As filed with the Securities and Exchange Commission on October 2, 1998
Registration No. 333-63563
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
Amendment No. 1 on
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------
INSILCO HOLDING CO.
(exact name of registrant as specified in its charter)
Delaware 06-1158291
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
425 Metro Place North
Fifth Floor
Dublin, Ohio 43017
(614) 792-0468
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
Kenneth H. Koch
Vice President and General Counsel
Insilco Holding Co.
425 Metro Place North
Fifth Floor
Dublin, Ohio 43017
(614) 792-0468
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-----------------------
Copies to:
Richard D. Truesdell, Jr.
John W. Buttrick
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
(212) 450-4000
-----------------------
Approximate date of commencement of proposed sale to public: From time to time
following the effectiveness of this Registration Statement.
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 the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this form, 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: [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=================================================================================================================================
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Offering Price Per Aggregate Offering Amount of
Securities to be Registered Registered Security(1) Price(1) Registration Fee
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.001 per share......... 174,145 shares (2) $42.50(3) $7,401,163 $2,184(4)
- ---------------------------------------------------------------------------------------------------------------------------------
Warrants to purchase Common Stock............... 138,000 warrants $42.49(5) $5,863,620 $1,730(4)
- ---------------------------------------------------------------------------------------------------------------------------------
Class A Warrants to purchase
Common Stock................................. 65,603 warrants $42.49(5) $2,787,472 $823(4)
- ---------------------------------------------------------------------------------------------------------------------------------
Pay-in-kind 15% Senior Exchangeable 2,923,413 shares(6) $25.00(6) $73,085,325 $10,325(4)
Preferred Stock due 2010..................... $11,236(7)
=================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) of the Securities Act of 1933, as amended.
(2) Includes 110,453 shares of Common Stock issuable upon exercise of the
Warrants and Class A Warrants registered hereby, plus a presently
indeterminable number of shares of Common Stock, if any, as shall be
issuable from time to time as required pursuant to adjustments under the
Warrants and Class A Warrants.
(3) The average of the bid and asked prices of the Common Stock in the
over-the-counter market on September 14, 1998.
(4) Previously paid.
(5) Based on the average of the bid and asked prices of the Common Stock in the
over-the-counter market on September 14, 1998, less the exercise price of
the Warrants or the Class A Warrants, as the case may be.
(6) Represents 1,400,000 shares currently outstanding and 1,523,413 shares that
may be issued in lieu of cash dividend payments prior to August 1, 2003.
(7) Paid herewith.
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 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
================================================================================
PROSPECTUS
Issued October 2, 1998
INSILCO HOLDING CO.
COMMON STOCK
WARRANTS TO PURCHASE COMMON STOCK
PAY-IN-KIND PREFERRED STOCK
This Prospectus relates to (i) the resale of 138,000 warrants (the
"Warrants") and 65,603 Class A Warrants (the "Class A Warrants") to purchase
shares of Common Stock, par value $.001 per share (the "Common Stock") of
Insilco Holding Co. (the "Company") by certain holders named herein or in an
accompanying supplement to this Prospectus ("Warrantholders"), (ii) the
issuance of up to 110,453 shares of Common Stock upon exercise of such Warrants
or Class A Warrants to persons who have purchased Warrants or Class A Warrants
under the immediately preceding clause (i) ("Exercising Warrantholders"), (iii)
resales of 63,692 shares (the "Existing Shares") of Common Stock held by
certain stockholders of the Company named herein or in an accompanying
supplement to this Prospectus and up to 110,453 shares of Common Stock that may
be received upon exercise of Warrants or Class A Warrants by persons other than
Exercising Warrantholders and (iv) resales of 2,923,413 shares (represents
1,400,000 shares currently outstanding and 1,523,413 shares that may be issued
in lieu of cash dividend payments prior to August 1, 2003) of Pay-in-kind 15%
Senior Exchangeable Preferred Stock due 2010 (the "PIK Preferred Stock") held
by certain funds (the "DLJMB Funds") affiliated with DLJ Merchant Banking
Partners II, L.P. ("DLJMB"). All of the Warrants, Class A Warrants and such
shares of Common Stock and PIK Preferred Stock (collectively, the "Offered
Securities") are being sold by such persons or entities (other than
Warrantholders or Exercising Warrantholders, collectively referred to as the
"Selling Stockholders") and the Company will not receive any of proceeds
received therefrom, other than upon the exercise of Warrants or Class A
Warrants by Exercising Warrantholders. The Warrants, the Class A Warrants and
the shares of PIK Preferred Stock were issued and shares issued upon the
exercise of Warrants or Class A Warrants by persons other than Exercising
Warrantholders have been or will be issued pursuant to an exemption from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"). The Offered Securities are being registered by the Company
pursuant to registration rights granted in connection with the private
placement of the Warrants, the Class A Warrants and PIK Preferred Stock and the
issuance of the Existing Shares in connection with the Mergers described
herein.
The Offered Securities may be offered by the Warrantholders and Selling
Stockholders from time to time in transactions in the over-the-counter market,
in privately negotiated transactions, in underwritten offerings or by a
combination of such methods of sale, at fixed prices that may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Warrantholders and
Selling Stockholders may effect such transactions by selling the Offered
Securities to or through broker-dealers and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Warrantholders and Selling Stockholders or the purchasers of the Offered
Securities for whom such broker-dealers may act as agent or to whom they sell
as principal or both (which compensation to a particular broker-dealer might be
in excess of customary commissions). If required, the names of any such
broker-dealers and the applicable compensation, if any, will be set forth in an
accompanying supplement to this Prospectus. See "Plan of Distribution."
The Company has agreed to bear certain expenses in connection with the
registration and sale of the Offered Securities being offered by the
Warrantholders and Selling Stockholders.
The Common Stock of the Company is traded in the over-the-counter market
under the symbol "INSL." On September 23, 1998, the last sale price for the
Common Stock in the over-the-counter market was $38.00 per share.
-------------------
The Warrantholders and Selling Stockholders and any broker-dealers or
agents that participate with the Warrantholders and Selling Stockholders in the
distribution of the Offered Securities may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, and any commissions received
by them and any profit on the resale of the Offered Securities purchased by them
may be deemed to be underwriting commissions or discounts under the Securities
Act.
-------------------
See "Risk Factors" beginning on page 6 hereof for certain information that
should be considered by prospective investors.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE<PAGE>
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 STATEMENT OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH STATE.
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN AS CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
-----------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary...........................................................3
Risk Factors.................................................................6
The Company.................................................................12
Use of Proceeds.............................................................13
Management..................................................................13
Security Ownership of Certain Beneficial Owners and Management..............14
Warrantholders and Selling Stockholders.....................................16
Description of Warrants.....................................................20
Description of Capital Stock................................................25
Plan of Distribution........................................................28
Legal Matters...............................................................28
Experts.....................................................................28
Available Information.......................................................28
Pro Forma Financial Information ...........................................P-1
-----------------------
INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE
The following documents or portions of documents filed by Insilco
Corporation ("Insilco"), the Company's predecessor pursuant to Rule 12g-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), with the
Securities and Exchange Commission (the "Commission") are incorporated herein
by reference: (a) Annual Report on Form 10-K for the fiscal year ended December
31, 1997, as amended and restated on Form 10-K/A-2 dated July 8, 1998 (the
"Form 10-K"); (b) Quarterly Report on Form 10-Q for the quarter ended March 31,
1998, as amended and restated on Form 10-Q/A dated July 8, 1998 and (c)
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998. In addition,
the following documents filed by the Company with the Commission are
incorporated herein by reference: Current Reports on Forms 8-K dated August 12,
1998, August 18, 1998 and August 28, 1998.
This Prospectus is accompanied by a copy of Insilco's Form 10-K. Any
statement contained in a document incorporated by reference herein shall be
deemed modified or superseded for purposes of this Prospectus to the extent
that a statement contained or incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered a copy of any or all of such documents which are
incorporated herein by reference (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference into the documents
that this Prospectus incorporates). Written or oral requests for copies should
be directed to the Corporate Secretary, at the Company's executive offices
located at 425 Metro Place North, Dublin, Ohio 43017.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere or incorporated by reference in this
Prospectus. As used herein, the "Company" refers to Insilco Holding Co., its
predecessors and subsidiaries. For a discussion of important factors that could
cause actual results to differ materially from the forward-looking statements,
see "Risk Factors."
THE COMPANY
Overview
The Company is a diversified producer of automotive, telecommunications
and electronics components, and is a leading specialty publisher of student
yearbooks. The Company has three reporting segments: (i) the Automotive
Components Group, which manufactures transmission components and assemblies and
heat exchangers (such as radiators and air conditioning condensers) and heat
exchanger tubing; (ii) the Technologies Group, which manufactures high
performance data-grade connectors for the telecommunications and networking
markets, cable and wire assemblies primarily for the telecommunications market,
and precision metal stampings and power transformers primarily for the
electronics market; and (iii) Specialty Publishing, a specialty publisher
focusing primarily on the student yearbook market. The Company's portfolio of
businesses serves several market segments, which the Company believes tends to
dampen cyclicality and diversify business risk. The Company's broad base of
more than 17,000 customers includes automotive and non-automotive original
equipment manufacturers ("OEMs"), telecommunications, networking and
electronics companies and school yearbook departments nationwide.
The Automotive Components Group consists of three operating units--Thermal
Components, Steel Parts and Romac--and a joint venture, Thermalex. Thermal
Components produces aluminum- and copper-based heat exchanger tubing for
automotive OEMs and Tier 1 suppliers, and also manufactures radiators, air
conditioning condensers and other heat exchangers for automotive and industrial
applications. Steel Parts is the leading supplier of automatic transmission
clutch plates to Ford and produces other stamped components for OEMs and Tier 1
suppliers. Romac produces stainless steel tubing for marine, architectural,
industrial and automotive applications. Thermalex, a joint venture owned
equally by the Company and Mitsubishi Aluminum Co., Ltd. is, management
believes, the nation's leading producer of precision extruded multi-port
aluminum heat exchanger tubing used in automotive air-conditioning condensers.
The Technologies Group generally focuses on niche products which are
designed for specific customer applications and seeks to supply all or a
substantial portion of its customers' requirements. The group has four
operating units: Escod Industries, a supplier of cable and wire assemblies to
the telecommunications market, including Northern Telecom and Siemens Telecom
Network; Stewart Connector, a producer of high performance data-grade
connectors for the computer networking and telecommunications markets; Stewart
Stamping, a producer of highly customized precision stamped metal parts,
primarily for the electronics industry; and Signal Transformer, a producer of
50-60 Hz power transformers used in a variety of product applications.
Specialty Publishing consists of Taylor Publishing Company ("Taylor"), one
of the nation's leading publishers of student yearbooks. The student yearbook
business benefits from very limited cyclicality, low customer turnover and
pre-paid sales.
Business Strategy
The Company seeks sales growth through internal growth and acquisitions.
In addition, the Company seeks to improve operating margins through cost
reduction programs and an on-going process of efficiency improvements. The
Company's strategy includes the following:
Focus on Niche Markets
The Company's primary focus is to tailor its products for customer
specific applications in niche markets. Such strategy includes customizing
products for particular accounts and applications and developing technology to
enhance product function. The Company believes that this niche market focus
results in more stable revenues, higher margins and longer term, often
sole-supplier, customer relationships.
Develop New Products and Applications
The Company pursues internal growth by developing specialized products and
by developing new applications for existing products. To further this goal, the
Automotive Components Group formed a technical center to research emerging
trends in heat transfer technologies and to develop new products and
applications. One longer-term project involves adapting the Company's condenser
technology for use in heating, ventilation and cooling ("HVAC") applications
for the residential market. Management believes its heat exchanger technology
could be used in the design of smaller, more energy efficient aluminum
condensers to replace the conventional copper/brass condensers currently used
in residential HVAC systems. In addition, the Company plans to introduce
several new products at Stewart Connector in 1998, including a modular
connector that converts light to electrical signals. Finally, the Company's
investments in digital pre-press technology at Taylor are designed to lower
production costs and improve yearbook quality.
Increase Value-Added Content
The Company's business strategy also emphasizes increasing value-added
content to provide customers with integrated solutions rather than individual
components. For example, the Company's Steel Parts unit has expanded its
product offering to include sub-assemblies instead of solely individual
component parts. The Company's contract cable assembly unit has expanded its
services to include complete wire harness systems, and its high-precision
stamping unit now offers a number of finishing processes, in addition to
designing and stamping high-precision parts. Supplying value-added assemblies
and completing complementary manufacturing processes instead of individual
components permit the Company to foster long-term relationships with customers,
increase sales and expand margins. Moreover, OEM customers are able to reduce
their supplier base, while ensuring that an integrated sub-assembly passes
quality standards and meets exacting design compatibility requirements.
Implement Cost Reduction Programs and Efficiency Improvements
The Company has a continual improvement philosophy which, by recognizing
and rewarding efficiency and quality improvements, has reduced scrap rates,
improved labor productivity and increased operating margins. In addition, the
Company's individual business units have upgraded equipment to automate
manufacturing processes and have increased production at lower cost plants,
such as those in the Dominican Republic, Mexico and El Paso, Texas. For
example, equipment upgrades at Thermal Components in 1996 have increased
capacity, substantially reduced cycle time, and lowered costs and product
defect ratios. Taylor Publishing has switched to automated pre-press operations
and introduced a pilot program through which selected customers are using the
Internet to proof and approve electronic copy, which the Company believes will
lead to reduced pre-press production costs.
Expand Strategic Acquisitions and Partnerships; Divestitures
The Company believes that it operates in highly fragmented industries
which provide many strategic acquisition and partnership opportunities. Through
acquisitions and partnerships, the Company seeks to leverage its technical
expertise, customer contacts and managerial talent to augment its core
business, broaden the Company's product lines, increase its geographic scope
and better serve its customers. For example, in 1996 the Company acquired Great
Lake, Inc., which expanded the Company's product reach to include the
automotive and heavy truck radiator replacement market, and acquired the
automotive aluminum tubing business of Helmut Lingemann GmbH & Co., which
expanded the Company's international market position in the automotive heat
exchanger tubing market. The Company believes that numerous acquisition
candidates exist globally and intends to continue to seek new acquisition
opportunities in its technology and automotive segments. In addition, the
Company, from time to time, considers certain divestitures.
Recent Developments
On January 14, 1997, Taylor sued one of its principal competitors in the
yearbook business, Jostens, Inc. ("Jostens"), in the U.S. District Court for
the Eastern District of Texas, alleging violations of the federal antitrust
laws as well as various claims arising under state law. On May 13, 1998 the
jury in the case returned a verdict in favor of Taylor, and, on June 12, 1998,
the judge presiding over the litigation in the U.S. District Court rendered his
judgment in the amount of $25.2 million plus interest at the rate of 5.434
percent per annum. Jostens has announced that it will seek to overturn the
judgment in post trial motions or on appeal. There can be no assurance as to
the actual amount, if any, that Taylor will recover from Jostens.
On August 17, 1998, the Company consummated a series of transactions that
resulted in (i) DLJMB and the DLJMB Funds owning approximately 69.0% of the
Company's outstanding Common Stock (approximately 68.3% on a fully diluted
basis), (ii) the issuance of approximately $70.2 million in aggregate gross
proceeds of Units (the "Units"), each Unit consisting of $1,000 in principal
amount at maturity of 14% Senior Discount Notes due 2008 (the "Senior Discount
Notes") and one Warrant to purchase .325 of a share of Common Stock, and (iii)
the issuance of approximately $35.0 million in aggregate gross proceeds of PIK
Preferred Stock and Class A Warrants. See "The Company" and "Description of
Capital Stock."
RISK FACTORS
Investors should carefully consider the specific risk factors set forth
below.
Limitations on Access to Cash Flow of Subsidiaries; Holding Company Structure
The Company is a holding company, and its ability to make dividend
payments in respect of its Common Stock is dependent upon the receipt of
dividends or other distributions from its direct and indirect subsidiaries. The
Company does not have, and may not in the future have, any assets other than
all of the shares of common stock of Insilco Corporation ("Insilco"), the
Company's operating subsidiary, which will be pledged to secure the obligations
of Insilco under its $200.0 million credit facility with various lenders and
issuing banks (the "Credit Facility"). Insilco and its subsidiaries are parties
to the Credit Facility and Insilco is party to the Indenture (the "10 1/4%"
Note Indenture") pursuant to which its 10 1/4% Senior Subordinated Notes due
2007 (the "10 1/4% Notes") were issued, each of which imposes substantial
restrictions on Insilco's ability to pay dividends or make other distributions
to the Company. Any payment of dividends or other distributions will be subject
to the satisfaction of certain financial conditions set forth in such indenture
and is subject to certain prohibitions contained in the Credit Facility. The
ability of Insilco and its subsidiaries to comply with such conditions or
prohibitions may be affected by events that are beyond the control of the
Company. If the maturity of the 10 1/4% Notes or the loans under the Credit
Facility were to be accelerated, all such outstanding debt would be required to
be paid in full before Insilco or its subsidiaries would be permitted to
distribute any assets or cash to the Company. There can be no assurance that
the assets of the Company would be sufficient to repay all of such outstanding
debt and to meet its obligations under the Indenture. In addition, under
Delaware law, a company is permitted to pay dividends or make other
distributions on its capital stock only out of its surplus or, in the event
that it has no surplus, out of its net profits for the year in which a dividend
or distribution is declared or for the immediately preceding fiscal year.
Surplus is defined as the excess of a company's total assets over the sum of
its total liabilities plus the par value of its outstanding capital stock. In
determining Insilco's ability to pay dividends or make other distributions to
the Company, Delaware law will permit the Board of Directors of Insilco to
revalue its assets and liabilities from time to time to their fair market
values in determining surplus. The Company cannot predict what the value of
Insilco's or its other subsidiaries' assets or the amount of their liabilities
will be in the future and, accordingly, there can be no assurance that the
Company will be able to receive dividends from Insilco in order to make any
dividend payments in respect of its Common Stock.
Substantial Leverage; Liquidity; Stockholders' Deficit
In connection with the Mergers (as defined below) and the Merger Financing
(as defined below), the Company incurred a significant amount of indebtedness.
See "The Company." As of June 30, 1998, after giving pro forma effect to the
Mergers and the Merger Financing and the application of the proceeds thereof,
the Company would have had total consolidated indebtedness of approximately
$376.8 million and a stockholder's deficit of $226.3 million. In addition, on
such pro forma basis as of June 30, 1998, Insilco could have borrowed an
additional $36.1 million under the Credit Facility. In addition, subject to the
restrictions in the Credit Facility, the 10 1/4% Note Indenture and the
Indenture pursuant to which the Company's 14% Senior Discount Notes due 2008
(the "Senior Discount Notes") were issued (the "Indenture"), the Company may
incur significant additional indebtedness, which may be secured, from time to
time.
The level of the Company's indebtedness could have important consequences
to the Company, including: (i) limiting cash flow available for general
corporate purposes, including acquisitions, because a substantial portion of
the Company's cash flow from operations must be dedicated to debt service; (ii)
limiting the Company's ability to obtain additional debt financing in the
future for working capital, capital expenditures or acquisitions; (iii)
limiting the Company's flexibility in reacting to competitive and other changes
in the industry and economic conditions generally; and (iv) exposing the
Company to risks inherent in interest rate fluctuations because certain of the
Company's borrowings may be at variable rates of interest, which could result
in higher interest expense in the event of increases in interest rates. In
addition, if the holders of the 10 1/4% Notes require Insilco to purchase in
excess of $5 million of 10 1/4% Notes in the Offer to Purchase and the Company
is required to refinance the Credit Facility, the Company may be required to
finance such purchase on less favorable terms.
The Company's ability to make scheduled payments of principal of, to pay
interest on or to refinance its indebtedness and to satisfy its other debt
obligations will depend upon its future operating performance, which will be
affected by general economic, financial, competitive, legislative, regulatory,
business and other factors beyond its control. The Company anticipates that
over the next several years its operating cash flow, together with borrowings
under the Credit Facility, will be sufficient to meet its anticipated future
operating expenses and capital expenditures and to service interest payments on
its outstanding debt as they become due. The Company believes, however, that
based upon the Company's current level of operations and anticipated growth, it
will be necessary to refinance the Senior Discount Notes upon their maturity.
There can be no assurance that the Company will be able to refinance the Senior
Discount Notes on satisfactory terms, if at all. Moreover, if the Company's
future operating cash flows are less than currently anticipated it may be
forced, in order to make payments on its outstanding debt obligations, to
reduce or delay acquisitions or capital expenditures, sell assets or reduce
operating expenses. If the Company were unable to meet its debt service
obligations (including obligations to pay principal, premium, if any, at
maturity or upon the occurrence of an Event of Default or Change in Control
(each as defined)), it could attempt to restructure or refinance its
indebtedness or to seek additional equity capital. There can be no assurance
that the Company will be able to effect any of the foregoing on satisfactory
terms, if at all.
Restrictions Imposed by Terms of Indebtedness
The Indenture restricts, among other things, the Company's ability to
incur additional indebtedness, incur liens, pay dividends or make certain other
restricted payments, enter into certain transactions with affiliates, merge or
consolidate with any other person or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of the assets of the Company. In
addition, the Credit Facility and the 10 1/4% Note Indenture contain other and
more restrictive covenants with respect to Insilco and its subsidiaries and
prohibit Insilco from prepaying its other indebtedness. The Credit Facility
requires Insilco to maintain specified financial ratios and satisfy certain
other financial condition tests. Insilco's ability to meet those financial
ratios and tests can be affected by events beyond its control, and there can be
no assurance that Insilco will meet those tests. A breach of any of the
foregoing covenants could result in a default under the Credit Facility, the 10
1/4% Note Indenture and/or the Senior Discount Notes. Upon the occurrence of an
event of default under the Credit Facility or the 10 1/4% Note Indenture, the
holders of such indebtedness could elect to declare such indebtedness to be
immediately due and payable. Substantially all of Insilco's assets and all of
Insilco's outstanding common stock is pledged as security under the Credit
Facility. Pursuant to the Company's guarantee of the Credit Facility, the
Company may not incur any indebtedness other than the Senior Discount Notes. If
Insilco were unable to repay amounts due under the Credit Facility, the lenders
under the Credit Facility could proceed against the collateral granted to them
to secure that indebtedness and there can be no assurance that such assets
would be sufficient to repay in full such indebtedness and the other
indebtedness of the Company.
Potential Lack of Financing
Consummation of the Mergers on August 17, 1998 required Insilco to make,
within 30 days following such consummation, an Offer to Purchase, as defined in
the 10 1/4% Note Indenture, all $150 million of the outstanding 10 1/4% Notes
at a purchase price equal to 101% of their principal amount, plus accrued
interest. The Credit Facility has been amended, effective upon the Mergers, to
permit the Company to purchase up to $5.0 million of 10 1/4% Notes in the Offer
to Purchase. No assurance can be given, however, that holders of the 10 1/4%
Notes will not tender more than $5 million of the 10 1/4% Notes. DLJ Capital
Funding, Inc., an affiliate of DLJMB, has committed to lend up to $350 million
to the Company in the event that holders of the 10 1/4% Notes require Insilco
to repurchase in excess of $5.0 million of the 10 1/4% Notes in any Offer to
Purchase (the "Backstop Facility"). The Backstop Facility will consist of a
revolving credit facility and a term loan facility, each on terms to be agreed
by the eventual parties to the Backstop Facility. The availability of funds
under the Backstop Facility is, however, subject to significant conditions,
including, without limitation, (i) the mutual agreement of terms customary for
transactions of this nature and other customary conditions with respect to
security, guarantee and loan documentation, (ii) the absence of any facts,
events or circumstances that could reasonably be expected to materially and
adversely affect the financial condition, business, assets or results of
operations of the Company and its subsidiaries, taken as a whole, (iii) the
absence of any material disruption of or material adverse change in current
financial, banking or capital market conditions that could impair the
syndication of the Backstop Facility and (iv) certain other matters.
Accordingly, there can be no assurance that the Backstop Facility will be
available if needed.
Customer Concentration; Absence of Long-Term Contracts
A significant portion of the Company's sales are made to a relatively
small group of major customers. In 1997, sales to Ford represented
approximately 10% of net sales and sales to a group of the Company's nine next
largest customers represented approximately 22% of net sales. The current size
of the Company's automotive customer base exposes the Company to the risk of
changes in the business condition of its major customers and to the risk that
the loss of a major customer could adversely affect the Company's results of
operations. While the Company has supplied Ford for 40 years, Ford is not
contractually bound to purchase supplies from the Company in the future. Thus,
the Company's relationship with Ford is subject to termination at any time. If
the Company were to lose Ford as a customer, the Company's results of
operations would be adversely affected.
Cyclical Markets
A substantial portion of the Company's revenues derive from sales to
markets that have been historically, and are likely to continue to be,
cyclical. For example, the Company's Automotive Components Group, which
accounted for approximately 44% of the Company's net sales and 45% of operating
income for the year ended December 31, 1997, primarily serves the automobile
OEM market and the automobile parts aftermarket through the manufacture of
automotive heat exchangers and related tubing, and automatic transmission and
suspension components. For the year ended December 31, 1997, however,
approximately 16% and 27% of the Automotive Components Group's net sales were
attributable to the automotive aftermarket and nonautomotive OEMs,
respectively. The automobile industry has experienced recessionary or slow
growth conditions for substantial periods in the past and may experience
recessionary conditions in the future. Any substantial weakening of the
automobile industry would have an adverse effect on the Company's results of
operations.
