (a) the fair market value of such asset at such date of
determination and (b) the amount of such Indebtedness, (vii) all Indebtedness of
other Persons Guaranteed by such Person to the extent such Indebtedness is
Guaranteed by such Person, (viii) all obligations of such Person in respect of
borrowed money under the Credit Agreement and any Guarantees thereof and (ix) to
the extent not otherwise included in this definition, all obligations of such
Person under Currency Agreements and Interest Rate Agreements. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and the maximum
liability, upon the occurrence of the contingency giving rise to the obligation,
of any contingent obligations at such date; provided that the amount outstanding
at any time of any Indebtedness issued with original issue discount is the face
amount of such Indebtedness less the remaining unamortized portion of the
original issue discount of such Indebtedness at such time as determined in
conformity with GAAP and, in clarification of this definition, any unused
commitment under the Credit Agreement or any other agreement relating to
Indebtedness shall not be treated as outstanding.
"Interest Coverage Ratio" is defined to mean, with respect to any
Person on any Transaction Date, the ratio of (i) the aggregate amount of
Consolidated EBITDA of such Person for the four fiscal quarters for which
financial information in respect thereof is available immediately prior to such
Transaction Date to (ii) the aggregate Consolidated Interest Expense of such
Person during such four fiscal quarters. In making the foregoing calculation,
(a) pro forma effect shall be given to (1) any Indebtedness Incurred subsequent
to the end of the four-fiscal-quarter period referred to in clause (i) and prior
to the Transaction Date (other than Indebtedness incurred under a revolving
credit or similar arrangement) to the extent of the commitment thereunder (or
under any predecessor revolving credit or similar arrangement on the last day of
such period), (2) any Indebtedness Incurred during such period to the extent
such Indebtedness is outstanding at the Transaction Date and (3) any
Indebtedness to be Incurred on the Transaction Date, in each case as if such
Indebtedness had been incurred on the first day of such four-fiscal-quarter
period and after giving effect to the application of the proceeds thereof; (b)
Consolidated Interest Expense attributable to interest on any Indebtedness
(whether existing or being Incurred) computed on a pro forma basis and bearing a
floating interest rate shall be computed as if the rate in effect on the date of
computation (taking into account any Interest Rate Agreement applicable to such
Indebtedness if such Interest Rate Agreement has a remaining term in excess of
12 months) had been the applicable rate for the entire period; (c) there shall
be excluded from Consolidated Interest Expense any Consolidated Interest Expense
related to any amount of Indebtedness that was outstanding during such
four-fiscal-quarter period or thereafter but which is not outstanding or which
is to be repaid on the Transaction Date, except for Consolidated Interest
Expense accrued (as adjusted pursuant to clause (b)) during such
four-fiscal-quarter period under a revolving credit or similar arrangement to
the extent of the commitment thereunder (or under any successor revolving credit
or similar arrangement) on the Transaction Date; (d) pro forma effect shall be
given to Asset Dispositions and Asset Acquisitions that occur during such
four-fiscal-quarter period or thereafter and prior to the Transaction Date
(including any Asset Acquisition to be made with the Indebtedness Incurred
pursuant to clause (i) above) as if they had occurred on the first day of such
four-fiscal-quarter period; (e) with respect to any such four-fiscal-quarter
period commencing prior to the Refinancing, the Refinancing shall be deemed to
have taken place on the first day of such period; and (f) pro forma effect shall
be given to asset dispositions and asset acquisitions that have been made by any
Person that has become a Subsidiary of the Company or has been merged with or
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into the Company or any Subsidiary of the Company during the four-fiscal-quarter
period referred to above or subsequent to such period and prior to the
Transaction Date and that would have been Asset Dispositions or Asset
Acquisitions had such transactions occurred when such Person was a Subsidiary of
the Company as if such asset dispositions or asset acquisitions were Asset
Dispositions or Asset Acquisitions that occurred on the first day of such
period.
"Interest Rate Agreement" is defined to mean any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement designed to protect the Company or any of its Subsidiaries
against fluctuations in interest rates to or under which the Company or any of
its Subsidiaries is a party or a beneficiary or becomes a Party or a beneficiary
thereafter.
"Investment" is defined to mean any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of any Person or its
Subsidiaries) or other extension of credit or capital contribution to (by means
of any transfer of cash or other property to others or any payment for property
or services for the account or use of others) or any purchase or acquisition of
Capital Stock, bonds, notes, debentures or other similar instruments issued by,
any other Person. For purposes of the definition of "Unrestricted Subsidiary"
and the "Limitation on Restricted Payments" covenant described below, (i)
"Investment" shall include the fair market value of the net assets of any
Subsidiary of the Company at the time that such Subsidiary of the Company is
designated an Unrestricted Subsidiary and shall exclude the fair market value of
the net assets of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Subsidiary of the Company and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer, in each case as determined by the
Board of Directors in good faith.
"Lien" is defined to mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof, any sale with recourse against the seller or any Affiliate of the
seller, or any agreement to give any security interest).
"Net Cash Proceeds" is defined to mean, with respect to any Asset Sale,
the proceeds of such Asset Sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any Subsidiary
of the Company) and proceeds from the conversion of other property received when
converted to cash or cash equivalents, net of (i) brokerage commissions and
other fees and expenses (including fees and expenses of counsel and investment
bankers) related to such Asset Sale, (ii) provisions for all taxes (whether or
not such taxes will actually be paid or are payable) as a result of such Asset
Sale computed without regard to the consolidated results of operations of the
Company and its Subsidiaries, taken as a whole, (iii) payments made to repay
Indebtedness or any other obligation outstanding at the time of such Asset Sale
that either (a) is secured by a Lien on the property or assets sold or (b) is
required to be paid as a result of such sale and (iv) appropriate amounts to be
provided by the Company or any Subsidiary of the Company as a reserve against
any liabilities associated with such Asset Sale, including, without limitation,
pension and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as determined in conformity with GAAP.
"Person" is defined to mean an individual, a corporation, a
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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.
"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 the
Company to repurchase or redeem such Capital Stock upon the occurrence of an
"asset sale" or a "change of control" occurring prior to the Stated Maturity of
the 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 applicable "Limitation on Asset Sales" and "Change of Control" covenants and
such Capital Stock specifically provides that the Company will not repurchase or
redeem any such Capital Stock pursuant to such provisions prior to the Company's
repurchase of Debentures required to be repurchased by the Company under the
"Limitation on Asset Sales" and "Change of Control" covenants.
"Restricted Subsidiary" is defined to mean any Subsidiary of the
Company other than an Unrestricted Subsidiary.
"Senior Indebtedness" is defined to mean the following obligations of
the Company or a Successor Corporation: (i) all Indebtedness and other monetary
obligations of the Company under (or in respect of) the Credit Agreement, any
Interest Rate Agreement or any Currency Agreement, (ii) all other Indebtedness
of the Company or a Successor Corporation (including Indebtedness evidenced by
the Senior Debentures but excluding 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 Credit Agreement and, if applicable, Currency Agreements
and Interest Rate Agreements; provided that the term "Senior Indebtedness" shall
not include (a) any Indebtedness of the Company or a 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 Company or a
Successor Corporation, (b) any Indebtedness of the Company or a Successor
Corporation to a Subsidiary of the Company or a Successor Corporation or to a
joint venture in which the Company or a Successor Corporation has an interest,
(c) any Indebtedness of the Company or a 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 below, (d) any repurchase, redemption or other obligation in respect
of Redeemable Stock, (e) any Indebtedness to any employee or officer of the
Company or a Successor Corporation or any of its Subsidiaries, (f) any liability
for federal, state, local or other taxes owed or owing by the Company or a
Successor Corporation or (g) any Trade Payables. "Senior Indebtedness" will also
include interest accruing subsequent to events of bankruptcy of the Company or a
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.
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"Shareholder Subordinated Notes" shall have the same meaning given such
term in the Company's previous credit agreement (including the exhibits thereto)
dated as August 1, 1995, as in effect on the Closing Date.
"Significant Subsidiary" is defined to mean, at any date of
determination, any Subsidiary of the Company that, together with its
Subsidiaries, (i) for the most recent fiscal year of the Company, accounted for
more than 10% of the consolidated revenues of the Company or (ii) as of the end
of such fiscal year, was the owner of more than 10% of the consolidated assets
of the Company, all as set forth on the most recently available consolidated
financial statements of the Company and its consolidated Subsidiaries for such
fiscal year prepared in conformity with GAAP.
