As submitted to the Securities and Exchange Commission on February 8, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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Insilco Corporation
(Exact name of Registrant as specified in its charter)
(and Certain Subsidiaries identified in Footnote (1) below)
Delaware 274, 471, 346, 361, 367 06-1158291
(State or jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
425 Metro Place North, Fifth Floor
Dublin, Ohio 43017
(614) 792-0468
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
Kenneth H. Koch
Vice President and General Counsel
Insilco Corporation
425 Metro Place North, Fifth Floor
Dublin, Ohio 43017
(614) 792-0468
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Richard D. Truesdell, Jr., Esq.
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Approximate date of commencement of proposed sale to the
public: From time to time after the effective date.
If any of the securities being registered on this Form are to
be offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, please check the following box. [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement for the same
offering. [ ]
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration number of the earliest effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
Proposed Proposed
Maximum Maximum
Title of Each Amount Offering Aggregate Amount of
Class of Securities to be Price Offering Registration
to be Registered(1) Registered Per Note Price(2) Fee
- ------------------- ---------- -------- -------- ------------
<S> <C> <C> <C> <C>
12% Series B Senior
Subordinated Notes due
2007...................... $120,000,000 100% $120,000,000 $33,360.00
Senior Subordinated
Guarantees(3)...........
</TABLE>
(1) The following subsidiaries of Insilco Corporation are Co-Registrants and
guarantors of the 12% Senior Subordinated Notes due 2007, each of which is
incorporated in the state and has the I.R.S. Employer Identification Number
indicated: Great Lake, Inc. 31-1454822, a Delaware corporation; Insilco Asia
Corporation 31-1498845, a Delaware corporation; Signal Transformer Co., Inc.
06-1150000, a Delaware corporation; Signal Caribe, Inc. 06-1081561, a
Delaware corporation; Steel Parts Corporation 35-1103002, a Delaware
corporation; Stewart Connector Systems, Inc. 23-2013714, a Pennsylvania
corporation; Stewart Stamping Corporation 13-1733105, a Delaware
corporation; Taylor Publishing Company 75-1251430, a Delaware corporation;
Thermal Components, Inc. 63-0621666, a Delaware corporation; and Thermal
Components Division, Inc. 31-1467510, a Delaware corporation.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(f) under the Securities Act of 1933.
(3) The 12% Senior Subordinated Notes due 2007 are unconditionally (as well as
jointly and severally) guaranteed by the guarantors on an unsecured, senior
subordinated basis. No separate consideration will be paid in respect of the
guarantees.
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the SEC, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement covers the registration of an
aggregate principal amount of $120,000,000 of 12% Series B Senior Subordinated
Notes due 2007 (the "New Notes") of Insilco Corporation ("Insilco") that may be
exchanged for equal principal amounts of Insilco's outstanding 12% Series A
Senior Subordinated Notes due 2007 (the "Old Notes") (the "Exchange Offer").
This Registration Statement also covers the registration of the New Notes for
resale by Donaldson, Lufkin & Jenrette Securities Corporation in market-making
transactions. The complete prospectus relating to the Exchange Offer (the
"Prospectus") follows immediately after this Explanatory Note. Following the
prospectus are certain pages of the Prospectus relating solely to such
market-making transactions (the "Market-Making Prospectus"), including
alternate front and back cover pages, a section entitled "Risk
Factors--Trading Market for the New Notes" to be used in lieu of the section
entitled "Risk Factors--Lack of Public Market," an alternate "Use of Proceeds"
section and an alternate "Plan of Distribution" section. In addition, the
Market-Making Prospectus will not include the following captions (or the
information set forth under such captions) in the Exchange Offer Prospectus:
"Summary-- The Exchange Offer," "Summary--Consequences of Exchanging Old
Notes pursuant to the Exchange Offer," "Risk Factors--Lack of Public Market,"
"The Exchange Offer" and "Certain United States Tax Consequences of the
Exchange Offer." All other sections of the Exchange Offer Prospectus will be
included in the Market-Making Prospectus.
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SUBJECT TO COMPLETION, DATED FEBRUARY 8, 1999
PROSPECTUS
Insilco Corporation
Offer to Exchange
12% Series A Senior Subordinated Notes Due 2007 for
12% Series B Senior Subordinated Notes Due 2007
which have been registered under the Securities Act of 1933, as amended
Insilco Corporation is offering to exchange an aggregate
principal amount of up to $120,000,000 of its 12% Series B Senior Subordinated
Notes due 2007 (the "New Notes"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act") for its existing 12%
Series A Senior Subordinated Notes due 2007 (the "Old Notes").
The terms of the New Notes are identical in all material
respects to the terms of the Old Notes, except that the New Notes have been
registered under the Securities Act, and certain transfer restrictions and
registration rights relating to the Old Notes do not apply to the New Notes.
To exchange your Old Notes for New Notes, you must complete and
send the letter of transmittal that accompanies this Prospectus to the
exchange agent by 5:00 p.m., New York time, on , 1999. If your Old
Notes are held in book-entry form at The Depository Trust Company ("DTC"), you
must instruct DTC through your signed letter of transmittal that you wish to
exchange your Old Notes for New Notes. When the exchange offer closes, your DTC
account will be changed to reflect your exchange of Old Notes for New Notes.
See "Risk Factors" beginning on page 14 for a discussion of
certain risk factors that should be considered by you prior to tendering your
Old Notes in the Exchange Offer.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is , 1999.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form S-1 under the Act with respect to our
offering of the New Notes. This prospectus does not contain all the information
included in the Registration Statement and the exhibits and schedules thereto.
You will find additional information about us and the New Notes in the
Registration Statement. The Registration Statement and the exhibits and
schedules thereto may be inspected and copied at the public reference
facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the public reference facilities
of the SEC's Regional Offices: New York Regional Office, Seven World Trade
Center, Suite 1300, New York, New York 10048; and Chicago Regional Office,
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of
this material may also be obtained from the Public Reference Section of the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The SEC also maintains a site on the World Wide Web
(http://www.sec.gov) that contains reports, proxy and information statements
and other information regarding registrants, including Insilco, that file
electronically with the SEC. Statements made in this Prospectus about legal
documents may not necessarily be complete and you should read the documents
which are filed as exhibits to the Registration Statement or otherwise filed
with the SEC.
If for any reason we are not required to comply with the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), we are still required under the indenture to furnish the
holders of the New Notes with the information, documents and other reports
specified in Sections 13 and 15(d) of the Exchange Act. In addition, we have
agreed that, for so long as any notes remain outstanding, we will furnish to
the holders of the notes and to securities analysts and prospective investors,
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
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Certain of the titles and logos of our products referenced
herein are trademarks of Insilco. Each trade name, trademark or servicemark
of any other company appearing in this Prospectus is the property of its
holder.
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Cautionary Statement Concerning Forward-Looking Statements
The information contained in this prospectus includes some
forward-looking statements that involve a number of risks and uncertainties.
A number of factors could cause our actual results, performance, achievements,
or industry results to be very different from the results, performance or
achievements expressed or implied by such forward-looking statements.
These factors include, but are not limited to:
o the competitive environment in our industry in general and in
our specific market areas;
o changes in prevailing interest rates and the availability of
and terms of financing to fund the anticipated growth of our business;
o inflation;
o changes in costs of goods and services;
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o economic conditions in general and in our specific market
areas;
o changes in or our failure to comply with federal, state,
local or foreign government regulations;
o liability and other claims asserted against our company;
o changes in operating strategy or development plans;
o the ability to attract and retain qualified personnel;
o labor disturbances;
o our significant indebtedness;
o changes in our acquisition and capital expenditure plans;
o and other factors referenced herein.
In addition, forward-looking statements depend upon
assumptions, estimates and dates that may not be correct or precise and
involve known and unknown risks, uncertainties and other factors. Accordingly,
a forward-looking statement in this prospectus is not a prediction of future
events or circumstances and may not occur. Given these uncertainties,
prospective investors are warned not to rely on such forward-looking
statements. A forward-looking statement is usually identified by the use of
terminology such as "believes," "expects," "may," "will," "should," "seeks,"
"pro forma," "anticipates" or "intends," or by discussions of strategy or
intentions. We are not undertaking any obligation to update any such factors
or to publicly announce the results of any changes to our forward-looking
statements due to future events or developments.
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<PAGE>
PROSPECTUS SUMMARY
This section summarizes the more detailed information in this
prospectus and you should read all of such information carefully and in its
entirety. Because various entities discussed in this prospectus have similar
sounding names, we refer to Insilco Holdings Co., our parent company, as
"Holdings" and we refer to ourselves as "Insilco" the "Company," "we," "us" or
"our company." All of the information that we present about Holdings and
Insilco, except for historical financial information, reflects our recent
merger, as described below and the various financings that we obtained in
connection with the merger.
THE COMPANY
Overview
We produce automotive, telecommunications and electronics
components, and are a leading specialty publisher of student yearbooks.
We report our financial results in three segments:
o the Automotive Components Group, which manufactures
o transmission components and assemblies and
o heat exchangers (such as radiators and air conditioning condensers)
and heat exchanger tubing;
o the Technologies Group, which manufactures
o high performance data-grade connectors for the telecommunications and
networking markets,
o cable and wire assemblies primarily for the telecommunications
market, and
o precision metal stampings and power transformers primarily for the
electronics market.
o Specialty Publishing, which produces student yearbooks and other
specialty books.
Our portfolio of businesses serves several market segments,
which we believe tends to minimize the effects of cyclicality and diversify
business risk from any one market. Our broad base of more than 17,000
customers includes automotive and non-automotive original equipment
manufacturers ("OEMs"), telecommunications, networking and electronics
companies and school yearbook departments nationwide.
We primarily focus on tailoring our products for
customer-specific applications in niche markets. For example, (1) we customize
products for particular customers and applications and (2) we develop
technology to enhance product function. We believe that this focus on niche
markets results in more stable revenues, higher margins and longer term
customer relationships (often as the sole supplier to that customer). From
fiscal 1994 to the twelve month period ended September 30, 1998, our net sales
from continuing operations increased from $438.4 million to $543.0 million,
representing a compound annual growth rate ("CAGR") of 5.9%, and Adjusted
EBITDA (as we define on page [ ]) increased from $56.6 million to $68.9
million, representing a CAGR of 5.4%.
<PAGE>
<TABLE>
<CAPTION>
Twelve Months
Ended September 30, 1998
------------------------
Adjusted
Segment Sales EBITDA(1) Principal Products/markets Largest Customers
- ------- ----- --------- -------------------------- -----------------
(in millions)
<S> <C> <C> <C> <C>
Automotive $244.9 $33.5 --Transmission/suspension components --Ford
Components Group --Radiators/air conditioning condensors --Valeo
--Heat exchanger tubing --Caterpillar
--Behr
--Delphi
Technologies Group 195.6 27.4 --Cable harness assemblies --Nortel
--50/60 Hz transformers --Siemens
--Modular jacks & plugs --Littelfuse
--Precision high speed stamping --Ericsson
--Lucent
--IBM
Specialty Publishing 102.5 8.0 --School yearbooks --High Schools
------ ----- --Universities
Total $543.0 $68.9
====== =====
</TABLE>
- ----------
(1) See footnote 6 to the "Summary Historical and Unaudited Pro Forma
Consolidated Financial Operating Data".
The Automotive Components Group:
Our automotive components group consists of:
o Thermal Components which produces aluminum-and copper-based heat
exchanger tubing for automotive OEMs and Tier 1 suppliers, and also
manufactures radiators, air conditioning condensers and other heat
exchangers for automotive and industrial applications.
o Steel Parts which is the leading supplier of automatic transmission
clutch plates to Ford and produces other stamped components for OEMs
and Tier 1 suppliers.
o Romac which produces stainless steel tubing for marine,
architectural, industrial and automotive applications.
o Thermalex, a joint venture owned equally by us and Mitsubishi
Aluminum Co., Ltd. ("Mitsubishi Aluminum"), which is, we believe, the
nation's leading producer of precision extruded multi-port aluminum
heat exchanger tubing used in automotive air-conditioning condensers.
In 1997, Thermalex, which is accounted for as an unconsolidated
investment, contributed $2.6 million to our consolidated pre-tax
income and paid a $1.5 million cash dividend to Insilco. On a
stand-alone basis, Thermalex generated $10.3 million of EBITDA in
1997; however, only the $1.5 million dividend is included in our
Adjusted EBITDA.
We believe that the impact of the economic cycle in the
automotive industry on our automotive components group's financial performance
is lessened by the group's sales in the automotive aftermarket and to
non-automotive OEMs, which represented 16% and 27%, respectively, of the
group's 1997 net sales.
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The Technologies Group
Our technologies group generally focuses on niche products
which are designed for specific customer applications and seeks to supply all
or a substantial portion of its customers' requirements. The group has four
operating units:
o Escod Industries, a supplier of cable and wire assemblies to the
telecommunications market, including Northern Telecom and Siemens
Telecom Network;
o Stewart Connector, a producer of high performance data-grade connectors
for the computer networking and telecommunications markets;
o Stewart Stamping, a producer of highly customized precision stamped
metal parts, primarily for the electronics industry; and
o Signal Transformer, a producer of 50-60 Hz power transformers used in a
variety of products.
Specialty Publishing
Taylor Publishing Company ("Taylor") is one of the nation's
leading publishers of student yearbooks. We believe that Taylor was the first
major yearbook publisher to make extensive use of digital pre-press technology
(permitting cutting, pasting, and rescaling of text and graphics on a
computer) as opposed to the more widely used pre-press process which involves
manual cutting, pasting and rescaling. We believe that we use digital
pre-press technology more extensively than our competitors, and that this
technology offers yearbook departments superior quality and greater
flexibility in altering page design. The student yearbook business is not very
cyclical, has low customer turnover and many of the sales are pre-paid.
Competitive Strengths
We believe that we possess a number of competitive strengths,
including the following:
Strong Niche Market Positions
Many of our products are targeted to niche markets in which we
can capitalize on our ability to produce highly customized products designed
for a single customer or a specific application which often requires formal
qualification. We believe that the specialized knowledge and experience we
have gained from these niche markets and applications cannot be easily
duplicated or replaced and strengthens our competitive position.
Long Standing Customer Base
We have many long-term customer relationships, which provides
an ideal platform from which to offer new products to existing customers. In
addition, such long-term relationships provide us with early insight into
customers' changing needs and allow us to introduce application-specific
products. The average length of our relationship with our ten largest
customers is over twenty years.
Recognized Quality
We have received industry recognition and awards for quality.
Awards recently received include: Ford's Q1 Quality Award, Eastman Kodak's
Preferred Vendor Status, Littelfuse Supplier Ingenuity Award, Panasonic's (ACOM
Division) Supplier of the Year, Sensormatic's Preferred Vendor and Siemens
Success Supplier--Ship to Stock Award. In addition, several of our plants have
been certified "QS 9000", "ISO 9001" or "ISO 9002", domestic and international
standards certification recognizing quality manufacturing processes.
Experienced Management Team
The current management team, headed by chief executive officer,
Robert L. Smialek, significantly reduced Insilco's debt during the past
several years from $253.7 million on January 1, 1994 to $58.6 million prior to
our recapitalization in June 1997 (at which time we borrowed money to buy back
Insilco stock). At the same time, we increased adjusted EBITDA from $56.6
million in 1994 to $68.9 million in the twelve month period ended September
30, 1998, representing a compound annual growth rate of 5.4%. Management
accomplished these improvements by divesting certain non-core businesses such
as paint products, computer accessories and office products, focusing
investments on its core businesses and actively managing working capital.
Business Strategy
We seek sales growth through internal growth and acquisitions.
In addition, we seek to improve operating margins through cost reduction
programs and an ongoing process of efficiency improvements. Our strategy
includes the following:
Focus on Niche Markets
Develop New Products and Applications
Increase Value-Added Content
Implement Cost Reduction Programs and Efficiency Improvements
Expand Strategic Acquisitions and Partnerships; Divestitures
For more complete information on our business strategies, you
should read the section called "Business--Business Strategies."
Recent Developments
Potential Charge Associated With Cost Reduction Program. We
are reviewing a number of programs designed to improve operating efficiencies
and reduce expenses. While the scope of these programs has not been finalized,
we currently expect to record non-recurring charges of approximately $5
million in the aggregate during the fourth quarter of 1998 and the first
quarter of 1999.
The Mergers. On August 17, 1998, Holdings formed a wholly owned
subsidiary which was then merged with and into Insilco (what we call the
"Reorganization Merger"). In the merger, each of our existing stockholders
had his or her shares converted into the same number of shares of Holdings and
the right to receive $0.01 per share in cash, and Holdings became our
corporate parent. Promptly following the Reorganization Merger, a second
merger took place pursuant to which Silkworm Acquisition Corporation, an
affiliate of DLJ Merchant Banking Partners II, L.P., merged with and into
Holdings (what we call the "Merger," and together with the Reorganization
Merger, the "Mergers") and each share of Holdings Common Stock ("Holdings
Common Stock") was converted into the right to receive $43.47 in cash and
retain 0.03378 of a share of the Holdings Common Stock. Thus, as a result of
the Mergers, each of our existing stockholders:
-- received $43.48 in cash (consisting of $.01 received in the
Reorganization Merger and $43.47 received in the Merger) and
-- retained 0.03378 of a share of Holdings Common Stock.
In conjunction with the Mergers, DLJ Merchant Banking Partners
II, L.P. and certain related funds and entities (what we call the "DLJMB
Funds") purchased 1,400,000 shares of Holdings' 15% Senior Exchangeable
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Preferred Stock due 2012 (the "PIK Preferred Stock"), and warrants to purchase
65,603 shares of Holdings Common Stock at an exercise price of $0.01 per share.
As a result of those transactions, following the Mergers,
o Insilco stockholders received, in the aggregate, approximately 10.1%
(9.4% on a fully diluted basis) of the outstanding shares of Holdings
Common Stock;
o the DLJMB Funds held approximately 69.0% (69.8% on a fully diluted
basis) of the outstanding shares of Holdings Common Stock;
o 399 Venture Partners, Inc., an affiliate of Citibank, N.A. ("CVC"),
purchased shares of Silkworm which in the Merger were converted into
approximately 19.3% (17.8% on a fully diluted basis) of the outstanding
shares of Holdings Common Stock; and
o our management purchased approximately 1.7% (1.5% on a fully diluted
basis) of the outstanding shares of Holdings Common Stock.
Immediately before the Reorganization Merger, each outstanding
option to acquire shares of our common stock that had been granted to our
employees and directors, whether or not vested, was canceled and each holder
of an option received a cash payment (collectively, the "Option Cash
Payments") in an amount equal to:
the excess, if any, of $45.00 over the exercise price of the option
multiplied by
the number of shares subject to the option, less applicable withholding
taxes. Certain option holders elected to use the Option Cash Payments to
purchase stock or equity units of Holdings.
The Merger Financing. The cash required to consummate the
foregoing transactions was approximately $204.4 million. This amount was
financed with
o approximately $70.2 million from the issuance by Silkworm of units
(which were converted into units of Holdings (the "Holdings Units") in
the Merger), each unit consisting of $1,000 principal amount of 14%
Senior Discount Notes due 2008 (the "Holdings Senior Discount Notes")
and one warrant to purchase 0.325 of a share of Holdings Common Stock at
an exercise price of $0.01 per share,
o approximately $56.1 million from the issuance by Silkworm to the DLJMB
Funds, CVC and certain members of our management of 1,245,138 shares of
Silkworm common stock (which was converted into Holdings Common Stock in
the Merger),
o $35.0 million from the issuance to the DLJMB Funds of 1,400,000 shares
of the PIK Preferred Stock by Holdings and the DLJMB Warrants to
purchase 65,603 shares of Holdings Common Stock at an exercise price of
$0.01 per share, and
o approximately $43.1 million of new borrowings under our then existing
bank credit facility.
Offer to Purchase. Because the Mergers caused a "change in
control" of Insilco, we were required to make an offer to purchase all of our
outstanding $150.0 million 10 1/4% Senior Subordinated Notes due 2007 at
101% of their aggregate principal amount, plus accrued interest. We issued
the Old Notes as units together with warrants to purchase Holdings Common
Stock and used the proceeds, together with certain borrowings under our new
bank credit facility, to repurchase all of the 10 1/4% notes.
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<PAGE>
New Credit Facility. On November 24, 1998, we entered into a
new credit facility with a group of lenders led by DLJ Capital Funding Inc. to
replace our existing credit facility. The new credit facility includes a $125
million term loan facility and a $175 million revolving credit facility
(subject to adjustment as described below). The term loan facility has a
maturity of seven years. The revolving credit facility will terminate on July
8, 2003. See "Description of Certain Indebtedness--New Credit Facility." The
offering of the Old Notes, together with the repurchase of the 10 1/4% notes
pursuant to the offer to purchase the 10 1/4% notes, and the borrowings under
the new credit facility are referred to as the "Refinancing."
Acquisitions. We recently acquired Eyelets for Industry, Inc.
(EFI) and its wholly owned subsidiary EFI Metal Forming Inc. and are currently
in negotiations with respect to another potential acquisition. Neither the EFI
acquisition, nor the other potential acquisition, if consummated, is material
to our financial position.
Jostens Litigation. On January 14, 1997, Taylor sued one of its
principal competitors in the yearbook business, Jostens, Inc. ("Jostens"), in
the U.S. District Court for the Eastern District of Texas, alleging violations
of the federal antitrust laws as well as various claims arising under state
law. On May 13, 1998, the jury in the case returned a verdict in favor of
Taylor, and, on June 12, 1998, the judge rendered his judgment in the amount
of $25.2 million plus interest at an annual rate of 5.434%. On January 14,
1999, in response to a motion by Jostens, the judge entered an order vacating
the jury verdict and granting judgment in Jostens' favor. We will seek to
overturn the order and reinstate the jury verdict on appeal. We cannot assure
you what the actual amount is, if any, that Taylor will recover from Jostens.
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Our principal executive offices are located at 425 Metro Place
North, Fifth Floor, Dublin, Ohio 43017, and our telephone number is (614)
792-0468.
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THE EXCHANGE OFFER
Securities Offered............ We are offering up to $120,000,000 aggregate
principal amount of 12% Series B Senior
Subordinated Notes due 2007, which have been
registered under the Securities Act.
The Exchange Offer............ We are offering to issue the New Notes in
exchange for a like principal amount of your
Old Notes. We are offering to issue the New
Notes to satisfy our obligations contained in
the registration rights agreement entered into
when the Old Notes were sold in transactions
pursuant to Rule 144A under the Securities Act
and therefore not registered with the SEC. For
procedures for tendering, see "The Exchange
Offer."
Tenders, Expiration
Date, Withdrawal.............. The Exchange Offer will expire at 5:00 p.m.
New York City time on , 1999
unless it is extended. If you decide to
exchange your Old Notes for New Notes, you
must acknowledge that you are not engaging in,
and do not intend to engage in, a distribution
of the New Notes. If you decide to tender your
Old Notes pursuant to the Exchange Offer, you
may withdraw them at any time prior to ,
1999. If we decide for any reason not to
accept any Old Notes for exchange, your Old
Notes will be returned to you without expense
to you promptly after the Exchange Offer
expires.
Federal Income
Tax Consequences.............. Your exchange of Old Notes for New Notes
pursuant to the Exchange Offer will not result
in any income, gain or loss to you for Federal
income tax purposes. See "Certain United
States Federal Income Tax Consequences of the
Exchange Offer."
Use of Proceeds............... We will not receive any proceeds from the
issuance of the New Notes pursuant to the
Exchange Offer.
Exchange Agent................ Star Bank, N.A. is the exchange agent for the
Exchange Offer
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CONSEQUENCES OF EXCHANGING OLD NOTES
PURSUANT TO THE EXCHANGE OFFER
We believe that New Notes issued in exchange for Old Notes
pursuant to the Exchange Offer may be offered for resale, resold or otherwise
transferred by you without registering the New Notes under the Securities Act
or delivering a prospectus so long as you (1) are not one of our "affiliates",
which is defined in Rule 405 of the Securities Act, and (2) acquire the New
Notes in the ordinary course of your business and, unless you are a broker
dealer, you do not have any arrangement with any person to participate in the
distribution of such New Notes. Our belief is based on interpretations by the
SEC's staff in no-action letters issued to third parties.
Unless you are a broker-dealer, you must acknowledge that you
are not engaged in, and do not intend to engage in, a distribution of the New
Notes and that you have no arrangement or understanding to participate in a
distribution of the New Notes. If you are an affiliate of Insilco, or you are
engaged in, intend to engage in or have any arrangement or understanding with
respect to, the distribution of New Notes acquired in the Exchange Offer, you
(1) should not rely on our interpretations of the position of the SEC's staff
and (2) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction.
If you are a broker-dealer and receive New Notes for your own
account pursuant to the Exchange Offer, you must acknowledge that you will
deliver a prospectus in connection with any resale of such New Notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, you will not be deemed to admit that you are an "underwriter"
within the meaning of the Securities Act. If you are a broker-dealer, you may
use this prospectus, as it may be amended or supplemented from time to time,
in connection with the resale of New Notes received in exchange for Old Notes
acquired by you as a result of market-making or other trading activities. For
a period of 90 days after the expiration of the Exchange Offer, we will make
this prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution."
In addition, you may offer or sell the New Notes in certain
jurisdictions only if they have been registered or qualified for sale there,
or an exemption from registration or qualification is available and is
complied with. Subject to the limitations specified in the registration rights
agreement, we will register or qualify the New Notes for offer or sale under
the securities laws of any jurisdictions that you reasonably request in
writing. Unless you request that the sale of the New Notes be registered or
qualified in a jurisdiction, we currently do not intend to register or qualify
the sale of the New Notes in any jurisdiction. If you do not comply with
such requirement, you could incur liability under the Securities Act, and we
will not indemnify you in such circumstances.
8
<PAGE>
SUMMARY DESCRIPTION OF THE NOTES
The terms of the New Notes and the Old Notes are identical in
all material respects, except that the New Notes have been registered under
the Securities Act, and certain transfer restrictions and registration rights
relating to Old Notes do not apply to the New Notes.
Maturity Date................. August 15, 2007
Interest Payment Dates........ Every February 15 and August 15, beginning
February 15, 1999.
Optional Redemption........... We may redeem any of the notes at our option
on or after August 15, 2002 at the redemption
prices set forth on page 66, plus accrued
interest.
Change of Control............. Upon the occurrence of a Change of Control,
you may require us to repurchase your notes at
101% of their principal amount, plus accrued
interest. We cannot assure you that we will
have sufficient resources to satisfy our
repurchase obligation in such circumstances.
See "Risk Factors--Possible Inability to
Repurchase Notes upon Change of Control" and
"Description of Notes."
Ranking....................... The notes rank junior to all of our senior
indebtedness and secured indebtedness,
including the new credit facility. The notes
will rank equally with any of our future
unsecured senior subordinated indebtedness.
The notes will effectively rank junior to all
liabilities of subsidiaries that have not
guaranteed the notes. On a pro forma basis, as
of September 30, 1998 Insilco and the
guarantors would have had outstanding
approximately $206.4 million of senior
indebtedness.
Note Guarantees............... The notes are unconditionally guaranteed on a
senior subordinated basis by all of our
wholly-owned domestic subsidiaries (the
"guarantors"). The note guarantees are
unsecured obligations of the guarantors and
rank junior to all existing and future senior
indebtedness of the guarantors, including
indebtedness under our bank credit facility.
See "Description of Notes--Note Guarantees."
Certain Covenants............. The indenture governing the notes contains
certain covenants limiting or prohibiting our
ability and our subsidiaries' ability to:
o incur additional indebtedness or issue
preferred stock;
o pay dividends or make distributions on, and
to redeem or repurchase, capital stock or to
repurchase subordinated indebtedness;
o engage in transactions with affiliates;
o engage in sale and leaseback transactions;
o create liens securing indebtedness;
o make investments and sell assets; and
o consolidate with or merge into, or sell
substantially all of our assets to, another
person.
See "Description of Notes--Certain Covenants."
Use of Proceeds............... We will not receive any proceeds from the
exchange of New Notes for Old Notes.
10
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SUMMARY HISTORICAL AND UNAUDITED PRO FORMA
FINANCIAL AND OPERATING DATA
The summary historical consolidated financial data presented
below are derived from our audited consolidated financial statements. You
should read the information contained in this table in conjunction with
"Selected Consolidated Financial Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Unaudited Pro Forma
Consolidated Financial Data" and the consolidated financial statements and the
notes thereto included elsewhere in this prospectus (the "Consolidated
Financial Statements"). The summary historical consolidated financial data as
of and for the nine months ended September 30, 1997 and 1998 are unaudited;
however, in management's opinion, they include all adjustments (consisting of
only normal recurring accruals) necessary for a fair presentation of results
for such interim periods. Interim results are not necessarily indicative of
results for the full year.
The unaudited pro forma condensed consolidated financial data
of Insilco and our subsidiaries for the twelve months ended September 30, 1998
and the year ended December 31, 1997 are based upon historical information that
has been adjusted to give effect to the transactions described in footnote 1.
The Reorganization Merger was accounted for as a reorganization of entities
under common control, and the Merger was accounted for as a recapitalization.
As a result, the Mergers had no impact on the historical basis of our assets
or liabilities.
The unaudited pro forma condensed consolidated balance sheet
data as of September 30, 1998 have been prepared as if the Mergers, the Merger
Financing and the Refinancing occurred on that date. The unaudited pro forma
condensed consolidated income statements for the year ended December 31, 1997
and the nine months and twelve months ended September 30, 1998 have been
prepared as if the Mergers, the Merger Financing, the Refinancing and the 1997
Transactions (as defined below) all occurred at the beginning of the relevant
period. The expenses directly related to the aforementioned transactions
(other than interest expense) are excluded from the pro forma statement of
operations data. The unaudited pro forma financial data are based on certain
assumptions and estimates, and therefore do not purport to be indicative of
the results that would have been obtained had the transactions been completed
as of such dates or indicative of future results of operations and financial
position. See "Unaudited Pro Forma Condensed Consolidated Financial Data."
11
<PAGE>
Summary Historical and Unaudited Pro Forma Consolidated Financial and
Operating Data
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30, Pro Forma
-------------------------------------------- ---------------------------- Twelve Months
Ended
September
Pro Forma 30,
1994 1995 1996 1997 1997 1997 1998 1998(1)
---- ---- ---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operations Data:
Net sales...................... $438.4 $449.5 $492.4 $528.2 $528.2 $407.6 $422.4 $543.0
Operating income(2)............ 9.5 38.9 48.4 51.1 51.1 39.8 12.3 44.5
Other income (expense):
Interest expense............... (29.1) (19.5) (18.3) (20.5) (37.3) (13.4) (20.6) (35.1)
Interest income................ 1.8 1.4 0.7 2.8 0.8 2.8 0.1 0.1
Other income, net(3)........... 3.2 13.9 7.7 3.4 3.4 2.3 4.6 5.7
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from continuing
operations before income taxes
and extraordinary items.......... (14.6) 34.7 38.5 36.8 18.0 31.5 (3.6) 15.2
Income tax expense............. (5.7) (16.7) (13.3) (13.4) (6.1) (11.6) (1.2) (5.0)
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from continuing
operations before extraordinary
items............................ (20.3) 18.0 25.2 23.4 11.9 19.9 (4.8) 10.2
Income (loss) from discontinued
operations, net of tax(4)........... (9.7) (15.4) 13.8 58.9 -- 58.9 -- --
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before extraordinary
items............................ (30.0) 2.6 39.0 82.3 11.9 78.8 (4.8) 10.2
Extraordinary items, net of tax (2.1) -- -- (0.7) -- (0.7) -- --
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss).............. $(32.1) $2.6 $39.0 $81.6 $11.9 $78.1 $(4.8) $10.2
====== ====== ====== ====== ====== ====== ====== ======
Other Data:
EBITDA(5)...................... $56.6 $68.4 $63.8 $69.5 $69.5 $54.1 $28.0 $64.3
Adjusted EBITDA(6)............. 56.6 64.6 68.7 71.3 71.3 55.8 53.3 68.9
Cash interest expense.......... 28.1 17.9 16.7 19.3 35.2 12.6 19.6 33.2
Depreciation and amortization.. 12.3 13.3 15.4 18.4 18.4 14.3 15.7 19.8
Amortization of Reorganization
Goodwill......................... 34.8 16.2 -- -- -- -- -- --
Capital expenditures........... 17.5 20.2 20.0 23.6 23.6 15.0 15.7 24.3
Balance Sheet Data (at period end):
Cash and cash equivalents...... $8.7 $9.9 $3.5 $10.7 $10.7 $4.7 $4.7
Working capital................ 33.9 44.9 51.4 39.5 39.5 78.6 81.1
Total assets................... 368.7 340.1 348.4 302.7 302.7 319.0 321.2
Total debt..................... 198.1 186.5 161.0 257.7 257.7 314.5 326.4
Stockholders' equity (deficit). (13.5) (15.8) 33.4 (102.3) (102.3) (130.2) (136.1)
Credit Statistics:
Adjusted EBITDA/Cash interest
expense.......................... 2.1x
Net debt/Adjusted EBITDA(7).... 4.7x
- ----------
(1) Pro forma results reflect (i) the following transactions (the "1997
Transactions"): the entry into the Existing Credit Facility on July 3,
1997, the issuance of the 10 1/4% notes on August 12, 1997 and our
repurchase of 5,714,284 shares of common stock in the third quarter of 1997
for an aggregate of $220 million (the "Share Repurchase"); (ii) the Mergers
and the Merger Financing and (iii) the Refinancing and the application of
proceeds thereof, in each case, as if they occurred at the beginning of the
relevant period.
(2) Operating income in 1994 and 1995 includes the deduction for the
amortization of our reorganization value over the aggregate fair value of
its tangible and identified intangible assets at March 31, 1993
("Reorganization Goodwill") of $34.8 million and $16.2 million,
respectively, due to the adoption of "fresh start" accounting principles.
See Note 1 to the Consolidated Financial Statements. Operating income in
1995 includes a gain of $4.3 million related to a change in our pension
plan (see Note 12 to the Consolidated Financial Statements).
</TABLE>
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<PAGE>
(3) Other income, net in 1995 includes favorable adjustments of $3.6 million
related to our environmental liabilities, $1.5 million related to the
resolution of several legal disputes and a $4.0 million gain on the sale of
idle corporate assets. Other income, net in 1996 includes a $2.2 million
adjustment related to the satisfaction of certain of our environmental
liabilities following completion of a site clean-up for an amount less than
previously estimated.
(4) In March 1997, we completed the sale of its Office Products Business (as
defined below) with the divestiture of its traditional office products
business (the "Rolodex Business") for $112.6 million, net of transaction
costs, resulting in a gain of $57.8 million, net of taxes of $37.2 million.
The divestiture of the Rolodex Business was preceded in 1996 by the
divestiture of the Rolodex electronics product line ("Rolodex Electronics")
and our computer accessories business ("Curtis"). The proceeds from these
sales aggregated $21.8 million (see Note 20 to the Consolidated Financial
Statements for unaudited pro forma financial information with respect to
these divestitures). Rolodex, Rolodex Electronics and Curtis are referred
to collectively as the "Office Products Business."
In July 1998, we amended our Form 10-K for the year ended December 31, 1997
(the "Form 10-K") to account for the sale of the Office Products Business
as a discontinued operation and, accordingly, the accompanying consolidated
statements of operations and cash flows for the periods prior to the sale
have been reclassified. Revenues associated with the discontinued Office
Products Business for the years 1994, 1995, 1996 and 1997 were $105.2
million, $111.7 million, $80.1 million and $10.8 million, respectively.
(5) "EBITDA" is defined as net income before interest expense, interest
income, income taxes, depreciation and amortization, other income, equity
in net income of Thermalex and net gain or net loss on sale of assets.
EBITDA is not intended to represent and should not be considered more
meaningful than, or an alternative to, operating income, cash flows from
operating activities or other measures of performance in accordance with
generally accepted accounting principles. EBITDA data are included because
we understand that such information is used by certain investors as one
measure of an issuer's historical ability to service debt. While EBITDA is
frequently used as a measure of operations and the ability to meet debt
service requirements, it is not necessarily comparable to other similarly
titled captions of other companies, or to the defined term "Consolidated
EBITDA" used in "Description of Notes--Certain Covenants--Limitation on
Consolidated Debt", due to the potential inconsistencies in the method of
calculation.
(6) "Adjusted EBITDA" equals EBITDA plus dividends received from Thermalex of
$0.4 million, $3.4 million, $1.5 million, $1.3 million, $1.3 million and
$1.5 million for the years ended December 31, 1995, 1996, 1997 and the nine
months and the twelve months ended September 30, 1998 and the nine months
ended September 30, 1997, respectively, and excluding the effect of: (i) a
$4.3 million gain relating to a change in our pension plan in the year
ended December 31, 1995 (see Note 12 to the Consolidated Financial
Statements); (ii) a $1.5 million restructuring charge at Taylor Publishing
in the year ended December 31, 1996; (iii) $0.4 million, $0.9 million, $1.1
million and $0.2 million of legal expenses relating to the Jostens
antitrust suit for the year ended December 31, 1997, nine months and twelve
months ended September 30, 1998 and the nine months ended September 30,
1997, respectively; (iv) $1.3 million of corporate officers' severance for
the nine months and twelve months ended September 30, 1998; and (v) Merger
expenses recorded and paid of $20.9 million for the nine months and twelve
months ended September 30, 1998; (vi) $0.4 million of facility
relocation/consolidation expenses in the nine and twelve months ended
September 30, 1998; and (vii) $0.5 million of legal expenses related to a
successful judgment on a breach of contract lawsuit against a former
employee in the nine and twelve months ended September 30, 1998.
(7) Net debt represents total debt less cash and cash equivalents and is
calculated based on pro forma cash and debt balances as of September 30,
1998.
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<PAGE>
RISK FACTORS
In addition to the other matters described in this prospectus,
you should carefully consider the following risk factors before accepting the
Exchange Offer.
Consequences of Failure to Exchange Your Notes
If you do not exchange your Old Notes in the Exchange Offer,
your Old Notes will continue to be subject to the restrictions on transfer
described in the legend on the certificate for the Old Notes. In general, you
may offer or sell the Old Notes only if they are registered under, offered or
sold pursuant to an exemption from, or offered or sold in a transaction not
subject to, the Securities Act and applicable state securities laws.
We believe that New Notes issued in exchange for Old Notes
pursuant to the Exchange Offer may be offered for resale, resold or otherwise
transferred by you without registering the New Notes under the Securities Act
or delivering a prospectus so long as you (1) are not one of our "affiliates",
which is defined in Rule 405 of the Securities Act, and (2) acquire the New
Notes in the ordinary course of your business and, unless you are a broker
dealer, you do not have any arrangement with any person to participate in the
distribution of such New Notes. Our belief is based on interpretations by the
SEC's staff in no-action letters issued to third parties. Please note that the
SEC has not considered our Exchange Offer in the context of a no-action letter
and we cannot assure you that the SEC's staff would make a similar
determination with respect to our Exchange Offer.
Unless you are a broker-dealer, you must acknowledge that you
are not engaged in, and do not intend to engage in, a distribution of the New
Notes and that you have no arrangement or understanding to participate in a
distribution of the New Notes. If you are an affiliate of Insilco, or you are
engaged in, intend to engage in or have any arrangement or understanding with
respect to, the distribution of New Notes acquired in the Exchange Offer, you
(1) should not rely on our interpretations of the position of the SEC's staff
and (2) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction.
If you are a broker-dealer and receive New Notes for your own
account pursuant to the Exchange Offer, you must acknowledge that you will
deliver a prospectus in connection with any resale of such New Notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, you will not be deemed to admit that you are an "underwriter"
within the meaning of the Securities Act. If you are a broker-dealer, you may
use this prospectus, as it may be amended or supplemented from time to time,
in connection with the resale of New Notes received in exchange for Old Notes
acquired by you as a result of market-making or other trading activities. For
a period of 90 days after the expiration of the Exchange Offer, we will make
this prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution."
In addition, you may offer or sell the New Notes in certain
jurisdictions only if they have been registered or qualified for sale there,
or an exemption from registration or qualification is available and is
complied with. Subject to the limitations specified in the registration rights
agreement, we will register or qualify the New Notes for offer or sale under
the securities laws of any jurisdictions that you reasonably request in
writing. Unless you request that the sale of the New Notes be registered or
qualified in a jurisdiction, we currently do not intend to register or qualify
the sale of the New Notes in any jurisdiction.
Substantial Leverage; Liquidity
Leverage
In connection with the Merger and Merger Financing, we incurred
significant indebtedness. On a pro forma basis, as of September 30, 1998, we
had: (i) total consolidated indebtedness of approximately $326.4 million; and
(ii) $85.9 million of additional revolving borrowings available under the
then existing bank credit facility, subject to customary conditions. In
addition, subject to the restrictions in the new credit facility and the
indenture, we may incur significant additional indebtedness, which may be
secured, from time to time.
14
<PAGE>
The level of our indebtedness could have important
consequences, including:
o limiting cash flow available for general corporate purposes, including
acquisitions, because a substantial portion of our cash flow from
operations must be dedicated to debt service;
o limiting our ability to obtain additional debt financing in the future
for working capital, capital expenditures or acquisitions;
o limiting our flexibility in reacting to competitive and other changes in
the industry and economic conditions generally; and
o exposing us to risks inherent in interest rate fluctuations because
certain of our borrowings may be at variable rates of interest, which
could result in higher interest expense in the event of increases in
interest rates.
Conditions that may impact our ability to repay our Debt
Our ability to pay or to refinance our indebtedness will depend
upon our future operating performance, which will be affected by general
economic, financial, competitive, legislative, regulatory, business and other
factors beyond our control.
We anticipate that our operating cash flow, together with
money we can borrow under our new credit facility, will be sufficient to meet
anticipated future operating expenses, capital expenditures and to service
debt as it becomes due. However, if our future operating cash flows are less
than currently anticipated we may be forced, in order to meet our debt service
obligations, to reduce or delay acquisitions or capital expenditures, sell
assets or reduce operating expenses. If we were still unable to meet our debt
service obligations, we could attempt to restructure or refinance our
indebtedness or seek additional equity capital. There can be no assurance
that we will be able to accomplish that on satisfactory terms, if at all.
In addition, subject to the restrictions and limitations
contained in our debt agreements, we may incur significant additional
indebtedness to finance future acquisitions, which could adversely affect our
operating cash flows and our ability to service indebtedness. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Restrictive Covenants
The indenture governing the notes contains various covenants
that limit our ability to engage in certain transactions. These covenants
limit our and certain of our subsidiaries' ability to:
o borrow and to place liens on assets
o pay dividends or make certain other restricted payments
o enter into certain transactions with affiliates; or
o merge or consolidate with any other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of the
assets of Insilco.
In addition, our new credit facility contains other and more
restrictive covenants and prohibits us from prepaying our other indebtedness
(including the notes). Our new credit facility also requires us to maintain
specified financial ratios and satisfy certain other financial condition
tests. Our ability to meet those financial ratios and tests can be affected by
events beyond our control, and there can be no assurance that we will meet
those tests. A breach of any of these covenants could result in a default
15
<PAGE>
under our new credit facility and/or the notes. Upon the occurrence of an event
of default under our new credit facility, the lenders could elect to declare
all amounts outstanding under our new credit facility to be immediately due
and payable and terminate all commitments to extend further credit. If we were
unable to repay those amounts, the lenders could proceed against the
collateral granted to them to secure that indebtedness. We have pledged
substantially all of our assets, other than assets of our foreign
subsidiaries, as security under our new credit facility. We cannot assure you
that, if the lenders under our new credit facility accelerate the repayment of
borrowings thereunder, we will have sufficient assets to repay our new credit
facility and our other indebtedness, including your notes. See "Description
of Certain Indebtedness--New Credit Facility."
Subordination
The notes rank junior to all of our existing and future senior
indebtedness, including all indebtedness under our new credit facility. In
addition, the note guarantee of each guarantor will rank junior to all of
senior indebtedness of such guarantor (including the guarantees of our bank
credit facility) to the same extent that the notes rank junior to senior
indebtedness of Insilco. As of September 30, 1998, on a pro forma basis,
Insilco and the guarantors would have had approximately $206.4 million of
senior indebtedness, substantially all of which would have been secured
borrowings.
As a result of such subordination, if:
(i) Insilco and the guarantors are insolvent or enter into a
bankruptcy or similar proceeding;
(ii) Insilco fails to make a payment when due on senior
indebtedness; or
(iii) any senior indebtedness is accelerated
then the holders of such senior indebtedness and any other creditors of
subsidiaries, if any, must be paid in full before the holders of the notes may
be paid. If we or the guarantors incur any additional debt that ranks equally
with the notes, the holders of such debt will be entitled to share ratably
with you in any proceeds distributed in connection with any insolvency,
liquidation, reorganization, dissolution or other winding-up of Insilco or the
guarantors. This may have the effect of reducing the amount of such proceeds
paid to you.
In addition, we cannot make any cash payments to you if we have
failed to make payments to holders of senior indebtedness. Under certain
circumstances, we cannot make any payments to you for a period of up to 179
days if we have defaulted (other than failures to make payments) on our senior
indebtedness covenants.
Certain of our subsidiaries have not guaranteed the notes. As
a result, the notes are not debt of such subsidiaries, and holders of
indebtedness and other liabilities will effectively be senior to your claims
against such subsidiaries. As of September 30, 1998, on a pro forma basis,
these subsidiaries would have had $457.3 million of outstanding liabilities,
including trade payables. See "Description of Notes--Subordination."
Holding Company Structure
We conduct all of our operations through subsidiaries, and our
ability to meet our debt service obligations is dependent upon the receipt of
dividends from our direct and indirect subsidiaries.
o Subject to the provisions of the indenture, future borrowings by our
subsidiaries may contain restrictions or prohibitions on the payment of
dividends by such subsidiaries to Insilco. See "Description of
Notes--Certain Covenants."
o Under applicable state law, our subsidiaries may be limited in amounts
that they are permitted to pay as dividends on their capital stock.
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<PAGE>
Possible Inability to Repurchase Notes upon Change of Control
Upon the occurrence of certain change of control events, you
may require us to purchase your notes at 101% of their principal amount, plus
accrued interest. Please note that the terms of our new credit facility limit
our ability to purchase your notes in such circumstances. Any of our future
debt agreements may contain similar restrictions and provisions. Accordingly,
we may not be able to satisfy our obligations to purchase your notes unless we
are able to refinance or obtain waivers with respect to our existing bank
credit facility and certain other indebtedness. We cannot assure that we will
have the financial resources to purchase your notes, particularly if such
change of control event triggers a similar repurchase requirement for, or
results in the acceleration of, other indebtedness. Our new credit facility
currently provides that certain change of control events will constitute a
default and could result in the acceleration of our indebtedness under the new
credit facility.
Customer Concentration; Absence of Long-Term Contracts
A significant portion of our sales are made to a relatively
small group of major customers. In 1997, sales to Ford represented
approximately 10% of our net sales and sales to a group of our nine next
largest customers represented approximately 22% of net sales.
Our reliance on these major customers exposes us to
o the risk of changes in the business condition of our major customers and
o the risk that the loss of a major customer could adversely affect
Insilco's results of operations.
While we have supplied Ford for 40 years, Ford is not
contractually bound to purchase supplies from us in the future. Thus, our
relationship with Ford is subject to termination at any time. If we were to
lose Ford as a customer, our results of operations would be adversely affected.
Cyclical Markets
A substantial portion of our revenues derive from sales to
markets that have been historically, and are likely to continue to be,
cyclical. For example, our Automotive Components Group, which accounted for
approximately 44% of Insilco's net sales and 45% of operating income for the
year ended December 31, 1997, primarily serves the automobile OEM market and
the automobile parts aftermarket through the manufacture of automotive heat
exchangers and related tubing, and automatic transmission and suspension
components. (For the year ended December 31, 1997, however, approximately 16%
and 27% of the Automotive Components Group's net sales were attributable to the
automotive aftermarket and non-automotive OEMs, respectively.) The automobile
industry has experienced recessionary or slow growth conditions for
substantial periods in the past and may experience recessionary conditions in
the future. Any substantial weakening of the automobile industry would have an
adverse effect on our results of operations.
Seasonality; Production Disruption
In certain of our businesses in which there is high customer
concentration or high production seasonality, we would be exposed to
potentially significant revenue losses if we (or our customers) were to
experience substantial disruption in production. With the continued emphasis
on reductions in component inventories and "just-in-time" deliveries,
especially in the automotive industry, any disruption in our production or by
our major customers, through work stoppages or otherwise, could have an
immediate and adverse effect on our results of operations.
Additionally, a portion of our revenues and operating income
are exposed to the seasonality of the yearbook production cycle. A majority of
the annual revenues of Taylor are recognized in our second quarter. Any
disruption during the peak production period (April to June) through work
stoppages, loss of production facilities or otherwise, has caused and could in
17
<PAGE>
the future cause lost revenues or delay revenue recognition in the year in
which it occurred or increase expenses and adversely affect future years'
contract renewals.
Competition
The businesses in which we are engaged are highly competitive
and in some cases highly fragmented, with many small manufacturers. In some of
our businesses, especially the data grade connector business and the heat
exchanger business, we compete with entities having significantly more
resources. In certain other businesses we compete with entities that have a
greater share of the relevant market and lower costs. As competition
increases, profit margins on some of our significant business lines could
decrease, and in the more fragmented markets consolidation could occur,
resulting in the creation of larger and financially stronger competitors.
We believe that, to remain competitive and maintain or increase
profitability, we must pursue a strategy focusing on growth and product
innovation. However, our competitors can be expected to continue to seek their
own growth, to improve the design and performance of their products, to reduce
costs of existing competitive products and to introduce new products with
competitive price and performance characteristics. Although we believe that,
with respect to most of our businesses, we have certain technological,
manufacturing and other advantages over our competitors, maintaining these
advantages will require continued investment in research and development,
sales and marketing, productivity improvements and information systems. We
cannot assure you that we will have sufficient resources to continue to make
such investments, that such investments will be successful or that we will be
able to maintain our existing competitive advantages.
Technology and the Development of New Products
The markets for many of our products, particularly the data
grade connector products, are characterized by technological change, evolving
industry standards, product customization and frequent new product
introductions, which may render existing or proposed products noncompetitive
or obsolete.
Many of our products require significant planning, design,
development and testing at the technological, product and manufacturing
process levels. Moreover, many of our customers use our products and
proprietary technologies as components of other products which they
manufacture or assemble, which may become uncompetitive or obsolete.
Although we work closely with our customers to stay informed
with respect to product development, we cannot assure you that any of the
products we are currently developing or those to be developed in the future,
will be completed in any particular time frame or that our or our customers'
products or proprietary technologies will not become uncompetitive or obsolete.
Acquisition Growth Strategy; Management and Funding of Growth
We have historically pursued an acquisition strategy and
recently completed an acquisition of a precision stamping company that
specializes in "deep drawn" components for the electronics, automotive and
consumer markets. We are currently in negotiations with respect to another
potential acquisition as part of our ongoing strategy to promote growth. See
"Summary--Recent Developments." There are various risks associated with
pursuing a growth strategy of this nature.
o Any future growth will require us to manage our expanding domestic and
international operations, integrate new businesses and adapt our
operational and financial systems to respond to changes in our business
environment, while maintaining a competitive cost structure.
o The acquisition strategy will continue to place demands on our
management to improve our operational, financial and management
information systems, to develop further the management skills of our
managers and supervisors, and to continue to retain, train, motivate and
effectively manage our employees.
18
<PAGE>
Our failure to manage growth effectively could have a material adverse effect
on us. We also cannot assure you that suitable acquisition candidates will be
available or that acquisitions can be completed on reasonable terms.
Additionally, our ability to maintain and increase our revenue
base and to respond to shifts in customer demand and changes in industry
trends will be partially dependent on our ability to generate sufficient cash
flow or obtain sufficient capital for the purpose of, among other things,
financing acquisitions, satisfying customer contractual requirements and
financing infrastructure growth. We cannot assure you that we will be able to
generate sufficient cash flow or that financing will be available on
acceptable terms (or permitted to be incurred under the terms of our new
credit facility, the indenture and any future indebtedness) to fund our future
growth.
