-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K7t154MSzq0PSWAzRqOe6r0pubQf2xVgJn0wL92XjfMabhKXiOqqCLfoYcC4XaVR 38aiD+zZPaU+ptvOtpiV3g== 0000896058-96-000035.txt : 19960408 0000896058-96-000035.hdr.sgml : 19960408 ACCESSION NUMBER: 0000896058-96-000035 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960405 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SILGAN HOLDINGS INC CENTRAL INDEX KEY: 0000849869 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED STRUCTURAL METAL PRODUCTS [3440] IRS NUMBER: 061269834 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 033-28409 FILM NUMBER: 96544655 BUSINESS ADDRESS: STREET 1: 4 LANDMARK SQ CITY: STAMFORD STATE: CT ZIP: 06901 BUSINESS PHONE: 2039757110 10-K/A 1 SILGAN HOLDINGS, INC. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A-1 FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1995 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ________________________ to _____________________ Commission file number 33-28409 SILGAN HOLDINGS INC. (Exact name of registrant as specified in its charter) Delaware 06-1269834 (State of incorporation) (I.R.S. Employer Identification No.) 4 Landmark Square, Stamford, Connecticut 06901 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (203) 975-7110 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: None 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 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 o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X None of the registrant's voting stock was held by non-affiliates as of March 15, 1996. As of March 15, 1996, the number of shares outstanding of each of the registrant's classes of common stock is as follows: Classes of shares of common stock Number of shares outstanding, $0.01 par value outstanding Class A 417,500 Class B 667,500 Class C 50,000 Documents Incorporated by Reference: None The purpose of this filing is to electronically file on the Commission's Electronic Data Gathering, Analysis and Retrieval (EDGAR) System pursuant to Rule 103 of Regulation S-T a complete copy of the Silgan Holdings Inc. (the "Company") Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (including the financial statements and exhibits filed therewith). Certain information which had previously been submitted to the EDGAR System as "subordinate segments" of that original Annual Report on Form 10-K is not readily available to the public as a result of technical difficulties. However, both the "master segment" and all "subordinate segments" of the Company's Annual Report on Form 10- K for the fiscal year ended December 31, 1995 had been electronically submitted to, and accepted by, the EDGAR system, on a timely basis on March 29, 1996. This amended filing is identical in all respects with that original Annual Report on Form 10-K with the exception that the amended filing has been formatted in a manner which will permit public access to the information contained in the original "subordinate segments" without technical difficulties. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized. SILGAN HOLDINGS INC. DATE: April 4, 1996 By: /s/ Harley Rankin, Jr. ---------------------- Harley Rankin, Jr. Executive Vice President, Chief Financial Officer and Treasurer INDEX TO EXHIBITS Exhibit No. Exhibit - ----------- ------- 27 Financial Data Schedule. 99 Annual Report on Form 10-K filed by the Company on March 29, 1996. EX-99 2 ANNUAL REPORT ON FORM 10-K FILED ON 3/29/96 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ______________________ to ____________________ Commission file number 33-28409 SILGAN HOLDINGS INC. ---------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 06-1269834 - ------------------------ ------------------------------------ (State of incorporation) (I.R.S. Employer Identification No.) 4 Landmark Square, Stamford, Connecticut 06901 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (203) 975-7110 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: None 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 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] None of the registrant's voting stock was held by non-affiliates as of March 15, 1996. As of March 15, 1996, the number of shares outstanding of each of the registrant's classes of common stock is as follows: Classes of shares of common stock Number of shares outstanding, $0.01 par value outstanding - --------------------------------- ---------------- Class A 417,500 Class B 667,500 Class C 50,000 Documents Incorporated by Reference: None TABLE OF CONTENTS Page ---- PART I ................................................................... 1 Item 1. Business................................................ 1 Item 2. Properties............................................. 10 Item 3. Legal Proceedings...................................... 12 Item 4. Submission of Matters to a Vote of Security Holders.... 13 PART II .................................................................. 14 Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.................................... 14 Item 6. Selected Financial Data................................ 14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 17 Item 8. Financial Statements and Supplementary Data............ 28 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................... 28 PART III .................................................................. 29 Item 10. Directors and Executive Officers of the Registrant..... 29 Item 11. Executive Compensation................................. 33 Item 12. Security Ownership of Certain Beneficial Owners and Management............................................. 37 Item 13. Certain Relationships and Related Transactions......... 44 PART IV .................................................................. 47 Item 14. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K.................................... 47 -i- PART I Item 1. Business General Silgan Holdings Inc. ("Holdings," and, together with its subsidiaries, the "Company") is a Delaware corporation organized in April 1989, that, in June 1989, through certain mergers acquired all of the outstanding common stock of Silgan Corporation ("Silgan"). Holdings' principal asset is all of the outstanding capital stock of Silgan. Prior to June 30, 1989, Holdings did not engage in any business. Silgan is a Delaware corporation formed in August 1987 as a holding company to acquire interests in various packaging manufacturers. See "Company History" below. The Company is a major manufacturer of a broad range of steel and aluminum containers for human and pet food. The Company also manufactures custom designed plastic containers for health, personal care, food, beverage, pharmaceutical and household chemical products in North America. In 1995, the Company had net sales of approximately $1.1 billion. On August 1, 1995, Silgan's wholly owned subsidiary, Silgan Containers Corporation ("Containers"), acquired from American National Can Company ("ANC") substantially all of the assets of ANC's Food Metal and Specialty business ("AN Can") for approximately $349 million. See "Company History" below. AN Can manufactures and sells metal food containers and rigid plastic containers for a variety of food products and metal caps and closures for food and beverage products. The acquisition of AN Can has enabled the Company to diversify its customer base and geographic presence. The Company believes that the acquisition of AN Can will also result in the realization of cost savings for the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." On a pro forma basis after giving effect to the acquisition of AN Can, in 1995 the Company would have had net sales of approximately $1.4 billion. Management believes that the Company is the sixth largest can producer and the largest food can producer in North America, as well as one of the largest producers in North America of custom designed plastic containers for health and personal care products. Silgan has grown rapidly since its inception in 1987 primarily as a result of acquisitions, but also through internally generated growth. In addition to the acquisition of AN Can in August 1995, Containers acquired the U.S. metal container manufacturing business of Del Monte Corporation ("Del Monte") in December 1993. See "Company History" below. The Company's strategy is to continue to increase its share of the North American packaging market through acquisitions, as well as investment in internally generated opportunities. The Company intends to focus particular attention on those rigid metal and plastic container segments where operating synergies are likely. Metal Container Business Management estimates that Containers is currently the sixth largest can producer and the largest manufacturer of metal food containers in North America. In 1995, Containers sold approximately 28% of all metal food containers used in the United States. On a pro forma basis after giving effect to the acquisition of AN Can, in 1995 Containers would have sold approximately 36% of all metal food containers sold in the United States. Although the food can industry in the United States is relatively mature in terms of unit sales growth, Containers, on a pro forma basis after giving effect to the acquisition of AN Can, has realized compound annual unit sales growth in excess of 16% since 1987. Types of containers manufactured include those for vegetables, fruit, pet food, meat, tomato based products, coffee, soup, seafood, evaporated milk and infant formula. Containers has agreements with Nestle Food Company ("Nestle") pursuant to which Containers -1- supplies substantially all of its metal container requirements, and an agreement with Del Monte pursuant to which Containers supplies substantially all of its metal container requirements. In addition to Nestle and Del Monte, Containers has multi-year supply arrangements with other customers. The Company estimates that approximately 80% of Containers' sales in 1996 will be pursuant to such supply arrangements. See "Sales and Marketing" below. Containers has focused on growth through acquisition followed by investment in the acquired assets to achieve a low cost position in the food can segment. Since its acquisition in 1987 of the metal container manufacturing division of Nestle ("Nestle Can"), Containers has invested approximately $131 million in its acquired manufacturing facilities and has spent approximately $307 million for the acquisition of additional can manufacturing facilities and equipment. As a result of these efforts and management's focus on quality and service, Containers has more than tripled its overall share of the food can segment in terms of unit sales, from a share of approximately 10% in 1987 to a share of approximately 36% in 1995, on a pro forma basis after giving effect to the acquisition of AN Can. Containers also manufacturers and sells certain specialty packaging items, including metal caps and closures, plastic bowls and paper containers primarily used by processors and packagers in the food industry. In 1995, the Company had sales of specialty items of approximately $37 million. Plastic Container Business Management believes that Silgan's wholly owned subsidiary, Silgan Plastics Corporation ("Plastics"), is one of the leading manufacturers of custom designed, high density polyethylene ("HDPE") and polyethylene terephthalate ("PET") containers sold in North America for health and personal care products. HDPE containers manufactured by Plastics include personal care containers for shampoos, conditioners, hand creams, lotions, cosmetics and toiletries, household chemical containers for scouring cleaners, specialty cleaning agents, lawn and garden chemicals and pharmaceutical containers for tablets, laxatives and eye cleaning solutions. Plastics manufactures PET custom containers for mouthwash, liquid soap, skin care lotions, gastrointestinal and respiratory products, pourable and viscous salad dressings, condiments, instant coffees, premium water and liquor. See "Products" below. Plastics has grown primarily by strategic acquisition. From a sales base of $89 million in 1987, Plastics' sales have grown at a compound rate of 12% to $220 million in 1995. Plastics emphasizes value-added design, fabrication and decoration of custom containers. Plastics is aggressively pursuing opportunities in custom designed PET and HDPE containers for which the market has been growing principally due to consumer preferences for plastic containers. The Company believes it has equipment and technical expertise to take advantage of these growth segments. Products Metal Container Business The Company is engaged in the manufacture and sale of steel and aluminum containers that are used primarily by processors and packagers for human and pet food. Types of containers manufactured include those for vegetables, fruit, pet food, meat, tomato based products, coffee, soup, seafood, evaporated milk and infant formula. The Company does not produce cans for use in the beer or soft drink industries. -2- Plastic Container Business The Company is also engaged in the manufacture and sale of plastic containers primarily used for health, personal care, food, beverage (other than carbonated soft drinks), pharmaceutical and household chemical products. Plastic containers are produced by converting thermoplastic materials into containers ranging in size from 1/2 to 96 ounces. Emphasis is on value-added design, fabrication and decoration of the containers. The Company designs and manufactures a wide range of containers for health and personal care products such as shampoos, conditioners, hand creams, lotions, cosmetics and toiletries, liquid soap, gastrointestinal and respiratory products, and mouthwash. Because these products are characterized by short product life and a demand for creative packaging, the containers manufactured for these products generally have more sophisticated designs and decorations. Food and beverage containers are designed and manufactured (generally to unique specifications for a specific customer) to contain products such as salad dressing, condiments, instant coffee, premium water and liquor. Household chemical containers are designed and manufactured to contain polishes, specialty cleaning agents, lawn and garden chemicals and liquid household products. Pharmaceutical containers are designed and manufactured (either in a generic or in a custom-made form) to contain tablets, solutions and similar products for the ethical and over-the-counter markets. Manufacturing and Production As is the practice in the industry, most of the Company's can and plastic container customers provide it with annual estimates of products and quantities pursuant to which periodic commitments are given. Such estimates enable the Company to effectively manage production and control working capital requirements. At December 31, 1995, Containers had approximately 80% of its projected 1996 sales under multi-year contracts. Plastics has purchase orders or contracts for containers with the majority of its customers. In general, these purchase orders and contracts are for containers made from proprietary molds and are for a duration of 2 to 5 years. Both Containers and Plastics schedule their production to meet their customers' requirements. Because the production time for the Company's products is short, the backlog of customer orders in relation to sales is not significant. Metal Container Business The Company uses three basic processes to produce cans. The traditional three-piece method requires three pieces of flat metal to form a cylindrical body with a welded side seam, a bottom and a top. The Company uses a welding process for the side seam of three-piece cans to achieve a superior seal. High integrity of the side seam is further assured by the use of sophisticated electronic weld monitors and organic coatings that are thermally cured by induction and convection processes. The other two methods of producing cans start by forming a shallow cup that is then formed into the desired height using either the draw and iron process or the draw and redraw process. Using the draw and redraw process, the Company manufactures steel and aluminum two-piece cans, the height of which does not exceed the diameter. For cans the height of which is greater than the diameter, the Company manufactures steel two-piece cans by using a drawing and ironing process. Quality and stackability of such cans are comparable to that of the shallow two-piece cans described above. Can bodies and ends are manufactured from thin, high-strength aluminum alloys and steels by utilizing proprietary tool and die designs and selected can making equipment. The Company's manufacturing operations include cutting, coating, lithographing, fabricating, assembling and packaging finished cans. Plastic Container Business The Company utilizes two basic processes to produce plastic bottles. In the blow extrusion molding process, pellets of plastic resin are heated and extruded into a tube of plastic. A two-piece metal mold is then closed around the plastic tube and high pressure air is blown into it causing a bottle to form in the mold's -3- shape. In the injection blow molding process, pellets of plastic resin are heated and injected into a mold, forming a plastic preform. The plastic preform is then blown into a bottle-shaped metal mold, creating a plastic bottle. The Company believes that its proprietary equipment for the production of HDPE containers is particularly well-suited for the use of PCR resins because of the relatively low capital costs required to convert its equipment to utilize multi-layer container construction. The Company's decorating methods for its plastic products include (1) in-mold labeling which applies a paper or plastic film label to the bottle during the blowing process and (2) post-mold decoration. Post-mold decoration includes (i) silk screen decoration which enables the applications of images in multiple colors to the bottle, (ii) pressure sensitive decoration which uses a plastic film or paper label applied by pressure, (iii) heat transfer decoration which uses a plastic film or plastic coated paper label applied by heat, and (iv) hot stamping decoration which transfers images from a die using metallic foils. The Company has state-of-the-art decorating equipment, including, management believes, one of the largest sophisticated decorating facilities in the Midwest, which allows the Company to custom-design new products with short lead times. Raw Materials The Company does not believe that it is materially dependent upon any single supplier for any of its raw materials and, based upon the existing arrangements with suppliers, its current and anticipated requirements and market conditions, the Company believes that it has made adequate provisions for acquiring raw materials. Although increases in the prices of raw materials have generally been passed along to the Company's customers, the inability to do so in the future could have a significant impact on the Company's operating margins. Metal Container Business The Company uses tin plated and chromium plated steel, aluminum, copper wire, organic coatings, lining compound and inks in the manufacture and decoration of its metal can products. The Company's material requirements are supplied through purchase orders with suppliers with whom the Company, through its predecessors, has long-term relationships. If its suppliers fail to deliver under their arrangements, the Company would be forced to purchase raw materials on the open market, and no assurances can be given that it would be able to make such purchases at comparable prices or terms. The Company believes that it will be able to purchase sufficient quantities of steel and aluminum can sheet for the foreseeable future. Plastic Container Business The raw materials used by the Company for the manufacture of plastic containers are primarily resins in pellet form such as HDPE-PCR and virgin HDPE and PET and, to a lesser extent, low density polyethylene, extrudable polyethylene terephthalate, polyethylene terephthalate glycol, polypropylene, polyvinyl chloride and medium density polyethylene. The Company's resin requirements are acquired through multi-year arrangements for specific quantities of resins with several major suppliers of resins. The price the Company pays for resin raw materials is not fixed and is subject to market pricing. The Company believes that it will be able to purchase sufficient quantities of resins for the foreseeable future. -4- Sales and Marketing The Company markets its products in most areas of North America primarily by a direct sales force and through a large network of distributors. Because of the high cost of transporting empty containers, the Company generally sells to customers within a 300 mile radius of its manufacturing plants. See also "Competition" below. In 1995, 1994 and 1993, the Company's metal container business accounted for approximately 80%, 76% and 71%, respectively, of the Company's total sales, and the Company's plastic container business accounted for approximately 20%, 24% and 29%, respectively, of the Company's total sales. On a pro forma basis after giving effect to the acquisition of AN Can, metal and plastic containers in 1995 would have accounted for approximately 84% and 16% of the Company's total sales, respectively. In 1995, 1994 and 1993, approximately 21%, 26% and 34%, respectively, of the Company's sales were to Nestle and in 1995 and 1994 approximately 15% and 21%, respectively, of the Company's sales were to Del Monte. On a pro forma basis after giving effect to the acquisition of AN Can, in 1995 approximately 17% and 11% of the Company's sales would have been to Nestle and Del Monte, respectively. No other customer accounted for more than 10% of the Company's total sales during such years. Metal Container Business Management believes that the Company is currently the sixth largest can producer and the largest food can producer in North America. In 1995, Containers sold approximately 28% of all metal food containers in the United States. Containers has entered into multi-year supply arrangements with many of its customers, including Nestle and Del Monte. The Company estimates that approximately 80% of its metal container sales in 1996 will be pursuant to such arrangements. In 1987, the Company, through Containers, and Nestle entered into supply agreements (the "Nestle Supply Agreements") pursuant to which Containers has agreed to supply Nestle with, and Nestle has agreed to purchase from Containers, substantially all of the can requirements of the former Carnation operations of Nestle for a period of ten years, subject to certain conditions. In 1995, sales of metal cans by the Company to Nestle were $236.0 million. The Nestle Supply Agreements provide for certain prices and specify that such prices will be increased or decreased based upon cost change formulas set forth therein. The Nestle Supply Agreements contain provisions that require Containers to maintain certain levels of product quality, service and delivery in order to retain the Nestle business. In the event of a breach of a particular Nestle Supply Agreement, Nestle may terminate such Nestle Supply Agreement but the other Nestle Supply Agreements would remain in effect. In 1994, the term of certain of the Nestle Supply Agreements (representing approximately 70% of the Company's 1995 unit sales to Nestle) was extended through 2001. Under these Nestle Supply Agreements, Nestle has the right to receive competitive bids under narrowly limited circumstances, and Containers has the right to match any such bids. In the event that Containers chooses not to match a competitive bid, Nestle may purchase cans from the competitive bidder at the competitive bid price for the term of the bid. The Company cannot predict the effect, if any, of such bids upon its financial condition or results of operations. The Company is currently engaged in discussions with Nestle regarding the pricing and the extension of the term for certain can requirements under these Nestle Supply Agreements. On a pro forma basis after giving effect to the acquisition of AN Can, such can requirements would have represented approximately 6% of the Company's 1995 sales. -5- The Company has also commenced discussions with Nestle with respect to the continuation beyond 1997 of the other Nestle Supply Agreements, which would have represented approximately 6% of the Company's sales in 1995 on a pro forma basis after giving effect to the acquisition of AN Can. Although the Company intends to make every effort to extend these Nestle Supply Agreements on reasonable terms and conditions, there can be no assurance that these Nestle Supply Agreements will be extended. On December 21, 1993, Containers and Del Monte entered into a supply agreement (the "DM Supply Agreement"). Under the DM Supply Agreement, Del Monte has agreed to purchase from Containers, and Containers has agreed to sell to Del Monte, 100% of Del Monte's annual requirements for metal containers to be used for the packaging of food and beverages in the United States and not less than 65% of Del Monte's annual requirements of metal containers for the packaging of food and beverages at Del Monte's Irapuato, Mexico facility, subject to certain limited exceptions. In 1995, sales of metal containers by the Company to Del Monte were $159.4 million. The DM Supply Agreement provides for certain prices for all metal containers supplied by Containers to Del Monte thereunder and specifies that such prices will be increased or decreased based upon specified cost change formulas. Under the DM Supply Agreement, beginning in December 1998, Del Monte may, under certain circumstances, receive proposals with terms more favorable than those under the DM Supply Agreement from independent commercial can manufacturers for the supply of containers of a type and quality similar to the metal containers that Containers furnishes to Del Monte, which proposals shall be for the remainder of the term of the DM Supply Agreement and for 100% of the annual volume of containers at one or more of Del Monte's canneries. Containers has the right to retain the business subject to the terms and conditions of such competitive proposal. The sale of metal containers to vegetable and fruit processors is seasonal and monthly revenues increase during the months of June through October. As is common in the packaging industry, the Company must build inventory and then carry accounts receivable for some seasonal customers beyond the end of the season. The acquisition of AN Can increased the Company's seasonal metal container business. Consistent with industry practice, such customers may return unused containers. Historically, such returns have been minimal. Plastic Container Business The Company is one of the leading manufacturers of custom designed HDPE and PET containers sold in North America. The Company markets its plastic containers in most areas of North America through a direct sales force and through a large network of distributors. More than 70% of the Company's plastic containers are sold for health and personal care products, such as hair care, oral care, pharmaceutical and other health care applications. The Company's customers in these product segments include Helene Curtis Inc., Procter & Gamble Co., Avon Products, Inc., Andrew Jergens Inc., Chesebrough-Ponds USA Co., Dial Corp., Warner-Lambert Company and Pfizer Inc. The Company also manufactures plastic containers for food and beverage products, such as salad dressings, condiments, instant coffee and premium water and liquor. Customers in these product segments include Procter & Gamble Co., Kraft General Foods Inc. and General Mills, Inc. As part of its marketing strategy, the Company has arrangements to sell some of its plastic products to distributors, which in turn sell such products primarily to small-size regional customers. Plastic containers sold to distributors are manufactured by using generic molds with decoration, color and neck finishes added to meet the distributors' individual requirements. The distributors' warehouses and their sales personnel enable the Company to market and inventory a wide range of such products to a variety of customers. -6- Plastics has written purchase orders or contracts for containers with the majority of its customers. In general, these purchase orders and contracts are for containers made from proprietary molds and are for a duration of 2 to 5 years. Competition The packaging industry is highly competitive. The Company competes in this industry with other packaging manufacturers as well as fillers, food processors and packers who manufacture containers for their own use and for sale to others. The Company attempts to compete effectively through the quality of its products, pricing and its ability to meet customer requirements for delivery, performance and technical assistance. The Company also pursues market niches such as the manufacture of easy-open ends and special feature cans, which may differentiate the Company's products from its competitors' products. Because of the high cost of transporting empty containers, the Company generally sells to customers within a 300 mile radius of its manufacturing plants. Strategically located existing plants give the Company an advantage over competitors from other areas, and the Company would be disadvantaged by the loss or relocation of a major customer. As of February 28, 1996, the Company operated 44 manufacturing facilities, geographically dispersed throughout the United States and Canada, that serve the distribution needs of its customers. Metal Container Business Management believes that the metal food containers segment is mature. Some self-manufacturers have sold or closed can manufacturing operations and entered into long-term supply agreements with the new owners or with commercial can manufacturers. Of the commercial metal can manufacturers, Crown Cork and Seal Company, Inc. and Ball Corporation are the Company's most significant national competitors. As an alternative to purchasing cans from commercial can manufacturers, customers have the ability to invest in equipment to self-manufacture their cans. Although metal containers face continued competition from plastic, paper and composite containers, management believes that metal containers are superior to plastic and paper containers in applications where the contents are processed at high temperatures, where the contents are packaged in large or institutional quantities (14 to 64 oz.) or where long-term storage of the product is desirable. Such applications include canned vegetables, fruits, meats and pet foods. These sectors are the principal areas for which the Company manufactures its products. Plastic Container Business Plastics competes with a number of large national producers of health, personal care, food, beverage, pharmaceutical and household chemical plastic container products, including Owens-Brockway Plastics Products, a division of Owens-Illinois, Inc., Constar Plastics Inc., a subsidiary of Crown Cork and Seal Company, Inc., Johnson Controls Inc., Continental Plastics Inc. and Plastipak Packaging Inc. In order to compete effectively in the constantly changing market for plastic bottles, the Company must remain current with, and to some extent anticipate innovations in, resin composition and applications and changes in the manufacturing of plastic bottles. -7- Employees As of December 31, 1995, the Company employed approximately 940 salaried and 4,170 hourly employees on a full-time basis, including approximately 1,400 employees who joined the Company on August 1, 1995 as a result of the acquisition of AN Can. Approximately 63% of the Company's hourly plant employees are represented by a variety of unions. The Company's labor contracts expire at various times between 1996 and 2008. Contracts covering approximately 12% of the Company's hourly employees presently expire during 1996. The Company expects no significant changes in its relations with these unions. Management believes that its relationship with its employees is good. Regulation The Company is subject to federal, state and local environmental laws and regulations. In general, these laws and regulations limit the discharge of pollutants into the air and water and establish standards for the treatment, storage, and disposal of solid and hazardous waste. The Company believes that all of its facilities are either in compliance in all material respects with all presently applicable environmental laws and regulations or are operating in accordance with appropriate variances, delayed compliance orders or similar arrangements. In addition to costs associated with regulatory compliance, the Company may be held liable for alleged environmental damage associated with the past disposal of hazardous substances. Generators of hazardous substances disposed of at sites at which environmental problems are alleged to exist, as well as the owners of those sites and certain other classes of persons, are subject to claims under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA") regardless of fault or the legality of the original disposal. Liability under CERCLA and under many similar state statutes is joint and several, and, therefore, any responsible party may be held liable for the entire cleanup cost at a particular site. Other state statutes may impose proportionate rather than joint and several liability. The federal Environmental Protection Agency or a state agency may also issue orders requiring responsible parties to undertake removal or remedial actions at certain sites. Pursuant to the agreement relating to the acquisition in 1987 of Nestle Can, the Company has assumed liability for the past waste disposal practices of Nestle Can. In 1989, the Company received notice that it is one of many potentially responsible parties (or similarly designated parties) for cleanup of hazardous waste at a site to which it (or its predecessor Nestle Can) is alleged to have shipped such waste and at which the Company's share of cleanup costs could exceed $100,000. See "Legal Proceedings." Pursuant to the agreement relating to the acquisition in 1987 from Monsanto Company ("Monsanto") of substantially all of the business and related fixed assets and inventory of Monsanto's plastic containers business ("Monsanto Plastic Containers"), Monsanto has agreed to indemnify the Company for substantially all of the costs attributable to the past waste disposal practices of Monsanto Plastic Containers. In connection with the acquisition from Del Monte of substantially all of the fixed assets and working capital of its container manufacturing business in the United States ("DM Can"), Del Monte has agreed to indemnify the Company for a period of three years for substantially all of the costs attributable to any noncompliance by DM Can with any environmental law prior to the closing, including all of the costs attributable to the past waste disposal practices of DM Can. In connection with the acquisition of AN Can, subject to certain limitations, ANC has agreed to indemnify the Company for a period of three years for the costs attributable to any noncompliance by AN Can with any environmental law prior to the closing, including costs attributable to the past waste disposal practices of AN Can. The Company is subject to the Occupational Safety and Health Act and other laws regulating noise exposure levels and other safety and health concerns in the production areas of its plants. -8- Management does not believe that any of the matters described above individually or in the aggregate will have a material effect on the Company's capital expenditures, earnings, financial position or competitive position. Research and Technology Metal Container Business The Company's research, product development and product engineering efforts relating to its metal containers are currently conducted at its research centers at Oconomowoc, Wisconsin; Neenah, Wisconsin and at other plant locations. The Company is building a state-of-the-art research facility in Oconomowoc, Wisconsin in order to consolidate its two main research centers into one facility. Plastic Container Business The Company's research, product development and product engineering efforts with respect to its plastic containers are currently performed by its manufacturing and engineering personnel located at its Norcross, Georgia facility. In addition to its own research and development staff, the Company participates in arrangements with three non-U.S. plastic container manufacturers that call for an exchange of technology among these manufacturers. Pursuant to these arrangements, the Company licenses its blow molding technology to such manufacturers. Company History Silgan was organized in August 1987 as a holding company to acquire interests in various packaging manufacturers. On August 31, 1987, Silgan, through Containers, purchased from Nestle the business and related assets and working capital of Nestle Can for approximately $151 million in cash and the assumption of substantially all of the liabilities of Nestle Can. Also on August 31, 1987, Silgan, through Plastics, purchased from Monsanto substantially all the business and related fixed assets and inventory of Monsanto Plastic Containers for approximately $43 million in cash and the assumption of certain liabilities of Monsanto Plastic Containers. To finance these acquisitions and to pay related fees and expenses, Silgan issued common stock, preferred stock and senior subordinated notes and borrowed amounts under its credit agreement. During 1988, Containers acquired from The Dial Corporation its metal container manufacturing division known as the Fort Madison Can Company ("Fort Madison"), and from Nestle its carton manufacturing division known as the Seaboard Carton Division ("Seaboard"). During 1989, Plastics acquired Aim Packaging, Inc. ("Aim") and Fortune Plastics, Inc. ("Fortune") in the United States, and Express Plastic Containers Limited ("Express") in Canada, to improve its competitive position in the HDPE container segment. Holdings was organized in April 1989 as a holding company to acquire all of the outstanding common stock of Silgan. On June 30, 1989, Silgan Acquisition, Inc. ("Acquisition"), a wholly owned subsidiary of Holdings, merged with and into Silgan, and Silgan became a wholly owned subsidiary of Holdings (the "1989 Mergers"). In 1989, the Company acquired the business and related assets of Amoco Container Company ("Amoco Container"). In November 1991, Plastics sold its nonstrategic PET carbonated beverage bottle business (the "PET Beverage Sale"), exiting that commodity business. -9- In 1992, Holdings and Silgan refinanced a substantial portion of their indebtedness (the "Refinancing") pursuant to a plan to improve their financial flexibility. The Refinancing included the public offering in June 1992 by Silgan of $135 million principal amount of its 11-3/4% Senior Subordinated Notes due 2002 (the "11- 3/4% Notes") and the public offering in June 1992 by Holdings of its 13-1/4% Senior Discount Debentures due 2002 (the "Discount Debentures") for an aggregate amount of proceeds of $165.4 million. Additionally, in June 1992 Aim, Fortune and certain other subsidiaries of Plastics were merged into Plastics. On December 21, 1993, Containers acquired from Del Monte substantially all of the fixed assets and certain working capital of Del Monte's container manufacturing business in the United States for a purchase price of approximately $73 million and the assumption of certain limited liabilities. To finance the acquisition, (i) Silgan, Containers and Plastics (collectively, the "Borrowers") entered into a credit agreement, dated as of December 21, 1993 (the "1993 Credit Agreement") with the lenders from time to time party thereto (the "Banks"), Bank of America National Trust and Savings Association, as Co-Agent, and Bankers Trust Company ("Bankers Trust"), as Agent, and (ii) Holdings issued and sold to Mellon Bank, N.A., as trustee for First Plaza Group Trust, a group trust established under the laws of the State of New York ("First Plaza"), 250,000 shares of its Class B Common Stock, par value $.01 per share (the "Holdings Stock"), for a purchase price of $60.00 per share and an aggregate purchase price of $15 million. Additionally, Silgan, Containers and Plastics borrowed term and working capital loans under the 1993 Credit Agreement to refinance and repay in full all amounts owing under their previous credit agreement. On August 1, 1995, Containers acquired from ANC substantially all of the assets of ANC's Food Metal and Specialty business for a purchase price of approximately $349 million and the assumption of specific limited liabilities. To finance the acquisition, Silgan, Containers and Plastics (collectively, the "Borrowers") entered into a $675 million credit facility pursuant to a credit agreement, dated as of August 1, 1995 (the "Credit Agreement") with the lenders from time to time party thereto (the "Banks"), Bankers Trust, as Administrative Agent and Co-Arranger, and Bank of America Illinois, as Documentation Agent and Co-Arranger. Containers used funds borrowed under the Credit Agreement to finance in full the purchase price for its acquisition of AN Can and to refinance and repay in full all amounts owing under the 1993 Credit Agreement and Silgan's $50 million of Senior Secured Floating Rate Notes due 1997 (the "Secured Notes"). Additionally, Silgan has used borrowings under the Credit Agreement to make non-interest bearing advances to Holdings to enable Holdings to purchase $61.7 million face amount of the Discount Debentures, which Discount Debentures have been canceled. Item 2. Properties Holdings' and Silgan's principal executive offices are located at 4 Landmark Square, Stamford, Connecticut 06901. The administrative headquarters and principal places of business for Containers and Plastics are located at 21800 Oxnard Street, Woodland Hills, California 91367 and 14515 N. Outer Forty, Chesterfield, Missouri 63017, respectively. All of these offices are leased by the Company. The Company owns and leases properties for use in the ordinary course of business. Such properties consist primarily of 30 metal container manufacturing facilities, 11 plastic container manufacturing facilities and 3 specialty packaging manufacturing facilities. Nineteen of these facilities are owned and 25 are leased by the Company. The leases expire at various times through 2020. Some of these leases provide renewal options. -10- Below is a list of the Company's operating facilities, including attached warehouses, as of February 28, 1996 for its metal container business: Approximate Building Area Location (square feet) -------- ------------- City of Industry, CA 50,000 (leased) Kingsburgh, CA 37,783 (leased) Modesto, CA 35,585 (leased) Modesto, CA 128,000 (leased) Modesto, CA 150,000 (leased) Riverbank, CA 167,000 San Leandro, CA 200,000 (leased) Stockton, CA 243,500 Broadview, IL 85,000 Hoopeston, IL 323,000 Rochelle, IL 175,000 Waukegan, IL 40,000 (leased) Woodstock, IL 160,000 (leased) Evansville, IN 188,000 Hammond, IN 160,000 (leased) Laporte, IN 144,000 (leased) Fort Madison, IA 66,000 Ft. Dodge, IA 49,500 (leased) Savage, MN 160,000 St. Paul, MN 470,000 West Point, MS 25,000 (leased) Mt. Vernon, MO 100,000 Northtown, MO 112,000 (leased) St. Joseph, MO 173,725 Edison, NJ 280,000 Crystal City, TX 26,045 (leased) Toppenish, WA 98,000 Vancouver, WA 127,000 (leased) Menomonee Falls, WI 116,000 Menomonie, WI 60,000 (leased) Oconomowoc, WI 105,200 Plover, WI 58,000 (leased) Waupun, WI 212,000 In addition to the above facilities, the Company intends to purchase from ANC its St. Louis, MO facility by June 1996. -11- Below is a list of the Company's operating facilities, including attached warehouses, as of February 28, 1996 for its plastic container business: Approximate Building Area Location (square feet) -------- ------------- Anaheim, CA 127,000 (leased) Deep River, CT 140,000 Monroe, GA 117,000 Norcross, GA 59,000 (leased) Ligonier, IN 284,000 (leased) Ligonier, IN 193,000 Seymour, IN 406,000 Franklin, KY 122,000 (leased) Port Clinton, OH 336,000 (leased) Langhorne, PA 156,000 (leased) Mississauga, Ontario 80,000 (leased) Mississauga, Ontario 60,000 (leased) The Company owns and leases certain other warehouse facilities that are detached from its manufacturing facilities. All of the Company's facilities are subject to liens in favor of the Banks. The Company believes that its plants, warehouses and other facilities are in good operating condition, adequately maintained, and suitable to meet its present needs and future plans. The Company believes that it has sufficient capacity to satisfy the demand for its products in the foreseeable future. To the extent that the Company needs additional capacity, management believes that the Company can convert certain facilities to continuous operation or make the appropriate capital expenditures to increase capacity. Item 3. Legal Proceedings Appraisal Petition Arising from 1989 Mergers. In connection with appraisal proceedings filed by certain former holders of 400,000 shares of stock of Silgan in respect of the 1989 Mergers, on June 15, 1995, the Delaware Court of Chancery awarded these former stockholders $5.94 per share, plus simple interest at a rate per annum of 9.5%. This award was less than the amount, $6.50 per share, that these former stockholders would have received in the 1989 Mergers. The right of these former stockholders to appeal the Chancery Court's decision has expired, and Silgan has tendered payment for such shares. Prior to the trial for the appraisal, Silgan and the former holders of 650,000 shares of Silgan's stock agreed to a settlement with respect to the value of such shares, and Silgan made payment in full in respect of such settlement. Katell/Desert Complaint. With respect to a complaint filed by certain limited partners of The Morgan Stanley Leveraged Equity Fund, L.P. against a number of defendants, including Holdings and Silgan, the court dismissed all claims against Holdings and Silgan by memorandum opinion and order dated January 14, 1993. The court denied plaintiffs' motion to reargue the dismissal by order dated March 29, 1993. The plaintiffs' time to appeal the dismissal of the claims against Holdings and Silgan expired following the dismissal of the claims against certain other defendants in June 1995. Summer del Caribe. On October 17, 1989, the State of California, on behalf of the California Department of Health Services, filed a suit in the United States District Court for the Northern District of -12- California against the owners and operators of a recycling facility operated by Summer del Caribe, Inc., Dale Summer and Lynn Rodich. The complaint also named 16 can manufacturing companies, including Silgan, that had sent small amounts of solder dross to the facility for recycling as "Responsible Parties" under the California Superfund statute. The Company is one of 16 defendant can companies participating in a steering committee. The steering committee has actively undertaken a feasibility study which was approved by the California Department of Toxic Substances in June 1994. The Company has agreed with the other can company defendants that its apportioned share of cleanup costs would be 6.72% of the total cost of cleanup. On March 14, 1995, the court approved the Consent Order settling the case and reaffirming the Company's 6.72% apportioned share of the cleanup costs. Although the total cost of cleanup has not yet been determined, the Company understands that the State of California's current worst case estimate of total cleanup costs for all parties is $5.5 million. The steering committee believes that the cost to remediate will be less than one-half the government's estimate. Accordingly, the Company believes its maximum exposure is not greater than 6.72% of $3 million, or approximately $202,000. Other. Other than the actions mentioned above, there are no other material pending legal proceedings to which the Company is a party or to which any of its properties are subject. Item 4. Submission of Matters to a Vote of Security Holders. None. -13- PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters. Holdings has three classes of Common Stock, its Class A Common Stock, par value $.01 per share (the "Holdings Class A Stock"), its Class B Common Stock, par value $.01 per share (the "Holdings Class B Stock"), and its Class C Common Stock, par value $.01 per share (the "Holdings Class C Stock," together with the Holdings Class A Stock and the Holdings Class B Stock being herein referred to as the "Holdings Common Stock"). The Holdings Common Stock is not publicly traded on any market or exchange. There are two holders of record of the Holdings Class A Stock, two holders of record of the Holdings Class B Stock and one holder of record of the Holdings Class C Stock. See "Security Ownership of Certain Beneficial Owners and Management." Holdings has not paid any dividends on the Holdings Common Stock. Pursuant to the Amended and Restated Holdings Guaranty, dated as of August 1, 1995 made by Holdings in favor of the banks under the Credit Agreement and pursuant to the indenture in respect of the Discount Debentures, unless certain financial tests are met Holdings is prohibited from paying any such dividends, and it does not intend to pay any such dividends in the foreseeable future. Item 6. Selected Financial Data. Set forth below are selected historical consolidated financial data of Holdings at December 31, 1995, 1994, 1993, 1992 and 1991 and for the periods then ended. The selected historical consolidated financial data of Holdings at December 31, 1995 and 1994 and for each of the three years in the period ended December 31, 1995 (with the exception of employee data) was derived from the historical consolidated financial statements that were audited by Ernst & Young LLP, independent auditors, whose report appears elsewhere in this Annual Report on Form 10-K. The selected consolidated historical financial data of Holdings at December 31, 1993, 1992 and 1991 and for the years ended December 31, 1992 and 1991 were derived from the historical audited consolidated financial statements for such periods. The selected historical consolidated financial data should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the audited financial statements and accompanying notes thereto included elsewhere in this Annual Report on Form 10-K. -14- SELECTED FINANCIAL DATA Year Ended December 31, ------------------------------------------------------------------
1995 1994 1993 1992 1991 ------- ------- ------- ----- ------- (Dollars in thousands) Operating Data: Net sales................................. $1,101,905 $861,374 $645,468 $630,039 $678,211 Cost of goods sold........................ 970,491 748,290 571,174 554,972 605,185 ------- ------- ------- ------- ------- Gross profit.............................. 131,414 113,084 74,294 75,067 73,026 Selling, general and administrative expenses............................ 46,848 37,997 32,495 32,809 33,733 Reduction in carrying value of assets..... 14,745 16,729 -- -- -- ------ ------ -------- -------- ------ Income from operations.................... 69,821 58,358 41,799 42,258 39,293 Interest expense and other related financing costs..................... 80,710 65,789 54,265 57,091 55,996 Minority interest expense................. -- -- -- 2,745 3,889 ------- ------- -------- ------ ------ Loss before income taxes.................. (10,889) (7,431) (12,466) (17,578) (20,592) Income tax provision...................... 5,100 5,600 1,900 2,200 -- ------- ------- ------- -------- ------- Loss before extraordinary charges and cumulative effect of changes in accounting principles.... (15,989) (13,031) (14,366) (19,778) (20,592) Extraordinary charges relating to early extinguishment of debt........ (5,817) -- (1,341) (23,597) -- Cumulative effect of changes in accounting principles .......... -- -- (6,276) -- -- -------- -------- -------- --------- ------ Net loss.................................. $(21,806) $(13,031) $(21,983) $(43,375) $(20,592) ======== ======== ======== ======== ======== Balance Sheet Data (at end of period): Fixed assets.............................. $487,301 $251,810 $290,395 $223,879 $230,501 Total assets.............................. 900,046 504,292 497,633 389,035 390,693 Total long-term debt...................... 750,873 510,763 505,718 383,232 315,461 Redeemable preferred stock of Silgan (minority interest of Holdings)..... -- -- -- -- 27,878 Deficiency in stockholders' equity........ (179,804) (157,998) (144,967) (137,984) (94,609) Other Data: EBDITA................................ $132,428 $114,489 $76,095 $74,012 $72,141 EBDITA as a percentage of net sales....... 12.0% 13.3% 11.8% 11.7% 10.6% Capital expenditures...................... $51,897 $ 29,184 $42,480 $23,447 $21,834 Depreciation and amortization $45,388 $ 37,187 $33,818 $31,754 $32,848 Number of employees (at end of period) ........................ 5,110 4,000 3,330 3,340 3,560 (footnotes follow) -15- Notes to Selected Financial Data On August 1, 1995, the Company acquired from ANC substantially all of the assets of ANC's Food Metal and Specialty business. The acquisition was accounted for as a purchase transaction and the results of operations have been included with the Company's historical results from the acquisition date. See Note 3 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. On December 21, 1993, the Company acquired from Del Monte substantially all of the fixed assets and certain working capital of its container manufacturing business. The acquisition was accounted for as a purchase transaction and the results of operations have been included with the Company's historical results from the acquisition date. See Note 3 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. On November 15, 1991, the Company completed the PET Beverage Sale. For 1991, sales from the PET carbonated beverage business were $33.4 million. During 1993, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 106, "Employers Accounting for Postretirement Benefits Other than Pensions," SFAS No. 109, "Accounting for Income Taxes" and SFAS No. 112, "Employers Accounting for Postemployment Benefits." The Company has elected not to restate prior year's financial statements for any of these pronouncements. "EBDITA" means consolidated net income before extraordinary charges, cumulative effect of changes in accounting principles and preferred stock dividends plus, to the extent reflected in the income statement for the period for which consolidated net income is to be determined, without duplication, (i) consolidated interest expense (including minority interest expense), (ii) income tax expense, (iii) depreciation expense, (iv) amortization expense, (v) expenses relating to postretirement health care costs which amounted to $1.7 million in 1995, $0.7 million in 1994 and $0.5 million in 1993, (vi) charges relating to the vesting of benefits under SARs of $0.8 million in 1995 and $1.5 million in 1994 and (vii) the reduction in carrying value of assets of $14.7 million and $16.7 million in 1995 and 1994, respectively. EBDITA is being presented by the Company as a supplement to the discussion of the Company's operating income and cash flow from operations analysis because the Company believes that certain persons may find it to be useful in measuring the Company's performance and ability to service its debt. EBDITA is not a substitute for GAAP operating and cash flow data. Depreciation and amortization excludes amortization of debt financing costs. The number of employees at December 31, 1993 excludes 650 employees who joined the Company on December 21, 1993 as a result of the acquisition by Containers of DM Can. The number of employees at December 31, 1995 includes approximately 1,400 employees who joined the Company on August 1, 1995 as a result of the acquisition by Containers of AN Can.