"Silgan Indebtedness" is defined to mean any of the following
Indebtedness of the Company and/or any of its Subsidiaries: (i) Indebtedness
outstanding at any time in an aggregate principal amount not to exceed the sum
of (a) the aggregate outstanding Indebtedness and unutilized commitments on July
22, 1996 under the Company's previous credit agreement dated as August 1, 1995,
as amended, plus (b) an aggregate amount not to exceed $200 million outstanding
at any time; (ii) Indebtedness issued in exchange for or the net proceeds of
which are used directly or indirectly to refinance, redeem or repurchase all
(but not less than all) of the outstanding Debentures; (iii) $150 million
outstanding at any time of Capitalized Lease Obligations; (iv) Indebtedness in
respect of letters of credit (other than letters of credit issued pursuant to
the Credit Agreement) in an aggregate amount not to exceed $30 million
outstanding at any time; (v) Indebtedness in an aggregate amount not to exceed
$50 million outstanding at any time; provided that such Indebtedness (a) by its
terms or by the terms of any agreement or instrument pursuant to which such
Indebtedness is issued, is expressly made subordinate in right of payment to the
Debentures at least to the extent that the Debentures are subordinated to Senior
Indebtedness, (b) does not permit or require payments of interest in cash prior
to July 15, 2000, (c) does not mature prior to July 15, 2006, (d) has an Average
Life (determined as of the date of Incurrence of such Indebtedness) greater than
the remaining Average Life of the Debentures, and (e) by its terms or by the
terms of any agreement or instrument pursuant to which such Indebtedness is
issued, provides that no payments of principal of such Indebtedness by way of
sinking fund, mandatory redemption or otherwise (including defeasance) may be
made by the Company (including, without limitation, at the option of the holder
thereof other than an option given to a holder pursuant to an "asset sale" or
"change of control" provision that is no more favorable to the holders of such
Indebtedness than the provisions contained in the "Limitation on Asset Sales"
and "Change of Control" covenants and such Indebtedness specifically provides
that the Company will not repurchase or redeem such Indebtedness pursuant to
such provisions prior to the Company's repurchase of the Debentures required to
be repurchased by the Company under the "Limitation on Asset Sales" and "Change
of Control" covenants) at any time prior to July 15, 2006; and (vi) any
Indebtedness of the Company or any of its Subsidiaries that was permitted to be
Incurred under the indenture in respect of Silgan Corporation's 11-3/4% Senior
Subordinated Notes due 2002 (which were redeemed on July 16, 1997) as in effect
on July 22, 1996 (other than under clauses (i), (ix) and (x) of the second
paragraph of part (a) of Section 4.03 of such indenture (which clauses are
similar to clauses (i), (iv) and (v) above other than the dollar amounts)).
"Stated Maturity" is defined to mean, with respect to any debt security
or any installment of interest thereon, the date specified in such debt security
as the fixed date on which any principal of such debt security or any such
installment of interest is due and payable.
"Stock Based Plan" is defined to mean any stock option plan, stock
appreciation rights plan or other similar plan or agreement of the Company or
any Subsidiary of the Company relating to Capital Stock of the Company or any
Subsidiary of the Company established and in effect from time to time,
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including, without limitation, any stock option plan, stock appreciation rights
plan or other similar plan or agreement for the benefit of employees of the
Company and its Subsidiaries.
"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 the Company or by
one or more other Subsidiaries of the Company, or by such Person and one or more
other Subsidiaries of such Person; provided that, except as the term
"Subsidiary" is used in the definition of "Unrestricted Subsidiary" described
below, an Unrestricted Subsidiary shall not be deemed to be a Subsidiary of the
Company.
"Trade Payables" is defined to mean, with respect to any Person, any
accounts payable or any other indebtedness or monetary obligation to trade
creditors created, assumed or Guaranteed by such Person or any of its
Subsidiaries arising in the ordinary course of business in connection with the
acquisition of goods or services.
"Transaction Date" is defined to mean, with respect to the Incurrence
of any Indebtedness or the issuance of Redeemable Stock by the Company or any of
its Subsidiaries, the date such Indebtedness is to be Incurred or such
Redeemable Stock is to be issued and, with respect to any Restricted Payment,
the date such Restricted Payment is to be made.
"Unrestricted Subsidiary" is defined to mean (i) any Subsidiary of the
Company that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property
of, the Company or any other Subsidiary of the Company that is not a Subsidiary
of the Subsidiary to be so designated; provided that either (a) the Subsidiary
to be so designated has total assets of $1,000 or less or (b) if such Subsidiary
has assets greater than $1,000, such designation would be permitted under the
"Limitation on Restricted Payments" covenant described below. The Board of
Directors may designate any Unrestricted Subsidiary to be a Subsidiary of the
Company; provided that immediately after giving effect to such designation (1)
the Company could Incur $1.00 of additional Indebtedness under paragraph (b)(i)
of Section 4.3 of the Indenture and (2) no Event of Default, or event or
condition that through the giving of notice or the lapse of time or both would
become 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 Officer's 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 the
Company, Plastics and Containers, and (ii) with respect to any Person, any
Subsidiary of such Person if all of the Common Stock or other similar equity
ownership interests (but not including Preferred Stock) in such Subsidiary
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(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, the Company shall
not, and shall not permit any Subsidiary of the Company 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 the Company would be greater than 1.75:l or (ii) such
Indebtedness so Incurred by the Company or such Subsidiary of the Company
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 the Company (but any such Indebtedness may condition such payments
on the absence of any default or events of default thereunder and on compliance
with financial tests) in amounts sufficient to make mandatory interest and
principal payments due on the Debentures at the times and in the amount due and
payable; and provided further, however, that in the event the Debentures become
obligations of a Successor Corporation, nothing in this paragraph shall prohibit
the Successor Corporation from assuming or otherwise becoming liable for
existing Indebtedness of the Company or its Subsidiaries.
(b) Notwithstanding any other provision of this "Limitation on
Indebtedness" covenant, (i) the maximum amount of Indebtedness that the Company
or any of its 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) solely for
purposes of calculating the amount of Indebtedness outstanding at any time under
this "Limitation on Indebtedness" covenant, all Indebtedness of the Company or
any of its Subsidiaries outstanding on the Closing Date shall be considered to
be outstanding and (iii) the Company shall not Incur any Indebtedness that is
expressly subordinated to any other Indebtedness of the Company 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.
(c) 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, the Company, in its
sole discretion, shall classify such item of Indebtedness and only be required
to include the amount and type of such Indebtedness in one of such clauses 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.
Limitation on Restricted Payments
So long as any of the Debentures are outstanding, the Company will not,
and will not permit any Restricted Subsidiary to, directly or indirectly, (i)
declare or pay any dividend or make any distribution on its Capital Stock (other
than dividends or distributions payable solely in shares of its or such
Restricted Subsidiary's Capital Stock (other than Redeemable Stock) of the same
class held by such holders or in options, warrants or other rights to acquire
such shares of Capital Stock) held by Persons other than the Company or another
Restricted Subsidiary, (ii) purchase, redeem, retire or otherwise acquire for
value, any shares of Capital Stock of the Company, any Restricted Subsidiary or
any Unrestricted Subsidiary (including options, warrants or other rights to
acquire such shares of Capital Stock) held by Persons other than the Company or
another Restricted Subsidiary, (iii) make any voluntary or optional principal
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payment, or voluntary or optional redemption, repurchase, defeasance or other
acquisition or retirement for value, of Indebtedness of the Company that is
subordinated in right of payment to the Debentures or (iv) make any investment
in any Affiliate (other than the Company or a Restricted Subsidiary) or
Unrestricted Subsidiary (such payments or any other actions described in clauses
(i) through (iv) being collectively "Restricted Payments") if at the time of and
after giving effect to the proposed Restricted Payment: (A) an Event of Default
or event that, after the giving of notice or lapse of time or both would become
an Event of Default, shall have occurred and be continuing, (B) the Company
could not Incur at least $1.00 of Indebtedness under clause (i) of 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 July 22, 1996 (other
than any Restricted Payments described in clauses (ii) and (iii) of the second
paragraph of this "Limitation on Restricted Payments" covenant) shall exceed the
sum of (1) 50% of the aggregate amount of Adjusted Consolidated Net Income (or,
if Adjusted Consolidated Net Income is a loss, minus 100% of such amount) of the
Company (determined by excluding income resulting from the transfers of assets
received by the Company or a Restricted Subsidiary from an Unrestricted
Subsidiary) accrued on a cumulative basis during the period (taken as one
accounting period) beginning on the first day of the month immediately following
July 22, 1996 and ending on the last day of the last fiscal quarter preceding
the Transaction Date plus (2) the aggregate net proceeds received by the Company
from the issuance and sale of Capital Stock of the Company (other than
Redeemable Stock) to any Person other than a Subsidiary of the Company,
including an issuance or sale permitted by the Indenture for cash or other
property upon the conversion of any Indebtedness of the Company subsequent to
July 22, 1996, or from the issuance of any options, warrants or other rights to
acquire Capital Stock of the Company (in each case, exclusive of any Redeemable
Stock or any options, warrants or other rights that are redeemable at the option
of the holder, or are required to be redeemed, prior to the Stated Maturity of
the 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 the Company or any Restricted Subsidiary from Unrestricted
Subsidiaries, or from redesignations of Unrestricted Subsidiaries as Restricted
Subsidiaries (valued in each case as provided in the definition of
"Investments"), not to exceed in the case of any Unrestricted Subsidiary the
amount of Investments previously made by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary plus (4) $25 million.