Environmental Matters
Our operations are subject to federal, state, local and foreign
laws and regulations relating to the storage, handling, generation, treatment,
emission, release, discharge and disposal of certain substances and wastes. As
a result, we are involved from time to time in administrative or legal
proceedings relating to environmental matters and have incurred in the past
and will continue to incur capital costs and other expenditures relating to
environmental matters.
Certain properties now or previously owned by us are undergoing
remediation. Liability under environmental laws may be imposed on current and
prior owners of property or businesses without regard to fault or to knowledge
about the condition or action causing the liability. As an owner and operator
of those properties, we may be required to incur costs relating to the
remediation, and environmental conditions could lead to claims for personal
injury, property damage or damages to natural resources.
We have also in the past and may in the future be named a
potentially responsible party ("PRP") at off-site third-party disposal sites
to which our businesses have sent waste.
We believe, based on current information, that any costs we may
incur relating to environmental matters will not have a material adverse
effect on our business, financial condition or result of operations. We cannot
assure you, however, that we will not incur significant fines, penalties or
other liabilities associated with noncompliance or clean-up liabilities or
that future events, such as changes in laws or the interpretation thereof, the
development of new facts or the failure of other PRPs to pay their share, will
not cause us to incur additional costs that could have a material adverse
effect on our business, financial condition or results of operations. See
"Business--Environmental Regulation and Proceedings."
Dependence on Key Personnel
Our success depends to a significant extent upon the services
of our senior management and other management in our various businesses. We
could be adversely affected if any of these persons were unwilling or unable
to continue in our employ.
Risks Associated with Foreign Operations; Exchange Rate Fluctuations
Our products are manufactured and assembled at facilities in
the United States, the Dominican Republic, Germany, Ireland, the United
Kingdom and Mexico and sold in many foreign countries. In 1997, less than 9%
of our net sales and costs of goods sold occurred outside the United States
and Canada. International manufacturing and sales are subject to inherent
risks, including changes in local economic or political conditions, the
impositions of currency exchange restrictions, unexpected changes in
regulatory environments, potentially adverse tax consequences and exchange
rate risk. We cannot assure you that these factors will not have a material
adverse impact on our production capabilities or otherwise adversely affect
our business and operating results.
19
<PAGE>
Control by Principal Shareholders
We are wholly owned by Holdings, and approximately 69.0% of the
outstanding shares of Holdings' common stock is held by the DLJMB Funds. As a
result of their stock ownership, the DLJMB Funds control us and (subject to
any agreement they may have with CVC as described in "Description of Capital
Stock--Other Stockholder Arrangements") have the power to elect all of our
directors, appoint new management and approve any action requiring the
approval of the holders of common stock, including adopting amendments to the
certificate of incorporation and approving acquisitions or sales of all or
substantially all of our assets.
The general partners of each of the DLJMB Funds are affiliates
or employees of Donaldson, Lufkin & Jenrette, Inc. ("DLJ, Inc."). DLJ Capital
Funding, Inc., which is an agent and lender under our new credit facility, and
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJSC"), which was the
initial purchaser of the Old Notes, are also affiliates of DLJ, Inc.
Circumstances may occur in which the interests of such
principal shareholders could be in conflict with your interests. In addition,
such shareholders may have an interest in pursuing transactions that, in their
judgment, enhance the value of their equity investment in Insilco, even though
such transactions may involve risks to the holders of the notes.
Fraudulent Transfer Statutes
Federal or state fraudulent transfer laws permit a court, if it makes
certain findings, to
o avoid all or a portion of Insilco's obligations to you;
o subordinate Insilco's obligations to you to other existing and future
indebtedness of Insilco, entitling other creditors to be paid in full
before any payment is made on the notes; and
o take other action detrimental to you, including, in certain
circumstances, invalidating the notes.
In that event, there would be no assurance that you would ever be repaid.
Under federal and state fraudulent transfer laws, in order to
take any of the actions described above, courts will typically need to find
that, at the time the notes were issued, we:
(i) issued the notes with the intent of hindering, delaying or
defrauding current or future creditors; or
(ii) received less than fair consideration or reasonably equivalent
value for incurring the indebtedness represented by the notes and
(1) were insolvent or were rendered insolvent by reason of the
issuance of the notes,
(2) were engaged, or about to engage, in a business or transaction
for which our assets were unreasonably small; or
(3) intended to incur, or believed (or should have believed) we would
incur, debts beyond our ability to pay as such debts mature (as all
of the foregoing terms are defined in or interpreted under such
fraudulent transfer statutes),
Different jurisdictions define "insolvency" differently.
However, we generally would be considered insolvent at the time we incurred
the indebtedness constituting the notes if (i) the fair market value (or fair
saleable value) of our assets is less than the amount required to pay our
total existing debts and liabilities (including the probable liability on
contingent liabilities) as they become absolute or matured or (ii) we were
incurring debts beyond our ability to pay as such debts mature. We cannot
20
<PAGE>
assure you as to what standard a court would apply in order to determine
whether Insilco was "insolvent" as of the date the notes were issued, and we
cannot assure you that, regardless of the method of valuation, a court would
not determine that Insilco was insolvent on that date. Nor can we assure you
that a court would not determine, regardless of whether Insilco was insolvent
on the date the notes were issued, that the payments constituted fraudulent
transfers on another ground.
Our obligations under the notes are guaranteed by certain of
our subsidiaries, and the guarantees also may be subject to review under
various laws for the protection of creditors, including federal and state
fraudulent conveyance and fraudulent transfer laws. In such a case, the
analysis set forth above would generally apply.
In addition, creditors could also claim that, since the
guarantees were incurred for the benefit of Insilco (and only indirectly for
the benefit of the guarantors), the obligations of the guarantors thereunder
were incurred for less than reasonably equivalent value or fair consideration.
Courts could take actions similar to those outlined above. Please note that,
in an attempt to limit the applicability of fraudulent transfer laws, the
indenture limits the amount of each guarantee to the amount that will result
in it not constituting a fraudulent conveyance or improper corporate
distribution, and we cannot assure you as to what standard a court would apply
in making a determination as to what would be the maximum liability of each
guarantor.
Lack of Public Market
The New Notes are being offered to holders of the Old Notes,
which were issued on November 9, 1998 to a limited number of investors. There
is currently no active trading market for the notes, and it is not possible to
predict how the notes will trade in the secondary market or whether such
market will be liquid or illiquid. If a trading market does develop, the
notes may trade at a discount from their initial offering price, depending
upon prevailing interest rates, the market for similar securities and other
factors, including economic conditions and the financial condition, and the
performance of, and prospects for, Insilco. The liquidity of, and trading
markets for, the notes may also be adversely affected by declines in the
market for high yield securities generally. We do not intend to apply for
listing of the notes on any securities exchange or for quotation through
NASDAQ.
Year 2000
Many existing computer programs utilized globally use only two
digits to identify a year in the date field. These programs, if not
corrected, could fail or create erroneous results after the century date
changes on January 1, 2000 or when otherwise dealing with dates later than
December 31, 1999. We have implemented a comprehensive "Year 2000" compliance
program and believe that our internal systems are Year 2000 compliant or will
be upgraded or replaced in connection with previously planned changes to
information systems prior to the need to comply with Year 2000 requirements.
The costs incurred to implement our Year 2000 compliance
program have been immaterial to date and we presently expect to incur less
than $1.0 million of costs in total.
However, we are uncertain as to the extent our customers and
vendors may be affected by Year 2000 issues that require commitment of
significant resources and may cause disruptions in the customers' and vendors'
businesses Moreover, Year 2000 issues present a number of risks that are
beyond our reasonable control, such as:
o the failure of utility companies to deliver electricity,
o the failure of telecommunications companies to provide voice and data
services,
o the failure of financial institutions to process transactions and
transfer funds,
o the failure of vendors to deliver materials or perform services required
by us and
21
<PAGE>
o the collateral effects on us of the effects of Year 2000 issues on the
economy in general or on our customers in particular.
Although we believe that our Year 2000 compliance program is
designed to appropriately identify and address those Year 2000 issues that are
subject to our reasonable control, there can be no assurance that our efforts
in this regard will be fully effective or that Year 2000 issues will not have
a material adverse effect on our business, financial condition or results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources--Year 2000
Compliance."
22
<PAGE>
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the
New Notes offered hereby. New Notes will be exchanged for Old Notes as
described in this prospectus on our receipt of Old Notes in like principal
amount. The Old Notes surrendered in exchange for the New Notes will be
retired and canceled. Accordingly, the issuance of the New Notes will not
result in any change in the indebtedness of the Company.
The net proceeds to us from the sale of the Old Notes together
with the warrants was approximately $116 million (after deduction of
underwriting discounts and commissions and other expenses of the offering).
Such net proceeds, together with borrowings under our new credit facility,
were used to repurchase the 10 1/4% notes.
23
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated
capitalization of Insilco as of September 30, 1998 (i) on an actual basis, and
(ii) as adjusted to give effect to the offering of the Old Notes, the related
borrowings under the new credit facility and the purchase of all $150 million
aggregate principal amount of the 10 1/4% notes at 101% of the principal
amount thereof. This table should be read in conjunction with the Consolidated
Financial Statements, including the notes thereto, the unaudited pro forma
condensed consolidated financial statements and notes thereto, included in
"Unaudited Pro Forma Condensed Consolidated Financial Statements,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
As of September 30, 1998
(in millions)
---------------------------
Pro Forma
---------------------------
Actual As Adjusted
------ -----------
<S> <C> <C>
Cash and cash equivalents.................... $ 4.7 $ 4.7
====== ======
Long-term debt:
Revolving Credit Facility.............. $164.3 $ 81.2
Term Loan.............................. -- 125.0
10 1/4% Senior Subordinated Notes..... 150.0 --
12% Senior Subordinated Notes.......... -- 120.0
Other debt obligations................. 0.2 0.2
------ ------
Total long-term debt (including
current portion) .................... 314.5 326.4
------ ------
Stockholders' deficit.................. (130.2) (136.1)
------ ------
Total capitalization................... $184.3 $190.3
====== ======
</TABLE>
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial data presented
below as of and for each of the years in the four year period ended December
31, 1997 are derived from our Consolidated Financial Statements and
accompanying notes included elsewhere herein, which have been audited by KPMG
LLP, independent certified public accountants. The information in this table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements. The selected historical consolidated financial data as of and for
the nine months ended September 30, 1997 and 1998 are unaudited; however, in
management's opinion, they include all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation of results for such
interim periods. Interim results are not necessarily indicative of results for
the full year.
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
---------------------------------------------- ------------------------
1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Operations Data:
Net sales.............................. $ 438.4 $ 449.5 $ 492.4 $ 528.2 $ 407.6 $ 422.4
Operating income(1).................... 9.5 38.9 48.4 51.1 39.8 12.3
Other income (expense):................
Interest expense....................... (29.1) (19.5) (18.3) (20.5) (13.4) (20.6)
Interest income........................ 1.8 1.4 0.7 2.8 2.8 0.1
Other income, net(2)................... 3.2 13.9 7.7 3.4 2.3 4.6
-------- -------- -------- -------- -------- --------
Income (loss) from continuing operations
before income taxes and extraordinary
item.................................. (14.6) 34.7 38.5 36.8 31.5 (3.6)
Income tax expense..................... (5.7) (16.7) (13.3) (13.4) (11.6) (1.2)
-------- -------- -------- -------- -------- --------
Income (loss) from continuing operations
before extraordinary item............. (20.3) 18.0 25.2 23.4 19.9 (4.8)
Income (loss) from discontinued operations,
net of tax(3)............................ (9.7) (15.4) 13.8 58.9 58.9 --
-------- -------- -------- -------- -------- --------
Income (loss) before extraordinary item (30.0) 2.6 39.0 82.3 78.8 (4.8)
Extraordinary item, net of tax......... (2.1) -- -- (0.7) -- --
-------- -------- -------- -------- -------- --------
Net income (loss)...................... $ (32.1) $ 2.6 $ 39.0 $ 81.6 $ 78.8 $ (4.8)
======== ======== ======== ======== ======== ========
Balance Sheet Data (at period end):
Working capital........................ $ 33.9 $ 44.9 $ 51.4 $ 39.5 $ 39.5 $ 78.6
Total assets........................... 368.7 340.1 348.4 302.7 302.7 319.0
Long-term debt......................... 198.1 186.5 161.0 257.7 257.7 314.5
Stockholders' equity (deficit)......... (13.5) (15.8) 33.4 (102.3) (102.3) (130.2)
Ratio Data:
Ratio of Earnings to Fixed Charges.......... 0.50x 2.63x 2.91x 2.64x 3.12x 0.83x
</TABLE>
- ----------
(1) Operating income in 1994 and 1995 includes the deduction for the
amortization of Reorganization Goodwill of $34.8 million and $16.2 million,
respectively, due to the adoption of "fresh start" accounting principles.
See Note 1 to the Consolidated Financial Statements appearing elsewhere
herein. Operating income in 1995 includes a gain of $4.3 million related to
a change in our pension plan (see Note 12 to the Consolidated Financial
Statements appearing elsewhere herein).
(2) Other income, net in 1995 includes favorable adjustments of $3.6 million
related to our environmental liabilities and $1.5 million related to the
resolution of several legal disputes and a $4 million gain on the sale of
idle corporate assets. Other income, net in 1996 includes a $2.2 million
favorable adjustment related to the satisfaction of certain of our
environmental liabilities following completion of a site clean-up for an
amount less than previously estimated.
(3) In March 1997, we completed the sale of its Office Products Business with
the divestiture of the Rolodex Business for $112.6 million, net of
transaction costs, resulting in a gain of $57.8 million, net of taxes of
$37.2 million. The divestiture of the Rolodex Business was preceded in 1996
by the divestiture of Rolodex Electronics and Curtis. The proceeds from
these sales aggregated $21.8 million (see Note 20 to the Consolidated
Financial Statements for unaudited pro forma financial information with
respect to these divestitures).
In July 1998, we amended our Form 10-K to account for the sale of the Office
Products Business as a discontinued operation and, accordingly, the
consolidated statements of operations and cash flows for the periods prior
to the sale have been reclassified. Revenues associated with the
25
<PAGE>
discontinued Office Products Business for the years 1994, 1995, 1996 and
1997 were $105.2 million, $111.7 million, $80.1 million and $10.8 million,
respectively.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE COMPANY
Overview
We are a diversified manufacturer of automotive components and
telecommunications and electronics components and a publisher of specialty
publishing products, chiefly student yearbooks. We have three reporting
segments (the Automotive Components Group, the Technologies Group, and
Specialty Publishing), and conduct our business in eight separate operating
units, including both divisions and subsidiaries. Insilco's Specialty
Publishing segment, formerly our Office Products/Specialty Publishing segment,
was renamed following the divestiture of the Rolodex Business in March 1997.
The Automotive Components Group is comprised of businesses that
produce radiators and other heat exchanger components, equipment and systems
used in the production of heat exchangers, heavy gauged stamped automotive
parts (principally, transmission clutch plates) and welded stainless steel
tubing, and a 50% owned joint venture, Thermalex, which produces precision
extruded aluminum tubing. The Automotive Components Group serves both original
equipment manufacturers and aftermarket customers in the automotive, specialty
vehicle, truck and off-road vehicle and industrial equipment markets and also
serves the marine and architectural markets with decorative stainless steel
tubing.
The Technologies Group manufactures high-performance data
transmission connectors, small electric power transformers, precision
stampings and wire and cable assemblies. The Technologies Group serves the
computer networking, telephone digital switching, data processing, automotive,
medical equipment and other markets.
Specialty Publishing consists of Taylor, a publisher of student
yearbooks. Taylor is highly seasonal, with the majority of sales occurring in
the second and third quarters of each year.
During the period from 1996 through the end of 1998, we
completed a number of major transactions affecting the Company's ongoing
operations and debt and capital structure. A summary of these transactions
follows:
o Acquisitions: In 1996, we acquired Great Lake, Inc. ("Great Lake") which
serves the automotive, heavy truck and industrial manufacturing radiator
replacement market, and the automotive aluminum tube business of Helmut
Lingemann GmbH & Co. (the "Lingemann Business"). These acquisitions have
been accounted for as purchases and, accordingly, the purchase prices
have been allocated to the assets and liabilities acquired based on
their fair values at the acquisition dates. The operating results of the
businesses acquired have been included for the periods subsequent to the
acquisition date.
o Divestitures: The Office Products Business of our Office
Products/Specialty Publishing Group was divested in three separate
transactions during 1996 and the first quarter of 1997. The 1996
transactions included the divestitures of Curtis and Rolodex Electronics
for $21.8 million in the aggregate which was used to reduce the
outstanding amounts on our bank loans. On March 5, 1997, we sold the
remainder of the Office Products Business, which consisted of the
Rolodex Business, for net cash proceeds of approximately $112 million
(the "Rolodex Proceeds"). As a result of the sale of the Rolodex
Business, the Office Products Business has been accounted for as a
discontinued operation. See "--Discontinued Operations."
o Issuance of Subordinated Debt: On August 12, 1997, we issued $150
million aggregate principal amount of the 10 1/4% notes, realizing
therefrom net proceeds of $145.9 million.
27
<PAGE>
o Share Repurchase: In the third quarter of 1997, using the Rolodex
Proceeds and the proceeds received on the issuance of the 10 1/4%
notes, we repurchased $220 million shares of Insilco common stock.
o The Mergers: On August 17, 1998, a series of transactions involving
Insilco was completed. These transactions included, among other things,
the formation by Holdings (then a wholly owned subsidiary of Insilco) of
a wholly owned subsidiary ("ReorgSub"), followed by the merger of
ReorgSub with and into Insilco (the "Reorganization Merger"), pursuant
to which each of our stockholders had his or her shares of Insilco
converted into the same number of shares of Holdings and the right to
receive $0.01 per share in cash, and Holdings became the parent of
Insilco.
o Promptly following the Reorganization Merger, a second merger took place
pursuant to which Silkworm Acquisition Corporation ("Silkworm"), an
affiliate DLJMB, merged with and into Holdings (the "Merger," and
together with the Reorganization Merger, the "Mergers") and each share
of Holdings Common Stock was converted into the right to receive $43.47
in cash and 0.03378 of a share of Holdings Common Stock. Thus, as a
result of the Mergers, each stockholder of Insilco, in respect of each
of his or her shares, received $43.48 in cash and retained 0.03378 of a
share of Holdings Common Stock. Concurrently with the consummation of
the Mergers, the DLJMB Funds purchased 1,400,000 shares of Holdings 15%
Senior Exchangeable Preferred Stock due 2012 (the "PIK Preferred
Stock"), and warrants to purchase 65,603 shares of Holdings Common Stock
at an exercise price of $0.01 per share.
o Following the Mergers, (i) our existing stockholders retained, in the
aggregate, approximately 10.1% (9.4% on a fully diluted basis) of the
outstanding shares of Holdings Common Stock; (ii) the DLJMB Funds held
approximately 69.0% (69.8% on a fully diluted basis) of the outstanding
shares of Holdings Common Stock; (iii) 399 Venture Partners Inc., an
affiliate of Citibank, N.A. ("CVC"), purchased shares of Silkworm which
in the Merger were converted into approximately 19.3% (17.8% on a fully
diluted basis) of the outstanding shares of Holdings Common Stock; and
(iv) our management purchased approximately 1.7% (1.5% on a fully
diluted basis) of the outstanding shares of Holdings Common Stock.
o Immediately prior to the effectiveness of the Reorganization Merger,
each outstanding option to acquire shares of the common stock of Insilco
granted to employees and directors, whether or not vested (the
"Options") was canceled and in lieu thereof, each holder of an Option
received a cash payment in an amount equal to (x) the excess, if any, of
$45.00 over the exercise price of the Option multiplied by (y) the number
of shares subject to the Option, less applicable withholding taxes (the
"Option Cash Payments"). Certain holders of such Options elected to
utilize amounts otherwise receivable by them to purchase equity or equity
units of Holdings.
o The Merger Financing: The total amount of cash required to consummate
the foregoing transactions was approximately $204.4 million. This
amount was financed with (i) gross proceeds of approximately $70.2
million from the issuance by Silkworm of units (which were converted
into units of Holdings (the "Holdings Units") in the Merger), each unit
consisting of $1,000 principal amount of 14% Senior Discount Notes due
2008 (the "Holdings Senior Discount Notes") and one warrant to purchase
0.325 of a share of Holdings Common Stock at an exercise price of $0.01
per share, (ii) the issuance by Silkworm to the DLJMB Funds, CVC and
certain members of management of Insilco, for an aggregate consideration
of approximately $56.1 million, of 1,245,138 shares of Silkworm common
stock (which was converted into Holdings Common Stock in the Merger),
(iii) the issuance by Holdings to the DLJMB Funds, for an aggregate
consideration of $35.0 million, of 1,400,000 shares of the PIK Preferred
Stock by Holdings and the DLJMB Warrants to purchase 65,603 shares of
Holdings Common Stock at an exercise price of $0.01 per share, and (iv)
approximately $43.1 million of new borrowings under Insilco's then
existing $200 million credit facility.
o Post Merger Financing: The "change in control" of Insilco resulting from
the Mergers required Insilco to make an offer to repurchase the 10 1/4%
notes. To finance this repurchase and also to obtain an expanded line
of credit for acquisitions, the Company: (i) issued the Old Notes
28
<PAGE>
realizing therefrom net proceeds of approximately $116 million; and (ii)
entered into a new credit facility that includes a $125 million term loan
facility and a $175 million revolving credit facility.
The discussion that follows of the financial condition and
results of operations includes the effect of the transactions discussed above
in the respective periods in which they were recorded. As a result, the
comparability of the results is significantly impacted. Pro forma results of
operations, assuming all these transactions occurred at the beginning of the
respective periods, are presented in Note 20 to the Consolidated Financial
Statements.
"The Fresh Start" Accounting
On March 31, 1993, we adopted the "fresh start" accounting
principles prescribed by the Statement of Position 90-7, "Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code" (the "Reorganization
SOP"), issued by the American Institute of Certified Public Accountants. The
"fresh start" accounting principles required Insilco to value its assets and
liabilities at fair values and eliminate its accumulated deficit.
"Fresh start" accounting was required because on April 1, 1993,
Insilco and certain of its subsidiaries emerged from Chapter 11 of the United
States Bankruptcy Code (the "Chapter 11 cases") pursuant to a plan of
reorganization (the "Plan of Reorganization"). For financial reporting
purposes, the effective date of the Plan of Reorganization was March 31, 1993
(the "Plan Effective Date"). We sometime refer to Insilco for periods prior to
the Plan Effective Date as the "Predecessor". The Chapter 11 cases were
commenced on January 13, 1991 (the "Petition Date").
One effect of "fresh start" accounting on the financial
statements was the negative impact on the reported operating income of each
business segment and the consolidated net income resulting from the noncash
amortization of the Reorganization Goodwill. Such amortization expense totaled
$16.2 million (exclusive of amortization expense related to discontinued
operations) in 1995. At December 31, 1995, Reorganization Goodwill was fully
amortized.
Discontinued Operations
On March 5, 1997, we completed the sale of our Office Products
Business within the Office Products/Specialty Publishing Group with the
divestiture of the Rolodex Business for $112.6 million, net of transaction
costs. The divestiture of the Rolodex Business was preceded in 1996 by the
divestiture of Rolodex Electronics and Curtis for aggregate proceeds of $21.8
million. The Office Products Business segment has been accounted for as a
discontinued operation and, accordingly, the consolidated statements of
operations and cash flows for the periods prior to the sale have been
reclassified.
Merger Costs
We incurred $21.5 million in expenses in completing the
Mergers. These expenses consisted primarily of financing fees, professional
fees, compensation costs, registration fees and other expenses. We (i)
recorded $1.3 million of such expenses in the quarter ended June 30, 1998,
(ii) recorded a one-time pretax charge of approximately $19.6 million in the
quarter ended September 30, 1998 and (iii) will amortize all of the remaining
capitalized costs in future periods. As a result, Insilco has recorded a
significant net loss in the quarter ended September 30, 1998.
29
<PAGE>
Results Of Operations
Summarized sales and operating income (loss) by business
segment for the years ended December 31, 1995, 1996 and 1997, and the nine
months ended September 30, 1997 and 1998 are set forth in the following table
and discussed below:
<TABLE>
<CAPTION>
Nine Months Ended September
Year Ended December 31, 30,
-------------------------------------- ----------------------------
1995 1996 1997 1997 1998
--------- --------- -------- -------- ---------
(in millions)
<S> <C> <C> <C> <C> <C>
Sales
Automotive Components Group..... $ 180.3 $ 209.7 $ 231.1 $ 171.9 $ 185.7
Technologies Group.............. 170.6 183.7 198.9 148.1 144.8
Specialty Publishing............ 98.6 99.0 98.2 87.6 91.9
-------- -------- -------- -------- --------
Consolidated sales.............. $ 449.5 $ 492.4 $ 528.2 $ 407.6 $ 422.4
======== ======== ======== ======== ========
Operating Income (Loss)(1)(2)
Automotive Components Group..... $ 20.4 $ 23.9 $ 23.1 $ 17.2 $ 15.8
Technologies Group.............. 20.3 24.5 23.0 17.3 14.2
Specialty Publishing............ (0.7) 1.6 5.3 5.6 3.2
Unallocated corporate costs........... (1.1) (1.6) (0.3) (0.3) --
Unallocated corporate merger expenses. -- -- -- -- (20.9)
-------- -------- -------- -------- --------
Consolidated operating income......... $ 38.9 $ 48.4 $ 51.1 $ 39.8 $ 12.3
======== ======== ======== ======== ========
</TABLE>
- ----------
(1) Segment operating income (loss) reflects the allocation of corporate
overhead. In 1995 corporate overhead was reduced by a $4 million gain
relating to a change in Insilco's pension plan (See Note 12 to the
Consolidated Financial Statements). The allocation of corporate overhead
follows:
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------------------ ------------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C> <C>
Automotive Components Group...... $ 1.3 $ 3.0 $ 3.5 $ 2.8 $ 3.0
Technologies Group............... 1.4 3.1 3.7 2.9 3.2
Specialty Publishing............. 0.9 2.0 1.8 1.6 2.2
------ ------ ------ ------ ------
$ 3.6 $ 8.1 $ 9.0 $ 7.3 $ 8.4
====== ====== ====== ====== ======
</TABLE>
- ----------
(2) 1995 segment operating income (loss) includes a deduction
of $16.2 million for the amortization of Reorganization Goodwill.
Nine months ended September 30, 1998 compared to Nine months ended September
30, 1997
Sales
Total net sales from continuing operations of $135.1 million
for the third quarter of 1998 were up 3% or $3.7 million over the
corresponding period in 1997, due to increased sales of automotive tubing at
the Automotive Components Group and increased sales at Taylor Publishing, due
to the timing of yearbook shipments. These sales increases were partially
offset by a decline in the Technologies Group caused by the continued weakness
in the electronics market. In the first nine months of 1998, net sales from
continuing operations of $422.4 million increased 4% or $14.8 million from
1997 primarily due to increased sales at the Automotive Components Group of
automotive tubing and industrial and off-road radiators, and, to a lesser
degree, increased sales at Specialty Publishing related to the timing of
yearbook shipments, partially offset by a decline at the Technologies Group.
30
<PAGE>
The Automotive Components Group's sales increased 11% or $6.3
million and 8% or $13.8 million in the third quarter and first nine months of
1998, respectively, compared to the corresponding periods of 1997, due to
increased automotive tubing sales in both the quarter and year-to-date
periods. In addition, sales for the first nine months of 1998 improved over
the prior year due to increased sales of radiators to OEMs serving the
off-road and industrial equipment markets. These increases were partially
offset by a significant decline in sales at Insilco's heat exchanger capital
equipment manufacturing division, McKenica, which continues to experience a
substantial decline in order backlog. Sales of transmission and other stamped
automotive parts at Steel Parts, and of stainless steel tubing for
non-automotive applications, were both up slightly in the third quarter of
1998 and were relatively flat on a year-to-date basis.
The Technologies Group's sales decreased 9% or $4.4 million in
the third quarter of 1998 compared to the corresponding period in 1997 due to
declines at Escod and Signal Transformer primarily due to the weakness in the
electronics market which continued in the third quarter. These declines were
partially offset by increased sales of Stewart Connector's modular data
interconnect products due to increased demand from a major telecommunications
customer. Sales in the Technologies Group decreased 2% or $3.3 million in the
first nine months of 1998 compared to the corresponding period in 1997 due to
the weak demand in the electronics market in the second and third quarters of
1998. These sales decreases were partially offset by increased sales from
Stewart Stamping and increased sales of Stewart Connector's modular data
interconnect products.
Taylor Publishing's sales of $27.4 million and $91.9 million
for the third quarter and first nine months of 1998, respectively, increased
7% and 5% compared to the corresponding periods in 1997, primarily due to
timing of yearbook shipments.
Operating Income
In the third quarter of 1998, Insilco had an operating loss of
$11.7 million compared to operating income of $11.0 million in the prior year
period primarily due to $19.5 million of expenses related to the merger. In
addition, Insilco incurred $1.3 million of expenses related to management
severance, the consolidation of two facilities and a breach of contract
lawsuit filed by Insilco. Insilco experienced an operating loss at its
McKenica business unit, due to a lack of available order backlog, lower
operating margins at Signal and Escod, due to the weakness in the electronics
market, and lower margins at Stewart Connector, due to a less favorable mix of
products and price degradation on certain mature connector products.
For the first nine months of 1998, operating income decreased
to $12.3 million from $39.8 million in 1997, primarily due to $20.9 million of
expenses related to the merger, approximately $0.9 million in legal expenses
(compared to $0.2 million in 1997) associated with Taylor's antitrust lawsuit
against Jostens, and $2.2 million of expenses related to management severance,
the consolidation of two facilities and a breach of contract lawsuit filed by
Insilco. In addition, Insilco incurred increased costs, primarily higher
shipping costs, from production delays during its peak yearbook production
season at Taylor Publishing, and lower margins at Steel Parts primarily due to
increased costs incurred to improve future operational efficiency, an
operating loss at its McKenica business unit and lower operating margins at
Signal and Stewart Connector.
The Automotive Components Group's operating income in the third
quarter of 1998 compared to the corresponding period of 1997 decreased to $4.3
million from $4.6 million primarily due to an operating loss of $0.2 million
at its McKenica business unit, which represented a $0.6 million decline from
the third quarter of 1997 operating income. This decline was partially offset
by improved operating income results at Insilco's heat exchanger and
automotive tubing business. For the first nine months of 1998, the Automotive
Components Group's operating income, compared to the corresponding period of
1997, decreased to $15.8 million from $17.2 million. This decrease was due
to an operating loss of $0.5 million at its McKenica business unit, which
represented a $2.3 million decline from 1997, and increased costs at Steel
Parts incurred to improve future operational efficiency. These declines were
partially offset by improved operating results at the other operating units of
the Thermal Components Group.
31
<PAGE>
The Technologies Group's operating income decreased to $3.6
million in the third quarter of 1998, from $6.0 million in the same period of
1997, as the continued weakness in the electronics market caused significant
declines in operating income at Signal Transformer and Escod. Operating
income at Stewart Connector decreased from the prior year period due to a less
favorable sales mix of products and price degradation on certain mature
connector products. For the first nine months of 1998, the Technologies
Group's operating income, compared to the corresponding period of 1997,
decreased to $14.2 million from $17.3 million. Operating income was impacted
by the decreased sales of power transformers, wire and cable assemblies and
competitive pricing pressures in the connector market. Partially offsetting
these declines, operating income improved over the prior year at Stewart
Stamping.
Taylor Publishing had an operating loss of $0.1 million in the
third quarter of 1998, compared to operating income of $0.4 million in 1997,
primarily due to $0.3 million of severance expenses incurred in the third
quarter of 1998 and $0.1 million of legal expenses associated with Taylor's
antitrust lawsuit against Jostens. For the first nine months of 1998,
operating income decreased to $3.2 million from $5.6 million in the prior year
period primarily due to increased costs of labor and air freight following
production delays in the second quarter. In addition, Taylor incurred $0.9
million of legal expenses associated with Taylor's antitrust lawsuit against
Jostens in the first nine months of 1998 compared to $0.2 million in 1997.
Other Income (Expense)
Other income for the third quarters of 1998 and 1997 included
$0.7 million and $0.6 million, respectively, of equity income from Insilco's
unconsolidated joint venture, Thermalex, which manufactures extruded aluminum
tubing primarily for automotive air conditioning condensers. For the first
nine months of 1998, other income included $2.1 million of equity income from
Thermalex compared to $2.2 million in 1997. Interest expense increased $1.1
million and $7.1 million in the third quarter and first nine months of 1998,
respectively, from the corresponding 1997 periods due to the issuance of the
$150.0 million of the 10 1/4% notes completed in the third quarter of 1997.
Interest income decreased $0.7 million and $2.7 million in the third quarter
and first nine months of 1998, respectively, from the corresponding 1997
periods as a result of interest income earned on the proceeds from the sale of
the Rolodex Business in 1997.
"Other income, net", included in Other income (expense), for
the third quarter and first nine months of 1998 increased $0.3 million and
$2.2 million, respectively, from the corresponding periods of 1997. Other
income for the first nine months of 1998 included gains on the sale of idle
assets.
Income Tax Expense
Insilco incurred a net loss of $4.8 million primarily due to
$20.9 million of merger expenses incurred in the third quarter. The Company
did not receive the full tax benefit arising from these expenses because a
significant amount of these expenses are not deductible for Federal income tax
purposes. As a result of the tax treatment, Insilco had a 1998 third quarter
tax benefit at a 30% effective tax rate. As a result of the third quarter's
tax benefit, the Company's tax expense for the nine month period ending
September 30, 1998 was reduced to a 33% effective tax rate.
1997 Compared to 1996
Sales
Consolidated net sales from continuing operations of $528.2
million increased 7% ($35.8 million) in 1997 compared to 1996 net sales from
continuing operations of $492.4 million primarily due to a 10% ($21.4 million)
increase at the Automotive Components Group and an 8% ($15.2 million) increase
at the Technologies Group.
Sales in the Automotive Components Group segment were $231.1
million, an increase of 10% over 1996 sales of $209.7 million. The increased
sales were attributable to Thermal's increased sales of automotive heat
exchangers and related components from the July 1996 acquisition of the
Lingemann Business and higher sales of transmission and other stamped
automotive parts at Steel Parts. The Lingemann Business contributed $31.6
million of sales in 1997 compared to $13.1 million in 1996. Approximately 30%
32
<PAGE>
of Thermal's sales are to the automotive OEM market. Steel Parts achieved
sales growth over 1996 due to higher parts content per automobile, as
automobile manufacturers have moved from three-speed to four and five-speed
automatic transmissions. Steel Parts is primarily an OEM supplier of
transmission and other automotive components.
Sales in the Technologies Group were $198.9 million, an
increase of 8% over 1996 sales of $183.7 million. Sales of the wire and cable
assembly business, Escod, were up 19% over 1996 due to strong demand from one
of its major customers as well as continued expansion of its customer base.
Sales at Signal Transformer increased 9% over 1996 primarily due to higher
demand for internationally certified products from electronic OEMs. Sales of
precision stampings at the segment's Stewart Stamping unit increased 6% due to
new product introductions, as well as the continued strength of the
automotive, electrical control and circuit protection markets. Stewart
Connector, Insilco's manufacturer of high speed data transmission connectors
which serves the computer networking market, had a 1% decrease in sales from
the prior year principally as a result of price erosion of existing products
and delayed new product introduction. Foreign sales accounted for
approximately 41% and 40% of Stewart Connector's sales in 1997 and 1996,
respectively.
Sales at Taylor Publishing were $98.2 million, relatively flat
compared to prior year sales of $99.0 million.
Operating Income
Insilco's operating income from continuing operations of $51.1
million increased 6% ($2.7 million) in 1997 compared to 1996 primarily due to
higher operating income at Taylor Publishing caused by increased productivity
and a $1.5 million restructuring charge recorded in 1996.
The Automotive Components Group's operating income in 1997
compared to 1996 decreased to $23.1 million from $23.9 million. Lower
operating income from Thermal was partially offset by increased operating
income at Insilco's stainless steel tubing business and stamped steel parts
business. Thermal's operating performance was impacted by (i) decreased sales
at Insilco's heat exchanger equipment manufacturer which continues to
experience a substantial decline in order backlog; (ii) increased research and
development costs associated with the Group's new technical center; (iii)
additional expenses related to the integration of the Lingemann Business into
Insilco's operations; and (iv) soft aftermarket demand for automotive heat
exchangers.
The Technologies Group's operating income in 1997 compared to
1996 decreased to $23.0 million from $24.5 million primarily due to decreased
operating margins at Stewart Connector caused principally by competitive price
pressure in the connector market and delayed introductions of new connector
products. In addition, Insilco incurred additional start-up costs at its El
Paso stamping facility. These declines were partially offset by the improved
sales and operating margin at Escod.
In 1997, the operating income of the Specialty Publishing
business, Taylor Publishing, improved to $5.4 million from $1.7 million in
1996 due to improved operating margins from increased productivity and a $1.5
million restructuring charge incurred in 1996.
Other Income (Expense)
Interest expense increased approximately 12% or $2.2 million in
1997 compared to 1996 due to the refinancing completed in the third quarter of
1997. Interest income increased $2.1 million over 1996 due to interest income
earned on the proceeds from the sale of the Rolodex Business prior to the
share repurchase. Other income for 1996 included a favorable adjustment of
$2.2 million related to Insilco's environmental liabilities for 1996 following
completion of a site clean-up for an amount less than previously estimated.
Equity income from Insilco's unconsolidated joint venture,
Thermalex, was $2.6 million in 1997 compared to $2.9 million in 1996.
Thermalex incurred higher expenses in 1997 related to the start-up of a new
extrusion press and plant expansion.
35
<PAGE>
Income Tax Expense
Insilco's actual income tax obligations during 1997 ($10.5
million) and 1996 ($2.4 million) were substantially less than the total amount
of income taxes recognized ($47.9 million and $12.4 million, respectively)
because previously generated net operating losses and other deferred tax
assets were used to reduce the tax obligations. During 1996, additional
deferred tax assets of $10.7 million were recognized and recorded on the
balance sheet because it was concluded that it was more likely than not that
such amounts would be realized in future years. In accordance with the
Reorganization SOP, the tax benefits associated with the recognition of
pre-effective date deferred tax assets, ($10.2 million in 1996) were recorded
as an increase to additional paid-in capital.
Discontinued Operations
On March 5, 1997, Insilco completed the sale of its Office
Products Business within the Office Products/Specialty Publishing Group with
the sale of the Rolodex Business for $112.6 million, net of transactions
costs. The divestiture of the Rolodex Business was preceded in 1996 by the
divestiture of Rolodex Electronics and Curtis for aggregate sales proceeds of
$21.8 million.
As a result of the sale, the Office Products Business has been
accounted for as a discontinued operation and, accordingly the accompanying
consolidated statements of operations and cash flows for the periods prior to
the sale have been reclassified. Revenues associated with the discontinued
Office Products Business for the years 1997, 1996, and 1995 were $10.8
million, $80.1 million, and $111.7 million, respectively.
1996 Compared to 1995
Sales
Net sales from continuing operations in 1996 were $492.4
million, an increase of 10% over 1995 net sales from continuing operations of
$449.5 million primarily due to a 16% ($29.4 million) increase at the
Automotive Components Group and an 8% ($13.1 million) increase at the
Technologies Group.
Sales in the Automotive Components Group segment were $209.7
million, an increase of 16% over 1995 sales of $180.3 million. The increased
sales were attributable to $20.5 million of sales from the 1996 acquisitions
of the Lingemann automotive aluminum tube business and Great Lake, as well as
higher content per automobile of clutch plates in transmissions, and higher
sales of aluminum heat exchangers and related products and equipment
manufactured by the segment's Thermal unit. Approximately 29% of Thermal's
sales are to the automotive OEM market. Steel Parts achieved sales growth over
1995 due to higher parts content per automobile, as automobile manufacturers
have moved from three-speed to four and five-speed automatic transmissions.
Steel Parts is primarily an OEM supplier of transmission and other automotive
components. The increased sales at Thermal and Steel Parts were partially
offset by a decline from the prior year at Romac, Insilco's manufacturer of
stainless steel tubing sold principally in marine and distribution markets.
Sales in the Technologies Group were $183.7 million, an
increase of 8% over 1995 sales of $170.6 million. Sales of the wire and cable
assembly business, Escod, were up 23% over 1995, reflecting continued
expansion of its customer base and a rebound in orders from its largest
telecommunications customer. Stewart Connector, Insilco's manufacturer of high
speed data transmission connectors which serves the computer networking
market, had an 8% increase in sales over the prior year with 15% growth in the
fourth quarter of the year, primarily as a result of a new contract with a
major telecommunications customer for connector/cable assemblies. Foreign
sales accounted for approximately 40% and 43% of Stewart Connector's sales in
1996 and 1995, respectively. Sales at the segment's Signal Transformer unit
were flat compared to the prior year. Sales of precision stampings at the
segment's Stewart Stamping unit increased 5% due to the underlying strength of
the markets that it serves, including the housing construction and automotive
markets.
Sales at Taylor Publishing were $99.0 million, relatively flat
compared to prior year sales of $98.6 million.
34
<PAGE>
Operating Income
Operating income (loss) comparisons between 1996 and 1995 are
more difficult to present than the sales comparisons because of the effects of
"fresh start" accounting on the results of operations. Due to the effects of
"fresh start" accounting, Insilco's 1995 operating results were depressed by a
$16.2 million charge for the amortization of Reorganization Goodwill ($3.4
million, $7.2 million and $5.6 million of which were allocated to the
Automotive Components Group, Technologies Group and Specialty Publishing,
respectively). The consolidated reported operating income from continuing
operations in 1996 improved to $48.4 million from $38.9 million in 1995. (See
the table on page 32 regarding the comparability between the periods).
Excluding the effects of "fresh start" accounting, as described
above, the operating performance decreased $6.7 million or 12% due to higher
corporate overhead, decreased operating margins in the Technologies Group and
a $1.5 million restructuring charge recorded by Taylor Publishing. The higher
corporate overhead in 1996 is primarily due to a $4.3 million gain recorded in
1995 related to a change in Insilco's pension plan which temporarily reduced
corporate overhead. These items and other operational year-to-year changes are
discussed below in the analysis of each segment's operating income.
The Automotive Components Group's operating income in 1996
compared to 1995 increased to $23.9 million from $20.4 million. The results in
1995 were negatively impacted by the amortization of Reorganization Goodwill
totaling $3.4 million. Excluding amortization of Reorganization Goodwill, the
segment's operating performance was relatively flat compared to 1995, as the
effect of higher sales was offset by a $1.7 million increase in allocated
corporate overhead due to the 1995 pension gain noted above.
The Technologies Group's operating income in 1996 compared to
1995 increased to $24.5 million from $20.3 million. The results in 1995 were
negatively impacted by a $7.2 million amortization charge for Reorganization
Goodwill. Excluding the amortization of Reorganization Goodwill, the segment's
operating income decreased $3.0 million in 1996 compared to 1995, an 11%
decline, due to decreased operating margins and a $1.7 million increase in
allocated corporate overhead due to the 1995 pension gain noted above. The
lower operating margins were caused principally by competitive price pressure
in the connector market and delayed introductions of new connector products.
In 1996, the operating income of the Specialty Publishing
business, Taylor Publishing, improved to $1.7 million from an operating loss
of $0.8 million in 1995 due principally to the reduction in amortization of
Reorganization Goodwill, which totaled $5.6 million in 1995. Excluding the
amortization of Reorganization Goodwill, the unit's operating performance
decreased $3.2 million in 1996 compared to 1995 due to a $1.5 million
restructuring charge incurred in 1996, following Taylor's adoption of a
restructuring plan to improve profitability, a $1.1 million increase in
allocated corporate overhead which was primarily attributable to the 1995
pension gain noted above and increased administrative costs.
Other Income (Expense)
Interest expense decreased approximately 6% or $1.2 million in
1996 compared to 1995 due to a lower effective interest rate and lower debt
balances. Other income included a favorable adjustment of $2.2 million related
to Insilco's environmental liabilities following completion of a site clean-up
for an amount less than previously estimated. Other income for 1995 included
favorable adjustments of $3.6 million related to Insilco's environmental
liabilities following a review of its liabilities from previously divested
operations and $1.5 million related to the resolutions of several legal
disputes. In addition, other income included a $4.0 million gain on the sale
of idle corporate assets.
Income Tax Expense
Insilco's actual income tax obligations during 1996 ($2.4
million) and 1995 ($2.6 million) were substantially less than the total amount
of income taxes recognized ($12.4 million and $16.1 million respectively)
because previously generated net operating losses and other net deferred tax
assets were used to reduce the tax obligations. During 1996 and 1995,
additional deferred tax assets of $10.7 million and $9.2 million respectively,
35
<PAGE>
were recognized and recorded on the balance sheet because it was concluded
that it was more likely than not that such amounts would be realized in future
years. In accordance with the Reorganization SOP, the tax benefits associated
with the recognition of pre-effective date deferred tax assets ($10.2 million
and $1.6 million in 1996 and 1995, respectively), were recorded as an increase
to additional paid-in capital and $7.2 million in 1995 was recorded as a
reduction to Reorganization Goodwill. The 1995 reduction eliminated the
remaining unamortized Reorganization Goodwill.
Discontinued Operations
For information regarding our reclassification of its Office
Products Business as a discontinued operation, see "1997 Compared to
1996--Discontinued Operations."
Liquidity and Capital Resources
Post-Mergers and Refinancing
Our principal sources of liquidity are cash flow from
operations and borrowings under the new credit facility. Our principal uses of
cash are debt service requirements, capital expenditures, acquisitions and
working capital. We expect that ongoing requirements for debt service, capital
expenditures and working capital will be funded from operating cash flow and
borrowings under the new credit facility. We have recently completed an
acquisition and are considering another acquisition. See "--Recent
Developments." In connection with these and future acquisitions, we may require
additional funding which may be provided in the form of additional debt,
equity financing or a combination thereof. There can be no assurance that any
such additional financing will be available to us on acceptable terms.
We incurred substantial indebtedness in connection with the
Mergers, the Merger Financing and the financing to repurchase the 10 1/4%
notes. On a pro forma basis, Insilco would have had approximately $324.0
million of indebtedness outstanding as of September 30, 1998 (and Holdings
would have had approximately $393.4 million) as compared to $314.5 million of
indebtedness outstanding as of September 30, 1998 on a historical basis. In
addition, on a pro forma basis, Insilco would have a stockholders' deficit of
$134.4 million at June 30, 1998 as compared to a stockholders' deficit of
$130.2 million as of September 30, 1998 on a historical basis. Insilco's
significant debt service obligations could, under certain circumstances, have
material consequences to security holders of Insilco and Holdings. See "Risk
Factors."
In connection with the Mergers, Holdings raised approximately
$56.0 million of equity capital through the issuance of 1,245,138 shares of
Holdings Common Stock, approximately $35.0 million through the issuance of the
PIK Preferred Stock and the DLJMB Warrants to purchase 65,603 shares of
Holdings Common Stock at an exercise price of $0.01 per share, and
approximately $70.2 million aggregate gross proceeds of the Holdings Units. In
addition, Insilco raised approximately $43.1 million through additional
borrowings under the Existing Credit Facility.
The Company
Our new credit facility consists of a $125.0 million amortizing
term loan maturing in seven years. Scheduled aggregate amortization is
expected to be $1.3 million in 1999. The new credit facility also includes a
$175.0 million revolving credit facility maturing on July 8, 2003 which
provides for revolving loans and up to $50.0 million in letters of credit.
Availability under the revolving credit facility decreases (i)
on the six month anniversary of the new credit facility closing date by an
amount equal to $46.0 million less the aggregate consideration paid in
connection with acquisitions or committed to be paid pursuant to a signed
definitive acquisition agreement entered into prior to such date and (ii) by
$17.5 million on each of July 10, 2001 and July 10, 2002.
Interest rates applicable to borrowings under the new credit
facility vary depending on: (i) whether the loan is made under the revolving
credit facility or the term loan facility; (ii) whether the loan is a base
rate loan or a LIBOR rate loan, which is at Insilco's discretion, and (iii)
with respect to revolving loans after the first six months, Insilco's ratio of
36
<PAGE>
total debt to EBITDA (as defined). The applicable rates are: the prime rate
plus 1.75% for base rate revolving loan borrowings and the prime rate plus
2.50% for base rate term loan borrowings and LIBOR plus 3.00% for LIBOR
revolving loan borrowings and LIBOR plus 3.75% for LIBOR term loan borrowings.
Insilco's obligations under the new credit facility are guaranteed by Holdings
and all material existing and future wholly-owned domestic subsidiaries of
Insilco (the "subsidiary guarantors") and are secured by substantially all of
the assets of Insilco and the subsidiary guarantors, including a pledge of the
capital stock of all existing and future subsidiaries of Insilco (provided
that no more than 65% of the voting stock of any foreign subsidiary shall be
pledged) and a pledge by Holdings of the stock of Insilco. The new credit
facility contains customary covenants and events of default. See "Description
of Certain Indebtedness--New Credit Facility."
The notes will mature in 2007. Interest on the notes is payable
semiannually in cash. The notes contain customary covenants and events of
default, including covenants that limit our ability to incur debt, pay
dividends and make certain investments.
We anticipate that our operating cash flow, together with
borrowings under the new credit facility, will be sufficient to meet
anticipated future operating expenses, capital expenditures and to service
interest payments on its outstanding debt as they become due. Our ability to
make scheduled payments of interest on or to refinance indebtedness and to
satisfy other debt obligations will depend upon our future operating
performance, which will be affected by general economic, financial,
competitive, legislative, regulatory, business and other factors beyond its
control. See "Risk Factors."
Historical
Cash Flows from (Used In) Operating Activities. Operations
used $22.9 million of cash in the first nine months of 1998 as compared to
providing $11.6 million in the first nine months of 1997. Cash flows from
operations in the first nine months of 1998 were impacted by $20.9 million of
merger expenses incurred and interest payments related to the 10 1/4% notes
totaling $15.5 million, partially offset by a Federal income tax refund of
$5.1 million. Insilco's cash flow for periods prior to the nine months ended
September 30, 1997 was favorably impacted by tax loss carryforwards, which
reduced the actual cash payments for the years to well below the financial
statement income tax expense. The tax loss carryforwards were substantially
reduced in 1997 due to the gain from the sale of the Rolodex Business.
Operations provided $45.5 million in cash in 1997 compared to
providing $55.4 million in cash in 1996. Cash flows from operations decreased
from the prior year primarily due to cash flows from the divested Office
Products business included in 1996 results. The Company's cash for periods
prior to 1997 was favorably impacted by tax loss carryforwards, which reduced
the actual cash payments for the years to well below the financial statement
income tax expense. The tax loss carryforwards were substantially reduced in
1997 due to the gain from the sale of the Rolodex Business. As result,
beginning in 1998 it is expected that the Company will no longer have any tax
loss carryforwards available to reduce cash payment obligations.
Cash Flows from (Used In) Investing Activities. In March 1997,
Insilco sold its Rolodex Business for a net sales price of $112.6 million. In
the first nine months of 1998 and 1997, Insilco received dividend
distributions from Thermalex of $1.3 million and $1.4 million, respectively.
Insilco's other investing activities consisted principally of capital
expenditures which totaled $15.7 million and $15.0 million for the first nine
months of 1998 and 1997, respectively. In addition, Insilco paid $2.7 million
and $2.8 million of prepetition liabilities in the first nine months of 1998
and 1997, respectively.
In 1997, in addition to the sale of the Rolodex Business, the
Company received a $1.5 million dividend distribution from Thermalex and $4.4
million from the liquidation of idle assets in 1997. In 1996, the Company
acquired the Lingemann Business, and two affiliated businesses serving the
automotive, heavy truck and industrial manufacturing radiator replacement
market, Great Lake and Kar Tool Co. Inc., for approximately $37.7 million
including transaction fees and expenses. In 1996, the Company received
proceeds totaling $21.8 million from the sales of Curtis and Rolodex
Electronics; $3.6 million from Thermalex for full repayment of loans
outstanding; a $3.4 million dividend distribution from Thermalex; and $1.3
million from the disposal of idle assets. In 1995, the Company received $2.5
37
<PAGE>
million from Thermalex relating to the partial repayment of loans, a $0.4
million dividend distribution from Thermalex and $4.7 million from the
disposal of idle assets.
