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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. 3)
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
NOEL GROUP, INC.
(Name of Registrant as Specified In Its Charter)
N/A
---------------------------------------
(Name of Person(s) Filing the Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)3.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction applies:
N/A
2) Aggregate number of securities to which transaction applies: N/A
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined): In
accordance with Rule 0-11 (c), the fee was calculated to be
one-fiftieth of one percent of the aggregate of the cash and
value of the securities and other property to be distributed to
Noel's security holders. Market values as of June 27, 1996 are
used for all applicable securities as defined in accordance with
Rule 0-11 (a) (4). Securities for which no market values are
available are valued at book value at May 31, 1996 in accordance
with Rule 0-11 (a) (4). All other property is valued at a bona
fide estimate of its current fair market value net of liabilities
which would reduce the amount distributed to security holders.
4) Proposed maximum aggregate value of transaction: $199,598,000.
5) Total fee paid: $39,920
[x] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: N/A
2) Form, Schedule or Registration Statement No.: N/A
3) Filing Party: N/A
4) Date Filed: N/A
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PRELIMINARY COPY
NOEL GROUP, INC.
667 MADISON AVENUE
NEW YORK, NEW YORK 10021
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
MARCH 19, 1997
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To the Shareholders:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Noel
Group, Inc. will be held at The Mayfair Hotel, 610 Park Avenue (at 65th Street),
New York, New York 10021, on March 19, 1997, at 10:00 A.M. (local time) for the
following purposes
1. To consider and act upon a proposal to approve the Plan of Complete
Liquidation and Dissolution attached as Exhibit A to the Proxy Statement; and
2. To transact such other business as may properly be brought before the
meeting or any adjournment thereof.
February 5, 1997, has been fixed as the record date for the
determination of the shareholders entitled to notice of and to vote at such
meeting or any adjournment thereof, and only shareholders of record at the close
of business on that date are entitled to notice of and to vote at such meeting.
You are cordially invited to attend the meeting. Whether or not you plan
to attend the meeting, it is important that your shares be represented.
Accordingly, the Board of Directors and management urges each shareholder to
read the Proxy Statement carefully and thereafter to complete, date and sign the
enclosed proxy card and return it promptly.
By Order of the Board of Directors
Todd K. West
Secretary
New York, New York
February 14, 1997
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YOUR VOTE IS IMPORTANT
TO ENSURE A QUORUM, PLEASE COMPLETE AND RETURN THE PROXY IN THE ENCLOSED
ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU ATTEND
THE MEETING, YOUR PROXY WILL BE RETURNED TO YOU UPON REQUEST TO THE SECRETARY OF
THE MEETING.
- --------------------------------------------------------------------------------
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PRELIMINARY COPY
NOEL GROUP, INC.
667 MADISON AVENUE
NEW YORK, NEW YORK 10021
----------------------
PROXY STATEMENT
----------------------
SPECIAL MEETING OF SHAREHOLDERS
MARCH 19, 1997
GENERAL
This Proxy Statement and accompanying form of proxy are being furnished
in connection with the solicitation of proxies by the Board of Directors of Noel
Group, Inc., a Delaware corporation ("Noel" or the "Company"), for use at the
Special Meeting of Shareholders to be held on March 19, 1997, at 10:00 A.M.
(local time) at The Mayfair Hotel, 610 Park Avenue (at 65th Street), New
York, New York 10021, or any adjournment thereof (the "Meeting"). Copies of this
Proxy Statement the attached Notice of Special Meeting of Shareholders, and the
enclosed form of proxy card were first mailed to shareholders on
February 14, 1997.
The principal executive office of Noel is located at 667 Madison Avenue,
New York, New York 10021. The telephone number of Noel's principal executive
office is (212) 371-1400.
The Board of Directors is proposing for approval by the shareholders at
the Meeting a Plan of Complete Liquidation and Dissolution of the Company (the
"Plan"), a copy of which is attached as Exhibit A to this Proxy Statement. If
the Plan is approved by the shareholders, Noel will be liquidated (i) by the
sale of such of its assets as are not to be distributed in-kind to its
shareholders, and (ii) after paying or providing for all its claims, obligations
and expenses, by cash and in-kind distributions to its shareholders pro rata
and, if required by the Plan or deemed necessary by the Board of Directors, by
distributions of its assets from time to time to one or more liquidating trusts
established for the benefit of the then shareholders, or by a final distribution
of its then remaining assets to a liquidating trust established for the benefit
of the then shareholders. Should the Board of Directors determine that one or
more liquidating trusts are required by the Plan or are otherwise necessary,
appropriate or desirable, approval of the Plan will constitute shareholder
approval of the appointment by the Board of Directors of one or more trustees to
any such liquidating trusts and the execution of liquidating trust agreements
with the trustees on such terms and conditions as the Board of Directors, in its
absolute discretion, shall determine. See "Approval of Plan of Complete
Liquidation and Dissolution" for a complete description of the Plan. See also
"Contingent Liabilities; Contingent Reserve; Liquidating Trusts" for further
information relating to circumstances when the establishment of a liquidating
trust would be required by the Plan or would be necessary, appropriate or
desirable.
THE BOARD OF DIRECTORS OF THE COMPANY, AFTER CAREFUL REVIEW AND
CONSIDERATION OF THE TERMS OF THE PLAN, BELIEVES THAT THE LIQUIDATION OF THE
COMPANY IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF THE APPROVAL OF THE
PLAN. MEMBERS OF THE BOARD OF DIRECTORS MAY BE DEEMED TO HAVE A POTENTIAL
CONFLICT OF INTEREST IN RECOMMENDING THE APPROVAL OF THE PLAN. SEE "APPROVAL OF
PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION -- POSSIBLE EFFECTS OF THE APPROVAL
OF THE PLAN UPON DIRECTORS AND OFFICERS."
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SOLICITATION
The cost of soliciting proxies will be borne by the Company. In addition
to the solicitation of proxies by the use of the mails, management and regularly
engaged employees of the Company may, without additional compensation therefor,
solicit proxies on behalf of the Company by personal interviews, telephone or
other means, as appropriate. The Company may retain one or more solicitors to
solicit proxies from the shareholders at fees to be negotiated which fees will
be paid by the Company. The Company will, upon request, reimburse brokers and
others who are only record holders of the Company's common stock, par value $.10
per share ("Common Stock"), for their reasonable expenses in forwarding proxy
material to, and obtaining voting instructions from, the beneficial owners of
such stock.
VOTING
The close of business on February 5, 1997 has been fixed as the
record date (the "Record Date") for determining the shareholders entitled to
notice of and to vote at the Meeting or any adjournment thereof. As of the
Record Date, there were 20,421,039 shares of Common Stock issued and outstanding
and entitled to vote.
Each share of Common Stock entitles the holder thereof to one vote. A
majority of the shares of Common Stock issued and outstanding constitutes a
quorum. Assuming a quorum is present, the affirmative vote of the holders of a
majority of the shares of Common Stock issued and outstanding and entitled to
vote is required for approval of the Plan. Abstentions and broker non-votes
(i.e. shares held by brokers or nominees as to which (i) the broker or nominee
does not have discretionary authority to vote on a particular matter and (ii)
instructions have not been received from the beneficial owners) are counted as
present in determining whether the quorum requirement is satisfied. Abstentions
and broker non-votes have the same legal effect as a vote against approval of
the Plan.
As of the Record Date, directors and executive officers of the Company
had the right to vote an aggregate of 346,043 shares of Common Stock,
representing approximately 1.7% of the outstanding shares of Common Stock. Each
of the Company's directors and executive officers has indicated that he or she
intends to vote all of his or her shares in favor of the approval of the Plan.
The foregoing number and percentage do not include (i) currently exercisable
options and warrants to purchase an aggregate of 2,236,212 shares of Common
Stock held by the directors and executive officers and (ii) an aggregate of
3,175,771 shares of Common Stock held by the directors and executive officers
with respect to which beneficial ownership has been disclaimed. In the event
that the currently exercisable portion of these options and warrants were
exercised prior to the Meeting, the directors and executive officers would have
the right to vote an aggregate of 2,582,255 shares of Common Stock representing
approximately 11.2% of the outstanding Common Stock (including as outstanding,
shares issued upon such exercise). None of the Company's directors and executive
officers has indicated whether he or she intends to exercise such options or
warrants prior to the Meeting.
A proxy in the accompanying form, which is properly executed, duly
returned to the Board of Directors and not revoked, will be voted in accordance
with the instructions indicated in the proxy. If no instructions are given with
respect to any matter specified in the Notice of Special Meeting to be acted
upon at the Meeting, the proxy will vote the shares represented thereby FOR
approval of the Plan, and in accordance with his best judgment on any other
matters which may properly be brought before the Meeting. The Board of Directors
currently knows of no other business that will be presented for consideration at
the Meeting. Each shareholder who has executed a proxy and returned it to the
Board of Directors may revoke the proxy by notice in writing to the Secretary of
the Company, or by attending the Meeting in person and requesting the return of
the proxy, in either case at any time prior to the voting of the proxy. Presence
at the Meeting does not itself revoke the proxy.
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As set forth under "Approval of Plan of Complete Liquidation and
Dissolution - Possible Effects of the Approval of the Plan Upon Directors and
Officers," the Company's current directors and officers, and certain other
persons who were directors and officers during the last fiscal year, may be
deemed to have an interest in the matters to be acted upon at the Meeting.
APPROVAL OF PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION
GENERAL
The Board of Directors is proposing the Plan for approval by the
shareholders at the Meeting. The Plan was adopted by the Board of Directors,
subject to shareholder approval, on May 21, 1996. A copy of the Plan is attached
as Exhibit A to this Proxy Statement. Certain material features of the Plan are
summarized below; these summaries do not purport to be complete and are subject
in all respects to the provisions of, and are qualified in their entirety by
reference to, the Plan. SHAREHOLDERS ARE URGED TO READ THE PLAN IN ITS ENTIRETY.
BACKGROUND AND REASONS FOR THE PLAN; DIRECTORS' RECOMMENDATION
During recent years, the Board of Directors and management have
considered various strategic alternatives. By May of 1996, the Company had
discharged its original mandate, having invested or committed substantially all
of the funds raised in its initial public offering of January 1992. Continuation
of the Company's existence without continuation of the Company's participation
in acquisitions was considered and rejected as inconsistent with the Company's
stated business plans. Since all of Noel's holdings were by May 1996 operating
as independent companies with their own management and administrative
organizations, Noel's Board of Directors concluded that continuing to operate
Noel as a public management and holding company, without continued acquisition
activity, would not create sufficient value for Noel's shareholders to justify
the costs involved.
If the Company were to continue to participate in acquisitions,
substantial additional financing would be required. Various financing
alternatives were explored, including the raising of additional capital either
publicly or privately, through the sale of debt or equity securities or a
combination of both. The issuance of debt securities was deemed to be
unacceptable because it would result in excessive financial leverage. In view of
the disparity, discussed below, between the market value of the Common Stock and
the estimate of the Board of Directors and management of the past, present and
projected value of the Company's assets net of estimated liabilities, it is the
opinion of the Board of Directors and management that further equity financing
of the Company would be disadvantageous to the Company's existing shareholders,
since such equity financing could result in substantial dilution to such
shareholders. The possibility of a disposal of certain assets with a view to
raising cash for additional acquisitions was also considered and rejected based
on the taxes that would be payable as a result of the disposition of most of
such assets and because of the uncertainty of effectuating prompt cash sales of
thinly traded securities at advantageous prices. In the opinion of the Board of
Directors and management, the distribution by the Company of substantial
additional assets followed by the continued operation of the Company would
result in tax treatment which could have results less favorable to the Company
and to many of the shareholders than the results from the tax treatment of the
distribution of assets following approval of the Plan by the shareholders. A
distribution of assets followed by the continued operation of the Company could
be less favorable because distributions received by shareholders may be taxed as
ordinary income to the extent of the Company's earnings and profits. However,
distributions pursuant to a plan of complete liquidation and dissolution are not
taxable to a shareholder to the extent of such shareholder's tax basis in Noel's
shares. In addition, distributions pursuant to a plan of complete liquidation
and dissolution are taxed as short term or long term capital gain to the extent
of distributions in excess of such shareholder's tax basis (assuming such shares
are capital assets in the hands
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of such shareholder). Moreover, distributions of depreciated assets that are not
made pursuant to the adoption of a plan of complete liquidation and dissolution
will not result in the recognition of loss by the Company for federal income tax
purposes, whereas distributions of such assets pursuant to a plan of complete
liquidation and dissolution may result in the recognition of a loss by the
Company for federal income tax purposes. See "Certain Federal Income Tax
Consequences."
The Board believed that the adoption of the Plan would facilitate the
distribution of its holdings to shareholders resulting in the ultimate receipt
by them of value in cash and securities exceeding the value of their shares of
Common Stock if held during a similar period. Such distributions would be
consistent with the Company's policy over a number of years. Since March, 1988,
when Noel adopted its strategy of concentrating on the acquisition of control
and other significant equity interests in established operating entities, it has
been the declared objective of the Board of Directors and management to manage
the affairs of the Company so as to maximize the values realized by its
shareholders. The pursuit of this objective has lead, from time to time, to the
direct distribution by Noel of certain of its holdings to its shareholders;
beginning in September, 1992, the Company has distributed interests to its
shareholders which at their market values as of February 5, 1997 would aggregate
approximately $152 million. The Board of Directors and management have at all
times sought to maintain flexibility in pursuing its objective to maximize
shareholder value. Accordingly, in December 1995, Noel disposed of its interest
in Simmons Outdoor Corporation ("Simmons") to realize a gain over its initial
investment of approximately $12.1 million (a return of approximately 233% on
Noel's four year investment). At other times, the Board of Directors and
management has concluded that it was in the best interest of Noel's shareholders
for Noel to continue holding interests in certain of its operating companies for
several years while Noel directed the revamping and improvement of the
operations and financial condition of such entities. Throughout this period,
securing maximum shareholder value rather than the perpetuation of the Company
as an entity has been the concern of the Board of Directors.
The Board's conclusion that dissolution of the Company and the
distribution of its assets would result in higher shareholder values than would
result from the continued operation of the Company was also supported by the
Board's view that for a considerable period of time, the Common Stock has traded
at a discount to the underlying value of the Company's net assets. Prior to and
at the meetings of the Board of Directors on October 25, 1995, February 13,
1996, March 20, 1996 and May 21, 1996, the Board had available to it various
information and analyses supplied by management which compared information
regarding estimates of Noel's net asset values to the prices at which the Common
Stock was trading. This information included not only market prices but details
as to the performance of the Company's various holdings over substantial periods
of time. At these and its other meetings the Board of Directors was kept
continually informed of the business, affairs and financial condition of each of
its principal holdings both by those members of the Board of Directors who are
also members of the boards of directors of the Company's major operating
companies, and by non-director executives of the Company who maintain continued
contact with the Company's operating companies through acting as executive
officers of such entities or otherwise. Those briefings, as well as the
independent knowledge, including that of those members of the Board of Directors
who are investment professionals, and other factors reviewed by the members of
the Board of Directors, confirmed the Board's perception that the Common Stock
has traded over a long period of time at a significant discount from the value
that would be realized by the Company's shareholders upon distribution to the
shareholders of the Company's net assets. Accordingly, the adoption of the Plan
by the Board of Directors at its May 21, 1996 meeting was not based upon a
comparison of a specific net asset values to market values at any one particular
time but rather the Board's decision was influenced by the Board's perception of
a condition which had existed over a long period during which, in the Board's
judgment, the market price of the Common Stock was significantly less than the
underlying value of Noel's holdings.
The Board of Directors did not deem it to be necessary to obtain a
valuation or appraisal of the Company's assets from an investment banker or
other outside source for the following reasons:
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The Board's determination to adopt the Plan was based upon
factors, including, certain factors not dependent upon asset
evaluation and within the capability of the directors, such as
the undesirability of continuing as a mere public management and
holding company and of effectuating the financing necessary to
continue acquisition activities.
The Company's assets consist primarily of interests in various
public and private entities. A majority of the Company's assets
(in value) consist of publicly traded securities which can be
valued on the basis of publicly available reported market prices.
It is the intention of the Company to distribute rather than sell
the majority of the Company's publicly traded holdings, depending
upon market conditions and other factors, thus breaking up the
large blocks of such holdings held by the Company. See "Factors
to Be Considered with Respect to Distribution or Sale of the
Company's Assets." The Company believes that, as a result, the
value to be received by the shareholders in a liquidation will be
affected minimally by such factors as control premiums and
discounts for blockage or restrictions, although no assurances
can be given that such effect will not be substantial. The Board
of Directors believed that the range of uncertainty with respect
to the value of Noel's holdings for which no public market prices
are available was not large enough to alter its judgment.
Members of the Board of Directors are also members of the boards
of directors of each of the Company's major holdings. In
addition, in the case of HealthPlan Services Corporation
("HealthPlan Services"), Noel's largest holding (by value), the
two highest ranking executives of HealthPlan Services are members
of Noel's Board of Directors. As previously discussed, the Board
of Directors has been kept continually informed of the business,
affairs and financial condition of its holdings both by those
directors and by non-director executives of the Company who
maintain continued contact with these holdings through acting as
executive officers of such entities or otherwise. Although no
assurance can be given that the perceptions gained by the Board
of Directors through these reports, and hence the general view of
the Board of Directors of the value of these holdings motivating
the Board's decision to adopt the Plan, will not prove to be
incorrect, the Company believes that the perceptions and analyses
of outside appraisers would be subject to the same or similar
uncertainties.
At the time it adopted the Plan, the Board of Directors included
several independent directors, holding or representing in the
aggregate 4,265,515 shares (approximately 21%) of the outstanding
Common Stock, who voted in favor of the adoption of the Plan.
These independent directors held options to purchase, in the
aggregate, fewer than 90,000 shares of the Common Stock and are
not eligible to receive any other benefits as a consequence of
the adoption of the Plan which could be deemed to have influenced
their decision to vote in favor of adoption of the Plan, thus
reinforcing the independence of the decision made. Six of these
independent directors are investment professionals with
experience in the securities industry. In addition, Joseph S.
DiMartino, the Chairman and a director of Noel, Stanley R. Rawn,
Jr., the Chief Executive Officer and a director of Noel, and
Louis Marx, Jr., then a director and Chairman of the Executive
Committee, have broad career-long experience in the securities
market, acquisition and investment areas.
The Board of Directors has concluded that the continued trading of the
Common Stock at market prices less than the estimated per share value of the
underlying assets net of estimated liabilities (as adjusted for the tax to be
incurred on the sale or distribution) and the level of Noel's parent company
expenses, presents
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an opportunity to benefit the shareholders through the liquidation of the
Company and the distribution of its assets or the proceeds from the sale of such
assets. The Company's recent operating results did not directly affect the Board
of Directors' decision to liquidate.
The Board of Directors believes that it is in the best interests of the
Company's shareholders to distribute to the shareholders the Company's net
assets through distributions in-kind of certain assets and distributions of the
proceeds of sale of the remaining assets, together with other available cash.
The Board of Directors believes that the liquidation value per share of Common
Stock in the hands of the shareholders is likely to exceed its probable trading
value in the foreseeable future, absent the proposed liquidation, although there
can be no assurance that this would in fact be the case and the shareholders
could receive in liquidation an amount less than the price that the shares of
Common Stock would have traded at had the Plan not been adopted.
ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE PLAN. MEMBERS OF THE BOARD OF DIRECTORS
MAY BE DEEMED TO HAVE A POTENTIAL CONFLICT OF INTEREST IN RECOMMENDING APPROVAL
OF THE PLAN. SEE "APPROVAL OF PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION --
POSSIBLE EFFECTS OF THE APPROVAL OF THE PLAN UPON DIRECTORS AND OFFICERS." IN
ADOPTING THE PLAN, THE BOARD OF DIRECTORS RECOGNIZED THAT SHAREHOLDERS,
DEPENDING ON THEIR TAX BASIS IN THEIR SHARES, MAY BE REQUIRED TO RECOGNIZE GAIN
FOR TAX PURPOSES UPON RECEIPT OF DISTRIBUTIONS IN LIQUIDATION AND UPON THE
POSSIBLE TRANSFER OF ASSETS TO A LIQUIDATING TRUST OR TRUSTS. SEE "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES."
THIS PROXY STATEMENT CONTAINS CERTAIN FORWARD LOOKING STATEMENTS,
INCLUDING, STATEMENTS, BASED ON THE BOARD'S ESTIMATE OF THE VALUES OF THE
COMPANY'S NET ASSETS, THAT THE BOARD OF DIRECTORS BELIEVES THAT THE LIQUIDATION
VALUE PER SHARE OF COMMON STOCK IN THE HANDS OF THE SHAREHOLDERS IS LIKELY TO
EXCEED ITS PROBABLE TRADING VALUE IN THE FORESEEABLE FUTURE ABSENT THE PROPOSED
LIQUIDATION. THE METHODS USED BY THE BOARD OF DIRECTORS AND MANAGEMENT IN
ESTIMATING THE VALUE OF THE COMPANY'S ASSETS DO NOT RESULT IN AN EXACT
DETERMINATION OF VALUE NOR ARE THEY INTENDED TO INDICATE THE AMOUNT A
SHAREHOLDER WILL RECEIVE IN LIQUIDATION. THE VALUE OF THE COMPANY'S PUBLICLY
HELD SECURITIES IN THE HANDS OF A SHAREHOLDER FOLLOWING A DISTRIBUTION IN KIND
WILL DEPEND ON THE MARKET PRICE OF SUCH SECURITY FOLLOWING ANY SUCH
DISTRIBUTION. THE PRICES AT WHICH THE COMPANY WILL BE ABLE TO SELL ITS VARIOUS
ASSETS DEPEND LARGELY ON FACTORS BEYOND THE COMPANY'S CONTROL, INCLUDING,
WITHOUT LIMITATION, THE RATE OF INFLATION, CHANGES IN INTEREST RATES, THE
CONDITION OF FINANCIAL MARKETS AND THE AVAILABILITY OF FINANCING TO PROSPECTIVE
PURCHASERS. NO ASSURANCE CAN BE GIVEN THAT THE AMOUNT TO BE RECEIVED IN
LIQUIDATION WILL EQUAL OR EXCEED THE PRICE OR PRICES AT WHICH THE COMMON STOCK
HAS GENERALLY TRADED OR IS EXPECTED TO TRADE IN THE FUTURE. SHAREHOLDERS WHO
DISAGREE WITH THE BOARD'S DETERMINATION, THAT THE VALUE OF THE NET ASSETS AS
DISTRIBUTED TO THE SHAREHOLDERS EXCEEDS THE PRICE AT WHICH THE COMMON STOCK HAS
TRADED, SHOULD VOTE "AGAINST" APPROVAL OF THE PLAN.
UNDER THE DELAWARE GENERAL CORPORATION LAW (THE "DGCL"), IN THE EVENT
THE COMPANY FAILS TO CREATE AN ADEQUATE CONTINGENCY RESERVE FOR PAYMENT OF ITS
EXPENSES AND LIABILITIES, OR SHOULD SUCH CONTINGENCY RESERVE (AND THE ASSETS
HELD BY ANY LIQUIDATING TRUST OR TRUSTS) BE EXCEEDED BY THE AMOUNT ULTIMATELY
FOUND TO BE PAYABLE IN RESPECT OF THE COMPANY'S EXPENSES AND LIABILITIES, EACH
SHAREHOLDER COULD BE HELD LIABLE FOR THE PAYMENT TO THE COMPANY'S CREDITORS OF
SUCH SHAREHOLDER'S PRO RATA SHARE OF SUCH EXCESS, LIMITED TO THE AMOUNTS
THERETOFORE RECEIVED BY SUCH SHAREHOLDER FROM THE COMPANY (AND FROM ANY
LIQUIDATING TRUST OR TRUSTS). ACCORDINGLY, IN SUCH EVENT A SHAREHOLDER COULD BE
REQUIRED TO RETURN ALL DISTRIBUTIONS PREVIOUSLY MADE AND THUS WOULD RECEIVE
$0.00 FROM THE COMPANY AS A RESULT OF THE PLAN. MOREOVER, IN THE EVENT A
SHAREHOLDER HAS PAID TAXES ON AMOUNTS THERETOFORE RECEIVED, A REPAYMENT OF ALL
OR A PORTION OF SUCH AMOUNT COULD RESULT IN A SITUATION IN WHICH A SHAREHOLDER
MAY INCUR A NET TAX COST IF THE REPAYMENT OF THE AMOUNT DISTRIBUTED DOES NOT
CAUSE A REDUCITON IN TAXES PAYABLE IN AN AMOUNT EQUAL TO THE AMOUNT OF THE TAXES
PAID ON AMOUNTS PREVIOUSLY DISTRIBUTED. WHILE THE POSSIBILITY OF THE OCCURENCES
SET FORTH ABOVE CANNOT TOTALLY BE EXCLUDED, AFTER A REVIEW OF ITS ASSETS AND
LIABILITIES THE COMPANY BELIEVES THAT THE RESERVES WILL BE ADEQUATE AND THAT A
RETURN OF AMOUNTS PREVIOUSLY DISTRIBUTED WILL NOT BE REQUIRED. SEE "CONTINGENCY
LIABILITIES; CONTINGENCY RESERVE; LIQUIDATION TRUST."
THE ANTICIPATED TAX TREATMENT OF THE PLAN IS SET FORTH UNDER "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES". NO RULING HAS BEEN REQUESTED FROM THE IRS WITH
RESPECT TO THE ANTICIPATED TAX TREATMENT OF THE PLAN AND THE COMPANY WILL NOT
SEEK AN OPINION OF COUNSEL WITH RESPECT TO THE ANTICIPATED TAX TREATMENT. THE
FAILURE TO OBTAIN A RULING FROM THE IRS OR AN OPINION OF COUNSEL RESULTS IN
LESS CERTAINTY THAT THE ANTICIPATED TAX TREATMENT SUMMARIZED THEREIN WILL BE
OBTAINED. IF ANY OF THE CONCLUSIONS STATED UNDER "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES" PROVES TO BE INCORRECT, THE RESULT COULD BE INCREASED TAXATION
AT THE CORPORATE AND/OR SHAREHOLDER LEVEL, THUS REDUCING THE BENEFIT TO THE
SHAREHOLDERS AND THE COMPANY FROM THE LIQUIDATION. IF IT WERE TO BE DETERMINED
THAT DISTRIBUTIONS MADE PURSUANT TO THE PLAN WERE NOT LIQUIDATING DISTRIBUTIONS,
THE RESULT COULD BE TREATMENT OF DISTRIBUTIONS AS DIVIDENDS TAXABLE AT ORDINARY
INCOME RATES.
Since the adoption of the Plan by the Board of Directors, management and
the Board of Directors have effectively terminated the Company's participation
in acquisitions and steps have been initiated to reduce costs and to orient the
Company's administrative structure toward implementation of the Plan.
If the Plan is not approved by the shareholders, the Board of Directors
will explore the alternatives then available for the future of the Company.
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The high and low sale prices of a share of Common Stock on May 20, 1996
(the date preceding the date the Plan was adopted by the Board) was $ 8 1/2 and
$8 1/4, respectively.
POSSIBLE EFFECTS OF THE APPROVAL OF THE PLAN UPON DIRECTORS AND OFFICERS
The approval of the Plan by the shareholders may have certain effects
upon the Company's officers and directors, including those set forth below:
All of the Company's current and certain of its former
officers and directors hold options and/or warrants. A majority
of the directors who voted in favor of the Plan (9 out of 13) had
rights to purchase in the aggregate fewer than 90,000 shares of
Common Stock. All of the outstanding options and warrants held by
the directors who voted to adopt the Plan were then fully
exercisable except that (i) Joseph S. DiMartino, the Chairman and
a director of Noel, is the holder of a warrant to purchase
800,000 shares of Common Stock at an exercise price of $5.00 per
share (in addition to an option to purchase 8,334 shares), 75% of
which was then currently exercisable, with the additional 25%
becoming exercisable on January 4, 1997; and (ii) Stanley R.
Rawn, Jr., the Chief Executive Officer and a director of Noel, is
the holder of a warrant to purchase 320,000 shares of Common
Stock at an exercise price of $5.625 per share (in addition to an
option to purchase 8,334 shares), 75% of which was then currently
exercisable, with the additional 25% becoming exercisable on
March 9, 1997. Pursuant to their terms, the respective warrants
would become fully vested if, prior to January 4, 1997 in the
case of Mr. DiMartino, and March 9, 1997, in the case of Mr.
Rawn, the Company entered into an agreement to sell all or
substantially all of its assets or discharged either executive
other than for cause. Since the Company has no intention of
entering into such an agreement prior to such dates or
effectuating such discharge, the Company does not believe that
the vesting of the warrants would be effected by the approval of
the Plan. All of the options and warrants held by non-director
officers have vested except that, in the case of Samuel F. Pryor,
IV, a Managing Director, options covering an aggregate of 40,000
shares of Common Stock are not currently exercisable, with
options to purchase 20,000 shares of Common Stock vesting on
January 9, 1998 and 1999, respectively. Pursuant to the terms of
Mr. Pryor's option agreement, these options will become fully
exercisable on the occurrence of a dissolution or liquidation
of the Company.
The terms of the warrants require the Board to take action
to protect the warrant holders against any dilution or impairment
which may result from any sale or distribution of the Company's
assets. In addition, the terms of the warrants and the options
both provide that in the event that the Company shall effect a
distribution, other than a normal and customary cash
distribution, upon shares of Common Stock, the Board of Directors
may, in order to prevent significant diminution in the value of
such options and warrants, take such measures as it deems fair
and equitable. If the Plan is approved by the shareholders, in
order to prevent significant diminution in the value of the
options and warrants that may result from distributions of the
Company's assets, it is anticipated that the Compensation
Committee of the Board (the "Compensation Committee") may, at its
discretion, implement one or both of the following adjustments in
the options and warrants, effective immediately following and
contingent upon the approval of the Plan:
Consistent with the procedure followed by the Company in
connection with prior distributions, upon each distribution of
assets in kind to shareholders, a number of shares of each
distributed entity, equal to the aggregate number of outstanding
options and
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warrants times the number of shares of such distributed entity
receivable by the shareholders per outstanding share of Common
Stock, would be withheld. Upon each distribution of cash to
shareholders, an amount in cash, equal to the aggregate number of
outstanding options and warrants times the amount in cash
distributed per outstanding share of Common Stock, would be
withheld. Accordingly, the optionees and warrant holders would
then be entitled to receive, upon exercise of their options and
warrants, as applicable (i) the shares of Common Stock otherwise
issuable on such exercise (the value of which would have
diminished as a result of the distributions), (ii) the cash which
has been reserved in connection with distributions made by the
Company in the past prior to the adoption of the Plan, (iii) in
the case of a distribution in kind, the withheld securities (or
the proceeds of their sale if the reserved shares shall have been
sold at the discretion of the Compensation Committee), and (iv)
in the case of a distribution in cash, the cash withheld.
Alternatively or, in addition to the foregoing, the
Compensation Committee may permit the exercise of the options by
permitting the optionees to elect to receive the number of shares
of Common Stock equal to the product of (x) the number of shares
as to which the option is being exercised, multiplied by (y) a
fraction, the numerator of which is the market price of the
Common Stock plus the per share amount in cash previously
reserved for distribution upon exercise of the options less the
exercise price and the denominator of which is the market price
of the Common Stock or otherwise allowing optionees to receive
shares of the Company with a value equal to the value of their
options without incurring the cash burden of the exercise price.
This method of payment is currently available to warrant holders.
The Compensation Committee may, at its discretion, also permit the
withholding tax, required to be paid by the warrant holders, to be paid by
reducing the number of shares issuable upon exercise of the warrant by a number
of shares equal to the amount of the tax required to be withheld by the Company
on such exercise divided by the market price of a share of Common Stock on the
date of exercise. The option holders currently possess the right to pay the
required withholding tax in this manner.
For the financial reporting treatment of the adoption of option and warrant
adjustments, see the section "Condensed Unaudited Pro Forma Statement of Net
Assets In Liquidation."
It is not currently anticipated that liquidation of the Company will result
in any material increase in value to any directors who participated in the
vote to adopt the Plan in respect of their options or warrants as compared to
the value they would have received by exercising such options and warrants prior
to the first liquidating distribution.
The Company is party to split dollar life insurance agreements
with trusts for the benefit of beneficiaries of Joseph S. DiMartino, the
Chairman and a director, William L. Bennett, a director and a former Chief
Executive Officer, and Louis Marx, Jr., a former Chairman of the Executive
Committee and a former director. The Company has also entered into split dollar
life insurance agreements with trusts for the benefit of beneficiaries of
Gilbert H. Lamphere, a former Co-Chief Executive Officer and a former director,
and Donald T. Pascal and Samuel F. Pryor, IV, each a current Managing Director.
Pursuant to each of these agreements (other than that of Mr. Marx), the
Company's obligation to make premium payments ceases upon termination of each
such person's employment by the Company for reasons other than disability. The
Company also has a split dollar agreement with Karen Brenner, a current Managing
Director, whose employment agreement guarantees her employment through March,
1998 and provides for payment of premiums on her split dollar life insurance
through 1999, which includes all the originally contemplated payments. Under the
Company's split dollar insurance agreement with a trust for the benefit of
beneficiaries
8
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<PAGE>
of Mr. Marx, annual premiums will be required through 1999 and beyond if
further payments are required to maintain a $5,000,000 death payment.
In the event of the approval of the Plan by the shareholders and the
consequent termination of the employment of executives covered by split dollar
policies, the Company may, at the discretion of the Compensation Committee,
make one voluntary premium payment on one or more of the split dollar life
insurance policies in respect of such executives after termination of their
employment, and will negotiate such issues as may arise in implementing the
provisions of the split dollar agreements relating to termination of employment.
The Company intends to negotiate with the trustee of the trust for the
benefit of beneficiaries of Mr. Marx to provide for the Company's
obligation to make payments in respect of his policy, currently estimated to
be approximately $1,000,000 at the close of 1997. Any arrangement reached will
be subject to the approval of the Compensation Committee.
All of the split dollar life insurance agreements require that, upon the
death of the various insureds, the Company be reimbursed for the amount of the
premiums paid before any amounts are paid to the beneficiaries of such insured
persons. Since, unless a voluntary purchase of the rights is made by the
insureds or their trusts, the rights to be reimbursed would result in revenue
only on the date of death of the respective insureds, and such rights may not
yield any substantial revenues until long after the liquidation of the Company
is completed. Neither the insureds nor their trusts currently wish to purchase
these rights and the Company does not believe a third party market exists for
them or that the interests of the shareholders would be served by establishing
and maintaining trusts extending for decades to hold these interests. Therefore,
except with respect to the split dollar policy for Mr. Marx, it is the present
intention of the Company to donate these interests to public charities who would
be in a position to hold them and eventually realize on them. The Company
believes that it will receive a tax deduction for the value of these donations
although no assurances can be given of that result. Rather than make a
charitable contribution, the Company may sell these interests to one or more
third parties if a buyer can be found and if the Company determines that such a
sale would be more beneficial to the Company. As to Mr. Marx, since the method
of providing for the continuation of premium payments on this policy is subject
to negotiation, no decision has been made regarding the disposition of the
Company's right to receive reimbursement of premiums paid.
No officers or directors of the Company are parties to agreements with Noel
providing for compensation for a fixed term or for severance upon termination
other than William L. Bennett, a director and a former Chief Executive Officer,
and Karen Brenner, a current Managing Director. Ms. Brenner is a party to an
employment agreement covering her employment through February 28, 1998 at an
annual salary of $350,000 plus customary benefits and the continuation of such
salary and benefits for a twelve month period following the conclusion of that
term. No decision has been made as to Ms. Brenner's tenure, and if her
employment were to be terminated as a result of the approval of the Plan by the
shareholders, she would be entitled to salary and benefits for the unexpired
portion of the period ended February 28, 1998 plus the twelve month period
thereafter. No decision has been made as to how the Company would provide for
this obligation in the event of the approval of the Plan by the shareholders. In
addition, as evidenced by a letter agreement dated March 22, 1995, on June 20,
1994 Noel granted Ms. Brenner an option to purchase 200,000 shares of common
stock of Lincoln Snacks Company ("Lincoln Snacks") held by Noel at an exercise
price of $1.50 per share. Options to purchase 166,667 of such shares are
currently exercisable with the balance being exercisable on the earlier to occur
of (x) the eighth anniversary of the date of grant and (y) from and after the
date the stock price reaches $5.00. No decision has been made as to how the
Company would provide for its obligations with respect to this option in the
event of the approval of the Plan by the shareholders. Mr. Bennett is a party to
an agreement with the Company under which, if on January 1, 1997, the Company's
investment in HealthPlan Services (as conclusively determined in good faith by
Noel's Board
9
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of Directors) has appreciated by $75,000,000 or more since the acquisition
of that interest, including any amounts realized on any disposition of any part
of that holding, Mr. Bennett would be retained as a consultant to the Company
for the period commencing January 1, 1997 and ending December 31, 2001 at a
consulting fee of $225,000 per year. The Board of Directors has determined that
the requisite appreciation in value existed on January 1, 1997. No decision has
been made as to how the Company would provide for this obligation in the event
of the approval of the Plan by the shareholders.
William L. Bennett, a director and a former Chief Executive Officer of the
Company, is the sole participant in the Company's Supplemental Executive
Retirement Plan (the "Supplemental Plan"), which provides retirement income and
death benefits consisting principally of the right to receive payments of
$300,000 per year for 15 years, commencing at age 65 or, at the Company's
option, the cash surrender value of such insurance policy on his life as the
Company could obtain by the payment of $60,000 per year for five years.
Mr. Bennett's status as an employee terminated on Decembe r 31, 1996. The
Company's arrangements with Mr. Bennett contemplate the commutation of
this obligation to make payments to a single lump sum payment. The Company is
presently negotiating with Mr. Bennett as to the exact amount and terms of such
payment.
In addition to the foregoing, the Compensation Committee may confer other
benefits or bonuses or adjustments to options and warrants to employees and
officers of the Company, including officers who are also directors, in
recognition of their services to the Company based on the performance of such
employees and officers, including performance during the Company's liquidation
process.
For the reasons set forth above, certain directors and officers may be
deemed to have a potential conflict of interest with respect to adoption of the
Plan. While the matters set forth above may be deemed to give rise to a
potential conflict of interest with respect to the adoption of the Plan by the
Board, the Company believes that the Plan was adopted by the unanimous vote of
disinterested directors and that no independent committee was required for the
following reasons: vote of disinterested directors and that no independent
committee was required for the following reasons:
A majority of the directors who voted in favor of the Plan
(9 out of 13) had rights to purchase in the aggregate fewer than
90,000 shares of Common Stock and do not possess any of the other
benefits discussed above. These directors represent holders who,
together with their affiliates, hold an aggregate of 4,245,515
shares of Common Stock (approximately 21%). Such majority thus
had a community of interest with the shareholders as a group
rather than with members of management.
The provisions relating to benefits discussed above are
intended to remediate the adverse consequences of the liquidation
and the consequent severance of executives, rather than to confer
new benefits.
At the time the Plan was adopted by the Board of
Directors, the Board had not taken nor discussed any action with
respect to the benefits referred to above.
It is not currently anticipated that the liquidation of
the Company will result in any material increase in value of the
options and warrants held by any directors who participated in
the vote on the Plan as compared to the value that they would
have received by exercising such options and warrants prior to
the first liquidating distribution.
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PRINCIPAL PROVISIONS OF THE PLAN
Pursuant to the Plan:
(a) The Company will distribute pro rata to its shareholders, in-kind or
sell or otherwise dispose of all its property and assets. The liquidation is
expected to commence as soon as practicable after approval of the Plan by the
shareholders and to be concluded prior to the third anniversary thereof by a
final liquidating distribution either directly to the shareholders or to one or
more liquidating trusts. Any sales of the Company's assets will be made, in
private or public transactions, on such terms as are approved by the Board of
Directors. It is not anticipated that any further shareholder votes will be
solicited with respect to the approval of the specific terms of any particular
sales of assets approved by the Board of Directors as the Company has been
advised by its counsel that such further votes are not required by the Delaware
General Corporate Law ("DGCL"). See "Sales of the Company's Assets." Reference
is made to "Factors to be Considered with Respect to Distribution or Sale of the
Company's Assets" for a discussion of the factors to be considered by the Board
in making its determination of which assets will be sold and which will be
distributed in-kind.
(b) Subject to the payment or the provision for payment of the Company's
indebtedness and other obligations, the cash proceeds of any asset sales
together with other available cash will be distributed from time to time pro
rata to the holders of the Common Stock on record dates selected by the Board of
Directors with respect to each such distribution. Only shareholders of record on
the record date set for a particular distribution will receive distributions
with respect to such record date. The Company may establish a reasonable reserve
(a "Contingency Reserve") in an amount determined by the Board of Directors to
be sufficient to satisfy the liabilities, expenses and obligations of the
Company not otherwise paid, provided for or discharged. The net balance, if any,
of any such Contingency Reserve remaining after payment, provision or discharge
of all such liabilities, expenses and obligations will also be distributed to
the Company's shareholders pro rata. The Company itself has no current or
long-term bank indebtedness. Bank indebtedness reflected in the Company's
consolidated financial statements consists of the bank indebtedness of the
Company's consolidated subsidiaries. Lenders generally have no recourse to the
Company for the ultimate collection of loans to the Company's subsidiaries. The
Company's accrued obligations at September 30, 1996 were approximately $6.9
million, including $4.8 million accrued with respect to outstanding options,
with the balance accrued with respect to Federal income taxes payable, the
Company's obligations under the Supplemental Plan and other accrued expenses.
See "Condensed Unaudited Pro Forma Statement of Net Assets in Liquidation." No
assurances can be given that available cash and amounts received on the sale of
assets will be adequate to provide for the Company's obligations, liabilities,
expenses and claims and to make cash distributions to shareholders. The Company
currently has no plans to repurchase shares of Common Stock from its
shareholders. However, if the Company were to repurchase shares of Common Stock
from its shareholders, such repurchases would be open market purchases and would
decrease amounts distributable to other shareholders if Noel were to pay amounts
in excess of the per share values distributable in respect of the shares
purchased and would increase amounts distributable to other shareholders if Noel
were to pay amounts less than the per share values distributable in respect of
such shares. See "Liquidating Distributions" and "Contingent Liabilities;
Contingency Reserve; Liquidating Trust" below.
(c) Any distribution in-kind of the Company's holdings of securities
will be made pro rata to the holders of Common Stock on record dates selected by
the Board of Directors with respect to each such distribution. Only shareholders
of record on the record date set for a particular distribution will receive
distributions with respect to such record date. See also "Possible Effects of
the Approval of the Plan Upon Directors and Officers" as it relates to options
and warrants. A distribution of the Company's holdings in a security may also be
effected by the distribution to Noel shareholders of interests in a trust
holding such security. If securities held by the Company are to be distributed
directly to shareholders (other than in trust), applicable rules and regulations
of the Securities and Exchange Commission (the "Commission") will be complied
with so that all shareholders (with the possible exception of affiliates of the
Company or of the issuer of the securities
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which are distributed) will receive securities which will thereafter be freely
transferable by them under applicable Federal securities laws. The securities to
be distributed to the shareholders will have been registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and, if
required by applicable law and regulation, the Securities Act of 1933, as
amended (the "Securities Act"). Accordingly, the corporation issuing such
securities will be subject to substantially the same reporting and proxy rules
as currently apply to the Company. As described under "Principal Assets of the
Company" only certain of Noel's holdings constitute securities which are
currently registered under the Exchange Act. Securities which under current law
and regulation may not be distributed without such registration will not be
distributed unless and until the required registration has been effectuated. In
addition, assuming satisfaction of required eligibility standards, the Company
may seek to cause any of its holdings of securities not currently listed on an
securities exchange or authorized for quotation on Nasdaq, to be so authorized
for quotation or listed, although there can be no assurance that the Company
will do so. If any distributed securities are not authorized for quotation
through Nasdaq or listed on an exchange, the effect may be to render such
securities illiquid and/or to diminish the price realizable upon sale. In any
event, the sale or distribution of the Company's holdings and the anticipation
of such sale or distribution resulting from the approval of the Plan may reduce,
at least temporarily, the market price of such securities and therefore the
values realized by the shareholders. See "Factors to be Considered with Respect
to Distribution or Sale of the Company's Assets."
(d) If deemed necessary by the Board of Directors for any reason, the
Company may, from time to time, transfer any of its unsold assets to one or more
trusts established for the benefit of the then shareholders which property would
thereafter be sold or distributed on terms approved by its trustees. If all of
the Company's assets (other than the Contingency Reserve) are not sold or
distributed prior to the third anniversary of the approval of the Plan by the
Company's shareholders, the Company must transfer in final distribution such
remaining assets to a trust. The Board of Directors may also elect in its
discretion to transfer the Contingency Reserve, if any, to such a trust. Any of
such trusts are referred to herein as "liquidating trusts." Notwithstanding the
foregoing, to the extent that a distribution or transfer of any asset cannot be
effected without the consent of a governmental authority, no such distribution
or transfer shall be effected without such consent. In the event of a transfer
of assets to a liquidating trust, the Company would distribute, pro rata to the
holders of its Common Stock, beneficial interests in any such liquidating trust
or trusts. It is anticipated that the interests in any such trusts will not be
transferable; hence, although the recipients of the interests would be treated
for tax purposes as having received their pro rata share of property transferred
to the liquidating trust or trusts and will thereafter take into account for tax
purposes their allocable portion of any income, gain or loss realized by such
liquidating trust or trusts, the recipients of the interests will not realize
the value thereof unless and until such liquidating trust or trusts distributes
cash or other assets to them. The Plan authorizes the Board of Directors to
appoint one or more individuals or entities to act as trustee or trustees of the
liquidating trust or trusts and to cause the Company to enter into a liquidating
trust agreement or agreements with such trustee or trustees on such terms and
conditions as may be approved by the Board of Directors. Approval of the Plan
also will constitute the approval by the Company's shareholders of any such
appointment and any liquidating trust agreement or agreements. For further
information relating to liquidating trusts, the appointment of trustees and the
liquidating trust agreements, reference is made to "Contingent Liabilities;
Contingent Reserve; Liquidating Trusts."