The foregoing provision shall not be violated by reason of: (i) the
payment of any dividend within 60 days after the date of declaration thereof if,
at the date of declaration, such payment would comply with the foregoing
provision; (ii) the making of Investments in Unrestricted Subsidiaries in an
aggregate amount not to exceed $75 million outstanding at any time; (iii) 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 (iii) or (viii) of the second paragraph in
part (a) of the "Limitation on Indebtedness" covenant; (iv) the declaration and
payment of dividends on the Common Stock of the Company, of up to 6% per annum
of the net proceeds received by the Company, in its initial public offering; (v)
the purchase, redemption, acquisition, cancellation or other retirement for
value of shares of Capital Stock of the Company or any Restricted Subsidiary,
options on any such shares or related stock appreciation rights or similar
securities held by officers or employees or former officers or employees (or
their estates or beneficiaries under their estates) and which were issued
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pursuant to any Stock Based Plan, upon death, disability, retirement or
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 Closing Date does not exceed $25 million
and that any additional consideration in excess of such $25 million is in the
form of Indebtedness that would be permitted to be Incurred under clause (v) of
the second paragraph in part (a) of Section 4.3 of the Indenture; (vi) the
repurchase of Capital Stock of the Company or any Subsidiary of the Company
followed immediately by the reissuance thereof for consideration in an amount at
least equal to the consideration paid to acquire such stock, or the redemption,
repurchase or other acquisition for value of Capital Stock of the Company or any
Subsidiary of the Company in exchange for, or with the proceeds of a
substantially concurrent offering of, Capital Stock, as the case may be, of such
entity (other than Redeemable Stock); and (vii) payments or distributions
pursuant to or in connection with a consolidation, merger or transfer of assets
that complies with the provisions of the Indenture applicable to mergers,
consolidations and transfers of all or substantially all of the property and
assets of the Company; provided that, in the case of clauses (ii), (iv), (v) and
(vii), no Event of Default shall have occurred and be continuing or shall occur
as a consequence thereof.
Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries
So long as any of the Debentures are outstanding, the Company will not,
and will not permit any Restricted Subsidiary to, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or restriction of
any kind on the ability of any Restricted Subsidiary to (i) pay dividends or
make any other distributions permitted by applicable law on any Capital Stock of
such Restricted Subsidiary owned by the Company or any other Restricted
Subsidiary, (ii) pay any Indebtedness owed to the Company or any other
Restricted Subsidiary, (iii) make loans or advances to the Company or any other
Restricted Subsidiary or (iv) transfer, subject to certain exceptions, any of
its property or assets to the Company or any other Restricted Subsidiary.
This covenant shall not restrict or prohibit any encumbrances or
restrictions existing: (i) in the Credit Agreement or any other agreements in
effect on July 22, 1996, including extensions, refinancings, renewals or
replacements thereof (including the Senior Debentures and the indenture in
respect of the Senior Debentures), 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 the Company or any Restricted Subsidiary and
existing at the time of such acquisition, which encumbrances or restrictions are
not applicable to any Person or the property or assets of any Person other than
such Person or the property or assets of such Person so acquired; (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 the
Company or any Restricted Subsidiary not otherwise prohibited by the Indenture
or (C) arising or agreed to in the ordinary course of business and that do not,
individually or in the aggregate, detract from the value of the property or
assets of the Company or any Restricted Subsidiary in any manner material to the
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Company 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 the Company or any Restricted Subsidiary
from restricting the sale or other disposition of property or assets of the
Company or any of its Subsidiaries that secure Indebtedness of the Company or
any of its Subsidiaries.
Limitation on Transactions with Shareholders and Affiliates
So long as any of the Debentures are outstanding, the Company will not,
and will not permit any Subsidiary of the Company to, directly or indirectly,
enter into, renew or extend any transaction (including, without limitation, the
purchase, sale, lease or exchange of property or assets, or the rendering of any
service) with any holder (or any Affiliate of such holder) of 5% or more of any
class of Capital Stock of the Company (other than the Bank Agent or any of its
Affiliates) or any Subsidiary of the Company or with any Affiliate of the
Company or any Subsidiary of the Company, except upon fair and reasonable terms
no less favorable to the Company or such Subsidiary of the Company than could be
obtained in a comparable arm's-length transaction with a Person that is not such
a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to: (i)
any transaction between the Company and any Subsidiary of the Company or between
Subsidiaries of the Company; (ii) transactions (A) for which the Company or any
Subsidiary of the Company delivers to the Trustee a written opinion of a
nationally recognized investment banking firm stating that the transaction is
fair to the Company or such Subsidiary of the Company from a financial point of
view or (B) approved by a majority of the disinterested members of the Board of
Directors; (iii) the payment of fees pursuant to the Management Agreements or
pursuant to any similar management contracts entered into by the Company or any
Subsidiary of the Company; (iv) the payment of reasonable and customary regular
fees to directors of the Company or any Subsidiary of the Company who are not
employees of the Company or such Subsidiary of the Company; (v) any payments or
other transactions pursuant to any tax-sharing agreement between the Company and
any Person with which the Company is required or permitted to file a
consolidated tax return or with which the Company is or could be part of a
consolidated group for tax purposes; (vi) any Restricted Payments not prohibited
by the "Limitation on Restricted Payments" covenant; (vii) the payment of fees
to Morgan Stanley, S&H or their respective Affiliates for financial, advisory,
consulting or investment banking services that the Board of Directors deems to
be advisable or appropriate for the Company or any Subsidiary of the Company to
obtain (including the payment to Morgan Stanley of any underwriting discounts or
commissions or placement agency fees) in connection with the issuance and sale
of any securities by the Company or any Subsidiary of the Company; or (viii) any
transaction contemplated by any of the Stock Based Plans.
Limitation on the Issuance of Capital Stock of Restricted Subsidiaries
So long as any of the Debentures are outstanding, the Company will not
permit any Restricted Subsidiary to, directly or indirectly, issue or sell any
shares of its Capital Stock (including options, warrants or other rights to
purchase shares of such Capital Stock) except (i) to the Company or another
Restricted Subsidiary that is a Wholly Owned Subsidiary of the Company, (ii)
pursuant to options on such Capital Stock granted to officers 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
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received by such Restricted Subsidiary, such Restricted Subsidiary shall (A)
apply an amount equal to such Net Cash Proceeds to repay Senior Indebtedness of
the Company or Indebtedness of a Restricted Subsidiary, in each case owing to a
Person other than the Company or any of its Subsidiaries, (B) apply an amount
equal to such Net Cash Proceeds to the repurchase of Senior Indebtedness
pursuant to mandatory repurchase or repayment provisions applicable to such
Senior Indebtedness or (C) invest an equal amount, or the amount not so applied
pursuant to subclause (A) or (B) (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.
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 the Company in cash
pursuant to the offer described below (the "Change of Control Offer") at a
purchase price equal to 101% of the principal amount, plus accrued interest (if
any) to the date of purchase (the "Change of Control Payment"). Prior to the
mailing of the notice to holders provided for in the succeeding paragraph, but
in any event within 30 days following any Change of Control, the Company
covenants to (i) repay in full all Indebtedness under the Credit Agreement and
all other Senior Indebtedness required to be redeemed or repurchased pursuant to
the terms thereof, or to offer to repay in full all Indebtedness under the
Credit Agreement and all such other Senior Indebtedness and to repay the
indebtedness of each holder of Senior Indebtedness who has accepted such offer
or (ii) obtain the requisite consents under the Credit Agreement and such other
Senior Indebtedness to permit the repurchase of the Debentures as provided for
in the succeeding paragraph. The Company shall first comply with the covenant in
the preceding sentence before it shall be required to repurchase the Debentures
pursuant to this "Change of Control" covenant.
(b) Within 30 days of the Change of Control, the Company shall mail a
notice to the Trustee and each holder stating: (i) that a Change of Control has
occurred, that the Change of Control Offer is being made pursuant to this
"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 the Company 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 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 of Debentures
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.
