As filed with the Securities and Exchange Commission on September 30, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
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 274,371,346,361,367 06-1158291
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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:
Richard D. Truesdell, Jr.
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 the
public: As soon as practicable after the Registration Statement becomes
effective.
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, 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 this Form is a post-effective amendment filed pursuant to
Rule 462(d) 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: [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
Proposed
Proposed Maximum Maximum
Amount Offering Aggregate Amount of
Title of Each Class of to be Price Offering Registration
Securities to be Registered(1) Registered(1) Per Security Price(2) Fee
------------------------------ ------------- ------------ -------- ------------
14% Senior Discount Notes due 2008...... $138,000,000 51.14% $70,573,731 $20,820
</TABLE>
- ----------
(1) Estimated solely for purposes of calculating the registration fee.
(2) Calculated pursuant to rule 457(f).
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 this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended or until the
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
================================================================================
EXPLANATORY NOTE
This Registration Statement covers the registration of an
aggregate principal amount at maturity of $138,000,000 of 14% Senior Discount
Notes due 2008 (the "Exchange Notes") of Insilco Holding Co. (the "Issuer")
that may be exchanged for equal principal amounts at maturity of the Issuer's
outstanding 14% Senior Discount Notes due 2008 (the "Old Notes") (the
"Exchange Offer"). This Registration Statement also covers the registration
of the Exchange Notes for resale by Donaldson, Lufkin & Jenrette Securities
Corporation in market-making transactions and by DLJ Investment Partners,
L.P., DLJ ESC II, L.P. and DLJ Investment Funding, Inc. (the "DLJ Mezzanine
Investors") in resale transactions. The complete Prospectus relating to the
Exchange Offer (the "Prospectus") follows immediately after this Explanatory
Note. Following the Prospectus are certain pages of the Prospectus relating
solely to such market-making and other resale transactions (the "Market-Making
Prospectus"), including an alternate front cover page, a section entitled
"Risk Factors--Trading Market for the Exchange Notes" to be used in lieu of
the section entitled "Risk Factors--No Public Market for the Senior Discount
Notes," an alternate "Use of Proceeds" section and an alternate "Plan of
Distribution" section. In addition, the Market-Making Prospectus will not
include the following captions (or the information set forth under such
captions) in the Exchange Offer Prospectus: "Summary--The Exchange Offer,"
"Risk Factors--No Public Market for the Senior Discount Notes," "The Exchange
Offer" and "Certain United States Tax Consequences of the Exchange Offer."
All other sections of the Exchange Offer Prospectus will be included in the
Market-Making Prospectus.
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.
PROSPECTUS SUBJECT TO COMPLETION DATED SEPTEMBER 30, 1998
Offer to Exchange
14% Senior Discount Notes Due 2008
Which Have Been Registered Under The Securities Act of 1933
For Any And All of The Outstanding
14% Senior Discount Notes Due 2008
of
Insilco Holding Co.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
________________ , 1998, UNLESS EXTENDED.
Insilco Holding Co., a Delaware corporation ("Holdings" or the
"Issuer"), hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying letter of transmittal (the
"Letter of Transmittal" and, together with this Prospectus, the "Exchange
Offer"), to exchange an aggregate of up to $138,000,000 principal amount at
maturity of its 14% Senior Discount Notes due 2008 (the "Exchange Notes")
which have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a registration statement of which this
Prospectus forms a part, for an identical face amount of the issued and
outstanding 14% Senior Discount Notes due 2008 (the "Old Notes" and, together
with the Exchange Notes, the "Senior Discount Notes") of Holdings from the
Holders (as defined herein) thereof in integral multiples of $1,000 principal
amount at maturity. As of the date of this Prospectus, there is $138,000,000
in aggregate principal amount at maturity of the Old Notes outstanding. The
terms of the Exchange Notes are identical in all material respects to the
terms of the Old Notes, except that (i) the offer and sale of the Exchange
Notes have been registered under the Securities Act and therefore the Exchange
Notes are not subject to certain restrictions on transfer applicable to the
Old Notes, will not contain legends relating thereto and will not be entitled
to registration rights or other rights under the Registration Rights
Agreement, and (ii) the Exchange Notes will not provide for any Liquidated
Damages (as defined herein) thereon, which rights and provision will terminate
as to the Senior Discount Notes upon the consummation of the Exchange Offer,
subject to certain provisions of the Registration Rights Amendment (as defined
herein). The Exchange Notes will be issued under the same Indenture (as
defined herein) as the Old Notes and the Exchange Notes and the Old Notes will
constitute a single series of debt securities under the Indenture. In the
event that the Exchange Offer is consummated, any Old Notes which remain
outstanding after consummation of the Exchange Offer and the Exchange Notes
issued in the Exchange Offer will vote together as a single class for purposes
of determining whether holders of the requisite percentage in outstanding
principal amount of Senior Discount Notes have taken certain actions or
exercise certain rights under the Indenture. See "The Exchange Offer."
The Exchange Notes will be subject to redemption at any time on or after
August 15, 2003 at the option of the Issuer, in whole or in part, in cash at
the redemption prices set forth herein, plus accrued and unpaid interest to
the applicable redemption date. Notwithstanding the foregoing, on or prior to
August 15, 2001, the Issuer may redeem up to 100% of the aggregate principal
amount at maturity of Exchange Notes ever issued under the Indenture in cash
at a redemption price of 114% of the Accreted Value (as defined herein)
thereof to the redemption date, with the net cash proceeds of one or more
Public Equity Offerings (as defined herein). In addition, at any time prior to
August 15, 2003, the Issuer may, at its option upon the occurrence of a Change
of Control (as defined herein), redeem the Exchange Notes, in whole but not in
part, in cash at a redemption price equal to the present value at such time of
the optional redemption price of the Exchange Notes at August 15, 2003,
computed using a discount rate equal to the Treasury Rate (as defined herein)
plus 75 basis points, to the date of redemption. Upon the occurrence of a
Change of Control, each Holder of Exchange Notes will have the right to
require the Issuer to repurchase all or any part of such Holder's Exchange
Notes at an offer price in cash equal to 101% of the Accreted Value thereof,
in the case of any such purchase prior to August 15, 2003, or 101% of the
principal amount at maturity thereof, in the case of any such purchase on or
after August 15, 2003, in each case plus accrued and unpaid interest to the
date of repurchase. In addition, in the event the Issuer completes one or more
Public Common Stock Offerings (as defined herein) for cash at any time prior
to August 15, 2001, the Issuer will be obligated to use the net cash proceeds
received therefrom to make an offer to purchase the maximum principal amount
at maturity of Exchange Notes that may be purchased with such net cash
proceeds at a purchase price in cash equal to 114% of the Accreted Value
thereof to the date of repurchase. See "Description of Exchange Notes."
The Exchange Notes will be senior unsecured obligations of the Issuer.
The Issuer has also provided a guarantee of the indebtedness under the Credit
Facility (as defined herein) of Insilco Corporation ("Insilco"), the Issuer's
operating subsidiary, which is secured by a pledge of all of the common stock
of Insilco. The Exchange Notes will rank pari passu with all future senior
indebtedness of the Issuer and will rank senior in right of payment to all
future indebtedness of the Issuer that is subordinated to the Exchange Notes.
The Issuer is a holding company and, accordingly, the Exchange Notes will be
effectively subordinated to all liabilities of Insilco and its subsidiaries.
As of June 30, 1998, on a pro forma basis after giving effect to the Mergers
(as defined herein) and Merger Financing (as defined herein), the Issuer and
its subsidiaries would have had approximately $376.8 million of Indebtedness
(as defined herein) and the Issuer's subsidiaries would have had approximately
$447.1 million of liabilities outstanding, including Indebtedness under the 10
1/4% Notes and the Credit Facility (each as defined herein) and other
liabilities. Further, the Issuer $35 million of aggregate liquidation
preference of PIK Preferred Stock (as defined) outstanding, which increases
as dividends are paid in kind on the PIK Preferred Stock through August 1,
2003, after which date dividends will be payable in cash, and which will be
mandatorily redeemable in cash on August 1, 2010 at the aggregate liquidation
preference of the PIK Preferred Stock.
(Continued on next page)
See "Risk Factors" commencing on page 20 for a discussion of certain
factors that should be considered by holders of the Old Notes prior to
tendering their Old Notes in the Exchange Offer.
THE 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.
The date of this Prospectus is __________, 1998
Holdings is making the Exchange Offer in reliance on the position
of the staff of the Division of Corporation Finance of the Securities and
Exchange Commission (the "Commission") as set forth in certain interpretive
letters addressed to third parties in other transactions. However, Holdings has
not sought its own interpretive letter and there can be no assurance that the
staff of the Division of Corporation Finance of the Commission would make a
similar determination with respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based on these interpretations by the
staff of the Division of Corporation Finance, and subject to the two immediately
following sentences, Holdings believes that the Exchange Notes issued pursuant
to this Exchange Offer in exchange for Old Notes may be offered for resale,
resold and otherwise transferred by a holder thereof (other than a holder who is
a broker-dealer) without further compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such Exchange Notes
are acquired in the ordinary course of such holder's business and that such
holder is not participating, and has no arrangement or understanding with any
person to participate, in a distribution (within the meaning of the Securities
Act) of such Exchange Notes. However, any holder of Old Notes who is an
"affiliate" of Holdings or who intends to participate in the Exchange Offer for
the purpose of distributing Exchange Notes, or any broker-dealer who purchased
Old Notes from Holdings to resell pursuant to Rule 144A under the Securities Act
("Rule 144A") or any other available exemption under the Securities Act, (a)
will not be able to rely on the interpretations of the staff of the Division of
Corporation Finance of the Commission set forth in the above-mentioned
interpretive letters, (b) will not be permitted or entitled to tender such Old
Notes in the Exchange Offer and (c) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
sale or other transfer of such Old Notes unless such sale is made pursuant to an
exemption from such requirements. In addition, as described below, if any
broker-dealer holds Old Notes acquired for its own account as a result of
market-making or other trading activities and exchanges such Old Notes for
Exchange Notes, then such broker-dealer must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of such
Exchange Notes.
Each holder of Old Notes who wishes to exchange Old Notes for
Exchange Notes in the Exchange Offer will be required to represent that (i) it
is not an "affiliate" of Holdings, (ii) any Exchange Notes to be received by it
are being acquired in the ordinary course of its business, and (iii) it has no
arrangement or understanding with any person to participate in a distribution
(within the meaning of the Securities Act) of such Exchange Notes. Each
broker-dealer that receives Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it acquired the Old Notes for its own
account as the result of market-making activities or other trading activities
and must agree that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such Exchange Notes. The Letter
of Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. Based on the position taken by the staff of the
Division of Corporation Finance of the Commission in the interpretive letters
referred to above, Holdings believes that broker-dealers who acquired Old Notes
for their own accounts, as a result of market-making activities or other trading
activities ("Participating Broker-Dealers") may fulfill their prospectus
delivery requirements with respect to the Exchange Notes received upon exchange
of such Old Notes (other than Old Notes which represent an unsold allotment from
the original sale of the Old Notes) with a prospectus meeting the requirements
of the Securities Act, which may be the prospectus prepared for an exchange
offer so long as it contains a description of the plan of distribution with
respect to the resale of such Exchange Notes. Accordingly, this Prospectus, as
it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer during the period referred to below in connection
with resales of Exchange Notes received in exchange for Old Notes where such Old
Notes were acquired by such Participating Broker-Dealer for its own account as a
result of market-making or other trading activities. Subject to certain
provisions set forth in the Registration Rights Agreement, Holdings has agreed
that this Prospectus, as it may be amended or supplemented from time to time,
may be used by a Participating Broker-Dealer in connection with resales of such
Exchange Notes for a period ending 90 days after the Expiration Date referred to
below (subject to extension under certain limited circumstances described below)
or, if earlier, when all such Exchange Notes have been disposed of by such
Participating Broker-Dealer. See "Plan of Distribution." Any Participating
Broker-Dealer who is an "affiliate" of Holdings may not rely on such
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. See "The Exchange Offer--Resales of the Exchange Notes." In that
regard, each Participating Broker-Dealer who surrenders Old Notes pursuant to
the Exchange Offer will agree, by execution of, or otherwise becoming bound by,
the Letter of Transmittal, that, upon receipt of notice from Holdings of the
occurrence of any event or the discovery of any fact which makes any statement
contained or incorporated by reference in this Prospectus untrue in any material
respect or which causes this Prospectus to omit to state a material fact
necessary in order to make the statements contained or incorporated by reference
herein, in the light of the circumstances under which they were made, not
misleading or of the occurrence of certain other events specified in the
Registration Rights Agreement, such Participating Broker-Dealer will suspend the
sale of Exchange Notes pursuant to this Prospectus until Holdings has amended or
supplemented this Prospectus to correct such misstatement or omission and has
furnished copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer or Holdings has given notice that the sale of the Exchange Notes
may be resumed, as the case may be. If Holdings gives such notice to suspend the
sale of the Exchange Notes, it shall extend the 90-day period referred to above
during which Participating Broker-Dealers are entitled to use this Prospectus in
connection with the resale of Exchange Notes by the number of days during the
period from and including the date of the giving of such notice to and including
the date when Participating Broker-Dealers shall have received copies of the
amended or supplemented Prospectus necessary to permit resales of the Exchange
Notes or to and including the date on which Holdings has given notice that the
sale of Exchange Notes may be resumed, as the case may be.
The Exchange Notes will be a new issue of securities for which
there currently is no market. Although Donaldson, Lufkin & Jenrette
Securities Corporation, the initial purchaser of the Old Notes (the "Initial
Purchaser") has informed Holdings that it currently intends to make a market
in the Exchange Notes, it is not obligated to do so, and any such market
making may be discontinued at any time without notice. Accordingly, there can
be no assurance as to the development or liquidity of any market for the
Exchange Notes. Holdings currently does not intend to apply for listing of
the Exchange Notes on any securities exchange or for quotation through the
National Association of Securities Dealers Automated Quotation System.
Any Old Notes not tendered and accepted in the Exchange Offer
will remain outstanding and will be entitled to all the same rights and will
be subject to the same limitations applicable thereto under the Indenture
(except for those rights which terminate upon consummation of the Exchange
Offer). Following consummation of the Exchange Offer, the holders of Old
Notes will continue to be subject to the existing restrictions upon transfer
thereof and, except in certain circumstances, Holdings will have no further
obligation to such holders to provide for registration under the Securities
Act of the Old Notes held by them. To the extent that Old Notes are tendered
and accepted in the Exchange Offer, a holder's ability to sell untendered Old
Notes could be adversely affected. See "Prospectus Summary--Certain
Consequences of a Failure to Exchange Old Notes."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION. HOLDERS OF OLD NOTES ARE URGED TO READ THIS PROSPECTUS
AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO
TENDER THEIR OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
Old Notes may be tendered for exchange on or prior to 5:00
p.m., New York City time, on [________], 1998 (such time on such date being
hereinafter called the "Expiration Date"), unless the Exchange Offer is
extended by Holdings (in which case the term "Expiration Date" shall mean the
latest date and time to which the Exchange Offer is extended). Tenders of Old
Notes may be withdrawn at any time on or prior to the Expiration Date. The
Exchange Offer is not conditioned upon any minimum principal amount of Old
Notes being tendered for exchange. However, the Exchange Offer is subject to
certain events and conditions and to the terms and provisions of the
Registration Rights Agreement. Old Notes may be tendered in whole or in part
in a principal amount at maturity of $1,000 and integral multiples thereof.
Holdings has agreed to pay all expenses of the Exchange Offer. See "The
Exchange Offer--Fees and Expenses."
Any waiver, extension or termination of the Exchange Offer will
be publicly announced by Holdings through a release to the Dow Jones News
Service and as otherwise required by applicable law or regulations.
This Prospectus, together with the Letter of Transmittal, is
being sent to all registered holders of Old Notes as of [______], 1998.
Holdings will not receive any cash proceeds from the issuance of
the Exchange Notes offered hereby. No dealer-manager is being used in connection
with this Exchange Offer. See "Use of Proceeds" and "Plan of Distribution."
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TABLE OF CONTENTS
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Page
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Prospectus Summary...........................................................1
The Mergers and Merger Financing.............................................6
Summary Historical and Unaudited Pro Forma Financial
and Operating Date........................................................16
Risk Factors................................................................20
Use of Proceeds.............................................................27
Capitalization..............................................................29
Selected Consolidated Financial Data........................................30
Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................................32
Business....................................................................44
Management..................................................................54
Executive Compensation......................................................55
Security Ownership of Certain Beneficial Owners and
Management..................................................................58
Certain Relationships and Related Party Transactions........................59
Description of Certain Indebtedness.........................................61
Description of Exchange Notes...............................................64
Description of Old Notes....................................................94
The Exchange Offer..........................................................94
Certain United States Tax Consequences of the Exchange Offer...............100
Plan of Distribution.......................................................100
Legal Matters..............................................................101
Experts....................................................................101
Index to Consolidated Financial Statements.................................F-1
Pro Forma Financial Information............................................P-1
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Investors are urged to read this
Prospectus in its entirety. As used in this Prospectus, the term "Silkworm"
means Silkworm Acquisition Corporation, the term "Issuer" means Silkworm
before the Merger (as defined below) and Insilco Holding Co. after the Merger,
the term "Holdings" means Insilco Holding Co., the term "Insilco" means
Insilco Corporation and the term the "Company" means Insilco, its predecessors
and subsidiaries prior to the Merger and Holdings, its predecessors and
subsidiaries after the Merger. Except for historical financial information
and unless otherwise indicated, all information presented below relating to
the Company gives effect to the consummation of the Mergers (as defined below).
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 Company's primary focus is to tailor its products for
customer-specific applications in niche markets. This 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. From fiscal 1994 to the twelve
month period ended June 30, 1998, the Company's net sales from continuing
operations increased from $438.4 million to $539.3 million, representing a
compound annual growth rate ("CAGR") of 6.1%, and Adjusted EBITDA (as defined)
increased from $56.6 million to $70.0 million, representing a CAGR of 6.3%.
<TABLE>
<CAPTION>
Twelve Months ended June
30, 1998
--------
Adjusted
Segment Sales EBITDA(1) Principal Products/Markets Largest Customers
- ------- ----- --------- -------------------------- -----------------
(in millions)
<S> <C> <C> <C> <C>
Automotive Components $238.5 $32.9 --Transmission/suspension components --Ford
Group --Radiators/air conditioning condensors --Valeo
--Heat exchanger tubing --Caterpillar
--Behr
--Delphi
Technologies Group 200.0 28.8 --Cable harness assemblies --Nortel
--50/60 Hz transformers --Siemens
--Modular jacks & plugs --Littelfuse
--Precision high speed stamping --Ericsson
--Lucent
--IBM
Specialty Publishing 100.8 8.3 --School yearbooks --High Schools
----- --- --Universities
Total $539.3 $70.0
====== =====
</TABLE>
(1) See footnote 6 on page 19 for definition.
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. ("Mitsubishi Aluminum"), is, management
believes, the nation's leading producer of precision extruded multi-port
aluminum heat exchanger tubing used in automotive air-conditioning condensers.
In 1997, Thermalex, which is accounted for as an unconsolidated investment,
contributed $2.6 million to the Company's consolidated pre-tax income and paid
a $1.5 million cash dividend to the Company. On a stand-alone basis, Thermalex
generated $10.3 million of EBITDA in 1997; however, only the $1.5 million
dividend is included in the Company's Adjusted EBITDA. Management believes
that the impact of the automotive cycle on the Automotive Components Group's
financial performance is mitigated by sales to the automotive aftermarket and
non-automotive OEMs, which represented 16% and 27%, respectively, of the
Automotive Components Group's 1997 net sales.
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
Company believes that Taylor was the first major yearbook publisher to make
extensive use of digital pre-press technology as opposed to the more widely
used pre-press process which involves manual cutting, pasting and rescaling.
The Company believes it uses digital pre-press technology more extensively
than its competitors, which offers yearbook departments greater flexibility in
altering page design and superior quality. The student yearbook business
benefits from very limited cyclicality, low customer turnover and pre-paid
sales.
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 Holding'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 Old Notes and one
warrant (collectively, the "Warrants") to purchase 0.325 of a share of Common
Stock of the Issuer at an initial exercise price of $0.01 per share, and (iii)
the issuance of approximately $35.0 million in aggregate gross proceeds of PIK
Preferred Stock and Class A Warrants. See "--The Mergers and Merger Financing."
THE MERGERS AND MERGER FINANCING
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.
The transactions included, among other things, the formation by
Holdings 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 (other than
shares as to which appraisal rights have been validly perfected) converted
into the same number of shares of Holdings and the right to receive $0.01 per
share in cash, and Holdings became the parent of Insilco. Promptly following
the Reorganization Merger, a second merger took place pursuant to which
Silkworm merged with and into Holdings (the "Merger" and, together with the
Reorganization Merger, the "Mergers") and each share of the common stock of
Holdings was converted into the right to receive $43.47 in cash and retain
0.03378 of a share of Holdings. 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 Holdings share (the "Merger
Consideration"). Concurrently with the consummation of the Mergers, DLJMB
Funds purchased 1,400,000 shares of pay-in-kind preferred stock, par value
$0.001 of Holdings (the "PIK Preferred Stock"), and warrants (the "DLJMB
Warrants") to purchase 65,603 shares of Holdings Common Stock, which in the
Merger was converted into the right to purchase shares of Common Stock of
Holdings. 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 Holdings Common Stock; (ii) the DLJMB Funds (as defined
below) held approximately 69.0% (68.3% on a fully diluted basis), of the
outstanding shares of Holdings Common Stock, (iii) 399 Venture Partners, Inc.,
a wholly owned indirect subsidiary of Citibank, N.A., or one of its affiliates
("CVC"), purchased shares of Silkworm which in the Merger were converted into
up to 19.3% (17.8% on a fully diluted basis) of the common stock of Holdings,
(iv) management of the Company purchased approximately 1.7% (1.5% on a fully
diluted basis) of Holdings Common Stock concurrently with the consummation of
the Merger; and (v) approximately 3.0% of Holdings Common Stock on a fully
diluted basis was represented by the Warrants.
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"), were 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 (the "Merger Financing"), including payment of the $43.48
aggregate cash component of the Merger Consideration, the Option Cash Payments
(plus applicable withholding taxes) and transaction fees and expenses
(assuming full participation in the Management Rollover), was approximately
$204.4 million. The Merger Financing was funded with (i) gross proceeds of
approximately $70.2 million from the issuance of 138,000 Units offered August
17, 1998, (ii) the issuance by Silkworm to certain funds affiliated with DLJMB
(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, (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 Holdings and the DLJMB Warrants to purchase 65,603 shares
of Holdings Common Stock at an exercise price of $0.01 per share by Silkworm,
and (iv) approximately $43.1 million of new borrowings under the Company's
existing $200.0 million credit facility with various lenders and issuing banks
(the "Credit Facility").
Consummation of the Merger required Insilco to make an Offer to
Purchase (as defined in the indenture (the "10 1/4% Note Indenture")
relating to the 10 1/4% Senior Subordinated Notes due 2007 of Insilco (the
"10 1/4% Notes")) for all of the outstanding 10 1/4% Notes at 101% of
their aggregate principal amount, plus accrued interest. Such Offer to
Purchase was commenced on September 16, 1998. 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.
("DLJ Capital Funding") has committed to lend up to $350 million to the
Company (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," "Description of Certain
Indebtedness--Credit Facility" and "--Backstop Facility."
The Exchange Offer
The Exchange Offer.................. Up to $138 million aggregate principal
amount at maturity of Exchange Notes
are being offered in exchange for a like
aggregate principal amount at maturity
of Old Notes. Holdings is making the
Exchange Offer in order to satisfy its
obligations under the Registration
Rights Agreement relating to the Old
Notes. For a description of the
procedures for tendering Old Notes, see
"The Exchange Offer--Procedures for
Tendering Old Notes."
Expiration Date..................... 5:00 p.m., New York City time, on
_______, 1998 (such time on such date
being hereinafter called the "Expiration
Date") unless the Exchange Offer is
extended by Holdings (in which case the
term "Expiration Date" shall mean the
latest date and time to which the
Exchange Offer is extended). Any
waiver, extension or termination of the
Exchange Offer will be publicly
announced by Holdings through a release
to the Dow Jones News Service and as
otherwise required by applicable law or
regulations. See "The Exchange
Offer--Terms of the Exchange Offer;
Period for Tendering Old Notes."
Certain Conditions to the
Exchange Offer................ The Exchange Offer is subject to
certain conditions. Holdings reserves
the right, subject to applicable law,
at any time and from time to time, (i)
to delay the acceptance of the Old
Notes for exchange, (ii) to terminate
the Exchange Offer if certain specified
conditions have not been satisfied,
(iii) to extend the Expiration Date of
the Exchange Offer and retain all Old
Notes tendered pursuant to the Exchange
Offer, subject, however, to the right
of holders of Old Notes to withdraw
their tendered Old Notes, or (iv) to
amend the terms of the Exchange Offer
in any respect. See "The Exchange
Offer--Terms of the Exchange Offer;
Period for Tendering Old Notes" and
"--Certain Conditions to the Exchange
Offer."
Withdrawal Rights................... Tenders of Old Notes may be withdrawn
at any time on or prior to 5:00 p.m.,
New York City time on the Expiration
Date by delivering a written notice of
such withdrawal to the Exchange Agent
in conformity with certain procedures
set forth below under "The Exchange
Offer--Withdrawal Rights."
Procedures for Tendering Old Notes.. Tendering holders of Old Notes must
complete and sign a Letter of
Transmittal in accordance with the
instructions contained therein and
forward the same by mail, facsimile or
hand delivery, together with any other
required documents, to the Exchange
Agent (as defined below) at the address
set forth herein by 5:00 p.m. New York
City time on the Expiration Date,
either with the Old Notes to be
tendered or in compliance with the
specified procedures for guaranteed
delivery of Old Notes. Certain
brokers, dealers, commercial banks,
trust companies and other nominees may
also effect tenders by book-entry
transfer. Holders of Old Notes
registered in the name of a broker,
dealer, commercial bank, trust company
or other nominee are urged to contact
such person promptly if they wish to
tender Old Notes pursuant to the
Exchange Offer. See "The Exchange
Offer--Procedures for Tendering Old
Notes." Letters of Transmittal and
certificates representing Old Notes
should not be sent to Holdings. Such
documents should only be sent to the
Exchange Agent. Questions regarding
how to tender and requests for
information should be directed to the
Exchange Agent. See "The Exchange
Offer--Exchange Agent."
Guaranteed Delivery Procedures...... Holders of Old Notes who wish to tender
their Old Notes and whose Old Notes are
not immediately available or who cannot
deliver their Old Notes, a Letter of
Transmittal or any other document
required by the Letter of Transmittal to
the Exchange Agent prior to the
Expiration Date, must tender their Old
Notes according to the guaranteed
delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery
Procedures."
Resales of Exchange Notes........... Holdings is making the Exchange Offer
in reliance on the position of the
staff of the Division of Corporation
Finance of the Commission as set forth
in certain interpretive letters
addressed to third parties in other
transactions. However, Holdings has
not sought its own interpretive letter
and there can be no assurance that the
staff of the Division of Corporation
Finance of the Commission would make a
similar determination with respect to
the Exchange Offer as it has in such
interpretive letters to third parties.
Based on these interpretations by the
staff of the Division of Corporation
Finance, and subject to the two
immediately following sentences,
Holdings believes that Exchange Notes
issued pursuant to this Exchange Offer
in exchange for Old Notes may be
offered for resale, resold and
otherwise transferred by a holder
thereof (other than a holder who is a
broker-dealer) without further
compliance with the registration and
prospectus delivery requirements of the
Securities Act, provided that such
Exchange Notes are acquired in the
ordinary course of such holder's
business and that such holder is not
participating, and has no arrangement
or understanding with any person to
participate, in a distribution (within
the meaning of the Securities Act) of
such Exchange Notes. However, any
holder of Old Notes who is an
"affiliate" of Holdings or who intends to
participate in the Exchange Offer for the
purpose of distributing the Exchange
Notes, or any broker-dealer who purchased
the Old Notes from Holdings to resell
pursuant to Rule 144A or any other
available exemption under the Securities
Act, (a) will not be able to rely on the
interpretations of the staff of the
Division of Corporation Finance of the
Commission set forth in the
above-mentioned interpretive letters, (b)
will not be permitted or entitled to
tender such Old Notes in the Exchange
Offer and (c) must comply with the
registration and prospectus delivery
requirements of the Securities Act in
connection with any sale or other
transfer of such Old Notes unless such
sale is made pursuant to an exemption
from such requirements. In addition, as
described below, if any broker-dealer
holds Old Notes acquired for its own
account as a result of market-making or
other trading activities and exchanges
such Old Notes for Exchange Notes, then
such broker-dealer must deliver a
prospectus meeting the requirements of
the Securities Act in connection with any
resales of such Exchange Notes.
Each holder of Old Notes who wishes to
exchange Old Notes for Exchange Notes in
the Exchange Offer will be required to
represent that (i) it is not an
"affiliate" of Holdings within the
meaning of Rule 405 under the Securities
Act, (ii) any Exchange Notes to be
received by it are being acquired in the
ordinary course of its business, and
(iii) it has no arrangement or
understanding with any person to
participate in a distribution (within the
meaning of the Securities Act) of such
Exchange Notes. Each broker-dealer that
receives Exchange Notes for its own
account pursuant to the Exchange Offer
must acknowledge that it acquired the Old
Notes for its own account as the result
of market-making activities or other
trading activities and must agree that it
will deliver a prospectus meeting the
requirements of the Securities Act in
connection with any resale of such
Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by
delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. Based on the position
taken by the staff of the Division of
Corporation Finance of the Commission in
the interpretive letters referred to
above, Holdings believes that
broker-dealers who acquired Old Notes for
their own accounts as a result of
market-making activities or other trading
activities ("Participating
Broker-Dealers") may fulfill their
prospectus delivery requirements with
respect to the Exchange Notes received
upon exchange of such Old Notes with a
prospectus meeting the requirements of
the Securities Act, which may be the
prospectus prepared for an exchange offer
so long as it contains a description of
the plan of distribution with respect to
the resale of such Exchange Notes.
Accordingly, this Prospectus, as it may
be amended or supplemented from time to
time, may be used by a Participating
Broker-Dealer in connection with resales
of Exchange Notes received in exchange
for Old Notes where such Old Notes were
acquired by such Participating
Broker-Dealer for its own account as a
result of market-making or other trading
activities. Subject to certain provisions
set forth in the Registration Rights
Agreement and to the limitations
described below under "The Exchange
Offer--Resale of Exchange Notes,"
Holdings has agreed that this Prospectus,
as it may be amended or supplemented from
time to time, may be used by a
Participating Broker-Dealer in connection
with resales of such Exchange Notes for a
period ending 90 days after the
Expiration Date (subject to extension
under certain limited circumstances) or,
if earlier, when all such Exchange Notes
have been disposed of by such
Participating Broker-Dealer. See "Plan of
Distribution." Any Participating
Broker-Dealer who is an "affiliate" of
Holdings may not rely on such
interpretive letters and must comply with
the registration and prospectus delivery
requirements of the Securities Act in
connection with any resale transaction.
See "The Exchange Offer--Resales of
Exchange Notes."
Acceptance of Old Notes and Offer,
Delivery of Exchange Notes.... Subject to the terms and conditions of
the Exchange Offer including the
reservation of certain rights by
Holdings, Holdings will accept for
exchange any and all Old Notes which
are properly tendered in the Exchange
Offer, and not withdrawn, prior to 5:00
p.m. New York City time, on the
Expiration Date. Subject to such terms
and conditions, the Exchange Notes
issued pursuant to the Exchange Offer
will be delivered promptly following
the Expiration Date. See "The Exchange
Offer--Acceptance of Old Notes for
Exchange; Delivery of Exchange Notes."
Exchange Agent...................... The exchange agent with respect to the
Exchange Offer is [Star Bank, N.A.]
(the "Exchange Agent"). The addresses,
and telephone and facsimile numbers of
the Exchange Agent are set forth in
"The Exchange Offer--Exchange Agent"
and in the Letter of Transmittal.
Use of Proceeds..................... Holdings will not receive any cash
proceeds from the issuance of the
Exchange Notes offered hereby. See "Use
of Proceeds."
Certain United States Federal Income
Tax Considerations............... Holders of Old Notes should review the
information set forth under "Certain
United States Tax Consequences of the
Exchange Offer" prior to tendering Old
Notes in the Exchange Offer.
The Exchange Notes
Securities Offered.................. Up to $138 million aggregate principal
amount at maturity of Holdings' 14%
Senior Discount Notes due 2008. The
Exchange Notes will be issued and the
Old Notes were issued under an
Indenture dated as of August 17, 1998
(the "Indenture") between the Issuer
and Star Bank, N.A. (the "Trustee").
The Exchange Notes and any Old Notes
which remain outstanding after
consummation of the Exchange Offer will
constitute a single series of debt
securities under the Indenture and,
accordingly, will vote together as a
single class for purposes of
determining whether holders of the
requisite percentage in outstanding
principal amount thereof have taken
certain actions or exercised certain
rights under the Indenture. See
"Description of Exchange
Notes--General." The terms of the
Exchange Notes are identical in all
material respects to the terms of the
Old Notes, except that (i) the offer
and sale of the Exchange Notes have
been registered under the Securities
Act and therefore the Exchange Notes
are not subject to certain restrictions
on transfer applicable to the Old
Notes, will not contain legends
relating thereto and will not be
entitled to registration rights or
other rights under the Registration
Rights Agreement, and (ii) the Exchange
Notes will not provide for any
Liquidated Damages (as defined below)
thereon, which rights and provision
will terminate as to the Senior
Discount Notes upon the consummation of
the Exchange Offer, subject to certain
provisions of the Registration Rights
Agreements. See "The Exchange
Offer--Purpose of the Exchange Offer"
and "Description of Exchange Notes."
Principal Amount at Maturity........ $138,000,000.
Maturity Date....................... August 15, 2008.
Yield and Interest.................. 14% (computed on a semi-annual bond
equivalent basis) calculated from
August 17, 1998. The Exchange Notes will
accrete at a rate of 14%, compounded
semi-annually, to an aggregate
principal amount of $138.0 million on
August 15, 2003. Cash interest will not
accrue on the Exchange Notes prior to
August 15, 2003. Commencing August 15,
2003, cash interest on the Exchange
Notes will accrue at a rate of 14% per
annum, and will be payable
semi-annually in arrears on each
February 15 and August 15, commencing
February 15, 2004.
Optional Redemption................. The Exchange Notes will be subject to
redemption at any time on or after
August 15, 2003 at the option of the
Issuer, in whole or in part, in cash at
the redemption prices set forth herein,
plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to
the applicable redemption date.
Notwithstanding the foregoing, on or
prior to August 15, 2001, the Issuer
may redeem up to 100% of the aggregate
principal amount at maturity of Exchange
Notes ever issued under the Indenture
in cash at a redemption price of 114%
of the Accreted Value (as defined
herein) thereof, plus Liquidated
Damages, if any, thereon to the
redemption date, with the net cash
proceeds of one or more Public Equity
Offerings. In addition, at any time
prior to August 15, 2003, the Issuer
may, at its option upon the occurrence
of a Change of Control, redeem the
Exchange Notes, in whole but not in
part, in cash at a redemption price
equal to (i) the present value at such
time of the optional redemption price
of the Exchange Notes at August 15,
2003, computed using a discount rate
equal to the Treasury Rate plus 75
basis points, plus (ii) Liquidated
Damages, if any, to the date of
redemption. See "Description of
Exchange Notes--Optional Redemption."
Mandatory Redemption................ Upon the occurrence of a Change of
Control, each Holder of Exchange Notes
will have the right to require the
Issuer to repurchase all or any part of
such Holder's Exchange Notes at an
offer price in cash equal to 101% of the
Accreted Value thereof, in the case of
any such purchase prior to August 15,
2003, or 101% of the principal amount
at maturity thereof, in the case of any
such purchase on or after August 15,
2003, in each case plus accrued and
unpaid interest and Liquidated Damages,
if any, thereon to the date of
repurchase. No assurance can be given
that the Issuer will have sufficient
resources to satisfy its repurchase
obligation with respect to the Exchange
Notes following a Change of Control. In
addition, in the event the Issuer
completes one or more Public Common
Stock Offerings (as defined herein) for
cash at any time prior to August 15,
2001, the Issuer will be obligated to
use the net cash proceeds received
therefrom to make an offer to purchase
the maximum principal amount at
maturity of Exchange Notes that may be
purchased with such net cash proceeds
at a purchase price in cash equal to
114% of the Accreted Value thereof,
plus accrued and unpaid Liquidated
Damages, if any, thereon to the date of
repurchase. See "Risk Factors--Possible
Inability to Repurchase Exchange Notes
upon Change of Control or Public Common
Stock Offering" and "Description of
Exchange Notes."
Ranking............................. The Exchange Notes will be senior
unsecured obligations of the Issuer.
The Exchange Notes will rank pari passu
in right of payment with all future
unsecured senior indebtedness of the
Issuer, and will rank senior in right of
payment to all future indebtedness of
the Issuer that is subordinated to the
Exchange Notes. The Issuer is a holding
company that conducts all its business
through its subsidiaries. The Issuer
owns all the outstanding common stock
of Insilco and has no other assets
other than such common stock.
Accordingly, the Exchange Notes will be
effectively subordinated to all
liabilities of Insilco and its
subsidiaries. On a pro forma basis, as
of June 30, 1998, after giving effect
to the Mergers and the Merger Financing
and the application of the proceeds
thereof (assuming full participation in
the Management Rollover described in
"Executive Compensation--Employee and
Severance Benefits Agreements"), the
Company would have had outstanding
approximately $376.8 million of
Indebtedness and the Issuer's
subsidiaries would have had $447.1
million of total liabilities
outstanding, including Indebtedness
under the 10 1/4% Notes and the
Credit Facility and including trade
payables.
Certain Covenants................... The Indenture (as defined herein)
contains certain covenants that, among
other things, limit the ability of the
Issuer and its Restricted Subsidiaries
(as defined herein) to: incur
indebtedness and issue preferred stock,
repurchase Capital Stock (as defined
herein) and discharge Subordinated
Indebtedness, engage in transactions
with affiliates, engage in sale and
leaseback transactions, incur or suffer
to exist certain liens, pay dividends
or other distributions, make
investments, sell assets and engage in
certain mergers and consolidations. See
"Description of Exchange Notes--Certain
Covenants."
Absence of Market for the New Notes. The Exchange Notes will be a new issue
of securities for which there currently
is no market. Although Donaldson,
Lufkin & Jenrette Securities
Corporation has informed Holdings that
it currently intends to make a market
in the Exchange Notes, it is not
obligated to do so, and any such market
making may be discontinued at any time
without notice. Accordingly, there can
be no assurance as to the development
or liquidity of any market for the
Exchange Notes. Holdings currently
does not intend to apply for listing of
the Exchange Notes on any securities
exchange or for quotation through the
National Association of Securities
Dealers Automated Quotation System.
Use of Proceeds..................... Holdings will not receive any cash
proceeds from issuance of the Exchange
Notes offered hereby. The net proceeds
received from the offering of the Old
Notes were used to pay the cash
component of the Merger Consideration,
the Option Cash Payments and fees and
expenses incurred in connection with
the Mergers. See "Use of Proceeds."
Certain Consequences of a Failure to Exchange Old Notes
The sale of the Old Notes was not registered under the
Securities Act or any state securities laws and therefore the Old Notes may
not be offered, sold or otherwise transferred except in compliance with the
registration requirements of the Securities Act and any other applicable
securities laws, or pursuant to an exemption therefrom or in a transaction not
subject thereto, and in each case in compliance with certain other conditions
and restrictions, including Holdings' and the Trustee's right in certain cases
to require the delivery of opinions of counsel, certifications and other
information prior to any such transfer. Old Notes which remain outstanding
after consummation of the Exchange Offer will continue to bear a legend
reflecting such restrictions on transfer. In addition, upon consummation of
the Exchange Offer, holders of Old Notes which remain outstanding will not be
entitled to any rights to have the resale of such Old Notes registered under
the Securities Act or to any similar rights under the Registration Rights
Agreement, unless (i) such holder, based upon an opinion of counsel was
prohibited by law or Securities Exchange Commission policy from participating
in the Exchange Offer or (ii) such holder is a Participating Broker-Dealer and
holds Old Notes acquired directly from the Issuer. Subject to the provisions
of the Registration Rights Agreement, Holdings currently does not intend to
register under the Securities Act the resale of any Old Notes which remain
outstanding after consummation of the Exchange Offer.
To the extent that Old Notes are tendered and accepted in the
Exchange Offer, a holder's ability to sell untendered Old Notes could be
adversely affected. In addition, although the Old Notes are eligible for
trading in the Private Offerings, Resale and Trading through Automatic
Linkages ("PORTAL") market, to the extent that Old Notes are tendered and
accepted in connection with the Exchange Offer, any trading market for Old
Notes which remain outstanding after the Exchange Offer could be adversely
affected.
The Exchange Notes and any Old Notes which remain outstanding
after consummation of the Exchange Offer will constitute a single series of
debt securities under the Indenture and, accordingly, will vote together as a
single class for purposes of determining whether holders of the requisite
percentage in outstanding principal amount thereof have taken certain actions
or exercised certain rights under the Indenture. See "Description of Exchange
Notes--General."
Pursuant to a Registration Rights Agreement between the Issuer
and the Initial Purchaser (the "Registration Rights Agreement"), the Issuer
agreed (i) to file a registration statement (the "Exchange Offer Registration
Statement") on or prior to 90 days after the closing of the Offering (the
"Closing") with respect to the Exchange Offer and (ii) to use its reasonable
best efforts to cause the Exchange Offer Registration Statement to be declared
effective by the Securities and Exchange Commission (the "Commission") on or
prior to 90 days after the Closing. In certain circumstances, the Issuer is
required to provide a shelf registration statement (the "Shelf Registration
Statement") to cover resales of the Senior Discount Notes by the holders
thereof. The Old Notes provide that, in the event the Issuer fails to satisfy
its registration obligations under the Registration Rights Agreement, the
Issuer will be required to pay Liquidated Damages to the holders of the Old
Notes under certain circumstances. Upon consummation of the Exchange Offer or
the effectiveness of such Shelf Registration Statement, the provision for
Liquidated Damages on the Old Notes shall cease.
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA
FINANCIAL AND OPERATING DATA
The summary historical consolidated financial data presented
below for Insilco as of and for each of the years in the four year period
ended December 31, 1997 are derived from Insilco's related audited
consolidated financial statements, which have been audited by KPMG Peat
Marwick LLP, independent certified public accountants. The information
contained in this table should be read in conjunction with "Selected
Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Unaudited Pro Forma
Consolidated Financial Data" and the consolidated financial statements and the
notes thereto included elsewhere in this Offering Memorandum (the
"Consolidated Financial Statements"). The summary historical consolidated
financial data as of and for the six months ended June 30, 1997 and 1998 are
unaudited; however, in management's opinion, they include all adjustments
(consisting of only normal recurring accruals) necessary for a fair
presentation of results for such interim periods. Interim results are not
necessarily indicative of results for the full year.
The unaudited pro forma condensed consolidated financial data
of the Company and its subsidiaries for the twelve months ended June 30, 1998
and the year ended December 31, 1997 are based upon historical information
that has been adjusted to give effect to the transactions described in
footnote 1. The Reorganization Merger will be accounted for as a
reorganization of entities under common control, and the Merger will be
accounted for as a recapitalization. As a result, the Mergers will have no
impact on the historical basis of the assets or liabilities of the Company.
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 for the
year ended December 31, 1997 and the six months and twelve months ended June
30, 1998 have been prepared as if the Mergers and the 1997 Transactions (as
defined below) all occurred at the beginning of the relevant period. The
expenses directly related to the aforementioned transactions (other than
interest expense) are excluded from the pro forma statement of operations
data. The unaudited pro forma 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.
See "Unaudited Pro Forma Condensed Consolidated Financial Data."
The following table sets forth summary historical and unaudited
pro forma condensed consolidated financial and operating data derived from the
Company's Consolidated Financial Statements.
<TABLE>
<CAPTION>
Pro Forma
Six Months Twelve
Years Ended December 31, Ended June 30, Months
---------------------------------------------------------- ----------------------- Ended
Pro Forma June 30,
1994 1995 1996 1997 1997(1) 1997 1998 1998(1)
------ ------- ------- ------- ------- ------- ------- --------
(dollars in millions except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operations Data:
Net sales....................... $438.4 $449.5 $492.4 $528.2 $528.2 $276.2 $287.3 $539.3
Operating income(2)............. 9.5 38.9 48.4 51.1 51.1 28.8 24.0 47.6
Other income (expense):
Interest expense........... (29.1) (19.5) (18.3) (20.5) (43.2) (7.7) (13.8) (42.1)
Interest income............ 1.8 1.4 0.7 2.8 0.8 2.0 0.1 0.6
Other income, net(3)....... 3.2 13.9 7.7 3.4 3.4 1.6 3.4 5.3
------ ---- ----- ----- ---- ----- ---- ----
Income (loss) from
continuing operations
before income taxes and
extraordinary item ............ (14.6) 34.7 38.5 36.8 12.1 24.7 13.7 11.4
Income tax expense.............. (5.7) (16.7) (13.3) (13.4) (4.9) (9.1) (6.5) (4.5)
------ ---- ----- ----- ---- ----- ---- ----
Income (loss) from
continuing operations
before extraordinary item...... (20.3) 18.0 25.2 23.4 7.2 15.6 7.2 6.9
Income (loss) from
discontinued operations,
net of tax(4).................. (9.7) (15.4) 13.8 58.9 -- 58.9 -- --
------ ---- ----- ----- ---- ----- ---- ----
Income (loss) before
extraordinary items............ (30.0) 2.6 39.0 82.3 7.2 74.5 7.2 6.9
Extraordinary item, net of tax.. (2.1) -- -- (0.7) -- -- -- --
------ ---- ----- ----- ---- ----- ---- ----
Net income (loss)............... (32.1) 2.6 39.0 81.6 7.2 74.5 7.2 6.9
------ ---- ----- ----- ---- ----- ---- ----
Preferred stock dividend........ -- -- -- -- (5.7) -- -- (5.7)
------ ---- ----- ----- ---- ----- ---- ----
Net income (loss) available
to common....................... $(32.1) $2.6 $39.0 $81.6 $1.5 $74.5 $7.2 $1.2
====== ==== ===== ===== ==== ===== ==== ====
Other Data:
EBITDA(5)....................... $56.6 $68.4 $63.8 $69.5 $69.5 $38.4 $34.6 $67.0
Adjusted EBITDA(6).............. 56.6 64.6 68.7 71.3 71.3 40.0 38.7 70.0
Cash interest expense........... 28.1 17.9 16.7 19.3 31.1 7.2 13.1 29.9
Depreciation and
amortization................... 12.3 13.3 15.4 18.4 18.4 9.6 10.6 19.4
Amortization of
Reorganization Goodwill........ 34.8 16.2 -- -- -- -- -- --
Capital expenditures............ 17.5 20.2 20.0 23.6 23.6 10.3 10.9 24.2
Per Share Data:
Basic income (loss) per share
from continuing
operations..................... (2.09) 1.83 2.65 3.25 0.97 1.63 1.74 0.78
Diluted income (loss) per
share from continuing
operations..................... (2.09) 1.77 2.55 3.19 0.97 1.58 1.69 0.78
Book value per share............ (1.37) (1.64) 3.52 (25.08) 11.34 (21.90) (163.37)
Balance Sheet Data (at
period end):
Cash and cash equivalents....... $8.7 $9.9 $3.5 $10.7 $111.2 $7.0 $7.0
Working capital................. 33.9 44.9 51.4 39.5 145.0 64.2 68.0
Total assets.................... 368.7 340.1 348.4 302.7 423.2 314.1 325.9
Operating company debt.......... 198.1 186.5 161.0 257.7 169.8 264.8 306.6
Total debt...................... 198.1 186.5 161.0 257.7 169.8 264.8 376.8
Stockholders' equity (deficit).. (13.5) (15.8) 33.4 (102.3) 108.5 (90.8) (226.3)
Credit Statistics:
Adjusted EBITDA/Cash
interest expense............... 2.3x
Adjusted EBITDA/Cash and
accreted interest expense...... 1.7x
Operating company net
debt/Adjusted
EBITDA(7)...................... 4.3x
Total net debt/Adjusted
EBITDA(7)...................... 5.3x
</TABLE>
(1) Pro forma results reflect (i) the following transactions (the "1997
Transactions"): the entry into the Credit Facility on July 3, 1997, the
issuance of the 10 1/4% Notes on August 12, 1997 and the repurchase by
the Company of 5,714,284 shares of its common stock in the third quarter of
1997 for an aggregate of $220 million (the "Share Repurchase"); and (ii)
the Mergers and the Merger Financing and the application of proceeds
thereof, in each case, as if they occurred at the beginning of the relevant
period.
(2) Operating income in 1994 and 1995 includes the deduction for the
amortization of the Company's reorganization value over the aggregate fair
value of its tangible and identified intangible assets at March 31, 1993
("Reorganization Goodwill") of $34.8 million and $16.2 million,
respectively, due to the adoption of "fresh start" accounting principles.
See Note 1 to the Consolidated Financial Statements. Operating income in
1995 includes a gain of $4.3 million related to a change in the Company's
pension plan (see Note 12 to the Consolidated Financial Statements).
(3) Other income, net in 1995 includes favorable adjustments of $3.6 million
related to the Company's environmental liabilities, $1.5 million related to
the resolution of several legal disputes and a $4.0 million gain on the
sale of idle corporate assets. Other income, net in 1996 includes a $2.2
million adjustment related to the satisfaction of certain of the Company's
environmental liabilities following completion of a site clean-up for an
amount less than previously estimated.
(4) In March 1997, the Company completed the sale of its Office Products
Business (as defined below) with the divestiture of its traditional office
products business (the "Rolodex Business") for $112.6 million, net of
transaction costs, resulting in a gain of $57.8 million, net of taxes of
$37.2 million. The divestiture of the Rolodex Business was preceded in 1996
by the divestiture of the Rolodex electronics product line ("Rolodex
Electronics") and the Company's computer accessories business ("Curtis").
The proceeds from these sales aggregated $21.8 million (see Note 20 to the
Consolidated Financial Statements for unaudited pro forma financial
information with respect to these divestitures). Rolodex, Rolodex
Electronics and Curtis are referred to collectively as the "Office Products
Business."
In July 1998, the Company amended its Form 10-K for the year ended December
31, 1997 (the "Form 10-K") to account for the sale of the Office Products
Business as a discontinued operation and, accordingly, the accompanying
consolidated statements of operations and cash flows for the periods prior
to the sale have been reclassified. Revenues associated with the
discontinued Office Products Business for the years 1994, 1995, 1996 and
1997 were $105.2 million, $111.7 million, $80.1 million and $10.8 million,
respectively.
(5) "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.
(6) "Adjusted EBITDA" equals EBITDA plus dividends received from Thermalex of
$0.4 million, $3.4 million, $1.5 million, $1.3 million, $1.3 million and
$1.5 million for the years ended December 31, 1995, 1996, 1997 and the six
months and the twelve months ended June 30, 1998 and the six months ended
June 30, 1997, respectively, and excluding the effect of: (i) a $4.3
million gain relating to a change in the Company's pension plan in the year
ended December 31, 1995 (see Note 12 to the Consolidated Financial
Statements); (ii) a $1.5 million restructuring charge at Taylor Publishing
in the year ended December 31, 1996; (iii) $0.4 million, $0.8 million, $1.0
million and $0.2 million of legal expenses relating to the Jostens
antitrust suit for the year ended December 31, 1997, six months and twelve
months ended June 30, 1998 and the six months ended June 30, 1997,
respectively; (iv) $0.7 million of corporate officers' severance for the
six months and twelve months ended June 30, 1998; and (v) Merger expenses
recorded and paid of $1.3 million for the six months and twelve months
ended June 30, 1998.
(7) Net debt represents total debt less cash and cash equivalents and is
calculated based on pro forma cash and debt balances as of June 30, 1998.
RISK FACTORS
In addition to the other information set forth in this
Prospectus, Holders of the Old Notes should carefully consider the risk
factors set forth below, before accepting the Exchange Offer.
Limitations on Access to Cash Flow of Subsidiaries; Holding Company Structure
The Issuer is a holding company, and its ability to make
payments in respect of the Exchange Notes is dependent upon the receipt of
dividends or other distributions from its direct and indirect subsidiaries.
The Issuer does not have, and may not in the future have, any assets other
than shares of common stock of Insilco, which are pledged to secure the
obligations of Insilco under the Credit Facility. Insilco and its subsidiaries
are parties to the Credit Facility and Insilco is party to the 10 1/4% Note
Indenture, each of which imposes substantial restrictions on Insilco's ability
to pay dividends or make other distributions to the Issuer. 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 Issuer. 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 Issuer. 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 Issuer, 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 Issuer 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 Issuer will be able to
receive dividends from Insilco in order to pay its debt service obligations on
the Exchange Notes.
As a result of the holding company structure of the Issuer, the
Holders of the Exchange Notes will be structurally junior to all creditors of
the Issuer's subsidiaries, including Insilco. In the event of insolvency,
liquidation, reorganization, dissolution or other winding-up of the Issuer's
subsidiaries, the Issuer will not receive any funds from its subsidiaries
until their creditors are paid in full. As of June 30, 1998, on a pro forma
basis after giving effect to the Mergers and Merger Financing, including the
application of net proceeds therefrom, the aggregate amount of indebtedness
and other obligations of the Issuer's subsidiaries (including the 10 1/4%
Notes, Credit Facility and trade payables) would have been approximately
$447.1 million. Further, the Issuer has $35 million of aggregate liquidation
preference of PIK Preferred Stock outstanding, which will increase as
dividends are paid in kind on the PIK Preferred Stock through August 1, 2003,
after which dividends will be payable in cash, and which will be mandatorily
redeemable in cash on August 1, 2010 at the aggregate liquidation preference
of the PIK Preferred Stock.
Substantial Leverage; Liquidity; Stockholders' Deficit
In connection with the Mergers and the Merger Financing,
including the application of the proceeds therefrom, the Company incurred a
significant amount of indebtedness. 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, 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
Exchange Notes upon their maturity. There can be no assurance that the Issuer
will be able to refinance the Exchange 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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
Restrictions Imposed by Terms of Indebtedness
The Indenture restricts, among other things, the Issuer'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
Issuer. In addition, the Credit Facility and the 10 1/4% Note Indenture
contain other and more restrictive covenants with respect to lnsilco and its
subsidiaries and prohibit Insilco from prepaying its other indebtedness. See
"Description of Certain Indebtedness--Credit Facility," "--10 1/4% Notes" and
"Description of Exchange Notes--Certain Covenants." 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 Exchange 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 are pledged as security under the Credit Facility.
Pursuant to Holdings' guarantee of the Credit Facility, Holdings may not incur
any indebtedness other than the Exchange 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, including the
Exchange Notes. See "Description of Certain Indebtedness--Credit Facility."
Possible Inability to Repurchase Exchange Notes upon Change of Control or
Public Common Stock Offering
Upon the occurrence of a Change of Control, each Holder of
Exchange Notes will have the right to require the Issuer to repurchase all or
any part of such Holder's Exchange Notes at an offer price in cash equal to
101% of the Accreted Value thereof, in the case of any such purchase prior to
August 15, 2003, or 101% of the principal amount at maturity thereof, in the
case of any such purchase on or after August 15, 2003, in each case plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the
date of repurchase. The Credit Facility and the 10 1/4% Note Indenture also
contain provisions generally requiring repayment in the event of a change of
control and restrict the payments of dividends by Insilco to the Issuer
(except in certain limited amounts), thus limiting the Issuer's ability to
repurchase Exchange Notes. In addition, the Credit Facility contains
provisions that currently prohibit the use of the proceeds of a Public Common
Stock Offering to repurchase Exchange Notes. In the event of a Public Common
Stock Offering, the Company will be required to obtain an amendment or waiver
to the Credit Facility in order to satisfy its obligations to purchase
Exchange Notes with the net cash proceeds of a Public Common Stock Offering.
No assurance can be given that the Issuer will have sufficient resources to
satisfy its repurchase obligation with respect to the Exchange Notes following
a Change of Control or that it will be able to obtain any such amendment or
waiver with respect to a Public Common Stock Offering. See "--Limitations on
Access to Cash Flow of Subsidiaries; Holding Company Structure" and
"Description of Exchange Notes--Repurchase at the Option of Holders."
Potential Lack of Financing
Consummation of the Mergers 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. Such Offer to Purchase was commenced on September 16, 1998.
The Exchange Offer will be commenced prior to the consummation of the Offer to
Purchase. 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 has committed to lend up to $350 million to the Company in
the event that holders of 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 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 results 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. See "Business--Environmental Regulation and
Proceedings."
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 Holdings'
common stock (up to 68.3% on a fully diluted basis) are held by the DLJMB
Funds. As a result of their stock ownership, the DLJMB Funds control Holdings
(and through Holdings, Insilco) and have the power (subject to the agreement
they have with CVC pursuant to which CVC is entitled to elect one member of
Holdings' 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 Holdings or Insilco, including
adopting certain amendments to the certificate of incorporation of Holdings
and Insilco, and approving any acquisition of Holdings or Insilco or approving
sale of all or substantially all of the assets of Holdings or Insilco. The
directors elected by the DLJMB Funds have the authority to effect decisions
affecting the capital structure of Holdings 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, which was
the Initial Purchaser in the placement of the Old Notes, is also an affiliate
of DLJ, Inc.
Tax Consequences of Original Issue Discount; Limitations on Holders' Claims
For U.S. federal income tax purposes, the issue price of a Unit
was allocated between the respective fair market values of the Warrant and
the Old Note. For this reason, and because cash interest will not be
payable on the Senior Discount Notes prior to February 15, 2004, the Senior
Discount Notes have original issue discount from their principal amount at
maturity. Consequently, purchasers of the Senior Discount Notes will be
required to include amounts in gross income for federal income tax purposes
in advance of receipt of the cash payments to which the income is
attributable. Because only a portion of the issue price of a Unit was
allocated to a Senior Discount Note, the rate at which a holder will be
required to accrue original issue discount for U.S. federal income tax
purposes will exceed the stated yield on the Senior Discount Notes. In
addition, the Senior Discount Notes constitute "applicable high yield
discount obligations" ("AHYDOs") for federal income tax purposes because
the yield to maturity of the Senior Discount Notes exceeds the relevant
applicable federal rate (the "AFR") at the time of issue by more than five
percentage points. Because the Senior Discount Notes constitute AHYDOs,
the Issuer (i) will not be entitled to deduct original issue discount
("OID") accruing with respect thereto until such amounts are actually paid,
and (ii) may be precluded from ever deducting a portion of the OID that
accrues on the Senior Discount Notes. See "Certain Federal Income Tax
Consequences" for a more detailed discussion of the federal income tax
consequences to the holders of the Exchange Notes resulting from the
ownership or disposition thereof.
Under the Indenture, in the event of an acceleration of the
maturity of the Exchange Notes upon the occurrence of an Event of Default, the
Holders of the Exchange Notes may be entitled to recover only the amount which
may be declared due and payable pursuant to the Indenture, which prior to
August 15, 2003, will be less than the principal amount at maturity of such
Exchange Notes. See "Description of Exchange Notes--Events of Default and
Remedies."
If a bankruptcy case is commenced by or against the Issuer
under the United States Bankruptcy Code, the claim of a Holder of Exchange
Notes with respect to the principal amount thereof may be limited to an amount
equal to the sum of (i) the issue price of the Senior Discount Notes as set
forth on the cover page hereof and (ii) that portion of the original issue
discount (as determined on the basis of such issue price) which is not deemed
to constitute "unmatured interest" for purposes of the Bankruptcy Code.
Accordingly, Holders of the Exchange Notes under such circumstances may, even
if sufficient funds are available, receive a lesser amount than they would be
entitled to under the express terms of the Indenture. In addition, there can
be no assurance that a bankruptcy court would compute the accrual of interest
under the same rules as those used for the calculation of original issue
discount under federal income tax law and, accordingly, a Holder might be
required to recognize gain or loss in the event of a distribution related to
such a bankruptcy case.
Fraudulent Transfer Statutes
Under federal or state fraudulent transfer laws, if a court
were to find that, at the time the Senior Discount Notes were issued, the
Issuer (i) issued the Senior Discount Notes with the intent of hindering,
delaying or defrauding current or future creditors or (ii)(A) received less
than fair consideration or reasonably equivalent value for incurring the
indebtedness represented by the Senior Discount Notes and (B)(1) was insolvent
or was rendered insolvent by reason of the issuance of the Senior Discount
Notes, (2) was engaged, or about to engage, in a business or transaction for
which its assets were unreasonably small or (3) intended to incur, or believed
(or should have believed) it would incur, debts beyond its ability to pay as
such debts mature (as all of the foregoing terms are defined in or interpreted
under such fraudulent transfer statutes), such court could avoid all or a
portion of the Issuer's obligations to the Holders of the Senior Discount
Notes, subordinate the Issuer's obligations to the Holders of the Senior
Discount Notes to other existing and future indebtedness of the Issuer, the
effect of which would be to entitle such other creditors to be paid in full
before any payment could be made on the Senior Discount Notes, and take other
action detrimental to the Holders of the Senior Discount Notes, including in
certain circumstances, invalidating the Senior Discount Notes. In that event,
there would be no assurance that any repayment on the Senior Discount Notes
would ever be recovered by the Holders of the Senior Discount Notes.
The definition of insolvency for purposes of the foregoing
considerations varies among jurisdictions depending upon the federal or state
law that is being applied in any such proceeding. However, the Issuer
generally would be considered insolvent at the time it incured the
indebtedness constituting the Senior Discount Notes, if (i) the fair market
value (or fair saleable value) of its assets were less than the amount
required to pay its total existing debts and liabilities (including the
probable liability on contingent liabilities) as they become absolute or
matured or (ii) it is incurring debts beyond its ability to pay as such debts
mature. There can be no assurance as to what standard a court would apply in
order to determine whether the Issuer was "insolvent" as of the date the
Senior Discount Notes were issued, or that, regardless of the method of
valuation, a court would not determine that the Issuer was insolvent on that
date. Nor can there be any assurance that a court would not determine,
regardless of whether the Issuer was insolvent on the date the Senior Discount
Notes were issued, that the payments constituted fraudulent transfers on
another ground. As a result of the use of the proceeds from the sale of the
Senior Discount Notes to fund the cash portion of the Merger Consideration, a
court may find that the Company did not receive fair consideration or
reasonably equivalent value for the incurrence of the indebtedness represented
by the Senior Discount Notes.
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.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources--Year 2000 Compliance."
No Public Market for the Senior Discount Notes
If the Exchange Notes are traded after their original issuance,
they are expected to trade at varying prices, depending upon prevailing
interest rates, the market for similar securities and other factors, including
general economic conditions and the financial condition and performance of,
and prospects for, the Company. The Senior Discount Notes are eligible for
trading in the PORTAL market. Donaldson, Lufkin & Jenrette Securities
Corporation has informed Holdings that it currently intends to make a market
in the Senior Discount Notes. However, it is not obligated to do so, and any
market making activity with respect to the Senior Discount Notes may be
discontinued at any time without notice.
Restrictions on Transfer
The Old Notes were offered and sold by Holdings in a private
offering exempt from registration requirements pursuant to the Securities Act
and have been resold pursuant to Rule 144A under the Securities Act to
"qualified institutional buyers" (as defined in Rule 144A) and in offshore
transactions complying with Rule 903 or Rule 904 of Regulation S under the
Securities Act. As a result, the Old Notes may not be reoffered or resold by
purchasers except pursuant to an effective registration statement under the
Securities Act, or pursuant to an applicable exemption from such registration,
and the Old Notes are legended to restrict transfer as aforesaid. Each Holder
(other than any Holder who is an affiliate of Holdings) who duly exchanges Old
Notes for Exchange Notes in the Exchange Offer will receive Exchange Notes
that are freely transferable under the Securities Act. Holders who
participate in the Exchange Offer should be aware, however, that if they
accept the Exchange Offer for the purpose of engaging in a distribution, the
Exchange Notes may not be publicly reoffered or resold without complying with
the registration and prospectus delivery requirements under the Securities
Act. As a result, each Holder accepting the Exchange Offer will be required to
represent that (i) it is not an "affiliate" of Holdings, (ii) any Exchange
Notes to be received by it are being acquired in the ordinary course of its
business, and (iii) it has no arrangement or understanding with any person to
participate in a distribution (within the meaning of the Securities Act) of
such Exchange Notes. If existing Commission interpretations permitting free
transferability of the Exchange Notes following the Exchange Offer are changed
prior to consummation of the Exchange Offer, the Company will use its best
efforts to register the Old Notes for resale under the Securities Act. See
"The Exchange Offer."
The Old Notes currently may be sold to "Qualified Institutional
Buyers" (as defined in Rule 144A under the Securities Act) and in offshore
transactions complying with Rule 903 or Rule 904 of Regulation S under the
Securities Act the restrictions set forth in Rule 144A under the Securities
Act or pursuant to another available exemption under the Securities Act,
without registration under the Securities Act. To the extent that the Old
Notes are tendered and accepted in the Exchange Offer, the trading market for
the untendered and tendered but unaccepted Old Notes could be adversely
affected.
USE OF PROCEEDS
Holdings will not receive any cash proceeds from the issuance
of the Exchange Notes offered hereby. In consideration for issuing the
Exchange Notes in exchange for Old Notes as described in this Prospectus,
Holdings will receive Old Notes in like principal amount. The Old Notes
surrendered in exchange for the Exchange Notes will be retired and canceled.
Accordingly, the issuance of the Exchange Notes will not result in any change
in the indebtedness of the Company.
The net proceeds to Holdings from the sale of the Units was
approximately $67.0 million (after deduction of underwriting discounts and
commissions and other expenses of the offering). Such net proceeds, together
with borrowings by Insilco under the Credit Facility, proceeds from the
issuance of the PIK Preferred Stock, the DLJMB Warrants and the proceeds
received upon the issuance of Silkworm Common Stock, were used to pay the cash
component of the Merger Consolidation, the Option Cash Payments and fees and
expenses incurred in connection with the Mergers.
CAPITALIZATION
The following table sets forth the unaudited consolidated
capitalization of the Company as of June 30, 1998 on (i) an actual basis and
(ii) on a pro forma basis after giving effect to the Mergers and the Merger
Financing and the application of the proceeds thereof, as if they had occurred
on June 30, 1998. This table should be read in conjunction with the
Consolidated Financial Statements, including the notes thereto, the unaudited
pro forma condensed consolidated financial statements and notes thereto,
included in "Unaudited Pro Forma Condensed Consolidated Financial Statements,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Summary--The Mergers and Merger Financing."
As of June 30, 1998
---------------------
Actual Pro Forma
------ ---------
(in millions)
Cash and cash equivalents............................. $ 7.0 $ 7.0
====== ======
Long-term debt:
Credit Facility ..................................... $114.6 $156.4
10 1/4% Notes........................................ 150.0 150.0
Senior Discount Notes................................ -- 70.2
Other debt obligations............................... 0.2 0.2
------ ------
Total long-term debt (including current portion)... 264.8 376.8
------ ------
PIK Preferred Stock................................ -- 35.0
Stockholders' deficit.............................. (90.8) (226.3)
------ ------
Total capitalization............................. $174.0 $185.5
====== ======
SELECTED CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial data presented below as of and
for each of the years in the four year period ended December 31, 1997 are
derived from the Consolidated Financial Statements and accompanying notes
included elsewhere herein, which have been audited by KPMG Peat Marwick LLP,
independent certified public accountants. The information in this table should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial
Statements. The selected historical consolidated financial data as of and for
the six months ended June 30, 1997 and 1998 are unaudited; however, in
management's opinion, they include all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation of results for such
interim periods. Interim results are not necessarily indicative of results for
the full year.
<TABLE>
<CAPTION>
Six Months Ended
Predecessor Years Ended December 31, June 30,
----------- ----------------------------------------- ----------------------
1993 1994 1995 1996 1997 1997 1998
------------------- -------- -------- -------- ---------- -------- -----------
To From (in millions)
3/31 4/1
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operations Data:
Net sales .................................$ 79.2 $ 332.9 $ 438.4 $ 449.5 $ 492.4 $ 528.2 $ 276.2 $ 287.3
Operating income (1) ...................... 4.2 (3.5) 9.5 38.9 48.4 51.1 28.8 24.0
Other income (expense): 0.0
Interest expense ........................ (9.6) (26.9) (29.1) (19.5) (18.3) (20.5) (7.7) (13.8)
Interest income ......................... 0.3 1.7 1.8 1.4 0.7 2.8 2.0 0.1
Other income, net(2) .................... (0.1) 0.9 3.2 13.9 7.7 3.4 1.6 3.4
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations before reorganization items,
income taxes and extraordinary
item .................................... (5.2) (27.8) (14.6) 34.7 38.5 36.8 24.7 13.7
Reorganization items (net) ................ 21.8 -- -- -- -- -- -- --
Income tax expense ........................ (0.6) (0.4) (5.7) (16.7) (13.3) (13.4) (9.1) (6.5)
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations before
extraordinary item ...................... 16.0 (28.2) (20.3) 18.0 25.2 23.4 15.6 7.2
Income (loss) from
discontinued operations, net
of tax(3) ............................... (15.4) (18.4) (9.7) (15.4) 13.8 58.9 58.9 --
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item ...................... 0.6 (46.6) (30.0) 2.6 39.0 82.3 74.5 7.2
Extraordinary item, net of tax ............ 448.3 -- (2.1) -- -- (0.7) -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income ................................$ 448.9 $ (46.6) $ (32.1) $ 2.6 $ 39.0 $ 81.6 $ 74.5 $ 7.2
======== ======== ======== ======== ======== ======== ======== ========
Balance Sheet Data (at period
end):
Working capital ...........................$ 94.1 $ 98.1 $ 33.9 $ 44.9 $ 51.4 $ 39.5 $ 145.0 $ 64.2
Total assets .............................. 562.0 517.7 368.7 340.1 348.4 302.7 423.2 314.1
Long-term debt ............................ 306.7 307.4 198.1 186.5 161.0 257.7 169.8 264.8
Stockholders' equity (deficit) ............ 64.2 18.5 (13.5) (15.8) 33.4 (102.3) 108.5 (90.8)
Ratio Data:
Ratio of earnings to fixed
charges ................................. 0.47x (0.02)x (0.50)x (2.63)x 2.91x 2.64x 3.89x 1.92x
</TABLE>
(1) Operating income in 1993, 1994 and 1995 includes the deduction for the
amortization of Reorganization Goodwill of $27.3 million, $34.8 million
and $16.2 million, respectively. Operating income in 1995 includes a gain
of $4.3 million related to a change in the Company's pension plan (see
Note 12 to the Consolidated Financial Statements appearing elsewhere
herein).
(2) Other income, net in 1995 includes favorable adjustments of $3.6 million
related to the Company's environmental liabilities and $1.5 million related
to the resolution of several legal disputes and a $4 million gain on the
sale of idle corporate assets. Other income, net in 1996 includes a $2.2
million favorable adjustment related to the satisfaction of certain of the
Company's environmental liabilities following completion of a site clean-up
for an amount less than previously estimated.
(3) In March 1997, the Company completed the sale of its Office Products
Business with the divestiture of the Rolodex Business for $112.6 million,
net of transaction costs, resulting in a gain of $57.8 million, net of
taxes of $37.2 million. The divestiture of the Rolodex Business was
preceded in 1996 by the divestiture of Rolodex Electronics and Curtis. The
proceeds from these sales aggregated $21.8 million (see Note 20 to the
Consolidated Financial Statements for unaudited pro forma financial
information with respect to these divestitures).
In July 1998, the Company amended its Form 10-K to account for the sale of
the Office Products Business as a discontinued operation and, accordingly,
the consolidated statements of operations and cash flows for the periods
prior to the sale have been reclassified. Revenues associated with the
discontinued Office Products Business for the years 1994, 1995, 1996 and
1997 were $105.2 million, $111.7 million, $80.1 million and $10.8 million,
respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
The Company, directly and through its subsidiaries, is a
diversified manufacturer of automotive components and telecommunications and
electronics components and a publisher of specialty publishing products,
chiefly student yearbooks. The Company, with three reporting segments (the
Automotive Components Group, the Technologies Group, and Specialty
Publishing), conducts its business in eight separate operating units,
including both divisions and subsidiaries. The Company's Specialty Publishing
segment, formerly the Company's Office Products/Specialty Publishing segment,
was renamed following the divestiture of the Rolodex Business in March 1997.
The Automotive Components Group is comprised of businesses that
produce radiators and other heat exchanger components, equipment and systems
used in the production of heat exchangers, heavy gauged stamped automotive
parts (principally, transmission clutch plates) and welded stainless steel
tubing, and a 50% owned joint venture, Thermalex, which produces precision
extruded aluminum tubing. The Automotive Components Group serves both original
equipment manufacturers and aftermarket customers in the automotive, specialty
vehicle, truck and off-road vehicle and industrial equipment markets and also
serves the marine and architectural markets with decorative stainless steel
tubing.
The Technologies Group manufactures high-performance data
transmission connectors, small electric power transformers, precision
stampings and wire and cable assemblies. The Technologies Group serves the
computer networking, telephone digital switching, data processing, automotive,
medical equipment and other markets.
Specialty Publishing consists of Taylor, a publisher of student
yearbooks. Taylor is highly seasonal, with the majority of sales occurring in
the second and third quarters of each year.
During 1996 and 1997, the Company completed several material
transactions affecting its ongoing operations and debt and capital structure.
A summary of these transactions follows:
o Acquisitions: In 1996, the Company acquired Great Lake, Inc. ("Great
Lake") which serves the automotive, heavy truck and industrial
manufacturing radiator replacement market, and the automotive aluminum
tube business of Helmut Lingemann GmbH & Co. (the "Lingemann Business").
These acquisitions have been accounted for as purchases and,
accordingly, the purchase prices have been allocated to the assets and
liabilities acquired based on their fair values at the acquisition
dates. The operating results of the businesses acquired have been
included for the periods subsequent to the acquisition date.
o Divestitures: The Office Products Business of the Company's Office
Products/Specialty Publishing Group was divested in three separate
transactions during 1996 and the first quarter of 1997. The 1996
transactions included the divestitures of Curtis and Rolodex Electronics
for $21.8 million in the aggregate which was used to reduce the
outstanding amounts on the Company's bank loans. On March 5, 1997, the
remainder of the Office Products Business, which consisted of the
Rolodex Business, was sold for net cash proceeds of approximately $112
million (the "Rolodex Proceeds"). As a result of the sale of the Rolodex
Business, the Office Products Business has been accounted for as a
discontinued operation. See "--Discontinued Operations."
o Refinancing: The Company entered into the Credit Facility as of 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 Issuance of Subordinated Debt: On August 12, 1997, the Company issued
$150 million aggregate principal amount of the 10 1/4% Notes,
realizing therefrom net proceeds of $145.9 million.
o Share Repurchase: In the third quarter of 1997, the Company, using the
Rolodex Proceeds and the proceeds received on the issuance of the
10 1/4% Notes, consummated the $220 million Share Repurchase.
The discussion that follows of the financial condition and
results of operations includes the effect of the transactions discussed above
in the respective periods in which they were recorded. As a result, the
comparability of the results is significantly impacted. Pro forma results of
operations, assuming all these transactions occurred at the beginning of the
respective periods, are presented in Note 20 to the Consolidated Financial
Statements.
"The Fresh Start" Accounting
On March 31, 1993, the Company adopted the "fresh start"
accounting principles prescribed by the Statement of Position 90-7, "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code" (the
"Reorganization SOP"), issued by the American Institute of Certified Public
Accountants. The "fresh start" accounting principles required the Company to
value its assets and liabilities at fair values and eliminate its accumulated
deficit.
"Fresh start" accounting was required because on April 1, 1993,
the Company and certain of its subsidiaries emerged from Chapter 11 of the
United States Bankruptcy Code (the "Chapter 11 cases") pursuant to a plan of
reorganization (the "Plan of Reorganization"). For financial reporting
purposes, the effective date of the Plan of Reorganization was March 31, 1993
(the "Plan Effective Date"). For periods prior to the Plan Effective Date, the
Company sometimes is referred to herein as the "Predecessor". The Chapter 11
cases were commenced on January 13, 1991 (the "Petition Date").
One effect of "fresh start" accounting on the financial
statements was the negative impact on the reported operating income of each
business segment and the consolidated net income resulting from the noncash
amortization of the Reorganization Goodwill. Such amortization expense totaled
$16.2 million (exclusive of amortization expense related to discontinued
operations) in 1995. At December 31, 1995, Reorganization Goodwill was fully
amortized.
Discontinued Operations
On March 5, 1997, the Company completed the sale of its Office
Products Business within the Office Products/Specialty Publishing Group with
the divestiture of the Rolodex Business for $112.6 million, net of transaction
costs. The divestiture of the Rolodex Business was preceded in 1996 by the
divestiture of Rolodex Electronics and Curtis for aggregate proceeds of $21.8
million. The Office Products Business segment has been accounted for as a
discontinued operation and, accordingly, the consolidated statements of
operations and cash flows for the periods prior to the sale have been
reclassified.
Merger Costs
As a result of the Mergers, the Company incurred various costs
currently estimated to range between $27 and $30 million in connection with
consummating the transaction. These costs consist primarily of financing fees,
professional fees, compensation costs, registration fees and other expenses.
While the exact timing, nature and amount of these costs are subject to
change, the Company (i) recorded $1.3 million of such expenses in the quarter
ended June 30, 1998, (ii) anticipates recording a one-time pretax charge of
approximately $21.8 million in the quarter in which the Mergers are
consummated and (iii) will amortize all of the remaining capitalized costs in
future periods. As a result, the Company expects to record a significant net
loss in the quarter in which the Mergers are consummated.
Results of Operations
Summarized sales and operating income (loss) by business
segment for the years ended December 31, 1995, 1996 and 1997, and the six
months ended June 30, 1997 and 1998 are set forth in the following table and
discussed below:
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
------------------------------------- -------------------------------
1995 1996 1997 1997 1998
--------- --------- --------- ---------- --------------
(in millions)
<S> <C> <C> <C> <C> <C>
SALES
Automotive Components Group ......... $ 180.3 $ 209.7 $ 231.1 $ 116.2 $ 123.8
Technologies Group .................. 170.6 183.7 198.9 98.0 99.0
Specialty Publishing ................ 98.6 99.0 98.2 62.0 64.5
-------- -------- -------- -------- --------
Consolidated sales .................. $ 449.5 $ 492.4 $ 528.2 $ 276.2 $ 287.3
======== ======== ======== ======== ========
OPERATING INCOME (LOSS)(1)(2)
Automotive Components Group ......... $ 20.4 $ 23.9 $ 23.1 $ 12.6 $ 11.5
Technologies Group .................. 20.3 24.5 23.0 11.4 10.6
Specialty Publishing ................ (0.7) 1.6 5.3 5.1 3.3
Unallocated corporate costs .......... (1.1) (1.6) (0.3) (0.3) (0.1)
Unallocated corporate merger expenses -- -- -- -- (1.3)
-------- -------- -------- -------- --------
Consolidated operating income ........ $ 38.9 $ 48.4 $ 51.1 $ 28.8 $ 24.0
======== ======== ======== ======== ========
</TABLE>
(1) Segment operating income (loss) reflects the allocation of corporate
overhead. In 1995 corporate overhead was reduced by a $4 million gain
relating to a change in the Company's pension plan (See Note 12 to the
Consolidated Financial Statements). The allocation of corporate overhead
follows:
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
------------------------------------- -------------------------------
1995 1996 1997 1997 1998
--------- --------- --------- ---------- --------------
(in millions)
<S> <C> <C> <C> <C> <C>
Automotive Components Group... $ 1.3 $ 3.0 $ 3.5 $ 1.8 $ 1.9
Technologies Group............ 1.4 3.1 3.7 2.0 2.0
Specialty Publishing.......... 0.9 2.0 1.8 1.0 1.4
-------- -------- --------- -------- --------
$ 3.6 $ 8.1 $ 9.0 $ 4.8 $ 5.3
======== ======== ========= ======== ========
</TABLE>
(2) 1995 segment operating income (loss) includes a deduction of $16.2 million
for the amortization of Reorganization Goodwill.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Sales
Total net sales from continuing operations of $170.0 million
for the second quarter of 1998 were relatively flat compared to the
corresponding period in 1997 as increased sales at the Automotive Components
Group and Taylor Publishing were essentially offset by a decline in the
Technologies Group. In the first six months of 1998, net sales from continuing
operations of $287.3 million increased 4% or $11.1 million from 1997 primarily
due to increased sales of automotive tubing and industrial and off-road
radiators at the Automotive Components Group and, to a lesser degree,
increases at the Technologies Group and Specialty Publishing.
The Automotive Components Group's net sales increased 3% or
$1.6 million in the second quarter of 1998 and 6% or $7.5 million in the first
six months of 1998 compared to the corresponding periods of 1997 due to
increased automotive tubing sales and increased sales of radiators to original
equipment manufacturers serving the off-road and industrial equipment markets.
These increases were partially offset by a decline in sales at the Company's
heat exchanger equipment manufacturing unit, McKenica, which continues to
experience a substantial decline in order backlog. In addition, Steel Parts
reported lower sales from the prior year periods due to the timing of a major
automotive OEM's scheduled annual plant shutdown.
The Technologies Group's net sales decreased 4% or $2.1 million
in the second quarter of 1998 compared to the corresponding period in 1997 due
to sales declines at Escod, Signal Transformer and Stewart Stamping primarily
due to a general weakness in the electronics market, which has continued into
the third quarter. These declines were partially offset by increased sales at
the El Paso stamping facility which moved from the start-up phase in 1997 to
production phase in 1998 and increased sales of Stewart Connector's modular
data interconnect products due to increased demand from a major
telecommunications customer. Sales in the Technologies Group increased 1% or
$1.1 million in the first six months of 1998 compared to the corresponding
period in 1997 due to increased sales from the El Paso stamping facility,
increased second quarter sales of Stewart Connector's modular data
interconnect products and increased first quarter sales of wire and cable
assembly products. These increases were partially offset by declines at Signal
Transformer and Stewart Stamping in the second quarter of 1998.
Taylor Publishing's net sales for the second quarter and first
six months of 1998 increased 1% and 4%, respectively, compared to the
corresponding periods in 1996 in response to certain Taylor initiatives to
increase yearbook revenues.
Operating Income
Operating income for the second quarter decreased $5.2 million
from $19.4 million in 1997 to $14.2 million in 1998. The decline in operating
income was due in part to increased selling, general and administrative expenses
as follows: $1.3 million of expenses related to the Merger, $0.6 million in
legal expenses (compared to $0.2 million in 1997) associated with Taylor's
antitrust lawsuit against Jostens, Inc. (for which Taylor received a favorable
judgment totaling $25.2 million, which judgment is likely to be appealed and has
not been reflected in the Company's operating results; see "Business--Legal
Proceedings"), and corporate officers severance expenses totaling $0.4 million.
In addition, the Company experienced an operating loss in the second quarter at
its McKenica unit due to a lack of available order backlog, increased costs,
primarily higher shipping costs, from production delays at Taylor Publishing
during its peak yearbook production season, and lower operating margins at
Stewart Connector and Steel Parts compared to the year ago quarter. In the first
six months of 1998, operating income decreased $4.8 million to $24.0 million
from $28.8 million in 1997. In the first six months of 1998, selling, general
and administrative expenses increased over 1997 due to $1.3 million of expenses
related to the Mergers, $0.8 million of expenses related to the Company's
antitrust lawsuit against Jostens, Inc. (compared to $0.2 million in 1997) and
$0.7 million of corporate officers severance expenses. Additionally, the Company
experienced increased costs at Taylor Publishing and lower operating margins at
Steel Parts and Stewart Connector.
The Automotive Components Group's operating income in the
second quarter of 1998 compared to the corresponding period of 1997 decreased
to $6.0 million from $6.9 million. The Automotive Components Group was
impacted by an operating loss at the Company's McKenica unit, caused by a
significant sales decline from the second quarter of 1997, and lower operating
margins at Steel Parts. These declines were partially offset by improved
operating income at the automotive tubing and heat exchanger businesses of
Thermal Components Group. For the first six months of 1998, the Automotive
Components Group's operating income compared to the corresponding period of
1997 decreased to $11.5 million from $12.6 million due to an operating loss at
the Company's McKenica unit, caused by a significant sales decline from 1997,
and lower operating margins at Steel Parts. These declines were partially
offset by gains in operating performance at the Company's heat exchanger and
automotive tubing business.
The Technologies Group's operating income decreased to $5.3
million in the second quarter of 1998 from $6.4 million in the same period of
1997 due to lower demand and inventory correction by electronics market
customers. Operating income at Stewart Connector decreased from the prior year
period due to a less favorable sales mix of products and price degradation on
certain mature connector products. At Signal Transformer operating income
decreased significantly due to the lower sales volume caused by weak demand in
the electronics market. For the first six months of 1998, the Technologies
Group's operating income, compared to the corresponding period of 1997,
decreased to $10.6 million from $11.4 million. Operating income was impacted
by the decreased sales of power transformers and competitive pricing pressures
in the connector market. Partially offsetting these declines, operating income
improved over the prior year at Escod, Stewart Stamping and the El Paso
stamping facility.
Taylor Publishing's operating income decreased to $4.3 million
from $6.1 million in the second quarter of 1998 compared to the same period of
1997 and to $3.3 million from $5.1 million in the first half of 1998 compared
to the prior year. These decreases from 1997 were due to increased costs of
air freight following production delays in the second quarter which is the
peak yearbook production and delivery period. In addition, Taylor had increased
administrative expenses, including legal fees related to its lawsuit against
Jostens, Inc. (see Note 11 to the Unaudited Condensed Consolidated Financial
Statements included elsewhere herein).
Other Income (Expense)
Other income for the second quarters of 1998 and 1997 included
$0.7 million and $0.8 million, respectively, of equity income from the
Company's unconsolidated joint venture, Thermalex, which manufactures extruded
aluminum tubing primarily for automotive air conditioning condensers. For the
first six months of 1998, other income included $1.5 million of equity income
from Thermalex compared to $1.5 million in the first six months of 1997.
Interest expense increased 68% or $2.8 million and 78% ($6.0 million) in the
second quarter and first six months of 1998, respectively, from the
corresponding 1997 periods due to the issuance of $150 million of the
10 1/4% Notes completed in the third quarter of 1997 (see Note 3 to the
Unaudited Condensed Consolidated Financial Statements included elsewhere
herein). Interest income decreased $1.6 million and $2.0 million in the second
quarter and first six months of 1998, respectively, from the corresponding
1997 periods because the Company had substantial interest income in 1997 on
the proceeds from the sale of the Rolodex Business (see Note 3 to the
Unaudited Condensed Consolidated Financial Statements included elsewhere
herein).
"Other income, net", included in Other income (expense), for
the second quarter and first six months of 1998 increased $1.1 million and
$2.0 million from the corresponding periods of 1997, respectively. Other
income in the second quarter of 1998 included gains on the sale of idle assets.
Income Tax Expense
The Company's effective income tax rate of 53% for the second
quarter of 1998 increased significantly from both the 1997 second quarter rate
of 38% and the 1998 first quarter rate of 35% primarily due to the effects of
the Mergers (see Note 10 to the Unaudited Condensed Consolidated Financial
Statements included elsewhere herein). Certain transaction costs expected to
be incurred as part of this transaction will not be deductible for tax
purposes. Considering the effects of the Mergers, and other favorable
permanent and temporary timing items, the Company does not expect to incur any
significant additional cash outlay for 1998 income taxes.
1997 Compared to 1996
Sales
Consolidated net sales from continuing operations of $528.2
million increased 7% ($35.8 million) in 1997 compared to 1996 net sales from
continuing operations of $492.4 million primarily due to a 10% ($21.4 million)
increase at the Automotive Components Group and an 8% ($15.2 million) increase
at the Technologies Group.
Sales in the Automotive Components Group segment were $231.1
million, an increase of 10% over 1996 sales of $209.7 million. The increased
sales were attributable to Thermal's increased sales of automotive heat
exchangers and related components from the July 1996 acquisition of the
Lingemann Business and higher sales of transmission and other stamped
automotive parts at Steel Parts. The Lingemann Business contributed $31.6
million of sales in 1997 compared to $13.1 million in 1996. Approximately 30%
of Thermal's sales are to the automotive OEM market. Steel Parts achieved
sales growth over 1996 due to higher parts content per automobile, as
automobile manufacturers have moved from three-speed to four and five-speed
automatic transmissions. Steel Parts is primarily an OEM supplier of
transmission and other automotive components.
Sales in the Technologies Group were $198.9 million, an
increase of 8% over 1996 sales of $183.7 million. Sales of the wire and cable
assembly business, Escod, were up 19% over 1996 due to strong demand from one
of its major customers as well as continued expansion of its customer base.
Sales at Signal Transformer increased 9% over 1996 primarily due to higher
demand for internationally certified products from electronic OEMs. Sales of
precision stampings at the segment's Stewart Stamping unit increased 6% due to
new product introductions, as well as the continued strength of the
automotive, electrical control and circuit protection markets. Stewart
Connector, the Company's manufacturer of high speed data transmission
connectors which serves the computer networking market, had a 1% decrease in
sales from the prior year principally as a result of price erosion of existing
products and delayed new product availability. Foreign sales accounted for
approximately 41% and 40% of Stewart Connector's sales in 1997 and 1996,
respectively.
Sales at Taylor Publishing were $98.2 million, relatively flat
compared to prior year sales of $99.0 million.
Operating Income
The Company's operating income from continuing operations of
$51.1 million increased 6% ($2.7 million) in 1997 compared to 1996 primarily
due to higher operating income at Taylor Publishing caused by increased
productivity and a $1.5 million restructuring charge recorded in 1996.
The Automotive Components Group's operating income in 1997
compared to 1996 decreased to $23.1 million from $23.9 million. Lower
operating income from Thermal was partially offset by increased operating
income at the Company's stainless steel tubing business and stamped steel
parts business. Thermal's operating performance was impacted by (i) decreased
sales at the Company's heat exchanger equipment manufacturer which continues to
experience a substantial decline in order backlog; (ii) increased research and
development costs associated with the Group's new technical center; (iii)
additional expenses related to the integration of the Lingemann Business into
the Company's operations; and (iv) soft aftermarket demand for automotive heat
exchangers.
The Technologies Group's operating income in 1997 compared to
1996 decreased to $23.0 million from $24.5 million primarily due to decreased
operating margins at Stewart Connector caused principally by competitive price
pressure in the connector market and delayed introductions of new connector
products. In addition, the Company incurred additional start-up costs at its
El Paso stamping facility. These declines were partially offset by the improved
sales and operating margin at Escod.
In 1997, the operating income of the Specialty Publishing
business, Taylor Publishing, improved to $5.4 million from $1.7 million in
1996 due to improved operating margins from increased productivity and a $1.5
million restructuring charge incurred in 1996.
Other Income (Expense)
Interest expense increased approximately 12% or $2.2 million in
1997 compared to 1996 due to the refinancing completed in the third quarter of
1997. Interest income increased $2.1 million over 1996 due to interest income
earned on the proceeds from the sale of the Rolodex Business prior to the
Share Repurchase. Other income for 1996 included a favorable adjustment of
$2.2 million related to the Company's environmental liabilities for 1996
following completion of a site clean-up for an amount less than previously
estimated.
Equity income from the Company's unconsolidated joint venture,
Thermalex, was $2.6 million in 1997 compared to $2.9 million in 1996.
Thermalex incurred additional expenses in 1997 related to the start-up of a
new extrusion press and plant expansion.
Income Tax Expense
The Company's actual income tax obligations during 1997 ($10.5
million) and 1996 ($2.4 million) were substantially less than the total amount
of income taxes recognized ($47.9 million and $12.4 million, respectively)
because previously generated net operating losses and other deferred tax
assets were utilized to reduce the tax obligations. During 1996, additional
deferred tax assets of $10.7 million were recognized and recorded on the
balance sheet because it was concluded that it was more likely than not that
such amounts would be realized in future years. In accordance with the
Reorganization SOP, the tax benefits associated with the recognition of
pre-effective date deferred tax assets, ($10.2 million in 1996) were recorded
as an increase to additional paid-in capital.
Discontinued Operations
On March 5, 1997, the Company completed the sale of its Office
Products Business within the Office Products/Specialty Publishing Group with
the sale of the Rolodex Business for $112.6 million, net of transactions costs.
The divestiture of the Rolodex Business was preceded in 1996 by the
divestiture of Rolodex Electronics and Curtis for aggregate sales proceeds of
$21.8 million.
As a result of the sale, the Office Products Business has been
accounted for as a discontinued operation and, accordingly the accompanying
consolidated statements of operations and cash flows for the periods prior to
the sale have been reclassified. Revenues associated with the discontinued
Office Products Business for the years 1997, 1996, and 1995 were $10.8
million, $80.1 million, and $111.7 million, respectively.
1996 Compared to 1995
Sales
Net sales from continuing operations in 1996 were $492.4
million, an increase of 10% over 1995 net sales from continuing operations of
$449.5 million primarily due to a 16% ($29.4 million) increase at the
Automotive Components Group and an 8% ($13.1 million) increase at the
Technologies Group.
Sales in the Automotive Components Group segment were $209.7
million, an increase of 16% over 1995 sales of $180.3 million. The increased
sales were attributable to $20.5 million of sales from the 1996 acquisitions
of the Lingemann automotive aluminum tube business and Great Lake as well as
higher content per automobile of clutch plates in transmissions and higher
sales of aluminum heat exchangers and related products and equipment
manufactured by the segment's Thermal unit. Approximately 29% of Thermal's
sales are to the automotive OEM market. Steel Parts achieved sales growth over
1995 due to higher parts content per automobile, as automobile manufacturers
have moved from three-speed to four and five-speed automatic transmissions.
Steel Parts is primarily an OEM supplier of transmission and other automotive
components. The increased sales at Thermal and Steel Parts were partially
offset by a decline from the prior year at Romac, the Company's manufacturer
of stainless steel tubing sold principally in marine and distribution markets.
Sales in the Technologies Group were $183.7 million, an
increase of 8% over 1995 sales of $170.6 million. Sales of the wire and cable
assembly business, Escod, were up 23% over 1995, reflecting continued
expansion of its customer base and a rebound in orders from its largest
telecommunications customer. Stewart Connector, the Company's manufacturer of
high speed data transmission connectors which serves the computer networking
market, had an 8% increase in sales over the prior year with 15% growth in the
fourth quarter of the year, primarily as a result of a new contract with a
major telecommunications customer for connector/cable assemblies. Foreign
sales accounted for approximately 40% and 43% of Stewart Connector's sales in
1996 and 1995, respectively. Sales at the segment's Signal Transformer unit
were flat compared to the prior year. Sales of precision stampings at the
segment's Stewart Stamping unit increased 5% due to the underlying strength of
the markets that it serves, including the housing construction and automotive
markets.
Sales at Taylor Publishing were $99.0 million, relatively flat
compared to prior year sales of $98.6 million.
Operating Income
Operating income (loss) comparisons between 1996 and 1995 are
more difficult to present than the sales comparisons because of the effects of
"fresh start" accounting on the results of operations. Due to the effects of
"fresh start" accounting, the Company's 1995 operating results were depressed
by a $16.2 million charge for the amortization of Reorganization Goodwill
($3.4 million, $7.2 million and $5.6 million of which were allocated to the
Automotive Components Group, Technologies Group and Specialty Publishing,
respectively). The consolidated reported operating income from continuing
operations in 1996 improved to $48.4 million from $38.9 million in 1995. (See
the table on page 32 regarding the comparability between the periods).
Excluding the effects of "fresh start" accounting, as described
above, the operating performance decreased $6.7 million or 12% due to higher
corporate overhead, decreased operating margins in the Technologies Group and
a $1.5 million restructuring charge recorded by Taylor Publishing. The higher
corporate overhead in 1996 is primarily due to a $4.3 million gain recorded in
1995 related to a change in the Company's pension plan which temporarily
reduced corporate overhead. These items and other operational year-to-year
changes are discussed below in the analysis of each segment's operating income.
The Automotive Components Group's operating income in 1996
compared to 1995 increased to $23.9 million from $20.4 million. The results in
1995 were negatively impacted by the amortization of Reorganization Goodwill
totaling $3.4 million. Excluding amortization of Reorganization Goodwill, the
segment's operating performance was relatively flat compared to 1995, as the
effect of higher sales was offset by a $1.7 million increase in allocated
corporate overhead due to the 1995 pension gain noted above.
The Technologies Group's operating income in 1996 compared to
1995 increased to $24.5 million from $20.3 million. The results in 1995 were
negatively impacted by a $7.2 million amortization charge for Reorganization
Goodwill. Excluding the amortization of Reorganization Goodwill, the segment's
operating income decreased $3.0 million in 1996 compared to 1995, an 11%
decline, due to decreased operating margins and a $1.7 million increase in
allocated corporate overhead due to the 1995 pension gain noted above. The
lower operating margins were caused principally by competitive price pressure
in the connector market and delayed introductions of new connector products.
In 1996, the operating income of the Specialty Publishing
business, Taylor Publishing, improved to $1.7 million from an operating loss
of $0.8 million in 1995 due principally to the reduction in amortization of
Reorganization Goodwill, which totaled $5.6 million in 1995. Excluding the
amortization of Reorganization Goodwill, the unit's operating performance
decreased $3.2 million in 1996 compared to 1995 due to a $1.5 million
restructuring charge incurred in 1996, following Taylor's adoption of a
restructuring plan to improve profitability, a $1.1 million increase in
allocated corporate overhead which was primarily attributable to the 1995
pension gain noted above and increased administrative costs.
Other Income (Expense)
Interest expense decreased approximately 6% or $1.2 million in
1996 compared to 1995 due to a lower effective interest rate and lower debt
balances. Other income included a favorable adjustment of $2.2 million related
to the Company's environmental liabilities following completion of a site
clean-up for an amount less than previously estimated. Other income for 1995
included favorable adjustments of $3.6 million related to the Company's
environmental liabilities following a review of its liabilities from
previously divested operations and $1.5 million related to the resolutions of
several legal disputes. In addition, other income included a $4.0 million gain
on the sale of idle corporate assets.
Income Tax Expense
The Company's actual income tax obligations during 1996 ($2.4
million) and 1995 ($2.6 million) were substantially less than the total amount
of income taxes recognized ($12.4 million and $16.1 million respectively)
because previously generated net operating losses and other net deferred tax
assets were utilized to reduce the tax obligations. During 1996 and 1995,
additional deferred tax assets of $10.7 million and $9.2 million respectively,
were recognized and recorded on the balance sheet because it was concluded
that it was more likely than not that such amounts would be realized in future
years. In accordance with the Reorganization SOP, the tax benefits associated
with the recognition of pre-effective date deferred tax assets ($10.2 million
and $1.6 million in 1996 and 1995, respectively), were recorded as an increase
to additional paid-in capital and $7.2 million in 1995 was recorded as a
reduction to Reorganization Goodwill. The 1995 reduction eliminated the
remaining unamortized Reorganization Goodwill.
Discontinued Operations
For information regarding the Company's reclassification of its
Office Products Business as a discontinued operation, see "1997 Compared to
1996--Discontinued Operations."
Liquidity and Capital Resources
Post-Mergers
The Company's principal sources of liquidity are cash flow from
operations and borrowings under the Credit Facility. As of June 30, 1998,
after giving pro forma effect to the Mergers and the Merger Financing and the
application of the proceeds thereof, Insilco could have borrowed an additional
$36.1 million under the Credit Facility. The Company's principal uses of cash
are debt service requirements, capital expenditures, acquisitions and working
capital. The Company expects that ongoing requirements for debt service,
capital expenditures and working capital will be funded from operating cash
flow and borrowings under the Credit Facility. In connection with future
acquisitions, the Company may require additional funding which may be provided
in the form of additional debt, equity financing or a combination thereof.
There can be no assurance that any such additional financing will be available
to the Company on acceptable terms.
The Company incurred substantial indebtedness in connection
with the Mergers and the Merger Financing. On a pro forma basis, after giving
effect to the Merger, the Merger Financing and the application of the proceeds
thereof, the Company would have had approximately $376.8 million of
indebtedness outstanding as of June 30, 1998 as compared to $264.8 million of
indebtedness outstanding as of June 30, 1998 on a historical basis. In
addition, on the same pro forma basis, the Company would have a stockholders'
deficit of $226.3 million at June 30, 1998 as compared to a stockholders'
deficit of $90.8 million as of June 30, 1998 on a historical basis. The
Company's significant debt service obligations following the Mergers could,
under certain circumstances have material consequences to security holders of
the Company. See "Risk Factors."
In connection with the Mergers, Silkworm raised approximately
$56.1 million of equity capital through the issuance of 1,245,138 shares of
Silkworm Common Stock, approximately $35.0 million through the issuance of the
PIK Preferred Stock and the DLJMB Warrants to purchase 65,603 shares of
Holdings Common Stock at an exercise price of not less than $0.01 per share,
and approximately $70.2 million aggregate gross proceeds of the Units.
Immediately following effectiveness of the Mergers, the proceeds from the sale
of such securities became an asset of Holdings, each share of Silkworm Common
Stock became a share of Holdings Common Stock, each warrant will by its terms
became exercisable for an equal number of shares of Holdings Common Stock and
Holdings succeeded to the obligations of Silkworm with respect to the Senior
Discount Notes and the Warrants. In addition, the Company raised approximately
$43.1 million through additional borrowings under the Credit Facility.
The Senior Discount Notes were issued by Silkworm, became
obligations of Holdings following the Mergers and are not guaranteed by any of
its consolidated subsidiaries. The Senior Discount Notes will mature in 2008
and will not require cash interest payments until 2003. See "Description of
Exchange Notes" and "Description of Old Notes." The Senior Discount Notes
contain customary covenants and events of default, including covenants that
limit the liability of the Company and its subsidiaries to incur debt, pay
dividends and make certain investments.