The Company's capital expenditures totaled $23.6 million in
1997 and the Company has budgeted expenditures totaling approximately $22.1
million in 1998, of which $15.7 million was completed in the first nine months
of 1998. The Company expects to finance these expenditures and investments
with internally generated funds. The Company does not anticipate that
limitations on capital expenditures under the Existing Credit Facility will
adversely affect its ability to meet its operating goals.
Cash Flows from (Used In) Financing Activities. Financing
activities provided $28.1 million in the first nine months of 1998 compared to
using $111.2 million in the first nine months of 1997. On August 17, 1998, a
series of transactions involving Insilco were completed. (See "The Merger
Financing" below.) In connection with the Mergers, Insilco paid a dividend of
$30.9 million to Holdings and borrowed approximately $43.1 million under
Insilco's then existing credit facility. Insilco also received a $3.5 million
loan from Holdings.
On July 3, 1997, Insilco refinanced its then existing bank debt
(See Note 3 to the condensed consolidated financial statements) and using the
Rolodex Proceeds purchased 2,857,142 shares of its common stock, at $38.50 per
share in cash, for an aggregate purchase price of $110.0 million. On August
12, 1997, Insilco completed the Tender Offer, in which it purchased an
additional 2,857,142 shares at a price of $38.50 per share in cash for an
aggregate purchase price of $110.0 million. On August 12, 1997, Insilco
issued $150.0 million of the 10 1/4% notes, for net proceeds of approximately
$145.9 million.
Insilco used the net proceeds from the offering of the 10 1/4%
notes to fund the repurchase of shares tendered in the Tender Offer, repay
bank loans, pay fees and expenses of the aforementioned transactions and for
general corporate purposes. Insilco incurred $10.7 million in costs for the
refinancing, Tender Offer and issuance of the notes.
During 1996, the Company repaid $22.8 million of its initial
$155.0 million term loan. The Company also repurchased an additional 97,500
shares of its common stock at prices ranging from $30.60 to $36.125 per share
under the Company's $15.0 million stock buyback program. During 1995, the
Company repaid $12.6 million of its initial $155.0 million term loan and
repurchased 197,500 shares of its common stock at prices ranging from $32.375
to $36.875 per share.
Net Income (Loss) and Accumulated Equity (Deficit). At December
31, 1997, Insilco had a stockholders' deficit totaling $102.3 million compared
to stockholders' equity totaling $33.4 million at December 31, 1996. The
deficit was attributable to the effect of the Share Repurchase as described in
"Cash Flow From (Used In) Financing Activities" above.
Seasonality. Insilco's yearbook publishing business, Taylor
Publishing, is highly seasonal, with a majority of sales occurring in the
second and third quarters of the year. Taylor receives significant customer
advance deposits in the second half of each year. Insilco's other businesses
are not highly seasonal.
Impact of Inflation and Changing Prices. Inflation and changing
prices have not significantly affected Insilco's operating results or markets.
Liquidity. At September 30, 1998, Insilco's cash and cash
equivalents and net working capital amounted to $4.7 million and $78.6
million, respectively, representing a decrease in cash equivalents of $6.0
million and an increase in net working capital of $39.1 million from year end
1997. The borrowing ability under Insilco's revolving credit facility as of
the end of the quarter was $27.8 million which is also available for letters
of credit.
Trade receivables, net, at September 30, 1998 increased 25% or
$17.0 million over the December 31, 1997 amount primarily due to increased
receivables at Taylor Publishing following its peak yearbook production period
(see "--Seasonality").
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At December 31, 1997, Insilco's cash and cash equivalents and
net working capital amounted to $10.7 million and $39.5 million, respectively,
compared to $3.5 million and $51.4 million, respectively, in 1996. The
borrowing ability under Insilco's revolving credit facility at December 31,
1997 was $85.1 million, including $41.1 million available for additional
letters of credit. Insilco believes it has adequate sources of liquidity to
meet its working capital, capital expenditures and debt service requirements
for the foreseeable future.
Year 2000 Compliance. Many existing computer programs utilized
globally use only two digits to identify a year in the date field. These
programs, if not corrected, could fail or create erroneous results after the
century date changes on January 1, 2000 or when otherwise dealing with dates
later than December 31, 1999. This " Year 2000" issue is believed to affect
virtually all companies and organizations, including Insilco.
Insilco relies on computer-based technology and primarily
utilizes a variety of third-party hardware and software and to a minimal
degree some proprietary software. In addition to such information technology
('IT") systems, Insilco's operations rely on various non-IT equipment and
systems that contain embedded computer technology. Third parties with whom
Insilco has commercial relationships, including raw materials suppliers and
service providers (such as banking and financial services, data processing
services, telecommunications services and utilities), are also highly reliant
on computer-based technology.
In 1996, Insilco commenced an assessment of the potential
effects of the Year 2000 issue on its business, financial condition and
results of operations. In conjunction with such assessment, Insilco developed
and implemented a "Year 2000" compliance program as described below.
The majority of its IT systems are third party systems for
which Insilco has received Year 2000 compliant versions. Insilco does not
expect any significant outlay of cash for these systems as all of the third
party systems are under current maintenance agreements which provide for
continuing operation including functions involving Year 2000. The strategy
instituted by Insilco to identify and address Year 2000 issues affecting
third-party IT Systems includes contacting all third-party providers of
computer hardware and software to secure appropriate representations to the
effect that such hardware or software is or will timely be Year 2000 compliant.
Insilco does not rely heavily on Company developed proprietary
IT systems. Pursuant to our Year 2000 compliance program, Insilco has
examined its proprietary IT systems for Year 2000 problems. All such systems
that were identified as relating to a critical function and that were not Year
2000 compliant are being fixed. Insilco believes that nearly all of its
proprietary IT systems fixed have been placed into production. Insilco is in
the process of testing the remediated systems for Year 2000 compliance.
Insilco has undertaken a review of its non-IT systems and is in
the process of fixing of such systems that are within its control. Insilco
expects to complete this remediation effort by April 30, 1999.
Insilco procures its raw materials and operating supplies from
a vast network of vendors located both within and outside the United States.
As a part of its contingency planning effort, Insilco is continually assessing
the Year 2000 readiness of its important vendors in order to identify any
significant exposures that may exist and establish alternate sources or
strategies where necessary.
The costs incurred to implement Insilco's Year 2000 compliance
program have been immaterial to date and Insilco presently expects to incur
less than $1.0 million of costs in the aggregate. All of Insilco's Year 2000
compliance costs have been or are expected to be funded from Insilco's
operating cash flow. Insilco's Year 2000 compliance budget does not include
material amounts for hardware replacement because Insilco has historically
employed a strategy to continually upgrade its business systems.
Consequently, Insilco's Year 2000 budget has not required the diversion of
funds from or the postponement of the implementation of other planned IT
projects.
Insilco's Year 2000 compliance program is directed primarily
towards ensuring that Insilco will be able to continue to perform three
critical functions: (i) make and sell its products, (ii) order and receive raw
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<PAGE>
material and supplies, and (iii) pay its employees and vendors. It is
difficult, if not impossible, to assess with any degree of accuracy the impact
on any of these three areas of the failure of one or more aspects of Insilco's
compliance program.
The novelty and complexity of the issues presented and the
proposed solutions therefore and Insilco's dependence on the technical skills
of employees and independent contractors and on the representations and
preparedness of third parties are among the factors that could cause Insilco's
efforts to be less than fully effective. Moreover, Year 2000 issues present a
number of risks that are beyond Insilco's reasonable control, such as the
failure of utility companies to deliver electricity, the failure of
telecommunications companies to provide voice and data services, the failure of
financial institutions to process transactions and transfer funds, the failure
of vendors to deliver materials or perform services required by Insilco and
the collateral effects on Insilco of the effects of Year 2000 issues on the
economy in general or on Insilco's customers in particular. Although Insilco
believes that its Year 2000 compliance program is designed to appropriately
identify and address those Year 2000 issues that are subject to Insilco's
reasonable control, there can be no assurance that Insilco's efforts in this
regard will be fully effective or that Year 2000 issues will not have a
material adverse effect on Insilco's business, financial condition or results
of operations.
Foreign Sales. In 1997 Insilco had export sales of $55.4
million which represented 10% of total sales. Export sales in 1997 to Europe,
Asia, Canada and Mexico were $21.2 million, $14.0 million, $9.7 million and
$4.3 million, respectively. All other export sales in 1997 totaled $6.2
million. In 1996, Insilco had export sales of $58.2 million which were 12% of
total sales. In 1995, export sales were $53.1 million or 12% of total sales.
Insilco's transactions are primarily in U.S. dollars.
40
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BUSINESS
Overview
We produce automotive, telecommunications and electronics components, and
are a leading specialty publisher of student yearbooks.
We report our financial results in three segments:
o the Automotive Components Group, which manufactures
o transmission components and assemblies and
o heat exchangers (such as radiators and air conditioning condensers)
and heat exchanger tubing;
o the Technologies Group, which manufactures
o high performance data-grade connectors for the telecommunications and
networking markets,
o cable and wire assemblies primarily for the telecommunications
market, and
o precision metal stampings and power transformers primarily for the
electronics market.
o Specialty Publishing, which produces student yearbooks and other
specialty books.
Our portfolio of businesses serves several market segments,
which we believe tends to minimize the effects of cyclicality and diversify
business risk from any one market. Our broad base of more than 17,000
customers includes automotive and non-automotive original equipment
manufacturers ("OEMs"), telecommunications, networking and electronics
companies and school yearbook departments nationwide.
We primarily focus on tailoring our products for
customer-specific applications in niche markets. For example, (1) we customize
products for particular customers and applications and (2) we develop
technology to enhance product function. We believe that this focus on niche
markets results in more stable revenues, higher margins and longer term
customer relationships (often as the sole supplier to that customer). From
fiscal 1994 to the twelve month period ended September 30, 1998, our net sales
from continuing operations increased from $438.4 million to $543.0 million,
representing a compound annual growth rate ("CAGR") of 5.9%, and Adjusted
EBITDA (as we define on page [ ]) increased from $56.6 million to $68.9
million, representing a CAGR of 5.4%.
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<TABLE>
<CAPTION>
Twelve Months
Ended September 30, 1998
------------------------
Adjusted
Segment Sales EBITDA(1) Principal Products/markets Largest Customers
- ------- ------- ---------- --------------------------------------- -----------------
(in millions)
<S> <C> <C> <C> <C>
Automotive $ 244.9 $ 33.5 --Transmission/suspension components --Ford
Components Group --Radiators/air conditioning condensors --Valeo
--Heat exchanger tubing --Caterpillar
--Behr
--Delphi
Technologies Group 195.6 27.4 --Cable harness assemblies --Nortel
--50/60 Hz transformers --Siemens
--Modular jacks & plugs --Littelfuse
--Precision high speed stamping --Ericsson
--Lucent
--IBM
Specialty Publishing 102.5 8.0 --School yearbooks --High Schools
-------- --------
--Universities
Total $ 543.0 $ 68.9
======== =======
</TABLE>
- ----------
(1) See footnote 6 to the "Summary Historical and Unaudited Pro Forma
Consolidated Financial Operating Data".
The Automotive Components Group:
The Automotive Components Group consists of three operating units and a
joint venture,
o Thermal Components which produces aluminum-and copper-based heat
exchanger tubing for automotive OEMs and Tier 1 suppliers, and also
manufactures radiators, air conditioning condensers and other heat
exchangers for automotive and industrial applications.
o Steel Parts which is the leading supplier of automatic transmission
clutch plates to Ford and produces other stamped components for OEMs and
Tier 1 suppliers.
o Romac which produces stainless steel tubing for marine, architectural,
which industrial and automotive applications.
o Thermalex, a joint venture owned equally by us and Mitsubishi Aluminum,
which is, management believes, the nation's leading producer of
precision extruded multi-port aluminum heat exchanger tubing used in
automotive air-conditioning condensers. In 1997, Thermalex, which is
accounted for as an unconsolidated investment, contributed $2.6 million
to our consolidated pre-tax income and paid a $1.5 million cash dividend
to us. On a stand-alone basis, Thermalex generated $10.3 million of
EBITDA in 1997; however, only the $1.5 million dividend is included in
our Adjusted EBITDA.
We believe that the impact of the automotive cycle on the
automotive components group's financial performance is lessened by the group's
sales to the automotive aftermarket and non-automotive OEMs, which represented
16% and 27%, respectively, of the group's 1997 net sales.
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The Technologies Group:
Our Technologies Group generally focuses on niche products
which are designed for specific customer applications and seeks to supply all
or a substantial portion of its customers' requirements. The group has four
operating units:
o Escod Industries, a supplier of cable and wire assemblies to the
telecommunications market, including Northern Telecom and Siemens
Telecom Network;
o Stewart Connector, a producer of high performance data-grade connectors
for the computer networking and telecommunications markets;
o Stewart Stamping, a producer of highly customized precision stamped
metal parts, primarily for the electronics industry; and
o Signal Transformer, a producer of 50-60 Hz power transformers used in a
variety of products.
Specialty Publishing
Specialty Publishing consists of Taylor, one of the nation's
leading publishers of student yearbooks. We believe that Taylor was the first
major yearbook publisher to make extensive use of digital pre-press technology
as opposed to the more widely used pre-press process which involves manual
cutting, pasting and rescaling. We believe it uses digital pre-press
technology more extensively than its competitors, which offers yearbook
departments superior quality and greater flexibility in altering page design.
The student yearbook business is not very cyclical, has low customer turnover
and many of the sales are prepaid.
Competitive Strengths
We believe we possess a number of competitive strengths,
including the following:
Strong Niche Market Positions
Many of our products are targeted to niche markets in which we
can capitalize on our ability to produce highly customized products designed
for a single customer or a specific application which often requires formal
qualification. We believe that the specialized knowledge and experience we
have gained from these niche markets cannot be easily duplicated or replaced
and strengthens our competitive position. As a result, we believe we have an
advantage in competing with potential new entrants attempting to displace us
as a supplier in many of its niche markets. We further believes that we are
the sole supplier to customers of many of our niche products. Examples of our
niche market products include automatic clutch plates for domestic Ford
automobiles and light trucks, certain customer-specific high-speed data-grade
transmission connectors, and certain customer-specific cable and wire
assemblies for Nortel and Siemens.
Long Standing Customer Base
Our customer base, characterized by many long-term
relationships, provides an ideal platform from which to offer new products to
existing customers. In addition, such long-term relationships provide us with
early insight into customers' changing needs and allow us to introduce
application-specific products. The length of our average relationship with its
ten largest customers is over twenty years.
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Recognized Quality
We have received industry recognition and awards for quality.
Awards recently received include: Ford's Q1 Quality Award, Eastman Kodak's
Preferred Vendor Status, Littelfuse Supplier Ingenuity Award, Panasonic's (ACOM
Division) Supplier of the Year, Sensormatic's Preferred Vendor and Siemens
Success Supplier--Ship to Stock Award. In addition, several of our plants have
been certified as "QS 9000", "ISO 9001" or "ISO 9002", domestic and
international standards certification recognizing quality manufacturing
processes.
Experienced Management Team
The current management team, headed by chief executive officer,
Robert L. Smialek, significantly reduced Insilco's debt during the past
several years from $253.7 million on January 1, 1994 to $58.6 million prior to
our recapitalization in June 1997 (at which time we borrowed money to buy back
Insilco stock), while increasing adjusted EBITDA from $56.6 million in 1994 to
$68.9 million in the twelve month period ended September 30, 1998,
representing a compound annual growth rate of 5.4%. Management accomplished
these improvements by divesting certain non-core businesses such as paint
products, computer accessories and office products, focusing investments on
its core businesses and actively managing working capital.
Business Strategy
We seek sales growth through internal growth and acquisitions.
In addition, we seek to improve operating margins through cost reduction
programs and an on-going process of efficiency improvements. Our strategy
includes the following:
Focus on Niche Markets
Our primary focus is to tailor our products for customer
specific applications in niche markets. This strategy includes customizing
products for particular accounts and applications and developing technology to
enhance product function. We believe that this niche market focus results in
more stable revenues, higher margins and longer term, often sole-supplier,
customer relationships.
Develop New Products and Applications
We pursue internal growth by developing specialized products
and by developing new applications for existing products. To further this
goal, the Automotive Components Group formed a technical center to research
emerging trends in heat transfer technologies and to develop new products and
applications. One longer-term project involves adapting our condenser
technology for use in HVAC applications for the residential market. We believe
our heat exchanger technology could be used in the design of smaller, more
energy efficient aluminum condensers to replace the conventional copper/brass
condensers currently used in residential HVAC systems. In addition, working
with customers such as Xircom, we have introduced several new products at
Stewart Connector in 1998, including a Xircom PCMCIA modem containing multiple
standard RJ45 connectors. Finally, our investments in digital pre-press
technology at Taylor are designed to lower production costs and improve
yearbook quality.
Increase Value Added Content
Our business strategy also emphasizes increasing value added
content to provide customers with integrated solutions rather than individual
components. For example, our Steel Parts unit has expanded its product
offering to include sub-assemblies in addition to component parts. Our
contract cable assembly unit has expanded its services to include complete
wire harness systems, and our high-precision stamping unit now offers a number
of finishing processes, in addition to designing and stamping high-precision
parts. By doing more to the components we produce, through value-added
assemblies and manufacturing processes, we are able to foster long-term
relationships with customers, and increase sales and margins. Moreover, OEM
customers are able to reduce their supplier base, while ensuring that an
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<PAGE>
integrated sub-assembly passes quality standards and meets exacting design
compatibility requirements.
Implement Cost Reduction Programs and Efficiency Improvements
We have a continual improvement philosophy which, by
recognizing and rewarding efficiency and quality improvements, has reduced
scrap rates, improved labor productivity and increased operating margins. In
addition, our individual businesses have automated manufacturing processes and
have increased production at lower cost plants, such as those in the Dominican
Republic, Mexico, Ireland and El Paso, Texas. For example, new equipment
installed at Thermal Components in 1996 has increased capacity, substantially
reduced cycle time, and lowered costs and product defect ratios. Taylor
Publishing has switched to automated pre-press operations and introduced a
pilot program through which selected customers are using the Internet to proof
and approve electronic copy, which we believe will lead to reduced pre-press
production costs.
Expand Strategic Acquisitions and Partnerships; Divestitures
We believe that we operate in highly fragmented industries
which provide many strategic acquisition and partnership opportunities.
Through acquisitions and partnerships, we seek to leverage our technical
expertise, customer contacts and managerial talent to augment our core
business, broaden our product lines, increase our geographic scope and better
serve our customers. For example, we just completed the acquisition of a
precision metal stamping company that adds "deep draw" precision stamping
capabilities, and significant new markets (e.g. consumer goods) and customers,
to our precision stamping business. In 1996, we acquired Great Lake, Inc.,
which expanded our product reach to include the automotive and heavy truck
radiator replacement market, and acquired the automotive aluminum tubing
business of Helmut Lingemann GmbH & Co., which expanded our international
market position in the automotive heat exchanger tubing market. We believe
that numerous acquisition candidates exist globally and intend to continue to
seek new acquisition opportunities in our technology and automotive segments.
In addition, we have explored and are continuing to explore divestiture
opportunities.
Business Segments
Automotive Components Group
The Automotive Components Group is made up of three operating
units, Thermal Components, Romac and Steel Parts. The businesses in this
segment manufacture automotive heat exchangers and related tubing, stainless
steel tubing, and automatic transmission and suspension components,
respectively. The Automotive Components Group accounted for 43.7% of our total
sales in 1997, or approximately $231 million.
Automotive Sales by Market Segment
<TABLE>
<CAPTION>
1997
----
<S> <C>
Automotive OEM............................... 45.9%
Other OEM.................................... 27.2
Automotive Aftermarket....................... 16.2
Other........................................ 10.7
Total........................................ 100.0%
</TABLE>
Tubing and Heat Transfer. Thermal Components is a vertically
integrated manufacturer of heat exchangers for the automotive, specialty
vehicle, truck, heavy equipment and off-road vehicle and industrial equipment
markets. Its products include thin wall aluminum and copper tubes used
principally in heat transfer applications, radiators, air conditioning
condensers, oil coolers and heaters and production machinery and equipment
used in the manufacture and assembly of automotive heat exchangers.
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<PAGE>
Thermal Components uses a direct sales force and independent
sales representatives to market its products. Thermal Components sells to both
OEMs and aftermarket customers.
Thermalex, our joint venture with Mitsubishi Aluminum,
manufactures multiport aluminum extrusions used principally in automotive air
conditioning condensers.
The markets for automobile heat-exchanger products are highly
competitive and have many participants, particularly automobile OEMs that
produce for their own use and several large independent manufacturers. Thermal
supplies tubes and, through Thermalex, extrusions to domestic automobile OEMs
and independent manufacturers. Thermal is an established supplier of welded
radiator tubes to manufacturers and repair shops in the heat-exchanger
aftermarket.
Thermal has manufacturing facilities in Alabama, Michigan, New
York, South Carolina, Wisconsin and Germany. At December 31, 1997, Thermal
(excluding Thermalex) had 936 employees.
Transmission Components. Steel Parts manufactures automotive
parts consisting of close-tolerance precision metal stampings at its facility
in Indiana. Its products include clutch plates for automatic transmissions,
suspension parts for vibration-reducing assemblies and engine mounts.
Substantially all Steel Parts' sales are made to the domestic
automobile industry, either directly or indirectly through other independent
automotive parts suppliers. As a result, the demand for Steel Parts' products
historically has been heavily dependent on the level of new car production by
the domestic automobile industry. Steel Parts has also seen its production
content per automobile increase in recent years as automobile manufacturers
have moved from three-speed to four-and five-speed automatic transmissions.
The strong domestic automotive market resulted in Steel Parts operating at or
near capacity for most of 1997 and 1996.
The market for original equipment automobile parts is
competitive and has many participants, principally the automobile
manufacturers themselves because of their ability to make their own parts.
Approximately 70%, 70% and 67% of Steel Parts' sales in 1997, 1996 and 1995,
respectively, were to Ford Motor Company.
At December 31, 1997, Steel Parts had 383 employees.
Stainless Steel Tubing. Romac manufactures stainless steel
tubing for a variety of marine, architectural, automotive and decorative
applications at its facility in North Carolina. Substantially all of its sales
are domestic.
The markets for these products are highly competitive.
Competition is based principally on price and, to a lesser extent, on the
shapes and finishes that can be achieved with the tubing. At December 31,
1997, Romac had 129 employees.
Technologies Group
The Technologies Group consists of four operating units,
Stewart Connector, Signal Transformer, Stewart Stamping and Escod Industries,
which manufacture telecommunication and electrical component products for the
computer networking, telephone digital switching, premises wiring, main frame
computer, automotive and medical equipment markets. The Technologies Group
accounted for 37.7% of our total sales in 1997, or approximately $198.9
million.
Specialized Connector Systems. Stewart Connector designs and
manufactures specialized high speed data connector systems, including modular
plugs, modular jacks, shielded and nonshielded specialized connectors, and
cable assemblies for telecommunications, cellular communications and data
transmission, including local and wide area networks. Its primary
manufacturing facility is located in Pennsylvania, with an assembly operation
in Mexico.
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Stewart Connector sells its products throughout the world,
directly and through sales subsidiaries, and through a network of
manufacturers' representatives. Foreign sales accounted for approximately 41%,
40% and 43% of Stewart Connector's sales in 1997, 1996 and 1995, respectively.
It maintains direct sales offices (and to a lesser extent, distribution
operations) in England, Japan and Germany and has numerous domestic and
foreign competitors, some of which are substantially larger than Stewart
Connector. Competition is based principally on price with respect to older
product lines, and on technology and product features for newer products and
to a lesser extent, patent protection.
At December 31, 1997, Stewart Connector had 796 employees, of
which 372 were employed in the U.S., 20 in Japan, 7 in Germany, 4 in the
United Kingdom, and 393 in Mexico.
Power Transformers. Signal Transformer manufactures both
standard "off-the-shelf" and custom-made power transformers serving a broad
customer base in a variety of industries. Signal's markets include
telecommunications, home and retail security systems, medical instrumentation,
gaming and entertainment and process controls. Signal markets its products
directly, utilizing catalogs and print advertising, and indirectly through
selective independent sales representatives in targeted regions of the
country. It has a customer base of over nine thousand accounts, consisting of
both OEMs and aftermarket resellers.
The electronic transformer industry includes both domestic and
foreign manufacturers and there are numerous competitors to Signal.
Competition is based on price and availability of product to meet customers'
needs. Signal has directed its marketing efforts for many years towards
engineers and other customers having specialized, low-volume demand and prompt
delivery requirements. To capitalize on an identified market niche, Signal has
a service that guarantees 24 hour delivery for small order quantities of
certain off-the-shelf transformers.
Signal manufactures its transformers at production facilities
located in the Dominican Republic, Puerto Rico and New York. The New York
facility also serves as Signal's major sales, administration and distribution
center.
At December 31, 1997, Signal had 645 employees, of which 153
were employed in the U.S., 250 in the Dominican Republic and 242 in Puerto
Rico.
Precision Stampings and Wireforms. Stewart Stamping is a tool
designer and subcontract manufacturer of precision stampings and wireformed
parts. Stewart Stamping manufactures components used in electrical devices,
such as circuit breakers, electric fuses, lighting and process controls, and
in electronic industries, including passive components such as capacitor cans
and connector contacts. Stewart Stamping sells its products to a broad
customer base primarily in the U.S. through a network of manufacturers
representatives. Stewart Stamping manufactures its products at its plant in
Yonkers, New York. In early 1997, Stewart Stamping leased a manufacturing
facility in El Paso, Texas to better serve the Southwestern U.S. and Mexican
assembly operations of telecommunication and electronics customers.
Stewart Stamping's competitors in each of its product lines are
numerous (including, in the case of metal stampings, its own customers), but
Stewart Stamping traditionally has focused on products that, because of the
engineering and manufacturing capability required to produce them, have the
potential for repeat business.
At December 31, 1997, Stewart Stamping had 320 employees.
Cable and Wire Assemblies. Escod Industries produces electronic
cable assemblies, specialized wire harnesses and certain telecommunication
equipment subassemblies for sale to manufacturers of telecommunications,
computer and other electronics equipment. Escod's markets generally are
regional in nature, and Escod's production facilities (three in the Carolinas
and one in Florida) are operated principally to serve local plants of OEMs.
Because substantially all of Escod's customers are OEMs having a number of
production facilities, the demand for Escod's products depends not only on the
demand for its customers' products, but also on its customers' varying
utilization of their production sites.
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Telecommunications and computer OEMs account for the bulk of
Escod's sales. Two telecommunications OEMs together accounted for
approximately 68%, 66% and 60% of Escod's total revenues in 1997, 1996 and
1995, respectively. Escod's dependence on these two major customers makes its
revenues and operating income sensitive to changes in demand from those
customers. Beginning in 1995, Escod has focused its efforts on developing a
broader customer base and a broader product line.
Competition in Escod's markets is based primarily on price and,
to a lesser extent, on responsiveness to customers' needs. The profitability
of Escod's sales generally depend on the relative raw material content, labor
productivity, quality of the products sold, proximity to customers and
timeliness of delivery.
As a result of the low barriers to entry into Escod's business
and increased, low-cost foreign competition in recent years, Escod's business
has become highly competitive.
At December 31, 1997, Escod had 798 employees.
Specialty Publishing
Taylor Publishing Company is engaged primarily in the contract
design and printing of student yearbooks from which it derived at least 87% of
its revenues in each of the last three years. Specialty Publishing accounted
for 18.6% of our total sales in 1997, or approximately $98.2 million. Its
principal yearbook customers are secondary (middle and senior high) schools.
Other yearbook customers include elementary schools, colleges and academies.
Taylor also publishes a variety of specialty books on a contract basis and a
limited number of its own publishing titles and provides reunion planning and
other services for alumni of schools, colleges and academies.
Competition in the yearbook industry is based upon customer
service, quality and price. The market for yearbooks is affected more by
demographic trends, which are expected to be favorable, than by business
cycles. Taylor offers several yearbook lines with different graphic and
typographic options and capabilities. Taylor has expended significant
resources in recent years to develop a system of electronic copy preparation
designed to enhance the quality and consistency of photographs, reduce
production costs and shorten the time required for yearbook production. Taylor
has developed proprietary software programs for use by its customers in
developing yearbooks. This software facilitates the yearbook design work
performed by schools and improves the overall production process.
Taylor markets its yearbook services through commissioned
independent sales representatives who maintain contact with yearbook faculty
advisors, school principals and other key purchasing personnel. It also trains
students and their advisors in layout, design and marketing, conducts seminars
and workshops and provides supporting materials, including software, to assist
student yearbook staffs in the production process.
Yearbook production is highly seasonal. Orders are normally
obtained in the fall and finished yearbooks are delivered at or near the end
of the school year, typically late spring to early summer and to a lesser
degree, in the fall of the following school year. Deposits representing
approximately 25% of the yearbook contract price are due from the yearbook
customer upon its submission of the first set of yearbook pages.
Given the seasonal production cycle, we typically receive
significant cash deposits in the second half of each calendar year. These
deposits are available to fund the working capital requirements of the
yearbook production cycle, and to a lesser extent, to provide us with working
capital for general corporate purposes.
Taylor operates six production facilities in Texas (two owned
and four leased) and one leased production facility in Pennsylvania. Its work
force reflects the seasonality of its business, typically ranging from 1,000
to 1,700 full-time employees. At December 31, 1997, it had 168 salaried and
1,194 hourly employees.
Divested Office Products Businesses. On September 3, 1996, we
sold Curtis, our computer accessories business. On October 4, 1996, we sold
Rolodex Electronics, consisting of electronic personal organizers and
48
<PAGE>
telephones. On March 5, 1997, we sold the Rolodex Business, which comprised
our office products line. As a result, the Office Products Business has been
accounted for as a discontinued operation.
Corporate History
We have undergone significant change and restructuring in the
past five years. A review of the most significant developments follows, in
chronological order:
o On April 1, 1993, we emerged from Chapter 11 bankruptcy proceedings
pursuant to the Plan of Reorganization. The Plan of Reorganization
resulted in a reduction in our liabilities by $532.3 million, an
extraordinary gain realized in 1993 of $448.3 million attributable to
the discharge of such liabilities, and a change in control of us.
o The Plan of Reorganization among other matters provided for: (i) the
issuance of 9,230,839 shares of our common stock in exchange for allowed
unsecured claims; (ii) deferred payment of certain pre-petition claims,
including various state and Federal taxes and trade debt; and (iii)
provisions to issue additional stock to other unsecured creditors over
time at the pre-determined rate of 18 shares of stock per $1,000 of
allowed claim as those claims are determined. Settlements were reached
in 1997 on all remaining claims pending in the Bankruptcy Court and the
Chapter 11 cases were closed on June 12, 1997.
o In 1994, we sold our paint products segment for $50.8 million, and
entered into a long-term $285 million credit facility that allowed us to
retire our outstanding 10 3/8% Senior Secured Guaranteed Notes due July
1, 1997 and 9 1/2% Notes due 1997.
o In 1996, we acquired, for an aggregate purchase price of approximately
$37 million, Great Lake, an aftermarket automotive, heavy truck and
industrial radiator manufacturer, and the Lingemann Business.
o We divested the office products business of our Office
Products/Specialty Publishing Group in three separate transactions
during 1996 and the first quarter of 1997. The 1996 transactions
included the divestitures of Curtis and Rolodex Electronics for an
aggregate $21.8 million. On March 5, 1997, the Rolodex Business was sold
for net cash proceeds of approximately $112 million.
o Following the sale of the Rolodex Business, we refinanced our existing
debt.
o In the third quarter of 1997, using the proceeds from the sale of the
Rolodex Business and the proceeds received on the issuance of the
10 1/4% notes, we repurchased $220 million of Insilco common stock..
o On August 17, 1998, Holdings was formed followed by the merger of
ReorgSub with and into Insilco, pursuant to which each of our
stockholders had his or her shares of Insilco converted into the same
number of shares of Holdings and the right to receive $0.01 per share in
cash, and Holdings became the parent of Insilco.
o Soon after this, a second merger took place pursuant to which Silkworm
Acquisition Corporation, an affiliate DLJMB, merged with and into
Holdings and each share of Holdings Common Stock was converted into the
right to receive $43.47 in cash and 0.03378 of a share of Holdings
Common Stock. Thus, as a result of the Mergers, each of our
stockholders, in respect of each of his or her shares, received $43.48
in cash and retained 0.03378 of a share of Holdings Common Stock.
Concurrently with the consummation of the Mergers, the DLJMB Funds
purchased 1,400,000 shares of Holdings 15% Senior Exchangeable Preferred
Stock due 2012 (the "PIK Preferred Stock"), and warrants to purchase
65,603 shares of Holdings Common Stock at an exercise price of $0.01 per
share.
o Following the Mergers, (i) our existing stockholders retained, in the
aggregate, approximately 10.1% (9.4% on a fully diluted basis) of the
outstanding shares of Holdings Common Stock; (ii) the DLJMB Funds held
49
<PAGE>
approximately 69.0% (69.8% on a fully diluted basis) of the outstanding
shares of Holdings Common Stock; (iii) 399 Venture Partners Inc., an
affiliate of Citibank, N.A. ("CVC"), purchased shares of Silkworm which
in the Merger were converted into approximately 19.3% (17.8% on a fully
diluted basis) of the outstanding shares of Holdings Common Stock; and
(iv) management of Insilco purchased approximately 1.7% (1.5% on a fully
diluted basis) of the outstanding shares of Holdings Common Stock.
o Immediately prior to the effectiveness of the Reorganization Merger,
each outstanding option to acquire shares of the common stock of Insilco
granted to employees and directors, whether or not vested (the
"Options") was canceled and in lieu thereof, each holder of an Option
received a cash payment in an amount equal to (x) the excess, if any, of
$45.00 over the exercise price of the Option multiplied by (y) the number
of shares subject to the Option, less applicable withholding taxes (the
"Option Cash Payments"). Certain holders of such Options elected to
utilize amounts otherwise receivable by them to purchase stock or equity
units of Holdings.
o The total amount of cash required to consummate the foregoing
transactions was approximately $204.4 million. This amount was financed
with (i) gross proceeds of approximately $70.2 million from the issuance
by Silkworm of units (which were converted into units of Holdings (the
"Holdings Units") in the Merger), each unit consisting of $1,000
principal amount of 14% Senior Discount Notes due 2008 (the "Holdings
Senior Discount Notes") and one warrant to purchase 0.325 of a share of
Holdings Common Stock at an exercise price of $0.01 per share, (ii) the
issuance by Silkworm to the DLJMB Funds, CVC and certain members of
management of Insilco, for an aggregate consideration of approximately
$56.1 million, of 1,245,138 shares of Silkworm common stock (which was
converted into Holdings Common Stock in the Merger), (iii) the issuance
by Holdings to the DLJMB Funds, for an aggregate consideration of $35.0
million, of 1,400,000 shares of the PIK Preferred Stock by Holdings and
the DLJMB Warrants to purchase 65,603 shares of Holdings Common Stock at
an exercise price of $0.01 per share, and (iv) approximately $43.1
million of new borrowings under our then existing $200 million credit
facility.
o The "change in control" of Insilco resulting from the Mergers required
Insilco to make an offer to repurchase the 10 1/4% notes. To finance
this repurchase and also to obtain an expanded line of credit for
acquisitions, the Company: (i) issued the Old Notes realizing therefrom
net proceeds of approximately $116 million; and (ii) entered into a new
credit facility that includes a $125 million term loan facility and a
$175 million revolving credit facility.
Patents and Trademarks
We hold patents or trademarks in most of our businesses which
have expiration dates ranging from 1998 to 2018. We expect to maintain such
patents and to renew the trademarks important to our business prior to their
expiration and do not believe the expiration of any one of its patents will
have material adverse effect on any of our businesses.
Raw Materials and Supplies
The principal raw materials and supplies used by us include:
(i) steel, aluminum, copper, zinc, brass and nickel (Automotive Components
Group); (ii) copper wire, steel, brass, aluminum, plastics, ceramics and
precious metals (Technologies Group); and (iii) paper, film and other
photographic and printing supplies (Specialty Publishing). We purchase these
materials and supplies on the open market to meet our current requirements and
believe our sources of supply are adequate for our needs.
Backlog
Our backlog by industry segment, believed to be firm, at
September 30, 1997 and 1998 follows:
50
<PAGE>
<TABLE>
<CAPTION>
September 30,
----------------------
1997 1998
-------- --------
(in millions)
<S> <C> <C>
Automotive Components Group......... $ 52.9 $ 61.2
Technologies Group.................. 52.4 46.6
Specialty Publishing Group.......... 91.3 81.6
-------- --------
Total.......................... $ 196.6 $ 189.4
======== ========
</TABLE>
We believe that approximately $106.9 million of our September
1998 backlog will be filled in 1998, and the remainder in 1999. Of the 1998
backlog, $72.2 million represents post-1998 orders placed with Specialty
Publishing, which often receives early renewals of contracts.
Properties
As of September 30, 1998, we operated 39 facilities throughout
the United States and seven facilities internationally consisting of
approximately 2.3 million square feet. Seventeen of these 46 facilities
(consisting of approximately 1.6 million square feet) are owned by us. We
believe that our facilities generally are well maintained and adequate for the
purposes of which they are used.
Substantially all of our material domestic assets, including
owned properties, are subject to liens and encumbrances to secure the our
obligations under the Credit Facility.
Employees and Labor Relations
At December 31, 1997, we employed approximately 5,418 people on
a full-time basis, of whom approximately 25% were covered by collective
bargaining agreements with various unions. The largest collective bargaining
unit (at Taylor) covers approximately 563 employees. Taylor entered into a new
contract with this unit in early 1998. We consider relations with our
employees to be good.
We have defined benefit and defined contribution pension plans
covering substantially all employees. For information respecting defined
benefit pension plans, see Note 12 to the Consolidated Financial Statements.
Environmental Regulation and Proceedings
Environmental Matters
Our manufacturing operations involve the generation of a
variety of waste materials and are subject to extensive federal, state and
local environmental laws and regulations. The waste materials generated
include metal scrap from stamping operations, cutting and cooling oils,
degreasing agents, chemicals from plating and tinning operations, etching
acids and photographic and printing chemicals. We uses offsite disposal
facilities owned by others to dispose of its wastes and do not store wastes we
generate to the extent such storage would require a permit. We do not treat,
store or dispose of waste for others. We are required to obtain permits to
operate various of our facilities, and these permits generally are subject to
revocation or modification.
We have taken significant measures to address emissions,
discharges and waste generation and disposal; improve management practices and
operations in response to legal requirements; and internally audit compliance
with applicable environmental regulations and approved practices. These
measures include: raw material and process substitution; recycling and
material management programs; periodic review of hazardous waste storage and
disposal practices; and reviewing the compliance and financial status and
management practices of its offsite third-party waste management firms.
51
<PAGE>
As a result of our reorganization, much uncertainty has been
removed concerning our potential liability for environmental contamination at
sites owned or operated by us (and at third party disposal and waste management
facilities used by us) prior to the filing of our bankruptcy petition. During
the reorganization, we settled all claims of the United States relating to our
pre-Petition Date conduct at previously owned or third party sites arising
under the federal Comprehensive Environmental Response, Compensation, and
Liability Act ("CERCLA"). This settlement (i) discharged our liability to the
United States at a number of hazardous waste sites; (ii) protects us from
contribution claims of the remaining potentially responsible parties; (iii)
limits the amount we may be required to pay the United States in any one year
on pre-petition claims; and (iv) provides that any such payment may be made in
cash or, at the our option, common stock valued at 30% of the allowed claim.
We are also currently engaged in clean up programs at sites
located in Newtown, Connecticut, Mount Vernon, New York and Oak Creek,
Wisconsin, and may in the future be required to engage in investigations or
clean-ups at other presently or previously owned and operated sites. We have
established what we believe are appropriate reserves for anticipated remedial
obligations. Due to the establishment of these reserves and the environmental
settlements reached during our reorganization, based on currently available
information, we do not believe that environmental compliance or remedial
requirements are likely to have a material adverse effect on us.
Legal Proceedings
On January 14, 1997, Taylor sued one of its principal
competitors in the yearbook business, Jostens, Inc. ("Jostens"), in the U.S.
District Court for the Eastern District of Texas, alleging violations of the
federal antitrust laws as well as various claims arising under state law. On
May 13, 1998, the jury in the case returned a verdict in favor of Taylor, and,
on June 12, 1998, the judge rendered his judgment in the amount of $25.2
million plus interest at an annual rate of 5.434%. On January 14, 1999, in
response to a motion by Jostens, the judge entered an order vacating the jury
verdict and granting judgment in Jostens' favor. We will seek to overturn the
order and reinstate the jury verdict on appeal. We cannot assure you what the
actual amount is, if any, that Taylor will recover from Jostens.
From time to time, we are involved in litigation relating to
claims arising out of our operations in the normal course of our business. We
maintain insurance coverage against potential general liability and certain
other claims in an amount we believe to be adequate. In our opinion, the
outcome of these matters will not have a material adverse effect on our
financial condition, liquidity or results of operation.
52
<PAGE>
MANAGEMENT
The following table sets forth the name, age and position of
each person who is a director or executive officer of Insilco.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Robert L. Smialek.................. 55 Chairman of the Board, President and Chief Executive Officer
David A. Kauer..................... 43 Vice President and Chief Financial Officer
Kenneth H. Koch.................... 43 Vice President, General Counsel and Secretary
Leslie G. Jacobs................... 48 Vice President, Human Resources and Assistant Secretary
Michael R. Elia.................... 40 Vice President and Controller
Thompson Dean...................... 40 Director
William F. Dawson, Jr.............. 34 Director
</TABLE>
Robert L. Smialek has served as Chairman of the Board,
President and Chief Executive Officer of Insilco since May 1, 1993. From
October 1992 to May 1993, Mr. Smialek served as the President and Chief
Operating Officer of the Temperature and Appliance Controls Group of Siebe
plc, a global controls and engineering firm. From September 1990 to October
1992, Mr. Smialek served as President and Chief Operating Officer of Ranco,
Inc., a subsidiary of Siebe, Inc. Mr. Smialek is a director of General Cable
Corporation and Gleason Corporation.
David A. Kauer has been Vice President and Chief Financial
Officer since May 1998, Vice President and Treasurer from April 1997 to May
1998 and Treasurer from September 1993 to April 1997. Previously, Mr. Kauer was
the Controller and Treasurer of Johnson Yokogawa Corporation (a joint venture
of Yokogawa Electric Corporation and Johnson Controls, Inc.) from October 1989
to September 1993.
Kenneth H. Koch has been Vice President, General Counsel and
Secretary since October 1993. Prior thereto, Mr. Koch was a partner with the
law firm of Porter, Wright, Morris & Arthur.
Leslie G. Jacobs has been Vice President, Human Resources since
August 1993 and was Director of Human Resources from January 1990 to August
1993. Prior thereto, Mr. Jacobs was Director, Compensation and Employee
Programs, of Rockwell International.
Michael R. Elia has been Vice President and Controller since
August 1998. Prior thereto, Mr. Elia was Chief Financial Officer of Jordan
Telecommunication Products and from 1994 to 1997, he was Director of Strategic
Planning for Fieldcrest Cannon, Inc. From 1983 to 1994, Mr. Elia held senior
financial positions with Insilco's Technologies Group.
Thompson Dean has been the Managing Partner of DLJMB Inc. since
November 1996. Prior thereto, Mr. Dean was a Managing Director of DLJMB Inc.
(and its predecessor). Mr. Dean serves as a director of Commvault Inc., Von
Hoffman Corporation, Manufacturers' Services Limited, Phase Metrics, Inc., and
Arcade Holding Corporation.
William F. Dawson, Jr. has been a Principal of DLJMB Inc. since
August 1997. From December 1995 to August 1997, he was a Senior Vice President
in DLJ's High Yield Capital Markets Group. Prior thereto, Mr. Dawson was a
Vice President in the Leveraged Finance Group within DLJ's Investment Banking
Group. Mr. Dawson serves as a director of Von Hoffman Corporation and
Thermadyne Holdings Corporation.
EXECUTIVE COMPENSATION
The aggregate remuneration of the Chief Executive Officer
during 1997 and the three other most highly compensated executive officers of
Insilco whose salary and bonus exceeded $100,000 for the fiscal year ended
December 31, 1997, is set forth in the following table:
53
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Restricted Securities
Stock Underlying All Other
Name and Principal Position Year Salary ($) Bonus ($) Award(s)($) Options (#) Compensation ($)(1)
- --------------------------- ---- ---------- --------- ----------- ----------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Smialek, President and
CEO............................... 1997 $550,000 $300,000 -- -- $9,901
1996 537,499 235,000 -- -- 13,251
1995 500,000 180,000 -- -- 13,817
David A. Kauer, Vice President and
Chief Financial Officer........... 1997 164,000 80,000 -- 10,000 3,369
1996 143,917 58,000 -- 1,500 3,109
1995 130,833 40,000 -- -- 2,447
Kenneth H. Koch, Vice President,
General Counsel and Secretary..... 1997 162,833 75,000 -- 10,000 3,314
1996 151,167 78,373 -- 2,500 3,114
1995 138,667 50,000 -- -- 2,693
Leslie G Jacobs, Vice President,
Human Resources and Assistant
Secretary......................... 1997 165,000 70,000 -- 10,000 4,031
1996 155,833 62,500 -- -- 3,762
1995 147,500 50,000 -- -- 2,629
- ----------
(1) Includes employer contributions under Insilco's Employee Thrift Plan
401(k) (the "Thrift Plan") and insurance premiums paid by Insilco.
</TABLE>
Stock Options
The following table shows information regarding Options to
purchase shares of Insilco's Common Stock granted to executive officers named
in the summary compensation table in 1997 under the 1993 Long-Term Incentive
Plan. All of these Options were canceled in the Mergers in exchange for the
Option Cash Payments, except to the extent the holder thereof participated in
the Management Rollover described under "--Employee and Severance Benefits
Agreements."
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
---------------------------------
Potential Realizable Value at Assumed
Annual Rates of Stock Price
Appreciation for Option Term (1)
---------------------------------------
% of Total
Options
Granted to
Employees Exercise
Options in Fiscal Price Expiration
Name Granted (#) Year ($/Share) Date 0%($) 5%($) 10%($)
- ---- ----------- ----------- --------- ---------- ----- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert L. Smialek... -- -- -- -- -- -- --
David A. Kauer...... 10,000 6.6 36.75 6/25/02 0 101,533 224,362
Kenneth H. Koch..... 10,000 6.6 36.75 6/25/02 0 101,533 224,362
Leslie G. Jacobs.... 10,000 6.6 36.75 6/25/02 0 101,533 224,362
- ----------
(1) The amounts under the columns labeled "5%($)" and "10%($)" are included by
Insilco pursuant to certain rules promulgated by the Securities and
Exchange Commission and are not intended to forecast future appreciation, if
any, in the price of Insilco's Common Stock. Such amounts are based on the
assumption that the Option holders hold the options granted for their full
term. The actual value of the Options will vary in accordance with the
market price of Insilco's Common Stock. The column headed "0%($)" is
</TABLE>
54
<PAGE>
included to illustrate that the Options were granted at fair market value
and Option holders will not recognize any gain without an increase in the
stock price, which increase benefits all shareholders commensurately.
The following table provides certain information regarding the
number and the value of Options exercised during 1997 and the value of the
Options held by the executive officers named in the summary compensation table
at fiscal year end.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options at
Name Shares Value Options at Fiscal Year-End (#) Year-End ($) (2)
Acquired on Realized -------------------------------- -----------------------------
Exercise (#) ($)(#) Exercisable Unexercisable Exercisable Unexercisable
------------ ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Smialek.. 160,000 $3,460,000 160,000 80,000 $480,000 $760,000
David A. Kauer..... 5,000 111,875 10,500 11,000 105,000 0
Kenneth H. Koch.... 7,500 167,813 10,332 11,668 96,000 0
Leslie G. Jacobs... 9,524 221,433 12,142 13,334 113,568 0
- ----------
(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.
</TABLE>
Employee and Severance Benefit Agreements
The following is a description of the current employment
agreements with certain of Insilco's executive officers:
We employ Mr. Smialek under an agreement providing that Mr.
Smialek will serve indefinitely as our President and Chief Executive Officer.
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 board of directors (or if
constituted thereunder, a compensation committee thereof). 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 our discretion.
If Mr. Smialek's employment is terminated by us 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 Insilco 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 Insilco resulting from
expiration of the restrictions with shares of common stock.
In December 1996, we entered into a Value Appreciation
Agreement (as amended, the "Value Appreciation Agreement") with Messrs. Kauer,
Koch, Jacobs and certain other officers. The Value Appreciation Agreement
provided that the executives would be entitled to receive a commission from us
in certain circumstances following a transaction giving rise to a change in
55
<PAGE>
control. Upon consummation of the Mergers, a commission on the sale of $2.6
million was paid and the Value Appreciation Agreement was terminated.
Holders of Options and persons entitled to payments under the
Value Appreciation Agreement invested an aggregate of approximately $5 million
to receive (i) phantom equity awards in lieu of the cash amounts otherwise
payable in respect of such Options or the Value Appreciation Agreement or with
the proceeds of a loan extended by Insilco and (ii) shares of common stock of
Holdings purchased for cash (the "Management Rollover"). Holdings filed a
registration statement on Form S-8 with respect to the securities issued in
the Management Rollover. The shares of Holdings Common Stock were sold to such
persons at a purchase price of $45 per share. Holders of such common stock are
not permitted to transfer it until (i) sixty days after they are terminated
from Insilco or (ii) a Significant Event (as defined) occurs. Upon the
occurrence of any Significant Event prior to August 17, 2008, or the person's
termination, Holdings has a right to purchase from such person, and the holder
has a right to sell to Holdings, the Holdings Common Stock at a price equal to
the common stock's Fair Market Value (as defined) thereof or, if such holder
was terminated for Cause (as defined), at the lesser of $45 and the Fair
Market Value. The phantom equity awards, which are not transferable, were
granted pursuant to an Equity Unit Plan that is governed by a committee of the
board of directors of Holdings. Holders of the phantom equity units purchased
them for a price equal to their Fair Market Value (which may be paid in cash,
the termination of options or the foregoing of future salary and bonus
payments). Such equity units are cancelled upon the occurrence of a
Significant Event or the holder's termination from Insilco, at which time the
holder will receive a payment equal to the Fair Market Value of the equity
units or, if such holder was terminated for Cause (as defined), a payment
equal to the lesser of $45 and the Fair Market Value (which amount may be
paid, at the committee's discretion, either in cash or shares of Holdings
Common Stock).
In December 1996, we entered into Income Protection Agreements
with Messrs. Kauer, Koch, Jacobs and certain other officers. The Income
Protection Agreements provide that in the event of termination of an
executive's employment by Insilco 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 Insilco'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
Insilco; and (vi) certain outplacement services. The Income Protection
Agreements have three year terms and automatically renew for subsequent one
year terms, unless terminated by either party.
Director Compensation. In 1993, we adopted the 1993 Nonemployee
Director Stock Incentive Plan covering 360,000 shares of Common Stock for
nonemployee directors in lieu of paying annual or other directors' fees. The
1993 Nonemployee Director Stock Incentive Plan was effectively terminated on
consummation of the Mergers. The terms of the options and the restricted stock
awards, including forfeiture provisions, generally were the same as those
described under "Employee and Severance Benefit Agreements" respecting the
options and restricted stock awarded Mr. Smialek.
56
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
We are a wholly-owned subsidiary of Holdings. The following
table sets forth certain information with respect to the beneficial ownership
of Holdings Common Stock as of October 30, 1998 by (i) any person or group who
beneficially owns more than five percent of Holdings Common Stock, (ii) each
of our directors and executive officers (and each director or officer of
Holdings who is not an officer or director of Insilco) and (iii) all directors
and officers as a group.