(e) The Company will close its stock transfer books and discontinue
recording transfers of shares of Common Stock on the earlier to occur of (i) the
close of business on the record date fixed by the Board of Directors for the
final liquidating distribution, or (ii) the date on which the dissolution
becomes effective under the DGCL (the "Final Record Date"), and thereafter
certificates representing shares Common Stock will not be assignable or
transferable on the books of the Company except by will, intestate succession or
operation of law. After the Final Record Date the Company will not issue any new
stock certificates, other than replacement certificates. See "Listing and
Trading of the Common Stock and interests in the Liquidating Trust or Trusts"
and "Final Record Date" below.
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(f) Following completion of the foregoing steps, a Certificate of
Dissolution will be filed with the State of Delaware dissolving the Company. The
dissolution of the Company will become effective, in accordance with the DGCL
upon proper filing of the Certificate of Dissolution with the Secretary of State
or upon such later date as may be specified in the Certificate of Dissolution.
Pursuant to the DGCL, the Company will continue to exist for three years after
the dissolution becomes effective or for such longer period as the Delaware
Court of Chancery shall direct, for the purpose of prosecuting and defending
suits, whether civil, criminal or administrative, by or against it, and enabling
the Company gradually to settle and close its business, to dispose of and convey
its property, to discharge its liabilities and to distribute to its shareholders
any remaining assets, but not for the purpose of continuing the business for
which the Company was organized.
ABANDONMENT; AMENDMENT
Under the Plan, the Board of Directors may modify, amend or abandon the
Plan, notwithstanding shareholder approval, to the extent permitted by the DGCL.
The Company will not amend or modify the Plan under circumstances that would
require additional shareholder solicitations under the DGCL or the federal
securities laws without complying with the DGCL and the federal securities laws.
The Executive Committee of the Board of Directors may exercise all of
the powers of the Board of Directors in implementing the Plan. Accordingly,
references to the Board of Directors herein should be deemed also to refer to
such committee.
LIQUIDATING DISTRIBUTIONS; NATURE; AMOUNT; TIMING
Although the Board of Directors has not established a firm timetable for
distributions to shareholders if the Plan is approved by the shareholders, the
Board of Directors will, subject to exigencies inherent in winding up the
Company's business, make such distributions as promptly as practicable. The
liquidation is expected to commence as soon as practicable after approval of the
Plan by the shareholders and to be concluded prior to the third anniversary
thereof by a final liquidating distribution either directly to the shareholders
or to a liquidating trust. The Board of Directors is, however, currently unable
to predict the precise nature, amount or timing of any distributions pursuant to
the Plan. The actual nature, amount and timing of, and record date for all
distributions will be determined by the Board of Directors, in its sole
discretion, and will depend in part upon the Board of Directors' determination
as to whether particular assets are to be distributed in-kind or otherwise
disposed of through sale or other means. Reference is made to "Factors to be
Considered with Respect to Distribution or Sale of the Company's Assets" for a
discussion of the factors to be considered by the Board in making its
determination of which assets will be sold and which will be distributed
in-kind.
The Company does not plan to satisfy all of its liabilities and
obligations prior to making distributions to its shareholders, but instead will
reserve assets deemed by management and the Board of Directors to be adequate to
provide for such liabilities and obligations. See "Contingent Liabilities;
Contingency Reserve; Liquidating Trust." Management and the Board of Directors
believe that the Company has sufficient cash to pay its current and accrued
obligations, without the sale of any of its assets. It is anticipated, however,
that the sale or distribution of all of the Company's holdings will result in
the net realization of substantial net gain and the recognition of tax
obligations exceeding the amount of cash currently available. The Company plans
to raise cash to meet such tax obligations through the sale of a portion of its
holdings. See "Factors to be Considered with Respect to Distribution or Sale of
the Company's Assets."
Uncertainties as to the precise net value of Noel's assets and the
ultimate amount of its liabilities make it impracticable to predict the
aggregate net values ultimately distributable to shareholders. Claims,
liabilities and expenses from operations (including operating costs, salaries,
income taxes, payroll and local taxes and miscellaneous office expenses),
although currently declining, will continue to occur following approval of the
Plan, and the Company anticipates that expenses for professional fees and other
expenses of liquidation will be significant. These expenses will reduce the
amount of assets available for ultimate distribution to shareholders, and, while
the Company does not believe that a precise estimate of those expenses can
currently be made,
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management and the Board of Directors believe that available cash and amounts
received on the sale of assets will be adequate to provide for the Company's
obligations, liabilities, expenses and claims (including contingent liabilities)
and to make cash distributions to shareholders. However, no assurances can be
given that available cash and amounts received on the sale of assets will be
adequate to provide for the Company's obligations, liabilities, expenses and
claims and to make cash distributions to shareholders. If such available cash
and amounts received on the sale of assets are not adequate to provide for the
Company's obligations, liabilities, expenses and claims, distributions of cash
and other assets to the Company's shareholders will be reduced.
PRINCIPAL ASSETS OF THE COMPANY
Set forth below is a table setting forth Noel's principal holdings
as of February 10, 1997.
<TABLE>
<CAPTION>
Approximate Approximate
% of % of
Outstanding Outstanding
Shares of Shares of
No. of Common Stock No. of Preferred Stock
Shares of as of Shares of as of
Common February 10, Common Stock Preferred February 10,
Name of Company Stock Held 1997 Traded on Stock 1997
- --------------- ---------- ------------ ------------ ---------- ----
<S> <C> <C>
HealthPlan Services 4,275,846(1) 29% New York -- --
Corporation Stock Exchange
Staffing Resources, Inc. 2,026,104(2) 16% --(3) -- --
Belding Heminway 2,205,814(1) 30% New York 19,312,837.5 93%
Company, Inc. Stock Exchange Series B
Lincoln Snacks 3,769,755(1) 60% Nasdaq Small -- --
Company Cap Market
Curtis Industries, Inc. 163,449(2) 63% -- 141,000 67%
Series B
1,619 100%
Series A
Ferrovia Novoeste, 1,200,000(2) 20% -- 5,660,076 47%
S.A.
</TABLE>
14
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(1) These securities are registered under the Exchange Act.
(2) These securities are not registered under the Exchange Act.
(3) A limited number of shares of common stock of Staffing Resources, Inc.
("Staffing Resources") are traded in the over the counter market and prices
are quoted in the "pink sheets."
15
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FACTORS TO BE CONSIDERED WITH RESPECT TO DISTRIBUTION OR SALE OF THE COMPANY'S
ASSETS
The sale by the Company or the distribution by the Company to its
shareholders of an appreciated asset will result in the recognition of taxable
gain by the Company to the extent the fair market value of such asset exceeds
the Company's tax basis in such asset. Accordingly, it is anticipated that the
sale or distribution by the Company of certain of its assets, including its
holdings in HealthPlan Services and Staffing Resources, will result in the
recognition by the Company of significant taxable gain. Thus the Company will be
required to sell certain assets in order to raise cash to pay the taxes so
incurred. The greater the amount of assets that are required to be sold in order
to pay the taxes, the lesser the amount of such assets available for
distribution to Noel's shareholders. The determination by the Board of Directors
as to which assets will be sold to pay the taxes will depend on a variety of
factors, including, the Board's opinion as to the future prospects of the issuer
of the securities, the amount of cash required to be raised, the liquidity of
the Company's assets, the prices obtainable for such assets in public or
privately negotiated transactions, and a review of the Company's public holdings
to ascertain which holdings could be sold with the least disruption to the
public market and possible resultant depression in the values realizable by the
Company and its shareholders and, with respect to assets to be sold in private
transactions, the availability of purchasers for such assets. Currently, all of
the Company's public holdings are thinly traded. Accordingly, a public sale
thereof might result in a disruption in the public market. Noel has not
determined which of its holdings will be sold in order to raise the cash
required to pay the taxes generated by the disposition or distribution of the
Company's assets. See "Liquidating Distributions; Nature; Amount; Timing."
Set forth below is a brief description of the status of Noel's current
plans to sell or distribute its principal holdings. Except as set forth below,
the Board of Directors and management have not yet determined whether or when to
sell or distribute any of its holdings. The determination of which holdings will
be sold and which will be distributed in-kind to the Company's shareholders will
be based on the judgment of the Board of Directors and management as to whether
the sale or distribution of a particular holding will result in realization of
the highest possible value to Noel's shareholders and will be based on several
factors, including, in addition to the factors referred to in the preceding
paragraph and not necessarily in order of priority (i) the Board's opinion as to
the future prospects of the issuer of the securities; (ii) whether the security
in question is publicly traded; (iii) the anticipated effect on the market price
of a distribution as opposed to a sale; (iv) whether a distribution or a sale
would require registration under the Securities Act and the Exchange Act; (v)
the need to raise cash through sales of securities to pay corporate taxes
payable upon the distribution and sale of the Company's assets; (vi) whether an
orderly public market exists and would continue to exist after distribution; and
(vii) the availability of one or more purchasers of the security in a private
sale. With respect to securities held by the Company which are expected to be
distributed to shareholders (other than in trust), applicable laws and
regulations of the Commission will be complied with so that all shareholders
(with the possible exception of affiliates of the Company or of the issuer the
securities of which are distributed) will receive securities which will
thereafter be freely transferable by them under applicable Federal securities
laws. The securities to be distributed to the shareholders will have been
registered under the Exchange Act and, if required by applicable law and
regulation, the Securities Act. Accordingly, the corporation issuing such
securities will be subject to substantially the same reporting and proxy rules
as currently apply to the Company. Securities which under current law and
regulation may not be distributed without such registration will not be
distributed unless and until the required registration has been effectuated. In
addition, assuming satisfaction of required eligibility standards, the Company
may seek to cause any of its holdings of securities not currently listed on an
securities exchange or authorized for quotation through Nasdaq to be so
authorized for quotation or listed, although there can be no assurance that the
Company will do so. If any distributed securities are not authorized for
quotation through Nasdaq or listed on an exchange, the effect may be to render
such securities illiquid and/or to diminish the price realizable upon sale.
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The sale or distribution of the Company's holdings and the anticipation
of such sale or distribution resulting from the approval of the Plan may, at
least temporarily, reduce the market price of such securities and therefore the
values realized by the shareholders.
HealthPlan Services Corporation
Noel holds 4,275,846 shares of common stock of HealthPlan Services,
representing approximately 29% of the outstanding common stock, with an
estimated value as of February 5, 1997 of approximately $95.7 million. See
"Condensed Unaudited Pro Forma Statement of Net Assets in Liquidation."
The Company currently intends to distribute most of its shares of common stock
of HealthPlan Services to its shareholders and such distributed shares in the
hands of the distributees may be subject to temporary restrictions on
transferability. Noel may, however, engage in one or more private or registered
public sales, as market conditions permit, of shares of HealthPlan Services to
raise cash to pay the estimated taxes payable upon distribution or sale
of Noel's assets, which cash is not available from existing cash resources
or defrayed by the proceeds from the sale of other assets. On December 18, 1996,
Noel and Automatic Data Processing, Inc. ("ADP") signed an agreement (the "ADP
Agreement") whereby ADP purchased from Noel 1,320,000 shares (approximately
8%) of common stock of HealthPlan Services at a price of $20 per share in cash.
Completion of the transaction occurred on February 7, 1997. Other than pursuant
to a distribution to Noel's shareholders, Noel has agreed not to transfer its
remaining shares of common stock of HealthPlan Services prior to September 30,
1997.
Staffing Resources, Inc.
Noel currently holds 2,026,104 shares of common stock of Staffing
Resources, representing approximately 16% of the outstanding shares of such
common stock, with an estimated value as of September 30, 1996 of approximately
$28.3 million. See "Condensed Unaudited Pro Forma Statement of Net Assets in
Liquidation." Noel has not determined the method of disposition of its interest
in Staffing Resources or whether this asset or a portion thereof will be sold or
distributed in-kind or the timing of any such decision. Staffing Resources had
previously announced that it had intended to effect a registered public offering
of shares of its common stock prior to the end of 1996. Staffing Resources
suspended its plans for a public offering when it began negotiating a possible
merger in April 1996 which negotiations ceased in August 1996. Staffing
Resources is contemplating filing a registration statement with the Commission
during the first half of 1997 with respect to a public offering of its common
stock. There can be no assurance that such public offering will be consummated.
In the event a public offering is consummated, it is anticipated that the shares
would be listed for trading on Nasdaq's National Market, although there can be
no assurance that this will be the case. Although it is not anticipated that
Noel's shares of common stock of Staffing Resources will be included in the
proposed registration statement, Noel's determination as to the disposition of
its shares of common stock of Staffing Resources may depend on the consummation
and timing of such offering.
Belding Heminway Company, Inc.
Noel currently holds 2,205,814 shares of common stock of Belding
Heminway Company, Inc. ("Belding Heminway"), representing approximately 30% of
the outstanding shares of such common stock, with an estimated value, based upon
market price, as of February 5, 1997 of approximately $5.5 million. In
addition, Noel currently holds 19,312,837 shares of Series B preferred stock of
Belding Heminway, representing 93% of the outstanding shares of such Series B
preferred stock, with an estimated value as of September 30, 1996 of
approximately $21.5 million. See "Condensed Unaudited Pro-Forma Statement of Net
Assets in Liquidation." On December 30, 1996, Belding Heminway entered into a
new credit agreement with Sanwa Business Credit Corporation and Heller
Financial, Inc., as lenders, pursuant to which the lenders have provided a
credit facility to Belding Heminway and certain of its subsidiaries in the
aggregate amount of $42 million, consisting of two term loans aggregating $22
million and a $20 million revolving credit facility. Under the terms of the
credit agreement, Belding Heminway continues to be prohibited from making any
dividend, redemption or other payments to its preferred stockholders, until the
$8,000,000 Tranche B of the term loan has been repaid in full. Thereafter,
Belding Heminway may apply up to 25% of its excess cash flow, if any, to the
payment of dividends on, or the redemption of, its preferred stock, assuming
certain additional conditions are met. The credit agreement also provides that
it shall be an event of default if, prior to December 31, 1997, Noel ceases to
control at least 35% of the voting stock of Belding Heminway as a result of
Noel's "private sale" (as defined) of shares of preferred stock of Belding
Heminway, without the consent of the lenders (which consent may be withheld only
under certain circumstances). The term "private sale" does not include any
distribution by Noel of preferred or common stock of Belding Heminway to Noel's
stockholders or the redemption by Belding Heminway of such shares pursuant to
the terms of Belding Heminway's charter. For a more particular description of
the credit agreement, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Belding Heminway." On December 12, 1996
Belding Heminway announced that it had agreed to sell substantially all of its
business, operations and assets related to the manufacturing, marketing and sale
of industrial and consumer thread, including sewing threads and non-sewing yarns
(collectively, the "Thread Division") to HP Belt Acquisition Corporation, a
subsidiary of Hicking Pentecost PLC, for an aggregate cash consideration of
$54.9 million, subject to adjustment, plus the assumption of certain
liabilities. If the proposed sale of the Thread Division is completed, Belding
Heminway has indicated that it intends to repay the new credit facility in
full with the proceeds of the sale, which payment can be made without prepayment
penalty. See "Business of the Company -- Belding Heminway Company, Inc." Noel
currently has not determined the method or timing of the disposition of its
interest in Belding Heminway.
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Lincoln Snacks Company
Noel holds 3,769,755 shares of common stock of Lincoln Snacks,
representing approximately 60% of the outstanding shares of Lincoln Snacks'
common stock, with an estimated value as of February 5, 1997 of
approximately $5.2 million. See "Condensed Unaudited Pro Forma Statement of Net
Assets in Liquidation." Noel has not determined the method of disposition of its
interest in Lincoln Snacks or whether this asset or a portion thereof will be
sold or distributed in-kind or the timing of any such decision.
Curtis Industries, Inc.
Noel holds 163,449 shares of common stock of Curtis Industries, Inc.
("Curtis") representing approximately 63% of the outstanding shares of Curtis'
common stock. In addition, Noel holds 141,000 shares of Curtis' Series B
convertible preferred stock (representing 67% of such outstanding shares) and
1,619 shares of Curtis' Series A convertible preferred stock (representing 100%
of such outstanding shares). The estimated value as of September 30, 1996 of
Noel's holdings in Curtis is approximately $18.0 million. See "Condensed
Unaudited Pro Forma Statement of Net Assets in Liquidation." Noel has not yet
decided upon the method of disposition of its interest in Curtis or whether
this asset or a portion thereof will be sold or distributed in-kind or the
timing of any such decision. Noel is currently considering (i) the sale of its
interest in Curtis in one or more private transactions; and (ii) the
registration of its shares of common stock of Curtis under the Securities Act
and the Exchange Act followed by the sale or distribution in-kind of such
shares.
Ferrovia Novoeste, S.A.
Noel holds 1,200,000 shares of common stock of Novoeste, representing
20% of the outstanding shares of common stock and 5,660,076 shares of preferred
stock of Novoeste, representing approximately 47% of such outstanding shares. It
is anticipated that such ownership will be reduced to 18% of the common stock
and 42.3% of the preferred stock following the proposed issuance of additional
shares to certain employees. The estimated value of Noel's interest in Novoeste
as of September 30, 1996 is $8 million. See "Condensed Unaudited Pro Forma
Statement of Net Assets in Liquidation." The transfer of Noel's interest in
Novoeste is subject to certain restrictions, both regulatory and contractual.
See "Regulatory Approvals" for further information regarding regulatory
restrictions. Noel does not anticipate a public distribution to its shareholders
of its interest in Novoeste and expects to dispose of its interest therein
through private sales or sales on the public market in Brazil as permitted by
Brazilian law and the terms of its investment therein.
Other Holdings
Noel holds interests in various other entities with an aggregate
estimated liquidation value of $3.2 million as of September 30, 1996 none
of which is material to the Company. See "Condensed Unaudited Pro Forma
Statement of Net Assets in Liquidation." It is anticipated that Noel will
dispose of its interests in such entities for cash.
SALES OF THE COMPANY'S ASSETS
The Plan gives the Board of Directors the authority to sell all of the
assets of the Company. As of February 4, 1997, no sale has been effected
pursuant to the Plan and, except for the ADP Agreement, no agreement to sell
any of the assets of the Company has been reached. The sale contemplated by the
ADP Agreement was consummated on February 7, 1997. However, agreements for
the sale of assets may be entered into prior to the Meeting and, if entered
into, may be contingent upon the approval of the Plan at the Meeting. Approval
of the Plan will constitute approval of any such agreements. Sales of the
Company's assets will be made on such terms as are approved by the Board of
Directors and may be conducted by competitive bidding, public sales on
applicable stock exchanges or over-the-counter or privately negotiated sales.
Any sales will only be made after the Board of Directors has determined
that any such sale is in the best interests of the shareholders. It is not
anticipated that any further shareholder votes will be solicited with
respect to the approval of the specific terms of any particular sales of assets
approved by the Board of Directors, as the Company has been advised by its
counsel that such further votes are not required by the DGCL. The Company does
not anticipate amending or supplementing the Proxy Statement to reflect any such
agreement or sale. The prices at which the Company will be able to sell its
various assets will depend largely on factors beyond the Company's control,
including, without limitation, the rate of inflation, changes in interest rates,
the condition of financial markets,
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the availability of financing to prospective purchasers of the assets and United
States and foreign regulatory approvals. In addition, the Company may not obtain
as high a price for a particular property as it might secure if the Company were
not in liquidation.
The Board of Directors will not engage in a sale of all or substantially
all of its assets to an affiliate or group of affiliates and proxies are not
being solicited in connection with such a sale. At this stage, the Company
cannot exclude the possibility, however, that some of the Company's assets may
be sold to one or more of the Company's officers, directors or affiliates, but
such a transaction will be effectuated only if such transaction is approved by a
disinterested majority of the Board of Directors. There have been no
negotiations regarding any such sale.
CONDUCT OF THE COMPANY FOLLOWING ADOPTION OF THE PLAN
Since the adoption of the Plan by the Board of Directors, the Board and
management have effectively terminated the Company's participation in
acquisitions. Consequently, since the adoption of the Plan by the Board of
Directors, Louis Marx, Jr., has resigned as a director and as Chairman of the
Executive Committee, and John A. MacDonald and Thomas C. Israel have resigned as
directors. It is anticipated that certain of the present directors and principal
executive officers of the Company will continue to serve in such capacities
following approval of the Plan by the shareholders. The continuing officers and
directors will receive compensation for the duties then being performed as
determined by the Compensation Committee of the Board of Directors. Neither the
Board of Directors nor the Compensation Committee have established specific
guidelines for determination of the compensation to be paid to directors and
officers of the Company following approval of the Plan by the shareholders. Such
compensation will be determined by evaluation of all relevant factors,
including, without limitation, the efforts of such individuals in successfully
implementing the Plan and compensation payable in the financial community to
individuals exercising similar authority and bearing similar responsibilities.
Following approval of the Plan by Noel's shareholders, Noel's activities
will be limited to winding up its affairs, taking such action as may be
necessary to preserve the value of its assets and distributing its assets in
accordance with the Plan. The Company will seek to distribute or liquidate all
of its assets in such manner and upon such terms as the Board of Directors
determines to be in the best interests of the Company's shareholders.
Following the approval of the Plan by Noel's shareholders, the Company
shall continue to indemnify its officers, directors, employees and agents in
accordance with its certificate of incorporation, as amended, and by-laws and
any contractual arrangements, for actions taken in connection with the Plan and
the winding up of the affairs of the Company. The Company's obligation to
indemnify such persons may be satisfied out of the assets of any liquidating
trust. The Board of Directors and the trustees of any liquidating trust, in
their absolute discretion, are authorized to obtain and maintain insurance as
may be necessary to cover the Company's indemnification obligations under the
Plan.
CONTINGENT LIABILITIES; CONTINGENCY RESERVE; LIQUIDATING TRUST
Under the DGCL the Company is required, in connection with its
dissolution, to pay or provide for payment of all of its liabilities and
obligations. Following approval of the Plan by Noel's shareholders, the Company
will pay all expenses and fixed and other known liabilities, or set aside as a
Contingency Reserve assets which it believes to be adequate for payment thereof.
The Company is currently unable to estimate with precision the amount of any
Contingency Reserve, which may be required, but any such amount (in addition to
any cash contributed to a liquidating trust, if one is utilized) will be
deducted before the determination of amounts available for distribution to
shareholders.
The actual amount of the Contingency Reserve will be based upon
estimates and opinions of management and the Board of Directors and derived from
consultations with outside experts and review
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of the Company's estimated operating expenses, including, without limitation,
anticipated compensation payments, estimated investment banking, legal and
accounting fees, rent, payroll and other taxes payable, miscellaneous office
expenses and expenses accrued in the Company's financial statements. There can
be no assurance that the Contingency Reserve in fact will be sufficient. The
Company has not made any specific provision for an increase in the amount of the
Contingency Reserve. Subsequent to the establishment of the Contingency Reserve,
the Company will distribute to its shareholders any portions of the Contingency
Reserve which it deems no longer to be required. After the liabilities, expenses
and obligations for which the Contingency Reserve had been established have been
satisfied in full, the Company will distribute to its shareholders any remaining
portion of the Contingency Reserve.
If deemed necessary, appropriate or desirable by the Board of Directors
for any reason, the Company may, from time to time, transfer any of its unsold
assets to one or more liquidating trusts established for the benefit of the then
shareholders which property would thereafter be sold or distributed on terms
approved by its trustees. The Board of Directors and management may determine to
transfer assets to a liquidating trust in circumstances where the nature of an
asset is not susceptible to distribution (for example, interests in intangibles)
or where, in view of the limited trading market for the publicly traded
securities in question, it would not be in the best interests of Noel and its
shareholders for such securities to be distributed directly to the shareholders
at such time. If all of the Company's assets (other than the Contingency
Reserve) are not sold or distributed prior to the third anniversary of the
approval of the Plan by the Company's shareholders, the Company must transfer in
final distribution such remaining assets to a liquidating trust. The Board of
Directors may also elect in its discretion to transfer the Contingency Reserve,
if any, to such a liquidating trust. Notwithstanding the foregoing, to the
extent that the distribution or transfer of any asset cannot be effected without
the consent of a governmental authority, no such distribution or transfer shall
be effected without such consent. The purpose of a liquidating trust would be to
distribute such property or to sell such property on terms satisfactory to the
liquidating trustees, and distribute the proceeds of such sale after paying
those liabilities of the Company, if any, assumed by the trust, to the Company's
shareholders. Any liquidating trust acquiring all the unsold assets of the
Company will assume all of the liabilities and obligations of the Company and
will be obligated to pay any expenses and liabilities of the Company which
remain unsatisfied. If the Contingency Reserve transferred to the liquidating
trust is exhausted, such expenses and liabilities will be satisfied out of the
liquidating trust's other unsold assets.
The Plan authorizes the Board of Directors to appoint one or more
individuals or entities to act as trustee or trustees of the liquidating trust
or trusts and to cause the Company to enter into a liquidating trust agreement
or agreements with such trustee or trustees on such terms and conditions as may
be approved by the Board of Directors. It is anticipated that the Board of
Directors will select such trustee or trustees on the basis of the experience of
such individual or entity in administering and disposing of assets and
discharging liabilities of the kind to be held by the liquidating trust or
trusts and the ability of such individual or entity to serve the best interests
of the Company's shareholders. It is anticipated that a majority of the trustees
would be required to be independent of Noel's management. Approval of the Plan
by the shareholders will also constitute the approval by the Company's
shareholders of any such appointment and any liquidating trust agreement or
agreements.
The Company has no present plans to use a liquidating trust or trusts,
but the Board of Directors believes the flexibility provided by the Plan with
respect to the liquidating trusts to be advisable. The trust would be evidenced
by a trust agreement between the Company and the trustees. The purpose of the
trust would be to serve as a temporary repository for the trust property prior
to its disposition or distribution to Noel's shareholders. The transfer to the
trust and distribution of interests therein to Noel's shareholders would enable
Noel to divest itself of the trust property and permit Noel's shareholders to
enjoy the economic benefits of ownership thereof. Pursuant to the trust
agreement, the trust property would be transferred to the trustees immediately
prior to the distribution of interests in the trust to Noel's shareholders, to
be held in trust for the benefit of the shareholder beneficiaries subject to the
terms of the trust agreement. It is anticipated that the interests would be
evidenced only by the records of the trust and there would be no certificates or
other
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tangible evidence of such interests and that no holder of Common Stock would be
required to pay any cash or other consideration for the interests to be received
in the distribution or to surrender or exchange shares of Common Stock in order
to receive the interests. It is further anticipated that pursuant to the trust
agreements (i) a majority of the trustees would be required to be independent of
Noel's management; (ii) approval of a majority of the trustees would be required
to take any action; (iii) the trust would be irrevocable and would terminate
after, the earlier of (x) the trust property having been fully distributed, or
(y) a majority in interest of the beneficiaries of the trust, or a majority of
the trustees, having approved of such termination, or (z) a specified number of
years having elapsed after the creation of the trust.
UNDER THE DGCL, IN THE EVENT THE COMPANY FAILS TO CREATE AN ADEQUATE
CONTINGENCY RESERVE FOR PAYMENT OF ITS EXPENSES AND LIABILITIES, OR SHOULD SUCH
CONTINGENCY RESERVE AND THE ASSETS HELD BY THE LIQUIDATING TRUST OR TRUSTS BE
EXCEEDED BY THE AMOUNT ULTIMATELY FOUND PAYABLE IN RESPECT OF EXPENSES AND
LIABILITIES, EACH SHAREHOLDER COULD BE HELD LIABLE FOR THE PAYMENT TO CREDITORS
OF SUCH SHAREHOLDER'S PRO RATA SHARE OF SUCH EXCESS, LIMITED TO THE AMOUNTS
THERETOFORE RECEIVED BY SUCH SHAREHOLDER FROM THE COMPANY OR FROM THE
LIQUIDATING TRUST OR TRUSTS.
If the Company were held by a court to have failed to make adequate
provision for its expenses and liabilities or if the amount ultimately required
to be paid in respect of such liabilities exceeded the amount available from the
Contingency Reserve and the assets of the liquidating trust or trusts, a
creditor of the Company could seek an injunction against the making of
distributions under the Plan on the ground that the amounts to be distributed
were needed to provide for the payment of the Company's expenses and
liabilities. Any such action could delay or substantially diminish the cash
distributions to be made to shareholders and/or interest holders under the Plan.
FINAL RECORD DATE
The Company will close its stock transfer books and discontinue
recording transfers of shares of Common Stock on the Final Record Date, and
thereafter certificates representing shares of Common Stock will not be
assignable or transferable on the books of the Company except by will, intestate
succession or operation of law. After the Final Record Date the Company will not
issue any new stock certificates, other than replacement certificates. It is
anticipated that no further trading of the Company's shares will occur on or
after the Final Record Date. See "Listing and Trading of the Common Stock and
interests in the Liquidating Trust or Trusts" below. All liquidating
distributions from the Company or a liquidating trust on or after the Final
Record Date will be made to shareholders according to their holdings of Common
Stock as of the Final Record Date. Subsequent to the Final Record Date, the
Company may at its election require shareholders to surrender certificates
representing their shares of the Common Stock in order to receive subsequent
distributions. Shareholders should not forward their stock certificates before
receiving instructions to do so. If surrender of stock certificates should be
required, all distributions otherwise payable by the Company or the liquidating
trust, if any, to shareholders who have not surrendered their stock certificates
may be held in trust for such shareholders, without interest, until the
surrender of their certificates (subject to escheat pursuant to the laws
relating to unclaimed property). If a stockholder's certificate evidencing the
Common Stock has been lost, stolen or destroyed, the stockholder may be required
to furnish the Company with satisfactory evidence of the loss, theft or
destruction thereof, together with a surety bond or other indemnity, as a
condition to the receipt of any distribution.
LISTING AND TRADING OF THE COMMON STOCK AND INTERESTS IN THE LIQUIDATING TRUST
OR TRUSTS
The Company currently intends to close its stock transfer books on the
Final Record Date and at such time cease recording stock transfers and issuing
stock certificates (other than replacement certificates). Accordingly, it is
expected that trading in the shares will cease on and after such date.
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The Common Stock is currently listed for trading on the Nasdaq Stock
Market's National Market. For continued listing, a company, among other things,
must have $1 million in net tangible assets (or $4 million if the issuer has
sustained losses from continuing operations and/or net losses in three of its
four most recent fiscal years), $1 million in market value of securities in the
public float and a minimum bid price of $1.00 per share (or, in the alternative,
$3 million in market value of securities in the public float and $4 million of
net tangible assets). If the Company is unable to satisfy the Nasdaq Stock
Market's National Market maintenance criteria in the future, its Common Stock
may be delisted therefrom prior to the Final Record Date. In such event, the
Company may seek to list its securities on the Nasdaq Stock Market's Small Cap
Market. However, if it was unsuccessful, trading, if any, in the Common Stock
would thereafter be conducted in the over-the-counter market in the so-called
"pink sheets" or the NASD's "Electronic Bulletin Board". As a consequence of
such delisting, an investor would likely find it more difficult to dispose of,
or to obtain quotations as to, the price of the Common Stock. Delisting of the
Common Stock may result in lower prices for the Common Stock than would
otherwise prevail.
It is anticipated that the interests in a liquidating trust or trusts
will not be transferable, although no determination has yet been made. Such
determination will be made by the Board of Directors and management prior to the
transfer of unsold assets to the liquidating trust and will be based on, among
other things, the Board of Directors and managements' estimate of the value of
the assets being transferred to the liquidating trust or trusts, tax matters and
the impact of compliance with applicable securities laws. Should the interests
be transferable, the Company plans to distribute an information statement with
respect to the liquidating trust or trusts at the time of the transfer of assets
and the liquidating trust or trusts may be required to comply with the periodic
reporting and proxy requirements of the Exchange Act. The costs of compliance
with such requirements would reduce the amount which otherwise could be
distributed to interest holders. Even if transferable, the interests are not
expected to be listed on a national securities exchange or quoted through Nasdaq
and the extent of any trading market therein cannot be predicted. Moreover, the
interests may not be accepted by commercial lenders as security for loans as
readily as more conventional securities with established trading markets.
As shareholders will be deemed to have received a liquidating
distribution equal to their pro rata share of the value of the net assets
distributed to an entity which is treated as a liquidating trust for tax
purposes (see "Certain Federal Income Tax Consequences - The Liquidating Trust
or Trusts"), the distribution of non-transferable interests could result in tax
liability to the interest holders without their being readily able to realize
the value of such interests to pay such taxes or otherwise.
ABSENCE OF APPRAISAL RIGHTS
Under the DGCL, the shareholders of the Company are not entitled to
appraisal rights for their shares of Common Stock in connection with the
transactions contemplated by the Plan or to any similar rights of dissenters
under the DGCL.
REGULATORY APPROVALS
Except for (i) compliance with the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, to the extent applicable, in connection
with certain sales by the Company of its assets, and (ii) compliance by the
Company with the applicable rules and regulations of the Commission, in
connection with the distribution by the Company to its shareholders or sale by
the Company of the securities held by the Company, no United States federal or
state regulatory requirements must be complied with or approvals obtained in
connection with the liquidation. The disposition by Noel of its voting interest
in Novoeste is restricted by the terms of the concession granted to Novoeste to
operate the western network of the Brazilian federal rail system in that the
terms of the concession require that the three members of the "control group,"
of which Noel is a member, own at all times while the concession is in effect,
greater than 50% of the voting stock of Novoeste. Members of the control group
currently own in the aggregate 60% of the voting stock, although it is
anticipated
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that such ownership will be reduced to 54% upon the proposed issuance by
Novoeste of stock to certain employees.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a general summary of the material Federal
income tax consequences of the Plan to the Company's shareholders, but does not
purport to be a complete analysis of all the potential tax effects. The
discussion addresses neither the tax consequences that may be relevant to
particular categories of investors subject to special treatment under certain
Federal income tax laws (such as dealers in securities, banks, insurance
companies, tax-exempt organizations, and foreign individuals and entities) nor
any tax consequences arising under the laws of any state, local or foreign
jurisdiction. The discussion is based upon the Code, Treasury Regulations,
Internal Revenue Service (the "IRS") rulings, and judicial decisions now in
effect, all of which are subject to change at any time; any such changes may be
applied retroactively. The following discussion has no binding effect on the IRS
or the courts and assumes that the Company will liquidate substantially in
accordance with the Plan.
Distributions pursuant to the Plan may occur at various times and in
more than one tax year. No assurance can be given that the tax treatment
described herein will remain unchanged at the time of such distributions. The
following discussion presents the opinion of the Company. No ruling has been
requested from the IRS with respect to the anticipated tax treatment of the
Plan and the Company will not seek an opinion of counsel with respect to the
anticipated tax treatment. The failure to obtain a ruling from the IRS or an
opinion of counsel results in less certainty that the anticipated tax treatment
summarized herein will be obtained. If any of the conclusions stated herein
proves to be incorrect, the result could be increased taxation at the corporate
and/or shareholder level, thus reducing the benefit to the shareholders and the
Company from the liquidation.
CONSEQUENCES TO NOEL
After the approval of the Plan and until the liquidation is completed,
the Company will continue to be subject to income tax on its taxable income. The
Company will recognize gain or loss on sales of its property pursuant to the
Plan. Upon distributions of property to shareholders pursuant to the Plan, the
Company will recognize gain or loss as if such property was sold to the
shareholders at its fair market value, unless certain exceptions to the
recognition of loss apply. As it is anticipated that no such exception will
apply, the Company should recognize gain or loss on any distribution of property
to shareholders pursuant to the Plan. It is anticipated that the sale or
distribution of all of the Company's holdings will result in the realization of
substantial net gain and the generation of tax obligations exceeding the amount
of cash currently available. The Company plans to meet such tax obligations
through the sale of a portion of its holdings.
CONSEQUENCES TO SHAREHOLDERS
As a result of the liquidation of the Company, shareholders will
recognize gain or loss equal to the difference between (i) the sum of the amount
of cash distributed to them and the fair market value (at the time of
distribution) of property distributed to them, and (ii) their tax basis for
their shares of the Common Stock. A shareholder's tax basis in his or her shares
will depend upon various factors, including the shareholder's cost and the
amount and nature of any distributions received with respect thereto.
A shareholder's gain or loss will be computed on a "per share" basis.
Noel expects to make more than one liquidating distribution, each of which will
be allocated proportionately to each share of stock owned by a shareholder. The
value of each liquidating distribution will be applied against and reduce a
shareholder's tax basis in his or her shares of stock. Gain will be recognized
by reason of a liquidating distribution only to the extent that the aggregate
value of such distributions received by a shareholder with respect to a share
exceeds his or her tax basis for that share. Any loss will generally be
recognized only when the final distribution from Noel has been received and then
only if the aggregate value of the liquidating distributions with respect to a
share is less than the shareholder's tax basis for that share. Gain or loss
recognized by a shareholder will be capital gain or loss provided the shares are
held as capital assets. Gain resulting from distributions of cash or assets from
a corporation pursuant to a plan of liquidation is therefore generally capital
gain rather than ordinary income; ordinary income would be the result in the
event of the receipt of a distribution, not in liquidation, that is
24
<PAGE>
<PAGE>
characterized as a dividend for tax purposes, subject, in the case of corporate
holders, to a dividends received deduction. If it were to be determined that
distributions made pursuant to the Plan were not liquidating distributions, the
result could be treatment of distributions as dividends taxable at ordinary
income rates.
Upon any distribution of property, the shareholder's tax basis in such
property immediately after the distribution will be the fair market value of
such property at the time of distribution. The gain or loss realized upon the
shareholder's future sale of that property will be measured by the difference
between the shareholder's tax basis in the property at the time of such sale and
the sales proceeds.
After the close of its taxable year, Noel will provide shareholders and
the IRS with a statement of the amount of cash distributed to the shareholders
and its best estimate as to the value of the property distributed to them during
that year. In the case of property which consists of stock or other securities
which are traded in a public market, the fair market value will be determined by
the Company based on the prices at which such stocks or securities are so
traded. In the case of other property, the fair market value will be determined
by the Company based upon reports by independent appraisers or such other
evidence as the Company shall elect. There is no assurance that the IRS will not
challenge such valuation. As a result of such a challenge, the amount of gain or
loss recognized by shareholders might be changed. Distributions to shareholders
could result in tax liability to any given shareholder exceeding the amount of
cash received, requiring the shareholder to meet the tax obligations from other
sources or by selling all or a portion of the assets received. Such sales, or
the prospect of such sales, could reduce the market price of the securities
received.
THE LIQUIDATING TRUST OR TRUSTS
If the Company transfers assets to a liquidating trust or trusts, the
Company intends to structure such trust or trusts so that shareholders will be
treated for tax purposes as having received their pro rata share of the property
transferred to the liquidating trust or trusts. In such event, the amount of the
distribution will be reduced by the amount of known liabilities assumed by the
liquidating trust or trusts or to which the property transferred is subject. The
liquidating trust or trusts themselves should not be subject to tax. After
formation of the liquidating trust or trusts, the shareholders will take into
account for Federal income tax purposes their allocable portion of any income,
gain or loss recognized by the liquidating trust or trusts. As a result of the
transfer of property to the liquidating trust or trusts and the ongoing
operations of the liquidating trust or trusts, shareholders should be aware that
they may be subject to tax, whether or not they have received any actual
distributions from the liquidating trust or trusts with which to pay such tax.
TAXATION OF NON-UNITED STATES SHAREHOLDERS
Foreign corporations or persons who are not citizens or residents of the
United States should consult their tax advisors with respect to the U.S. and
non-U.S. tax consequences of the Plan.
STATE AND LOCAL TAX
Shareholders may also be subject to state or local taxes, and should
consult their tax advisors with respect to the state and local tax consequences
of the Plan.
THE FOREGOING SUMMARY OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS
INCLUDED FOR GENERAL INFORMATION ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE TO
ANY SHAREHOLDER. THE TAX CONSEQUENCES OF THE PLAN MAY VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF THE SHAREHOLDER. NOEL RECOMMENDS THAT EACH
SHAREHOLDER CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF
THE PLAN.
25
<PAGE>
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information as to each person who, to the
knowledge of the Board of Directors, as of the Record Date, was the beneficial
owner of more than 5% of the issued and outstanding shares of Common Stock:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES PERCENT OF
BENEFICIAL OWNER OF COMMON STOCK CLASS (1)
- ------------------- --------------- ----------
<S> <C> <C>
Spears, Benzak, Salomon & Farrell, Inc.
45 Rockefeller Plaza
New York, New York 10111 3,158,771(2) 15.5%(2)
Louis Marx, Jr.
667 Madison Avenue
New York, New York 10021 1,453,756(3) 7.1%
Brae Group, Inc.
11011 Richmond Avenue
Houston, Texas 77042 1,433,313(4) 7.0%
Farallon Capital Management LLC et al.
One Maritime Plaza, Suite 1325
San Francisco, California 94111 1,088,500(5) 5.3%
</TABLE>
(1) Based on 20,421,039 shares of Common Stock issued and outstanding on the
Record Date.
(2) The information set forth in the table and this footnote regarding shares
beneficially owned by Spears, Benzak, Salomon & Farrell, Inc. ("Spears
Benzak") is based on a Schedule 13G dated May 31, 1993, as subsequently
amended, filed by Spears Benzak, as an indirect wholly-owned subsidiary of
KeyCorp., reflecting beneficial ownership of Common Stock by Spears Benzak
as of May 31, 1996. The Schedule 13G states that the shares beneficially
owned by Spears Benzak consist entirely of shares as to which Spears Benzak
shares the power to vote and dispose or direct the disposition of such
shares with various customers for whom the shares were purchased, but in
each case the customer has the ultimate power to vote and dispose of the
shares and may at any time revoke Spears Benzak's authority to vote and
dispose of the shares.
(3) Consists of 20,443 shares held directly by Mr. Marx and 1,433,313 shares
held by Brae Group, Inc. ("Brae"), of which shares Mr. Marx may be deemed
the beneficial owner.
(4) The shares beneficially owned by Brae are also reported as beneficially
owned by Louis Marx, Jr. See Footnote (3).
(5) The information set forth in the table and this footnote regarding shares
beneficially owned by Farallon Capital Management LLC et al. is based on a
Schedule 13D dated December 19, 1996, as amended, filed jointly by Farallon
Capital Partners, L.P., Farallon Capital Institutional Partners, L.P.,
Farallon Capital Institutional Partners II, L.P., Farallon Capital
Institutional Partners III, L.P., Tinicum Partners, L.P., Farallon Capital
Management, LLC, Farallon Partners, LLC, Enrique H. Boilini, David I.
Cohen, Joseph F. Downes, Fleur E. Fairman, Jason M. Fish, Andrew B.
Fremder, William F. Mellin, Stephen L. Millham, Meridee A. Moore and Thomas
F. Steyer
26
<PAGE>
<PAGE>
The table which follows sets forth certain information, as of the Record
Date, concerning shares of Common Stock owned of record or beneficially by each
director of the Company, by each of the "Named Officers" (as hereinafter
defined), and by all executive officers and directors of the Company as a group.
The footnotes reflect the ownership by such persons of each class of equity
securities of certain entities some or all of which may be deemed to be
subsidiaries of Noel within the meaning of the federal securities laws. The term
"Named Officers" means any person who either (i) served as the Company's Chief
Executive Officer during the fiscal year ended December 31, 1995 or (ii) was one
of the Company's four most highly compensated officers (other than the Chief
Executive Officer) serving as an officer at December 31, 1995 and whose total
salary and bonus during 1995 exceeded $100,000.
<TABLE>
<CAPTION>
NAME OF NUMBER OF SHARES PERCENT OF
BENEFICIAL OWNER OF STOCK (1) CLASS (2)
---------------- --------------------- ----------
<S> <C> <C>
William L. Bennett 445,315(3) 2.1%
Karen Brenner 0(4) *
Livio M. Borghese 28,334(5) *
Joseph S. DiMartino 808,334(6) 3.8%
Vincent D. Farrell, Jr. 3,167,105(7) 15.5%
Herbert M. Friedman 22,334(8) *
James K. Murray, Jr. 12,334(9) *
James G. Niven 22,223(10) *
Donald T. Pascal 245,302(11) 1.2%
Samuel F. Pryor, III 13,889(12) *
Stanley R. Rawn, Jr. 592,523(13) 2.9%
James A. Stern 38,334(14) *
Edward T. Tokar 8,334(15) *
ALL EXECUTIVE OFFICERS AND DIRECTORS
AS A GROUP (INCLUDES 15 PERSONS) 5,758,026(16) 25.4%
</TABLE>
* Less than 1%
(1) Unless otherwise indicated, each of the parties listed has sole voting and
investment power over the shares owned. The number of shares indicated
includes in each case the number of shares of Common Stock issuable upon
exercise of (i) stock options granted under (a) Noel's 1988 Option Plan, and
(b) Noel's Non-Employee Directors' Stock Option Plan and (ii) non-plan
warrants, to the extent that such options and warrants are currently
exercisable. For purposes of this table, options and warrants are deemed to
be "currently exercisable" if they may be exercised within 60 days following
the date of mailing of this Proxy Statement.
(2) Based on 20,421,039 shares of Common Stock issued and outstanding on the
Record Date. In addition, treated as outstanding for the purpose of
computing the percentage ownership of each director or Named Officer and of
all executive officers and directors as a group are shares issuable to such
individual or group upon exercise of currently exercisable options or
warrants.
(3) Consists of 3,000 shares held by Mr. Bennett's wife as trustee for Mr.
Bennett's children (as to which shares Mr. Bennett disclaims beneficial
ownership) and 442,315 shares issuable upon exercise of currently
exercisable options. Mr. Bennett is also the beneficial owner of 131,134
shares (1.8%) of common stock of Belding Heminway consisting of 105,124
shares held directly, 5,600 shares issuable upon exercise of currently
exercisable options, 525 shares of Belding Heminway common stock held by Mr.