-16- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The Company has focused on growth through acquisitions followed by investment in the acquired assets to gain production efficiencies and provide internal growth. Since Silgan's inception in 1987, the metal food container business, which had sales of $882 million in 1995, has realized compound annual growth of 16% through both acquisitions of food can businesses and internal growth. Since 1993, the Company has made two significant acquisitions. On August 1, 1995 the Company acquired AN Can and in December 1993 the Company acquired DM Can. On a pro forma basis after giving effect to the acquisition of AN Can, sales for the Company's metal container business would have been $1.2 billion in 1995. Since 1987, the Company, on a pro forma basis after giving effect to the acquisition of AN Can, has realized annual sales growth in its metal food container business in excess of 21%. The Company believes that its investments have enabled it to achieve a low cost position in the food can segment. To further enhance its low cost position, the Company has realized cost reduction opportunities through plant rationalization and equipment investment as well as from improved production scheduling and line reconfiguration. Since 1992, the Company has closed eight smaller, higher cost metal container facilities, including five facilities that were closed in 1995 as a result of the integration of the manufacturing operations of DM Can. Management believes that the acquisition of AN Can, which has seventeen manufacturing facilities, provides the Company with further cost reduction opportunities not only through production and manufacturing synergies which it will realize from the combined operations but also through the integration of the selling, general and administrative operations of AN Can into the Company's existing metal container business. The Company anticipates it will fully realize the benefits of integrating these selling and administrative functions and certain of the manufacturing synergies by late 1996. On the other hand, benefits which may be realized by rationalization of plant operations will not occur before 1997. Because AN Can has higher labor costs than the Company's existing metal container business and any benefits realized from plant rationalizations will not occur until after 1996, the Company expects that the gross margin for its metal container business will decline modestly from its historical rate in 1996. Although employee termination costs associated with plant rationalizations and administrative workforce reductions and other plant exit costs associated with the acquisition of AN Can have been accrued through purchase accounting adjustments, the Company has incurred in 1995 and will be incurring in 1996 other non-recurring costs which under current accounting pronouncements will be charged against operating income. These costs, which include redundant charges related to the integration of the administrative and general functions as well as costs associated with plant rearrangement and clean-up, were $3.2 million in 1995 and are expected to be approximately $4.0 million in 1996. To enhance its competitive position, the Company believes that it has maintained a stable customer base by entering into multi-year supply arrangements with a majority of its metal food can customers. Such arrangements generally provide for pricing changes in accordance with cost change formulas, thereby reducing the Company's exposure to the volatility of raw material prices but also limiting the Company's ability to increase prices. The arrangement to supply substantially all of Del Monte's metal container requirements in the United States under the DM Supply Agreement extends to December 2003 and the arrangement to supply a majority of Nestle's domestic metal container requirements under the Nestle Supply Agreements extends through 2001. Revenues from these two customers represented approximately 45% of net sales by the metal container business in 1995. The acquisition of AN Can has enabled the Company to diversify its customer base and expand its domestic geographic presence. Similar to the Company's existing metal container business, AN Can has multi-year supply arrangements with many of its metal food container customers. As a result, the Company estimates that approximately 80% of its 1996 metal container sales will be subject to long term contracts. Furthermore, on a pro forma basis after giving effect to the acquisition of AN Can, for 1995 the -17- Company's sales to Nestle and Del Monte would have declined to 33% of the Company's total metal container sales. The Company believes that it is likely that the unit volume for its metal container business, on a pro forma basis after giving effect to the acquisition of AN Can, will decline in 1996 and possibly in 1997 from the aggregate volumes realized by the Company and AN Can on a stand-alone basis. The Company believes that certain customers, who had a majority of their can requirements supplied by the Company and AN Can, will seek additional suppliers. Additionally, the Company is negotiating the extension of supply arrangements with many customers, including the supply arrangements with Nestle that expire in 1997, which would have represented approximately 6% of the Company's sales in 1995 on a pro forma basis after giving effect to the acquisition of AN Can. There can be no assurance that the Company will be successful in its efforts to maintain this volume on the same terms and conditions that currently exist. The plastic container business has grown from a sales base of $89 million in 1987 to $220 million in 1995. In 1989, the Company acquired four plastic container manufacturers to improve its competitive position in the plastic container segment. As a result of these acquisitions, the Company implemented an aggressive consolidation and rationalization program during the period from 1991 through 1993, closing three manufacturing facilities and consolidating the technical and administrative functions of its plastic container business. An additional facility was closed in 1995. To gain further production efficiencies, the Company has made significant capital investment in its plastic container business over the past few years. In 1994, the Company began to realize the benefits of the consolidation and rationalization program as well as the capital investment program. Currently, the Company is aggressively pursuing opportunities in custom-designed PET and HDPE containers for which the market has been growing principally due to consumer preferences for plastic containers. The Company believes that it has equipment and technical expertise to take advantage of these growth segments. In conjunction with the acquisition of AN Can, Silgan, Containers and Plastics entered into a $675.0 million credit facility with various banks to finance the acquisition of AN Can and the resulting increased seasonal working capital needs of the Company's metal container business, to refinance in full amounts owing under the Company's previous credit facility, to repay the Secured Notes and to permit Silgan to advance to Holdings up to $75.0 million for the repurchase by Holdings of Discount Debentures. Although the Company lowered its interest rate spread under its new credit facility by 1/2%, the Company's total interest expense will increase significantly from historical amounts because the acquisition was financed entirely through bank borrowings and additional bank borrowings were advanced to Holdings on a non-interest bearing basis to fund Holdings' repurchase of its higher cost indebtedness. -18- Summary results for the Company's two business segments, metal and plastic containers, for the calendar years ending December 31, 1995, 1994 and 1993 are provided below. See Note 20 of the Notes to Consolidated Financial Statements which are included elsewhere in this Annual Report on Form 10-K.
1995 1994 1993 ----- ----- ---- (Dollars in millions) Net sales: Metal containers and other $ 882.3 $657.1 $459.2 Plastic containers 219.6 204.3 186.3 ------- ----- ----- Consolidated $1,101.9 $861.4 $645.5 ======= ===== ===== Operating profit: Metal containers and other $72.9 $67.0 $42.3 Plastic containers 13.2 9.4 0.6 Reduction in asset value (14.7) (16.7) -- Corporate expense (1.6) (1.3) (1.1) ----- ----- ----- Consolidated $69.8 $58.4 $41.8 ==== ==== ==== - ----------------------------- For 1995, the total charge was allocable to the metal container business. For 1994, $7.2 million of this charge was allocable to the metal container business and $9.5 million was allocable to the plastic container business.
This discussion should be read in conjunction with the selected financial data, the historical statements of operations and the notes thereto included elsewhere in this Annual Report on Form 10-K. Results of Operations Year Ended December 31, 1995 Compared with Year Ended December 31, 1994. Consolidated net sales increased $240.5 million, or 27.9%, to $1.1 billion for the year ended December 31, 1995, as compared to sales of $861.4 million for the same period in 1994. This increase resulted from net sales of $264.3 million generated by AN Can since its acquisition and a $15.3 million increase in sales of plastic containers offset, in part, by a decline in sales of metal containers to Silgan's existing customer base of $39.1 million. Net sales for the metal container business (including its specialty business) were $882.3 million for the year ended December 31, 1995, an increase of $225.2 million from net sales of $657.1 million for the same period in 1994. Excluding net sales of metal cans of $236.0 million generated by AN Can since its acquisition, net sales of metal cans to the Company's customers were $609.5 million during the year ended December 31, 1995, as compared to $647.5 million for the same period in 1994. Net sales to the Company's customers in 1995 decreased principally due to lower unit volume resulting from the below normal 1995 vegetable pack offset, in part, by slightly higher sales prices due to the pass through of raw material cost increases. Sales of specialty items included in the metal container segment increased $27.2 million to $36.8 million during the year ended December 31, 1995 as compared to the same period in 1994, due to the acquisition of AN Can which generated sales of $28.3 million of specialty items since its acquisition. Net sales for the plastic container business of $219.6 million during the year ended December 31, 1995 increased $15.3 million over net sales of $204.3 million for the same period in 1994. This increase was attributable to increased unit sales for new customer products and to higher average sales prices due to the pass through of higher average resin costs. -19- Cost of goods sold as a percentage of consolidated net sales was 88.1% ($970.5 million) for the year ended December 31, 1995, an increase of 1.2 percentage points as compared to 86.9% ($748.3 million) for the same period in 1994. The increase in cost of goods sold as a percentage of net sales principally resulted from increased per unit manufacturing costs resulting from reduced can production volumes, lower margins realized on certain products due to competitive market conditions and lower margins on sales made by AN Can, offset, in part, by improved manufacturing operating efficiencies due to plant consolidations and lower depreciation expense due to a change in the estimated useful life of certain equipment. Selling, general and administrative expenses as a percentage of consolidated net sales declined 0.2 percentage points to 4.2% ($46.8 million) for the year ended December 31, 1995 as compared to 4.4% ($38.0 million) for the year ended December 31, 1994. The decrease in selling, general and administrative expenses as a percentage of net sales resulted from the Company's continued control of these expenses in respect of the Company's existing business, offset partially by a temporarily higher level of expenses incurred during the integration of AN Can. The Company expects that its selling, general and administration costs as a percentage of sales will continue to decline in 1996 as it completes the integration of the administrative functions of its metal container business. Income from operations as a percentage of consolidated net sales was 6.3% ($69.8 million) for the year ended December 31, 1995, as compared with 6.8% ($58.4 million) for the same period in 1994. Included in income from operations were charges for the write-off of certain underutilized assets of $14.7 million and $16.7 million in 1995 and 1994, respectively. Without giving effect to these charges, income from operations as a percentage of consolidated net sales would have declined 1.0% in 1995, primarily as a result of the aforementioned decline in gross margin. Income from operations as a percentage of net sales for the metal container business (without giving effect to charges of $14.7 million and $7.2 million in 1995 and 1994, respectively, to adjust the carrying value of certain assets) was 8.3% ($72.9 million) for the year ended December 31, 1995, as compared to 10.2% ($67.0 million) for the same period in the prior year. The decrease in income from operations as a percentage of net sales principally resulted from higher per unit manufacturing costs realized on lower production volume, lower margins realized on certain products due to competitive market conditions, inefficiencies caused by work stoppages at two of the Company's California facilities, and lower margins realized on sales made by AN Can. Income from operations as a percentage of net sales attributable to the plastic container business (without giving effect to the charge of $9.5 million in 1994 to adjust the carrying value of certain assets) was 6.0% ($13.2 million) for the year ended December 31, 1995, as compared to 4.6% ($9.4 million) for the same period in 1994. The operating performance of the plastic container business improved as a result of production planning and scheduling efficiencies and benefits realized from capital investment, offset, in part, by increased unit production costs incurred as a result of an inventory reduction program. Interest expense, including amortization of debt financing costs, increased by approximately $14.9 million to $80.7 million for the year ended December 31, 1995, principally as a result of increased borrowings to finance the acquisition of AN Can and to fund higher working capital needs as a result of the increased seasonality of the Company's metal container business, and higher average interest rates. Accretion of interest on the Discount Debentures in 1995 approximated the prior year's accretion due to the repurchase of $61.7 million face amount of Discount Debentures in the third quarter of 1995. The provisions for income taxes for the years ended December 31, 1995 and 1994 were comprised of federal, state and foreign income taxes currently payable. The decrease in the provision for income taxes in 1995 reflects a decrease in federal income taxes currently payable due to the deductibility of accrued interest on the Discount Debentures that were repurchased in 1995. -20- As a result of the items discussed above, net loss before the extraordinary charge for the year ended December 31, 1995 was $16.0 million, as compared to a net loss of $13.0 million for the year ended December 31, 1994. As a result of the early extinguishment of amounts owed under its secured debt facilities, the Company incurred an extraordinary charge of $5.8 million (net of tax of $2.6 million) in 1995. Year Ended December 31, 1994 Compared with Year Ended December 31, 1993. Consolidated net sales increased $215.9 million, or 33.4%, to $861.4 million for the year ended December 31, 1994, as compared to $645.5 million for the same period in 1993. Approximately 81% of this increase related to sales to Del Monte pursuant to the DM Supply Agreement entered into by the Company on December 21, 1993 to supply substantially all of Del Monte's metal container requirements for a period of ten years. The remainder of this increase resulted principally from greater unit sales in both the metal container and plastic container businesses. Net sales for the metal container business (including paper containers) were $657.1 million for the year ended December 31, 1994, an increase of $197.9 million (43.1%) over net sales for the metal container business of $459.2 million for the same period in 1993. Sales of metal containers increased $201.6 million primarily as a result of the DM Supply Agreement, which represented $174.7 million of this increase, and an increase of $26.9 million in sales to all other customers. Sales of metal containers increased principally from higher unit volume and reflected continued growth in sales of pet food containers, as well as greater sales to vegetable pack customers due to a larger than normal pack in 1994. Sales of specialty items included in the metal container segment declined $3.7 million to $9.6 million during 1994. Net sales for the plastic container business of $204.3 million during the year ended December 31, 1994 increased $18.0 million, or 9.7%, over net sales of plastic containers of $186.3 million for the same period in 1993. The increase in net sales of plastic containers was attributable to increased unit sales to new and existing customers, particularly PET customers, and to a lesser extent, higher average sales prices due to the pass through of increased resin costs. Cost of goods sold as a percentage of consolidated net sales was 86.9% ($748.3 million) for the year ended December 31, 1994, a decrease of 1.6 percentage points as compared to 88.5% of consolidated net sales ($571.2 million) for the same period in 1993. The decrease in cost of goods sold as a percentage of consolidated net sales principally resulted from synergistic benefits resulting from the acquisition of DM Can, lower per unit manufacturing costs realized on higher sales and production volumes and improved manufacturing efficiencies in the plastic container business resulting from larger cost reduction and productivity investments in 1993. Selling, general and administrative expenses as a percentage of consolidated net sales declined 0.6 percentage points to 4.4% of consolidated net sales ($38.0 million) for the year ended December 31, 1994, as compared to 5.0% ($32.5 million) for the same period in 1993. The decrease as a percentage of consolidated net sales resulted principally from a modest increase in selling, general and administrative functions relative to the increased sales associated with the acquisition of DM Can, offset in part by an increase of $1.3 million in benefits accrued under stock appreciation rights agreements. Income from operations as a percentage of consolidated net sales increased 0.3 percentage points to 6.8% ($58.4 million) for the year ended December 31, 1994, compared with 6.5% ($41.8 million) for the same period in 1993. During 1994 the Company incurred a charge of $16.7 million to write-down certain properties held for sale to their net realizable value and to reduce the carrying value of certain technologically obsolete -21- and inoperable equipment. Without giving effect to this nonrecurring charge, income from operations in 1994 would have been 8.7% ($75.1 million), an increase of 2.2 percentage points as compared to 1993, and was principally attributable to the aforementioned improvement in gross margin. Income from operations as a percentage of net sales for the metal container business (without giving effect to the $7.2 million charge to write-down the carrying value of certain assets) increased 1.0% to 10.2% ($67.0 million) during 1994 as compared to 1993, principally due to operating synergies realized from the acquisition of DM Can and lower per unit manufacturing costs incurred as a result of higher production volumes in 1994. Income from operations as a percentage of net sales attributable to the plastic container business (without giving effect to the $9.5 million charge to write-down the carrying value of certain assets) in 1994 was 4.6% ($9.4 million), as compared to 0.3% ($0.6 million) in 1993. The improved operating performance of the plastic container business resulted from production efficiencies realized as a result of rationalizations and capital investment made in prior periods, and lower unit manufacturing costs. Interest expense, including amortization of debt financing costs, increased by approximately $11.5 million to $65.8 million for the year ended December 31, 1994. This increase resulted from the incurrence of additional bank borrowings to finance the acquisition of DM Can, higher average bank borrowing rates, higher accretion of interest on the Discount Debentures and increased charges for the amortization of debt financing costs. The provisions for income taxes for the years ended December 31, 1994 and 1993 were comprised of federal, state and foreign income taxes currently payable. The increase in the provision for income taxes in 1994 reflects an increase in federal income taxes currently payable. During 1994, the Company fully utilized its alternative minimum tax net operating loss carryovers and, therefore, was subject to tax at the rate of 20% on its alternative minimum taxable income. Without the benefit of its alternative minimum tax net operating loss carryovers, the Company expects that its provision for federal income taxes payable in 1995 will approximate $10 million (assuming redemption of the Discount Debentures at maturity) and increase annually thereafter. As a result of the items discussed above, the net loss for the year ended December 31, 1994 was $13.0 million, $1.4 million less than the loss before extraordinary charges and cumulative effect of changes in accounting principles for the year ended December 31, 1993 of $14.4 million. In conjunction with the acquisition of DM Can in 1993, the Company incurred an extraordinary charge of $1.3 million for the early extinguishment of debt. Also, during 1993 the Company adopted SFAS No. 106, SFAS No. 109 and SFAS No. 112. The cumulative effect of these accounting changes, for years prior to 1993, was to decrease net income by $6.3 million. As a result of these charges, the net loss for 1993 was $22.0 million. Results of Operations - Pro Forma The following discussion sets forth the pro forma results of operations of the Company for the year ended December 31, 1995 as compared to the year ended December 31, 1994, after giving effect to the acquisition of AN Can as of the beginning of the periods presented. The following table sets forth, for the years ended December 31, 1995 and 1994, certain consolidated pro forma data. The pro forma data includes the historical results of the Company and AN Can and reflects the effect of purchase accounting adjustments based on preliminary appraisals and valuations, the financing of the acquisition of AN Can, the refinancing of certain of the Company's debt obligations, and certain other adjustments as if these events occurred as of the beginning of the periods presented. The pro forma adjustments -22- are based upon available information and upon certain assumptions that the Company believes are reasonable. The purchase price allocation will be finalized within one year of the closing of the acquisition of AN Can and may differ from that used for the pro forma data. Differences between actual and preliminary valuations will cause adjustments to the AN Can purchase price allocation. Estimated items subject to change include employee benefit costs and termination costs associated with plant rationalizations and administrative workforce reductions and other plant exit costs. The unaudited pro forma combined financial data do not purport to represent what the Company's financial position or results of operations would actually have been had these transactions in fact occurred on the dates or at the beginning of the periods indicated, or to project the Company's financial position or results of operations for any future date or period. This discussion should be read in conjunction with the discussion of historical results of operations of the Company for the years ended December 31, 1995 and 1994. Pro Forma --------- 1995 1994 ---- ---- (Dollars in millions) Net sales $1,404.4 $1,458.0 Income from operations 97.4(1) 63.0(2) Income (loss) before income taxes 8.7 (26.6) Net income (loss) 1.5 (29.3) - ----------------------------- (1) Included in pro forma income from operations for the year ended December 31, 1995 is a charge incurred by the Company of $14.7 million to adjust the carrying value of certain underutilized equipment to net realizable values. (2) Included in pro forma income from operations for the year ended December 31, 1994 are charges incurred by AN Can of $10.1 million for shut down costs necessary to realign the assets of the business more closely with the existing customer base, charges of $16.7 million related to Silgan and $7.1 million related to AN Can to adjust the carrying value of certain technologically obsolete and inoperable equipment to realizable value, and a charge of $26.7 million for the write-down of goodwill by AN Can. Without giving effect to the unusual items affecting pro forma income from operations as set forth above, pro forma income from operations would have been $112.1 million for the year ended December 31, 1995 as compared to $123.6 million in 1994. Management believes that pro forma income from operations in 1995 declined $11.5 million as compared to the prior year primarily as a result of lower demand in 1995 for vegetable pack containers. Excluding the unusual items referred to above, pro forma net income would have been $11.7 million for the year ended December 31, 1995, $6.8 million lower than in 1994. Management believes that this decline resulted from reduced demand for vegetable pack containers as referred to above. Capital Resources and Liquidity The Company's liquidity requirements arise primarily from its obligations under the indebtedness incurred in connection with its acquisitions and the refinancing of such indebtedness, capital investment in new and existing equipment and the funding of the Company's seasonal working capital needs. Historically, the Company has met these liquidity requirements through cash flow generated from operating activities and working capital borrowings. As described below, beginning in December 1996 the Company's liquidity requirements will also be affected by the interest associated with Holdings' indebtedness. On August 1, 1995, Silgan, Containers and Plastics entered into a $675.0 million credit facility with various banks to finance the acquisition by Containers of AN Can, to refinance and repay in full all amounts -23- owing under the 1993 Credit Agreement and the Secured Notes and to make non-interest bearing advances to Holdings in an amount not to exceed $75.0 million for the repurchase of a portion of the Discount Debentures. The Credit Agreement provides the Company with $225.0 million of A term loans, $225.0 million of B term loans and a working capital facility which will provide the Company with borrowing availability of up to $225.0 million. With the proceeds received from the Credit Agreement, the Company (i) repaid $117.1 million of term loans under the 1993 Credit Agreement, (ii) repaid in full $50.0 million of its Secured Notes, (iii) acquired from ANC substantially all of the fixed assets and working capital of AN Can for $348.8 million (excluding $15.2 million for the St. Louis operations which the Company expects to purchase by mid-1996), and (iv) incurred debt issuance costs of $19.3 million. The Credit Agreement provides the Company with improved financial flexibility by (i) enabling Silgan to transfer funds to Holdings for payment by Holdings of cash interest on the Discount Debentures, (ii) extending the maturity of the Company's secured debt facilities until December 31, 2000, (iii) lowering the interest rate spread on its floating rate borrowings by 1/2%, as well as providing for further interest rate reductions in the event the Company attains certain financial targets, and (iv) lowering the Company's average cost of indebtedness by permitting the repurchase of up to $75.0 million of Holdings Discount Debentures with borrowings under the Credit Agreement. The Credit Agreement permits Silgan, at any time prior to June 30, 1996, to borrow up to $75.0 million of working capital loans to fund the repurchase by Holdings of Discount Debentures. The commitment under the Credit Agreement for working capital loans was initially $150.0 million, and increased at the time and by the amount of any such advances made by Silgan. During 1995, Silgan advanced $57.6 million to Holdings for the repurchase by Holdings of a portion of its outstanding Discount Debentures, thereby increasing the commitment under the revolving credit facility to $207.6 million by year end. Silgan may fund further advances to Holdings of up to $17.4 million through borrowings of working capital loans to enable Holdings to make additional repurchases of Discount Debentures prior to June 30, 1996. During 1995, cash generated from operations of $209.6 million (including cash of $112.0 million generated by AN Can since August 1, 1995), proceeds of $3.5 million realized from the sale of assets and a decrease of $0.6 million in cash balances were used to repay $142.8 million of working capital borrowings used to fund the acquisition of AN Can, fund capital expenditures of $51.9 million, repay $9.7 million of term loans and $5.5 million of working capital loans, and make payments to former shareholders of $3.8 million in full settlement of outstanding litigation. The Company's earnings before depreciation, interest, taxes and amortization ("EBDITA") for the year ended December 31, 1995 increased by $17.9 million to $132.4 million as compared to 1994. The increase in EBDITA reflected the generation of additional cash earnings from AN Can since its acquisition on August 1, 1995, offset by a decline in the cash earnings of the Company's existing business principally as a result of lower unit volume due to the below normal 1995 vegetable pack. For the year ended December 31, 1995, the operating cash flow of the Company increased significantly from the prior year due to the generation of cash by AN Can since its acquisition on August 1, 1995 and the adoption by Silgan of similar year-end vendor payment terms to those of AN Can. At December 31, 1995, the trade receivable balance of AN Can was $44.2 million ($90.2 million on August 1, 1995), the inventory balance was $98.9 million ($137.9 million on August 1, 1995), and the trade payables balance was $58.2 million ($64.2 million on August 1, 1995). During 1994, cash generated from operations of $47.3 million along with working capital borrowings of $10.4 million were used to fund capital expenditures of $27.9 million (net of proceeds of $1.3 million), make mandatory debt repayments of $20.5 million, pay $6.9 million to former shareholders of Silgan in partial settlement of outstanding litigation and increase cash balances by $2.4 million. -24- On December 21, 1993, Silgan, Containers and Plastics entered into the 1993 Credit Agreement to finance the acquisition of DM Can and to refinance and repay in full all amounts owing under the Company's previous credit agreement. In conjunction therewith, the banks loaned the Company $60.0 million of A term loans, $80.0 million of B term loans and $29.8 million of working capital loans. In addition, Holdings issued and sold 250,000 shares of its Class B Common Stock for $15.0 million. With these proceeds, the Company (i) repaid $41.5 million of term loans and $60.8 million of working capital loans under its previous credit agreement; (ii) acquired from Del Monte substantially all the fixed assets and certain working capital of Del Monte's container manufacturing business for approximately $73 million; and (iii) paid fees and expenses of $8.9 million. For 1993, the Company used cash generated from operations of $48.1 million and available cash balances of $2.7 million to fund capital expenditures of $42.5 million, repay working capital loans of $7.2 million (in addition to working capital loans which were repaid with proceeds from the Credit Agreement), and pay $1.1 million of term loans. During the year, the Company increased its annual amount of capital spending in order to reduce costs and to add incremental production capacity. The increase in inventory at December 31, 1993 as compared to the prior year principally resulted from the inventory acquired as part of the acquisition of DM Can. Because the Company sells metal containers used in vegetable and fruit processing, its sales are seasonal. As a result, a significant portion of the Company's revenues are generated in the first nine months of the year. As is common in the packaging industry, the Company must access working capital to build inventory and then carry accounts receivable for some customers beyond the end of the summer and fall packing season. Seasonal accounts are generally settled by year end. The acquisition of AN Can increased Silgan's seasonal metal containers business, and as a result the Company increased the amount of working capital loans available to it under its credit facility to $225.0 million. Due to the Company's seasonal requirements, the Company expects to incur short term indebtedness to finance its working capital requirements, and it is estimated that approximately $185 million of the working capital revolver, including letters of credit, will be utilized at its peak in July 1996. As of December 31, 1995, the outstanding principal amount of working capital loans was $7.1 million and, subject to a borrowing base limitation and taking into account outstanding letters of credit, the unused portion of working capital commitments at such date was $193.9 million. In addition to its operating cash needs, the Company's cash requirements over the next several years consist primarily of (i) annual capital expenditures of $45.0 to $55.0 million, (ii) scheduled principal amortization payments of term loans under the Credit Agreement of $27.3 million, $37.3 million, $52.3 million, $52.3 million and $102.5 million over the next five years, respectively, (iii) expenditures of approximately $30.0 million over the next three years associated with plant rationalizations and administrative workforce reductions, other plant exit costs and employee relocation costs of AN Can, (iv) the Company's interest requirements, including interest on working capital loans, the principal amount of which will vary depending upon seasonal requirements, and the term loans, all of which bear fluctuating rates of interest, the 11-3/4% Notes and semi-annual cash interest payments of up to $14.1 million (which amount may be reduced depending upon the amount of Discount Debentures repurchased or redeemed by Holdings) on the Discount Debentures commencing in December 1996, and (v) payments of approximately $10.0 million for federal and state tax liabilities in 1996 (assuming the redemption of the remainder of the Discount Debentures at maturity) and increasing annually thereafter. Interest on the Discount Debentures is payable at a rate of 13-1/4% per annum from and after June 15, 1996, and commencing on December 15, 1996 semi-annual interest payments of up to $14.1 million will be required to be made thereon. Since Holdings' only asset is its investment in Silgan, its ability to pay interest -25- on the Discount Debentures on and after December 