<TABLE>
<CAPTION>
Shares
Beneficially Percentage of
Owned After the Outstanding
Name and Address of Beneficial Owner: Mergers Common Stock(3)
- ------------------------------------- --------------- ---------------
<S> <C> <C>
DLJ Merchant Banking Partners II, L.P. and related investors(1)(2)........ 1,043,584 70.8%
399 Venture Partners, Inc.(4)............................................. 266,666 19.3
Thompson Dean(5).......................................................... -- --
William F. Dawson, Jr.(5)................................................. -- --
Keith Palumbo(5).......................................................... -- --
David Y. Howe(6).......................................................... -- --
Randall E. Curran......................................................... -- --
John F. Fort III.......................................................... -- --
Robert L. Smialek......................................................... 2,536 *
Kenneth H. Koch........................................................... 100 *
David A. Kauer............................................................ 27 *
Leslie G. Jacobs.......................................................... 13 *
Michael R. Elia........................................................... -- --
All directors and officers as a group (9 persons)(5)(6)................... 2,676 *
</TABLE>
- ----------
* less than 1%.
(1) Includes 65,603 shares of Holdings Common Stock issuable upon exercise of
the DLJMB Warrants issued in connection with the PIK Preferred Stock. Also
includes 22,425 shares of Holdings Common Stock issuable upon exercise of
warrants issued as part of the Holdings Units purchased by the DLJ
Mezzanine Investors (as defined herein). See "The Merger and the Merger
Financing."
(2) Consists of shares held directly by the following investors related to
DLJMB: DLJ Offshore Partners II, C.V. ("Offshore"), a Netherlands Antilles
limited partnership, DLJ Diversified Partners, L.P. ("Diversified"), a
Delaware limited partnership, DLJMB Funding II, Inc. ("Funding"), a
Delaware corporation, DLJ Merchant Banking Partners II-A, L.P.
("DLJMBPIIA"), a Delaware limited partnership, DLJ Diversified Partners-A
L.P. ("Diversified A"), a Delaware limited partnership, DLJ Millennium
Partners, L.P. ("Millennium"), a Delaware limited partnership, DLJ
Millennium Partners-A, L.P. ("Millennium A"), a Delaware limited
partnership, DLJ EAB Partners, L.P. ("EAB"), UK Investment Plan 1997
Partners ("UK Partners"), a Delaware partnership, DLJ First ESC L.P., a
Delaware limited partnership ("DLJ First ESC"), and DLJ ESC II, L.P., a
Delaware limited partnership ("DLJ ESC II"). See "Certain Relationships and
Related Transactions" and "Plan of Distribution." The address of each of
DLJMB, Diversified, Funding, DLJMBPIIA, Diversified A, Millennium,
Millennium A, DLJ First ESC, DLJ ESC II and EAB is 277 Park Avenue, New
York, New York 10172. The address of Offshore is John B. Gorsiraweg 14,
Willemstad, Curacao, Netherlands Antilles. The address of UK Partners is
2121 Avenue of the Stars, Fox Plaza, Suite 3000, Los Angeles, California
90067.
(3) Does not give effect to the issuance of the Warrants issued together with
the notes.
(4) The address of 399 Venture Partners, Inc. is 399 Park Avenue, New York,
New York, 10022-4614.
(5) Messrs. Dean, Dawson and Palumbo are officers of DLJMB Inc., an affiliate
of DLJMB and the Initial Purchaser. The business address of Messrs. Dean,
Dawson and Palumbo is DLJMB Inc., 277 Park Avenue, New York, New York
10172. Share data shown for such individuals excludes shares shown as held
by the DLJMB Funds, as to which such individuals disclaim beneficial
ownership.
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(6) Mr. Howe is an officer of Citicorp Venture Capital, Ltd., an affiliate of
399 Venture Partners, Inc. The business address of Mr. Howe is 399 Park
Avenue, New York, NY 10022-4614. Share data shown for Mr. Howe excludes
shares shown as held by 399 Venture Partners, Inc., as to which Mr. Howe
disclaims beneficial ownership.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The DLJMB Funds own approximately 69.0% of the outstanding
shares of the Holdings Common Stock (67.0% on a fully diluted basis after
giving effect to the issuance of the Warrants). Messrs. Dean and Dawson are
officers of DLJMB and directors of Insilco and Holdings. Neither Holdings nor
Insilco is aware of any transaction or of any currently proposed transaction,
in which DLJ has any material direct or indirect interest as a result of its
ownership position in a party to the transaction other than Insilco, except as
follows:
Donaldson Lufkin & Jenrette Securities Corporation ("DLJSC")
received customary fees in connection with the distribution of the units of
which the Old Notes were part, received customary fees in connection with the
arranging of the syndication of the new credit facility, received customary
fees in connection with the distribution of the Holdings Units and received an
advisory fee in connection with the Mergers. In connection with the sale of
the Holdings Units, Holdings granted registration rights to DLJSC in
connection with its market-making activities and agreed to indemnify DLJSC
against certain liabilities, including liabilities under the Securities Act.
In addition, DLJ Capital Funding is an agent and lender under the new credit
facility. DLJ Capital Funding and DLJSC have and will receive customary fees
in connection with the provision of the new credit facility. In addition, DLJ
Capital Funding received customary fees in connection with a commitment (since
terminated) to provide financing to fund the Offer to Purchase and refinance
the Existing Credit Facility. The aggregate fees to be received by these DLJ
entities for these services are expected to be approximately $14.9 million.
DLJ Investment Partners, L.P., DLJ ESC II, L.P. and DLJ
Investment Funding, Inc. (the "DLJ Mezzanine Investors"), each of which is an
affiliate of DLJMB, purchased an aggregate of approximately 50% of the Holdings
Units and are entitled to certain registration rights in connection therewith.
In connection with the Mergers, DLJMB and Holdings entered into
an agreement with respect to registration and certain other rights. See
"Description of Capital Stock--Other Stockholder Arrangements."
Prior to the Mergers, Water Street Corporate Recovery Fund I,
L.P. ("Water Street"), an affiliate of Goldman, Sachs & Co. ("Goldman Sachs"),
beneficially owned approximately 45% (62% prior to the Share Repurchase) of
Insilco's common stock. Neither Holdings nor Insilco is 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 Holdings, except as follows:
Goldman Sachs advised Insilco in connection with the Mergers
and received a fee of $2.0 million payable on the consummation of the Mergers.
In the Mergers, Water Street received approximately $81.0 million and retained
62,962 shares of Holdings. Holdings entered into a Registration Rights
Agreement with Water Street in which Water Street has certain registration
rights with respect to such 62,962 shares.
During 1997, Insilco paid Goldman Sachs $3,094,000 in
underwriting fees related to the 10 1/4% notes, $2,042,000 in investment
banking fees in connection with the refinancing and the issuance of the
10 1/4% notes, and $204,000 for services rendered in connection with the
Share Repurchase. Water Street received an aggregate of approximately $154.7
million in the Share Repurchase. Also during 1997, Insilco paid Goldman Sachs
$1,966,000 in investment banking fees and expenses related to the sale of the
Rolodex Business.
In 1996, Goldman Sachs advised Insilco in connection with the
purchase of the Lingemann Business and received an investment banking fee of
$1.0 million and reimbursement of expenses.
An affiliate of Goldman Sachs was a lender under Insilco's
credit agreement that preceded the Existing Credit Facility and in 1995 and
1996 received $459,409 and $372,000, respectively, in fees and interest under
such agreement. Goldman Sachs Credit Partners L.P. is a member of the bank
group under the Existing Credit Facility and received $583,000 from the agent
bank for its portion of the arrangement fee paid by Insilco in 1997.
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In 1995, Insilco loaned $210,000 to James J. Gaffney, a former
director of Insilco, in two separate loan transactions. Each loan bore
interest at a variable rate equal to the applicable federal rate at the date
of the loan, adjusted semi-annually in accordance with changes in the
applicable federal rate. The loan was repaid in full on February 19, 1997.
In 1995, Insilco loaned $128,000 to James D. Miller, a former
executive officer of Insilco. The loan bore interest at a variable rate equal
to the applicable federal rate at the date of the loan, adjusted semi-annually
in accordance with changes in the applicable federal rate. Mr. Miller
terminated his employment with Insilco on April 18, 1997 and the loan was
repaid in full.
Insilco believes that the terms of all the transactions and
existing arrangements set forth above are no less favorable to Insilco than
similar transactions and arrangements which might have been entered into with
unrelated parties.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
New Credit Facility
On November 24, 1998 a new credit facility was provided by a
syndicate of banks and other financial institutions led by Donaldson, Lufkin &
Jenrette Securities Corporation, as arranger, DLJ Capital Funding, as
syndication agent, and The First National Bank of Chicago, as administrative
agent. The new credit facility includes a $125 million term loan facility and
a $175 million revolving credit facility (subject to adjustment as provided
below), which provides for revolving loans and up to $50 million of letters of
credit. The term loan facility has a maturity of seven years. The revolving
credit facility will terminate on July 8, 2003.
Borrowings under the new credit facility generally bear
interest, at Insilco's option, at the Administrative Agent's alternate base
rate or at the reserve-adjusted London Interbank Offered Rate ("LIBOR") plus,
in each case, applicable margins of
(1) in the case of alternate base rate loans,
(x) 1.75% for revolving and
(y) 2.50% for term loans and
(2) in the case of LIBOR loans,
(x) 3.00% for revolving and
(y) 3.75% for term loans.
Insilco pays a commitment fee calculated at a rate of 0.625%
per annum on the daily average unused commitment under the revolving credit
facility. Such fee will be payable monthly in arrears and upon termination of
the revolving credit facility.
Beginning May of 1999, the applicable margins for the revolving
credit facility, as well as the commitment fee and letter of credit fee, will
be subject to possible reductions based on the ratio of consolidated Debt to
EBITDA (each as defined in the new credit facility).
Insilco will pay a letter of credit fee on all outstanding
letters of credit, at a rate per annum equal to the then applicable margin for
LIBOR loans under the revolving credit facility. Such fees will be payable
monthly in arrears. In addition, Insilco will pay customary transaction
charges in connection with any letters of credit.
Availability under the revolving credit facility will decrease:
(1) on the six month anniversary of the new credit facility closing
date by an amount equal to $46.0 million less the aggregate
consideration paid in connection with acquisitions or committed to be
paid pursuant to a signed definitive acquisition agreement entered into
prior to such date, and
(2) by $20.0 million on each of July 10, 2000, July 10, 2001 and
July 10, 2002. The term loan facility will be subject to the following
amortization schedule:
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Year Percentage Reduction
- ---- --------------------
1........................... 1.0%
2........................... 1.0%
3........................... 1.0%
4........................... 1.0%
5........................... 1.0%
6........................... 1.0%
7........................... 94.0%
100.0%
The term loan facility is subject to mandatory prepayment:
(1) with 100% of the net cash proceeds from the issuance of debt,
subject to certain exceptions;
(2) with 100% of the net cash proceeds of asset sales and casualty
events, subject to certain exceptions;
(3) with 50% of Insilco's Excess Cash Flow (as defined in the new
credit facility) to the extent that the Leverage Ratio (as defined in
the new credit facility) exceeds 3.5 to 1.0; and
(4) with 50% of the net cash proceeds from the issuance of equity
to the extent that the Leverage Ratio exceeds 3.5 to 1.0.
Insilco's obligations under the new credit facility are secured
by a first-priority perfected lien on:
(1) substantially all domestic property and assets, tangible and
intangible (other than accounts receivable sold or to be sold into the
accounts receivable program and short term real estate leases), of
Insilco and its domestic subsidiaries;
(2) the capital stock of:
(a) Insilco held by Holdings; and
(b) substantially all subsidiaries of Insilco (provided that no
more than 65% of the equity interest in non-U.S. subsidiaries held
by Insilco and its domestic subsidiaries and no equity interests in
subsidiaries held by foreign subsidiaries will be required to be
pledged); and
(3) all intercompany indebtedness.
Holdings has guaranteed the obligations of Insilco under the
new credit facility. In addition, obligations under the new credit facility
are guaranteed by substantially all domestic subsidiaries.
The new credit facility contains customary covenants and
restrictions on Insilco's ability to engage in certain activities, including,
but not limited to:
(1) limitations on the incurrence of liens and indebtedness;
(2) restrictions on sale lease-back transactions, consolidations,
mergers, sale of assets, capital expenditures, transactions with
affiliates and investments; and
(3) severe restrictions on dividends, and other similar
distributions.
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The new credit facility also contains financial covenants
requiring Insilco to maintain a minimum Interest Coverage Ratio (as defined in
the new credit facility); a minimum Fixed Charge Coverage Ratio (as defined in
the new credit facility); and a maximum Leverage Ratio.
Holdings Senior Discount Notes
As part of the Merger Financing, Holdings issued and sold the
Holdings Units consisting of Holdings Senior Discount Notes and warrants to
purchase Holdings Common Stock. The Holdings Senior Discount Notes accrete at a
rate of 14% compounded semiannually to an aggregate principal amount of
$138,000,000 in August 2003. Interest is payable in cash thereafter on each
February 15 and August 15, commencing February 15, 2004. The Holdings Senior
Discount Notes are subject to redemption at Holdings' option:
(1) in whole or in part, on or after August 15, 2003;
(2) in whole or in part, prior to August 15, 2001, with the
proceeds of one or more Public Equity Offerings (as defined); and
(3) in whole but not in part, upon the occurrence of a Change of
Control (as defined) prior to August 15, 2003, in each case at the
redemption prices set forth therein.
Holders have the option of requiring Holdings to purchase their
Holdings Senior Discount Notes:
(1) in the event that Holdings completes one or more Public Common
Stock Offerings (as defined) prior to August 15, 2001; or
(2) in the event of a Change of Control.
The Holdings Indenture contains covenants that, among other
things, and subject to exceptions:
(1) limit the ability of Holdings and its Restricted Subsidiaries
(as defined) to incur additional indebtedness, contingent obligations
and Disqualified Stock (as defined);
(2) limit the ability of Holdings to grant liens on debt which is
pari passu with or subordinate to the Holdings Senior Discount Notes;
(3) limit the ability of Holdings and its Restricted Subsidiaries
to pay dividends or make other distributions;
(4) limit the issuance of preferred stock by Holdings' Restricted
Subsidiaries;
(5) limit the ability of Holdings and its Restricted Subsidiaries
to engage in transactions with Holdings' affiliates;
(6) limit the ability of Holdings to merge, consolidate or sell all
or substantially all its assets; and
(7) limit the ability of Holdings and Holdings' Restricted
Subsidiaries from making certain asset sales and in connection with
permitted asset sales require that the proceeds thereof be used to make
an offer to repurchase the Holdings Senior Discount Notes at 100% of
their principal amount unless such proceeds have been reinvested in the
business of Holdings or used to repay indebtedness.
In addition, in the event of a Change of Control, Holdings is
required to make an offer to purchase all outstanding Holdings Senior Discount
Notes at a purchase price equal to 101% of their aggregate principal amount,
plus accrued interest to the date of purchase.
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The Holdings Indenture contains certain events of defaults
which include the failure to pay interest and principal on the Holdings Senior
Discount Notes, the failure to comply with covenants in the Holdings Senior
Discount Notes or the Holdings Indenture, a principal payment default at
maturity under, or acceleration of, certain other indebtedness of Holdings and
Holdings' Restricted Subsidiaries, the failure to pay certain final judgments
and certain events occurring under bankruptcy laws.
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DESCRIPTION OF NOTES
General
We issued the notes under an Indenture between Insilco and Star
Bank, N.A., as trustee (the "Trustee"). The terms of the notes include those
stated in the indenture and those made part of the indenture by reference to
the Trust Indenture Act of 1939 (the "Trust Indenture Act").
Because this is a summary it does not contain all the
information that may be important to you. You should read the entire
indenture, including the definitions therein of certain terms used below. We
have filed a copy of the indenture as an exhibit to the registration statement
which includes this prospectus. For definitions of certain terms used in this
description see "-Certain Definitions." As used in this "Description of
Notes", the word "Insilco" refers only to Insilco Corporation and not to any
of its subsidiaries.
The terms of the New Notes are identical in all material
respects to the terms of the Old Notes, except for certain transfer
restrictions and registration rights relating to the Old Notes and except
that, if the registration statement relating to this exchange offer is not
declared effective by the Commission by April 3, 1999, Holders that have
complied with their obligations under the Registration Rights Agreement will
be entitled, subject to certain exceptions, to liquidated damaged in an
amount equal to $0.05 per week per $1,000 principal amount of notes held by
such Holder until July 2, 1999 and increasing every 90 days thereafter up to
a maximum amount equal to $.025 per week per $1,000 principal amount of notes
until the registration statement is declared effective.
The notes
o will be general unsecured obligations of Insilco
o will be subordinated in right of payment to all existing and future
Senior Indebtedness of Insilco (including borrowings under the Credit
Facility)
o will rank senior in right of payment to all future Subordinated
Indebtedness of Insilco
o will be effectively subordinated to all liabilities of Insilco's
subsidiaries, except that with respect to subsidiaries which are
guarantors, the notes will be subordinated only to Senior Indebtedness
of such subsidiaries.
On a pro forma basis, as of September 30, 1998, we and the
guarantors would have had outstanding approximately $206.4 million of Senior
Indebtedness. The indenture permits Insilco and its Subsidiaries to incur
additional Debt, including Senior Indebtedness, in the future. See "Risk
Factors--Subordination of the Notes; Dependence on Subsidiaries" and "--Certain
Covenants--Limitation on Consolidated Debt."
As of the date of the indenture, all of Insilco's Subsidiaries
were Restricted Subsidiaries. However, under certain circumstances, we will be
permitted to designate current or future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries are not be subject to the restrictive
covenants set forth in the indenture.
Principal, Maturity and Interest
The notes are limited to $150 million aggregate principal
amount (including any Additional Notes, as defined below) and will mature on
August 15, 2007. The notes will bear interest at the rate per annum shown on
the front cover of this prospectus from the date of original issuance or from
the most recent Interest Payment Date to which interest has been paid or
provided for, payable semi-annually on February 15 and August 15 of each year,
commencing February 15, 1999, to the Person in whose name the note (or any
predecessor note) is registered (a "Holder") at the close of business on the
preceding February 1 or August 1, as the case may be. The notes will bear
interest on overdue principal and premium (if any) and, to the extent
permitted by law, overdue interest at the rate per annum shown on the front
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cover of this prospectus plus 2%. Interest on the notes will be computed on
the basis of a 360-day year of twelve 30-day months.
The principal of (and premium, if any) and interest and
Liquidated Damages (as defined herein), if any, on the notes will be payable,
and the transfer of notes will be registrable, at the office or agency of
Insilco maintained for that purpose in the Borough of Manhattan, The City of
New York. In addition, payment of interest and Liquidated Damages, if any,
may, at the option of Insilco, be made by check mailed to the address of the
Person entitled thereto as it appears in the Security Register; provided,
however, that all payments of the principal (and premium, if any) and interest
on notes the Holders of which have given wire transfer instructions to Insilco
or its agent at least 10 Business Days prior to the applicable payment date
will be required to be made by wire transfer of immediately available funds to
the accounts specified by such Holders in such instructions.
Subject to the covenants described below, we may issue
additional notes of up to an aggregate principal amount of $30 million (the
"Additional Notes") under the indenture having the same terms in all respects
as the notes (or in all respects except for the payment of interest on the
notes
(1) scheduled and paid prior to the date of issuance of such
Additional Notes or
(2) payable on the first interest payment date following such date
of issuance). The notes offered hereby and any such Additional Notes
would be treated as a single class for all purposes under the indenture.
Optional Redemption
The notes will be subject to redemption, at our option, in
whole or in part, at any time on or after August 15, 2002 and prior to
maturity, upon not less than 30 nor more than 60 days' notice mailed to each
Holder of notes to be redeemed at such Holder's address appearing in the
Security Register, in amounts of $1,000 or an integral multiple of $1,000, at
the following Redemption Prices (expressed as percentages of the principal
amount redeemed), plus accrued interest to but excluding the Redemption Date
(subject to the right of Holders of record on the relevant Regular Record Date
to receive interest due on an Interest Payment Date that is on or prior to the
Redemption Date), if redeemed during the twelve-month period beginning on
August 15 of each of the years indicated below:
<TABLE>
<CAPTION>
Year Redemption Price
- ---- ----------------
<S> <C>
2002................................. 106.000%
2003................................. 104.000%
2004................................. 102.000%
2005 and thereafter.................. 100.000%
</TABLE>
If less than all the notes are to be redeemed, the particular
notes to be redeemed will be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the outstanding notes not previously
called for redemption, by such method as the Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of portions
(equal to $1,000 or any integral multiple thereof) of the principal amount of
notes of a denomination larger than $1,000.
Mandatory Redemption
Except as described above under "Special Redemption" and below
under "Repurchase at the Option of Holders--Asset Dispositions" and "--Change of
Control," the notes will not have the benefit of any mandatory redemption or
sinking fund obligations of Insilco.
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Repurchase at the Option of Holders
Asset Dispositions
Insilco may not make, and may not permit any Restricted
Subsidiary to make, any Asset Disposition (other than an Asset Disposition
permitted under the indenture as described in "Covenants--Mergers,
Consolidations and Certain Sales of Assets" below) in one transaction (or
series of related transactions) unless:
(1) Insilco (or such Restricted Subsidiary, as the case may be)
receives consideration at the time of such disposition at least equal to
the fair market value of the shares or other assets disposed of (as
determined in good faith by the Board of Directors and evidenced by
their resolution) for any transaction (or series of related
transactions) involving in excess of $2 million;
(2) at least 80% of the consideration received by Insilco (or such
Restricted Subsidiary) consists of:
(u) cash, readily marketable cash equivalents, readily
marketable fixed-income securities or equity securities traded on a
national securities exchange or NASDAQ (valued, in the case of
securities, at the market value thereof when received by Insilco or
such Restricted Subsidiary),
(v) the assumption of Debt or other liabilities reflected on the
consolidated balance sheet of Insilco and its Restricted
Subsidiaries in accordance with generally accepted accounting
principles (excluding Debt or any other liabilities subordinate in
right of payment to the notes) and release from all liability on
such Debt or other liabilities assumed,
(w) assets used by, or stock or other ownership interests in, a
Person that upon the consummation of such Asset Disposition becomes
a Restricted Subsidiary and will be principally engaged in the
business of Insilco or any of its Wholly Owned Restricted
Subsidiaries substantially as such business was conducted prior to
such Asset Disposition (as determined by the Board of Directors in
good faith) or
(x) any combination thereof and
(3) 100% of the Net Available Proceeds from such Asset Disposition
(including from the sale of any marketable cash equivalents,
fixed-income or equity securities received therein), less any amounts
("Reinvested Amounts") invested, within one year from the later of the
date of such Asset Disposition or the receipt of such Net Available
Proceeds, in assets that will be used in the same or a substantially
similar or related business of Insilco or any of its Wholly Owned
Restricted Subsidiaries as conducted prior to such Asset Disposition (as
determined by the Board of Directors in good faith), are applied by
Insilco or a Restricted Subsidiary
(a) first, within one year from the later of the date of such
Asset Disposition or the receipt of such Net Available Proceeds, to
repayment of Senior Indebtedness of Insilco or Debt of its
Restricted Subsidiaries then outstanding under any agreements or
instruments which would require such application or which would
prohibit payments pursuant to the following clause (b);
(b) second, to the extent Net Available Proceeds are not
required to be applied to Senior Indebtedness of Insilco or Debt of
Restricted Subsidiaries as specified in clause (a), to purchases of
outstanding notes pursuant to an Offer to Purchase at a purchase
price equal to 100% of their principal amount, plus accrued
interest to the date of purchase (subject to the rights of Holders
of record on the relevant Regular Record Date to receive interest
due on an Interest Payment Date that is on or prior to the purchase
date), and, to the extent required by the terms thereof, to
purchases (on a pro rata basis with the notes) of any other Debt of
Insilco or its Restricted Subsidiaries that is pari passu with the
notes at a price no greater than 100% of the principal amount
thereof, plus accrued interest to the date of purchase, in each
case to the extent such purchases are not prohibited by the terms
of any Senior Indebtedness of Insilco or of any Debt of Restricted
Subsidiaries then outstanding;
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(c) third, to the extent of any remaining Net Available Proceeds
following purchases pursuant to the foregoing clause (b), to the
repayment of other Debt of Insilco or Debt of a Restricted
Subsidiary, to the extent permitted under the terms thereof and
(d) fourth, to the extent of any remaining Net Available
Proceeds, to any other use as determined by Insilco which is not
otherwise prohibited by the indenture.
The foregoing obligations will not continue after a discharge of Insilco or
defeasance from its obligations with respect to the notes. See "Defeasance"
below.
Notwithstanding the foregoing, Insilco will not be required to
comply with the requirements described in clause (2) or clause (3) of the
preceding paragraph for any Asset Disposition that is an Excepted Disposition,
and Insilco will not be required to comply with the requirements described in
clause (3) of the preceding paragraph except at any time and from time to time
that the aggregate amount of Net Available Proceeds, less Reinvested Amounts,
required to be applied pursuant to clause (3) (and not theretofore so applied)
exceeds $10 million; provided, however, with respect to such clause (3), that
if any Restricted Subsidiary in which a Reinvested Amount is invested becomes
an Unrestricted Subsidiary thereafter, such change in status, except under
certain circumstances, will be deemed an Asset Disposition with Net Available
Proceeds of cash in an amount equal to such Reinvested Amount (less any
portion of such Reinvested Amount theretofore distributed to Insilco or any
Restricted Subsidiary), and such amount of cash will be applied pursuant to
clause (3) above (subject to this proviso).
Any Offer to Purchase required by the provisions described
above will be effected by the sending of the written terms and conditions
thereof (the "Offer Document"), by first class mail, to Holders of the notes
within 30 days after the date which is one year after the later of the date of
such Asset Disposition or the receipt of the related Net Available Proceeds.
The form of the Offer to Purchase and the requirements that a Holder must
satisfy to tender any New Note pursuant to such Offer to Purchase are
substantially the same as those described below under "--Change of Control."
Change of Control
Within 30 days following the consummation of a transaction that
results in a Change of Control (as defined below), Insilco will commence an
Offer to Purchase all outstanding notes, at a purchase price equal to 101% of
their aggregate principal amount, plus accrued interest to the date of
purchase (subject to the rights of Holders of record on the relevant Regular
Record Date to receive interest due on an Interest Payment Date that is on or
prior to the date of purchase). Such obligation will not continue after a
discharge of Insilco or defeasance from its obligations with respect to the
notes. See "Defeasance."
Insilco will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to
the extent such laws and regulations are applicable in connection with the
repurchase of the notes resulting from a Change of Control.
Under the terms of the Credit Facility, a Change of Control
could constitute an event of default thereunder and prohibit the redemption of
the notes. If an event of default under the Credit Facility has occurred and
is continuing, payments owing on the notes could be blocked pursuant to the
subordination provisions of the notes. See "--Subordination" below. To repay
the notes, it may be necessary for Insilco first to recapitalize or refinance
the Credit Facility and some or all of its outstanding indebtedness (if any).
There can be no assurance that such recapitalization or refinancing, if
required, would be accomplished on favorable terms, in a timely manner or at
all.
Prior to the mailing of an Offer Document, Insilco will in good
faith seek to obtain any required consents of holders of Senior Indebtedness
or repay the outstanding obligations thereunder. The right of holders to
require Insilco to purchase notes pursuant to an Offer to Purchase will be
subject to obtaining the requisite consents or making such repayment.
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Within 30 days following a Change of Control, an Offer Document
will be sent, by first class mail, to Holders of the notes, accompanied by
such information regarding Insilco and its Subsidiaries as Insilco in good
faith believes will enable the holders to make an informed decision with
respect to the Offer to Purchase, which at a minimum will include
(1) the most recent annual and quarterly financial statements and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" contained in the documents required to be filed with the
Trustee pursuant to the provisions described under "Covenants--Provision
of Financial Information" below (which requirements may be satisfied by
delivery of such documents together with the Offer to Purchase),
(2) a description of material developments in Insilco's business
subsequent to the date of the latest of such financial statements
referred to in clause (1) (including a description of the events
requiring Insilco to make the Offer to Purchase),
(3) if applicable, appropriate pro forma financial information
concerning the Offer to Purchase and the events requiring Insilco to
make the Offer to Purchase and
(4) any other information required by applicable law to be included
therein. The Offer Document will contain all instructions and materials
necessary to enable holders of the notes to tender notes pursuant to the
Offer to Purchase.
The Offer Document will also state
(1) that a Change of Control has occurred (or, if the Offer to
Purchase is delivered in connection with an Asset Disposition, that an
Asset Disposition has occurred) and that Insilco will offer to purchase
the holder's notes,
(2) the Expiration Date of the Offer to Purchase, which will be,
subject to any contrary requirements of applicable law, not less than 30
days or more than 60 days after the date of such Offer Document,
(3) the Purchase Date for the purchase of notes which will be
within five Business Days after the Expiration Date,
(4) the aggregate principal amount of notes to be purchased
(including, if less than 100%, the manner by which such purchase has
been determined pursuant to the indenture) and the purchase price and
(5) a description of the procedure which a holder must follow to
tender all or any portion of the notes.
To tender any note, a holder must surrender such note at the
place or places specified in the Offer Document prior to the close of business
on the Expiration Date (such note being duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to Insilco and the Trustee
duly executed by, the holder thereof or its attorney duly authorized in
writing). A holder will be entitled to withdraw all or any portion of notes
tendered if Insilco (or its Paying Agent) receives, not later than the close
of business on the Expiration Date, a telegram, facsimile transmission or
letter setting forth the name of the holder, the principal amount of the note
the holder tendered, the certificate number of the note the holder tendered
and a statement that such holder is withdrawing all or a portion of his
tender. Any portion of a note tendered must be tendered in an integral
multiple of $1,000 principal amount.
Subordination
The payment of the principal of (and premium, if any) and
interest on the notes and all other Obligations in respect of the notes or on
account of any Claim (collectively, the "Subordinated Obligations") will, in
certain circumstances as set forth in the indenture, be subordinated in right
of payment to the prior payment in full of all Senior Indebtedness of Insilco.
Upon any payment or distribution of assets of Insilco to creditors upon any
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liquidation, dissolution, winding up, reorganization, assignment for the
benefit of creditors, marshaling of assets and liabilities or any bankruptcy,
insolvency or similar proceedings ("Insolvency Proceedings") of Insilco, the
holders of Senior Indebtedness of Insilco will be entitled to receive payment
in full of the principal of (and premium, if any), interest on and all other
Obligations in respect of such Senior Indebtedness, including all amounts due
or to become due on all such Senior Indebtedness, or provision will be made
for payment in cash or cash equivalents or otherwise in a manner satisfactory
to the holders of such Senior Indebtedness, before the Holders of notes are
entitled to receive any Securities Payment. "Securities Payment" means any
payment or distribution of any kind, whether in cash, property or securities
(including any payment or distribution deliverable by reason of the payment of
any other Debt subordinated to the notes) on account of the Subordinated
Obligations or on account of the purchase, redemption or other acquisition of
notes by Insilco or any Subsidiary of Insilco. If notwithstanding the
foregoing the Trustee or the Holder of any note receives during the pendency
of any Insolvency Proceeding any Securities Payment before all Senior
Indebtedness of Insilco is paid in full or payment thereof is provided for in
cash or cash equivalents or otherwise in a manner satisfactory to the holders
of such Senior Indebtedness, then in such event such Securities Payment will
be required to be paid over or delivered forthwith to the holders of Senior
Indebtedness for application to the payment of all Senior Indebtedness of
Insilco remaining unpaid, to the extent necessary to pay such Senior
Indebtedness in full. Notwithstanding the foregoing, Holders of the notes may
receive Subordinated Securities.
Insilco may not make any Securities Payment (other than
pursuant to the Special Redemption and except for Subordinated Securities) if
there has occurred and is continuing a default in the payment of the principal
of (or premium, if any) or interest on or any other payment Obligation owing
in respect of any Designated Senior Indebtedness or if there has occurred and
is continuing any event of default with respect to any Designated Senior
Indebtedness that has resulted in such Designated Senior Indebtedness becoming
or being declared due and payable prior to the date on which it would
otherwise have become due and payable (a "Senior Payment Default"). In
addition, if any default (other than a Senior Payment Default) with respect to
any Designated Senior Indebtedness permitting after notice or lapse of time
(or both) the holders thereof (or a trustee on behalf thereof) to accelerate
the maturity thereof (a "Senior Nonmonetary Default") has occurred and is
continuing and Insilco and the Trustee have received written notice thereof
from the administrative agent under the Credit Facility or the trustee or
other authorized representative of the holders of any Designated Senior
Indebtedness (in any case, a "Senior Representative"), then Insilco may not
make any Securities Payment (other than pursuant to the Special Redemption and
except for Subordinated Securities) for a period (a "Blockage Period")
commencing on the date Insilco and the Trustee receive such written notice and
ending on the earliest of
(1) 179 days after such date;
(2) the date, if any, on which the Designated Senior Indebtedness
to which such default relates is paid in full or such default is waived
or otherwise cured; and
(3) the date on which Insilco and the Trustee receive written
notice from such Senior Representative terminating the Blockage Period.
If notwithstanding the foregoing the Trustee or the Holder of
any note receives during the pendency of any Blockage Period any Securities
Payment before such Designated Senior Indebtedness is paid in full or payment
thereof is provided for in cash or cash equivalents or otherwise in a manner
satisfactory to the holders of such Designated Senior Indebtedness, then in
such event such Securities Payment will be required to be paid over or
delivered forthwith to the holders of such Designated Senior Indebtedness for
application to the payment thereof, to the extent necessary to pay such
Designated Senior Indebtedness in full. Notwithstanding the foregoing, Holders
of the notes may receive Subordinated Securities.
During any 360-day period, the aggregate of all Blockage
Periods shall not exceed 179 days and there shall be a period of at least 181
consecutive days in each consecutive 360-day period when no Blockage Period is
in effect. When no Blockage Period is in effect, Insilco may make all required
payments (including any such payments not made during any Blockage Period) in
respect of the notes not prohibited by the terms of these subordination
provisions. No Senior Nonmonetary Default that existed or was continuing on
the date of commencement of any Blockage Period will be, or can be, made the
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basis for the commencement of a subsequent Blockage Period, unless such
default has been cured or waived for a period of not less than 90 consecutive
days.
By reason of the subordination of the notes described above, in
the event of insolvency, creditors of Insilco that are not holders of Senior
Indebtedness of Insilco or of the notes may recover less, ratably, than
holders of such Senior Indebtedness and may recover more, ratably, than the
Holders of the notes, and Insilco may be unable to fully satisfy its
obligations in connection with the notes.
The subordination provisions described above will cease to be
applicable to the notes upon any defeasance or covenant defeasance of the
notes as described below under "Defeasance."
Note Guarantees
Insilco's wholly-owned Domestic Restricted Subsidiaries jointly
and severally guarantee the notes. The indenture provides that if any future
wholly-owned Domestic Restricted Subsidiary guarantees any Indebtedness under
the Credit Facility, then such Domestic Restricted Subsidiary shall become a
guarantor under the indenture and execute a Supplemental Indenture and deliver
an Opinion of Counsel, in accordance with the terms of the indenture. The
guarantee of each guarantor is subordinated to the prior payment in full in
cash or cash equivalents of all existing and future Senior Indebtedness of
such guarantor (including such guarantor's guarantee of the Credit Facility)
to the same extent that the notes are subordinated to Senior Indebtedness of
Insilco. The obligations of each guarantor under its guarantee are limited so
as not to constitute a fraudulent conveyance under applicable law.
The indenture provides that, in the event of a sale or other
disposition of all or substantially all of the assets of any guarantor, by way
of merger, consolidation or otherwise, or a sale or other disposition of all
or substantially all of the capital stock of any guarantor held by Insilco or
any Restricted Subsidiary, such guarantor (in the event of a sale or other
disposition, by way of such a merger, consolidation or otherwise, of all or
substantially all of the capital stock of such guarantor) or the Person
acquiring the property (in the event of a sale or other disposition of all or
substantially all of the assets of such guarantor) will be released and
relieved of any obligations under its guarantee.
Certain Covenants
Limitation on Consolidated Debt
Insilco may not, and may not permit any Restricted Subsidiary
to, Incur any Debt unless, immediately after giving pro forma effect to the
Incurrence of such Debt and the receipt and application of the proceeds
thereof, the Consolidated EBITDA Coverage Ratio of Insilco and its Restricted
Subsidiaries for the four full fiscal quarters next preceding the Incurrence
of such Debt for which financial information is available, calculated on a pro
forma basis as if such Debt had been Incurred and the proceeds thereof had
been received and so applied at the beginning of the four fiscal quarters,
would be greater than (x) 1.9 to 1 for Debt Incurred on or prior to November
9, 1999 and (y) 2.0 to 1 for Debt Incurred thereafter.
Notwithstanding the foregoing limitation, the following Debt
may be Incurred:
(1) Debt Incurred by Insilco or any Restricted Subsidiary under the
Credit Facility in an aggregate principal amount at any time outstanding
not to exceed $200 million, less (A) $20 million at each of the third,
fourth and fifth anniversaries of the Credit Facility's effective date,
plus (B) increased revolving credit commitments thereunder in an
aggregate amount not exceeding in the aggregate the amount of Debt that
is permitted to be Incurred, but has not been Incurred, under clauses
(4) and (8) of this paragraph, and plus (C) the amount of Debt Incurred
under the Credit Facility on a term loan basis that is Incurred pursuant
to the immediately preceding paragraph, and, with respect to all of the
foregoing, any renewal, extension, refinancing or refunding (a
"refinancing") of such Debt in an amount that does not exceed the sum of
the amount of the revolving credit commitments and the amount of the
outstanding term Debt under the Credit Facility immediately prior to
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such renewal, extension, refinancing or refunding; provided that no Debt
Incurred on a term loan basis may be refinanced on a revolving credit
basis;
(2) the original issuance by Insilco of the Debt evidenced by the
notes and the issuance by Insilco's subsidiaries of the guarantees;
(3) Debt (other than Debt described in another clause of this
paragraph) of Insilco outstanding on the date of the indenture after
giving effect to the application of the proceeds of the notes;
(4) Debt in respect of Capital Lease Obligations, mortgage
financings or other purchase money obligations, in an aggregate
principal amount at any time outstanding not to exceed $15 million
(including Debt refinanced pursuant to clause (7) of this paragraph and
without duplication at such time of any portion of any revolving credit
commitment then in effect that represents an increase made under the
immediately preceding clause (1)(B) in reliance on this clause (4)),
Incurred by Insilco or any Restricted Subsidiary for the purpose of
financing all or any part of the acquisition or improvement of any
property used in the business of Insilco or such Restricted Subsidiary;
(5) Debt owed by Insilco to any Wholly Owned Restricted Subsidiary
or Debt owed by any Restricted Subsidiary to Insilco or a Wholly Owned
Restricted Subsidiary; provided, however, that
(a) any such Debt (not pledged as security for any Senior
Indebtedness) owing by Insilco to a Wholly Owned Restricted
Subsidiary shall be Subordinated Indebtedness evidenced by an
intercompany promissory note and
(b) upon either
(1) the transfer or other disposition (excluding any pledge
thereof as security for any Senior Indebtedness) by such Wholly
Owned Restricted Subsidiary or Insilco of any Debt so permitted
to a Person other than Insilco or another Wholly Owned
Restricted Subsidiary or
(2) the issuance (other than directors' qualifying shares),
sale, lease, transfer or other disposition (including by
consolidation or merger) of shares of Capital Stock (other than
any pledge thereof as security for any Senior Indebtedness) of
such Wholly Owned Restricted Subsidiary to a Person other than
Insilco or another such Wholly Owned Restricted Subsidiary, the
provisions of this clause (5) shall no longer be applicable to
such Debt and such Debt shall be deemed to have been Incurred at
the time of such issuance, sale, lease, transfer or other
disposition, as the case may be;
(6) Debt Incurred by Insilco or any Restricted Subsidiary
consisting of Permitted Interest Rate, Currency or Commodity Price
Agreements;
(7) Debt which is exchanged for or the proceeds of which are used
to refinance or refund, or any extension or renewal of, outstanding Debt
Incurred pursuant to the preceding paragraph or clauses (2), (3) or (4)
of this paragraph (each of the foregoing, a "refinancing") in an
aggregate principal amount not to exceed the principal amount of the
Debt so refinanced, plus the amount of any premium required to be paid
in connection with such refinancing pursuant to the terms of the Debt so
refinanced or the amount of any premium reasonably determined by Insilco
as necessary to accomplish such refinancing by means of a tender offer
or privately negotiated repurchase and plus the expenses of Insilco or
the Restricted Subsidiary, as the case may be, Incurred in connection
with such refinancing; provided, however, that
(a) Debt the proceeds of which are used to refinance the notes
or Debt that is pari passu with or subordinate in right of payment
to the notes shall only be permitted if
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(1) in the case of any refinancing of the notes or Debt that
is pari passu with the notes, the refinancing Debt is Incurred
by Insilco and made pari passu with the notes or subordinated in
right of payment to the notes, and
(2) in the case of any refinancing of Debt that is
subordinate in right of payment to the notes, the refinancing
Debt is Incurred by Insilco and constitutes Subordinated
Indebtedness;
(b) the refinancing Debt by its terms, or by the terms of any
agreement or instrument pursuant to which such Debt is issued,
(1) does not provide for payments of principal of such Debt
at the stated maturity thereof or by way of a sinking fund
applicable thereto or by way of any mandatory redemption,
defeasance, retirement or repurchase thereof (including any
redemption, defeasance, retirement or repurchase which is
contingent upon events or circumstances, but excluding any
retirement required by virtue of acceleration of such Debt upon
any event of default thereunder), in each case prior to the
final stated maturity of the Debt being refinanced and
(2) except as provided for by the terms of the Debt being
refinanced, does not permit redemption or other retirement
(including pursuant to an offer to purchase) of such Debt at the
option of the holder thereof prior to the final stated maturity
of the Debt being refinanced other than a redemption or other
retirement at the option of the holder of such Debt (including
pursuant to an offer to purchase) which is conditioned upon
provisions substantially similar to those described above under
"Repurchase at the Option of Holders-- Asset Dispositions" and
"--Change of Control";
(c) in the case of any refinancing of Debt Incurred by Insilco,
the refinancing Debt may be Incurred only by Insilco and, in the
case of any refinancing of Debt Incurred by a Restricted
Subsidiary, the refinancing Debt may be Incurred only by Insilco or
such Restricted Subsidiary; provided, further, that Debt Incurred
pursuant to this clause (7) may not be Incurred more than 90 days
prior to the application of the proceeds to repay the Debt to be
refinanced; and
(8) Debt not otherwise permitted to be Incurred by Insilco or any
Restricted Subsidiary pursuant to clauses (1) through (7) above, which,
together with any other outstanding Debt Incurred pursuant to this
clause (8), has an aggregate principal amount at any time outstanding
not in excess of $15 million (without duplication at such time of any
portion of any revolving credit commitment then in effect that
represents an increase made under the immediately preceding clause
(1)(B) in reliance on this clause (8)).
Limitation on Debt and Preferred Stock of Subsidiaries
Insilco may not cause, and may not permit, any Restricted
Subsidiary to Incur any Debt or issue any Preferred Stock except:
(1) Debt Incurred by any Restricted Subsidiary that is expressly
permitted in the preceding paragraph;
(2) Debt or Preferred Stock outstanding on the date of the
indenture after giving effect to the application of the proceeds of the
notes;
(3) Debt or Preferred Stock issued to and held by Insilco or a
Wholly Owned Restricted Subsidiary (provided that such Debt or Preferred
Stock is at all times held by Insilco or a Wholly Owned Restricted
Subsidiary);
(4) Debt or Preferred Stock Incurred or issued by a Person prior to
the time
(A) such Person became a Restricted Subsidiary,
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(B) such Person merges into or consolidates with a Restricted
Subsidiary or
(C) another Restricted Subsidiary merges into or consolidates
with such Person (in a transaction in which such Person becomes a
Restricted Subsidiary), which Debt or Preferred Stock was not
Incurred or issued in anticipation of such transaction and was
outstanding prior to such transaction; or
(5) any guarantee incurred by any guarantor; provided, in the
case of this clause (5), that if the obligation guaranteed is
(x) subordinated to the notes, then such guarantee shall be
subordinated to the guarantee under the indenture to substantially
the same extent or
(y) pari passu with the notes, then such guarantee shall be pari
passu with the guarantee under the indenture to substantially the
same extent.
Limitation on Layered Debt
Insilco may not Incur any Debt which by its terms is both
(1) subordinated in right of payment to any Senior Indebtedness
and
(2) senior in right of payment to the notes.
Limitation on Issuance of Guarantees of Subordinated
Indebtedness
Insilco may not permit any Restricted Subsidiary, directly or
indirectly, to assume, guarantee or in any other manner become liable with
respect to any Debt of Insilco that by its terms is pari passu with or junior
in right of payment to the notes unless such Restricted Subsidiary has issued
a guarantee under the indenture.
Limitation on Restricted Payments
Insilco may not, and may not permit any Restricted Subsidiary
to, directly or indirectly,
(1) declare or pay any dividend, or make any distribution, of any
kind or character (whether in cash, property or securities) in respect
of the Capital Stock of Insilco or any Restricted Subsidiary or to the
holders thereof in their capacity as such (excluding
(u) dividends or distributions to the extent payable in shares
of the Capital Stock of Insilco (other than Redeemable Interests)
or in options, warrants or other rights to acquire the Capital
Stock of Insilco (other than Redeemable Interests),
(v) dividends or distributions by a Restricted Subsidiary to
Insilco or another Restricted Subsidiary and
(w) the payment of pro rata dividends by a Restricted Subsidiary
to holders of both minority and majority interests in such
Restricted Subsidiary),
(2) other than pursuant to the Special Redemption, purchase, redeem
or otherwise acquire or retire for value
(a) any Capital Stock of Insilco or any Capital Stock of or
other ownership interests in any Subsidiary or any Affiliate or
Related Person of Insilco or
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(b) any options, warrants or rights to purchase or acquire
shares of Capital Stock of Insilco or any Capital Stock of or other
ownership interests in any Subsidiary or any Affiliate or Related
Person of Insilco (excluding, in each case of (a) and (b), the
purchase, redemption, acquisition or retirement by any Restricted
Subsidiary of any of its Capital Stock, other ownership interests
or options, warrants or rights to purchase such Capital Stock or
other ownership interests
(x) owned by Insilco or any Restricted Subsidiary,
(y) owned by any other Person if effected on a pro rata basis
with respect to holders of both minority and majority interests
in such Restricted Subsidiary or
(z) owned by any officer, director or employee of Insilco,
but solely for the purpose of enabling such Person (or Insilco
on his or her behalf) to satisfy tax obligations in respect of
his or her exercise of options, warrants or rights to purchase
Capital Stock of Insilco),
(3) make any Investment that is not a Permitted Investment or
(4) redeem, defease, repurchase, retire or otherwise acquire or
retire for value, prior to any scheduled maturity, repayment or sinking
fund payment, Debt of Insilco that is subordinate in right of payment to
the notes (each of the transactions described in clauses (1) through (4)
being a "Restricted Payment"), if:
(1) an Event of Default, or an event that with the lapse of time
or the giving of notice, or both, would constitute an Event of
Default, shall have occurred and be continuing;
(2) Insilco would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment
had been made at the beginning of the most recently ended four full
fiscal quarter period for which annual or quarterly financial
statements are publicly available immediately preceding the date of
such Restricted Payment, not have been permitted to Incur at least
$1.00 of additional Debt pursuant to the Consolidated EBITDA
Coverage Ratio test described in the first paragraph under
"--Limitation on Consolidated Debt" above; or
(3) upon giving effect to such Restricted Payment, the aggregate
of all Restricted Payments (excluding Restricted Payments permitted
by clauses (2), (3) and (4) of the next succeeding paragraph) from
the date of the indenture (the amount so expended, if other than in
cash, determined in good faith by the Board of Directors) exceeds
the sum, without duplication, of:
(a) 50% of the aggregate Consolidated Net Income (or, in case
Consolidated Net Income shall be negative, less 100% of such
deficit) for the period (taken as one accounting period) from
June 30, 1997 through the end of Insilco's most recently ended
fiscal quarter for which annual or quarterly financial
statements are publicly available at the time of such Restricted
Payment;
(b) 100% of the aggregate net cash proceeds from the issuance
and sale (other than to a Restricted Subsidiary) of Capital
Stock (other than Redeemable Interests) of Insilco and options,
warrants or other rights to acquire Capital Stock (other than
Redeemable Interests and Debt convertible into Capital Stock) of
Insilco and the principal amount of Debt and Redeemable
Interests of Insilco that has been converted into or exchanged
for Capital Stock (other than Redeemable Interests) of Insilco
after June 30, 1997, provided that any such net proceeds
received by Insilco from an employee stock ownership plan
financed by loans from Insilco or a Subsidiary of Insilco shall
be included only to the extent such loans have been repaid with
cash on or prior to the date of determination;
(c) the amount by which the total consideration paid by
Insilco in the Tender Offer was less than $110 million; and
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(d) $5 million.
The foregoing covenant will not be violated by reason of:
(1) the payment of any dividend within 60 days after declaration
thereof if at the declaration date such payment would have complied with
the foregoing covenant;
(2) any payment made by Insilco in connection with the consummation
of the Transactions;
(3) any refinancing or refunding of Debt permitted pursuant to
clause (1) or (7) of the second paragraph under "Limitation on
Consolidated Debt" above; and
(4) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of Insilco or any options, warrants or rights
to purchase or acquire shares of Capital Stock of Insilco in exchange
for, or out of the net cash proceeds of, the substantially concurrent
issuance or sale (other than to a Restricted Subsidiary) of Capital
Stock (other than Redeemable Interests) of Insilco; provided that the
amount of any such net cash proceeds that are utilized for any such
purchase, redemption or other acquisition or retirement for value shall
be excluded from clause (3)(b) in the foregoing paragraph.
Upon the designation of any Restricted Subsidiary as an
Unrestricted Subsidiary, an amount equal to the greater of the book value and
the fair market value of all assets of such Restricted Subsidiary at the end
of Insilco's most recently ended fiscal quarter for which annual or quarterly
financial statements are publicly available prior to such designation will be
deemed to be a Restricted Payment at the time of such designation for purposes
of calculating the aggregate amount of Restricted Payments (including the
Restricted Payment resulting from such designation) permitted under provisions
described in the second preceding paragraph.
Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries
Insilco may not, and may not permit any Restricted Subsidiary
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary
(1) to pay dividends (in cash or otherwise) or make any other
distributions in respect of its Capital Stock or other ownership
interests or pay any Debt or other obligation owed to Insilco or any
other Restricted Subsidiary;
(2) to make loans or advances to Insilco or any other Restricted
Subsidiary; or
(3) to sell, lease or transfer any of its property or assets to
Insilco or any Restricted Subsidiary. Notwithstanding the foregoing,
Insilco may, and may permit any Restricted Subsidiary to, suffer to
exist any such encumbrance or restriction:
(a) pursuant to any agreement in effect on the date of the
indenture (including the Credit Facility, the indenture and the
notes);
(b) pursuant to an agreement relating to any Debt Incurred by
such Restricted Subsidiary prior to the date on which such
Restricted Subsidiary was acquired by Insilco and outstanding on
such date and not Incurred in anticipation of becoming a Restricted
Subsidiary;
(c) pursuant to mortgages and other purchase money obligations
in connection with property acquired or improved in the ordinary
course of business or liens in connection therewith permitted to be
Incurred under the indenture as described in "--Limitation on
Liens" below that impose restrictions of the nature described in
clause (3) above on the property so acquired or improved;
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(d) pursuant to an agreement effecting a renewal, refunding,
refinancing or extension of Debt Incurred pursuant to an agreement
referred to in clause (a), (b) or (c) above, provided, however,
that the provisions contained in such renewal, refunding,
refinancing or extension agreement relating to such encumbrance or
restriction are no more restrictive in any material respect than
the provisions contained in the agreement the subject thereof (as
determined in good faith by the Board of Directors);
(e) pursuant to customary non-assignment provisions entered into
in the ordinary course of business consistent with past practices
in leases, licenses or contracts to the extent such provisions
restrict the transfer, subletting or other disposition of any such
lease, license or contract;
(f) pursuant to an agreement which has been entered into for the
sale or other disposition of all or substantially all of the
Capital Stock or assets of such Restricted Subsidiary, provided
that consummation of such transaction would not result in an Event
of Default or an event that, with the passing of time or the giving
of notice or both, would constitute an Event of Default, that such
restriction terminates if such transaction is closed or abandoned
and that the closing or abandonment of such transaction occurs
within one year of the date such agreement was entered into; or
(g) arising under any applicable law, rule, regulation or order.