27
<PAGE>
<PAGE>
Bennett's wife as trustee for Mr. Bennett's children, and 19,885 shares of
Belding Heminway common stock held by Mr. Bennett's wife (with Mr. Bennett
disclaiming beneficial ownership in such shares held by his wife as trustee
for his children and by his wife), 98,012 shares (less than 1%) of Belding
Heminway Series B preferred stock, 224,486 shares (1.4%) of common stock of
HealthPlan Services, consisting of 199,486 shares held directly by Mr.
Bennett and 25,000 shares issuable upon exercise of currently exercisable
options, 600 shares (less than 1%) of common stock of Curtis, 9,100 shares
(less than 1%) of common stock of Lincoln Snacks, and 6,000 shares (less
than 1%) of common stock of TDX Corporation ("TDX"), consisting of 3,000
shares held by Mr. Bennett directly and 3,000 shares held by trusts for the
benefit of his children as to which shares Mr. Bennett disclaims beneficial
interest.
(4) Ms. Brenner is the beneficial owner of 30,111 shares (less than 1%) of
HealthPlan Services common stock (all of which is held by Ms. Brenner's
401(k) account), 254,200 shares (3.4%) of common stock of Belding
Heminway, consisting of 50,000 shares held by Ms. Brenner's 401(k) account
and 204,200 shares issuable upon exercise of currently exercisable options,
and 210,834 shares (3.3%) of common stock of Lincoln Snacks, consisting of
9,100 shares held directly and 226,734 shares issuable upon exercise of
currently exercisable options, of which options for 60,067 shares were
granted by Lincoln Snacks and options for 166,667 shares were granted by
Noel.
(5) Consists of 20,000 shares held directly by Mr. Borghese and 8,334 shares
issuable upon exercise of currently exercisable options. Mr. Borghese is
the beneficial owner of 74,563 shares (28.5%) of Curtis common stock,
63,015 shares (29.5%) of Curtis series B convertible preferred stock, 3,216
shares (less than 1%) of Belding Heminway common stock and 5,000 shares
(less than 1%) of HealthPlan Services common stock.
(6) Consists of 8,334 shares issuable upon exercise of currently exercisable
options and 800,000 shares issuable upon exercise of a warrant
which is currently exercisable. Mr. DiMartino is also the beneficial owner
of 12,800 shares (less than 1%) of HealthPlan Services common stock,
consisting of 8,000 shares held directly and 4,800 shares issuable upon
exercise of options that are currently exercisable, 25,078 shares (less
than 1%) of Belding Heminway common stock consisting of options to purchase
4,600 shares which are currently exercisable and 19,885 shares held by Mr.
DiMartino as trustee under two "rabbi" trusts (with Mr. DiMartino
disclaiming beneficial ownership in such shares held by such trust) and
196,023 shares of Series B preferred stock of Belding Heminway consisting
of shares held by Mr. DiMartino as trustee under a "rabbi" trust (with
respect to which shares Mr. DiMartino disclaims beneficial ownership).
(7) Consists of 8,334 shares issuable upon exercise of currently exercisable
options and 3,158,771 shares beneficially owned by Spears Benzak, with
respect to which shares Mr. Farrell disclaims beneficial ownership. See
Footnote (2) of the preceding table.
(8) Consists of 14,000 shares held directly by Mr. Friedman and 8,334 shares
issuable upon exercise of currently exercisable options. Mr. Friedman is
also the beneficial owner of 877 shares (less than 1%) of Belding Heminway
common stock, 8,000 shares (less than 1%) of Lincoln Snacks common stock
and 2,000 shares (less than 1%) of common stock of HealthPlan Services.
(9) Consists of 4,000 shares held by Mr. Murray's wife (as to which Mr. Murray
disclaims beneficial ownership) and 8,334 shares issuable upon exercise of
currently exercisable options. Mr. Murray is also the beneficial owner of
933,559 shares (6.2%) of HealthPlan Services common stock, consisting of
1,600 shares held directly by Mr. Murray, 150,000 shares held by Mr.
Murray's wife (as to which Mr. Murray disclaims beneficial ownership),
169,094 shares held by two private companies in which Mr. Murray has a
pecuniary interest in only a portion of such securities and disclaims
ownership except to the extent thereof, 587,865 held by a family limited
partnership and 25,000 shares issuable upon exercise of currently
exercisable options.
(10) Consists of 22,223 shares issuable upon exercise of currently exercisable
options. Mr. Niven is also the beneficial owner of 16,050 shares (less than
1%) of HealthPlan Services common stock,
28
<PAGE>
<PAGE>
consisting of 11,250 shares held directly by Mr. Niven and 4,800 shares
issuable upon exercise of currently exercisable options, 32,500 shares
(less than 1%) of Lincoln Snacks common stock, consisting of 9,100 shares
held directly and 23,400 shares issuable upon exercise of currently
exercisable options, and 3,899 shares (less than 1%) of Belding Heminway
common stock.
(11) Consists of 11,968 shares held directly by Mr. Pascal and 233,334 shares
issuable upon exercise of currently exercisable options. Mr. Pascal is the
beneficial owner of 30,113 shares (less than 1%) of HealthPlan Services
common stock, consisting of 20,078 shares held directly by Mr. Pascal and
10,035 shares held in Mr. Pascal's 401(k) rollover account, 100,000 shares
(1.4%) of TDX common stock, all of which are issuable pursuant to currently
exercisable options, 240 shares (less than 1%) of Curtis common stock,
9,100 shares (less than 1%) of Lincoln Snacks common stock, and the
following shares of Belding Heminway: 57,709 shares (less than 1%) of
Belding Heminway common stock and 24,503 shares (less than 1%) of Belding
Heminway Series B preferred stock held of record, and 7,708 shares (less
than 1%) of Belding Heminway common stock and 24,502 (less than 1%) shares
of Belding Heminway Series B preferred stock held in Mr. Pascal's 401(k)
rollover account.
(12) Consists of 5,555 shares held directly by Mr. Pryor and 8,334 shares
issuable upon exercise of currently exercisable options. Mr. Pryor is the
beneficial owner of 2,436 shares (less than 1%) of Belding Heminway common
stock.
(13) Consists of 254,189 shares held directly by Mr. Rawn, 10,000 shares held by
Mr. Rawn's daughter with respect to which shares Mr. Rawn disclaims
beneficial ownership, 8,334 shares issuable upon exercise of currently
exercisable options and 320,000 shares issuable upon exercise of a
currently exercisable warrant. Mr. Rawn is also the beneficial owner of
2,196 shares (less than 1%) of Belding Heminway common stock.
(14) Consists of 25,000 shares held directly by Mr. Stern, 5,000 shares held by
Mr. Stern's wife as custodian for their children, and 8,334 shares issuable
upon exercise of currently exercisable options. Mr. Stern is the beneficial
owner of 1,054 shares (less than 1%) of TDX common stock consisting of 586
shares held directly and 468 shares are held by members of his family,
6,724 shares (less than 1%) of Belding Heminway common stock consisting of
5,847 shares held directly and 877 shares held by Mr. Stern's wife as a
custodian for their children.
(15) Consists of 8,334 shares issuable upon exercise of currently exercisable
options. Mr. Tokar is the beneficial owner of 1,462 shares (less than 1%)
of Belding Heminway common stock and 1,000 shares (less than 1%) of Lincoln
Snacks common stock.
(16) Includes 2,236,212 shares issuable upon exercise of currently exercisable
options and warrants and certain shares with respect to which beneficial
interest is disclaimed; see Footnotes (3) through (15). The executive
officers and directors as a group hold shares of capital stock (including
certain shares as to which beneficial interest is disclaimed, including as
indicated in Footnotes (3) through (15) of the following entities some or
all of which may be deemed to be subsidiaries of Noel within the meaning of
the federal securities laws: HealthPlan Services: 1,370,559 shares (9.0%)
of common stock, including 64,400 shares issuable upon exercise of
currently exercisable options; TDX: 107,054 shares (1.4%) of common stock,
including 100,000 shares issuable upon exercise of currently exercisable
options; Curtis: 76,003 shares (29.1%) of common stock and 63,015 shares
(29.5%) of Series B convertible preferred stock; Lincoln Snacks: 300,534
shares (4.2%) of common stock, including 83,467 shares issuable upon
exercise of currently exercisable options issued by Lincoln
29
<PAGE>
<PAGE>
Snacks and 166,667 shares transferable upon exercise of currently
exercisable options issued by Noel; Belding Heminway: 725,915 shares (9.5%)
of common stock, including, 215,600 shares issuable upon exercise of
currently exercisable options and 637,075 shares (2.3%) of Series B
preferred stock.
SELECTED FINANCIAL INFORMATION
The selected historical financial information for the five years ended
December 31, 1995 and the nine month periods ended September 30, 1995 and 1996
are derived from the historical financial statements of Noel and should be read
in conjunction with Noel's Consolidated Financial Statements and related notes
included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------------------------
1996(1) 1995 1995(1) 1994(2) 1993 1992(3)(4) 1991(4)
---- ---- ------- ------- ---- ---------- -------
(Restated)
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue $140,524 $134,059 $181,709 $119,121 $93,962 $32,417 $ --
Operating income (loss) $6,058 $542 $(29,451) $(12,731) $(6,935) $(8,384) $(3,915)
Income (loss) from continuing
operations $(2,596) $2,232 $(15,581) $(9,453) $(5,345) $(7,289) $(20,975)
Income (loss) from continuing
operations per common and common
equivalent share $(0.13) $0.11 $(0.77) $(0.47) $(0.26) $(0.37) $(1.97)
-- --
Total assets $239,757 $313,980 $186,845(4) $185,542 $64,327
-- --
Long-term debt -- -- $69,197 $ 75,734 $33,635(4) $28,550 $ --
Stockholders' equity -- -- $92,920 $100,269 $123,122 $134,942 $60,593
</TABLE>
- ---------------
Historical information has been restated to reflect discontinued operations. See
Note 1 of Notes to Consolidated Financial Statements as of September 30, 1996
and for the Nine Months Ended September 30, 1996 and 1995 (Unaudited) on page
F-5. See Notes 2 and 3 of Notes to Consolidated Financial Statements on pages
F-17 and F-19 for factors that affect the comparability of the information
presented above.
(1) Includes the results of Belding Heminway for the full period and reflects
the results of HealthPlan Services under the equity method of accounting.
(2) Includes the results of HealthPlan Services from September 30, 1994, the
date of its acquisition. Belding Heminway is included in the balance sheet
at December 31, 1994.
(3) Includes the results of Curtis and Lincoln Snacks from August 17, 1992 and
August 31, 1992, the respective dates of their acquisitions.
(4) Due to the restatement of the historical financial statements this data is
considered to be derived from unaudited financial statements.
30
<PAGE>
<PAGE>
SUPPLEMENTARY FINANCIAL INFORMATION
The following selected quarterly financial data is derived from the
historical financial statements of Noel and should be read in conjunction with
Noel's Consolidated Financial Statements and related notes included elsewhere in
this Proxy Statement.
<TABLE>
<CAPTION>
March 31, June 30, Sept. 30, Dec. 31,
(Restated)
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
1996
Revenue $43,119 $47,139 $50,266 -
Operating income 824 1,862 3,372 -
Income (Loss) from continuing operations (297) 717 (3,016) -
Income from discontinued operations 42 - 290 -
Net income (loss) (255) 717 (2,726) -
Income (Loss) per common and common equivalent
share from continuing operations (0.01) 0.03 (0.37) -
Discontinued operations 0.00 0.00 0.02 -
Net income (loss) per common and
common equivalent share (0.01) 0.03 (0.13) -
1995
Revenue $45,079 $44,286 $44,694 $47,650
Operating income (loss) (278) (557) 1,377 (30,069)(1)
Income (Loss) from continuing operations (2,137) (2,557) 6,926 (17,813)(1)
Loss from discontinued operations (452) (341) (517) (5,234)
Net income (loss) (2,589) (2,898) 6,409 (23,047)
Income (Loss) per common and common equivalent
share from continuing operations $(0.11) $ (0.12) $ 0.33 $ (0.88)
Discontinued operations (0.02) (0.02) (0.02) (0.26)
Net income (loss) per common and
common equivalent share $(0.13) $ (0.14) $ 0.31 $ (1.14)
1994
Revenue $20,686 $22,041 $24,381 $52,013(2)
Operating income (loss) (10,835) (2,867) (1,457) 2,428
Income (Loss) from continuing operations (5,284) 1,611 (972) (4,808)
Income (Loss) from discontinued operations (775) (3,588) 1,658 (4,909)
Net income (loss) (6,059) (1,977) 686 (9,717)
Income (Loss) per common and common equivalent
share from continuing operations $ (0.26) $ 0.08 $ (0.05) $ (0.24)
Discontinued operations (0.04) (0.18) 0.08 (0.24)
Net income (loss) per common and
common equivalent share $ (0.30) $ (0.10) $ 0.03 $ (0.48)
</TABLE>
(1) Amounts include an impairment charge of $29,155,000 related to Belding's
thread division. See Note 2 of Notes to Consolidated Financial Statements
on page F-17.
(2) Amount includes $25,233,000 in revenue from services from HealthPlan
Services, which was acquired on September 30, 1994. See Note 2 of Notes to
Consolidated Financial Statements on page F-17.
31
<PAGE>
<PAGE>
CONDENSED UNAUDITED PRO FORMA STATEMENT OF NET ASSETS
IN LIQUIDATION
The following Condensed Unaudited Pro Forma Statement of Net Assets in
Liquidation assumes that Noel has adopted the liquidation basis of accounting as
of September 30, 1996. Under the liquidation basis of accounting, assets are
stated at their estimated net realizable values and liabilities are stated at
their anticipated settlement amounts.
The valuation of assets and liabilities necessarily requires many
estimates and assumptions and there are substantial uncertainties in carrying
out the provisions of the Plan. The actual value of any liquidating
distributions will depend upon a variety of factors including, but not limited
to, the actual market prices of any securities distributed in-kind when they are
distributed, the actual proceeds from the sale of any of Noel's assets, the
ultimate settlement amounts of Noel's liabilities and obligations, actual costs
incurred in connection with carrying out the Plan, including administrative
costs during the liquidation period, and the actual timing of distributions.
The valuations presented in the accompanying Condensed Unaudited Pro
Forma Statement of Net Assets in Liquidation represent estimates, based on
present facts and circumstances, of the estimated net realizable values of
assets and estimated costs associated with carrying out the provisions of the
Plan based on the assumptions set forth in the accompanying notes. The actual
values and costs are expected to differ from the amounts shown herein and could
be higher or lower than the amounts recorded. Accordingly, it is not possible to
predict the aggregate net values ultimately distributable to shareholders and no
assurance can be given that the amount to be received in liquidation will equal
or exceed the price or prices at which the Common Stock has generally traded or
is expected to trade in the future.
32
<PAGE>
<PAGE>
NOEL GROUP, INC.
CONDENSED UNAUDITED PRO FORMA STATEMENT OF
NET ASSETS IN LIQUIDATION
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
RESTATED
HISTORICAL OTHER PRO FORMA
SEPTEMBER TO DECONSOLIDATE PRO FORMA SEPTEMBER
30, 1996 SUBSIDIARIES (a) ADJUSTMENTS 30, 1996
--------- ---------------- ----------- ----------
ASSETS (Unaudited, dollars in thousands, except per share amounts)
Current Assets:
<S> <C> <C> <C> <C>
$ (3,254)(f)
26,400 (g)
Cash and cash equivalents $ 3,974 $ (2,139) 910 (h) $ 25,891
Short-term investments 9,384 0 9,384
Accounts receivable, net 25,345 (25,136) (209)(b) 0
Inventories 34,848 (34,848) 0
Other current assets 3,274 (3,071) (203)(b) 0
-------- ---------- --------
76,825 (65,194) 23,644
Equity investments 42,968 0 (42,968)(b) 0
Other investments 28,258 19,888 (48,146)(b) 0
(26,400)(g)
Investments in liquidation 207,269 (c) 180,869
Property, plant and equipment, net 37,407 (37,232) (175)(e) 0
Intangible assets, net 46,379 (46,379) 0
Net assets of discontinued operations 268 0 (268)(b) 0
Other assets 5,419 (2,240) (1,945)(e) 1,234
-------- ---------- -------- --------
$237,524 $(131,157) $111,011 217,378
======== ========== ======== --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 485 $ (485) 0
Current portion of long-term debt 38,816 (38,816) 0
Trade accounts payable 14,040 (14,040) 0
Accrued compensation and benefits 6,856 (6,384) $ (472)(b) 0
Other current liabilities 13,012 (12,241) (771)(b) 0
-------- --------- --------
73,209 (71,966) (1,243) 0
1,243 (b)
Accrued and other liabilities 15,371 (e) 16,614
23,327 (d)
(3,107)(f)
Income taxes (253)(h) 19,967
Long-term debt 29,767 (29,767) 0
(4,783)(f)
Other long-term liabilities 28,380 (22,354) (1,243)(e) 0
Minority interest 7,070 (7,070) 0
-------- --------- -------- --------
138,426 (131,157) 29,312 36,581
-------- --------- -------- --------
Stockholders' Equity:
Preferred stock, $.10 par value,
2,000,000 shares authorized,
none outstanding --- 0
Common stock, $.10 par value,
48,000,000 shares authorized,
20,222,642 issued 2,022 (2,022)(b) 0
Capital in excess of par value 213,099 0 (213,099)(b) 0
Accumulated deficit (114,730) 0 114,730 (b) 0
Cumulative translation adjustment (602) 0 602 (b) 0
Treasury stock at cost, 34,937 shares (691) 0 691 (b) 0
--------- ----------- ----------- --------
99,098 0 (99,098) 0
-------- ----------- -----------
$237,524 $(131,157) $(69,786)
======== ========= ==========
Net assets in liquidation $180,797
========
737,551(f)
Number of common shares outstanding 20,187,705 233,334(h) 21,158,590
Net book value per outstanding share $4.91
=====
Net assets in liquidation per outstanding share $8.54
=====
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS CONDENSED UNAUDITED PRO
FORMA STATEMENT OF NET ASSETS IN LIQUIDATION.
33
<PAGE>
<PAGE>
FOOTNOTES TO CONDENSED UNAUDITED PRO FORMA STATEMENT OF NET ASSETS IN
LIQUIDATION AT SEPTEMBER 30, 1996
(a) To deconsolidate Belding Heminway, Curtis and Lincoln Snacks from Noel.
(b) To reclassify the balance sheet from a going concern basis to the
liquidation basis of accounting. The reclassification adjustments reflect
the absence of both stockholders' equity and the distinction between
long-term and short-term classifications.
(c) To record investments at their estimated net realizable value in
liquidation. For investments where a public market exists, and the entity
is subject to the periodic reporting requirements of the Securities
Exchange Act of 1934, as amended, the estimated liquidation-basis amount is
calculated by multiplying the market price by the number of shares owned
without adjustment for whether the shares owned are registered for sale,
any other restriction on transfer, control premiums, or whether the market
has sufficient liquidity to support the sale of the volume of securities
owned at the quoted prices.
This valuation may not be reflective of actual amounts obtained when and if
these investments are distributed or of prices that might be obtained in
actual future transactions. Because of the inherent uncertainty of the
valuation of securities both where a public market exists and where it does
not exist, the amounts shown may materially differ from actual amounts
which may be received in the future.
Noel's holding of the common shares of HealthPlan Services, Belding
Heminway, Lincoln Snacks and Staffing Resources are unregistered except for
421,000 shares of Lincoln Snacks which are subject to restrictions under
Rule 144.
HealthPlan Services and Belding Heminway trade on the New York Stock
Exchange under the symbols HPS and BHY, respectively. Lincoln Snacks trades
on the Nasdaq Stock Market's Small Cap Market under the symbol SNAX.
34
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
ESTIMATED
LIQUIDATION BASIS
(DOLLARS IN THOUSANDS, COMMON SEPTEMBER 30, 1996 AMOUNT
EXCEPT PER SHARE AMOUNTS) SHARES CLOSING PRICE SEPTEMBER 30, 1996
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HealthPlan Services (i) 4,275,846 $ 21.875 $ 93,534
Staffing Resources (ii) 2,026,104 14.000 28,365
Belding Heminway preferred stock (iii) 21,462
Belding Heminway common stock (i) 2,205,814 1.875 4,136
Curtis Industries (iv) 17,960
Ferrovia Novoeste (v) 8,000
Lincoln Snacks (i) 3,769,755 1.125 4,241
Other holdings 3,171
HealthPlan Services (vi) 1,320,000 N/A 26,400
--------
Estimated liquidation-basis amount $207,269
========
Carrying amount - going-concern basis $ 91,382
========
</TABLE>
(i) Recorded based on the closing price of the common stock on September 30,
1996. Using the closing prices on February 5, 1997, these investments
would have been valued as follows (dollars in thousands except per share
amounts):
<TABLE>
<CAPTION>
Estimated Liquidation
Closing Price Basis Amount
February 5, 1997 February 5, 1997
---------------- ----------------------
<S> <C> <C>
HealthPlan Services $22.375 $ 95,672
Belding Heminway 2.500 5,515
Lincoln Snacks 1.375 5,183
</TABLE>
(ii) Staffing Resources is recorded at $14.000 per common share which is
the closing over the counter bid price of $20.000 on September 30,
1996, discounted by 30%. The discount for Staffing Resources reflects
the limited trading market for such shares, the fact that Staffing
Resources is not subject to periodic reporting requirements under the
Securities Exchange Act of 1934, as amended, and the fact that Noel's
shares of Staffing Resources are unregistered. The closing price on
February 5, 1997, discounted by 30% was $11.20 per common share.
(iii) Recorded at the liquidation preference of the preferred shares which
includes accumulated unpaid dividends of $2,149 through September 30,
1996. Noel management currently estimates that the Belding Heminway
preferred stock will be realized at its liquidation preference in
connection with the execution of the Plan. However, Belding Heminway's
loan covenants currently prohibit, except in certain circumstances,
any payments on the preferred stock. Realization of the liquidation
preference is dependent upon the preferred stock being redeemed by
the issuer which may take more than one year from the date the Plan
is approved. However, based on the Company's current financial
position and results of operations, Noel management believes that
the loan restrictions will be satisfied and that the liquidation value
will be realized in a reasonable period of time following the approval
of the Plan. There can be no assurance that a lesser amount will not
be realized. If it is not possible to satisfy the loan restrictions in
a reasonable period of time following approval of the Plan, it is
likely that a lesser amount will be realized.
(iv) Recorded at the liquidation preference of the preferred shares which
includes accumulated, unpaid dividends of $3,950 at September 30,
1996. Noel management currently estimates that the Curtis preferred
stock will be realized at its liquidation preference, in connection
with the execution of the Plan. However, Curtis' loan covenants
currently prohibit any payments on the preferred stock. There can be
no assurance that a lesser amount will not be realized for the Curtis
preferred stock. Realization of the liquidation preference is
dependent upon the preferred stock being redeemed by the issuer which
may take more than one year from the date the Plan is approved.
However, based on Curtis' current financial position and results
of operations, Noel management believes that the loan restrictions
will be satisfied and that the liquidation value will be realized in a
reasonable period of time following the approval of the Plan. There
can be no assurance that a lesser amount will not be realized. If it
is not possible to satisfy the loan restrictions in a reasonable
period of time following approval of the plan, it is likely that a
lesser amount will be realized.
No value has been assigned to Noel's holding of 63% of the outstanding
shares of Curtis common stock. Curtis has a history of operating
losses, the common stock has a negative book value, and there
35
<PAGE>
<PAGE>
is no public market for Curtis common stock. As a result of these
factors, management is unable to reliably estimate the value, if any,
of the Curtis common stock.
(v) Recorded at cost. This investment was made in March and June of 1996.
Ferrovia Novoeste is a new company organized to acquire a railroad in
Brazil via a privatization transaction. In the absence of a ready
market, Noel management believes that cost is the best indicator of
the value of this investment due to the short period of time that has
elapsed since it was made. Realization of this investment is dependent
upon establishing successful operations as a private company in Brazil
or sale by Noel of its interest in Novoeste and is subject to the
risks of operations in Brazil, including foreign currency risks.
(vi) Recorded at the amount of cash proceeds received on the sale of the
shares on February 7, 1997.
(d) To record the estimated amount of income taxes at a 35% rate which would
become payable if the assets were realized and liabilities settled at the
amounts shown exclusive of the exercise of Noel options and warrants. All
income tax accounts have been restated at September 30, 1996, to reflect
the liquidation basis of accounting. The estimate is subject to significant
variation if, among other things, the actual values of assets distributed
or sold varies from current estimates.
(e) To adjust assets other than cash and investments and liabilities other than
income taxes to estimated liquidation values. Accrued liabilities include
estimates of costs to be incurred in carrying out the Plan and provisions
for known liabilities. Accrued liabilities include $455 for salary and
benefits related to the continuation of Ms. Brenner's employment agreement
and $1,125 related to Mr. Bennett's contingent consulting agreement. Both
of these agreements are described in the section "Possible Effects of the
Approval of the Plan Upon Directors and Officers." These costs also include
a provision for costs to be incurred in connection with distribution and
sale of Noel's investments including legal and investment banking fees and
salaries, and related expenses, of officers and employees assigned to
effect the sale or distribution of specific investments.
The actual costs incurred could vary significantly from the related
provisions due to uncertainty related to the length of time required to
complete the Plan, the exact method by which each of Noel's assets will be
realized, and complexities which may arise in disposing of the remaining
assets and settling certain contingencies. Interest income on Noel's cash
and short-term investment through Noel's final liquidation has not been
reflected.
(f) To record the settlement of the outstanding options and warrants to
purchase shares of Common Stock based on a likely scenario described in the
section "Possible Effects of the Approval of the Plan upon Directors and
Officers." The option and warrant holders would receive 737,551 shares of
Common Stock with an aggregate value of $5,624, which is the net of $8,878,
the amount by which the market value of the 2,834,551 shares plus the
amount in cash previously reserved for distribution exceeds the aggregate
exercise amount of the related options and warrants, and of approximately
$3,254, the applicable payroll taxes due, based on the closing price of
shares of Common Stock on September 30, 1996 of $7.625. This settlement
would generate an income tax benefit for Noel of approximately $3,107 for
the associated compensation expense deduction.
If the options and warrants are exercised in accordance with their terms,
Noel would receive $12,735 in cash from the net exercise proceeds, issue
2,834,551 shares of Common Stock and generate a $3,107 income tax benefit.
In either case the accrued compensation liability of $4,783 reflected at
September 30, 1996, is not incurred in liquidation basis accounting.
(g) To record the sale of 1,320,000 shares of HPS Common Stock to Automatic
Data Processing, Inc. for $20.00 per share in cash on February 7, 1997.
(h) To record the exercise of options for 233,334 shares of Noel Common Stock
subsequent to September 30, 1996. The cash exercise proceeds totaled $910
and the tax benefit of the compensation expense of $724 was determined at a
35% rate.
36
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results
of operations covers the nine month periods ended September 30, 1996 and 1995
and the years ended December 31, 1995, December 31, 1994 and December 31, 1993
and should be read in conjunction with the Company's Consolidated Financial
Statements and the Notes thereto included in this Proxy Statement.
LIQUIDITY AND CAPITAL RESOURCES:
Parent Company
On September 30, 1996, Noel had cash and cash equivalents and short-term
investments of $11.2 million. The future cash needs of the parent company will
be dependent on the approval of the Plan by the shareholders. It is management's
intention that Noel's liquidity will be available to fund Noel's working capital
requirements and, subject to the restrictions set forth in the Plan if approved
by the shareholders, to support Noel's operating companies.
Noel believes that its cash and cash equivalents and short-term
investments are sufficient to fund its working capital requirements for the
foreseeable future. Noel expects that its operating companies will be able to
meet their own working capital requirements, including debt service. Subject
to the restrictions set forth in the Plan if approved by the shareholders,
if an operating company requires additional funding for the purpose of making
acquisitions at the operating company level or to otherwise support growth, or
suffers operating or cash flow deficits, a portion of Noel's liquidity may be
utilized to fund such requirements.
HealthPlan Services has no impact on the Company's liquidity and capital
resources, since Noel has no obligation to fund HealthPlan Services' operations
and HealthPlan Services does not anticipate paying cash dividends in the
foreseeable future. While HealthPlan Services is included in the Company's
financial statements on the equity method of accounting, the Company will record
its proportional share of HealthPlan Services' income or loss. Noel's share of
HealthPlan Services' loss for the nine months ended September 30, 1996 was $.04
million.
Sources of potential liquidity include the sale or refinancing of
current holdings (including the sale of certain of its holdings of HealthPlan
Services common stock pursuant to the ADP Agreement), dividends and preferred
stock redemptions from current holdings, and the issuance of debt or equity
securities. Noel does not currently receive, nor expect to receive in the
immediate future, cash dividends from any of its subsidiaries. Noel's
subsidiaries are currently prohibited from paying dividends by existing
borrowing agreements.
Belding Heminway Company, Inc.
On December 30, 1996 Belding Heminway entered into a new credit
agreement with Sanwa Business Credit Corporation and Heller Financial, Inc. (the
"lenders") pursuant to which the lenders have agreed to provide a credit
facility to Belding Heminway and certain of its subsidiaries in the aggregate
amount of $42 million, consisting of two term loans aggregating $22 million and
a $20 million revolving credit facility. The term loans are amortizable in
installments over a period of five years and bear interest, at the option of the
Company, in the case of the first tranche of $14 million ("Tranche A"), at prime
plus 1.50% or LIBOR plus 3.50% and, in the case of the second tranche of $8
million ("Tranche B"), at prime plus 1.75% or LIBOR plus 3.75%. The revolving
loan bears interest, at the option of the Company, at prime plus 1.25% or LIBOR
plus 3.25%. The rates are subject to a reduction of up to .75% in the aggregate
if Belding Heminway meets certain EBITDA levels (defined to mean net income
before taxes, interest, amortization, depreciation and other non-cash charges,
but exclusive of extraordinary, non-recurring gains, gains and losses from asset
dispositions and certain income derived from affiliates) in fiscal 1997 and
1998. The credit agreement contains customary negative covenants and financial
conditions. Among them, Belding Heminway continues to be prohibited from making
any payments to its preferred stockholders as dividend, redemption or otherwise
until Tranche B of the term loan has been discharged in full. Thereafter Belding
Heminway may apply up to 25% of its excess cash flow to these payments, assuming
certain additional conditions are met. Belding Heminway has applied the proceeds
from this credit facility to discharge in full its obligations under Belding
Heminway's credit facility with its prior lender.
37
<PAGE>
<PAGE>
Pursuant to the terms of Belding Heminway's Series B preferred stock,
20% of such shares were scheduled to be redeemed by Belding Heminway on March 15
of each year commencing in 1995 and ending in 1999. Dividends on the preferred
stock accrue at an annual rate of 6% and are payable quarterly on March 15, June
15, September 15 and December 15. In 1995 and 1996, both the preferred stock
redemptions and the quarterly dividend payments were subject to the approval
of the banks participating in Belding Heminway's credit facility then in effect.
As such banks declined approval of the dividend and redemption payments, no
such payments have been made. As a result, additional dividends are accruing on
the scheduled but unpaid dividends at a rate of 6% per annum.
The carrying amount of Noel's entire holding in Belding Heminway is
$14.0 million at September 30, 1996. Reference is made to "Condensed Unaudited
Pro Forma Statement of Net Assets in Liquidation" for an estimate of the
liquidation value of Noel's holdings of Belding Heminway. Noel does not
guarantee any of Belding Heminway's borrowings and Noel is not liable for
any of Belding Heminway's obligations.
All of Noel's discontinued operations have been disposed of except for
TDX Corporation ("TDX"). TDX's operations are immaterial to Noel, and there is
no future requirement for additional cash or capital infusions for TDX.
In 1995 and 1994, Noel's subsidiaries sold stock in initial public
offerings, raising net proceeds of $50.8 million and $9.6 million, respectively,
thereby improving their respective liquidity. Noel's subsidiaries may raise cash
from time to time using equity offerings in the future.
38
<PAGE>
<PAGE>
RESULTS OF OPERATIONS
General
The results of operations for the nine months ended September 30, 1996,
may not be indicative of the operating results for the full year. The business
of Lincoln Snacks is seasonal, with the third and fourth calendar quarters
historically showing higher sales.
The results of operations for the nine months ended September 30, 1995,
have been restated to reflect (i) Simmons, (ii) Belding Heminway's Home
Furnishings division, (iii) Curtis' retail division, and (iv) TDX as
discontinued operations due to their sale in 1995 or their expected or actual
sale in 1996 and to account for HealthPlan Services under the equity method of
accounting from January 1, 1995. Noel's voting interest in HealthPlan Services
dropped below 50% following HealthPlan Services' initial public offering on May
19, 1995 and Noel's simultaneous exchange of its holding of HealthPlan Services
preferred stock and accrued dividends into HealthPlan Services common stock.
The Company's consolidated statements of operations include Belding
Heminway from January 1, 1995 and HealthPlan Services for the period from
September 30, 1994, through December 31, 1994. Noel's equity in HealthPlan
Services' income from January 1, 1995, is included in income from equity
investments. The consolidated selling, general, administrative and other
expenses include salaries, employee benefits, rent and other routine overhead
expenses of the Company, including legal, accounting and consulting fees. The
following comparisons are based on the Company's consolidated results. An
analysis of each subsidiary is included in the comparison of segments section.
Noel and each of its subsidiaries file a separate federal income tax
return. As a result, the income tax provisions recorded by certain subsidiaries
cannot be offset by the losses reported by other entities on the Company's
consolidated financial statements.
NINE MONTHS ENDED SEPTEMBER 30, 1996 VERSUS SEPTEMBER 30, 1995
Sales increased by $6.5 million to $140.5 million due to an increase in
sales at Curtis and Belding Heminway of $5.0 million and $1.4 million,
respectively. Cost of sales increased by $3.7 million to $79.6 million from
$75.9 million in 1995, related to increases at Curtis, Lincoln Snacks and
Belding Heminway of $2.1 million, $1.1 million and $.6 million, respectively.
Selling, general, administrative and other expenses decreased to $52.2 million
in 1996 from $54.5 million in 1995. The decrease of $2.2 million primarily
relates to decreased expenses at Lincoln Snacks and Belding Heminway of $3.2
million and $.9 million, respectively, offset by increased expenses at Curtis at
$2.0 million. Other income decreased by $6.8 million primarily due to a 1995
gain recognized by Noel on the receipt of payment for the Brae note. The loss
from equity investments of $.009 million in 1996 versus income of $2.3 million
in 1995 primarily results from Noel's equity in the loss of HealthPlan Services
in 1996.
After performing a review for impairment of long-lived assets related
to each of HealthPlan Services' acquired businesses and applying the principles
of measurement contained in FASB 121, HPS recorded a charge against earnings of
$13.7 million in the third quarter of 1996, representing approximately 7.6%
of HealthPlan Services' pre-charge goodwill. This charge was attributable to
impairment of goodwill recorded on the acquisitions made in 1995. Any further
significant declines in HealthPlan Services' projected net cash flows with
respect to such acqusitions may result in additional write-downs of remaining
goodwill.
Starting in 1994, HealthPlan Services pursued contracts with state-
sponsored health care purchasing alliances, initially in Florida, and in 1995
and 1996, in North Carolina, Kentucky, and Washington. HealthPlan Services has
incurred substantial expenses in connection with start-up of these contracts,
and, to date, the alliance business has been unprofitable. HealthPlan Services
recorded a pre-tax charge related to these contracts in the amount of $2.6
million in the third quarter of 1996 resulting from increased costs and lower
than anticipate revenues in Florida and North Carolina. In Florida, HealthPlan
Services is negotiating a new contract which is scheduled to commence in 1997.
In the third quarter of 1996, HealthPlan Services recorded a charge of
$1.4 million to reflect the cost of exiting certain excess office space
and terminating employees.
1995 VERSUS 1994
The increases from 1994 to 1995 in sales of $87.8 million and cost of
sales of $66.6 million principally reflect the inclusion of Belding Heminway's
sales of $88.7 million and cost of sales of $66.0 million in 1995 only. The
increase in selling, general, administrative and other expenses of $2.8 million
to $71.8 million in 1995 reflects the inclusion of Belding Heminway's 1995
expenses of $14.3 million, offset both by Noel's decrease of $5.4 million
primarily related to a 1994 charge for its non-incentive stock option plan and
by a $5.5 million decrease at Lincoln Snacks.
The 1995 impairment charge relates to Belding Heminway's thread
division. This charge of $29.2 million includes Noel's write-off of $4.2 million
of related goodwill.
39
<PAGE>
<PAGE>
Other income decreased by $1.6 million to $6.7 million. In 1995, other
income includes a $6.6 million capital gain recognized by Noel on the payment of
the subordinated note from Brae Group, Inc. Other income in 1994 includes
capital gain of $9.0 million primarily from Noel's sale of marketable securities
and $2.2 million of dividend income from Noel's holding of Belding Heminway
preferred stock, offset by a $3.9 million loss recognized on Noel's exchange of
Belding Heminway preferred stock for Belding Heminway common stock.
Income (Loss) from equity investments increased by $3.9 million to $3.8
million reflecting primarily Noel's equity in the income of HealthPlan Services
of $3.4 million in 1995.
Interest expense increased by $4.1 million, primarily due to the
inclusion of Belding Heminway's interest expense of $4.0 million in 1995 only.
1994 VERSUS 1993
Sales and cost of sales were approximately unchanged from 1993. Selling,
general, administrative and other expenses increased by $9.6 million to $69.0
million primarily as a result of Noel's non-incentive stock option expense of
$4.9 million and increases at Lincoln Snacks of $3.4 million.
Other income increased by $3.9 million primarily due to Noel's gains
totaling $9.0 million in 1994 on sales of marketable securities and an increase
in dividend income on Noel's holding of Belding Heminway preferred stock of $1.1
million offset by a $3.9 million loss recognized in 1994 on Noel's exchange of
Belding Heminway preferred stock for Belding Heminway common stock.
Income (Loss) from equity investments decreased by $1.1 million to a
loss of $.2 million. The 1994 loss results from partnerships. In 1993, equity
income includes $.4 million from Sylvan, Inc. and $.5 million from partnerships.
COMPARISON OF SEGMENTS
Noel and its subsidiaries are collectively referred to in this section
as the "Company." The discussion which follows analyzes the results for each of
the Company's segments.
The amounts presented in the comparison of segments may not be
comparable with the amounts included in the Company's consolidated statements of
operations in the year in which the segment was acquired or newly included in
the consolidated operating results.
A discussion on the results of operations of HealthPlan Services for the
three months ended December 31, 1994 and 1993 is included given its significance
to the consolidated financial statements of Noel. The results of operations for
1993 are not indicative of the results of operations had HealthPlan Services'
predecessor been operated as an unaffiliated company and include certain
expenses allocated to HealthPlan Services' predecessor.
NINE MONTHS ENDED SEPTEMBER 30, 1996 VERSUS SEPTEMBER 30, 1995
Industrial Threads and Buttons (Belding Heminway)
Sales during the nine month period ended September 30, 1996, increased
$1.4 million to $67.2 million, as compared with $65.8 million during the same
period of 1995. Sales in the consumer product segment totaled $36.0 million
during the first nine months of 1996, as compared with $29.7 million during the
first nine months of 1995. The increase in consumer product segment sales was
primarily the result of sales contributed by Culver Textile Company ("Culver").
Sales in the industrial product segment totaled $31.2 million in 1996, as
compared to $36.1 million during the first nine months of 1995. All of this year
to year reduction occurred during the first two quarters of 1996.
The gross margin during the first nine months of 1996 totaled $19.1
million, as compared to $18.3 million during the same period in 1995. The gross
margin percentage during the first nine months of 1996 was 28.4% versus 27.8% in
1995. Gross margin in the consumer product segment during the first nine months
of 1996 totaled $11.6 million, as compared with $10.1 million during 1995.
Additional margin dollars were contributed as the result of the Culver
acquisition and increased sales by Belding Heminway's button division. The gross
margin percentage during 1996 in the consumer product segment was 32.3%, as
compared to 33.9% during the same period in 1995. The decline in the gross
margin percentage in the consumer product segment was due to the lower Culver
margins. Gross margin in the industrial segment during 1996 totaled $7.5 million
as compared to $8.2 million for the same period in 1995. The decline in the
gross margin was directly attributable to the decline in the sales volume of
this segment. The gross margin percentage during 1996 for the industrial segment
was 24.0%, as compared to 22.3% during 1995.
40
<PAGE>
<PAGE>
Selling, general and administrative expenses during 1996 totaled $10.5
million, as compared with $11.7 million during 1995. Selling, general and
administrative expenses in the consumer product segment in 1996 totaled $3.9
million as compared to $3.3 million in 1995. The increase in selling, general
and administrative expenses in the consumer product segment was the result of
additional expenses attributable to Culver operations. Selling, general and
administrative expenses in the industrial segment totaled $6.6 million during
the nine months ended September 30, 1996, as compared to $8.4 million in the
first nine months of 1995. The decline in selling, general and administrative
expenses in the industrial product segment was the result of reduced spending
totalling $1.6 million, principally from headcount reductions.
Fasteners and Security Products Distribution (Curtis)
On May 13, 1996, Curtis acquired the Mechanics Choice business of Avnet,
Inc. for $6.5 million. Mechanics Choice is a distributor selling industrial
maintenance and repair operations products similar to the existing Curtis
product line offering.
For the nine month period in 1996, Curtis' sales of $57.0 million were
$5.1 million, or 9.8% higher than the same period in 1995. Sales by Curtis'
Mechanics Choice division accounted for $4.5 million of the increase. Sales of a
new key code cutting machine utilizing state of the art technology contributed
an additional $1.0 million of sales in 1996. The sales gain from the new code
cutter was offset by the loss of the sales of the Puerto Rican branch totaling
$.6 million, and of an emergency key cutting program of $.3 million. Both of
these businesses were discontinued as a result of the sale of the retail
division and the shutdown of manufacturing operations.
For the first nine months of 1996, Curtis' gross margin percentage of
65.6% decreased from .7% from the comparable period in 1995. The decline in
margins can be attributed to the lower margins recognized by the Mechanics
Choice Division.
For the nine month period of 1996, Curtis' selling, general and
administrative expenses, exclusive of the $.7 million reserve recorded for the
1995 manufacturing shutdown, increased by $2.5 million. The majority of the
increase in selling and distribution costs of the Mechanics Choice division.
Snack Foods (Lincoln Snacks)
Sales of $16.4 million were unchanged for the nine months ended
September 30, 1996, versus the corresponding period of 1995. Sales related to
the exclusive distribution agreement with Planters (the "Distribution
Agreement") represented approximately 56% and 47% of sales for the nine months
ended September 30, 1996 and 1995, respectively.
Gross profit decreased $1.1 million to $4.4 million for the nine months
ended September 30, 1996, versus $5.5 million in the corresponding period of
1995. Gross profit decreased as a result of lower selling prices under the
Distribution Agreement.
Selling, general and administrative expenses decreased $2.7 million to
$3.7 million in the nine months ended September 30, 1996, versus $6.4 million in
the same period in 1995. These expenses decreased during this period primarily
due to cost reductions resulting from the Distribution Agreement.
THREE MONTHS ENDED DECEMBER 31, 1996 VERSUS DECEMBER 31, 1995
Snack Foods (Lincoln Snacks)
Sales decreased approximately 8% or $.6 million to $7.3 million for the
quarter ended December 31, 1996 versus $7.9 million in the corresponding period
of 1995. The decrease in sales is primarily due to decreased nut sales. Sales
under the Distribution Agreement decreased and were offset by increases in
Lincoln Snacks' other branded product and other sales. Sales under the
Distribution Agreement represented approximately 32% and 36% of sales for the
quarter ended December 31, 1996 and 1995, respectively.
Gross profit increased $.3 million to $2.7 million for the quarter ended
December 31, 1996 versus $2.4 million in the corresponding period of 1995. The
increase in gross profit is the result of decreased raw material costs and
increased manufacturing efficiencies.
Selling, general and administrative expenses of $2.0 million for the
quarter ended December 31, 1996 remained essentially equal to the same period in
1995 of $1.9 million.
41
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<PAGE>
1995 VERSUS 1994
Fasteners and Security Products Distribution (Curtis)
On November 13, 1995, Curtis sold its retail division to SDI Operating
Partners, LP. The results of the retail division have been reported as
discontinued operations in the 1995 consolidated financial statements. Prior
periods have been restated to present the retail division as a discontinued
operation. All costs and expenses incurred as a result of the retail division
sale have been recorded in 1995 and no additional expenses are anticipated.
Sales for Curtis for 1995 increased by $2.2 million, or 3.3%, to $68.8
million from $66.6 million in 1994. A telemarketing program, created in January
1995, accounts for $1.2 million of the sales increase. Increased sales in Canada
of $.6 million and the core domestic business of $.7 million were offset by a
decline in United Kingdom sales of $.3 million.
A one-time charge of $1.1 million was recorded, primarily for severance
and benefits following the close of its manufacturing operations at its
Eastlake, Ohio facility, in June 1995.
The gross margin decreased from 67.4% in 1994 to 66.5% in 1995. The 1995
decline in gross margin can be attributed to the high cost of manufacturing keys
and key duplicating machines prior to closing the manufacturing operations. Cost
savings associated with the purchase of keys and key machines from an outside
source were realized in the fourth quarter of 1995 when the gross margin
increased to approximately 67% compared to 66.3% for the first three quarters.
The lower cost of key and key duplicating machines is expected to contribute to
further improvements in margins during the first quarter of 1996.
For the year, selling, general and administrative expenses, exclusive of
one-time charges, increased $.6 million. The increase results from variable
selling expenses associated with the higher 1995 sales volumes and increased
expenses associated with the recruitment and retention of sales representatives
of approximately $1 million in 1995, as management intensified efforts to build
up the domestic sales force in the second half of the year. The increased
domestic selling costs were offset by administrative staff reductions, reduced
healthcare costs and other cost containment measures.
