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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 5, 1997
COMMISSION FILE NUMBER 0-21314
U.S. CAN CORPORATION
(Exact name of registrant as specified in its charter)
06-1094196
(I.R.S. Employer Identification No.)
DELAWARE
(State or Other Jurisdiction of Incorporation or Organization)
900 COMMERCE DRIVE
OAK BROOK, ILLINOIS 60521
(Address of Principal Executive Offices, Including Zip Code)
(630) 571-2500
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act") during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
As of October 31, 1997, 13,074,461 shares of U.S. Can Corporation's common
stock were outstanding.
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U.S. CAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED OCTOBER 5, 1997
TABLE OF CONTENTS
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PAGE
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
U.S. Can Corporation and Subsidiaries Condensed Consolidated
Balance Sheets as of December 31, 1996 and October 5,
1997........................................................ 3
U.S. Can Corporation and Subsidiaries Condensed Consolidated
Statements of Operations for the Quarterly and Nine-Month
Periods Ended September 29, 1996 and October 5, 1997........ 4
U.S. Can Corporation and Subsidiaries Condensed Consolidated
Statements of Cash Flows for the Quarterly Periods Ended
September 29, 1996 and October 5, 1997...................... 5
Notes to Condensed Consolidated Financial Statements........ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 16
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ 20
</TABLE>
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U.S. CAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(000'S OMITTED, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 5,
1996 1997
------------ ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 7,966 $ 7,192
Accounts receivable, less allowances of $10,895 and
$15,028 in 1996 and 1997, respectively.................. 86,822 97,561
Inventories............................................... 113,143 108,202
Prepaid expenses and other current assets................. 15,261 16,282
Prepaid income taxes...................................... 9,372 9,572
--------- ---------
Total current assets.................................. $ 232,564 $ 238,809
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land...................................................... $ 5,425 $ 5,294
Buildings................................................. 62,421 72,725
Machinery, equipment and construction in process.......... 408,428 440,214
--------- ---------
$ 476,274 $ 518,233
Less -- Accumulated depreciation and amortization......... (153,160) (198,465)
--------- ---------
Total property, plant and equipment................... $ 323,114 $ 319,768
--------- ---------
MACHINERY REPAIR PARTS...................................... $ 6,057 $ 5,935
INTANGIBLES................................................. 67,206 76,006
OTHER ASSETS................................................ 14,675 16,178
--------- ---------
Total assets.......................................... $ 643,616 $ 656,696
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 11,928 $ 10,561
Cash overdrafts........................................... 3,769 6,255
Accounts payable.......................................... 56,355 55,406
Accrued payrolls and benefits............................. 25,786 28,032
Accrued insurance......................................... 6,770 6,123
Reserve for exit costs.................................... -- 32,521
Other current liabilities................................. 22,326 32,113
--------- ---------
Total current liabilities............................. $ 126,934 $ 171,011
--------- ---------
SENIOR DEBT................................................. $ 88,882 $ 102,368
SUBORDINATED DEBT........................................... 275,000 275,000
--------- ---------
Total long-term debt.................................. $ 363,882 $ 377,368
--------- ---------
OTHER LONG-TERM LIABILITIES:
Postretirement benefits................................... $ 26,128 $ 26,745
Deferred income taxes..................................... 27,892 9,927
Other long-term liabilities............................... 1,995 3,864
--------- ---------
Total other long-term liabilities..................... $ 56,015 $ 40,536
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 10,000,000 shares
authorized, none issued or outstanding.................. $ -- $ --
Common stock, $.01 par value; 50,000,000 shares authorized
12,995,636 and 13,091,855 shares issued in 1996 and
1997, respectively...................................... 130 131
Paid-in capital........................................... 105,582 107,216
Unearned restricted stock................................. (2,581) (3,317)
Treasury common stock, at cost; 20,651 and 37,891 shares
in 1996 and 1997, respectively.......................... (256) (610)
Currency translation adjustment........................... 1,622 (5,235)
Retained deficit.......................................... (7,712) (30,404)
--------- ---------
Total stockholders' equity............................ $ 96,785 $ 67,781
--------- ---------
Total liabilities and stockholders' equity......... $ 643,616 $ 656,696
========= =========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these balance sheets.
3
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U.S. CAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(000'S OMITTED, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTERLY PERIOD ENDED NINE MONTHS ENDED
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SEPTEMBER 29, OCTOBER 5, SEPTEMBER 29, OCTOBER 5,
1996 1997 1996 1997
------------- ---------- ------------- ----------
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NET SALES....................................... $187,835 $220,512 $517,171 $669,794
COST OF SALES................................... 163,752 195,686 449,761 593,890
-------- -------- -------- --------
Gross income.................................. $ 24,083 $ 24,826 $ 69,410 $ 75,904
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.... 6,977 8,577 20,578 26,152
RESTRUCTURING PROVISION......................... -- 35,012 -- 35,012
-------- -------- -------- --------
Operating income (loss)....................... $ 17,106 $(18,763) $ 48,832 $ 14,740
INTEREST EXPENSE ON BORROWINGS.................. 6,993 9,274 19,513 27,716
AMORTIZATION OF DEFERRED FINANCING COSTS........ 330 475 1,132 1,369
OTHER EXPENSE................................... 401 523 1,243 1,491
-------- -------- -------- --------
Income (loss) from continuing operations
before income taxes........................ $ 9,382 $(29,035) $ 26,944 $(15,836)
PROVISION (BENEFIT) FOR INCOME TAXES............ 3,933 (11,201) 11,302 (6,044)
-------- -------- -------- --------
Net income (loss) from continuing
operations................................. $ 5,449 $(17,834) $ 15,642 $ (9,792)
DISCONTINUED OPERATIONS -- NET OF INCOME TAXES
Loss from discontinued operations............. (868) (462) (1,654) (1,395)
Loss on disposal of business.................. -- (11,508) -- (11,508)
-------- -------- -------- --------
Net income(loss).............................. $ 4,581 $(29,804) $ 13,988 $(22,695)
======== ======== ======== ========
PER SHARE DATA:
Income (loss) from continuing operations...... $ 0.42 $ (1.35) $ 1.20 $ (0.74)
Discontinued operations....................... (0.07) (0.90) (0.13) (0.98)
-------- -------- -------- --------
Net income.................................... $ 0.35 $ (2.25) $ 1.07 $ (1.72)
======== ======== ======== ========
Weighted average shares and equivalent shares
outstanding (000's)........................ 13,120 13,218 13,070 13,179
======== ======== ======== ========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
4
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U.S. CAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(000'S OMITTED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------
SEPTEMBER 29, OCTOBER 5,
1996 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 13,988 $(22,695)
Adjustments to reconcile net income to net cash provided
by operating activities --
Restructure provision.................................. -- 35,012
Loss on disposal of discontinued operation............. -- 11,508
Depreciation and amortization.......................... 28,844 33,524
Deferred income taxes.................................. 2,484 (12,526)
Change in operating assets and liabilities, net of effect
of acquired businesses --
Accounts receivable.................................... (23,598) (10,739)
Inventories............................................ (16,667) 5,941
Accounts payable....................................... 6,155 (949)
Accrued payrolls and benefits, insurance and other..... (3,463) 9,989
Postretirement benefits................................ 139 617
Other, net............................................. (1,085) (6,282)
--------- --------
Net cash provided by operating activities......... $ 2,797 $ 43,400
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... $ (23,400) $(40,078)
Acquisition of businesses, net of cash acquired........... (78,346) (12,581)
Change in restricted cash................................. -- 2,016
Machinery repair parts usage, net......................... 118 122
--------- --------
Net cash used in investing activities............. $(101,628) $(50,521)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock and exercise of stock options.... $ 56 $ 131
Net borrowings under the revolving line of credit and
changes in cash overdrafts............................. 106,954 7,786
Borrowings of other long-term debt, including capital
lease obligations...................................... 3,985 26,166
Payments of other long-term debt, including capital lease
obligations............................................ (7,325) (19,347)
Payments of debt refinancing costs........................ (835) (992)
Purchase of treasury stock, net........................... (200) (715)
--------- --------
Net cash provided by financing activities......... $ 102,635 $ 13,029
--------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... $ -- $ (6,682)
--------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ $ 3,804 $ (774)
CASH AND CASH EQUIVALENTS, beginning of period.............. 136 7,966
--------- --------
CASH AND CASH EQUIVALENTS, end of period.................... $ 3,940 $ 7,192
========= ========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
5
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U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 5, 1997
(UNAUDITED)
(1) PRINCIPLES OF REPORTING
The condensed consolidated financial statements include the accounts of
U.S. Can Corporation (the "Corporation"), its wholly owned subsidiary, United
States Can Company ("U.S. Can") and U.S. Can's subsidiaries, all of which are
European companies formed or acquired during 1996 (the "European Subsidiaries").
All significant intercompany balances and transactions have been eliminated. The
consolidated group including the Corporation is hereinafter referred to as the
Company. These financial statements have been prepared in accordance with
generally accepted accounting principles for interim reporting. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. These
financial statements, which, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation, have not been audited by independent public accountants.
Operating results for any interim period are not necessarily indicative of
results that may be expected for the full year.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission; however, management believes that the
disclosures contained herein are adequate to make the information presented not
misleading. It is suggested that these financial statements be read in
conjunction with the previously filed financial statements and footnotes
included in the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1996.
Generally, quarterly accounting periods are based upon two four-week
periods and one five-week period. Management believes that this technique
provides a more consistent view of accounting data resulting in greater
comparability than the calendar month basis would provide.