The Issuer is a holding company, and its ability to pay interest
on the Senior Discount Notes is dependent upon the receipt of dividends from its
direct and indirect subsidiaries. The Issuer does not have, and may not in the
future have, any assets other than shares of common stock of Insilco (which are
pledged to secure the obligations of Insilco under the Credit Facility). Insilco
and its subsidiaries are parties to the Credit Facility and Insilco is a party
to the 10 1/4% Note Indenture, each of which imposes substantial restrictions
on Insilco's ability to pay dividends to the Issuer. See "Risk
Factors--Limitations on Access to Cash Flow of Subsidiaries; Holding Company
Structure."
The Company anticipates that its operating cash flow, together
with borrowings under the Credit Facility, will be sufficient to meet its
anticipated future operating expenses, 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. The Company's ability to make scheduled payments of
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. See "Risk Factors."
Historical
Cash Flows from (Used In) Operating Activities. Operations used
$3.8 million cash in the first six months of 1998 as compared to a cash usage
of $5.2 million in the first six months of 1997. Cash flows from operations
improved over the prior year period due to the timing of cash receipts and
lower tax payments. These improvements were partially offset by higher
interest payments related to the 10 1/4% Notes (which are payable
semi-annually in the first and third quarters.) The Company's cash flow for
periods prior to the six months ended June 30, 1997 was favorably impacted by
tax loss carryforwards, which reduced the actual cash payments for the years
to well below the financial statement income tax expense. The tax loss
carryforwards were substantially reduced in 1997 due to the gain from the sale
of the Rolodex Business.
Operations provided $45.5 million in cash in 1997 compared to
providing $55.4 million in cash in 1996. Cash flows from operations decreased
from the prior year primarily due to cash flows from the divested Office
Products business included in 1996 results. The Company's cash for periods
prior to 1997 was favorably impacted by tax loss carryforwards, which reduced
the actual cash payments for the years to well below the financial statement
income tax expense. The tax loss carryforwards were substantially reduced in
1997 due to the gain from the sale of the Rolodex Business. As a result,
beginning in 1998 it is expected that the Company will no longer have any tax
loss carryforwards available to reduce cash payment obligations.
Cash Flows from (Used In) Investing Activities. In the first
six months of 1997, the Company sold its Rolodex Business for a net sales
price of $112.6 million. In the first six months of 1998 and 1997, the Company
received dividend distributions from Thermalex of $1.3 million and $1.5
million, respectively. The Company's other investing activities consist
principally of capital expenditures which totaled $10.9 million and $10.3
million for the first six months of 1998 and 1997, respectively.
In 1997, in addition to the sale of the Rolodex Business, the
Company received a $1.5 million dividend distribution from Thermalex and $4.4
million from the liquidation of idle assets in 1997. In 1996, the Company
acquired the Lingemann Business, and two affiliated businesses serving the
automotive, heavy truck and industrial manufacturing radiator replacement
market, Great Lake and Kar Tool Co. Inc., for approximately $37.7 million
including transaction fees and expenses. In 1996, the Company received
proceeds totaling $21.8 million from the sales of Curtis and Rolodex
Electronics; $3.6 million from Thermalex for full repayment of loans
outstanding; a $3.4 million dividend distribution from Thermalex; and $1.3
million from the disposal of idle assets. In 1995, the Company received $2.5
million from Thermalex relating to the partial repayment of loans, a $0.4
million dividend distribution from Thermalex and $4.7 million from the
disposal of idle assets.
The Company's capital expenditures totaled $23.6 million in
1997 and the Company has budgeted expenditures totaling approximately $22.1
million in 1998, of which $10.9 million was completed in the first six months
of 1998. The Company expects to finance these expenditures and investments
with internally generated funds. The Company does not anticipate that
limitations on capital expenditures under the Credit Facility will adversely
affect its ability to meet its operating goals.
Cash Flows from (Used In) Financing Activities. Financing
activities provided $9.4 million and $7.8 million in the first six months of
1998 and 1997, respectively. In the first six months of 1998, the Company
borrowed a net amount of $9.0 million on its revolving credit facility
compared to borrowings of $15.3 million in 1997. Term loan payments of $5.6
million were made in the first six months of 1997. In addition, the Company
paid $1.6 million and $1.7 million of prepetition liabilities in the first six
months of 1998 and 1997, respectively.
On July 3, 1997, the Company refinanced its existing bank debt
(see Note 8 to the Consolidated Financial Statements). In the third quarter of
1997, the Company, using the proceeds from the sale of the Rolodex Business and
the proceeds received on the issuance of the 10 1/4% Notes, consummated the
Share Repurchase. On August 12, 1997, the Company issued $150 million of the
10 1/4% Notes, for net proceeds of approximately $145.9 million.
The Company incurred $10.7 million in costs for the
refinancing, Share Repurchase and issuance of the 10 1/4% Notes. During
1996, the Company repaid $22.8 million of its initial $155.0 million term
loan. The Company also repurchased an additional 97,500 shares of its common
stock at prices ranging from $30.60 to $36.125 per share under the Company's
$15.0 million stock buyback program. During 1995, the Company repaid $12.6
million of its initial $155.0 million term loan and repurchased 197,500 shares
of its common stock at prices ranging from $32.375 to $36.875 per share.
The interest expense requirements during the next five years
will fluctuate based on the outstanding debt balances as well as changes in
interest rates. The interest rate on bank borrowings bear interest at various
fluctuating rates, at the Company's option, which approximate the one to six
month LIBOR rates plus 1.25% (such LIBOR rates approximated 5.72% to 5.84% at
December 31, 1997) subject to performance versus a leverage ratio. The Company
reduces its exposure to potential increases in interest rates by entering into
forward rate, interest rate cap and interest rate swap agreements with major
financial institutions. A summary of the terms of those agreements is
contained in Note 9 to the Consolidated Financial Statements.
Net Income (Loss) and Accumulated Equity (Deficit). At December
31, 1997, the Company had a stockholders' deficit totaling $102.3 million
compared to stockholders' equity totaling $33.4 million at December 31, 1996.
The deficit was attributable to the effect of the Share Repurchase as
described in "Cash Flow From (Used In) Financing Activities" above.
Seasonality. The Company's yearbook publishing business, Taylor
Publishing, is highly seasonal, with a majority of sales occurring in the
second and third quarters of the year. Taylor receives significant customer
advance deposits in the second half of each year. The Company's other
businesses are not highly seasonal.
Impact of Inflation and Changing Prices. Inflation and changing
prices have not significantly affected the Company's operating results or
markets. The Company is generally able to pass through to its customers price
changes in its major steel, copper and aluminum based product lines.
Liquidity. At June 30, 1998, the Company's cash and cash
equivalents and net working capital amounted to $7.0 million and $64.2
million, respectively, representing a decrease in cash equivalents of $3.7
million and an increase in net working capital of $24.7 million from year end
1997. The borrowing ability under the Company's revolving credit facility as
of the end of the quarter was $77.9 million, including $42.5 million available
for letters of credit.
Trade receivables, net, at June 30, 1998 increased 27% or $17.9
million over the December 31, 1997 amount primarily due to increased
receivables at Taylor Publishing following its peak yearbook production period
(see "--Seasonality").
At December 31, 1997, the Company's cash and cash equivalents
and net working capital amounted to $10.7 million and $39.5 million,
respectively, compared to $3.5 million and $51.4 million, respectively, in
1996. The borrowing ability under the Company's revolving credit facility at
December 31, 1997 was $85.1 million, including $41.1 million available for
additional letters of credit. The Company believes it has adequate sources of
liquidity to meet its working capital, capital expenditures and debt service
requirements for the foreseeable future.
Year 2000 Compliance. The Company is currently in the process
of evaluating its information technology infrastructure for the year 2000
("Year 2000") compliance. The Company's primary information systems either have
recently been or are in process of being replaced with new systems to meet the
Company's growing capacity and performance requirements. These replacements
are generally expected to be completed by early 1999.
The Company does not expect that the cost to be Year 2000
compliant will be material to its financial condition or results of
operations. The costs are based on management's best estimates, which were
derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third party modification plans
and other factors. However, there can be no guarantee that these estimates
will be achieved and actual results could differ materially from those plans.
The Company does not anticipate any material disruption in its operations as a
result of any failure by the Company to be in compliance.
The Company does not currently have complete information
concerning the Year 2000 compliance status of its suppliers and customers. In
the event that any of the Company's significant suppliers or customers do not
successfully and timely achieve Year 2000 compliance, the Company's business
or operations could be adversely affected.
The Company has not incurred significant costs including
internal costs to evaluate the extent of compliance related to Year 2000
compliance prior to December 31, 1997.
Foreign Sales. In 1997 the Company had export sales of $55.4
million which represented 10% of total sales. Export sales in 1997 to Europe,
Asia, Canada and Mexico were $21.2 million, $14.0 million, $9.7 million and
$4.3 million, respectively. All other export sales in 1997 totaled $6.2
million. In 1996, the Company had export sales of $58.2 million which were 12%
of total sales. In 1995, export sales were $53.1 million or 12% of total
sales. The Company's transactions are primarily in U.S. dollars.
BUSINESS
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 OEMs, telecommunications, networking and
electronics companies and school yearbook departments nationwide.
The Company's primary focus is to tailor its products for
customer-specific applications in niche markets. This 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. From fiscal 1994 to the twelve
month period ended June 30, 1998, the Company's net sales from continuing
operations increased from $438.4 million to $539.3 million, representing a
CAGR of 6.1%, and Adjusted EBITDA increased from $56.6 million to $70.0
million, representing a CAGR of 6.3%.
<TABLE>
<CAPTION>
Twelve Months ended
June 30, 1998
------------------------
Adjusted
Segment Sales EBITDA Principal Products/Markets Largest Customers
- ----------------------------- -------- -------- --------------------------------- -----------------
(in millions)
<S> <C> <C> <C> <C>
Automotive Components Group $238.5 $32.9 -- Transmission/suspension -- Ford
components -- Valeo
-- Radiators/air conditioning -- Caterpillar
condensors -- Behr
-- Heat exchanger tubing -- Delphi
Technologies Group 200.0 28.8 -- Cable harness assemblies -- Nortel
-- 50/60 Hz transformers -- Siemens
-- Modular jacks & plugs -- Littelfuse
-- Precision high speed stamping -- Ericsson
-- Lucent
-- IBM
Specialty Publishing 100.8 8.3 -- School yearbooks -- High Schools
------ -----
-- Universities
Total......................... $539.3 $70.0
====== =====
</TABLE>
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, is, management
believes, the nation's leading producer of precision extruded multi-port
aluminum heat exchanger tubing used in automotive air-conditioning condensers.
In 1997, Thermalex, which is accounted for as an unconsolidated investment,
contributed $2.6 million to the Company's consolidated pre-tax income and paid a
$1.5 million cash dividend to the Company. On a stand-alone basis, Thermalex
generated $10.3 million of EBITDA in 1997; however, only the $1.5 million
dividend is included in the Company's Adjusted EBITDA. Management believes that
the impact of the automotive cycle on the Automotive Components Group's
financial performance is mitigated by sales to the automotive aftermarket and
non-automotive OEMs, which represented 16% and 27%, respectively, of the
Automotive Components Group's 1997 net sales.
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, one of the nation's
leading publishers of student yearbooks. The Company believes that Taylor was
the first major yearbook publisher to make extensive use of digital pre-press
technology as opposed to the more widely used pre-press process which involves
manual cutting, pasting and rescaling. The Company believes it uses digital
pre-press technology more extensively than its competitors, which offers
yearbook departments greater flexibility in altering page design and superior
quality. The student yearbook business benefits from very limited
cyclicality, low customer turnover and pre-paid sales.
Business Segments
Automotive Components Group
The Automotive Components Group is made up of three operating
units, Thermal Components, Romac and Steel Parts. The businesses in this
segment manufacture automotive heat exchangers and related tubing, stainless
steel tubing, and automatic transmission and suspension components,
respectively. The Automotive Components Group accounted for 43.7% of the
Company's total sales in 1997, or approximately $231 million.
Automotive Sales by Market Segment
<TABLE>
<CAPTION>
1997
<S> <C>
Automotive OEM............................... 45.9%
Other OEM.................................... 27.2
Automotive Aftermarket....................... 16.2
Other........................................ 10.7
-----
Total........................................ 100.0%
=====
</TABLE>
Tubing and Heat Transfer. Thermal Components is a vertically
integrated manufacturer of heat exchangers for the automotive, specialty
vehicle, truck, heavy equipment and off-road vehicle and industrial equipment
markets. Its products include thin wall aluminum and copper tubes used
principally in heat transfer applications, radiators, air conditioning
condensers, oil coolers and heaters and production machinery and equipment
used in the manufacture and assembly of automotive heat exchangers.
Thermal Components uses a direct sales force and independent
sales representatives to market its products. Thermal Components sells to both
OEMs and aftermarket customers.
Thermalex, the Company's joint venture with Mitsubishi
Aluminum, manufactures multiport aluminum extrusions used principally in
automotive air conditioning condensers.
The markets for automobile heat-exchanger products are highly
competitive and have many participants, particularly automobile OEMs that
produce for their own use and several large independent manufacturers. Thermal
supplies tubes and, through Thermalex, extrusions to domestic automobile OEMs
and independent manufacturers. Thermal is an established supplier of welded
radiator tubes to manufacturers and repair shops in the heat-exchanger
aftermarket.
Thermal has manufacturing facilities in Alabama, Michigan, New
York, South Carolina, Wisconsin and Germany. At December 31, 1997, Thermal
(excluding Thermalex) had 936 employees.
Transmission Components. Steel Parts manufactures automotive
parts consisting of close-tolerance precision metal stampings at its facility
in Indiana. Its products include clutch plates for automatic transmissions,
suspension parts for vibration-reducing assemblies and engine mounts.
Substantially all Steel Parts' sales are made to the domestic
automobile industry, either directly or indirectly through other independent
automotive parts suppliers. As a result, the demand for Steel Parts' products
historically has been heavily dependent on the level of new car production by
the domestic automobile industry. Steel Parts has also seen its production
content per automobile increase in recent years as automobile manufacturers have
moved from three-speed to four- and five-speed automatic transmissions. The
strong domestic automotive market resulted in Steel Parts operating at or near
capacity for most of 1997 and 1996.
The market for original equipment automobile parts is
competitive and has many participants, principally the automobile
manufacturers themselves because of their ability to make their own parts.
Approximately 70%, 70% and 67% of Steel Parts' sales were to one of the "Big
3" domestic automotive manufacturers in 1997, 1996 and 1995, respectively.
At December 31, 1997, Steel Parts had 383 employees.
Stainless Steel Tubing. Romac manufactures stainless steel
tubing for a variety of marine, architectural, automotive and decorative
applications at its facility in North Carolina. Substantially all of its sales
are domestic.
The markets for these products are highly competitive.
Competition is based principally on price and, to a lesser extent, on the
shapes and finishes that can be achieved with the tubing. At December 31,
1997, Romac had 129 employees.
Technologies Group
The Technologies Group consists of four operating units,
Stewart Connector, Signal Transformer, Stewart Stamping and Escod Industries,
which manufacture telecommunication and electrical component products for the
computer networking, telephone digital switching, premises wiring, main frame
computer, automotive and medical equipment markets. The Technologies Group
accounted for 37.7% of the Company's total sales in 1997, or approximately
$198.9 million.
Specialized Connector Systems. Stewart Connector designs and
manufactures specialized high speed data connector systems, including modular
plugs, modular jacks, shielded and nonshielded specialized connectors, and
cable assemblies for telecommunications, cellular communications and data
transmission, including local and wide area networks. Its primary
manufacturing facility is located in Pennsylvania, with an assembly operation
in Mexico.
Stewart Connector sells its products throughout the world,
directly and through sales subsidiaries, and through a network of
manufacturers' representatives. Foreign sales accounted for approximately 41%,
40% and 43% of Stewart Connector's sales in 1997, 1996 and 1995, respectively.
It maintains direct sales offices (and to a lesser extent, distribution
operations) in England, Japan and Germany and has numerous domestic and
foreign competitors, some of which are substantially larger than Stewart
Connector. Competition is based principally on price with respect to older
product lines, and on technology and product features for newer products and
to a lesser extent, patent protection.
At December 31, 1997, Stewart Connector had 796 employees, of
which 372 were employed in the U.S., 20 in Japan, 7 in Germany, 4 in the
United Kingdom, and 393 in Mexico.
Power Transformers. Signal Transformer manufactures both
standard "off-the-shelf" and custom-made power transformers serving a broad
customer base in a variety of industries. Signal's markets include
telecommunications, home and retail security systems, medical instrumentation,
gaming and entertainment and process controls. Signal markets its products
directly, utilizing catalogs and print advertising, and indirectly through
selective independent sales representatives in targeted regions of the
country. It has a customer base of over nine thousand accounts, consisting of
both OEMs and aftermarket resellers.
The electronic transformer industry includes both domestic and
foreign manufacturers and there are numerous competitors to Signal.
Competition is based on price and availability of product to meet customers'
needs. Signal has directed its marketing efforts for many years towards
engineers and other customers having specialized, low-volume demand and prompt
delivery requirements. To capitalize on an identified market niche, Signal has
a service that guarantees 24 hour delivery for small order quantities of
certain off-the-shelf transformers.
Signal manufactures its transformers at production facilities
located in the Dominican Republic, Puerto Rico and New York. The New York
facility also serves as Signal's major sales, administration and distribution
center.
At December 31, 1997, Signal had 645 employees, of which 153
were employed in the U.S., 250 in the Dominican Republic and 242 in Puerto
Rico.
Precision Stampings and Wireforms. Stewart Stamping is a tool
designer and subcontract manufacturer of precision stampings and wireformed
parts. Stewart Stamping manufactures components used in electrical devices,
such as circuit breakers, electric fuses, lighting and process controls, and
in electronic industries, including passive components such as capacitor cans
and connector contacts. Stewart Stamping sells its products to a broad
customer base primarily in the U.S. through a network of manufacturers
representatives. Stewart Stamping manufactures its products at its plant in
Yonkers, New York. In early 1997, Stewart Stamping leased a manufacturing
facility in El Paso, Texas to better serve the Southwestern U.S. and Mexican
assembly operations of telecommunication and electronics customers.
Stewart Stamping's competitors in each of its product lines are
numerous (including, in the case of metal stampings, its own customers), but
Stewart Stamping traditionally has focused on products that, because of the
engineering and manufacturing capability required to produce them, have the
potential for repeat business.
At December 31, 1997, Stewart Stamping had 320 employees.
Cable and Wire Assemblies. Escod Industries produces electronic
cable assemblies, specialized wire harnesses and certain telecommunication
equipment subassemblies for sale to manufacturers of telecommunications,
computer and other electronics equipment. Escod's markets generally are
regional in nature, and Escod's production facilities (three in the Carolinas
and one in Florida) are operated principally to serve local plants of OEMs.
Because substantially all of Escod's customers are OEMs having a number of
production facilities, the demand for Escod's products depends not only on the
demand for its customers' products, but also on its customers' varying
utilization of their production sites.
Telecommunications and computer OEMs account for the bulk of
Escod's sales. Two telecommunications OEMs together accounted for
approximately 68%, 66% and 60% of Escod's total revenues in 1997, 1996 and
1995, respectively. Escod's dependence on these two major customers makes its
revenues and operating income sensitive to changes in demand from those
customers. Beginning in 1995, Escod has focused its efforts on developing a
broader customer base and a broader product line.
Competition in Escod's markets is based primarily on price and,
to a lesser extent, on responsiveness to customers' needs. The profitability
of Escod's sales generally depend on the relative raw material content, labor
productivity, quality of the products sold, proximity to customers and
timeliness of delivery.
As a result of the low barriers to entry into Escod's business
and increased, low-cost foreign competition in recent years, Escod's business
has become highly competitive.
At December 31, 1997, Escod had 798 employees.
Specialty Publishing
Taylor Publishing Company is engaged primarily in the contract
design and printing of student yearbooks from which it derived at least 87% of
its revenues in each of the last three years. Specialty Publishing accounted
for 18.6% of the Company's total sales in 1997, or approximately $98.2
million. Its principal yearbook customers are secondary (middle and senior
high) schools. Other yearbook customers include elementary schools, colleges
and academies. Taylor also publishes a variety of specialty books on a
contract basis and a limited number of its own publishing titles and provides
reunion planning and other services for alumni of schools, colleges and
academies.
Competition in the yearbook industry is based upon customer
service, quality and price. The market for yearbooks is affected more by
demographic trends, which are expected to be favorable, than by business
cycles. Taylor offers several yearbook lines with different graphic and
typographic options and capabilities. Taylor has expended significant
resources in recent years to develop a system of electronic copy preparation
designed to enhance the quality and consistency of photographs, reduce
production costs and shorten the time required for yearbook production. Taylor
has developed proprietary software programs for use by its customers in
developing yearbooks. This software facilitates the yearbook design work
performed by schools and improves the overall production process.
Taylor markets its yearbook services through commissioned
independent sales representatives who maintain contact with yearbook faculty
advisors, school principals and other key purchasing personnel. It also trains
students and their advisors in layout, design and marketing, conducts seminars
and workshops and provides supporting materials, including software, to assist
student yearbook staffs in the production process.
Yearbook production is highly seasonal. Orders are normally
obtained in the fall and finished yearbooks are delivered at or near the end
of the school year, typically late spring to early summer and to a lesser
degree, in the fall of the following school year. Deposits representing
approximately 25% of the yearbook contract price are due from the yearbook
customer upon its submission of the first set of yearbook pages.
Given the seasonal production cycle, the Company typically
receives significant cash deposits in the second half of each calendar year.
These deposits are available to fund the working capital requirements of the
yearbook production cycle, and to a lesser extent, to provide the Company
working capital for general corporate purposes.
Taylor operates six production facilities in Texas (two owned
and four leased) and one leased production facility in Pennsylvania. Its work
force reflects the seasonality of its business, typically ranging from 1,000
to 1,700 full-time employees. At December 31, 1997, it had 168 salaried and
1,194 hourly employees.
Divested Office Products Businesses. On September 3, 1996, the
Company sold Curtis, its computer accessories business. On October 4, 1996,
the Company sold Rolodex Electronics, consisting of electronic personal
organizers and telephones. On March 5, 1997, the Company sold the Rolodex
Business, which comprised the Rolodex office products line. As a result, the
Office Products Business has been accounted for as a discontinued operation.
Corporate History
The Company has undergone significant change and restructuring
in the past five years. A review of the most significant developments follows,
in chronological order:
o On April 1, 1993, the Company emerged from Chapter 11 bankruptcy
proceedings pursuant to the Plan of Reorganization. The Plan of
Reorganization resulted in a reduction in the Company's liabilities by
$532.3 million, an extraordinary gain realized in 1993 of $448.3 million
attributable to the discharge of such liabilities, and a change in control
of the Company.
The Plan of Reorganization among other matters provided for: (i) the
issuance of 9,230,839 shares of the Company's common stock in exchange for
allowed unsecured claims; (ii) deferred payment of certain pre-petition
claims, including various state and Federal taxes and trade debt; and
(iii) provisions to issue additional stock to other unsecured creditors
over time at the pre-determined rate of 18 shares of stock per $1,000 of
allowed claim as those claims are determined. Settlements were reached in
1997 on all remaining claims pending in the Bankruptcy Court and the
Chapter 11 cases were closed on June 12, 1997.
o In 1994, the Company sold its paint products segment for $50.8 million,
and entered into a long-term $285 million credit facility that allowed it
to retire the Company's outstanding 10 3/8% Senior Secured Guaranteed
Notes due July 1, 1997 and 9 1/2% Notes due 1997.
o In 1996, the Company acquired, for an aggregate purchase price of
approximately $37 million, Great Lake, an aftermarket automotive, heavy
truck and industrial radiator manufacturer, and the Lingemann Business.
o The Company divested the office products business of the Company's
Office Products/Specialty Publishing Group in three separate transactions
during 1996 and the first quarter of 1997. The 1996 transactions included
the divestitures of Curtis and Rolodex Electronics for an aggregate $21.8
million. On March 5, 1997, the Rolodex Business was sold for net cash
proceeds of approximately $112 million.
o Following the sale of the Rolodex Business, the Company refinanced its
existing debt by entering into the Credit Facility.
o In the third quarter of 1997, the Company, using the proceeds from the
sale of the Rolodex Business and the proceeds received on the issuance of
the 10 1/4% Notes, consummated the Share Repurchase.
Patents and Trademarks
The Company holds patents or trademarks in most of its
businesses which have expiration dates ranging from 1998 to 2018. The Company
expects to maintain such patents and to renew the trademarks important to its
business prior to their expiration and does not believe the expiration of any
one of its patents will have material adverse effect on any of its businesses.
Raw Materials and Supplies
The principal raw materials and supplies used by the Company
include: (i) steel, aluminum, copper, zinc, brass and nickel (Automotive
Components Group); (ii) copper wire, steel, brass, aluminum, plastics,
ceramics and precious metals (Technologies Group); and (iii) paper, film and
other photographic and printing supplies (Specialty Publishing). The Company
purchases these materials and supplies on the open market to meet its current
requirements and believes its sources of supply are adequate for its needs.
Backlog
The Company's backlog by industry segment, believed to be firm,
at June 30, 1997 and 1998 follows:
<TABLE>
<CAPTION>
June 30,
-----------------------
1997 1998
--------- --------
(in millions)
<S> <C> <C>
Automotive Components Group......... $ 56.1 $ 64.7
Technologies Group.................. 52.5 49.4
Specialty Publishing Group.......... 93.6 89.9
------ ------
Total.............................. $202.2 $204.0
====== ======
</TABLE>
Management believes that approximately $128.7 million of its
June 1998 backlog will be filled in 1998, and the remainder in 1999. Of the
1998 backlog, $61.2 million represents post-1998 orders placed with Specialty
Publishing, which often receives early renewals of contracts.
Properties
As of June 30, 1998, the Company operated 36 facilities
throughout the United States and seven facilities internationally consisting
of approximately 2.1 million square feet. Seventeen of these 43 facilities
(consisting of approximately 1.6 million square feet) are owned by the
Company. Management believes that the Company's facilities generally are well
maintained and adequate for the purposes of which they are used.
Substantially all of the Company's material domestic assets,
including owned properties, are subject to liens and encumbrances to secure
the Company's obligations under the Credit Facility.
Employees and Labor Relations
At December 31, 1997, the Company employed approximately 5,418
people on a full-time basis, of whom approximately 25% were covered by
collective bargaining agreements with various unions. The largest collective
bargaining unit (at Taylor) covers approximately 563 employees. Taylor entered
into a new contract with this unit in early 1998. The Company considers
relations with its employees to be good.
The Company has defined benefit and defined contribution
pension plans covering substantially all employees. For information respecting
defined benefit pension plans, see Note 12 to the Consolidated Financial
Statements.
Environmental Regulation and Proceedings
Environmental Matters
The Company's manufacturing operations involve the generation
of a variety of waste materials and are subject to extensive federal, state
and local environmental laws and regulations. The waste materials generated
include metal scrap from stamping operations, cutting and cooling oils,
degreasing agents, chemicals from plating and tinning operations, etching
acids and photographic and printing chemicals. The Company uses offsite
disposal facilities owned by others to dispose of its wastes and does not
store wastes it generates to the extent such storage would require a permit.
The Company does not treat, store or dispose of waste for others. The Company
is required to obtain permits to operate various of its facilities, and these
permits generally are subject to revocation or modification.
The Company has taken significant measures to address
emissions, discharges and waste generation and disposal; improve management
practices and operations in response to legal requirements; and internally
audit compliance with applicable environmental regulations and approved
practices. These measures include: raw material and process substitution;
recycling and material management programs; periodic review of hazardous waste
storage and disposal practices; and reviewing the compliance and financial
status and management practices of its offsite third-party waste management
firms.
As a result of the Company's reorganization, much uncertainty
has been removed concerning the Company's potential liability for
environmental contamination at sites owned or operated by the Company (and at
third party disposal and waste management facilities used by the Company)
prior to the filing of its bankruptcy petition. During the reorganization, the
Company settled all claims of the United States relating to the Company's
pre-Petition Date conduct at previously owned or third party sites arising
under the federal Comprehensive Environmental Response, Compensation, and
Liability Act ("CERCLA"). This settlement (i) discharged the Company's
liability to the United States at a number of hazardous waste sites; (ii)
protects the Company from contribution claims of the remaining potentially
responsible parties; (iii) limits the amount the Company may be required to
pay the United States in any one year on pre-petition claims; and (iv)
provides that any such payment may be made in cash or, at the Company's option,
common stock valued at 30% of the allowed claim.
The Company is also currently engaged in clean up programs at
sites located in Newtown, Connecticut, Mount Vernon, New York and Oak Creek,
Wisconsin, and may in the future be required to engage in investigations or
clean-ups at other presently or previously owned and operated sites. The Company
has established what it believes are appropriate reserves for anticipated
remedial obligations. Due to the establishment of these reserves and the
environmental settlements reached during the Company's reorganization, based on
currently available information, management does not believe that environmental
compliance or remedial requirements are likely to have a material adverse effect
on the Company.
Legal Proceedings
On January 14, 1997 Taylor sued one of its principal
competitors in the yearbook business, 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 $25.225 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 assurances as
to the actual amount, if any, that Taylor will recover from Jostens.
MANAGEMENT
The following table sets forth the name, age and position with
Holdings of each person who is a director or executive officer of Holdings.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Robert L. Smialek...... 54 Chairman of the Board, President and Chief
Executive Officer
David A. Kauer......... 42 Vice President and Chief Financial Officer
Kenneth H. Koch........ 42 Vice President, General Counsel and Secretary
Leslie G. Jacobs....... 47 Vice President, Human Resources and Assistant
Secretary
Michael R. Elia........ 40 Vice President and Controller
Thompson Dean.......... 40 Director
William F. Dawson, Jr.. 34 Director
David Y. Howe.......... 34 Director
</TABLE>
Robert L. Smialek has served as Chairman of the Board,
President and Chief Executive Officer of the Company since May 1, 1993. From
October 1992 to May 1993, Mr. Smialek served as the President and Chief
Operating Officer of the Temperature and Appliance Controls Group of Siebe
plc, a global controls and engineering firm. From September 1990 to October
1992, Mr. Smialek served as President and Chief Operating Officer of Ranco,
Inc., a subsidiary of Siebe, Inc. Mr. Smialek is a director of General Cable
Corporation and Gleason Corporation.
David A. Kauer has been Vice President and Chief Financial
Officer since May 1998, Vice President and Treasurer from April 1997 to May
1998 and Treasurer from September 1993 to April 1997. Previously, Mr. Kauer was
the Controller and Treasurer of Johnson Yokogawa Corporation (a joint venture
of Yokogawa Electric Corporation and Johnson Controls, Inc.) from October 1989
to September 1993.
Kenneth H. Koch has been Vice President, General Counsel and
Secretary since October 1993. Prior thereto, Mr. Koch was a partner with the
law firm of Porter, Wright, Morris & Arthur.
Leslie G. Jacobs has been Vice President, Human Resources since
August 1993 and was Director of Human Resources from January 1990 to August
1993. Prior thereto, Mr. Jacobs was Director, Compensation and Employee
Programs, of Rockwell International.
Michael R. Elia has been Vice President and Controller since
August 1998. Prior thereto, Mr. Elia was Chief Financial Officer of Jordan
Telecommunication Products and from 1994 to 1997, he was Director of Strategic
Planning for Fieldcrest Cannon, Inc. From 1983 to 1994, Mr. Elia held senior
financial positions with Insilco's Technologies Group.
Thompson Dean has been the Managing Partner of DLJMB Inc. since
November 1996. Prior thereto, Mr. Dean was a Managing Director of DLJMB Inc.
(and its predecessor). Mr. Dean serves as a director of Commvault Inc., Von
Hoffman Corporation, Manufacturers' Services Limited, Phase Metrics, Inc., and
Arcade Holding Corporation.
William F. Dawson, Jr. has been a Principal of DLJMB Inc. since
August 1997. From December 1995 to August 1997, he was a Senior Vice President
in DLJ's High Yield Capital Markets Group. Prior thereto, Mr. Dawson was a
Vice President in the Leveraged Finance Group within DLJ's Investment Banking
Group. Mr. Dawson serves as a director of Von Hoffman Corporation and
Thermadyne Holdings Corporation.
David Y. Howe has been a Vice President of Citicorp Venture
Capital, Ltd. since 1993. Mr. Howe serves as a director of Aetna Industries,
Inc., American Italian Pasta Company, IPC Information Systems, Inc, and Pen-Tab
Industries, Inc.
EXECUTIVE COMPENSATION
The aggregate remuneration of the Chief Executive Officer
during 1997 and the three other most highly compensated executive officers of
the Company who serve as officers of Holdings and whose salary and bonus
exceeded $100,000 for the fiscal year ended December 31, 1997, is set forth in
the following table:
Summary Compensation Table
<TABLE>
<CAPTION>
Restricted Securities
Stock Underlying All other
Name and Principal Position Year Salary ($) Bonus ($) Award(s) ($) Options (#) Compensation ($)(1)
<S> <C> <C> <C> <C> <C> <C>
Robert L. Smialek, President and
CEO.............................. 1997 $550,000 $300,000 -- -- $9,901
1996 537,499 235,000 -- -- 13,251
1995 500,000 180,000 -- -- 13,817
David A. Kauer, Vice President
and Chief Financial Officer...... 1997 164,000 80,000 -- 10,000 3,369
1996 143,917 58,000 -- 1,500 3,109
1995 130,833 40,000 -- -- 2,447
Kenneth H. Koch, Vice President,
General Counsel and Secretary.... 1997 162,833 75,000 -- 10,000 3,314
1996 151,167 78,373 -- 2,500 3,114
1995 138,667 50,000 -- -- 2,693
Leslie G. Jacobs, Vice President,
Human Resources and Assistant
Secretary........................ 1997 165,000 70,000 -- 10,000 4,031
1996 155,833 62,500 -- -- 3,762
1995 147,500 50,000 -- -- 2,629
</TABLE>
(1) Includes employer contributions under the Company's Employee Thrift Plan
401(k) (the "Thrift Plan") and insurance premiums paid by the Company.
Stock Options
The following table shows information regarding Options to
purchase shares of the Company's Common Stock granted to executive officers
named in the summary compensation table in 1997 under the 1993 Long-Term
Incentive Plan. All of these Options were canceled in the Mergers in exchange
for the Option Cash Payments, except to the extent the holder thereof
participated in the Management Rollover described under "--Employee and
Severance Benefits Agreements."
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
----------------------------------------------------------------------------------------------------------
Potential Realizable Value at Assumed
Annual Rates of Stock Price Appreciation
For Option Term (1)
--------------------------------------------
% of Total
Options
Granted to Exercise
Options Employees in Price Expiration
Name Granted (#) Fiscal Year ($/Share) Date 0%($) 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C> <C>
Robert L. Smialek. -- -- -- -- -- -- --
David A. Kauer.... 10,000 6.6 36.75 6/25/02 0 101,533 224,362
Kenneth H. Koch... 10,000 6.6 36.75 6/25/02 0 101,533 224,362
Leslie G. Jacobs.. 10,000 6.6 36.75 6/25/02 0 101,533 224,362
</TABLE>
(1) The amounts under the columns labeled "5%($)" and "10%($)" are included by
the Company pursuant to certain rules promulgated by the Securities and
Exchange Commission and are not intended to forecast future appreciation,
if any, in the price of the Company's Common Stock. Such amounts are based
on the assumption that the Option holders hold the options granted for
their full term. The actual value of the Options will vary in accordance
with the market price of the Company's Common Stock. The column headed
"0%($)" is included to illustrate that the Options were granted at fair
market value and Option holders will not recognize any gain without an
increase in the stock price, which increase benefits all shareholders
commensurately.
The following table provides certain information regarding the
number and the value of Options exercised during 1997 and the value of the
Options held by the executive officers named in the summary compensation table
at fiscal year end.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-The-
Options at Fiscal Year-End Money Options at Year-End
(#) ($)(2)
---------------------------- ---------------------------------
Shares
Acquired on Value Realized
Name Exercise (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Robert L. Smialek. 160,000 $3,460,000 160,000 80,000 $480,000 $760,000
David A. Kauer.... 5,000 111,875 10,500 11,000 105,000 0
Kenneth H. Koch... 7,500 167,813 10,332 11,668 96,000 0
Leslie G. Jacobs.. 9,524 221,433 12,142 13,334 113,568 0
</TABLE>
(1) Value realized represents the difference between the exercise price of the
Option shares and the market price of the Option shares on the date the
Option was exercised. The value realized was determined without
consideration for any taxes or brokerage expenses which may have been owed.
(2) Represents the total gain which would be realized if all in-the-money
Options held at year end were exercised, determined by multiplying the
number of shares underlying the Options by the difference between the per
share Option exercise price and per share fair market value of $33.00 on
December 31, 1997.
Employee and Severance Benefit Agreements
The following is a description of the current employment
agreements with certain of the Company's executive officers.
The Company employs Mr. Smialek under an agreement providing
that Mr. Smialek will serve indefinitely as President and Chief Executive
Officer of the Company. Under the agreement, Mr. Smialek receives an annual
base salary of $550,000. Mr. Smialek will be eligible to receive annual
bonuses and salary increases in such amounts as may be reasonably determined
by the Compensation Committee. Mr. Smialek received an annual bonus for 1997
in the amount of $300,000. Mr. Smialek also is entitled to participate in all
incentive, savings, retirement and welfare benefit plans and arrangements in
which certain other senior executive officers are eligible to participate,
other than any restricted stock or option plans in which his participation
will be at the discretion of the Company.
If Mr. Smialek's employment is terminated by the Company
without "Cause" or by Mr. Smialek for "Good Reason" (as the quoted terms are
used in the agreement), he will be entitled to a lump sum amount equal to his
accrued salary, annual bonus and vacation pay and any compensation previously
deferred by him (collectively, the "Accrued Obligations") as well as a
severance payment equal to his annual salary plus the greater of $150,000 or
his most currently determined annual bonus, together with the continuation of
certain benefits for a one-year period.
In 1993, Mr. Smialek purchased from the Company 33,333
restricted shares of common stock issued under the Plan at a cash purchase
price per share of $15, whereupon 66,667 restricted shares were awarded to him
under the Plan for a nominal price (all of such restricted shares are referred
to collectively herein as the "Restricted Shares"). Restrictions on the
Restricted Shares expired March 31, 1996, and Mr. Smialek has all the rights
of a holder of common stock with respect to such shares. Mr. Smialek has the
option to settle the tax withholding obligations of the Company resulting from
expiration of the restrictions with shares of common stock.
In December 1996, the Company entered into a Value Appreciation
Agreement (as amended, the "Value Appreciation Agreement") with Messrs. Kauer,
Koch, Jacobs and certain other officers. The Value Appreciation Agreement
provided that the executives would be entitled to receive a commission from
the Company following a transaction giving rise to a change in control. Upon
consummation of the Mergers, a commission was paid to the executives on account
of the sale in the amount of $2.6 million and the Value Appreciation Agreement
terminated.
Holders of Options and persons entitled to payments under the
Value Appreciation Agreement invested an aggregate of approximately $5 million
to receive (i) phantom equity awards in lieu of the cash amounts otherwise
payable in respect of such Options or the Value Appreciation Agreement or with
the proceeds of a loan extended by the Company and (ii) shares of common stock
of Holdings purchased for cash (the "Management Rollover"). Holdings, filed a
registration statement on Form S-8 with respect to the securities issued in
the Management Rollover.
In December 1996, the Company entered into Income Protection
Agreements with Messrs. Kauer, Koch, Jacobs and certain other officers. The
Income Protection Agreements provide that in the event of termination of an
executive's employment by the Company without cause, or, in certain
circumstances, by the executive, the executive will be entitled to receive
certain severance benefits. The benefits payable to the executive in the event
of a termination of employment covered by the Income Protection Agreement are
as follows: (i) one year's base salary; (ii) a bonus equal to the bonus paid
to executive in 1996 or the target bonus for the year in which employment is
terminated, as well as a pro rated bonus for the year in which the termination
occurs; (iii) continued participation in the Company's benefit plans for the
duration of the severance period; (iv) accelerated vesting of all stock
options and stock appreciation rights; (v) continuation of any rights to
indemnification from the Company; and (vi) certain outplacement services. The
Income Protection Agreements have three year terms and automatically renew for
subsequent one year terms, unless terminated by either party.
Director Compensation. In 1993, the Company adopted the 1993
Nonemployee Director Stock Incentive Plan covering 360,000 shares of Common
Stock for nonemployee directors in lieu of paying annual or other directors'
fees. The terms of the options and the restricted stock awards, including
forfeiture provisions, generally are the same as those described under
"Employee and Severance Benefit Agreements" respecting the options and
restricted stock awarded Mr. Smialek.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect
to the beneficial ownership of the common stock of Holdings immediately
following the consummation of the Mergers by (i) any person or group who
beneficially owns more than five percent of the common stock of Holdings and
(ii) all directors and officers as a group.
<TABLE>
<CAPTION>
Shares Beneficially Percentage of
Owned After the Outstanding
Name and Address of Beneficial Owner: Mergers Common Stock
<S> <C> <C>
DLJ Merchant Banking Partners II, L.P. and related investors(1)(2)....... 1,043,584 70.8%
(CVC)(3)................................................................. 266,666 19.3%
Thompson Dean(4)......................................................... -- --
William F. Dawson, Jr.(4)................................................ -- --
David Y. Howe(5)......................................................... -- --
Kenneth H. Koch.......................................................... 100 *
David A. Kauer........................................................... 27 *
Leslie G. Jacobs......................................................... 13 *
Michael R. Elia.......................................................... -- --
Robert L. Smialek........................................................ 2,536 *
All directors and officers as a group (8 persons)(4)(5).................. 2,676 *
</TABLE>
* less than 1%.
(1) Includes 65,603 shares of Holdings Common Stock issuable upon exercise of
the DLJMB Warrants issued in connection with the PIK Preferred Stock. Also
includes 22,425 shares of Holdings Common Stock issuable upon exercise of
Warrants issued as part of the Units purchased by the DLJ Mezzanine
Investors. See "The Merger and the Merger Financing."
(2) Consists of shares held directly by the following investors related to
DLJMB: DLJ Offshore Partners II, C.V. ("Offshore"), a Netherlands Antilles
limited partnership, DLJ Diversified Partners, L.P. ("Diversified"), a
Delaware limited partnership, DLJMB Funding II, Inc. ("Funding"), a
Delaware corporation, DLJ Merchant Banking Partners II-A, L.P.
("DLJMBPIIA"), a Delaware limited partnership, DLJ Diversified Partners-A
L.P. ("Diversified A") a Delaware limited partnership, DLJ Millennium
Partners, L.P. ("Millennium"), a Delaware limited partnership, DLJ
Millennium Partners-A, L.P. ("Millennium A"), a Delaware limited
partnership, DLJ EAB Partners, L.P. ("EAB"), UK Investment Plan 1997
Partners ("UK Partners"), a Delaware partnership, DLJ First ESC L.P., a
Delaware limited partnership ("DLJ First ESC"), and DLJ ESC II, L.P., a
Delaware limited partnership ("DLJ ESC II"). See "Certain Relationships and
Related Transactions" and "Plan of Distribution." The address of each of
DLJMB, Diversified, Funding, DLJMBPIIA, Diversified A, Millennium,
Millennium A, DLJ First ESC, DLJ ESC II and EAB is 277 Park Avenue, New
York, New York 10172. The address of Offshore is John B. Gorsiraweg 14,
Willemstad, Curacao, Netherlands Antilles. The address of UK Partners is
2121 Avenue of the Stars, Fox Plaza, Suite 3000, Los Angeles, California
90067.
(3) CVC is a wholly owned subsidiary of Citibank, N.A. The address of CVC is
399 Park Avenue, New York, NY 10022-4614.
(4) Messrs. Dean and Dawson are officers of DLJMB Inc., an affiliate of DLJMB
and the Initial Purchaser. The business address of Messrs. Dean and Dawson
is DLJMB Inc., 277 Park Avenue, New York, New York 10172. Share data shown
for such individuals excludes shares shown as held by the DLJMB Funds, as
to which such individuals disclaim beneficial ownership.
(5) Mr. Howe is an officer of Citicorp Venture Capital, Ltd., an affiliate of
CVC. The business address of Mr. Howe is 399 Park Avenue, New York, NY
10022-4614. Share data shown for Mr. Howe excludes shares shown as held by
CVC, as to which Mr. Howe disclaims beneficial ownership.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The DLJMB Funds own approximately 69% of the outstanding shares
of the Issuer's Common Stock (approximately 68.3% on a fully diluted basis).
Messrs. Dean and Dawson are officers of DLJMB and are directors of the
Company. Neither the Issuer nor the Company is aware of any transaction or of
any currently proposed transaction, in which DLJ has any material direct or
indirect interest as a result of its ownership position in a party to the
transaction other than the Company, except as follows:
Donaldson Lufkin & Jenrette Securities Corporation received
customary fees in connection with the distribution of the Units. In addition,
in connection with the Offer to Purchase the 10 1/4% Notes, DLJ Capital
Funding has committed to lend up to $350 million to the Company under the
Backstop Facility. DLJ Capital Funding will receive customary fees in
connection with the provision of the Backstop Facility. The aggregate fees to
be received by these DLJ entities for these services is expected to be
approximately $8.8 million.
DLJ Investment Partners, L.P., DLJ ESCII, L.P. and DLJ
Investment Funding, Inc. (the "DLJ Mezzanine Investors"), each of which is an
affiliate of DLJMB, purchased an aggregate of approximately 50% of the Units
at a price per Unit of $508.73.
In connection with the Mergers, DLJMB and the Company entered
into an agreement with respect to registration and certain other rights. In
addition, in connection with their purchase of Units, the DLJ Mezzanine
Investors are entitled to certain registration rights with respect to the
Senior Discount Notes and the Warrants.
Prior to the Mergers, Water Street Corporate Recovery Fund I,
L.P. ("Water Street"), an affiliate of Goldman, Sachs & Co. ("Goldman Sachs"),
beneficially owned approximately 45% (62% prior to the Share Repurchase) of the
Company's common stock. The Company is not aware of any transaction or of any
currently proposed transaction in which Goldman Sachs had any material direct
or indirect interest as a result of its ownership position in a party to the
transaction other than the Company, except as follows:
Goldman Sachs advised the Company in connection with the
Mergers and received a fee of $2.0 million upon the consummation of the
Mergers. In the Mergers, Water Street received approximately $81.0 million and
retained 62,962 shares of the Company. The Company has agreed to enter into a
Registration Rights Agreement with Water Street in which Water Street will
have certain registration rights with respect to such 62,962 shares.
During 1997, the Company paid Goldman Sachs $3,094,000 in
underwriting fees related to the 10 1/4% Notes, $2,042,000 in investment
banking fees in connection with the refinancing and the issuance of the
10 1/4% Notes, and $204,000 for services rendered in connection with the
Share Repurchase. Water Street received an aggregate of approximately $154.7
million in the Share Repurchase. Also during 1997, the Company paid Goldman
Sachs $1,966,000 in investment banking fees and expenses related to the sale
of the Rolodex Business.
In 1996, Goldman Sachs advised the Company in connection with
the purchase of the Lingemann Business and received an investment banking fee
of $1.0 million and reimbursement of expenses.
An affiliate of Goldman Sachs was a lender under the Company's
credit agreement that preceded the Credit Facility and in 1995 and 1996
received $459,409 and $372,000, respectively, in fees and interest under such
agreement. Goldman Sachs Credit Partners L.P. is a member of the bank group
under the Credit Facility and received $583,000 from the agent bank for its
portion of the arrangement fee paid by the Company in 1997.
In 1995, the Company loaned $210,000 to James J. Gaffney, a
director of the Company, in two separate loan transactions. Each loan bore
interest at a variable rate equal to the applicable federal rate at the date
of the loan, adjusted semi-annually in accordance with changes in the
applicable federal rate and is payable to the Company on demand. Mr. Gaffney
pledged 13,334 shares of restricted stock of the Company to secure his
repayment obligation under the terms of the loans. The loan was repaid in full
on February 19, 1997.
In 1995, the Company loaned $128,000 to James D. Miller, a
former executive officer of the Company. The loan bears interest at a variable
rate equal to the applicable federal rate at the date of the loan, adjusted
semi-annually in accordance with changes in the applicable federal rate and is
payable to the Company on demand. Mr. Miller pledged 15,246 shares of
restricted stock of the Company to secure his repayment obligation under the
terms of the loan. Mr. Miller terminated his employment with the Company on
April 18, 1997 and the loan was repaid in full.
The Company believes that the terms of all the transactions and
existing arrangements set forth above are no less favorable to the Company
than similar transactions and arrangements which might have been entered into
with unrelated parties.
DESCRIPTION OF CERTAIN INDEBTEDNESS
Credit Facility
On July 3, 1997, Insilco refinanced its existing debt under a new
six year $200 million amended and restated credit agreement. The Credit Facility
provides for a $200 million revolving credit facility with a $50 million
sublimit for issuance of letters of credit ($7.6 million outstanding at June 30,
1998) and a $50 million sublimit for alternative currency borrowings. The $200
million revolving credit facility is permanently reduced by $20 million per year
beginning July 2000 through July 2002 and matures on July 8, 2003. As of June
30, 1998, on a pro forma basis giving effect to the Mergers and the Merger
Financing and the application of the proceeds thereof (assuming no participation
in the Management Rollover described under "Executive Compensation--Employee and
Severance Benefits Agreements"), Insilco would have had $156.6 million
outstanding under the Credit Facility.
Interest accrues under the Credit Facility at floating rates
calculated with respect to either LIBOR or Citibank New York's Base Rate, plus
an applicable margin. The applicable margin, in turn, fluctuates based on the
financial performance of Insilco. Based on Insilco's current financial
performance, Insilco may borrow at the Base Rate (defined as the highest of
(a) Citibank's base rate, (b) the secondary market rate for three-month
certificates of deposit (adjusted for statutory reserve requirements) plus a
customary charge for FDIC deposit insurance and 0.50% and (c) the federal
funds effective rate plus 0.50%), plus 0.125%, or at LIBOR, plus 1.625%. Under
the Credit Facility, Insilco also pays an unused commitment fee, which also
fluctuates based upon the financial performance of Insilco. As of June 30,
1998, the unused commitment fee was 0.375%. In addition, Insilco pays per
annum fees for the issuance of letters of credit based upon the undrawn stated
amount. The fees for letters of credit are calculated again upon the financial
performance of Insilco. As of June 30, 1998, Insilco was paying 1.25% per
annum of the undrawn stated amount of issued and outstanding letters of credit.
Insilco is required to make mandatory prepayments on the Credit
Facility which would reduce the maximum revolving credit commitments, subject
to certain exceptions, in the following circumstances: (i) an amount ranging
from 50% to 100% of any net cash proceeds received by Insilco on account of
(a) any disposition of assets and the receipt of certain insurance and
condemnation proceeds (with certain exceptions), (b) any issuance of debt
securities, and (c) any sale and leaseback transaction in excess of a certain
aggregate amount; and (ii) an amount equal to 25% of any net cash proceeds
received by Insilco on account of the issuance of any capital stock.
The lenders' respective obligations to extend credit to the
borrowers under the Credit Facility are conditioned upon, among other things,
the following: (i) the continuing validity of the comprehensive
representations and warranties of Insilco and its subsidiaries and the
performance of the various financial and other covenants in the Credit Facility
and in any other loan documents; (ii) Insilco's performance and compliance in
all material respects with all the terms, provisions, agreements and
conditions set forth in the 10 1/4% Note Indenture and the absence of any
default thereunder; and (iii) the absence of any material adverse change in
the business, condition, operations, performance, properties or prospects of
Insilco or its subsidiaries taken as a whole.
The Credit Facility is guaranteed by Insilco as to foreign
borrowers and by substantially all of Insilco's present and future domestic
subsidiaries. The obligations thereunder are secured by (i) all or a
substantial portion of the common stock or other interests in Insilco's
present and future subsidiaries, (ii) the present and future property and
assets, including all accounts receivable, inventory, equipment, fixtures,
patents, trademarks, and specified real property, of Insilco and its present
and future domestic subsidiaries (subject to certain qualifications and
exceptions), and (iii) a collateral assignment of intercompany notes and
junior security agreements securing all obligations of the domestic
subsidiaries to Insilco.
The Credit Facility contains certain consolidated financial
covenants, including, but not limited to, covenants related to minimum
consolidated net worth, minimum fixed charge coverage ratio, minimum interest
coverage ratio, maximum leverage ratio and a limit on annual capital
expenditures. These financial covenants are subject to certain adjustments in
financial performance calculated in respect of projections submitted to the
lenders.
The Credit Facility also contains certain negative covenants,
which, among other things, restrict, or in certain cases (including clauses
(vi) and (xi) below) prohibit, the ability of (i) Insilco and its subsidiaries
to incur additional indebtedness in excess of certain agreed upon amounts and
excluding certain types of indebtedness; (ii) Insilco and its domestic
subsidiaries to sell or transfer assets, in excess of certain agreed upon
limits and excluding certain types of assets; (iii) Insilco and its domestic
subsidiaries to create or grant liens other than permitted liens, purchase
money liens, and other liens of certain types and liens which secure agreed
upon amounts; (iv) Insilco and its domestic subsidiaries to make investments
other than permitted investments, and then only in prescribed amounts; (v)
Insilco and its subsidiaries to enter into accommodation obligations, except
for certain types of accommodation obligations and in certain amounts; (vi)
Insilco and its domestic subsidiaries to pay any dividends, redeem, purchase
or acquire any of Insilco's shares, or other rights with respect thereto, or
pay any principal, premium or interest in respect to any subordinated
obligations with certain qualifications and exceptions (permitting, in the
ordinary course, the payment of interest on the 10 1/4% Notes); (vii)
Insilco and its subsidiaries to engage in businesses not substantially
similar, related or incidental to the present businesses of Insilco and its
subsidiaries; (viii) Insilco to enter into transactions with affiliates other
than on an arms-length basis; (ix) Insilco, its domestic subsidiaries and
foreign borrowers to consolidate, dissolve, merge, or enter into joint
ventures, with certain exceptions and under certain conditions; (x) Insilco
and its domestic subsidiaries to enter into sale and lease-back transactions
in excess of certain limits; (xi) Insilco and its subsidiaries to cancel or
prepay certain indebtedness; and (xii) Insilco to amend the 10 1/4% Notes
or voluntarily repay, redeem, purchase or otherwise retire the 10 1/4%
Notes.
The Credit Facility contains specified events of default, which
include the failure to make payments of interest or principal when due, the
breach of certain affirmative or negative covenants, the breach of any
representation or warranty made by Insilco or any of its subsidiaries in any
loan document, a default as to other specified indebtedness or under material
operating leases, the commencement of a voluntary or involuntary bankruptcy
case, the entry against Insilco or any of its subsidiaries (and the lapse of
specified time periods without discharge of the same) or their property of any
judgment, writ, order or warrant of attachment, or other similar process which
brings about the voluntary dissolution of Insilco, the failure of any security
for the Credit Facility, the occurrence of any termination event under ERISA
and the occurrence of any Change of Control (as defined therein).
In connection with the consummation of the Mergers, the Company
amended the Credit Facility, permitting the repurchase of up to $5.0 million
of 10 1/4% Notes in a Change of Control Offer, guaranteeing the obligations
thereunder by Holdings and amendings the security provisions to include a
pledge of all of the common stock of Insilco and otherwise permitting the
consummation of the Mergers and the Merger Financing.
10 1/4% Notes
The 10 1/4% Notes were issued under the 10 1/4% Note
Indenture, dated as of August 12, 1997, between Insilco and The Bank of New
York, a New York banking corporation, as trustee (the "Trustee"). The
10 1/4% Notes are unsecured senior subordinated obligations of Insilco, are
limited to $150 million aggregate principal amount, will mature on August 15,
2007, and bear interest at the rate of 10 1/4% per annum, payable
semi-annually on February 15 and August 15 of each year. The 10 1/4% Notes
are redeemable, in whole or in part, at the option of Insilco, at any time on
or after August 15, 2002, at redemption prices (expressed as percentages of
the principal amount redeemed), plus accrued interest to but excluding the
redemption date, if redeemed during the twelve-month period commencing on
August 15 in the years set forth below:
<TABLE>
<CAPTION>
Year Redemption Price
- ----------------------------------- ----------------
<S> <C>
2002......................... 105.120%
2003......................... 103.410%
2004......................... 101.700%
2005......................... 100.000%
</TABLE>
The 10 1/4% Note Indenture contains covenants that, among
other things (a) limit the ability of Insilco and its Restricted Subsidiaries
(as defined) to incur additional indebtedness and contingent obligations; (b)
limit the ability of Insilco to grant liens on debt which is subordinate or
junior to the 10 1/4% Notes; (c) limit the ability of Insilco and its
Restricted Subsidiaries to pay dividends or make other distributions on
account of, or purchase, redeem or otherwise acquire, any shares of any class
of its capital stock or, prior to any scheduled maturity, repayment or sinking
fund payment, any indebtedness of Insilco that (subject to certain exceptions)
is subordinate in right of payment to the 10 1/4% Notes, or make any
Investment (as defined) which is not a Permitted Investment (as defined); (d)
limit the incurrence of any debt or the issuance of preferred stock by
Insilco's Restricted Subsidiaries; (e) prohibit the issuance by Insilco of any
indebtedness that is by its terms subordinated in right of payment to any
senior debt and senior in right of payment to the 10 1/4% Notes; (f)
prohibit Insilco's Restricted Subsidiaries, directly or indirectly from
assuming, guaranteeing or in any other manner becoming liable with respect to
any debt that by its terms is pari passu with or junior in right of payment to
the 10 1/4% Notes; (g) limit the ability of Insilco and its Restricted
Subsidiaries to engage in transactions with Insilco's affiliates; (h) limit
the ability of Insilco to merge, consolidate or sell all or substantially all
its assets; (i) prohibit, subject to certain exceptions, Insilco or its
Restricted Subsidiaries from creating or permitting to exist any consensual
encumbrance or restriction on the ability of such subsidiaries to pay
dividends, repay certain indebtedness owed to Insilco or any such subsidiary
thereof or transfer assets to Insilco or its Restricted Subsidiaries; and (j)
limit the ability of Insilco and Insilco's Restricted Subsidiaries from making
certain asset sales and in connection with permitted asset sales require that
the proceeds thereof be used to make an offer to repurchase the 10 1/4%
Notes at 100% of their principal amount unless such proceeds have been
reinvested in the business of Insilco or used to repay indebtedness. In
addition, in the event of a Change of Control (as defined), Insilco is
required to make an offer to purchase all outstanding 10 1/4% Notes at a
purchase price equal to 101% of their aggregate principal amount, plus accrued
interest to the date of purchase. The consummation of the Mergers will require
Insilco to make such an offer to purchase.
The 10 1/4% Note Indenture contains certain events of
default which include the failure to pay interest and principal on the
10 1/4% Notes, the failure to comply with covenants in the 10 1/4% Notes
or the 10 1/4% Note Indenture, a payment default under, or acceleration of,
certain other indebtedness of Insilco and Insilco's Restricted Subsidiaries,
the rendering of certain final judgments and certain events occurring under
bankruptcy laws.
The 10 1/4% Notes are subordinate in right of payment to all
"senior indebtedness" of Insilco, as such term is defined in the 10 1/4%
Note Indenture. As defined in the 10 1/4% Note Indenture, "senior
indebtedness" includes, among other things, indebtedness and other obligations
owing in respect of the Credit Facility as well as amendments, modifications,
renewals, extensions, refinancing and refundings of any such indebtedness. All
senior indebtedness shall be and remain senior indebtedness for all purposes
of the 10 1/4% Note Indenture, whether or not subordinated in any
insolvency proceeding.
The Backstop Facility
On March 20, 1998, DLJ Capital Funding and DLJSC entered into a
commitment letter agreement with DLJ Merchant Banking II, Inc. Pursuant to the
commitment letter, as amended, DLJ Capital Funding has agreed to lend up to
$350 million of senior, secured financing (the "Backstop Facility") to be
available in the event that holders of the 10 1/4% Notes were to elect to
sell their 10 1/4% Notes back to Insilco in the Offer to Purchase and the
Credit Agreement were required to be refinanced. 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. DLJSC has
separately undertaken to use its commercially reasonable efforts to arrange a
syndicate of other financial institutions that will participate together with
DLJ Capital Funding in the Backstop Facility. DLJ Capital Funding's commitment
is not subject to syndication of the Backstop Facility. Because the offer to
purchase the 10 1/4% Notes will not be consummated until after the Expiration
Date, the Company may not know at the time of the issuance of the Exchange
Notes whether the Backstop Facility will be needed.
The Backstop Facility is subject to certain conditions,
including the mutual agreement of terms customary for transactions of this
nature and other customary conditions with respect to security, guarantee and
loan documentation, 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, 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
certain other matters. In the event that any of the conditions are not
satisfied, DLJSC and DLJ Capital Funding may terminate their respective
commitments or propose alternate financing amounts or structures.
DESCRIPTION OF EXCHANGE NOTES
The Old Notes were issued and the Exchange Notes will be issued
under the Indenture dated as of August 17, 1998 between Silkworm and Star
Bank, N.A., as trustee (the "Trustee"), as amended by The First Supplemental
Indenture dated as of August 17, 1998 between Holdings and the Trustee (as
amended, the "Indenture"). The Indenture has been filed as an exhibit to the
registration statement (the "Registration Statement") of which this Prospectus
forms a part. The Indenture will be qualified under the Trust Indenture Act
of 1939, as amended (the "Trust Indenture Act") upon effectiveness of the
Registration Statement. The following summary of the material provisions of
the Indenture does not purport to be complete and is subject to, and qualified
in its entirety by reference to, the provisions of the Indenture, including
the definitions of certain terms contained therein and those terms made part
of the Indenture by reference to the Trust Indenture Act. The definitions of
certain general terms used in the following summary are set forth below under
"--Certain Definitions."
The Old Notes and the Exchange Notes will constitute a single
series of debt securities under the Indenture. If the Exchange Offer is
consummated, holders of Old Notes who do not exchange their Old Notes for
Exchange Notes will vote together with the holders of Exchange Notes for all
relevant purposes under the Indenture. In that regard, the Indenture requires
that certain actions by the holders thereunder (including acceleration
following an Event of Default) must be taken, and certain rights must be
exercised, by specified minimum percentages of the aggregate principal amount
of the outstanding debt securities. In determining whether holders of the
requisite percentage in principal amount have given any notice, consent or
waiver or taken any other action permitted under the Indenture, any Old Notes
which remain outstanding after the Exchange Offer will be aggregated with the
Exchange Notes and the holders of such Old Notes and Exchange Notes will vote
together as a single series for all such purposes. Accordingly, all references
herein to specified percentages in aggregate principal amount at maturity of
the outstanding Senior Notes shall be deemed to mean, at any time after the
Exchange Offer is consummated, such percentage in aggregate principal amount
at maturity of the Old Notes and Exchange Notes then outstanding.
The Exchange Notes and the Old Notes are sometimes referred to
as, collectively, the "Senior Discount Notes" and, individually, a "Senior
Discount Note."
The Senior Discount Notes are general unsecured obligations of
the Issuer and are senior in right of payment to all future Indebtedness of the
Issuer that is subordinated to the Senior Discount Notes and pari passu in right
of payment with all future Indebtedness of the Issuer that is not subordinated
to the Senior Discount Notes. The Issuer is the sole obligor with respect to the
Senior Discount Notes; however, the operations of the Issuer are conducted
entirely through its Subsidiaries and, therefore, the Issuer is completely
dependent upon the operations and cash flow of its Subsidiaries to meet its
obligations, including its obligations under the Senior Discount Notes. The
Credit Facility and the 10 1/4% Notes significantly restrict Insilco's ability
to pay dividends or make any other distributions to the Issuer. The ability of
Insilco to comply with the conditions in the Credit Facility and the 10 1/4%
Notes may be affected by certain events that are beyond the Issuer's control.
The Senior Discount Notes are effectively subordinated to all Indebtedness and
other liabilities (including, without limitation, trade payables and lease
obligations) of the Issuer's Subsidiaries, including, without limitation, to
Insilco's obligations under the Credit Facility and the 10 1/4% Notes. Any right
of the Issuer to receive assets of any of its Subsidiaries upon such
Subsidiary's liquidation or reorganization (and the consequent right of Holders
of the Senior Discount Notes to participate in those assets) is effectively
subordinated to the claims of that Subsidiary's creditors except to the extent
that the Issuer itself is recognized as a creditor of such Subsidiary, in which
case the claims of the Issuer would still be subordinate to the claims of such
creditors who hold security in the assets of such Subsidiary and to the claims
of such creditors who hold Indebtedness of such Subsidiary senior to that held
by the Issuer. As of June 30, 1998, on a pro forma basis giving effect to the
Mergers, including the Merger Financing and the application of proceeds
therefrom, the Issuer and its subsidiaries would have had Indebtedness of
approximately $376.8 million and the Issuer's Subsidiaries would have had
approximately $447.1 million of outstanding liabilities. The Indenture will
permit the incurrence of certain additional Indebtedness of the Issuer and the
Issuer's Subsidiaries in the future. See "Risk Factors--Limitation on Access to
Cash Flow of Subsidiaries; Holding Company Structure," "Risk
Factors--Substantial Leverage; Liquidity; Stockholders' Deficit" and "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock."
All of the Issuer's Subsidiaries are Restricted Subsidiaries.
However, under certain circumstances, the Issuer is permitted to designate
current or future Subsidiaries as Unrestricted Subsidiaries. Unrestricted
Subsidiaries are subject to the restrictive covenants set forth in the
Indenture.
Principal, Maturity and Interest
The Senior Discount Notes are limited in aggregate principal
amount at maturity to $138.0 million and will mature on August 15, 2008. The
Senior Discount Notes were issued at a substantial discount from their
principal amount at maturity in order to generate gross proceeds of $68.2
million. Until August 15, 2003, no interest will accrue on the Senior Discount
Notes, but the Accreted Value will increase (representing amortization of
original issue discount) between the date of original issuance and August 15,
2003, on a semi-annual bond equivalent basis using a 360-day year comprised of
twelve 30-day months, such that the Accreted Value shall be equal to the full
principal amount at maturity of the Senior Discount Notes on August 15, 2003.
Beginning on August 15, 2003, interest on the Senior Discount Notes will
accrue at the rate of 14% per annum and will be payable in cash semi-annually
in arrears on February 15 and August 15, commencing on February 15, 2004, to
Holders of record on the immediately preceding February 1 and August 1.
Interest on the Senior Discount Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from August 15,
2003. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months. Principal of, premium, if any, and interest and
Liquidated Damages, if any, on the Senior Discount Notes will be payable at
the office or agency of the Issuer maintained for such purpose within the City
and State of New York or, at the option of the Issuer, payment of interest and
Liquidated Damages may be made by check mailed to the Holders of the Senior
Discount Notes at their respective addresses set forth in the register of
Holders of Senior Discount Notes; provided that (i) all payments of principal,
premium, interest and Liquidated Damages with respect to Senior Discount Notes
represented by one or more permanent global Senior Discount Notes will be paid
by wire transfer of immediately available funds to the account of DTC or any
successor thereto and (ii) any Liquidated Damages attributable to periods
ending on or before August 15, 2003 shall be payable through the issuance of
additional Senior Discount Notes (valued at 100% of the Accreted Value thereof
on the date of any such payment). Until otherwise designated by the Issuer,
the Issuer's office or agency in New York will be the office of the Trustee
maintained for such purpose. The Senior Discount Notes were issued in
denominations of $1,000 and integral multiples thereof.
Subject to the covenants described below, the Issuer may issue
additional notes under the Indenture having the same terms in all respects as
the Senior Discount Notes (or in all respects except for the payment of
interest on the Senior Discount Notes (i) scheduled and paid prior to the date
of issuance of such notes or (ii) payable on the first Interest Payment Date
following such date of issuance). The Senior Discount Notes and any such
additional notes would be treated as a single class for all purposes under the
Indenture.
Optional Redemption
Except as provided below, the Senior Discount Notes are not
redeemable at the Issuer's option prior to August 15, 2003. Thereafter, the
Senior Discount Notes will be subject to redemption at any time at the option
of the Issuer, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of principal
amount at maturity) set forth below, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on August 15 of the years
indicated below:
<TABLE>
<CAPTION>
Year Percentage
- ---------------------------------------- ------------
<S> <C>
2003.................................... 107.000%
2004.................................... 104.667%
2005.................................... 102.333%
2006 and thereafter..................... 100.000%
</TABLE>
Notwithstanding the foregoing, on or prior to August 15, 2001,
the Issuer may redeem up to 100% of the aggregate principal amount at maturity
of Senior Discount Notes ever issued under the Indenture at a redemption price
of 114% of the Accreted Value thereof, plus Liquidated Damages, if any,
thereon to the redemption date, with the net cash proceeds of one or more
Public Equity Offerings; provided that, such redemption shall occur within 365
days of the date of the closing of any such Public Equity Offering.
In addition, at any time prior to August 15, 2003, the Issuer
may, at its option upon the occurrence of a Change of Control, redeem the
Senior Discount Notes, in whole but not in part, upon not less than 30 nor
more than 60 days' prior notice (but in no event may any such redemption occur
more than 60 days after the occurrence of such Change of Control), in cash at
a redemption price equal to (i) the present value at such time of the optional
redemption price of such Senior Discount Note at August 15, 2003 (such
redemption price being described under "--Optional Redemption") computed using
a discount rate equal to the Treasury Rate plus 75 basis points, plus (ii)
accrued and unpaid interest and Liquidated Damages, if any, to the date of
redemption.
"Treasury Rate" means, as of any redemption date, the yield to
maturity as of such redemption date of United States Treasury securities with
a constant maturity (as compiled and published in the most recent Federal
Reserve Statistical Release H.15 (519) that has become publicly available at
least two Business Days prior to the redemption date (or, if such Statistical
Release is no longer published, any publicly available source of similar
market data)) most nearly equal to the period from the redemption date to
August 15, 2003; provided that if the period from the redemption date to
August 15, 2003 is less than one year, the weekly average yield on actually
traded United States Treasury securities adjusted to a constant maturity of
one year shall be used.
Selection and Notice
If less than all of the Senior Discount Notes are to be
redeemed at any time, selection of Senior Discount Notes for redemption will
be made by the Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the Senior Discount Notes are
listed, or, if the Senior Discount Notes are not so listed, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and
appropriate; provided that no Senior Discount Notes having a principal amount
at maturity of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days
before the redemption date to each Holder of Senior Discount Notes to be
redeemed at its registered address. Notices of redemption may not be
conditional. If any Senior Discount Note is to be redeemed in part only, the
notice of redemption that relates to such Senior Discount Note shall state the
portion of the principal amount at maturity thereof to be redeemed. A new
Senior Discount Note in principal amount at maturity equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Senior Discount Note. Senior Discount Notes
called for redemption become due on the date fixed for redemption. On and
after the redemption date, interest ceases to accrue on Senior Discount Notes
or portions of them called for redemption.
Mandatory Redemption
The Issuer is not required to make mandatory redemption of, or
sinking fund payments with respect to, the Senior Discount Notes.
Repurchase at the Option of Holders
Public Common Stock Offerings
Upon the occurrence of a Public Common Stock Offering prior to
August 15, 2001, the Issuer is required to make an offer to all Holders of
Senior Discount Notes pursuant to the offer described below (the "Public
Common Stock Offering Offer") to purchase the maximum principal amount at
maturity of Senior Discount Notes that may be purchased with the net cash
proceeds of the Public Common Stock Offering at an offer price in cash equal
to 114% of the Accreted Value thereof, plus accrued and unpaid Liquidated
Damages, if any, thereon to the date of repurchase (the "Public Common Stock
Offering Payment"). Within 65 days following any such Public Common Stock
Offering, the Issuer will (or will cause the Trustee to) mail a notice to each
Holder describing the transaction or transactions that constitute the Public
Common Stock Offering and offering to repurchase Senior Discount Notes,
pursuant to the procedures required by the Indenture and described in such
notice. If the aggregate Public Common Stock Offering Payment of Senior
Discount Notes surrendered by Holders thereof in connection with a Public
Common Stock Offering offer exceeds the net cash proceeds of the Public Common
Stock Offering, the Trustee shall select the Senior Discount Notes to be
purchased as set forth under "--Selection and Notice." The Issuer will comply
with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Senior
Discount Notes as a result of a Public Common Stock Offering. To the extent
that the provisions of any securities laws or regulations conflict with the
provisions of the Indenture relating to such Public Common Stock Offering
Offer, the Issuer will comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations described
in the Indenture by virtue thereof.
On the Public Common Stock Offering Payment Date, the Issuer
will, to the extent lawful, (a) accept for payment all Senior Discount Notes
or portions thereof properly tendered pursuant to the Public Common Stock
Offering Offer, (b) deposit with the Paying Agent an amount equal to the
Public Common Stock Offering Payment in respect of all Senior Discount Notes
or portions thereof so tendered and (c) deliver or cause to be delivered to
the Trustee the Senior Discount Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount at maturity of Senior
Discount Notes or portions thereof being purchased by the Issuer. The Paying
Agent will promptly mail to each Holder of Senior Discount Notes so tendered
the Public Common Stock Offering Payment for such Senior Discount Notes, and
the Trustee will promptly authenticate and mail (or cause to be transferred by
book-entry) to each Holder a new Senior Discount Note equal in principal
amount at maturity to any unpurchased portion of the Senior Discount Notes
surrendered, if any; provided that each such new Senior Discount Note will be
in a principal amount at maturity of $1,000 or an integral multiple thereof.
The Issuer will publicly announce the results of the Public Common Stock
Offering Offer on or as soon as practicable after the Public Common Stock
Offering Payment Date.
The Indenture will provide that the Issuer will fix the Public
Common Stock Offering Payment Date no earlier than 30 but no more than 60 days
after the Public Common Stock Offering Offer is mailed as set forth above.
Prior to complying with the provisions of the preceding sentence, but in any
event within 60 days following a Public Common Stock Offering, the Issuer will
either repay all outstanding Indebtedness of the Issuer or any of its
Subsidiaries that restricts the ability of the Issuer to repurchase, or obtain
funds to repurchase, the Senior Discount Notes or obtain the requisite
consents, if any, under all agreements governing all such outstanding
Indebtedness to permit the repurchase, or the obtaining of funds for the
repurchase, of the Senior Discount Notes required by this covenant. The Credit
Facility contains provisions that currently prohibit the use of the proceeds
of a Public Common Stock Offering to repurchase Senior Discount Notes. In the
event of a Public Common Stock Offering, the Company will be required to
obtain an amendment or waiver to the Credit Facility in order to satisfy its
obligations to purchase Senior Discount Notes with the net cash proceeds of a
Public Common Stock Offering. No assurance can be given that the Issuer will
be able to obtain any such amendment or waiver with respect to a Public Common
Stock Offering. The Issuer's failure to make a Public Common Stock Offering
Offer when required or to purchase tendered Senior Discount Notes when tendered
would constitute an Event of Default under the Indenture. See "Risk Factors."
The Public Common Stock Offering provisions described above
will be applicable whether or not any other provisions of the Indenture are
applicable and shall apply to each Public Common Stock Offering occurring
during the three-year period ending on August 15, 2001.
Change of Control
Upon the occurrence of a Change of Control, each Holder of
Senior Discount Notes will have the right to require the Issuer to repurchase
all or any part (equal to $1,000 principal amount at maturity or an integral
multiple thereof) of such Holder's Senior Discount Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash
equal to 101% of the Accreted Value thereof, in the case of any such purchase
prior to August 15, 2003, or 101% of the aggregate principal amount at
maturity thereof, in the case of any such purchase on or after August 15,
2003, in each case plus accrued and unpaid interest, if any, and Liquidated
Damages, if any, thereon to the date of repurchase (the "Change of Control
Payment"). Within 65 days following any Change of Control, the Issuer will (or
will cause the Trustee to) mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Senior Discount Notes, pursuant to the procedures required by the
Indenture and described in such notice. The Issuer will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Senior Discount Notes as a
result of a Change of Control. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the Indenture
relating to such Change of Control Offer, the Issuer will comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations described in the Indenture by virtue thereof.
On the Change of Control Payment Date, the Issuer will, to the
extent lawful, (a) accept for payment all Senior Discount Notes or portions
thereof property tendered pursuant to the Change of Control Offer, (b) deposit
with the Paying Agent an amount equal to the Change of Control Payment in
respect of all Senior Discount Notes or portions thereof so tendered and (c)
deliver or cause to be delivered to the Trustee the Senior Discount Notes so
accepted together with an Officers' Certificate stating the aggregate
principal amount at maturity of Senior Discount Notes or portions thereof
being purchased by the Issuer. The Paying Agent will promptly mail to each
Holder of Senior Discount Notes so tendered the Change of Control Payment for
such Senior Discount Notes, and the Trustee will promptly authenticate and
mail (or cause to be transferred by book-entry) to each Holder a new Senior
Discount Note equal in principal amount at maturity to any unpurchased portion
of the Senior Discount Notes surrendered, if any; provided that each such new
Senior Discount Note will be in a principal amount at maturity of $1,000 or an
integral multiple thereof. The Issuer will publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.
The Indenture provides that the Issuer will fix the Change of
Control Payment Date no earlier than 30 but no more than 60 days after the
Change of Control Offer is mailed as set forth above. Prior to complying with
the provisions of the preceding sentence, but in any event within 60 days
following a Change of Control, the Issuer will either repay all outstanding
Indebtedness of the Issuer or any of its Subsidiaries that restricts the
ability of the Issuer to repurchase, or obtain funds to repurchase, the Senior
Discount Notes or obtain the requisite consents, if any, under all agreements
governing all such outstanding Indebtedness to permit the repurchase, or the
obtaining of funds for the repurchase, of the Senior Discount Notes required
by this covenant. The Credit Facility and the 10 1/4% Note Indenture
restrict Insilco from paying any dividends or making any other distributions
to the Issuer. If the Issuer does not obtain the consent of the lenders under
agreements governing outstanding Indebtedness of its Subsidiaries, including
under the Credit Facility and the 10 1/4% Note Indenture, to permit the
repurchase of the Senior Discount Notes or does not refinance such
Indebtedness, the Issuer will likely not have the financial resources to
purchase Senior Discount Notes and the Issuer's Subsidiaries will be
restricted by the terms of such Indebtedness from paying dividends to the
Issuer or otherwise lending or distributing funds to the Issuer for the
purpose of such purchase. In any event, there can be no assurance that the
Issuer's Subsidiaries will have the resources available to pay any such
dividend or make any such distribution. The Issuer's failure to make a Change
of Control Offer when required or to purchase tendered Senior Discount Notes
when tendered would constitute an Event of Default under the Indenture. See
"Risk Factors."
The Change of Control provisions described above will be
applicable whether or not any other provisions of the Indenture are
applicable. Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the Holders of the Senior
Discount Notes to require that the Issuer repurchase or redeem the Senior
Discount Notes in the event of a takeover, recapitalization or similar
transaction.
The Issuer will not be required to make a Change of Control
Offer upon a Change of Control if a third party makes the Change of Control
Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in the Indenture applicable to a Change of Control
Offer made by the Issuer and purchases all Senior Discount Notes validly
tendered and not withdrawn under such Change of Control Offer.
"Change of Control" means the occurrence of any of the
following: (a) the sale, lease, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Issuer and its
Subsidiaries, taken as a whole, to any "person" or "group" (as such terms are
used in Section 13(d) of the Exchange Act), other than the Principals and
their Related Parties; (b) the adoption of a plan for the liquidation or
dissolution of the Issuer, (c) the consummation of any transaction (including,
without limitation, any merger or consolidation) the result of which is that
any "person" or "group" (as such terms are used in Section 13(d) of the
Exchange Act), other than the Principals and their Related Parties, becomes
the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5
under the Exchange Act), directly or indirectly through one or more
intermediaries, of 50% or more of the voting power of the outstanding voting
stock of the Issuer; or (d) the first day on which a majority of the members
of the Board of Directors of the Issuer are not Continuing Directors.
The definition of Change of Control includes a phrase relating
to the sale, lease, transfer, conveyance or other disposition of "all or
substantially all" of the assets of the Issuer and its Subsidiaries taken as a
whole. Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a Holder of Senior Discount
Notes to require the Issuer to repurchase such Senior Discount Notes as a
result of a sale, lease, transfer, conveyance or other disposition of less
than all of the assets of the Issuer and its Subsidiaries taken as a whole to
another Person or group may be uncertain.
"Continuing Directors" means, as of any date of determination,
any member of the Board of Directors of the Issuer who (a) was a member of
such Board of Directors immediately after consummation of the Merger or (b)
was nominated for election or elected to such Board of Directors with the
approval of, or whose election to the Board of Directors was ratified by, at
least a majority of the Continuing Directors who were members of such Board of
Directors at the time of such nomination or election.
Asset Sales
The Indenture provides that the Issuer will not, and will not
permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless
(a) the Issuer or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (b) at least 75% of the
consideration therefor received by the Issuer or such Restricted Subsidiary is
in the form of (i) cash or Cash Equivalents or (ii) property or assets that
are used or useful in a Permitted Business, or the Capital Stock of any Person
engaged in a Permitted Business if, as a result of the acquisition by the
Issuer or any Restricted Subsidiary thereof, such Person becomes a Restricted
Subsidiary; provided that the amount of (x) any liabilities (as shown on the
Issuer's or such Restricted Subsidiary's most recent balance sheet), of the
Issuer or any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Senior Discount Notes
or any guarantee thereof) that are assumed by the transferee of any such
assets pursuant to a customary novation agreement that releases the Issuer or
such Restricted Subsidiary from further liability, (y) any securities, notes
or other obligations received by the Issuer or any such Restricted Subsidiary
from such transferee that are contemporaneously (subject to ordinary
settlement periods) converted by the Issuer or such Restricted Subsidiary into
cash or Cash Equivalents (to the extent of the cash or Cash Equivalents
received), and (z) any Designated Noncash Consideration received by the Issuer
or any of its Restricted Subsidiaries in such Asset Sale having an aggregate
fair market value, taken together with all other Designated Noncash
Consideration received pursuant to this clause (z) that is at that time
outstanding, not to exceed 15% of Total Assets at the time of the receipt of
such Designated Noncash Consideration (with the fair market value of each item
of Designated Noncash Consideration being measured at the time received and
without giving effect to subsequent changes in value), shall be deemed to be
cash for purposes of this provision; and provided further that the 75%
limitation referred to in clause (b) above will not apply to any Asset Sale
in which the after-tax cash or Cash Equivalents portion of the consideration
received therefrom, determined in accordance with the foregoing proviso, is
equal to or greater than what the after-tax cash or cash equivalent portion of
the consideration would have been had such Asset Sale complied with the
aforementioned 75% limitation.
Within 365 days after the receipt of any Net Proceeds from an
Asset Sale, the Issuer or any such Restricted Subsidiary shall apply such Net
Proceeds, at its option, to (a) repay or purchase Pari Passu Indebtedness of
the Issuer or any Indebtedness of any Restricted Subsidiary, provided that, if
the Issuer shall so repay or purchase Pari Passu Indebtedness of the Issuer,
it will equally and ratably reduce Indebtedness under the Senior Discount
Notes if the Senior Discount Notes are then redeemable, or, if the Senior
Discount Notes may not then be redeemed, the Issuer shall make an offer (in
accordance with the procedures set forth below for an Asset Sale Offer) to all
Holders of Senior Discount Notes to purchase at a purchase price equal to 100%
of the principal amount at maturity of the Senior Discount Notes (or, in the
case of purchases of Senior Discount Notes prior to August 15, 2003, at a
purchase price equal to 100% of the Accreted Value thereof), plus accrued and
unpaid interest and Liquidated Damages, if any, thereon as of the date of
purchase of the Senior Discount Notes that would otherwise be redeemed, or (b)
make an investment in property, make a capital expenditure or acquire assets
that are used or useful in a Permitted Business, or Capital Stock of any
Person primarily engaged in a Permitted Business if (i) as a result of the
acquisition by the Issuer or any Restricted Subsidiary thereof, such Person
becomes a Restricted Subsidiary or (ii) the Investment in such Capital Stock is
permitted by clause (f) of the definition of Permitted Investments. Pending
the final application of any such Net Proceeds, the Issuer may temporarily
reduce Indebtedness or otherwise invest such Net Proceeds in any manner that
is not prohibited by the Indenture. Any Net Proceeds from Asset Sales that are
not applied or invested as provided in the first sentence of this paragraph
will be deemed to constitute "Excess Proceeds." When the aggregate amount of
Excess Proceeds exceeds $15.0 million, the Issuer will be required to make an
offer to all Holders of Senior Discount Notes (an "Asset Sale Offer") to
purchase the maximum principal amount at maturity of Senior Discount Notes that
may be purchased out of the Excess Proceeds, at an offer price in cash in an
amount equal to 100% of the principal amount at maturity thereof, plus accrued
and unpaid interest and Liquidated Damages, if any, thereon to the date of
purchase (or, in the case of repurchases of Senior Discount Notes prior to
August 15, 2003, at a purchase price equal to 100% of the Accreted Value, plus
Liquidated Damages, if any, thereon as of the date of repurchase), in
accordance with the procedures set forth in the Indenture. To the extent that
any Excess Proceeds remain after consummation of an Asset Sale Offer, the
Issuer may use such Excess Proceeds for any purpose not otherwise prohibited
by the Indenture. If the aggregate principal amount at maturity or Accreted
Value (as applicable) of Senior Discount Notes surrendered by Holders thereof
in connection with an Asset Sale Offer exceeds the amount of Excess Proceeds,
the Trustee shall select the Senior Discount Notes to be purchased as set
forth under "--Selection and Notice." Upon completion of such offer to
purchase, the amount of Excess Proceeds shall be reset at zero.
The Issuer will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in
connection with the repurchase of the Senior Discount Notes pursuant to an
Asset Sale Offer. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the Indenture relating to such
Asset Sale Offer, the Issuer will comply with the applicable securities laws
and regulations and shall not be deemed to have breached its obligations
described in the Indenture by virtue thereof.
The Credit Facility and the 10 1/4% Note Indenture restrict
Insilco from paying any dividends or making any other distributions to the
Issuer to permit the Issuer to make an Asset Sale Offer. If the Issuer does
not obtain the consent of the lenders under agreements governing outstanding
Indebtedness of its Subsidiaries, including under the Credit Facility and the
10 1/4% Note Indenture, to permit the repurchase of the Senior Discount
Notes or does not refinance such Indebtedness, the Issuer will likely not have
the financial resources to purchase Senior Discount Notes and the Issuer's
Subsidiaries will be restricted by the terms of such Indebtedness from paying
dividends to the Issuer or otherwise lending or distributing funds to the
Issuer for the purpose of such purchase. In any event, there can be no
assurance that the Issuer's Subsidiaries will have the resources available to
pay any such dividend or make any such distribution. The Issuer's failure to
make an Asset Sale Offer when required or to purchase tendered Senior Discount
Notes when tendered would constitute an Event of Default under the Indenture.
See "Risk Factors."
Certain Covenants
Restricted Payments
The Indenture provides that the Issuer will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, (a)
declare or pay any dividend or make any other payment or distribution on account
of the Issuer's or any of its Restricted Subsidiaries' Equity Interests (other
than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Issuer or dividends or distributions payable to the
Issuer or any Wholly Owned Restricted Subsidiary of the Issuer); (b) purchase,
redeem or otherwise acquire or retire for value any Equity Interests of the
Issuer, any of its Restricted Subsidiaries or any other Affiliate of the Issuer
(other than any such Equity Interests owned by the Issuer or any Restricted
Subsidiary of the Issuer); (c) make any principal payment on or with respect to,
or purchase, redeem, defease or otherwise acquire or retire for value, any
Indebtedness of the Issuer (other than the Senior Discount Notes and
Indebtedness in respect of the Credit Facility) that is pari passu or
subordinated in right of payment to the Senior Discount Notes, except in
accordance with the mandatory redemption or repayment provisions set forth in
the original documentation governing such Indebtedness or in accordance with the
covenant described under the caption entitled "--Repurchase at the Option of
Holders--Asset Sales" (but not pursuant to any other mandatory offer to
repurchase upon the occurrence of any event); or (d) make any Restricted
Investment (all such payments and other actions set forth in clauses (a) through
(d) above being collectively referred to as "Restricted Payments"), unless, at
the time of and after giving effect to such Restricted Payment:
(i) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(ii) the Issuer would, immediately after giving pro forma effect
thereto as if such Restricted Payment had been made at the beginning of the
applicable four-quarter period, have been permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described under caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock"; and
(iii) such Restricted Payment, together with the aggregate amount
of all other Restricted Payments made by the Issuer and its Restricted
Subsidiaries after the Issue Date (excluding Restricted Payments permitted by
clauses (a) (to the extent that the declaration of any dividend referred to
therein reduces amounts available for Restricted Payments pursuant to this
clause (iii)), (b), (c), (e) through (h), (j), (k), and (m) through (o) and (q)
of the next succeeding paragraph), is less than the sum, without duplication, of
(A) 50% of the Adjusted Consolidated Net Income of the Issuer for the period
(taken as one accounting period) commencing October 1, 1998 to the end of the
Issuer's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if such
Adjusted Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus (B) 100% of the Qualified Proceeds received by the Issuer on or
after the Issue Date from contributions to the Issuer's capital or from the
issue or sale on or after the Issue Date of Equity Interests of the Issuer or of
Disqualified Stock or convertible debt securities of the Issuer to the extent
that they have been converted into such Equity Interests (other than Equity
Interests, Disqualified Stock or convertible debt securities sold to a
Subsidiary of the Issuer and other than Disqualified Stock or convertible debt
securities that have been converted into Disqualified Stock), plus (C) the
amount equal to the net reduction in Investments in Persons after the date of
the Indenture who are not Restricted Subsidiaries (other than Permitted
Investments) resulting from (x) Qualified Proceeds received as a dividend,
repayment of a loan or advance or other transfer of assets (valued at the fair
market value thereof) to the Issuer or any Restricted Subsidiary from such
Persons, (y) Qualified Proceeds received upon the sale or liquidation of such
Investment and (z) the redesignation of Unrestricted Subsidiaries (excluding any
increase in the amount available for Restricted Payments pursuant to clause (i)
or (m) below arising from the redesignation of such Unrestricted Subsidiary)
whose assets are used or useful in, or which is engaged in, one or more
Permitted Business as Restricted Subsidiaries (valued (proportionate to the
Issuer's equity interest in such Subsidiary) at the fair market value of the net
assets of such Subsidiary at the time of such redesignation).
The foregoing provisions will not prohibit:
(a) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the Indenture;
(b) (i) the redemption, repurchase, retirement, defeasance or
other acquisition of any pari passu Indebtedness, Subordinated Indebtedness
or Equity Interests of the Issuer (the "Retired Capital Stock") in exchange
for, or out of the net cash proceeds of the substantially concurrent sale
(other than to a Subsidiary of the Issuer) of, other Equity Interests of
the Issuer (other than any Disqualified Stock) (the "Refunding Capital
Stock"), provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement, defeasance or
other acquisition shall be excluded from clause (iii)(B) of the preceding
paragraph, and (ii) if immediately prior to the retirement of Retired
Capital Stock, the declaration and payment of dividends thereon was
permitted under clause (f) of this paragraph, the declaration and payment
of dividends on the Refunding Capital Stock in an aggregate amount per year
no greater than the aggregate amount of dividends per annum that was
declarable and payable on such Retired Capital Stock immediately prior to
such retirement; provided that, at the time of the declaration of any such
dividends, no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(c) the defeasance, redemption, repurchase, retirement or other
acquisition of Subordinated Indebtedness of the Issuer with the net cash
proceeds from an incurrence of, or in exchange for, Permitted Refinancing
Indebtedness;
(d) the repurchase, redemption or other acquisition or retirement
for value of any Equity Interests of the Issuer or Insilco held by any
member of Insilco's or the Issuer's (or any of its Restricted
Subsidiaries') management pursuant to any management equity subscription
agreement or stock option agreement, provided that (i) the aggregate price
paid for all such repurchased, redeemed, acquired or retired Equity
Interests shall not exceed (x) $7.5 million in any calendar year (with
unused amounts in any calendar year being carried over to succeeding
calendar years subject to a maximum (without giving effect to the following
clause (y)) of $15.0 million in any calendar year), plus (y) the aggregate
cash proceeds received by the Issuer during such calendar year from any
reissuance of Equity Interests by the Issuer or Insilco to members of
management of the Issuer and its Restricted Subsidiaries and (ii) no
Default or Event of Default shall have occurred and be continuing
immediately after such transaction;
(e) payments and transactions in connection with the
Recapitalization and the application of the proceeds thereof, and the
payment of fees and expenses with respect thereto;
(f) the declaration and payment of dividends to holders of any
class or series of preferred stock (other than Disqualified Stock),
provided that, at the time of such issuance, after giving effect to such
issuance on a pro forma basis, the Fixed Charge Coverage Ratio for the
Issuer for the most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date
of such issuance would have been no less than 1.5 to 1;
(g) the payment of dividends by a Restricted Subsidiary on any
class of common stock of such Restricted Subsidiary if (i) such dividend is
paid pro rata to all holders of such class of common stock and (ii) at
least 51% of such class of common stock is held by the Issuer or one or
more of its Restricted Subsidiaries;
(h) the repurchase of any class of common stock of a Restricted
Subsidiary if (i) such repurchase is made pro rata with respect to such
class of common stock and (ii) at least 51% of such class of common stock
is held by the Issuer or one or more of its Restricted Subsidiaries;
(i) any other Restricted Investment made in a Permitted Business
which, together with all other Restricted Investments made pursuant to this
clause (i) since the date of the Indenture, does not exceed $25.0 million
(in each case, after giving effect to all subsequent reductions in the
amount of any Restricted Investment made pursuant to this clause (i),
either as a result of (A) the repayment or disposition thereof for cash or
(B) the redesignation of an Unrestricted Subsidiary as a Restricted
Subsidiary (valued proportionate to the Issuer's equity interest in such
Subsidiary at the time of such redesignation at the fair market value of
the net assets of such Subsidiary at the time of such redesignation), in
the case of clause (A) and (B), not to exceed the amount of such Restricted
Investment previously made pursuant to this clause (i)); provided that no
Default or Event of Default shall have occurred and be continuing
immediately after making such Restricted Investment;
(j) the declaration and payment of dividends to holders of any
class or series of Disqualified Stock of the Issuer or any Restricted
Subsidiary issued on or after the date of the Indenture in accordance with
the covenant described under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock"; provided that no Default or Event of Default
shall have occurred and be continuing immediately after making such
Restricted Payment;
(k) repurchases of Equity Interests deemed to occur upon exercise
of stock options if such Equity Interests represent a portion of the
exercise price of such options;
(l) the payment of dividends on the Issuer's or Insilco's common
stock, following the first public offering of the Issuer's or Insilco's
common stock after the date of the Indenture, of up to 6.0% per annum of
the net proceeds received by the Issuer or Insilco from such public
offering of its common stock, other than, in each case, with respect to
public offerings with respect to the Issuer's or Insilco's common stock
registered on Form S-8; provided that no Default or Event of Default shall
have occurred and be continuing immediately after any such payment of
dividends;
(m) any other Restricted Payment which, together with all other
Restricted Payments made pursuant to this clause (m) since the date of the
Indenture, does not exceed $25.0 million (in each case, after giving effect
to all subsequent reductions in the amount of any Restricted Investment
made pursuant to this clause (m) either as a result of (i) the repayment or
disposition thereof for cash or (ii) the redesignation of an Unrestricted
Subsidiary as a Restricted Subsidiary (valued proportionate to the Issuer's
equity interest in such Subsidiary at the time of such redesignation at the
fair market value of the net assets of such Subsidiary at the time of such
redesignation), in the case of clause (i) and (ii), not to exceed the
amount of such Restricted Investment previously made pursuant to this
clause (m)) provided that no Default or Event of Default shall have
occurred and be continuing immediately after making such Restricted
Payment;
(n) the pledge by the Issuer of the Capital Stock of an
Unrestricted Subsidiary of the Issuer to secure Non-Recourse Debt of such
Unrestricted Subsidiary;
(o) the purchase, redemption or other acquisition or retirement
for value of any Equity Interests of any Restricted Subsidiary issued after
the date of the Indenture, provided that the aggregate price paid for any
such repurchased, redeemed, acquired or retired Equity Interests shall not
exceed the sum of (i) the amount of cash and Cash Equivalents received by
such Restricted Subsidiary from the issue or sale thereof and (ii) any
accrued dividends thereon the payment of which would be permitted pursuant
to clause (j) above;
(p) any Investment in an Unrestricted Subsidiary that is funded
by Qualified Proceeds received by the Issuer on or after the date of the
Indenture from contributions to the Issuer's capital or from the issue and
sale on or after the date of the Indenture of Equity Interests of the
Issuer or of Disqualified Stock or convertible debt securities to the
extent they have been converted into such Equity Interests (other than
Equity Interests, Disqualified Stock or convertible debt securities sold to
a Subsidiary of the Issuer and other than Disqualified Stock or convertible
debt securities that have been converted into Disqualified Stock) in an
amount (measured at the time such Investment is made and without giving
effect to subsequent changes in value) that does not exceed the amount of
such Qualified Proceeds; and
(q) distributions or payments of Receivables Fees.
The Board of Directors may designate any Restricted Subsidiary
(other than Insilco) to be an Unrestricted Subsidiary if such designation
would not cause a Default. For purposes of making such designation, all
outstanding Investments by the Issuer and its Restricted Subsidiaries (except
to the extent repaid in cash) in the Subsidiary so designated will be deemed
to be Restricted Payments at the time of such designation and will reduce the
amount available for Restricted Payments under the first paragraph of this
covenant. All such outstanding Investments will be deemed to constitute
Restricted Investments in an amount equal to the greater of (i) the net book
value of such Investments at the time of such designation and (ii) the fair
market value of such Investments at the time of such designation. Such
designation will only be permitted if such Restricted Investment would be
permitted at such time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.
The amount of (i) all Restricted Payments (other than cash)
shall be the fair market value on the date of the Restricted Payment of the
asset(s) or securities proposed to be transferred or issued by the Issuer or
such Restricted Subsidiary, as the case may be, pursuant to the Restricted
Payment and (ii) Qualified Proceeds (other than cash) shall be the fair market
value on the date of receipt thereof by the Issuer of such Qualified Proceeds.
The fair market value of any non-cash Restricted Payment in excess of $1.0
million shall be determined by the Board of Directors whose resolution with
respect thereto shall be delivered to the Trustee. Not later than the date of
making any Restricted Payment that exceeds $2.0 million, the Issuer shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "Restricted Payments" were computed.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that (a) the Issuer will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable, contingently or otherwise, with respect to (collectively,
"incur") any Indebtedness (including Acquired Indebtedness), (b) the Issuer
will not, and will not permit any of its Restricted Subsidiaries to, issue any
shares of Disqualified Stock and (c) the Issuer will not permit any of its
Restricted Subsidiaries to issue any shares of preferred stock; provided that
the Issuer or any Restricted Subsidiary may incur Indebtedness (including
Acquired Indebtedness) or issue shares of Disqualified Stock if the Fixed
Charge Coverage Ratio for the Issuer's most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date on which such additional Indebtedness is incurred or such
Disqualified Stock is issued would have been at least 1.5 to 1, determined on
a consolidated pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or
the Disqualified Stock had been issued, as the case may be, at the beginning
of such four-quarter period.
The Indenture also provides that the Issuer will not incur any
Indebtedness that is contractually subordinated in right of payment to any
other Indebtedness of the Issuer unless such Indebtedness is also
contractually subordinated in right of payment to the Senior Discount Notes on
substantially identical terms; provided that no Indebtedness of the Issuer
shall be deemed to be contractually subordinated in right of payment to any
other Indebtedness of the Issuer solely by virtue of being unsecured.
The provisions of the first paragraph of this covenant will not
apply to the incurrence of any of the following items of Indebtedness
(collectively, "Permitted Indebtedness"):
(i) the incurrence by the Issuer or any of its Restricted
Subsidiaries of Indebtedness under the Credit Facility; provided that the
aggregate principal amount of all Indebtedness (with letters of credit
being deemed to have a principal amount equal to the maximum potential
liability of the Issuer and such Restricted Subsidiaries thereunder) then
classified as having been incurred in reliance upon this clause (i) that
remains outstanding under the Credit Facility (together with any
outstanding Indebtedness then classified as Permitted Refinancing
Indebtedness to the extent the proceeds of which were used to refinance any
Indebtedness classified at the time of such refinancing as (x) having been
incurred in reliance upon this clause (i) or (y) Permitted Refinancing
Indebtedness described in the preceding clause (x) or this clause (y))
after giving effect to such incurrence does not exceed an amount equal to
$250.0 million (it being understood that the use of the defined term
Permitted Refinancing Indebtedness in this clause (i) does not affect the
defined term "Credit Facility" or the types of indebtedness that may be
incurred thereunder);
(ii) the incurrence by the Issuer and its Restricted Subsidiaries
of Existing Indebtedness;
(iii) the incurrence by the Issuer of Indebtedness represented by
the Senior Discount Notes and the Indenture;
(iv) the incurrence by the Issuer or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Expenditure
Indebtedness, Capital Lease Obligations or purchase money obligations, in
each case, incurred for the purpose of financing all or any part of the
purchase price or cost of construction or improvement of property, plant or
equipment used in the business of the Issuer or such Restricted Subsidiary,
in an aggregate principal amount (or accreted value, as applicable),
including any Permitted Refinancing Indebtedness incurred to refund,
refinance or replace any such Indebtedness, not to exceed $40.0 million
outstanding after giving effect to such incurrence;
(v) Indebtedness arising from agreements of the Issuer or any
Restricted Subsidiary providing for indemnification, adjustment of purchase
price or similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or a Subsidiary,
other than guarantees of Indebtedness incurred by any Person acquiring all
or any portion of such business, assets or Restricted Subsidiary for the
purpose of financing such acquisition; provided that (A) such Indebtedness
is not reflected on the balance sheet of the Issuer or any Restricted
Subsidiary (contingent obligations referred to in a footnote or footnotes
to financial statements and not otherwise reflected on the balance sheet
will not be deemed to be reflected on such balance sheet for purposes of
this clause (A)) and (B) the maximum assumable liability in respect of such
Indebtedness shall at no time exceed the gross proceeds including non-cash
proceeds (the fair market value of such non-cash proceeds being measured at
the time received and without giving effect to any subsequent changes in
value) actually received by the Issuer and/or such Restricted Subsidiary in
connection with such disposition;
(vi) the incurrence by the Issuer or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance or replace Indebtedness
(other than intercompany Indebtedness) that was permitted by the Indenture
to be incurred;
(vii) the incurrence by the Issuer or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Issuer
and/or any of its Restricted Subsidiaries; provided that (i) if the Issuer
is the obligor on such Indebtedness and such Indebtedness is owed to a
Subsidiary other than Insilco or a Subsidiary of Insilco, such Indebtedness
is expressly subordinated to the prior payment in full in cash of all
Obligations with respect to the Senior Discount Notes and (ii)(A) any
subsequent issuance or transfer of Equity Interests that results in any
such Indebtedness being held by a Person other than the Issuer or a
Restricted Subsidiary thereof and (B) any sale or other transfer of any
such Indebtedness to a Person that is not either the Issuer or a Restricted
Subsidiary thereof shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Issuer or such Restricted
Subsidiary, as the case may be, that was not permitted by this clause
(vii);
(viii) the incurrence by the Issuer or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of
fixing or hedging (A) interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of this Indenture to be
outstanding and (B) exchange rate risk with respect to agreements or
Indebtedness of such Person payable denominated in a currency other than
U.S. dollars, provided that such agreements do not increase the
Indebtedness of the obligor outstanding at any time other than as a result
of fluctuations in foreign currency exchange rates or interest rates or by
reason of fees, indemnities and compensation payable thereunder;
(ix) the guarantee by the Issuer or any of its Restricted
Subsidiaries of Indebtedness of the Issuer or a Restricted Subsidiary of
the Issuer that was permitted to be incurred by another provision of this
covenant;
(x) the incurrence by the Issuer or any of its Restricted
Subsidiaries of Acquired Indebtedness in an aggregate principal amount (or
accreted value, as applicable), including any Permitted Indebtedness
incurred to refund, refinance or replace any such Indebtedness, not to
exceed $25.0 million outstanding after giving effect to such incurrence;
(xi) obligations in respect of performance and surety bonds and
completion guarantees provided by the Issuer or any Restricted Subsidiary
in the ordinary course of business;
(xii) the incurrence by the Issuer or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal amount
(or accreted value, as applicable) outstanding after giving effect to such
incurrence, including all Permitted Refinancing Indebtedness incurred to
refund, refinance or replace any Indebtedness incurred pursuant to this
clause (xii), not to exceed $50.0 million; and
(xiii) any Indebtedness or other liabilities in connection with
obligations to pay premiums for corporate life insurance policies in an
aggregate amount not to exceed the aggregate cash value of such policies.