Snack Foods (Lincoln Snacks)
On June 6, 1995, Lincoln Snacks entered into the Distribution Agreement
with Planters, commencing on July 17, 1995, for the sales and distribution of
Fiddle Faddle(R) and Screaming Yellow Zonkers(R) (the "Products"). Under the
agreement, which requires Planters to purchase a minimum number of equivalent
cases during each year ending on June 30, Lincoln Snacks sells the Products to
Planters at prices which are less than historical selling prices. Planters in
turn is responsible for the sales and distribution of the Products to its
customers and therefore Lincoln Snacks does not have any selling, marketing or
distribution costs on the Products. The financial impact of the agreement versus
historical results is a reduction in revenue and gross profit which is offset by
reduced selling, marketing and distribution costs.
Sales decreased approximately 11%, or $3.1 million to $24.2 million for
the twelve months ended December 31, 1995, versus $27.3 million in the
corresponding period of 1994. Sales decreased primarily due
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to lower selling prices resulting from the Distribution Agreement. In addition,
non-Planters sales declined 5% due to increased domestic competition and
changing market conditions in the Far East. Case sales to Planters for the six
months ended December 31, 1995, represented 44% of the minimum number of
equivalent cases required to be purchased during Lincoln Snacks' fiscal year
which ends June 30, 1996. Lincoln Snacks' business is seasonal due to buying
patterns of both Poppycock and Lincoln Snacks' nut products during the
traditional holiday season. As a result, third and fourth calendar quarter sales
account for a significant portion of annual sales.
Gross profit decreased by $2.4 million to $7.9 million for the twelve
months ended December 31, 1995, from $10.3 million in the corresponding period
of 1994 primarily due to lower revenue under the Distribution Agreement.
Selling, general, administrative and other expenses decreased $6.4
million to $8.3 million in the twelve months ended December 31, 1995, from $14.7
million in the same period in 1994. This decrease is primarily due to lower
freight costs, reduced trade and consumer promotional spending and reduced
administrative expenses resulting from the Distribution Agreement.
Industrial Threads and Buttons (Belding Heminway)
Sales for 1995 were $88.7 as compared with $76.8 million in 1994, an
increase of $11.9 million, or approximately 16%. Sales in Belding Heminway's
consumer segment were $43.6 million in 1995, an increase of $13.4 million over
1994 sales of $30.2 million. The increase in these sales during 1995 was
primarily driven by the full year inclusion of Danfield Threads, Inc.
("Danfield") in 1995 results. Danfield was acquired on June 30, 1994 and had
sales of $18.9 million during 1995 versus $9.0 million in the six months ended
December 31, 1994. Also contributing to the favorable sales variance in 1995 was
$2.1 million of sales contributed by Culver Textile Corporation ("Culver") which
was acquired on August 31, 1995 and a $1.4 million increase in sales by Belding
Heminway's button and consumer thread divisions. Sales in Belding Heminway's
industrial segment were $45.1 million in 1995 as compared with $46.6 million in
1994, for a decline of $1.5 million. Weakness in customers' primary markets
resulted in approximately a 3% sales decline during 1995.
The gross margin in 1995 was $22.7 million, or 25.7% of sales, as
compared with $22.7 million in 1994, or 29.6% of sales. The consumer segment
gross margin in 1995 was $13.8 million as compared with $11.7 million in 1994.
The gross margin percentage in 1995 was 31.7% compared with 38.9% in 1994. The
gross margin dollar improvement in 1995 was primarily the result of Danfield
which was included for a full year in 1995 as compared to six months in 1994.
The gross margin percentage decline was principally the result of lower margins
on Culver sales. The gross margin in the industrial segment in 1995 was $8.9
million, or 19.8% of sales, as compared with $11.0 million in 1994, or 23.6% of
sales, for a decline of $2.1 million. During 1995, the industrial segment
experienced higher raw material and labor costs and higher than historical
levels of manufacturing inefficiencies due to the effects of the consolidation
and relocation of facilities that occurred in 1994 and implementation issues
related to the new management information system. These increased costs were not
fully recouped through sales price increases.
Selling, general and administrative expenses totaled $15.9 million, or
18.0% of sales, in 1995 as compared to $15.8 million, or 20.6% of sales, in
1994.
Selling, general and administrative expenses in the consumer segment
totaled $4.8 million in 1995, or 11.0% of sales, as compared with $3.7 million
in 1994, or 12.3% of sales. The dollar increase in consumer segment selling,
general and administrative expenses was the result of a full year of Danfield
activity in 1995 versus six months in 1994 in addition to the inclusion of four
months of Culver activity in 1995 versus none in 1994. Selling, general and
administrative expenses in the industrial segment was $7.3 million in 1995
versus $7.1 million in 1994.
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An impairment charge was recorded during 1995 related to Belding
Heminway's thread division. The charge represented a $6.4 million adjustment to
the book value of assets to estimated fair value as of December 31, 1995 and the
write-off of a proportionate amount of goodwill allocated to the thread division
in connection with the 1993 acquisition. The goodwill write-off was $17.4
million and other related charges were $1.2 million. There were no such
impairment charges in 1994.
Interest expense increased to $4.0 million in 1995 compared to $3.2
million in 1994. The increase was attributable to an increase in average
outstanding debt during 1995 to $45.9 million from $41.4 million in 1994. In
addition to the increase in the average debt level there was also an increase in
the weighted average interest rate from 7.8% in 1994 to 8.7% in 1995.
1994 VERSUS 1993
Fasteners and Security Products Distribution (Curtis)
Sales for Curtis in 1994 increased to $66.6 million from $65.6 million
in 1993. During the last six months of 1994, sales increased $2.3 million or
7.3% from the comparable 1993 period. Sales promotions and corporate account
growth and continued penetration of the Canadian retail market account for the
majority of the sales increase in the second half of 1994.
The gross margin for 1994 of 67.4% decreased from 68.6% in 1993. The
decline in the gross margin relates primarily to increased manufacturing
production costs.
For the year, selling, general and administrative expenses, exclusive of
$1.5 million of postretirement benefits associated with a union strike
settlement and $.7 million of transaction cost of the failed merger with
American Consumer Products, Inc., decreased by $2.1 million. The realization of
the benefits from cost savings programs, implemented by management favorably
impacted selling, general and administrative costs.
Snack Foods (Lincoln Snacks)
Snack division sales increased by $1.9 million to $24.5 million in 1994.
This increase was offset by a $3.0 million decrease in nut division sales
resulting in a combined sales decrease of 3.9%, or $1.1 million to $27.3 million
in 1994 from $28.4 million in 1993.
Gross profit decreased $.4 million to $10.3 million in 1994, primarily
due to the decrease in sales during 1994 compared to 1993. The gross margin
increased to approximately 43% in the last half of 1994, from approximately 38%
in the latter half of 1993 as a result of improved manufacturing efficiencies,
formula refinements and an increase in the percentage of higher margin snack
division sales, as a percentage of total sales. The gross margin improvement in
the last half of 1994 was offset by a decrease in the first half of 1994 to
approximately 28% from approximately 36% in 1993. The gross margin decline is
primarily attributable to increased commodity prices as well as formula and
packaging changes aimed at improving product quality. Packaging changes resulted
in excess inventory of products in obsolete packaging which was sold at reduced
prices lowering the gross margin.
Selling, general and administrative expenses decreased approximately 9%,
or $.6 million to $6.6 million in the last half of 1994 versus $7.2 million in
the same period in 1993. Selling expense decreased during this period primarily
due to reduced promotional spending, administrative expenses and freight costs.
The decrease in selling, general and administrative expenses in the last half of
1994 was offset by an increase of $4.0 million in the first half of 1994,
resulting in an annual increase of $3.4 million for the 12 months ended December
31, 1994. Selling expenses increased $3.6 million in the first half of 1994
versus the same period in 1993, primarily
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due to $2.0 million of new consumer sales and marketing programs intended to
increase brand awareness and $1.2 million of increased trade expense.
Healthcare Administration (HealthPlan Services)
Revenue for the three months ended December 31, 1994, decreased $3.7
million, or 12.8%, to $25.2 million from $28.9 million for the same period in
1993. This decrease resulted principally from a decline of $3.8 million in
multiple employer trust ("MET") revenue, with declines in revenue from two of
HealthPlan Services' principal MET payors accounting for a $2.8 million
decrease.
Agents commissions expense for the three months ended December 31, 1994,
decreased $1.5 million, or 13.0%, to $10.0 million from $11.5 million for the
same period in 1993. This decrease primarily resulted from the decline in
revenue for the period. Agents commissions expense represented approximately 40%
of revenue for the three months ended December 31, 1994 and 1993. As a
percentage of revenue, MET agents commissions are typically significantly
greater than administrative services only ("ASO") agents commissions. MET agents
commissions represented approximately 47% of MET customer revenue in 1994 from
48% in 1993 and ASO agents commissions represented approximately 9% of ASO
customer revenue in 1994 from approximately 6% in 1993.
Other operating expenses for the three months ended December 31, 1994,
decreased $3.0 million, or 22.6%, to $10.3 million from $13.3 million for the
same period in 1993. This decrease resulted principally from reduced costs from
staff reductions, including the termination of 125 employees of HealthPlan
Services' predecessor on September 30, 1994 and the implementation of HealthPlan
Services' employee compensation and benefit plans as of October 1, 1994. The
average cost per employee of HealthPlan Services' benefit plans is significantly
lower than that maintained by HealthPlan Services' predecessor.
BUSINESS OF THE COMPANY
(a) General development of business.
The Company currently conducts its principal operations through small
and medium-sized operating companies in which Noel holds controlling or other
significant equity interests. Noel's holdings in operating companies include
holdings in (i) HealthPlan Services, a leading managed health care services
company providing distribution, enrollment, premium billing and collection,
claims administration and information analysis services to health care payors
and providers; (ii) Staffing Resources, a provider of staffing services to
businesses in various industries in the Southwest, Southeast and Rocky Mountain
regions of the United States; (iii) Belding Heminway, a manufacturer and
marketer of industrial sewing threads and a distributor of a line of home sewing
and craft products, principally buttons; (iv) Curtis, a national distributor of
fasteners, security products, chemicals, automotive replacement parts, fittings
and connectors, tools and hardware; (v) Lincoln Snacks, one of the leading
manufacturers and marketers of caramelized pre-popped popcorn in the United
States and Canada; and (vi) Novoeste, a Brazilian corporation which operates the
concession for the western network of the Brazilian federal rail system which is
being privatized by the Brazilian government.
Noel was incorporated in New York in December 1969 and reincorporated in
Delaware in December 1986. Noel was originally a closely-held special purpose
investment vehicle until March 1988, when under new management organized by
Louis Marx, Jr., the former Chairman of the Executive Committee, Noel adopted
its strategy of concentrating on the acquisition of control and other
significant equity interests in established operating entities. Noel's principal
office is located at 667 Madison Avenue, New York, New York 10021-8029 and its
telephone number is (212) 371-1400.
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Noel's business strategy has been to acquire controlling and other
significant equity interests in established privately and publicly-held
operating companies with superior risk/return characteristics. Noel seeks to
forge strong working relationships with the management of its operating
companies and to apply Noel's experience to key strategic, operating and
financial decisions. Generally, Noel works with operating management to identify
opportunities to enhance revenue, operating income and cash flow. In other
cases, Noel has identified and attracted new management to its operating
companies. In order to participate actively in the management of Noel's
operating companies, Noel is generally represented on the boards of directors of
such companies, and members of Noel's management may, from time to time, act as
executive officers of such companies.
On July 31, 1996, Belding Heminway completed the sale of its Home
Furnishings division. Belding Heminway accounted for the Home Furnishing
division as a discontinued operation effective in the fourth quarter of 1995 and
in connection therewith recorded a loss (primarily non-cash and including a
write-off of goodwill) for the disposal of this division of approximately $18
million. Belding Heminway also recorded, in the fourth quarter of 1995, an
impairment charge of approximately $25 million related to its Thread division.
The Thread division charge represents a write-off of goodwill of approximately
$17.4 million, a charge of $6.4 million to adjust the book value of assets to
their fair value on December 31, 1995, and other related charges of $1.2
million. In the fourth quarter of 1995, Noel recorded charges of approximately
$1.8 million and $4.2 million to write off goodwill related to Belding
Heminway's Home Furnishings and Thread divisions, respectively.
On May 21, 1996, the Board of Directors adopted the Plan and directed
that the Plan be submitted to Noel's shareholders for approval at a Special
Meeting of Shareholders to be held as soon as practicable.
In March, 1996, Ferrovia Novoeste, S.A., a Brazilian corporation
("Novoeste"), was the successful bidder, at approximately $63.6 million, for the
concession to operate the Brazilian federal railroad's western network. The
principal investors in Novoeste include Noel, Chase Latin America Equity
Associates ("Chase"), Brazil Rail Partners, Inc. ("BRP"), Western Rail
Investors, LLC ("WRI") and Brazilian Victory LLC ("Victory"). Noel's and Chase's
investment in Novoeste is approximately $8 million each, Victory's investment is
approximately $2 million, WRI's investment is approximately $1.6 million, and
BRP's investment is approximately $1.4 million. The purchase of the network
consisted of a 30-year concession and a lease of the federal railroad's
equipment. The western network links Bauru, in Sao Paulo state, with Corumba on
the Bolivian border, and covers approximately 1,000 miles of track.
On December 27, 1995, the Executive Committee of the Board of Directors
of Noel authorized the sale of Noel's holdings of common stock of TDX
Corporation ("TDX") during 1996. As of September 30, 1996, TDX sold its last
operating company, Diet Workshops Corporation.
On December 19, 1995, S.O.C. Corporation, a Delaware corporation and a
wholly-owned subsidiary of Blount, Inc., a Delaware corporation which itself is
a wholly-owned subsidiary of Blount International, Inc., completed a tender
offer for all of the outstanding shares of common stock of Simmons at a purchase
price of $10.40 per share in cash. Pursuant to the tender offer Noel sold
1,666,163 shares, which shares represented all of the shares then beneficially
owned by Noel, for approximately $17.3 million in the aggregate, realizing a
gain over its initial investment of approximately $12.1 million.
On July 31, 1995, Noel received from Brae Group, Inc., a Delaware
corporation ("Brae"), 1,026,104 shares of common stock of Staffing Resources, as
payment for its subordinated note in the principal amount of approximately $8.2
million plus accrued interest of approximately $3 million. Brae is controlled by
Louis Marx, Jr., the former Chairman of the Executive Committee of Noel. On
November 15, 1995, Noel purchased an additional 1,000,000 shares of common stock
of Staffing Resources for $11 million in a private placement. Noel's current
ownership of Staffing Resources common stock is approximately 16% of the issued
and outstanding common stock.
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On June 6, 1995, Lincoln Snacks entered into the Distribution Agreement
with Planters, pursuant to which Planters is exclusively distributing Lincoln
Snacks' Fiddle Faddle(R) and Screaming Yellow Zonkers(R) products in the United
States for an initial term which expires on June 30, 1997. The Distribution
Agreement requires Planters to purchase an annual minimum number of equivalent
cases of Fiddle Faddle and Screaming Yellow Zonkers during the initial term. The
Distribution Agreement is automatically renewable for additional one year
periods unless terminated by either party upon prior written notice. Each party
has the right to terminate the Distribution Agreement by written notice in the
event of a "change of control" (as defined therein) of Lincoln Snacks.
In June 1995, Curtis closed its manufacturing operations at its
Eastlake, Ohio facility, resulting in a one time charge of $1.1 million,
primarily for severance and benefits. On November 13, 1995, Curtis sold certain
assets of its retail division for $7.5 million to SDI Operating Partners, L.P.
("SDI") in order to focus on its automotive and industrial division and to
reduce outstanding indebtedness.
On May 19, 1995, HealthPlan Services completed an initial public
offering of 4,025,000 shares of newly issued common stock at a price of $14 per
share which raised approximately $50.8 million, net of expenses.
Contemporaneously with the consummation of the offering, Noel exchanged all of
its holdings of HealthPlan Services preferred stock and accrued dividends for
HealthPlan Services common stock at the offering price. As a result of the
offering and such exchange, Noel's ownership of shares of HealthPlan Services'
common stock decreased from approximately 60% to approximately 42%. Noel
currently owns approximately 29% of the outstanding shares of HealthPlan
Services' common stock.
(b) Financial information about industry segments.
The information required is set forth in Note 17 under the caption
"Notes to Consolidated Financial Statements" on page F-30 of this Proxy
Statement.
(c) Narrative description of business.
The following information relates to Noel's principal operating
companies. The percentage appearing next to the name of each company indicates
the common equity ownership currently held by Noel.
HEALTHPLAN SERVICES CORPORATION (29%)
HealthPlan Services, along with its newly acquired operating units,
Consolidated Group, Inc. ("Consolidated Group") and Harrington Services
Corporation ("Harrington"), is a leading provider of managed care services to
over 120,000 small businesses and large, self insured organizations. Its
services include distribution, enrollment, billing and collection, claims
administration, and information reports and analysis on behalf of health care
payors and providers, covering over three million members in the United States.
HealthPlan Services' clients include managed care organizations (preferred
provider organizations ("PPOs") and health maintenance organizations
("HMO's")), integrated health care delivery systems, insurance companies and
health care purchasing alliances. The majority of HealthPlan Services'
in-force business utilizes managed care products, and substantially all of
HealthPlan Services' new cases issued since October 1994 utilize managed care
products.
HealthPlan Services' principal executive offices are located at 3501
Frontage Road, Tampa, Florida 33607; its telephone number is (813) 289-1000. Two
Noel executive officers, Joseph S. DiMartino (who is also a director of Noel)
and Samuel F. Pryor, IV, and three additional Noel directors, William L.
Bennett, James K. Murray, Jr. and James G. Niven, currently serve on HealthPlan
Services' Board of Directors.
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On July 1, 1996, HealthPlan Services completed the acquisition of
Consolidated Group, a health benefit administrator specializing in the small
group market. On July 1, 1996, HealthPlan Services completed the acquisition
of Harrington, a large-group benefits administrator. Revenues in 1995
for HealthPlan Services, Consolidated Group, and Harrington were approximately
$100 million, $74 million, and $72 million, respectively. The two acquired
companies are operated as separate subsidiaries of HealthPlan Services and
maintain separate entities and management personnel.
HealthPlan Services has over 25 years of experience in providing
insurance companies, PPOs, HMOs and other managed care companies with services
that enable them to access the small employer market (less than 50 employees) in
an efficient, cost effective manner. These services include sales support to
insurance agents and, on behalf of payors, underwriting, enrollment and other
administrative services. As a result, HealthPlan Services offers an economic
"outsourcing" alternative to the payor, which otherwise would be required to
develop sufficient internal resources and services to reach the small business
market effectively. Consolidated Group, founded in 1971, provides substantially
the same set of services as HealthPlan Services, and has focused on developing
access to the small business market for several major HMOs, including United
Healthcare, Kaiser, and U.S. Healthcare. Harrington was founded in 1953, and is
a leading administrator of self-funded health care plans for large corporations,
government sector employers, Taft-Hartley plans, and associations. In addition
to providing claims administration services, Harrington also offers its
clients utilization management services and information systems services, and
workers' compensation and unemployment cost control programs.
On a pro forma basis, during 1995, HealthPlan Services and Consolidated
Group collected over $300 million in health care premiums, and together,
maintain relationships with over 100,000 insurance agents. This agent
relationship provides HealthPlan Services and Consolidated Group with a
significant distribution conduit to the small business market in the United
States. HealthPlan Services and its principal operating units function solely
as service providers generating fee based income; none of HealthPlan
Services' units assume any underwriting risk.
STRATEGY
HealthPlan Services' strategy is to grow revenue and increase earnings
through new product development, broader distribution of existing managed care
products, and the addition of new payors, such as PPOs, HMOs and other managed
care providers. HealthPlan Services will seek to build economies of scale by
continuing to pursue vigorously a consolidation strategy involving the
acquisition and integration of small, less efficient administrators, and by
adding administrative services contracts with larger groups and contracts from
state-sponsored and private health care purchasing alliances. HealthPlan
Services also intends to further support the development of information-based
products for its payors and other customers.
RECENT ACQUISITIONS
On July 1, 1996, HealthPlan Services acquired all the issued and
outstanding stock of Consolidated Group for approximately $62.0 million in
cash, and Harrington for $32.5 million cash and 1,400,110 shares of common
stock of HealthPlan Services. Consolidated Group, headquartered in Framingham,
Massachusetts, specializes in providing medical benefits administration for
health care plans for over 23,000 small businesses covering approximately
215,000 members. In 1995 it had revenues of $74 million. Consolidated Group
employs approximately 600 people. Harrington, headquartered in Columbus, Ohio,
provides administrative services to over 700 large self-funded plans covering
approximately 1,600,000 members. Its revenues in 1995 were $72 million.
Harrington employs approximately 1,500 employees, under principal offices
in Columbus, Ohio, Chicago, Illinois, and El Monte, California.
During 1995, HealthPlan Services also acquired two small administrators,
Third Party Claims Management, Inc. ("TPCM"), which serves over 300
mid-to-large sized organizations covering a total of 140,000 members, and
Diversified Group Brokerage Corporation ("DGB"), which serves approximately
200 medium sized businesses with 45,000 members. Both TPCM and DGB have
experienced declining revenue due to customer attrition, and HealthPlan Services
elected to consolidate the operations of TPCM and DGB during 1996, resulting in
the closing of the Memphis, Tennessee office of TPCM, $.7 million of which is
included in the restructure charge of $1.4 million recorded in the third quarter
of 1996.
HealthPlan Services has written of $6.6 million of goodwill associated
with the DGB acquisition, due to, among other things, higher than originally
expected attrition rates resulting in ongoing decreases in net revenues on a
quarterly basis, due in part to increased pricing resulting from a reinsurance
carrier's departure from DGB's market, and an inadequate distribution system, as
evidenced by an underperforming sales force and greater than anticipated
operating costs.
HealthPlan Services has written off $7.1 million of goodwill associated
with the TPCM acquisition, due to, among other things, higher than originally
expected attrition rates, significantly higher than expected claims experience
(claims filed per enrollee), and greater than anticipated operating costs due
to the limited capability of TPCM's infrastructure.
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On January 8, 1996, HealthPlan Services entered into an agreement with
Medirisk, Inc. ("Medirisk") a provider of health care information, to purchase
$2.0 million of Medirisk preferred stock representing a 9% ownership interest
recorded under the cost method of accounting and, in addition, to lend up to
$10.0 million over four years in the form of debt for which HealthPlan Services
would receive detachable warrants to purchase Medirisk common stock at $0.01
per share. The funds will be used by Medirisk to finance its expansion through
the development of additional products and the acquisition of additional health
care information businesses. Medirisk, which was founded in 1983 and is
headquartered in Atlanta, Georgia, is a provider of proprietary health care
information products and services that track the price and utilization of
medical procedures. As of September 30, 1996, HealthPlan Services had purchased
$2 million of preferred stock of Medirisk and loaned Medirisk $6.9 million to
finance the acquisition of two health care data companies. On January 29,
1997, Medirisk completed its initial public offering selling 2,300,000 shares
of its common stock at $11.00 per share. In connection with the offering,
HealthPlan Services' Medirisk preferred stock was converted into common stock.
As of January 29, 1997, HealthPlan Services beneficially owned 480,442 shares
of Medirisk common stock. Medirisk has granted underwriters a 30-day option
to purchase up to 345,000 additional shares of common stock solely to cover
over-allotments, at a price of $11.00 per share.
PRODUCTS/SERVICES
HealthPlan Services provides distribution, enrollment, premium billing
and collection, claims administration and information and analyses outsourcing
services to insurance companies, managed care organizations, integrated delivery
systems, self-funded benefit plans, and health care purchasing alliances.
Distribution and Enrollment
HealthPlan Services provides distribution services to providers of
health insurance and other payors desiring to sell health care coverage to the
small business market. HealthPlan Services' services include telemarketing,
quote preparation, voice telequoting, and customer service. In providing these
services, HealthPlan Services works with a broad range of insurance agents,
including independent brokers as well as captive insurance agents who work
exclusively for one underwriter. Based on market research, actuarial analysis of
claims adjudicated and interaction with payor organizations, HealthPlan Services
helps design managed care products, often with specialized features (such as
dental coverage, disability, eligibility requirements and deductibles), which
address the specialized needs of the small business employer. HealthPlan
Services also designs and implements communications programs on behalf of its
payors, which are aimed at educating the insurance agent about the relative
merits of a particular product offering. In addition, HealthPlan Services'
marketing responsibilities include the development of consumer awareness
programs, including advertising and media planning, on behalf of state-sponsored
health care purchasing alliances. HealthPlan Services also offers its customers
enrollment services, including underwriting in accordance with the standards set
by the risk bearer, issuance of evidence of coverage, and case renewal.
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Billing and Collection of Premiums
HealthPlan Services sends monthly bills on behalf of payors to insured
parties, receives premium payments from the insureds, and makes commission
payments to agents. As part of the billing process, HealthPlan Services
implements premium changes due to rate changes, employee hiring or termination,
and other group changes.
Claims Administration
HealthPlan Services' claims administration services include eligibility
verification, copayment calculation, repricing, claims adjudication, and
preparation of explanation of benefit forms. HealthPlan Services also pays
claims on behalf of payors by issuing checks to health care providers on payor
accounts. HealthPlan Services' claims administration services also include
utilization review services through its Cost Watch/Medical Case Management and
through Harrington's ProHealth, Inc. unit. These units are staffed by qualified
nurses and other qualified medical personnel to provide precertification
approval (a review mechanism for screening costs in advance of medical care);
medical case management (to contain the costs of prolonged and catastrophic
cases); and special claims review services.
Information and Analysis
HealthPlan Services has broad reporting and analytic capabilities
relating to all aspects of its services. HealthPlan Services' information
products include reports regarding agent production, enrollment, and frequency
and type of claims. HealthPlan Services intends to continue to enhance its
information-based products. In particular, HealthPlan Services plans to pursue
opportunities with its new strategic partner, Medirisk, to develop
information-based products from HealthPlan Services' database of administered
claims.
CUSTOMERS
HealthPlan Services provides services on behalf of a wide range of
health care payors, including insurance companies, managed care organizations,
integrated delivery systems, self-funded benefit plans, and health care
purchasing alliances. HealthPlan Services has expanded its customer base from
traditional indemnity carriers to include PPOs, HMOs, and other managed care
entities, while at the same time working with its traditional indemnity carriers
to develop competitive managed care products.
Insurance Companies, Managed Care Organizations,
and Integrated Delivery Systems
In July 1995, HealthPlan Services began providing marketing and
administrative services in Florida for PCA Family Health Plan, Inc., which is
affiliated with Physicians Corporation of America ("PCA"), the seventh largest
HMO in the United States. In the third quarter of 1995, HealthPlan Services and
PCA Health Plans of Alabama, Inc., which is also a PCA affiliate, agreed to
expand the scope of HealthPlan Services' services to Alabama, which expansion
commenced in the first quarter of 1996. In October 1995, HealthPlan Services and
Employers Life Insurance Company of Wausau ("ELOW"), a wholly owned subsidiary
of Nationwide Life Insurance Company, agreed to form a relationship to offer a
broad range of health care products to small businesses in several states.
HealthPlan Services began marketing activities for ELOW products in the third
quarter of 1996. In December 1995, HealthPlan Services signed a letter of intent
with the Florida Independent Physicians Association ("FIPA") to provide
administrative services for FIPA. A definitive agreement was signed in May 1996.
FIPA is a network of independent physicians associations representing nearly
6,000 physicians in the State of Florida. In July 1996, HealthPlan Services
entered into an agreement with Provident American Corporation to market
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and administer its managed indemnity product to individuals in several states.
In August 1996, HealthPlan Services and Foundation Health, a large, national
HMO, entered into an agreement whereby HealthPlan Services will be Foundation's
exclusive marketer and administrator in the state of Florida for its individual
and small group HMO products for groups with 25 or fewer employees. To date,
HealthPlan Services has not generated any significant revenue from any of these
relationships, and it is unclear when, if ever, significant revenue will
materialize. In addition, the pricing on several of these products is still
being negotiated, so it is uncertain what effect, if any, enhanced revenue from
these relationships will have on HealthPlan Services' future profitability.
Typically, HealthPlan Services' insurance and managed care payors sign
contracts with HealthPlan Services that are cancelable without penalty by either
party upon advance written notice of between ninety days and one year, and are
also cancelable upon a significant change of ownership of HealthPlan Services.
There can be no assurance that these or any other payors will continue their
contracts with HealthPlan Services for any particular period of time. Over the
past several years, a number of payors have elected to abandon or de-emphasize
their involvement in the small group health insurance market. In 1995, the New
England Mutual Life Insurance Company, Celtic Life Insurance Company, and
Ameritas Life Insurance Corporation accounted for 31.0%, 23.0%, and 10.7%,
respectively, of total revenue. The July 1996 run rate for these customers was
approximately 11.6%, 9.1%, and 6.7%, respectively. This decline is due primarily
to HealthPlan Services' expansion through acquisition, which has diluted its
concentration of revenues from these sources.
Historically, the majority of Consolidated Group's business was written
with Travelers Insurance Company, which recently combined with the health
insurance business of Metropolitan Life Insurance Company to form MetraHealth.
Subsequently, MetraHealth was acquired by United HealthCare, one of the nation's
leading HMO companies. This business represents approximately 85% to 90% of
Consolidated Group's revenue, or approximately 22% of total consolidated
HealthPlan Services' revenue as of July 1996.
In the third quarter of 1996, Metropolitan Life Insurance Company (less
the recently divested health insurance business) completed its acquisition of
the New England Mutual Life Insurance Company. HealthPlan Services is unable to
predict what effect, if any, such merger will have on HealthPlan Services'
relationship with the New England. In addition, HealthPlan Services cannot
measure either the commitment United HealthCare will have to the small group
market or the success it will experience in converting the MetraHealth block of
business to United Healthcare's new products. The abandonment of the small group
market by either the New England Mutual Life Insurance Company, Celtic Life
Insurance Company, or Ameritas Life Insurance Corporation, and the degree to
which HealthPlan is successful with respect to the MetraHealth conversion, could
have a material adverse effect on HealthPlan Services. A decision by any one of
these payors to administer and distribute a significant portion of its products
directly to small businesses could also have a material adverse effect on
HealthPlan Services.
Administrative Services Only
HealthPlan Services has been in the "ASO" business since 1987, when
HealthPlan Services assumed administrative responsibility for the employee
health insurance plan of The Dun & Bradstreet Corporation ("D&B"), its former
parent. HealthPlan Services is also the administrator of health care programs
for the State of Oklahoma Education Employees Group Insurance Board, which cover
approximately 89,000 public employees in Oklahoma. The contract with Oklahoma
renews annually on June 30 and will be subject to state bidding procedures in
1998. HealthPlan Services administers this program from its facility in Oklahoma
City, Oklahoma. As a result of the TPCM, DGB, and Harrington acquisitions,
HealthPlan Services added multiple operating facilities throughout the United
States. Through new business sales, case acquisition, and these acquisitions,
this business unit provides administrative services to nearly 900,000 employees,
representing approximately 2.2 million members.
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The current market for HealthPlan Services' ASO business encompasses all
private entities, public entities, Taft Hartley Plans, and associations with
over 100 employees. During 1995, HealthPlan Services redesigned its existing
administrative process to serve the large case (greater than 1,000 employees)
market more efficiently. Additionally, HealthPlan Services implemented a
strategy that increased its market share in the United States via acquisition.
HealthPlan Services also designed advanced electronic data systems as an
interface with providers in order to automate the adjudication of claims
information and provide for more timely reimbursement to providers.
In September 1995 HealthPlan Services was selected by Darden
Restaurants, Inc. to administer its self- funded health care benefits plan,
covering approximately 19,000 employees, beginning January 1, 1996. Darden
Restaurants, Inc., a leader in the casual dining industry with over $3 billion
in sales, owns the Red Lobster and Olive Garden Restaurant chains.
Health Care Purchasing Alliances
During the 1990s, many small businesses were and continue to be unable
to obtain health care coverage at affordable prices. In response, some states
have formed state-sponsored health care purchasing alliances. Several privately
funded groups also have formed health care purchasing alliances, in some cases
with state support. HealthPlan Services has been selected to be the
administrator for four state-sponsored health care purchasing alliances (in
Florida, Kentucky, North Carolina and the State of Washington), and three
private alliances.
HealthPlan Services is the administrator for each of the 11 regional
areas of the Florida Community Health Purchasing Alliance ("CHPA's"), a health
care purchasing alliance established by the State of Florida. In February 1995,
HealthPlan Services was selected as the statewide administrator for North
Carolina's State Health Plan Purchasing Alliance program, which was launched in
the fourth quarter of 1995. Insurance carriers in North Carolina have not yet
shown significant support for this alliance. In April 1995, HealthPlan Services
was selected as the statewide administrator for Kentucky's health care
purchasing alliance program, which commenced in July 1995. In the third quarter
of 1995 HealthPlan Services opened an office in Lexington, Kentucky to
administer the Kentucky program. In December 1995 HealthPlan Services was
selected to develop and implement statewide marketing and selected
administrative services for the "Basic Health Plan," the State of Washington's
health care purchasing alliance program, beginning in the second quarter of
1996. The Kentucky plan is fully operational and profitable, with over 170,000
enrollees. The Washington contract is still in the development stage, and its
ultimate success or acceptance by the people of the State of Washington cannot
be predicted at this time.
Prior to bidding for a health care purchasing alliance contract,
HealthPlan Services estimates the revenues to be derived over the life of the
contract, along with the costs to perform the services connected therewith.
HealthPlan Services reviews for adverse commitments at each reporting date.
This review includes an evaluation of actual results during the period and
other factors, such as anticipated rates, volume, and costs. HealthPlan Services
management then updates its estimates of expected revenues and expenses over
the remaining life of the contract. If the revised estimates show a net loss
over the remaining life of the contract, HealthPlan Services recognizes the
loss immediately.
The primary material risks associated with alliance contracts are:
1. Private enterprises will not accept the use of a government-
sponsored program and will therefore fail to provide an adequate number
of enrollees to support a revenue base (over which fixed costs may be
spread).
2. The number of enrollees per group will be so low that margins
are insufficient to cover the fixed costs of set up for the group.
3. The level of marketing, enrollment, and customer service
required will be materially higher than expected, therefore increasing
the variable costs required under the contract.
4. The independent agents on whom HealthPlan Services relies
to distribute the product are not enthusiastic about the alliance
program. As a result, program enrollment fails to meet expectations.
HealthPlan Services has incurred substantial expenses in connection with
the start-up of its Florida, Kentucky, North Carolina, and Washington alliance
administration contracts and may incur similar start-up expenses in connection
with other state health care purchasing alliance business obtained by HealthPlan
Services in the future. In the fourth quarter of 1994 and the third quarter of
1996, HealthPlan Services took significant write-downs to reflect the estimated
loss HealthPlan Services would incur over the life of the Florida CHPA contract.
HealthPlan Services does not anticipate recovering all of its start up expenses
incurred in connection with the alliance administration contracts during their
initial terms, and there can be no assurance that the health care purchasing
alliance contracts will be profitable for HealthPlan Services. In addition, each
of the health care purchasing alliance contracts currently held by HealthPlan
Services contains a broad cancellation provision that enables the alliance to
cancel the contract on relatively short notice without penalty. HealthPlan
Services has developed marketing expertise and proprietary software to handle
the enrollment, billing, disbursement, and reporting services required under the
alliance contracts, including client-server technology which HealthPlan Services
believes may provide it with a competitive advantage in pursuing alliance
contracts.
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In October 1995, Healthcare Sarasota, Inc., a coalition of employers in
Sarasota, Florida, selected HealthPlan Services to administer health care
benefit plans for some of its member employers beginning in the first quarter of
1996. In November 1995, HealthPlan Services began administering health care
benefits for the South Broward Hospital District (in Florida) self-funded
benefits plans.
During the first three quarters of 1996, the alliance sector, in
aggregate, was still not profitable; management continues to review operating
procedures to improve profitability, and has entered into discussions with
several Florida CHPA Boards in order to renegotiate the existing contracts
which are scheduled to expire in 1997. In the third quarter of 1996, HealthPlan
Services announced that it had taken a charge of $2.6 million related to the
alliance sector resulting from increased costs and lower than anticipated
revenues in Florida and North Carolina.
INFORMATION TECHNOLOGY
HealthPlan Services' central data processing facilities are located in
its Tampa, Florida, Framingham, Massachusetts, Columbus, Ohio and Elmonte,
California. HealthPlan Services is operating in a three tiered architectural
environment. A large IBM mainframe and a DEC platform supports the large volume
of data and transactions processed by HealthPlan Services on an annual basis.
Since 1990, HealthPlan Services has invested in client-server technology to
support the front-end sales and marketing function. HealthPlan Services utilizes
personal computer workstations in a local area and wide area network to deliver
information and images to the desktop. HealthPlan Services also utilizes a
variety of other technologies to meet specific business needs, including
interactive voice response for sales and services, point of service devices for
claims processing, and optical character recognition for entry of data from
forms.
HISTORY
HealthPlan Services' original operating subsidiary, HealthPlan Services,
Inc., was founded in 1970 by James K. Murray, Jr., HealthPlan Services' current
President and Chief Executive Officer, Charles H. Guy, Jr. and Trevor G. Smith
(the "Founders"), each of whom currently serves as a director of HealthPlan
Services. D&B purchased the business in 1978 and operated it as a division. Mr.
Murray continued to play an active role in the business until 1987, when he left
to assume roles of increasing responsibility within D&B, which included serving
as president of two of its largest operating divisions. On September 30, 1994,
the Founders, Noel and three funds in which Trinity Ventures, Ltd., a
privately-held venture capital company, is the general partner, (the "Initial
Investors") purchased Plan Services, Inc. ("PSI" or the "Predecessor Company")
from D&B. Since that purchase, HealthPlan Services has completed four
substantial acquisitions, which are described in more detail above.
COMPETITION
HealthPlan Services faces competition and potential competition from
traditional indemnity insurance carriers, Blue Cross/Blue Shield organizations,
PPOs, HMOs, third party administrators and utilization review companies and
healthcare informatic companies. HealthPlan Services competes principally on the
basis of the price and quality of services. Many large insurers have actively
sought the claims administration business of self-funded programs and have begun
to offer utilization review and other managed health care services similar to
the services offered by HealthPlan Services. Many of HealthPlan Services'
competitors and potential competitors are considerably larger and have
significantly greater resources than HealthPlan Services.
GOVERNMENT REGULATION
HealthPlan Services is subject to regulation under the health care and
insurance laws and other statutes and regulations of all 50 states, the District
of Columbia and Puerto Rico. Many states in which HealthPlan Services provides
claims administration services require HealthPlan Services or its employees to
receive regulatory approval or licensure to conduct such business. Provider
networks are also regulated in many states and certain states require the
licensure of companies, such as HealthPlan Services, which provide utilization
review services. HealthPlan Services' operations are dependent upon its
continued good standing under applicable licensing laws and regulations. Such
laws and regulations are subject to amendment or interpretation by regulatory
authorities in each jurisdiction. Generally, such authorities have relatively
broad
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discretion when granting, renewing, or revoking licenses or granting approvals.
These laws and regulations are intended to protect insured parties rather than
stockholders, and differ in content, interpretation and enforcement practices
from state to state. Moreover, with respect to many issues affecting HealthPlan
Services, there is a lack of guiding judicial and administrative precedent.
Certain of these laws could be construed to prohibit or restrict practices
which have been significant factors in HealthPlan Services' operating procedure
for many years if state regulators were to deem HealthPlan Services' practices
to be impermissible.
ERISA governs the relationships between certain health benefit plans and
the fiduciaries of those plans. In general, ERISA is designed to protect the
ultimate beneficiaries of the plans from wrongdoing by the fiduciaries. ERISA
provides that a person is a fiduciary of a plan to the extent that such person
has discretionary authority in the administration of the plan or with respect to
the plan's assets. The employers who are the customers of HealthPlan Services
are fiduciaries of the plan they sponsor, but there can also be other
fiduciaries of a plan. ERISA imposes various express obligations on fiduciaries.
These include barring a fiduciary from permitting a plan to engage in certain
prohibited transactions with parties in interest or from acting under an
impermissible conflict of interest with a plan. Generally, a party in interest
with respect to a plan includes a fiduciary of the plan and persons that provide
services to the plan. Violations of ERISA by fiduciaries can result in the
rescission of any affected agreement, the imposition of substantial civil
penalties on fiduciaries and parties in interest, and the imposition of excise
taxes under the Code on parties in interest.
Currently, HealthPlan Services's Consolidated Group subsidiary is
undergoing a Department of Labor (the "DOL") audit in which the DOL has raised
various questions about the application of ERISA to the way that subsidiary does
business. This audit is ongoing and there can be no assurance that the DOL will
not take positions which could require changes to the way this subsidiary
operates or result in the assertion or the imposition of administrative fines
and penalties.
The application of ERISA to the operations of HealthPlan Services and
its customers is an evolving area of law and is subject to ongoing regulatory
and judicial interpretations of ERISA. Although HealthPlan Services strives to
minimize the applicability of ERISA to its business and to ensure that
HealthPlan Services' practices are not inconsistent with ERISA, there can be no
assurance that courts or the DOL will not in the future take positions contrary
to the current or future practices of HealthPlan Services. Any such contrary
positions could require changes to HealthPlan Services' business practices (as
well as industry practices generally) or result in liabilities of the type
referred to above. Similarly, there can be no assurance that future statutory
changes to ERISA will not significantly affect HealthPlan Services and its
industry.
EMPLOYEES
With the acquisitions of the Consolidated Group and Harrington,
HealthPlan Services employed approximately 3,000 full-time equivalent employees
as of September 30, 1996. HealthPlan Services' labor force is not unionized
with the exception of Harrington's subsidiary, American Benefit Plan
Administrators, Inc., which administers Taft-Hartley plans. HealthPlan Services
believes it relationship with its employees is good.
TRADEMARKS
HealthPlan Services utilizes various service marks, trademarks and trade
names in connection with its products and services, most of which are the
property of HealthPlan Services' payors. Although HealthPlan Services considers
its service marks, trademarks and trade names important in the operation of its
business, the business of HealthPlan Services is not dependent on any individual
service mark, trademark or trade name.
STAFFING RESOURCES, INC. (16%)
Staffing Resources, which was formed in August 1993 in connection with
the acquisition of a group of five staffing businesses located in the Southwest
region of the United States, is a provider of staffing services to businesses in
various industries. Since March 1994, Staffing Resources has acquired 20
staffing services businesses and has expanded into new markets, initially in the
Southwest and Rocky Mountain regions and, more recently, in the Southeast.
Staffing Resources' principal executive offices are located at 222 West
Las Colinas Boulevard, Suite 1250, Irving, Texas 75039 and its telephone number
is (214) 432-3000. Stanley R. Rawn, Jr., the Chief Executive Officer of Noel, is
Chairman of the Executive Committee of Staffing Resources. Mr. Rawn and Joseph
S.
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DiMartino, Chairman of the Board of Noel, currently serve on Staffing Resources'
seven member Board of Directors.
Staffing Resources currently operates approximately 170 offices under a
variety of brand names in 16 states, and is organized into two core groups --
support services and strategic services.
SUPPORT SERVICES. Staffing Resources' support services group offers
traditional secretarial, clerical and light industrial support, including
numerous light duty manufacturing applications.
STRATEGIC SERVICES. Staffing Resources' strategic services group
provides clients with industry specialists in financial information, information
technology, skilled manufacturing and transportation services.
Financial and Accounting. Staffing Resources' financial and accounting
personnel provide its client base with a means of handling the uneven or peak
workloads that arise from periodic financial and tax reporting requirements,
accounting system conversions, acquisitions and special projects. As a result,
assignments for these employees tend to be for a longer term than a typical
support services assignment. Clients are provided with staffing employees
qualified to work as auditors, tax accountants, controllers, financial
executives, bookkeepers and data entry clerks.
Information Technology. The strategic services group also provides
clients requiring information technology expertise with staffing employees
qualified to work as software developers, business analysts, network engineers
and network and program analysts.
Skilled Manufacturing Support. The strategic services group's
manufacturing support personnel act in a variety of capacities requiring (i)
electronics manufacturing skills, including PCB solderers, electronic and
mechanical assemblers, engineering technicians and quality control specialists;
(ii) machine tool and manufacturing skills, including machinists, tool and
die makers, welders and machine operators; and (iii) engineering assistance,
including software engineers, circuit designers, industrial engineers and
production control specialists.
Transportation Specialists. Staffing Resources' truck drivers and
machine operators offer clients a means of handling the uneven or peak workloads
for short and long-haul over the road truck driving. Staffing Resources has
Class "A", "B" and "C" Certified Drivers, short and long-haul over the road
drivers and heavy equipment operators.
SALES AND MARKETING
The needs for each of the staffing services provided by Staffing
Resources differ significantly by locale and by type of service. Staffing
Resources obtains clients through its sales force and by referrals from existing
clients. Staffing Resources' sales force consists primarily of full-time
employees whose duties include calling on potential clients and maintaining
relationships with existing clients.
OPERATIONS
Field Offices. Staffing Resources operates approximately 170 offices
throughout the Southwest, Rocky Mountain and Southeast regions of the United
States. Staffing Resources typically commences operations in a market by
offering support services followed by the introduction of strategic services as
dictated by each market. Because all services are not appropriate for all
markets, Staffing Resources evaluates each market individually as it expands.
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Corporate Services. Staffing Resources is in the process of integrating
the operational, financial and administrative functions of its field offices
into its corporate headquarters in Irving, Texas. The corporate services
provided by corporate headquarters include centralized payroll, billing,
finance, accounting, risk management, systems, marketing support, training and
human resources services for the field offices.
