As filed with the Securities and Exchange Commission on September 17, 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INSILCO HOLDING CO.
(exact name of registrant as specified in its charter)
Delaware 06-1158291
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
425 Metro Place North
Fifth Floor
Dublin, Ohio 43017
(614) 792-0468
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Kenneth H. Koch
Vice President and General Counsel
Insilco Holding Co.
425 Metro Place North
Fifth Floor
Dublin, Ohio 43017
(614) 792-0468
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
John W. Buttrick
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
(212) 450-4000
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Approximate date of commencement of proposed sale to public: From time
to time following the effectiveness of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box: [ ]
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Offering Price Per Aggregate Offering Amount of
Securities to be Registered Registered Security(1) Price(1) Registration Fee
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Common Stock, par value $.001 per share.. 174,145 shares (2) $42.50(3) $7,401,163 $2,184
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Warrants to purchase Common Stock........ 138,000 warrants $42.49(4) $5,863,620 $1,730
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Class A Warrants to purchase
Common Stock........................... 65,603 warrants $42.49(4) $2,787,472 $823
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Pay-in-kind 15% Senior Exchangeable
Preferred Stock due 2010(5)............ 1,400,000 shares $25 $35,000,000 $10,325
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) of the Securities Act of 1933, as amended.
(2) Includes 110,453 shares of Common Stock issuable upon exercise of the
Warrants and Class A Warrants registered hereby, plus a presently
indeterminable number of shares of Common Stock, if any, as shall be
issuable from time to time as required pursuant to adjustments under the
Warrants and Class A Warrants.
(3) The average of the bid and asked prices of the Common Stock in the
over-the-counter market on September 14, 1998.
(4) Based on the average of the bid and asked prices of the Common Stock in the
over-the-counter market on September 14, 1998, less the exercise price of
the Warrants or the Class A Warrants, as the case may be.
(5) Plus such additional shares of Pay-in-kind Preferred Stock which may be
issued in lieu of cash dividend payments.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that the Registration
Statement shall thereafter become effective in accordance with Section 8(A) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the commission acting pursuant to said Section 8(A)
may determine.
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PROSPECTUS
Issued September , 1998
INSILCO HOLDING CO.
COMMON STOCK
WARRANTS TO PURCHASE COMMON STOCK
PAY-IN-KIND PREFERRED STOCK
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This Prospectus relates to (i) the resale of 138,000 warrants
(the "Warrants") and 65,603 Class A Warrants (the "Class A Warrants") to
purchase shares of Common Stock, par value $.001 per share (the "Common
Stock") of Insilco Holding Co. (the "Company") by certain holders named herein
or in an accompanying supplement to this Prospectus ("Warrantholders"), (ii)
the issuance of up to 110,453 shares of Common Stock upon exercise of such
Warrants or Class A Warrants to persons who have purchased Warrants or Class A
Warrants under the immediately preceding clause (i) ("Exercising
Warrantholders"), (iii) resales of 63,692 shares (the "Existing Shares") of
Common Stock held by certain stockholders of the Company named herein or in an
accompanying supplement to this Prospectus and up to 110,453 shares of Common
Stock that may be received upon exercise of Warrants or Class A Warrants by
persons other than Exercising Warrantholders and (iv) resales of 1,400,000
shares of Pay-in-kind 15% Senior Exchangeable Preferred Stock due 2010 (the
"PIK Preferred Stock") held by certain funds (the "DLJMB Funds") affiliated
with DLJ Merchant Banking Partners II, L.P. ("DLJMB") (plus such additional
shares of PIK Preferred Stock which may be issued in lieu of cash dividend
payments). All of the Warrants, Class A Warrants and such shares of Common
Stock and PIK Preferred Stock (collectively, the "Offered Securities") are
being sold by such persons or entities (other than Warrantholders or
Exercising Warrantholders, collectively referred to as the "Selling
Stockholders") and the Company will not receive any of proceeds received
therefrom, other than upon the exercise of Warrants or Class A Warrants by
Exercising Warrantholders. The Warrants, the Class A Warrants and the shares
of PIK Preferred Stock were issued and shares issued upon the exercise of
Warrants or Class A Warrants by persons other than Exercising Warrantholders
have been or will be issued pursuant to an exemption from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act").
The Offered Securities are being registered by the Company pursuant to
registration rights granted in connection with the private placement of the
Warrants, the Class A Warrants and PIK Preferred Stock and the issuance of the
Existing Shares in connection with the Mergers described herein.
The Offered Securities may be offered by the Warrantholders and
Selling Stockholders from time to time in transactions in the over-the-counter
market, in privately negotiated transactions, in underwritten offerings or by
a combination of such methods of sale, at fixed prices that may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Warrantholders and
Selling Stockholders may effect such transactions by selling the Offered
Securities to or through broker-dealers and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Warrantholders and Selling Stockholders or the purchasers of the Offered
Securities for whom such broker-dealers may act as agent or to whom they sell
as principal or both (which compensation to a particular broker-dealer might
be in excess of customary commissions). If required, the names of any such
broker-dealers and the applicable compensation, if any, will be set forth in an
accompanying supplement to this Prospectus. See "Plan of Distribution."
The Company has agreed to bear certain expenses in connection
with the registration and sale of the Offered Securities being offered by the
Warrantholders and Selling Stockholders.
The Common Stock of the Company is traded in the
over-the-counter market under the symbol "INSL." On September 9, 1998, the
last sale price for the Common Stock in the over-the-counter market was $42.50
per share.
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The Warrantholders and Selling Stockholders and any
broker-dealers or agents that participate with the Warrantholders and Selling
Stockholders in the distribution of the Offered Securities may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act, and
any commissions received by them and any profit on the resale of the Offered
Securities purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
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See "Risk Factors" beginning on page 6 hereof for certain
information that should be considered by prospective investors.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE
HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN AS
CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
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TABLE OF CONTENTS
Page
Prospectus Summary...........................................................3
Risk Factors.................................................................6
The Company.................................................................12
Use of Proceeds.............................................................13
Warrantholders and Selling Stockholders.....................................13
Description of Warrants.....................................................17
Description of Capital Stock................................................22
Plan of Distribution........................................................25
Legal Matters...............................................................25
Experts.....................................................................25
Available Information.......................................................25
Pro Forma Financial Information............................................P-1
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INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE
The following documents or portions of documents filed by
Insilco Corporation, the Company's predecessor pursuant to Rule 12g-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), with the
Securities and Exchange Commission (the "Commission") are incorporated herein
by reference: (a) Proxy Statement/Prospectus dated July 8, 1998 contained in a
Registration Statement on Form S-4 (File No. 333-51145); (b) Annual Report on
Form 10-K for the fiscal year ended December 31, 1997, as amended and restated
on Form 10-K/A-2 dated July 8, 1998; (c) Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998, as amended and restated on Form 10-Q/A dated
July 8, 1998 and (d) Quarterly Report on Form 10-Q for the quarter ended June
30, 1998. In addition, the following document filed by the Company with the
Commission is incorporated herein by reference: Current Report on Forms 8-K
dated August 12, 1998, August 18, 1998 and August 28, 1998.
All reports and other documents subsequently filed by the
Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act,
prior to the filing of a post-effective amendment which indicates that all
securities offered hereby have been sold or which deregisters all securities
remaining unsold, shall be deemed to be incorporated by reference herein and
to be a part hereof from the date of filing of such reports and documents.
Any statement contained in a document incorporated by reference herein shall
be deemed modified or superseded for purposes of this Prospectus to the extent
that a statement contained or incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom
this Prospectus is delivered a copy of any or all of such documents which are
incorporated herein by reference (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference into the documents
that this Prospectus incorporates). Written or oral requests for copies
should be directed to the Corporate Secretary, at the Company's executive
offices located at 425 Metro Place North, Dublin, Ohio 43017.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information appearing elsewhere or incorporated by reference in this
Prospectus. As used herein, the "Company" refers to Insilco Holding Co., its
predecessors and subsidiaries. For a discussion of important factors that
could cause actual results to differ materially from the forward-looking
statements, see "Risk Factors."
THE COMPANY
Overview
The Company is a diversified producer of automotive,
telecommunications and electronics components, and is a leading specialty
publisher of student yearbooks. The Company has three reporting segments: (i)
the Automotive Components Group, which manufactures transmission components
and assemblies and heat exchangers (such as radiators and air conditioning
condensers) and heat exchanger tubing; (ii) the Technologies Group, which
manufactures high performance data-grade connectors for the telecommunications
and networking markets, cable and wire assemblies primarily for the
telecommunications market, and precision metal stampings and power
transformers primarily for the electronics market; and (iii) Specialty
Publishing, a specialty publisher focusing primarily on the student yearbook
market. The Company's portfolio of businesses serves several market segments,
which the Company believes tends to dampen cyclicality and diversify business
risk. The Company's broad base of more than 17,000 customers includes
automotive and non-automotive original equipment manufacturers ("OEMs"),
telecommunications, networking and electronics companies and school yearbook
departments nationwide.
The Automotive Components Group consists of three operating
units--Thermal Components, Steel Parts and Romac--and a joint venture,
Thermalex. Thermal Components produces aluminum- and copper-based heat
exchanger tubing for automotive OEMs and Tier 1 suppliers, and also
manufactures radiators, air conditioning condensers and other heat exchangers
for automotive and industrial applications. Steel Parts is the leading
supplier of automatic transmission clutch plates to Ford and produces other
stamped components for OEMs and Tier 1 suppliers. Romac produces stainless
steel tubing for marine, architectural, industrial and automotive
applications. Thermalex, a joint venture owned equally by the Company and
Mitsubishi Aluminum Co., Ltd. is, management believes, the nation's leading
producer of precision extruded multi-port aluminum heat exchanger tubing used
in automotive air-conditioning condensers.
The Technologies Group generally focuses on niche products
which are designed for specific customer applications and seeks to supply all
or a substantial portion of its customers' requirements. The group has four
operating units: Escod Industries, a supplier of cable and wire assemblies to
the telecommunications market, including Northern Telecom and Siemens Telecom
Network; Stewart Connector, a producer of high performance data-grade
connectors for the computer networking and telecommunications markets; Stewart
Stamping, a producer of highly customized precision stamped metal parts,
primarily for the electronics industry; and Signal Transformer, a producer of
50-60 Hz power transformers used in a variety of product applications.
Specialty Publishing consists of Taylor Publishing Company
("Taylor"), one of the nation's leading publishers of student yearbooks. The
student yearbook business benefits from very limited cyclicality, low customer
turnover and pre-paid sales.
Business Strategy
The Company seeks sales growth through internal growth and
acquisitions. In addition, the Company seeks to improve operating margins
through cost reduction programs and an on-going process of efficiency
improvements. The Company's strategy includes the following:
Focus on Niche Markets
The Company's primary focus is to tailor its products for
customer specific applications in niche markets. Such strategy includes
customizing products for particular accounts and applications and developing
technology to enhance product function. The Company believes that this niche
market focus results in more stable revenues, higher margins and longer term,
often sole-supplier, customer relationships.
Develop New Products and Applications
The Company pursues internal growth by developing specialized
products and by developing new applications for existing products. To further
this goal, the Automotive Components Group formed a technical center to
research emerging trends in heat transfer technologies and to develop new
products and applications. One longer-term project involves adapting the
Company's condenser technology for use in heating, ventilation and cooling
("HVAC") applications for the residential market. Management believes its heat
exchanger technology could be used in the design of smaller, more energy
efficient aluminum condensers to replace the conventional copper/brass
condensers currently used in residential HVAC systems. In addition, the
Company plans to introduce several new products at Stewart Connector in 1998,
including a modular connector that converts light to electrical signals.
Finally, the Company's investments in digital pre-press technology at Taylor
are designed to lower production costs and improve yearbook quality.
Increase Value-Added Content
The Company's business strategy also emphasizes increasing
value-added content to provide customers with integrated solutions rather than
individual components. For example, the Company's Steel Parts unit has
expanded its product offering to include sub-assemblies instead of solely
individual component parts. The Company's contract cable assembly unit has
expanded its services to include complete wire harness systems, and its
high-precision stamping unit now offers a number of finishing processes, in
addition to designing and stamping high-precision parts. Supplying value-added
assemblies and completing complementary manufacturing processes instead of
individual components permit the Company to foster long-term relationships
with customers, increase sales and expand margins. Moreover, OEM customers are
able to reduce their supplier base, while ensuring that an integrated
sub-assembly passes quality standards and meets exacting design compatibility
requirements.
Implement Cost Reduction Programs and Efficiency Improvements
The Company has a continual improvement philosophy which, by
recognizing and rewarding efficiency and quality improvements, has reduced
scrap rates, improved labor productivity and increased operating margins. In
addition, the Company's individual business units have upgraded equipment to
automate manufacturing processes and have increased production at lower cost
plants, such as those in the Dominican Republic, Mexico and El Paso, Texas.