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(c) On the Change of Control Payment Date, the Company 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 the 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 the Company. The
Paying Agent shall promptly mail, to the holders of the Debentures so accepted,
payment in an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such holders new Debentures 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. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date. For purposes of this
"Change of Control" covenant, the Trustee shall act as Paying Agent.
(d) The Company will comply with Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that a Change of Control occurs under
this "Change of Control" covenant and the Company is required to repurchase
Debentures as described above.
Limitation on Asset Sales
(a) In the event and to the extent that the Net Cash Proceeds received
by the Company or any Restricted Subsidiary from one or more Asset Sales
occurring on or after July 22, 1996 in any period of 12 consecutive months
(other than Asset Sales by the Company or any Restricted Subsidiary to the
Company or another Restricted Subsidiary) exceed 15% of Consolidated Net
Tangible Assets in any one fiscal year (determined as of the date closest to the
commencement of such 12-month period for which a consolidated balance sheet of
the Company and its Subsidiaries has been prepared), then the Company shall, or
shall cause such Restricted Subsidiary to, (i) within 12 months after the date
the Net Cash Proceeds so received exceed 15% of Consolidated Net Tangible Assets
in any one fiscal year (determined as of the date closest to the commencement of
such 12-month period for which a consolidated balance sheet of the Company and
its Subsidiaries has been prepared), (A) apply an amount equal to such excess
Net Cash Proceeds to repay Senior Indebtedness of the Company or Indebtedness of
a Restricted Subsidiary, in each case owing to a Person other than the Company
or any of its Subsidiaries or (B) invest an equal amount, or the amount not so
applied pursuant to subclause (A) (or enter into a definitive agreement
committing to so invest within 12 months of the date of such agreement), in
property or assets that (as determined in good faith by the Board of Directors,
whose determination shall be conclusive and evidenced by a Board Resolution) are
of a nature or type or are used in a business (or in a company having property
and assets of a nature or type, or engaged in a business) similar or related to
the nature or type of the property and assets of, or the business of, the
Company and its Subsidiaries existing on the date thereof and (ii) apply such
excess Net Cash Proceeds (to the extent not applied pursuant to clause (i)) as
provided in the following paragraphs of this "Limitation on Asset Sales"
covenant. The amount of such excess Net Cash Proceeds required to be applied (or
to be committed to be applied) during such 12-month period as set forth in
subclause (A) or (B) of the preceding sentence and not applied as so required by
the end of such period shall constitute "Excess Proceeds."
(b) If, as of the first day of any calendar month, the aggregate amount
of Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as
defined below) totals at least $10 million, the Company 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
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of Debentures equal to the Excess Proceeds on such date, at a purchase price
equal to 101% of the principal amount thereof, plus accrued interest (if any) to
the date of purchase (the "Excess Proceeds Payment"); provided, however, that no
Excess Proceeds Offer shall be required to be commenced with respect to the
Debentures until the Business Day following the dates that payments are made
pursuant to similar offers that are made to holders of Senior Indebtedness, and
need not be commenced if the Excess Proceeds remaining after application to the
Senior Indebtedness purchased in the offers made to the holders of the Senior
Indebtedness are less than $10 million; provided further, however, that no
Debentures may be purchased under this "Limitation on Asset Sales" covenant
unless the Company shall have purchased all Senior Indebtedness tendered
pursuant to the offers applicable thereto.
(c) The Company shall commence an Excess Proceeds Offer by mailing a
notice to the Transfer Agent 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 accumulate interest pursuant to its
terms; (iv) that, unless the Company 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 Debentures purchased pursuant to the
Excess Proceeds Offer will be required to surrender such Debentures, 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 of Debentures
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, the Company 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 Officer's
Certificate specifying the Debentures or portions thereof accepted for payment
by the Company. 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 new Debentures
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. The Company will publicly announce the results of the Excess Proceeds
Offer as soon as practicable after the Excess Proceeds Payment Date. For
purposes of this "Limitation on Asset Sales" covenant, the Trustee shall act as
the Paying Agent.
(e) The Company will comply with Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that such Excess Proceeds are received
by the Company under this "Limitation on Asset Sales" covenant and the Company
is required to repurchase Debentures as described above.
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Events of Default
An "Event of Default" occurs with respect to the Debentures if: (i) the
Company defaults in 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) the Company 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) the Company defaults in the performance of or breaches any
other covenant or agreement of the Company 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 the Company and/or any Significant
Subsidiary having an outstanding principal amount of $20 million or more in the
aggregate for all such issues of the Company and/or any Significant Subsidiary,
whether such Indebtedness now exists or shall hereafter be created, (I) 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 and/or (II) the failure to make a principal
payment at the final (but not any interim) fixed maturity and such defaulted
payment shall not have been made, waived or extended within 30 days of such
payment default; (v) any final judgment or order (not covered by insurance) for
the payment of money in excess of $10 million individually or $20 million or
more in the aggregate for all such final judgments or orders against all such
Persons (treating any deductibles, self-insurance or retention as not so
covered) shall be rendered against the Company or any Significant Subsidiary and
shall not be discharged, and there shall be any period of 60 consecutive days
following entry of the final judgment or order in excess of $10 million
individually or that causes the aggregate amount for all such final judgments or
orders outstanding against all such Persons to exceed $20 million during which a
stay of enforcement of such final judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect; (vi) a court having jurisdiction in
the premises enters a decree or order for (a) relief in respect of the Company
or any Significant Subsidiary in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, (b)
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant Subsidiary or
for all or substantially all of the property and assets of the Company or any
Significant Subsidiary or (c) the winding up or liquidation of the affairs of
the Company or any Significant Subsidiary and, in each case, such decree or
order shall remain unstayed and in effect for a period of 60 consecutive days;
and (vii) the Company or any Significant Subsidiary (a) commences a voluntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consents to the entry of an order for relief in an
involuntary case under any such law, (b) consents to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant Subsidiary or
for all or substantially all of the property and assets of the Company or any
Significant Subsidiary or (c) effects any general assignment for the benefit of
creditors.
If an Event of Default (other than an Event of Default specified in
clause (vi) or (vii) above that occurs with respect to the Company) occurs and
is continuing under the Indenture, the Trustee thereunder or the holders of at
least 25% of the aggregate principal amount of the Debentures then outstanding,
by written notice to the Company (and to the Trustee if such notice is given by
the holders (the "Acceleration Notice")), may, and the Trustee at the request of
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the holders of at least 25% in aggregate principal amount of the Debentures then
outstanding shall, declare the principal of and all accrued and unpaid interest
on the Debentures to be immediately due and payable. Any such declaration of
acceleration shall not become effective until the earlier of (A) five Business
Days after receipt of the Acceleration Notice by the Bank Agent and the Company
or (B) acceleration of the Indebtedness under the 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) 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) shall be
remedied, cured by the Company and/or such Significant Subsidiary or waived by
the holders of the relevant Indebtedness within 60 days after the declaration of
acceleration with respect thereto. If an Event of Default specified in clause
(vi) or (vii) above occurs with respect to the Company, the principal of and all
accrued and unpaid interest on the Debentures 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 the Company 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 jurisdiction. For information as to the waiver
of defaults, see "--Modification and Waiver" below.
The holders of at least a majority in aggregate principal amount of the
outstanding 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. 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. 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.
The Indenture requires certain officers of the Company to certify, on
or before a date not more than 120 days after the end of each fiscal year, that
a review has been conducted of the activities of the Company and its
Subsidiaries and the Company's and its Subsidiaries' performance under the
Indenture and that the Company has fulfilled all obligations thereunder, or, if
there has been a default in the fulfillment of any such obligation, specifying
each such default and the nature and status thereof. The Company will also be
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obligated to notify the Trustee of any default or defaults in the performance
of any covenants or agreements under the Indenture.
