-----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, M3f4D3y84qmdDnJaL9VELb8fq2PMOT9NXxe50jz2iqvnKXFt681xN7KPtu0O9Wbo VC6FjjTXkwmowc/W+hlBnA== 0000896058-97-000088.txt : 19970325 0000896058-97-000088.hdr.sgml : 19970325 ACCESSION NUMBER: 0000896058-97-000088 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970324 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 SEC ACT: 1934 Act SEC FILE NUMBER: 000-22117 FILM NUMBER: 97561770 BUSINESS ADDRESS: STREET 1: 4 LANDMARK SQ CITY: STAMFORD STATE: CT ZIP: 06901 BUSINESS PHONE: 2039757110 10-K 1 FORM 10-K FOR FISCAL YEAR ENDED 12/31/96 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 For the fiscal year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________________ to ______________________ Commission file number 000-22117 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: Common Stock, par value $0.01 per share --------------------------------------- (Title of Class) 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] As of February 28, 1997, the aggregate market value of the voting stock held by non-affiliates of the registrant was $147,502,669 million. As of February 28, 1997, the number of shares outstanding of the registrant's common stock, par value $0.01 per share, was 18,862,834. Documents Incorporated by Reference: None TABLE OF CONTENTS Page ---- PART I...................................................................... 1 Item 1. Business..................................................... 1 Item 2. Properties.................................................. 11 Item 3. Legal Proceedings........................................... 13 Item 4. Submission of Matters to a Vote of Security Holders......... 14 PART II.................................................................... 15 Item 5. Market for Registrant's Common Equity and Related Stockholder Matters....................................... 15 Item 6. Selected Financial Data..................................... 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 20 Item 8. Financial Statements and Supplementary Data................. 35 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................... 35 PART III................................................................... 36 Item 10. Directors and Executive Officers of the Registrant......... 36 Item 11. Executive Compensation..................................... 40 Item 12. Security Ownership of Certain Beneficial Owners and Management............................................... 44 Item 13. Certain Relationships and Related Transactions............. 49 PART IV.................................................................... 53 Item 14. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K...................................... 53 -i- PART I Item 1. Business General Silgan Holdings Inc. ("Holdings", and together with its direct and indirect owned subsidiaries, the "Company"), is a leading North American manufacturer of consumer goods packaging products that currently produces (i) steel and aluminum containers for human and pet food, (ii) custom designed plastic containers for personal care, health, food, pharmaceutical and household chemical products and (iii) specialty packaging items, including metal caps and closures, plastic bowls and paper containers used by processors in the food industry. The Company is the largest manufacturer of metal food containers in North America, with a unit sale market share for the twelve months ended October 31, 1996 of 35% in the United States, and is a leading manufacturer of plastic containers in North America for personal care products. The Company's strategy is to increase shareholder value by growing its existing businesses and expanding into other segments by applying its expertise in acquiring, financing, integrating and efficiently operating consumer goods packaging businesses. The Company was founded in 1987 by its current Co-Chief Executive Officers. Since its inception, the Company has acquired and successfully integrated ten businesses, including the recent acquisitions of substantially all of the assets of the Food Metal and Specialty business ("AN Can") of American National Can Company ("ANC") in August 1995 for a purchase price of approximately $362.0 million (including net working capital of approximately $156.0 million) and the U.S. metal container manufacturing business ("DM Can") of Del Monte Corporation ("Del Monte") in December 1993 for a purchase price of approximately $73.3 million (including net working capital of approximately $21.9 million). In addition, on October 9, 1996 the Company completed its acquisition of Finger Lakes Packaging Company, Inc. ("Finger Lakes"), the metal food container manufacturing subsidiary of Curtice Burns Foods, Inc. ("Curtice Burns"). See "--Company History" and "--Recent Developments". The Company's strategy has enabled it to rapidly increase its net sales and income from operations. The Company's net sales have increased from $630.0 million in 1992 to $1,405.7 million in 1996, representing a compound annual growth rate of approximately 22%. During this period, income from operations increased from $42.2 million in 1992 to $123.3 million in 1996, representing a compound annual growth rate of approximately 31%, while the Company's income from operations as a percentage of net sales increased 2.1 percentage points from 6.7% to 8.8% over the same period. The Company's philosophy, which has contributed to its strong performance since inception, is based on: (i) a significant equity ownership by management and an entrepreneurial approach to business, (ii) its low cost producer position and (iii) its long-term customer relationships. The Company's senior management has a significant ownership interest in the Company, which fosters an entrepreneurial management style and places a primary focus on creating shareholder value. The Company has achieved a low cost producer status through (i) the maintenance of a flat, efficient organizational structure, resulting in low selling, general and administrative expenses as a percentage of total net sales, (ii) purchasing economies, (iii) significant capital investments that have generated manufacturing and production efficiencies, (iv) plant consolidations and rationalizations and (v) the proximity of its plants to its customers. The Company's philosophy has also been to develop long-term customer relationships by acting in partnership with its customers, providing reliable quality and service and utilizing its low cost producer position. This philosophy has resulted in numerous long-term supply contracts, high retention of customers' business and recognition from its customers, as demonstrated by many quality and service awards. -1- Growth Strategy The Company intends to enhance its position as a leading supplier of consumer goods packaging products by aggressively pursuing a strategy designed to achieve future growth and to increase profitability. The key components of this strategy are to (i) increase the Company's market share in its current business lines through acquisitions and internal growth, (ii) expand into complementary business lines by applying the Company's acquisition and operating expertise to other areas of the North American consumer goods packaging market and (iii) improve the profitability of acquired businesses through integration, rationalization and capital investments to enhance their manufacturing and production efficiency. Increase Market Share Through Acquisitions and Internal Growth. The Company has increased its revenues and market share in the metal container, plastic container and specialty markets through acquisitions and internal growth. As a result of this strategy, the Company has diversified its customer base, geographic presence and product line. Management believes that certain industry trends exist which will enable the Company to continue to acquire attractive businesses in its existing markets. For example, during the past ten years, the metal container market has experienced significant consolidation due to the desire by food processors to reduce costs and deploy resources to their core operations. Self-manufacturers are increasingly outsourcing their container needs by selling their operations to commercial container manufacturing companies and agreeing to purchase containers from the buyer pursuant to long-term contracts. The Company's acquisitions of the metal container manufacturing operations of the Nestle Food Company ("Nestle"), The Dial Corporation and Del Monte reflect this trend. As a result of its growth strategy, the Company has more than tripled its overall share of the U.S. metal food container market from approximately 10% in 1987 to approximately 35% for the twelve months ended October 31, 1996. The Company expects this consolidation trend to continue as evidenced by its October 9, 1996 acquisition of Finger Lakes. See "--Recent Developments". The Company's plastic container business has also increased its market position primarily through strategic acquisitions, from a sales base of $88.8 million in 1987 to $216.4 million in 1996. The plastic container segment of the consumer goods packaging industry is highly fragmented, and management intends to pursue consolidation opportunities in that segment. The Company also expects to generate internal growth due to its participation in certain higher growth segments of the consumer goods packaging market. For example, due to increasing consumer preference for plastic as a substitute for glass, the Company is aggressively pursuing opportunities for its custom designed polyethylene terephthalate ("PET") and high density polyethylene ("HDPE") containers. These opportunities include producing PET containers for regional bottled water companies, and HDPE and PET containers for products such as shampoo, mouthwash, salad dressing and liquor. The Company also believes that there will be opportunities to expand its specialty business, which generated net sales of $90.7 million in 1996. Specialty products manufactured by the Company include metal closures for vacuum sealed glass containers, its licensed Omni plastic container, a plastic, microwaveable bowl with an easy-open metal end, and paper containers. Expand into Complementary Business Lines Through Acquisitions. Management believes that it can successfully apply its acquisition and operating expertise to new segments of the consumer goods packaging industry. For example, with the AN Can acquisition, the Company expanded its specialty business into metal caps and closures and its licensed Omni plastic container. Management believes that certain trends in and characteristics of the North American consumer goods packaging industry will continue to generate attractive acquisition opportunities in complementary business lines. The Company is focused on the North American consumer goods packaging industry, which represents a significant part of the $95 billion North American packaging market (based on estimated total sales in 1994). Importantly, -2- the industry is also fragmented, with numerous segments and multiple participants in each of them. In addition, many of these segments are experiencing consolidation. Enhance Profitability of Acquired Companies. The Company seeks to acquire businesses at reasonable cash flow multiples and to enhance profitability by rationalizing plants, by improving manufacturing and production efficiencies and through purchasing economies. Since 1991, the Company has reduced costs by closing twelve smaller, higher cost facilities. Since its inception in 1987, the Company has invested approximately $272.3 million to upgrade acquired manufacturing facilities, aimed at generating manufacturing and production efficiencies and achieving a low cost producer position. As a result, the Company's acquisitions have generally been accretive to earnings and have produced high returns on assets. The AN Can acquisition illustrates the ability of the Company to enhance the profitability of acquired businesses. The Company estimates that it has reduced AN Can's operating costs from its historical 1994 level by at least $21.0 million, through selling and administrative cost reductions, improved manufacturing and production efficiencies and purchasing economies. The Company expects to further reduce AN Can's operating costs over the next few years by an aggregate of approximately $15.0 million (approximately half of which is expected to be realized in 1997) through the elimination of transitional administrative costs, the realization of additional manufacturing and production synergies with its metal container business and plant rationalizations. Financial Strategy The Company's financial strategy has been to use leverage to support its growth and optimize shareholder returns. The Company's stable and predictable cash flow, generated largely as a result of its long-term customer relationships, has supported its financial strategy. Management has successfully operated its businesses and achieved its growth strategy while managing the Company's indebtedness. Management intends to apply this strategy to further expand its business. Additionally, on February 20, 1997, an initial public offering (the "Offering") of 5,175,000 shares of common stock, par value $.01 per share (the "Common Stock") of Holdings was completed, providing the Company with improved financial flexibility to implement its growth strategy. Business Segments Holdings is a holding company that conducts its business through two operating companies, Silgan Containers Corporation ("Containers") and Silgan Plastics Corporation ("Plastics"), each of which is a wholly owned subsidiary of Silgan Corporation ("Silgan"), which is in turn a wholly owned subsidiary of Holdings. Containers. For 1996, Containers had net sales of $1,189.3 million (85% of the Company's net sales) and income from operations of $106.1 million (85% of the Company's income from operations) (without giving effect to corporate expense). Containers has realized compound annual unit sales growth in excess of 24% since 1992, despite the relative maturity of the U.S. food can industry. Containers 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. Containers manufactures metal containers for vegetables, fruit, pet food, meat, tomato based products, coffee, soup, seafood and evaporated milk. The Company estimates that approximately 80% of Containers' projected sales in 1997 will be pursuant to long-term supply arrangements. Containers has agreements with Nestle (the "Nestle Supply Agreements") pursuant to which Containers supplies a majority of Nestle's metal container requirements, and an agreement with Del Monte (the "DM Supply Agreement") pursuant to which Containers supplies substantially all of Del Monte's metal container requirements. In addition to Nestle and Del Monte, Containers has multi-year supply arrangements with several other major food processors. -3- Containers also manufactures certain specialty packaging items, including metal caps and closures, plastic bowls and paper containers used by processors in the food industry. For 1996, Containers had net sales of specialty packaging items of $90.7 million. Plastics. For 1996, Plastics had net sales of $216.4 million (15% of the Company's net sales) and income from operations of $18.4 million (15% of the Company's income from operations) (without giving effect to corporate expense). Plastics is aggressively pursuing opportunities in custom designed PET and HDPE containers. Plastics emphasizes value-added design, fabrication and decoration of custom containers in its business. Plastics manufactures custom designed HDPE containers for health and personal care products, including containers for shampoos, conditioners, hand creams, lotions, cosmetics and toiletries, household chemical products, including containers for scouring cleaners, cleaning agents and lawn and garden chemicals and pharmaceutical products, including containers for tablets, antacids and eye cleaning solutions. Plastics also manufactures PET custom designed containers for mouthwash, respiratory and gastrointestinal products, liquid soap, skin care lotions, salad dressings, condiments, instant coffee, bottled water and liquor. While many of Plastics' larger competitors that manufacture extrusion blow-molded plastic containers employ technology oriented to large bottles and long production runs, Plastics has focused on mid-sized, extrusion blow-molded plastic containers requiring special decoration and shorter production runs. 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. Manufacturing and Production As is the practice in the industry, most of the Company's can and plastic container customers provide it with quarterly or 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. Containers estimates that approximately 80% of its projected 1997 sales will be pursuant to 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's manufacturing operations include cutting, coating, lithographing, fabricating, assembling and packaging finished cans. Three basic processes are used 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. High integrity of the side seam is 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. -4- Plastic Container Business The Company utilizes two basic processes to produce plastic bottles. In the extrusion blow molding process, pellets of plastic resin are heated and extruded into a tube of plastic. A two-piece metal mold is then closed around the plastic tube and high pressure air is blown into it causing a bottle to form in the mold's shape. In the injection blow molding process, pellets of plastic resin are heated and injected into a mold, forming a plastic preform. The plastic preform is then blown into a bottle-shaped metal mold, creating a plastic bottle. The Company believes that its proprietary equipment for the production of HDPE containers is particularly well-suited for the use of post-consumer recycled ("PCR") resins because of the relatively low capital costs required to convert its equipment to utilize multi-layer container construction. The Company's decorating methods for its plastic products include (1) in-mold labeling which applies a paper or plastic film label to the bottle during the blowing process and (2) post-mold decoration. Post-mold decoration includes (i) silk screen decoration which enables the applications of images in multiple colors to the bottle, (ii) pressure sensitive decoration which uses a plastic film or paper label with an adhesive, (iii) heat transfer decoration which uses a plastic coated 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 country. 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 in accordance with the Company's long-term supply arrangements and otherwise, any 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 will 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 recycled PET, 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 -5- of resins. The price the Company pays for resin raw materials is not fixed and is subject to market pricing. The Company believes that it will be able to purchase sufficient quantities of resins for the foreseeable future. Sales and Marketing The Company's philosophy has been to develop long-term customer relationships by acting in partnership with its customers, providing reliable quality and service and utilizing its low cost producer position. The Company markets its products in most areas of North America primarily by a direct sales force and for its plastic container business, to a lesser extent, through a 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". In 1996, 1995 and 1994, approximately 17%, 21% and 26%, respectively, of the Company's sales were to Nestle, and approximately 12%, 15% and 21%, respectively, of the Company's sales were to Del Monte. No other customer accounted for more than 10% of the Company's total sales during such years. Metal Container Business The Company is the largest manufacturer of metal food can containers in North America, with a unit sale market share for the twelve months ended October 31, 1996 of approximately 35% 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 projected metal container sales in 1997 will be pursuant to such arrangements. In 1987, the Company, through Containers, and Nestle entered into nine 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 1996, sales of metal cans by the Company to Nestle were $240.6 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. The Company has recently agreed with Nestle, subject to definitive documentation, to extend the term of certain of the Nestle Supply Agreements through 2004 (representing approximately 10% of the Company's estimated 1996 sales) in return for certain price concessions by the Company. The Company believes that these price concessions will not have a material adverse effect on its results of operations. Under certain limited circumstances, Nestle, beginning in January 2000 (with respect to all of the containers supplied under the Nestle Supply Agreements that have been extended through 2004), may receive competitive bids, and Containers has the right to match any such bids. If Containers matches a competitive bid, it may result in reduced sales prices with respect to the metal containers that are the subject of such competitive bid. In the event that Containers chooses not to match a competitive bid, such metal containers may be purchased from the competitive bidder at the competitive bid price for the term of the bid. -6- Under the Company's recent agreement with Nestle, with respect to the remaining Nestle Supply Agreements that expire in August 1997 (representing approximately 6% of the Company's estimated 1996 sales), the Company has the right to submit a bid to Nestle, and to match any bid received by Nestle, for the 1998 supply year with respect to the metal containers that are the subject of such Nestle Supply Agreements. There can be no assurance that any such bid by the Company will be made at sales prices equivalent to those currently in effect or otherwise on terms similar to those currently in effect. In addition, the Company cannot predict the effect, if any, on its results of operations of matching or not matching any such bids. On December 21, 1993, Containers and Del Monte entered into the DM Supply Agreement. Under the DM Supply Agreement, Del Monte has agreed to purchase from Containers, and Containers has agreed to sell to Del Monte, substantially all of Del Monte's annual requirements for metal containers to be used for the packaging of food and beverages in the United States, subject to certain limited exceptions. In 1996, sales of metal containers by the Company to Del Monte were $168.0 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. Management believes that the Company is a leading manufacturer of plastic containers in North America for personal care products. 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 largest customers in these product segments include the Helene Curtis and Chesebrough-Ponds USA divisions of Unilever United States, Inc., Procter & Gamble Co., Avon Products, Inc., Andrew Jergens Inc., The Dial Corporation, 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 bottled water and liquor. Customers in these product segments include Procter & Gamble Co., Kraft Foods Inc. and General Mills, Inc. -7- 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 regional customers. Plastic containers sold to distributors are manufactured by using generic molds with decoration, color and neck finishes added to meet the distributors' individual requirements. The distributors' warehouses and their sales personnel enable the Company to market and inventory a wide range of such products to a variety of customers. Plastics has written purchase orders or contracts for containers with the majority of its customers. In general, these purchase orders and contracts are for containers made from proprietary molds and are for a duration of 2 to 5 years. Competition The packaging industry is highly competitive. The Company competes in this industry with other packaging manufacturers as well as fillers, food processors and packers who manufacture containers for their own use and for sale to others. The Company attempts to compete effectively through the quality of its products, competitive 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 December 31, 1996, the Company operated 48 manufacturing facilities, geographically dispersed throughout the United States and Canada, that serve the distribution needs of its customers. Metal Container Business 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. However, 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. 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 -8- remain current with, and to some extent anticipate innovations in, resin composition and applications and changes in the technology for the manufacturing of plastic bottles. Employees As of December 31, 1996, the Company employed approximately 1,080 salaried and 4,445 hourly employees on a full-time basis. Approximately 64% of the Company's hourly plant employees are represented by a variety of unions. The Company's labor contracts expire at various times between 1997 and 2008. Contracts covering approximately 13% of the Company's hourly employees presently expire during 1997. 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 the can operations of Nestle ("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 exceeded $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 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. -9- 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 Product Development 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 and Neenah, Wisconsin. 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 allow for an exchange of technology among these manufacturers. Pursuant to these arrangements, the Company licenses its blow molding technology to such manufacturers. Company History Holdings is a Delaware corporation organized in April 1989, that, in June 1989, through a merger acquired all of the outstanding common stock of Silgan. Holdings' principal asset is all of the outstanding capital stock of Silgan. Prior to June 30, 1989, Holdings did not engage in any business. Silgan is a Delaware corporation formed in August 1987 as a holding company to acquire interests in various packaging manufacturers. Since its inception in 1987, the Company has completed the following acquisitions:
Acquired Business Year Products - ------------------------------------------------ ---- --------- Metal Container Manufacturing division of Nestle 1987 Metal food containers Monsanto Company's plastic container business 1987 Plastic containers Fort Madison Can Company of The Dial Corporation 1988 Metal food containers Seaboard Carton Division of Nestle 1988 Paper containers Aim Packaging, Inc. 1989 Plastic containers Fortune Plastics Inc. 1989 Plastic containers Express Plastic Containers Limited 1989 Plastic containers Amoco Container Company 1989 Plastic containers Del Monte's U.S. can manufacturing operations 1993 Metal food containers Food Metal and Specialty business of ANC 1995 Metal food containers, metal caps and closures and Omni plastic containers Finger Lakes, a subsidiary of Curtice Burns 1996 Metal food containers
-10- Recent Developments Initial Public Offering On February 20, 1997, Holdings completed the Offering. In the Offering, Holdings sold to the underwriters 3,700,000 previously unissued shares of Common Stock at an initial public offering price of $20.00 per share for aggregate net proceeds to the Company of $68,820,000 (after deducting the underwriting discount but before deducting estimated expenses of $1,000,000 payable by the Company in connection with the Offering). The Company used a portion of the net proceeds received by it from the Offering to prepay on February 20, 1997 approximately $5.4 million and $3.5 million principal amount of A term loans and B term loans, respectively, under the Credit Agreement (as defined herein), and will use the remaining net proceeds received by it from the Offering to redeem on March 26, 1997 all of its remaining outstanding 13-1/4% Senior Discount Debentures due 2002 (the "Discount Debentures") (approximately $59.0 million aggregate principal amount). At the advice of the managing underwriters for the Offering, the number of shares of Common Stock sold in the Offering was increased from 3,700,000 shares (the number of shares originally contemplated to be sold in the Offering) to 5,175,000 shares (including the underwriters over-allotment). The managing underwriters for the Offering also advised that the additional shares of Common Stock to be included in the Offering be sold by The Morgan Stanley Leveraged Equity Fund II, L.P. ("MSLEF II") and Bankers Trust New York Corporation ("BTNY"), existing stockholders of the Company prior to the Offering. Accordingly, in the Offering, MSLEF II and BTNY sold to the underwriters 1,317,246 and 157,754 previously issued and outstanding shares of Common Stock owned by them, respectively (including 602,807 and 72,193 shares of Common Stock, respectively, which were sold as a result of the underwriters exercise of their over-allotment option in full), or approximately 18% of the shares of Common Stock owned by each of them. The Company did not receive any of the proceeds from the sale of the shares of Common Stock by MSLEF II or BTNY. Neither of the Company's two other existing stockholders prior to the Offering, Messrs. R. Philip Silver, the Chairman of the Board and Co-Chief Executive Officer of the Company, and D. Greg Horrigan, the President and Co-Chief Executive Officer of the Company, sold any shares of Common Stock in the Offering. See "Securities Ownership of Certain Beneficial Owners and Management". Acquisition On October 9, 1996, Containers acquired substantially all of the assets of Finger Lakes, a metal food container manufacturer with facilities in Lyons, New York and Benton Harbor, Michigan and a wholly owned subsidiary of Curtice Burns, for a purchase price of approximately $29.9 million (including net working capital of approximately $8.0 million). As part of the transaction, Containers entered into a ten year supply agreement with Curtice Burns to supply all of the metal food container requirements of Curtice Burns' Comstock Michigan Fruit and Brooks Foods divisions. For its fiscal year ended June 29, 1996, Finger Lakes had net sales of $48.8 million. The Company financed this acquisition through working capital borrowings under the Credit Agreement. 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. -11- The Company owns and leases properties for use in the ordinary course of business. Such properties consist primarily of 33 metal container manufacturing facilities, 11 plastic container manufacturing facilities and 4 specialty packaging manufacturing facilities. Twenty of these facilities are owned and 28 are leased by the Company. The leases expire at various times through 2020. Some of these leases provide renewal options. Below is a list of the Company's operating facilities, including attached warehouses, as of February 28, 1997 for its metal container business: Approximate Building Area Location (square feet) - -------- ------------------------- City of Industry, CA............................... 50,000 (leased) Kingsburg, 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 Norwalk, CT........................................ 14,359 (leased) 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) Benton Harbor, MI.................................. 20,246 (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 St. Louis, MO...................................... 174,000 (leased) Edison, NJ......................................... 280,000 Lyons, NY.......................................... 145,000 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 -12- Below is a list of the Company's operating facilities, including attached warehouses, as of February 28, 1997 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....................................... 477,000 (284,000 leased) 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 party to the Credit Agreement. 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 On October 17, 1989, the State of California, on behalf of the California Department of Health Services ("DHS"), filed a suit in the United States District Court for the Northern District of California against the owners and operators of a recycling facility operated by Summer del Caribe, Inc., Dale Summer and Lynn Rodich. The complaint also named 16 can manufacturing companies, including Containers, that had sent amounts of solder dross to the facility for recycling as "Potentially Responsible Parties" ("PRPs") under the Federal Superfund statute. Containers is one of the 15 defendant can companies which agreed to participate as a group in response to the DHS suit (the "PRP Group"). In the PRP Group agreement, Containers agreed with the other can company defendants that its apportioned share of cleanup costs would be 6.72% of the total cost of cleanup. The PRP Group has undertaken a feasibility study for the purpose of developing, designing and implementing a final remedy for the site. The feasibility study was approved by the California Department of Toxic Substances Control ("DTSC") in June 1994. On March 14, 1995, the court approved a settlement agreement and consent decree which ordered the PRP Group to submit a draft Remedial Action Plan to the DTSC for approval, which the PRP Group submitted to the DTSC on September 5, 1995. On September 13, 1995, the DTSC notified the PRP Group by letter that the Remedial Action Plan had been adopted for the Summer del Caribe site. According to the Remedial Action Plan, the overall cost of site cleanup is estimated to be $3,000,000. Site cleanup is near completion. However, monitoring at the site will be required for approximately one year, the expenses for which represent a small portion of the total expense of cleanup. The PRP Group has assessed approximately $201,264 as Containers' share of the cleanup cost, which amount has been paid. The Company believes that significant additional expenditures on its behalf are unlikely. -13- Other than the action mentioned above, there are no other material pending legal proceedings to which the Company is a party or to which any of its properties are subject. Item 4. Submission of Matters to a Vote of Security Holders. None. -14- PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. During 1996, Holdings had three classes of Common Stock outstanding, 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"), none of which were publicly traded on any market or exchange. At December 31, 1996, there were two holders of record of the Holdings Class A Stock (Messrs. Silver and Horrigan), one holder of record of the Holdings Class B Stock (MSLEF II), and one holder of record of the Holdings Class C Stock (BTNY). On July 22, 1996, Holdings sold 50,000 shares of its Exchangeable Preferred Stock Mandatorily Redeemable 2006 (the "Exchangeable Preferred Stock") for an aggregate offering price of $50 million (the "Preferred Stock Sale"). Morgan Stanley acted as the placement agent in connection with the Preferred Stock Sale and received certain fees amounting to $1.8 million. The Exchangeable Preferred Stock was sold only to "qualified institutional buyers" in reliance on Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and to a limited number of institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act). For a description of the terms of the Exchangeable Preferred Stock, see "Description of Holdings Capital Stock--Preferred Stock". On February 20, 1997, Holdings completed the Offering. Since February 14, 1997, the Common Stock has been trading publicly on the Nasdaq National Market. As of February 28, 1997 there were approximately 51 record holders of the Common Stock. Holdings has never declared or paid cash dividends on the Common Stock. The Company currently anticipates that it will retain all available funds for use in the operation and expansion of its business and does not anticipate paying any cash dividends on the Common Stock in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of Holdings' Board of Directors and will be dependent upon the Company's results of operations, financial condition, contractual restrictions and other factors deemed relevant by Holdings' Board of Directors. In addition, 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 the Exchangeable Preferred Stock (and, when issued in exchange for the Exchangeable Preferred Stock, Holdings' Subordinated Debentures due 2006 (the "Exchange Debentures")) limit the ability of Holdings to pay dividends, and the Credit Agreement and Silgan's 11-3/4% Senior Subordinated Notes Due 2002 (the "11-3/4% Notes") limit the ability of Silgan to pay dividends to Holdings. Item 6. Selected Financial Data. Set forth below are selected historical consolidated financial data of Holdings at December 31, 1996, 1995, 1994, 1993 and 1992 and for the years then ended. The selected historical consolidated financial data of Holdings at December 31, 1996 and 1995 and for each of the three years in the period ended December 31, 1996 (with the exception of employee data) were derived from the historical consolidated financial statements of Holdings for such periods that were audited by Ernst & Young LLP, independent auditors, whose report appears elsewhere in this Annual Report on Form 10-K. The selected historical consolidated financial data of Holdings at December -15- 31, 1994, 1993 and 1992 and for the years ended December 31, 1993 and 1992 were derived from the historical audited consolidated financial statements of Holdings for such periods. The selected historical data of Holdings were derived from, and should be read in conjunction with, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical financial statements of Holdings, including the notes thereto, included elsewhere in this Annual Report on Form 10-K. -16-
Selected Financial Data Year Ended December 31, --------------------------------------------------------------- 1996(a) 1995(a) 1994(b) 1993(b) 1992 --------- --------- --------- --------- -------- (Dollars in millions, except per share data) Operating Data: Net sales........................................... $1,405.7 $1,101.9 $861.4 $645.5 $630.0 Cost of goods sold.................................. 1,223.6 970.5 748.3 571.2 555.0 ------- ------- ----- ----- ----- Gross profit........................................ 182.1 131.4 113.1 74.3 75.0 Selling, general and administrative expenses........ 58.8 46.9 38.0 32.5 32.8 Reduction in carrying value of assets(c)............ - 14.7 16.7 - - ------- ------- ----- ----- ----- Income from operations.............................. 123.3 69.8 58.4 41.8 42.2 Interest expense and other related financing costs.. 89.4 80.7 65.8 54.3 57.0 Minority interest expense........................... - - - - 2.7 ------- ------- ----- ----- ----- Income (loss) before income taxes................... 33.9 (10.9) (7.4) (12.5) (17.5) Income tax provision................................ 3.3 5.1 5.6 1.9 2.2 ------- ------- ----- ----- ----- Income (loss) before extraordinary charges and cumulative effect of changes in accounting principles......................................... 30.6 (16.0) (13.0) (14.4) (19.7) Extraordinary charges relating to early extinguishment of debt............................. (2.2) (5.8) - (1.3) (23.6) Cumulative effect of changes in accounting principles(d)...................................... - - - (6.3) - ------- ------- ----- ----- ----- Net income (loss) before preferred stock dividend requirement........................................ 28.4 (21.8) (13.0) (22.0) (43.3) Preferred stock dividend requirement................ (3.0) - - - - ------- ------- ----- ----- ----- Net income (loss) applicable to common stockholders. $ 25.4 $ (21.8) $(13.0) $(22.0) $(43.3) ======== ======== ======= ====== ====== Net income (loss) per common share(e): Income (loss) before extraordinary charges......... $ 1.60 $ (0.77) $(0.63) $(0.87) $(1.21) Extraordinary charges.............................. (0.12) (0.29) - (0.08) (1.44) Cumulative effect of accounting changes............ - - - (0.38) - Preferred stock dividend requirement............... (0.16) - - - - ------- ------- ----- ----- ----- Total...................................... $ 1.32 $ (1.06) $(0.63) $(1.33) $(2.65) ======== ======== ====== ====== ====== Weighted average number of common and common equivalent shares outstanding(f)............19,178,730 20,656,877 20,656,877 16,479,206 16,373,591 Selected Segment Data: Net sales: Metal container business........................... $1,189.3 $ 882.3 $657.1 $459.2 $437.4 Plastic container business......................... 216.4 219.6 204.3 186.3 192.6 Income (loss) from operations:(g) Metal container business........................... 106.1 58.2 59.8 42.3 40.7 Plastic container business......................... 18.4 13.2 (0.1) 0.6 2.3 Other Data: Adjusted EBITDA(h).................................. $ 186.0 $ 132.4 $114.5 $ 76.1 $ 74.0 Adjusted EBITDA as a percentage of net sales........ 13.2% 12.0% 13.3% 11.8% 11.7% Income from operations as a percentage of net sales. 8.8 6.3 6.8 6.5 6.7 Capital expenditures................................ $ 56.9 $ 51.9 $ 29.2 $ 42.5 $ 23.4 Depreciation and amortization(i).................... 59.3 45.4 37.2 33.8 31.8 Cash flows provided by operating activities......... 125.2 209.6 47.3 48.1 15.4 Cash flows used for investing activities............ (98.3) (397.1) (27.9) (116.1) (23.0) Cash flows (used for) provided by financing activities......................................... (27.9) 186.9 (17.0) 65.3 8.6 Number of employees (at end of period)(j)........... 5,525 5,110 4,000 3,330 3,340 Balance Sheet Data (at end of period): Total assets........................................ $ 913.5 $ 900.0 $504.3 $497.6 $389.0 Total long-term debt................................ 693.8 750.9 510.8 505.7 383.2 Redeemable preferred stock.......................... 53.0 - - - - Deficiency in stockholders' equity.................. (190.2) (179.8) (158.0) (145.0) (138.0) (footnotes follow)
-17- Notes to Selected Financial Data (a) On August 1, 1995, the Company acquired AN Can for a purchase price of $362.0 million (including the purchase from ANC of its St. Louis facility in May 1996 for $13.1 million). 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 for the year ended December 31, 1996 included elsewhere in this Annual Report on Form 10-K. (b) On December 21, 1993, the Company acquired DM Can for a purchase price of approximately $73.3 million. 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. (c) 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 metal container business 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 had become underutilized due to excess capacity. In 1994, charges of $7.2 million and $9.5 million were recorded by the metal container business and plastic container business, respectively, to write-down the excess carrying value over estimated realizable value of various plant facilities held for sale and for technologically obsolete and inoperable machinery and equipment. (d) During 1993, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 106, "Employers Accounting for Postretirement Benefits Other than Pensions," SFAS No. 109, "Accounting for Income Taxes" and SFAS No. 112, "Employers Accounting for Postemployment Benefits". The Company did not elect to restate prior years' financial statements for any of these pronouncements. (e) Net income (loss) per share is based on the weighted average number of shares outstanding during the period, as adjusted in all periods for the 17.133145 to 1 stock split of the outstanding Common Stock of Holdings effected in connection with the Offering (the "Stock Split"), and after giving effect to stock options considered to be dilutive common stock equivalents using the treasury stock method. Primary and fully diluted net income (loss) per share are the same for each of the periods. Under the terms of the stock option plans of Containers and Plastics, stock options issued under such plans were converted to options under the Silgan Holdings Inc. Fourth Amended and Restated 1989 Stock Option Plan (the "Stock Option Plan") at the time of the Offering. Such conversion was made based upon the allocable value of Containers and Plastics determined in relation to the value of the Company. Weighted average number of shares outstanding includes the subsidiary options which are considered to be issued within 12 months prior to the Offering at less than the initial public offering price due to their conversion feature. Supplementary net income per share (unaudited), assuming the repayment as of January 1, 1996 of the indebtedness from the net proceeds to the Company from the Offering as described under "Business--Recent Developments--Initial Public Offering", was $1.42 for the year ended December 31, 1996. (f) The weighted average number of common and common equivalent shares outstanding gives effect to the Stock Split. (g) Income (loss) from oprations in the selected segment data includes charges incurred for the reduction in carrying value of certain assets for the metal containers business of $14.7 million and $7.2 million for the years ended December 31, 1995 and 1994 and for the plastic containers business of $9.5 million for the year ended December 31, 1994, as referred to in footnote (c) above. Income from operations for both the metal container and plastic container businesses excludes corporate expense. (h) "Adjusted EBITDA" 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 applicable period, without duplication, consolidated interest expense, income tax expense and depreciation and amortization expense, as adjusted to add back expenses relating to postretirement health care costs (which amounted to $2.6 million, $1.7 million, $0.7 million and $0.5 million for the years ended December 31, 1996, -18- 1995, 1994 and 1993, respectively), the reduction in carrying value of assets (which were $14.7 million and $16.7 million for the years ended December 31, 1995 and 1994, respectively) and certain other non-cash charges (which included charges relating to the vesting of benefits under Stock Appreciation Rights ("SARs") of $0.8 million for each of the years ended December 31, 1996 and 1995 and $1.5 million for the year ended December 31, 1994). The Company has included information regarding Adjusted EBITDA because management believes that many investors consider it to be important in assessing a company's ability to service and incur debt. Accordingly, this information has been disclosed herein to permit a more complete analysis of the Company's financial condition. Adjusted EBITDA should not be considered in isolation or as a substitute for net income or other consolidated statement of operations or cash flows data prepared in accordance with Generally Accepted Accounting Principles ("GAAP") as a measure of the profitability or liquidity of the Company. See the consolidated statements of operations and consolidated statements of cash flows of Holdings, including the notes thereto, included elsewhere in this Annual Report on Form 10-K. Adjusted EBITDA does not take into account the Company's debt service requirements and other commitments and, accordingly, is not necessarily indicative of amounts that may be available for discretionary uses. Additionally, Adjusted EBITDA is not computed in accordance with GAAP and may not be comparable to other similarly titled measures of other companies. (i) Depreciation and amortization excludes amortization of debt financing costs. (j) The number of employees at December 31, 1995 includes approximately 1,400 employees who joined the Company on August 1, 1995 as a result of the acquisition by Containers of AN Can. The number of employees at December 31, 1993 excludes 650 employees who joined the Company on December 21, 1993 as a result of the acquisition by Containers of DM Can. -19- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following should be read in conjunction with the consolidated financial statements of the Company and the notes thereto included elsewhere in this Annual Report on Form 10-K. Certain information contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Annual Report on Form 10-K regarding the Company's expected operations, financial results, cost savings, future liquidity, plans and strategy for its business and related financing and general financial condition includes forward looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward looking statements involve uncertainties and risks, including, but not limited to, factors described in this Annual Report on Form 10-K and in Holdings' other filings with the Securities and Exchange Commission. The Company's actual operations, financial results, cost savings, future liquidity, plans and strategy for its business and related financing and general financial condition may differ from such forward looking statements. Overview The Company is a leading North American manufacturer of consumer goods packaging products that currently produces (i) steel and aluminum containers for human and pet food, (ii) custom designed plastic containers for personal care, health, food, pharmaceutical and household chemical products and (iii) specialty packaging items, including metal caps and closures, plastic bowls and paper containers used by processors in the food industry. The Company is the largest manufacturer of metal food containers in North America, with a unit sale market share for the twelve months ended October 31, 1996 of 35% in the United States, and is a leading manufacturer of plastic containers in North America for personal care products. The Company has focused on growth through acquisitions, followed by plant rationalizations and consolidations and investment in the acquired businesses to gain manufacturing and production efficiencies and to provide for internal growth. Since its inception, the Company has acquired and successfully integrated ten businesses, including the recent acquisitions of AN Can in August 1995 for a purchase price of approximately $362.0 million (including net working capital of approximately $156.0 million) and DM Can in December 1993 for a purchase price of approximately $73.3 million (including net working capital of approximately $21.9 million). In addition, on October 9, 1996 the Company completed its acquisition of Finger Lakes, the metal container manufacturing subsidiary of Curtice Burns. See "Business--Recent Developments". The Company's future growth will depend in large part on additional acquisitions of consumer goods packaging businesses. The Company is continually evaluating and intends to continue to pursue acquisition opportunities in the North American consumer goods packaging market. Although the Company has no present binding agreements or commitments to make any acquisition, the Company has expressed indications of interest or made preliminary bids on three acquisition opportunities presented to it, which have annual sales ranging from approximately $30 million to $250 million. Any such acquisition may be financed through the incurrence of additional indebtedness. No assurance can be given that the Company will complete any such acquisition. Holdings is a holding company that conducts its business through two operating companies, Containers and Plastics, each of which is a wholly owned subsidiary of Silgan. -20- Cost Reductions and Investments Following Acquisitions The Company believes that its acquisitions and investments have enabled it to achieve a low cost position in the metal food container segment. To further enhance its low cost position, the Company has realized cost reduction opportunities through plant rationalizations and capital improvements, as well as from improved production scheduling and line reconfiguration. Since 1991, Containers 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. Because most of the facilities that were closed in 1995 were closed late in the year, the Company began to realize the benefits from the closing of such facilities in 1996. From 1991 through 1993, Plastics closed three manufacturing facilities and consolidated the technical and administrative functions of its plastic container businesses. An additional facility was closed in 1995. In 1994, Plastics began to realize the benefits of this consolidation and rationalization program, as well as from its capital investment program. In the fourth quarter of 1996, the Company initiated further downsizing and rationalizations of certain of its facilities. Management expects that these actions, along with improved production scheduling, will enable the Company to achieve lower manufacturing costs in 1997 as compared to 1996. AN Can Acquisition Management believes that the acquisition of AN Can, which has seventeen manufacturing facilities, provides the Company with further cost reduction opportunities, not only through purchasing economies and manufacturing synergies which it will realize from the combined operations, but also through the integration of selling, general and administrative operations of AN Can into the Company's existing metal container business. In 1996, the Company realized certain of the manufacturing synergies. In 1997, the Company expects to complete the integration of the selling, general and administrative functions. The Company believes that it will realize the full benefits of the integration of the selling, general and administrative functions in 1998, and that benefits to be realized by the rationalization of plant operations will begin to occur in 1997. Although employee termination costs in connection with plant rationalizations, administrative workforce reductions and other plant exit costs associated with the acquisition of AN Can have been accrued through purchase accounting adjustments, the Company incurred in 1995 and in 1996 other non-recurring costs which under current accounting pronouncements will be charged against operating income. These costs, which include transitional charges related to the integration of selling and administrative functions, as well as costs associated with plant rearrangement and clean-up, were $3.2 million in 1995 and were approximately $3.5 million in 1996. The Company expects that it will eliminate the redundant charges related to the integration of selling and administrative functions in 1997. Net Sales Long-term Contracts. The Company seeks to develop and maintain long-term relationships with its customers. The Company estimates that approximately 80% of Containers' projected sales in 1997 will be pursuant to long-term supply arrangements. Containers' has agreements with Nestle pursuant to which Containers supplies a majority of Nestle's metal container requirements, and an agreement with Del Monte pursuant to which Containers supplies substantially all of Del Monte's U.S. metal container requirements. Revenues from these two customers represented approximately 29% of net sales by Containers in 1996. In addition to Nestle and Del Monte, Containers has multi-year supply arrangements with several other customers, including contracts which AN Can had with many of its customers. The Company has recently agreed with Nestle, subject to definitive documentation, to extend the term of certain of the Nestle Supply Agreements through 2004 (representing approximately 10% of the -21- Company's 1996 sales) in return for certain price concessions by the Company. See "Business--Sales and Marketing". The Company believes that these price concessions will not have a material adverse effect on its results of operations. Under the Company's recent agreement with Nestle, with respect to the remaining Nestle Supply Agreements that expire in August 1997 (representing approximately 6% of the Company's 1996 sales), the Company has the right to submit a bid to Nestle, and to match any bid received by Nestle, for the 1998 supply year with respect to the metal containers that are the subject of such Nestle Supply Agreements. There can be no assurance that any such bid by the Company will be made at sales prices equivalent to those currently in effect or otherwise on terms similar to those currently in effect. The loss by the Company of either Nestle or Del Monte as a customer would have a material adverse effect on the Company's results of operations. See "Business--Sales and Marketing". The Company's long-term supply contracts generally provide for pricing changes in accordance with cost change formulas, thereby significantly reducing the exposure of the Company's results from operations to the volatility of raw material costs. In addition, the terms of the Company's long-term supply contracts limit the Company's ability to increase margins. Agricultural Harvest and Seasonality. The Company's metal container business sales are dependent, in part, upon the vegetable, tomato and fruit harvests in the midwest and western regions of the United States. The size and quality of these harvests varies from year to year, depending in large part upon the weather conditions in those regions. The fruit and vegetable pack harvest in 1994 was better than the below normal fruit and vegetable pack harvest in 1995, resulting in greater sales to fruit and vegetable pack processing customers in 1994 as compared to 1995. The 1996 midwest vegetable harvest was better than in 1995, but, due to cool wet weather during the 1996 planting season, was less than the harvest in 1994. The Company's business is affected by seasonal variations as a result of the timing of the harvest. Accordingly, the Company experiences higher unit sales volume in the second and third quarters and, as a result, the Company has historically generated a disproportionate amount of its annual income from operations during these quarters. In 1996, the Company generated substantially all of its net income in the second and third quarters. See "--Quarterly Results of Operations". Interest Expense In order to increase its financial flexibility, during 1995 and 1996 the Company refinanced portions of its higher cost capital with lower cost capital. Upon completion of the redemption of the remaining Discount Debentures on March 26, 1997 with the proceeds from the Offering, the Company will have refinanced all of the Discount Debentures. The net result of these refinancings will be approximately $19.5 million of annual current cash interest savings (excluding non-cash interest relating to the Exchange Debentures) and approximately $25.9 million of current cash tax savings (as a result of the deduction by the Company of the accreted interest of approximately $103.5 million on the retired Discount Debentures). The Company's aggregate interest expense and the preferred stock dividend requirement in 1996 was $92.4 million. On a pro forma basis after giving effect to (i) the Offering and the use of the proceeds therefrom to redeem the remaining Discount Debentures and repay bank indebtedness, (ii) the use of the proceeds from the Preferred Stock Sale to (a) purchase 250,000 shares of Holdings' Class B Common Stock held by Mellon Bank N.A. ("Mellon"), as trustee for First Plaza Group Trust ("First Plaza"), and (b) redeem $12.0 million principal amount of Discount Debentures, (iii) the incurrence of $125.0 million of additional B term loans in July 1996 and $17.4 million of working capital loans in June 1996 under the Credit Agreement, and the use of such proceeds to redeem a portion of the Discount Debentures, and -22- (iv) the planned issuance by Holdings prior to July 22, 1997 of the Exchange Debentures in exchange for the Exchangeable Preferred Stock (collectively, the "Refinancing"), the Company's interest expense for 1996 (including interest on the Exchange Debentures which, as part of the Refinancing, are assumed to have been exchanged for the Exchangeable Preferred Stock as of the beginning of the year) would have been $83.2 million. For 1997, assuming that the floating rates of interest to be borne by the Company's indebtedness in 1997 are comparable to 1996 rates and without giving effect to incremental borrowings to finance acquisitions, if any, the Company expects that its interest expense will decline by approximately $10.0 million as compared to 1996. Since the Company refinanced a substantial amount of the Discount Debentures in the third quarter of 1996, the Company expects that most of this reduction in interest expense will occur during the first and second quarters of 1997 as compared to the same periods in 1996. As of December 31, 1996, on a pro forma basis after giving effect to the Refinancing, the Company would have had approximately $745.2 million of indebtedness outstanding, including $27.8 million of working capital loans. Historically, the Company's working capital loans are at their lowest amount at year-end. Because the Company sells metal containers used in vegetable and fruit processing, 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. Due to these seasonal requirements, the Company incurs short term indebtedness to finance its working capital requirements. At its peak in September 1996, approximately $182.5 million of the working capital revolver under the Credit Agreement, including letters of credit, was utilized. The Company's financial results are sensitive to changes in prevailing market rates of interest. At December 31, 1996, on a pro forma basis after giving effect to the Refinancing and including working capital loans of $27.8 million, 47.9% of the Company's indebtedness bore interest at floating rates, taking into account interest rate swap agreements entered into by the Company to mitigate the effect of interest rate fluctuations. These agreements have a notional amount of $200.0 million, including interest rate swap agreements entered into during the fourth quarter of 1996 with a notional amount of $100.0 million. Under these agreements, floating rate interest was exchanged for fixed rates of interest ranging from 5.6% to 6.2% plus the Company's incremental margin, which currently ranges from 2.5% to 3.0%. Depending upon market conditions, the Company may enter into additional interest rate swap or hedge agreements in the future to hedge its exposure to interest rate volatility. Income Tax Considerations Federal Tax Liability. Because the Discount Debentures represent "applicable high yield discount obligations," the tax deduction that would otherwise have been available to the Company for the accreted interest on the Discount Debentures during the five years that no cash interest was paid thereon was not available until the retirement of the Discount Debentures. After giving effect to the Refinancing, the Company will have redeemed or repurchased all of the Discount Debentures from 1995 to 1997, providing the Company with an allowable deduction of approximately $103.5 million for the amount of accreted interest on such indebtedness, and resulting in no federal tax liability for the Company in 1996. At December 31, 1996, the Company had a regular net operating loss carryforward of approximately $164.0 million. This net operating loss carryforward resulted principally from both the deduction of the accreted interest on the Discount Debentures refinanced in 1996 and 1995 and significant tax depreciation deductions from the acquisition of AN Can. Upon completion of the Refinancing, after giving effect to the deduction of accreted interest on the remaining Discount Debentures, the Company estimates it will have a regular net operating loss carryforward of approximately $185.0 million. Subject to certain limitations, this net operating loss carryforward will be available to offset taxable income that the -23- Company expects to generate in 1997 and in the future until such time as the regular net operating loss carryforward is fully utilized. Effective in 1993, however, the Company became subject to alternative minimum tax ("AMT") for federal income tax purposes. Due to the availability of an AMT net operating loss carryforward, the Company incurred an AMT liability at the rate of 2% of AMT taxable income for 1993 through 1995. Beginning in 1996, the Company would have fully utilized its AMT net operating loss carryforwards and would have incurred an AMT liability at the statutory rate of 20% of AMT taxable income if it had not realized the benefit of the deduction of accreted interest on the retired Discount Debentures. As a result of this deduction, the Company will have reduced its federal tax liability by approximately $20.7 million and state tax liability by approximately $5.2 million for 1996 and 1997. Management expects that the Company will fully utilize the benefit of this deduction in late 1997 or early 1998 at which time it will then become subject to AMT at the statutory rate. Book Accounting Implications. SFAS No. 109 of the Financial Accounting Standards Board ("FASB") requires that a valuation allowance be recorded when it is more likely than not that some portion or all of the future tax benefits arising from the deferred tax assets will not be realized. Because the Company incurred losses from its inception through 1995, SFAS No. 109 required the Company to record a valuation allowance. Although the Company reported net income for 1996, it has not yet met the criteria under SFAS No. 109 to release any of its valuation allowance. The ultimate realization of all or part of the Company's deferred income tax assets depends on the Company's ability to generate sufficient taxable income in the future. When preparing future period interim and annual financial statements, the Company will evaluate its strategic plans, in light of evolving business conditions, and the valuation allowance will be adjusted based on such evaluation. The Company expects that it will meet the realization criteria of SFAS No. 109 in 1997, and that it will release a portion of its deferred tax asset valuation allowance, resulting in the recognition of a tax benefit. After the expected release of a portion of its valuation allowance in 1997, the Company expects to provide for federal income taxes at the statutory rate. The Company's income tax rate varied from the U.S. statutory rate in 1996 due to the utilization of net operating loss carryforwards. In 1995 and 1994, the Company's income tax rate varied from the U.S. statutory rate due to losses which resulted in temporary differences between book and taxable income for which recognition of a deferred tax asset was not considered appropriate at the time. In accordance with SFAS No. 109, the Company has provided a provision for income taxes based upon federal, state and foreign taxes currently payable. See Note 14 to the Company's Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. Charges Relating to Stock Options and Discount Debenture Redemption Concurrent with the Offering, all outstanding stock options issued under the stock option plans of Containers and Plastics were converted to stock options under the Stock Option Plan. See "Executive Compensation--Stock Option Plan". In accordance with Accounting Principles Board ("APB") No. 25, options granted under such plans are considered variable options with a final measurement date at the time of conversion. The Company recognized a non-cash charge of approximately $22.5 million, net of $3.7 million previously accrued, at the time of the Offering in the Company's first quarter in 1997, for the excess of fair market value over grant price of these options less amounts previously accrued. With proceeds from the Offering, the Company will redeem the remaining Discount Debentures on March 26, 1997. In connection with such redemption, the Company will recognize an extraordinary charge, net of tax, in the first quarter of 1997 of $0.7 million. -24- Results of Operations The following table sets forth certain income statement data for the Company, expressed as a percentage of net sales, for each of the periods presented, and should be read in conjunction with the consolidated financial statements of the Company and related notes thereto included elsewhere in this Annual Report on Form 10-K.