Seasonality; Production Disruption
In certain of the Company's businesses in which there is high customer
concentration or high production seasonality, the Company would be exposed to
potentially significant revenue losses if it (or its customers) were to
experience substantial disruption in production. With the continued emphasis on
reductions in component inventories and "just-in-time" deliveries, especially
in the automotive industry, any disruption in production by the Company or its
major customers, through work stoppages or otherwise, could have an immediate
and adverse effect on the Company's results of operations. Additionally, a
portion of the Company's revenues and operating income are exposed to the
seasonality of the yearbook production cycle. A majority of the annual revenues
of Taylor are recognized in the Company's second quarter. Any disruption during
the peak production period (April to June) through work stoppages, loss of
production facilities or otherwise, has caused and could in the future cause
lost revenues or delay revenue recognition in the year in which it occurred or
increase expenses and adversely affect future years' contract renewals.
Competition
The businesses in which the Company is engaged are highly competitive and
in some cases highly fragmented, with many small manufacturers. In some of its
businesses, especially the data grade connector business and the heat exchanger
business, the Company competes with entities having significantly more
resources. In certain other businesses the Company competes with entities that
have a greater share of the relevant market and lower costs. As competition
increases, profit margins on some of the Company's significant business lines
could decrease, and in the more fragmented markets consolidation could occur,
resulting in the creation of larger and financially stronger competitors. The
Company believes that, to remain competitive and maintain or increase its
profitability, it must pursue a strategy focusing on growth and product
innovation. However, the Company's competitors can be expected to continue to
seek their own growth, to improve the design and performance of their products,
to reduce costs of existing competitive products and to introduce new products
with competitive price and performance characteristics. Although the Company
believes that, with respect to most of its businesses, it has certain
technological, manufacturing and other advantages over its competitors,
maintaining these advantages will require continued investment by the Company
in research and development, sales and marketing, productivity improvements and
information systems. There can be no assurance that the Company will have
sufficient resources to continue to make such investments, that such
investments will be successful or that the Company will be able to maintain its
existing competitive advantages.
Technology and the Development of New Products
The markets for many of the Company's products, particularly the products
produced by Stewart Connector, are characterized by technological change,
evolving industry standards, frequent new product introductions and product
customization. Many of the Company's products require significant planning,
design, development and testing at the technological, product and manufacturing
process levels. In addition, the introduction of new products and technologies
may render existing or proposed products noncompetitive or obsolete. Moreover,
many of the Company's customers utilize its products and proprietary
technologies as components of other products which they manufacture or
assemble, which may become uncompetitive or obsolete. Although the Company
works closely with its customers to stay informed with respect to product
development, there can be no assurance that any of the products currently being
developed by the Company, or those to be developed in the future, will be
completed in any particular time frame or that the Company's or its customers'
products or proprietary technologies will not become uncompetitive or obsolete.
Acquisition Growth Strategy; Management and Funding of Growth
The Company has historically pursued an acquisition strategy, completing
two acquisitions in 1996, and is currently in preliminary discussions with
respect to several new acquisitions as part of its ongoing strategy to promote
growth. There are various risks associated with pursuing a growth strategy of
this nature. Any future growth of the Company will require the Company to
manage its expanding domestic and international operations, integrate new
businesses and adapt its operational and financial systems to respond to
changes in its business environment, while maintaining a competitive cost
structure. The acquisition strategy of the Company will continue to place
demands on the Company and its management to improve the Company's operational,
financial and management information systems, to develop further the management
skills of the Company's managers and supervisors, and to continue to retain,
train, motivate and effectively manage the Company's employees. The failure of
the Company to manage its prior or any future growth effectively could have a
material adverse effect on the Company. There also can be no assurance that
suitable acquisition candidates will be available or that acquisitions can be
completed on reasonable terms.
Additionally, the Company's ability to maintain and increase its revenue
base and to respond to shifts in customer demand and changes in industry trends
will be partially dependent on its ability to generate sufficient cash flow or
obtain sufficient capital for the purpose of, among other things, financing
acquisitions, satisfying customer contractual requirements and financing
infrastructure growth. There can be no assurance that the Company will be able
to generate sufficient cash flow or that financing will be available on
acceptable terms (or permitted to be incurred under the terms of the Credit
Facility, the 10 1/4% Note Indenture, the Indenture and any future
indebtedness) to fund the Company's future growth.
Environmental Matters
The Company's operations are subject to federal, state, local and foreign
laws and regulations relating to the storage, handling, generation, treatment,
emission, release, discharge and disposal of certain substances and wastes. As
a result, the Company is involved from time to time in administrative or legal
proceedings relating to environmental matters and has incurred in the past and
will continue to incur capital costs and other expenditures relating to
environmental matters. Certain properties now or previously owned by the
Company are undergoing remediation. Liability under environmental laws may be
imposed on current and prior owners of property or businesses without regard to
fault or to knowledge about the condition or action causing the liability. As
an owner and operator, the Company may be required to incur costs relating to
the remediation of such owned or operated properties, and environmental
conditions could lead to claims for personal injury, property damage or damages
to natural resources. The Company has in the past and may in the future be
named a potentially responsible party ("PRP") at off-site third-party disposal
sites to which it has sent waste.
The Company believes, based on current information, that any costs it may
incur relating to environmental matters will not have a material adverse effect
on its business, financial condition or its result of operations. There can be
no assurance, however, that the Company will not incur significant fines,
penalties or other liabilities associated with noncompliance or clean-up
liabilities or that future events, such as changes in laws or the
interpretation thereof, the development of new facts or the failure of other
PRPs to pay their share will not cause the Company to incur additional costs
that could have a material adverse effect on its business, financial condition
or results of operations.
Dependence on Key Personnel
The Company's success depends to a significant extent upon the services of
its senior management and other management in its various businesses. The
Company could be adversely affected if any of these persons were unwilling or
unable to continue in the Company's employ.
Risks Associated with Foreign Operations; Exchange Rate Fluctuations
The Company's products are manufactured and assembled at facilities in the
United States, the Dominican Republic, Germany and Mexico and sold in many
foreign countries. In 1997, less than 9% of the Company's net sales and costs
of goods sold occurred outside the United States and Canada. International
manufacturing and sales are subject to inherent risks, including changes in
local economic or political conditions, the impositions of currency exchange
restrictions, unexpected changes in regulatory environments, potentially
adverse tax consequences and exchange rate risk. There can be no assurance that
these factors will not have a material adverse impact on the Company's
production capabilities or otherwise adversely affect the Company's business
and operating results.
Control by the DLJMB Funds
Approximately 69.0% of the outstanding shares of the Company's Common
Stock (approximately 68.3% on a fully diluted basis) are held by the DLJMB
Funds. As a result of their stock ownership, the DLJMB Funds control the
Company (and through the Company, Insilco) and have the power (subject to an
agreement with 399 Venture Partners, Inc., a wholly owned indirect subsidiary
of Citibank, N.A. ("CVC") pursuant to which CVC is entitled to elect one
director to the Company's Board of Directors) to elect all of the members of
the Board of Directors, appoint new management and approve any action requiring
the approval of the holders of common stock of the Company or Insilco,
including adopting certain amendments to the certificate of incorporation of
the Company and Insilco, and approving any acquisition of the Company or
Insilco or approving sale of all or substantially all of the assets of the
Company or Insilco. The directors elected by the DLJMB Funds will have the
authority to effect decisions affecting the capital structure of the Company
and Insilco, including the issuance of additional capital stock, the
implementation of stock repurchase programs and the declaration of dividends.
The general partners of each of the DLJMB Funds are affiliates or
employees of, and DLJ Capital Funding, which has committed to provide the
Backstop Facility, is an affiliate of, Donaldson, Lufkin & Jenrette, Inc.
("DLJ, Inc."). Donaldson, Lufkin & Jenrette Securities Corporation ("DLJSC"),
which was the Initial Purchaser in the placement of the Senior Discount Notes,
is also an affiliate of DLJ, Inc.
Lack of Liquidity
Insilco's common stock was quoted on the Nasdaq National Market System
prior to the Mergers. Following the Mergers, the Common Stock was de-listed by
Nasdaq and currently trades in the over-the-counter market. As a result, the
Common Stock trades less frequently as compared to the trading volume of
Insilco's common stock prior to the Merger, and purchasers of Warrants or
Common Stock may experience difficulty selling shares of Common Stock or
Warrants.
Possible Termination of Registration under Section 12(g) of the Exchange Act
There are currently fewer than 300 holders of the Common Stock.
Accordingly, if the Company chose to do so, it could, under existing rules of
the Commission, terminate the registration of the Common Stock under Section
12(g) of the Exchange Act and, as a result, it would not have to comply with
Section 14 of the Exchange Act and its directors, executive officers and
shareholders would not have to comply with Sections 13(d) and 16 of the
Exchange Act, to the extent otherwise applicable. However, even in the case of
such a termination (i) the Indenture and the agreement pursuant to which the
Warrants were issued require the Company to file the reports required by
Section 13(a) of the Exchange Act, and (ii) the Merger Agreement and the
Registration Rights Agreement (as defined below) require the Company to provide
the information required by Rule 144(c) of the Securities Act.
Year 2000
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities. The Company believes that its
internal systems are Year 2000 compliant or will be upgraded or replaced in
connection with previously planned changes to information systems prior to the
need to comply with Year 2000 requirements. However, the Company is uncertain
as to the extent its customers and vendors may be affected by Year 2000 issues
that require commitment of significant resources and may cause disruptions in
the customers' and vendors' businesses.
THE COMPANY
The Mergers
On August 17, 1998, the Company announced the closing of a series of
transactions previously approved by the stockholders of Insilco at a special
meeting held on August 13, 1998.
These transactions included, among other things, the formation by the
Company (which at the time was a subsidiary of Insilco) of a wholly owned
subsidiary ("ReorgSub"), followed by the merger of ReorgSub with and into
Insilco (the "Reorganization Merger"), pursuant to which each stockholder of
Insilco had his or her shares of Insilco converted into the same number of
shares of the Company and the right to receive $0.01 per share in cash, and the
Company became the parent of Insilco. Promptly following the Reorganization
Merger, a second merger took place pursuant to which Silkworm Acquisition
Corporation ("Silkworm"), an affiliate of DLJMB, merged with and into the
Company (the "Merger" and, together with the Reorganization Merger, the
"Mergers") and each share of the common stock of the Company was converted into
the right to receive $43.47 in cash and retain 0.03378 of a share of the
Company. Thus, as a result of the Mergers, each stockholder of Insilco, in
respect to each of his or her shares, received $43.48 in cash and retained
0.03378 of a share of Common Stock. Concurrently with the consummation of the
Mergers, the DLJMB Funds purchased 1,400,000 shares of PIK Preferred Stock, and
the Class A Warrants to purchase 65,603 shares of Common Stock. Following the
Mergers, (i) Insilco's existing stockholders retained, in the aggregate,
approximately 10.1% (9.4% on a fully diluted basis) of the outstanding shares
of Common Stock; (ii) the DLJMB Funds held approximately 69.0% (68.3% on a
fully-diluted basis), of the outstanding shares of Common Stock, (iii) CVC
purchased shares of Silkworm which in the Merger were converted into
approximately 19.3% (17.8% on a fully diluted basis) of the outstanding shares
of Common Stock; and (iv) management of the Company purchased approximately
1.7% (1.5% on a fully diluted basis) of the outstanding shares of Common Stock
concurrently with the consummation of the Merger.
Immediately prior to the effectiveness of the Reorganization Merger, each
outstanding option to acquire shares of the common stock of Insilco granted to
employees and directors, whether or not vested (the "Options"), was canceled
and, in lieu thereof, each holder of an Option received a cash payment in an
amount equal to (x) the excess, if any, of $45.00 over the exercise price of
the Option multiplied by (y) the number of shares subject to the Option, less
applicable withholding taxes (the "Option Cash Payments"). Certain holders of
such Options elected to utilize amounts otherwise receivable by them to
purchase equity of the Company.
The Merger Financing
The total amount of cash required to consummate the foregoing transactions
was approximately $204.4 million. This amount was financed with (i) gross
proceeds of approximately $70.2 million from the issuance of Units by Silkworm
(which were converted into Units of the Company in the Merger), (ii) the
issuance by Silkworm to the DLJMB Funds, to participants in the Management
Rollover and to CVC, for an aggregate consideration of approximately $56.1
million of 1,245,138 shares of Silkworm common stock (which were converted into
Common Stock of the Company in the Merger), (iii) the issuance to the DLJMB
Funds for an aggregate consideration of $35.0 million of 1,400,000 shares of
the PIK Preferred Stock by the Company and the Class A Warrants to purchase
65,603 shares of Common Stock at an exercise price of $0.01 per share, and (iv)
approximately $43.1 million of new borrowings under the Credit Facility
(collectively, the "Merger Financing"). Consummation of the Merger required
Insilco to make an Offer to Purchase (as defined in the 10 1/4% Note Indenture)
all of the outstanding 10 1/4% Notes at 101% of their aggregate principal
amount, plus accrued interest. There is an aggregate of $150 million principal
amount of 10 1/4% Notes outstanding. The Credit Facility has been amended,
effective upon the Mergers, to permit the Company to acquire up to $5 million
of 10 1/4% Notes in the Offer to Purchase. If holders of more than $5 million
of 10 1/4% Notes require the Company to repurchase their 10 1/4% Notes as a
result of the Merger, DLJ Capital Funding Inc. has committed to lend up to $350
million to the Company under the Backstop Facility if the lenders under the
Credit Facility were not to consent to such additional purchases and the Credit
Facility were required to be refinanced. The availability of funds under the
Backstop Facility is, however, subject to significant conditions. See "Risk
Factors--Potential Lack of Financing."
USE OF PROCEEDS
All of the Offered Securities offered hereby are being sold by the
Warrantholders and the Selling Stockholders. The Company will not receive any
of the proceeds from the sale of the Offered Securities, other than upon the
exercise of Warrants or Class A Warrants by Exercising Warrantholders. The
Company will pay certain expenses relating to the registration and sale of the
Offered Securities, estimated to be approximately $56,500.
MANAGEMENT
The following table sets forth the name, age and position with the Company
of each person who serves as a director or executive officer of the Company.
<TABLE>
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
Michael R. Elia.............................. 40 Vice President and Controller
Kenneth H. Koch.............................. 43 Vice President, General Counsel and Secretary
Leslie G. Jacobs............................. 48 Vice President, Human Resources and Assistant Secretary
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.
Michael R. Elia has been the 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.
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.
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.
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 the Company immediately following
the consummation of the Mergers by (i) any person or group who beneficially
owns more than five percent of the Common Stock, (ii) each of the company's
directors and executive officers, and (iii) all directors and executive
officers as a group.
<TABLE>
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) .............................................................. -- --
Robert L. Smialek.............................................................. 2,536 *
David A. Kauer ................................................................ 27 *
Michael R. Elia ............................................................... -- --
Kenneth H. Koch .............................................................. 100 *
Leslie G. Jacobs ............................................................. 13 *
All directors and executive officers as a group (8 persons)(4)(5).............. 2,676 *
</TABLE>
- -------------------
* less than 1%.
(1) Includes 65,603 shares of Common Stock issuable upon exercise of the Class
A Warrants issued in connection with the PIK Preferred Stock. Also includes
22,425 shares of Common Stock issuable upon exercise of Warrants issued as
part of the Units purchased by the DLJ Mezzanine Investors. See "The
Company -- The Mergers" 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"). 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.
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.
WARRANTHOLDERS AND SELLING STOCKHOLDERS
The following table sets forth certain information, as of the date hereof,
with respect to the number of Warrants, Class A Warrants and shares of Common
Stock and PIK Preferred Stock owned by each of the Warrantholders and the
Selling Stockholders, and as adjusted to give effect to the sale of all of the
Offered Securities. The Offered Securities are being registered to permit
public secondary trading of the Offered Securities, and the Warrantholders and
the Selling Stockholders may offer the Offered Securities for resale from time
to time. See "Plan of Distribution."
The Warrants and Class A Warrants being offered by the Warrantholders and
the Shares of Common Stock and PIK Preferred Stock being offered by the Selling
Stockholders were acquired from the Company in connection with the Mergers. See
"The Company."
The Company has filed with the Commission, under the Securities Act, a
Registration Statement on Form S-2 (the "Registration Statement"), of which
this Prospectus forms a part, with respect to the resale of the Offered
Securities from time to time, pursuant to Rule 415 under the Securities Act, in
the over-the-counter market, in privately-negotiated transactions, in
underwritten offerings or by a combination of such methods of sale, and has
agreed to use its best efforts to keep such Registration Statement effective
(i) in the case of the Existing Shares, until August 17, 1999 (except as such
date may be extended under certain circumstances as set forth in the
Registration Rights Agreement) and (ii) in the case of the Warrants and shares
of Common Stock that may be received upon exercise of Warrants by persons other
than Exercising Warrantholders, until the later of (A) the second anniversary
of the effective date of the Registration Statement and (B) the earlier of (i)
August 15, 2008, and (ii) the first date on which all Warrants have been
exercised by the holders thereof.
The Offered Securities offered by this Prospectus may be offered from time
to time by the persons or entities named below:
<TABLE>
<CAPTION>
Type and Number of
Warrants Ownership
Owned Prior to Offering Number of After Offering(1)(2)
Number of ------------------------------ Shares of PIK ------------------------
Shares of Number of Preferred Number of
Common Stock Type and Shares Stock Owned Shares of
Owned Prior to Number of Issuable Upon Prior to Common
Name and Address of Offering Warrants Exercise Offering Stock Percent
Holders --------------- ------------ --------------- -------------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
DLJ Merchant Banking
Partners II, L.P. 41,325
277 Park Avenue Class A
New York, NY 10172(3)................ 601,929 Warrants 41,325 881,895 601,929 43.5%
DLJ Merchant Banking
Partners II-A, L.P. 1,646
277 Park Avenue Class A
New York, NY 10172(3)................ 23,972 Warrants 1,646 35,121 23,972 1.7%
DLJ Offshore Partners II, C.V.
John B. Gorsiraweg 14 2,032
Willemstad, Curacao Class A
Netherlands Antilles (3)............. 29,600 Warrants 2,032 43,367 29,600 2.1%
DLJ Diversified Partners, L.P. 2,416
277 Park Avenue Class A
New York, NY 10172(3)................ 35,191 Warrants 2,416 51,560 35,191 2.5%
DLJ Diversified Partners-A, L.P. 897
277 Park Avenue Class A
New York, NY 10172(3)................ 13,069 Warrants 897 19,147 13,069 *
DLJMB Funding II, Inc. 7,337
277 Park Avenue Class A
New York, NY 10172(3)................ 106,869 Warrants 7,337 156,577 106,869 7.7%
DLJ Millennium Partners, L.P. 668
277 Park Avenue Class A
New York, NY 10172(3)................ 9,733 Warrants 668 14,259 9,733 *
DLJ Millennium Partners-A, L.P. 130
277 Park Avenue Class A
New York, NY 10172(3)................ 1,898 Warrants 130 2,781 1,898 *
DLJ EAB Partners, L.P. 186
277 Park Avenue Class A
New York, NY 10172(3)................ 2,703 Warrants 186 3,960 2,703 *
UK Investment Plan
1997 Partners
2121 Avenue of the Stars
Fox Plaza 1,093
Suite 3000 Class A
Los Angeles, CA 90067(3)............. 15,926 Warrants 1,093 23,333 15,926 1.2%
DLJ First ESC L.P. 80
277 Park Avenue Class A
New York, NY 10172(3)................ 1,158 Warrants 80 1,697 1,158 *
DLJ Investment Partners, L.P.
277 Park Avenue 55,758
New York, NY 10172(3)................ -- Warrants 18,121 -- -- --
5,297
Warrants &
DLJ ESC II, L.P. 7,793
277 Park Avenue Class A
New York, NY 10172(3)................ 113,508 Warrants 9,515 166,303 113,508 8.2%
DLJ Investment Funding, Inc.
277 Park Avenue 7,945
New York, NY 10172(3)................ -- Warrants 2,582 -- -- --
Water Street Corporate
Recovery Fund I, L.P.
85 Broad Street
New York, NY 10004(4)................ 63,692 -- -- -- -- --
Equitable Life Assurance of the U.S.
Life Non Par
c/o Alliance Capital
Management, L.P.
1345 Avenue of the Americas 6,400
New York, NY 10105(3)................ -- Warrants 2,080 -- -- --
Equitable Life Assurance of the U.S.
ELA High Income
c/o Alliance Capital
Management, L.P.
1345 Avenue of the Americas 8,600
New York, NY 10105(3)................ -- Warrants 2,795 -- -- --
Ares Leveraged Investment Fund,
L.P.
c/o Ares Capital Management
1999 Avenue of the Stars
Suite 1900 20,000
Los Angeles, CA 90067................ -- Warrants 6,500 -- -- --
Caravelle Investment Fund, L.L.C.
c/o Caravelle Advisors
425 Lexington Avenue
22nd Floor
New York, NY 10017................... 13,500
-- Warrants 4,387 -- -- --
Muico & Co.
c/o Putman Management
One Poste Office Square
8th Floor 18,610
Boston, MA 02109..................... -- Warrants 6,048 -- -- --
Bost & Co.
c/o Putman Management
One Poste Office Square
8th Floor 1,540
Boston, MA 02109..................... -- Warrants 500 -- -- --
Blazerhold & Co.
c/o Putman Management
One Poste Office Square
8th Floor 240
Boston, MA 02109..................... -- Warrants 78 -- -- --
Booth & Co.
c/o Putman Management
One Poste Office Square
8th Floor 110
Boston, MA 02109..................... -- Warrants 35 -- -- --
</TABLE>
- -------------------
* Less than 1%
(1) Based upon 1,385,169 shares of Common Stock outstanding on September 16,
1998 and 110,453 shares of Common Stock issuable upon exercise of the
Warrants and Class A Warrants.
(2) Assumes the sale of all Existing Shares, shares of PIK Preferred Stock,
Class A Warrants and Warrants or shares of Common Stock received upon the
exercise thereof.
(3) Excludes securities held by other investors related to DLJMB (which may be
deemed to be beneficially owned by the named entity).
(4) Represents shares of Common Stock beneficially owned by Water Street
Corporate Recovery Fund I, L.P. ("Water Street"). Goldman, Sachs & Co.
("Goldman Sachs") is the general partner of Water Street and thus may be
deemed to be the beneficial owner of shares beneficially owned by Water
Street. The Goldman Sachs Group, L.P. ("GS Group") is a general partner
of Goldman Sachs. The address of Goldman Sachs and GS Group is 85 Broad
Street, New York, New York 10004. Each of Goldman Sachs and GS Group
disclaims beneficial ownership of the shares owned by Water Street to the
extent interests in Water Street are owned by persons other than GS Group
and its affiliates. Includes 11 shares of Common Stock owned by GS Group
as of the date of this Prospectus and 720 shares of Common Stock held by
current or former partners or employees of Goldman Sachs as of the date of
this Prospectus.
DESCRIPTION OF WARRANTS
Warrants
The Warrants were issued pursuant to a Warrant Agreement (the "Warrant
Agreement") between Silkworm and National City Bank, as Warrant Agent (the
"Warrant Agent"). Upon consummation of the Mergers, Holdings succeeded to the
obligations of Silkworm with respect to the Warrants and the Warrants, by their
terms, became exercisable for an equal number of shares of Common Stock. The
following summary of the material provisions of the Warrant Agreement does not
purport to be complete and is qualified in its entirety by reference to the
Warrant Agreement, including the definitions therein of certain terms used
below, a copy of which is filed as an exhibit to the Registration Statement of
which this Prospectus forms a part.
Each Warrant, when exercised, will entitle the holder thereof (a "Holder")
to receive 0.325 of a fully paid and non-assessable share of Common Stock (the
"Warrant Shares"), at an exercise price of $0.01 per share (the "Exercise
Price"). The Exercise Price and the number of Warrant Shares are both subject
to adjustment in certain cases referred to below. The Warrants are exercisable
at any time and, unless exercised, will automatically expire on August 15, 2008
(the "Expiration Date").
The Warrants may be exercised by surrendering to the Company the warrant
certificate, evidencing the Warrants to be exercised, with the accompanying
form of election to purchase properly completed and executed, together with
payment of the Exercise Price. Payment of the Exercise Price may be made at the
Holder's election (i) in cash in United States dollars by wire transfer or by
certified or official bank check to the order of the Company or (ii) without a
cash payment being required, for such number of Warrant Shares equal to the
product of (A) the number of Warrant Shares for which such Warrant is
exercisable as of the date of exercise (if the Exercise Price were being paid
in cash) and (B) the Cashless Exercise Ratio. The Cashless Exercise Ratio shall
equal a fraction the numerator of which is the Market Value (as defined in the
Warrant Agreement) per share of Common Stock on the date of exercise minus the
Exercise Price per share as of the date of exercise and the denominator of
which is the Market Value per share on the date of exercise. Upon surrender of
the warrant certificate and payment of the Exercise Price, the Company will
deliver or cause to be delivered, to or upon the written order of such Holder,
stock certificates representing the number of whole Warrant Shares to which the
Holder is entitled. If less than all of the Warrants evidenced by a warrant
certificate are to be exercised, a new warrant certificate will be issued for
the remaining number of Warrants. Holders of Warrants will be able to exercise
their Warrants for cash so long as the Registration Statement is then in
effect, or the exercise of such Warrants is exempt from the registration
requirements of the Securities Act, and such securities are qualified for sale
or exempt from qualification under the applicable securities laws of the states
in which the various Holders of Warrants, or other persons to whom it is
proposed that Warrant Shares be issued on exercise of the Warrants, reside.
No fractional Warrant Shares will be issued upon exercise of the Warrants.
The Company will pay to the Holder of a Warrant at the time of exercise an
amount in cash equal to the current market value of any such fractional Warrant
Shares less a corresponding fraction of the Exercise Price.
The Holder of the Warrants will have no right to vote on matters submitted
to the stockholders of the Company and will have no right to receive dividends.