Consolidation, Merger and Sale of Assets
The Company shall not consolidate with, merge with or into, or sell,
convey, transfer, lease or otherwise dispose of all or substantially all of its
property and assets (as an entirety or substantially as an entirety in one
transaction or a series of related transactions) to, any Person (other than a
Restricted Subsidiary that is a Wholly Owned Subsidiary of the Company; provided
that, in connection with any merger of the Company with any Restricted
Subsidiary that is a Wholly Owned Subsidiary of the Company, no consideration
(other than common stock in the surviving Person or the Company) shall be issued
or distributed to the stockholders of the Company) or permit any Person to merge
with or into the Company, unless: (i) the Company shall be the continuing
Person, or the Person (if other than the Company) formed by such consolidation
or into which the Company is merged or that acquired or leased such property and
assets of the Company shall be a corporation organized and validly existing
under the laws of the United States of America or any jurisdiction thereof and
shall expressly assume, by supplemental indenture, executed and delivered to the
Trustee, in form satisfactory to the Trustee, all of the obligations of the
Company on all of the 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 the
Company (or any Person becoming the successor obligor on the Debentures) is at
least 1:1; provided that if the Interest Coverage Ratio of the Company before
giving effect to such transaction is within the range set forth in column (A)
below, then the Interest Coverage Ratio of the Company (or any Person becoming
the successor obligor on the 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 the Company prior to such
transaction and (2) the ratio set forth in column (C) below:
(A) (B) (C)
--- --- ---
1.11:1 to 1.99:1......................... 90% 1.5:1
2.00:1 to 2.99:1......................... 80% 2.1:1
3.00:1 to 3.99:1......................... 70% 2.4:1
4.00:1 or more........................... 60% 2.5:1
and provided further that, if the Interest Coverage Ratio of the Company (or any
Person becoming the successor obligor on the 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,
the Company (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 the Company immediately prior to such transaction; and (v) the
Company 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 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
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change the state of incorporation of the Company; and provided further, however,
that any such transaction shall not have as one of its purposes the evasion of
the limitations of this covenant.
Defeasance
Defeasance and Discharge
The Indenture provides that the Company will be deemed to have paid and
will be discharged from any and all obligations in respect of the 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)
the Company has deposited with the Trustee, in trust, money and/or U.S.
Government Obligations that through the payment of interest and principal in
respect thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on the
Debentures on the Stated Maturity of such payments in accordance with the terms
of the Indenture and the Debentures, (B) the Company has delivered to the
Trustee (i) either (x) an Opinion of Counsel to the effect that holders will not
recognize income, gain or loss for federal income tax purposes as a result of
the Company's exercise of its option under this "Defeasance" provision and will
be subject to federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit, defeasance and
discharge had not occurred, which Opinion of Counsel must be accompanied by a
ruling of the Internal Revenue Service to the same effect or a change in
applicable federal income tax law after the date of the Indenture or, a ruling
directed to the Trustee received from the Internal Revenue Service to the same
effect as the aforementioned Opinion of Counsel and (ii) an Opinion of Counsel
to the effect that the creation of the defeasance trust does not violate the
Investment Company Act of 1940 and after the passage of 123 days following the
deposit, the trust fund will not be subject to the effect of Section 547 of the
United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor
Law, (C) immediately after giving effect to such deposit on a pro forma basis,
no Event of Default, or event that after the giving of notice or lapse of time
or both would become an Event of Default, shall have occurred and be continuing
on the date of such deposit or during the period ending on the 123rd day after
the date of such deposit, and such deposit shall not result in a breach or
violation of, or constitute a default under, any other agreement or instrument
to which the Company is a party or by which the Company is bound, (D) the
Successor Corporation is not prohibited from making payments in respect of the
Debentures by the provisions described under "Subordination" above and (E) if at
such time the Debentures are listed on a national securities exchange, the
Company 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.
Defeasance of Certain Covenants and Certain Events of Default
The Indenture provides that the provisions of the Indenture will no
longer be in effect with respect to clauses (iii) and (iv) under
"--Consolidation, Merger and Sales of Assets" and all the covenants described
herein under "--Covenants," clause (iii) under "--Events of Default" with
respect to such covenants and clauses (iii) and (iv) under "--Consolidation,
Merger and Sales of Assets" and clauses (iv) and (v) under "--Events of Default"
shall be deemed not to be Events of Default, and, if the defeasance is permitted
by the Credit Agreement, the provisions described herein under "--Subordination"
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
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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 the Company to the Trustee of an
Opinion of Counsel to the effect that, among other things, the holders will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit and defeasance of certain covenants and Events of Default and will
be subject to federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred.
Defeasance and Certain Other Events of Default
In the event the Company exercises its option to omit compliance with
certain covenants and provisions of the Indenture with respect to the Debentures
as described 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, the Company shall remain liable for such payments.
Modification and Waiver
Modifications and amendments of the Indenture may be made by the
Company and the Trustee with the consent of the holders of not less than a
majority in aggregate principal amount of the outstanding 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 in any material respect, (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.
The holders of a majority in aggregate principal amount of the
outstanding Debentures may waive compliance by the Company with certain
restrictive provisions of the Indenture.
The Credit Agreement contains a covenant prohibiting the Company from
consenting to any modification of the Indenture or waiver of any provision
thereof without the consent of a specified percentage of the lenders under the
Credit Agreement.
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 the Company 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 the Company. Each holder, by accepting such Debenture, waives and releases
all such liability.
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Concerning the Trustee
State Street Bank & Trust Company (as successor to Fleet 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 those rights and powers vested in it under such
Indenture and use the same degree of care and skill in its exercise of such
rights and powers as a prudent person would exercise under the circumstances in
the conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference in the Indenture contain limitations on the
rights of the Trustee thereunder, should it become a creditor of the Company, to
obtain payment of claims in certain cases or to realize on certain property
received by it in respect of any such claims, as security or otherwise. The
Trustee is permitted to engaged in other transactions; provided, however, that
if it acquires any conflicting interest, it must eliminate such conflict or
resign.
Book-Entry; Delivery and Form
So long as The Depository Trust Company ("DTC"), or its nominee, is the
registered owner or holder of a global debenture representing the Debentures,
DTC or such nominee, as the case may be, will be considered the sole owner or
holder of the Debentures represented by such global debenture for all purposes
under the Indenture and the Debentures. No beneficial owner of an interest in
such global debenture will be able to transfer that interest except in
accordance with DTC's applicable procedures, in addition to those provided for
under the Indenture.
Payments of the principal of, and interest on, such global debenture
will be made to DTC or its nominee, as the case may be, as the registered owner
thereof. Neither the Company, the Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in such global
debenture or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any
payment of principal or interest in respect of such global debenture, will
credit participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such global debenture
as shown on the records of DTC or its nominee. The Company also expects that
payments by participants to owners of beneficial interests in such global
debenture held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary
way in accordance with DTC rules and will be settled in same-day funds.
The Company expects that DTC will take any action permitted to be taken
by a holder of Debentures (including the presentation of Debentures for exchange
as described below) only at the direction of one or more participants to whose
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account the DTC interests in such global debenture is credited and only in
respect of such portion of the aggregate principal amount of Debentures as to
which such participant or participants has or have given such direction.
However, if there is an Event of Default under the Debentures, DTC will exchange
the applicable global debenture for certificated debentures, which it will
distribute to its participants and which may be legended as set forth in the
Indenture.
The Company understands that DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of certificates
and certain other organizations. Indirect access to the DTC system is available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in such global debenture among participants of
DTC, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Company nor the Trustee will have any responsibility for the performance by DTC
or its participants or indirect participants of its obligations under the rules
and procedures governing its operations.
If DTC is at any time unwilling or unable to continue as a depositary
for such global debenture and a successor depositary is not appointed by the
Company within 90 days, the Company will issue certificated debentures in
exchange for such global debenture. Holders of an interest in such global
debenture may receive certificated debentures in accordance with the DTC's rules
and procedures in addition to those provided for under the Indenture.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the principal U.S. federal
income tax consequences of the purchase, ownership and disposition of the
Debentures, and does not purport to be a complete analysis of all of the
potential tax effects of any such purchase, ownership or disposition. This
summary deals only with Debentures held as "capital assets" within the meaning
of Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code"),
by U.S. Holders (as defined below). This summary does not address all aspects of
the U.S. federal income tax consequences of holding the 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, financial institutions, tax-exempt organizations, dealers
in securities and currencies, persons holding Debentures as a part of a hedging
or conversion transaction or a straddle, persons who "mark-to-market" their
securities, U.S. Holders whose "functional currency" is not the U.S. dollar or
Non-U.S. Holders (as defined below). This summary also does not discuss tax
consequences under state, local, or foreign tax laws. Holders of the Debentures
should consult their own tax advisors concerning the application of U.S. federal
income tax laws, as well as the laws of any state, local or foreign taxing
jurisdiction, to their particular situation. Furthermore, the discussion below
is based upon the provisions of the Code and existing and proposed Treasury
regulations, administrative rulings and judicial decisions thereunder as of the
date hereof, and such authorities may be repealed, revoked or modified, possibly
with retroactive effect, so as to result in U.S. federal income tax consequences
different from those discussed below.