For example, equipment upgrades at Thermal Components in 1996 have increased
capacity, substantially reduced cycle time, and lowered costs and product
defect ratios. Taylor Publishing has switched to automated pre-press operations
and introduced a pilot program through which selected customers are using the
Internet to proof and approve electronic copy, which the Company believes will
lead to reduced pre-press production costs.
Expand Strategic Acquisitions and Partnerships; Divestitures
The Company believes that it operates in highly fragmented
industries which provide many strategic acquisition and partnership
opportunities. Through acquisitions and partnerships, the Company seeks to
leverage its technical expertise, customer contacts and managerial talent to
augment its core business, broaden the Company's product lines, increase its
geographic scope and better serve its customers. For example, in 1996 the
Company acquired Great Lake, Inc., which expanded the Company's product reach
to include the automotive and heavy truck radiator replacement market, and
acquired the automotive aluminum tubing business of Helmut Lingemann GmbH &
Co., which expanded the Company's international market position in the
automotive heat exchanger tubing market. The Company believes that numerous
acquisition candidates exist globally and intends to continue to seek new
acquisition opportunities in its technology and automotive segments. In
addition, the Company, from time to time, considers certain divestitures.
Recent Developments
On January 14, 1997, Taylor sued one of its principal
competitors in the yearbook business, Jostens, Inc. ("Jostens"), in the U.S.
District Court for the Eastern District of Texas, alleging violations of the
federal antitrust laws as well as various claims arising under state law. On
May 13, 1998 the jury in the case returned a verdict in favor of Taylor, and,
on June 12, 1998, the judge presiding over the litigation in the U.S. District
Court rendered his judgment in the amount of $25.2 million plus interest at
the rate of 5.434 percent per annum. Jostens has announced that it will seek
to overturn the judgment in post trial motions or on appeal. There can be no
assurance as to the actual amount, if any, that Taylor will recover from
Jostens.
On August 17, 1998, the Company consummated a series of
transactions that resulted in (i) DLJMB and the DLJMB Funds owning
approximately 69.0% of the Company's outstanding Common Stock (approximately
68.3% on a fully diluted basis), (ii) the issuance of approximately $70.2
million in aggregate gross proceeds of Units (the "Units"), each Unit
consisting of $1,000 in principal amount at maturity of 14% Senior Discount
Notes due 2008 (the "Senior Discount Notes") and one Warrant to purchase .325
of a share of Common Stock, and (iii) the issuance of approximately $35.0
million in aggregate gross proceeds of PIK Preferred Stock and Class A
Warrants. See "The Company" and "Description of Capital Stock."
RISK FACTORS
Investors should carefully consider the specific risk factors
set forth below.
Limitations on Access to Cash Flow of Subsidiaries; Holding Company Structure
The Company is a holding company, and its ability to make
dividend payments in respect of its Common Stock is dependent upon the
receipt of dividends or other distributions from its direct and indirect
subsidiaries. The Company does not have, and may not in the future have, any
assets other than all of the shares of common stock of Insilco Corporation
("Insilco"), the Company's operating subsidiary, which will be pledged to
secure the obligations of Insilco under its $200.0 million credit facility
with various lenders and issuing banks (the "Credit Facility"). Insilco and its
subsidiaries are parties to the Credit Facility and Insilco is party to the
Indenture (the "10 1/4%" Note Indenture") pursuant to which its 10 1/4% Senior
Subordinated Notes due 2007 (the "10 1/4% Notes") were issued, each of which
imposes substantial restrictions on Insilco's ability to pay dividends or make
other distributions to the Company. Any payment of dividends or other
distributions will be subject to the satisfaction of certain financial
conditions set forth in such indenture and is subject to certain prohibitions
contained in the Credit Facility. The ability of Insilco and its subsidiaries
to comply with such conditions or prohibitions may be affected by events that
are beyond the control of the Company. If the maturity of the 10 1/4% Notes or
the loans under the Credit Facility were to be accelerated, all such
outstanding debt would be required to be paid in full before Insilco or its
subsidiaries would be permitted to distribute any assets or cash to the
Company. There can be no assurance that the assets of the Company would be
sufficient to repay all of such outstanding debt and to meet its obligations
under the Indenture. In addition, under Delaware law, a company is permitted
to pay dividends or make other distributions on its capital stock only out of
its surplus or, in the event that it has no surplus, out of its net profits
for the year in which a dividend or distribution is declared or for the
immediately preceding fiscal year. Surplus is defined as the excess of a
company's total assets over the sum of its total liabilities plus the par
value of its outstanding capital stock. In determining Insilco's ability to
pay dividends or make other distributions to the Company, Delaware law will
permit the Board of Directors of Insilco to revalue its assets and liabilities
from time to time to their fair market values in determining surplus. The
Company cannot predict what the value of Insilco's or its other subsidiaries'
assets or the amount of their liabilities will be in the future and,
accordingly, there can be no assurance that the Company will be able to
receive dividends from Insilco in order to make any dividend payments in
respect of its Common Stock.
Substantial Leverage; Liquidity; Stockholders' Deficit
In connection with the Mergers (as defined below) and the
Merger Financing (as defined below), the Company incurred a significant amount
of indebtedness. See "The Company." As of June 30, 1998, after giving pro
forma effect to the Mergers and the Merger Financing and the application of
the proceeds thereof, the Company would have had total consolidated
indebtedness of approximately $376.8 million and a stockholder's deficit of
$226.3 million. In addition, on such pro forma basis as of June 30, 1998,
Insilco could have borrowed an additional $36.1 million under the Credit
Facility. In addition, subject to the restrictions in the Credit Facility, the
10 1/4% Note Indenture and the Indenture pursuant to which the Company's 14%
Senior Discount Notes due 2008 (the "Senior Discount Notes") were issued (the
"Indenture"), the Company may incur significant additional indebtedness, which
may be secured, from time to time.
The level of the Company's indebtedness could have important
consequences to the Company, including: (i) limiting cash flow available for
general corporate purposes, including acquisitions, because a substantial
portion of the Company's cash flow from operations must be dedicated to debt
service; (ii) limiting the Company's ability to obtain additional debt
financing in the future for working capital, capital expenditures or
acquisitions; (iii) limiting the Company's flexibility in reacting to
competitive and other changes in the industry and economic conditions
generally; and (iv) exposing the Company to risks inherent in interest rate
fluctuations because certain of the Company's borrowings may be at variable
rates of interest, which could result in higher interest expense in the event
of increases in interest rates. In addition, if the holders of the 10 1/4%
Notes require Insilco to purchase in excess of $5 million of 10 1/4% Notes
in the Offer to Purchase and the Company is required to refinance the Credit
Facility, the Company may be required to finance such purchase on less
favorable terms.
The Company's ability to make scheduled payments of principal
of, to pay interest on or to refinance its indebtedness and to satisfy its
other debt obligations will depend upon its future operating performance,
which will be affected by general economic, financial, competitive,
legislative, regulatory, business and other factors beyond its control. The
Company anticipates that over the next several years its operating cash flow,
together with borrowings under the Credit Facility, will be sufficient to meet
its anticipated future operating expenses and capital expenditures and to
service interest payments on its outstanding debt as they become due. The
Company believes, however, that based upon the Company's current level of
operations and anticipated growth, it will be necessary to refinance the
Senior Discount Notes upon their maturity. There can be no assurance that the
Company will be able to refinance the Senior Discount Notes on satisfactory
terms, if at all. Moreover, if the Company's future operating cash flows are
less than currently anticipated it may be forced, in order to make payments on
its outstanding debt obligations, to reduce or delay acquisitions or capital
expenditures, sell assets or reduce operating expenses. If the Company were
unable to meet its debt service obligations (including obligations to pay
principal, premium, if any, at maturity or upon the occurrence of an Event of
Default or Change in Control (each as defined)), it could attempt to
restructure or refinance its indebtedness or to seek additional equity
capital. There can be no assurance that the Company will be able to effect any
of the foregoing on satisfactory terms, if at all.
Restrictions Imposed by Terms of Indebtedness
The Indenture restricts, among other things, the Company's
ability to incur additional indebtedness, incur liens, pay dividends or make
certain other restricted payments, enter into certain transactions with
affiliates, merge or consolidate with any other person or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of
the assets of the Company. In addition, the Credit Facility and the 10 1/4%
Note Indenture contain other and more restrictive covenants with respect to
Insilco and its subsidiaries and prohibit Insilco from prepaying its other
indebtedness. The Credit Facility requires Insilco to maintain specified
financial ratios and satisfy certain other financial condition tests.
Insilco's ability to meet those financial ratios and tests can be affected by
events beyond its control, and there can be no assurance that Insilco will
meet those tests. A breach of any of the foregoing covenants could result in
a default under the Credit Facility, the 10 1/4% Note Indenture and/or the
Senior Discount Notes. Upon the occurrence of an event of default under the
Credit Facility or the 10 1/4% Note Indenture, the holders of such
indebtedness could elect to declare such indebtedness to be immediately due
and payable. Substantially all of Insilco's assets and all of Insilco's
outstanding common stock is pledged as security under the Credit Facility.
Pursuant to the Company's guarantee of the Credit Facility, the Company may
not incur any indebtedness other than the Senior Discount Notes. If Insilco
were unable to repay amounts due under the Credit Facility, the lenders under
the Credit Facility could proceed against the collateral granted to them to
secure that indebtedness and there can be no assurance that such assets would
be sufficient to repay in full such indebtedness and the other indebtedness of
the Company.
Potential Lack of Financing
Consummation of the Mergers on August 17, 1998 required Insilco
to make, within 30 days following such consummation, an Offer to Purchase, as
defined in the 10 1/4% Note Indenture, all $150 million of the outstanding
10 1/4% Notes at a purchase price equal to 101% of their principal amount,
plus accrued interest. The Credit Facility has been amended, effective upon
the Mergers, to permit the Company to purchase up to $5.0 million of 10 1/4%
Notes in the Offer to Purchase. No assurance can be given, however, that
holders of the 10% 1/4 Notes will not tender more than $5 million of the 10
1/4% Notes. DLJ Capital Funding, Inc., an affiliate of DLJMB, has committed to
lend up to $350 million to the Company in the event that holders of the 10
1/4% Notes require Insilco to repurchase in excess of $5.0 million of the 10
1/4% Notes in any Offer to Purchase (the "Backstop Facility"). The Backstop
Facility will consist of a revolving credit facility and a term loan facility,
each on terms to be agreed by the eventual parties to the Backstop Facility.
The availability of funds under the Backstop Facility is, however, subject to
significant conditions, including, without limitation, (i) the mutual
agreement of terms customary for transactions of this nature and other
customary conditions with respect to security, guarantee and loan
documentation, (ii) the absence of any facts, events or circumstances that
could reasonably be expected to materially and adversely affect the financial
condition, business, assets or results of operations of the Company and its
subsidiaries, taken as a whole, (iii) the absence of any material disruption
of or material adverse change in current financial, banking or capital market
conditions that could impair the syndication of the Backstop Facility and (iv)
certain other matters. Accordingly, there can be no assurance that the
Backstop Facility will be available if needed.
Customer Concentration; Absence of Long-Term Contracts
A significant portion of the Company's sales are made to a
relatively small group of major customers. In 1997, sales to Ford represented
approximately 10% of net sales and sales to a group of the Company's nine next
largest customers represented approximately 22% of net sales. The current size
of the Company's automotive customer base exposes the Company to the risk of
changes in the business condition of its major customers and to the risk that
the loss of a major customer could adversely affect the Company's results of
operations. While the Company has supplied Ford for 40 years, Ford is not
contractually bound to purchase supplies from the Company in the future. Thus,
the Company's relationship with Ford is subject to termination at any time. If
the Company were to lose Ford as a customer, the Company's results of
operations would be adversely affected.
Cyclical Markets
A substantial portion of the Company's revenues derive from
sales to markets that have been historically, and are likely to continue to
be, cyclical. For example, the Company's Automotive Components Group, which
accounted for approximately 44% of the Company's net sales and 45% of
operating income for the year ended December 31, 1997, primarily serves the
automobile OEM market and the automobile parts aftermarket through the
manufacture of automotive heat exchangers and related tubing, and automatic
transmission and suspension components. For the year ended December 31, 1997,
however, approximately 16% and 27% of the Automotive Components Group's net
sales were attributable to the automotive aftermarket and nonautomotive OEMs,
respectively. The automobile industry has experienced recessionary or slow
growth conditions for substantial periods in the past and may experience
recessionary conditions in the future. Any substantial weakening of the
automobile industry would have an adverse effect on the Company's results of
operations.
Seasonality; Production Disruption
In certain of the Company's businesses in which there is high
customer concentration or high production seasonality, the Company would be
exposed to potentially significant revenue losses if it (or its customers)
were to experience substantial disruption in production. With the continued
emphasis on reductions in component inventories and "just-in-time" deliveries,
especially in the automotive industry, any disruption in production by the
Company or its major customers, through work stoppages or otherwise, could
have an immediate and adverse effect on the Company's results of operations.