The Holders of the Warrants will not be entitled to share in the assets of the
Company in the event of liquidation, dissolution or the winding up of the
Company. In the event a bankruptcy or reorganization is commenced by or against
the Company, a bankruptcy court could determine that unexercised Warrants are
executory contracts, and therefore subject to rejection by the Company with
approval of the bankruptcy court, and the Holders of the Warrants may, even if
sufficient funds are available, receive nothing or a lesser amount as a result
of any such bankruptcy case than they would be entitled to if they had
exercised their Warrants prior to the commencement of any such case.
In the event of a taxable distribution to holders of Common Stock that
results in an adjustment to the number of Warrant Shares or other consideration
for which a Warrant may be exercised, the Holders of the Warrants may, in
certain circumstances, be deemed to have received a distribution subject to
United States federal income tax as a dividend.
Adjustments
The number of Warrant Shares purchasable upon exercise of Warrants and the
Exercise Price will be subject to adjustment, subject to certain exceptions, in
certain events including: (i) the payment by the Company in Common Stock of
dividends and other distributions on the Common Stock, (ii) subdivisions,
combinations and reclassification of the Common Stock, (iii) the issuance to
all holders of Common Stock of certain rights, options or warrants entitling
them to subscribe for Common Stock or securities convertible into, or
exchangeable or exercisable for, Common Stock at a price which is less than the
Fair Value per share (as defined) of Common Stock, (iv) certain distributions
to all holders of Common Stock of any of the Company's assets, debt securities,
other securities or any rights or warrants to purchase any such securities
(excluding those rights and warrants referred to in clause (iii) above), (v)
the issuance of shares of Common Stock for consideration per share less than
the then Fair Value per share of Common Stock (excluding securities issued in
transactions referred to in clauses (i) through (iv) above and certain other
issuances), (vi) the issuance of securities convertible into or exchangeable
for Common Stock for a conversion or exchange price plus consideration received
upon issuance less than the then Fair Value per share of Common Stock
(excluding securities issued in transactions referred to in clauses (i) through
(iv) above), and (vii) certain other events that could have the effect of
depriving Holders of the Warrants of the benefit of all or a portion of the
purchase rights evidenced by the Warrants. Adjustments to the Exercise Price
per share will be calculated to the nearest cent. No adjustment need be made
for any of the foregoing transactions if Warrant Holders are to participate in
the transaction on a basis and with notice that the Board of Directors
determines to be fair and appropriate in light of the basis and notice on which
holders of Common Stock participate in the transaction.
"Fair Value" per security at any date of determination shall be (1) in
connection with a sale to a party that is not an Affiliate (as defined) of the
Company in an arm's-length transaction (a "Non-Affiliate Sale"), the price per
security at which such security is sold and (2) in connection with any sale to
an Affiliate of the Company, (a) the last price per security at which such
security was sold in a Non-Affiliate Sale within the three-month period
preceding such date of determination or (b) if clause (a) is not applicable,
the fair market value of such security determined in good faith by (i) a
majority of the Board of Directors of the Company, including a majority of the
Disinterested Directors, and approved in a board resolution delivered to the
Warrant Agent or (ii) a nationally recognized investment banking, appraisal or
valuation firm, which is not an Affiliate of the Company, in each case, taking
into account, among all other factors deemed relevant by the Board of Directors
of the Company or such investment banking, appraisal or valuation firm, the
trading price and volume of such security on any national securities exchange
or automated quotation system on which such security is traded. Notwithstanding
the foregoing, any sale to DLJSC (or any successor thereto) pursuant to an
underwritten public offering registered under the Securities Act shall be
deemed to be and treated as a NonAffiliate Sale.
"Disinterested Director" means, in connection with any issuance of
securities that gives rise to a determination of the Fair Value thereof, each
member of the Board of Directors of the Company who is not an officer,
employee, director or other Affiliate of the party to whom the Company is
proposing to issue the securities giving rise to such determination.
No adjustment in the Exercise Price will be required unless such
adjustment would require an increase or decrease of at least one percent (1.0%)
in the Exercise Price, provided however, that any adjustment that is not made
will be carried forward and taken into account in any subsequent adjustment.
In the case of certain consolidations or mergers of the Company, or the
sale of all or substantially all of the assets of the Company to another
corporation, (i) each Warrant will thereafter be exercisable for the right to
receive the kind and amount of shares of stock or other securities or property
to which such Holder would have been entitled as a result of such
consolidation, merger or sale had the Warrants been exercised immediately prior
thereto and (ii) the Person formed by or surviving any such consolidation or
merger (if other than the Company) or to which such sale shall have been made
will assume the obligations of the Company under the Warrant Agreement.
Reservation of Shares
The Company will at all times reserve and keep available such number of
shares of Common Stock as will be issuable upon the exercise of all outstanding
Warrants. Such shares of Common Stock, when paid for and issued, will be duly
and validly issued, fully paid and non-assessable, free of preemptive rights
and free from all taxes, liens, charges and security interests with respect to
the issuance thereof.
Amendment
From time to time, the Company and the Warrant Agent, without the consent
of the holders of the Warrants, may amend or supplement the Warrant Agreement
for certain purposes, including curing defects or inconsistencies or making any
change that does not adversely affect the legal rights of any Holder. Any
amendment or supplement to the Warrant Agreement that adversely affects the
legal rights of the Holders of the Warrants will require the written consent of
the Holders of a majority of the then outstanding Warrants (excluding Warrants
held by the Company or any of its Affiliates). The consent of each Holder of
the Warrants affected will be required for any amendment pursuant to which the
Exercise Price would be increased or the number of Warrant Shares purchasable
upon exercise of Warrants would be decreased (other than pursuant to
adjustments provided in the Warrant Agreement).
Delivery and Form
The Warrants will be in the form of registered, certificated warrants.
Class A Warrants
The Class A Warrants were issued by the Company in connection with the
Mergers together with the shares of PIK Preferred Stock. The following summary
of the material provisions of the Class A Warrants does not purport to be
complete and is qualified in its entirety by reference to the form of Class A
Warrant, including the definitions therein of certain terms used below, a copy
of which is filed as an exhibit to the Registration Statement of which this
Prospectus forms a part.
Each Class A Warrant, when exercised, will entitle the holder thereof (a
"Class A Holder") to receive one fully paid and non-assessable share of Common
Stock (the "Class A Warrant Shares"), at an exercise price of $0.01 per share
(the "Class A Exercise Price"). The Class A Exercise Price and the number of
Class A Warrant Shares are both subject to adjustment in certain cases referred
to below. The Class A Warrants are exercisable at any time and, unless
exercised, will automatically expire on August 1, 2010. The Class A Warrants,
and any shares of Common Stock issued upon the exercise thereof, are subject to
certain restrictions on transfer, voting and other matters contained in the
Investors' Agreement. See "Description of Capital Stock -- Other Stockholder
Matters."
The Class A Warrants may be exercised by executing and delivering a
warrant exercise notice to the Company and tendering the Class A Warrant
Certificate, together with the Class A Exercise Price to the Company not
earlier than ten days following the delivery of the warrant exercise notice,
other than in connection with the public offering of the Common Stock, in which
case such notice may be delivered together with such tender. Instead of
tendering cash in connection with the payment of the Class A Exercise Price,
the Class A Holder may elect (i) to receive a number of Class A Warrant Shares
equal to the number otherwise receivable, reduced by a number of shares of
Common Stock having the aggregate Fair Market Value (as defined) equal to the
Class A Exercise Price for the Class A Warrant Shares, (ii) to deliver as
payment, in whole or in part of the aggregate Class A Exercise Price, shares of
Common Stock having the aggregate Fair Market Value equal to the applicable
portion of the aggregate Class A Exercise Price for the Class A Warrant Shares,
or (iii) to deliver as payment, in whole or in part of the aggregate Class A
Exercise Price, such number of Class A Warrants which, if exercised, would
result in a number of shares of Common Stock having an aggregate Fair Market
Value equal to the applicable portion of the aggregate Class A Exercise Price
for the Class A Warrant Shares. If less than all of the Class A Warrants
evidenced by a warrant certificate are to be exercised, a new warrant
certificate will be issued for the remaining number of Class A Warrants.
Holders of Class A Warrants will be able to exercise their Class A Warrants for
cash so long as the Registration Statement is then in effect, or the exercise
of such Class A Warrants is exempt from the registration requirements of the
Securities Act, and such securities are qualified for sale or exempt from
qualification under the applicable securities laws of the states in which the
various Holders of Class A Warrants, or other persons to whom it is proposed
that Class A Warrant Shares be issued on exercise of the Class A Warrants,
reside.
No fractional Class A Warrant Shares will be issued upon exercise of the
Class A Warrants. The Company will pay to the Holder of a Class A Warrant at
the time of exercise an amount in cash equal to the current market value of any
such fractional Class A Warrant Shares less a corresponding fraction of the
Class A Exercise Price.
The Holder of the Class A Warrants will have no right to vote on matters
submitted to the stockholders of the Company and will have no right to receive
dividends. The Holders of the Class A Warrants will not be entitled to share in
the assets of the Company in the event of liquidation, dissolution or the
winding up of the Company. In the event a bankruptcy or reorganization is
commenced by or against the Company, a bankruptcy court could determine that
unexercised Class A Warrants are executory contracts, and therefore subject to
rejection by the Company with approval of the bankruptcy court, and the Holders
of the Class A Warrants may, even if sufficient funds are available, receive
nothing or a lesser amount as a result of any such bankruptcy case than they
would be entitled to if they had exercised their Class A Warrants prior to the
commencement of any such case.
In the event of a taxable distribution to holders of Common Stock that
results in an adjustment to the number of Class A Warrant Shares or other
consideration for which a Class A Warrant may be exercised, the Holders of the
Class A Warrants may, in certain circumstances, be deemed to have received a
distribution subject to United States federal income tax as a dividend.
Adjustments
The number of Class A Warrant Shares purchasable upon exercise of Class A
Warrants and the Class A Exercise Price will be subject to adjustment, subject
to certain exceptions, in certain events including: (i) the payment by the
Company in Common Stock of dividends and other distributions on the Common
Stock, (ii) subdivisions, combinations and reclassification of the Common
Stock, (iii) the issuance to all holders of Common Stock of rights, options or
warrants entitling them to subscribe for Common Stock or securities convertible
into, or exchangeable or exercisable for, Common Stock at a price which is less
than the Current Market Price Per Common Share (as defined), (iv) certain
distributions to all holders of Common Stock of any of the Company's assets,
debt securities, other securities or any rights or warrants to purchase any
such securities (excluding those rights and warrants referred to in clause
(iii) above), (v) the issuance of shares of Common Stock for consideration per
share less than the then Current Market Price Per Common Share (excluding
securities issued in transactions referred to in clauses (i) through (iv)
above), (vi) the issuance of securities convertible into or exchangeable for
Common Stock for a conversion or exchange price plus consideration received
upon issuance less than the then Current Market Price Per Common Share
(excluding securities issued in transactions referred to in clauses (i) through
(iv) above), and (vii) certain other events that could have the effect of
depriving Holders of the Class A Warrants of the benefit of all or a portion of
the purchase rights evidenced by the Class A Warrants.
For purposes of the foregoing, the "Current Market Price Per Common Share"
equals the average (weighted by daily trading volume) of the Daily Prices (as
defined below) per share of Common Stock for the 20 consecutive trading days
ending three days prior to such date. "Daily Price" means (1) if the shares of
Common Stock then are listed and traded on the New York Stock Exchange, Inc.
("NYSE"), the closing price on such day as reported on the NYSE Composite
Transactions Tape; (2) if the shares of Common Stock then are not listed and
traded on the NYSE, the closing price on such day as reported by the principal
national securities exchange on which the shares are listed and traded; (3) if
the shares of Common Stock then are not listed and traded on any such
securities exchange, the last reported sale price on such day on the National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ"); (4) if the shares of Common Stock then are not
listed and traded on any such securities exchange and not traded on the NASDAQ
National Market, the average of the highest reported bid and lowest reported
asked price on such day as reported by NASDAQ; or (5) if such shares are not
listed and traded on any such securities exchange, not traded on the NASDAQ
National Market and bid and asked prices are not reported by NASDAQ, then the
average of the closing bid and asked prices, as reported by The Wall Street
Journal for the over-the-counter market. If on any determination date the
shares of Common Stock are not quoted by any such organization, the Current
Market Price Per Common Share shall be the fair market value of such shares on
such determination date as determined by the Board of Directors, without regard
to considerations of the lack of liquidity, applicable regulatory restrictions
or any of the transfer restrictions or other obligations imposed on such shares
set forth in the Investors' Agreement.
In the case of certain consolidations or mergers of the Company, or the
sale of all or substantially all of the assets of the Company to another
corporation, (i) each Class A Warrant will thereafter be exercisable for the
right to receive the kind and amount of shares of stock or other securities or
property to which such Holder would have been entitled as a result of such
consolidation, merger or sale had the Class A Warrants been exercised
immediately prior thereto and (ii) the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale shall
have been made will assume the obligations of the Company under the Class A
Warrants.
Reservation of Shares
The Company will at all times reserve and keep available such number of
shares of Common Stock as will be issuable upon the exercise of all outstanding
Class A Warrants. Such shares of Common Stock, when paid for and issued, will
be duly and validly issued, fully paid and non-assessable, free of preemptive
rights and free from all taxes, liens, charges and security interests with
respect to the issuance thereof.
Delivery and Form
The Class A Warrants will be in the form of registered, certificated
warrants.
DESCRIPTION OF CAPITAL STOCK
General
The following is a summary of certain of the rights and privileges
pertaining to the shares of the Company's capital stock, including shares of
Common Stock issuable upon exercise of the Warrants and the Class A Warrants.
The authorized capital stock of the Company consists of 15,000,000 shares of
Common Stock, par value $0.001 per share, of which 1,385,169 shares are
outstanding (excluding 110,453 Shares reserved for issuance upon the exercise
of outstanding warrants, including the Warrants and the Class A Warrants) and
3,000,000 shares of preferred stock, par value $0.001 per share, of which the
1,400,000 shares of PIK Preferred Stock are outstanding. See "--PIK Preferred
Stock."
Common Stock
Voting Rights. The holders of shares of Common Stock are entitled to one
vote per share on all matters submitted for action by the stockholders. There
is no provision for cumulative voting with respect to the election of
directors. Accordingly, the holders of more than 50% of the shares can, if they
choose to do so, elect the entire Board of Directors and determine most matters
on which stockholders are entitled to vote.
Dividend Rights. Subject to the preferential rights of holders of
outstanding shares of preferred stock, holders of shares are entitled to share
equally in all dividends declared on shares, whether payable in cash, property
or securities of the Company.
Liquidation Rights; Other Rights. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company, the holders
of shares are entitled to share equally in the assets available for
distribution after payment of liabilities, subject to the rights of the holders
of outstanding shares of preferred stock. Holders of shares have no conversion,
redemption or preemptive rights.
Transfer Agent and Registrar
The transfer agent and registrar for the Company's Common Stock is
National City Bank, Cleveland, Ohio.
PIK Preferred Stock
The Board of Directors of the Company has authorized the designation of
3,000,000 shares of the PIK Preferred Stock. Each share of PIK Preferred Stock
accretes cumulative, quarterly dividends at a compound rate of 15% per annum.
Prior to August 1, 2003, dividends on the PIK Preferred Stock are payable in
additional shares of PIK Preferred Stock. After August 1, 2003, dividends are
payable in cash. Shares of PIK Preferred Stock have a liquidation preference
equal to the sum of $25 plus, subject to certain conditions, accreted
dividends. Shares of PIK Preferred Stock are non-voting, except as otherwise
provided by law or by agreement. The PIK Preferred Stock is subject to
redemption at the option of the Company at any time, at 115.00% of liquidation
preference prior to August 1, 2003, at 107.50% of liquidation preference from
August 1, 2003 to July 31, 2004, at 105.00% of liquidation preference from
August 1, 2004 to July 31, 2005, at 102.50% of liquidation preference from
August 1, 2005 to July 31, 2006, and at 100.00% of liquidation preference
thereafter. On August 1, 2010, the PIK Preferred Stock will be subject to
mandatory redemption by the Company. Upon the occurrence of a Change of
Control, each holder of PIK Preferred Stock will have the right to require the
Company to repurchase all or any part of such holder's PIK Preferred Stock at
an offer price in cash equal to 101% of the liquidation preference thereof. The
Company may at anytime but subject to certain conditions exchange all
outstanding shares of PIK Preferred Stock for 15% Subordinated Exchange
Debentures due 2010 (the "Exchange Debentures"). The Exchange Debentures will
rank senior to all other subordinated debt (but junior to the Senior Discount
Notes and the guarantee by the Company of Insilco's obligations under the
Credit Facility), preferred stock and common equity of the Company.
The Company currently intends to create a new class of preferred stock,
the 15% Senior Preferred Stock due 2010 (the "Compensation Preferred Stock"),
for use in connection with its executive compensation plans. The Compensation
Preferred Stock has no mandatory redemption provisions and is not exchangeable
into Exchange Debentures, but is otherwise identical to the PIK Preferred
Stock.
Other Stockholder Arrangements
In connection with the DLJMB equity investment, the Company, the DLJMB
Funds and CVC entered into an Investors' Agreement (the "Investors' Agreement")
granting the DLJMB Funds the right to demand registration of the Common Stock,
the Class A Warrants and the PIK Preferred acquired in the DLJMB equity
investment or thereafter issued by the Company in respect of such Common Stock,
the Class A Warrants or the PIK Preferred by way of conversion, exchange, stock
dividend, split or combination, recapitalization, merger, consolidation, other
reorganization or otherwise (the "Investors' Registrable Securities"). Under
the Investors' Agreement, DLJMB (on behalf of the DLJMB Funds) is entitled to
require that the Company register some or all of the Investors' Registrable
Securities for a period of up to 180 days (or such lesser period as is
necessary to complete such offering) (an "Investors' Demand Registration"). The
DLJMB Funds are in the aggregate limited to four such Investors' Demand
Registrations. In addition, pursuant to the terms of the Investors' Agreement,
if the Company proposes to file a registration statement under the Securities
Act with respect to any offering of (or including) Common Stock, preferred
stock or warrants (other than certain registrations relating to Common Stock or
warrants issued in certain business combinations or pursuant to certain
employee benefit plans), then the Company will provide, subject to certain
limitations, the DLJMB Funds an opportunity to register their Investors'
Registrable Securities of the same type as are proposed to be registered on the
same terms and conditions (an "Investors' Piggyback Registration"). In
connection with any Investors' Demand Registration or Investors' Piggyback
Registration, the Company will be responsible for all expenses incurred in
connection with such registration other than underwriting fees, discounts or
commissions that may be payable in connection with the sale of Investors'
Registrable Securities. In addition, the Company will indemnify the DLJMB Funds
and the underwriters and each of their employees and affiliates against certain
liabilities, including liabilities under the Securities Act, or will contribute
to payments such indemnitee may be required to make in respect thereof.
Under the Investor's Agreement, CVC has the right to participate pro rata
in any sale by the DLJMB Funds of their Common Stock above a threshold amount
and the DLJMB Funds have the right to require CVC to participate pro rata in
certain sales by the DLJMB Funds of their Common Stock. The Investors'
Agreement would also grant CVC the right to participate in any demand
registration made by the DLJMB Funds, on a pro rata basis, and certain
pre-emptive and other rights. The Company has agreed to take such actions as
may be necessary to permit the DLJMB Funds to resell their shares of PIK
Preferred Stock pursuant to Rule 144A under the Securities Act, including,
without limitation, preparing an offering memorandum and entering into
customary purchase agreements and registration rights agreements. The foregoing
summarizes certain provisions of the Investors' Agreement, but does not purport
to be complete and is subject to, and qualified by reference to, the rest of
the Investors' Agreement, a copy of which has been filed as an exhibit to the
Registration Statement.
On August 17, 1998, Water Street and the Company entered into a
registration rights agreement (the "Registration Rights Agreement"). Pursuant
to the Registration Rights Agreement, the Company is required, among other
things, to prepare and file with the Commission a shelf registration statement
(the "Shelf Registration Statement") relating to the resale of the Existing
Shares (and which may also include the other Offered Securities). The Company
further agreed to use its best efforts (i) to cause such Shelf Registration
Statement to be declared effective as promptly as practicable, but in any event
within 90 days of the date of the Registration Rights Agreement, and (ii) to
keep the Shelf Registration Statement continuously effective and in compliance
with the Securities Act and usable for resale of the Existing Shares from the
date on which the Commission declares effective the Shelf Registration
Statement until August 17, 1999 (subject to the right of the Company, under
certain circumstances, to postpone or suspend for a reasonable period of time,
not to exceed 60 days in the aggregate, the proposed offering of Existing
Shares pursuant to the Shelf Registration Statements). Pursuant to the
Registration Rights Agreement, the Company has also agreed to use its best
efforts to meet certain reporting requirements under the Securities Act and the
Exchange Act to enable the Selling Stockholders to sell their Existing Shares
without registration under the Securities Act as contemplated by Rule 144 and
Rule 145 thereunder. The Registration Statement, of which this Prospectus is a
part, will constitute the Shelf Registration Statement for purposes of the
Registration Rights Agreement.
In connection with the Shelf Registration Statement, the Company will be
responsible for all expenses incurred in connection with such registration,
except that Water Street (or such other participating Selling Stockholders, if
any) will pay any underwriting discounts or commissions that may be payable in
connection with the sale of its Existing Shares. In addition, the Company will
indemnify Water Street and the underwriters and each of their employees and
affiliates against certain liabilities, including liabilities under the
Securities Act, or will contribute to payments Water Street may be required to
make in respect thereof. The Registration Rights Agreement terminates, except
with respect to rights to indemnification, upon the earliest to occur of the
sale of all of the Existing Shares by Water Street and such other participating
Selling Stockholders (and certain permitted transferees), the mutual consent of
the parties and August 17, 1999 (except as such date may be extended under
certain circumstances as set forth in the Registration Rights Agreement).
The foregoing summarizes the material provisions of the registration
rights agreement, but does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the rest of the registration rights
agreement, a copy of which has been filed with the Commission.
Section 203 of Delaware General Corporation Law
The Company is a Delaware corporation subject to Section 203 of the DGCL.
In general, Section 203 prevents an "Interested Stockholder" (defined
generally, as a person owning 15% or more of a corporation's outstanding voting
stock) from engaging in a "business combination" (as defined) with a Delaware
corporation for three years following the date such person became an interested
stockholder, subject to certain exceptions, such as transactions effected with
the approval of the Board of Directors or of the holders of at least two-thirds
of the outstanding shares of voting stock not owned by the interested
stockholder. The Board of Directors, in approving the Merger Agreement and the
Mergers, rendered the two-thirds stockholders vote provided for by Section 203
of the DGCL inapplicable to the Mergers.
PLAN OF DISTRIBUTION
The Company will receive no proceeds from this offering, other than in
connection with the exercise of Warrants and Class A Warrants by Exercising
Warrantholders. The Offered Securities offered hereby may be sold by the
Warrantholders and the Selling Stockholders from time to time in transactions
in the over-the-counter market, in negotiated transactions, in underwritten
offerings, or a combination of such methods of sale, at fixed prices which may
be changed, at market prices prevailing at the time of sale, at prices related
to prevailing market prices or at negotiated prices. The Warrantholders and the
Selling Stockholders may effect such transactions by selling the Offered
Securities to or through broker-dealers, and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Warrantholders and the Selling Stockholders and/or the purchasers of the
Offered Securities for whom such broker-dealers may act as agents or to whom
they sell as principals, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions).
In order to comply with the securities laws of certain states, if
applicable, the Offered Securities will be sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
states the Offered Securities may not be sold unless they have been registered
or qualified for sale in the applicable state or an exemption from the
registration or qualification requirement is available and is complied with.
The Warrantholders and the Selling Stockholders and any broker-dealers or
agents that participate with the Warrantholders and the Selling Stockholders in
the distribution of the Offered Securities may be deemed to be "underwriters"
within the meaning of the Securities Act, and any commissions received by them
and any profit on the resale of the Offered Securities purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
Each Warrantholder and Selling Stockholder will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder, which
provisions may limit the timing of purchases and sales of shares of the
Company's Common Stock by the Warrantholders and the Selling Stockholders.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of
Offered Securities offered hereby are being passed upon for the Company by
Davis Polk & Wardwell, New York, New York.
EXPERTS
The consolidated financial statements and schedules of the Company as
of December 31, 1996 and 1997, and for each of the three years in the period
ended December 31, 1997, incorporated by reference herein, have been audited by
KPMG Peat Marwick LLP, independent public accountants, as indicated in their
reports with respect thereto and are incorporated by reference herein, in
reliance upon the authority of said firm as experts in giving said reports.
AVAILABLE INFORMATION
This Prospectus, which constitutes a part of the Registration Statement
filed by the Company with the Commission under the Securities Act, omits
certain of the information set forth in the Registration Statement. Reference
is hereby made to the Registration Statement and to the exhibits thereto for
further information with respect to the Company and the exhibits thereto for
further information with respect to the Company and the securities offered
hereby. Copies of the Registration Statement and the exhibits thereto are on
file at the offices of the Commission and may be obtained upon payment of the
prescribed fee or may be examined without charge at the public reference
facilities of the Commission described below.
The Company is subject to the information requirements of the Exchange Act
and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company with the Commission can be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
the following regional offices of the Commission: New York Regional Office,
Seven World Trade Center, 13th Floor, New York, New York 10048; and Chicago
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can also be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of prescribed rates and may be accessed electronically by
means of the Commission's home page on the Internet at http:/www.sec.gov.
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-800-SEC-0330.The Company's Common Stock is traded
in the over-the-counter market under the symbol "INSL."
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 101/4% Notes -- On August 12, 1997, Insilco
issued $150 million aggregate principal amount of the 101/4%
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>
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> <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 incoming
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.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than underwriting discounts
and commissions, payable by the Company in connection with the sale of the
Offered Securities being registered. All of the amounts shown are estimates,
except for the registration fee.