As used herein, a "U.S. Holder" means a beneficial owner that is (i) an
individual who is a citizen or resident of the U.S., (ii) a corporation,
partnership or other entity created or organized in or under the laws of the
U.S. or any political subdivision thereof, (iii) an estate the income of which
is includible in gross income for U.S. federal income tax purposes regardless of
its sources or (iv) a trust the administration over which a U.S. court can
exercise primary supervision and for which one or more U.S. fiduciaries have the
authority to control all substantial decisions. A "Non-U.S. Holder" is a holder
other than a U.S. Holder.
ALL PROSPECTIVE PURCHASERS OF DEBENTURES ARE ADVISED TO CONSULT THEIR
OWN TAX ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THEIR PURCHASE, OWNERSHIP AND DISPOSITION OF THE DEBENTURES.
Stated Interest and Original Issue Discount
Payments of interest on a debt instrument generally will be includible
in a U.S. Holder's income as ordinary income under the holder's method of
accounting for U.S. federal income tax purposes. However, because Holdings has
the option through July 15, 2000 to pay interest on the Debentures by issuing
additional Debentures, the Debentures are issued with OID, and stated interest
on the Debentures will not be treated as interest for U.S. federal income tax
purposes, but instead will be subject to the OID rules described below.
U.S. Holders of Debentures should be aware that they generally must
include OID in gross income for U.S. federal income tax purposes on an annual
basis under a constant yield accrual method. As a result, U.S. Holders will
include OID in income in advance of the receipt of cash attributable to that
income. However, U.S. Holders of Debentures generally will not be required to
include separately in income cash payments received on the Debentures, even if
denominated as interest. The Company will report to U.S. Holders of Debentures
on a timely basis the reportable amount of OID and interest income based on its
understanding of applicable law.
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<PAGE>
The amount of OID, if any, on a debt instrument is the excess of its
"stated redemption price at maturity" over its "issue price," subject to a
statutorily defined de minimis exception. 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 payments of "qualified stated
interest." For this purpose, "qualified stated interest" means stated interest
that is unconditionally payable in cash or in property (other than the debt
instruments of the issuer), at least annually at a single fixed rate during the
entire term of the debt instrument that appropriately takes into account the
length of intervals between payments. The "issue price" of Debentures is the
stated principal amount of the Debentures because the yield on the Debentures in
effect at the time the Debentures were issued was equal to or greater than the
"applicable federal rate" at that time and the Debentures are not traded on an
established securities market.
As noted above, because the Company has the option through July 15,
2000 to pay interest on the Debentures by issuing additional Debentures, the
Debentures will be treated as issued with OID, and none of the stated interest
on the Debentures will be treated as qualified stated interest. The Debentures
will be treated as having been issued with OID equal to the excess of their
stated redemption price at maturity (which will be equal to the sum of the
principal amount plus all payments of stated interest) over their issue price.
Any additional Debentures issued in lieu of cash will not be treated as debt
instruments separate from the Debentures upon which they were issued, but
instead will be aggregated with such Debentures.
The right to issue additional Debentures in lieu of paying cash
interest through July 15, 2000 is treated for purposes of the OID provisions of
the Code as an option to defer the interest payments on the Debentures until
maturity. Treasury regulations provide that in the case of a debt instrument
that provides the issuer with an unconditional option or options exercisable
during the term of the debt instrument that, if exercised, require payments to
be made on the debt instrument under an alternative payment schedule, the yield
and maturity of such debt instrument for purposes of calculating OID are
determined by assuming the issuer exercises or does not exercise the option in a
manner that minimizes the yield on the debt instrument.
Because the issue price of the Debentures is no less than their
principal amount, the yield to maturity of the Debentures if the option to pay
interest with additional Debentures is exercised will be no less than the yield
to maturity if the option is not exercised. Accordingly, for purposes of
calculating OID, it is assumed that the Company will not exercise the option. If
the option were subsequently exercised and additional Debentures were issued by
the Company in lieu of cash, such additional Debentures would be aggregated with
the Debentures upon which they were issued, and OID would be calculated for the
remainder of the term of the Debentures based upon an adjusted issue price which
includes the principal amount of the additional Debentures.
The amount of OID includible in income by an initial U.S. Holder of a
Debenture is the sum of the "daily portions" of OID with respect to the
Debenture for each day during the taxable year or portion of the taxable year in
which such U.S. Holder holds such Debenture ("accrued OID"). The daily portion
is determined by allocating to each day in any "accrual period" a pro rata
portion of the OID allocable to that accrual period. The "accrual period" for a
Debenture may be of any length and may vary in length over the term of the
Debenture, provided that each accrual period is no longer than one year and each
scheduled payment of principal or interest occur on the first day or the final
day of an accrual period. The amount of OID allocable to any accrual period is
an amount equal to the excess, if any, of (a) the product of the Debenture's
adjusted issue price at the beginning of such accrual period and its yield to
maturity (determined on the basis of compounding at the close of each accrual
period and properly adjusted for the length of the accrual period) over (b) the
qualified stated interest, if any, allocable to the accrual period. OID
allocable to a final accrual period is the difference between the amount payable
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<PAGE>
at maturity (other than a payment of qualified stated interest) and the adjusted
issue price at the beginning of the final accrual period. Special rules apply
for calculating OID for an initial short accrual period. The "adjusted issue
price" of an Debenture at the beginning of any accrual period is equal to its
issue price increased by the accrued OID for each prior accrual period
(determined without regard to the amortization of any acquisition or bond
premium, as described below) and reduced by any payments made on such Debenture
(other than qualified stated interest) on or before the first day of the accrual
period.
The Debentures may be redeemed prior to their stated maturity at the
option of the Company. For purposes of computing the yield of the Debentures,
the Company will be deemed to exercise or not exercise its option to redeem the
Debentures in a manner that minimizes the yield on the Debentures. It is not
anticipated that the Company's ability to redeem a Debenture prior to stated
maturity would affect the computation of the yield of a Debenture for OID
purposes.
In the event of a "Change of Control," the Company will be required to
offer to repurchase all of the Debentures. The right of holders to require the
repurchase of their Debentures upon a "Change of Control" will not affect the
yield or maturity date of the Debentures, provided that, based on all the facts
and circumstances as of the issue date, the payment schedule on the Debentures
that does not reflect a "Change of Control" is significantly more likely than
not to occur. The Company does not intend to treat the "Change of Control"
provisions of the Debentures as affecting the computation of the yield to
maturity of any Debentures.
U.S. Holders may elect to treat all interest on any Debenture as OID
and calculate the amount includible in gross income under the constant yield
method described above. For the purposes of this election, interest includes
stated interest, acquisition discount, OID, de minimis OID, market discount, de
minimis market discount and unstated interest, as adjusted by any amortizable
bond premium or acquisition premium. The election is to be made for the taxable
year in which the U.S. Holder acquires the Debenture, and may not be revoked
without the consent of the Internal Revenue Service (the "IRS"). U.S. Holders
should consult with their own tax advisors about this election.
Market Discount on Debentures
If a U.S. Holder acquires a Debenture for an amount that is less than
its adjusted issue price, the amount of the difference will be treated as
"market discount" for federal income tax purposes, unless such difference is
less than a specified de minimis amount. Under the market discount rules, a U.S.
Holder will be required to treat any principal payment on a Debenture, or any
gain on the sale, exchange, retirement or other disposition of a Debenture, as
ordinary income to the extent of the market discount which has not previously
been included in income and treated as having accrued on such Debenture at the
time of such payment or disposition. In addition, the U.S. Holder may be
required to defer, until the maturity of the Debenture or its earlier
disposition in a taxable transaction, the deduction of all or a portion of the
interest expense on any indebtedness incurred or continued to purchase or carry
such Debenture.
Any market discount will be considered to accrue ratably during the
period from the date of acquisition to the maturity date of the Debenture,
unless the U.S. Holder elects to accrue on a constant interest method. A U.S.
Holder of a Debenture may elect to include market discount in income currently
as it accrues (on either a ratable or constant interest method), in which case
the rule described above regarding deferral of interest deductions will not
apply. This election to include market discount in income currently, once made,
applies to all market discount obligations acquired on or after the first
taxable year to which the election applies and may not be revoked without the
consent of the IRS.
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<PAGE>
Acquisition Premium; Amortizable Bond Premium
A U.S. Holder that acquires a Debenture for an amount that is greater
than its adjusted issue price but equal to or less than the sum of all amounts
payable on the Debenture after the purchase date, other than qualified stated
interest, if any, will be considered to have purchased such Debenture at an
"acquisition premium." Under the acquisition premium rules, the amount of OID,
if any, which such U.S. Holder must include in its gross income with respect to
such Debenture for any taxable year will be reduced by the portion of such
acquisition premium properly allocable to such year.