Additionally, a portion of the Company's revenues and operating income are
exposed to the seasonality of the yearbook production cycle. A majority of the
annual revenues of Taylor are recognized in the Company's second quarter. Any
disruption during the peak production period (April to June) through work
stoppages, loss of production facilities or otherwise, has caused and could in
the future cause lost revenues or delay revenue recognition in the year in
which it occurred or increase expenses and adversely affect future years'
contract renewals.
Competition
The businesses in which the Company is engaged are highly
competitive and in some cases highly fragmented, with many small
manufacturers. In some of its businesses, especially the data grade connector
business and the heat exchanger business, the Company competes with entities
having significantly more resources. In certain other businesses the Company
competes with entities that have a greater share of the relevant market and
lower costs. As competition increases, profit margins on some of the Company's
significant business lines could decrease, and in the more fragmented markets
consolidation could occur, resulting in the creation of larger and financially
stronger competitors. The Company believes that, to remain competitive and
maintain or increase its profitability, it must pursue a strategy focusing on
growth and product innovation. However, the Company's competitors can be
expected to continue to seek their own growth, to improve the design and
performance of their products, to reduce costs of existing competitive
products and to introduce new products with competitive price and performance
characteristics. Although the Company believes that, with respect to most of
its businesses, it has certain technological, manufacturing and other
advantages over its competitors, maintaining these advantages will require
continued investment by the Company in research and development, sales and
marketing, productivity improvements and information systems. There can be no
assurance that the Company will have sufficient resources to continue to make
such investments, that such investments will be successful or that the Company
will be able to maintain its existing competitive advantages.
Technology and the Development of New Products
The markets for many of the Company's products, particularly
the products produced by Stewart Connector, are characterized by technological
change, evolving industry standards, frequent new product introductions and
product customization. Many of the Company's products require significant
planning, design, development and testing at the technological, product and
manufacturing process levels. In addition, the introduction of new products
and technologies may render existing or proposed products noncompetitive or
obsolete. Moreover, many of the Company's customers utilize its products and
proprietary technologies as components of other products which they
manufacture or assemble, which may become uncompetitive or obsolete. Although
the Company works closely with its customers to stay informed with respect to
product development, there can be no assurance that any of the products
currently being developed by the Company, or those to be developed in the
future, will be completed in any particular time frame or that the Company's
or its customers' products or proprietary technologies will not become
uncompetitive or obsolete.
Acquisition Growth Strategy; Management and Funding of Growth
The Company has historically pursued an acquisition strategy,
completing two acquisitions in 1996, and is currently in preliminary
discussions with respect to several new acquisitions as part of its ongoing
strategy to promote growth. There are various risks associated with pursuing a
growth strategy of this nature. Any future growth of the Company will require
the Company to manage its expanding domestic and international operations,
integrate new businesses and adapt its operational and financial systems to
respond to changes in its business environment, while maintaining a
competitive cost structure. The acquisition strategy of the Company will
continue to place demands on the Company and its management to improve the
Company's operational, financial and management information systems, to
develop further the management skills of the Company's managers and
supervisors, and to continue to retain, train, motivate and effectively manage
the Company's employees. The failure of the Company to manage its prior or any
future growth effectively could have a material adverse effect on the Company.
There also can be no assurance that suitable acquisition candidates will be
available or that acquisitions can be completed on reasonable terms.
Additionally, the Company's ability to maintain and increase
its revenue base and to respond to shifts in customer demand and changes in
industry trends will be partially dependent on its ability to generate
sufficient cash flow or obtain sufficient capital for the purpose of, among
other things, financing acquisitions, satisfying customer contractual
requirements and financing infrastructure growth. There can be no assurance
that the Company will be able to generate sufficient cash flow or that
financing will be available on acceptable terms (or permitted to be incurred
under the terms of the Credit Facility, the 10 1/4% Note Indenture, the
Indenture and any future indebtedness) to fund the Company's future growth.
Environmental Matters
The Company's operations are subject to federal, state, local
and foreign laws and regulations relating to the storage, handling,
generation, treatment, emission, release, discharge and disposal of certain
substances and wastes. As a result, the Company is involved from time to time
in administrative or legal proceedings relating to environmental matters and
has incurred in the past and will continue to incur capital costs and other
expenditures relating to environmental matters. Certain properties now or
previously owned by the Company are undergoing remediation. Liability under
environmental laws may be imposed on current and prior owners of property or
businesses without regard to fault or to knowledge about the condition or
action causing the liability. As an owner and operator, the Company may be
required to incur costs relating to the remediation of such owned or operated
properties, and environmental conditions could lead to claims for personal
injury, property damage or damages to natural resources. The Company has in
the past and may in the future be named a potentially responsible party
("PRP") at off-site third-party disposal sites to which it has sent waste.
The Company believes, based on current information, that any
costs it may incur relating to environmental matters will not have a material
adverse effect on its business, financial condition or its result of
operations. There can be no assurance, however, that the Company will not
incur significant fines, penalties or other liabilities associated with
noncompliance or clean-up liabilities or that future events, such as changes
in laws or the interpretation thereof, the development of new facts or the
failure of other PRPs to pay their share will not cause the Company to incur
additional costs that could have a material adverse effect on its business,
financial condition or results of operations.
Dependence on Key Personnel
The Company's success depends to a significant extent upon the
services of its senior management and other management in its various
businesses. The Company could be adversely affected if any of these persons
were unwilling or unable to continue in the Company's employ.
Risks Associated with Foreign Operations; Exchange Rate Fluctuations
The Company's products are manufactured and assembled at
facilities in the United States, the Dominican Republic, Germany and Mexico
and sold in many foreign countries. In 1997, less than 9% of the Company's net
sales and costs of goods sold occurred outside the United States and Canada.
International manufacturing and sales are subject to inherent risks, including
changes in local economic or political conditions, the impositions of currency
exchange restrictions, unexpected changes in regulatory environments,
potentially adverse tax consequences and exchange rate risk. There can be no
assurance that these factors will not have a material adverse impact on the
Company's production capabilities or otherwise adversely affect the Company's
business and operating results.
Control by the DLJMB Funds
Approximately 69.0% of the outstanding shares of the Company's
Common Stock (approximately 68.3% on a fully diluted basis) are held by the
DLJMB Funds. As a result of their stock ownership, the DLJMB Funds control the
Company (and through the Company, Insilco) and have the power (subject to an
agreement with 399 Venture Partners, Inc., a wholly owned indirect subsidiary
of Citibank, N.A. ("CVC") pursuant to which CVC is entitled to elect one
director to the Company's Board of Directors) to elect all of the members of
the Board of Directors, appoint new management and approve any action
requiring the approval of the holders of common stock of the Company or
Insilco, including adopting certain amendments to the certificate of
incorporation of the Company and Insilco, and approving any acquisition of the
Company or Insilco or approving sale of all or substantially all of the assets
of the Company or Insilco. The directors elected by the DLJMB Funds will have
the authority to effect decisions affecting the capital structure of the
Company and Insilco, including the issuance of additional capital stock, the
implementation of stock repurchase programs and the declaration of dividends.
The general partners of each of the DLJMB Funds are affiliates
or employees of, and DLJ Capital Funding, which has committed to provide the
Backstop Facility, is an affiliate of, Donaldson, Lufkin & Jenrette, Inc.
("DLJ, Inc."). Donaldson, Lufkin & Jenrette Securities Corporation ("DLJSC"),
which was the Initial Purchaser in the placement of the Senior Discount Notes,
is also an affiliate of DLJ, Inc.
Lack of Liquidity
Insilco's common stock was quoted on the Nasdaq National Market
System prior to the Mergers. Following the Mergers, the Common Stock was
de-listed by Nasdaq and currently trades in the over-the-counter market.
Although prices in respect of trades are published by the National Association
of Securities Dealers, Inc. periodically in the "pink sheets," quotes for such
shares are not readily available. As a result, the Common Stock trades less
frequently as compared to the trading volume of Insilco's common stock prior
to the Merger, and purchasers of Warrants or Common Stock may experience
difficulty selling shares of Common Stock or Warrants.
Possible Termination of Registration under Section 12(g) of the Exchange Act
There are currently fewer than 300 holders of the Common Stock.
Accordingly, if the Company chose to do so, it could, under existing rules of
the Commission, terminate the registration of the Common Stock under Section
12(g) of the Exchange Act and, as a result, it would not have to comply with
Section 14 of the Exchange Act and its directors, executive officers and
shareholders would not have to comply with Sections 13(d) and 16 of the
Exchange Act, to the extent otherwise applicable. However, even in the case of
such a termination (i) the Indenture and the agreement pursuant to which the
Warrants were issued require the Company to file the reports required by
Section 13(a) of the Exchange Act, and (ii) the Merger Agreement and the
Registration Rights Agreement (as defined below) require the Company to
provide the information required by Rule 144(c) of the Securities Act.
Year 2000
The year 2000 issue is the result of computer programs being
written using two digits rather than four to define the applicable year. Any
of the Company's computer programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
The Company believes that its internal systems are Year 2000 compliant or will
be upgraded or replaced in connection with previously planned changes to
information systems prior to the need to comply with Year 2000 requirements.
However, the Company is uncertain as to the extent its customers and vendors
may be affected by Year 2000 issues that require commitment of significant
resources and may cause disruptions in the customers' and vendors' businesses.
THE COMPANY
The Mergers
On August 17, 1998, the Company announced the closing of a
series of transactions previously approved by the stockholders of Insilco at a
special meeting held on August 13, 1998.
These transactions included, among other things, the formation
by the Company (which at the time was a subsidiary of Insilco) of a wholly
owned subsidiary ("ReorgSub"), followed by the merger of ReorgSub with and into
Insilco (the "Reorganization Merger"), pursuant to which each stockholder of
Insilco had his or her shares of Insilco converted into the same number of
shares of the Company and the right to receive $0.01 per share in cash, and the
Company became the parent of Insilco. Promptly following the Reorganization
Merger, a second merger took place pursuant to which Silkworm Acquisition
Corporation ("Silkworm"), an affiliate of DLJMB, merged with and into the
Company (the "Merger" and, together with the Reorganization Merger, the
"Mergers") and each share of the common stock of the Company was converted
into the right to receive $43.47 in cash and retain 0.03378 of a share of the
Company. Thus, as a result of the Mergers, each stockholder of Insilco, in
respect to each of his or her shares, received $43.48 in cash and retained
0.03378 of a share of Common Stock. Concurrently with the consummation of the
Mergers, the DLJMB Funds purchased 1,400,000 shares of PIK Preferred Stock,
and the Class A Warrants to purchase 65,603 shares of Common Stock. Following
the Mergers, (i) Insilco's existing stockholders retained, in the aggregate,
approximately 10.1% (9.4% on a fully diluted basis) of the outstanding shares
of Common Stock; (ii) the DLJMB Funds held approximately 69.0% (68.3% on a
fully-diluted basis), of the outstanding shares of Common Stock, (iii) CVC
purchased shares of Silkworm which in the Merger were converted into
approximately 19.3% (17.8% on a fully diluted basis) of the outstanding shares
of Common Stock; and (iv) management of the Company purchased approximately
1.7% (1.5% on a fully diluted basis) of the outstanding shares of Common Stock
concurrently with the consummation of the Merger.
Immediately prior to the effectiveness of the Reorganization
Merger, each outstanding option to acquire shares of the common stock of
Insilco granted to employees and directors, whether or not vested (the
"Options"), was canceled and, in lieu thereof, each holder of an Option
received a cash payment in an amount equal to (x) the excess, if any, of
$45.00 over the exercise price of the Option multiplied by (y) the number of
shares subject to the Option, less applicable withholding taxes (the "Option
Cash Payments"). Certain holders of such Options elected to utilize amounts
otherwise receivable by them to purchase equity of the Company.
The Merger Financing
The total amount of cash required to consummate the foregoing
transactions was approximately $204.4 million. This amount was financed with
(i) gross proceeds of approximately $70.2 million from the issuance of Units by
Silkworm (which were converted into Units of the Company in the Merger), (ii)
the issuance by Silkworm to the DLJMB Funds, to participants in the Management
Rollover and to CVC, for an aggregate consideration of approximately $56.1
million of 1,245,138 shares of Silkworm common stock (which were converted
into Common Stock of the Company in the Merger), (iii) the issuance to the
DLJMB Funds for an aggregate consideration of $35.0 million of 1,400,000
shares of the PIK Preferred Stock by the Company and the Class A Warrants to
purchase 65,603 shares of Common Stock at an exercise price of $0.01 per
share, and (iv) approximately $43.1 million of new borrowings under the Credit
Facility (collectively, the "Merger Financing"). Consummation of the Merger
required Insilco to make an Offer to Purchase (as defined in the 10 1/4% Note
Indenture) all of the outstanding 10 1/4% Notes at 101% of their aggregate
principal amount, plus accrued interest. There is an aggregate of $150 million
principal amount of 10 1/4% Notes outstanding. The Credit Facility has been
amended, effective upon the Mergers, to permit the Company to acquire up to $5
million of 10 1/4% Notes in the Offer to Purchase. If holders of more than $5
million of 10 1/4% Notes require the Company to repurchase their 10 1/4% Notes
as a result of the Merger, DLJ Capital Funding Inc. has committed to lend up
to $350 million to the Company under the Backstop Facility if the lenders
under the Credit Facility were not to consent to such additional purchases and
the Credit Facility were required to be refinanced. The availability of funds
under the Backstop Facility is, however, subject to significant conditions.