For purposes of determining compliance with this covenant, in
the event that an item of Indebtedness meets the criteria of more than one of
the categories of Permitted Indebtedness described in clauses (i) through
(xiii) above or is entitled to be incurred pursuant to the first paragraph of
this covenant, the Issuer shall, in its sole discretion, classify such item of
Indebtedness in any manner that complies with this covenant and such item of
Indebtedness will be treated as having been incurred pursuant to only one of
such clauses or pursuant to the first paragraph hereof. In addition, the
Issuer may, at any time, change the classification of an item of Indebtedness
(or any portion thereof) to any other clause or to the first paragraph hereof,
provided that the Issuer would be permitted to incur such item of Indebtedness
(or such portion thereof) pursuant to such other clause or the first paragraph
hereof, as the case may be, at such time of reclassification. Accrual of
interest, accretion or amortization of original issue discount will not be
deemed to be an incurrence of Indebtedness for purposes of this covenant. In
addition, in the event the Issuer repays, redeems or otherwise retires any
Indebtedness portions of which are then classified as having been incurred
under more than one of the categories of Permitted Indebtedness described
above or pursuant to the first paragraph of this covenant and any category of
Permitted Indebtedness, the Issuer shall, in its sole discretion, designate
which portions of such Indebtedness were retired.
Indebtedness under the Credit Facility outstanding on the date
on which Senior Discount Notes were first issued and authenticated was not
incurred on such date in reliance on clause (i) of the definition of
"Permitted Indebtedness." As a result, the Issuer will be permitted to incur
significant additional secured indebtedness under clause (i) of the definition
of "Permitted Indebtedness." See "Risk Factors."
Liens
The Indenture provides that the Issuer will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create,
incur, assume or suffer to exist any Lien, other than a Permitted Lien, that
secures obligations under any Pari Passu Indebtedness or Subordinated
Indebtedness of the Issuer on any asset or property now owned or hereafter
acquired by the Issuer or any of its Restricted Subsidiaries, or any income or
profits therefrom or assign or convey any right to receive income therefrom,
unless the Senior Discount Notes are equally and ratably secured with the
obligations so secured until such time as such obligations are no longer
secured by a Lien.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Indenture provides that the Issuer will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create
or otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to (a)(i) pay
dividends or make any other distributions to the Issuer or any of its
Restricted Subsidiaries (A) on its Capital Stock or (B) with respect to any
other interest or participation in, or measured by, its profits, or (ii) pay
any Indebtedness owed to the Issuer or any of its Restricted Subsidiaries, (b)
make loans or advances to the Issuer or any of its Restricted Subsidiaries or
(c) transfer any of its properties or assets to the Issuer or any of its
Restricted Subsidiaries. However, the foregoing restrictions will not apply to
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the date of the Indenture, (b) the terms of any
Indebtedness or Disqualified Stock permitted by the Indenture to be incurred
by any Restricted Subsidiary of the Issuer, (c) the Indenture and the Senior
Discount Notes, (d) the Credit Facility, (e) applicable law and any applicable
rule, regulation or order, (f) any agreement or instrument of a Person
acquired by the Issuer or any of its Restricted Subsidiaries as in effect at
the time of such acquisition (except to the extent created in contemplation of
such acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person, or
the property or assets of the Person, so acquired, provided that, in the case
of Indebtedness, such Indebtedness was permitted by the terms of the Indenture
to be incurred, (g) customary non-assignment provisions in leases entered into
in the ordinary course of business and consistent with past practices, (h)
purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (f) above
on the property so acquired, (i) contracts for the sale of assets, including,
without limitation, customary restrictions with respect to a Subsidiary
pursuant to an agreement that has been entered into for the sale or disposition
of all or substantially all of the Capital Stock or assets of such Subsidiary,
(j) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing Indebtedness
are, in the good faith judgment of the Issuer's Board of Directors, not
materially less favorable, taken as a whole, to the Holders of the Senior
Discount Notes than those contained in the agreements governing the
Indebtedness being refinanced, (k) secured Indebtedness otherwise permitted to
be incurred pursuant to the covenants described under "--Incurrence of
Indebtedness and Issuance of Preferred Stock" and "--Liens" that limit the
right of the debtor to dispose of the assets securing such Indebtedness, (l)
restrictions on cash or other deposits or net worth imposed by customers under
contracts entered into in the ordinary course of business, (m) customary
provisions in joint venture agreements and other similar agreements entered
into in the ordinary course of business, and (n) restrictions created in
connection with any Receivables Facility that, in the good faith determination
of the Board of Directors of the Issuer, are necessary or advisable to effect
such Receivables Facility.
The Credit Facility and the 10 1/4% Notes significantly
restrict Insilco's ability to pay dividends or make other distributions to the
Issuer. The existence of such restrictions could have an adverse effect on the
Issuer's ability to pay interest and principal on the Senior Discount Notes.
See "Risk Factors."
Merger, Consolidation, or Sale of Assets
The Indenture provides that the Issuer may not consolidate or
merge with or into (whether or not the Issuer is the surviving corporation),
or sell, assign, transfer, convey or otherwise dispose of all or substantially
all of its properties or assets in one or more related transactions, to
another Person unless (a) the Issuer is the surviving corporation or the
Person formed by or surviving any such consolidation or merger (if other than
the Issuer) or to which such sale, assignment, transfer, conveyance or other
disposition shall have been made is a corporation organized or existing under
the laws of the United States, any state thereof or the District of Columbia,
(b) the Person formed by or surviving any such consolidation or merger (if
other than the Issuer) or the Person to which such sale, assignment, transfer,
conveyance or other disposition shall have been made assumes all the
obligations of the Issuer under the Registration Rights Agreement, the Senior
Discount Notes and the Indenture pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee, (c) immediately after such transaction
no Default or Event of Default exists and (d) the Issuer or the Person formed
by or surviving any such consolidation or merger (if other than the Issuer),
or to which such sale, assignment, transfer, conveyance or other disposition
shall have been made (i) will, at the time of such transaction and after
giving pro forma effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant described under
the caption "--Incurrence of Indebtedness and Issuance of Preferred Stock" or
(ii) would (together with its Restricted Subsidiaries) have a higher Fixed
Charge Coverage Ratio immediately after such transaction (after giving pro
forma effect thereto as if such transaction had occurred at the beginning of
the applicable four-quarter period) than the Fixed Charge Coverage Ratio of
the Issuer and its Restricted Subsidiaries immediately prior to such
transaction. The foregoing clause (d) will not prohibit (a) a merger between
the Issuer and an Affiliate of the Issuer created for the purpose of holding
the Capital Stock of the Issuer, (b) a merger between the Issuer and a Wholly
Owned Restricted Subsidiary or (c) a merger between the Issuer and an
Affiliate incorporated solely for the purpose of reincorporating the Issuer in
another State of the United States so long as, in each case, the amount of
Indebtedness of the Issuer and its Restricted Subsidiaries is not increased
thereby. The Indenture provides that the Company shall not lease all or
substantially all of its assets to any Person.
Transactions with Affiliates
The Indenture provides that the Issuer will not, and will not
permit any of its Restricted Subsidiaries to, make any payment to, or sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate of the Issuer (each of the
foregoing, an "Affiliate Transaction"), unless (a) such Affiliate Transaction
is on terms that are no less favorable to the Issuer or such Restricted
Subsidiary than those that would have been obtained in a comparable
transaction by the Issuer or such Restricted Subsidiary with an unrelated
Person and (b) the Issuer delivers to the Trustee, with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $7.5 million, either (i) a resolution of
the Board of Directors set forth in an Officer's Certificate certifying that
such Affiliate Transaction complies with clause (a) above and that such
Affiliate Transaction has been approved by a majority of the disinterested
members of the Board of Directors or (ii) an opinion as to the fairness to the
Holders of such Affiliate Transaction from a financial point of view issued by
an accounting, appraisal or investment banking firm of national standing.
Notwithstanding the foregoing, the following items shall not be
deemed to be Affiliate Transactions: (a) customary directors' fees,
indemnification or similar arrangements or any employment agreement or other
compensation plan or arrangement entered into by the Issuer or any of its
Restricted Subsidiaries in the ordinary course of business (including ordinary
course loans to employees not to exceed (i) $5.0 million outstanding in the
aggregate at any time and (ii) $2.0 million to any one employee) and
consistent with the past practice of the Issuer or such Restricted Subsidiary;
(b) transactions between or among the Issuer and/or its Restricted
Subsidiaries; (c) payments of customary fees by the Issuer or any of its
Restricted Subsidiaries to DLJMB and its Affiliates made for any financial
advisory, financing, underwriting or placement services or in respect of other
investment banking activities, including, without limitation, in connection
with acquisitions or divestitures which are approved by a majority of the
Board of Directors in good faith; (d) any agreement as in effect on the date
of the Indenture or any amendment thereto (so long as such amendment is not
disadvantageous to the Holders of the Senior Discount Notes in any material
respect) or any transaction contemplated thereby; (e) payments and
transactions in connection with the Recapitalization (including underwriting
discounts and commissions in connection therewith) and the application of the
proceeds thereof, and the payment of the fees and expenses with respect
thereto; (f) Restricted Payments that are permitted by the provisions of the
Indenture described under the caption "--Restricted Payments" and any
Permitted Investments; (g) sales of accounts receivable, or participations
therein, in connection with any Receivables Facility and (h) any payments
pursuant to the terms of the Credit Facility.
Sale and Leaseback Transactions
The Indenture provides that the Issuer will not, and will not
permit any of its Restricted Subsidiaries to, enter into any sale and
leaseback transaction the Attributable Indebtedness in respect of which is in
excess of the aggregate sum of $20 million from the date of the Indenture;
provided that the Issuer or any Restricted Subsidiary may enter into a sale
and leaseback transaction in excess of said sum if (a) the Issuer or such
Restricted Subsidiary, as the case may be, could have (i) incurred
Indebtedness in an amount equal to the Attributable Indebtedness relating to
such sale and leaseback transaction pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant described under
the caption "--Incurrence of Indebtedness and Issuance of Preferred Stock" and
(ii) incurred a Lien to secure such Indebtedness pursuant to the covenant
described under the caption "--Liens," (b) for any transaction involving in
excess of $2 million, the gross cash proceeds of such sale and leaseback
transaction are at least equal to the fair market value (as determined in good
faith by the Board of Directors and set forth in an Officers' Certificate
delivered to the Trustee) of the property that is the subject of such sale and
leaseback transaction and (c) the transfer of assets in such sale and
leaseback transaction is permitted by, and the Issuer applies the proceeds of
such transaction in compliance with, the covenant described under the caption
"--Asset Sales."
Accounts Receivable Facility
The Indenture provides that no Accounts Receivable Subsidiary
will incur any Indebtedness if immediately after giving effect to such
incurrence the aggregate outstanding Indebtedness of all Accounts Receivable
Subsidiaries (excluding any Indebtedness owed to the Issuer or any Restricted
Subsidiary) would exceed $50.0 million.
No Waiver of Transfer Restrictions
The Indenture provides that the Issuer will not modify, amend,
waive or otherwise fail to enforce the provisions of the Unit Lock-Up
Agreement.
Reports
The Indenture provides that, whether or not required by the
rules and regulations of the Securities and Exchange Commission (the
"Commission"), so long as any Senior Discount Notes are outstanding, the
Issuer will furnish to the Holders of Senior Discount Notes (a) all quarterly
and annual financial information that would be required to be contained in a
filing with the Commission on Forms 10-Q and 10-K if the Issuer were required
to file such Forms, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, with respect to the annual
information only, a report thereon by the Issuer's certified independent
accountants and (b) all current reports that would be required to be filed
with the Commission on Form 8-K if the Issuer were required to file such
reports, in each case, within the time periods specified in the Commission's
rules and regulations. In addition, following the consummation of the exchange
offer contemplated by the Registration Rights Agreement, whether or not
required by the rules and regulations of the Commission, the Issuer will file
a copy of all such information and reports with the Commission for public
availability within the time periods specified in the Commission's rules and
regulations (unless the Commission will not accept such a filing) and make
such information available to securities analysts and prospective investors
upon request. In addition, the Issuer has agreed that, for so long as any
Senior Discount Notes remain outstanding, it will furnish to the Holders and
to securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
Events of Default and Remedies
The Indenture provides that each of the following constitutes
an Event of Default: (a) default for 30 days in the payment when due of
interest on, or Liquidated Damages with respect to, the Senior Discount Notes;
(b) default in payment when due of the principal of or premium, if any, on the
Senior Discount Notes at maturity, upon redemption or otherwise; (c) failure
by the Issuer or any of its Restricted Subsidiaries for 30 days after receipt
of notice from the Trustee or Holders of at least 25% in principal amount at
maturity of the Senior Discount Notes then outstanding to comply with the
provisions described under the captions "Repurchase at the Option of Holders
- --Change of Control," "--Asset Sales;" or "Merger, Consolidation or Sale of
Assets"; (d) failure by the Issuer for 60 days after notice from the Trustee
or the Holders of at least 25% in principal amount at maturity of the Senior
Discount Notes then outstanding to comply with any of its other agreements in
the Indenture or the Senior Discount Notes; (e) default under any mortgage,
indenture or instrument under which there may be issued or by which there may
be secured or evidenced any Indebtedness for money borrowed by the Issuer or
any of its Restricted Subsidiaries (or the payment of which is guaranteed by
the Issuer or any of its Restricted Subsidiaries), whether such Indebtedness
or guarantee now exists, or is created after the date of the Indenture, which
default (i) is caused by a failure to pay Indebtedness at its stated final
maturity (after giving effect to any applicable grace period provided in such
Indebtedness) (a "Payment Default") or (ii) results in the acceleration of
such Indebtedness prior to its stated final maturity and, in each case, the
principal amount of any such Indebtedness, together with the principal amount
of any other such Indebtedness under which there has been a Payment Default or
the maturity of which has been so accelerated, aggregates $15.0 million or
more; (f) failure by the Issuer or any of its Restricted Subsidiaries to pay
final judgments aggregating in excess of $15.0 million (net of any amounts
with respect to which a reputable and creditworthy insurance company has
acknowledged liability in writing), which judgments are not paid, discharged
or stayed for a period of 60 days; and (g) certain events of bankruptcy or
insolvency with respect to the Issuer or any of its Restricted Subsidiaries
that is a Significant Subsidiary.
If any Event of Default occurs and is continuing, the Trustee
or the Holders of at least 25% in principal amount at maturity of the then
outstanding Senior Discount Notes may declare all the Senior Discount Notes to
be due and payable immediately. Notwithstanding the foregoing, in the case of
an Event of Default arising from certain events of bankruptcy or insolvency
with respect to the Issuer or any Significant Subsidiary, all outstanding
Senior Discount Notes will become due and payable without further action or
notice. Upon any acceleration of maturity of the Senior Discount Notes, all
principal of and accrued interest on (if on or after August 15, 2003) or
Accreted Value of (if prior to August 15, 2003) the Senior Discount Notes
shall be due and payable immediately. Holders of the Senior Discount Notes may
not enforce the Indenture or the Senior Discount Notes except as provided in
the Indenture.
Subject to certain limitations, Holders of a majority in
principal amount at maturity of the then outstanding Senior Discount Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Senior Discount Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding notice
is in their interest.
The Holders of a majority in aggregate principal amount at
maturity of the Senior Discount Notes then outstanding by notice to the
Trustee may on behalf of the Holders of all of the Senior Discount Notes waive
any existing Default or Event of Default and its consequences under the
Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Senior Discount Notes.
The Issuer is required to deliver to the Trustee annually a
statement regarding compliance with the Indenture, and the Issuer is required
upon becoming aware of any Default or Event of Default to deliver to the
Trustee a statement specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of
the Issuer, as such, shall have any liability for any obligations of the
Issuer under the Senior Discount Notes or the Indenture or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
Holder of Senior Discount Notes by accepting a Senior Discount Note waives and
releases all such liability. The waiver and release are part of the
consideration for issuance of the Senior Discount Notes. Such waiver may not
be effective to waive liabilities under the federal securities laws, and it
is the view of the Commission that such a waiver is against public policy.
Legal Defeasance and Covenant Defeasance
The Issuer may, at its option and at any time, elect to have
all of its obligations discharged with respect to the outstanding Senior
Discount Notes ("Legal Defeasance") except for (a) the rights of Holders of
outstanding Senior Discount Notes to receive payments in respect of the
principal of, premium, if any, and interest and Liquidated Damages, if any, on
such Senior Discount Notes when such payments are due from the trust referred
to below, (b) the Issuer's obligations with respect to the Senior Discount
Notes concerning issuing temporary Senior Discount Notes, registration of
Senior Discount Notes, mutilated, destroyed, lost or stolen Senior Discount
Notes and the maintenance of an office or agency for payment and money for
security payments held in trust, (c) the rights, powers, trusts, duties and
immunities of the Trustee, and the Issuer's obligations in connection
therewith and (d) the Legal Defeasance provisions of the Indenture. In
addition, the Issuer may, at its option and at any time, elect to have the
obligations of the Issuer released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Senior Discount Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "Events of
Default and Remedies" will no longer constitute an Event of Default with
respect to the Senior Discount Notes.
In order to exercise either Legal Defeasance or Covenant
Defeasance, (a) the Issuer must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders of the Senior Discount Notes, cash in
U.S. dollars, non-callable Government Securities, or a combination thereof, in
such amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of, premium, if
any, and interest and Liquidated Damages, if any, on the outstanding Senior
Discount Notes on the stated maturity or on the applicable redemption date,
as the case may be, and the Issuer must specify whether the Senior Discount
Notes are being defeased to maturity or to a particular redemption date, (b)
in the case of Legal Defeasance, the Issuer shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that (i) the Issuer has received from, or there has
been published by, the Internal Revenue Service a ruling or (ii) since the
date of the Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon such
opinion of counsel shall confirm that, subject to customary assumptions and
exclusions, the Holders of the outstanding Senior Discount Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Legal Defeasance had not occurred, (c) in the case of Covenant
Defeasance, the Issuer shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that, subject to customary assumptions and exclusions, the Holders of the
outstanding Senior Discount Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance and will
be subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Covenant Defeasance had
not occurred, (d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such deposit)
or, insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 123rd day after the date of
deposit, (e) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under, any material agreement
or instrument (other than the Indenture) to which the Issuer or any of its
Subsidiaries is a party or by which the Issuer or any of its Subsidiaries is
bound, (f) the Issuer must have delivered to the Trustee an opinion of counsel
to the effect that, subject to customary assumptions and exclusions, after the
123rd day following the deposit, the trust funds will not be subject to the
effect of Section 547 of the United States Bankruptcy Code or any analogous
New York State law provision or any other applicable federal or New York
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally, (g) the Issuer must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Issuer with the
intent of preferring the Holders of Senior Discount Notes over the other
creditors of the Issuer with the intent of defeating, hindering, delaying or
defrauding creditors of the Issuer or others, and (h) the Issuer must deliver
to the Trustee an Officers' Certificate and an opinion of counsel (which
opinion may be subject to customary assumptions and exclusions), each stating
that all conditions precedent provided for relating to the Legal Defeasance or
the Covenant Defeasance have been complied with.
Transfer and Exchange
A Holder may transfer or exchange Senior Discount Notes in
accordance with the Indenture. The Registrar and the Trustee may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and the Issuer may require a Holder to pay any taxes and fees
required by law or permitted by the Indenture. The Issuer is not required to
transfer or exchange any Senior Discount Note selected for redemption. Also,
the Issuer is not required to transfer or exchange any Senior Discount Note
for a period of 15 days before a selection of Senior Discount Notes to be
redeemed. The registered Holder of a Senior Discount Note will be treated as
the owner of it for all purposes.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the
Indenture and the Senior Discount Notes may be amended or supplemented with
the consent of the Holders of at least a majority in principal amount at
maturity of the Senior Discount Notes then outstanding (including, without
limitation, consents obtained in connection with a purchase of, or tender
offer or exchange offer for, Senior Discount Notes), and any existing default
or compliance with any provision of the Indenture or the Senior Discount Notes
may be waived with the consent of the Holders of a majority in principal
amount at maturity of the then outstanding Senior Discount Notes (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Senior Discount Notes).
Without the consent of each Holder affected, an amendment or
waiver may not (with respect to any Senior Discount Notes held by a
non-consenting Holder) (a) reduce the principal amount at maturity of Senior
Discount Notes whose Holders must consent to an amendment, supplement or
waiver, (b) reduce the principal of or change the fixed maturity of any Senior
Discount Note or alter the provisions with respect to the redemption of the
Senior Discount Notes (other than the provisions described under the caption
"--Repurchase at the Option of Holders") or amend or modify the calculation of
the Accreted Value so as to reduce the amount of the Accreted Value of the
Senior Discount Notes, (c) reduce the rate of or change the time for payment
of interest on any Senior Discount Note, (d) waive a Default or Event of
Default in the payment of principal of or premium, if any, or interest or
Liquidated Damages, if any, on the Senior Discount Notes (except a rescission
of acceleration of the Senior Discount Notes by the Holders of at least a
majority in aggregate principal amount at maturity of the Senior Discount
Notes and a waiver of the payment default that resulted from such
acceleration), (e) make any Senior Discount Note payable in money other than
that stated in the Senior Discount Notes, (f) make any change in the
provisions of the Indenture relating to waivers of past Defaults, (g) waive a
redemption payment with respect to any Senior Discount Note (other than the
provisions described under the caption "--Repurchase at the Option of
Holders"), (h) make any change in the foregoing amendment and waiver
provisions, (i) modify any provision of the Indenture with respect to the
priority of the Senior Discount Notes in right of payment or (j) make any
change to the right of Holders to waive an existing Default or Event of
Default or the right of Holders to receive payments of principal, premium, if
any, and interest and Liquidated Damages, if any, on the Senior Discount
Notes. Notwithstanding the foregoing, any amendment to or waiver of the
covenant described under the caption "--Repurchase at the Option of Holders
- --Change of Control" will require the consent of the Holders of at least
two-thirds in aggregate principal amount at maturity of the Senior Discount
Notes then outstanding if such amendment would materially adversely affect the
rights of Holders of Senior Discount Notes.
Notwithstanding the foregoing, without the consent of any
Holder of Senior Discount Notes, the Issuer and the Trustee may amend or
supplement the Indenture or the Senior Discount Notes to cure any ambiguity,
defect or inconsistency, to provide for uncertificated Senior Discount Notes
in addition to or in place of certificated Senior Discount Notes, to provide
for the assumption of the Issuer's obligations to Holders of Senior Discount
Notes in the case of a merger or consolidation or sale of all or substantially
all of the Issuer's assets, to make any change that would provide any
additional rights or benefits to the Holders of Senior Discount Notes or that
does not materially adversely affect the legal rights under the Indenture of
any such Holder, or to comply with requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the Trust
Indenture Act, to provide for guarantees of the Senior Discount Notes or to
provide for the issuance of additional Senior Discount Notes in accordance
with the limitations set forth in the Indenture.
Concerning the Trustee
The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Issuer, to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. The Trustee will be permitted to
engage in other transactions; however, if it acquires any conflicting interest
it must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The Holders of a majority in principal amount at maturity of
the then outstanding Senior Discount Notes will have the right to direct the
time, method and place of conducting any proceeding for exercising any remedy
available to the Trustee, subject to certain exceptions. The Indenture
provides that in case an Event of Default shall occur (which shall not be
cured), the Trustee will be required, in the exercise of its power, to use the
degree of care of a prudent man in the conduct of his own affairs. Subject to
such provisions, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any Holder of
Senior Discount Notes, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
Book-Entry; Delivery and Form
The certificates representing the Exchange Notes will be issued
in fully registered form, without coupons. Except as described below, the
Exchange Notes will be deposited with, or on behalf of, the Depository Trust
Company, New York, New York ("DTC"), and registered in the name of Cede & Co.
("Cede") as DTC's nominee, in the form of a global Exchange Note certificate
(the "Global Exchange Note").
The Global Exchange Note. The Company expects that pursuant
to procedures established by DTC (a) upon deposit of the Global Exchange Note,
DTC or its custodian will credit on its internal system interests in the Global
Exchange Notes to the accounts of persons who have accounts with DTC
("Participants") and (b) ownership of the Global Exchange Note will be shown
on, and the transfer of ownership thereof will be effected only through,
records maintained by DTC or its nominee (with respect to interests of
Participants) and the records of Participants (with respect to interests of
persons other than Participants). Ownership of beneficial interests in the
Global Exchange Note will be limited to Participants or persons who hold
interests through Participants.
So long as DTC or its nominee is the registered owner or holder
of the Exchange Notes, DTC or such nominee will be considered the sole owner
or holder of the Exchange Notes represented by the Global Exchange Note for all
purposes under the Indenture. No beneficial owner of an interest in the
Global Exchange Note will be able to transfer such interest except in
accordance with DTC's procedures, in addition to those provided for under the
Indenture with respect to the Exchange Notes.
Payments of the principal of or premium and interest on the
Global Exchange Note will be made to DTC or its nominee, as the case may be,
as the registered owner thereof. None of Holdings, the Trustee or any paying
agent under the Indenture will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Exchange Note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interest.
Holdings expects that DTC or its nominee, upon receipt of any
payment of the principal of or premium and interest on the Global Exchange
Note, will credit Participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of such Global Exchange Note as shown on the records of DTC or its nominee.
The Company also expects that payments by Participants to owners of beneficial
interests in the Global Exchange Note held through such Participants will be
governed by standing instructions and customary practice as is now the case
with securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
Participants.
Transfers between Participants in DTC will be effected in
accordance with DTC rules and will be settled in immediately available funds.
If a holder requires physical delivery of a Certificated Exchange Note for any
reason, including to sell Exchange Notes to persons in states which require
physical delivery of the Exchange Notes or to pledge such securities, such
holder must transfer its interest in the Global Exchange Note in accordance
with the normal procedures of DTC and with the procedures set forth in the
Indenture.
DTC has advised the Company that DTC will take any action
permitted to be taken by a holder of Exchange Notes (including the
presentation of Exchange Notes for exchange as described below) only at the
direction of one or more Participants to whose account at DTC interests in the
Global Exchange Note are credited and only in respect of such portion of the
aggregate principal amount of Exchange Notes as to which such Participant or
Participants has or have given such direction. However, if there is an Event
of Default under the Indenture, DTC will exchange the Global Exchange Note for
Certificated Exchange Notes, which it will distribute to its Participants.
DTC has advised the Company as follows: DTC is a limited
purpose trust company organized under the laws of the State of New York, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was
created to hold securities for its Participants and facilitate the clearance
and settlement of securities transactions between Participants through
electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations and certain other organizations. Indirect access to the DTC
system is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants").
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of interest in the Global Exchange Notes among
Participants, it is under no obligation to perform such procedures, and such
procedures may be discontinued at any time. Neither Holdings nor the Trustee
will have any responsibility for the performance by DTC or its Participants or
Indirect Participants of their respective obligations under the rules and
procedures governing their operations.
Certificated Exchange Notes. Interests in the Global Exchange
Notes will be exchangeable or transferable, as the case may be, for
Certificated Exchange Notes if (i) DTC notifies Holdings that it is unwilling
or unable to continue as depositary for such Global Exchange Notes, or DTC
ceases to be a "clearing agency" registered under the Exchange Act, and a
successor depositary is not appointed by Holdings within 90 days, or (ii) an
Event of Default has occurred and is continuing with respect to such Exchange
Notes. Upon the occurrence of any of the events described in the preceding
sentence, the Company will cause the appropriate Certificated Exchange Notes
to be delivered.
Certain Definitions
Set forth below are certain defined terms used in the
Indenture. Reference is made to the Indenture for a full disclosure of all
such terms, as well as any other capitalized terms used herein for which no
definition is provided.
"Accounts Receivable Subsidiary" means an Unrestricted
Subsidiary of the Issuer or any of its Restricted Subsidiaries to which the
Issuer or any of its Restricted Subsidiaries sells any of its accounts
receivable pursuant to a Receivables Facility.
"Accreted Value" means, as of any date of determination prior
to August 15, 2003, with respect to any Senior Discount Note, the sum of (a)
the initial offering price (which shall be calculated by discounting the
aggregate principal amount at maturity of such Senior Discount Note at a rate
of 14% per annum, compounded semi-annually on each February 15 and August 15
from August 15, 2003 to the date of issuance) of such Senior Discount Note and
(b) the portion of the excess of the principal amount at maturity of such
Senior Discount Note over such initial offering price which shall have been
accreted thereon through such date, such amount to be so accreted on a daily
basis at a rate of 14% per annum of the initial offering price of such Senior
Discount Note, compounded semi-annually on each February 15 and August 15 from
the date of issuance of the Senior Discount Notes through the date of
determination, computed on the basis of a 360-day year of twelve 30-day months.
"Acquired Indebtedness" means, with respect to any specified
Person, (a) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (b) Indebtedness secured by a Lien
encumbering an asset acquired by such specified Person at the time such asset
is acquired by such specified Person.
"Adjusted Consolidated Net Income" means, which respect to any
Person for any period, the Consolidated Net Income of such Person for such
period plus, to the extent deducted in calculating Consolidated Net Income,
100% of non-cash compensation expense for such period incurred by such Person
and its Restricted Subsidiaries related to stock options, stock appreciation
rights, phantom stock units or other Equity Interests granted to the employees
or directors of such Person and its Restricted Subsidiaries.
"Affiliate" of any specified Person means any other Person
which, directly or indirectly, controls, is controlled by or is under direct
or indirect common control with, such specified Person. For purposes of this
definition, "control," when used with respect to any Person, means the power
to direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Asset Sale" means (a) the sale, lease, conveyance, disposition
or other transfer (a "disposition") of any properties, assets or rights
(including, without limitation, by way of a sale and leaseback) (provided that
the sale, lease, conveyance or other disposition of all or substantially all
of the assets of the Issuer and its Subsidiaries taken as a whole will be
governed by the provisions of the Indenture described under the caption
"--Change of Control" and/or the provisions described under the caption
"--Merger, Consolidation or Sale of Assets" and not by the provisions of the
Asset Sale covenant), and (b) the issuance, sale or transfer by the Issuer or
any of its Restricted Subsidiaries of Equity Interests of any of the Issuer's
Restricted Subsidiaries, in the case of either clause (a) or (b), whether in a
single transaction or a series of related transactions (i) that have a fair
market value in excess of $5.0 million or (ii) for net proceeds in excess of
$5.0 million. Notwithstanding the foregoing, the following items shall not be
deemed to be Asset Sales: (a) dispositions in the ordinary course of business;
(b) a disposition of assets (including, without limitation, capital stock) by
the Issuer to a Restricted Subsidiary or by a Restricted Subsidiary to the
Issuer or to another Restricted Subsidiary; (c) a disposition of Equity
Interests by a Restricted Subsidiary to the Issuer or to another Restricted
Subsidiary; (d) the sale and leaseback of any assets within 180 days of the
acquisition thereof; (e) foreclosures on assets; (f) any exchange of like
property pursuant to Section 1031 of the Internal Revenue Code of 1986, as
amended, for use in a Permitted Business; (g) any sale of Equity Interests in,
or Indebtedness or other securities of, an Unrestricted Subsidiary; (h) a
Permitted Investment or a Restricted Payment that is permitted by the covenant
described under the caption "--Restricted Payments"; and (i) sales of accounts
receivable, or participations therein, in connection with any Receivables
Facility.
"Attributable Indebtedness" in respect of a sale and leaseback
transaction means, at the time of determination, the present value (discounted
at the rate of interest implicit in such transaction, determined in accordance
with GAAP) of the obligation of the lessee for net rental payments during the
remaining term of the lease included in such sale and leaseback transaction
(including any period for which such lease has been extended or may, at the
option of the lessor, be extended).
"Capital Expenditure Indebtedness" means Indebtedness incurred
by any Person to finance the purchase or construction or any property or
assets acquired or constructed by such Person which have a useful life of more
than one year so long as (a) the purchase or construction price for such
property or assets is included in "addition to property, plant or equipment"
in accordance with GAAP, (b) the acquisition or construction of such property
or assets is not part of any acquisition of a Person or line of business and
(c) such Indebtedness is incurred within 90 days of the acquisition or
completion of construction of such property or assets.
"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital
lease that would at such time be required to be capitalized on a balance sheet
in accordance with GAAP.
"Capital Stock" means (a) in the case of a corporation,
corporate stock, (b) in the case of an association or business entity, any and
all shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (c) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (d) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means (i) Government Securities, (ii) any
certificate of deposit maturing not more than 365 days after the date of
acquisition issued by, or demand deposit or time deposit of, an Eligible
Institution or any lender under the Credit Facility, (iii) commercial paper
maturing not more than 365 days after the date of acquisition of an issuer
(other than an Affiliate of the Issuer) with a rating, at the time as of which
any investment therein is made, of "A-3" (or higher) according to S&P or "P-2"
(or higher) according to Moody's or carrying an equivalent rating by a
nationally recognized rating agency if both of the two named rating agencies
cease publishing ratings of investments, (iv) any bankers acceptances of money
market deposit accounts issued by an Eligible Institution, (v) any fund
investing exclusively in investments of the types described in clauses (i)
through (iv) above and (vi) in the case of any Subsidiary organized or having
its principal place of business outside the United States, investments
denominated in the currency of the jurisdiction in which such Subsidiary is
organized or has its principal place of business which are similar to the
items specified in clauses (i) through (v) above (including without limitation
any deposit with a bank that is a lender to any Restricted Subsidiary).
"Consolidated Cash Flow" means, with respect to any Person for
any period, the Consolidated Net Income of such Person and its Restricted
Subsidiaries for such period plus, to the extent deducted in computing
Consolidated Net Income, (a) an amount equal to any extraordinary or
non-recurring loss plus any net loss realized in connection with an Asset Sale,
(b) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, (c) Fixed Charges of such Person for
such period, (d) depreciation, amortization (including amortization of goodwill
and other intangibles) and all other non-cash charges (excluding any such
non-cash charge to the extent that it represents an accrual of or reserve for
cash expenses in any future period or amortization of a prepaid cash expense
that was paid in a prior period) of such Person and its Restricted Subsidiaries
for such period, (e) other income or expense net as set forth on the face of
such Person's statement of operations, (f) expenses and charges of the Issuer
and Insilco related to the Recapitalization and the application of the proceeds
thereof which are paid, taken or otherwise accounted for within 120 days of the
consummation of the Mergers, (g) non-cash charges for net periodic
post-retirement benefits and (h) any non-capitalized transaction costs incurred
in connection with actual or proposed financings, acquisition or divestitures
(including, but not limited to, financing and refinancing fees and costs
incurred in connection with the Recapitalization), in each case, on a
consolidated basis and determined in accordance with GAAP. Notwithstanding the
foregoing, the provision for taxes based on the income or profits of, the Fixed
Charges of, and the depreciation and amortization and other non-cash charges of,
a Restricted Subsidiary of a Person shall be added to Consolidated Net Income to
compute Consolidated Cash Flow only to the extent (and in the same proportion)
that Net Income of such Restricted Subsidiary was included in calculating the
Consolidated Net Income of such Person.
"Consolidated Interest Expense" means, with respect to any
Person for any period, the sum of, without duplication, (a) the interest
expense of such Person and its Restricted Subsidiaries for such period (net of
interest income), on a consolidated basis, determined in accordance with GAAP
(including amortization of original issue discount, non-cash interest
payments, the interest component of all payments associated with Capital Lease
Obligations, imputed interest with respect to Attributable Debt, commissions,
discounts and other fees and charges incurred in respect of letter of credit
or bankers' acceptance financings, and net payments, if any, pursuant to
Hedging Obligations; provided that in no event shall any amortization of
deferred financing costs be included in Consolidated Interest Expense); and
(b) the consolidated capitalized interest of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued; provided, however, that
Receivables Fees shall be deemed not to constitute Consolidated Interest
Expense. Notwithstanding the foregoing, the Consolidated Interest Expense with
respect to any Restricted Subsidiary that is not a Wholly Owned Restricted
Subsidiary shall be included only to the extent (and in the same proportion)
that the net income of such Restricted Subsidiary was included in calculating
Consolidated Net Income.
"Consolidated Net Income" means, with respect to any Person for
any period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP; provided that (a) the Net Income (or loss) of any Person
that is not a Restricted Subsidiary or that is accounted for by the equity
method of accounting shall be included only to the extent of the amount of
dividends or distributions paid in cash to the referent Person or a Restricted
Subsidiary thereof, (b) the Net Income (or loss) of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded and (c) the cumulative effect of a change in
accounting principles shall be excluded.
"Credit Facility" means, collectively, the Credit Agreement
dated as of July 3, 1997, as amended pursuant to the First Amendment to Credit
Agreement dated as of August 25, 1997, and a Second Amendment to Credit
Agreement dated as of August 17, 1998, among the Company, certain of its
Subsidiaries, the financial institutions from time to time party thereto as
Lenders and Issuing Banks, DLJ Capital Funding, Inc., in its separate capacity
as syndication agent, The First National Bank of Chicago, in its separate
capacity as documentation agent, and Citicorp USA, Inc., in its separate
capacity as collateral and administrative agent for the Lenders and Issuing
Banks, and the Loan Documents (as defined therein) (or other analogous
documents entered into in connection with any refinancing thereof), in each
case as the same may from time to time be amended, renewed, supplemented or
otherwise modified at the option of the parties thereto, including any credit
agreement increasing the amount that may be borrowed under such agreement or
any successor agreement, whether or not among the same parties; and any other
credit agreement pursuant to which any of the Indebtedness, commitments,
Obligations, costs, expenses, fees, reimbursements and other indemnities
payable or owing under the Credit Facility may be refinanced, restructured,
renewed, extended, refunded or increased, as any such other agreement may from
time to time at the option of the parties thereto be amended, supplemented,
renewed or otherwise modified.
"Default" means any event that is or with the passage of time
or the giving of notice or both would be an Event of Default.
"Designated Noncash Consideration" means the fair market value
of noncash consideration received by the Issuer or one of its Restricted
Subsidiaries in connection with an Asset Sale that is so designated as
Designated Noncash Consideration pursuant to an Officer's Certificate, setting
forth the basis of such valuation, executed by the principal executive officer
and the principal financial officer of the Issuer, less the amount of cash or
Cash Equivalents received in connection with a sale of such Designated Noncash
Consideration.
"Disqualified Stock" means any Capital Stock that, by its terms
(or by the terms of any security into which it is convertible, or for which it
is exchangeable), or upon the happening of any event (other than any event
solely within the control of the issuer thereof), matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, is
exchangeable for Indebtedness (except to the extent exchangeable at the option
of such Person subject to the terms of any debt instrument to which such
Person is a party) or redeemable at the option of the holder thereof, in whole
or in part, on or prior to the date on which the Senior Discount Notes mature;
provided that any Capital Stock that would constitute Disqualified Stock
solely because the holders thereof have the right to require the Issuer to
repurchase such Capital Stock upon the occurrence of a Change of Control or an
Asset Sale shall not constitute Disqualified Stock if the terms of such
Capital Stock provide that the Issuer may not repurchase or redeem any such
Capital Stock pursuant to such provisions unless such repurchase or redemption
complies with the covenant described under the caption "--Certain Covenants
- --Restricted Payments," and provided further that, if such Capital Stock is
issued to any plan for the benefit of employees of the Issuer or its
Subsidiaries or by any such plan to such employees, such Capital Stock shall
not constitute Disqualified Stock solely because it may be required to be
repurchased by the Issuer in order to satisfy applicable statutory or
regulatory obligations.
"DLJMB" means DLJ Merchant Banking Partners II, L.P. and its
Affiliates.
"Eligible Institution" means a commercial banking institution
that has combined capital and surplus not less than $500.0 million or its
equivalent in foreign currency and having a peer group rating of B or better
(or the equivalent thereof) by Thompson Bankwatch, Inc. or having outstanding
short-term debt rated "A-3" or higher according to Standard & Poor's Ratings
Group ("S&P") or "P-2" or higher according to Moody's Investor Services, Inc.
("Moody's") or carrying an equivalent rating by a nationally recognized rating
agency if both of the two named rating agencies cease publishing ratings of
investments.
"Equity Interests" of any Person means Capital Stock and all
warrants, options or other rights to acquire Capital Stock (but excluding any
debt security that is convertible into, or exchangeable for, Capital Stock) of
any Person and any stock appreciation rights or phantom stock units granted to
employees or directors of such Person and its Restricted Subsidiaries.
"Existing Indebtedness" means Indebtedness of the Issuer and
its Restricted Subsidiaries, including Insilco and its Subsidiaries, in
existence on the date of the Indenture, other than Indebtedness under the
Credit Facility, if any, that could not have been incurred on the date of the
Indenture pursuant to the Fixed Charge Coverage Ratio set forth in the first
paragraph of the covenant described under "Incurrence of Indebtedness and
Issuance of Preferred Stock" if such covenant were applicable, until such
amounts are repaid.
"Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (a) the Consolidated Interest Expense
of such Person for such period and (b) all dividend payments on any series of
preferred stock of such Person (other than dividends payable solely in Equity
Interests that are not Disqualified Stock), in each case, on a consolidated
basis and in accordance with GAAP
"Fixed Charge Coverage Ratio" means, with respect to any Person
for any period, the ratio of the Consolidated Cash Flow of such Person for
such period (exclusive of amounts attributable to discontinued operations, as
determined in accordance with GAAP, or operations and businesses disposed of
prior to the Calculation Date (as defined)) to the Fixed Charges of such
Person for such period (exclusive of amounts attributable to discontinued
operations, as determined in accordance with GAAP, or operations and
businesses disposed of prior to the Calculation Date). In the event that the
referent Person or any of its Subsidiaries incurs, assumes, guarantees or
redeems any Indebtedness (other than revolving credit borrowings) or issues or
redeems preferred stock subsequent to the commencement of the period for which
the Fixed Charge Coverage Ratio is being calculated but prior to the date on
which the event for which the calculation of the Fixed Charge Coverage Ratio
is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall
be calculated giving pro forma effect to such incurrence, assumption,
guarantee or redemption of Indebtedness, or such issuance or redemption of
preferred stock and the application of the proceeds therefrom, as if the same
had occurred at the beginning of the applicable four-quarter reference period
and the Consolidated Interest Expense attributable to interest on any
Indebtedness computed on a pro forma basis and bearing a floating interest rate
shall be computed as if the rate in effect on the Calculation Date (taking
into account any Hedging Obligations applicable to such Indebtedness) had been
the applicable rate for the entire period. In addition, for purposes of making
the computation referred to above, acquisitions that have been made by the
Issuer or any of its Subsidiaries, including all mergers or consolidations and
any related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be deemed to have occurred on the first day of the four-quarter
reference period and Consolidated Cash Flow for such reference period shall be
calculated to include the Consolidated Cash Flow of the acquired entities on a
pro forma basis after giving effect to cost savings resulting from employee
terminations, facilities consolidations and closings, standardization of
employee benefits and compensation practices, consolidation of property,
casualty and other insurance coverage and policies, standardization of sales
and distribution methods, reductions in taxes other than income taxes and
other cost savings reasonably expected to be realized from such acquisition,
as determined in good faith by an officer of the Issuer (regardless of whether
such cost savings could then be reflected in pro forma financial statements
under GAAP, Regulation S-X promulgated by the Commission or any other
regulation or policy of the Commission) and without giving effect to clause
(c) of the proviso set forth in the definition of Consolidated Net Income.
"GAAP" means generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect on the date of the Indenture.
"guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit or reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (a) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (b) other
agreements or arrangements designed to protect such Person against
fluctuations in interest rates or foreign exchange rates.
"Indebtedness" means, with respect to any Person, any
indebtedness of such Person in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing Indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP, as well as all
Indebtedness of others secured by a Lien on any asset of such Person (whether
or not such Indebtedness is assumed by such Person) and, to the extent not
otherwise included, the guarantee by such Person of any Indebtedness of any
other Person, provided that Indebtedness shall not include the pledge by the
Issuer of the Capital Stock of an Unrestricted Subsidiary of the Issuer to
secure Non-Recourse Debt of such Unrestricted Subsidiary. The amount of any
Indebtedness outstanding as of any date shall be (a) the accreted value
thereof (together with any interest thereon that is more than 30 days past
due), in the case of any Indebtedness that does not require current payments
of interest, and (b) the principal amount thereof, in the case of any other
Indebtedness, provided that the principal amount of any Indebtedness that is
denominated in any currency other than United States dollars shall be the
amount thereof, as determined pursuant to the foregoing provision, converted
into United States dollars at the Spot Rate in effect on such date of
determination.
"Investments" means, with respect to any Person, all
investments by such Person in other Persons (including Affiliates) in the
forms of direct or indirect loans (including guarantees by the referent Person
of, and Liens on any assets of the referent Person securing, Indebtedness or
other obligations of other Persons), advances or capital contributions
(excluding commission, travel and similar advances to officers and employees
made in the ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, together
with all items that are or would be classified as investments on a balance
sheet prepared in accordance with GAAP, provided that an investment by the
Issuer for consideration consisting of common equity securities of the Issuer
shall not be deemed to be an Investment. If the Issuer or any Restricted
Subsidiary of the Issuer sells or otherwise disposes of any Equity Interests
of any direct or indirect Restricted Subsidiary of the Issuer such that, after
giving effect to any such sale or disposition, such Person is no longer a
Subsidiary of the Issuer, the Issuer shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair
market value of the Equity Interests of such Restricted Subsidiary not sold or
disposed of in an amount determined as provided in the final paragraph of the
covenant described under the caption "--Restricted Payments."
"Issue Date" means the date of issuance of the Old Notes.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of
such asset, whether or not filed, recorded or otherwise perfected under
applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell or give a security interest in and any filing of or agreement to give any
financing statement (other than a financing statement filed by a "true lessor"
pursuant to Section 9-408 of the Uniform Commercial Code) under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction).
"Mergers" means, collectively, the transactions resulting in
Insilco becoming a subsidiary of the Insilco Holding Co. and the merger of the
Issuer with and into lnsilco Holding Co. on or prior to the date of issuance
of the Old Notes.
"Net Income" means, with respect to any Person, the net income
(loss) of such Person, determined in accordance with GAAP after reduction in
respect of preferred stock dividends, excluding, however, (a) any gain (or
loss), together with any related provision for taxes on such gain (or loss),
realized in connection with (i) any Asset Sale (including, without limitation,
dispositions pursuant to sale and leaseback transactions) or (ii) the
extinguishment of any Indebtedness of such Person or any of its Restricted
Subsidiaries and (b) any extraordinary or nonrecurring gain (or loss),
together with any related provision for taxes on such extraordinary or
nonrecurring gain (or loss).
"Net Proceeds" means the aggregate cash proceeds received by the
Issuer or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of,
without duplication, (a) the direct costs relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees,
and sales commissions, recording fees, title transfer fees and appraiser fees
and cost of preparation of assets for sale) and any relocation expenses incurred
as a result thereof, (b) taxes paid or payable as a result thereof (after taking
into account any available tax credits or deductions and any tax sharing
arrangements), (c) amounts required to be applied to the repayment of
Indebtedness (other than as required by clause (a) of the second paragraph of
the covenant described above under the caption "--Repurchase at the Option of
Holders--Asset Sales") secured by a Lien on the asset or assets that were the
subject of such Asset Sale, (d) any reserve established in accordance with GAAP
or any amount placed in escrow, in either case for adjustment in respect of the
sale price of such asset or assets until such time as such reserve is reversed
or such escrow arrangement is terminated, in which case Net Proceeds shall
include only the amount of the reserve so reversed or the amount returned to the
Issuer or its Restricted Subsidiaries from such escrow arrangement, as the case
may be, and (e) all distributions and other payments made to minority interest
holders in Restricted Subsidiaries or joint ventures as a result of such Asset
Sale.
"Non-Recourse Debt" means Indebtedness (i) no default with
respect to, which (including any rights that the holders thereof may have to
take enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Issuer or any of its Restricted Subsidiaries to declare a default on such
other Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and (ii) as to which the lenders have been
notified in writing that they will not have any recourse to the stock (other
than the stock of an Unrestricted Subsidiary pledged by the Issuer to secure
debt of such Unrestricted Subsidiary) or assets of the Issuer or any of its
Restricted Subsidiaries; provided that in no event shall Indebtedness of any
Unrestricted Subsidiary fail to be Non-Recourse Debt solely as a result of any
default provisions contained in a guarantee thereof by the Issuer or any of
its Restricted Subsidiaries if the Issuer or such Restricted Subsidiary was
otherwise permitted to incur such guarantee pursuant to the Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offering of the Old Notes by the Issuer.
"Pari Passu Indebtedness" means Indebtedness of the Issuer that
ranks pari passu in right of payment to the Senior Discount Notes.
"Permitted Business" means any business in which the Issuer and
its Restricted Subsidiaries are engaged on the date of the Indenture or any
business reasonably related, incidental or ancillary thereto.
"Permitted Investments" means (a) any Investment in the Issuer or
in a Restricted Subsidiary of the Issuer, (b) any Investment in cash or Cash
Equivalents, (c) any Investment by the Issuer or any Restricted Subsidiary of
the Issuer in a Person, if as a result of such Investment (i) such Person
becomes a Restricted Subsidiary of the Issuer or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, the Issuer or a Wholly Owned
Restricted Subsidiary of the Issuer, (d) any Investment made as a result of the
receipt of non-cash consideration from an Asset Sale that was made pursuant to
and in compliance with the covenant described under the caption "--Repurchase at
the Option of Holders--Asset Sales," (e) any Investment acquired solely in
exchange for Equity Interests (other than Disqualified Stock) of the Issuer, (f)
any Investment in a Person engaged in a Permitted Business (other than an
Investment in an Unrestricted Subsidiary) having an aggregate fair market value,
taken together with all other Investments made pursuant to this clause (f) that
are at that time outstanding, not to exceed 15% of Total Assets at the time of
such Investment (with the fair market value of each Investment being measured at
the time made and without giving effect to subsequent changes in value), (g)
Investments relating to any special purpose Wholly Owned Subsidiary of the
Issuer organized in connection with a Receivables Facility that, in the good
faith determination of the Board of Directors of the Issuer, are necessary or
advisable to effect such Receivables Facility, (h) ordinary course loans to
employees not to exceed $5.0 million outstanding in the aggregate at any time,
(i) any Investment arising out of a Hedging Obligation or commodity price
agreement and (j) any Investment acquired by the Issuer or any of its Restricted
Subsidiaries (A) in exchange for any other Investment or accounts receivable
held by the Issuer or any such Restricted Subsidiary in connection with or as a
result of a bankruptcy, workout, reorganization or recapitalization of the
issuer of such other Investment or the obligor with respect to such accounts
receivable or (B) as a result of a foreclosure by the Issuer or any of its
Restricted Subsidiaries with respect to any secured Investment or other transfer
of title with respect to any secured Investment in default.
"Permitted Liens" means: (i) Liens on property of a Person
existing at the time such Person is merged into or consolidated with the Issuer
or any Restricted Subsidiary, provided that such Liens were not incurred in
contemplation of such merger or consolidation and do not secure any property or
assets of the Issuer or any Restricted Subsidiary other than the property or
assets subject to the Liens prior to such merger or consolidation; (ii) Liens
existing on the date of the Indenture; (iii) Liens securing Indebtedness
consisting of Capital Lease Obligations, purchase money Indebtedness, mortgage
financings, industrial revenue bonds or other monetary obligations, in each case
incurred solely for the purpose of financing all or any part of the purchase
price or cost of construction or installation of assets used in the business of
the Issuer or its Restricted Subsidiaries, or repairs, additions or improvements
to such assets, provided that (A) such Liens secure Indebtedness in an amount
not in excess of the original purchase price or the original cost of any such
assets or repair, addition or improvement thereto (plus an amount equal to the
reasonable fees and expenses in connection with the incurrence of such
Indebtedness), (B) such Liens do not extend to any other assets of the Issuer or
its Restricted Subsidiaries (and, in the case of repair, addition or
improvements to any such assets, such Lien extends only to the assets (and
improvements thereto or thereon) repaired, added to or improved), (C) the
Incurrence of such Indebtedness is permitted by "--Certain Covenants--Incurrence
of Indebtedness and Issuance of Preferred Stock" and (D) such Liens attach
within 365 days of such purchase, construction, installation, repair, addition
or improvement; (iv) Liens to secure any refinancings, renewals, extensions,
modification or replacements (collectively, "refinancing") (or successive
refinancings), in whole or in part, of any Indebtedness secured by Liens
referred to in the clauses above so long as such Lien does not extend to any
other property (other than improvements thereto); (v) Liens securing letters of
credit entered into in the ordinary course of business and consistent with past
business practice; (vi) Liens on and pledges of the capital stock of any
Unrestricted Subsidiary securing Non-Recourse Debt of such Unrestricted
Subsidiary; (vii) Liens securing Indebtedness (including all Obligations) under
the Credit Facility; and (viii) other Liens securing Indebtedness that is
permitted by the terms of the Indenture to be outstanding having an aggregate
principal amount at any one time outstanding not to exceed $50.0 million.
"Permitted Refinancing Indebtedness" means any Indebtedness of
the Issuer or any of its Restricted Subsidiaries issued within 60 days after
repayment of, in exchange for, or the net proceeds of which are used to
extend, refinance, renew, replace, defease or refund other Indebtedness of the
Issuer or any of its Restricted Subsidiaries; provided that (a) the principal
amount (or accreted value, if applicable) of such Permitted Refinancing
Indebtedness does not exceed the principal amount of (or accreted value, if
applicable), plus premium, if any, and accrued interest on the Indebtedness
so extended, refinanced, renewed, replaced, defeased or refunded (plus the
amount of reasonable expenses incurred in connection therewith), (b) such
Permitted Refinancing Indebtedness has a final maturity date no earlier than
the final maturity date of, and has a Weighted Average Life to Maturity equal
to or greater than the Weighted Average Life to Maturity of, the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded, and (c)
if the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded is subordinated in right of payment to the Senior Discount Notes,
such Permitted Refinancing Indebtedness is subordinated in right of payment
to, the Senior Discount Notes on terms at least as favorable, taken as a
whole, to the Holders of Senior Discount Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded.
"Principals" means DLJMB and/or CVC.
"Public Common Stock Offering" means any issuance of common
stock in an underwritten public offering by the Issuer for cash that is
registered pursuant to the Securities Act.
"Public Equity Offering" means any issuance of common stock or
preferred stock by the Issuer (other than Disqualified Stock) or Insilco
(other than to the Issuer and other than Disqualified Stock) that is
registered pursuant to the Securities Act, other than issuances registered on
Form S-8 and issuances registered on Form S-4 and excluding issuances of
common stock pursuant to employee benefit plans of the Issuer or its
Restricted Subsidiaries or otherwise as compensation to employees of the
Issuer or its Restricted Subsidiaries.
"Qualified Proceeds" means any of the following or any
combination of the following: (i) cash; (ii) Cash Equivalents; (iii) assets
that are used or useful in a Permitted Business; and (iv) the Capital Stock of
any Person engaged in a Permitted Business if, in connection with the receipt
by the Issuer or any Restricted Subsidiary of the Issuer of such Capital
Stock, (A) such Person becomes a Restricted Subsidiary of the Issuer or any
Restricted Subsidiary of the Issuer or (B) such Person is merged, consolidated
or amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Issuer or any Restricted Subsidiary of
the Issuer.
"Recapitalization" means the Mergers, the Offering, the
amendment to the Credit Facility in connection therewith and any and all
actions taken in connection with the foregoing.
"Receivables Facility" means one or more receivables financing
facilities, as amended from time to time, pursuant to which the Issuer or any
of its Restricted Subsidiaries sells its accounts receivable to an Accounts
Receivable Subsidiary.
"Receivables Fees" means distributions or payments made
directly or by means of discounts with respect to any participation interests
issued or sold in connection with, and other fees paid to a Person that is not
a Restricted Subsidiary in connection with, any Receivables Facility.
"Related Party" means, with respect to any Principal, (i) any
controlling stockholder or partner of such Principal on the date of the
Indenture, or (ii) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially holding
(directly or through one or more Subsidiaries) a 51% or more controlling
interest of which consist of the Principals and/or such other Persons referred
to in the immediately preceding clauses (i) or (ii).
"Restricted Investment" means an Investment other than a
Permitted Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"Specified Agreements" means the Investors' Agreement and the
Tax Sharing Agreement.
"Spot Rate" means, for any currency, the spot rate at which
such currency is offered for sale against United States dollars as determined
by reference to the New York foreign exchange selling rates, as published in
The Wall Street Journal on such date of determination for the immediately
preceding business day or, if such rate is not available, as determined in any
publicly available source of similar market data.
"Stated Maturity" means, with respect to any installment of
interest or principal on any series of Indebtedness, the date on which such
payment of interest or principal was scheduled to be paid in the original
documentation governing such Indebtedness, and shall not include any
contingent obligations to repay, redeem or repurchase any such interest or
principal prior to the date originally scheduled for the payment thereof.
"Subordinated Indebtedness" means all Obligations with respect
to Indebtedness if the instrument creating or evidencing the same, or pursuant
to which the same is outstanding, designates such Obligations as subordinated
or junior in right of payment to Senior Indebtedness.
"Subsidiary" means, with respect to any Person, (a) any
corporation, association or other business entity of which more than 50% of
the total voting power of shares of Capital Stock entitled (without regard to
the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (b) any partnership (i) the sole general
partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (ii) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any combination
thereof).
"Tax Sharing Agreement" means any tax sharing agreement or
arrangement between the Issuer and its Subsidiaries, as the same may be
amended from time to time; provided that in no event shall the amount
permitted to be paid pursuant to all such agreements and/or arrangements
exceed the amount the Issuer would be required to pay for income taxes were it
to file a consolidated tax return for itself and its consolidated Restricted
Subsidiaries.
"Total Assets" means the total consolidated assets of the
Issuer and its Restricted Subsidiaries, as shown on the most recent balance
sheet (excluding the footnotes thereto) of the Issuer.
"Unit Lock-Up Agreement" means the agreement dated as of August
17, 1998 among the Issuer and the DLJ Mezzanine Investors pursuant to which
the DLJ Mezzanine Investors have agreed with the Issuer not to offer, sell or
otherwise transfer any Senior Discount Notes or Warrants for a period of one
year following the date of such agreement.
"Unrestricted Subsidiary" means any Subsidiary (other than
Insilco) that is designated by the Board of Directors as an Unrestricted
Subsidiary pursuant to a board resolution, but only to the extent that such
Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b) is not
party to any agreement, contract, arrangement or understanding with the Issuer
or any Restricted Subsidiary of the Issuer unless the terms of any such
agreement, contract, arrangement or understanding are no less favorable to the
Issuer or such Restricted Subsidiary than those that might be obtained at the
time from Persons who are not Affiliates of the Issuer; (c) is a Person with
respect to which neither the Issuer nor any of its Restricted Subsidiaries has
any direct or indirect obligation (i) to subscribe for additional Equity
Interests (other than Investments described in clause (g) of the definition of
Permitted Investments) or (ii) to maintain or preserve such Person's financial
condition or to cause such Person to achieve any specified levels, of operating
results; and (d) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of the Issuer or any of its Restricted
Subsidiaries. Any such designation by the Board of Directors shall be evidenced
to the Trustee by filing with the Trustee a certified copy of the board
resolution giving effect to such designation and an Officer's Certificate
certifying that such designation complied with the foregoing conditions and was
permitted by the covenant described under the caption entitled "--Certain
Covenants--Restricted Payments." If, at any time, any Unrestricted Subsidiary
would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it
shall thereafter cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred
by a Restricted Subsidiary of the Issuer as of such date (and, if such
Indebtedness is not permitted to be incurred as of such date under the covenant
described under the caption entitled "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock," the Issuer shall be in default of
such covenant). The Board of Directors of the Issuer may at any time designate
any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Issuer of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (i) such Indebtedness
is permitted under the covenant described under the caption entitled "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock" and (ii)
no Default or Event of Default would be in existence following such designation.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the sum
of the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a
Restricted Subsidiary of such Person all the outstanding Capital Stock or
other ownership interests of which (other than directors' qualifying shares)
shall at the time be owned by such Person or by one or more Wholly Owned
Restricted Subsidiaries of such Person or by such Person and one or more
Wholly Owned Restricted Subsidiaries of such Person.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of
such Person all of the outstanding Capital Stock or other ownership interests
of which (other than directors' qualifying shares) shall at the time be owned
by such Person or by one or more Wholly Owned Subsidiaries of such Person.
DESCRIPTION OF OLD NOTES
The terms of the Exchange Notes are identical in all material
respects to the terms of the Old Notes, except that (i) the offer and sale of
the Exchange Notes have been registered under the Securities Act and therefore
the Exchange Notes are not subject to certain restrictions on transfer
applicable to the Old Notes, will not contain legends relating thereto and
will not be entitled to registration rights or other rights under the
Registration Rights Agreement, and (ii) the Exchange Notes will not provide
for any Liquidated Damages, which rights and provision will terminate as to all
of the Senior Discount Notes upon the consummation of the Exchange Offer,
subject to certain provision of the Registration Rights Agreement. In
addition, the Old Notes and the Exchange Notes will constitute a single series
of debt securities under the Indenture. See "Description of Exchange
Notes--General."
THE EXCHANGE OFFER
Pursuant to a Registration Rights Agreement between the Issuer
and the Initial Purchaser (the "Registration Rights Agreement"), the Issuer
agreed (i) to file a registration statement (the "Exchange Offer Registration
Statement") on or prior to 90 days after the closing of the Offering (the
"Closing") with respect to an offer to exchange (the "Exchange Offer") the Old
Notes for a new issue of debt securities of the Issuer (the "Exchange Notes")
registered under the Securities Act, with terms substantially identical to
those of the Old Notes and (ii) to use its reasonable best efforts to cause
the Exchange Offer Registration Statement to be declared effective by the
Securities and Exchange Commission (the "Commission") on or prior to 180 days
after the Closing. In certain circumstances, the Issuer will be required to
provide a shelf registration statement (the "Shelf Registration Statement") to
cover resales of the Senior Discount Notes by the holders thereof. The Old
Notes provide that, in the event the Issuer fails to satisfy its registration
obligations under the Registration Rights Agreement, the Issuer will be
required to pay Liquidated Damages to the holders of the Old Notes under
certain circumstances. Upon consummation of the Exchange Offer or the
effectiveness of such Shelf Registration Statement, the provision for
Liquidated Damages on the Old Notes shall cease.
The Exchange Offer is not being made to, nor will Holdings
accept tenders for exchange from, holders of Old Notes in any jurisdiction in
which the Exchange Offer or the acceptance thereof would not be in compliance
with the securities or blue sky laws of such jurisdiction.
Terms of the Exchange Offer; Period for Tendering Old Notes
Upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal (which together
constitute the Exchange Offer), Holdings will accept for exchange Old Notes
which are properly tendered on or prior to the Expiration Date and not
withdrawn as permitted below. For each $1,000 principal amount at maturity of
Old Notes surrendered to Holdings pursuant to the Exchange Offer, the holder
of such Old Note will receive an Exchange Note having a principal amount at
maturity equal to that of the surrendered Old Note. Holdings will keep the
Exchange Offer open for not less than 20 business days (or longer if required
by applicable law) after the date notice of the Exchange Offer is mailed to
the holders of the Old Notes. As used herein, the term "Expiration Date"
means 5:00 p.m., New York City time, on , 1998; provided,
however, that if Holdings, in its sole discretion, has extended the period of
time for which the Exchange Offer is open, the term "Expiration Date" means
the latest time and date to which the Exchange Offer is extended.
As of the date of this Prospectus, $138,000,000 in aggregate
principal amount at maturity of the Old Notes were outstanding. The Exchange
Offer is not conditioned upon any minimum principal amount at maturity of Old
Notes being tendered. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about the date set forth on the cover
page to all Holders of Old Notes at the addresses set forth in the security
register with respect to Old Notes maintained by the Trustee. Holdings's
obligations to accept Old Notes for exchange pursuant to the Exchange Offer
is subject to certain conditions as set forth under "Certain Conditions to the
Exchange Offer" below.
Holdings expressly reserves the right, at any time or from time
to time, to extend the period of time during which the Exchange Offer is open,
and thereby delay acceptance of any Old Notes, by giving oral or written
notice of such extension to the Exchange Agent and notice of such extension to
the Holders as described below. During any such extension, all Old Notes
previously tendered will remain subject to the Exchange Offer and may be
accepted for exchange by Holdings. Any Old Notes not accepted for exchange
for any reason will be returned without expense to the tendering Holder
thereof as promptly as practicable after the expiration or termination of the
Exchange Offer.
Holdings expressly reserves the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Old Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions of the
Exchange Offer specified below under "Certain Conditions to the Exchange
Offer." Holdings will give oral or written notice of any extension,
amendment, non-acceptance or termination to the Holders of the Old Notes as
promptly as practicable, such notice in the case of any extension to be issued
by means of a press release or other public announcement no later than 9:00
a.m., New York City Time, on the next business day after the previously
scheduled Expiration Date. Without limiting the manner in which Holdings may
choose to make any public announcement and subject to applicable law, Holdings
shall have no obligation to publish, advertise or otherwise communicate any
such public announcement other than by issuing a release to the Dow Jones News
Service.
Holders of Old Notes do not have any appraisal or dissenters'
rights in connection with the Exchange Offer. Old Notes which are not
tendered for exchange or are tendered but not accepted in connection with the
Exchange Offer will remain outstanding and be entitled to the benefits of the
Indenture, but will not be entitled to any further registration rights under
the Registration Rights Agreement. Holdings intends to conduct the Exchange
Offer in accordance with the applicable requirements of the Exchange Act and
the rules and regulations of the Commission thereunder.
Procedures for Tendering Old Notes
The tender to Holdings of Old Notes by a Holder thereof as set
forth below and the acceptance thereof by Holdings will constitute a binding
agreement between the tendering Holder and Holdings upon the terms and subject
to the conditions set forth in this Prospectus and in the accompanying Letter
of Transmittal. Except as set forth below, a Holder who wishes to tender Old
Notes for exchange pursuant to the Exchange Offer must transmit a properly
completed and duly executed Letter of Transmittal, including all other
documents required by such Letter of Transmittal, to Star Bank, N.A. (the
"Exchange Agent") at the address set forth below under "Exchange Agent" on or
prior to the Expiration Date. In addition, (i) certificates for such Old
Notes must be received by the Exchange Agent along with the Letter of
Transmittal, (ii) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Old Notes, if such procedure is available,
into the Exchange Agent's account at DTC pursuant to the procedure for
book-entry transfer described below, must be received by the Exchange Agent
prior to the Expiration Date or (iii) the Holder must comply with the
guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF OLD
NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS
RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO
HOLDINGS.
Signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, must be guaranteed unless the Old Notes
surrendered for exchange pursuant thereto are tendered (i) by a registered
Holder of the Old Notes who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the Letter of
Transmittal or (ii) for the account of an Eligible Institution (as defined
below). In the event that signatures on a Letter of Transmittal or a notice
of withdrawal, as the case may be, are required to be guaranteed, such
guarantees must be by a firm which is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or by a commercial bank or trust company having an office or
correspondent in the United States (collectively, "Eligible Institutions").
If Old Notes are registered in the name of a person other than the person
signing the Letter of Transmittal, the Old Notes surrendered for exchange must
be endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by Holdings in its
sole discretion, duly executed by the registered Holder with the signature
thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including
time of receipt) and acceptance of Old Notes tendered for exchange will be
determined by Holdings in its sole discretion, which determination shall be
final and binding. Holdings reserves the absolute right to reject any and all
tenders of any particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in the judgment of Holdings or
its counsel, be unlawful. Holdings also reserves the absolute right to waive
any defects or irregularities or conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including the
right to waive the ineligibility of any Holder who seeks to tender Old Notes
in the Exchange Offer). The interpretation of the terms and conditions of the
Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the Letter of Transmittal and the instructions
thereto) by Holdings shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with the tender of Old
Notes for exchange must be cured within such reasonable period of time as
Holdings shall determine. Neither Holdings, the Exchange Agent nor any other
person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Old Notes for exchange, nor shall
any of them incur any liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons
other than the registered Holder or Holders of Old Notes, such Old Notes must
be endorsed or accompanied by appropriate powers of attorney, in either case
signed exactly as the name or names of the registered Holder or Holders that
appear on the Old Notes.
If the Letter of Transmittal or any Old Notes or powers of
attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers or corporations or others acting in a fiduciary or
representative capacity, such person should so indicate when signing and,
unless waived by Holdings, proper evidence satisfactory to Holdings of its
authority to so act must be submitted.
By executing, or otherwise becoming bound by, the Letter of
Transmittal, each holder of the Old Notes (other than certain specified
holders) will represent that (i) it is not an affiliate of Holdings, (ii) any
Exchange Notes to be received by it were acquired in the ordinary course of
its business and (iii) it has no arrangement with any person to participate
in the distribution (within the meaning of the Securities Act) of the Exchange
Notes. If the tendering Holder is a broker-dealer that will receive Exchange
Notes for its owns account in exchange for Old Notes that were acquired as a
result of market-making activities or other trading activities, it will be
required to acknowledge that it will deliver a prospectus in connection with
any resale of such Exchange Notes. See "--Resales of the Exchange Notes."
Acceptance of Old Notes for Exchange; Delivery of Exchange Notes
Upon satisfaction or waiver of all of the conditions to the
Exchange Offer, Holdings will accept, promptly after the Expiration Date, all
Old Notes properly tendered and will issue the Exchange Notes promptly after
acceptance of the Old Notes. See "Certain Conditions to the Exchange Offer"
below. For purposes of the Exchange Offer, Holdings shall be deemed to have
accepted properly tendered Old Notes for exchange when, as and if Holdings has
given oral or written notice thereof to the Exchange Agent.
In all cases, issuance of Exchange Notes for Old Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Old Notes or a
timely Book-Entry Confirmation of such Old Notes into the Exchange Agent's
account at DTC pursuant to the book-entry transfer procedures described below, a
properly completed and duly executed Letter of Transmittal and all other
required documents. If any tendered Old Notes are not accepted for any reason
set forth in the terms and conditions of the Exchange Offer or if certificates
representing Old Notes are submitted for a greater principal amount than the
Holder desires to exchange, such unaccepted or non-exchanged Old Notes will be
returned without expense to the tendering Holder thereof (or, in the case of Old
Notes tendered by book-entry transfer into the Exchange Agent's account at DTC
pursuant to the book-entry transfer procedures described below, such
non-exchanged Old Notes will be credited to an account maintained with DTC) as
promptly as practicable after the expiration or termination of the Exchange
Offer.
Book-Entry Transfer
The Exchange Agent will make a request to establish an account
with respect to the Old Notes at DTC for purposes of the Exchange Offer
promptly after the date of this Prospectus. Any financial institution that is
a participant in DTC's systems may make book-entry delivery of Old Notes by
causing DTC to transfer such Old Notes into the Exchange Agent's account in
accordance with DTC's Automated Tender Offer Program ("ATOP") procedures for
transfer. However, the exchange for the Old Notes so tendered will only be
made after timely confirmation of such book-entry transfer of Old Notes into
the Exchange Agent's account, and timely receipt by the Exchange Agent of an
Agent's Message (as such term is defined in the next sentence) and any other
documents required by the Letter of Transmittal. The term "Agent's Message"
means a message, transmitted by DTC and received by the Exchange Agent and
forming a part of a Book-Entry Confirmation, which states that DTC has
received an express acknowledgment from a Participant tendering Old Notes that
are the subject of such Book-Entry Confirmation that such Participant has
received and agrees to be bound by the terms of the Letter of Transmittal, and
that Holdings may enforce such agreement against such Participant. Although
delivery of Old Notes may be effected through book-entry transfer into the
Exchange Agent's account at DTC, the Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees and any other required documents, must in any case be delivered to
and received by the Exchange Agent at its address set forth under "--Exchange
Agent" on or prior to the Expiration Date, or the guaranteed delivery
procedure set forth below must be complied with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES
DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
Guaranteed Delivery Procedures
If a registered Holder of the Old Notes desires to tender such
Old Notes and the Old Notes are not immediately available, or time will not
permit such Holder's Old Notes or other required documents to reach the
Exchange Agent before the Expiration Date, or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if
(i) the tender is made through an Eligible Institution, (ii) prior to the
Expiration Date, the Exchange Agent receives from such Eligible Institution a
properly completed and duly executed Letter of Transmittal (or a facsimile
thereof) and Notice of Guaranteed Delivery, substantially in the form provided
by Holdings (by telegram, telex, facsimile transmission, mail or hand
delivery), setting forth the name and address of the Holder of Old Notes and
the amount of Old Notes tendered, stating that the tender is being made
thereby and guaranteeing that within five New York Stock Exchange ("NYSE")
trading days after the date of execution of the Notice of Guaranteed Delivery,
the certificates of all physically tendered Old Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent, and (iii) the certificates for
all physically tendered Old Notes, in proper form for transfer, or a
Book-Entry Confirmation, as the case may be, and all other documents required
by the Letter of Transmittal, are received by the Exchange Agent within five
NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
Withdrawal Rights
Tenders of Old Notes may be withdrawn at any time prior to the
Expiration Date.
For a withdrawal to be effective, a written notice of
withdrawal must be received by the Exchange Agent at one of the addresses set
forth below under "Exchange Agent." Any such notice of withdrawal must
specify the name of the person having tendered the Old Notes to be withdrawn,
identify the Old Notes to be withdrawn (including the principal amount at
maturity of such Old Notes), and (where certificates for Old Notes have been
transmitted) specify the name in which such Old Notes are registered, if
different from that of the withdrawing Holder. If certificates for Old Notes
have been delivered or otherwise identified to the Exchange Agent, then, prior
to the release of such certificates, the withdrawing Holder must also submit
the serial numbers of the particular certificates to be withdrawn and a signed
notice of withdrawal with signatures guaranteed by an Eligible Institution
unless such Holder is an Eligible Institution. If Old Notes have been tendered
pursuant to the procedure for book-entry transfer described above, any note
of withdrawal must specify the name and number of the account at DTC to be
credited with the withdrawn Old Notes and otherwise comply with the procedures
of such facility. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by Holdings,
whose determination shall be final and binding on all parties. Any Old Notes
so withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Old Notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
Holder thereof without cost to such Holder (or, in the case of Old Notes
tendered by book-entry transfer into the Exchange Agent's account at DTC
pursuant to the book-entry transfer procedures described above, such Old Notes
will be credited to an account maintained with DTC for the Old Notes) as soon
as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be re-entered by following
one of the procedures described under "Procedures for Tendering Old Notes"
above at any time on or prior to the Expiration Date.
Certain Conditions to the Exchange Offer
Notwithstanding any other provisions of the Exchange Offer,
Holdings shall not be required to accept for exchange, or to issue Exchange
Notes in exchange for, any Old Notes and may terminate or amend the Exchange
Offer, if at any time before the acceptance of such Old Notes for exchange or
the exchange of the Exchange Notes for such Old Notes, such acceptance or
issuance would violate applicable law or any interpretation of the staff of the
Commission.
The foregoing condition is for the sole benefit of Holdings and
may be asserted by Holdings regardless of the circumstances giving rise to
such condition. The failure by Holdings at any time to exercise the foregoing
rights shall not be deemed a waiver of any such right and each such right
shall be deemed an ongoing right which may be asserted at any time and from
time to time.
In addition, Holdings will not accept for exchange any Old
Notes tendered, and no Exchange Notes will be issued in exchange for any such
Old Notes, if at such time any stop order shall be threatened or in effect
with respect to the Registration Statement of which this Prospectus
constitutes a part or the qualification of the Indenture under the Trust
Indenture Act.
Exchange Agent
Star Bank, N.A. has been appointed as the Exchange Agent for
the Exchange Offer. All executed Letters of Transmittal should be directed to
the Exchange Agent at one of the addresses set forth below. Questions and
requests for assistance, requests for additional copies of this Prospectus or
of the Letter of Transmittal and requests for Notices of Guaranteed Delivery
should be directed to the Exchange Agent, addressed as follows:
Deliver To:
Star Bank, N.A., Exchange Agent
By Mail or By Hand:
Attn: Corporate Finance Trust Services
425 Walnut Street
6th Floor
Cincinnati, Ohio 45201-1118
Attention: William Sicking
By Facsimile:
(513) 632-5511
Confirm by Telephone:
(513) 632-4278
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES
NOT CONSTITUTE A VALID DELIVERY.
Fees and Expenses
The principal solicitation is being made by mail; however,
additional solicitation may be made by telegraph, telephone or in person by
officers and regular employees of Holdings and its affiliates. No additional
compensation will be paid to any such officers and employees who engage in
soliciting tenders. Holdings will not make any payment to brokers, dealers,
or others soliciting acceptances of the Exchange Offer. Holdings, however,
will pay the Exchange Agent reasonable and customary fees for its services and
will reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The estimated cash expenses to be incurred in connection with
the Exchange Offer will be paid by Holdings and are estimated in the aggregate
to be $ .
Transfer Taxes
Holders who tender their Old Notes for exchange will not be
obligated to pay any transfer taxes in connection therewith, except that
Holders who instruct Holdings to register Exchange Notes in the name of, or
request that Old Notes not tendered or not accepted in the Exchange Offer to
be returned to, a person other than the registered tendering Holder will be
responsible for the payment of any applicable transfer tax thereon.
Resale of the Exchange Notes
Under existing interpretations of the staff of the Commission
contained in several no-action letters to third parties, the Exchange Notes
would in general be freely transferable after the Exchange Offer without
further registration under the Securities Act. However, any purchaser of Old
Notes who is an "affiliate" of Holdings or who intends to participate in the
Exchange Offer for the purpose of distributing the Exchange Notes (i) will not
be able to rely on the interpretation of the staff of the Commission, (ii)
will not be able to tender its Old Notes in the Exchange Offer and (iii) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or transfer of the Notes unless
such sale or transfer is made pursuant to an exemption from such requirements.
By executing, or otherwise becoming bound by, the Letter of
Transmittal each holder of the Old Notes (other than certain specified
holders) will represent that (i) it is not an "affiliate" of Holdings, (ii)
any Exchange Notes to be received by it were acquired in the ordinary course
of its business and (iii) it has no arrangement with any person to participate
in the distribution (within the meaning of the Securities Act) of the Exchange
Notes. In addition, in connection with any resales of Exchange Notes, any
Participating Broker-Dealer who acquired the Notes for its own account as a
result of market-making or other trading activities must deliver a prospectus
meeting the requirements of the Securities Act. The Commission has taken the
position that Participating Broker-Dealers may fulfill their prospectus
delivery requirements with respect to the Exchange Notes (other than a resale
of an unsold allotment from the original sale of the Old Notes) with the
prospectus contained in the Exchange Offer Registration Statement. Under the
Registration Rights Agreement, Holdings is required to allow Participating
Broker-Dealers and other persons, if any, subject to similar prospectus
delivery requirements to use this Prospectus as it may be amended or
supplemented from time to time, in connection with the resale of such Exchange
Notes.
CERTAIN UNITED STATES TAX CONSEQUENCES OF THE EXCHANGE OFFER
The exchange of Old Notes for Exchange Notes pursuant to the
Exchange Offer will not result in any United States federal income tax
consequences to holders. When a holder exchanges an Old Note for an Exchange
Note pursuant to the Exchange Offer, the holder will have the same adjusted
basis and holding period in the Exchange Note as in the Old Note immediately
before the Exchange.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer pursuant to the Exchange Offer
must acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Notes. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer
in connection with resales of Exchange Notes received in exchange for Old
Notes where such Old Notes were acquired as a result of market-making
activities or other trading activities. Holdings has agreed that it will make
this Prospectus, as amended or supplemented, available to any Participating
Broker-Dealer for use in connection with any such resale and Participating
Broker-Dealers shall be authorized to deliver this Prospectus for a period not
exceeding 90 days after the Expiration Date.
Holdings will not receive any proceeds from any sales of the
Exchange Notes by Participating Broker-Dealers. Exchange Notes received by
Participating Brokers-Dealers for their own account pursuant to the Exchange
Offer may be sold from time to time, in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the Exchange Notes or a combination of such methods of resale, at
market prices prevailing at the time of resale, at prices related to such
prevailing market prices or at negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
Participating Broker-Dealer that resells the Exchange Notes that were received
by it for its own account pursuant to the Exchange Offer. Any broker or
dealer that participates in a distribution of such Exchange Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of Exchange Notes and any omissions or concessions
received by any such persons may be deemed to be underwriting compensation
under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
Holdings will promptly send additional copies of this
Prospectus and any amendment or supplement to this Prospectus to any
Participating Broker-Dealer that requests such documents in the Letter of
Transmittal. See "The Exchange Offer."
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be
passed upon for Holdings by Davis Polk & Wardwell, United States counsel for
Holdings.
EXPERTS
The consolidated financial statements of the Company as of
December 31, 1997 and 1996 and for each of the years in the three year period
ended December 31, 1997 included in this Prospectus and the related financial
statement schedules included elsewhere in the registration statement have been
audited by KPMG Peat Marwick LLP, independent auditors, as stated in their
report appearing herein and elsewhere in the registration statement, and have
been so included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
Index to Consolidated Financial Statements
Condensed Consolidated Balance Sheets......................................F-2
June 30, 1998 (unaudited)
December 31, 1997
Unaudited Condensed Consolidated Statements of Income......................F-3
Six months ended June 30, 1998
Six months ended June 30, 1997
Unaudited Condensed Consolidated Statement of Stockholders' Equity
(Deficit). ..............................................................F-4
For the six months ended June 30, 1998
Unaudited Condensed Consolidated Statements of Cash Flows..................F-5
Six months ended June 30, 1998
Six months ended June 30, 1997
Notes to Unaudited Condensed Consolidated Financial Statements.............F-6
Independent Auditors' Report..............................................F-10
Audited Consolidated Balance Sheets.......................................F-11
December 31, 1997
December 31, 1996
Audited Consolidated Statements of Operations.............................F-12
Year ended December 31, 1997
Year ended December 31, 1996
Year ended December 31, 1995
Audited Consolidated Statement of Stockholders' Equity (Deficit)..........F-13
For the years ended December 31, 1997, 1996 and 1995
Audited Consolidated Statements of Cash Flows.............................F-14
Year ended December 31, 1997
Year ended December 31, 1996
Year ended December 31, 1995
Notes to Audited Consolidated Financial Statements........................F-15
INSILCO CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- -------------
(unaudited)
<S> <C> <C>
Assets
- ----------------------------------------------------------------------
Current assets:
Cash and cash equivalents............................................ $ 6,983 $ 10,651
Trade receivable, net ............................................... 85,142 67,209
Other receivables ................................................... 3,501 3,477
Inventories, net .................................................... 61,869 60,718
Prepaid expenses and other current assets ........................... 3,262 2,993
-------- --------
Total current assets .............................................. 160,757 145,048
Property, plant and equipment, net ................................... 113,318 113,971
Investment in Thermalex .............................................. 9,862 9,736
Goodwill, net ........................................................ 13,077 13,408
Other assets and deferred charges .................................... 17,104 20,510
-------- --------
Total assets ...................................................... $314,118 $302,673
======== ========
Liabilities and Stockholders' Deficit
- ----------------------------------------------------------------------
Current liabilities:
Current portion of long-term debt ................................... $ 15 $ 1,684
Current portion of other long-term obligations ...................... 3,489 5,393
Accounts payable .................................................... 36,755 39,757
Accrued expenses and other .......................................... 56,249 58,706
-------- --------
Total current liabilities ............................................ 96,508 105,540
Long-term debt, excluding current portion ............................ 264,799 256,059
Deferred taxes ....................................................... 1,307 --
Other long-term obligations, excluding current portion ............... 42,308 43,402
Stockholders' deficit ................................................ (90,804) (102,328)
-------- --------
Contingencies (See Note 8)
Total liabilities and stockholders' deficit ......................... $314,118 $302,673
======== ========
</TABLE>
Note: The condensed consolidated balance sheet at December 31, 1997 has been
derived from the audited balance sheet as of that date.
See accompanying notes to unaudited condensed consolidated financial statements.
Condensed Consolidated Income Statements
INSILCO CORPORATION AND SUBSIDIARIES
(Unaudited)
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
-------------------- -----------------
<S> <C> <C>
Sales ..................................................................... $ 287,323 $ 276,215
Cost of products sold ..................................................... 200,671 189,953
Depreciation and amortization ............................................. 10,643 9,604
Selling, general and administrative expenses .............................. 52,044 47,857
------------- -------------
Operating income ......................................................... 23,965 28,801
------------- -------------
Other income (expense):
Interest expense ......................................................... (13,805) (7,762)
Interest income .......................................................... 72 2,038
Equity in net income of Thermalex ........................................ 1,450 1,547
Other income, net ........................................................ 2,026 68
------------- -------------
Total other income (expense) ............................................. (10,257) (4,109)
------------- -------------
Income from continuing operations before income taxes .................... 13,708 24,692
Income tax expense ........................................................ (6,494) (9,124)
------------- -------------
Income from continuing operations ........................................ 7,214 15,568
Discontinued operations, net of tax:
Income from operations, net of tax of $1,037.............................. -- 1,170
Gain on disposal, net of tax of $37,213 .................................. -- 57,788
------------- -------------
-- 58,958
------------- -------------
Net Income ............................................................... $ 7,214 $ 74,526
============= ============
Basic earnings per common share:
Income from continuing operations ........................................ $ 1.74 $ 1.63
Discontinued operations .................................................. -- 6.15
------------- -------------
Basic net income per share ............................................... $ 1.74 $ 7.78
============= ============
Weighted average number of common shares outstanding ..................... 4,141,471 9,585,025
============= ============
Diluted earnings per common share:
Income from continuing operations ........................................ $ 1.69 $ 1.58
Discontinued operations .................................................. -- 5.97
------------- -------------
Diluted net income per share ............................................. $ 1.69 $ 7.55
============= ============
Weighted average number of common shares outstanding and potential common
stock ................................................................... 4,270,078 9,875,401
============= ============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
INSILCO CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholders' Equity (Deficit)
For the Six Months Ended June 30, 1998
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Accumulated Total
Common Stock Retained Other Stockholders'
Par Value Additional Earnings Treasury Comprehensive Equity
$0.001 Paid-in Capital (Deficit) Stock Income (Deficit)
------------ --------------- --------- -------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997... $5 $ -- $(82,756) $(16,268) $(3,309) $(102,328)
Net income .................... -- -- 7,214 -- -- 7,214
Shares issued upon exercise of
stock options............... -- 3,281 -- -- -- 3,281
Tax benefit from exercise of
stock options............... -- 939 -- -- -- 939
Other comprehensive income..... -- -- -- -- 90 90
----- ------ -------- -------- ------- --------
Balance at June 30, 1998....... $5 $4,220 $(75,542) $(16,268) $(3,219) $(90,804)
===== ====== ======== ======== ======= ========
</TABLE>
INSILCO CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................................ $ 7,214 $ 74,526
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization .................................................. 10,643 9,604
Deferred tax expense ........................................................... 3,917 5,579
Other noncash charges and credits............................................... (1,822) (911)
Change in operating assets and liabilities:
Receivables .................................................................... (18,009) (25,181)
Inventories .................................................................... (1,189) (90)
Payables and other ............................................................. (4,564) 2,946
Discontinued operations:
Gain on disposal of segment .................................................... -- (95,001)
Deferred tax expense ........................................................... -- 25,687
Depreciation ................................................................... -- 194
Change in operating assets and liabilities ..................................... -- (2,512)
---------- ----------
Net cash used in operating activities ........................................ (3,810) (5,159)
---------- ----------
Cash flows from investing activities:
Capital expenditures ............................................................. (10,884) (10,315)
Other investing activities ....................................................... 1,621 3,039
Proceeds from divestiture, net ................................................... -- 112,610
---------- ----------
Net cash provided by (used in) investing activities .......................... (9,263) 105,334
---------- ----------
Cash flows from financing activities:
Proceeds from debt borrowings .................................................... 8,952 15,340
Proceeds from sale of stock ...................................................... 3,281 1,944
Payment of prepetition liabilities ............................................... (1,647) (1,708)
Retirement of long-term debt ..................................................... (1,166) (5,917)
Purchase of treasury stock ....................................................... -- (1,887)
---------- ----------
Net cash provided by financing activities .................................... 9,420 7,772
---------- ----------
Effect of exchange rate changes on cash ........................................... (15) (228)
---------- ----------
Net increase (decrease) in cash and cash equivalents ......................... (3,668) 107,719
Cash and cash equivalents at beginning of period .................................. 10,651 3,481
---------- ----------
Cash and cash equivalents at end of period ........................................ $ 6,983 $ 111,200
========== ==========
Interest paid ..................................................................... $ 13,453 $ 7,332
========== ==========
Income taxes paid ................................................................. $ 1,114 $ 6,293
========== ==========
</TABLE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 1998
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information in accordance with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they
do not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all determinable adjustments have been made which are
considered necessary to present fairly the financial position and the results
of operations and cash flows at the dates and for the periods presented.
(2) Discontinued Operations
On March 5, 1997, the Company completed the sale of its Office
Products Business (consisting of the Rolodex Business, Rolodex Electronics and
Curtis, each as defined below) within the Office Products/ Specialty Publishing
Group with the divestiture of its traditional office products business (the
"Rolodex Business") for $112,610,000, net of transaction costs, resulting in a
gain of $57,788,000, net of taxes of $37,213,000. The divestiture of the
Rolodex Business was preceded in 1996 by the divestiture of the Rolodex
electronics product line ("Rolodex Electronics") and the Company's computer
accessories business, Curtis Manufacturing Co., Inc. ("Curtis"). The proceeds
from these sales aggregated $21,818,000.
On July 7, 1998, the Company amended its Form 10-K for the year
ended December 31, 1997 and its Form 10-Q for the quarter ended March 31, 1998
to account for the sale of the Office Products Business as a discontinued
operation and, accordingly, the accompanying consolidated statements of
operations and cash flows for the periods prior to the sale have been
reclassified. Revenues associated with the discontinued Office Products
Business for the first quarter of 1997 were $10,797,000.
(3) 1997 Transactions
In 1997, the Company completed several material transactions
affecting its ongoing operations and debt and capital structure (the "1997
Transactions") as described more fully below:
o On July 3, 1997, the Company refinanced its existing debt under a new six
year $200 million amended and restated Credit Agreement.
o In the third quarter of 1997, the Company purchased an aggregate of
5,714,284 shares of its common stock in two transactions using the
proceeds from the sale of the Rolodex Business of $112,610,000, net of
transaction costs, and the proceeds received on the issuance of the $150
million aggregate principal amount of 10.25% Senior Subordinated Notes due
2007 (the "Notes").
(4) Merger Agreement
The Company and Silkworm Acquisition Corporation, an affiliate of
DLJ Merchant Banking Partners II (and affiliated funds) ("DLJMB"), have entered
into a definitive merger agreement pursuant to which the stockholders of the
Company will be paid $43.48 in cash and 0.03378 shares of retained stock (having
a nominal value of $45.00 per share) of the surviving corporation. In aggregate,
stockholders will receive approximately $180.2 million in cash and retain
140,031 shares in the surviving entity. The retained shares will constitute
approximately 10% of the common stock of the surviving company
post-recapitalization.
The transaction, which is estimated to have a value of approximately $448
million including existing indebtedness to be assumed or refinanced, is
subject to terms and conditions customary in transactions of this type,
including approval by the company's shareholders, and will be treated as a
recapitalization for accounting purposes. Affiliates of Donaldson, Lufkin &
Jenrette Securities Corporation, which acted as financial advisors to DLJMB,
have committed to provide all debt financing required for the transaction.
In connection with the merger, DLJMB entered into a voting agreement with the
Company's largest shareholder, Water Street Corporate Recovery Fund 1, L.P.
("Water Street"), an affiliate of Goldman Sachs, & Co., in which Water Street
has committed, subject to certain exceptions, to vote, 1,783,878 shares,
approximately 43% of the voting stock of the Company in favor of the proposed
merger.
As a result of the proposed merger, the Company and DLJMB will incur
approximately $28,244,000 of costs and expenses in connection with
consummating the transaction including professional fees, registration costs,
financing costs, and compensation costs. Pursuant to the terms of the merger,
all issued employee stock options will vest. The compensation expense
associated with payments in respect of these vested options is estimated to be
$9,094,000 to employees representing the excess of the $45.00 purchase price
per share over the exercise prices of all outstanding options.
In the second quarter of 1998, the Company incurred and paid $1,341,000 of
costs related to the proposed merger. In addition, the Company's effective
income tax rate of 53% for the second quarter of 1998 increased significantly
from both the 1997 second quarter rate of 38% and the 1998 first quarter rate
of 35% primarily due to the effects of the proposed merger transaction with
DJLMB. Significant transaction costs expected to be incurred as part of this
transaction will not be deductible for tax purposes.
(5) Inventories
Inventories consisted of the following at June 30, 1998 (in thousands):
<TABLE>
<S> <C>
Raw materials and supplies ..................... $26,755
Work-in-process ................................ 21,367
Finished goods ................................. 13,747
-------
Total inventories .............................. $61,869
=======
</TABLE>
(6) Comprehensive Income
On January 1, 1998, the Company adopted the Financial Accounting Standards Board
("FASB") Statement No. 130 ("SFAS 130"), "Reporting Comprehensive Income". SFAS
130 establishes standards for reporting and display of comprehensive income in
the financial statements. Comprehensive income is the total of net income and
most other non-owner changes in equity. This statement expands or modifies
disclosures and has no impact on the Company's financial position, results of
operations or cash flows. Comprehensive income for the first quarters of 1998
and 1997 totaled $4,504,000 and $10,332,000, respectively, including other
comprehensive income consisting of foreign currency translation adjustments
(losses) totaling $71,000 and ($875,000), respectively. Comprehensive income for
the first six months of 1998 and 1997 totaled $7,304,000 and $71,876,000,
respectively, including other comprehensive income consisting of foreign
currency translation adjustment (losses) totaling $90,000 and ($2,650,000),
respectively.
(7) Earnings Per Share
In 1997, the Company adopted Financial Accounting Standards Board ("FASB")
Statement No. 128 ("SFAS 128"), "Earnings per Share", which simplifies the
computation of earnings per share ("EPS"). All prior period earnings per share
amounts have been restated to conform with SFAS 128 requirements. Under SFAS
128, the Company computes two earnings per share amounts - basic EPS and
diluted EPS. Basic EPS is calculated based on the weighted average number of
shares of common stock outstanding for the period. Diluted EPS is based on the
weighted average number of shares of common stock outstanding for the period,
including potential common stock which reflect the dilutive effect of stock
options granted to employees and directors. Potential common stock for the
quarter ended June 30, 1998 and 1997 totaled 148,738 and 219,494,
respectively, and for the first six months of 1998 and 1997 totaled 128,607 and
290,376, respectively.
(8) Contingencies
The Company is implicated in various claims and legal actions arising in the
ordinary course of business. Those claims or liabilities will be addressed in
the ordinary course of business and be paid in cash as expenses are incurred.
In the opinion of management, the ultimate disposition of these matters will
not have a material adverse effect on the Company's consolidated financial
position, results of operations or liquidity.
(9) Estimates
In conformity with generally accepted accounting principles, the preparation
of our financial statements requires our management to make estimates and
assumptions that affect the amounts reported in our financial statements and
accompanying actual results may ultimately differ from those estimates.
(10) Pro Forma Results of Operations
The following financial information presents 1998 actual and 1997 pro forma
consolidated net sales and results of operations. The 1997 pro forma
consolidated net sales and results of operations are presented as if the 1997
Transactions had occurred at the beginning of 1997, exclusive of nonrecurring
items directly attributable to the transaction. The pro forma results of
operations are as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Six Months Three Months
Ended June 30, Ended June 30,
---------------------- -----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales................................................ $287,323 $276,215 $170,018 $169,671
Income from continuing operations........................ 7,214 10,077 4,433 8,193
Basic income from continuing operations per share........ 1.74 2.60 1.06 2.08
Diluted income from continuing operations per share...... 1.69 2.42 1.02 1.97
</TABLE>
(11) Contingency Gain
On January 14,1997, the Company's subsidiary, Taylor Publishing
Company ("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. Following a verdict in
favor of Taylor on May 13, 1998, a judgment was entered for Taylor in the
amount of $25,225,000 plus interest at the rate of 5.434 percent. 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. In the second quarter and first six months
of 1998, the Company incurred $570,000 and $768,000, respectively, of legal
fees in connection with the Jostens lawsuit.
Independent Auditors' Report
The Board of Directors and Stockholders
Insilco Corporation:
We have audited the consolidated financial statements of Insilco
Corporation and subsidiaries as listed in the accompanying index. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Insilco Corporation and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Columbus, Ohio
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
INSILCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
(In thousands, except share data)
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ............................................................ $ 10,651 $ 3,481
Trade receivables, net ............................................................... 67,209 73,874
Other receivables .................................................................... 3,477 8,499
Inventories .......................................................................... 60,718 66,385
Deferred tax asset ................................................................... 277 29,859
Prepaid expenses and other current assets ............................................ 2,716 3,403
-------- --------
Total current assets ............................................................... 145,048 185,501
-------- --------
Property, plant and equipment, net ................................................... 113,971 114,379
Deferred tax asset ................................................................... 1,054 7,542
Other assets ......................................................................... 42,600 40,971
-------- --------
Total assets ....................................................................... $302,673 $348,393
======== ========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Current portion of long-term debt .................................................... $ 1,684 $ 24,272
Accounts payable ..................................................................... 39,757 37,984
Customer deposits .................................................................... 20,346 23,490
Accrued expenses and other ........................................................... 43,753 48,319
-------- --------
Total current liabilities .......................................................... 105,540 134,065
Long-term debt, excluding current portion ............................................. 256,059 136,770
Other long-term obligations, excluding current portion ................................ 43,402 44,156
-------- --------
Total liabilities .................................................................. 405,001 314,991
-------- --------
Stockholders' equity (deficit):
Common stock, $.001 par value; 15,000,000 shares authorized; 4,548,373 shares
issued (9,810,794 in 1996) and 4,080,693 shares outstanding (9,487,740 in
1996) .............................................................................. 5 10
Treasury stock, at cost .............................................................. (16,268) (10,745)
Additional paid-in capital ........................................................... -- 81,496
Accumulated deficit .................................................................. (82,756) (37,115)
Foreign currency translation adjustments.............................................. (3,309) (244)
-------- --------
Total stockholders' equity (deficit) ............................................... (102,328) 33,402
-------- --------
Commitments and contingencies (See Notes 10, 11, 14 and 17)
Total liabilities and stockholders' equity (deficit) ............................... $302,673 $348,393
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
INSILCO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 1997, 1996 and 1995
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ----------
<S> <C> <C> <C>
Sales ............................................................ $528,233 $492,405 $449,506
Cost of products sold ............................................ 370,845 344,912 311,315
Depreciation and amortization .................................... 18,377 15,357 13,352
Selling, general and administrative expenses ..................... 87,909 83,703 69,753
Amortization of Reorganization Goodwill .......................... -- -- 16,205
--------- --------- ----------
Operating income .............................................. 51,102 48,433 38,881
--------- --------- ----------
Other income (expense):
Interest expense ................................................ (20,562) (18,378) (19,546)
Interest income ................................................. 2,837 724 1,472
Equity in net income of Thermalex ............................... 2,647 2,922 2,335
Other income, net ............................................... 794 4,784 11,558
--------- --------- ----------
Total other income (expense) .................................. (14,284) (9,948) (4,181)
--------- --------- ----------
Income from continuing operations before income taxes and
extraordinary item............................................. 36,818 38,485 34,700
Income tax expense ............................................... (13,404) (13,272) (16,694)
--------- --------- ----------
Income from continuing operations before extraordinary item ... 23,414 25,213 18,006
Discontinued operations, net of tax:
Income (loss) from operations ................................... 1,170 8,741 (15,431)
Gain on disposal ................................................ 57,788 5,099 --
--------- --------- ----------
Income (loss) from discontinued operations .................... 58,958 13,840 (15,431)
--------- --------- ----------
Income before extraordinary item .............................. 82,372 39,053 2,575
Extraordinary item, net of tax ................................... (728) -- --
--------- --------- ----------
Net income .................................................... $81,644 $39,053 $2,575
========= ========= ==========
Earnings (loss) per common share:
Income from continuing operations ............................... $3.25 $2.65 $1.83
Discontinued operations ......................................... 8.19 1.45 (1.57)
Extraordinary item .............................................. (0.10) -- --
--------- --------- ----------
Basic net income per share .................................... $11.34 $4.10 $0.26
========= ========= ==========
Weighted average number of common shares outstanding ............ 7,200,103 9,517,123 9,815,109
========= ========= ==========
Earnings (loss) per common share - assuming dilution:
Income from continuing operations ............................... $3.19 $2.55 $1.77
Discontinued operations ......................................... 8.03 1.40 (1.52)
Extraordinary item .............................................. (0.10) -- --
--------- --------- ----------
Diluted net income per share .................................. $11.12 $3.95 $0.25
========= ========= ==========
Weighted average number of common shares outstanding and
common share equivalents ......................................... 7,345,045 9,891,631 10,132,174
========= ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
INSILCO CORPORATION AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity (Deficit)
For the Years Ended December 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
Total
Common Additional Cumulative Stockholder's
Stock Par Treasury Paid-in Accumulated Translation Equity
Value $.001 Stock Capital Deficit Adjustment (Deficit)
----------- ----- ------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 10 $ -- $ 65,282 $ (78,743) $ -- $ (13,451)
Net income....................... -- -- -- 2,575 -- 2,575
Shares issued upon exercise of
stock options.................. -- -- 226 -- -- 226
Purchase of treasury stock....... -- (6,813) -- -- -- (6,813)
Tax benefit from reduction of
valuation allowance for
deferred tax assets............ -- -- 1,612 -- -- 1,612
Tax benefit from exercise of -- -- 72 -- -- 72
stock options.....................