Registration fee........................................... $26,298
Legal fees and expenses.................................... $25,000
Accounting fees and expenses............................... $5,000
Other...................................................... $202
-------
Total................................................. $56,500
=======
ITEM 15. 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 Seventeen of the
Company's Certificate of Incorporation provides for full indemnification of its
officers, directors, employees and agents to the extent permitted by Delaware
law.
The Company provides insurance from commercial carriers against certain
liabilities incurred by the directors and officers of the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibits.
Exhibit
Number
-------------
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 (File 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 (File No. 333-51145) of
Insilco).
4.1 Warrant Agreement dated as of August 17, 1998 between Silkworm
Acquisition Corporation and National City Bank, as Warrant Agent
(incorporated by reference to Exhibit 4.1 to the Registration
Statement on Form S-1 (File No. 333-65039) of the Company).
4.2 Assumption Agreement dated as of August 17, 1998 between Insilco
Holding Co. and National City Bank, as Warrant Agent
(incorporated by reference to Exhibit 4.2 to the Registration
Statement on Form S-1 (File No. 333-65039) of the Company).
4.3 Form of Class A Warrant (incorporated by reference to Exhibit
4.3 to the Registration Statement on Form S-1 (File No.
333-65039) of the Company).
4.4 Certificate of Designation with respect to Pay-in-kind 15%
Senior Exchangeable Preferred Stock due 2010 (incorporated by
reference to Exhibit 4.4 to the Registration Statement on Form
S-1 (File No. 333-65039) of the Company).
4.5 Investors' Agreement, dated as of August 17, 1998, among Insilco
Holding Co. and the investors named therein (incorporated by
reference to Exhibit 4.5 to the Registration Statement on Form
S-1 (File No. 333-65039) of the Company).
4.6 Indenture, dated as of August 17, 1998 between Silkworm
Acquisition Corporation and the Trustee (incorporated by
reference to Exhibit 4.6 to the Registration Statement on Form
S-1 (File No. 333- 65039) of the Company). 4.7 First
Supplemental Indenture, dated as of August 17, 1998 between
Insilco Holding Co. and the Trustee (incorporated by reference
to Exhibit 4.7 to the Registration Statement on Form S-1 (File
No. 333-65039) of the Company).
4.8* Registration Rights Agreement dated as of August 17, 1998
between Water Street Corporate Recovery Fund I, L.P. and the
Company.
5.1* Opinion of Davis Polk & Wardwell with respect to the Offered
Securities being registered. 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)).
13.1* Annual Report on Form 10-K/A dated July 8, 1998.
13.2* Quarterly Report on Form 10-Q/A dated July 8, 1998.
15.1* Letter of KPMG Peat Marwick LLP regarding unaudited interim
financial information. 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").
- -------------------
* Filed herewith
** Previously filed
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 of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Amendment to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Dublin, State of Ohio, on the 2nd day of October, 1998.
INSILCO HOLDING CO.
By: /s/ ROBERT L. SMIALEK
------------------------------------
Robert L. Smialek
Chairman and Chief
Executive Officer
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>
Chairman and Chief Executive Officer
/s/ ROBERT L. SMIALEK (Principal Executive Officer) October 2, 1998
- ------------------------------------
Robert L. Smialek
Vice President and Chief Financial Officer
/s/ DAVID A. KAUER (Principal Financial Officer) October 2, 1998
- ------------------------------------
David A. Kauer
/s/ MICHAEL R. ELIA Vice President and Controller (Principal
Accounting Officer) October 2, 1998
- ------------------------------------
Michael R. Elia
Director
* October 2, 1998
- ------------------------------------
William F. Dawson
Director
* October 2, 1998
- ------------------------------------
Thompson Dean
Director
* October 2, 1998
- ------------------------------------
David Y. Howe
*By /s/ ROBERT L. SMIALEK
---------------------------------
Robert L. Smialek
Attorney-in-fact
</TABLE>
EXHIBIT LIST
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 (File 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 (File No. 333-51145) of
Insilco).
4.1 Warrant Agreement dated as of August 17, 1998 between Silkworm
Acquisition Corporation and National City Bank, as Warrant Agent
(incorporated by reference to Exhibit 4.1 to the Registration
Statement on Form S-1 (File No. 333-65039) of the Company).
4.2 Assumption Agreement dated as of August 17, 1998 between Insilco
Holding Co. and National City Bank, as Warrant Agent
(incorporated by reference to Exhibit 4.2 to the Registration
Statement on Form S-1 (File No. 333-65039) of the Company).
4.3 Form of Class A Warrant (incorporated by reference to Exhibit
4.3 to the Registration Statement on Form S-1 (File No.
333-65039) of the Company).
4.4 Certificate of Designation with respect to Pay-in-kind 15%
Senior Exchangeable Preferred Stock due 2010 (incorporated by
reference to Exhibit 4.4 to the Registration Statement on Form
S-1 (File No. 333-65039) of the Company).
4.5 Investors' Agreement, dated as of August 17, 1998, among Insilco
Holding Co. and the investors named therein (incorporated by
reference to Exhibit 4.5 to the Registration Statement on Form
S-1 (File No. 333-65039) of the Company).
4.6 Indenture, dated as of August 17, 1998 between Silkworm
Acquisition Corporation and the Trustee (incorporated by
reference to Exhibit 4.6 to the Registration Statement on Form
S-1 (File No. 333- 65039) of the Company). 4.7 First
Supplemental Indenture, dated as of August 17, 1998 between
Insilco Holding Co. and the Trustee (incorporated by reference
to Exhibit 4.7 to the Registration Statement on Form S-1 (File
No. 333-65039) of the Company).
4.8* Registration Rights Agreement dated as of August 17, 1998
between Water Street Corporate Recovery Fund I, L.P. and the
Company.
5.1* Opinion of Davis Polk & Wardwell with respect to the Offered
Securities being registered. 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)).
13.1* Annual Report on Form 10-K/A dated July 8, 1998.
13.2* Quarterly Report on Form 10-Q/A dated July 8, 1998.
15.1* Letter of KPMG Peat Marwick LLP regarding unaudited interim
financial information. 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").
- -------------------
* Filed herewith
** Previously filed
EXHIBIT 4.8
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of August 17, 1998 (this
"Agreement"), between Insilco Holding Co., a Delaware corporation (the
"Company"), and the undersigned holder of shares of Insilco Corporation
("Insilco") common stock, par value $.001 per share (the "Stockholder" and,
together with the Company, the "Parties"), who will, as of the effective time
of the Reorganization Merger (as defined below) be the holder of shares of
common stock, par value $0.001 per share, of the Company (the "Common Shares").
PRELIMINARY STATEMENTS
WHEREAS, the Company is currently a wholly owned subsidiary of
Insilco;
WHEREAS, pursuant to an Agreement and Plan of Merger dated as of
March 24, 1998 by and among the Company, Silkworm Acquisition Corporation, a
Delaware corporation ("MergerSub"), and Insilco (as the same has been amended
through the date hereof, the "Merger Agreement"), a wholly owned subsidiary of
the Company ("Reorg Sub") will be merged with and into Insilco pursuant to
Section 251(a) of the Delaware General Corporation Law (the "Reorganization
Merger"), with Insilco continuing as the surviving corporation and as a wholly
owned subsidiary of the Company;
WHEREAS, immediately following the Reorganization Merger, MergerSub
will be merged with and into the Company (the "Merger", and together with the
Reorganization Merger, the "Mergers"), with the Company continuing as the
surviving corporation;
WHEREAS, the Stockholder will retain Common Shares in accordance with
the terms of the Merger Agreement; and
WHEREAS, upon consummation of the Mergers, the Stockholder may be
subject to certain resale restrictions in respect of the Common Shares imposed
by the federal securities laws and the rules and regulations promulgated
thereunder.
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained in this Agreement, the Parties hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. Terms used but not defined herein are used
herein as defined in the Merger Agreement. The following terms, as used herein,
have the following meanings:
(a) "Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with
such Person. For the purpose of this definition, 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;
(b) The "Commission" means the Securities and Exchange Commission;
(c) "Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder from time to time by the
Commission;
(d) "Holder(s)" means the Stockholder, any of its Affiliates and any
successors and Affiliates thereof;
(e) "Person" means any individual, corporation, general or limited
partnership, limited liability company, joint venture, association, trust,
unincorporated organization, government or department thereof, other entity or
group (as defined in the Exchange Act);
(f) "Registrable Securities" means, except as may be limited by Section
2.1, (i) the Common Shares to be received pursuant to the Merger Agreement and
owned (beneficially or of record) by the Holders or any current or former
partners or employees (the "GS Employees") of Goldman, Sachs & Co. ("Goldman
Sachs") (which GS Employees shall be deemed "Holders" for purposes of this
Agreement) immediately after the effective time of the Merger (the "Effective
Time"), (ii) any Common Shares described in clause (i) acquired by Goldman
Sachs or its Affiliates from GS Employees after the Effective Time and (iii)
any securities issued or issuable in respect of such Common Shares by way of
conversion, exchange, stock dividend, split or combination, recapitalization,
merger, consolidation, other reorganization or otherwise; and
(g) "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder from time to time by the
Commission.
ARTICLE II
REGISTRATION RIGHTS
SECTION 2.1. REGISTRABLE SECURITIES. The registration rights provided
herein apply to Registrable Securities, but with respect to any particular
Registrable Security, only so long as such security continues to be a
Registrable Security. Any Registrable Security will cease to be a Registrable
Security when (i) a registration statement (including the Shelf Registration
Statement (as defined in Section 2.2)) covering such Registrable Security has
been declared effective by the Commission and such Registrable Security has
been sold, transferred or otherwise disposed of pursuant to such effective
registration statement, (ii) it is sold pursuant to Rule 144 promulgated under
the Securities Act, (iii) it has been otherwise transferred in compliance with
Section 5.07 of the Merger Agreement and it may be freely resold without
subsequent registration under the Securities Act or any blue sky law then in
force, or (iv) it is sold, transferred or otherwise disposed of, whether
directly or indirectly, to any Person other than a Holder or an Affiliate
thereof.
SECTION 2.2. SHELF REGISTRATION STATEMENT. (a) The Company shall prepare
and file with the Commission a shelf registration statement (as amended and
supplemented from time to time, the "SHELF REGISTRATION STATEMENT") relating to
the resale of the Registrable Securities (and which may also include certain
warrants to purchase the Company's Common Shares in accordance with Rule 415
under the Securities Act) and will use its best efforts (i) to cause such Shelf
Registration Statement to be declared effective as promptly as practicable, but
in any event within 90 days of the date hereof and (ii) to keep such Shelf
Registration Statement continuously effective and in compliance with the
Securities Act and usable for resale of the Registrable Securities (including,
without limitation, the filing of any amendments or supplements to such Shelf
Registration Statement or the prospectus or any prospectus supplements forming
a part thereof), from the date on which the Commission declares effective the
Shelf Registration Statement until the first anniversary of the date hereof.
The prospectus forming a part of the Shelf Registration Statement shall
include, in addition to the other items required therein, a "Plan of
Distribution" section providing for, among other things, one or more sales of
Registrable Securities by the Holders, from time to time, (x) in market
transactions or in privately negotiated transactions or (y) as contemplated by
Section 2.1(b) below, pursuant to an underwritten offering to be described in a
prospectus supplement to such prospectus. The Stockholder will use reasonable
efforts to notify the Company of the sale of the last of the Registrable
Securities; PROVIDED, that the failure of the Stockholder to so notify the
Company in accordance with this sentence will not constitute a breach of any of
the terms of this Agreement.
(b) If the Stockholder so elects, the offering of Registrable Securities
pursuant to the Shelf Registration Statement may be in the form of an
underwritten offering. In such case, the Stockholder shall select the
book-running and other managing underwriters in connection with such
underwritten offering and any additional investment bankers and managers, if
any, to be used in connection with the offering, in each case which are
reasonably satisfactory to the Company; PROVIDED, that Goldman Sachs, if chosen
by the Stockholder, shall be reasonably satisfactory to the Company.
ARTICLE III
REGISTRATION PROCEDURES
SECTION 3.1. FILINGS; INFORMATION. In connection with the Shelf
Registration Statement pursuant to Section 2.2 hereof, the Parties agree as
follows:
(a) The Stockholder will notify the Company at least 5 business days prior
to any Holder making any offer or sale of any Registrable Securities pursuant
to the Shelf Registration Statement other than as contemplated by clause (x) of
the last sentence of Section 2.2 (which will not require such notice), to the
extent such offer or sale will require the preparation and distribution of an
amendment or supplement to the prospectus forming a part of the Shelf
Registration Statement. Such notice shall contain such information regarding
the selling Holders, the proposed plan of underwriting of the Registrable
Securities (if applicable) and such other information as may be legally
required in connection with such registration (which notice may be required to
be updated with such required information as the Company may from time to time
reasonably request). The Company will promptly incorporate such information in
the Shelf Registration Statement, pursuant to a post-effective amendment or
supplement, if necessary, including a prospectus supplement. The Company shall
be entitled, by written notice to the Stockholder, to postpone or suspend for a
reasonable period of time (not to exceed a total of 60 days during the period
of effectiveness of the Shelf Registration Statement) (the "Blackout Period")
the proposed offering of Registrable Securities if the Company shall determine
in good faith that such offering is reasonably likely to interfere with a
pending or contemplated merger, sale or acquisition of assets, recapitalization
or other corporate action or policies of the Company (other than sales of
equity securities of the Company or securities convertible into or exchangeable
for equity securities of the Company, unless the Company agrees to include the
Registrable Securities sought to be sold by the Holders in the offering by the
Company). If the Company elects to so postpone or suspend the proposed offering
of Registrable Securities, the Company shall, to the extent necessary, amend or
supplement the Shelf Registration Statement to permit the offering of
Registrable Securities as soon as is reasonably practicable, but in any event,
within the number of days remaining in the Blackout Period.
(b) The Company will, if requested, prior to filing the Shelf Registration
Statement or any amendment or supplement thereto, furnish to the Stockholder
and each managing underwriter, if any, copies thereof (which documents will be
subject to their review), and thereafter furnish to the Stockholder and each
such underwriter, if any, such number of copies of the Shelf Registration
Statement, and any amendments and supplements thereto (in each case including
all exhibits thereto and documents incorporated by reference therein) and the
prospectus and any prospectus supplements included in the Shelf Registration
Statement (including each preliminary prospectus) as the Stockholder or such
underwriter may reasonably request in order to facilitate the sale of the
Registrable Securities;
(c) (i) the Company will notify the Stockholder (and, if requested,
confirm such notice in writing), promptly after the Company shall receive
notice thereof (x) of the time when the Shelf Registration Statement has become
effective or when any amendment or supplement to the Shelf Registration
Statement or any prospectus or prospectus supplement forming a part thereof has
been filed, and (y) of any request by the Commission for the amendment or
supplement of the Shelf Registration Statement, the prospectus or any
prospectus supplement or for additional information; and (ii) after the filing
of the Shelf Registration Statement, the Company will promptly notify the
Stockholder of any stop order issued or, to the knowledge of the Company,
threatened to be issued by the Commission and take all necessary actions
required to prevent the entry of such stop order or to remove it if such stop
order is entered;
(d) the Company will use all reasonable efforts to qualify the Registrable
Securities for offer and sale under such other securities or blue sky laws of
such jurisdictions in the United States as the Stockholder or the managing
underwriter, if any, reasonably (in light of the Holders' intended plan of
distribution) requests; PROVIDED, HOWEVER, that the Company will not be
required to (i) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this paragraph (d), (ii)
subject itself to taxation in any such jurisdiction or (iii) consent to general
service of process in any such jurisdiction;
(e) the Company shall, as promptly as practicable, notify the Stockholder
(and, if requested, confirm such notice in writing), at any time when a
prospectus relating to the sale of the Registrable Securities is required by
law to be delivered, of the occurrence of an event requiring the preparation of
a supplement or amendment to such prospectus or prospectus supplement so that,
as thereafter delivered to the purchasers of such Registrable Securities, such
prospectus or prospectus supplement 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, in the light of the circumstances
under which they were made, not misleading, and as promptly as practicable make
available to the Holders and to the underwriters, if any, any such supplement
or amendment. The Holders agree that, upon receipt of any notice from the
Company of the happening of any event of the kind described in the preceding
sentence, the Holders will forthwith discontinue the offer and sale of
Registrable Securities pursuant to the Shelf Registration Statement until
receipt of the copies of such supplemented or amended prospectus or prospectus
supplement and, if so directed by the Company, the Holders will deliver to the
Company all copies, other than permanent file copies then in the Holders'
possession, of the most recent prospectus or prospectus supplement, as the case
may be, covering such Registrable Securities at the time of receipt of such
notice. In the event the Company shall give such notice, the Company shall
extend the period during which such Shelf Registration Statement shall be
maintained effective as provided in Section 2.2(a)(ii) hereof by the number of
days during the period from and including the date of the giving of such notice
to the date when the Company shall make available to the Holders such
supplemented or amended prospectus or prospectus supplement, as the case may
be;
(f) the Company will enter into customary agreements (including an
underwriting agreement in customary form that is reasonably acceptable to it)
and take such other actions as are reasonably required in order to expedite or
facilitate the sale of such Registrable Securities;
(g) in connection with underwritten offerings, at the request of the
Stockholder or any managing underwriter, the Company will furnish to the
Stockholders and to each underwriter, if any, a signed counterpart, addressed
to the Holders and each underwriter, of (i) an opinion or opinions of counsel
to the Company (including a "Rule 10b-5" opinion) 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 delivered to such parties;
(h) the Company will make available for inspection by the Holders
participating in such offering, any underwriter participating in any
disposition pursuant to the Shelf Registration Statement, any attorney,
accountant or other agent retained by any such Holder or such underwriter, all
financial and other records, pertinent corporate documents and properties of
the Company, and cause the Company's officers, directors and employees to
supply all information reasonably requested by any such Holder, underwriter,
attorney, accountant or agent in connection with the Shelf Registration
Statement, and cause such officers, directors and employees to be available for
discussion of such information and other customary due diligence matters;
(i) commencing within three months after the effective date of the Shelf
Registration Statement, the Company will make generally available to its
securityholders, as soon as reasonably practicable, a consolidated earnings
statement covering a period of 12 months, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act and the rules and
regulations of the Commission thereunder;
(j) the Company will use its best efforts to cause all Common Shares
(including, without limitation, all Registrable Securities) to be listed on
each securities exchange, if any, or the National Association of Securities
Dealers' (the "NASD") Nasdaq National Market or Nasdaq SmallCap Market
interdealer quotation systems on which similar securities issued by the Company
are then listed, but only if such securities are listed at such time;
(k) the Company will use reasonable best efforts to cause the Registrable
Securities covered by the Shelf Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the Holders participating in such offering or the underwriters, if
any, to consummate the disposition of such offering of Registrable Securities,
subject to the proviso contained in clause (d) above;
(l) the Company will cooperate and assist in any filings required to be
made with the NASD and in performance of any due diligence investigation by any
underwriter (including any "qualified independent underwriter") that is
required to be retained in accordance with the rules and regulations of the
NASD; and
(m) the Company will provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of the Shelf
Registration Statement.
SECTION 3.2. REGISTRATION EXPENSES. In connection with the offering of
Registrable Securities pursuant to the Shelf Registration Statement, the
Holders participating in such offering shall be responsible for any
underwriting discounts or commission that may be payable in connection with the
sale of their securities. The Company will pay all other expenses incurred in
connection with such registration, including, but not limited to, (i) all
filing fees with the Commission, (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 securities), (iii)
printing expenses, (iv) the fees and expenses incurred in connection with any
listing of the securities, (v) fees and expenses of counsel and independent
certified public accountants for the Company (including the expenses of any
comfort letters pursuant to Section 3.1(g) hereof) and (vi) the reasonable fees
and expenses of any additional experts retained by the Company in connection
with such registration. The Company shall also pay internal Company expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties) relating to the offering of
Registrable Securities pursuant to the Shelf Registration Statement.
ARTICLE IV
INDEMNIFICATION AND CONTRIBUTION
SECTION 4.1. (a) INDEMNIFICATION BY THE COMPANY. In the event of any
registration pursuant to Article II hereunder, the Company will, and hereby
does, indemnify and hold harmless, to the fullest extent permitted by law, each
Holder, its employees, officers, directors, fiduciaries, shareholders, general
and limited partners (and the employees, officers, directors, fiduciaries,
shareholders and general and limited partners thereof), each other Person who
participates as an underwriter or a qualified independent underwriter, if any,
in the offering or sale of such securities, each employee, officer, director,
fiduciary, shareholder and general and limited partner of such Person, and each
other Person (including any such Person's employees, officers, directors,
fiduciaries, shareholders and general and limited partners), if any, who
controls any of the foregoing within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act from and against any and all
losses, claims, damages, liabilities (joint or several), actions and
proceedings (whether commenced or threatened) in respect thereof ("Claims") and
expenses (including reasonable fees and expenses of counsel and any amounts
paid in any settlement effected with the Company's consent, which consent shall
not be unreasonably withheld or delayed) (such expenses and amounts paid in
settlement, collectively, "Damages") actually incurred by each such indemnified
party under the Securities Act, the Exchange Act or otherwise, insofar as such
Claims or Damages arise out of or are based upon any of the following actual or
alleged statements, omissions or violations (each, a "Violation"): (i) any
untrue statement or alleged untrue statement of a material fact contained in
any registration statement under which such securities were registered pursuant
to this Agreement under the Securities Act or the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading; (ii) any untrue statement or
alleged untrue statement of a material fact contained in any preliminary, final
or summary prospectus or any amendment or supplement thereto, together with the
documents incorporated by reference therein, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; or (iii) any violation by the Company of
any federal, state or common law rule or regulation applicable to the Company
and relating to action required of or inaction by the Company in connection
with any such registration, and the Company will reimburse any such indemnified
party for any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such Claim as such
expenses are incurred; PROVIDED, that the Company shall not be liable to any
such indemnified party in any such case to the extent such Claims or Damages
arise out of or is based upon (x) any sales by any such indemnified party after
the Company has informed the Stockholder under Section 3.1(e) and prior to the
delivery by the Company of any supplement or amendment to such prospectus
(where such supplement or amendment is intended to cure the defect giving rise
to such Claims or Damages), and (y) any Violation which occurs in reliance upon
and in conformity with written information furnished to the Company or its
representatives by or on behalf of such indemnified party expressly stating
that such information is for use therein. Such indemnity and reimbursement of
expenses shall remain in full force and effect regardless of any investigation
made by or on behalf of such indemnified party and shall survive the transfer
of such securities by such Holder.
(b) INDEMNIFICATION BY THE HOLDERS. Each Holder of Registrable Securities
as to which the Shelf Registration Statement is being effected shall, severally
and not jointly, indemnify and hold harmless (in the same manner and to the
same extent as set forth in paragraph (a) of this Section 4.1), to the extent
permitted by law, the Company, its employees, officers, directors, fiduciaries
and shareholders (and the employees, officers, directors, fiduciaries and
shareholders and general and limited partners thereof) and each other Person
(including any such Person's employees, officers, directors, fiduciaries,
shareholders and general and limited partners), if any, controlling the Company
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act, and all other prospective sellers and their employees,
officers, directors, fiduciaries, shareholders and respective controlling
Persons (including any such Person's employees, officers, directors,
fiduciaries, shareholders and general and limited partners), against any and
all Claims and Damages actually incurred by each such indemnified party under
the Securities Act, the Exchange Act or otherwise, insofar as such Claims or
Damages arise out of or are based upon any Violation which occurs in reliance
upon and in conformity with written information furnished in writing to the
Company or its representatives by or on behalf of such Holder expressly stating
that such information is for use in connection with any registration statement,
preliminary, final or summary prospectus or amendment or supplement or document
incorporated by reference into any of the foregoing; PROVIDED, HOWEVER, that
the aggregate amount which any such Holder shall be required to pay pursuant to
this Article IV shall be limited to the amount of the net proceeds received by
such Holder from the sale of Registrable Securities pursuant to the
registration statement giving rise to such Claim. The Company and the
Stockholder hereby acknowledge and agree that, unless otherwise expressly
agreed to in writing by any Holder to the contrary, for all purposes of this
Agreement, the only information furnished or to be furnished to the Company for
use in any such registration statement, preliminary, final or summary
prospectus or amendment or supplement thereto are statements specifically
relating to (A) the beneficial ownership of Common Shares by such Holder, (B)
the name and address of such Holder and (C) any information included in any
notice provided pursuant to the first sentence of Section 3.1(a) (including,
without limitation, the proposed plan of underwriting described therein). Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such indemnified party and shall survive the transfer
of such securities by such Holder.
SECTION 4.2. BLUE SKY. Indemnification similar to that specified in the
preceding Section 4.1 (with appropriate modifications) shall be given by the
Company and each seller of Registrable Securities (and, if the Company requires
as a condition to including any Registrable Securities in any registration
statement filed in accordance with Article II, any underwriter and qualified
independent underwriter, if any) with respect to any required registration or
other qualification of securities under any state securities and "blue sky"
laws.