Limitation on Liens
Insilco may not, and may not permit any Restricted Subsidiary
to, Incur or suffer to exist any Lien on or with respect to any property or
assets now owned or hereafter acquired to secure any Debt of Insilco that is
expressly by its terms subordinate or junior in right of payment to any other
Debt of Insilco (other than related to any secured deposit of funds for the
repayment of the 10 1/4% notes; provided that the excess of such secured
deposit over the principal amount of the 10 1/4% notes to be repaid shall
be deemed to be a Restricted Payment) without making, or causing such
Restricted Subsidiary to make, effective provision for securing the notes
(1) equally and ratably with such Debt as to such property or
assets for so long as such Debt will be so secured or
(2) in the event such Debt is subordinate in right of payment to
the notes, prior to such Debt as to such property or assets for so long
as such Debt will be secured.
Limitation on Ownership of Capital Stock of Subsidiaries
Insilco may not, and may not permit any Restricted Subsidiary to,
issue, transfer, convey, lease or otherwise dispose of any shares of Capital
Stock (other than directors' qualifying shares and shares pledged as security
for any Senior Indebtedness) of a Restricted Subsidiary or securities
convertible or exchangeable into, or options, warrants, rights or any other
interest with respect to, Capital Stock of a Restricted Subsidiary to any Person
other than Insilco or a Wholly Owned Restricted Subsidiary except in a
transaction consisting of a sale (including a public offering) of all or part of
the Capital Stock of such Restricted Subsidiary owned by Insilco and any
Restricted Subsidiary and that complies with the provisions described under
"Repurchase at the Option of Holders--Asset Dispositions" above to the extent
such provisions apply; provided that after any sale of less than all of the
Capital Stock of any Restricted Subsidiary, Insilco directly or indirectly
maintains voting power to elect a majority of the board of directors of such
Restricted Subsidiary.
Transactions with Affiliates and Related Persons
Insilco may not, and may not permit any Restricted Subsidiary
to, after the date of the indenture, enter into any transaction (or series of
related transactions) with an Affiliate or Related Person of Insilco (other
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than Insilco or any Restricted Subsidiary), including any Investment, either
directly or indirectly, that involves total consideration or asset transfers
in excess of $1,000,000
(1) unless such transaction is on terms no less favorable to
Insilco or such Restricted Subsidiary than those that could be obtained
in a comparable arm's-length transaction with an entity that is not an
Affiliate or Related Person and is in the best interests of Insilco or
such Restricted Subsidiary and
(2) except for the Transactions. For any transaction that involves
in excess of $1,000,000 but less than or equal to $5,000,000, the Chief
Executive Officer of Insilco shall determine that the transaction
satisfies the above criteria and shall evidence such a determination by
a certificate filed with the Trustee. For any transaction that involves
in excess of $5,000,000, a majority of the disinterested members of the
Board of Directors shall determine that the transaction satisfies the
above criteria and shall evidence such a determination by a Board
Resolution filed with the Trustee. For any transaction that involves in
excess of $10,000,000, Insilco shall also obtain an opinion from a
nationally recognized expert with experience in appraising the terms and
conditions of the type of transaction (or series of related
transactions) for which the opinion is required stating that such
transaction (or series of related transactions) is on terms no less
favorable to Insilco or such Restricted Subsidiary than those that could
be obtained in a comparable arm's-length transaction with an entity that
is not an Affiliate or Related Person of Insilco, which opinion shall be
filed with the Trustee; provided, however, that the foregoing
restrictions will not apply to:
(a) reasonable employment, compensation, bonus or benefit
arrangements entered into in the ordinary course of business
(including the granting of stock acquisition rights and other
incentives other than Redeemable Interests); the payment of
reasonable fees, expense reimbursements and customary
indemnification, advances and other similar arrangements with
respect to officers and directors; and reasonable loans and
advances to employees in the ordinary course of business;
(b) required payments with respect to any Debt permitted by the
indenture as described in "Covenants--Limitation on Consolidated
Debt" above;
(c) transactions permitted by the indenture as described in
"Covenants-- Limitation on Restricted Payments" above;
(d) any payments or other transactions pursuant to any tax
sharing agreement with any Person with which Insilco or such
Restricted Subsidiary is required or permitted to file a
consolidated tax return or with which Insilco or such Restricted
Subsidiary is or could be part of a consolidated group for tax
purposes; and
(e) any transaction with the Principals, their Related Parties
or any of their Affiliates to the extent that such transaction is
or was approved by a majority of the disinterested members of the
Board of Directors in good faith.
Provision of Financial Information
Whether or not Insilco is required to be subject to Section
13(a) or15(d) of the Exchange Act, or any successor provision thereto, Insilco
shall file with the Commission the annual reports, quarterly reports and other
documents that Insilco would have been required to file with the Commission
pursuant to such Section 13(a) or 15(d) or any successor provision thereto if
Insilco were so required, such documents to be filed with the Commission on or
prior to the respective dates (the "Required Filing Dates") by which Insilco
would have been required so to file such documents if Insilco were so
required. Insilco shall also in any event within 15 days after each Required
Filing Date
(1) transmit by mail to all Holders, as their names and
addresses appear in the Security Register, without cost to such Holders, and
(2) file with the Trustee,
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copies of the annual reports, quarterly reports and other documents that
Insilco files with the Commission pursuant to such Section 13(a) or 15(d) or
any successor provision thereto or would have been required to file with the
Commission pursuant to such Section 13(a) or 15(d) or any successor provision
thereto if Insilco were so required. If filing such documents by Insilco with
the Commission is not permitted under the Exchange Act, Insilco will upon
written request promptly provide copies of such documents to any prospective
holder of the notes.
Unrestricted Subsidiaries
Insilco at any time may designate any Person that is a
Subsidiary, or after the date of the indenture becomes a Subsidiary, of
Insilco as an "Unrestricted Subsidiary," whereupon (and until such Person
ceases to be an Unrestricted Subsidiary) such Person and each other Person
that is then or thereafter becomes a Subsidiary of such Person will be deemed
to be an Unrestricted Subsidiary. In addition, Insilco may at any time
terminate the status of any Unrestricted Subsidiary as an Unrestricted
Subsidiary, whereupon such Subsidiary and each other Subsidiary of Insilco (if
any) of which such Subsidiary is a Subsidiary will be a Restricted Subsidiary.
Notwithstanding the foregoing, no change in the status of a
Subsidiary of Insilco from a Restricted Subsidiary to an Unrestricted
Subsidiary or from an Unrestricted Subsidiary to a Restricted Subsidiary will
be effective, and no Person may otherwise become a Restricted Subsidiary, if:
(1) the Consolidated EBITDA Coverage Ratio of Insilco and its
Restricted Subsidiaries for the four full fiscal quarters of Insilco
next preceding the effective date of such purported change or other
event, calculated on a pro forma basis as if such change or other event
had been effective at the beginning of such period, would not exceed
(a) on or prior to November 9, 1999, 1.9 to 1.0 and
(b) thereafter, 2.0 to 1.0;
(2) in the case of any change in status of a Restricted Subsidiary
to an Unrestricted Subsidiary, the Restricted Payment resulting from
such change would violate the provisions of the indenture described
under clause (3) of the first paragraph under "Covenants--Limitation on
Restricted Payments" above; or
(3) such change or other event would otherwise result (after the
giving of notice or the lapse of time, or both) in an Event of Default.
In addition and notwithstanding the foregoing, no Restricted
Subsidiary may become an Unrestricted Subsidiary, and the status of any
Unrestricted Subsidiary as an Unrestricted Subsidiary will be deemed to have
been immediately terminated (whereupon such Subsidiary and each other
Subsidiary of Insilco (if any) of which such Subsidiary is a Subsidiary will
be a Restricted Subsidiary) at any time when:
(1) such Subsidiary
(A) has outstanding Debt that is Unpermitted Debt or
(B) owns or holds any Capital Stock of or other ownership
interests in, or a Lien on any property or other assets of, Insilco
or any of its Restricted Subsidiaries; or
(2) Insilco or any other Restricted Subsidiary
(A) provides credit support for, or a guarantee of, any Debt of
such Subsidiary (including any undertaking, agreement or instrument
evidencing such Debt) or
(B) is directly or indirectly liable for any Debt of such
Subsidiary.
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Any termination of the status of an Unrestricted Subsidiary as
an Unrestricted Subsidiary pursuant to the preceding sentence will be deemed
to result in a breach of this covenant in any circumstance in which Insilco
would not be permitted to change the status of such Unrestricted Subsidiary to
the status of a Restricted Subsidiary pursuant to the provision of the
indenture described under the preceding paragraph; provided, however, that
(a) so long as the aggregate principal amount outstanding of
Unpermitted Debt does not exceed $5 million, no such breach will be
deemed to have occurred with respect to any Unpermitted Debt until 15
days after Insilco has become aware of such Unpermitted Debt and such
Unpermitted Debt remains outstanding or Unpermitted Debt, and
(b) any change of status of an Unrestricted Subsidiary to a
Restricted Subsidiary as aforesaid followed within one year by a change
of status of such Restricted Subsidiary to an Unrestricted Subsidiary
will not be deemed an Asset Disposition or cause any Reinvested Amount
invested therein to be deemed Net Available Proceeds or the book value
or fair market value of the assets thereof to be deemed a Restricted
Payment. "Unpermitted Debt" means any Debt of a Subsidiary of Insilco if
(x) a default thereunder (or under any instrument or agreement
pursuant to or by which such Debt is issued, secured or evidenced),
or any right that the holders thereof may have to take enforcement
action against such Subsidiary or its property or other assets,
would permit (whether or not after the giving of notice or the
lapse time or both) the holders of any Debt of Insilco or any other
Restricted Subsidiary to declare the same due and payable prior to
the date on which it otherwise would have become due and payable or
otherwise to take any enforcement action against Insilco or such
other Restricted Subsidiary or
(y) such Debt is secured by a Lien on any property or other
assets of Insilco and any of its other Restricted Subsidiaries.
Each Person that is or becomes a Subsidiary of Insilco will be
deemed to be a Restricted Subsidiary at all times when it is a Subsidiary of
Insilco that is not an Unrestricted Subsidiary. Each Person that is or becomes
a Wholly Owned Subsidiary of Insilco shall be deemed to be a Wholly Owned
Restricted Subsidiary at all times when it is a Wholly Owned Subsidiary of
Insilco that is not an Unrestricted Subsidiary.
Mergers, Consolidations and Certain Sales of Assets
Insilco
(1) may not, and may not permit any Restricted Subsidiary to,
consolidate with or merge into any Person, provided that this clause (1)
will not prohibit any such consolidation or merger by a Restricted
Subsidiary if
(x) such Restricted Subsidiary ceases to be a Restricted
Subsidiary in such consolidation or merger or
(y) such consolidation or merger is with or into Insilco or
another Restricted Subsidiary;
(2) may not permit any Person other than a Restricted Subsidiary to
consolidate with or merge into Insilco or any Restricted Subsidiary,
provided that this clause (2) will not prohibit any such consolidation
or merger with or into a Restricted Subsidiary if such Restricted
Subsidiary ceases to be a Restricted Subsidiary in such consolidation or
merger; and
(3) may not, directly or indirectly (in one transaction or a series
of related transactions), transfer, convey, sell, lease or otherwise
dispose of al or substantially all of the properties and assets of
Insilco and its Subsidiaries on a consolidated basis unless, in each
case (1), (2) and (3) above:
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(1) immediately before and after giving effect to such transaction
(or series of related transactions) and treating any Debt Incurred by
Insilco or a Subsidiary of Insilco as a result thereof as having been
Incurred by Insilco or such Subsidiary at the time of such transaction
(or series of related transactions), no Event of Default, or event that
with the passing of time or the giving of notice, or both, will
constitute an Event of Default, shall have occurred and be continuing;
(2) in a transaction (or series of related transactions) in which
Insilco does not survive or in which Insilco transfers, conveys, sells,
leases or otherwise disposes of all or substantially all of its
properties and assets, the successor entity is a corporation,
partnership, limited liability company or trust and is organized and
validly existing under the laws of the United States of America, any
state thereof or the District of Columbia and expressly assumes, by a
Supplemental Indenture executed and delivered to the Trustee in form
satisfactory to the Trustee, all Insilco's obligations under the
indenture;
(3) Insilco or its successor entity would, at the time of such
transaction (or series of related transactions) and after giving pro
forma effect thereto as if such transaction (or series of related
transactions) had occurred at the beginning of the most recently ended
four full fiscal quarter period for which annual or quarterly financial
statements are publicly available immediately preceding the date of such
transaction (or series of related transactions), have been permitted to
Incur at least $1.00 of additional Debt pursuant to the Consolidated
EBITDA Coverage Ratio test described in the first paragraph under
"Covenants--Limitation on Consolidated Debt" above;
(4) if, as a result of any such transaction, property or assets of
Insilco would become subject to a Lien prohibited by the covenant
described above under "Covenants--Limitation on Liens," Insilco or its
successor entity will have secured the notes as required by such
covenant; and
(5) Insilco has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel as specified in the indenture.
Events of Default
The following constitute Events of Default under the indenture:
(1) failure to pay any interest on any note when due, continuing
for 30 days;
(2) failure to pay principal of (or premium, if any, on) any note
when due;
(3) failure to perform or comply with the provisions described
under "Covenants-- Mergers, Consolidations and Certain Sales of Assets"
or the provisions described under "Repurchase at the Option of Holders--
Asset Dispositions" and "--Change of Control";
(4) failure to perform any other covenant or warranty of Insilco in
the indenture or the notes, continuing for 60 days after written notice
to Insilco and the Trustee from Holders of at least 25% in principal
amount of the outstanding notes as provided in the indenture;
(5) a default or defaults under any bonds, debentures, notes or
other evidences of, or obligations constituting, Debt by Insilco or any
Restricted Subsidiary or under any mortgages, indentures, instruments or
agreements under which there may be issued or existing or by which there
may be secured or evidenced any Debt of Insilco or any Restricted
Subsidiary, in each case with a principal or similar amount then
outstanding, individually or in the aggregate, in excess of $15 million,
whether such Debt now exists or is hereafter created, which default or
defaults constitute a failure to pay any portion of the principal or
similar amount of such Debt when due and payable after the expiration of
any applicable grace period with respect thereto or will have resulted
in such Debt becoming or being declared due and payable prior to the
date on which it would otherwise have become due and payable;
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(6) the rendering of a final judgment or judgments (not subject to
appeal) against Insilco or any of its Restricted Subsidiaries in an
aggregate amount in excess of $15 million (in excess of applicable
insurance coverage) which remains unstayed, undischarged or unbonded for
a period of 60 days thereafter; and
(7) certain events of bankruptcy, insolvency or reorganization
affecting Insilco or any Restricted Subsidiary of Insilco.
Subject to the provisions of the indenture relating to the
duties of the Trustee in case an Event of Default occurs and is continuing,
the Trustee is under no obligation to exercise any of its rights or powers
under the indenture at the request or direction of any of the Holders, unless
such Holders have offered to the Trustee reasonable indemnity. Subject to such
provisions for the indemnification of the Trustee and certain other conditions
provided in the indenture, the Holders of a majority in aggregate principal
amount of the outstanding notes will have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee.
If an Event of Default (other than an Event of Default of the
type described in clause (7) above) occurs and is continuing, either the
Trustee or the Holders of at least 25% in aggregate principal amount of the
outstanding notes may accelerate the maturity of all notes. If an Event of
Default of the type described in clause (7) above occurs, the principal amount
of and any accrued interest on the notes then outstanding will become
immediately due and payable; provided, however, that after such acceleration,
but before a judgment or decree based on acceleration, the Holders of a
majority in aggregate principal amount of outstanding notes may, under certain
circumstances, rescind and annul such acceleration if all Events of Default,
other than the non-payment of accelerated principal amount have been cured or
waived as provided in the indenture. For information as to waiver of defaults,
see "Modification and Waiver" below.
No Holder of any note has any right to institute any proceeding
with respect to the indenture or for any remedy thereunder, unless such Holder
shall have previously given to the Trustee written notice of a continuing
Event of Default and unless the Holders of at least 25% in aggregate principal
amount of the outstanding notes shall have made written request, and offered
reasonable indemnity, to the Trustee to institute such proceeding as trustee,
and the Trustee shall not have received from the Holders of a majority in
aggregate principal amount of the outstanding notes a direction inconsistent
with such request and shall have failed to institute such proceeding within 60
days. However, such limitations do not apply to a suit instituted by a Holder
of a note for enforcement of payment of the principal of and premium, if any,
or interest on such note on or after the respective due dates expressed in
such note.
In the case any Event of Default occurs by reason of any
willful action (or inaction) taken (or not taken) by or on behalf of Insilco
with the intention of avoiding payment of the premium that Insilco would have
had to pay if Insilco then had elected to redeem the notes pursuant to the
provisions described above under "Repurchase at the Option of Holders," an
equivalent premium will become and be immediately due and payable upon the
acceleration of the notes.
Insilco is required to furnish to the Trustee annually a
statement as to the performance by Insilco of certain of its obligations under
the indenture and as to any default in such performance. Insilco will be
required to deliver to the Trustee, as soon as possible and in any event
within 30 days after Insilco becomes aware of the occurrence of an Event of
Default or an event which, with notice or the lapse of time or both, would
constitute an Event of Default, an Officers' Certificate setting forth the
details of such Event of Default or default, and the action which Insilco
proposes to take with respect thereto.
Defeasance
The indenture provides that, at the option of Insilco, (a) if
applicable, Insilco and the guarantors will be discharged from any and all
obligations in respect of the outstanding notes and guarantees or (b) if
applicable, Insilco may omit to comply with certain restrictive covenants, and
that such omission shall not be deemed to be an Event of Default under the
indenture and the notes, in either case (a) or (b) upon irrevocable deposit
with the Trustee, in trust, of money and/or U.S. Government Obligations that
will provide money in an amount sufficient in the opinion of a nationally
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recognized firm of independent certified public accountants to pay the
principal of and premium, if any, and each installment of interest, if any, on
the outstanding notes. With respect to clause (b), the obligations under the
indenture other than with respect to such covenants and the Events of Default
other than the Events of Default relating to such covenants above shall remain
in full force and effect.
Such trust may only be established if, among other things
(1) with respect to clause (a), Insilco has received from, or there
has been published by, the Internal Revenue Service a ruling or there
has been a change in law, which in the Opinion of Counsel provides that
Holders of the notes will not recognize gain or loss for Federal income
tax purposes as a result of such deposit, defeasance and discharge and
will be subject to Federal income tax on the same amount, in the same
manner and at the same times as would have been the case if such
deposit, defeasance and discharge had not occurred; or, with respect to
clause (b), Insilco has delivered to the Trustee an Opinion of Counsel
to the effect that the Holders of the notes will not recognize gain or
loss for Federal income tax purposes as a result of such deposit and
defeasance and will be subject to Federal income tax on the same amount,
in the same manner and at the same times as would have been the case if
such deposit and defeasance had not occurred;
(2) no Event of Default or event that with the passing of time or
the giving of notice, or both, shall constitute an Event of Default
shall have occurred or be continuing;
(3) Insilco has delivered to the Trustee an Opinion of Counsel to
the effect that such deposit shall not cause the Trustee or the trust so
created to be subject to the Investment Company Act of 1940; and
(4) certain other customary conditions precedent are satisfied.
In the event Insilco omits to comply with its remaining
obligations under the indenture and the notes after a defeasance of the
indenture with respect to the notes as described under clause (b) above and
the notes are declared due and payable because of the occurrence of any Event
of Default, the amount of money and U.S. Government Obligations on deposit
with the Trustee may be insufficient to pay amounts due on the notes at the
time of the acceleration resulting from such Event of Default. However,
Insilco will remain liable in respect of such payments.
Modification and Waiver
Modifications and amendments of the indenture may be made by
Insilco and the Trustee with the consent of the Holders of two-thirds in
aggregate principal amount of the outstanding notes; provided, however, that
no such modification or amendment may, without the consent of the Holder of
each outstanding note affected thereby,
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any note,
(2) reduce the principal amount of, (or the premium) or interest
on, any note,
(3) change the place or currency of payment of principal of (or
premium), or interest on, any note,
(4) impair the right to institute suit for the enforcement of any
payment on or with respect to any note,
(5) reduce the above-stated percentage of outstanding notes
necessary to modify or amend the indenture,
(6) reduce the percentage of aggregate principal amount of
outstanding notes necessary for waiver of compliance with certain
provisions of the indenture or for waiver of certain defaults,
(7) modify any provisions of the indenture relating to the
modification and amendment of the indenture or the waiver of past
defaults or covenants, except as otherwise specified,
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(8) modify any of the provisions of the indenture relating to the
subordination of the notes in a manner adverse to the Holders or
(9) modify the provisions described under "Repurchase at the Option
of Holders-- Asset Dispositions" and under "--Change of Control" in a
manner adverse to the Holders in any material respect.
The Holders of two-thirds in aggregate principal amount of the
outstanding notes, on behalf of all Holders of notes, may waive compliance by
Insilco with certain restrictive provisions of the indenture. The Holders of
two-thirds in aggregate principal amount of the outstanding notes, on behalf
of all Holders of notes, may waive any past default under the indenture,
except a default in the payment of principal, premium or interest.
No amendment, waiver or modification of any subordination
provision adverse to the holders of Senior Indebtedness will be effective
against any holder of Senior Indebtedness unless expressly consented to in
writing by or on behalf of such holder (or by any specified percentage of
holders of a class of Senior Indebtedness required to consent thereto)
pursuant to the terms of the agreement or instrument creating, evidencing or
governing such Senior Indebtedness.
Notices
Notices to Holders will be given by mail to the addresses of
such Holders as they may appear in the Security Register.
Governing Law
The indenture, the notes and the guarantees are governed by,
and construed in accordance with, the laws of the State of New York, without
regard to its conflict of law principles.
The Trustee
The indenture provides that, except during the continuance of
an Event of Default, the Trustee will perform only such duties as are
specifically set forth in the indenture. During the existence of an Event of
Default, the Trustee will exercise such rights and powers vested in it under
the indenture and use the same degree of care and skill in its exercise as a
prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
The indenture and provisions of the TIA incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of Insilco, to obtain payment of claims in certain cases or
to realize on certain property received by it in respect of any such claim as
security or otherwise. The Trustee is permitted to engage in other
transactions with Insilco or any Affiliate, provided, however, that if it
acquires any conflicting interest (as defined in the indenture or in the TIA),
it must eliminate such conflict or resign. Star Bank, N.A., the Trustee under
the indenture, is the trustee under the Holdings Indenture, may become a
lender under the Credit Facility and may engage in other transactions with
Insilco or its subsidiaries in connection with which Star Bank, N.A. may be or
become a creditor of Insilco.
Book-Entry; Delivery and Form
The certificates representing the New Notes will be issued in
fully registered form, without coupons. Except as described below, the New
Notes will be deposited with, or on behalf of, the Depository Trust Company,
New York, New York ("DTC"), and registered in the name of Cede & Co. ("Cede")
as DTC's nominee, in the form of a global note (the "Global Registered Note").
The Global Registered Note. Insilco expects that pursuant to
procedures established by DTC (a) upon deposit of the Global Registered Note,
DTC or its custodian will credit on its internal system interests in the
Global Registered Notes to the accounts of persons who have accounts with DTC
("Participants") and (b) ownership of the Global Registered Note will be shown
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on, and the transfer of ownership thereof will be effected only through,
records maintained by DTC or its nominee (with respect to interests of
Participants) and the records of Participants (with respect to interests of
persons other than Participants). Ownership of beneficial interests in the
Global Registered Note will be limited to Participants or persons who hold
interests through Participants.
So long as DTC or its nominee is the registered owner or holder
of the New Notes, DTC or such nominee will be considered the sole owner or
holder of the New Notes represented by the Global Registered Note for all
purposes under the indenture. No beneficial owner of an interest in the
Global Registered Note will be able to transfer such interest except in
accordance with DTC's procedures, in addition to those provided for under the
indenture with respect to the New Notes.
Payments of the principal of or premium and interest on the
Global Registered Note will be made to DTC or its nominee, as the case may be,
as the registered owner thereof. None of Insilco, the Trustee or any paying
agent under the indenture will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Registered Note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interest.
We expect that DTC or its nominee, upon receipt of any payment
of the principal of or premium and interest on the Global Registered Note,
will credit Participants' accounts with payments in amounts proportionate to
their respective beneficial interests in the principal amount of such Global
Registered Note as shown on the records of DTC or its nominee. We also expect
that payments by Participants to owners of beneficial interests in the Global
Registered Note held through such Participants will be governed by standing
instructions and customary practice as is now the case with securities held
for the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such Participants.
Transfers between Participants in DTC will be effected in
accordance with DTC rules and will be settled in immediately available funds.
If a holder requires physical delivery of a Certificated exchange note for any
reason, including to sell New Notes to persons in states which require
physical delivery of the New Notes or to pledge such securities, such holder
must transfer its interest in the Global Registered Note in accordance with
the normal procedures of DTC and with the procedures set forth in the
indenture.
DTC has advised us that DTC will take any action permitted to
be taken by a holder of New Notes (including the presentation of New Notes for
exchange as described below) only at the direction of one or more Participants
to whose account at DTC interests in the Global Registered Note are credited
and only in respect of such portion of the aggregate principal amount of New
Notes as to which such Participant or Participants has or have given such
direction. However, if there is an Event of Default under the indenture, DTC
will exchange the Global Registered Note for Certificated New Notes, which it
will distribute to its Participants.
DTC has advised us as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in accounts of its Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers
and dealers, banks, trust companies and clearing corporations and certain
other organizations. Indirect access to the DTC system is available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants").
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of interest in the Global Registered Notes among
Participants, it is under no obligation to perform such procedures, and such
procedures may be discontinued at any time. Neither Holdings nor the Trustee
will have any responsibility for the performance by DTC or its Participants or
Indirect Participants of their respective obligations under the rules and
procedures governing their operations.
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Certificated Notes. Interests in the Global Registered Notes
will be exchangeable or transferable, as the case may be, for certificated
notes if
(1) DTC notifies us that it is unwilling or unable to continue as
depositary for such Global Registered Notes, or DTC ceases to be a
"clearing agency" registered under the Exchange Act, and a successor
depositary is not appointed by Holdings within 90 days, or
(2) an Event of Default has occurred and is continuing with respect
to such New Notes. Upon the occurrence of any of the events described in
the preceding sentence, Insilco will cause the appropriate certificated
notes to be delivered.
Certain Definitions
Set forth below is a summary of certain of the defined terms
used in the indenture. Reference is made to the indenture for the full
definition of all such terms, as well as any other terms used herein for which
no definition is provided.
"Affiliate" of any Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such Person. For the purposes of this definition, "control" when
used with respect to any Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "controlling"
and "controlled" have meanings correlative to the foregoing.
"Asset Disposition" means, with respect to Insilco or any
Restricted Subsidiary, any transfer, conveyance, sale, lease or other
disposition by Insilco or such Restricted Subsidiary (including a
consolidation or merger or other sale of such Restricted Subsidiary with, into
or to another Person in a transaction in which such Restricted Subsidiary
ceases to be a Restricted Subsidiary) of
(1) shares of Capital Stock (other than directors' qualifying
shares) or other ownership interests of any Restricted Subsidiary,
(2) substantially all of the assets of Insilco or such Restricted
Subsidiary representing a division or line of business or
(3) other assets or rights of Insilco or any Restricted Subsidiary
outside of the ordinary course of business, but excluding, in each case
of clauses (1), (2) and (3),
(a) any disposition in the ordinary course of business of
obsolete equipment or other property used in the business of
Insilco or any Restricted Subsidiary that is no longer used or
useful in such business,
(b) any disposition by Insilco or any Restricted Subsidiary to
Insilco or any Wholly Owned Restricted Subsidiary,
(c) required payments with respect to any Debt permitted by the
indenture as described in "Covenants--Limitation on Consolidated
Debt" above,
(d) any disposition that is permitted under the indenture as
described in "Covenants--Limitation on Restricted Payments" above,
and
(e) the disposition of all or substantially all of the assets of
Insilco permitted under the indenture as described in
"Covenants--Mergers, Consolidations and Certain Sales of Assets"
above.
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"Capital Lease Obligation" of any Person means the obligation
to pay rent or other payment amounts under a lease of (or other Debt
arrangements conveying the right to use) real or personal property of such
Person that is required to be classified and accounted for as a capital lease
or a liability on the face of balance sheet of such Person in accordance with
generally accepted accounting principles. The stated maturity of such
obligation shall be the date of the last payment of rent or any other amount
due under such lease prior to the first date upon which such lease may be
terminated by the lessee without payment of a penalty. The principal amount of
such obligation shall be the capitalized amount thereof that would appear on
the face of a balance sheet of such Person in accordance with generally
accepted accounting principles.
"Capital Stock" of any Person means any and all shares,
interests, participations or other equivalents (however designated) of
corporate stock or other equity participations, including partnership
interests, whether general or limited, of such Person.
"Change of Control" will be deemed to have occurred in the
event that, after the date of the indenture, the following occurs:
(1) the sale, lease, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of the assets of
Insilco and its Subsidiaries, taken as a whole, to any "person" or
"group" (as such terms are used in Section 13(d) of the Exchange Act),
other than the Principals and their Related Parties;
(2) the adoption of a plan for the liquidation or dissolution of
Insilco;
(3) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" or "group" (as such terms are used in Section 13(d) of the
Exchange Act), other than the Principals and their Related Parties,
becomes the "beneficial owner" (as such term is defined in Rule 13d-3
and Rule 13d-5 under the Exchange Act), directly or indirectly through
one or more intermediaries, of 50% or more of the voting power of the
outstanding voting stock of Insilco; or
(4) the first day on which a majority of the members of the Board
of Directors of Insilco are not Continuing Directors.
The definition of Change of Control includes a phrase relating
to the sale, lease, transfer, conveyance or other disposition of "all or
substantially all" of the assets of Insilco and its Subsidiaries taken as a
whole. Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a Holder of notes to require
Insilco to repurchase such notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of Insilco and
its Subsidiaries taken as a whole to another Person or group may be uncertain.
"Claim" means any and all rights to payment under or in respect
of any of the notes or the indenture, all rights, remedies, demands, causes of
action and claims of every type and description at any time held or asserted
by, or arising in favor of, any holder of a note against Insilco or any of its
Subsidiaries or Affiliates or any of their assets, in each case on account of
any breach of any promise, obligation, agreement, indemnity, representation,
warranty or covenant in a note or the indenture or the performance or
nonperformance or payment or nonpayment thereof.
"Common Stock" of any Person means Capital Stock of such Person
that does not rank prior, as to the payment of dividends or as to the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.
"Consolidated EBITDA" of any Person means for any period, on a
consolidated basis for such Person and its Consolidated Subsidiaries, the sum
of the amounts for such period of
(1) Consolidated Net Income,
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(2) Consolidated Interest Expense (but excluding any interest
capitalized in accordance with generally accepted accounting
principles),
(3) Consolidated Income Tax Expense,
(4) depreciation and amortization expense,
(5) other non-cash charges and
(6) other non-operating expenses that have been deducted in the
determination of Consolidated Net Income; provided, however, that for
each such Consolidated Subsidiary the items (1) through (6) shall be
included in such sum only
(x) to the extent and in the same proportion that the
Consolidated Net Income of such Consolidated Subsidiary was
included in calculating the Consolidated Net Income of such Person
and
(y) only to the extent that the amount specified in clause (x)
is not restricted from the payment of dividends or the making of
distributions to such Person during such period.
"Consolidated EBITDA Coverage Ratio" of any Person means for
any period the ratio of
(1) Consolidated EBITDA of such Person for such period to
(2) the sum of
(A) Consolidated Interest Expense of such Person for such
period, plus
(B) the annual interest expense (including the amortization of
debt discount but excluding the fees and expenses incurred in
connection with the amortization of the Old Credit Facility) with
respect to any Debt Incurred or proposed to be Incurred by such
Person or its Consolidated Subsidiaries since the beginning of such
period to the extent not included within clause (2)(A), minus
(C) Consolidated Interest Expense of such Person with respect to
any Debt that is no longer outstanding or that will no longer be
outstanding as a result of the transaction with respect to which
the Consolidated EBITDA Coverage Ratio is being calculated, to the
extent included within clause (2)(A); provided, however, that in
making such computation, the Consolidated Interest Expense of such
Person attributable to interest on any Debt bearing a floating
interest rate shall be computed on a pro forma basis as if the rate
in effect on the date of computation had been the applicable rate
for the entire period; and provided, further, that, in the event
such Person or any of its Consolidated Subsidiaries has made
acquisitions or dispositions of assets not in the ordinary course
of business (including by merger, consolidation or purchase of
Capital Stock) during or after such period, the computation of the
Consolidation EBITDA Coverage Ratio (and for the purpose of such
computation, the calculation of Consolidated Net Income,
Consolidated Interest Expense, Consolidated Income Tax Expense and
Consolidated EBITDA) shall be made on a pro forma basis as if the
acquisitions or dispositions had taken place on the first day of
such period.
"Consolidated Income Tax Expense" of any Person means for any
period the consolidated provision for income taxes of such Person and its
Consolidated Subsidiaries for such period determined in accordance with
generally accepted accounting principles.
"Consolidated Interest Expense" of any Person means for any
period, on a consolidated basis for such Person and its Consolidated
Subsidiaries, all of the following determined in accordance with generally
accepted accounting principles:
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(1) the consolidated interest expense included in a consolidated
income statement (net of interest income),
(2) the portion of any rental obligation in respect of any Capital
Lease Obligation allocable to interest expense in accordance with
generally accepted accounting principles;
(3) the amortization of Debt discounts (but excluding the
amortization of fees and expenses incurred in connection with the
amortization of the Old Credit Facility and the amount of financing
costs and expenses that are capitalized and amortized);
(4) to the extent not included in total interest expense, any net
payments made or received during such period under interest rate or
currency swaps, hedges or exchanges or similar derivative agreements,
including any amortized portion of such payments and
(5) any interest capitalized in accordance with generally accepted
accounting principles.
"Consolidated Net Income" of any Person means for any period
the consolidated net income (or loss) of such Person and its Consolidated
Subsidiaries for such period determined in accordance with generally accepted
accounting principles; provided that there shall be excluded therefrom
(1) the net income (or loss) of any Person acquired by such Person
or a Subsidiary of such Person in a pooling-of-interests transaction for
any period prior to the date of such transaction (subject to the final
proviso of the definition of Consolidated EBITDA Coverage Ratio when
Consolidated Net Income is being computed for purposes of calculating
the Consolidated EBITDA Coverage Ratio),
(2) the net income (but not net loss) of any Consolidated
Subsidiary of such Person to the extent restricted from the payment of
dividends or the making of distributions to such Person during such
period,
(3) the net income (or loss) of any Person that is not a
Consolidated Subsidiary of such Person except to the extent of the
amount of dividends or other distributions actually paid to such Person
by such other Person during such period,
(4) extraordinary gains and losses (and any unusual gains and
losses arising outside the ordinary course of business not included in
extraordinary gains and losses),
(5) net gains and losses in respect of dispositions of assets other
than in the ordinary course of business and
(6) the tax effect of any of the items described in clauses (1)
through (5) above.
"Consolidated Net Worth" of any Person at any date means the
consolidated stockholders' equity of such Person and its Consolidated
Subsidiaries at such date, as determined on a consolidated basis in accordance
with generally accepted accounting principles, less amounts attributable to
Redeemable Interests of such Person; provided, however, that, with respect to
Insilco and its Restricted Subsidiaries, adjustments following the date of the
indenture to the accounting books and records of Insilco and its Restricted
Subsidiaries in accordance with Accounting Principles Board Opinions Nos. 16
and 17 (or successor opinions thereto) or otherwise resulting from the
acquisition of control of Insilco by another Person shall not be given effect
to.
"Consolidated Subsidiaries" of any Person means all other
Persons that would be accounted for as consolidated Persons in such Person's
financial statements in accordance with generally accepted accounting
principles; provided, however, that, for any particular period during which
any Subsidiary of Insilco was an Unrestricted Subsidiary, "Consolidated
Subsidiaries" will exclude such Subsidiary for such period (or portion
thereof) during which it was an Unrestricted Subsidiary.
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"Continuing Directors" means, as of any date of determination,
any member of the Board of Directors of Insilco who (a) was a member of such
Board of Directors on the date of the indenture or (b) was nominated for
election or elected to such Board of Directors with the approval of, or whose
election to the Board of Directors was ratified by, at least a majority of the
Continuing Directors who were members of such Board of Directors at the time
of such nomination or election.
"Credit Facility" means, collectively, the Credit Agreement
dated as of July 3, 1997 among Insilco, certain of its Subsidiaries, the
financial institutions from time to time party thereto as Lenders and Issuing
Banks, The First National Bank of Chicago and Goldman Sachs Credit Partners
L.P., as syndication agents, and Citicorp USA, Inc., in its separate capacity
as collateral and administrative agent for the Lenders and Issuing Banks, and
the Loan Documents (as defined therein) (or other analogous documents entered
into in connection with any refinancing thereof), in each case as the same may
from time to time be amended, renewed, supplemented or otherwise modified at
the option of the parties thereto; and any other agreement pursuant to which
any of the Debt, commitments, Obligations, costs, expenses, fees,
reimbursements and other indemnities payable or owing under the Credit
Facility may be refinanced, restructured, renewed, extended, refunded or
increased, as any such other agreement may from time to time at the option of
the parties thereto be amended, supplemented, renewed or otherwise modified.
"CVC" means 399 Venture Partners, Inc. and its Affiliates.
"Debt" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person,
(1) every obligation of such Person for money borrowed,
(2) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, including payment obligations
Incurred in connection with the acquisition of property, assets or
businesses,
(3) every reimbursement obligation of such Person with respect to
letters of credit, bankers' acceptances or similar facilities issued for
the account of such Person,
(4) every obligation of such Person issued or assumed as the
deferred purchase price of property or services (but excluding trade
accounts payable or accrued liabilities arising in the ordinary course
of business),
(5) every Capital Lease Obligation of such Person,
(6) the maximum fixed redemption or repurchase price of Redeemable
Interests of such Person at the time of determination,
(7) the market value of any indebtedness, obligation or other
liability of such Person in respect of any interest rate or currency
swap, hedge or exchange or similar derivative agreement with any
counterparty thereto, net of indebtedness, obligations or other
liabilities owed to such Person by such counterparty and
(8) every obligation of the type referred to in clauses (1) through
(7) of another Person and all dividends of another Person the payment of
which, in either case, such Person has guaranteed or for which such
Person is responsible or liable, directly or indirectly, jointly or
severally, as obligor, guarantor or otherwise, but excluding from Debt
(a) any indebtedness, obligations or other liabilities subject
to the Plan of Reorganization and
(b) any indebtedness or other liabilities incurred in connection
with obligations incurred to pay premiums for corporate owned life
insurance policies purchased by Insilco in an aggregate amount not
to exceed the aggregate cash value of such policies.
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"Designated Senior Indebtedness" means
(1) all Obligations in respect of the Credit Facility and
(2) all Obligations in respect of any other Senior Indebtedness of
Insilco in each case in an outstanding principal amount not less than
$10 million.
"DLJMB" means DLJ Merchant Banking Partners II, L.P. and its
Affiliates.
"Domestic Restricted Subsidiary" means a Restricted Subsidiary
that is organized under the laws of the United States or any state, district
or territory thereof.
"Excepted Disposition" means a transfer, conveyance, sale,
lease or other disposition by Insilco or any Restricted Subsidiary of
(1) the Capital Stock or any or all of the assets of Taylor
Publishing Company,
(2) certain assets of a Restricted Subsidiary that may be required
to be divested, in an amount not to exceed $8 million, in connection
with an action by the Federal Trade Commission relating to the
acquisition by Insilco of certain assets of Helima-Helvetion
International, Inc. or
(3) any other asset of Insilco or any Restricted Subsidiary for
which Insilco or any Restricted Subsidiary receives a mortgage or a
purchase money security interest the principal amount of which at any
time outstanding does not exceed $8 million or, taken together with all
other mortgages and purchase money security interests in respect of any
other such assets, the aggregate principal amount of which at any time
outstanding does not exceed $15 million.
"guarantee" by any Person means any obligation, contingent or
otherwise, of such Person guaranteeing any Debt, or dividends or distributions
on any equity security, of any other Person (the "primary obligor") in any
manner, whether directly or indirectly, and including, without limitation, any
obligation of such Person,
(1) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Debt or to purchase (or to advance or supply funds
for the purchase of) any security for the payment of such Debt,
(2) to purchase property, securities or services for the purpose of
assuring the holder of such Debt of the payment of such Debt, or
(3) to maintain working capital, equity capital or other financial
statement condition or liquidity of the primary obligor so as to enable
the primary obligor to pay such Debt (and "guaranteed," "guaranteeing"
and "guarantor" shall have meanings correlative to the foregoing);
provided, however, that the guarantee by any Person shall not include
endorsements by such Person for collection or deposit, in either case,
in the ordinary course of business.
"Incur" means, with respect to any Debt or other obligation of
any Person, to create, issue, incur (by conversion, exchange or otherwise),
assume, guarantee or otherwise become liable in respect of such Debt or other
obligation or the recording, as required pursuant to generally accepted
accounting principles or otherwise, of any such Debt or other obligation on
the balance sheet of such Person (and "Incurrence", "Incurred", "Incurrable"
and "Incurring" shall have meanings correlative to the foregoing); provided,
however, that a change in generally accepted accounting principles that
results in an obligation of such Person that exists at such time becoming Debt
shall not be deemed an Incurrence of such Debt.
"Interest Rate, Currency or Commodity Price Agreement" of any
Person means any forward contract, futures contract, swap, option or other
financial agreement or arrangement (including, without limitation, caps,
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floors, collars and similar agreements) relating to, or the value of which is
dependent upon, interest rates, currency exchange rates or commodity prices or
indices (excluding contracts for the purchase or sale of goods in the ordinary
course of business).
"Investment" by any Person in any other Person means
(1) any direct or indirect loan, advance or other extension of
credit or capital contribution to or for the account of such other Person (by
means of any transfer of cash or other property to any Person or any payment
for property or services for the account or use of any Person, or otherwise),
(2) any direct or indirect purchase or other acquisition of any
Capital Stock, bond, note, debenture or other debt or equity security or
evidence of Debt, or any other ownership interest, issued by such other
Person, whether or not such acquisition is from such or any other Person,
(3) any direct or indirect payment by such Person on a guarantee
of any obligation of or for the account of such other Person or
(4) any other investment of cash or other property by such Person
in or for the account of such other Person.
"Lien" means, with respect to any property or assets, any
mortgage or deed of trust, pledge, hypothecation, assignment, Receivables
Sale, deposit arrangement, security interest, lien, charge, easement (other
than any easement not materially impairing usefulness or marketability),
encumbrance, preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever on or with respect to such
property or assets (including, without limitation, any conditional sale or
other title retention agreement having substantially the same economic effect
as any of the foregoing).
"Net Available Proceeds" means cash, readily marketable cash
equivalents, readily marketable fixed-income securities and equity securities
traded on a national securities exchange or NASDAQ (valued, in the case of
securities, at the market value thereof when received by Insilco or such
Restricted Subsidiary) received (including by way of sale or discounting of a
note, installment receivable or other receivable, but excluding any other
consideration received in the form of an assumption by any transferee of Debt
or other obligations relating to the properties or assets transferred, or
otherwise received in any non-cash form) from an Asset Disposition by Insilco
or any Restricted Subsidiary, net of
(1) all legal, title and recording tax expenses, commissions and
other fees and expenses Incurred and all federal, state, provincial,
foreign and local taxes required to be accrued as a liability as a
consequence of such Asset Disposition,
(2) all payments made by Insilco or any Restricted Subsidiary on
any Debt which is secured by assets disposed of in such Asset
Disposition in accordance with the terms of any Lien upon or with
respect to such assets or which must by the terms of such Lien, or in
order to obtain a necessary consent to such Asset Disposition or by
applicable law, be repaid out of the proceeds from such Asset
Disposition,
(3) amounts provided as a reserve by Insilco or any Restricted
Subsidiary, in accordance with generally accepted accounting principles,
against liabilities under any indemnification obligations to the buyer
in such Asset Disposition (except to the extent and at the time any such
amounts are released from any such reserve, such amounts shall
constitute Net Available Proceeds) and
(4) all distributions and other payments made to minority interest
holders in Restricted Subsidiaries or joint ventures as a result of such
Asset Disposition.
"Obligations" mean any principal, interest, penalties,
expenses, fees, indemnities, reimbursements, damages and other liabilities
payable under the documentation governing any Debt.
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"Old Credit Facility" means the revolving credit and term loan
facility to which Insilco and certain of its Subsidiaries were parties that
was replaced by, and repaid in full by advances under, the Credit Facility.
"payment in full," together with any correlative term such as
"paid in full" and "pay in full," means with respect to any Obligation payment
in full thereof in cash.
"Permitted Interest Rate, Currency or Commodity Price
Agreement" of any Person means any Interest Rate, Currency or Commodity Price
Agreement entered into with one or more financial institutions that is
designed to protect such Person against fluctuations in interest rates or
currency exchange rates with respect to Debt Incurred or, in the case of
currency or commodity protection agreements, against currency exchange rate or
commodity price fluctuations relating to then existing financial obligations
or then existing or sold production and, in any case, not for purposes of
speculation.
"Permitted Investment" means
(1) Investments in Insilco or any Person that is, or as a
consequence of such Investment becomes, a Restricted Subsidiary,
(2) securities either issued directly or fully guaranteed or
insured by the government of the United States of America or any agency
or instrumentality thereof having maturities of not more than one year,
(3) time deposits and certificates of deposit, demand deposits and
banker's acceptances having maturities of not more than one year from
the date of deposit, of any domestic commercial bank having capital and
surplus in excess of $500 million and having a peer group rating of B or
better (or the equivalent thereof) by Thompson BankWatch, Inc. or
outstanding long-term debt rated BBB or better (or the equivalent
thereof) by Standard & Poor's Ratings Group or Baa2 or better (or the
equivalent thereof) by Moody's Investors Service, Inc.,
(4) demand deposits made in the ordinary course of business and
consistent with Insilco's customary cash management policy in any
domestic office of any commercial bank organized under the laws of the
United States of America or any state thereof,
(5) insured deposits issued by commercial banks of the type
described in clause (4) above,
(6) mutual funds whose investment guidelines restrict such funds'
investments primarily to those satisfying the provisions of any of
clauses (2), (3), (7) and (8) of this definition,
(7) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clauses (2) and (3)
above entered into with any bank meeting the qualifications specified in
clause (3) above,
(8) commercial paper (other than commercial paper issued by an
Affiliate or Related Person) rated A-1 or the equivalent thereof by
Standard & Poor's Ratings Group or P-1 or the equivalent thereof by
Moody's Investors Service, Inc., and in each case maturing within 360
days,
(9) receivables owing to Insilco or a Restricted Subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms,
(10) any Investment consisting of loans and advances to employees
of Insilco or any Restricted Subsidiary for travel, entertainment,
relocation, employee incentive plans or other expenses in the ordinary
course of business,
(11) any Investment consisting of a Permitted Interest Rate,
Currency or Commodity Price Agreement,
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(12) any Investment acquired by Insilco or any of its Restricted
Subsidiaries
(A) in exchange for any other Investment or accounts receivable
held by Insilco or any such Restricted Subsidiary in connection
with or as a result of a bankruptcy, workout, reorganization or
recapitalization of the issuer of such other Investment or the
obligor with respect to such accounts receivable or
(B) as a result of a foreclosure by Insilco or any of its
Restricted Subsidiaries with respect to any secured Investment or
other transfer of title with respect to any secured Investment in
default,
(13) any Investment that constitutes part of the consideration from
an Asset Disposition made pursuant to, and in compliance with, the
covenant described above under "Repurchase at the Option of Holders--
Asset Dispositions,"
(14) Investments the payment for which consists exclusively of
Capital Stock (exclusive of Redeemable Interests) of Insilco and
(15) Investments existing as of the date of the indenture of
Insilco or any Subsidiary of Insilco.
"Post-Petition Interest" means all interest accrued or accruing
after the commencement of any Insolvency Proceeding (and interest that would
accrue but for the commencement of any Insolvency Proceeding) in accordance
with and at the contract rate (including, without limitation, any rate
applicable upon default) specified in the agreement or instrument creating,
evidencing or governing any Senior Indebtedness, whether or not, pursuant to
applicable law or otherwise, the claim for such interest is allowed as a claim
in such Insolvency Proceeding.
"Preferred Stock" of any Person means Capital Stock of such
Person of any class or classes (however designated) that ranks prior, as to
the payment of dividends or as to the distribution of assets upon any
voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
"Principals" means DLJMB and/or CVC.
"Receivables" means receivables, chattel paper, instruments,
documents or intangibles evidencing or relating to the right to payment of
money.
"Receivables Sale" of any Person means any sale of Receivables
of such Person (pursuant to a purchase facility or otherwise), other than in
connection with a disposition of the business operations of such Person
relating thereto or a disposition of defaulted Receivables for purpose of
collection and not as a financing arrangement.
"Redeemable Interest" of any Person means any equity security
of or other ownership interest in such Person that by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable) or otherwise (including upon the occurrence of an event) matures
or is required to be redeemed (pursuant to any sinking fund obligation or
otherwise) or is convertible into or exchangeable for Debt or is redeemable at
the option of the holder thereof, in whole or in part, at any time prior to
the final Stated Maturity of the Notes.
"Related Party" means, with respect to any Principal,
(1) any controlling stockholder or partner of such Principal on
the date of the indenture, or
(2) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially
holding (directly or through one or more Subsidiaries) a 51% or more
controlling interest of which consist of the Principals and/or such
other Persons referred to in the immediately preceding clauses (1) or
(2).
"Related Person" of any Person means any other Person directly
or indirectly owning
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(1) 5% or more of the outstanding Common Stock of such Person (or,
in the case of a Person that is not a corporation, 5% or more of the
equity interest in such Person) or
(2) 5% or more of the combined voting power of the Voting Stock of
such Person.
"Restricted Subsidiary" means
(1) at any date, a Subsidiary of Insilco that is not an
Unrestricted Subsidiary as of such date and
(2) for any period, a Subsidiary of Insilco that for any portion of
such period is not an Unrestricted Subsidiary, provided that such term
shall mean such Subsidiary only for such portion of such period.
"Senior Indebtedness" means with respect to any Person
(1) all Debt and other Obligations owing in respect of the Credit
Facility (including, without limitation, all loans, letters of credit
and other extensions of credit thereunder and all expenses, fees,
reimbursements, indemnities and other amounts owing pursuant thereto),
(2) all Debt referred to in clauses (1), (2), (3), (5), (7) or (8)
of the definition of Debt, whether Incurred on or prior to the date of
the indenture or thereafter Incurred, and
(3) amendments, modifications, renewals, extensions, refinancings
and refundings of any such Debt; provided, however, the following shall
not constitute Senior Indebtedness:
(a) any Debt owed to a Person when such Person is a Subsidiary
of Insilco,
(b) any Debt which by the terms of the instrument creating or
evidencing the same is pari passu with or subordinate in right of
payment to the notes,
(c) any Debt Incurred in violation of the indenture or
(d) any Debt which is subordinate in right of payment in any
respect to any other Debt of such Person. For purposes of this
definition, "Debt" includes any obligation to pay principal,
premium (if any), interest, penalties, reimbursement or indemnity
amounts, fees and expenses (including Post-Petition Interest). To
the extent any payment of Senior Indebtedness (whether by or on
behalf of Insilco, as proceeds of security or enforcement or any
right of setoff or otherwise) is declared to be fraudulent or
preferential, set aside or required to be paid to a trustee,
receiver or other similar party under any bankruptcy, insolvency,
receivership or similar law, then if such payment is recovered by,
or paid over to, such trustee, receiver or other similar party, the
Senior Indebtedness or part thereof originally intended to be
satisfied shall be deemed to be reinstated and outstanding as if
such payment had not occurred. All Senior Indebtedness shall be and
remain Senior Indebtedness for all purposes of the indenture,
whether or not subordinated in any Insolvency Proceeding.