------- ------ --------- ---------- --------- ------------
Balance at December 31, 1995...... 10 (6,813) 67,192 (76,168) -- (15,779)
Net income....................... -- -- -- 39,053 -- 39,053
Tax benefit from reduction of
valuation allowance for
deferred tax assets............... -- -- 10,237 -- -- 10,237
Purchase of treasury stock....... -- (3,932) -- -- -- (3,932)
Restricted stock................. -- -- 3,300 -- -- 3,300
Shares issued upon exercise of
stock options.................. -- -- 1,071 -- -- 1,071
Reserved shares ................. -- -- (706) -- -- (706)
Tax benefit from exercise of
stock options.................. -- -- 402 -- -- 402
Foreign currency translation -- -- -- -- (244) (244)
adjustment........................
------- ------ --------- ---------- --------- ------------
Balance at December 31, 1996...... 10 (10,745) 81,496 (37,115) (244) 33,402
Net income....................... -- -- -- 81,644 -- 81,644
Repurchase of shares............. (5) -- (92,710) (127,285) -- (220,000)
Costs of Tender Offer............ -- -- (889) -- -- (889)
Purchase of treasury stock....... -- (5,523) -- -- -- (5,523)
Restricted stock................. -- -- 571 -- -- 571
Shares issued upon exercise of
stock options..................... -- -- 8,255 -- -- 8,255
Tax benefit from exercise of
stock options .................... -- -- 3,277 -- -- 3,277
Foreign currency translation -- -- -- -- (3,065) (3,065)
adjustment........................
------- ------ --------- ---------- --------- ------------
Balance at December 31, 1997...... $ 5 $(16,268) $ -- $ (82,756) $ (3,309) $ (102,328)
======= ======== ======= ========== =========== ============
</TABLE>
INSILCO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income .......................................................................... $ 81,644 $ 39,053 $ 2,575
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ..................................................... 18,377 15,357 45,524
Deferred tax expense .............................................................. 11,679 11,667 13,868
Other noncash charges and credits ................................................. (127) (4,904) (6,143)
Changes in operating assets and liabilities:
Receivables ....................................................................... (1,297) (3,370) (439)
Inventories ....................................................................... (3,304) 791 (1,212)
Payables and other ................................................................ 12,515 958 (10,077)
Other long-term liabilities ....................................................... (2,344) (2,329) (3,463)
Discontinued operations:
Gain on disposal of Office Products Business .................................... (95,001) (2,493) --
Deferred tax expense ............................................................ 25,687 (1,651) (1,207)
Depreciation .................................................................... 194 1,474 1,406
Change in operating assets and liabilities ...................................... (2,512) 870 (3,088)
----------- ----------- ----------
Net cash provided by operating activities ......................................... 45,511 55,423 37,744
----------- ----------- ----------
Cash flows from investing activities:
Proceeds from divestitures, net ..................................................... 112,610 21,818 --
Other investing activities .......................................................... 6,190 8,704 7,481
Capital expenditures ................................................................ (23,583) (20,009) (20,190)
Discontinued operations ............................................................. -- (2,570) (1,969)
Acquisitions of businesses, net of cash acquired .................................... -- (37,726)
----------- ----------- ----------
Net cash provided by (used in) investing activities ............................... 95,217 (29,783) (14,678)
----------- ----------- ----------
Cash flows from financing activities:
Repurchase of shares ................................................................ (220,000) -- --
Retirement of long-term debt ........................................................ (117,246) (26,330) (12,926)
Debt issuance and Tender Offer costs ................................................ (10,689) -- --
Payment of prepetition liabilities .................................................. (2,811) (2,862) (2,949)
Purchase of treasury stock .......................................................... (1,887) (3,932) (6,813)
Proceeds from sale of subordinated notes ............................................ 150,000 -- --
Proceeds from debt borrowings ....................................................... 64,759 -- 600
Proceeds from sale of stock ......................................................... 4,618 1,071 226
----------- ----------- ----------
Net cash used in financing activities ............................................. (133,256) (32,053) (21,862)
----------- ----------- ----------
Effect of exchange rate changes on cash .............................................. (302) -- --
----------- ----------- ----------
Net increase (decrease) in cash and cash equivalents............................... 7,170 (6,413) 1,204
Cash and cash equivalents at beginning of period ..................................... 3,481 9,894 8,690
----------- ----------- ----------
Cash and cash equivalents at end of period ........................................... $ 10,651 $ 3,481 $ 9,894
=========== =========== ==========
Supplemental information - cash paid for:
Interest, net of capitalized amount ................................................. $ 13,305 $ 17,820 $ 18,199
=========== =========== ==========
Income taxes ........................................................................ $ 7,062 $ 2,081 $ 2,407
=========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the financial
statements of Insilco Corporation (the "Company") and its wholly owned
subsidiaries. The Company's investments in companies for which the Company
does not have operational control are accounted for under the equity method.
All significant intercompany balances and transactions have been eliminated.
(b) Pro Forma Results of Operations
During 1996, the Company entered into two acquisition
transactions (See Note 3). In addition, during 1997, the Company completed a
self tender and share repurchase of approximately 59% of its outstanding
shares (See Note 11) partially with the proceeds from the divestiture of its
traditional office products business (See Note 2) and partially through the
issuance of subordinated notes and refinancing of its bank credit agreement
(See Note 8). These transactions affect the understanding of the Company's
financial position, results of operations and cash flows for 1997 compared to
prior periods. As a result of these transactions, the Company has presented
pro forma results of operations for 1997 and 1996 as if all of these
transactions except the divestiture of the Office Products Business (which is
being accounted for as a discontinued operation) occurred at the beginning of
the respective periods in Note 20.
(c) Cash Equivalents
Cash equivalents include time deposits and highly liquid
investments with original maturities of three months or less.
(d) Trade Receivables
Trade receivables are presented net of allowances for doubtful
accounts and sales returns of $2,132,000 and $4,978,000 at December 31, 1997
and 1996, respectively.
(e) Inventories
Inventories are valued at the lower of cost or market. Cost is
generally determined using the first-in, first-out cost method.
(f) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation
of plant and equipment is calculated on the straight-
line method over the assets' estimated useful lives which is 25 years for new
buildings, 9 years for machinery and equipment and ranges from 3 to 7 years
for other property, plant and equipment.
(g) "Fresh Start" Accounting and Reorganization Goodwill
On March 31, 1993, the Company adopted the "fresh start"
accounting principles prescribed by the Statement of Position 90-7, "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code" (the
"Reorganization accounting principles required the Company to value its assets
and liabilities at fair values and eliminate its accumulated deficit.
Reorganization Goodwill consisted of the excess of the
Company's reorganization value over the aggregate fair value of its tangible
and identified intangible assets on March 31, 1993 and was amortized over a
three year period. Reorganization Goodwill was fully amortized at December 31,
1995.
(h) Deferred Financing Costs
Deferred financing costs are being amortized using the
effective interest method over the life of the related debt.
(i) Goodwill
Goodwill represents the excess of cost of net assets acquired
in business combinations over their fair values. It is amortized on a
straight-line basis over estimated periods to be benefitted (not exceeding 40
years). Goodwill is periodically reviewed for impairment based upon an
assessment of future operations to insure it is appropriately valued.
(j) Interest Rate Hedges
The Company periodically uses interest rate hedges to limit its
exposure to the interest rate risk associated with its floating rate long-term
bank debt. Unamortized premium related to purchased interest rate caps is
included in other assets in the balance sheet and is amortized using the
interest method over the life of the related agreements. Amounts received
under cap agreements and net amounts received (or paid) under swap agreements
are recorded as a reduction (addition) to interest expense.
(k) Environmental Remediation and Compliance
Environmental remediation and compliance expenditures are
expensed or capitalized in accordance with generally accepted accounting
principles. Liabilities are recorded when it is probable the obligations have
been incurred and the amounts can be reasonably estimated.
(1) Fair Value of Financial Instruments
Fair value of cash, accounts receivable, accounts payable and
accrued liabilities approximate book value at December 31, 1997. Fair value of
debt is based upon market value, if traded, or discounted at the estimated
rate the Company would incur currently on similar debt (See Note 9).
(m) Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are determined based upon
differences between the financial reporting and tax basis of assets and
liabilities and are measured by applying enacted tax rates and laws to taxable
years in which such differences are expected to reverse.
(n) Earnings Per Share
In 1997, the Financial Accounting Standards Board ("FASB")
issued Statement No. 128 ("SFAS 128"), "Earnings per Share", which simplifies
the computation of earnings per share ("EPS"). SFAS 128 is effective for
financial statements issued for periods after December 15, 1997. All prior
period earnings per share amounts have been restated to conform with SFAS 128
requirements. Under SFAS 128, the Company computes two earnings per share
amounts - basic EPS and EPS assuming dilution. Basic EPS is calculated based
on the weighted average number of shares of common stock outstanding for the
period. EPS assuming dilution is based on the weighted average number of shares
of common stock outstanding for the period, including common stock equivalents
which reflect the dilutive effect of stock options granted to employees and
directors.
(o) Estimates
In conformity with generally accepted accounting principles,
the preparation of our financial statements requires our management to make
estimates and assumptions that affect the amounts reported in our financial
statements and accompanying actual results may ultimately differ from those
estimates.
(p) Reclassifications
Certain 1996 and 1995 amounts have been reclassified to conform
with 1997 presentation.
(q) Accounting Standards
In June 1997, the FASB issued Statement No. 130 ("SFAS 130"),
"Reporting Comprehensive Income" and Statement No. 131 (''SFAS 131"),
"Disclosures About Segments of an Enterprise and Related Information". SFAS 130
establishes standards for reporting and display of comprehensive income in the
financial statements. Comprehensive income is the total of net income and most
other non-owner changes in equity. SFAS 131 requires that companies disclose
segment data based on how management makes decisions about allocating
resources to segments and measuring their performance. In addition, in
February 1998, the FASB issued Statement No. 132 (''SFAS 132"), "Employers'
Disclosures About Pensions and Other Post-retirement Benefits". concerning
employer disclosure about pension plans and other post-retirement benefits.
SFAS 130, SFAS 131 and SFAS 132 are effective for 1998. These statements
expand or modify disclosures and will have no impact on the Company's
financial position, results of operations or cash flows.
(2) Discontinued Operations
On March 5, 1997, the Company completed the sale of its Office
Products Business within the Office Products/Specialty Publishing Group with
the divestiture of its traditional office products business (the "Rolodex
Business") for $112,610,000, net of transaction costs, resulting in a gain of
$57,788,000, net of taxes of $37,213,000. The divestiture of the Rolodex
Business was preceded in 1996 by the divestiture of the Rolodex electronics
product line ("Rolodex Electronics") and the Company's computer accessories
business, Curtis Manufacturing Co., Inc. ("Curtis"). The proceeds from these
sales aggregated $21,818,000. (See Note 20 for unaudited pro forma financial
information with respect to these divestitures).
On July 7, 1998, the Company amended its Form 10-K to account
for the sale of the Office Products Business as a discontinued operation and,
accordingly, the accompanying consolidated statements of operations and cash
flows for the periods prior to the sale have been reclassified. Revenues
associated with the discontinued Office Products Business for the years 1997,
1996, and 1995 were $10,797,000, $80,069,000 and $111,697,000, respectively.
At December 31, 1996, the current and non-current net assets of the Office
Products Business were $6,531,000 and $8,934,000, respectively.
(3) Acquisitions
In 1996, the Company acquired Great Lake, Inc. ("Great Lake"),
which serves the automotive, heavy truck and industrial manufacturing radiator
replacement market and the automotive aluminum tube business of Helmut
Lingemann GmbH & Co. (the "Lingemann Business") for approximately $37,726,000
including transaction fees and expenses. The Lingemann transactions include
the purchase of stock of Lingemann's German subsidiary, ARUP Alu-Rohr
und-Profil GmbH, and the automotive aluminum tube business assets of its
Duncan, South Carolina based Helima-Helvetio International, Inc. This cash
transaction was financed principally from borrowings under the Company's prior
bank credit agreement (See Note 8).
These acquisitions have been accounted for as purchases and,
accordingly, the purchase prices have been allocated to the assets and
liabilities acquired based on their fair values at the acquisition dates. The
operating results of the businesses acquired have been included for the period
subsequent to their acquisition dates. (See Note 20 for pro forma results).
The fair value of the assets acquired totaled $47,478,000 and the liabilities
assumed totaled $9,752,000.
(4) Inventories
A summary of inventories at December 31 follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Raw materials and supplies .......... $25,396 $27,677
Work in process ..................... 23,427 25,570
Finished goods ...................... 11,895 13,138
------- -------
$60,718 $66,385
======= =======
</TABLE>
(5) Property, Plant and Equipment
A summary of property, plant and equipment at December 31 follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Land ................................. $ 6,267 $ 6,310
Buildings ............................ 33,718 32,772
Machinery and equipment .............. 137,310 125,211
-------- --------
177,295 164,293
Less accumulated depreciation ...... (63,324) (49,914)
-------- --------
$113,971 $114,379
======== ========
</TABLE>
(6) Other Assets
A summary of other assets at December 31 follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------ -------
<S> <C> <C>
Goodwill, net ............................... $13,408 $13,659
Equity investment in Thermalex .............. 9,736 8,550
Deferred financing costs .................... 9,246 1,666
Cash surrender value of life insurance ...... 4,636 5,635
Other ....................................... 5,574 11,461
------- -------
$42,600 $40,971
======= =======
</TABLE>
Thermalex, Inc. ("Thermalex") is a joint venture, formed in
1985 between the Company's Thermal Components Division and Mitsubishi
Aluminum, Ltd., which sells aluminum extruded products to the automobile
industry. The Company received $1,461,000 and $3,400,000 of dividend
distributions from Thermalex in 1997 and 1996, respectively.
Sales for Thermalex for the years ended December 31, 1997, 1996
and 1995 were $47,152,000, $48,057,000 and $44,839,000, respectively. Net
income for the years ended December 31, 1997, 1996 and 1995 was $5,294,000,
$5,844,000 and $4,670,000, respectively. Total assets were $36,348,000 and
$28,629,000 at December 31, 1997 and 1996, respectively. Stockholders' equity
was $19,475,000 and $17,102,000 at December 31, 1997 and 1996, respectively.
(7) Accrued Expenses and Other
A summary of accrued expenses and other at December 31 follows
(in thousands):
<TABLE>
<CAPTION>
1997 1996
------ -------
<S> <C> <C>
Salaries and wages payable ...................... $ 9,445 $ 9,838
Accrued interest payable ........................ 8,038 3,113
Current portion of the long term obligations .... 5,393 6,661
Accrued taxes payable ........................... 1,112 116
Pension ......................................... 5,523 5,682
Other accrued expenses .......................... 14,242 22,909
------- -------
$43,753 $48,319
======= =======
</TABLE>
(8) Long-term Debt
A summary of long-term debt at December 31 follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- ----------
<S> <C> <C>
Subordinated notes .................... $150,000 --
Bank revolving credit facility ........ 87,500 41,300
Alternative currency borrowings ....... 18,348 --
Bank term loan ........................ -- 116,677
Miscellaneous ......................... 1,895 3,065
-------- --------
257,743 161,042
Less current portion .................. (1,684) (24,272)
-------- --------
$256,059 $136,770
======== ========
</TABLE>
On July 3,1997, the Company refinanced its existing debt under
a new six year $200 million amended and restated credit agreement with a bank
group consisting of Citicorp USA, Inc., Goldman Sachs Credit Partners L.P.,
(an affiliate of the Company's principal stockholder) and First National Bank
of Chicago (the "Bank Credit Agreement"). The Bank Credit Agreement provides
for a $200 million revolving credit facility with a $50 million sublimit for
issuance of letters of credit ($9.0 million outstanding at December 31, 1997)
and a $50 million sublimit for alternative currency borrowings. The $200
million revolving credit facility is permanently reduced by $20 million per
year beginning July 2000 through July 2002. The bank loans and letters of
credit bear interest at various floating rates, which approximate the one to
six month LIBOR rates plus 1.25% (such LIBOR rates approximated 5.72% to 5.84%
at December 31, 1997) subject to performance versus a leverage ratio. The
revolving credit facility will terminate and all amounts outstanding, if any,
will be due on July 8,2003. Annual commitment fees consist of 0.3% of the
average daily unused commitment.
As of December 31, 1997, under the sublimit for alternative
currency borrowings, the Company had borrowed $18.3 million (33.0 million
Deutsche Marks). The Company's alternative currency borrowing is designed to
hedge the Company's net investment in its German operations. The change, if
any, to the net investment as a result of foreign currency fluctuations is
included in stockholders' equity as a foreign currency translation adjustment.
The alternative currency borrowing is denominated in German Deutsche Marks and
bears interest based on one to six month German LIBOR rates plus 1.25% (such
LIBOR rates approximated 3.53% to 3.75% at December 31, 1997).
The Bank Credit Agreement is guaranteed on a joint and several
basis by the Company's material directly and indirectly wholly owned
subsidiaries (the "Guarantors") and has been secured by substantially all
assets of the Guarantors. The Bank Credit Agreement contains certain financial
and other covenants usual and customary for a secured credit agreement. The
Company was in compliance with these covenants as of December 31, 1997.
In 1997, proceeds from the Bank Credit Agreement were used to
prepay amounts outstanding under the prior bank credit agreement. As a result
of the prepayment, the Company recorded an extraordinary charge of $728,000
(net of a tax benefit of $465,000) due to expensing the related unamortized
debt financing costs.
On August 12, 1997, the Company completed the issuance of
$150,000,000 of 10.25% senior subordinated notes (the "Notes"). Interest is
payable semi-annually, with a maturity date of August 15, 2007.
The Company may redeem the Notes, in whole or in part, upon
certain conditions, at any time on or after August 15, 2002 and prior to
maturity. The Notes have certain covenants that have restrictions on dividends
and distributions. Upon a change of control, holders of the Notes may require
the Company to purchase all or a portion of the Notes at a purchase price
equal to 101% of their aggregate principal amount, plus accrued interest, if
any.
(9) Fair Value of Financial Instruments
The estimated fair value at December 31 of financial
instruments, other than current assets and liabilities, follow (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------------------------- ---------------------------
Estimated Estimated
Book Value Fair Value Book Value Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Debt:
Subordinated notes ..................... $150,000 $154,500 -- --
Bank revolving credit facility ......... 105,848 105,848 41,300 41,300
Bank term loan ......................... -- -- 116,677 116,677
Miscellaneous .......................... 1,895 1,895 3,065 3,065
-------- -------- -------- --------
$257,743 $262,243 $161,042 $161,042
======== ======== ======== ========
Hedges:
Interest rate (asset) .................. -- $423 $(163) $1,281
======== ======== ======== ========
</TABLE>
At December 31, 1997, the Company's only interest rate hedge
consisted of a swap agreement which fixed the interest rate on $45,000,000
(from 5/30/95 to 5/30/98) of borrowings at 8.99%.
The Company is exposed to market risk for changes in interest
rates, but has no off-balance sheet risk of accounting loss. The Company
manages exposure to counterparty credit risk by entering into such
transactions with major financial institutions that are expected to perform
under the terms of such agreements.
(10) Other Long-Term Liabilities
A summary of other long-term liabilities at December 31 follows
(in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Post-retirement benefits, other than pensions (Note 12).. $22,191 $22,112
Prepetition and other tax liabilities ................... 15,762 16,722
Environmental liabilities ............................... 8,625 9,208
Deferred compensation and other ......................... 2,217 2,775
------- -------
48,795 50,817
------- -------
Less current portion .................................... (5,393) (6,661)
$43,402 $44,156
======= =======
</TABLE>
Prepetition and other tax liabilities
On April 1, 1993, the Company and certain of its subsidiaries
emerged from Chapter 11 of the United States Bankruptcy Code (the "Chapter 11
cases") pursuant to a plan of reorganization (the "Plan of Reorganization").
The Chapter 11 cases were commenced on January 13,1991 (the "Petition Date").
The Company entered into an agreement with the Internal Revenue Service
("IRS") settling Federal income tax claims filed in the Chapter 11 cases for
open taxable years through 1990. In addition to this agreement, the tax
liabilities include Prepetition state tax claim settlements, negotiated
payment terms on certain foreign Prepetition tax liabilities, and an estimate
of the Company's obligation for curative action required by the IRS to cure
certain operational defects in one of the Company's defined contribution plans.
Environmental liabilities
The Company's operations are subject to extensive Federal,
state and local laws and regulations relating to the generation, storage,
handling, emission, transportation and discharge of materials into the
environment. The Company has a program for monitoring its compliance with
applicable environmental regulations, the interpretation of which often is
subjective. This program includes, but is not limited to, regular reviews of
the Company operations' obligations to comply with environmental laws and
regulations in order to determine the adequacy of the recorded liability for
remediation activities.
The environmental liabilities included in other long-term
obligations represent the estimate of cash obligations that will be required
in future years for these environmental remediation activities. The Company
has estimated the exposure and accrued liability to be approximately
$8,625,000 relating to these environmental matters at December 31, 1997. These
liabilities are undiscounted and do not assume any possible recoveries from
insurance coverage or claims which the Company may have against third parties.
The estimate is based upon in-house engineering expertise and the professional
services of outside consulting and engineering firms. Because of uncertainty
associated with the estimation of these liabilities and potential regulatory
changes, it is reasonably possible that these estimated liabilities could
change in the near term but it is not expected that the effect of any such
change would be material to the consolidated financial statements in the near
term.
(11) Stockholders' Equity (Deficit)
The Company's authorized capital stock consists of 15,000,000
shares of common stock. Each share entitles its holder to one vote on matters
submitted to stockholders. At December 31, 1997 and 1996, the issued shares of
common stock included 67,483 and 163,557 shares of common stock, respectively,
available to satisfy Prepetition claims.
On July 10, 1997, the Company, using the proceeds from the sale
of the Rolodex Business, purchased (i) 2,805,194 shares from Water Street
Corporate Recovery Fund I, LP. ("Water Street") (the Company's largest
stockholder which is an investment partnership of which Goldman, Sachs & Co.
is the general partner) at $38.50 per share in cash for an aggregate purchase
price of $107,999,969 and (ii) 51,948 shares from Robert L. Smialek, the
President and Chairman of the Board of the Company, at $38.50 per share in
cash, for an aggregate purchase price of $1,999,998.On August 12, 1997, the
Company completed a tender offer (the "Tender Offer"), pursuant to which it
purchased 2,857,142 shares at a price of $38.50 per share in cash. At the
completion of the Tender Offer, the number of outstanding shares were reduced
to approximately 4.1 million.
The Company repurchased 97,500 shares of its common stock
during 1996 at prices ranging from $30.60 to $36.125 under the $15,000,000
stock buyback program approved by the Company's Board of Directors on July 26,
1995. During the last half of 1995, the Company had repurchased 197,500 shares
of its common stock at prices ranging from $32.375 to $36.875 under the stock
buyback program.
Water Street, an investment partnership of which Goldman, Sachs
& Co. ("Goldman Sachs") is the general partner, is the Company's principal
stockholder, owning approximately 45% of the Company's outstanding shares of
common stock.
(12) Pension Plans and Post-retirement Benefits
Pension Plans
The Company has defined benefit pension plans covering certain of
its employees. The benefits under these plans are based primarily on employees'
years of service and compensation near retirement. The Company's funding policy
is consistent with the funding requirements of Federal laws and regulations.
Plan assets consist principally of equity investments, government obligations
and corporate debt securities. The Company also contributes to various
multi-employer plans sponsored by bargaining units for its union employees.
A summary of the plans' funded status reconciled with amounts
recognized in the consolidated balance sheet at December 31 follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
------------------------------- -------------------------------
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
Benefits Exceed Assets Benefits Exceed Assets
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Plan assets at fair value .............................. $86,888 $11,086 $81,025 $11,467
Actuarial present value of benefit obligations:
Vested benefits ....................................... 69,088 14,122 62,230 14,078
Nonvested benefits .................................... 1,217 698 906 606
------- ------- ------- -------
Accumulated obligation ................................. 70,305 14,820 63,136 14,684
Benefits attributable to future compensation increases . 5,177 666 2,504 549
------- ------- ------- -------
Projected benefit obligations .......................... 75,482 15,486 65,640 15,233
------- ------- ------- -------
Plan assets less projected benefit obligation .......... 11,406 (4,400) 15,385 (3,766)
Unrecognized losses (gains) ............................ (13,072) (323) (17,227) (550)
Unrecognized prior service costs ....................... (1,188) 2,054 (1,260) 1,736
------- ------- ------- -------
Pension liability ..................................... $(2,854) $(2,669) $(3,102) $(2,580)
======= ======= ======= =======
</TABLE>
The components of pension cost follow (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- --------
<S> <C> <C> <C>
Service cost ..................... $ 2,320 $ 2,113 $ $1,620
Interest cost .................... 5,639 5,794 9,949
Actual return on assets .......... (14,689) (6,565) (9,993)
Net amortization and deferral .... 7,741 (44) 118
-------- -------- --------
Net pension cost ................. $ 1,011 $ 1,298 $ 1,694
======== ======== ========
</TABLE>
In addition, the Company recognized pension costs of $597,000
in 1997, $880,000 in 1996 and $580,000 in 1995 related to contributions to
multi-employer plans.
In the fourth quarter of 1995, the Company adopted a lump sum
settlement feature for retirees and certain vested plan participants which
resulted in the settlement of more than $42,000,000 in pension obligations.
The Company recorded a gain on the settlement of $4,300,000 in the fourth
quarter of 1995.
The assumptions used in accounting for the pension plans as of
December 31 follow:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Discount rates ................................... 7.25% 7.75%
Rates of increase in compensation levels ......... 4.50% 4.50%
Expected long-term rate of return on assets ...... 9.00% 9.00%
</TABLE>
In addition to the defined benefit plans described above, the
Company sponsors a qualified defined contribution 401(k) plan, which covers
substantially all non-union employees of the Company and its subsidiaries, and
which covers union employees at one of the Company's subsidiaries. The Company
matches 50% of non-union participants' voluntary contributions up to a maximum
of 3% of the participant's compensation. The Company's expense was
approximately $819,000 in 1997, $738,000 in 1996 and $666,000 in 1995.
Post-retirement benefits, other than pensions
The Company maintains nine post-retirement health care and life
insurance benefit plans, four of which cover approximately 500 present
retirees (the "Retiree Plans") and five of which cover certain retirees and
current employees of four operating units (the "Open Plans"). The Company pays
benefits under the plans when due and does not fund its plan obligations as
they accrue. The Company's accrued post-retirement benefit cost is
attributable to the Retiree Plans and one of the Open Plans, in which
approximately 100 retirees and 300 current employees were participants. It has
been assumed that plan participant contributions, if any, under these five
plans will increase as a result of increases in medical costs. The other Open
Plans have been, and are assumed will continue to be, fully self-funded by
their participants.
During 1996, the Company amended its Retiree Plans and the one
Open Plan to limit the Company's contributions and to adopt a cost-sharing
method based upon a retiree's years of service. As a result, the accumulated
post-retirement benefit obligation for these retiree health care plans was
reduced by approximately $3.4 million.
The components of net periodic post-retirement benefit cost
follow (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Service cost ......................... $ 400 $ 492 $ 503
Interest cost ........................ 1,099 1,154 1,401
Amortization of prior service cost ... (437) (365) (145)
------- ------- -------
$ 1,062 $ 1,281 $ 1,759
======= ======= =======
</TABLE>
A summary of the plans' status reconciled with amounts recognized in the
consolidated balance sheet at December 31 follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Accumulated post-retirement benefit obligations:
Retirees ........................................ $ 8,421 $ 7,828
Other fully eligible plan participants .......... 2,616 2,302
Other active plan participants .................. 5,811 4,440
-------- --------
Total ......................................... 16,848 14,570
-------- --------
Prior service cost ............................... 4,425 4,777
Unrecognized net gain ............................ 918 2,765
-------- --------
Accrued post-retirement benefit costs ......... $ 22,191 $ 22,112
======== ========
</TABLE>
At December 31, 1997 and 1996, the weighted-average discount
rates used in determining the accumulated post-
retirement benefit obligation were 7.25% and 7.75%, respectively. The recorded
health care cost trend rate assumed in measuring the accumulated
post-retirement benefit obligation was 8% in 1998, declining to an ultimate
rate of 5% in 2010 and thereafter. If these trend rate assumptions were
increased by 1%, the accumulated post-retirement benefits obligation would
increase by approximately 16% ($2,751,000). The effect of this change on the
sum of service cost and interest cost components of the net periodic
post-retirement benefit cost for the year ending December 31, 1997 would be an
increase of approximately 21% ($320,000).
(13) Stock-Based Compensation Plans
The Company's 1993 Long-term Incentive Plan (the "Incentive
Plan"), as amended, and the 1993 Nonemployee Director Stock Incentive Plan
(the "Director Plan") provides for the issuance of no more than 2,000,000 and
360,000, respectively, shares of common stock to eligible employees and
nonemployee directors. As of December 31, 1997, the shares available for
future awards under the Incentive Plan and the Director Plan have been reduced
to 694,136, and 146,664, due to stock options and restricted stock awards
granted since the inception of the plans.
Stock Options
Under Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation", companies can either
record expense based on the fair value of stock-based compensation upon
issuance or elect to remain under the "APB Opinion No. 25" method whereby no
compensation cost is recognized upon grant if certain conditions are met. The
Company is continuing to account for its stock-based compensation under APB
Opinion No. 25. However, pro forma disclosures as if the Company had adopted
the cost recognition requirements under SFAS 123 are presented below.
Had the Company determined compensation cost based on the fair
value at the grant date for its stock options granted in 1997, 1996 and 1995
under SFAS 123, the Company's net income and earnings per share would have
approximated the pro forma amounts below:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C> <C>
Net income ................... As reported $81,644 $39,053 $2,575
Pro forma 81,069 38,748 2,562
Basic earnings per share ..... As reported 11.34 4.10 0.26
Pro forma 11.26 4.07 0.26
Diluted earnings per share ... As reported 11.12 3.95 0.25
Pro forma 11.06 3.92 0.25
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to grants prior to 1995,
and additional awards in the future are anticipated.
A summary of the options granted follows:
<TABLE>
<CAPTION>
Weighted
Number of Average
Shares Price
----------- -----------
<S> <C> <C>
Options outstanding December 31, 1994 .... 1,092,168 $ 21.84
Granted ................................. 12,850 32.30
Forfeited ............................... (28,369) 21.03
Exercised ............................... (12,646) 15.39
---------
Options outstanding December 31, 1995 .... 1,064,003 22.07
Granted ................................. 102,900 34.82
Forfeited ............................... (36,670) 26.69
Exercised ............................... (59,668) 17.95
---------
Options outstanding December 31, 1996 .... 1,070,565 23.36
Granted ................................. 151,500 36.87
Forfeited ............................... (30,938) 24.79
Exercised ............................... (450,860) 18.27
---------
Options outstanding December 31, 1997 .... 740,267 29.17
=========
Options exercisable at December 31:.......
1995..................................... 471,614 20.87
1996..................................... 682,681 21.45
1997 .................................... 421,033 27.18
</TABLE>
At December 31, 1997, the range of exercise prices and
weighted-average remaining contractual life of outstanding options follow:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------------- ------------------------------
Weighted Number Weighted
Average Weighted Exercisable at Average
Number Outstanding at Remaining Average December 31, Exercise
Range of Exercise Prices December 31, 1997 Contractual life Exercise Price 1997 Price
- ------------------------- ---------------------- ---------------- -------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
$15.00-20.00............ 148,255 2.6 $16.33 92,255 $15.92
25.01-30.00............ 355,779 2.3 29.91 299,079 29.89
30.01-35.00............ 90,168 7.9 34.66 26,968 34.64
35.01-39.00............ 146,065 4.7 37.03 2,731 37.58
------- -------
740,267 421,033
======= =======
</TABLE>
The per share weighted-average fair value of stock options
granted during 1997, 1996 and 1995 was $13.87, $19.20 and $18.58,
respectively, on the date of grant using the Black Scholes option-pricing
model with the following weighted-average assumptions: 1997 - expected
dividend yield 0.0%, risk-free interest rate of 5.57%, and an expected life of
4.14 years.
Restricted Stock
The awards of restricted common stock to employees and
directors has been contingent upon the participants maintaining certain
investments in the Company's common stock and the restrictions on the awards
lapse only if: (1) the market value of the Company's common stock attains
targeted levels during a specified period; and, (2) generally only after the
participants complete a required service period. The compensation expense
associated with the restricted stock awards is recorded over the employee
service period if it is determined probable that the restrictions based upon
attaining the probable targets will lapse. The compensation expense was
$397,000, $465,000 and $1,290,000 in 1997, 1996, and 1995, respectively. As of
December 31, 1997, awards of 70,324 shares are subject to the restrictions and
will be forfeited if the restrictions are not met prior to August 2000.
(14) Income Tax Expense
The components of total income taxes and a reconciliation of
total income taxes to the actual income tax obligation follow (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Total income taxes:
From continuing operations before extraordinary item:
Current:
Federal ........................................................... $ 588 $ 563 $ 620
State and local ................................................... 515 745 1,000
Foreign ........................................................... 622 297 364
-------- -------- --------
1,725 1,605 1,984
-------- -------- --------
Deferred:
Federal ........................................................... 10,203 10,033 13,840
State and local ................................................... 988 882 870
Foreign ........................................................... 488 752 -
-------- -------- --------
11,679 11,667 14,710
-------- -------- --------
Total from continuing operations before extraordinary item ........ 13,404 13,272 16,694
Discontinued operations .............................................. 38,250 (462) (495)
Extraordinary item ................................................... (465) - -
Stockholders' equity ................................................. (3,277) (402) (72)
-------- -------- --------
Total income taxes ................................................ 47,912 12,408 16,127
Noncash allocations:
Deferred income taxes - continuing operations ....................... (11,679) (11,667) (13,868)
Deferred income taxes - discontinued operations ..................... (25,687) 1,651 1,207
Charges in lieu of taxes ............................................ - - (842)
-------- -------- --------
Actual income tax obligations ..................................... $ 10,546 $ 2,392 $ 2,624
======== ======== ========
</TABLE>
In accordance with the Reorganization SOP, pre-reorganization deferred
tax assets not previously recognized on the balance sheet are recorded as a
reduction to Reorganization Goodwill (until reduced to zero and then as an
addition to paid-in capital) when realized and are presented as "charges in
lieu of taxes."
Pretax income from continuing operations by domestic and foreign source
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Domestic ......... $33,577 $34,606 $31,275
Foreign .......... 3,241 3,879 3,425
------- ------- -------
$36,818 $38,485 $34,700
======= ======= =======
</TABLE>
Income tax expense attributable to income from continuing operations
differs from the amount computed by applying the Federal statutory rate to
pretax income due to the following (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Computed "expected" tax expense .... $12,886 $13,470 $12,145
State and local taxes .............. 1,323 1,422 1,582
Equity in earnings of affiliates ... (733) (818) (817)
Foreign tax rate differential ...... (373) (296) (651)
Goodwill amortization .............. 20 22 5,672
Other, net ......................... 281 (102) (870)
Valuation allowance ................ -- (426) (367)
------- ------- -------
Income tax expense ................. $13,404 $13,272 $16,694
======= ======= =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31 follow (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards .............. $ 9,526 $ 38,783
Accrued liabilities ........................... 13,882 18,474
Pension and other post-retirement benefits .... 11,026 11,105
Alternative Minimum Tax Credit ................ 7,965 1,872
Capital loss carryforwards .................... -- 8,812
Other......................................... 1,127 2,537
-------- --------
Total gross deferred tax assets ............. 43,526 81,583
Less valuation allowance .................. (29,870) (34,116)
-------- --------
13,656 47,467
Deferred tax liabilities:
Plant and equipment ............................ (11,472) (9,199)
Other .......................................... (853) (867)
-------- --------
Total gross deferred tax liabilities ........... (12,325) (10,066)
-------- --------
Net deferred tax asset.......................... $ 1,331 $ 37,401
======== ========
</TABLE>
The net reduction in the valuation allowance for deferred tax
assets for the years ended December 31, 1997, 1996, and 1995 was $4,246,000,
$10,836,000 and $7,623,000, respectively, which primarily resulted from the
reduction of the deferred tax assets in 1997 and the recognition of additional
deferred tax assets and the expiration of capital loss carryforwards in 1996
and 1995. During the fourth quarters of 1996 and 1995, deferred tax assets of
$10,663,000 and $9,180,000, respectively, were recognized because it was
concluded that it was more likely than not that additional deferred tax assets
would be realized in future years following an evaluation of the actual 1994,
1995 and 1996 taxable income and projections of future taxable income. In
1996, the projections included an assessment of the impact of the decision to
pursue a sale of the Rolodex Business (completed in March 1997) on future
taxable income. Accordingly, the recognition of a pre-reorganization deferred
tax asset of $7,201,000 in 1995 was recorded as a reduction to Reorganization
Goodwill, $10,237,000 and $1,612,000, in 1996 and 1995 respectively, was
recorded as an increase to paid-in capital and $426,000 and $367,000 was
recorded as a component of deferred income tax benefit in 1996 and 1995,
respectively.
Recognition, if any, of tax benefits subsequent to December 31,
1997 relating to unrecognized deferred tax assets are expected to be allocated
to the consolidated statements of operations and additional paid-in capital in
the amounts of $17,676,000 and $12,194,000, respectively. At December 31,
1997, the Company had Federal net operating loss carryforwards of
approximately $16,682,000 which begin to expire in 2008.
The Company and its domestic subsidiaries file a consolidated
U.S. Federal income tax return. The IRS is presently examining the
consolidated Federal income tax returns for 1991 through 1996. Management
believes that the ultimate outcome of this examination will not have a
material adverse effect on the financial condition, results of operations or
liquidity of the Company.
(15) Other Income and Nonrecurring Charges
Other income for 1996 included a favorable adjustment of
$2,200,000 related to the Company's environmental liabilities following
completion of a site clean-up for an amount less than previously estimated.
Other income for 1995 included favorable adjustments of $3,600,000 related to
the Company's environmental liabilities following a review of its liabilities
from previously divested operations, $1,494,000 related to the resolutions of
several legal disputes and a $3,973,000 gain on the sale of idle corporate
assets.
(16) Related Party Transactions
During 1997, the Company paid Goldman Sachs $1,996,000 in
investment banking fees and expenses related to the sale of the Rolodex
Business, $2,042,000 of fees in connection with the refinancing and issuance
of the Notes and $204,000 for services rendered in connection with the Tender
Offer. During 1997, the Company paid Goldman Sachs $3,094,000 in underwriting
fees related to the issuance of the Notes.
As discussed in Note 8, the Company entered into a new bank
credit agreement in 1997. Goldman Sachs Credit Partners L.P, an affiliate of
Goldman Sachs, had an initial participating interest of $66,667,000 in the
Bank Credit Agreement. Goldman Sachs Credit Partners L.P received $583,000
from the agent bank for its portion of the arrangement fee paid by the Company
in 1997.
During 1996, the Company paid Goldman Sachs $1,000,000 in
transaction fees in connection with the purchase of Lingemann (See Note 3). In
connection with such services, the Company provides for the indemnification of
Goldman Sachs against various liabilities, including liabilities under the
Federal securities laws.
(17) Commitments and Contingencies
Rental expense for operating leases totaled $4,283,000,
$3,291,000 and $2,468 000 for the years ended December 31, 1997, 1996 and
1995, respectively. These leases primarily relate to production facilities.
Rentals received for subleases for operating leases totaled $248,000 in 1997
and none in both 1996 and 1995.
Future minimum lease payments under contractually
noncancellable operating leases (with initial lease terms in excess of one
year) for years subsequent to December 31, 1997 are as follows: 1998,
$3,774,000; 1999, $2,861,000; 2000, $2,209,000; 2001, $1,596,000; 2002,
$874,000; and thereafter, $1,324,000. Future minimum rentals to be received
under noncancellable subleases for years subsequent to December 31, 1997 are
as follows: 1998, $260,000; 1999, $260,000; 2000, $260,000; 2001, $22,000; and
thereafter, none.
The Company is implicated in various claims and legal actions
arising in the ordinary course of business. Those claims or liabilities not
subject to Bankruptcy Court litigation will be addressed in the ordinary
course of business and be paid in cash as expenses are incurred.
In the opinion of management, the ultimate disposition of the
matters discussed above will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
(18) Business Segment Information
The Company manufactures and supplies a diversity of products
in three primary business segments. The segments and products are discussed
below:
(a) Automotive Components Group
The Automotive Components Group is made up of three operating
units, Thermal Components Group ("Thermal"), Steel Parts Corporation
("Steel Parts") and Romac Metals ("Romac"). The businesses in this segment
manufacture automotive heat exchangers and related tubing, automatic
transmission and suspension components and stainless steel tubing,
respectively.
In 1997, the group's sales to the automotive OEM market,
aftermarket and non-automotive OEM manufacturers were 46%, 16% and 27% of
total sales, respectively, compared to 46%, 19% and 23% of total sales,
respectively, in 1996 and 43%, 19% and 22% of total sales, respectively,
in 1995.
Thermal's heat-transfer products have a broad range of
applications in motor vehicles, railroad locomotives, construction and
other industrial equipment.
Steel Parts is a manufacturer of close tolerance precision metal
stampings for the automotive industry including clutch plates for
automatic transmissions, suspension parts for vibration-reducing
assemblies and engine mounts. Approximately 70%, 70% and 67% of Steel
Parts' sales were to one of the "Big 3" domestic automobile manufacturers
in 1997, 1996 and 1995, respectively.
Romac manufactures stainless steel tubing for a variety of
marine, architectural, automotive and decorative applications at its
facility in North Carolina. Competition is based principally on price and,
to a lesser extent, on the shapes and finishes that can be achieved with
the tubing.
(b) Technologies Group
The Technologies Group consists of four operating units, Stewart
Connector Systems, Inc. ("Stewart Connector"), Signal Transformer Co.,
Inc. ("Signal"), Stewart Stamping Corporation ("Stewart Stamping"), and
Escod Industries ("Escod"). These units manufacture telecommunication and
electrical component products for the computer networking, telephone
digital switching, precision wiring, main frame computer, automotive and
medical equipment markets.
Stewart Connector designs and manufactures specialized high speed
data connector systems for telecommunications, cellular communications and
data transmission, including local and wide area networks. Foreign sales
accounted for approximately 41% of Stewart Connector's sales in 1997, 40%
in 1996 and 43% in 1995. Competition is based principally on price with
respect to older product lines and on technology and product features for
newer products and to a lesser extent, patent protection.
Signal manufactures both standard off-the-shelf and custom-made
power transformers serving a broad customer base in a variety of
industries. It has a customer base of over nine thousand accounts,
consisting of both OEMs and aftermarket resellers.
Stewart Stamping is a tool designer and subcontract manufacturer
of precision stampings and wireformed parts. Stewart Stamping sells it
products to a broad customer base primarily in the U.S. Stewart Stamping
traditionally has focused on products that because of the engineering and
manufacturing capability required to produce them, have the potential for
repeat business.
Escod produces electronic cable assemblies, specialized wire
harnesses and certain telecommunication equipment subassemblies for sale
to manufacturers of telecommunications, computer and other electronics
equipment. Two telecommunications OEMs together accounted for
approximately 68%, 66% and 60% of Escod's total revenues in 1997, 1996 and
1995, respectively.
(c) Specialty Publishing
Specialty Publishing consists of Taylor Publishing Company
("Taylor"), a wholly owned subsidiary engaged in yearbook and other
specialty publishing.
Taylor is engaged primarily in the contract design and printing
of student yearbooks from which it derived at least 87% of its revenues in
each of the last three years. The market for yearbooks is affected more by
demographic trends than by business cycles. Taylor markets its yearbook
services through commissioned independent sales representatives who
maintain contact with yearbook faculty advisors, school principals and
other key purchasing personnel.
(d) Allocation of Intangibles
In accordance with the Reorganization SOP, the Company has
allocated Reorganization Goodwill and resulting amortization to its
identifiable segments.
(e) Allocated Corporate Overhead
Segment operating income (loss) reflects the allocation of
corporate overhead.
Operating information of each business segment, excluding
divested subsidiaries, follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Automotive Components Group
Sales.................................................... $ 231,070 $ 209,722 $ 180,251
Cost of Sales............................................ 171,375 156,481 134,673
Selling, general and administrative expenses............. 23,889 19,389 15,811
Allocated corporate overhead............................. 3,537 2,981 1,282
Depreciation and amortization............................ 9,199 6,956 4,674
Amortization of Reorganization Goodwill.................. -- -- 3,404
--------- --------- ---------
Segment operating income............................... $ 23,070 $ 23,915 $ 20,407
========= ========= =========
Technologies Group
Sales.................................................... $ 198,941 $ 183,663 $ 170,615
Cost of sales............................................ 140,683 127,337 116,253
Selling, general and administrative expenses............. 25,365 23,190 19,750
Allocated corporate overhead............................. 3,728 3,152 1,412
Depreciation and amortization............................ 6,159 5,531 5,714
Amortization of Reorganization Goodwill.................. -- -- 7,176
--------- --------- ---------
Segment operating income............................... $ 23,006 $ 24,453 $ 20,310
========= ========= =========
Specialty Publishing Group
Sales.................................................... $ 98,222 $ 99,020 $ 98,640
Cost of sales............................................ 58,787 61,094 60,389
Selling, general and administrative expenses............. 29,406 31,504 29,594
Allocated corporate overhead............................. 1,744 1,986 881
Depreciation and amortization............................ 2,930 2,786 2,904
Amortization of Reorganization Goodwill.................. -- -- 5,625
--------- --------- ---------
Segment operating income (loss)........................ $ 5,355 $ 1,650 $ (753)
========= ========= =========
</TABLE>
A reconciliation of segment operating income to consolidated
operating income follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Total segment operating income.... $51,431 $50,018 $39,964
Corporate depreciation............ (89) (84) (60)
Unallocated corporate overhead.... (240) (1,501) (1,023)
------- ------- -------
Consolidated operating income.... $51,102 $48,433 $38,881
======= ======= =======
</TABLE>
A summary of identifiable assets of each business segment at
December 31 follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Automotive Components Group......... $144,847 $143,628
Technologies Group .................. 87,252 80,740
Specialty Publishing ................ 42,767 40,664
Corporate ........................... 27,807 56,208
Discontinued operations ............. -- 27,153
-------- --------
$302,673 $348,393
======== ========
</TABLE>
Corporate assets include cash, deferred taxes and other assets.
A summary of capital expenditures of each business segment follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ -------
<S> <C> <C> <C>
Automotive Components Group .... $12,194 $7,447 $10,244
Technologies Group ............. 8,166 9,597 7,044
Specialty Publishing Group ..... 3,161 2,876 2,776
Corporate ...................... 62 89 126
Discontinued operations ........ -- 2,570 1,969
------- ------ -------
$23,583 $22,579 $22,159
======= ======= =======
</TABLE>
A summary of export sales by geographic region follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Europe .......... $21,193 $20,584 $17,058
Asia ............ 14,007 16,708 17,955
Canada .......... 9,758 7,752 6,928
Mexico .......... 4,292 6,660 5,153
Other ........... 6,155 6,449 5,972
------- ------- -------
$55,405 $58,153 $53,066
======= ======= =======
</TABLE>
(19) Quarterly Financial Information (unaudited)
A summary of quarterly financial information follows (in thousands):
<TABLE>
<S> <C> <C> <C> <C>
1997 Dec. 31 Sept. 30 (1) June 30 March 31 (2)
---- ------------ ------------- ---------- --------------
Sales ...................................................... $ 120,624 $ 131,394 $ 169,671 $ 106,544
Gross profit ............................................... 29,508 34,269 52,170 26,011
Net income from continuing operations before extraordinary
item ..................................................... 3,531 4,315 11,207 4,361
Discontinued operations .................................... -- -- -- 58,958
Extraordinary item ......................................... -- (728) -- --
------------ ------------- ---------- --------------
Net income ................................................. $ 3,531 $ 3,587 $ 11,207 $ 63,319
============ ============= ========== ==============
Per Basic Share:
Continuing operations .................................... $ 0.87 $ 0.77 $ 1.16 $ 0.45
Discontinued operations .................................. -- -- -- 6.20
Extraordinary item ....................................... -- (0.13) -- --
------------ ------------- ---------- --------------
Net income ............................................. $ 0.87 $ 0.64 $ 1.16 $ 6.65
============ ============= ========== ==============
Per Diluted Share:
Continuing operations .................................... $ 0.85 $ 0.75 $ 1.14 $ 0.44
Discontinued operations .................................. -- -- -- 5.95
Extraordinary item ....................................... -- (0.13) -- --
------------ ------------- ---------- --------------
Net income ............................................. $ 0.85 $ 0.62 $ 1.14 $ 6.39
============ ============= ========== ==============
1996 Dec. 31 (3) Sept. 30 (4) June 30 March 31
---- ------------ ------------- ---------- --------------
Sales ...................................................... $ 115,522 $ 122,164 $ 156,566 $ 98,153
Gross profit ............................................... 29,237 31,102 47,950 25,550
Net income from continuing operations....................... 4,795 6,152 10,320 3,946
Discontinued operations .................................... 7,825 2,330 1,485 2,200
------------ ------------- ---------- --------------
Net income ................................................. $ 12,620 $ 8,482 $ 11,805 $ 6,146
============ ============= ========== ==============
Per Basic Share:
Continuing operations .................................... $ 0.50 $ 0.65 $ 1.08 $ 0.41
Discontinued operations .................................. 0.83 0.25 0.16 0.23
------------ ------------- ---------- --------------
Net income ............................................. $ 1.33 $ 0.90 $ 1.24 $ 0.64
============ ============= ========== ==============
Per Diluted Share:
Continuing operations .................................... $ 0.48 $ 0.62 $ 1.05 $ 0.40
Discontinued operations .................................. 0.79 0.24 0.15 0.22
------------ ------------- ---------- --------------
Net income ............................................. $ 1.27 $ 0.86 $ 1.20 $ 0.62
============ ============= ========== ==============
</TABLE>
(1) Includes a pretax extraordinary loss of $1,193,000 (or $.21 per share on
both a basic and diluted basis) related to the extinguishment of debt (See
Note 8).
(2) Includes a pretax gain on the sale of the Rolodex Business totaling
$95,001,000.
(3) Includes the following: (a) pretax gain of $3,125,000 on the sale of
Rolodex Electronics (See Note 2), (b) recognition of a tax benefit of
$3,207,000 primarily related to a capital loss carryforward.
(4) Includes a pretax favorable adjustment of $2,200,000 to the Company's
environmental liabilities.
(20) Pro Forma Results of Operations (unaudited)
Set forth below is certain unaudited pro forma consolidated
financial information of the Company based on historical information that has
been adjusted to reflect all transactions directly or indirectly related to
the transactions discussed in Notes 8 and 11. In addition, the historical
financial information for 1996 has been adjusted to reflect the acquisition of
the Lingemann Business (See Note 3).
The income statement data give effect to the following
transactions as if all had occurred at the beginning of each period presented;
(i) the Company's purchase of 2,805,194 shares of common stock from Water
Street and 51,948 shares from Mr. Smialek at a price of $38.50 per share; (ii)
the Company's purchase of 2,857,142 shares at a price of $38.50 per share
pursuant to the Tender Offer; (iii) the closing of the Bank Credit Agreement
(including advances to refinance in full outstanding indebtedness under the
prior credit agreement); and (iv) the issuance of $150 million of the Notes.
The income statement data for the 1996 period has been adjusted to reflect the
acquisition of the Lingemann Business as if it had occurred at the beginning
of the period. The Lingemann Business acquisition actually occurred in the
third quarter of 1996. The nonrecurring transactions directly related to the
aforementioned transaction are excluded from the pro forma income statement
data. The unaudited summary pro forma consolidated financial data is based on
certain assumptions and estimates, and therefore does not purport to be
indicative of the results that would actually have been obtained had the
transactions been completed as of such dates or indicative of future results of
operations and financial position.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
Year Ended December 31, 1997
Unaudited Pro Forma Condensed Consolidated Statement of Income
Year Ended December 31, 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
Refinancing
and Tender
Historical Offer(1) Pro Forma
------------ ---------- -----------
<S> <C> <C> <C>
Net sales.................................................................. $ 528,233 $ -- $ 528,233
Cost of goods sold......................................................... 370,845 -- 370,845
Depreciation and amortization.............................................. 18,377 -- 18,377
Selling, general and administrative expenses............................... 87,909 -- 87,909
------------ ------------ -----------
Operating income.......................................................... 51,102 -- 51,102
Interest expense........................................................... (20,562) (8,879) (29,441)
Interest income............................................................ 2,837 (2,091) 746
Equity in net income of Thermalex.......................................... 2,647 -- 2,647
Other income, net.......................................................... 794 -- 794
------------ ------------ -----------
Income from continuing operations before income taxes and
extraordinary item...................................................... 36,818 (10,970) 25,848
Income tax expense........................................................ (13,404) 4,223 (9,181)
------------ ------------ -----------
Income from continuing operations before extraordinary item............... $ 23,414 $ (6,747) $ 16,667
============ =========== ===========
Basic income from continuing operations before extraordinary item per
share...................................................................... $ 3.25 $ 4.20
============ =========== ===========
Weighted average number of common shares outstanding....................... 7,200 (3,233) 3,967
Diluted income from continuing operations before extraordinary item per
common share............................................................... $ 3.19 $ 4.05
============ =========== ===========
Weighted average number of common shares and common share
equivalents outstanding.................................................... 7,345 (3,233) 4,112
============ =========== ===========
</TABLE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
Year Ended December 31, 1997
Unaudited Pro Forma Condensed Consolidated Statement of Income
Year Ended December 31, 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
Refinancing
and Tender
Historical Acquisition(2) Subtotal Offer(1) Pro Forma
---------- --------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
Net sales.................................. $ 492,405 $ 14,735 $ 507,140 $ -- $ 507,140
Cost of goods sold......................... 344,912 12,704 357,616 -- 357,616
Depreciation and amortization.............. 15,357 1,577 16,934 -- 16,934
Selling, general and administrative
expenses ................................. 83,703 2,193 85,896 -- 85,896
---------- --------- ---------- ------ ----------
Operating income........................... 48,433 (1,739) 46,694 -- 46,694
Interest expense........................... (18,378) (68) (18,446) (13,770) (32,216)
Interest income............................ 724 -- 724 -- 724
Equity in net income of Thermalex.......... 2,922 -- 2,922 -- 2,922
Other income, net.......................... 4,784 -- 4,784 -- 4,784
---------- --------- ---------- ------ ----------
Income from continuing operations before
income taxes.............................. 38,485 (1,807) 36,678 (13,770) 22,908
Income tax expense......................... (13,272) 1,032 (12,240) 5,301 (6,939)
---------- --------- ---------- ------ ----------
Income from continuing operations.......... $ 25,213 $ (775) $ 24,438 $ (8,469) $ 15,969
========== ========= ========== ========= ==========
Basic income from continuing operations
per share.................................. $ 2.65 $ 4.20
========== ==========
Weighted average number of common
shares outstanding......................... 9,517 (5,714) 3,803
========== ======== ==========
Diluted income from continuing operations
per share.................................. $ 2.55 $ 3.82
========== ==========
Weighted average number of common
shares and common share equivalents
outstanding................................ 9,892 (5,714) 4,178
========== ======== ==========
</TABLE>
The Notes to the Unaudited Pro Forma Condensed Consolidated
Statements of Income follow:
(1) To record the effect on interest expense and the related
income tax effect of (a) the purchase of 2,805,194 shares from Water Street
and 51,948 shares from Mr. Smialek at $38.50 per share in cash for an
aggregate purchase price of $109,999,967, (ii) the entering into of the Bank
Credit Agreement and the issuance and sale of $150,000,000 aggregate principal
amount of the Notes, and (iii) the purchase of 2,857,142 shares at $38.50 per
share in cash for an aggregate purchase price of $109,999,967 pursuant to the
Tender Offer, as if the aforementioned transactions had occurred at the
beginning of the periods presented.
(2) To record the effect on sales, costs and expenses assuming
that the acquisition of the Lingemann Business had occurred as of the
beginning of the period presented. Proceeds from the sales of Rolodex
Electronics and Curtis were assumed to have been applied to reduce the
Company's outstanding debt at the beginning of the period, reducing interest
expense and the related income tax expense. The acquisition of the Lingemann
Business was assumed to have occurred and to have been funded through
borrowings under the prior bank agreement as of the beginning of the period
presented.
(21) Subsequent Event
On March 24,1998, it was announced that the Company and an
affiliate of DLJ Merchant Banking Partners II (and affiliated funds) ("DLJMB")
signed a definitive merger agreement. Under the initial terms of the
agreement, the stockholders of the Company would have received total
consideration of $42.98 in cash and 0.03419 shares of retained stock (having a
nominal value of $44.50 per share) of the surviving corporation. On June 8,
1998 DLJMB agreed to increase the total consideration to be paid by $0.50 in
cash to $43.48 in cash and 0.03378 shares of retained stock (having a nominal
value of $45.00 per share) of the surviving corporation. In aggregate,
stockholders will receive approximately $180.2 million in cash and retain
140,031 shares in the surviving entity. The retained shares will represent
approximately 10% of the common stock outstanding post-recapitalization.
The transaction, which is estimated to have a value of
approximately $448 million including existing indebtedness to be assumed
and/or refinanced, is subject to terms and conditions customary in
transactions of this type, including approval by the Company's shareholders,
and will be treated as a recapitalization for accounting purposes. Affiliates
of Donaldson, Lufkin & Jenrette Securities Corporation, which acted as
financial advisors to DLJMB, have committed to provide all debt financing
required for the transaction.
DLJMB also announced that it entered into a voting agreement in
support of the transaction with respect to 1,783,878 shares, approximately 43%
of the voting stock of the Company, with Water Street, an affiliate of Goldman
Sachs, which is the Company's largest shareholder.
As a result of the proposed merger, the Company and DLJMB, will
incur various costs and expenses in connection with consummating the
transaction including professional fees, registration costs, financing costs,
and compensation costs. Pursuant to the terms of the merger, all issued
employee stock options will vest. The compensation expense associated with the
option payments will include approximately $9.1 million to employees for the
excess of the $45.00 purchase price per share over the exercise price of all
outstanding vested and unvested options.
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>
Insilco
-----------------------------------
Merger Silkworm Company
Historical Adjustments Pro Forma Adjustments Pro Forma
---------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
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) 45,057
1,258 (6)
---------- -------- -------- -------- --------
Total assets.................... 314,118 3,457 317,575 3,321 320,896
========== ======== ======== ======== ========
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 other..... 44,597 (3,548)(3)(5) 41,049 (220)(3)(5) 40,829
---------- -------- -------- -------- --------
Total current liabilities...... 96,508 (3,548) 92,960 (220) 92,740
---------- -------- -------- -------- --------
Long-term debt.................. 264,799 41,804 (1)(4) 306,603 68,187 (1)(4) 374,790
Other long-term obligations..... 43,615 43,615 43,615
---------- -------- -------- -------- --------
Total liabilities............ 404,922 38,256 443,178 67,967 511,145
Preferred Stock................. 32,049 (1)(9) 32,049
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)
3,969 (3)(6) 4,969 (4)(9)
(125,603) 26,761 (10) (222,298)
---------- -------- -------- -------- --------
Total liabilities and
stockholders' equity
(deficit)....................... 314,118 3,457 317,575 3,321 320,896
========== ======== ======== ======== ========
</TABLE>
(footnotes on following page)
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>
Insilco
------------------
Recorded Pending Silkworm Company
-------- ------- -------- -------
<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>
Insilco
------------------
Recorded Pending Silkworm Company
-------- ------- -------- --------
<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>
Insilco
------------------------
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>
Insilco
-----------------------
Recorded Pending Silkworm Company
-------- ------- -------- -------
<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
merged).
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>
Insilco
-------------------------------------------------
Merger Silkworm Company
Historical Adjustments Pro Forma Adjustments Pro Forma
---------- ----------- --------- ----------- ---------
<S> <C> <C> <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 1.51
Basic shares....................... 4,141 1,606
Diluted............................ 1.69 1.51
Diluted shares .................... 4,270 1,606
</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>
Insilco
--------------------------------------------------------------------
1997 Merger Silkworm 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 1.69
Basic shares ....................... 9,585 3,871 1,606
Diluted............................. 1.58 2.42 1.69
Diluted shares ..................... 9,875 4,161 1,606
</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>
Insilco
--------------------------------------------------------------
1997 Merger Silkworm Holdings
Historical Transactions Subtotal Adjustments Pro Forma Adjustments Pro Forma
---------- ------------ -------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <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) (31,088)
Accretion........................... (204) (204) (204) (10,173) (4) (10,377)
Amortization........................ (1,032) (245) (3) (1,277) (120) (4) (1,397) (320) (4) (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 0.91
Basic shares 7,200 3,967 1,606
Diluted 3.19 4.05 0.91
Diluted shares 7,345 4,112 1,606
</TABLE>
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.
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 Months First Six Months 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 ..................................... 0.91 1.69 1.51 0.73
Basic shares............................... 1,606 1,606 1,606 1,606
Diluted.................................... 0.91 1.69 1.51 0.73
Diluted shares............................. 1,606 1,606 1,606 1,606
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
</TABLE>
(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.
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 THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
[Alternate Cover for Market-Making Prospectus]
PROSPECTUS SUBJECT TO COMPLETION DATED SEPTEMBER 30, 1998
Insilco Holding Co.
14% Senior Discount Notes Due 2008
The 14% Senior Discount Notes due 2008 (the "Exchange Notes") were
issued by Insilco Holding Co. (the "Company") in exchange for the 14% Senior
Discount Notes due 2008 (the "Old Notes" and, together with the Exchange
Notes, the "Senior Discount Notes"). The terms of the Exchange Notes are
identical in all material respects to the terms of the Old Notes, except that
the Exchange Notes have been registered under the Securities Act and therefore
are not subject to certain restrictions on transfer applicable to the Old
Notes and do not contain legends relating thereto. The Exchange Notes were
issued under the same Indenture (as defined herein) as the Old Notes and the
Exchange Notes and the Old Notes constitute a single series of debt securities
under the Indenture and vote together as a single class for purposes of
determining whether holders of the requisite percentage in outstanding
principal amount at maturity of Senior Discount Notes have taken certain
actions or exercise certain rights under the Indenture.
The Exchange Notes are subject to redemption at any time on or after
August 15, 2003 at the option of the Issuer, in whole or in part, in cash at
the redemption prices set forth herein, plus accrued and unpaid interest to
the applicable redemption date. Notwithstanding the foregoing, on or prior to
August 15, 2001, the Issuer may redeem up to 100% of the aggregate principal
amount at maturity of Exchange Notes ever issued under the Indenture in cash
at a redemption price of 114% of the Accreted Value (as defined herein)
thereof to the redemption date, with the net cash proceeds of one or more
Public Equity Offerings (as defined herein). In addition, at any time prior to
August 15, 2003, the Issuer may, at its option upon the occurrence of a Change
of Control (as defined herein), redeem the Exchange Notes, in whole but not in
part, in cash at a redemption price equal to the present value at such time of
the optional redemption price of the Exchange Notes at August 15, 2003,
computed using a discount rate equal to the Treasury Rate (as defined herein)
plus 75 basis points, to the date of redemption. Upon the occurrence of a
Change of Control, each Holder of Exchange Notes will have the right to
require the Issuer to repurchase all or any part of such Holder's Exchange
Notes at an offer price in cash equal to 101% of the Accreted Value thereof,
in the case of any such purchase prior to August 15, 2003, or 101% of the
principal amount at maturity thereof, in the case of any such purchase on or
after August 15, 2003, in each case plus accrued and unpaid interest to the
date of repurchase. In addition, in the event the Issuer completes one or more
Public Common Stock Offerings (as defined herein) for cash at any time prior
to August 15, 2001, the Issuer will be obligated to use the net cash proceeds
received therefrom to make an offer to purchase the maximum principal amount
at maturity of Exchange Notes that may be purchased with such net cash
proceeds at a purchase price in cash equal to 114% of the Accreted Value
thereof to the date of repurchase. See "Description of Exchange Notes."
The Exchange Notes will be senior unsecured obligations of the Issuer.
The Issuer has also provided a guarantee of the indebtedness under the Credit
Facility (as defined herein) of Insilco Corporation ("Insilco"), the Issuer's
operating subsidiary, which is secured by a pledge of all of the common stock
of Insilco. The Exchange Notes will rank pari passu with all future senior
indebtedness of the Issuer and will rank senior in right of payment to all
future indebtedness of the Issuer that is subordinated to the Exchange Notes.
The Issuer is a holding company and, accordingly, the Exchange Notes will be
effectively subordinated to all liabilities of Insilco and its subsidiaries.
As of June 30, 1998, on a pro forma basis after giving effect to the Mergers
(as defined herein) and Merger Financing (as defined herein), the Issuer and
its subsidiaries would have had approximately $376.8 million of Indebtedness
(as defined herein) and the Issuer's subsidiaries would have had approximately
$447.1 million of liabilities outstanding, including Indebtedness under the 10
1/4% Notes and the Credit Facility (each as defined herein) and other
liabilities. Further, the Issuer $35 million of aggregate liquidation
preference of PIK Preferred Stock (as defined) outstanding, which increases
as dividends are paid in kind on the PIK Preferred Stock through August 1,
2003, after which date dividends will be payable in cash, and which will be
mandatorily redeemable in cash on August 1, 2010 at the aggregate liquidation
preference of the PIK Preferred Stock.
(Continued on next page)
----------
See "Risk Factors" commencing on page 20 for a discussion of certain
factors that should be considered by holders of the Old Notes prior to
tendering their Old Notes in the Exchange Offer.
----------
THE 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.
This Prospectus is to be used by (i) Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJSC") in connection with offers and sales
in market-making transactions at negotiated prices related to prevailing
market prices at the time of sale and (ii) by DLJ Investment Partners, L.P.,
DLJ ESC II, L.P. and DLJ Investment Funding, Inc. (The "DLJ Mezzanine
Investors"), or other selling security holder named in an accompanying
prospectus supplement, 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 relating to such prevailing prices or at negotiated
prices. The DLJ Mezzanine Investors or such other selling security holder may
effect such transactions by selling the Exchange Notes to or through
broker-dealers and such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the DLJ Mezzanine Investors or such
other selling security holder or the purchasers of the Exchange Notes 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 does
not intend to list the Exchange Notes on any securities exchange or to seek
admission thereof to trading in the National Association of Securities Dealers
Automated Quotation System. DLJSC has advised the Company that it intends to
make a market in the Exchange Notes; however, it is not obligated to do so and
any market-making may be discontinued at any time. The Company will receive
no portion of the proceeds of the sale of the Exchange Notes and will bear
expenses incident to the registration thereof.
DONALDSON, LUFKIN & JENRETTE
The date of this Prospectus is , 1998
[ALTERNATE SECTIONS FOR MARKET-MAKING PROSPECTUS]
Trading Market for the Exchange Notes
There is no existing trading market for the Exchange Notes, and
there can be no assurance regarding the future development of a market for the
Exchange Notes or the ability of the Holders of the Exchange Notes to sell
their Exchange Notes or the price at which such Holders may be able to sell
their Exchange Notes. If such market were to develop, the Exchange Notes
could trade at prices that may be higher or lower than their initial offering
price depending on many factors, including prevailing interest rates, the
Company's operating results and the market for similar securities. Although
it is not obligated to do so, DLJSC intends to make a market in the Exchange
Notes. Any such market-making activity may be discontinued at any time, for
any reason, without notice at the sole discretion of DLJSC. No assurance can
be given as to the liquidity of or the trading market for the Exchange Notes.
DLJSC may be deemed to be a affiliate of the Company and, as
such, may be required to deliver a prospectus in connection with its
market-making activities in the Exchange Notes. Pursuant to the Registration
Rights Agreement, the Company agreed to use its best efforts to file and
maintain a registration statement that would allow DLJSC to engage in
market-making transactions in the Exchange Notes for up to 90 days from the
date on which the Exchange Offer is consummated. The Company has agreed to
bear substantially all the costs and expenses related to such registration
statement.
USE OF PROCEEDS
This Prospectus is delivered in connection with the sale of the
Exchange Notes by DLJSC in market-making transactions or by the DLJ Mezzanine
Investors or other selling securityholder named in an accompanying prospectus
supplement in resale transactions. The Company will not receive any of the
proceeds from such transactions.
PLAN OF DISTRIBUTION
This Prospectus is to be used by DLJSC in connection with
offers and sales of the Exchange Notes in market-making transactions effected
from time to time. DLJSC may act as a principal or agent in such
transactions, including as agent for the counterparty when acting as principal
or as agent for both counterparties, and may receive compensation in the form
of discounts and commissions, including from both counterparties when it acts
as agent for both. Such sales will be made at prevailing market prices at the
time of sale, at prices related thereto or at negotiated prices.
In addition, this Prospectus is to be used by the DLJ Mezzanine
Investors or other selling securityholder named in an accompanying prospectus
supplement in connection with resales in the over-the-counter market, in
negotiated transactions, in underwritten offerings, or a combination of such
methods of sale, a 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 DLJ Mezzanine Investors or such other selling
securityholder may effect such transactions by selling the Exchange Notes to or
through broker-dealers, and such broker-dealers may receive compensation in the
form of discounts, concessions or commissions from the DLJ Mezzanine Investors
or such other selling securityholder and/or the purchasers of the Exchange Notes
for whom such broker-dealer 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). The address of each of the DLJ Mezzanine
Investors is 277 Park Avenue, New York, NY 10172.
In order to comply with the securities laws of certain states,
if applicable, the Exchange Notes will be sold in such jurisdiction only
through registered or licensed brokers or dealers. In addition, in certain
states the Exchange Notes 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 DLJ Mezzanine Investors or such other selling
securityholder and any broker-dealers or agents that participate with the DLJ
Mezzanine Investors in the distribution of the Exchange Notes 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 Exchange
Notes purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
Each of the DLJ Mezzanine Investors or such other selling
securityholder 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 the Exchange Notes by the DLJ Mezzanine
Investors.
DLJMB, an affiliate of DLJSC, and certain of its affiliates
beneficially own approximately 69.0% of the common stock of the Company.
Thompson Dean and William F. Dawson, Jr., are officers of DLJMB, Inc. and
members of the Board of Directors of the Company. In addition, DLJSC received
a merger advisory fee of $3.5 million in cash from the Company after the
consummation of the Merger. DLJSC has informed the Company that it does not
intend to confirm sales of the Exchange Notes to any accounts over which it
exercises discretionary authority without the prior specific written approval
of such transactions by the customer.
The Company has been advised by DLJSC that, subject to
applicable laws and regulations, it currently intends to make a market in the
Exchange Notes following completion of the Exchange Offer. However, DLJSC is
not obligated to do so and any such market-making may be interrupted by
discontinued at any time without notice. In addition, such market marking
activity will be subject to the limits imposed by the Securities Act and the
Exchange Act. There can be an assurance that an active trading market will
develop or be sustained. See "Risk Factors--Trading Market for the Exchange
Notes."
DLJSC has, from time to time, provided investment banking and
other financial advisory services to the Company in the past for which they
have received customary compensation, including fees received in connection
with the offering of the Senior Discount Notes, and may provide such services
and financial advisory services to the Company in the future. DLJSC acted as
purchaser in connection with the initial sale of the Units and received an
underwriting discount of approximately $2.46 million in connection therewith.
DLJSC and the Company have entered into the Registration Rights
Agreement with respect to the use by it of this Prospectus. Pursuant to such
agreement, the Company agreed to bear all registration expenses incurred under
such agreement, and the Company agreed to indemnify DLJSC against certain
liabilities, including liabilities under the Securities Act.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. 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.................. $20,820
Legal fees and expenses........... $25,000
Accounting fees and expenses...... $ 5,000
Exchange Agent fees and expenses.. $
Other............................. $
-------
Total.............................. $
=======
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation Law permits a
corporation to indemnify any of its directors or officers who was or is a
party, or is threatened to be made a party to any third party proceeding by
reason of the fact that such person is or was a director or officer of the
corporation, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding, if such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reason to believe that such person's
conduct was unlawful. In a derivative action, i.e., one by or in the right of
the corporation, the corporation is permitted to indemnify directors and
officers against expenses (including attorneys' fees) actually and reasonably
incurred by them in connection with the defense or settlement of an action or
suit if they acted in good faith and in a manner the person reasonably
believed to be in or not opposed to the best interests of the corporation and
except that no indemnification shall be made if such person shall have been
adjudged liable to the corporation, unless and only to the extent that the
court in which the action or suit was brought shall determine upon application
that the defendant directors or officers are fairly and reasonably entitled to
indemnity for such expenses despite such adjudication of liability. Article
Seventh of the Company's 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 15. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with the merger of Silkworm Acquisition
Corporation ("Silkworm") with and into the Registrant, Silkworm issued
1,245,138 shares of its common stock for approximately $56.1 million. In
addition, the Registrant issued 1,400,000 shares of its preferred stock and
warrants to purchase 65,603 shares of its common stock for approximately $35.0
million. As a result of the merger, each share of common stock of Silkworm
became a share of common stock of the Registrant, each share of preferred
stock of Silkworm became a share of preferred stock of the Registrant and each
warrant to purchase common stock of Silkworm became exercisable for an equal
number of shares of common stock of the Registrant.
On August 17, 1998, the Registrant sold 138,000 units (the
"Units"), each consisting of $1,000 principal amount at maturity of its 14%
Senior Discount Notes due 2008 (the "Old Notes") and one warrant to purchase
0.325 of a Share of common stock, par value $0.001 per share, at an initial
exercise price of $0.01 per share (the "Warrants"), to Donaldson, Lufkin &
Jenrette Securities Corporation (the "Initial Purchaser") in a private
placement in reliance on Section 4(2) under the Securities Act, at a price
equal to $508.73 per unit. The Old Notes and Warrants were immediately resold
by the Initial Purchaser in transactions not involving a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
Exhibit
Number
- ------
2.1 Agreement and Plan of Merger, dated as of March 24, 1998, among
Insilco, INR Holding Co., and Silkworm Acquisition Corporation
(incorporated by reference to Exhibit 10(n) to the Registration
Statement on Form S-4 (Reg. No. 333-51145) of Insilco).
2.2 Amendment No. 1 to the Agreement and Plan of Merger, dated June
8, 1998, among Insilco, INR Holding Co. and Silkworm
Acquisition Corporation (incorporated by reference Exhibit
10(r) to the Registration Statement on Form S-4 (Reg. No.
333-51145) of Insilco).
3.1 Certificate of Incorporation (incorporated by reference to
Exhibit 3.1 to the Current Report on Form 8-K filed by the
Company on August 18, 1998).
3.2 By laws incorporated by reference to Exhibit 3.2 to the Current
Report on Form 8-K filed by the Company on August 18, 1998).
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.
4.5* Investors' Agreement, dated as of August 17, 1998, among
Insilco Holding Co. and the investors named therein.
4.6* Indenture, dated as of August 17, 1998 between Silkworm
Acquisition Corporation and the Trustee.
4.7* First Supplemental Indenture, dated as of August 17, 1998
between Insilco Holding Co. and the Trustee.
5.1** Opinion of Davis Polk & Wardwell with respect to the Exchange
Notes.
10.1 Insilco Holding Co. Direct Investment Program (incorporated by
reference to Exhibit 4(c) to the Registration Statement on Form
S-8 (File No. 333-61809)).
10.2 Insilco Holding Co. Stock Option Plan (incorporated by
reference to Exhibit 4(d) to the Registration Statement on Form
S-8 (File No. 333-61809)).
10.3 Insilco Holding Co. and Insilco Corporation Equity Unit Plan
(incorporated by reference to Exhibit 4(c) to the Registration
Statement on Form S-8 (File No. 333-61811)).
12.1* Computation of Ratio of Earnings to Fixed Charges
21.1** Subsidiaries of the Company
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").
25.1* Statement of Eligibility of Star Bank, N.A. on Form T-1.
99.1** Form of Letter of Transmittal
99.2** Form of Notice of Guaranteed Delivery
- ---------
* Filed herewith
** To be filed by amendment
(b) Financial Statement Schedules.
Schedule II - Valuation and Qualifying Accounts. Schedules not listed
above have been omitted because the information required to be set forth
there in is not applicable or is shown in the financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a) (1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the
Registration Statement (or the most recent
post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in
the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) under the Securities Act of 1933 if, in the
aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement;
(iii) To include any material information with
respect to the plan of distribution not previously
disclosed in the Registration Statement or any material
change to such information in the Registration
Statement;
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at the
time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
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, the registrant has duly
caused this registration to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Dublin, State of Ohio, on the 30th
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>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert L. Smialek Chairman and Chief Executive Officer September 30, 1998
- ---------------------- (Principal Executive Officer)
Robert L. Smialek
/s/ David A. Kauer Vice President and Chief Financial Officer September 30, 1998
- ---------------------- (Principal Financial Officer)
David A. Kauer
/s/ Michael R. Elia Vice President and Comptroller September 30, 1998
- ---------------------- (Principal Accounting Officer)
Michael R. Elia
/s/ William F. Dawson September 30, 1998
------------------- Director
William F. Dawson
/s/ Thompson Dean September 30, 1998
------------------- Director
Thompson Dean
/s/ David Y. Howe September 30, 1998
------------------- Director
David Y. Howe
</TABLE>
<TABLE>
INSILCO CORPORATION AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
-----------------------------------------------
(In thousands)
Additions
-------------------------
<CAPTION>
(1) (2)
Charged Charged
Balance at to costs to other Balance
Description beginning and accounts Deductions at end of
of period expenses (describe) (describe) period
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1995
Allowances deducted from assets:
Accounts receivable (for doubtful
receivables) $ 2,247 9,775 - (719)(a) 11,303
Inventory (primarily for obsolescence) 4,094 9,031 - (6,971)(b) 6,154
For the year ended December 31, 1996
Allowances deducted from assets:
Accounts receivable (for doubtful
receivables) $ 11,303 2,298 - (8,623)(a) 4,978
Inventory (primarily for obsolescence) 6,154 2,606 - (2,644)(b) 6,116
For the year ended December 31, 1997
Allowances deducted from assets:
Accounts receivable (for doubtful
receivables) $ 4,978 701 - (3,547)(c) 2,132
Inventory (primarily for obsolescence) 6,116 2,826 - (3,498)(b) 5,444
Notes: (a) Primarily accounts written off, net of recoveries.
(b) Primarily obsolete parts written off.
(c) Primarily due to the sale of the Rolodex Business and accounts
written off, net of recoveries.
</TABLE>
EXHIBIT INDEX
Exhibit
Number Description Page
- ------ ----------- ----
2.1 Agreement and Plan of Merger, dated as of March 24, 1998, among
Insilco, INR Holding Co., and Silkworm Acquisition Corporation
(incorporated by reference to Exhibit 10(n) to the Registration
Statement on Form S-4 (Reg. No. 333-51145) of Insilco).
2.2 Amendment No. 1 to the Agreement and Plan of Merger, dated June
8, 1998, among Insilco, INR Holding Co. and Silkworm
Acquisition Corporation (incorporated by reference Exhibit
10(r) to the Registration Statement on Form S-4 (Reg. No.
333-51145) of Insilco).
3.1 Certificate of Incorporation (incorporated by reference to
Exhibit 3.1 to the Current Report on Form 8-K filed by the
Company on August 18, 1998).
3.2 By laws incorporated by reference to Exhibit 3.2 to the Current
Report on Form 8-K filed by the Company on August 18, 1998).
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.
4.5* Investsors' Agreement, dated as of August 17, 1998, among
Insilco Holding Co. and the investors named therein.
4.6* Indenture, dated as of August 17, 1998 between Silkworm
Acquisition Corporation and the Trustee.
4.7* First Supplemental Indenture, dated as of August 17, 1998
between Insilco Holding Co. and the Trustee.
5.1** Opinion of Davis Polk & Wardwell with respect to the Exchange
Notes.
10.1 Insilco Holding Co. Direct Investment Program (incorporated by
reference to Exhibit 4(c) to the Registration Statement on Form
S-8 (File No. 333-61809)).
10.2 Insilco Holding Co. Stock Option Plan (incorporated by
reference to Exhibit 4(d) to the Registration Statement on Form
S-8 (File No. 333-61809)).
10.3 Insilco Holding Co. and Insilco Corporation Equity Unit Plan
(incorporated by reference to Exhibit 4(c) to the Registration
Statement on Form S-8 (File No. 333-61811)).
12.1* Computation of Ratio of Earnings to Fixed Charges
21.1** Subsidiaries of the Company
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").
25.1* Statement of Eligibility of Star Bank, N.A. on Form T-1.
99.1** Form of Letter of Transmittal
99.2** Form of Notice of Guaranteed Delivery
- ---------
* Filed herewith
** To be filed by amendment
EXHIBIT 4.1
===============================================================================
SILKWORM ACQUISITION CORPORATION
Warrants to Purchase
44,850 Shares of Common Stock
WARRANT AGREEMENT
Dated as of August 17, 1998
NATIONAL CITY BANK
Warrant Agent
===============================================================================
WARRANT AGREEMENT dated as of August 17, 1998 between Silkworm
Acquisition Corporation, a Delaware corporation ("Silkworm"), and National City
Bank, as warrant agent (the "Warrant Agent").
WHEREAS, Silkworm proposes to issue warrants (the "Warrants") to
initially purchase up to an aggregate of 44,850 shares of Common Stock, par
value $.01 per share (the "Silkworm Common Stock"), of Silkworm (the Silkworm
Common Stock issuable on exercise of the Warrants being referred to herein as
the "Silkworm Warrant Shares"), in connection with the offering (the
"Offering") by Silkworm of 138,000 Units (the "Units"), each consisting of
$1,000 principal amount at maturity of Silkworm's 14% Senior Discount Notes due
2008 (the "Notes") and one Warrant, each Warrant initially representing the
right to purchase 0.325 of a Silkworm Warrant Share.
WHEREAS, the Units are being issued and sold in connection with the
merger (the "Merger") of Silkworm with and into Insilco Holding Co., a Delaware
corporation ("Holdings") pursuant to an Agreement and Plan of Merger, as
amended (the "Merger Agreement"), dated as of March 24, 1998, as amended as of
June 8, 1998 and August 12, 1998, by and among Insilco Corporation, Holdings
and Silkworm.
WHEREAS, at the effective time of the Merger (the "Effective Time"),
each share of Silkworm Common Stock will become one share of common stock of
Holdings, par value $.01 per share ("Holdings Common Stock"), each Warrant will
by its terms become exercisable to initially purchase 0.325 of a share of
Holdings Common Stock (the "Holdings Warrant Shares") and Holdings will succeed
to the obligations of Silkworm hereunder and with respect to the indenture
relating to the Notes (the "Indenture"), the Notes and the Warrants.
WHEREAS, concurrently with the Effective Time, Holdings will
authorize, execute and deliver an assumption agreement pursuant to which
Holdings will assume all of the obligations of Silkworm under the Warrants and
the Warrant Agreement.
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance of Warrant Certificates (as defined) and other matters as provided
herein.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
As used herein, the "Company" shall refer to Silkworm prior to the
Merger and to Holdings from and after the Effective Time. As used herein,
"Common Stock" shall refer to Silkworm Common Stock prior to the Merger and to
Holdings Common Stock from and after the Effective Time. As used herein, the
term "Warrant Shares" shall refer to the Silkworm Warrant Shares prior to the
Merger and the Holdings Warrant Shares from and after the Effective Time. As
used herein, the "Initial Purchaser" shall refer to Donaldson, Lufkin &
Jenrette Securities Corporation.
SECTION 1. Appointment of Warrant Agent. The Company hereby appoints
the Warrant Agent to act as agent for the Company in accordance with the
instructions set forth hereinafter in this Agreement, and the Warrant Agent
hereby accepts such appointment.
SECTION 2. Warrant Certificates. The certificates evidencing the
Warrants (the "Warrant Certificates") to be delivered pursuant to this
Agreement shall be in registered form only and shall be substantially in the
form set forth in Exhibit A attached hereto. The Warrants shall be issued in
the form of definitive warrants; provided that any holder of Warrants or
Warrant Shares which are not required to have the legend described in the
immediately following paragraph may exchange such Warrants or Warrant Shares
for a beneficial interest in a global warrant pursuant to procedures to be
established by the Warrant Agent and in conformity with the customary
requirements of The Depository Trust Company or such other depository
institution as the Company may appoint to act as depositary for the Warrants
and the Warrant Shares, and the Warrant Agent is authorized to enter into such
amendments to this Agreement as are necessary to comply with such procedures.
Each person purchasing a Warrant from the Initial Purchaser shall
execute and deliver to the Company and the Initial Purchaser a purchaser letter
substantially in the form attached as Exhibit A to the Offering Memorandum
relating to the Units. Except as permitted by the following paragraph, each
Warrant Certificate issued hereunder and each certificate representing a
Warrant Share issued upon exercise of a Warrant (and all securities issued in
exchange therefor, in substitution thereof or upon conversion thereof) shall
bear a legend (a "Private Placement Legend") substantially in the following
form:
"THIS WARRANT (OR ITS PREDECESSOR) AND THE SHARES OF COMMON STOCK
ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED
STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET
FORTH IN THE NEXT SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL
INTEREST HEREIN, THE HOLDER:
(1) REPRESENTS THAT (A) IT HAS ACQUIRED THIS WARRANT
IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S
UNDER THE SECURITIES ACT OR (B) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A) (1), (2),
(3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT (AN
"IAI")),
(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE
TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER OR ANY OF ITS
SUBSIDIARIES, (B) IN AN OFFSHORE TRANSACTION MEETING THE
REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (C) IN
A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (D) TO AN IAI THAT, PRIOR TO SUCH TRANSFER,
FURNISHES THE WARRANT AGENT A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
TRANSFER OF THIS WARRANT (THE FORM OF WHICH CAN BE OBTAINED
FROM THE WARRANT AGENT) AND AN OPINION OF COUNSEL ACCEPTABLE
TO THE ISSUER THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (E) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND
BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY)
OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND,
IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO
WHOM THIS WARRANT OR AN INTEREST HEREIN IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES"
HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE
SECURITIES ACT. THE WARRANT AGREEMENT CONTAINS A PROVISION REQUIRING THE
WARRANT AGENT TO REFUSE TO REGISTER ANY TRANSFER OF THIS SECURITY IN VIOLATION
OF THE FOREGOING."
(c) Upon any sale or transfer of any Warrant Certificate or Warrant
Shares pursuant to an effective registration statement under the Securities Act
or satisfying the condition set forth in subclause (1)(C) of the Private
Placement Legend, the Warrant Agent shall permit the holder thereof to exchange
such Warrant Certificate or such Warrant Shares for another Warrant Certificate
or certificate evidencing Warrant Shares, as applicable, that does not bear the
legend set forth above and rescind any restriction on the transfer of such
Warrant Certificate or such Warrant Shares.
SECTION 3. Execution of Warrant Certificates. (a) Warrant Certificates
shall be signed on behalf of the Company by an Officer of the Company (as
defined below). Such signature upon the Warrant Certificates may be in the form
of a facsimile signature and may be imprinted or otherwise reproduced on the
Warrant Certificates and for that purpose the Company may adopt and use the
facsimile signature of any person who shall have been an Officer,
notwithstanding the fact that at the time the Warrant Certificates shall be
countersigned and delivered or disposed of he shall have ceased to hold such
office. The seal of the Company may be in the form of a facsimile thereof and
may be impressed, affixed, imprinted or otherwise reproduced on the Warrant
Certificates. For purposes hereof, an "Officer" shall mean the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary or any Vice-President.
(b) In case any Officer of the Company who shall have signed any of
the Warrant Certificates shall cease to be such Officer before the Warrant
Certificates so signed shall have been countersigned by the Warrant Agent, or
disposed of by the Company, such Warrant Certificates nevertheless may be
countersigned and delivered or disposed of as though such person had not ceased
to be such Officer of the Company; and any Warrant Certificate may be signed on
behalf of the Company by any person who, at the actual date of the execution of
such Warrant Certificate, shall be an Officer of the Company to sign such
Warrant Certificate, although at the date of the execution of this Warrant
Agreement any such person was not such Officer.
(c) Warrant Certificates shall be dated the date of countersignature
by the Warrant Agent.
SECTION 4. Registration and Countersignature. (a) The Warrant Agent,
on behalf of the Company, shall number and register the Warrant Certificates in
a register as they are issued by the Company.
(b) Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned.
The Warrant Agent shall, upon written instructions of the Chairman of the
Board, the Chief Executive Officer, the President, a Vice President, the
Treasurer or the Controller of the Company, initially countersign, issue and
deliver Warrant Certificates entitling the holders thereof to purchase not more
than the number of Warrant Shares referred to above in the first recital hereof
and shall countersign and deliver Warrant Certificates as otherwise provided in
this Agreement.
(c) The Company and the Warrant Agent may deem and treat the
registered holder(s) of the Warrant Certificates as the absolute owner(s)
thereof (notwithstanding any notation of ownership or other writing thereon
made by anyone) for all purposes, and neither the Company nor the Warrant Agent
shall be affected by any notice to the contrary.
SECTION 5. Registration of Transfers and Exchanges. (a) The Warrant
Certificates shall be issued in registered form only. The Company shall cause
to be kept at the office of the Warrant Agent a register in which, subject to
such reasonable regulations as it may prescribe, the Company shall provide for
the registration of Warrant Certificates and transfers or exchanges of Warrant
Certificates as provided in this Agreement. All Warrant Certificates issued
upon any registration of transfer or exchange of Warrant Certificates shall be
the valid obligations of the Company, evidencing the same obligations, and
entitled to the same benefits under this Agreement, as the Warrant Certificates
surrendered for such registration of transfer or exchange.
A holder may transfer its Warrants only by written application to the
Warrant Agent stating the name of the proposed transferee and otherwise
complying with the terms of this Agreement. The Warrant Agent shall not be
required to register the transfer of any Warrant bearing the Private Placement
Legend that does not comply with the provisions of the Private Placement
Legend. No such transfer shall be effected until, and such transferee shall
succeed to the rights of a holder only upon, final acceptance and registration
of the transfer by the Warrant Agent in the register. Prior to the registration
of any transfer of Warrants by a holder as provided herein, the Company, the
Warrant Agent, and any agent of the Company may treat the person in whose name
the Warrants are registered as the owner thereof for all purposes and as the
person entitled to exercise the rights represented thereby, any notice to the
contrary notwithstanding. When Warrant Certificates are presented to the
Warrant Agent with a request to register the transfer or to exchange them for
an equal amount of Warrants of other authorized denominations, the Warrant
Agent shall register such transfer or make such exchange as requested if its
requirements for such transactions are met. To permit registrations of
transfers and exchanges, the Company shall execute Warrant Certificates at the
Warrant Agent's request. No service charge shall be made for any registration
of transfer or exchange of Warrants, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any registration of transfer of Warrants.
(b) The Warrant Agent shall retain copies of all letters, notices and
other written communications received pursuant to this Section 5. The Company
shall have the right to inspect and make copies of all such letters, notices or
other written communications at any reasonable time upon the giving of
reasonable written notice to the Warrant Agent.
(c) Any Warrant Certificate surrendered for registration of transfer,
exchange or exercise of the Warrants represented thereby shall, if surrendered
to the Company, be delivered to the Warrant Agent, and all Warrant Certificates
surrendered or so delivered to the Warrant Agent shall be promptly cancelled by
the Warrant Agent and shall not be reissued by the Company and, except as
provided in this Section 5 in case of an exchange, Section 6 hereof in case of
the exercise of less than all the Warrants represented thereby or Section 8
hereof in case of a mutilated Warrant Certificate, no Warrant Certificate shall
be issued hereunder in lieu thereof. The Warrant Agent shall deliver to the
Company from time to time or otherwise dispose of such cancelled Warrant
Certificates as the Company may direct.
(d) The Warrant Agent is hereby authorized to countersign, in
accordance with the provisions of this Section 5 and of Section 4 hereof, the
new Warrant Certificates required pursuant to the provisions of this Section 5.
(e) No service charge shall be made for registration of transfer or
exchange upon surrender of any Warrant Certificate at the office of the Warrant
Agent maintained for that purpose. The Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration, transfer or exchange of Warrant Certificates.
SECTION 6. Separation of Warrants; Terms of Warrants; Exercise of
Warrants. (a) The Notes and Warrants will be separately transferable
immediately upon issuance. Subject to the terms of this Agreement, each Warrant
holder shall have the right, which may be exercised during the period
commencing at the opening of business on August 17, 1998 and until 5:00 p.m.,
New York City time on August 15, 2008 (the "Exercise Period"), to receive from
the Company the number of fully paid and nonassessable Warrant Shares which the
holder may at the time be entitled to receive on exercise of such Warrants and
payment of the exercise price (the "Exercise Price") then in effect for such
Warrant Shares; provided that holders shall be able to exercise their Warrants
only if a registration statement relating to the Warrant Shares is then in
effect, or the exercise of such Warrants is exempt from the registration
requirements of the Securities Act of 1933, as amended (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
the Warrants or other persons to whom it is proposed that the Warrant Shares be
issued on exercise of the Warrants reside. Each holder may exercise its right,
during the Exercise Period, to receive Warrant Shares on a net basis, such
that, without the exchange of any funds, the holder will receive 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 below) per share of Common Stock 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. Each Warrant not exercised
prior to 5:00 p.m., New York City time, on August 15, 2008 (the "Expiration
Date") shall become void and all rights thereunder and all rights in respect
thereof under this agreement shall cease as of such time. No adjustments as to
dividends will be made upon exercise of the Warrants.
The "Market Value" per share of Common Stock as of any date shall
equal (i) if Common Stock is primarily traded on a securities exchange, the
last sale price on such securities exchange on the trading day immediately
prior to the date of determination, or if no sales occurred on such day, the
mean between the closing "bid" and "asked" prices on such day, (ii) if the
principal market for Common Stock is in the over-the-counter market, the
closing sale price on the trading day immediately prior to the date of the
determination, as published by the National Association of Securities Dealers
Automated Quotation System or similar organization, or if such price is not so
published on such day, the mean between the closing "bid" and "asked" prices,
if available, on such day, which prices may be obtained from any reputable
pricing service, broker or dealer, and (iii) if neither clause (i) nor clause
(ii) is applicable, the fair market value on the date of determination of
Common Stock as determined in good faith by the Board of Directors of the
Company.
(b) In order to exercise all or any of the Warrants represented by a
Warrant Certificate, the holder thereof must deliver to the Warrant Agent at
its Cleveland, Ohio corporate trust office set forth in Section 19 hereof the
Warrant Certificate and the form of election to purchase on the reverse thereof
duly filled in and signed, which signature shall be medallion guaranteed by an
institution which is a member of a Securities Transfer Association recognized
signature guarantee program, and upon payment to the Warrant Agent for the
account of the Company of the Exercise Price, which is set forth in the form of
Warrant Certificate attached hereto as Exhibit A, as adjusted as herein
provided, for the number of Warrant Shares in respect of which such Warrants
are then exercised. Payment of the aggregate Exercise Price shall be made (i)
in cash, by wire transfer or by certified or official bank check payable to the
order of the Company or (ii) on a net basis in the manner provided in Section
6(a) hereof.
(c) Subject to the provisions of Section 7 hereof, upon compliance
with clause (b) above, the Warrant Agent shall deliver or cause to be delivered
with all reasonable dispatch, to or upon the written order of the holder and in
such name or names as the Warrant holder may designate, a certificate or
certificates for the number of whole Warrant Shares issuable upon the exercise
of such Warrants or other securities or property to which such holder is
entitled hereunder, together with cash as provided in Section 12 hereof;
provided that if any consolidation, merger or lease or sale of assets is
proposed to be effected by the Company as described in Section 11(m) hereof, or
a tender offer or an exchange offer for shares of Common Stock shall be made,
upon such surrender of Warrants and payment of the Exercise Price as aforesaid,
the Warrant Agent shall, as soon as possible, but in any event not later than
two business days thereafter, deliver or cause to be delivered the full number
of Warrant Shares issuable upon the exercise of such Warrants in the manner
described in this sentence or other securities or property to which such holder
is entitled hereunder, together with cash as provided in Section 12 hereof.
Such certificate or certificates shall be deemed to have been issued and any
person so designated to be named therein shall be deemed to have become a
holder of record of such Warrant Shares as of the date of the surrender of such
Warrants and payment of the Exercise Price.
(d) The Warrants shall be exercisable, at the election of the holders
thereof, either in full or from time to time in part. If less than all the
Warrants represented by a Warrant Certificate are exercised, such Warrant
Certificate shall be surrendered and a new Warrant Certificate of the same
tenor and for the number of Warrants which were not exercised shall be executed
by the Company and delivered to the Warrant Agent and the Warrant Agent shall
countersign the new Warrant Certificate, registered in such name or names as
may be directed in writing by the holder, and shall deliver the new Warrant
Certificate to the Person or Persons entitled to receive the same.
(e) All Warrant Certificates surrendered upon exercise of Warrants
shall be cancelled by the Warrant Agent. Such cancelled Warrant Certificates
shall then be disposed of by the Warrant Agent in a manner satisfactory to the
Company. The Warrant Agent shall account promptly to the Company with respect
to Warrants exercised and concurrently pay to the Company all monies received
by the Warrant Agent for the purchase of the Warrant Shares through the
exercise of such Warrants.
(f) The Warrant Agent shall keep copies of this Agreement and any
notices given or received hereunder available for inspection by the holders
during normal business hours at its office. The Company shall supply the
Warrant Agent from time to time with such numbers of copies of this Agreement
as the Warrant Agent may request.
SECTION 7. Payment of Taxes. The Company will pay all documentary
stamp taxes attributable to the initial issuance of Warrant Shares upon the
exercise of Warrants; provided that the Company shall not be required to pay
any tax or taxes which may be payable in respect of any transfer involved in
the issue of any Warrant Certificates or any certificates for Warrant Shares in
a name other than that of the registered holder of a Warrant Certificate
surrendered upon the exercise of a Warrant, and the Company shall not be
required to issue or deliver such Warrant Certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the
Company the amount of such tax or shall have established to the satisfaction of
the Company that such tax has been paid.
SECTION 8. Mutilated or Missing Warrant Certificates. In case any of
the Warrant Certificates shall be mutilated, lost, stolen or destroyed, the
Company may in its discretion issue and the Warrant Agent may countersign, in
exchange and substitution for and upon cancellation of the mutilated Warrant
Certificate, or in lieu of and substitution for the Warrant Certificate lost,
stolen or destroyed, a new Warrant Certificate of like tenor and representing
an equivalent number of Warrants, but only upon receipt of evidence
satisfactory to the Company and the Warrant Agent of such loss, theft or
destruction of such Warrant Certificate and indemnity, if requested, also
satisfactory to them. Applicants for such substitute Warrant Certificates shall
also comply with such other reasonable regulations and pay such other
reasonable charges as the Company or the Warrant Agent may prescribe.
SECTION 9. Reservation of Warrant Shares. (a) The Company will at all
times reserve and keep available, free from preemptive rights, out of the
aggregate of its authorized but unissued Common Stock or its authorized and
issued Common Stock held in its treasury, for the purpose of enabling it to
satisfy any obligation to issue Warrant Shares upon exercise of Warrants, the
maximum number of shares of Common Stock which may then be deliverable upon the
exercise of all outstanding Warrants.
(b) The Company or, if appointed, the transfer agent for the Common
Stock (the "Transfer Agent") and every subsequent transfer agent for any shares
of the Company's capital stock issuable upon the exercise of any of the rights
of purchase aforesaid will be irrevocably authorized and directed at all times
to reserve such number of authorized shares as shall be required for such
purpose. The Company will keep a copy of this Agreement on file with the
Transfer Agent and with every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of the rights of purchase
represented by the Warrants. The Warrant Agent is hereby irrevocably authorized
to requisition from time to time from such Transfer Agent the stock
certificates required to honor outstanding Warrants upon exercise thereof in
accordance with the terms of this Agreement. The Company will supply such
Transfer Agent with duly executed certificates for such purposes and will
provide or otherwise make available any cash which may be payable as provided
in Section 12 hereof. The Company will furnish such Transfer Agent a copy of
all notices of adjustments, and certificates related thereto, transmitted to
each holder pursuant to Section 14 hereof.
(c) Before taking any action which would cause an adjustment pursuant
to Section 11 hereof to reduce the Exercise Price below the then par value (if
any) of the Warrant Shares, the Company will take any corporate action which
may, in the opinion of its counsel (which may be counsel employed by the
Company), be necessary in order that the Company may validly and legally issue
fully paid and nonassessable Warrant Shares at the Exercise Price as so
adjusted.
(d) The Company covenants that all Warrant Shares which may be issued
upon exercise of Warrants will, upon issue, be fully paid, nonassessable, free
of preemptive rights and free from all taxes, liens, charges and security
interests with respect to the issuance thereof.