15, 1996 (the date on which interest is first payable on the Discount Debentures) may depend upon its receipt of funds paid by dividend or otherwise loaned, advanced or transferred by Silgan to Holdings. While Silgan has no legal obligation to make such funds available, it is expected that Silgan will do so if it then has sufficient funds available for such purpose. If sufficient funds to pay such interest are not generated by the operations of Silgan's subsidiaries, Silgan or Holdings may seek to borrow or otherwise finance the amount of such payments or refinance the Discount Debentures. Neither the Indenture for the 11-3/4% Notes nor the Credit Agreement limits the ability of Silgan to pay cash dividends to Holdings in order to enable Holdings to pay interest on the Discount Debentures. The funding requirements of Holdings to service its indebtedness (beginning in December 1996) will be met by Silgan through cash generated by operations or borrowings or by Holdings through refinancings of its existing indebtedness or additional debt or equity financings. In addition to any financing effected as described above, the Company may consider refinancing all or any part of its indebtedness through other debt financings and/or equity financings, including a public offering of equity. Any such financings would depend upon the market conditions existing at the time and would have to be effected in compliance with the Company's agreements in respect of its indebtedness. The Discount Debentures represent "applicable high yield discount obligations" ("AHYDOs") within the meaning of Section 163(i) of the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, the tax deduction which would otherwise be available to Holdings in respect of the accretion of interest on the Discount Debentures during their noncash interest period ending June 15, 1996 (approximately $85.0 million) has been and will continue to be deferred, which, in turn, will increase the taxable income of Holdings and reduce the after-tax cash flows of Holdings. However, as a result of Holdings' utilization of its net operating loss carryforward, which, as of December 31, 1995, amounts to approximately $100 million for regular federal income tax purposes, the effect of such deferral on the regular federal income taxes of Holdings has been and will continue to be mitigated until such net operating loss carryforward is fully utilized. In 1993, Holdings became subject to alternative minimum tax ("AMT") and, due to the utilization of its AMT net operating loss carryforwards, incurred an AMT liability at a rate of 2%. In 1994, Holdings fully utilized its AMT loss carryforward. Accordingly, in 1995 Holdings incurred, and thereafter Holdings will incur, an AMT liability at a rate of 20% (or the applicable rate then in effect). The AMT paid is allowed (subject to certain limitations) as an indefinite credit carryover against Holdings' regular tax liability in the future when and if Holdings' regular tax liability exceeds the AMT liability. The deferred accreted interest on the Discount Debentures will not be deductible until the redemption, retirement or other repayment of the Discount Debentures (other than with stock or debt of Holdings or a related party). During 1995, Holdings repurchased $61.7 million face amount of Discount Debentures, providing Holdings with an allowable deduction of approximately $18.0 million for the amount of interest accreted on such indebtedness. Until the deferred accreted interest is deductible, except to the extent the net operating loss carryforward is available, Holdings will realize taxable income sooner and in a greater amount than if the deferred accreted interest on the Discount Debentures were deductible as it accretes. Depending upon its tax position and financial condition and the benefit which may be available through the deduction of the deferred accreted interest, Holdings could decide in the future to refinance the Discount Debentures or a portion thereof prior to their stated maturity date. In such event, the full amount of the deferred accreted interest (applicable to the Discount Debentures retired) should be deductible under the carryback and carryforward rules under the Code unless the holders of the Discount Debentures receive stock or debt of Holdings or a related party in exchange for the Discount Debentures. No assurance can be given that Holdings will be able to refinance the Discount Debentures at such time; however, management believes that application of the AHYDO rules will not have a material adverse effect on Holdings' financial condition or ability to repay the Discount Debentures. In addition, the IRS has broad authority to issue regulations under the AHYDO rules -26- with retroactive effect to prevent the avoidance of the purposes of those rules through agreements to borrow amounts due under a debt instrument or other arrangements, and thus these regulations, when issued, may affect the timing or availability of the tax deductions for original issue discount on the Discount Debentures. Management believes that cash generated by operations and funds from working capital borrowings under the Credit Agreement will be sufficient to meet the Company's expected operating needs, planned capital expenditures and debt service requirements for the foreseeable future. The Credit Agreement and the indentures relating to the 11-3/4% Notes and the Discount Debentures each contain restrictive covenants that, among other things, limit the Company's ability to incur debt, sell assets and engage in certain transactions. Management does not expect these limitations to have a material effect on the Company's business or results of operations. The Company is in compliance with all financial and operating covenants contained in such financing agreements and believes that it will continue to be in compliance during 1996 with all such covenants. Effect of Interest Rate Fluctuations and Inflation Historically, inflation has not had a material effect on the Company, other than to increase its cost of borrowing. In general, the Company has been able to increase the sales prices of its products to reflect any increases in the prices of raw materials. Because the Company has indebtedness which bears interest at floating rates, the Company's financial results will be sensitive to changes in prevailing market rates of interest. As of December 31, 1995, the Company had $786.1 million of indebtedness outstanding, of which $449.9 million was indebtedness bearing interest at floating rates. To mitigate the effect of interest rate fluctuations, the Company entered into interest rate swap agreements during the first quarter of 1996 whereby floating rate interest was exchanged for fixed rates of interest ranging from 8.1% to 8.6%. The notional principal amounts of these agreements totaled $100.0 million and mature in the year 1999. Depending upon market conditions, the Company may enter into additional interest rate swap agreements or other interest rate hedge agreements (with counterparties that, in the Company's judgment, have sufficient creditworthiness) during 1996 to hedge its exposure against interest rate volatility. New Accounting Pronouncements Long-Lived Asset Impairment. In March 1995, the Financial Accounting Standard Board ("FASB") issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of", effective for the 1996 fiscal year. As required by SFAS No. 121, impairment losses will be recognized when events or changes in circumstances indicate that the fair value of identifiable assets is less than the carrying amount. In making such a determination, the Company will compare the undiscounted cash flows generated by specific assets to the carrying value of such assets. The Company will adopt SFAS No. 121 in 1996 and believes the effect of adoption of SFAS No. 121 will not be material. See Note 5 to the Consolidated Financial Statements of the Company included elsewhere in this Annual Report on Form 10-K. Stock-Based Compensation. In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation", effective for the 1996 fiscal year. Under SFAS No. 123, compensation expense for all stock-based compensation plans would be recognized based on the fair value of the options at the date of grant using an option pricing model. As permitted under SFAS No. 123, the Company may either adopt the new pronouncement or follow the current accounting methods as prescribed under APB No. 25. The Company does not intend to adopt SFAS No. 123 for expense recognition purposes in 1996. See Note 15 to the Consolidated Financial Statements of the Company included elsewhere in this Annual Report on Form 10-K. -27- Item 8. Financial Statements and Supplementary Data. See Item 14 below for a listing of financial statements and schedules included therein. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. -28- PART III Item 10. Directors and Executive Officers of the Registrant. Directors and Executive Officers of Holdings The current directors and executive officers of Holdings and their respective ages, positions and principal occupations, five-year employment history and other directorships held are furnished below: Age at March 15, Five-Year Employment Name and Position 1996 History and Other Directorships Held ----------------- -------- ------------------------------------ R. Philip Silver 53 Prior to forming S&H, Inc. Chairman of the Board ("S&H") in 1987, President of and Co-Chief Continental Can Company from Executive Officer of June 1983 to August 1986; Holdings and Silgan consultant to packaging industry since March 1994; from August 1986 to August 1987; formerly President of Vice Chairman of the Board and Holdings and Silgan; Director of Sweetheart Holdings Director of Holdings Inc. and Sweetheart Cup Company, since April 1989 and Inc. from September 1989 to of Silgan since August January 1991; Chairman of the 1987; Chairman of the Board and Director of Sweetheart Board of Plastics since Holdings Inc. and Sweetheart Cup March 1994; Director Company, Inc. from January 1991 of Containers and through August 1993; Director, Plastics since August Johnstown America Corporation. 1987. D. Greg Horrigan 52 Prior to forming S&H in 1987, President and Co- Executive Vice President and Chief Executive Operating Officer of Continental Can Officer of Holdings Company from 1984 to 1987; and Silgan since Chairman of the Board and Director March 1994; formerly of Sweetheart Holdings Inc. and Chairman of the Board Sweetheart Cup Company, Inc. from of Holdings and September 1989 to January 1991; Silgan; Director of Vice Chairman of the Board and Holdings since April Director of Sweetheart Holdings Inc. 1989 and of Silgan and Sweetheart Cup Company, Inc. since August 1987; from January 1991 Chairman of the Board through August 1993. of Containers since August 1987; Director of Containers and Plastics since August 1987. -29- Age at March 15, Five-Year Employment Name and Position 1996 History and Other Directorships Held ----------------- -------- ------------------------------------ James S. Hoch 35 Executive Director of Morgan Director, Vice Stanley & Co., Ltd. since 1994; President and Assistant Principal of Morgan Stanley & Co. Secretary of Holdings Incorporated since 1993; Vice since January 1991; President of Morgan Stanley & Co. Director of Silgan Incorporated from 1991 to 1993 since January 1991; and of MSLEF II since 1991. Vice President and Director of Sullivan Assistant Secretary of Communications, Inc., Sullivan Silgan since 1987; Graphics, Inc., Nokia Aluminium Director, Vice Oy, Kabelmedia GmbH and Sita President and Assistant Telecommunications Holdings Secretary of N.V. Containers since January 1991; Director, Vice President and Assistant Secretary of Plastics since January 1991. Robert H. Niehaus 40 Managing Director of Morgan Vice President, Stanley & Co. Incorporated since Assistant Secretary January 1, 1990; joined Morgan and Director of Stanley & Co. Incorporated in Holdings since April 1982. Vice President and Director 1989; Vice President, of MSLEF II, Inc. since January Assistant Secretary 1990; Vice Chairman and Director and Director of Silgan of MSCP III since January 1994. since August 1987; Director of American Italian Pasta Vice President, Company, Fort Howard Assistant Secretary Corporation, PSF Finance and Director of Holdings, Inc., Randall's Food Containers and Markets, Inc. and Waterford Plastics since August Crystal Ltd., and Chairman of 1987. Waterford Wedgewood UK plc. Harley Rankin, Jr. 56 Prior to joining the Company, Executive Vice Senior Vice President and Chief President and Chief Financial Officer of Armtek Financial Officer of Corporation; prior to Armtek Holdings since April Corporation, Vice President and 1989; Treasurer of Chief Financial Officer of Holdings since January Continental Can Company from 1992; Executive Vice November 1984 to August 1986. President and Chief Vice President, Chief Financial Financial Officer of Officer and Treasurer of Silgan since January Sweetheart Holdings Inc. and Vice 1989; Treasurer of President of Sweetheart Cup Silgan since January Company, Inc. from September 1992; Vice President 1989 to August 1993. of Containers and Plastics since January 1989; Treasurer of Plastics from January 1994 to December 1994. -30- Age at March 15, Five-Year Employment Name and Position 1996 History and Other Directorships Held ----------------- -------- ------------------------------------ Harold J. Rodriguez, Jr. 40 Employed by Ernst & Young from Vice President of 1978 to 1987, last serving as Senior Holdings and Silgan Manager specializing in taxation. since March 1994; Controller, Assistant Secretary and Vice President of Assistant Treasurer of Sweetheart Containers and Holdings Inc. and Assistant Plastics since March Secretary and Assistant Treasurer of 1994; Controller and Sweetheart Cup Company, Inc. from Assistant Treasurer of September 1989 to August 1993. Holdings and Silgan since March 1990; Assistant Controller and Assistant Treasurer of Holdings from April 1989 to March 1990; Assistant Controller and Assistant Treasurer of Silgan from October 1987 to March 1990. Glenn A. Paulson 52 Employed by ANC from January Vice President of 1990 to July 1995, last serving as Holdings and Silgan Senior Vice President and General since January 1996; Manager, Food Metal and employed by Specialty, North America; prior to Containers to manage ANC, President of the beverage the ANC transition packaging operations of from August 1995 to Continental Can Company. December 1995. Management of Metal Container Business In addition to the persons listed under "--Directors and Executive Officers Holdings" above, the following are the principal executive officers of Containers: Age at March 15, Five-Year Employment Name and Position 1996 History and Other Directorships ----------------- -------- ------------------------------- Held ---- James D. Beam 53 Vice President - Marketing & Sales of President and a Containers from September 1987 to July non-voting 1990; Vice President and General Director of Manager of Continental Can Company, Containers since Western Food Can Division, from July 1990. March 1986 to September 1987. Gerald T. Wojdon 60 General Manager of Manufacturing of Vice President - the Can Division of The Carnation Operations and Company from August 1982 to August Assistant 1987. Secretary of Containers since September 1987. -31- Age at March 15, Five-Year Employment Name and Position 1996 History and Other Directorships ----------------- -------- ------------------------------- Held ---- Gary M. Hughes 53 Vice President, Sales and Marketing of Vice President - the Beverage Division of Continental Sales & Can Company from February 1988 to Marketing of July 1990; prior to February 1988, was Containers since employed by Continental Can in various July 1990. regional sales positions. Dennis Nerstad 58 Vice President of Containers from Vice President - December 1993 to June 1994. Vice Production President - Distribution and Container Services of Manufacturing of Del Monte from Containers since August 1989 to December 1993; July 1994. Director of Container Manufacturing of Del Monte from November 1983 to July 1989; prior to 1983, employed by Del Monte in various regional and plant positions. Joseph A. Heaney 43 Controller, Food Metal and Specialty Vice President - Division of ANC from September 1990 Finance of to October 1995. From August 1977 to Containers since August 1990, employed by ANC and October 1995. American Can Company in various divisional, regional and plant finance/accounting positions. Management of Plastic Container Business In addition to the persons listed under "--Directors and Executive Officers of Holdings" above, the following are the principal executive officers of Plastics: Age at March 15, Five-Year Employment Name and Position 1996 History and Positions ----------------- -------- ----------------------- Russell F. Gervais 52 President and Chief Executive President and non- Officer of Aim Packaging, Inc. from voting Director of March 1984 to September 1989. Plastics since December 1992; Vice President - Sales & Marketing of Plastics from September 1989 until December 1992. -32- Howard H. Cole 50 Manager of Personnel of Monsanto Vice President and Engineered Products Division of the Assistant Secretary of Monsanto Company from April 1986 Plastics since to September 1987. September 1987. Charles Minarik 58 President of Wheaton Industries Vice President - Plastics Group from February 1991 Operations and to August 1992; Vice President - Commercial Marketing of Constar International, Development of Inc. from March 1983 to February Plastics since May 1991. 1993. Alan H. Koblin 44 Vice President of Churchill Vice President - Sales Industries from 1990 to 1992. & Marketing of Plastics since 1994, Director of Sales & Marketing of Plastics from 1992 to 1994. Colleen J. Jones 36 Audit Manager, Arthur Young & Vice President - Company from July 1982 to July Finance and Chief 1989. Financial Officer of Plastics since December 1994, Assistant Secretary of Plastics since November 1993, Corporate Controller of Plastics from October 1993 to December 1994, Manager - Finance of Plastics from July 1989 to October 1993. Item 11. Executive Compensation. The following table sets forth information concerning the annual and long term compensation for services rendered in all capacities to the Company during the fiscal years ended December 31, 1995, 1994 and 1993 of those persons who at December 31, 1995 were (i) the Chief Executive Officer of Holdings and (ii) the other four most highly compensated executive officers of Holdings and its subsidiaries. No director of Holdings or its subsidiaries receives any compensation for serving as a director of Holdings or its subsidiaries. See "Certain Transactions--Management Agreements." -33- Summary Compensation Table
Long-Term Annual Compensation Compensation ------------------------------------------- ------------ Awards ------ Other Securities Annual Underlying Stock All Other Name and Principal Position Year Salary Bonus Compensation Options/SARs Compensation - --------------------------- ---- ------------ ----------- ------------ --------------- --------------- R. Philip Silver 1995 $1,830,000 - - - - (Chairman of the Board and 1994 1,684,135 - - - - Co-Chief Executive Officer of 1993 1,608,799 - - - - Holdings and Silgan and Chairman of the Board of Plastics) D. Greg Horrigan 1995 1,830,000 - - - - (President and Co-Chief 1994 1,684,135 - - - - Executive Officer of Holdings 1993 1,608,799 - - - - and Silgan and Chairman of the Board of Containers) Harley Rankin, Jr. 1995 408,978 - - - - (Executive Vice President, 1994 384,930 - - 6,000 - Chief Financial Officer and 1993 347,598 - - - - Treasurer of Holdings and Silgan and Vice President of Containers and Plastics) James D. Beam 1995 361,200 - - - $66,394 (President of Containers) 1994 350,000 $169,092 - - 94,175 1993 239,949 65,277 - - 24,883 Russell F. Gervais 1995 226,000 59,000 - - 5,085 (President of Plastics) 1994 216,804 83,300 - 600 - 1993 210,000 - - - - - ------------------- The compensation of Messrs. Horrigan, Silver, Rankin and Rodriguez reflects amounts as earned and was paid by S&H. Such persons received no direct compensation from Holdings, Silgan or their respective subsidiaries. See "Certain Transactions--Management Agreements." The salaries of Messrs. Beam and Gervais were paid by Containers and Plastics, respectively. Bonuses of Messrs. Beam and Gervais were earned by them in such year and paid in the following year, pursuant to the Silgan Containers Corporation Performance Incentive Plan and the Silgan Plastics Corporation Incentive Plan, respectively. Under such plans, executive officers and other key employees of Containers and Plastics may be awarded cash bonuses provided that such company achieves certain assigned financial targets. Reflects options to purchase shares of Holdings Class C Stock granted under the Silgan Holdings Inc. Third Amended and Restated 1989 Stock Option Plan (the "Holdings Plan") in the case of Mr. Rankin, and options to purchase, and tandem SARs relating to, shares of Plastics' common stock granted under the Silgan Plastics Corporation 1994 Stock Option Plan (the "Plastics Plan") in the case of Mr. Gervais. Such options and tandem SARs are exercisable ratably over a five-year period beginning on January 1, 1995. In the case of Mr. Beam, includes for 1995 and 1994 amounts contributed under the Silgan Containers Corporation Supplemental Executive Retirement Plan (the "Supplemental Plan") and used to pay premiums for split-dollar life insurance for Mr. Beam maintained in conjunction with the Supplemental Plan and includes amounts contributed by Containers under the Silgan Containers Corporation Deferred Incentive Savings Plan. In the case of Mr. Gervais, includes amounts allocated to Mr. Gervais under the Silgan Plastics Corporation Contributory Retirement Plan.
-34-
OPTION/SAR VALUES AT DECEMBER 31, 1995 -------------------------------------- Value of Unexercised Number of Securities Underlying in-the-Money Unexercised Options/SARs at Options/SARs at December 31, 1995 December 31, 1995 ----------------- ----------------- Name Exercisable Unexercisable Exercisable Unexercisable ---- ----------- ------------- ----------- ------------- R. Philip Silver..................... -- -- -- -- D. Greg Horrigan..................... -- -- -- -- Harley Rankin, Jr. .............. 12,400 3,600 $250,000 -- James D. Beam ............... 480 -- 918,601 -- Russell F. Gervais .............. 240 360 -- -- - ------------------- Options are for shares of Holdings Class C Stock. Value is determined based upon the excess of the fair market value of Holdings Class C Stock (determined based on the most recent sale by Holdings of its stock) over the exercise price. The most recent sale by Holdings of its stock closed in December 1993 and was of Holdings Class B Stock. See "Business--Company History" and "Security Ownership of Certain Beneficial Owners and Management--Description of Holdings Common Stock." Such value may not be indicative of the value of Holdings Class B Stock on the date hereof or of Holdings Class C Stock. In the event of a public offering by Holdings, value would be based upon fair market value as determined under the Holdings Plan. Options are for, and tandem SARs relate to, shares of Containers' common stock. As of December 31, 1995, 13,754 shares of Containers' common stock are issued and outstanding and an additional 1,200 shares of Containers' common stock are authorized for issuance under the Silgan Containers Corporation Second Amended and Restated 1989 Stock Option Plan (the "Containers Plan"). Value is determined based upon the excess of the book value of Containers' common stock from the date of grant, less the portion of parent debt allocable to Containers, over the exercise price. In the event of a public offering by Holdings or a change of control of Holdings, such options and tandem SARs would be converted into options and tandem SARs under the Holdings Plan as provided in the Containers Plan, and value would be based on fair market value as determined under the Holdings Plan. 240 options and tandem SARs were granted in June 1989 under the Containers Plan and an additional 240 options and tandem SARs were granted in July 1990 under the Containers Plan. The book value, as computed under the Containers Plan, for the shares underlying the options and tandem SARs exceeds the exercise price therefor. Options are for, and tandem SARs relate to, shares of Plastics' common stock. As of December 31, 1995, 13,800 shares of Plastics' common stock are issued and outstanding and an additional 1,200 shares of Plastics' common stock are authorized for issuance under the Plastics Plan. The options and related SARs are not exercisable until a public offering by Holdings or a change of control of Holdings shall have occurred. At the time of such public offering or change of control, such options and tandem SARs would be converted into options and tandem SARs under the Holdings Plan as provided in the Plastics Plan, and value would be based upon the fair market value of such options and tandem SARs as determined under the Holdings Plan.
Pension Plans The Company has established pension plans (the "Pension Plans") covering substantially all of the salaried employees of Containers and Plastics, respectively, including the executive officers (the "Containers Pension Plan" and the "Plastics Pension Plan," respectively). The Pension Plans are defined benefit plans intended to be qualified pension plans under Section 401(a) of the Code, under which pension costs are determined annually on an actuarial basis with contributions made accordingly. The following table illustrates the estimated annual normal retirement benefits that are payable under the Containers Pension Plan. Such benefit levels assume retirement at age 65, the years of service shown, -35- continued existence of the Containers Pension Plan without substantial change and payment in the form of a single life annuity. Containers Pension Plan Table -----------------------------
Years of Service Final Average ------------------------------------------------------------------------------------------------------------------ Earnings 10 15 20 25 30 35 - ------------- --------------- -------------- -------------- -------------- -------------- -------------- $ 50,000 $ 7,130 $ 10,640 $ 14,260 $ 17,830 $ 21,390 $24,960 75,000 11,510 17,260 23,010 28,760 34,520 40,270 100,000 15,880 23,820 31,760 39,700 47,640 55,580 125,000 20,260 30,380 40,510 50,640 60,770 70,890 150,000 24,630 36,950 49,260 61,580 73,890 86,210 175,000 29,010 43,510 58,010 72,510 87,020 101,520 200,000 33,380 50,070 66,760 83,450 100,140 116,830 225,000 37,760 56,630 75,510 94,390 113,270 132,140
Benefits under the Containers Pension Plan are based on the participant's average base pay (the "Salary" column in the Summary Compensation Table) over the final three years of employment. The amount of average base pay taken into account for any year is limited by Section 401(a)(17) of the Code, which imposes a cap of $150,000 (to be indexed for inflation) on compensation taken into account for 1994 and later years (the limit for 1993 was $235,840). As of December 31, 1995, the years of credited service under the Containers Pension Plan for the eligible executive officer named in the Summary Compensation Table is as follows: James D. Beam, 8. Mr. Beam also participates in the Supplemental Plan, which is designed to make up for benefits not payable under the Containers Pension Plan due to Internal Revenue Code limitations. Mr. Beam's benefits under the Supplemental Plan are funded through a split-dollar life insurance policy; income attributable to this life insurance policy is included in the "All Other Compensation" column of the Summary Compensation Table. The following table illustrates the estimated annual normal retirement benefits that are payable under the Plastics Pension Plan. Such benefit levels assume retirement age at 65, the years of service shown, continued existence of the Plastics Pension Plan without substantial change and payment in the form of a single life annuity. Plastics Pension Plan Table ---------------------------
Years of Service Final Average ------------------------------------------------------------------------------------------------------------------ Earnings 10 15 20 25 30 35 - ------------- -------------- -------------- -------------- -------------- -------------- -------------- $ 50,000 $ 7,000 $ 10,550 $ 14,000 $ 17,500 $ 21,000 $ 24,500 75,000 10,500 15,750 21,000 26,250 31,500 36,750 100,000 14,000 21,000 28,000 35,000 42,000 49,000 125,000 17,500 26,250 35,000 43,750 52,500 61,250 150,000 21,000 31,500 42,000 52,500 63,000 73,950 175,000 24,500 36,750 49,000 61,250 73,950 87,075 200,000 28,000 42,000 56,000 70,200 85,200 100,200 225,000 31,500 47,250 63,000 79,575 96,450 113,325
Benefits under the Plastics Pension Plan are based on the participant's average total cash compensation (the "Salary" and "Bonus" columns in the Summary Compensation Table) over the final 36 months of -36- employment or over the highest three of the final five calendar years of employment, which ever produces the greater average compensation. In computing the average, compensation for any year cannot exceed 125% of base pay. Compensation used in determining benefits is also limited by Section 401(a)(17) of the Code, which imposes a cap of $150,000 (to be indexed for inflation) on compensation taken into account for 1994 and later years (the limit for 1993 was $235,840). Benefits under the Plastics Pension Plan may be offset by a social security amount (the plan provides benefits based on the greater of three formulas, only one of which provides for a social security offset). Each of the benefit estimates in the above table is based on the formula that produces the greatest benefit for individuals with the stated earnings and years of service. As of December 31, 1995, the years of credited service under the Plastics Pension Plan for the eligible executive officer named in the Summary Compensation Table is as follows: Russell F. Gervais, 6. Certain Employment Agreements Certain executive officers and other key employees of Containers and Plastics (including Messrs. Beam and Gervais) have executed employment agreements. The initial term of each such employment agreement is generally three years from its effective date and is automatically extended for successive one year periods unless terminated pursuant to the terms of such agreement. Generally, these employment agreements provide for, among other things, a minimum severance benefit equal to base salary and benefits for, in most cases, a period of one year (or the remainder of the term of the agreement, if longer) (i) if the employee is terminated by his employer for any reason other than disability or for cause as specified in the agreement or (ii) if the employee voluntarily terminates employment due to a demotion and, in some cases, significant relocation, all as specified in the agreement. The foregoing summaries of the various benefit plans and agreements of the Company are qualified by reference to such plans and agreements, copies of certain of which have been filed as exhibits to this Annual Report on Form 10-K. Item 12. Security Ownership of Certain Beneficial Owners and Management. Certain Beneficial Owners of Holdings' Capital Stock The following table sets forth, as of March 15, 1996, certain information with respect to the beneficial ownership by certain persons and entities of outstanding shares of capital stock of Holdings: -37-
Number of Shares of Each Class of Percentage Ownership of Holdings Common Stock Owned Holdings Common Stock ---------------------------------- ------------------------------------------------------ Class A Class B Class C Class A Class B Class C Consolidated ------- ------- ------- ------- ------- ------- ---------------- R. Philip Silver ........... 208,750 -- -- 50% -- -- 19.24% D. Greg Horrigan ........... 208,750 -- -- 50% -- -- 19.24% James S. Hoch .............. -- -- -- -- -- -- -- Robert H. Niehaus .......... -- -- -- -- -- -- -- Harley Rankin, Jr. ......... -- -- 12,400 -- -- 18.08% -- James D. Beam .............. -- -- -- -- -- -- -- Russell F. Gervais ......... . -- -- -- -- -- -- -- The Morgan Stanley Leveraged Equity Fund II, L.P. ...... -- 417,500 -- -- 62.55% -- 38.48% Mellon Bank, N.A., as trustee for First Plaza Group Trust ... -- 250,000 -- -- 37.45% -- 23.04% All officers and directors as a group......................... 417,500 -- 18,600 100% -- 27.11% 38.48% - ------------------- This column reflects the percentage ownership of voting common stock that would exist if Holdings Class A Stock and Holdings Class B Stock were treated as a single class. Holdings Class C Stock generally does not have voting rights and is not included in the percentage ownership reflected in this column. See "Description of Holdings Common Stock" below. Director of Holdings and Silgan. Messrs. Silver and Horrigan are parties to a voting agreement pursuant to which they have agreed to use their best efforts to vote their shares as a block. The address for such person is 4 Landmark Square, Stamford, CT 06901. Director of Holdings and Silgan. The address for such person is c/o Morgan Stanley & Co. Incorporated, 1221 Avenue of the Americas, New York, NY 10020. The address for such person is 4 Landmark Square, Stamford, CT 06901. Reflects shares that may be acquired through the exercise of vested stock options granted pursuant to Silgan Holdings Inc. Third Amended and Restated 1989 Stock Option Plan. Options to purchase shares of common stock of Containers and tandem SARs have been granted to such person pursuant to the Containers Plan. Pursuant to the Containers Plan, such options may be converted into stock options of Holdings (and the Containers' common stock issuable upon exercise of such options may be converted into common stock of Holdings) in the event of a public offering of any of Holdings' common stock or a change of control of Holdings. The address for such person is 21800 Oxnard Street, Woodland Hills, CA 91367. Options to purchase shares of common stock of Plastics and tandem SARs have been granted to such person pursuant to the Plastics Plan. Pursuant to the Plastics Plan, such options may be converted into stock options of Holdings in the event of a public offering of any of Holdings' common stock or a change of control of Holdings. The address for such person is 14515 N. Outer Forty, Chesterfield, MO 63017. The address for The Morgan Stanley Leveraged Equity Fund II, L.P., is 1221 Avenue of the Americas, New York, NY 10020. The address for First Plaza Group Trust is c/o General Motors Investment Management Corporation, 767 Fifth Avenue, New York, NY 10153. Mellon Bank, N.A., acts as the trustee (the "Trustee") for First Plaza, a trust under and for the benefit of certain employee benefit plans of General Motors Corporation ("GM") and its subsidiaries. These shares may be deemed to be owned beneficially by General Motors Investment Management Corporation ("GMIMCo"), a wholly owned subsidiary of GM. GMIMCo is serving as First Plaza's investment manager with respect to these shares and in that capacity it has the sole power to direct the Trustee as to the voting and disposition of these shares. Because of the Trustee's limited role, beneficial ownership of the shares by the Trustee is disclaimed. -38- Bankers Trust New York Corporation beneficially owns 50,000 shares of Holdings Class C Stock.