"Subordinated Indebtedness" means Debt of Insilco as to which
the payment of principal of (and premium, if any) and interest and other
payment obligations in respect of such Debt shall be subordinate to the prior
payment in full of the notes to at least the following extent:
(1) no payments of principal of (or premium, if any) or interest on
or otherwise due in respect of such Debt may be permitted for so long as
any default in the payment of principal (or premium, if any) or interest
on the notes exists;
(2) in the event that any other default exists with respect to the
notes that with the passing of time or the giving of notice, or both,
would constitute an event of default, upon notice by Holders of 25% or
more in principal amount of the notes to the Trustee, the Trustee shall
have the right to give notice to Insilco and the holders of such Debt
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(or trustees or agents therefor) of a payment blockage, and thereafter
no payments of principal of (or premium, if any) or interest on or
otherwise due in respect of such Debt may be made for a period of 179
days from the date of such notice; and
(3) such Debt may not
(x) provide for payments of principal of such Debt at the stated
maturity thereof or by way of a sinking fund applicable thereto or
by way of any mandatory redemption, defeasance, retirement or
repurchase thereof by Insilco (including any redemption, retirement
or repurchase which is contingent upon events or circumstances, but
excluding any retirement required by virtue of acceleration of such
Debt upon an event of default thereunder), in each case prior to
the final Stated Maturity of the notes or
(y) permit redemption or other retirement (including pursuant to
an offer to purchase made by Insilco) of such other Debt at the
option of the holder thereof prior to the final Stated Maturity of
the notes, other than a redemption or other retirement at the
option of the holder of such Debt (including pursuant to an offer
to purchase made by Insilco) which is conditioned upon a change of
control of Insilco pursuant to provisions substantially similar to
those described under "Change of Control" (and which shall provide
that such Debt will not be repurchased pursuant to such provisions
prior to Insilco's repurchase of the notes required to be
repurchased by Insilco pursuant to the provisions described under
"Change of Control").
"Subordinated Securities" mean securities distributed to the
holders of the notes
(1) in an Insolvency Proceeding, pursuant to a plan of
reorganization consented to by each class of Senior Indebtedness or
(2) outside an Insolvency Proceeding, but only if, in each case,
all of the terms and conditions of such securities (including, without
limitation, term, tenor, interest, amortization, subordination,
covenants and defaults) are in all material respects at least as
favorable (and provide the same relative benefits) to the holders of
Senior Indebtedness and, in the case of an Insolvency Proceeding, to the
holders of any security distributed in such Insolvency Proceeding on
account of Senior Indebtedness as the terms and conditions of the notes
and the indenture are and provide to the holders of Senior Indebtedness.
"Subsidiary" of any Person means
(1) a corporation more than 50% of the combined voting power of the
outstanding Voting Stock of which is owned, directly or indirectly, by
such Person or by one or more other Subsidiaries of such Person or by
such Person and one or more Subsidiaries thereof or
(2) any other Person (other than a corporation) in which such
Person or one or more other Subsidiaries of such Person or such Person
and one or more other Subsidiaries thereof, directly or indirectly, has
at least a majority ownership and power to direct the policies,
management and affairs thereof.
"Tender Offer" means Insilco's offer to purchase, commenced
July 11, 1997 up to 2,857,142 Shares at a price of $38.50 per share.
"Transactions" means
(1) the Tender Offer,
(2) the repurchase by Insilco of Shares from Robert L. Smialek at
$38.50 per Share pursuant to a negotiated share purchase agreement
entered into in July 1997,
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(3) the repurchase by Insilco of Shares from Water Street at $38.50
per Share pursuant to a negotiated share purchase agreement entered into
in July 1997,
(4) the entering into by Insilco of the Credit Facility and
(5) the offering of the 10 1/4% notes.
"Unrestricted Subsidiary" means
(1) at any date, a Subsidiary of Insilco that is an Unrestricted
Subsidiary in accordance with the provisions of the indenture described
under the caption "Certain Covenants--Unrestricted Subsidiaries" and
(2) for any period, a Subsidiary of Insilco that for any portion of
such period is an Unrestricted Subsidiary in accordance with the
provisions of the indenture as described under the caption "Certain
Covenants--Unrestricted Subsidiaries," provided that such term shall
mean such Subsidiary only for such portion of such period.
"Voting Stock" of any Person means Capital Stock of such Person
which ordinarily has voting power for the election of directors (or persons
performing similar functions) of such Person, whether at all times or only so
long as no senior class of securities has such voting power by reason of any
contingency.
"Wholly Owned Restricted Subsidiary" means a Restricted
Subsidiary all of the outstanding Capital Stock or other ownership interests
of which (other than directors' qualifying shares) shall at the time be owned
by Insilco or by one or more Wholly Owned Restricted Subsidiaries or by
Insilco and one or more Wholly Owned Restricted Subsidiaries.
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THE EXCHANGE OFFER
Pursuant to a Registration Rights Agreement between Insilco and
the Initial Purchaser (the "Registration Rights Agreement"), we agreed
(1) to file a registration statement (the "Exchange Offer
Registration Statement") on or prior to 120 days after the closing of
the offering of the Old Notes (the "Closing") with respect to an offer
to exchange (the "Exchange Offer") the Old Notes for a new issue of debt
securities of Insilco (the "New Notes") registered under the Securities
Act, with terms substantially identical to those of the Old Notes and
(2) to use our reasonable best efforts to cause the Exchange Offer
Registration Statement to be declared effective by the Securities and
Exchange Commission (the "SEC") on or prior to 150 days after the
Closing. In certain circumstances, we will be required to provide a
shelf registration statement (the "Shelf Registration Statement") to
cover resales of the Old Notes by the holders thereof. The Old Notes
provide that, in the event we fail to satisfy our registration
obligations under the Registration Rights Agreement, we will be required
to pay Liquidated Damages to the holders of the Old Notes under certain
circumstances. Upon consummation of the Exchange Offer or the
effectiveness of such Shelf Registration Statement, the provision for
Liquidated Damages on the Old Notes shall cease.
The Exchange Offer is not being made to, nor will we accept
tenders for exchange from, holders of Old Notes in any jurisdiction in which
the Exchange Offer or the acceptance thereof would not be in compliance with
the securities or blue sky laws of such jurisdiction.
Terms of the Exchange Offer; Period for Tendering Old Notes
Upon the terms and subject to the conditions set forth in this
prospectus and in the accompanying Letter of Transmittal (which together
constitute the Exchange Offer), Insilco will accept for exchange Old Notes
which are properly tendered on or prior to the Expiration Date and not
withdrawn as permitted below. For each $1,000 principal amount of Old Notes
surrendered to Holdings pursuant to the Exchange Offer, the holder of such Old
Note will receive an exchange note having a principal amount equal to that of
the surrendered old note. Holdings will keep the Exchange Offer open for not
less than 20 business days (or longer if required by applicable law) after the
date notice of the Exchange Offer is mailed to the holders of the Old Notes.
As used herein, the term "Expiration Date" means 5:00 p.m., New York City
time, on [ ], 1999; provided, however, that if we, in our sole
discretion, has extended the period of time for which the Exchange Offer is
open, the term "Expiration Date" means the latest time and date to which the
Exchange Offer is extended.
As of the date of this prospectus, $120,000,000 in aggregate
principal amount of the Old Notes were outstanding. The Exchange Offer is not
conditioned upon any minimum principal amount of Old Notes being tendered. This
prospectus, together with the Letter of Transmittal, is first being sent on or
about the date set forth on the cover page to all Holders of Old Notes at the
addresses set forth in the security register with respect to Old Notes
maintained by the Trustee. Our obligations to accept Old Notes for exchange
pursuant to the Exchange Offer is subject to certain conditions as set forth
under "Certain Conditions to the Exchange Offer" below.
We expressly reserve the right, at any time or from time to
time, to extend the period of time during which the Exchange Offer is open,
and thereby delay acceptance of any Old Notes, by giving oral or written
notice of such extension to the Exchange Agent and notice of such extension to
the Holders as described below. During any such extension, all Old Notes
previously tendered will remain subject to the Exchange Offer and may be
accepted for exchange by us. Any Old Notes not accepted for exchange for any
reason will be returned without expense to the tendering Holder thereof as
promptly as practicable after the expiration or termination of the Exchange
Offer.
We expressly reserve the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Old Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions of the
Exchange Offer specified below under "Certain Conditions to the Exchange
Offer." We will give oral or written notice of any extension, amendment,
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non-acceptance or termination to the Holders of the Old Notes as promptly as
practicable, such notice in the case of any extension to be issued by means of
a press release or other public announcement no later than 9:00 a.m., New York
City Time, on the next business day after the previously scheduled Expiration
Date. Without limiting the manner in which we may choose to make any public
announcement and subject to applicable law, Holdings shall have no obligation
to publish, advertise or otherwise communicate any such public announcement
other than by issuing a release to the Dow Jones News Service.
Holders of Old Notes do not have any appraisal or dissenters'
rights in connection with the Exchange Offer. Old Notes which are not
tendered for exchange or are tendered but not accepted in connection with the
Exchange Offer will remain outstanding and be entitled to the benefits of the
indenture, but will not be entitled to any further registration rights under
the Registration Rights Agreement. We intend to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the SEC thereunder.
Procedures for Tendering Old Notes
The tender to us of Old Notes by a Holder thereof as set forth
below and the acceptance thereof by us will constitute a binding agreement
between the tendering Holder and us upon the terms and subject to the
conditions set forth in this prospectus and in the accompanying Letter of
Transmittal. Except as set forth below, a Holder who wishes to tender Old
Notes for exchange pursuant to the Exchange Offer must transmit a properly
completed and duly executed Letter of Transmittal, including all other
documents required by such Letter of Transmittal, to Star Bank, N.A. (the
"Exchange Agent") at the address set forth below under "Exchange Agent" on or
prior to the Expiration Date. In addition,
(1) certificates for such Old Notes must be received by the
Exchange Agent along with the Letter of Transmittal,
(2) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Old Notes, if such procedure is available, into
the Exchange Agent's account at DTC pursuant to the procedure for
book-entry transfer described below, must be received by the Exchange
Agent prior to the Expiration Date or
(3) the Holder must comply with the guaranteed delivery procedures
described below.
The method of delivery of Old Notes, letters of transmittal and
all other required documents is at the election and risk of the holders. If
such delivery is by mail, it is recommended that registered mail, properly
insured, with return receipt requested, be used. In all cases, sufficient
time should be allowed to assure timely delivery. No letters of transmittal
or Old Notes should be sent to Insilco.
Signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, must be guaranteed unless the Old Notes
surrendered for exchange pursuant thereto are tendered
(1) by a registered Holder of the Old Notes who has not completed
the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or
(2) for the account of an Eligible Institution (as defined below).
In the event that signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantees
must be by a firm which is a member of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc.
or by a commercial bank or trust company having an office or correspondent in
the United States (collectively, "Eligible Institutions"). If Old Notes are
registered in the name of a person other than the person signing the Letter of
Transmittal, the Old Notes surrendered for exchange must be endorsed by, or be
accompanied by a written instrument or instruments of transfer or exchange, in
satisfactory form as determined by us in our sole discretion, duly executed by
the registered Holder with the signature thereon guaranteed by an Eligible
Institution.
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All questions as to the validity, form, eligibility (including
time of receipt) and acceptance of Old Notes tendered for exchange will be
determined by Insilco in its sole discretion, which determination shall be
final and binding. We reserve the absolute right to reject any and all
tenders of any particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in our judgment or the judgment
of our counsel, be unlawful. We also reserve the absolute right to waive any
defects or irregularities or conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including the
right to waive the ineligibility of any Holder who seeks to tender Old Notes
in the Exchange Offer). Our interpretation of the terms and conditions of the
Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the Letter of Transmittal and the instructions
thereto) shall be final and binding on all parties. Unless waived, any
defects or irregularities in connection with the tender of Old Notes for
exchange must be cured within such reasonable period of time as we shall
determine. Neither Insilco, the Exchange Agent nor any other person shall be
under any duty to give notification of any defect or irregularity with respect
to any tender of Old Notes for exchange, nor shall any of them incur any
liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons
other than the registered Holder or Holders of Old Notes, such Old Notes must
be endorsed or accompanied by appropriate powers of attorney, in either case
signed exactly as the name or names of the registered Holder or Holders that
appear on the Old Notes.
If the Letter of Transmittal or any Old Notes or powers of
attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers or corporations or others acting in a fiduciary or
representative capacity, such person should so indicate when signing and,
unless waived by Holdings, proper evidence satisfactory to Holdings of its
authority to so act must be submitted.
By executing, or otherwise becoming bound by, the Letter of
Transmittal, each holder of the Old Notes (other than certain specified
holders) will represent that
(1) it is not our affiliate,
(2) any New Notes to be received by it were acquired in the
ordinary course of its business and
(3) it has no arrangement with any person to participate in the
distribution (within the meaning of the Securities Act) of the New
Notes.
If the tendering Holder is a broker-dealer that will receive New Notes for its
owns account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. See "--Resales of the New Notes."
Acceptance of Old Notes for Exchange; Delivery of New Notes
Upon satisfaction or waiver of all of the conditions to the
Exchange Offer, we will accept, promptly after the Expiration Date, all Old
Notes properly tendered and will issue the New Notes promptly after acceptance
of the Old Notes. See "Certain Conditions to the Exchange Offer" below. For
purposes of the Exchange Offer, we shall be deemed to have accepted properly
tendered Old Notes for exchange when, as and if we have given oral or written
notice thereof to the Exchange Agent.
In all cases, issuance of New Notes for Old Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Old Notes or a
timely Book-Entry Confirmation of such Old Notes into the Exchange Agent's
account at DTC pursuant to the book-entry transfer procedures described below,
a properly completed and duly executed Letter of Transmittal and all other
required documents. If any tendered Old Notes are not accepted for any reason
set forth in the terms and conditions of the Exchange Offer or if certificates
representing Old Notes are submitted for a greater principal amount than the
Holder desires to exchange, such unaccepted or non-exchanged Old Notes will be
returned without expense to the tendering Holder thereof (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
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DTC pursuant to the book-entry transfer procedures described below, such
non-exchanged Old Notes will be credited to an account maintained with DTC) as
promptly as practicable after the expiration or termination of the Exchange
Offer.
Book-Entry Transfer
The Exchange Agent will make a request to establish an account
with respect to the Old Notes at DTC for purposes of the Exchange Offer
promptly after the date of this prospectus. Any financial institution that is
a participant in DTC's systems may make book-entry delivery of Old Notes by
causing DTC to transfer such Old Notes into the Exchange Agent's account in
accordance with DTC's Automated Tender Offer Program ("ATOP") procedures for
transfer. However, the exchange for the Old Notes so tendered will only be
made after timely confirmation of such book-entry transfer of Old Notes into
the Exchange Agent's account, and timely receipt by the Exchange Agent of an
Agent's Message (as such term is defined in the next sentence) and any other
documents required by the Letter of Transmittal. The term "Agent's Message"
means a message, transmitted by DTC and received by the Exchange Agent and
forming a part of a Book-Entry Confirmation, which states that DTC has
received an express acknowledgment from a Participant tendering Old Notes that
are the subject of such Book-Entry Confirmation that such Participant has
received and agrees to be bound by the terms of the Letter of Transmittal, and
that we may enforce such agreement against such Participant. Although
delivery of Old Notes may be effected through book-entry transfer into the
Exchange Agent's account at DTC, the Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees and any other required documents, must in any case be delivered to
and received by the Exchange Agent at its address set forth under "--Exchange
Agent" on or prior to the Expiration Date, or the guaranteed delivery
procedure set forth below must be complied with.
Delivery of documents to DTC in accordance with its procedures
does not constitute delivery to the Exchange Agent.
Guaranteed Delivery Procedures
If a registered Holder of the Old Notes desires to tender such
Old Notes and the Old Notes are not immediately available, or time will not
permit such Holder's Old Notes or other required documents to reach the
Exchange Agent before the Expiration Date, or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if
(1) the tender is made through an Eligible Institution,
(2) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Letter
of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by us (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name
and address of the Holder of Old Notes and the amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing
that within five New York Stock Exchange ("NYSE") trading days after the
date of execution of the Notice of Guaranteed Delivery, the certificates
of all physically tendered Old Notes, in proper form for transfer, or a
Book-Entry Confirmation, as the case may be, and any other documents
required by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent, and
(3) the certificates for all physically tendered Old Notes, in
proper form for transfer, or a Book-Entry Confirmation, as the case may
be, and all other documents required by the Letter of Transmittal, are
received by the Exchange Agent within five NYSE trading days after the
date of execution of the Notice of Guaranteed Delivery.
Withdrawal Rights
Tenders of Old Notes may be withdrawn at any time prior to the
Expiration Date.
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For a withdrawal to be effective, a written notice of
withdrawal must be received by the Exchange Agent at one of the addresses set
forth below under "Exchange Agent." Any such notice of withdrawal must
specify the name of the person having tendered the Old Notes to be withdrawn,
identify the Old Notes to be withdrawn (including the principal amount of such
Old Notes), and (where certificates for Old Notes have been transmitted)
specify the name in which such Old Notes are registered, if different from
that of the withdrawing Holder. If certificates for Old Notes have been
delivered or otherwise identified to the Exchange Agent, then, prior to the
release of such certificates, the withdrawing Holder must also submit the
serial numbers of the particular certificates to be withdrawn and a signed
notice of withdrawal with signatures guaranteed by an Eligible Institution
unless such Holder is an Eligible Institution. If Old Notes have been tendered
pursuant to the procedure for book-entry transfer described above, any note of
withdrawal must specify the name and number of the account at DTC to be
credited with the withdrawn Old Notes and otherwise comply with the procedures
of such facility. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by us, and our
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Old Notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
Holder thereof without cost to such Holder (or, in the case of Old Notes
tendered by book-entry transfer into the Exchange Agent's account at DTC
pursuant to the book-entry transfer procedures described above, such Old Notes
will be credited to an account maintained with DTC for the Old Notes) as soon
as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be re-entered by following
one of the procedures described under "Procedures for Tendering Old Notes"
above at any time on or prior to the Expiration Date.
Certain Conditions to the Exchange Offer
Notwithstanding any other provisions of the Exchange Offer, we
shall not be required to accept for exchange, or to issue New Notes in
exchange for, any Old Notes and may terminate or amend the Exchange Offer, if
at any time before the acceptance of such Old Notes for exchange or the
exchange of the New Notes for such Old Notes, such acceptance or issuance
would violate applicable law or any interpretation of the staff of the SEC.
The foregoing condition is for our sole benefit and may be
asserted by us regardless of the circumstances giving rise to such condition.
Our failure at any time to exercise the foregoing rights shall not be deemed a
waiver of any such right and each such right shall be deemed an ongoing right
which may be asserted at any time and from time to time.
In addition, we will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes,
if at such time any stop order shall be threatened or in effect with respect
to the Registration Statement of which this prospectus constitutes a part or
the qualification of the indenture under the Trust Indenture Act.
Exchange Agent
Star Bank, N.A. has been appointed as the Exchange Agent for
the Exchange Offer. All executed Letters of Transmittal should be directed to
the Exchange Agent at one of the addresses set forth below. Questions and
requests for assistance, requests for additional copies of this prospectus or
of the Letter of Transmittal and requests for Notices of Guaranteed Delivery
should be directed to the Exchange Agent, addressed as follows:
Deliver To:
Star Bank, N.A., Exchange Agent
By Mail or By Hand:
Attn: Corporate Finance Trust Services
425 Walnut Street
6th Floor
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Cincinnati, Ohio 45201-1118
Attention: William Sicking
By Facsimile:
(513) 632-5511
Confirm by Telephone:
(513) 632-4278
Delivery to an address other than as set forth above or
transmission of instructions via facsimile other than as set forth above does
not constitute a valid delivery.
Fees and Expenses
The principal solicitation is being made by mail; however,
additional solicitation may be made by telegraph, telephone or in person by
our officers, regular employees and affiliates. We will not pay any
additional compensation to any such officers and employees who engage in
soliciting tenders. We will not make any payment to brokers, dealers, or
others soliciting acceptances of the Exchange Offer. However, we will pay the
Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith.
The estimated cash expenses to be incurred in connection with
the Exchange Offer will be paid by us and are estimated in the aggregate to be
$ .
Transfer Taxes
Holders who tender their Old Notes for exchange will not be
obligated to pay any transfer taxes in connection therewith, except that
Holders who instruct us to register New Notes in the name of, or request that
Old Notes not tendered or not accepted in the Exchange Offer to be returned
to, a person other than the registered tendering Holder will be responsible
for the payment of any applicable transfer tax thereon.
Resale of the New Notes
Under existing interpretations of the staff of the SEC
contained in several no-action letters to third parties, the New Notes would
in general be freely transferable after the Exchange Offer without further
registration under the Securities Act. However, any purchaser of Old Notes who
is an "affiliate" of Insilco or who intends to participate in the Exchange
Offer for the purpose of distributing the New Notes
(1) will not be able to rely on the interpretation of the staff
of the SEC,
(2) will not be able to tender its Old Notes in the Exchange Offer
and
(3) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or
transfer of the notes unless such sale or transfer is made pursuant to
an exemption from such requirements.
By executing, or otherwise becoming bound by, the Letter of
Transmittal each holder of the Old Notes (other than certain specified
holders) will represent that:
(1) it is not our "affiliate";
(2) any New Notes to be received by it were acquired in the
ordinary course of its business; and
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(3) it has no arrangement with any person to participate in the
distribution (within the meaning of the Securities Act) of the New
Notes.
In addition, in connection with any resales of New Notes, any
Participating Broker-Dealer who acquired notes for its own account as a result
of market-making or other trading activities must deliver a prospectus meeting
the requirements of the Securities Act. The SEC has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to the New Notes (other than a resale of an unsold
allotment from the original sale of the Old Notes) with the prospectus
contained in the Exchange Offer Registration Statement. Under the Registration
Rights Agreement, we are required to allow Participating Broker-Dealers and
other persons, if any, subject to similar prospectus delivery requirements to
use this prospectus as it may be amended or supplemented from time to time, in
connection with the resale of such New Notes.
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CERTAIN UNITED STATES TAX CONSEQUENCES OF THE EXCHANGE OFFER
The exchange of Old Notes for New Notes pursuant to the
Exchange Offer will not result in any United States federal income tax
consequences to holders. When a holder exchanges an Old Note for an exchange
note pursuant to the Exchange Offer, the holder will have the same adjusted
basis and holding period in the exchange note as in the old note immediately
before the Exchange.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer pursuant to the Exchange Offer
must acknowledge that it will deliver a prospectus in connection with any
resale of such New Notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer
in connection with resales of New Notes received in exchange for Old Notes
where such Old Notes were acquired as a result of market-making activities or
other trading activities. We have agreed that we will make this prospectus,
as amended or supplemented, available to any Participating Broker-Dealer for
use in connection with any such resale and Participating Broker-Dealers shall
be authorized to deliver this prospectus for a period not exceeding 90 days
after the Expiration Date.
We will not receive any proceeds from any sales of the New
Notes by Participating Broker-Dealers. New Notes received by Participating
Brokers-Dealers for their own account pursuant to the Exchange Offer may be
sold from time to time, in one or more transactions in the over-the-counter
market, in negotiated transactions, through the writing of options on the New
Notes or a combination of such methods of resale, at market prices prevailing
at the time of resale, at prices related to such prevailing market prices or
at negotiated prices. Any such resale may be made directly to purchasers or
to or through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such Participating Broker-Dealer that
resells the New Notes that were received by it for its own account pursuant to
the Exchange Offer. Any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of New Notes and any
omissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
We will promptly send additional copies of this prospectus and
any amendment or supplement to this prospectus to any Participating
Broker-Dealer that requests such documents in the Letter of Transmittal. See
"The Exchange Offer."
LEGAL MATTERS
The validity of the notes offered hereby will be passed upon
for Insilco by Davis Polk & Wardwell, New York, New York and the validity of
the guarantees will be passed upon for the guarantors by Kenneth H. Koch, Vice
President, General Counsel and Secretary of Insilco.
EXPERTS
The financial statements of Insilco as of December 31, 1997 and
1996, and for each of the years in the three-year period ended December 31,
1997, have been included herein and in the registration statement in reliance
upon the report of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
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INSILCO CORPORATION AND SUBSIDIARIES
Index to Consolidated Financial Statements
Condensed Consolidated Balance Sheets.................................... F-2
September 30, 1998 (unaudited)
December 31, 1997
Unaudited Condensed Consolidated Statements of Income.................... F-3
Nine months ended September 30, 1998
Nine months ended September 30, 1997
Unaudited Condensed Consolidated Statement of Stockholders'
Equity (Deficit)................................................... F-4
For the nine months ended September 30, 1998
Unaudited Condensed Consolidated Statements of Cash Flows................ F-5
Nine months ended September 30, 1998
Nine months ended September 30, 1997
Notes to Unaudited Condensed Consolidated Financial Statements........... F-6
Independent Auditors' Report............................................. F-11
Audited Consolidated Balance Sheets...................................... F-12
December 31, 1997
December 31, 1996
Audited Consolidated Statements of Operations............................ F-13
Year ended December 31, 1997
Year ended December 31, 1996
Year ended December 31, 1995
Audited Consolidated Statement of Stockholders' Equity (Deficit)......... F-14
For the years ended December 31, 1997, 1996 and 1995
Audited Consolidated Statements of Cash Flows............................ F-15
Year ended December 31, 1997
Year ended December 31, 1996
Year ended December 31, 1995
Notes to Audited Consolidated Financial Statements....................... F-16
F-1
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INSILCO CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents..................................... $ 4,659 $ 10,651
Trade receivable, net......................................... 84,167 67,209
Other receivables............................................. 3,651 3,477
Inventories, net.............................................. 60,989 60,718
Prepaid expenses and other current assets..................... 8,531 2,993
-------- --------
Total current assets........................................ 161,997 145,048
Property, plant and equipment, net.................................. 114,131 113,971
Investment in Thermalex............................................. 10,556 9,736
Goodwill, net....................................................... 13,219 13,408
Other assets and deferred charges................................... 19,114 20,510
-------- --------
Total assets.................................................. $319,017 $302,673
======== ========
Liabilities and Stockholders' Deficit
Current liabilities:
Current portion of long-term debt............................. $ 15 $ 1,684
Current portion of other long-term obligations................ 2,104 5,393
Accounts payable.............................................. 36,624 39,757
Accrued expenses and other.................................... 44,645 58,706
-------- --------
Total current liabilities................................... 83,388 105,540
Long-term debt, excluding current portion........................... 314,492 256,059
Deferred taxes...................................................... 3,019 --
Other long-term obligations, excluding current portion.............. 45,300 43,402
Amount due to Insilco Holding Co.................................... 2,981 --
Stockholders' deficit............................................... (130,163) (102,328)
-------- --------
Contingencies (See Note 8)
Total liabilities and stockholders' deficit................... $319,017 $302,673
======== ========
</TABLE>
Note: The condensed consolidated balance sheet at December 31,
1997 has been derived from the audited balance sheet as of that date.
See accompanying notes to unaudited condensed consolidated financial statements.
F-2
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Condensed Consolidated Income Statements
(Unaudited)
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1998 1997
-------- --------
<S> <C> <C>
Sales....................................................................... $422,388 $407,609
Cost of products sold....................................................... 298,743 283,203
Depreciation and amortization............................................... 15,787 14,353
Selling, general and administrative expenses................................ 74,698 70,289
Merger expense.............................................................. 20,890 --
-------- --------
Operating income...................................................... 12,270 39,764
-------- --------
Other income (expense):
Interest expense...................................................... (20,567) (13,460)
Interest income....................................................... 94 2,808
Equity in net income of Thermalex..................................... 2,144 2,154
Other income, net..................................................... 2,430 188
-------- --------
Total other income (expense).......................................... (15,899) (8,310)
-------- --------
Income (loss) from continuing operations before income taxes.......... (3,629) 31,454
Income tax expense.......................................................... (1,214) (11,571)
-------- --------
Income (loss) from continuing operations before extraordinary item.... (4,843) 19,883
Discontinued operations, net of tax:
Income from operations, net of tax of $1,037.......................... -- 1,170
Gain on disposal, net of tax of $37,213............................... -- 57,788
-------- --------
-- 58,958
-------- --------
Income (loss) before extraordinary item............................... (4,843) 78,841
Extraordinary item.......................................................... -- (728)
Net income (loss)..................................................... $ (4,843) $ 78,113
======== ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-3
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholders' Equity (Deficit)
For the Nine Months Ended September 30, 1998
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Common Accumulated Total
Stock Par Additional Retained Other Stockholders'
Value Paid-in Earnings Treasury Comprehensive Equity
$0.001 Capital (Deficit) Stock Income (Deficit)
------ ------- --------- ----- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997....... $ 5 -- $(82,756) $ (16,268) $ (3,309) $(102,328)
Net loss........................... -- -- (4,843) -- -- (4,843)
Merger Eliminations................ (5) (4,220) (12,043) 16,268 -- --
Dividend to Holding Co. ........... -- -- (30,856) -- -- (30,856)
Equity investment by
Holding Co........................ -- 3,668 -- -- -- 3,668
Issuance of shares issued upon
exercise of stock options......... -- 3,281 -- -- -- 3,281
Tax benefit from exercise of stock
options........................... -- 939 -- -- -- 939
Other comprehensive income......... -- -- -- -- (24) (24)
------ -------- ---------- --------- -------- ---------
Balance at September 30, 1998...... -- $ 3,668 $ (130,498) -- $ (3,333) $(130,163)
====== ======== ========== ========= ======== =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-4
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September September
30, 1998 30, 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (4,843) $ 78,113
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization.................................................. 15,787 14,353
Deferred tax expense........................................................... 350 7,672
Other noncash charges and credits.............................................. (2,569) (42)
Change in operating assets and liabilities:
Receivables.................................................................... (16,665) (17,432)
Inventories.................................................................... 27 3,050
Amounts due Insilco Holding Co.................................................... 2,981 --
Payables and other............................................................. (17,972) (2,461)
Discontinued operations:
Gain on disposal of segment.................................................... -- (95,001)
Deferred tax expense........................................................... -- 25,687
Depreciation................................................................... -- 194
Change in operating assets and liabilities..................................... -- (2,512)
--------- ---------
Net cash provided by (used in) operating activities.......................... (22,904) 11,621
--------- ---------
Cash flows form investing activities:
Capital expenditures........................................................... (15,714) (15,022)
Other investing activities..................................................... 711 3,437
Proceeds from divestiture, net................................................. -- 112,610
--------- ---------
Net cash provided by (used in) investing activities.......................... (15,003) 101,025
--------- ---------
Cash flows from financing activities:
Proceeds from revolving credit facility............................................. 56,684 87,038
Equity investment from Insilco Holding Co........................................... 3,668 --
Proceeds from loan from Insilco Holding Co.......................................... 3,500 --
Proceeds from stock option exercise................................................. 3,281 4,618
Dividend to Insilco Holding Co...................................................... (30,856) --
Payment of prepetition liabilities.................................................. (2,735) (2,811)
Retirement of long-term debt........................................................ (1,171) (117,071)
Debt issuance and tender costs...................................................... (580) (11,126)
Purchase of treasury stock.......................................................... -- (1,887)
Repurchase of shares................................................................ -- (220,000)
Proceeds from sale of 10 1/4% notes................................................. -- 150,000
--------- ---------
Net cash provided by (used in) financing activities............................ 31,791 (111,239)
--------- ---------
Effect of exchange rate changes on cash.............................................. 124 (259)
--------- ---------
Net increase (decrease) in cash and cash equivalents........................... (5,992) 1,148
Cash and cash equivalents at beginning of period..................................... 10,651 3,481
--------- ---------
Cash and cash equivalents at end of period........................................... $ 4,659 $ 4,629
========= =========
Interest paid........................................................................ $ 23,722 $ 10,635
========= =========
Income taxes paid.................................................................... $ (3,592) $ 6,683
========= =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-5
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 1998
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information in accordance with the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all determinable adjustments have been made which are
considered necessary to present fairly the financial position and the
results of operations and cash flows at the dates and for the periods
presented.
(2) The Mergers
On August 17, 1998, the Company completed a series of transactions. These
transactions included, among other things, the formation by Insilco Holding
Co. ("Holdings") (then a wholly owned subsidiary of the Company) of a
wholly owned subsidiary ("ReorgSub"), followed by the merger of ReorgSub
with and into the Company (the "Reorganization Merger"), pursuant to which
each stockholder of the Company had his or her shares of the Company
converted into the same number of shares of Holdings and the right to
receive $0.01 per share in cash, and Holdings became the parent of the
Company.
Promptly following the Reorganization Merger, a second merger took place
pursuant to which Silkworm Acquisition Corporation ("Silkworm"), an
affiliate of DLJMB, merged with and into Holdings (the "Merger," and
together with the Reorganization Merger, the "Mergers") and each share of
Holdings Common Stock was converted into the right to receive $43.47 in
cash and 0.03378 of a share of Holdings Common Stock. Thus, as a result of
the Mergers, each stockholder of the Company, in respect of each of his or
her shares, received $43.48 in cash and retained 0.03378 of a share of
Holdings Common Stock.
Following the Mergers, (i) the Company's existing stockholders retained, in
the aggregate, approximately 10.1% (9.4% on a fully diluted basis) of the
outstanding shares of Holdings Common Stock; (ii) the DLJMB Funds held
approximately 69.0% (69.8% on a fully diluted basis) of the outstanding
shares of Holdings Common Stock; (iii) 399 Venture Partners Inc., an
affiliate of Citibank, N.A. ("CVC"), purchased shares of Silkworm which in
the Merger were converted into approximately 19.3% (17.8% on a fully
diluted basis) of the outstanding shares of Holdings Common Stock; and (iv)
management of the Company purchased approximately 1.7% (1.5% on a fully
diluted basis) of the outstanding shares of Holdings Common Stock.
Immediately prior to the effectiveness of the Reorganization Merger, each
outstanding option to acquire shares of the common stock of the Company
granted to employees and directors, whether or not vested (the "Options")
was canceled and in lieu thereof, each holder of an Option received a cash
payment in an amount equal to (x) the excess, if any, of $45.00 over the
exercise price of the Option multiplied by (y) the number of shares subject
to the Option, less applicable withholding taxes (the "Option Cash
Payments"). Certain holders of such Options elected to utilize amounts
otherwise receivable by them to purchase $1,009,000 of equity and
$2,659,000 of equity units of Holdings.
The total amount of cash required to consummate the foregoing transactions
was approximately $204.4 million. This amount was financed with (i) gross
proceeds of approximately $70.2 million from the issuance by Silkworm of
units (which were converted into units of Holdings (the "Holdings Units")
in the Merger), each unit consisting of $1,000 principal amount of 14%
Senior Discount Notes due 2008 (the "Holdings Senior Discount Notes") and
one warrant to purchase 0.325 of a share of Holdings Common Stock at an
exercise price of $0.01 per share, (ii) the issuance by Silkworm to the
DLJMB Funds, CVC and certain members of management of the Company, for an
aggregate consideration of approximately $56.1 million, of 1,245,138 shares
F-6
<PAGE>
of Silkworm common stock (which was converted into Holdings Common Stock in
the Merger), (iii) the issuance by Holdings to the DLJMB Funds, for an
aggregate consideration of $35.0 million, of 1,400,000 shares of the
Holding's 15% Senior Exchangeable Preferred Stock due 2012 ("PIK Preferred
Stock") and the DLJMB Warrants to purchase 65,603 shares of Holdings Common
Stock at an exercise price of $0.01 per share, and (iv) approximately $43.1
million of new borrowings under the Company's existing credit facility (the
"Existing Credit Facility").
In the third quarter and first nine months of 1998 the Company incurred
$19,549,000 and $20,890,000, respectively, of costs related to the merger.
(3) 1997 Transactions
In 1997, the Company completed several material transactions affecting its
ongoing operations and debt and capital structure (the "1997 Transactions")
as described more fully below:
o On July 3, 1997, the Company refinanced its existing debt under a new
six year $200 million amended and restated Credit Agreement.
o In the third quarter of 1997, the Company purchased an aggregate of
5,714,284 shares of its common stock in two transactions using the
proceeds from the sale of its traditional office products business
within (the "Rolodex Business") the Office Products/Speciality Group
of $112,610,000, net of transaction costs, and the proceeds received
on the issuance of the $150 million aggregate principal amount of 10
1/4% Senior Subordinated Notes due 2007.
The Company remains a separate reporting entity under the Securities
Exchange Act of 1934 because the 10 1/4% notes are registered debt
securities under the Securities Act of 1933.
(4) Discontinued Operations
On March 5, 1997, the Company completed the sale of its Office Products
Business (consisting of the Rolodex Business, Rolodex Electronics and
Curtis, each as defined below) within the Office Products/Specialty
Publishing Group with the divestiture of Rolodex Business for $112,610,000,
net of transaction costs, resulting in a gain of $57,788,000, net of taxes
of $37,213,000. The divestiture of the Rolodex Business was preceded in
1996 by the divestiture of the Rolodex electronics product line ("Rolodex
Electronics") and the Company's computer accessories business, Curtis
Manufacturing Co., Inc. ("Curtis"). The proceeds from these sales
aggregated $21,818,000.
On July 7, 1998, the Company amended its Form 10-K for the year ended
December 31, 1997 and its Form 10-Q for the quarter ended March 31, 1998 to
account for the sale of the Office Products Business as a discontinued
operation and, accordingly, the accompanying consolidated statements of
operations and cash flows for the periods prior to the sale have been
reclassified. Revenues associated with the discontinued Office Products
Business for the first quarter of 1997 were $10,797,000.
F-7
<PAGE>
(5) Inventories
Inventories consisted of the following at September 30, 1998 (in thousands):
Raw materials and supplies $ 27,848
Work-in-process 19,134
Finished goods 14,007
---------
Total inventories $ 60,989
=========
(6) Related Party Transactions
As of September 30, 1998, the Company had an intercompany payable of
$2,981,000 to Holdings, the parent of the Company (see Note 2). The
intercompany payable consisted of a $3,500,000 advance to the Company from
Holdings, net of $519,000 of expenses paid by the Company on behalf of
Holdings.
In connection with the mergers, the Company paid Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJSC") an advisory fee of $3,500,000.
Donaldson, Lufkin & Jenrette Capital Funding received $1,750,000 of fees
from the Company to secure a backstop credit facility in the event that the
company's Existing Revolving Credit Facility required refinancing. In
addition, the Company reimbursed DLJSC $110,000 for expenses related to the
merger.
(7) Comprehensive Income
On January 1, 1998, the Company adopted the Financial Accounting Standards
Board ("FASB") Statement No. 130 ("SFAS 130"), "Reporting Comprehensive
Income". SFAS 130 establishes standards for reporting and display of
comprehensive income in the financial statements. Comprehensive income is
the total of net income and most other non-owner changes in equity. This
statement expands or modifies disclosures and has no impact on the
Company's financial position, results of operations or cash flows.
Comprehensive income (loss) for the third quarters of 1998 and 1997 totaled
($12,171,000) and $3,403,000, respectively, including other comprehensive
income consisting of foreign currency translation adjustments (losses)
totaling ($114,000) and ($184,000), respectively. Comprehensive income
(loss) for the first nine months of 1998 and 1997 totaled ($4,867,000) and
$75,279,000, respectively, including other comprehensive income consisting
of foreign currency translation adjustment (losses) totaling ($24,000) and
($2,834,000), respectively.
(8) Contingencies
The Company is implicated in various claims and legal actions arising in
the ordinary course of business. Those claims or liabilities will be
addressed in the ordinary course of business and will be paid as expenses
are incurred. In the opinion of management, the ultimate disposition of
these matters will not have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity.
(9) Estimates
In conformity with generally accepted accounting principles, the
preparation of our financial statements requires our management to make
estimates and assumptions that affect the amounts reported in our financial
statements and accompanying actual results may ultimately differ from those
estimates.
F-8
<PAGE>
(10) Contingency Gain
On January 14, 1997, the Company's subsidiary, Taylor Publishing Company
("Taylor"), sued one of its principal competitors in the yearbook business,
Jostens, Inc. ("Jostens"), in the U.S. District Court for the Eastern
District of Texas, alleging violations of the federal antitrust laws as
well as various claims arising under state law. On May 13, 1998, a verdict
was rendered in favor of Taylor and on June 12, 1998, the judge presiding
over the litigation in the U.S. District Court rendered his judgment in the
amount of $25,225,000 plus interest at the rate of 5.434 percent. On
January 14, 1999, in response to a motion by Jostens, the judge entered an
order vacating the jury verdict and granting judgment in Jostens' favor.
The Company will seek to overturn the order and reinstate the jury verdict
on appeal. There can be no assurance as to the actual amount, if any, that
Taylor will recover from Jostens. In the third quarter and first nine
months of 1998, the Company incurred legal fees in connection with the
Jostens lawsuit of $132,000 and $900,000, respectively.
(11) Subsequent Events -The Refinancing
As a result of the Merger, the Company was required to make an Offer to
Purchase (as defined in the indenture relating to the 10 1/4% notes for all
of the outstanding 10 1/4% notes at 101% of their aggregate principal
amount, plus accrued interest. The Offer to Purchase expires on November
16, 1998 and the Company intends to repurchase all 10 1/4% notes validly
tendered and not withdrawn as promptly as practicable following acceptance
of the 10 1/4% notes. There is an aggregate of $150 million principal
amount of 10 1/4% notes outstanding.
On November 9, 1998, the Company completed the sale of $120 million of 12%
Senior Subordinated Notes due 2007 (the "New Notes") with warrants to
purchase 62,400 shares at $45 per share of Holdings common stock. The net
proceeds from the offer and sale of the New Notes which was approximately
$116.0 million after payment of $3.6 million in underwriting fees to DLJSC
and other expenses will be used to fund the repurchase of the 10 1/4% notes
validly tendered at a purchase price of 101% of principal amount plus
accrued and unpaid interest.
The indenture relating to the New Notes (the "Indenture") provides for a
mandatory special redemption at par plus accrued interest to the extent
that less than $120 million of the 10 1/4% notes are tendered in the Offer
of Purchase. The Indenture also provides for an 1/8% increase in the
interest rate on the New Notes if the holders of the 10 1/4% notes do not
consent to an amendment to the indenture relating to the 10 1/4% note to
permit the Company to provide subsidiary guarantees to holders of the New
Notes.
DLJ Capital Funding Inc. ("DLJ Capital Funding") has committed to lend up
to $300 million to the Company (the "New Credit Facility"). The New Credit
Facility will be used to refinance the Existing Credit Facility and to fund
a portion of the repurchase of the 10 1/4% notes. The New Credit Facility
will include a term loan facility (the "Term Loan Facility") and a
revolving credit facility which will provide for revolving loans and up to
$50 million of letters of credit (the "Revolving Credit Facility"). The
Term Loan Facility will have a maturity of seven years. The Revolving
Credit Facility will terminate on July 8, 2003. DLJ Capital Funding's
commitment, however, is subject to significant conditions. The New Credit
Facility together with the sale of the New Notes will be referred to herein
as "The Refinancing".
F-9
<PAGE>
(12) Pro Forma Results of Operations
The following financial information presents 1998 and 1997 pro forma
consolidated net sales and results of operations as if the mergers
including the interest expense associated with Company's $43.1 million of
additional borrowings under the Existing Credit Facility (see Note 2) and
the Refinancing (see Note 11) had occurred as of the beginning of each
respective period. The 1997 pro forma consolidated net sales and results
of operations are presented as if the 1997 Transactions had occurred at the
beginning of 1997, exclusive of nonrecurring items directly attributable to
the transaction. The pro forma results of operations are as follows (in
thousands,):
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
----------------------- -------------------------
1998 1997 1998 1997
--------- ------- -------- ---------
<S> <C> <C> <C> <C>
Net sales................................. $422,388 407,609 135,065 131,394
Income from continuing operations......... 7,992 9,686 443 1,904
</TABLE>
F-10
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Insilco Corporation:
We have audited the consolidated financial statements of
Insilco Corporation and subsidiaries as listed in the accompanying index.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Insilco Corporation and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Columbus, Ohio KPMG LLP
January 30, 1998, except as
to Note 21, which is as of
June 8, 1998 and Note 2,
which is as of July 7, 1998
F-11
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and 1996
(In thousands, except share data)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.................................... $ 10,651 $ 3,481
Trade receivables, net....................................... 67,209 73,874
Other receivables............................................ 3,477 8,499
Inventories.................................................. 60,718 66,385
Deferred tax asset........................................... 277 29,859
Prepaid expenses and other current assets.................... 2,716 3,403
---------- ----------
Total current assets....................................... 145,048 185,501
---------- ----------
Property, plant and equipment, net........................... 113,971 114,379
Deferred tax asset........................................... 1,054 7,542
Other assets................................................. 42,600 40,971
---------- ----------
Total assets............................................... $ 302,673 $ 348,393
========== ==========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Current portion of long-term debt............................ $ 1,684 $ 24,272
Accounts payable............................................. 39,757 37,984
Customer deposits............................................ 20,346 23,490
Accrued expenses and other................................... 43,753 48,319
---------- ----------
Total current liabilities.................................. 105,540 134,065
Long-term debt, excluding current portion.......................... 256,059 136,770
Other long-term obligations, excluding current portion............. 43,402 44,156
---------- ----------
Total liabilities.......................................... 405,001 314,991
---------- ----------
Stockholders' equity (deficit):
Common stock, $.001 par value; 15,000,000 shares
authorized; 4,548,373 shares issued (9,810,794
in 1996) and 4,080,693 shares outstanding
(9,487,740 in 1996)......................................... 5 10
Treasury stock, at cost...................................... (16,268) (10,745)
Additional paid-in capital................................... -- 81,496
Accumulated deficit.......................................... (82,756) (37,115)
Foreign currency translation adjustments..................... (3,309) (244)
---------- ----------
Total stockholders' equity (deficit)....................... (102,328) 33,402
---------- ----------
Commitments and contingencies (See Notes 10, 11, 14 and 17)
Total liabilities and stockholders' equity (deficit)......... $ 302,673 $ 348,393
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-12
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 1997, 1996 and 1995
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Sales............................................................. $ 528,233 $ 492,405 $ 449,506
Cost of products sold............................................. 370,845 344,912 311,315
Depreciation and amortization..................................... 18,377 15,357 13,352
Selling, general and administrative expenses...................... 87,909 83,703 69,753
Amortization of Reorganization Goodwill........................... -- -- 16,205
-------------- ----------- ------------
Operating income............................................ 51,102 48,433 38,881
-------------- ----------- ------------
Other income (expense):
Interest expense............................................ (20,562) (18,378) (19,546)
Interest income............................................. 2,837 724 1,472
Equity in net income of Thermalex........................... 2,647 2,922 2,335
Other income, net........................................... 794 4,784 11,558
-------------- ----------- ------------
Total other income (expense).............................. (14,284) (9,948) (4,181)
-------------- ----------- ------------
Income from continuing operations before income taxes and
extraordinary item........................................ 36,818 38,485 34,700
Income tax expense................................................ (13,404) (13,272) (16,694)
-------------- ----------- ------------
Income from continuing operations before extraordinary item. 23,414 25,213 18,006
Discontinued operations, net of tax:
Income (loss) from operations............................... 1,170 8,741 (15,431)
Gain on disposal............................................ 57,788 5,099 --
-------------- ----------- ------------
Income (loss) from discontinued operations................ 58,958 13,840 (15,431)
-------------- ----------- ------------
Income before extraordinary item.......................... 82,372 39,053 2,575
Extraordinary item, net of tax.................................... (728) -- --
-------------- ----------- ------------
Net income................................................ $ 81,644 $ 39,053 $ 2,575
============== ============== ============
Earnings (loss) per common share:
Income from continuing operations........................... $ 3.25 $ 2.65 $1.83
Discontinued operations..................................... 8.19 1.45 (1.57)
Extraordinary item.......................................... (0.10) -- --
-------------- ----------- ------------
Basic net income per share................................ $ 11.34 $ 4.10 $ 0.26
-------------- ----------- ------------
Weighted average number of common shares outstanding........ 7,200,103 9,517,123 9,815,109
============== ============= ============
Earnings (loss) per common share--assuming dilution:
Income from continuing operations........................... $ 3.19 $ 2.55 $ 1.77
Discontinued operations..................................... 8.03 1.40 (1.52)
Extraordinary item.......................................... (0.10) -- --
-------------- ------------- ------------
Diluted net income per share.............................. $ 11.12 $ 3.95 $ 0.25
============== ============= ============
Weighted average number of common shares outstanding and
common share equivalents.................................. 7,345,045 9,891,631 10,132,174
============== ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-13
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity (Deficit)
For the Years Ended December 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
Total
Common Additional Cumulative Stockholders'
Stock Par Treasury Paid-in Accumulated Translation Equity
Value $.001 Stock Capital Deficit Adjustment (Deficit)
----------- ----- ------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994.... $10 -- $65,282 $(78,743) -- $(13,451)
Net income................ -- -- -- 2,575 -- 2,575
Shares issued upon exercise of
stock options................ -- -- 226 -- -- 226
Purchase of treasury stock -- (6,813) -- -- -- (6,813)
Tax benefit from reduction of
valuation allowance for
deferred tax assets.......... -- -- 1,612 -- -- 1,612
Tax benefit from exercise of -- -- 72 -- -- 72
stock options...................
------- ------- ------ ------- ---- ------
Balance at December 31, 1995.... 10 (6,813) 67,192 (76,168) -- (15,779)
Net income................ -- -- -- 39,053 -- 39,053
Tax benefit from reduction of
valuation allowance for
deferred tax assets.......... -- -- 10,237 -- -- 10,237
Purchase of treasury stock -- (3,932) -- -- -- (3,932)
Restricted stock.......... -- -- 3,300 -- -- 3,300
Shares issued upon exercise of
stock options................ -- -- 1,071 -- -- 1,071
Reserved shares........... -- -- (706) -- -- (706)
Tax benefit from exercise of
stock options................ -- -- 402 -- -- 402
Foreign currency translation -- -- -- -- (244) (244)
adjustment......................
------- ------- ------ ------- ---- ------
Balance at December 31, 1996.... 10 (10,745) 81,496 (37,115) (244) 33,402
Net income................ -- -- -- 81,644 -- 81,644
Repurchase of shares...... (5) -- (92,710) (127,285) -- (220,000)
Costs of Tender Offer..... -- -- (889) -- -- (889)
Purchase of treasury stock -- (5,523) -- -- -- (5,523)
Restricted stock.......... -- -- 571 -- -- 571
Shares issued upon exercise of
stock options................ -- -- 8,255 -- -- 8,255
Tax benefit from exercise of
stock options................ -- -- 3,277 -- -- 3,277
Foreign currency translation -- -- -- -- (3,065) (3,065)
adjustment......................