SECTION 10. Obtaining Stock Exchange Listings. The Company will from
time to time take all action which may be necessary so that the Warrant Shares,
immediately upon their issuance upon the exercise of Warrants, will be listed
on the principal securities exchanges, automated quotation systems or other
markets within the United States of America, if any, on which other shares of
Common Stock are then listed, if any.
SECTION 11. Adjustment of Exercise Price and Number of Warrant Shares
Issuable. The Exercise Price and the number of Warrant Shares issuable upon
the exercise of each Warrant are subject to adjustment from time to time upon
the occurrence of the events enumerated in this Section 11. For purposes of
this Section 11, "Common Stock" means shares now or hereafter authorized of any
class of common stock of the Company and any other stock of the Company,
however designated, that has the right (subject to any prior rights of any
class or series of preferred stock) to participate in any distribution of the
assets or earnings of the Company without limit as to per share amount.
Notwithstanding anything to the contrary contained herein, the
Exercise Price and the number of Warrant Shares issuable upon the exercise of
each Warrant, except as set forth in the immediately following sentence, shall
not be subject to adjustment under this Article 11 in connection with the
Merger. Instead, at the Effective Time, each Warrant shall be and shall become
the right initially to purchase 0.325 of a share of Holdings Common Stock at an
initial Exercise Price of $0.01 per share and, from and after the Effective
Time, such number of shares of Holdings Common Stock and such Exercise Price
shall be subject to adjustment pursuant to this Section 11.
(a) Adjustment for Change in Capital Stock. If the Company (i) pays a
dividend or makes a distribution on its Common Stock in shares of its Common
Stock, (ii) subdivides its outstanding shares of Common Stock into a greater
number of shares, (iii) combines its outstanding shares of Common Stock into a
smaller number of shares, (iv) makes a distribution on its Common Stock in
shares of its capital stock other than Common Stock or (v) issues by
reclassification of its Common Stock any shares of its capital stock; then the
Exercise Price in effect immediately prior to such action shall be
proportionately adjusted so that the holder of any Warrant thereafter exercised
may receive the aggregate number and kind of shares of capital stock of the
Company which he would have owned immediately following such action if such
Warrant had been exercised immediately prior to such action.
The adjustment shall become effective immediately after the record
date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or reclassification.
If, after an adjustment, a holder of a Warrant upon exercise of it may receive
shares of two or more classes of capital stock of the Company, the Company
shall determine, in good faith, the allocation of the adjusted Exercise Price
between the classes of capital stock. After such allocation, the exercise
privilege and the Exercise Price of each class of capital stock shall
thereafter be subject to adjustment on terms comparable to those applicable to
Common Stock in this Section 11. Such adjustment shall be made successively
whenever any event listed above shall
occur.
(b) Adjustment for Rights Issue. If the Company distributes any rights,
options or warrants to all holders of its Common Stock entitling them for a
period expiring within 45 days after the record date mentioned below to purchase
shares of Common Stock at a price per share less than the Fair Value (as defined
herein) per share on that record date, the Exercise Price shall be adjusted in
accordance with the formula:
O + N x P
---------
E' = E x M
-------------------------
O + N
where:
E' = the adjusted Exercise Price.
E = the current Exercise Price.
O = the number of shares of Common Stock outstanding on the
record date.
N = the number of additional shares of Common Stock
offered.
P = the offering price per share of the additional shares.
M = the Fair Value per share of Common Stock on the record
date.
The adjustment shall be made successively whenever any such rights,
options or warrants are issued and shall become effective immediately after the
record date for the determination of stockholders entitled to receive the
rights, options or warrants. If at the end of the period during which such
rights, options or warrants are exercisable, not all rights, options or
warrants shall have been exercised, the Exercise Price shall be immediately
readjusted to what it would have been if "N" in the above formula had been the
number of shares actually issued.
(c) Adjustment for Other Distributions. If the Company distributes to
all holders of its Common Stock any of its assets or debt securities or any
rights or warrants to purchase debt securities, assets or other securities of
the Company, the Exercise Price shall be adjusted in accordance with the
formula:
M - F
E' = E x ----------------
M
where:
E' = the adjusted Exercise Price.
E = the current Exercise Price.
M = the Fair Value per share of Common Stock on the record
date mentioned below.
F = the fair market value on the record date of the assets,
securities, rights or warrants to be distributed in
respect of one share of Common Stock as determined in
good faith by the Board of Directors of the Company
(the "Board of Directors").
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the
distribution.
This Section 11(c) does not apply to cash dividends or cash
distributions paid out of consolidated current or retained earnings as shown on
the books of the Company prepared in accordance with generally accepted
accounting principles. Also, this Section 11(c) does not apply to rights,
options or warrants referred to in Section 11(b) hereof.
(d) Adjustment for Common Stock Issue.
If the Company issues shares of Common Stock for a consideration per
share less than the Fair Value per share on the date the Company fixes the
offering price of such additional shares, the Exercise Price shall be adjusted
in accordance with the formula:
P
-----
E' = E x O + M
-------------------
A
where:
E' = the adjusted Exercise Price.
E = the then current Exercise Price.
O = the number of shares outstanding immediately prior to
the issuance of such additional shares.
P = the aggregate consideration received for the issuance
of such additional shares.
M = the Fair Value per share on the date of issuance of
such additional shares.
A = the number of shares outstanding immediately after the
issuance of such additional shares.
The adjustment shall be made successively whenever any such issuance
is made, and shall become effective immediately after such issuance.
This subsection (d) does not apply to:
(1) any of the transactions described in
subsections (b) and (c) of this Section 11,
(2) the exercise of Warrants, or the
conversion or exchange of other securities convertible or
exchangeable for Common Stock the issuance of which caused an
adjustment to be made under Section 11(e),
(3) Common Stock issued to the Company's
employees under bona fide employee benefit plans adopted by
the Board of Directors and approved by the holders of Common
Stock when required by law, if such Common Stock would
otherwise be covered by this subsection (d) (but only to the
extent that the aggregate number of shares excluded hereby
and issued after the date of this Warrant Agreement shall not
exceed 5% of the Common Stock outstanding at the time of the
adoption of each such plan, exclusive of anti-dilution
adjustments thereunder),
(4) Common Stock issued to shareholders of
any person which merges into the Company, or with a
subsidiary of the Company, in proportion to their stock
holdings of such person immediately prior to such merger,
upon such merger, provided that if such person is an
Affiliate of the Company, the Board of Directors shall have
obtained a fairness opinion from a nationally recognized
investment banking, appraisal or valuation firm, which is not
an Affiliate of the Company, stating that the consideration
received in such merger is fair to the Company from a
financial point of view, or
(5) the issuance of shares of Common Stock
pursuant to rights, options or warrants which were originally
issued in a Non-Affiliate Sale (as defined below) together
with one or more other securities as part of a unit at a
price per unit.
(e) Adjustment for Convertible Securities Issue.
If the Company issues any securities convertible into or exchangeable
for Common Stock (other than securities issued in transactions described in
subsections (b) and (c) of this Section 11) for a consideration per share of
Common Stock initially deliverable upon conversion or exchange of such
securities less than the Fair Value per share on the date of issuance of such
securities, the Exercise Price shall be adjusted in accordance with this
formula:
P
-----
O + M
E' = E x ----------------
O + D
where:
E' = the adjusted Exercise Price.
E = the then current Exercise Price.
O = the number of shares outstanding immediately prior to
the issuance of such securities.
P = the aggregate consideration received for the issuance
of such securities.
M = the Fair Value per share on the date of issuance of
such securities.
D = the maximum number of shares deliverable upon
conversion or in exchange for such securities at the
initial conversion or exchange rate.
The adjustment shall be made successively whenever any such
issuance is made, and shall become effective immediately after such
issuance.
If all of the Common Stock deliverable upon conversion or exchange of
such securities have not been issued when such securities are no longer
outstanding, then the Exercise Price shall promptly be readjusted to the
Exercise Price which would then be in effect had the adjustment upon the
issuance of such securities been made on the basis of the actual number of
shares of Common Stock issued upon conversion or exchange of such securities.
This subsection (e) does not apply to convertible securities issued to
shareholders of any person which merges into the Company, or with a subsidiary
of the Company, in proportion to their stock holdings of such person
immediately prior to such merger, upon such merger, provided that if such
person is an Affiliate of the Company, the Board of Directors shall have
obtained a fairness opinion from a nationally recognized investment banking,
appraisal or valuation firm, which is not an Affiliate of the Company, stating
that the consideration received in such merger is fair to the Company from a
financial point of view.
(f) Consideration Received.
For purposes of any computation respecting consideration received
pursuant to subsections (d), and (e) of this Section 11, the following shall
apply:
(1) in the case of the issuance of shares
of Common Stock for cash, the consideration shall be the
amount of such cash, provided that in no case shall any
deduction be made for any commissions, discounts or other
expenses incurred by the Company for any underwriting of the
issue or otherwise in connection therewith;
(2) in the case of the issuance of shares
of Common Stock for a consideration in whole or in part other
than cash, the consideration other than cash shall be deemed
to be the fair market value thereof as determined in good
faith by the Board of Directors (irrespective of the
accounting treatment thereof), whose determination shall be
conclusive, and described in a Board resolution which shall
be filed with the Warrant Agent;
(3) in the case of the issuance of
securities convertible into or exchangeable for shares, the
aggregate consideration received therefor shall be deemed to
be the consideration received by the Company for the issuance
of such securities plus the additional minimum consideration,
if any, to be received by the Company upon the conversion or
exchange thereof (the consideration in each case to be
determined in the same manner as provided in clauses (1) and
(2) of this subsection); and
(4) in the case of the issuance of shares
of Common Stock pursuant to rights, options or warrants which
rights, options or warrants were originally issued together
with one or more other securities as part of a unit at a
price per unit, the consideration shall be deemed to be the
fair value of such rights, options or warrants at the time of
issuance thereof as determined in good faith by the Board of
Directors whose determination shall be conclusive and
described in a Board resolution which shall be filed with the
Warrant Agent plus the additional minimum consideration, if
any, to be received by the Company upon the exercise,
conversion or exchange thereof (as determined in the same
manner as provided in clauses (1) and (2) of this
subsection).
(g) Fair Value. In Section 11(d) and (e) hereof, the "Fair Value" per
security at any date of determination shall be (1) in connection with a sale by
the Company to a party that is not an Affiliate 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 by the Company
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, 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 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 Donaldson, Lufkin & Jenrette Securities Corporation (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.
In Sections 11(b) and (c) hereof, the "Fair Value" per security at any
date of determination shall be (a) the last price per security at which such
security was sold by the Company 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, 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
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.
For purposes of this Section 11(g), "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 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.
For purposes of this Section 11(g), "Affiliate" of any specified
Person means (A) any other Person directly or indirectly controlling or
controlled by or under direct or indirect common control with such specified
Person and (B) any director, officer or employee of such specified person. For
purposes of this definition "control" (including, with correlative meanings,
the terms "controlling," "controlled by" and "under common control with") as
used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise.
(h) When De Minimis Adjustment May Be Deferred. No adjustment in the
Exercise Price need be made unless the adjustment would require an increase or
decrease of at least 1% in the Exercise Price. Any adjustments that are not
made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 11 shall be made to the nearest
cent or to the nearest 1/100th of a share, as the case may be, it being
understood that no such rounding shall be made under subsection (p).
(i) When No Adjustment Required. No adjustment need be made for a
transaction referred to Section 11(a), (b), (c), (d), (e) or (f) hereof, if
Warrant holders are to participate (without being required to exercise their
Warrants) 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. No
adjustment need be made for (i) rights to purchase Common Stock pursuant to a
Company plan for reinvestment of dividends or interest, (ii) a change in the
par value or no par value of the Common Stock or (iii) the issuance by the
Company of the Warrants to DLJ Merchant Banking Partners II, L.P. and certain
of its Affiliates on August 17, 1998. To the extent the Warrants become
convertible into cash, no adjustment need be made thereafter as to the cash.
Interest will not accrue on the cash.
(j) Notice of Adjustment. Whenever the Exercise Price is adjusted, the
Company shall provide the notices required by Section 13 hereof.
(k) Notice of Certain Transactions. If (i) the Company takes any
action that would require an adjustment in the Exercise Price pursuant to
Section 11(a), (b), (c), (d), (e) or (f) hereof and if the Company does not
arrange for Warrant holders to participate pursuant to Section 11(i) hereof,
(ii) the Company takes any action that would require a supplemental Warrant
Agreement pursuant to Section 11(l) hereof or (iii) there is a liquidation or
dissolution of the Company, then the Company shall mail to Warrant holders a
notice stating the proposed record date for a dividend or distribution or the
proposed effective date of a subdivision, combination, reclassification,
consolidation, merger, transfer, lease, liquidation or dissolution. The Company
shall mail the notice at least 15 days before such date. Failure to mail the
notice or any defect in it shall not affect the validity of the transaction.
(l) Reorganization of Company. Immediately after the Effective Time,
if the Company consolidates or merges with or into, or transfers or leases all
or substantially all its assets to, any person, upon consummation of such
transaction the Warrants shall automatically become exercisable for the kind
and amount of securities, cash or other assets which the holder of a Warrant
would have owned immediately after the consolidation, merger, transfer or lease
if the holder had exercised the Warrant immediately before the effective date
of the transaction. Concurrently with the consummation of such transaction, the
corporation formed by or surviving any such consolidation or merger if other
than the Company, or the person to which such sale or conveyance shall have
been made, shall enter into (i) a supplemental Warrant Agreement so providing
and further providing for adjustments which shall be as nearly equivalent as
may be practical to the adjustments provided for in this Section 11(l) and (ii)
a supplement to the Warrant Registration Rights Agreement, dated as of the date
hereof, between the Company and the Initial Purchaser (the "Warrant
Registration Rights Agreement") providing for the assumption of the Company's
obligations thereunder. The successor Company shall mail to Warrant holders a
notice describing the supplemental Warrant Agreement and Warrant Registration
Rights Agreement. If the issuer of securities deliverable upon exercise of
Warrants under the supplemental Warrant Agreement is an affiliate of the
formed, surviving, transferee or lessee corporation, that issuer shall join in
the supplemental Warrant Agreement and Warrant Registration Rights Agreement.
If this Section 11(l) applies, Sections 11(a), (b), (c), (d), (e) and (f)
hereof do not apply.
(m) Company Determination Final. Any determination that the Company or
the Board of Directors must make pursuant to Section 11(a), (c), (d), (e), (f),
(g), (h) or (i) hereof is conclusive.
(n) Warrant Agent's Disclaimer. The Warrant Agent has no duty to
determine when an adjustment under this Section 11 should be made, how it
should be made or what it should be. The Warrant Agent has no duty to determine
whether any provisions of a supplemental Warrant Agreement under Section 11(l)
hereof are correct. The Warrant Agent makes no representation as to the
validity or value of any securities or assets issued upon exercise of Warrants.
The Warrant Agent shall not be responsible for the Company's failure to comply
with this Section 11.
(o) When Issuance or Payment May Be Deferred. In any case in which
this Section 11 shall require that an adjustment in the Exercise Price be made
effective as of a record date for a specified event, the Company may elect to
defer until the occurrence of such event (i) issuing to the holder of any
Warrant exercised after such record date the Warrant Shares and other capital
stock of the Company, if any, issuable upon such exercise over and above the
Warrant Shares and other capital stock of the Company, if any, issuable upon
such exercise on the basis of the Exercise Price and (ii) paying to such holder
any amount in cash in lieu of a fractional share pursuant to Section 12 hereof;
provided that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such
additional Warrant Shares, other capital stock and cash upon the occurrence of
the event requiring such adjustment.
(p) Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to this Section 11, each Warrant outstanding prior to
the making of the adjustment in the Exercise Price shall thereafter evidence
the right to receive upon payment of the adjusted Exercise Price that number of
shares of Common Stock (calculated to the nearest hundredth) obtained from the
following formula:
N' = N x E
---
E'
where:
N' = the adjusted number of Warrant Shares issuable upon
exercise of a Warrant by payment of the adjusted
Exercise Price.
N = the number or Warrant Shares previously issuable upon
exercise of a Warrant by payment of the Exercise Price
prior to adjustment.
E' = the adjusted Exercise Price.
E = the Exercise Price prior to adjustment.
(q) Form of Warrants. Irrespective of any adjustments in the Exercise
Price or the number or kind of shares purchasable upon the exercise of the
Warrants, Warrants theretofore or thereafter issued may continue to express the
same price and number and kind of shares as are stated in the Warrants
initially issuable pursuant to this Agreement.
SECTION 12. Fractional Interests. The Company shall not be required to
issue fractional Warrant Shares on the exercise of Warrants. If more than one
Warrant shall be presented for exercise in full at the same time by the same
holder, the number of full Warrant Shares which shall be issuable upon the
exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section
12, be issuable on the exercise of any Warrants (or specified portion thereof),
the Company shall pay an amount in cash equal to the Fair Value per Warrant
Share, as determined on the day immediately preceding the date the Warrant is
presented for exercise, multiplied by such fraction, computed to the nearest
whole U.S. cent.
SECTION 13. Notices to Warrant Holders. (a) Upon any adjustment of the
Exercise Price pursuant to Section 11 hereof, the Company shall promptly
thereafter (i) cause to be filed with the Warrant Agent a certificate of a firm
of independent public accountants of recognized standing selected by the Board
of Directors of the Company (who may be the regular auditors of the Company)
setting forth the Exercise Price after such adjustment and setting forth in
reasonable detail the method of calculation and the facts upon which such
calculations are based and setting forth the number of Warrant Shares (or
portion thereof) issuable after such adjustment in the Exercise Price, upon
exercise of a Warrant and payment of the adjusted Exercise Price, which
certificate shall be conclusive evidence of the correctness of the matters set
forth therein, and (ii) cause to be given to each of the registered holders of
Warrants at the address appearing on the Warrant register for each such
registered holder written notice of such adjustments by first-class mail,
postage prepaid. Where appropriate, such notice may be given in advance and
included as a part of the notice required to be mailed under the other
provisions of this Section 13.
(b) In case:
(i) the Company shall authorize the
issuance to all holders of shares of Common Stock of rights,
options or warrants to subscribe for or purchase shares of
Common Stock or of any other subscription rights or warrants;
(ii) the Company shall authorize the
distribution to all holders of shares of Common Stock of
evidences of its indebtedness or assets (other than dividends
or cash distributions paid out of consolidated current or
retained earnings as shown on the books of the Company
prepared in accordance with generally accepted accounting
principles or dividends payable in shares of Common Stock or
distributions referred to in Section 11(a) hereof);
(iii) of any consolidation or merger to
which the Company is a party and for which approval of any
stockholders of the Company is required, or of the conveyance
or transfer of the properties and assets of the Company
substantially as an entirety, or of any reclassification or
change of Common Stock issuable upon exercise of the Warrants
(other than a change in par value, or from par value to no
par value, or from no par value to par value, or as a result
of a subdivision or combination), or a tender offer or
exchange offer for shares of Common Stock;
(iv) of the voluntary or involuntary
dissolution, liquidation or winding up of the Company; or
(v) the Company proposes to take any action
(other than actions of the character described in Section
11(a) hereof) which would require an adjustment of the
Exercise Price pursuant to Section 11 hereof;
then the Company shall cause to be filed with the Warrant Agent and
shall cause to be given to each of the registered holders of Warrants at his
address appearing on the Warrant register, at least 20 days (or 10 days in any
case specified in clauses (i) or (ii) above) prior to the applicable record
date hereinafter specified, or promptly in the case of events for which there
is no record date, by first-class mail, postage prepaid, a written notice
stating (x) the date as of which the holders of record of shares of Common
Stock to be entitled to receive any such rights, options, warrants or
distribution are to be determined, (y) the initial expiration date set forth in
any tender offer or exchange offer for shares of Common Stock, or (z) the date
on which any such consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up is expected to become effective or consummated, and
the date as of which it is expected that holders of record of shares of Common
Stock shall be entitled to exchange such shares for securities or other
property, if any, deliverable upon such reclassification, consolidation,
merger, conveyance, transfer, dissolution, liquidation or winding up. The
failure to give the notice required by this Section 13 or any defect therein
shall not affect the legality or validity of any distribution, right, option,
warrant, consolidation, merger, conveyance, transfer, dissolution, liquidation
or winding up, or the vote upon any action.
(c) Nothing contained in this Agreement or in any of the Warrant
Certificates shall be construed as conferring upon the holders of Warrants the
right to vote or to consent or to receive notice as stockholders in respect of
the meetings of stockholders or the election of directors of the Company or any
other matter, or any rights whatsoever as stockholders of the Company.
SECTION 14. Merger, Consolidation or Change of Name of Warrant Agent.
(a) Any corporation into which the Warrant Agent may be merged or with which it
may be consolidated, or any corporation resulting from any merger or
consolidation to which the Warrant Agent shall be a party, or any corporation
succeeding to the business of the Warrant Agent, shall be the successor to the
Warrant Agent hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor warrant agent
under the provisions of Section 16 hereof. In case at the time such successor
to the Warrant Agent shall succeed to the agency created by this Agreement, and
in case at that time any of the Warrant Certificates shall have been
countersigned but not delivered, any such successor to the Warrant Agent may
adopt the countersignature of the original Warrant Agent; and in case at that
time any of the Warrant Certificates shall not have been countersigned, any
successor to the Warrant Agent may countersign such Warrant Certificates either
in the name of the predecessor Warrant Agent or in the name of the successor to
the Warrant Agent; and in all such cases such Warrant Certificates shall have
the full force and effect provided in the Warrant Certificates and in this
Agreement.
(b) In case at any time the name of the Warrant Agent shall be changed
and at such time any of the Warrant Certificates shall have been countersigned
but not delivered, the Warrant Agent whose name has been changed may adopt the
countersignature under its prior name, and in case at that time any of the
Warrant Certificates shall not have been countersigned, the Warrant Agent may
countersign such Warrant Certificates either in its prior name or in its
changed name, and in all such cases such Warrant Certificates shall have the
full force and effect provided in the Warrant Certificates and in this
Agreement.
SECTION 15. Warrant Agent. The Warrant Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions,
by all of which the Company and the holders of Warrants, by their acceptance
thereof, shall be bound:
(a) The statements contained herein and in the Warrant Certificates
shall be taken as statements of the Company and the Warrant Agent assumes no
responsibility for the correctness of any of the same except such as describe
the Warrant Agent or action taken or to be taken by it. The Warrant Agent
assumes no responsibility with respect to the distribution of the Warrant
Certificates except as herein otherwise provided.
(b) The Warrant Agent shall not be responsible for any failure of the
Company to comply with any of the covenants contained in this Agreement or in
the Warrant Certificates to be complied with by the Company.
(c) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant Agent
shall incur no liability or responsibility to the Company or to any holder of
any Warrant Certificate in respect of any action taken, suffered or omitted by
it hereunder in good faith and in accordance with the opinion or the advice of
such counsel.
(d) The Warrant Agent shall incur no liability or responsibility to
the Company or to any holder of any Warrant Certificate for any action taken in
reliance on any Warrant Certificate, certificate of shares, notice, resolution,
waiver, consent, order, certificate, or other paper, document or instrument
believed by it to be genuine and to have been signed, sent or presented by the
proper party or parties.
(e) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the execution of
this Agreement, to reimburse the Warrant Agent for all expenses, taxes and
governmental charges and other charges of any kind and nature incurred by the
Warrant Agent in the execution of this Agreement and to indemnify the Warrant
Agent and save it harmless against any and all liabilities, including
judgments, costs and counsel fees, for anything done or omitted by the Warrant
Agent in the execution of this Agreement except as a result of its negligence
or bad faith.
(f) The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to involve
expense unless the Company or one or more registered holders of Warrants shall
furnish the Warrant Agent with reasonable security and indemnity for any costs
and expenses which may be incurred, but this provision shall not affect the
power of the Warrant Agent to take such action as it may consider proper,
whether with or without any such security or indemnity. All rights of action
under this Agreement or under any of the Warrants may be enforced by the
Warrant Agent without the possession of any of the Warrant Certificates or the
production thereof at any trial or other proceeding relative thereto, and any
such action, suit or proceeding instituted by the Warrant Agent shall be
brought in its name as Warrant Agent and any recovery of judgment shall be for
the ratable benefit of the registered holders of the Warrants, as their
respective rights or interests may appear.
(g) The Warrant Agent, and any stockholder, director, officer or
employee of it, may buy, sell or deal in any of the Warrants or other
securities of the Company or become pecuniarily interested in any transaction
in which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Warrant
Agent under this Agreement. Nothing herein shall preclude the Warrant Agent
from acting in any other capacity for the Company or for any other legal
entity.
(h) The Warrant Agent shall act hereunder solely as agent for the
Company, and its duties shall be determined solely by the provisions hereof.
The Warrant Agent shall not be liable for anything which it may do or refrain
from doing in connection with this Agreement except for its own negligence or
bad faith.
(i) The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of any Warrant Certificate to make or cause to be
made any adjustment of the Exercise Price or number of the Warrant Shares or
other securities or property deliverable as provided in this Agreement, or to
determine whether any facts exist which may require any of such adjustments, or
with respect to the nature or extent of any such adjustments, when made, or
with respect to the method employed in making the same. The Warrant Agent shall
not be accountable with respect to the validity or value or the kind or amount
of any Warrant Shares or of any securities or property which may at any time be
issued or delivered upon the exercise of any Warrant or with respect to whether
any such Warrant Shares or other securities will when issued be validly issued
and fully paid and nonassessable, and makes no representation with respect
thereto.
SECTION 16. Change of Warrant Agent. If the Warrant Agent shall
become incapable of acting as Warrant Agent, the Company shall appoint a
successor to such Warrant Agent. If the Company shall fail to make such
appointment within a period of 30 days after it has been notified in writing of
such incapacity by the Warrant Agent or by the registered holder of a Warrant
Certificate, then the registered holder of any Warrant may apply to any court
of competent jurisdiction for the appointment of a successor to the Warrant
Agent. Pending appointment of a successor to such Warrant Agent, either by the
Company or by such a court, the duties of the Warrant Agent shall be carried
out by the Company. The holders of a majority of the unexercised Warrants shall
be entitled at any time to remove the Warrant Agent and appoint a successor to
such Warrant Agent. Such successor to the Warrant Agent need not be approved by
the Company or the former Warrant Agent. After appointment the successor to the
Warrant Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Warrant Agent without
further act or deed; provided that the former Warrant Agent shall deliver and
transfer to the successor to the Warrant Agent any property at the time held by
it hereunder and execute and deliver any further assurance, conveyance, act or
deed necessary for the purpose. Failure to give any notice provided for in this
Section 16, however, or any defect therein, shall not affect the legality or
validity of the appointment of a successor to the Warrant Agent.
SECTION 17. Registration. Holders shall be able to exercise their
Warrants only if a registration statement relating to the Warrant Shares 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 the Warrants or other
persons to whom it is proposed that the Warrant Shares be issued on exercise of
the Warrants reside.
(a) The Company shall prepare and cause to be filed within 30 days of
the issuance date of the Warrants with the Commission pursuant to Rule 415
under the Securities Act a shelf registration statement (the "Registration
Statement") on the appropriate form relating to the offer and sale by the
Company of the Warrant Shares to the holders of Warrants upon exercise of the
Warrants.
(b) The Company shall use its reasonable best efforts to cause such
Registration Statement to be declared effective by the Commission on or before
90 days from the date of issuance of the Warrants.
(c) The Company shall use its reasonable best efforts to keep the
Registration Statement continuously effective under the Securities Act in order
to permit the prospectus included therein to be lawfully delivered by the
Company to the holders exercising the Warrants until the later of (i) two years
following the effective date of the Registration Statement and (ii) the earlier
of (A) the Expiration Date and (B) the first date as of which all Warrants have
been exercised; provided that, except as provided below with respect to any
Black Out Period (as defined herein), the Company shall be deemed not to have
used its reasonable best efforts to keep the Registration Statements effective
during the requisite period if it voluntarily takes any action that would
result in it not being able to offer and sell the Warrant Shares upon exercise
of the Warrants during that period, unless such action is required by
applicable law. Notwithstanding the foregoing, the Company shall not be
required to amend or supplement the Registration Statement, any related
prospectus or any document incorporated therein by reference, for a period (a
"Black Out Period") not to exceed, for so long as this Agreement is in effect,
an aggregate of 60 days in any calendar year, in the event that (i) an event
occurs and is continuing as a result of which the Registration Statements, any
related prospectus or any document incorporated therein by reference as then
amended or supplemented would, in the Company's good faith judgment, contain an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and (ii)(A) the Company determines
in its good faith judgment that the disclosure of such event at such time would
have a material adverse effect on the business, operations or prospects of the
Company or (B) the disclosure otherwise relates to a material business
transaction which has not yet been publicly disclosed; provided, further, that
such Black Out Period shall be extended for any period, not to exceed an
aggregate of 30 days in any calendar year, during which the Commission is
reviewing any proposed amendment or supplement to the Registration Statement,
any related prospectus or any document incorporated therein by reference which
has been filed by the Company; and provided, further, that no Black Out Period
may be in effect during the three months prior to the Expiration Date.
(d) The Company shall cause the Registration Statement and the related
prospectus and any amendment or supplement thereto, as of the effective date of
the Registration Statement, amendment or supplement, (i) to comply in all
material respects with the applicable requirements of the Securities Act and
the rules and regulations of the Commission and (ii) not to contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(e) The Company shall give prompt written notice to the holders of the
Warrants, the Initial Purchaser and the Warrant Agent of (i) the effectiveness
of the Registration Statement or any post-effective amendment thereto, (ii) the
issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statements or the initiation or threatening of any proceedings
for that purpose, (iii) the receipt by the Company or its legal counsel of any
notification with respect to the suspension of the qualification of the Warrant
Shares for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose, (iv) the happening of any event that requires the
Company to make changes in the Registration Statements or the prospectus in
order to make the statements therein not misleading and (v) the commencement
and termination of any Black Out Period.
(f) The Company shall use its reasonable best efforts to prevent the
issuance or obtain the withdrawal of any order suspending the effectiveness of
the Registration Statements at the earliest possible time.
(g) Upon the occurrence of any event contemplated by Section 17(e)(iv)
or (v) hereof (subject to the last sentence of Section 17(c) hereof) the
Company shall promptly prepare a post-effective amendment to the Registration
Statement or a supplement to the related prospectus or file any other required
document so that, as thereafter delivered to holders of the Warrants, the
prospectus will not contain an untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading and will contain
the current information required by the Securities Act.
(h) Not later than the effective date of the Registration Statements,
the Company will provide a CUSIP number for the Warrant Shares and provide the
Warrant Agent with printed certificates for the Warrant Shares in a form
eligible for deposit with the Depository Trust Company.
(i) The Company will comply with all rules and regulations of the
Commission to the extent and so long as they are applicable to the Registration
Statement.
(j) The Company shall register or qualify or cooperate with the
holders in connection with the registration or qualification of the Warrant
Shares for offer and sale by the Company upon exercise of the Warrants under
the securities or blue sky laws of such states of the United States as any
holder reasonably requests and do any and all other acts or things necessary or
advisable to enable such offer and sale in such jurisdictions; provided that
the Company shall not be required to (i) qualify to do business in any
jurisdiction in which it is not then so qualified or (ii) take any action which
would subject it to general service of process or to taxation in any
jurisdiction in which it is not then so subject.
(k) The Company shall bear all expenses incurred by it in connection
with the performance of its obligations under this Section 17.
(l) The Company acknowledges and agrees that any remedy at law for
breach of any provision of this Section 17 will be inadequate and that, in
addition to any other remedies that the holder may have, the holders shall be
entitled to the remedy of specific performance to ensure the Company performs
its obligations under this Section 17. The election of any one or more remedies
by the holders hereunder shall not constitute a waiver of the right to pursue
other available remedies.
(m) No person is entitled to include any securities of the Company
held by such person in, or to have such securities registered under, the
Registration Statement.
SECTION 18. Reports.
(a) Whether or not required by the rules and regulations of the
Securities and Exchange Commission (the "Commission"), so long as any Warrants
or the Warrant Shares are outstanding, the Company shall furnish to the Warrant
Agent and the holders of Warrants or Warrant Shares (i) all quarterly and
annual financial information that would be required to be contained in a filing
with the Commission on Forms 10-Q and 10-K if the Company were required to file
such Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed
with the Commission on Form 8-K if the Company were required to file such
reports. In addition, whether or not required by the rules and regulations of
the Commission, the Company shall file a copy of all such information and
reports with the Commission for public availability (unless the Commission
shall not accept such a filing) and make such information available to
securities analysts and prospective investors upon request.
(b) The Company shall provide the Warrant Agent with a sufficient
number of copies of all such reports that the Warrant Agent may be required to
deliver to the holders of the Warrants and the Warrant Shares under this
Section 18.
SECTION 19. Notices to Company and Warrant Agent. Any notice or demand
authorized by this Agreement to be given or made by the Warrant Agent or by the
registered holder of any Warrant to or on the Company shall be sufficiently
given or made when received if deposited in the mail, first class or
registered, postage prepaid, addressed (until another address is filed in
writing by the Company with the Warrant Agent) as follows:
Insilco Holding Co.
425 Metro Place N.
Box 7196
Dublin, Ohio 43017
Telephone: (614) 792-0468
Attention: Kenneth H. Koch, Esq.
In case the Company shall fail to maintain such office or agency or
shall fail to give such notice of the location or of any change in the location
thereof, presentations may be made and notices and demands may be served at the
principal office of the Warrant Agent.
Any notice pursuant to this Agreement to be given by the Company or by
the registered holder(s) of any Warrant to the Warrant Agent shall be
sufficiently given when and if deposited in the mail, first-class or
registered, postage prepaid, addressed (until another address is filed in
writing by the Warrant Agent with the Company) to the Warrant Agent as follows:
National City Bank
Corporate Trust Administration
629 Euclid Avenue
Cleveland, Ohio 44114
Telephone: (330) 575-2644
Attention: J. Dean Presson
SECTION 20. Supplements and Amendments. The Company and the Warrant
Agent may from time to time supplement or amend this Agreement without the
approval of any holders of Warrants in order to cure any ambiguity or to
correct or supplement any provision contained herein which may be defective or
inconsistent with any other provision herein, or to make any other provisions
in regard to matters or questions arising hereunder which the Company and the
Warrant Agent may deem necessary or desirable and which shall not in any way
adversely affect the interests of the holders of Warrants. Any amendment or
supplement to this Agreement that has a material adverse effect on the
interests of the holders of Warrants shall 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
Warrants affected shall 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 this Agreement.
SECTION 21. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
SECTION 22. Termination. This Agreement shall terminate at 5:00 p.m.,
New York City time on August 15, 2008. Notwithstanding the foregoing, this
Agreement will terminate on any earlier date if all Warrants have been
exercised. The provisions of Section 15 shall survive such termination.
SECTION 23. Governing Law. This Agreement and each Warrant Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of New York and for all purposes shall be construed in accordance with the
internal laws of said State.
SECTION 24. Benefits of This Agreement. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
Warrant Agent and the registered holders of Warrants any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for the
sole and exclusive benefit of the Company, the Warrant Agent and the registered
holders of Warrants.
SECTION 25. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
SILKWORM ACQUISITION CORPORATION
By: /s/ William F. Dawson
------------------------------
Name: William F. Dawson
Title:
NATIONAL CITY BANK, as Warrant Agent
By: /s/ J. Dean Presson
------------------------------
Name: J. Dean Presson
Title: Vice President
EXHIBIT A
FORM OF WARRANT
[Face of Warrant Certificate]
EXERCISABLE ON OR AFTER AUGUST 17, 1998.
No. _______________Warrants
Warrant Certificate
SILKWORM ACQUISITION CORPORATION
THIS WARRANT (OR ITS PREDECESSOR) AND THE SHARES OF COMMON STOCK
ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED
STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET
FORTH IN THE NEXT SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL
INTEREST HEREIN, THE HOLDER:
(1) REPRESENTS THAT (A) IT HAS ACQUIRED THIS WARRANT
IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S
UNDER THE SECURITIES ACT OR (B) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A) (1), (2),
(3) OR (7) OR REGULATION D UNDER THE SECURITIES ACT (AN
"IAI")),
(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE
TRANSFER THIS WARRANT EXCEPT (A) TO THE ISSUER OR ANY OF ITS
SUBSIDIARIES, (B) IN AN OFFSHORE TRANSACTION MEETING THE
REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (C) IN
A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (D) TO AN IAI THAT, PRIOR TO SUCH TRANSFER,
FURNISHES THE WARRANT AGENT A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
TRANSFER OF THIS WARRANT (THE FORM OF WHICH CAN BE OBTAINED
FROM THE WARRANT AGENT) AND AN OPINION OF COUNSEL ACCEPTABLE
TO THE ISSUER THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (E) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND
BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER) OR
(F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN
EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE
JURISDICTION AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO
WHOM THIS SECURITY OR AN INTEREST HEREIN IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES"
HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE
SECURITIES ACT. THE WARRANT AGREEMENT CONTAINS A PROVISION REQUIRING THE
WARRANT AGENT TO REFUSE TO REGISTER ANY TRANSFER OF THIS SECURITY IN VIOLATION
OF THE FOREGOING.
This Warrant Certificate certifies that ______________, or registered
assigns, is the registered holder of Warrants expiring August 15, 2008 (the
"Warrants") to purchase Common Stock. Each Warrant entitles the holder upon
exercise to receive from the Company commencing August 17, 1998 until 5:00 p.m.
New York City Time on August 15, 2008, the number of fully paid and
nonassessable Warrant Shares as set forth in the Warrant Agreement, subject to
adjustment as set forth in Section 11 of the Warrant Agreement, at the initial
exercise price (the "Exercise Price") of $0.01 payable in lawful money of the
United States of America upon surrender of this Warrant Certificate and payment
of the Exercise Price at the office or agency of the Warrant Agent, but only
subject to the conditions set forth herein and in the Warrant Agreement
referred to on the reverse hereof. Notwithstanding the foregoing, Warrants may
be exercised without the exchange of funds pursuant to the net exercise
provisions of Section 6 of the Warrant Agreement. The Exercise Price and number
of Warrant Shares issuable upon exercise of the Warrants are subject to
adjustment upon the occurrence of certain events set forth in the Warrant
Agreement. No Warrant may be exercised after 5:00 p.m., New York City Time on
August 15, 2008, and to the extent not exercised by such time such Warrants
shall become void. Reference is hereby made to the further provisions of this
Warrant Certificate set forth on the reverse hereof and such further provisions
shall for all purposes have the same effect as though fully set forth at this
place. This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent, as such term is used in the Warrant Agreement. This Warrant
Certificate shall be governed and construed in accordance with the internal
laws of the State of New York.
IN WITNESS WHEREOF, Silkworm Acquisition Corporation has caused this
Warrant Certificate to be signed by the undersigned officer and may cause its
corporate seal to be affixed hereunto or imprinted hereon.
Dated:
---------------
SILKWORM ACQUISITION
CORPORATION
By:
------------------------------
Name:
Title:
Countersigned:
NATIONAL CITY BANK,
as Warrant Agent
By:
------------------------------
Name:
Title:
[Reverse of Warrant Certificate]
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring August 15, 2008 entitling the holder on
exercise to receive shares of Common Stock, and are issued or to be issued
pursuant to a Warrant Agreement dated as of August 17, 1998 (the "Warrant
Agreement"), duly executed and delivered by the Company to National City Bank,
as warrant agent (the "Warrant Agent"), which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Warrant Agent, the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants. A copy of the Warrant Agreement may be
obtained by the holder hereof upon written request to the Company.
Warrants may be exercised at any time on or after August 17, 1998 and
on or before August 15, 2008; provided that holders shall be able to exercise
their Warrants only if a registration statement relating to the Warrants Shares
is then in effect, or the exercise of such Warrants is exempt from the
registration requirements of the Securities Act of 1933, as amended (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 the Warrants or other persons to whom it is proposed that
the Warrant Shares be issued on exercise of the Warrants reside. In order to
exercise all or any of the Warrants represented by this Warrant Certificate,
the holder must deliver to the Warrant Agent at its New York corporate trust
office set forth in Section 19 of the Warrant Agreement this Warrant
Certificate and the form of election to purchase on the reverse hereof duly
filled in and signed, which signature shall be medallion guaranteed by an
institution which is a member of a Securities Transfer Association recognized
signature guarantee program, and upon payment to the Warrant Agent for the
account of the Company of the Exercise Price, as adjusted as provided in the
Warrant Agreement, for the number of Warrant Shares in respect of which such
Warrants are then exercised. No adjustment shall be made for any dividends on
any Common Stock issuable upon exercise of this Warrant.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price set forth on the face hereof may, subject to certain
conditions, be adjusted. If the Exercise Price is adjusted, the Warrant
Agreement provides that the number of shares of Common Stock issuable upon the
exercise of each Warrant shall be adjusted. No fractions of a share of Common
Stock will be issued upon the exercise of any Warrant, but the Company will pay
the cash value thereof determined as provided in the Warrant Agreement.
The Company has agreed under the terms of the Warrant Agreement to
file and use its reasonable best efforts to make effective on or before 30 days
after the issuance of the Warrants a shelf registration statement on the
appropriate form under the Securities Act, and (subject to Black Out Periods)
to use its reasonable best efforts to keep such registration statement
continuously effective under the Securities Act in order to permit the
prospectus included therein to be lawfully delivered by the Company to the
holders exercising the Warrants until the later of (i) two years following the
effective date of the registration statement and (ii) the earlier of (A) the
expiration of the Warrants and (B) the first date as of which all Warrants have
been exercised. In addition, the Company has agreed pursuant to a separate
Warrant Registration Rights Agreement dated as of August 17, 1998 (the "Warrant
Registration Rights Agreement") to file within 30 days after the issuance of
the Warrants and use its reasonable best efforts to make effective on or before
90 days after such date a shelf registration statement on the appropriate form
under the Securities Act, and to use its reasonable best efforts to keep such
registration statement continuously effective under the Securities Act in order
to permit the resale of the Warrants and Warrant Shares by the holders thereof
for the period of time referred to in the immediately preceding sentence.
Warrant Certificates, when surrendered at the office of the Warrant
Agent by the registered holder thereof in person or by legal representative or
attorney duly authorized in writing, may be exchanged, in the manner and
subject to the limitations provided in the Warrant Agreement, but without
payment of any service charge, for another Warrant Certificate or Warrant
Certificates of like tenor evidencing in the aggregate a like number of
Warrants.
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Warrant Agent a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like
number of Warrants shall be issued to the transferee(s) in exchange for this
Warrant Certificate, subject to the limitations provided in the Warrant
Agreement, without charge except for any tax or other governmental charge
imposed in connection therewith.
The Company and the Warrant Agent may deem and treat the registered
holder(s) thereof as the absolute owner(s) of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone), for the purpose of any exercise hereof, of any distribution to the
holder(s) hereof, and for all other purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary. Neither the
Warrants nor this Warrant Certificate entitles any holder hereof to any rights
of a stockholder of the Company.
Form of Election to Purchase
(To Be Executed Upon Exercise Of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive __________ shares of Common
Stock and herewith tenders payment for such shares to the order of the Company
in the amount of $______ in accordance with the terms hereof unless the holder
is exercising Warrants pursuant to the net exercise provisions of Section 6 of
the Warrant Agreement in which case the holder shall receive such number of
Warrant Shares equal to the product of (A) the number of Warrant Shares for
which this Warrant Certificate is exercisable as of the date of exercise (if
the Exercise Price were being paid in cash) and (B) the Cashless Exercise Ratio
(as defined in the Warrant Agreement). The undersigned requests that a
certificate for such shares be registered in the name of
_______________________________, whose address is _______________________ and
that such shares be delivered to ________________ whose address is
______________________________. If said number of shares is less than all of
the shares of Common Stock purchasable hereunder, the undersigned requests that
a new Warrant Certificate representing the remaining balance of such shares be
registered in the name of ______________, whose address is
____________________, and that such Warrant Certificate be delivered to
_________________, whose address is __________________.
Date: ____________________, ____
------------------------------
(Signature)
------------------------------
(Signature Guaranteed)
EXHIBIT A
FORM OF PURCHASER LETTER
Insilco Holding Co.
425 Metro Place N.
Box 7196
Dublin, Ohio 43017
Telephone: (614) 792-0468
Attention: Kenneth H. Koch, Esq.
National City Bank
Corporate Trust Administration
629 Euclid Avenue
Cleveland, Ohio 44114
Telephone: (330) 575-2644
Attention: J. Dean Presson
Re: Warrants to Purchase Common Stock of Silkworm Acquisition
Corporation, a Delaware corporation (CUSIP: 457661 12 2).
Reference is hereby made to the Warrant Agreement, dated as of August
17, 1998 (the "Warrant Agreement"), among Silkworm Acquisition Corporation, as
assumed by Insilco Holding Co. (the "Issuer"), and National City Bank, as
warrant agent. Capitalized terms used but not defined herein shall have the
meanings given to them in the Warrant Agreement.
In connection with our proposed purchase of Warrants or Warrant
Shares:
we confirm that:
1. We understand that any subsequent transfer of the Warrants or
Warrant Shares or any interest therein is subject to certain restrictions and
conditions set forth in the Warrant Agreement and the undersigned agrees to be
bound by, and not to resell, pledge or otherwise transfer the Warrants or
Warrant Shares or any interest therein except in compliance with, such
restrictions and conditions and the United States Securities Act of 1933, as
amended (the "Securities Act").
2. We understand that the offer and sale of the Warrants and Warrant
Shares have not been registered under the Securities Act, and that the Warrants
and Warrant Shares and any interest therein may not be offered or sold except
as permitted in the following sentence. We agree, on our own behalf and on
behalf of any accounts for which we are acting as hereinafter stated, that if
we should sell the Warrants or Warrant Shares or any interest therein, we will
do so only (A) to the Issuer or any subsidiary thereof, (B) to an institutional
"accredited investor" (as defined below) that, prior to such transfer,
furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you and
to the Issuer a signed letter substantially in the form of this letter and, an
Opinion of Counsel in form reasonably acceptable to the Issuer to the effect
that such transfer is in compliance with the Securities Act, (C) outside the
United States in accordance with Rule 904 of Regulation S under the Securities
Act, (D) pursuant to the provisions of Rule 144(k) under the Securities Act or
(E) pursuant to an effective registration statement under the Securities Act
and, in each case, in accordance with the applicable securities laws of any
state of the United States or any other applicable jurisdiction and we further
agree to provide to any person purchasing the Warrants or Warrant Shares from
us in a transaction meeting the requirements of clauses (A) through (D) of this
paragraph a notice advising such purchaser that resales thereof are restricted
as stated herein. We further understand that the Warrants or Warrant Shares
purchased by us will bear a legend to the foregoing effect.
3. We understand that, on any proposed resale of the Warrants or
Warrant Shares or beneficial interest therein, we will be required to furnish
to you and the Issuer such certifications, legal opinions and other information
as you and the Issuer may reasonably require to confirm that the proposed sale
complies with the foregoing restrictions. We further understand that any
subsequent transfer by us of the Warrants or Warrant Shares or beneficial
interest therein acquired by us must be effected through the Warrant Agent.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Warrants or
Warrant Shares, and we and any accounts for which we are acting are each able
to bear the economic risk of our or its investment.
5. We are acquiring the Warrants or Warrant Shares for our own account
(or for accounts as to which we exercise sole investment discretion and have
full power to make, and do make, the statements contained in this letter on
behalf of each such account) for investment purposes and not with a view to, or
for offer or sale in connection with, any distribution of the Warrants or
Warrant Shares in violation of the Securities Act, subject, nevertheless, to
the understanding that the disposition of our property or the property of such
investor account or accounts shall at all times be and remain within our
control.
You and the Issuer are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby.
-------------------------------
[Insert Name of Accredited Investor]
By:
----------------------------
Name:
Title:
Dated:
---------------------, -----
EXHIBIT 4.2
ASSUMPTION AGREEMENT
ASSUMPTION AGREEMENT (this "Agreement"), dated as of August
17, 1998, between Insilco Holding Co., a Delaware corporation (the "Company"),
and National City Bank, as Warrant Agent under the warrant agreement referred to
below (the "Warrant Agent").
W I T N E S S E T H:
WHEREAS, Silkworm Acquisition Corporation, a Delaware
corporation ("Silkworm"), has heretofore executed and delivered to the Warrant
Agent a warrant agreement (the "Warrant Agreement"), dated as of the date
hereof, providing for the issuance of 138,400 Warrants (the "Warrants") to
purchase 44,850 shares of common stock, par value $.001 per share (the "Common
Stock"), of Silkworm;
WHEREAS, Silkworm has been merged with and into the Company;
WHEREAS, pursuant to Section 20 of the Warrant Agreement the
Warrant Agent is authorized to execute and deliver this Agreement; and
NOW THEREFORE, in consideration of the foregoing and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
the Company and the Warrant Agent mutually covenant and agree for the equal and
ratable benefit of the holders of the Warrants as follows:
1. ASSUMPTION. The Company hereby assumes all of the
obligations of Silkworm under the Warrant Agreement and the Warrants and,
hereafter, shall be deemed the "Company" for all purposes under the Warrant
Agreement and the Warrants.
2. NEW YORK LAW TO GOVERN. The internal law of the State of
New York, without regard to the choice of law rules thereof, shall govern and be
used to construe this Agreement.
3. COUNTERPARTS. The parties may sign any number of copies of
this Agreement. Each signed copy shall be an original, but all of them together
represent the same agreement.
4. EFFECT OF HEADINGS. The Section headings herein are for
convenience only and shall not affect the construction hereof.
[Signatures on following page]
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and attested, all as of the date first above
written.
Dated: August 17, 1998 INSILCO HOLDING CO.
By: ______________________________
Name:
Title:
Dated: August 17, 1998 NATIONAL CITY BANK
By: ______________________________
Name:
Title:
EXHIBIT 4.3
INSILCO HOLDING CO.
Class A Warrant for the Purchase of Shares of
Common Stock of Insilco Holding Co.
Class A
No. ____ Warrant to Purchase
____ Shares
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE
OFFERED OR SOLD EXCEPT IN COMPLIANCE THEREWITH. THIS SECURITY IS
ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, VOTING AND
OTHER MATTERS AS SET FORTH IN THE INVESTORS' AGREEMENT (AS HEREIN
DEFINED), COPIES OF WHICH MAY BE OBTAINED UPON REQUEST FROM THE
COMPANY.
FOR VALUE RECEIVED, INSILCO HOLDING CO., a Delaware corporation
(the "Company"), hereby certifies that [HOLDER], its successor or permitted
assigns (the "Holder"), is entitled, subject to the provisions of this Class A
Warrant, to purchase from the Company, at the times specified herein, _____
fully paid and non-assessable shares of common stock of the Company, par value
$ 0.001 per share (the "Warrant Shares"), at a purchase price per share equal
to the Exercise Price (as hereinafter defined). The number of Warrant Shares
to be received upon the exercise of this Class A Warrant and the price to be
paid for a Warrant Share are subject to adjustment from time to time as
hereinafter set forth.
(a) DEFINITIONS.
(1) The following terms, as used herein, have the following
meanings:
"Affiliate" shall have the meaning given to such term in Rule
12b-2 promulgated under the Securities and Exchange Act of 1934, as amended.
"Business Day" means any day except a Saturday, Sunday or other
day on which commercial banks in the City of New York are authorized by law to
close.
"Common Stock" means the Common Stock, par value $0.001 per
share, of the Company or other capital stock of the Company that is not
preferred as to liquidation or dividends or any other security for which this
Warrant may be exercised pursuant to Section (i) hereof after the occurrence
of any of the transactions described in such Section.
"Duly Endorsed" means duly endorsed in blank by the Person or
Persons in whose name a stock certificate is registered or accompanied by a
duly executed stock assignment separate from the certificate with the
signature(s) thereon guaranteed by a commercial bank or trust company or a
member of a national securities exchange or of the National Association of
Securities Dealers, Inc.
"Exercise Price" means $0.001 per Warrant Share, such Exercise
Price to be adjusted from time to time as provided herein.
"Expiration Date" means ____, 2008 at 5:00 p.m. New York City
time.
"Fair Market Value" means, with respect to one share of Common
Stock on any date, the Current Market Price Per Common Share as defined in
paragraph (h)(6) hereof.
"Investors Agreement" means the Investors Agreement dated as of
the date hereof among Insilco Holding Co., DLJ Merchant Banking Partners II,
L.P., DLJ Merchant Banking Partners II-A, L.P., DLJ Offshore Partners II,
C.V., DLJ Diversified Partners, L.P., DLJ Diversified Partners-A, L.P., DLJ
Millennium Partners, L.P., DLJ Millennium Partners-A, L.P., DLJ Funding II,
Inc., UK Investment Plan 1997 Partners, DLJ EAB Partners, L.P., DLJ ESC II,
L.P., DLJ First ESC, L.P. and 399 Venture Partners, Inc. ("CVC").
"Person" means an individual, partnership, corporation, limited
liability company, association, trust, or other entity or organization,
including a government or political subdivision or an agency or
instrumentality thereof.
"Principal Holders" means, on any date, the Holders of at least
50% of the Warrants.
"Subscription Agreement" means the Subscription Agreement dated
as of the date hereof between the Company and the investors party thereto.
"transfer" shall have the meaning assigned to such term in the
Investors' Agreement.
"Warrants" means the Class A Warrants issued to the subscribers
under the Subscription Agreement.
(2) Capitalized terms used but not defined herein shall have
the meanings assigned to such terms in the Investors' Agreement.
(b) EXERCISE OF WARRANT.
(1) The Holder is entitled to exercise this Warrant in
whole or in part at any time, or from time to time, until
the Expiration Date or, if such day is not a Business Day,
then on the next succeeding day that shall be a Business
Day. To exercise this Warrant, the Holder shall execute and
deliver to the Company a Warrant Exercise Notice
substantially in the form annexed hereto. No earlier than
ten days after delivery of the Warrant Exercise Notice, the
Holder shall deliver to the Company this Warrant Certificate
duly executed by the Holder, together with payment of the
applicable Exercise Price, provided, however, that in
connection with a public offering of the Common Stock, a
Holder may deliver the Warrant Exercise Notice and this
Warrant Certificate to the Company simultaneously. Upon such
delivery and payment, the Holder shall be deemed to be the
holder of record of the Warrant Shares subject to such
exercise, notwithstanding that the stock transfer books of
the Company shall then be closed or that certificates
representing such Warrant Shares shall not then be actually
delivered to the Holder. Notwithstanding anything herein to
the contrary, in lieu of payment in cash of the applicable
Exercise Price, the Holder may elect (i) to receive upon
exercise of this Warrant, the number of Warrant Shares
reduced by a number of shares of Common Stock having the
aggregate Fair Market Value equal to the aggregate Exercise
Price for the Warrant Shares, (ii) to deliver as payment, in
whole or in part of the aggregate Exercise Price, shares of
Common Stock having the aggregate Fair Market Value equal to
the applicable portion of the aggregate Exercise Price for
the Warrant Shares or (iii) to deliver as payment, in whole
or in part of the aggregate Exercise Price, such number of
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 Exercise
Price for the Warrant Shares. Notwithstanding anything to
the contrary in this paragraph (b)(1), if the aggregate Fair
Market Value of the Common Stock applied or delivered
pursuant to (i), (ii) or (iii) above exceeds the aggregate
Exercise Price, in no event shall the Holder be entitled to
receive any amounts from the Company.
(2) The Exercise Price may be paid in cash or by
certified or official bank check or bank cashier's check
payable to the order of the Company or by any combination of
such cash or check. The Company shall pay any and all
documentary, stamp or similar issue or transfer taxes
payable in respect of the issue or delivery of the Warrant
Shares.
(3) If the Holder exercises this Warrant in part, this
Warrant Certificate shall be surrendered by the Holder to
the Company and a new Warrant Certificate of the same tenor
and for the unexercised number of Warrant Shares shall be
executed by the Company. The Company shall register the new
Warrant Certificate in the name of the Holder or in such
name or names of its transferee pursuant to paragraph (f)
hereof as may be directed in writing by the Holder and
deliver the new Warrant Certificate to the Person or Persons
entitled to receive the same.
(4) Upon surrender of this Warrant Certificate in
conformity with the foregoing provisions, the Company shall
transfer to the Holder of this Warrant Certificate
appropriate evidence of ownership of the shares of Common
Stock or other securities or property (including any money)
to which the Holder is entitled, registered or otherwise
placed in, or payable to the order of, the name or names of
the Holder or such transferee as may be directed in writing
by the Holder, and shall deliver such evidence of ownership
and any other securities or property (including any money)
to the Person or Persons entitled to receive the same,
together with an amount in cash in lieu of any fraction of a
share as provided in paragraph (e) below.
(c) RESTRICTIVE LEGEND. Certificates representing shares of
Common Stock issued pursuant to this Warrant shall bear a legend substantially
in the form of the legend set forth on the first page of this Warrant
Certificate to the extent that and for so long as such legend is required
pursuant to the Investors' Agreement.
(d) RESERVATION OF SHARES. The Company hereby agrees that at
all times it shall reserve for issuance and delivery upon exercise of this
Warrant such number of its authorized but unissued shares of Common Stock or
other securities of the Company from time to time issuable upon exercise of
this Warrant as will be sufficient to permit the exercise in full of this
Warrant. All such shares shall be duly authorized and, when issued upon such
exercise, shall be validly issued, fully paid and non-assessable, free and
clear of all liens, security interests, charges and other encumbrances or
restrictions on sale and free and clear of all preemptive rights, except to
the extent set forth in the Investors' Agreement.
(e) FRACTIONAL SHARES. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant and in lieu of delivery of any such fractional share upon any exercise
hereof, the Company shall pay to the Holder an amount in cash equal to such
fraction multiplied by the Current Market Price Per Common Share (as defined
in paragraph (h)(6)) at the date of such exercise.
The Company further agrees that it will not change the par
value of the Common Stock from par value $0.001 per share to any higher par
value which exceeds the Exercise Price then in effect, and will reduce the par
value of the Common Stock upon any event described in paragraph (h) that (i)
provides for an increase in the number of shares of Common Stock subject to
purchase upon exercise of this Warrant, in inverse proportion to and effective
at the same time as such number of shares is increased, but only to the extent
that such increase in the number of shares, together with all other such
increases after the date hereof, causes the aggregate Exercise Price of all
Warrants (without giving effect to any exercise thereof) to be greater than
____ or (ii) would, but for this provision, reduce the Exercise Price below
the par value of the Common Stock.
(f) EXCHANGE, TRANSFER OR ASSIGNMENT OF WARRANT.
(1) This Warrant and the Warrant Shares are subject to
the provisions of the Investors' Agreement, including the
restrictions on transfer. Each holder of this Warrant
Certificate by holding the same, consents and agrees that
the registered holder hereof may be treated by the Company
and all other persons dealing with this Warrant Certificate
as the absolute owner hereof for any purpose and as the
person entitled to exercise the rights represented hereby.
The Holder, by its acceptance of this Warrant, will be
subject to the provisions of, and will have the benefits of,
the Investors' Agreement to the extent set forth therein,
including the transfer restrictions and the registration
rights included therein.
(2) Subject to compliance with the transfer
restrictions set forth in the Investors' Agreement, upon
surrender of this Warrant to the Company, together with the
attached Warrant Assignment Form duly executed, the Company
shall, without charge, execute and deliver a new Warrant in
the name of the assignee or assignees named in such
instrument of assignment and, if the Holder's entire interest
is not being assigned, in the name of the Holder and this
Warrant shall promptly be canceled.
(g) LOSS OR DESTRUCTION OF WARRANT. Upon receipt by the Company
of evidence satisfactory to it (in the exercise of its reasonable discretion)
of the loss, theft, destruction or mutilation of this Warrant Certificate, and
(in the case of loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this Warrant
Certificate, if mutilated, the Company shall execute and deliver a new Warrant
Certificate of like tenor and date.
(h) ANTI-DILUTION PROVISIONS. The Exercise Price of this
Warrant and the number of shares of Common Stock for which this Warrant may
be exercised shall be subject to adjustment from time to time upon the
occurrence of certain events as provided in this paragraph (h); provided that
notwithstanding anything to the contrary contained herein, the Exercise Price
shall not be less than the par value of the Common Stock, as such par value
may be reduced from time to time in accordance with paragraph (e).
(1) In case the Company shall at any time after the
date hereof (i) declare a dividend or make a distribution on
Common Stock payable in Common Stock, (ii) subdivide or split
the outstanding Common Stock, (iii) combine or reclassify the
outstanding Common Stock into a smaller number of shares, or
(iv) issue any shares of its capital stock in a
reclassification of Common Stock (including any such
reclassification in connection with a consolidation or merger
in which the Company is the surviving corporation), the
Exercise Price in effect at the time of the record date for
such dividend or distribution or of the effective date of
such subdivision, split, combination or reclassification
shall be proportionately adjusted so that, after giving
effect to paragraph (h)(9), the exercise of this Warrant
after such time shall entitle the holder to receive the
aggregate number of shares of Common Stock or other
securities of the Company (or shares of any security into
which such shares of Common Stock have been reclassified
pursuant to clause (iii) or (iv) above) which, if this
Warrant had been exercised immediately prior to such time,
such holder would have owned upon such exercise and been
entitled to receive by virtue of such dividend, distribution,
subdivision, split, combination or reclassification. Such
adjustment shall be made successively whenever any event
listed above shall occur.
(2) In case the Company shall issue or sell any Common
Stock (other than Common Stock issued (I) upon exercise of
the Warrants, (II) pursuant to any Common Stock related
employee compensation plan of the Company approved by the
Company's Board of Directors, or (III) upon exercise or
conversion of any security the issuance of which caused an
adjustment under paragraphs (h)(3) or (h)(4) hereof), the
Exercise Price to be in effect after such issuance or sale
shall be determined by multiplying the Exercise Price in
effect immediately prior to such issuance or sale by a
fraction, the numerator of which shall be the sum of (x) the
number of shares of Common Stock outstanding immediately
prior to the time of such issuance or sale multiplied by the
Current Market Price Per Common Share immediately prior to
such issuance or sale and (y) the aggregate consideration, if
any, to be received by the Company upon such issuance or
sale, and the denominator of which shall be the product of
the aggregate number of shares of Common Stock outstanding
immediately after such issuance or sale and the Current
Market Price Per Common Share immediately prior to such
issuance or sale but in no event will such fraction exceed 1.
In case any portion of the consideration to be received by
the Company shall be in a form other than cash, the fair
market value of such noncash consideration shall be utilized
in the foregoing computation. Such fair market value shall be
determined by the Board of Directors of the Company; provided
that if the Principal Holders shall object to any such
determination, the Board of Directors shall retain an
independent appraiser reasonably satisfactory to the
Principal Holders to determine such fair market value. The
Holder shall be notified promptly of any consideration other
than cash to be received by the Company and furnished with a
description of the consideration and the fair market value
thereof, as determined by the Board of Directors.
(3) In case the Company shall fix a record date for the
issuance of rights, options or warrants to the holders of its
Common Stock or other securities entitling such holders to
subscribe for or purchase for a period expiring within 60
days of such record date shares of Common Stock (or
securities convertible into shares of Common Stock) at a
price per share of Common Stock (or having a conversion price
per share of Common Stock, if a security convertible into
shares of Common Stock) less than the Current Market Price
Per Common Share on such record date, the maximum number of
shares of Common Stock issuable upon exercise of such rights,
options or warrants (or conversion of such convertible
securities) shall be deemed to have been issued and
outstanding as of such record date and the Exercise Price
shall be adjusted pursuant to paragraph (h)(2) hereof, as
though such maximum number of shares of Common Stock had been
so issued for an aggregate consideration payable by the
holders of such rights, options, warrants or convertible
securities prior to their receipt of such shares of Common
Stock. In case any portion of such consideration shall be in
a form other than cash, the fair market value of such noncash
consideration shall be determined as set forth in paragraph
(h)(2) hereof. Such adjustment shall be made successively
whenever such record date is fixed; and in the event that
such rights, options or warrants are not so issued or expire
unexercised, or of a change in the number of shares of
Common Stock to which the holders of such rights, options or
warrants are entitled (other than pursuant to adjustment
provisions therein which are no more favorable in their
entirety than those contained in this paragraph (h)), the
Exercise Price shall again be adjusted to be the Exercise
Price which would then be in effect in the case of clause
(i), if such record date had not been fixed, or in the case
of clause (ii), if such holder had initially been entitled to
such changed number of shares of
Common Stock.
(4) In case the Company shall sell or issue rights,
options (other than options issued pursuant to a plan
described in clause II of paragraph (h)(2)) or warrants
entitling the holders thereof to subscribe for or purchase
Common Stock (or securities convertible into shares of
Common Stock) or shall issue convertible securities, and the
price per share of Common Stock of such rights, options,
warrants or convertible securities (including, in the case
of rights, options or warrants, the price at which they may
be exercised) is less than the Current Market Price Per
Common Share, the maximum number of shares of Common Stock
issuable upon exercise of such rights, options or warrants
or upon conversion of such convertible securities shall be
deemed to have been issued and outstanding as of the date of
such sale or issuance, and the Exercise Price shall be
adjusted pursuant to paragraph (h)(2) hereof as though such
maximum number of shares of Common Stock had been so issued
for an aggregate consideration equal to the aggregate
consideration paid for such rights, options, warrants or
convertible securities and the aggregate consideration
payable by the holders of such rights, options, warrants or
convertible securities prior to their receipt of such shares
of Common Stock. In case any portion of such consideration
shall be in a form other than cash, the fair market value of
such noncash consideration shall be determined as set forth
in paragraph (h)(2) hereof. Such adjustment shall be made
successively whenever such rights, options, warrants or
convertible securities are issued; and in the event (i) that
such rights, options or warrants expire unexercised, or (ii)
of a change in the number of shares of Common Stock to which
the holders of such rights, options, warrants or convertible
securities are entitled (other than pursuant to adjustment
provisions therein which are no more favorable in their
entirety than those contained in this paragraph (h)), the
Exercise Price shall again be adjusted to be the Exercise
Price which would then be in effect in the case of clause
(i), if such rights, options, warrants or convertible
securities had not been issued, or in the case of clause
(ii), if such holders had initially been entitled to such
changed number of shares of Common Stock. No adjustment of
the Exercise Price shall be made pursuant to this paragraph
(h)(4) to the extent that the Exercise Price shall have been
adjusted pursuant to paragraph (h)(3) upon the setting of
any record date relating to such rights, options, warrants
or convertible securities and such adjustment fully reflects
the number of shares of Common Stock to which the holders of
such rights, options, warrants or convertible securities are
entitled and the price payable therefor.
(5) In case the Company shall fix a record date for the
making of a distribution to holders of Common Stock
(including any such distribution made in connection with a
consolidation or merger in which the Company is the
surviving corporation) of evidences of indebtedness, cash,
assets or other property (other than dividends payable in
Common Stock or rights, options or warrants referred to in,
and for which an adjustment is made pursuant to, paragraph
(h)(3) hereof), the Exercise Price to be in effect after
such record date shall be determined by multiplying the
Exercise Price in effect immediately prior to such record
date by a fraction, the numerator of which shall be the
Current Market Price Per Common Share on such record date,
less the fair market value (determined as set forth in
paragraph (h)(2) hereof) of the portion of the assets, cash,
other property or evidence of indebtedness so to be
distributed which is applicable to one share of Common Stock,
and the denominator of which shall be such Current Market
Price Per Common Share. Such adjustments shall be made
successively whenever such a record date is fixed; and in
the event that such distribution is not so made, the
Exercise Price shall again be adjusted to be the Exercise
Price which would then be in effect if such record date had
not been fixed.
(6) For the purpose of any computation under paragraph
(e) or paragraph (h)(2), (3), (4) or (5) hereof, on any
determination date, the Current Market Price Per Common
Share shall be deemed to be the average (weighted by daily
trading volume) of the Daily Prices (as defined below) per
share of the 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. If the
Principal Holders shall object to any determination by the
Board of Directors of the Current Market Price Per Common
Share, the Current Market Price Per Common Share shall be the
fair market value per share of Common Stock as determined by
an independent appraiser retained by the Company at its
expense and reasonably acceptable to the Principal Holders.
For purposes of any computation under this paragraph (h),
the number of shares of Common Stock outstanding at any
given time shall not include shares owned or held by or for
the account of the Company or its subsidiaries.
(7) No adjustment in the Exercise Price shall be
required unless such adjustment would require an increase or
decrease of at least one percent in such price; provided
that any adjustments which by reason of this paragraph
(h)(7) are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All
calculations under this paragraph (h) shall be made to the
nearest one tenth of a cent or to the nearest hundredth of a
share, as the case may be.
(8) In the event that, at any time as a result of the
provisions of this paragraph (h), the holder of this Warrant
upon subsequent exercise shall become entitled to receive
any shares of capital stock or other securities of the
Company other than Common Stock, the number of such other
shares so receivable upon exercise of this Warrant shall
thereafter be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to
the provisions contained herein.
(9) Upon each adjustment of the Exercise Price as a
result of the calculations made in paragraphs (h)(1), (2),
(3), (4) or (5) hereof, the number of shares for which this
Warrant is exercisable immediately prior to the making of
such adjustment shall thereafter evidence the right to
purchase, at the adjusted Exercise Price, that number of
shares of Common Stock obtained by (i) multiplying the
number of shares covered by this Warrant immediately prior
to this adjustment of the number of shares by the Exercise
Price in effect immediately prior to such adjustment of the
Exercise Price and (ii) dividing the product so obtained by
the Exercise Price in effect immediately after such
adjustment of the Exercise Price.
(10) The Company shall notify all Holders of the fixing
of a record date for the purpose of payment of a cash
dividend to holders of Common Stock as soon as reasonably
practicable, but in no event less than 20 days prior to any
such record date.
(11) Not less than 10 nor more than 30 days prior to
the record date or effective date, as the case may be, of any
action which requires or might require an adjustment or
readjustment pursuant to this paragraph (h), the Company
shall forthwith file in the custody of the secretary or any
assistant secretary at its principal executive office and
with its stock transfer agent or its warrant agent, if any,
an officers' certificate showing the adjusted Exercise Price
determined as herein provided, setting forth in reasonable
detail the facts requiring such adjustment and the manner of
computing such adjustment. Each such officers' certificate
shall be signed by the chairman, president or chief financial
officer of the Company and by the secretary or any assistant
secretary of the Company. Each such officers' certificate
shall be made available at all reasonable times for
inspection by the Holder or any holder of a Warrant executed
and delivered pursuant to paragraph (f) and the Company
shall, forthwith after each such adjustment, mail a copy, by
first-class mail, of such certificate to the Holder.
(12) The Holder shall, at its option, be entitled to
receive, in lieu of the adjustment pursuant to paragraph
(h)(5) otherwise required thereof, on the date of exercise of
the Warrants, the evidences of indebtedness, other
securities, cash, property or other assets which such Holder
would have been entitled to receive if it had exercised its
Warrants for shares of Common Stock immediately prior to the
record date with respect to such distribution. The Holder may
exercise its option under this paragraph (h)(12) by
delivering to the Company a written notice of such exercise
within seven days of its receipt of the certificate of
adjustment required pursuant to paragraph (h)(11) to be
delivered by the Company in connection with such
distribution.
(i) CONSOLIDATION, MERGER, OR SALE OF ASSETS. In case of any
consolidation of the Company with, or merger of the Company into, any other
Person, any merger of another Person into the Company (other than a merger
which does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock) or any sale or transfer of
all or substantially all of the assets of the Company or of the Person formed
by such consolidation or resulting from such merger or which acquires such
assets, as the case may be, the Holder shall have the right thereafter to
exercise this Warrant for the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, sale or transfer by a
holder of the number of shares of Common Stock for which this Warrant may have
been exercised immediately prior to such consolidation, merger, sale or
transfer, assuming (i) such holder of Common Stock is not a Person with which
the Company consolidated or into which the Company merged or which merged into
the Company or to which such sale or transfer was made, as the case may be
("constituent Person"), or an Affiliate of a constituent Person and (ii) in
the case of a consolidation, merger, sale or transfer which includes an
election as to the consideration to be received by the holders, such holder of
Common Stock failed to exercise its rights of election, as to the kind or
amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer (provided that if the kind or amount
of securities, cash and other property receivable upon such consolidation,
merger, sale or transfer is not the same for each share of Common Stock held
immediately prior to such consolidation, merger, sale or transfer by other
than a constituent Person or an Affiliate thereof and in respect of which such
rights of election shall not have been exercised ("non-electing share"), then
for the purpose of this paragraph (i) the kind and amount of securities, cash
and other property receivable upon such consolidation, merger, sale or
transfer by each non-electing share shall be deemed to be the kind and amount
so receivable per share by a plurality of the non-electing shares).
Adjustments for events subsequent to the effective date of such a
consolidation, merger and sale of assets shall be as nearly equivalent as may
be practicable to the adjustments provided for in this Warrant. In any such
event, effective provisions shall be made in the certificate or articles of
incorporation of the resulting or surviving corporation, in any contract of
sale, conveyance, lease or transfer, or otherwise so that the provisions set
forth herein for the protection of the rights of the Holder shall thereafter
continue to be applicable; and any such resulting or surviving corporation
shall expressly assume the obligation to deliver, upon exercise, such shares
of stock, other securities, cash and property. The provisions of this
paragraph (i) shall similarly apply to successive consolidations, mergers,
sales, leases or transfers.
(j) NOTICES. Any notice, demand or delivery authorized by this
Warrant Certificate shall be in writing and shall be given to the Holder or
the Company as the case may be, at its address (or telecopier number) set
forth below, or such other address (or telecopier number) as shall have been
furnished to the party giving or making such notice, demand or delivery:
If to the Company: Insilco Holding Co.
c/o DLJ Merchant Banking Partners II, L.P.
277 Park Avenue
New York, NY 10172
Telecopy: 212-892-7553
Attention: William F. Dawson, Jr.
If to the Holder: [Holder]
[Address]
[Address]
Telecopy:
Attention:
Each such notice, demand or delivery shall be effective (i) if
given by telecopy, when such telecopy is transmitted to the telecopy number
specified herein and the intended recipient confirms the receipt of such
telecopy or (ii) if given by any other means, when received at the address
specified herein.
(k) RIGHTS OF THE HOLDER. Prior to the exercise of any Warrant,
the Holder shall not, by virtue hereof, be entitled to any rights of a
shareholder of the Company, including, without limitation, the right to vote,
to receive dividends or other distributions or to receive any notice of
meetings of shareholders or any notice of any proceedings of the Company
except as may be specifically provided for herein.
(l) GOVERNING LAW. THIS WARRANT CERTIFICATE AND ALL RIGHTS
ARISING HEREUNDER SHALL BE CONSTRUED AND DETERMINED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF NEW YORK, AND THE PERFORMANCE THEREOF SHALL BE
GOVERNED AND ENFORCED IN ACCORDANCE WITH SUCH LAWS.
(m) AMENDMENTS; WAIVERS. Any provision of this Warrant
Certificate may be amended or waived if, and only if, such amendment or waiver
is in writing and signed, in the case of an amendment, by the Holder and the
Company, or in the case of a waiver, by the party against whom the waiver is to
be effective. No failure or delay by either party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights
or remedies provided by law.
IN WITNESS WHEREOF, the Company has duly caused this Warrant
Certificate to be signed by its duly authorized officer and to be dated as of
____ __ , 1998.
INSILCO HOLDING CO.
By __________________________
Name:
Title:
Acknowledged and Agreed:
[HOLDER]
By ___________________________
Title:
EXHIBIT 4.4
15% SENIOR EXCHANGEABLE
PREFERRED STOCK DUE 2010
of
INSILCO HOLDING CO.
(1) Number and Designation. 3,000,000 shares of the Preferred
Stock of the Corporation shall be designated as 15% Senior Exchangeable
Preferred Stock Due 2010 (the "Senior Preferred Stock").
(2) Rank. The Senior Preferred Stock shall, with respect to
dividend rights and rights on liquidation, dissolution and winding up, rank
prior to all classes of or series of common stock of the Corporation, including
the Corporation's common stock, par value $0.001 per share ("Common Stock"),
and each other class of capital stock of the Corporation, the terms of which
provide that such class shall rank junior to the Senior Preferred Stock or the
terms of which do not specify any rank relative to the Senior Preferred Stock.
All equity securities of the Corporation to which the Senior Preferred Stock
ranks prior (whether with respect to dividends or upon liquidation,
dissolution, winding up or otherwise), including the Common Stock, are
collectively referred to herein as the "Junior Securities." All equity
securities of the Corporation with which the Senior Preferred Stock ranks on a
parity (whether with respect to dividends or upon liquidation, dissolution or
winding up) are collectively referred to herein as the "Parity Securities." The
respective definitions of Junior Securities and Parity Securities shall also
include any rights or options exercisable for or convertible into any of the
Junior Securities and Parity Securities, as the case may be. The Senior
Preferred Stock shall be subject to the creation of Junior Securities.
(3) Dividends. (a) (i) The holders of shares of Senior
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board of Directors, out of funds legally available for the payment of
dividends, dividends (subject to Sections 3(a)(ii) and (iii) hereof) at a rate
equal to 15% per annum (on the basis of a 360 day year) (the "Dividend Rate")
on the Liquidation Value of each share of Senior Preferred Stock on and as of
the most recent Dividend Payment Date (as defined below). In the event the
Corporation is unable or shall fail to discharge its obligation to redeem all
outstanding shares of Senior Preferred Stock pursuant to paragraph 5(b) or 5(c)
hereof, the Dividend Rate shall increase by .25 percent per quarter (each, a
"Default Dividend") for each quarter or portion thereof following the date on
which such redemption was required to be made until cured, provided that the
aggregate increase shall not exceed 5%. Such dividends shall be payable in the
manner set forth below in Sections 3(a)(ii) and (iii) quarterly on January 31,
April 30, July 31 and October 31 of each year (unless such day is not a
business day, in which event on the next succeeding business day) (each of such
dates being a "Dividend Payment Date" and each such quarterly period being a
"Dividend Period"). Such dividends shall be cumulative from the date of issue,
whether or not in any Dividend Period or Periods there shall be funds of the
Corporation legally available for the payment of such dividends.
(ii) Prior to August 1, 2003 (the "Cash Pay Date"), dividends
shall not be payable in cash to holders of shares of Senior
Preferred Stock but shall, subject to Section 3(b) hereof,
accrete to the Liquidation Value in accordance with Section
4(a) hereof.
(iii) Following the Cash Pay Date, each such dividend shall
be payable in cash on the Liquidation Value per share of the
Senior Preferred Stock, in equal quarterly amounts (to which
the Default Dividend, if any, shall be added), to the holders
of record of shares of the Senior Preferred Stock, as they
appear on the stock records of the Corporation at the close
of business on such record dates, not more than 60 days or
less than 10 days preceding the payment dates thereof, as
shall be fixed by the Board of Directors. Accrued and unpaid
dividends for any past Dividend Periods may be declared and
paid at any time, without reference to any Dividend Payment
Date, to holders of record on such date, not more than 45
days preceding the payment date thereof, as may be fixed by
the Board of Directors.
(b) At the written request of the holders of a majority of the
shares of Senior Preferred Stock, the Corporation shall, commencing on the
first Dividend Payment Date after such request and ending on the Cash Pay Date,
be required to pay all dividends on shares of Senior Preferred Stock by the
issuance of additional shares of Senior Preferred Stock ("Additional Shares").
The Additional Shares shall be identical to all other shares of Senior
Preferred Stock, except as set forth in Section 4. For the purposes of
determining the number of Additional Shares to be issued as dividends pursuant
to this Paragraph (b), such Additional Shares shall be valued at their
Applicable Liquidation Value as provided in Section 4(c).
(c) Holders of shares of Senior Preferred Stock shall not be
entitled to any dividends, whether payable in cash, property or stock, in
excess of the cumulative dividends, as herein provided, on the Senior Preferred
Stock. Except as provided in this Section 3, no interest, or sum of money in
lieu of interest, shall be payable in respect of any dividend payment or
payments on the Senior Preferred Stock that may be in arrears.
(d) So long as any shares of the Senior Preferred Stock are
outstanding, no dividends, except as described in the next succeeding sentence,
shall be declared or paid or set apart for payment on Parity Securities, for
any period unless (to the extent such dividends are payable in cash) full
cumulative dividends have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for such
payment on the Senior Preferred Stock for all Dividend Periods terminating on
or prior to the date of payment of the dividend on such class or series of
Parity Securities. When (to the extent such dividends are payable in cash)
dividends are not paid in full or a sum sufficient for such payment is not set
apart, as aforesaid, all dividends declared upon shares of the Senior Preferred
Stock and all dividends declared upon any other class or series of Parity
Securities shall (in each case, to the extent payable in cash) be declared
ratably in proportion to the respective amounts of dividends accumulated and
unpaid on the Senior Preferred Stock and accumulated and unpaid on such Parity
Securities.
(e) So long as any shares of the Senior Preferred Stock are
outstanding, no dividends (other than dividends or distributions paid in shares
of, or options, warrants or rights to subscribe for or purchase shares of,
Junior Securities) shall be declared or paid or set apart for payment or other
distribution declared or made upon Junior Securities, nor shall any Junior
Securities be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of shares of Common Stock made for
purposes of an employee incentive or benefit plan of the Corporation or any
subsidiary) (all such dividends, distributions, redemptions or purchases being
hereinafter referred to as a "Junior Securities Distribution") for any
consideration (or any moneys be paid to or made available for a sinking fund
for the redemption of any shares of any such stock) by the Corporation,
directly or indirectly (except by conversion into or exchange for Junior
Securities), unless in each case (i) the full cumulative dividends on all
outstanding shares of the Senior Preferred Stock and any other Parity
Securities shall (to the extent payable in cash) have been paid or set apart
for payment for all past Dividend Periods with respect to the Senior Preferred
Stock and all past dividend periods with respect to such Parity Securities and
(ii) (to the extent payable in cash) sufficient funds shall have been paid or
set apart for the payment of the dividend for the current Dividend Period with
respect to the Senior Preferred Stock and the current dividend period with
respect to such Parity Securities.
(4) Liquidation Preference. (a) In the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, before any payment or distribution of the assets of the
Corporation (whether capital or surplus) shall be made to or set apart for the
holders of Junior Securities, the holders of the shares of Senior Preferred
Stock shall be entitled to receive an amount equal to the Liquidation Value of
such share plus any accrued and unpaid cash dividends to the date of
distribution. "Liquidation Value" on any date means, with respect to (x) any
share of Senior Preferred Stock other than any Additional Shares, the sum of
(1) $25.00 per share and (2) the aggregate of all dividends accreted on such
share until the most recent Dividend Payment Date upon which an accretion to
Liquidation Value has occurred (or if such date is a Dividend Payment Date upon
which an accretion to Liquidation Value has occurred, such date), provided that
in the event of an actual liquidation, dissolution or winding up of the
Corporation or the redemption of any shares of Senior Preferred Stock pursuant
to Section 5 hereunder, the amount referred to in (2) shall be calculated by
including dividends accreting to the actual date of such liquidation,
dissolution or winding up or the redemption date, as the case may be, rather
than the Dividend Payment Date referred to above and provided further that in
no event will dividends accrete beyond the earlier of (i) the Cash Pay Date and
(ii) the most recent Dividend Payment Date prior to the Dividend Payment Date
on which dividends on the Senior Preferred Stock are payable in Additional
Shares and (y) any Additional Share, the Applicable Liquidation Value. All
accretions to Liquidation Value will be calculated using compounding on a
quarterly basis. Except as provided in the preceding sentences, holders of
shares of Senior Preferred Stock shall not be entitled to any distribution in
the event of liquidation, dissolution or winding up of the affairs of the
Corporation. If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation, or proceeds thereof, distributable
among the holders of the shares of Senior Preferred Stock shall be insufficient
to pay in full the preferential amount aforesaid and liquidating payments on
any Parity Securities, then such assets, or the proceeds thereof, shall be
distributed among the holders of shares of Senior Preferred Stock and any such
other Parity Securities ratably in accordance with the respective amounts that
would be payable on such shares of Senior Preferred Stock and any such other
stock if all amounts payable thereon were paid in full. For the purposes of
this paragraph (4), (i) a consolidation or merger of the Corporation with one
or more corporations, or (ii) a sale or transfer of all or substantially all of
the Corporation's assets, shall not be deemed to be a liquidation, dissolution
or winding up, voluntary or involuntary, of the Corporation.
(b) Subject to the rights of the holders of any Parity
Securities, after payment shall have been made in full to the holders of the
Senior Preferred Stock, as provided in this paragraph (4), any other series or
class or classes of Junior Securities shall, subject to the respective terms
and provisions (if any) applying thereto, be entitled to receive any and all
assets remaining to be paid or distributed, and the holders of the Senior
Preferred Stock shall not be entitled to share therein.
(c) The "Applicable Liquidation Value" of any Additional Shares
shall be the Liquidation Value of Senior Preferred Stock outstanding
immediately prior to the first Dividend Payment Date occurring after a request
for payment in Additional Shares has been made in accordance with Section 3(b).
(5) Redemption. (a) Redemption At the Option of the Corporation.
To the extent the Corporation shall have funds legally available for such
payment, the Corporation may, at its option, redeem shares of Senior Preferred
Stock, at any time in whole but not in part, at redemption prices per share in
cash set forth in the table below, together with accrued and unpaid cash
dividends thereon to the date fixed for redemption, without interest:
<TABLE>
<CAPTION>
Prior to
August 1, Percentage of Liquidation Value
-------- -------------------------------
<S> <C>
2003 115.000
2004 107.500
2005 105.000
2006 102.500
Thereafter 100.000
</TABLE>
(b) Redemption In the Event of a Change of Control. In the event
of a Change of Control, the Corporation shall, to the extent it shall have
funds legally available for such payment, offer to redeem all of the shares of
Senior Preferred Stock then outstanding, and shall redeem the shares of Senior
Preferred Stock of any holder of such shares that shall consent to such
redemption, upon a date no later than 30 days following the Change in Control,
at a redemption price per share equal to 101% of the Liquidation Value, in
cash, plus accrued and unpaid cash dividends thereon to the date fixed for
redemption, without interest.
"Change of Control" means such time as: (a) a "person" or
"group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended), other than any person or group comprised
solely of the Initial Investors, has become the beneficial owner, by way of
merger, consolidation or otherwise, of 50% or more of the voting power of all
classes of voting securities of the Corporation, and such person or group has
become the beneficial owner of a greater percentage of the voting power of all
classes of voting securities of the Corporation than that beneficially owned by
the Initial Investors; or (b) a sale or transfer of all or substantially all of
the assets of the Corporation to any person or group (other than any group
consisting solely of the Initial Investors or their affiliates) has been
consummated; or (c) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Directors of the
Corporation (together with any new directors whose election was approved by a
vote of a majority of the directors then still in office, who either were
directors at the beginning of such period or whose election or nomination for
the election was previously so approved) cease for any reason to constitute a
majority of the directors of the Corporation, then in office.
"Initial Investors" means the Stockholders (determined as of the
issuance of the Preferred Stock) and their Permitted Transferees, each as
defined in the Investors' Agreement.
"Investors' Agreement" means the Investors' Agreement dated as
of August 17, 1998 among Insilco Holding Co., DLJ Merchant Banking Partners II,
L.P., DLJ Merchant Banking Partners II-A, L.P., DLJ Offshore Partners II, C.V.,
DLJ Diversified Partners, L.P., DLJ Diversified Partners-A, L.P., DLJ
Millennium Partners, L.P., DLJ Millennium-A, L.P., DLJMB Funding II, Inc., DLJ
EAB Partners, L.P., DLJ First ESC L.P., UK Investment Plan 1997 Partners, DLJ
ESC II, L.P., (collectively, the "DLJMB Funds"), and 399 Venture Partners,
Inc., as amended
(c) Mandatory Redemption. To the extent the Corporation shall
have funds legally available for such payment, on August 1, 2010, if any shares
of the Senior Preferred Stock shall be outstanding, the Corporation shall
redeem all outstanding shares of the Senior Preferred Stock, at a redemption
price equal to the aggregate Liquidation Value, in cash, together with any
accrued and unpaid cash dividends thereon to the date fixed for redemption,
without interest.
(d) Status of Redeemed Shares. Shares of Senior Preferred Stock
which have been issued and reacquired in any manner, including shares purchased
or redeemed, shall (upon compliance with any applicable provisions of the laws
of the State of Delaware) have the status of authorized and unissued shares of
the class of Preferred Stock undesignated as to series and may be redesignated
and reissued as part of any series of the Preferred Stock; provided that no
such issued and reacquired shares of Senior Preferred Stock shall be reissued
or sold as Senior Preferred Stock.
(e) Failure to Redeem. If the Corporation is unable or shall
fail to discharge its obligation to redeem all outstanding shares of Senior
Preferred Stock pursuant to paragraph (5)(b) or 5(c) (each, a "Mandatory
Redemption Obligation"), such Mandatory Redemption Obligation shall be
discharged as soon as the Corporation is able to discharge such Mandatory
Redemption Obligation. If and so long as any Mandatory Redemption Obligation
with respect to the Senior Preferred Stock shall not be fully discharged, the
Corporation shall not (i) directly or indirectly, redeem, purchase, or
otherwise acquire any Parity Security or discharge any mandatory or optional
redemption, sinking fund or other similar obligation in respect of any Parity
Securities (except in connection with a redemption, sinking fund or other
similar obligation to be satisfied pro rata with the Senior Preferred Stock) or
(ii) in accordance with paragraph 3(e), declare or make any Junior Securities
Distribution, or, directly or indirectly, discharge any mandatory or optional
redemption, sinking fund or other similar obligation in respect of the Junior
Securities.
(f) Failure to Pay Dividends. Notwithstanding the foregoing
provisions of this paragraph (5), unless full cumulative cash dividends
(whether or not declared) on all outstanding shares of Senior Preferred Stock
shall have been paid or contemporaneously are declared and paid or set apart
for payment for all dividend periods terminating on or prior to the applicable
redemption date, none of the shares of Senior Preferred Stock shall be
redeemed, and no sum shall be set aside for such redemption, unless shares of
Senior Preferred Stock are redeemed pro rata.
(6) Procedure for Redemption. (a) In the event the Corporation
shall redeem shares of Senior Preferred Stock pursuant to Sections 5(a) or (c),
notice of such redemption shall be given by first class mail, postage prepaid,
mailed not less than 30 days nor more than 60 days prior to the redemption
date, to each holder of record of the shares to be redeemed at such holder's
address as the same appears on the stock register of the Corporation; provided
that neither the failure to give such notice nor any defect therein shall
affect the validity of the giving of notice for the redemption of any share of
Senior Preferred Stock to be redeemed except as to the holder to whom the
Corporation has failed to give said notice or except as to the holder whose
notice was defective. Each such notice shall state: (i) the redemption date;
(ii) the number of shares of Senior Preferred Stock to be redeemed; (iii) the
redemption price; (iv) the place or places where certificates for such shares
are to be surrendered for payment of the redemption price; and (v) that
dividends on the shares to be redeemed will cease to accrue on such redemption
date.
(b) In the case of any redemption pursuant to Sections 5(a) or
(c) hereof, notice having been mailed as provided in Section 6(a) hereof, from
and after the redemption date (unless default shall be made by the Corporation
in providing money for the payment of the redemption price of the shares called
for redemption), dividends on the shares of Senior Preferred Stock so called
for redemption shall cease to accrue, and all rights of the holders thereof as
stockholders of the Corporation (except the right to receive from the
Corporation the redemption price) shall cease. Upon surrender in accordance
with said notice of the certificates for any shares so redeemed (properly
endorsed or assigned for transfer, if the Board of Directors of the Corporation
shall so require and the notice shall so state), such share shall be redeemed
by the Corporation at the redemption price aforesaid. In case fewer than all
the shares represented by any such certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares without cost to the holder
thereof.
(c) In the case of a redemption pursuant to Section 5(b)
hereof, notice of such redemption shall be given by first class mail, postage
prepaid, mailed not more than 10 days following the occurrence of the Change of
Control and not less than 20 days prior to the redemption date, to each holder
of record of the shares to be redeemed at such holder's address as the same
appears on the stock register of the Corporation; provided that neither the
failure to give such notice nor any defect therein shall affect the validity of
the giving of notice for the redemption of any share of Senior Preferred Stock
to be redeemed except as to the holder to whom the Corporation has failed to
give said notice or except as to the holder whose notice was defective. Each
such notice shall state: (i) that a Change of Control has occurred; (ii) the
redemption date; (iii) the redemption price; (iv) that such holder may elect to
cause the Corporation to redeem all or any of the shares of Senior Preferred
Stock held by such holder; (v) the place or places where certificates for such
shares are to be surrendered for payment of the redemption price; and (vi) that
dividends on the shares the holder elects to cause the Corporation to redeem
will cease to accrue on such redemption date.
Upon receipt of such notice, the holder shall, within 20 days of
receipt thereof, return such notice to the Corporation indicating the number of
shares of Senior Preferred Stock such holder shall elect to cause the
Corporation to redeem, if any.
(d) In the case of a redemption pursuant to Section 5(b)
hereof, notice having been mailed as provided in Section 6(c) hereof, from and
after the redemption date (unless default shall be made by the Corporation in
providing money for the payment of the redemption price of the shares called
for redemption), dividends on such shares of Senior Preferred Stock as the
holder elects to cause the Corporation to redeem shall cease to accrue, and all
rights of the holders thereof as stockholders of the Corporation (except the
right to receive from the Corporation the redemption price) shall cease. Upon
surrender in accordance with said notice of the certificates for any shares so
redeemed (properly endorsed or assigned for transfer, if the Board of Directors
of the Corporation shall so require and the notice shall so state), such share
shall be redeemed by the Corporation at the redemption price aforesaid. In case
fewer than all the shares represented by any such certificate are redeemed, a
new certificate shall be issued representing the unredeemed shares without cost
to the holder thereof.
(7) Exchange. (a) Subject to the provisions of this paragraph
(7) the Corporation may, at its option, at any time and from time to time on
any Dividend Payment Date, exchange, to the extent it is legally permitted to
do so, all, but not less than all, outstanding shares (and fractional shares)
of Senior Preferred Stock, for Exchange Debentures, provided that (i) on or
prior to the date of exchange the Corporation shall have paid to or declared
and set aside for payment to the holders of outstanding shares of Senior
Preferred Stock all accrued and unpaid cash dividends on shares of Senior
Preferred Stock through the exchange date in accordance with the next
succeeding paragraph; (ii) no event of default under the indenture (as defined
in such indenture) governing the Exchange Debentures shall have occurred and be
continuing; and (iii) no shares of Senior Preferred Stock are held on such date
by the DLJMB Funds or any of their Affiliates, or any of their Permitted
Transferees. The principal amount of Exchange Debentures deliverable upon
exchange of a share of Senior Preferred Stock, adjusted as hereinafter
provided, shall be determined in accordance with the Exchange Ratio (as defined
below).
Cash dividends on any shares of Senior Preferred Stock
exchanged for Exchange Debentures which have accrued but have not been paid as
of the date of exchange shall be paid in cash. In no event shall the
Corporation issue Exchange Debentures in denominations other than $1,000 or in
an integral multiple thereof. Cash will be paid in lieu of any such fraction
of an Exchange Debenture which would otherwise have been issued (which shall
be determined with respect to the aggregate principal amount of Exchange
Debentures to be issued to a holder upon any such exchange). Interest will
accrue on the Exchange Debentures from the date of exchange.
Prior to effecting any exchange hereunder, the Corporation
shall appoint a trustee to serve in the capacity contemplated by an indenture
between the Corporation and such trustee, containing customary terms and
conditions.
The Exchange Ratio shall be, as of any Dividend Payment Date,
$1.00 (or fraction thereof) of principal amount of Exchange Debenture for each
$1.00 of (i) Liquidation Value plus (ii) accrued and unpaid cash dividends, if
any, per share of Senior Preferred Stock held by a holder on the applicable
exchange date.
"Affiliates" shall have the meaning ascribed such term in the
Investors' Agreement.
"Exchange Debentures" means 15% Subordinated Exchange Debentures
due 2010 of the Corporation, to be issued pursuant to an indenture between the
Corporation and a trustee, containing customary terms and conditions, in
accordance with the Term Sheet attached as Annex A hereto.
"Permitted Transferees" shall have the meaning ascribed to such
term in the Investors' Agreement.
(b) Procedure for Exchange. (i) In the event the Corporation shall
exchange shares of Senior Preferred Stock, notice of such exchange shall be
given by first class mail, postage prepaid, mailed not less than 30 days nor
more than 60 days prior to the exchange date, to each holder of record of the
shares to be exchanged at such holder's address as the same appears on the
stock register of the Corporation; provided that neither the failure to give
such notice nor any defect therein shall affect the validity of the giving of
notice for the exchange of any share of Senior Preferred Stock to be exchanged
except as to the holder to whom the Corporation has failed to give said notice
or except as to the holder whose notice was defective. Each such notice shall
state: (A) the exchange date; (B) the number of shares of Senior Preferred
Stock to be exchanged and, if fewer than all the shares held by such holder
are to be exchanged, the number of shares to be exchanged from such holder;
(C) the Exchange Ratio; (D) the place or places where certificates for such
shares are to be exchanged for notes evidencing the Exchange Debentures to be
received by the exchanging holder; and (E) that dividends on the shares to be
exchanged will cease to accrue on such exchange date.
(ii) Prior to giving notice of intention to exchange, the
Corporation shall execute and deliver with a bank or trust
company selected by the Corporation an indenture containing
customary terms and conditions. The Corporation will cause
the Exchange Debentures to be authenticated on the Dividend
Payment Date on which the exchange is effective, and will pay
interest on the Exchange Debentures at the rate and on the
dates specified in such indenture from the exchange date.
The Corporation will not give notice of its
intention to exchange under paragraph 6(b)(i) hereof unless
it shall file at the place or places (including a place in
the Borough of Manhattan, The City of New York) maintained
for such purpose an opinion of counsel (who may be an
employee of the Corporation) to the effect that (i) the
indenture has been duly authorized, executed and delivered by
the Corporation, has been duly qualified under the Trust
Indenture Act of 1939 (or that such qualification is not
necessary) and constitutes a valid and binding instrument
enforceable against the Corporation in accordance with its
terms (subject, as to enforcement, to bankruptcy, insolvency,
reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general
equity principles, and subject to such other qualifications
as are then customarily contained in opinions of counsel
experienced in such matters), (ii) the Exchange Debentures
have been duly authorized and, when executed and
authenticated in accordance with the provisions of the
indenture and delivered in exchange for the shares of
Preferred Stock, will constitute valid and binding
obligations of the Corporation entitled to the benefits of
the indenture (subject as aforesaid), (iii) neither the
execution nor delivery of the indenture or the Exchange
Debentures nor compliance with the terms, conditions or
provisions of such instruments will result in a breach or
violation of any of the terms or provisions of, or constitute
a default under, any indenture, mortgage, deed of trust or
agreement or instrument, known to such counsel, to which the
Corporation or any of its subsidiaries is a party or by which
it or any of them is bound, or any decree, judgment, order,
rule or regulation, known to such counsel, of any court or
governmental agency or body having jurisdiction over the
Corporation and such subsidiaries or any of their properties,
(iv) the Exchange Debentures have been duly registered for
such exchange with the Securities and Exchange Commission
under a registration statement that has become effective
under the Securities Act of 1933 (the "Act") or that the
exchange of the Exchange Debentures for the shares of Senior
Preferred Stock is exempt from registration under the Act,
and (v) the Corporation has sufficient legally available
funds for such exchange such that such exchange is permitted
under applicable law.
(iii) Notice having been mailed as aforesaid, from and after
the exchange date (unless default shall be made by the
Corporation in issuing Exchange Debentures in exchange for
the shares called for exchange), dividends on the shares of
Senior Preferred Stock so called for exchange shall cease to
accrue, and all rights of the holders thereof as stockholders
of the Corporation (except the right to receive from the
Corporation the Exchange Debentures and any rights such
holder, upon the exchange, may have as a holder of the
Exchange Debenture) shall cease. Upon surrender in accordance
with said notice of the certificates for any shares so
exchanged (properly endorsed or assigned for transfer, if the
Board of Directors of the Corporation shall so require and
the notice shall so state), such share shall be exchanged by
the Corporation for the Exchange Debentures at the Exchange
Ratio. In case fewer than all the shares represented by any
such certificate are exchanged, a new certificate shall be
issued representing the unexchanged shares without cost to
the holder thereof.
(iv) Each exchange shall be deemed to have been effected
immediately after the close of business on the relevant
Dividend Payment Date, and the person in whose name or names
any Exchange Debentures shall be issuable upon such exchange
shall be deemed to have become the holder of record of the
Exchange Debentures represented thereby at such time on such
Dividend Payment Date.
(v) Prior to the delivery of any securities which the
Corporation shall be obligated to deliver upon exchange of
the Senior Preferred Stock, the Corporation shall comply
with all applicable federal and state laws and regulations
which require action to be taken by the Corporation.
(c) The Corporation will pay any and all documentary stamp or
similar issue or transfer taxes payable in respect of the issue or delivery of
notes evidencing Exchange Debentures on exchange of the Senior Preferred Stock
pursuant hereto; provided that the Corporation shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issue or
delivery of Exchange Debentures in a name other than that of the holder of the
Senior Preferred Stock to be exchanged and no such issue or delivery shall be
made unless and until the person requesting such issue or delivery has paid to
the Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(8) Voting Rights. (a) The holders of record of shares of Senior
Preferred Stock shall not be entitled to any voting rights except as
hereinafter provided in this paragraph (8), as otherwise provided by law or as
provided in the Investors' Agreement.
(b) If and whenever (i) four consecutive or six quarterly cash dividends
payable on the Senior Preferred Stock have not been paid in full, (ii) for any
reason (including the reason that funds are not legally available for a
redemption), the Corporation shall have failed to discharge any Mandatory
Redemption Obligation (including a redemption in the Event of a Change of
Control pursuant to Section 5(b) hereof), (iii) the Corporation shall have
failed to provide the notice required by Section 6(d) hereof within the time
period specified in such section or (iv) the Corporation shall have failed to
comply with Sections 3(d), 3(e) or 8(c) hereof, (1) the number of directors
then constituting the Board of Directors shall be increased by two and the
holders of a majority of the outstanding shares of Senior Preferred Stock,
together with the holders of shares of every other series of preferred stock
upon which like rights have been conferred and are exercisable (resulting form
either the failure to pay dividends or the failure to redeem) (any such series
is referred to as the "Preferred Shares"), voting as a single class regardless
of series, shall be entitled to elect the two additional directors to serve on
the Board of Directors at any annual meeting of stockholders or special
meeting held in place thereof, or at a special meeting of the holders of the
Senior Preferred Stock and the Preferred Shares called as hereinafter provided.