If at the time a U.S. Holder acquires Debentures, the U.S. Holder's tax
basis in any such Debenture exceeds the sum of all amounts payable on the
Debenture after the purchase date, other than qualified stated interest, if any,
such excess would constitute "premium", and such U.S. Holder will not be
required to include any OID in income. A U.S. Holder generally may elect to
amortize bond premium over the remaining term of the Debenture on a constant
yield method. The amount amortized in any year will be treated as a reduction of
the U.S. Holder's interest income, including OID, from the Debenture. Bond
premium on an Debenture held by a U.S. Holder that does not make such an
election will decrease the gain or increase the loss otherwise recognized on
disposition of the Debenture. The election to amortize bond premium on a
constant yield method, once made, applies to all debt obligations held or
subsequently acquired by the electing U.S. Holder on or after the first day of
the first taxable year to which the election applies and may not be revoked
without the consent of the IRS.
Redemption, Sale or Exchange of Debentures
Upon the redemption, sale, exchange or retirement of a Debenture, a
U.S. Holder will recognize gain or loss equal to the difference between the
amount realized upon the redemption, sale, exchange or retirement (less any
accrued qualified stated interest, if any, not previously taken into account,
which will be taxable as such) and the adjusted tax basis of the Debenture. The
adjusted tax basis of a U.S. Holder who received Debentures in the Preferred
Stock Exchange will, in general, be equal to the issue price of such Debentures,
increased by OID and market discount previously included in income by the U.S.
Holder and reduced by any amortized premium and any cash payments on the
Debentures (other than qualified stated interest, if any). Such gain or loss
will be long-term, mid-term or short-term capital gain or loss, depending on the
U.S. Holder's holding period for the Debenture at the time of redemption, sale,
exchange or retirement of the Debenture. Gain or loss will generally be mid-term
if the Debentures have been held by such U.S. Holder for more than one year but
not more than 18 months and long-term if held for more than 18 months.
Generally, for non-corporate U.S. Holders, mid-term capital gain will be subject
to tax at a maximum rate of 28% and long-term capital gain will be subject to
tax at a maximum rate of 20%.
Applicable High Yield Discount Obligations
The Debentures are AHYDOs under Section 163(i) of the Code because (i)
the term of the Debentures is more than five years, (ii) the yield-to-maturity
of the Debentures, computed as of their issue date, June 13, 1997, equals or
exceeds the sum of (y) the "applicable federal rate" (as determined under
Section 1274(d) of the Code) in effect for June, 1997, the month in which the
Debentures were issued (the "AFR"), which is 6.99%, and (z) 5%, and (iii) the
OID on such Debentures is "significant." Consequently, the Company will not be
allowed to take a deduction for interest (including OID) accrued on the
Debentures for U.S. federal income tax purposes until such time as the Company
actually pays such interest (including OID) in cash or in other property (other
than stock or debt of the Company or a person deemed to be related to the
Company under Section 453(f)(1) of the Code).
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<PAGE>
Moreover, since the yield-to-maturity on the Debenture exceeds the sum
of the AFR and 6%, i.e., 12.99%, (such excess shall be referred to hereinafter
as the "Disqualified Yield"), the deduction for interest (including OID) accrued
on the Debentures will be permanently disallowed for U.S. federal income tax
purposes (regardless of whether the Company actually pays such interest or OID
in cash or in other property) to the extent such interest or OID is attributable
to such Disqualified Yield ("Dividend-Equivalent Interest"). For purposes of the
dividends-received deduction, such Dividend-Equivalent Interest will be treated
as a dividend to the extent it is deemed to have been paid out of the Company's
current or accumulated earnings and profits.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to certain
payments of principal, interest, OID, and premium and to the proceeds of sales
of Debentures made to U.S. Holders other than certain exempt recipients (such as
corporations). A 31% backup withholding tax will apply to such payments if the
U.S. Holder fails to provide a correct taxpayer identification number or
certification of exempt status or, with respect to certain payments, the U.S.
Holder fails to report in full dividend and interest income and the IRS notifies
the payor of such underreporting.
Any amounts withheld under the backup withholding rules will be allowed
as a credit against such U.S. Holder's U.S. federal income tax liability and may
entitle such U.S. Holder to a refund, provided the required information is
furnished to the IRS.
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. As
of the date of this Prospectus, MSLEF II, an affiliate of Morgan Stanley, owns
30.9% of the outstanding Common Stock. See "Risk Factors--Certain Interests of
Stockholders."
Morgan Stanley acted as placement agent in connection with the offering
of the Exchangeable Preferred Stock, all of which was exchanged into the
Debentures, and received certain fees amounting to $1.8 million in connection
therewith. In connection with such offering, the Company agreed to indemnify
Morgan Stanley, as the placement agent, against certain liabilities, including
liabilities under the Securities Act.
Morgan Stanley also acted as one of the several underwriters in
connection with the Company's initial public offering in February 1997 of Common
Stock and received fees of approximately $1.2 million in connection therewith.
In connection with the Company's issuance and sale in June 1997 of $300.0
million aggregate principal amount of the Senior Debentures in a private
placement, Morgan Stanley acted as placement agent and received certain fees
amounting to $7.9 million. In connection with the Credit Agreement, Morgan
Stanley Senior Funding, Inc., an affiliate of Morgan Stanley, in its capacity as
a co-arranger, co-documentation agent and one of the several Banks thereunder,
receives certain fees and other amounts.
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<PAGE>
Morgan Stanley has provided, and continues to provide, investment
banking services to the Company and its affiliates.
LEGAL MATTERS
The legality of the Debentures has been passed on for the Company by
Winthrop, Stimson, Putnam & Roberts, Financial Centre, 695 East Main Street,
Stamford, Connecticut 06901. Winthrop, Stimson, Putnam & Roberts from time to
time represents Morgan Stanley in connection with certain legal matters
unrelated to its representation of the Company.
EXPERTS
The consolidated financial statements and schedules of Silgan Holdings
Inc. appearing in the Company's Annual Report (Form 10-K) for the year ended
December 31, 1996 have been audited by Ernst & Young LLP, independent auditors,
as set forth in their reports thereon included therein and incorporated herein
by reference. Such consolidated financial statements and schedules are
incorporated herein by reference in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
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<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Not Applicable.
Item 15. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law makes provision for
the indemnification of officers and directors in terms sufficiently broad to
indemnify officers and directors of the Company under certain circumstances from
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act. The Restated Certificate of Incorporation and Amended and
Restated By-laws of the Company provide for indemnification of officers and
directors against costs and expenses incurred in connection with any action or
suit to which such person is a party to the fullest extent permitted by the
Delaware General Corporation Law.
Item 16. Exhibits.
Exhibit
Number Description
- ------ -----------
4.1 Indenture, dated as of July 22, 1996, between the Company and
State Street Bank & Trust Company (as successor to Fleet
National Bank), as Trustee, with respect to the Debentures
(incorporated by reference to Exhibit 4.10 filed with the
Company's Amendment No. 2 to Registration Statement on Form
S-4, dated October 31, 1996, Registration Statement No.
333-9979).
4.2 Form of the Company's Subordinated Debentures due 2006
(incorporated by reference to Exhibit 4.11 filed with the
Company's Amendment No. 2 to Registration Statement on
Form S-4, dated October 31, 1996, Registration Statement
No. 333-9979).
*5 Opinion of Winthrop, Stimson, Putnam & Roberts as to the
legality of the Debentures.
*8 Opinion of Winthrop, Stimson, Putnam & Roberts as to tax
matters.
*12.1 Computations of the Company's Ratio of Earnings to Fixed
Charges for the six months ended June 30, 1997 and 1996.
12.2 Computations of the Company's Ratio of Earnings to Fixed
Charges for the years ended December 31, 1996, 1995, 1994,
1993 and 1992 (incorporated by reference to Exhibit 12.2 filed
with the Company's Registration Statement on Form S-4, dated
July 8, 1997, Registration Statement No. 333-30881).
*23.1 Consent of Ernst & Young LLP.
*23.2 Consent of Winthrop, Stimson, Putnam & Roberts (included in
Exhibit 5).
*24 Power of Attorney (included on signature page).
II-1
<PAGE>
25 Statement of Eligibility of Trustee with respect to the
Debentures (incorporated by reference to Exhibit 25 filed
with the Company's Amendment No. 2 to Registration Statement
on Form S-4, dated October 31, 1996, Registration Statement
No. 333-9979).
- -------------------
*Filed herewith.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and 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 September 12,
1997.