See "Risk Factors--Potential Lack of Financing."
USE OF PROCEEDS
All of the Offered Securities offered hereby are being sold by
the Warrantholders and the Selling Stockholders. The Company will not receive
any of the proceeds from the sale of the Offered Securities, other than upon
the exercise of Warrants or Class A Warrants by Exercising Warrantholders.
The Company will pay certain expenses relating to the registration and sale of
the Offered Securities, estimated to be approximately $45,500.
WARRANTHOLDERS AND SELLING STOCKHOLDERS
The following table sets forth certain information, as of the
date hereof, with respect to the number of Warrants, Class A Warrants and
shares of Common Stock and PIK Preferred Stock owned by each of the
Warrantholders and the Selling Stockholders, and as adjusted to give effect to
the sale of all of the Offered Securities. The Offered Securities are being
registered to permit public secondary trading of the Offered Securities, and
the Warrantholders and the Selling Stockholders may offer the Offered
Securities for resale from time to time. See "Plan of Distribution."
The Warrants and Class A Warrants being offered by the
Warrantholders and the Shares of Common Stock and PIK Preferred Stock being
offered by the Selling Stockholders were acquired from the Company in
connection with the Mergers. See "The Company."
The Company has filed with the Commission, under the Securities
Act, a Registration Statement on Form S-3 (the "Registration Statement"), of
which this Prospectus forms a part, with respect to the resale of the Offered
Securities from time to time, pursuant to Rule 415 under the Securities Act,
in the over-the-counter market, in privately-negotiated transactions, in
underwritten offerings or by a combination of such methods of sale, and has
agreed to use its best efforts to keep such Registration Statement effective
(i) in the case of the Existing Shares, until August 17, 1999 (except as such
date may be extended under certain circumstances as set forth in the
Registration Rights Agreement) and (ii) in the case of the Warrants and shares
of Common Stock that may be received upon exercise of Warrants by persons other
than Exercising Warrantholders, until the later of (A) the second anniversary
of the effective date of the Registration Statement and (B) the earlier of (i)
August 15, 2008, and (ii) the first date on which all Warrants have been
exercised by the holders thereof.
The Offered Securities offered by this Prospectus may be
offered from time to time by the persons or entities named below:
<TABLE>
<CAPTION>
Type and Number of
Warrants Number of Ownership
Number of Percent of Owned Prior to Offering Shares of After Offering(1)(2)
------------------------ PIK ---------------------
Shares of Common Number of Preferred
Common Stock Shares Stock Number of
Stock Owned Owned Type and Issuable Owned Shares of
Prior to Prior to Number of Upon Prior to Common
Name and Address of Offering Offering(1) Warrants Exercise Offering Stock Percent
Holders ----------- ------------ ------------ ------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
DLJ Merchant Banking
Partners II, L.P. 41,325
277 Park Avenue Class A
New York, NY 10172(3)........... 601,929 43.5% Warrants 41,325 881,895 601,929 43.5%
DLJ Merchant Banking
Partners II-A, L.P. 1,646
277 Park Avenue Class A
New York, NY 10172(3)........... 23,972 1.7% Warrants 1,646 35,121 23,972 1.7%
DLJ Offshore Partners II, C.V.
John B. Gorsiraweg 14 2,032
Willemstad, Curacao Class A
Netherlands Antilles (3)........ 29,600 2.1% Warrants 2,032 43,367 29,600 2.1%
DLJ Diversified Partners, L.P. 2,416
277 Park Avenue Class A
New York, NY 10172(3)........... 35,191 2.5% Warrants 2,416 51,560 35,191 2.5%
DLJ Diversified Partners-A, L.P. 897
277 Park Avenue Class A
New York, NY 10172(3)........... 13,069 * Warrants 897 19,147 13,069 *
DLJMB Funding II, Inc. 7,337
277 Park Avenue Class A
New York, NY 10172(3)........... 106,869 7.7% Warrants 7,337 156,577 106,869 7.7%
DLJ Millennium Partners, L.P. 668
277 Park Avenue Class A
New York, NY 10172(3)........... 9,733 * Warrants 668 14,259 9,733 *
DLJ Millennium Partners-A, L.P. 130
277 Park Avenue Class A
New York, NY 10172(3)........... 1,898 * Warrants 130 2,781 1,898 *
DLJ EAB Partners, L.P. 186
277 Park Avenue Class A
New York, NY 10172(3)........... 2,703 * Warrants 186 3,960 2,703 *
UK Investment Plan
1997 Partners
2121 Avenue of the Stars
Fox Plaza 1,093
Suite 3000 Class A
Los Angeles, CA 90067(3)........ 15,926 1.2% Warrants 1,093 23,333 15,926 1.2%
DLJ First ESC L.P. 80
277 Park Avenue Class A
New York, NY 10172(3)........... 1,158 * Warrants 80 1,697 1,158 *
DLJ Investment Partners, L.P.
277 Park Avenue 55,758
New York, NY 10172(3)........... -- -- Warrants 18,121 -- -- --
5,297
Warrants
&
DLJ ESC II, L.P. 7,793
277 Park Avenue Class A
New York, NY 10172(3)........... 113,508 8.2% Warrants 9,515 166,303 113,508 8.2%
DLJ Investment Funding, Inc.
277 Park Avenue 7,945
New York, NY 10172(3)........... -- -- Warrants 2,582 -- -- --
Water Street Corporate
Recovery Fund I, L.P.
85 Broad Street
New York, NY 10004(4)........... 63,692 4.6% -- -- -- -- --
Equitable Life Assurance of the
U.S. Life Non Par
c/o Alliance Capital
Management, L.P.
1345 Avenue of the Americas 6,400
New York, NY 10105(3)........... -- -- Warrants 2,080 -- -- --
Equitable Life Assurance of the
U.S. ELA High Income
c/o Alliance Capital
Management, L.P.
1345 Avenue of the Americas 8,600
New York, NY 10105(3)........... -- -- Warrants 2,795 -- -- --
Ares Leveraged Investment
Fund, L.P.
c/o Ares Capital Management
1999 Avenue of the Stars
Suite 1900 20,000
Los Angeles, CA 90067........... -- -- Warrants 6,500 -- -- --
Caravelle Investment Fund,
L.L.C.
c/o Caravelle Advisors
425 Lexington Avenue
22nd Floor 13,500
New York, NY 10017.............. -- -- Warrants 4,387.5 -- -- --
Muico & Co.
c/o Putman Management
One Poste Office Square
8th Floor 18,610
Boston, MA 02109................ -- -- Warrants 6,048.25 -- -- --
Bost & Co.
c/o Putman Management
One Poste Office Square
8th Floor 1,540
Boston, MA 02109................ -- -- Warrants 500.5 -- -- --
Blazerhold & Co.
c/o Putman Management
One Poste Office Square
8th Floor 240
Boston, MA 02109................ -- -- Warrants 78 -- -- --
Booth & Co.
c/o Putman Management
One Poste Office Square
8th Floor 110
Boston, MA 02109................ -- -- Warrants 35.75 -- -- --
</TABLE>
- ---------------
* Less than 1%
(1) Based upon 1,385,169 shares of Common Stock outstanding on September 16,
1998 and 110,453 shares of Common Stock issuable upon exercise of the
Warrants and Class A Warrants.
(2) Assumes the sale of all Existing Shares, shares of PIK Preferred Stock,
Class A Warrants and Warrants or shares of Common Stock received upon the
exercise thereof.
(3) Excludes securities held by other investors related to DLJMB (which may be
deemed to be beneficially owned by the named entity).
(4) Represents shares of Common Stock beneficially owned by Water Street
Corporate Recovery Fund I, L.P. ("Water Street"). Goldman, Sachs & Co.
("Goldman Sachs") is the general partner of Water Street and thus may be
deemed to be the beneficial owner of shares beneficially owned by Water
Street. The Goldman Sachs Group, L.P. ("GS Group") is a general partner of
Goldman Sachs. The address of Goldman Sachs and GS Group is 85 Broad
Street, New York, New York 10004. Each of Goldman Sachs and GS Group
disclaims beneficial ownership of the shares owned by Water Street to the
extent interests in Water Street are owned by persons other than GS Group
and its affiliates. Includes 11 shares of Common Stock owned by GS Group
as of the date of this Prospectus and 720 shares of Common Stock held by
current or former partners or employees of Goldman Sachs as of the date of
this Prospectus.
DESCRIPTION OF WARRANTS
Warrants
The Warrants were issued pursuant to a Warrant Agreement (the
"Warrant Agreement") between Silkworm and National City Bank, as Warrant Agent
(the "Warrant Agent"). Upon consummation of the Mergers, Holdings succeeded
to the obligations of Silkworm with respect to the Warrants and the Warrants,
by their terms, became exercisable for an equal number of shares of Common
Stock. The following summary of the material provisions of the Warrant
Agreement does not purport to be complete and is qualified in its entirety by
reference to the Warrant Agreement, including the definitions therein of
certain terms used below, a copy of which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part.
Each Warrant, when exercised, will entitle the holder thereof
(a "Holder") to receive 0.325 of a fully paid and non-assessable share of
Common Stock (the "Warrant Shares"), at an exercise price of $0.01 per
share (the "Exercise Price"). The Exercise Price and the number of Warrant
Shares are both subject to adjustment in certain cases referred to below.
The Warrants are exercisable at any time and, unless exercised, will
automatically expire on August 15, 2008 (the "Expiration Date").
The Warrants may be exercised by surrendering to the Company
the warrant certificate, evidencing the Warrants to be exercised, with the
accompanying form of election to purchase properly completed and executed,
together with payment of the Exercise Price. Payment of the Exercise Price may
be made at the Holder's election (i) in cash in United States dollars by wire
transfer or by certified or official bank check to the order of the Company or
(ii) without a cash payment being required, for such number of Warrant Shares
equal to the product of (A) the number of Warrant Shares for which such
Warrant is exercisable as of the date of exercise (if the Exercise Price were
being paid in cash) and (B) the Cashless Exercise Ratio. The Cashless Exercise
Ratio shall equal a fraction the numerator of which is the Market Value (as
defined in the Warrant Agreement) per share of Common Stock on the date of
exercise minus the Exercise Price per share as of the date of exercise and the
denominator of which is the Market Value per share on the date of exercise.
Upon surrender of the warrant certificate and payment of the Exercise Price,
the Company will deliver or cause to be delivered, to or upon the written
order of such Holder, stock certificates representing the number of whole
Warrant Shares to which the Holder is entitled. If less than all of the
Warrants evidenced by a warrant certificate are to be exercised, a new warrant
certificate will be issued for the remaining number of Warrants. Holders of
Warrants will be able to exercise their Warrants for cash so long as the
Registration Statement is then in effect, or the exercise of such Warrants is
exempt from the registration requirements of the Securities Act, and such
securities are qualified for sale or exempt from qualification under the
applicable securities laws of the states in which the various Holders of
Warrants, or other persons to whom it is proposed that Warrant Shares be
issued on exercise of the Warrants, reside.
No fractional Warrant Shares will be issued upon exercise of
the Warrants. The Company will pay to the Holder of a Warrant at the time of
exercise an amount in cash equal to the current market value of any such
fractional Warrant Shares less a corresponding fraction of the Exercise Price.
The Holder of the Warrants will have no right to vote on
matters submitted to the stockholders of the Company and will have no right to
receive dividends. The Holders of the Warrants will not be entitled to share
in the assets of the Company in the event of liquidation, dissolution or the
winding up of the Company. In the event a bankruptcy or reorganization is
commenced by or against the Company, a bankruptcy court could determine that
unexercised Warrants are executory contracts, and therefore subject to
rejection by the Company with approval of the bankruptcy court, and the
Holders of the Warrants may, even if sufficient funds are available, receive
nothing or a lesser amount as a result of any such bankruptcy case than they
would be entitled to if they had exercised their Warrants prior to the
commencement of any such case.
In the event of a taxable distribution to holders of Common
Stock that results in an adjustment to the number of Warrant Shares or other
consideration for which a Warrant may be exercised, the Holders of the
Warrants may, in certain circumstances, be deemed to have received a
distribution subject to United States federal income tax as a dividend.