Year Ended December 31, -------------------------------------- 1996 1995 1994 ------ ------ ------ Operating Data: Net sales: Metal container business.............................................. 84.6% 80.1% 76.3% Plastic container business............................................ 15.4 19.9 23.7 ------ ------ ------ Total............................................................... 100.0 100.0 100.0 Cost of goods sold...................................................... 87.0 88.1 86.9 ------ ------ ------ Gross profit............................................................ 13.0 11.9 13.1 Selling, general and administrative expenses............................ 4.2 4.3 4.4 Reduction in carrying value of assets................................... -- 1.3 1.9 ------ ------ ------ Income from operations.................................................. 8.8 6.3 6.8 Interest expense and other related financing costs...................... 6.4 7.3 7.6 ------ ------ ------ Income (loss) before income taxes....................................... 2.4 (1.0) (0.8) Income tax provision.................................................... 0.2 0.5 0.7 ------ ------ ------ Income (loss) before extraordinary charges.............................. 2.2 (1.5) (1.5) Extraordinary charges relating to early extinguishment of debt.......... (0.2) (0.5) -- ------- ------ ------ Net income (loss) before preferred stock dividend requirement........... 2.0 (2.0) (1.5) Preferred stock dividend requirement.................................... (0.2) -- -- ------ ------ ------ Net income (loss) applicable to common stockholders..................... 1.8% (2.0)% (1.5)% ====== ====== ======
Summary historical results for the Company's two business segments, metal and plastic containers, for the calendar years ended December 31, 1996, 1995 and 1994 and summary pro forma results for these business segments for the calendar year ended December 31, 1995 (after giving effect to the acquisition of AN Can as of the beginning of such period) are provided below. The unaudited pro forma financial data includes the historical results of the Company and AN Can and reflects the effect of purchase accounting adjustments based on 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 unaudited pro forma 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 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. The unaudited pro forma financial data do not give effect to adjustments for decreased costs from manufacturing synergies resulting from the integration of AN Can with Containers' existing can manufacturing operations and benefits the Company may realize as a result of its planned rationalization of plant operations. The pro forma information presented should be read in conjunction with the historical results of operations of the Company included elsewhere in this Annual Report on Form 10-K. -25-
Year Ended December 31, --------------------------------------------------------------- Historical Pro Forma ----------------------------------------------- -------------- 1996 1995 1994 1995 -------------- --------------- -------------- -------------- (Dollars in millions) Net sales: Metal container business.............................. $1,189.3 $ 882.3 $657.1 $1,184.8 Plastic container business............................ 216.4 219.6 204.3 219.6 ------- ------- ----- ------- Consolidated.......................................... $1,405.7 $1,101.9 $861.4 $1,404.4 ======== ======== ====== ======== Income from operations: Metal container business.............................. $ 106.1 $ 72.9 $ 67.0 $ 95.7 Plastic container business............................ 18.4 13.2 9.4 13.2 Reduction in asset value.......................... -- (14.7) (16.7) (14.7) Corporate expense..................................... (1.2) (1.6) (1.3) (1.5) ------- ------- ----- ------- Consolidated.................................... $ 123.3 $ 69.8 $ 58.4 $ 92.7 ======== ======== ====== ======== - ------------------- Included in the historical and pro forma income from operations of the Company in 1995 are charges incurred for the reduction of the carrying value of certain underutilized equipment to net realizable value of $14.7 million allocable to the metal container business. Included in the historical income from operations of the Company in 1994 are charges incurred for the reduction of the carrying value of certain underutilized and obsolete equipment to net realizable value of $16.7 million in 1994, of which $7.2 million was allocable to the metal container business and $9.5 million to the plastic container business.
Historical Year Ended December 31, 1996 Compared with Historical Year Ended December 31, 1995 Net Sales. Consolidated net sales increased $303.8 million, or 27.6%, to $1.4 billion for the year ended December 31, 1996, as compared to net sales of $1.1 billion for the same period in 1995. This increase resulted predominantly from net sales generated by the former AN Can operations. Net sales for the metal container business (including net sales of its specialty business of $90.7 million) were $1,189.3 million for the year ended December 31, 1996, an increase of $307.0 million from net sales of $882.3 million for the same period in 1995. Net sales of metal cans of $1,098.6 million for the year ended December 31, 1996 were $253.1 million greater than net sales of metal cans of $845.5 million for the same period in 1995. This increase resulted from the inclusion of a full year of sales generated from the former AN Can operations, including net sales of approximately $236.0 million during the first seven months of 1996, and increased unit sales due to a better vegetable pack harvest in 1996 as compared to 1995, offset to a limited extent by volume losses with certain customers. Sales of specialty items included in the metal container segment increased $53.9 million to $90.7 million during the year ended December 31, 1996 as compared to the same period in 1995, due predominantly to additional sales generated by the former AN Can operations. Net sales for the plastic container business of $216.4 million during the year ended December 31, 1996 decreased $3.2 million from net sales of $219.6 million for the same period in 1995. Despite an increase in unit sales, net sales of plastic containers declined as a result of the pass through of lower resin costs. Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales was 87.0% ($1.2 billion) for the year ended December 31, 1996, a decrease of 1.1 percentage points as compared -26- to 88.1% ($970.5 million) for the same period in 1995. The decrease in cost of goods sold as a percentage of net sales was principally attributable to synergies realized from the AN Can acquisition, improved operating efficiencies due to can plant consolidations as well as the improved manufacturing performance by the plastic container business, offset, in part, by the higher cost base of the former AN Can operations and the realization of higher per unit costs due to the Company's one-time planned reduction in finished goods inventory. The additional production capacity provided by AN Can has enabled the Company to produce its product closer to the time of sale and, as a result, during 1996 the Company reduced the amount of finished goods that it carries. Selling, General and Administrative Expenses. Selling, general and administrative expenses as a percentage of consolidated net sales decreased 0.1 percentage points to 4.2% ($58.8 million) for the year ended December 31, 1996, as compared to 4.3% ($46.9 million) for the year ended December 31, 1995. This decrease in selling, general and administrative expenses as a percentage of net sales reflects the expected lower administrative expenses realized as a result of the integration of the administrative functions of AN Can with the Company, despite the incurrence of certain redundant costs, estimated to be $3.5 million, associated with the integration of the AN Can operations. In 1997, the Company expects to eliminate all of these redundant costs as it completes its integration of the administrative functions of AN Can with the Company. Income from Operations. Income from operations as a percentage of consolidated net sales increased 2.5 percentage points to 8.8% ($123.3 million) for the year ended December 31, 1996, as compared with 6.3% ($69.8 million) for the same period in the prior year. Included in income from operations for 1995 was a charge of $14.7 million for the write-off of certain underutilized assets. Without giving effect to this charge, income from operations as a percentage of consolidated net sales would have increased 1.1 percentage points in 1996 as compared to 1995, primarily as a result of the aforementioned improvement in gross margin. Income from operations as a percentage of net sales for the metal container business improved to 8.9% ($106.1 million) for the year ended December 31, 1996, from 8.3% ($72.9 million) (without giving effect to the charge of $14.7 million to adjust the carrying value of certain assets) for the same period in 1995. This increase in income from operations as a percentage of net sales for the metal container business was principally attributable to synergies resulting from the acquisition of AN Can, improved operating efficiencies due to plant consolidations and the benefit of cost reductions provided by the Company's capital investment program, offset, in part, by the higher cost base of the AN Can operations and the negative impact of the Company's one-time planned reduction in the amount of finished goods inventory. Income from operations as a percentage of net sales for the plastic container business improved to 8.5% ($18.4 million) for the year ended December 31, 1996, from 6.0% ($13.2 million) for the same period in 1995. The improvement in the operating performance of the plastic container business was principally attributable to increased production volumes as well as the benefits realized through capital investment and improved production planning and scheduling efficiencies. Interest Expense. Interest expense increased $8.7 million to $89.4 million for the year ended December 31, 1996, principally as a result of increased borrowings to finance the acquisition of AN Can in August 1995, offset, in part, by the benefit realized from the redemption of $154.4 million of the Discount Debentures with lower cost bank borrowings (additional B term loans of $125.0 million and working capital loans of $17.4 million) and with $12.0 million of the proceeds from the Preferred Stock Sale, and by lower average bank borrowing rates. -27- Upon completion of the Refinancing, the Company will have refinanced all of the Discount Debentures with lower cost borrowings and proceeds from the Preferred Stock Sale and the Offering. Since a substantial portion of the Discount Debentures were refinanced in the third quarter of 1996, the Company expects that its interest expense will decline significantly in the first and second quarters of 1997 as compared to the same quarters in the prior year. Income Taxes. The provisions for income taxes for the years ended December 31, 1996 and 1995 provide for federal, state and foreign taxes currently payable. The decrease in the provision for income taxes of $1.8 million for the year ended December 31, 1996 as compared to the same period in 1995 reflects the benefit of the current cash tax savings realized from the deduction of accreted interest on the retired Discount Debentures. Net Income. As a result of the items discussed above, net income of $30.6 million (before extraordinary charges of $2.2 million and the preferred stock dividend requirement of $3.0 million) increased $46.6 million for the year ended December 31, 1996, as compared to a net loss of $16.0 million (before extraordinary charges, net of taxes, of $5.8 million) for the year ended December 31, 1995. During 1996, the Company incurred an extraordinary charge of $2.2 million for the write-off of unamortized debt costs associated with the early redemption of Discount Debentures. In 1995, the Company incurred an extraordinary charge of $5.8 million, net of taxes, for the write-off of unamortized debt costs related to the refinancing of its secured debt facilities to fund the AN Can acquisition, the repurchase of a portion of the Discount Debentures, and premiums paid on the repurchase of a portion of such Discount Debentures. Historical Year Ended December 31, 1996 Compared with Pro Forma Year Ended December 31, 1995 Net Sales. Consolidated net sales for the year ended December 31, 1996 of $1.4 billion were comparable to pro forma consolidated net sales for the same period in 1995. Increased unit sales of metal containers due to a better vegetable pack harvest in 1996 as compared to 1995 offset the loss of an AN Can customer whose product line was acquired by a company that manufactured its own cans and volume losses with certain other customers. Although the plastic container business had increased unit volume in 1996, net sales declined $3.2 million due to the pass through of lower resin costs. Income from Operations. Income from operations as a percentage of consolidated net sales for the year ended December 31, 1996 increased 1.2 percentage points to 8.8% ($123.3 million), as compared to pro forma income from operations as a percentage of pro forma consolidated net sales of 7.6% ($107.4 million) (without giving effect to the charge to adjust the carrying value of certain assets of $14.7 million) for the year ended December 31, 1995. The increase in income from operations for the year ended December 31, 1996 as compared to pro forma income from operations for the same period in 1995 was attributable to more efficient production planning, the realization of can manufacturing synergies resulting from the acquisition of AN Can, the benefits realized from plant consolidations and capital investments, and the improved operating performance of the plastic container business, offset, in part, by redundant costs associated with the AN Can operations and the negative impact of the Company's one-time planned reduction of the amount of finished goods inventory. -28- Historical Year Ended December 31, 1995 Compared with Historical Year Ended December 31, 1994 Net Sales. Consolidated net sales increased $240.5 million, or 27.9%, to $1.1 billion for the year ended December 31, 1995, as compared to net sales of $861.4 million for the same period in 1994. This increase resulted from net sales of $264.3 million generated by AN Can since its acquisition in August 1995 and a $15.3 million increase in sales of plastic containers offset, in part, by a decline in sales of metal containers to Silgan's existing customer base of $39.1 million. Net sales for the metal container business (including its specialty business) were $882.3 million for the year ended December 31, 1995, an increase of $225.2 million from net sales of $657.1 million for the same period in 1994. Excluding net sales of metal cans of $236.0 million generated by AN Can since its acquisition, net sales of metal cans to the Company's customers were $609.5 million during the year ended December 31, 1995, as compared to $647.5 million for the same period in 1994. Net sales to the Company's customers in 1995 decreased principally due to lower unit volume resulting from the below normal 1995 vegetable pack offset, in part, by slightly higher sales prices due to the pass through of raw material cost increases. Sales of specialty items included in the metal container segment increased $27.2 million to $36.8 million during the year ended December 31, 1995 as compared to the same period in 1994, due to the acquisition of AN Can which generated sales of $28.3 million of specialty items since its acquisition. Net sales for the plastic container business of $219.6 million during the year ended December 31, 1995 increased $15.3 million over net sales of $204.3 million for the same period in 1994. This increase was attributable to increased unit sales for new customer products and to higher average sales prices due to the pass through of higher average resin costs. Cost of Goods Sold. 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. Selling, general and administrative expenses as a percentage of consolidated net sales declined 0.1 percentage points to 4.3% ($46.9 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 decline in 1997 after it completes the integration of the administrative functions of its metal container business. Income from Operations. 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 -29- 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, offset, in part, by operating efficiencies due to plant consolidations. 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. 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 principal amount at maturity of Discount Debentures in the third quarter of 1995. Income Taxes. 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. Net Income. 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. Quarterly Results of Operations The Company's business is affected by seasonal variations as a result of the timing of the harvest. Accordingly, the Company experiences higher unit sales volume in the second and third quarters and, as a result, the Company has historically generated a disproportionate amount of its annual income from operations during these quarters. -30- The following table presents certain of the Company's unaudited consolidated quarterly financial data for the years 1996, 1995 and 1994.
1996 ------------------------------------------------------ First Second Third Fourth ------- -------- ------- -------- (Dollars in millions) Net sales..................................................... $279.9 $327.1 $473.6 $325.1 Gross profit.................................................. 36.5 48.7 58.8 38.1 Income from operations........................................ 23.7 34.3 43.6 21.7 Interest expense.............................................. 22.6 23.3 22.4 21.1 Income before extraordinary charges and preferred stock dividend requirements................................. 0.1 9.5 20.7 0.3 Net income (loss) available to common stockholders............ 0.1 9.5 17.3 (1.5)
1995 ----------------------------------------------------- First Second Third Fourth ------- ------- ------- -------- (Dollars in millions) Net sales..................................................... $203.3 $201.7 $406.5 $290.4 Gross profit.................................................. 29.0 29.8 41.7 30.9 Income from operations........................................ 18.8 22.3 28.3 0.4 Interest expense.............................................. 17.3 17.5 22.9 23.0 Income before extraordinary charges and preferred stock dividend requirements................................. (1.4) 3.5 3.7 (21.8) Net income (loss) available to common stockholders............ (1.4) 3.5 (2.1) (21.8)
1994 ------------------------------------------------------- First Second Third Fourth ------- -------- ------- -------- (Dollars in millions) Net sales..................................................... $186.2 $201.0 $286.0 $188.2 Gross profit.................................................. 22.7 28.3 36.4 25.7 Income from operations........................................ 14.0 18.7 27.2 (1.5) Interest expense.............................................. 15.6 16.3 16.8 17.1 Income before extraordinary charges and preferred stock dividend requirements................................. (2.2) 1.5 9.0 (21.3) Net income (loss) available to common stockholders............ (2.2) 1.5 9.0 (21.3)
The Company's income from operations includes charges for the write-down of the carrying value of certain underutilized and obsolete equipment to net realizable value of $14.7 million and $16.7 million in the fourth quarters of 1995 and 1994, respectively. Net income (loss) includes extraordinary charges for debt refinancing costs of $2.2 million incurred in the third quarter of 1996 and $5.8 million, net of taxes, incurred in the third quarter of 1995. 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. On February 20, 1997, the Company completed the Offering. With net proceeds to the Company of approximately $68.8 million from the Offering (after deducting the underwriting discount but before -31- deducting estimated expenses of $1.0 million payable by the Company in connection with the Offering), the Company prepaid approximately $5.4 million and $3.5 million principal amount of A term loans and B term loans, respectively, under the Credit Agreement, and will use the remaining net proceeds received by it from the Offering to redeem all of the remaining outstanding Discount Debentures (approximately $59.0 million aggregate principal amount). On July 22, 1996, the Company completed the Preferred Stock Sale. With net proceeds of $47.8 million from the Preferred Stock Sale, the Company purchased the Holdings Class B Stock held by Mellon for $35.8 million pursuant to its right to purchase such stock for such amount under the Amended and Restated Organization Agreement dated as of December 21, 1993 among the Company and its stockholders and, on August 26, 1996, redeemed $12.0 million principal amount of Discount Debentures. On August 1, 1995, Silgan, Containers and Plastics entered into the credit agreement with the lenders named therein, Bankers Trust Company ("Bankers Trust"), as Administrative Agent and Co-Arranger, and Bank of America Illinois, as Documentation Agent and Co-Arranger (as amended, the "Credit Agreement") (which originally provided Silgan with $225.0 million of A term loans and $225.0 million of B term loans and provided Containers and Plastics with a commitment of $225.0 million for working capital loans) to finance the acquisition by Containers of AN Can and to refinance and repay in full all amounts owing under the Company's previous credit agreement and under Silgan's Senior Secured Floating Rate Notes due 1997. With borrowings of $200.0 million under the Credit Agreement (as amended in May 1996 to include an additional $125.0 million of B term loans), Holdings repurchased and redeemed an aggregate of $204.1 million principal amount at maturity of Discount Debentures. The Credit Agreement also provided the Company with improved financial flexibility by (i) enabling Silgan to transfer funds to Holdings for payment by Holdings of cash dividends on the Exchangeable Preferred Stock (or cash interest on the Exchange 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 Holdings to repurchase or redeem Discount Debentures. Upon completion of the Refinancing, the Company will have retired all of the Discount Debentures. By refinancing all of the Discount Debentures with borrowings under the Credit Agreement and proceeds from the Preferred Stock Sale and from the Offering, the Company will have lowered its average cost of indebtedness, will realize approximately $19.5 million of annual current cash interest savings (excluding non-cash interest on the Exchange Debentures), and will realize approximately $25.9 million of current cash tax savings as a result of the deduction by the Company of the accreted interest on the retired Discount Debentures. In addition, as a result of the Company's net operating loss carryforwards, the Company did not have any federal tax liability in 1996, and expects to incur minimal federal tax liability in 1997. For several years thereafter, the Company expects to incur federal tax liability at the AMT rates then in effect. See "--Overview--Income Tax Considerations". During 1996, cash generated from operations of $125.2 million, borrowings of $125.0 million of B term loans under the Credit Agreement, net proceeds of $47.8 million from the Preferred Stock Sale, net borrowings of working capital loans under the Credit Agreement of $20.7 million, proceeds of $1.6 million from the sale of assets and $1.1 million of cash balances were used to fund capital expenditures of $56.9 million, the purchase of Finger Lakes for $29.9 million and the purchase of ANC's St. Louis facility for $13.1 million, the redemption of $154.4 million of Discount Debentures, the repayment of $29.5 million of term loans under the Credit Agreement, the payment of $1.8 million of financing costs associated with the borrowing of additional B term loans under the Credit Agreement, and the purchase of Holdings Class B Stock held by Mellon for $35.8 million. -32- The Company's Adjusted EBITDA for the year ended December 31, 1996 in comparison to 1995 increased by $53.6 million to $186.0 million. The increase in Adjusted EBITDA resulted primarily from increased cash earnings generated by both the metal container business (including earnings from the AN Can operations) and the plastic container business. Although the Adjusted EBITDA of the Company was higher in 1996 as compared to 1995 and the Company reduced the amount of finished goods inventory in 1996, cash flow from operations in 1996 would have remained constant with 1995 (assuming AN Can had been acquired at December 31, 1995 rather than at its seasonal peak). The Company incurred greater cash interest expense in 1996 due to the refinancings of Discount Debentures (for which no cash interest was required through June 15, 1996) with bank borrowings, and in 1995 the Company adopted similar year-end vendor payment terms to those of AN Can. During 1995, cash generated from operations of $209.6 million (including cash of $112.0 million generated by AN Can during the five month period from its acquisition on 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 Adjusted EBITDA for the year ended December 31, 1995 as compared to 1994 increased by $17.9 million to $132.4 million. The increase in Adjusted EBITDA reflected the generation of additional cash flow from AN Can since its acquisition on August 1, 1995, partially 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 the Company 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). Because the Company sells metal containers used in fruit and vegetable pack 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 the Company's seasonal metal containers business. The Company's average outstanding trade receivables increased in 1996 as compared to 1995 due to the acquisition of AN Can which had more seasonal sales than the Company. 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. Approximately $182.5 million of the working capital revolver under the Credit Agreement, including letters of credit, was utilized at its peak in September 1996. As of December 31, 1996, the outstanding principal amount of working capital loans was $27.8 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 $190.0 million. In addition to its operating cash needs, the Company believes its cash requirements over the next several years consist primarily of (i) annual capital expenditures of $50.0 to $60.0 million, (ii) scheduled principal amortization payments of term loans under the Credit Agreement (after giving effect to the use -33- of a portion of the net proceeds from the Offering to prepay $8.9 million of bank terms loans) of $29.6 million, $53.4 million, $53.4 million, $126.1 million and $155.9 million over the next five years, respectively, (iii) expenditures of approximately $30.0 million over the next three years associated with plant rationalizations, employee severance 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, the bank term loans, most of which bear fluctuating rates of interest, and the 11-3/4% Notes, and (v) payments of approximately $5.0 million (based on the Company's current estimate of its 1997 net income) for federal and state tax liabilities in 1997. Beginning in 1998, the Company expects to incur federal tax liability at the AMT rates then in effect. See "--Overview--Income Tax Considerations". 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, debt service and tax obligations for the foreseeable future. The Company is also continually evaluating and pursuing acquisition opportunities in the North American consumer goods packaging market. The Company may need to incur additional indebtedness to finance any such acquisition and to fund any resulting increased operating needs. Depending upon market conditions, the Company may also consider refinancing certain of its outstanding indebtedness through other debt financings. Such financings for acquisitions and debt refinancings will have to be effected in compliance with the Company's agreements in respect of its indebtedness then outstanding. There can be no assurance that the Company will be able to effect any such financing for an acquisition or any such debt refinancings. The Credit Agreement, the indenture with respect to the 11-3/4% Notes, the Exchangeable Preferred Stock and, when issued, the Exchange 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 1997 with all such covenants. Effect of Inflation and Interest Rate Fluctuations 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. See "--Overview--Net Sales--Long-term Contracts". 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, 1996, on a pro forma basis after giving effect to the Refinancing and including working capital loans of $27.8 million, the Company had $745.2 million of indebtedness outstanding, of which $357.2 million bore interest at floating rates, taking into account interest rate swap agreements entered into by the Company to mitigate the effect of interest rate fluctuations. Under these agreements, floating rate interest was exchanged for fixed rates of interest ranging from 5.6% to 6.2% plus the Company's incremental margin, which currently ranges from 2.5% to 3.0%. The notional principal amounts of these agreements totaled $200.0 million, including interest rate swap agreements entered into during the fourth quarter of 1996 with a notional amount of $100.0 million, and mature in the year 1999. Depending upon market conditions, the Company may enter into additional interest rate swap or hedge agreements (with counterparties that, in the Company's judgment, have sufficient creditworthiness) to hedge its exposure against interest rate volatility. -34- New Accounting Pronouncements Long-Lived Asset Impairment The Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," in the first quarter of 1996. Under SFAS No. 121, impairment losses will be recognized when events or changes in circumstances indicate that the undiscounted cash flows generated by assets are less than the carrying value of such assets. Impairment losses are then measured by comparing the fair value of assets to their carrying amount. There were no impairment losses recognized during 1996. See Note 2 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 has not elected to adopt SFAS No. 123 and continues to recognize compensation expense in accordance with APB No. 25. In addition, the Company is required to include in its 1996 year end financial statements pro forma information regarding compensation expense recognizable under SFAS No. 123. See Note 17 to the Consolidated Financial Statements of the Company included elsewhere in this Annual Report on Form 10-K. 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. -35- PART III Item 10. Directors and Executive Officers of the Registrant. Directors and Executive Officers of Holdings and Silgan The following table sets forth certain information (ages as of December 31, 1996) concerning the directors and executive officers of Holdings and Silgan. Name Age Position - ---- --- -------- R. Philip Silver.............. 54 Chairman of the Board, Co-Chief Executive Officer and Director D. Greg Horrigan.............. 53 President, Co-Chief Executive Officer and Director Robert H. Niehaus............. 41 Director Leigh J. Abramson............. 28 Director Harley Rankin, Jr............. 57 Executive Vice President, Chief Financial Officer and Treasurer Harold J. Rodriguez, Jr....... 41 Vice President, Controller and Assistant Treasurer Glenn A. Paulson.............. 53 Vice President Executive Officers of Containers The following table sets forth certain information (ages as of December 31, 1996) concerning the executive officers of Containers. Name Age Position - ---- --- -------- James D. Beam................. 53 President Gerald T. Wojdon.............. 60 Vice President--Operations and Assistant Secretary Gary M. Hughes................ 54 Vice President--Sales & Marketing H. Dennis Nerstad............. 59 Vice President--Production Services Joseph A. Heaney.............. 43 Vice President--Finance Executive Officers of Plastics The following table sets forth certain information (ages as of December 31, 1996) concerning the executive officers of Plastics. Name Age Position - ---- --- -------- Russell F. Gervais............ 53 President Howard H. Cole................ 51 Vice President and Assistant Secretary Charles Minarik............... 59 Vice President--Operations and Commercial Development Alan H. Koblin................ 44 Vice President--Sales & Marketing Colleen J. Jones.............. 36 Vice President--Finance, Chief Financial Officer and Assistant Secretary -36- Mr. Silver has been Chairman of the Board and Co-Chief Executive Officer of Holdings and Silgan since March 1994. Mr. Silver is one of the founders of the Company and was formerly President of Holdings and Silgan. Mr. Silver has been a Director of Holdings and Silgan since their inception in April 1989 and August 1987, respectively. Mr. Silver has been a Director of Containers since its inception in August 1987 and Vice President of Containers since May 1995. Mr. Silver has been a Director of Plastics since its inception in August 1987 and Chairman of the Board of Plastics since March 1994. Prior to founding the Company in 1987, Mr. Silver was a consultant to the packaging industry. Mr. Silver was President of Continental Can Company from June 1983 to August 1986. From September 1989 through August 1993, Mr. Silver held various positions with Sweetheart Holdings Inc. and Sweetheart Cup Company, Inc., including Chairman of the Board and Director. Mr. Silver is a Director of Johnstown America Corporation. Mr. Horrigan has been President and Co-Chief Executive Officer of Holdings and Silgan since March 1994. Mr. Horrigan is one of the founders of the Company and was formerly Chairman of the Board of Holdings and Silgan. Mr. Horrigan has been a Director of Holdings and Silgan since their inception in April 1989 and August 1987, respectively. Mr. Horrigan has been Chairman of the Board of Containers and a Director of Containers and Plastics since their inception in August 1987. Mr. Horrigan was Executive Vice President and Operating Officer of Continental Can Company from 1984 to 1987. From September 1989 through August 1993, Mr. Horrigan held various positions with Sweetheart Holdings Inc. and Sweetheart Cup Company, Inc., including Chairman of the Board and Director. Mr. Niehaus has been a Director of Holdings since its inception in April 1989 and a Director of Silgan, Containers and Plastics since their inception in August 1987. Mr. Niehaus joined Morgan Stanley & Co. Incorporated ("Morgan Stanley") in 1982 and has been a Managing Director of Morgan Stanley since 1990. Mr. Niehaus has been a Vice Chairman and a Director of Morgan Stanley Leveraged Equity Fund II, Inc. ("MSLEF II, Inc.") since January 1990 and a Vice Chairman and a Director of the managing general partner of the general partner of Morgan Stanley Capital Partners III, L.P. ("MSCP III") since January 1994. Mr. Niehaus is also a Director of American Italian Pasta Company, Fort Howard Corporation and Waterford Crystal Ltd., and Chairman of Waterford Wedgwood UK plc. Mr. Abramson has been a Director of Holdings, Silgan, Containers and Plastics since September 1996. He has been an Associate of Morgan Stanley since 1994 and a Vice President of MSLEF II, Inc. and of the managing general partner of the general partner of MSCP III since 1995. Mr. Abramson has been with Morgan Stanley since 1990, first in the Corporate Finance Division and, since 1992, in the Merchant Banking Division. Mr. Abramson is also a Director of PageMart Wireless, Inc., PageMart, Inc. and Jefferson Smurfit Corporation. Mr. Rankin has been Executive Vice President and Chief Financial Officer of Holdings since its inception in April 1989 and Treasurer of Holdings since January 1992. Mr. Rankin has been Executive Vice President and Chief Financial Officer of Silgan since January 1989 and Treasurer of Silgan since January 1992. Mr. Rankin has been Vice President of Containers and Plastics since January 1989 and was Treasurer of Plastics from January 1994 to December 1994. Prior to joining the Company, Mr. Rankin was Senior Vice President and Chief Financial Officer of Armtek Corporation. Mr. Rankin was Vice President and Chief Financial Officer of Continental Can Company from November 1984 to August 1986. From September 1989 to August 1993, Mr. Rankin was Vice President, Chief Financial Officer and Treasurer of Sweetheart Holdings Inc. and Vice President of Sweetheart Cup Company, Inc. Mr. Rodriguez has been Vice President of Holdings and Silgan since March 1994 and Controller and Assistant Treasurer of Holdings and Silgan since March 1990. Prior to March 1990, Mr. Rodriguez -37- was Assistant Controller and Assistant Treasurer of Holdings and Silgan from April 1989 and October 1987, respectively. Mr. Rodriguez has been Vice President of Containers and Plastics since March 1994. From September 1989 to August 1993, Mr. Rodriguez was Controller, Assistant Secretary and Assistant Treasurer of Sweetheart Holdings Inc. and Assistant Secretary and Assistant Treasurer of Sweetheart Cup Company, Inc. From 1978 to 1987, Mr. Rodriguez was employed by Ernst & Young LLP, last serving as Senior Manager specializing in taxation. Mr. Paulson has been Vice President of Holdings and Silgan since January 1996. Mr. Paulson was employed by Containers to manage the transition of AN Can from August 1995 to December 1995. From January 1989 to July 1995, Mr. Paulson was employed by ANC, last serving as Senior Vice President and General Manager, Food Metal and Specialty, North America. Prior to his employment with ANC, Mr. Paulson was President of the beverage packaging operations of Continental Can Company. Mr. Beam has been President of Containers since July 1990. From September 1987 to July 1990, Mr. Beam was Vice President--Marketing & Sales of Containers. Mr. Beam was Vice President and General Manager of Continental Can Company, Western Food Can Division, from March 1986 to September 1987. Mr. Wojdon has been Vice President--Operations and Assistant Secretary of Containers since September 1987. From August 1982 to August 1987, Mr. Wojdon was General Manager of Manufacturing of the Can Division of the Carnation Company. Mr. Hughes has been Vice President--Sales & Marketing of Containers since July 1990. From February 1988 to July 1990, Mr. Hughes was Vice President, Sales and Marketing of the Beverage Division of Continental Can Company. Prior to February 1988, Mr. Hughes was employed by Continental Can Company in various regional sales positions. Mr. Nerstad has been a Vice President of Containers since December 1993. From August 1989 to December 1993, Mr. Nerstad was Vice President--Distribution and Container Manufacturing of Del Monte and was Director of Container Manufacturing of Del Monte from November 1983 to July 1989. Prior to 1983, Mr. Nerstad was employed by Del Monte in various regional and plant positions. Mr. Heaney has been Vice President--Finance of Containers since October 1995. From September 1990 to October 1995, Mr. Heaney was Controller, Food Metal and Specialty Division of ANC. From August 1977 to August 1990, Mr. Heaney was employed by ANC and American Can Company in various divisional, regional and plant finance/accounting positions. Mr. Gervais has been President of Plastics since December 1992. From September 1989 to December 1992, Mr. Gervais was Vice President--Sales & Marketing of Plastics. From March 1984 to September 1989, Mr. Gervais was President and Chief Executive Officer of Aim Packaging, Inc. Mr. Cole has been Vice President and Assistant Secretary of Plastics since September 1987. From April 1986 to September 1987, Mr. Cole was Manager of Personnel of the Monsanto Engineered Products Division of Monsanto. Mr. Minarik has been Vice President--Operations and Commercial Development of Plastics since May 1993. From February 1991 to August 1992, Mr. Minarik was President of Wheaton Industries Plastics Group. Mr. Minarik was Vice President--Marketing of Constar International, Inc. from March 1983 to February 1991. -38- Mr. Koblin has been Vice President--Sales & Marketing of Plastics since 1994. From 1992 to 1994, Mr. Koblin was Director of Sales & Marketing of Plastics. From 1990 to 1992, Mr. Koblin was Vice President of Churchill Industries. Ms. Jones has been Vice President--Finance and Chief Financial Officer of Plastics since December 1994 and Assistant Secretary of Plastics since November 1993. From October 1993 to December 1994, Ms. Jones was Corporate Controller of Plastics and from July 1989 to October 1993, she was Manager--Finance of Plastics. From July 1982 to July 1989, Ms. Jones was an Audit Manager for Ernst & Young LLP. Board of Directors Holdings presently has a Board of Directors consisting of four members. Holdings intends to elect an additional two persons to serve as independent directors of Holdings. The Board of Directors is divided into three classes (designated Class I, Class II and Class III). Class I consists of Mr. Silver and Mr. Abramson, Class II consists of Mr. Horrigan and Mr. Niehaus, and the two Class III directorships are vacant and will remain so until the Board of Directors elects two independent persons to serve as Class III directors. The Class I, Class II and Class III directors will serve until the annual stockholder meetings of Holdings to be held in 1998, 1999 and 2000, respectively, and until their successors are duly elected and qualified. At each annual stockholders' meeting, directors nominated to the class of directors whose term is expiring at that annual meeting will be elected for a term of three years, and the remaining directors will continue in office until their respective terms expire and until their successors are duly elected and qualified. Accordingly, at each annual meeting two of the Company's six directors will be elected, and each director will be required to stand for election once every three years. The four directors that are not independent will be elected pursuant to the Stockholders Agreement, dated February 14, 1997, by and among R. Philip Silver, D. Greg Horrigan and MSLEF II (the "Principals Stockholders Agreement"). Under the Principals Stockholders Agreement, MSLEF II agreed that, so long as Messrs. Silver and Horrigan hold in the aggregate at least one-half of the number of shares of Common Stock held by them on the date of this Annual Report on Form 10-K, Messrs. Silver and Horrigan will nominate the two independent directors, who must then be elected in accordance with Holdings' Restated Certificate of Incorporation. Officers are elected by the Board of Directors and serve at the discretion of the Board of Directors. See "Security Ownership of Certain Beneficial Owners and Management-- Description of Stockholders Agreements". The Board of Directors has an Audit Committee, which is presently composed of Messrs. Silver and Niehaus. The Board of Directors will reconstitute its Audit Committee to consist of two Directors who are neither officers nor employees of Holdings. The Audit Committee has the responsibility of reviewing and supervising the financial controls of Holdings. The Audit Committee's responsibilities include (i) making recommendations to the Board of Directors with respect to its financial statements and the appointment of independent auditors, (ii) reviewing significant audit and accounting policies and practices of Holdings, (iii) meeting with the Company's independent public accountants concerning, among other things, the scope of audits and reports and (iv) reviewing the performance of overall accounting and financial controls of Holdings. The Board of Directors expects to establish a Compensation Committee and an Executive Committee. The Compensation Committee will consist of at least two Directors who are "outside directors" within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). The Compensation Committee will have the responsibility of reviewing the performance of the executive officers of Holdings and recommending to the Board of Directors annual salary and bonus amounts for all officers of the Company. -39- Compensation of Directors It is anticipated that directors who do not receive compensation as officers or employees of the Company or any of its affiliates will be paid an annual retainer fee of $20,000 for their service on the Board of Directors, and a fee of $2,000 for each meeting of the Board of Directors or any committee thereof that they attend, plus reasonable out-of-pocket expenses. 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, 1996, 1995 and 1994 of those persons who at December 31, 1996 were (i) the Chief Executive Officer of Holdings and (ii) the other four most highly compensated executive officers of Holdings and its subsidiaries. Prior to the Offering, no director of Holdings or its subsidiaries received any compensation for serving as a director of Holdings or its subsidiaries. See "Certain Relationships and Related Transactions--Management Agreements".
Summary Compensation Table Long-Term Annual Compensation Compensation ------------------------------------ ---------------- Awards ---------------- Securities Underlying Stock All Other Name and Principal Position Year Salary(a)(b) Bonus(a)(c) Options/SARs(d) Compensation(e) - --------------------------- ---- ------------ ----------- ---------------- --------------- R. Philip Silver................... 1996 $1,875,000 -- -- -- (Chairman of the Board and 1995 1,830,000 -- -- -- Co-Chief Executive Officer 1994 1,684,135 -- -- -- of Holdings and Silgan and Chairman of the Board of Plastics) D. Greg Horrigan................... 1996 1,875,000 -- -- -- (President and Co-Chief 1995 1,830,000 -- -- -- Executive Officer of Holdings 1994 1,684,135 -- -- -- and Silgan and Chairman of the Board of Containers) Harley Rankin, Jr. ................ 1996 425,007 -- -- -- (Executive Vice President, Chief 1995 408,978 -- -- -- Financial Officer and Treasurer 1994 384,930 -- 102,798 -- of Holdings and Silgan) James D. Beam...................... 1996 372,600 $112,339 -- $73,805 (President of Containers) 1995 361,200 -- -- 66,394 1994 350,000 169,092 -- 94,175 Russell F. Gervais................. 1996 234,000 111,400 -- 7,020 (President of Plastics) 1995 226,000 59,000 -- 5,085 1994 216,804 83,300 134,462 --
-40- - ------------------- (a) The compensation of Messrs. Horrigan, Silver, Rankin and Rodriguez reflects amounts as earned and was paid by S&H, Inc. ("S&H"). Such persons received no direct compensation from Holdings, Silgan or their respective subsidiaries. See "Certain Relationships and Related Transactions--Management Agreements". (b) The salaries of Messrs. Beam and Gervais were paid by Containers and Plastics, respectively. (c) 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. (d) Reflects options to purchase shares of Holdings Common Stock under the Stock Option Plan, and gives effect to the 17.133145 to 1 stock split of the outstanding Holdings Common Stock effected in connection with the Offering (the "Stock Split"). Such options are exercisable ratably over a five-year period which began on January 1, 1995. Mr. Gervais' options were calculated to give effect to the conversion at the time of the Offering of his options under Plastics' stock option plan to options under the Stock Option Plan. (e) In the case of Mr. Beam, includes 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.
OPTION VALUES AT DECEMBER 31, 1996 Number of Securities Value of Unexercised Underlying in-the-Money Unexercised Options at Options at December 31, 1996 December 31, 1996(a) ----------------------------------- ------------------------------------- Name Exercisable Unexercisable Exercisable Unexercisable ------------------------------------- ----------- ------------- ----------- ------------- R. Philip Silver............................ -- -- -- -- D. Greg Horrigan............................ -- -- -- -- Harley Rankin, Jr.(b)....................... 233,012 41,118 $ 4,091,680 $ 676,661 James D. Beam(b)(c)......................... 584,609 -- 10,597,041 -- Russell F. Gervais(b)(c).................... 80,678 53,784 1,568,200 1,045,441
- ------------------- (a) For the purposes of this table, the fair market value per share of Common Stock at December 31, 1996 was estimated to be the initial public offering price of $20.00 per share. (b) Options are for shares of Common Stock and give effect to the Stock Split. (c) Each of Messrs. Beam's and Gervais' options were calculated to give effect to the conversion at the time of the Offering of such person's options under Containers' and Plastics' stock option plans, respectively, to options under the Stock Option Plan. Stock Option Plan The Board of Directors and stockholders of Holdings approved the establishment of the Stock Option Plan. Under the Stock Option Plan, as an additional means of attracting and retaining officers and key personnel, Holdings may grant options to purchase shares of Common Stock to participants. Options granted may be either non-qualified stock options or "incentive stock options". The Board of Directors of Holdings, through a committee (the "Stock Option Committee"), administers the Stock Option Plan and has the power to, among other things, choose participants and fix the type of grant and all the terms and conditions thereof, including number of shares covered by a grant -41- and the exercise price. Only officers (including executive officers) and other key employees of the Company are eligible to participate in the Stock Option Plan. The stock issuable under the Stock Option Plan includes shares of Holdings' authorized and unissued or reacquired Common Stock. The number of shares for which options may be granted under the Stock Option Plan may not exceed 3,533,417 shares. Options are exercisable over such period as determined by the Stock Option Committee, and generally, except as otherwise determined by the Stock Option Committee, no option may remain exercisable more than ten years from the grant date, subject to earlier termination as provided in the Stock Option Plan. Options become exercisable no earlier than one year from the date of grant and in such installments as specified in the option agreement therefor. All options granted under the Stock Option Plan must be evidenced by an option agreement between Holdings and the option recipient embodying all the terms and conditions of the option grant, provided that (i) incentive stock options granted must comply with Section 422 of the Code, (ii) no option shall be transferable or assignable other than by will or the laws of descent and distribution and, during the lifetime of the recipient, such option shall be exercisable only by the recipient, (iii) all options must expire upon or remain exercisable for a limited time after termination of employment, all as specified in the Stock Option Plan, and (iv) upon exercise of options, full payment for the shares covered thereby shall be made in cash or shares of Common Stock already owned or a combination of cash and shares of Common Stock. Concurrent with the Offering, all outstanding stock options issued under the stock option plans of Containers and Plastics were converted to stock options under the Stock Option Plan in accordance with the terms of such plans, and Containers' and Plastics' stock option plans terminated. As a result, the only stock options outstanding since the completion of the Offering are stock options under the Stock Option Plan. As of the date of this Annual Report on Form 10-K, options to purchase 1,890,103 shares of Common Stock were outstanding under the Stock Option Plan at exercise prices ranging from $0.56 to $22.13 per share. With respect to certain outstanding options, Holdings has an obligation to pay to the optionees an amount per option as specified in the applicable option agreement (determined in connection with the merger in which Holdings acquired Silgan with respect to the issuance of options under the Stock Option Plan in exchange for options under a predecessor plan) upon exercise of such options. An aggregate amount of $943,589 would be payable by Holdings to such optionees upon the exercise of such outstanding options. 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, continued existence of the Containers Pension Plan without substantial change and payment in the form of a single life annuity. -42-
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). Benefits under the Containers Pension Plan accrued prior to July 1, 1994 may be offset by a social security amount (the plan provides benefits based on the greater of three formulas; prior to July 1, 1994, one of such formulas provided 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, 1996, James D. Beam, the only eligible executive officer named in the Summary Compensation Table, had nine years of credited service under the Containers Pension Plan. Mr. Beam also participates in the Supplemental Plan, which is designed to make up for benefits not payable under the Containers Pension Plan due to Code limitations. Mr. Beam's benefits under the Supplemental Plan are funded through a split-dollar life insurance policy; income attributable to this life insurance policy is included in the "All Other Compensation" column of the Summary Compensation Table. The following table illustrates the estimated annual normal retirement benefits that are payable under the Plastics Pension Plan. Such benefit levels assume retirement age at 65, the years of service shown, continued existence of the Plastics Pension Plan without substantial change and payment in the form of a single life annuity.
