<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A NO. 1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Year Ended December 31, 1997
Commission File Number: 0-22098
INSILCO CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 06-0635844
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
425 METRO PLACE NORTH, FIFTH FLOOR
DUBLIN, OHIO 43017
(Address of principal executive offices,
including zip code)
(614) 792-0468
(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to the
filing requirements for at least the past 90 days. Yes[x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant was approximately $92,973,869 on April 3, 1998.
Indicate by check mark whether the Registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes[x] No [ ]
There were 4,120,128 shares of the Registrant's Common Stock
outstanding on April 3, 1998.
<PAGE> 2
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The following table sets forth name, age and business experience of the
directors of the Company. Each director has held the occupation indicated for
more than the past five years unless otherwise indicated.
<TABLE>
<CAPTION>
NAME AND BUSINESS EXPERIENCE AGE
---------------------------- ---
<S> <C>
James J. Gaffney 57
Mr. Gaffney specializes in the turnaround of financially troubled companies, serving
with such companies as the chief executive officer, as a director or as an independent
consultant. Mr. Gaffney provides consulting services to GS Capital Partners II, L.P. (a
private investment fund affiliated with Water Street Corporate Recovery Fund I, L.P.
and Goldman, Sachs & Co.) and other affiliated investment funds in relation to an
investment held by those funds and, pursuant to such arrangement, is currently serving
as Chairman of Vermont Investments, Ltd., a conglomerate based in New Zealand. He
previously served as the President and Chief Executive Officer of General Aquatics,
Inc., a successor to KDI Corporation , from September 1993 until it was sold in May
1997, as Chief Executive Officer of International Tropic-Cal, Inc. from August 1991 to
July 1992, and as an independent consultant from September 1989 to August 1991, and
from July 1992 to the present. He also is a director of Koll Real Estate Group Inc.,
Advantica Food Group, Inc., and several private companies.
Terence M. O'Toole 39
Mr. O'Toole has been a Managing Director of Goldman, Sachs & Co. ("Goldman Sachs")
since November 1996. Previously, he was a general partner of Goldman Sachs from 1992 to
1996. Mr. O'Toole is also a member of Goldman Sachs' Investment Committee. He was
previously a Vice President of Goldman Sachs. Mr. O'Toole is a director of Amscan
Holdings, Inc., AMF Bowling Inc., AMF Bowling Worldwide, Inc., Western Wireless
Corporation, and several private companies.
Thomas E. Petry 58
Mr. Petry is the retired Chairman of the Board (a position he held from March 1989 to
March 1998) of Eagle-Picher Industries, Inc., which is engaged in the manufacture of
earthmoving equipment and other machinery, automotive parts and other industrial
products. A voluntary petition under Chapter 11 of the Federal Bankruptcy Laws was
filed by Eagle-Picher Industries, Inc. on January 7, 1991. An amended plan of
reorganization was filed during August 1996, and approved by U.S. Bankruptcy Court
during November 1996, whereby Eagle- Picher emerged from bankruptcy reorganization. Mr.
Petry is a director of Eagle-Picher, The Union Central Life Insurance Co., The William
Powell Co., CINergy Corp., Star Banc Corp., and Star Bank, N.A.
Robert L. Smialek 54
Mr. Smialek has served as Chairman of the Board, President and Chief Executive Officer
of the Company since May 1, 1993. From October 1992 to May 1993, Mr. Smialek served as
the President and Chief Operating Officer of the Temperature and Appliance Controls
Group of Siebe plc, a global controls and engineering firm. From September 1990 to
October 1992, Mr. Smialek served as President and Chief Operating Officer of Ranco,
Inc., a subsidiary of Siebe, Inc. Mr. Smialek is a director of General Cable
Corporation and Gleason Corporation.
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
Barry S. Volpert 38
Mr. Volpert has been a Managing Director of Goldman Sachs and a Participating Limited
Partner in Goldman Sachs Group, L.P. ("GS Group") since November 1996. He was a general
partner of Goldman Sachs from 1994 to 1996. He was previously a Vice President of
Goldman Sachs from 1990 to 1994 and the Manager of Water Street Corporate Recovery Fund
I, L.P., an investment partnership of which Goldman Sachs is the general partner
("Water Street"), from 1991 to 1994. From 1989 to 1991, Mr. Volpert was the head of
Goldman Sachs' workout and restructuring advisory business. He also is a director of
Elifin S.A. (Luxembourg), Vermont Investments, Ltd. (New Zealand), Starwood Hotels &
Resorts Worldwide, Inc., IDB Holding Corporation Ltd., and Rockefeller Center
Properties, Inc.