SECTION 4.3. CONDUCT OF INDEMNIFICATION PROCEEDINGS. Promptly after
receipt by an indemnified party under Section 4.1 (a) or (b) above of notice of
the commencement of any action, such indemnified party (the "Indemnified
Party") shall, if a Claim in respect thereof is to be made against an
indemnifying party under such subsection (the "Indemnifying Party"), notify the
Indemnifying Party in writing of the commencement thereof; but the omission so
to notify the Indemnifying Party shall not relieve it from any liability which
it may have to any Indemnified Party (i) except to the extent that the
Indemnifying Party is prejudiced by such failure to notify or (ii) otherwise
than under such subsection. In case any such action shall be brought against
any Indemnified Party and it shall notify the Indemnifying Party of the
commencement thereof, the Indemnifying Party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such Indemnified Party (who shall not,
except with the consent of the Indemnified Party, be counsel to the
Indemnifying Party), and, after notice from the Indemnifying Party to such
Indemnified Party of its election so to assume the defense thereof, the
Indemnifying Party shall not be liable to such Indemnified Party under such
subsection for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such Indemnified Party, in connection with
the defense thereof other than reasonable costs of investigation. The
Indemnifying Party shall not be liable for any Damages arising out of or
relating to any settlement or compromise of any proceeding effected without its
prior written consent (which consent shall not be unreasonably withheld), but
if settled or compromised with such consent, or if there be a final,
nonappealable judgment for the plaintiff, the Indemnifying Party shall
indemnify and hold harmless any Indemnified Party from and against any and all
Damages actually incurred by such Indemnified Person (to the extent provided in
this Article IV) by reason of such settlement or judgment. No Indemnifying
Party shall, without the written consent of the Indemnified Party, effect the
settlement or compromise of, or consent to the entry of any judgment with
respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
Indemnified Party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (i) includes an unconditional
release of the Indemnified Party from all liability arising out of such action
or claim and (ii) does not include a statement as to or an admission of fault,
culpability or failure to act, by or on behalf of, any Indemnified Party.
SECTION 4.4. CONTRIBUTION. (a) If the indemnification provided for in this
Article IV is unavailable to or insufficient to hold harmless an Indemnified
Party under Section 4.1 (a) or (b) above in respect of any Claims and Damages
(or actions in respect thereof) referred to therein, then each Indemnifying
Party shall contribute to the amount paid or payable by such Indemnified Party
as a result of such Claims and Damages (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and the Indemnified Party in connection with the Violations (or actions
in respect thereof) which resulted in such Claims and Damages (or actions in
respect thereof). If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law, then the Indemnifying
Party shall contribute to such amount paid or payable by such Indemnified Party
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party and the Indemnified Party in connection with the Violations
which resulted in such Claims and Damages (or actions in respect thereof), as
well as any other relevant equitable considerations (including any material
prejudice as a result of any failure to give notice as required by Section 4.3
above). The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to
information supplied by the Indemnifying Party or the Indemnified Party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid or payable by an
Indemnified Party as a result of the Claims and Damages (or actions in respect
thereof) referred to above in this Section 4.4 shall be deemed to include any
legal or other expenses reasonably incurred by such Indemnified Party in
connection with investigating or defending any such action or Claim.
(b) The Parties agree that it would not be just and equitable if
contribution pursuant to this Section 4.4 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. 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.
(c) Notwithstanding the provisions of this Section 4.4, no Holder shall be
required to contribute any amount in excess of the amount of the net proceeds
received by such Holder from the sale of Registrable Securities pursuant to the
Shelf Registration Statement giving rise to such contribution obligation.
ARTICLE V
MISCELLANEOUS
SECTION 5.1. RULE 144. The Company covenants that it will use its best
efforts to file any reports required to be filed by it under the Securities Act
and the Exchange Act and that it will take such further action as the Holders
may reasonably request, all to the extent required from time to time to enable
the Holders to sell Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144 and
Rule 145 under the Securities Act, as such rules may be amended from time to
time, or any similar rule or regulation hereafter adopted by the Commission.
Upon the request of any Holder, the Company will promptly deliver to the Holders
a written statement as to whether it has complied with such requirements.
SECTION 5.2. HOLDBACK AGREEMENT. In connection with any offering in which
a Holder participates pursuant to this Agreement or otherwise, the Parties
agree that neither the Company nor any other holder of securities of the
Company shall be required to enter into any agreement, or make any commitment,
that prohibits, limits or restricts (or purports to prohibit, limit or
restrict) in any fashion their ability to effect any public sale or
distribution of any Common Shares, or any securities convertible into or
exchangeable or exercisable for Common Shares, whether pursuant to an
underwritten public offering or otherwise, except to the extent necessary to
comply with Section 3.1(a).
SECTION 5.3. ASSIGNMENT. The Stockholder and its Affiliates shall be
entitled to assign the rights granted herein, in whole or in part, to any
transferee of Registrable Securities that is an Affiliate of such Stockholder
or any of its Affiliates and such Registrable Securities do not cease being
Registrable Securities pursuant to Section 2.1 upon consummation of such
transfer. Upon such assignment, each reference in this Agreement to the
"Stockholder," the "Holders" or the "Parties" shall be deemed to include the
permitted assignee. Except as set forth in this Section 5.3, none of the rights
of any Holder under this Agreement shall be assignable by any such Holder to
any Person to which such Holder has, directly or indirectly, sold, transferred
or otherwise disposed of Registrable Securities.
SECTION 5.4. TERMINATION. This Agreement shall terminate upon the earlier
to occur of (i) the sale of all Registrable Securities by the Holders and any
permitted transferee pursuant to Section 5.3, (ii) the mutual consent of the
Parties and (iii) one year from the date hereof, except that such one-year
period shall be extended by the same number of days as required by the last
sentence of Section 3.1(e); PROVIDED, HOWEVER, that, in any event, Article IV
shall survive such termination.
SECTION 5.5. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by telecopy
or telegram or by registered or certified mail (postage prepaid, return receipt
requested) to the respective Parties at the following addresses (or at such
other address for a Party as shall be specified in a notice given in accordance
with this Section 5.5):
(a) if to the Company:
Insilco Holding Co.
425 Metro Place North
5th Floor
Dublin, Ohio 43017
Telecopier: (614) 791-3195
Attention: General Counsel
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telecopier No.: (212) 450-4800
Attention: John W. Buttrick, Esq.
(b) if to Stockholder:
Water Street Corporate Recovery Fund I, L.P.
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Telecopier: (212) 357-5505
Attention: David J. Greenwald, Esq.
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Telecopier No.: (212) 403-2000
Attention: Mitchell S. Presser, Esq.
SECTION 5.6. AMENDMENTS; WAIVER. Subject to the terms of Section 5.3
hereof, this Agreement may not be amended or modified except by an instrument
in writing signed by, or on behalf of, the Parties; PROVIDED, HOWEVER, that the
Parties may (i) extend the time for the performance of any of the obligations
or other acts of the other Party or (ii) waive compliance with any of the
agreements or conditions of the other Party contained herein. Any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed by the Party to be bound thereby. Any waiver of any term or
condition shall not be construed as a waiver of any subsequent breach or a
subsequent waiver of the same term or condition, or a waiver of any other term
or condition, of this Agreement. The failure of any Party to assert any of its
rights hereunder shall not constitute a waiver of any such rights.
SECTION 5.7. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions set forth in this Agreement is not affected in
any manner materially adverse to any Party. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
Parties shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the Parties as closely as possible in a mutually
acceptable manner in order that the transactions set forth in this Agreement be
consummated as originally contemplated to the fullest extent possible.
SECTION 5.8. BINDING EFFECT; BENEFIT. This Agreement shall be binding upon
and shall inure to the benefit of the Parties and their respective successors
and permitted assigns. Notwithstanding anything contained in this Agreement to
the contrary, except as expressly provided in Article IV, nothing in this
Agreement, is intended to confer on any person other than the Parties, the
Holders and their respective permitted successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
SECTION 5.9. SPECIFIC PERFORMANCE. The Parties agree that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof and that the Parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
SECTION 5.10. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of Delaware
applicable to contracts executed in and to be performed in that State. All
actions and proceedings arising out of or relating to this Agreement shall be
heard and determined in any Delaware state or federal court.
SECTION 5.11. HEADINGS. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect
in any way the meaning or interpretation of this Agreement.
SECTION 5.12. COUNTERPARTS. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different Parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
SECTION 5.13. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE
STOCKHOLDER HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE)
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF THE COMPANY OR
THE STOCKHOLDERS IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND
ENFORCEMENT HEREOF.
SECTION 5.14. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the Parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings among the Parties with
respect thereto. No addition to or modification of any provision of this
Agreement shall be binding upon any Party unless made in writing and signed by
all Parties.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
INSILCO HOLDING CO.
By
---------------------------------
Name:
Title:
STOCKHOLDER:
WATER STREET CORPORATE RECOVERY
FUND I, L.P.
By: Goldman, Sachs & Co.,
its General Partner
By:
---------------------------------
Name:
Title:
Exhibit 5.1
[Letterhead of Davis Polk & Wardwell]
October 2, 1998
Insilco Holding Co.
425 Metro Place North, Fifth Floor
Dublin, Ohio 43017
Ladies and Gentlemen:
We have acted as special counsel for Insilco Holdings Co., a
Delaware corporation (the "Company") in connection with the Registration
Statement on Form S-2 (the "Registration Statement") filed with the Securities
and Exchange Commission pursuant to the Securities Act of 1933, as amended (the
"Act"). The Registration Statement relates to registration under the Act of
(i) the resale of 138,000 warrants (the "Warrants") and 65,603 Class A Warrants
(the "Class A Warrants") to purchase shares of Common Stock, par value $.001
per share (the "Common Stock") of the Company by certain holders named in the
Prospectus contained in the Registration Statement or to be named in an
accompanying supplement thereto ("Warrantholders"), (ii) the issuance of up to
110,453 shares of Common Stock ("Warrant Shares") upon exercise of such
Warrants or Class A Warrants to persons who have purchased Warrants or Class A
Warrants under the immediately preceding clause (i) ("Exercising
Warrantholders"), (iii) resales of 63,692 outstanding shares (the "Existing
Shares") of Common Stock held by certain stockholders of the Company named in
the Prospectus contained in the Registration Statement or to be named in an
accompanying supplement thereto and up to 110,453 shares of Common Stock that
may be received upon exercise of Warrants or Class A Warrants by persons other
than Exercising Warrantholders and (iv) resales of 1,400,000 shares of
Pay-in-kind 15% Senior Exchangeable Preferred Stock due 2010 of the Company
(the "PIK Preferred Stock") (plus up to 1,523,413 additional shares of PIK
Preferred Stock (the "Dividend Shares") which may be issued in lieu of cash
dividend payments pursuant to the terms thereof).
The Warrants were issued pursuant to a Warrant Agreement (the
"Warrant Agreement") dated as of August 17, 1998 between Silkworm Acquisition
Corporation ("Silkworm") and National City Bank, as Warrant Agent (the "Warrant
Agent"). Pursuant to an Assumption Agreement dated as of August 17, 1998 (the
"Warrant Assumption Agreement") between the Company and the Warrant Agent, the
Company will assume the obligations of Silkworm under the Warrant Agreement and
the Warrants
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments as we have deemed
necessary for the purposes of rendering this opinion.
Based upon the foregoing, we are of the opinion that:
(1) The Class A Warrants have been duly authorized, executed
and delivered by the Company and are valid and binding
obligations of the Company, enforceable against the
Company in accordance with their terms, except as (x)
such enforcement may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights
generally and (y) such enforcement may be limited by
equitable principles of general applicability,
regardless of whether enforcement is sought in a
proceeding at law or in equity.
(2) The Warrants have been duly authorized, executed and
delivered by the Company and are valid and binding
obligations of the Company, enforceable against the
Company in accordance with their terms, except as (x)
such enforcement may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights
generally and (y) such enforcement may be limited by
equitable principles of general applicability,
regardless of whether enforcement is sought in a
proceeding at law or in equity.
(3) The Company has duly authorized and reserved for
issuance the Warrant Shares to be issued upon the
exercise of the Warrants and the Class A Warrants and,
when issued and delivered upon the exercise of the
Warrants or the Class A Warrants, as the case may be,
against payment of the exercise price as provided in the
Warrant Agreement or the Class A Warrants, as the case
may be, the Warrant Shares will have been validly issued
and will be fully paid and non assessable.
(4) The Existing Shares have been validly issued and are
fully paid and non assessable.
(5) The shares of PIK Preferred Stock (other than the
Dividend Shares) have been validly issued and are fully
paid and non assessable. The Company has reserved for
issuance the Dividend Shares and upon (x) the Board of
Directors (i) authorizing the issuance of any Dividend
Shares, (ii) declaring and paying such Dividend Shares
as a dividend on the PIK Preferred Stock out of its
surplus in accordance with the terms of the PIK
Preferred Stock and (iii) by resolution, directing that
there be designated as capital in respect of such
Dividend Shares an amount which is not less than the
aggregate par value of the Dividend Shares being
declared as a dividend and (y) the issuance and delivery
of appropriate certificates properly executed evidencing
such Dividend Shares, such Dividend Shares will have
been validly issued and will be fully paid and non
assessable.
We are members of the Bar of the State of New York and the
foregoing opinion is limited to the laws of the State of New York, the federal
laws of the United States of America and the General Corporation Law of the
State of Delaware.
We hereby consent to the filing of this opinion as Exhibit 5.1
to the Registration Statement and to the reference to our name under the
heading "Legal Matters" in the related Prospectus.
Very truly yours,
DAVIS POLK & WARDWELL
EXHIBIT 13.1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A NO. 2
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) FOR THE
SECURITIES EXCHANGE ACT OF 1934
for the Fiscal Year Ended December 31, 1997
Commission File number: 0-22098
INSILCO CORPORATION
(Exact name for Registrant as specified in its charter)
DELAWARE NO. 06-0635844
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
425 METRO PLACE NORTH, FIFTH FLOOR
DUBLIN, OHIO 43017
(Address of principal executive offices,
including zip code)
(614) 792-0468
(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.001 par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) for the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to the filing requirements for at least the past 90 days. Yes [x/]
No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x/]
The aggregate market value of the Registrant's Common Stock held by
non-affiliates for the Registrant was approximately $98,046,524 on July 1,
1998.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes [x/] No [ ]
There were 4,145,372 shares of the Registrant's Common Stock outstanding
on July 1, 1998.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
Part I
<S> <C> <C>
Item 1. Business 3
Item 2. Properties 11
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 15
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations 18
Item 8. Financial Statements and Supplementary Data 28
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure 28
Part III
Item 10. Directors and Executive Officers of the Registrant 28
Item 11. Executive Compensation 31
Item 12. Security Ownership of Certain Beneficial Owners and Management 40
Item 13. Certain Relationships and Related Transactions 41
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 43
Signatures 50
Consolidated Financial Statements F-1
</TABLE>
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts included in this Form 10-K, including without
limitation the statements under "Business", "Properties" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" are
forward-looking statements. Although the Company (as defined below) believes
that the expectations reflected in the forward-looking statements contained
herein are reasonable, no assurance can be given that such expectations will
prove to have been correct. Certain important factors that could cause actual
results to differ materially from expectations ("Cautionary Statements")
include, but are not limited to the following: delays in new product
introductions, lack of market acceptance of new products, changes in demand for
the Company's products, changes in market trends, operating hazards, general
competitive pressures from existing and new competitors, effects of governmental
regulations, changes in interest rates, and adverse economic conditions which
could affect the amount of cash available for debt servicing and capital
investments. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the Cautionary Statements.
PART I
ITEM 1. BUSINESS
----------------
THE COMPANY
Insilco Corporation, a Delaware corporation originally incorporated in New
Jersey in 1898 (collectively with its subsidiaries, the "Company," unless the
context indicates otherwise), 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 (as defined below) in March 1997. The
Company's principal executive offices are located at 425 Metro Place North,
Fifth Floor, Dublin, Ohio 43017, telephone (614) 792-0468.
GENERAL DEVELOPMENT OF THE BUSINESS
The Company has undergone significant change and restructuring in the past five
years. A review of the most significant developments follows, in chronological
order:
- On April 1, 1993 (the "Reorganization Date"), the Company emerged from
Chapter 11 bankruptcy proceedings (the "Chapter 11 cases") pursuant to
an Amended and Restated Plan of Reorganization dated November 23, 1992
(the "Plan of Reorganization"). The Plan of Reorganization resulted in
a reduction in the Company's liabilities totaling $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, par value
$.001 per share (the "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 Bankruptcy Case was closed on June 12, 1997.
- 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
Guarantied Notes due July 1, 1997 and 9 1/2% Notes due 1997.
- In 1996, the Company acquired, for an aggregate purchase price of
approximately $37 million, an aftermarket automotive, heavy truck and
industrial radiator manufacturer, Great Lake, and the automotive
aluminum tube business of Helmut Lingemann GmbH & Co.
- 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 the Company's computer
accessories business, Curtis Manufacturing Co., Inc. ("Curtis") and
electronic organizer business ("Rolodex Electronics") for an aggregate
$21.8 million. On March 5, 1997, the remainder of the Office Products
Business, which consisted of Rolodex office products (the "Rolodex
Business"), was sold for net cash proceeds of approximately $112
million. As a result of the sale of the Rolodex Business, the Office
Products Business segment is accounted for as a discontinued operation
(See Item 7 "Management's Discussion and Analysis of Financial
Conditions and Results of Operations - Discontinued Operations.")
- Following the sale of the Rolodex Business, the Company refinanced its
existing debt and entered into an Amended and Restated Credit Agreement
as of July 3, 1997 (the "Bank Credit Agreement") to secure a $200
million revolving credit facility.
- On July 10, 1997, the Company, using the proceeds from the sale of the
Rolodex Business purchased an aggregate of 2,857,142 shares of its
common stock and commenced a tender offer (the "Tender Offer"),
pursuant to which it purchased an additional 2,857,142 shares. The
purchase of shares tendered in the Tender Offer was paid for from the
proceeds received on the issuance of the $150 million aggregate
principal amount of 10.25% Senior Subordinated Notes due 2007 (the
"Notes").
[This space intentionally left blank]
BUSINESS
For additional business segment information, See Note 18 to the Consolidated
Financial Statements. The percentages of the Company's total sales by segment in
each of its last three fiscal years were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Automotive Components Group:
Tubing and heat transfer 31.1 % 29.9 % 27.3 %
Transmissions and other 12.6 12.7 12.8
---- ---- ----
Subtotal 43.7 42.6 40.1
---- ---- ----
Technologies Group 37.7 37.3 38.0
---- ---- ----
Specialty Publishing 18.6 20.1 21.9
---- ---- ----
Total 100.0 % 100.0 % 100.0 %
==== ==== ====
</TABLE>
AUTOMOTIVE COMPONENTS GROUP
The Automotive Components Group is made up of three operating units, Thermal
Components Group ("Thermal"), Romac Metals ("Romac") and a wholly owned
subsidiary, Steel Parts Corporation ("Steel Parts"). The businesses in this
segment manufacture automotive heat exchangers and related tubing, stainless
steel tubing, and automatic transmission and suspension components,
respectively.
AUTOMOTIVE SALES BY MARKET SEGMENT
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Automotive OEM 45.9 % 45.9 % 43.0 %
OEM Other 27.2 22.6 21.9
Automotive Aftermarket 16.2 18.8 19.4
Other 10.7 12.7 15.7
---- ---- ----
Total 100.0 % 100.0 % 100.0 %
==== ==== ====
</TABLE>
TUBING AND HEAT TRANSFER. Thermal 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 brass 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 uses a direct sales force and independent sales representatives to
market its products. Thermal sells to both original equipment manufacturers
("OEMs") and aftermarket customers.
Thermalex, a joint venture owned equally by the Company (through a holding
company subsidiary), and Mitsubishi Aluminum Co., Ltd., 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.
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.
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 highly 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.
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.
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% of Stewart Connector's sales in
1997, 40% in 1996 and 43% in 1995. It maintains direct sales offices (and to a
lesser extent, distribution operations) in England, Japan, 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 the 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
intensely 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. 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 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 commencing each November and continuing through each March. 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
the Rolodex Electronics product line. On March 5, 1997, the Company sold the
Rolodex Business. Curtis, Rolodex Electronics and the Rolodex Business are
referred to collectively as the "Office Products Business." See Item 7
"Managements Discussion and Analysis of Financial Condition and Results of
Operations Discontinued Operations."
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 December 31,
1997 and 1996 follows (in thousands):
<TABLE>
<CAPTION>
December 31
----------------------
1997 1996
---- ----
<S> <C> <C>
Automotive Components Group $ 59,396 52,372
Technologies Group 51,245 50,955
Specialty Publishing 113,232 101,857
-------- --------
Total $223,873 205,184
======== ========
</TABLE>
Management believes that approximately $195 million of its 1997 backlog will be
filled in 1998, and the remainder in 1999.
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. The Company's union agreement with
Taylor expired and a new contract was negotiated in early 1998. Among the union
agreements that will expire in 1998 are those covering certain union employees
of McKenica and Stewart Stamping. 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. 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,
management does not believe that environmental compliance or remedial
requirements are likely to have a material adverse effect on the Company.
FINANCIAL INFORMATION ABOUT EXPORT SALES
In 1997, the Company's export sales were $55.4 million or 10% of consolidated
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 and 1995 export sales were
$58.2 million and $53.1 million, respectively or 12% of consolidated sales in
each year. The Company's transactions are primarily in U.S. dollars.
ITEM 2. PROPERTIES
------------------
PROPERTIES
The Company manufactures its products in various locations, primarily in the
United States. Management believes that the Company's facilities generally are
well maintained and adequate for the purposes of which they are used. The
Company's principal operating plants and offices at December 31, 1997 included
the following properties:
<TABLE>
<CAPTION>
APPROXIMATE TERMS OF
BUSINESS SEGMENT LOCATION PRINCIPAL USE SQUARE FOOTAGE OCCUPANCY
<S> <C> <C> <C> <C>
Automotive Components Group
- ---------------------------
Thermal Components Montgomery, AL Office/Manufacturing 137,325 Owned(1)
Montgomery, AL Manufacturing 45,000 Leased
Buffalo, NY Office/Manufacturing 78,800 Leased
Iron Ridge, WI Office/Manufacturing 44,000 Owned
Oak Creek, WI Office/Manufacturing 39,250 Owned
Oak Creek, WI Office/Manufacturing 33,600 Leased
Montgomery, AL Office/Warehouse 10,890 Leased
Detroit, MI Office/Manufacturing 28,000 Leased
Romulus, MI Office/Manufacturing 16,000 Leased
Duncan, SC Office/Manufacturing 100,000 Owned
Dortmund, Germany Office/Manufacturing 45,000 Owned
Steel Parts Tipton, IN Office/Manufacturing 235,350 Owned
Romac Metals Troutman, NC Office/Manufacturing 110,000 Owned
Technologies Group
- ------------------
Escod Durham, NC Office 3,205 Leased
N. Myrtle Beach, SC Office/Manufacturing 46,506 Owned
Myrtle Beach, SC Office 2,893 Leased
Lake Wales, FL Office/Manufacturing 42,000 Owned
Taylorsville, NC Office/Manufacturing 44,350 Owned
Loris, SC Office/Manufacturing 36,960 Owned
Canon City, CO Office/Manufacturing 21,000 Owned
Signal Transformer Inwood, NY Office/Manufacturing 39,361 Owned
St. Just, PR Office/Manufacturing 41,214 Leased
San Cristobal,
Dominican Republic Office/Manufacturing 14,685 Leased
Stewart Connector Glen Rock, PA Office/Manufacturing 84,000 Owned
Santa Clara, CA Office 210 Leased
Essex, UK Office 485 Leased
Freidrichsdorf/Ts.,
Germany Office 1,500 Leased
Yokohama, Japan Office/Warehouse 4,750 Leased
Cananea, Mexico Warehouse/
Manufacturing 22,646 Leased
Stewart Stamping Yonkers, NY Office/Manufacturing 190,000 Owned
El Paso, TX Office/Manufacturing 41,400 Leased
</TABLE>
<TABLE>
<CAPTION>
APPROXIMATE TERMS OF
BUSINESS SEGMENT LOCATION PRINCIPAL USE SQUARE FOOTAGE OCCUPANCY
- ---------------- -------- ------------- -------------- ---------
<S> <C> <C> <C> <C>
Specialty Publishing
- -------------------
Taylor Dallas, TX Office/Manufacturing 320,000 Owned
Dallas, TX Office/Manufacturing 25,000 Owned
San Angelo, TX Office/Manufacturing 33,200 Leased
El Paso, TX Office/Manufacturing 31,000 Leased
El Paso, TX Manufacturing 52,000 Leased
Malvern, PA Office/Manufacturing 41,000 Leased
San Angelo, TX Manufacturing 7,800 Leased
Dallas, TX Office 1,282 Leased
Orange, CA Office 3,373 Leased
Galveston, TX Office 1,200 Leased
Garden Grove, CA Office 662 Leased
Corporate Dublin, OH Office 18,300 Leased
</TABLE>
(1)Property is "leased" from an industrial development authority in connection
with an expired industrial revenue bond and is eligible for purchase by the
Company for a nominal consideration at the expiration of the lease term.
Substantially all of the Company's material domestic assets, including owned
properties, are subject to major encumbrances securing the Company's obligations
under the Bank Credit Agreement.
The Company believes that all of its production facilities have additional
production capacity, except for certain Steel Parts and Thermal plants that are
operating at or near full capacity.
ITEM 3. LEGAL PROCEEDINGS
-------------------------
LEGAL PROCEEDINGS
The U. S. Federal Trade Commission ("FTC"), in response to certain third party
complaints, investigated Insilco's acquisition of the automotive aluminum heat
exchanger tubing business of Helima-Helvetion International, Inc. ("HHI"), to
determine if the acquisition violated federal antitrust laws. The Company and
the FTC subsequently entered into a Consent Order to resolve this matter that,
among other things, requires Insilco to divest certain assets acquired from HHI.
The divestiture will not have material impact on the Company's consolidated
financial condition, results of operations, or liquidity.
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of its business. The Company
maintains insurance coverage against potential general liability and certain
other claims in an amount it believes to be adequate. In the Company's opinion,
the outcome of these matters will not have a material adverse effect on the
Company's financial condition, liquidity or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-----------------------------------------------------------
Not Applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
-------------------------------------------------------------
STOCKHOLDER MATTERS
-------------------
The Common Stock is the Company's only class of authorized equity securities.