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 employment or over the highest three of the final five calendar years of employment, whichever produces the greater average compensation. In computing this average, compensation for any -43- 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 the limits indicated above. 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, 1996, Russell F. Gervais, the only eligible executive officer named in the Summary Compensation Table, had seven years of credited service under the Plastics Pension Plan. 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 the employee's base salary and benefits for, in most cases, a period of one year following termination (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. Compensation Committee Interlocks and Insider Participation Holdings did not have a Compensation Committee during 1996. The compensation of Messrs. Silver, Horrigan, Rankin and Rodriguez was paid by S&H, which was paid by the Company for providing certain management services to the Company pursuant to the Management Agreements (as defined in "Certain Relationships and Related Transactions--Management Agreements"). See "Certain Relationships and Related Transactions--Management Agreements". The compensation of all other executive officers of the Company was determined by the senior management of the Company. Item 12. Security Ownership of Certain Beneficial Owners and Management. Certain Beneficial Owners of Holdings' Capital Stock The following table sets forth, as of February 28, 1997, certain information with respect to the beneficial ownership by certain persons of outstanding shares of capital stock of Holdings. Except as otherwise described below, each of the persons named in the table has sole voting and investment power with respect to the securities beneficially owned. -44-
Number of Shares of Percentage Ownership of Common Stock Owned Common Stock( ------------------- ----------------------- R. Philip Silver ................................ 3,576,545 18.96% D. Greg Horrigan ................................ 3,576,545 18.96% Robert H. Niehaus ............................... -- -- Leigh J. Abramson ............................... -- -- Harley Rankin, Jr. .............................. 233,012 1.22% James D. Beam ................................... 584,809 3.01% Russell F. Gervais .............................. 80,728 * The Morgan Stanley Leveraged Equity Fund II, L.P. ...................................... 5,835,842 30.94% All officers and directors as a group................ 8,735,191 42.73% - ------------------- An asterisk denotes beneficial ownership of 1% or less of the Common Stock. Director of Holdings, Silgan, Containers and Plastics. 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. In addition, Messrs. Silver and Horrigan share voting and investment power with respect to one (1) share of Common Stock, which share of Common Stock is owned by S&H. The address for such person is 4 Landmark Square, Stamford, CT 06901. Director of Holdings, Silgan, Containers and Plastics. The address for such person is c/o Morgan Stanley & Co. Incorporated, 1221 Avenue of the Americas, New York, NY 10020. Reflects shares that may be acquired through the exercise of vested stock options granted pursuant to the Stock Option Plan. See "Executive Compensation--Stock Option Plan". 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 the Stock Option Plan. See "Executive Compensation--Stock Option Plan". The address for such person is 21800 Oxnard Street, Woodland Hills, CA 91367. Reflects shares that may be acquired through the exercise of vested stock options granted pursuant to the Stock Option Plan. See "Executive Compensation--Stock Option Plan". 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.
See "--Description of Holdings Capital Stock" and "--Description of Stockholders Agreements" for additional information about the capital stock of Holdings, the holders thereof and certain arrangements among them. Description of Holdings Capital Stock General Holdings is incorporated under the laws of the State of Delaware. Under its Certificate of Incorporation, Holdings has authority to issue 100,000,000 shares of Common Stock, par value $.01 per share, and 10,000,000 shares of preferred stock, par value $.01 per share. As of February 28, 1997, 18,862,834 shares of Common Stock were issued and outstanding, 12,988,931 of which are beneficially owned by Messrs. Silver and Horrigan and MSLEF. There are 53,258 shares of Exchangeable Preferred Stock issued and outstanding. All outstanding shares of capital stock are fully paid and nonassessable. Common Stock Each outstanding share of Common Stock entitles the holder thereof to one vote on all matters submitted to a vote of stockholders, including the election of directors. There is no cumulative voting in the election of directors; consequently, the holders of a majority of the outstanding shares of Common Stock can elect all of the directors then standing for election. See "--Description of Stockholders Agreements". Holders of Common Stock are entitled to receive ratably such dividends, if any, as may -45- be declared from time to time by the Board of Directors out of funds legally available therefor. See "Market for Registrant's Common Equity and Related Stockholder Matters". In the event of any liquidation, dissolution or winding-up of the affairs of the Company, holders of Common Stock will be entitled to share ratably in the assets of the Company remaining after provision for payment of liabilities to creditors and obligations to holders of preferred stock. Holders of Common Stock have no preemptive, subscription, redemption or conversion rights and are not liable for further calls or assessments. In addition, any action taken by the holders of Common Stock must be taken at a meeting and may not be taken by consent in writing, and a special meeting of the stockholders may only be called by the Chairman of the Board or the President of the Company or by a majority of the Board of Directors of the Company, and may not be called by the holders of Common Stock. Preferred Stock General. The Company's Board of Directors, without stockholder authorization, is authorized to issue up to 10,000,000 shares of preferred stock in one or more series and to fix the preferences, rights and privileges thereof, including any dividend rights, conversion rights, voting rights, redemption rights and terms of any sinking fund provisions, liquidation preferences, the number of shares constituting a series and the designation of such series. The Board may, without stockholder approval, issue preferred stock with voting and other rights that could adversely affect the voting power of the holders of Common Stock. Currently, 53,258 shares of Exchangeable Preferred Stock are issued and outstanding. However, prior to July 22, 1997, Holdings intends to exchange its outstanding Exchangeable Preferred Stock for the Exchange Debentures. The Company has no present plans to issue any additional shares of preferred stock other than shares that may be issued to pay dividend obligations on the Exchangeable Preferred Stock. Terms of Outstanding Preferred Stock. The following is a summary of the terms of the Exchangeable Preferred Stock. The Exchangeable Preferred Stock has a liquidation preference of $1,000 per share and ranks senior to all outstanding capital stock of Holdings. Holdings is required to redeem the Exchangeable Preferred Stock at its liquidation preference of $1,000 per share, plus accrued and unpaid dividends, on July 15, 2006. Dividends on the Exchangeable Preferred Stock are cumulative from the date of issuance at 13- 1/4% per annum on the liquidation preference thereof, and are payable quarterly in cash or, on or prior to July 15, 2000 at the sole option of Holdings, in additional shares of Exchangeable Preferred Stock, on January 15, April 15, July 15 and October 15, commencing October 15, 1996. The Exchangeable Preferred Stock is generally exchangeable into Exchange Debentures at any time at the option of Holdings, in whole but not in part. If by July 22, 1997 the Exchangeable Preferred Stock has not been exchanged for the Exchange Debentures, the dividend rate on the Exchangeable Preferred Stock will increase by 0.5% per annum to 13-3/4% per annum of the liquidation preference thereof until such exchange occurs. The Company currently plans to exchange the Exchangeable Preferred Stock for the Exchange Debentures prior to July 22, 1997. On or after July 15, 2000, the Exchangeable Preferred Stock is redeemable, at the option of Holdings, in whole or in part, at the rate of 109.938% (declining ratably to 100% by July 15, 2003) of the liquidation preference thereof, plus accrued and unpaid dividends to the redemption date. In addition, at any time, or from time to time, on or prior to July 15, 2000, Holdings may, at its option, redeem all (but not less than all) of the outstanding shares of Exchangeable Preferred Stock at a redemption price equal to 110% of the liquidation preference thereof, plus accrued and unpaid dividends to the redemption -46- date, with the proceeds of one or more sales of common stock of Holdings. Upon a Change of Control (as defined in the Certificate of Designation relating to the Exchangeable Preferred Stock (the "Certificate of Designation")), Holdings is required to make an offer to purchase all shares of Exchangeable Preferred Stock at a purchase price equal to 101% of their liquidation preference, plus accrued and unpaid dividends to the date of purchase. Holders of the Exchangeable Preferred Stock have no voting rights except as provided by law and as provided in Holdings' Restated Certificate of Incorporation or in the Certificate of Designation. In the event that dividends are not paid for four consecutive quarters or upon certain other events as described in the Certificate of Designation (including failure to comply with covenants under the Certificate of Designation and failure to pay the mandatory redemption price on the Exchangeable Preferred Stock when due), then the number of directors constituting Holdings' Board of Directors will be adjusted to permit the holders of the majority of the then outstanding Exchangeable Preferred Stock, voting separately as a class, to elect the number of directors that is equal to the greater of (i) one and (ii) the whole number obtained (rounding down to the nearest whole number) by (a) multiplying 1/6 by the number of directors then in office and (b) adding one. The Certificate of Designation contains certain covenants which, among other things, restricts the ability of Holdings and its subsidiaries to incur additional indebtedness and issue preferred stock; pay dividends or make distributions in respect of their capital stock; purchase, redeem or otherwise acquire for value shares of capital stock; make investments in any affiliate or unrestricted subsidiary; enter into transactions with shareholders or affiliates; create restrictions on the ability of Holdings' subsidiaries to make certain payments; issue or sell stock of Holdings' subsidiaries; engage in sales of assets; and engage in mergers or consolidations. Description of Stockholders Agreements Holdings, MSLEF II, BTNY and Messrs. Silver and Horrigan are parties to the Stockholders Agreement dated as of December 21, 1993 (as amended, the "Stockholders Agreement") which provides for certain rights and obligations among such stockholders and between such stockholders and Holdings. The following is a summary of the material provisions of the Stockholders Agreement, which is filed as an exhibit to this Annual Report on Form 10-K. The Stockholders Agreement provides that for a period of eight years after the Offering, MSLEF II shall have the right to demand two separate registrations of its shares of Common Stock; provided, however, that such demand right will terminate at such time as MSLEF II, together with its affiliates, owns less than five percent of the issued and outstanding shares of Common Stock. If, at any time or from time to time for a period of eight years after the Offering, Holdings shall determine to register additional shares of Common Stock (other than in connection with certain non-underwritten offerings), Holdings will offer each of MSLEF II, BTNY and Messrs. Silver and Horrigan the opportunity to register shares of Common Stock it holds in a "piggyback registration". The Stockholders Agreement prohibits the transfer prior to June 30, 1999 by MSLEF II or by Messrs. Silver or Horrigan of Common Stock without the prior written consent of the others, 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 MSLEF II to an affiliate, must be an Investment Entity (defined generally to be any person who is primarily engaged in the business of investing in securities of other companies and not taking an active role in the management or operations of such companies), (iii) certain transfers by MSLEF II to an Investment Entity or, in the event of certain defaults under the Management Agreement between S&H -47- and Holdings, to a third party, in each case that comply with certain rights of first refusal granted to the Group (the "Group" is 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 another member of the Group) set forth in the Stockholders Agreement, (iv) certain transfers by either member of the Group to a third party that comply with certain rights of first refusal granted to the other member of the Group and MSLEF II set forth in the Stockholders Agreement, and (v) in the case of MSLEF II, a distribution of all or substantially all of the shares of Common Stock then owned by MSLEF II to the partners of MSLEF II (a "MSLEF Distribution"). Notwithstanding the foregoing, each of Messrs. Silver and Horrigan and MSLEF II may pledge his or its shares of Common Stock to a lender or lenders reasonably acceptable to Holdings to secure a loan or loans to him or it. In the event of any proposed foreclosure of such pledge, such shares will be subject to certain rights of first refusal set forth in the Stockholders Agreement. Concurrent with the Offering, MSLEF II and Messrs. Silver and Horrigan entered into the Principals Stockholders Agreement. The Principals Stockholders Agreement provides that (i) for so long as MSLEF II and its affiliates (excluding the non-affiliated limited partners of MSLEF II who acquire shares of Common Stock from MSLEF II in a MSLEF Distribution) hold at least one-half of the number of shares of Common Stock held by MSLEF II immediately prior to the Offering, each of Messrs. Silver and Horrigan will use his best efforts (including to vote any shares of Common Stock owned or controlled by him) to cause the nomination and election of two members of the Board of Directors of Holdings to be chosen by MSLEF II; provided, however, that each such nominee shall be either (a) an employee of Morgan Stanley whose primary responsibility is managing investments for MSLEF II (or a successor or related partnership) or (b) 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, and (ii) from and after the time that MSLEF II and its affiliates (excluding the non-affiliated limited partners of MSLEF II who acquire shares of Common Stock from MSLEF II in a MSLEF Distribution) hold less than one-half of the number of shares of Common Stock held by MSLEF II immediately prior to the Offering and until such time that MSLEF II and its affiliates (excluding the non-affiliated limited partners of MSLEF II who acquire shares of Common Stock from MSLEF II in a MSLEF Distribution) hold less than five percent (5%) of the outstanding Common Stock beneficially owned, each of Messrs. Silver and Horrigan will use his best efforts (including to vote any shares of Common Stock owned or controlled by him) to cause the nomination and election of one member of the Board of Directors of Holdings to be chosen by MSLEF II; provided, however, that 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, the Principals Stockholders Agreement provides that (i) for so long as the Group holds at least one-half of the number of shares of Common Stock held by it in the aggregate on the date of this Annual Report on Form 10-K, MSLEF II will use its best efforts (including to vote any shares of Common Stock owned or controlled by it) to cause the nomination and election of two individuals nominated by the holders of a majority of the shares of Common Stock held by the Group as members of the Board of Directors of Holdings; provided, however, that at least one of such nominees shall be Mr. Silver or Mr. Horrigan and the other person, if not Mr. Silver or Mr. Horrigan, will be a person reasonably acceptable to MSLEF II, so long as MSLEF II and its affiliates (excluding the non-affiliated limited partners of MSLEF II who may acquire shares of Common Stock from MSLEF II in a MSLEF Distribution) hold at least one-half of the number of shares of Common Stock held by MSLEF II -48- immediately prior to the Offering, (ii) from and after the time that the Group holds less than one-half of the number of shares of Common Stock held by it in the aggregate on the date hereof and until such time that the Group holds less than five percent (5%) of the outstanding Common Stock beneficially owned, MSLEF II will use its best efforts (including to vote any shares of Common Stock owned or controlled by it) to cause the nomination and election of one individual nominated by the holders of a majority of the shares of Common Stock held by the Group as a member of the Board of Directors of Holdings; provided, however, that such nominee shall be Silver or Horrigan or, if not Silver or Horrigan, a person reasonably acceptable to MSLEF II, so long as MSLEF II and its affiliates (excluding the non-affiliated limited partners of MSLEF II who acquire shares of Common Stock from MSLEF II in a MSLEF Distribution) hold at least one-half of the number of shares of Common Stock held by MSLEF II immediately prior to the Offering, and (iii) so long as the Group holds at least one-half of the number of shares of Common Stock held by it in the aggregate on the date of this Annual Report on form 10-K, the Group will have the right to nominate for election all directors of Holdings other than the directors referred to above in this paragraph and in the preceding paragraph, and upon such nomination by the Group such nominees will stand for election to Holdings' Board of Directors in accordance with Holdings' Restated Certificate of Incorporation, and MSLEF II will vote all shares of Common Stock owned or controlled by it and its affiliates against any director standing for election for Holdings' Board of Directors that has not been nominated by the Group, other than the directors referred to above in this paragraph and in the preceding paragraph. The Principals Stockholders Agreement further provides that MSLEF II will vote all shares of Common Stock held by it against any unsolicited merger, or sale of Holdings' business or 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 of the number of shares of Common Stock held by it in the aggregate at the date of this Annual Report on Form 10-K. The foregoing provisions of the Principals Stockholders Agreement could have the effect of delaying, deferring or preventing a change of control of the Company and preventing the stockholders from receiving a premium for their shares of Common Stock in any proposed acquisition of the Company. 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 then existing management services agreement, as amended, with S&H. Pursuant to the Management Agreements, S&H provided Holdings, Silgan, Containers and Plastics and their respective subsidiaries with general management and administrative services (the "Services"). The Management Agreements provided for payments to S&H (i) on a monthly basis, of $5,000 plus an amount equal to 2.475% of consolidated earnings before depreciation, interest and taxes of Holdings and its subsidiaries ("Holdings EBDIT"), for such calendar month until Holdings EBDIT for the calendar year shall have reached an amount set forth in the Management Agreements for such calendar year (the "Scheduled Amount") and 1.65% of Holdings EBDIT for such calendar month to the extent that Holdings EBDIT for the calendar year shall have exceeded the Scheduled Amount but shall not have been greater than an amount (the "Maximum Amount") set forth in the Management Agreements and (ii) on a quarterly basis, of an amount equal to 2.475% of Holdings EBDIT for such calendar quarter until -49- 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 $83.5 million for the calendar year 1996, and the Maximum Amount was $98.101 million for the calendar year 1996. The Management Agreements provided 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. Additionally, the Management Agreements provided 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 were credited against amounts paid to S&H under the other Management Agreements. Under the terms of the Management Agreements, Holdings, Silgan, Containers and Plastics had 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 provided that S&H may select a consultant, subcontractor or agent to provide the Services. S&H retained Morgan Stanley to render financial advisory services to S&H. In connection with such retention, S&H agreed to pay Morgan Stanley a fee equal to 9.1% of the fees paid to S&H under the Management Agreements. Concurrent with the Offering, each of Holdings, Silgan, Containers and Plastics entered into an amended and restated management services agreement (collectively, the "New Management Agreements") with S&H to replace in their entirety the Management Agreements. The New Management Agreements contain substantially the same terms as the Management Agreements, except that after the initial term of the New Management Agreements (which continues until June 30, 1999), the New Management Agreements will be automatically renewed for successive one-year terms unless either party gives written notice at least 180 days prior to the end of the then current term of its election not to renew. The independent directors of Holdings will determine on behalf of the companies whether to give such written notice not to renew. The New Management Agreements may be terminated (i) at the option of each of the respective companies upon the failure or refusal of S&H to perform its obligations under the New Management Agreements, if such failure or refusal continues unremedied for more than 60 days after written notice of its existence shall have been given; (ii) at the option of S&H upon the failure or refusal of any of the respective companies to perform its obligations under the New Management Agreements, if such failure or refusal continues unremedied for more than 60 days after written notice of its existence shall have been given; (iii) at the option of S&H or the respective companies (a) if S&H or one of the companies is declared insolvent or bankrupt or a voluntary bankruptcy petition is filed by any of them, (b) upon the occurrence of any of the following events with respect to S&H or one of the companies 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 one of the companies 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; (iv) upon at least 180 days prior written notice at the option of each of the respective companies for any reason; (v) upon at least 180 days prior written notice at the option of S&H for any reason other than Cause or a Change of Control (each as defined in the New Management Agreements); (vi) at the option of S&H after a Change of Control; (vii) -50- at the option of the respective companies in the event of criminal conduct or gross negligence by S&H in the performance of the Services; or (viii) at the option of S&H or the respective companies upon the termination of any of the New Management Agreements for Cause (as defined therein). The New Management Agreements prohibit S&H from competing with the Company during the term thereof and, only if S&H terminates the New Management Agreements pursuant to clause (v) above, for a period of one year after such termination. The New Management Agreements provide that, in the event that they are terminated pursuant to clause (iv) above, each of the respective companies will be required to pay to S&H the present value of the amount of the payments that would have been payable to S&H thereunder through the end of the initial term or renewed term, as the case may be, thereof. In addition, under the New Management Agreements the Scheduled Amount is $89.5 million, $95.5 million and $101.5 million for the calendar years 1997, 1998 and 1999, respectively, and the Maximum Amount is $100.504 million, $102.964 million and $105.488 million for the calendar years 1997, 1998 and 1999, respectively. For the calendar year 2000, the Scheduled Amount and the Maximum Amount is $108.653 million, and for each calendar year thereafter the Scheduled Amount and Maximum Amount increases by 3% from that of the previous year. The Company believes that it is difficult to determine whether the Management Agreements were, and whether the New Management Agreements are, on terms no less favorable than those available from unaffiliated parties because of the personal nature of the services provided thereunder and the expertise and skills of the individuals providing such services. The Company believes that arrangements under the Management Agreements were, and that the arrangements under the New Management Agreements are, fair to both parties. For the years ended December 31, 1996, 1995 and 1994, under the Management Agreements, S&H earned aggregate fees, including reimbursable expenses and fees payable to Morgan Stanley, of $5.3 million, $5.4 million and $5.0 million, respectively, from Holdings, Silgan, Containers and Plastics, and during 1996, 1995 and 1994 Morgan Stanley earned fees of $425,000, $409,000 and $383,000, respectively. Other 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. In connection with a recent amendment to the Credit Agreement in May 1996, the banks thereunder (including Bankers Trust) received certain fees amounting to $1.6 million. In connection with the Preferred Stock Sale, Morgan Stanley, which acted as the placement agent in connection therewith, received certain fees amounting to $1.8 million. Morgan Stanley acted as one of the several underwriters in connection with the Offering and received fees of approximately $1.2 million in connection therewith. See "Security Ownership of Certain Beneficial Owners and Management--Certain Beneficial Owners of Holdings' Capital Stock" for a description of the ownership by MSLEF II, an affiliate of Morgan Stanley, of certain securities of Holdings. Messrs. Silver and Horrigan, BTNY, MSLEF II and Holdings are parties to the Stockholders Agreement, which provides for certain rights and obligations among them and between them and Holdings. See "Security Ownership of Certain Beneficial Owners and Management--Description of Stockholders Agreements". In the event that the Company enters into any future transactions with any of its affiliates, the Company expects to enter into any such transactions on terms no less favorable than those available from unaffiliated parties. -51- PART IV Item 14. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K. (a) Financial Statements: Report of Independent Auditors............................................ F-1 Consolidated Balance Sheets at December 31, 1996 and 1995................. F-2 Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994................................... F-3 Consolidated Statements of Deficiency in Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994............... F-4 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994................................... F-5 Notes to Consolidated Financial Statements................................ F-7 Schedules: I. Condensed Financial Information of Silgan Holdings Inc.: Condensed Balance Sheets at December 31, 1996 and 1995......... F-34 Condensed Statements of Operations for the years ended December 31, 1996, 1995 and 1994............................ F-35 Condensed Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994............................ F-36 II. Schedules of Valuation and Qualifying Accounts for the years ended December 31, 1996, 1995 and 1994........................ F-37 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. -52- Exhibits: Exhibit Number Description - ------- ----------- *3.1 Restated Certificate of Incorporation of Holdings. *3.2 Amended and Restated By-laws of Holdings. 4.1 Indenture, dated as of June 29, 1992, between Holdings and Fleet 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 Fleet National Bank, as Trustee, with respect to the 11-3/4% Notes (incorporated by reference to Exhibit 1 filed with Silgan's Current Report on Form 8-K dated July 15, 1992, Commission File No. 33- 46499). 4.3 Silgan Holdings Inc. Certificate of Designation of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of 13-1/4% Cumulative Exchangeable Redeemable Preferred Stock and Qualifications, Limitations and Restrictions Thereof (incorporated by reference to Exhibit 3 filed with Holdings' Current Report on Form 8-K dated August 2, 1996, Commission File No. 33-28409). 4.4 Form of Holdings' 13-1/4% Senior Discount Debentures Due 2002 (incorporated by reference to Exhibit 4.4 filed with Holdings' Annual Report on Form 10-K for the year ended December 31, 1992, Commission File No. 33-28409). 4.5 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). 4.6 Registration Rights Agreement, dated July 22, 1996, between Holdings and Morgan Stanley (incorporated by reference to Exhibit 5 filed with Holdings' Current Report on Form 8-K dated August 2, 1996, Commission File No. 33-28409). 4.7 Form of Holdings' 13-1/4% Cumulative Exchangeable Redeemable Preferred Stock Certificate (incorporated by reference to Amendment No. 1 to Holdings' Registration Statement on Form S-4, dated September 9, 1996, Commission File No. 333-9979). 4.8 Indenture, dated as of July 22, 1996, between Holdings and Fleet National Bank, as Trustee, with respect to the Exchange Debentures (incorporated by reference to Exhibit 4.10 filed with Holdings' Amendment No. 2 to Registration Statement on Form S-4, dated October 31, 1996, Registration Statement No. 33-9979). 4.9 Form of Holdings' Subordinated Debentures due 2006 (incorporated by reference to Exhibit 4.11 filed with Holdings' Amendment No. 2 to Registration Statement on Form S-4, dated October 31, 1996, Registration Statement No. 33-9979). -53- Exhibit Number Description - ------- ----------- 10.1 Supply Agreement between Containers and Nestle for Hanford, California effective August 31, 1987 (incorporated by reference to Exhibit 10(xi) filed with Silgan's Registration Statement on Form S-1, dated January 11, 1988, Registration Statement No. 33-18719) (Portions of this Exhibit are subject to confidential treatment pursuant to order of the Commission). 10.2 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). 10.3 Supply Agreement between Containers and Nestle 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). 10.4 Supply Agreement between Containers and Nestle 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). 10.5 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). 10.6 Supply Agreement between Containers and Nestle 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). 10.7 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). 10.8 Supply Agreement between Containers and Nestle 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). -54- Exhibit Number Description - ------- ----------- 10.9 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). 10.10 Supply Agreement between Containers and Nestle 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). 10.11 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). 10.12 Supply Agreement between Containers and Nestle 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). 10.13 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). 10.14 Supply Agreement between Containers and Nestle 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). 10.15 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). 10.16 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). 10.17 Employment Agreement, dated as of September 14, 1987, between James Beam and Canaco Corporation (Containers) (incorporated by reference to Exhibit 10(vi) filed with -55- Exhibit Number Description - ------- ----------- Silgan's Registration Statement on Form S-1, dated January 11, 1988, Registration Statement No. 33-18719). 10.18 Employment Agreement, dated as of September 1, 1989, between Silgan, InnoPak Plastics Corporation (Plastics), Russell F. Gervais and Aim Packaging, Inc. (incorporated by reference to Exhibit 5 filed with Silgan's Report on Form 8-K, dated March 15, 1989). 10.19 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). 10.20 Containers Pension Plan for Salaried Employees (incorporated by reference to Exhibit 10.34 filed with Silgan's Annual Report on Form 10-K for the year ended December 31, 1988, Commission File No. 33-18719). *10.21 Silgan Holdings Inc. Fourth Amended and Restated 1989 Stock Option Plan. *10.22 Form of Holdings Nonstatutory Stock Option Agreement. 10.23 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). *10.24 Amended and Restated Management Services Agreement, dated as of February 14, 1997, between S&H and Holdings. *10.25 Amended and Restated Management Services Agreement, dated as of February 14, 1997, between S&H and Silgan. *10.26 Amended and Restated Management Services Agreement, dated as of February 14, 1997, between S&H and Containers. *10.27 Amended and Restated Management Services Agreement, dated as of February 14, 1997, between S&H and Plastics. 10.28 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). 10.29 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). -56- Exhibit Number Description - ------- ----------- 10.30 Supply Agreement, dated as of September 3, 1993, between Containers and Del Monte (incorporated by reference to Exhibit 10.118 filed with Silgan's Annual Report on Form 10-K for the year ended December 31, 1993, Commission File No. 1-11200). (Portions of this Exhibit are subject to an application for confidential treatment filed with the Commission.) 10.31 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.) 10.32 Credit Agreement, dated as of August 1, 1995, among Silgan, Containers, Plastics, the lenders from time to time party thereto, Bankers Trust, 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). 10.33 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). 10.34 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). 10.35 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). 10.36 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). 10.37 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). 10.38 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). 10.39 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). -57- *10.40 Underwriting Agreement, dated as of February 13, 1997, among Holdings, Silgan, Containers, Plastics, MSLEF II, BTNY and the underwriters listed on Schedule I thereto. 10.41 Placement Agreement between Holdings and Morgan Stanley, dated July 17, 1996 (incorporated by reference to Exhibit 6 filed with Holdings' Current Report on Form 8-K dated August 2, 1996, Commission File No. 33-28409). *10.42 Amendment to Stockholders Agreement, dated as of February 14, 1997, among R. Philip Silver, D. Greg Horrigan, MSLEF II, BTNY and Holdings. 11 Statement of Computation of Earnings per Share for the years ended December 31, 1996, 1995 and 1994 (incorporated by reference to Exhibit 11 filed with Amendment No. 4 to Holdings Registration Statement on Form S-2, dated February 4, 1997, Commission File No. 333-11989). 21 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21 filed with Holdings' Annual Report on Form 10-K for the year ended December 31, 1995, Commission File No. 33-28409). *27 Financial Data Schedule. (b) Reports on Form 8-K: No reports on Form 8-K were filed during the fourth quarter of 1996. - -------------------- *Filed herewith -58- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 21, 1997 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 /s/ R. Philip Silver Co-Chief Executive Officer ____________________________ (Principal Executive Officer) March 21, 1997 (R. Philip Silver) /s/ D. Greg Horrigan President, Co-Chief Executive ____________________________ Officer and Director March 21, 1997 (D. Greg Horrigan) /s/ Robert H. Niehaus ____________________________ Director March 21, 1997 (Robert H. Niehaus) /s/ Leigh J. Abramson ____________________________ Director March 21, 1997 (Leigh J. Abramson) Executive Vice President, Chief /s/ Harley Rankin, Jr. Financial Officer and Treasurer ____________________________ (Principal Financial Officer) March 21, 1997 (Harley Rankin, Jr.) Vice President, Controller and /s/ Harold J. Rodriguez, Jr. Assistant Treasurer ____________________________ (Principal Accounting Officer) March 21, 1997 (Harold J. Rodriguez, Jr.) -59- 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, 1996 and 1995, 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, 1996. Our audits also included the financial statement schedules listed in the index at Item 14(a) of the Company's Annual Report on Form 10-K for the year ended December 31, 1996. 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, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, 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. /s/ Ernst & Young LLP Stamford, Connecticut January 31, 1997 except for Note 22, as to which date is February 13, 1997 F-1 SILGAN HOLDINGS INC. CONSOLIDATED BALANCE SHEETS December 31, 1996 and 1995 (Dollars in thousands) 1996 1995 ---- ---- Assets Current assets: Cash and cash equivalents ....................... $ 1,017 $ 2,102 Accounts receivable, less allowances for doubtful accounts of $4,045 and $4,843 for 1996 and 1995, respectively .................... 101,436 109,929 Inventories ..................................... 195,981 210,471 Prepaid expenses and other current assets ....... 7,403 5,801 -------- -------- Total current assets ........................ 305,837 328,303 Property, plant and equipment, net ................... 499,781 487,301 Goodwill, net ........................................ 77,176 53,562 Other assets ......................................... 30,752 30,880 -------- -------- $913,546 $900,046 ======== ======== Liabilities and Deficiency in Stockholders' Equity Current liabilities: Trade accounts payable .......................... $122,623 $138,195 Accrued payroll and related costs ............... 41,799 32,805 Accrued interest payable ........................ 9,522 4,358 Accrued expenses and other current liabilities .. 35,456 43,457 Bank working capital loans ...................... 27,800 7,100 Current portion of long-term debt ............... 38,427 28,140 -------- ------- Total current liabilities ................... 275,627 254,055 Long-term debt ....................................... 693,783 750,873 Deferred income taxes ................................ 6,836 6,836 Other long-term liabilities .......................... 74,508 68,086 Cumulative exchangeable redeemable preferred stock (10,000,000 shares authorized, 51,556 shares issued and outstanding) .............. 52,998 -- Deficiency in stockholders' equity: Common stock ($0.01 par value per share; 100,000,000 shares authorized, 15,162,833 and 19,446,120 shares issued and outstanding in 1996 and 1995, respectively) ............... 152 195 Additional paid-in capital ...................... 18,466 33,423 Accumulated deficit ............................. (208,824) (213,422) -------- -------- Total deficiency in stockholders' equity .... (190,206) (179,804) -------- -------- $913,546 $900,046 ======== ======== See accompanying notes. F-2 SILGAN HOLDINGS INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the years ended December 31, 1996, 1995 and 1994 (Dollars in thousands, except per share data) 1996 1995 1994 ---- ---- ---- Net sales ............................. $1,405,742 $1,101,905 $861,374 Cost of goods sold .................... 1,223,684 970,491 748,290 ---------- ---------- -------- Gross profit ..................... 182,058 131,414 113,084 Selling, general and administrative expenses ............................ 58,768 46,848 37,997 Reduction in carrying value of assets . -- 14,745 16,729 ---------- ---------- -------- Income from operations ........... 123,290 69,821 58,358 Interest expense and other related financing costs ..................... 89,353 80,710 65,789 ---------- ---------- -------- Income (loss) before income taxes 33,937 (10,889) (7,431) Income tax provision .................. 3,300 5,100 5,600 ---------- ---------- -------- Income (loss) before extraordinary charge ......................... 30,637 (15,989) (13,031) Extraordinary charges relating to early extinguishment of debt, net of taxes (2,222) (5,817) -- ---------- ---------- -------- Net income (loss) before preferred stock dividend requirement ..... 28,415 (21,806) (13,031) Preferred stock dividend requirement .. (3,006) -- -- ---------- ---------- -------- Net income (loss) available to common stockholders ............ $ 25,409 $ (21,806) $(13,031) ========== ========== ======== Income (loss) per common share: Income (loss) before extraordinary charges ........................ $1.60 $(0.77) $(0.63) Extraordinary charges ............ (0.12) (0.29) -- Preferred stock dividend requirement .................... (0.16) -- -- ----- ------ ------ Net income (loss) $1.32 $(1.06) $(0.63) ===== ====== ====== Weighted average number of common and common equivalent shares outstanding 19,178,730 20,656,877 20,656,877 ========== ========== ========== See accompanying notes. F-3 SILGAN HOLDINGS INC. CONSOLIDATED STATEMENTS OF DEFICIENCY IN STOCKHOLDERS' EQUITY For the years ended December 31, 1996, 1995 and 1994 (Dollars in thousands, except per share data) Common Stock Total ------------ Additional Accum- deficiency in Par paid-in ulated stockholders' Shares Value capital deficit equity ------ ----- ------- ------- ------ Balance at December 31, 1993 1,135,000 $ 12 $33,606 $(178,585) $(144,967) Adjustment for 17.133145 for 1 stock split ...... 18,311,120 183 (183) -- -- ---------- ---- ------- --------- --------- As restated at December 31, 1993 for stock split ..... 19,446,120 195 33,423 (178,585) (144,967) Net loss ................... -- -- -- (13,031) (13,031) ---------- ---- ------- --------- --------- Balance at December 31, 1994 19,446,120 195 33,423 (191,616) (157,998) Net loss ................... -- -- -- (21,806) (21,806) ---------- ---- ------- --------- --------- Balance at December 31, 1995 19,446,120 195 33,423 (213,422) (179,804) Purchase and retirement of 250,000 shares of Class B Common Stock ............. (4,283,287) (43) (14,957) (20,811) (35,811) Net income ................. -- -- -- 25,409 25,409 ---------- ---- ------- --------- --------- Balance at December 31, 1996 15,162,833 $152 $18,466 $(208,824) $(190,206) ========== ==== ======= ========= ========= See accompanying notes. F-4 SILGAN HOLDINGS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 1996, 1995 and 1994 (Dollars in thousands) 1996 1995 1994 ---- ---- ---- Cash flows from operating activities: Net income (loss) before preferred stock dividend requirement .................... $ 28,415 $ (21,806) $(13,031) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation .......................... 54,830 42,217 35,392 Amortization .......................... 8,993 8,083 7,075 Accretion of discount on discount debentures .......................... 12,077 28,672 27,477 Reduction in carrying value of assets . -- 14,745 16,729 Extraordinary charge relating to early extinguishment of debt .............. 2,222 6,301 -- Changes in assets and liabilities, net of effect of acquisitions: Decrease (increase) in accounts receivable .................... 15,102 (1,011) (21,267) Decrease (increase) in inventories 20,348 10,852 (16,741) (Decrease) increase in trade accounts payable .............. (17,145) 43,108 4,478 Net working capital provided by AN Can from 8/1/95 to 12/31/95 .... -- 85,213 -- Other, net (decrease) increase ... (357) (6,745) 7,221 -------- --------- -------- Total adjustments ............ 96,784 231,435 60,364 -------- --------- -------- Net cash provided by operating activities .......................... 125,199 209,629 47,333 -------- --------- -------- Cash flows from investing activities: Acquisition of businesses ................. (43,043) (348,762) 519 Capital expenditures ...................... (56,851) (51,897) (29,184) Proceeds from sale of assets .............. 1,557 3,541 765 -------- --------- -------- Net cash used in investing activities . $(98,337) $(397,118) $(27,900) -------- --------- -------- Continued on following page. F-5 SILGAN HOLDINGS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) For the years ended December 31, 1996, 1995 and 1994 (Dollars in thousands) 1996 1995 1994 ---- ---- ---- Cash flows from financing activities: Borrowings under working capital loans .. $952,050 $669,260 $393,250 Repayments under working capital loans .. (931,350) (674,760) (382,850) Proceeds from issuance of long-term debt 125,000 450,000 -- Repayments of long-term debt ............ (183,880) (234,506) (20,464) Proceeds from issuance of cumulative redeemable exchangeable preferred stock 50,000 -- -- Repurchase of common stock .............. (35,811) -- -- Debt financing costs .................... (3,956) (19,290) -- Payments to former shareholders of Silgan -- (3,795) (6,911) -------- -------- -------- Net cash (used by) provided for financing activities .............. (27,947) 186,909 (16,975) -------- -------- -------- Net (decrease) increase in cash and cash equivalents ........................ (1,085) (580) 2,458 Cash and cash equivalents at beginning of year ....................... 2,102 2,682 224 -------- -------- -------- Cash and cash equivalents at end of year ............................. $ 1,017 $ 2,102 $ 2,682 ======== ======== ======== Supplementary data: Interest paid $ 68,390 $ 45,293 $ 30,718 Income tax (refunds) payments, net.... (4,836) 8,967 2,588 Preferred stock dividend in lieu of cash dividend....................... 2,998 -- -- See accompanying notes. F-6 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 1. Basis of Presentation Silgan Holdings Inc. ("Holdings", together with its wholly-owned subsidiaries, 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"). The Company, together with Silgan and 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. The Company also manufactures custom designed plastic containers used for health and personal care products, specialty packaging items including metal caps and closures, and plastic bowls and paper containers used by processors in the food industry. 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. 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 $49.6 million at December 31, 1996 and $30.0 million at December 31, 1995 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). F-7 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 2. Summary of Significant Accounting Policies (continued) 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. Long-Lived Assets Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". Under SFAS No. 121, impairment losses will be recognized when events or changes in circumstances indicate that the undiscounted cash flows generated by the assets are less than the carrying value of such assets. Impairment losses are then measured by comparing the fair value of assets to their carrying amount. There were no impairment losses recognized during 1996. 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. F-8 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 2. Summary of Significant Accounting Policies (continued) Income Taxes The Company accounts for income taxes using the liability method in accordance with SFAS No. 109, "Accounting for 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. Stock Based Compensation SFAS No. 123, "Accounting for Stock-Based Compensation" was issued in October 1995, 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 accounting method as prescribed under APB No. 25, "Accounting for Stock Issued to Employees". The Company has chosen to continue to recognize compensation expense in accordance with APB No. 25. Derivative Financial Instruments The Company's use of derivative financial instruments is limited to interest rate swap agreements which assist in managing exposure to adverse movement in interest rates on a portion of its indebtedness. The Company does not utilize financial instruments for speculative purposes. The difference between amounts to be paid or received on interest rate swap agreements are recorded as adjustments to interest expense. The methods and assumptions used to estimate fair values of these and other debt instruments reflected in the financial statements are discussed in Note 10. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect 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. F-9 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 2. Summary of Significant Accounting Policies (continued) Per Share Information Per share amounts have been computed based upon the weighted average number of common and common equivalent shares outstanding for all periods presented. Weighted average shares include options to purchase shares which were issued within the twelve month period prior to the initial public offering of the Company at less than the initial public offering price. All share and per share data have been adjusted to reflect a 17.133145 for 1 stock split which occurred at the time of the initial public offering. For a discussion of the initial public offering, see Note 22. 3. Acquisitions On October 9, 1996, the Company acquired substantially all of the assets of Finger Lakes Packaging Company, Inc. ("Finger Lakes"), a metal food container manufacturer, which had net sales of $48.8 for its fiscal year ended June 29, 1996. The purchase price was $29.9 million (including net working capital of $8.0 million) and was primarily allocated to property, plant, and equipment, and net working capital acquired based on fair market value as of the date of acquisition. The excess of the purchase price over the fair value of the net assets acquired was $5.2 million and has been recorded as goodwill, which is being amortized on a straight-line basis over 20 years. On August 1, 1995, Containers acquired from American National Can Company ("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 final purchase price for the assets acquired and the assumption of certain specified liabilities was $362.0 million (including $13.1 million paid in 1996). The aggregate purchase price has been allocated to the assets acquired and liabilities assumed based on their fair values. The purchase price allocation was adjusted in 1996 for differences between the actual and preliminary valuations for the asset appraisals and for projected employee benefit costs as well as for a revision in estimated costs of plant rationalizations, administrative workforce reductions and various other acquisition liabilities. The final purchase price allocation resulted in an adjustment to increase goodwill by $20.7 million. The aggregate excess of the purchase price over the fair value of the assets acquired and liabilities assumed for AN Can was $45.6 million and has been recorded as goodwill, which is being amortized on a straight-line basis over 40 years. F-10 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 3. Acquisitions (continued) The Finger Lakes and AN Can acquisitions were accounted for using the purchase method of accounting and accordingly, the results of operations for Finger Lakes and AN Can have been included in the consolidated financial statements of the Company from the dates of acquisition. Set forth below are the Company's summary unaudited pro forma results of operations for the year ended December 31, 1995, giving effect to the acquisition of AN Can. The summary unaudited pro forma results of operations include the historical results of the Company and AN Can and reflect the effect of purchase accounting adjustments based on appraisals and valuations, the financing of the acquisition of AN Can by the Company, the refinancing of the Company's related debt obligations, and certain other adjustments as if these events occurred as of the beginning of 1995. Pro forma results of operations for Finger Lakes have not been presented for 1996 or included in the 1995 summary unaudited pro forma results of operations since the impact of such acquisition was not significant. The pro forma results of operations do not give effect to adjustments for decreased costs from manufacturing synergies resulting from the integration of AN Can with the Company's existing can manufacturing operations and benefits the Company may realize as a result of its planned rationalization of plant operations. Pro forma adjustments have not been made to interest expense for the year ended December 31, 1995 for the portion of Holdings' 13 1/4% Senior Discount Debentures due 2002 ("Discount Debentures") redeemed in 1996 as described in Note 8 or for the subsequent events discussed in Note 22. The pro forma information 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 to project the Company's results of operations for any future period: 1995 (Dollars in thousands, except per share data) Net sales ..................... $ 1,404,382 Income from operations ........ 92,749(1) Income before income taxes..... 4,064 Net loss ...................... (2,736) Net loss per common share...... (0.13) (1) Included in pro forma income from operations for the year ended December 31, 1995 is a charge 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. F-11 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 4. Inventories The components of inventories at December 31, 1996 and 1995 consist of the following: 1996 1995 ---- ---- (Dollars in thousands) Raw materials ........................... $ 40,280 $ 46,027 Work-in-process ......................... 27,861 24,869 Finished goods .......................... 116,498 135,590 Spare parts and other ................... 7,771 6,344 -------- -------- 192,410 212,830 Adjustment to value inventory at cost on the LIFO method............ 3,571 (2,359) -------- -------- $195,981 $210,471 ======== ======== The amount of inventory recorded on the first-in first-out method at December 31, 1996 and 1995 was $19.8 million and $17.6 million, respectively. 5. Property, Plant and Equipment Property, plant and equipment at December 31, 1996 and 1995 consist of the following: 1996 1995 ---- ---- (Dollars in thousands) Land .................................... $ 6,425 $ 6,355 Buildings and improvements .............. 79,923 68,860 Machinery and equipment ................. 621,232 584,526 Construction in progress ................ 49,771 33,764 -------- -------- 757,351 693,505 Accumulated depreciation and amortization 257,570) (206,204) -------- -------- Property, plant and equipment, net $499,781 $487,301 ======== ======== For the years ended December 31, 1996, 1995, and 1994, depreciation expense was $54.8 million, $42.2 million and $35.4 million, respectively. The total amount of repairs and maintenance expense was $32.0 million in 1996, $26.9 million in 1995 and $19.9 million in 1994. F-12 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 5. Property, Plant and Equipment (continued) In 1995 and 1994, based on a review of depreciable assets, the Company determined that certain adjustments were necessary to properly reflect net fixed asset 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 had 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. 6. Goodwill Goodwill amortization charged to operations was $2.3 million in 1996; $1.3 million in 1995; and $1.2 million in 1994. Accumulated amortization of goodwill at December 31, 1996, 1995, and 1994 was $7.7 million; $5.0 million; and $3.7 million, respectively. 7. Other Assets Other assets at December 31, 1996 and 1995 consist of the following: 1996 1995 ---- ---- (Dollars in thousands) Debt issuance costs ........... $30,515 $30,148 Other ......................... 8,576 8,027 ------- ------- 39,091 38,175 Less: accumulated amortization (8,339) (7,295) ------- ------- $30,752 $30,880 ======= ======= During 1996, the Company wrote off $2.2 million of unamortized debt issuance costs, with no tax benefit, and capitalized $4.0 million of new debt issuance costs in connection with the refinancing of Discount Debentures. As part of the acquisition of AN Can and the related refinancing of its secured debt facilities and Discount Debentures in 1995, the Company wrote off $6.3 million of unamortized debt issuance costs and capitalized $19.3 million of new debt issuance costs. Amortization expense relating to debt issuance for the years ended December 31, 1996, 1995, and 1994 was $4.5 million, $4.9 million, and $5.3 million, respectively. F-13 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 8. Short-Term Borrowings and Long-Term Debt The Company has a revolving credit facility which it uses to finance its seasonal liquidity needs. As of December 31, 1996 and 1995, the Company had $27.8 million and $7.1 million, respectively, of loans outstanding under the revolving credit facility ("Working Capital Loans"). Long-term debt consists of the following: 1996 1995 ---- ---- (Dollars in thousands) Bank A Term Loans ........................ $194,554 $220,000 Bank B Term Loans ........................ 343,716 222,750 11 3/4% Senior Subordinated Notes due June 15, 2002 ......................... 135,000 135,000 13 1/4% Senior Subordinated Debentures due December 15, 2002 ..................... 58,940 201,263 -------- -------- 732,210 779,013 Less: Amounts due within one year ........ 38,427 28,140 -------- -------- $693,783 $750,873 ======== ======== The aggregate annual maturities of long-term debt at December 31, 1996 are as follows (in thousands): 1997.................. $ 38,427 1998.................. 53,393 1999.................. 53,393 2000.................. 126,112 2001.................. 155,880 2002 and thereafter... 305,005 -------- $732,210 ======== Refinancings 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 Silgan's Senior Secured Notes (the "Secured Notes"), and to repurchase up to $75.0 million of Discount Debentures. F-14 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 8. Short-Term Borrowings and Long-Term Debt (continued) The Credit Agreement, as entered into during 1995, provided the Company with (i) $225.0 million of A Term Loans, (ii) $225.0 million of B Term Loans and (iii) Working Capital Loans of up to $225.0 million. The Company used proceeds from the Credit Agreement to acquire AN Can for $348.9 million (excluding $13.1 million paid in 1996), repay $117.1 million of term loans under the previous credit agreement, repay in full $50.0 million of Secured Notes, repurchase $61.7 million principal amount at maturity of Discount Debentures for $57.6 million, and incur debt issuance costs of $19.3 million. As a result of the early redemption of the Secured Notes and a portion of the Discount Debentures in 1995, the Company incurred an extraordinary charge of $5.8 million, net of taxes, for the write-off of unamortized deferred financing costs of $6.4 million and premiums of $2.0 million paid on the redemption of the Discount Debentures. In 1996, the Credit Agreement was amended to provide the Company with additional B Term Loans of $125.0 million. With borrowings of $17.4 million of Working Capital Loans, $12.0 million representing a portion of the proceeds from the issuance of Holdings' 13 1/4% Cumulative Exchangeable Redeemable Preferred Stock ("Preferred Stock"), and the additional B Term Loans, the Company redeemed $154.4 principal amount of Discount Debentures at par. As a result of the early redemption of a portion of the Discount Debentures in 1996, the Company incurred an extraordinary charge of $2.2 million for the write-off of unamortized deferred financing costs. Bank Credit Agreement The A Term Loans mature on December 31, 2000, and the B Term Loans mature on March 15, 2002. Principal repayments of $25.4 million and $5.0 million on the A Term Loans and $4.0 million and $2.3 million on the B Term Loans were made in 1996 and 1995, respectively. Principal is to be repaid on each of the A and B Term Loans in installments in accordance with the Credit Agreement until maturity. As provided 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 prepay 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-15 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 8. Short-Term Borrowings and Long-Term Debt (continued) Bank Credit Agreement (continued) The Credit Agreement provides Containers and Plastics, together, a revolving credit facility of up to $225.0 million for working capital needs. Borrowings available under the revolving credit facility were $190.0 million at December 31, 1996, after taking into account outstanding Working Capital Loans of $27.8 million and outstanding letters of credit of $7.2 million. The Company may utilize up to a maximum of $20.0 million in letters of credit as long as the aggregate amount of borrowings of Working Capital Loans and letters of credit do not exceed the amount of the commitment under the revolving credit facility. 