</TABLE>
The nonemployee directors were first elected to the Board of Directors
effective April 1, 1993. Mr. Smialek, as the Company's Chief Executive Officer,
became a director effective May 1, 1993. Each has served as a director
continuously since his election.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company had a total of four regular
meetings and four special meetings. Each of the directors attended 75% or more
of the total number of the Board of Directors meetings held during 1997. The
Board of Directors has standing Audit and Compensation Committees. The members
of the Audit Committee are James J. Gaffney, Terence M. O'Toole, Thomas E. Petry
and Barry S. Volpert. The Audit Committee oversees the work of the internal
audit staff and external auditors and met three times during 1997. All members
of the Audit Committee attended 75% or more of the total number of the Audit
Committee meetings held during 1997. The Compensation Committee, comprised of
James J. Gaffney and Thomas E. Petry, reviews officer compensation, administers
the 1993 Long-Term Incentive Plan, and met two times during 1997, with both
members attending all meetings.
As required by the Company's Amended and Restated Plan of Reorganization
filed with the United States Bankruptcy Court for the Western District of Texas
in November 1992 (the "Plan of Reorganization"), a Litigation Committee,
comprised of Messrs. Gaffney and Petry, investigated potential claims against
Merrill Lynch & Co., Inc., and its subsidiary Merrill Lynch, Pierce, Fenner &
Smith Inc., in connection with certain aspects of the leveraged buyout of the
Company in 1988. The Litigation Committee concluded its task in March 1997.
DIRECTOR COMPENSATION
In 1993, the Company adopted the 1993 Nonemployee Director Stock
Incentive Plan (the "1993 Director Plan") covering 360,000 shares of Common
Stock for nonemployee directors in lieu of paying annual or other directors'
fees. Each present nonemployee director, having purchased 6,666 shares of Common
Stock issued by the Company at $15 per share, was awarded 13,334 shares of
restricted stock and has been granted options to purchase up to 40,000 shares of
Common Stock from the Company under the 1993 Director Plan. The terms of the
options and the restricted stock awards, including forfeiture provisions,
generally are the same as those described under "Employment and Severance
Benefit Agreements" respecting the options and restricted stock awarded Mr.
Smialek. Water Street owns the options granted to Messrs. O'Toole and Volpert
and the stock sold or awarded to them. Each nonemployee director participating
in the 1993 Director Plan has become fully vested in all of the options and
restricted stock awarded to them under the 1993 Director Plan.
EXECUTIVE OFFICERS
Set forth below are the name, age and office of each "executive officer"
of the Company (as defined by the Securities and Exchange Commission).
<TABLE>
<S> <C>
Robert L. Smialek, age 54 President and Chief Executive Officer
Kenneth H. Koch, age 42 Vice President, General Counsel and Secretary
Leslie G. Jacobs, age 47 Vice President, Human Resources and Assistant Secretary
Philip K. Woodlief, age 44 Vice President and Corporate Controller
David A. Kauer, age 42 Vice President and Treasurer
</TABLE>
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<PAGE> 4
Executive officers are elected annually to serve for a year or until
their successors are elected. During the past five years, Mr. Smialek has had
the business experience set forth above under "Directors," while the other
executive officers have had the business experience described below. Unless
otherwise stated, positions are with the Company.
Mr. Koch: Vice President, General Counsel and Secretary (since October
1993); prior thereto, attorney and partner with the law firm of Porter, Wright,
Morris & Arthur.
Mr. Jacobs: Vice President, Human Resources (since August 1993); Director
of Human Resources from January 1990 to August 1993; prior thereto, Director,
Compensation and Employee Programs, of Rockwell International.
Mr. Woodlief: Vice President and Corporate Controller (since April 1997);
Controller from February 1989 to April 1997.
Mr. Kauer: Vice President and Treasurer (since April 1997); Treasurer
from September 1993 to April 1997; Controller and Treasurer of Johnson Yokogawa
Corporation (a joint venture of Yokogawa Electric Corporation and Johnson
Controls, Inc.), October 1989 - September 1993.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and greater than 10% stockholders, to file
reports of ownership and changes in ownership of the Company's securities with
the Securities and Exchange Commission ("SEC"). Copies of the reports are
required by SEC regulation to be furnished to the Company. Based on its review
of such reports and written representations from reporting persons, the Company
believes that all reporting persons complied with all filing requirements during
fiscal 1997.