Management Information Systems. Staffing Resources has undertaken a
program to integrate the management information systems of its various branch
offices into a national information network. This network will allow the branch
offices to connect with the corporate systems of E-mail, accounting, payroll and
administration. Following its implementation, this system will also permit
local access to jobs and employee databases.
FACILITIES
Staffing Resources currently operates in 16 states through a network of
approximately 170 offices, including its corporate headquarters in Irving,
Texas. All of these offices are leased. A full-service branch office typically
occupies approximately 1,500 to 2,500 square feet, with lease terms that range
from three to five years.
REGULATION
Certain states in which Staffing Resources operates, or may operate in
the future, have licensing requirements and other regulations specifically
governing the provision of staffing services. There can be no assurance that
states in which Staffing Resources operates, or may in the future operate, will
not adopt more strict licensing requirements or other regulations that would
affect or limit Staffing Resources' operations.
In May 1994, Staffing Resources established a partially self-insured
workers' compensation program with CNA Insurance. Staffing Resources maintains
workers' compensation insurance for all claims in excess of $250,000 per
occurrence. Staffing Resources and its insurer have established appropriate
reserves for the uninsured portion of claims, but such reserves are only
estimates of future claims payments and there can be no assurance that Staffing
Resources' future workers' compensation obligations will not exceed the amount
of its reserves. Staffing Resources has limited experience with its workers'
compensation program and workers' compensation costs may increase as a result of
changes in Staffing Resources' experience rating or applicable laws. Staffing
Resources may also incur costs related to claims made at a higher rate in the
future due to such causes as higher than anticipated losses from known claims,
an increase in the number and severity of new claims or a catastrophic accident.
An increase in the number of overall cost of workers' compensation claims could
significantly increase Staffing Resources' premiums and might have a material
adverse effect on its results.
EMPLOYEES
As of January 1, 1997, Staffing Resources employed approximately 1,115
full-time employees. None of Staffing Resources' employees, including its
staffing employees, is represented by a collective bargaining agreement.
In order to recruit its staffing employees, Staffing Resources uses
classified newspaper advertising, supported by its recruiting offices, and makes
direct contact through trained recruiters with public and private agencies,
trade schools and colleges who can refer personnel seeking employment. Staffing
Resources also compensates its workforce for referring other applicants.
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Training of staffing employees, when required, is accomplished by
computerized tutorials, videos, on-the-job training by clients and by
specialized skill training. Reference checking is performed on a selective basis
according to the judgment of recruiting personnel and the requirements of each
assignment.
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BELDING HEMINWAY COMPANY, INC. (30%)
Belding Heminway and its subsidiaries manufacture and market industrial
sewing threads and distribute a line of home sewing and craft products,
principally buttons.
Belding Heminway was the surviving corporation in a merger (the
"Merger") with BH Acquisition Corporation, a Delaware corporation wholly-
owned by Noel. The Merger, completed on October 29, 1993, was the second step of
a transaction pursuant to which Noel acquired the entire equity interest in
Belding Heminway.
Belding Heminway and its subsidiaries currently operate in two industry
segments: Industrial products and Consumer products. Industrial products are
principally sewing threads used in industrial applications. Consumer products
are principally sewing threads and buttons used in consumer product
applications. On July 31, 1996 Belding Heminway completed the sale of its Home
Furnishing's division.
Pursuant to an Asset Purchase Agreement dated as of December 12, 1996
(the "Sale Agreement"), among Belding Heminway, certain of its subsidiaries and
Hicking Pentecost PLC and its subsidiary, HP Belt Acquisition Corporation,
Belding Heminway will sell (the "Sale") substantially all of its business,
operations and assets related to the manufacturing, marketing and sale of
industrial and consumer thread, including sewing threads and certain non-sewing
yarns (collectively, the "Thread Division") to HP Belt Acquisition Corporation
for an aggregate cash consideration of $54,924,200, subject to adjustment,
plus the assumption of certain liabilities, as contemplated by the Sale
Agreement. Consummation of the Sale is subject to the satisfaction of a number
of conditions, including obtaining the requisite shareholder approvals and the
successful completion of an underwritten offering of securities by Hicking
Pentecost PLC.
Belding Heminway's principal executive offices are located at 1430
Broadway, New York, New York; its telephone number is (212) 556-4700. Karen
Brenner, a Managing Director of Noel, is currently Chairman, President and Chief
Executive Officer of Belding Heminway and Ms. Brenner, Joseph S. DiMartino,
Chairman of Noel, Samuel F. Pryor, IV, a Managing Director of Noel and William
L. Bennett, a Noel director, currently serve on Belding Heminway's eight member
Board of Directors.
Thread Division
Products. The Thread Division manufactures and markets industrial thread
and special engineered yarn used in non-sewing products. The products are
generally made of synthetic materials such as nylon, polyester and other
specialty fibers. The Thread Division's manufacturing and packaging operation,
where filaments are twisted, dyed, bonded, wound onto bobbins and packaged, are
conducted at the four plants located in the eastern United States, as more
particularly described below.
The Thread Division's sewing threads are targeted to niche markets,
characterized by demanding sewing conditions. The Thread Division is
distinguished from many of its competitors in that its manufacturing systems
are sufficiently flexible to produce relatively small lots in a wide range
of custom sizes, colors and packages.
Filament synthetic sewing threads are marketed by Belding Heminway
to a number of industries, including automotive, apparel (specialty
applications), mattress and bedding, footwear, recreational products, athletic
equipment and furniture. Special engineered yarn is marketed by Belding
Heminway to manufacturers of wire, telecommunications cable, fibre optics,
aircraft harnesses, and dental hygiene products. The Thread Division does
not compete in the commodity thread market (generally polyester/cotton)
principally used by the apparel industry. Belding Heminway estimates that the
thread market in which Belding Heminway competes represents approximately 22% of
the overall thread market in the United States.
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Competitive Factors. The industry in which the Thread Division operates
is highly competitive and management believes that competition in this industry
is based primarily upon service, quality and pricing of products. The Thread
Division competes with many manufacturers and/or distributors of industrial
threads, some of which have substantially greater assets and financial resources
and more extensive international operations than Belding Heminway.
Substantially all the materials used in the Thread Division's production
processes are commodity items. The raw materials for thread production include
synthetic materials such as nylon, polyester and other specialty fibers, all of
which are obtained in the unfinished and undyed state. The raw materials are
purchased directly from various suppliers and are generally purchased from
multiple sources. Management believes that raw materials are in ready supply,
but because its raw materials are commodities, the future prices of such
materials are unpredictable.
The bulk of the Thread Division's revenues are derived in the United
States. In 1995, approximately 6% of revenues related to export sales of
threads. Inventory levels in the Thread Division remain relatively constant
throughout the year. Policies related to the return of products and payment
terms are in accordance with industry standards.
Research, Development and Engineering. The Thread Division maintains a
research and development staff of six, which focuses on the development of
products, processes and finishes. In addition, one full-time engineer oversees
machinery development projects. Belding Heminway's expenditures in product
research and development and process engineering during each of the last three
fiscal years totaled approximately 1% of Belding Heminway's sales.
Employees; Labor Relations. The Thread Division has approximately 680
employees. None of the employees of the Thread Division is represented by
collective bargaining agreements and Belding Heminway believes relations with
its employees are satisfactory.
Facilities. The Thread Division is headquartered in Charlotte, North
Carolina and its customer service group is based in Hendersonville, North
Carolina. The following table describes each of the facilities currently
operated by the Thread Division:
<TABLE>
<CAPTION>
Size
Location (Sq. Ft.) Owned/Leased Purpose
-------- --------- ------------ --------
<S> <C> <C> <C>
Watertown, CT 196,000 Owned Twisting, finishing and
winding of synthetic
industrial sewing thread
and braids. Bobbin
winding.
Hendersonville, NC 104,000 Owned Twisting, finishing and
winding of nylon monocord
thread and other synthetic
thread. Bobbin winding.
R&D and engineering
center. Customer service.
Winsted, CT 97,000 Owned Twisting, finishing and
winding of nylon and
polyester thread. Bobbin
manufacturing.
Bronx, NY 30,000 Owned Winding of nylon and
polyester threads and
bobbins.
Hendersonville, NC 11,000 Leased Distribution
Ft. Worth,TX 7,200 Leased Distribution
Ontario, CA 3,000 Leased Distribution
Tupelo, MS 3,000 Leased Distribution
Charlotte, NC 5,300 Leased Divisional headquarters
Fairview, NJ 1,500 Leased Sales office
</TABLE>
The Thread Division also owns the following four facilities, no longer
used in operations: a 100,000 square foot former production facility at
Watertown, Connecticut of which approximately 48,000 square feet are leased to
unrelated third parties; a 160,000 square foot former production facility at
North Grosvenordale, Connecticut; a 120,000 square foot former production and
dye house facility in Putnam, Connecticut; a 49,000 square foot former
production facility of Culver International, Inc. and Culver Textile Corp.
(together "Culver"), at West New York, New Jersey. Under the terms of the Sale
Agreement, if the Sale is consummated, Belding Heminway will continue to hold
these four facilities and any liabilities related thereto.
Button Division
Belding Heminway's button business is conducted through the
Blumenthal/Lansing Company, which was formed from the merger of B. Blumenthal &
Co., Inc., a wholly-owned subsidiary of Belding Heminway, and Lansing Company,
Blumenthal's wholly-owned subsidiary. The corporate name was changed to
Blumenthal/Lansing Company on January 1, 1995.
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Products. The Button Division packages and distributes an extensive
variety of buttons for home sewing and crafts to mass merchandisers, specialty
chains, and independent retailers and wholesalers throughout the United States.
Buttons and buckles, sold under the La Mode(R) and Le Chic(R) registered
trademarks, and the Le Bouton, La Petite, Classic and Boutique brand names, are
available in thousands of styles, colors, materials and sizes to meet every
consumer need. The Button Division also produces and distributes private-label
lines for some of the nation's best-known retailers.
The Button Division also markets complimentary product lines, including
appliques, craft kits and fashion and jewelry accessories to its home sewing and
craft customers. Craft kits include Button Craft carded items, Crafters' Choice
packages of mixed, color co-ordinated buttons for major craft projects and
Button Bargain bags and containers of mixed buttons. Fashion and jewelry
accessories consist of buckles, earring backs and other accessories for jewelry
making. Though these other product lines constitute a relatively small portion
of the overall sales, Belding Heminway management believes they could represent
a significant growth opportunity.
Markets. The Button Division's products are sold primarily for use in
the home sewing market where buttons are used for garment construction,
replacement, and the upgrading and/or restyling of ready-to-wear clothing. More
modest button usage is found in craft projects, home decorating, and garment
manufacturing on a small scale and done by dressmakers and other cottage
industry consumers. The market is served by large fabric specialty chains, mass
merchandisers (such as Wal-Mart), local and regional fabric specialty chains of
4 to 25 stores, independent fabric stores, notions wholesalers, and craft stores
and chains. The Button Division does not concentrate on lower margin apparel
markets.
Product Sourcing, Distribution and Sales. The button lines are sourced
from more than 75 button manufacturers around the world, with most buttons
coming from the traditional markets of Holland, Italy, and the Orient. Button
manufacturers specialize in different materials (plastic, wood, glass, leather,
metal, jewel, pearl, etc.) and have varying approaches to fashion, coloration,
finishing, and other factors. The Button Division maintains a staff of buyers
who travel regularly in Europe and the Orient to work with suppliers and seek
out new sources. New styles are selected twice a year by management staff and
fashion department personnel who have studied the fashion and color trends for
approaching seasons.
All imported and domestically purchased buttons are shipped to the
Lansing, Iowa facility for carding and distribution to customers. As thousands
of button styles are received in bulk, computerized card printing systems enable
Blumenthal/Lansing to economically imprint millions of button cards with such
necessary data as style number, price, number of buttons, bar code, country of
origin, and care instructions. Buttons are then attached to cards primarily
through stapling, a process that involves nearly one-half of Lansing's warehouse
employees and requires stapling machines which are no longer available except
through expensive custom-manufacture. The Button Division also blister-packages
and shrink-wraps some products. Shipments are made primarily to individual
stores with a small percentage to warehouse locations. Shipments average over
14,000 per month and 700 per day, and most are made via UPS.
The Button Division's accounts include major fabric specialty chains,
most mass merchandisers carrying buttons, most regional fabric specialty chains
and many independent stores. Mass merchandisers and specialty chain customers
are characterized by the need for sophisticated electronic support, rapid
turn-around of merchandise and direct-to-store service for hundreds to thousands
of locations nationwide. The Button Division enjoys long-standing ties to all of
its key accounts and the average relationship with its ten largest customers
extends over 20 years. Although the Button Division has more than 1,000
accounts, its sales are highly concentrated and the loss of one or more of its
large customers would have a material adverse effect on the Button Division. Due
to the large account nature of its customer base, most customer contact is
coordinated by management; additional sales coverage is provided by regional
sales managers. Certain retailers are serviced by independent representatives
and representative organizations.
Competitive Factors. The retail button market is served by several
competitors. Belding Heminway competes primarily with JHB International and
Streamline Industries, Inc., which are full-line button packagers and
distributors in the general button market and several smaller competitors in
the promotional button market. Belding Heminway management believes that
the principal bases for competition are product innovation, range of selection,
brand names, price, display techniques and speed of distribution. Belding
Heminway management believes the Button Division's broad base of supplier
relationships, wide distribution and ability to serve nationwide retail chains
impose significant barriers to entry into this market.
Belding Heminway management believes that retail button distribution
depends on trends in the home-sewing market, which Belding Heminway management
believes is mature. The retail customer base for buttons has changed
substantially over the past two decades as department stores and small
independent fabric stores have been replaced by mass merchandisers and
specialty retail chains which have continued to consolidate recently through
mergers and store closings.
The bulk of the Button Division's revenues are derived in the United
States. In 1995, less than 1% of revenues related to export sales. Inventory
levels remain relatively constant throughout the year. The Button Division's
policies related to merchandise return and payment terms are in accordance with
industry standards.
Employees; Labor Relations. The Button Division has approximately 165
employees, two of whom are covered by a collective bargaining agreement with
the United Auto Workers which expires on May 31, 1997. Belding Heminway
management believes relations with both the non-union and unionized employees
are satisfactory.
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Properties. The Button Division operates from a 104,000 square foot
packaging and distribution facility located in Lansing, Iowa which is owned
by Belding Heminway. Divisional management, sales and marketing, product
development, fashion and purchasing are headquartered in a 6,300 square foot
office facility in Carlstadt, New Jersey which is leased by Belding Heminway.
Belding Heminway management believes that the Button Division's facilities are
in good condition and adequate for the Division's present and reasonably
foreseeable future needs.
In addition to the properties operated by the Button Division, Belding
Heminway owns a 214,000 square foot former dye facility located in Emporia,
Virginia.
Legal Proceedings
General. Belding Heminway is not currently a party to any significant
litigation except as indicated below.
Environmental Matters. Belding Heminway is subject to a number of
federal, state and local environmental laws and regulations, including those
concerning the treatment, storage and disposal of waste, the discharge of
effluents into waterways, the emissions of substances into the air and various
health and safety matters. In addition, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA") and
comparable state statutes generally impose joint and several liability on
present and former owners and operators, transporters and generators for
remediation of contaminated properties regardless of fault. These parties are
typically identified as "potentially responsible parties" or PRPs.
Several years ago a property owned by Heminway & Bartlett Manufacturing
Company, a wholly-owned subsidiary of Belding Heminway ("H&B") located at 30
Echo Lake Road in Watertown, Connecticut was being investigated by the United
States Environmental Protection Agency ("EPA") for possible inclusion on the
National Priorities List promulgated pursuant to CERCLA but no such listing has
yet occurred. A Site Inspection conducted at this location detected certain
on-site soil and groundwater contamination, as well as contamination of nearby
water. This site is listed on the Connecticut State Hazardous Waste Disposal
Site list, but remediation activity has not been required by the Connecticut
Department of Environmental Protection ("CTDEP").
Belding Chemical Industries owns an inactive facility located in North
Grosvenordale, Connecticut at which soil contamination has been found. Belding
Heminway reported this contamination to the CTDEP in 1989 and is presently
working with the CTDEP to define remedial options for the site, which it expects
will focus primarily on removal and possible stabilization of contaminated soil
on site. Belding Heminway estimates the cost of remediation at this site to be
approximately $100,000 based upon information on the costs incurred by others in
remediating similar contamination at other locations. As the actual cost of
remediation at this site will depend on the areal extent of soil contamination
and the remediation options approved for this site in the future by the CTDEP,
no assurances can be given that the actual cost will not be higher than Belding
Heminway's current estimate.
In or about June 1992, Belding Heminway received notice from the EPA
that Belding Heminway, the Belding Corticelli Thread Company, a division of
Belding Heminway, and H&B had been identified, along with 1,300 other parties,
as potentially responsible parties in connection with the alleged release of
hazardous substances from the Solvents Recovery Superfund site in Southington,
Connecticut. Belding Heminway has settled its alleged liability with the EPA by
paying $1,626 in connection with the de minimis settlement approved by EPA in
June 1994. Belding Heminway's subsidiaries, along with other potentially
responsible parties have committed to perform the Remedial Investigation and
Feasibility Study (RIFS) and two Non-Time Critical Removal Actions at the site.
The aggregate cost to complete the first Non-Time Critical Removal Action is
approximately $6 million. H&B's alleged contribution of waste disposed of at
this site is approximately 1%. Belding Corticelli's alleged contribution of
waste is de micromis. Belding Heminway is unable, at this time, to estimate the
ultimate cost of the remedy for this site, remedial investigation for the
site is underway and EPA does not expect to be able to determine a remedy for
the site until some time in late 1998.
By letter dated January 21, 1994, the EPA notified H&B that it was a
potentially responsible party, along with approximately 335 other parties, with
respect to the Old Southington Landfill in Southington, Connecticut. H&B's
alleged contribution of waste disposed of at this site is 0.0637%. H&B's alleged
contribution of waste at the Old Southington Landfill, along with the waste
contributions of other PRP's whose waste was transshipped from the Solvents
Recovery Superfund site to the Old Southington Landfill, was determined by EPA,
using information that EPA had compiled for the Solvents Recovery Superfund
site, and factoring in shipments of waste that were made directly to Old
Southington Landfill. The ultimate cost of the remedy for this site has not yet
been determined and EPA has not yet offered to settle with parties that
allegedly sent less than 1% of total waste to the site, like H&B. Accordingly,
Belding Heminway's liability with respect to this site cannot accurately be
estimated. However, given the de minimis nature of H&B's alleged contribution,
and assuming EPA offers a settlement to de minimis parties, Belding Heminway
currently believes that its liability for this site should not exceed $50,000
although no assurance can be given that the ultimate cost will not exceed such
amount.
Belding Heminway received notice in April 1995 that the State of New
Jersey has made a $34 million demand for payment for expenses incurred for
cleanup and claims at the Chemical Control Superfund Site. H&B, identified as a
PRP at this site, was one of the 167 parties that settled its liability with the
EPA. The State's demand, however, is separate from the federal settlement. H&B's
alleged contribution of waste disposed at the site was identified as 0.89342%.
H&B's alleged contribution of waste at the Chemical Control Superfund site,
along with the waste contributions of other potentially responsible parties, was
determined initially by EPA based upon a list it developed. EPA then established
a process whereby PRPs were allowed to supply additional information, including
defenses to liability and challenges to EPA's information, and, in addition,
were given a credit if the PRPs could prove that they either removed waste from
the site or paid for the same waste disposal at another site. There is a larger
number of PRPs in the state proceeding involving the site than in the EPA
proceeding, and it is possible that H&B's percentage share of waste allegedly
sent to the site may be adjusted in connection with the state proceeding to
reflect the contribution of additional PRPs. However, based on the $34 million
demand and the current percentage for H&B's alleged waste contribution
(0.89342%), the amount that H&B would likely be required to pay to settle its
liability is approximately $322,000.
By third-party summons and complaint dated November 27, 1991, H&B has
been named as a third-party defendant in an action pending in the United States
District Court for the District of Rhode Island entitled United States vs.
Williams M. Davis et al vs. American Cyanamid Company et al. In addition to H&B,
approximately 60 other companies have been joined as third-party defendants. The
third-party complaint alleges claims for contribution under CERCLA. The
third-party complaint alleges that H&B and the majority of the other third-party
defendants shipped waste to Chemical Control Corporation, which was commingled
with other wastes and shipped to the Davis Liquid Waste Site located in
Smithfield, RI. H&B has entered into an agreement to settle its liability in
connection with these claims for payment of the sum of $200,000. The agreement
has not yet been approved by the court.
The estimates provided above do not include costs that Belding Heminway
or its subsidiaries may incur for consultants or attorneys' fees or for
administrative expenses in connection with their participation as part of the
PRP group at the Solvents Recovery, Old Southington Landfill or Chemical Control
Superfund sites. The reserve Belding Heminway has established for environmental
liabilities, in the amount of $5.1 million, represents Belding Heminway's best
current estimate of the costs of addressing all identified environmental
problems, based on Belding Heminway's review of currently available evidence,
and takes into consideration Belding Heminway's prior experience in remediation
and that of other companies, as well as public information released by EPA and
by the PRP groups in which Belding Heminway or its subsidiaries are
participating. Although the reserve currently appears to be sufficient to
cover these environmental liabilities, there are uncertainties associated with
environmental liabilities, and no assurances can be given that Belding
Heminway's estimate of any environmental liability will not increase or
decrease in the future. The uncertainties relate to the difficulty of estimating
the ultimate cost of any remediation that may be undertaken, including any
operating costs associated with remedial measures, the duration of any
remediation required, the amount of consultants' or attorneys' fees that may
be incurred, the adminstrative costs of participating in the PRP groups, and
any additional regulatory requirements that may be imposed by the federal or
state environmental agencies.
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Under the terms of the Sale Agreement, all of the matters described in
this section under the heading "Environmental Matters" are excluded liabilities
and will not be assumed by Hicking Pentecost upon consummation of the Sale.
NOEL DOES NOT BELIEVE THAT IT WILL IN ANY WAY BE RESPONSIBLE FOR ANY OF
BELDING HEMINWAY'S ENVIRONMENTAL LIABILITIES. HOWEVER, IN VIEW OF THE RAPIDLY
DEVELOPING ENVIRONMENTAL LAWS, NO ASSURANCE CAN BE GIVEN AT THIS TIME THAT NOEL
WOULD NOT HAVE SUCH RESPONSIBILITY NOR, IF SUCH LIABILITY EXISTED, NO
DETERMINATION CAN BE MADE OF THE AMOUNT THEREOF. ANY FINDING OF LIABILITY ON THE
PART OF NOEL WOULD REDUCE THE AMOUNT AVAILABLE FOR DISTRIBUTION TO NOEL'S
SHAREHOLDERS. IN ADDITION, IN THE EVENT THAT THE AMOUNT OF ANY SUCH LIABILITY
EXCEEDED THE AMOUNT OF NOEL'S ASSETS (AND THE ASSETS OF ANY LIQUIDATING TRUST),
THE SHAREHOLDERS COULD BE REQUIRED TO RETURN ALL AMOUNTS PREVIOUSLY DISTRIBUTED.
Other Litigation. Belding Heminway purchased Culver International, Inc.
from Bruce Goldwyn ("Goldwyn") in August of 1995. Belding Heminway filed suit in
September 1996 in the Superior Court for New York County against Goldwyn for
breach of the representations and warranties made about the quality,
merchantability and salability of the inventory acquired in the transaction,
seeking damages of approximately $1.4 million. As part of the acquisition,
Belding Heminway had given Goldwyn a note (the "Goldwyn Note") in the face
amount of $530,964 (representing the discounted value of Belding Heminway's
obligation to pay $200,000 per year for three years), the first $200,000 payment
of which was due in August 1996. The Goldwyn Note allowed Belding Heminway to
set-off its damages arising from violations of the representations and
warranties in the purchase agreement and, based on its claims, Belding Heminway
withheld the entire August 1996 payment. Goldwyn moved to dismiss the action on
the grounds that his representations and warranties were not breached, which
motion was granted in December 1996 and has been appealed by Belding Heminway.
In addition, there is a pending motion by Goldwyn seeking summary judgment for
the full, accelerated amount of the Goldwyn Note ($530,964) together with
accumulated interest and his attorneys' fees for the collection of the Goldwyn
Note.
Under the terms of the Sale Agreement, the Goldwyn Note and the Goldwyn
litigation is included as an assumed liability under the Sale Agreement,
although Hicking Pentecost will be entitled to seek indemnification from Belding
Heminway for any amounts required to be paid by Hicking Pentecost in respect of
this litigation, other than any payment in respect of the Goldwyn Note.
CURTIS INDUSTRIES, INC. (63%)
Curtis is a major national distributor of fasteners, security products,
chemicals, automotive replacement parts, fittings and connectors, and tools and
hardware. Curtis distributes products to customers in the vehicle and industrial
maintenance and repair markets. Curtis' products are sold through a sales force
of approximately 700 sales representatives to over 70,000 active customer
accounts located principally in the United States, Canada and the United
Kingdom. Products distributed by Curtis are purchased from multiple suppliers
with the majority of these products purchased in bulk and repackaged by Curtis
in smaller quantities which are compatible with the repair and maintenance needs
of its customers. Following the 1995 shutdown of its manufacturing operations,
Curtis purchases all of its products from outside vendors.
On November 13, 1995, Curtis sold certain assets of its retail division
to SDI Operating Partners L.P. for $7.5 million in order to focus on its
automotive and industrial division. The proceeds from the sale of the division
in excess of net assets offset the expenses related to the transaction and
operating losses incurred prior to the sale. Therefore, no gain or loss was
recorded on the sale. In June 1995, a one time charge of $1.1 million was
recorded, primarily for severance and benefits, following the close of its
manufacturing operations at its Eastlake, Ohio facility.
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On May 31, 1996, Curtis acquired the Mechanics Choice business of
Avnet, Inc. for $6.5 million. Mechanics Choice is a distributor selling
industrial maintenance and repair operations products similar to the existing
Curtis product line offering.
The business conducted by Curtis and its predecessors has been in
continuous operation since 1932. Curtis' principal executive offices are located
at 6140 Parkland Boulevard, Mayfield Heights, OH 44124-4103; telephone number
(216) 446-9700. Two Noel executive officers, Joseph S. DiMartino and Donald T.
Pascal, and two directors of Noel, William L. Bennett and Livio M. Borghese,
currently serve on Curtis' seven-member Board of Directors.
PRODUCTS
Curtis distributes approximately 29,000 SKUs (stock keeping units),
which are grouped into six major product categories: fasteners, security
products, chemicals, automotive replacement parts, fittings and connectors, and
tools and hardware. Historically, net sales of products in the fasteners and
security products categories have accounted for approximately two-thirds of
Curtis' total net sales.
Fasteners. Curtis distributes a broad line of fasteners, including
bolts, nuts, screws, washers and rivets which range from light duty (used
primarily in consumer applications) to heavy-duty (used in industrial
applications), maintaining an emphasis on premium quality products. Most of
Curtis' fasteners are manufactured in the United States and Canada.
Security Products. Curtis distributes a line of security products,
including key blanks, key duplicating machines, computerized and manual key code
cutters, padlocks, combination locks and a line of key accessories.
Chemicals. Curtis distributes a broad line of chemicals including
solvents, lubricants, cleaners, adhesives and sealants designed for vehicle and
building maintenance applications.
Automotive Replacement Parts. Curtis distributes a variety of automotive
replacement parts, including specialty fasteners such as molding clips for body
shop applications, fuses, lamps and bulbs, cables, clamps and small parts kits.
Fittings and Connectors. Curtis distributes a variety of fittings and
connectors, which include wire products, electrical connectors, adapters and
terminals and standard brass fittings for vehicle and industrial maintenance
applications.
Tools and Hardware. Curtis distributes a variety of tools and hardware
including saw blades, cutting blades, welding products, drill bits, and
specialized application tools, as well as standard tools such as screwdrivers,
wrenches and pliers.
SALES AND MARKETING
Curtis markets its products to customers in two broad classifications:
the vehicle maintenance market and the industrial maintenance market. All of the
markets served by Curtis are large and highly fragmented.
The vehicle maintenance market consists of passenger car, truck, and
recreational vehicle dealers; business and governmental entities performing
internal fleet maintenance functions; and independent sales and service
establishments. Franchised new car dealers represent the most important segment
in terms of sales by Curtis to the vehicle maintenance market.
The industrial maintenance market consists of private and public
institutions such as transportation facilities, hotels, health care facilities,
schools and manufacturing plants.
CUSTOMERS
Curtis sells its products to over 70,000 active customer accounts in the
United States, Canada and the United Kingdom. No single customer accounted for
more than 10% of Curtis' annual sales during the year ended December 31, 1995.
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COMPETITION
Curtis competes with other national distributors as well as a large
number of regional distributors and local suppliers. Competition for national
accounts is intense. Local and regional distributors pose a significant
challenge to national distributors by virtue of their aggressive pricing
strategies and ability to deliver certain items faster than national
distributors. There is also intense competition among national distributors.
Because of the similarity of product types, competitive advantage is determined,
among other things, by sales representative performance and reliability, product
presentation, product quality, order fill rates, timing and, to a lesser extent,
price. Curtis' ability to maintain and improve financial performance will be
influenced strongly by its management of these factors.
FOREIGN OPERATIONS
Curtis maintains sales and warehouse facilities in Canada and the United
Kingdom. Sales to customers in Canada and the United Kingdom accounted for
approximately 15% of Curtis' revenue for the year ended December 31, 1995.
SUPPLIERS
All of Curtis' sales are derived from products manufactured by others.
There are many sources of supply for Curtis' requirements.
PATENTS AND TRADEMARKS
Curtis has developed various patents in connection with its security
products, some of which have expired. The expiration of these patents, however,
has not, in Curtis' management's opinion, had any significant effect on Curtis'
business. Most of Curtis' products are sold under Curtis,(R) and Mechanics
Choice(TM) brand names. None of Curtis' trademarks or copyrights is,
in Curtis' management's opinion, critical to the success of Curtis' business.
EMPLOYEES
As of December 31, 1996, Curtis employed 1,047 employees. Curtis'
management believes Curtis' relationship with employees is good.
FACILITIES
The following is a summary description of Curtis' facilities:
<TABLE>
<CAPTION>
SQUARE OWNED/
LOCATION FUNCTION FEET LEASED
<S> <C> <C> <C>
Mayfield Heights, Ohio Headquarters 33,600 Leased
Shelbyville, Kentucky Repackaging/Warehouse 100,000 Owned
Atlanta, Georgia Warehouse 60,000 Leased
Sparks, Nevada Warehouse 50,000 Owned
Mississauga, Canada Warehouse 38,000 Leased
Andover, United Kingdom Warehouse 15,000 Leased
Corby Northants, United Kingdom Warehouse 3,800 Leased
</TABLE>
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Curtis' management believes that Curtis' facilities are adequate for the
needs of its business over the foreseeable future.
LINCOLN SNACKS COMPANY (60%)
Lincoln Snacks is one of the leading manufacturers and marketers in the
United States and Canada of caramelized pre-popped popcorn. The primary product
line includes glazed popcorn/nut mixes and sweet glazed popcorn sold under the
brand names Poppycock(R), Fiddle Faddle(R) and Screaming Yellow Zonkers(R).
Lincoln Snacks also processes and sells ten different nut varieties.
Lincoln Snacks was formed in August 1992 by Noel and a management team
of former executives of Nestle Foods Corporation. On August 31, 1992, Lincoln
Snacks acquired the business and certain assets of Lincoln Snack Company, a
division of Sandoz Nutrition Corporation, an indirect subsidiary of the
Swiss-based drug, pharmaceutical and hospital care company, Sandoz Ltd. In March
1993 Carousel Nut Company, a newly formed wholly-owned subsidiary of Lincoln
Snacks ("Carousel"), acquired the business and certain assets of Carousel Nut
Products, Inc., a producer and marketer of roasted, dry roasted, coated, raw and
mixed nuts. In December 1993, Carousel was merged with and into Lincoln Snacks,
and the operations of Carousel were integrated with Lincoln Snacks' plant in
Lincoln, Nebraska in the first quarter of 1994.
On June 6, 1995, Lincoln Snacks entered into the Distribution Agreement
with Planters pursuant to which Planters is exclusively distributing Lincoln
Snacks' Fiddle Faddle and Screaming Yellow Zonkers products in the United States
for an initial term which expires on June 30, 1997. The Distribution Agreement
requires Planters to purchase an annual minimum number of equivalent cases of
Fiddle Faddle and Screaming Yellow Zonkers during the initial term. The
Distribution Agreement is automatically renewable for additional one year
periods unless terminated by either party upon prior written notice. Each party
has the right to terminate the Distribution Agreement by written notice in the
event of a "change of control" (as defined therein) of Lincoln Snacks. Net sales
to Planters for the year ended June 30, 1996 were equal to the minimum number of
equivalent cases required to be purchased during the fiscal year as part of the
Distribution Agreement. Sales to Planters represented 43% of net sales for the
year ended June 30, 1996. Net sales to Planters for the six month periods ended
December 31, 1996 and 1995 represented 46% and 48%, respectively, of the minimum
number of equivalent cases required to be purchased annually as part of the
Distribution Agreement. Sales to Planters represented 32% and 36% of net sales
for the three months ended December 31, 1996 and 1995, respectively, and 41% and
32% of net sales for the six months period ended December 31, 1996 and 1995,
respectively. If Planters or Lincoln Snacks does not renew the Distribution
Agreement, the termination of this agreement could have a material adverse
effect on the Lincoln Snacks' financial condition and results of operations.
Lincoln Snacks' principal executive offices are located at 4 High Ridge
Park, Stamford, Connecticut 06905; telephone number (203) 329-4545. Karen
Brenner, a Managing Director of Noel is the Chairman and Chief Executive Officer
of Lincoln Snacks. Ms. Brenner and James G. Niven, a director of Noel, currently
serve on Lincoln Snacks' four-member Board of Directors.
PRODUCTS
Lincoln Snacks manufactures and markets three nationally-recognized
branded products. Poppycock is a premium priced mixture of nuts and popcorn in a
deluxe buttery glaze. Fiddle Faddle is a more moderately priced brand of popcorn
and peanut clusters with a candied glaze; a fat free version of Fiddle Faddle
consists of popcorn with a caramel glaze. Screaming Yellow Zonkers is produced
by coating popcorn clusters with a sweet buttery glaze. In addition, Lincoln
Snacks processes and sells ten different nut varieties. The finished products
comprise a full line of nuts for the retail market: raw, roasted and salted, dry
roasted, and specially coated (honey roasted).
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MARKETING, SALES AND DISTRIBUTION
Lincoln Snacks' brands are broadly distributed through grocery stores,
supermarkets, convenience stores, drug stores, mass merchandise outlets,
warehouse clubs, vending channels, military commissaries and other military food
outlets, and other retailers. Selling responsibilities for Poppycock and the nut
products in the United States are handled by four regional business managers
located strategically across the United States. These regional business managers
manage approximately 80 brokers across the United States in all classes of
trade. These brokers receive a commission on net sales plus incentive payments.
Certain exports and large volume customers are handled directly by Lincoln
Snacks personnel. On July 17, 1995, Planters commenced exclusively distributing
Fiddle Faddle and Screaming Yellow Zonkers in the United States (including
Puerto Rico and United States territories and possessions). Lincoln Snacks
continues to market its Poppycock and nut products directly.
Sales of Lincoln Snacks' products are seasonal, peaking during the third
and fourth calendar quarters. During the fiscal year ended June 30, 1996,
Planters accounted for 43% of Lincoln Snacks' sales.
COMPETITION
Lincoln Snacks' primary products participate in the pre-popped caramel
popcorn segment of the snack food market. Poppycock competes with other premium
quality snack products while Fiddle Faddle and Screaming Yellow Zonkers compete
directly with Crunch N'Munch (American Home Products Corp., Food Division),
Cracker Jack (Borden, Inc.) and a number of other regional and local brands.
Lincoln Snacks' products also compete indirectly with traditional confections
and other snack food products.
RAW MATERIALS AND MANUFACTURING
Substantially all of the raw materials used in Lincoln Snacks'
production process are commodity items, including corn syrup, butter, margarine,
brown and granulated sugar, popcorn, various nuts, and oils. These commodities
are purchased directly from various suppliers.
The Lincoln manufacturing facility includes, among other things,
continuous process equipment for enrobing popcorn and nuts, as well as four
distinct high speed filling and packing lines for canisters, jars, single
serving packs and bag-in-box packages. The manufacturing and packaging equipment
is sufficiently flexible to allow for the manufacture of other similar product
lines or packaging formats. The facility is being operated at an overall rate
varying from approximately 40% to 75% of capacity depending on the season.
Lincoln Snacks' management believes that the facility is generally in good
repair and does not anticipate capital expenditures other than normal
maintenance and selected equipment modernization programs.
TRADEMARKS
Poppycock(R), Fiddle Faddle(R) and Screaming Yellow Zonkers(R) are
registered trademarks of Lincoln Snacks. Lincoln Snacks believes all its
trademarks enjoy a strong market reputation denoting high product quality.
GOVERNMENTAL REGULATION
The production, distribution and sale of Lincoln Snacks' products are
subject to the Federal Food, Drug and Cosmetic Act; the Occupational Safety and
Health Act; the Lanham Act; various federal environmental statutes; and various
other federal, state and local statutes regulating the production, packaging,
sale, safety, advertising, ingredients and labeling of such products. Compliance
with the above described
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governmental entities and regulations has not had and is not reasonably
anticipated to have a material adverse effect on Lincoln Snacks' capital
expenditures, earnings or competitive position.
EMPLOYEES
As of June 30, 1996, Lincoln Snacks had 79 full-time employees and one
part-time employee. Employment at the Lincoln plant varies according to weekly
and seasonal production needs. None of Lincoln Snacks' work force is unionized.
Lincoln Snacks' management believes that Lincoln Snacks' relationship with its
employees is good.
EXPORT SALES
Foreign operations accounted for less than 10% of Lincoln Snacks' sales,
assets and net income in each of Lincoln Snacks' last three fiscal years.
FACILITIES
Lincoln Snacks manufactures and packages all of its products at its
owned Lincoln, Nebraska manufacturing facility. The Lincoln plant, constructed
in 1968, is a modern 74,000 square foot one-story building on a 10.75 acre site
in a light industrial area in the city of Lincoln. Approximately 67,000 square
feet of the facility is dedicated to production with the balance utilized for
administration. Also in Lincoln, Nebraska is Lincoln Snacks' 66,500 square foot
leased warehousing facility, which is located near Lincoln Snacks' plant. This
modern facility can accommodate all of Lincoln Snacks' current warehousing
needs. Lincoln Snacks' lease on this facility has been extended until January
31, 1998, and there is a five year renewal option beyond 1998. The initial term
of the lease of Lincoln Snacks principal executive offices expires on September
30, 1999. Lincoln Snacks believes its properties are sufficient for the current
and anticipated needs of its business.
LEGAL PROCEEDINGS
Lincoln Snacks is not involved in any material legal proceedings.
FERROVIA NOVOESTE, S.A. (20%)
In March, 1996, Ferrovia Novoeste, S.A., a Brazilian corporation
("Novoeste"), was the successful bidder, at approximately $63.6 million, for the
concession for the operation of the Brazilian federal railroad's western
network. The principal investors in Novoeste include Noel, Chase Latin America
Equity Associates ("Chase"), Brazil Rail Partners, Inc. ("BRP"), Western Rail
Investors, LLC ("WRI") and Brazilian Victory LLC ("Victory"). Noel's and Chase's
investment in Novoeste is approximately $8 million each, Victory's investment is
approximately $2 million, WRI's investment is approximately $1.6 million, and
BRP's investment is approximately $1.4 million. The purchase of the network
consisted of a 30-year concession and a lease of the federal railroad's
equipment. The western network links Bauru, in Sao Paulo state, with Corumba on
the Bolivian border, and covers approximately 1,000 miles of track.
67
<PAGE>
<PAGE>
OTHER HOLDINGS
Noel also had other holdings with a liquidation value of approximately
$3.2 million at September 30, 1996. None of these holdings, either individually
or in the aggregate, would be considered material with respect to Noel's
consolidated financial position.
(d) Financial information about foreign and domestic operations and export
sales.
Not material.
PROPERTY
Noel's executive offices occupy approximately 10,600 square feet in an
office building located in New York, New York, of which 5,400 square feet are
rented pursuant to a lease expiring in 1998 and the remainder is sublet from The
Prospect Group Inc. pursuant to a sublease expiring in 1998. For descriptions of
certain principal properties of Noel's operating companies, see "Narrative
Description of Business" above. Management of Noel and of each of Noel's
operating companies believe that the properties owned or leased by each such
company are adequate for the conduct of their respective businesses for the
foreseeable future.
LEGAL PROCEEDINGS
Other than as described below, there are no pending material legal
proceedings to which Noel or any of its subsidiaries or principal operating
companies is a party or to which any of their property is subject, other than
ordinary routine litigation incidental to their respective businesses.
Belding Heminway and its subsidiaries are party to various proceedings and
possible proceedings under state and federal laws and regulations concerning the
discharge of materials into the environment. Reference is made to the
description of Belding Heminway Company, Inc. under "Business of the Company."
In 1995, a complaint was filed against HealthPlan Services claiming
wrongful termination of an exclusive marketing agreement and breach of contract.
The complaint asserted damages of $25,000,000. The parties to the dispute have
agreed to binding arbitration. The arbitration proceedings occurred during the
week of October 29, 1996, and the arbitration panel's decision rendered in
December 1996 will not have a material adverse effect on the business, financial
condition or results of operations of HealthPlan Services.
In connection with the acquisition of Harrington, HealthPlan Services
agreed to use its best efforts to cause a registration statement sufficient to
permit the public offering and sale of the HealthPlan Services common shares
issued to the Harrington stockholders in the acquisition, through the facilities
of all appropriate securities exchanges and the over-the-counter market,
provided that in all events, such registration statement shall become effective
on or before October 31, 1996. On October 30, 1996, HealthPlan Services received
a letter from Harrington stockholders' representative notifying HealthPlan
Services that it was in apparent violation of such agreement and reserving all
rights under such agreement. Due to the inability of both parties to finalize
the closing balance sheet for the transaction, and due to the disclosure
requirements of the pending merger, HealthPlan Services was not able to have
such registration statement declared effective by October 31, 1996. While
HealthPlan Services believes it has meritorious defenses against any possible
claim, as of the date hereof, it is not possible for HealthPlan Services to
evaluate what, if any, damages might result from such notice.
HealthPlan Services is involved in various claims, arising in the normal
course of business. In the opinion of HealthPlan Services management, although
the outcomes of these claims are uncertain, in the aggregate they are not likely
to have a material adverse effect on HealthPlan Services' business, financial
condition and results of operations.
68
<PAGE>
<PAGE>
MARKET PRICE OF AND DIVIDENDS ON COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS
(a) Market Information.
The Common Stock trades on the Nasdaq Stock Market's National Market
under the symbol NOEL. The following table sets forth the range of high and low
sales prices for shares of Common Stock for each fiscal quarter during 1996
and 1995 as reported by NASDAQ. The high and low sales prices per share of
Common Stock on December 20, 1996 was $7 1/2 and $7 1/8, respectively.
<TABLE>
<CAPTION>
1996 High Low
<S> <C> <C>
First Quarter $7.625 $6.000
Second Quarter 9.750 7.125
Third Quarter 8.750 6.875
Fourth Quarter 8.125 6.125
1995
First Quarter $6.500 $5.000
Second Quarter 7.625 5.750
Third Quarter 6.250 4.750
Fourth Quarter 7.000 5.000
</TABLE>
(b) Holders.
As of Record Date, 20,421,039 shares of Common Stock were issued and
outstanding and were held of record by approximately 400 persons, including
several holders who are nominees for an undetermined number of beneficial
owners. Noel believes that there are approximately 3,500 beneficial owners of
the Common Stock.
(c) Dividends.
Noel has not declared or paid any cash dividends on its shares of Common
Stock and does not anticipate paying cash dividends in the foreseeable future.
If the Plan is approved by the shareholders, Noel will be liquidated (i) by the
sale of such of its assets as are not to be distributed in-kind to its
shareholders, and (ii) after paying or providing for all its claims, obligations
and expenses, by cash and in-kind distributions to its shareholders pro rata
and, if required by the Plan or deemed necessary by the Board of Directors, by
distributions of its assets from time to time to one or more liquidating trusts
established for the benefit of the then shareholders, or by a final distribution
of its then remaining assets to a liquidating trust established for the benefit
of the then shareholders.
69
<PAGE>
<PAGE>
AUDITORS
Arthur Andersen LLP, independent public accountants, were selected to
audit the financial statements of the Company for the year ending December 31,
1995 and have been selected to audit the financial statements of the Company
for the year ending December 31, 1996. Representatives of Arthur Andersen LLP
are expected to be present at the Meeting and will have the opportunity to make
a statement if they desire. They will also be available to respond to
appropriate questions.
DEADLINE FOR SHAREHOLDER PROPOSALS
Shareholder proposals intended to be presented at the next annual
meeting of shareholders, to be held in 1997, were required to have been received
by the Company at 667 Madison Avenue, New York, New York 10021 by December 27,
1996, to be included in the proxy statement and form of proxy relating to that
meeting.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy and information statements
and other information with the Commission. Such reports, proxy and information
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as the following
regional offices: 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and at 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material can be obtained from the Public Reference Section of the
Commission at Room 1024, 450 Fifth Street, Washington, D.C. 20549 at prescribed
rates.
OTHER BUSINESS
The Board of Directors does not know of any matter to be brought before
the Meeting other than the matters specified in the Notice of Special Meeting
accompanying this Proxy Statement. The persons named in the form of proxy by the
Board of Directors will vote all proxies which have been properly executed. If
any matters other than those set forth in the Notice of Special Meeting are
properly brought before the Meeting, such persons will vote thereon in
accordance with their best judgment.