(2) ACQUISITIONS
In April and June 1996, the Company acquired from Alltrista Corporation
("Alltrista") for approximately $14.4 million and the assumption of a $0.5
million liability substantially all of the assets (other than steel inventory)
of Alltrista Metal Services ("AMS"), a division of Alltrista. In June 1996, the
Company purchased AMS's remaining inventory for $8 million. The acquisitions
were financed with borrowings under U.S. Can's revolving line of credit. In July
1996, the Company discontinued operations at two of the former AMS plants.
In August 1996, the Company completed the acquisition of all of the
outstanding stock of three related companies, CPI Plastics, Inc., CP Ohio, Inc.
and CP Illinois, Inc. (collectively, the "CPI Group"), engaged in manufacturing
molded plastic drums and pails and poultry products. The Company paid
approximately $15.1 million in cash to the stockholders of the CPI Group,
subject to contingent payments (in an amount not to exceed $1 million) based
upon the CPI Group's financial performance through 1997. This acquisition was
financed with borrowings under a special acquisition line of credit provided to
U.S. Can by its senior lenders.
In September 1996, the Company completed the acquisition of a portion of
Crown Cork & Seal Company, Inc.'s ("Crown's") European aerosol can businesses
("USC Europe"). The Company and Crown have agreed in principle that the final
adjusted purchase price is $49.9 million, in addition to the assumption of debt
of $5.8 million. This acquisition included manufacturing operations in the
United Kingdom, France, Spain and Germany and the aerosol can manufacturing
equipment and assets from a Crown facility in Italy. The companies acquired and
established in connection with the USC Europe acquisition comprise the majority
of the European Subsidiaries. The company incurred $3.5 million of costs in
completing this acquisition which have been included in total acquisition costs.
6
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U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In January 1997, the Company acquired certain assets from Owens-Illinois
Closure Inc. ("O-I") for cash consideration of $10 million, subject to
adjustment based upon the actual value of the inventory acquired and potential
contingent payments of up to $1.5 million based upon realization of certain new
business which O-I was seeking at the time of the acquisition. The assets
acquired by the Company include machinery, equipment, inventory and raw
materials of O-I's Erie, Pennsylvania metal business. O-I will operate these
lines for up to one year, pending relocation into one or more of the Company's
plants.
Each of the foregoing business acquisitions was accounted for as a purchase
for financial reporting purposes. Accordingly, assets and liabilities of the
acquired companies were revalued to estimated fair values as of the acquisition
date. Changes in these estimates, if any, are not expected to be material.
The operating results of each acquired business are included in the
consolidated statement of operations from the date of acquisition. Amortization
of excess purchase price over the estimated fair value of the net value of
assets acquired is made over a period of 40 years. All acquired companies, other
than those comprising USC Europe, have been merged into U.S. Can.
(3) RESTRUCTURING PROVISION AND DISCONTINUED OPERATIONS
In July 1997, the Company announced that it would undertake a significant
business and operational realignment that resulted in a $35.0 million
restructuring provision in addition to an $11.5 million after-tax loss from the
discontinuance of the Company's steel pail business. The key components of the
restructuring are closure of the Racine, Wisconsin aerosol assembly plant;
closure of the Midwest Litho center in Alsip, Illinois; closure of the Sparrows
Point litho center in Baltimore, Maryland; closure of the California Specialty
plant in Vernalis, California; and organizational changes designed to achieve
more efficient operations. In July, S. C. Johnson, a major aerosol can customer
and principal customer of the Racine plant, awarded all of its global aerosol
business to a single supplier and U.S. Can competitor. Approximately $35 million
of annual sales will be affected due to the loss of this customer. Closure of
the two Metal Services plants is due to one or more of the following factors:
the loss of the S. C. Johnson business; overcapacity after the Alltrista Metal
Services acquisition; and increased efficiencies at other plants. The custom and
specialty business of the Vernalis, California plant will be transferred to
other locations. U.S. Can manufactured steel pails at a plant located in North
Brunswick, New Jersey.
The components of the restructuring provision are $18.8 million for the
non-cash write off of assets related to the facilities to be closed, $11.4
million for severance and related termination benefits for approximately 85
salaried and 250 hourly employees, and $4.8 million for other related closure
costs such as building restoration, equipment disassembly and future lease
payments. The plant closures are expected to be complete by mid-1998.
The Company's steel pail business had approximately $19 million of sales in
both of the nine-month periods ended October 5, 1997, and September 29, 1996,
and approximately $6 million of sales in both of the quarters then ended. The
$17.1 million ($11.5 million after tax) loss on discontinuing this business
includes a $12.8 million write off of steel pail business assets, $2.0 million
for severance and related termination benefits for approximately 145 employees,
$0.5 million for operating losses until the date of closure and $1.8 million for
other related closure costs such as building restoration, equipment disassembly
and future lease payments. The net assets of this business as of October 5,
1997, absent the $17.1 million discontinued operations reserve, included net
current assets of approximately $3.2 million and net other assets of
approximately $12.6 million. The Company has reached agreement on a sale of the
steel pail business as a going concern. When the sale is consummated, the
Company expects that the after-tax loss on discontinuance of this business would
be reduced by approximately $2.0 million to $3.0 million.
7
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U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition to the actions described above, the Company announced in
October 1997 that it intends to sell its commercial metal services business
("Metal Services"), which includes two plants in Chicago, a plant in Trenton,
New Jersey and a plant in Brookfield, Ohio. The assets of the closed Midwest
Litho plant may also be included. Total sales from these operations during the
nine-month period ended October 5, 1997, were $85.7 million (excluding
intra-Company sales which are expected to be continued by the buyer and
including third-party sales from the closed Midwest Litho plant, which (other
than sales to S. C. Johnson) have been transferred to the other Metal Services
plants). The Company anticipates that the sale of these operations will occur
before the end of the first quarter of 1998.
(4) INVENTORIES
All domestic inventories, except machine parts, are stated at cost
determined by the last-in, first-out ("LIFO") cost method, not in excess of
market. Inventories of approximately $15 million at December 31, 1996, and $17
million at October 5, 1997, at the European Subsidiaries and machine shop
inventory are stated at cost determined by the first-in, first-out ("FIFO") cost
method, not in excess of market. Inventory costs include material, labor and
factory overhead. FIFO cost of LIFO inventories approximated their LIFO value at
December 31, 1996. LIFO inventories exceeded their FIFO cost by approximately
$1.0 million at October 5, 1997. The Company's gross income margins continue to
be sufficient to absorb the higher-than-current cost carrying value of its
inventories.
Inventories reported in the accompanying balance sheets were classified as
follows (000's omitted):
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 5,
1996 1997
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Raw materials........................................ $ 34,257 $ 28,826
Work in process...................................... 48,654 47,678
Finished goods....................................... 26,053 26,100
Machine shop inventory............................... 4,179 5,598
-------- --------
$113,143 $108,202
======== ========
</TABLE>
(5) DEBT OBLIGATIONS
In April 1997, U.S. Can entered into an Amended and Restated Credit
Agreement with a group of banks (the "Credit Agreement"), providing a $110
million revolving credit facility (the "Revolving Credit Facility"). Obligations
under the Credit Agreement are secured by U.S. Can's domestic accounts
receivable and inventory. Funds available under the Revolving Credit Facility
may be used for general corporate purposes (including ongoing working capital
needs and funds for permitted acquisitions). The Credit Agreement has a
five-year maturity and amends and restates the April 1994 credit agreement (the
"1994 Credit Agreement"). The Credit Agreement permits the Company to borrow
funds available under the Revolving Credit Facility in U.S. Dollars, British
Pounds or French Francs.
The loans under the Credit Agreement bear interest at a floating rate equal
to, at the election of U.S. Can, one of the following: (i) the Base Rate (as
defined in the Credit Agreement) per annum, or (ii) based on the current pricing
ratio, a reserve-adjusted Eurodollar rate plus the then applicable margin, for
specified interest periods (selected by U.S. Can) of one, two, three or six
months. For letters of credit issued under the Credit Agreement, U.S. Can pays
fees equal to: (a) the applicable Eurodollar Margin multiplied by the aggregate
face amount outstanding on each such letter of credit and (b) an amount payable
to the issuing bank equal to a specified percentage of the aggregate face amount
outstanding on each such letter of credit, both of which are payable quarterly
in arrears. U.S. Can is also required to pay a commitment fee equal to a
specified percentage of the average daily unused portion of each lender's
commitment under the Credit Agreement.
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U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Credit Agreement contains various financial and other restrictive
covenants, as well as cross-default provisions. The financial covenants include
but are not limited to limitations on annual capital expenditures, certain
ratios of borrowings to earnings, before interest, taxes, depreciation and
amortization ("EBITDA"), the ratio of senior debt to EBITDA and interest
coverage ratio. The Credit Agreement also limits U.S. Can's distribution of
dividends, incurrence of additional debt, disposition of assets, mergers and
acquisitions, investments and affiliated transactions. Reference is made to the
Credit Agreement, previously filed as an exhibit to U.S. Can's Form 10-Q report
for the quarterly period ended April 6, 1997, for a fuller description of these
covenants.
The Credit Agreement also provides that U.S. Can would be in default if
there is a change after December 31, 1996, which could reasonably be expected to
have a material adverse effect on the business, financial condition, operations,
properties or prospects of U.S. Can and its subsidiaries. The Company is not
aware of, nor does it anticipate, any such change and, consequently, borrowings
under the Credit Agreement have been classified as long-term debt in the
accompanying balance sheets.