ITEM 11. EXECUTIVE COMPENSATION
The aggregate remuneration of the Chief Executive Officer during 1997 and
the four other most highly compensated executive officers of the Company whose
salary and bonus exceeded $100,000 for the fiscal year ended December 31, 1997,
is set forth in the following table:
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<PAGE> 5
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation Awards
--------------------------------------------------------------------
(a) (b) (c) (d) (f) (g) (i)
Securities All Other
Name and Principal Restricted Stock Underlying Compensation
Position Year Salary ($) Bonus ($) Award(s) ($) Options (#) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Smialek 1997 $550,000 $300,000 -- -- $ 9,901(1)
President and CEO 1996 537,499 235,000 -- -- 13,251(2)
1995 500,000 180,000 -- -- 13,817(3)
Robert F. Heffron(4) 1997 276,250 135,000 -- 15,000 6,372(5)
Executive Vice President 1996 252,500 150,000 -- 4,000 5,920(6)
and Chief Operating Officer 1995 237,500 110,000 -- -- 3,671(7)
Philip K. Woodlief 1997 174,667 80,000 -- 10,000 3,285(8)
Vice President and 1996 157,000 65,000 -- 1,500 3,039(9)
Corporate Controller 1995 145,000 45,000 -- -- 2,412(10)
David A. Kauer 1997 164,000 80,000 -- 10,000 3,369(11)
Vice President and 1996 143,917 58,000 -- 1,500 3,109(12)
Treasurer 1995 130,833 40,000 -- -- 2,447(13)
Kenneth H. Koch 1997 162,833 75,000 -- 10,000 3,314(14)
Vice President, General 1996 151,167 78,373 -- 2,500 3,114(15)
Counsel and Secretary 1995 138,667 50,000 -- -- 2,693(16)
</TABLE>
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(1) Includes employer contributions under the Company's Employee Thrift Plan
401(k) (the "Thrift Plan") ($2,400) and insurance premiums paid by the
Company ($7,501).
(2) Includes Thrift Plan contributions ($2,250) and insurance premiums paid
by the Company ($10,509).
(3) Includes Thrift Plan contributions ($2,250) and insurance premiums paid
by the Company ($8,354).
(4) Mr. Heffron was employed by the Company from July 1, 1993 to February 24,
1998.
(5) Includes Thrift Plan contributions ($2,400) and insurance premiums paid
by the Company ($3,661).
(6) Includes Thrift Plan contributions ($2,250) and insurance premiums paid
by the Company ($3,301).
(7) Includes Thrift Plan contributions ($2,250) and insurance premiums paid
by the Company ($1,136).
(8) Includes Thrift Plan contributions ($2,400) and insurance premiums paid
by the Company ($885).
(9) Includes Thrift Plan contributions ($2,250) and insurance premiums paid
by the Company ($733).
(10) Includes Thrift Plan contributions ($2,198) and insurance premiums paid
by the Company ($214).
(11) Includes Thrift Plan contributions ($2,400) and insurance premiums paid
by the Company ($969).
(12) Includes Thrift Plan contributions ($2,250) and insurance premiums paid
by the Company ($859).
(13) Includes Thrift Plan contributions ($2,250) and insurance premiums paid
by the Company ($197).
(14) Includes Thrift Plan contributions ($2,400) and insurance premiums paid
by the Company ($791).
(15) Includes Thrift Plan contributions ($2,250) and insurance premiums paid
by the Company ($733).
(16) Includes Thrift Plan contributions ($2,250) and insurance premiums paid
by the Company ($198).
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STOCK OPTIONS
The following table shows information regarding options to purchase
shares of the Company's Common Stock granted to executive officers named in the
summary compensation table in 1997 under the 1993 Long-Term Incentive Plan.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
- -------------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
---------------------------------------------------- POTENTIAL REALIZABLE VALUE
% OF TOTAL AT ASSUMED ANNUAL RATES
OPTIONS OF STOCK PRICE APPRECIATION
OPTIONS GRANTED TO EXERCISE FOR OPTION TERM(1)
GRANTED EMPLOYEES PRICE EXPIRATION -------------------------------------------
NAME (#) IN FISCAL YEAR ($/SHARE) DATE 0%($) 5%($) 10%($)
- --------------------------- ---------- ------------- ---------- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert L. Smialek -- -- -- -- -- -- --
Robert F. Heffron 15,000 9.9% $36.75 6/25/02 $0 $152,300 $336,544
Philip K. Woodlief 10,000 6.6% $36.75 6/25/02 $0 $101,533 $224,362
David A. Kauer 10,000 6.6% $36.75 6/25/02 $0 $101,533 $224,362
Kenneth H. Koch 10,000 6.6% $36.75 6/25/02 $0 $101,533 $224,362
</TABLE>
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(1) The amounts under the columns labeled "5%($)" and "10%($)" are included
by the Company pursuant to certain rules promulgated by the Securities
and Exchange Commission and are not intended to forecast future
appreciation, if any, in the price of the Company's Common Stock. Such
amounts are based on the assumption that the option holders hold the
options granted for their full term. The actual value of the options will
vary in accordance with the market price of the Company's Common Stock.