See "Description of Holdings Common Stock" and "Description of the Holdings Organization Agreement" for additional information about the common stock of Holdings, the holders thereof and certain arrangements among them. Description of Holdings Common Stock Certain of the statements contained herein are summaries of the detailed provisions of the Restated Certificate of Incorporation of Holdings (the "Certificate of Incorporation") and are qualified in their entirety by reference to the Certificate of Incorporation, a copy of which is filed herewith. Under the Certificate of Incorporation, Holdings has authority to issue 500,000 shares of Holdings Class A Stock, 667,500 shares of Holdings Class B Stock and 1,000,000 shares of Holdings Class C Stock. Holdings has an aggregate of 1,135,000 shares of Holdings Common Stock outstanding as follows: (i) 417,500 shares of Holdings Class A Stock; (ii) 667,500 shares of Holdings Class B Stock; and (iii) 50,000 shares of Holdings Class C Stock. Except as described below, the rights, privileges and powers of Holdings Class A Stock and Holdings Class B Stock are identical, with each share of each class being entitled to one vote on all matters to come before the stockholders of Holdings. Until the occurrence of a Change of Control (as defined in the Certificate of Incorporation and as described below), the affirmative vote of the holders of not less than a majority of the outstanding shares of Holdings Class A Stock and Holdings Class B Stock, voting as separate classes, shall be required for the approval of any matter to come before the stockholders of Holdings, except that (i) the holders of a majority of the outstanding shares of Holdings Class A Stock, voting as a separate class, have the sole right to vote for the election and removal of three directors (the directors elected by the holders of Holdings Class A Stock being referred to herein as "Class A Directors"); (ii) the holders of a majority of the outstanding shares of Holdings Class B Stock, voting as a separate class, have the sole right to vote for the election and removal of all directors other than the Class A Directors (the directors elected by the holders of Holdings Class B Stock being referred to herein as "Class B Directors"); and (iii) the vote of not less than a majority of the outstanding shares of Holdings Class B Stock shall be required in certain circumstances set forth in the Certificate of Incorporation. The holders of Holdings Class C Stock have no voting rights except as provided by applicable law and except that such holders are entitled to vote as a separate class on certain amendments to the Certificate of Incorporation as provided therein. In the event Holdings sells shares of any class of its common stock to the public, the distinctions between Holdings Class A Stock and Holdings Class B Stock terminate, the powers, including voting powers, of Holdings Class A Stock and Holdings Class B Stock shall be identical upon compliance with certain provisions contained in the Certificate of Incorporation, and any Regulated Stockholder (generally defined to mean banks) will be entitled to convert all shares of Holdings Class C Stock held by such stockholder into the same number of shares of Holdings Class B Stock (or Holdings Class A Stock to the extent such Holdings Class C Stock was issued upon conversion of Holdings Class A Stock). After a Change of Control, the affirmative vote of the holders of not less than a majority of the outstanding shares of Holdings Class A Stock and Holdings Class B Stock, voting together as a single class, will be required for the approval of any matter to come before the stockholders of Holdings, except that the provisions described in clauses (i) and (ii) in the preceding paragraph shall continue to apply from and after a Change of Control, and except as otherwise provided in the Certificate of Incorporation with respect to its amendment. Also, after a Change of Control, the number of Class B Directors will be increased to five. In the event that a vacancy among the Class A Directors or the Class B Directors occurs at any time prior to the election of directors at the next scheduled annual meeting of stockholders, the vacancy shall be filled, in the case of the Class A Directors, by either (i) the vote of the holders of a majority of the outstanding shares of Holdings Class A Stock, at a special meeting of stockholders, or (ii) by written consent of the holders -39- of a majority of the outstanding shares of Holdings Class A Stock, and, in the case of the Class B Directors, by either (i) the vote of the holders of a majority of the outstanding shares of Holdings Class B Stock at a special meeting or stockholders, or (ii) by written consent of the holders of a majority of the outstanding shares of the Holdings Class B Stock. A "Change of Control" is defined in the Certificate of Incorporation to include the occurrence of any of the following events: (i) Messrs. Silver and Horrigan shall collectively own, directly or indirectly, less than one-half of the aggregate number of outstanding shares of Holdings Class A Stock owned by them directly or indirectly on June 30, 1989 on a common stock equivalent basis, or (ii) the acceleration of the indebtedness under the Credit Agreement or the Discount Debentures, as a result of the occurrence of an event of default thereunder relating to a payment default or a financial covenant event of default. Description of the Holdings Organization Agreement Concurrently with the issuance and sale to First Plaza of the Holdings Stock, Holdings, The Morgan Stanley Leveraged Equity Fund II, L.P. ("MSLEF II"), Bankers Trust New York Corporation ("BTNY"), First Plaza and Messrs. R. Philip Silver and D. Greg Horrigan entered into the Amended and Restated Organization Agreement dated as of December 21, 1993 (the "Holdings Organization Agreement") that provides for the termination of the Organization Agreement dated as of June 30, 1989 by and among Holdings, MSLEF II, BTNY and Messrs. Silver and Horrigan (except for the indemnification provisions thereof, which provisions survive) and for the investment by First Plaza in Holdings and the relationships among the stockholders and between the stockholders and Holdings. Certain of the statements contained herein are summaries of the detailed provisions of the Holdings Organization Agreement and are qualified in their entirety by reference to the Holdings Organization Agreement. The Holdings Organization Agreement prohibits the disposition of Holdings' common stock without the prior written consent of Messrs. Silver and Horrigan and MSLEF II, except for (i) dispositions to affiliates (which, in the case of First Plaza, includes any successor or underlying trust, and which, in the case of MSLEF II, does not include any person which is not an Investment Entity (as defined below)), (ii) dispositions to certain family members of Messrs. Silver and Horrigan or trusts for the benefit of those family members, (iii) dispositions to certain parties, subject to certain other rights of first refusal discussed below, (iv) the sale by First Plaza to Holdings of all of the Holdings Stock acquired by First Plaza on December 21, 1993, upon the exercise of Holdings' call option as described below, and (v) dispositions in connection with an initial public offering of the common stock of Holdings, as described below. Any transfer of Holdings' common stock (other than transfers described in clauses (iv) and (v) of the preceding sentence) will be void unless the transferee agrees in writing prior to the proposed transfer to be bound by the terms of the Holdings Organization Agreement. Under the Holdings Organization Agreement, MSLEF II may effect a sale of stock to an Investment Entity (generally defined as any person who (i) is primarily engaged in the business of investing in securities of other companies and not taking an active role in the management or operations of such companies and (ii) does not permit the participation or involvement in any way in the business or affairs of Holdings of a person who is engaged in a business not described in clause (i)) or, in the event of certain defaults under the amended and restated management services agreement by and between S&H, a company wholly owned by Messrs. Silver and Horrigan, and Holdings (described below under "Description of Management Agreements"), to a third party, in each case, if it first offers such stock to: (a) Holdings, (b) the Group (defined generally to mean, collectively, Messrs. Silver and Horrigan and their respective affiliates and certain related family transferees and estates, with Mr. Silver and his affiliates and certain related family transferees and estates being deemed to be collectively one member of the Group, and Mr. Horrigan and his affiliates and certain related family transferees and estates being deemed to be collectively one member of the Group) and (c) BTNY, in each case on the same terms and conditions as the proposed sale to an Investment Entity or the proposed third party sale. In addition, in any such sale by MSLEF II, BTNY and First Plaza must be given the opportunity to sell the -40- same percentage of its stock to such Investment Entity or third party. Each member of the Group may transfer shares of stock to a third party if such holder first offers such shares to: (a) the other member of the Group, (b) Holdings, (c) MSLEF II and (d) BTNY, in each case on the same terms and conditions as the proposed third party sale. BTNY may effect a sale of stock to a third party if it first offers such shares to: (a) Holdings, (b) MSLEF II and (c) the Group, in each case on the same terms and conditions as the proposed third party sale. Under the Holdings Organization Agreement, either MSLEF II or the Group has the right to require a recapitalization transaction. A recapitalization transaction is defined as any transaction (such as a merger, consolidation, exchange of securities or liquidation) involving Holdings pursuant to which MSLEF II and the Group retain their proportionate ownership interest in the surviving entity if the following conditions are met: (i) the value of any securities of the surviving entity acquired or retained by the party not initiating the recapitalization transaction does not exceed 67% of the difference between (x) the value of such securities and any cash received by such party and (y) all taxes payable as a result of the transaction, (ii) if MSLEF II initiates the recapitalization transaction and will not own all the voting equity securities of the surviving entity not owned by the Group, the Group shall have the right to purchase such securities, (iii) if the Group initiates the recapitalization transaction and will not own all of the voting equity securities of the surviving entity, MSLEF II shall have the right to purchase such securities, and (iv) the majority in principal amount of the indebtedness incurred in connection with such transaction shall be held for at least one year by persons not affiliated with either MSLEF II or any member of the Group. At any time prior to December 21, 1998, Holdings has the right and option to purchase from First Plaza, and First Plaza shall have the obligation to sell to Holdings, all (but not less than all) of the Holdings Stock for a price per share equal to the greater of (i) $120 per share and (ii) the purchase price necessary to yield on an annual basis a compound return on investment of forty percent (40%). The number of shares subject to such call and the call purchase price shall be proportionately adjusted to take into account any stock dividend, stock split, combination of shares, subdivision or other recapitalization of the capital stock of Holdings. The Holdings Organization Agreement provides that at any time after June 15, 1996, the holders of a majority of the issued and outstanding shares of Holdings Class A Stock and Holdings Class B Stock (considered together as a class) may by written notice to Holdings require Holdings to pursue the first public offering of Holdings' common stock pursuant to an effective registration statement (an "IPO") on the terms and conditions provided in the Holdings Organization Agreement. In addition to the portion of the IPO which shall consist of shares of Holdings' common stock to be sold by Holdings, the IPO may also include a secondary tranche consisting of shares of Holdings' common stock to be sold by stockholders of Holdings. Pursuant to the provisions of the Holdings Organization Agreement, each of MSLEF II, BTNY, First Plaza and Messrs. Silver and Horrigan has agreed to take all action (including voting its shares of Holdings' common stock) to approve the adoption of the Restated Certificate of Incorporation of Holdings, as amended, the Amended and Restated By-laws of Holdings, and the Amended and Restated Management Services Agreement (the "Post-IPO Management Services Contract"), in each case substantially in the form agreed to pursuant to the Holdings Organization Agreement and in each case to become effective at the time an IPO is completed. The Post-IPO Management Services Contract provides, among other things, for the payment to S&H of management fees of $2.0 million annually plus reimbursement of expenses. See "Certain Relationships and Related Transactions -- Management Agreements" below. Pursuant to the provisions of the Holdings Organization Agreement, MSLEF II has agreed that it will not vote its shares of Holdings Class B Stock in favor of any changes in the Certificate of Incorporation or By-laws of Holdings which would adversely affect the rights of First Plaza, unless First Plaza has consented in writing to such change. In addition, so long as First Plaza shall hold not less than 18.73% of the issued and outstanding shares of Holdings Class B Stock, First Plaza shall have the right to nominate one of the Class B -41- Directors to be elected at each annual meeting of stockholders in accordance with the provisions of the Certificate of Incorporation, and the holders of Holdings Class B Stock parties to the Holdings Organization Agreement have agreed to vote their shares of Holdings Class B Stock in favor of such nominee. In addition, in the event that First Plaza, MSLEF II or BTNY shall purchase any shares of Holdings Class A Stock, such purchaser has agreed that it will vote such shares in accordance with the directions of the "holders of a majority of the shares of Class A Stock held by the Group" (defined generally to mean the holders of a majority of the aggregate of 417,500 shares of Holdings Class A Stock held by Messrs. Silver and Horrigan at December 21, 1993, which at the time of any such determination have been continuously and are held by the Group) until such time as a Change of Control has occurred. In the event that Messrs. Silver or Horrigan shall purchase any shares of Holdings Class B Stock, such purchaser agrees that it will vote such shares in accordance with the directions of MSLEF II, unless MSLEF II and First Plaza (together with their respective affiliates) shall hold directly or indirectly less than one-half of the aggregate number of shares of Holdings Class B Stock held by MSLEF II and First Plaza immediately following the issuance and sale of the Holdings Stock to First Plaza on December 21, 1993. Pursuant to the terms of the Holdings Organization Agreement, Holdings entered into an amended and restated management services agreement with S&H, a corporation wholly owned by Messrs. Silver and Horrigan. See "Description of Management Agreements" below. The Holdings Organization Agreement terminates upon the earlier of (i) the mutual agreement of the parties, (ii) such time as it becomes unlawful, (iii) the completion of an IPO, and (iv) June 30, 1999. The parties may agree to extend the term of the Holdings Organization Agreement. Description of the Holdings Stockholders Agreement Concurrently with the issuance and sale to First Plaza of the Holdings Stock, Holdings, MSLEF II, BTNY, First Plaza and Messrs. Silver and Horrigan entered into a Stockholders Agreement dated as of December 21, 1993 (the "Stockholders Agreement") that provides for certain prospective rights and obligations among the stockholders and between the stockholders and Holdings. The operative provisions of the Stockholders Agreement do not take effect until after the occurrence of an IPO, at which time the Holdings Organization Agreement will have terminated in accordance with its terms as described above under "Description of the Holdings Organization Agreement." Certain of the statements contained herein are summaries of the detailed provisions of the Stockholders Agreement and are qualified in their entirety by reference to the Stockholders Agreement. The Stockholders Agreement provides that for a period of eight years after the IPO, each of MSLEF II and First Plaza shall have the right to demand two separate registrations of its shares of Holdings' common stock (equalling a total of four separate demand registrations); provided, however, that such demand right will terminate as to MSLEF II or First Plaza, as the case may be, at such time as MSLEF II or First Plaza, as the case may be, together with its affiliates, owns less than five percent of the issued and outstanding shares of Holdings' common stock at any time. If, at any time or from time to time for a period of eight years after the IPO, Holdings shall determine to register Holdings' common stock (other than in connection with certain non-underwritten offerings), Holdings will offer each of MSLEF II, BTNY, First Plaza and Messrs. Silver and Horrigan the opportunity to register shares of Holdings' common stock it holds in a "piggyback registration." The Stockholders Agreement prohibits the transfer prior to June 30, 1999 (or, in the case of any restriction applicable to First Plaza, December 21, 1998) by MSLEF II, First Plaza or Messrs. Silver or Horrigan of Holdings' common stock without the prior written consent of Messrs. Silver and Horrigan and MSLEF II, except for (i) transfers made in connection with a public offering or a Rule 144 Open Market Transaction (as defined in the Stockholders Agreement), (ii) transfers made to an affiliate, which, in the case of a transfer by First Plaza or MSLEF II to an affiliate, must be an Investment Entity (defined generally to be -42- any person who is primarily engaged in the business of investing in securities of other companies and not taking an active role in the management or operations of such companies), (iii) transfers made to certain family members of Messrs. Silver and Horrigan or trusts for the benefit of those family members, (iv) certain transfers by First Plaza to a third party that comply with certain rights of first refusal of the Group and MSLEF II set forth in the Stockholders Agreement, (v) certain transfers by MSLEF II to an Investment Entity or, in the event of certain defaults under the amended and restated management services agreement between S&H and Holdings, to a third party, that comply with certain rights of first refusal of the Group set forth in the Stockholders Agreement, (vi) certain transfers by either member of the Group to a third party that comply with certain rights of first refusal of the other member of the Group and MSLEF II set forth in the Stockholders Agreement, and (vii) in the case of MSLEF II, a distribution of all or substantially all of the shares of Holdings' common stock then owned by MSLEF II to the partners of MSLEF II (a "MSLEF Distribution"). Notwithstanding the foregoing, MSLEF II may pledge its shares of Holdings' common stock to a lender or lenders reasonably acceptable to Holdings to secure a loan or loans to MSLEF II. In the event of any proposed foreclosure of such pledge, such shares will be subject to certain rights of first refusal of the Group set forth in the Stockholders Agreement. The Stockholders Agreement provides that until December 21, 1998, for so long as MSLEF II and its affiliates (excluding the limited partners of MSLEF II who may acquire shares of Holdings' common stock from MSLEF II in a MSLEF Distribution) shall hold at least one-half of the number of shares of Holdings' common stock held by MSLEF II on December 21, 1993 (as adjusted, if necessary, to take into account any stock dividend, stock split, combination of shares, subdivision or recapitalization of the capital stock of Holdings), the parties and their Restricted Voting Transferees (as defined in the Stockholders Agreement) shall use their best efforts (including to vote any shares of Holdings' common stock owned or controlled by such person or otherwise) to cause the nomination and election of two (2) members of the Board of Directors of Holdings to be chosen by MSLEF II; provided, however, that each such nominee shall be (i) either an employee of Morgan Stanley whose primary responsibility is managing investments for MSLEF II (or a successor or related partnership) or (ii) a person reasonably acceptable to the Group not engaged in (as a director, officer, employee, agent or consultant or as a holder of more than five percent of the equity securities of) a business competitive with that of Holdings. In addition, until December 21, 1998, for so long as the Group shall hold at least one-half of the number of shares of Holdings' common stock held by it in the aggregate on December 21, 1993 (as adjusted, if necessary, to take into account any stock dividend, stock split, combination of shares, subdivision or recapitalization of the capital stock of Holdings), the parties and their Restricted Voting Transferees shall use their best efforts (including to vote any shares of Holdings' common stock owned or controlled by such person or otherwise) to cause the nomination and election of two (2) individuals nominated by the "holders of a majority of the shares of [c]ommon [s]tock held by the Group" (as such phrase is defined in the Stockholders Agreement) as members of the Board of Directors of Holdings; provided, however, that at least one (1) of such nominees shall be Mr. Silver or Mr. Horrigan and the other person, if not Mr. Silver or Mr. Horrigan, shall be a person reasonably acceptable to MSLEF II, so long as MSLEF II and its affiliates (other than any affiliate which is not an Investment Entity and excluding the limited partners of MSLEF II who may acquire shares of Holdings' common stock from MSLEF II in a MSLEF distribution) shall hold at least one-half of the number of shares of Holdings' common stock held by MSLEF II at the Closing Date (as adjusted, if necessary, to take into account any stock dividend, stock split, combination of shares, subdivision or recapitalization of the capital stock of Holdings). Subject to the terms of the preceding two paragraphs, for so long as the Group shall hold at least one-half of the number of shares of Holdings' common stock held by it in the aggregate at the Closing Date (as adjusted, if necessary, to take into account any stock dividend, stock split, combination of shares, subdivision or recapitalization of the capital stock of Holdings), First Plaza and its Restricted Voting Transferees shall vote all shares of Holdings' common stock held by them in favor of any other directors standing for election to -43- Holdings' Board of Directors for whom the holders of a majority of the shares of Holdings' common stock held by the Group shall direct First Plaza to vote. The Stockholders Agreement further provides that until December 21, 1998, MSLEF II and its Restricted Voting Transferees shall vote all shares of Holdings' common stock held by them against any unsolicited merger, or sale of Holdings' business or its assets, if such transaction is opposed by the holders of a majority of the shares of common stock held by the Group, unless as of the applicable record date for such vote, the Group holds less than ninety percent (90%) of the number of shares of Holdings' common stock held by it in the aggregate at the Closing Date (as adjusted, if necessary, to take into account any stock dividend, stock split, combination of shares, subdivision or recapitalization of the capital stock of Holdings). Until December 21, 1998, First Plaza and its Restricted Voting Transferees shall vote all shares of common stock held by them against any unsolicited merger, or sale of Holdings' business or its assets, if such transaction is opposed by the holders of a majority of the shares of common stock held by the Group; provided, however, that First Plaza and its Restricted Voting Transferees shall not be required to vote their shares of Holdings' common stock in accordance with the foregoing if (i) in connection with such merger or sale, (x) First Plaza and its Restricted Voting Transferees propose to sell or otherwise transfer all of their shares of Holdings' common stock to a third party for aggregate cash consideration of less than $10 million and (y) the Group and/or MSLEF II has not exercised their right of first refusal in respect of such sale or transfer by First Plaza or such right of first refusal in respect of the shares of Holdings' common stock held by First Plaza shall have terminated, or (ii) as of the applicable record date for such vote, the Group holds less than ninety percent (90%) of the number of shares of Holdings' common stock held by it in the aggregate at December 21, 1993 (as adjusted, if necessary, to take into account any stock dividend, stock split, combination of shares, subdivision or recapitalization of the capital stock of Holdings). Item 13. Certain Relationships and Related Transactions. Management Agreements Holdings, Silgan, Containers and Plastics each entered into an amended and restated management services agreement dated as of December 21, 1993 (collectively, the "Management Agreements") with S&H to replace in its entirety its existing management services agreement, as amended, with S&H. Pursuant to the Management Agreements, S&H provides Holdings, Silgan, Containers and Plastics and their respective subsidiaries with general management and administrative services (the "Services"). The Management Agreements provide for payments to S&H (i) on a monthly basis, of $5,000 plus an amount equal to 2.475% of consolidated earnings before depreciation, interest and taxes of Holdings and its subsidiaries ("Holdings EBDIT"), for such calendar month until Holdings EBDIT for the calendar year shall have reached an amount set forth in the Management Agreements for such calendar year (the "Scheduled Amount") and 1.65% of Holdings EBDIT for such calendar month to the extent that Holdings EBDIT for the calendar year shall have exceeded the Scheduled Amount but shall not have been greater than an amount (the "Maximum Amount") set forth in the Management Agreements (the "Monthly Management Fee") and (ii) on a quarterly basis, of an amount equal to 2.475% of Holdings EBDIT for such calendar quarter until Holdings EBDIT for the calendar year shall have reached the Scheduled Amount and 1.65% of Holdings EBDIT for such calendar quarter to the extent that Holdings EBDIT for the calendar year shall have exceeded the Scheduled Amount but shall not have been greater than the Maximum Amount (the "Quarterly Management Fee"). The Scheduled Amount was $77.5 million for the calendar year 1995 and increases by $6.0 million for each year thereafter. The Maximum Amount is $95.758 million for the calendar year 1995, $98.101 million for the calendar year 1996, $100.504 million for the calendar year 1997, $102.964 million for the calendar year 1998 and $105.488 million for the calendar year 1999. The Management Agreements provide that upon receipt by Silgan of a notice from Bankers Trust that certain events of default under the Credit Agreement have occurred, the Quarterly Management Fee shall continue to accrue, but shall not be paid to S&H until the fulfillment of certain conditions, as set forth in the Management Agreements. -44- The Management Agreements continue in effect until the earliest of: (i) the completion of an IPO; (ii) June 30, 1999; (iii) at the option of each of the respective companies, the failure or refusal of S&H to perform its obligations under the Management Agreements, if such failure continues unremedied for more than 60 days after written notice of its existence shall have been given; (iv) at the option of MSLEF II (a) if S&H or Holdings is declared insolvent or bankrupt or a voluntary bankruptcy petition is filed by either of them, (b) upon the occurrence of any of the following events with respect to S&H or Holdings if not cured, dismissed or stayed within 45 days: the filing of an involuntary petition in bankruptcy, the appointment of a trustee or receiver or the institution of a proceeding seeking a reorganization, arrangement, liquidation or dissolution, (c) if S&H or Holdings voluntarily seeks a reorganization or arrangement or makes an assignment for the benefit of creditors or (d) upon the death or permanent disability of both of Messrs. Silver and Horrigan; and (v) the occurrence of a Change of Control (as defined in the Restated Certificate of Incorporation of Holdings and as described under "Description of Holdings Common Stock" above). In addition to the management fees described above, the Management Agreements provide for the payment to S&H on the closing date of the IPO of an amount, if any (the "Additional Amount") equal to the sum of the present values, calculated for each year or portion thereof, of (i) the amount of the annual management fee for such year or portion thereof that otherwise would have been payable to S&H for each such year or portion thereof for the period beginning as of the time of the IPO and ending on June 30, 1999 (the "Remaining Term") pursuant to the provisions described in the preceding paragraph but for the occurrence of the IPO, minus (ii) the amount payable to S&H for the Remaining Term at the rate of $2.0 million per year. The Management Agreements further provide that the amounts described in clause (i) of the first sentence of this paragraph will be calculated based upon S&H's good faith projections of Holdings EBDIT for each such year (or portion thereof) during the Remaining Term (the "Estimated Fees"), which projections shall be made on a basis consistent with S&H's past projections. The difference between the amount of Estimated Fees for any particular year and $2 million shall be discounted to present value at the time of the IPO using a discount rate of eight percent (8%) per annum, compounded annually. Additionally, the Management Agreements provide that Holdings, Silgan, Containers, Plastics and their respective subsidiaries shall reimburse S&H, on a monthly basis, for all out-of-pocket expenses paid by S&H in providing the Services, including fees and expenses to consultants, subcontractors and other third parties, in connection with such Services. All fees and expenses paid to S&H under each of the Management Agreements are credited against amounts paid to S&H under the other Management Agreements. Under the terms of the Management Agreements, Holdings, Silgan, Containers and Plastics have agreed, subject to certain exceptions, to indemnify S&H and its affiliates, officers, directors, employees, subcontractors, consultants or controlling persons against any losses, damages, costs and expenses they may sustain arising in connection with the Management Agreements. The Management Agreements also provide that S&H may select a consultant, subcontractor or agent to provide the Services. S&H has retained Morgan Stanley to render financial advisory services to S&H. In connection with such retention, S&H has agreed to pay Morgan Stanley a fee equal to 9.1% of the fees paid to S&H under the Management Agreements. The Credit Agreement does not permit the payment of fees under the Management Agreements above amounts provided for therein. For the years ended December 31, 1995, 1994 and 1993, pursuant to the arrangements described above, S&H earned aggregate fees, including reimbursable expenses and fees payable to Morgan Stanley, of $5.4 million, $5.0 million and $4.4 million, respectively, from Holdings, Silgan, Containers and Plastics, and during 1995, 1994 and 1993 Morgan Stanley earned fees of $409,000, $383,000 and $337,000, respectively. Other -45- In connection with the 1989 Mergers, subject to the provisions of Delaware law, Silgan agreed to indemnify each director, officer, employee, fiduciary and agent of Silgan, Containers, Plastics and its subsidiaries and their respective affiliates against costs, expenses, judgments, fines, losses, claims, damages and settlements (except for any settlement effected without Silgan's written consent) in connection with any claims, actions, suits, proceedings or investigations arising out of or related to the 1989 Mergers or their financing, including certain liabilities arising under the federal securities laws. Simultaneously with the consummation of the 1989 Mergers, a tax allocation agreement was entered into by Holdings, Silgan, Plastics and Containers that permits Silgan and its subsidiaries to use the tax benefits provided by the debt of Holdings and permits funds to be provided to Holdings from Silgan and its subsidiaries in an amount equal to the federal and state tax liabilities of Holdings, as the parent of the consolidated group consisting of Holdings, Silgan and its Subsidiaries. Such tax allocation agreement has been amended and restated from time to time to include new members of the consolidated group. In connection with the refinancings of the Company's bank credit agreement in 1995 and 1993, the banks thereunder (including Bankers Trust) received certain fees amounting to $17.2 million and $8.1 million in 1995 and 1993, respectively. G. William Sisley, Secretary of Holdings and Silgan, is a partner in the law firm of Winthrop, Stimson, Putnam & Roberts. Winthrop, Stimson, Putnam & Roberts provides legal services to Holdings, Silgan and their subsidiaries. -46- PART IV Item 14. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K. (a) Financial Statements: SILGAN HOLDINGS INC.: Report of Independent Auditors......................................... .... F-1 Consolidated Balance Sheets at December 31, 1995 and 1994............. ..... F-2 Consolidated Statements of Operations for the years ended December 31, 1995, 1994 and 1993....................................................... F-3 Consolidated Statements of Deficiency in Stockholders' Equity for the years ended December 31, 1995, 1994 and 1993.............................. F-4 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993....................................................... F-5 Notes to Consolidated Financial Statements.................................. F-7 SILGAN CORPORATION: Report of Independent Auditors............................................. F-38 Consolidated Balance Sheets at December 31, 1995 and 1994.................. F-39 Consolidated Statements of Operations for the years ended December 31, 1995, 1994 and 1993.................................................... F-40 Consolidated Statements of Common Stockholder's Equity for the years ended December 31, 1995, 1994 and 1993................................... F-41 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993....................................... F-42 Notes to Consolidated Financial Statements................................. F-44 Schedules: SILGAN HOLDINGS INC.: I. Condensed Financial Information of Silgan Holdings Inc.: Condensed Balance Sheets at December 31, 1995 and 1994............. F-73 Condensed Statements of Operations for the years ended December 31, 1995, 1994 and 1993................................. F-74 Condensed Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993................................. F-75 -47- SILGAN CORPORATION: I. Condensed Financial Information of Silgan Corporation: Condensed Balance Sheets at December 31, 1995 and 1994............. F-76 Condensed Statements of Operations for the years ended December 31, 1995, 1994 and 1993................................. F-77 Condensed Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993................................. F-78 II. Schedules of Valuation and Qualifying Accounts for the years ended December 31, 1995, 1994 and 1993................................... F-79 All other financial statements and schedules not listed have been omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or notes thereto. -48- Exhibits: Exhibit Number Description - ------- ----------- 3.1 Restated Certificate of Incorporation of Silgan, as amended (incorporated by reference to Exhibit 3.1 filed with Silgan's Annual Report on Form 10-K for the year ended December 31, 1993, Commission File No. 1-11200). 3.2 By-laws of Silgan (incorporated by reference to Exhibit 3(ii) filed with Silgan's Registration Statement on Form S-1, dated January 11, 1988, Registration Statement No. 33-18719). 3.3 Restated Certificate of Incorporation of Holdings (incorporated by reference to Exhibit 1 filed with Holdings' Current Report on Form 8-K, dated March 25, 1994, Commission File No. 33-28409). 3.4 By-laws of Holdings (incorporated by reference to Exhibit 3.4 filed with Silgan's Registration Statement on Form S-1, dated May 1, 1989, Registration Statement No. 33-28409). 4.1 Indenture, dated as of June 29, 1992, between Holdings and The Connecticut National Bank, as trustee, with respect to the Discount Debentures (incorporated by reference to Exhibit 1 filed with Holdings' Current Report on Form 8-K dated July 15, 1992, Commission File No. 33-47632). 4.2 Indenture dated as of June 29, 1992, between Silgan and Shawmut Bank, N.A., as Trustee, with respect to the Notes (incorporated by reference to Exhibit 1 filed with Silgan's Current Report on Form 8-K dated July 15, 1992, Commission File No. 33-46499). 4.3 Form of Holdings' 13-1/4% Senior Discount Debentures Due 2002 (incorporated by reference to Exhibit 4.4 filed with Holdings' Annual Report on Form 10-K for the year ended December 31, 1992, Commission File No. 33-28409). 4.4 Form of Silgan's 11-3/4% Senior Subordinated Notes due 2002 (incorporated by reference to Exhibit 4.5 filed with Holdings' Annual Report on Form 10-K for the year ended December 31, 1992, Commission File No. 33-28409). 10.1 Agreement for Purchase and Sale of Assets, dated as of June 18, 1987, between Carnation Company and Canaco Corporation (Containers) (incorporated by reference to Exhibit 2(i) filed with Silgan's Registration Statement on Form S-1, dated January 11, 1988, Registration Statement No. 33-18719). 10.2 First Amendment to Agreement for Purchase and Sale of Assets, dated as of July 15, 1987, between Carnation Company and Canaco Corporation (Containers) (incorporated by reference to Exhibit 2(ii) filed with Silgan's Registration Statement on Form S-1, dated January 11, 1988, Registration Statement No. 33-18719). 10.3 Second Amendment to Agreement for Purchase and Sale of Assets, dated as of August 31, 1987, between Carnation Company and Canaco Corporation (Containers) (incorporated by reference to Exhibit 2(iii) filed with Silgan's Registration Statement on Form S-1, dated January 11, 1988, Registration Statement No. 33-18719). -49- Exhibit Number Description - ------- ----------- 10.4 Asset Purchase Agreement, dated as of July 29, 1987, between Plastics Corporation (Plastics) and Monsanto Company (incorporated by reference to Exhibit 2(iv) filed with Silgan's Registration Statement on Form S-1, dated January 11, 1988, Registration Statement No. 33- 18719). 10.5 First Amendment to the Asset Purchase Agreement, dated as of July 29, 1987, between Plastics Corporation (Plastics) and Monsanto Company (incorporated by reference to Exhibit 2(v) filed with Silgan's Registration Statement on Form S-1, dated January 11, 1988, Registration Statement No. 33-18719). 10.6 Agreement for Purchase and Sale of Assets, dated as of September 27, 1988, between Carnation Company and Containers (incorporated by reference to Exhibit 1 filed with Silgan's Current Report on Form 8-K, dated October 17, 1988). 10.7 Agreement for Sale and Purchase of Containers, dated as of December 3, 1988, between Containers and Dial (incorporated by reference to Exhibit 2 filed with Silgan's Current Report on Form 8-K, dated December 19, 1988). 10.8 Asset Purchase Agreement, dated as of November 7, 1988, between Containers and Dial (incorporated by reference to Exhibit 1 filed with Silgan's Current Report on Form 8-K, dated December 19, 1988). 10.9 Amended and Restated Stock Purchase Agreement, dated as of January 1, 1989, among Aim, certain shareholders of Aim, and Silgan (incorporated by reference to Exhibit 1 filed with Silgan's Current Report on Form 8-K, dated March 15, 1989). 10.10 Assignment and Assumption, dated as of March 1, 1989, between Silgan and InnoPak Plastics Corporation (Plastics) (incorporated by reference to Exhibit 2 filed with Silgan's Current Report on Form 8-K, dated March 15, 1989). 10.11 Agreement for Purchase and Sale of Assets between Fortune and InnoPak Plastics Corporation (Plastics) dated as of March 1, 1989 (incorporated by reference to Exhibit 1 filed with Silgan's Current Report on Form 8-K, dated April 14, 1989). 10.12 Amendment to Agreement for Purchase and Sale of Assets, dated as of March 30, 1989, between Fortune and InnoPak Plastics Corporation (Plastics) (incorporated by reference to Exhibit 2 to Silgan's Current Report on Form 8-K, dated April 14, 1989). 10.13 Assignment and Assumption Agreement, dated as of March 31, 1989, between InnoPak Plastics Corporation (Plastics) and Fortune Acquisition Corporation (incorporated by reference to Exhibit 3 to Silgan's Current Report on Form 8-K, dated April 14, 1989). 10.14 Agreement for Purchase and Sale of Shares between and among InnoPak Plastics Corporation (Plastics), Gordon Malloch and Jurgen Arnemann and Express, dated as of March 1, 1989 (incorporated by reference to Exhibit 5 to Silgan's Current Report on Form 8-K, dated April 14, 1989). -50- Exhibit Number Description - ------- ----------- 10.15 Amendment to Agreement for Purchase and Sale of Shares, dated as of March 31, 1989, among InnoPak Plastics Corporation (Plastics), Express, Gordon Malloch and Jurgen Arnemann (incorporated by reference to Exhibit 6 to Silgan's Current Report on Form 8-K, dated April 14, 1989). 10.16 Assignment and Assumption Agreement dated as of March 31, 1989, between InnoPak Plastics Corporation (Plastics) and 827598 Ontario Inc. (incorporated by reference to Exhibit 7 to Silgan's Current Report on Form 8-K, dated April 14, 1989). #10.17 Employment Agreement, dated as of September 14, 1987, between James Beam and Canaco Corporation (Containers) (incorporated by reference to Exhibit 10(vi) filed with Silgan's Registration Statement on Form S-1, dated January 11, 1988, Registration Statement No. 33- 18719). #10.18 Amended and Restated Employment Agreement, dated as of June 18, 1987, between Gerald Wojdon and Canaco Corporation (Containers) (incorporated by reference to Exhibit 10(vii) filed with Silgan's Registration Statement on Form S-1, dated January 11, 1988, Registration Statement No. 33-18719). #10.19 Employment Agreement, dated as of September 1, 1989, between Silgan, InnoPak Plastics Corporation (Plastics), Russell F. Gervais and Aim (incorporated by reference to Exhibit 5 filed with Silgan's Report on Form 8-K, dated March 15, 1989). 10.20 Supply Agreement for Gridley, California effective August 31, 1987 (incorporated by reference to Exhibit 10(ix) filed with Silgan's Registration Statement on Form S-1, dated January 11, 1988, Registration Statement No. 33-18719) (Portions of this Exhibit are subject to confidential treatment pursuant to order of the Commission). 10.21 Amendment to Supply Agreement for Gridley, California, dated July 1, 1990 (incorporated by reference to Exhibit 10.27 filed with Silgan's Registration Statement on Form S-1, dated March 18, 1992, Registration Statement No. 33-46499) (Portions of this Exhibit are subject to confidential treatment pursuant to order of the Commission). 10.22 Supply Agreement for Gustine, California effective August 31, 1987 (incorporated by reference to Exhibit 10(x) filed with Silgan's Registration Statement on Form S-1, dated January 11, 1988, Registration Statement No. 33-18719) (Portions of this Exhibit are subject to confidential treatment pursuant to order of the Commission). 