Water Street Corporate Recovery Fund I, L.P. ("Water Street"), an investment
partnership of which Goldman, Sachs & Co. ("Goldman Sachs") is the general
partner, is now the Company's principal stockholder, owning approximately 45% of
the 4,016,711 shares outstanding at March 16, 1998.
The Company's Common Stock has traded on the Nasdaq National Market under the
symbol "INSL" since November 29, 1993. The following table sets forth, for the
periods indicated, the high and low sale prices for the Company's Common Stock
as reported by the Nasdaq National Market. The number of record holders of the
Common Stock of the Company on March 16, 1998 was 770. The closing sales price
of the Common Stock of the Company on March 16, 1998 was $40.00.
<TABLE>
<CAPTION>
Low Sale High Sale
-------- ---------
<S> <C> <C>
1997:
First Quarter $ 34.000 $ 41.000
Second Quarter $ 36.750 $ 39.000
Third Quarter $ 36.000 $ 39.250
Fourth Quarter $ 33.000 $ 38.500
1996:
First Quarter $ 27.750 $ 36.375
Second Quarter $ 33.500 $ 36.875
Third Quarter $ 31.000 $ 37.250
Fourth Quarter $ 36.500 $ 41.063
</TABLE>
The Company did not pay any cash dividends during the past two fiscal years.
Future dividend policy will depend upon the earnings and financial condition of
the Company and the Company's need for funds and other factors. The payment of
dividends is restricted by the terms of the Bank Credit Agreement and the 10.25%
Senior Subordinated Notes issued by the Company August 12, 1997 (the "Notes").
On July 10, 1997, the Company, using the proceeds from the sale of the Rolodex
Business, purchased an aggregate of 2,857,142 shares of its common stock for
$109,999,967 (See Note 11 to the Consolidated Financial Statements). On August
12, 1997, the Company completed a tender offer (the "Tender Offer"), pursuant to
which it purchased an additional 2,857,142 shares for $109,999,967. The purchase
of shares tendered in the Tender Offer was paid for from the proceeds received
on the issuance of $150 million aggregate amount of the Notes (See Note 8 to the
Consolidated Financial Statements).
Pursuant to a $15.0 million stock buyback program adopted July 26, 1995, 97,500
shares of Insilco's common stock were purchased in 1996 at prices ranging from
$30.60 to $36.125 per share. In 1995, 197,500 shares of Insilco's common stock
were purchased at prices ranging from $32.375 to $36.875 per share. In 1997, the
Company made no purchases of its common stock under the stock buyback program.
ITEM 6. SELECTED FINANCIAL DATA
-------------------------------
The following table sets forth selected financial information (dollars in
thousands) derived from the Company's Consolidated Financial Statements.
<TABLE>
<CAPTION>
Predecessor (6)
---------------
1993
----------------------
From | To
1997 1996 1995 1994 4/1 | 3/31
---- ---- ---- ---- --- | ----
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS DATA |
Sales (net)(1) $ 528,233 492,405 449,506 438,434 332,927 | 79,223
Depreciation and amortization 18,377 15,357 13,352 12,251 8,979 | 3,781
Amortization of Reorganization Goodwill -- -- 16,205 34,812 27,265 | --
Operating income (loss)(2) 51,102 48,433 38,881 9,491 (3,530) | 4,162
|
Other income (expense)(3) |
Interest expense(4) (20,562) (18,378) (19,546) (29,113) (26,905) | (9,609)
Interest income 2,837 724 1,472 1,788 1,700 | 347
Other income (expense), net 3,441 7,706 13,893 3,257 884 | (68)
|
Income (loss) from continuing operations |
before reorganization items, extraordinary |
item and income taxes 36,818 38,485 34,700 (14,577) (27,851) | (5,168)
Reorganization items, net -- -- -- -- -- | 21,767
Income tax expense (13,404) (13,272) (16,694) (5,718) (398) | (628)
|
Income (loss) from continuing operations |
before extraordinary items 23,414 25,213 18,006 (20,295) (28,249) | 15,971
|
Income (loss) from discontinued operations, |
net of tax 58,958 13,840 (15,431) (9,683) (18,360) | (15,360)
|
Income (loss) before extraordinary items 82,372 39,053 2,575 (29,978) (46,609) | 611
|
Extraordinary items, net of tax (728) -- -- (2,156) -- | 448,334
|
Net income (loss) 81,644 39,053 2,575 (32,134) (46,609) | 448,945
|
BALANCE SHEET DATA AT PERIOD END |
Working capital 39,508 51,436 47,436 35,327 98,054 | 94,144
Total assets 302,673 348,393 340,129 368,669 517,738 | 562,011
Long-term debt 257,743 161,042 186,489 198,109 307,406 | 306,682
Other long-term liabilities 43,402 44,156 48,153 60,529 65,352 | 64,451
Stockholders' equity (deficit) (102,328) 33,402 (15,779) (13,451) 18,505 | 64,214
|
CASH FLOW DATA |
Net cash provided by (used in) |
operating activities 45,511 55,423 37,744 34,305 52,524 | (16,361)
Net cash provided by (used in) |
investing activities 95,217 (29,783) (14,678) 36,295 (14,146) | 2,668
Net cash provided by (used in) |
financing activities (133,256) (32,053) (21,862) (115,648) (6,774) | (9,109)
|
|
PER SHARE DATA |
Basic income (loss) per share from |
continuing operations(5) 3.25 2.65 1.83 (2.09) (2.93) | N/A
Diluted income (loss) per share from |
continuing operations(5) 3.19 2.55 1.77 (2.09) (2.93) | N/A
Book value per share (25.08) 3.52 (1.64) (1.37) 1.89 | N/A
</TABLE>
See accompanying notes to the Selected Financial Data
The notes to the selected financial data follow:
(1) Sales in 1997 and 1996 include sales of $31.6 million and $13.1
million, respectively, of the Lingemann Business.
(2) Operating income in 1997 and 1996 includes operating income, before
allocation of corporate overhead, of $0.2 million and $0.3 million,
respectively, of the Lingemann Business.
Operating income includes the deduction for the amortization of
Reorganization Goodwill in the period from April 1, 1993 and years
ended December 31, 1994 and 1995.
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 in 1996 included a third quarter $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. Other income in 1995 included 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.
(4) Excluding $19.8 million contractual interest not accrued on unsecured
debt during the Chapter 11 proceedings in the three months ended March
31, 1993.
(5) Earnings per share information for the Predecessor is not presented
because the Predecessor was closely held and the revision of the
Company's capital structure pursuant to the Plan of Reorganization
makes such information not meaningful.
(6) As of March 31, 1993, the Company adopted "fresh start" accounting as
described under "Fresh Start Accounting" on page 19 of this Annual
Report.
ITEM 7. 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 exchanges, 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,
microwave relay, telephone digital switching, data processing, automotive
medical equipment and other markets.
Specialty Publishing consists of Taylor, a publisher of specialty publishing
products, chiefly elementary, middle school, high school and college yearbooks.
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:
- - ACQUISITIONS: In 1996, the Company acquired Great Lake, Inc. 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.
- - 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 the Company's computer
accessories business (Curtis) and electronic organizer business (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 segment is being accounted for as a discontinued
operation (See "Discontinued Operations")
- - REFINANCING: The Company entered into an Amended and Restated Credit
Agreement as of July 3, 1997 (the "Bank Credit Agreement") 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.
- - ISSUANCE OF SUBORDINATED DEBT: On August 12, 1997, the Company issued $150
million aggregate principal amount of 10.25% Senior Subordinated Notes due
2007 (the "Notes"), realizing therefrom net proceeds of $145.9 million.
- - SELF TENDER: On July 10, 1997, the Company, using the Rolodex Proceeds
purchased an aggregate of 2,857,142 shares of its common stock for $110.0
million. On August 12, 1997, the Company completed a tender offer (the
"Tender Offer"), pursuant to which it purchased an additional 2,857,142
shares for $110.0 million. The purchase of shares tendered in the Tender
Offer was paid for from the proceeds received on the issuance of the Notes.
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"). (See Item 1 - "Business - Reorganization
History.")
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 $32.2 million 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 its traditional office products business (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 is being 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.
RESULTS OF OPERATIONS
Summarized sales and operating income (loss) by business segment for the years
ended December 31, 1997, 1996 and 1995, are set forth in the following table (in
thousands) and discussed below:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
SALES
Automotive Components Group $ 231,070 209,722 180,251
Technologies Group 198,941 183,663 170,615
Specialty Publishing 98,222 99,020 98,640
--------- --------- ---------
Consolidated sales $ 528,233 492,405 449,506
========= ========= =========
OPERATING INCOME (LOSS)(1)(2)
Automotive Components Group $ 23,070 23,915 20,407
Technologies Group 23,006 24,453 20,310
Specialty Publishing 5,355 1,650 (753)
Unallocated corporate (329) (1,585) (1,083)
--------- --------- ---------
Consolidated operating income $ 51,102 48,433 38,881
========= ========= =========
</TABLE>
(1) Segment operating income (loss) reflects the allocation of corporate
overhead. In 1995 corporate overhead was reduced by a $4.3 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 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Automotive Components Group $3,537 2,981 1,282
Technologies Group 3,728 3,152 1,412
Specialty Publishing 1,744 1,986 881
------ ------ ------
$9,009 8,119 3,575
====== ====== ======
</TABLE>
(2) Segment operating income (loss) includes a deduction for the amortization
of Reorganization Goodwill by segment as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Automotive Components Group $ -- -- 3,404
Technologies Group -- -- 7,176
Specialty Publishing -- -- 5,625
---------- ------ ------
$ -- -- 16,205
========== ====== ======
</TABLE>
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 operating
income from continuing operations of $48.4 million, 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 its use in the Tender Offer transaction. 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
transaction 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 is being 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. 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 20
for the impact of "fresh start" accounting on the reported operating income as
well as 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 discontinuance
of its Office Products Business, see "1997 Compared to 1996 - Discontinued
Operations."
FINANCIAL CONDITION
Factors that are expected in the future to affect the Company's financial
position are discussed below.
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES. 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 discontinued Office Products business included in 1996 results.
The Company's cash for each year of the three year period ended December 31,
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.
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES. In 1997, the Company sold its
Rolodex Business for a net sales price of $112.6 million. In addition, 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 automotive aluminum tube business of Helmut Lingemann GmbH & Co.,
and two affiliated businesses serving the automotive, heavy truck and industrial
manufacturing radiator replacement market, Great Lake, Inc. 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.
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 Bank Credit Agreement will adversely affect its
ability to meet its operating goals.
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES. On July 3, 1997, the Company
refinanced its existing bank debt (See Note 8 to the Consolidated Financial
Statements). On July 10, 1997 using the Rolodex Proceeds, the Company purchased
2,857,142 shares of its common stock, at $38.50 per share in cash, for an
aggregate purchase price of $110.0 million. On August 12, 1997, the Company
completed the Tender Offer, in which it purchased an additional 2,857,142
shares at a price of $38.50 per share in cash for an aggregate purchase price
of $110.0 million. On August 12, 1997, the Company issued $150 million of the
Notes, for net proceeds of approximately $145.9 million (the "Offering"). The
Company used the net proceeds from the Offering to fund the purchase of shares
tendered in the Tender Offer, repay loans under the Bank Credit Agreement, pay
fees and expenses of the aforementioned transactions and for general corporate
purposes. The Company incurred $10.7 million in costs for the refinancing,
Tender Offer and issuance of the 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.
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 repurchase of shares 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 the year. The Company's other businesses are not highly
seasonal. See "Item 1. Business - Specialty Publishing".
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 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 it 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 were
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.
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 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
---------------------------------------------------
The Consolidated Financial Statements of the Company, together with the reports
thereon of KPMG Peat Marwick LLP (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, are set
forth on pages F-1 through F-34 hereof (see Item 14 of this Annual Report for
the Index).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
-------------------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
-----------------------------------------------------------
DIRECTORS
The following table sets forth name, age and business experience of the
directors of the Company. Each director has held the occupation indicated for
more than the past five years unless otherwise indicated.
<TABLE>
<CAPTION>
NAME AND BUSINESS EXPERIENCE AGE
---------------------------- ---
<S> <C>
JAMES J. GAFFNEY 57
Mr. Gaffney specializes in the turnaround of financially troubled companies,
serving with such companies as the chief executive officer, as a director or as
an independent consultant. Mr. Gaffney provides consulting services to GS
Capital Partners II, L.P. (a private investment fund affiliated with Water
Street Corporate Recovery Fund I, L.P. and Goldman, Sachs & Co.) and other
affiliated investment funds in relation to an investment held by those funds
and, pursuant to such arrangement, is currently serving as Chairman of Vermont
Investments, Ltd., a conglomerate based in New Zealand. He previously served as
the President and Chief Executive Officer of General Aquatics, Inc., a successor
to KDI Corporation , from September 1993 until it was sold in May 1997, as Chief
Executive Officer of International Tropic-Cal, Inc. from August 1991 to July
1992, and as an independent consultant from September 1989 to August 1991, and
from July 1992 to the present. He also is a director of Koll Real Estate Group
Inc., Advantica Food Group, Inc., and several private companies.
TERENCE M. O'TOOLE 39
Mr. O'Toole has been a Managing Director of Goldman, Sachs & Co. ("Goldman Sachs")
since November 1996. Previously, he was a general partner of Goldman Sachs from 1992
to 1996. Mr. O'Toole is also a member of Goldman Sachs' Investment Committee. He was
previously a Vice President of Goldman Sachs. Mr. O'Toole is a director of Amscan
Holdings, Inc., AMF Bowling Inc., AMF Bowling Worldwide, Inc., Western Wireless
Corporation, and several private companies.
</TABLE>
<TABLE>
<S> <C>
THOMAS E. PETRY 58
Mr. Petry is the retired Chairman of the Board (a position he held from March
1989 to March 1998) of Eagle-Picher Industries, Inc., which is engaged in the
manufacture of earthmoving equipment and other machinery, automotive parts and
other industrial products. A voluntary petition under Chapter 11 of the Federal
Bankruptcy Laws was filed by Eagle-Picher Industries, Inc. on January 7, 1991.
An amended plan of reorganization was filed during August 1996, and approved by
U.S. Bankruptcy Court during November 1996, whereby Eagle-Picher emerged from
bankruptcy reorganization. Mr. Petry is a director of Eagle- Picher, The Union
Central Life Insurance Co., The William Powell Co., CINergy Corp., Star Banc
Corp., and Star Bank, N.A.
ROBERT L. SMIALEK 54
Mr. 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.
BARRY S. VOLPERT 38
Mr. Volpert has been a Managing Director of Goldman Sachs and a Participating
Limited Partner in Goldman Sachs Group, L.P. ("GS Group") since November 1996.
He was a general partner of Goldman Sachs from 1994 to 1996. He was previously a
Vice President of Goldman Sachs from 1990 to 1994 and the Manager of Water
Street Corporate Recovery Fund I, L.P., an investment partnership of which
Goldman Sachs is the general partner ("Water Street"), from 1991 to 1994. From
1989 to 1991, Mr. Volpert was the head of Goldman Sachs' workout and
restructuring advisory business. He also is a director of Elifin S.A.
(Luxembourg), Vermont Investments, Ltd. (New Zealand), Starwood Hotels & Resorts
Worldwide, Inc., IDB Holding Corporation Ltd., and Rockefeller Center
Properties, Inc.
</TABLE>
The nonemployee directors were first elected to the Board of Directors effective
April 1, 1993. Mr. Smialek, as the Company's Chief Executive Officer, became a
director effective May 1, 1993. Each has served as a director continuously since
his election.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company had a total of four regular meetings and
four special meetings. Each of the directors attended 75% or more of the total
number of the Board of Directors meetings held during 1997. The Board of
Directors has standing Audit and Compensation Committees. The members of the
Audit Committee are James J. Gaffney, Terence M. O'Toole, Thomas E. Petry and
Barry S. Volpert. The Audit Committee oversees the work of the internal audit
staff and external auditors and met three times during 1997. All members of the
Audit Committee attended 75% or more of the total number of the Audit Committee
meetings held during 1997. The Compensation Committee, comprised of James J.
Gaffney and Thomas E. Petry, reviews officer compensation, administers the 1993
Long-Term Incentive Plan, and met two times during 1997, with both members
attending all meetings.
As required by the Company's Amended and Restated Plan of Reorganization filed
with the United States Bankruptcy Court for the Western District of Texas in
November 1992 (the "Plan of Reorganization"), a Litigation Committee, comprised
of Messrs. Gaffney and Petry, investigated potential claims against Merrill
Lynch & Co., Inc., and its subsidiary Merrill Lynch, Pierce, Fenner & Smith
Inc., in connection with certain aspects of the leveraged buyout of the Company
in 1988. The Litigation Committee concluded its task in March 1997.
DIRECTOR COMPENSATION
In 1993, the Company adopted the 1993 Nonemployee Director Stock Incentive Plan
(the "1993 Director Plan") covering 360,000 shares of Common Stock for
nonemployee directors in lieu of paying annual or other directors' fees. Each
present nonemployee director, having purchased 6,666 shares of Common Stock
issued by the Company at $15 per share, was awarded 13,334 shares of restricted
stock and has been granted options to purchase up to 40,000 shares of Common
Stock from the Company under the 1993 Director Plan. The terms of the options
and the restricted stock awards, including forfeiture provisions, generally are
the same as those described under "Employment and Severance Benefit Agreements"
respecting the options and restricted stock awarded Mr. Smialek. Water Street
owns the options granted to Messrs. O'Toole and Volpert and the stock sold or
awarded to them. Each nonemployee director participating in the 1993 Director
Plan has become fully vested in all of the options and restricted stock awarded
to them under the 1993 Director Plan.
EXECUTIVE OFFICERS
Set forth below are the name, age and office of each "executive officer" of the
Company (as defined by the Securities and Exchange Commission).
<TABLE>
<S> <C>
Robert L. Smialek, age 54 President and Chief Executive Officer
Kenneth H. Koch, age 42 Vice President, General Counsel and Secretary
Leslie G. Jacobs, age 47 Vice President, Human Resources and Assistant Secretary
David A. Kauer, age 42 Vice President and Chief Financial Officer
</TABLE>
Executive officers are elected annually to serve for a year or until their
successors are elected. During the past five years, Mr. Smialek has had the
business experience set forth above under "Directors," while the other executive
officers have had the business experience described below. Unless otherwise
stated, positions are with the Company.
Mr. Koch: Vice President, General Counsel and Secretary (since October 1993);
prior thereto, attorney and partner with the law firm of Porter, Wright, Morris
& Arthur.
Mr. Jacobs: Vice President, Human Resources (since August 1993); Director of
Human Resources from January 1990 to August 1993; prior thereto, Director,
Compensation and Employee Programs, of Rockwell International.
Mr. Kauer: Vice President and Chief Financial Officer (since May 1998) Vice
President and Treasurer (April 1997 to May 1998); Treasurer from September 1993
to April 1997; Controller and Treasurer of Johnson Yokogawa Corporation (a joint
venture of Yokogawa Electric Corporation and Johnson Controls, Inc.), October
1989 - September 1993.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and greater than 10% stockholders, to file reports of
ownership and changes in ownership of the Company's securities with the
Securities and Exchange Commission ("SEC"). Copies of the reports are required
by SEC regulation to be furnished to the Company. Based on its review of such
reports and written representations from reporting persons, the Company believes
that all reporting persons complied with all filing requirements during fiscal
1997.
ITEM 11. EXECUTIVE COMPENSATION
-------------------------------
The aggregate remuneration of the Chief Executive Officer during 1997 and the
four other most highly compensated executive officers of the Company whose
salary and bonus exceeded $100,000 for the fiscal year ended December 31, 1997,
is set forth in the following table:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
-----------------------------------------------------------------
Annual Compensation | Awards |
-----------------------------------------------------------------
(a) (b) (c) (d) | (f) (g) | (i)
| Securities | All Other
<S> <C> <C> <C> <C> <C> <C>
Name and Principal |Restricted Stock Underlying | Compensation
Position Year Salary ($) Bonus ($) | Award(s) ($) Options (#) | ($)
- ----------------------------------------------------------------------------------------------------------------------------------
Robert L. Smialek 1997 $550,000 $300,000 | -- -- | $ 9,901(1)
President and CEO 1996 537,499 235,000 | -- -- | 13,251(2)
1995 500,000 180,000 | -- -- | 13,817(3)
Robert F. Heffron(4) 1997 276,250 135,000 | -- 15,000 | 6,372(5)
Executive Vice President 1996 252,500 150,000 | -- 4,000 | 5,920(6)
and Chief Operating Officer 1995 237,500 110,000 | -- -- | 3,671(7)
Philip K. Woodlief(8) 1997 174,667 80,000 | -- 10,000 | 3,285(9 )
Vice President and 1996 157,000 65,000 | -- 1,500 | 3,039(10)
Corporate Controller 1995 145,000 45,000 | -- -- | 2,412(11)
David A. Kauer 1997 164,000 80,000 | -- 10,000 | 3,369(12)
Vice President and 1996 143,917 58,000 | -- 1,500 | 3,109(13)
Treasurer 1995 130,833 40,000 | -- -- | 2,447(14)
Kenneth H. Koch 1997 162,833 75,000 | -- 10,000 | 3,314(15)
Vice President, General 1996 151,167 78,373 | -- 2,500 | 3,114(16)
Counsel and Secretary 1995 138,667 50,000 | -- -- | 2,693(17)
</TABLE>
- --------------
(1) Includes employer contributions under the Company's Employee Thrift Plan
401(k) (the "Thrift Plan") ($2,400) and insurance premiums paid by the
Company ($7,501).
(2) Includes Thrift Plan contributions ($2,250) and insurance premiums paid by
the Company ($10,509).
(3) Includes Thrift Plan contributions ($2,250) and insurance premiums paid by
the Company ($8,354).
(4) Mr. Heffron was employed by the Company from July 1, 1993 to February 24,
1998.
(5) Includes Thrift Plan contributions ($2,400) and insurance premiums paid by
the Company ($3,661).
(6) Includes Thrift Plan contributions ($2,250) and insurance premiums paid by
the Company ($3,301).
(7) Includes Thrift Plan contributions ($2,250) and insurance premiums paid by
the Company ($1,136).
(8) Mr. Woodlief was employed by the Company from January 30, 1989 to May 8,
1998.
(9) Includes Thrift Plan contributions ($2,400) and insurance premiums paid by
the Company ($885).
(10) Includes Thrift Plan contributions ($2,250) and insurance premiums paid by
the Company ($733).
(11) Includes Thrift Plan contributions ($2,198) and insurance premiums paid by
the Company ($214).
(12) Includes Thrift Plan contributions ($2,400) and insurance premiums paid by
the Company ($969).
(13) Includes Thrift Plan contributions ($2,250) and insurance premiums paid by
the Company ($859).
(14) Includes Thrift Plan contributions ($2,250) and insurance premiums paid by
the Company ($197).
(15) Includes Thrift Plan contributions ($2,400) and insurance premiums paid by
the Company ($791).
(16) Includes Thrift Plan contributions ($2,250) and insurance premiums paid by
the Company ($733).
(17) Includes Thrift Plan contributions ($2,250) and insurance premiums paid by
the Company ($198).
STOCK OPTIONS
The following table shows information regarding options to purchase shares of
the Company's Common Stock granted to executive officers named in the summary
compensation table in 1997 under the 1993 Long-Term Incentive Plan.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
- -------------------------------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
NAME INDIVIDUAL GRANTS FOR OPTION TERM(1)
- --------------------------- ---------------------------------------------------- -------------------------------------------
% OF TOTAL
OPTIONS
OPTIONS GRANTED TO EXERCISE
GRANTED EMPLOYEES IN PRICE EXPIRATION
(#) FISCAL YEAR ($/SHARE) DATE 0%($) 5%($) 10%($)
---------- ------------- ---------- ------------ ------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert L. Smialek -- -- -- -- -- -- --
Robert F. Heffron 15,000 9.9% $36.75 6/25/02 $0 $152,300 $336,544
Philip K. Woodlief 10,000 6.6% $36.75 6/25/02 $0 $101,533 $224,362
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 $224,362
</TABLE>
- --------------
(1) The amounts under the columns labeled "5%($)" 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 stock options held by the named executive officers at fiscal year end.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT FISCAL
OPTIONS AT FISCAL YEAR-END (#) YEAR-END ($)(2)
------------------------------ --------------------------------
SHARES
ACQUIRED
ON VALUE
EXERCISE REALIZED
NAME (#) ($)(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
Robert F. Heffron 5,000 $ 111,875 29,332 17,668 $384,000 $ 0
Philip K. Woodlief 9,488 $ 212,690 11,012 11,000 $114,216 $ 0
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
</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.
The following table provides certain information regarding long-term incentive
plan awards 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.
LONG -TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
(a) (b) (c)
Number of Shares,
Units or Other Performance or Other Period Until
Name Rights (#)(1)(2) Maturation or Payout
- ---------------------------------------- ------------------------ -------------------------------------
<S> <C> <C> <C>
Robert L. Smialek -- --
Robert F. Heffron 14,964 6/24/00
Philip K. Woodlief 9,506 6/24/00
David A. Kauer 9,252 6/24/00
Kenneth H. Koch 9,088 6/24/00
- --------------
</TABLE>
(1) Under the terms of the Company's 1993 Long-Term Incentive Plan, the
Company adopted a Share Investment Program, effective June 25, 1997 (the
"Program"), to create a significant increase in shareholder value and to
retain key management personnel necessary to achieve such objective. The
Compensation Committee designated certain members of executive management
to participate in the Program. Under the terms of the Program,
participants were required to maintain an investment of shares of the
Company's Common Stock up to an amount equal to the participant's annual
salary (the "Initial Investment") until certain conditions are satisfied.