The column headed "0%($)" is included to illustrate that the options were
granted at fair market value and option holders will not recognize any
gain without an increase in the stock price, which increase benefits all
shareholders commensurately.
The following table provides certain information regarding the number and
the value of stock options held by the named executive officers at fiscal year
end.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT FISCAL
OPTIONS AT FISCAL YEAR-END (#) YEAR-END ($)(2)
------------------------------ --------------------------------
SHARES
ACQUIRED
ON VALUE
EXERCISE REALIZED
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ---------- ----------- ------------ -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Smialek 160,000 $3,460,000 160,000 80,000 $480,000 $760,000
Robert F. Heffron 5,000 $ 111,875 29,332 17,668 $384,000 $ 0
Philip K. Woodlief 9,488 $ 212,690 11,012 11,000 $114,216 $ 0
David A. Kauer 5,000 $ 111,875 10,500 11,000 $105,000 $ 0
Kenneth H. Koch 7,500 $ 167,813 10,332 11,668 $ 96,000 $ 0
</TABLE>
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(1) Value realized represents the difference between the exercise price of
the option shares and the market price of the option shares on the date
the option was exercised. The value realized was determined without
consideration for any taxes or brokerage expenses which may have been
owed.
(2) Represents the total gain which would be realized if all in-the-money
options held at year end were exercised, determined by multiplying the
number of shares underlying the options by the difference between the per
share option exercise price and per share fair market value of $33.00 on
December 31, 1997.
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The following table provides certain information regarding long-term
incentive plan awards of the Company's Common Stock granted to executive
officers named in the summary compensation table in 1997 under the 1993
Long-Term Incentive Plan.
LONG -TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
(a) (b) (c)
Number of Shares,
Units or Other Performance or Other Period Until
Name Rights (#)(1)(2) Maturation or Payout
- ------------------------------- ------------------------ -------------------------------------
<S> <C> <C>
Robert L. Smialek -- --
Robert F. Heffron 14,964 6/24/00
Philip K. Woodlief 9,506 6/24/00
David A. Kauer 9,252 6/24/00
Kenneth H. Koch 9,088 6/24/00
</TABLE>
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(1) Under the terms of the Company's 1993 Long-Term Incentive Plan, the
Company adopted a Share Investment Program, effective June 25, 1997 (the
"Program"), to create a significant increase in shareholder value and to
retain key management personnel necessary to achieve such objective. The
Compensation Committee designated certain members of executive management
to participate in the Program. Under the terms of the Program,
participants were required to maintain an investment of shares of the
Company's Common Stock up to an amount equal to the participant's annual
salary (the "Initial Investment") until certain conditions are satisfied.
The Program provides for the award of two tranches of restricted stock,
each in an amount equal to the Initial Investment. The first tranche is
awarded if the Company's Common Stock achieves a market price of $47.77
for 20 consecutive trading days and the second tranche is awarded if the
Company's Common Stock achieves a market price of $58.80 for 20
consecutive trading days. The shares awarded under the Program upon
satisfaction of the market price conditions do not vest to the
participants until June 24, 2000 and any earned or awarded shares may be
forfeited if the participant voluntarily terminates his or her employment
prior to such vesting.
(2) The number of shares reported in the table assumes that the goals for the
first and second tranche established under the Program have been
achieved.
RETIREMENT PLAN AND SUPPLEMENTAL ARRANGEMENTS
The Company's Retirement Plan for Salaried Employees (the "Retirement
Plan") provides retirement benefits for salaried employees, including officers.
The Company compensates employees for the loss of benefits which otherwise would
result because of the limitations the Internal Revenue Code places on pensions
that may be paid under tax-qualified retirement plans such as the Retirement
Plan. The unfunded supplemental retirement payments are accounted for as
operating expenses when earned.
The following table shows the estimated annual retirement allowances
payable after retirement at normal retirement age to persons in the following
specified remuneration and years-of-service classifications (before any
deductions for joint or survivorship payments) without regard to any statutory
limitations imposed by the Internal Revenue Code. Normal retirement allowances,
beginning at age 65, equal (i) 50% of final average compensation minus (ii) 50%
of the retiree's primary social security benefit, pro-rated if total service is
less than 25 years or, in certain cases, is less than 35 years. Five years of
service is required for vesting.