10.23 Amendment to Supply Agreement for Gustine, California, dated March 1, 1990 (incorporated by reference to Exhibit 10.29 filed with Silgan's Registration Statement on Form S-1, dated March 18, 1992, Registration Statement No. 33-46499) (Portions of this Exhibit are subject to confidential treatment pursuant to order of the Commission). 10.24 Supply Agreement for Hanford, California effective August 31, 1987 (incorporated by reference to Exhibit 10(xi) filed with Silgan's Registration Statement on Form S-1, dated -51- Exhibit Number Description - ------- ----------- January 11, 1988, Registration Statement No. 33-18719) (Portions of this Exhibit are subject to confidential treatment pursuant to order of the Commission). 10.25 Amendment to Supply Agreement for Hanford, California, dated July 1, 1990 (incorporated by reference to Exhibit 10.31 filed with Silgan's Registration Statement on Form S-1, dated March 18, 1992, Registration Statement No. 33-46499) (Portions of this Exhibit are subject to confidential treatment pursuant to order of the Commission). 10.26 Supply Agreement for Riverbank, California effective August 31, 1987 (incorporated by reference to Exhibit 10(xii) filed with Silgan's Registration Statement on Form S-1, dated January 11, 1988, Registration Statement No. 33-18719) (Portions of this Exhibit are subject to confidential treatment pursuant to order of the Commission). 10.27 Supply Agreement for Woodland, California effective August 31, 1987 (incorporated by reference to Exhibit 10(xiii) filed with Silgan's Registration Statement on Form S-1, dated January 11, 1988, Registration Statement No. 33-18719) (Portions of this Exhibit are subject to confidential treatment pursuant to order of the Commission). 10.28 Amendment to Supply Agreement for Woodland, California, dated July 1, 1990 (incorporated by reference to Exhibit 10.34 filed with Silgan's Registration Statement on Form S-1, dated March 18, 1992, Registration Statement No. 33-46499) (Portions of this Exhibit are subject to confidential treatment pursuant to order of the Commission). 10.29 Supply Agreement for Morton, Illinois, effective August 31, 1987 (incorporated by reference to Exhibit 10(vii) filed with Silgan's Registration Statement on Form S-1, dated January 11, 1988, Registration Statement No. 33-18719) (Portions of this Exhibit are subject to confidential treatment pursuant to order of the Commission). 10.30 Amendment to Supply Agreement for Morton, Illinois, dated July 1, 1990 (incorporated by reference to Exhibit 10.36 filed with Silgan's Registration Statement on Form S-1, dated March 18, 1992, Registration Statement No. 33-46499) (Portions of this Exhibit are subject to confidential treatment pursuant to order of the Commission). 10.31 Supply Agreement for Ft. Dodge, Iowa, effective August 31, 1987 (incorporated by reference to Exhibit 10(xiv) filed with Silgan's Registration Statement on Form S-1, dated January 11, 1988, Registration Statement No. 33-18719) (Portions of this Exhibit are subject to confidential treatment pursuant to order of the Commission). 10.32 Amendment to Supply Agreement for Ft. Dodge, Iowa, dated March 1, 1990 (incorporated by reference to Exhibit 10.38 filed with Silgan's Registration statement on Form S-1, dated March 18, 1992, Registration Statement No. 33-46499) (Portions of this Exhibit are subject to confidential treatment pursuant to order of the Commission). 10.33 Supply Agreement for Maysville, Kentucky, effective August 31, 1987 (incorporated by reference to Exhibit 10(xvi) filed with Silgan's Registration Statement on Form S-1, dated -52- Exhibit Number Description - ------- ----------- January 11, 1988, Registration Statement No. 33-18719) (Portions of this Exhibit are subject to confidential treatment pursuant to order of the Commission). 10.34 Amendment to Supply Agreement for Maysville, Kentucky, dated March 1, 1990 (incorporated by reference to Exhibit 10.40 filed with Silgan's Registration Statement on Form S-1, dated March 18, 1992, Registration Statement No. 33-46499) (Portions of this Exhibit are subject to confidential treatment pursuant to order of the Commission). 10.35 Supply Agreement for St. Joseph, Missouri, effective August 31, 1987 (incorporated by reference to Exhibit 10(xvii) filed with Silgan's Registration Statement on Form S-1, dated January 11, 1988, Registration Statement No. 33-18719) (Portions of this Exhibit are subject to confidential treatment pursuant to order of the Commission). 10.36 Amendment to Supply Agreement for St. Joseph, Missouri, dated March 1, 1990 (incorporated by reference to Exhibit 10.42 filed with Silgan's Registration Statement on Form S-1, dated March 18, 1992, Registration Statement No. 33-46499) (Portions of this Exhibit are subject to confidential treatment pursuant to order of the Commission). 10.37 Supply Agreement for Trenton, Missouri, effective August 31, 1987 (incorporated by reference to Exhibit 10(xviii) filed with Silgan's Registration Statement on Form S-1, dated January 11, 1988, Registration Statement No. 33-18719) (Portions of this Exhibit are subject to confidential treatment pursuant to order of the Commission). 10.38 Amendment to Supply Agreement for Trenton, Missouri, dated March 1, 1990 (incorporated by reference to Exhibit 10.44 filed with Silgan's Registration Statement on Form S-1, dated March 18, 1992, Registration Statement No. 33-46499) (Portions of this Exhibit are subject to confidential treatment pursuant to order of the Commission). 10.39 Supply Agreement for South Dayton, New York, effective August 31, 1987 (incorporated by reference to Exhibit 10(xix) filed with Silgan's Registration Statement on Form S-1, dated January 11, 1988, Registration Statement No. 33-18719) (Portions of this Exhibit are subject to confidential treatment pursuant to order of the Commission). 10.40 Amendment to Supply Agreement for South Dayton, New York, dated March 1, 1990 (incorporated by reference to Exhibit 10.46 filed with Silgan's Registration Statement on Form S-1, dated March 18, 1992, Registration Statement No. 33-46499) (Portions of this Exhibit are subject to confidential treatment pursuant to order of the Commission). 10.41 Supply Agreement for Statesville, North Carolina, effective August 31, 1987 (incorporated by reference to Exhibit 10(xx) filed with Silgan's Registration Statement on Form S-1, dated January 11, 1988, Registration Statement No. 33-18719) (Portions of this Exhibit are subject to confidential treatment pursuant to order of the Commission). 10.42 Supply Agreement for Hillsboro, Oregon, effective August 31, 1987 (incorporated by reference to Exhibit 10(xxi) filed with Silgan's Registration Statement on Form S-1, dated -53- Exhibit Number Description - ------- ----------- January 11, 1988, Registration Statement No. 33-18719) (Portions of this Exhibit are subject to confidential treatment pursuant to order of the Commission). 10.43 Amendment to Supply Agreement for Hillsboro, Oregon, dated March 1, 1990 (incorporated by reference to Exhibit 10.49 filed with Silgan's Registration Statement on Form S-1, dated March 18, 1992, Registration Statement No. 33-46499) (Portions of this Exhibit are subject to confidential treatment pursuant to order of the Commission). 10.44 Supply Agreement for Moses Lake, Washington, effective August 31, 1987 (incorporated by reference to Exhibit 10(xxii) filed with Silgan's Registration Statement on Form S-1, dated January 11, 1988, Registration Statement No. 33-18719) (Portions of this Exhibit are subject to confidential treatment pursuant to order of the Commission). 10.45 Amendment to Supply Agreement for Moses Lake, Washington, dated March 1, 1990 (incorporated by reference to Exhibit 10.51 filed with Silgan's Registration Statement on Form S-1, dated March 18, 1992, Registration Statement No. 33-46499) (Portions of this Exhibit are subject to confidential treatment pursuant to order of the Commission). 10.46 Supply Agreement for Jefferson, Wisconsin, effective August 31, 1987 (incorporated by reference to Exhibit 10(xxiii) filed with Silgan's Registration Statement on Form S-1, dated January 11, 1988, Registration Statement No. 33-18719) (Portions of this Exhibit are subject to confidential treatment pursuant to order of the Commission). 10.47 Amendment to Supply Agreement for Jefferson, Wisconsin, dated March 1, 1990 (incorporated by reference to Exhibit 10.53 filed with Silgan's Registration Statement on Form S-1, dated March 18, 1992, Registration Statement No. 33-46499) (Portions of this Exhibit are subject to confidential treatment pursuant to order of the Commission). 10.48 Supply Agreement for Fort Madison, dated as of December 3, 1988 (incorporated by reference to Exhibit 2 filed with Silgan's Current Report on Form 8-K, dated December 19, 1988). 10.49 Amendment to Supply Agreements dated November 17, 1989 for Ft. Dodge, Iowa; Hillsboro, Oregon; Jefferson, Wisconsin; St. Joseph, Missouri; and Trenton, Missouri (incorporated by reference to Exhibit 10.49 filed with Silgan's Annual Report on Form 10-K for the year ended December 31, 1989, Commission File No. 33-18719) (Portions of this Exhibit are subject to confidential treatment pursuant to order of the Commission). #10.50 InnoPak Plastics Corporation (Plastics) Pension Plan for Salaried Employees (incorporated by reference to Exhibit 10.32 filed with Silgan's Annual Report on Form 10-K for the year ended December 31, 1988, Commission File No. 33-18719). #10.51 Containers Pension Plan for Salaried Employees (incorporated by reference to Exhibit 10.34 filed with Silgan's Annual Report on Form 10-K for the year ended December 31, 1988, Commission File No. 33-18719). -54- Exhibit Number Description - ------- ----------- 10.52 Express Guaranty dated as of March 31, 1989 (incorporated by reference to Exhibit 10.66 to Holdings' Registration Statement on Form S-1, dated May 1, 1989, Registration No. 33- 28409). 10.53 Express Security Agreement dated as of March 31, 1989 (incorporated by reference to Exhibit 10.67 to Holdings' Registration Statement on Form S-1, dated May 1, 1989, Registration No. 33-28409). 10.54 Canadian Holdco Guaranty dated as of March 31, 1989 (incorporated by reference to Exhibit 10.68 to Holdings' Registration Statement on Form S-1, dated May 1, 1989, Registration No. 33-28409). 10.55 Canadian Holdco Pledge Agreement dated as of March 31, 1989 (incorporated by reference to Exhibit 10.69 to Holdings' Registration Statement on Form S-1, dated May 1, 1989, Registration No. 33-28409). 10.56 Canadian Acquisition Co. Guaranty dated as of March 31, 1989 (incorporated by reference to Exhibit 10.70 to Holdings' Registration Statement on Form S-1, dated May 1, 1989, Registration No. 33-28409). 10.57 Canadian Acquisition Co. Pledge Agreement dated as of March 31, 1989 (incorporated by reference to Exhibit 10.71 to Holdings' Registration Statement on Form S-1, dated May 1, 1989, Registration No. 33-28409). 10.58 Agreement and Plan of Merger, dated as of April 28, 1989, among Holdings, Acquisition and Silgan (incorporated by reference to Exhibit 2.6 to Holdings' Registration Statement on Form S-1, dated May 1, 1989, Registration No. 33-28409). 10.59 Lease between Containers and Riverbank Venture dated May 1, 1990 (incorporated by reference to Exhibit 10.99 filed with Silgan's Annual Report on Form 10-K for the year ended December 31, 1989, Commission File No. 33-18719). 10.60 Loan Agreement between The Iowa Department of Economic Development, City of Iowa City and Iowa City Can Manufacturing Company, dated November 17, 1988 (incorporated by reference to Exhibit 10.100 filed with Silgan's Annual Report on Form 10-K for the year ended December 31,1989, Commission File No. 33-18719). 10.61 Promissory Note and Promissory Note Agreement dated November 17, 1988 from Iowa City Can Manufacturing Company to the City of Iowa City (incorporated by reference to Exhibit 10.101 filed with Silgan's Annual Report on Form 10-K for the year ended December 31, 1989, Commission File No. 33-18719). 10.62 Mortgage between City of Iowa City, Iowa City Can Manufacturing Company and Michael Development dated January 5, 1990 (incorporated by reference to Exhibit 10.102 filed with Silgan's Annual Report on Form 10-K for the year ended December 31, 1989, Commission File No. 33-18719). -55- Exhibit Number Description - ------- ----------- 10.63 Containers Master Equipment Lease with Decimus Corporation, dated as of October 11, 1989 (incorporated by reference to Exhibit 10.103 filed with Silgan's Annual Report on Form 10-K for the year ended December 31, 1989, Commission File No. 33-18719). 10.64 Amended and Restated Tax Allocation Agreement by and among Holdings, Silgan, Containers, InnoPak Plastics Corporation (Plastics), Aim, Fortune, SPHI and Silgan PET dated as of July 13, 1990 (incorporated by reference to Exhibit 10.107 filed with Post- Effective Amendment No. 6 to Silgan's Registration Statement on Form S-1, dated August 20, 1990, Registration Statement No. 33-18719). 10.65 Sublease Agreement between Amoco and PET Acquisition Corp. (Silgan PET) dated July 24, 1989 (incorporated by reference to Exhibit 10.111 filed with Post-Effective Amendment No. 6 to Silgan's Registration Statement on Form S-1, dated August 20, 1990, Registration Statement No. 33-18719). 10.66 Lease Agreement between the Trustees of Cabot 95 Trust and Amoco Plastic Products Company dated August 16, 1978 (incorporated by reference to Exhibit 10.112 filed with Post-Effective Amendment No. 6 to Silgan's Registration Statement on Form S-1, dated August 20, 1990, Registration Statement No. 33-18719). 10.67 Contribution Agreement by and among Messrs. Silver, Horrigan, Rankin and Rodriguez, MSLEF II and BTNY dated as of July 13, 1990 (incorporated by reference to Exhibit 2 filed with Silgan's Current Report on Form 8-K, dated July 1990). 10.68 Asset Purchase Agreement, dated as of November 1, 1991 by and among Silgan PET, Holdings and Sewell Plastics Inc. (incorporated by reference to Exhibit 1 filed with Silgan's Current Report on Form 8-K, dated December 2, 1991). 10.69 Inventory and Equipment Purchase Agreement, dated as of November 1, 1991 by and among Silgan PET, Holdings and Sewell Plastics, Inc. (incorporated by reference to Exhibit 2 filed with Silgan's Current Report on Form 8-K, dated December 2, 1991). 10.70 Letter Agreement, dated November 15, 1991, amending the Asset Purchase Agreement dated as of November 1, 1991 by and among Silgan PET, Holdings and Sewell Plastics, Inc. (incorporated by reference to Exhibit 3 to Silgan's Current Report on Form 8-K, dated December 2, 1991). 10.71 Letter Agreement, dated November 15, 1991, amending the Inventory and Equipment Purchase Agreement dated as of November 1, 1991 by and among Silgan PET, Holdings and Sewell Plastics, Inc. (incorporated by reference to Exhibit 4 filed with Silgan's Current Report on Form 8-K, dated December 2, 1991). 10.72 Letter Agreement, dated November 31, 1991, amending the Inventory and Equipment Purchase Agreement dated as of November 1, 1991 by and among Silgan PET, Holdings and Sewell Plastics, Inc. (incorporated by reference to Exhibit 5 filed with Silgan's Current Report on Form 8-K, dated December 2, 1991). -56- Exhibit Number Description - ------- ----------- #10.73 Containers Deferred Incentive Savings Plan (incorporated by reference to Exhibit 10.144 filed with Silgan's Registration Statement on Form S-1, dated March 18, 1992, Registration Statement No. 33-46499). 10.74 Amended and Restated Pledge Agreement dated as of June 18, 1992, made by Silgan (incorporated by reference to Exhibit 5 filed with Silgan's Current Report on Form 8-K dated July 15, 1992, Commission File No. 33-46499). 10.75 Amended and Restated Pledge Agreement dated as of June 18, 1992, made by Containers and Plastics (incorporated by reference to Exhibit 6 filed with Silgan's Current Report on Form 8-K dated July 15, 1992, Commission File No. 33-46499). 10.76 Amended and Restated Pledge Agreement dated as of June 18, 1992, made by Holdings (incorporated by reference to Exhibit 7 filed with Silgan's Current Report on Form 8-K dated July 15, 1992, Commission File No. 33-46499). 10.77 Amended and Restated Security Agreement dated as of June 18, 1992, among Plastics, Containers and Bankers Trust (incorporated by reference to Exhibit 8 filed with Silgan's Current Report on Form 8-K dated July 15, 1992, Commission File No. 33-46499). 10.78 Underwriting Agreement, dated June 22, 1992, between Holdings and Morgan Stanley with respect to the Discount Debentures (incorporated by reference to Exhibit 2 filed with Holdings' Current Report on Form 8-K dated July 15, 1992, Commission File No. 33- 47632). 10.79 Underwriting Agreement, dated June 22, 1992, between Silgan and Morgan Stanley with respect to the 11-3/4% Notes (incorporated by reference to Exhibit 3 filed with Silgan's Current Report on Form 8-K dated July 15, 1992, Commission File No. 33-46499). #10.80 Silgan Containers Corporation Second Amended and Restated 1989 Stock Option Plan (incorporated by reference to Exhibit 10.100 filed with Post-Effective Amendment No. 2 to the Company's Registration Statement on Form S-1, dated May 11, 1994, Commission File No. 33-46499). #10.81 Form of Containers Nonstatutory Restricted Stock Option and Stock Appreciation Right Agreement (incorporated by reference to Exhibit 10.120 filed with Holdings' Annual Report on Form 10-K for the year ended December 31, 1992, Commission File No. 33-28409). #10.82 Silgan Plastics Corporation 1994 Stock Option Plan (incorporated by reference to Exhibit 10.102 filed with Post-Effective Amendment No. 2 to the Company's Registration Statement on Form S-1, dated May 11, 1994, Commission File No. 33-46499). #10.83 Form of Plastics Nonstatutory Restricted Stock Option and Stock Appreciation Right Agreement (incorporated by reference to Exhibit 10.103 filed with Post-Effective Amendment No. 2 to the Company's Registration Statement on Form S-1, dated May 11, 1994, Commission File No. 33-46499). -57- Exhibit Number Description - ------- ----------- #*10.84 Silgan Holdings Inc. Third Amended and Restated 1989 Stock Option Plan. #10.85 Form of Holdings Nonstatutory Restricted Stock Option and Stock Appreciation Right Agreement (incorporated by reference to Exhibit 10.124 filed with Holdings' Annual Report on Form 10-K for the year ended December 31, 1992, Commission File No. 33-28409). 10.86 Purchase Agreement, dated as of September 3, 1993, between Containers and Del Monte (incorporated by reference to Exhibit 1 filed with Holdings' Current Report on Form 8-K, dated January 5, 1994, Commission File No. 33-28409). 10.87 Amendment to Purchase Agreement, dated as of December 10, 1993, between Containers and Del Monte (incorporated by reference to Exhibit 2 filed with Holdings' Current Report on Form 8-K, dated January 5, 1994, Commission File No. 33-28409). 10.88 Amended and Restated Organization Agreement, dated as of December 21, 1993, among R. Philip Silver, D. Greg Horrigan, MSLEF II, BTNY, First Plaza and Holdings (incorporated by reference to Exhibit 2 filed with Holdings' Current Report on Form 8-K, dated March 25, 1994, Commission File No. 33-28409). 10.89 Stockholders Agreement, dated as of December 21, 1993, among R. Philip Silver, D. Greg Horrigan, MSLEF II, BTNY, First Plaza and Holdings (incorporated by reference to Exhibit 3 filed with Holdings' Current Report on Form 8-K, dated March 25, 1994, Commission File No. 33-28409). #10.90 Amended and Restated Management Services Agreement, dated as of December 21, 1993, between S&H and Holdings (incorporated by reference to Exhibit 4 filed with Holdings' Current Report on Form 8-K, dated March 25, 1994, Commission File No. 33-28409). #10.91 Amended and Restated Management Services Agreement, dated as of December 21, 1993, between S&H and Silgan (incorporated by reference to Exhibit 5 filed with Holdings' Current Report on Form 8-K, dated March 25, 1994, Commission File No. 33-28409). #10.92 Amended and Restated Management Services Agreement, dated as of December 21, 1993, between S&H and Containers (incorporated by reference to Exhibit 6 filed with Holdings' Current Report on Form 8-K, dated March 25, 1994, Commission File No. 33-28409). #10.93 Amended and Restated Management Services Agreement, dated as of December 21, 1993, between S&H and Plastics (incorporated by reference to Exhibit 7 filed with Holdings' Current Report on Form 8-K, dated March 25, 1994, Commission File No. 33-28409). 10.94 Stock Purchase Agreement, dated as of December 21, 1993, between Holdings and First Plaza (incorporated by reference to Exhibit 8 filed with Holdings' Current Report on Form 8-K, dated March 25, 1994, Commission File No. 33-28409). 10.95 Supply Agreement, dated as of September 3, 1993, between Containers and Del Monte (incorporated by reference to Exhibit 10.118 filed with Silgan's Annual Report on Form -58- Exhibit Number Description - ------- ----------- 10-K for the year ended December 31, 1993, Commission File No. 1-11200). (Portions of this Exhibit are subject to an application for confidential treatment filed with the Commission.) 10.96 Amendment to Supply Agreement, dated as of December 21, 1993, between Containers and Del Monte (incorporated by reference to Exhibit 10.119 filed with Silgan's Annual Report on Form 10-K for the year ended December 31, 1993, Commission File No. 1-11200). (Portions of this Exhibit are subject to an application for confidential treatment filed with the Commission.) 10.97 Credit Agreement, dated as of August 1, 1995, among Silgan, Containers, Plastics, the lenders from time to time party thereto, Bankers Trust Company, as Administrative Agent and as a Co-Arranger, and Bank of America Illinois, as Documentation Agent and as a Co- Arranger (incorporated by reference to Exhibit 2 filed with Holdings' Current Report on Form 8-K, dated August 14, 1995, Commission File No. 33-28409). 10.98 Amended and Restated Holdings Guaranty, dated as of August 1, 1995, made by Holdings (incorporated by reference to Exhibit 4 filed with Holdings' Current Report on Form 8-K, dated August 14, 1995, Commission File No. 33-28409). 10.99 Amended and Restated Borrowers Guaranty, dated as of August 1, 1995, made by Silgan, Containers, Plastics, California-Washington Can Corporation and SCCW Can Corporation (incorporated by reference to Exhibit 3 filed with Holdings' Current Report on Form 8-K, dated August 14, 1995, Commission File No. 33-28409). 10.100 Asset Purchase Agreement, dated as of June 2, 1995, between ANC and Containers (incorporated by reference to Exhibit 1 filed with Holdings' Current Report on Form 8-K, dated August 14, 1995, Commission File No. 33-28409). *21 Subsidiaries of the Registrant. *27 Financial Data Schedule. (b) Reports on Form 8-K: None. - -------------------- *Filed herewith #Indicates a management contract or compensatory plan or arrangement in accordance with Instruction 3 to Item 14 of Form 10-K. -59- SIGNATURES Pursuant to the requirements of Section 13 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. SILGAN HOLDINGS INC. Date: March 29, 1996 By /s/ R. Philip Silver --------------------- R. Philip Silver Chairman of the Board and Co-Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date - --------- ----- ---- Chairman of the Board and Co-Chief Executive Officer /s/ R. Philip Silver Principal Executive Officer) March 29, 1996 - ------------------------ (R. Philip Silver) President, Co-Chief Executive /s/ D. Greg Horrigan Officer and Director March 29, 1996 - ------------------------ (D. Greg Horrigan) -60- Signature Title Date - --------- ----- ---- Vice President, Assistant /s/ James S. Hoch Secretary and Director March 29, 1996 - ----------------------- (James S. Hoch) Vice President, Assistant /s/ Robert H. Niehaus Secretary and Director March 29, 1996 - ---------------------- (Robert H. Niehaus) Executive Vice President, Chief Financial Officer and Treasurer /s/ Harley Rankin, Jr. (Principal Financial Officer) March 29, 1996 - ----------------------- (Harley Rankin, Jr.) Vice President, Controller and Assistant Treasurer /s/ Harold J. Rodriguez, Jr. (Principal Accounting Officer) March 29, 1996 - ---------------------------- (Harold J. Rodriguez, Jr.) -61- REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Silgan Holdings Inc. We have audited the accompanying consolidated balance sheets of Silgan Holdings Inc. as of December 31, 1995 and 1994, and the related consolidated statements of operations, deficiency in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. Our audits also included the financial statement schedules listed in the index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Silgan Holdings Inc. at December 31, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Notes 2 and 12 to the consolidated financial statements, in 1993 the Company changed its method of accounting for income taxes, postemployment benefits and postretirement benefits other than pensions. Ernst & Young LLP Stamford, Connecticut March 8, 1996 F-1 SILGAN HOLDINGS INC. CONSOLIDATED BALANCE SHEETS December 31, 1995 and 1994 (Dollars in thousands) 1995 1994 Assets Current assets: Cash and cash equivalents $ 2,102 $ 2,682 Accounts receivable, less allowances for doubtful accounts of $4,832 and $1,557 for 1995 and 1994, respectively 109,929 64,700 Inventories 210,471 122,429 Prepaid expenses and other current assets 5,801 8,044 Total current assets 328,303 197,855 Property, plant and equipment, net 487,301 251,810 Goodwill, net 53,562 30,009 Other assets 30,880 24,618 $900,046 $504,292 Liabilities and Deficiency in Stockholders' Equity Current liabilities: Trade accounts payable $138,195 $ 36,845 Accrued payroll and related costs 32,805 26,019 Accrued interest payable 4,358 1,713 Other accrued expenses 43,457 21,976 Bank working capital loans 7,100 12,600 Current portion of long-term debt 28,140 21,968 Total current liabilities 254,055 121,121 Long-term debt 750,873 510,763 Deferred income taxes 6,836 6,836 Other long-term liabilities 68,086 23,570 Deficiency in stockholders' equity: Common stock ($0.01 par value per share; 2,167,500 shares authorized, 1,135,000 shares issued and outstanding) 12 12 Additional paid-in capital 33,606 33,606 Accumulated deficit (213,422) (191,616) Total deficiency in stockholders' equity (179,804) (157,998) $900,046 $504,292 See accompanying notes. F-2 SILGAN HOLDINGS INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the years ended December 31, 1995, 1994 and 1993 (Dollars in thousands) 1995 1994 1993 Net sales $1,101,905 $861,374 $645,468 Cost of goods sold 970,491 748,290 571,174 Gross profit 131,414 113,084 74,294 Selling, general and administrative expenses 46,848 37,997 32,495 Reduction in carrying value of assets 14,745 16,729 - Income from operations 69,821 58,358 41,799 Interest expense and other related financing costs 80,710 65,789 54,265 Loss before income taxes (10,889) (7,431) (12,466) Income tax provision 5,100 5,600 1,900 Loss before extraordinary charges and cumulative effect of changes in accounting principles (15,989) (13,031) (14,366) Extraordinary charges relating to early extinguishment of debt (5,817) - (1,341) Cumulative effect of changes in accounting principles - - (6,276) Net loss $(21,806) $(13,031) $(21,983) See accompanying notes. F-3 SILGAN HOLDINGS INC. CONSOLIDATED STATEMENTS OF DEFICIENCY IN STOCKHOLDERS' EQUITY For the years ended December 31, 1995, 1994 and 1993 (Dollars in thousands) Total Additional deficiency in Common paid-in Accumulated stockholders' stock capital deficit equity Balance at December 31, 1992 $ 9 $18,609 $(156,602) $(137,984) Issuance of 250,000 shares of Class B Common Stock 3 14,997 - 15,000 Net loss - - (21,983) (21,983) Balance at December 31, 1993 12 33,606 (178,585) (144,967) Net loss - - (13,031) (13,031) Balance at December 31, 1994 12 33,606 (191,616) (157,998) Net loss - - (21,806) (21,806) Balance at December 31, 1995 $ 12 $33,606 $(213,422) $(179,804) See accompanying notes. F-4 SILGAN HOLDINGS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 1995, 1994 and 1993 (Dollars in thousands) 1995 1994 1993 Cash flows from operating activities: Net loss $(21,806) $(13,031) $(21,983) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 42,217 35,392 31,607 Amortization 8,083 7,075 5,488 Accretion of discount on discount debentures 28,672 27,477 24,167 Reduction in carrying value of assets 14,745 16,729 - Extraordinary charges relating to early extinguishment of debt 6,301 - 1,341 Cumulative effect of changes in accounting principles - - 6,276 Changes in assets and liabilities, net of effect of acquisitions: (Increase) decrease in accounts receivable (1,011) (21,267) 707 (Increase) decrease in inventories 10,852 (16,741) (4,316) Increase in trade accounts payable 43,108 4,478 3,757 Working capital provided by AN Can since acquisition date 85,213 - - Other, net increase (decrease) (6,745) 7,221 1,091 Total adjustments 231,435 60,364 70,118 Net cash provided by operating activities 209,629 47,333 48,135 Cash flows from investing activities: Acquisition of ANC's Food Metal & Specialty business (348,762) - - Acquisition of Del Monte Can manufacturing assets - 519 (73,865) Capital expenditures (51,897) (29,184) (42,480) Proceeds from sale of assets 3,541 765 262 Net cash used in investing activities $(397,118) $(27,900)$(116,083) Continued on following page. F-5 SILGAN HOLDINGS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) For the years ended December 31, 1995, 1994 and 1993 (Dollars in thousands) 1995 1994 1993 Cash flows from financing activities: Borrowings under working capital loans $669,260 $393,250 $328,050 Repayments under working capital loans (674,760) (382,850) (366,250) Proceeds from issuance of long-term debt 450,000 - 140,000 Proceeds from issuance of common stock - - 15,000 Repayments of long-term debt (234,506) (20,464) (42,580) Debt financing costs (19,290) - (8,935) Payments to former shareholders of Silgan (3,795) (6,911) - Net cash provided (used) by financing activities 186,909 (16,975) 65,285 Net increase (decrease) in cash and cash equivalents (580) 2,458 (2,663) Cash and cash equivalents at beginning of year 2,682 224 2,887 Cash and cash equivalents at end of year $ 2,102 $ 2,682 $ 224 Supplementary data: Interest paid $ 45,293 $ 30,718 $25,733 Income taxes paid, net of refunds 8,967 2,588 722 See accompanying notes. F-6 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 1. Basis of Presentation Silgan Holdings Inc. ("Holdings", together with its wholly-owned subsidiary, the "Company") is a company controlled by Silgan management and The Morgan Stanley Leveraged Equity Fund II, L. P. ("MSLEF II"), an affiliate of Morgan Stanley & Co., Incorporated ("MS & Co"). Holdings owns all of the outstanding common stock of Silgan Corporation ("Silgan"). Since 1993, Silgan has made two significant acquisitions. Silgan acquired the U. S. metal container manufacturing business of Del Monte Corporation ("Del Monte") in 1993 and it acquired the Food Metal and Specialty business from American National Can Company ("ANC") in 1995. Both acquisitions were accounted for using the purchase method of accounting (see Note 3 - Acquisitions). The Company, together with its wholly-owned operating subsidiaries Silgan Containers Corporation ("Containers") and Silgan Plastics Corporation ("Plastics"), is predominantly engaged in the manufacture and sale of steel and aluminum containers for human and pet food products and also manufactures custom designed plastic containers used for health and personal care products. Principally, all of the Company's businesses are based in the United States. Foreign subsidiaries are not significant to the consolidated results of operations or financial position of the Company. 2. Summary of Significant Accounting Policies Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All significant intercompany transactions have been eliminated. Assets and liabilities of the Company's foreign subsidiary are translated at rates of exchange in effect at the balance sheet date. Income statement amounts are translated at the average of monthly exchange rates. Certain reclassifications have been made to prior year's financial statements to conform with current year presentation. F-7 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 2. Summary of Significant Accounting Policies (continued) Cash and cash equivalents Cash equivalents represent short-term, highly liquid investments having original maturities of three months or less from the time of purchase. The carrying values of these assets approximate their fair values. As a result of the Company's cash management system, checks issued and presented to the banks for payment may create negative cash balances. Checks outstanding in excess of related cash balances totaling approximately $30.0 million at December 31, 1995 and $5.4 million at December 31, 1994 are included in trade accounts payable. Inventories Inventories are stated at the lower of cost or market (net realizable value) and are principally accounted for by the last-in, first-out method (LIFO). Property, Plant, and Equipment Property, plant and equipment are stated at historical cost less accumulated depreciation. Major renewals and betterments that extend the life of an asset are capitalized and repairs and maintenance expenditures are charged to expense as incurred. Depreciation is computed using the straight-line method over their estimated useful lives. The principal estimated useful lives are 35 years for buildings and range between 3 to 18 years for machinery and equipment. Leasehold improvements are amortized over the shorter of the life of the related asset or the life of the lease. Goodwill The Company has classified as goodwill the cost in excess of fair value of net assets acquired in purchase transactions. Goodwill is stated at cost less accumulated amortization. Amortization is computed on a straight-line basis over periods ranging from 20 to 40 years. The Company periodically evaluates the existence of goodwill impairment to access whether goodwill is fully recoverable from projected, undiscounted net cash flows of the related business unit. Impairments would be recognized in operating results if a permanent reduction in values were to occur. F-8 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 2. Summary of Significant Accounting Policies (continued) Other Assets Other assets consist principally of debt issuance costs which are being amortized on a straight-line basis over the terms of the related debt agreements (5 to 10 years). Other intangible assets are amortized over their expected useful lives using the straight-line method. Income Taxes Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standard ("SFAS") No. 109, "Accounting for Income Taxes". Under SFAS No. 109, the liability method is used to calculate deferred income taxes. The provision for income taxes includes federal, state and foreign income taxes currently payable and those deferred because of temporary differences between the financial statement and tax bases of assets and liabilities. The Company had previously reported under SFAS No. 96, "Accounting for Income Taxes". There was no effect for the difference in methods at the date of adoption. Postemployment Benefits During 1993, the Company adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits". SFAS No. 112 requires accrual accounting for employee benefits that are paid between the termination of active employment but prior to retirement. Such benefits include salary continuation, disability, severance, and health care. The cumulative effect as of January 1, 1993 of this accounting change was to decrease net income by $1.3 million. There was no tax effect for this charge due to the net operating loss position of the Company. Fair Values of Financial Instruments The carrying amounts for cash, accounts receivable, accounts payable, and other accrued liabilities are reflected in the financial statements and reasonably approximate fair value due to the short maturity of these items. The carrying value for short and long-term debt also approximates fair value but may vary due to changing market conditions. Methods and assumptions used to estimate fair value and the fair value of the Company's debt instruments are disclosed in Note 9. F-9 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 2. Summary of Significant Accounting Policies (continued) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities, revenues and expenses, as well as footnote disclosures in the financial statements. Actual results may differ from those estimates. 3. Acquisitions During the three years ended December 31, 1995, the Company made two acquisitions, as discussed below. Both were accounted for using the purchase method of accounting and the results of operations have been included with the Company's results from the respective acquisition dates. The excess of the purchase price over the fair value of net assets acquired was allocated to goodwill. Fiscal year 1995 acquisition On August 1, 1995, Containers acquired from ANC substantially all of the fixed assets and working capital, and assumed certain specified limited liabilities, of ANC's Food Metal & Specialty business ("AN Can"), which manufactures, markets and sells metal food containers and rigid plastic containers for a variety of food products and metal caps and closures for food and beverage products. The purchase price for the assets acquired and the assumption of certain specified liabilities, including related transaction costs, was $364.0 million (including $15.2 million for the operations of ANC's St. Louis, MO facility which the Company intends to purchase by mid-1996 upon completion of a rationalization project undertaken at that location). F-10 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 3. Acquisitions (continued) The purchase price was allocated to the tangible and identifiable assets acquired and liabilities assumed based upon their estimated fair values as determined from preliminary appraisals and valuations which management believes are reasonable. The purchase price allocation will be finalized within one year of the acquisition date. Differences between actual and preliminary valuations will cause adjustments to the AN Can purchase price allocation as shown below. Estimated items subject to change include employee benefit costs and termination costs associated with plant rationalization and administrative workforce reductions and other plant exit costs. The aggregate purchase price and its preliminary allocation to the assets and liabilities is as follows for AN Can (dollars in thousands): Net working capital acquired $155,967 Property, plant and equipment 240,079 Goodwill 24,832 Other liabilities assumed (56,916) $363,962 Set forth below are the Company's summary unaudited pro forma results of operations for the years ended December 31, 1995 and 1994. The pro forma results include the historical results of the Company and AN Can and reflect the effect of purchase accounting adjustments based on preliminary appraisals and valuations, the financing of the acquisition, the refinancing of the Company's debt obligations, and certain other adjustments as if these events occurred as of the beginning of the periods presented. The pro forma data does not purport to represent what the Company's results of operations actually would have been if the operations were combined as of January 1, 1995 or 1994, or to project the Company's results of operations for any future period. 1995 1994 (Dollars in thousands) Net sales $1,404,382 $1,457,968 Income from operations 97,415 (1) 62,893 (2) Income (loss) before income taxes 8,730 (26,629) Net income (loss) 1,530 (29,329) F-11 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 3. Acquisitions (continued) (1)Included in pro forma income from operations for the year ended December 31, 1995 is a charge incurred by the Company of $14.7 million to adjust the carrying value of certain underutilized machinery and equipment at Silgan facilities (existing prior to the AN Can acquisition) to net realizable value. (2)Included in pro forma income from operations for the year ended December 31, 1994 are charges incurred by AN Can of $10.1 million for shut down costs necessary to realign the assets of the business more closely with the existing customer base, $16.7 million related to Silgan and $7.1 million related to AN Can to adjust the carrying value of certain technologically obsolete and inoperable equipment to realizable value, and $26.7 million for the write-down of goodwill by AN Can. Fiscal year 1993 acquisition On December 21, 1993, Containers acquired from Del Monte substantially all of the fixed assets and certain working capital of Del Monte's container manufacturing business in the United States ("DM Can"). The final purchase price for the assets acquired and the assumption of certain specified liabilities, including related transaction costs, was $73.3 million. The detail of the assets acquired is as follows (dollars in thousands): Net working capital $ 21,944 Property, plant and equipment 47,167 Goodwill 13,729 Other liabilities assumed (9,494) $ 73,346 F-12 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 4. Inventories The components of inventories at December 31, 1995 and 1994 consist of the following: 1995 1994 (Dollars in thousands) Raw materials $ 46,027 $ 38,575 Work-in-process 24,869 19,045 Finished goods 135,590 63,409 Spare parts and other 6,344 1,621 212,830 122,650 Adjustment to value inventory at cost on the LIFO method (2,359) (221) $210,471 $122,429 The amount of inventory recorded on the first-in first-out method at December 31, 1995 and 1994 was $14.9 million and $6.5 million, respectively. 5. Property, Plant, and Equipment Property, plant, and equipment consist of the following: 1995 1994 (Dollars in thousands) Land $ 6,355 $ 3,707 Buildings and improvements 68,860 51,665 Machinery and equipment 584,526 346,061 Construction in progress 33,764 18,124 693,505 419,557 Accumulated depreciation and amortization (206,204) (167,747) Property, plant and equipment, net $487,301 $251,810 For the years ended December 31, 1995, 1994, and 1993, depreciation expense was $42.2 million, $35.4 million, and $31.6 million respectively. The total amount of repairs and maintenance expense was $26.9 million in 1995, $19.9 million in 1994, and $17.1 million in 1993. F-13 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 5. Property, Plant, and Equipment (continued) Effective October 1, 1994, the Company extended the estimated useful lives of certain fixed assets to more properly reflect the true economic lives of the assets and to better align the Company's depreciable lives with the predominate practice in the industry. The change had the effect of decreasing depreciation expense and increasing net income in 1994 by approximately $1.3 million. Based upon a review of its depreciable assets, the Company determined that certain adjustments were necessary to properly reflect net realizable values. In 1995, the Company recorded a write-down of $14.7 million for the excess of carrying value over estimated realizable value of machinery and equipment at existing facilities which have become underutilized due to excess capacity. In 1994, charges of $16.7 million were recorded which included $2.6 million to write-down the excess carrying value over estimated realizable value of various plant facilities held for sale and $14.1 million for technologically obsolete and inoperable machinery and equipment. In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" which is effective for the 1996 fiscal year. As required by this standard, impairment losses will be recognized when events or changes in circumstances indicate that the fair value of identified assets is less than the carrying amount. In making such a determination, the Company will compare the undiscounted cash flows generated by specified assets to the carrying value of such assets. The Company will adopt SFAS No. 121 in 1996 and believes the effect of adoption will not be material. 