As of October 5, 1997, U.S. Can had borrowings of $40.0 million outstanding
under the Credit Agreement, $11.8 million in letters of credit had been issued
pursuant thereto, and $58.2 million of unused credit remained available.
On October 17, 1996, the Corporation issued $275.0 million principal amount
of 10 1/8% Senior Subordinated Notes due 2006 in a private placement. These
notes were exchanged in March 1997 for similar notes which are publicly
registered. These exchange notes (the "10 1/8% Notes") are unsecured and are
subordinated to all other senior debt of the Corporation and its subsidiaries.
The 10 1/8% Notes are fully and unconditionally guaranteed on an unsecured
senior subordinated basis by U.S. Can. On or after October 15, 2001, the
Corporation may, at its option, redeem all or some of the 10 1/8% Notes at
declining redemption premiums which begin at approximately 105.1% in 2001. Upon
certain changes of control of the Corporation, the Note holders could require
that the Corporation repurchase all or some of the 10 1/8% Notes at a 101%
premium.
Net proceeds from the issuance of the 10 1/8% Notes were $268.1 million.
Approximately $158.4 million of the net proceeds were used to pay down amounts
outstanding under the 1994 Credit Agreement and $109.7 million was used to
redeem all of U.S. Can's 13 1/2% Senior Subordinated Notes due 2002 (the
"13 1/2% Notes") on January 15, 1997, and pay the remaining interest thereon.
The Company recorded the early extinguishment of the 13 1/2% Notes as of October
17, 1996 which resulted in an extraordinary charge in the fourth quarter of 1996
of $5.2 million (net of income taxes of $3.5 million) representing, among other
things, the write off of the related unamortized deferred financing costs.
Due primarily to the restructuring provision, the Company failed to comply
with certain financial ratios for the quarter ended October 5, 1997, and a
covenant concerning the sale of the steel pail business, contained in the Credit
Agreement. In November 1997, the lenders under the Credit Agreement waived these
covenant defaults and agreed to amend the Credit Agreement to (i) exclude the
Company's $35 million restructuring provision from the calculation of these
ratios going forward, (ii) permit the sale of Metal Services and (iii) modify
certain other sections of the Credit Agreement. The Company was in compliance
with its other long-term debt agreements as of October 5, 1997.
(6) SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid interest on borrowings of approximately $22.6 million and
$19.6 million for the nine-month periods ended September 29, 1996, and October
5, 1997, respectively.
9
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U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company paid approximately $3.8 million and $3.1 million of income
taxes for the nine-month periods ended September 29, 1996, and October 5, 1997,
respectively.
(7) LEGAL PROCEEDINGS
In February 1995, Continental Holdings Inc. ("CHI"), an affiliate of Peter
Kiewit Sons', Inc. ("Kiewit"), filed a Complaint against U.S. Can, asserting
claims based upon alleged indemnity obligations of U.S. Can to Kiewit, as
successor in interest to Continental Can Company, USA, Inc. ("CCC"), arising
from the 1987 acquisition by U.S. Can of the general packaging business of CCC.
In May 1997, CHI and U.S. Can agreed in principle to settle the Kiewit
litigation by dismissing their claims and counterclaims with prejudice and
exchanging full releases. Each party will bear their own expenses, and no
payment of monies will be made.
The Company intends to submit a no further action request to the California
Department of Toxic Substances Control ("CDTSC") concerning the Company's former
can assembly facility in San Leandro, California. In late April 1996, the CDTSC
issued to U.S. Can an order directing it to conduct remediation activities at
this site; however, no specific form of remediation was indicated. There can be
no assurance that the Company will not incur material costs and expenses in
connection with the CDTSC order.
The Company is also involved in a number of other legal proceedings and
environmental matters arising in the ordinary course of business. Management
does not believe that any of these proceedings or matters will have a material
adverse effect on the business or financial condition of the Company either
individually or in the aggregate.
(8) NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standard No. 128, "Earnings Per Share"
was issued in February 1997 and will be adopted by the Company with retroactive
treatment in late 1997. This new pronouncement establishes revised methods for
computing and reporting earnings per share. The new standard does not materially
impact previously reported earnings per share, including the per share amount
reported for the quarterly and nine-month periods ended October 5, 1997.
In July 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130"), and Statement of Financial Accounting Standard No. 131, "Disclosures
About Segments of an Enterprise and Related Information" ("SFAS No. 131"). SFAS
No. 130 establishes standards for reporting and display of comprehensive income
and its components (primarily cumulative translation adjustment for the Company)
in a full set of general purpose financial statements. SFAS No. 131 introduces a
new model for segment reporting, called the "management approach." The
management approach is based on the way that the chief operating decision maker
organizes segments within a company for making operating decisions and assessing
performance. Management is currently evaluating the provisions of this statement
to determine its impact upon current reporting. Both SFAS No. 130 and SFAS No.
131 will be adopted by the Company for the fiscal year beginning January 1,
1998.
(9) SUBSIDIARY GUARANTOR INFORMATION
The 10 1/8% Notes are guaranteed on a full, unconditional, unsecured,
senior subordinated, joint and several basis by each of the Corporation's
Subsidiary Guarantors. As of and through October 5, 1997, U.S. Can, wholly owned
by the Corporation, was the only Subsidiary Guarantor. The Corporation had no
assets or operations separate from its investment in U.S. Can, and there were no
non-Guarantor Subsidiaries until the acquisition by U.S. Can of USC Europe on
September 11, 1996. Separate financial statements of U.S. Can as of and for the
period ended September 29, 1996, are not presented because management of the
Company has determined that they are not material to investors.
10
<PAGE> 11
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following condensed consolidating financial data illustrates the
composition of the Corporation (the "Parent"), U.S. Can (the "Subsidiary
Guarantor"), and the European Subsidiaries (the "Non-Guarantor Subsidiaries"),
as of December 31, 1996, and as of and for the nine months ended September 29,
1996, and October 5, 1997, respectively. Investments in subsidiaries are
accounted for by the Parent and the Subsidiary Guarantor under the equity method
for purposes of the supplemental consolidating presentation. Earnings of
subsidiaries are, therefore, reflected in their parent's investment accounts and
earnings.
11
<PAGE> 12
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1996
(000'S OMITTED)
<TABLE>
<CAPTION>
UNITED
STATES
CAN USC EUROPE
U.S CAN COMPANY (NON- U.S CAN
CORPORATION (SUBSIDIARY GUARANTOR CORPORATION
(PARENT) GUARANTOR) SUBSIDIARIES) ELIMINATIONS CONSOLIDATED
----------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............. $ -- $ 628 $ 7,338 $ -- $ 7,966
Accounts receivable................... -- 61,000 25,822 -- 86,822
Inventories........................... -- 98,179 14,964 -- 113,143
Prepaid expenses and other assets..... -- 12,883 2,378 -- 15,261
Prepaid income taxes.................. 696 8,676 -- -- 9,372
-------- -------- -------- -------- --------
Total current assets............. 696 181,366 50,502 -- 232,564
NET PROPERTY, PLANT AND EQUIPMENT....... -- 269,281 53,833 -- 323,114
INTANGIBLE ASSETS....................... -- 67,206 -- -- 67,206
OTHER ASSETS............................ 7,671 12,169 892 -- 20,732
INVESTMENT IN SUBSIDIARIES.............. 364,461 53,232 -- 417,693 --
-------- -------- -------- -------- --------
Total assets..................... $372,828 $583,254 $105,227 $417,693 $643,616
======== ======== ======== ======== ========
CURRENT LIABILITIES:
Current maturities of long-term
debt............................... $ -- $ 11,567 $ 361 $ -- $ 11,928
Accounts payable...................... -- 40,490 19,634 -- 60,124
Other current liabilities............. -- 43,187 11,695 -- 54,882
-------- -------- -------- -------- --------
Total current liabilities........ -- 95,244 31,690 -- 126,934
-------- -------- -------- -------- --------
SENIOR DEBT............................. -- 82,978 5,904 -- 88,882
SUBORDINATED DEBT....................... 275,000 -- -- -- 275,000
OTHER LONG-TERM LIABILITIES............. 1,340 53,647 1,028 -- 56,015
INTERCOMPANY ADVANCES................... (297) (13,076) 13,373 -- --
STOCKHOLDERS' EQUITY.................... 96,785 364,461 53,232 417,693 96,785
-------- -------- -------- -------- --------
Total liabilities and
stockholders' equity.......... $372,828 $583,254 $105,227 $417,693 $643,616
======== ======== ======== ======== ========
</TABLE>
12
<PAGE> 13
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF OCTOBER 5, 1997
(000'S OMITTED)
<TABLE>
<CAPTION>
UNITED STATES
U.S. CAN CAN COMPANY USC EUROPE U.S. CAN
CORPORATION (SUBSIDIARY (NON-GUARANTOR CORPORATION
(PARENT) GUARANTOR) SUBSIDIARY) ELIMINATIONS CONSOLIDATED
----------- ------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................ $ -- $ 4,394 $ 2,798 $ -- $ 7,192
Accounts receivable...................... -- 75,006 22,555 -- 97,561
Inventories.............................. -- 91,286 16,916 -- 108,202
Prepaid expenses and other assets........ -- 12,385 3,897 -- 16,282
Prepaid income taxes..................... 796 8,776 -- -- 9,572
-------- -------- -------- --------- --------
Total current assets................. 796 191,847 46,166 -- 238,809
-------- -------- -------- --------- --------
NET PROPERTY, PLANT AND EQUIPMENT.......... -- 249,440 70,328 -- 319,768