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 a margin of 1.50% in the case of A Term Loans and Working Capital Loans; and a margin of 2.0% in the case of B Term Loans. Eurodollar Rate borrowings bear interest at the Eurodollar Rate plus a margin of 2.50% in the case of A Term Loans and Working Capital Loans; and a margin of 3.0% in the case of B Term Loans. In accordance with the Credit Agreement, if the Company meets certain financial tests, the interest rate margin on Base Rate and Eurodollar Rate borrowings may be reduced from the existing margin. As of December 31, 1996, the interest rate for Base Rate borrowings was 9.75% and the interest rate for Eurodollar Rate borrowings ranged between 8.0% and 8.63%. During 1996, the Company entered into interest rate swap arrangements to convert interest rate exposure from variable to fixed rates of interest on A Term Loans and B Term Loans in an aggregate amount of $200.0 million (for a discussion of the interest rate swap agreements, see Note 9). For 1996, 1995 and 1994, respectively, the average amount of borrowings of Working Capital Loans was $104.1 million, $67.6 million and $14.4 million; the weighted average annual interest rate paid on such borrowings was 8.4%, 8.9%, and 8.4%; and the highest amount of such borrowings was $175.1 million, $188.1 million, and $46.0 million. F-16 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 8. Short-Term Borrowings and Long-Term Debt (continued) 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 Silgan, Containers and Plastics and secured by a security interest in substantially all of the real and personal property of Silgan, Containers and Plastics. 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. 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 of Silgan, 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 Silgan. 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 Credit Agreement. F-17 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 8. Short-Term Borrowings and Long-Term Debt (continued) 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 was amortized through June 15, 1996 with a yield to maturity of 13 1/4%. From and after June 15, 1996, interest on the Discount Debentures accrues on the principal amount thereof at the rate of 13 1/4% and is 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 Company redeemed $154.4 million principal amount of its Discount Debentures in 1996 and repurchased $61.7 million principal amount at maturity of its Discount Debentures for $57.6 million in 1995. The Discount Debenture Indenture contains covenants which are comparable to or less restrictive than those under the Credit Agreement and the 11 3/4% Notes. 9. Financial Instruments and Risk Management The Company has entered into interest rate swap agreements with various banks to manage its exposure to interest rate fluctuations. The agreements are with major financial institutions which are expected to fully perform under the terms thereof. The interest rate swap agreements effectively convert interest rate exposure from variable rates to fixed rates of interest without the exchange of the underlying principal amounts. A portion of the Company's term debt instruments carries a variable rate of interest based on the London interbank offered rate ("LIBOR") plus a margin currently ranging from 2.5% to 3.0%. The interest rate swap agreements require the Company to pay fixed rates of interest based on LIBOR ranging from 5.6% to 6.2% plus the aforementioned margin. Notional principal amounts of these agreements total $200.0 million and these agreements mature in the year 1999. The notional amounts are used to measure the interest to be paid or received and do not represent the amount of exposure to credit loss. Net payments of $0.3 million under these agreements made in 1996 were recorded as adjustments to interest expense. F-18 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 9. Financial Instruments and Risk Management (continued) Concentration of Credit Risk The Company derives a significant portion of its revenue from multi-year supply agreements with many of its customers. Aggregate revenues from its two largest customers accounted for approximately 29.1% of its net sales in 1996 and 36.0% of its net sales in 1995. The receivable balances from these customers collectively represented 20.3% and 28.2% of the Company's accounts receivable before allowances at December 31, 1996 and 1995, 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. 10. Fair Value of Financial Instruments The carrying amounts and estimated fair values of the Company's financial instruments at December 31, 1996 and 1995 are as follows: 1996 1995 ------------------- ------------------- Carrying Fair Carrying Fair Amount Value Amount Value ------ ----- ------ ----- (Dollars in thousands) Working Capital Facility ........... $ 27,800 $ 27,800 $ 7,100 $ 7,100 Bank A Term Loans .................. 194,554 194,554 220,000 220,000 Bank B Term Loans .................. 343,716 343,716 222,750 222,750 11 3/4% Senior Subordinated Notes due June 15, 2002 .......... 135,000 144,500 135,000 144,500 13 1/4% Senior Subordinated Debentures due December 15, 2002 . 58,940 59,235 201,263 205,873 Cumulative exchangeable redeemable preferred stock .................. 52,998 58,671 -- -- Interest Rate Swap Agreements ...... -- 504 -- -- Methods and assumptions used in estimating fair values are as follows: 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-19 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 10. 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. Convertible exchangeable preferred stock: The fair value of the preferred stock is estimated based on quoted market prices. Interest Rate Swap Agreements: Fair values of interest rate swap agreements reflect the estimated amounts that the Company would receive to terminate the contracts at the reporting date based on quoted market prices. 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 (in thousands): 1997....................... $13,779 1998....................... 10,615 1999....................... 8,181 2000....................... 6,257 2001....................... 4,431 2002 and thereafter........ 9,213 ------- $52,476 ======= Rent expense was approximately $13.9 million in 1996; $10.8 million in 1995; and $9.1 million in 1994. 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. F-20 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 12. Retirement Plans (continued) The following table sets forth the funded status of the Company's retirement plans as of December 31, 1996 and 1995: Plans in which Plans in which Assets Exceed Accumulated Accumulated Benefits Benefits Exceed Assets ------------------ ------------------ 1996 1995 1996 1995 ---- ---- ---- ---- (Dollars in thousands) Actuarial present value of benefit obligations: Vested benefit obligations ....... $14,009 $12,135 $33,558 $31,465 Non-vested benefit obligations ... 383 547 4,718 3,158 ------- ------- ------- ------- Accumulated benefit obligations .... 14,392 12,682 38,276 34,623 Additional benefits due to future salary levels ............. 6,255 5,667 6,526 7,132 ------- ------- ------- ------- Projected benefit obligations ...... 20,647 18,349 44,802 41,755 Plan assets at fair value .......... 15,055 12,988 31,265 23,535 ------- ------- ------- ------- Projected benefit obligation in excess of plan assets ......... 5,592 5,361 13,537 18,220 Unrecognized actuarial gain (loss).. 110 (165) 3,476 1,237 Unrecognized prior service costs ... (565) (615) (2,052) (2,128) Additional minimum liability ....... -- -- 1,124 1,990 ------- ------- ------- ------- Accrued pension liability recognized in the balance sheet... $ 5,137 $ 4,581 $16,085 $19,319 ======= ======= ======= ======= For certain pension plans with accumulated benefits in excess of plan assets at December 31, 1996 and December 31, 1995, the balance sheet reflects an additional minimum pension liability and related intangible asset of $1.1 million and $2.0 million, respectively. The components of net periodic pension costs for defined benefit plans are as follows: 1996 1995 1994 ---- ---- ---- (Dollars in thousands) Service cost ................................. $5,229 $3,067 $2,947 Interest cost ................................ 4,452 3,887 3,334 Actual loss (return) on assets ............... (3,946) (7,284) 539 Net amortization and deferrals ............... 650 5,008 (2,698) ------ ------ ------ Net periodic pension cost ................ $6,385 $4,678 $4,122 ====== ====== ====== F-21 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 12. Retirement Plans (continued) 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 1996, 1995, and 1994 in the Company's Consolidated Statements of Operations is as follows: 1996 1995 1994 ---- ---- ---- (Dollars in thousands) Net periodic pension cost ............ $ 6,385 $4,678 $4,122 Settlement and curtailment losses, net 48 418 -- Contributions to multi-employer union plans ........................ 3,813 2,708 2,700 ------- ------ ------ Total pension costs .............. $10,246 $7,804 $6,822 ======= ====== ====== The assumptions used in determining the actuarial present value of plan benefit obligations as of December 31, 1996, 1995 and 1994 are as follows: 1996 1995 1994 ---- ---- ---- Discount rate ........................ 7.5% 7.5% 8.5% Weighted average rate of compensation increase .............. 4.0% 4.0% 4.5% Expected long-term rate of return on plan assets .............. 9.0% 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 $4.5 million in 1996; $1.7 million in 1995; and $2.5 million in 1994. Improved operating performance in 1996 as compared to 1995 resulted in greater contributions to the Company's profit sharing plans. 13. Postretirement Benefits Other than Pensions 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-22 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 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, 1996 and 1995: 1996 1995 ---- ---- (Dollars in thousands) Accumulated postretirement benefit obligation: Retirees ................................... $ 2,691 $ 1,587 Fully eligible active plan participants .... 5,576 11,647 Other active plan participants ............. 18,214 14,770 ------- ------- Total accumulated postretirement benefit obligation ......................... 26,481 28,004 Unrecognized net loss (gain) ................. 2,993 (2,929) Unrecognized prior service costs ............. (275) (298) ------- ------- Accrued postretirement benefit liability ..... $29,199 $24,777 ======= ======= Net periodic postretirement benefit cost include the following components: 1996 1995 1994 ---- ---- ---- (Dollars in thousands) Service cost ............................. $ 871 $ 372 $ 321 Interest cost ............................ 1,766 1,097 412 Net amortization and deferral ............ 25 42 (14) ------ ------ ----- Net periodic postretirement benefit cost $2,662 $1,511 $ 719 ====== ====== ===== The weighted average discount rate used to determine the accumulated postretirement benefit obligation as of December 31, 1996 and 1995 was 7.5%. The net periodic postretirement benefit costs were calculated using a discount rate of 7.5% in 1996 and discount rates ranging from 7.5% to 8.5% for 1995. The assumed health care cost trend rates used in measuring the accumulated postretirement benefit obligation in 1996 ranged from 10% to 9.5% for pre-age 65 retirees and was 9.0% for post-age 65 retirees, declining gradually to an ultimate rate of 5.5% over the next 12 years. A 1% increase in the health care cost trend rate assumption would increase the accumulated postretirement benefit obligation as of December 31, 1996 by approximately $1.7 million and increase the aggregate of the service and interest cost components of the net periodic postretirement benefit cost for 1996 by approximately $0.2 million. F-23 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 14. Income Taxes The components of income tax expense are as follows: 1996 1995 1994 ---- ---- ---- (Dollars in thousands) Current Federal ..................... $ -- $ 500 $2,500 State ....................... 3,000 1,900 3,200 Foreign ..................... 300 100 (100) ------ ------ ------ 3,300 2,500 5,600 Deferred Federal ..................... -- -- -- State ....................... -- -- -- Foreign ..................... -- -- -- ------ ------ ------ -- -- -- ------ ------ ------ $3,300 $2,500 $5,600 ====== ====== ====== Income tax expense is included in the financial statements as follows: 1996 1995 1994 ---- ---- ---- (Dollars in thousands) Income before extraordinary charges ....... $3,300 $5,100 $5,600 Extraordinary charges ......... -- (2,600) -- ------ ------ ------ $3,300 $2,500 $5,600 ====== ====== ====== The income tax provision varied from that computed by using the U.S. statutory rate as a result of the following: 1996 1995 1994 ---- ---- ---- (Dollars in thousands) Income tax benefit at the U.S. federal income tax rate ..... $11,100 $(3,811) $(2,601) State and foreign tax expense, net of federal income benefit 2,145 1,820 2,015 Amortization of goodwill ...... 621 471 576 Change in valuation allowance . (10,566) 6,620 5,610 ------- ------- ------- $ 3,300 $ 5,100 $ 5,600 ======= ======= ======= F-24 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 14. 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, 1996 and 1995 are as follows: 1996 1995 ---- ---- (Dollars in thousands) Deferred tax liabilities: Tax over book depreciation ................ $65,000 $53,400 Book over tax basis of assets acquired .... 13,200 16,100 Other ..................................... 4,100 3,900 ------- ------- Total deferred tax liabilities .......... 82,300 73,400 Deferred tax assets: Book reserves not yet deductible for tax purposes ........................ 59,200 56,300 Deferred interest on high yield obligations 7,700 25,100 Net operating loss carryforwards .......... 57,200 35,600 Other ..................................... 500 1,200 ------- ------- Total deferred tax assets ............... 124,600 118,200 Valuation allowance for deferred tax assets 49,136 51,636 ------- ------- Net deferred tax assets ................. 75,464 66,564 ------- ------- Net deferred tax liabilities ................ $ 6,836 $ 6,836 ======= ======= The Company has a net deferred tax asset position primarily as a result of its net operating loss carryforwards and net temporary differences. In years prior to 1996 the Company reported book losses, therefore, under current accounting principles the full amount of the deferred tax asset has been offset by a valuation allowance. The valuation allowance will be reduced at the time it is more likely than not that the Company will generate taxable income sufficient to realize a portion of the tax benefits associated with the net operating loss carryforwards and future deductible temporary differences. The Company believes this will occur in 1997. At the time the valuation allowance is reduced a portion of the benefit will be recorded as a reduction to income tax expense and the remainder will be recorded as a reduction to goodwill. The valuation allowance decline in 1996 represented the reversal of the reserve for prior years' operating losses not previously recognized, net of the additional deferred tax asset recorded as a result of the finalization of the purchase price allocation for AN Can. F-25 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 14. Income Taxes (continued) The Company files a consolidated federal income tax return. At December 31, 1996, the Company has net operating loss carryforwards of approximately $164.0 million which are available to offset future consolidated taxable income of the group and expire from 2001 through 2011. The Company also has $3.9 million of alternative minimum tax credits which are available indefinitely to reduce future tax payments for regular federal income tax purposes. 15. Acquisition Reserves In connection with the acquisition of AN Can, the Company has finalized its plant rationalization and integration plans. These plans consist primarily of the closing or downsizing of certain manufacturing plants and the integration of the selling, general and administrative functions of the former AN Can operations with the Company. Provisions were established for such planned costs which include approximately $22.6 million related to employee severance and relocation costs, $3.5 million related to administrative workforce reductions, and $23.4 million related to plant exit costs and other acquisition liabilities. The timing of the plant rationalizations, among other things, will be dependent on covenants in existing labor agreements and accordingly these costs will be incurred during the period through 1998. During 1996 and 1995, respectively, costs of $6.5 million and $0.9 million were incurred primarily for relocation and severance in connection with administrative workforce reductions. 16. Cumulative Exchangeable Redeemable Preferred Stock On July 22, 1996, the Company issued 50,000 shares of Preferred Stock, mandatorily redeemable in 2006, at $1,000 per share which represents the liquidation preference of the Preferred Stock. The Company used $35.8 million of these proceeds to purchase 4,283,286 shares of its Class B Common Stock held by Mellon Bank, as trustee for First Plaza Group Trust pursuant to its right to purchase such stock for such amount under the Organization Agreement. In aggregate, common stock and additional paid in capital were reduced by $15.0 million, the original issuance amount received for such Class B Common Stock, and the remainder of the payment was applied to Holdings' accumulated deficit. The Preferred Stock holders are entitled to receive cumulative dividends of 13 1/4% per annum, which are payable quarterly in cash or, on or prior to July 15, 2000 at the sole option of the Company, in additional shares of Preferred Stock. After July 15, 2000, dividends may be paid only in cash. During 1996, dividends of $1.6 million were paid in additional shares of Preferred Stock. As of December 31, 1996, the Company accrued dividends of $1.4 million, which it intends to pay in additional shares of Preferred Stock. F-26 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 16. Cumulative Exchangeable Redeemable Preferred Stock (continued) The Preferred Stock is exchangeable into Holdings' Subordinated Debentures due 2006 (the "Exchange Debentures"), in whole but not in part, at any time at the option of the Company, subject to certain conditions. The Exchange Debentures will bear interest at the dividend rate in effect with respect to the Preferred Stock. Interest on the Exchange Debentures will be payable semi-annually and, on or prior to July 15, 2000, the Company may pay such interest by issuing additional Exchange Debentures. If by July 22, 1997 the Preferred Stock has not been exchanged for Exchange Debentures, the dividend rate on the Preferred Stock will increase by 0.5% per annum to 13 3/4% per annum until such exchange occurs. The Company is required to redeem the Preferred Stock or Exchange Debentures on July 15, 2006, but may elect to redeem the Preferred Stock or Exchange Debentures, in whole or in part, at any time during the twelve month period beginning July 15 of each of the years set forth below, at a redemption price (expressed as a percentage of the liquidation preference of the Preferred Stock or principal amount of the Exchange Debentures), plus an amount equal to all the accumulated and unpaid dividends or accrued and unpaid interest. Year Percentage ---- ---------- 2000 .................... 109.938% 2001 .................... 106.625% 2002 .................... 103.313% 2003 and thereafter ..... 100.000% In addition, all (but not less than all) of the outstanding Preferred Stock or Exchange Debentures may be redeemed prior to July 15, 2000 at the option of the Company for a redemption price equal to 110% of the liquidation preference of the Preferred Stock plus accrued and unpaid dividends, or 110% of the principal amount of the Exchange Debentures plus accrued and unpaid interest, to the redemption date with the proceeds of any sale by Holdings of its common stock. Upon the occurrence of a Change of Control (as defined in the Certificate of Designation relating to the Preferred Stock or the indenture relating to the Exchange Debentures), the Company is required to make an offer to purchase all of the shares of Preferred Stock or all of the Exchange Debentures at a purchase price equal to 101% of the liquidation preference of the Preferred Stock, plus accrued and unpaid dividends to the date of purchase, or 101% of the principal amount of the Exchange Debentures, plus accrued and unpaid interest to the date of purchase. The Preferred Stock will rank senior to all common stock of Holdings and upon conversion, the Exchange Debentures will be subordinate to the indebtedness of Holdings. The holders of the Preferred Stock do not have voting rights except in certain limited circumstances. The Company's Credit Agreement and various debt indentures restrict the Company's ability to, among other things, pay dividends, incur additional indebtedness, and purchase or redeem shares of capital stock. F-27 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 17. 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 411,196 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. 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 of control (as defined in such plan), 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 Plastics' plan, in the event of a public offering or a change in control (as defined in such plan), 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 of Containers held by the employee at the then pro forma book value. At December 31, 1996, there were outstanding options for 411,196 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 $2.04 to $3.54 for the Holdings options, $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, 1996, there were 318,675 options exercisable under the Holdings plan, 846 options/SARs exercisable under the Containers plan, and 420 options/SARs exercisable under the Plastics plan. For the year ended December 31, 1994, 154,197 options were granted under the Holdings plan, 240 options were granted under the Containers plan, and 900 options were granted under the Plastics plan. For the year ended December 31, 1995, 300 options were granted under the Plastics plan. There were no grants in 1996. For the years ended December 31, 1996, 1995, and 1994, no options were exercised under any of the plans. The Company incurred charges relating to the vesting of benefits under the stock option plans of $0.8 million in 1996 and 1995, and $1.5 million in 1994. F-28 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 17. Stock Option Plans (continued) In the event of a public offering of any of Holdings' capital stock or a change in control of Holdings, (i) the options granted by Containers and Plastics pursuant to the plans and (ii) any stock issued by Containers upon exercise of such options are convertible into either stock options or common stock of Holdings, as the case may be. The conversion of such options or shares will be based upon a valuation of Holdings and an allocation of such value between the subsidiaries after giving affect to, among other things, that portion of the outstanding indebtedness of Holdings allocable to each such subsidiary. For the year ended December 31, 1995, the value of the options granted under the Plastic plan were significant. Accordingly, the impact on net income and earnings per share from the issuance of these options would not be materially different from amounts currently reported and would not require SFAS No. 123 pro forma disclosure. 18. Deficiency in Stockholders' Equity Deficiency in stockholders' equity includes the following classes of common stock ($.01 par value): Shares Issued and Outstanding Class December 31, ----- ------------ 1996 1995 ---- ---- A ............ 7,153,088 7,153,088 B ............ 7,153,088 11,436,375 C ............ 856,657 856,657 ---------- ---------- 15,162,833 19,446,120 ========== ========== 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 Stock does not have voting rights except in certain circumstances. As discussed in Note 22, in connection with the initial public offering, Holdings amended its Restated Certificate of Incorporation and converted Class A, Class B and Class C Common Stock into Common Stock on a one for one basis and effected a stock split of 17.133145 to 1. F-29 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 19. Related Party Transactions Pursuant to various management services agreements (the "Management Agreements") entered into between Holdings, Silgan, Containers, Plastics, and S&H, Inc. ("S&H"), a company wholly-owned by Mr. Silver, the Chairman and Co-Chief Executive Officer of Holdings and Silgan, and Mr. 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 ("EBIDTA") until EBIDTA has reached the Scheduled Amount set forth in the Management Agreements and 3.3% (of which 0.3% is payable to MS & Co.) after EBIDTA 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 $5.3 million in 1996, $5.4 million in 1995, and $5.0 million in 1994, and was allocated, based upon EBIDTA, as a charge to operating income of each business segment. Included in accounts payable at December 31, 1996 and 1995, 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 Credit Agreement and its related amendments entered into during 1996 and 1995, the banks thereunder (including Bankers Trust Company) received fees totaling $1.6 million in 1996 and $17.2 million in 1995. 20. 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 tendered payment of $3.8 million to these former holders in 1995. 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. F-30 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 20. Litigation (continued) 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. 21. 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: Net Oper. Identifiable Dep. & Capital Sales Profit Assets Amort. Expend. ----- ------ ------ ------ ------- 1996 (Dollars in millions) - ---- Metal container & specialty(1) ..... $1,189.3 $106.1 $750.7 $44.7 $39.1 Plastic container .... 216.4 18.4 158.5 14.6 17.6 ------- ------ ------ ----- ----- Total .............. $1,405.7 $124.5 $909.2 $59.3 $56.7 ======== ====== ====== ===== ===== 1995 - ---- Metal container & specialty(1) ..... $ 882.3 $ 58.2 (2) $736.7 $31.6 $32.5 Plastic container .... 219.6 13.2 159.4 13.8 19.4 -------- ------ ------- ----- ----- Total .............. $1,101.9 $ 71.4 $896.1 $45.4 $51.9 ======== ====== ====== ===== ===== 1994 - ---- Metal container & specialty(1) ..... $ 657.1 $ 59.8 (3) $335.3 $23.1 $16.9 Plastic container .... 204.3 (0.1)(3) 162.8 14.1 12.3 -------- ------ ------- ----- ----- Total .............. $ 861.4 $ 59.7 $498.1 $37.2 $29.2 ======== ====== ====== ===== ===== (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) Includes charge for reduction in carrying value of assets of $14.7 million for the metal container segment. (3) Includes 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-31 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 21. Business Segment Information (continued) Operating profit is reconciled to income before tax as follows: 1996 1995 1994 ---- ---- ---- (Dollars in millions) Operating profit ......... $124.5 $ 71.4 $59.7 Interest expense ......... 89.4 80.7 65.8 Corporate expense ........ 1.2 1.5 1.3 ------ ------ ----- Income (loss) before income taxes ........ $ 33.9 $(10.8) $(7.4) ====== ====== ===== Identifiable assets are reconciled to total assets as follows: 1996 1995 1994 ---- ---- ---- (Dollars in millions) Identifiable assets ...... $909.2 $896.1 $498.1 Corporate assets ......... 4.3 3.9 6.2 ------ ------ ------ Total assets ........... $913.5 $900.0 $504.3 ====== ====== ====== Metal container and other segment sales to Nestle Food Company accounted for 17.1%, 21.4%, and 25.9% of net sales of the Company during the years ended December 31, 1996, 1995, and 1994, respectively. Sales to Del Monte Corporation accounted for 12.0%, 14.5%, and 21.4% of net sales of the Company during the years ended December 31, 1996, 1995, and 1994, respectively. 22. Subsequent Events Initial Public Offering On February 13, 1997, the Company's registration statement for an initial public offering ("IPO") of 5,175,000 shares of its Common Stock was declared effective by the Securities and Exchange Commission. In connection with the IPO, Holdings amended its Restated Certificate of Incorporation to change its authorized capital stock to 100,000,000 shares of Common Stock, par value $.01 per share, and 10,000,000 shares of preferred stock, par value $.01 per share. In addition, in connection with the IPO the existing Class A, Class B and Class C Common Stock of Holdings were converted to Common Stock on a one for one basis, and thereafter, Holdings effected a 17.133145 to 1 stock split. Share information and per share data have been adjusted to give effect to the amendment to Holdings' Restated Certificate of Incorporation and the stock split. F-32 SILGAN HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 22. Subsequent Events (continued) Initial Public Offering (continued) Supplementary net income per share (unaudited), assuming the repayment as of January 1, 1996 of the indebtedness, described below, from the net proceeds to the Company from the IPO, was $1.42 for the year ended December 31, 1996. Under the terms of the stock option plans of Containers and Plastics, stock options issued under such plans were converted to Holdings' options at the time of the IPO. In accordance with APB No. 25, options granted under these plans are considered variable options with a final measurement date at the time of conversion. The Company will recognize a non-cash charge of approximately $22.5 million, net of $3.7 million previously accrued, in the first quarter of 1997, for the excess of the fair market value over the grant price of these options less amounts previously accrued. Use of Proceeds The Company intends to use net proceeds from the IPO to redeem Holdings' remaining Discount Debentures (approximately $59.0 million) and to repay approximately $8.9 million of bank term loans. These debt repayments are expected to occur during the first quarter of 1997. In connection with early redemption of the remaining Discount Debentures, the Company will recognize an extraordinary charge of approximately $0.7 million, net of tax, for the write-off of unamortized deferred financing costs. F-33 SCHEDULE I CONDENSED FINANCIAL INFORMATION OF SILGAN HOLDINGS INC. CONDENSED BALANCE SHEETS December 31, 1996 and 1995 (Dollars in thousands) ASSETS 1996 1995 ---- ---- Current assets: Cash and cash equivalents .......................... $ 70 $ 10 Other current assets ............................... 74 70 -------- -------- Total current assets ............................. 144 80 Investment in and other amounts due from subsidiary .................................... -- 19,040 Notes receivable-subsidiary .......................... 1,489 1,489 Debt issuance costs and other assets ................. 3,533 3,418 -------- -------- $ 5,166 $ 24,027 ======== ======== LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY Current liabilities: Accrued expenses .................................. $ 1,339 $ 393 Amount payable to subsidiary ...................... 2,810 2,175 -------- -------- Total current liabilities ...................... 4,149 2,568 Excess of distributions over investment in subsidiary ..................................... 79,285 -- Long-term debt ....................................... 58,940 201,263 Cumulative exchangeable redeemable preferred stock .................................... 52,998 -- Deficiency in stockholders' equity: Common stock ....................................... 152 195 Additional paid-in capital ......................... 18,466 33,423 Accumulated deficit ................................ (208,824) (213,422) -------- -------- Total deficiency in stockholders' equity ......... (190,206) (179,804) -------- -------- $ 5,166 $ 24,027 ======== ======== See Notes to Consolidated Financial Statements for Silgan Holdings Inc. appearing elsewhere herein. F-34 SCHEDULE I CONDENSED FINANCIAL INFORMATION OF SILGAN HOLDINGS INC. CONDENSED STATEMENTS OF OPERATIONS For the years ended December 31, 1996, 1995 and 1994 (Dollars in thousands) 1996 1995 1994 ---- ---- ---- Net sales .................................... $ -- $ -- $ -- Cost of goods sold ........................... -- -- -- ------- -------- -------- Gross profit ............................ -- -- -- Selling, general and administrative expenses ................................... 713 1,113 837 ------- -------- -------- Loss from operations .................... (713) (1,113) (837) Equity in earnings of consolidated subsidiaries ............................... 31,611 6,806 12,053 Interest expense and other related financing costs ............................ 17,861 28,248 29,647 ------- -------- -------- Income (loss) before income taxes ....... 13,037 (22,555) (18,431) Income tax benefit ........................... 17,600 4,100 5,400 ------- -------- -------- Income (loss) before extraordinary charge 30,637 (18,455) (13,031) Extraordinary charges relating to early extinguishment of debt ............... (2,222) (3,351) -- ------- -------- -------- Net income (loss) before preferred stock dividend requirement ................ 28,415 (21,806) (13,031) Preferred stock dividend requirement ......... (3,006) -- -- ------- -------- -------- Net income (loss) available to common stockholders ................. $25,409 $(21,806) $(13,031) ======= ======== ======== See Notes to Consolidated Financial Statements for Silgan Holdings Inc. appearing elsewhere herein. F-35 SCHEDULE I CONDENSED FINANCIAL INFORMATION OF SILGAN HOLDINGS INC. CONDENSED STATEMENTS OF CASH FLOWS For the years ended December 31, 1996, 1995 and 1994 (Dollars in thousands) 1996 1995 1994 ---- ---- ---- Cash flows from operating activities: ....... $ (4,868) $ (7) $ (2) --------- -------- ------- Cash flows from investing activities: Cash distribution received from subsidiary 147,539 61,391 6,911 --------- -------- ------- Net cash provided by investing activities 147,539 61,391 6,911 --------- -------- ------- Cash flows from financing activities: Repayment of long-term debt ............... (154,400) (57,596) -- Proceeds from issuance preferred stock .... 50,000 -- -- Repurchase of common stock ................ (35,811) -- -- Debt financing costs ...................... (2,400) -- -- Payments to former shareholders of Silgan . -- (3,795) (6,911) --------- -------- ------- Net cash used by financing activities ... (142,611) (61,391) (6,911) --------- -------- ------- Net increase (decrease) in cash and cash equivalents ..................... 60 (7) (2) Cash and cash equivalents at the beginning of year ..................... 10 17 19 --------- -------- ------- Cash and cash equivalents at end of year .... $ 70 $ 10 $ 17 ========= ======== ======= See Notes to Consolidated Financial Statements for Silgan Holdings Inc. appearing elsewhere herein. F-36 SCHEDULE II SILGAN HOLDINGS INC. SCHEDULES OF VALUATION AND QUALIFYING ACCOUNTS For the years ended December 31, 1996, 1995 and 1994 (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, 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 ====== ==== ======= ==== ====== For the year ended December 31, 1996: Allowance for doubtful accounts receivable ............ $4,843 $572 $(1,041)(3) $329 $4,045 ====== ==== ======= ==== ====== (1) Uncollectible accounts written off, net of recoveries. (2) Represents the accounts receivable allowance for doubtful accounts assumed upon the acquisition of AN Can. (3) Principally represents the final purchase price allocation for the acquisition of AN Can. F-37 INDEX TO EXHIBITS Exhibit No. Exhibit - ----------- ------- 3.1 Restated Certificate of Incorporation of Holdings. 3.2 Amended and Restated By-laws of Holdings. 10.21 Silgan Holdings Inc. Fourth Amended and Restated 1989 Stock Option Plan. 10.22 Form of Holdings Nonstatutory Stock Option Agreement. 10.24 Amended and Restated Management Services Agreement, dated as of February 14, 1997 between S&H and Holdings. 10.25 Amended and Restated Management Services Agreement, dated as of February 14, 1997 between S&H and Silgan. 10.26 Amended and Restated Management Services Agreement, dated as of February 14, 1997 between S&H and Containers. 10.27 Amended and Restated Management Services Agreement, dated as of February 14, 1997 between S&H and Plastics. 10.40 Underwriting Agreement, dated as of February 13, 1997, among Holdings, Silgan, Containers, Plastics, MSLEF II, BTNY and the underwriters listed on Schedule I thereto. 10.42 Amendment to Stockholders Agreement, dated as of February 14, 1997, among R. Philip Silver, D. Greg Horrigan, MSLEF II, BTNY and Holdings. 27 Financial Data Schedule. EX-3.1 2 RESTATED CERTIFICATE OF INCORPORATION EXHIBIT 3.1 RESTATED CERTIFICATE OF INCORPORATION OF SILGAN HOLDINGS INC. PURSUANT TO SECTIONS 242 AND 245 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE SILGAN HOLDINGS INC., a Delaware corporation, the original Certificate of Incorporation of which was filed with the Secretary of State of the State of Delaware on April 6, 1989, HEREBY CERTIFIES that this Restated Certificate of Incorporation, restating, integrating and amending its Certificate of Incorporation, was duly proposed by its Board of Directors and adopted by its stockholders in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware, and that the capital of the Corporation is not being reduced under or by reason of any amendment in this Restated Certificate of Incorporation. FIRST: The name of this corporation (the "Corporation") is SILGAN HOLDINGS INC. SECOND: The address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware (the "GCL"), and, in general, to possess and exercise all the powers and privileges granted by the GCL or by any other law or by this Restated Certificate of Incorporation, together with any powers incidental thereto, so far as such powers and privileges are necessary or convenient to the conduct, promotion or attainment of the business or purposes of the Corporation. FOURTH: A. The number of directors of the Corporation constituting the entire Board of Directors shall be six. The Board of Directors shall be divided into three equal classes, with the term of office of the first class (the "Class I Directors") to expire at the 1998 annual meeting of stockholders, the term of office of the second class (the "Class II Directors") to expire at the 1999 annual meeting of stockholders and the term of office of the third class (the "Class III Directors") to expire at the 2000 annual meeting of stockholders. After the filing of this Restated Certificate of Incorporation with the Secretary of State of the State of Delaware, the stockholders of the Corporation shall elect the Board of Directors of the Corporation at the 1997 annual meeting of stockholders or by the consent in writing, in lieu of the 1997 annual meeting of stockholders, of the holders of outstanding stock of the Corporation having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Any vacancies in the Board of Directors for any reason, and any directorships resulting from any increase in the number of directors, may be filled only by the Board of Directors (and not by the stockholders), acting by a majority of the directors then in office, and any directors so chosen shall hold office until the next election of the class for which such directors shall have been chosen and until their successors shall be elected and qualified. Notwithstanding the foregoing, and except as otherwise required by law, whenever the holders of any one or -2- more series of Preferred Stock (as defined in Article SIXTH) shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the terms of the director or directors elected by such holders shall expire at the next succeeding annual meeting of stockholders. Subject to the foregoing, at each annual meeting of stockholders the successors to the class of directors whose term shall then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting. B. At all meetings of the Board of Directors, a majority of the Directors then in office shall be required to constitute a quorum ("Quorum") for the transaction of business. The approval of a majority of the entire Board of Directors, at a meeting at which a Quorum is present and acting throughout, shall be required to approve all matters submitted to the Board of Directors; provided, however, that the approval of a majority of the members of any committee of the Board of Directors shall be required to approve all matters submitted to such committee. C. Notwithstanding any other provisions of this Certificate of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, this Certificate of Incorporation or the ByLaws of the Corporation), any director or the entire Board of Directors of the Corporation may be removed at any time, but only for cause and only by the affirmative vote of the holders of 75% or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose. Notwithstanding the foregoing, and except as otherwise required -3- by law, whenever the holders of any one or more series of Preferred Stock shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the provisions of Section C of this Article shall not apply with respect to the director or directors elected by such holders of Preferred Stock. D. There shall be an Audit Committee consisting of two or more of the directors of the Corporation, who shall perform such functions as shall be established by the Board of Directors. FIFTH: The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, provided that the Corporation may retain such qualified persons (as determined by the Board of Directors) to provide the Corporation with general management, supervision and administrative services relating to the operations of the Corporation. Except as specifically authorized by the Board of Directors, approval of the following actions shall not be delegated to any officer, employee or agent of the Corporation: 1. Amendment of the Certificate of Incorporation or By-Laws of the Corporation or any of its subsidiaries. 2. Issuance, sale, purchase or redemption of any capital stock, warrants, options or other securities of the Corporation or any of its subsidiaries (other than, in the case of any issuance or sale, to the Corporation or any direct or indirect wholly owned subsidiary of the Corporation) except as may be otherwise provided in this Restated Certificate of Incorporation. -4- 3. Sale of assets other than inventory to or from the Corporation or any of its subsidiaries in excess of $2 million (i) in one or a series of related transactions (regardless of the period of time in which such transaction or series of related transactions take place) or (ii) in any number of transactions within a six-month period. 4. Merger, consolidation, dissolution or liquidation of the Corporation or any of its subsidiaries. 5. Filing of any petition by or on behalf of the Corporation seeking relief under the federal bankruptcy act or similar relief under any law or statute of the United States or any state thereof. 6. Setting aside, declaration or making of any payment or distribution by way of dividend or otherwise to the Corporation's stockholders (or setting dividend policy). 7. Incurrence (other than in the ordinary course of business) of new indebtedness (including capitalized leases, but excluding indebtedness incurred pursuant to debt instruments of the Corporation in existence on the date hereof and excluding indebtedness and guarantees thereof incurred under the Bank Financing (as defined in Article NINTH) pursuant to commitments approved by the Board of Directors) or any fixed or contingent liabilities in excess of $2 million. 8. Creation or incurrence of a lien or encumbrance on the property of the Corporation or any of its subsidiaries, except for liens relating to the Bank Financing or other minor liens, including liens for taxes or those arising by operation of law, permitted to exist under the terms of the Bank Financing. -5- 9. Guarantees in excess of $1 million of payment by or performance of obligations of third parties other than in the ordinary course of business. 10. The Corporation's institution of, termination or settlement of litigation not in the ordinary course of the Corporation's business (in each case where such litigation represents a case or controversy in excess of $2 million). 11. Surrendering or abandoning any property, tangible or intangible, or any rights having a book value in excess of $1 million. 12. Except as set forth in subsection 16 below with respect to leases which are not capitalized, any commitment of the Corporation (other than in the ordinary course of its business) which creates a liability or commitment in excess of $2 million. 13. Capital expenditures in excess of the amounts permitted under the Bank Financing. 14. Donations of money or property in excess of $100,000 in a single year. 15. Any investment of the Corporation or any of its subsidiaries in another corporation, partnership or joint venture in excess of $2 million (in one or a series or related transactions or in any number of transactions within six months). 16. Entering into any lease (other than a capitalized lease which shall be subject to the limitation set forth in subsection 12 above) of any assets of the Corporation located in any one place having a book value in excess of $4 million, or in excess of $1 million if the lease has a term of more than five years. -6- 17. Entering into agreements or material transactions between the Corporation and a director or officer of any of the following companies or their Affiliates (as defined in Article NINTH): the Corporation and The Morgan Stanley Leveraged Equity Fund II, L.P., a Delaware limited partnership. 18. Replacement of independent accountants for the Corporation or any of its subsidiaries. 19. Modification of significant accounting methods, practices, procedures and policies. 20. Removal of officers. 21. Termination of, or amendment or waiver of any provision of, the Amended and Restated Management Services Agreement between the Corporation and S&H Inc. SIXTH: The total number of shares of capital stock which the Corporation shall have authority to issue is 110,000,000 shares, consisting of 100,000,000 shares of common stock, par value $.01 per share (the "Common Stock"), and 10,000,000 shares of preferred stock, par value $.01 per share (the "Preferred Stock"). A. The rights, privileges and powers, including the voting powers, of each share of the Common Stock shall be identical, with each share of the Common Stock being entitled to one vote on all matters to come before the stockholders of the Corporation. Subject to any voting rights that may be conferred upon the holders of any series of the Preferred Stock established by the Board of Directors of the Corporation pursuant to authority herein provided, and except as otherwise provided herein or by law, the affirmative vote of the holders of not less than a majority of the outstanding shares of Common Stock shall be required for the approval of any matter to come before the -7- stockholders of the Corporation. Except as expressly provided in the third sentence of Article FOURTH hereof, no action required to be taken or which may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, and the stockholders of the Corporation may not consent in writing, without a meeting, to the taking of any action. B. The Board of Directors of the Corporation may cause dividends to be paid to the holders of shares of Common Stock out of funds legally available for the payment of dividends by declaring an amount per share as a dividend. When and as dividends are declared, other than dividends declared with respect to any outstanding Preferred Stock, whether payable in cash, in property or in shares of stock of the Corporation, the holders of Common Stock shall be entitled to share equally, share for share, in such dividends. C. Shares of Preferred Stock of the Corporation may be issued from time to time in one or more classes or series, each of which class or series shall have such distinctive designation or title as shall be fixed by the Board of Directors of the Corporation prior to the issuance of any shares thereof. Each such class or series of Preferred Stock shall have such voting powers, full or limited, or no voting powers, and such preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated in such resolution providing for the issue of such class or series of Preferred Stock as may be adopted from time to time by the Board of Directors prior to the issuance of any shares thereof pursuant to -8- the authority hereby expressly vested in it, all in accordance with the laws of the State of Delaware. SEVENTH: A. The Executive Officers of the Corporation shall be the Chairman of the Board of Directors, who shall preside at all meetings of the stockholders and of the Board of Directors, and the President. All officers of the Corporation shall serve until voluntary resignation or retirement, or removal by the Board of Directors in accordance with the provisions set forth herein. Any number of offices may be held by the same person, unless otherwise prohibited by law, this Restated Certificate of Incorporation or the By-Laws of the Corporation. The officers of the Corporation need not be stockholders of the Corporation nor, except in the case of the Chairman of the Board of Directors, need such officers be directors of the Corporation. B. The Chairman of the Board and the President of the Corporation shall be nominated and elected to their positions, and may be removed from their positions, by a majority of the Board of Directors. All of the other officers of the Corporation shall be nominated by the Chairman of the Board and the President, and such other officers shall be elected to their positions, and may be removed from their positions, by a majority of the Board of Directors. C. All officers of the Corporation shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors; and all officers of the Corporation shall hold office until their successors are chosen and qualified, or until their earlier resignation or removal. The salaries of all officers of the Corporation shall be fixed by the Board of Directors. -9- EIGHTH: In furtherance and not in limitation of the powers conferred by statute, the By-Laws of the Corporation may be altered, amended or repealed in whole or in part, or new ByLaws may be adopted by approval of a majority of the Board of Directors voting at a meeting of the Board of Directors at which a Quorum is present and acting throughout. NINTH: As used in this Restated Certificate of Incorporation, the following terms shall have the meanings indicated below: 1. "Affiliate" shall mean with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with such Person. For the purpose of this definition, (i) the term "control" (including with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as used with respect to any person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise, and (ii) the term "Person" shall mean any individual, partnership, corporation, joint venture, firm, limited liability company, association, trust or other enterprise or any government or political subdivision or any agency, department or instrumentality thereof. 2. "Bank Financing" shall mean the Credit Agreement, dated as of August 1, 1995, among Silgan Corporation, Silgan Containers Corporation, Silgan Plastics Corporation, the lenders from time to time party thereto, Bank of America Illinois, as Documentation Agent and a Co-Arranger, and Bankers Trust Company, as Administrative Agent and a Co-Arranger, as in effect from time -10- to time, and any refinancings, renewals, amendments or extensions thereof or additional borrowings thereunder. TENTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Restated Certificate of Incorporation in the manner now or hereafter prescribed by law, provided that (i) the resolution approving such amendment, alteration, change or repeal be adopted by the Board of Directors by approval of a majority of the entire Board of Directors, at a meeting at which a Quorum is present and acting throughout and (ii) the proposed amendment, alteration, change or repeal be approved by a majority of the outstanding shares of Common Stock. ELEVENTH: A. The Corporation shall indemnify to the fullest extent permitted by law (as now or hereafter in effect) any person, his testator or intestate, made, or threatened to be made, a defendant or involved in any manner in any action, suit or proceeding (whether civil, criminal, administrative, investigative or otherwise) by reason of the fact that he, is or was a director, officer, employee or agent of the Corporation or by reason of the fact that such director, officer, employee or agent, at the request of the Corporation, is or was serving any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, in any capacity. The payment of any amounts to any person pursuant to this Article ELEVENTH shall subrogate the Corporation to any right such person may have against any other person or entity. The rights conferred in this Article ELEVENTH shall be contract rights. Nothing contained herein shall affect any rights to indemnification to which employees other than directors and officers may be entitled to by law. No amendment or repeal of this paragraph A of Article -11- ELEVENTH shall apply to or have any effect on any right to indemnification provided hereunder with respect to any acts or omissions occurring prior to such amendment or repeal. B. No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty by such a director as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the GCL, or (iv) for any transaction from which such director derived an improper personal benefit. No amendment to or repeal of this paragraph B of Article ELEVENTH shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. C. In furtherance and not in limitation of the powers conferred by statute: (i) the Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of law; and -12- (ii) the Corporation may create a trust fund, grant a security interest and/or use other means (including, without limitation, letters of credit, surety bonds and/or other similar arrangements), as well as enter into contracts providing indemnification to the full extent authorized or permitted by law and including as part thereof provisions with respect to any or all of the foregoing to ensure the payment of such amounts as may become necessary to effect indemnification as provided therein, or elsewhere. TWELFTH: Meetings of stockholders may be held within or without the State of Delaware, as the By-Laws of the Corporation may provide. The books of the Corporation may be kept (subject to any provision contained in the GCL) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the By-Laws of the Corporation. IN WITNESS WHEREOF, SILGAN HOLDINGS INC. has caused this Restated Certificate of Incorporation to be executed in its corporate name by its Chairman on the 11th day of February, 1997. SILGAN HOLDINGS INC. By: /s/ R. Philip Silver ______________________________ Name: R. Philip Silver Title: Chairman of the Board -13- EX-3.2 3 AMENDED AND RESTATED BY-LAWS EXHIBIT 3.2 AMENDED AND RESTATED BY-LAWS OF SILGAN HOLDINGS INC. (hereinafter called the "Corporation") ARTICLE I OFFICES ------- Section 1. Registered Office. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine. ARTICLE II MEETINGS OF STOCKHOLDERS ------------------------ Section 1. Place of Meetings. Meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual Meetings. The annual meetings of stockholders shall be held on such date and at such time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which meetings the stockholders shall elect the class of directors of the Board of Directors standing for election, and transact such other business as may properly be brought before the meeting. Section 3. Special Meetings. Unless otherwise prescribed by law or by the Certificate of Incorporation of the Corporation (the "Certificate of Incorporation"), special meetings of stockholders, for any purpose or purposes may be called by either the Chairman of the Board or the President, and shall be called by any such officer at the request in writing of a majority of the Board of Directors. Such request shall state the purpose or purposes of the proposed meeting. Stockholders are not permitted to call a special meeting of stockholders, or to require that the Chairman of the Board or the President call such a special meeting, or to require that the Board request the calling of such a special meeting. Section 4. Quorum. Except as otherwise provided by law or by the Certificate of Incorporation, the holders of a majority of the stock of the Corporation, issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. In the event of a lack of quorum, the chairman of the meeting or a majority in interest of the stockholders present in person or represented by proxy may adjourn the meeting from time to time without notice other than announcement at the meeting until a quorum shall be obtained. At any such adjourned meeting at which there is a quorum, any business may be transacted which might have been transacted at the meeting originally called. -2- Section 5. Voting. At each meeting of the stockholders, every stockholder having the right to vote shall be entitled to vote, in person or by proxy appointed by an instrument in writing subscribed by such stockholder and bearing a date not more than three years prior to said meeting, unless said instrument provides for a longer period. Unless otherwise provided in the Certificate of Incorporation, each stockholder shall have one vote for each share of stock having voting power registered in his name on the books of the Corporation on the date fixed as the record date for the determination of stockholders entitled to vote. The vote for directors, and, upon the demand of any stockholder, the vote upon any question before the meeting, shall be by ballot. Directors shall be elected by the vote of the holders of stock of the Corporation having voting power with respect to the election of directors as provided in the Certificate of Incorporation. Except as otherwise provided by law, by the Certificate of Incorporation or by these By-Laws, all other matters submitted to the meeting shall be decided by a majority of all outstanding shares of stock of the Corporation entitled to vote on such matters. All proxies shall be filed with the Secretary. Section 6. List of Stockholders Entitled to Vote. The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder -3- and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder of the Corporation who is present. Section 7. Stock Ledger. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 6 of this Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. ARTICLE III DIRECTORS --------- Section 1. Number and Election of Directors. The number of directors of the Corporation shall be as prescribed in the Certificate of Incorporation. The directors of the Corporation shall be elected as prescribed in the Certificate of Incorporation. Section 2. Vacancies. In the event that any vacancy among the Directors shall occur at any time prior to the next -4- annual meeting of stockholders, such vacancy shall be filled in accordance with the provisions of the Certificate of Incorporation. Section 3. Duties and Powers. Except as otherwise prescribed by law or by the Certificate of Incorporation, the Board of Directors shall have and exercise all the powers belonging to or pertaining to the Corporation. Section 4. Meetings. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held with 48 hours prior notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman of the Board, the President or any member of the Board of Directors. Written notice thereof stating the place, date and hour of the meeting shall be given to each director not less than seventy-two (72) hours before the date of the meeting. Section 5. Quorum; Actions of Board at a Meeting. The requirements for a quorum and actions of the Board of Directors at a meeting of such Board shall be as provided in the Certificate of Incorporation. Section 6. Actions of Board Without a Meeting. Except as may be otherwise provided by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board -5- of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Section 7. Meetings by Means of Conference Telephone. Except as may be otherwise provided by the Certificate of Incorporation or these By-Laws, members of the Board of Directors of the Corporation, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 7 shall constitute presence in person at such meeting. Section 8. Committees. Except as may be otherwise specifically provided by the Certificate of Incorporation or these By-Laws, the Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. Any committee, to the extent allowed by law and provided in the resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation. Each committee shall keep regular minutes and report to the Board of Directors when required. A majority of the members of any such committee shall constitute a quorum for the transaction of business by the committee and the act of a majority of the members of the committee present at a meeting at which a quorum shall be present -6- shall be the act of the committee. Any director may be removed from any such committee with or without cause by the affirmative vote of a majority of the entire Board. Section 9. Compensation. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. Section 10. Interested Directors. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose if (i) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of -7- the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors or a committee thereof. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. ARTICLE IV OFFICERS -------- Section 1. General. Except as otherwise provided in the Certificate of Incorporation, the day-to-day operations of the Corporation shall be managed by its Executive Officers, who shall be the Chairman of the Board and the President, and its other officers. These officers shall perform their duties in a manner consistent with directions which may be given from time to time by the Board of Directors. Section 2. Chairman of the Board. The Chairman of the Board, if there shall be one, shall preside at all meetings of the stockholders and of the Board of Directors. Except where by law the signature of the President is required, the Chairman of the Board shall possess the same power as the President to sign -8- all contracts, certificates and other instruments of the Corporation. During the absence or disability of the President, the Chairman of the Board shall exercise all the powers and discharge all the duties of the President. The Chairman of the Board shall also perform such other duties and may exercise such other powers as from time to time may be assigned to him by these By-Laws or by the Board of Directors. Section 3. President. The President shall supervise and manage the conduct of the current business of the Corporation and may exercise any of the powers of the Chairman of the Board that shall have been delegated to him by that officer or conferred upon him by the Board of Directors. He shall act for and on behalf of the Corporation on matters in which action by the President, as such, is required by law. He shall do and perform all acts and things incident to the position of President, other than such as are charged upon the Chairman, and such other duties as may be assigned to him from time to time by the Chairman of the Board or by the Board of Directors. Section 4. Vice-Presidents. At the request of the President or in his absence or in the event of his inability or refusal to act (and if there shall be no Chairman of the Board), the Vice-President, or the Vice-Presidents if there is more than one (in the order designated by the Board of Directors), shall perform the duties of the President and, when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Each Vice-President shall perform such other duties and have such other powers as the Board of Directors from -9- time to time may prescribe. If there shall be no Chairman of the Board and no Vice-President, the Board of Directors shall designate the officer of the Corporation who, in the absence of the President or in the event of the inability or refusal of the President to act, shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Section 5. Controller. The Controller, if there shall be one, shall exercise general supervision of the bookkeeping methods of the Corporation and shall supervise and be responsible for all matters pertaining to the auditing and accounting functions of the Corporation. He shall render periodically such balance sheets, earnings statements and other reports relating to the business of the Corporation as may be required by the Board of Directors, the Chairman of the Board, the President, the Audit Committee, if there shall be any, or any other authorized officer of the Corporation. Section 6. Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of stockholders and record all the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or the President, under whose supervision he shall be. If the Secretary shall be unable -10- or shall refuse to cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, and if there shall be no Assistant Secretary, then either the Board of Directors or the President may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation and the Secretary or any Assistant Secretary, if there shall be one, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be. Section 7. Treasurer. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account -11- of all his transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. Section 8. Assistant Controller. An Assistant Controller, if there shall be one, shall perform the duties and have the powers of the Controller during the absence or disability of the Controller, and shall perform such other duties and have such other powers as the Board of Directors or Controller shall designate from time to time. Section 9. Assistant Secretaries. Except as may be otherwise provided in these By-Laws, Assistant Secretaries, if there shall be any, shall perform such duties and have such powers as may be assigned to them by the Board of Directors, the Chairman of the Board, the President, any Vice-President, if there shall be one, or the Secretary, and in the absence of the Secretary or in the event of his disability or refusal to act, shall perform the duties of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary. -12- Section 10. Assistant Treasurers. Assistant Treasurers, if there shall-be any, shall perform such duties and have such powers from time to time as may be assigned to them by the Board of Directors, the Chairman of the Board, the President, any Vice-President, if there shall be one, or the Treasurer, and in the absence of the Treasurer or in the event of his disability or refusal to act, shall perform the duties of the Treasurer and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer. If required by the Board of Directors, an Assistant Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. Section 11. Other Officers. Such other officers as the Board of Directors may choose shall perform such duties and have such powers from time to time as may be assigned to them by the Board of Directors. The stockholders of the Corporation may delegate to any other officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers. Section 12. Voting Securities Owned by the Corporation. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities -13- owned by the Corporation may be executed in the name of and on behalf of the Corporation by the President or any Vice-President and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any Corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities which, as the owner thereof the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons. ARTICLE V STOCK ----- Section 1. Form of Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate signed, in the name of the Corporation (i) by the Chairman of the Board, the President or a Vice-President and (ii) by the Secretary or an Assistant Secretary, certifying the number of shares owned by him in the Corporation. Section 2. Signatures. Where a certificate is countersigned by (i) a transfer agent other than the Corporation or its employee, or (ii) a registrar other than the Corporation or its employee, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a -14- certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Section 3. Lost Certificates. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed, which affidavit shall be satisfactory in form and substance to the Secretary or Assistant Secretary. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or his legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 4. Transfers. Stock of the Corporation shall be transferable in the manner prescribed by law, by that certain Stockholders Agreement, dated as of December 21, 1993, among R. Philip Silver, D. Greg Horrigan, The Morgan Stanley Leveraged Equity Fund II, L.P., Bankers Trust New York Corporation, First Plaza Group Trust and the Corporation, as the same may be amended from time to time, and by these By-Laws. Transfers of stock -15- shall be made on the books of the Corporation only by the person named in the certificate or by his attorney lawfully constituted in writing and upon the surrender of the certificate therefor, which shall be canceled before a new certificate shall be issued. Section 5. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and which shall not be more than sixty days nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 6. Beneficial Owners. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares -16- on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. ARTICLE VI NOTICES ------- Section 1. Notices. Whenever written notice is required by law, the Certificate of Incorporation or these ByLaws, to be given to any director, member of a committee or stockholder, such notice may be given by mail, addressed to such director, member of a committee or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be actually received. Written notice may also be given personally or by telegram, telex or cable. Section 2. Waivers of Notice. Whenever any notice is required by law, the Certificate of Incorporation or these ByLaws, to be given to any director, member of a committee or stockholder, a waiver thereof in writing, signed, by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. -17- ARTICLE VII GENERAL PROVISIONS ------------------ Section 1. Dividends. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, and may be paid in cash, in property, or in shares of capital stock of the Corporation. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve. Section 2. Disbursements. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. Section 3. Fiscal Year. The fiscal year of the Corporation shall be the calendar year. Section 4. Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. -18- ARTICLE VIII INDEMNIFICATION --------------- Section 1. Power to Indemnify in Actions, Suits or Proceedings Other than Those by or in the Right of the Corporation. Subject to Section 3 of this Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or -19- proceeding, had reasonable cause to believe that his conduct was unlawful. Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation. Subject to Section 3 of this Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. -20- Section 3. Authorization of Indemnification. Any indemnification under this Article VIII (unless ordered by a court) shall be made by the Corporation as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 1 and 2 of this Article VIII. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. To the extent, however, that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith without the necessity of authorization in the specific case. Section 4. Good Faith Defined. For purposes of any determination under Section 3 of this Article VIII, a person shall be deemed to have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe his conduct was unlawful, if his action is based on the records or -21- books of account of the Corporation or another enterprise, or on information supplied to him by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The term "another enterprise" as used in this Section 4 shall mean any other corporation or any partnership, joint venture, trust or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. The provisions of this Section 4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standards of conduct set forth in Sections 1 and 2 of this Article VIII. Section 5. Indemnification by a Court. Notwithstanding any contrary determination in the specific case under Section 3 of this Article VIII, and notwithstanding the absence of any determination thereunder, any director, officer, employee or agent may apply to any court of competent jurisdiction in the State of Delaware for indemnification to the extent otherwise permissible under Sections 1 and 2 of this Article VIII. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director, officer, employee or agent is proper in the -22- circumstances because he has met the applicable standards of conduct set forth in Sections 1 and 2 of this Article VIII. Notice of any application for indemnification pursuant to this Section 5 shall be given to the Corporation promptly upon the filing of such application. If successful, in whole or in part, the director, officer, employee or agent seeking indemnification shall also be entitled to be paid the expense of prosecuting such application. Section 6. Expenses Payable in Advance. Expenses incurred by an officer or director in defending a civil or criminal action, suit or proceeding or administrative proceeding or investigation may be paid by the Corporation in advance of the final disposition of such action, suit, proceeding or investigation upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article VIII. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. Section 7. Non-exclusivity and Survival of Indemnification. The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any By-Law, agreement, vote of stockholders or disinterested directors or otherwise, both as to -23- action in his official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in Sections 1 and 2 of this Article VIII shall be made to the fullest extent permitted by law. The provisions of this Article VIII shall not be deemed to preclude the indemnification of any person who is not specified in Sections 1 or 2 of this Article VIII but whom the Corporation has the power or obligation to indemnify under the provisions of the General Corporation Law of the State of Delaware, or otherwise. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person. Section 8. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article VIII. -24- Section 9. Meaning of "Corporation" for Purposes of Article VIII. For purposes of this Article VIII, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. Section 10. Subrogation. The payment of any amounts to any person pursuant to this Article VIII shall subrogate the Corporation to any right such person may have against any other person or entity. The rights conferred in this Article VIII shall be contract rights. -25- ARTICLE IX AMENDMENTS ---------- Section 1. These By-Laws may be altered, amended or repealed, in whole or in part, or new By-Laws may be adopted in accordance with the provisions of the Certificate of Incorporation. -26- EX-10.21 4 FOURTH AMENDED AND RESTATED 1989 STOCK OPTION PLAN EXHIBIT 10.21 SILGAN HOLDINGS INC. FOURTH AMENDED AND RESTATED 1989 STOCK OPTION PLAN I. PURPOSE OF PLAN; DEFINITIONS. 1.1 Purpose. The purpose of the Silgan Holdings Inc. Fourth 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 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 registration statement, registered under the Securities Act of 1933, as amended. "S&H Stockholders" shall mean R. Philip Silver and D. Greg Horrigan. -2- "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. No member of the Committee shall be liable for any action, failure to act, determination or interpretation made in good faith with respect -3- 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. Notwithstanding anything herein to the contrary, during the initial term of the Amended and Restated Management Services Agreement dated as of February 12, 1997 by and between S&H, Inc. and the Company (i.e., until June 30, 1999, unless such initial term is terminated for any reason prior to the expiration thereof), Options may be granted under this Plan to either of the S&H Stockholders if, and only if, any such grant of Options is approved by (i) a majority of the members of the Committee (which majority must include a majority of the members of the Committee excluding any of the S&H Stockholders that are members of the Committee) and (ii) a majority of the members of the Board of Directors (which majority must include a majority of the members of the Board of Directors excluding any of the S&H Stockholders that are members of the Board of Directors). 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 the sum of (i) 124,000 shares plus (ii) such number of shares issuable upon exercise of all -4- 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, with such sum being 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. 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; provided, however, the Option Price for an ISO shall not be less than the Fair Market Value of the Common Stock covered by the Option at the time of grant. 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 or as otherwise determined by the Committee, 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. -5- 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 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 other 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. -6- 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 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. -7- 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 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 as set forth in Section 2.3 hereof 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 -8- 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): (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. -9- 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. 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 -10- 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 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 -11- 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 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 the date that is ten (10) years less one day from the date executed below 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 14th day of February, 1997. SILGAN HOLDINGS INC. By /s/ R. Philip Silver --------------------------------------- Title Co-Chief Executive Officer ------------------------------------ -12- EX-10.22 5 FORM OF NONSTATUTORY STOCK OPTION AGREEMENT EXHIBIT 10.22 FORM OF SILGAN HOLDINGS INC. NONSTATUTORY STOCK OPTION AGREEMENT THIS AGREEMENT is dated as of the ___ day of ________, ____, by and between Silgan Holdings Inc., a Delaware corporation (the "Company"), and _________________ (the "Optionee"). W I T N E S S E T H: WHEREAS, the Stock Option Plan Committee under the Silgan Holdings Inc. Fourth Amended and Restated 1989 Stock Option Plan (the "Plan") has determined to grant to the Optionee, an [officer and employee] of the Company, nonstatutory stock options under the Plan to purchase ________ shares of Common Stock, par value $.01 per share, of the Company (the "Common Stock"); and WHEREAS, terms not otherwise defined herein shall have the meanings assigned to such terms in the Plan. NOW, THEREFORE, the parties hereto agree as follows: 1. Grant of Option. The Company hereby grants on the date hereof (the "Date of Grant") to the Optionee the right and option (the "Option") to purchase, in accordance with the Plan and on the terms and conditions of the Plan and those hereinafter set forth, all or any part of an aggregate of ________ shares of Common Stock at the price of $________ per share (the "Option Price"), exercisable from time to time subject to the provisions of this Agreement prior to the close of business on _____________ ____, _____ (the "Expiration Date"). Such price equals the Option Price as defined in the Plan. 2. Exercisability of Option. Except as otherwise provided in this Agreement, on or after _________________, _____, the Option may be exercised from time to time for the number of shares of Common Stock as follows: Date After Which Option Installment May Be Exercised Number of Shares ------------------ ---------------- ; provided, however, that the Option may not be exercised as to less than ten (10) shares of Common Stock at any one time unless the number of shares of Common Stock purchased is the total number at the time available for purchase under an installment of the Option. If the Optionee does not in any given installment period purchase all of the shares of Common Stock which he or she is entitled to purchase in such installment period, the Optionee's right to purchase any shares of Common Stock not so purchased shall continue until the Expiration Date, unless theretofore terminated in accordance with the provisions hereof and of the Plan. The Option may be exercised only as to whole shares; fractional share interests shall be disregarded except that they may be accumulated. 3. Method of Exercise and Payment. Each exercise of an installment of the Option shall be by means of written notice of exercise delivered to the Company, specifying the number of whole shares of Common Stock with respect to which the Option is being exercised, together with any written statements required pursuant to Section 9 hereof and payment of the Option Price in full in cash or by check payable to the order of the Company. The Optionee may also deliver, in payment of a portion or all of the Option Price, certificates for Common Stock, which shall be valued at the Fair Market Value of such Common Stock, as defined in Section 1.2 of the Plan, on the date of exercise of the Option. 4. Continuance of Employment. Nothing contained in this Agreement or in the Plan shall confer upon the Optionee any right to continue in the employ of the Company or a Subsidiary or shall interfere in any way with the rights of the Company or of such Subsidiary, which are hereby reserved, to reduce the Optionee's compensation from the rate in existence on the Date of Grant or to change the Optionee's position or duties or to demote or terminate the Optionee's employment for any reason. 5. Effect of Termination of Relationship. The Option and all other rights hereunder, to the extent such rights shall not have been exercised, shall terminate and become null and void at such time as the Optionee ceases to be an officer of or employed by either the Company or a Subsidiary; provided, however, that in the event the Optionee's removal or resignation from office or termination of employment is other than voluntary, the Optionee may at any time within any applicable period specified in Sections 5(a) and 5(b) below, exercise the Option, to the extent, and only to the extent, installments of the Option had become exercisable as of the date of such removal, resignation, termination, death or permanent disability: (a) up to ninety (90) days after removal or resignation from office or termination of employment, other than termination for death or permanent disability; or -2- (b) up to twelve (12) months after the Optionee's death or permanent disability if the Optionee dies or is permanently disabled while in the employ of the Company or a Subsidiary or during the period referred to in Section 5(a). During the period after death, the Option may, to the extent exercisable on the date of death or earlier termination, be exercised by the person or persons to whom the Optionee's rights under the Plan and this Agreement shall pass by will or by the applicable laws of descent and distribution. Unless sooner terminated pursuant to the Plan, the Option shall expire at the end of the applicable period specified in Section 5(a) and 5(b) above, to the extent not exercised within that period. Notwithstanding any other provision of the Plan and this Agreement, the Option shall terminate on the date of termination of employment for any reason (including death or permanent disability) to the extent that the Option is not exercisable on the date of such termination of employment. In no event may the Option be exercised by any person after the Expiration Date. 6. Non-Assignability of Option. Subject to the provisions of Section 5 above and of the Plan, the Option and all other rights and privileges conferred hereby are not transferable or assignable and may not be offered, sold, pledged, hypothecated or otherwise disposed of in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment, garnishment, levy or similar process. During the Optionee's lifetime, the Option may be exercised only by the Optionee or, subject to the provisions of Section 5 and within the period specified in Section 5(b) after his or her death, by his or her transferees by will or under the laws of descent and distribution, and not otherwise, regardless of any community property or other interest therein of the Optionee's spouse or such spouse's successor in interest. In the event that the spouse of the Optionee shall have acquired a community property interest in the Option, the Optionee, or such transferees, may exercise it on behalf of the spouse of the Optionee or such spouse's successor in interest. 7. Adjustments and Other Rights. The rights of the Optionee hereunder are subject to adjustments and modifications in certain circumstances and upon occurrence of certain events including a reorganization, merger, combination, recapitalization, reclassification, stock split, reverse stock split, stock dividend or stock consolidation, as set forth in Section 4.1 of the Plan. 8. Optionee Not a Stockholder. Neither the Optionee nor any other person entitled to exercise the Option shall have any of the rights or privileges of a stockholder of the Company as to any shares of Common Stock not actually issued and delivered to him or her. No adjustment will be made for dividends or other rights for which the record date is prior to the date on -3- which such stock certificate or certificates are issued even if such record date is subsequent to the date upon which notice of exercise was delivered and the tender of payment was accepted. 9. Application of Securities Laws. No shares of Common Stock may be purchased pursuant to the Option unless and until any then applicable requirements of the Securities and Exchange Commission and any other regulatory agencies, including any other state securities law commissioners having jurisdiction over the Company or such issuance, and any exchanges upon which the Common Stock may be listed, shall have been fully satisfied. The Optionee represents, agrees and certifies that: (a) if the Optionee exercises the Option in whole or in part at a time when there is not in effect under the Securities Act of 1933, as amended (the "Act"), a registration statement relating to the Common Stock issuable upon exercise of the Option, the Optionee will acquire the Common Stock issuable upon such exercise for the purpose of investment and as a condition to each such exercise, he or she will furnish to the Company a written statement to such effect, satisfactory in form and substance to the Company; and (b) if and when the Optionee proposes to publicly offer or sell the Common Stock issued to him or her upon exercise of the Option, the Optionee will notify the Company prior to any such offering or sale and will abide by the opinion of counsel to the Company as to whether and under what conditions and circumstances, if any, he or she may offer and sell such shares, but such procedure need not be followed if the Common Stock issued to the Optionee is registered under the Act and is listed on a national securities exchange or quoted on NASDAQ. The Optionee understands that the certificate or certificates representing the Common Stock acquired pursuant to the Option may bear a legend referring to the foregoing matters and any limitations under the Act and state securities laws with respect to the transfer of such Common Stock, and the Company may impose stop transfer instructions to implement such limitations, if applicable. Any person or persons entitled to exercise the Option under the provisions of Section 5 above shall be bound by and obligated under the provisions of this Section 9 to the same extent as is the Optionee. 10. Notices. Any notice to be given to the Company under the terms of this Agreement or pursuant to the Plan shall be in writing and addressed to the Secretary of the Company at its principal office and any notice to be given to the Optionee shall be addressed to him or her at the address given beneath the Optionee's signature hereto, or at such other address as either party may hereafter designate in writing to the other party. Any such notice shall be deemed to have been duly given when enclosed in a properly sealed envelope addressed as aforesaid, registered or certified, and deposited (postage and -4- registry or certification fee prepaid) in a post office or branch post office regularly maintained by the United States Government. 11. Effect of Agreement. The Agreement shall be assumed by, be binding upon and inure to the benefit of any successor or successors of the Company to the extent provided in the Plan. 12. Withholding. The provisions of Section 4.5 of the Plan are hereby incorporated and, among other things, shall govern the Company's right to condition the issuance of certificates for, or a transfer of, Common Stock upon compliance with the applicable withholding requirements of federal, state and local authorities. 13. Fourth Amended and Restated 1989 Stock Option Plan. The Option and this Agreement are subject to, and the Company and the Optionee agree to be bound by, all of the terms and conditions of the Plan, including, without limitation, Section 4.2 of the Plan. The Optionee acknowledges receipt of a copy of the Plan, which is made a part hereof by this reference. The rights of the Optionee are subject to limitations, adjustments, modifications, suspension and termination in certain circumstances and upon the occurrences of certain conditions as set forth in the Plan. In the event of any inconsistency in the terms of this Agreement and the Plan, the terms of the Plan shall control. 14. Laws Applicable to Construction. The Option has been granted, executed and delivered as of the day and year first above written in New York, New York, and the interpretation, performance and enforcement of the Option and this Agreement shall be governed by the laws of the State of New York. -5- IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf by a duly authorized officer and the Optionee has hereunto set his or her hand as of the date and year first above written. SILGAN HOLDINGS INC. By:---------------------------------- Title: OPTIONEE - ----------------------------------- (Signature) - ----------------------------------- (Print Name) - ----------------------------------- (Address) - ----------------------------------- (City, State, Zip Code) - ----------------------------------- (Social Security Number) -6- EX-10.24 6 AMENDED AND RESTATED MANAGEMENT SERVICES AGREEMENT EXHIBIT 10.24 AMENDED AND RESTATED MANAGEMENT SERVICES AGREEMENT This Amended and Restated Management Services Agreement (the "Agreement") is made as of this 14th day of February, 1997 by and between S&H INC., a Connecticut corporation ("S&H"), and SILGAN HOLDINGS INC., a Delaware corporation ("Holdings"). W I T N E S S E T H: WHEREAS, S&H and Holdings have entered into the Amended and Restated Management Services Agreement dated as of December 21, 1993 (the "Original Management Services Agreement"), pursuant to which S&H provides general management, supervision, administrative and other services to Holdings in accordance with the terms of the Original Management Services Agreement; WHEREAS, S&H also is a party to an Amended and Restated Management Services Agreement dated as of December 21, 1993 with each of Silgan Corporation, a wholly owned subsidiary of Holdings ("Silgan"), Silgan Containers Corporation, a wholly owned subsidiary of Silgan ("Containers"), and Silgan Plastics Corporation, a wholly owned subsidiary of Silgan ("Plastics"); WHEREAS, S&H and each of Silgan, Containers and Plastics are entering into an amended and restated management services agreement dated as of the date hereof (collectively, as so amended and restated, the "Affiliate Management Services Agreements"); and WHEREAS, in contemplation of the consummation of an initial public offering of the common stock of Holdings pursuant to an effective registration statement under the Securities Act of 1933, as amended, S&H and Holdings desire to amend and restate hereby the Original Management Services Agreement. NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein, S&H and Holdings agree as follows: 1. Management Services. (a) S&H and Holdings hereby agree that, during the period beginning on the date hereof and continuing throughout the term hereof, S&H and its Affiliates shall provide to Holdings general management, supervision and administrative services, including, without limitation, the preparation of the annual and long-term business plans of Holdings, and perform such other duties and provide such other services as Holdings shall be permitted to request of S&H pursuant to the Restated Certificate of Incorporation or By-Laws of Holdings or pursuant to applicable law, which power and authority Holdings hereby grants to S&H ("General Management Services"). (The General Management Services are hereinafter collectively referred to as the "Services" and individually as a "Service"). (b) Any Service hereunder shall be provided to Holdings only by S&H or its Affiliates or such consultants, subcontractors or -2- agents as may be selected from time to time by S&H to assist S&H in its provision of the Services. It is understood and agreed that S&H may retain the services of Morgan Stanley & Co. Incorporated or another suitable investment bank as financial advisor to Holdings or as an underwriter or placement agent for offerings of securities by Holdings. 2. Fees; Payment. (a) In consideration for General Management Services provided by S&H to Holdings hereunder, Holdings shall pay to S&H aggregate fees or compensation therefor (not including any related out-of-pocket expenses), (i) on a monthly basis, an amount equal to five thousand dollars ($5,000) plus 2.475% of EBDIT (as defined in Paragraph 2(i) hereof) for such calendar month of Holdings until EBDIT for the calendar year to date has reached the Scheduled Amount (as defined in Paragraph 2(d) hereof) for such calendar year, and 1.65% of EBDIT for such calendar month of Holdings to the extent that EBDIT for the calendar year to date exceeds the Scheduled Amount but is not greater than the Maximum Amount (as defined in Paragraph 2(d) hereof) (the "Monthly Management Fee"); and (ii) on a quarterly basis, an amount equal to 2.475% of EBDIT for such calendar quarter of Holdings until EBDIT for the calendar year to date has reached the Scheduled Amount, and l.65% of EBDIT for such calendar quarter of Holdings to the extent that EBDIT for the calendar year to date exceeds the Scheduled Amount but is not greater than the Maximum Amount (the "Quarterly Management Fee"). (b) Such Quarterly Management Fee shall continue to accrue, but shall not be paid, to S&H by Holdings in the event that, and -3- from the date on which, Silgan shall have received written notice ("Notice") from the Agent (as defined below) that an Event of Default (as such term is defined in the 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 (the "Agent"), and Bank of America Illinois, as Documentation Agent and as a Co-Arranger, as in effect from time to time, and any refinancings, renewals, amendments or extensions thereof (the "Credit Agreement")) exists under any of Sections 9.01, 9.03 (but only to the extent resulting from the violation of one or more of Sections 8.08, 8.09, 8.10, and 8.11 of the Credit Agreement), 9.04(i)(x), 9.04(ii) or 9.05 of the Credit Agreement (each of the foregoing Events of Default, a "Financial Covenant Event of Default") until, and shall be paid by Holdings to S&H on, the earliest to occur of (x) the first date after receipt of such Notice upon which no Financial Covenant Event of Default to which the Notice related or otherwise known to S&H or Holdings shall be in existence (and so long as no such Financial Covenant Event of Default would be in existence after giving effect to the payment of such unpaid portion of the Quarterly Management Fee), (y) the first date occurring 180 days or more after receipt by Holdings of a written notice from the Agent stating that no Event of Default exists under Section 9.01 of the Credit Agreement, or (z) the date that Silgan, Containers, Plastics, California-Washington Can Corporation, a wholly owned subsidiary of Containers, and SCCW Can Corporation, a wholly owned subsidiary of Containers, -4- shall have paid all outstanding Obligations (as such term is defined under the Credit Agreement). In the event that a Notice is delivered by the Agent, Holdings shall pay to S&H that portion of any unpaid Quarterly Management Fee that has accrued with respect to that portion of such calendar quarter prior to the occurrence of any Financial Covenant Event of Default to which such Notice relates. (c) Nothing contained in Paragraph 2(b) shall prevent the Agent from giving successive Notices of the type described in Paragraph 2(b) (in which case the rules set forth in Paragraph 2(b) shall apply to, and the time periods set forth therein shall begin to run on, the date of such subsequent Notice); provided that only one Notice relating to a single Financial Covenant Event of Default and all other Financial Covenant Events of Default in existence at the date of the giving of any such Notice may be given. Notwithstanding anything to the contrary stated herein, if at any time after the giving of Notice by the Agent to Silgan, S&H shall certify in writing to Holdings that all Financial Covenant Events of Default to which such Notice relates have been cured or waived, and that S&H knows of no other Financial Covenant Event of Default then in existence, then Holdings shall, unless it knows of the existence of a Financial Covenant Event of Default which has not yet been cured or waived, pay to S&H any accrued and unpaid Quarterly Management Fee or portion thereof in the manner set forth in Paragraph 2(g) hereof unless a Financial Covenant Event of Default would result from such payment. S&H shall -5- not be required to deliver any such certification to Holdings upon the occurrence of the dates or events set forth in clauses (y) or (z) of Paragraph 2(b), and promptly after the occurrence of such date or event, Holdings will pay to S&H any accrued and unpaid Quarterly Management Fee or portion thereof. (d) For any given calendar year during the term of this Agreement, the Scheduled Amount and the Maximum Amount for such calendar year will be the amounts set forth in Schedule I hereto. (e) In addition to the Monthly Management Fee and the Quarterly Management Fee, Holdings shall also reimburse S&H in an amount equal to all out-of-pocket expenses paid by S&H in providing the Services hereunder, including fees and expenses paid to consultants, subcontractors and other third parties, in connection with such Services. Such expenses shall be payable by Holdings to S&H monthly in arrears. (f) (i) Not later than fifteen (15) days after the end of each calendar month during the term hereof with respect to the Monthly Management Fee and (ii) not later than thirty (30) days after the end of each full calendar quarter during the term hereof with respect to the Quarterly Management Fee, S&H shall furnish Holdings with a bill for an amount equal to the Monthly Management Fee and the Quarterly Management Fee, respectively, then owing with respect to periods ended on or before the end of such calendar month or such calendar quarter. (g) Each bill furnished to Holdings hereunder shall be paid in full within thirty (30) days of the receipt of such bill, -6- except that any accrued and unpaid Quarterly Management Fee or portion thereof shall be paid on the earliest date on which such payment is permitted to be made pursuant to Paragraphs 2(a), 2(b) and 2(c) hereof. All payments of such bills shall be sent to: S&H Inc. 4 Landmark Square Suite 400 Stamford, CT 06901 Attention: R. Philip Silver or to such other address as S&H may specify from time to time by written notice to Holdings. (h) All fees and expenses paid to S&H by Silgan, Containers and Plastics, pursuant to their respective Affiliate Management Services Agreements with S&H, shall be credited to the Monthly Management Fee, the Quarterly Management Fee and the expenses referred to in Paragraphs 2(a) and 2(e) hereof. (i) For purposes of this Section 2, EBDIT shall mean, for any period, the consolidated net income of Holdings and its subsidiaries, before interest expense and provision for income taxes and without giving effect to any extraordinary non-cash gains or extraordinary non-cash losses and any adjustments resulting from changes in the value of employee stock options and/or stock appreciation rights, and adjusted by adding thereto (i) the amount of any fees and expenses paid pursuant to this Agreement or the Affiliate Management Services Agreements, (ii) the amount of all charges and expenses incurred in connection with any refinancing, restructuring, recapitalization or reorganization involving Holdings and its subsidiaries (which charges and -7- expenses have been charged against the consolidated net income of Holdings or its subsidiaries), and (iii) the amount of all amortization of intangibles, covenants not to compete, goodwill and debt financing costs and all depreciation (which amortization and depreciation have been charged against the consolidated net income of Holdings and its subsidiaries, before interest expense), computed in accordance with generally accepted accounting principles. 3. Direct Expenses. It is understood that the consideration to be paid by Holdings to S&H for Services hereunder shall not be in lieu of, and that Holdings shall be directly liable for, direct expenses incurred by Holdings, or by S&H on Holdings' behalf (other than the out-of-pocket expenses billed to Holdings by S&H pursuant to Paragraph 2(e) hereof), for services rendered to Holdings by third parties, including, but not limited to, legal and accounting fees and insurance premiums. Holdings shall pay any compensation (including employee benefit costs and any related out-of-pocket expenses) to officers and other employees of Holdings who provide substantially full-time services to Holdings, other than Messrs. R. Philip Silver ("Silver"), D. Greg Horrigan ("Horrigan"), Harley Rankin, Jr. ("Rankin") and Harold J. Rodriguez, Jr. ("Rodriguez") who shall receive no salaries (it being understood, however, that Holdings shall reimburse S&H in respect of compensation paid by S&H to Messrs. Rankin and Rodriguez consistent with the reimbursement therefor by Holdings to S&H in 1996), notwithstanding that said officers and other employees may simultaneously -8- be officers or employees of S&H or one of its subsidiaries or Affiliates. 4. Term. (a) The term of this Agreement shall commence on the date hereof and shall continue until June 30, 1999. Thereafter, the term of this Agreement shall be automatically renewed for successive one-year terms unless prior to the date that is 180 days prior to the expiration of the initial term or the then current one-year term, as the case may be, either party shall have given the other party written notice of its election not to renew the term of this Agreement (it being understood that the determination by Holdings whether to give such written notice of its election not to renew the term of this Agreement will be made by the independent members of the Board of Directors of Holdings). For purposes hereof, the independent members of the Board of Directors of Holdings shall not include any employee or affiliate of S&H, any officer of Holdings or any member of the Board of Directors that is affiliated with any entity that is receiving or is entitled to receive any payment from Holdings under this Agreement or any payment from S&H in connection with this Agreement. The term of this Agreement may be terminated prior to the expiration of the initial term or the then current one-year term by written notice to the other party as follows: (i) by Holdings for Cause, (ii) by S&H for Cause, (iii) by Holdings for any reason other than Cause, upon at least 180 days prior written notice, (iv) by S&H for any reason other than (A) Cause or (B) because -9- of a Change of Control, upon at least 180 days prior written notice, or (v) by S&H at any time after a Change of Control. (b) Upon termination of any Affiliate Management Services Agreement by the party thereto other than S&H for any reason other than "Cause" as defined in such Affiliate Management Services Agreement, this Agreement shall be deemed to have been terminated by Holdings pursuant to clause (iii) of the last sentence of Section 4(a) hereof, effective as of the date of termination of such Affiliate Management Services Agreement. Upon termination by S&H of any Affiliate Management Services Agreement for any reason other than "Cause" or because of a "Change of Control," each as defined in such Affiliate Management Services Agreement, this Agreement shall be deemed to have been terminated by S&H pursuant to clause (iv) of the last sentence of Section 4(a) hereof, effective as of the date of termination of such Affiliate Management Services Agreement. (c) For purposes of this Section 4, a "Change of Control" shall be deemed to have occurred when a majority of the Board of Directors of Holdings shall not consist of "Continuing Holdings Directors," which shall mean (i) the directors of Holdings on the date hereof and (ii) each other director of Holdings who is either recommended, approved or nominated for election, or is elected, to the Board of Directors of Holdings by a majority of the other Continuing Holdings Directors. -10- 5. Events of Default. Any one of the following defaults shall constitute an Event of Default (other than by reason of an Event of Force Majeure in the case of each of Paragraphs 5(a)-(f)): (a) (i) The failure or refusal of S&H to comply with or perform its obligations under this Agreement if such failure or refusal continues unremedied for more than 60 days after written notice of the existence of such failure or refusal shall have been given to S&H by Holdings or (ii) the failure or refusal of Holdings to comply with or perform its obligations under this Agreement if such failure or refusal continues unremedied for more than 60 days after written notice of the existence of such failure or refusal shall have been given to Holdings by S&H; (b) S&H or Holdings is declared insolvent or bankrupt by any court of competent jurisdiction, or a voluntary petition in bankruptcy is filed in any court of competent jurisdiction by either of them; (c) An involuntary petition in bankruptcy is filed in any court of competent jurisdiction against S&H or Holdings and within forty-five (45) days thereafter shall not have been dismissed or stayed (and, in the event of any such stay, such stay shall not have been set aside and the petition dismissed within forty-five (45) days after the stay shall have been granted); -11- (d) A trustee or receiver is appointed for S&H or Holdings and remains undischarged for more than forty-five (45) days after being appointed; (e) A proceeding seeking a reorganization, arrangement, liquidation or dissolution of S&H or Holdings is instituted in a court of competent jurisdiction and remains undismissed for more than forty-five (45) days after being instituted; (f) S&H or Holdings voluntarily seeks any such reorganization or arrangement or makes an assignment for the benefit of creditors; or (g) Death or permanent disability of both Horrigan and Silver. For the purposes of this Agreement, "permanent disability" shall mean the inability of Horrigan or Silver, as the case may be, by reason of illness or injury to perform substantially all of his duties as Chairman of the Board or as President of Holdings (or in performing his duties in any other office in Holdings or any of its respective Affiliates to which he may be duly appointed) during any continuous period of one hundred eighty (180) days. 6. Cause. (a) The occurrence of any of the following shall constitute "Cause" for purposes of clause (i) of the last sentence of Section 4(a) of this Agreement: (i) An Event of Default, except for the Event of Default described in Section 5(a)(ii) of this Agreement; or -12- (ii) Criminal conduct or gross negligence by S&H in the performance of the Services; or (iii) The termination of any Affiliate Management Services Agreement by Silgan, Containers or Plastics, as the case may be, for "Cause" as defined therein. (b) The occurrence of either of the following shall constitute "Cause" for purposes of clause (ii) of the last sentence of Section 4(a) of this Agreement: (i) An Event of Default, except for the Event of Default described in Section 5(a)(i) of this Agreement; or (ii) The termination of any Affiliate Management Services Agreement by S&H for "Cause" as defined therein. 7. Remedies. (a) In the event this Agreement is terminated (or deemed terminated) by Holdings prior to June 30, 1999 for any reason other than for Cause, Holdings shall be required to pay to S&H as liquidated damages, within thirty (30) days of such termination, the present value of the sum of (i) the Monthly Management Fee (or any portion thereof) that would have been payable by Holdings to S&H for each month (or any portion thereof) from the date of such termination through June 30, 1999 and (ii) the Quarterly Management Fee (or any portion thereof) that would have been payable by Holdings to S&H for each quarter (or portion thereof) from the date of such termination through -13- June 30, 1999, in each case calculated based on a discount rate of eight percent (8%) per annum. (b) In the event this Agreement is terminated by Holdings after June 30, 1999 for any reason other than for Cause, Holdings shall be required to pay to S&H as liquidated damages, within thirty (30) days of such termination, the present value of the sum of (i) the Monthly Management Fee (or any portion thereof) that would have been payable by Holdings to S&H for each month (or any portion thereof) from the date of such termination through the end of the then current one-year term and (ii) the Quarterly Management Fee (or any portion thereof) that would have been payable by Holdings to S&H for each quarter (or portion thereof) from the date of such termination through the end of the then current one-year term, in each case calculated based on a discount rate of eight percent (8%) per annum. (c) The amounts described in clauses (i) and (ii) of Sections 7(a) and 7(b) shall be calculated based upon the projections of Holdings' EBDIT for the period from the date of such termination through June 30, 1999 or through the end of the then current one-year term, as the case may be, which projections are (1) included in Holdings' most recently prepared forecast statements required under the Credit Agreement or (2) if the Credit Agreement is not in existence, included in Holdings' most recently prepared forecast statements presented to its Board of Directors (provided such forecast statements are prepared on a basis consistent with the requirements under the Credit Agreement that was in effect last). -14- 8. Force Majeure. The term "Event of Force Majeure" as used herein shall mean any failure of a party to perform any of its obligations hereunder if such failure is due to circumstances beyond its control, including but not limited to, any requisition by any government authority, act of war, strike, boycott, lockout, picketing, riot, sabotage, civil commotion, insurrection, epidemic, disease, act of God, fire, flood, accident, explosion, earthquake, storm, failure of public utilities or common carriers, mechanical failure, embargo, or prohibition imposed by any governmental body or agency having authority over the party, which would have constituted an Event of Default but for the fact that such events constituted an Event of Force Majeure. The party affected by an Event of Force Majeure shall give prompt notice thereof to the other parties hereto and each party shall use its best efforts to minimize the duration and consequences of, and to eliminate, any such Event of Force Majeure. At such time as an Event of Force Majeure no longer exists, the respective obligations of the parties hereto shall be reinstated and this Agreement shall continue in full force and effect. 9. Insurance. S&H agrees that for the term of this Agreement it shall cause Holdings to obtain and maintain insurance for such risks and in such amounts similar to companies of comparable size which are engaged in similar business activities, provided that S&H shall be deemed to be in compliance with the -15- provisions of this paragraph if Holdings maintains a level of insurance which complies with the applicable terms of the Credit Agreement. 10. Indemnification. (a) Holdings shall indemnify to the fullest extent permitted by law (as now or hereafter in effect) S&H and each of its Affiliates, officers, directors, employees, consultants and subcontractors, and any Person controlling S&H and each of its Affiliates or any such consultant or subcontractor (each, an "S&H Indemnitee," and collectively, the "S&H Indemnitees") to the extent that any S&H Indemnitee is made, or threatened to be made, a defendant to, or is involved in any manner in, any action, suit or proceeding (whether civil, criminal, administrative, investigative or otherwise) by reason of the fact that such S&H Indemnitee is or was an agent of Holdings. (b) In furtherance and not in limitation of the powers conferred by statute: (i) Holdings may purchase and maintain insurance on behalf of any S&H Indemnitee as an agent of Holdings against any liability asserted against any S&H Indemnitee and incurred by any S&H Indemnitee in such capacity, or arising out of any S&H Indemnitee's status as such, whether or not Holdings would have the power to indemnify such S&H Indemnitee against such liability under the provisions of law; and (ii) Holdings may create a trust fund, grant a security interest and/or use other means (including, -16- without limitation, letters of credit, surety bonds and/or other similar arrangements), as well as enter into contracts providing indemnification to the full extent authorized or permitted by law and including as part thereof provisions with respect to any or all of the foregoing to ensure the payment of such amounts as may become necessary to effect indemnification as provided therein, or elsewhere. (c) The manner of any indemnification under this Agreement shall be in accordance with Section 2.8 of the Stockholders Agreement dated as of December 21, 1993 among Silver, Horrigan, The Morgan Stanley Leveraged Equity Fund II, L.P., Bankers Trust New York Corporation, First Plaza Group Trust and Holdings (as amended from time to time, the "Stockholders Agreement"). 11. Noncompetition. (a) During the term of this Agreement, S&H hereby agrees that it will not, directly or indirectly, own, render services to, manage, operate, control, or participate in the ownership, management, operation or control of a business that is engaged in any "Business". For purposes hereof, the term "Business" shall mean the manufacture and sale anywhere in the world of consumer goods packaging products. (b) In the event that this Agreement is terminated by S&H pursuant to clause (iv) of the last sentence of Section 4(a) hereof, S&H hereby agrees that, for a period of one year beginning on the date of such termination, it will not, directly or indirectly: (i) own, render -17- services to, manage, operate, control, or participate in the ownership, management, operation or control of a business that is engaged in any Business; (ii) interfere with any customer or supplier relationship between Holdings and/or its subsidiaries and any other person or business entity; or (iii) disclose or use any confidential or proprietary information relating to Holdings and its subsidiaries' businesses, except for any information already in the public domain through no act of S&H and except as may be required by law or governmental or court order. (c) Notwithstanding anything herein to the contrary, nothing herein, however, shall restrict S&H from making any investments in any company whose stock is listed on a national securities exchange or actively traded in the over-the-counter markets, so long as such investment does not give S&H the right to control or influence the policy decisions of any such company engaged in any Business. (d) If any particular provision or portion of this Section 11 shall be adjudicated to be invalid or unenforceable, this Section 11 shall be deemed amended to delete therefrom such provision or portion adjudicated to be invalid or unenforceable, and such amendment will apply only with respect to the operation of such provision or portion in the particular jurisdiction in which such adjudication was sought. (e) The parties recognize that the performance of the obligations under this Section 11 by S&H is special, unique and extraordinary in character, and that in the event of a breach, or threatened -18- breach, of any of the terms and conditions of this Section 11, Holdings shall be entitled, if it so elects, in addition to any other remedies available to Holdings, to enforce the specific performance thereof or to enjoin any breach thereof. 