6. Goodwill Goodwill amortization charged to operations was $1.3 million in 1995; $1.2 million in 1994; and $0.5 million in 1993. Accumulated amortization of goodwill at December 31, 1995, 1994, and 1993 was $5.0 million; $3.7 million; and $2.5 million, respectively. F-14 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 7. Other Assets Other assets at December 31, 1995 and 1994 consist of the following: 1995 1994 (Dollars in thousands) Debt issuance costs $30,148 $25,142 Other 8,027 8,275 38,175 33,417 Less: accumulated amortization (7,295) (8,799) $30,880 $24,618 During 1995, as part of the acquisition of AN Can and the related refinancing of its secured debt facilities and its Discount Debentures, the Company wrote off $6.3 million of unamortized debt issuance costs and capitalized $19.3 million in new debt issuance costs. Amortization expense relating to debt issuance for the years ended December 31, 1995, 1994, and 1993 was $4.9 million, $5.3 million, and $3.3 million, respectively. 8. Short-Term Borrowings and Long-Term Debt The Company has a working capital revolving credit facility which it uses to finance its seasonal liquidity needs. As of December 31, 1995 and 1994, the Company had $7.1 million and $12.6 million of working capital loans outstanding, respectively. Long-term debt consists of the following: 1995 1994 (Dollars in thousands) Bank A Term Loans $220,000 $ 39,845 Bank B Term Loans 222,750 79,691 Senior Secured Floating Rate Notes due June 30, 1997 - 50,000 11 3/4% Senior Subordinated Notes due June 15, 2002 135,000 135,000 13 1/4% Senior Subordinated Debentures due December 15, 2002 201,263 228,195 779,013 532,731 Less: Amounts due within one year 28,140 21,968 $750,873 $510,763 F-15 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 8. Short-Term Borrowings and Long-Term Debt (continued) The aggregate annual maturities of long-term debt at December 31, 1995 are as follows (dollars in thousands): 1996 $ 28,140 1997 37,170 1998 52,138 1999 52,138 2000 102,281 2001 and thereafter 507,146 $779,013 1995 Bank Credit Agreement Effective August 1, 1995, Silgan, Containers, and Plastics entered into a $675.0 million credit agreement (the "Credit Agreement") with various banks to finance the acquisition by Containers of AN Can, to refinance and repay in full all amounts owing under the previous bank credit agreement and the Senior Secured Notes and to repurchase up to $75.0 million of its 13 1/4% Senior Discount Debentures ("Discount Debentures"). In connection with the refinancing of the Credit Agreement, the Company incurred a charge of $5.8 million (net of taxes of $2.6 million) in 1995 for the early extinguishment of amounts owed under existing secured debt facilities and for the repurchase of a portion of its Discount Debentures. The Credit Agreement provided the Company with (i) $225.0 million of A Term Loans, (ii) $225.0 million of B Term Loans, and (iii) a working capital revolving credit facility of up to $225.0 million ("Working Capital Loans"). The Company used proceeds from the Credit Agreement to repay $117.1 million of term loans under the previous bank credit agreement, repay in full $50.0 million of its Senior Secured Notes due 1997, acquire AN Can for $348.8 million (excluding $15.2 million for the St. Louis operations which the Company expects to purchase by mid-1996), repurchase $57.6 million of its Discount Debentures, and incur debt issuance costs of $19.3 million. The Company is currently permitted under the debt facilities to make additional repurchases of its Discount Debentures prior to June 30, 1996. F-16 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 8. Short-Term Borrowings and Long-Term Debt (continued) 1995 Bank Credit Agreement (continued) The A Term Loans mature on December 31, 2000, and the B Term Loans mature on March 15, 2002. During 1995, principal repayments of $5.0 million were made on the A Term Loans and $2.3 million on the B Term Loans. Principal is to be repaid on each term loan in installments in accordance with the Credit Agreement until maturity. As defined in the Credit Agreement, the Company is required to repay the term loans (ratably allocated between the A Term Loans and the B Term Loans) in an amount equal to 80% of the net sale proceeds from certain asset sales and up to 100% of the net equity proceeds from certain sales of equity. Effective for the year ended December 31, 1996 and each year thereafter during the term of the Credit Agreement, the Company is required to pre-pay the term loans (ratably allocated between the A Term Loans and the B Term Loans) in an amount equal to 50% of the Company's excess cash flow. Amounts repaid under the term loans cannot be reborrowed. The Credit Agreement provides Containers and Plastics, together, a revolving credit facility of $225.0 million for working capital needs. The commitment under the Credit Agreement for Working Capital Loans was initially $150.0 million. This initial commitment will increase at the time and by the amount the Company repurchases its Discount Debentures (up to a maximum commitment of $225.0 million). As of December 31, 1995, Holdings had repurchased $57.6 million of Discount Debentures, thereby increasing the commitment under the revolving credit facility to $207.6 million. After taking into account outstanding letters of credit of $6.6 million and Working Capital Loans of $7.1 million, the borrowings available under the revolving credit facility were $193.9 million at December 31, 1995. In addition to borrowings of Working Capital Loans, the Company may utilize up to a maximum of $20.0 million in letters of credit as long as the aggregate amount of borrowings and letters of credit do not exceed the amount of the commitment. The aggregate amount of Working Capital Loans and letters of credit which may be outstanding at any time is also limited to the aggregate of 85% of eligible accounts receivable and 50% of eligible inventory. Working Capital Loans may be borrowed, repaid, and reborrowed over the life of the Credit Agreement until final maturity on December 31, 2000. F-17 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 8. Short-Term Borrowings and Long-Term Debt (continued) 1995 Bank Credit Agreement (continued) The borrowings under the Credit Agreement may be designated by the respective Borrowers as Base Rate or Eurodollar Rate borrowings. The Base Rate is the higher of (i) 1/2 of 1% in excess of Adjusted Certificate of Deposit Rate, or (ii) Bankers Trust Company's prime lending rate. Base Rate borrowings bear interest at the Base Rate plus 1.50%, in the case of A Term Loans and Working Capital Loans; and 2.0%, in the case of B Term Loans. Eurodollar Rate borrowings bear interest at the Eurodollar Rate plus 2.50% in the case of A Term Loans and Working Capital Loans; and 3.0%, in the case of B Term Loans. At December 31, 1995, the interest rate for Base Rate borrowings was 10.0 % and the interest rate for Eurodollar Rate borrowings ranged between 8.1875% and 8.9375%. For 1995, 1994 and 1993, respectively, the average amount of borrowings of Working Capital Loans was $67.6 million, $14.4 million and $51.9 million; the average annual interest rate paid on such borrowings was 8.9%, 8.4%, and 6.0%; and the highest amount of such borrowings at any month-end was $184.0 million, $43.9 million, and $80.3 million. The Credit Agreement provides for the payment of a commitment fee of 0.5% per annum on the daily average unused portion of commitments available under the working capital revolving credit facility as well as a 2.75% per annum fee on outstanding letters of credit. The indebtedness under the Credit Agreement is guaranteed by Holdings and each of the Borrowers and secured by a security interest in substantially all of the real and personal property of the Borrowers. The stock of Silgan and the stock of principally all of its subsidiaries have been pledged to the lenders under the Credit Agreement. The Credit Agreement contains various covenants which limit or restrict, among other things, investments, indebtedness, liens, dividends, leases, capital expenditures, and the use of proceeds from asset sales, as well as requiring the Company to meet certain specified financial covenants. The Company is currently in compliance with all covenants under the Credit Agreement. F-18 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 8. Short-Term Borrowings and Long-Term Debt (continued) 1993 Bank Credit Agreement Effective December 21, 1993, Silgan, Containers, and Plastics entered into a credit agreement with a group of banks for $140.0 million in term loans and $70.0 million in working capital loans to finance in part the acquisition of DM Can and repay $41.6 million of term loans owed under a previous bank credit agreement. In addition, Holdings issued and sold 250,000 shares of its Class B Common Stock for $15.0 million and, in turn, contributed such amount to Silgan. As a result of the early extinguishment of debt, the Company incurred a net charge of $1.3 million. According to the terms of this bank credit agreement, 80% of amounts received from the sale or disposal of assets was to be used to repay term loans. Prior to the refinancing and repayment of this bank facility, an additional principal payment of $2.5 million was made early in 1995 from net proceeds received from asset sales. Senior Secured Floating Rate Notes The Company redeemed its Senior Secured Notes on August 30, 1995 for a premium of $0.1 million. 11 3/4% Senior Subordinated Notes The Company's 11 3/4% Senior Subordinated Notes (the "11 3/4% Notes") which mature on June 15, 2002, represent unsecured general obligations, subordinate in right of payment to obligations of the Company under the Credit Agreement and effectively subordinate to all of the obligations of the subsidiaries of the Company. Interest is payable semi-annually on June 15 and December 15. The 11 3/4% Notes are redeemable at the option of the Company, in whole or in part, at any time during the twelve months commencing June 15 of the following years at the indicated percentages of their principal amount, plus accrued interest: Redemption Year Percentage 1997 105.8750% 1998 102.9375% 1999 and thereafter 100.0000% F-19 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 8. Short-Term Borrowings and Long-Term Debt (continued) 11 3/4% Senior Subordinated Notes (continued) The 11 3/4% Notes Indenture contains covenants which are comparable to or less restrictive than those under the terms of the existing Credit Agreement. 13 1/4% Senior Discount Debentures The 13 1/4% Senior Discount Debentures, which are due on December 15, 2002, represent unsecured general obligations of Holdings, subordinate in right of payment to the obligations of Silgan and its subsidiaries. The original issue discount is being amortized through June 15, 1996 with a yield to maturity of 13 1/4%. During the year ended December 31, 1995, the Company repurchased $61.7 million face amount of its Discount Debentures for $57.6 million, including a premium of $2.0 million. The carrying amount at December 31, 1995 of the Discount Debentures represents the face amount less an unamortized discount of $12.1 million. From and after June 15, 1996, interest on the Discount Debentures will accrue on the principal amount at the rate of 13 1/4% and be payable in cash semiannually. The Discount Debentures are redeemable at any time, at the option of Holdings, in whole or in part, at 100% of their principal amount plus accrued interest to the redemption date. The Discount Debentures Indenture contains covenants which are comparable to or less restrictive than those under the Credit Agreement and the 11 3/4% Notes. 9. Fair Value of Financial Instruments The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash and cash equivalents: The carrying amount reported in the balance sheet for cash and cash equivalents approximates fair value due to the short duration of those investments. F-20 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 9. Fair Value of Financial Instruments (continued) Short and long-term debt: The carrying amounts of the Company's borrowings under its working capital loans and variable-rate borrowings approximate their fair value. The fair values of fixed-rate borrowings are based on quoted market prices. Letters of Credit: Fair values of the Company's outstanding letters of credit are based on current contractual amounts outstanding. The following table presents the carrying amounts and fair values of the Company's financial instruments recorded at December 31, 1995 and 1994, respectively (dollars in thousands): 1995 1994 Carrying Fair Carrying Fair Amount Value Amount Value Working Capital Facility $ 7,100 $ 7,100 $ 12,600 $ 12,600 Current Portion of long-term debt 28,140 28,140 21,968 21,968 Bank A Term Loans 220,000 220,000 39,845 39,845 Bank B Term Loans 222,750 222,750 79,691 79,691 Senior Secured Floating Rate Notes due June 30, 1997 - - 50,000 50,000 11 3/4% Senior Subordinated Notes due June 15, 2002 135,000 144,500 135,000 140,400 13 1/4% Senior Subordinated Debentures due December 15, 2002 201,263 205,873 228,195 235,100 The Company has had limited involvement with derivative financial instruments and does not use them for trading purposes. During 1995 and 1994, the Company was not party to any interest rate hedge agreements, nor did it use derivative instruments to hedge commodity or foreign exchange risks. F-21 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 9. Fair Value of Financial Instruments (continued) Subsequent to December 31, 1995, the Company entered into interest rate swap agreements in order to manage its exposure to interest rate fluctuations. These agreements effectively convert interest rate exposure from variable rate to a fixed rate without the exchange of the underlying principal amounts. The Company has agreed to pay fixed rates of interest ranging from 8.1% to 8.6% on notional principal amounts totaling $100.0 million which mature in the year 1999. Net payments or receipts under these agreements will be recorded as adjustments to interest expense. Concentration of Credit Risk The Company derives a significant portion of its revenue from multi-year supply agreements with many of its customers. Revenues from its two largest customers accounted for approximately 36.0% of sales in 1995 and 47.3% in 1994. The receivable balances from these customers collectively represented 28.2% and 34.4% of accounts receivable before allowances at December 31, 1995 and 1994, respectively. As is common in the packaging industry, the Company provides extended payment terms for some of its customers due to the seasonality of the vegetable and fruit pack business. Exposure to losses is dependent on each customer's financial position. The Company performs ongoing credit evaluations of its customer's financial condition and its receivables are not collateralized. The Company maintains an allowance for doubtful accounts which management believes is adequate to cover potential credit losses based on customer credit evaluations, collection history, and other information. F-22 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 10. Commitments The Company has a number of noncancelable operating leases for office and plant facilities, equipment and automobiles that expire at various dates through 2020. Certain operating leases have renewal options. Minimum future rental payments under these leases are (dollars in thousands): 1996 $13,442 1997 10,768 1998 7,973 1999 5,778 2000 4,928 2001 and thereafter 7,159 $50,048 Rent expense was approximately $10.8 million in 1995; $9.1 million in 1994; and $8.0 million in 1993. 11. Retirement Plans The Company sponsors pension and defined contribution plans which cover substantially all employees, other than union employees covered by multi- employer defined benefit pension plans under collective bargaining agreements. Pension benefits are provided based on either a career average, final pay or years of service formula. With respect to certain hourly employees, pension benefits are provided for based on stated amounts for each year of service. It is the Company's policy to fund accrued pension and defined contribution costs in compliance with ERISA requirements. Assets of the plans consist primarily of equity and bond funds. F-23 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 11. Retirement Plans (continued) The following table sets forth the funded status of the Company's retirement plans as of December 31: Plans in which Plans in which Assets Exceed Accumulated Accumulated Benefits Benefits Exceed Assets 1995 1994 1995 1994 (Dollars in thousands) Actuarial present value of benefit obligations: Vested benefit obligations $12,135 $ 9,182 $31,465 $19,876 Non-vested benefit obligations 547 871 3,158 1,889 Accumulated benefit obligations 12,682 10,053 34,623 21,765 Additional benefits due to future salary levels 5,667 5,358 7,132 3,557 Projected benefit obligations 18,349 15,411 41,755 25,322 Plan assets at fair value 12,988 11,612 23,535 17,249 Projected benefit obligation in excess of plan assets 5,361 3,799 18,220 8,073 Unrecognized actuarial gain (loss) (165) 504 1,237 3,916 Unrecognized prior service costs (615) (665) (2,128) (2,461) Additional minimum liability - - 1,990 1,677 Accrued pension liability recognized in the balance sheet $ 4,581 $ 3,638 $19,319 $11,205 As of the AN Can acquisition date, the Company assumed an accrued pension liability of $6.8 million related to the active employee population transferred to the Company from AN Can. Under the terms of the acquisition, ANC retained the liability for the retired population as of August 1, 1995 F-24 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 11. Retirement Plans (continued) For certain pension plans with accumulated benefits in excess of plan assets at December 31, 1995 and December 31, 1994, the balance sheet reflects an additional minimum pension liability and related intangible asset of $2.0 million and $1.7 million, respectively, The components of net periodic pension costs for defined benefit plans are as follows: 1995 1994 1993 (Dollars in thousands) Service cost $ 3,067 $ 2,947 $ 1,809 Interest cost 3,887 3,334 2,144 Actual loss (return) on assets (7,284) 539 (1,784) Net amortization and deferrals 5,008 (2,698) 317 Net periodic pension cost $ 4,678 $ 4,122 $ 2,486 During 1995, the Company recognized settlement and curtailment losses of $0.4 million from the termination of participation in certain plans as a result of plant closings and changes in pension benefit provisions. The Company participates in several multi-employer pension plans which provide defined benefits to certain of its union employees. The composition of total pension cost for 1995, 1994, and 1993 in the Consolidated Statements of Operations is as follows: 1995 1994 1993 (Dollars in thousands) Net periodic pension cost $ 4,678 $ 4,122 $ 2,486 Settlement and curtailment losses, net 418 - - Contributions to multi-employer union plans 2,708 2,700 2,000 Total pension costs $ 7,804 $ 6,822 $ 4,486 F-25 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 11. Retirement Plans (continued) The assumptions used in determining the actuarial present value of plan benefit obligations as of December 31 are as follows: 1995 1994 1993 Discount rate 7.5% 8.5% 7.5% Weighted average rate of compensation increase 4.0% 4.5% 4.5% Expected long-term rate of return on plan assets 8.5% 8.5% 8.5% The Company also sponsors defined contribution pension and profit sharing plans covering substantially all employees. Company contributions to these plans are based upon employee contributions and operating profitability. Contributions charged to income for these plans were $1.7 million in 1995; $2.5 million in 1994; and $1.5 million in 1993. The decline in defined contributions in 1995 as compared to 1994 resulted from lower profit- sharing contributions made for Company employees since target financial objectives were not achieved. This decrease was partially offset by an increase in the contribution base attributable to additional employee participation as a result of the acquisition of AN Can. 12. Postretirement Benefits Other than Pensions Effective January 1, 1993, the Company changed its method of accounting for postretirement health care and other insurance benefits to conform to the provisions of SFAS No. 106 "Employers' Accounting for Post Retirement Benefits Other Than Pensions", which requires accrual of these benefits over the period during which active employees become eligible for such benefits. Previously, the Company recognized the cost of providing such benefits on the pay-as-you-go basis. The Company elected to immediately recognize a cumulative charge of $5.0 million for this change in accounting principle which represents the accumulated postretirement benefit obligation existing as of January 1, 1993. F-26 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 12. Postretirement Benefits Other than Pensions (continued) The Company has defined benefit health care and life insurance plans that provide postretirement benefits to certain employees. The plans are contributory, with retiree contributions adjusted annually, and contain cost sharing features including deductibles and coinsurance. Retiree health benefits are paid as covered expenses are incurred. The following table presents the funded status of the postretirement plans and amounts recognized in the Company's balance sheet as of December 31: 1995 1994 (Dollars in thousands) Accumulated postretirement benefit obligation: Retirees $ 1,587 $ 1,183 Fully eligible active plan participants 11,647 1,521 Other active plan participants 14,770 2,577 Total accumulated postretirement benefit obligation 28,004 5,281 Unrecognized net gain (2,929) (219) Unrecognized prior service costs (298) (79) Accrued postretirement benefit liability $24,777 $ 4,983 As of the AN Can acquisition date, the Company assumed a postretirement benefit liability in the amount of $19.6 million for the active population transferred to the Company from AN Can. Under the terms of the acquisition, ANC retained the liability for the retired population as of August 1, 1995. Net periodic postretirement benefit cost include the following components: 1995 1994 (Dollars in thousands) Service cost $ 372 $ 321 Interest cost 1,097 412 Net amortization and deferral 42 (14) Net periodic postretirement benefit cost $1,511 $ 719 F-27 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 12. Postretirement Benefits Other than Pensions (continued) The weighted average discount rates used to determine the accumulated postretirement benefit obligation as of December 31, 1995 and 1994 were 7.5% and 8.5%, respectively. The net periodic postretirement benefit costs were calculated using a discount rate ranging from 7.5% to 8.5% for 1995 and 8.5% for 1994. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation ranged from 7.14% to 10.0% in 1995 and was 14% in 1994, declining to a rate ranging from 5.0% to 6.0% in the year 2003 and thereafter. A 1% increase in the health care cost trend rate assumption would increase the accumulated postretirement benefit obligation as of December 31, 1995 by approximately $3.7 million and increase the aggregate of the service and interest cost components of the net periodic postretirement benefit cost for 1995 by approximately $0.2 million. 13. Income Taxes The components of income tax expense are as follows: 1995 1994 1993 (Dollars in thousands) Current Federal $ 500 $2,500 $ 300 State 1,900 3,200 1,900 Foreign 100 (100) (400) 2,500 5,600 1,800 Deferred Federal - - - State - - 100 Foreign - - - - - 100 $2,500 $5,600 $1,900 F-28 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 13. Income Taxes (continued) Income tax expense is included in the financial statements as follows: 1995 1994 1993 (Dollars in thousands) Income before extraordinary charges $ 5,100 $ 5,600 $ 1,900 Extraordinary charges (2,600) - - $ 2,500 $ 5,600 $ 1,900 The income tax provision varied from that computed by using the U.S. statutory rate as a result of the following: 1995 1994 1993 (Dollars in thousands) Income tax benefit at the U.S. Federal income tax rate $(3,811) $(2,601) $(4,363) State and foreign tax expense net of Federal income benefit 1,820 2,015 1,235 Amortization of goodwill 471 576 154 Losses with no benefit 6,620 5,610 4,874 $ 5,100 $ 5,600 $ 1,900 F-29 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 13. Income Taxes (continued) Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets at December 31 are as follows: 1995 1994 (Dollars in thousands) Deferred tax liabilities: Tax over book depreciation $27,800 $21,900 Book over tax basis of assets acquired 41,700 21,400 Other 3,900 4,100 Total deferred tax liabilities 73,400 47,400 Deferred tax assets: Book reserves not yet deductible for tax purposes 56,300 24,800 Deferred interest on high yield obligations 25,100 21,300 Net operating loss carryforwards 35,600 26,200 Other 1,200 4,100 Total deferred tax assets 118,200 76,400 Valuation allowance for deferred tax assets 51,636 35,836 Net deferred tax assets 66,564 40,564 Net deferred tax liabilities $ 6,836 $ 6,836 The Company files a consolidated Federal income tax return. At December 31, 1995, the Company has net operating loss carryforwards of approximately $100.0 million which are available to offset future consolidated taxable income of the group and expire from 2001 through 2010. The Company had an alternative minimum tax liability of $0.5 million in 1995 and $1.5 million in 1994. At December 31, 1995, the Company had $3.9 million of alternative minimum tax credits which are available indefinitely to reduce future tax payments for regular federal income tax purposes. F-30 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 14. Acquisition Reserves In connection with the acquisition of AN Can, the Company plans to improve operating efficiencies through production and facility consolidation and through workforce reductions. As part of its preliminary purchase price allocation, the Company established a reserve for $25.0 million which primarily consists of $20.5 million for severance and $4.5 million of facility exit costs. The provision for severance includes employee termination benefits, such as, salary continuation, pension, and medical. Plant exit costs include planned expenditures relating to facility shut down, equipment removal, and compliance with environmental regulations. During the year, $0.9 million of costs were expended for severance. As of December 31, 1995, $7.1 million remained in other accrued expenses for costs expected to be paid within one year and $17.0 million remained in long term liabilities. Management believes that the operating improvements will not be fully implemented until 1997 and the remaining reserve balance will be adequate to cover anticipated costs. 15. Stock Option Plans Holdings, Containers and Plastics have established stock option plans for their key employees pursuant to which options to purchase shares of common stock of Holdings and its subsidiaries and stock appreciation rights ("SARs") may be granted. Options granted under the plans may be either incentive stock options or non-qualified stock options. To date, all stock options granted have been non-qualified stock options. Under the plans, Holdings has reserved 24,000 shares of its Class C Common Stock and Containers and Plastics have each reserved 1,200 shares of their common stock for issuance under their respective plans. Containers has 13,764 shares and Plastics has 13,800 shares of $0.01 par value common stock currently issued, and all such shares are owned by Silgan. F-31 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 15. Stock Option Plans (continued) The SARs extend to the shares covered by the options for the Containers and Plastics plans and provide for the payment to the holders of the options of an amount in cash equal to the excess of, in the case of Containers' plans, the pro forma book value, as defined, of a share of common stock (or in the event of a public offering or a change in control (as defined), the fair market value of a share of common stock) over the exercise price of the option, with certain adjustments for the portion of vested stock appreciation rights not paid at the time of the recapitalization in June 1989; or, in the case of the Plastics plan, in the event of a public offering or a change in control (as defined), the fair market value of a share of common stock over the exercise price of the option. Prior to a public offering or change in control, should an employee leave Containers, Containers has the right to repurchase, and the employee has the right to require Containers to repurchase, the common stock at the then pro forma book value. At December 31, 1995, there were outstanding options for 24,000 shares under the Holdings plan, 936 shares under the Containers plan and 1,200 shares under the Plastics plan. The exercise prices per share range from $35 to $61 for the Holdings options, range from $2,122 and $4,933 for the Containers options and $126 to $943 for the Plastics options. The stock options and SARs generally become exercisable ratably over a five-year period. At December 31, 1995, there were 16,800 options exercisable under the Holdings plans, 840 options/SARs exercisable under the Containers plan and 180 options/SARs exercisable under the Plastics plan. The Company incurred charges relating to the vesting and payment of benefits under the stock option plans of $0.8 million in 1995; $1.5 million in 1994; and $0.2 million in 1993. In the event of a public offering of any of Holdings' capital stock or a change in control of Holdings, (i) the options granted by Containers and Plastics pursuant to the plans and (ii) any stock issued upon exercise of such options issued by Containers are convertible into either stock options or common stock of Holdings, as the case may be. The conversion of such options or shares will be based upon a valuation of Holdings and an allocation of such value among the subsidiaries after giving affect to, among other things, that portion of the outstanding indebtedness of Holdings allocable to each such subsidiary. F-32 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 15. Stock Option Plans (continued) In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation", effective for the 1996 fiscal year. Under SFAS No. 123, compensation expense for all stock-based compensation plans would be recognized based on the fair value of the options at the date of grant using an option pricing model. As permitted under SFAS No. 123, the Company may either adopt the new pronouncement or may continue to follow the current accounting method as prescribed under APB. Opinion No. 25, "Accounting for Stock Issued to Employees". The Company does not intend to adopt SFAS No. 123 for expense recognition purposes in 1996. 16. Deficiency in Stockholders' Equity Deficiency in stockholders' equity includes the following classes of common stock ($.01 par value) and preferred stock: Shares Shares Issued and Outstanding Class Authorized December 31, 1995 and 994 A 500,000 417,500 B 667,500 667,500 C 1,000,000 50,000 2,167,500 1,135,000 Preferred Stock 1,000,000 - The rights, privileges and powers of the Class A Common Stock and the Class B Common Stock are identical, with shares of each class being entitled to one vote on all matters to come before the stockholders of Holdings. The Class C common stockholders do not have voting rights except in certain circumstances. F-33 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 17. Related Party Transactions Pursuant to various management services agreements entered into between Holdings, Silgan, Containers, Plastics, and S&H, Inc. ("S&H"), a company wholly-owned by Messr. Silver, the Chairman and Co-Chief Executive Officer and Messr. Horrigan, the President and Co-Chief Executive Officer, of Holdings and Silgan, S&H provides Holdings, Silgan and its subsidiaries with general management, supervision and administrative services. In consideration for its services, S&H receives a fee of 4.95% (of which 0.45% is payable to MS & Co.) of Holdings' consolidated earnings before depreciation, amortization, interest and taxes ("EBDIT") until EBDIT has reached the Scheduled Amount set forth in the Management Agreements and 3.3% (of which 0.3% is payable to MS & Co.) after EBDIT has exceeded the Scheduled Amount up to the Maximum Amount as set forth in the Management Agreements, plus reimbursement for all related out-of-pocket expenses. The total amount incurred under the Management Agreements was $5.4 million in 1995, $5.0 million in 1994, and $4.4 million in 1993 and was allocated, based upon EBDIT, as a charge to operating income of each business segment. Included in accounts payable at December 31, 1995 and 1994, was $0.1 million payable to S&H. Under the terms of the Management Agreements, the Company has agreed, subject to certain exceptions, to indemnify S&H and any of its affiliates, officers, directors, employees, subcontractors, consultants or controlling persons against any loss or damage they may sustain arising in connection with the Management Agreements. In connection with the refinancings and bank credit agreements entered into during 1995 and 1993, the banks thereunder (including Bankers Trust Company) received fees totaling $17.2 million in 1995 and $8.1 million in 1993. F-34 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 18. Litigation In connection with the acquisition by Holdings of Silgan as of June 30, 1989 (the "Merger"), a decision was rendered in 1995 by the Delaware Court of Chancery with respect to appraisal proceedings filed by certain former stockholders of 400,000 shares of stock of Silgan. Pursuant to that decision, these former holders were awarded $5.94 per share, plus simple interest at a rate of 9.5%. This award was less than the amount, $6.50 per share, that these former holders would have received in the Merger. The right of these former holders to appeal the Chancery Court's decision has expired, and the Company has tendered payment of $3.8 million to these former holders. In 1994, prior to the trial for appraisal, the Company and the former holders of an additional 650,000 shares of stock of Silgan agreed to a settlement in respect of their appraisal rights, and the Company made a payment of $6.9 million, including interest, in respect of the settlement. With respect to a complaint filed by limited partners of The Morgan Stanley Leveraged Equity Fund, L.P. against a number of defendants, including Silgan and Holdings, all claims against Silgan and Holdings related to this action were dismissed on January 14, 1993. The plaintiff's time to appeal the dismissal of the claims against Holdings and Silgan expired following the dismissal of the claims against certain other defendants in June 1995. Other than the actions mentioned above, there are no other pending legal proceedings to which the Company is a party or to which any of its properties are subject which would have a material effect on the Company's financial position. F-35 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 19. Business Segment Information The Company is engaged in the packaging industry and operates principally in two business segments. Both segments operate in North America. There are no intersegment sales. Presented below is a tabulation of business segment information for each of the past three years (in millions): Net Oper. Identifiable Dep. & Capital Sales Profit Assets Amort. Expend. 1995 Metal container & specialty(1) $ 882.3 $72.9(2) $736.7 $31.6 $32.5 Plastic container 219.6 13.2 159.4 13.8 19.4 Consolidated $1,101.9 $86.1 $896.1 $45.4 $51.9 1994 Metal container & specialty(1) $657.1 $67.0(3) $335.3 $23.1 $16.9 Plastic container 204.3 9.4(3) 162.8 14.1 12.3 Consolidated $ 861.4 $76.4 $498.1 $37.2 $29.2 1993 Metal container & specialty(1) $459.2 $42.3 $324.5 $17.3 $25.3 Plastic container 186.3 0.6 165.9 16.5 17.2 Consolidated $ 645.5 $42.9 $490.4 $33.8 $42.5 (1)Specialty packaging sales include closures, plastic bowls, and paper containers used by processors and packagers in the food industry and are not significant enough to be reported as a separate segment. (2)Excludes charge for reduction in carrying value of assets of $14.7 million for the metal container segment. (3)Excludes charges for reduction in carrying value of assets of $7.2 million for the metal container segment and $9.5 million for the plastic container segment, respectively. F-36 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 19. Business Segment Information (continued) Operating profit is reconciled to income before tax as follows (in millions): 1995 1994 1993 Operating profit $ 86.1 $ 76.4 $ 42.9 Reduction in carrying value of assets 14.7 16.7 - Interest expense 80.7 65.8 54.3 Corporate 1.5 1.3 1.1 Loss before income taxes $(10.8) $ (7.4) $(12.5) Identifiable assets are reconciled to total assets as follows (in millions): 1995 1994 1993 Identifiable assets $896.1 $498.1 $490.4 Corporate assets 3.9 6.2 7.2 Total assets $900.0 $504.3 $497.6 Metal container and other segment sales to Nestle Food Company accounted for 21.4%, 25.9% and 34.1%, of net sales of the Company during the years ended December 31, 1995, 1994 and 1993, respectively. Similarly, sales to Del Monte accounted for 14.5% and 21.4% of net sales of the Company during the years ended December 31, 1995 and 1994, respectively. F-37 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholder Silgan Corporation We have audited the accompanying consolidated balance sheets of Silgan Corporation as of December 31, 1995 and 1994, and the related consolidated statements of operations, common stockholder's equity and cash flows for each of the three years in the period ended December 31, 1995. Our audits also included the financial statement schedules listed in the index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Silgan Corporation at December 31, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Notes 2 and 13 to the consolidated financial statements, in 1993 the Company changed its method of accounting for income taxes, postemployment benefits and postretirement benefits other than pensions. Ernst & Young LLP Stamford, Connecticut March 8, 1996 F-38 SILGAN CORPORATION CONSOLIDATED BALANCE SHEETS December 31, 1995 and 1994 (Dollars in thousands) Assets 1995 1994 Current assets: Cash and cash equivalents $ 2,092 $ 2,665 Accounts receivable, less allowances for doubtful accounts of $4,843 and $1,557 for 1995 and 1994, respectively 109,929 64,700 Inventories 210,471 122,429 Prepaid expenses and other current assets 5,731 8,044 Total current assets 328,223 197,838 Property, plant and equipment, net 487,301 251,810 Goodwill, net 43,562 30,009 Other assets 29,637 20,491 Advance to Parent 57,596 - Total assets $946,319 $500,148 Liabilities and Stockholder's Equity Current liabilities: Trade accounts payable $138,195 $ 36,845 Accrued payroll and related costs 32,805 26,019 Accrued interest payable 4,358 1,713 Other accrued expenses 43,062 17,013 Bank working capital loans 7,100 12,600 Current portion of long-term debt 28,140 21,968 Total current liabilities 253,660 116,158 Long-term debt 549,610 282,568 Deferred income taxes 3,017 13,017 Other long-term liabilities 69,576 25,060 Stockholder's equity: Common stock ($0.01 par value per share; 3,000 shares authorized, 2 shares issued) - - Additional paid-in capital 73,635 69,535 Retained earnings (deficit) (3,179) (6,190) Total stockholder's equity 70,456 63,345 Total liabilities and stockholder's equity $946,319 $500,148 See accompanying notes. F-39 SILGAN CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS For the years ended December 31, 1995, 1994 and 1993 (Dollars in thousands) 1995 1994 1993 Net sales $1,101,905 $861,374 $645,468 Cost of goods sold 970,491 748,290 571,174 Gross profit 131,414 113,084 74,294 Selling, general and administrative expenses 45,734 37,160 31,821 Reduction in carrying value of assets 14,745 16,729 - Income from operations 70,935 59,195 42,473 Interest expense and other related financing costs 52,462 36,142 27,928 Income before income taxes 18,473 23,053 14,545 Income tax provision 8,700 11,000 6,300 Income before extraordinary charges and cumulative effect of changes in accounting principles 9,773 12,053 8,245 Extraordinary charges relating to early extinguishment of debt, net of taxes (2,967) - (841) Cumulative effect of changes in accounting principles, net of taxes - - (9,951) Net income (loss) $ 6,806 $12,053 $(2,547) See accompanying notes. F-40 SILGAN CORPORATION CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY For the years ended December 31, 1995, 1994 and 1993 (Dollars in thousands) Total Additional Retained common Common paid-in earnings stockholder's stock capital (deficit) equity Balance at December 31, 1992 $ - $41,560 $(8,785) $32,775 Capital contribution by Parent - 15,000 - 15,000 Tax benefit realized from Parent - 7,575 - 7,575 Net loss - - (2,547) (2,547) Balance at December 31, 1993 - 64,135 (11,332) 52,803 Tax benefit realized from Parent - 5,400 - 5,400 Net income - - 12,053 12,053 Payments to former shareholders - - (6,911) (6,911) Balance at December 31, 1994 - 69,535 (6,190) 63,345 Tax benefit realized from Parent - 4,100 - 4,100 Net income - - 6,806 6,806 Payments to former shareholders - - (3,795) (3,795) Balance at December 31, 1995 $ - $73,635 $ (3,179) $70,456 See accompanying notes. F-41 SILGAN CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 1995, 1994 and 1993 (Dollars in thousands) 1995 1994 1993 Cash flows from operating activities: Net income (loss) $ 6,806 $ 12,053 $ (2,547) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 42,217 35,392 31,607 Amortization 7,488 6,404 4,817 Reduction in carrying value of assets 14,745 16,729 - Contribution by Parent for federal income tax provision 4,100 5,400 7,575 Extraordinary charges relating to early extinguishment of debt 4,943 - 1,341 Cumulative effect of changes in accounting principles - - 6,276 Changes in assets and liabilities, net of effect of acquisitions: (Increase) decrease in accounts receivable (1,011) (21,267) 707 (Increase) decrease in inventories 10,852 (16,741) (4,316) Increase in trade accounts payable 43,108 4,478 3,757 Working capital provided by AN Can since acquisition date 85,213 - - Other, net increase (decrease) (8,825) 4,887 (886) Total adjustments 202,830 35,282 50,878 Net cash provided by operating activities 209,636 47,335 48,331 Cash flows from investing activities: Acquisition of ANC's Food Metal & Specialty business (348,762) - - Acquisition of Del Monte Can Manufacturing Assets - 519 (73,865) Capital expenditures (51,897) (29,184) (42,480) Proceeds from sale of assets 3,541 765 262 Net cash used in investing activities $(397,118) $(27,900)$(116,083) Continued on following page. F-42 SILGAN CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) For the years ended December 31, 1995, 1994 and 1993 (Dollars in thousands) 1995 1994 1993 Cash flows from financing activities: Borrowings under working capital loans $669,260 $393,250 $328,050 Repayments under working capital loans (674,760) (382,850) (366,250) Proceeds from issuance of long-term debt 450,000 - 140,000 Repayments of long-term debt (176,910) (20,464) (42,580) Capital contribution by Parent - - 15,000 Payments to former shareholders (3,795) (6,911) - Advance to Parent (57,596) - - Debt financing costs (19,290) - (8,935) Net cash provided (used) by financing activities 186,909 (16,975) 65,285 Net increase (decrease) in cash and cash equivalents (573) 2,460 (2,467) Cash and cash equivalents at beginning of year 2,665 205 2,672 Cash and cash equivalents at end of year $ 2,092 $ 2,665 $ 205 Supplementary data: Interest paid $ 45,293 $ 30,718 $ 25,733 Income taxes paid, net of refunds 8,967 2,588 722 See accompanying notes. F-43 SILGAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 1. Basis of Presentation Silgan Corporation ("Silgan", or the "Company"), a corporation which was formed in 1987 to acquire interests in various packaging manufacturers, is a wholly-owned subsidiary of Silgan Holdings Inc. ("Holdings", or the "Parent"). The Parent is controlled by Silgan management and The Morgan Stanley Leveraged Equity Fund II, L. P. ("MSLEF II"), an affiliate of Morgan Stanley & Co., Incorporated ("MS & Co"). Since 1993, Silgan has made two significant acquisitions. Silgan acquired the U. S. metal container manufacturing business of Del Monte Corporation ("Del Monte") in 1993 and it acquired the Food Metal and Specialty business from American National Can Company ("ANC") in 1995. Both acquisitions were accounted for using the purchase method of accounting (see Note 3 - Acquisitions). The Company, together with its wholly-owned subsidiaries Silgan Containers Corporation ("Containers") and Silgan Plastics Corporation ("Plastics"), is predominantly engaged in the manufacture and sale of steel and aluminum containers for human and pet food products and also manufactures custom designed plastic containers used for health and personal care products. Principally, all of the Company's businesses are based in the United States. Foreign subsidiaries are not significant to the consolidated results of operations or financial position of the Company. 