INTANGIBLE ASSETS.......................... -- 76,006 -- -- 76,006
OTHER ASSETS............................... 7,550 13,649 914 -- 22,113
INVESTMENT IN SUBSIDIARIES................. 337,209 49,771 -- (386,980) --
-------- -------- -------- --------- --------
Total assets......................... $345,555 $580,713 $117,408 $(386,980) $656,696
======== ======== ======== ========= ========
CURRENT LIABILITIES:
Current maturities of long term debt..... $ -- $ 7,509 $ 3,052 $ -- $ 10,561
Accounts payable......................... -- 47,022 14,639 -- 61,661
Restructuring provision.................. -- 32,521 -- -- 32,521
Other current liabilities................ -- 52,407 13,861 -- 66,268
-------- -------- -------- --------- --------
Total current liabilities............ -- 139,459 31,552 -- 171,011
-------- -------- -------- --------- --------
SENIOR DEBT................................ -- 71,584 30,784 -- 102,368
SUBORDINATED DEBT.......................... 275,000 -- -- -- 275,000
OTHER LONG-TERM LIABILITIES................ 1,440 38,308 788 -- 40,536
INTERCOMPANY ADVANCES...................... 1,334 (5,847) 4,513 -- --
STOCKHOLDERS' EQUITY....................... 67,781 337,209 49,771 (386,980) 67,781
-------- -------- -------- --------- --------
Total liabilities and stockholders
equity............................ $345,555 $580,713 $117,408 $(386,980) $656,696
======== ======== ======== ========= ========
</TABLE>
13
<PAGE> 14
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED OCTOBER 5, 1997
(000'S OMITTED)
<TABLE>
<CAPTION>
UNITED STATES
U.S. CAN CAN COMPANY USC EUROPE U.S. CAN
CORPORATION (SUBSIDIARY (NON-GUARANTOR CORPORATION
(PARENT) GUARANTOR) SUBSIDIARY) ELIMINATIONS CONSOLIDATED
----------- ------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET SALES........................ $ -- $590,743 $79,051 $ -- $669,794
COST OF SALES.................... -- 521,738 72,152 -- 593,890
-------- -------- ------- ------- --------
Gross income................ -- 69,005 6,899 -- 75,904
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES........ -- 23,100 3,052 -- 26,152
RESTRUCTURING PROVISION.......... -- 35,012 -- -- 35,012
-------- -------- ------- ------- --------
Operating income............ -- 10,893 3,847 -- 14,740
INTEREST EXPENSE ON BORROWINGS... -- 26,316 1,400 -- 27,716
AMORTIZATION OF DEFERRED
FINANCING COSTS................ -- 1,369 -- -- 1,369
OTHER (INCOME) EXPENSE........... -- 1,491 -- -- 1,491
EQUITY EARNINGS FROM CONSOLIDATED
SUBSIDIARIES................... (22,695) 1,643 -- 21,052 --
-------- -------- ------- ------- --------
Income (loss) from
continuing operations
before income tax......... (22,695) (16,640) 2,447 21,052 (15,836)
PROVISION FOR INCOME TAXES....... -- (6,848) 804 -- (6,044)
-------- -------- ------- ------- --------
Income (loss) from
continuing operations..... (22,695) (9,792) 1,643 21,052 (9,792)
-------- -------- ------- ------- --------
DISCONTINUED OPERATIONS:
Loss from discontinued
operations................ -- (1,395) -- -- (1,395)
Loss on disposal of
business.................. -- (11,508) -- -- (11,508)
-------- -------- ------- ------- --------
Net income (loss)........... $(22,695) $(22,695) $ 1,643 $21,052 $(22,695)
======== ======== ======= ======= ========
</TABLE>
14
<PAGE> 15
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE QUARTER ENDED OCTOBER 5, 1997
(000'S OMITTED)
<TABLE>
<CAPTION>
UNITED STATES
U.S. CAN CAN COMPANY USC EUROPE U.S. CAN
CORPORATION (SUBSIDIARY (NON-GUARANTOR CORPORATION
(PARENT) GUARANTOR) SUBSIDIARIES) ELIMINATIONS CONSOLIDATED
----------- ------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES..... $ -- $ 30,304 $ 13,096 $ -- $ 43,400
------ -------- -------- ----- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................... -- (34,568) (5,510) -- (40,078)
Acquisition of businesses, net of
cash................................. -- (12,581) -- -- (12,581)
Changes in restricted cash............. -- 2,016 -- -- 2,016
Investment in subsidiaries............. (450) -- -- 450 --
Machinery repair parts usage, net...... -- 122 -- -- 122
------ -------- -------- ----- --------
Net cash used in investing
activities........................... (450) (45,011) (5,510) 450 (50,521)
------ -------- -------- ----- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in intercompany advances........ 1,631 22,262 (23,893) -- --
Issuance of common stock and exercise
of stock options..................... 131 -- -- -- 131
Net borrowings under the revolving line
of credit and changes in cash
overdrafts........................... -- 7,786 -- -- 7,786
Borrowings of other long-term debt,
including capital lease
obligations.......................... -- 31 26,135 -- 26,166
Payments of other long-term debt,
including capital lease
obligations.......................... -- (11,661) (7,686) -- (19,347)
Payments of debt refinancing costs..... (597) (395) -- -- (992)
Capital contribution from parent....... -- 450 -- (450) --
Purchase of treasury stock, net........ (715) -- -- -- (715)
------ -------- -------- ----- --------
Net cash provided by financing
activities.................... 450 18,473 (5,444) (450) 13,029
------ -------- -------- ----- --------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH................................... -- -- (6,682) -- (6,682)
------ -------- -------- ----- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................ -- 3,766 (4,540) -- (774)
CASH AND CASH EQUIVALENTS, beginning of
period................................. -- 628 7,338 -- 7,966
------ -------- -------- ----- --------
CASH AND CASH EQUIVALENTS, end of
period................................. -- $ 4,394 $ 2,798 $ -- $ 7,192
====== ======== ======== ===== ========
</TABLE>
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following narrative discusses the results of operations, liquidity and
capital resources for the Company on a consolidated basis. This section should
be read in conjunction with the Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" contained therein.
FORWARD-LOOKING STATEMENTS
Certain statements in this Report constitute "forward-looking statements"
within the meaning of the Federal securities laws. Such statements involve known
and unknown risks and uncertainties which may cause the Company's actual
results, performance or achievements to be materially different than any future
results, performance or achievements expressed or implied in this release. By
way of example and not limitation, known risks and uncertainties include the
Company's ability to successfully integrate or improve the performance of
acquired businesses, the timing and cost of plant start-ups and closures, the
level of cost reduction achieved through restructuring, changes in market
conditions or product demand, loss of important customers, competition and
currency fluctuations. In light of these and other risks and uncertainties, the
inclusion of a forward-looking statement in this Report should not be regarded
as a representation by the Company that any future results, performance or
achievements will be attained.
Results of Operations
In the third quarter, the Company established a restructuring provision of
$35 million for plant closings and overhead cost reductions. As previously
announced, the restructuring is expected to generate annual pretax savings of
approximately $10 million. As part of the restructuring, the Company has
announced the closing of its Racine, Wisconsin aerosol assembly plant, and the
closing of its metal service facilities located in Alsip, Illinois and
Baltimore, Maryland. A small specialty products plant in Northern California
will also be closed, transferring its business to other existing facilities
within the Company. In addition to these plant closures, other organizational
changes have been implemented that are expected to reduce costs and increase
efficiencies throughout the Company.
The Company also elected to discontinue its steel pail business. This
action resulted in an after-tax charge of $11.5 million. The steel pail
operations were confined to a single plant in North Brunswick, New Jersey. The
following comparisons exclude the impact of this business.
For further details on the restructuring provision and the discontinued
steel pail business, see Note (3) of the Notes to Condensed Consolidated
Financial Statements.
QUARTER ENDED OCTOBER 5, 1997, AS COMPARED TO QUARTER ENDED SEPTEMBER 29, 1996
Net Sales
Net sales for the quarterly period ended October 5, 1997, totaled $220.5
million, an increase of 17.4% over the corresponding period in 1996. Sales gains
were the result of the Company's acquisition of USC Europe in September 1996,
and modest growth in domestic aerosol, steel paint and oblong unit volumes. The
USC Europe acquisition accounted for nearly 80% of the growth.
Gross Income
Gross income of $24.8 million for the third quarter of 1997 was up 3.1%, or
$0.8 million, versus the third quarter of 1996. Gross margin decreased to 11.3%
of net sales for the period from 12.8% in 1996. Competitive pricing pressure and
increased steel costs were leading contributors to the margin decline. Plant
start-up costs, primarily in Europe, also adversely impacted gross margins in
the 1997 quarter.
16
<PAGE> 17
Operating Income
Operating income for the 1997 quarter before the restructuring provision
was $16.2 million versus $17.1 million in the third quarter of 1996. Lower gross
margins in 1997 negatively impacted operating income. Selling, general, and
administrative expenses, while remaining below 4% of net sales for the quarter,
increased by $1.6 million primarily due to acquisitions.
Including the impact of the restructuring provision, the Company reported
an operating loss of $18.8 million in the third quarter of 1997. Due to the
timing of the plant closings and other cost reduction actions included in the
restructuring provision, no material benefit was realized in the third quarter
1997 results.
Interest and Other Expenses
Interest expense on borrowings increased by approximately $2.3 million in
the third quarter of 1997 as compared to the same period in 1996, as a result of
increased borrowing, primarily to finance the Company's previous acquisitions,
and the refinancing of shorter term bank debt with a portion of the proceeds of
the 10 1/8% Notes issued in October 1996.