Adjustments
The number of Warrant Shares purchasable upon exercise of
Warrants and the Exercise Price will be subject to adjustment, subject to
certain exceptions, in certain events including: (i) the payment by the
Company in Common Stock of dividends and other distributions on the Common
Stock, (ii) subdivisions, combinations and reclassification of the Common
Stock, (iii) the issuance to all holders of Common Stock of certain rights,
options or warrants entitling them to subscribe for Common Stock or securities
convertible into, or exchangeable or exercisable for, Common Stock at a price
which is less than the Fair Value per share (as defined) of Common Stock, (iv)
certain distributions to all holders of Common Stock of any of the Company's
assets, debt securities, other securities or any rights or warrants to
purchase any such securities (excluding those rights and warrants referred to
in clause (iii) above), (v) the issuance of shares of Common Stock for
consideration per share less than the then Fair Value per share of Common Stock
(excluding securities issued in transactions referred to in clauses (i)
through (iv) above and certain other issuances), (vi) the issuance of
securities convertible into or exchangeable for Common Stock for a conversion
or exchange price plus consideration received upon issuance less than the then
Fair Value per share of Common Stock (excluding securities issued in
transactions referred to in clauses (i) through (iv) above), and (vii) certain
other events that could have the effect of depriving Holders of the Warrants
of the benefit of all or a portion of the purchase rights evidenced by the
Warrants. Adjustments to the Exercise Price per share will be calculated to
the nearest cent. No adjustment need be made for any of the foregoing
transactions if Warrant Holders are to participate in the transaction on a
basis and with notice that the Board of Directors determines to be fair and
appropriate in light of the basis and notice on which holders of Common Stock
participate in the transaction.
"Fair Value" per security at any date of determination shall be
(1) in connection with a sale to a party that is not an Affiliate (as defined)
of the Company in an arm's-length transaction (a "Non-Affiliate Sale"), the
price per security at which such security is sold and (2) in connection with
any sale to an Affiliate of the Company, (a) the last price per security at
which such security was sold in a Non-Affiliate Sale within the three-month
period preceding such date of determination or (b) if clause (a) is not
applicable, the fair market value of such security determined in good faith by
(i) a majority of the Board of Directors of the Company, including a majority
of the Disinterested Directors, and approved in a board resolution delivered
to the Warrant Agent or (ii) a nationally recognized investment banking,
appraisal or valuation firm, which is not an Affiliate of the Company, in each
case, taking into account, among all other factors deemed relevant by the
Board of Directors of the Company or such investment banking, appraisal or
valuation firm, the trading price and volume of such security on any national
securities exchange or automated quotation system on which such security is
traded. Notwithstanding the foregoing, any sale to DLJSC (or any successor
thereto) pursuant to an underwritten public offering registered under the
Securities Act shall be deemed to be and treated as a Non-Affiliate Sale.
"Disinterested Director" means, in connection with any issuance
of securities that gives rise to a determination of the Fair Value thereof,
each member of the Board of Directors of the Company who is not an officer,
employee, director or other Affiliate of the party to whom the Company is
proposing to issue the securities giving rise to such determination.
No adjustment in the Exercise Price will be required unless
such adjustment would require an increase or decrease of at least one percent
(1.0%) in the Exercise Price, provided however, that any adjustment that is
not made will be carried forward and taken into account in any subsequent
adjustment.
In the case of certain consolidations or mergers of the
Company, or the sale of all or substantially all of the assets of the Company
to another corporation, (i) each Warrant will thereafter be exercisable for
the right to receive the kind and amount of shares of stock or other
securities or property to which such Holder would have been entitled as a
result of such consolidation, merger or sale had the Warrants been exercised
immediately prior thereto and (ii) the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale
shall have been made will assume the obligations of the Company under the
Warrant Agreement.
Reservation of Shares
The Company will at all times reserve and keep available such
number of shares of Common Stock as will be issuable upon the exercise of all
outstanding Warrants. Such shares of Common Stock, when paid for and issued,
will be duly and validly issued, fully paid and non-assessable, free of
preemptive rights and free from all taxes, liens, charges and security
interests with respect to the issuance thereof.
Amendment
From time to time, the Company and the Warrant Agent, without
the consent of the holders of the Warrants, may amend or supplement the
Warrant Agreement for certain purposes, including curing defects or
inconsistencies or making any change that does not adversely affect the legal
rights of any Holder. Any amendment or supplement to the Warrant Agreement
that adversely affects the legal rights of the Holders of the Warrants will
require the written consent of the Holders of a majority of the then
outstanding Warrants (excluding Warrants held by the Company or any of its
Affiliates). The consent of each Holder of the Warrants affected will be
required for any amendment pursuant to which the Exercise Price would be
increased or the number of Warrant Shares purchasable upon exercise of
Warrants would be decreased (other than pursuant to adjustments provided in
the Warrant Agreement).
Delivery and Form
The Warrants will be in the form of registered, certificated
warrants.
Class A Warrants
The Class A Warrants were issued by the Company in connection
with the Mergers together with the shares of PIK Preferred Stock. The
following summary of the material provisions of the Class A Warrants does not
purport to be complete and is qualified in its entirety by reference to the
form of Class A Warrant, including the definitions therein of certain terms
used below, a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part.
Each Class A Warrant, when exercised, will entitle the holder
thereof (a "Class A Holder") to receive one fully paid and non-assessable
share of Common Stock (the "Class A Warrant Shares"), at an exercise price of
$0.01 per share (the "Class A Exercise Price"). The Class A Exercise Price
and the number of Class A Warrant Shares are both subject to adjustment in
certain cases referred to below. The Class A Warrants are exercisable at any
time and, unless exercised, will automatically expire on August 1, 2010. The
Class A Warrants, and any shares of Common Stock issued upon the exercise
thereof, are subject to certain restrictions on transfer, voting and other
matters contained in the Investors' Agreement. See "Description of Capital
Stock -- Other Stockholder Matters."
The Class A Warrants may be exercised by executing and
delivering a warrant exercise notice to the Company and tendering the Class A
Warrant Certificate, together with the Class A Exercise Price to the Company
not earlier than ten days following the delivery of the warrant exercise
notice, other than in connection with the public offering of the Common Stock,
in which case such notice may be delivered together with such tender. Instead
of tendering cash in connection with the payment of the Class A Exercise
Price, the Class A Holder may elect (i) to receive a number of Class A Warrant
Shares equal to the number otherwise receivable, reduced by a number of shares
of Common Stock having the aggregate Fair Market Value (as defined) equal to
the Class A Exercise Price for the Class A Warrant Shares, (ii) to deliver as
payment, in whole or in part of the aggregate Class A Exercise Price, shares
of Common Stock having the aggregate Fair Market Value equal to the applicable
portion of the aggregate Class A Exercise Price for the Class A Warrant
Shares, or (iii) to deliver as payment, in whole or in part of the aggregate
Class A Exercise Price, such number of Class A Warrants which, if exercised,
would result in a number of shares of Common Stock having an aggregate Fair
Market Value equal to the applicable portion of the aggregate Class A Exercise
Price for the Class A Warrant Shares. If less than all of the Class A
Warrants evidenced by a warrant certificate are to be exercised, a new warrant
certificate will be issued for the remaining number of Class A Warrants.
Holders of Class A Warrants will be able to exercise their Class A Warrants
for cash so long as the Registration Statement is then in effect, or the
exercise of such Class A Warrants is exempt from the registration requirements
of the Securities Act, and such securities are qualified for sale or exempt
from qualification under the applicable securities laws of the states in which
the various Holders of Class A Warrants, or other persons to whom it is
proposed that Class A Warrant Shares be issued on exercise of the Class A
Warrants, reside.
No fractional Class A Warrant Shares will be issued upon
exercise of the Class A Warrants. The Company will pay to the Holder of a
Class A Warrant at the time of exercise an amount in cash equal to the current
market value of any such fractional Class A Warrant Shares less a
corresponding fraction of the Class A Exercise Price.
The Holder of the Class A Warrants will have no right to vote
on matters submitted to the stockholders of the Company and will have no right
to receive dividends. The Holders of the Class A Warrants will not be entitled
to share in the assets of the Company in the event of liquidation, dissolution
or the winding up of the Company. In the event a bankruptcy or reorganization
is commenced by or against the Company, a bankruptcy court could determine that
unexercised Class A Warrants are executory contracts, and therefore subject to
rejection by the Company with approval of the bankruptcy court, and the
Holders of the Class A Warrants may, even if sufficient funds are available,
receive nothing or a lesser amount as a result of any such bankruptcy case
than they would be entitled to if they had exercised their Class A Warrants
prior to the commencement of any such case.
In the event of a taxable distribution to holders of Common
Stock that results in an adjustment to the number of Class A Warrant Shares or
other consideration for which a Class A Warrant may be exercised, the Holders
of the Class A Warrants may, in certain circumstances, be deemed to have
received a distribution subject to United States federal income tax as a
dividend.
Adjustments
The number of Class A Warrant Shares purchasable upon exercise
of Class A Warrants and the Class A Exercise Price will be subject to
adjustment, subject to certain exceptions, in certain events including: (i)
the payment by the Company in Common Stock of dividends and other
distributions on the Common Stock, (ii) subdivisions, combinations and
reclassification of the Common Stock, (iii) the issuance to all holders of
Common Stock of rights, options or warrants entitling them to subscribe for
Common Stock or securities convertible into, or exchangeable or exercisable
for, Common Stock at a price which is less than the Current Market Price Per
Common Share (as defined), (iv) certain distributions to all holders of Common
Stock of any of the Company's assets, debt securities, other securities or any
rights or warrants to purchase any such securities (excluding those rights and
warrants referred to in clause (iii) above), (v) the issuance of shares of
Common Stock for consideration per share less than the then Current Market
Price Per Common Share (excluding securities issued in transactions referred
to in clauses (i) through (iv) above), (vi) the issuance of securities
convertible into or exchangeable for Common Stock for a conversion or exchange
price plus consideration received upon issuance less than the then Current
Market Price Per Common Share (excluding securities issued in transactions
referred to in clauses (i) through (iv) above), and (vii) certain other events
that could have the effect of depriving Holders of the Class A Warrants of the
benefit of all or a portion of the purchase rights evidenced by the Class A
Warrants.
For purposes of the foregoing, the "Current Market Price Per
Common Share" equals the average (weighted by daily trading volume) of the
Daily Prices (as defined below) per share of Common Stock for the 20
consecutive trading days ending three days prior to such date. "Daily Price"
means (1) if the shares of Common Stock then are listed and traded on the New
York Stock Exchange, Inc. ("NYSE"), the closing price on such day as reported
on the NYSE Composite Transactions Tape; (2) if the shares of Common Stock then
are not listed and traded on the NYSE, the closing price on such day as
reported by the principal national securities exchange on which the shares are
listed and traded; (3) if the shares of Common Stock then are not listed and
traded on any such securities exchange, the last reported sale price on such
day on the National Market of the National Association of Securities Dealers,
Inc. Automated Quotation System ("NASDAQ"); (4) if the shares of Common Stock
then are not listed and traded on any such securities exchange and not traded
on the NASDAQ National Market, the average of the highest reported bid and
lowest reported asked price on such day as reported by NASDAQ; or (5) if such
shares are not listed and traded on any such securities exchange, not traded on
the NASDAQ National Market and bid and asked prices are not reported by NASDAQ,
then the average of the closing bid and asked prices, as reported by The Wall
Street Journal for the over-the-counter market. If on any determination date
the shares of Common Stock are not quoted by any such organization, the Current
Market Price Per Common Share shall be the fair market value of such shares on
such determination date as determined by the Board of Directors, without regard
to considerations of the lack of liquidity, applicable regulatory restrictions
or any of the transfer restrictions or other obligations imposed on such shares
set forth in the Investors' Agreement.
In the case of certain consolidations or mergers of the
Company, or the sale of all or substantially all of the assets of the Company
to another corporation, (i) each Class A Warrant will thereafter be
exercisable for the right to receive the kind and amount of shares of stock or
other securities or property to which such Holder would have been entitled as
a result of such consolidation, merger or sale had the Class A Warrants been
exercised immediately prior thereto and (ii) the Person formed by or surviving
any such consolidation or merger (if other than the Company) or to which such
sale shall have been made will assume the obligations of the Company under the
Class A Warrants.
Reservation of Shares
The Company will at all times reserve and keep available such
number of shares of Common Stock as will be issuable upon the exercise of all
outstanding Class A Warrants. Such shares of Common Stock, when paid for and
issued, will be duly and validly issued, fully paid and non-assessable, free
of preemptive rights and free from all taxes, liens, charges and security
interests with respect to the issuance thereof.
Delivery and Form
The Class A Warrants will be in the form of registered,
certificated warrants.
DESCRIPTION OF CAPITAL STOCK
General
The following is a summary of certain of the rights and
privileges pertaining to the shares of the Company's capital stock, including
shares of Common Stock issuable upon exercise of the Warrants and the Class A
Warrants. The authorized capital stock of the Company consists of 15,000,000
shares of Common Stock, par value $0.001 per share, of which 1,385,169 shares
are outstanding (excluding 110,453 Shares reserved for issuance upon the
exercise of outstanding warrants, including the Warrants and the Class A
Warrants) and 3,000,000 shares of preferred stock, par value $0.001 per share,
of which the 1,400,000 shares of PIK Preferred Stock are outstanding. See
"--PIK Preferred Stock."