2. Summary of Significant Accounting Policies Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All significant intercompany transactions have been eliminated. Assets and liabilities of the Company's foreign subsidiary are translated at rates of exchange in effect at the balance sheet date. Income statement amounts are translated at the average of monthly exchange rates. Certain reclassifications have been made to prior year's financial statements to conform with current year presentation. F-44 SILGAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 2. Summary of Significant Accounting Policies (continued) Cash and cash equivalents Cash equivalents represent short-term, highly liquid investments having original maturities of three months or less from the time of purchase. The carrying values of these assets approximate their fair values. As a result of the Company's cash management system, checks issued and presented to the banks for payment may create negative cash balances. Checks outstanding in excess of related cash balances totaling approximately $30.0 million at December 31, 1995 and $5.4 million at December 31, 1994 are included in trade accounts payable. Inventories Inventories are stated at the lower of cost or market (net realizable value) and are principally accounted for by the last-in, first-out method (LIFO). Property, Plant, and Equipment Property, plant and equipment are stated at historical cost less accumulated depreciation. Major renewals and betterments that extend the life of an asset are capitalized and repairs and maintenance expenditures are charged to expense as incurred. Depreciation is computed using the straight-line method over their estimated useful lives. The principal estimated useful lives are 35 years for buildings and range between 3 to 18 years for machinery and equipment. Leasehold improvements are amortized over the shorter of the life of the related asset or the life of the lease. Goodwill The Company has classified as goodwill the cost in excess of fair value of net assets acquired in purchase transactions. Goodwill is stated at cost less accumulated amortization. Amortization is computed on a straight-line basis over periods ranging from 20 to 40 years. The Company periodically evaluates the existence of goodwill impairment to access whether goodwill is fully recoverable from projected, undiscounted net cash flows of the related business unit. Impairments would be recognized in operating results if a permanent reduction in values were to occur. F-45 SILGAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 2. Summary of Significant Accounting Policies (continued) Other Assets Other assets consist principally of debt issuance costs which are being amortized on a straight-line basis over the terms of the related debt agreements (5 to 10 years). Other intangible assets are amortized over their expected useful lives using the straight-line method. Income Taxes Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standard ("SFAS") No. 109, "Accounting for Income Taxes". Under SFAS No. 109, the liability method is used to calculate deferred income taxes. The provision for income taxes includes federal, state and foreign income taxes currently payable and those deferred because of temporary differences between the financial statement and tax bases of assets and liabilities. Under SFAS No. 109, the Company recognizes a federal tax benefit from the losses of Holdings which is reflected as a contribution to additional paid-in capital. Due to the adoption of SFAS No. 109 in 1993, the Company recorded a cumulative charge to earnings and a credit to paid- in-capital of $6.0 million for the difference in methods up to the date of adoption. Postemployment Benefits During 1993, the Company adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits". SFAS No. 112 requires accrual accounting for employee benefits that are paid between the termination of active employment but prior to retirement. Such benefits include salary continuation, disability, severance, and health care. The cumulative effect as of January 1, 1993 of this accounting change was to decrease net income by $0.8 million (after related income taxes of $0.5 million). Fair Values of Financial Instruments The carrying amounts for cash, accounts receivable, accounts payable, and other accrued liabilities are reflected in the financial statements and reasonably approximate fair value due to the short maturity of these items. The carrying value for short and long-term debt also approximates fair value but may vary due to changing market conditions. Methods and assumptions used to estimate fair value and the fair value of the Company's debt instruments are disclosed in Note 10. F-46 SILGAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 2. Summary of Significant Accounting Policies (continued) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities, revenues and expenses, as well as footnote disclosures in the financial statements. Actual results may differ from those estimates. 3. Acquisitions During the three years ended December 31, 1995, the Company made two acquisitions, as discussed below. Both were accounted for using the purchase method of accounting and the results of operations have been included with the Company's results from the respective acquisition dates. The excess of the purchase price over the fair value of net assets acquired was allocated to goodwill. Fiscal year 1995 acquisition On August 1, 1995, Containers acquired from ANC substantially all of the fixed assets and working capital, and assumed certain specified limited liabilities, of ANC's Food Metal & Specialty business ("AN Can"), which manufactures, markets and sells metal food containers and rigid plastic containers for a variety of food products and metal caps and closures for food and beverage products. The purchase price for the assets acquired and the assumption of certain specified liabilities, including related transaction costs, was $364.0 million (including $15.2 million for the operations of ANC's St. Louis, MO facility which the Company intends to purchase by mid-1996 upon completion of a rationalization project undertaken at that location). F-47 SILGAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 3. Acquisitions (continued) Fiscal year 1995 acquisition (continued) The purchase price was allocated to the tangible and identifiable assets acquired and liabilities assumed based upon their estimated fair values as determined from preliminary appraisals and valuations which management believes are reasonable. The purchase price allocation will be finalized within one year of the acquisition date. Differences between actual and preliminary valuations will cause adjustments to the AN Can purchase price allocation as shown below. Estimated items subject to change include employee benefit costs and termination costs associated with plant rationalization and administrative workforce reductions and other plant exit costs. The aggregate purchase price and its preliminary allocation to the assets and liabilities is as follows for AN Can (dollars in thousands): Net working capital acquired $155,967 Property, plant and equipment 240,079 Goodwill 14,832 Deferred tax asset 10,000 Other liabilities assumed (56,916) $363,962 Set forth below are the Company's summary unaudited pro forma results of operations for the years ended December 31, 1995 and 1994. The pro forma results include the historical results of the Company and AN Can and reflect the effect of purchase accounting adjustments based on preliminary appraisals and valuations, the financing of the acquisition, the refinancing of the Company's debt obligations, and certain other adjustments as if these events occurred as of the beginning of the periods presented. The pro forma data does not purport to represent what the Company's results of operations actually would have been if the operations were combined as of January 1, 1995 or 1994, or to project the Company's results of operations for any future period. 1995 1994 (Dollars in thousands) Net sales $1,404,382 $1,457,968 Income from operations 98,674 (1) 63,980 (2) Income (loss) before income taxes 32,333 (3,572) Net income (loss) 18,033 (2,107) F-48 SILGAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 3. Acquisitions (continued) Fiscal year 1995 acquisition (continued) (1) Included in pro forma income from operations for the year ended December 31, 1995 is a charge incurred by the Company of $14.7 million to adjust the carrying value of certain underutilized machinery and equipment at Silgan facilities (existing prior to the AN Can acquisition) to net realizable value. (2) Included in pro forma income from operations for the year ended December 31, 1994 are charges incurred by AN Can of $10.1 million for shut down costs necessary to realign the assets of the business more closely with the existing customer base, $16.7 million related to Silgan and $7.1 million related to AN Can to adjust the carrying value of certain technologically obsolete and inoperable equipment to realizable value, and $26.7 million for the write-down of goodwill by AN Can. Fiscal year 1993 acquisition On December 21, 1993, Containers acquired from Del Monte substantially all of the fixed assets and certain working capital of Del Monte's container manufacturing business in the United States ("DM Can"). The final purchase price for the assets acquired and the assumption of certain specified liabilities, including related transaction costs, was $73.3 million. The detail of the assets acquired is as follows (dollars in thousands): Net working capital $ 21,944 Property, plant and equipment 47,167 Goodwill 13,729 Other liabilities assumed (9,494) $ 73,346 F-49 SILGAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 4. Inventories The components of inventories at December 31, 1995 and 1994 consist of the following: 1995 1994 (Dollars in thousands) Raw materials $ 46,027 $ 38,575 Work-in-process 24,869 19,045 Finished goods 135,590 63,409 Spare parts and other 6,344 1,621 212,830 122,650 Adjustment to value inventory at cost on the LIFO method (2,359) (221) $210,471 $122,429 The amount of inventory recorded on the first-in first-out method at December 31, 1995 and 1994 was $14.9 million and $6.5 million, respectively. 5. Property, Plant, and Equipment Property, plant, and equipment consist of the following: 1995 1994 (Dollars in thousands) Land $ 6,355 $ 3,707 Buildings and improvements 68,860 51,665 Machinery and equipment 584,526 346,061 Construction in progress 33,764 18,124 693,505 419,557 Accumulated depreciation and amortization (206,204) (167,747) Property, plant and equipment, net $487,301 $251,810 For the years ended December 31, 1995, 1994, and 1993, depreciation expense was $42.2 million, $35.4 million, and $31.6 million respectively. The total amount of repairs and maintenance expense was $26.9 million in 1995, $19.9 million in 1994, and $17.1 million in 1993. F-50 SILGAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 5. Property, Plant, and Equipment (continued) Effective October 1, 1994, the Company extended the estimated useful lives of certain fixed assets to more properly reflect the true economic lives of the assets and to better align the Company's depreciable lives with the predominate practice in the industry. The change had the effect of decreasing depreciation expense in 1994 by approximately $1.3 million and increasing net income by $0.8 million. Based upon a review of its depreciable assets, the Company determined that certain adjustments were necessary to properly reflect net realizable values. In 1995, the Company recorded a write-down of $14.7 million for the excess of carrying value over estimated realizable value of machinery and equipment at existing facilities which have become underutilized due to excess capacity. In 1994, charges of $16.7 million were recorded which included $2.6 million to write-down the excess carrying value over estimated realizable value of various plant facilities held for sale and $14.1 million for technologically obsolete and inoperable machinery and equipment. In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" which is effective for the 1996 fiscal year. As required by this standard, impairment losses will be recognized when events or changes in circumstances indicate that the fair value of identified assets is less than the carrying amount. In making such a determination, the Company will compare the undiscounted cash flows generated by specified assets to the carrying value of such assets. The Company will adopt SFAS No. 121 in 1996 and believes the effect of adoption will not be material. 6. Goodwill Goodwill amortization charged to operations was $1.3 million in 1995; $1.2 million in 1994; and $0.5 million in 1993. Accumulated amortization of goodwill at December 31, 1995, 1994, and 1993 was $5.0 million; $3.7 million; and $2.5 million, respectively. F-51 SILGAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 7. Advance to Parent During the year ended December 31, 1995, the Company advanced to Holdings, on a non-interest bearing basis, $57.6 million. Holdings used the advance to purchase $61.7 million face amount of Holdings' 13 1/4% Senior Discount Debentures ("Discount Debentures"). The Company is currently permitted under its debt facilities to make further advances of up to $17.4 million to fund additional repurchases by Holdings of its Discount Debentures prior to June 30, 1996. 8. Other Assets Other assets at December 31, 1995 and 1994 consist of the following: 1995 1994 (Dollars in thousands) Debt issuance costs $25,021 $18,092 Other 10,202 9,519 35,223 27,611 Less: accumulated amortization (5,586) (7,120) $29,637 $20,491 During 1995, as part of the acquisition of AN Can and the related refinancing of its secured debt facilities, the Company wrote off $4.9 million of unamortized debt issuance costs and capitalized $19.3 million in new debt issuance costs. Amortization expense relating to debt issuance for the years ended December 31, 1995, 1994, and 1993 was $4.3 million, $4.6 million, and $2.6 million, respectively. 9. Short-Term Borrowings and Long-Term Debt The Company has a working capital revolving credit facility which it uses to finance its seasonal liquidity needs. As of December 31, 1995 and 1994, the Company had $7.1 million and $12.6 million of working capital loans outstanding, respectively. F-52 SILGAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 9. Short-Term Borrowings and Long-Term Debt (continued) Long-term debt consists of the following: 1995 1994 (Dollars in thousands) Bank A Term Loans $220,000 $ 39,845 Bank B Term Loans 222,750 79,691 Senior Secured Floating Rate Notes due June 30, 1997 - 50,000 11 3/4% Senior Subordinated Notes due June 15, 2002 135,000 135,000 577,750 304,536 Less: Amounts due within one year 28,140 21,968 $549,610 $282,568 The aggregate annual maturities of long-term debt at December 31, 1995 are as follows (dollars in thousands): 1996 $ 28,140 1997 37,170 1998 52,138 1999 52,138 2000 102,281 2001 and thereafter 305,883 $ 577,750 1995 Bank Credit Agreement Effective August 1, 1995, the Company, Containers, and Plastics entered into a $675.0 million credit agreement (the "Credit Agreement") with various banks to finance the acquisition by Containers of AN Can, to refinance and repay in full all amounts owing under the previous bank credit agreement and the Company's Senior Secured Notes and to make non- interest bearing advances to Holdings in an amount not to exceed $75.0 million for the repurchase of a portion of Holding's Discount Debentures. In connection with the refinancing of the credit agreement, the Company incurred a charge of $3.0 million (net of taxes of $2.1 million) in 1995 for the early extinguishment of amounts owed under existing secured debt facilities. F-53 SILGAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 9. Short-Term Borrowings and Long-Term Debt (continued) 1995 Bank Credit Agreement (continued) The Credit Agreement provided the Company with (i) $225.0 million of A Term Loans, (ii) $225.0 million of B Term Loans, and (iii) a working capital revolving credit facility of up to $225.0 million ("Working Capital Loans"). The Company used proceeds from the Credit Agreement to repay $117.1 million of term loans under the previous bank credit agreement, repay in full $50.0 million of its Senior Secured Notes due 1997, acquire AN Can for $348.8 million (excluding $15.2 million for the St. Louis operations which the Company expects to purchase by mid-1996), advance $57.6 million to Holdings, and incur debt issuance costs of $19.3 million. The A Term Loans mature on December 31, 2000, and the B Term Loans mature on March 15, 2002. During 1995, principal repayments of $5.0 were made on the A Term Loans and $2.3 million on the B Term Loans. Principal is to be repaid on each term loan in installments in accordance with the Credit Agreement until maturity. As defined in the Credit Agreement, the Company is required to repay the term loans (ratably allocated between the A Term Loans and the B Term Loans) in an amount equal to 80% of the net sale proceeds from certain asset sales and up to 100% of the net equity proceeds from certain sales of equity. In addition, effective for the year ended December 31, 1996 and each year thereafter during the term of the Credit Agreement, the Company is required to pre-pay the term loans (ratably allocated between the A Term Loans and the B Term Loans) in an amount equal to 50% of the Company's excess cash flow. Amounts repaid under the term loans cannot be reborrowed. F-54 SILGAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 9. Short-Term Borrowings and Long-Term Debt (continued) 1995 Bank Credit Agreement (continued) The Credit Agreement provides Containers and Plastics, together, a revolving credit facility of $225.0 million for working capital needs. The commitment under the Credit Agreement for Working Capital Loans was initially $150.0 million. This initial commitment will increase at the time and by the amount of any advances made by the Company to Holdings for the repurchase of its Discount Debentures (up to a maximum commitment of $225.0 million). As of December 31, 1995, the Company had advanced $57.6 million to Holdings, thereby increasing the commitment under the revolving credit facility to $207.6 million. After taking into account outstanding letters of credit of $6.6 million and Working Capital Loans of $7.1 million, the borrowings available under the revolving credit facility were $193.9 million at December 31, 1995. In addition to borrowings of Working Capital Loans, the Company may utilize up to a maximum of $20.0 million in letters of credit as long as the aggregate amount of borrowings and letters of credit outstanding does not exceed the amount of the commitment. The aggregate amount of Working Capital Loans and letters of credit which may be outstanding at any time is also limited to the aggregate of 85% of eligible accounts receivable and 50% of eligible inventory. Working Capital Loans may be borrowed, repaid, and reborrowed over the life of the Credit Agreement until final maturity on December 31, 2000. The borrowings under the Credit Agreement may be designated by the respective Borrowers as Base Rate or Eurodollar Rate borrowings. The Base Rate is the higher of (i) 1/2 of 1% in excess of Adjusted Certificate of Deposit Rate, or (ii) Bankers Trust Company's prime lending rate. Base Rate borrowings bear interest at the Base Rate plus 1.50%, in the case of A Term Loans and Working Capital Loans; and 2.0%, in the case of B Term Loans. Eurodollar Rate borrowings bear interest at the Eurodollar Rate plus 2.50% in the case of A Term Loans and Working Capital Loans; and 3.0%, in the case of B Term Loans. At December 31, 1995, the interest rate for Base Rate borrowings was 10.0 % and the interest rate for Eurodollar Rate borrowings ranged between 8.1875% and 8.9375%. For 1995, 1994 and 1993, respectively, the average amount of borrowings of Working Capital Loans was $67.6 million, $14.4 million and $51.9 million; the average annual interest rate paid on such borrowings was 8.9%, 8.4%, and 6.0%; and the highest amount of such borrowings at any month-end was $184.0 million, $43.9 million, and $80.3 million. F-55 SILGAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 9. Short-Term Borrowings and Long-Term Debt (continued) 1995 Bank Credit Agreement (continued) The Credit Agreement provides for the payment of a commitment fee of 0.5% per annum on the daily average unused portion of commitments available under the working capital revolving credit facility as well as a 2.75% per annum fee on outstanding letters of credit. The indebtedness under the Credit Agreement is guaranteed by Holdings and each of the Borrowers and secured by a security interest in substantially all of the real and personal property of the Borrowers. The stock of Silgan and the stock of principally all of its subsidiaries have been pledged to the lenders under the Credit Agreement. The Credit Agreement contains various covenants which limit or restrict, among other things, investments, indebtedness, liens, dividends, leases, capital expenditures, and the use of proceeds from asset sales, as well as requiring the Company to meet certain specified financial covenants. The Company is currently in compliance with all covenants under the Credit Agreement. 1993 Bank Credit Agreement Effective December 21, 1993, the Company, Containers, and Plastics entered into a credit agreement with a group of banks for $140.0 million in term loans and $70.0 million in working capital loans to finance in part the acquisition of DM Can and repay $41.6 million of term loans owed under a previous bank credit agreement. In addition, Holdings issued and sold 250,000 shares of its Class B Common Stock for $15.0 million and, in turn, contributed such amount to the Company. As a result of the early extinguishment of debt, the Company incurred a charge of $0.8 million (net of taxes of $0.5 million). According to the terms of this bank credit agreement, 80% of amounts received from the sale or disposal of assets was to be used to repay term loans. Prior to the refinancing and repayment of this bank facility, an additional principal payment of $2.5 million was made early in 1995 from net proceeds received from asset sales. F-56 SILGAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 9. Short-Term Borrowings and Long-Term Debt (continued) Senior Secured Floating Rate Notes The Company redeemed its Senior Secured Notes on August 30, 1995 for a premium of $0.1 million. 11 3/4% Senior Subordinated Notes The Company's 11 3/4% Senior Subordinated Notes (the "11 3/4% Notes") which mature on June 15, 2002, represent unsecured general obligations, subordinate in right of payment to obligations of the Company under the Credit Agreement and effectively subordinate to all of the obligations of the subsidiaries of the Company. Interest is payable semi-annually on June 15 and December 15. The 11 3/4% Notes are redeemable at the option of the Company, in whole or in part, at any time during the twelve months commencing June 15 of the following years at the indicated percentages of their principal amount, plus accrued interest: Redemption Year Percentage 1997 105.8750% 1998 102.9375% 1999 and thereafter 100.0000% The 11 3/4% Notes Indenture contains covenants which are comparable to or less restrictive than those under the terms of the existing Credit Agreement. 10. Fair Value of Financial Instruments The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash and cash equivalents: The carrying amount reported in the balance sheet for cash and cash equivalents approximates fair value due to the short duration of those investments. Short and long-term debt: The carrying amounts of the Company's borrowings under its working capital loans and variable-rate borrowings approximate their fair value. The fair values of fixed-rate borrowings are based on quoted market prices. F-57 SILGAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 10. Fair Value of Financial Instruments (continued) Letters of Credit: Fair values of the Company's outstanding letters of credit are based on current contractual amounts outstanding. The following table presents the carrying amounts and fair values of the Company's financial instruments recorded at December 31, 1995 and 1994, respectively (dollars in thousands): 1995 1994 Carrying Fair Carrying Fair Amount Value Amount Value Working Capital Facility $ 7,100 $ 7,100 $ 12,600$ 12,600 Current Portion of long-term debt 28,140 28,140 21,968 21,968 Bank A Term Loans 220,000 220,000 39,845 39,845 Bank B Term Loans 222,750 222,750 79,691 79,691 Senior Secured Floating Rate Notes due June 30, 1997 - - 50,000 50,000 11 3/4% Senior Subordinated Notes due June 15, 2002 135,000 144,500 135,000 140,400 The Company has had limited involvement with derivative financial instruments and does not use them for trading purposes. During 1995 and 1994, the Company was not party to any interest rate hedge agreements, nor did it use derivative instruments to hedge commodity and foreign exchange risks. Subsequent to December 31, 1995, the Company entered into interest rate swap agreements in order to manage its exposure to interest rate fluctuations. These agreements effectively convert interest rate exposure from variable rate to a fixed rate without the exchange of the underlying principal amounts. The Company has agreed to pay fixed rates of interest ranging from 8.1% to 8.6% on notional principal amounts totaling $100.0 million and which mature in the year 1999. Net payments or receipts under these agreements will be recorded as adjustments to interest expense. F-58 SILGAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 10. Fair Value of Financial Instruments (continued) Concentration of Credit Risk The Company derives a significant portion of its revenue from multi-year supply agreements with many of its customers. Revenues from its two largest customers accounted for approximately 36.0% of sales in 1995 and 47.3% in 1994. The receivable balances from these customers collectively represented 28.2% and 34.4% of accounts receivable before allowances at December 31, 1995 and 1994, respectively. As is common in the packaging industry, the Company provides extended payment terms for some of its customers due to the seasonality of the vegetable and fruit pack business. Exposure to losses is dependent on each customer's financial position. The Company performs ongoing credit evaluations of its customer's financial condition and its receivables are not collateralized. The Company maintains an allowance for doubtful accounts which management believes is adequate to cover potential credit losses based on customer credit evaluations, collection history, and other information. 11. Commitments The Company has a number of noncancelable operating leases for office and plant facilities, equipment and automobiles that expire at various dates through 2020. Certain operating leases have renewal options. Minimum future rental payments under these leases are (dollars in thousands): 1996 $13,442 1997 10,768 1998 7,973 1999 5,778 2000 4,928 2001 and thereafter 7,159 $50,048 Rent expense was approximately $10.8 million in 1995; $9.1 million in 1994; and $8.0 million in 1993. F-59 SILGAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 12. Retirement Plans The Company sponsors pension and defined contribution plans which cover substantially all employees, other than union employees covered by multi- employer defined benefit pension plans under collective bargaining agreements. Pension benefits are provided based on either a career average, final pay or years of service formula. With respect to certain hourly employees, pension benefits are provided for based on stated amounts for each year of service. It is the Company's policy to fund accrued pension and defined contribution costs in compliance with ERISA requirements. Assets of the plans consist primarily of equity and bond funds. The following table sets forth the funded status of the Company's retirement plans as of December 31: Plans in which Plans in which Assets Exceed Accumulated Accumulated Benefits Benefits Exceed Assets 1995 1994 1995 1994 (Dollars in thousands) Actuarial present value of benefit obligations: Vested benefit obligations $12,135 $ 9,182 $31,465 $19,876 Non-vested benefit obligations 547 871 3,158 1,889 Accumulated benefit obligations 12,682 10,053 34,623 21,765 Additional benefits due to future salary levels 5,667 5,358 7,132 3,557 Projected benefit obligations 18,349 15,411 41,755 25,322 Plan assets at fair value 12,988 11,612 23,535 17,249 Projected benefit obligation in excess of plan assets 5,361 3,799 18,220 8,073 Unrecognized actuarial gain (loss) (165) 504 1,237 3,916 Unrecognized prior service costs (615) (665) (2,128) (2,461) Additional minimum liability - - 1,990 1,677 Accrued pension liability recognized in the balance sheet $ 4,581 $ 3,638 $19,319 $11,205 F-60 SILGAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 12. Retirement Plans (continued) As of the AN Can acquisition date, the Company assumed an accrued pension liability of $6.8 million related to the active employee population transferred to the Company from AN Can. Under the terms of the acquisition, ANC retained the liability for the retired population as of August 1, 1995. For certain pension plans with accumulated benefits in excess of plan assets at December 31, 1995 and December 31, 1994, the balance sheet reflects an additional minimum pension liability and related intangible asset of $2.0 million and $1.7 million, respectively, The components of net periodic pension costs for defined benefit plans are as follows: 1995 1994 1993 (Dollars in thousands) Service cost $ 3,067 $ 2,947 $ 1,809 Interest cost 3,887 3,334 2,144 Actual loss (return) on assets (7,284) 539 (1,784) Net amortization and deferrals 5,008 (2,698) 317 Net periodic pension cost $ 4,678 $ 4,122 $ 2,486 During 1995, the Company recognized settlement and curtailment losses of $0.4 million from the termination of participation in certain plans as a result of plant closings and changes in pension benefit provisions. The Company participates in several multi-employer pension plans which provide defined benefits to certain of its union employees. The composition of total pension cost for 1995, 1994, and 1993 in the Consolidated Statements of Operations is as follows: 1995 1994 1993 (Dollars in thousands) Net periodic pension cost $ 4,678 $ 4,122 $ 2,486 Settlement and curtailment losses, net 418 - - Contributions to multi-employer union plans 2,708 2,700 2,000 Total pension costs $ 7,804 $ 6,822 $ 4,486 F-61 SILGAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 12. Retirement Plans (continued) The assumptions used in determining the actuarial present value of plan benefit obligations as of December 31 are as follows: 1995 1994 1993 Discount rate 7.5% 8.5% 7.5% Weighted average rate of compensation increase 4.0% 4.5% 4.5% Expected long-term rate of return on plan assets 8.5% 8.5% 8.5% The Company also sponsors defined contribution pension and profit sharing plans covering substantially all employees. Company contributions to these plans are based upon employee contributions and operating profitability. Contributions charged to income for these plans were $1.7 million in 1995; $2.5 million in 1994; and $1.5 million in 1993. The decline in defined contributions in 1995 as compared to 1994 resulted from lower profit- sharing contributions made for Company employees since target financial objectives were not achieved. This decrease was partially offset by an increase in the contribution base attributable to additional employee participation as a result of the acquisition of AN Can. 13. Postretirement Benefits Other than Pensions Effective January 1, 1993, the Company changed its method of accounting for postretirement health care and other insurance benefits to conform to the provisions of SFAS No. 106 "Employers' Accounting for Post Retirement Benefits Other Than Pensions", which requires accrual of these benefits over the period during which active employees become eligible for such benefits. Previously, the Company recognized the cost of providing such benefits on the pay-as-you-go basis. The Company elected to immediately recognize a cumulative charge of $3.1 million (after related income taxes of $1.9 million) for this change in accounting principle which represents the accumulated postretirement benefit obligation existing as of January 1, 1993. The Company has defined benefit health care and life insurance plans that provide postretirement benefits to certain employees. The plans are contributory, with retiree contributions adjusted annually, and contain cost sharing features including deductibles and coinsurance. Retiree health benefits are paid as covered expenses are incurred. F-62 SILGAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 13. Postretirement Benefits Other than Pensions (continued) The following table presents the funded status of the postretirement plans and amounts recognized in the Company's balance sheet as of December 31: 1995 1994 (Dollars in thousands) Accumulated postretirement benefit obligation: Retirees $ 1,587 $ 1,183 Fully eligible active plan participants 11,647 1,521 Other active plan participants 14,770 2,577 Total accumulated postretirement benefit obligation 28,004 5,281 Unrecognized net gain (2,929) (219) Unrecognized prior service costs (298) (79) Accrued postretirement benefit liability $ 24,777 $ 4,983 As of the AN Can acquisition date, the Company assumed a postretirement benefit liability in the amount of $19.6 million for the active population transferred to the Company from AN Can. Under the terms of the acquisition, ANC retained the liability for the retired population as of August 1, 1995. Net periodic postretirement benefit cost include the following components: 1995 1994 (Dollars in thousands) Service cost $ 372 $ 321 Interest cost 1,097 412 Net amortization and deferral 42 (14) Net periodic postretirement benefit cost $1,511 $ 719 The weighted average discount rates used to determine the accumulated postretirement benefit obligation as of December 31, 1995 and 1994 were 7.5% and 8.5%, respectively. The net periodic postretirement benefit costs were calculated using a discount rate ranging from 7.5% to 8.5% for 1995 and 8.5% for 1994. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation ranged from 7.14% to 10.0% in 1995 and was 14% in 1994, declining to a rate ranging from 5.0% to 6.0% in the year 2003 and thereafter. F-63 SILGAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 13. Postretirement Benefits Other than Pensions (continued) A 1% increase in the health care cost trend rate assumption would increase the accumulated postretirement benefit obligation as of December 31, 1995 by approximately $3.7 million and increase the aggregate of the service and interest cost components of the net periodic postretirement benefit cost for 1995 by approximately $0.2 million. 14. Income Taxes Income taxes for 1995, 1994, and 1993 reflect the adoption of SFAS No. 109 under which the Company provides for taxes as if it were a separate taxpayer. The components of income tax expense are as follows: 1995 1994 1993 (Dollars in thousands) Current Federal $ 500 $ 2,500 $ 300 State 1,900 3,200 1,900 Foreign 100 (100) (400) 2,500 5,600 1,800 Deferred Federal 4,100 5,400 7,575 State - - 100 Foreign - - - 4,100 5,400 7,675 $ 6,600 $11,000 $9,475 Income tax expense is included in the financial statements as follows: 1995 1994 1993 (Dollars in thousands) Income before extraordinary charges and accounting changes $ 8,700 $11,000 $ 6,300 Extraordinary charges (2,100) - (500) Cumulative effect of accounting changes - - 3,675 $ 6,600 $11,000 $9,475 F-64 SILGAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 14. Income Taxes (continued) The income tax provision varied from that computed by using the U.S. statutory rate as a result of the following: 1995 1994 1993 (Dollars in thousands) Income tax provision at the U.S. Federal income tax rate $ 6,466 $ 8,069 $ 5,091 State and foreign tax expense net of Federal income benefit 1,625 2,015 1,235 Amortization of goodwill 471 576 154 Other 138 340 (180) $ 8,700 $11,000 $ 6,300 Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets at December 31 are as follows: 1995 1994 (Dollars in thousands) Deferred tax liabilities: Tax over book depreciation $27,800 $21,900 Book over tax basis of assets acquired 41,700 21,400 Other 3,900 4,100 Total deferred tax liabilities 73,400 47,400 Deferred tax assets: Book reserves not yet deductible for tax purposes 56,300 24,600 Net operating loss carryforwards 3,800 3,800 Benefit taken for Holdings' losses 10,200 5,500 Other 83 483 Total deferred tax assets 70,383 34,383 Net deferred tax liabilities $ 3,017 $13,017 F-65 SILGAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 14. Income Taxes (continued) The Company files a consolidated Federal income tax return with Holdings. In accordance with the tax allocation agreement, the Company is obligated to reimburse Holdings for the use of Holdings' losses only to the extent that Holdings has taxable income on a stand-alone basis. A liability has not been established to the extent of the use of Holdings' losses since the possibility of the ultimate payment for these benefits is considered remote. Accordingly, the use of Holdings' losses has been accounted for as a contribution of capital. Also, in accordance with the tax allocation agreement, the Company is required to reimburse Holdings for its allocable share of Holdings' tax liability. The Company's share of Holdings' Federal tax liability, for alternative minimum tax, aggregated $0.5 million in 1995 and $1.5 million in 1994. On a consolidated basis, the Company and Holdings have net operating loss carryforwards at December 31, 1995 of approximately $100.0 million which are available to offset future consolidated taxable income of the group and expire from 2001 through 2010. The Company and Holdings, on a consolidated basis at December 31, 1995, have $3.9 million of alternative minimum tax credits which are available indefinitely to reduce future tax payments for regular federal income tax purposes. At December 31, 1995 the Company, if reporting on a separate company basis, would have had net operating loss carryforwards for Federal tax purposes of approximately $8.0 million, which are subject to limitation under the consolidated return regulations, and expire from 2001 to 2007. F-66 SILGAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 15. Acquisition Reserves In connection with the acquisition of AN Can, the Company plans to improve operating efficiencies through production and facility consolidation and through workforce reductions. As part of its preliminary purchase price allocation, the Company established a reserve for $25.0 million which primarily consists of $20.5 million for severance and $4.5 million of facility exit costs. The provision for severance includes employee termination benefits, such as, salary continuation, pension, and medical. Plant exit costs include planned expenditures relating to facility shut down, equipment removal, and compliance with environmental regulations. During the year, $0.9 million of costs were expended for severance. As of December 31, 1995, $7.1 million remained in other accrued expenses for costs expected to be paid within one year and $17.0 million remained in long term liabilities. Management believes that the operating improvements will not be fully implemented until 1997 and the remaining reserve balance will be adequate to cover anticipated costs. 16. Stock Option Plans Containers and Plastics have established stock option plans for their key employees pursuant to which options to purchase shares of common stock of Holdings and its subsidiaries and stock appreciation rights ("SARs") may be granted. Options granted under the plans may be either incentive stock options or non-qualified stock options. To date, all stock options granted have been non-qualified stock options. Under the plans, Containers and Plastics have each reserved 1,200 shares of its common stock for issuance under their respective plans. Containers has 13,764 shares and Plastics has 13,800 shares of $0.01 par value common stock currently issued, and all such shares are owned by Silgan. F-67 SILGAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 16. Stock Option Plans (continued) The SARs extend to all of the shares covered by the options and provide for the payment to the holders of the options of an amount in cash equal to the excess of, in the case of Containers' plan, the pro forma book value, as defined, of a share of common stock (or in the event of a public offering or a change in control (as defined), the fair market value of a share of common stock) over the exercise price of the option, with certain adjustments for the portion of vested stock appreciation rights not paid at the time of the recapitalization in June 1989; or, in the case of the Plastics plan, in the event of a public offering or a change in control (as defined), the fair market value of a share of common stock over the exercise price of the option. Prior to a public offering or change in control, should an employee leave the Company, Containers has the right to repurchase, and the employee has the right to require Containers to repurchase, the common stock at the then pro forma book value. At December 31, 1995, there were outstanding options for 936 shares under the Containers plan and 1,200 shares under the Plastics plan. The exercise prices per share range from $2,122 to $4,933 for the Containers options and $126 to $993 for the Plastics options. The stock options and SARs generally become exercisable ratably over a five-year period. At December 31, 1995, there were 840 options/SARs exercisable under the Containers plan and 180 options/SARs exercisable under the Plastics plan. The Company incurred charges relating to the vesting and payment of benefits under the stock option plans of $0.4 million in 1995; $1.5 million in 1994; and $0.2 million in 1993. In the event of a public offering of any of Holdings' capital stock or a change in control of Holdings, (i) the options granted by Containers and Plastics pursuant to the plans and (ii) any stock issued upon exercise of such options issued by Containers are convertible into either stock options or common stock of Holdings, as the case may be. The conversion of such options or shares will be based upon a valuation of Holdings and an allocation of such value among the subsidiaries after giving affect to, among other things, that portion of the outstanding indebtedness of Holdings allocable to each such subsidiary. F-68 SILGAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 16. Stock Option Plans (continued) In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation", effective for the 1996 fiscal year. Under SFAS No. 123, compensation expense for all stock-based compensation plans would be recognized based on the fair value of the options at the date of grant using an option pricing model. As permitted under SFAS No. 123, the Company may either adopt the new pronouncement or may continue to follow the current accounting method as prescribed under APB Opinion No. 25, "Accounting for Stock Issued to Employees". The Company does not intend to adopt SFAS No. 123 for expense recognition purposes in 1996. 