By Order of the Board of Directors
TODD K. WEST
Secretary
70
<PAGE>
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
REFERENCE
---------
<S> <C>
Noel Group, Inc. and Subsidiaries:
Consolidated Balance Sheets September 30, 1996 and December 31, 1995............................. F-2
Consolidated Statements of Operations for the Nine Months Ended September 30, 1996 and 1995...... F-3
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1996 and
1995............................................................................................ F-4
Notes to Consolidated Financial Statements....................................................... F-5
Consolidated Balance Sheets December 31, 1995 and December 31, 1994.............................. F-8
Consolidated Statements of Operations for the Years Ended December 31, 1995, 1994 and 1993....... F-9
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993....... F-10
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1995,
1994 and 1993................................................................................... F-11
Notes to Consolidated Financial Statements....................................................... F-12
Report of Independent Public Accountants......................................................... F-24
HealthPlan Services Corporation and Subsidiaries:
Consolidated Balance Sheet December 31, 1995 and December 31, 1994............................... F-25
Consolidated Statement of Income for the Year Ended December 31, 1995 and for the Period from
Inception (October 1, 1994) through December 31, 1994........................................... F-26
Consolidated Statement of Changes in Common Stockholders' Equity for the Year Ended December 31,
1995 and for the Period from Inception (October 1, 1994) through December 31, 1994.............. F-27
Consolidated Statement of Cash Flows for the Year Ended December 31, 1995 and for the Period from
Inception (October 1, 1994) through December 31, 1994........................................... F-28
Notes to Consolidated Financial Statements....................................................... F-29
Report of Independent Certified Public Accountants............................................... F-35
HealthPlan Services Division:
Statement of Financial Position, September 30, 1994.............................................. F-36
Statement of Income Nine-Month Period Ended September 30, 1994 and Year Ended December 31,
1993............................................................................................ F-37
Statements of Cash Flows Nine-Month Period Ended September 30, 1994 and Year Ended December 31,
1993............................................................................................ F-38
Notes to Financial Statements.................................................................... F-39
Report of Independent Accountants................................................................ F-43
</TABLE>
Financial statement schedules not included in this report have been omitted
because they are not applicable.
F-1
<PAGE>
<PAGE>
NOEL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
(RESTATED)
(DOLLARS IN THOUSANDS,
EXCEPT PAR VALUES)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 3,974 $ 10,446
Short-term investments........................................................ 9,384 18,378
Accounts receivable, less allowances of $2,806 and $2,867..................... 25,345 21,111
Inventories................................................................... 34,848 30,460
Other current assets.......................................................... 3,274 4,294
------------- ------------
76,825 84,689
Equity investments................................................................. 42,968 34,520
Other investments.................................................................. 28,258 20,174
Property, plant and equipment, net................................................. 37,407 40,563
Intangible assets, net............................................................. 46,379 44,562
Net assets of discontinued operations.............................................. 268 779
Other assets....................................................................... 5,419 14,470
------------- ------------
$ 237,524 $ 239,757
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt............................................................... $ 485 $ --
Current portion of long-term debt............................................. 38,816 5,233
Trade accounts payable........................................................ 14,040 12,339
Accrued compensation and benefits............................................. 6,856 5,769
Other current liabilities..................................................... 13,012 19,201
------------- ------------
73,209 42,542
Long-term debt..................................................................... 29,767 69,197
Other long-term liabilities........................................................ 28,380 28,913
Minority interest.................................................................. 7,070 6,185
------------- ------------
138,426 146,837
------------- ------------
Stockholders' equity:
Preferred stock, $.10 par value, 2,000,000 shares authorized, none
outstanding.................................................................. -- --
Common stock, $.10 par value, 48,000,000 shares authorized, 20,222,642 and
20,203,233 issued, respectively.............................................. 2,022 2,020
Capital in excess of par value................................................ 213,099 204,466
Accumulated deficit........................................................... (114,730) (112,466)
Cumulative translation adjustment............................................. (602) (613)
Treasury stock at cost, 34,937 and 11,000 shares, respectively................ (691) (487)
------------- ------------
99,098 92,920
------------- ------------
$ 237,524 $ 239,757
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
<PAGE>
NOEL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1996 1995
-------- --------
(UNAUDITED)
(1996 RESTATED)
(DOLLARS IN
THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Sales................................................................................... $140,524 $134,059
Cost and expense items:
Cost of sales...................................................................... 79,624 75,901
Selling, general, administrative and other expenses................................ 52,222 54,459
Depreciation and amortization...................................................... 2,620 3,157
-------- --------
134,466 133,517
-------- --------
Operating income........................................................................ 6,058 542
-------- --------
Other income (expense):
Other income....................................................................... 734 7,562
Income (loss) from equity investments.............................................. (9) 2,331
Interest expense................................................................... (6,096) (5,927)
Minority interest.................................................................. (875) (309)
-------- --------
(6,246) 3,657
-------- --------
Income (loss) from continuing operations before income taxes............................ (188) 4,199
Provision for income taxes.............................................................. (2,408) (1,967)
-------- --------
Income (loss) from continuing operations................................................ (2,596) 2,232
Income (loss) from discontinued operations.............................................. 332 (1,310)
-------- --------
Net income (loss)....................................................................... $ (2,264) $ 922
========= =========
Earnings (Loss) per common and common equivalent share from:
Continuing operations.............................................................. $(0.13) $ 0.11
Discontinued operations............................................................ 0.02 (0.06)
Net income (loss)....................................................................... $(0.11) $0.05
Weighted average common and common equivalent shares.................................... 20,187,705 21,003,153
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<PAGE>
NOEL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
--------------------
1996 1995
-------- --------
(UNAUDITED)
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Net cash provided from (used for) operating activities.................................... $ 1,300 $ (1,331)
Cash flows from investing activities:
Payments for companies purchased, net of cash acquired............................... (6,495) (2,800)
Cash of deconsolidated subsidiary.................................................... -- (4,303)
Sales of short-term investments, net................................................. 8,998 4,822
Purchases of investments............................................................. (8,090) (112)
Sales of investments................................................................. -- 371
Sales of discontinued operations..................................................... 8,190 2,623
Purchases of property, plant and equipment........................................... (2,744) (3,775)
Sales of property, plant and equipment............................................... 1,799 1,724
Other, net........................................................................... (1,135) (949)
-------- --------
Net cash provided from (used for) investing activities.................................... 523 (2,399)
-------- --------
Cash flows from financing activities:
Borrowings from revolving credit line and long-term debt............................. 110,846 105,503
Repayments under revolving credit line and long-term debt............................ (116,476) (104,383)
Reductions of long-term liabilities.................................................. (1,090) (2,427)
Other, net........................................................................... (1,576) --
-------- --------
Net cash used for financing activities.................................................... (8,296) (1,307)
Effect of exchange rates on cash.......................................................... 1 8
-------- --------
Net decrease in cash and cash equivalents................................................. $ (6,472) $ (5,029)
======== ========
Supplemental disclosure of cash flow information:
Interest paid........................................................................ $ 6,326 $ 5,247
======== ========
Taxes paid........................................................................... $ 685 $ 1,111
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<PAGE>
NOEL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
HealthPlan Services Corporation ("HPS"), has restated its results of
operations for the period ended September 30, 1996. Because Noel accounts for
HPS under the equity method of accounting, Noel is required to restate
its consolidated results of operations to reflect its percentage share of
the HPS restatement. See note 2 below for a full description of the
restatement by HPS and of the impact on Noel's financial statements.
1. PROPOSED PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION:
Noel Group, Inc. ("Noel") is proposing for approval by its shareholders
a Plan of Complete Liquidation and Dissolution (the "Plan"). If the Plan is
approved by the shareholders, Noel will be liquidated (i) by the sale of such of
its assets as are not to be distributed in kind to its shareholders, and (ii)
after paying or providing for all its claims, obligations and expenses, by cash
and in-kind distributions to its shareholders pro rata and if required by the
Plan or deemed necessary by the Board of Directors, by distributions of its
assets from time to time to one or more liquidating trusts established for the
benefit of the then shareholders, or by a final distribution of its then
remaining assets to a liquidating trust established for the benefit of the then
shareholders. Should the Board of Directors determine that one or more
liquidating trusts are required by the Plan or are otherwise necessary,
appropriate or desirable, adoption of the Plan will constitute shareholder
approval of the appointment by the Board of Directors of one or more trustees to
any such liquidating trusts and the execution of liquidating trust agreements
with the trustees on such terms and conditions as the Board of Directors, in its
absolute discretion, shall determine.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL
The consolidated financial statements for Noel and its subsidiaries
(the "Company") included in this Form 10-Q have been prepared by Noel without
audit. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. It is recommended that these
consolidated financial statements be read in conjunction with the consolidated
financial statements and the notes thereto included in Noel's 1995 annual
report. In the opinion of management, the information furnished reflects all
adjustments which are necessary to present fairly such information. These
adjustments, except as otherwise disclosed, consist only of normal recurring
adjustments.
CONSOLIDATION
The consolidated financial statements include the accounts of Noel and
its subsidiaries, Belding Heminway Company, Inc. ("Belding"), Curtis Industries,
Inc. ("Curtis"), and Lincoln Snacks Company ("Lincoln") after the elimination of
significant intercompany transactions. The September 30, 1995, financial
statements have been restated to reflect Simmons Outdoor Corporation, Belding's
home furnishings division, Curtis' retail division, and TDX Corporation as
discontinued operations due to their sale in 1995 or anticipated or actual sale
in 1996.
F-5
<PAGE>
<PAGE>
HealthPlan Services Corporation ("HPS") was acquired by Noel on
September 30, 1994. Following HPS's initial public offering on May 19, 1995 and
Noel's simultaneous exchange of its entire holding of HPS preferred stock and
accrued dividends into HPS common stock, Noel's voting interest dropped below
50%. Therefore, Noel has accounted for HPS's results of operations through
September 30, 1995, under the equity method of accounting as if HPS had been an
equity investment from January 1, 1995.
Summarized income statement information for HPS is as follows (dollars
in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
------ -----
(RESTATED)
<S> <C> <C>
Revenue $ 129,876 $70,889
========= =======
Gross profit n/a n/a
========= =======
Income from continuing operations $ (1,187) $ 6,551
========= =======
Net income $ (1,187) $ 6,551
========= =======
Net income available to common
shareholders $ (1,187) $ 6,266
========= =======
Noel's share of net income available to
common shareholders $ (42) $ 2,617
========= =======
</TABLE>
In its previously reported results for the three and nine months ended
September 30, 1996, HPS recorded a charge of $19.2 million for the impairment of
a portion of the goodwill which was recorded in connection with certain
acquisitions made in 1995 and 1996. HPS also recorded in the same period a
charge of $14.1 million for the estimated costs to restructure and integrate the
1996 acquisitions.
HPS has subsequently determined, based on a re-evaluation of the
expected future undiscounted cash flows of the acquisitions, that a portion of
the related goodwill has not been impaired. Consequently, the previous recorded
impairment charge has been restated to $13.7 million, which reflects the
reduction of previously recorded impairment charges by $5.3 million due to the
re-evaluation. Further, HPS has also determined that $8.3 million of the
estimated costs to restructure and integrate the 1996 acquisitions, should not
have been expensed until incurred. As a substantial portion of such costs
($6.5 million) are expected to be incurred during the fourth quarter of 1996,
the related charge in the third quarter has been reversed. Though it is probable
additional integration charges will be incurred in 1997, the amount cannot be
determined at this time.
In addition, $3.8 million of the estimated costs of the 1996 acquisitions
should have been recorded as part of the purchase price allocations. As such,
the related charge has been reversed, and a corresponding amount included in
goodwill. HPS has also reversed $1.2 million of the $3.9 million contract
commitment charge relating to the termination of a royalty contract initially
reported in the results of operations in the third quarter of 1996. The net
effect on these adjustments to the results of operations of HPS are as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1996
------------------
As Previously
Reported As Restated
-------- -----------
<S> <C> <C>
Income from continuing
operations $(12,395) $(1,187)
Net income $(12,395) $(1,187)
Noel's share of net income
available to common
shareholders $ (4,652) $(42)
</TABLE>
The principal effect of such adjustments on HPS's September 30, 1996
balance sheet is to increase net goodwill from $162.1 million to $171.5 million
and to increase stockholders' equity from $101.5 million to $112.8 million,
which results from a previously reported accumulated deficit of $3.2 million
being adjusted to retained earnings of $8.0 million.
SEASONALITY
The results of operations for the nine months ended September 30, 1996,
may not be indicative of the operating results for the full year. Lincoln's
business is seasonal, with the third and fourth calendar quarters historically
showing higher sales.
F-6
<PAGE>
<PAGE>
INVENTORIES
Inventories consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Raw material and supplies $ 8,160 $ 6,088
Work in process 5,231 6,033
Finished goods 21,457 18,339
------- -------
$34,848 $30,460
======= =======
</TABLE>
EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Earnings (Loss) per share is computed based on the weighted average
number of shares of Noel Common Stock and dilutive equivalents outstanding
during the respective periods. When dilutive, stock options and warrants are
included as share equivalents using the treasury stock method. In computing
dilutive equivalents under the treasury stock method, the average price of
common stock during the period is used for primary earnings per share and the
period-end price is used for fully diluted earnings per share. For the nine
months ended September 30, 1996, earnings per share is based on outstanding
shares since the effect of common stock equivalents is antidilutive. For the
nine months ended September 30, 1995, fully diluted earnings per share is not
presented since the additional dilution is immaterial.
3. COMMITMENTS AND CONTINGENCIES:
The Company is involved in various legal proceedings generally
incidental to its businesses. While the result of any litigation contains an
element of uncertainty, management believes that the outcome of any known,
pending or threatened legal proceeding or claim, or all of them combined, will
not have a material adverse effect on the Company's consolidated financial
position.
4. OTHER INVESTMENTS:
On March 5, 1996, a consortium led by Noel and Chase Capital Partners,
formerly Chemical Venture Partners, purchased by auction the concession for the
Brazilian federal railroad's western network for approximately $63.6 million.
The purchase of the network consists of a 30-year concession and a lease of the
federal railroad's equipment. Noel invested $8.0 million in the concession,
which investment is included in other investments on the September 30, 1996,
balance sheet.
5. SUBSIDIARY STOCK TRANSACTION:
Effective July 1, 1996, HPS issued 1,508,090 new shares of common stock,
with a value of approximately $32.7 million, in conjunction with acquisitions.
Noel recorded its proportionate share of the capital increase as a subsidiary
stock transaction, with an increase of $8.5 million recorded directly to capital
in excess of par value. As a result of HPS' share issuance, Noel's ownership
percentage of HPS decreased from approximately 42% to approximately 38%.
6. DISCONTINUED OPERATIONS:
On July 31, 1996, Belding completed the sale of its home furnishings
division for net proceeds of approximately $8.2 million. Proceeds received on
the sale, adjusted for closing costs and changes in the net asset value of the
division subsequent to the contract date, were used to pay down Belding's
revolving bank loan. Such net proceeds approximated the amount that had been
borrowed under the revolving loan in support of the home furnishings division's
inventories and receivables. The repayment of bank debt was sufficient in amount
to avoid bank fees that would have been payable had Belding not completed the
sale as prescribed by Belding's credit agreement dated October 29, 1993, as
amended.
F-7
<PAGE>
<PAGE>
Noel Group, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par values)
<TABLE>
<CAPTION>
December 31, 1995 1994
- --------------------------------------------------------------------------------
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 10,446 $ 8,449
Restricted cash -- 2,812
Short-term investments 18,378 22,219
Accounts receivable, less allowances of $2,867 and $3,092 21,111 26,927
Inventories 30,460 31,762
Other current assets 4,294 10,016
- ------------------------------------------------------------------------------------
84,689 102,185
Equity investments 34,520 1,465
Other investments (Note 4) 20,174 1,576
Property, plant and equipment, net (Note 5) 40,563 52,258
Intangible assets, net 44,562 98,069
Net assets of discontinued operations (Note 3) 779 49,791
Other assets 14,470 8,636
- ------------------------------------------------------------------------------------
Total assets $239,757 $313,980
====================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt (Note 6) $ -- $ 2,095
Current portion of long-term debt (Note 7) 5,233 5,634
Trade accounts payable 12,339 30,850
Accrued compensation and benefits 5,769 6,707
Other current liabilities 19,201 30,822
- -----------------------------------------------------------------------------------
42,542 76,108
Long-term debt (Note 7) 69,197 75,734
Other long-term liabilities 28,913 29,286
Minority interest 6,185 32,583
- ------------------------------------------------------------------------------------
Total liabilities 146,837 213,711
- ------------------------------------------------------------------------------------
Stockholders' Equity: (Notes 9 and 10)
Preferred stock, $.10 par value, 2,000,000 shares
authorized, none outstanding -- --
Common stock, $.10 par value, 48,000,000 shares
authorized, 20,203,233 issued 2,020 2,020
Capital in excess of par value 204,466 189,716
Accumulated deficit (112,466) (90,341)
Cumulative translation adjustment (613) (639)
Treasury stock at cost, 11,000 shares (487) (487)
- ------------------------------------------------------------------------------------
Total stockholders' equity 92,920 100,269
- ------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 239,757 $313,980
====================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
<PAGE>
Noel Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except par values)
<TABLE>
<CAPTION>
For the Years Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------
REVENUE ITEMS:
<S> <C> <C> <C>
Sales $ 181,709 $ 93,888 $ 93,962
HealthPlan Services
revenue from services -- 25,233 --
- --------------------------------------------------------------------------------
181,709 119,121 93,962
- --------------------------------------------------------------------------------
COST AND EXPENSE ITEMS:
Cost of sales 105,318 38,761 38,291
HealthPlan Services costs of services -- 21,299 --
Selling, general, administrative
and other expenses 71,799 68,993 59,434
Impairment charge (Note 2) 29,155 -- --
Depreciation and amortization 4,888 2,799 3,172
- --------------------------------------------------------------------------------
211,160 131,852 100,897
- --------------------------------------------------------------------------------
Operating loss (29,451) (12,731) (6,935)
- --------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Other income (Note 11) 6,703 8,328 4,457
Income (Loss) from equity investments 3,761 (182) 874
Interest expense (7,801) (3,748) (3,369)
Minority interest 10,923 575 (598)
- --------------------------------------------------------------------------------
13,586 4,973 1,364
- --------------------------------------------------------------------------------
Loss from continuing operations
before income taxes (15,865) (7,758) (5,571)
Benefit (Provision) for income
taxes (Note 12) 284 (1,695) 226
- --------------------------------------------------------------------------------
Loss from continuing operations (15,581) (9,453) (5,345)
Loss from discontinued operations
(Note 3) (6,544) (7,614) (1,929)
- --------------------------------------------------------------------------------
Loss before cumulative effect of change
in accounting principle (22,125) (17,067) (7,274)
Cumulative effect of change in
accounting principle (Note 1) -- -- (2,483)
- --------------------------------------------------------------------------------
Net loss $(22,125) $(17,067) $(9,757)
================================================================================
Loss per common and common
equivalent share from:
Continuing operations $(0.77) $(0.47) $(0.26)
Discontinued operations (0.33) (0.38) (0.10)
Cumulative effect of change in
accounting principle -- -- (0.12)
- --------------------------------------------------------------------------------
Net loss per common and common
equivalent share $(1.10) $(0.85) $(0.48)
================================================================================
Weighted average common and common
equivalent shares 20,192,233 20,192,233 20,192,233
================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
<PAGE>
Noel Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31, 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net Loss $(22,125) $(17,067) $ (9,757)
Adjustments to reconcile net loss to net cash
provided from (used for) operating activities:
(Income) Loss from equity investments (3,761) 182 (874)
Depreciation and amortization 7,717 5,196 4,475
Net gain on securities (5,533) (5,203) (490)
Provisions for doubtful accounts and
valuation of inventories 1,554 599 592
(Benefit) Provision for deferred income taxes (674) 244 --
Loss on property and equipment 418 105 7
Minority interest, net (10,923) (513) 598
Non-incentive stock option expense -- 4,853 --
Impairment charge 29,155 -- --
Accrued dividends -- (2,217) (1,085)
(Income) Loss on disposal of discontinued operations 5,234 5,915 --
Cumulative effect of change in accounting principle -- -- 2,483
Other, net 889 555 71
Changes in certain assets and liabilities, net of acquisitions:
Accounts receivable 2,160 137 (3,655)
Inventories 2,147 (1,284) (772)
Restricted cash -- (2,150) --
Trade accounts payable 491 3,282 1,083
Accrued compensation and benefits 221 (321) (1,020)
Other, net (6,136) 1,933 (2,926)
Discontinued operations 8,872 -- 1,746
- -------------------------------------------------------------------------------------------------------
Total adjustments 31,831 11,313 233
- -------------------------------------------------------------------------------------------------------
Net cash provided from (used for) operating activities 9,706 (5,754) (9,524)
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for companies purchased, net of cash acquired (3,050) (17,391) (1,832)
Cash of deconsolidated subsidiary (4,303) -- --
(Purchases) Sales of short-term investments, net 3,845 7,395 27,904
Purchases of marketable securities -- (840) (840)
Sales of marketable securities -- 14,415 1,128
Purchases of investments (11,105) (11,976) (42,252)
Sales of investments 972 3,683 2,775
Sales of discontinued operations 23,977 899 --
Purchases of property, plant and equipment (4,857) (1,804) (2,199)
Sales of property, plant and equipment 1,724 328 374
Other, net (845) (214) (906)
- -------------------------------------------------------------------------------------------------------
Net cash provided from (used for) investing activities 6,358 (5,505) (15,848)
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of short-term debt -- -- 6,287
Borrowings from revolving credit line and long-term debt 143,848 115,176 91,299
Repayments of revolving credit line and long-term debt (154,950) (119,568) (85,395)
Issuance of common stock, net 25 14,884 126
Change in other long-term liabilities (3,012) -- --
Other, net -- (708) (210)
- -------------------------------------------------------------------------------------------------------
Net cash provided from (used for) financing activities (14,089) 9,784 12,107
- -------------------------------------------------------------------------------------------------------
Effect of exchange rates on cash 22 8 77
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,997 (1,467) (13,188)
Cash and cash equivalents at beginning of year 8,449 9,916 23,104
- -------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $10,446 $8,449 $9,916
=======================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
<PAGE>
Noel Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended
December 31, 1995, 1994 and 1993
(In thousands)
<TABLE>
<CAPTION>
Common Stock Capital in Unrealized Cumulative Treasury Stock
-------------- Excess of Accumulated Holding Translation -------------- Stockholders'
Shares Amount Par Value Deficit Gains Adjustment Shares Amount Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 20,203 $2,020 $197,384 $ (63,517) $ -- $(458) 11 $(487) $134,942
Net loss -- -- -- (9,757) -- -- -- -- (9,757)
Distribution to stockholders
(Note 9) -- -- (9,124) -- -- -- -- -- (9,124)
Subsidiary stock transactions -- -- 746 -- -- -- -- -- 746
Unrealized holding gains -- -- -- -- 6,592 -- -- -- 6,592
Cumulative translation adjustment -- -- -- -- -- (108) -- -- (108)
Other -- -- (169) -- -- -- -- -- (169)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 20,203 2,020 188,837 (73,274) 6,592 (566) 11 (487) 123,122
Net loss -- -- -- (17,067) -- -- -- -- (17,067)
Distribution to stockholders
(Note 9) -- -- (708) -- -- -- -- -- (708)
Subsidiary stock transactions -- -- 2,424 -- -- -- -- -- 2,424
Unrealized holding gains -- -- -- -- (6,592) -- -- -- (6,592)
Cumulative translation adjustment -- -- -- -- -- (73) -- -- (73)
Other -- -- (837) -- -- -- -- -- (837)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 20,203 2,020 189,716 (90,341) -- (639) 11 (487) 100,269
Net loss -- -- -- (22,125) -- -- -- -- (22,125)
Subsidiary stock transactions
(Note 2) -- -- 14,442 -- -- -- -- -- 14,442
Cumulative translation adjustment -- -- -- -- -- 26 -- -- 26
Other -- -- 308 -- -- -- -- -- 308
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 20,203 $2,020 $204,466 $(112,466) $ 0 $(613) 11 $(487) $ 92,920
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
<PAGE>
Noel Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General:
Noel Group, Inc. ("Noel") conducts its principal operations through
small and medium-sized companies in which Noel holds controlling or other
significant equity interests. The 1994 and 1993 financial statements have been
restated to reflect Simmons Outdoor Corporation ("Simmons"), Belding Heminway
Company, Inc.'s ("Belding") home furnishings division, Curtis Industries, Inc's
("Curtis") retail division and TDX Corporation ("TDX") as discontinued
operations. See Note 3. In addition, the historical financial statements have
been reclassified to conform with the current year's presentation.
Consolidation:
The consolidated financial statements include the accounts of Noel and
its subsidiaries, Belding, Curtis and Lincoln Snacks Company ("Lincoln"),
(collectively the "Company"), after the elimination of significant intercompany
transactions. Belding is included only in the consolidated statement of
operations for the year ended December 31, 1995, following Noel's December 1994,
exchange of Belding preferred stock and accrued dividends for 30% of Belding's
common equity and maintenance of voting control through Noel's remaining holding
of Belding's preferred stock.
HealthPlan Services Corporation ("HPS"), which was acquired by Noel on
September 30, 1994, is included in the 1994 consolidated financial statements.
Following HPS' initial public offering on May 19, 1995 and Noel's simultaneous
exchange of its entire holding of HPS preferred stock and accrued dividends into
HPS common stock, Noel's voting interest in HPS dropped below 50%. Therefore,
for the year ended December 31, 1995, HPS is accounted for under the equity
method of accounting as if HPS had been an equity investment for all of 1995.
Noel's equity in HPS' income for the year ended December 31, 1995, is included
in income from equity investments on the consolidated statement of operations.
Sylvan, Inc. ("Sylvan") was accounted for under the equity method of
accounting through September 30, 1993. Effective January 1, 1993, Sylvan adopted
Statement of Financial Accounting Standards No. 106, "Employers Accounting for
Postretirement Benefits Other Than Pensions." Noel's equity in the cumulative
effect of Sylvan adopting this accounting principle was $2,483,000. Noel
distributed the majority of its holding of Sylvan common stock to Noel
stockholders on December 6, 1993.
Restricted Cash:
At December 31, 1994, HPS had an interest bearing demand deposit account
established for the sole purpose of administering certain contracts.
Cash and Cash Equivalents and Short-term Investments:
The Company considers all highly liquid investments with a maturity of
three months or less, at the date of acquisition, to be cash equivalents.
Carrying amounts of short-term investments approximate fair value.
Investments in Debt and Equity Securities:
The Company's marketable securities and its other investments in equity
securities that have readily determinable fair values are classified as
available-for-sale securities. The equity method of accounting is used for
common equity investments in which the Company's voting interest is from 20%
through 50% and for limited partnership investments. The cost method of
accounting is used for common equity investments in which the Company's voting
interest is less than 20% and for which fair values are not readily
determinable. A non-temporary decline in the value of any equity or cost basis
investment is expensed at the time such decline is identified.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from these
estimates.
Inventories:
Inventories, net of reserves, consist of the following (dollars in
thousands):
December 31, 1995 1994
- --------------------------------------------------------------------------------
Raw material and supplies $ 6,088 $ 6,723
Work in process 6,033 5,760
Finished goods 18,339 19,279
- --------------------------------------------------------------------------------
$30,460 $31,762
================================================================================
Inventories are stated at lower of cost or market. At December 31, 1995
and 1994, inventories of $12,455,000 and $11,718,000, respectively, are valued
by the LIFO method and inventories of $5,905,000 and $4,015,000, respectively,
are valued by the average cost method. If the FIFO method had been used, the
stated amounts of these inventories would not have been materially affected. The
remainder of inventories are valued by the FIFO method.
F-12
<PAGE>
<PAGE>
Property, Plant and Equipment:
Property, plant and equipment are carried at cost. Depreciation is
provided primarily using the straight-line method over the estimated useful
lives of the related assets as follows:
Machinery and equipment 2 - 25 years
Buildings and leasehold improvements 2 - 35 years
Furniture and fixtures 3 - 10 years
Leasehold improvements are depreciated using the straight-line method
over the lives of the related leases or their estimated useful lives, whichever
are shorter. The cost of repairs and maintenance is charged to expense as
incurred, while renewals and betterments are capitalized.
Intangible Assets:
Intangible assets, primarily costs in excess of the fair value of net
assets acquired, are being amortized using the straight-line method over periods
ranging from 3 to 30 years. Intangible assets consist of the following (dollars
in thousands):
December 31, 1995 1994
- --------------------------------------------------------------------------------
Goodwill $49,680 $98,813
Other 839 3,776
- --------------------------------------------------------------------------------
50,519 102,589
Less: Accumulated
amortization (5,957) (4,520)
- --------------------------------------------------------------------------------
$44,562 $98,069
================================================================================
The realizability of goodwill is evaluated by segment. The Company
adopted Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
("SFAS 121"), effective January 1, 1995. The adoption of SFAS 121 did not have a
material impact on the Company's financial position or results of operations.
Minority Interest:
Minority interest includes $2,741,000 and $9,187,000 related to
redeemable preferred stock of subsidiaries at December 31, 1995 and 1994,
respectively.
Financial Instruments:
The carrying amount of the Company's financial instruments, for which it
was practicable to determine fair value, approximates fair value.
Foreign Currency Translation:
Assets and liabilities of foreign operations are translated into U.S.
dollars using period-end exchange rates, while revenue and expenses are
translated at average exchange rates throughout the period. Adjustments
resulting from translation are recorded as a separate component of stockholders'
equity. Gains and losses resulting from foreign currency transactions are
recognized in the results of operations in the period incurred.
Revenue:
Revenue from product sales is recorded at the time of shipment.
HPS derives revenue from services and its revenue and expenses are shown
as revenue from services and costs of services in the 1994 statement of
operations. HPS recognizes contractual and service revenue ratably over
contractual periods or as claims processing and administrative services are
performed. Revenue collected in advance is recorded as deferred revenue and
recognized when the related services are performed.
Other Income:
Interest income is accrued and reported as earned only to the extent
that management anticipates such amounts to be collectible. Accrued interest is
evaluated periodically and an allowance for uncollectible interest income is
established when necessary.
Loss Per Common and Common Equivalent Share:
Loss per share is computed based on the weighted average number of
shares of Noel Common Stock and dilutive equivalents outstanding during the
respective periods. Fully diluted earnings per share have not been presented
since the computation would be antidilutive.
2. INVESTMENTS AND ACQUISITIONS
HealthPlan Services Corporation
Pursuant to a Stock Purchase Agreement dated September 2, 1994, by and
among The Dun & Bradstreet Corporation, its wholly-owned subsidiary Dun &
Bradstreet Plan Services, Inc., Noel, HPS, formerly GMS Acquisition Company, and
certain other investors, HPS purchased all of the outstanding stock of
HealthPlan Services, Inc. for a cash purchase price of $19,000,000, excluding
$1,309,000 of related expenses, and the assumption of designated liabilities.
Noel and other investors capitalized HPS with $20,000,000 and arranged a
$20,000,000 line of credit to support working capital requirements.
F-13
<PAGE>
<PAGE>
The acquisition was accounted for as a purchase. The excess of the
allocated purchase price over the fair value of the net tangible assets
acquired, $30,730,000 was recorded as goodwill and is being amortized over a 25
year period.
On May 19, 1995, HPS completed an initial public offering of 4,025,000
newly issued common shares, raising net proceeds of $50,806,000. Following HPS's
initial public offering and Noel's exchange of its entire holding of HPS
preferred stock and accrued dividends into common equity, Noel's common equity
ownership percentage of HPS decreased from approximately 58% to approximately
42%. The offering was recorded as a subsidiary stock transaction by Noel with an
increase of $14,421,000, net of taxes of $1,012,000, recorded directly to
capital in excess of par value. Following Noel's exchange of its holding of HPS
preferred stock, Noel's holding of HPS common stock increased to 5,595,846
shares.
Summarized financial information for HPS is as follows (dollars in
thousands):
December 31, 1995
- --------------------------------------------------------------------------------
Current assets $53,116
Noncurrent assets $59,551
Current liabilities $30,103
Noncurrent liabilities $ 1,598
Year Ended
December 31, 1995
- --------------------------------------------------------------------------------
Revenue from services $98,187
Operating costs and expenses $84,550
Net income $ 9,535
HPS is a leading managed healthcare services company delivering
distribution, enrollment, billing and collection, claims administration and
information reports and analysis on behalf of healthcare payors and providers.
Belding Heminway Company, Inc.
On July 21, 1993, BH Acquisition Corporation ("BH Acquisition"), a
wholly-owned subsidiary of Noel, concluded a tender offer (the "Offer") for the
outstanding common stock of Belding at $30.25 per share in cash. Following the
Offer, on October 29, 1993, BH Acquisition owned 72.8% of the outstanding shares
and was merged with and into Belding (the "Merger"). The Offer and the Merger
are referred to together as the "Acquisition."
The Acquisition was financed by a $41,500,000 equity contribution from
Noel and by borrowings from a group of banks. The total purchase price
including banking, advisory and other fees, and shares acquired following the
Offer was approximately $64,500,000.
The Acquisition was accounted for as a purchase. The excess of the
allocated purchase price over the fair value of the net tangible assets
acquired, $40,000,000, was recorded as goodwill and is being amortized over
a 30-year period.
In February 1994, Noel spun off its entire common equity interest in the
recapitalized Belding to Noel stockholders at a rate of 0.175434 new Belding
share for every Noel share held. Pursuant to the accounting rules for spin-offs,
no gain was recognized. Because Noel no longer owned any Belding common stock
and because of Noel's brief ownership period, Belding's financial statements
were not consolidated with Noel's 1993 consolidated financial statements.
In December 1994, Noel exchanged $18,813,000 of preferred stock and
$3,216,000 of accrued dividends for 30% of Belding's outstanding common stock.
Noel retained voting control through its remaining holding of Belding preferred
stock. Because Noel had both a substantial common equity interest and voting
control of Belding as of December 31, 1994, Belding was consolidated as of that
date. The preferred stock votes as a single class with the common stock. As of
December 31, 1995, Noel had approximately 76% of the votes applicable to all
classes of Belding stock. Voting control is not expected to be temporary because
the terms of Belding's bank agreement preclude redemption of the preferred
stock. In 1994, Noel recognized a loss of $3,912,000 on the preferred stock
exchange and recorded preferred dividend income of $2,217,000 through the date
of the exchange.
During 1995, Belding's thread division's results were substantially
below historical levels and the levels expected when Belding was acquired in
1993. Based on this performance and projected future levels of operations,
Belding's management determined that certain assets were impaired and recorded
an impairment charge of $25,000,000 in the fourth quarter of 1995. This charge
represents a write-off goodwill of $17,400,000, a charge of $6,400,000 to adjust
the book value of assets to their December 1995 fair value, and other related
charges of $1,200,000. Fair value is based on the estimated realizable value in
a sale. The amounts actually realized in the future could differ materially from
the amounts assumed in determining the impairment charge. Noel also recorded a
charge of $4,155,000 to write-off goodwill related to Belding's thread division.
In December 1995, Belding announced its intention to sell its home
furnishings division in order to focus on its thread and button businesses. See
Note 3.
Belding is a manufacturer and marketer of industrial and consumer
threads and a distributor of a line of home sewing and craft products,
principally buttons.
Curtis Industries, Inc.
On August 17, 1992, Noel purchased newly-issued equity securities of
Curtis for $15,000,000 for approximately 65% of Curtis' total equity. The
acquisition was accounted for as a purchase. The excess of the allocated
purchase price over the fair value of the net tangible assets acquired,
$17,592,000, was recorded as goodwill and is being amortized over a 30-year
period. On November 13, 1995, Curtis sold its retail division to SDI Operating
Partners, LP ("SDI"), in order to focus on its automotive and industrial
division. See Note 3.
F-14
<PAGE>
<PAGE>
Curtis is a national distributor of fasteners, security products,
chemicals, automotive replacement parts, fittings and connectors, tools and
hardware.
Lincoln Snacks Company
On August 31, 1992, Lincoln purchased certain assets of the Lincoln
Snack Consumer Company, a division of Sandoz Nutrition Corporation ("Sandoz").
The purchase price, which was paid in cash, was $13,000,000, including expenses.
The acquisition was accounted for as a purchase. The excess of the allocated
purchase price over the fair value of the net tangible assets acquired,
$3,528,000, was recorded as goodwill and is being amortized over a 30 year
period.
On January 14, 1994, Lincoln completed an initial public offering of
2,472,500 shares of newly issued common stock which raised $9,593,000 for
Lincoln, net of expenses. At the time of the offering, Noel converted its entire
holding of shares of Lincoln preferred stock and accrued dividends for 1,728,755
shares of Lincoln common stock. Noel's interest in Lincoln's common equity was
approximately 58% following the offering. The offering was recorded as a
subsidiary stock transaction by Noel, with an increase of $2,438,000 recorded
directly to capital in excess of par value.
Lincoln is one of the leading manufacturers and marketers of caramelized
pre-popped popcorn in the United States and Canada with a product line that
includes Poppycock'r', Fiddle Faddle'r', and Screaming Yellow Zonkers'r'. On
July 17, 1995, an exclusive distribution agreement with the Planters Company, an
operating unit of Nabisco, Inc., commenced for the sale and distribution of
Fiddle Faddle and Screaming Yellow Zonkers in the United States for an initial
term of two years.
3. DISCONTINUED OPERATIONS
The historical financial statements have been restated to reflect
Simmons, Belding's home furnishings division, Curtis' retail division and TDX as
discontinued operations. Discontinued operations for Belding's home furnishings
division and TDX include estimates of the amounts expected to be realized on
their sales. The amounts ultimately realized could differ materially from the
amounts assumed in arriving at the loss on disposal of these discontinued
operations.
On December 19, 1995, S.O.C. Corporation, a wholly-owned subsidiary of
Blount Inc., completed a $10.40 per share cash tender offer for the outstanding
shares of common stock of Simmons. Pursuant to the tender offer, Noel sold
1,666,163 shares for $17,328,000. Simmons had revenue of $40,857,000 through
December 19, 1995, and revenue of $51,977,000 and $35,903,000 for the years
ended December 31, 1994 and 1993, respectively. Simmons imports, distributes and
markets optical products for the sporting goods industry in the United States
and Canada, including riflescopes, binoculars and telescopes.
On December 15, 1995, Belding announced its decision to divest its home
furnishings operations and recorded an estimated loss on disposal of
$18,000,000, net of income tax benefit, including $7,599,000 of goodwill
write-off. Noel recorded a charge of $1,813,000 to write-off its goodwill
related to Belding's home furnishings division. These charges, the related
minority interest benefit of $8,584,000 and Belding's best estimate of the
amounts to be realized on the sale of its home furnishings division are included
in loss from discontinued operations in the 1995 statement of operations. This
division had revenue of $30,084,000 for 1995.
On November 13, 1995, Curtis sold its retail division to SDI for
approximately $7,500,000 and no gain or loss was realized on this sale. Retail
division sales for the period ended November 13, 1995, were $13,937,000 and were
$19,412,000 and $20,017,000 for the years ended December 31, 1994 and 1993,
respectively.
In December 1995, Noel's Board of Directors authorized the sale of
Noel's holding of TDX common stock during 1996. TDX had revenue of approximately
$6,700,000 and $3,143,000 during 1995 and 1994, respectively, and management
estimates that TDX will have a net loss of $370,000 during 1996. TDX operates
two separate businesses: providers of weight control services and products and a
distributor of consumer health information programs.
The net liabilities of Belding's home furnishings division
totaling $793,000 are included in other current liabilities at December 31,
1995. The net assets of Curtis' retail division and TDX for 1995 and 1994 and
the net assets of Simmons and Belding's home furnishings division in 1994 have
been segregated in the consolidated balance sheets and consist of the following
(dollars in thousands):
December 31, 1995 1994
- --------------------------------------------------------------------------------
Assets:
Cash and cash equivalents $ 383 $ 1,161
Accounts receivable, net 55 22,280
Inventories 886 31,174
Other current assets 84 1,593
Property, plant and equipment, net 357 6,396
Intangibles assets, net -- 11,543
Other assets 1,218 1,479
- --------------------------------------------------------------------------------
Total assets 2,983 75,626
- --------------------------------------------------------------------------------
Liabilities:
Trade accounts payable 1,095 5,528
Other current liabilities 839 5,499
Long-term debt -- 4,863
Other long-term liabilities 33 70
Minority interest 237 9,875
- --------------------------------------------------------------------------------
Total liabilities 2,204 25,835
- --------------------------------------------------------------------------------
Net assets $ 779 $49,791
================================================================================
F-15
<PAGE>
<PAGE>
The components of loss from discontinued operations are as follows
(dollars in thousands):
Years Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------
Income (Loss) from operations:
Simmons $ 832 $ 4,935 $ 1,275
Belding 46 -- --
Curtis (1,489) (1,095) (794)
TDX (306) (3,882) (1,731)
- --------------------------------------------------------------------------------
(917) (42) (1,250)
Less: Income tax provision (393) (1,657) $ (679)
- --------------------------------------------------------------------------------
$ (1,310) $(1,699) $(1,929)
================================================================================
Income (Loss) on disposal:
Simmons $ 7,026 $ -- $ --
Belding (14,819) -- --
TDX (379) (5,915) --
- --------------------------------------------------------------------------------
(8,172) (5,915) --
Add: Income tax benefit 2,938 -- --
- --------------------------------------------------------------------------------
$ (5,234) $(5,915) $ --
================================================================================
The 1994 loss on disposal relates to TDX's 1994 decision to dispose of
two of its subsidiaries. In September 1994, substantially all of the operations
of TDX's subsidiary Safe Way Disposal Systems, Inc. ("Safe Way"), a regional
medical waste disposal company, were sold to a third party. Noel's portion of
the estimated losses of Safe Way was $2,230,000. The operations of another TDX
subsidiary, Transactional Media, Inc. ("TMI"), an infomercial company, were also
discontinued during 1994. In connection with this discontinuance, Noel recorded
a charge of $3,685,000 to adjust the carrying value of its investment to
estimated realizable value.
4. OTHER INVESTMENTS
On July 31, 1995, Noel received 1,026,104 common shares of
StaffingResources, Inc. ("Staffing") as payment for its $8,190,000 face value
subordinated note from Brae Group, Inc. ("Brae Note"), plus accrued interest of
$3,097,000. At December 31, 1994, the Brae Note was included in other assets at
$1,759,000, an amount which was based on the carryover basis of the investments
which Noel had sold in exchange for the Brae Note in 1991. Noel recognized a
gain of $6,598,000 on the payment of the Brae Note.
On November 15, 1995, Noel bought an additional 1,000,000 shares of
Staffing for $11,000,000 in a private placement offering, bringing Noel's
ownership of Staffing to approximately 19%.
Staffing is a provider of staffing services to businesses in the
Southwest, Rocky Mountain and Southeast regions of the United States.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (dollars in
thousands):
December 31, 1995 1994
- --------------------------------------------------------------------------------
Land $ 3,536 $ 3,239
Buildings and leasehold
improvements 20,015 24,047
Machinery and equipment 27,469 28,847
Furniture and fixtures 446 2,796
- --------------------------------------------------------------------------------
51,466 58,929
Less: Accumulated depreciation 10,903 6,671
- --------------------------------------------------------------------------------
$40,563 $52,258
================================================================================
6. SHORT-TERM DEBT
Short-term debt at December 31, 1994, consists of Lincoln's revolving
credit facility, which had a weighted average interest rate of 9.4%. Lincoln's
revolving credit facility provides for $5,925,000 in borrowings. This facility
is collateralized by substantially all of Lincoln's assets. Borrowings under the
facility are based on receivables and inventory, and interest is calculated, at
Lincoln's option, at prime plus 1 1/2% or at a Eurodollar rate plus 3.0%. The
facility requires an annual monitoring fee of $12,000, an unused facility fee of
1/2% and requires the maintenance of various financial and other covenants.
7. LONG-TERM DEBT
Long-term debt consists of the following (dollars in thousands):
December 31, 1995 1994
- --------------------------------------------------------------------------------
Belding senior bank facilities,
prime plus 1 3/4%, due 1997 $46,100 $44,339
Belding Connecticut Development
Authority note payable,
5%, due 1999 87 --
Curtis revolving line of credit,
LIBOR plus 3 1/4% or prime
plus 1 1/4%, due 1997 3,602 12,223
Curtis subordinated notes -- 185
Curtis senior secured subordinated
notes, 12%, due 1999 12,000 12,000
Curtis subordinated debentures,
13 1/8%, due 2002 9,189 9,189
Curtis Industrial Revenue Bond,
variable rate, due 2003 1,000 1,000
HPS note payable, 5%, due 2008 n/a 1,300
Lincoln term loan, prime plus 1 3/4%
or a Eurodollar rate plus 3 1/4%,
due 1997 1,509 2,309
Capital lease obligations 2,968 1,193
- --------------------------------------------------------------------------------
76,455 83,738
Less:
Current portion (5,233) (5,634)
Unamortized discount (2,025) (2,370)
- --------------------------------------------------------------------------------
$69,197 $75,734
================================================================================
F-16
<PAGE>
<PAGE>
The Belding senior bank facilities consist of (i) a $25,000,000
amortizing senior term loan facility (the "Term Facility") and (ii) a
$29,000,000 senior revolving credit facility (the "Revolving Facility"), up to
$2,500,000 of which is available as standby and trade letters of credit. On
December 31, 1995, Belding was in default on certain of its loan covenants
specified in its credit agreement. As a result, the credit agreement was amended
in March 1996 to waive the defaults as of December 31, 1995, to institute
certain fees based upon amounts outstanding in 1996 and to revise financial
covenants, among other changes.