Net Income
As a result of the factors described above, the 1997 third quarter result
from continuing operations was a net loss of $17.8 million or $1.35 per share,
versus net income of $5.4 million or $0.42 per share in the 1996 third quarter.
The restructuring provision in the third quarter of 1997 had a negative
after-tax effect of $21.0 million or $1.58 per share.
Including the $12.0 million or $0.90 per share loss related to the
discontinued steel pail business, the third quarter 1997 net loss was $29.8
million or $2.25 per share, versus 1996 net income of $4.6 million or $0.35 per
share (including discontinued business loss of $0.9 million).
NINE-MONTH PERIOD ENDED OCTOBER 5, 1997 VS. NINE-MONTH PERIOD ENDED SEPTEMBER
29, 1996
Net Sales
Net sales for the nine-month period ended October 5, 1997 totaled $669.8
million, an increase of 29.0% over the corresponding period in 1996. Sales gains
for the year-to-date period reflect volume gained through acquisitions (83% of
the increase) and modest growth in the Company's core business.
Gross Income
Gross income of $75.9 million for the first three quarters of 1997 was $6.5
million or 9.4% higher than gross income for the comparable period in 1996.
Acquisitions were the primary reason for this increase. Gross margin decreased
to 11.3% of net sales in the 1997 nine-month period from 13.4% of net sales for
the corresponding period in 1996. Factors causing this margin compression were
intensified price competition, increased steel prices, integration of lower
margin acquisitions and plant start-ups in the U.S. and Europe.
Operating Income
Through the first three quarters of 1997, operating income before the
restructuring provision was $49.7 million, representing a 1.9%, or $0.9 million,
improvement versus the same period in 1996. Operating income as a percent of net
sales declined to 7.4% versus 9.4% for the first nine months of 1996, due to
lower gross margins. Selling, general and administrative expenses remained below
4% of net sales, on par with the comparable 1996 ratio.
Including the third quarter restructuring provision of $35.0 million, 1997
nine-month operating income was $14.7 million.
17
<PAGE> 18
Interest and Other Expenses
Interest expense on borrowing increased by approximately $8.2 million for
the nine-months ended October 5, 1997, as compared to the corresponding period
in 1996. The increase is a result of increased borrowing, primarily to finance
the Company's acquisitions, and the refinancing of lower cost shorter term bank
debt with a portion of the proceeds of the 10 1/8% Notes issued in October 1996.
Net Income
Through three quarters of 1997, the Company reported a $9.8 million or $.74
per share loss, including the effect of the third quarter restructuring
provision. Net income for 1996 was $15.6 million or $1.20 per share. Competitive
pricing, steel cost increases, and operational start-up costs, primarily in
Europe, caused the income downturn from the prior year period.
Including the $12.9 million or $.98 per share loss related to the
discontinued steel pail business, the nine-month 1997 net loss was $22.7 million
or $1.72 per share. Net income for 1996 was $14.0 million or $1.07 per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements for operations, acquisitions and capital
expenditures during the nine-month period ended October 5, 1997, were financed
by internally generated cash flow and borrowings under the Company's revolving
credit facilities. In late April of this year, the Company entered into the
Credit Agreement, which amended and restated the 1994 Credit Agreement. The
Company believes it has enhanced its financial condition by entering into the
Credit Agreement. For a more detailed discussion of this agreement, see Note (5)
of the Notes to Condensed Consolidated Financial Statements.
Net cash from operations was approximately $25.9 million for the third
quarter and $43.4 million for the first nine months of 1997, both increases from
the comparable periods a year earlier. EBITDA, before restructuring, was $26
million for the third quarter and $79 million for the first nine months of 1997,
both increases from the prior-year periods.
As of November 10, 1997, U.S. Can had borrowings of $37.2 million
outstanding under the Credit Agreement, $11.8 million in letters of credit had
been issued pursuant thereto, and $61.0 million of unused credit remained
available thereunder. U.S. Can's lenders under the Credit Agreement have waived
certain covenant defaults for the third quarter of 1997 and agreed to amend the
Credit Agreement in certain respects. See Note (5) of the Notes to Condensed
Consolidated Financial Statements. As of October 5, 1997, U.S. Can was in
compliance with all restrictive covenants of its other long-term debt
agreements.
In October 1996, U.S. Can Corporation issued $275 million of 10 1/8% Notes
in a private placement. The net proceeds were used to prepay debt. In March
1997, the Company completed a registered exchange of the private Notes for
freely transferable Exchange Notes (the "Exchange Offer"). All of the Notes were
tendered in the Exchange Offer and, as a result, only the Exchange Notes remain
outstanding.
The Company's long-term debt decreased by approximately $12 million from
the quarter ended July 6, 1997, to the quarter ended October 5, 1997. The net
cash proceeds of the proposed sale of U.S. Can Metal Services will also be used
to reduce the Company's indebtedness.
In December 1996, U.K. Can Ltd., an indirect wholly owned subsidiary of the
Company, entered into (and U.S. Can guaranteed) a $30 million credit agreement
with General Electric Capital Corporation, to finance the land, building and
equipment comprising the Merthyr Tydfil aerosol can manufacturing facility,
which also secures this credit agreement. Amounts outstanding under this credit
agreement are approximately $27 million. No further borrowings are expected to
be made under this credit agreement.
In January 1997, U.S. Can acquired certain assets from O-I. The purchase
price was funded by a borrowing under the 1994 Credit Agreement. See Note (2) of
the unaudited Notes to Consolidated Financial Statements.
18
<PAGE> 19
The Company expects total capital expenditures in 1997 to be approximately
$50-$55 million and total capital expenditures in 1998 to be less than $30
million.
Management believes that cash flow from operations, amounts available under
its credit facilities and proceeds from sales of assets should provide
sufficient funds for the Company's short-term and long-term capital expenditure
and debt amortization requirements, and other cash needs in the ordinary course
of business. If future strategic acquisition opportunities arise, the Company
would expect to finance them though some combination of cash, stock and/or debt
financing.
19
<PAGE> 20
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
INCORPORATION
EXHIBIT BY REFERENCE
NUMBER DESCRIPTION OF DOCUMENT (IF APPLICABLE)
------- ----------------------- ---------------
<C> <S> <C>
3.1 Restated Certificate of Incorporation of U.S. Can *4.3
Corporation.................................................
3.2 By-Laws of U.S. Can Corporation............................. +4.1
10.1 Salomon Brothers Indemnification Agreement dated July 9,
1997........................................................
10.2 Salomon Brothers Engagement Agreement dated September 3,
1997........................................................
10.3 Amendment No. 1 to Credit Agreement.........................
27.1 Financial Data Schedule (EDGAR version only)................
</TABLE>
- -------------------------
* Previously filed with Registration Statement on Form S-3 of the Corporation,
filed on June 1, 1994 (Registration No. 33-79556).
+ Previously filed with Registration Statement on Form S-8 of the Corporation,
filed on March 23, 1994 (Registration No. 33-76742).
(b) U.S. Can Corporation filed no reports on Form 8-K during the quarterly
period ended October 5, 1997.
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S. CAN CORPORATION
Date: November 19, 1997 By: /s/ TIMOTHY W. STONICH
--------------------------------------
Timothy W. Stonich
Executive Vice President-Finance,
Chief Financial Officer and
Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the undersigned, in his capacity as the principal
financial officer of the registrant.
Date: November 19, 1997 /s/ TIMOTHY W. STONICH
--------------------------------------
Timothy W. Stonich
Executive Vice President-Finance,
Chief Financial Officer and Secretary
21
<PAGE> 1
EXHIBIT 10.1
SALOMON BROTHERS INC
8700 SEARS TOWER July 9, 1997
CHICAGO, ILLINOIS 60606
Gentlemen:
In connection with your engagement to assist us with the evaluation of
strategic alternatives for the Company including modifications or future
additions to such engagement and related activities prior to this date, we
agree that we will indemnify and hold harmless you and your affiliates, any
director, officer, agent or employee of you or any of your affiliates and each
other person, if any, controlling you or any of your affiliates (hereinafter
collectively referred to as "you" and "your"), to the full extent lawful, from
and against, and that you shall have no liability to us or our owners, parents,
creditors or security holders for, any losses, expenses, claims or proceedings
including actions brought by us or on our behalf (hereinafter collectively
referred to as "losses"), (i) related to or arising out of (A) oral or written
information provided by us, our employees or our other agents, which either we
or you provide to any actual or potential buyers, sellers, investors or
offerees, or (B) other action or failure to act by us, our employees or our
other agents or by you at our request or with our consent, or (ii) otherwise
related to or arising out of such engagement or any transaction or conduct in
connection therewith except that this clause (ii) shall not apply with respect
to any losses that are finally judicially determined to have resulted primarily
from your bad faith or negligence.
In the event that the foregoing indemnity is unavailable to you for any reason,
we agree to contribute to any losses related to or arising out of such
engagement or any transaction or conduct in connection therewith. For such
losses referred to in clause (i) of the preceding paragraph, each of us shall
contribute in such proportion as is appropriate to reflect the relative
benefits received (or anticipated to be received) by you and by us from the
actual or proposed transaction giving rise to such engagement; provided,
however, that you shall not be responsible for any amounts in excess of the
amount of the benefits received (or anticipated to be received) by you. For
any other losses, or for losses referred to in clause (i) if the allocation
provided by the immediately preceding sentence is unavailable for any reason,
each of us shall contribute in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of each of us in
connection with the statements, omissions or other conduct which resulted in
such losses, as well as any other relevant equitable considerations. Benefits
received (or anticipated to be received) by us shall be deemed to be equal to
the aggregate cash consideration and value of securities or any other property
payable, exchangeable or transferable in such transaction or proposed
transaction, and benefits received by you shall be deemed to be equal to the
compensation payable by us to you in connection with such engagement. Relative
fault shall be determined by reference to, among other things, whether any
alleged untrue statement or omission or any other alleged conduct relates to
information provided by us or other conduct by us (or our employees or other
agents) on the one hand or by you on the other hand. You and we agree that it
would not be just and equitable if contribution were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to above.