Whenever (i) all arrears in cash dividends on the Senior Preferred Stock and
the Preferred Shares then outstanding shall have been paid and cash dividends
thereon for the current quarterly dividend period shall have been paid or
declared and set apart for payment, (ii) the Corporation shall have fulfilled
its Mandatory Redemption Obligation, (iii) fulfilled its obligation to provide
notice as specified in subsection (b)(iii) hereof, or (iv) the Corporation
shall have complied with Sections 3(d), 3(e), or 8(c) hereof, as the case may
be, then the right of the holders of the Senior Preferred Stock to elect such
additional two directors shall cease (but subject always to the same
provisions for the vesting of such voting rights in the case of any similar
future (i) arrearage in six consecutive quarterly cash dividends, (ii) failure
to fulfill any Mandatory Redemption Obligation, (iii) failure to fulfill the
obligation to provide the notice required by Section 6(d) hereof within the
time period specified in such section or (iv) failure to comply with Sections
3(d), 3(e), or 8(c)) and the terms of office of all persons elected as
directors by the holders of the Senior Preferred Stock shall forthwith
terminate and the number of the Board of Directors shall be reduced
accordingly. At any time after such voting power shall have been so vested in
the holders of shares of Senior Preferred Stock and the Preferred Shares, the
secretary of the Corporation may, and upon the written request of any holder
of Senior Preferred Stock (addressed to the secretary at the principal office
of the Corporation) shall, call a special meeting of the holders of the Senior
Preferred Stock and of the Preferred Shares for the election of the two
directors to be elected by them as herein provided, such call to be made by
notice similar to that provided in the Bylaws of the Corporation for a special
meeting of the stockholders or as required by law. If any such special meeting
required to be called as above provided shall not be called by the secretary
within 20 days after receipt of any such request, then any holder of shares of
Senior Preferred Stock may call such meeting, upon the notice above provided,
and for that purpose shall have access to the stock books of the Corporation.
The directors elected at any such special meeting shall hold office until the
next annual meeting of the stockholders or special meeting held in lieu
thereof if such office shall not have previously terminated as above provided.
If any vacancy shall occur among the directors elected by the holders of the
Senior Preferred Stock and the Preferred Shares, a successor shall be elected
by the Board of Directors, upon the nomination of the then-remaining director
elected by the holders of the Senior Preferred Stock and the Preferred Shares
or the successor of such remaining director, to serve until the next annual
meeting of the stockholders or special meeting held in place thereof if such
office shall not have previously terminated as provided above.
(c) Without the written consent of a majority of the
outstanding shares of Senior Preferred Stock or the vote of holders of a
majority of the outstanding shares of Senior Preferred Stock at a meeting of
the holders of Senior Preferred Stock called for such purpose, the Corporation
will not (i) amend, alter or repeal any provision of the Certificate of
Incorporation (by merger or otherwise) so as to adversely affect the
preferences, rights or powers of the Senior Preferred Stock; provided that any
such amendment that decreases the dividend payable on or the Liquidation Value
of the Senior Preferred Stock shall require the affirmative vote of holders of
each share of Senior Preferred Stock at a meeting of holders of Senior
Preferred Stock called for such purpose or written consent of the holder of
each share of Senior Preferred Stock; or (ii) create, authorize or issue any
class of stock ranking prior to, or on a parity with, the Senior Preferred
Stock with respect to dividends or upon liquidation, dissolution, winding up
or otherwise, or increase the authorized number of shares of any such class or
series, or reclassify any authorized stock of the Corporation into any such
prior or parity shares or create, authorize or issue any obligation or
security convertible into or evidencing the right to purchase any such prior
or parity shares, except that the Corporation may, without such approval,
create authorize and issue Parity Securities for the purpose of utilizing the
proceeds from the issuance of such Parity Securities for the redemption or
repurchase of all outstanding shares of Senior Preferred Stock in accordance
with the terms hereof or of the Investors' Agreement.
(d) In exercising the voting rights set forth in this paragraph
(8), each share of Senior Preferred Stock shall have one vote per share,
except that when any other series of preferred stock shall have the right to
vote with the Senior Preferred Stock as a single class on any matter, then the
Senior Preferred Stock and such other series shall have with respect to such
matters one vote per $25.00 of Liquidation Value or other liquidation
preference. Except as otherwise required by applicable law or as set forth
herein, the shares of Senior Preferred Stock shall not have any relative,
participating, optional or other special voting rights and powers and the
consent of the holders thereof shall not be required for the taking of any
corporate action.
(9) Reports. So long as any of the Senior Preferred Stock is
outstanding, the Corporation will furnish the holders thereof with the
quarterly and annual financial reports that the Corporation is required to
file with the Securities and Exchange Commission pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 or, in the event the
Corporation is not required to file such reports, reports containing the same
information as would be required in such reports.
(10) General Provisions. (a)The term "Person" as used herein
means any corporation, limited liability company, partnership, trust,
organization, association, other entity or individual.
(b) The term "outstanding", when used with reference to shares
of stock, shall mean issued shares, excluding shares held by the Corporation
or a subsidiary.
(c) The headings of the paragraphs, subparagraphs, clauses and
subclauses used herein are for convenience of reference only and shall not
define, limit or affect any of the provisions hereof.
(d) Each holder of Senior Preferred Stock, by acceptance
thereof, acknowledges and agrees that payments of dividends, interest, premium
and principal on, and exchange, redemption and repurchase of, such securities
by the Corporation are subject to restrictions on the Corporation contained in
certain credit and financing agreements.
ANNEX A
SUMMARY OF TERMS
OF INDENTURE FOR
15% SUBORDINATED EXCHANGE DEBENTURES
Parties: Insilco Holding Co. (the "Corporation") and [
], as trustee.
Issue: 15% Exchange Debentures (the "Exchange
Debentures") to be issued by the Corporation, at
its option, in exchange for any or all the
outstanding shares of 15% Senior Exchangeable
Preferred Stock due 2010 (the "Senior Preferred
Stock") issued on or about August 17, 1998 to
DLJ Merchant Banking Partners II, L.P. and
certain of its affiliates (the "DLJ Entities").
Maturity: August 1, 2010.
Interest: 15% annual rate, payable semi-annually.
Through the tenth semi-annual interest payment
period, quarterly interest will accrete on a
compound basis (i.e. non-cash pay) and increase
the face amount of the Exchange Debentures,
thereafter interest will be payable in cash.
Ranking: The Exchange Debentures will rank senior to all
other subordinated debt (but junior to the Senior
Discount Debentures due 2008 of the Corporation
and the Corporation's guaranty of Insilco
Corporation's indebtedness under its Senior
Credit Facility), preferred stock and common
equity of the Corporation.
Optional Redemption: The Exchange Debentures will be redeemable at
any time at the option of the Corporation, in
whole or in part, at the same redemption prices
set forth in the designation of the Senior
Preferred Stock set forth in Article 4 of the
Restated Certificate of Incorporation of the
Surviving Corporation.
Change of Control In the event of a Change of Control of the
Repurchase Right: Corporation each holder of the Exchange
Debentures will have the right to require the
Corporation to repurchase all or any part of such
holder's Exchange Debentures at a purchase price
of 101% of the sum of the accreted value thereof
plus accrued and unpaid cash interest, if any, to
the repurchase date.
Covenants: The Debentures will contain covenants that are
substantially the same as the covenants contained
in the Indenture for the Senior Discount
Debentures due 2008 of the Corporation and will
limit, among other things, the ability of the
Corporation and its subsidiaries (i) to incur
additional indebtedness, (ii) to pay dividends and
make other distributions on its capital stock, (iii)
to repurchase its capital stock or warrants,
options or other rights to acquire shares of its
capital stock or any Indebtedness subordinated to
the Exchange Debentures, (iv) to make certain
other Restricted Payments, (v) to make certain
investments or asset sales, (vi) to engage in
transactions with affiliates, (vii) to create liens,
(viii) to permit "layering" of indebtedness and
(ix) to merge or consolidate or transfer all or
substantially all of its assets.
EXHIBIT 4.5
INVESTORS' AGREEMENT
dated as of
August 17, 1998
among
INSILCO HOLDING CO.
and
THE INVESTORS NAMED HEREIN
TABLE OF CONTENTS
----------------------
PAGE
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ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions...................................................2
ARTICLE 2
CORPORATE GOVERNANCE
SECTION 2.01. Composition of the Board......................................9
SECTION 2.02. Removal......................................................10
SECTION 2.03. Vacancies....................................................10
SECTION 2.04. Meetings.....................................................11
SECTION 2.05. Action by the Board..........................................11
SECTION 2.06. Conflicting Charter or Bylaw Provisions......................11
SECTION 2.07. Notice of Meeting; Participation.............................11
SECTION 2.08. Subsidiary Governance........................................11
SECTION 2.09. Affiliate Transactions.......................................11
ARTICLE 3
RESTRICTIONS ON TRANSFER
SECTION 3.01. General......................................................12
SECTION 3.02. Legends......................................................13
SECTION 3.03. Permitted Transferees........................................13
ARTICLE 4
TAG-ALONG RIGHTS; DRAG-ALONG RIGHTS
SECTION 4.01. Rights to Participate in Transfer............................13
SECTION 4.02. Right to Compel Participation in Certain Transfers...........16
ARTICLE 5
REGISTRATION RIGHTS
SECTION 5.01. Demand Registration..........................................18
SECTION 5.02. Incidental Registration......................................20
SECTION 5.03. Holdback Agreements..........................................22
SECTION 5.04. Registration Procedures......................................22
SECTION 5.05. Indemnification by the Company...............................25
SECTION 5.06. Indemnification by Participating Stockholders................26
SECTION 5.07. Conduct of Indemnification Proceedings.......................27
SECTION 5.08. Contribution.................................................28
SECTION 5.09. Participation in Public Offering.............................29
SECTION 5.10. Other Indemnification........................................29
SECTION 5.11. Cooperation by the Company...................................29
SECTION 5.12. No Transfer of Registration Rights...........................30
ARTICLE 6
MISCELLANEOUS
SECTION 6.01. Entire Agreement.............................................30
SECTION 6.02. Binding Effect; Benefit......................................30
SECTION 6.03. Confidentiality..............................................30
SECTION 6.04. Exclusive Financial and Investment Banking Advisor...........31
SECTION 6.05. Assignability................................................31
SECTION 6.06. Amendment; Waiver; Termination...............................32
SECTION 6.07. Notices......................................................32
SECTION 6.08. Counterparts.................................................33
SECTION 6.09. Applicable Law...............................................34
SECTION 6.10. Specific Enforcement.........................................34
SECTION 6.11. Consent to Jurisdiction......................................34
INVESTORS' AGREEMENT
AGREEMENT dated as of August 17, 1998 among (i) Insilco Holding Co., a
Delaware corporation (the "Company") and (ii) DLJ Merchant Banking Partners II,
L.P., a Delaware limited partnership ("DLJMB"), DLJ Offshore Partners II, C.V.,
a Netherlands Antilles limited partnership, DLJ Merchant Banking Partners II-A,
L.P., a Delaware limited partnership, DLJ Diversified Partners, L.P., a
Delaware limited partnership, DLJ Diversified Partners-A, L.P., a Delaware
limited partnership, DLJ EAB Partners, L.P., a Delaware limited partnership,
DLJ Millennium Partners, L.P., a Delaware limited partnership, DLJ Millennium
Partners-A, L.P., a Delaware limited partnership, DLJMB Funding II, Inc., a
Delaware corporation, UK Investment Plan 1997 Partners, a Delaware partnership,
DLJ First ESC, L.P., a Delaware limited partnership and DLJ ESC II, L.P., a
Delaware limited partnership, (each of the foregoing, a "DLJ Entity", and
collectively, the "DLJ Entities"), and 399 Venture Partners, Inc., a wholly
owned subsidiary of CitiBank, N.A. ("CVC").
W I T N E S S E T H:
WHEREAS, certain parties hereto (i) have acquired securities of
Silkworm Acquisition Corporation ("MergerSub"), the predecessor by merger to
the Company, and/or (ii) will be acquiring securities of the Company;
WHEREAS, pursuant to the terms of the Merger Agreement and Plan of
Merger dated as of March 24, 1998 (as the same may be or may have been amended
from time to time, the "Merger Agreement"), MergerSub has been merged with and
into the Company with the Company as the surviving corporation;
WHEREAS, the parties hereto desire to enter into this Agreement to
govern certain of their rights, duties and obligations after consummation of
the transactions contemplated by the Merger Agreement;
NOW, THEREFORE, in consideration of the covenants and agreements
contained herein and in the Merger Agreement, the parties hereto agree as
follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. (a) The following terms, as used herein,
have the following meanings:
"Affiliate" means, with respect to any Person, any other Person,
directly or indirectly, controlling, controlled by, or under common control
with, such Person; provided that no stockholder of the Company shall be deemed
an Affiliate of any other stockholder of the Company solely by reason of any
investment in the Company. For the purpose of this definition, the term
"control" (including with correlative meanings, the terms "controlling",
"controlled by" and "under common control with"), when used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
"Affiliated Employee Benefit Trust" means any trust that is a
successor to the assets held by a trust established under an employee benefit
plan subject to ERISA or any other trust established directly or indirectly
under such plan or any other such plan having the same sponsor.
"Aggregate Ownership" means, with respect to any Stockholder or group
of Stockholders, and with respect to any class of Company Securities, the total
amount of such class of Company Securities "beneficially owned" (as such term
is defined in Rule 13d-3 under the Exchange Act) (without duplication) by such
Stockholder or group of Stockholders as of the date of such calculation,
calculated on a Fully Diluted basis.
"Board" means the board of directors of the Company.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law to
close.
"Bylaws" means the Amended and Restated Bylaws of the Company, as the
same may be amended from time to time.
"Charter" means the Amended and Restated Certificate of Incorporation
of the Company, as the same may be amended from time to time.
"Closing Date" means August 17, 1998.
"Common Stock" means the common stock, par value $0.001 per share, of
the Company and any stock into which such Common Stock may thereafter be
converted or changed, and "Common Shares" means shares of Common Stock.
"Company Securities" means the Common Stock and securities convertible
into or exchangeable for Common Stock and options, Preferred Stock, warrants
(including the Warrants) or other rights to acquire Common Stock, Preferred
Stock or any other equity security or equity-linked security issued by the
Company.
"Drag-Along Portion" means, with respect to any Other Stockholder and
any class of Company Securities, (i) the number of such class of Company
Securities beneficially owned by such Other Stockholder on a Fully Diluted
basis multiplied by (ii) a fraction, the numerator of which is the number of
such class of Company Securities proposed to be sold by the DLJ Entities in any
sale to which Section 4.02 applies and the denominator of which is the total
number of such class of Company Securities on a Fully Diluted basis
beneficially owned by the DLJ Securities immediately prior to such sale.
"Exchange Act" means the Securities Exchange Act of 1934, as the same
may be amended, and the rules and regulations promulgated thereunder.
"Fully Diluted" means, with respect to the Common Stock, all
outstanding Common Shares and all Common Shares issuable in respect of
securities convertible into or exchangeable for Common Shares, all stock
appreciation rights, options, warrants (including the Warrants) and other
rights to purchase or subscribe for Common Shares or securities convertible
into or exchangeable for Common Shares; provided that, to the extent any of the
foregoing stock appreciation rights, options, warrants or other rights to
purchase or subscribe for Common Shares are subject to vesting, the Common
Shares subject to vesting shall be included in the definition of "Fully
Diluted" only upon and to the extent of such vesting.
"Initial Ownership" means, with respect to any Stockholder and any
class of Company Securities, the number of shares or units of such class of
Company Securities beneficially owned (and (without duplication) which such
Persons have the right to acquire) as of the date hereof, or in the case of any
Person that shall become a party to this Agreement on a later date, as of such
date, in each case taking into account any stock split, stock dividend, reverse
stock split or similar event.
"First Public Offering" means the first Public Offering after the date
hereof.
"Other Stockholders" means all Stockholders other than the DLJ
Entities.
"Permitted Transferee" means:
(i) in the case of any DLJ Entity, (A) any other DLJ
Entity, (B) any general or limited partner of any DLJ Entity
(a "DLJ Partner"), and any Affiliated Employee Benefit Trust
or Person that is an Affiliate of any DLJ Partner
(collectively, the "DLJ Affiliates"), (C) any managing
director, general partner, director, limited partner, officer
or employee of any DLJ Entity or of any DLJ Affiliate, or the
heirs, executors, administrators, testamentary trustees,
legatees or beneficiaries of any of the foregoing persons
referred to in this clause (C) (collectively, "DLJ
Associates"), (D) a trust, the beneficiaries of which, or a
corporation, limited liability company or partnership, all of
the stockholders, members or general or limited partners of
which, include only DLJ Entities, DLJ Affiliates, DLJ
Associates, their spouses or their lineal descendants, (E) a
voting trustee for one or more DLJ Entities, DLJ Affiliates
or DLJ Associates under the terms of a voting trust designed
to conform with the requirements of the Insurance Law of the
State of New York or (F) any Other Stockholder;
(ii) in the case of CVC, (A) any nominee or trustee
for or any general or limited partner or shareholder of CVC,
and any Person that is an Affiliate of CVC (collectively, the
"CVC Affiliates"), (B) any managing director, general
partner, limited partner, employee, officer or director of
CVC or a CVC Affiliate, or any spouse, lineal descendant,
sibling, parent, heir, executor, administrator, testamentary
trustee, legatee or beneficiary of any of the foregoing
persons described in this clause (B) (collectively, "CVC
Associates"), (C) a "Co-Investment Scheme" being a scheme
under which certain officers, employees or partners of CVC or
of its adviser or manager are entitled (as individuals or
through a body corporate or any other vehicle) to acquire
shares which CVC would otherwise acquire and a Co-Investment
Scheme which holds shares for a body corporate or other
vehicle may Transfer their shares to another body corporate
or another vehicle which holds or is to hold shares for the
Co-Investment Scheme or the officers, employees or partners
entitled to the shares under the Co-Investment Scheme, (D)
any trust, the beneficiaries of which, or any corporation,
limited liability company or partnership, stockholders,
members or general or limited partners of which include only
CVC, CVC Affiliates, CVC Associates, their spouses or their
lineal descendants or (E) any other Stockholder; and
(iii) in the case of any Other Stockholder (other
than CVC), (A) any Other Stockholder, (B) a Person to whom
Common Shares are transferred from such Other Stockholder (1)
by will or the laws of descent and distribution or (2) by
gift without consideration of any kind; provided that, in the
case of clause (2), such transferee is the issue or spouse of
such Other Stockholder or (C) a trust that is for the
exclusive benefit of such Other Stockholder or its Permitted
Transferees under (B) above.
"Person" means an individual, corporation, partnership, limited
liability company, association, trust or other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Preferred Stock" means the 15% senior exchangeable preferred stock,
par value $0.001 per share and due 2010 of the Company, and "Preferred Shares"
means shares of Preferred Stock.
"Pro Rata Portion" means, with respect to any Stockholder at any time,
(i) the number of Common Shares that a Stockholder owns at such time multiplied
by (ii) a fraction, the numerator of which is the number of Common Shares to be
sold by the DLJ Entities in any sale to which Section 4.01 applies and the
denominator of which is the total number of Common Shares, on a Fully Diluted
basis, held in the aggregate by the DLJ Entities immediately prior to any such
sale.
"Public Offering" means an underwritten public offering of Registrable
Securities of the Company pursuant to an effective registration statement under
the Securities Act (other than pursuant to a registration statement on Form S-4
or Form S-8 or any similar or successor form).
"Registration Expenses" means all (i) registration and filing fees,
(ii) fees and expenses of compliance with securities or blue sky laws
(including reasonable fees and disbursements of counsel in connection with blue
sky qualifications of the Registrable Securities), (iii) printing expenses,
(iv) internal expenses of the Company (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), (v) reasonable fees and disbursements of counsel for the
Company and customary fees and expenses for independent certified public
accountants retained by the Company (including the expenses of any comfort
letters or costs associated with the delivery by independent certified public
accountants of a comfort letter or comfort letters requested pursuant to
Section 5.04(h)), (vi) reasonable fees and expenses of any special experts
retained by the Company in connection with such registration, (vii) reasonable
fees and expenses of one counsel for all of the Stockholders participating in
the offering selected (A) by the DLJ Entities, in the case of any offering in
which such entities participate (other than one pursuant to a CVC Demand), (B)
in the case of a CVC Demand, by the CVC Entities, or (C) in any other case, by
the Stockholders holding the majority of Shares or Warrants to be sold for the
account of all Stockholders in the offering, (viii) fees and expenses in
connection with any review of underwriting arrangements by the National
Association of Securities Dealers, Inc. (the "NASD") including fees and
expenses of any "qualified independent underwriter" and (ix) fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities, other than any underwriting fees, discounts or commissions
attributable to the sale of Registrable Securities, or any out-of-pocket
expenses (except as set forth in clause (vii) above) of the Stockholders (or
the agents who manage their accounts) or any fees and expenses of underwriter's
counsel.
"Registrable Securities" means at any time any Shares or Warrants and
any securities issued or issuable in respect of such Shares or Warrants by way
of conversion, exchange, stock dividend, split or combination,
recapitalization, merger, consolidation, other reorganization or otherwise
until (i) a registration statement covering such Shares or Warrants has been
declared effective by the SEC and such Shares or Warrants have been disposed of
pursuant to such effective registration statement, (ii) such Shares or Warrants
are sold under circumstances in which all of the applicable conditions of Rule
144 (or any similar provisions then in force) under the Securities Act are met
or (iii) such Shares or Warrants are otherwise transferred, the Company has
delivered a new certificate or other evidence of ownership for such Shares or
Warrants not bearing the legend required pursuant to this Agreement and such
Shares or Warrants may be resold without subsequent registration under the
Securities Act.
"Rule 144" means Rule 144, Rule 144A and Rule 145 (or any successor
provisions) under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as the same may be
amended, and the rules and regulations promulgated thereunder.
"Shares" means Common Shares and Preferred Shares.
"Stockholder" means each Person (other than the Company) who shall be
a party to or bound by this Agreement, whether in connection with the execution
and delivery hereof as of the date hereof, pursuant to Section 3.03, Section
6.05, or otherwise, so long as such Person shall beneficially own any Company
Securities.
"Subscription Agreements" means (i) the Subscription Agreement dated
as of August 17, 1998 among MergerSub, the DLJ Entities and CVC relating to the
issue of Common Shares and (ii) the Subscription Agreement dated as of August
17, 1998 among the Company and the DLJ Entities relating to the issue of
Preferred Shares and Warrants.
"Tag-Along Portion" means
(i) where the DLJ Entities are selling Common Stock, the number of
Common Shares held (or, without duplication, that such shareholder has the
right to acquire from any Person) by the Tagging Person multiplied by a
fraction, the numerator of which is the maximum number of Common Shares
proposed to be sold by the DLJ Entities in the Tag-Along Sale pursuant to
Section 4.01, and the denominator of which is the aggregate number of Common
Shares on a Fully Diluted basis owned by the DLJ Entities, and
(ii) where the DLJ Entities are selling Warrants, the number of Common
Shares held (or, without duplication, acquirable under the Warrants) by the
Tagging Person, multiplied by a fraction the numerator of which is the number
of Common Shares for which the Warrants proposed to be sold by the DLJ Entities
in the Tag-Along Sale pursuant to Section 4.01 are exercisable, and the
denominator of which is the aggregate number of Common Shares on a Fully
Diluted basis owned by the DLJ Entities,
provided that where a Tag-Along Right includes the right to sell Common Stock,
any holder of Warrants may, in lieu of exercising Warrants, Transfer Warrants
for some or all of that number of Common Shares as would otherwise have
constituted its Tag-Along Portion, in which event the price to be received with
respect to each such Warrant shall be the price per Common Share applicable to
the Tag-Along Offer, less the then applicable exercise price of the Warrants
owned by such holder.
"Third Party" means a prospective purchaser(s) of Shares in an
arm's-length transaction from a Stockholder where such purchaser(s) is not a
Permitted Transferee or other Affiliate of such Stockholder.
"Transfer" means, with respect to any Company Security, (i) when used
as a verb, to sell, assign, dispose of, exchange, pledge, encumber,
hypothecate, or otherwise transfer such security or any participation or
interest therein, whether directly or indirectly, or agree or commit to do any
of the foregoing and (ii) when used as a noun, a direct or indirect sale,
assignment, disposition, exchange pledge, encumbrance, hypothecation, or other
transfer of such security or any participation or interest therein or any
agreement or commitment to do any of the foregoing.
"Transfer Percentage" means, as of any date, with respect to any
Person, (x) the aggregate number of Common Shares transferred prior to such
date by such Person, other than any Common Shares transferred to Permitted
Transferees of such Person, divided by (y) the Initial Ownership of Common
Shares of such Person.
"Warrants" means the warrants issued by the Company to Stockholders
for the purchase of an aggregate of 65,603 Common Shares (subject to adjustment
as provided for herein).
"Warrant Shares" means Common Shares issuable by the Company upon
exercise of the Warrants.
(b) The term "CVC Entities", to the extent that CVC shall have
transferred any of its Company Securities to any of its Permitted Transferees,
shall mean CVC and the Permitted Transferees thereof, taken together, and any
right, obligation or action that may be taken at the election of CVC may be
taken at the election of the CVC Entities and such Permitted Transferees.
(c) The term "DLJ Entities", to the extent such entities shall have
transferred any of their Company Securities to any of their Permitted
Transferees, shall mean the DLJ Entities and such Permitted Transferees, taken
together, and any right, obligation or action that may be taken at the election
of the DLJ Entities may be taken at the election of the DLJ Entities and such
Permitted Transferees.
(d) The term "Other Stockholders", to the extent such stockholders
shall have transferred any of their Company Securities to any Permitted
Transferees thereof, shall mean the Other Stockholders and such Permitted
Transferees, taken together, and any right, obligation or action that may be
taken at the election of the Other Stockholders may be taken at the election of
the Other Stockholders and such Permitted Transferees.
(e) Each of the following terms is defined in the Section set forth
opposite such term:
Term Section
---- -------
CVC Demand 5.01(a)
Applicable Holdback Period 5.03
Cause 2.02
Company Preamble
Compelled Sale 4.02(a)
Compelled Sale Notice 4.02(a)
Compelled Sale Notice Period 4.02(a)
Compelled Sale Price 4.02(a)
Confidential Information 6.03(b)
CVC Preamble
Demand Registration 5.01(a)
DLJ Entity Preamble
DLJMB Preamble
DLJSC 6.04
Drag-Along Rights 4.02(a)
Holders 5.01(a)
Incidental Registration 5.02(a)
Indemnified Party 5.07
Indemnifying Party 5.07
Independent Director 2.01(a)
Inspectors 5.04(g)
Maximum Offering Size 5.01(e)
Merger Agreement Recitals
MergerSub Recitals
Records 5.04(g)
Replacement Nominee 2.03(a)
Representatives 6.03(b)
Requesting Stockholder 5.01(e)
Section 4.01 Response Notice 4.01(a)
Tag-Along Notice 4.01(a)
Tag-Along Notice Period 4.01(a)
Tag-Along Offer 4.01(a)
Tag-Along Right 4.01(a)
Tag-Along Sale 4.01(a)
Tagging Person 4.01(a)
ARTICLE 2
CORPORATE GOVERNANCE
SECTION 2.01. Composition of the Board. (a) The Board shall consist
of seven directors of whom (i) four will be designated by DLJMB in its sole
discretion, (ii) one will be Robert L. Smialek for so long as he is employed by
the Company, (iii) one will be designated by CVC as long as at the close of
business on the Business Day immediately preceding such designation, the number
of Common Shares held by CVC is more than 10% of the outstanding Common Shares
on a Fully Diluted basis and (iv) one will be designated by DLJMB but shall not
be either an "Affiliate" or an "Associate" (as such terms are used within the
meaning of Rule 12b-2 under the Exchange Act) of the DLJ Entities or the Other
Stockholders (the "Independent Director") and shall be designated by DLJMB
after consultation with the Other Stockholders. On the Closing Date, the
initial Board shall be Thompson Dean, William F. Dawson, Jr., Robert L. Smialek
and, shortly after the Closing Date, David Howe. DLJMB shall be permitted to
increase the number of directors who serve on the Board from seven to eight and
DLJMB shall be permitted to designate the eighth director.
(b) Each Stockholder entitled to vote for the election of directors
to the Board agrees that it will vote its Shares or execute written consents,
as the case may be, and take all other necessary action (including action by
written consent or causing the Company to call a special meeting of
stockholders) in order to ensure that the composition of the Board is as set
forth in this Section 2.01; provided that the Other Stockholders shall not be
required to vote for the board-designees of DLJMB if the aggregate number of
Common Shares held by the DLJ Entities is, at the close of business on the day
preceding such vote or execution of proxies or consents, less than 10% of the
DLJ Entities' Initial Ownership of Common Shares on a Fully Diluted Basis.
SECTION 2.02. Removal. Each Stockholder agrees that if, at any time,
it is then entitled to vote for the removal of directors of the Company, it
will not vote any of its Shares in favor of the removal of any director who
shall have been designated or nominated pursuant to Section 2.01 unless either
such removal shall be for Cause or the Person or Persons entitled to designate
or nominate such director shall have consented to such removal in writing;
provided that if the Persons entitled to designate or nominate any director
pursuant to Section 2.01 shall request the removal, with or without Cause, of
such director in writing, such Stockholder shall vote its Shares in favor of
such removal. Removal for "Cause" shall mean removal of a director because of
such director's (a) willful and continued failure substantially to perform his
duties with the Company in his established position, (b) willful conduct which
is injurious to the Company or any of its subsidiaries, monetarily or
otherwise, (c) conviction for, or guilty plea to, a felony or a crime involving
moral turpitude, or (d) abuse of illegal drugs or other controlled substances
or habitual intoxication.
SECTION 2.03. Vacancies. If, as a result of death, disability,
retirement, resignation, removal (with or without cause) or otherwise, there
shall exist or occur any vacancy of the Board:
(a) the Person or Persons entitled under Section 2.01 to designate or
nominate such director whose death, disability, retirement, resignation or
removal resulted in such vacancy may, subject to the provisions of Section
2.01, designate another individual (the "Replacement Nominee") to fill such
capacity and serve as a director of the Company; and
(b) subject to Section 2.01, each Stockholder then entitled to vote
for the election of the Replacement Nominee as a director of the Company agrees
that it will vote its Shares, or execute a proxy or written consent, as the
case may be, in order to ensure that the Replacement Nominee is elected to the
Board.
SECTION 2.04. Meetings. The Board shall hold a regularly scheduled
meeting at least once every calendar quarter.
SECTION 2.05. Action by the Board. (a) A quorum of the Board shall
consist of three directors, of whom at least two must be designees of DLJMB;
provided that DLJMB shall have the right at any time to increase the number of
directors necessary to constitute a quorum of the Board.
(b) All actions of the Board shall require (i) the affirmative vote
of at least a majority of the directors present at a duly convened meeting of
the Board at which a quorum is present or (ii) the unanimous written consent of
the Board; provided that, in the event there is a vacancy on the Board and an
individual has been nominated to fill such vacancy, the first order of business
shall be to fill such vacancy.
(c) The Board may create executive, compensation, audit and such
other committees as it may determine. The DLJ Entities shall be entitled to
majority representation on any committee created by the Board.
SECTION 2.06. Conflicting Charter or Bylaw Provisions. Each
Stockholder shall vote its Shares or execute proxies or written consents, as
the case may be, and take all other actions necessary, to ensure that the
Company's Charter and Bylaws (i) facilitate, and do not at any time conflict
with, any provision of this Agreement and (ii) permit each Stockholder to
receive the benefits to which each such Stockholder is entitled under this
Agreement.
SECTION 2.07. Notice of Meeting; Participation. (a) Each director will
receive notice and the agenda of each meeting of the Board or any committee
thereof (even if such director is not a member of such committee) at least 5
days prior to such meeting.
(b) Each DLJMB and CVC representative will be permitted to invite
alternates to participate in the meetings, provided such alternates will not be
permitted to vote at such meeting.
SECTION 2.08. Subsidiary Governance. Each of the Company and each
Stockholder agrees that, if and to the extent that two or more of the directors
of any subsidiary of the Company are designees of DLJMB, CVC shall have the
right to designate one director of the board of such subsidiary.
SECTION 2.09. Affiliate Transactions. The Company will not, and will
not permit any of its subsidiaries to, make any payment to, or sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate of the Company, unless such
transaction is on terms that are no less favorable to the Company or such
subsidiary than those that would have been obtained in a comparable transaction
by the Company or such subsidiary with an unrelated Person.
ARTICLE 3
RESTRICTIONS ON TRANSFER
SECTION 3.01. General. (a) Each Stockholder understands and agrees
that the Company Securities purchased pursuant to the Subscription Agreements
have not been registered under the Securities Act and are restricted
securities. Each of the parties hereto agrees that it will not Transfer any
Company Securities (or solicit any offers in respect of any Transfer of any
Company Securities), except in compliance with the Securities Act and any
applicable foreign or state securities or "blue sky" laws.
(b) Until such time as CVC owns 10% or less of its Initial Ownership
of Common Shares, none of the CVC Entities shall Transfer any Company
Securities (or solicit any offers in respect of any Transfer of any Company
Securities), except (i) in a Public Offering, (ii) pursuant to a Transfer to
which Section 4.01 or Section 4.02 applies, or (iii) subject to Section 3.03,
to any Permitted Transferee thereof.
(c) Any attempt to Transfer any Company Securities not in compliance
herewith shall be null and void and the Company shall not, and shall cause any
transfer agent not to, give any effect in the Company's stock records to such
attempted Transfer.
(d) No Holder shall (i) grant any proxy or enter into or agree to be
bound by any voting trust or agreement with respect to the Company Securities,
except as expressly contemplated by this Agreement, (ii) enter into any
agreement or arrangement of any kind with any Person with respect to its
Company Securities inconsistent with the provisions of this Agreement or for
the purpose or with the effect of denying or reducing the rights of any other
Stockholder under this Agreement including, but not limited to, agreements or
arrangements with respect to the Transfer or voting of its Company Securities
or (iii) act, for any reason, as a member of a group or in concert with any
other Person in connection with the Transfer or voting of its Company
Securities in any manner which is inconsistent with the provisions of this
Agreement.
SECTION 3.02. Legends. (a) In addition to any other legend that may
be required, each certificate for Shares and each Warrant that is issued to any
Stockholder shall bear a legend in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY FOREIGN OR STATE SECURITIES LAWS AND MAY NOT BE
OFFERED OR SOLD EXCEPT IN COMPLIANCE THEREWITH. THIS SECURITY IS ALSO SUBJECT
TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE INVESTORS' AGREEMENT
DATED AS OF AUGUST 14, 1998, COPIES OF WHICH MAY BE OBTAINED UPON REQUEST FROM
INSILCO HOLDING CO. OR ANY SUCCESSOR THERETO."
(b) If any Company Securities shall cease to be Registrable
Securities under clause (i) or clause (ii) of the definition thereof, the
Company shall, upon the written request of the holder thereof, issue to such
holder a new certificate evidencing such securities without the first sentence
of the legend required by Section 3.02(a) endorsed thereon. If any Company
Securities cease to be subject to any and all restrictions on Transfer set
forth in this Agreement, the Company shall, upon the written request of the
holder thereof, issue to such holder a new certificate evidencing such Company
Securities without the second sentence of the legend required by Section
3.02(a) endorsed thereon.
SECTION 3.03. Permitted Transferees. Notwithstanding anything in this
Agreement to the contrary, any Stockholder may at any time Transfer any or all
of its Company Securities to one or more of its Permitted Transferees without
the consent of the Board or any other Stockholder or group of Stockholders so
long as (a) such Permitted Transferee shall have executed and delivered to the
Company an agreement to be bound by the terms of this Agreement in the form of
Exhibit A attached hereto and (b) the Transfer to such Permitted Transferee is
not in violation of applicable federal or state securities laws.
ARTICLE 4
TAG-ALONG RIGHTS; DRAG-ALONG RIGHTS
SECTION 4.01. Rights to Participate in Transfer. (a) If the DLJ
Entities propose to Transfer Company Securities in a transaction otherwise
permitted by Article 3 hereof (a "Tag-Along Sale"), and if any Other
Stockholders own the type of Company Securities proposed to be sold by the DLJ
Entities, such Other Stockholders may, at their option, elect to exercise their
rights under this Section 4.01 (each such Other Stockholder, a "Tagging
Person"). In the event of such a proposed Transfer, the DLJ Entities shall
provide each Other Stockholder written notice of the terms and conditions of
such proposed Transfer ("Tag-Along Notice") and offer each Tagging Person the
opportunity to participate in such sale. The Tag-Along Notice shall identify
the number and type of Company Securities subject to the offer ("Tag-Along
Offer"), the price at which the Transfer is proposed to be made, and all other
material terms and conditions of the Tag-Along Offer, including the form of the
proposed agreement, if any. From the date of the receipt of the Tag-Along
Notice, each Tagging Person shall have the right (a "Tag- Along Right"),
exercisable by written notice ("Section 4.01 Response Notice") given to the DLJ
Entities within 15 Business Days (the "Tag-Along Notice Period"), to request
that the DLJ Entities include in the proposed Transfer the number of Company
Securities held by such Tagging Person as is specified in such notice; provided
that if the aggregate number of Company Securities proposed to be sold by the
DLJ Entities and all Tagging Persons in such transaction exceeds the number of
Company Securities which can be sold on the terms and conditions set forth in
the Tag-Along Notice, then only the Tag-Along Portion of Company Securities of
each Tagging Person shall be sold pursuant to the Tag-Along Offer and the DLJ
Entities shall sell its Tag-Along Portion of Company Securities and such
additional Company Securities as permitted by Section 4.01(d). If the Tagging
Persons exercise their Tag-Along Rights hereunder, each Tagging Person shall
deliver to the DLJ Entities, together with its Section 4.01 Response Notice,
the certificate or certificates representing the Company Securities of such
Tagging Person to be included in the Transfer, together with a limited
power-of-attorney authorizing the DLJ Entities to Transfer such Company
Securities on the terms set forth in the Tag-Along Notice. Delivery of such
certificate or certificates representing the Company Securities to be
transferred and the limited power-of-attorney authorizing the DLJ Entities to
Transfer such Company Securities shall constitute an irrevocable acceptance of
the Tag-Along Offer by such Tagging Persons. The Tagging Persons shall (a) be
required (i) to bear their proportionate share of any escrows, holdbacks or
adjustments in purchase price and (ii) to make such representations, warranties
and covenants and enter into such agreements as are customary for transactions
of the nature of the Tag-along Offer, in each case under the terms of any
definitive agreement(s) relating to such Tag- along Offer and (b) benefit from
all of the same provisions of the definitive agreements as the Selling Person.
If, at the end of a 90-day period after such delivery of the Section 4.01
Response Notice (which 90-day period shall be extended if any of the
transactions contemplated by the Tag-Along Offer are subject to regulatory
approval until the expiration of five Business Days after all such approvals
have been received, but in no event later than 180 days following the receipt
of the Section 4.01 Notice), the DLJ Entities have not completed the transfer
of all such Company Securities for at least 95% of the price set forth in the
Tag-Along Offer and otherwise on substantially the same terms and conditions
set forth in the Tag-Along Notice, the DLJ Entities shall (i) return to each
Tagging Person the limited power-of-attorney (and all copies thereof) together
with all certificates representing the Company Securities which such Tagging
Person delivered for Transfer pursuant to this Section 4.01and (ii) not conduct
any Transfer of Company Securities without again complying with this Section.
(b) Concurrently with the consummation of the Tag-Along Sale, the DLJ
Entities shall notify the Tagging Persons thereof, shall remit to the Tagging
Persons the total consideration (by bank or certified check) for the Company
Securities of the Tagging Persons transferred pursuant thereto, and shall,
promptly after the consummation of such Tag-Along Sale, furnish such other
evidence of the completion and time of completion of such Transfer and the
terms thereof as may be reasonably requested by the Tagging Persons.
(c) If at the termination of the Tag-Along Notice Period any Tagging
Person shall not have elected to participate in the Tag-Along Sale, such
Tagging Person will be deemed to have waived its rights under Section 4.01(a)
with respect to the Transfer of its Company Securities pursuant to such
Tag-Along Sale.
(d) If any Tagging Person declines to exercise its Tag-Along Rights
or elects to exercise its Tag-Along Rights with respect to less than such
Tagging Person's Tag-Along Portion, the DLJ Entities shall be entitled to
Transfer, pursuant to the Tag-Along Offer, a number of Company Securities held
by the DLJ Entities equal to the number of Company Securities constituting the
portion of such Tagging Person's Tag-Along Portion with respect to which
Tag-Along Rights were not exercised.
(e) The DLJ Entities may sell, on behalf of themselves and any
Tagging Person who exercises the Tag-Along Rights pursuant to this Section
4.01, the Company Securities subject to the Tag-Along Offer and elected to be
sold on the terms and conditions set forth in the Tag-Along Notice (provided,
however, that the price payable in any such sale may exceed the price specified
in the Tag-Along Notice by up to 10%) within 120 days of the date on which all
Tag-Along Rights shall have been waived, exercised or expire.
(f) Notwithstanding anything contained in this Section 4.01, there
shall be no liability on the part of the DLJ Entities to the Tagging Persons
(other than the obligation to return any certificates evidencing Company
Securities received by any DLJ Entity) if the Transfer of Company Securities
pursuant to Section 4.01 is not consummated for whatever reason. Whether to
effect a Transfer of Company Securities pursuant to this Section 4.01 by the
DLJ Entities is in the sole and absolute discretion of the DLJ Entities.
(g) The provisions of this Section 4.01 shall not apply to any
Transfer or proposed Transfer of Company Securities by the DLJ Entities (i)
pursuant to Rule 144, (ii) to a Permitted Transferee of the DLJ Entities, or
(iii) pursuant to which Section 4.02 applies.
SECTION 4.02. Right to Compel Participation in Certain Transfers. (a)
If (i) the DLJ Entities propose to Transfer not less than 50% of their Initial
Ownership of any class of Company Securities to a Third Party in a bona fide
sale or (ii) the DLJ Entities propose a Transfer in which the Company
Securities to be transferred by the DLJ Entities constitute more than 50% of
the outstanding Company Securities in a particular class (a "Compelled Sale"),
the DLJ Entities may at their option require all Other Stockholders to sell the
Drag-Along Portion of such class of Company Securities ("Drag-Along Rights")
then held by every Other Stockholder, and in the case of a Compelled Sale
involving Common Shares (but subject to and at the closing of the Compelled
Sale) to exercise such number of options or Warrants for Common Shares held by
every Other Stockholder as is required in order that a sufficient number of
Common Shares are available to sell the relevant Drag-Along Portion of each
such Other Stockholder, for the same consideration per unit of the relevant
class of Company Security and otherwise on the same terms and conditions as the
DLJ Entities; provided that any Other Stockholder who holds options or Warrants
the exercise price per share of which is greater than the per share price at
which the Common Shares are to be sold to the Third Party may, if required by
the DLJ Entities to exercise such options, in place of such exercise, submit to
irrevocable cancellation thereof without any liability for payment of any
exercise price with respect thereto. If the Compelled Sale is not consummated
with respect to any Common Shares acquired upon exercise of such options or
Warrants, or the Compelled Sale is not consummated, such options or Warrants
shall be deemed not to have been exercised or canceled, as applicable. DLJ
Entities shall provide written notice of such Compelled Sale to the Other
Stockholders (a "Compelled Sale Notice") not later than the 15th day prior to
the proposed Compelled Sale. The Compelled Sale Notice shall identify the
transferee, the number of Company Securities, the consideration for which a
Transfer is proposed to be made (the "Compelled Sale Price") and all other
material terms and conditions of the Compelled Sale. The number of Company
Securities to be sold by each Other Stockholder will be the Drag-Along Portion
of the Common Shares and/or Warrants that such Other Stockholder owns. Each
Other Stockholder shall be required to participate in the Compelled Sale on the
terms and conditions set forth in the Compelled Sale Notice and to tender all
its Company Securities as set forth below. The price payable in such Transfer
shall be the Compelled Sale Price. Not later than the 10th day following the
date of the Compelled Sale Notice (the "Compelled Sale Notice Period"), each of
the Other Stockholders shall deliver to a representative of the DLJ Entities
designated in the Section 4.02 Notice certificates, and in the case of the
Warrants, the applicable instrument, representing all Company Securities
comprising the Drag-Along Portion held by such Other Stockholder, duly
endorsed, together with all other documents required to be executed in
connection with such Compelled Sale or, if such delivery is not permitted by
applicable law, an unconditional agreement to deliver such Company Securities
pursuant to this Section 4.02 at the closing for such Compelled Sale against
delivery to such Other Stockholder of the consideration therefor. If an Other
Stockholder should fail to deliver such certificates to the DLJ Entities, the
Company shall cause the books and records of the Company to show that such
Company Securities are bound by the provisions of this Section 4.02 and that
such Company Securities shall be transferred to the purchaser of such Company
Securities immediately upon surrender for Transfer by the holder thereof. The
Other Stockholders shall (a) be required (i) to bear their proportionate share
of any escrows, holdbacks or adjustments in purchase price and (ii) to make
such representations, warranties and covenants and enter into such agreements
as are customary for transactions of the nature of the Compelled Sale, in each
case under the terms of the definitive agreement(s) relating to such Compelled
Sale and (b) benefit from all of the same provisions of the definitive
agreements as the DLJ Entities.
(b) The DLJ Entities shall have a period of 90 days from the date of
receipt of the Compelled Sale Notice to consummate the Compelled Sale on the
terms and conditions set forth in such Compelled Sale Notice; provided that if
such Compelled Sale is subject to regulatory approval, such 90-day period shall
be extended until the expiration of 5 Business Days after all such approvals
have been received, but in no event later than 270 days following the effective
date of the Compelled Sale Notice. If the Compelled Sale shall not have been
consummated during such period, the DLJ Entities shall return to each of the
Other Stockholders all certificates representing Company Securities that such
Other Stockholder delivered for Transfer pursuant hereto, together with any
documents in the possession of the DLJ Entities executed by the Other
Stockholder in connection with such proposed Transfer, and all the restrictions
on Transfer contained in this Agreement or otherwise applicable at such time
with respect to such Company Securities owned by the Other Stockholders shall
again be in effect.
(c) Concurrently with the consummation of the Transfer of Company
Securities pursuant to this Section 4.02, the DLJ Entities shall give notice
thereof to all Stockholders, shall remit to each of the Stockholders who have
surrendered their certificates the total consideration (the cash portion of
which is to be paid by bank or certified check) for the Company Securities
transferred pursuant hereto and shall furnish such other evidence of the
completion and time of completion of such Transfer and the terms thereof as may
be reasonably requested by such Stockholders
(d) Notwithstanding anything contained in this Section 4.02, there
shall be no liability on the part of the DLJ Entities to the Other Stockholders
(other than the obligation to return any certificates representing Company
Securities received by any DLJ Entity) if the Transfer of Company Securities
pursuant to this Section 4.02 is not consummated for whatever reason,
regardless of whether the DLJ Entities have delivered a Compelled Sale Notice.
Whether to effect a Transfer of Company Securities pursuant to this Section
4.02 by the DLJ Entities is in the sole and absolute discretion of the DLJ
Entities.
ARTICLE 5
REGISTRATION RIGHTS
SECTION 5.01. Demand Registration. (a) If the Company shall receive a
written request from either DLJMB on behalf of the DLJ Entities or, in the case
of a CVC Demand, CVC on behalf of the CVC Entities (the DLJ Entities or, in
respect of a CVC Demand, the CVC Entities, shall be referred to herein as a
"Requesting Stockholder") that the Company effect the registration under the
Securities Act of all or a portion of such Requesting Stockholder's Registrable
Securities, and specifying the intended method of disposition thereof, then the
Company shall promptly give written notice of such requested registration (each
such request, including the CVC Demand, shall be referred to herein as a
"Demand Registration") at least 15 days prior to the anticipated filing date of
the registration statement relating to such Demand Registration to the Other
Stockholders and thereupon will use its best efforts to effect, as
expeditiously as possible, the registration under the Securities Act of:
(i) the Registrable Securities which the Company has been so
requested to register by the Requesting Stockholder; and
(ii) subject to the restrictions set forth in Section 5.02, all
other Registrable Securities of the same class as that requested to be
registered by the Requesting Stockholder which any Other Stockholder
entitled to request the Company to effect an Incidental Registration
pursuant to Section 5.02 (all such Stockholders, together with the
Requesting Stockholder, the "Holders") has requested that the Company
register by written request received by the Company within 15 days
after the receipt by such Holders of such written notice given by the
Company,
all to the extent necessary to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities so to be
registered; provided that, subject to Section 5.01(d) hereof, the Company shall
(i) not be obligated to effect more than five Demand Registrations for the DLJ
Entities, (ii) be obligated to effect one Demand Registration for the CVC
Entities (the "CVC Demand") which shall be exercisable by CVC on behalf of any
CVC Entities only if immediately prior thereto (A) the Transfer Percentage of
the CVC Entities is less than the Transfer Percentage of the DLJ Entities and
(B) the DLJ Entities have transferred (other than to any of their Permitted
Transferees) 70% or more of the sum of (x) their collective Initial Ownership
of Common Stock and (y) any additional shares of Common Stock issued by the
Company to the DLJ Entities after the date hereof in an issuance of Common
Stock that was offered to the DLJ Entities and the CVC Entities on a pro rata
basis and (iii) not be obligated to effect any Demand Registration unless the
aggregate proceeds expected to be received from the sale of the Common Stock to
be included in such Demand Registration, in the reasonable opinion of DLJSC
exercised in good faith, equals or exceeds (x) $50,000,000 if such Demand
Registration would constitute the First Public Offering, or (y) $25,000,000 in
all other cases. In no event will the Company be required to effect more than
one Demand Registration hereunder within any four-month period.
(b) Promptly after the expiration of the 15-day period referred to in
Section 5.01(a)(ii) hereof, the Company will notify all the Holders to be
included in the Demand Registration of the other Holders and the number of
Registrable Securities requested to be included therein. The Requesting
Stockholder may, at any time prior to the effective date of the registration
statement relating to such registration, revoke such request, without liability
to any of the other Stockholders, by providing a written notice to the Company
revoking such request, in which case such request, so revoked, shall be
considered a Demand Registration unless the participating Stockholders
reimburse the Company for all costs incurred by the Company in connection with
such registration, or unless such revocation arose out of the fault of the
Company, in which case such request shall not be considered a Demand
Registration and the Company shall be obligated to pay all Registration
Expenses in connection with such revoked request.
(c) The Company will be liable for and pay all Registration Expenses
in connection with any Demand Registration pursuant to this Section 5.01,
regardless of whether it is effected.
(d) A Demand Registration shall not be deemed to have occurred unless
the registration statement relating thereto (A) has become effective under the
Securities Act and (B) has remained effective for a period of at least 180 days
without being subject to any stop order, injunction, or other order or
requirement of the Commission or any other governmental authority for any
reason (or such shorter period in which all Registrable Securities of the
Holders requested to be included in such registration have actually been sold
thereunder).
(e) If a Demand Registration involves an underwritten Public Offering
and the managing underwriter shall advise the Company and the Requesting
Stockholder that, in its view, (i) the number of Registrable Securities
requested to be included in such registration (including any securities which
the Company proposes to be included which are not Registrable Securities) or
(ii) the inclusion of some or all of the Registrable Securities owned by the
Holders, in any such case, exceeds the largest number of securities which can
be sold without having an adverse effect on such offering, including the price
at which such securities can be sold (the "Maximum Offering Size"), the Company
will include in such registration, in the priority listed below, up to the
Maximum Offering Size:
(i) first, all Registrable Securities requested to be registered
by the Requesting Stockholder and all Registrable Securities requested
to be included in such registration by any other Holder (allocated, if
necessary for the offering not to exceed the Maximum Offering Size,
pro rata, among such Holders on the basis of the relative number of
Registrable Securities so requested to be included in such
registration); provided that if the Transfer Percentage of CVC is less
than the Transfer Percentage of the DLJ Entities collectively at such
time, the amount of Registrable Securities which will be allocable to
CVC pursuant to this subsection shall be increased by an amount such
that, after giving effect to the sale of all Registrable Securities in
such offering, the Transfer Percentage of CVC would equal the Transfer
Percentage of the DLJ Entities collectively;
(ii) second, any securities proposed to be registered by the
Company; and
(iii) third, any securities proposed to be registered for the
account of any other Persons with such priorities among them as the
Company shall determine.
(f) If, in connection with any Demand Registration pursuant to this
Section with respect to the Common Shares or Preferred Shares, any Requesting
Stockholder shall seek to Transfer any Warrants together with Common Shares or
Preferred Shares, the Company shall at the request of any such Stockholder
effect a registration of such Warrants to which the provisions of this Article
5 shall apply mutatis mutandis and a registration, pursuant to a shelf
registration statement, so as to permit the resale of the Common Shares for
which any Warrants so transferred may be exercisable. The Company shall
maintain the effectiveness of any such shelf registration statement, and take
all actions necessary to permit resale of such Common Shares as may be required
by applicable state securities laws.
SECTION 5.02. Incidental Registration. (a) If the Company proposes to
register any Company Securities under the Securities Act (other than a
registration on Forms S-8 or S-4 or any successor or similar forms), whether or
not for sale for its own account, it will each such time, subject to the
provisions of Section 5.02(b), give prompt written notice at least 30 days
prior to the anticipated filing date of the registration statement relating to
such registration to all Stockholders, which notice shall set forth such
Stockholder's rights under this Section 5.02 and shall offer such Stockholders
the opportunity to include in such registration statement such number of
Registrable Securities of the same type as are proposed to be registered as
each such Stockholder may request (an "Incidental Registration"). Upon the
written request of any such Stockholder made within 15 days after the receipt
of notice from the Company (which request shall specify the number of
Registrable Securities intended to be disposed of by such Stockholder), the
Company will use its best efforts to effect the registration under the
Securities Act of all Registrable Securities which the Company has been so
requested to register by such Stockholders, to the extent requisite to permit
the disposition of the Registrable Securities so to be registered; provided
that (i) if such registration involves an underwritten Public Offering, all
such Stockholders requesting to be included in the Company's registration must
sell their Registrable Securities to the underwriters selected as provided in
Section 5.04(f) on the same terms and conditions as apply to the Company and
(ii) if, at any time after giving written notice of its intention to register
any Company Securities pursuant to this Section 5.02(a) and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register such
securities, the Company shall give written notice to all such Stockholders and,
thereupon, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration. No registration effected under
this Section 5.02 shall relieve the Company of its obligations to effect a
Demand Registration to the extent required by Section 5.01. The Company will
pay all Registration Expenses in connection with each registration of
Registrable Securities requested pursuant to this Section 5.02.
(b) If a registration pursuant to this Section 5.02 involves an
underwritten Public Offering (other than any Demand Registration in which case
the provisions with respect to priority of inclusion in such offering set forth
in Section 5.01 shall apply) and the managing underwriter advises the Company
that, in its view, the number of Shares that the Company and such Stockholders
intend to include in such registration exceeds the Maximum Offering Size, the
Company will include in such registration, in the following priority, up to the
Maximum Offering Size:
(i) first, so much of the securities proposed to be registered by
the Company as would not cause the offering to exceed the Maximum
Offering Size;
(ii) second, all Registrable Securities requested to be included
in such registration statement by the Holders (allocated, if necessary
for the offering not to exceed the Maximum Offering Size, pro rata
among such entities on the basis of the relative number of shares of
Registrable Securities requested to be so included in such
registration); provided that if the Transfer Percentage of CVC is less
than the Transfer Percentage of the DLJ Entities collectively at such
time, the amount of Registrable Securities which will be allocable to
CVC pursuant to this subsection shall be increased by an amount such
that, after giving effect to the sale of all Registrable Securities in
such offering, the Transfer Percentage of CVC would equal the Transfer
Percentage of the DLJ Entities collectively; and
(iii) third, any securities proposed to be registered for the
account of any other Persons with such priorities among them as the
Company shall determine.
SECTION 5.03. Holdback Agreements. If any registration of Registrable
Securities shall be in connection with a Public Offering, each DLJ Entity, each
Other Stockholder and the Company agree not to effect any public sale or
distribution, including any sale pursuant to Rule 144, or any successor
provision, under the Securities Act, of any Registrable Securities, and not to
effect any such public sale or distribution of any other Common Stock of the
Company or of any stock convertible into or exchangeable or exercisable for any
Common Stock of the Company (in each case, other than as part of such Public
Offering) during the 14 days prior to the effective date of such registration
statement (except as part of such registration) or during the period after such
effective date equal to the lesser of (i) such period of time as the Company
and the lead managing underwriter of an underwritten Public Offering agree and
(ii) 180 days (such lesser period, the "Applicable Holdback Period").
SECTION 5.04. Registration Procedures. Whenever Stockholders request
that any Registrable Securities be registered pursuant to Section 5.01 or 5.02,
the Company will, subject to the provisions of such Sections, use its best
efforts to effect the registration and the sale of such Registrable Securities
in accordance with the intended method of disposition thereof as quickly as
practicable, and in connection with any such request:
(a) The Company will as expeditiously as possible prepare and file
with the SEC a registration statement on any form for which the Company then
qualifies or which counsel for the Company shall deem appropriate and which
form shall be available for the sale of the Registrable Securities to be
registered thereunder in accordance with the intended method of distribution
thereof, and use its best efforts to cause such filed registration statement to
become and remain effective for a period of not less than 180 days (or such
shorter period in which all Registrable Securities of the Holders included in
such registration statement shall have actually been sold thereunder).
(b) The Company will, if requested, prior to filing a registration
statement or prospectus or any amendment or supplement thereto, furnish to each
participating Stockholder and each underwriter, if any, of the Registrable
Securities covered by such registration statement copies of such registration
statement as proposed to be filed, and thereafter the Company will furnish to
such Stockholder and underwriter, if any, such number of copies of such
registration statement, each amendment and supplement thereto (in each case
including all exhibits thereto and documents incorporated by reference
therein), the prospectus included in such registration statement (including
each preliminary prospectus) and such other documents as such Stockholder or
underwriter may reasonably request in order to facilitate the disposition of
the Registrable Securities owned by such Stockholder.
(c) After the filing of the registration statement, the Company will
(i) cause the related prospectus to be supplemented by any required prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 under the
Securities Act, (ii) comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities covered by such
registration statement during the applicable period in accordance with the
intended methods of disposition by the sellers thereof set forth in such
registration statement or supplement to such prospectus and (iii) promptly
notify each Stockholder holding Registrable Securities covered by such
registration statement of any stop order issued or threatened by the SEC or any
state securities commission under state blue sky laws and take all reasonable
actions required to prevent the entry of such stop order or to remove it if
entered.
(d) The Company will use its best efforts to (i) register or qualify
the Registrable Securities covered by such registration statement under such
other securities or blue sky laws of such jurisdictions in the United States as
any Stockholder holding such Registrable Securities reasonably (in light of
such Stockholder's intended plan of distribution) requests and (ii) cause such
Registrable Securities to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company and do any and all other acts and things
that may be reasonably necessary or advisable to enable such Stockholder to
consummate the disposition of the Registrable Securities owned by such
Stockholder; provided that the Company will not be required to (A) qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this paragraph (d), (B) subject itself to taxation
in any such jurisdiction or (C) consent to general service of process in any
such jurisdiction.
(e) The Company will immediately notify each Stockholder holding such
Registrable Securities, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the occurrence of an
event requiring the preparation of a supplement or amendment to such prospectus
so that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus will not contain an untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and promptly prepare
and make available to each such Stockholder any such supplement or amendment.
(f) (i) DLJMB will have the right to select an underwriter or
underwriters in connection with any Public Offering resulting from the exercise
by DLJMB on behalf of any DLJ Entity of a Demand Registration, which
underwriter or underwriters may include any Affiliate of any DLJ Entity, (ii)
CVC will have the right to select an underwriter or underwriters in connection
with the CVC Demand, which selection shall be subject to the approval of the
Company, which approval shall not be unreasonably withheld, and (iii) the
Company will select an underwriter or underwriters in connection with any other
Public Offering. In connection with any Public Offering, the Company will enter
into customary agreements (including an underwriting agreement in customary
form) and take such other actions as are reasonably required in order to
expedite or facilitate the disposition of Registrable Securities in any such
Public Offering, including the engagement of a "qualified independent
underwriter" in connection with the qualification of the underwriting
arrangements with the NASD.
(g) Upon the execution of confidentiality agreements in form and
substance reasonably satisfactory to the Company, the Company will make
available for inspection by any Stockholder and any underwriter participating
in any disposition pursuant to a registration statement being filed by the
Company pursuant to this Section 5.04 and any attorney, accountant or other
professional retained by any such Stockholder or underwriter (collectively, the
"Inspectors"), all financial and other records, pertinent corporate documents
and properties of the Company (collectively, the "Records") as shall be
reasonably necessary or desirable to enable them to exercise their due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any Inspectors in
connection with such registration statement. Records that the Company
determines, in good faith, to be confidential and that it notifies the
Inspectors are confidential shall not be disclosed by the Inspectors unless (i)
the disclosure of such Records is necessary to avoid or correct a misstatement
or omission in such registration statement or (ii) the release of such Records
is ordered pursuant to a subpoena or other order from a court of competent
jurisdiction. Each Stockholder agrees that information obtained by it as a
result of such inspections shall be deemed confidential and shall not be used
by it as the basis for any market transactions in the Company Securities or its
Affiliates unless and until such is made generally available to the public.
Each Stockholder further agrees that it will, upon learning that disclosure of
such Records is sought in a court of competent jurisdiction, give notice to the
Company and allow the Company, at its expense, to undertake appropriate action
to prevent disclosure of the Records deemed confidential.
(h) The Company will furnish to each such Stockholder and to each
such underwriter, if any, a signed counterpart, addressed to each such
Stockholder or underwriter, of (i) an opinion or opinions of counsel to the
Company and (ii) a comfort letter or comfort letters from the Company's
independent public accountants, each in customary form and covering such
matters of the type customarily covered by opinions or comfort letters, as the
case may be, as a majority of such Stockholders or the managing underwriter
therefor reasonably requests.
(i) The Company will otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC, and make available to its
stockholders, as soon as reasonably practicable, consolidated statements
covering a period of 12 months, beginning within three months after the
effective date of the registration statement, which consolidated statements
shall satisfy the provisions of Section 11(a) of the Securities Act.
(j) The Company may require each such Stockholder to promptly furnish
in writing to the Company such information regarding the distribution of the
Registrable Securities as the Company may from time to time reasonably request
and such other information as may be legally required in connection with such
registration.
(k) Each such Stockholder agrees that, upon receipt of any notice
from the Company of the happening of any event of the kind described in Section
5.04(e), such Stockholder will forthwith discontinue disposition of Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until such Stockholder's receipt of the copies of the supplemented
or amended prospectus contemplated by Section 5.04(e), and, if so directed by
the Company, such Stockholder will deliver to the Company all copies, other
than any permanent file copies then in such Stockholder's possession, of the
most recent prospectus covering such Registrable Securities at the time of
receipt of such notice. In the event that the Company shall give such notice,
the Company shall extend the period during which such registration statement
shall be maintained effective (including the period referred to in Section
5.04(a)) by the number of days during the period from and including the date of
the giving of notice pursuant to Section 5.04(e) to the date when the Company
shall make available to such Stockholder a prospectus supplemented or amended
to conform with the requirements of Section 5.04(e).
SECTION 5.05. Indemnification by the Company. The Company agrees to
indemnify and hold harmless each Stockholder holding Registrable Securities
covered by a registration statement, its officers, directors and agents, and
each Person, if any, who controls such Stockholder within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act from and
against any and all losses, claims, damages and liabilities caused by any
untrue statement or alleged untrue statement of a material fact contained in
any registration statement or prospectus relating to the Registrable Securities
(as amended or supplemented if the Company shall have furnished any amendments
or supplements thereto) or any preliminary prospectus, or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or omission or alleged untrue statement or omission based
upon information furnished in writing to the Company by such Stockholder or any
other Stockholder or on such Stockholder's behalf or on behalf of any other
Stockholder expressly for use therein; provided that with respect to any untrue
statement or omission or alleged untrue statement or omission made in any
preliminary prospectus, or in any prospectus, as the case may be, the indemnity
agreement contained in this paragraph shall not apply to the extent that any
such loss, claim, damage, liability or expense results from the fact that a
current copy of the prospectus (or such amended or supplemented prospectus as
the case may be) was not sent or given to the person asserting any such loss,
claim, damage, liability or expense at or prior to the written confirmation of
the sale of the Registrable Securities concerned to such person if it is
determined that the Company has provided such prospectus and it was the
responsibility of such Stockholder to provide such person with a current copy
of the prospectus (or such amended or supplemented prospectus, as the case may
be) and such current copy of the prospectus (or such amended or supplemented
prospectus, as the case may be) would have cured the defect giving rise to such
loss, claim, damage, liability or expense. The Company also agrees to indemnify
any underwriters of the Registrable Securities, their officers and directors
and each person who controls such underwriters on substantially the same basis
as that of the indemnification of the Stockholders provided in this Section
5.05.
SECTION 5.06. Indemnification by Participating Stockholders. Each
Stockholder holding Registrable Securities included in any registration
statement agrees, severally but not jointly, to indemnify and hold harmless the
Company, its officers, directors and agents and each Person, if any, who
controls the Company within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act to the same extent as the foregoing
indemnity from the Company to such Stockholder, but only (i) with respect to
information furnished in writing by such Stockholder or on such Stockholder's
behalf expressly for use in any registration statement or prospectus relating
to the Registrable Securities, or any amendment or supplement thereto, or any
preliminary prospectus or (ii) to the extent that any loss, claim, damage,
liability or expense described in Section 5.05 results from the fact that a
current copy of the prospectus (or such amended or supplemented prospectus, as
the case may be) was not sent or given to the Person asserting any such loss,
claim, damage, liability or expense at or prior to the written confirmation of
the sale of the Registrable Securities concerned to such person if it is
determined that it was the responsibility of such Stockholder to provide such
person with a current copy of the prospectus (or such amended or supplemented
prospectus, as the case may be) and such current copy of the prospectus (or
such amended or supplemented prospectus, as the case may be) would have cured
the defect giving rise to such loss, claim, damage, liability or expense. Each
such Stockholder also agrees to indemnify and hold harmless underwriters of the
Registrable Securities, their officers and directors and each person who
controls such underwriters on substantially the same basis as that of the
indemnification of the Company provided in this Section 5.06. As a condition to
including Registrable Securities in any registration statement filed in
accordance with Article 5 hereof, the Company may require that it shall have
received an undertaking reasonably satisfactory to it from any underwriter to
indemnify and hold it harmless to the extent customarily provided by
underwriters with respect to similar securities. No Stockholder shall be liable
under this Section 5.06 for any loss, claim, damage, liability or expense in
excess of the net proceeds realized by such Stockholder in the sale of the
Registrable Securities of such Stockholder to which such loss, claim, damage,
liability or expense relates.
SECTION 5.07. Conduct of Indemnification Proceedings. In case any
proceeding (including any governmental investigation) shall be instituted
involving any person in respect of which indemnity may be sought pursuant to
this Article 5, such person (an "Indemnified Party") shall promptly notify the
person against whom such indemnity may be sought (the "Indemnifying Party") in
writing and the Indemnifying Party shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to such Indemnified Party,
and shall assume the payment of all fees and expenses; provided that the
failure of any Indemnified Party so to notify the Indemnifying Party shall not
relieve the Indemnifying Party of its obligations hereunder except to the
extent that the Indemnifying Party is materially prejudiced by such failure to
notify. In any such proceeding, any Indemnified Party shall have the right to
retain its own counsel, but the fees and expenses of such counsel shall be at
the expense of such Indemnified Party unless (i) the Indemnifying Party and the
Indemnified Party shall have mutually agreed to the retention of such counsel
or (ii) in the reasonable judgment of such Indemnified Party representation of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
Indemnifying Party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) at any time for all such Indemnified Parties, and that all such fees
and expenses shall be reimbursed as they are incurred. In the case of any such
separate firm for the Indemnified Parties, such firm shall be designated in
writing by the Indemnified Parties. The Indemnifying Party shall not be liable
for any settlement of any proceeding effected without its written consent, but
if settled with such consent, or if there be a final judgment for the
plaintiff, the Indemnifying Party shall indemnify and hold harmless such
Indemnified Parties from and against any loss or liability (to the extent
stated above) by reason of such settlement or judgment. No Indemnifying Party
shall, without the prior written consent of the Indemnified Party, effect any
settlement of any pending or threatened proceeding in respect of which any
Indemnified Party is or could have been a party and indemnity could have been
sought hereunder by such Indemnified Party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability arising out
of such proceeding.
SECTION 5.08. Contribution. If the indemnification provided for in
this Article 5 is unavailable to the Indemnified Parties in respect of any
losses, claims, damages or liabilities referred to herein, then each
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages or liabilities (i) as between the Company and
the Stockholders holding Registrable Securities covered by a registration
statement on the one hand and the underwriters on the other, in such proportion
as is appropriate to reflect the relative benefits received by the Company and
such Stockholders on the one hand and the underwriters on the other, from the
offering of the Registrable Securities, or if such allocation is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits but also the relative fault of the Company and such
Stockholders on the one hand and of such underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations and (ii) as between the Company on the one hand and each such
Stockholder on the other, in such proportion as is appropriate to reflect the
relative fault of the Company and of each such Stockholder in connection with
such statements or omissions, as well as any other relevant equitable
considerations. The relative benefits received by the Company and such
Stockholders on the one hand and such underwriters on the other shall be deemed
to be in the same proportion as the total proceeds from the offering (net of
underwriting discounts and commissions but before deducting expenses) received
by the Company and such Stockholders bear to the total underwriting discounts
and commissions received by such underwriters, in each case as set forth in the
table on the cover page of the prospectus. The relative fault of the Company
and such Stockholders on the one hand and of such underwriters on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company and
such Stockholders or by such underwriters. The relative fault of the Company on
the one hand and of each such Stockholder on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by such party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the Stockholders agree that it would not be just and
equitable if contribution pursuant to this Section 5.08 were determined by pro
rata allocation (even if the underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified Party as a result of
the losses, claims, damages or liabilities referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 5.08, no underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Registrable Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission, and no
Stockholder shall be required to contribute any amount in excess of the amount
by which the total price at which the Registrable Securities of such
Stockholder were offered to the public exceeds the amount of any damages which
such Stockholder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. Each such Stockholder's obligation
to contribute pursuant to this Section 5.08 is several in the proportion that
the proceeds of the offering received by such Stockholder bears to the total
proceeds of the offering received by all such Stockholders and not joint.
SECTION 5.09. Participation in Public Offering. No Person may
participate in any Public Offering hereunder unless such Person (i) agrees to
sell such Person's securities on the basis provided in any underwriting
arrangements approved by the Persons entitled hereunder to approve such
arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements and the provisions
of this Agreement in respect of registration rights.
SECTION 5.10. Other Indemnification. Indemnification similar to that
specified herein (with appropriate modifications) shall be given by the Company
and each Stockholder participating therein with respect to any required
registration or other qualification of securities under any federal or state
law or regulation or governmental authority other than the Securities Act.
SECTION 5.11. Cooperation by the Company. In the event any
Stockholder shall Transfer any Registrable Securities pursuant to Rule 144
under the Securities Act, the Company shall cooperate, to the extent
commercially reasonable, with such Stockholder and shall provide to such
Stockholder such information as such Stockholder shall reasonably request.
SECTION 5.12. No Transfer of Registration Rights. None of the rights
of Stockholders under this Article 5 shall be assignable by any Stockholder to
any Person to which such Stockholder transferred Registrable Securities in any
Public Offering or pursuant to Rule 144 of the Securities Act.
ARTICLE 6
MISCELLANEOUS
SECTION 6.01. Entire Agreement. This Agreement and the Subscription
Agreements, together with any schedules, exhibits, annexes or appendices hereto
or thereto, constitute the entire agreement among the parties hereto and
supersede all prior agreements and understandings, oral and written, among the
parties hereto with respect to the subject matter hereof.
SECTION 6.02. Binding Effect; Benefit. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
heirs, successors, legal representatives and permitted assigns. Nothing in this
Agreement, expressed or implied, shall confer on any Person other than the
parties hereto, and their respective heirs, successors, legal representatives
and permitted assigns, any rights, remedies, obligations or liabilities under
or by reason of this Agreement.
SECTION 6.03. Confidentiality. (a) Each Stockholder agrees that
Confidential Information (as defined below) furnished and to be furnished to it
was and will be made available in connection with such Stockholder's investment
in the Company. Each Stockholder acknowledges and agrees that it will not
disclose any Confidential Information to any Person; provided that Confidential
Information may be disclosed (i) to such Stockholder's Representatives (as
defined below) in the normal course of the performance of their duties or to
any financial institution providing credit to such Stockholder, (ii) to the
extent required by applicable law, rule or regulation (including complying with
any oral or written questions, interrogatories, requests for information or
documents, subpoena, civil investigative demand or similar process to which a
Stockholder is subject; provided that such Stockholder gives the Company prompt
notice of such request(s), to the extent practicable, so that the Company may
seek an appropriate protective order or similar relief), (iii) to any Person to
whom such Stockholder is contemplating a Transfer of its Company Securities
(provided that such Transfer would not be in violation of the provisions of
this Agreement and as long as such potential transferee is advised of the
confidential nature of such information and agrees to be bound by a
confidentiality agreement in form and substance satisfactory to the Company (it
being understood that a confidentiality agreement consistent with the
provisions hereof shall be satisfactory to the Company)) or (iv) to any
regulatory authority to which the Stockholder or any of its affiliates is
subject of with which it has regular dealings if the prior written consent of
the Board shall have been obtained. Nothing contained herein shall prevent the
use (subject, to the extent possible, to a protective order) of Confidential
Information in connection with the assertion or defense of any claim by or
against the Company or any Stockholder. The Company will furnish to directors
of the Company, as soon as they become prepared on a regular basis, monthly
management accounts in such form and containing such information as the Board
shall specify.
(b) "Confidential Information" means any information concerning the
Company and Persons which are or become its subsidiaries or the financial
condition, business, operations or prospects of the Company and Persons which
are or become its subsidiaries in the possession of or furnished to any
Stockholder (including, without limitation by virtue of its present or former
right to designate a director of the Company); provided that the term
"Confidential Information" does not include information which (i) is or becomes
generally available to the public other than as a result of a disclosure by a
Stockholder or its partners, directors, officers, employees, agents, counsel,
investment advisors or representatives (all such persons being collectively
referred to as "Representatives") in violation of this Agreement, (ii) is or
was available to such Stockholder on a nonconfidential basis prior to its
disclosure to such Stockholder or its Representatives by the Company or (iii)
was or becomes available to such Stockholder on a non-confidential basis from a
source other than the Company, provided that such source is or was at the time
of receipt of the relevant information not, to the best of such Stockholder's
knowledge, bound by a confidentiality agreement with the Company or another
Person.
SECTION 6.04. Exclusive Financial and Investment Banking Advisor.
During the period from and including the date hereof until the earlier of (i)
the fifth anniversary of the date hereof and (ii) the date that the DLJ
Entities own less than 5% of their Initial Ownership of Common Shares,
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJSC"), or any Affiliate
of DLJSC that the DLJ Entities may choose in their sole discretion, shall be
engaged as the exclusive financial and investment banking advisor of the
Company. DLJSC or such Affiliate shall be entitled to reimbursement from the
Company for all expenses incurred by DLJSC or such Affiliate (including,
without limitation, fees and expenses of counsel) as financial and investment
banking advisor of the Company.
SECTION 6.05. Assignability. Neither this Agreement nor any right,
remedy, obligation or liability arising hereunder or by reason hereof shall be
assignable by any party hereto pursuant to any Transfer of Company Securities
or otherwise, except that any Permitted Transferee acquiring Company Securities
shall (unless already bound hereby) execute and deliver to the Company an
agreement to be bound by this Agreement in the Form of Exhibit A hereto and
shall thenceforth be a "Stockholder". Any Stockholder who ceases to own
beneficially any Shares shall cease to be bound by the terms hereof (other than
(i) the provisions of Sections 5.05, 5.06, 5.07, 5.08, and 5.10 applicable to
such Stockholder with respect to any offering of Registrable Securities
completed before the date such Stockholder ceased to own any Company Securities
and (ii) Sections 6.03, 6.11 and 6.12).
SECTION 6.06. Amendment; Waiver; Termination. No provision of this
Agreement may be waived except by an instrument in writing executed by the
party against whom the waiver is to be effective. No provision of this
Agreement may be amended or otherwise modified except by an instrument in
writing executed by the Company with the approval of the Board and Stockholders
holding at least 75% of the outstanding Common Shares held by the parties
hereto at the time of such proposed amendment or modification; provided that
any amendment or modification which adversely and disproportionately affects
the rights of any party hereto must be approved by such party.
SECTION 6.07. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including facsimile
transmissions and shall be given,
if to the Company, to:
Insilco Holding Co.
425 Metro Place North
5th Floor
Dublin, Ohio 43017
Attention: Kenneth Koch
Telecopy: (614) 791-3195
with a copy to the DLJ Entities at the address listed below.
if to the DLJ Entities, to:
DLJ Merchant Banking Partners II, L.P.
277 Park Avenue
New York, New York 10172
Attention: William F. Dawson, Jr.
Fax: (212) 892-7553
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: John W. Buttrick
Fax: (212) 450-4800
if to CVC, to:
399 Venture Partners, Inc.
c/o Citicorp Venture Capital, Ltd.
399 Park Avenue
14th Floor
New York, NY 10043
Attention: David Y. Howe
Fax: 212-888-2940
with a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Attention: Christopher G. Karras
Fax: 215-994-2222
All notices, requests and other communications shall be deemed
received on the date of receipt by the recipient thereof if received prior to
5:00 p.m. in the place of receipt and such day is a business day in the place
of receipt. Otherwise, any such notice, request or communication shall be
deemed not to have been received until the next succeeding business day in the
place of receipt. Any notice, request or other written communication sent by
facsimile transmission shall be confirmed by certified mail, return receipt
requested, posted within one Business Day, or by personal delivery, whether
courier or otherwise, made within two Business Days after the date of such
facsimile transmission.
Any Person who becomes a Stockholder shall provide its address and fax
number to the Company, which shall promptly provide such information to each
other Stockholder.
SECTION 6.08. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original and all
of which together shall be deemed to be one and the same instrument.
SECTION 6.09. Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF DELAWARE.
SECTION 6.10. Specific Enforcement. Each party hereto acknowledges
that the remedies at law of the other parties for a breach or threatened breach
of this Agreement would be inadequate and, in recognition of this fact, any
party to this Agreement, without posting any bond, and in addition to all other
remedies which may be available, shall be entitled to obtain equitable relief
in the form of specific performance, a temporary restraining order, a temporary
or permanent injunction or any other equitable remedy which may then be
available.
SECTION 6.11. Consent to Jurisdiction. Any suit, action or proceeding
seeking to enforce any provision of, or based on any matter arising out of or
in connection with, this Agreement or the transactions contemplated hereby may
be brought in the United States District Court for the District of Delaware or
any other Delaware State court sitting in Wilmington, and each of the parties
hereby consents to the non-exclusive jurisdiction of such courts (and of the
appropriate appellate courts therefrom) in any such suit, action or proceeding
and irrevocably waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of the venue of any such suit,
action or proceeding in any such court or that any such suit, action or
proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be
served on any party anywhere in the world, whether within or without the
jurisdiction of any such court. Without limiting the foregoing, each party
agrees that service of process on such party as provided in Section 6.07 shall
be deemed effective service of process on such party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
INSILCO HOLDING CO.
By:
-------------------------------
Name:
Title:
DLJ MERCHANT BANKING
PARTNERS II, L.P.
BY DLJ MERCHANT BANKING II, INC.,
Managing General Partner
By:
-------------------------------
Name:
Title:
DLJ MERCHANT BANKING
PARTNERS II-A, L.P.
BY DLJ MERCHANT BANKING II,
INC., Managing General Partner
By:
-------------------------------
Name:
Title:
DLJ OFFSHORE PARTNERS II, C.V.
BY DLJ MERCHANT BANKING II, INC.,
Advisory General Partner
By:
-------------------------------
Name:
Title:
DLJ DIVERSIFIED PARTNERS, L.P.
BY DLJ DIVERSIFIED PARTNERS, INC.,
Managing General Partner
By:
-------------------------------
Name:
Title:
DLJ DIVERSIFIED PARTNERS-A, L.P.
BY DLJ DIVERSIFIED PARTNERS, INC.,
Managing General Partner
By:
-------------------------------
Name:
Title:
DLJMB FUNDING II, INC.
By:
-------------------------------
Name:
Title:
DLJ EAB PARTNERS, L.P.
BY DLJ LBO PLANS MANAGEMENT
CORPORATION, General Partner
By:
-------------------------------
Name:
Title:
DLJ MILLENNIUM PARTNERS, L.P.
BY DLJ MERCHANT BANKING II, INC.,
Managing General Partner
By:
-------------------------------
Name:
Title:
UK INVESTMENT PLAN 1997
PARTNERS
DONALDSON, LUFKIN & JENRETTE,
INC., General Partner
By:
-------------------------------
Name:
Title:
DLJ FIRST ESC, L.P.
BY DLJ LBO PLANS MANAGEMENT
CORPORATION, as General Partner
By:
-------------------------------
Name:
Title:
DLJ ESC II, L.P.
BY DLJ LBO PLANS MANAGEMENT
CORPORATION, as General Partner
By:
-------------------------------
Name:
Title:
DLJ MILLENNIUM PARTNERS-A, L.P.
BY DLJ MERCHANT BANKING II, INC.,
Managing General Partner
By:
-------------------------------
Name:
Title:
399 VENTURE PARTNERS, INC.
By:
-------------------------------
Name:
Title:
EXHIBIT A
[FORM OF AGREEMENT TO BE BOUND]
[Date]
To the Parties to the Investors'
Agreement dated as of August __, 1998
Ladies and Gentlemen:
Reference is made to the Investors' Agreement dated as of August __,
1998 (the "Investors' Agreement") among Insilco Holding Co. and the other
Persons listed on the signature pages thereof and each other Person who has or
shall become a party to the Investors' Agreement as provided therein.
Capitalized terms used herein and not defined have the meanings ascribed to
them in the Investors' Agreement.
In consideration of the covenants and agreements contained in the
Investors' Agreement, the undersigned hereby confirms and agrees that it shall
be bound as a "Stockholder" by all of the provisions thereof.
This letter shall be construed and enforced in accordance with the
internal laws of the State of Delaware.
Very truly yours,
EXHIBIT 4.6
SILKWORM ACQUISITION CORPORATION
14% SENIOR DISCOUNT NOTES DUE 2008
INDENTURE
Dated as of August 17, 1998
STAR BANK, N.A.
TRUSTEE
CROSS-REFERENCE TABLE*
Trust Indenture Act Section Indenture Section
310(a)(1)...................................................................7.10
(a)(2)......................................................................7.10
(a)(3)......................................................................N.A.
(a)(4)......................................................................N.A.
(a)(5)......................................................................7.10
(b).........................................................................7.10
(c).........................................................................N.A.
311(a)......................................................................7.11
(b).........................................................................7.11
(c).........................................................................N.A.
312(a)......................................................................2.05
(b)........................................................................10.03
(c)........................................................................10.03
313(a)......................................................................7.06
(b)(1)......................................................................N.A.
(b)(2)......................................................................7.06
(c)........................................................................7.06;
(d).........................................................................7.06
314(a).....................................................................4.03;
(b).........................................................................N.A.
(c)(1).....................................................................10.04
(c)(2).....................................................................10.04
(c)(3)......................................................................N.A.
(d).........................................................................N.A.
(e)........................................................................10.05
(f).........................................................................N.A.
315(a)......................................................................7.01
(b).........................................................................7.05
(c).........................................................................7.01
(d).........................................................................7.01
(e).........................................................................6.11
316 (a)(last sentence)......................................................2.09
(a)(1)(A)...................................................................6.05
(a)(1)(B)...................................................................6.04
(a)(2)......................................................................N.A.
(b).........................................................................6.07
(c).........................................................................2.12
317 (a)(1)..................................................................6.08
(a)(2)......................................................................6.09
(b).........................................................................2.04
318 (a)....................................................................10.01
(b).........................................................................N.A.
(c)........................................................................10.01
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
TABLE OF CONTENTS
Page
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE..........1
Section 1.01. Definitions..................................................... 1
Section 1.02. Other Definitions...............................................19
Section 1.03. Incorporation of TIA Provisions.................................20
Section 1.04. Rules of Construction...........................................20
ARTICLE 2.
THE SENIOR DISCOUNT NOTES.................21
Section 2.01. Form and Dating.................................................21
Section 2.02. Execution and Authentication....................................22
Section 2.03. Registrar and Paying Agent......................................23
Section 2.04. Paying Agent to Hold Money in Trust.............................23
Section 2.05. Holder Lists....................................................24
Section 2.06. Transfer and Exchange...........................................24
Section 2.07. Replacement Senior Discount Notes...............................39
Section 2.08. Outstanding Senior Discount Notes...............................39
Section 2.09. Treasury Senior Discount Notes..................................39
Section 2.10. Temporary Senior Discount Notes.................................40
Section 2.11. Cancellation....................................................40
Section 2.12. Defaulted Interest..............................................40
ARTICLE 3.
REDEMPTION AND PREPAYMENT.................41
Section 3.01. Notices to Trustee..............................................41
Section 3.02. Selection of Senior Discount Notes to Be Redeemed...............41
Section 3.03. Notice of Redemption............................................41
Section 3.04. Effect of Notice of Redemption..................................42
Section 3.05. Deposit of Redemption Price.....................................42
Section 3.06. Senior Discount Notes Redeemed in Part..........................43
Section 3.07. Optional Redemption.............................................43
Section 3.08. Mandatory Redemption............................................44
Section 3.09. Offer to Purchase by Application of Excess Proceeds.............44
ARTICLE 4.
COVENANTS.........................46
Section 4.01. Payment of Senior Discount Notes................................46
Section 4.02. Maintenance of Office or Agency.................................46
Section 4.03. Reports.........................................................47
Section 4.04. Compliance Certificate..........................................47
Section 4.05. Taxes...........................................................48
Section 4.06. Stay, Extension and Usury Laws..................................48
Section 4.07. Restricted Payments.............................................48
Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries..53
Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock......54
Section 4.10. Asset Sales.....................................................57
Section 4.11. Transactions with Affiliates....................................58
Section 4.12. Liens...........................................................59
Section 4.13. Corporate Existence.............................................59
Section 4.14. Offer to Repurchase Upon Change of Control......................60
Section 4.15. Accounts Receivable Facility....................................61
Section 4.16. Limitation on Sale and Leaseback Transactions...................61
Section 4.17. Payments for Consent............................................61
Section 4.18. Offer to Repurchase Upon Public Common Stock Offering...........62
Section 4.19. Unit Lock-Up Agreement..........................................63
ARTICLE 5.
SUCCESSORS.........................63
Section 5.01. Mergers, Consolidation, or Sale of Assets.......................63
Section 5.02. Successor Corporation Substituted...............................64
ARTICLE 6.
DEFAULTS AND REMEDIES ...................64
Section 6.01. Events of Default...............................................64
Section 6.02. Acceleration....................................................66
Section 6.03. Other Remedies..................................................66
Section 6.04. Waiver of Past Defaults.........................................67
Section 6.05. Control by Majority.............................................67
Section 6.06. Limitation on Suits.............................................67
Section 6.07. Rights of Holders of Senior Discount Notes to Receive Payment...68
Section 6.08. Collection Suit by Trustee......................................68
Section 6.09. Trustee May File Proofs of Claim................................68
Section 6.10. Priorities......................................................69
Section 6.11. Undertaking for Costs. .........................................69
ARTICLE 7.
TRUSTEE ..........................69
Section 7.01. Duties of Trustee. .............................................69
Section 7.02. Rights of Trustee. .............................................70
Section 7.03. Individual Rights of Trustee. ..................................71
Section 7.04. Trustee's Disclaimer. ..........................................71
Section 7.05. Notice of Defaults. ............................................72
Section 7.06. Reports by Trustee to Holders of the Senior Discount Notes......72
Section 7.07. Compensation and Indemnity......................................72
Section 7.08. Replacement of Trustee. ........................................73
Section 7.09. Successor Trustee by Mergers, etc. .............................74
Section 7.10. Eligibility; Disqualification. .................................74
Section 7.11. Preferential Collection of Claims Against Issuer................74
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE..........75
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance. ......75
Section 8.02. Legal Defeasance and Discharge. ................................75
Section 8.03. Covenant Defeasance.............................................75
Section 8.04. Conditions to Legal or Covenant Defeasance......................76
Section 8.05. Deposited Money and Government Securities to be Held in
Trust; Other Miscellaneous Provisions.........................77
Section 8.06. Repayment to Issuer.............................................78
Section 8.07. Reinstatement...................................................78
ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER..............79
Section 9.01. Without Consent of Holders of Senior Discount Notes.............79
Section 9.02. With Consent of Holders of Senior Discount Notes................79
Section 9.03. Compliance with Trust Indenture Act.............................81
Section 9.04. Revocation and Effect of Consents...............................81
Section 9.05. Notation on or Exchange of Senior Discount Notes. ..............82
Section 9.06. Trustee to Sign Amendments, etc. ...............................82
ARTICLE 10.
MISCELLANEOUS.......................82
Section 10.01. Trust Indenture Act Controls...................................82
Section 10.02. Notices........................................................82
Section 10.03. Communication by Holders of Senior Discount Notes with
Other Holders of Senior Discount Notes.....................84
Section 10.04. Certificate and Opinion as to Conditions Precedent.............84
Section 10.05. Statements Required in Certificate or Opinion..................84
Section 10.06. Rules by Trustee and Agents. ..................................85
Section 10.07. No Personal Liability of Directors, Officers, Employees and
Stockholders...............................................85
Section 10.08. Governing Law. ................................................85
Section 10.09. No Adverse Interpretation of Other Agreements. ................85
Section 10.10. Successors. ...................................................85
Section 10.11. Severability. .................................................85
Section 10.12. Counterpart Originals..........................................85
Section 10.13. Table of Contents, Headings, etc...............................85
EXHIBITS
Exhibit A: FORM OF NOTE
Exhibit B: FORM OF CERTIFICATE OF TRANSFER
Exhibit C: FORM OF CERTIFICATE OF EXCHANGE
Exhibit D: FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL
Exhibit E: FORM OF SUPPLEMENTAL INDENTURE
INDENTURE dated as of August 17, 1998, between Silkworm Acquisition
Corporation, a Delaware corporation (the "Issuer"), and Star Bank, N.A., an Ohio
banking corporation, as trustee (the "Trustee").
The Issuer and the Trustee agree as follows for the benefit of each
other and for the equal and ratable benefit of the Holders of the 14% Senior
Discount Notes due 2008 (the "Senior Discount Notes").
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions.
"144A Global Senior Discount Note" means the form of the Senior
Discount Notes initially sold to QIBs.
"Accounts Receivable Subsidiary" means an Unrestricted Subsidiary of
the Issuer or any of its Restricted Subsidiaries to which the Issuer or any of
its Restricted Subsidiaries sells any of its accounts receivable pursuant to a
Receivables Facility.
"Accreted Value" means, as of any date of determination prior to August
15, 2003, with respect to any Senior Discount Note, the sum of (a) the initial
offering price (which shall be calculated by discounting the aggregate principal
amount at maturity of such Senior Discount Note at a rate of 14 % per annum,
compounded semi-annually on each August 15 and February 15 and August 15 from
August 15, 2003 to the date of issuance) of such Senior Discount Note and (b)
the portion of the excess of the principal amount at maturity of such Senior
Discount Note over such initial offering price which shall have been accreted
thereon through such date, such amount to be so accreted on a daily basis at a
rate of 14 % per annum of the initial offering price of such Senior Discount
Note, compounded semi-annually on each February 15 and August 15 from the date
of issuance of the Senior Discount Notes through the date of determination,
computed on the basis of a 360-day year of twelve 30-day months.
"Acquired Indebtedness" means, with respect to any specified Person,
(a) Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (b) Indebtedness secured by a Lien
encumbering an asset acquired by such specified Person at the time such asset is
acquired by such specified Person.
"Additional Senior Discount Notes" means additional Senior Discount
Notes (other than the Exchange Senior Discount Notes and any Liquidated Damages
Senior Discount Notes) issued under this Indenture in accordance with Sections
2.02 and 9.01(g) hereof after the date hereof which (i) shall have the same
terms in all respects as the Senior Discount Notes issued hereunder (or in all
respects except for the payment of interest on the Senior Discount Notes (x)
scheduled and paid prior to the date of issuance of such notes or (y) payable on
the first Interest Payment Date following such date of issuance) and (ii) shall
be treated with all other Senior Discount Notes issued hereunder as a single
class for all purposes under this Indenture.
"Adjusted Consolidated Net Income" means with respect to any Person for
any period, the Consolidated Net Income of such Person for such period plus, to
the extent deducted in calculating Consolidated Net Income, 100% of non-cash
compensation expense for such period incurred by such Person and its Restricted
Subsidiaries related to stock options, stock appreciation rights, phantom stock
units or other Equity Interests granted to the employees or directors of such
Person and its Restricted Subsidiaries.
"Affiliate" of any specified Person means any other Person which,
directly or indirectly, controls, is controlled by or is under direct or
indirect common control with, such specified Person. For purposes of this
definition, "control," when used with respect to any Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Applicable Procedures" means, with respect to any transfer or exchange
of or for beneficial interests in any Global Senior Discount Note, the rules and
procedures of the Depositary, Euroclear and Cedel that apply to such transfer or
exchange.
"Asset Sale" means (a) the sale, lease, conveyance, disposition or
other transfer (a "disposition") of any properties, assets or rights (including,
without limitation, by way of a sale and leaseback) (provided that the sale,
lease, conveyance or other disposition of all or substantially all of the assets
of the Issuer and its Subsidiaries taken as a whole will be governed by the
provisions of Sections 4.14 and/or 5.01 and not by the provisions of Section
4.10), and (b) the issuance, sale or transfer by the Issuer or any of its
Restricted Subsidiaries of Equity Interests of any of the Issuer's Restricted
Subsidiaries, in the case of either clause (a) or (b), whether in a single
transaction or a series of related transactions (i) that have a fair market
value in excess of $5.0 million or (ii) for net proceeds in excess of $5.0
million. Notwithstanding the foregoing, the following items shall not be deemed
to be Asset Sales: (a) dispositions in the ordinary course of business; (b) a
disposition of assets (including, without limitation, capital stock) by the
Issuer to a Restricted Subsidiary or by a Restricted Subsidiary to the Issuer or
to another Restricted Subsidiary; (c) a disposition of Equity Interests by a
Restricted Subsidiary to the Issuer or to another Restricted Subsidiary; (d) the
sale and leaseback of any assets within 180 days of the acquisition thereof; (e)
foreclosures on assets; (f) any exchange of like property pursuant to Section
1031 of the Internal Revenue Code of 1986, as amended, for use in a Permitted
Business; (g) any sale of Equity Interests in, or Indebtedness or other
securities of, an Unrestricted Subsidiary; (h) a Permitted Investment or a
Restricted Payment that is permitted by Section 4.07 hereof; and (i) sales of
accounts receivable, or participations therein, in connection with any
Receivables Facility.
"Attributable Indebtedness" in respect of a sale and leaseback
transaction means, at the time of determination, the present value (discounted
at the rate of interest implicit in such transaction, determined in accordance
with GAAP) of the obligation of the lessee for net rental payments during the
remaining term of the lease included in such sale and leaseback transaction
(including any period for which such lease has been extended or may, at the
option of the lessor, be extended).
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.
"Board of Directors" means the Board of Directors of the Issuer, or any
authorized committee of the Board of Directors.
"Business Day" means any day other than a Legal Holiday.
"Capital Expenditure Indebtedness" means Indebtedness incurred by any
Person to finance the purchase or construction or any property or assets
acquired or constructed by such Person which have a useful life of more than one
year so long as (a) the purchase or construction price for such property or
assets is included in "addition to property, plant or equipment" in accordance
with GAAP, (b) the acquisition or construction of such property or assets is not
part of any acquisition of a Person or line of business and (c) such
Indebtedness is incurred within 90 days of the acquisition or completion of
construction of such property or assets.
"Capital Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (a) in the case of a corporation, corporate
stock, (b) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (c) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited) and (d) any
other interest or participation that confers on a Person the right to receive a
share of the profits and losses of, or distributions of assets of, the issuing
Person.
"Cash Equivalents" means (i) Government Securities, (ii) any
certificate of deposit maturing not more than 365 days after the date of
acquisition issued by, or demand deposit or time deposit of, an Eligible
Institution or any lender under the Credit Facility, (iii) commercial paper
maturing not more than 365 days after the date of acquisition of an issuer
(other than an Affiliate of the Issuer) with a rating, at the time as of which
any investment therein is made, of "A-3" (or higher) according to S&P or "P-2"
(or higher) according to Moody's or carrying an equivalent rating by a
nationally recognized rating agency if both of the two named rating agencies
cease publishing ratings of investments, (iv) any bankers acceptances of money
market deposit accounts issued by an Eligible Institution, (v) any fund
investing exclusively in investments of the types described in clauses (i)
through (iv) above and (vi) in the case of any Subsidiary organized or having
its principal place of business outside the United States, investments
denominated in the currency of the jurisdiction in which such Subsidiary is
organized or has its principal place of business which are similar to the items
specified in clauses (i) through (v) above (including without limitation any
deposit with a bank that is a lender Restricted Subsidiary).
"Cedel" means Cedel Bank, societe anonyme.
"Change of Control" means the occurrence of any of the following: (a)
the sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Issuer and its Subsidiaries, taken as a
whole, to any "person" or "group" (as such terms are used in Section 13(d) of
the Exchange Act), other than the Principals and their Related Parties; (b) the
adoption of a plan for the liquidation or dissolution of the Issuer; (c) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" or "group" (as such
terms are used in Section 13(d) of the Exchange Act), other than the Principals
and their Related Parties, becomes the "beneficial owner" (as such term is
defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or
indirectly through one or more intermediaries, of 50% or more of the voting
power of the outstanding voting stock of the Issuer; or (d) the first day on
which a majority of the members of the Board of Directors of the Issuer are not
Continuing Directors.
"Commission" means the Securities and Exchange Commission.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person and its Restricted
Subsidiaries for such period plus, to the extent deducted in computing
Consolidated Net Income, (a) an amount equal to any extraordinary or
non-recurring loss plus any net loss realized in connection with an Asset Sale,
(b) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, (c) Fixed Charges of such Person for
such period, (d) depreciation, amortization (including amortization of goodwill
and other intangibles) and all other non-cash charges (excluding any such
non-cash charge to the extent that it represents an accrual of or reserve for
cash expenses in any future period or amortization of a prepaid cash expense
that was paid in a prior period) of such Person and its Restricted Subsidiaries
for such period, (e) other income or expense net as set forth on the face of
such Person's statement of operations, (f) expenses and charges of the Issuer
and Insilco related to the Recapitalization and the application of the proceeds
thereof which are paid, taken or otherwise accounted for within 120 days of the
consummation of the Mergers, (g) non-cash charges for net periodic
post-retirement benefits and (h) any non-capitalized transaction costs incurred
in connection with actual or proposed financings, acquisition or divestitures
(including, but not limited to, financing and refinancing fees and costs
incurred in connection with the Recapitalization), in each case, on a
consolidated basis and determined in accordance with GAAP. Notwithstanding the
foregoing, the provision for taxes based on the income or profits of, the Fixed
Charges of, and the depreciation and amortization and other non-cash charges of,
a Restricted Subsidiary of a Person shall be added to Consolidated Net Income to
compute Consolidated Cash Flow only to the extent (and in the same proportion)
that Net Income of such Restricted Subsidiary was included in calculating the
Consolidated Net Income of such Person.
"Consolidated Interest Expense" means, with respect to any Person for
any period, the sum of, without duplication, (a) the interest expense of such
Person and its Restricted Subsidiaries for such period (net of interest income),
on a consolidated basis, determined in accordance with GAAP (including
amortization of original issue discount, non-cash interest payments, the
interest component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Indebtedness, commissions,
discounts and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments, if any, pursuant to Hedging
Obligations; provided that in no event shall any amortization of deferred
financing costs be included in Consolidated Interest Expense); and (b) the
consolidated capitalized interest of such Person and its Restricted Subsidiaries
for such period, whether paid or accrued; provided, however, that Receivables
Fees shall be deemed not to constitute Consolidated Interest Expense.
Notwithstanding the foregoing, the Consolidated Interest Expense with respect to
any Restricted Subsidiary that is not a Wholly Owned Restricted Subsidiary shall
be included only to the extent (and in the same proportion) that the net income
of such Restricted Subsidiary was included in calculating Consolidated Net
Income.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (a) the Net Income (or loss) of any Person that is not
a Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Restricted Subsidiary
thereof, (b) the Net Income (or loss) of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded and (c) the cumulative effect of a change in accounting principles
shall be excluded.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Issuer who (a) was a member of such
Board of Directors immediately after consummation of the Mergers or (b) was
nominated for election or elected to such Board of Directors with the approval
of, or whose election to the Board of Directors was ratified by, at least a
majority of the Continuing Directors who were members of such Board of Directors
at the time of such nomination or election.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 10.02 hereof or such other address as to which the
Trustee may give notice to the Issuer.