Common Stock
Voting Rights. The holders of shares of Common Stock are
entitled to one vote per share on all matters submitted for action by the
stockholders. There is no provision for cumulative voting with respect to the
election of directors. Accordingly, the holders of more than 50% of the shares
can, if they choose to do so, elect the entire Board of Directors and
determine most matters on which stockholders are entitled to vote.
Dividend Rights. Subject to the preferential rights of holders
of outstanding shares of preferred stock, holders of shares are entitled to
share equally in all dividends declared on shares, whether payable in cash,
property or securities of the Company.
Liquidation Rights; Other Rights. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the Company, the
holders of shares are entitled to share equally in the assets available for
distribution after payment of liabilities, subject to the rights of the
holders of outstanding shares of preferred stock. Holders of shares have no
conversion, redemption or preemptive rights.
Transfer Agent and Registrar
The transfer agent and registrar for the Company's Common Stock
is National City Bank, Cleveland, Ohio.
PIK Preferred Stock
The Board of Directors of the Company has authorized the
designation of 3,000,000 shares of the PIK Preferred Stock. Each share of PIK
Preferred Stock accretes cumulative, quarterly dividends at a compound rate of
15% per annum. Prior to August 1, 2003, dividends on the PIK Preferred Stock
are payable in additional shares of PIK Preferred Stock. After August 1, 2003,
dividends are payable in cash. Shares of PIK Preferred Stock have a
liquidation preference equal to the sum of $25 plus, subject to certain
conditions, accreted dividends. Shares of PIK Preferred Stock are non-
voting, except as otherwise provided by law or by agreement. The PIK Preferred
Stock is subject to redemption at the option of the Company at any time, at
115.00% of liquidation preference prior to August 1, 2003, at 107.50% of
liquidation preference from August 1, 2003 to July 31, 2004, at 105.00% of
liquidation preference from August 1, 2004 to July 31, 2005, at 102.50% of
liquidation preference from August 1, 2005 to July 31, 2006, and at 100.00% of
liquidation preference thereafter. On August 1, 2010, the PIK Preferred Stock
will be subject to mandatory redemption by the Company. Upon the occurrence of
a Change of Control, each holder of PIK Preferred Stock will have the right
to require the Company to repurchase all or any part of such holder's PIK
Preferred Stock at an offer price in cash equal to 101% of the liquidation
preference thereof. The Company may at anytime but subject to certain
conditions exchange all outstanding shares of PIK Preferred Stock for 15%
Subordinated Exchange Debentures due 2010 (the "Exchange Debentures"). The
Exchange Debentures will rank senior to all other subordinated debt (but
junior to the Senior Discount Notes and the guarantee by the Company of
Insilco's obligations under the Credit Facility), preferred stock and common
equity of the Company.
The Company currently intends to create a new class of
preferred stock, the 15% Senior Preferred Stock due 2010 (the "Compensation
Preferred Stock"), for use in connection with its executive compensation
plans. The Compensation Preferred Stock has no mandatory redemption
provisions and is not exchangeable into Exchange Debentures, but is otherwise
identical to the PIK Preferred Stock.
Other Stockholder Arrangements
In connection with the DLJMB equity investment, the Company,
the DLJMB Funds and CVC entered into an Investors' Agreement (the "Investors'
Agreement") granting the DLJMB Funds the right to demand registration of the
Common Stock, the Class A Warrants and the PIK Preferred acquired in the DLJMB
equity investment or thereafter issued by the Company in respect of such
Common Stock, the Class A Warrants or the PIK Preferred by way of conversion,
exchange, stock dividend, split or combination, recapitalization, merger,
consolidation, other reorganization or otherwise (the "Investors' Registrable
Securities"). Under the Investors' Agreement, DLJMB (on behalf of the DLJMB
Funds) is entitled to require that the Company register some or all of the
Investors' Registrable Securities for a period of up to 180 days (or such
lesser period as is necessary to complete such offering) (an "Investors' Demand
Registration"). The DLJMB Funds are in the aggregate limited to four such
Investors' Demand Registrations. In addition, pursuant to the terms of the
Investors' Agreement, if the Company proposes to file a registration statement
under the Securities Act with respect to any offering of (or including) Common
Stock, preferred stock or warrants (other than certain registrations relating
to Common Stock or warrants issued in certain business combinations or pursuant
to certain employee benefit plans), then the Company will provide, subject to
certain limitations, the DLJMB Funds an opportunity to register their
Investors' Registrable Securities of the same type as are proposed to be
registered on the same terms and conditions (an "Investors' Piggyback
Registration"). In connection with any Investors' Demand Registration or
Investors' Piggyback Registration, the Company will be responsible for all
expenses incurred in connection with such registration other than underwriting
fees, discounts or commissions that may be payable in connection with the sale
of Investors' Registrable Securities. In addition, the Company will indemnify
the DLJMB Funds and the underwriters and each of their employees and
affiliates against certain liabilities, including liabilities under the
Securities Act, or will contribute to payments such indemnitee may be required
to make in respect thereof.
Under the Investor's Agreement, CVC has the right to
participate pro rata in any sale by the DLJMB Funds of their Common Stock
above a threshold amount and the DLJMB Funds have the right to require CVC to
participate pro rata in certain sales by the DLJMB Funds of their Common
Stock. The Investors' Agreement would also grant CVC the right to participate
in any demand registration made by the DLJMB Funds, on a pro rata basis, and
certain pre-emptive and other rights. The Company has agreed to take such
actions as may be necessary to permit the DLJMB Funds to resell their shares
of PIK Preferred Stock pursuant to Rule 144A under the Securities Act,
including, without limitation, preparing an offering memorandum and entering
into customary purchase agreements and registration rights agreements. The
foregoing summarizes certain provisions of the Investors' Agreement, but does
not purport to be complete and is subject to, and qualified by reference to,
the rest of the Investors' Agreement, a copy of which has been filed as an
exhibit to the Registration Statement.
On August 17, 1998, Water Street and the Company entered into a
registration rights agreement (the "Registration Rights Agreement"). Pursuant
to the Registration Rights Agreement, the Company is required, among other
things, to prepare and file with the Commission a shelf registration statement
(the "Shelf Registration Statement") relating to the resale of the Existing
Shares (and which may also include the other Offered Securities). The Company
further agreed to use its best efforts (i) to cause such Shelf Registration
Statement to be declared effective as promptly as practicable, but in any
event within 90 days of the date of the Registration Rights Agreement, and
(ii) to keep the Shelf Registration Statement continuously effective and in
compliance with the Securities Act and usable for resale of the Existing
Shares from the date on which the Commission declares effective the Shelf
Registration Statement until August 17, 1999 (subject to the right of the
Company, under certain circumstances, to postpone or suspend for a reasonable
period of time, not to exceed 60 days in the aggregate, the proposed offering
of Existing Shares pursuant to the Shelf Registration Statements). Pursuant
to the Registration Rights Agreement, the Company has also agreed to use its
best efforts to meet certain reporting requirements under the Securities Act
and the Exchange Act to enable the Selling Stockholders to sell their Existing
Shares without registration under the Securities Act as contemplated by Rule
144 and Rule 145 thereunder. The Registration Statement, of which this
Prospectus is a part, will constitute the Shelf Registration Statement for
purposes of the Registration Rights Agreement.
In connection with the Shelf Registration Statement, the
Company will be responsible for all expenses incurred in connection with such
registration, except that Water Street (or such other participating Selling
Stockholders, if any) will pay any underwriting discounts or commissions that
may be payable in connection with the sale of its Existing Shares. In
addition, the Company will indemnify Water Street and the underwriters and
each of their employees and affiliates against certain liabilities, including
liabilities under the Securities Act, or will contribute to payments Water
Street may be required to make in respect thereof. The Registration Rights
Agreement terminates, except with respect to rights to indemnification, upon
the earliest to occur of the sale of all of the Existing Shares by Water
Street and such other participating Selling Stockholders (and certain
permitted transferees), the mutual consent of the parties and August 17, 1999
(except as such date may be extended under certain circumstances as set forth
in the Registration Rights Agreement).
The foregoing summarizes the material provisions of the
registration rights agreement, but does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the rest of the
registration rights agreement, a copy of which has been filed with the
Commission.
Section 203 of Delaware General Corporation Law
The Company is a Delaware corporation subject to Section 203 of
the DGCL. In general, Section 203 prevents an "Interested Stockholder"
(defined generally, as a person owning 15% or more of a corporation's
outstanding voting stock) from engaging in a "business combination" (as
defined) with a Delaware corporation for three years following the date such
person became an interested stockholder, subject to certain exceptions, such
as transactions effected with the approval of the Board of Directors or of the
holders of at least two-thirds of the outstanding shares of voting stock not
owned by the interested stockholder. The Board of Directors, in approving the
Merger Agreement and the Mergers, rendered the two-thirds stockholders vote
provided for by Section 203 of the DGCL inapplicable to the Mergers.
PLAN OF DISTRIBUTION
The Company will receive no proceeds from this offering, other
than in connection with the exercise of Warrants and Class A Warrants by
Exercising Warrantholders. The Offered Securities offered hereby may be sold
by the Warrantholders and the Selling Stockholders from time to time in
transactions in the over-the-counter market, in negotiated transactions, in
underwritten offerings, or a combination of such methods of sale, at fixed
prices which may be changed, at market prices prevailing at the time of sale,
at prices related to prevailing market prices or at negotiated prices. The
Warrantholders and the Selling Stockholders may effect such transactions by
selling the Offered Securities to or through broker-dealers, and such
broker-dealers may receive compensation in the form of discounts, concessions
or commissions from the Warrantholders and the Selling Stockholders and/or the
purchasers of the Offered Securities for whom such broker-dealers may act as
agents or to whom they sell as principals, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions).
In order to comply with the securities laws of certain states,
if applicable, the Offered Securities will be sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
states the Offered Securities may not be sold unless they have been registered
or qualified for sale in the applicable state or an exemption from the
registration or qualification requirement is available and is complied with.
The Warrantholders and the Selling Stockholders and any
broker-dealers or agents that participate with the Warrantholders and the
Selling Stockholders in the distribution of the Offered Securities may be
deemed to be "underwriters" within the meaning of the Securities Act, and any
commissions received by them and any profit on the resale of the Offered
Securities purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
Under applicable rules and regulations under the Exchange Act,
any person engaged in the distribution of the Offered Securities may not
simultaneously engage in market making activities with respect to the Common
Stock of the Company for a period of two business days prior to the
commencement of such distribution. In addition and without limiting the
foregoing, each Warrantholder and Selling Stockholder will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, which provisions may limit the timing of purchases and sales of
shares of the Company's Common Stock by the Warrantholders and the Selling
Stockholders.
LEGAL MATTERS
Certain legal matters with respect to the validity of the
shares of Offered Securities offered hereby are being passed upon for the
Company by Davis Polk & Wardwell, New York, New York.
EXPERTS
The consolidated financial statements and schedules of the Company as of
December 31, 1996 and 1997, and for each of the three years in the period
ended December 31, 1997, incorporated by reference herein, have been audited
by KPMG Peat Marwick LLP, independent public accountants, as indicated in
their reports with respect thereto and are incorporated by reference herein,
in reliance upon the authority of said firm as experts in giving said reports.
AVAILABLE INFORMATION
This Prospectus, which constitutes a part of the Registration
Statement filed by the Company with the Commission under the Securities Act,
omits certain of the information set forth in the Registration Statement.
Reference is hereby made to the Registration Statement and to the exhibits
thereto for further information with respect to the Company and the exhibits
thereto for further information with respect to the Company and the securities
offered hereby. Copies of the Registration Statement and the exhibits thereto
are on file at the offices of the Commission and may be obtained upon payment
of the prescribed fee or may be examined without charge at the public
reference facilities of the Commission described below.
The Company is subject to the information requirements of the
Exchange Act and in accordance therewith files reports, proxy statements and
other information with the Commission. Such reports, proxy statements and
other information filed by the Company with the Commission can be inspected
and copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
the following regional offices of the Commission: New York Regional Office,
Seven World Trade Center, 13th Floor, New York, New York 10048; and Chicago
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can also be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of prescribed rates and may be accessed
electronically by means of the Commission's home page on the Internet at
http:/www.sec.gov. The Company's Common Stock is traded in the
over-the-counter market under the symbol "INSL." Reports, proxy statements
and other information concerning the Company may be inspected at the National
Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington,
D.C. 20006.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The Unaudited Pro Forma Condensed Consolidated Financial Data
are based upon historical consolidated financial statements of Insilco as
adjusted to give effect to the Mergers, including the Merger Financing and
application of the proceeds thereof. In addition, the operating results for
the first six months of 1997 and full year 1997 have been adjusted to give
effect to the 1997 Transactions described below. A summary of these
adjustments follows. The Reorganization Merger will be accounted for as a
reorganization of entities under common control, which will have no impact on
the historical basis of the assets or liabilities of the Company or Insilco.
The Merger is accounted for as a recapitalization and will have no impact on
the historical basis of the assets or liabilities of the Company or Insilco.