12. Notices. All notices and other communications required by or specifically provided for in this Agreement shall be in writing and shall be deemed to have been given (a) when delivered in person, (b) when sent by telex or telecopier with answerback received, or (c) seventy-two (72) hours after having been deposited in the U.S. mails, certified mail with return receipt requested and postage prepaid, and in any case addressed to the party for which it is intended at that party's address as set forth below, or at such other address as the addressee shall have designated by notice hereunder to the other party. If to S&H: S&H Inc. 4 Landmark Square Suite 400 Stamford, CT 06901 Attention: R. Philip Silver If to Holdings: Silgan Holdings Inc. 4 Landmark Square Suite 400 Stamford, CT 06901 Attention: R. Philip Silver -19- If a notice is sent to any of the above, a copy shall be sent to the following: Winthrop, Stimson, Putnam & Roberts Financial Centre 695 East Main Street P.O. Box 6760 Stamford, CT 06904-6760 Attention: Frank W. Hogan, III, Esq. Any notice or request sent by telecopier or similar facsimile telecommunication shall be confirmed promptly by the sending of a copy of such notice or request to the addressee thereof by prepaid certified mail, return receipt requested. 13. Definitions. Terms not defined herein which are defined in the Stockholders Agreement shall have the meanings ascribed to them therein. 14. Amendment; Assignment; Binding Effect. This Agreement may be amended or modified only by a written instrument signed by the parties hereto. No party shall assign or transfer this Agreement, in whole or in part, or any of such party's rights or obligations hereunder, to any other person or entity without the prior written consent of the other party hereto, except that S&H may transfer or assign all of its rights and obligations hereunder to any entity directly or indirectly succeeding to S&H by merger, consolidation or reorganization. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted assigns. 15. Waiver; Severability. The failure of a party to insist in any instance upon the strict and punctual performance of any provision of this Agreement shall not -20- constitute a continuing waiver of such provision. No party shall be deemed to have waived any right, power, or privilege under this Agreement or any provisions hereof unless such waiver shall have been in writing and duly executed by the party to be charged with such waiver, and such waiver shall be a waiver only with respect to the specific instance involved and shall in no way impair the rights of the waiving party or the obligations of any other party in any other respect or at any other time. If any provision of this Agreement shall be waived, or be invalid, illegal or unenforceable, the remaining provisions of this Agreement shall be unaffected thereby and shall remain binding and in full force and effect. 16. Relationship of the Parties. In all matters relating to this Agreement, each party hereto shall be solely responsible for the acts of its employees, and employees of one party shall not be considered employees of the other party. Except as otherwise provided herein, no party shall have any right, or authority to create any obligation, express or implied, on behalf of any other party. 17. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without giving effect to its conflict of laws rules and laws. 18. Entire Agreement; Termination of Original Management Services Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof, and -21- supersedes all prior agreements and understandings, either oral or written, with respect thereto. Upon the execution and delivery of this Agreement, the Original Management Services Agreement shall be terminated and shall be of no effect whatsoever. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. S&H INC. By: /s/ R. Philip Silver ---------------------------------- Title: President and Co-Chief Executive Officer SILGAN HOLDINGS INC. By: /s/ Harley Rankin, Jr. ----------------------------------- Title: Executive Vice President, Chief Financial Officer and Treasurer -22- SCHEDULE I (000's Omitted) Scheduled Amount1/ Maximum Amount1/ 1997 $ 89,500 1997 $ 100,504 1998 95,500 1998 102,964 1999 101,500 1999 105,488 2000 108,653 2000 108,653 - ------------------------ 1. For each calendar year after 2000, the Scheduled Amount for such calendar year shall be an amount equal to the Maximum Amount for such calendar year. For each calendar year after 2000, the Maximum Amount for such calendar year shall be equal to one hundred and three percent (103%) of the Maximum Amount for the prior calendar year. EX-10.25 7 AMENDED AND RESTATED MANAGEMENT SERVICES AGREEMENT EXHIBIT 10.25 AMENDED AND RESTATED MANAGEMENT SERVICES AGREEMENT This Amended and Restated Management Services Agreement (the "Agreement") is made as of this 14th day of February, 1997 by and between S&H INC., a Connecticut corporation ("S&H"), and SILGAN CORPORATION, a Delaware corporation ("Silgan"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, S&H and Silgan have entered into the Amended and Restated Management Services Agreement dated as of December 21, 1993 (the "Original Management Services Agreement"), pursuant to which S&H provides general management, supervision, administrative and other services to Silgan in accordance with the terms of the Original Management Services Agreement; WHEREAS, S&H also is a party to an Amended and Restated Management Services Agreement dated as of December 21, 1993 with each of Silgan Holdings Inc., the parent holding company of Silgan ("Holdings"), Silgan Containers Corporation, a wholly owned subsidiary of Silgan ("Containers"), and Silgan Plastics Corporation, a wholly owned subsidiary of Silgan ("Plastics"); WHEREAS, S&H and each of Holdings, Containers and Plastics are entering into an amended and restated management services agreement dated as of the date hereof (collectively, as so amended and restated, the "Affiliate Management Services Agreements"); and WHEREAS, in contemplation of the consummation of an initial public offering of the common stock of Holdings pursuant to an effective registration statement under the Securities Act of 1933, as amended, S&H and Silgan desire to amend and restate hereby the Original Management Services Agreement. NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein, S&H and Silgan agree as follows: 1. Management Services. ------------------- (a) S&H and Silgan hereby agree that, during the period beginning on the date hereof and continuing throughout the term hereof, S&H and its Affiliates shall provide to Silgan general management, supervision and administrative services, including, without limitation, the preparation of the annual and long-term business plans, and perform such other duties and provide such other services as Silgan shall be permitted to request of S&H pursuant to the Restated Certificate of Incorporation or By-Laws of Holdings or pursuant to applicable law, which power and authority Silgan hereby grants to S&H ("General Management Services"). (The General Management Services are hereinafter collectively referred to as the "Services" and individually as a "Service"). (b) Any Service hereunder shall be provided to Silgan only by S&H or its Affiliates or such consultants, subcontractors or agents as may be selected from time to time by S&H to assist S&H in its provision of the Services. It is understood and agreed that S&H may retain the services of Morgan -2- Stanley & Co. Incorporated or another suitable investment bank as financial advisor to Silgan or as an underwriter or placement agent for offerings of securities by Silgan. 2. Fees; Payment. ------------- (a) In consideration for General Management Services provided by S&H to Silgan hereunder, Silgan shall pay to S&H aggregate fees or compensation therefor (not including any related out-of-pocket expenses), (i) on a monthly basis, an amount equal to five thousand dollars ($5,000) plus 2.475% of EBDIT (as defined in Paragraph 2(i) hereof) for such calendar month until EBDIT for the calendar year to date has reached the Scheduled Amount (as defined in Paragraph 2(d) hereof) for such calendar year, and 1.65% of EBDIT for such calendar month to the extent that EBDIT for the calendar year to date exceeds the Scheduled Amount but is not greater than the Maximum Amount (as defined in Paragraph 2(d) hereof) (the "Monthly Management Fee"); and (ii) on a quarterly basis, an amount equal to 2.475% of EBDIT for such calendar quarter until EBDIT for the calendar year to date has reached the Scheduled Amount, and l.65% of EBDIT for such calendar quarter to the extent that EBDIT for the calendar year to date exceeds the Scheduled Amount but is not greater than the Maximum Amount (the "Quarterly Management Fee"). (b) Such Quarterly Management Fee shall continue to accrue, but shall not be paid, to S&H by Silgan in the event that, and from the date on which, Silgan shall have received written notice ("Notice") from the Agent (as defined below) that an Event of Default (as such term is defined in the Credit -3- 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 (the "Agent"), and Bank of America Illinois, as Documentation Agent and as a Co-Arranger, as in effect from time to time, and any refinancings, renewals, amendments or extensions thereof (the "Credit Agreement")) exists under any of Sections 9.01, 9.03 (but only to the extent resulting from the violation of one or more of Sections 8.08, 8.09, 8.10, and 8.11 of the Credit Agreement), 9.04(i)(x), 9.04(ii) or 9.05 of the Credit Agreement (each of the foregoing Events of Default, a "Financial Covenant Event of Default") until, and shall be paid by Silgan to S&H on, the earliest to occur of (x) the first date after receipt of such Notice upon which no Financial Covenant Event of Default to which the Notice related or otherwise known to S&H or Silgan shall be in existence (and so long as no such Financial Covenant Event of Default would be in existence after giving effect to the payment of such unpaid portion of the Quarterly Management Fee), (y) the first date occurring 180 days or more after receipt by Silgan of a written notice from the Agent stating that no Event of Default exists under Section 9.01 of the Credit Agreement, or (z) the date that Silgan, Containers, Plastics, California-Washington Can Corporation, a wholly owned subsidiary of Containers, and SCCW Can Corporation, a wholly owned subsidiary of Containers, shall have paid all outstanding Obligations (as such term is defined under the Credit Agreement). In the event that a Notice is delivered by the Agent, Silgan shall pay to S&H that portion of -4- any unpaid Quarterly Management Fee that has accrued with respect to that portion of such calendar quarter prior to the occurrence of any Financial Covenant Event of Default to which such Notice relates. (c) Nothing contained in Paragraph 2(b) shall prevent the Agent from giving successive Notices of the type described in Paragraph 2(b) (in which case the rules set forth in Paragraph 2(b) shall apply to, and the time periods set forth therein shall begin to run on, the date of such subsequent Notice); provided that only one Notice relating to a single Financial Covenant Event of Default and all other Financial Covenant Events of Default in existence at the date of the giving of any such Notice may be given. Notwithstanding anything to the contrary stated herein, if at any time after the giving of Notice by the Agent to Silgan, S&H shall certify in writing to Silgan that all Financial Covenant Events of Default to which such Notice relates have been cured or waived, and that S&H knows of no other Financial Covenant Event of Default then in existence, then Silgan shall, unless it knows of the existence of a Financial Covenant Event of Default which has not yet been cured or waived, pay to S&H any accrued and unpaid Quarterly Management Fee or portion thereof in the manner set forth in Paragraph 2(g) hereof unless a Financial Covenant Event of Default would result from such payment. S&H shall not be required to deliver any such certification to Silgan upon the occurrence of the dates or events set forth in clauses (y) or (z) of Paragraph 2(b), and promptly after the occurrence of such date or event, Silgan will -5- pay to S&H any accrued and unpaid Quarterly Management Fee or portion thereof. (d) For any given calendar year during the term of this Agreement, the Scheduled Amount and the Maximum Amount for such calendar year will be the amounts set forth in Schedule I hereto. (e) In addition to the Monthly Management Fee and the Quarterly Management Fee, Silgan shall also reimburse S&H in an amount equal to all out-of-pocket expenses paid by S&H in providing the Services hereunder, including fees and expenses paid to consultants, subcontractors and other third parties, in connection with such Services. Such expenses shall be payable by Silgan to S&H monthly in arrears. (f) (i) Not later than fifteen (15) days after the end of each calendar month during the term hereof with respect to the Monthly Management Fee and (ii) not later than thirty (30) days after the end of each full calendar quarter during the term hereof with respect to the Quarterly Management Fee, S&H shall furnish Silgan with a bill for an amount equal to the Monthly Management Fee and the Quarterly Management Fee, respectively, then owing with respect to periods ended on or before the end of such calendar month or such calendar quarter. (g) Each bill furnished to Silgan hereunder shall be paid in full within thirty (30) days of the receipt of such bill, except that any accrued and unpaid Quarterly Management Fee or portion thereof shall be paid on the earliest date on which such payment is permitted to be made pursuant to Paragraphs 2(a), -6- 2(b) and 2(c) hereof. All payments of such bills shall be sent to: S&H Inc. 4 Landmark Square Suite 400 Stamford, CT 06901 Attention: R. Philip Silver or to such other address as S&H may specify from time to time by written notice to Silgan. (h) All fees and expenses paid to S&H by Holdings, Containers and Plastics, pursuant to their respective Affiliate Management Services Agreements with S&H, shall be credited to the Monthly Management Fee, the Quarterly Management Fee and the expenses referred to in Paragraphs 2(a) and 2(e) hereof. (i) For purposes of this Section 2, EBDIT shall mean, for any period, the consolidated net income of Holdings and its subsidiaries, before interest expense and provision for income taxes and without giving effect to any extraordinary non-cash gains or extraordinary non-cash losses and any adjustments resulting from changes in the value of employee stock options and/or stock appreciation rights, and adjusted by adding thereto (i) the amount of any fees and expenses paid pursuant to this Agreement or the Affiliate Management Services Agreements, (ii) the amount of all charges and expenses incurred in connection with any refinancing, restructuring, recapitalization or reorganization involving Holdings and its subsidiaries (which charges and expenses have been charged against the consolidated net income of Holdings or its subsidiaries), and (iii) the amount -7- of all amortization of intangibles, covenants not to compete, goodwill and debt financing costs and all depreciation (which amortization and depreciation have been charged against the consolidated net income of Holdings and its subsidiaries, before interest expense), computed in accordance with generally accepted accounting principles. 3. Direct Expenses. --------------- It is understood that the consideration to be paid by Silgan to S&H for Services hereunder shall not be in lieu of, and that Silgan shall be directly liable for, direct expenses incurred by Silgan, or by S&H on Silgan's behalf (other than the out-of-pocket expenses billed to Silgan by S&H pursuant to Paragraph 2(e) hereof), for services rendered to Silgan by third parties, including, but not limited to, legal and accounting fees and insurance premiums. Silgan shall pay any compensation (including employee benefit costs and any related out-of-pocket expenses) to officers and other employees of Silgan who provide substantially full-time services to Silgan, other than Messrs. R. Philip Silver ("Silver"), D. Greg Horrigan ("Horrigan"), Harley Rankin, Jr. ("Rankin") and Harold J. Rodriguez, Jr. ("Rodriguez") who shall receive no salaries (it being understood, however, that Silgan shall reimburse S&H in respect of compensation paid by S&H to Messrs. Rankin and Rodriguez consistent with the reimbursement therefor by Silgan to S&H in 1996), notwithstanding that said officers and other employees may simultaneously be officers or employees of S&H or one of its subsidiaries or Affiliates. -8- 4. Term. ---- (a) The term of this Agreement shall commence on the date hereof and shall continue until June 30, 1999. Therefore, the term of this Agreement shall be automatically renewed for successive one-year terms unless prior to the date that is 180 days prior to the expiration of the initial term or the then current one-year term, as the case may be, either party shall have given the other party written notice of its election not to renew the term of this Agreement (it being understood that the determination by Silgan whether to give such written notice of its election not to renew the term of this Agreement will be made by the independent members of the Board of Directors of Holdings). For purposes hereof, the independent members of the Board of Directors of Holdings shall not include any employee or affiliate of S&H, any officer of Holdings or any member of the Board of Directors that is affiliated with any entity that is receiving or is entitled to receive any payment from Holdings under this Agreement or any payment from S&H in connection with this Agreement. The term of this Agreement may be terminated prior to the expiration of the initial term or the then current one-year term, as the case may be, by written notice to the other party as follows: (i) by Silgan for Cause, (ii) by S&H for Cause, (iii) by Silgan for any reason other than Cause, upon at least 180 days prior written notice, (iv) by S&H for any reason other than (A) Cause or (B) because of a Change of Control, upon at least 180 days prior written notice, or (v) by S&H at any time after a Change of Control. -9- (b) Upon termination of any Affiliate Management Services Agreement by the party thereto other than S&H for any reason other than "Cause" as defined in such Affiliate Management Services Agreement, this Agreement shall be deemed to have been terminated by Silgan pursuant to clause (iii) of the last sentence of Section 4(a) hereof, effective as of the date of termination of such Affiliate Management Services Agreement. Upon termination by S&H of any Affiliate Management Services Agreement for any reason other than "Cause" or because of a "Change of Control," each as defined in such Affiliate Management Services Agreement, this Agreement shall be deemed to have been terminated by S&H pursuant to clause (iv) of the last sentence of Section 4(a) hereof, effective as of the date of termination of such Affiliate Management Services Agreement. (c) For purposes of this Section 4, a "Change of Control" shall be deemed to have occurred when a majority of the Board of Directors of Holdings shall not consist of "Continuing Holdings Directors," which shall mean (i) the directors of Holdings on the date hereof and (ii) each other director of Holdings who is either recommended, approved or nominated for election, or is elected, to the Board of Directors of Holdings by a majority of the other Continuing Holdings Directors. 5. Events of Default. ----------------- Any one of the following defaults shall constitute an Event of Default (other than by reason of an Event of Force Majeure in the case of each of Paragraphs 5(a)-(f)): -10- (a) (i) The failure or refusal of S&H to comply with or perform its obligations under this Agreement if such failure or refusal continues unremedied for more than 60 days after written notice of the existence of such failure or refusal shall have been given to S&H by Silgan or (ii) the failure or refusal of Silgan to comply with or perform its obligations under this Agreement if such failure or refusal continues unremedied for more than 60 days after written notice of the existence of such failure or refusal shall have been given to Silgan by S&H; (b) S&H or Holdings is declared insolvent or bankrupt by any court of competent jurisdiction, or a voluntary petition in bankruptcy is filed in any court of competent jurisdiction by either of them; (c) An involuntary petition in bankruptcy is filed in any court of competent jurisdiction against S&H or Holdings and within forty-five (45) days thereafter shall not have been dismissed or stayed (and, in the event of any such stay, such stay shall not have been set aside and the petition dismissed within forty-five (45) days after the stay shall have been granted); (d) A trustee or receiver is appointed for S&H or Holdings and remains undischarged for more than forty-five (45) days after being appointed; (e) A proceeding seeking a reorganization, arrangement, liquidation or dissolution of S&H or Holdings is instituted in a court of competent jurisdiction and remains -11- undismissed for more than forty-five (45) days after being instituted; (f) S&H or Holdings voluntarily seeks any such reorganization or arrangement or makes an assignment for the benefit of creditors; or (g) Death or permanent disability of both Horrigan and Silver. For the purposes of this Agreement, "permanent disability" shall mean the inability of Horrigan or Silver, as the case may be, by reason of illness or injury to perform substantially all of his duties as Chairman of the Board or as President of Holdings (or in performing his duties in any other office in Holdings or any of its respective Affiliates to which he may be duly appointed) during any continuous period of one hundred eighty (180) days. 6. Cause. ----- (a) The occurrence of any of the following shall constitute "Cause" for purposes of clause (i) of the last sentence of Section 4(a) of this Agreement: (i) An Event of Default, except for the Event of Default described in Section 5(a)(ii) of this Agreement; or (ii) Criminal conduct or gross negligence by S&H in the performance of the Services; or (iii) The termination of any Affiliate Management Services Agreement by Holdings, Containers or Plastics, as the case may be, for "Cause" as defined therein. -12- (b) The occurrence of either of the following shall constitute "Cause" for purposes of clause (ii) of the last sentence of Section 4(a) of this Agreement: (i) An Event of Default, except for the Event of Default described in Section 5(a)(i) of this Agreement; or (ii) The termination of any Affiliate Management Services Agreement by S&H for "Cause" as defined therein. 7. Remedies. -------- (a) In the event this Agreement is terminated (or deemed terminated) by Silgan prior to June 30, 1999 for any reason other than for Cause, Silgan shall be required to pay to S&H as liquidated damages, within thirty (30) days of such termination, the present value of the sum of (i) the Monthly Management Fee (or any portion thereof) that would have been payable by Silgan to S&H for each month (or any portion thereof) from the date of such termination through June 30, 1999 and (ii) the Quarterly Management Fee (or any portion thereof) that would have been payable by Silgan to S&H for each quarter (or portion thereof) from the date of such termination through June 30, 1999, in each case calculated based on a discount rate of eight percent (8%) per annum. (b) In the event this Agreement is terminated by Silgan after June 30, 1999 for any reason other than for Cause, Silgan shall be required to pay to S&H as liquidated damages, within thirty (30) days of such termination, the present value of the sum of (i) the Monthly Management Fee (or any portion thereof) payable by Silgan to S&H for each month (or any portion thereof) from the date of such termination through the end of the then -13- current one-year term and (ii) the Quarterly Management Fee (or any portion thereof) payable by Silgan to S&H for each quarter (or portion thereof) from the date of such termination through the end of the then current one-year term, in each case calculated based on a discount rate of eight percent (8%) per annum. (c) The amounts described in clauses (i) and (ii) of Sections 7(a) and 7(b) shall be calculated based upon the projections of EBDIT for the period from the date of such termination through June 30, 1999 or through the end of the then current one-year term, as the case may be, which projections are (1) included in Holdings' most recently prepared forecast statements required under the Credit Agreement or (2) if the Credit Agreement is not in existence, included in Holdings' most recently prepared forecast statements presented to its Board of Directors (provided such forecast statements are prepared on a basis consistent with the requirements under the Credit Agreement that was in effect last). 8. Force Majeure. ------------- The term "Event of Force Majeure" as used herein shall mean any failure of a party to perform any of its obligations hereunder if such failure is due to circumstances beyond its control, including but not limited to, any requisition by any government authority, act of war, strike, boycott, lockout, picketing, riot, sabotage, civil commotion, insurrection, epidemic, disease, act of God, fire, flood, accident, explosion, earthquake, storm, failure of public utilities or common -14- carriers, mechanical failure, embargo, or prohibition imposed by any governmental body or agency having authority over the party, which would have constituted an Event of Default but for the fact that such events constituted an Event of Force Majeure. The party affected by an Event of Force Majeure shall give prompt notice thereof to the other parties hereto and each party shall use its best efforts to minimize the duration and consequences of, and to eliminate, any such Event of Force Majeure. At such time as an Event of Force Majeure no longer exists, the respective obligations of the parties hereto shall be reinstated and this Agreement shall continue in full force and effect. 9. Insurance. --------- S&H agrees that for the term of this Agreement it shall cause Silgan to obtain and maintain insurance for such risks and in such amounts similar to companies of comparable size which are engaged in similar business activities, provided that S&H shall be deemed to be in compliance with the provisions of this paragraph if Silgan maintains a level of insurance which complies with the applicable terms of the Credit Agreement. 10. Indemnification. --------------- (a) Silgan shall indemnify to the fullest extent permitted by law (as now or hereafter in effect) S&H and each of its Affiliates, officers, directors, employees, consultants and subcontractors, and any Person controlling S&H and each of its Affiliates or any such consultant or subcontractor (each, an "S&H Indemnitee," and collectively, the "S&H Indemnitees") to the extent that any S&H Indemnitee is made, or threatened to be made, -15- a defendant to, or is involved in any manner in, any action, suit or proceeding (whether civil, criminal, administrative, investigative or otherwise) by reason of the fact that such S&H Indemnitee is or was an agent of Holdings. (b) In furtherance and not in limitation of the powers conferred by statute: (i) Silgan may purchase and maintain insurance on behalf of any S&H Indemnitee as an agent of Silgan against any liability asserted against any S&H Indemnitee and incurred by any S&H Indemnitee in such capacity, or arising out of any S&H Indemnitee's status as such, whether or not Silgan would have the power to indemnify such S&H Indemnitee against such liability under the provisions of law; and (ii) Silgan may create a trust fund, grant a security interest and/or use other means (including, without limitation, letters of credit, surety bonds and/or other similar arrangements), as well as enter into contracts providing indemnification to the full extent authorized or permitted by law and including as part thereof provisions with respect to any or all of the foregoing to ensure the payment of such amounts as may become necessary to effect indemnification as provided therein, or elsewhere. (c) The manner of any indemnification under this Agreement shall be in accordance with Section 2.8 of the Stockholders Agreement dated as of December 21, 1993 among Silver, Horrigan, The Morgan Stanley Leveraged Equity Fund II, -16- L.P., Bankers Trust New York Corporation, First Plaza Group Trust and Holdings (as amended from time to time, the "Stockholders Agreement"). 11. Noncompetition. -------------- (a) During the term of this Agreement, S&H hereby agrees that it will not, directly or indirectly, own, render services to, manage, operate, control, or participate in the ownership, management, operation or control of a business that is engaged in any "Business". For purposes hereof, the term "Business" shall mean the manufacture and sale anywhere in the world of consumer goods packaging products. (b) In the event that this Agreement is terminated by S&H pursuant to clause (iv) of the last sentence of Section 4(a) hereof, S&H hereby agrees that, for a period of one year beginning on the date of such termination, it will not, directly or indirectly: (i) own, render services to, manage, operate, control, or participate in the ownership, management, operation or control of a business that is engaged in any Business; (ii) interfere with any customer or supplier relationship between Holdings and/or its subsidiaries and any other person or business entity; or (iii) disclose or use any confidential or proprietary information relating to Holdings and its subsidiaries' businesses, except for any information already in the public domain through no act of S&H and except as may be required by law or governmental or court order. (c) Notwithstanding anything herein to the contrary, nothing herein, however, shall restrict S&H from making -17- any investments in any company whose stock is listed on a national securities exchange or actively traded in the over-the-counter markets, so long as such investment does not give S&H the right to control or influence the policy decisions of any such company engaged in any Business. (d) If any particular provision or portion of this Section 11 shall be adjudicated to be invalid or unenforceable, this Section 11 shall be deemed amended to delete therefrom such provision or portion adjudicated to be invalid or unenforceable, and such amendment will apply only with respect to the operation of such provision or portion in the particular jurisdiction in which such adjudication was sought. (e) The parties recognize that the performance of the obligations under this Section 11 by S&H is special, unique and extraordinary in character, and that in the event of a breach, or threatened breach, of any of the terms and conditions of this Section 11, Silgan shall be entitled, if it so elects, in addition to any other remedies available to Silgan, to enforce the specific performance thereof or to enjoin any breach thereof. 12. Notices. ------- All notices and other communications required by or specifically provided for in this Agreement shall be in writing and shall be deemed to have been given (a) when delivered in person, (b) when sent by telex or telecopier with answerback received, or (c) seventy-two (72) hours after having been deposited in the U.S. mails, certified mail with return receipt requested and postage prepaid, and in any case addressed to the -18- party for which it is intended at that party's address as set forth below, or at such other address as the addressee shall have designated by notice hereunder to the other party. If to S&H: S&H Inc. 4 Landmark Square Suite 400 Stamford, CT 06901 Attention: R. Philip Silver If to Silgan: Silgan Corporation 4 Landmark Square Suite 400 Stamford, CT 06901 Attention: R. Philip Silver If a notice is sent to any of the above, a copy shall be sent to the following: Winthrop, Stimson, Putnam & Roberts Financial Centre 695 East Main Street P.O. Box 6760 Stamford, CT 06904-6760 Attention: Frank W. Hogan, III, Esq. Any notice or request sent by telecopier or similar facsimile telecommunication shall be confirmed promptly by the sending of a copy of such notice or request to the addressee thereof by prepaid certified mail, return receipt requested. 13. Definitions. ----------- Terms not defined herein which are defined in the Stockholders Agreement shall have the meanings ascribed to them therein. -19- 14. Amendment; Assignment; Binding Effect. ------------------------------------- This Agreement may be amended or modified only by a written instrument signed by the parties hereto. No party shall assign or transfer this Agreement, in whole or in part, or any of such party's rights or obligations hereunder, to any other person or entity without the prior written consent of the other party hereto, except that S&H may transfer or assign all of its rights and obligations hereunder to any entity directly or indirectly succeeding to S&H by merger, consolidation or reorganization. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted assigns. 15. Waiver; Severability. -------------------- The failure of a party to insist in any instance upon the strict and punctual performance of any provision of this Agreement shall not constitute a continuing waiver of such provision. No party shall be deemed to have waived any right, power, or privilege under this Agreement or any provisions hereof unless such waiver shall have been in writing and duly executed by the party to be charged with such waiver, and such waiver shall be a waiver only with respect to the specific instance involved and shall in no way impair the rights of the waiving party or the obligations of any other party in any other respect or at any other time. If any provision of this Agreement shall be waived, or be invalid, illegal or unenforceable, the remaining provisions of this Agreement shall be unaffected thereby and shall remain binding and in full force and effect. -20- 16. Relationship of the Parties. --------------------------- In all matters relating to this Agreement, each party hereto shall be solely responsible for the acts of its employees, and employees of one party shall not be considered employees of the other party. Except as otherwise provided herein, no party shall have any right, or authority to create any obligation, express or implied, on behalf of any other party. 17. Governing Law. ------------- This Agreement shall be governed by and construed in accordance with the laws of the State of New York without giving effect to its conflict of laws rules and laws. 18. Entire Agreement; Termination of Original Management Services Agreement. ---------------------------------------------------- This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings, either oral or written, with respect thereto. Upon the execution and delivery of this Agreement, the Original Management Services Agreement shall be terminated and shall be of no effect whatsoever. -21- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. S&H INC. By: /s/ R. Philip Silver ________________________________ Title: President and Co-Chief Executive Officer SILGAN CORPORATION By: /s/ Harley Rankin, Jr. ________________________________ Title: Executive Vice President, Chief Financial Officer and Treasurer -22- SCHEDULE I (000's Omitted) Scheduled Amount1/ Maximum Amount1/ ----------------- ---------------- 1997 $ 89,500 1997 $ 100,504 1998 95,500 1998 102,964 1999 101,500 1999 105,488 2000 108,653 2000 108,653 - -------- 1 For each calendar year after 2000, the Scheduled Amount for such calendar year shall be an amount equal to the Maximum Amount for such calendar year. For each calendar year after 2000, the Maximum Amount for such calendar year shall be equal to one hundred and three percent (103%) of the Maximum Amount for the prior calendar year. EX-10.26 8 AMENDED AND RESTATED MANAGEMENT SERVICES AGREEMENT EXHIBIT 10.26 AMENDED AND RESTATED MANAGEMENT SERVICES AGREEMENT This Amended and Restated Management Services Agreement (the "Agreement") is made as of this 14th day of February, 1997 by and between S&H INC., a Connecticut corporation ("S&H"), and SILGAN CONTAINERS CORPORATION, a Delaware corporation ("Containers"). W I T N E S S E T H: WHEREAS, S&H and Containers have entered into the Amended and Restated Management Services Agreement dated as of December 21, 1993 (the "Original Management Services Agreement"), pursuant to which S&H provides general management, supervision, administrative and other services to Containers in accordance with the terms of the Original Management Services Agreement; WHEREAS, S&H also is a party to an Amended and Restated Management Services Agreement dated as of December 21, 1993 with each of Silgan Holdings Inc. ("Holdings"), Silgan Corporation, a wholly owned subsidiary of Holdings and the parent holding company of Containers ("Silgan"), and Silgan Plastics Corporation, a wholly owned subsidiary of Silgan ("Plastics"); WHEREAS, S&H and each of Holdings, Silgan and Plastics are entering into an amended and restated management services agreement dated as of the date hereof (collectively, as so amended and restated, the "Affiliate Management Services Agreements"); and WHEREAS, in contemplation of the consummation of an initial public offering of the common stock of Holdings pursuant to an effective registration statement under the Securities Act of 1933, as amended, S&H and Containers desire to amend and restate hereby the Original Management Services Agreement. NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein, S&H and Containers agree as follows: 1. Management Services. (a) S&H and Containers hereby agree that, during the period beginning on the date hereof and continuing throughout the term hereof, S&H and its Affiliates shall provide to Containers general management, supervision and administrative services, including, without limitation, the preparation of the annual and long-term business plans, and perform such other duties and provide such other services as Containers shall be permitted to request of S&H pursuant to the Certificate of Incorporation or By-Laws of Holdings or pursuant to applicable law, which power and authority Containers hereby grants to S&H ("General Management Services"). (The General Management Services are hereinafter collectively referred to as the "Services" and individually as a "Service"). (b) Any Service hereunder shall be provided to Containers only by S&H or its Affiliates or such consultants, subcontractors or -2- agents as may be selected from time to time by S&H to assist S&H in its provision of the Services. It is understood and agreed that S&H may retain the services of Morgan Stanley & Co. Incorporated or another suitable investment bank as financial advisor to Containers or as an underwriter or placement agent for offerings of securities by Containers. 2. Fees; Payment. (a) In consideration for General Management Services provided by S&H to Containers hereunder, Containers shall pay to S&H aggregate fees or compensation therefor (not including any related out-of-pocket expenses), (i) on a monthly basis, an amount equal to Containers' Proportionate Percentage (as defined below) of five thousand dollars ($5,000) plus 2.475% of EBDIT (as defined in Paragraph 2(i) hereof) for such calendar month until EBDIT for the calendar year to date has reached the Scheduled Amount (as defined in Paragraph 2(d) hereof) for such calendar year, and 1.65% of EBDIT for such calendar month to the extent that EBDIT for the calendar year to date exceeds the Scheduled Amount but is not greater than the Maximum Amount (as defined in Paragraph 2(d) hereof) (the "Monthly Management Fee"); and (ii) on a quarterly basis, an amount equal to Containers' Proportionate Percentage of 2.475% of EBDIT for such calendar quarter until EBDIT for the calendar year to date has reached the Scheduled Amount, and l.65% of EBDIT for such calendar quarter to the extent that EBDIT for the calendar year to date exceeds the Scheduled Amount but is not greater than the Maximum Amount (the "Quarterly Management Fee"). For purposes of this Section 2, "Proportionate Percentage" means such percentage of -3- EBDIT for a given period that is attributable to the results of Containers for such period. (b) Such Quarterly Management Fee shall continue to accrue, but shall not be paid, to S&H by Containers in the event that, and from the date on which, Containers or Silgan shall have received written notice ("Notice") from the Agent (as defined below) that an Event of Default (as such term is defined in the 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 (the "Agent"), and Bank of America Illinois, as Documentation Agent and as a Co-Arranger, as in effect from time to time, and any refinancings, renewals, amendments or extensions thereof (the "Credit Agreement")) exists under any of Sections 9.01, 9.03 (but only to the extent resulting from the violation of one or more of Sections 8.08, 8.09, 8.10, and 8.11 of the Credit Agreement), 9.04(i)(x), 9.04(ii) or 9.05 of the Credit Agreement (each of the foregoing Events of Default, a "Financial Covenant Event of Default") until, and shall be paid by Containers to S&H on, the earliest to occur of (x) the first date after receipt of such Notice upon which no Financial Covenant Event of Default to which the Notice related or otherwise known to S&H or Containers shall be in existence (and so long as no such Financial Covenant Event of Default would be in existence after giving effect to the payment of such unpaid portion of the Quarterly Management Fee), (y) the first date occurring 180 days or more after -4- receipt by Silgan of a written notice from the Agent stating that no Event of Default exists under Section 9.01 of the Credit Agreement, or (z) the date that Silgan, Containers, Plastics, California-Washington Can Corporation, a wholly owned subsidiary of Containers, and SCCW Can Corporation, a wholly owned subsidiary of Containers, shall have paid all outstanding Obligations (as such term is defined under the Credit Agreement). In the event that a Notice is delivered by the Agent, Containers shall pay to S&H that portion of any unpaid Quarterly Management Fee that has accrued with respect to that portion of such calendar quarter prior to the occurrence of any Financial Covenant Event of Default to which such Notice relates. (c) Nothing contained in Paragraph 2(b) shall prevent the Agent from giving successive Notices of the type described in Paragraph 2(b) (in which case the rules set forth in Paragraph 2(b) shall apply to, and the time periods set forth therein shall begin to run on, the date of such subsequent Notice); provided that only one Notice relating to a single Financial Covenant Event of Default and all other Financial Covenant Events of Default in existence at the date of the giving of any such Notice may be given. Notwithstanding anything to the contrary stated herein, if at any time after the giving of Notice by the Agent to Silgan, S&H shall certify in writing to Silgan that all Financial Covenant Events of Default to which such Notice relates have been cured or waived, and that S&H knows of no other Financial Covenant Event of Default then in existence, then Containers shall, unless it knows of the existence of a Financial Covenant Event of Default which has not yet been cured -5- or waived, pay to S&H any accrued and unpaid Quarterly Management Fee or portion thereof in the manner set forth in Paragraph 2(g) hereof unless a Financial Covenant Event of Default would result from such payment. S&H shall not be required to deliver any such certification to Silgan upon the occurrence of the dates or events set forth in clauses (y) or (z) of Paragraph 2(b), and promptly after the occurrence of such date or event, Containers will pay to S&H any accrued and unpaid Quarterly Management Fee or portion thereof. (d) For any given calendar year during the term of this Agreement, the Scheduled Amount and the Maximum Amount for such calendar year will be the amounts set forth in Schedule I hereto. (e) In addition to the Monthly Management Fee and the Quarterly Management Fee, Containers shall also reimburse S&H in an amount equal to all out-of-pocket expenses paid by S&H in providing the Services hereunder, including fees and expenses paid to consultants, subcontractors and other third parties, in connection with such Services. Such expenses shall be payable by Containers to S&H monthly in arrears. (f) (i) Not later than fifteen (15) days after the end of each calendar month during the term hereof with respect to the Monthly Management Fee and (ii) not later than thirty (30) days after the end of each full calendar quarter during the term hereof with respect to the Quarterly Management Fee, S&H shall furnish Containers with a bill for an amount equal to the Monthly Management Fee and the Quarterly Management Fee, respectively, then -6- owing with respect to periods ended on or before the end of such calendar month or such calendar quarter. (g) Each bill furnished to Containers hereunder shall be paid in full within thirty (30) days of the receipt of such bill, except that any accrued and unpaid Quarterly Management Fee or portion thereof shall be paid on the earliest date on which such payment is permitted to be made pursuant to Paragraphs 2(a), 2(b) and 2(c) hereof. All payments of such bills shall be sent to: S&H Inc. 4 Landmark Square Suite 400 Stamford, CT 06901 Attention: R. Philip Silver or to such other address as S&H may specify from time to time by written notice to Containers. (h) All fees and expenses paid to S&H by Holdings and Silgan pursuant to their respective Affiliate Management Services Agreements with S&H, shall be credited to the Monthly Management Fee, the Quarterly Management Fee and the expenses referred to in Paragraphs 2(a) and 2(e) hereof. (i) For purposes of this Section 2, EBDIT shall mean, for any period, the consolidated net income of Holdings and its subsidiaries, before interest expense and provision for income taxes and without giving effect to any extraordinary non-cash gains or extraordinary non-cash losses and any adjustments resulting from changes in the value of employee stock options and/or stock appreciation rights, and adjusted by adding thereto (i) the amount of any fees and expenses paid pursuant to this Agreement or the Affiliate -7- Management Services Agreements, (ii) the amount of all charges and expenses incurred in connection with any refinancing, restructuring, recapitalization or reorganization involving Holdings and its subsidiaries (which charges and expenses have been charged against the consolidated net income of Holdings or its subsidiaries), and (iii) the amount of all amortization of intangibles, covenants not to compete, goodwill and debt financing costs and all depreciation (which amortization and depreciation have been charged against the consolidated net income of Holdings and its subsidiaries, before interest expense), computed in accordance with generally accepted accounting principles. 3. Direct Expenses. It is understood that the consideration to be paid by Containers to S&H for Services hereunder shall not be in lieu of, and that Containers shall be directly liable for, direct expenses incurred by Containers, or by S&H on Containers' behalf (other than the out-of-pocket expenses billed to Containers by S&H pursuant to Paragraph 2(e) hereof), for services rendered to Containers by third parties, including, but not limited to, legal and accounting fees and insurance premiums. Containers shall pay any compensation (including employee benefit costs and any related out-of-pocket expenses) to officers and other employees of Containers who provide substantially full-time services to Containers, other than Messrs. R. Philip Silver ("Silver"), D. Greg Horrigan ("Horrigan"), Harley Rankin, Jr. ("Rankin") and Harold J. Rodriguez, Jr. ("Rodriguez") who shall receive no salaries (it being understood, however, that -8- Containers shall reimburse S&H in respect of compensation paid by S&H to Messrs. Rankin and Rodriguez consistent with the reimbursement therefor by Containers to S&H in 1996), notwithstanding that said officers and other employees may simultaneously be officers or employees of S&H or one of its subsidiaries or Affiliates. 4. Term. (a) The term of this Agreement shall commence on the date hereof and shall continue until June 30, 1999. Thereafter, the term of this Agreement shall be automatically renewed for successive one-year terms unless prior to the date that is 180 days prior to the expiration of the initial term or the then current one-year term, as the case may be, either party shall have given the other party written notice of its election not to renew the term of this Agreement (it being understood that the determination by Containers whether to give such written notice of its election not to renew the term of this Agreement will be made by the independent members of the Board of Directors of Holdings). For purposes hereof, the independent members of the Board of Directors of Holdings shall not include any employee or affiliate of S&H, any officer of Holdings or any member of the Board of Directors that is affiliated with any entity that is receiving or is entitled to receive any payment from Holdings under this Agreement or any payment from S&H in connection with this Agreement. The term of this Agreement may be terminated prior to the expiration of the initial term or the then current one-year term, as the case may be, by -9- written notice to the other party as follows: (i) by Containers for Cause, (ii) by S&H for Cause, (iii) by Containers for any reason other than Cause, upon at least 180 days prior written notice, (iv) by S&H for any reason other than (A) Cause or (B) because of a Change of Control, upon at least 180 days prior written notice, or (v) by S&H at any time after a Change of Control. (b) Upon termination of any Affiliate Management Services Agreement by the party thereto other than S&H for any reason other than "Cause" as defined in such Affiliate Management Services Agreement, this Agreement shall be deemed to have been terminated by Containers pursuant to clause (iii) of the last sentence of Section 4(a) hereof, effective as of the date of termination of such Affiliate Management Services Agreement. Upon termination by S&H of any Affiliate Management Services Agreement for any reason other than "Cause" or because of a "Change of Control," each as defined in such Affiliate Management Services Agreement, this Agreement shall be deemed to have been terminated by S&H pursuant to clause (iv) of the last sentence of Section 4(a) hereof, effective as of the date of termination of such Affiliate Management Services Agreement. (c) For purposes of this Section 4, a "Change of Control" shall be deemed to have occurred when a majority of the Board of Directors of Holdings shall not consist of "Continuing Holdings Directors," which shall mean (i) the directors of Holdings on the date hereof and (ii) each other director of Holdings who is either recommended, approved or nominated for -10- election, or is elected, to the Board of Directors of Holdings by a majority of the other Continuing Holdings Directors. 5. Events of Default. Any one of the following defaults shall constitute an Event of Default (other than by reason of an Event of Force Majeure in the case of each of Paragraphs 5(a)-(f)): (a) (i) The failure or refusal of S&H to comply with or perform its obligations under this Agreement if such failure or refusal continues unremedied for more than 60 days after written notice of the existence of such failure or refusal shall have been given to S&H by Containers or (ii) the failure or refusal of Containers to comply with or perform its obligations under this Agreement if such failure or refusal continues unremedied for more than 60 days after written notice of the existence of such failure or refusal shall have been given to Containers by S&H; (b) S&H or Holdings is declared insolvent or bankrupt by any court of competent jurisdiction, or a voluntary petition in bankruptcy is filed in any court of competent jurisdiction by either of them; (c) An involuntary petition in bankruptcy is filed in any court of competent jurisdiction against S&H or Holdings and within forty-five (45) days thereafter shall not have been dismissed or stayed (and, in the event of any such stay, such stay shall not have been set aside and the petition dismissed within forty-five (45) days after the stay shall have been granted); -11- (d) A trustee or receiver is appointed for S&H or Holdings and remains undischarged for more than forty-five (45) days after being appointed; (e) A proceeding seeking a reorganization, arrangement, liquidation or dissolution of S&H or Holdings is instituted in a court of competent jurisdiction and remains undismissed for more than forty-five (45) days after being instituted; (f) S&H or Holdings voluntarily seeks any such reorganization or arrangement or makes an assignment for the benefit of creditors; or (g) Death or permanent disability of both Horrigan and Silver. For the purposes of this Agreement, "permanent disability" shall mean the inability of Horrigan or Silver, as the case may be, by reason of illness or injury to perform substantially all of his duties as Chairman of the Board or as President of Holdings (or in performing his duties in any other office in Holdings or any of its respective Affiliates to which he may be duly appointed) during any continuous period of one hundred eighty (180) days. 6. Cause. (a) The occurrence of any of the following shall constitute "Cause" for purposes of clause (i) of the last sentence of Section 4(a) of this Agreement: (i) An Event of Default, except for the Event of Default described in Section 5(a)(ii) of this Agreement; or -12- (ii) Criminal conduct or gross negligence by S&H in the performance of the Services; or (iii) The termination of any Affiliate Management Services Agreement by Holdings, Silgan or Plastics, as the case may be, for "Cause" as defined therein. (b) The occurrence of either of the following shall constitute "Cause" for purposes of clause (ii) of the last sentence of Section 4(a) of this Agreement: (i) An Event of Default, except for the Event of Default described in Section 5(a)(i) of this Agreement; or (ii) The termination of any Affiliate Management Services Agreement by S&H for "Cause" as defined therein. 7. Remedies. (a) In the event this Agreement is terminated (or deemed terminated) by Containers prior to June 30, 1999 for any reason other than for Cause, Containers shall be required to pay to S&H as liquidated damages, within thirty (30) days of such termination, the present value of the sum of (i) the Monthly Management Fee (or any portion thereof) that would have been payable by Containers to S&H for each month (or any portion thereof) from the date of such termination through June 30, 1999 and (ii) the Quarterly Management Fee (or any portion thereof) that would have been payable by Containers to S&H for each quarter (or portion thereof) from the date of such termination through June 30, 1999, in each case calculated based on a discount rate of eight percent (8%) per annum. -13- (b) In the event this Agreement is terminated by Containers after June 30, 1999 for any reason other than for Cause, Containers shall be required to pay to S&H as liquidated damages, within thirty (30) days of such termination, the present value of the sum of (i) the Monthly Management Fee (or any portion thereof) payable by Containers to S&H for each month (or any portion thereof) from the date of such termination through the end of the then current one-year term and (ii) the Quarterly Management Fee (or any portion thereof) payable by Containers to S&H for each quarter (or portion thereof) from the date of such termination through the end of the then current one-year term, in each case calculated based on a discount rate of eight percent (8%) per annum. (c) The amounts described in clauses (i) and (ii) of Sections 7(a) and 7(b) shall be calculated based upon the projections of Holdings' EBDIT for the period from the date of such termination through June 30, 1999 or through the end of the then current one-year term, as the case may be, which projections are (1) included in Holdings' most recently prepared forecast statements required under the Credit Agreement or (2) if the Credit Agreement is not in existence, included in Holdings' most recently prepared forecast statements presented to its Board of Directors (provided such forecast statements are prepared on a basis consistent with the requirements under the Credit Agreement that was in effect last). -14- 8. Force Majeure. The term "Event of Force Majeure" as used herein shall mean any failure of a party to perform any of its obligations hereunder if such failure is due to circumstances beyond its control, including but not limited to, any requisition by any government authority, act of war, strike, boycott, lockout, picketing, riot, sabotage, civil commotion, insurrection, epidemic, disease, act of God, fire, flood, accident, explosion, earthquake, storm, failure of public utilities or common carriers, mechanical failure, embargo, or prohibition imposed by any governmental body or agency having authority over the party, which would have constituted an Event of Default but for the fact that such events constituted an Event of Force Majeure. The party affected by an Event of Force Majeure shall give prompt notice thereof to the other parties hereto and each party shall use its best efforts to minimize the duration and consequences of, and to eliminate, any such Event of Force Majeure. At such time as an Event of Force Majeure no longer exists, the respective obligations of the parties hereto shall be reinstated and this Agreement shall continue in full force and effect. 9. Insurance. S&H agrees that for the term of this Agreement it shall cause Containers to obtain and maintain insurance for such risks and in such amounts similar to companies of comparable size which are engaged in similar business activities, provided that S&H shall be deemed to be in compliance with the provisions of this paragraph if Containers maintains a level of insurance which -15- complies with the applicable terms of the Credit Agreement. 10. Indemnification. (a) Containers shall indemnify to the fullest extent permitted by law (as now or hereafter in effect) S&H and each of its Affiliates, officers, directors, employees, consultants and subcontractors, and any Person controlling S&H and each of its Affiliates or any such consultant or subcontractor (each, an "S&H Indemnitee," and collectively, the "S&H Indemnitees") to the extent that any S&H Indemnitee is made, or threatened to be made, a defendant to, or is involved in any manner in, any action, suit or proceeding (whether civil, criminal, administrative, investigative or otherwise) by reason of the fact that such S&H Indemnitee is or was an agent of Containers. (b) In furtherance and not in limitation of the powers conferred by statute: (i) Containers may purchase and maintain insurance on behalf of any S&H Indemnitee as an agent of Containers against any liability asserted against any S&H Indemnitee and incurred by any S&H Indemnitee in such capacity, or arising out of any S&H Indemnitee's status as such, whether or not Containers would have the power to indemnify such S&H Indemnitee against such liability under the provisions of law; and (ii) Containers may create a trust fund, grant a security interest and/or use other means (including, without limitation, letters of credit, surety bonds and/or -16- other similar arrangements), as well as enter into contracts providing indemnification to the full extent authorized or permitted by law and including as part thereof provisions with respect to any or all of the foregoing to ensure the payment of such amounts as may become necessary to effect indemnification as provided therein, or elsewhere. (c) The manner of any indemnification under this Agreement shall be in accordance with Section 2.8 of the Stockholders Agreement dated as of December 21, 1993 among Silver, Horrigan, The Morgan Stanley Leveraged Equity Fund II, L.P., Bankers Trust New York Corporation, First Plaza Group Trust and Holdings (as amended from time to time, the "Stockholders Agreement"). 