The Program provides for the award of two tranches of restricted stock,
each in an amount equal to the Initial Investment. The first tranche is
awarded if the Company's Common Stock achieves a market price of $47.77
for 20 consecutive trading days and the second tranche is awarded if the
Company's Common Stock achieves a market price of $58.80 for 20
consecutive trading days. The shares awarded under the Program upon
satisfaction of the market price conditions do not vest to the
participants until June 24, 2000 and any earned or awarded shares may be
forfeited if the participant voluntarily terminates his or her employment
prior to such vesting.
(2) The number of shares reported in the table assumes that the goals for
the first and second tranche established under the Program have been
achieved.
RETIREMENT PLAN AND SUPPLEMENTAL ARRANGEMENTS
The Company's Retirement Plan for Salaried Employees (the "Retirement Plan")
provides retirement benefits for salaried employees, including officers. The
Company compensates employees for the loss of benefits which otherwise would
result because of the limitations the Internal Revenue Code places on pensions
that may be paid under tax-qualified retirement plans such as the Retirement
Plan. The unfunded supplemental retirement payments are accounted for as
operating expenses when earned.
The following table shows the estimated annual retirement allowances payable
after retirement at normal retirement age to persons in the following specified
remuneration and years-of-service classifications (before any deductions for
joint or survivorship payments) without regard to any statutory limitations
imposed by the Internal Revenue Code. Normal retirement allowances, beginning at
age 65, equal (i) 50% of final average compensation minus (ii) 50% of the
retiree's primary social security benefit, pro-rated if total service is less
than 25 years or, in certain cases, is less than 35 years. Five years of service
is required for vesting.
<TABLE>
<CAPTION>
FINAL
AVERAGE Years of Service
EARNINGS(1)
15 20 25 30 35
<S> <C> <C> <C> <C> <C> <C>
$125,000 $ 33,385 $ 44,514 $ 55,642 $ 55,642 $ 55,642
150,000 40,885 54,514 68,142 68,142 68,142
175,000 48,385 64,514 80,642 80,642 80,642
200,000 55,885 74,514 93,142 93,142 93,142
250,000 70,885 94,514 118,142 118,142 118,142
300,000 85,885 114,514 143,142 143,142 143,142
350,000 100,885 134,514 168,142 168,142 168,142
400,000 115,885 154,514 193,142 193,142 193,142
450,000 130,885 174,514 218,142 218,142 218,142
500,000 145,885 194,514 243,142 243,142 243,142
550,000 160,885 214,514 268,142 268,142 268,142
600,000 175,885 234,514 293,142 293,142 293,142
650,000 190,885 254,514 318,142 318,142 318,142
</TABLE>
- ---------------
(1) The higher of (i) average annual compensation for any five consecutive
calendar years during the final 10 years of employment or (ii) the
average annual compensation for the last 60 months of employment.
Compensation consists of salary (including voluntary salary deferrals)
and bonus. Supplemental payments are based on average earnings in excess
of $160,000.
At December 31, 1997, Messrs. Smialek, Heffron, Koch, Woodlief, and Kauer were
credited, under the Retirement Plan and various supplemental arrangements, with
approximately 3.7, 6.8, 3.2, 7.9, and 3.3 years of service, respectively, for
purposes of determining their pensions.
EMPLOYMENT AND SEVERANCE BENEFIT AGREEMENTS
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 with
Messrs. Heffron, Jacobs, Koch, Woodlief, Kauer and certain other officers. The
Value Appreciation Agreement provides that the executives will be entitled to
receive a commission from the Company in certain circumstances following a
transaction giving rise to a change in control. The amount of the commission is
dependent on achieving a threshold price per share in any such transaction and
is determined based on the amount realized per share in excess of the threshold
price taking into account increases in the Company's enterprise value since
December 1996. The Value Appreciation Agreement has a term of two years. On
March 24, 1998, the Company announced that it had entered into a definitive
merger agreement with DLJ Merchant Banking Partners II, L.P. ("DLJMB") at a
price of $42.98 in cash and the right to retain 0.03419 of a share of common
stock (having a nominal value of $44.50 per share) of the surviving
corporation. On June 8, 1998, DLJMB agreed to increase the total price 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. If the Company
consummates the pending merger with DLJMB, the commission on the sale under the
Value Appreciation Agreement will be $2.6 million.
In December 1996, the Company entered into Income Protection Agreements with
Messrs. Heffron, Jacobs, Koch, Woodlief, Kauer 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.
The following Compensation Committee Report and Performance Graph will not be
deemed incorporated by reference by any general statement incorporating by
reference this Form 10-K/A No. 2 into any of the Company's filings under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, except to the extent that the Company specifically incorporates this
information by reference, and will not otherwise be deemed filed under such
Acts.
BOARD COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
OVERVIEW
The Compensation Committee (the "Committee") has been given the authority to
review and evaluate individual executive officers and to determine the
compensation for each executive officer. In general, the Committee's philosophy
is to attract, motivate and retain qualified key executives, reward individual
performance, relate compensation to Company goals and objectives and enhance
shareholder value. The Company's compensation program includes competitive base
salaries, annual bonus opportunities, competitive benefits and long-term awards
under the 1993 Long-Term Incentive Plan (the "Plan").
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Robert L. Smialek became the Company's Chief Executive Officer effective May 1,
1993. The Compensation Committee, by approval of the Second Extension Agreement
between the Company and Mr. Smialek dated September 25, 1997, extended the
employment agreement indefinitely. Mr. Smialek's compensation for 1997 consisted
of a base salary of $550,000 and a bonus of $300,000. Determination of Mr.
Smialek's base salary was primarily based on Mr. Smialek's background and
experience, and compensation levels of executives in similar positions in
comparable businesses. The cash bonus paid to Mr. Smialek for 1997 was based
primarily on the Company achieving certain specified financial performance goals
and the perceptions of the Committee. Mr. Smialek will also be eligible to
receive annual bonuses in such amounts as may be reasonably determined from time
to time by the Compensation Committee.
COMPENSATION OF EXECUTIVE OFFICERS
The Company's compensation program for its executive officers is based on
the following objectives:
o Total compensation of the executive officers should be linked to the
financial performance of the Company and enhancement of shareholder
value.
o The compensation paid to the executive officers of the Company should
be competitive with executive compensation levels of similar companies
so that the Company can attract, motivate and retain qualified key
executives.
o The compensation program should reward outstanding individual
performance and contributions to the Company as well as experience.
Compensation for executive officers in 1997 consisted of base salary, bonuses
and stock option awards under the Plan. Base salaries and bonuses were paid to
executive officers (excluding the Chief Executive Officer) based upon each such
executive officer's individual performance, duties, responsibilities, experience
and tenure, general economic conditions, the recent financial performance of the
Company, and other factors. Bonuses paid to the executive officers were
determined in accordance with a bonus plan that required 70% of the bonus to be
determined on the basis of the Company's achieving certain specified financial
performance goals, and 30% on the basis of the Committee's and the Chief
Executive Officer's evaluation of the performance of each executive officer. In
addition, the Chief Executive Officer has the discretion to make
performance-related individual awards.
Stock options were awarded under the Plan to executive officers (excluding the
Chief Executive Officer) in June 1997. The number of options awarded to each
executive officer was determined by the Committee based on a recommendation of
the Chief Executive Officer. Determination of such awards was based on the
executive officer's length of services and the perceptions of the Committee and
the Chief Executive Officer of the individual contributions and performance and
ability to impact overall business results. The Committee considered the levels
of options awarded to executives in similar positions and at similar salary
levels as compared to surveys published by compensation consulting firms.
IMPACT OF 1993 TAX ACT CHANGES
The Budget Reconciliation Act of 1993 (the "Act") amended the Internal Revenue
Code to add Section 162(m) that bars a deduction to any publicly held
corporation for compensation paid to a "covered employee" in excess of
$1,000,000 per year (the "Dollar Limitation"). A covered employee of the
Company is any employee who appears in the Summary Compensation Table who is
also employed by the Company on December 31. The Dollar Limitation applies to
tax years beginning after 1993.
The legislation potentially impacts three components of the Company's executive
compensation package. These include base salaries, bonuses, and awards under
the Plan. The Company does not believe that the legislation as amended will
have any effect on the deductibility of compensation payable in 1997 to any of
its executive officers.
The Company believes that the Plan currently qualifies for the exemption
provided for performance based compensation and awards under the Plan will not
be subject to the Dollar Limitation.
COMPENSATION COMMITTEE:
James J. Gaffney
Thomas E. Petry
PERFORMANCE GRAPH
The following Performance Graph compares the performance of the Company
with that of the Russell 2000 Index and the Standard & Poor's Conglomerates
Index. The comparison of cumulative total return to shareholders assumes that
$100 was invested in the Common Stock of the Company on September 15, 1993 (the
effective date of the registration of the Company's Common Stock under the
Securities Exchange Act of 1934, as amended), and in the Russell 2000 Index and
the Standard & Poor's Conglomerates Index on August 31, 1993, and that all
dividends were reinvested.
Comparison of 52 Month Cumulative Total Return*
Among Insilco Corporation, The S & P Conglomerate Index
And The Russell 2000 Index
<TABLE>
<CAPTION>
8/93 12/93 12/94 12/95 12/96 12/97
<S> <C> <C> <C> <C> <C> <C>
Insilco Corporation $100.00 $113.00 $207.00 $268.00 $323.00 $277.00
Russell 2000 100.00 105.00 104.00 129.00 148.00 181.00
S & P Conglomerates 100.00 99.00 94.00 122.00 139.00 156.00
</TABLE>
* Assumes $100 invested on 09/15/93 in Insilco common stock or on 08/31/93 in
each index. Total return assumes dividends are reinvested.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
------------------------------------------------------------
MANAGEMENT
----------
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth the only persons known by the Company to be the
beneficial owners of more than five percent (5%) of the outstanding shares of
Common Stock of the Company on April 3, 1998:
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE
OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
<S> <C> <C>
Water Street Corporate Recovery 1,863,878(1)(2) 45.2%
Fund I, L.P.
85 Broad Street
New York, NY 10004
Neuberger & Berman, LLC 546,818 13.3%
605 Third Avenue
New York, NY 10158-3698
</TABLE>
- -------------
(1) Represents shares beneficially owned by Water Street. Goldman Sachs is
the general partner of Water Street and thus may be deemed to be the
beneficial owner of shares held by Water Street. GS Group is a general
partner of Goldman Sachs and directly owns 334 shares of Common Stock not
included in the amount shown. The address of Goldman Sachs and GS Group
is 85 Broad Street, New York, NY 10004. Goldman Sachs disclaims
beneficial ownership of the shares held by Water Street except to the
extent such ownership corresponds to its interests in Water Street and
disclaims beneficial ownership of the shares held by GS Group. GS Group
disclaims beneficial ownership of the shares held by Water Street to the
extent partnership interests in Water Street are held by persons other
than GS Group, Goldman Sachs or their affiliates.
(2) Includes an aggregate of 80,000 shares of Common Stock acquired from the
Company by Water Street through Messrs. O'Toole and Volpert pursuant to
the director plan described under "Director Compensation."
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of April 3, 1998, the beneficial ownership of
the Company's Common Stock by each officer named in the Summary Compensation
Table who owns shares of the Common Stock, each director of the Company and by
all directors and executive officers as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
<S> <C> <C>
James J. Gaffney 8,000 *
Terence M. O'Toole 1,863,878(1) 45.2%
Thomas E. Petry 8,000 *
Robert L. Smialek 315,066(2) 7.2%
Barry S. Volpert 1,863,878(1) 45.2%
Robert F. Heffron(3) 31,564(4) *
Kenneth H. Koch 12,464(5) *
Philip K. Woodlief(6) 12,013(7) *
David A. Kauer 11,800(8) *
All directors and executive
officers as a group (9 persons) 2,245,429(9) 50.9%
</TABLE>
- --------------
* Less than 1%
(1) The shares listed for Mr. O'Toole and Mr. Volpert are beneficially owned by
Water Street or by Goldman Sachs or GS Group of which Mr. O'Toole and Mr.
Volpert are general partners; however, Mr. O'Toole and Mr. Volpert disclaim
beneficial ownership of such shares except to the extent of their indirect
pecuniary interest in such shares.
(2) Includes 240,000 shares subject to stock options exercisable within 60 days
of April 3, 1998.
(3) Mr. Heffron's employment with the Company terminated effective February 24,
1998.
(4) Includes 30,664 shares subject to stock options exercisable within 60 days
of April 3, 1998.
(5) Includes 11,164 shares subject to stock options exercisable within 60 days
of April 3, 1998.
(6) Mr. Woodlief's employment with the Company terminated effective May 8,
1998.
(7) Includes 11,512 shares subject to stock options exercisable within 60 days
of April 3, 1998.
(8) Includes 11,000 shares subject to stock options exercisable within 60 days
of April 3, 1998.
(9) Includes 287,484 shares subject to stock options exercisable within 60 days
of April 3, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------
The Compensation Committee of the Board of Directors has been comprised of two
nonemployee directors, James J. Gaffney and Thomas E. Petry. None of the current
directors on the Compensation Committee was an officer or employee of the
Company or any of its subsidiaries during 1997 or had any relationships during
1997 that would require disclosure under SEC rules, except as follows:
In 1995, the Company loaned $210,000 to James J. Gaffney, a director of the
Company, in two separate loan transactions. Each 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. 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.
Terence M. O'Toole and Barry S. Volpert are partners in Goldman Sachs and
directors of the Company. Goldman Sachs has from time to time provided the
Company with financial advisory services in connection with significant
transactions, including debt offerings, debt refinancings, purchases and sales
of businesses, and the sale of the Company. Goldman Sachs has performed such
financial advisory and other investment banking services for the Company on
terms and conditions no less favorable to it than it could obtain from an
unaffiliated firm of comparable rank, and provide for the payment of fees, the
reimbursement of Goldman Sachs' reasonable expenses and the indemnification of
Goldman Sachs against various liabilities, including liabilities under the
federal securities laws. Goldman Sachs may also hold or acquire from time to
time equity or creditor interests in entities with which the Company transacts
business in the ordinary course. The Company is not aware of any transaction or
of any currently proposed transaction, in which Goldman Sachs 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:
On July 3, 1997, the Company refinanced its existing credit facility under a new
six year $200 million credit facility with a bank group consisting of Citicorp
USA, Inc., Goldman Sachs Credit Partners L.P. (formerly Pearl Street, L.P.), an
affiliate of Goldman Sachs, and First National Bank of Chicago. Goldman Sachs
Credit Partners L.P. had an initial participating interest of $66.7 million in
the credit facility. Goldman Sachs Credit Partners L.P. received $0.6 million
from the agent bank for its portion of the arrangement fee paid by the Company
in 1997.
During 1997, Goldman Sachs was retained to assist the Company in the sale of the
Rolodex Business. The business was sold March 5, 1997 and the Company paid
Goldman Sachs approximately $2.0 million in investment banking fees and expenses
related to the sale.
During 1997, Goldman Sachs was also retained to provide the Company with
investment banking services in connection with the Company's issuance of $150
million aggregate principal amount of 10.25% Senior Subordinated Notes due 2007
which was completed on August 12, 1997 (the "Notes"), as well as the self tender
offer to acquire 2,857,142 shares of Common Stock which was completed on August
12, 1997 (the "Tender Offer"). The Company paid Goldman Sachs $3.1 million in
underwriting fees related to the Notes, $2.0 million in investment banking fees
in connection with the refinancing and the issuance of the Notes, and $0.2
million for services rendered in connection with the Tender Offer.
The Company announced on March 24, 1998, that it has entered into a definitive
merger agreement with DLJMB. Goldman Sachs advised the Company in connection
with this transaction pursuant to the engagement described in the preceding
paragraph which was still in effect. Goldman Sachs will receive a fee of $2
million payable on the consummation of the merger.
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.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
----------------------------------------------------------------
FORM 8-K
--------
(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
(1) Financial Statements
- Statement of Management's Responsibility for Financial
Statements
- Independent Auditors' Report
- Consolidated Balance Sheets
- December 31, 1997
- December 31, 1996
- Consolidated Statements of Operations
- Year ended December 31, 1997
- Year ended December 31, 1996
- Year ended December 31, 1995
- Consolidated Statements of Stockholders' Equity (Deficit)
- For the years ended December 31, 1997, 1996 and 1995
- Consolidated Statements of Cash Flows
- Year ended December 31, 1997
- Year ended December 31, 1996
- Year ended December 31, 1995
- Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
See Exhibit 99(a) - Schedule II - Valuation and Qualifying
Accounts.
All other schedules are omitted because of the absence of the
conditions under which they are required or because the required
information is included in financial statements or the notes
thereto.
(3) Exhibits:
*2(a) - Amended and Restated Plan of Reorganization Jointly Proposed
by the Debtors and the Official Joint Committee of Unsecured
Creditors dated November 23, 1992 (Form T-3, Exhibit T3E-3,
File No. 22-23356).
*2(b) - Order Confirming Plan of Reorganization and Approving
Settlements Pursuant to Bankruptcy Rule 9019 dated November
24, 1992 (Form T-3, Exhibit T3E-4, File No. 22-23356).
*2(c) - Order on Motion for Order in Aid of Implementation of Plan
dated March 23, 1993 (Form T-3, Exhibit T3E-5, File No.
22-23356).
*2(d) - Order on Debtors' Supplemental Motion for Order in Aid of
Implementation of Plan dated March 23, 1993 (Form T-3,
Exhibit T3E-6, File No. 22-23356).
*2(e) - Notice of (1) Order Confirming Plan of Reorganization, (2)
Effective Date and (3) Administrative Claims Bar Date dated
April 1, 1993 (Form 10, Exhibit 2(e), File No. 0-22098).
*2(f) - Order on Motion for Order in Aid of Implementation of Plan
dated September 14, 1993 (Form 10/A, Amendment No. 2 to Form
10, Exhibit 2(f), File No. 0-22098).
*2(g) - Share Purchase Agreement, dated as of June 28, 1996, between
the Company's subsidiary, GUVAB Gesellschaft fur
Unternehmensbeteililgungen und Vermogensverwaltung im
aluminiumverarbeitenden Bereich mbH ("GUVAB"), and Lingemann
(Form 8-K dated July 10, 1996, File No. 0-22098).**
*2(h) - Asset Purchase Agreement, dated as of July 1, 1996, among the
Company's subsidiary, HHI Acquisition Corp., Lingemann, and
Helima-Helvetion International, Inc. (Form 8-K dated July 10,
1996, File No. 0-22098).**
*2(i) - Stock Purchase Agreement, dated as of September 3, 1996,
between the Company's subsidiary and Esselte Corporation
(Form 8-K dated September 6, 1996, File No. 0- 22098).**
*2(j) - Asset Purchase Agreement, dated as of October 4, 1996,
between the Company and Franklin Electronic Publishers, Inc.
and List of Omitted Schedules (Form 8-K dated October 4,
1996, File No. 0-22098).**
*2(k) - Asset Purchase Agreement, dated as of February 12, 1997,
between the Company and Newell Co. (Form 8-K dated March 5,
1997, File No. 0-22098).**
*3(a) - Amended and Restated Certificate of Incorporation of the
Company (Form 10, Exhibit 3(a), File No. 0-22098).
*3(b) - Amended and Restated Bylaws of the Company (Form 10, Exhibit
3(b), File No. 0- 22098).
*4(a) - Settlement Agreement and Stipulated Order by and between the
Company, certain subsidiaries of the Registrant, the Valspar
Corporation and the United States of America by order of the
United States District Court for the Western District of
Texas, San Antonio Division, dated January 19, 1993 (Form 10,
Exhibit 4(h), File No. 0- 22098.
*4(b) - Stipulation regarding Settlement Agreement and Stipulated
Order amending Exhibit 4(h) (Form 10, Exhibit 4(i), File No.
0-22098).
*4(c) - Credit Agreement, dated as of October 21, 1994, among the
Company, the institutions from time to time parties thereto
as Lenders, the institutions from time to time parties
thereto as Issuing Banks, Citicorp USA, Inc. and Pearl Street
L.P., as Co-Agents, and Citicorp USA, Inc., as Administrative
Agent (Form S-8 Registration Statement, as amended, Exhibit
4(o), File No. 33-86938).**
*4(d) - First Amendment to Credit Agreement, dated as of November 21,
1994, among the Company, the institutions from time to time
parties thereto as Lenders, the institutions from time to
time parties thereto as Issuing Banks, Citicorp USA, Inc. and
Pearl Street L.P., as Co-Agents, and Citicorp USA, Inc., as
Administrative Agent (Form S-8 Registration Statement, as
amended, Exhibit 4(p), File No. 33-86938).**
*4(e) - Second Amendment to Credit Agreement, dated as of March 8,
1995, among the Company, the institutions from time of time
parties thereto as Lenders, the institutions from time to
time parties thereto as Issuing Banks, Citicorp USA, Inc. and
Pearl Street L.P., as Co-Agents, and Citicorp USA, Inc., as
Administrative Agent (Form 10-K for the year ended December
31, 1994, Exhibit 4(f), File No. 0-22098).**
*4(f) - Third Amendment to Credit Agreement, dated as of July 18,
1995, among the Company, the institutions from time to time
parties thereto as Lenders, the institutions from time to
time parties thereto as Issuing Banks, Citicorp USA, Inc. and
Pearl Street L.P., as Co-Agents, and Citicorp USA, Inc., as
Administrative Agent (Form 10-Q for the quarter ended June
30, 1995, Exhibit 4(g), File No. 0-22098).**
*4(g) - Fourth Amendment to Credit Agreement, dated as of June 21,
1996, among the Company, the institutions from time to time
parties thereto as Lenders, the Institutions from time to
time parties thereto as Issuing Banks, Citicorp USA, Inc. and
Pearl Street L.P., as Co-Agents, and Citicorp USA, Inc., as
Administrative Agent (Form 8-K dated July 10, 1996, File No.
0-22098).
*4(h) - Fifth Amendment to Credit Agreement, dated as of March 3,
1997, among the Company, the institutions from time to time
parties thereto as Lenders, the institutions from time to
time parties thereto as Issuing Banks, Citicorp USA, Inc. and
Pearl Street L.P., as Co-Agents, and Citicorp USA, Inc., as
Administrative Agent (Form 10-K to the year ended December
31, 1996, Exhibit 4(h), File No. 0-022098).
*4(i) - Amended and Restated Credit Agreement, dated July 3, 1997
(Schedule 13E-4, Exhibit (b)(1), dated July 11, 1997).
*4(j) - Indenture, dated as of August 12, 1997 between the Company
and the Trustee (Form S-4 Registration Statement, dated
October 15, 1997, Exhibit 4(j), File No. 333- 36523).
*4(k) - Form of New Note (included in Exhibit 4(j) above) (Form S-4
Registration Statement, dated October 15, 1997, Exhibit
4(k), File No. 333-36523).
*4(l) - Purchase Agreement, dated as of August 7, 1997, among the
Company and Goldman, Sachs & Co., McDonald & Company
Securities, Inc. and Citicorp Securities Inc. (the "Initial
Purchasers") (Form S-4 Registration Statement, dated October
15, 1997, Exhibit 4(l), File No. 333-36523).
*4(m) - Exchange and Registration Rights Agreement, dated as of
August 12, 1997, between the Company and the Initial
Purchasers (Form S-4 Registration Statement, dated October 15,
1997, Exhibit 4(m), File No. 333-36523).
The following are management contracts and compensatory plans or arrangements in
which directors or executive officers participate:
*10(a) - The Company's 1993 Long-Term Incentive Plan (Form 10,
Exhibit 10 (j), File No. 0-22098).
*10(b) - Supplemental Terms and Conditions Applicable to December
1993 Option Awards Under the Company 1993 Long-Term
Incentive Plan (Form S-8 Registration Statement, as amended,
Exhibit 4(b), File No. 33-86938).
*10(c) - Employment Agreement dated as of May 1, 1993 between the
Company and Robert L. Smialek, as amended and restated (Form
10/A, Amendment No. 1 to Form 10, Exhibit 10(k), File No.
0-22098).
*10(d) - Form of Indemnification Agreement adopted by the Company as
of July 30, 1990, entered into between the Registrant and
certain of its officers and directors individually, together
with a schedule identifying the other documents omitted and
the material details in which such documents differ (Form 10,
Exhibit 10(n), File No. 0- 22098).
*10(e) - The Company's 1993 Nonemployee Director Stock Incentive Plan
(Form 10/A, Amendment No. 1 to Form 10, Exhibit 10(p), File
No. 0-22098).
*10(f) - Value Appreciation Agreement as of December 1996, entered
into between the Registrant and the following officers:
David M. Aronowitz, Robert F. Heffron, Les G. Jacobs, David
A. Kauer, Kenneth H. Koch and Philip K. Woodlief (Form 10-K
for the year ended December 31, 1996, Exhibit 10(g), File
No. 0-22098).
*10(g) - Form for Income Protection Agreement adopted by the Company
as of December, 1996, entered into between the Registrant
and the officers identified in Exhibit 10(g) (Form 10-K for
the year ended December 31, 1996, Exhibit 10(h), File No. 0-
22098).
*10(h) - Stock Purchase Agreement by and between the Company and
Water Street Corporate Recovery Fund I, L.P., dated July 10,
1997 (Schedule 13E-4, Exhibit (c)(2), filed July 11, 1997).
*10(i) - Stock Purchase Agreement by and between the Company and
Robert L. Smialek, dated July 10, 1997 (Schedule 13E-4,
Exhibit (c)(1), filed July 11, 1997).
*10(j) - Amendment, dated August 11, 1997, Stock Purchase Agreement
by and between the Company and Water Street Corporate
Recovery Fund I, L.P., dated July 10, 1997 (Form S-4
Registration Statement, dated October 15, 1997, Exhibit
4(k), File No. 333-36523).