"Credit Facility" means, collectively, the Credit Agreement dated as of
July 3, 1997, as amended pursuant to the First Amendment to Credit Agreement
dated as of August 25, 1997, and a Second Amendment to Credit Agreement dated as
of August 17, 1998, among Insilco, certain of its Subsidiaries, the financial
institutions from time to time party thereto as Lenders and Issuing Banks, DLJ
Capital Funding, Inc., in its separate capacity as syndication agent, The First
National Bank of Chicago, in its separate capacity as documentation agent, and
Citicorp USA, Inc., in its separate capacity as collateral and administrative
agent for the Lenders and Issuing Banks, and the Loan Documents (as defined
therein) (or other analogous documents entered into in connection with any
refinancing thereof), in each case as the same may from time to time be amended,
renewed, supplemented or otherwise modified at the option of the parties
thereto, including any credit agreement increasing the amount that may be
borrowed under such agreement or any successor agreement, whether or not among
the same parties; and any other credit agreement pursuant to which any of the
Indebtedness, commitments, Obligations, costs, expenses, fees, reimbursements
and other indemnities payable or owing under the Credit Facility may be
refinanced, restructured, renewed, extended, refunded or increased, as any such
other agreement may from time to time at the option of the parties thereto be
amended, supplemented, renewed or otherwise modified.
"Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
"CVC" means 399 Venture Partners, Inc., a wholly owned indirect
Subsidiary of Citibank, N.A., or one of its Affiliates.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Definitive Senior Discount Note" means a certificated Senior Discount
Note registered in the name of the Holder thereof and issued in accordance with
Section 2.06 hereof, in the form of Exhibit A-1 hereto except that such Senior
Discount Notes shall not bear the Global Senior Discount Note Legend and shall
not have the "Schedule of Exchanges of Interests in the Global Senior Discount
Note" attached thereto.
"Depositary" means The Depository Trust Company.
"Designated Noncash Consideration" means the fair market value of
non-cash consideration received by the Issuer or one of its Restricted
Subsidiaries in connection with an Asset Sale that is so designated as
Designated Noncash Consideration pursuant to an Officers' Certificate, setting
forth the basis of such valuation, executed by the principal executive officer
and the principal financial officer of the Issuer, less the amount of cash or
Cash Equivalents received in connection with a sale of such Designated Noncash
Consideration.
"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible, or for which it is
exchangeable), or upon the happening of any event (other than any event solely
within the control of the issuer thereof), matures or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, is exchangeable for
Indebtedness (except to the extent exchangeable at the option of such Person
subject to the terms of any debt instrument to which such Person is a party) or
redeemable at the option of the Holder thereof, in whole or in part, on or prior
to the date on which the Senior Discount Notes mature; provided that any Capital
Stock that would constitute Disqualified Stock solely because the holders
thereof have the right to require the Issuer to repurchase such Capital Stock
upon the occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Issuer
may not repurchase or redeem any such Capital Stock pursuant to such provisions
unless such repurchase or redemption complies with Section 4.07, and provided
further that, if such Capital Stock is issued to any plan for the benefit of
employees of the Issuer or its Subsidiaries or by any such plan to such
employees, such Capital Stock shall not constitute Disqualified Stock solely
because it may be required to be repurchased by the Issuer in order to satisfy
applicable statutory or regulatory obligations.
"DLJMB" means DLJ Merchant Banking Partners II, L.P. and its
Affiliates.
"DLJ Mezzanine Investors" means DLJ Investment Partners, L.P., DLJ ESC
II, L.P. and DLJ Investment Funding, Inc.
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus not less than $500.0 million or its equivalent in
foreign currency and having a peer group rating of "B" or better (or the
equivalent thereof) by Thompson Bankwatch, Inc. or having outstanding short-term
debt rated "A-3" or higher according to Standard & Poor's Ratings Group ("S&P")
or "P-2" or higher according to Moody's Investor Services, Inc. ("Moody's") or
carrying an equivalent rating by a nationally recognized rating agency if both
of the two named rating agencies cease publishing ratings of investments.
"Equity Interests" of any person means Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding any debt
security that is convertible into, or exchangeable for, Capital Stock) of any
Person and any stock appreciation rights or phantom stock units granted to
employees or directors of such Person and its Restricted Subsidiaries.
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Senior Discount Notes" means the Senior Discount Notes issued
in the Exchange Offer pursuant to Section 2.06(f) hereof.
"Exchange Offer" has the meaning set forth in the Registration Rights
Agreement.
"Exchange Offer Registration Statement" has the meaning set forth in
the Registration Rights Agreement.
"Existing Indebtedness" means Indebtedness of the Issuer and its
Restricted Subsidiaries, including Insilco and its Subsidiaries, in existence on
the date of this Indenture, other than Indebtedness under the Credit Facility,
if any, that could not have been incurred on the date of this Indenture pursuant
to the Fixed Charge Coverage Ratio set forth in the first paragraph of Section
4.09 if such covenant were applicable, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the
sum, without duplication, of (a) the Consolidated Interest Expense of such
Person for such period and (b) all dividend payments on any series of preferred
stock of such Person (other than dividends payable solely in Equity Interests
that are not Disqualified Stock), in each case, on a consolidated basis and in
accordance with GAAP.
"Fixed Charge Coverage Ratio" means, with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
(exclusive of amounts attributable to discontinued operations, as determined in
accordance with GAAP, or operations and businesses disposed of prior to the
Calculation Date (as defined)) to the Fixed Charges of such Person for such
period (exclusive of amounts attributable to discontinued operations, as
determined in accordance with GAAP, or operations and businesses disposed of
prior to the Calculation Date). In the event that the referent Person or any of
its Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness (other
than revolving credit borrowings) or issues or redeems preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock and the application of the proceeds
therefrom, as if the same had occurred at the beginning of the applicable
four-quarter reference period and the Consolidated Interest Expense attributable
to interest on any Indebtedness computed on a pro forma basis and bearing a
floating interest rate shall be computed as if the rate in effect on the
Calculation Date (taking into account any Hedging Obligations applicable to such
Indebtedness) had been the applicable rate for the entire period. In addition,
for purposes of making the computation referred to above, acquisitions that have
been made by the Issuer or any of its Subsidiaries, including all mergers or
consolidations and any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to the
Calculation Date shall be deemed to have occurred on the first day of the
four-quarter reference period and Consolidated Cash Flow for such reference
period shall be calculated to include the Consolidated Cash Flow of the acquired
entities on a pro forma basis after giving effect to cost savings resulting from
employee terminations, facilities consolidations and closings, standardization
of employee benefits and compensation practices, consolidation of property,
casualty and other insurance coverage and policies, standardization of sales and
distribution methods, reductions in taxes other than income taxes and other cost
savings reasonably expected to be realized from such acquisition, as determined
in good faith by an officer of the Issuer (regardless of whether such cost
savings could then be reflected in pro forma financial statements under GAAP,
Regulation S-X promulgated by the Commission or any other regulation or policy
of the Commission) and without giving effect to clause (c) of the proviso set
forth in the definition of Consolidated Net Income.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of this Indenture.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit or
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Global Senior Discount Note" means, individually and collectively,
each of the Restricted Global Senior Discount Notes and the Unrestricted Global
Senior Discount Notes, in the form of Exhibit A hereto issued in accordance with
Section 2.01, 2.06(b)(iv), 2.06(d)(ii) or 2.06(f) hereof.
"Global Senior Discount Note Legend" means the legend set forth in
Section 2.06(g)(ii), which is required to be placed on all Global Senior
Discount Notes issued under this Indenture.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America, and the payment for which the
United States pledges its full faith and credit.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (a) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (b) other agreements
or arrangements designed to protect such Person against fluctuations in interest
rates or foreign exchange rates.
"Holder" means a Person in whose name a Senior Discount Note is
registered.
"Holdings" means Insilco Holding Co., a Delaware corporation, or its
successors.
"Indebtedness" means, with respect to any Person, any indebtedness of
such Person in respect of borrowed money or evidenced by bonds, notes,
debentures or similar instruments or letters of credit (or reimbursement
agreements in respect thereof) or banker's acceptances or representing Capital
Lease Obligations or the balance deferred and unpaid of the purchase price of
any property or representing any Hedging Obligations, except any such balance
that constitutes an accrued expense or trade payable, if and to the extent any
of the foregoing Indebtedness (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, as well as all Indebtedness of others secured
by a Lien on any asset of such Person (whether or not such Indebtedness is
assumed by such Person) and, to the extent not otherwise included, the guarantee
by such Person of any Indebtedness of any other Person, provided that
Indebtedness shall not include the pledge by the Issuer of the Capital Stock of
an Unrestricted Subsidiary of the Issuer to secure Non-Recourse Debt of such
Unrestricted Subsidiary. The amount of any Indebtedness outstanding as of any
date shall be (a) the accreted value thereof (together with any interest thereon
that is more than 30 days past due), in the case of any Indebtedness that does
not require current payments of interest, and (b) the principal amount thereof,
in the case of any other Indebtedness, provided that the principal amount of any
Indebtedness that is denominated in any currency other than United States
dollars shall be the amount thereof, as determined pursuant to the foregoing
provision, converted into United States dollars at the Spot Rate in effect on
such date of determination.
"Indenture" means this Indenture, as amended or supplemented from time
to time.
"Indirect Participant" means a Person who holds a beneficial interest
in a Global Senior Discount Note through a Participant.
"Insilco" means Insilco Corporation, a Delaware corporation, or its
successors.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, who are not also QIBs.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees by the referent Person of, and Liens on any
assets of the referent Person securing, Indebtedness or other obligations of
other Persons), advances or capital contributions (excluding commission, travel
and similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities, together with all items that are or would
be classified as investments on a balance sheet prepared in accordance with
GAAP, provided that an investment by the Issuer for consideration consisting of
common equity securities of the Issuer shall not be deemed to be an Investment.
If the Issuer or any Restricted Subsidiary of the Issuer sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of the Issuer such that, after giving effect to any such sale or disposition,
such Person is no longer a Subsidiary of the Issuer, the Issuer shall be deemed
to have made an Investment on the date of any such sale or disposition equal to
the fair market value of the Equity Interests of such Restricted Subsidiary not
sold or disposed of in an amount determined as provided in the final paragraph
of Section 4.07 hereof.
"Issue Date" means the date of issuance of the Senior Discount Notes.
"Issuer" means Silkworm Acquisition Corporation, a Delaware
corporation, or its successors.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue on
such payment for the intervening period.
"Letter of Transmittal" means the letter of transmittal to be prepared
by the Issuer and sent to all Holders of the Senior Discount Notes for use by
such Holders in connection with the Exchange Offer.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
(other than a financing statement filed by a "true lessor" pursuant to Section
9-408 of the Uniform Commercial Code) under the Uniform Commercial Code (or
equivalent statutes) of any jurisdiction).
"Liquidated Damages" means all liquidated damages then owing pursuant
to Section 5 of the Registration Rights Agreement.
"Liquidated Damages Senior Discount Notes" means all Senior Discount
Notes issued to pay Liquidated Damages pursuant to Section 5 of the Registration
Rights Agreement.
"Mergers" means, collectively, the transactions resulting in Insilco
becoming a subsidiary of Holdings and the merger of the Issuer with and into
Holdings on or prior to the date of issuance of the Senior Discount Notes.
"Net Income" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP after reduction in respect of
preferred stock dividends, excluding, however, (a) any gain (or loss), together
with any related provision for taxes on such gain (or loss), realized in
connection with (i) any Asset Sale (including, without limitation, dispositions
pursuant to sale and leaseback transactions) or (ii) the extinguishment of any
Indebtedness of such Person or any of its Restricted Subsidiaries and (b) any
extraordinary or nonrecurring gain (or loss), together with any related
provision for taxes on such extraordinary or nonrecurring gain (or loss).
"Net Proceeds" means the aggregate cash proceeds received by the Issuer
or any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of, without duplication,
(a) the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions, recording
fees, title transfer fees and appraiser fees and cost of preparation of assets
for sale) and any relocation expenses incurred as a result thereof, (b) taxes
paid or payable as a result thereof (after taking into account any available tax
credits or deductions and any tax sharing arrangements), (c) amounts required to
be applied to the repayment of Indebtedness (other than as required by clause
(a) of the second paragraph of the Section 4.10 hereof) secured by a Lien on the
asset or assets that were the subject of such Asset Sale, (d) any reserve
established in accordance with GAAP or any amount placed in escrow, in either
case for adjustment in respect of the sale price of such asset or assets until
such time as such reserve is reversed or such escrow arrangement is terminated,
in which case Net Proceeds shall include only the amount of the reserve so
reversed or the amount returned to the Issuer or its Restricted Subsidiaries
from such escrow arrangement, as the case may be, and (e) all distributions and
other payments made to minority interest holders in Restricted Subsidiaries or
joint ventures as a result of such Asset Sale.
"Non-Recourse Debt" means Indebtedness (i) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Issuer or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (ii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock (other than the stock
of an Unrestricted Subsidiary pledged by the Issuer to secure debt of such
Unrestricted Subsidiary) or assets of the Issuer or any of its Restricted
Subsidiaries; provided that in no event shall Indebtedness of any Unrestricted
Subsidiary fail to be Non-Recourse Debt solely as a result of any default
provisions contained in a guarantee thereof by the Issuer or any of its
Restricted Subsidiaries if the Issuer or such Restricted Subsidiary was
otherwise permitted to incur such guarantee pursuant to this Indenture.
"Non-U.S. Person" means a Person who is not a U.S. Person.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offering of the Senior Discount Notes by the
Issuer.
"Officer" means, with respect to any Person, the Chairman of the Board,
the Chief Executive Officer, the President, the Chief Operating Officer, the
Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller,
the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the
Issuer by two Officers of the Issuer, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Issuer, that meets the requirements of
Section 10.05 hereof.
"Opinion of Counsel" means a legal opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
10.05 hereof. The counsel may be an employee of or counsel to the Issuer, any
Subsidiary of the Issuer or the Trustee.
"Pari Passu Indebtedness" means Indebtedness of the Issuer that ranks
pari passu in right of payment to the Senior Discount Notes.
"Participant" means, with respect to the Depositary, Euroclear or
Cedel, a Person who has an account with the Depositary, Euroclear or Cedel,
respectively (and, with respect to The Depository Trust Company, shall include
Euroclear and Cedel).
"Participating Broker-Dealer" has the meaning set forth in the
Registration Rights Agreement.
"Permitted Business" means any business in which the Issuer and its
Restricted Subsidiaries are engaged on the date of this Indenture or any
business reasonably related, incidental or ancillary thereto.
"Permitted Investments" means (a) any Investment in the Issuer or in a
Restricted Subsidiary of the Issuer, (b) any Investment in cash or Cash
Equivalents, (c) any Investment by the Issuer or any Restricted Subsidiary of
the Issuer in a Person, if as a result of such Investment (i) such Person
becomes a Restricted Subsidiary of the Issuer or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, the Issuer or a Wholly Owned
Restricted Subsidiary of the Issuer, (d) any Investment made as a result of the
receipt of non-cash consideration from an Asset Sale that was made pursuant to
and in compliance with Section 4.10 hereof, (e) any Investment acquired solely
in exchange for Equity Interests (other than Disqualified Stock) of the Issuer,
(f) any Investment in a Person engaged in a Permitted Business (other than an
Investment in an Unrestricted Subsidiary) having an aggregate fair market value,
taken together with all other Investments made pursuant to this clause (f) that
are at that time outstanding, not to exceed 15% of Total Assets at the time of
such Investment (with the fair market value of each Investment being measured at
the time made and without giving effect to subsequent changes in value), (g)
Investments relating to any special purpose Wholly Owned Subsidiary of the
Issuer organized in connection with a Receivables Facility that, in the good
faith determination of the Board of Directors of the Issuer, are necessary or
advisable to effect such Receivables Facility, (h) ordinary course loans to
employees not to exceed $5.0 million outstanding in the aggregate at any time,
(i) any Investment arising out of a Hedging Obligation or commodity price
agreement and (j) any Investment acquired by the Issuer or any of its Restricted
Subsidiaries (A) in exchange for any other Investment or accounts receivable
held by the Issuer or any such Restricted Subsidiary in connection with or as a
result of a bankruptcy, workout, reorganization or recapitalization of the
issuer of such other Investment or the obligor with respect to such accounts
receivable or (B) as a result of a foreclosure by the Issuer or any of its
Restricted Subsidiaries with respect to any secured Investment or other transfer
of title with respect to any secured Investment in default.
"Permitted Liens" means: (i) Liens on property of a Person existing at
the time such Person is merged into or consolidated with the Issuer or any
Restricted Subsidiary, provided that such Liens were not incurred in
contemplation of such merger or consolidation and do not secure any property or
assets of the Issuer or any Restricted Subsidiary other than the property or
assets subject to the Liens prior to such merger or consolidation; (ii) Liens
existing on the date of this Indenture; (iii) Liens securing Indebtedness
consisting of Capitalized Lease Obligations, purchase money Indebtedness,
mortgage financings, industrial revenue bonds or other monetary obligations, in
each case incurred solely for the purpose of financing all or any part of the
purchase price or cost of construction or installation of assets used in the
business of the Issuer or its Restricted Subsidiaries, or repairs, additions or
improvements to such assets, provided that (A) such Liens secure Indebtedness in
an amount not in excess of the original purchase price or the original cost of
any such assets or repair, addition or improvement thereto (plus an amount equal
to the reasonable fees and expenses in connection with the incurrence of such
Indebtedness), (B) such Liens do not extend to any other assets of the Issuer or
its Restricted Subsidiaries (and, in the case of repair, addition or
improvements to any such assets, such Lien extends only to the assets (and
improvements thereto or thereon) repaired, added to or improved), (C) the
Incurrence of such Indebtedness is permitted by Section 4.09 hereof and (D) such
Liens attach within 365 days of such purchase, construction, installation,
repair, addition or improvement; (iv) Liens to secure any refinancings,
renewals, extensions, modification or replacements (collectively, "refinancing")
(or successive refinancings), in whole or in part, of any Indebtedness secured
by Liens referred to in the clauses above so long as such Lien does not extend
to any other property (other than improvements thereto); (v) Liens securing
letters of credit entered into in the ordinary course of business and consistent
with past business practice; (vi) Liens on and pledges of the capital stock of
any Unrestricted Subsidiary securing Non-Recourse Debt of such Unrestricted
Subsidiary; (vii) Liens securing Indebtedness (including all Obligations) under
the Credit Facility; and (viii) other Liens securing Indebtedness that is
permitted by the terms of this Indenture to be outstanding having an aggregate
principal amount at any one time outstanding not to exceed $50.0 million.
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Issuer or any of its Restricted Subsidiaries issued within 60 days after
repayment of, in exchange for, or the net proceeds of which are used to extend,
refinance, renew, replace, defease or refund other Indebtedness of the Issuer or
any of its Restricted Subsidiaries; provided that (a) the principal amount (or
accreted value, if applicable) of such Permitted Refinancing Indebtedness does
not exceed the principal amount of (or accreted value, if applicable), plus
premium, if any, and accrued interest on the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection therewith), (b) such Permitted
Refinancing Indebtedness has a final maturity date no earlier than the final
maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded, and (c) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded
is subordinated in right of payment to the Senior Discount Notes, such Permitted
Refinancing Indebtedness is subordinated in right of payment to, the Senior
Discount Notes on terms at least as favorable, taken as a whole, to the Holders
of Senior Discount Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or agency or political subdivision thereof (including any subdivision
or ongoing business of any such entity or substantially all of the assets of any
such entity, subdivision or business).
"Principals" means DLJMB and/or CVC.
"Private Placement Legend" means the legend set forth in Section
2.06(g)(i) to be placed on all Senior Discount Notes issued under this Indenture
except where otherwise permitted by the provisions of this Indenture.
"Public Common Stock Offering" means any issuance of common stock in an
underwritten public offering by the Issuer for cash that is registered pursuant
to the Securities Act.
"Public Equity Offering" means any issuance of common stock or
preferred stock by the Issuer (other than Disqualified Stock) or Insilco (other
than to the Issuer and other than Disqualified Stock) that is registered
pursuant to the Securities Act, other than issuances registered on Form S-8 and
issuances registered on Form S-4 and excluding issuances of common stock
pursuant to employee benefit plans of the Issuer or its Restricted Subsidiaries
or otherwise as compensation to employees of the Issuer or its Restricted
Subsidiaries.
"Qualified Proceeds" means any of the following or any combination of
the following: (i) cash; (ii) Cash Equivalents; (iii) assets that are used or
useful in a Permitted Business; and (iv) the Capital Stock of any Person engaged
in a Permitted Business if, in connection with the receipt by the Issuer or any
Restricted Subsidiary of the Issuer of such Capital Stock, (A) such Person
becomes a Restricted Subsidiary of the Issuer or any Restricted Subsidiary of
the Issuer or (B) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Issuer or any Restricted Subsidiary of the Issuer.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Recapitalization" means the Mergers, the Offering, the Second
Amendment to Credit Agreement referred to in the definition of Credit Facility
and any and all actions taken in connection with the foregoing.
"Receivables Facility" means one or more receivables financing
facilities, as amended from time to time, pursuant to which the Issuer or any of
its Restricted Subsidiaries sells its accounts receivable to an Accounts
Receivable Subsidiary.
"Receivables Fees" means distributions or payments made directly or by
means of discounts with respect to any participation interests issued or sold in
connection with, and other fees paid to a Person that is not a Restricted
Subsidiary in connection with, any Receivables Facility.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of August 17, 1998, by and among the Issuer and the other
parties named on the signature pages thereof, as such agreement may be amended,
modified or supplemented from time to time, and, with respect to any Additional
Senior Discount Notes, one or more registration rights agreements between the
Issuer and the other parties thereto, as such agreement(s) may be amended,
modified or supplemented from time to time, relating to rights given by the
Issuer to the purchasers of Additional Senior Discount Notes to register such
Additional Senior Discount Notes under the Securities Act.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Regulation S Global Senior Discount Note" means a Regulation S
Temporary Global Senior Discount Note or Regulation S Permanent Global Senior
Discount Note, as appropriate.
"Regulation S Permanent Global Senior Discount Note" means a permanent
global Senior Discount Note in the form of Exhibit A-1 hereto bearing the Global
Senior Discount Note Legend and the Private Placement Legend and deposited with
or on behalf of and registered in the name of the Depositary or its nominee,
issued in a denomination equal to the outstanding principal amount at maturity
of the Regulation S Temporary Global Senior Discount Note upon expiration of the
Restricted Period.
"Regulation S Temporary Global Senior Discount Note" means a temporary
global Senior Discount Note in the form of Exhibit A-2 hereto bearing the
Private Placement Legend and deposited with or on behalf of and registered in
the name of the Depositary or its nominee, issued in a denomination equal to the
outstanding principal amount at maturity of the Senior Discount Notes initially
sold in reliance on Rule 903 of Regulation S.
"Related Party" means, with respect to any Principal, (i) any
controlling stockholder or partner of such Principal on the date of this
Indenture, or (ii) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially holding
(directly or through one or more Subsidiaries) a 51% or more controlling
interest of which consist of the Principals and/or such other Persons referred
to in the immediately preceding clauses (i) or (ii).
"Responsible Officer," when used with respect to the Trustee, means any
officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Definitive Senior Discount Note" means a Definitive Senior
Discount Note bearing the Private Placement Legend.
"Restricted Global Senior Discount Note" means a Global Senior Discount
Note bearing the Private Placement Legend.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Period" means the 40-day distribution compliance period as
defined in Regulation S.
"Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 903" means Rule 903 promulgated under the Securities Act.
"Rule 904" means Rule 904 promulgated the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Discount Note Custodian" means the Trustee, as custodian with
respect to the Senior Discount Notes in global form, or any successor entity
thereto.
"Senior Discount Notes" has the meaning assigned to it in the preamble
to this Indenture.
"Shelf Registration Statement" means the Shelf Registration Statement
as defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"Specified Agreements" means the Investors' Agreement and the Tax
Sharing Agreement.
"Spot Rate" means, for any currency, the spot rate at which such
currency is offered for sale against United States dollars as determined by
reference to the New York foreign exchange selling rates, as published in The
Wall Street Journal on such date of determination for the immediately preceding
business day or, if such rate is not available, as determined in any publicly
available source of similar market data.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subordinated Indebtedness" means all Obligations with respect to
Indebtedness if the instrument creating or evidencing the same, or pursuant to
which the same is outstanding, designates such Obligations as subordinated or
junior in right of payment to Senior Indebtedness.
"Subsidiary" means, with respect to any Person, (a) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (b) any partnership or limited liability company (i) the sole
general partner or the managing general partner or managing member of which is
such Person or a Subsidiary of such Person or (ii) the only general partners or
managing members of which are such Person or of one or more Subsidiaries of such
Person (or any combination thereof).
"Tax Sharing Agreement" means any tax sharing agreement or arrangement
between the Issuer and its Subsidiaries, as the same may be amended from time to
time; provided that in no event shall the amount permitted to be paid pursuant
to all such agreements and/or arrangements exceed the amount the Issuer would be
required to pay for income taxes were it to file a consolidated tax return for
itself and its consolidated Restricted Subsidiaries.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA.
"Total Assets" means the total consolidated assets of the Issuer and
its Restricted Subsidiaries, as shown on the most recent balance sheet
(excluding the footnotes thereto) of the Issuer.
"Treasury Rate" means, as of any redemption date, the yield to maturity
as of such redemption date of United States Treasury securities with a constant
maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H.15 (519) that has become publicly available at least two
Business Days prior to the redemption date (or, if such Statistical Release is
no longer published, any publicly available source of similar market data)) most
nearly equal to the period from the redemption date to August 15, 2003; provided
that if the period from the redemption date to August 15, 2003 is less than one
year, the weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year shall be used.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"Unit Lock-Up Agreement" means the agreement dated as of August 17,
1998 among the Issuer and the DLJ Mezzanine Investors pursuant to which the DLJ
Mezzanine Investors have agreed with the Issuer not to offer, sell or otherwise
transfer any Senior Discount Notes or Warrants to a person other than to an
Affiliate of a DLJ Mezzanine Investor for a period of one year following the
date of such agreement.
"Unrestricted Global Senior Discount Note" means a permanent global
Senior Discount Note in the form of Exhibit A-1 attached hereto that bears the
Global Senior Discount Note Legend and that has the "Schedule of Exchanges of
Interests in the Global Senior Discount Notes" attached thereto, and that is
deposited with or on behalf of and registered in the name of the Depositary,
representing a series of Senior Discount Notes that do not bear the Private
Placement Legend.
"Unrestricted Definitive Senior Discount Note" means one or more
Definitive Senior Discount Notes that do not bear and are not required to bear
the Private Placement Legend.
"Unrestricted Subsidiary" means any Subsidiary (other than Insilco)
that is designated by the Board of Directors as an Unrestricted Subsidiary
pursuant to a board resolution, but only to the extent that such Subsidiary: (a)
has no Indebtedness other than Non-Recourse Debt; (b) is not party to any
agreement, contract, arrangement or understanding with the Issuer or any
Restricted Subsidiary of the Issuer unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to the Issuer or
such Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Issuer; (c) is a Person with respect to
which neither the Issuer nor any of its Restricted Subsidiaries has any direct
or indirect obligation (i) to subscribe for additional Equity Interests (other
than Investments described in clause (g) of the definition of Permitted
Investments) or (ii) to maintain or preserve such Person's financial condition
or to cause such Person to achieve any specified levels, of operating results;
and (d) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of the Issuer or any of its Restricted
Subsidiaries. Any such designation by the Board of Directors shall be evidenced
to the Trustee by filing with the Trustee a certified copy of the board
resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and was
permitted by Section 4.07 hereof. If, at any time, any Unrestricted Subsidiary
would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it
shall thereafter cease to be an Unrestricted Subsidiary for purposes of this
Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred
by a Restricted Subsidiary of the Issuer as of such date (and, if such
Indebtedness is not permitted to be incurred as of such date under Section 4.09
hereof, the Issuer shall be in default of such covenant). The Board of Directors
of the Issuer may at any time designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that such designation shall be deemed to be an
incurrence of Indebtedness by a Restricted Subsidiary of the Issuer of any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
shall only be permitted if (i) such Indebtedness is permitted under Section 4.09
hereof and (ii) no Default or Event of Default would be in existence following
such designation.
"U.S. Person" means a U.S. person as defined in Rule 902(o) under the
Securities Act.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the sum
of the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (b) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all the outstanding Capital Stock or other ownership
interests of which (other than directors' qualifying shares) shall at the time
be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries
of such Person or by such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person.
Section 1.02. Other Definitions.
Defined in
Term Section
"Affiliate Transaction"................................................. 4.11
"Asset Sale Offer"...................................................... 3.09
"Authentication Order".................................................. 2.02
"Change of Control Offer"............................................... 4.14
"Change of Control Payment"............................................. 4.14
"Change of Control Payment Date"....................................... 4.14
"Covenant Defeasance"................................................... 8.03
"Event of Default"...................................................... 6.01
"Excess Proceeds"....................................................... 4.10
"incur"................................................................. 4.09
"Legal Defeasance"...................................................... 8.02
"Offer Amount".......................................................... 3.09
"Offer Period".......................................................... 3.09
"Paying Agent".......................................................... 2.03
"Payment Default"....................................................... 6.01
"Permitted Indebtedness"................................................ 4.09
"Public Common Stock Offering Offer" ................................... 4.18
"Public Common Stock Offering" ......................................... 4.18
"Public Common Stock Offering Payment" ................................. 4.18
"Public Common Stock Offering Payment Date" ............................ 4.18
"Purchase Date"......................................................... 3.09
"Registrar"............................................................. 2.03
"Restricted Payments"................................................... 4.07
Section 1.03. Incorporation of TIA Provisions.
Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Senior Discount Notes;
"indenture security holder" means a Holder of a Senior Discount Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the Senior Discount Notes means the Issuer and any
successor obligor upon the Senior Discount Notes.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rule under
the TIA have the meanings so assigned to them.
Section 1.04. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular;
(5) provisions apply to successive events and transactions; and
(6) references to sections of or rules under the Securities Act
shall be deemed to include substitute, replacement or successor
sections or rules adopted by the Commission from time to time.
ARTICLE 2.
THE SENIOR DISCOUNT NOTES
Section 2.01. Form and Dating.
(a) General. The Senior Discount Notes and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A hereto. The
Senior Discount Notes may have notations, legends or endorsements required by
law, stock exchange rule or usage. Each Senior Discount Note shall be dated the
date of its authentication. The Senior Discount Notes shall be in denominations
of $1,000 and integral multiples thereof except that Senior Discount Notes used
to pay Liquidated Damages may be in other denominations.
The terms and provisions contained in the Senior Discount Notes shall
constitute, and are hereby expressly made, a part of this Indenture and the
Issuer and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby. However,
to the extent any provision of any Senior Discount Note conflicts with the
express provisions of this Indenture, the provisions of this Indenture shall
govern and be controlling.
(b) Global Senior Discount Notes. Senior Discount Notes issued in
global form shall be substantially in the form of Exhibit A-1 attached hereto
(including the Global Senior Discount Note Legend thereon and the "Schedule of
Exchanges of Interests in the Global Senior Discount Note" attached thereto).
Senior Discount Notes issued in definitive form shall be substantially in the
form of Exhibit A-1 attached hereto (but without the Global Senior Discount Note
Legend thereon and without the "Schedule of Exchanges of Interests in the Global
Senior Discount Note" attached thereto). Each Global Senior Discount Note shall
represent such of the outstanding Senior Discount Notes as shall be specified
therein and each shall provide that it shall represent the aggregate principal
amount at maturity of outstanding Senior Discount Notes from time to time
endorsed thereon and that the aggregate principal amount at maturity of
outstanding Senior Discount Notes represented thereby may from time to time be
reduced or increased, as appropriate, to reflect exchanges and redemptions. Any
endorsement of a Global Senior Discount Note to reflect the amount of any
increase or decrease in the aggregate principal amount at maturity of
outstanding Senior Discount Notes represented thereby shall be made by the
Trustee or the Senior Discount Note Custodian, at the direction of the Trustee,
in accordance with instructions given by the Holder thereof as required by
Section 2.06 hereof.
(c) Temporary Global Senior Discount Notes. Senior Discount Notes
offered and sold in reliance on Regulation S shall be issued initially in the
form of Exhibit A-2 attached hereto, which shall be deposited on behalf of the
purchasers of the Senior Discount Notes represented thereby with the Trustee as
custodian for the Depositary, and registered in the name of the Depositary or
the nominee of the Depositary for the accounts of designated agents holding on
behalf of Euroclear or Cedel Bank, duly executed by the Issuer and authenticated
by the Trustee as hereinafter provided. The Restricted Period shall be
terminated upon the receipt by the Trustee of (i) a written certificate from the
Depositary, together with copies of certificates from Euroclear and Cedel Bank
certifying that they have received certification of non-United States beneficial
ownership of 100% of the aggregate principal amount at maturity of the
Regulation S Temporary Global Senior Discount Notes (except to the extent of any
beneficial owners thereof who acquired an interest therein during the Restricted
Period pursuant to another exemption from registration under the Securities Act
and who will take delivery of a beneficial ownership interest in a 144A Global
Senior Discount Note, all as contemplated by Section 2.06(a)(ii) hereof), and
(ii) an Officers' Certificate from the Issuer. Following the termination of the
Restricted Period, beneficial interests in the Regulation S Temporary Global
Senior Discount Notes shall be exchanged for beneficial interests in Regulation
S Permanent Global Senior Discount Notes pursuant to the Applicable Procedures.
Simultaneously with the authentication of Regulation S Permanent Global Senior
Discount Notes, the Trustee shall cancel the Regulation S Temporary Global
Senior Discount Notes. The aggregate principal amount at maturity of the
Regulation S Temporary Global Senior Discount Notes and the Regulation S
Permanent Global Senior Discount Notes may from time to time be increased or
decreased by adjustments made on the records of the Trustee and the Depositary
or its nominee, as the case may be, in connection with transfers of interest as
hereinafter provided. The amount of the Regulation S Temporary Global Senior
Discount Note shall be zero on the original issuance date.
(d) Euroclear and Cedel Procedures Applicable. The provisions of the
"Operating Procedures of the Euroclear System" and "Terms and Conditions
Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank"
and "Customer Handbook" of Cedel Bank shall be applicable to transfers of
beneficial interests in the Regulation S Temporary Global Senior Discount Notes
and the Regulation S Permanent Global Senior Discount Notes that are held by
Participants through Euroclear or Cedel Bank.
Section 2.02. Execution and Authentication.
One Officer shall sign the Senior Discount Notes for the Issuer by
manual or facsimile signature. The Issuer's seal may be reproduced on the Senior
Discount Notes and may be in facsimile form.
If an Officer whose signature is on a Senior Discount Note no longer
holds that office at the time a Senior Discount Note is authenticated, the
Senior Discount Note shall nevertheless be valid.
A Senior Discount Note shall not be valid until authenticated by the
manual signature of the Trustee. The signature shall be conclusive evidence that
the Senior Discount Note has been authenticated under this Indenture.
The Trustee shall, upon a written order of the Issuer signed by one
Officer (an "Authentication Order"), authenticate Senior Discount Notes for
original issue up to the aggregate principal amount at maturity stated in
paragraph 4 of the Senior Discount Notes plus Senior Discount Notes issued to
pay Liquidated Damages pursuant to paragraph 2 of the Senior Discount Notes. The
aggregate principal amount at maturity of Senior Discount Notes outstanding at
any time may not exceed the sum of such amounts except as provided in Section
2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Issuer to authenticate Senior Discount Notes. An authenticating agent may
authenticate Senior Discount Notes whenever the Trustee may do so. Each
reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same rights as an
Agent to deal with Holders or an Affiliate of the Issuer.
Section 2.03. Registrar and Paying Agent.
The Issuer shall maintain an office or agency where Senior Discount
Notes may be presented for registration of transfer or for exchange
("Registrar") and an office or agency where Senior Discount Notes may be
presented for payment ("Paying Agent"). The Registrar shall keep a register of
the Senior Discount Notes and of their transfer and exchange. The Issuer may
appoint one or more co-registrars and one or more additional paying agents. The
term "Registrar" includes any co-registrar and the term "Paying Agent" includes
any additional paying agent. The Issuer may change any Paying Agent or Registrar
without notice to any Holder. The Issuer shall notify the Trustee in writing of
the name and address of any Agent not a party to this Indenture. If the Issuer
fails to appoint or maintain another entity as Registrar or Paying Agent, the
Trustee shall act as such. The Issuer or any of its Subsidiaries may act as
Paying Agent or Registrar.
The Issuer initially appoints The Depository Trust Company ("DTC") to
act as Depositary with respect to the Global Senior Discount Notes.
The Issuer initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Senior Discount Note Custodian with respect to the
Global Senior Discount Notes.
Section 2.04. Paying Agent to Hold Money in Trust.
The Issuer shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium or Liquidated Damages, if any, or interest on the Senior
Discount Notes, and will notify the Trustee of any default by the Issuer in
making any such payment. While any such default continues, the Trustee may
require a Paying Agent to pay all money held by it to the Trustee. The Issuer at
any time may require a Paying Agent to pay all money held by it to the Trustee.
Upon payment over to the Trustee, the Paying Agent (if other than the Issuer or
a Subsidiary) shall have no further liability for the money. If the Issuer or a
Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust
fund for the benefit of the Holders all money held by it as Paying Agent. Upon
any bankruptcy or reorganization proceedings relating to the Issuer, the Trustee
shall serve as Paying Agent for the Senior Discount Notes.
Section 2.05. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is
not the Registrar, the Issuer shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request, a list in such form and as of such date as the Trustee may
reasonably require of the names and addresses of the Holders of Senior Discount
Notes and the Issuer shall otherwise comply with TIA ss. 312(a).
Section 2.06. Transfer and Exchange.
(a) Transfer and Exchange of Global Senior Discount Notes. A Global
Senior Discount Note may not be transferred as a whole except by the Depositary
to a nominee of the Depositary, by a nominee of the Depositary to the Depositary
or to another nominee of the Depositary, the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary. All Global
Senior Discount Notes will be exchanged by the Issuer for Definitive Senior
Discount Notes if (i) the Issuer delivers to the Trustee notice from the
Depositary that it is unwilling or unable to continue to act as Depositary or
that it is no longer a clearing agency registered under the Exchange Act and, in
either case, a successor Depositary is not appointed by the Issuer within 120
days after the date of such notice from the Depositary or (ii) the Issuer in its
sole discretion determines that the Global Senior Discount Notes (in whole but
not in part) should be exchanged for Definitive Senior Discount Notes and
delivers a written notice to such effect to the Trustee; provided that in no
event shall the Regulation S Temporary Global Senior Discount Notes be exchanged
by the Issuer for Definitive Senior Discount Notes prior to (x) the expiration
of the Restricted Period and (y) the receipt by the Registrar of any
certificates required pursuant to Rule 903(c)(3)(ii)(B) under the Securities
Act. Upon the occurrence of either of the preceding events in (i) or (ii) above,
Definitive Senior Discount Notes shall be issued in such names as the Depositary
shall instruct the Trustee. Global Senior Discount Notes also may be exchanged
or replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof.
Every Senior Discount Note authenticated and delivered in exchange for, or in
lieu of, a Global Senior Discount Notes or any portion thereof, pursuant to this
Section 2.06 or Section 2.07 or 2.10 hereof, shall be authenticated and
delivered in the form of, and shall be, a Global Senior Discount Note. A Global
Senior Discount Note may not be exchanged for another Senior Discount Note other
than as provided in this Section 2.06(a), however, beneficial interests in a
Global Senior Discount Note may be transferred and exchanged as provided in
Section 2.06(b),(c) or (f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global Senior
Discount Notes. The transfer and exchange of beneficial interests in the Global
Senior Discount Notes shall be effected through the Depositary, in accordance
with the provisions of this Indenture and the Applicable Procedures. Beneficial
interests in the Restricted Global Senior Discount Notes shall be subject to
restrictions on transfer comparable to those set forth herein to the extent
required by the Securities Act. Transfers of beneficial interests in the Global
Senior Discount Notes also shall require compliance with either subparagraph (i)
or (ii) below, as applicable, as well as one or more of the other following
subparagraphs, as applicable:
(i) Transfer of Beneficial Interests in the Same Global Senior
Discount Note. Beneficial interests in any Restricted Global
Senior Discount Note may be transferred to Persons who take
delivery thereof in the form of a beneficial interest in the same
Restricted Global Senior Discount Note in accordance with the
transfer restrictions set forth in the Private Placement Legend;
provided, however, that prior to the expiration of the Restricted
Period, transfers of beneficial interests in the Temporary
Regulation S Global Senior Discount Notes may not be made to a
U.S. Person or for the account or benefit of a U.S. Person (other
than an Initial Purchaser). Beneficial interests in any
Unrestricted Global Senior Discount Note may be transferred to
Persons who take delivery thereof in the form of a beneficial
interest in an Unrestricted Global Senior Discount Note. No
written orders or instructions shall be required to be delivered
to the Registrar to effect the transfers described in this Section
2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests
in Global Senior Discount Notes. In connection with all transfers
and exchanges of beneficial interests that are not subject to
Section 2.06(b)(i) above, the transferor of such beneficial
interest must deliver to the Registrar either (A) (1) a written
order from a Participant or an Indirect Participant given to the
Depositary in accordance with the Applicable Procedures directing
the Depositary to credit or cause to be credited a beneficial
interest in another Global Senior Discount Note in an amount equal
to the beneficial interest to be transferred or exchanged and (2)
instructions given in accordance with the Applicable Procedures
containing information regarding the Participant account to be
credited with such increase or (B) (1) a written order from a
Participant or an Indirect Participant given to the Depositary in
accordance with the Applicable Procedures directing the Depositary
to cause to be issued a Definitive Senior Discount Note in an
amount equal to the beneficial interest to be transferred or
exchanged and (2) instructions given by the Depositary to the
Registrar containing information regarding the Person in whose
name such Definitive Senior Discount Note shall be registered to
effect the transfer or exchange referred to in (1) above; provided
that in no event shall Definitive Senior Discount Notes be issued
upon the transfer or exchange of beneficial interests in the
Regulation S Temporary Global Senior Discount Notes prior to (x)
the expiration of the Restricted Period and (y) the receipt by the
Registrar of any certificates required pursuant to Rule 903 under
the Securities Act. Upon consummation of an Exchange Offer by the
Issuer in accordance with Section 2.06(f) hereof, the requirements
of this Section 2.06(b)(ii) shall be deemed to have been satisfied
upon receipt by the Registrar of the instructions contained in the
Letter of Transmittal delivered by the Holder of such beneficial
interests in the Restricted Global Senior Discount Notes. Upon
satisfaction of all of the requirements for transfer or exchange
of beneficial interests in Global Senior Discount Notes contained
in this Indenture and the Senior Discount Notes or
otherwise applicable under the Securities Act, the Trustee shall
adjust the principal amount at maturity of the relevant Global
Senior Discount Note(s) pursuant to Section 2.06(h) hereof.
(iii) Transfer of Beneficial Interests to Another Restricted
Global Senior Discount Note. A beneficial interest in any
Restricted Global Senior Discount Note may be transferred to a
Person who takes delivery thereof in the form of a beneficial
interest in another Restricted Global Senior Discount Note if the
transfer complies with the requirements of Section 2.06(b)(ii)
above and the Registrar receives the following:
(A) if the transferee will take delivery in the form of a
beneficial interest in the 144A Global Senior Discount Notes,
then the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications in item (1)
thereof; and
(B) if the transferee will take delivery in the form of a
beneficial interest in the Regulation S Temporary Global
Senior Discount Notes or the Regulation S Global Senior
Discount Notes, then the transferor must deliver a certificate
in the form of Exhibit B hereto, including the certifications
in item (2) thereof.
(iv) Transfer and Exchange of Beneficial Interests in a
Restricted Global Senior Discount Note for Beneficial Interests in
the Unrestricted Global Senior Discount Notes. A beneficial
interest in any Restricted Global Senior Discount Note may be
exchanged by any holder thereof for a beneficial interest in an
Unrestricted Global Senior Discount Note or transferred to a
Person who takes delivery thereof in the form of a beneficial
interest in an Unrestricted Global Senior Discount Note if the
exchange or transfer complies with the requirements of Section
2.06(b)(ii) above and:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the holder of the beneficial interest to be
transferred, in the case of an exchange, or the transferee, in
the case of a transfer, certifies in the applicable Letter of
Transmittal that it is not (1) a broker-dealer, (2) a Person
participating in the distribution of the Exchange Senior
Discount Notes or (3) a Person who is an affiliate (as defined
in Rule 144) of the Issuer;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration
Rights Agreement;
(C) such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights
Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Senior Discount Note proposes to
exchange such beneficial interest for a beneficial
interest in an Unrestricted Global Senior Discount Note,
a certificate from such holder in the form of Exhibit C
hereto, including the certifications in item (1)(a)
thereof; or
(2) if the holder of such beneficial interest in a
Restricted Global Senior Discount Note proposes to
transfer such beneficial interest to a Person who shall
take delivery thereof in the form of a beneficial
interest in an Unrestricted Global Senior Discount Note,
a certificate from such holder in the form of Exhibit B
hereto, including the certifications in item (4)
thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require,
an Opinion of Counsel in form reasonably acceptable to the
Registrar to the effect that such exchange or transfer is in
compliance with the Securities Act and that the restrictions on
transfer contained herein and in the Private Placement Legend are
no longer required in order to maintain compliance with the
Securities Act.
If any such transfer is effected pursuant to subparagraph (B) or (D)
above at a time when an Unrestricted Global Senior Discount Note has not yet
been issued, the Issuer shall issue and, upon receipt of an Authentication Order
in accordance with Section 2.02 hereof, the Trustee shall authenticate one or
more Unrestricted Global Senior Discount Notes in an aggregate principal amount
at maturity equal to the aggregate principal amount at maturity of beneficial
interests transferred pursuant to subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Senior Discount Note
cannot be exchanged for, or transferred to Persons who take delivery thereof in
the form of, a beneficial interest in a Restricted Global Senior Discount Note.
(c) Transfer or Exchange of Beneficial Interests for Definitive Senior
Discount Notes.
(i) Beneficial Interests in Restricted Global Senior
Discount Notes to Restricted Definitive Senior Discount Notes.
If any holder of a beneficial interest in a Restricted Global
Senior Discount Note proposes to exchange such beneficial
interest for a Restricted Definitive Senior Discount Note or
to transfer such beneficial interest to a Person who takes
delivery thereof in the form of a Restricted Definitive Senior
Discount Note, then, upon receipt by the Registrar of the
following documentation:
(A) if the holder of such beneficial
interest in a Restricted Global Senior Discount Note proposes
to exchange such beneficial interest for a Restricted
Definitive Senior Discount Note, a certificate from such
holder in the form of Exhibit C hereto, including the
certifications in item (2)(a) thereof;
(B) if such beneficial interest is being
transferred to a QIB in accordance with Rule 144A under the
Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (1)
thereof;
(C) if such beneficial interest is being
transferred to a Non-U.S. Person in an offshore transaction in
accordance with Rule 903 or Rule 904 under the Securities Act,
a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (2) thereof;
(D) if such beneficial interest is being
transferred pursuant to an exemption from the registration
requirements of the Securities Act in accordance with Rule 144
under the Securities Act, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in
item (3)(a) thereof;
(E) if such beneficial interest is being
transferred to an Institutional Accredited Investor in
reliance on an exemption from the registration requirements of
the Securities Act other than those listed in subparagraphs
(B) through (D) above, a certificate to the effect set forth
in Exhibit B hereto, including the certifications,
certificates and Opinion of Counsel required by item (3)
thereof, if applicable;
(F) if such beneficial interest is being
transferred to the Issuer or any of its Subsidiaries, a
certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(b) thereof; or
(G) if such beneficial interest is being
transferred pursuant to an effective registration statement
under the Securities Act, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in
item (3)(c) thereof,
the Trustee shall cause the aggregate principal amount at maturity of
the applicable Global Senior Discount Notes to be reduced accordingly
pursuant to Section 2.06(h) hereof, and the Issuer shall execute and
the Trustee shall authenticate and deliver to the Person designated in
the instructions a Definitive Senior Discount Note in the appropriate
principal amount at maturity. Any Definitive Senior Discount Note
issued in exchange for a beneficial interest in a Restricted Global
Senior Discount Note pursuant to this Section 2.06(c) shall be
registered in such name or names and in such authorized denomination or
denominations as the holder of such beneficial interest shall instruct
the Registrar through instructions from the Depositary and the
Participant or Indirect Participant. The Trustee shall deliver such
Definitive Senior Discount Notes to the Persons in whose names such
Senior Discount Notes are so registered. Any Definitive Senior Discount
Notes issued in exchange for a beneficial interest in a Restricted
Global Senior Discount Note pursuant to this Section 2.06(c)(i) shall
bear the Private Placement Legend and shall be subject to all
restrictions on transfer contained therein.
(ii) Notwithstanding Sections 2.06(c)(i)(A) and (C)
hereof, a beneficial interest in the Regulation S Temporary
Global Senior Discount Notes may not be exchanged for a
Definitive Senior Discount Note or transferred to a Person who
takes delivery thereof in the form of a Definitive Senior
Discount Note prior to (x) the expiration of the Restricted
Period and (y) the receipt by the Registrar of any
certificates required pursuant to Rule 903(c)(3)(ii)(B) under
the Securities Act, except in the case of a transfer pursuant
to an exemption from the registration requirements of the
Securities Act other than Rule 903 or Rule 904.
(iii) Beneficial Interests in Restricted Global
Senior Discount Notes to Unrestricted Definitive Senior
Discount Notes. A holder of a beneficial interest in a
Restricted Global Senior Discount Note may exchange such
beneficial interest for an Unrestricted Definitive Senior
Discount Note or may transfer such beneficial interest to a
Person who takes delivery thereof in the form of an
Unrestricted Definitive Senior Discount Note only if:
(A) such exchange or transfer is effected
pursuant to the Exchange Offer in accordance with the
Registration Rights Agreement and the holder of such
beneficial interest, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the
applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution
of the Exchange Senior Discount Notes or (3) a Person who is
an affiliate (as defined in Rule 144) of the Issuer;
(B) such transfer is effected pursuant to
the Shelf Registration Statement in accordance with the
Registration Rights Agreement;
(C) such transfer is effected by a
Participating Broker-Dealer pursuant to the Exchange Offer
Registration Statement in accordance with the Registration
Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial
interest in a Restricted Global Senior Discount Note
proposes to exchange such beneficial interest for a
Definitive Senior Discount Note that does not bear
the Private Placement Legend, a certificate from such
holder in the form of Exhibit C hereto, including the
certifications in item (1)(b) thereof; or
(2) if the holder of such beneficial
interest in a Restricted Global Senior Discount Note
proposes to transfer such beneficial interest to a
Person who shall take delivery thereof in the form of
a Definitive Senior Discount Note that does not bear
the Private Placement Legend, a certificate from such
holder in the form of Exhibit B hereto, including the
certifications in item (4) thereof;
and, in each such case set forth in this subparagraph
(D), if the Registrar so requests or if the
Applicable Procedures so require, an Opinion of
Counsel in form reasonably acceptable to the
Registrar to the effect that such exchange or
transfer is in compliance with the Securities Act and
that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer
required in order to maintain compliance with the
Securities Act.
(iv) Beneficial Interests in Unrestricted Global
Senior Discount Notes to Unrestricted Definitive Senior
Discount Notes. If any holder of a beneficial interest in an
Unrestricted Global Senior Discount Note proposes to exchange
such beneficial interest for a Definitive Senior Discount Note
or to transfer such beneficial interest to a Person who takes
delivery thereof in the form of a Definitive Senior Discount
Note, then, upon satisfaction of the conditions set forth in
Section 2.06(b)(ii) hereof, the Trustee shall cause the
aggregate principal amount at maturity of the applicable
Global Senior Discount Note to be reduced accordingly pursuant
to Section 2.06(h) hereof, and the Issuer shall execute and
the Trustee shall authenticate and deliver to the Person
designated in the instructions a Definitive Senior Discount
Note in the appropriate principal amount at maturity. Any
Definitive Senior Discount Notes issued in exchange for a
beneficial interest pursuant to this Section 2.06(c)(iii)
shall be registered in such name or names and in such
authorized denomination or denominations as the holder of such
beneficial interest shall instruct the Registrar through
instructions from the Depositary and the Participant or
Indirect Participant. The Trustee shall deliver such
Definitive Senior Discount Notes to the Persons in whose names
such Senior Discount Notes are so registered. Any Definitive
Senior Discount Notes issued in exchange for a beneficial
interest pursuant to this Section 2.06(c)(iii) shall not bear
the Private Placement Legend.
(d) Transfer and Exchange of Definitive Senior Discount Notes for
Beneficial Interests.
(i) Restricted Definitive Senior Discount Notes to
Beneficial Interests in Restricted Global Senior Discount
Notes. If any Holder of a Restricted Definitive Senior
Discount Note proposes to exchange such Senior Discount Note
for a beneficial interest in a Restricted Global Senior
Discount Note or to transfer such Restricted Definitive Senior
Discount Note to a Person who takes delivery thereof in the
form of a beneficial interest in a Restricted Global Senior
Discount Note, then, upon receipt by the Registrar of the
following documentation:
(A) if the Holder of such Restricted
Definitive Senior Discount Note proposes to exchange such
Senior Discount Note for a beneficial interest in a Restricted
Global Senior Discount Note, a certificate from such
Holder in the form of Exhibit C hereto, including the
certifications in item (2)(b) thereof;
(B) if such Restricted Definitive Senior
Discount Note is being transferred to a QIB in accordance with
Rule 144A under the Securities Act, a certificate to the
effect set forth in Exhibit B hereto, including the
certifications in item (1) thereof;
(C) if such Restricted Definitive Senior
Discount Note is being transferred to a Non-U.S. Person in an
offshore transaction in accordance with Rule 903 or Rule 904
under the Securities Act, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in
item (2) thereof;
(D) if such Restricted Definitive Senior
Discount Note is being transferred pursuant to an exemption
from the registration requirements of the Securities Act in
accordance with Rule 144 under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(a) thereof;
(E) if such Restricted Definitive Senior
Discount Note is being transferred to an Institutional
Accredited Investor in reliance on an exemption from the
registration requirements of the Securities Act other than
those listed in subparagraphs (B) through (D) above, a
certificate to the effect set forth in Exhibit B hereto,
including the certifications, certificates and Opinion of
Counsel required by item (3) thereof, if applicable;
(F) if such Restricted Definitive Senior
Discount Note is being transferred to the Issuer or any of its
Subsidiaries, a certificate to the effect set forth in Exhibit
B hereto, including the certifications in item (3)(b) thereof;
or
(G) if such Restricted Definitive Senior
Discount Note is being transferred pursuant to an effective
registration statement under the Securities Act, a certificate
to the effect set forth in Exhibit B hereto, including the
certifications in item (3)(c) thereof,
the Trustee shall cancel the Restricted Definitive Senior
Discount Note, increase or cause to be increased the aggregate
principal amount at maturity of, in the case of clause (A)
above, the appropriate Restricted Global Senior Discount Note,
in the case of clause (B) above, the 144A Global Senior
Discount Note, in the case of clause (c) above, and the
Regulation S Global Senior Discount Note.
(ii) Restricted Definitive Senior Discount Notes to
Beneficial Interests in Unrestricted Global Senior Discount
Notes. A Holder of a Restricted Definitive Senior Discount
Note may exchange such Senior Discount Note for a beneficial
interest in an Unrestricted Global Senior Discount Note or
transfer such Restricted Definitive Senior Discount Note to a
Person who takes delivery thereof in the form of a beneficial
interest in an Unrestricted Global Senior Discount Note only
if:
(A) such exchange or transfer is effected
pursuant to the Exchange Offer in accordance with the
Registration Rights Agreement and the Holder, in the case of
an exchange, or the transferee, in the case of a transfer,
certifies in the applicable Letter of Transmittal that it is
not (1) a broker-dealer, (2) a Person participating in the
distribution of the Exchange Senior Discount Notes or (3) a
Person who is an affiliate (as defined in Rule 144) of the
Issuer;
(B) such transfer is effected pursuant to
the Shelf Registration Statement in accordance with the
Registration Rights Agreement;
(C) such transfer is effected by a
Participating Broker-Dealer pursuant to the Exchange Offer
Registration Statement in accordance with the Registration
Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Definitive
Senior Discount Note proposes to exchange such Senior
Discount Note for a beneficial interest in the
Unrestricted Global Senior Discount Note, a
certificate from such Holder in the form of Exhibit C
hereto, including the certifications in item (1)(c)
thereof; or
(2) if the Holder of such Definitive
Senior Discount Note proposes to transfer such Senior
Discount Note to a Person who shall take delivery
thereof in the form of a beneficial interest in the
Unrestricted Global Senior Discount Note, a
certificate from such Holder in the form of Exhibit B
hereto, including the certifications in item (4)
thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
Upon satisfaction of the conditions of any of the subparagraphs in this
Section 2.06(d)(ii), the Trustee shall cancel the Definitive Senior
Discount Notes and increase or cause to be increased the aggregate
principal amount at maturity of the Unrestricted Global Senior Discount
Note.
(iii) Unrestricted Definitive Senior Discount Notes
to Beneficial Interests in Unrestricted Global Senior Discount
Notes. A Holder of an Unrestricted Definitive Senior Discount
Note may exchange such Senior Discount Note for a beneficial
interest in an Unrestricted Global Senior Discount Note or
transfer such Definitive Senior Discount Note to a Person who
takes delivery thereof in the form of a beneficial interest in
an Unrestricted Global Senior Discount Note at any time. Upon
receipt of a request for such an exchange or transfer, the
Trustee shall cancel the applicable Unrestricted Definitive
Senior Discount Note and increase or cause to be increased the
aggregate principal amount at maturity of one of the
Unrestricted Global Senior Discount Note.
If any such exchange or transfer from a Definitive Senior Discount Note
to a beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D)
or (iii) above at a time when an Unrestricted Global Senior Discount Note has
not yet been issued, the Issuer shall issue and, upon receipt of an
Authentication Order in accordance with Section 2.02 hereof, the Trustee shall
authenticate one or more Unrestricted Global Senior Discount Notes in an
aggregate principal amount at maturity equal to the principal amount at maturity
of Definitive Senior Discount Notes so transferred.
(e) Transfer and Exchange of Definitive Senior Discount Notes for
Definitive Senior Discount Notes. Upon request by a Holder of Definitive Senior
Discount Note and such Holder's compliance with the provisions of this Section
2.06(e), the Registrar shall register the transfer or exchange of the Definitive
Senior Discount Note. Prior to such registration of transfer or exchange, the
requesting Holder shall present or surrender to the Registrar the Definitive
Senior Discount Note duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder or
by his attorney, duly authorized in writing. In addition, the requesting Holder
shall provide any additional certifications, documents and information, as
applicable, required pursuant to the following provisions of this Section
2.06(e).
(i) Restricted Definitive Senior Discount Notes to
Restricted Definitive Senior Discount Notes. Any Restricted
Definitive Senior Discount Note may be transferred to and
registered in the name of Persons who take delivery thereof in
the form of a Restricted Definitive Senior Discount Note if
the Registrar receives the following:
(A) if the transfer will be made pursuant to
Rule 144A under the Securities Act, then the transferor must
deliver a certificate in the form of Exhibit B hereto,
including the certifications in item (1) thereof;
(B) if the transfer will be made pursuant to
Rule 903 or Rule 904, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including the
certifications in item (2) thereof; and
(C) if the transfer will be made pursuant to
any other exemption from the registration requirements of the
Securities Act, then the transferor must deliver a certificate
in the form of Exhibit B hereto, including the certifications,
certificates and Opinion of Counsel required by item (3)
thereof, if applicable.
(ii) Restricted Definitive Senior Discount Notes to
Unrestricted Definitive Senior Discount Notes. Any Restricted
Definitive Senior Discount Note may be exchanged by the Holder
thereof for an Unrestricted Definitive Senior Discount Note or
transferred to a Person or Persons who take delivery thereof
in the form of an Unrestricted Definitive Senior Discount Note
if:
(A) such exchange or transfer is effected
pursuant to the Exchange Offer in accordance with the
Registration Rights Agreement and the Holder, in the case of
an exchange, or the transferee, in the case of a transfer,
certifies in the applicable Letter of Transmittal that it is
not (1) a broker-dealer, (2) a Person participating in the
distribution of the Exchange Senior Discount Notes or (3) a
Person who is an affiliate (as defined in Rule 144) of the
Issuer;
(B) any such transfer is effected pursuant
to the Shelf Registration Statement in accordance with the
Registration Rights Agreement;
(C) any such transfer is effected by a
Participating Broker-Dealer pursuant to the Exchange Offer
Registration Statement in accordance with the Registration
Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted
Definitive Senior Discount Note proposes to exchange
such Senior Discount Note for an Unrestricted
Definitive Senior Discount Note, a certificate from
such Holder in the form of Exhibit C hereto,
including the certifications in item (1)(d) thereof;
or
(2) if the Holder of such Restricted
Definitive Senior Discount Note proposes to transfer
such Senior Discount Note to a Person who shall take
delivery thereof in the form of an Unrestricted
Definitive Senior Discount Note, a certificate from
such Holder in the form of Exhibit B hereto,
including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests, an Opinion of Counsel in form reasonably
acceptable to the Issuer to the effect that such exchange or transfer
is in compliance with the Securities Act and that the restrictions on
transfer contained herein and in the Private Placement Legend are no
longer required in order to maintain compliance with the Securities
Act.
(iii) Unrestricted Definitive Senior Discount Notes
to Unrestricted Definitive Senior Discount Notes. A Holder of
Unrestricted Definitive Senior Discount Notes may transfer
such Senior Discount Notes to a Person who takes delivery
thereof in the form of an Unrestricted Definitive Senior
Discount Note. Upon receipt of a request to register such a
transfer, the Registrar shall register the Unrestricted
Definitive Senior Discount Notes pursuant to the instructions
from the Holder thereof.
(f) Exchange Offer. Upon the occurrence of the Exchange Offer in
accordance with the Registration Rights Agreement, the Issuer shall issue and,
upon receipt of an Authentication Order in accordance with Section 2.02, the
Trustee shall authenticate (i) one or more Unrestricted Global Senior Discount
Notes in an aggregate principal amount at maturity equal to the principal amount
at maturity of the beneficial interests in the Restricted Global Senior Discount
Notes tendered for acceptance by Persons that certify in the applicable Letters
of Transmittal that (x) they are not broker-dealers, (y) they are not
participating in a distribution of the Exchange Senior Discount Notes and (z)
they are not affiliates (as defined in Rule 144) of the Issuer, and accepted for
exchange in the Exchange Offer and (ii) Definitive Senior Discount Notes in an
aggregate principal amount at maturity equal to the principal amount at maturity
of the Restricted Definitive Senior Discount Notes accepted for exchange in the
Exchange Offer. Concurrently with the issuance of such Senior Discount Notes,
the Trustee shall cause the aggregate principal amount at maturity of the
applicable Restricted Global Senior Discount Notes to be reduced accordingly,
and the Issuer shall execute and the Trustee shall authenticate and deliver to
the Persons designated by the Holders of Definitive Senior Discount Notes so
accepted Definitive Senior Discount Notes in the appropriate principal amount at
maturity.
(g) Legends. The following legends shall appear on the face of all
Global Senior Discount Notes and Definitive Senior Discount Notes issued under
this Indenture unless specifically stated otherwise in the applicable provisions
of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B)
below, each Global Senior Discount Notes and each Definitive
Senior Discount Note (and all Senior Discount Notes issued in
exchange therefor or substitution thereof) shall bear the
legend in substantially the following form:
"THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE. BY
ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER:
(1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT HAS
ACQUIRED THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A) (1), (2), (3) OR (7)
OR REGULATION D UNDER THE SECURITIES ACT (AN "IAI"), (2) AGREES THAT IT
WILL NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE
ISSUER OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE
903 OR 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) TO AN IAI THAT,
PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
TRANSFER OF THIS SECURITY (THE FORM OF WHICH CAN BE OBTAINED FROM THE
TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL
AMOUNT OF SENIOR DISCOUNT NOTES LESS THAN $250,000, AN OPINION OF
COUNSEL ACCEPTABLE TO THE ISSUER THAT SUCH TRANSFER IS IN COMPLIANCE
WITH THE SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY) OR (G) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH
THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO
EACH PERSON TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS TRANSFERRED
A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN,
THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE MEANINGS
GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE
INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO
REGISTER ANY TRANSFER OF THIS SECURITY IN VIOLATION OF THE FOREGOING."
(B) Notwithstanding the foregoing, any Global Senior
Discount Note or Definitive Senior Discount Note issued
pursuant to subparagraphs (b)(iv), (c)(ii), (c)(iii), (d)(ii),
(d)(iii), (e)(ii), (e)(iii) or (f) of this Section 2.06 (and
all Senior Discount Notes issued in exchange therefor or
substitution thereof) or any Liquidated Damages Senior
Discount Notes issued in respect of any such Global or
Definitive Senior Discount Notes shall not bear the Private
Placement Legend.
(ii) Global Senior Discount Note Legend. Each Global Senior
Discount Note shall bear a legend in substantially the following form:
"THIS GLOBAL SENIOR DISCOUNT NOTE IS HELD BY THE DEPOSITARY (AS DEFINED
IN THE INDENTURE GOVERNING THIS SENIOR DISCOUNT NOTE) OR ITS NOMINEE IN
CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT
TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE
TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO
SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL SENIOR DISCOUNT NOTE
MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a)
OF THE INDENTURE, (III) THIS GLOBAL SENIOR DISCOUNT NOTE MAY BE
DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF
THE INDENTURE AND (IV) THIS GLOBAL SENIOR DISCOUNT NOTE MAY BE
TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF
THE COMPANY."
(iii) Regulation S Temporary Global Senior Discount Note
Legend. The Regulation S Temporary Global Senior Discount Notes shall
bear a legend in substantially the following form:
"THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL SENIOR
DISCOUNT NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE
FOR CERTIFICATED SENIOR DISCOUNT NOTES, ARE AS SPECIFIED IN THE
INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL
OWNERS OF THIS REGULATION S TEMPORARY GLOBAL SENIOR DISCOUNT NOTE SHALL
BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON."
(iv) Original Issue Discount Legend. Each Senior Discount Note
shall bear a legend in substantially the following form:
"FOR THE PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED, THIS SECURITY IS BEING ISSUED WITH
ORIGINAL ISSUE DISCOUNT; FOR EACH $1,000 PRINCIPAL AMOUNT OF THIS
SECURITY, THE ISSUE PRICE IS $__________, THE AMOUNT OF ORIGINAL ISSUE
DISCOUNT IS $____________, THE ISSUE DATE IS __________, 1998 AND THE
YIELD TO MATURITY IS _______ % PER ANNUM."
(v) [Intentionally omitted]
(h) Cancellation and/or Adjustment of Global Senior Discount Notes. At
such time as all beneficial interests in a particular Global Senior Discount
Note have been exchanged for Definitive Senior Discount Notes or a particular
Global Senior Discount Note has been redeemed, repurchased or cancelled in whole
and not in part, each such Global Senior Discount Note shall be returned to or
retained and cancelled by the Trustee in accordance with Section 2.11 hereof. At
any time prior to such cancellation, if any beneficial interest in a Global
Senior Discount Note is exchanged for or transferred to a Person who will take
delivery thereof in the form of a beneficial interest in another Global Senior
Discount Note or for Definitive Senior Discount Notes, the principal amount at
maturity of Senior Discount Notes represented by such Global Senior Discount
Note shall be reduced accordingly and an endorsement shall be made on such
Global Senior Discount Note by the Trustee or by the Depositary at the direction
of the Trustee to reflect such reduction; and if the beneficial interest is
being exchanged for or transferred to a Person who will take delivery thereof in
the form of a beneficial interest in another Global Senior Discount Note, such
other Global Senior Discount Note shall be increased accordingly and an
endorsement shall be made on such Global Senior Discount Note by the Trustee or
by the Depositary at the direction of the Trustee to reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the Issuer
shall execute and the Trustee shall authenticate Global Senior Discount
Notes and Definitive Senior Discount Notes upon the Issuer's order or
at the Registrar's request.
(ii) No service charge shall be made to a holder of a beneficial
interest in a Global Senior Discount Note or to a Holder of a
Definitive Senior Discount Note for any registration of transfer or
exchange, but the Issuer may require payment of a sum sufficient to
cover any transfer tax or similar governmental charge payable in
connection therewith (other than any such transfer taxes or similar
governmental charge payable upon exchange or transfer pursuant to
Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof).
(iii) The Registrar shall not be required to register the transfer of
or exchange any Senior Discount Notes selected for redemption in whole
or in part, except the unredeemed portion of any Senior Discount Note
being redeemed in part.
(iv) All Global Senior Discount Notes and Definitive Senior Discount
Notes issued upon any registration of transfer or exchange of Global
Senior Discount Notes or Definitive Senior Discount Notes shall be the
valid obligations of the Issuer, evidencing the same debt, and entitled
to the same benefits under this Indenture, as the Global Senior
Discount Notes or Definitive Senior Discount Notes surrendered upon
such registration of transfer or exchange.
(v) The Issuer shall not be required (A) to issue, to register the
transfer of or to exchange any Senior Discount Notes during a period
beginning at the opening of business 15 days before the day of any
selection of Senior Discount Notes for redemption under Section 3.02
hereof and ending at the close of business on the day of selection, (B)
to register the transfer of or to exchange any Senior Discount Notes so
selected for redemption in whole or in part, except the unredeemed
portion of any Senior Discount Note being redeemed in part or (c) to
register the transfer of or to exchange a Senior Discount Note between
a record date and the next succeeding Interest Payment Date.
(vi) Prior to due presentment for the registration of a transfer of
any Senior Discount Note, the Trustee, any Agent and the Issuer may
deem and treat the Person in whose name any Senior Discount Note is
registered as the absolute owner of such Senior Discount Note for the
purpose of receiving payment of principal of and interest on such
Senior Discount Note and for all other purposes, and none of the
Trustee, any Agent or the Issuer shall be affected by notice to the
contrary.
(vii) The Trustee shall authenticate Global Senior Discount Notes and
Definitive Senior Discount Notes in accordance with the provisions of
Section 2.02 hereof.
(viii) All certifications, certificates and Opinions of Counsel
required to be submitted to the Registrar pursuant to this Section 2.06
to effect a registration of transfer or exchange may be submitted by
facsimile.
Section 2.07. Replacement Senior Discount Notes.
If any Senior Discount Note is surrendered to the Trustee or the Issuer
and the Trustee receives evidence to its satisfaction of the destruction, loss
or theft of any Senior Discount Note, the Issuer shall issue and the Trustee,
upon receipt of an Authentication Order, shall authenticate a replacement Senior
Discount Note if the Trustee's requirements are met. If required by the Trustee
or the Issuer, an indemnity bond must be supplied by the Holder that is
sufficient in the judgment of the Trustee and the Issuer to protect the Issuer,
the Trustee, any Agent and any authenticating agent from any loss that any of
them may suffer if a Senior Discount Note is replaced. The Issuer may charge for
its expenses in replacing a Senior Discount Note.
Every replacement Senior Discount Note is an additional obligation of
the Issuer and shall be entitled to all of the benefits of this Indenture
equally and proportionately with all other Senior Discount Notes duly issued
hereunder.
Section 2.08. Outstanding Senior Discount Notes.
The Senior Discount Notes outstanding at any time are all the Senior
Discount Notes authenticated by the Trustee except for those cancelled by it,
those delivered to it for cancellation, those reductions in the interest in a
Global Senior Discount Notes effected by the Trustee in accordance with the
provisions hereof, and those described in this Section as not outstanding.
Except as set forth in Section 2.09 hereof, a Senior Discount Note does not
cease to be outstanding because the Issuer or an Affiliate of the Issuer holds
the Senior Discount Note; however, Senior Discount Notes held by the Issuer or a
Subsidiary of the Issuer shall not be deemed to be outstanding for purposes of
Section 3.07(b) hereof.
If a Senior Discount Note is replaced pursuant to Section 2.07 hereof,
it ceases to be outstanding unless the Issuer receives proof satisfactory to it
that the replaced Senior Discount Note is held by a bona fide purchaser.
If the principal amount at maturity of any Senior Discount Note is
considered paid under Section 4.01 hereof, it ceases to be outstanding and
interest on it ceases to accrue.
If the Paying Agent (other than the Issuer, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Senior Discount Notes payable on that date, then on and after
that date such Senior Discount Notes shall be deemed to be no longer outstanding
and shall cease to accrue interest.
Section 2.09. Treasury Senior Discount Notes.
In determining whether the Holders of the required principal amount at
maturity of Senior Discount Notes have concurred in any direction, waiver or
consent, Senior Discount Notes owned by the Issuer, or by any Person directly or
indirectly controlled by the Issuer, shall be considered as though not
outstanding, except that for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Senior Discount Notes that the Trustee knows are so owned shall be so
disregarded.
Section 2.10. Temporary Senior Discount Notes.
Until certificates representing Senior Discount Notes are ready for
delivery, the Issuer may prepare and the Trustee, upon receipt of an
Authentication Order, shall authenticate temporary Senior Discount Notes.
Temporary Senior Discount Notes shall be substantially in the form of
certificated Senior Discount Notes but may have variations that the Issuer
considers appropriate for temporary Senior Discount Notes and as shall be
reasonably acceptable to the Trustee. Without unreasonable delay, the Issuer
shall prepare and the Trustee shall authenticate definitive Senior Discount
Notes in exchange for temporary Senior Discount Notes.
Holders of temporary Senior Discount Notes shall be entitled to all of
the benefits of this Indenture.
Section 2.11. Cancellation.
The Issuer at any time may deliver Senior Discount Notes to the Trustee
for cancellation. The Registrar and Paying Agent shall forward to the Trustee
any Senior Discount Notes surrendered to them for registration of transfer,
exchange or payment. The Trustee and no one else shall cancel all Senior
Discount Notes surrendered for registration of transfer, exchange, payment,
replacement or cancellation and shall destroy cancelled Senior Discount Notes
(subject to the record retention requirement of the Exchange Act). Certification
of the destruction of all cancelled Senior Discount Notes shall be delivered to
the Issuer. The Issuer may not issue new Senior Discount Notes to replace Senior
Discount Notes that it has paid or that have been delivered to the Trustee for
cancellation.
Section 2.12. Defaulted Interest.
If the Issuer defaults in a payment of interest on the Senior Discount
Notes, it shall pay the defaulted interest in any lawful manner plus, to the
extent lawful, interest payable on the defaulted interest, to the Persons who
are Holders on a subsequent special record date, in each case at the rate
provided in the Senior Discount Notes and in Section 4.01 hereof. The Issuer
shall notify the Trustee in writing of the amount of defaulted interest proposed
to be paid on each Senior Discount Note and the date of the proposed payment.
The Issuer shall fix or cause to be fixed each such special record date and
payment date, provided that no such special record date shall be less than 10
days prior to the related payment date for such defaulted interest. At least 15
days before the special record date, the Issuer (or, upon the written request of
the Issuer, the Trustee in the name and at the expense of the Issuer) shall mail
or cause to be mailed to Holders a notice that states the special record date,
the related payment date and the amount of such interest to be paid.
ARTICLE 3.
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee.
If the Issuer elects to redeem Senior Discount Notes pursuant to the
optional redemption provisions of Section 3.07 hereof, it shall furnish to the
Trustee, at least 45 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i) the clause of this Indenture pursuant to
which the redemption shall occur, (ii) the redemption date, (iii) the principal
amount at maturity of Senior Discount Notes to be redeemed and (iv) the
redemption price.
Section 3.02. Selection of Senior Discount Notes to Be Redeemed.
If less than all of the Senior Discount Notes are to be redeemed at any
time, selection of Senior Discount Notes for redemption will be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which the Senior Discount Notes are listed, or, if the
Senior Discount Notes are not so listed, on a pro rata basis, by lot or by such
method as the Trustee shall deem fair and appropriate; provided that no Senior
Discount Note having a principal amount at maturity of $1,000 or less shall be
redeemed in part.
The Trustee shall promptly notify the Issuer in writing of the Senior
Discount Notes selected for redemption and, in the case of any Senior Discount
Note selected for partial redemption, the principal amount at maturity thereof
to be redeemed. Senior Discount Notes and portions of Senior Discount Notes
selected shall be in amounts of $1,000 or whole multiples of $1,000; except that
if all of the Senior Discount Notes of a Holder are to be redeemed, the entire
outstanding amount of Senior Discount Notes held by such Holder, even if not a
multiple of $1,000, shall be redeemed. Except as provided in the preceding
sentence, provisions of this Indenture that apply to Senior Discount Notes
called for redemption also apply to portions of Senior Discount Notes called for
redemption.
Section 3.03. Notice of Redemption.
Subject to the provisions of Section 3.09 hereof, notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Senior Discount Notes to be redeemed at
its registered address. If any Senior Discount Note is to be redeemed in part
only, the notice of redemption that relates to such Senior Discount Note shall
state the portion of the principal amount at maturity thereof to be redeemed. A
new Senior Discount Note in principal amount at maturity equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Senior Discount Note. Senior Discount Notes called
for redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on Senior Discount Notes or portions
of them called for redemption.
The notice shall identify the Senior Discount Notes to be redeemed and
shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Senior Discount Note is being redeemed in part, the portion
of the principal amount at maturity of such Senior Discount Note to be redeemed
and that, after the redemption date upon surrender of such Senior Discount Note,
a new Senior Discount Note or Senior Discount Notes in principal amount at
maturity equal to the unredeemed portion shall be issued upon cancellation of
the original Senior Discount Note;
(d) the name and address of the Paying Agent;
(e) that Senior Discount Notes called for redemption must be
surrendered to the Paying Agent to collect the redemption price;
(f) that, unless the Issuer defaults in making such redemption payment,
interest on Senior Discount Notes called for redemption ceases to accrue on and
after the redemption date;
(g) the paragraph of the Senior Discount Notes and/or Section of this
Indenture pursuant to which the Senior Discount Notes called for redemption are
being redeemed; and
(h) that no representation is made as to the correctness or accuracy of
the CUSIP number, if any, listed in such notice or printed on the Senior
Discount Notes.
At the Issuer's request, the Trustee shall give the notice of
redemption in the Issuer's name and at its expense; provided, however, that the
Issuer shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph.
Section 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Senior Discount Notes called for redemption become irrevocably due and
payable on the redemption date at the redemption price. A notice of redemption
may not be conditional.
Section 3.05. Deposit of Redemption Price.
One Business Day prior to the redemption date, the Issuer shall deposit
with the Trustee or with the Paying Agent money sufficient to pay the redemption
price of and accrued interest on all Senior Discount Notes to be redeemed on
that date. The Trustee or the Paying Agent shall promptly return to the Issuer
any money deposited with the Trustee or the Paying Agent by the Issuer in excess
of the amounts necessary to pay the redemption price of, and accrued interest
on, all Senior Discount Notes to be redeemed.
If the Issuer complies with the provisions of the preceding paragraph,
on and after the redemption date, interest shall cease to accrue on the Senior
Discount Notes or the portions of Senior Discount Notes called for redemption.
If a Senior Discount Note is redeemed on or after an interest record date but on
or prior to the related interest payment date, then any accrued and unpaid
interest shall be paid to the Person in whose name such Senior Discount Note was
registered at the close of business on such record date. If any Senior Discount
Note called for redemption shall not be so paid upon surrender for redemption
because of the failure of the Issuer to comply with the preceding paragraph,
interest shall be paid on the unpaid principal, from the redemption date until
such principal is paid, and to the extent lawful on any interest not paid on
such unpaid principal, in each case at the rate provided in the Senior Discount
Notes and in Section 4.01 hereof.
Section 3.06. Senior Discount Notes Redeemed in Part.
Upon surrender of a Senior Discount Note that is redeemed in part, the
Issuer shall issue and, upon the Issuer's written request, the Trustee shall
authenticate for the Holder at the expense of the Issuer a new Senior Discount
Note equal in principal amount at maturity to the unredeemed portion of the
Senior Discount Note surrendered.
Section 3.07. Optional Redemption.
(a) Except as provided below, the Senior Discount Notes will not be
redeemable at the Issuer's option prior to August 15, 2003. Thereafter, the
Senior Discount Notes will be subject to redemption at any time at the option of
the Issuer, in whole or in part, upon not less than 30 nor more than 60 days'
notice, in cash at the redemption prices (expressed as percentages of principal
amount at maturity) set forth below, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on August 15 of the years
indicated below:
Year Percentage
2003. . . . . . . . . . . . . . . . . . . . . . 107.000%
2004. . . . . . . . . . . . . . . . . . . . . . 104.667%
2005. . . . . . . . . . . . . . . . . . . . . . 102.333%
2006 and thereafter. . . . . . . . . . . . . . 100.000%
Notwithstanding the foregoing, on or prior to August 15, 2001, the
Issuer may redeem up to 100% of the outstanding Senior Discount Notes ever
issued under this Indenture in cash at a redemption price of 114% of the
Accreted Value thereof, plus Liquidated Damages, if any, thereon to the
redemption date, with the net cash proceeds of one or more Public Equity
Offerings; provided that such redemption shall occur within 365 days of the date
of the closing of any such Public Equity Offering.
In addition, at any time prior to August 15, 2003, the Issuer may, at
its option upon the occurrence of a Change of Control, redeem the Senior
Discount Notes, in whole but not in part, upon not less than 30 nor more than 60
days' prior notice (but in no event may any such redemption occur more than 60
days after the occurrence of such Change of Control), in cash at a redemption
price equal to (i) the present value at such time of the optional redemption
price of such Senior Discount Note at August 15, 2003, computed using a discount
rate equal to the Treasury Rate plus 75 basis points, plus (ii) accrued and
unpaid interest and Liquidated Damages, if any, to the date of redemption.
(b) Any redemption pursuant to this Section 3.07 shall be made pursuant
to the provisions of Section 3.01 through 3.06 hereof.
Section 3.08. Mandatory Redemption.
The Issuer is not required to make mandatory redemption of, or sinking
fund payments with respect to, the Senior Discount Notes.
Section 3.09. Offer to Purchase by Application of Excess Proceeds.
In the event that, pursuant to Section 4.10 hereof, the Issuer shall be
required to commence an offer to all Holders to purchase Senior Discount Notes
(an "Asset Sale Offer"), it shall follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20 Business Days
following its commencement and no longer, except to the extent that a longer
period is required by applicable law (the "Offer Period"). No later than five
Business Days after the termination of the Offer Period (the "Purchase Date"),
the Issuer shall purchase at the purchase price set forth in Section 4.10 hereof
the principal amount at maturity of Senior Discount Notes required to be
purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than
the Offer Amount has been tendered, all Senior Discount Notes tendered in
response to the Asset Sale Offer. Payment for any Senior Discount Notes so
purchased shall be made in the same manner as interest payments are made.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Senior Discount Note is registered at the
close of business on such record date, and no additional interest shall be
payable to Holders who tender Senior Discount Notes pursuant to the Asset Sale
Offer.
Upon the commencement of an Asset Sale Offer, the Issuer shall send, by
first class mail, a notice to each of the Holders, with a copy to the Trustee.
The notice shall contain all instructions and materials necessary to enable such
Holders to tender Senior Discount Notes pursuant to the Asset Sale Offer. The
Asset Sale Offer shall be made to all Holders. The notice, which shall govern
the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this Section
3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer shall
remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Senior Discount Notes not tendered or accepted for payment
shall continue to accrete or accrue interest;
(d) that, unless the Issuer defaults in making such payment, any Senior
Discount Notes accepted for payment pursuant to the Asset Sale Offer shall cease
to accrete or accrue interest after the Purchase Date;
(e) that Holders electing to have a Senior Discount Note purchased
pursuant to an Asset Sale Offer may only elect to have all of such Senior
Discount Note purchased and may not elect to have only a portion of such Senior
Discount Note purchased;
(f) that Holders electing to have a Senior Discount Note purchased
pursuant to any Asset Sale Offer shall be required to surrender the Senior
Discount Note, with the form entitled "Option of Holder to Elect Purchase" on
the reverse of the Senior Discount Note completed, or transfer by book-entry
transfer, to the Issuer, a depositary, if appointed by the Issuer, or a Paying
Agent at the address specified in the notice at least three days before the
Purchase Date;
(g) that Holders shall be entitled to withdraw their election if the
Issuer, the depositary or the Paying Agent, as the case may be, receives, not
later than the expiration of the Offer Period, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount at maturity of the Senior Discount Notes the Holder delivered for
purchase and a statement that such Holder is withdrawing his election to have
such Senior Discount Notes purchased;
(h) that, if the aggregate principal amount at maturity of Senior
Discount Notes surrendered by Holders exceeds the Offer Amount, the Issuer shall
select the Senior Discount Notes to be purchased on a pro rata basis (with such
adjustments as may be deemed appropriate by the Issuer so that only Senior
Discount Notes in denominations of $1,000, or integral multiples thereof, shall
be purchased); and
(i) that Holders whose Senior Discount Notes were purchased only in
part shall be issued new Senior Discount Notes equal in principal amount at
maturity to the unpurchased portion of the Senior Discount Notes surrendered (or
transferred by book-entry transfer).
On or before the Purchase Date, the Issuer shall, to the extent lawful,
accept for payment, on a pro rata basis to the extent necessary, the Offer
Amount of Senior Discount Notes or portions thereof tendered pursuant to the
Asset Sale Offer, or if less than the Offer Amount has been tendered, all Senior
Discount Notes tendered, and shall deliver to the Trustee an Officers'
Certificate stating that such Senior Discount Notes or portions thereof were
accepted for payment by the Issuer in accordance with the terms of this Section
3.09. The Issuer, the Depositary or the Paying Agent, as the case may be, shall
promptly (but in any case not later than five days after the Purchase Date) mail
or deliver to each tendering Holder an amount equal to the purchase price of the
Senior Discount Notes tendered by such Holder and accepted by the Issuer for
purchase, and the Issuer shall promptly issue a new Senior Discount Note, and
the Trustee, upon written request from the Issuer shall authenticate and mail or
deliver such new Senior Discount Note to such Holder, in a principal amount at
maturity equal to any unpurchased portion of the Senior Discount Notes
surrendered. Any Senior Discount Note not so accepted shall be promptly mailed
or delivered by the Issuer to the Holder thereof. The Issuer shall publicly
announce the results of the Asset Sale Offer on the Purchase Date.
Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01 through 3.06 hereof.
ARTICLE 4.
COVENANTS
Section 4.01. Payment of Senior Discount Notes.
The Issuer shall pay or cause to be paid the principal of, premium, if
any, and interest on the Senior Discount Notes on the dates and in the manner
provided in the Senior Discount Notes. Principal, premium, if any, and interest
shall be considered paid on the date due if the Paying Agent, if other than the
Issuer or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due
date money deposited by the Issuer in immediately available funds and designated
for and sufficient to pay all principal, premium, if any, and interest then due.
The Issuer shall pay all Liquidated Damages, if any, in the same manner on the
dates and in the amounts set forth in the Registration Rights Agreement.
The Issuer shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
1% per annum in excess of the then applicable interest rate on the Senior
Discount Notes to the extent lawful; they shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest and Liquidated Damages (without regard to any
applicable grace period) at the same rate to the extent lawful.
Section 4.02. Maintenance of Office or Agency.
The Issuer shall maintain an office or agency (which may be an office
of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where
Senior Discount Notes may be surrendered for registration of transfer or for
exchange and where notices and demands to or upon the Issuer in respect of the
Senior Discount Notes and this Indenture may be served. The Issuer shall give
prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Issuer shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office of the Trustee.
The Issuer may also from time to time designate one or more other
offices or agencies where the Senior Discount Notes may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall in
any manner relieve the Issuer of its obligation to maintain an office or agency
for such purposes. The Issuer shall give prompt written notice to the Trustee of
any such designation or rescission and of any change in the location of any such
other office or agency.
The Issuer hereby designates the Corporate Trust Office of the Trustee
as one such office or agency of the Issuer in accordance with Section 2.03.
Section 4.03. Reports.
Whether or not required by the rules and regulations of the Commission,
so long as any Senior Discount Notes are outstanding, the Issuer will furnish to
the Trustee and Holders of Senior Discount Notes (a) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Issuer were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by the Issuer's certified independent accountants and (b) all
current reports that would be required to be filed with the Commission on Form
8-K if the Issuer were required to file such reports, in each case, within the
time periods specified in the Commission's rules and regulations. In addition,
following the consummation of the exchange offer contemplated by the
Registration Rights Agreement, whether or not required by the rules and
regulations of the Commission, the Issuer will file a copy of all such
information and reports with the Commission for public availability within the
time periods specified in the Commission's rules and regulations (unless the
Commission will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. In addition, the
Issuer has agreed that, for so long as any Senior Discount Notes remain
outstanding, it will furnish to the Holders, the Trustee and to securities
analysts and prospective investors, upon their request, the information required
to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. The Issuer
will in each case comply with TIA ss. 314.
Section 4.04. Compliance Certificate.
(a) The Issuer shall deliver to the Trustee, within 90 days after the
end of each fiscal year, an Officers' Certificate stating that a review of the
activities of the Issuer and its Subsidiaries during the preceding fiscal year
have been made under the supervision of the signing Officers with a view to
determining whether the Issuer has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such Officer
signing such certificate, that to the best of his or her knowledge the Issuer
has kept, observed, performed and fulfilled each and every covenant contained in
this Indenture and are not in default in the performance or observance of any of
the terms, provisions and conditions of this Indenture (or, if a Default or
Event of Default shall have occurred, describing all such Defaults or Events of
Default of which he or she may have knowledge and what action the Issuer is
taking or propose to take with respect thereto) and that to the best of his or
her knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest or Liquidated Damages, if
any, on the Senior Discount Notes are prohibited or if such event has occurred,
a description of the event and what action the Issuer is taking or propose to
take with respect thereto.
(b) To the extent not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by a
written statement of the Issuer's independent public accountants (who shall be a
firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Issuer has violated any
provisions of Article 4 or Article 5 hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) The Issuer shall, so long as any of the Senior Discount Notes are
outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware
of any Default or Event of Default, an Officers' Certificate specifying such
Default or Event of Default and what action the Issuer is taking or propose to
take with respect thereto.
Section 4.05. Taxes.
The Issuer shall pay, and shall cause each of its Subsidiaries to pay,
prior to delinquency, all material taxes, assessments, and governmental levies
except such as are contested in good faith and by appropriate proceedings or
where the failure to effect such payment is not adverse in any material respect
to the Holders of the Senior Discount Notes.
Section 4.06. Stay, Extension and Usury Laws.
The Issuer covenants (to the extent that they may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants or
the performance of this Indenture; and the Issuer (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not, by resort to any such law, hinder, delay
or impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law has
been enacted.
Section 4.07. Restricted Payments.
The Issuer will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, (a) declare or pay any dividend or make
any other payment or distribution on account of the Issuer's or any of its
Restricted Subsidiaries' Equity Interests (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of the Issuer or
dividends or distributions payable to the Issuer or any Wholly Owned Restricted
Subsidiary of the Issuer); (b) purchase, redeem or otherwise acquire or retire
for value any Equity Interests of the Issuer, any of its Restricted Subsidiaries
or any other Affiliate of the Issuer (other than any such Equity Interests owned
by the Issuer or any Restricted Subsidiary of the Issuer); (c) make any
principal payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value, any Indebtedness of the Issuer (other
than the Senior Discount Notes and Indebtedness in respect of the Credit
Facility) that is pari passu or subordinated in right of payment to the Senior
Discount Notes, except in accordance with the mandatory redemption or repayment
provisions set forth in the original documentation governing such Indebtedness
or in accordance with Section 4.10 hereof (but not pursuant to any other
mandatory offer to repurchase upon the occurrence of any event); or (d) make any
Restricted Investment (all such payments and other actions set forth in clauses
(a) through (d) above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(i) no Default or Event of Default shall have occurred and
be continuing or would occur as a consequence thereof; and
(ii) the Issuer would, immediately after giving pro forma
effect thereto as if such Restricted Payment had been made at the
beginning of the applicable four-quarter period, have been permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of Section
4.09 herein; and
(iii) such Restricted Payment, together with the aggregate
amount of all other Restricted Payments made by the Issuer and its
Restricted Subsidiaries after the Issue Date (excluding Restricted
Payments permitted by clauses (a) (to the extent that the declaration
of any dividend referred to therein reduces amounts available for
Restricted Payments pursuant to this clause (iii)), (b), (c), (e)
through (h), (j), (k), (m) through (o) and (q) of the next succeeding
paragraph), is less than the sum, without duplication, of (A) 50% of
the Adjusted Consolidated Net Income of the Issuer for the period
(taken as one accounting period) commencing October 1, 1998 to the end
of the Issuer's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment (or, if such Adjusted Consolidated Net Income for such period
is a deficit, less 100% of such deficit), plus (B) 100% of the
Qualified Proceeds received by the Issuer on or after the Issue Date
from contributions to the Issuer's capital or from the issue or sale on
or after the Issue Date of Equity Interests of the Issuer or of
Disqualified Stock or convertible debt securities of the Issuer to the
extent that they have been converted into such Equity Interests (other
than Equity Interests, Disqualified Stock or convertible debt
securities sold to a Subsidiary of the Issuer and other than
Disqualified Stock or convertible debt securities that have been
converted into Disqualified Stock), plus (C) the amount equal to the
net reduction in Investments in Persons after the date of this
Indenture who are not Restricted Subsidiaries (other than Permitted
Investments) resulting from (x) Qualified Proceeds received as a
dividend, repayment of a loan or advance or other transfer of assets
(valued at the fair market value thereof) to the Issuer or any
Restricted Subsidiary from such Persons, (y) Qualified Proceeds
received upon the sale or liquidation of such Investment and (z) the
redesignation of Unrestricted Subsidiaries (excluding any increase in
the amount available for Restricted Payments pursuant to clause (i) or
(m) below arising from the redesignation of such Unrestricted
Subsidiary) whose assets are used or useful in, or which is engaged in,
one or more Permitted Business as Restricted Subsidiaries (valued
(proportionate to the Issuer's equity interest in such Subsidiary) at
the fair market value of the net assets of such Subsidiary at the time
of such redesignation).
The foregoing provisions will not prohibit:
(a) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of this Indenture;
(b) (i) the redemption, repurchase, retirement, defeasance or other
acquisition of any Pari Passu Indebtedness, Subordinated Indebtedness or Equity
Interests of the Issuer (the "Retired Capital Stock") in exchange for, or out of
the net cash proceeds of the substantially concurrent sale (other than to a
Subsidiary of the Issuer) of, other Equity Interests of the Issuer (other than
any Disqualified Stock) (the "Refunding Capital Stock"), provided that the
amount of any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement, defeasance or other acquisition shall be excluded from
clause (iii)(B) of the preceding paragraph and (ii) if immediately prior to the
retirement of Retired Capital Stock, the declaration and payment of dividends
thereon was permitted under clause (f) of this paragraph, the declaration and
payment of dividends on the Refunding Capital Stock in an aggregate amount per
year no greater than the aggregate amount of dividends per annum that was
declarable and payable on such Retired Capital Stock immediately prior to such
retirement; provided that, at the time of the declaration of any such dividends,
no Default or Event of Default shall have occurred and be continuing or would
occur as a consequence thereof;
(c) the defeasance, redemption, repurchase, retirement or other
acquisition of Subordinated Indebtedness of the Issuer with the net cash
proceeds from an incurrence of, or in exchange for, Permitted Refinancing
Indebtedness;
(d) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of the Issuer or Insilco held by any member of
Insilco's or the Issuer's (or any of its Restricted Subsidiaries') management
pursuant to any management equity subscription agreement or stock option
agreement, provided that (i) the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests shall not exceed (x) $7.5 million
in any calendar year (with unused amounts in any calendar year being carried
over to succeeding calendar years subject to a maximum (without giving effect to
the following clause (y)) of $15.0 million in any calendar year), plus (y) the
aggregate cash proceeds received by the Issuer during such calendar year from
any reissuance of Equity Interests by the Issuer or Insilco to members of
management of the Issuer and its Restricted Subsidiaries and (ii) no Default or
Event of Default shall have occurred and be continuing immediately after such
transaction;
(e) payments and transactions in connection with the Recapitalization
and the application of the proceeds thereof, and the payment of fees and
expenses with respect thereto;
(f) the declaration and payment of dividends to holders of any class or
series of preferred stock (other than Disqualified Stock), provided that, at the
time of such issuance, after giving effect to such issuance on a pro forma
basis, the Fixed Charge Coverage Ratio for the Issuer for the most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date of such issuance would have been no
less than 1.5 to 1;
(g) the payment of dividends or distributions by a Restricted
Subsidiary on any class of common stock of such Restricted Subsidiary if (i)
such dividend or distribution is paid pro rata to all holders of such class of
common stock and (ii) at least 51% of such class of common stock is held by the
Issuer or one or more of its Restricted Subsidiaries;
(h) the repurchase of any class of common stock of a Restricted
Subsidiary if (i) such repurchase is made pro rata with respect to such class of
common stock and (ii) at least 51% of such class of common stock is held by the
Issuer or one or more of its Restricted Subsidiaries;
(i) any other Restricted Investment made in a Permitted Business which,
together with all other Restricted Investments made pursuant to this clause (i)
since the date of this Indenture, does not exceed $25.0 million (in each case,
after giving effect to all subsequent reductions in the amount of any Restricted
Investment made pursuant to this clause (i), either as a result of (A) the
repayment or disposition thereof for cash or (B) the redesignation of an
Unrestricted Subsidiary as a Restricted Subsidiary (valued proportionate to the
Issuer's equity interest in such Subsidiary at the time of such redesignation at
the fair market value of the net assets of such Subsidiary at the time of such
redesignation), in the case of clause (A) and (B), not to exceed the amount of
such Restricted Investment previously made pursuant to this clause (i));
provided that no Default or Event of Default shall have occurred and be
continuing immediately after making such Restricted Investment;
(j) the declaration and payment of dividends to holders of any class or
series of Disqualified Stock of the Issuer or any Restricted Subsidiary issued
on or after the date of this Indenture in accordance with Section 4.09 herein;
provided that no Default or Event of Default shall have occurred and be
continuing immediately after making such Restricted Payment;
(k) repurchases of Equity Interests deemed to occur upon exercise of
stock options if such Equity Interests represent a portion of the exercise price
of such options;
(l) the payment of dividends or distributions on the Issuer's or
Insilco's common stock, following the first public offering of the Issuer's or
Insilco's common stock after the date of this Indenture, of up to 6.0% per annum
of the net proceeds received by the Issuer or Insilco from such public offering
of its common stock, other than, in each case, with respect to public offerings
with respect to the Issuer's or Insilco's common stock registered on Form S-8;
provided that no Default or Event of Default shall have occurred and be
continuing immediately after any such payment of dividends;
(m) any other Restricted Payment which, together with all other
Restricted Payments made pursuant to this clause (m) since the date of this
Indenture, does not exceed $25.0 million (in each case, after giving effect to
all subsequent reductions in the amount of any Restricted Investment made
pursuant to this clause (m) either as a result of (i) the repayment or
disposition thereof for cash or (ii) the redesignation of an Unrestricted
Subsidiary as a Restricted Subsidiary (valued proportionate to the Issuer's
equity interest in such Subsidiary at the time of such redesignation at the fair
market value of the net assets of such Subsidiary at the time of such
redesignation), in the case of clause (i) and (ii), not to exceed the amount of
such Restricted Investment previously made pursuant to this clause (m)),
provided that no Default or Event of Default shall have occurred and be
continuing immediately after making such Restricted Payment;
(n) the pledge by the Issuer of the Capital Stock of an Unrestricted
Subsidiary of the Issuer to secure Non-Recourse Debt of such Unrestricted
Subsidiary;
(o) the purchase, redemption or other acquisition or retirement for
value of any Equity Interests of any Restricted Subsidiary issued after the date
of this Indenture, provided that the aggregate price paid for any such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed the
sum of (i) the amount of cash and Cash Equivalents received by such Restricted
Subsidiary from the issue or sale thereof and (ii) any accrued dividends thereon
the payment of which would be permitted pursuant to clause (j) above;
(p) any Investment in an Unrestricted Subsidiary that is funded by
Qualified Proceeds received by the Issuer on or after the date of this Indenture
from contributions to the Issuer's capital or from the issue and sale on or
after the date of this Indenture of Equity Interests of the Issuer or of
Disqualified Stock or convertible debt securities to the extent they have been
converted into such Equity Interests (other than Equity Interests, Disqualified
Stock or convertible debt securities sold to a Subsidiary of the Issuer and
other than Disqualified Stock or convertible debt securities that have been
converted into Disqualified Stock) in an amount (measured at the time such
Investment is made and without giving effect to subsequent changes in value)
that does not exceed the amount of such Qualified Proceeds; and
(q) distributions or payments of Receivables Fees.
The Board of Directors of the Issuer may designate any Restricted
Subsidiary (other than Insilco) to be an Unrestricted Subsidiary if such
designation would not cause a Default. For purposes of making such designation,
all outstanding Investments by the Issuer and its Restricted Subsidiaries
(except to the extent repaid in cash) in the Subsidiary so designated will be
deemed to be Restricted Payments at the time of such designation and will reduce
the amount available for Restricted Payments under the first paragraph of this
covenant. All such outstanding Investments will be deemed to constitute
Restricted Investments in an amount equal to the greater of (i) the net book
value of such Investments at the time of such designation and (ii) the fair
market value of such Investments at the time of such designation. Such
designation will only be permitted if such Restricted Investment would be
permitted at such time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.
The amount of (i) all Restricted Payments (other than cash) shall be
the fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Issuer or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment and (ii)
Qualified Proceeds (other than cash) shall be the fair market value on the date
of receipt thereof by the Issuer of such Qualified Proceeds. The fair market
value of any non-cash Restricted Payment in excess of $1.0 million shall be
determined by the Board of Directors whose resolution with respect thereto shall
be delivered to the Trustee. Not later than the date of making any Restricted
Payment that exceeds $2.0 million, the Issuer shall deliver to the Trustee an
Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by this Section
4.07 were computed.
Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries.