------- ------- ------ ------- ---- ------
Balance at December 31, 1997.... $5 $(16,268) -- $(82,756) $(3,309) $(102,328)
======= ======== ====== ========= ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-14
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................................... $81,644 $39,053 $2,575
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................. 18,377 15,357 45,524
Deferred tax expense........................................... 11,679 11,667 13,868
Other noncash charges and credits.............................. (127) (4,904) (6,143)
Changes in operating assets and liabilities:
Receivables.................................................... (1,297) (3,370) (439)
Inventories.................................................... (3,304) 791 (1,212)
Payables and other............................................. 12,515 958 (10,077)
Other long-term liabilities.................................... (2,344) (2,329) (3,463)
Discontinued operations:
Gain on disposal of Office Products Business................... (95,001) (2,493) --
Deferred tax expense........................................... 25,687 (1,651) (1,207)
Depreciation................................................... 194 1,474 1,406
Change in operating assets and liabilities..................... (2,512) 870 (3,088)
------- ------- -------
Net cash provided by operating activities...................... 45,511 55,423 37,744
------- ------- -------
Cash flows from investing activities:
Proceeds from divestitures, net................................ 112,610 21,818 --
Other investing activities..................................... 6,190 8,704 7,481
Capital expenditures........................................... (23,583) (20,009) (20,190)
Discontinued operations........................................ -- (2,570) (1,969)
Acquisitions of businesses, net of cash acquired............... -- (37,726) --
------- ------- -------
Net cash provided by (used in) investing activities............ 95,217 (29,783) (14,678)
------- ------- -------
Cash flows from financing activities:
Repurchase of shares........................................... (220,000) -- --
Retirement of long-term debt................................... (117,246) (26,330) (12,926)
Debt issuance and Tender Offer costs........................... (10,689) -- --
Payment of prepetition liabilities............................. (2,811) (2,862) (2,949)
Purchase of treasury stock..................................... (1,887) (3,932) (6,813)
Proceeds from sale of subordinated notes....................... 150,000 -- --
Proceeds from debt borrowings.................................. 64,759 -- 600
Proceeds from sale of stock.................................... 4,618 1,071 226
------- ------- -------
Net cash used in financing activities.......................... (133,256) (32,053) (21,862)
------- ------- -------
Effect of exchange rate changes on cash.............................. (302) -- --
------- ------- -------
Net increase (decrease) in cash and cash equivalents........... 7,170 (6,413) 1,204
Cash and cash equivalents at beginning of period..................... 3,481 9,894 8,690
------- ------- -------
Cash and cash equivalents at end of period........................... $10,651 $3,481 $9,894
======= ======= =======
Supplemental information--cash paid for:
Interest, net of capitalized amount............................ $13,305 $17,820 $18,199
======= ======= =======
Income taxes................................................... $7,062 $2,081 $2,407
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-15
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the financial
statements of Insilco Corporation ( "the Company") and its wholly owned
subsidiaries. The Company's investments in companies for which The Company
does not have operational control are accounted for under the equity method.
All significant intercompany balances and transactions have been eliminated.
(b) Pro Forma Results of Operations
During 1996, the Company entered into two acquisition
transactions (See Note 3). In addition, during 1997, the Company completed a
self tender and share repurchase of approximately 59% of its outstanding
shares (See Note 11) partially with the proceeds from the divestiture of its
traditional office products business (See Note 2) and partially through the
issuance of subordinated notes and refinancing of its bank credit agreement
(See Note 8). These transactions affect the understanding of the Company's
financial position, results of operations and cash flows for 1997 compared to
prior periods. As a result of these transactions, the Company has presented
pro forma results of operations for 1997 and 1996 as if all of these
transactions except the divestiture of the Office Products Business (which is
being accounted for as a discontinued operation) occurred at the beginning of
the respective periods in Note 20.
(c) Cash Equivalents
Cash equivalents include time deposits and highly liquid
investments with original maturities of three months or less.
(d) Trade Receivables
Trade receivables are presented net of allowances for doubtful
accounts and sales returns of $2,132,000 and $4,978,000 at December 31, 1997
and 1996, respectively.
(e) Inventories
Inventories are valued at the lower of cost or market. Cost is
generally determined using the first-in, first-out cost method.
(f) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation
of plant and equipment is calculated on the straight-line method over the
assets' estimated useful lives which is 25 years for new buildings, 9 years
for machinery and equipment and ranges from 3 to 7 years for other property,
plant and equipment.
(g) "Fresh Start" Accounting and Reorganization Goodwill
On March 31, 1993, the Company adopted the "fresh start"
accounting principles prescribed by the Statement of Position 90-7, "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code" (the
"Reorganization SOP"), issued by the American Institute of Certified Public
Accountants. The "fresh start" accounting principles required the Company to
value its assets and liabilities at fair values and eliminate its accumulated
deficit.
F-16
<PAGE>
Reorganization Goodwill consisted of the excess of the
Company's reorganization value over the aggregate fair value of its tangible
and identified intangible assets on March 31, 1993 and was amortized over a
three year period. Reorganization Goodwill was fully amortized at December 31,
1995.
(h) Deferred Financing Costs
Deferred financing costs are being amortized using the
effective interest method over the life of the related debt.
(i) Goodwill
Goodwill represents the excess of cost of net assets acquired
in business combinations over their fair values. It is amortized on a
straight-line basis over estimated periods to be benefitted (not exceeding 40
years). Goodwill is periodically reviewed for impairment based upon an
assessment of future operations to insure it is appropriately valued.
(j) Interest Rate Hedges
the Company periodically uses interest rate hedges to limit its
exposure to the interest rate risk associated with its floating rate long-term
bank debt. Unamortized premium related to purchased interest rate caps is
included in other assets in the balance sheet and is amortized using the
interest method over the life of the related agreements. Amounts received
under cap agreements and net amounts received (or paid) under swap agreements
are recorded as a reduction (addition) to interest expense.
(k) Environmental Remediation and Compliance
Environmental remediation and compliance expenditures are
expensed or capitalized in accordance with generally accepted accounting
principles. Liabilities are recorded when it is probable the obligations have
been incurred and the amounts can be reasonably estimated.
(l) Fair Value of Financial Instruments
Fair value of cash, accounts receivable, accounts payable and
accrued liabilities approximate book value at December 31, 1997. Fair value of
debt is based upon market value, if traded, or discounted at the estimated
rate the Company would incur currently on similar debt (See Note 9).
(m) Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are determined based upon
differences between the financial reporting and tax basis of assets and
liabilities and are measured by applying enacted tax rates and laws to taxable
years in which such differences are expected to reverse.
(n) Earnings Per Share
In 1997, the Financial Accounting Standards Board ("FASB")
issued Statement No. 128 ("SFAS 128"), "Earnings per Share", which simplifies
the computation of earnings per share ("EPS"). SFAS 128 is effective for
financial statements issued for periods after December 15, 1997. All prior
period earnings per share amounts have been restated to conform with SFAS 128
requirements. Under SFAS 128, the Company computes two earnings per share
amounts -- basic EPS and EPS assuming dilution. Basic EPS is calculated based
on the weighted average number of shares of common stock outstanding for the
period. EPS assuming dilution is based on the weighted average number of shares
of common stock outstanding for the period, including common stock equivalents
which reflect the dilutive effect of stock options granted to employees and
directors.
F-17
<PAGE>
(o) Estimates
In conformity with generally accepted accounting principles,
the preparation of our financial statements requires our management to make
estimates and assumptions that affect the amounts reported in our financial
statements and accompanying actual results may ultimately differ from those
estimates.
(p) Reclassifications
Certain 1996 and 1995 amounts have been reclassified to conform
with 1997 presentation.
(q) Accounting Standards
In June 1997, the FASB issued Statement No. 130 ("SFAS 130"),
"Reporting Comprehensive Income" and Statement No. 131 ("SFAS 131"),
"Disclosures About Segments of an Enterprise and Related Information". SFAS 130
establishes standards for reporting and display of comprehensive income in the
financial statements. Comprehensive income is the total of net income and most
other non-owner changes in equity. SFAS 131 requires that companies disclose
segment data based on how management makes decisions about allocating
resources to segments and measuring their performance. In addition, in
February 1998, the FASB issued Statement No. 132 ("SFAS 132"), "Employers'
Disclosures About Pensions and Other Post-retirement Benefits", concerning
employer disclosure about pension plans and other post-retirement benefits.
SFAS 130, SFAS 131 and SFAS 132 are effective for 1998. These statements
expand or modify disclosures and will have no impact on the Company's
financial position, results of operations or cash flows.
(2) Discontinued Operations
On March 5, 1997, the Company completed the sale of its Office
Products Business within the Office Products/Specialty Publishing Group with
the divestiture of its traditional office products business (the "Rolodex
Business") for $112,610,000, net of transaction costs, resulting in a gain of
$57,788,000, net of taxes of $37,213,000. The divestiture of the Rolodex
Business was preceded in 1996 by the divestiture of the Rolodex electronics
product line ("Rolodex Electronics") and the Company's computer accessories
business, Curtis Manufacturing Co., Inc. ("Curtis"). The proceeds from these
sales aggregated $21,818,000. (See Note 20 for unaudited pro forma financial
information with respect to these divestitures).
On July 7, 1998, the Company amended its Form 10-K to account
for the sale of the Office Products Business as a discontinued operation and,
accordingly, the accompanying consolidated statements of operations and cash
flows for the periods prior to the sale have been reclassified. Revenues
associated with the discontinued Office Products Business for the years 1997,
1996, and 1995 were $10,797,000, $80,069,000 and $111,697,000, respectively.
At December 31, 1996, the current and non-current net assets of the Office
Products Business were $6,531,000 and $8,934,000, respectively.
(3) Acquisitions
In 1996, the Company acquired Great Lake, Inc. ("Great Lake"),
which serves the automotive, heavy truck and industrial manufacturing radiator
replacement market and the automotive aluminum tube business of Helmut
Lingemann GmbH & Co. (the "Lingemann Business") for approximately $37,726,000
including transaction fees and expenses. The Lingemann transactions include
the purchase of stock of Lingemann's German subsidiary, ARUP Alu-Rohr
F-18
<PAGE>
und-Profil GmbH, and the automotive aluminum tube business assets of its
Duncan, South Carolina based Helima-Helvetion International, Inc. This cash
transaction was financed principally from borrowings under the Company's prior
bank credit agreement (See Note 8).
These acquisitions have been accounted for as purchases and,
accordingly, the purchase prices have been allocated to the assets and
liabilities acquired based on their fair values at the acquisition dates. The
operating results of the businesses acquired have been included for the period
subsequent to their acquisition dates. (See Note 20 for pro forma results).
The fair value of the assets acquired totaled $47,478,000 and the liabilities
assumed totaled $9,752,000.
(4) Inventories
A summary of inventories at December 31 follows (in thousands):
1997 1996
---- ----
Raw materials and supplies........... $25,396 $27,677
Work in process...................... 23,427 25,570
Finished goods....................... 11,895 13,138
------ ------
$60,718 $66,385
======= =======
(5) Property, Plant and Equipment
A summary of property, plant and equipment at December 31
follows (in thousands):
1997 1996
---- ----
Land.................................. $6,267 $6,310
Buildings............................. 33,718 32,772
Machinery and equipment............... 137,310 125,211
------- -------
177,295 164,293
Less accumulated depreciation...... (63,324) (49,914)
------- -------
$113,971 $114,379
======== ========
(6) Other Assets
A summary of other assets at December 31 follows (in thousands):
1997 1996
---- ----
Goodwill, net................................ $13,408 $13,659
Equity investment in Thermalex............... 9,736 8,550
Deferred financing costs..................... 9,246 1,666
Cash surrender value of life insurance....... 4,636 5,635
Other........................................ 5,574 11,461
------- -------
$42,600 $40,971
======= =======
F-19
<PAGE>
Thermalex, Inc. ("Thermalex") is a joint venture, formed in
1985 between the Company's Thermal Components Division and Mitsubishi
Aluminum, Ltd., which sells aluminum extruded products to the automobile
industry. The Company received $1,461,000 and $3,400,000 of dividend
distributions from Thermalex in 1997 and 1996, respectively.
Sales for Thermalex for the years ended December 31, 1997, 1996
and 1995 were $47,152,000, $48,057,000 and $44,839,000, respectively. Net
income for the years ended December 31, 1997, 1996 and 1995 was $5,294,000,
$5,844,000 and $4,670,000, respectively. Total assets were $36,348,000 and
$28,629,000 at December 31, 1997 and 1996, respectively. Stockholders' equity
was $19,475,000 and $17,102,000 at December 31, 1997 and 1996, respectively.
(7) Accrued Expenses and Other
A summary of accrued expenses and other at December 31 follows
(in thousands):
1997 1996
---- ----
Salaries and wages payable....................... $9,445 $9,838
Accrued interest payable......................... 8,038 3,113
Current portion of the long term obligations..... 5,393 6,661
Accrued taxes payable............................ 1,112 116
Pension.......................................... 5,523 5,682
Other accrued expenses........................... 14,242 22,909
------- -------
$43,753 $48,319
======= =======
(8) Long-term Debt
A summary of long-term debt at December 31 follows (in
thousands):
1997 1996
---- ----
Subordinated notes.................... $150,000 $ --
Bank revolving credit facility........ 87,500 41,300
Alternative currency borrowings....... 18,348 --
Bank term loan........................ -- 116,677
Miscellaneous......................... 1,895 3,065
-------- --------
257,743 161,042
Less current portion............... (1,684) (24,272)
-------- --------
$256,059 $136,770
======== ========
On July 3, 1997, the Company refinanced its existing debt under
a new six year $200 million amended and restated credit agreement with a bank
group consisting of Citicorp USA, Inc., Goldman Sachs Credit Partners L.P.,
(an affiliate of the Company's principal stockholder) and First National Bank
of Chicago (the "Bank Credit Agreement"). The Bank Credit Agreement provides
for a $200 million revolving credit facility with a $50 million sublimit for
issuance of letters of credit ($9.0 million outstanding at December 31, 1997)
and a $50 million sublimit for alternative currency borrowings. The $200
million revolving credit facility is permanently reduced by $20 million per
year beginning July 2000 through July 2002. The bank loans and letters of
credit bear interest at various floating rates, which approximate the one to
six month LIBOR rates plus 1.25% (such LIBOR rates approximated 5.72% to 5.84%
at December 31, 1997) subject to performance versus a leverage ratio. The
F-20
<PAGE>
revolving credit facility will terminate and all amounts outstanding, if any,
will be due on July 8, 2003. Annual commitment fees consist of 0.3% of the
average daily unused commitment.
As of December 31, 1997, under the sublimit for alternative
currency borrowings, the Company had borrowed $18.3 million (33.0 million
Deutsche Marks). The Company's alternative currency borrowing is designed to
hedge the Company's net investment in its German operations. The change, if
any, to the net investment as a result of foreign currency fluctuations is
included in stockholders' equity as a foreign currency translation adjustment.
The alternative currency borrowing is denominated in German Deutsche Marks and
bears interest based on one to six month German LIBOR rates plus 1.25% (such
LIBOR rates approximated 3.53% to 3.75% at December 31, 1997).
The Bank Credit Agreement is guaranteed on a joint and several
basis by the Company's material directly and indirectly wholly owned
subsidiaries (the "Guarantors") and has been secured by substantially all
assets of the Guarantors. The Bank Credit Agreement contains certain financial
and other covenants usual and customary for a secured credit agreement. The
Company was in compliance with these covenants as of December 31, 1997. In
1997, proceeds from the Bank Credit Agreement were used to prepay amounts
outstanding under the prior bank credit agreement. As a result of the
prepayment, the Company recorded an extraordinary charge of $728,000 (net of a
tax benefit of $465,000) due to expensing the related unamortized debt
financing costs.
On August 12, 1997, the Company completed the issuance of
$150,000,000 of 10.25% senior subordinated notes (the "Notes"). Interest is
payable semi-annually, with a maturity date of August 15, 2007.
The Company may redeem the Notes, in whole or in part, upon
certain conditions, at any time on or after August 15, 2002 and prior to
maturity. The Notes have certain covenants that have restrictions on dividends
and distributions. Upon a change of control, holders of the Notes may require
the Company to purchase all or a portion of the Notes at a purchase price
equal to 101% of their aggregate principal amount, plus accrued interest, if
any.
(9) Fair Value of Financial Instruments
The estimated fair value at December 31 of financial
instruments, other than current assets and liabilities, follow (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------------------------- --------------------------
Estimated Estimated
Book Value Fair Value Book Value Book Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Debt:
Subordinated notes.................. $150,000 $154,500 $ -- $ --
Bank revolving credit facility...... 105,848 105,848 41,300 41,300
Bank term loan...................... -- -- 116,677 116,677
Miscellaneous....................... 1,895 1,895 3,065 3,065
------- ------- ------- -------
$257,743 $262,243 $161,042 $161,042
======= ======= ======= =======
Hedges:
Interest rate (asset)............... $ -- $ 423 $ (163) $ 1,281
======= ======= ======= =======
</TABLE>
At December 31, 1997, the Company's only interest rate hedge
consisted of a swap agreement which fixed the interest rate on $45,000,000
(from 5/30/95 to 5/30/98) of borrowings at 8.99%.
F-21
<PAGE>
The Company is exposed to market risk for changes in interest
rates, but has no off-balance sheet risk of accounting loss. The Company
manages exposure to counterparty credit risk by entering into such
transactions with major financial institutions that are expected to perform
under the terms of such agreements.
(10) Other Long-Term Liabilities
A summary of other long-term liabilities at December 31 follows
(in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Post-retirement benefits, other than pensions (Note 12). $22,191 $22,112
Prepetition and other tax liabilities................... 15,762 16,722
Environmental liabilities............................... 8,625 9,208
Deferred compensation and other......................... 2,217 2,775
------ ------
48,795 50,817
Less current portion.................................... (5,393) (6,661)
------ ------
$43,402 $44,156
====== ======
</TABLE>
Prepetition and other tax liabilities
On April 1, 1993, the Company and certain of its subsidiaries
emerged from Chapter 11 of the United States Bankruptcy Code (the "Chapter 11
cases") pursuant to a plan of reorganization (the "Plan of Reorganization").
The Chapter 11 cases were commenced on January 13, 1991 (the "Petition Date").
The Company entered into an agreement with the Internal Revenue Service
("IRS") settling Federal income tax claims filed in the Chapter 11 cases for
open taxable years through 1990. In addition to this agreement, the tax
liabilities include Prepetition state tax claim settlements, negotiated
payment terms on certain foreign Prepetition tax liabilities, and an estimate
of the Company's obligation for curative action required by the IRS to cure
certain operational defects in one of the Company's defined contribution plans.
Environmental liabilities
The Company's operations are subject to extensive Federal,
state and local laws and regulations relating to the generation, storage,
handling, emission, transportation and discharge of materials into the
environment. The Company has a program for monitoring its compliance with
applicable environmental regulations, the interpretation of which often is
subjective. This program includes, but is not limited to, regular reviews of
the Company operations' obligations to comply with environmental laws and
regulations in order to determine the adequacy of the recorded liability for
remediation activities.
The environmental liabilities included in other long-term
obligations represent the estimate of cash obligations that will be required
in future years for these environmental remediation activities. The Company
has estimated the exposure and accrued liability to be approximately
$8,625,000 relating to these environmental matters at December 31, 1997. These
liabilities are undiscounted and do not assume any possible recoveries from
insurance coverage or claims which the Company may have against third parties.
The estimate is based upon in-house engineering expertise and the professional
services of outside consulting and engineering firms. Because of uncertainty
associated with the estimation of these liabilities and potential regulatory
changes, it is reasonably possible that these estimated liabilities could
change in the near term but it is not expected that the effect of any such
change would be material to the consolidated financial statements in the near
term.
F-22
<PAGE>
(11) Stockholders' Equity (Deficit)
The Company's authorized capital stock consists of 15,000,000
shares of common stock. Each share entitles its holder to one vote on matters
submitted to stockholders. At December 31, 1997 and 1996, the issued shares of
common stock included 67,483 and 163,557 shares of common stock, respectively,
available to satisfy Prepetition claims.
On July 10, 1997, the Company, using the proceeds from the sale
of the Rolodex Business, purchased (i) 2,805,194 shares from Water Street
Corporate Recovery Fund I, L.P. ("Water Street") (The Company's largest
stockholder which is an investment partnership of which Goldman, Sachs & Co.
is the general partner) at $38.50 per share in cash for an aggregate purchase
price of $107,999,969 and (ii) 51,948 shares from Robert L. Smialek, the
President and Chairman of the Board of the Company, at $38.50 per share in
cash, for an aggregate purchase price of $1,999,998. On August 12, 1997, the
Company completed a tender offer (the "Tender Offer"), pursuant to which it
purchased 2,857,142 shares at a price of $38.50 per share in cash. At the
completion of the Tender Offer, the number of outstanding shares were reduced
to approximately 4.1 million.
The Company repurchased 97,500 shares of its common stock
during 1996 at prices ranging from $30.60 to $36.125 under the $15,000,000
stock buyback program approved by the Company's Board of Directors on July 26,
1995. During the last half of 1995, the Company had repurchased 197,500 shares
of its common stock at prices ranging from $32.375 to $36.875 under the stock
buyback program. Water Street, an investment partnership of which Goldman,
Sachs & Co. ("Goldman Sachs") is the general partner, is the Company's
principal stockholder, owning approximately 45% of the Company's outstanding
shares of common stock.
(12) Pension Plans and Post-retirement Benefits
Pension Plans
The Company has defined benefit pension plans covering certain
of its employees. The benefits under these plans are based primarily on
employees' years of service and compensation near retirement. The Company's
funding policy is consistent with the funding requirements of Federal laws and
regulations. Plan assets consist principally of equity investments, government
obligations and corporate debt securities. The Company also contributes to
various multi-employer plans sponsored by bargaining units for its union
employees.
F-23
<PAGE>
A summary of the plans' funded status reconciled with amounts
recognized in the consolidated balance sheet at December 31 follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
---------------------------------- ----------------------------------
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Exceed Accumulated Benefits Exceed
Benefits Assets Benefits Assets
-------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Plan assets at fair value....................... $86,888 $11,086 $81,025 $11,467
Actuarial present value of benefit obligations:
Vested benefits............................. 69,088 14,122 62,230 14,078
Nonvested benefits.......................... 1,217 698 906 606
------ ------ ------ ------
Accumulated obligation.......................... 70,305 14,820 63,136 14,684
Benefits attributable to future compensation
increases.................................... 5,177 666 2,504 549
------ ------ ------ ------
Projected benefit obligations................... 75,482 15,486 65,640 15,233
------ ------ ------ ------
Plan assets less projected benefit obligation... 11,406 (4,400) 15,385 (3,766)
Unrecognized losses (gains)..................... (13,072) (323) (17,227) (550)
Unrecognized prior service costs................ (1,188) 2,054 (1,260) 1,736
------ ------ ------ ------
Pension liability........................... $(2,854) $(2,669) $(3,102) $(2,580)
====== ====== ====== ======
</TABLE>
The components of pension cost follow (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Service cost..................... $2,320 $2,113 $1,620
Interest cost.................... 5,639 5,794 9,949
Actual return on assets.......... (14,689) (6,565) (9,993)
Net amortization and deferral.... 7,741 (44) 118
------ ----- -----
Net pension cost............. $ 1,011 $1,298 $1,694
====== ===== =====
</TABLE>
In addition, the Company recognized pension costs of $597,000
in 1997, $880,000 in 1996 and $580,000 in 1995 related to contributions to
multi-employer plans.
In the fourth quarter of 1995, the Company adopted a lump sum
settlement feature for retirees and certain vested plan participants which
resulted in the settlement of more than $42,000,000 in pension obligations.
The Company recorded a gain on the settlement of $4,300,000 in the fourth
quarter of 1995.
The assumptions used in accounting for the pension plans as of
December 31 follow:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Discount rates................................. 7.25% 7.75%
Rates of increase in compensation levels....... 4.50% 4.50%
Expected long-term rate of return on assets.... 9.00% 9.00%
</TABLE>
F-24
<PAGE>
In addition to the defined benefit plans described above, the
Company sponsors a qualified defined contribution 401(k) plan, which covers
substantially all non-union employees of the Company and its subsidiaries, and
which covers union employees at one of the Company's subsidiaries. The Company
matches 50% of non-union participants' voluntary contributions up to a maximum
of 3% of the participant's compensation. The Company's expense was
approximately $819,000 in 1997, $738,000 in 1996 and $666,000 in 1995.
Post-retirement benefits, other than pensions
The Company maintains nine post-retirement health care and life
insurance benefit plans, four of which cover approximately 500 present
retirees (the "Retiree Plans") and five of which cover certain retirees and
current employees of four operating units (the "Open Plans"). The Company pays
benefits under the plans when due and does not fund its plan obligations as
they accrue. The Company's accrued post-retirement benefit cost is
attributable to the Retiree Plans and one of the Open Plans, in which
approximately 100 retirees and 300 current employees were participants. It has
been assumed that plan participant contributions, if any, under these five
plans will increase as a result of increases in medical costs. The other Open
Plans have been, and are assumed will continue to be, fully self-funded by
their participants.
During 1996, the Company amended its Retiree Plans and the one
Open Plan to limit the Company's contributions and to adopt a cost-sharing
method based upon a retiree's years of service. As a result, the accumulated
post-retirement benefit obligation for these retiree health care plans was
reduced by approximately $3.4 million.
The components of net periodic post-retirement benefit cost
follow (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost......................... $400 $492 $503
Interest cost........................ 1,099 1,154 1,401
Amortization of prior service cost... (437) (365) (145)
----- ----- -----
$1,062 $1,281 $1,759
===== ===== =====
</TABLE>
A summary of the plans' status reconciled with amounts
recognized in the consolidated balance sheet at December 31 follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Accumulated post-retirement benefit obligations:
Retirees...................................... $8,421 $7,828
Other fully eligible plan participants........ 2,616 2,302
Other active plan participants................ 5,811 4,440
------ ------
Total......................................... 16,848 14,570
Prior service cost................................ 4,425 4,777
Unrecognized net gain............................. 918 2,765
------ ------
Accrued post-retirement benefit costs......... $22,191 $22,112
====== ======
</TABLE>
At December 31, 1997 and 1996, the weighted-average discount
rates used in determining the accumulated post-retirement benefit obligation
were 7.25% and 7.75%, respectively. The recorded health care cost trend rate
assumed in measuring the accumulated post-retirement benefit obligation was 8%
in 1998, declining to an ultimate rate of 5% in 2010 and thereafter. If these
trend rate assumptions were increased by 1%, the accumulated post-retirement
benefits obligation would increase by approximately 16% ($2,751,000). The
effect of this change on the sum of service cost and interest cost components
F-25
<PAGE>
of the net periodic post-retirement benefit cost for the year ending December
31, 1997 would be an increase of approximately 21% ($320,000).
(13) Stock-Based Compensation Plans
The Company's 1993 Long-term Incentive Plan (the "Incentive
Plan"), as amended, and the 1993 Nonemployee Director Stock Incentive Plan
(the "Director Plan") provides for the issuance of no more than 2,000,000 and
360,000, respectively, shares of common stock to eligible employees and
nonemployee directors. As of December 31, 1997, the shares available for
future awards under the Incentive Plan and the Director Plan have been reduced
to 694,136, and 146,664, due to stock options and restricted stock awards
granted since the inception of the plans.
Stock Options
Under Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation", companies can either
record expense based on the fair value of stock-based compensation upon
issuance or elect to remain under the "APB Opinion No. 25" method whereby no
compensation cost is recognized upon grant if certain conditions are met. The
Company is continuing to account for its stock-based compensation under APB
Opinion No. 25. However, pro forma disclosures as if the Company had adopted
the cost recognition requirements under SFAS 123 are presented below. Had the
Company determined compensation cost based on the fair value at the grant date
for its stock options granted in 1997, 1996 and 1995 under SFAS 123, the
Company's net income and earnings per share would have approximated the pro
forma amounts below:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C> <C>
Net income................. As reported $81,644 $39,053 $2,575
Pro forma 81,069 38,748 2,562
Basic earnings per share... As reported 11.34 4.10 0.26
Pro forma 11.26 4.07 0.26
Diluted earnings per share. As reported 11.12 3.95 0.25
Pro forma 11.06 3.92 0.25
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure
are not indicative of future amounts. SFAS 123 does not apply to grants prior
to 1995, and additional awards in the future are anticipated.
F-26
<PAGE>
A summary of the options granted follows:
<TABLE>
<CAPTION>
Number of Weighted
Shares Average Price
--------- -------------
<S> <C> <C>
Options outstanding December 31, 1994... 1,092,168 $21.84
Granted............................. 12,850 32.30
Forfeited........................... (28,369) 21.03
Exercised........................... (12,646) 15.39
---------
Options outstanding December 31, 1995... 1,064,003 22.07
Granted............................. 102,900 34.82
Forfeited........................... (36,670) 26.69
Exercised........................... (59,668) 17.95
---------
Options outstanding December 31, 1996... 1,070,565 23.36
Granted............................. 151,500 36.87
Forfeited........................... (30,938) 24.79
Exercised........................... (450,860) 18.27
---------
Options outstanding December 31, 1997... 740,267 29.17
=========
Options exercisable at December 31:
1995................................ 471,614 20.87
1996................................ 682,681 21.45
1997................................ 421,033 27.18
</TABLE>
At December 31, 1997, the range of exercise prices and
weighted-average remaining contractual life of outstanding options follow:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------- ------------------------------------
Weighted
Number Average Number
Outstanding at Remaining Weighted- Exercisable at Weighted-
December 31, Contractual Average December 31, Average
Range of Exercise Prices 1997 Life Exercise Price 1997 Exercise Price
-------------- ----------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$15.00-20.00............. 148,255 2.6 $16.33 92,255 $15.92
25.01-30.00............. 355,779 2.3 29.91 299,079 29.89
30.01-35.00............. 90,168 7.9 34.66 26,968 34.64
35.01-39.00............. 146,065 4.7 37.03 2,731 37.58
------- -------
740,267 421,033
======= =======
</TABLE>
The per share weighted-average fair value of stock options
granted during 1997, 1996 and 1995 was $13.87, $19.20 and $18.58,
respectively, on the date of grant using the Black Scholes option-pricing
model with the following weighted-average assumptions: 1997 -- expected
dividend yield 0.0%, risk-free interest rate of 5.57%, and an expected life of
4.14 years.
Restricted Stock
The awards of restricted common stock to employees and
directors has been contingent upon the participants maintaining certain
investments in the Company's common stock and the restrictions on the awards
lapse only if: (1) the market value of the Company's common stock attains
targeted levels during a specified period; and, (2) generally only after the
participants complete a required service period. The compensation expense
associated with the restricted stock awards is recorded over the employee
service period if it is determined probable that the restrictions based upon
F-27
<PAGE>
attaining the probable targets will lapse. The compensation expense was
$397,000, $465,000 and $1,290,000 in 1997, 1996, and 1995, respectively. As of
December 31, 1997, awards of 70,324 shares are subject to the restrictions and
will be forfeited if the restrictions are not met prior to August 2000.
(14) Income Tax Expense
The components of total income taxes and a reconciliation of
total income taxes to the actual income tax obligation follow (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Total income taxes:
From continuing operations before extraordinary item:
Current:
Federal...................................................... $588 $563 $620
State and local.............................................. 515 745 1,000
Foreign...................................................... 622 297 364
------ ------ ------
1,725 1,605 1,984
------ ------ ------
Deferred:
Federal...................................................... 10,203 10,033 13,840
State and local.............................................. 988 882 870
Foreign...................................................... 488 752 --
------ ------ ------
11,679 11,667 14,710
------ ------ ------
Total from continuing operations before extraordinary
item...................................................... 13,404 13,272 16,694
Discontinued operations.......................................... 38,250 (462) (495)
Extraordinary item............................................... (465) -- --
Stockholders' equity............................................. (3,277) (402) (72)
------ ------ ------
Total income taxes........................................... 47,912 12,408 16,127
Noncash allocations:
Deferred income taxes--continuing operations................. (11,679) (11,667) (13,868)
Deferred income taxes--discontinued operations............... (25,687) 1,651 1,207
Charges in lieu of taxes..................................... -- -- (842)
------ ------ ------
Actual income tax obligations................................ $10,546 $2,392 $2,624
====== ====== ======
</TABLE>
In accordance with the Reorganization SOP, pre-reorganization
deferred tax assets not previously recognized on the balance sheet are
recorded as a reduction to Reorganization Goodwill (until reduced to zero and
then as an addition to paid-in capital) when realized and are presented as
"charges in lieu of taxes."
Pretax income from continuing operations by domestic and
foreign source follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Domestic.......... $33,577 $34,606 $31,275
Foreign........... 3,241 3,879 3,425
------- ------- -------
$36,818 $38,485 $34,700
======= ======= =======
</TABLE>
F-28
<PAGE>
Income tax expense attributable to income from continuing
operations differs from the amount computed by applying the Federal statutory
rate to pretax income due to the following (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Computed "expected" tax expense.... $12,886 $13,470 $12,145
State and local taxes.............. 1,323 1,422 1,582
Equity in earnings of affiliates... (733) (818) (817)
Foreign tax rate differential...... (373) (296) (651)
Goodwill amortization.............. 20 22 5,672
Other, net......................... 281 (102) (870)
Valuation allowance................ -- (426) (367)
------ ------ ------
Income tax expense............. $13,404 $13,272 $16,694
====== ====== ======
</TABLE>
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities
at December 31 follow (in thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........... $9,526 $38,783
Accrued liabilities........................ 13,882 18,474
Pension and other post-retirement benefits. 11,026 11,105
Alternative Minimum Tax Credit............. 7,965 1,872
Capital loss carryforwards................. -- 8,812
Other...................................... 1,127 2,537
------ ------
Total gross deferred tax assets............ 43,526 81,583
Less valuation allowance................... (29,870) (34,116)
------ ------
13,656 47,467
------ ------
Deferred tax liabilities:
Plant and equipment........................ (11,472) (9,199)
Other...................................... (853) (867)
------ ------
Total gross deferred tax liabilities....... (12,325) (10,066)
------ ------
Net deferred tax asset..................... $1,331 $37,401
====== ======
</TABLE>
The net reduction in the valuation allowance for deferred tax
assets for the years ended December 31, 1997, 1996, and 1995 was $4,246,000,
$10,836,000 and $7,623,000, respectively, which primarily resulted from the
reduction of the deferred tax assets in 1997 and the recognition of additional
deferred tax assets and the expiration of capital loss carryforwards in 1996
and 1995. During the fourth quarters of 1996 and 1995, deferred tax assets of
$10,663,000 and $9,180,000, respectively, were recognized because it was
concluded that it was more likely than not that additional deferred tax assets
would be realized in future years following an evaluation of the actual 1994,
1995 and 1996 taxable income and projections of future taxable income. In
1996, the projections included an assessment of the impact of the decision to
pursue a sale of the Rolodex Business (completed in March 1997) on future
taxable income. Accordingly, the recognition of a pre-reorganization deferred
tax asset of $7,201,000 in 1995 was recorded as a reduction to Reorganization
Goodwill, $10,237,000 and $1,612,000, in 1996 and 1995 respectively, was
recorded as an increase to paid-in capital and $426,000 and $367,000 was
recorded as a component of deferred income tax benefit in 1996 and 1995,
respectively.
F-29
<PAGE>
Recognition, if any, of tax benefits subsequent to December 31,
1997 relating to unrecognized deferred tax assets are expected to be allocated
to the consolidated statements of operations and additional paid-in capital in
the amounts of $17,676,000 and $12,194,000, respectively. At December 31,
1997, the Company had Federal net operating loss carryforwards of
approximately $16,682,000 which begin to expire in 2008.
The Company and its domestic subsidiaries file a consolidated
U.S. Federal income tax return. The IRS is presently examining the
consolidated Federal income tax returns for 1991 through 1996. Management
believes that the ultimate outcome of this examination will not have a
material adverse effect on the financial condition, results of operations or
liquidity of the Company.
(15) Other Income and Nonrecurring Charges
Other income for 1996 included a favorable adjustment of
$2,200,000 related to the Company's environmental liabilities following
completion of a site clean-up for an amount less than previously estimated.
Other income for 1995 included favorable adjustments of $3,600,000 related to
the Company's environmental liabilities following a review of its liabilities
from previously divested operations, $1,494,000 related to the resolutions of
several legal disputes and a $3,973,000 gain on the sale of idle corporate
assets.
(16) Related Party Transactions
During 1997, the Company paid Goldman Sachs $1,996,000 in
investment banking fees and expenses related to the sale of the Rolodex
Business, $2,042,000 of fees in connection with the refinancing and issuance
of the Notes and $204,000 for services rendered in connection with the Tender
Offer. During 1997, the Company paid Goldman Sachs $3,094,000 in underwriting
fees related to the issuance of the Notes.
As discussed in Note 8, the Company entered into a new bank
credit agreement in 1997. Goldman Sachs Credit Partners L.P., an affiliate of
Goldman Sachs, had an initial participating interest of $66,667,000 in the
Bank Credit Agreement. Goldman Sachs Credit Partners L.P. received $583,000
from the agent bank for its portion of the arrangement fee paid by the Company
in 1997.
During 1996, the Company paid Goldman Sachs $1,000,000 in
transaction fees in connection with the purchase of Lingemann (See Note 3). In
connection with such services, the Company provides for the indemnification of
Goldman Sachs against various liabilities, including liabilities under the
Federal securities laws.
(17) Commitments and Contingencies
Rental expense for operating leases totaled $4,283,000,
$3,291,000 and $2,468 ,000 for the years ended December 31, 1997, 1996 and
1995, respectively. These leases primarily relate to production facilities.
Rentals received for subleases for operating leases totaled $248,000 in 1997
and none in both 1996 and 1995.
Future minimum lease payments under contractually
noncancellable operating leases (with initial lease terms in excess of one
year) for years subsequent to December 31, 1997 are as follows: 1998,
$3,774,000; 1999, $2,861,000; 2000, $2,209,000; 2001, $1,596,000; 2002,
$874,000; and thereafter, $1,324,000. Future minimum rentals to be received
under noncancellable subleases for years subsequent to December 31, 1997 are
as follows: 1998, $260,000; 1999, $260,000; 2000, $260,000; 2001, $22,000; and
thereafter, none.
The Company is implicated in various claims and legal actions
arising in the ordinary course of business. Those claims or liabilities not
subject to Bankruptcy Court litigation will be addressed in the ordinary
course of business and be paid in cash as expenses are incurred.
F-30
<PAGE>
In the opinion of management, the ultimate disposition of the
matters discussed above will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
(18) Business Segment Information
The Company manufactures and supplies a diversity of products
in three primary business segments. The segments and products are discussed
below:
(a) Automotive Components Group
The Automotive Components Group is made up of three operating
units, Thermal Components Group ("Thermal"), Steel Parts Corporation ("Steel
Parts") and Romac Metals ("Romac"). The businesses in this segment manufacture
automotive heat exchangers and related tubing, automatic transmission and
suspension components and stainless steel tubing, respectively.
In 1997, the group's sales to the automotive OEM market,
aftermarket and non-automotive OEM manufacturers were 46%, 16% and 27% of
total sales, respectively, compared to 46%, 19% and 23% of total sales,
respectively, in 1996 and 43%, 19% and 22% of total sales, respectively, in
1995.
Thermal's heat-transfer products have a broad range of
applications in motor vehicles, railroad locomotives, construction and other
industrial equipment.
Steel Parts is a manufacturer of close tolerance precision
metal stampings for the automotive industry including clutch plates for
automatic transmissions, suspension parts for vibration-reducing assemblies
and engine mounts. Approximately 70%, 70% and 67% of Steel Parts' sales were
to one of the "Big 3" domestic automobile manufacturers in 1997, 1996 and
1995, respectively.
Romac manufactures stainless steel tubing for a variety of
marine, architectural, automotive and decorative applications at its facility
in North Carolina. Competition is based principally on price and, to a lesser
extent, on the shapes and finishes that can be achieved with the tubing.
(b) Technologies Group
The Technologies Group consists of four operating units,
Stewart Connector Systems, Inc. ("Stewart Connector"), Signal Transformer Co.,
Inc. ("Signal"), Stewart Stamping Corporation ("Stewart Stamping"), and Escod
Industries ("Escod"). These units manufacture telecommunication and electrical
component products for the computer networking, telephone digital switching,
precision wiring, main frame computer, automotive and medical equipment
markets.
Stewart Connector designs and manufactures specialized high
speed data connector systems for telecommunications, cellular communications
and data transmission, including local and wide area networks. Foreign sales
accounted for approximately 41% of Stewart Connector's sales in 1997, 40% in
1996 and 43% in 1995. Competition is based principally on price with respect
to older product lines and on technology and product features for newer
products and to a lesser extent, patent protection.
Signal manufactures both standard off-the-shelf and custom-made
power transformers serving a broad customer base in a variety of industries.
It has a customer base of over nine thousand accounts, consisting of both OEMs
and aftermarket resellers.
F-31
<PAGE>
Stewart Stamping is a tool designer and subcontract
manufacturer of precision stampings and wireformed parts. Stewart Stamping
sells it products to a broad customer base primarily in the U.S. Stewart
Stamping traditionally has focused on products that because of the engineering
and manufacturing capability required to produce them, have the potential for
repeat business.
Escod produces electronic cable assemblies, specialized wire
harnesses and certain telecommunication equipment subassemblies for sale to
manufacturers of telecommunications, computer and other electronics equipment.
Two telecommunications OEMs together accounted for approximately 68%, 66% and
60% of Escod's total revenues in 1997, 1996 and 1995, respectively.
(c) Specialty Publishing
Specialty Publishing consists of Taylor Publishing Company
("Taylor"), a wholly owned subsidiary engaged in yearbook and other specialty
publishing.
Taylor is engaged primarily in the contract design and printing
of student yearbooks from which it derived at least 87% of its revenues in
each of the last three years. The market for yearbooks is affected more by
demographic trends than by business cycles. Taylor markets its yearbook
services through commissioned independent sales representatives who maintain
contact with yearbook faculty advisors, school principals and other key
purchasing personnel.
(d) Allocation of Intangibles
In accordance with the Reorganization SOP, the Company has
allocated Reorganization Goodwill and resulting amortization to its
identifiable segments.
(e) Allocated Corporate Overhead
Segment operating income (loss) reflects the allocation of
corporate overhead. Operating information of each business segment, excluding
divested subsidiaries, follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Automotive Components Group
Sales................................................. $231,070 $209,722 $180,251
Cost of sales......................................... 171,375 156,481 134,673
Selling, general and administrative expenses.......... 23,889 19,389 15,811
Allocated corporate overhead.......................... 3,537 2,981 1,282
Depreciation and amortization......................... 9,199 6,956 4,674
Amortization of Reorganization Goodwill............... -- -- 3,404
------- ------- -------
Segment operating income.............................. $23,070 $23,915 $20,407
======= ======= =======
Technologies Group
Sales................................................. $198,941 $183,663 $170,615
Cost of sales......................................... 140,683 127,337 116,253
Selling, general and administrative expenses.......... 25,365 23,190 19,750
Allocated corporate overhead.......................... 3,728 3,152 1,412
Depreciation and amortization......................... 6,159 5,531 5,714
Amortization of Reorganization Goodwill............... -- -- 7,176
------- ------- -------
Segment operating income.............................. $23,006 $24,453 $20,310
======= ======= =======
Specialty Publishing Group
Sales................................................. $98,222 $99,020 $98,640
Cost of sales......................................... 58,787 61,094 60,389
Selling, general and administrative expenses.......... 29,406 31,504 29,594
Allocated corporate overhead.......................... 1,744 1,986 881
Depreciation and amortization......................... 2,930 2,786 2,904
Amortization of Reorganization Goodwill............... -- -- 5,625
------- ------- -------
Segment operating income (loss)....................... $5,355 $1,650 $(753)
======= ======= =======
</TABLE>
F-32
<PAGE>
A reconciliation of segment operating income to consolidated operating income
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Total segment operating income.... $51,431 $50,018 $39,964
Corporate depreciation............ (89) (84) (60)
Unallocated corporate overhead.... (240) (1,501) (1,023)
------ ------ ------
Consolidated operating income. $51,102 $48,433 $38,881
====== ====== ======
</TABLE>
A summary of identifiable assets of each business segment at December 31 follows
(in thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Automotive Components Group $144,847 $143,628
Technologies Group 87,252 80,740
Specialty Publishing 42,767 40,664
Corporate 27,807 56,208
Discontinued operations -- 27,153
------- -------
$302,673 $348,393
======= =======
</TABLE>
Corporate assets include cash, deferred taxes and other assets.
A summary of capital expenditures of each business segment follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Automotive Components Group..... $12,194 $7,447 $10,244
Technologies Group.............. 8,166 9,597 7,044
Specialty Publishing Group...... 3,161 2,876 2,776
Corporate....................... 62 89 126
Discontinued operations......... -- 2,570 1,969
------ ------ ------
$23,583 $22,579 $22,159
====== ====== ======
</TABLE>
A summary of export sales by geographic region follows (in thousands):
F-33
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Europe.......... $21,193 $20,584 $17,058
Asia............ 14,007 16,708 17,955
Canada.......... 9,758 7,752 6,928
Mexico.......... 4,292 6,660 5,153
Other........... 6,155 6,449 5,972
------ ------ ------
$55,405 $58,153 $53,066
====== ====== ======
</TABLE>
(19) Quarterly Financial Information (unaudited)
A summary of quarterly financial information follows (in thousands):
<TABLE>
<CAPTION>
1997 Dec. 31 Sept. 30(1) June 30 March 31(2)
---------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Sales............................................ $120,624 $131,394 $169,671 $106,544
Gross profit..................................... 29,508 34,269 52,170 26,011
Net income from continuing operations before
extraordinary item.............................. 3,531 4,315 11,207 4,361
Discontinued operations.......................... -- -- -- 58,958
Extraordinary item............................... -- (728) -- --
------ ------ ------ ------
Net income....................................... $3,531 $3,587 $11,207 $63,319
====== ====== ====== ======
Per Basic Share:
Continuing operations...................... $0.87 $0.77 $1.16 $0.45
Discontinued operations.................... -- -- -- 6.20
Extraordinary item......................... -- (0.13) -- --
------ ------ ------ ------
Net income................................. $0.87 $0.64 $1.16 $6.65
====== ====== ====== ======
Per Diluted Share:
Continuing operations...................... $0.85 $0.75 $1.14 $0.44
Discontinued operations.................... -- -- -- 5.95
Extraordinary item......................... -- (0.13) -- --
------ ------ ------ ------
Net income................................. $0.85 $0.62 $1.14 $6.39
====== ====== ====== ======
<CAPTION>
1996 Dec. 31(3) Sept. 30(4) June 30 March 31
---------- ----------- ------- --------
<S> <C> <C> <C> <C>
Sales............................................ $115,522 $122,164 $156,566 $98,153
Gross profit..................................... 29,237 31,102 47,950 25,550
Net income from continuing operations............ 4,795 6,152 10,320 3,946
Discontinued operations.......................... 7,825 2,330 1,485 2,200
------ ------ ------ ------
Net income....................................... $12,620 $8,482 $11,805 $6,146
====== ====== ====== ======
Per Basic Share:
Continuing operations...................... $ 0.50 $ 0.65 $ 1.08 $ 0.41
Discontinued operations.................... $ 0.83 $ 0.25 $ 0.16 $ 0.23
------ ------ ------ ------
Net income................................. $ 1.33 $ 0.90 $ 1.24 $ 0.64
====== ====== ====== ======
Per Diluted Share:
Continuing operations...................... $ 0.48 $ 0.62 $ 1.05 $ 0.40
Discontinued operations.................... $ 0.79 $ 0.24 $ 0.15 $ 0.22
------ ------ ------ ------
Net income................................. $ 1.27 $ 0.86 $ 1.20 $ 0.62
====== ====== ====== ======
</TABLE>
F-34
<PAGE>
- ----------
(1) Includes a pretax extraordinary loss of $1,193,000 (or $.21 per share on
both a basic and diluted basis) related to the extinguishment of debt (See
Note 8).
(2) Includes a pretax gain on the sale of the Rolodex Business totaling
$95,001,000.
(3) Includes the following: (a) pretax gain of $3,125,000 on the sale of
Rolodex Electronics (See Note 2), (b) recognition of a tax benefit of
$3,207,000 primarily related to a capital loss carryforward.
(4) Includes a pretax favorable adjustment of $2,200,000 to the Company's
environmental liabilities.
(20) Pro Forma Results of Operations (unaudited)
Set forth below is certain unaudited pro forma consolidated
financial information of the Company based on historical information that has
been adjusted to reflect all transactions directly or indirectly related to
the transactions discussed in Notes 8 and 11. In addition, the historical
financial information for 1996 has been adjusted to reflect the acquisition of
the Lingemann Business (See Note 3).
The income statement data give effect to the following
transactions as if all had occurred at the beginning of each period presented;
(i) the Company's purchase of 2,805,194 shares of common stock from Water
Street and 51,948 shares from Mr. Smialek at a price of $38.50 per share; (ii)
the Company's purchase of 2,857,142 shares at a price of $38.50 per share
pursuant to the Tender Offer; (iii) the closing of the Bank Credit Agreement
(including advances to refinance in full outstanding indebtedness under the
prior credit agreement); and (iv) the issuance of $150 million of the Notes.
The income statement data for the 1996 period has been adjusted to reflect the
acquisition of the Lingemann Business as if it had occurred at the beginning
of the period. The Lingemann Business acquisition actually occurred in the
third quarter of 1996. The nonrecurring transactions directly related to the
aforementioned transaction are excluded from the pro forma income statement
data. The unaudited summary pro forma consolidated financial data is based on
certain assumptions and estimates, and therefore does not purport to be
indicative of the results that would actually have been obtained had the
transactions been completed as of such dates or indicative of future results of
operations and financial position.
F-35
<PAGE>
Unaudited Pro Forma Condensed Consolidated Statement of Income
Year Ended December 31, 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
Refinancing and
Historical Tender Offer(1) Pro Forma
---------- --------------- ---------
<S> <C> <C> <C>
Net sales............................................................ $528,233 $ -- $528,233
Cost of goods sold................................................... 370,845 -- 370,845
Depreciation and amortization........................................ 18,377 -- 18,377
Selling, general and administrative expenses......................... 87,909 -- 87,909
------ ------ ------
Operating income............................................... 51,102 -- 51,102
Interest expense..................................................... (20,562) (8,879) (29,441)
Interest income...................................................... 2,837 (2,091) 746
Equity in net income of Thermalex.................................... 2,647 -- 2,647
Other income, net.................................................... 794 -- 794
------ ------ ------
Income from continuing operations before income taxes and
extraordinary item................................................ 36,818 (10,970) 25,848
Income tax expense................................................... (13,404) 4,223 (9,181)
------ ------ ------
Income from continuing operations before extraordinary item.... $23,414 $(6,747) $16,667
====== ====== ======
Basic income from continuing operations before extraordinary item
per share............................................................ $3.25 $4.20
====== ======
Weighted average number of common shares outstanding................. 7,200 (3,233) 3,967
====== ====== ======
Diluted income from continuing operations before extraordinary
item per common share................................................ $3.19 $4.05
====== ======
Weighted average number of common shares and common share
equivalents outstanding.............................................. 7,345 (3,233) 4,112
====== ====== ======
</TABLE>
F-36
<PAGE>
Unaudited Pro Forma Condensed Consolidated Statement of Income
Year Ended December 31, 1996
(In thousands, except per share data)
<TABLE>
<CAPTION>
Refinancing
and
Historical Acquisition(2) Subtotal Tender Offer(1) Pro Forma
---------- -------------- -------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Net sales............................ $492,405 $14,735 $507,140 $-- $507,140
Cost of goods sold................... 344,912 12,704 357,616 -- 357,616
Depreciation and amortization........ 15,357 1,577 16,934 -- 16,934
Selling, general and administrative
expenses............................ 83,703 2,193 85,896 -- 85,896
------ ------ ------ ------ ------
Operating income................ 48,433 (1,739) 46,694 -- 46,694
Interest expense..................... (18,378) (68) (18,446) (13,770) (32,216)
Interest income...................... 724 -- 724 -- 724
Equity in net income of Thermalex.... 2,922 -- 2,922 -- 2,922
Other income, net.................... 4,784 -- 4,784 -- 4,784
------ ------ ------ ------ ------
Income from continuing operations
before income taxes............... 38,485 (1,807) 36,678 (13,770) 22,908
Income tax expense................... (13,272) 1,032 (12,240) 5,301 (6,939)
------ ------ ------ ------ ------
Income from continuing operations $25,213 $(775) $24,438 $(8,469) $15,969
====== ====== ====== ====== ======
Basic income from continuing
operations per share................. $2.65 $4.20
====== ======
Weighted average number of common
share outstanding.................... 9,517 (5,714) 3,803
====== ====== ======
Diluted income from continuing
operations per share................. $2.55 $3.82
====== ======
Weighted average number of common
shares and common share
equivalents outstanding.............. 9,892 (5,714) 4,178
====== ====== ======
</TABLE>
The Notes to the Unaudited Pro Forma Condensed Consolidated
Statements of Income follow:
(1) To record the effect on interest expense and the related income tax effect
of (i) the purchase of 2,805,194 shares from Water Street and 51,948 shares
from Mr. Smialek at $38.50 per share in cash for an aggregate purchase price
of $109,999,967, (ii) the entering into of the Bank Credit Agreement and the
issuance and sale of $150,000,000 aggregate principal amount of the Notes,
and (iii) the purchase of 2,857,142 shares at $38.50 per share in cash for
an aggregate purchase price of $109,999,967 pursuant to the Tender Offer, as
if the aforementioned transactions had occurred at the beginning of the
periods presented.