***10(k) - First Amendment to the Insilco Corporation 1993 Long-Term
Incentive Plan dated November 26, 1996.
***10(l) - Extension Agreement between the Company and Robert L.
Smialek dated May 1, 1996.
***10(m) - Second Extension Agreement between the Company and Robert L.
Smialek dated September 25, 1997.
*21 - Subsidiaries of the Registrant (Form 10-Q for the quarter
ended September 30, 1996, File No. 0-22098).
23(a) - Consent of KPMG Peat Marwick LLP.
24 - Power of Attorney of officers and directors of the
Registrant appearing on the signature page hereof.
*25 - Statement of Eligibility and Qualification Under the Trust
Indenture Act of 1939 (T-1) of The Bank of New York (bound
separately) (Form S-4 Registration Statement, dated October
15, 1997, Exhibit 25, File No. 333-36523).
27 - Financial Data Schedule.
***99(a) - Schedule II - Valuation and Qualifying Accounts.
* Incorporated by reference, as indicated.
** The Registrant agrees to furnish to the Securities and Exchange
Commission upon request copies of any omitted schedule or exhibit to
Exhibits 2(g), (h), (i), (j) and (k) and 4(c), 4(d), 4(e), and 4(f).
*** Previously filed with this Form 10-K for the year ended
December 31, 1997.
(B) REPORTS ON FORM 8-K
A report, dated March 5, 1997, on Form 8-K was pursuant to Item 2 of
that form. The following financial statements were filed as part of
that report:
(1) Pro Forma Financial Information.
Unaudited Pro Forma Condensed Balance Sheet as of December
31, 1996
Unaudited Pro Forma Condensed Consolidated Statements of
Operations Year Ended December 31, 1996
A report, dated October 23, 1997, on Form 8-K was filed pursuant to
Item 2 of that form.
A report, dated November 19, 1997, on Form 8-K was filed pursuant to
Item 2 of that form.
(C) EXHIBITS
The Exhibits to this report begin on page 85.
(D) FINANCIAL STATEMENT SCHEDULES:
See Exhibit 99(a) - Schedule II - Valuation and Qualifying Accounts.
Note: All other schedules called for under Regulation S-X not
included herein have been omitted because they are not
applicable, the required information is not material or the
required information is included in the financial
statements or notes thereto.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
INSILCO CORPORATION
Date July 7, 1998 By: /s/ David A. Kauer
------------------
David A. Kauer
Vice President and Chief Financial
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on the date indicated.
<TABLE>
<S> <C> <C>
Robert L. Smialek* President, Chief Executive )
------------------------- Officer and Director )
Robert L. Smialek (Principal Executive Officer) )
David A. Kauer* Vice President and Chief )
------------------------ Financial Officer
David A. Kauer (Principal Accounting Officer) )
James J. Gaffney* )
------------------------
James J. Gaffney Director )
Terence M. O'Toole* Director ) July 7, 1998
------------------------
Terence M. O'Toole
Thomas E. Petry* )
------------------------
Thomas E. Petry Director )
Barry S. Volpert* )
------------------------
Barry S. Volpert Director )
/s/ David A. Kauer
------------------------
By: *David A. Kauer
Attorney-in-Fact
</TABLE>
INSILCO CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Statement of Management's Responsibility for Financial Statements F-2
Independent Auditors' Report F-3
Consolidated Balance Sheets F-4
- December 31, 1997
- December 31, 1996
Consolidated Statements of Operations F-5
- Year ended December 31, 1997
- Year ended December 31, 1996
- Year ended December 31, 1995
Consolidated Statement of Stockholders' Equity (Deficit)
- For the years ended December 31, 1997, 1996 and 1995 F-6
Consolidated Statements of Cash Flows F-7
- Year ended December 31, 1997
- Year ended December 31, 1996
- Year ended December 31, 1995
Notes to Consolidated Financial Statements F-8
</TABLE>
Statement of Management's Responsibility for Financial Statements
-----------------------------------------------------------------
The Consolidated Financial Statements and accompanying Notes of Insilco
Corporation and subsidiaries have been prepared by management using the best
available information and applying judgment. These statements have been prepared
in accordance with generally accepted accounting principles in the United
States. Management is responsible for the selection of appropriate accounting
principles and the fairness and integrity of such statements.
The Company maintains a system of internal controls designed to provide
reasonable assurance that accounting records are reliable for the preparation of
financial statements and for safeguarding assets. The Company's system of
internal controls includes financial written policies, guidelines and
procedures; organizational structures, staffed through the careful selection of
people that provide an appropriate division of responsibility and
accountability; and an internal audit program. Professional financial personnel
are responsible for implementing and overseeing the system of financial
controls, reporting on management's stewardship of assets and maintaining
accurate records.
KPMG Peat Marwick LLP, independent auditors, provide an objective, independent
review of management's discharge of its obligations relating to the fairness of
financial reporting. Their opinion is based on procedures believed by them to be
sufficient to provide reasonable assurance that the Consolidated Financial
Statements are not materially misstated. The independent auditors' report of
KPMG Peat Marwick LLP follows.
The Board of Directors pursues its oversight responsibility for the financial
statements through its Audit Committee, composed of Directors who are not
employees of the Company. The Audit Committee meets regularly to review with
management and KPMG Peat Marwick LLP the Company's accounting policies, internal
and external audit plans and results of audits performed. To ensure complete
independence, KPMG Peat Marwick LLP and the internal auditors have full access
to the Audit Committee and meet with the Audit Committee without the presence of
management.
Robert L. Smialek
Chairman of the Board,
President and CEO
David A. Kauer
Vice President and Chief Financial Officer
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. In connection with our audits
of the consolidated financial statements, we also have audited the financial
statement schedule of valuation and qualifying accounts. These consolidated
financial statements and the financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and the financial statement schedule
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. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
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>
Assets 1997 1996
------ ---- ----
<S> <C> <C>
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
Additional Cumulative Stockholders'
Common Stock Treasury Paid-in Accumulated Translation Equity
Par Value $.001 Stock Capital Deficit Adjustment (Deficit)
--------------- ------- --------- --------- ------------ ----------
<S> <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 stock options -- -- 72 -- -- 72
-------- -------- -------- -------- -------- --------
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 adjustment -- -- -- -- (244) (244)
-------- -------- -------- -------- -------- --------
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 adjustment -- -- -- -- (3,065) (3,065)
-------- -------- -------- -------- -------- --------
Balance at December 31, 1997 $ 5 (16,268) -- (82,756) (3,309) (102,328)
======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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 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.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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 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.
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 benefited (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.
(L) 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).
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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
Postretirement 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.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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-Helvetion
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>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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
---------- ---------- ---------- ----------
Debt:
<S> <C> <C>
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%.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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, L.P. ("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.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits 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.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The assumptions used in accounting for the pension plans as of December
31 follow:
1997 1996
---- ----
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%
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>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding at Contractual Exercise Exercisable at Exercise
Prices December 31, 1997 Life Price December 31, 1997 Price
-------- ----------------- ------ ------- ----------------- ------
<S> <C> <C> <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.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(19) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
A summary of quarterly financial information follows (in thousands):
<TABLE>
<CAPTION>
1997
----- DEC. 31 SEPT. 30(1) JUNE 30 MARCH 31(2)
------- -------- ------- -----------
<S> <C> <C> <C> <C>
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.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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
Unaudited Pro Forma Condensed Consolidated Statement of Income
Year Ended December 31, 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
Refinancing
and
Historical Tender 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
Unaudited Pro Forma Condensed Consolidated Statement of Income
Year Ended December 31, 1996
(In thousands, except per share data)
<TABLE>
<CAPTION>
Refinancing
and
Historical Acquisition(2) Subtotal Tender 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>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 (i) 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.
EXHIBIT 13.2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A No. 1
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number: 0-22098
INSILCO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 06-0635844
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
425 Metro Place North
Fifth Floor
Dublin, Ohio 43017
(Address of principal executive offices) (Zip Code)
614-792-0468
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. (X) Yes ( ) No
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. (X) Yes ( ) No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of July 1, 1998, 4,145,372
shares of common stock, $.001 par value, were outstanding.
INSILCO CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
CAPTION>
Part I. FINANCIAL INFORMATION Page
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
- March 31, 1998 (unaudited)
- December 31, 1997
Condensed Consolidated Statements of Income 4
- Three months ended March 31, 1998 (unaudited)
- Three months ended March 31, 1997 (unaudited)
Condensed Consolidated Statement of Stockholders' Equity (Deficit) 5
- Three months ended March 31, 1998 (unaudited)
Condensed Consolidated Statements of Cash Flows 6
- Three months ended March 31, 1998 (unaudited)
- Three months ended March 31, 1997 (unaudited)
Notes to Unaudited Condensed Consolidated Financial Statements 7
Independent Auditors' Review Report 11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INSILCO CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
(unaudited)
March 31, December 31,
1998 1997
--------- ------------
Assets
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,777 10,651
Trade receivables, net 71,688 67,209
Other receivables 5,850 3,477
Inventories, net 72,570 60,718
Deferred tax asset 371 277
Prepaid expenses and other current assets 8,993 2,716
--------- ---------
Total current assets 167,249 145,048
Property, plant and equipment, net 114,770 113,971
Deferred tax asset 654 1,054
Investment in Thermalex 9,128 9,736
Goodwill, net 13,167 13,408
Other assets and deferred charges 18,436 19,456
--------- ---------
Total assets $ 323,404 302,673
========= =========
Liabilities and Stockholders' Deficit
-------------------------------------
Current liabilities:
Current portion of long-term debt $ 1,113 1,684
Current portion of other long-term obligations 5,114 5,393
Accounts payable 39,118 39,757
Income taxes payable 709 1,112
Accrued expenses and other 63,933 57,594
--------- ---------
Total current liabilities 109,987 105,540
Long-term debt, excluding current portion 267,685 256,059
Other long-term obligations, excluding current portion 41,933 43,402
Stockholders' deficit (96,201) (102,328)
--------- ---------
Total liabilities and stockholders' deficit $ 323,404 302,673
========= =========
</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.
INSILCO CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1998 1997
----------- -----------
<S> <C> <C>
Sales $ 117,305 106,544
Cost of products sold 85,618 77,306
Depreciation and amortization 4,240 3,871
Selling, general and administrative expenses 17,672 15,978
----------- -----------
Operating income 9,775 9,389
----------- -----------
Other income (expense):
Interest expense (6,877) (3,643)
Interest income 51 449
Other income, net 1,329 509
----------- -----------
Total other income (expense) (5,497) (2,685)
----------- -----------
Income from continuing operations before income taxes 4,278 6,704
Income tax expense (1,497) (2,343)
----------- -----------
Income from continuing operations 2,781 4,361
Discontinued operations, net of tax:
Income from operations, net of $1,037 of tax -- 1,170
Gain on disposal, net of $37,213 of tax -- 57,788
----------- -----------
Income from discontinued operations -- 58,958
----------- -----------
Net income $ 2,781 63,319
=========== ===========
Basic earnings per common share:
Income from continuing operations $ 0.68 0.45
Discontinued operations -- 6.20
----------- -----------
Basic net income per share $ 0.68 6.65
=========== ===========
Weighted average number of common shares outstanding 4,086,100 9,516,504
=========== ===========
Diluted earnings per common share:
Income from continuing operations $ 0.66 0.44
Discontinued operations -- 5.95
----------- -----------
Diluted net income per share $ 0.66 6.39
=========== ===========
Weighted average number of common shares outstanding
and common share equivalents 4,194,577 9,912,314
=========== ===========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
INSILCO CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholders' Equity (Deficit)
For the Three Months Ended March 31, 1998
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Retained Other Total
Par Value Paid-in Earnings Treasury Comprehensive Stockholders'
$0.001 Capital (Deficit) Stock Income Equity (Deficit)
-------- -------- -------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $ 5 -- (82,756) (16,268) (3,309) (102,328)
Net income -- -- 2,781 -- -- 2,781
Shares issued upon exercise
of stock options -- 2,549 -- -- -- 2,549
Tax benefit from exercise of
stock options -- 778 -- -- -- 778
Other comprehensive income -- -- -- -- 19 19
-------- -------- -------- -------- -------- --------
Balance at March 31, 1998 $ 5 3,327 (79,975) (16,268) (3,290) (96,201)
======== ======== ======== ======== -------- ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
INSILCO CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1998 1997
---------- ----------
<S> <C> C>
Cash flows from operating activities:
Net income ...................................................... $ 2,781 63,319
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization ................................ 4,240 3,871
Deferred tax expense ......................................... 617 2,269
Other noncash charges and credits ............................ (239) (388)
Change in operating assets and liabilities:
Receivables .................................................. (6,986) (8,670)
Inventories .................................................. (11,945) (12,815)
Payables and other ........................................... 310 7,517
Discontinued operations:
Gain on disposal of segment ............................... -- (95,001)
Deferred tax expense ...................................... -- 25,687
Depreciation .............................................. -- 194
Change in operating assets and liabilities ................ -- 9,805
-------- --------
Net cash used in operating activities .............. (11,222) (4,212)
-------- --------
Cash flows from investing activities:
Capital expenditures ............................................ (5,813) (4,505)
Other investing activities ...................................... 1,193 579
Proceeds from sale of Rolodex Business .......................... -- 112,610
-------- --------
Net cash provided by (used in) investing activities (4,620) 108,684
-------- --------
Cash flows from financing activities:
Proceeds from debt borrowings .................................. 12,125 8,440
Proceeds from sale of stock .................................... 2,549 1,777
Payment of prepetition liabilities ............................. (1,647) (1,708)
Purchase of treasury stock ..................................... -- (576)
Retirement of long-term debt ................................... (25) (161)
-------- --------
Net cash provided by financing activities .......... 13,002 7,772
-------- --------
Effect of exchange rate changes on cash ............................ (34) (202)
-------- --------
Net increase (decrease) in cash and cash equivalents (2,874) 112,042
Cash and cash equivalents at beginning of period ................... 10,651 3,481
-------- --------
Cash and cash equivalents at end of period ......................... $ 7,777 115,523
======== ========
Interest paid ...................................................... $ 10,353 3,821
======== ========
Income taxes paid .................................................. $ 840 183
======== ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 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 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. The divestiture of
the Rolodex Business was preceded in 1996 by the divestiture of the
Rolodex electronics product line ("Rolodex Electronics") and Curtis
Manufacturing Co., Inc. the Company's computer accessories business
("Curtis"). The proceeds from these sales aggregated $21,818,000.
On July 7, 1998, the Company amended its Form 10-Q 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
segment 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, $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").
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 1998
(4) Inventories
-----------
Inventories consisted of the following at March 31, 1998 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Raw materials and supplies $ 25,324
Work-in-process 34,149
Finished goods 13,097
--------
Total inventories $ 72,570
========
</TABLE>
(5) 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 $2,800,000 and $61,544,000, respectively, including other
comprehensive income consisting of foreign currency translation
adjustments (losses) totaling $19,000 and ($1,775,000), respectively.
(6) Earnings Per Share
------------------
The Company has adopted the 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 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.
(7) 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 such claims or liabilities will not have a material
adverse effect on the Company's consolidated financial position, results
of operations or liquidity.
(8) 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.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 1998
(9) Pro Forma Result 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>
Three Months
Ended March 31,
--------------------
1998 1997
---- ----
<S> <C> <C>
Net sales $ 117,305 106,544
Income from continuing operations 2,781 1,884
Basic income from continuing operations
per share 0.68 0.50
Diluted income from continuing operations
per share 0.66 0.45
</TABLE>
(10) Merger Agreement
----------------
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 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.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 1998
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 cost of all outstanding vested and unvested
options.
(11) Subsequent Event
----------------
On May 14, 1998, the Company announced that a jury had awarded its Taylor
Publishing unit approximately $24 million in damages in connection with
Taylor's suit against Jostens, Inc. which alleged that Jostens had
violated federal antitrust laws, unfairly interfered with Taylor's sales
representatives, improperly encouraged Taylor employees to divulge
confidential Taylor information and otherwise engaged in unfair
competition. The verdict also entitles Taylor to recover approximately $1
million in legal fees. The verdict is subject to any post trial motions
and appeals by Jostens, and Taylor's receipt of the judgment is
contingent on the results of any appeals.
INDEPENDENT AUDITORS' REVIEW REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
INSILCO CORPORATION:
We have reviewed the condensed consolidated balance sheet of Insilco Corporation
and subsidiaries as of March 31, 1998, the related condensed consolidated
statements of income and cash flows for the three-month periods ended March 31,
1998 and 1997 and the condensed consolidated statement of stockholders' equity
(deficit) for the three-month period ended March 31, 1998. These condensed
consolidated financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Insilco Corporation and
subsidiaries as of December 31, 1997, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the year then
ended (not presented herein), and 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, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 1997, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
Columbus, Ohio
April 22, 1998, except as to KPMG Peat Marwick LLP
Note 11, which is as of
May 14, 1998, Note 10,
which is as of June 8, 1998,
and Note 2, which is as of
July 7, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company is a diversified manufacturer of automotive, telecommunications and
electronics components and is a publisher of specialty publishing products,
chiefly student yearbooks. The Company's Automotive Components Group
manufactures transmission components and assemblies at the Steel Parts unit,
heat exchangers and heat exchanger tubing at the Thermal Components unit, and
stainless steel tubing used in predominantly non-automotive applications at the
Romac Metals unit. The Technologies Group manufactures cable and wire assemblies
for the telecommunications industry, high performance data-grade connectors,
precision metal stampings and power transformers through its Escod Industries,
Stewart Connector Systems, Stewart Stamping, and Signal Transformer operating
units, respectively. The Specialty Publishing Group consists of Taylor
Publishing which produces primarily student yearbooks. The Company completed the
divestiture of its Office Products business with the sale of the Rolodex
Business in the first quarter of 1997. The Office Products Business is being
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.
Summarized sales and operating income (loss) by business segment for the three
months ended March 31, 1998 compared to the corresponding period in 1997 are set
forth in the following table (in thousands) and discussed below:
<TABLE>
<CAPTION>
Three Months
Ended March 31,
------------------
1998 1997
---- ----
<S> <C> <C>
SALES
Automotive Components Group $ 62,077 56,183
Technologies Group 50,210 47,094
Specialty Publishing 5,018 3,267
-------- -------
$117,305 106,544
======== =======
OPERATING INCOME (LOSS)
Automotive Components Group $ 5,492 5,676
Technologies Group 5,271 4,974
Specialty Publishing (970) (999)
Unallocated Corporate (18) (262)
-------- -------
$ 9,775 9,389
======== =======
</TABLE>
SALES AND OPERATING INCOME. Total net sales in the first quarter of 1998
increased 10% ($10,761,000) in the first quarter of 1998 compared to the first
quarter of 1997 primarily due to 10% ($5,894,000) and 7% ($3,116,000) increases
in the Automotive Components Group and Technologies Group, respectively. In
addition, the Specialty Publishing Group's sales increased 54% ($1,751,000) in
its seasonally slow first quarter due to the timing of yearbook deliveries
compared to the prior year.
The 10% increase in the Automotive Components Group's sales was primarily due to
increased sales of automotive tubing and increased sales of radiators to
original equipment manufacturers serving the off-road and industrial equipment
markets. In addition, sales of transmission components and other stamped steel
parts increased over the prior year due to increased volumes of components
supplied for light truck and sport utility transmissions.
The Technologies Group's sales increase of 7% was due to growth in sales of wire
and cable assemblies which reflects increased sales to existing customers and
continued expansion of the customer base. Sales of power transformers and
precision stampings for the first quarter of 1998 were also up over the prior
year. In addition, the El Paso stamping facility contributed to the
year-over-year increase in sales as it has moved from the start-up phase in 1997
to production phase in the first quarter of 1998. Sales of Stewart Connector's
modular data interconnect products were essentially flat compared to the first
quarter of 1997.
In a seasonally slow quarter, Taylor Publishing sales increased 54% ($1,751,000)
in the first quarter of 1998 from the corresponding period of the prior year
primarily due to timing differences in the delivery of yearbooks. (See
Seasonality.)
Operating income increased to $9,775,000 in the first quarter of 1998 from
$9,389,000 in the first quarter of 1997 primarily due to improved operating
margins in the Technologies Group.
The Automotive Components Group's operating income in the first quarter of 1998
compared to the corresponding period of 1997 decreased from $5,676,000 to
$5,492,000. Increased operating margins and sales volume at the Company's
automotive heat exchanger and related components and equipment business were
offset by lower operating margins at the Company's transmission components
business and tube mill manufacturing business.
The Technologies Group's operating income in the first quarter of 1998 increased
to $5,271,000 from $4,974,000 in the corresponding period of 1997. Operating
margins increased at Escod, Signal Transformer and Stewart Stamping. In
addition, the El Paso manufacturing facility recorded a smaller operating loss
in the quarter compared to last year. The operating margin in the first quarter
of 1998 at Stewart Connector declined slightly from the prior year primarily due
to competitive pricing pressures on mature products.
In the Specialty Publishing Group, Taylor Publishing's operating loss of
$970,000 in the first quarter of 1998 was relatively flat with the prior year.
OTHER INCOME (EXPENSE). Other income for the first quarters of 1998 and 1997
included $716,000 and $717,000, respectively, of equity income from the
Company's unconsolidated joint venture, Thermalex, which manufactures extruded
aluminum tubing primarily for automotive air conditioning condensers. Interest
expense increased 89% ($3,234,000) in the first quarter of 1998 compared to the
first quarter of 1997 due to the issuance of $150,000,000 of 10.25% Senior
Subordinated Notes (the "Notes") completed in the third quarter of 1997 (see
Note 3 to the Unaudited Condensed Consolidated Financial Statements.)
CASH FLOWS USED IN OPERATING ACTIVITIES. Operations used $11,222,000 cash in the
first quarter of 1998 as compared to a cash usage of $4,212,000 in the first
quarter of 1997. Cash flows from operations decreased from the prior year
primarily due to higher interest payments related to the Notes which are payable
semi-annually in the first and third quarters.
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES. In the first quarter of 1998,
the Company received a $1,324,000 dividend distribution from Thermalex and spent
$5,813,000 in capital expenditures for its operating units. In the first quarter
of 1997, the Company sold its Rolodex Business for cash in the net amount of
$112,610,000 and spent $4,505,000 in capital expenditures.
CASH FLOWS FROM FINANCING ACTIVITIES. In the first quarter of 1998, the Company
borrowed a net amount of $12,125,000 on its revolving credit facility and paid
$1,647,000 of prepetition liabilities. In the first quarter of 1997, the Company
borrowed a net amount of $8,440,000 on its revolving credit facility and paid
$1,708,000 of prepetition liabilities.
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 first and fourth quarters 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.
LIQUIDITY. At March 31, 1998, the Company's cash and cash equivalents and net
working capital amounted to $7,777,000 and $57,262,000, respectively, compared
to $10,651,000 and $39,508,000, respectively, at December 31, 1997. The
borrowing ability under the Company's revolving credit facility as of the end of
the first quarter of 1998 was $74,318,000, including $42,050,000 available for
letters of credit.
MERGER AGREEMENT. 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 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 cost of all outstanding vested and unvested
options.
SUBSEQUENT EVENT. On May 14, 1998, the Company announced that a jury has
awarded its Taylor Publishing unit approximately $24 million in damages in
connection with Taylor's suit against Jostens, Inc. which alleged that Jostens
had violated federal antitrust laws, unfairly interfered with Taylor's sales
representatives, improperly encouraged Taylor employees to divulge confidential
Taylor information and otherwise engaged in unfair competition. The verdict also
entitles Taylor to recover approximately $1 million in legal fees. The verdict
is subject to any post trial motions and appeals by Jostens, and Taylor's
receipt of the judgment is contingent on the results of any appeals.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. Except for the historical information contained herein, the matters
discussed in this Form 10-Q included in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" include "Forward Looking
Statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Although the Company believes that the expectations reflected in the
Forward-Looking Statements contained herein are reasonable, no assurance can be
given that such expectations will prove to have been correct. Certain important
factors that could cause actual results to differ materially from expectations
("Cautionary Statements") include, but are not limited to the following: delays
in new product introductions, lack of market acceptance of new products, changes
in demand for the Company's products, changes in market trends, operating
hazards, general competitive pressures from existing and new competitors,
effects of governmental regulations, changes in interest rates, and adverse
economic conditions which could affect the amount of cash available for debt
servicing and capital investments. All subsequent written and oral
Forward-Looking Statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the Cautionary Statements.
INSILCO CORPORATION AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
* Exhibit 10(n) First Amendment to the Value Appreciation Agreement
Exhibit 27 Financial Data Schedule
* Previously filed with this Form 10-Q for the quarter ended March 31,
1998.
(b) Reports on Form 8-K
A report, dated March 24, 1997, on Form 8-K was filed during the
quarter ending March 31, 1998, pursuant to Item 5 of that form.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amended report to be signed on its behalf by the
undersigned thereunto duly authorized.
INSILCO CORPORATION
--------------------------
Registrant
Date: July 7, 1998 By: /s/ David A. Kauer
----------------------------
David A. Kauer
Vice President and Chief Financial Officer
EXHIBIT 15.1
Insilco Holding Co.
Columbus, Ohio
Ladies and Gentlemen:
Registration Statement (Form S-2)
With respect to the registration statement (Form S-2) for the Insilco Holding
Co. Common Stock, Warrants to Purchase Common Stock, Pay-In-Kind Preferred
Stock, we acknowledge our awareness of the use therein of our report dated July
22, 1998 related to our review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant or a report
prepared or certified by an accountant within the meaning of sections 7 and 11
of the Act.
Very truly yours,
KPMG Peat Marwick LLP
Columbus, Ohio
September 25, 1998
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