The senior bank facilities mature on July 1, 1997. Loans outstanding as
of December 31, 1995, under the Term Facility total $20,650,000 and are
repayable in consecutive quarterly installments: one installment of $804,000,
three installments of $902,000 each, two installments of $1,263,000 each, and
one installment of $14,614,000. Loans outstanding under the Revolving Facility
are $25,450,000 at December 31, 1995. Each bank is entitled to a commitment fee
of 1/2% per annum on the unused portion of its commitment under the senior bank
facilities. In addition, the bank is entitled to an administrative agency fee
payable for the life of the facilities. The senior bank facilities are secured
by a first priority lien or security interest in substantially all the assets of
Belding.
The Curtis credit agreement provides for a $17,500,000 revolving line of
credit. At December 31, 1995, based on available collateral, $5,897,000 was
available under the line of credit. A fee of 3/8% per annum is required on the
unused portion of the revolving credit commitment. The credit agreement is
secured by substantially all of the assets of Curtis and contains financial and
other covenants. Included in the agreement is a provision for the issuance of
letters of credit up to a maximum of $2,000,000. Letters of credit totaling
$1,100,000 were outstanding at December 31, 1995.
Curtis' subordinated debentures are redeemable at the option of Curtis.
The Industrial Revenue Bond bears interest at a variable rate which was 3 1/2%
at December 31, 1995 and is secured by an outstanding letter of credit.
The Lincoln term loan bears interest at a variable rate which was 9.1%
at December 31, 1995. The term loan is payable in 22 monthly installments of
$66,667, with the balance due in November 1997.
The carrying amount of long-term debt, for which it was practicable to
determine fair value, approximates fair value at December 31, 1995. At December
31, 1995, long-term debt, including capital leases, matures as follows (dollars
in thousands):
1996 $ 5,233
1997 48,855
1998 72
1999 12,078
2000 28
Thereafter 10,189
- --------------------------------------------------------------------------------
$76,455
================================================================================
8. LEASES
At December 31, 1995, the Company's minimum future rental payments under
noncancelable operating leases are as follows (dollars in thousands):
1996 $2,290
1997 1,939
1998 1,653
1999 865
2000 369
Thereafter 786
- --------------------------------------------------------------------------------
$7,902
================================================================================
The Company's rent expense for the years ended December 31, 1995, 1994
and 1993 was $2,789,000, $2,468,000, and $1,490,000, respectively. Noel has a
sublease with a company whose executive officers are also executive officers of
Noel for certain office space currently used by Noel.
9. STOCKHOLDERS' EQUITY
Preferred Stock:
Noel is authorized to issue 2,000,000 shares of Preferred Stock. Noel's
Certificate of Incorporation provides that the Board of Directors of Noel,
without stockholder approval, has the authority to issue Preferred Stock from
time to time in series and to fix the designation, powers (including voting
powers, if any), preferences and relative, participating, conversion, optional,
and other special rights, and the qualifications, limitations and restrictions
of each series.
Warrants:
In the first quarter of 1995, Noel issued a total of 1,120,000 warrants
to certain Noel officers. Each warrant represents the right to purchase one
share of Noel Common Stock. Warrants were issued to purchase 800,000 and 320,000
shares at $5.00 and $5.625 per share, respectively, the trading price of Noel
Common Stock on the date that the warrants were granted. The warrants vest 50%
at issuance, 75% after one year and 100% after two years. The warrants expire
ten years after the date of grant.
F-17
<PAGE>
<PAGE>
Distributions:
In 1994, 1993 and 1992, Noel made distributions of certain common equity
holdings to its stockholders (the "Distributions"). On February 28, 1994, Noel
distributed to Noel stockholders substantially all of Noel's holdings in Belding
common stock. On December 6, 1993, Noel distributed to Noel stockholders
substantially all of Noel's holdings in Sylvan. On September 21, 1992, Noel
distributed to Noel stockholders substantially all of Noel's holdings in Global
Natural Resources Inc. ("Global"), Garnet Resources Corporation ("Garnet") and
VISX, Incorporated ("VISX").
For financial accounting purposes, the Distributions have been treated
as common stock dividends recorded at the book values of the shares distributed,
which were $708,000, $9,124,000 and $22,329,000 in 1994, 1993 and 1992,
respectively, and deducted from capital in excess of par value. The excesses of
the fair values of the shares distributed over their book values on the date of
distribution, $2,620,000 and $30,760,000, in 1993 and 1992, respectively, were
not reflected as income in the Company's financial statements in accordance with
the financial accounting requirements for the spin-off of equity basis
affiliates. The fair value of the Belding shares distributed approximated their
book value on the date of their distribution in 1994.
The fair market value on the date of distribution of one share of common
stock of Belding, Sylvan, Global, Garnet and VISX was $.20, $8.375, $6.56, $4.92
and $9.57, respectively. The value of the Distributions per Noel share was
$.035, $.58 and $2.63, in 1994, 1993 and 1992, respectively. The Distributions
were classified for tax purposes as a dividend in 1994 and as returns of capital
to Noel stockholders in 1993 and 1992.
10. STOCK OPTION PLANS
Noel adopted a stock option plan in 1988 (as amended, the "1988 Plan")
and in 1995 (the "1995 Plan"; and together with the 1988 Plan, the "Employee
Plans," each being an "Employee Plan"), providing for the grant of options to
purchase up to an aggregate of 2,000,000 shares and 1,000,000 shares,
respectively, of Noel's Common Stock. Options under the Employee Plans may be
granted to employees of Noel and its subsidiaries, including officers who are
directors, and any other persons who perform substantial services for or on
behalf of Noel, or any of its subsidiaries, affiliates or any entity in which
Noel has an interest. Each option granted under either Employee Plan terminates
no later than ten years from the date of grant. Options issued under either
Employee Plan may be either incentive options or non-incentive options.
To date, non-incentive options have been granted under the 1988 Plan at
the fair market value on the date of grant. No options have been granted under
the 1995 Plan, however, Noel anticipates that options granted under the 1995
Plan will generally be non-incentive options. Non-incentive options previously
granted to employees under the 1988 Plan generally vest over a four-year period,
so that 20% of the option is exercisable immediately and an additional 20% of
the option becomes exercisable on each of the first four anniversaries of the
date of grant. It is anticipated that options granted under the Employee Plans
to employees in the future will be subject to similar vesting provisions.
Non-incentive options previously granted to non-employees under the 1988 Plan
generally vest immediately. Non-incentive options previously granted under the
1988 Plan generally terminate ten years after the date of grant or, in the case
of employees, one year after the termination of the status with Noel which
qualified the option holder to receive such option, if earlier.
Incentive options granted under either Employee Plan may only be
exercised while an option holder is employed by Noel or one of its subsidiaries
or within three months after the termination of employment, to the extent that
the right to exercise such incentive option had accrued at the time of
termination. The terms of incentive options, none of which have been granted
under either Employee Plan, are subject to additional restrictions.
In 1995, Noel adopted a non-employee directors' stock option plan (the
"Directors' Plan"), providing for the grant of non-incentive options to purchase
an aggregate of 50,000 shares of Noel Common Stock to directors who are not
employees of Noel. Under the Directors' Plan, each non-employee director serving
as a director immediately following the 1995 Annual Meeting of Shareholders, who
had not previously been granted an option to purchase Noel Common Stock under
any of Noel's stock option plans, was granted a fully vested option to purchase
8,334 shares of Common Stock at an exercise price per share equal to the fair
market value on the date of shareholder approval of the plan (the "Plan Approval
Date"). Every individual who becomes a director after the Plan Approval Date,
who has not previously been granted options to purchase shares of Common Stock
under any of Noel's stock option plans and who is not an employee of Noel, shall
be granted a vested option to purchase 8,334 shares of Noel Common Stock, to
have an exercise price equal to the fair market value on the date of grant. Each
option granted under the Directors' Plan terminates no later than 10 years from
the date of grant.
F-18
<PAGE>
<PAGE>
The outstanding options expire from 1999 through 2005. Share and price
information for the 1988 Plan, the 1995 Plan and the Directors' Plan are as
follows:
Number of Option Price
Shares per Share
- --------------------------------------------------------------------------------
Outstanding,
January 1, 1994 1,869,459 $5.50 - $45.00
Redeemed 8,334 8.36
Outstanding,
December 31, 1994 1,861,125 5.50 - 45.00
Granted 116,668 5.25 - 6.88
Outstanding,
December 31, 1995 1,977,793 5.25 - 45.00
Exercisable,
December 31, 1995 1,897,793 5.25 - 45.00
Available for grant,
December 31, 1995 1,072,207
In connection with the 1993 and 1992 Distributions, Noel retained shares
of the distributees to give to the 1988 Plan option holders upon the exercise of
options granted prior to the Distributions. Accordingly, the option exercise
prices were not adjusted for the Distributions. In February 1994, the retained
shares of common stock were unstapled from the options and sold, recognizing a
$8,476,000 capital gain. Noel recorded both a long-term liability and an expense
in the amount of $4,853,000 representing the value of the outstanding options on
the new measurement date.
11. OTHER INCOME (EXPENSE)
Other income consists of the following (dollars in thousands):
Years Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------
Interest income $ 1,148 $ 1,621 $1,757
Gain (Loss) on sale of
marketable securities (1,052) 9,017 417
Gain (Loss) on sale of
non-marketable securities 6,657 (3,813) 73
Dividend income 10 2,217 1,085
Other (60) (714) 1,125
- --------------------------------------------------------------------------------
$ 6,703 $ 8,328 $4,457
================================================================================
Income from equity investments in 1995 includes income of $3,371,000
related to Noel's investment in HPS.
12. INCOME TAXES
The components of the benefit (provision) for income taxes are as
follows (dollars in thousands):
Years Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------
Current tax benefit (provision):
Federal $ -- $(1,105) $307
State (375) (223) (16)
Foreign (15) (123) (65)
- --------------------------------------------------------------------------------
$(390) $(1,451) $226
================================================================================
Deferred tax benefit (provision):
Federal $ 681 $ (216) $ --
State (7) (28) --
- --------------------------------------------------------------------------------
$ 674 $ (244) $ --
================================================================================
A reconciliation of the Company's income tax benefit (provision) and the
amount computed by applying the statutory tax rate of 34% to loss before income
taxes is as follows (dollars in thousands):
Years Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------
Tax benefit at statutory rates $ 5,394 $ 2,638 $1,894
State and local, net of
Federal benefit (257) (245) (16)
Minority interest 3,714 195 (203)
Reversal of prior
valuation allowances 904 -- --
Losses generating no
current benefit (820) (3,806) (1,291)
Amortization and
write-off of excess
purchase costs (8,703) (237) (182)
Other 52 (240) 24
- --------------------------------------------------------------------------------
Benefit (Provision) for
income taxes $ 284 $ (1,695) $ 226
================================================================================
Significant components of the Company's net deferred income tax assets
and liabilities are as follows (dollars in thousands):
December 31, 1995 1994
- --------------------------------------------------------------------------------
Accounts receivable allowances $ 959 $ 1,195
Inventories valuation differences 420 (332)
Accruals 3,788 7,380
Depreciation and amortization (6,068) (8,179)
Equity investments (1,201) 339
Brae note -- 3,070
Deferred compensation and benefits 7,428 7,894
Loss from discontinued operations 6,658 --
Tax net operating loss carryforwards 17,320 16,755
Other 1,931 2,648
- --------------------------------------------------------------------------------
Subtotal 31,235 30,770
Valuation allowance (22,419) (25,315)
- --------------------------------------------------------------------------------
$ 8,816 $ 5,455
================================================================================
F-19
<PAGE>
<PAGE>
The deferred tax assets and liability include the following (dollars in
thousands):
December 31, 1995 1994
- --------------------------------------------------------------------------------
Current deferred tax asset $ 2,906 $ 7,422
Valuation allowance (2,593) (2,761)
- --------------------------------------------------------------------------------
Current deferred tax asset $ 313 $ 4,661
- --------------------------------------------------------------------------------
Long-term deferred tax asset $ 29,341 $ 23,348
Valuation allowance (19,826) (22,554)
- --------------------------------------------------------------------------------
Long-term deferred tax asset $ 9,515 $ 794
- --------------------------------------------------------------------------------
Long-term deferred tax liability $ (1,012) $ --
Valuation allowance -- --
- --------------------------------------------------------------------------------
Long-term deferred tax liability $ (1,012) $ --
================================================================================
Lincoln and Curtis recorded a valuation allowance equal to 100% of their
net deferred tax assets based upon their historical losses and significant net
operating loss carryforwards. Noel recorded a valuation allowance on its net
deferred tax assets because of its historical losses. The valuation allowance at
December 31, 1995, includes $10,365,000 related to temporary differences which
existed on the dates of acquisitions of certain of Noel's subsidiaries. Any
future recognition of the tax benefits related to this portion of the valuation
allowance would be recorded as a reduction to the goodwill associated with the
acquisitions.
Noel had Federal net operating loss carryforwards of $10,441,000 at
December 31, 1995, which expire from 2003 through 2008. Noel has undergone
"ownership changes" within the meaning of Section 382 of the Internal Revenue
Code of 1986, as amended. Consequently, future utilization of Noel's tax loss
carryforwards is limited.
13. RETIREMENT PLANS
The Company sponsors a number of defined contribution retirement plans.
Participation in these plans is available to substantially all employees. The
Company's contributions to these plans are based on a percentage of salaries or
employee contributions. The expense of these plans for the years ended December
31, 1995, 1994, and 1993 totaled $898,000, $516,000 and $554,000, respectively.
Belding and Curtis sponsor defined benefit pension plans. Belding's plan
covers substantially all of its employees and requires no contributions from
employees. Benefits are based on years of service and compensation levels within
these years. Belding's plan was frozen as of December 31, 1994, after which no
new employees are eligible to join the plan. Additionally, employees covered
under Belding's plan will not receive any additional accruals for service
rendered after December 31, 1994. Curtis' plan covers former manufacturing
employees who were members of UAW Local 70, based on years of service. In 1995,
Curtis recorded a $480,000 curtailment loss as a result of shutting down its
manufacturing operations. Both plans fund pension costs as required by ERISA.
The projected unit cost method is used to determine both pension costs and
funding requirements for the plans. The net periodic pension costs included in
the statement of operations for the year ended December 31, 1995, was $634,000
and the 1994 and 1993 amounts are not material.
As of December 31, 1994, as required by the purchase method of
accounting, a liability was recorded by Belding reflecting the excess of
Belding's projected benefit obligation measured at an 8.5% discount rate over
the fair value of plan assets.
The actuarial present value of accumulated benefit obligations ("ABO")
is as follows (dollars in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31, 1995 1995 1994 1994
Pension Pension Pension Pension
ABO Assets ABO Assets
Exceeds Exceed Exceeds Exceed
Assets ABO Assets ABO
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Vested benefit obligation $19,352 $1,877 $ 15,644 $2,481
================================================================================
Accumulated benefit obligation $19,407 $1,905 $ 16,370 $2,524
================================================================================
Projected benefit obligation $19,407 $1,905 $ 16,370 $2,524
Plan assets at fair value 17,202 2,284 11,713 3,576
- --------------------------------------------------------------------------------
Plan assets less projected
benefit obligation (2,205) 379 (4,657) 1,052
Unrecognized net (gain) loss (583) -- -- 282
Unrecognized prior service cost -- -- -- 121
- --------------------------------------------------------------------------------
Net pension asset (liability) $(2,788) $ 379 $(4,657) $1,455
================================================================================
Major assumptions at year end: 1995 1994
- --------------------------------------------------------------------------------
Discount rate 7.5% 8.4%
Rate of increase of compensation levels n/a 5.0%
Expected long-term rate
of return on assets 9.4% 9.4%
</TABLE>
At December 31, 1995, Curtis' plan assets were invested in a bank fixed
income fund, and Belding's plan assets consisted principally of common stock,
United States government and corporate obligations.
F-20
<PAGE>
<PAGE>
14. POSTRETIREMENT BENEFITS
Belding provides certain health and life insurance benefits for eligible
retirees and their dependents. Curtis provides healthcare and life insurance
benefits for certain retired members of UAW Local 70. In 1995, Curtis recorded a
curtailment gain of $468,000 as a result of shutting down its manufacturing
operations. Both plans are not funded and pay the costs of benefits as incurred.
The net periodic postretirement benefit costs included in the statements of
operations for the years ended December 31, 1995 and 1993 are not material. The
net periodic postretirement benefit costs included in the 1994 statement of
operations is $1,356,000 and principally relates to a settlement of a strike at
Curtis.
Belding's predecessor adopted, effective January 1, 1993, Statement of
Financial Accounting Standards No. 106 and elected to amortize the accrual for
postretirement benefits over a 20-year period. As required by the purchase
method of accounting, a similar accrual was recorded when Belding was acquired
by Noel.
The estimated accumulated postretirement benefit obligation at December
31, 1995 and 1994, at a weighted average discount rate of 7.5% and 8.1%,
respectively, is as follows (dollars in thousands):
December 31, 1995 1994
- --------------------------------------------------------------------------------
Retirees $5,722 $5,838
Fully eligible active plan participants 647 655
Other active participants 769 824
- --------------------------------------------------------------------------------
7,138 7,317
Unrecognized net loss (555) --
- --------------------------------------------------------------------------------
$6,583 $7,317
================================================================================
The assumed healthcare cost trend rate used by Belding in measuring the
accumulated postretirement benefit obligation at December 31, 1995, was 11% for
1995, gradually declining to 5.5% in 2005. For Curtis' measurement purposes, an
8.25% annual rate of increase in the per capita cost of covered healthcare
claims was assumed for 1996 and the rate was assumed to decrease gradually to
5.5% by the year 2000 and remain at that level thereafter. A one percentage
point increase in the assumed healthcare cost trend rate would increase the
accumulated postretirement benefit obligation as of December 31, 1995, by
$235,000 and the sum of service costs and interest costs on an annual basis by
$32,000.
15. COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal proceedings generally
incidental to its businesses. While the result of any litigation contains an
element of uncertainty, management believes that the outcome of any known,
pending or threatened legal proceeding or claim, or all of them combined,
will not have a material adverse effect on the Company's consolidated financial
position. Lincoln has outstanding purchase order commitments as of December 31,
1995, of $557,000.
Following a field examination, the Internal Revenue Service ("IRS")
ruled that as a result of certain tax law changes enacted in 1989 and 1991,
Curtis' expense reimbursement policy for its field sales force does not meet
the definition of an accountable plan, and has reclassed all reimbursed expenses
for 1994 and 1993 as taxable wages. Consequently in January 1996, Curtis
received an assessment from the IRS for unpaid Federal payroll taxes totaling
approximately $2,000,000. Curtis believes it has meritorious legal defenses to
the IRS position, and that the ultimate liability of Curtis, if any, arising
from the foregoing will not have a material adverse impact on the financial
condition or results of operations of Curtis.
16. SUPPLEMENTAL CASH FLOWS INFORMATION
Non-cash investing and financing activities are as follows (dollars in
thousands):
Years ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------
Gain on payment of Brae
Note with Staffing
common stock $ 6,598 $ -- $ --
================================================================================
Increase in investment in
HPS related to HPS'
initial public offering $15,433 $ -- $ --
================================================================================
Conversion of TDX debt
into TDX equity $ -- $ 8,780 $ --
================================================================================
Loss on exchange of
Belding preferred stock
for Belding common stock $ -- $ (3,912) $ --
================================================================================
Acquisitions:
Fair value of assets acquired $ -- $ 50,982 $ 2,450
Less: Cash paid -- 18,406 1,832
- --------------------------------------------------------------------------------
Liabilities assumed $ -- $ 32,576 $ 618
================================================================================
Distributions to stockholders $ -- $ 708 $ 9,124
================================================================================
Fixed assets acquired
under capital leases $ -- $ -- $ 834
================================================================================
During the years ended December 31, 1995, 1994 and 1993, the Company
paid interest of $8,184,000, $4,433,000 and $2,840,000, respectively. For the
years ended December 31, 1995 and 1994, the Company paid income taxes of
$1,473,000 and $813,000, respectively. Taxes paid in 1993 were not material.
F-21
<PAGE>
<PAGE>
17. INDUSTRY SEGMENT INFORMATION
The Company is currently classified into three business segments.
Summarized financial information by business segment for the periods of Noel's
consolidated control is as follows (dollars in thousands):
<TABLE>
<CAPTION>
Operating Depreciation
income Identifiable and Capital
1995 Sales (loss) assets amortization expenditures
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fasteners & Security Products
Distribution $ 68,842 $ 2,067 $ 43,680 $3,046 $ 743
Snack Foods 24,213 (1,118) 14,335 944 214
Industrial Threads & Buttons 88,654 (22,715) 98,066 3,646 3,820
Noel-- Investments -- -- 34,520 -- --
Noel-- Corporate -- (7,685) 49,156 81 80
- -------------------------------------------------------------------------------------------------
$ 181,709 $(29,451) $239,757 $7,717(1) $4,857
=================================================================================================
Sales and Operating Depreciation
revenue income Identifiable and Capital
1994 from services (loss) assets amortization expenditures
- -------------------------------------------------------------------------------------------------
Fasteners & Security Products
Distribution $ 66,614 $ 858 $ 49,244 $3,115 $ 698
Snack Foods 27,274 (4,477) 18,049 1,069 870
Healthcare Administration 25,233 3,934 57,135 948 182
Industrial Threads & Buttons n/a n/a 107,939 n/a n/a
Noel -- Investments -- -- 3,041 -- --
Noel -- Corporate -- (13,046) 78,572 64 54
- --------------------------------------------------------------------------------------------------
$ 119,121 $ (12,731) $ 313,980 $5,196(1) $1,804
==================================================================================================
Operating Depreciation
income Identifiable and Capital
1993 Sales (loss) assets amortization expenditures
- --------------------------------------------------------------------------------------------------
Fasteners & Security Products
Distribution $ 65,594 $ 975 $ 50,889 $3,441 $1,255
Snack Foods 28,368 (678) 19,967 974 917
Noel -- Investments -- -- 43,270 -- --
Noel -- Corporate -- (7,232) 72,719 60 27
- -------------------------------------------------------------------------------------------------
$ 93,962 $ (6,935) $186,845 $4,475(1) $2,199
=================================================================================================
</TABLE>
(1) Amounts include $2,829,000, $1,449,000 and $1,303,000 which are
included in cost of sales for the years ended December 31, 1995, 1994
and 1993, respectively, and $948,000 included in HealthPlan Services
costs of services for the year ended December 31, 1994.
The snack foods segment had one customer that accounted for
approximately 19% of sales in 1995. The healthcare administration segment had
three customers that accounted for approximately 29%, 25% and 11%, respectively,
of its total revenue in 1994. The Company's revenue and assets attributable to
operations outside of the United States are not significant.
F-22
<PAGE>
<PAGE>
18. QUARTERLY FINANCIAL DATA (unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarters Ended March 31, June 30, Sept. 30, Dec. 31,
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
Revenue $45,079 $44,286 $44,694 $47,650
Operating income (loss) (278) (481) 1,377 (30,069)(1)
Income (Loss) from
continuing operations (2,137) (2,557) 6,926 (17,813)(1)
Loss from discontinued
operations (452) (341) (517) (5,234)
Net income (loss) (2,589) (2,898) 6,409 (23,047)
Income (Loss) per common
and common equivalent
share from continuing
operations (0.11) $(0.12) $ 0.33 $(0.88)
Discontinued operations (0.02) (0.02) (0.02) (0.26)
- --------------------------------------------------------------------------------
Net income (loss) per
common and common
equivalent share $(0.13) $(0.14) $ 0.31 $(1.14)
================================================================================
- --------------------------------------------------------------------------------
1994
Revenue $20,686 $22,041 $24,381 $52,013(2)
Operating income (loss) (10,835) (2,867) (1,457) 2,428
Income (Loss) from
continuing
operations (5,284) 1,611 (972) (4,808)
Income (Loss) from
discontinued
operations (775) (3,588) 1,658 (4,909)
Net income (loss) (6,059) (1,977) 686 (9,717)
Income (Loss) per common
and common equivalent
share from continuing
operations $(0.26) $0.08 $(0.05) $(0.24)
Discontinued operations (0.04) (0.18) 0.08 (0.24)
- --------------------------------------------------------------------------------
Net income (loss) per
common and common
equivalent share $(0.30) $(0.10) $ 0.03 $(0.48)
================================================================================
</TABLE>
The amounts previously reported have been restated for discontinued operations.
(1) Amounts include an impairment charge of $29,155,000 related to Belding's
thread division. See Note 2.
(2) Amount includes $25,233,000 in revenue from services from HPS, which was
acquired on September 30, 1994. See Note 2.
19. SUBSEQUENT EVENT
On March 5, 1996, a consortium led by Noel purchased by auction the
Brazilian federal railroad's western network for $63.6 million. The purchase of
the network consisted of a 30-year concession and a lease of the federal
railway's equipment. Noel's total investment is expected to be $8 million for a
noncontrolling interest in the acquisition company.
F-23
<PAGE>
<PAGE>
Report of Independent Public Accountants
To the Stockholders and
Board of Directors of Noel Group, Inc.:
We have audited the accompanying consolidated balance sheets of Noel
Group, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits. We did not audit the financial
statements of HealthPlan Services Corporation ('HPS'), the investment in which
is reflected in the accompanying financial statement using the equity method of
accounting in 1995. The investment in HPS represents 14% of consolidated total
assets as of December 31, 1995 and the equity in its net income is $3.4 million
for 1995. In 1994, when HPS was a consolidated subsidiary of Noel Group, Inc.
(see Note 2), the financial statements of HPS reflect total assets and total
revenues of 18% and 21%, respectively, of the consolidated totals. The
statements of HPS were audited by another auditor whose report has been
furnished to us and our opinion, insofar as it relates to the amounts included
for HPS in 1995 and 1994, is based solely on the report of the other auditor.
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 and the report of the other auditor provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditor,
the financial statements referred to above present fairly, in all material
respects, the financial position of Noel Group, Inc. and subsidiaries as of
December 31, 1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
March 15, 1996
F-24
<PAGE>
<PAGE>
HealthPlan Services Corporation
Consolidated Balance Sheet
December 31, 1995 and 1994 (Amounts in 000s)
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 4,738 $ 4,303
Restricted cash 1,005 2,812
Short-term investments 36,723 --
Accounts receivable 6,411 3,849
Refundable income taxes 1,041 --
Prepaid commissions 748 947
Prepaid expenses and other current assets 1,485 1,190
Deferred taxes 965 2,481
- -----------------------------------------------------------------------------------------------------
Total current assets 53,116 15,582
Property and equipment, net 9,241 6,217
Deferred taxes -- 325
Other assets, net 1,463 642
Goodwill, net 48,847 30,423
- -----------------------------------------------------------------------------------------------------
Total assets $112,667 $ 53,189
=====================================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 3,407 $ 1,903
Premiums payable to carriers 17,209 18,471
Commissions payable 2,897 2,909
Deferred revenue 947 1,038
Accrued liabilities 5,093 4,026
Accrued contract commitments 482 3,115
Income taxes payable -- 135
Current portion of note payable 68 35
- -----------------------------------------------------------------------------------------------------
Total current liabilities 30,103 31,632
Note payable 1,214 1,265
Deferred taxes 354 --
Other long-term liabilities 30 --
- -----------------------------------------------------------------------------------------------------
Total liabilities 31,701 32,897
- -----------------------------------------------------------------------------------------------------
Redeemable Preferred Stock, 20,000 shares authorized:
Series A, $0.01 par value, 6% dividend rate per annum, cumulative, 100
shares, issued and outstanding in 1994 and held by a related
party, redeemable at $1 per share plus accrued and unpaid
dividends -- 101
Series B, $0.01 par value, 6% dividend rate per annum, cumulative,
18,900 shares, issued and outstanding in 1994, redeemable at $1
per share plus accrued and unpaid dividends -- 19,184
- -----------------------------------------------------------------------------------------------------
Total redeemable preferred stock -- 19,285
- -----------------------------------------------------------------------------------------------------
Common stockholders' equity:
Common stock non-voting, $0.01 par value, 25,000
shares authorized, 7,961 issued and outstanding in 1994 -- 80
Common stock voting, $0.01 par value, 25,000 shares
authorized, 13,395 issued and outstanding in 1995 134 --
Additional paid-in capital 71,636 981
Retained earnings 9,196 (54)
- -----------------------------------------------------------------------------------------------------
Total stockholders' equity 80,966 1,007
- -----------------------------------------------------------------------------------------------------
Commitments and contingent liabilities (Notes 4 and 11)
- -----------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $112,667 $53,189
=====================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-25
<PAGE>
<PAGE>
HealthPlan Services Corporation
Consolidated Statement of Income
(Amounts in 000s except per share amounts)
<TABLE>
<CAPTION>
For the Period
from Inception
For the (October 1,
year ended 1994) through
December 31, December 31,
1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating revenues $ 98,187 $ 25,132
Interest income 2,063 101
- -----------------------------------------------------------------------------------------------------------
Total revenues 100,250 25,233
- -----------------------------------------------------------------------------------------------------------
Expenses:
Agents commissions 36,100 10,047
Personnel expenses 25,433 5,972
General and administrative 16,967 4,226
Pre-operating and contract start-up costs 1,664 --
Contract commitment expense -- 3,623
Depreciation and amortization 4,386 870
- -----------------------------------------------------------------------------------------------------------
Total expenses 84,550 24,738
- -----------------------------------------------------------------------------------------------------------
Income before interest expense and income taxes 15,700 495
Interest expense 69 105
- -----------------------------------------------------------------------------------------------------------
Income before income taxes 15,631 390
Provision for income taxes 6,096 159
- -----------------------------------------------------------------------------------------------------------
Net income $ 9,535 $ 231
===========================================================================================================
Dividends on Redeemable Preferred Stock $ 285 $ 285
Net income (loss) attributable to common stock $ 9,250 $ (54)
===========================================================================================================
Pro forma net income per share $0.71 $0.03
===========================================================================================================
Pro forma weighted average shares outstanding 13,414 9,339
===========================================================================================================
Historical weighted average net income per share $0.82 N/A
===========================================================================================================
Historical weighted average shares outstanding 11,336 N/A
===========================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-26
<PAGE>
<PAGE>
HealthPlan Services Corporation
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
(Amounts in 000s)
<TABLE>
<CAPTION>
Non-voting Voting Additional
Common Common Paid-in Retained
Stock Stock Capital Earnings Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial issuance of
common stock
(October 1, 1994) $ 75 $ -- $ 925 $ -- $ 1,000
Issuance of management stock 5 -- 1,226 -- 1,231
Unvested interest in
management stock -- -- (1,170) -- (1,170)
Dividends on Redeemable
Preferred Stock -- -- -- (285) (285)
Net income -- -- -- 231 231
- --------------------------------------------------------------------------------
Balance at December 31, 1994 $ 80 $ 0 $ 981 $ (54) $ 1,007
Issuance of management stock -- -- 30 -- 30
Unvested interest in
management stock -- -- (27) -- (27)
Vesting of management stock -- -- 330 -- 330
Net proceeds of initial public
offering -- 40 50,766 -- 50,806
Conversion of Non-Voting
Common Stock to
Voting Common Stock (80) 80 -- -- --
Exchange of Redeemable
Preferred Stock Series
A and Series B for
Common Stock -- 14 19,556 -- 19,570
Dividends on Redeemable
Preferred Stock -- -- -- (285) (285)
Net income -- -- -- 9,535 9,535
- --------------------------------------------------------------------------------
Balance at December 31, 1995 $ 0 $ 134 $ 71,636 $9,196 $80,966
================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-27
<PAGE>
<PAGE>
HealthPlan Services Corporation
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in 000s)
<TABLE>
<CAPTION>
For the Period
from Inception
For the (October 1,
year ended 1994) through
December 31, December 31,
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 9,535 $ 231
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 2,657 511
Amortization of goodwill 1,524 307
Amortization of deferred costs 205 51
Vesting of management stock 332 62
Deferred taxes 935 244
(Increase) decrease in:
Restricted cash 1,807 (2,150)
Accounts receivable (702) (975)
Refundable income taxes (1,041) --
Prepaid commissions 200 222
Prepaid expenses and other current assets (64) (56)
Other assets (188) --
Increase (decrease) in:
Accounts payable 643 1,425
Premiums payable to carriers (1,262) 2,061
Commissions payable (12) 216
Deferred revenue (1,018) (256)
Accrued liabilities (1,707) 1,835)
Accrued contract commitments (2,633) 3,115
Income taxes payable (135) 135
- --------------------------------------------------------------------------------
Net cash provided by operating
activities 9,076 3,308
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Payment for purchase of Predecessor
Company, net of cash acquired -- (18,406)
Purchases of property and equipment (5,286) (182)
Purchases of short-term investments, net (36,723) --
Payment for purchase of Third Party
Claims Management, net of cash acquired (7,328) --
Payment for purchase of Diversified
Group Brokerage (10,075) --
- --------------------------------------------------------------------------------
Net cash used in investing activities (59,412) (18,588)
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Net proceeds from initial public
offering of common stock 50,806 --
Proceeds from line of credit -- 5,000
Repayments on line of credit -- (5,000)
Payments of loan origination costs -- (400)
Principal payments on note payable (35) (17)
Issuance of common stock -- 1,000
Issuance of Redeemable Preferred Stock -- 19,000
- --------------------------------------------------------------------------------
Net cash provided by financing activities 50,771 19,583
- --------------------------------------------------------------------------------
Net increase in cash and cash equivalents 435 4,303
Cash and cash equivalents at beginning of period 4,303 --
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 4,738 $ 4,303
================================================================================
Supplemental disclosure of cash flow information:
Cash paid for interest $ 65 $ 122
================================================================================
Cash paid for income taxes $ 6,321 $ --
================================================================================
Supplemental disclosure of noncash activities:
Exchange of Redeemable Preferred Stock
Series A and Series B for common stock $ 19,570 $ --
================================================================================
Vesting of management stock $ 332 $ 62
================================================================================
Dividends on Redeemable Preferred Stock $ 285 $ 285
================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-28
<PAGE>
<PAGE>
HealthPlan Services Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995 (Amounts IN 000s except per share data)
1. DESCRIPTION OF BUSINESS AND ORGANIZATION
On October 1, 1994, HealthPlan Services Corporation (the "Company"), a
company formed by certain Company directors and Noel Group, Inc., acquired the
outstanding stock and assumed designated liabilities of Plan Services, Inc., a
division of The Dun & Bradstreet Corporation ("D&B"). At the time of the
acquisition, the Company paid D&B $19,000 in cash and assumed a note payable of
$1,300 and a net working capital deficit of $17,000, which consisted primarily
of premiums due to insurance carriers and commissions due to agents. The Company
provides managed health care services including distribution, enrollment,
premium billing and collection, claims administration and information services
to small businesses, individual policyholders and governmental agencies in all
50 states, the District of Columbia and Puerto Rico. The Company's clients
include insurance companies, PPOs, HMOs, integrated delivery systems,
self-funded benefit plans and health care alliances, and their business
customers.
On May 19, 1995, the Company completed an initial public offering of
4,025 shares of its common stock, shares of which are presently traded on the
New York Stock Exchange.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Method of Accounting
The Company prepares its financial statements in conformity with
generally accepted accounting principles. These principles require management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, HealthPlan Services, Inc. and
Healthcare Informatics Corporation. All intercompany transactions and balances
have been eliminated in consolidation.
Cash and cash equivalents
Cash and cash equivalents are defined as highly liquid investments which
have original maturities of three months or less. Cash and cash equivalents
consist of bank deposits to meet anticipated short-term needs.
Restricted cash
The Company has established an interest-bearing demand deposit account
for the sole purpose of administering the contracts with the Florida Community
Health Purchasing Alliances. This cash may be withdrawn only to meet current
obligations on behalf of servicing these contracts.
Short-Term Investments
Investments in marketable securities at December 31, 1995 consisted of a
professionally managed portfolio of short-term financial instruments including
short-term municipal bonds. As of January 1, 1995, the Company adopted Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("SFAS 115"). The effect of SFAS 115 is dependent
upon classification of the investment. As the investments are classified as
available for sale, they are measured at fair market value which approximates
cost. There are no investments with maturities greater than one year.
Property and equipment
Property and equipment is stated at cost. Costs of the assets acquired
at the date of acquisition have been recorded at their respective fair values.
Expenditures for maintenance and repairs are expensed as incurred. Major
improvements which increase the estimated useful life of an asset are
capitalized. Depreciation is computed using the straight-line method over the
following estimated useful lives of the related assets:
Years
- --------------------------------------------------------------------------------
Furniture and fixtures 3-10
Computers and equipment 2-5
Computer software 3
Leasehold improvements Lease term
Prepaid commissions
Prepaid commissions consists primarily of commissions paid to certain
agents at the initiation of a policy. These commissions are expensed on a
straight-line basis as revenues related to the policy are earned.
Prepaid expenses and other current assets
Prepaid expenses and other current assets consist primarily of prepaid
rent, insurance, postage and repair and maintenance contracts.
Goodwill
The excess of cost over the fair value of the net assets acquired is
amortized on the straight-line basis over 25 years. The Company evaluates, on a
regular basis,
F-29
<PAGE>
<PAGE>
whether events and circumstances have occurred that indicate the carrying amount
of goodwill may warrant revision or may not be recoverable. The Company measures
impairment of goodwill based on estimated future undiscounted cash flows from
operations. At December 31, 1995, the net unamortized balance of goodwill is not
considered to be impaired.
Other assets
Other assets consist primarily of loan origination fees and covenants
not to compete, which are amortized over the terms of the respective agreements.
Premiums payable
The Company collects insurance premiums on behalf of its insurance
carrier customers and remits such amounts to its carriers when they are due.
Revenue recognition
Revenues are recognized ratably over contractual periods or as claims
processing and administrative services are being performed. Revenue collected in
advance is recorded as deferred revenue until the related services are
performed.
Pre-operating and contract start-up costs
The Company has elected to expense as incurred, and segregate from other
operating costs, those costs related to the preparation for and implementation
of new products and contracts for services to new customers prior to the
initiation of significant revenue activity from those new revenue initiatives.
Agents commissions
The Company recognizes agents commissions expense in the same period
that the related revenues are recognized.
Income taxes
The Company recognizes deferred assets and liabilities for the expected
future tax consequences of temporary differences between the carrying amounts
and the tax bases of assets and liabilities. For federal income tax purposes,
the Company files a consolidated tax return with its wholly-owned subsidiaries.
Earnings per share
Earnings per share has been computed based on both the historical and
pro forma weighted average number of shares of Common Stock outstanding during
the period. Pro forma earnings per share was computed based on the weighted
average number of common shares outstanding during the period after giving
retroactive effect for the mandatory conversion of the Company's Redeemable
Series A and Series B Preferred Stock which occurred upon completion of the
Company's initial public offering as well as the shares issued at the time of
that offering. Pursuant to Securities and Exchange Commission Staff Accounting
Bulletin No. 83, all stock options and common shares issued have been included
as outstanding for the entire period using the treasury stock method.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year's presentation. These amounts do not have a material impact on the
financial statements taken as a whole.
Stock-based compensation
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-Based Compensation," which will be adopted by the Company in 1996. SFAS
123 establishes a fair value based method of accounting for stock-based
compensation plans. However, it also allows companies to continue to apply the
intrinsic value method currently prescribed by existing generally accepted
accounting principles on the condition that pro forma disclosures are made
illustrating the effect of the fair value based method on the income statement.
The Company has not yet decided if it will apply the effects of SFAS 123
to its income statement upon adoption in 1996 or if it will provide pro forma
disclosures only.
3. ACQUISITIONS
Third Party Claims Management, Inc.
On August 31, 1995, the Company's wholly owned subsidiary, HealthPlan
Services, Inc., ("HPS") acquired all of the issued and outstanding shares of
capital stock of Third Party Claims Management, Inc. ("TPCM") and recorded (i) a
cash investment of approximately $7,500,000, subject to a post-closing
adjustment based on the balance sheet of TPCM as of August 31, 1995, and (ii)
liabilities of approximately $2,700,000, representing an assumption of
liabilities and additional accruals related to the transaction, and (iii) an
additional payment equal to $2.00 multiplied by the number of employees enrolled
in TPCM accounts as of the anniversary date of the contract which was
administered by the Company on the closing date and continues to be a TPCM
account administered by the Company on the anniversary date. This payment was
estimated at approximately $210,000 by the Company at the time of the
acquisition and was recorded as a liability and an increase in goodwill
resulting from the acquisition.
Diversified Group Brokerage
On October 12, 1995, HPS acquired substantially all of the assets and
assumed certain liabilities of the third party administration business of
Diversified Group Brokerage Corporation ("DGB"), effective as of October 1,
1995, for a purchase price consisting of (i) approximately $5,075,000 paid at
closing, and (ii) for the seven-year period following the closing date,
semi-monthly payments based on the number of enrollees in accounts that were DGB
accounts as of the closing date, to be reduced by any attrition of enrollees.
HPS has placed $5,000,000 in escrow to guarantee the availability of funds for
the payments and estimates that this amount approximates the future payments.
Therefore, the present value of those estimated payments was recorded as
additional goodwill resulting from the acquisition. Additionally, HPS assumed
approximately $1,000,000 in liabilities related to this purchase. The acquired
DGB business consists of the administration of medical benefits for self-funded
health care plans of primary medium-sized businesses.
F-30
<PAGE>
<PAGE>
Notes to Consolidated Financial Statements continued (Amounts in 000s except
per share data)
Unaudited Pro Forma Consolidated Results of Operations
The following unaudited pro forma consolidated results of operations of
the Company give effect to both of the acquisitions, accounted for as purchases,
as if they occurred on October 1, 1994:
Three months
Year ended ended
December 31, December 31,
1995 1994
- --------------------------------------------------------------------------------
Revenues $121,439 $30,530
Net income 12,709 1,024
Net income per common share $0.95 $0.11
The above pro forma information is not necessarily indicative of the
results of operations that would have occurred had the acquisitions been made as
of October 1, 1994, or of the results which may occur in the future.
4. CONCENTRATION OF CREDIT RISKS
The Company is party to a variety of contracts with insurance companies,
PPOs, HMOs, integrated delivery systems, health care alliances and their
business customers located throughout the United States to provide third party
insurance administrative, marketing, distribution and cost containment services
for the small business market. The Company grants credit, without collateral, to
some of its self-funded clients under certain contracts. For the year ended
December 31, 1995, three customers accounted for approximately 31%, 23%, and
11%, respectively, of total revenues.
5. GOODWILL
Events giving rise to goodwill and the related value are as follows:
1994:Acquisition of Company from D&B $30,730
1995:Acquisition of TPCM 8,087
Acquisition of DGB 9,750
Other 2,111
- --------------------------------------------------------------------------------
Balance at December 31, 1995 $50,678
================================================================================
Other goodwill recorded in 1995 represents the reallocation of deferred
tax assets impacted by original purchase price allocations and recognizes a
reclassification of intangible assets at October 1, 1994 only.
At December 31, 1995 and 1994, accumulated amortization of goodwill is
approximately $1,831 and $307, respectively.
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
December 31, 1995 1994
- --------------------------------------------------------------------------------
Furniture and fixtures $ 4,747 $2,356
Computers and equipment 3,433 1,560
Computer software 3,452 1,880
Leasehold improvements 1,117 892
- ----------------------------------------------------------------------- --------
12,749 6,688
Less -- accumulated depreciation (3,508) (471)
- --------------------------------------------------------------------------------
$ 9,241 $6,217
================================================================================
7. NOTE PAYABLE AND CREDIT FACILITIES
The Company has a revolving credit agreement which provides a line of
credit through September 30, 1997 up to the lesser of $20,000 or two times
earnings before income taxes, depreciation and amortization for the four
consecutive fiscal quarters ending on, or immediately prior to, the date of
borrowing ($20,000 at December 31, 1995). The line of credit accrues interest at
the lower of the LIBOR rate plus 1% or other rate options available at the time
of borrowing. In 1995, the Company paid a commitment fee of 0.375% based on the
unused portion of the line of credit. Effective January 1, 1996, the commitment
fee was reduced to 0.15%. The line of credit is secured by the stock of
HealthPlan Services, Inc., the operating subsidiary. The operating subsidiary's
net assets comprise substantially all of the Company's consolidated net assets.
The agreement contains provisions which include, among other covenants,
maintenance of certain minimum financial ratios and limitations on acquisition
activity. As the line was not used during 1995, there was no interest expense
incurred during the year. For the period from inception (October 1, 1994)
through December 31, 1994, $88 of interest expense was recorded. There were no
amounts outstanding under this line of credit at December 31, 1995 or 1994;
however, performance under certain contracts is guaranteed and/or secured under
the line of credit of $6,600, leaving availability of $13,400 at December 31,
1995.
In conjunction with the acquisition of the Company by certain Company
directors and Noel Group, Inc., the Company assumed a note payable to an
existing creditor of $1,318 which bears interest at 5% per annum. The note
payable requires semi-annual principal payments in May and November of $18 to
$78 through November 2008. Interest expense relating to the note payable was
approximately $64 for the year ended December 31, 1995 and $16 for the period
from inception (October 1, 1994) through December 31, 1994.
F-31
<PAGE>
<PAGE>
Future minimum principal payments as of December 31, 1995 are as
follows:
1996 $ 51
1997 54
1998 64
1999 74
2000 78
Thereafter 944
- --------------------------------------------------------------------------------
$1,265
================================================================================
8. ACCRUED LIABILITIES
Accrued liabilities consists of the following:
December 31, 1995 1994
- --------------------------------------------------------------------------------
Salaries and wages $1,722 $1,262
Royalty payment commitments 2 854
Legal and regulatory -- 750
Other 3,369 1,160
- --------------------------------------------------------------------------------
$5,093 $4,026
================================================================================
Effective October 1, 1994, the Company recorded approximately $2,200 of
accrued expenses related to its acquisition. This amount included approximately
$750 of accrued legal and regulatory costs associated with the acquisition. The
remaining accrual related to severance costs for employee terminations
identified at the acquisition date, and communication, notification, transition,
regulatory approval and assumption costs relating to existing customer
arrangements assumed by the Company. As of December 31, 1995, $873 of this
accrual remained to cover identified contingencies existing at the date of
acquisition.