We agree that we will not, without the prior written consent of Salomon
Brothers Inc, settle any pending or threatened claim or proceeding related to
or arising out of such engagement or transactions or conduct in connection
therewith (whether or not you are a party to such claim or proceeding) unless
such settlement includes a provision unconditionally releasing you from and
holding you harmless against all liability in respect of claims by any
releasing party related to or arising out of such engagement or any transaction
or conduct in connection therewith. We will also promptly reimburse you for
all expenses (including counsel fees) as they are incurred by you in connection
with investigating, preparing or defending, or providing evidence in, any
pending or threatened claim or proceeding in respect of which indemnification
or contribution may be sought hereunder (whether or not you are a party to such
claim or proceeding) or in enforcing this agreement.
<PAGE> 2
The foregoing agreement shall be in addition to any rights that you may have at
common law or otherwise. Solely for purposes of enforcing this agreement, we
hereby consent to personal jurisdiction, service and venue in any court in
which any claim or proceeding which is subject to this agreement is brought
against you. ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM OR
PROCEEDING RELATED TO OR ARISING OUT OF SUCH ENGAGEMENT, ANY TRANSACTION OR
CONDUCT IN CONNECTION THEREWITH OR THIS AGREEMENT IS WAIVED. This agreement
shall remain in full force and effect following the completion or termination
of such engagement.
Agreed: Very truly yours,
U.S. CAN CORPORATION
SALOMON BROTHERS INC
By: /s/ Charles Bobrinskoy By: /s/ Timothy W. Stonich
---------------------- --------------------------------
Name: Timothy W. Stonich
--------------------------------
Title: Executive Vice President and CFO
--------------------------------
2
<PAGE> 1
[SALOMON BROTHERS INC. LETTERHEAD]
EXHIBIT 10.2
September 3, 1997
U.S. Can Corporation
900 Commerce Drive
Oak Brook, Illinois 60521
Attention: Timothy W. Stonich
Executive Vice President &
Chief Financial Officer
Ladies and Gentlemen:
Section 1. Services to be Rendered. The purpose of this letter is
to confirm the engagement of Salomon Brothers Inc ("Salomon") by U.S. Can
Corporation (the "Company") on an exclusive basis to render financial advisory
and investment banking services to the Company in connection with the possible
sale of its metal services business ("Metal Services") or a controlling
interest in Metal Services to another corporation or other business entity (a
"Buyer"), (a "Sale Transaction").
If so requested by the Company, Salomon will render, in accordance
with its customary practice, an opinion (the "Opinion") as to the fairness,
from a financial point of view, to the shareholders of the Company of the
consideration to be received in a Sale Transaction, with the understanding that
in rendering the Opinion Salomon will rely, without independent investigation,
on information furnished to it by the Company (which information the Company
hereby warrants shall be complete and accurate in all material respects, and
not misleading) or other relevant parties or publicly available and that the
Opinion may be in such form as Salomon shall determine and Salomon may qualify
the Opinion in such manner as Salomon believes appropriate. Notwithstanding
anything to the contrary elsewhere herein, the Company may reproduce the
Opinion in full in any statement on Schedule 14D-9 or proxy statement relating
to such Sale Transaction (the "Statement") that the Company files under the
Securities Exchange Act of 1934 and distributes to its shareholders. In such
event, the Company may also include references to the Opinion and to Salomon
and its relationship with the Company (in each case in such form as Salomon
shall approve) in the Statement.
Section 2. Fees. The Company shall pay to Salomon for its
services hereunder the following cash fees:
<PAGE> 2
[SALOMON BROTHERS INC. LETTERHEAD]
- 2 -
(a) $100,000.00, payable promptly following the Company's
execution of this letter; plus
(b) an additional fee of $700,000.00, such additional fee
to be contingent upon the consummation of a Sale Transaction and
payable at the closing thereof.
Section 3. Expenses. In addition to any fees that may be payable
to Salomon hereunder and regardless of whether any Sale Transaction is proposed
or consummated, the Company hereby agrees, from time to time upon request, to
reimburse Salomon for all of Salomon's reasonable travel and other
out-of-pocket expenses incurred in connection with any actual or proposed Sale
Transaction or otherwise arising out of Salomon's engagement hereunder.
Section 4. Indemnity. Salomon and the Company have entered into a
separate letter agreement, dated July 9, 1997, providing for the
indemnification of Salomon by the Company in connection with Salomon's
engagement hereunder.
Section 5. Termination of Engagement. Salomon's engagement
hereunder may be terminated by either the Company or Salomon at any time, with
or without cause, upon written advice to that effect to the other party;
provided, however, that Salomon will be entitled to its full fee under Section
2 hereof in the event that at any time prior to the expiration of one year
after such termination a Sale Transaction is consummated; and provided,
further, that the provisions of this Section 5 and Sections 3 and 6 hereof
shall survive such termination.
Section 6. Miscellaneous.
(a) THIS LETTER AGREEMENT AND THE RELATED INDEMNIFICATION
AGREEMENT REFERRED TO ABOVE SHALL BE DEEMED MADE IN NEW YORK.
SUCH AGREEMENTS SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO SUCH STATE'S RULES CONCERNING CONFLICTS OF
LAWS. ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM OR
PROCEEDING RELATED TO OR ARISING OUT OF THIS ENGAGEMENT, OR ANY
TRANSACTION OR CONDUCT IN CONNECTION HEREWITH, IS WAIVED.
(b) The Company expressly acknowledges that all opinions and
advice (written or oral) given by Salomon to the Company in
connection with Salomon's engagement are intended solely for the
benefit and use of the Company (including its management, directors
and attorneys) in considering the transaction to which
<PAGE> 3
[SALOMON BROTHERS INC. LETTERHEAD]
- 3 -
they relate and the Company agrees that no such opinion or
advice shall be used for any other purpose or reproduced,
disseminated, quoted or referred to at any time, in any manner or for
any purpose, nor shall any public references to Salomon be made by the
Company (or such persons), without the prior written consent of
Salomon, which consent shall not be unreasonably withheld.
(c) The Company expressly acknowledges that Salomon has been
retained solely as an advisor to the Company, and not as an
advisor to or agent of any other person, and that the Company's
engagement of Salomon is not intended to confer rights upon any
persons not a party hereto (including shareholders, employees or
creditors of the Company) as against Salomon, Salomon's affiliates or
their respective directors, officers, agents and employees.
* * *
<PAGE> 4
[SALOMON BROTHERS INC. LETTERHEAD]
- 4 -
Please confirm that the foregoing is in accordance with your understandings
and agreements with Salomon Brothers Inc by signing and returning to Salomon
Brothers Inc the duplicate of this letter enclosed herewith.
Very truly yours,
SALOMON BROTHERS INC
By /s/ Charles Bobrinskoy
----------------------
Managing Director
ACCEPTED AND AGREED AS OF
THE DATE FIRST ABOVE WRITTEN:
U.S. Can Corporation
By /s/ Timothy W. Stonich
----------------------
Title: Exec. VP
<PAGE> 1
EXHIBIT 10.3
AMENDMENT NO. 1
AND
WAIVER NO. 1
TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDMENT NO. 1 AND WAIVER NO. 1 TO AMENDED AND RESTATED CREDIT
AGREEMENT ("Agreement") is being executed and delivered as of November 12,
1997, by and among United States Can Company, a Delaware corporation (the
"Borrower"), the financial institutions from time to time party to the Amended
and Restated Credit Agreement referred to below (collectively, the "Lenders",
and each individually, a "Lender"), and Bank of America National Trust and
Savings Association (as successor to Bank of America Illinois), as the "Agent"
for the Lenders (the "Agent"). Undefined capitalized terms which are used
herein shall have the meanings ascribed to such terms in the Credit Agreement.