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<PAGE> 8
<TABLE>
<CAPTION>
FINAL
AVERAGE Years of Service
EARNINGS(1) 15 20 25 30 35
<S> <C> <C> <C> <C> <C>
$125,000 $ 33,385 $ 44,514 $ 55,642 $ 55,642 $ 55,642
150,000 40,885 54,514 68,142 68,142 68,142
175,000 48,385 64,514 80,642 80,642 80,642
200,000 55,885 74,514 93,142 93,142 93,142
250,000 70,885 94,514 118,142 118,142 118,142
300,000 85,885 114,514 143,142 143,142 143,142
350,000 100,885 134,514 168,142 168,142 168,142
400,000 115,885 154,514 193,142 193,142 193,142
450,000 130,885 174,514 218,142 218,142 218,142
500,000 145,885 194,514 243,142 243,142 243,142
550,000 160,885 214,514 268,142 268,142 268,142
600,000 175,885 234,514 293,142 293,142 293,142
650,000 190,885 254,514 318,142 318,142 318,142
</TABLE>
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(1) The higher of (i) average annual compensation for any five consecutive
calendar years during the final 10 years of employment or (ii) the
average annual compensation for the last 60 months of employment.
Compensation consists of salary (including voluntary salary deferrals)
and bonus. Supplemental payments are based on average earnings in excess
of $160,000.
At December 31, 1997, Messrs. Smialek, Heffron, Koch, Woodlief, and Kauer
were credited, under the Retirement Plan and various supplemental arrangements,
with approximately 3.7, 6.8, 3.2, 7.9, and 3.3 years of service, respectively,
for purposes of determining their pensions.
EMPLOYMENT AND SEVERANCE BENEFIT AGREEMENTS
The Company employs Mr. Smialek under an agreement providing that Mr.
Smialek will serve indefinitely as President and Chief Executive Officer of the
Company. Under the agreement, Mr. Smialek receives an annual base salary of
$550,000. Mr. Smialek will be eligible to receive annual bonuses and salary
increases in such amounts as may be reasonably determined by the Compensation
Committee. Mr. Smialek received an annual bonus for 1997 in the amount of
$300,000. Mr. Smialek also is entitled to participate in all incentive, savings,
retirement and welfare benefit plans and arrangements in which certain other
senior executive officers are eligible to participate, other than any restricted
stock or option plans in which his participation will be at the discretion of
the Company.
If Mr. Smialek's employment is terminated by the Company without "Cause"
or by Mr. Smialek for "Good Reason" (as the quoted terms are used in the
agreement), he will be entitled to a lump sum amount equal to his accrued
salary, annual bonus and vacation pay and any compensation previously deferred
by him (collectively, the "Accrued Obligations") as well as a severance payment
equal to his annual salary plus the greater of $150,000 or his most currently
determined annual bonus, together with the continuation of certain benefits for
a one-year period.
In 1993, Mr. Smialek purchased from the Company 33,333 restricted shares
of Common Stock issued under the Plan at a cash purchase price per share of $15,
whereupon 66,667 restricted shares were awarded to him under the Plan for a
nominal price (all of such restricted shares are referred to collectively herein
as the "Restricted Shares"). Restrictions on the Restricted Shares expired March
31, 1996, and Mr. Smialek has all the rights of a holder of common stock with
respect to such shares. Mr. Smialek has the option to settle the tax withholding
obligations of the Company resulting from expiration of the restrictions with
shares of Common Stock.
In December 1996, the Company entered into a Value Appreciation Agreement
with Messrs. Heffron, Jacobs, Koch, Woodlief, Kauer and certain other officers.
The Value Appreciation Agreement provides that the executives will be entitled
to receive a commission from the Company in certain circumstances following a
transaction giving rise to a change in control. The amount of the commission is
dependent on achieving a threshold price per share in any such
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<PAGE> 9
transaction and is determined based on the amount realized per share in excess
of the threshold price taking into account increases in the Company's enterprise
value since December 1996. The Value Appreciation Agreement has a term of two
years. On March 24, 1998, the Company announced that it had entered into a
definitive merger agreement with DLJ Merchant Banking Partners II, L.P.
("DLJMB") at a price of $44.50 per share payable in a combination of $42.98 in
cash and the right to retain .03419 of a share of common stock of the surviving
corporation. If the Company consummates the pending merger with DLJMB, the
commission on the sale will be $2.6 million.
In December 1996, the Company entered into Income Protection Agreements
with Messrs. Heffron, Jacobs, Koch, Woodlief, Kauer and certain other officers.