9. ACCRUED CONTRACT COMMITMENTS
The Company had recorded approximately $3,600 ($2,100 net of tax) during
the period ended December 31, 1994 related to accrued contract commitments which
represented management's best estimate of the excess of expected future costs
over future revenues for the term of an adverse contract (April 1997). As of
December 31, 1995, $482 remained accrued for losses related to the adverse
contract. The Company periodically evaluates all significant contracts for
services to determine whether accruals are required.
10. EMPLOYEE BENEFIT PLANS
The Company has a defined contribution employee benefit plan established
pursuant to Section 401(k) of the Internal Revenue Code, covering substantially
all employees. The Company will match up to 50% of the employee contribution
limited to 6% of the employee's salary. Under the provisions of the plan,
participant's rights to employer contributions vest to the extent of 40% after
completion of three years of qualified service, and increase by 20% for each
additional year of qualified service completed. Expense in connection with this
plan for the year ended December 31, 1995 was $339 and for the period from
inception (October 1, 1994) through December 31, 1994 was $82.
11. COMMITMENTS AND CONTINGENT LIABILITIES
Lease commitments
The Company rents office space and equipment under noncancelable
operating leases. Rental expense under the leases approximated $3,969 for the
year ended December 31, 1995 and $932 for the period from inception (October 1,
1994) through December 31, 1994. Future minimum rental payments under these
leases are as follows:
1996 $ 2,988
1997 2,706
1998 2,256
1999 2,001
2000 1,752
Thereafter 7,228
- --------------------------------------------------------------------------------
$18,931
================================================================================
Litigation
In 1995, a complaint was filed against the Company claiming wrongful
termination of an exclusive marketing agreement and breach of contract. The
complaint asserted damages of $25,000. The parties to the dispute have
tentatively agreed that the dispute will be submitted to binding arbitration.
Although management believes it has meritorious defenses against the complaint,
the ultimate outcome of the matter, which is expected to occur within one year,
cannot presently be determined.
The Company is subject to various litigation in the ordinary course of
business. In the opinion of management, the ultimate resolution of these matters
will not have a material impact on the Company's financial position or results
of operations.
12. INCOME TAXES
The provision for income taxes is as follows:
Period from
inception
For the year (October 1,
ended 1994) through
December 31, December 31,
1995 1994
- --------------------------------------------------------------------------------
Current
Federal $3,211 $120
State 458 15
- --------------------------------------------------------------------------------
3,669 135
- --------------------------------------------------------------------------------
Deferred
Federal 2,116 21
State 311 3
- --------------------------------------------------------------------------------
2,427 24
- --------------------------------------------------------------------------------
Provision for income taxes $6,096 $159
================================================================================
F-32
<PAGE>
<PAGE>
Notes to Consolidated Financial Statements continued (Amounts in 000s except
per share data)
The components of deferred taxes recognized in the accompanying
financial statements are as follows:
December 31, 1995 1994
- --------------------------------------------------------------------------------
Deferred tax asset -- current
Accrued expenses not
currently deductible $1,120 $2,481
Prepaid expenses currently deductible (155) --
- --------------------------------------------------------------------------------
965 2,481
- --------------------------------------------------------------------------------
Deferred tax asset -- noncurrent
Depreciation 80 401
Deferred tax liability -- noncurrent
Amortization (434) (76)
- --------------------------------------------------------------------------------
Noncurrent deferred tax asset (354) 325
- --------------------------------------------------------------------------------
Total deferred tax assets, net $ 611 $2,806
================================================================================
Accrued expenses deductible for income taxes paid in the period include
adverse contract commitments and legal and regulatory accruals. See Notes 8 and
9. A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. No valuation allowance
is considered necessary at December 31, 1995, based on the Company's history of
profitability for book and tax purposes.
The provision for income taxes varies from the federal statutory income
tax rate due to the following:
1995 1994
- --------------------------------------------------------------------------------
Federal statutory rate applied
to pre-tax income 34.0% 35.0%
State income taxes net of
federal tax benefit 5.0% 4.5%
Goodwill amortization 0.2% 1.3%
Tax-exempt interest income (1.3%) --
Other 1.1% --
- --------------------------------------------------------------------------------
Effective tax rate 39.0% 40.8%
================================================================================
13. CAPITALIZATION AND SHAREHOLDERS' EQUITY
Original Capitalization
The Company's capital structure was originally established to designate
its preferred stock as 20,000 shares of Series A Preferred Stock -- 6%
Cumulative Redeemable Stock, $0.01 par value, and Series B Preferred Stock -- 6%
Cumulative Redeemable Stock, $0.01 par value, and its common stock as 25,000
shares of Non-Voting Common Stock, $0.01 par value. The Noel Group, Inc.
initially capitalized the Company with $20,000 in exchange for: 100 shares of
Series A Redeemable Preferred Stock, 18,900 shares of Series B Redeemable
Preferred Stock, and 7,500 shares of common stock. Upon acquisition of Plan
Services, Inc., the Company recorded tangible assets, goodwill, net working
capital deficit, and debt of $12,980, $30,730, $17,143 and $1,318, respectively.
The purchase price included transaction costs incurred of $1,309.
In March 1995, the Company exchanged all outstanding Redeemable Series A
and Series B Preferred Stock for 1,398 shares of common stock at a price of $14
per share immediately preceding an initial public offering of its common stock
as described below.
Management Stock
From the period November 1994 through January 1995, certain members of
management received 473 shares of common stock, which carries limitations on
vesting over a four year period and restrictions regarding the sale of stock in
a public market. Should the employee terminate employment prior to the
completion of the vesting period, the Company will be entitled to purchase from
the executive the number of shares that have not vested at a purchase price
which is the lower of fair market value or the initial issuance price. The
Company recognizes compensation expense based on the vesting period of the
shares.
Stock Split
On March 8, 1995, the Board of Directors approved a three shares for two
shares stock split (the "Stock Split") to be effective immediately. Accordingly,
all common stock data prior to that date was retroactively restated for the
Stock Split.
Initial Public Offering
On May 19, 1995, the Company offered 3,500 shares of common stock at a
price of $14 per share in an initial public offering. To cover an
over-allotment, an additional 525 shares were sold as part of the offering.
14. REDEEMABLE PREFERRED STOCK
At December 31, 1994, the Company had Series A and Series B Redeemable
Preferred Stock with a $.06 per share cumulative dividend, when declared,
payable quarterly on March 15, June 15, September 15 and December 15 commencing
December 15, 1994. The Series A Preferred Stock carried mandatory redemption
rights of $1 per share plus unpaid dividends as of September 15, 1999. The
Series B Preferred Stock carried scheduled mandatory redemption rights of $1 per
share plus unpaid dividends, twenty percent each at September 15, 1995 through
1999. The Company recorded these securities at the carrying value which was
equal to the redemption value.
In March 1995, the Company exchanged all of its outstanding Redeemable
Series A and Series B Preferred Stock for 1,398 shares of common stock (see Note
13).
F-33
<PAGE>
<PAGE>
15. STOCK OPTION PLANS
On March 8, 1995, the Company instituted the 1995 Directors Stock Option
Plan (the "Directors Plan"). The Directors Plan provides that each non-employee
director of the Company is granted an option to purchase 12 shares of common
stock (108 shares in the aggregate) at the initial public offering price of $14
per share, which was the fair market value of a share of common stock on the
business day immediately preceding the day that the Company's securities were
first offered to the public in an underwritten initial public offering ("the
First Grant Date").
Non-employee directors initially elected after the First Grant Date are
granted an option to purchase 12 shares of common stock on the date of such
person's election to the Board of Directors. All options granted under the
Directors Plan vest over a four year period from the date of grant, with 20% of
the options becoming exercisable on the date of the grant and 20% becoming
exercisable on each of the next four anniversaries of the date of the grant.
The aggregate number of common stock shares available for issuance under
the Directors Plan is 240, subject to adjustment in the event of stock
dividends, stock splits, recapitalization or a similar change in the outstanding
shares of common stock, other than the Stock Split. The options expire after ten
years from the date the option vests. At December 31, 1995, 22 options for
shares were vested and exercisable.
On March 8, 1995, the Company also instituted the 1995 Incentive Equity
Plan (the "Incentive Plan"). Officers and certain other key employees of the
Company are eligible to be granted incentives in the form of stock options,
stock appreciation rights, and restricted stock awards. The aggregate number of
common stock shares available for issuance under the Incentive Plan is 1,000
shares, subject to adjustment upon changes in capitalization, other than the
Stock Split. During 1995, the Company granted options on 427 shares under the
Incentive Plan. All options granted under the Incentive Plan vest over a four
year period from the date of grant, with 20% of the options becoming exercisable
on the date of the grant and 20% becoming exercisable on each of the next four
anniversaries of the date of the grant. At December 31, 1995, 85 options for
shares were vested and exercisable.
On August 28, 1995, the Company instituted the 1995 Consultants Stock
Option Plan (the "Consultants Plan"). The purpose of the Consultants Plan is to
enable the Company to attract and retain outside persons to serve as consultants
and advisors to the Company. The total number of shares of common stock
available for issuance under the Consultants Plan is 100 shares, subject to
adjustment upon changes in recapitalization. The terms of the option, including
the option's duration, time or times of exercise, exercise price, and vesting
period, if any, shall be stated in a Stock Option Agreement. The option price
per share of common stock issuable upon exercise of an option shall be
determined by the Board of Directors of the Company or the Executive Committee
of the Board; however, in no event shall the price of the option be less than
the fair market value per share of the common stock on the grant date. During
1995, the Company granted options on 10 shares under the Consultants Plan. At
December 31, 1995, 5 options for shares were vested and exercisable.
Option prices per share granted during 1995 range from $14.00 to $24.13.
All were outstanding at December 31, 1995 as no options were canceled or
exercised during the year.
16. SUBSEQUENT EVENTS
On January 8, 1996, the Company entered into an agreement with Medirisk,
Inc., a provider of health care information, to purchase $2,000 of Medirisk
preferred stock representing a 9% ownership interest and, in addition, to lend
Medirisk up to $10,000 over four years in the form of debt for which HPS would
receive detachable warrants to purchase Medirisk common stock at $.01 per share.
The funds will be used by Medirisk to finance expansion through the development
of additional products and the acquisition of other health care information
businesses. The investment could result in the Company owning up to 25% of
Medirisk. Medirisk is a provider of proprietary health care information products
and services that track the price and utilization of medical procedures.
17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Fourth Third Second First
Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
Year ended
Dec. 31, 1995
Revenues $29,361 $24,115 $23,198 $23,576
Net income 2,985 2,623 2,072 1,570
Net income per
common share 0.22 0.20 0.20 N/A
Net income
pro forma basis 2,985 2,623 2,072 1,855
Pro forma
net income per
common share $0.22 $0.20 $0.15 $0.20
First quarter earnings per share has not been provided as the period
preceded the Company's initial public offering.
F-34
<PAGE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
and Stockholders of
HealthPlan Services Corporation
In our opinion, the accompanying consolidated balance sheet and related
consolidated statements of income, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
HealthPlan Services Corporation and its Subsidiaries (the "Company") at December
31, 1995 and 1994, and the results of their operations and their cash flows for
the year ended December 31, 1995 and for the period from inception (October 1,
1994) through December 31, 1994 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Tampa, Florida
February 16, 1996
F-35
<PAGE>
<PAGE>
HealthPlan Services Division
STATEMENT OF FINANCIAL POSITION
September 30, 1994 (in thousands)
1994
- --------------------------------------------------------------------------------
ASSETS
Current assets:
Cash $1,255
Accounts receivable 3,252
Prepaid expenses 2,303
- --------------------------------------------------------------------------------
Total current assets 6,810
Property and equipment, net 2,715
Computer software, net 1,327
Other intangible assets, net 5,483
Goodwill, net 11,436
Deferred taxes 85
Other assets 28
- --------------------------------------------------------------------------------
Total assets $27,884
================================================================================
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities:
Current portion of note payable $ 92
Accounts payable 19,581
Accrued liabilities 3,585
Deferred revenue 1,294
- --------------------------------------------------------------------------------
Total current liabilities 24,552
Note payable 1,162
Commitments and contingencies (Notes 9 and 13)
Divisional equity 2,170
- --------------------------------------------------------------------------------
Total liabilities and divisional equity $27,884
================================================================================
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE>
<PAGE>
HealthPlan Services Division
STATEMENTS OF INCOME
Nine-month period ended September 30, 1994 and year ended December 31, 1993
(in thousands)
1994 1993
- --------------------------------------------------------------------------------
Revenues $81,945 $113,863
- --------------------------------------------------------------------------------
Costs and expenses:
Agents' commissions 33,213 48,380
Personnel expenses 24,476 30,040
Rent and maintenance 4,106 7,233
Postage and communication 3,563 4,167
Depreciation and amortization 3,347 4,053
Staff reductions and office closings (Note 3) 4,671 1,499
Other operating expenses (Note 8) 5,322 6,331
- --------------------------------------------------------------------------------
78,698 101,703
- --------------------------------------------------------------------------------
Income before provision for income taxes 3,247 12,160
Provision for income taxes 1,500 5,200
- --------------------------------------------------------------------------------
Net income $ 1,747 $ 6,960
================================================================================
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE>
<PAGE>
HealthPlan Services Division
STATEMENTS OF CASH FLOWS
Nine-month period ended September 30, 1994 and year ended December 31, 1993
(in thousands)
1994 1993
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 1,747 $ 6,960
Reconciliation of net income to net cash
provided by operating activities:
Depreciation and amortization 3,347 4,053
Staff reductions and office closings provisions 4,671 1,499
Staff reductions and office closings payments (1,992) (683)
Deferred taxes 2 71
Accounts receivable 484 (1,845)
Prepaid expenses (269) (558)
Accounts payable (2,312) 2,106
Accrued liabilities (892) 146
Deferred revenue (512) (53)
- --------------------------------------------------------------------------------
Net cash provided by operating activities 4,274 11,696
- --------------------------------------------------------------------------------
Cash flows for investing activities:
Purchase of property and equipment, net (931) (695)
Purchases of and additions to computer software (534) (592)
Acquisitions of other intangible assets
(net of deferred payments) (21) (4,221)
Other assets 11 (6)
- --------------------------------------------------------------------------------
Net cash used in investing activities (1,475) (5,514)
- --------------------------------------------------------------------------------
Cash flows for financing activities:
Net amount remitted to The Dun & Bradstreet
Corporation and affiliates (Note 7) (3,602) (4,429)
Payments on note payable (46) (50)
- --------------------------------------------------------------------------------
Net cash used in financing activities (3,648) (4,479)
- --------------------------------------------------------------------------------
Net change in cash (849) 1,703
Cash, beginning of period 2,104 401
- --------------------------------------------------------------------------------
Cash, end of period $ 1,255 $ 2,104
================================================================================
Noncash investing and financing activities:
Deferred payments related to acquisitions
of other intangible assets $ -- $ 3,220
================================================================================
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE>
<PAGE>
HealthPlan Services Division
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
Organization -- HealthPlan Services Division (HSI) (formerly Plan
Services Division, a wholly-owned division of The Dun & Bradstreet Corporation
(D&B)), is engaged in the business of providing distribution and administration
services for group-health-insurance programs throughout the United States.
Basis of Presentation -- The accompanying financial statements have been
prepared in conformity with generally accepted accounting principles. On
September 30, 1994, HSI was sold to Healthcare Informatics Corporation, pursuant
to a purchase agreement dated September 2, 1994.
These financial statements present the results of operations for the
nine-month period to September 30, 1994 and the year ended December 31, 1993 and
financial position at September 30, 1994. Purchase accounting by the acquirer
has not been reflected in these financial statements. Expenses and liabilities
which were incurred by HSI in connection with the sale, which would not
otherwise have been incurred, are reflected in the nine-month period ended
September 30, 1994. See Note 3.
Expense Allocations -- D&B provides certain services to, and incurs
certain costs on behalf of its subsidiaries and divisions. These costs, which
include employee benefit and executive compensation programs, retirement savings
and health plans, treasury and business insurance, are allocated to D&B's
subsidiaries, including HSI, on a pro-rata basis. The costs of D&B's general
corporate overheads are not allocated as such costs related to HSI are deemed to
be immaterial. Liabilities related to the benefit plans described above are not
fully reflected in the Statement of Financial Position. As such, these financial
statements may not necessarily be indicative of the financial position or the
results of operations had HSI been operated as an unaffiliated company. However,
management believes that with respect to general and administrative expenses
(see Note 8), the amounts reflected in the Statements of Income are not less
than the amounts HSI would have incurred had HSI been an unaffiliated company in
those periods.
2. SIGNIFICANT ACCOUNTING POLICIES:
Cash -- Substantially all of the net cash flow of HSI was remitted to
D&B pursuant to a centralized cash management system. The related interest
income which would otherwise have been earned by HSI is not reflected in these
statements. Cash held by D&B has historically resulted in negative working
capital for HSI.
Property and Equipment -- Property and equipment are stated at cost, net
of accumulated depreciation computed using the straight-line method over
estimated useful lives of three to ten years. Additions and major renewals are
capitalized. Repairs and maintenance are charged to expense as incurred. Upon
disposal, the related cost and accumulated depreciation are removed from the
accounts, with the resulting gain or loss included in income.
Computer Software -- HSI capitalizes the direct expenses of internally
produced software. As of September 30, 1994, capitalized software costs, net of
amortization was (in thousands) $627. Software is generally amortized over three
years. Amortization expense was (in thousands) $184 and $102 for the nine months
ended September 30, 1994 and for the year ended December 31, 1993.
Other Intangible Assets -- Other intangible assets represent the costs
of acquiring new blocks of insurance administration business which are deferred
and amortized on an accelerated basis over periods of up to seven years. Amounts
included in the accompanying Statement of Financial Position are net of
accumulated amortization of $3,491 (in thousands) as of September 30, 1994.
Goodwill -- Goodwill relates to D&B's original acquisition of HSI and is
being amortized on a straight-line basis over periods of expected benefit, not
exceeding 40 years. Goodwill represents the excess purchase price over the fair
value of identifiable net assets. Amounts included in the accompanying Statement
of Financial Position are net of accumulated amortization of $4,620 (in
thousands) as of September 30, 1994. At the balance sheet date, HSI reviews the
recoverability of goodwill and other intangible assets.
Revenue Recognition -- Revenues consist primarily of fees for services
provided to insurance carriers as a third party administrator. Revenues are
recognized ratably over the applicable contract period, which is generally one
year, and represents the period such services are performed. HSI accounts for
revenues received in advance by deferring such amounts until the related
services are performed. During the nine months ended September 30, 1994, HSI had
three customers that accounted for approximately 27%, 26% and 11% of revenues.
During the year ended December 31, 1993, HSI had four customers that accounted
for approximately 30%, 26%, 11% and 11% of revenues.
Agents' Commissions -- Agents' commission expense is accrued in the same
period that the related revenues are recognized.
Income Taxes -- HSI participates in the consolidated federal income tax
return of D&B. For financial reporting purposes, HSI computes a provision for
income taxes on a separate return basis based on statutory rates in effect.
HSI's current income taxes payable are included in divisional equity in the
accompanying Statements of Financial Position. Effective January 1, 1992, HSI
adopted SFAS No. 109, "Accounting for Income Taxes," applying the provisions of
this statement retroactively to prior years' financial statements.
F-39
<PAGE>
<PAGE>
Notes to Financial Statements continued
Postemployment Benefits -- Effective January 1, 1993, D&B and HSI
adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits." HSI
accrues for such costs at the time it is probable that a liability to employees
has been incurred and it can be reasonably estimated. The implementation of this
statement did not have a material impact upon HSI's financial position or
results of operations.
Postretirement Benefits -- Effective January 1, 1993, D&B and HSI
adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
than Pensions." As a member of D&B's Plan, HSI recognized as net postretirement
benefit cost the required contribution to the plan based upon an allocation and
formula used by D&B. As a participant in D&B's postretirement benefit plan,
amounts related to liabilities to HSI employees existing at the date of adoption
of SFAS No. 106 are not reflected in the accompanying Statements of Financial
Position.
3. STAFF REDUCTIONS AND OFFICE CLOSINGS:
HSI has recorded charges for certain staff reductions and office
closings. In March 1994, HSI closed its Fresno, California processing center and
recorded a charge totaling $1,050,000. Such charge consisted of the following:
$355,000 of lease termination costs; $380,000 of severance costs; $175,000 of
fixed asset write-offs; and $140,000 of other office closing costs. On September
30, 1994, immediately prior to the sale of HSI, as required pursuant to the
terms of the related purchase agreement, HSI terminated 125 employees throughout
its Tampa operations and recorded a severance charge totaling $1,860,000. In
addition, HSI recorded a $1,761,000 charge for severance of two former officers
in 1994. All severance and office closing costs were paid as of September 30,
1994 or assumed by D&B as part of the sale of HSI.
In 1993, HSI recorded a charge of $1,499,000 primarily related to work
force reductions (56 employees), principally from the Tampa operations ($683,000
of such costs were paid in 1993 and the remaining $816,000 were paid in 1994).
In 1992, HSI recorded a $236,000 charge for the closedown of regional sales
offices. Such costs, which were all paid in 1992, consisted primarily of
severance and other personnel expenses relating to staff reductions and lease
termination and other office closing costs.
Subsequent to September 30, 1994, HSI discontinued its contract with The
Centennial Life Insurance Company. The revenues related to Centennial were (in
thousands) $4,680 and $12,470 for the nine months ended September 30, 1994 and
the year ended December 31, 1993, respectively.
4. PROPERTY AND EQUIPMENT:
Property and equipment at September 30, 1994 consists of the following
(in thousands):
1994
- --------------------------------------------------------------------------------
Computers and equipment $ 13,372
Furniture and fixtures 4,611
Leasehold improvements 3,791
- --------------------------------------------------------------------------------
21,774
Accumulated depreciation and amortization (19,059)
- --------------------------------------------------------------------------------
Net property and equipment $ 2,715
================================================================================
Depreciation expense for the nine months ended September 30, 1994 and
the year ended December 31, 1993, was $1,284 and $2,137 (in thousands),
respectively.
5. ACCRUED LIABILITIES:
Accrued liabilities at September 30, 1994 consist of the following (in
thousands):
1994
- --------------------------------------------------------------------------------
Accrued salaries and wages $2,315
Deferred payments -- other intangible assets 657
Other 613
- --------------------------------------------------------------------------------
Total accrued liabilities $3,585
================================================================================
6. NOTE PAYABLE:
On May 27, 1993, HSI entered into an agreement with Cal/Group for the
purchase of its claims processing business at a price of $2,000,000. The
purchase price consisted of $500,000 cash paid at closing with the balance in
the form of a note payable of $1,500,000. On March 25, 1994 the original
agreement was modified and the purchase price was reduced by $150,000. This
purchase is collateralized by the claims business. The note payable requires
semi-annual payments of $50,000 to $80,000, including interest at 6%, through
November 2008. Interest paid by the Company was insignificant for the nine
months ended September 30, 1994 and the year ended December 31, 1993.
Future minimum principal payments as of September 30, 1994 are as
follows (in thousands):
Year ending December 31,
- --------------------------------------------------------------------------------
1994 (3 months) $ 46
1995 90
1996 97
1997 92
1998 93
Thereafter 836
- --------------------------------------------------------------------------------
Total $1,254
================================================================================
F-40
<PAGE>
<PAGE>
7. DIVISIONAL EQUITY:
Divisional equity reflects the historical activity between D&B and HSI.
An analysis of the changes in divisional equity is as follows (in thousands):
1994 1993
- --------------------------------------------------------------------------------
Balance at beginning of period $ 634 $(1,897)
Net income 1,747 6,960
Net remittances to D&B (211) (4,429)
- --------------------------------------------------------------------------------
Balance at end of period $2,170 $ 634
================================================================================
In 1994 net remittances include (in thousands) $3,391 of non-cash
charges related to severance expenses to be paid by D&B in connection with the
purchase agreement. These amounts have been excluded for purposes of the
Statements of Cash Flows. Other non-cash charges and allocations reflected in
net remittances to D&B have not been separately identified for purposes of the
Statements of Cash Flows.
8. OTHER OPERATING EXPENSES:
Other operating expenses for the nine months ended September 30, 1994
and for the year ended December 31, 1993 consist of the following (in
thousands):
1994 1993
- --------------------------------------------------------------------------------
General and
administrative expenses $2,188 $2,511
Professional services 1,488 1,360
Insurance, taxes and licenses 451 798
Travel and entertainment 597 819
Utilities 384 524
Advertising and promotion 217 343
Gain on property and equipment (3) (24)
- --------------------------------------------------------------------------------
$5,322 $6,331
================================================================================
9. LEASES:
HSI leases certain facilities and equipment under long-term leases which
are accounted for as operating leases.
Future minimum lease payments for long-term operating leases as of
September 30, 1994 are approximately as follows (in thousands):
Year ending December 31,
- --------------------------------------------------------------------------------
1994 (3 months) $ 930
1995 2,780
1996 880
- --------------------------------------------------------------------------------
Total $4,590
================================================================================
Rent expense for the nine months ended September 30, 1994 and year ended
December 31, 1993 was (in thousands) $3,331 and $6,160, respectively.
10. POSTRETIREMENT AND DEFERRED COMPENSATION PLANS:
HSI's participation in D&B's postretirement medical plan, defined
benefit pension plan and deferred compensation plan terminated as of September
30, 1994.
Prior to September 30, 1994, HSI recognized post-retirement benefit
costs based upon an allocation and formula determined by D&B. The amount
allocated to HSI as its share of the total pension costs for the nine months
ended September 30, 1994 and the year ended December 31, 1993 were (in
thousands) $611 and $783, respectively. The costs allocated to HSI and
recognized as net postretirement benefit costs were not material to HSI's
results of operations during 1994 and 1993.
As a participant in D&B's postretirement and deferred compensation
plans, amounts related to liabilities to HSI employees existing at the date of
adoption of new accounting standards for pensions and other postretirement
benefits are not reflected in the accompanying Statements of Financial Position.
Amounts due to D&B relating to HSI's allocated costs under the above plans are
included in divisional equity in the accompanying Statements of Financial
Position. The following information relates to the D&B plans HSI participates in
as of December 31, 1993, the most recent valuation date. Such information is not
available on a separate company or divisional basis.
D&B has defined benefit pension plans covering substantially all
associates in the United States. The benefits to be paid to associates under
these plans are based on years of credited service and average final
compensation. Pension costs are determined actuarially and funded to the extent
allowable under the Internal Revenue Code. Supplemental plans in the United
States are maintained to provide retirement benefits in excess of levels allowed
by ERISA.
The status of D&B's U.S. defined benefit pension plans at December 31,
1993 is as follows (millions of dollars):
Funded Unfunded(1)
1993 1993
- --------------------------------------------------------------------------------
Fair value of plan assets $1,008.9 --
- --------------------------------------------------------------------------------
Actuarial present value of
benefit obligations:
Vested benefits 708.0 $ 69.1
Non-vested benefits 29.4 7.2
- --------------------------------------------------------------------------------
Accumulated benefit obligations 737.4 76.3
Effect of projected future
salary increases 128.1 37.4
- --------------------------------------------------------------------------------
Projected benefit obligations 865.5 113.7
- --------------------------------------------------------------------------------
Plan assets in excess of (less than)
projected benefit obligations 143.4 (113.7)
Unrecognized net (gain) loss 56.2 38.4
Unrecognized prior service cost 15.4 18.2
Unrecognized net transition
(asset) obligation (93.6) 2.9
Adjustment to recognize
minimum liability -- (22.1)
- --------------------------------------------------------------------------------
Prepaid (accrued) pension cost $ 121.4 $ (76.3)
================================================================================
(1) Represents supplemental plans for which grantor trusts (with assets of $60
million at December 31, 1993) have been established to pay plan benefits.
F-41
<PAGE>
<PAGE>
Notes to Financial Statements continued
The weighted average expected long-term rate of return on pension plan
assets was 9.75% for 1993. At December 31, 1993, the projected benefit
obligations were determined using weighted average discount rates of 7.25% and
weighted average rates of increase in future compensation levels of 5.7%. Plan
assets are invested in diversified portfolios that consist primarily of equity
and debt securities.
In the third quarter of 1993, D&B recognized a curtailment event
resulting from an announced work-force reduction. At the same time, D&B
remeasured its projected benefit obligation, reducing the discount rate. As a
result, D&B recognized net curtailment gains of approximately $2 million in
1993.
The components of D&B's net periodic pension cost are summarized as
follows (millions of dollars):
1993
- --------------------------------------------------------------------------------
Service cost $ 31.0
Interest cost 69.2
Actual return on plan assets (105.7)
Net amortization and deferral 9.4
- --------------------------------------------------------------------------------
Net periodic pension cost $ 3.9
================================================================================
In addition to providing pension benefits, D&B provides various medical
benefits for retired associates. Substantially all of D&B's associates in the
United States become eligible for these benefits if they reach normal retirement
age while working for D&B.
Deferred Compensation Plans -- HSI also participated in D&B's Profit
Participation Plan and Investment Plan for which substantially all of its
employees were eligible. D&B had also granted stock options to purchase shares
of D&B common stock to certain key employees of HSI. In addition, certain key
employees participated in incentive plans sponsored by D&B the cost of which to
HSI for such plans (in thousands) amounted to $589 and $557 for the nine months
ended September 30, 1994 and the year ended December 31, 1993, respectively.
11. OTHER TRANSACTIONS WITH AFFILIATES:
D&B provides HSI with payroll processing and administration, general
treasury services and various business insurance coverages through policies
issued to D&B. Expenses allocated to HSI for these services, which are included
in the Statements of Income, were (in thousands) $326 and $482 for the nine
months ended September 30, 1994 and the year ended December 31, 1993,
respectively. Amounts due to D&B relating to the above activities are included
in divisional equity in the Statement of Financial Position.
HSI provides computer services to an affiliate totaling (in thousands)
$1,312 and $2,398 for the nine months ended September 30, 1994 and the year
ended December 31, 1993, respectively. These amounts are included in revenues in
the Statements of Income.
HSI provides health plan claims administration for D&B, totaling (in
thousands) $1,647 and $2,500 for the nine months ended September 30, 1994 and
the year ended December 31, 1993, respectively. HSI records as revenues services
provided to D&B.
12. FEDERAL INCOME TAXES:
HSI joins in filing a consolidated federal income tax return with D&B
and its affiliates. For financial reporting purposes, HSI computes a provision
for income taxes on a separate-return basis.
The reasons for the difference between HSI's effective income tax rate
and the statutory rate for 1994 and 1993 are as follows (thousands of dollars):
1994 1993
- --------------------------------------------------------------------------------
Federal income tax calculated
at statutory rate
(35% for 1994 and 1993) $1,136 $4,256
State income tax,
net of federal benefit 220 786
Goodwill 109 145
Other 35 13
- --------------------------------------------------------------------------------
Income tax provision $1,500 $5,200
================================================================================
The income tax provision for 1994 and 1993 is summarized as follows
(thousands of dollars):
1994 1993
- --------------------------------------------------------------------------------
Current:
Federal $1,160 $3,978
State 338 1,151
- --------------------------------------------------------------------------------
1,498 5,129
- --------------------------------------------------------------------------------
Deferred:
Federal 2 52
State 0 19
- --------------------------------------------------------------------------------
2 71
- --------------------------------------------------------------------------------
Income tax provision $1,500 $5,200
================================================================================
The primary sources of temporary differences that give rise to
significant portions of the deferred tax asset and liability at September 30,
1994 are as follows (thousands of dollars):
1994
- --------------------------------------------------------------------------------
Deferred tax assets:
Property and equipment $144
Deferred tax liabilities:
Other intangible assets (59)
- --------------------------------------------------------------------------------
Net deferred tax asset $ 85
================================================================================
13. COMMITMENTS AND CONTINGENCIES:
HSI is involved in litigation arising during the normal course of its
business. In the opinion of management, the resolution of these matters will not
have a material effect on the financial position or results of operations of
HSI.
F-42
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder and Board of Directors of
Healthcare Informatics Corporation and
To The Dun & Bradstreet Corporation
We have audited the accompanying statement of financial position of
HealthPlan Services Division (formerly Plan Services Division, a wholly-owned
division of The Dun & Bradstreet Corporation) as of September 30, 1994 and the
related statements of income and cash flows for the nine-month period ended
September 30, 1994 and the year ended December 31, 1993. These financial
statements are the responsibility of the companies' managements. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of HealthPlan Services
Division as of September 30, 1994 and the results of its operations and its cash
flows for the nine-month period ended September 30, 1994 and the year ended
December 31, 1993, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, on September 30,
1994, HealthPlan Services Division was sold to Healthcare Informatics
Corporation, pursuant to a purchase agreement dated September 2, 1994.
Coopers & Lybrand L.L.P.
Tampa, Florida
December 2, 1994
F-43
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<PAGE>
EXHIBIT A
PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION OF
NOEL GROUP, INC.
This Plan of Complete Liquidation and Dissolution (the "Plan") of Noel
Group, Inc., a Delaware corporation (the "Company"), is intended to accomplish
the complete liquidation and dissolution of the Company in accordance with the
Delaware General Corporation Law and Section 331 of the Internal Revenue Code of
1986, as amended (the "Code"), as follows:
1. The Board of Directors of the Company has adopted this Plan and
called a meeting of the Company's shareholders to take action on this Plan. If
at said meeting of the Company's shareholders a majority of the outstanding
Common Stock, par value $0.10 per share (the "Common Stock"), of the Company
votes for the adoption of this Plan, the Plan shall constitute the adopted Plan
of the Company as of the date on which such shareholder approval is obtained
(the "Adoption Date").
2. After the Adoption Date, the Company shall not engage in any business
activities except to the extent necessary for preserving the values of its
assets, winding up its business and affairs, and distributing its assets in
accordance with this Plan.
3. From and after the Adoption Date, the Company shall complete the
following corporate actions:
(a) The Company shall collect, sell, exchange or otherwise
dispose of all of its property and assets in one or more transactions
upon such terms and conditions and for such consideration, which may
consist in whole or in part of money or other property, as the Board of
Directors, in its absolute discretion, deems expedient and in the best
interests of the Company and its shareholders. In connection with such
collection, sale, exchange and other disposition, the Company shall
marshall its assets and collect or make provision for the collection of
all accounts receivable, debts and claims owing to the Company.
(b) The Company shall pay or, as determined by the Board
of Directors, make reasonable provision to pay, all claims and
obligations of the Company, including all contingent, conditional or
unmatured claims known to the Company and all claims which are known to
the Company but for which the identity of the claimant is unknown.
(c) The Company shall distribute pro rata to the Company's
shareholders all its remaining property and assets, including the
proceeds of any sale, exchange or disposition, except such property or
assets as are required for paying or making provision for the claims and
obligations of the Company. Such distribution may occur all at once or
in a series of distributions and may be in cash or in-kind, in such
manner, and at such time, as the Board of Directors, in its absolute
discretion, may determine. If and to the extent deemed necessary,
appropriate or desirable by the Board of Directors, in its absolute
discretion, the Company may establish and set aside a reasonable amount
(the "Contingency Reserve") to satisfy claims against the Company (other
than claims of a shareholder in its capacity as such) and all expenses
of the sales of the Company's property and assets, of the collection and
defense of the Company's property and assets, and of the liquidation and
dissolution provided for in this Plan. The Contingency Reserve may
consist of cash or property.
A-1
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<PAGE>
(d) If and to the extent deemed necessary, appropriate or
desirable by the Board of Directors, in its absolute discretion, the
Company may distribute assets in trust for the benefit of the
shareholders, provided that such trust is intended to constitute a trust
the assets of which are treated as owned by the shareholders for Federal
income tax purposes. The Board of Directors is hereby authorized to
appoint one or more individuals, corporations, partnerships or other
persons, or any combination thereof, to act as the trustees for the
benefit of the Company's shareholders and to receive any such assets
distributed to it. Any conveyance to such trustees shall be deemed to be
a distribution of property and assets by the Company to its
shareholders. Any such conveyance to such trustees shall be in trust for
the shareholders of the Company and not for the use or benefit of the
trustees or any other person and any assumption of liabilities and
obligations of the Company by the trustees shall be solely in their
capacity as trustees. The Company, subject to this paragraph (d) and as
authorized by the Board of Directors, in its absolute discretion, may
enter into a trust agreement with such trustee or trustees, on such
terms and conditions as the Board of Directors, in its absolute
discretion, may deem necessary, appropriate or desirable. Adoption of
this Plan by a majority of the outstanding Common Stock shall constitute
the approval of the Company's shareholders of any such appointment and
any such trust agreement as their act and as a part hereof as if herein
written.
4. The distributions to the Company's shareholders pursuant to Section 3
hereof shall be in complete redemption and cancellation of all of the
outstanding Common Stock of the Company. If requested by the Board of Directors,
in its absolute discretion, as a condition to receipt of any distribution, the
Company's shareholders shall surrender their certificates evidencing the Common
Stock to the Company or its agent for recording of such distributions thereon.
As a condition to receipt of any distribution to the Company's shareholders, the
Board of Directors, in its absolute discretion, may require shareholders to (i)
surrender their certificates evidencing the Common Stock to the Company or its
agent for cancellation or (ii) furnish the Company with evidence satisfactory to
the Board of Directors of the loss, theft or destruction of their certificates
evidencing the Common Stock, together with such surety bond or other security or
indemnity as may be required by and satisfactory to the Board of Directors.
The Company will finally close its stock transfer books and discontinue
recording transfers of Common Stock on the earlier to occur of (i) the close of
business on the record date fixed by the Board of Directors for the final
liquidating distribution, or (ii) the date on which the dissolution becomes
effective under the Delaware General Corporation Law, and thereafter
certificates representing Common Stock will not be assignable or transferable on
the books of the Company except by will, intestate succession or operation of
law.
5. If any distribution to a shareholder cannot be made, whether because
the shareholder cannot be located, has not surrendered its certificates
evidencing the Common Stock as required hereunder or for any other reason, the
distribution to which such shareholder is entitled shall (unless transferred to
a trust established pursuant to Section 6 hereof) be transferred at such time as
the final liquidating distribution is made by the Company to and deposited with
the state official authorized by the laws of the State of Delaware to receive
the proceeds of such distribution; such transfer shall comply in all respects
with the laws of the State of Delaware and the Code. The proceeds of such
distribution shall thereafter be held solely for the benefit of and for ultimate
distribution to such shareholder as the sole equitable owner thereof and shall
escheat to the State of Delaware or be treated as abandoned property in
accordance with the laws of the State of Delaware. In no event shall the
proceeds of any such distribution revert to or become the property of the
Company.
6. If deemed necessary, appropriate or desirable by the Board of
Directors, in its absolute discretion, to effect the liquidation and
distribution of the Company's assets to the Company's shareholders, the Company
may from time to time transfer to one or more liquidating trustees for the
benefit of the Company's shareholders (the "Trustees") under a trust or trusts
(the "Trusts"), any assets of the Company which are (i) not reasonably
susceptible to distribution to the Company's shareholders, including, assets
held on behalf of
A-2
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<PAGE>
the Company's shareholders who cannot be located or who do not tender their
certificates evidencing the Common Stock to the Company or its agent as
hereinafter required; or (ii) held as the Contingency Reserve.
The Board of Directors is hereby authorized to appoint one or more
individuals, corporations, partnerships or other persons, or any combination
thereof, to act as the Trustees for the benefit of the Company's shareholders
and to receive all remaining assets of the Company. Any Trustee appointed as
provided in the preceding sentence shall succeed to all the right, title and
interest of the Company of any kind and character, including, without
limitation, any uncollected claims, contingent assets and any Contingency
Reserve, and shall assume all of the liabilities and obligations of the Company,
including, without limitation, any unsatisfied claims and unascertained or
contingent liabilities. Further, the Trustee or Trustees shall have the full
power to liquidate, deal with, give receipt for and manage all of the property
and assets of the Company, to the exclusion of the Company and its officers and
directors, and any conveyance of assets to the Trustees shall be deemed to be a
distribution of property and assets by the Company to its shareholders for the
purposes of Section 3 of this Plan. Any such conveyance to the Trustees shall be
in trust for the shareholders of the Company and not for the use or benefit of
the Trustees or any other person and any assumption of liabilities and
obligations of the Company by the Trustees shall be solely in their capacity as
Trustees. The Company, subject to this Section 6 and as authorized by the Board
of Directors, in its absolute discretion, may enter into a liquidating trust
agreement with the Trustee or Trustees, on such terms and conditions as the
Board of Directors, in its absolute discretion, may deem necessary, appropriate
or desirable. Adoption of this Plan by a majority of the outstanding Common
Stock shall constitute the approval of the Company's shareholders of any such
appointment and any such liquidating trust agreement as their act and as a part
hereof as if herein written.
7. Whether or not a Trust is established pursuant to Section 6, in the
event it should not be feasible for the Company to make the final distribution
to shareholders of all assets and properties of the Company (other than the
Contingency Reserve) prior to the date which is three years after the Adoption
Date, then, on or before such date the Company shall transfer any remaining
assets and properties (other than the Contingency Reserve) to one or more
Trustees as set forth in Section 6. Such distribution may, at the discretion of
the Board of Directors, include the Contingency Reserve. Notwithstanding the
foregoing, to the extent that distribution of any asset of the Company cannot be
effected without the consent of a governmental authority, no such distribution
shall be effected without such consent.
8. After the Adoption Date, the officers of the Company shall, at such
time as the Board of Directors, in its absolute discretion, deems it necessary,
appropriate or desirable, obtain any certificates required from the Delaware tax
authorities, and on or after obtaining such certificates, the Company shall file
with the Secretary of State of the State of Delaware a certificate of
dissolution (the "Certificate of Dissolution") in accordance with Section 275 of
the Delaware General Corporation Law. Adoption of this Plan by a majority of the
outstanding Common Stock shall constitute the approval of the Company's
shareholders of any such filing of a Certificate of Dissolution as their act and
as a part hereof as if herein written.
9. Adoption of this Plan by a majority of the outstanding Common Stock
shall constitute the approval of the Company's shareholders of the sale,
exchange or other disposition in liquidation of all of the property and assets
of the Company not otherwise distributed to the shareholders in-kind, whether
such sale, exchange or other disposition occurs in one transaction or a series
of transactions, and shall constitute ratification of all contracts for sale,
exchange or other disposition entered into prior to the date upon which the
Certificate of Dissolution becomes effective under the Delaware General
Corporation Law which are conditioned on adoption of this Plan.
10. In connection with and for the purpose of implementing and assuring
completion of this Plan, the Company may, in the absolute discretion of the
Board of Directors, pay any brokerage, agency and other fees
A-3
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<PAGE>
and expenses of persons rendering services to the Company in connection with the
collection, sale, exchange or other disposition of the Company's property and
assets and the implementation of this plan.
11. In connection with and for the purpose of implementing and assuring
completion of this Plan, the Company may, in the absolute discretion of the
Board of Directors, pay to the Company's officers, directors and employees, or
any of them, compensation or additional compensation above their regular
compensation, in money or other property, in recognition of the extraordinary
efforts they, or any of them, will be required to undertake, or actually
undertake, in connection with the successful implementation of this Plan.
Adoption of this Plan by a majority of the outstanding Common Stock shall
constitute the approval of the Company's shareholders of the payment of any such
compensation.
12. The Company shall continue to indemnify its officers, directors,
employees and agents in accordance with its certificate of incorporation, as
amended, and by-laws and any contractual arrangements, for actions taken in
connection with this Plan and the winding up of the affairs of the Company. The
Company's obligation to indemnify such persons may be satisfied out of the
assets of the Trust. The Board of Directors and the Trustees, in their absolute
discretion, are authorized to obtain and maintain insurance as may be necessary
to cover the Company's obligations hereunder.
13. Notwithstanding authorization or consent to this Plan and the
transactions contemplated hereby by the Company's shareholders, the Board of
Directors may modify, amend or abandon this Plan and the transactions
contemplated hereby without further action by the Company's shareholders to the
extent permitted by the Delaware General Corporation Law.
14. The Board of Directors of the Company is hereby authorized, without
further action by the Company's shareholders, to do and perform, or cause the
officers of the Company, subject to approval of the Board of Directors, to do
and perform, any and all acts, and to make, execute, deliver or adopt any and
all agreements, resolutions, conveyances, certificates and other documents of
every kind which are deemed necessary, appropriate or desirable, in the absolute
discretion of the Board of Directors, to implement this Plan and the
transactions contemplated hereby, including, without limiting the foregoing, all
filings or acts required by any state or federal law or regulation to wind up
its affairs.
A-4
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<PAGE>
APPENDIX A
NOEL GROUP, INC.
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Special Meeting of Shareholders, ____, 1997
The undersigned shareholder of NOEL GROUP, INC., a Delaware corporation
(the "Company"), hereby appoints Joseph S. DiMartino, Stanley R. Rawn, Jr. and
Todd K. West, or any of them voting singly in the absence of the others,
attorneys and proxies, with full power of substitution and revocation, to vote,
as designated on the reverse side, all shares of Common Stock of the Company
which the undersigned is entitled to vote at the Special Meeting of Shareholders
of the Company to be held at the ____________________________________, on
_______, 1997 at 10:00 A.M. (local time) or any adjournment thereof, in
accordance with the following instructions:
(Continued and to be signed on the reverse side)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
<PAGE>
This proxy when properly executed will be voted in the manner directed herein by
the undersigned shareholder. If no direction is made, the proxy will be voted
"FOR" Proposal No. 1.
Please mark
your votes as
indicated in
this example [X]
1. PROPOSAL NO. 1-APPROVAL AND ADOPTION OF THE PLAN OF COMPLETE LIQUIDATION
AND DISSOLUTION OF THE COMPANY. attached as Exhibit A to the Proxy
Statement for the meeting
[ ] [ ] [ ]
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
Please sign exactly as name appears hereon.
Dated: _____________________ , 1997
____________________________________
Signature
____________________________________
Signature if held jointly
When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full title
as such. If a corporation, please sign in full corporate name by an authorized
officer. If a partnership, please sign in partnership name by an authorized
person.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING ENCLOSED
ENVELOPE.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