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders and the Agent are parties to that
certain Amended and Restated Credit Agreement dated as of April 25, 1997 (the
"Credit Agreement"), pursuant to which the Lenders have agreed to provide,
subject to the terms and conditions contained therein, certain loans and other
financial accommodations to the Borrower;
WHEREAS, the Borrower has failed to comply with each of the following
(hereinafter, collectively, the "Covenant Defaults"): (a) its Total Leverage
Ratio, as set forth in clause (b) of Section 6.3 of the Credit Agreement, with
respect to its four fiscal quarter period ending on October 5, 1997, (b) its
Interest Coverage Ratio, as set forth clause (e) of Section 6.3 of the Credit
Agreement, with respect to its four fiscal quarter period ending on October 5,
1997, and (c) the covenant set forth in Section 6.2(g) of the Credit Agreement,
by virtue of its consummation of the sale, in bulk, of the inventory relating
to its metal pail business located in North Brunswick, New Jersey for
approximately $1,200,000 in aggregate consideration at a time during which
Events of Default resulting solely from the Borrower's noncompliance with the
financial covenants described in clauses (a) and (b) of this paragraph were
continuing; and
WHEREAS, the Borrower requested, and subject to the terms and
conditions hereof, the Lenders and the Agent agreed (i) to waive the Covenant
Defaults, (ii) to amend the definition of EBITDA solely with respect to the
calculation of its Total Leverage Ratio and Interest Coverage Ratio for its
fiscal quarter ending October 5, 1997 to exclude the effect of a restructuring
charge of up to $35,000,000 for such period, (iii) to amend Section 6.2(b) of
the Credit Agreement to permit the Borrower to make an investment in a joint
venture based in Argentina in which the Borrower or its Subsidiaries will have
a minority interest, provided that such investment, net of the proceeds of the
sale by the Borrower and its Subsidiaries of certain excess equipment to such
joint venture and the provision of certain related services, does not exceed
$100,000, (iv) to amend Section 6.2(c) of the Credit Agreement to permit the
Borrower
<PAGE> 2
to make dividends to Parent to facilitate Parent's repurchase of Parent
Subordinated Debt for aggregate consideration not to exceed the lesser of
$40,000,000 and the aggregate amount of net cash proceeds received by the
Borrower in connection with a sale of the business assets of its Metal Services
Division, (v) to amend Section 6.2(f) of the Credit Agreement to permit the
Borrower to guaranty indebtedness in an aggregate maximum amount not to exceed
$10,000,000 of Persons in which the Borrower holds a minority equity investment
and (vi) to amend the definition of Permitted Disposition to include, subject
to certain conditions, the sale of substantially all of the business assets of
the Borrower's Metal Services business;
NOW, THEREFORE, in consideration of the foregoing premises, the terms and
conditions stated herein and other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the Borrower, the Lenders and
the Agent, such parties hereby agree as follows:
1. Amendment No. 1 to Credit Agreement. Subject to Paragraph 3 of this
Agreement, and effective as of the date of this Agreement, the Credit Agreement
is hereby amended as follows (section and schedule references herein refer to
those of the Credit Agreement):
(a) Section 2.2.2 is deleted in its entirety and replaced with the
following provision:
"SECTION 2.2.2. Mandatory. (a) The Commitment Amount shall be
automatically and permanently reduced pursuant to this subsection by
$12,500,000 on April 25, 2000 and by $12,500,000 on April 25, 2001;
provided, however, if the Incremental Syndication shall have not occurred,
no reduction to the Commitment Amount shall occur pursuant to this
subsection on April 25, 2000 and, on April 25, 2001, the Commitment Amount
shall be automatically and permanently reduced pursuant to this subsection
by $10,000,000.
(b) If the Metal Services Sale Date occurs prior to calendar year
2001, the Commitment Amount shall be automatically and permanently reduced
(i) on the Metal Services Sale Date by $25,000,000 and (ii) on each Metal
Services Reduction Date by additional amounts equal to the applicable
Metal Services Reduction Increment with respect to each such Metal
Services Reduction Date. If the Metal Services Sale Date occurs after
calendar year 2000, the Commitment Amount shall be automatically and
permanently reduced on the Metal Services Sale Date by an amount equal to
the lesser of $40,000,000 and the amount of the Metal Services Gross
Proceeds received as of the Metal Services Sale Date. Nothing in this
subsection shall be construed to permit any such sale which is otherwise
prohibited by Section 6.2(g)."
(b) Section 2.8.1 is amended to add the following provision immediately
following clause (d) of such section, to change the period at the end of such
clause to a semicolon, and to add the word "and" to the end of such clause:
-2-
<PAGE> 3
"(e) shall, immediately upon receipt thereof, make
mandatory prepayments of the Loans in amounts equal to the aggregate
cash proceeds, net of transaction costs, from time to time received
by or for the benefit of the Borrower in connection with any sale or
sales of any of the Metal Service Assets outside the ordinary course
of business (provided, that, nothing in this subsection shall be
construed to permit any such sale which is otherwise prohibited by
Section 6.2(g))."
(c) Section 6.2(b) is amended to delete the word "and" which appears
after clause (v) of such section, to add the following provision immediately
after such clause, and to redesignate clause (vi) of such section as clause
"(vii)" of such section:
"(vi) Investments by the Borrower or any Subsidiary in an
Argentinean joint venture, provided that (A) the aggregate amount of
such Investments, minus the sum of (x) the proceeds of the sale by
the Borrower and its Subsidiaries to such venture of certain
refurbished excess aerosol manufacturing equipment having an
aggregate net book value not exceeding $800,000 prior to
refurbishment and such transfers and (y) the proceeds of
transportation, installation and technical support services provided
by the Borrower and its Subsidiaries to such venture with respect to
such equipment, does not exceed $100,000, and (B) the aggregate gross
amount of such Investments does not exceed $4,500,000."
(d) Section 6.2(c) is amended to delete the word "and" which appears
after clause (iii)(B) of such section, and to add the following provisions
immediately after clause (iii)(C) of such section:
"and (D) to repurchase Parent Subordinated Notes; provided that, with
respect to any such repurchase, (1) the aggregate consideration paid and
payable with respect to the proposed repurchase and all prior repurchases
does not exceed the lesser of $40,000,000 and the amount of aggregate cash
proceeds, net of transaction costs, received by or for the benefit of the
Borrower prior to such proposed repurchase in connection with the
consummation of the sales or series of related or unrelated sales of any
of the Metal Services Assets outside the ordinary course of business, (2)
all such aggregate net cash proceeds from the sales of Metal Services
Assets shall have been applied to the repayment of outstanding principal
balance of the Loans pursuant to Section 2.8.1(e), (3) the Commitment
Amount shall have been reduced pursuant to Section 2.2.2(b), (4) prior to
making of any such Restricted Payment, the Borrower shall have certified
to the Agent and the Lenders that such sale or sales of the Metal Services
Assets have been consummated and that such sales are not prohibited by the
terms of this Agreement or the Parent Indenture, and shall have set forth
in such certificate the aggregate amount of net cash proceeds, and gross
cash and noncash proceeds, received by or for the benefit of the Borrower
in connection with such sales, (5) no Default or Event of Default exists
or would result from the Borrower's making of such Restricted Payments, or
from Parent's repurchasing such Parent Subordinated Notes and (6) neither
such Restricted Payments by
-3-
<PAGE> 4
the Borrower, nor such repurchases by Parent, violates any term or
provision of the Parent Indenture;"
(e) Section 6.2(f) is amended to delete the word "and" which appears
at the end of clause (iii) of such section, to replace such word with a comma,
to delete the parenthetical and proviso which appear at the end of clause (iv)
of such section, and to add the following provision immediately following
clause (iv) thereof:
"and (v) for the benefit of creditors of any Person in which the
Borrower holds a minority equity Investment; provided that (1) each
Guaranty permitted under clauses (i), (iii), (iv) or (v) shall be limited
in amount to a stated maximum Dollar liability, (2) the Guaranties
permitted under clause (iii) shall be limited in amount to a stated
maximum Dollar liability of $30,000,000 in the aggregate, (3) each
Guaranty permitted under clause (ii) shall be limited in amount to the
aggregate purchase price of goods purchased by the applicable Foreign
Subsidiary from such supplier or vendor, (4) the Guaranties permitted
under clause (iv) shall be limited in amount to a stated maximum Dollar
liability of $20,000,000 in the aggregate, (5) the Guaranties permitted
under subclause (C) of clause (iv) shall be limited in amount to a stated
maximum Dollar liability of $10,000,000 in the aggregate, (6) the
Guaranties permitted under clause (v) shall be limited in amount to a
stated maximum Dollar liability of $10,000,000 in the aggregate and (7)
after the incurrence of any such Guaranty permitted under this Section
6.2(f), there would exist no Default or Event of Default."
(f) Section 6.2(i) is amended to add the following phrase to clause
(iii) of such section immediately preceding the proviso of such clause:
"other than as may be permitted by Section 6.2(c)(iii)(D)"
(g) Section 6.3 is amended to add the following provision to the end
of such section:
"(f) Fiscal Periods. Notwithstanding anything in this section
or in the definitions used in this section to the contrary, all references
herein or therein to a date which is the first or last day of a calender
quarter shall be construed to refer to the first or last day (as
applicable) of the Borrower's fiscal quarterly period which occurs closest
to such calendar day (for example, a reference herein to March 31, 2000
shall mean and refer to the last day of the Borrower's fiscal quarter
ending on or about March 31, 2000, and a reference herein to April 1, 2000
shall mean and refer to the first day of the Borrower's fiscal quarter
beginning on or about April 1, 2000).
(h) Schedule I is amended to add the following provision to the end
of the definition of "EBITDA":
-4-
<PAGE> 5
"; provided, however, that, solely for purposes of computing the
Borrower's and its consolidated Subsidiaries' EBITDA to determine the
Borrower's compliance with the financial covenants set forth in Sections
6.3(b) and 6.3(e) for any four (4) fiscal quarter period which includes
the Borrower's fiscal quarter ended October 5, 1997, no adjustment shall
be made pursuant to clause (iv) of this definition and, instead, the
amount of EBITDA otherwise calculated pursuant to this definition shall be
increased by the aggregate amount of restructuring charges incurred by the
Borrower and its Subsidiaries during the Borrower's fiscal quarter ended
October 5, 1997, but only to the extent such amount does not exceed
$35,000,000."
(i) Schedule I is further amended to delete the word "and" at the end
of clause (d) of the definition of "Permitted Disposition" and to add the
following provisions to the end of such definition:
and (f) the sale for fair value by the Borrower of substantially all of
the Metal Services Assets outside the ordinary course of its business,
provided that (i) the Metal Services Gross Proceeds with respect thereto
is greater than or equal to $35,000,000, (ii) at least 90% of such Metal
Services Gross Proceeds are payable by the purchaser of such Metal
Services Assets in cash, or by wire transfer of immediately available
funds, on the Metal Services Sale Date or, with respect to inventory,
within six (6) months thereafter (plus any applicable grace periods),
(iii) the Borrower shall make a mandatory prepayment with respect thereto
in accordance with Section 2.8.1(e), (iv) the Commitment Amount shall be
reduced in connection therewith pursuant to Section 2.2.2(b) and (v) no
Default or Event of Default shall have occurred and be continuing as of
the Metal Services Sale Date."