The Income Protection Agreements provide that in the event of termination of an
executive's employment by the Company without cause, or, in certain
circumstances, by the executive, the executive will be entitled to receive
certain severance benefits. The benefits payable to the executive in the event
of a termination of employment covered by the Income Protection Agreement are as
follows: (i) one year's base salary; (ii) a bonus equal to the bonus paid to
executive in 1996 or the target bonus for the year in which employment is
terminated, as well as a pro rated bonus for the year in which the termination
occurs; (iii) continued participation in the Company's benefit plans for the
duration of the severance period; (iv) accelerated vesting of all stock options
and stock appreciation rights; (v) continuation of any rights to indemnification
from the Company; and (vi) certain outplacement services. The Income Protection
Agreements have three year terms and automatically renew for subsequent one year
terms, unless terminated by either party.
The following Compensation Committee Report and Performance Graph will
not be deemed incorporated by reference by any general statement incorporating
by reference this Form 10-K/A No. 1 into any of the Company's filings under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, except to the extent that the Company specifically incorporates this
information by reference, and will not otherwise be deemed filed under such
Acts.
BOARD COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
OVERVIEW
The Compensation Committee (the "Committee") has been given the authority
to review and evaluate individual executive officers and to determine the
compensation for each executive officer. In general, the Committee's philosophy
is to attract, motivate and retain qualified key executives, reward individual
performance, relate compensation to Company goals and objectives and enhance
shareholder value. The Company's compensation program includes competitive base
salaries, annual bonus opportunities, competitive benefits and long-term awards
under the 1993 Long-Term Incentive Plan (the "Plan").
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Robert L. Smialek became the Company's Chief Executive Officer effective
May 1, 1993. The Compensation Committee, by approval of the Second Extension
Agreement between the Company and Mr. Smialek dated September 25, 1997, extended
the employment agreement indefinitely. Mr. Smialek's compensation for 1997
consisted of a base salary of $550,000 and a bonus of $300,000. Determination of
Mr. Smialek's base salary was primarily based on Mr. Smialek's background and
experience, and compensation levels of executives in similar positions in
comparable businesses. The cash bonus paid to Mr. Smialek for 1997 was based
primarily on the Company achieving certain specified financial performance goals
and the perceptions of the Committee. Mr. Smialek will also be eligible to
receive annual bonuses in such amounts as may be reasonably determined from time
to time by the Compensation Committee.
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<PAGE> 10
COMPENSATION OF EXECUTIVE OFFICERS
The Company's compensation program for its executive officers is based on
the following objectives:
o Total compensation of the executive officers should be linked
to the financial performance of the Company and enhancement of
shareholder value.
o The compensation paid to the executive officers of the Company
should be competitive with executive compensation levels of
similar companies so that the Company can attract, motivate
and retain qualified key executives.
o The compensation program should reward outstanding individual
performance and contributions to the Company as well as
experience.
Compensation for executive officers in 1997 consisted of base salary,
bonuses and stock option awards under the Plan. Base salaries and bonuses were
paid to executive officers (excluding the Chief Executive Officer) based upon
each such executive officer's individual performance, duties, responsibilities,
experience and tenure, general economic conditions, the recent financial
performance of the Company, and other factors. Bonuses paid to the executive
officers were determined in accordance with a bonus plan that required 70% of
the bonus to be determined on the basis of the Company's achieving certain
specified financial performance goals, and 30% on the basis of the Committee's
and the Chief Executive Officer's evaluation of the performance of each
executive officer. In addition, the Chief Executive Officer has the discretion
to make performance-related individual awards.
Stock options were awarded under the Plan to executive officers
(excluding the Chief Executive Officer) in June 1997. The number of options
awarded to each executive officer was determined by the Committee based on a
recommendation of the Chief Executive Officer. Determination of such awards was
based on the executive officer's length of services and the perceptions of the
Committee and the Chief Executive Officer of the individual contributions and
performance and ability to impact overall business results. The Committee
considered the levels of options awarded to executives in similar positions and
at similar salary levels as compared to surveys published by compensation
consulting firms.
IMPACT OF 1993 TAX ACT CHANGES
The Budget Reconciliation Act of 1993 (the "Act") amended the Internal
Revenue Code to add Section 162(m) that bars a deduction to any publicly held
corporation for compensation paid to a "covered employee" in excess of
$1,000,000 per year (the "Dollar Limitation"). A covered employee of the Company
is any employee who appears in the Summary Compensation Table who is also
employed by the Company on December 31. The Dollar Limitation applies to tax
years beginning after 1993.
The legislation potentially impacts three components of the Company's
executive compensation package. These include base salaries, bonuses, and awards
under the Plan. The Company does not believe that the legislation as amended
will have any effect on the deductibility of compensation payable in 1997 to any
of its executive officers.
The Company believes that the Plan currently qualifies for the exemption
provided for performance based compensation and awards under the Plan will not
be subject to the Dollar Limitation.