17. Stockholder's Equity The Company's authorized capital stock consists of 1,000 shares each of Class A, B, and C Common Stock ($.01 par value) and preferred stock. The Company's outstanding capital stock at December 31, 1995 and 1994 consists of 1 share of Class A Common Stock and 1 share of Class B Common Stock. Both shares are issued to Holdings. 18. Related Party Transactions Pursuant to various management services agreements entered into between Holdings, Silgan, Containers, Plastics, and S&H, Inc. ("S&H"), a company wholly-owned by Messr. Silver, the Chairman and Co-Chief Executive Officer and Messr. Horrigan, the President and Co-Chief Executive Officer, of Holdings and Silgan, S&H provides Holdings, the Company and its subsidiaries with general management, supervision and administrative services. In consideration for its services, S&H receives a fee of 4.95% (of which 0.45% is payable to MS & Co.) of Holdings' consolidated earnings before depreciation, amortization, interest and taxes ("EBDIT") until EBDIT has reached the Scheduled Amount set forth in the Management Agreements and 3.3% (of which 0.3% is payable to MS & Co.) after EBDIT has exceeded the Scheduled Amount up to the Maximum Amount as set forth in the Management Agreements, plus reimbursement for all related out-of-pocket expenses. The total amount incurred under the Management Agreements was $5.4 million in 1995, $5.0 million in 1994, and $4.4 million in 1993 and was allocated, based upon EBDIT, as a charge to operating income of each business segment. Included in accounts payable at December 31, 1995 and 1994, was $0.1 million payable to S&H. F-69 SILGAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 18. Related Party Transactions (continued) Under the terms of the Management Agreements, the Company has agreed, subject to certain exceptions, to indemnify S&H and any of its affiliates, officers, directors, employees, subcontractors, consultants or controlling persons against any loss or damage they may sustain arising in connection with the Management Agreements. In connection with the refinancings and bank credit agreements entered into during 1995 and 1993, the banks thereunder (including Bankers Trust Company) received fees totaling $17.2 million in 1995 and $8.1 million in 1993. 19. Litigation In connection with the acquisition by Holdings of Silgan as of June 30, 1989 (the "Merger"), a decision was rendered in 1995 by the Delaware Court of Chancery with respect to appraisal proceedings filed by certain former stockholders of 400,000 shares of stock of Silgan. Pursuant to that decision, these former holders were awarded $5.94 per share, plus simple interest at a rate of 9.5%. This award was less than the amount, $6.50 per share, that these former holders would have received in the Merger. The right of these former holders to appeal the Chancery Court's decision has expired. In 1995, Silgan made a distribution to Holdings and payment was tendered to these former holders for $3.8 million as reflected in the Consolidated Statement of Common Stockholder's Equity. In 1994, prior to the trial for appraisal, Holdings and the former holders of an additional 650,000 shares of stock of Silgan agreed to a settlement in respect of their appraisal rights, and Silgan made a distribution to Holdings in order to make a payment of $6.9 million, including interest, in respect of the settlement. With respect to a complaint filed by limited partners of The Morgan Stanley Leveraged Equity Fund, L.P. against a number of defendants, including Silgan and Holdings, all claims against Silgan and Holdings related to this action were dismissed on January 14, 1993. The plaintiff's time to appeal the dismissal of the claims against Silgan and Holdings expired following the dismissal of the claims against certain other defendants in June 1995. Other than the actions mentioned above, there are no other pending legal proceedings to which the Company is a party or to which any of its properties are subject which would have a material effect on the Company's financial position. F-70 SILGAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 20. Business Segment Information The Company is engaged in the packaging industry and operates principally in two business segments. Both segments operate in North America. There are no intersegment sales. Presented below is a tabulation of business segment information for each of the past three years (in millions): Net Oper. Identifiable Dep. & Capital Sales Profit Assets Amort. Expend. 1995 Metal container & specialty(1) $ 882.3 $72.9(2) $726.7 $31.6 $32.5 Plastic container 219.6 13.2(2) 159.4 13.8 19.4 Consolidated $1,101.9 $86.1 $886.1 $45.4 $51.9 1994 Metal container & specialty(1) $ 657.1 $67.0(3) $335.3 $23.1 $16.9 Plastic container 204.3 9.4(3) 162.8 14.1 12.3 Consolidated $ 861.4 $76.4 $498.1 $37.2 $29.2 1993 Metal container & specialty(1) $ 459.2 $42.3 $324.5 $17.3 $25.3 Plastic container 186.3 0.6 165.9 16.5 17.2 Consolidated $ 645.5 $42.9 $490.4 $33.8 $42.5 (1)Specialty packaging sales include closures, plastic bowls, and paper containers used by processors and packagers in the food industry and are not significant enough to be reported as a separate segment. (2)Excludes charge for reduction in carrying value of assets of $14.7 million for metal container segment. (3)Excludes charges for reduction in carrying value of assets of $7.2 million for metal container segment and $9.5 million for plastic container segment, respectively. F-71 SILGAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 20. Business Segment Information (continued) Operating profit is reconciled to income before tax as follows (in millions): 1995 1994 1993 Operating profit $ 86.1 $ 76.4 $ 42.9 Reduction in carrying value of assets 14.7 16.7 - Interest expense 52.5 36.1 27.9 Corporate 0.4 0.5 0.4 Income before income taxes $ 18.5 $ 23.1 $ 14.6 Identifiable assets are reconciled to total assets as follows (in millions): 1995 1994 1993 Identifiable assets $886.1 $498.1 $490.4 Corporate assets 60.2 2.0 1.7 Total assets $946.3 $500.1 $492.1 Metal container and other segment sales to Nestle Food Company accounted for 21.4%, 25.9% and 34.1%, of net sales of the Company during the years ended December 31, 1995, 1994 and 1993, respectively. Similarly, sales to Del Monte accounted for 14.5% and 21.4% of net sales of the Company during the years ended December 31, 1995 and 1994, respectively. F-72 SCHEDULE I CONDENSED FINANCIAL INFORMATION OF SILGAN HOLDINGS INC. CONDENSED BALANCE SHEETS December 31, 1995 and 1994 (Dollars in thousands) ASSETS 1995 1994 Current assets: Cash and cash equivalents $ 10 $ 17 Other current assets 70 - Total current assets 80 17 Investment in and other amounts due from subsidiary 76,636 69,526 Notes receivable-subsidiary 1,489 1,489 Debt issuance costs 3,418 5,372 $81,623 $76,404 LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY Current liabilities: Accrued expenses $ 393 $ 4,963 Amount payable to subsidiary 59,771 1,244 Total current liabilities 60,164 6,207 Discount debentures 201,263 228,195 Deficiency in stockholders' equity: Common stock 12 12 Additional paid-in capital 33,606 33,606 Accumulated deficit (213,422) (191,616) Total deficiency in stockholders' equity (179,804) (157,998) $ 81,623 $ 76,404 See Notes to Consolidated Financial Statements for Silgan Holdings Inc. appearing elsewhere in this Form 10-K. F-73 SCHEDULE I CONDENSED FINANCIAL INFORMATION OF SILGAN HOLDINGS INC. CONDENSED STATEMENTS OF OPERATIONS For the years ended December 31, 1995, 1994 and 1993 (Dollars in thousands) 1995 1994 1993 Net sales $ - $ - $ - Cost of goods sold - - - Gross profit - - - Selling, general and administrative expenses 1,113 837 674 Loss from operations (1,113) (837) (674) Equity in earnings of consolidated subsidiaries 6,806 12,053 (2,547) Interest expense and other related financing costs (28,248) (29,647) (26,339) Interest income - - 2 Loss before income taxes (22,555) (18,431) (29,558) Income tax benefit 4,100 5,400 7,575 Loss before extraordinary charges (18,455) (13,031) (21,983) Extraordinary charges relating to early extinguishment of debt (3,351) - - Net loss $(21,806) $(13,031) $(21,983) See Notes to Consolidated Financial Statements for Silgan Holdings Inc. appearing elsewhere in this Form 10-K. F-74 SCHEDULE I CONDENSED FINANCIAL INFORMATION OF SILGAN HOLDINGS INC. CONDENSED STATEMENTS OF CASH FLOWS For the years ended December 31, 1995, 1994 and 1993 (Dollars in thousands) 1995 1994 1993 Cash flows from operating activities: $ (7) $ (2) $ (196) Cash flows from investing activities: Investment in subsidiary - - (15,000) Cash dividend received from subsidiary 3,795 6,911 - Net cash provided (used) by investing activities 3,795 6,911 (15,000) Cash flows from financing activities: Advance from subsidiary 57,596 - - Proceeds from issuance of common stock - - 15,000 Repayment of long-term debt (57,596) - - Payments to former shareholders of Silgan (3,795) (6,911) - Net cash provided (used) by financing activities (3,795) (6,911) 15,000 Net decrease in cash and cash equivalents (7) (2) (196) Cash and cash equivalents at the beginning of year 17 19 215 Cash and cash equivalents at end of year $ 10 $ 17 $ 19 See Notes to Consolidated Financial Statements for Silgan Holdings Inc. appearing elsewhere in this Form 10-K. F-75 SCHEDULE I CONDENSED FINANCIAL INFORMATION OF SILGAN CORPORATION CONDENSED BALANCE SHEETS December 31, 1995 and 1994 (Dollars in thousands) ASSETS 1995 1994 Current assets: Cash and cash equivalents $ 29 $ 155 Notes receivable-subsidiaries 28,140 21,968 Interest receivable-subsidiaries 4,342 1,699 Other current assets 70 - Total current assets 32,581 23,822 Investment in and other amounts due from subsidiaries 26,181 70,947 Notes receivable-subsidiaries 553,682 286,640 Amount receivable from parent 59,771 1,244 Other assets 518 793 $672,733 $383,446 LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Current portion of term loans $ 28,140 $ 21,968 Accrued interest payable 4,342 1,699 Accrued expenses 1,457 356 Total current liabilities 33,939 24,023 Long-term debt 549,610 282,568 Amounts payable to subsidiaries 14,890 11,148 Other long-term liabilities 3,838 2,362 Stockholder's equity: Common stock - - Additional paid-in capital 73,635 69,535 Retained earnings (deficit) (3,179) (6,190) Total stockholder's equity 70,456 63,345 $672,733 $383,446 See Notes to Consolidated Financial Statements for Silgan Corporation appearing elsewhere in this Form 10-K. F-76 SCHEDULE I CONDENSED FINANCIAL INFORMATION OF SILGAN CORPORATION CONDENSED STATEMENTS OF OPERATIONS For the years ended December 31, 1995, 1994 and 1993 (Dollars in thousands) 1995 1994 1993 Net sales $ - $ - $ - Cost of goods sold - - - Gross profit - - - Selling, general and administrative expenses 416 543 368 Loss from operations (416) (543) (368) Equity in earnings (losses) of consolidated subsidiaries 8,731 13,445 (7,570) Other income (expense) (1,219) (651) 1,480 Interest expense and other related financing costs (41,822) (30,039) (19,899) Interest income-subsidiaries 41,699 29,841 23,940 Income (loss) before income taxes 6,973 12,053 (2,417) Income tax provision - - - Income (loss) before extraordinary charges 6,973 12,053 (2,417) Extraordinary charges relating to early extinguishment of debt (167) - (130) Net income (loss) $ 6,806 $12,053 $(2,547) See Notes to Consolidated Financial Statements for Silgan Corporation appearing elsewhere in this Form 10-K. F-77 SCHEDULE I CONDENSED FINANCIAL INFORMATION OF SILGAN CORPORATION CONDENSED STATEMENTS OF CASH FLOWS For the years ended December 31, 1995, 1994 and 1993 (Dollars in thousands) 1995 1994 1993 Cash flows from operating activities: $ 3,668 $ 7,005 $ 359 Cash flows from investing activities: (Increase) decrease in notes receivable-subsidiaries (273,214) 35,462 (117,515) (Increase) in investment in subsidiaries - (14,998) - Cash dividends received from subsidiaries 57,596 - - Net cash provided (used) by investing activities (215,618) 20,464 (117,515) Cash flows from financing activities: Proceeds from issuance of long-term debt 450,000 - 140,000 Repayments of long-term debt (176,786) (20,464) (37,985) Capital contribution by Parent - - 15,000 Payments to former shareholders (3,795) (6,911) - Advance to Parent (57,596) - - Net cash provided (used) by financing activities 211,823 (27,375) 117,015 Net increase (decrease) in cash and cash equivalents (127) 94 (141) Cash and cash equivalents at the beginning of year 155 61 202 Cash and cash equivalents at end of year $ 28 $ 155 $ 61 See Notes to Consolidated Financial Statements for Silgan Corporation appearing elsewhere in this Form 10-K. F-78 SCHEDULE II SILGAN CORPORATION SCHEDULES OF VALUATION AND QUALIFYING ACCOUNTS For the years ended December 31, 1995, 1994 and 1993 (Dollars in thousands) Column A Column B Column C Column D Column E Additions Charged Balance at Charged to to other Balance beginning costs and accounts Deductions at end of Description of period expenses describe describe(1) period For the year ended December 31, 1993: Allowance for doubtful accounts receivable $1,643 $ 91 $ - $ 650 $1,084 For the year ended December 31, 1994: Allowance for doubtful accounts receivable $1,084 $ 621 $ 58 $ 206 $1,557 For the year ended December 31, 1995: Allowance for doubtful accounts receivable $1,557 $ 295 $3,872 (2) $ 881 $4,843 (1)Uncollectible accounts written off, net of recoveries. (2)Represents the accounts receivable allowance for doubtful accounts assumed upon the acquisition of AN Can. F-79 INDEX TO EXHIBITS Exhibit No. Exhibit - ----------- ------- 10.84 Silgan Holdings Inc. Third Amended and Restated 1989 Stock Option Plan 21 Subsidiaries of the Registrant. 27 Financial Data Schedule. EXHIBIT 10.84 SILGAN HOLDINGS INC. THIRD AMENDED AND RESTATED 1989 STOCK OPTION PLAN I. PURPOSE OF PLAN; DEFINITIONS. 1.1 Purpose. The purpose of the Silgan Holdings Inc. Third Amended and Restated 1989 Stock Option Plan (the "Plan") is to strengthen Silgan Holdings Inc., a Delaware corporation (the "Company"), by providing an additional means of attracting and retaining officers and key personnel. It is intended that this purpose be achieved by extending to designated officers or employees of the Company an added long-term incentive for high levels of performance and for unusual efforts designed to improve the financial performance of the Company, through the grant of options to purchase shares of common stock of the Company (as described herein). It is further intended that pursuant to this Plan, the Committee may grant either ISOs or Nonstatutory Options (both as defined herein). 1.2 Definitions. For purposes of this Plan, the following terms shall be defined as indicated, unless otherwise clearly required by the context in which the term appears: "Board of Directors" shall mean the Board of Directors of the Company. "Carryover Amount" shall mean, in the case of all persons to whom Options were granted effective as of June 30, 1989, an amount per share determined by the Committee, and in the case of all other persons, zero. "Change of Control" shall mean any sale of the assets or voting stock of the Company, whether by purchase, merger, consolidation or other similar transaction, pursuant to which there is a transfer of ownership of more than fifty percent (50%) of the assets or the voting stock of the Company to a Person which theretofore did not own, directly or indirectly, any of the voting stock of the Company; provided, however, that a merger or consolidation of the Company with or into Silgan Corporation or other restructuring of the Company in which the stockholders of the Company retain at least fifty percent (50%) of the voting stock of the surviving Person shall not be deemed a Change of Control. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Committee" shall mean the committee of three or more persons selected by the Board of Directors to administer this Plan. "Common Stock" shall mean the authorized and issuable Class C common stock of the Company ($.01 par value). "Fair Market Value" shall mean (i) if the stock is listed or admitted to trade on a national securities exchange, the closing price of the stock on the composite tape of the principal national securities exchange on which the stock is so listed or admitted to trade, (ii) if the stock is not listed or admitted to trade on a national securities exchange, the mean between the last reported bid and asked price for the stock as furnished by the National Association of Securities Dealers, Inc. through NASDAQ or a similar organization if NASDAQ is no longer reporting such information, or (iii) if the stock is not listed or admitted to trade on a national securities exchange and if bid and asked prices for the stock are not so furnished through NASDAQ or a similar organization, the fair market value of the stock as determined in good faith by the Committee in such manner as it deems appropriate, taking into consideration, among other things, recent sales of the stock. "ISO" shall mean incentive stock option(s) within the meaning of Section 422 of the Code. "Nonstatutory Options" shall mean an option granted pursuant to the Plan which does not qualify as an ISO. "Option(s)" shall mean option(s) to purchase Common Stock under this Plan and shall include Options that result from the conversion of options under and as provided in stock option plans of any Subsidiary to which the Company is a party. "Option Price" shall have the meaning set forth in Section 3.1 hereof. "Person" shall mean any individual, partnership, joint venture, corporation, association, trust, or any other entity or organization, including a government or political subdivision or any agency or instrumentality thereof. "Public Offering" shall mean a primary, public offering of shares of Common Stock, pursuant to an effective -2- registration statement, registered under the Securities Act of 1933, as amended. "Subsidiary" shall mean any corporation if 50% or more of the total combined voting power and value of all classes of stock is owned, either directly or indirectly, by the Company or another Subsidiary. II. ADMINISTRATION; PARTICIPATION. 2.1 Administration. This Plan shall be administered by the Committee, none of the members of which are currently eligible to receive Options and have not been eligible to receive Options for at least twelve (12) months prior to their selection to the Committee. The action of the Committee with respect to the administration of this Plan shall be taken pursuant to a majority vote or the written consent of a majority of its members. In the event action by the Committee is taken by written consent of its members, the action by the Committee shall be deemed to have been taken at the time the last member required for valid action by the Committee signs the consent. Subject to the express provisions of this Plan, the Committee shall have the authority to construe and interpret this Plan and any agreements defining the rights and obligations of the Company and participants under this Plan, to further define the terms used in this Plan, to prescribe, amend and rescind rules and regulations relating to the administration of this Plan, to determine the duration and purposes of leaves of absence which may be granted to participants without constituting a termination of their employment for purposes of this Plan and to make all other determinations necessary or advisable for the administration of this Plan. The determinations of the Committee on the foregoing matters shall be conclusive. Subject to the express provisions of this Plan, the Committee shall select from the eligible class of employees of the Company or a Subsidiary and make corresponding recommendations to the Board of Directors concerning the individuals to whom Options shall be granted and the terms and provisions of such Options (which need not be identical) including, but not by way of limitation, the time at which such Options shall be granted, whether an Option granted hereunder shall be intended to be treated as an ISO or a Nonstatutory Option, the number of shares subject to each Option and the Option Price and the consideration acceptable in payment of the Option Price. The Committee shall also determine, as to each individual to whom Options shall be granted effective as of June 30, 1989, the Carryover Amount, if any, applicable to such individual. -3- No member of the Committee shall be liable for any action, failure to act, determination or interpretation made in good faith with respect to this Plan or any transaction hereunder. The Company hereby agrees to indemnify each member of the Committee for all costs and expenses and, to the extent permitted by applicable law, any liability incurred by any member in connection with defending against, responding to, negotiating the settlement of or otherwise dealing with any claim, cause of action or dispute of any kind arising in connection with the member's actions in administering this Plan or authorizing or denying authorization to any transaction hereunder. The Board of Directors, at any time it so desires, may increase or decrease the number of members of the Committee, may remove from membership on the Committee all or any portion of its members, and may appoint such person or persons as it desires to fill any vacancy existing on the Committee, whether caused by removal, resignation or otherwise. 2.2 Participation. Only officers or key employees of the Company, or of a Subsidiary, whose responsibility levels indicate their ability to substantially contribute to the Company's growth and development shall be eligible for selection by the Committee to participate in this Plan; provided, however, that members of the Committee shall not, while members of this Committee, be eligible to receive Options under this Plan. In addition, members of the Board of Directors who are not officers or employees of the Company or of any Subsidiary shall not be eligible to receive Options under this Plan. An individual who has been granted an Option may, if otherwise eligible, be granted additional Options if the Committee so determines. 2.3 Stock Subject to the Plan. Subject to Section 4.1 hereof, the stock to be offered under this Plan shall be shares of authorized but unissued Common Stock or Common Stock held in treasury. The aggregate amount of Common Stock to be delivered upon exercise of all Options granted under the Plan shall not exceed (i) 24,000 shares plus (ii) such number of shares issuable upon exercise of all Options that will be outstanding upon and in the event of the conversion to Options of options under and in accordance with stock option plans of all Subsidiaries, and subject to adjustment as set forth in Section 4.1 of this Plan. Such amount of Common Stock is hereby reserved for issuance under this Plan. If any Option shall expire or terminate for any reason without having been fully exercised, the unexercised shares subject thereto shall again be available for the purposes of this Plan. -4- 2.4 Stock Option Agreements. Each Option granted pursuant to this Plan shall be evidenced by an Incentive Stock Option Agreement or a Nonstatutory Stock Option Agreement (any of which are at times herein referred to as an "Option Agreement" or, collectively, as "Option Agreements"), which shall set forth the terms and conditions of the option and specify whether such option is intended to be an ISO or a Nonstatutory Stock Option. III. OPTIONS. 3.1 Option Price. Except as otherwise provided herein, the purchase price per share of the Common Stock covered by each Option (the "Option Price") shall be determined by the Committee. The Option Price of any share purchased shall be paid in full at the time of each purchase in cash, by check, or, provided that all necessary regulatory approvals have been received, and provided further that the Option Agreement provides for such exercise, the person exercising the Option may deliver in payment of all or a portion of the Option Price certificates for other shares of Common Stock which shall be valued at the Fair Market Value of such Common Stock as of the date of exercise of the Option. 3.2 Option Period. Except as otherwise provided herein, each Option and all rights or obligations thereunder shall expire on such date as shall be provided in the Option Agreement, but not later than the tenth anniversary (fifth anniversary in the case of an ISO granted to an employee who owns or is deemed to own at the time of grant more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or a Subsidiary) of the date on which the Option is granted, and shall be subject to earlier termination as hereinafter provided. 3.3 Exercise of Options. Each Option shall become exercisable and the total number of shares subject thereto shall be purchasable no sooner than one year from the date of the grant of the Option, and only in such installments, which need not be equal, as specified in the Option Agreement. If the holder of an Option shall not in any given installment period purchase all of the shares which the holder is entitled to purchase in such installment period, the holder's right to purchase any shares not so purchased in such installment period shall continue until the expiration or earlier termination of the holder's Option. The Committee may, at any time after grant of the Option and from time to time, increase the number of shares purchasable in any installment so long as the total number of shares subject to the Option is not -5- increased. No Option or installment thereof shall be exercisable except in respect of whole shares, and fractional share interests shall be disregarded except that they may be accumulated in accordance with the second sentence of this Section 3.3. No fewer than ten (10) shares may be purchased at one time unless the number purchased is the total number at the time available for purchase under the Option. The Committee may impose such conditions or limitations, as shall be specified in the applicable Option Agreement, on the sale or transfer of Common Stock acquired upon exercise of an Option as it may deem necessary or desirable. 3.4 Nontransferability of Options. An Option granted under this Plan shall, by its terms, be nontransferable by the holder other than by will or the laws of descent and distribution, and shall be exercised during the holder's lifetime only by the holder or a duly appointed guardian or personal representative. 3.5 Termination of Employment. (a) If an Option holder ceases to be an officer of or employed by the Company or a Subsidiary because of the Option holder's voluntary termination of employment, the Option will be exercisable only until the date of resignation from office or termination of employment, to the extent, and only to the extent, installments had become exercisable as of the date of termination of employment or resignation from office. (b) If an Option holder ceases to be an officer of or employed by either the Company or a Subsidiary for any reason other than voluntary termination specified in Section 3.5(a), the Option holder shall have ninety (90), days or such shorter period provided in the Option Agreement, from the date of termination of employment to exercise his or her Option, to the extent, and only to the extent, installments had become exercisable prior to the date of termination of employment or removal or resignation from office. 3.6 Permanent Disability of Employee. If an Option holder is no longer an officer of or employed by either the Company or a Subsidiary, as a result of permanent disability (as defined below), the holder shall have twelve (12) months, or such shorter period as is provided in the Option Agreement, from the date of termination of employment to exercise his or her Option. The Option shall expire at the end of such 12-month period (or such shorter period as is provided in the Option Agreement or as provided pursuant to Section 3.2 hereof) to the extent not exercised within that period. As used herein, "permanent disability" shall mean the inability of an Option holder by reason of illness or injury to perform substantially all of his or her duties as an employee of the -6- Company or a Subsidiary during any continued period of one hundred eighty (180) days. 3.7 Death of Employee. If an Option holder dies while an officer of or employed by the Company or a Subsidiary, or during the periods described in Section 3.5(b) or 3.6 hereof, the holder's Option shall be exercisable during the twelve-month period, or such shorter period as is provided in the Option Agreement, following the holder's death, by the executor of the holder's will, the administrator of the holder's estate, or as otherwise provided in the Option Agreement, (and not otherwise, regardless of any community property or other interest therein of the spouse of the holder or such spouse's successor in interest), provided that in no event shall the Option be exercised after the period provided for in Section 3.2 hereof. Unless sooner terminated pursuant to the Plan, the Option shall expire at the end of such twelve-month period (or such shorter period as is provided in the Option Agreement or as is provided pursuant to Section 3.2 hereof) to the extent not exercised within that period. In the event that the holder's spouse shall have acquired a community property interest in the Option, the holder, the executor of the holder's will, the administrator of the holder's estate, or such other Person as is otherwise provided in the Option Agreement, may exercise the option on behalf of the spouse of the holder or such spouse's successor in interest. 3.8 Limitation on Grant of ISOs. The aggregate Fair Market Value (determined as of the date or dates the ISO or ISOs are granted) of the Common Stock with respect to which the ISO or ISOs granted to an employee are exercisable for the first time by such employee during any one calendar year (under this Plan and all other incentive stock option plans of the Company or any Subsidiary) shall not exceed $100,000. 3.9 Option Shall be Designated an ISO or Nonstatutory Option. The Option Agreement for each option grant shall state whether the Options granted thereby are intended to be ISOs or Nonstatutory Options. IV. OTHER PROVISIONS. 4.1 Adjustments Upon Changes in Capitalization and Ownership. Subject to Section 4.2 below, if the outstanding shares of Common Stock are increased, decreased or changed into, or exchanged for, a different number or kind of shares or securities -7- of the Company through a reorganization or merger in which the Company is the surviving entity, combination, recapitalization, reclassification, stock split-up, reverse stock split, stock dividend, stock consolidation or otherwise, an appropriate and proportionate adjustment shall be made in the number and kind of shares for which Options may be granted and in the Carryover Amount. A corresponding adjustment changing the number or kind of shares and the exercise price per share allocated to unexercised Options or portions thereof, which shall have been granted prior to any such change, and the Carryover Amount, shall also be made. Subject, in the case of ISOs, to Section 424 of the Code, any such adjustment, however, shall be made without change in the total price applicable to the unexercised portion of the Option but with a corresponding adjustment in the price for each share. Upon the dissolution or liquidation of the Company, or, subject to Section 4.2 below, upon a reorganization, merger or consolidation of the Company with one or more corporations as a result of which the Company is not the surviving corporation, in which such surviving corporation (or an affiliate), if applicable, does not assume all obligations of the Company under this Plan and substitute for the unexercised Options granted under the Plan options to purchase securities of such surviving corporation having a value substantially equivalent to or greater than the Common Stock issuable upon exercise of such Options and on terms substantially the same as or better than those granted under the Plan, such Options shall become immediately exercisable upon the occurrence of such an event, but in no event may such Options be exercised after the exercise period specified in each individual Option Agreement. Adjustments under this Section 4.1 shall be made by the Committee, whose determination as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive. No fractional shares of Common Stock shall be issued under this Plan on account of any such adjustment. If for any reason any person becomes entitled to any interest in a fractional share, a cash payment shall be made of an equivalent value of such interest. 4.2 Change of Control. In the event of a Change of Control other than a Pooling Transaction (as hereinafter defined) during the term of one or more Options, such Options shall, subject to Section 4.1 above, remain outstanding and shall become exercisable by the holder thereof upon the terms and conditions of the Plan and the Option Agreement between such holder and the Company; provided, however, the Committee may, in its discretion, take one or more of the following actions in connection with a Change of Control (other than a Pooling Transaction): -8- (a) The Committee may declare that any or all Options shall terminate as of a date to be fixed by the Committee and may require that the respective holders thereof surrender all or a portion of their unexercised Options for cancellation by the Company prior to such date and, upon such surrender, such holders shall receive (i) the cash, securities or other consideration they would have received had they exercised such Options immediately prior to such Change of Control and had they disposed of their shares of Common Stock issuable upon such exercise in connection with such Change of Control (subject to required deductions and withholdings), minus (ii) an amount of cash or fair market value of securities or other such consideration equal to the Option Price for such Options surrendered; or (b) The Committee may declare that, upon the exercise by a holder of any or all Options after a Change of Control in accordance with the provisions of the Plan, such holder shall be entitled to receive only the cash, securities or other consideration he would have been entitled to receive had he exercised such Options immediately prior to such Change of Control and had he disposed of the Common Stock issuable upon such exercise in connection with such Change of Control; or (c) The Committee may declare that any or all Options shall terminate as of a date to be fixed by the Committee and give the holders thereof the right to exercise their Options prior to such date as to all or any part thereof; or (d) The Committee may permit the successor corporation to assume the obligations of the Company under the Plan and to substitute for the unexercised Options granted under the Plan options to purchase securities of such successor corporation having a value substantially equivalent to or greater than the Common Stock issuable upon exercise of such Options and on terms substantially the same as or better than those granted under the Plan, all as determined by the Committee, whereupon all outstanding Options and all future Options granted under the Plan shall thenceforth become options to purchase such securities of such successor corporation on such terms. Notwithstanding anything herein or in any Option Agreement to the contrary, if, during the term of one or more Options, there shall occur a Change of Control which is intended to qualify as a "pooling of interests" for accounting and financial reporting purposes (a "Pooling Transaction"), it shall be a condition to the effectiveness of such Change of Control transaction that the acquiror agree to assume the obligations of the Company under the Plan and to provide for the substitution of options to purchase securities equivalent to, and with terms the same as, those granted under the Plan, all as determined by the Committee. -9- 4.3 Continuation of Employment. Nothing contained in this Plan (or in any Option granted pursuant to this Plan) or in any Option Agreement shall confer upon any employee any right to continue in the employ of the Company or a Subsidiary or constitute any contract or agreement of employment or interfere in any way with the right of the Company or a Subsidiary to reduce any person's compensation from the rate in existence at the time of the granting of an Option or Right or to change any person's position or duties or to demote or terminate such person's employment with or without cause, but nothing contained herein or in any Option Agreement shall effect any contractual rights of an employee obtained otherwise than under this Plan. 4.4 Government Regulations. This Plan and the grant and exercise of Options shall be subject to all applicable rules and regulations of governmental authorities. 4.5 Withholding. The Company may require, as a condition to (1) issuing or delivering to the holder of an Option shares or certificates evidencing the shares upon exercise of the Option or (2) allowing the transfer of shares subsequent to their issuance to the holder of an Option, that the holder of an Option or other person exercising the Option pay any sums that federal, state, or local tax law requires to be withheld with respect to such exercise or transfer. Neither the Company nor any Subsidiary shall be obligated to advise any holder of an Option of the existence of the tax or the amount which the Company will be so required to withhold. 4.6 Amendment, Termination, and Reissuance. (a) The Board of Directors may at any time suspend, amend or terminate this Plan (or any part thereof) and, with the consent of the holder of an Option, may make such modifications of the terms and conditions of such holder's Option as it shall deem advisable. No Option may be granted during any suspension of this Plan or after such termination. The amendment, suspension or termination of this Plan shall not, without the consent of the holder of an Option, adversely alter or impair any rights or obligations under any Option theretofore granted under this Plan. The Committee shall have the power and may, with the consent of the holder of any Option, cancel any existing Option and reissue Options to the holder of those canceled Options, having a new and lower Option Price, but otherwise bearing substantially similar terms to the canceled Options. (b) In addition to the Board of Directors' approval of any amendment, if the amendment would (i) increase the benefits -10- accruing to participants in this Plan, (ii) increase the aggregate number of shares which may be issued under this Plan, or (iii) modify the requirements of eligibility for participation in this Plan, then such amendment shall be approved by the holders of a majority of the Company's outstanding capital stock present, or represented, and entitled to vote at a meeting duly held for the purpose of approving such amendment. For purposes of this Subsection 4.6(b), any cancellation and reissuance of Options at the same, or a new or lower, Option Price pursuant to Subsection 4.6(a) hereof shall not constitute an amendment of the Plan. 4.7 Time of Grant and Exercise. (a) Except as the Committee or Board of Directors shall otherwise determine, the granting of an Option pursuant to the Plan shall take place at the time of the resolutions adopted by the Committee granting such Option; provided, however, that if the appropriate resolutions of the Committee indicate that an Option is to be granted as of or at some future date, the date of grant shall be such future date. (b) An Option shall be deemed to be exercised when the Secretary of the Company receives written notice of such exercise from the person entitled to exercise the Option, together with payment in full of the purchase price made in accordance with Section 3.1 of this Plan and all applicable withholding taxes. 4.8 Privileges of Stock Ownership; Nondistributive Intent. The holder of an Option shall not be entitled to the privilege of stock ownership as to any shares of Common Stock not actually issued and delivered to him or her. Upon exercise of an Option, unless a registration statement is in effect under the Securities Act of 1933, as amended, relating to the Common Stock issuable upon exercise and there is available for delivery a prospectus meeting the requirements of Section 10(a)(3) of said Act, the Common Stock may be issued to the option holder only if he or she represents and warrants in writing to the Company and its counsel that the shares purchased are being acquired for investment and not with a view to the resale or distribution thereof. No shares shall be issued upon the exercise of any Option unless and until there shall have been full compliance with any then applicable requirements of the Securities and Exchange Commission, or any other regulatory agencies having jurisdiction over this Plan (and of any exchanges upon which stock of the Company may be listed). 4.9 Issuance of Stock Certificates. Upon exercise of an Option, the person receiving Common Stock shall be entitled to one stock certificate evidencing the shares acquired upon such exercise; provided, however, that any person who tenders Common Stock to the Company in payment of a -11- portion or all of the purchase price of stock purchased upon exercise of an Option, shall be entitled to receive two certificates, one representing a number of shares equal to the number of shares exchanged for the stock acquired upon exercise, and another representing the additional shares acquired upon exercise of the Option. 4.10 Effective Date of this Plan. This Plan shall, subject to its adoption by the Board of Directors and the Company's stockholders in accordance with applicable law and the Company's Certificate of Incorporation, be effective as of June 30, 1989. 4.11 Expiration. Unless previously terminated by the Board of Directors, this Plan shall expire at the close of business on June 29, 1999 no more than ten (10) years less one day from the effective date and no Option shall be granted under it thereafter, but such expiration shall not affect any Option theretofore granted. 4.12 Governing Law. This Plan and the Options issued hereunder shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and performed within such State, except as such laws may be supplanted by the laws of the United States of America, which laws shall then govern its effect and its construction to the extent they supplant New York law. EXECUTED as of the 1st day of January, 1995. SILGAN HOLDINGS INC. By /s/ R. Philip Silver ------------------------ Title Chairman of the Board -12- EXHIBIT 21 Subsidiaries of Silgan Holdings Inc. Silgan Corporation Silgan Plastics Corporation1 827599 Ontario Inc. (Canadian Holdco.)2 Express Plastic Containers Limited3 Silgan Containers Corporation1 California-Washington Can Corporation4 SCCW Can Corporation4 828745 Ontario Inc. (NRO, Ltd.)1 - -------- 1 Wholly-owned subsidiary of Silgan Corporation. 2 Wholly-owned subsidiary of Silgan Plastics Corporation. 3 Wholly-owned subsidiary of Canadian Holdco. 4 Wholly-owned subsidiary of Silgan Containers Corporation. EX-27 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from Silgan Holdings' Inc. Form 10-K for the year ended December 31, 1995 and is qualified in its entirety by reference to such financial statements. 1,000 YEAR DEC-31-1995 DEC-31-1995 2,102 0 114,772 (4,843) 210,471 328,303 693,505 (206,204) 900,046 254,055 750,873 0 0 12 (179,816) 900,046 1,101,905 1,101,905 970,491 970,491 14,745 0 80,710 (10,889) 5,100 (15,989) 0 (5,817) 0 (21,806) 0 0
-----END PRIVACY-ENHANCED MESSAGE-----