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
- --------- ----- ----
Chairman of the Board and
/s/ R. Philip Silver Co-Chief Executive Officer
- -------------------- (Principal Executive Officer) September 12, 1997
(R. Philip Silver)
/s/ D. Greg Horrigan President, Co-Chief Executive
- --------------------- Officer and Director September 12, 1997
(D. Greg Horrigan)
<PAGE>
Signature Title Date
- --------- ----- ----
/s/ Robert H. Niehaus Director September 12, 1997
- -----------------------------
(Robert H. Niehaus)
/s/ Leigh J. Abramson Director September 12, 1997
- -----------------------------
(Leigh J. Abramson)
/s/ Thomas M. Begel Director September 12, 1997
- -----------------------------
(Thomas M. Begel)
/s/ Jeffrey C. Crowe Director September 12, 1997
- -----------------------------
(Jeffrey C. Crowe)
Executive Vice President,
Chief Financial Officer and,
/s/ Harley Rankin, Jr. Treasurer
- ----------------------------- (Principal Financial Officer) September 12, 1997
(Harley Rankin, Jr.)
Vice President, Controller
/s/ Harold J. Rodriguez, Jr. and Assistant Treasurer
- ----------------------------- (Principal Accounting Officer) September 12, 1997
(Harold J. Rodriguez, Jr.)
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
4.1 Indenture, dated as of July 22, 1996, between the Company and
State Street Bank & Trust Company (as successor to Fleet
National Bank), as Trustee, with respect to the Debentures
(incorporated by reference to Exhibit 4.10 filed with the
Company's Amendment No. 2 to Registration Statement on Form
S-4, dated October 31, 1996, Registration Statement No.
333-9979).
4.2 Form of the Company's Subordinated Debentures due 2006
(incorporated by reference to Exhibit 4.11 filed with the
Company's Amendment No. 2 to Registration Statement on Form
S-4, dated October 31, 1996, Registration Statement
No. 333-9979).
*5 Opinion of Winthrop, Stimson, Putnam & Roberts as to the
legality of the Debentures.
*8 Opinion of Winthrop, Stimson, Putnam & Roberts as to tax
matters.
*12.1 Computations of the Company's Ratio of Earnings to Fixed
Charges for the six months ended June 30, 1997 and 1996.
12.2 Computations of the Company's Ratio of Earnings to Fixed
Charges for the years ended December 31, 1996, 1995, 1994,
1993 and 1992 (incorporated by reference to Exhibit 12.2
filed with the Company's Registration Statement on Form S-4,
dated July 8, 1997, Registration Statement No. 333-30881).
*23.1 Consent of Ernst & Young LLP.
*23.2 Consent of Winthrop, Stimson, Putnam & Roberts (included in
Exhibit 5).
*24 Power of Attorney (included on signature page).
25 Statement of Eligibility of Trustee with respect to the
Debentures (incorporated by reference to Exhibit 25 filed with
the Company's Amendment No. 2 to Registration Statement on
Form S-4, dated October 31, 1996, Registration Statement
No. 333-9979).
- -------------
*Filed herewith.
EXHIBIT 5
Winthrop, Stimson, Putnam & Roberts
Financial Centre
695 East Main Street
Stamford, CT 06901
(203) 348-2300
September 12, 1997
Silgan Holdings Inc.
4 Landmark Square
Stamford, CT 06901
Re: Registration Statement on Form S-4, as amended by Post-Effective Amendment
No. 1 thereto on Form S-3 of Silgan Holdings Inc. (File No. 333-9979)
Gentlemen:
We have acted as counsel to Silgan Holdings Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing by
the Company with the Securities and Exchange Commission of a Registration
Statement on Form S-4, as amended by Post-Effective Amendment No. 1 thereto on
Form S-3 (the "Registration Statement"), under the Securities Act of 1933, as
amended (the "Act"), relating to the Company's 13-1/4% Subordinated Debentures
due 2006 (the "Debentures").
In connection with this opinion, we have examined copies of
(i) the Registration Statement; (ii) a specimen copy of the debenture
representing the Debentures, (iii) an originally executed copy of the Indenture
dated as of July 22, 1996 between the Company, as Issuer, and State Street Bank
& Trust Company (as successor to Fleet National Bank), as trustee (the
"Trustee"), with respect to the Debentures (the "Indenture"); (iv) copies of the
restated certificate of incorporation of the Company, as certified by the
Secretary of State of the State of Delaware; (v) the amended and restated
by-laws of the Company; (vi) copies of certain resolutions of the Board of
Directors of the Company; and (vii) all other records, agreements, instruments
and documents that we have deemed relevant or necessary as the basis for the
opinion hereinafter set forth. In stating our opinion, we have assumed the
genuineness of all signatures on original documents (except when executed in our
presence), the authenticity of documents submitted to us as originals and the
conformity to originals of all copies submitted to us as certified, conformed or
reproduction copies.
<PAGE>
Based upon the foregoing and subject to the limitations set
forth herein, we are of the opinion that the Debentures have been duly
authorized by the Company, are entitled to the benefits of the indenture and are
legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, except as (a) the validity, binding
effect and enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditors' rights generally
and (b) rights of acceleration and the availability of equitable remedies may be
limited by equitable principles of general applicability (regardless of whether
such enforceability is considered in a proceeding in equity or in law).
The foregoing opinion is limited to the Federal laws of the
United States, the laws of the State of New York and the General Corporation Law
of the State of Delaware, and we express no opinion as to the effect of the laws
of any other jurisdiction.
The opinion expressed herein is solely for your benefit and
may not be relied upon in any manner or for any purpose by, or furnished to, any
other person without our express written consent.
We consent to the filing of this opinion with the Securities
and Exchange Commission as Exhibit 5 to the Registration Statement on Form S-3
and to the reference to our firm under the caption "Legal Matters" in the
Prospectus constituting a part thereof.
Very truly yours,
/s/ Winthrop, Stimson, Putnam &
Roberts
EXHIBIT 8
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004-1490
(212) 858-1000
September 12, 1997
Silgan Holdings Inc.
4 Landmark Square
Stamford, CT 06901
Gentlemen:
As your counsel, we have participated in the preparation of,
and have reviewed, the Prospectus contained in the Post-Effective Amendment No.
1 to the Form S-4 Registration Statement on Form S-3 (File No. 333-9979), as
amended to and dated the date hereof (the "Registration Statement"), filed with
the Securities and Exchange Commission relating to your issuance of certain
subordinated debentures as described in the Registration Statement (the
"Subordinated Debentures").
On the basis of the foregoing and upon consideration of
applicable law, we are of the opinion that, subject to the qualifications stated
therein, the discussion as to the United States federal income tax matters set
forth under the caption "Certain United States Federal Income Tax
Considerations" in the Prospectus contained in the Registration Statement
summarizes the material United States federal income tax consequences relevant
to the purchase, ownership and disposition of the Subordinated Debentures.
We consent to being named in the Registration Statement and
related Prospectus as counsel who are passing upon the material tax matters
relating to the Subordinated Debentures for Silgan Holdings Inc. and to the
reference to our firm under the caption "Certain United States Federal Income
Tax Considerations" in such Prospectus. We also consent to your filing copies of
this opinion as an exhibit to the Registration Statement.
Very truly yours,
/s/ Winthrop, Stimson, Putnam &
Roberts
EXHIBIT 12.1
COMPUTATIONS OF RATIO OF EARNINGS TO FIXED CHARGES
The following table reflects the computations of ratio of earnings to fixed
charges for Silgan Holdings Inc. for the periods indicated.
Six Months ended June 30,
-------------------------
(Dollars in thousands)
(unaudited)
1997 1996
---- ----
Income before income taxes ............................ $ 6,827 $12,168
Add:
Interest expense and amortization
of debt expense ................................. 41,103 45,861
Rental expense representative of
the interest factor ............................. 2,297 2,240
------ ------
Income as adjusted ................................. $50,227 $60,269
====== ======
Fixed charges:
Interest expense and amortization
of debt expense ................................. $41,103 $45,861
Rental expense representative of
the interest factor ............................. 2,297 2,240
------ ------
Total fixed charges ................................ $43,400 $48,101
====== ======
Ratio of earnings to fixed charges .................... 1.16 1.25
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Post-Effective Amendment No. 1 to the Registration Statement (Form S-4 No.
333-9979) on Form S-3 and related Prospectus of Silgan Holdings Inc. for the
registration of $56,206,000 13-1/4% Subordinated Debentures Due 2006 and to the
incorporation by reference therein of our reports dated January 31, 1997, except
for Note 22, as to which the date is February 13, 1997, with respect to the
consolidated financial statements and schedules of Silgan Holdings Inc. included
in its Annual Report (Form 10-K) for the year ended December 31, 1996, filed
with the Securities and Exchange Commission.
/s/Ernst & Young LLP
Stamford, Connecticut
September 8, 1997