COMPENSATION COMMITTEE:
James J. Gaffney
Thomas E. Petry
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<PAGE> 11
PERFORMANCE GRAPH
The following Performance Graph compares the performance of the Company
with that of the Russell 2000 Index and the Standard & Poor's Conglomerates
Index. The comparison of cumulative total return to shareholders assumes that
$100 was invested in the Common Stock of the Company on September 15, 1993 (the
effective date of the registration of the Company's Common Stock under the
Securities Exchange Act of 1934, as amended), and in the Russell 2000 Index and
the Standard & Poor's Conglomerates Index on August 31, 1993, and that all
dividends were reinvested.
Comparison of 52 Month Cumulative Total Return*
Among Insilco Corporation, The S & P Conglomerate Index
And The Russell 2000 Index
<TABLE>
<CAPTION>
8/93 12/93 12/94 12/95 12/96 12/97
<S> <C> <C> <C> <C> <C> <C>
Insilco Corporation $100.00 $113.00 $207.00 $268.00 $323.00 $277.00
Russell 2000 100.00 105.00 104.00 129.00 148.00 181.00
S & P Conglomerates 100.00 99.00 94.00 122.00 139.00 156.00
</TABLE>
* Assumes $100 invested on 09/15/93 in Insilco common stock or on 08/31/93 in
each index. Total return assumes dividends are reinvested.
-11-
<PAGE> 12
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth the only persons known by the Company to
be the beneficial owners of more than five percent (5%) of the outstanding
shares of Common Stock of the Company on April 3, 1998:
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE
OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
Water Street Corporate Recovery 1,863,878(1)(2) 45.2%
Fund I, L.P.
85 Broad Street
New York, NY 10004
Neuberger & Berman, LLC 546,818 13.3%
605 Third Avenue
New York, NY 10158-3698
- -------------
(1) Represents shares beneficially owned by Water Street. Goldman Sachs is
the general partner of Water Street and thus may be deemed to be the
beneficial owner of shares held by Water Street. GS Group is a general
partner of Goldman Sachs and directly owns 334 shares of Common Stock not
included in the amount shown. The address of Goldman Sachs and GS Group
is 85 Broad Street, New York, NY 10004. Goldman Sachs disclaims
beneficial ownership of the shares held by Water Street except to the
extent such ownership corresponds to its interests in Water Street and
disclaims beneficial ownership of the shares held by GS Group. GS Group
disclaims beneficial ownership of the shares held by Water Street to the
extent partnership interests in Water Street are held by persons other
than GS Group, Goldman Sachs or their affiliates.
(2) Includes an aggregate of 80,000 shares of Common Stock acquired from the
Company by Water Street through Messrs. O'Toole and Volpert pursuant to
the director plan described under "Director Compensation."
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<PAGE> 13
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of April 3, 1998, the beneficial
ownership of the Company's Common Stock by each officer named in the Summary
Compensation Table who owns shares of the Common Stock, each director of the
Company and by all directors and executive officers as a group:
NUMBER OF SHARES PERCENTAGE
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
James J. Gaffney 8,000 *
Terence M. O'Toole 1,863,878(1) 45.2%
Thomas E. Petry 8,000 *
Robert L. Smialek 315,066(2) 7.2%
Barry S. Volpert 1,863,878(1) 45.2%
Robert F. Heffron(3) 31,564(4) *
Kenneth H. Koch 12,464(5) *
Philip K. Woodlief 12,013(6) *
David A. Kauer 11,800(7) *
All directors and executive
officers as a group (9 persons) 2,245,429(8) 50.9%
- --------------
* Less than 1%
(1) The shares listed for Mr. O'Toole and Mr. Volpert are beneficially owned
by Water Street or by Goldman Sachs or GS Group of which Mr. O'Toole and
Mr. Volpert are general partners; however, Mr. O'Toole and Mr. Volpert
disclaim beneficial ownership of such shares except to the extent of
their indirect pecuniary interest in such shares.
(2) Includes 240,000 shares subject to stock options exercisable within 60
days of April 3, 1998.
(3) Mr. Heffron's employment with the Company terminated effective February
24, 1998.
(4) Includes 30,664 shares subject to stock options exercisable within 60
days of April 3, 1998.
(5) Includes 11,164 shares subject to stock options exercisable within 60
days of April 3, 1998.
(6) Includes 11,512 shares subject to stock options exercisable within 60
days of April 3, 1998.
(7) Includes 11,000 shares subject to stock options exercisable within 60
days of April 3, 1998.