(j) Schedule I is further amended to add the following definitions to
such schedule in their respective alphabetical locations:
"Metal Services Assets" means the assets of the Borrower's Metal
Services business, including, without limitation, the inventory, property,
plant and equipment relating to its facilities located at Chicago Litho on
Pulaski Avenue in Chicago, Illinois, at Chicago Metal Services on Pulaski
Avenue in Chicago, Illinois, and at the facilities located in Brookfield,
Illinois, Alsip, Illinois (Midwest Litho) and Trenton, New Jersey.
"Metal Services Gross Proceeds" means the aggregate gross cash and
noncash proceeds received by or for the benefit of the Borrower in connection
with the sale or series of related or unrelated sales of the Metal Services
Assets outside the ordinary course of the Borrower's business.
"Metal Services Reduction Increment" means, as of any Metal Services
Reduction Date, (a) if the Metal Services Sale Date shall occur during calendar
years 1997 or 1998, an amount equal to the lesser of $5,000,000 and one-third
(1/3) of the amount, if any, by which the Metal Services Gross Proceeds
received prior to such Metal Services Reduction Date exceeds $25,000,000; (b)
if the Metal Services Sale Date shall occur during calendar year 1999, an
-5-
<PAGE> 6
amount equal to the lesser of $10,000,000 and one-half (1/2) of the amount, if
any, by which the Metal Services Gross Proceeds received prior to such Metal
Services Reduction Date exceeds $25,000,000; and (c) if the Metal Services Sale
Date shall occur after calendar year 1999, the lesser of $15,000,000 and the
amount, if any, by which the Metal Services Gross Proceeds received prior to
such Metal Services Reduction Date exceeds $25,000,000.
"Metal Services Reduction Date" means (a) if the Metal Services Sale
Date occurs during calendar year 1997 or 1998, each of April 25, 1999, April
25, 2000 and April 25, 2001, (b) if the Metal Services Sale Date occurs during
calendar year 1999, each of April 25, 2000 and April 25, 2001, and (c) if the
Metal Services Sale Date occurs during calendar year 2000, April 25, 2001.
"Metal Services Sale Date" means the date of the Borrower's
consummation of the sale of the Metal Services Assets outside the ordinary
course of the Borrower's business, or if such assets are sold in a series of
related or unrelated sales, the date of the Borrower's consummation of the
first of such sales.
2. Waiver No. 1 to the Credit Agreement. Subject to Paragraph 3 of
this Agreement, and effective as of the date of this Agreement, each of the
Lenders and the Agent hereby waive each of the Covenant Defaults.
3. Effectiveness of this Agreement; Conditions Precedent. The
provisions of Paragraphs 1 and 2 shall be deemed to have become effective as of
the date of this Agreement, but such effectiveness shall be expressly
conditioned upon the Agent's receipt on or before November 19, 1997 of each of
the following:
(a) an originally-executed counterpart of this Agreement executed by
a duly authorized officer of the Borrower and each of the Majority Lenders; and
(b) payment of each "Amendment Fee" due and payable pursuant to, and
as defined in, Paragraph 4(e) hereof.
4. Representations, Warranties and Covenants. (a) The Borrower
hereby represents and warrants that this Agreement constitutes the legal, valid
and binding obligation of the Borrower enforceable against the Borrower in
accordance with its terms.
(b) The Borrower hereby represents and warrants that the statements
contained in the second "WHEREAS" clause in the introductory paragraphs of this
Agreement are true and correct.
(c) The Borrower hereby represents and warrants that its execution
anddelivery of this Agreement, and its performance hereafter of the Credit
Agreement as modified by this Agreement, have been duly authorized by all
necessary corporate action, do not violate any provision of its articles of
incorporation, bylaws or other charter documents, will not violate any
-6-
<PAGE> 7
law, regulation, court order or writ applicable to it, will not require the
approval or consent of any governmental agency, and do not require the approval
or consent of any third party under the terms of any contract or agreement to
which the Borrower, Parent or any Subsidiary of the Borrower or Parent is bound
(including, without limitation, the Parent Indenture).
(d) The Borrower hereby represents and warrants that, after giving
effect to all of the provisions of this Agreement, (i) no Default or Event of
Default has occurred and is continuing or will have occurred and be continuing
and (ii) all of the representations and warranties of the Borrower contained in
the Credit Agreement (other than representations and warranties which, in
accordance with their express terms, are made only as of a specified date) are,
and will be, true and correct as of the date of the Borrower's execution hereof
in all material respects as though made on and as of such date. The Borrower
hereby further represents and warrants that none of the Covenant Defaults would
have occurred if the amendment contemplated by Paragraph 1(h) hereof were
effective as of October 5, 1997.
(e) The Borrower hereby agrees to pay to the Agent, for the benefit
of each Lender which executes and delivers a counterpart to this Agreement
prior to November 19, 1997, an amendment fee in an amount equal to one-tenth of
one percent (0.10%) of such Lender's Commitment as in existence as of the date
hereof (the "Amendment Fee"), provided no such Amendment Fee shall be due or
payable unless the conditions set forth in Paragraph 3(a) shall have been
satisfied. Such payments shall be made in cash or in immediately available
funds to the Agent, for the benefit of each such Lender, promptly following the
later to occur of such Lender's execution and delivery of a counterpart to this
Agreement and the satisfaction of the conditions set forth in Paragraph 3(a).
5. Reference to and Effect on Credit Agreement. The Credit
Agreement shall remain in full force and effect and is hereby ratified and
confirmed. Except as expressly set forth in Paragraph 2 hereof, neither the
execution, delivery or effectiveness of this Agreement shall operate as a
waiver of any right, power or remedy of the Agent or any Lender of any Default
or Event of Default under the Credit Agreement, all of which the Agent and the
Lenders hereby expressly reserve. Nothing contained herein shall require the
Agent or the Lender to hereafter waive any Default or Event of Default, whether
arising from the Borrower's subsequent noncompliance with the same provisions
subject to the express waivers provided in this Agreement or otherwise. The
Borrower, the Lenders and the Agent agree and acknowledge that this Agreement
constitutes a "Loan Document" under and as defined in the Credit Agreement.
6. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws and decisions of the State of Illinois.
7. Agent's Expenses. The Borrower hereby agrees to promptly
reimburse the Agent for all of the reasonable out-of-pocket expenses,
including, without limitation, attorneys' and paralegals' fees, it has
heretofore or hereafter incurred or incurs in connection with the preparation,
negotiation and execution of this Agreement.
-7-
<PAGE> 8
8. Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original and all of which together shall constitute
one and the same agreement among the parties.
* * * *
-8-
<PAGE> 9
IN WITNESS WHEREOF, this Agreement has been duly executed as of the
day and year first above written.
UNITED STATES CAN COMPANY
By: /s/ Peter J. Andres
---------------------------------
Name: Peter J. Andres
--------------------------
Title: Vice President - Treasurer
--------------------------
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION (as successor to Bank of
America Illinois), as Agent
By: /s/ Jay McKeown
---------------------------------
Name: Jay McKeown
--------------------------
Title: Assistant Vice President
--------------------------
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION (as successor to Bank of
America Illinois), as the Primary Issuing
Lender, a Lender and individually
By: /s/ Tracy J. Alfery
---------------------------------
Name: Tracy J. Alfery
--------------------------
Title: Vice President
--------------------------
HARRIS TRUST AND SAVINGS BANK,
as an Issuing Lender and a Lender
By: /s/ Scott F. Geik
---------------------------------
Name: Scott F. Geik
--------------------------
Title: Vice President
--------------------------
-9-
<PAGE> 10
THE NORTHERN TRUST COMPANY,
as a Lender
By: /s/ Daniel A. Toll
---------------------------------
Name: Daniel A. Toll
--------------------------
Title: Second Vice President
--------------------------
SOCIETE GENERALE, CHICAGO,
BRANCH, as a Lender
By: /s/ Joseph A. Philbin
---------------------------------
Name: Joseph A. Philbin
--------------------------
Title: Vice President
--------------------------
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> OCT-05-1997
<CASH> 7,192
<SECURITIES> 0
<RECEIVABLES> 112,589
<ALLOWANCES> 15,028
<INVENTORY> 108,202
<CURRENT-ASSETS> 238,809
<PP&E> 518,233
<DEPRECIATION> 198,465
<TOTAL-ASSETS> 656,696
<CURRENT-LIABILITIES> 171,011
<BONDS> 0
0
0
<COMMON> 131
<OTHER-SE> 67,650
<TOTAL-LIABILITY-AND-EQUITY> 656,696
<SALES> 669,794
<TOTAL-REVENUES> 669,794
<CGS> 593,890
<TOTAL-COSTS> 593,890
<OTHER-EXPENSES> 2,860
<LOSS-PROVISION> 267
<INTEREST-EXPENSE> 27,716
<INCOME-PRETAX> (15,836)
<INCOME-TAX> (6,044)
<INCOME-CONTINUING> (9,792)
<DISCONTINUED> (12,903)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,695)
<EPS-PRIMARY> (1.72)
<EPS-DILUTED> (1.72)
</TABLE>