11. Noncompetition. (a) During the term of this Agreement, S&H hereby agrees that it will not, directly or indirectly, own, render services to, manage, operate, control, or participate in the ownership, management, operation or control of a business that is engaged in any "Business". For purposes hereof, the term "Business" shall mean the manufacture and sale anywhere in the world of consumer goods packaging products. (b) In the event that this Agreement is terminated by S&H pursuant to clause (iv) of the last sentence of Section 4(a) hereof, S&H hereby agrees that, for a period of one year beginning on the date of such termination, it will not, directly or indirectly: (i) own, render services to, manage, operate, control, or participate in the ownership, -17- management, operation or control of a business that is engaged in any Business; (ii) interfere with any customer or supplier relationship between Holdings and/or its subsidiaries and any other person or business entity; or (iii) disclose or use any confidential or proprietary information relating to Holdings and its subsidiaries' businesses, except for any information already in the public domain through no act of S&H and except as may be required by law or governmental or court order. (c) Notwithstanding anything herein to the contrary, nothing herein, however, shall restrict S&H from making any investments in any company whose stock is listed on a national securities exchange or actively traded in the over-the-counter markets, so long as such investment does not give S&H the right to control or influence the policy decisions of any such company engaged in any Business. (d) If any particular provision or portion of this Section 11 shall be adjudicated to be invalid or unenforceable, this Section 11 shall be deemed amended to delete therefrom such provision or portion adjudicated to be invalid or unenforceable, and such amendment will apply only with respect to the operation of such provision or portion in the particular jurisdiction in which such adjudication was sought. (e) The parties recognize that the performance of the obligations under this Section 11 by S&H is special, unique and extraordinary in character, and that in the event of a breach, or threatened breach, of any of the terms and conditions of this Section 11, Containers shall -18- be entitled, if it so elects, in addition to any other remedies available to Containers, to enforce the specific performance thereof or to enjoin any breach thereof. 12. Notices. All notices and other communications required by or specifically provided for in this Agreement shall be in writing and shall be deemed to have been given (a) when delivered in person, (b) when sent by telex or telecopier with answerback received, or (c) seventy-two (72) hours after having been deposited in the U.S. mails, certified mail with return receipt requested and postage prepaid, and in any case addressed to the party for which it is intended at that party's address as set forth below, or at such other address as the addressee shall have designated by notice hereunder to the other party. If to S&H: S&H Inc. 4 Landmark Square Suite 400 Stamford, CT 06901 Attention: R. Philip Silver If to Containers: Silgan Containers Corporation 4 Landmark Square Suite 400 Stamford, CT 06901 Attention: R. Philip Silver If a notice is sent to any of the above, a copy shall be sent to the following: Winthrop, Stimson, Putnam & Roberts Financial Centre 695 East Main Street P.O. Box 6760 Stamford, CT 06904-6760 Attention: Frank W. Hogan, III, Esq. -19- Any notice or request sent by telecopier or similar facsimile telecommunication shall be confirmed promptly by the sending of a copy of such notice or request to the addressee thereof by prepaid certified mail, return receipt requested. 13. Definitions. Terms not defined herein which are defined in the Stockholders Agreement shall have the meanings ascribed to them therein. 14. Amendment; Assignment; Binding Effect. This Agreement may be amended or modified only by a written instrument signed by the parties hereto. No party shall assign or transfer this Agreement, in whole or in part, or any of such party's rights or obligations hereunder, to any other person or entity without the prior written consent of the other party hereto, except that S&H may transfer or assign all of its rights and obligations hereunder to any entity directly or indirectly succeeding to S&H by merger, consolidation or reorganization. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted assigns. 15. Waiver; Severability. The failure of a party to insist in any instance upon the strict and punctual performance of any provision of this Agreement shall not constitute a continuing waiver of such provision. No party shall be deemed to have waived any right, power, or privilege under this Agreement or any provisions hereof unless such waiver shall have been in writing and duly executed by the party to be charged with such waiver, and such waiver -20- shall be a waiver only with respect to the specific instance involved and shall in no way impair the rights of the waiving party or the obligations of any other party in any other respect or at any other time. If any provision of this Agreement shall be waived, or be invalid, illegal or unenforceable, the remaining provisions of this Agreement shall be unaffected thereby and shall remain binding and in full force and effect. 16. Relationship of the Parties. In all matters relating to this Agreement, each party hereto shall be solely responsible for the acts of its employees, and employees of one party shall not be considered employees of the other party. Except as otherwise provided herein, no party shall have any right, or authority to create any obligation, express or implied, on behalf of any other party. 17. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without giving effect to its conflict of laws rules and laws. 18. Entire Agreement; Termination of Original Management Services Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings, either oral or written, with respect thereto. Upon the execution and delivery of this Agreement, the Original Management Services Agreement shall be terminated and shall be of no effect whatsoever. -21- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. S&H INC. By: /s/ R. Philip Silver -------------------------------- Title: President and Co-Chief Executive Officer SILGAN CONTAINERS CORPORATION By:/s/ Harley Rankin, Jr. -------------------------------- Title: Vice President -22- SCHEDULE I (000's Omitted) Scheduled Amount1 Maximum Amount1/ 1997 $ 89,500 1997 $ 100,504 1998 95,500 1998 102,964 1999 101,500 1999 105,488 2000 108,653 2000 108,653 - -------- 1 For each calendar year after 2000, the Scheduled Amount for such calendar year shall be an amount equal to the Maximum Amount for such calendar year. For each calendar year after 2000, the Maximum Amount for such calendar year shall be equal to one hundred and three percent (103%) of the Maximum Amount for the prior calendar year. EX-10.27 9 AMENDED AND RESTATED MANAGEMENT SERVICES AGREEMENT EXHIBIT 10.27 AMENDED AND RESTATED MANAGEMENT SERVICES AGREEMENT This Amended and Restated Management Services Agreement (the "Agreement") is made as of this 14th day of February, 1997 by and between S&H INC., a Connecticut corporation ("S&H"), and SILGAN PLASTICS CORPORATION, a Delaware corporation ("Plastics"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, S&H and Plastics have entered into the Amended and Restated Management Services Agreement dated as of December 21, 1993 (the "Original Management Services Agreement"), pursuant to which S&H provides general management, supervision, administrative and other services to Plastics in accordance with the terms of the Original Management Services Agreement; WHEREAS, S&H also is a party to an Amended and Restated Management Services Agreement dated as of December 21, 1993 with each of Silgan Holdings Inc. ("Holdings"), Silgan Corporation, a wholly owned subsidiary of Holdings and the parent company of Plastics ("Silgan"), and Silgan Containers Corporation, a wholly owned subsidiary of Silgan ("Containers"); WHEREAS, S&H and each of Holdings, Silgan and Containers are entering into an amended and restated management services agreement dated as of the date hereof (collectively, as so amended and restated, the "Affiliate Management Services Agreements"); and WHEREAS, in contemplation of the consummation of an initial public offering of the common stock of Holdings pursuant to an effective registration statement under the Securities Act of 1933, as amended, S&H and Plastics desire to amend and restate hereby the Original Management Services Agreement. NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein, S&H and Plastics agree as follows: 1. Management Services. ------------------- (a) S&H and Plastics hereby agree that, during the period beginning on the date hereof and continuing throughout the term hereof, S&H and its Affiliates shall provide to Plastics general management, supervision and administrative services, including, without limitation, the preparation of the annual and long-term business plans, and perform such other duties and provide such other services as Plastics shall be permitted to request of S&H pursuant to the Certificate of Incorporation or By-Laws of Holdings or pursuant to applicable law, which power and authority Plastics hereby grants to S&H ("General Management Services"). (The General Management Services are hereinafter collectively referred to as the "Services" and individually as a "Service"). (b) Any Service hereunder shall be provided to Plastics only by S&H or its Affiliates or such consultants, subcontractors or agents as may be selected from time to time by S&H to assist S&H in its provision of the Services. It is understood and agreed that S&H may retain the services of Morgan -2- Stanley & Co. Incorporated or another suitable investment bank as financial advisor to Plastics or as an underwriter or placement agent for offerings of securities by Plastics. 2. Fees; Payment. ------------- (a) In consideration for General Management Services provided by S&H to Plastics hereunder, Plastics shall pay to S&H aggregate fees or compensation therefor (not including any related out-of-pocket expenses), (i) on a monthly basis, an amount equal to Plastics' Proportionate Percentage (as defined below) of five thousand dollars ($5,000) plus 2.475% of EBDIT (as defined in Paragraph 2(i) hereof) for such calendar month until EBDIT for the calendar year to date has reached the Scheduled Amount (as defined in Paragraph 2(d) hereof) for such calendar year, and 1.65% of EBDIT for such calendar month to the extent that EBDIT for the calendar year to date exceeds the Scheduled Amount but is not greater than the Maximum Amount (as defined in Paragraph 2(d) hereof) (the "Monthly Management Fee"); and (ii) on a quarterly basis, an amount equal to Plastics Proportionate Percentage of 2.475% of EBDIT for such calendar quarter until EBDIT for the calendar year to date has reached the Scheduled Amount, and l.65% of EBDIT for such calendar quarter to the extent that EBDIT for the calendar year to date exceeds the Scheduled Amount but is not greater than the Maximum Amount (the "Quarterly Management Fee"). For purposes of this Section 2, "Proportionate Percentage" means such percentage of EBDIT for a given period that is attributable to the results of Plastics for such period. -3- (b) Such Quarterly Management Fee shall continue to accrue, but shall not be paid, to S&H by Plastics in the event that, and from the date on which, Plastics or Silgan shall have received written notice ("Notice") from the Agent (as defined below) that an Event of Default (as such term is defined in the 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 (the "Agent"), and Bank of America Illinois, as Documentation Agent and as a Co-Arranger, as in effect from time to time, and any refinancings, renewals, amendments or extensions thereof (the "Credit Agreement")) exists under any of Sections 9.01, 9.03 (but only to the extent resulting from the violation of one or more of Sections 8.08, 8.09, 8.10, and 8.11 of the Credit Agreement), 9.04(i)(x), 9.04(ii) or 9.05 of the Credit Agreement (each of the foregoing Events of Default, a "Financial Covenant Event of Default") until, and shall be paid by Plastics to S&H on, the earliest to occur of (x) the first date after receipt of such Notice upon which no Financial Covenant Event of Default to which the Notice related or otherwise known to S&H or Plastics shall be in existence (and so long as no such Financial Covenant Event of Default would be in existence after giving effect to the payment of such unpaid portion of the Quarterly Management Fee), (y) the first date occurring 180 days or more after receipt by Silgan of a written notice from the Agent stating that no Event of Default exists under Section 9.01 of the Credit Agreement, or (z) the date that Silgan, Containers, -4- Plastics, California-Washington Can Corporation, a wholly owned subsidiary of Containers, and SCCW Can Corporation, a wholly owned subsidiary of Containers, shall have paid all outstanding Obligations (as such term is defined under the Credit Agreement). In the event that a Notice is delivered by the Agent, Plastics shall pay to S&H that portion of any unpaid Quarterly Management Fee that has accrued with respect to that portion of such calendar quarter prior to the occurrence of any Financial Covenant Event of Default to which such Notice relates. (c) Nothing contained in Paragraph 2(b) shall prevent the Agent from giving successive Notices of the type described in Paragraph 2(b) (in which case the rules set forth in Paragraph 2(b) shall apply to, and the time periods set forth therein shall begin to run on, the date of such subsequent Notice); provided that only one Notice relating to a single Financial Covenant Event of Default and all other Financial Covenant Events of Default in existence at the date of the giving of any such Notice may be given. Notwithstanding anything to the contrary stated herein, if at any time after the giving of Notice by the Agent to Silgan, S&H shall certify in writing to Silgan that all Financial Covenant Events of Default to which such Notice relates have been cured or waived, and that S&H knows of no other Financial Covenant Event of Default then in existence, then Plastics shall, unless it knows of the existence of a Financial Covenant Event of Default which has not yet been cured or waived, pay to S&H any accrued and unpaid Quarterly Management Fee or portion thereof in the manner set forth in Paragraph 2(g) -5- hereof unless a Financial Covenant Event of Default would result from such payment. S&H shall not be required to deliver any such certification to Silgan upon the occurrence of the dates or events set forth in clauses (y) or (z) of Paragraph 2(b), and promptly after the occurrence of such date or event, Plastics will pay to S&H any accrued and unpaid Quarterly Management Fee or portion thereof. (d) For any given calendar year during the term of this Agreement, the Scheduled Amount and the Maximum Amount for such calendar year will be the amounts set forth in Schedule I hereto. (e) In addition to the Monthly Management Fee and the Quarterly Management Fee, Plastics shall also reimburse S&H in an amount equal to all out-of-pocket expenses paid by S&H in providing the Services hereunder, including fees and expenses paid to consultants, subcontractors and other third parties, in connection with such Services. Such expenses shall be payable by Plastics to S&H monthly in arrears. (f) (i) Not later than fifteen (15) days after the end of each calendar month during the term hereof with respect to the Monthly Management Fee and (ii) not later than thirty (30) days after the end of each full calendar quarter during the term hereof with respect to the Quarterly Management Fee, S&H shall furnish Plastics with a bill for an amount equal to the Monthly Management Fee and the Quarterly Management Fee, respectively, then owing with respect to periods ended on or before the end of such calendar month or such calendar quarter. -6- (g) Each bill furnished to Plastics hereunder shall be paid in full within thirty (30) days of the receipt of such bill, except that any accrued and unpaid Quarterly Management Fee or portion thereof shall be paid on the earliest date on which such payment is permitted to be made pursuant to Paragraphs 2(a), 2(b) and 2(c) hereof. All payments of such bills shall be sent to: S&H Inc. 4 Landmark Square Suite 400 Stamford, CT 06901 Attention: R. Philip Silver or to such other address as S&H may specify from time to time by written notice to Plastics. (h) All fees and expenses paid to S&H by Holdings and Silgan pursuant to their respective Affiliate Management Services Agreements with S&H, shall be credited to the Monthly Management Fee, the Quarterly Management Fee and the expenses referred to in Paragraphs 2(a) and 2(e) hereof. (i) For purposes of this Section 2, EBDIT shall mean, for any period, the consolidated net income of Holdings and its subsidiaries, before interest expense and provision for income taxes and without giving effect to any extraordinary non-cash gains or extraordinary non-cash losses and any adjustments resulting from changes in the value of employee stock options and/or stock appreciation rights, and adjusted by adding thereto (i) the amount of any fees and expenses paid pursuant to this Agreement or the Affiliate Management Services Agreements, (ii) the amount of all charges and expenses incurred in -7- connection with any refinancing, restructuring, recapitalization or reorganization involving Holdings and its subsidiaries (which charges and expenses have been charged against the consolidated net income of Holdings or its subsidiaries), and (iii) the amount of all amortization of intangibles, covenants not to compete, goodwill and debt financing costs and all depreciation (which amortization and depreciation have been charged against the consolidated net income of Holdings and its subsidiaries, before interest expense), computed in accordance with generally accepted accounting principles. 3. Direct Expenses. --------------- It is understood that the consideration to be paid by Plastics to S&H for Services hereunder shall not be in lieu of, and that Plastics shall be directly liable for, direct expenses incurred by Plastics, or by S&H on Plastics' behalf (other than the out-of-pocket expenses billed to Plastics by S&H pursuant to Paragraph 2(e) hereof), for services rendered to Plastics by third parties, including, but not limited to, legal and accounting fees and insurance premiums. Plastics shall pay any compensation (including employee benefit costs and any related out-of-pocket expenses) to officers and other employees of Plastics who provide substantially full-time services to Plastics, other than Messrs. R. Philip Silver ("Silver"), D. Greg Horrigan ("Horrigan"), Harley Rankin, Jr. ("Rankin") and Harold J. Rodriguez, Jr. ("Rodriguez") who shall receive no salaries (it being understood, however, that Plastics shall reimburse S&H in respect of compensation paid by S&H to Messrs. Rankin and -8- Rodriguez consistent with the reimbursement therefor by Plastics to S&H in 1996), notwithstanding that said officers and other employees may simultaneously be officers or employees of S&H or one of its subsidiaries or Affiliates. 4. Term. ---- (a) The term of this Agreement shall commence on the date hereof and shall continue until June 30, 1999. Thereafter, the term of this Agreement shall be automatically renewed for successive one-year terms unless prior to the date that is 180 days prior to the expiration of the initial term or the then current one-year term, as the case may be, either party shall have given the other party written notice of its election not to renew the term of this Agreement (it being understood that the determination by Plastics whether to give such written notice of its election not to renew the term of this Agreement will be made by the independent members of the Board of Directors of Holdings). For purposes hereof, the independent members of the Board of Directors of Holdings shall not include any employee or affiliate of S&H, any officer of Holdings or any member of the Board of Directors that is affiliated with any entity that is receiving or is entitled to receive any payment from Holdings under this Agreement or any payment from S&H in connection with this Agreement. The term of this Agreement may be terminated prior to the expiration of the initial term or the then current one-year term, as the case may be, by written notice to the other party as follows: (i) by Plastics for Cause, (ii) by S&H for Cause, (iii) by Plastics for any reason other than Cause, upon at -9- least 180 days prior written notice, (iv) by S&H for any reason other than (A) Cause or (B) because of a Change of Control, upon at least 180 days prior written notice, or (v) by S&H at any time after a Change of Control. (b) Upon termination of any Affiliate Management Services Agreement by the party thereto other than S&H for any reason other than "Cause" as defined in such Affiliate Management Services Agreement, this Agreement shall be deemed to have been terminated by Plastics pursuant to clause (iii) of the last sentence of Section 4(a) hereof, effective as of the date of termination of such Affiliate Management Services Agreement. Upon termination by S&H of any Affiliate Management Services Agreement for any reason other than "Cause" or because of a "Change of Control," each as defined in such Affiliate Management Services Agreement, this Agreement shall be deemed to have been terminated by S&H pursuant to clause (iv) of the last sentence of Section 4(a) hereof, effective as of the date of termination of such Affiliate Management Services Agreement. (c) For purposes of this Section 4, a "Change of Control" shall be deemed to have occurred when a majority of the Board of Directors of Holdings shall not consist of "Continuing Holdings Directors," which shall mean (i) the directors of Holdings on the date hereof and (ii) each other director of Holdings who is either recommended, approved or nominated for election, or is elected, to the Board of Directors of Holdings by a majority of the other Continuing Holdings Directors. -10- 5. Events of Default. ----------------- Any one of the following defaults shall constitute an Event of Default (other than by reason of an Event of Force Majeure in the case of each of Paragraphs 5(a)-(f)): (a) (i) The failure or refusal of S&H to comply with or perform its obligations under this Agreement if such failure or refusal continues unremedied for more than 60 days after written notice of the existence of such failure or refusal shall have been given to S&H by Plastics or (ii) the failure or refusal of Plastics to comply with or perform its obligations under this Agreement if such failure or refusal continues unremedied for more than 60 days after written notice of the existence of such failure or refusal shall have been given to Plastics by S&H; (b) S&H or Holdings is declared insolvent or bankrupt by any court of competent jurisdiction, or a voluntary petition in bankruptcy is filed in any court of competent jurisdiction by either of them; (c) An involuntary petition in bankruptcy is filed in any court of competent jurisdiction against S&H or Holdings and within forty-five (45) days thereafter shall not have been dismissed or stayed (and, in the event of any such stay, such stay shall not have been set aside and the petition dismissed within forty-five (45) days after the stay shall have been granted); -11- (d) A trustee or receiver is appointed for S&H or Holdings and remains undischarged for more than forty-five (45) days after being appointed; (e) A proceeding seeking a reorganization, arrangement, liquidation or dissolution of S&H or Holdings is instituted in a court of competent jurisdiction and remains undismissed for more than forty-five (45) days after being instituted; (f) S&H or Holdings voluntarily seeks any such reorganization or arrangement or makes an assignment for the benefit of creditors; or (g) Death or permanent disability of both Horrigan and Silver. For the purposes of this Agreement, "permanent disability" shall mean the inability of Horrigan or Silver, as the case may be, by reason of illness or injury to perform substantially all of his duties as Chairman of the Board or as President of Holdings (or in performing his duties in any other office in Holdings or any of its respective Affiliates to which he may be duly appointed) during any continuous period of one hundred eighty (180) days. 6. Cause. ----- (a) The occurrence of any of the following shall constitute "Cause" for purposes of clause (i) of the last sentence of Section 4(a) of this Agreement: (i) An Event of Default, except for the Event of Default described in Section 5(a)(ii) of this Agreement; or -12- (ii) Criminal conduct or gross negligence by S&H in the performance of the Services; or (iii) The termination of any Affiliate Management Services Agreement by Holdings, Silgan, or Containers, as the case may be, for "Cause" as defined therein. (b) The occurrence of either of the following shall constitute "Cause" for purposes of clause (ii) of the last sentence of Section 4(a) of this Agreement: (i) An Event of Default, except for the Event of Default described in Section 5(a)(i) of this Agreement; or (ii) The termination of any Affiliate Management Services Agreement by S&H for "Cause" as defined therein. 7. Remedies. -------- (a) In the event this Agreement is terminated (or deemed terminated) by Plastics prior to June 30, 1999 for any reason other than for Cause, Plastics shall be required to pay to S&H as liquidated damages, within thirty (30) days of such termination, the present value of the sum of (i) the Monthly Management Fee (or any portion thereof) that would have been payable by Plastics to S&H for each month (or any portion thereof) from the date of such termination through June 30, 1999 and (ii) the Quarterly Management Fee (or any portion thereof) that would have been payable by Plastics to S&H for each quarter (or portion thereof) from the date of such termination through June 30, 1999, in each case calculated based on a discount rate of eight percent (8%) per annum. -13- (b) In the event this Agreement is terminated by Plastics after June 30, 1999, for any reason other than for Cause, Plastics shall be required to pay to S&H as liquidated damages, within thirty (30) days of such termination, the present value of the sum of (i) the Monthly Management Fee (or any portion thereof) payable by Plastics to S&H for each month (or any portion thereof) from the date of such termination through the end of the then current one-year term and (ii) the Quarterly Management Fee (or any portion thereof) payable by Plastics to S&H for each quarter (or portion thereof) from the date of such termination through the end of the then current one-year term, in each case calculated based on a discount rate of eight percent (8%) per annum. (c) The amounts described in clauses (i) and (ii) of Sections 7(a) and 7(b) shall be calculated based upon the projections of Holdings' EBDIT for the period from the date of such termination through June 30, 1999 or through the end of the then current one-year term, as the case may be, which projections are (1) included in Holdings' most recently prepared forecast statements required under the Credit Agreement or (2) if the Credit Agreement is not in existence, included in Holdings' most recently prepared forecast statements presented to its Board of Directors (provided such forecast statements are prepared on a basis consistent with the requirements under the Credit Agreement that was in effect last). -14- 8. Force Majeure. ------------- The term "Event of Force Majeure" as used herein shall mean any failure of a party to perform any of its obligations hereunder if such failure is due to circumstances beyond its control, including but not limited to, any requisition by any government authority, act of war, strike, boycott, lockout, picketing, riot, sabotage, civil commotion, insurrection, epidemic, disease, act of God, fire, flood, accident, explosion, earthquake, storm, failure of public utilities or common carriers, mechanical failure, embargo, or prohibition imposed by any governmental body or agency having authority over the party, which would have constituted an Event of Default but for the fact that such events constituted an Event of Force Majeure. The party affected by an Event of Force Majeure shall give prompt notice thereof to the other parties hereto and each party shall use its best efforts to minimize the duration and consequences of, and to eliminate, any such Event of Force Majeure. At such time as an Event of Force Majeure no longer exists, the respective obligations of the parties hereto shall be reinstated and this Agreement shall continue in full force and effect. 9. Insurance. --------- S&H agrees that for the term of this Agreement it shall cause Plastics to obtain and maintain insurance for such risks and in such amounts similar to companies of comparable size which are engaged in similar business activities, provided that S&H shall be deemed to be in compliance with the provisions of this paragraph if Plastics maintains a level of insurance which -15- complies with the applicable terms of the Credit Agreement. 10. Indemnification. --------------- (a) Plastics shall indemnify to the fullest extent permitted by law (as now or hereafter in effect) S&H and each of its Affiliates, officers, directors, employees, consultants and subcontractors, and any Person controlling S&H and each of its Affiliates or any such consultant or subcontractor (each, an "S&H Indemnitee," and collectively, the "S&H Indemnitees") to the extent that any S&H Indemnitee is made, or threatened to be made, a defendant to, or is involved in any manner in, any action, suit or proceeding (whether civil, criminal, administrative, investigative or otherwise) by reason of the fact that such S&H Indemnitee is or was an agent of Plastics. (b) In furtherance and not in limitation of the powers conferred by statute: (i) Plastics may purchase and maintain insurance on behalf of any S&H Indemnitee as an agent of Plastics against any liability asserted against any S&H Indemnitee and incurred by any S&H Indemnitee in such capacity, or arising out of any S&H Indemnitee's status as such, whether or not Plastics would have the power to indemnify such S&H Indemnitee against such liability under the provisions of law; and (ii) Plastics may create a trust fund, grant a security interest and/or use other means (including, without limitation, letters of credit, surety bonds and/or -16- other similar arrangements), as well as enter into contracts providing indemnification to the full extent authorized or permitted by law and including as part thereof provisions with respect to any or all of the foregoing to ensure the payment of such amounts as may become necessary to effect indemnification as provided therein, or elsewhere. (c) The manner of any indemnification under this Agreement shall be in accordance with Section 2.8 of the Stockholders Agreement dated as of December 21, 1993 among Silver, Horrigan, The Morgan Stanley Leveraged Equity Fund II, L.P., Bankers Trust New York Corporation, First Plaza Group Trust and Holdings (as amended from time to time, the "Stockholders Agreement"). 11. Noncompetition. -------------- (a) During the term of this Agreement, S&H hereby agrees that it will not, directly or indirectly, own, render services to, manage, operate, control, or participate in the ownership, management, operation or control of a business that is engaged in any "Business". For purposes hereof, the term "Business" shall mean the manufacture and sale anywhere in the world of consumer goods packaging products. (b) In the event that this Agreement is terminated by S&H pursuant to clause (iv) of the last sentence of Section 4(a) hereof, S&H hereby agrees that, for a period of one year beginning on the date of such termination, it will not, directly or indirectly: (i) own, render services to, manage, operate, control, or participate in the ownership, management, -17- operation or control of a business that is engaged in any Business; (ii) interfere with any customer or supplier relationship between Holdings and/or its subsidiaries and any other person or business entity; or (iii) disclose or use any confidential or proprietary information relating to Holdings and its subsidiaries' businesses, except for any information already in the public domain through no act of S&H and except as may be required by law or governmental or court order. (c) Notwithstanding anything herein to the contrary, nothing herein, however, shall restrict S&H from making any investments in any company whose stock is listed on a national securities exchange or actively traded in the over-the-counter markets, so long as such investment does not give S&H the right to control or influence the policy decisions of any such company engaged in any Business. (d) If any particular provision or portion of this Section 11 shall be adjudicated to be invalid or unenforceable, this Section 11 shall be deemed amended to delete therefrom such provision or portion adjudicated to be invalid or unenforceable, and such amendment will apply only with respect to the operation of such provision or portion in the particular jurisdiction in which such adjudication was sought. (e) The parties recognize that the performance of the obligations under this Section 11 by S&H is special, unique and extraordinary in character, and that in the event of a breach, or threatened breach, of any of the terms and conditions of this Section 11, Plastics shall be entitled, if it so elects, -18- in addition to any other remedies available to Plastics, to enforce the specific performance thereof or to enjoin any breach thereof. 12. Notices. ------- All notices and other communications required by or specifically provided for in this Agreement shall be in writing and shall be deemed to have been given (a) when delivered in person, (b) when sent by telex or telecopier with answerback received, or (c) seventy-two (72) hours after having been deposited in the U.S. mails, certified mail with return receipt requested and postage prepaid, and in any case addressed to the party for which it is intended at that party's address as set forth below, or at such other address as the addressee shall have designated by notice hereunder to the other party. If to S&H: S&H Inc. 4 Landmark Square Suite 400 Stamford, CT 06901 Attention: R. Philip Silver If to Plastics: Silgan Plastics Corporation 4 Landmark Square Suite 400 Stamford, CT 06901 Attention: R. Philip Silver If a notice is sent to any of the above, a copy shall be sent to the following: Winthrop, Stimson, Putnam & Roberts Financial Centre 695 East Main Street P.O. Box 6760 Stamford, CT 06904-6760 Attention: Frank W. Hogan, III, Esq. -19- Any notice or request sent by telecopier or similar facsimile telecommunication shall be confirmed promptly by the sending of a copy of such notice or request to the addressee thereof by prepaid certified mail, return receipt requested. 13. Definitions. ----------- Terms not defined herein which are defined in the Stockholders Agreement shall have the meanings ascribed to them therein. 14. Amendment; Assignment; Binding Effect. ------------------------------------- This Agreement may be amended or modified only by a written instrument signed by the parties hereto. No party shall assign or transfer this Agreement, in whole or in part, or any of such party's rights or obligations hereunder, to any other person or entity without the prior written consent of the other party hereto, except that S&H may transfer or assign all of its rights and obligations hereunder to any entity directly or indirectly succeeding to S&H by merger, consolidation or reorganization. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted assigns. 15. Waiver; Severability. -------------------- The failure of a party to insist in any instance upon the strict and punctual performance of any provision of this Agreement shall not constitute a continuing waiver of such provision. No party shall be deemed to have waived any right, power, or privilege under this Agreement or any provisions hereof unless such waiver shall have been in writing and duly executed by the party to be charged with such waiver, and such waiver -20- shall be a waiver only with respect to the specific instance involved and shall in no way impair the rights of the waiving party or the obligations of any other party in any other respect or at any other time. If any provision of this Agreement shall be waived, or be invalid, illegal or unenforceable, the remaining provisions of this Agreement shall be unaffected thereby and shall remain binding and in full force and effect. 16. Relationship of the Parties. --------------------------- In all matters relating to this Agreement, each party hereto shall be solely responsible for the acts of its employees, and employees of one party shall not be considered employees of the other party. Except as otherwise provided herein, no party shall have any right, or authority to create any obligation, express or implied, on behalf of any other party. 17. Governing Law. ------------- This Agreement shall be governed by and construed in accordance with the laws of the State of New York without giving effect to its conflict of laws rules and laws. 18. Entire Agreement; Termination of Original Management Services Agreement. ---------------------------------------------------- This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings, either oral or written, with respect thereto. Upon the execution and delivery of this Agreement, the Original Management Services Agreement shall be terminated and shall be of no effect whatsoever. -21- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. S&H INC. By: /s/ R. Philip Silver ________________________________ Title: President and Co-Chief Executive Officer SILGAN PLASTICS CORPORATION By: /s/ Harley Rankin, Jr. ________________________________ Title: Vice President -22- SCHEDULE I (000's Omitted) Scheduled Amount1/ Maximum Amount1/ ------------------ ---------------- 1997 $ 89,500 1997 $ 100,504 1998 95,500 1998 102,964 1999 101,500 1999 105,488 2000 108,653 2000 108,653 - -------- 1 For each calendar year after 2000, the Scheduled Amount for such calendar year shall be an amount equal to the Maximum Amount for such calendar year. For each calendar year after 2000, the Maximum Amount for such calendar year shall be equal to one hundred and three percent (103%) of the Maximum Amount for the prior calendar year. EX-10.40 10 UNDERWRITING AGREEMENT EXHIBIT 10.40 SILGAN HOLDINGS INC. Common Stock par value $.01 per share Underwriting Agreement February 13, 1997 Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated, Salomon Brothers Inc, As representatives of the several Underwriters named in Schedule I hereto, c/o Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004 Ladies and Gentlemen: Silgan Holdings Inc., a Delaware corporation (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of 3,700,000 shares of Common Stock, par value $.01 per share ("Stock"), of the Company and the stockholders of the Company named in Schedule II hereto (the "Selling Stockholders") propose, subject to the terms and conditions stated herein, to sell to the Underwriters an aggregate of 800,000 shares of Stock and at the election of the Underwriters, up to 675,000 additional shares of Stock. The aggregate of shares to be sold by the Company and the Selling Stockholders is herein called the "Firm Shares" and the aggregate of 675,000 additional shares to be sold by the Selling Stockholders is herein called the "Optional Shares". The Firm Shares and the Optional Shares that the Underwriters elect to purchase pursuant to Section 2 hereof being collectively called the "Shares". Silgan Corporation ("Silgan"), Silgan Containers Corporation ("Containers") and Silgan Plastics Corporation ("Plastics"), each a Delaware corporation, and the Company are each referred to as a "Member of the Silgan Group." 1. (a) Each Member of the Silgan Group represents and warrants to, and agrees with, each of the Underwriters that: (i) A registration statement on Form S-2 (File No. 333-11989) (the "Initial Registration Statement") in respect of the Shares has been filed with the Securities and Exchange Commission (the "Commission"); the Initial Registration Statement and any post-effective amendment thereto, each in the form heretofore delivered to you, and, excluding exhibits thereto but including all documents incorporated by reference in the prospectus contained therein, to you for each of the other Underwriters, have been declared effective by the Commission in such form; other than a registration statement, if any, increasing the size of the offering (a "Rule 462(b) Registration Statement"), filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the "Act"), which became effective upon filing, no other document with respect to the Initial Registration Statement or any document incorporated by reference therein has heretofore been filed with the Commission; and no stop order suspending the effectiveness of the Initial Registration Statement, any post-effective amendment thereto or the Rule 462(b) Registration Statement, if any, has been issued and no proceeding for that purpose has been initiated or threatened by the Commission (any preliminary prospectus included in the Initial Registration Statement or filed with the Commission pursuant to Rule 424(a) of the rules and regulations of the Commission under the Act, is hereinafter called a "Preliminary Prospectus"; the various parts of the Initial Registration Statement and the Rule 462(b) Registration Statement, if any, including all exhibits thereto and including (i) the information contained in the form of final prospectus filed with the Commission pursuant to Rule 424(b) of the rules and regulations of the Commission under the Act in accordance with Section 6(a) hereof and deemed by virtue of Rule 430A of the rules and regulations of the Commission under the Act to be part of the Initial Registration Statement at the time it was declared effective or such part of the Rule 462(b) Registration Statement, if any, at the time it became or hereafter becomes effective and (ii) the documents incorporated by reference in the prospectus contained in the registration statement at the time such part of the registration statement became effective, each as amended at the time such part of the registration statement became effective, is hereinafter collectively called the "Registration Statement"; such final prospectus, in the form first filed pursuant to Rule 424(b) of the rules and regulations of the Commission under the Act, is hereinafter called the "Prospectus"; and any reference herein to any Preliminary Prospectus or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-2 under the Act, as of the date of such Preliminary Prospectus or Prospectus, as the case may be); (ii) No order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission, and each Preliminary Prospectus, at the time of filing thereof, conformed in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter through Goldman, Sachs & Co. expressly for use therein or by a Selling Stockholder expressly for use in the preparation of the answers therein to Item 7 of Form S-2; (iii) The documents incorporated by reference in the Prospectus, when they were filed with the Commission, -2- conformed in all materials respects to the requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations of the Commission thereunder, and none of such documents when filed with the Commission contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (iv) The Registration Statement conforms, and the Prospectus and any further amendments or supplements to the Registration Statement or the Prospectus will conform, in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder and do not and will not, as of the applicable effective date as to the Registration Statement and any amendment thereto, and as of the applicable filing date as to the Prospectus and any amendment or supplement thereto, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter through Goldman, Sachs & Co. expressly for use therein or by a Selling Stockholder expressly for use in the preparation of the answers therein to Item 7 of Form S-2; (v) Neither the Company nor any of its subsidiaries has sustained since the date of the latest audited financial statements included or incorporated by reference in the Prospectus any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus; and, since the respective dates as of which information is given in the Registration Statement and the Prospectus, there has not been any change in the capital stock or long-term debt of the Company or any of its subsidiaries or any material adverse change, or any development involving a prospective material adverse change, in or affecting the business, management, financial position, stockholders' equity (deficiency) or results of operations of the Company and its subsidiaries, otherwise than as set forth or contemplated in the Prospectus; (vi) The Company and its subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them, in each case free and clear of all liens, encumbrances and defects except such as are described in the Prospectus or such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and its subsidiaries; and any real property and buildings held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries; -3- (vii) Each of the Company and its subsidiaries has all necessary consents, authorizations, approval, orders, certificates and permits of and from, and has made all declarations and filings with, all federal, state, local and other governmental authorities, all self-regulatory organizations and all courts and other tribunals, to own, lease, license and use its properties and assets and to conduct its business in the manner described in the Prospectus, except to the extent where the failure to obtain any such consent, authorization, approval, order, certificate or permit or make any such declaration or filing would not have a material adverse effect on the Company and its subsidiaries; (viii) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus, and has been duly qualified as a foreign corporation for the transaction of business in and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries; and each subsidiary of the Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation, has the power and authority (corporate and other) to own its property and to conduct its business as described in the Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries; (ix) The Company has an authorized capitalization as set forth in the Prospectus, and all of the issued shares of capital stock of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and conform to the description thereof contained in the Prospectus; and all of the issued shares of capital stock of each subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims other than such pledges of such capital stock existing on the date hereof made in connection with the Credit Agreement, dated as of August 1, 1995, among Silgan, Containers, Plastics and the banks parties thereto; (x) The Shares to be issued and sold by the Company to the Underwriters hereunder have been duly and validly authorized and, when issued delivered against payment therefor as provided herein, will be duly and validly issued, fully paid and non-assessable and will conform to the description of the Stock contained in the Prospectus; (xi) The issue and sale of the Shares to be sold by the Company and the compliance by the Company with all of the -4- provisions of this Agreement and the consummation of the transactions herein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will such action result in any violation of the provisions of the Certificate of Incorporation or By-laws of the Company or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the issue and sale of the Shares to be sold by the Company or the consummation by the Company of the transactions contemplated by this Agreement, except the registration under the Act of the Shares and such consents, approvals, authorizations, registrations or qualifications as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters; (xii) Neither the Company nor any of its subsidiaries is in violation of its Certificate of Incorporation or By-laws or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it is a party or by which it or any of its properties or assets may be bound, except for such defaults as do not and will not have a material adverse effect on the Company and its subsidiaries; (xiii) The statements set forth in the Prospectus under the caption "Description of Capital Stock", insofar as they purport to constitute a summary of the terms of the Stock and under the caption "Underwriting", insofar as they purport to describe the provisions of the laws and documents referred to therein, are accurate, complete and fair; (xiv) Other than as set forth in the Prospectus, there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property of the Company or any of its subsidiaries is the subject which, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a material adverse effect on the current or future consolidated financial position, stockholders' equity or results of operations of the Company and its subsidiaries; and, to the best of the Company's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; (xv) The Company is not and, after giving effect to the offering and sale of the Shares, will not be an "investment company" or an entity "controlled" by an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"), assuming The Morgan Stanley Leveraged Equity -5- Fund II, L.P. ("MSLEF") is not an "investment company" and is not "controlled" by an "investment company"; (xvi) Neither the Company nor any of its affiliates does business with the government of Cuba or with any person or affiliate located in Cuba within the meaning of Section 517.075, Florida Statutes; (xvii) Ernst & Young LLP, who have certified certain financial statements of the Company and its subsidiaries, and Price Waterhouse LLP, who have certified certain financial statements of American National Can Company's Food Metal & Specialty Division, are each independent public accountants as required by the Act and the rules and regulations of the Commission thereunder; (xviii) Except as described in the Prospectus, the Company and its subsidiaries (A) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), (B) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (C) are in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, singly or in the aggregate, have a material adverse effect on the Company and its subsidiaries; and (xix) In the ordinary course of its business, the Company conducts a periodic review of the effect of Environmental Laws on the business, operations and properties of the Company and its subsidiaries, in the course of which it identifies and evaluates associated costs and liabilities (including, without limitation, any material capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any material permit, license or approval, any related constraints on operating activities material to the Company and its subsidiaries, and any potential material liabilities to third parties). On the basis of such review, the Company has reasonably concluded that such associated costs and liabilities would not, singly or in the aggregate, have a material adverse effect on the Company and its subsidiaries. (b) Each of the Selling Stockholders severally represents and warrants to, and agrees with, each of the Underwriters and the Company that: (i) All consents, approvals, authorizations and orders necessary for the execution and delivery by such Selling Stockholder of this Agreement and for the sale and delivery of the Shares to be sold by such Selling Stockholder have been obtained; and such Selling Stockholder has full right, power and authority to enter into this Agreement and to sell, assign, transfer and deliver the Shares to be sold by such Selling Stockholder hereunder; -6- (ii) The sale of the Shares to be sold by such Selling Stockholder hereunder and the compliance by such Selling Stockholder with all of the provisions of this Agreement and the consummation of the transactions herein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any statute, indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which such Selling Stockholder is a party or by which such Selling Stockholder is bound, or to which any of the property or assets of such Selling Stockholder is subject, nor will such action result in any violation of the provisions of the Certificate of Incorporation or By-laws of such Selling Stockholder if such Selling Stockholder is a corporation, the Limited Partnership Agreement of such Selling Stockholder if such Selling Stockholder is a limited partnership or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over such Selling Stockholder or the property of such Selling Stockholder; (iii) Such Selling Stockholder has, and immediately prior to each Time of Delivery (as defined in Section 4 hereof) such Selling Stockholder will have, valid title to the Shares to be sold by such Selling Stockholder hereunder, free and clear of all liens, encumbrances, equities or claims; and, upon delivery of such Shares and payment therefor pursuant hereto and thereto, valid title to such Shares, free and clear of all liens, encumbrances, equities or claims, will pass to the several Underwriters, as the case may be; (iv) Such Selling Stockholder has not taken and will not take, directly or indirectly (other than any action taken by Morgan Stanley & Co. Incorporated ("MS&Co.") in connection with the performance of its obligations as an Underwriter hereunder), any action which is designed to or which has constituted or which might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares; (v) To the extent that any statements or omissions made in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto are made in reliance upon and in conformity with written information furnished to the Company by such Selling Stockholder expressly for use therein, such Preliminary Prospectus and the Registration Statement did, and the Prospectus and any further amendments or supplements to the Registration Statement and the Prospectus, when they become effective or are filed with the Commission, as the case may be, will conform in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and (vi) In order to document the Underwriters' compliance with the reporting and withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1982 with respect to the transactions herein contemplated, such Selling Stockholder will deliver to you prior to or at the First Time -7- of Delivery (as hereinafter defined) a properly completed and executed United States Treasury Department Form W-9 (or other applicable form or statement specified by Treasury Department regulations in lieu thereof). 2. Subject to the terms and conditions herein set forth, (a) the Company and each of the Selling Stockholders agree, severally and not jointly, to sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company and each of the Selling Stockholders, at a purchase price per share of $18.60, the number of Firm Shares (to be adjusted by you so as to eliminate fractional shares) determined by multiplying the aggregate number of Firm Shares to be sold by the Company and each of the Selling Stockholders as set forth opposite their respective names in Schedule II hereto by a fraction, the numerator of which is the aggregate number of Firm Shares to be purchased by such Underwriter as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the aggregate number of Firm Shares to be purchased by all of the Underwriters from the Company and all of the Selling Stockholders hereunder and (b) in the event and to the extent that the Underwriters shall exercise the election to purchase Optional Shares as provided below, each of the Selling Stockholders agrees, severally and not jointly, to sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from each of the Selling Stockholders, at the purchase price per share set forth in clause (a) of this Section 2, that portion of the number of Optional Shares as to which such election shall have been exercised (to be adjusted by you so as to eliminate fractional shares) determined by multiplying such number of Optional Shares by a fraction, the numerator of which is the maximum number of Optional Shares which such Underwriter is entitled to purchase as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the maximum number of Optional Shares that all of the Underwriters are entitled to purchase hereunder. The Selling Stockholders, as and to the extent indicated in Schedule II hereto, hereby grant, severally and not jointly, to the Underwriters the right to purchase at their election up to 675,000 Optional Shares, at the purchase price per share set forth in the paragraph above, for the sole purpose of covering overallotments in the sale of the Firm Shares. Any such election to purchase Optional Shares shall be made in proportion to the maximum number of Optional Shares to be sold by each Selling Stockholder as set forth in Schedule II hereto. Any such election to purchase Optional Shares may be exercised only by written notice from you to the Selling Stockholders, given within a period of 30 calendar days after the date of this Agreement and setting forth the aggregate number of Optional Shares to be purchased and the date on which such Optional Shares are to be delivered, as determined by you but in no event earlier than the First Time of Delivery (as defined in Section 4 hereof) or, unless you and the Selling Stockholders otherwise agree in writing, earlier than two or later than ten business days after the date of such notice. MS&Co. shall not receive any underwriting discounts, commissions or fees related to the purchase, underwriting or sale of 714,439 Firm Shares sold by MSLEF and such additional Shares to be sold by MSLEF in the event any Optional Shares are purchased. 3. The Company hereby confirms its engagement of Goldman, Sachs & Co. as, and Goldman, Sachs & Co. hereby confirms its agreement with the -8- Company to render services as, a "qualified independent underwriter" within the meaning of Section 2(o) of Rule 2720 of the National Association of Securities Dealers, Inc. (the "NASD") with respect to the offering and sale of the Shares. Goldman, Sachs & Co., in its capacity as qualified independent underwriter and not otherwise, is referred to herein as the "QIU". As compensation for the services of the QIU hereunder, the Company agrees to pay the QIU $10,000 on the Closing Date. 4. Upon the authorization by you of the release of the Firm Shares, the several Underwriters propose to offer the Firm Shares for sale upon the terms and conditions set forth in the Prospectus. 