The Issuer will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (a)(i) pay dividends or make any other distributions to
the Issuer or any of its Restricted Subsidiaries (A) on its Capital Stock or (B)
with respect to any other interest or participation in, or measured by, its
profits, or (ii) pay any Indebtedness owed to the Issuer or any of its
Restricted Subsidiaries, (b) make loans or advances to the Issuer or any of its
Restricted Subsidiaries or (c) transfer any of its properties or assets to the
Issuer or any of its Restricted Subsidiaries. However, the foregoing
restrictions will not apply to encumbrances or restrictions existing under or by
reason of (a) Existing Indebtedness as in effect on the date of this Indenture,
(b) the terms of any Indebtedness or Disqualified Stock permitted by the
Indenture to be incurred by any Restricted Subsidiary of the Issuer, (c) this
Indenture and the Senior Discount Notes, (d) the Credit Facility, (e) applicable
law and any applicable rule, regulation or order, (f) any agreement or
instrument of a Person acquired by the Issuer or any of its Restricted
Subsidiaries as in effect at the time of such acquisition (except to the extent
created in contemplation of such acquisition), which encumbrance or restriction
is not applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, so acquired,
provided that, in the case of Indebtedness, such Indebtedness was permitted by
the terms of this Indenture to be incurred, (g) customary non-assignment
provisions in leases entered into in the ordinary course of business and
consistent with past practices, (h) purchase money obligations for property
acquired in the ordinary course of business that impose restrictions of the
nature described in clause (f) above on the property so acquired, (i) contracts
for the sale of assets, including, without limitation, customary restrictions
with respect to a Subsidiary pursuant to an agreement that has been entered into
for the sale or disposition of all or substantially all of the Capital Stock or
assets of such Subsidiary, (j) Permitted Refinancing Indebtedness, provided that
the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are, in the good faith judgment of the Issuer's Board
of Directors, not materially less favorable, taken as a whole, to the Holders of
the Senior Discount Notes than those contained in the agreements governing the
Indebtedness being refinanced, (k) secured Indebtedness otherwise permitted to
be incurred pursuant to Sections 4.09 and 4.12 hereof that limit the right of
the debtor to dispose of the assets securing such Indebtedness, (l) restrictions
on cash or other deposits or net worth imposed by customers under contracts
entered into in the ordinary course of business, (m) customary provisions in
joint venture agreements and other similar agreements entered into in the
ordinary course of business, and (n) restrictions created in connection with
any Receivables Facility that, in the good faith determination of the Board of
Directors of the Issuer, are necessary or advisable to effect such Receivables
Facility.
Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock.
(a) The Issuer will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Indebtedness), (b) the Issuer will not, and will not permit any of its
Restricted Subsidiaries to, issue any shares of Disqualified Stock and (c) the
Issuer will not permit any of its Restricted Subsidiaries to issue any shares of
preferred stock; provided that the Issuer or any Restricted Subsidiary may incur
Indebtedness (including Acquired Indebtedness) or issue shares of Disqualified
Stock if the Fixed Charge Coverage Ratio for the Issuer's most recently ended
four full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock is issued would have been at least 1.5 to 1,
determined on a consolidated pro forma basis (including a pro forma application
of the net proceeds therefrom), as if the additional Indebtedness had been
incurred, or the Disqualified Stock had been issued, as the case may be, at the
beginning of such four-quarter period.
The Issuer will not incur any Indebtedness that is contractually
subordinated in right of payment to any other Indebtedness of the Issuer unless
such Indebtedness is also contractually subordinated in right of payment to the
Senior Discount Notes on substantially identical terms; provided that no
Indebtedness of the Issuer shall be deemed to be contractually subordinated in
right of payment to any other Indebtedness of the Issuer solely by virtue of
being unsecured.
The provisions of the first paragraph of this covenant will not apply
to the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Indebtedness"):
(i) the incurrence by the Issuer or any of its Restricted
Subsidiaries of Indebtedness under the Credit Facility; provided that the
aggregate principal amount of all Indebtedness (with letters of credit being
deemed to have a principal amount equal to the maximum potential liability of
the Issuer and such Restricted Subsidiaries thereunder) then classified as
having been incurred in reliance upon this clause (i) that remains outstanding
under the Credit Facility (together with any outstanding Indebtedness then
classified as Permitted Refinancing Indebtedness to the extent the proceeds of
which were used to refinance any Indebtedness classified at the time of such
refinancing as (x) having been incurred in reliance upon this clause (i) or (y)
Permitted Refinancing Indebtedness described in the preceding clause (x) or this
clause (y)) after giving effect to such incurrence does not exceed an amount
equal to $250.0 million (it being understood that the use of the defined term
Permitted Refinancing Indebtedness in this clause (i) does not affect the
defined term "Credit Facility" or the types of indebtedness that may be incurred
thereunder);
(ii) the incurrence by the Issuer and its Restricted Subsidiaries of
Existing Indebtedness;
(iii) the incurrence by the Issuer of Indebtedness represented by the
Senior Discount Notes and this Indenture;
(iv) the incurrence by the Issuer or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Expenditure Indebtedness,
Capital Lease Obligations or purchase money obligations, in each case, incurred
for the purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in the business
of the Issuer or such Restricted Subsidiary, in an aggregate principal amount
(or accreted value, as applicable), including any Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any such Indebtedness, not
to exceed $40.0 million outstanding after giving effect to such incurrence;
(v) Indebtedness arising from agreements of the Issuer or any
Restricted Subsidiary providing for indemnification, adjustment of purchase
price or similar obligations, in each case, incurred or assumed in connection
with the disposition of any business, assets or a Subsidiary, other than
guarantees of Indebtedness incurred by any Person acquiring all or any portion
of such business, assets or Restricted Subsidiary for the purpose of financing
such acquisition; provided that (A) such Indebtedness is not reflected on the
balance sheet of the Issuer or any Restricted Subsidiary (contingent obligations
referred to in a footnote or footnotes to financial statements and not otherwise
reflected on the balance sheet will not be deemed to be reflected on such
balance sheet for purposes of this clause (A)) and (B) the maximum assumable
liability in respect of such Indebtedness shall at no time exceed the gross
proceeds including non-cash proceeds (the fair market value of such non-cash
proceeds being measured at the time received and without giving effect to any
subsequent changes in value) actually received by the Issuer and/or such
Restricted Subsidiary in connection with such disposition;
(vi) the incurrence by the Issuer or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance or replace Indebtedness (other
than intercompany Indebtedness) that was permitted by this Indenture to be
incurred;
(vii) the incurrence by the Issuer or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Issuer and/or any
of its Restricted Subsidiaries; provided that (i) if the Issuer is the obligor
on such Indebtedness and such Indebtedness is owed to a Subsidiary other than
Insilco or a Subsidiary of Insilco, such Indebtedness is expressly subordinated
to the prior payment in full in cash of all Obligations with respect to the
Senior Discount Notes and (ii)(A) any subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness being held by a Person other
than the Issuer or a Restricted Subsidiary thereof and (B) any sale or other
transfer of any such Indebtedness to a Person that is not either the Issuer or a
Restricted Subsidiary thereof shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Issuer or such Restricted Subsidiary, as
the case may be, that was not permitted by this clause (vii);
(viii) the incurrence by the Issuer or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing
or hedging (A) interest rate risk with respect to any floating rate Indebtedness
that is permitted by the terms of this Indenture to be outstanding and (B)
exchange rate risk with respect to agreements or Indebtedness of such Person
payable denominated in a currency other than U.S. dollars, provided that such
agreements do not increase the Indebtedness of the obligor outstanding at any
time other than as a result of fluctuations in foreign currency exchange rates
or interest rates or by reason of fees, indemnities and compensation payable
thereunder;
(ix) the guarantee by the Issuer or any of its Restricted
Subsidiaries of Indebtedness of the Issuer or a Restricted Subsidiary of the
Issuer that was permitted to be incurred by another provision of this covenant;
(x) the incurrence by the Issuer or any of its Restricted
Subsidiaries of Acquired Indebtedness in an aggregate principal amount (or
accreted value, as applicable), including any Permitted Refinancing Indebtedness
incurred to refund, refinance or replace any such Indebtedness, not to exceed
$25.0 million outstanding after giving effect to such incurrence;
(xi) obligations in respect of performance and surety bonds and
completion guarantees provided by the Issuer or any Restricted Subsidiary in the
ordinary course of business;
(xii) the incurrence by the Issuer or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal amount (or
accreted value, as applicable) outstanding after giving effect to such
incurrence, including all Permitted Refinancing Indebtedness incurred to refund,
refinance or replace any Indebtedness incurred pursuant to this clause (xii),
not to exceed $50.0 million; and
(xiii) any Indebtedness or other liabilities in connection with
obligations to pay premiums for corporate life insurance policies in an
aggregate amount not to exceed the aggregate cash value of such policies.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Indebtedness described in clauses (i) through (xiii)
above or is entitled to be incurred pursuant to the first paragraph of this
covenant, the Issuer shall, in its sole discretion, classify such item of
Indebtedness in any manner that complies with this covenant and such item of
Indebtedness will be treated as having been incurred pursuant to only one of
such clauses or pursuant to the first paragraph hereof. In addition, the Issuer
may, at any time, change the classification of an item of Indebtedness (or any
portion thereof) to any other clause or to the first paragraph hereof provided
that the Issuer would be permitted to incur such item of Indebtedness (or such
portion thereof) pursuant to such other clause or the first paragraph hereof, as
the case may be, at such time of reclassification. Accrual of interest,
accretion or amortization of original issue discount will not be deemed to be an
incurrence of Indebtedness for purposes of this covenant. In addition, in the
event the Issuer repays, redeems or otherwise retires any Indebtedness portions
of which are then classified as having been incurred under more than one of the
categories of Permitted Indebtedness described above or pursuant to the first
paragraph of this covenant and any category of Permitted Indebtedness, the
Issuer shall, in its sole discretion, designate which portions of such
Indebtedness were retired.
Indebtedness under the Credit Facility outstanding on the date on which
Senior Discount Notes are first issued and authenticated under this Indenture
will not be incurred on such date in reliance on clause (i) of the definition of
"Permitted Indebtedness".
Section 4.10. Asset Sales.
The Issuer shall not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (a) the Issuer or such
Restricted Subsidiary, as the case may be, receives consideration at the time of
such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (b) at least 75% of the consideration therefor
received by the Issuer or such Restricted Subsidiary is in the form of (i) cash
or Cash Equivalents or (ii) property or assets that are used or useful in a
Permitted Business, or the Capital Stock of any Person engaged in a Permitted
Business if, as a result of the acquisition by the Issuer or any Restricted
Subsidiary thereof, such Person becomes a Restricted Subsidiary; provided that
the amount of (x) any liabilities (as shown on the Issuer's or such Restricted
Subsidiary's most recent balance sheet), of the Issuer or any Restricted
Subsidiary (other than contingent liabilities and liabilities that are by their
terms subordinated to the Senior Discount Notes or any guarantee thereof) that
are assumed by the transferee of any such assets pursuant to a customary
novation agreement that releases the Issuer or such Restricted Subsidiary from
further liability, (y) any securities, notes or other obligations received by
the Issuer or any such Restricted Subsidiary from such transferee that are
contemporaneously (subject to ordinary settlement periods) converted by the
Issuer or such Restricted Subsidiary into cash or Cash Equivalents (to the
extent of the cash or Cash Equivalents received), and (z) any Designated Noncash
Consideration received by the Issuer or any of its Restricted Subsidiaries in
such Asset Sale having an aggregate fair market value, taken together with all
other Designated Noncash Consideration received pursuant to this clause (z) that
is at that time outstanding, not to exceed 15% of Total Assets at the time of
the receipt of such Designated Noncash Consideration (with the fair market value
of each item of Designated Noncash Consideration being measured at the time
received and without giving effect to subsequent changes in value), shall be
deemed to be cash for purposes of this provision; and provided further that the
75% limitation referred to in clause (b) above will not apply to any Asset Sale
in which the after-tax cash or Cash Equivalents portion of the consideration
received therefrom, determined in accordance with the foregoing proviso, is
equal to or greater than what the after-tax cash or cash equivalent portion of
the consideration would have been had such Asset Sale complied with the
aforementioned 75% limitation.
Within 365 days after the receipt of any Net Proceeds from an Asset
Sale, the Issuer or any such Restricted Subsidiary shall apply such Net
Proceeds, at its option, to (a) repay or purchase Pari Passu Indebtedness of the
Issuer or any Indebtedness of any Restricted Subsidiary, provided that, if the
Issuer shall so repay or purchase Pari Passu Indebtedness of the Issuer, it will
equally and ratably reduce Indebtedness under the Senior Discount Notes if the
Senior Discount Notes are then redeemable, or, if the Senior Discount Notes may
not then be redeemed, the Issuer shall make an offer (in accordance with the
procedures set forth below for an Asset Sale Offer) to all Holders of Senior
Discount Notes to purchase at a purchase price equal to 100% of the principal
amount at maturity of the Senior Discount Notes (or, in the case of purchases of
Senior Discount Notes prior to August 15, 2003, at a purchase price equal to
100% of the Accreted Value thereof), plus accrued and unpaid interest and
Liquidated Damages thereon, if any, as of the date of purchase of the Senior
Discount Notes that would otherwise be redeemed, or (b) make an investment in
property, make of a capital expenditure or acquire assets that are used or
useful in a Permitted Business, or Capital Stock of any Person primarily engaged
in a Permitted Business if (i) as a result of the acquisition by the Issuer or
any Restricted Subsidiary thereof, such Person becomes a Restricted Subsidiary
or (ii) the Investment in such Capital Stock is permitted by clause (f) of the
definition of Permitted Investments. Pending the final application of any such
Net Proceeds, the Issuer may temporarily reduce Indebtedness or otherwise invest
such Net Proceeds in any manner that is not prohibited by this Indenture. Any
Net Proceeds from Asset Sales that are not applied or invested as provided in
the first sentence of this paragraph will be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $15.0 million,
the Issuer will be required to make an offer to all Holders of Senior Discount
Notes (an "Asset Sale Offer") to purchase the maximum principal amount at
maturity of Senior Discount Notes that may be purchased out of the Excess
Proceeds, at an offer price in cash in an amount equal to 100% of the principal
amount at maturity thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of purchase (or, in the case of repurchases
of Senior Discount Notes prior to August 15, 2003, at a purchase price equal to
100% of the Accreted Value, plus Liquidated Damages, if any thereon as of the
date of repurchase), in accordance with the procedures set forth in this
Indenture. To the extent that any Excess Proceeds remain after consummation of
an Asset Sale Offer, the Issuer may use such Excess Proceeds for any purpose not
otherwise prohibited by this Indenture. If the aggregate principal amount at
maturity or Accreted Value (as applicable) of Senior Discount Notes surrendered
by Holders thereof in connection with an Asset Sale Offer exceeds the amount of
Excess Proceeds, the Trustee shall select the Senior Discount Notes to be
purchased as set forth in Section 3.02 hereof. Upon completion of such offer to
purchase, the amount of Excess Proceeds shall be reset at zero.
The Issuer will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Senior Discount Notes pursuant to an Asset Sale Offer. To the
extent that the provisions of any securities laws or regulations conflict with
the provisions of this Indenture relating to such Asset Sale Offer, the Issuer
will comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations described in this Indenture by virtue
thereof.
Section 4.11. Transactions with Affiliates.
The Issuer shall not, and will not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate of the Issuer (each of the foregoing, an "Affiliate
Transaction"), unless (a) such Affiliate Transaction is on terms that are no
less favorable to the Issuer or such Restricted Subsidiary than those that would
have been obtained in a comparable transaction by the Issuer or such Restricted
Subsidiary with an unrelated Person and (b) the Issuer delivers to the Trustee,
with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $7.5 million, either
(i) a resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (a) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors or (ii) an opinion as to the
fairness to the Holders of such Affiliate Transaction from a financial point of
view issued by an accounting, appraisal or investment banking firm of national
standing.
Notwithstanding the foregoing, the following items shall not be deemed
to be Affiliate Transactions: (a) customary directors' fees, indemnification or
similar arrangements or any employment agreement or other compensation plan or
arrangement entered into by the Issuer or any of its Restricted Subsidiaries in
the ordinary course of business (including ordinary course loans to employees
not to exceed (i) $5.0 million outstanding in the aggregate at any time and (ii)
$2.0 million to any one employee) and consistent with the past practice of the
Issuer or such Restricted Subsidiary; (b) transactions between or among the
Issuer and/or its Restricted Subsidiaries; (c) payments of customary fees by the
Issuer or any of its Restricted Subsidiaries to DLJMB and its Affiliates made
for any financial advisory, financing, underwriting or placement services or in
respect of other investment banking activities, including, without limitation,
in connection with acquisitions or divestitures which are approved by a majority
of the Board of Directors in good faith; (d) any agreement as in effect on the
date of this Indenture or any amendment thereto (so long as such amendment is
not disadvantageous to the Holders of the Senior Discount Notes in any material
respect) or any transaction contemplated thereby; (e) payments and transactions
in connection with the Recapitalization (including underwriting discounts and
commissions in connection therewith) and the application of the proceeds
thereof, and the payment of the fees and expenses with respect thereto; (f)
Restricted Payments that are permitted by Section 4.07 and any Permitted
Investments; (g) sales of accounts receivable, or participations therein, in
connection with any Receivables Facility; and (h) any payments pursuant to the
terms of the Credit Facility.
Section 4.12. Liens.
The Issuer shall not and will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien, other than a Permitted Lien, that secures obligations
under any Pari Passu Indebtedness or Subordinated Indebtedness of the Issuer on
any asset or property now owned or hereafter acquired by the Issuer or any of
its Restricted Subsidiaries, or any income or profits therefrom or assign or
convey any right to receive income therefrom, unless the Senior Discount Notes
are equally and ratably secured with the obligations so secured until such time
as such obligations are no longer secured by a Lien.
Section 4.13. Corporate Existence.
Subject to Article 5 hereof, the Issuer shall do or cause to be done
all things necessary to preserve and keep in full force and effect (i) the
corporate, partnership or other existence of itself and each of its
Subsidiaries, in accordance with the respective organizational documents (as the
same may be amended from time to time) of the Issuer or any such Subsidiary and
(ii) the rights (charter and statutory), licenses and franchises of the Issuer
and its Subsidiaries; provided, however, that the Issuer shall not be required
to preserve any such right, license or franchise, or the corporate, partnership
or other existence of itself and any of its Subsidiaries, if the Board of
Directors shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Issuer and its Subsidiaries, taken as a
whole, and that the loss thereof is not adverse in any material respect to the
Holders of the Senior Discount Notes.
Section 4.14. Offer to Repurchase Upon Change of Control.
(a) Upon the occurrence of a Change of Control, each Holder of Senior
Discount Notes will have the right to require the Issuer to repurchase all or
any part (equal to $1,000 principal amount at maturity or an integral multiple
thereof) of such Holder's Senior Discount Notes pursuant to the offer described
below (the "Change of Control Offer") at an offer price in cash equal to 101% of
the Accreted Value thereof, in the case of any such purchase prior to August 15,
2003, or 101% of the aggregate principal amount at maturity thereof, in the case
of any such purchase on or after August 15, 2003, in each case plus accrued and
unpaid interest, if any, and Liquidated Damages, if any, thereon to the date of
repurchase (the "Change of Control Payment"). Within 65 days following any
Change of Control, the Issuer will (or will cause the Trustee to) mail a notice
to each Holder describing the transaction or transactions that constitute the
Change of Control and offering to repurchase Senior Discount Notes, pursuant to
the procedures required by this Indenture and described in such notice. The
Issuer will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such laws
and regulations are applicable in connection with the repurchase of the Senior
Discount Notes as a result of a Change of Control. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
this Indenture relating to such Change of Control Offer, the Issuer will comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations described in this Indenture by virtue thereof.
On the Change of Control Payment Date, the Issuer will, to the extent
lawful, (a) accept for payment all Senior Discount Notes or portions thereof
properly tendered pursuant to the Change of Control Offer, (b) deposit with the
Paying Agent an amount equal to the Change of Control Payment in respect of all
Senior Discount Notes or portions thereof so tendered and (c) deliver or cause
to be delivered to the Trustee the Senior Discount Notes so accepted together
with an Officers' Certificate stating the aggregate principal amount at maturity
of Senior Discount Notes or portions thereof being purchased by the Issuer. The
Paying Agent will promptly mail to each Holder of Senior Discount Notes so
tendered the Change of Control Payment for such Senior Discount Notes, and the
Trustee will promptly authenticate and mail (or cause to be transferred by
book-entry) to each Holder a new Senior Discount Notes equal in principal amount
at maturity to any unpurchased portion of the Senior Discount Notes surrendered,
if any; provided that each such new Senior Discount Note will be in a principal
amount at maturity of $1,000 or an integral multiple thereof. The Issuer will
fix the payment date for the Change of Control Payment (the "Change of Control
Payment Date") no earlier than 30 but no more than 60 days after the Change of
Control Offer is mailed as set forth above. Prior to complying with the
provisions of the preceding sentence, but in any event within 60 days following
a Change of Control, the Issuer will either repay all outstanding Indebtedness
of its Subsidiaries or obtain the requisite consents, if any, under all
agreements governing all such outstanding Indebtedness of its subsidiaries to
permit the repurchase of Senior Discount Notes required by this covenant. The
Issuer will publicly announce the results of the Change of Control Offer on or
as soon as practicable after the Change of Control Payment Date.
(b) Notwithstanding anything to the contrary in this Section 4.14, the
Issuer will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in this
Indenture applicable to a Change of Control Offer made by the Issuer and
purchases all Senior Discount Notes validly tendered and not withdrawn under
such Change of Control Offer.
Section 4.15. Accounts Receivable Facility.
No Accounts Receivable Subsidiary will incur any Indebtedness if
immediately after giving effect to such incurrence the aggregate outstanding
Indebtedness of all Accounts Receivable Subsidiaries (excluding any Indebtedness
owed to the Issuer or any Restricted Subsidiary) would exceed $50.0 million.
Section 4.16. Limitation on Sale and Leaseback Transactions.
The Issuer will not, and will not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction the Attributable
Indebtedness in respect of which is in excess of the aggregate sum of $20.0
million from the date of this Indenture; provided that the Issuer or any
Restricted Subsidiary may enter into a sale and leaseback transaction in excess
of said sum if (a) the Issuer or such Restricted Subsidiary, as the case may be,
could have (i) incurred Indebtedness in an amount equal to the Attributable
Indebtedness relating to such sale and leaseback transaction pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of Section
4.09 hereof and (ii) incurred a Lien to secure such Indebtedness pursuant to
Section 4.12 herein, (b) for any transaction involving in excess of $2.0
million, the gross cash proceeds of such sale and leaseback transaction are at
least equal to the fair market value (as determined in good faith by the Board
of Directors and set forth in an Officers' Certificate delivered to the Trustee)
of the property that is the subject of such sale and leaseback transaction and
(c) the transfer of assets in such sale and leaseback transaction is permitted
by, and the Issuer applies the proceeds of such transaction in compliance with,
Section 4.10 hereof.
Section 4.17. Payments for Consent.
Neither the Issuer nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of any Senior Discount Notes for or as
an inducement to any consent, waiver or amendment of any of the terms or
provisions of this Indenture or the Senior Discount Notes unless such
consideration is offered to be paid or is paid to all Holders of the Senior
Discount Notes that consent, waive or agree to amend in the time frame set forth
in the solicitation documents relating to such consent, waiver or agreement.
Section 4.18. Offer to Repurchase Upon Public Common Stock Offering.
(a) Upon the occurrence of a Public Common Stock Offering prior to
August 15, 2001, the Issuer will be required to make an offer to all Holders of
Senior Discount Notes pursuant to the offer described below (the "Public Common
Stock Offering Offer") to purchase the maximum principal amount at maturity of
Senior Discount Notes that may be purchased with the net cash proceeds of the
Public Common Stock Offering at an offer price in cash equal to 114% of the
Accreted Value thereof, plus accrued and unpaid Liquidated Damages, if any,
thereon to the date of repurchase (the "Public Common Stock Offering Payment").
Within 65 days following any Public Common Stock Offering, the Issuer will (or
will cause the Trustee to) mail a notice to each Holder describing the
transaction or transactions that constitute the Public Common Stock Offering and
offering to repurchase Senior Discount Notes, pursuant to the procedures
required by this Indenture and described in such notice. If the aggregate Public
Common Stock Offering Payment of Senior Discount Notes surrendered by Holders
thereof in connection with a Public Common Stock Offering Offer exceeds the net
cash proceeds of the Public Common Stock Offering, the Trustee shall select the
Senior Discount Notes to be purchased as set forth under Section 3.02 hereof.
The Issuer will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of the
Senior Discount Notes as a result of a Public Common Stock Offering. To the
extent that the provisions of any securities laws or regulations conflict with
the provisions of this Indenture relating to such Public Common Stock Offering,
the Issuer will comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations described in this Indenture
by virtue thereof.
On the Public Common Stock Offering Payment Date, the Issuer will, to
the extent lawful, (a) accept for payment all Senior Discount Notes or portions
thereof properly tendered pursuant to the Public Common Stock Offering Offer,
(b) deposit with the Paying Agent an amount equal to the Public Common Stock
Offering Payment in respect of all Senior Discount Notes or portions thereof so
tendered and (c) deliver or cause to be delivered to the Trustee the Senior
Discount Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount at maturity of Senior Discount Notes or portions
thereof being purchased by the Issuer. The Paying Agent will promptly mail to
each Holder of Senior Discount Notes so tendered the Public Common Stock
Offering Payment for such Senior Discount Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book-entry) to each Holder
a new Senior Discount Note equal in principal amount at maturity to any
unpurchased portion of the Senior Discount Notes surrendered, if any; provided
that each such new Senior Discount Note will be in a principal amount at
maturity of $1,000 or an integral multiple thereof. The Issuer will fix the
payment date for the Public Offering of Common Stock Payment (the "Public Common
Stock Offering Payment Date") no earlier than 30 but no more than 60 days after
the Public Common Stock Offering Offer is mailed as set forth above. Prior to
complying with the provisions of the preceding sentence, but in any event within
60 days following a Public Common Stock Offering, the Issuer will either repay
all outstanding Indebtedness of the Issuer or any of its Subsidiaries that
restricts the ability of the Issuer to repurchase, or obtain funds to
repurchase, the Senior Discount Notes or obtain the requisite consents, if any,
under all agreements governing all such outstanding Indebtedness to permit the
repurchase, or the obtaining of funds for the repurchase, of Senior Discount
Notes required by this covenant. The Issuer will publicly announce the results
of the Public Common Stock Offering Offer on or as soon as practicable after the
Public Common Stock Offering Payment Date.
(b) The provisions of Section 4.18(a) will be applicable whether or not
any other provisions of this Indenture are applicable and shall apply to each
Public Common Stock Offer occuring during the three-year period ending on August
15, 2001.
Section 4.19. Unit Lock-Up Agreement.
The Issuer will not modify, amend, waive or otherwise fail to enforce
the provisions of the Unit Lock-Up Agreement.
ARTICLE 5.
SUCCESSORS
Section 5.01. Mergers, Consolidation, or Sale of Assets.
The Issuer may not consolidate or merge with or into (whether or not
the Issuer is the surviving corporation), or sell, assign, transfer, convey or
otherwise dispose of all or substantially all of its properties or assets in one
or more related transactions, to another Person unless (a) the Issuer is the
surviving corporation or the Person formed by or surviving any such
consolidation or merger (if other than the Issuer) or to which such sale,
assignment, transfer, conveyance or other disposition shall have been made is a
corporation organized or existing under the laws of the United States, any state
thereof or the District of Columbia, (b) the Person formed by or surviving any
such consolidation or merger (if other than the Issuer) or the Person to which
such sale, assignment, transfer, conveyance or other disposition shall have been
made assumes all the obligations of the Issuer under the Registration Rights
Agreement, the Senior Discount Notes and this Indenture pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee, (c)
immediately after such transaction no Default or Event of Default exists and (d)
the Issuer or the Person formed by or surviving any such consolidation or merger
(if other than the Issuer), or to which such sale, assignment, transfer,
conveyance or other disposition shall have been made (i) will, at the time of
such transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable four-quarter period,
be permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of Section
4.09 hereof or (ii) would (together with its Restricted Subsidiaries) have a
higher Fixed Charge Coverage Ratio immediately after such transaction (after
giving pro forma effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period) than the Fixed Charge Coverage
Ratio of the Issuer and its Restricted Subsidiaries immediately prior to such
transaction. The foregoing clause (d) will not prohibit (a) the Mergers, (b) a
merger between the Issuer and an Affiliate of the Issuer created for the purpose
of holding the Capital Stock of the Issuer, (c) a merger between the Issuer and
a Wholly Owned Restricted Subsidiary or (d) a merger between the Issuer and an
Affiliate incorporated solely for the purpose of reincorporating the Issuer in
another State of the United States so long as, in each case, the amount of
Indebtedness of the Issuer and its Restricted Subsidiaries is not increased
thereby. The Issuer shall not lease all or substantially all of its assets to
any Person.
Section 5.02. Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Issuer in accordance with Section 5.01 hereof, the successor corporation
formed by such consolidation or into or with which the Issuer is merged or to
which such sale, assignment, transfer, lease, conveyance or other disposition is
made shall succeed to, and be substituted for (so that from and after the date
of such consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Issuer" shall refer instead to
the successor corporation and not to the Issuer), and may exercise every right
and power of the Issuer under this Indenture with the same effect as if such
successor Person had been named as the Issuer herein; provided, however, that
the predecessor Issuer shall not be relieved from the obligation to pay the
principal of and interest and Liquidated Damages, if any, on the Senior Discount
Notes except in the case of a sale of all of the Issuer's assets that meets the
requirements of Section 5.01 hereof.
ARTICLE 6.
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.
Each of the following constitutes an Event of Default:
(a) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Senior Discount Notes;
(b) default in payment when due of the principal of or premium, if any,
on the Senior Discount Notes at maturity, upon redemption or otherwise;
(c) failure by the Issuer or any of its Restricted Subsidiaries for 30
days after receipt of notice from the Trustee or Holders of at least 25% in
principal amount at maturity of the Senior Discount Notes then outstanding to
comply with Sections 4.10, 4.14, 4.18 or Article 5 hereof;
(d) failure by the Issuer for 60 days after notice from the Trustee or
the Holders of at least 25% in principal amount at maturity of the Senior
Discount Notes then outstanding to comply with any of its other agreements in
this Indenture or the Senior Discount Notes;
(e) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Issuer or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Issuer or any of its
Restricted Subsidiaries), whether such Indebtedness or guarantee now exists, or
is created after the date of this Indenture, which default (i) is caused by a
failure to pay Indebtedness at its stated final maturity (after giving effect to
any applicable grace period provided in such Indebtedness) (a "Payment Default")
or (ii) results in the acceleration of such Indebtedness prior to its stated
final maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $15.0 million or more;
(f) failure by the Issuer or any of its Restricted Subsidiaries to pay
final judgments aggregating in excess of $15.0 million (net of any amounts with
respect to which a reputable and creditworthy insurance company has acknowledged
liability in writing), which judgments are not paid, discharged or stayed for a
period of 60 days; and
(g) the Issuer or any of its Restricted Subsidiaries that is a
Significant Subsidiary or any group of Restricted Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary pursuant to or within the
meaning of Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against
it in an involuntary case,
(iii) consents to the appointment of a Custodian of it or
for all or substantially all of its property,
(iv) makes a general assignment for the benefit of its
creditors, or
(v) generally is not paying its debts as they become due;
or
(h) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(i) is for relief against the Issuer or any of its
Restricted Subsidiaries that is Significant Subsidiary or any group of
Restricted Subsidiaries that, taken as a whole, would constitute a
Significant Subsidiary in an involuntary case;
(ii) appoints a Custodian of the Issuer or any of its
Restricted Subsidiaries that is Significant Subsidiary or any group of
Restricted Subsidiaries that, taken as a whole, would constitute a
Significant Subsidiary or for all or substantially all of the property
of the Issuer or any of its Restricted Subsidiaries that is a
Significant Subsidiary or any group of Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary; or
(iii) orders the liquidation of the Issuer or any of its
Restricted Subsidiaries that is a Significant Subsidiary or any group
of Restricted Subsidiaries that, taken as a whole, would constitute a
Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60
consecutive days.
Section 6.02. Acceleration.
If any Event of Default (other than an Event of Default specified in
clause (g) or (h) of Section 6.01 hereof with respect to the Issuer, any of its
Restricted Subsidiaries that is a Significant Subsidiary or any group of
Restricted Subsidiaries that, taken as a whole, would constitute a Significant
Subsidiary) occurs and is continuing, the Trustee or the Holders of at least 25%
in principal amount at maturity of the then outstanding Senior Discount Notes
may declare all the Senior Discount Notes to be due and payable immediately.
Upon any such declaration, the Senior Discount Notes shall become due and
payable immediately. Notwithstanding the foregoing, if an Event of Default
specified in clause (g) or (h) of Section 6.01 hereof occurs with respect to the
Issuer, any of its Restricted Subsidiaries that is a Significant Subsidiary or
any group of Restricted Subsidiaries that, taken as a whole, would constitute a
Significant Subsidiary, all outstanding Senior Discount Notes shall become due
and payable immediately without further action or notice. The Holders of a
majority in aggregate principal amount at maturity of the then outstanding
Senior Discount Notes by written notice to the Trustee may on behalf of all of
the Holders rescind an acceleration and its consequences if the rescission would
not conflict with any judgment or decree and if all existing Events of Default
(except nonpayment of principal, interest, Liquidated Damages or premium that
has become due solely because of the acceleration) have been cured or waived,
provided that in the event of a declaration of acceleration of the Senior
Discount Notes because an Event of Default has occurred and is continuing as a
result of the acceleration of any Indebtedness described in clause (e) of
Section 6.01 hereof, the declaration of acceleration of the Senior Discount
Notes shall be automatically annulled if the holders of such Indebtedness have
rescinded the declaration of acceleration in respect of such Indebtedness within
30 days of the date of such declaration and if (i) the annulment of the
acceleration of the Senior Discount Notes would not conflict with any judgment
or decree of a court of competent jurisdiction and (ii) all existing Events of
Default, except non-payment of principal or interest on the Senior Discount
Notes that became due solely because of the acceleration of the Senior Discount
Notes, have been cured or waived.
Section 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal, premium, if any, and
interest and Liquidated Damages, if any, on the Senior Discount Notes or to
enforce the performance of any provision of the Senior Discount Notes or this
Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Senior Discount Notes or does not produce any of them in the proceeding.
A delay or omission by the Trustee or any Holder of a Senior Discount Note in
exercising any right or remedy accruing upon an Event of Default shall not
impair the right or remedy or constitute a waiver of or acquiescence in the
Event of Default. All remedies are cumulative to the extent permitted by law.
Section 6.04. Waiver of Past Defaults.
Holders of not less than a majority in principal amount at maturity of
the then outstanding Senior Discount Notes by notice to the Trustee may on
behalf of the Holders of all of the Senior Discount Notes waive an existing
Default or Event of Default and its consequences hereunder, except a continuing
Default or Event of Default in the payment of the principal of, premium and
Liquidated Damages, if any, or interest on, the Senior Discount Notes (including
in connection with an offer to purchase) (provided, however, that the Holders of
a majority in aggregate principal amount at maturity of the then outstanding
Senior Discount Notes may rescind an acceleration and its consequences,
including any related payment default that resulted from such acceleration).
Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereon.
Section 6.05. Control by Majority.
Holders of not less than a majority in principal amount at maturity of
the then outstanding Senior Discount Notes may direct the time, method and place
of conducting any proceeding for exercising any remedy available to the Trustee
or exercising any trust or power conferred on it. However, the Trustee may
refuse to follow any direction that conflicts with law or this Indenture that
the Trustee determines may be unduly prejudicial to the rights of other Holders
of Senior Discount Notes or that may involve the Trustee in personal liability.
Section 6.06. Limitation on Suits.
A Holder of a Senior Discount Note may pursue a remedy with respect to
this Indenture or the Senior Discount Notes only if:
(a) the Holder of a Senior Discount Note gives to the Trustee written
notice of a continuing Event of Default;
(b) the Holders of at least 25% in principal amount at maturity of the
then outstanding Senior Discount Notes make a written request to the Trustee to
pursue the remedy;
(c) such Holder of a Senior Discount Note or Holders of Senior Discount
Notes offer and, if requested, provide to the Trustee indemnity satisfactory to
the Trustee against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount at maturity of the then outstanding Senior Discount Notes do not give the
Trustee a direction inconsistent with the request.
A Holder of a Senior Discount Note may not use this Indenture to
prejudice the rights of another Holder of a Senior Discount Note or to obtain a
preference or priority over another Holder of a Senior Discount Note.
Section 6.07. Rights of Holders of Senior Discount Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Senior Discount Note to receive payment of principal, premium and
Liquidated Damages, if any, and interest on the Senior Discount Notes, on or
after the respective due dates expressed in the Senior Discount Notes (including
in connection with an offer to purchase), or to bring suit for the enforcement
of any such payment on or after such respective dates, shall not be impaired or
affected without the consent of such Holder.
Section 6.08. Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(a) or (b) occurs and
is continuing, the Trustee is authorized to recover judgment in its own name and
as trustee of an express trust against the Issuer for the whole amount of
principal of, premium and Liquidated Damages, if any, and interest remaining
unpaid on the Senior Discount Notes and interest on overdue principal and, to
the extent lawful, interest and such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
Section 6.09. Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other papers
or documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Senior Discount Notes allowed in any judicial proceedings
relative to the Issuer (or any other obligor upon the Senior Discount Notes),
its creditors or its property and shall be entitled and empowered to collect,
receive and distribute any money or other property payable or deliverable on any
such claims and any custodian in any such judicial proceeding is hereby
authorized by each Holder to make such payments to the Trustee, and in the event
that the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To
the extent that the payment of any such compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, and any other amounts due
the Trustee under Section 7.07 hereof out of the estate in any such proceeding,
shall be denied for any reason, payment of the same shall be secured by a Lien
on, and shall be paid out of, any and all distributions, dividends, money,
securities and other properties that the Holders may be entitled to receive in
such proceeding whether in liquidation or under any plan of reorganization or
arrangement or otherwise. Nothing herein contained shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Senior Discount Notes or the rights of any Holder, or to authorize
the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07 hereof, including payment of all compensation, expenses and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders of Senior Discount Notes for amounts due and unpaid
on the Senior Discount Notes for principal, premium and Liquidated Damages, if
any, and interest, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Senior Discount Notes for
principal, premium and Liquidated Damages, if any and interest, respectively;
and
Third: to the Issuer or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Senior Discount Notes pursuant to this Section 6.10.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder of a
Senior Discount Note pursuant to Section 6.07 hereof, or a suit by Holders of
more than 10% in principal amount at maturity of the then outstanding Senior
Discount Notes.
ARTICLE 7.
TRUSTEE
Section 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in its exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties and obligations of the Trustee shall be
determined solely by the express provisions of this Indenture and the
Trustee need perform only those duties and obligations that are
specifically set forth in this Indenture and no others, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(ii) in the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any statements,
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture. However, the Trustee shall examine the
statements, certificates and opinions to determine whether or not they
conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph
(b) of this Section;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer or Responsible
Officers, unless it is proved that the Trustee was negligent in
ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any liability. The Trustee shall be
under no obligation to exercise any of its rights and powers under this
Indenture at the request of any Holders, unless such Holder shall have offered
to the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Issuer. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
Section 7.02. Rights of Trustee.
(a) The Trustee may conclusively rely upon and shall be protected in
acting or refraining from acting upon any document or statement believed by it
to be genuine and to have been signed or presented by the proper Person or
parties. The Trustee need not investigate any fact or matter stated in the
document or statement.
(b) Any request, direction, order or demand of the Issuer for the
Trustee to act or refrain from acting shall be sufficiently evidenced by an
Officers' Certificate (unless other evidence in respect thereof be herein
specifically prescribed) or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. Any resolution of the Board of
Directors shall be evidenced to the Trustee by a copy thereof, which, if
requested by the Trustee, shall be certified by the secretary or any assistant
secretary of the Issuer. The Trustee may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection from liability in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents (including
those not regularly in its employ) and shall not be responsible for the
misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
Section 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Senior Discount Notes and may otherwise deal with the Issuer
or any Affiliate of the Issuer with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the Commission
for permission to continue as trustee or resign. Any Agent may do the same with
like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11
hereof.
Section 7.04. Trustee's Disclaimer.
The Trustee assumes no responsibility for the correctness of, and makes
no representation as to the validity or adequacy of, this Indenture or the
Senior Discount Notes, it shall not be accountable for the Issuer's use of the
proceeds from the Senior Discount Notes or any money paid to the Issuer or upon
the Issuer's direction under any provision of this Indenture, it shall not be
responsible for the use or application of any money received by any Paying Agent
other than the Trustee, and it shall not be responsible for any statement or
recital herein or any statement in the Senior Discount Notes or any other
document in connection with the sale of the Senior Discount Notes or pursuant to
this Indenture other than its certificate of authentication. The Trustee shall
not be accountable for any calculations made in respect hereof.
Section 7.05. Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Holders of Senior Discount Notes
a notice of the Default or Event of Default within 90 days after it occurs.
Except in the case of a Default or Event of Default in payment of principal of,
premium, if any, or interest or Liquidated Damages, if any, on any Senior
Discount Notes, the Trustee may withhold the notice if and so long as a
committee of its Board of Directors, executive committee or a trust committee of
directors or Responsible Officers in good faith determines that withholding the
notice is in the interests of the Holders of the Senior Discount Notes.
Section 7.06. Reports by Trustee to Holders of the Senior Discount Notes.
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, and for so long as Senior Discount Notes remain
outstanding, the Trustee shall mail to the Holders of the Senior Discount Notes
a brief report dated as of such reporting date that complies with TIA ss. 313(a)
(but if no event described in TIA ss. 313(a) has occurred within the twelve
months preceding the reporting date, no report need be transmitted). The Trustee
also shall comply with TIA ss. 313(b)(2). The Trustee shall also transmit by
mail all reports as required by TIA ss. 313(c).
A copy of each report at the time of its mailing to the Holders of
Senior Discount Notes shall be mailed to the Issuer and filed with the
Commission and each stock exchange on which the Senior Discount Notes are listed
in accordance with TIA ss. 313(d). The Issuer shall promptly notify the Trustee
when the Senior Discount Notes are listed on any stock exchange.
Section 7.07. Compensation and Indemnity.
The Issuer shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Issuer shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred or
made by or on behalf of it in addition to the compensation for its services.
Such expenses shall include, without limitation, the reasonable compensation,
disbursements and expenses of the Trustee's agents and counsel.
The Issuer shall indemnify and hold harmless the Trustee against any
and all losses, liabilities or expenses incurred by it arising out of or in
connection with the acceptance or administration of its duties under this
Indenture, including, without limitation, the costs and expenses of enforcing
this Indenture against the Issuer (including this Section 7.07) and defending
itself against any claim (whether asserted by the Issuer or any Holder or any
other person) or liability in connection with the exercise or performance of any
of its powers or duties hereunder, except to the extent any such loss, liability
or expense may be attributable to its negligence or bad faith. The Trustee shall
notify the Issuer promptly of any claim for which it may seek indemnity. Failure
by the Trustee to so notify the Issuer shall not relieve the Issuer of its
obligations hereunder. The Issuer shall defend the claim and the Trustee
shall cooperate in the defense. The Trustee may have separate counsel and the
Issuer shall pay the reasonable fees and expenses of such counsel. The Issuer
need not pay for any settlement made without its consent, which consent shall
not be unreasonably withheld.
The obligations of the Issuer under this Section 7.07 shall constitute
additional indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture.
To secure the Issuer's payment obligations in this Section, the Trustee
shall have a Lien prior to the Senior Discount Notes on all money or property
held or collected by the Trustee, except for that money or property held in
trust to pay principal and interest and Liquidated Damages, if any, on
particular Senior Discount Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(g) or (h) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA ss. 313(b)(2) to
the extent applicable.
Section 7.08. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Issuer. The Holders of a majority
in principal amount at maturity of the then outstanding Senior Discount Notes
may remove the Trustee by so notifying the Trustee and the Issuer in writing.
The Issuer may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Issuer shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount at maturity of the then outstanding Senior
Discount Notes may appoint a successor Trustee to replace the successor Trustee
appointed by the Issuer.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Issuer, or the
Holders of Senior Discount Notes of at least 10% in principal amount at maturity
of the then outstanding Senior Discount Notes may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Senior
Discount Note who has been a Holder of a Senior Discount Note for at least six
months, fails to comply with Section 7.10, such Holder of a Senior Discount Note
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuer. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Senior Discount Notes. The retiring Trustee shall
promptly transfer all property held by it as Trustee to the successor Trustee,
provided that all sums owing to the Trustee hereunder have been paid and subject
to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of
the Trustee pursuant to this Section 7.08, the Issuer's obligations under
Section 7.07 hereof shall continue for the benefit of the retiring Trustee.
Section 7.09. Successor Trustee by Mergers, etc.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.
Section 7.10. Eligibility; Disqualification.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $100 million
as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee is subject to TIA
ss. 310(b).
Section 7.11. Preferential Collection of Claims Against Issuer.
The Trustee is subject to TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.
The Issuer may, at the option of its Board of Directors evidenced by a
resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.02 or 8.03 hereof be applied to all outstanding Senior Discount
Notes upon compliance with the conditions set forth below in this Article Eight.
Section 8.02. Legal Defeasance and Discharge.
Upon the Issuer's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Issuer shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be deemed to have been
discharged from its obligations with respect to all outstanding Senior Discount
Notes on the date the conditions set forth below are satisfied (hereinafter,
"Legal Defeasance"). For this purpose, Legal Defeasance means that the Issuer
shall be deemed to have paid and discharged the entire Indebtedness represented
by the outstanding Senior Discount Notes, which shall thereafter be deemed to be
"outstanding" only for the purposes of Section 8.05 hereof and the other
Sections of this Indenture referred to in (a) and (b) below, and to have
satisfied all its other obligations under such Senior Discount Notes and this
Indenture (and the Trustee, on demand of and at the expense of the Issuer, shall
execute proper instruments acknowledging the same), except for the following
provisions which shall survive until otherwise terminated or discharged
hereunder:
(a) the rights of Holders of outstanding Senior Discount Notes to
receive payments in respect of the principal of, premium, if any, and interest
and Liquidated Damages, if any, on such Senior Discount Notes when such payments
are due from the trust referred to below,
(b) the Issuer's obligations with respect to the Senior Discount Notes
concerning issuing temporary Senior Discount Notes, registration of Senior
Discount Notes, mutilated, destroyed, lost or stolen Senior Discount Notes and
the maintenance of an office or agency for payment and money for security
payments held in trust,
(c) the rights, powers, trusts, duties and immunities of the Trustee,
and the Issuer's obligations in connection therewith and
(d) the Legal Defeasance provisions of this Indenture.
Section 8.03. Covenant Defeasance.
Upon the Issuer's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Issuer shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be released from its
obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10,
4.11, 4.12, 4.14, 4.15, 4.16, 4.17, 4.18 and 4.19 hereof with respect to the
outstanding Senior Discount Notes on and after the date the conditions set forth
in Section 8.04 are satisfied (hereinafter, "Covenant Defeasance"), and the
Senior Discount Notes shall thereafter be deemed not "outstanding" for the
purposes of any direction, waiver, consent or declaration or act of Holders (and
the consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "outstanding" for all other purposes hereunder (it being
understood that such Senior Discount Notes shall not be deemed outstanding for
accounting purposes). For this purpose, Covenant Defeasance means that, with
respect to the outstanding Senior Discount Notes, the Issuer may omit to comply
with and shall have no liability in respect of any term, condition or limitation
set forth in any such covenant, whether directly or indirectly, by reason of any
reference elsewhere herein to any such covenant or by reason of any reference in
any such covenant to any other provision herein or in any other document and
such omission to comply shall not constitute a Default or an Event of Default
under Section 6.01 hereof, but, except as specified above, the remainder of this
Indenture and such Senior Discount Notes shall be unaffected thereby. In
addition, upon the Issuer's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03 hereof, subject to the satisfaction of the
conditions set forth in Section 8.04 hereof, Sections 6.01(d) through 6.01(f)
hereof shall not constitute Events of Default.
Section 8.04. Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of either
Section 8.02 or 8.03 hereof to the outstanding Senior Discount Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance,
(a) the Issuer must irrevocably deposit with the Trustee, in trust, for
the benefit of the Holders of the Senior Discount Notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any, and
interest and Liquidated Damages, if any, on the outstanding Senior Discount
Notes on the stated maturity or on the applicable redemption date, as the case
may be, and the Issuer must specify whether the Senior Discount Notes are being
defeased to maturity or to a particular redemption date,
(b) in the case of Legal Defeasance, the Issuer shall have delivered to
the Trustee an Opinion of Counsel in the United States reasonably acceptable to
the Trustee confirming that (i) the Issuer has received from, or there has been
published by, the Internal Revenue Service a ruling or (ii) since the date of
this Indenture, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, subject to customary assumptions and exclusions, the
Holders of the outstanding Senior Discount Notes will not recognize income, gain
or loss for federal income tax purposes as a result of such Legal Defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal Defeasance had
not occurred,
(c) in the case of Covenant Defeasance, the Issuer shall have delivered
to the Trustee an Opinion of Counsel in the United States reasonably acceptable
to the Trustee confirming that, subject to customary assumptions and exclusions,
the Holders of the outstanding Senior Discount Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred,
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit) or, insofar
as Events of Default from bankruptcy or insolvency events are concerned, at any
time in the period ending on the 123rd day after the date of deposit,
(e) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under, any material agreement or
instrument (other than this Indenture) to which the Issuer or any of its
Subsidiaries is a party or by which the Issuer or any of its Subsidiaries is
bound,
(f) the Issuer must have delivered to the Trustee an Opinion of Counsel
reasonably acceptable to the Trustee confirming that, subject to customary
assumptions and exclusions, after the 123rd day following the deposit, the trust
funds will not be subject to the effect of Section 547 of the United States
Bankruptcy Code or any analogous New York State law provision or any other
applicable federal or New York bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally,
(g) the Issuer must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by the Issuer with the intent of
preferring the Holders of Senior Discount Notes over the other creditors of the
Issuer with the intent of defeating, hindering, delaying or defrauding creditors
of the Issuer or others, and
(h) the Issuer must deliver to the Trustee an Officers' Certificate and
an Opinion of Counsel (which opinion may be subject to customary assumptions and
exclusions) reasonably acceptable to the Trustee confirming that all conditions
precedent provided for relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
Section 8.05. Deposited Money and Government Securities to be Held in Trust;
Other Miscellaneous Provisions.
Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Senior
Discount Notes shall be held in trust and applied by the Trustee, in accordance
with the provisions of such Senior Discount Notes and this Indenture, to the
payment, either directly or through any Paying Agent (including the Issuer
acting as Paying Agent) as the Trustee may determine, to the Holders of such
Senior Discount Notes of all sums due and to become due thereon in respect of
principal, premium, if any, and interest and Liquidated Damages, if any, but
such money need not be segregated from other funds except to the extent required
by law.
The Issuer shall pay and indemnify the Trustee against any and all
taxes, fees or other charges imposed on or assessed against the cash or
non-callable Government Securities deposited pursuant to Section 8.04 hereof or
the principal and interest received in respect thereof other than any such
taxes, fees or other charges which by law are for the account of the Holders of
the outstanding Senior Discount Notes.
Anything in this Article Eight to the contrary notwithstanding, the
Trustee shall deliver or pay to the Issuer from time to time upon the request of
the Issuer any money or non-callable Government Securities held by it as
provided in Section 8.04 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.04(a) hereof), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
Section 8.06. Repayment to Issuer.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Issuer, in trust for the payment of the principal of, premium, if any, or
interest or Liquidated Damages, if any, on any Senior Discount Note and
remaining unclaimed for two years after such principal, and premium, if any, or
interest or Liquidated Damages, if any, has become due and payable shall be paid
to the Issuer on its request or (if then held by the Issuer) shall be discharged
from such trust; and the Holder of such Senior Discount Note shall thereafter,
as a secured creditor, look only to the Issuer for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Issuer as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment, may at the expense of the Issuer cause to be
published once, in the New York Times and The Wall Street Journal (national
edition), notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
will be repaid to the Issuer.
Section 8.07. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02 or
8.03 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Issuer's obligations under this Indenture and the Senior
Discount Notes shall be revived and reinstated as though no deposit had occurred
pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying
Agent is permitted to apply all such money in accordance with Section 8.02 or
8.03 hereof, as the case may be; provided, however, that, if the Issuer makes
any payment of principal of, premium, if any, or interest or Liquidated Damages,
if any, on any Senior Discount Notes following the reinstatement of its
obligations, the Issuer shall be subrogated to the rights of the Holders of such
Senior Discount Notes to receive such payment from the money held by the Trustee
or Paying Agent.
ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Senior Discount Notes.
Notwithstanding Section 9.02 of this Indenture, the Issuer and the
Trustee may amend or supplement this Indenture or the Senior Discount Notes
without the consent of any Holder of a Senior Discount Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Senior Discount Notes in addition to
or in place of certificated Senior Discount Notes or to alter the provisions of
Article 2 hereof (including the related definitions) in a manner that does not
materially adversely affect any Holder;
(c) to provide for the assumption of the Issuer's obligations to the
Holders of the Senior Discount Notes by a successor to the Issuer pursuant to
Article 5 hereof;
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Senior Discount Notes or that does not adversely
affect the legal rights hereunder of any Holder of the Senior Discount Notes;
(e) to comply with requirements of the Commission in order to effect or
maintain the qualification of this Indenture under the TIA;
(f) to provide for guarantees of the Senior Discount Notes; or
(g) to provide for the issuance of Additional Senior Discount Notes in
accordance with the limitations set forth in this Indenture as of the date
hereof.
Upon the request of the Issuer accompanied by a resolution of its Board
of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon receipt by the Trustee an Officer's Certificate and an
Opinion of Counsel (both reasonably acceptable to the Trustee) as conclusive
evidence that any such supplemental indenture complies with the applicable
provisions of this Indenture, the Trustee shall join with the Issuer in the
execution of any amended or supplemental Indenture authorized or permitted by
the terms of this Indenture and make any further appropriate agreements and
stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental Indenture that affects its
own rights, duties or immunities under this Indenture or otherwise.
Section 9.02. With Consent of Holders of Senior Discount Notes.
Except as provided below in this Section 9.02, the Issuer and the
Trustee may amend or supplement this Indenture (including Section 3.09, 4.10 and
4.14 hereof) and the Senior Discount Notes with the consent of the Holders of at
least a majority in principal amount at maturity of the Senior Discount Notes
(including Additional Senior Discount Notes, if any) then outstanding voting as
a single class (including consents obtained in connection with a tender offer or
exchange offer for, or purchase of, the Senior Discount Notes), and, subject to
Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other
than a Default or Event of Default in the payment of the principal, premium, if
any, or interest or Liquidated Damages, if any, on the Senior Discount Notes,
except a payment default resulting from an acceleration that has been rescinded)
or compliance with any provision of this Indenture or the Senior Discount Notes
may be waived with the consent of the Holders of a majority in principal amount
at maturity of the then outstanding Senior Discount Notes (including Additional
Senior Discount Notes, if any) voting as a single class (including consents
obtained in connection with a tender offer or exchange offer for, or purchase
of, the Senior Discount Notes). Notwithstanding the foregoing, any amendment to
or waiver of Sections 4.10 and 4.14 hereof will require the consent of the
Holders of at least two-thirds in aggregate principal amount at maturity of the
Senior Discount Notes then outstanding if such amendment would materially
adversely affect the rights of Holders of Senior Discount Notes. Section 2.08
hereof shall determine which Senior Discount Notes are considered to be
"outstanding" for purposes of this Section 9.02.
Upon the request of the Issuer accompanied by a resolution of its Board
of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon the filing with the Trustee of evidence satisfactory to the
Trustee of the consent of the Holders of Senior Discount Notes as aforesaid, and
upon receipt by the Trustee of an Officer's Certificate and an Opinion of
Counsel (both reasonably acceptable to the Trustee) as conclusive evidence that
any such supplemental Indenture complies with the applicable provisions of this
Indenture, the Trustee shall join with the Issuer in the execution of such
amended or supplemental Indenture unless such amended or supplemental Indenture
directly affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise, in which case the Trustee may in its discretion, but
shall not be obligated to, enter into such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of Senior
Discount Notes under this Section 9.02 to approve the particular form of any
proposed amendment or waiver, but it shall be sufficient if such consent
approves the substance thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Issuer shall mail to the Holders of Senior Discount Notes
affected thereby a notice briefly describing the amendment, supplement or
waiver. Any failure of the Issuer to mail such notice, or any defect therein,
shall not, however, in any way impair or affect the validity of any such amended
or supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof,
the Holders of a majority in aggregate principal amount at maturity of the
Senior Discount Notes (including Additional Senior Discount Notes, if any) then
outstanding voting as a single class may waive compliance in a particular
instance by the Issuer with any provision of this Indenture or the Senior
Discount Notes. However, without the consent of each Holder affected, an
amendment or waiver under this Section 9.02 may not (with respect to any Senior
Discount Notes held by a non-consenting Holder):
(a) reduce the principal amount at maturity of Senior Discount Notes
whose Holders must consent to an amendment, supplement or waiver,
(b) reduce the principal of or change the fixed maturity of any Senior
Discount Note or alter the provisions with respect to the redemption of the
Senior Discount Notes (other than Sections 4.10 and 4.14 hereof) or amend or
modify the calculation of the Accreted Value so as to reduce the amount of the
Accreted Value of the Senior Discount Notes,
(c) reduce the rate of or change the time for payment of interest on
any Senior Discount Note,
(d) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest or Liquidated Damages, if any, on the Senior
Discount Notes (except a rescission of acceleration of the Senior Discount Notes
by the Holders of at least a majority in aggregate principal amount at maturity
of the Senior Discount Notes and a waiver of the payment default that resulted
from such acceleration),
(e) make any Senior Discount Note payable in money other than that
stated in the Senior Discount Notes,
(f) make any change in the provisions of this Indenture relating to
waivers of past Defaults,
(g) waive a redemption payment with respect to any Senior Discount Note
(other than Sections 4.10, 4.14 and 4.18 hereof),
(h) make any change in the foregoing amendment and waiver provisions,
(i) modify any provision of this Indenture with respect to the priority
of the Senior Discount Notes in right of payment, or
(j) make any change to the right of Holders to waive an existing
Default or Event of Default or the right of Holders to receive payments of
principal, premium, if any, and interest and Liquidated Damages, if any, on the
Senior Discount Notes.
Section 9.03. Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Senior Discount
Notes shall be set forth in a amended or supplemental Indenture that complies
with the TIA as then in effect.
Section 9.04. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Senior Discount Note is a continuing consent by the
Holder of a Senior Discount Note and every subsequent Holder of a Senior
Discount Note or portion of a Senior Discount Note that evidences the same debt
as the consenting Holder's Senior Discount Note, even if notation of the consent
is not made on any Senior Discount Note. However, any such Holder of a Senior
Discount Note or subsequent Holder of a Senior Discount Note may revoke the
consent as to its Senior Discount Note if the Trustee receives written notice of
revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
Section 9.05. Notation on or Exchange of Senior Discount Notes.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Senior Discount Note thereafter authenticated. The
Issuer in exchange for all Senior Discount Notes may issue and the Trustee
shall, upon receipt of an Authentication Order, authenticate new Senior Discount
Notes that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Senior Discount
Note shall not affect the validity and effect of such amendment, supplement or
waiver.
Section 9.06. Trustee to Sign Amendments, etc.
The Trustee shall sign any amended or supplemental Indenture authorized
pursuant to this Article Nine if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The Issuer
may not sign an amendment or supplemental Indenture until the Board of Directors
approves it. In executing any amended or supplemental indenture, the Trustee
shall be entitled to receive and (subject to Section 7.01 hereof) shall be fully
protected in relying upon, in addition to the documents required by Section
10.04 hereof, an Officer's Certificate and an Opinion of Counsel stating that
the execution of such amended or supplemental indenture is authorized or
permitted by this Indenture.
ARTICLE 10.
MISCELLANEOUS
Section 10.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA ss. 318(c), the imposed duties shall control.
Section 10.02. Notices.
Any notice or communication by the Issuer or the Trustee to the other
is duly given if in writing and delivered in Person or mailed by first class
mail (registered or certified, return receipt requested), telex, telecopier or
overnight air courier guaranteeing next day delivery, to the other's address as
follows:
If to the Issuer:
425 Metro Place North
Dublin, Ohio 43017
Telecopier No.: (614) 791-3197
Attention: Chief Financial Officer
With a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telecopier No.: (212) 450-4800
Attention: Richard Truesdale, Esq.
If to the Trustee:
Star Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45201-1118
Telecopier No.: 513-632-5511
Attention: William Sicking, Corporate Finance Trust Services
With a copy to:
Taft, Stettinius & Hollister
425 Walnut Street
Cincinnati, Ohio 45202
Telecopier No.: 513-381-0205
Attention: Henry Kasson, Esq.
(a) The Issuer or the Trustee, by notice to the others may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders) shall
be deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the mail, postage
prepaid, if mailed; when answered back, if telexed; when receipt acknowledged,
if telecopied; and the next Business Day after timely delivery to the courier,
if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA ss. 313(c), to the extent required by the TIA. Failure
to mail a notice or communication to a Holder or any defect in it shall not
affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Issuer mails a notice or communication to Holders, it shall mail
a copy to the Trustee and each Agent at the same time.
Section 10.03. Communication by Holders of Senior Discount Notes with Other
Holders of Senior Discount Notes.
Holders may communicate pursuant to TIA ss. 312(b) with other Holders
with respect to their rights under this Indenture or the Senior Discount Notes.
The Issuer, the Trustee, the Registrar and anyone else shall have the protection
of TIA ss. 312(c).
Section 10.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Issuer to the Trustee to take or
refrain from taking any action under this Indenture, the Issuer shall furnish to
the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 10.05 hereof, to the extent applicable) stating that, in the opinion of
the signers, all conditions precedent and covenants, if any, provided for in
this Indenture relating to the proposed action have been satisfied; and
(b) if requested by the Trustee, an Opinion of Counsel in form and
substance reasonably satisfactory to the Trustee (which shall include the
statements set forth in Section 10.05 hereof, to the extent applicable) stating
that, in the opinion of such counsel, all such conditions precedent and
covenants have been satisfied.
Section 10.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA ss. 314(a)(4)) shall comply with the provisions of TIA ss.
314(e) and shall include:
(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
satisfied;
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied; and
(e) such additional evidence of compliance with a condition or covenant
as the Trustee may reasonably request.
Section 10.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
Section 10.07. No Personal Liability of Directors, Officers, Employees and
Stockholders.
No director, officer, employee, incorporator or stockholder of the
Issuer, as such, shall have any liability for any obligations of the Issuer
under the Senior Discount Notes or this Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder of
Senior Discount Notes by accepting a Senior Discount Note waives and releases
all such liability. The waiver and release are part of the consideration for
issuance of the Senior Discount Notes.
Section 10.08. Governing Law.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE AND THE SENIOR DISCOUNT NOTES WITHOUT GIVING EFFECT TO
APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF
THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
Section 10.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture, loan
or debt agreement of the Issuer or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
Section 10.10. Successors.
All agreements of the Issuer in this Indenture and the Senior Discount
Notes shall bind its successors. All agreements of the Trustee in this Indenture
shall bind its successors.
Section 10.11. Severability.
In case any provision in this Indenture or in the Senior Discount Notes
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
Section 10.12. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
Section 10.13. Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof. [Signatures on
following page]
SIGNATURES
Dated as of August 17, 1998
SILKWORM ACQUISITION CORPORATION
By:
----------------------------------------
Name:
Title:
STAR BANK, N.A.
By:
----------------------------------------
Name:
Title:
EXHIBIT 4.7
FIRST SUPPLEMENTAL INDENTURE
dated as of August 17, 1998
between
INSILCO HOLDING CO.
and
STAR BANK, N.A.,
as Trustee
with respect to
Series A and Series B 14% Senior Discount Notes due 2008
THIS FIRST SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"),
entered into as of August 17, 1998, between Insilco Holding Co., a Delaware
corporation ("Holdings") and Star Bank, N.A., as trustee (the "Trustee").
RECITALS
WHEREAS, Silkworm Acquisition Corp., a Delaware corporation
("Silkworm"), and the Trustee entered into the Indenture, dated as of August 17,
1998 (as amended from time to time, the "Indenture"), relating to Silkworm's
Series A and Series B 14% Senior Discount Notes due 2008 (the "Senior Discount
Notes");
WHEREAS, Silkworm has merged with and into Holdings as contemplated by
the Indenture (the "Merger").
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained and intending to be legally bound, the parties hereto hereby
agree as follows:
Section 1. Capitalized terms used herein and not otherwise defined
herein are used as defined in the Indenture.
Section 2. Holdings hereby acknowledges and agrees with the Trustee
that, by virtue of the Merger and by operation of law it has succeeded to, and
is substituted for (so that from and after the Merger, the provisions of the
Indenture referring to the "Issuer" shall refer to Holdings), and may exercise
each and every right and power of Silkworm under the Indenture with the same
effect as if Holdings had been named as the Issuer in the Indenture and has
assumed all of the liabilities and obligations of Silkworm under the Indenture
and the Senior Discount Notes in accordance with Article 5 of the Indenture.
Section 3. Pursuant to Section 9.05 of the Indenture, Holdings shall
issue in exchange for all outstanding Senior Discount Notes of Silkworm and the
Trustee shall authenticate new Senior Discount Notes that reflect this
Supplemental Indenture in exchange for all outstanding Senior Discount Notes of
Silkworm.
Section 4. This Supplemental Indenture shall be governed by and
construed in accordance with the internal laws of the State of New York.
Section 5. This Supplemental Indenture may be signed in various
counterparts which together shall constitute one and the same instrument.
Section 6. This Supplemental Indenture is an amendment supplemental to
the Indenture and said Indenture and this Supplemental Indenture shall
henceforth be read together.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Supplemental Indenture or have caused this Supplemental Indenture to be duly
executed on their respective behalf by their respective officers thereunto duly
authorized, as of the day and year first above written.
INSILCO HOLDING CO.
By: __________________________
Name:
Title:
STAR BANK, N.A.,
as Trustee
By: __________________________
Name:
Title:
EXHIBIT 12.1
INSILCO CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(in thousands, except ratio data)
<TABLE>
<CAPTION>
Six Months Ended
1993 June 30,
-------------------- --------------------
To From
3/31 4/1 12/31/94 12/31/95 12/31/96 12/31/97 1997 1998
------- ------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income from continuing operations
before income taxes per statement
of operations....................... $(5,168) (27,851) (14,577) 34,700 38,485 36,818 24,692 13,708
Add:
Portion of rents representative of
the interest factor.............. 155 478 748 864 1,143 1,479 682 811
Interest on indebtedness........... 9,234 26,302 28,427 18,557 17,538 19,530 7,283 13,219
Amortization of debt expense........ 375 603 686 989 848 1,032 479 586
------- ------ ------ ------ ------ ------ ------ ------
Income as adjusted............... $ 4,596 (468) 15,284 55,110 58,014 58,859 33,136 28,324
======= ====== ====== ====== ====== ====== ====== ======
Fixed charges:
Interest on indebtendess(1)......... 9,312 26,535 28,957 18,955 17,747 19,596 7,285 13,380
------- ------ ------ ------ ------ ------ ------ ------
Amortization of debt expense(2)..... 375 603 686 989 848 1,032 479 586
------- ------ ------ ------ ------ ------ ------ ------
Capitalized interest(3)............. 30 91 20 173 202 220 62 5
------- ------ ------ ------ ------ ------ ------ ------
Rents............................ 464 1,434 2,243 2,593 3,429 4,436 2,045 2,432
Portion of rents representative
of the interest factor(4)........ 155 478 748 864 1,143 1,479 682 811
------- ------ ------ ------ ------ ------ ------ ------
Fixed charges (1)+(2)+(3)+(4).... $ 9,872 27,707 30,411 20,981 19,940 22,327 8,508 14,782
======= ====== ====== ====== ====== ====== ====== ======
Ratio of earnings to fixed charges..... 0.47x (0.02)x 0.50x 2.63x 2.91x 2.64x 3.89x 1.92x
======= ====== ====== ====== ====== ====== ====== ======
</TABLE>
EXHIBIT 23.2
Consent of Independent Auditors
The Board of Directors
Insilco Holding Corporation:
The audits referred to in our 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,
included the related financial statement schedule as of December 31, 1997, and
for each of the years in the three-year period ended December 31, 1997, included
in the registration statement. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits. In our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
We consent to the use of our audit report included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Columbus, Ohio
September 30, 1998
Securities Act of 1933 File No. 333-50269
-----------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
__________________________________________________
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
PURSUANT TO SECTION 305(b)(2) / X /
__________________________________________________
STAR BANK, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
A National Banking Association 31-0841368
-------------------------
(IRS Employer Identification No.)
425 Walnut Street
Cincinnati, Ohio 45202
(Address of Principal Executive Offices) (Zip Code)
Robert T. Jones
Senior Trust Officer
Star Bank, National Association
425 Walnut Street
Cincinnati, Ohio 45202
(513) 632-4427
(Name, address, and telephone number of agent for services)
Insilco Holding Co.
(Exact name of obligor as specified in its charter)
Delaware 06-1158291
(State of Incorporation) (IRS Employer Identification No.)
425 Metro Place North, 5th Floor Dublin, Ohio 43017
(Address of principal executive offices) (Zip Code)
14% Senior Discount Notes Due 2008
(Title of the Indenture securities)
1. General Information. Furnish the following information as Trustee --
(a) Name and address of each examining or supervising authority to
which it is subject.
Comptroller of the Currency, Washington, D.C.
Federal Reserve Bank of Cleveland, Ohio Federal
Deposit Insurance Corporation, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
The Trustee is authorized to exercise corporate
trust powers.
2. Affiliations with obligor. If the obligor is an affiliate of the
trustee, describe each such affiliation.
The obligor is not an affiliate of the Trustee
(including its parent and any affiliates).
3. Voting Securities of the trustee. Furnish the following information
as to each class of voting securities of the trustee
(and its parent).
As of _____________ (insert date within 31 days)
Col A. Col B
---------------- -------------------
(Title of Class) (Amount Outstanding)
4. Trusteeships under other Indentures. If the trustee is a trustee
under another Indenture under which any other securities, or
certificates of interest or participation in any other
securities, of the obligor are outstanding, furnish the
following information:
(a) Title of the securities outstanding under each such
other indenture.
(b) A brief statement of the facts relied upon as a
basis for the claim that no conflicting interest
within the meaning of Section 310(b) (1) of the Act
arises as a result of the trusteeship under any such
other indenture, including a statement as to how the
indenture securities will rank as compared with the
securities issued under such other indenture.
5. Interlocking directorates and similar relationships with the obligor
or underwriters.
If the trustee (including its parent and any other
affiliates) or any of the directors or executive officers of
the trustee is a director, officer, partner, employee,
appointee, or representative of the obligor or of any
underwriter for the obligor, identify each such person having
any such connection and state the nature of each such
connection.
6. Voting securities of the trustee (including its parent and any
affiliate) owned by the obligor or its officials. Furnish the
following information as to the voting securities of the trustee
(including its parent and any affiliates) owned beneficially by the
obligor and each director, partner and executive officer of the
obligor:
As of _______________________ (insert date within 31 days)
Col. A. Col. B. Col. C Col. D
Percentage of
Voting Securities
Represented by
Amount Owned Amount Given
Name of Owner Title of Class Beneficially in Col. C
-----------------------------------------------------------
7. Voting securities of the trustee (including its parent and any
affiliates) owned by underwriters or their officials.
Furnish the following information as to the voting securities
of the trustee (including its parent and any affiliates)
owned beneficially by each underwriter for the obligor and
each director, partner, and executive officer of each such
underwriter:
As of ___________________(insert date within 31 days)
Col. A. Col B. Col. C Col. D
Percentage of
Voting Securities
Represented by
Amount Owned Amount Given
Name of Owner Title of Class Beneficially in Col. C
-----------------------------------------------------------
8. Securities of the obligor owned or held by the trustee (including its
parent and any affiliates). Furnish the following information as to
securities of the obligor owned beneficially or held as collateral
security for obligations default by the trustee (including its parent
and any affiliates):
As of ___________________(insert date within 31 days)
Col. A Col. B Col. C Col. D
Amount Owned
Whether the Beneficially or
Securities Are Held as Collateral Percent of
Voting or Security for Class Represented
Nonvoting obligations in by Amount Given
Title of Class Securities Default in Col. C
--------------------------------------------------------------
9. Securities of underwriters owned or held by the trustee (including its
parent and any affiliates). If the trustee (including its parent and
any affiliates) owns beneficially or holds as collateral security for
obligations in default any securities of an underwriter for the
obligor, furnish the following information as to each class of
securities of such underwriter any of which are so owned or held by
the trustee:
Col. A Col. B Col. C Col. D
Amount Owned
Beneficially or
Held as Collateral Percent of
Security for Class Represented
Title of Issuer Obligations in by Amount
and Title of Amount Default by Given in
Class Outstanding Trustee Col. C
-----------------------------------------------------------
10. Ownership or holdings by the trustee (including its parent and any
affiliates) of voting securities of certain affiliates or security
holders of the obligor. If the trustee (including its parent and any
affiliates) owns beneficially or holds as collateral security for
obligations in default voting securities of a person who, to the
knowledge of the trustee (1) owns 10% or more of the voting securities
of the obligor or (2) is an affiliate, other than a subsidiary, of the
obligor, furnish the following information as to the voting securities
of such person:
As of _______________________(insert date within 31 days)
Col. A Col. B Col. C Col. D
Amount Owned
Beneficially or
Held as Collateral Percent of
Security for Class Represented
Title of Issuer Obligations in by Amount
and Title of Amount Default by Given in
Class Outstanding Trustee Col. C
-----------------------------------------------------------
11. Ownership or holdings by the trustee (including its parent and any
affiliates) of any securities of a person owning 50 percent or more of
the voting securities of the obligor. If the trustee (including its
parent and any affiliates) owns beneficially or holds as collateral
security for obligations in default any securities of a person who, to
the knowledge of the trustee, owns 50 percent or more of the voting
securities of the obligor, furnish the following information as to
each class of securities of such person any of which are so owned or
held by the trustee (including its parent and affiliates):
As of ______________________(insert date within 31 days)
Col. A Col. B Col. C Col. D
Amount Owned
Beneficially or
Held as Collateral Percent of
Security for Class Represented
Title of Issuer Obligations in by Amount
and Title of Amount Default by Given in
Class Outstanding Trustee Col. C
-----------------------------------------------------------
12. Indebtedness of the Obligor to the Trustee. Except as noted in the
instructions, if the obligor is indebted to the trustee, furnish the
following information:
As of ____________________(insert date with 31 days)
Col. A Col. B Col. C
Amount
Nature of Indebtedness Outstanding Due Date
-------------------------------------------------------------
13. Defaults by the Obligor.
a) State whether there is or has been a default with
respect to the securities under this indenture.
Explain the nature of any such default.
b) If the Trustee is a trustee under another indenture
under which any other securities, or certificates of
interest or participation in any other securities, of
the obligor are outstanding, or is trustee for more
than one outstanding series or securities under the
indenture, state whether there has been a default under
any such indenture or series, identify the indenture or
series affected, and explain the nature of any such
default.
As of ____________ (insert date within 31 days)
Col. A Col. B Col. C Col. D
Amount Owned
Beneficially or
Held as Collateral Percent of
Security for Class Represented
Title of Issuer Obligations in by Amount
and Title of Amount Default by Given in
Class Outstanding Trustee Col. C
-----------------------------------------------------------
14. Affiliations with the Underwriters.If any underwriter is an affiliate
of the trustee (including its parent and any affiliates), described
each such affiliation.
15. Foreign Trustee. Identify the order or rule pursuant to which the
foreign trustee is authorized to act as sole trustee under indentures
qualified or to be qualified under the Act.
16. List of Exhibits. List below all exhibits filed as part of this
statement of eligibility.
1. A copy of the Articles of Association of Star Bank, National
Association, as now in effect.
2. A copy of the certificate of authority of The First National
Bank of Cincinnati (now Star Bank, National Association) to
commence business dated September 1, 1922.
3. A copy of the authorization of The First National Bank of
Cincinnati (now Star Bank, National Association) to exercise
corporate trust powers.
4. A copy of existing By-Laws to Star Bank, National
Association, Cincinnati (now Star Bank, National Association)
5. The consent of the Trustee required by section 321 (b) of the
Trust Indenture Act of 1939.
6. A copy of the latest report of condition of Star Bank,
National Association, published pursuant to law or the
requirements of its supervising or examining authority.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, Star Bank, National Association, a national banking association
organized and existing under the laws of the United States of America, has duly
caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Cincinnati and State
of Ohio on the 30th day of
September, 1998.
STAR BANK, NATIONAL ASSOCIATION
By: /S/ Robert T Jones
--------------------------------
Robert T. Jones
Senior Trust Officer
EXHIBIT 1
Comptroller of the Currency
Administrator of National Banks
Washington, D.C. 20219
CERTIFICATE
I, Eugene A. Ludwig, Comptroller of the Currency, do hereby certify that:
1. The Comptroller of the Currency, pursuant to Revised Statutes 324, et.
seq., as amended, 12 U.S.C. 1, et seq., as amended, has possession, custody and
control of all records pertaining to the chartering, regulation and supervision
of all National Banking Associations.
2. "Star Bank, National Association", Cincinnati, Ohio, (Charter No.24), is
a National Banking Association formed under the laws of the United States and
is authorized thereunder to transact the business of banking on the date of
this Certificate.
IN TESTIMONY WHEREOF, I have hereunto
subscribed my name and caused my name and
caused my seal of office to be affixed to these
(SEAL) presents at the Treasury Department, in the City of
Washington and District of Columbia, this 18th day
of December, 1996.
(Signed)Eugene A. Ludwig
Comptroller of the Currency
Comptroller of the Currency
Administrator of National Banks
Washington, D.C. 20219
CERTIFICATE
I, Eugene A. Ludwig, Comptroller of the Currency hereby certify that the
document hereto attached is a true and complete copy, as recorded in this
Office of the currently effective Articles of Association for "Star Bank,
National Association", Cincinnati, Ohio, (Charter No. 24).
IN TESTIMONY WHEREOF, I have hereunto
subscribed my name and caused my seal of office to
be affixed to these presents at the Treasury
Department, in the City of Washington and District
(SEAL)
of Columbia, this 18th day of December, 1996.
(Signed)Eugene A. Ludwig
Comptroller of the Currency
STAR BANK, NATIONAL ASSOCIATION
CHARTER NO. 24
ARTICLES OF ASSOCIATION
FIRST: The title of this Association shall be "Star Bank, National
Association".
SECOND: The main office of the Association shall be in the city of Cincinnati,
County of Hamilton, State of Ohio. The general business of the Association
shall be conducted at its main office and its branches.
THIRD: The Board of Directors of this Association shall consist of not less
than five (5) nor more than twenty-five (25) shareholders, the exact number of
Directors within such minimum and maximum limits to be fixed and determined
from time to time by resolution of a majority of the full Board of Directors or
by resolution of the shareholders at any annual or special meeting thereof.
Unless otherwise provided by the laws of the United States, any vacancy in the
Board of Directors for any reason, including an increase in the number thereof,
may be filled by action of the Board of Directors.
FOURTH: The annual meeting of the shareholders for the election of Directors
and the transaction of whatever other business may be brought before said
meeting shall be held at the main office or such other place as the Board of
Directors may designate, on the day of each year specified thereof by the
Bylaws, but of no election is held on that day, it may be held on any
subsequent day according to the provisions of law; and all elections shall be
held according to the provisions of law; and all elections shall be held
according to such lawful regulations as may be prescribed by the Board of
Directors.
FIFTH: The authorized amount of capital stock of this Association shall be
3,640,000 shares of common stock of the par value of five dollars ($5.00) each,
but said capital stack may be increased or decreased from time to time, in
accordance with the provisions of the laws of the United States.
No holder of shares of the capital stock of any class of the Association shall
have any pre-emptive or preferential right of subscription to any shares of any
class of stock of the Association, whether now or hereafter authorized, or to
any obligations convertible into stock of the Association issued or sold, nor
any right of subscription to any thereof other than such, if any, as the Board
of Directors, in its discretion, may from time to time determine and at such
price as the Board of Directors may from time to time fix.
The Association, at any time and from time to time, may authorize and issue
debt obligations, whether or not subordinated, without the approval of the
shareholders.
SIXTH: The Board of Directors shall appoint one of its members President of
this Association, who shall be Chairman of the Board, unless the Board appoints
another Director to be the Chairman. The Board of Directors shall have the
power to appoint one or more Vice Presidents; and to appoint a Cashier and such
other officers and employees as may be required to transact the business of
this Association. The Board of Directors shall have the power to define the
duties of the officers and employees of the Association; to fix the salaries to
be paid to them; to dismiss them; to require bonds from them and to fix the
penalty thereof; to regulate the manner in which any increase of the capital of
the Association shall be made; to manage and administer the business and
affairs of the Association; to make all bylaws that it may be lawful for them
to make and generally to do and perform all acts that it may be legal for a
Board of Directors to do and perform.
SEVENTH: The Board of Directors, without need for approval of shareholders,
shall have the power to change the location of the main office of this
Association to any other place within the limits of Cincinnati, Ohio, without
the approval of the shareholders, and shall have the power to establish or
change the location of any branch or branches of the Association to any other
location, without the approval of the shareholders, but subject to the approval
of the Comptroller of the Currency.
EIGHTH: The corporate existence of this Association shall continue until
terminated in accordance with the laws of the United States.
NINTH: The Board of Directors of this Association, the Chairman of the Board,
the President, or any three of more shareholders owning, in the aggregate, not
less than twenty-five percent of the stock of this Association, may call a
special meeting of shareholders at any time. Unless otherwise provided by the
laws of the United States, a notice of the time, place, and purpose of every
annual and special meeting of the shareholders shall be given by first-class
mail, postage prepaid, mailed at least ten days prior to the date of such
meeting to each shareholder of record at his address as shown upon the books of
this Association.
TENTH: Any person, his heirs, executors, or administrators, may be indemnified
or reimbursed by the Association for reasonable expenses actually incurred in
connection with any action, suit, or proceeding, civil or criminal, to which he
or they shall be made a party by reason of his being or having been a director,
officer, or employee of the Association or of any firm, corporation, or
organization which he served in any such capacity at the request of the
Association. Provided, however, that no person shall be so indemnified or
reimbursed in relation to any matter in such action, suit, or proceeding as to
which he shall finally be adjudged to have been guilty of or liable for gross
negligence, willful misconduct or criminal acts in the performance of his
duties to the Association. And, provided further, that no person shall be so
indemnified or reimbursed in relation to any matter in such action, suit, or
proceeding which has been made the subject of a compromise settlement except
with the approval of a court of competent jurisdiction, or the holders of
record of a majority of the outstanding shares of the Association, or the Board
of Directors, acting by vote of Directors not parties to the same or
substantially the same action, suit or proceeding, constituting a majority of
the whole number of Directors. And, provided further, that no director,
officer or employee shall be so indemnified or reimbursed for expenses,
penalties or other payments incurred in an administrative proceeding or action
instituted by an appropriate bank regulatory agency where said proceeding or
action results in a final order assessing civil money penalties or requiring
affirmative action by an individual or individuals in the form of payments to
this Association. The foregoing right of indemnification shall not be
exclusive of other rights to which such person, his heirs, executors, or
administrators, may be entitled as a matter of law. The Association may, upon
the affirmative vote of a majority of its Board of Directors, purchase
insurance for the purpose of indemnifying its directors, officers and other
employees to the extent that such indemnification is allowed in the preceding
paragraph. Such insurance may, but need not, be for the benefit of all
directors, officers, or employees.
ELEVENTH: These Articles of Association may be amended at any regular or
special meeting of the shareholders by the affirmative vote of the holders of
a majority of the stock of this Association, unless the vote of the holders of
a greater amount of stock is required by law and in that case by the vote of
the holders of such greater amount.
EXHIBIT 2
COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE BUSINESS:
NO. 24
E Pluribus Unum
TREASURY DEPARTMENT
Office of Comptroller of the Currency
Washington, D.C., September 1, 1992
WHEREAS, the Act of Congress of the United States, entitled, "An Act
to amend section 5136, Revised Statutes of the United States, relating to
corporate powers of associations, so as to provide succession thereof for a
period of ninety-nine years or until dissolved, and to apply said section as so
amended to all national banking association", approved by the President on July
1, 1922, provided that all national banking associations organized and
operating under any law of the United States on July 1, 1922 should have
succession until ninety-nine years from that date, unless such association
should be sooner dissolved by the act of its shareholders owning two-thirds of
its stock, or unless its franchise should become forfeited by reason of
violation of law, or unless it should be terminated by an Act of Congress
hereinafter enacted;
NOW THEREFORE, I, D. R. Crissinger Comptroller of the Currency, do
hereby certify that The First National Bank of Cincinnati and State of Ohio,
was organized and operating under the laws of the United States on July 1,
1922, and that its corporate existence was extended for the period of
ninety-nine years from that date in accordance with and subject to the
condition in the Act of Congress hereinbefore recited.
(SEAL) IN TESTIMONY WHEREOF, witness my hand
& seal of office this first day of September, 1922
(Signed) D. R. Crissinger
Comptroller of the Currency
EXHIBIT 3
THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE TRUST POWERS:
FEDERAL RESERVE BOARD
Washington, D.C.
October 9, 1919
Pursuant to authority vested in the Federal Reserve Board by the Act
of Congress approved December 23, 1913, known as the Federal Reserve Act, as
amended by the Act of September 26, 1918, the
FIRST NATIONAL BANK OF CINCINNATI
has been granted the right to act, when not in contravention of State or local
law, as TRUSTEE, EXECUTOR, ADMINISTRATOR, REGISTRAR OF STOCKS AND BONDS,
GUARDIAN OF ESTATES, ASSIGNEE, RECEIVER OR IN ANY OTHER FIDUCIARY CAPACITY IN
WHICH STATE BANKS, TRUST COMPANIES OR OTHER CORPORATIONS WHICH COME INTO
COMPETITION WITH NATIONAL BANKS ARE PERMITTED TO ACT UNDER THE LAWS OF THE
STATE OF OHIO. The exercise of such rights shall be subject to regulations
prescribed by the Federal Reserve Board.
Federal Reserve Board,
By W. P. G. Harding
Governor.
ATTEST:
W. T. Chapman
Secretary.
STATE OF OHIO
DEPARTMENT OF BANKS AND BANKING
Certificate of Authority No. 17
NATIONAL BANKS
I, Philip C. Berg, Superintendent of Banks, do hereby certify that the
First National Bank of Cincinnati, Hamilton County, Ohio has complied with all
the requirements provided by law and is authorized to transact the business of
a trust company and to perform all the functions granted to such companies by
the laws of this state.
Given under my hand and official Seal at Columbus,
Ohio, this twenty-fifth day of November, A.D. 1919
Philip C. Berg,
Superintendent of Banks.
(SEAL)
EXHIBIT 4
BY-LAWS
STAR BANK, N.A., CINCINNATI
ARTICLE I
MEETINGS OF SHAREHOLDERS
SECTION 1. ANNUAL MEETING
The annual meeting of shareholders shall be held in the main banking house of
the Association at 11:00 a.m. on the second Tuesday in February of each year.
Notice of such meeting shall be mailed to shareholders not less than ten (10)
nor more than sixty (60) days prior to the meeting date.
SECTION 2. SPECIAL MEETINGS
Special meetings of shareholders may be called and held at such times and upon
such notice as is specified in the Articles of Association.
SECTION 3. QUORUM
A majority of the outstanding capital stock represented in person or by proxy
shall constitute a quorum of any meeting of the shareholders, unless otherwise
provided by law, but less than a quorum may adjourn any meeting, from time to
time, and the meeting amy be held as adjourned without further notice.
SECTION 4. INSPECTORS
The Board of Directors may, and in the event of its failure so to do, the
Chairman of the Board shall appoint Inspectors of Election who shall determine
the presence of a quorum, the validity of proxies, and the results of all
elections and all other matters voted upon by shareholders at all annual and
special meetings of shareholders.
SECTION 5. VOTING
In deciding on questions at meetings of shareholders, except in the election of
directors, each shareholder shall be entitled to one vote for each share of
stock held. A majority of votes cast shall decide each matter submitted to the
shareholders, except where by law a larger vote is required. In all elections
of directors, each shareholder shall have the right to vote the number of
shares owned by him for as many persons as there are directors to be elected,
or to cumulate such shares and give one candidate as many votes as the number
of directors multiplied by the number of his shares equal, or to distribute
them on the same principle among as many candidates as he shall think fit.
ARTICLE II
SECTION 1. TERM OF OFFICE
The directors of this Association shall hold office for one year and until
their successors are duly elected and qualified.
SECTION 2. REGULAR MEETINGS
The organization meeting of the Board of Directors shall be held as soon as
practical following the annual meeting of shareholders at the main banking
house. Other regular meetings of the Board of Directors shall be held without
notice at 11:00 a.m. on the second Tuesday of each month except February, at
the main banking house, or, provided notice is given by telegram, letter,
telephone or in person to every Director, at such time and place as may be
designated in the notice of the meeting. When any regular meeting of the Board
falls on a holiday, the meeting shall be held on the next banking business day,
unless the Board shall designate some other day.
SECTION 3. SPECIAL MEETINGS
Special meetings of the Board of Directors may be called by the Chairman of the
Board of the Association, or at the request of three or more Directors. Notice
of the time, place and purposes of such meetings shall be given by telegram,
letter, telephone or in person to every Director.
SECTION 4. QUORUM
A majority of the entire membership of the Board shall constitute a quorum at
any meeting of the Board.
SECTION 5. NECESSARY VOTE
A majority of those Directors present and voting at any meeting of the Board of
Directors shall decide each matter considered, except where otherwise required
by law or the Articles or By-Laws of this Association.
SECTION 6. COMPENSATION
Directors, excluding full-time employees of the Bank, shall receive such
reasonable compensation as may be fixed from time to time by the Board of
Directors.
SECTION 7. ELECTION-AGE LIMITATION
No person shall be elected or reelected a Director after reaching his
seventieth (70th) birthday, provided that any person who is a Director on
December 10, 1985, may continue to be reelected a Director until he reaches his
seventy-fifth (75th) birthday.
SECTION 8 RETIREMENT-AGE LIMITATION
Every Director of the Bank shall retire no later than the first month next
following his seventieth (70th) birthday, except for any person who was a
Director on December 10, 1985, who shall retire not later that the first of the
next month following his seventy-fifth (75th) birthday.
SECTION 9 DIRECTORS EMERITUS
The Board shall have the right from time to time to choose as Directors
Emeritus persons who have had prior service as members of the Board and who may
receive such compensation as shall be fixed from time to time by the Board of
Directors.
ARTICLE III
OFFICERS
SECTION 1 WHO SHALL CONSTITUTE
The Officers of the Association shall be a Chairman of the Board, a President,
a Secretary, and other officers such as Chairman of the Executive Committee,
Vice Chairman of the Board, Executive Vice Presidents, Senior Vice Presidents,
Vice Presidents, Assistant Secretaries, Trust Officers, Trust Investment
Officers, Trust Real Estate Officers, Assistant Trust Officers, a Controller,
Assistant Controller, an Auditor and Assistant Auditors, as the Board may
appoint from time to time. Any person may hold two offices. The Chairman of
the Board, all Vice Chairmen of the Board and the President shall at all times
be members of the Board of Directors.
SECTION 2 TERM OF OFFICE
All officers shall be elected for and shall hold office for one year and until
their successors are elected and qualified, subject to the right in the Board
of Directors by a majority vote of the entire membership to discharge any
officer at any time.
SECTION 3 CHAIRMAN OF THE BOARD (Amended 12/13/88-see attachment)
The Chairman of the Board shall be the Chief Executive Officer of the
Association and shall have all duties, responsibilities and powers of the Chief
Executive Officer. He shall, when present, preside at all meetings of
shareholders and directors and shall be ex officio a member of all committees
of the Board. He shall name all members of the committees of the Board,
subject to the confirmation thereof by the Board.
In the event that there is a vacancy in the position of President or in the
event of the absence or incapacity of the President, the Chairman may appoint,
or in the event of his failure to do so, the Board of Directors or the
Executive Committee thereof may designate any Vice Chairman of the Board, any
Executive Vice President or any Senior Vice President of the Association
temporarily to exercise the powers and perform the duties of the Chairman as
Chief Executive Officer when the Chairman is absent or incapacitated.
The Board of Directors shall have the power to elect a Chairman of the
Executive Committee. Any such Chairman of the Executive Committee shall
participate in the formation of the policies of the Association and shall have
such other duties as may be assigned to him from time to time by the President
or by the Board of Directors.
SECTION 4 PRESIDENT (amended 12/13/88-see attachment)
The President shall participate in the formation and supervision of the
policies and operations of the Association and shall perform such other duties
as may be assigned to him from time to time by the Board of Directors or by the
Chairman of the Board. In the event that there is a vacancy in the position of
the Chairman of the Board, the President shall be the Chief Executive Officer
of the Association and shall have all the powers and perform all the duties of
the Chairman of the Board, including the same power to name temporarily a Chief
Executive Officer to serve in the absence of the President.
SECTION 5 CHAIRMAN OF THE EXECUTIVE COMMITTEE
The Board of Directors shall have the power to elect a Chairman of the
Executive Committee. Any such Chairman of the Executive Committee shall
participate in the formation of the policies of the Association and shall have
such other duties as may be assigned to him from time to time by the President
or by the Board of Directors.
SECTION 6 VICE CHAIRMEN OF THE BOARD
The Board of Directors shall have the power to elect one or more Vice Chairmen
of the Board of Directors. Any such Vice Chairmen of the Board shall
participate in the formation of the policies of the Association and shall have
such other duties as may be assigned to him from time to time by the Chairman
of the Board or by the Board of Directors.
SECTION 7 OTHER OFFICERS
The Secretary and all other officers appointed by the Board of Directors shall
have such duties as defined by law and as may from time to time be assigned to
them by the Chief Executive Officer or the Board of Directors.
SECTION 8 RETIREMENT
Every officer of the Association shall retire not later than the first of the
month next following his sixty-fifth (65th) birthday. The Board of Directors
may, in its discretion, set the retirement date and terms of retirement of an
officer at a date later than provided above.
ARTICLE IV
COMMITTEES
SECTION 1 EXECUTIVE COMMITTEE
There shall be a standing committee of Directors in this Association to be
known as the Executive Committee. This Committee shall meet at 11:00 a.m. on
the first and fourth Tuesday of each month. It shall have all of the powers of
the Board of Directors between meetings of the Board, except as the Board only
by law is authorized to perform or exercise. All actions of the Executive
Committee shall be reported to the Board of Directors. In the event that any
member of the Executive Committee is unable to attend a meeting of that
committee, the Chairman of the Board or the President may, at his discretion,
appoint another Director to attend said meeting of the Executive Committee and
for that meeting to serve as a member of the Executive Committee with full
power to act in place of the absent regular member of the committee.
SECTION 2 COMPENSATION COMMITTEE
There shall be a standing committee of directors of this Association to be
known as the Compensation Committee who shall review the compensation of all
Executive Officers and those officers who participate in the Profit Sharing
Pool as well as fees for directors of the Association. They will recommend
specific compensation arrangements to the Board of Directors for their
confirmation.
SECTION 3 COMMITTEE ON AUDIT
There shall be a standing committee of Directors of this Association to be
known as the Committee on Audit, none of whose members shall be active officers
of the Association. This Committee shall make or cause to be made a suitable
examination of the affairs of the Association and the Trust Department at least
once during each period of twelve months. The results of such examination
shall be reported in writing to the Board at the next regular meeting
thereafter stating whether the Association and/or Trust Department is in a
sound solvent condition, whether adequate internal audit controls and
procedures are being maintained and make such recommendations as it deems
advisable.
SECTION 4 TRUST COMMITTEE
There shall be a standing committee of Directors of this Association to be
known as the Trust Committee. The Trust Committee shall determine policies of
the Department and review actions of the Trust Investment Committee. All
actions of the Trust Committee shall be reported to the Board of Directors.
SECTION 5 TRUST INVESTMENT COMMITTEE
There shall be a standing committee of this Association to be known as the
Trust Investment Committee composed of officers of the Association. The Trust
Investment Committee or such officers as may be duly designated by the Trust
Investment Committee, shall pass upon the acceptance of all trusts, the closing
out or relinquishment of all trusts and the making, retention, or disposition
of all investments of trust funds in conformity with policies established by
the Trust Committee. Actions of the Trust Investment Committee shall be
reported to the Trust Committee.
SECTION 6 PENSION COMMITTEE
There shall be a standing committee of directors or officers of this
Association to be known as the Pension Committee, who shall have the powers and
duties as set forth in the Association's Employees' Pension Plan. A report of
the condition of the pension fund shall be submitted annually to the Board of
Directors.
SECTION 7 OTHER COMMITTEES
The Chairman may appoint, from time to time, other committees for such purposes
and with such powers as he or the Board may direct.
ARTICLE V
SEAL
SECTION 1 IMPRESSION
The following is an impression of the seal of this Association.
August 25, 1988
RESOLVED, That Section 3 of Article III of the By-Laws of the Bank shall be
amended to read:
SECTION 3 CHAIRMAN OF THE BOARD
The Chairman of the Board shall have general executive powers and duties and
shall perform such other duties as amy be assigned from time to time by the
Board of Directors. In addition, unless the Board of Directors shall have
designated the President to be the Chief Executive Officer, the Chairman of the
Board shall be the Chief Executive Officer and shall have all the powers and
duties of the Chief Executive Officer. He shall, when present, preside at all
meetings of shareholders and directors and shall be ex officio a member of all
committees of the Board. He shall name all members of the committees of the
Board, subject to the confirmation thereof by the Board.
If he is Chief Executive Officer, in the event that there is a vacancy in the
position of President or in the event of the absence or incapacity of the
President, the Chairman may appoint, or in the event of his failure to do so,
the Board of Directors or the Executive Committee thereof may designate, any
Vice Chairman of the Board, any Executive Vice President or any Senior Vice
President of the Association temporarily to exercise the powers and perform the
duties of the Chairman as Chief Executive Officer when the Chairman is absent
or incapacitated.
If the President has been designated Chief Executive Officer by the Board of
Directors, in the event that there is a vacancy in the position of the
President or in the event of the absence or incapacity of the President, the
Chairman shall be the Chief Executive Officer of the Association and shall have
all the powers and perform all the duties of the President, including the
powers to name temporarily a Chief Executive Officer to serve in the absence of
the Chairman.
FURTHER RESOLVED, That Section 4 of Article III of the By-Laws of the bank
shall be amended to read:
SECTION 4 PRESIDENT
The President shall have general executive powers and duties and shall perform
such other duties as may be assigned from time to time by the Board of
Directors. In addition, if designated by the Board of Directors, the President
shall be the Chief Executive Officer and shall have all the powers and duties
of the Chief Executive Officer, including the same power to name temporarily a
Chief Executive Officer to serve in the absence of the President if there is a
vacancy in the position of the Chairman or in the event of the absence or
incapacity of the Chairman.
If the Chairman has been designated Chief Executive Officer by the Board of
Directors, in the event that there is a vacancy in the position of the Chairman
of the Board or in the event of the absence or incapacity of the Chairman of
the Board, the President shall be the Chief Executive Officer of the
Association and shall have all the powers and perform all the duties of the
Chairman of the Board, including the same power to name temporarily a Chief
Executive Officer to serve in the absence of the President.
EXHIBIT 5
THE CONSENT OF THE TRUSTEE
REQUIRED BY 321 (b) OF THE ACT
Star Bank, National Association, the Trustee executing the statement
of eligibility and qualification to which this Exhibit is attached does hereby
consent that reports of examinations of the undersigned by Federal, State,
Territorial or District authorities may be furnished by such authorities to the
Securities and Exchange Commission upon request therefor in accordance with the
provisions of 321 (b) of the Trust Indenture Act of 1939.
STAR BANK, NATIONAL ASSOCIATION
September 30, 1998 BY: /S/ Robert T. Jones
------------------ --------------------------
Date Robert T. Jones
Senior Trust Officer
EXHIBIT 6
Consolidated Report of Condition
Star Bank, National Association
for June 30, 1998
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day
of the quarter.
Balance Sheet
<TABLE>
<CAPTION>
Dollar Amounts in
<S> Thousands
ASSETS <C> <C>
1. Cash and balances due from depository institutions
a. Noninterest-bearing balances and currency and coin $718,039
b. Interest-bearing balances 15,220
2. Securities:
a. Held-to-maturity securities 138,643
b. Available-for-sale securities 2,598,301
3. Federal funds sold and securities purchased under agreements to resell in 50,000
domestic offices of the bank and of its Edge and Agreements subsidiaries, and in YBFs
a. Federal funds sold 0.00
b. Securities purchased under agreements to resell 0.00
4. Loans and lease financing receivables: 9,884,264
a. Loans and leases, net of unearned income 146,548
b. LESS: Allowance for loan and lease losses
c. LESS: Allocated transfer risk reserve
d. Loans and leases, net of unearned income,allowance, and reserve 9,737,716
5. Trading assets 2,114
6. Premises and fixed assets (including capitalized leases) 188,528
7. Other real estate owned 5,114
8. Investments in unconsolidated subsidiaries and associated companies 4,234
9. Customers' liability to this bank on acceptances outstanding 18,718
10. Intangible assets 718,305
11. Other assets 366,923
12. Total assets $14,561,855
LIABILITIES
13. Deposits:
a. In domestic offices $11,474,780
(1) Noninterest-bearing $2,160,867
(2) 9,313,913
Interest-bearing
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs 44,458
(1) Noninterest-bearing 0
(2) Interest-bearing 44,458
14. Federal funds purchased and securities sold under agreements 960,775
to repurchase in domestic offices of the bank and of its Edge and
Agreement subsidiaries, and in IBFs:
a. Federal funds purchased
b. Securities sold under agreements ro repurchase
15. a. Demand notes issued to the U.S. Treasury 3,071
b. Trading liabilities 0.00
16. Other borrowd money:
a. With original maturity of one year or less 556
b. With original maturity of more than one year 102,826
17. Mortgage indebtedness and obligations under capitalizated
leases
18. Bank's liability on acceptances executed and outstanding 18,718
19. Subordinated notes and debentures 247,837
20. Other liabilities 253,055
21. Total liabilities 13,106,080
22. Limited-life preferred stock and related surplus 0.00
23. Perpetual preferred stock and related surplus 0.00
24. Common Stock 18,200
25. Surplus [exclude all surplus related to preferred stock] 810,707
26. a. Undivided profits and capital reserves 611,767
b. Net unrealized holding gains (losses) on available-for-sale
securities 15,101
27. Cumulative foreign currency translation adjustments 0.00
28. Total equity capital 1,455,775
29. Total liabilities, limited-life preferred stock, and equity $14,551,855
capital
</TABLE>