The Mergers include the following transactions:
o The issuance of Units by Silkworm which will generate gross
proceeds to Silkworm of approximately $70.2 million, and
new borrowings under Insilco's Credit Facility of
approximately $41.8 million, of which $26.8 million will
be paid as a dividend from Insilco to the Company to fund
a portion of the Merger Consideration.
o The initial capitalization of Silkworm through the issuance
of 1,245,138 shares of Silkworm common stock for $56.1
million and the issuance of 1,400,000 shares of PIK
Preferred Stock and Class A Warrants to purchase 65,603
shares of Common Stock for aggregate consideration of
$35.0 million.
o Payment of the Merger Consideration for each share of
common stock of Insilco outstanding immediately prior to
the Mergers (4,145,372 shares based on the number of
shares outstanding as of June 15, 1998 and assuming no
stockholders validly perfect appraisal rights)
consisting of $43.48 in cash and 0.03378 of a share of
the Company.
o Payment of fees and expenses associated with the
issuance of the Senior Discount Notes, the waiver of
certain Events of Default under the Credit Facility, and
the Mergers.
o Vesting of all outstanding Options and payment of the
Option Cash Payments (and applicable withholding taxes)
and payments pursuant to employment related agreements.
The 1997 Transactions consist of the following:
o Refinancing -- Insilco entered into the Credit Facility
as July 3, 1997 that, among other things, provides for
(i) a $200 million revolving credit facility, (ii) a $50
million sublimit for commercial and standby letters of
credit and (iii) a $50 million sublimit for advances in
selected foreign currencies.
o The issuance of 10 1/4% Notes -- On August 12, 1997,
Insilco issued $150 million aggregate principal amount
of the 10 1/4% Notes.
o Share Repurchase -- On July 10, 1997, Insilco, using the
proceeds of its sale of the Rolodex Business, purchased
an aggregate of 2,857,142 shares for $110 million. On
August 12, 1997, Insilco completed a tender offer
pursuant to which it purchased an additional 2,857,142
shares of common stock of Insilco for $110 million. The
purchase of shares of common stock of Insilco in the
tender offer was paid for with proceeds received through
the issuance by Insilco of the 10 1/4% Notes.
The unaudited pro forma condensed consolidated balance sheet
data as of June 30, 1998 have been prepared as if the Mergers occurred on that
date. The unaudited pro forma condensed consolidated income statements have
been prepared as if the Mergers and the 1997 Transactions all occurred on
January 1 of the relevant period; however, the expenses directly related to
the aforementioned transactions (other than interest expense) are excluded
from the unaudited pro forma condensed consolidated income statements. The
Unaudited Pro Forma Condensed Consolidated Financial Data are based on certain
assumptions and estimates, and therefore do not purport to be indicative of the
results that would have been obtained had the transactions been completed as
of such dates or indicative of future results of operations and financial
position.
INSILCO HOLDING CO. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of June 30, 1998
(In thousands)
<TABLE>
<CAPTION>
The Company
---------------------------------------------
Merger Silkworm Holdings
Historical Adjustments Pro Forma Adjustments Pro Forma
---------- ----------- --------- ----------- -------------
Assets
<S> <C> <C> <C> <C> <C>
Current assets
Cash and cash equivalents..... $ 6,983 -- (1) 6,983 -- (1) 6,983
Trade receivables, net........ 85,142 85,142 85,142
Other receivables............. 3,501 3,501 3,501
Inventories................... 61,869 61,869 61,869
Deferred tax asset............ -- -- --
Prepaid expenses and
other....................... 3,262 3,262 3,262
------- ------- ------- ------- -------
Total current assets........ 160,757 -- 160,757 -- 160,757
------- ------- ------- ------- -------
Property, plant and equipment.. 113,318 113,318 113,318
Deferred tax assets............ -- 1,599 (3)(5) 1,599 165 (3)(5) 1,764
Other assets................... 40,043 600 (2) 41,901 3,156 (2) 50,026
1,258 (6) 4,969 (4)(9)
------- ------- ------- ------- -------
Total assets................... 314,118 3,457 317,575 8,290 325,865
======= ======= ======= ======= =======
Liabilities and Stockholders'
Equity (Deficit)
Current liabilities
Current portion of long-term
debt...................... $ 15 15 15
Accounts payable............ 36,755 36,755 36,755
Customer deposits........... 15,141 15,141 15,141
Accrued expenses and 44,597 (3,548) (3)(5) 41,049 (220) (3)(5) 40,829
other..........................
------- ------- ------- ------- -------
Total current liabilities... 96,508 (3,548) 92,960 (220) 92,740
------- ------- ------- ------- -------
Long-term debt................. 264,799 41,804 (1)(4) 306,603 70,205 (1)(4) 376,808
Other long-term obligations.... 43,615 3,969 (3)(6) 47,584 47,584
------- ------- ------- ------- -------
Total liabilities........... 404,922 42,225 447,147 69,985 517,132
Preferred Stock................ 35,000 (1)(9) 35,000
Stockholders' equity (deficit) (90,804) (10,340) (1)(5) (4,215) (1)(5)
(1,667) (3) (180,241) (1)(7)
(26,761) (10) 56,031 (1)(8)
4,969 (4)(9)
(129,572) 26,761 (10) (226,267)
------- ------- ------- ------- -------
Total liabilities and
stockholders' equity
(deficit)................. 314,118 3,457 317,575 8,290 325,865
======= ======= ======= ======= =======
(footnotes on following page)
</TABLE>
The notes to the unaudited pro forma condensed consolidated balance sheet
follow:
(1) The sources and uses of cash required to consummate the Mergers as of June
30, 1998 follow (amounts in thousands):
<TABLE>
<CAPTION>
The Company
------------------
Recorded Pending Silkworm Holdings
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Sources:
Revolving credit facility.......... $1,340 41,804 -- 43,144
Units.............................. -- -- 70,205 70,205
Preferred stock and warrants....... -- -- 35,000 35,000
Dividend from Insilco to Silkworm.. -- (26,761) 26,761 --
Common stock purchased............. -- -- 56,031 56,031
----- ------ ------- -------
1,340 15,043 187,997 204,380
===== ====== ======= =======
Uses:
Cash merger consideration.......... -- -- 180,241 180,241
Estimated fees and expenses........ 1,340 15,043 7,756 24,139
----- ------ ------- -------
1,340 15,043 187,997 204,380
===== ====== ======= =======
</TABLE>
(2) To record the estimated costs and expenses associated with issuing the
Senior Discount Notes and borrowing on the Credit Facility, which will be
capitalized as debt issuance costs and amortized using the effective
interest method over the life of the respective financial instruments, as
follows (amounts in thousands):
<TABLE>
<CAPTION>
The Company
------------------
Recorded Pending Silkworm Holdings
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Commitment fees and underwriting
discounts.................... -- 500 2,456 2,956
Professional fees.................. -- 100 500 600
Miscellaneous fees and expenses.... -- -- 200 200
---- ----- ------ ------
-- 600 3,156 3,756
==== ===== ====== ======
</TABLE>
(3) To record the estimated non-cash compensation expense related to the
Rollover of Options and Other Compensation (the Value Appreciation
Agreement), net of estimated tax benefits (the aggregate gain of Rollover
Options represents (i) $45.00 per share, (ii) less applicable strike prices
of the Rollover Shares, (iii) times the number of the Rollover Shares).
The statutory rate used to calculate the tax benefit to the Company was
38.5 % (35.0 % federal rate and an estimated 3.5 % average state tax
rate, as follows (amount in thousands):
<TABLE>
<CAPTION>
The Company
------------------ Surviving
Recorded Pending MergerSub Corporation
-------- ------- --------- -----------
<S> <C> <C> <C> <C>
Rollover of options................ -- $2,403 -- 2,403
Rollover of other compensation..... -- 308 -- 308
--- ----- --- -----
Total............................. -- 2,711 -- 2,711
Less tax benefit................... -- (1,044) -- (1,044)
--- ----- --- -----
Net expense....................... -- 1,667 -- 1,667
=== ===== === =====
</TABLE>
(4) To record the issuance and sale of the Units by Silkworm with Warrants to
purchase up to 44,850 shares of Silkworm Common Stock which will generate
approximately $70.2 million of gross proceeds and $43.1 million of
additional borrowing by Insilco under its Credit Facility.
(5) To record the estimated fees and expenses, net of the estimated tax
benefits, which will be expensed upon consummation of the transactions
(the remainder of the fees and expenses are capitalized or non-cash
items -- see Notes 2 and 3), as follows (amounts in thousands):
<TABLE>
<CAPTION>
The Company
Recorded Pending Silkworm Holdings
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Compensation Expenses:
Buyout of existing options............... -- 6,691 -- 6,691
Other.................................... $ 77 2,215 -- 2,292
Backstop and bridge facility commitments -- 1,750 1,100 2,850
Professional fees 1,224 3,476 3,500 8,200
Other 39 311 -- 350
----- ----- ----- -----
Total 1,340 14,443 4,600 20,383
Less tax benefit (30) (4,103) (385) (4,518)
----- ----- ----- ------
Net expenses 1,310 10,340 4,215 15,865
===== ====== ===== ======
</TABLE>
Statutory tax rates used to calculate the tax benefit of (i)
Insilco was 38.5% (35.0% federal rate and an estimated 3.5% average
state rate) and (ii) Silkworm was 35.0% (federal rate).
(6) To record the issuance of equity units to management. Insilco will
provide interest-bearing loans to certain employees under the
Management Investment Program for the sole purpose of purchasing a
portion of the equity units.
(7) To record the cash portion of the Merger Consideration of $43.48 per
share (assuming that no appraisal rights are validly perfected) (based
on 4,145,372 shares).
(8) To record the sale of 1,245,138 shares of Silkworm Common Stock.
(9) To record the sale of 1,400,000 shares of PIK Preferred Stock and Class A
Warrants to acquire 65,603 shares of Common Stock.
(10) To record a dividend from Insilco to the Company (into which Silkworm
will merge).
INSILCO HOLDING CO. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
Six Months Ended June 30, 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
The Company
-----------------------------------------------
Merger Silkworm Holdings
Historical Adjustments Pro Forma Adjustments Pro Forma
---------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales........................... $287,323 287,323 287,323
Cost of goods sold ................. 200,671 200,671 200,671
Depreciation and amortization....... 10,643 10,643 10,643
Selling, general and administrative. 52,044 (77) (1)
(1,263) (2) 50,704 50,704
------- ----- ------- ------- -------
Operating income.................... 23,965 1,340 25,305 -- 25,305
Interest expense:
Currently payable ................. (13,138) (1,564) (4) (14,702) (14,702)
Accretion.......................... (81) (81) (4,914) (4) (4,995)
Amortization ...................... (586) (60) (4) (646) (154) (4) (800)
Interest income..................... 72 72 72
Equity in net income of Thermalex... 1,423 1,423 1,423
Other income, net................... 2,053 2,053 2,053
------- ----- ------- ------- -------
Income before income taxes......... 13,708 (284) 13,424 (5,068) 8,356
Income tax expense.................. (6,494) (30) (1)
1,263 (2)
625 (5) (4,636) 1,443 (5) (3,193)
------- ----- ------- ------- -------
Net income......................... 7,214 1,574 8,788 (3,625) 5,163
Preferred stock dividend ........... -- -- -- (2,743) (2,743)
------- ----- ------- ------- -------
Net income available to common..... 7,214 1,574 8,788 (6,368) 2,420
======= ===== ======= ======= =======
Earnings per common share:
Basic.............................. 1.74 1.62
Basic shares....................... 4,141 1,496
Diluted............................ 1.69 1.62
Diluted shares .................... 4,270 1,496
</TABLE>
INSILCO HOLDING CO. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
Six Months Ended June 30, 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
The Company
--------------------------------------------------------------------
1997 Merger Silk Holdings
Historical Transactions Subtotal Adjustments Pro Forma Adjustments Pro Forma
---------- ------------ -------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales...................... $276,215 276,215 276,215 276,215
Cost of goods sold............. 189,953 189,953 189,953 189,953
Depreciation and amortization.. 9,604 9,604 9,604 9,604
Selling, general and
administrative................. 47,857 47,857 47,857 47,857
------- ------- ------- -------
Operating income.............. 28,801 -- 28,801 -- 28,801 28,801
Interest expense:
Currently payable............. (7,181) (7,118) (3) (14,299) (1,564) (4) (15,863) (15,863)
Accretion..................... (102) (102) (102) (4,914) (4) (5,016)
Amortization.................. (479) (479) (60) (4) (539) (154) (4) (693)
Interest income................ 2,038 (1,810) (3) 228 228 228
Equity in net income of
Thermalex..................... 1,547 -- 1,547 1,547 1,547
Other income, net ............. 68 68 68 68
------- ------- ------- -------
Income (loss) from continuing
operations before income
taxes 24,692 (8,928) 15,764 (1,624) 14,140 (5,068) 9,072
Income tax expense............. (9,124) 3,437 (3) (5,687) 625 (5) (5,062) (1,443) (5) (3,619)
------- ------ ------- ------ ------- ------ ------
Income (loss) from continuing
operations.................. 15,568 (5,491) 10,077 (999) 9,078 (3,625) (5,453)
Preferred stock dividend ...... -- -- -- -- -- (2,743) (2,743)
------- ------ ------- ------ ------- ------ ------
Income available to common
from continuing operations..... 15,568 (5,491) 10,077 (999) 9,078 (6,368) 2,710
======= ====== ======= ====== ======= ===== =====
Earnings from continuing
operations per common share:
Basic....................... 1.63 2.60 1.81
Basic shares................. 9,585 3,871 1,496
Diluted....................... 1.58 2.42 1.81
Diluted shares............... 9,875 4,161 1,496
</TABLE>
INSILCO HOLDING CO. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
Year Ended December 31, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
The Company
--------------------------------------------------------------------
1997 Merger Silkworm Holdings
Historical Transactions Subtotal Adjustments Pro Forma Adjustments Pro Forma
---------- ------------ -------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales....................... $528,233 528,233 528,233 528,233
Cost of goods sold.............. 370,845 370,845 370,845 370,845
Depreciation and amortization... 18,377 18,377 18,377 18,377
Selling, general and
administrative.................. 87,909 87,909 87,909 87,909
------- ------- ------- ------- ------- ------- -------
Operating income............... 51,102 -- 51,102 -- 51,102 -- 51,102
Interest expense:
Currently payable.............. (19,326) (8,634) (3) (27,960) (3,128) (4) (31,088) (10,173) (4) (31,088)
Accretion...................... (204) (204) (204) (320) (4) (10,377)
Amortization................... (1,032) (245) (3) (1,277) (120) (4) (1,397) (1,717)
Interest income................. 2,837 (2,091) (3) 746 746 746
Equity in net income of
Thermalex...................... 2,647 2,647 2,647 2,647
Other income, net............... 794 794 794 794
------- ------- ------- ------- ------- ------- -------
Income from continuing
operations before income taxes
and extraordinary item......... 36,818 (10,970) 25,848 (3,248) 22,600 (10,493) 12,107
Income tax expense.............. (13,404) 4,223 (3) (9,181) 1,250 (5) (7,931) 2,977 (5) (4,954)
------- ------- ------- ------- ------- ------- -------
Income from continuing
operations before extraordinary
item........................... 23,414 (6,747) 16,667 (1,998) 14,669 (7,516) 7,153
Preferred stock dividend........ -- -- -- -- -- (5,695) (5,695)
Income available to common from
continuing operations before
extraordinary item.............