5. (a) The Shares to be purchased by each Underwriter hereunder, in definitive form, and in such authorized denominations and registered in such names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior notice to the Company and the Selling Stockholders shall be delivered by or on behalf of the Company and the Selling Stockholders to Goldman, Sachs & Co., for the account of such Underwriter, against payment by or on behalf of such Underwriter of the purchase price therefor by wire transfer or by certified or official bank check or checks, payable to the order of the Company and the Selling Stockholders in Federal (same day) funds. The Company will cause the certificates representing the Shares to be made available for checking and packaging at least twenty-four hours prior to the Time of Delivery (as defined below) with respect thereto at the office of Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004 (the "Designated Office"). The time and date of such delivery and payment shall be, with respect to the Firm Shares, 9:30 a.m., New York City time, on February 20, 1997 or such other time and date as Goldman, Sachs & Co., the Company and the Selling Stockholders may agree upon in writing, and, with respect to the Optional Shares, 9:30 a.m., New York City time, on the date specified by Goldman, Sachs & Co. in the written notice given by Goldman, Sachs & Co. of the Underwriters' election to purchase such Optional Shares, or such other time and date as Goldman, Sachs & Co., and the Selling Stockholders may agree upon in writing. Such time and date for delivery of the Firm Shares is herein called the "First Time of Delivery", such time and date for delivery of the Optional Shares, if not the First Time of Delivery, is herein called the "Second Time of Delivery", and each such time and date for delivery is herein called a "Time of Delivery". (b) The documents to be delivered at each Time of Delivery by or on behalf of the parties hereto pursuant to Section 8 hereof, including the cross receipts for the Shares and any additional documents requested by the Underwriters pursuant to Section 8(o) hereof, will be delivered at the offices of Shearman & Sterling, 599 Lexington Avenue, New York, New York 10022 (the "Closing Location"), and the Shares will be delivered at the Designated Office, all at such Time of Delivery. A meeting will be held at the Closing Location at 2:00 p.m., New York City time, on the New York Business Day next preceding such Time of Delivery, at which meeting the final drafts of the documents to be delivered pursuant to the preceding sentence will be available for review by the parties hereto. For the purposes of this Agreement, "New York Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in New York are generally authorized or obligated by law or executive order to close. -9- 6. The Company agrees with each of the Underwriters: (a) To prepare the Prospectus in a form approved by you and to file such Prospectus pursuant to Rule 424(b) of the rules and regulations of the Commission under the Act not later than the Commission's close of business on the second business day following the execution and delivery of this Agreement, or, if applicable, such earlier time as may be required by Rule 430A(a)(3) of the rules and regulations of the Commission under the Act; to make no further amendment or any supplement to the Registration Statement or Prospectus which shall be disapproved by you promptly after reasonable notice thereof; to advise you, promptly after it receives notice thereof, of the time when any amendment to the Registration Statement has been filed and becomes effective or any supplement to the Prospectus or any amended Prospectus has been filed and to furnish you with copies thereof; to advise you, promptly after it receives notice thereof, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or Prospectus, of the suspension of the qualification of the Shares for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of the Registration Statement or Prospectus or for additional information; and, in the event of the issuance of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or Prospectus or suspending any such qualification, promptly to use its best efforts to obtain the withdrawal of such order; (b) Promptly from time to time to take such action as you may reasonably request to qualify the Shares for offering and sale under the securities laws of such jurisdictions as you may request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Shares, provided that in connection therewith the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction; (c) Prior to 10:00 a.m., New York City time, on the New York Business Day next succeeding the date of this Agreement and from time to time, furnish the Underwriters with copies of the Prospectus in New York City in such quantities as you may reasonably request, and, if the delivery of a prospectus is required at any time prior to the expiration of nine months after the time of issue of the Prospectus in connection with the offering or sale of the Shares and if at such time any event shall have occurred as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such Prospectus is delivered, not misleading, or, if for any other reason it shall be necessary during such period to amend or supplement the Prospectus in order to comply with the Act, to notify you and upon your request to prepare and furnish without charge to each Underwriter and to any dealer in securities as many copies as you may from time to time reasonably request of an amended Prospectus or a supplement to the Prospectus which will correct such statement or omission or effect such compliance, and in case any Underwriter is required to deliver a prospectus in connection with sales of any of the -10- Shares at any time nine months or more after the time of issue of the Prospectus, upon your request but at the expense of such Underwriter, to prepare and deliver to such Underwriter as many copies as you may request of an amended or supplemented Prospectus complying with Section 10(a)(3) of the Act; (d) To make generally available to its securityholders as soon as practicable, but in any event not later than eighteen months after the effective date of the Registration Statement (as defined in Rule 158(c) of the rules and regulations of the Commission under the Act), an earnings statement of the Company and its subsidiaries (which need not be audited) complying with Section 11(a) of the Act and the rules and regulations thereunder (including, at the option of the Company, Rule 158); (e) During the period beginning from the date hereof and continuing to and including the date one year after the date of the Prospectus, not to offer, sell, contract to sell or otherwise dispose of, except as provided hereunder, any securities of the Company that are substantially similar to the Shares, including but not limited to any securities that are convertible into or exchangeable for, or that represent the right to receive, Stock or any such substantially similar securities (other than pursuant to employee stock option plans existing on, or upon the conversion or exchange of convertible or exchangeable securities outstanding as of, the date of this Agreement and shares of Stock or securities convertible into such shares issued in connection with acquisitions, if the holder thereof executes and delivers a lock-up letter to you in the form attached hereto as Exhibit A), without your prior written consent; (f) To furnish to its stockholders as soon as practicable after the end of each fiscal year an annual report (including a balance sheet and statements of income, stockholders' equity and cash flows of the Company and its consolidated subsidiaries certified by independent public accountants) and, as soon as practicable after the end of each of the first three quarters of each fiscal year (beginning with the fiscal quarter ending after the effective date of the Registration Statement), consolidated summary financial information of the Company and its subsidiaries for such quarter in reasonable detail; (g) During a period of five years from the effective date of the Registration Statement, to furnish to you copies of all reports or other communications (financial or other) furnished to stockholders, and to deliver to you (i) as soon as they are available, copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange on which any class of securities of the Company is listed; and (ii) such additional information concerning the business and financial condition of the Company as you may from time to time reasonably request (such financial statements to be on a consolidated basis to the extent the accounts of the Company and its subsidiaries are consolidated in reports furnished to its stockholders generally or to the Commission); (h) To use the net proceeds received by it from the sale of the Shares pursuant to this Agreement in the manner specified in the Prospectus under the caption "Use of Proceeds"; -11- (i) To use its best efforts to list for quotation the Shares on the National Association of Securities Dealers Automated Quotations National Market System ("NASDAQ"); (j) To file with the Commission such reports on Form SR as may be required by Rule 463 under the Act; and (k) If the Company elects to rely upon Rule 462(b), the Company shall file a Rule 462(b) Registration Statement with the Commission in compliance with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of this Agreement, and the Company shall at the time of filing either pay to the Commission the filing fee for the Rule 462(b) Registration Statement or give irrevocable instructions for the payment of such fee pursuant to Rule 111(b) under the Act. 7. The Company covenants and agrees with the several Underwriters that the Company will pay or cause to be paid the following: (i) the fees, disbursements and expenses of the Company's counsel and accountants in connection with the registration of the Shares under the Act and all other expenses in connection with the preparation, printing and filing of the Registration Statement, any Preliminary Prospectus and the Prospectus and amendments and supplements thereto and the mailing and delivering of copies thereof to the Underwriters and dealers; (ii) the cost of printing or producing any Agreement among Underwriters, this Agreement, the Blue Sky Memorandum, closing documents (including any compilations thereof) and any other documents in connection with the offering, purchase, sale and delivery of the Shares; (iii) all expenses in connection with the qualification of the Shares for offering and sale under state securities laws as provided in Section 6(b) hereof, including the fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky survey; (iv) all fees and expenses in connection with listing the Shares on the NASDAQ; (v) the filing fees incident to, and the fees and disbursements of counsel for the Underwriters in connection with, securing any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of the Shares; (vi) the cost of preparing stock certificates; (vii) the cost and charges of any transfer agent or registrar; and (viii) other costs and expenses incident to the performance of its obligations hereunder which are not otherwise specifically provided for in this Section; and (b) each of the Selling Stockholders covenants and agrees that such Selling Stockholder will pay or cause to be paid all costs and expenses incident to the performance of such Selling Stockholder's obligations hereunder which are not otherwise specifically provided for in this Section, including (i) any fees and expenses of counsel for such Selling Stockholder and (ii) all taxes incident to the sale and delivery of the Shares to be sold by such Selling Stockholder to the Underwriters hereunder. In connection with Clause (b)(ii) of the preceding sentence, Goldman, Sachs & Co. agrees to pay New York State stock transfer tax, and the Selling Stockholder agrees to reimburse Goldman, Sachs & Co. for associated carrying costs if such tax payment is not rebated on the day of payment and for any portion of such tax payments not rebated. It is understood, however, that the Company shall bear, and the Selling Stockholders shall not be required to pay or to reimburse the Company for, the cost of any other matters not directly relating to the sale and purchase of the Shares pursuant to this Agreement, and that, except as provided in this Section, and Sections 9 and 13 hereof, the Underwriters will pay all of their own costs and expenses, including the fees of their counsel, stock transfer taxes on resale of any of the Shares by them, and any advertising expenses connected with any offers they may make. -12- 8. The obligations of the Underwriters hereunder, as to the Shares to be delivered at each Time of Delivery, shall be subject, in their discretion, to the condition that all representations and warranties and other statements of each Member of the Silgan Group and each Selling Stockholder herein are, at and as of such Time of Delivery, true and correct, the condition that the Company and the Selling Stockholders shall have performed all of its and their obligations hereunder theretofore to be performed, and the following additional conditions: (a) The Prospectus shall have been filed with the Commission pursuant to Rule 424(b) within the applicable time period prescribed for such filing by the rules and regulations under the Act and in accordance with Section 6(a) hereof; if the Company has elected to rely upon Rule 462(b), the Rule 462(b) Registration Statement shall have become effective by 10:00 P.M., Washington, D.C. time, on the date of this Agreement; no stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the Commission; and all requests for additional information on the part of the Commission shall have been complied with to your reasonable satisfaction; (b) Shearman & Sterling, counsel for the Underwriters, shall have furnished to you such opinion or opinions (a draft of each such opinion is attached as Annex II(a) hereto), dated such Time of Delivery, with respect to the matters covered in paragraphs (i), (ii), (vi), (x) and (xiii) of subsection (c) below as well as such other related matters as you may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters; (c) Winthrop, Stimson, Putnam & Roberts, counsel for the Company, shall have furnished to you their written opinion (a draft of such opinion is attached as Annex II(b) hereto), dated such Time of Delivery, in form and substance satisfactory to you, to the effect that: (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with corporate power and authority to own its properties and conduct its business as described in the Prospectus; (ii) The Company has an authorized capitalization as set forth in the Prospectus, and all of the issued shares of capital stock of the Company (including the Shares being delivered at such Time of Delivery) have been duly and validly authorized and issued and are fully paid and non-assessable; and the Shares conform to the description of the Stock contained in the Prospectus; (iii) The Company has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business as described in the Prospectus so as to require such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material -13- adverse effect on the Company and its subsidiaries (such counsel being entitled to rely in respect of matters of fact upon certificates of officers of the Company, provided that such counsel shall state that they believe that both you and they are justified in relying upon such certificates); (iv) Each of Silgan, Containers and Plastics has been duly incorporated, is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation and has the corporate power and authority to own its property and to conduct its business as described in the Prospectus; and all of the issued shares of capital stock of each of Silgan, Containers and Plastics have been duly and validly authorized and issued, are fully paid and non-assessable, and are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims other than such pledges of such capital stock existing on the date hereof made in connection with the Credit Agreement, dated as of August 1, 1995, among Silgan, Containers, Plastics and the banks parties thereto (such counsel being entitled to rely in respect of the opinion in this clause upon opinions of local counsel and in respect to matters of fact upon certificates of officers of the Company or its subsidiaries, provided that such counsel shall state that they believe that both you and they are justified in relying upon such opinions and certificates); (v) To the best of such counsel's knowledge and other than as set forth in the Prospectus, there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property of the Company or any of its subsidiaries is the subject which, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a material adverse effect on the current or future consolidated financial position, stockholders' equity or results of operations of the Company and its subsidiaries; and, to the best of such counsel's knowledge, no such proceedings are threatened by governmental authorities or others; (vi) This Agreement has been duly authorized, executed and delivered by the Company; (vii) The issue and sale of the Shares being delivered at such Time of Delivery by the Company and the compliance by the Company with all of the provisions of this Agreement and the consummation of the transactions herein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any material indenture, mortgage, deed of trust, loan agreement or other agreement or instrument known to such counsel to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will such action result in any violation of the provisions of the Certificate of Incorporation or By-laws of the Company or any statute or any order, rule or regulation known to such counsel of any court or governmental agency or body of the United States or the states of Connecticut, New York or (only with respect to the General Corporation -14- Law) Delaware having jurisdiction over the Company or any of its subsidiaries or any of their properties; (viii) No consent, approval, authorization, order, registration or qualification of or with any court or governmental agency or body of the United States or the states of Connecticut, New York or (only with respect to the General Corporation Law) Delaware is required for the issue and sale of the Shares by the Company or the consummation by the Company of the transactions contemplated by this Agreement, except the registration under the Act of the Shares, and such consents, approvals, authorizations, registrations or qualifications as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters; (ix) After reasonable due inquiry, to the best of such counsel's knowledge, neither the Company nor any of its subsidiaries is in violation of its Certificate of Incorporation or By-laws or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any material indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it is a party or by which it or any of its properties may be bound, except for such defaults as do not and will not have a material adverse effect on the Company and its subsidiaries; (x) The statements set forth in the Prospectus under the caption "Description of Capital Stock", insofar as they purport to constitute a summary of the terms of the Stock and under the caption "Underwriting", insofar as they purport to describe the provisions of the laws and documents referred to therein, are accurate, complete and fair; (xi) The Company is not an "investment company" or an entity "controlled" by an "investment company", as such terms are defined in the Investment Company Act, assuming MSLEF is not an "investment company" and is not "controlled" by an "investment company"; (xii) The documents incorporated by reference in the Prospectus (other than the financial statements and schedules and other financial data therein, as to which such counsel need express no opinion), when they were filed with the Commission, complied as to form in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission thereunder; and they have no reason to believe that any of such documents, when such documents were so filed, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such documents were so filed, not misleading; and (xiii) The Registration Statement and the Prospectus and any further amendments and supplements thereto made by the Company prior to such Time of Delivery (other than the financial statements and schedules and other financial data therein, as to which such counsel need express no opinion) -15- comply as to form in all material respects with the requirements of the Act and the rules and regulations thereunder; although they do not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus, except for those referred to in the opinion in subsection (x) of this Section 8(c), they have no reason to believe that, as of its effective date, the Registration Statement or any further amendment thereto made by the Company prior to such Time of Delivery (other than the financial statements and schedules and other financial data therein, as to which such counsel need express no opinion) contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that, as of its date, the Prospectus or any further amendment or supplement thereto made by the Company prior to such Time of Delivery (other than the financial statements and schedules and other financial data therein, as to which such counsel need express no opinion) contained an untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading or that, as of such Time of Delivery, either the Registration Statement or the Prospectus or any further amendment or supplement thereto made by the Company prior to such Time of Delivery (other than the financial statements and schedules and other financial data therein, as to which such counsel need express no opinion) contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and they do not know of any amendment to the Registration Statement required to be filed or of any contracts or other documents of a character required to be filed as an exhibit to the Registration Statement or required to be incorporated by reference into the Prospectus or required to be described in the Registration Statement or the Prospectus which are not filed or incorporated by reference or described as required; (d) McKenna & Cuneo, L.L.P. independent counsel for the Company, shall have furnished to you their written opinion (a draft of such opinion is attached as Annex II(c) hereto), dated such Time of Delivery, in form and substance satisfactory to you, to the effect that: (i) Based on such counsel's knowledge, the Company and its subsidiaries: (x) are in compliance with any and all applicable federal, state and local laws and regulations relating to the protection of human health, safety, the environment, and hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"); and (y) have received and comply with all terms and conditions of all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses -- except as otherwise described in or contemplated by this Agreement and except where McKenna & Cuneo L.L.P. believes such noncompliance with Environmental Laws, and failure to receive or comply with the terms and conditions of required permits, licenses or other approvals does not likely, singly or in the aggregate and taken as a whole, have a material adverse effect on the Company and its subsidiaries; -16- (ii) No opinion or other assessment (other than audit response letters) has been provided as to any pending or threatened litigation against the Company or any subsidiary; (iii) Each of California-Washington Can Corporation and SCCW Can Corporation (the "California Subsidiaries") is a corporation incorporated, validly existing and in good standing under the laws of the State of California; (iv) To such counsel's current, actual knowledge, each of the California Subsidiaries has full corporate power and authority to conduct its business as currently conducted in accordance with its articles of incorporation. The articles of incorporation of each California Subsidiary provides that "[t]he purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code." (e) Proskauer Rose Goetz & Mendelsohn LLP, independent counsel for the Company, shall have furnished to you their written opinion (a draft of such opinion is attached as Annex II(d) hereto), dated such Time of Delivery, in form and substance satisfactory to you, to the effect that: Nothing has come to such counsel's attention which would lead them to conclude that the first paragraph under the caption "Legal Proceedings", insofar as such paragraph constitutes a summary of the legal matters, documents or proceedings referred to therein, does not fairly summarize the matter referred to therein. (f) The respective counsel for each of the Selling Stockholders, as indicated in Schedule II hereto, each shall have furnished to you their written opinion with respect to each of the Selling Stockholders for whom they are acting as counsel, dated such Time of Delivery, in form and substance satisfactory to you, to the effect that: (i) This Agreement has been duly executed and delivered by or on behalf of such Selling Stockholder; and the sale of the Shares to be sold by such Selling Stockholder hereunder and thereunder and the compliance by such Selling Stockholder with all of the provisions of this Agreement and the consummation of the transactions herein contemplated will not conflict with or result in a breach or violation of any terms or provisions of, or constitute a default under, any statute (except that no opinion need be expressed in respect of the Investment Company Act), indenture, mortgage, deed of trust, loan agreement or other agreement or instrument known to such counsel to which such Selling Stockholder is a party or by which such Selling Stockholder is bound, or to which any of the property or assets of such Selling Stockholder is subject, nor will such action result in any violation of the provisions of the Certificate of Incorporation or By-laws of such Selling Stockholder if such Selling Stockholder is a -17- corporation, the Limited Partnership Agreement of such Selling Stockholder if such Selling Stockholder is a limited partnership or any order, rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over such Selling Stockholder or the property of such Selling Stockholder; (ii) No consent, approval, authorization or order of any court or governmental agency or body is required for the consummation of the transactions contemplated by this Agreement in connection with the Shares to be sold by such Selling Stockholder hereunder or thereunder, except such as have been obtained under the Act and such as may be required under state or foreign securities or Blue Sky laws in connection with the purchase and distribution of such Shares by the Underwriters; and (iii) Immediately prior to the date hereof, each Selling Stockholder was the sole registered owner of the Shares to be sold by such Selling Stockholder; upon registration of the Shares in the names of the Underwriters in the stock records of the Company, and the issuance of new certificates registered in the names of the Underwriters representing such Shares, assuming the Underwriters purchased the Shares in good faith and without notice of any adverse claim within the meaning of the Uniform Commercial Code, the Underwriters will have acquired all rights of such Stockholders in the Shares free of any adverse claim, any lien in favor of the Company, and any restrictions on transfer imposed by the Company, and the owner of the Shares, if other than such Selling Stockholder, will be precluded from asserting against the Underwriters the ineffectiveness of any unauthorized endorsement. In rendering such opinion, such counsel may state that they express no opinion as to the laws of any jurisdiction outside the United States and in rendering the opinion in subparagraph (iii) such counsel may rely upon a certificate of such Selling Stockholder in respect of matters of fact as to ownership of, and liens, encumbrances, equities or claims on the Shares sold by such Selling Stockholder, provided that such counsel shall state that they believe that both you and they are justified in relying upon such certificate; (g) On the date of the Prospectus at a time prior to the execution of this Agreement, at 9:30 a.m., New York City time, on the effective date of any post-effective amendment to the Registration Statement filed subsequent to the date of this Agreement and also at each Time of Delivery, Ernst & Young LLP shall have furnished to you a letter or letters, dated the respective dates of delivery thereof, in form and substance satisfactory to you, to the effect set forth in Annex I hereto (the executed copy of the letter delivered prior to the execution of this Agreement is attached as Annex I hereto); (h) On the date of the Prospectus at a time prior to the execution of this Agreement, at 9:30 a.m. New York City time, on the effective date of any post-effective amendment to the Registration Statement filed subsequent to the date of this Agreement and also at -18- each Time of Delivery, Price Waterhouse LLP, shall have furnished to you a letter or letters, dated the respective dates of delivery thereof, in form and substance satisfactory to you. (i)(i) Neither the Company nor any of its subsidiaries shall have sustained since the date of the latest audited financial statements included or incorporated by reference in the Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus, and (ii) since the respective dates as of which information is given in the Prospectus there shall not have been any change in the capital stock or long-term debt of the Company or any of its subsidiaries or any change, or any development involving a prospective change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the effect of which, in any such case described in clause (i) or (ii), is in your judgment so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Prospectus; (j) On or after the date hereof (i) no downgrading shall have occurred in the rating accorded the Company's debt securities or preferred stock by any "nationally recognized statistical rating organization", as that term is defined by the Commission for purposes of Rule 436(g)(2) under the Act, and (ii) no such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of the Company's debt securities or preferred stock; (k) On or after the date hereof there shall not have occurred any of the following: (i) a suspension or material limitation in trading in securities generally on the New York Stock Exchange or on the NASDAQ; (ii) a suspension or material limitation in trading in the Company's securities on the NASDAQ; (iii) a general moratorium on commercial banking activities declared by either Federal or New York State authorities; or (iv) the outbreak or escalation of hostilities involving the United States or the declaration by the United States of a national emergency or war, if the effect of any such event specified in this clause (iv) in your judgment makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Prospectus; (l) The Shares to be sold by the Company and the Selling Stockholders at such Time of Delivery shall have been duly listed for quotation on NASDAQ; (m) The Company has obtained and delivered to the Underwriters executed copies of an agreement from MSLEF, D. Greg Horrigan, R. Philip Silver, Bankers Trust New York Corporation ("BTNY"), Harley Rankin, Jr., James D. Beam and Russell F. Gervais, substantially to the effect set forth in Section 6(e) hereof (except, in respect of Harley Rankin, Jr., James D. Beam and Russell F. Gervais, the duration of the lock-up shall be 180 days) in form and substance satisfactory to you; -19- (n) The Company shall have complied with the provisions of Section 6(c) hereof with respect to the furnishing of prospectuses on the New York Business Day next succeeding the date of this Agreement; and (o) The Company and the Selling Stockholders shall have furnished or caused to be furnished to you at such Time of Delivery certificates of officers of the Company or any other Member of the Silgan Group and of the Selling Stockholders, respectively, satisfactory to you as to the accuracy of the representations and warranties of each Member of the Silgan Group and each Selling Stockholder, respectively, herein at and as of such Time of Delivery, as to their respective performance of all of their obligations hereunder to be performed at or prior to such Time of Delivery, as to the matters set forth in subsections (a) and (i) of this Section and as to such other matters as you may reasonably request. 9. (a) Each Member of the Silgan Group will jointly and severally indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that no Member of the Silgan Group shall be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by any Underwriter through Goldman, Sachs & Co. expressly for use therein. (b) Each of MSLEF and BTNY will indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such Selling Stockholder expressly for use therein; and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with -20- investigating or defending any such action or claim as such expenses are incurred; provided, however, that such Selling Stockholder shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by any Underwriter through Goldman, Sachs & Co. expressly for use therein. (c) Each Underwriter will indemnify and hold harmless the Company and each Selling Stockholder against any losses, claims, damages or liabilities to which the Company or such Seller Stockholder may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such Underwriter through Goldman, Sachs & Co. expressly for use therein; and will reimburse the Company and each Selling Stockholder for any legal or other expenses reasonably incurred by the Company or such Selling Stockholder in connection with investigating or defending any such action or claim as such expenses are incurred. (d) Promptly after receipt by an indemnified party under subsection (a), (b) or (c) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under such subsection. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which -21- indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party. (e) If the indemnification provided for in this Section 9 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a), (b) or (c) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Members of the Silgan Group on a collective basis and the Selling Stockholders on the one hand and the Underwriters on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the indemnified party failed to give the notice required under subsection (d) above, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Members of the Silgan Group on a collective basis and the Selling Stockholders on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Members of the Silgan Group on a collective basis and the Selling Stockholders on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company and the Selling Stockholders bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by any Member of the Silgan Group or Selling Stockholder on the one hand or the Underwriters on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. Each Member of the Silgan Group, each of the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contributions pursuant to this subsection (e) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (e). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (e) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (e), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages -22- which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this subsection (e) to contribute are several in proportion to their respective underwriting obligations and not joint. (f) The obligations of each Member of the Silgan Group and the Selling Stockholders under this Section 9 shall be in addition to any liability which such Member of the Silgan Group and the respective Selling Stockholders may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Underwriter within the meaning of the Act; and the obligations of the Underwriters under this Section 9 shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company and to each person, if any, who controls the Company or any Selling Stockholder within the meaning of the Act. 10. (a) Each Member of the Silgan Group and each Selling Stockholder will jointly and severally indemnify and hold harmless Goldman, Sachs & Co., in its capacity as QIU, against any losses, claims, damages or liabilities, joint or several, to which the QIU may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case, as to the Selling Stockholders, to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such Selling Stockholder expressly for use therein; and will reimburse the QIU for any legal or other expenses reasonably incurred by the QIU in connection with investigating or defending any such action or claim as such expenses are incurred. (b) Promptly after receipt by the QIU of notice of the commencement of any action, the QIU shall, if a claim in respect thereof is to be made against any Member of the Silgan Group or any Selling Stockholder under subsection (a) above, notify the Company or the Selling Stockholder, as the case may be, in writing of the commencement thereof; but the omission so to notify the Company or the Selling Stockholder, as the case may be, shall not relieve any Member of the Silgan Group or any Selling Stockholder from any liability which it may have to the QIU otherwise than under such subsection. In case any such action shall be brought against the QIU and it shall notify the Company and the Selling Stockholders of the commencement thereof, the Company or the Selling Stockholder, as the case may be, shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume -23- the defense thereof, with counsel satisfactory to the QIU (who shall not, except with the consent of the QIU, be counsel to any Member of the Silgan Group), and, after notice from the indemnifying party to the QIU of its election so to assume the defense thereof, the indemnifying party shall not be liable to the QIU under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by the QIU, in connection with the defense thereof other than reasonable costs of investigation. No Member of the Silgan Group or Selling Stockholder shall, without the written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the QIU is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the QIU from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of the QIU. (c) If the indemnification provided for in this Section 10 is unavailable to or insufficient to hold harmless Goldman, Sachs & Co., in its capacity as QIU, under subsection (a) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each Member of the Silgan Group and each Selling Stockholder shall contribute to the amount paid or payable by the QIU as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Members of the Silgan Group on a collective basis and the Selling Stockholders on the one hand and the QIU on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the QIU failed to give the notice required under subsection (b) above, then each Member of the Silgan Group and each Selling Stockholder shall contribute to such amount paid or payable by the QIU in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Members of the Silgan Group on a collective basis and the Selling Stockholders on the one hand and the QIU on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Members of the Silgan Group on a collective basis and the Selling Stockholders on the one hand and the QIU on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company and the Selling Stockholders, as set forth in the table on the cover page of the Prospectus, bear to the fee payable to the QIU pursuant to Section 3 hereof. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by any Member of the Silgan Group or Selling Stockholder on the one hand or the QIU on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. Each Member of the Silgan Group, each Selling Stockholder and the QIU agree that it would not be just and equitable if contributions pursuant to this subsection (c) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (c). The -24- amount paid or payable by the QIU as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (c) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (d) The obligations of each Member of the Silgan Group and each Selling Stockholder under this Section 10 shall be in addition to any liability which such Member of the Silgan Group and such Selling Stockholder may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls the QIU within the meaning of the Act. 11. (a) If any Underwriter shall default in its obligation to purchase the Shares which it has agreed to purchase hereunder at a Time of Delivery, you may in your discretion arrange for you or another party or other parties to purchase such Shares on the terms contained herein. If within thirty-six hours after such default by any Underwriter you do not arrange for the purchase of such Shares, then the Company and the Selling Stockholders shall be entitled to a further period of thirty-six hours within which to procure another party or other parties reasonably satisfactory to you to purchase such Shares on such terms. In the event that, within the respective prescribed periods, you notify the Company and the Selling Stockholders that you have so arranged for the purchase of such Shares, or the Company and the Selling Stockholders notify you that it has so arranged for the purchase of such Shares, you or the Company and the Selling Stockholders shall have the right to postpone such Time of Delivery for a period of not more than seven days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus, or in any other documents or arrangements, and the Company agrees to file promptly any amendments to the Registration Statement or the Prospectus which in your opinion may thereby be made necessary. The term "Underwriter" as used in this Agreement shall include any person substituted under this Section with like effect as if such person had originally been a party to this Agreement with respect to such Shares. (b) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you and the Company and the Selling Stockholders as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased does not exceed one-eleventh of the aggregate number of all the Shares to be purchased at such Time of Delivery, then the Company shall have the right to require each non-defaulting Underwriter to purchase the number of shares which such Underwriter agreed to purchase hereunder at such Time of Delivery and, in addition, to require each non-defaulting Underwriter to purchase its pro rata share (based on the number of Shares which such Underwriter agreed to purchase hereunder) of the Shares of such defaulting Underwriter or Underwriters for which such arrangements have not been made; but nothing herein shall relieve a defaulting Underwriter from liability for its default or require MS&Co. to purchase, underwrite or sell any MSLEF Shares. -25- (c) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you and the Company and the Selling Stockholders as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased exceeds one-eleventh of the aggregate number of all the Shares to be purchased at such Time of Delivery, or if the Company shall not exercise the right described in subsection (b) above to require non-defaulting Underwriters to purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement (or, with respect to the Second Time of Delivery, the obligations of the Underwriters to purchase and of the Selling Stockholders to sell the Optional Shares) shall thereupon terminate, without liability on the part of any non-defaulting Underwriter or the Company or the Selling Stockholders, except for the expenses to be borne by the Company and the Selling Stockholders and the Underwriters as provided in Section 7 hereof and the indemnity and contribution agreements in Section 9 hereof; but nothing herein shall relieve a defaulting Underwriter from liability for its default or require MS&Co. to purchase, underwrite or sell any MSLEF Shares. 12. The respective indemnities, agreements, representations, warranties and other statements of the Members of the Silgan Group, the Selling Stockholders and the several Underwriters, as set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by or on behalf of any Underwriter or any controlling person of any Underwriter, or any Member of the Silgan Group, or any Selling Stockholder, or any officer or director or controlling person of any Member of the Silgan Group, or any controlling person of any Selling Stockholder and shall survive delivery of and payment for the Shares. 13. If this Agreement shall be terminated pursuant to Section 11 hereof, no Member of the Silgan Group nor the Selling Stockholders shall then be under any liability to any Underwriter except as provided in Sections 7 and 9 hereof and to the QIU except as provided in Section 10 hereof; but, if for any other reason, any Shares are not delivered by or on behalf of the Company as provided herein, the Company, or if for any other reason, any Shares are not delivered by or on behalf of the Selling Stockholders as provided herein, the Selling Stockholders, will reimburse the Underwriters through you for all out-of-pocket expenses approved in writing by you, including fees and disbursements of counsel, reasonably incurred by the Underwriters in making preparations for the purchase, sale and delivery of the Shares not so delivered, but no Member of the Silgan Group or Selling Stockholder shall then be under any further liability to any Underwriter except as provided in Sections 7 and 9 hereof and to the QIU except as provided in Section 10 hereof. 14. In all dealings hereunder, you shall act on behalf of each of the Underwriters, and the parties hereto shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of any Underwriter made or given by you jointly or by Goldman, Sachs & Co. on behalf of you as the representatives. All statements, requests, notices and agreements hereunder shall be in writing, and if to the Underwriters shall be delivered or sent by mail, telex or facsimile transmission to you as -26- the representatives in care of Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004, Attention: Registration Department; if to any Selling Stockholder shall be delivered or sent by mail, telex or facsimile transmission to counsel for such Selling Stockholder at its address set forth in Schedule II hereto; and if to any Member of the Silgan Group shall be delivered or sent by mail to the address of the Company set forth in the Registration Statement, Attention: Chief Financial Officer; provided, however, that any notice to an Underwriter pursuant to Section 9(d) hereof shall be delivered or sent by mail, telex or facsimile transmission to such Underwriter at its address set forth in its Underwriters' Questionnaire, or telex constituting such Questionnaire, which address will be supplied to the Company or the Selling Stockholders by you upon request. Any such statements, requests, notices or agreements shall take effect upon receipt thereof. 15. This Agreement shall be binding upon, and inure solely to the benefit of, the Underwriters, the Members of the Silgan Group and the Selling Stockholders and, to the extent provided in Sections 9, 10 and 12 hereof, the officers and directors of the Company and each person who controls the Company, any Selling Stockholder or any Underwriter, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the Shares from any Underwriter shall be deemed a successor or assign by reason merely of such purchase. 16. Time shall be of the essence of this Agreement. As used herein, the term "business day" shall mean any day when the Commission's office in Washington, D.C. is open for business. 17. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 18. This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. -27- If the foregoing is in accordance with your understanding, please sign and return to us nine (9) counterparts hereof, and upon the acceptance hereof by you, on behalf of each of the Underwriters, this letter and such acceptance hereof shall constitute a binding agreement between each of the Underwriters, each Member of the Silgan Group and each of the Selling Stockholders. It is understood that your acceptance of this letter on behalf of each of the Underwriters is pursuant to the authority set forth in a form of Agreement among Underwriters, the form of which shall be submitted to the Company and the Selling Stockholders for examination upon request, but without warranty on your part as to the authority of the signers thereof. Very truly yours, SILGAN HOLDINGS INC. By: /s/ Harley Rankin, Jr. ------------------------------------- Name: Harley Rankin, Jr. Title: Executive Vice President, Chief Financial Officer and Treasurer SILGAN CORPORATION By: /s/ Harley Rankin, Jr. ------------------------------------ Name: Harley Rankin, Jr. Title: Executive Vice President, Chief Financial Officer and Treasurer SILGAN CONTAINERS CORPORATION By: /s/ Harley Rankin, Jr. ----------------------------------- Name: Harley Rankin, Jr. Title: Vice President SILGAN PLASTICS CORPORATION By: /s/ Harley Rankin, Jr. ----------------------------------- Name: Harley Rankin, Jr. Title: Vice President -28- THE MORGAN STANLEY LEVERAGED EQUITY FUND II, L.P. By: Morgan Stanley Leveraged Equity Fund II, Inc. as general partner By: /s/ Robert H. Niehaus --------------------------------- Name: Robert H. Niehaus Title: Vice Chairman By: /s/ Alan E. Goldberg --------------------------------- Name: Alan E. Goldberg Title: Vice Chairman BANKERS TRUST NEW YORK CORPORATION By: /s/ Joseph T. Wood --------------------------------- Name: Joseph T. Wood Title: Senior Vice President Accepted as of the date hereof: Goldman, Sachs & Co. Morgan Stanley & Co. Incorporated Salomon Brothers Inc. By: /s/ Goldman, Sachs & Co. ----------------------------------- (Goldman, Sachs & Co.) On behalf of each of the Underwriters -29- SCHEDULE I Number of Optional Shares Total Number of to be Sold if Firm Shares to Maximum Option Underwriters be Sold Exercised Goldman, Sachs & Co. 1,065,817 159,873 Morgan Stanley & Co. Incorporated* 1,065,815 159,873 Salomon Brothers Inc 1,065,815 159,873 J.C. Bradford & Co. 76,621 11,493 Credit Suisse First Boston Corporation 127,701 19,155 Donaldson, Lufkin & Jenrette Securities 127,701 19,155 Corporation A.G. Edwards & Sons, Inc. 127,701 19,155 Janney Montgomery Scott Inc. 76,621 11,493 Edward D. Jones & Co., L.P. 76,621 11,493 McDonald & Company Securities, Inc. 76,621 11,493 Lehman Brothers Inc. 127,701 19,155 Merrill Lynch, Pierce, Fenner & Smith 127,701 19,155 Incorporated PaineWebber Incorporated 127,701 19,155 Piper Jaffray Inc. 76,621 11,493 Scott & Stringfellow, Inc. 76,621 11,493 Wheat, First Securities, Inc. 76,621 11,493 ----------- ------------- Total 4,500,000 675,000 =========== ============= - -------- * With respect to the Firm Shares, MS&Co. will only underwrite Shares sold by the Company and BTNY. In the event the Optional Shares are sold by MSLEF, rather than underwrite Optional Shares, MS&Co. will be obligated to purchase from the other Representatives on a pro rata basis an aggregate number of Shares equal to the number of Optional Shares set forth above opposite MS&Co. SCHEDULE II Number of Optional Total Number of Shares to be Sold Firm Shares to if Maximum Option be Sold Exercised The Company......................................3,700,000 0 The Selling Stockholders: The Morgan Stanley Leveraged Equity Fund II, L.P. (a).................................... 714,439 602,807 Bankers Trust New York Corporation (b).......... 85,561 72,193 ----------- -------- Total...........................................4,500,000 675,000 ========= ======= (a) This Selling Stockholder is represented by Davis, Polk & Wardwell, 450 Lexington Avenue, New York, New York. (b) This Selling Stockholder is represented by Davis, Polk & Wardwell, 450 Lexington Avenue, New York, New York. EXHIBIT A FORM OF LOCK-UP LETTER ___________, 1997 Goldman, Sachs & Co. Morgan Stanley & Co. Incorporated Salomon Brothers Inc c/o Goldman, Sachs & Co. 85 Broad Street New York, NY 10004 Ladies and Gentlemen: The undersigned understands that Goldman, Sachs & Co. ("Goldman"), as representative of the several Underwriters, has entered into an Underwriting Agreement (the "Underwriting Agreement") with Silgan Holdings Inc., a Delaware corporation (the "Company"), which provided for the public offering (the "Public Offering") by the several Underwriters, including Goldman, of 4,500,000 shares (the "Shares") of Common Stock, par value $.01 per share, of the Company (the "Common Stock"). The undersigned further understands that the Company has agreed pursuant to Section 6(e) of the Underwriting Agreement, among other things, not to offer, sell, contract to sell or otherwise dispose of shares of Common Stock or securities convertible into Common Stock in connection with acquisitions unless the transferee executes and delivers to Goldman this letter. In satisfaction of this requirement, the undersigned hereby agrees that, without the prior written consent of Goldman on behalf of the Underwriters, it will not, during the period commencing on the date hereof and ending six months after the date of the final prospectus relating to the Public Offering (the "Prospectus"), offer, sell, contract to sell or otherwise dispose of, directly or indirectly, any shares of Common Stock or any securities that are substantially similar to the Common Stock, including but not limited to any securities that are convertible into or exchangeable for, or that represent the right to receive, Common Stock or any such substantially similar securities. In addition, the undersigned agrees that, without the prior written consent of Goldman on behalf of the Underwriters, it will not, during the period commencing on the date hereof and ending six months after the date of the Prospectus, make any demand for or exercise any right with respect to, the registration of any shares of Common Stock or any securities that are substantially similar to the Common Stock, including but not limited to any securities that are convertible into or exchangeable for, or that represent the right to receive, Common Stock or any such substantially similar securities. Very truly yours, --------------------------------- (Name) --------------------------------- (Print Name) --------------------------------- (Address) Accepted as of the date first set forth above: Goldman, Sachs & Co. By:------------------------- EX-10.42 11 AMENDMENT TO STOCKHOLDERS AGREEMENT EXHIBIT 10.42 AMENDMENT TO STOCKHOLDERS AGREEMENT This Amendment (this "Amendment") to Stockholders Agreement is made and entered into as of this 14th day of February, 1997, by and among R. Philip Silver ("Silver"), D. Greg Horrigan ("Horrigan"), The Morgan Stanley Leveraged Equity Fund II, L.P. ("MS Equity"), Bankers Trust New York Corporation ("BTNY"), and Silgan Holdings Inc. (the "Company"). W I T E S S E T H: - - - - - - - - - WHEREAS, Silver, Horrigan, MS Equity, BTNY and the Company are parties to the Stockholders Agreement dated as of December 21, 1993 (the "Stockholders Agreement"); and WHEREAS, First Plaza Group Trust, who was a party to the Stockholders Agreement, no longer holds any shares of capital stock of the Company and therefore is no longer a party to, and is not subject to the terms and provisions of, the Stockholders Agreement; and WHEREAS, Silver, Horrigan, MS Equity, BTNY, and the Company to desire to amend the Stockholders Agreement as provided in this Amendment. NOW, THEREFORE, the parties hereto, intending to be legally bound hereby, agree as follows. 1. Capitalized terms used but not defined herein shall have the meanings assigned to them in the Stockholders Agreement. 2. Article II of the Stockholders Agreement is hereby amended by adding the following new section immediately following Section 2.11 of the Stockholders Agreement: "2.12 Rights of Partners of MS Equity. Upon a MSLEF Distribution, all of the partners of MS Equity, together and not individually (collectively, the "MS Selling Stockholder"), shall be entitled to exercise any remaining rights, if any, of MS Equity under this Article II with respect to Demand Registrations. In furtherance thereof, the MS Selling Stockholder shall be deemed to be a "Selling Stockholder" under the provisions of Article II of the Stockholders Agreement in connection with the exercise any of such remaining rights, may exercise any such remaining rights only in accordance with the terms of this Article II, and shall be subject to all obligations of MS Equity provided for in this Article II relating to the exercise of any such remaining rights. Any request for a Demand Registration by the MS Selling Stockholder under this Article II shall be made only by Morgan Stanley Group Inc. ("Morgan Stanley") on behalf of the MS Selling Stockholders and may only be made if shares of Common Stock of the Company owned by Morgan Stanley are included in such Demand Registration. Additionally, Morgan Stanley, and only Morgan Stanley and no other partner of MS Equity, shall have the power and authority to exercise all rights, deliver all notices and requests, make all decisions and do all other things required or permitted to be exercised, delivered, made or done by or on behalf of the MS Selling Stockholder. Upon and after a MSLEF Distribution, the obligation -2- of the Company to provide MS Equity with any notices, documents or information as provided in this Article II shall be satisfied if the Company provides such documents and information to Morgan Stanley. If the MS Selling Stockholder is required to execute and deliver an underwriting agreement or any other agreements or documents pursuant to this Article II, then each partner of MS Equity participating in the applicable registration shall be required to execute and deliver such underwriting agreement and any such other agreements and documents." 3. Section 3.3 of the Stockholders Agreement is hereby amended by adding the following new paragraph (c) immediately following paragraph (b) thereof: "(c) Notwithstanding anything else in this Agreement, each of Silver and Horrigan may pledge his shares of Common Stock to a lender or lenders reasonably acceptable to the Company to secure a loan or loans to him. In the event of any proposed foreclosure of such pledge, such shares will be subject to the right of first refusal of the Section 3.4(c) Offerees (as defined below) as provided in Section 3.4(c)." 4. This Amendment amends the Stockholders Agreement only to the extent specifically provided herein, and does not constitute an amendment or modification of any other provision of the Stockholders Agreement. 5. Each of the parties to this Amendment represents and warrants that this Amendment has been duly authorized, executed and delivered by such party and constitutes the legal, -3- valid and binding obligation of such party, enforceable against it in accordance with its terms. 6. This Amendment may be executed in any number of counterparts, each of which when so executed shall be deemed an original, and all of which, taken together, shall constitute one and the same agreement. This Amendment shall become effective as of the date hereof. -4- IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the date first written above. /s/ R. Philip Silver ______________________________ R. Philip Silver /s/ D. Greg Horrigan ______________________________ D. Greg Horrigan THE MORGAN STANLEY LEVERAGED EQUITY FUND II, L.P. By: Morgan Stanley Leveraged Equity Fund II, Inc. (General Partner) By: /s/ Robert H. Niehaus _________________________ Name: Robert H. Niehaus Title: Director BANKERS TRUST NEW YORK CORPORATION By: /s/ Joseph T. Wood _________________________ Name: Joseph T. Wood Title: Managing Director SILGAN HOLDINGS INC. By: /s/ Harley Rankin, Jr. _________________________ Name: Harley Rankin, Jr. Title: Executive Vice President, Chief Financial Officer and Treasurer -5- EX-27 12 AMENDED FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from Silgan Holdings Inc. Form 10-K for the year ended December 31, 1996 and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS DEC-31-1996 DEC-31-1996 1,017 0 105,481 4,045 195,981 305,837 757,351 257,570 913,546 275,627 693,783 0 52,998 152 (190,358) 913,546 1,405,742 1,405,742 1,223,684 1,223,684 0 0 89,353 33,937 3,300 30,637 0 (2,222) 0 25,409 1.32 1.32
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