(8) Includes 287,484 shares subject to stock options exercisable within 60
days of April 3, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Compensation Committee of the Board of Directors has been comprised
of two nonemployee directors, James J. Gaffney and Thomas E. Petry. None of the
current directors on the Compensation Committee was an officer or employee of
the Company or any of its subsidiaries during 1997 or had any relationships
during 1997 that would require disclosure under SEC rules, except as follows:
In 1995, the Company loaned $210,000 to James J. Gaffney, a director of
the Company, in two separate loan transactions. Each loan bears interest at a
variable rate equal to the applicable federal rate at the date of the loan,
adjusted semi-annually in accordance with changes in the applicable federal rate
and is payable to the Company on demand. Mr. Gaffney pledged 13,334 shares of
restricted stock of the Company to secure his repayment obligation under the
terms of the loans. The loan was repaid in full on February 19, 1997.
Terence M. O'Toole and Barry S. Volpert are partners in Goldman Sachs and
directors of the Company. Goldman Sachs has from time to time provided the
Company with financial advisory services in connection with significant
transactions, including debt offerings, debt refinancings, purchases and sales
of businesses, and the sale of the Company. Goldman Sachs has performed such
financial advisory and other investment banking services for the
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<PAGE> 14
Company on terms and conditions no less favorable to it than it could obtain
from an unaffiliated firm of comparable rank, and provide for the payment of
fees, the reimbursement of Goldman Sachs' reasonable expenses and the
indemnification of Goldman Sachs against various liabilities, including
liabilities under the federal securities laws. Goldman Sachs may also hold or
acquire from time to time equity or creditor interests in entities with which
the Company transacts business in the ordinary course. The Company is not aware
of any transaction or of any currently proposed transaction, in which Goldman
Sachs has any material direct or indirect interest as a result of its ownership
position in a party to the transaction other than the Company, except as
follows:
On July 3, 1997, the Company refinanced its existing credit facility
under a new six year $200 million credit facility with a bank group consisting
of Citicorp USA, Inc., Goldman Sachs Credit Partners L.P. (formerly Pearl
Street, L.P.), an affiliate of Goldman Sachs, and First National Bank of
Chicago. Goldman Sachs Credit Partners L.P. had an initial participating
interest of $66,667,000 in the credit facility. Goldman Sachs Credit Partners
L.P. received $583,000 from the agent bank for its portion of the arrangement
fee paid by the Company in 1997.
During 1997, Goldman Sachs was retained to assist the Company in the sale
of the Rolodex business. The business was sold March 5, 1997 and the Company
paid Goldman Sachs $1,966,000 in investment banking fees and expenses related to
the sale.
During 1997, Goldman Sachs was also retained to provide the Company with
investment banking services in connection with the Company's issuance of $150
million aggregate principal amount of 10.25% Senior Subordinated Notes due 2007
which was completed on August 12, 1997 (the "Notes"), as well as the self tender
offer to acquire 2,857,142 shares of Common Stock which was completed on August
12, 1997 (the "Tender Offer"). The Company paid Goldman Sachs $3,094,000 in
underwriting fees related to the Notes, $2,042,000 in investment banking fees in
connection with the refinancing and the issuance of the Notes, and $204,000 for
services rendered in connection with the Tender Offer.
The Company announced on March 24, 1998, that it has entered into a
definitive merger agreement with DLJMB. Goldman Sachs advised the Company in
connection with this transaction pursuant to the engagement described in the
preceding paragraph which was still in effect. Goldman Sachs will receive a fee
of $2 million payable on the consummation of the merger.
The Company believes that the terms of all the transactions and existing
arrangements set forth above are no less favorable to the Company than similar
transactions and arrangements which might have been entered into with unrelated
parties.
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<PAGE> 15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this amended report to be
signed on its behalf by the undersigned, thereunto duly authorized.
INSILCO CORPORATION
Date: April 10, 1998 By: /s/ PHILIP K. WOODLIEF
---------------------------------
Philip K. Woodlief
Vice President and Corporate Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
amended report has been signed below by the following persons on behalf of the
Company and in the capacities indicated on the 10th day of April, 1998.
Signature Title
*ROBERT L. SMIALEK President, Chief Executive Officer, and Director
- --------------------------- (Principal Executive Officer)
Robert L. Smialek
*PHILIP K. WOODLIEF Vice President and Corporate Controller
- --------------------------- (Principal Accounting Officer)
Philip K. Woodlief
*JAMES J. GAFFNEY Director
- ---------------------------
James J. Gaffney
*TERENCE M. O'TOOLE Director
- ---------------------------
Terence M. O'Toole
*THOMAS E. PETRY Director
- ---------------------------
Thomas E. Petry
*BARRY S. VOLPERT Director
- ---------------------------
Barry S. Volpert
*By: /s/ PHILIP K. WOODLIEF
-----------------------
Philip K. Woodlief
Attorney-in-Fact
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