------- ------- ------- ------- ------- ------- -------
23,414 (6,747) 16,667 (1,998) 14,669 (13,211) 1,458
======= ======= ======= ======= ======= ======= =======
Earnings from continuing
operations per common share
before extraordinary item:
Basic 3.25 4.20 0.97
Basic shares 7,200 3,967 1,496
Diluted 3.19 4.05 0.97
Diluted shares 7,345 4,112 1,496
- ------------
The notes to the Unaudited Pro Forma Condensed Consolidated Income Statements
for the six months ended June 30, 1997 and 1998 and for the year ended
December 31, 1997 follow:
(1) To exclude non-recurring, tax deductible Merger expenses and the related
income tax effect recorded in the six months ended June 30, 1998.
(2) To exclude non-recurring, non-tax deductible Merger expenses and the
related income tax effect recorded in the six months ended June 30, 1998.
(3) To record the effect on interest expense and the related income tax effect
of (i) the purchase on July 10, 1997 of 2,857,142 shares at $38.50 per
share in cash for an aggregate purchase price of $110.0 million, (ii) the
entering into of the Credit Facility on July 3, 1997 and the issuance and
sale of $150.0 million aggregate principal amount of the 10 1/4% Notes on
August 12, 1997, and (iii) the purchase on August 12, 1997 of 2,857,142
shares at $38.50 per share in cash for an aggregate purchase price of
$110.0 million, as if the aforementioned transactions had occurred as of
the beginning of the periods presented. Statutory tax rates used to
calculate the income tax effect was 38.5 % (35.0 % federal rate and an
estimated 3.5 % average state rate).
(4) To record the incremental interest expense for the six months ended June
30, 1997 and 1998 and for the year ended December 31, 1997 as follows:
(i) $4.9 million, $4.9 million and $10.2 million, respectively,
associated with Silkworm's issuance of up to $70.2 million of Senior
Discount Notes at a 14.0 % interest rate compounded semi-annually ;
(ii) $1.6 million, $1.6 million and $3.1 million, respectively,
associated with the Company's $43.1 million of additional borrowings
under the Credit Facility at an assumed interest rate of 7.25 % ;
(iii) amortization of Silkworm's $5.2 million of debt issuance costs
and discount related to the warrants of $0.2 million, $0.2 million and
$0.3 million, respectively, over the 10 year note term under the
effective interest method; and (iv) amortization of the incremental
debt issuance costs associated with the Credit Facility agreement
totaling $0.6 million ratably over the remaining 5 year term.
(5) To record the tax benefit of the transaction at the statutory rate of each
respective entity. Statutory tax rates used to calculate the tax benefit
of (i) the Company was 38.5 % (35.0 % federal rate and an estimated 3.5 %
average state rate) and (ii) Silkworm was approximately 28.4 % , which is
the 35.0 % federal tax rate adjusted for the non-deductible portion of
accreted interest due to excess ''OID'' over the allowable yield to
maturity.
</TABLE>
INSILCO HOLDING CO. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
Last Twelve Months Ended June 30, 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
1997 1998
--------------------------- --------------------------------
Full Year First Six First Six Last 12 Months
--------- --------- --------- --------------
<S> <C> <C> <C> <C>
Net Sales...................................... $528,233 276,215 287,323 539,341
Cost of goods sold............................. 370,845 189,953 200,671 381,563
Depreciation and amortization.................. 18,377 9,604 10,643 19,416
Selling, general and administrative............ 87,909 47,857 50,704 90,756
------- ------- ------- -------
Operating income.............................. 51,102 28,801 25,305 47,606
Interest expense:
Currently payable............................. (31,088) (15,863) (14,702) (29,927)
Accretion..................................... (10,377) (5,016) (4,995) (10,356)
Amortization.................................. (1,717) (693) (800) (1,824)
Interest income................................ 746 228 72 590
Equity in net income of Thermalex.............. 2,647 1,547 1,423 2,523
Other income, net.............................. 794 68 2,053 2,779
------- ------- ------- -------
Income from continuing operations before
income taxes and extraordinary item......... 12,107 9,072 8,356 11,391
Income tax expense............................. (4,954) (3,619) (3,193) (4,528)
------- ------- ------- -------
Income from continuing operations before
extraordinary item.......................... 7,153 5,453 5,163 6,863
Preferred stock dividend....................... (5,695) (2,743) (2,743) (5,695)
------- ------- ------- -------
Income available to common from continuing
operations before extraordinary item......... 1,458 2,710 2,420 1,168
======= ======= ======= =======
Earnings from continuing operations per
common share before extraordinary item:
Basic ........................................ 0.97 1.81 1.62 0.78
Basic shares.................................. 1,496 1,496 1,496 1,496
Diluted....................................... 0.97 1.81 1.62 0.78
Diluted shares................................ 1,496 1,496 1,496 1,496
Other Data:
EBITDA (1).................................... 69,479 38,405 35,948 67,022
Adjusted EBITDA (2)........................... 71,341 40,067 38,740 70,014
Capital Expenditures.......................... 23,583 10,315 10,884 24,152
Cash interest................................. 31,088 15,863 14,702 29,927
- ------------
(1) "EBITDA" represents net income before interest expense, interest income,
income taxes, depreciation and amortization, other income, equity in net
income of Thermalex and net gain or net loss on sale of assets EBITDA is
not intended to represent and should not be considered more meaningful
than, or an alternative to, operating income, cash flows from operating
activities or other measures of performance in accordance with generally
accepted accounting principles. EBITDA data are included because the
Company understands that such information is used by certain investors as
one measure of an issuer's historical ability to service debt. While EBITDA
is frequently used as a measure of operations and the ability to meet debt
service requirements, it is not necessarily comparable to other similarly
titled captions of other companies, or to the defined term "Consolidated
Cash Flow" used in the "Incurrence of Indebtedness and Issuance of
Preferred Stock" covenant described herein, due to the potential
inconsistencies in the method of calculation.
(2) "Adjusted EBITDA" equals EBITDA plus dividends received from Thermalex of
$1.5 million, $1.5 million, $1.3 million and $1.3 million for the years
ended December 31, 1997, the six months ended June 30, 1997, the six months
ended June 30, 1998 and the twelve months ended June 30, 1998,
respectively, and excluding the effect of (i) $0.4 million, $0.2 million,
$0.8 million and $1.0 million of legal expenses relating to the Jostens
antitrust suit for the year ended December 31, 1997, six months ended June
30, 1997, the six months ended June 30, 1998 and twelve months ended June
30, 1998, respectively; (ii) $0.7 million of corporate officers' severance
for the six months and twelve months ended June 30, 1998; and (iii) Merger
expenses recorded and paid of $1.3 million for the six months and twelve
months ended June 30, 1998.
</TABLE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than underwriting discounts
and commissions, payable by the Company in connection with the sale of the
Offered Securities being registered. All of the amounts shown are estimates,
except for the registration fee.
Registration fee............... $ 15,062
Legal fees and expenses........ $ 25,000
Accounting fees and expenses... $ 5,000
Other.......................... $ 438
------
Total..................... $ 45,500
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the General Corporation Law of the State of
Delaware permits the Company, subject to the standards set forth therein, to
indemnify any person in connection with any action, suit or proceeding brought
or threatened by reason of the fact that such person is or was a director,
officer, employee or agent of the Company or is or was serving as such with
respect to another corporation or entity at the request of the Company.
Article IX, Section B of the Company's Restated Certificate of Incorporation
provides for full indemnification of its officers, directors, employees and
agents to the extent permitted by Section 145.
The Company provides insurance from commercial carriers against
certain liabilities incurred by the directors and officers of the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibits.
Exhibit
Number
-------
*4.1 Warrant Agreement dated as of August 17, 1998 between Silkworm
Acquisition Corporation and National City Bank, as Warrant
Agent.
*4.2 Assumption Agreement dated as of August 17, 1998 between Insilco
Holding Co. and National City Bank, as Warrant Agent.
*4.3 Form of Class A Warrant.
*4.4 Certificate of Designation with respect to Pay-in-kind 15% Senior
Exchangeable Preferred Stock due 2010.
*5.1 Opinion of Davis Polk & Wardwell with respect to the Offered
Securities being registered.
*23.1 Consent of Davis Polk & Wardwell (contained in their opinion filed
as Exhibit 5.1).
23.2 Consent of KPMG Peat Marwick LLP.
24.1 Power of Attorney (Included in Part II of this Registration
Statement under the caption "Signatures").
- ------------
* To be filed by amendment
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
The undersigned Registrant hereby undertakes to deliver or
cause to be delivered with the Prospectus, to each person to whom the
Prospectus is sent or given, the latest annual report to security holders that
is incorporated by reference in the Prospectus and furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and, where interim financial information required to be
presented by Article 3 of Regulation S-X is not set forth in the Prospectus,
to deliver, or cause to be delivered to each person to whom the Prospectus is
sent or given, the latest quarterly report that is specifically incorporated
by reference in the Prospectus to provide such interim financial information.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Company pursuant to the provisions described in Item 15, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Company certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Dublin, State of Ohio, on the 16th
day of September, 1998.
INSILCO HOLDING CO.
By: /s/ ROBERT L. SMIALEK
----------------------------
Chairman and Chief
Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Robert L. Smialek, David A.
Kauer and Kenneth H. Koch, or each of them, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign the Registration Statement filed herewith and any
and all amendments to said Registration Statement (including post-effective
amendments and related registration statements (or amendments thereto) filed
pursuant to Rule 462 promulgated under the Securities Act of 1933), and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming that all said
attorneys-in-fact and agents, or their substitute or substitutes may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert L. Smialek Chairman and Chief Executive Officer
--------------------------- (Principal Executive Officer) September 16, 1998
Robert L. Smialek
/s/ David A. Kauer Vice President and Chief Financial Officer
--------------------------- (Principal Financial Officer) September 16, 1998
David A. Kauer
/s/ William F. Dawson Director
--------------------------- September 16, 1998
William F. Dawson
/s/ Thompson Dean Director
--------------------------- September 16, 1998
Thompson Dean
/s/ David Y. Howe Director
--------------------------- September 16, 1998
David Y. Howe
</TABLE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Insilco Corporation
We consent to the use of our audit report dated January 30,
1998, except as to Note 21, which is as of June 8, 1998 and Note 2, which is
as of July 7, 1998 on the consolidated financial statements of Insilco
Corporation (predecessor to Insilco Holding Co.) as of December 31, 1997 and
1996 and for each of the years in the three-year period then ended
incorporated herein by reference from the Insilco Corporation Form 10-K for
the year ended December 31, 1997.
KPMG PEAT MARWICK LLP
Columbus, Ohio
September 16, 1998