(2) To record the effect on sales, costs and expenses assuming that the
acquisition of the Lingemann Business had occurred as of the beginning of
the period presented. Proceeds from the sales of Rolodex Electronics and
Curtis were assumed to have been applied to reduce the Company's outstanding
debt at the beginning of the period, reducing interest expense and the
related income tax expense. The acquisition of the Lingemann Business was
assumed to have occurred and to have been funded through borrowings under
the prior bank agreement as of the beginning of the period presented.
F-37
<PAGE>
(21) Subsequent Event
On March 24, 1998, it was announced that the Company and an
affiliate of DLJ Merchant Banking Partners II (and affiliated funds) ("DLJMB")
signed a definitive merger agreement. Under the initial terms of the
agreement, the stockholders of the Company would have received total
consideration of $42.98 in cash and 0.03419 shares of retained stock (having a
nominal value of $44.50 per share) of the surviving corporation. On June 8,
1998 DLJMB agreed to increase the total consideration to be paid by $0.50 in
cash to $43.48 in cash and 0.03378 shares of retained stock (having a nominal
value of $45.00 per share) of the surviving corporation. In aggregate,
stockholders will receive approximately $180.2 million in cash and retain
140,031 shares in the surviving entity. The retained shares will represent
approximately 10% of the common stock outstanding post-recapitalization.
The transaction, which is estimated to have a value of
approximately $448 million including existing indebtedness to be assumed
and/or refinanced, is subject to terms and conditions customary in
transactions of this type, including approval by the Company's shareholders,
and will be treated as a recapitalization for accounting purposes. Affiliates
of Donaldson, Lufkin & Jenrette Securities Corporation, which acted as
financial advisors to DLJMB, have committed to provide all debt financing
required for the transaction.
DLJMB also announced that it entered into a voting agreement in
support of the transaction with respect to 1,783,878 shares, approximately 43%
of the voting stock of the Company, with Water Street, an affiliate of Goldman
Sachs, which is the Company's largest shareholder.
As a result of the proposed merger, the Company and DLJMB will
incur various costs and expenses in connection with consummating the
transaction including professional fees, registration costs, financing costs,
and compensation costs. Pursuant to the terms of the merger, all issued
employee stock options will vest. The compensation expense associated with the
option payments will include approximately $9.1 million to employees for the
excess of the $45.00 purchase price per share over the exercise price of all
outstanding vested and unvested options.
F-38
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The Unaudited Pro Forma Condensed Consolidated Financial Data
are based upon historical consolidated financial statements of Insilco as
adjusted to give effect to the Refinancing, the Mergers, including the Merger
Financing and application of the proceeds thereof. In addition, the operating
results for the first nine months of 1997 and full year 1997 have been
adjusted to give effect to the 1997 Transactions. A summary of these
adjustments follows.
The Refinancing includes the following transactions:
o The issuance of the Units which will generate gross proceeds to Insilco
of approximately $120.0 million.
o The repurchase of the 10 1/4% notes at a purchase price of 101% of
principal amount plus accrued and unpaid interest, assuming that all of
the 10 1/4% notes are purchased.
o The execution and delivery of the new credit facility and borrowings
thereunder (i) to refinance the existing credit facility and (ii) to
purchase 10 1/4% notes. See "Risk Factors -- Potential Default under
Existing Credit Facility; Potential Lack of Financing."
o Payment of fees and expenses in connection with the offering of the
notes, the new credit facility and the purchase of the 10 1/4% notes.
The Reorganization Merger was accounted for as a reorganization
of entities under common control, and had no impact on the historical basis of
the assets or liabilities of Holdings or Insilco. The Merger was accounted for
as a recapitalization and had no impact on the historical basis of the assets
or liabilities of Holdings or Insilco.
The Mergers included the following transactions:
o The issuance of units by Silkworm which generated gross proceeds to
Silkworm of approximately $70.2 million, and new borrowings under
Insilco's Existing Credit Facility of approximately $43.1 million, of
which $26.8 million was paid as a dividend from Insilco to Holdings to
fund a portion of the Merger Consideration.
o The initial capitalization of Silkworm through the issuance of 1,245,138
shares of Silkworm common stock for $56.1 million and the issuance of
1,400,000 shares of PIK Preferred Stock and warrants to purchase 65,603
shares of Holdings Common Stock for aggregate consideration of $35.0
million.
o Payment of the Merger Consideration for each share of common stock of
Insilco outstanding immediately prior to the Mergers (4,145,372 shares
based on the number of shares outstanding as of June 15, 1998 and
assuming no stockholders validly perfect appraisal rights) consisting of
$43.48 in cash and 0.03378 of a share of Holdings.
o Payment of fees and expenses associated with the issuance of the
Holdings Senior Discount Notes, the waiver of certain Events of Default
under the Existing Credit Facility, and the Mergers.
o Vesting of all outstanding Options and payment of the Option Cash
Proceeds (and applicable withholding taxes) and payments pursuant to
employment related agreements.
The 1997 Transactions consisted of the following:
o Refinancing -- Insilco entered into the Existing Credit Facility as July
3, 1997 that, among other things, provides for (i) a $200 million
revolving credit facility, (ii) a $50 million sublimit for commercial
and standby letters of credit and (iii) a $50 million sublimit for
advances in selected foreign currencies.
P-1
<PAGE>
o The issuance of the 10 1/4% notes -- On August 12, 1997, Insilco
issued $150 million aggregate principal amount of the 10 1/4% notes.
o Share Repurchase -- On July 10, 1997, Insilco, using the proceeds of its
sale of the Rolodex Business, purchased an aggregate of 2,857,142 shares
for $110 million. On August 12, 1997, Insilco completed a tender offer
pursuant to which it purchased an additional 2,857,142 shares of common
stock of Insilco for $110 million. The purchase of shares of common
stock of Insilco in the tender offer was paid for with proceeds received
through the issuance by Insilco of the 10 1/4% notes.
The unaudited pro forma condensed consolidated balance sheet
data as of September 30, 1998 have been prepared as if the Refinancing and the
Mergers occurred on that date. The unaudited pro forma condensed consolidated
income statements have been prepared as if the Refinancing, the Mergers and
the 1997 Transactions all occurred on January 1 of the relevant period;
however, the expenses directly related to the aforementioned transactions
(other than interest expense) are excluded from the unaudited pro forma
condensed consolidated income statements. The Unaudited Pro Forma Condensed
Consolidated Financial Data are based on certain assumptions and estimates,
and therefore do not purport to be indicative of the results that would have
been obtained had the transactions been completed as of such dates or
indicative of future results of operations and financial position.
P-2
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of September 30, 1998
(In thousands)
<TABLE>
<CAPTION>
The Company
------------------------------------------------
Refinancing
Historical Adjustment Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents.................................. $4,659 4,659
Trade receivables, net..................................... 84,167 84,167
Other receivables.......................................... 3,651 3,651
Inventories................................................ 60,989 60,989
Deferred tax asset......................................... 4,396 4,396
Prepaid expenses and other................................. 4,135 4,135
------- ------- -------
Total current assets..................................... 161,997 -- 161,997
------- ------- -------
Property, plant and equipment............................... 114,131 114,131
Other assets................................................ 42,889 (8,146) (1) 45,093
10,350 (2)
------- ------- -------
Total assets............................................. 319,017 2,204 321,221
======= ======= =======
Liabilities and Stockholders' Equity (Deficit)
Current liabilities
Current portion of long-term debt.......................... $15 1,250 (4) 1,265
Accounts payable........................................... 36,624 36,624
Customer deposits.......................................... 6,523 6,523
Accrued expenses and other................................. 40,226 (3,714) (3) 36,512
------- ------- -------
Total current liabilities................................ 83,388 (2,464) 80,924
------- ------- -------
Long-term debt.............................................. 314,492 10,600 (4) 325,092
Other long-term obligations................................. 45,300 45,300
Deferred taxes.............................................. 3,019 3,019
Amounts due to parent....................................... 2,981 2,981
------- ------- -------
Total liabilities........................................ 449,180 8,136 457,316
Stockholders' equity (deficit).............................. (130,163) (5,932) (5) (136,095)
------- ------- -------
Total liabilities and stockholders' equity (deficit)..... 319,017 2,204 321,221
======= ======= =======
</TABLE>
(1) To write off deferred financing costs of $8.1 million related to the
existing 10 1/4% Notes and Old Credit Facility.
(2) To record $10.4 million of deferred financing costs related to the
issuance of the Notes and the refinancing of the Old Credit Facility with
the new Credit Facility. Deferred financing costs for the new Credit
Facility include commitment fees, which were 0.5% for banks party to the
Old Credit Facility and 2.50% for new banks.
(3) To record the tax benefit associated with the write off of the deferred
financing costs and the repurchase premium related to the 10 1/4% Notes
at a statutory rate of 38.5%.
(4) To record (i) the repurchase of $150.0 million of 10 1/4% Notes, (ii)
the proceeds from the issuance of $120.0 million of Notes, and (iii)
incremental borrowings under the Credit Facility of $41.9 million.
(5) To record the impact on stockholders' equity of the write off of deferred
financing fees and the repurchase premium relating to the 10 1/4% Notes
net of taxes at a statutory rate of 38.5%.
P-3
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
Nine Months Ended September 30, 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
The Company
-----------------------------------------------------------------
Merger Refinancing
Historical Adjustments Adjustments Pro Forma
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales.............................. $422,388 422,388
Cost of goods sold..................... 298,743 298,743
Depreciation and amortization.......... 15,787 15,787
Selling, general and administrative.... 95,588
(20,890) (1) 74,698
------- ------ ------ ------
Operating income...................... 12,270 20,890 -- 33,160
Interest expense:
Currently payable..................... (19,560) (1,955) (3) (3,444) (4) (24,959)
Accretion............................. (114) (114)
Amortization of debt issuance......... (893) (315) (4) (1,208)
Interest income........................ 94 94
Equity in net income of Thermalex...... 2,144 2,144
Other income, net...................... 2,430 2,430
------- ------ ------ ------
Income (loss) before income taxes..... (3,629) 18,935 (3,759) 11,547
Income tax expense..................... (1,214)
(4,813) (1)
753 (5) 1,447 (5) (3,827)
------- ------ ------ ------
Net income (loss)..................... (4,843) 14,875 (2,312) 7,720
======= ====== ====== ======
Earnings per common share:
Basic................................. $(1.15) NA
Basic shares.......................... 4,200 NA
Diluted............................... $(1.11) NA
Diluted shares........................ 4,350 NA
</TABLE>
P-4
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
Nine Months Ended September 30, 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
The Company
-------------------------------------------------------------------------------
1997 Merger Refinancing
Historical Transactions Adjustments Adjustments Pro forma
---------- ------------ ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales........................................ $407,609 407,609
Cost of goods sold............................... 283,203 283,203
Depreciation and amortization.................... 14,353 14,353
Selling, general and administrative.............. 70,289 70,289
------- ------- ------- ------- -------
Operating income................................ 39,764 -- -- -- 39,764
Interest expense:
Currently payable............................... (12,571) (8,634) (2) (2,346) (3) (3,260) (4) (26,933)
Accretion....................................... (153) (153)
Amortization of debt issuance................... (736) (245) (2) (471) (4) (1,330)
Interest income.................................. 2,808 (2,091) (2) 717
Equity in net income of Thermalex................ 2,154 2,154
Other income, net................................ 188 188
------- ------- ------- ------- -------
Income (loss) from continuing operations before
income taxes.................................. 31,454 (10,970) (2,436) (3,731) 14,407
Income tax expense............................... (11,571) 4,223 (2) 903 (5) 1,436 (5) (5,009)
------- ------- ------- ------- -------
Income (loss) from continuing operations........ 19,883 (6,747) (1,443) (2,295) 9,398
======= ======= ======= ======= =======
Earnings (loss) per common share from continuing
operations:
Basic........................................... $2.41 NA
Basic shares.................................... 8,251 NA
Diluted......................................... $2.34 NA
Diluted shares.................................. 8,503 NA
</TABLE>
P-5
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
Year Ended December 31, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
The Company
-------------------------------------------------------------------------------
1997 Merger Refinancing
Historical Transactions Adjustments Adjustments Pro Forma
---------- ------------ ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales...................................... $528,233 528,233
Cost of goods sold............................. 370,845 370,845
Depreciation and amortization.................. 18,377 18,377
Selling, general and administrative............ 87,909 87,909
------- ------- ------- ------- -------
Operating income............................... 51,102 -- -- -- 51,102
Interest expense:
Currently payable........................ (19,326) (8,634) (2) (3,128) (3) (4,105) (4) (35,193)
Accretion................................ (204) (204)
Amortization of debt issuance............ (1,032) (245) (2) (578) (4) (1,855)
Interest income................................ 2,837 (2,091) (2) 746
Equity in net income of Thermalex.............. 2,647 2,647
Other income, net.............................. 794 794
------- ------- ------- ------- -------
Income from continuing operations before
income taxes and extraordinary item......... 36,818 (10,970) (3,128) (4,683) 18,037
Income tax expense............................. (13,404) 4,223 (2) 1,204 (5) 1,803 (5) (6,174)
------- ------- ------- ------- -------
Income from continuing operations before
extraordinary item............................. $23,414 (6,747) (1,924) (2,880) 11,863
======= ======= ======= ======= =======
Earnings (loss) from continuing operations per
common share before extraordinary item:
Basic.................................... $3.25 NA
Basic shares............................. 7,200 NA
Diluted.................................. $3.19 NA
Diluted shares........................... 7,345 NA
</TABLE>
- ----------
The notes to the Unaudited Pro Forma Condensed Consolidated Income Statements
for the nine months ended September 30, 1997 and 1998 and for the year ended
December 31, 1997 follow:
(1) To exclude non-recurring Merger expenses and the related income tax effect
recorded in the nine months ended September 30, 1998.
(2) To record the effect on interest expense and the related income tax effect
of (i) the purchase on July 10, 1997 of 2,857,142 shares at $38.50 per
share in cash for an aggregate purchase price of $110.0 million, (ii) the
entering into of the Existing Credit Facility on July 3, 1997 and the
issuance and sale of $150.0 million aggregate principal amount of the
10 1/4% Notes on August 12, 1997, and (iii) the purchase on August 12,
1997 of 2,857,142 shares at $38.50 per share in cash for an aggregate
purchase price of $110.0 million, as if the aforementioned transactions had
occurred as of the beginning of the periods presented. Statutory tax rates
used to calculate the income tax effect was 38.5% (35.0% federal rate and
an estimated 3.5% average state rate).
(3) To record the incremental interest expense for the nine months ended
September 30, 1997 and 1998 and for the year ended December 31, 1997 of
$2.3 million, $2.0 million and $3.1 million, respectively, associated with
the Company's $43.1 million of additional borrowings under the Credit
Facility.
(4) To record the net increase in interest expense for the nine months ended
September 30, 1997 and 1998 and for the year ended December 31, 1997 as
follows: (i) $1.5 million, $1.6 million and $1.8 million increase in
interest expense associated with the increase in LIBOR spreads from 125 bps
under the Old Credit Facility to a spread of 375 bps for the Term Loan
Facility under the new Credit Facility and to a spread of 300 bps for the
Revolving Credit Facility and based on an assumed LIBOR rate of 4.98%
thereunder, (ii) $2.5 million, $2.5 million, and $3.3 million increase in
P-6
<PAGE>
interest expense related to the additional borrowings under the existing
Revolving Credit Facility, incurred in connection with the Refinancing,
(iii) $10.8 million, $10.8 million, and $14.4 million increase in interest
expense relating to the issuance of the Notes at a rate of 12.0%, offset by
a $11.5 million, $11.5 million, and $15.4 million reduction in interest
expense relating to the repayment of the 10 1/4% Notes and the
amortization expense relating to the issuance of the Notes and the Credit
Facility partially offset by a reduction in amortization expense relating
to the repurchase of the 10 1/4% Notes and the Old Credit Facility. A
one-quarter of one percent change in interest rates would impact interest
expense for borrowings under the Credit Facility for the nine months ended
September 30, 1997 and 1998 and for the year ended December 31, 1997 in the
amount of approximately $0.4 million, $0.4 million and $0.5 million,
respectively. A one-eighth of one percent change in interest rates would
impact interest expense for indebtedness relating to the Notes for the nine
months ended September 30, 1997 and 1998 and for the year ended December
31, 1997 in the amount of approximately $0.1 million, $0.1 million and $0.2
million, respectively.
(5) To record the tax benefit of the transaction at the statutory rate of
38.5% (35.0% federal rate and an estimated 3.5% average state rate).
P-7
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Unaudited Pro Forma Condensed Consolidated Income Statement
Last Twelve Months Ended September 30, 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
1997 1998
--------------------------- -------------------------
First Nine First Nine Last 12
Full Year Months Months Months
---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Net Sales............................................ $528,233 407,609 422,388 543,012
Cost of goods sold................................... 370,845 283,203 298,743 386,385
Depreciation and amortization........................ 18,377 14,353 15,787 19,811
Selling, general and administrative.................. 87,909 70,289 74,698 92,318
------- ------- ------- -------
Operating income............................... 51,102 39,764 33,160 44,498
Interest expense:
Currently payable.............................. (35,193) (26,933) (24,959) (33,219)
Accretion...................................... (204) (153) (114) (165)
Amortization of debt issuance.................. (1,855) (1,330) (1,208) (1,733)
Interest income...................................... 746 717 94 123
Equity in net income of Thermalex.................... 2,647 2,154 2,144 2,637
Other income, net.................................... 794 188 2,430 3,036
------- ------- ------- -------
Income from continuing operations before income
taxes and extraordinary item...................... 18,037 14,407 11,547 15,177
Income tax expense................................... (6,174) (5,009) (3,827) (4,992)
------- ------- ------- -------
Income from continuing operations before
extraordinary item................................... $11,863 9,398 7,720 10,185
======= ======= ======= =======
Other Data:
EBITDA(1)...................................... 69,479 54,117 48,947 64,309
Adjusted EBITDA(2)............................. 71,341 55,779 53,346 68,908
Capital Expenditures........................... 23,583 15,022 15,714 24,275
Cash interest.................................. 35,193 26,933 24,959 33,219
</TABLE>
- ----------
(1) "EBITDA" represents net income before interest expense, interest income,
income taxes, depreciation and amortization, other income, equity in net
income of Thermalex and net gain or net loss on sale of assets. EBITDA is
not intended to represent and should not be considered more meaningful
than, or an alternative to, operating income, cash flows from operating
activities or other measures of performance in accordance with generally
accepted accounting principles. EBITDA data are included because Insilco
understands that such information is used by certain investors as one
measure of an issuer's historical ability to service debt. While EBITDA is
frequently used as a measure of operations and the ability to meet debt
service requirements, it is not necessarily comparable to other similarly
titled captions of other companies, or to the defined term "Consolidated
Cash Flow" used in the "Incurrence of Indebtedness and Issuance of
Preferred Stock" covenant described herein, due to the potential
inconsistencies in the method of calculation.
(2) "Adjusted EBITDA" equals EBITDA plus dividends received from Thermalex of
$1.5 million, $1.5 million, $1.3 million and $1.3 million for the years
ended December 31, 1997, the nine months ended September 30, 1997, the nine
months ended September 30, 1998 and the twelve months ended September 30,
1998, respectively, and excluding the effect of (i) $0.4 million, $0.2
million, $0.9 million and $1.1 million of legal expenses relating to the
Jostens antitrust suit for the year ended December 31, 1997, nine months
ended September 30, 1997, the nine months ended September 30, 1998 and
twelve months ended September 30, 1998, respectively; (ii) $1.3 million of
corporate officers' severance for the nine months and twelve months ended
September 30, 1998; (iii) Merger expenses recorded and paid of $20.9
million for the nine months and twelve months ended September 30, 1998;
(iv) $0.4 million of facility relocation/consolidation expenses in the nine
and twelve months ended September 30, 1998; and (v) $0.5 million of legal
expenses related to a successful judgement on a breach of contract lawsuit
against a former employee in the nine and twelve months ended September 30,
1998.
P-8
<PAGE>
==============================================================================
You should rely only on the information contained in
this document or that we have referred you to. We
have not authorized anyone to provide you with
information that is different. We are not making an
offer of these securities in any state where the offer is
not permitted. You should not assume that the
information in this prospectus or any prospectus
supplement is accurate as of any date other than the
date on the front of those documents.
---------------
TABLE OF CONTENTS
Page
----
Prospectus Summary.............................................
Risk Factors...................................................
Use of Proceeds................................................
Capitalization.................................................
Selected Historical Financial Information......................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations..................................................
Business.......................................................
Management.....................................................
Executive Compensation.........................................
Security Ownership of Certain Beneficial
Owners and Management..........................................
Certain Relationships and Related Party Transactions...........
Description of Certain Indebtedness............................
The Exchange Offer.............................................
Description of Notes...........................................
United States Federal Income Tax
Consequences of the Exchange Offer.............................
Plan of Distribution...........................................
Legal Matters..................................................
Independent Public Accountants.................................
Available Information..........................................
Index to Unaudited Pro Forma
Consolidated Financial Data.................................P-1
Index to Financial Statements...............................F-1
==============================================================================
$120,000,000
Insilco Corporation
12% Series B Senior Subordinated Notes due 2007
--------------------
Prospectus
--------------------
, 1999
==============================================================================
<PAGE>
[ALTERNATE FRONT COVER FOR MARKET-MAKING PROSPECTUS]
SUBJECT TO COMPLETION, DATED FEBRUARY 8, 1999
PROSPECTUS
INSILCO CORPORATION
12% Series B Senior Subordinated Notes due 2007
----------
The Company
o We produce automotive, telecommunications and electronics components and are
a leading specialty publisher of high school yearbooks.
The Original Offering:
o We issued the notes in a private offering on November 9, 1998.
o We used the proceeds from the notes to repurchase a portion of our existing
debt. DLJ Merchant Banking Partners II, L.P. and related funds and entities
acquired a controlling stake in our company in August, and a portion of our
existing debt required us to offer to repurchase such debt in the event of
such a change of control.
The Notes:
o Maturity: August 15, 2007
o Interest Payment: semi-annually on February 15 and August 15, commencing on
February 15, 1999.
o Optional Redemption: The notes will be redeemable on or after August 15,
2002 at the prices state herein.
o Mandatory Redemption: We also have the right to redeem, and you have the right
to require us to purchase, the notes upon the occurrence of certain change of
control events, at the prices set forth herein.
o Ranking of Notes: The notes are general unsecured obligations, subordinated to
all of our senior obligations, including any borrowings under our bank credit
facility. The notes rank senior to all subordinated indebtedness. The notes
will effectively rank junior to all liabilities of our subsidiaries that are
not guarantors.
o Subsidiary Guarantees: All of our wholly owned domestic subsidiaries have
fully and unconditionally guaranteed the notes. The guarantees are general
unsecured obligations of the guarantors, subordinated to all senior
obligations and senior to all subordinated obligations.
o As of September 30, 1998, Insilco and the guarantors had outstanding
approximately $ million of senior indebtedness, and our subsidiaries that are
not guarantors had approximately $ million of outstanding liabilities,
including trade payables.
This investment involves risks. See "Risk Factors" beginning on page 14.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
This prospectus will be used by Donaldson, Lufkin & Jenrette Securities
Corporation in connection with offers and sales in market-making transactions
at negotiated prices related to prevailing market prices. There is currently
no public market for the notes. We do not intend to list the notes on any
securities exchange. Donaldson, Lufkin & Jenrette Securities Corporation has
advised us that it is currently making a market in the notes; however, it is
not obligated to do so and may stop at any time. Donaldson, Lufkin & Jenrette
Securities Corporation may act as principal or agent in any such transaction.
We will not receive the proceeds of the sale of the notes but will bear the
expenses of registration.
- --------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette
The date of this Prospectus is , 1999.
This information contained in this prospectus is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
[ALTERNATE SECTIONS FOR MARKET-MAKING PROSPECTUS]
Trading Market for the Notes
There is no existing trading market for the notes, and we
cannot assure you about the future development of a market for the notes or
your ability to sell their New Notes or the price at which you may be able to
sell your notes. If such market were to develop, the notes could trade at
prices that may be higher or lower than their initial offering price depending
on many factors, including prevailing interest rates, our operating results
and the market for similar securities. Although it is not obligated to do so,
DLJSC intends to make a market in the notes. Any such market-making activity
may be discontinued at any time, for any reason, without notice at the sole
discretion of DLJSC. No assurance can be given as to the liquidity of or the
trading market for the notes.
DLJSC may be deemed to be our "affiliate" (as defined the
Securities Act) and, as such, may be required to deliver a prospectus in
connection with its market-making activities in the notes. Pursuant to the
registration rights agreement that we signed with DLJSC in connection with the
initial sale of the notes, we have agreed to use our best efforts to file and
maintain a registration statement that would allow DLJSC to engage in
market-making transactions in the notes for up to 90 days from the date on
which we consummate the offer to exchange the notes for the Old Notes. We have
agreed to bear substantially all the costs and expenses related to
registration.
USE OF PROCEEDS
This prospectus is delivered in connection with the sale of the
notes by DLJSC in market-making transactions. We will not receive any of the
proceeds from such transactions.
PLAN OF DISTRIBUTION
This prospectus is to be used by DLJSC in connection with
offers and sales of the New Notes in market-making transactions effected from
time to time. DLJSC may act as a principal or agent in such transactions,
including as agent for the counterparty when acting as principal or as agent
for both counterparties, and may receive compensation in the form of discounts
and commissions, including from both counterparties when it acts as agent for
both. Such sales will be made at prevailing market prices at the time of sale,
at prices related thereto or at negotiated prices.
DLJMB, an affiliate of DLJSC, and certain of its affiliates
beneficially own approximately 69.0% of the common stock of Holdings. Thompson
Dean and William F. Dawson, Jr. each of whom is a principal of DLJMB, are
members of the board of directors of Holdings and Insilco. Further, DLJ
Capital Funding, Inc., an affiliate of DLJSC, acted as syndication agent in
connection with the new credit facility for which it received certain
customary fees and expenses and DLJ Bridge Finance Inc., an affiliate of
DLJSC, purchased the Bridge Notes, for which it received customary fees and
expenses. DLJSC has, from time to time, provided investment banking and other
financial advisory services to Insilco in the past for which it has received
customary compensation, and will provide such services and financial advisory
services to Insilco in the future. DLJSC acted as purchaser in connection with
the initial sale of the Old Notes and received an underwriting discount of
approximately $3.6 million in connection therewith. In addition, DLJSC
received a merger advisory fee of $3.5 million in cash from Holdings after the
consummation of the Merger. See "Certain Relationships and Related
Transactions."
DLJSC has informed Insilco that it does not intend to confirm
sales of the New Notes to any accounts over which it exercises discretionary
authority without the prior specific written approval of such transactions by
the customer.
Insilco has been advised by DLJSC that, subject to applicable
laws and regulations, DLJSC currently intends to make a market in the New
Notes following completion of the Exchange Offer. However, DLJSC is not
obligated to do so and any such market-making may be interrupted or
discontinued at any time without notice. In addition, such market-making
<PAGE>
activity will be subject to the limits imposed by the Securities Act and the
Exchange Act. There can be no assurance that an active trading market will
develop or be sustained. See "Risk Factors--Trading Market for the New Notes."
DLJSC and Insilco have entered into the Registration Rights
Agreement with respect to the use by DLJSC of this prospectus. Pursuant to
such agreement, Insilco agreed to bear all registration expenses incurred
under such agreement, and Insilco agreed to indemnify DLJSC against certain
liabilities, including liabilities under the Securities Act.
<PAGE>
[BACK COVER FOR MARKET-MAKING PROSPECTUS]
==============================================================================
You should rely only on the information contained in this document or that
we have referred you to. We have not authorized anyone to provide you with
information that is different. We are not making an offer of these securities in
any state where the offer is not permitted. You should not assume that the
information in this prospectus or any prospectus supplement is accurate as of
any date other than the date on the front of those documents.
----------
TABLE OF CONTENTS
Page
----
Prospectus Summary.................................................1
Risk Factors......................................................14
Use of Proceeds...................................................23
Capitalization....................................................24
Selected Consolidated Financial Data..............................25
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ......................................................27
Business..........................................................41
Management........................................................53
Executive Compensation............................................54
Security Ownership of Certain Beneficial Owners and Management....57
Certain Relationships and Related Party
Transactions......................................................59
Description of Certain Indebtedness...............................61
Description of Notes..............................................65
Plan of Distribution.............................................106
Legal Matters....................................................106
Independent Public Accountants...................................106
Index to Financial Statements....................................F-1
Unaudited Pro Forma Condensed Consolidated
Financial Data...................................................P-1
==============================================================================
==============================================================================
$120,000,000
Insilco Corporation
12% Series B Senior Subordinated
Notes due 2007
----------
Prospectus
Donaldson, Lufkin & Jenrette
, 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemization of all estimated expenses
incurred or expected to be incurred by the Registrant in connection with the
issuance and distribution of the securities being registered hereby, other
than underwriting discounts and commissions.
<TABLE>
<CAPTION>
Item Amount
<S> <C>
SEC Registration Fee 33,360
Printing and Engraving Costs 20,000
Trustee Fees 3,500
Legal Fees and Expenses *
Accounting Fees and Expenses *
Total *
</TABLE>
- ----------
*To be filed by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation Law permits a
corporation to indemnify any of its directors or officers who was or is a
party, or is threatened to be made a party to any third party proceeding by
reason of the fact that such person is or was a director or officer of the
corporation, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding, if such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reason to believe that such person's
conduct was unlawful. In a derivative action, i.e., one by or in the right of
the corporation, the corporation is permitted to indemnify directors and
officers against expenses (including attorneys' fees) actually and reasonably
incurred by them in connection with the defense or settlement of an action or
suit if they acted in good faith and in a manner the person reasonably
believed to be in or not opposed to the best interests of the corporation and
except that no indemnification shall be made if such person shall have been
adjudged liable to the corporation, unless and only to the extent that the
court in which the action or suit was brought shall determine upon application
that the defendant directors or officers are fairly and reasonably entitled to
indemnity for such expenses despite such adjudication of liability. Article
Seventh of Insilco's Certificate of Incorporation provides for full
indemnification of its officers, directors, employees and agents to the extent
permitted by Section 145.
Insilco provides insurance from commercial carriers against
certain liabilities incurred by the directors and officers of Insilco.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On November 9, 1998, the Registrant sold 120,000 units (the
"Units"), each consisting of $1,000 principal amount of its 12% Senior
Subordinated Notes due 2007 (the "Old Notes") and one warrant to purchase 0.52
of a Share of Holdings Common Stock, par value $0.01 per share, at an initial
exercise price of $45.00 per share (the "warrants"), to Donaldson, Lufkin &
Jenrette Securities Corporation (the "Initial Purchaser") in a private
placement in reliance on Section 4(2) under the Securities Act, at a price
equal to $970.00 per unit. The Old Notes and warrants were immediately resold
by the Initial Purchaser in transactions not involving a public offering.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
Exhibit
Number
------
1.1 Registration Rights Agreement dated as of November 9, 1998
between Insilco and Donaldson, Lufkin & Jenrette Securities
Corporation, as Initial Purchaser (incorporated by reference
to Exhibit 4(b) to Form 10-Q filed by Insilco on 16th
November, 1998).
2.1 Agreement and Plan of Merger, dated as of March 24, 1998,
among Insilco, INR Holding Co., and Silkworm Acquisition
Corporation (incorporated by reference to Exhibit 10(n) to the
Registration Statement on Form S-4 (Reg. No. 333-51145) of
Insilco).
2.2 Amendment No. 1 to the Agreement and Plan of Merger, dated
June 8, 1998, among Insilco, INR Holding Co. and Silkworm
Acquisition Corporation (incorporated by reference Exhibit
10(r) to the Registration Statement on Form S-4 (Reg. No.
333-51145) of Insilco).
3.1.1 Certificate of Incorporation (incorporated by reference to
Exhibit 3.1 to the Current Report on Form 8-K filed by Insilco
on August 18, 1998).
3.1.2 By laws (incorporated by reference to Exhibit 3.2 to the
Current Report on Form 8-K filed by Insilco on August 18,
1998).
3.2.1** Charter -- Guarantors
3.2.2** Bylaws -- Guarantors
4.1 Investors' Agreement, dated as of August 17, 1998, among
Insilco Holding Co. and the investors named therein
(incorporated by reference to Exhibit 4.5 to the Registration
Statement on Form S-1 (Reg. No. 333-65039) of Insilco Holding
Co.)
4.2 Indenture, dated as of November 9, 1998 between Insilco and
the Trustee (incorporated by reference to Exhibit 4(a) to the
Form 10-Q filed by Insilco on 16th November, 1998).
4.3* First Supplemental Indenture, dated as of December 21, 1998
between Insilco and the Trustee.
5.1* Opinion of Davis Polk & Wardwell with respect to the new
notes.
5.2** Opinion of Kenneth H. Koch with respect to the guarantees.
10.1 Insilco Holding Co. Direct Investment Program (incorporated by
reference to Exhibit 4(c) to the Registration Statement on
Form S-8 (File No. 333-61809)).
10.2 Insilco Holding Co. Stock Option Plan (incorporated by
reference to Exhibit 4(d) to the Registration Statement on
Form S-8 (File No. 333-61809)).
10.3 Insilco Holding Co. and Insilco Corporation Equity Unit Plan
(incorporated by reference to Exhibit 4(c) to the Registration
Statement on Form S-8 (File No. 333-61811)).
10.4** Credit Agreement among Insilco and a syndicate of banks and
other financial institutions led by Donaldson, Lufkin &
Jenrette Securities Corporation, DLJ Capital Funding and The
First National Bank of Chicago.
10.5 Purchase Agreement between Insilco Corporation, Insilco
Holding Co. and Donaldson, Lufkin & Jenrette Securities
Corporation, as Initial Purchaser (incorporated by reference
to Exhibit 10(a) to Form 10-Q filed by Insilco on 16th
November, 1998)
12.1* Computation of Ratio of Earnings to Fixed Charges
21.1* Subsidiaries of Insilco
23.1* Consent of Davis Polk & Wardwell (contained in their opinion
filed as Exhibit 5.1).
23.2* Consent of KPMG LLP.
24.1* Power of Attorney (Included in Part II of this Registration
Statement under the caption "Signatures").
25.1* Statement of Eligibility of Star Bank, N.A. on Form T-1.
99.1** Form of Letter of Transmittal
99.2** Form of Notice of Guaranteed Delivery
99.3** Form of Letter to Clients
99.4** Form of Letter to Nominees
99.5** Form of Instructions to Registered Holder and/or Book-Entry
Transfer Participant from Owner
- ----------
* Filed herewith
** To be filed by amendment
(b) Financial Statement Schedules.
Schedule II--Valuation and Qualifying Accounts.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown on the
financial statements or notes thereto.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a) (1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the SEC pursuant to Rule 424(b) under
the Securities Act of 1933 if, in the aggregate, the changes
in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration
statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post- effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of Insilco pursuant to the provisions described in Item 15, or
otherwise, Insilco has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Insilco of
expenses incurred or paid by a director, officer or controlling person of
Insilco in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, Insilco will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Dublin, State of Ohio, on the 5th
day of February, 1999.
INSILCO CORPORATION
By: /s/ ROBERT L. SMIALEK
-------------------------------
Chairman and Chief
Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Robert L. Smialek, David A.
Kauer and Kenneth H. Koch, or each of them, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign the Registration Statement filed herewith and any
and all amendments to said Registration Statement (including post-effective
amendments and related registration statements (or amendments thereto) filed
pursuant to Rule 462 promulgated under the Securities Act of 1933), and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming that all said
attorneys-in-fact and agents, or their substitute or substitutes may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert Smialek Chairman and Chief Executive Officer February 5, 1999
---------------------- (Principal Executive Officer)
Robert L. Smialek
/s/ David A. Kauer Vice President and Chief Financial Officer February 5, 1999
---------------------- (Principal Financial Officer)
David A. Kauer
/s/ Michael R. Elia Vice President and Comptroller February 5, 1999
---------------------- (Principal Accounting Officer)
/s/ William F. Dawson Director February 5, 1999
----------------------
William F. Dawson
/s/ Thompson Dean Director February 5, 1999
----------------------
Thompson Dean
</TABLE>
<PAGE>
FIRST SUPPLEMENTAL INDENTURE
dated as of December 21, 1998
among
INSILCO CORPORATION,
and its Subsidiaries,
GREAT LAKE, INC., INSILCO ASIA CORPORATION, SIGNAL TRANSFORMER CO.,
INC., SIGNAL CARIBE, INC., STEEL PARTS CORPORATION, STEWART CONNECTOR
SYSTEMS, INC., STEWART STAMPING CORPORATION, TAYLOR PUBLISHING
COMPANY, THERMAL COMPONENTS, INC., AND THERMAL COMPONENTS
DIVISION, INC.
the GUARANTORS party hereto
and
STAR BANK, N.A.,
as Trustee
with respect to
Insilco Corporation's 12% Senior Subordinated Notes due 2007
THIS FIRST SUPPLEMENTAL INDENTURE (this "Supplemental
Indenture"), entered into as of December 21, 1998, among Insilco Corporation,
a Delaware corporation (the "Company"), Great Lake, Inc., a Delaware
corporation; Insilco Asia Corporation, a Delaware corporation; Signal
Transformer Co., Inc., a Delaware corporation; Signal Caribe, Inc., a Delaware
corporation; Steel Parts Corporation, a Delaware corporation; Stewart Connector
Systems, Inc., a Pennsylvania corporation; Stewart Stamping Corporation, a
Delaware corporation; Taylor Publishing Company, a Delaware corporation;
Thermal Components, Inc., a Delaware corporation; and, Thermal Components
Division, Inc., a Delaware corporation (each an "Undersigned") and Star Bank,
N.A., as trustee (the "Trustee").
RECITALS
WHEREAS, the Company and the Trustee entered into the
Indenture, dated as of November 9, 1998 (the "Indenture)," relating to the
Company's 12% Senior Subordinated Notes due 2007 (the "Notes");
WHEREAS, as a condition to the Trustee entering into the
Indenture and the Holders purchase of the Notes, the Company agreed pursuant
to Section 10.21 of the Indenture to cause its Domestic Subsidiaries which are
Wholly Owned Restricted Subsidiaries to provide the Note Guarantee in certain
circumstances.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained and intending to be legally bound, the parties
hereto hereby agree as follows:
Section 1. Definitions. Capitalized terms used herein and not
otherwise defined herein are used as defined in the Indenture.
Section 2. Guarantee. Pursuant to Section 9.01 of the
Indenture, each Undersigned, by its execution of this Supplemental Indenture,
agrees to be a Guarantor under the Indenture and to be bound by the terms of
the Indenture applicable to Guarantors, including, but not limited to, Article
14 thereof, and to comply with the provisions of the Registration Rights
Agreement (as such term is defined in the Indenture) applicable to such
Guarantor.
Section 3. Governing Law. This Supplemental Indenture shall be
governed by and construed in accordance with the internal laws of the State of
New York.
Section 4. Counterparts. This Supplemental Indenture may be
signed in various counterparts which together shall constitute one and the
same instrument.
Section 5. Supplement to the Indenture. This Supplemental
Indenture is an amendment supplemental to the Indenture and said Indenture and
this Supplemental Indenture shall henceforth be read together.
IN WITNESS WHEREOF, the parties have duly executed and
delivered this Supplemental Indenture or have caused this Supplemental
Indenture to be duly executed on their respective behalf by their respective
officers thereunto duly authorized, as of the day and year first above written.
INSILCO CORPORATION
By:_______________________________
Name: Kenneth H. Koch
Title: Vice President, General
Counsel and Secretary
GREAT LAKE, INC.
By:_______________________________
Name: Kenneth H. Koch
Title: Vice President, General
Counsel and Secretary
INSILCO ASIA CORPORATION
By:_______________________________
Name: Kenneth H. Koch
Title: Vice President, General
Counsel and Secretary
SIGNAL TRANSFORMER, CO., INC.
By:_______________________________
Name: Kenneth H. Koch
Title: Vice President, General
Counsel and Secretary
SIGNAL CARIBE, INC.
By:_______________________________
Name: Kenneth H. Koch
Title: Vice President, General
Counsel and Secretary
STEEL PARTS CORPORATION
By:_______________________________
Name: Kenneth H. Koch
Title: Vice President, General
Counsel and Secretary
STEWART CONNECTOR SYSTEMS, INC..
By:_______________________________
Name: Kenneth H. Koch
Title: Vice President, General
Counsel and Secretary
STEWART STAMPING CORPORATION
By:_______________________________
Name: Kenneth H. Koch
Title: Vice President, General
Counsel and Secretary
TAYLOR PUBLISHING COMPANY
By:_______________________________
Name: Kenneth H. Koch
Title: Vice President, General
Counsel and Secretary
THERMAL COMPONENTS, INC.
By:_______________________________
Name: Kenneth H. Koch
Title: Vice President, General
Counsel and Secretary
THERMAL COMPONENTS DIVISION, INC.
By:_______________________________
Name: Kenneth H. Koch
Title: Vice President, General
Counsel and Secretary
STAR BANK, N.A.,
as Trustee
By:_______________________________
Name: Senior Trust Officer
Title: Senior Trust Officer
EXHIBIT 5.1
DAVIS POLK & WARDWELL
450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
212-450-4000
February __, 1999
Insilco Corporation
425 Metro Place North, Fifth Floor
Dublin, Ohio 43017
Ladies and Gentlemen:
We have acted as special counsel to Insilco Corporation, a Delaware
corporation (the "Company"), in connection with the Company's offer (the
"Exchange Offer") to exchange its 12% Series B Senior Subordinated Notes due
2007 (the "New Notes") for any and all of its outstanding 12% Series A Senior
Subordinated Notes due 2007 (the "Old Notes") which are guaranteed by certain of
the Company's subsidiaries.
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of such documents, corporate records, certificates of
public officials and other instruments as we have deemed necessary or advisable
for the purpose of rendering this opinion.
Upon the basis of the foregoing and assuming the due execution and
delivery of the New Notes, we are of the opinion that the New Notes, when
executed, authenticated and delivered in exchange for the Old Notes in
accordance with the Exchange Offer will be valid and binding obligations of the
Company enforceable in accordance with their terms, except (x) as such
enforcement may be limited by bankruptcy, insolvency, fraudulent conveyance or
similar laws affecting creditors' rights generally, (y) as such enforcement may
be limited by general principles of equity, regardless of whether enforcement is
sought in a proceeding at law or in equity and (z) to the extent that a waiver
of rights under any usury or stay law may be unenforceable.
We are members of the Bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York, the federal laws of the
United States of America and the General Corporation Law of the State of
Delaware.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement relating to the Exchange Offer. We also consent to the
reference to us under the caption "Legal Matters" in the Prospectus contained in
such Registration Statement.
This opinion is rendered solely to you in connection with the above
matter. This opinion may not be relied upon by you for any other purpose or
relied upon by or furnished to any other person without our prior written
consent except that Star Bank, N.A., as Exchange Agent for the Exchange Offer,
may rely upon this opinion as if it were addressed directly to it.
Very truly yours,
EXHIBIT 12.1
INSILCO CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In thousands, except ratio data)
<TABLE>
1993 Nine Months Ended
---------------------- September 30,
To From ----------------------
3/31 4/1 12/31/94 12/31/95 12/31/96 12/31/97 1997 1998
---------- ---------- ---------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income from continuing
operations before income
taxes per statement of
operations $ (5,168) (27,851) (14,577) 34,700 38,485 36,818 31,454 (3,629)
Add:
Portion of rents
representative of the
interest factor 155 478 748 864 1,143 1,479 1,148 1,464
Interest on indebtedness 9,234 26,302 28,427 18,557 17,538 19,530 12,571 19,560
Amortization of debt expense 375 603 686 989 848 1,032 889 1,007
---------- ---------- ---------- ---------- ---------- ----------- ---------- ----------
Income as adjusted $ 4,596 (468) 15,284 55,110 58,014 58,859 46,062 18,402
========== ========== ========== ========== ========== =========== ========== ==========
Fixed charges:
Interest on indebtedness (1) 9,312 26,535 28,957 18,955 17,747 19,596 12,577 19,784
---------- ---------- ---------- ---------- ---------- ----------- ---------- ----------
Amortization of debt expense (2) 375 603 686 989 848 1,032 889 1,007
---------- ---------- ---------- ---------- ---------- ----------- ---------- ----------
Capitalized interest (3) 30 91 20 173 202 220 126 5
---------- ---------- ---------- ---------- ---------- ----------- ---------- ----------
Rents 464 1,434 2,243 2,593 3,429 4,436 3,445 4,391
Portion of rents
representative of
the interest factor (4) 155 478 748 864 1,143 1,479 1,148 1,464
---------- ---------- ---------- ---------- ---------- ----------- ---------- ----------
Fixed charges
(1)+(2)+(3) +(4) $ 9,872 27,707 30,411 20,981 19,940 22,327 14,740 22,260
========== ========== ========== ========== ========== =========== ========== ==========
Ratio of earnings to fixed
charges 0.47x (0.02)x 0.50x 2.63x 2.91x 2.64x 3.12x 0.83x
========== ========== ========== ========== ========== =========== ========== ==========
</TABLE>
EXHIBIT 21.1
ARUP, Alu-Rohr und-Profil, GmbH, organized under the laws of the Federal
Republic of Germany
Dalian General Thermodynamics Incorporated, Ltd., organized under the laws of
the Republic of China
Great Lake, Inc., a Delaware corporation
Insilco Asia Corporation, a Delaware corporation
Insilco Deutschland GmbH, organized under the laws of the Federal Republic of
Germany
Signal Caribe, Inc., a Delaware corporation
Signal Dominicana, S.A., organized under the laws of the Dominican Republic
Signal Transformer Co., Inc., a Delaware corporation
Steel Parts Corporation, a Delaware corporation
Stewart Connector Systems, Inc., a Pennsylvania corporation
Stewart Connector Systems GmbH, organized under the laws of the Federal
Republic of Germany
Stewart Connector Systems (Japan), Inc., organized under the laws of Japan
Stewart Connector Systems de Mexico, S.A. de C.V., organized under the laws of
Mexico
Stewart Stamping Corporation, a Delaware corporation
Taylor Production Services Company, L.P., a Delaware Limited Partnership
Taylor Publishing Company, a Delaware corporation
Thermal Components Division, Inc., a Delaware corporation
Thermal Components, Inc., a Delaware corporation
Thermalex, Inc., an Alabama corporation
Insilco Teoranta, organized under the laws of Ireland
Insilco Technologies (UK), Ltd., organized under the laws of Great Britain
Eyelets for Industry, Inc., a Connecticut corporation
EFI Metal Forming, Inc., a Connecticut corporation
EXHIBIT 23.2
KPMG
Two Nationwide Plaza
Columbus, OH 43215
Consent of Independent Auditors'
The Board of Directors
Insilco Corporation:
The audits referred to in our report dated January 30, 1998, except as to Note
21, which is as of June 8, 1998, and Note 2, which is as of July 7, 1998,
included the related financial statement schedules as of December 31, 1997, and
for each of the years in the three-year period ended December 31, 1997, included
in the registration statement. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statement schedules based on our audits. In our
opinion, such financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
We consent to the use of our audit report included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
KPMG LLP
Columbus, Ohio
February 5, 1999
EXHIBIT 25.1
Securities Act of 1933 File No. 333-50269
-----------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
--------------------------------------------------
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
PURSUANT TO SECTION 305(b) (2) [X]
--------------------------------------------------
STAR BANK, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
A National Banking Association 31-0841368
--------------------------------
(IRS Employer Identification No.)
425 Walnut Street
Cincinnati, Ohio 45202
-------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Robert T. Jones
Senior Trust Officer
Star Bank, National Association
425 Walnut Street
Cincinnati, Ohio 45202
(513) 632-4427
-----------------------------------------------------------
(Name, address, and telephone number of agent for services)
Insilco Corporation.
---------------------------------------------------
(Exact name of obligor as specified in its charter)
Delaware 06-1158291
---------------------- -------------------------------
(State of Incorporation) (IRS Employer Identification No.)
425 Metro Place North, 5th Floor Dublin, Ohio 43017
----------------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
12% Senior Subordinated Notes Due 2007
--------------------------------------
(Title of the Indenture securities)
<PAGE>
1. General Information. Furnish the following information as Trustee --
(a) Name and address of each examining or supervising authority to
which it is subject.
Comptroller of the Currency, Washington, D.C.
Federal Reserve Bank of Cleveland, Ohio
Federal Deposit Insurance Corporation, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
The Trustee is authorized to exercise corporate trust powers.
2. Affiliations with obligor. If the obligor is an affiliate of the
trustee, describe each such affiliation.
The obligor is not an affiliate of the Trustee (including its parent
and any affiliates).
3. Voting Securities of the trustee. Furnish the following information as
to each class of voting securities of the trustee
(and its parent). As of _____________ (insert date
within 31 days)
Col A. Col B
---------------- --------------------
(Title of Class) (Amount Outstanding)
4. Trusteeships under other Indentures. If the trustee is a
trustee under another Indenture under which any other
securities, or certificates of interest or participation in
any other securities, of the obligor are outstanding, furnish
the following information:
(a) Title of the securities outstanding under each such
other indenture.
(b) A brief statement of the facts relied upon as a basis
for the claim that no conflicting interest within the
meaning of Section 310(b) (1) of the Act arises as a
result of the trusteeship under any such other
indenture, including a statement as to how the
indenture securities will rank as compared with the
securities issued under such other indenture.
5. Interlocking directorates and similar relationships with the
obligor or underwriters. If the trustee (including its parent
and any other affiliates) or any of the directors or executive
officers of the trustee is a director, officer, partner,
employee, appointee, or representative of the obligor or of
any underwriter for the obligor, identify each such person
having any such connection and state the nature of each such
connection.
2
<PAGE>
6. Voting securities of the trustee (including its parent and any
affiliate) owned by the obligor or its officials. Furnish the following
information as to the voting securities of the trustee (including its
parent and any affiliates) owned beneficially by the obligor and each
director, partner and executive officer of the obligor:
As of _______________________ (insert date within 31 days)
Col. A. Col. B. Col. C Col. D
Percentage of
Voting Securities
Represented by
Amount Owned Amount Given
Name of Owner Title of Class Beneficially in Col. C
- --------------------------------------------------------------------------------
7. Voting securities of the trustee (including its parent and any
affiliates) owned by underwriters or their officials. Furnish the
following information as to thevoting securities of the trustee
(including its parent and any affiliates) owned beneficially
by each underwriter for the obligor and each director,
partner, and executive officer of each such underwriter:
As of ___________________(insert date within 31 days)
Col. A. Col B. Col. C Col. D
Percentage of
Voting Securities
Represented by
Amount Owned Amount Given
Name of Owner Title of Class Beneficially in Col. C
- --------------------------------------------------------------------------------
8. Securities of the obligor owned or held by the trustee (including its
parent and any affiliates). Furnish the following information as to
securities of the obligor owned beneficially or held as collateral
security for obligations default by the trustee (including its parent
and any affiliates):
As of ___________________(insert date within 31 days)
Col. A Col. B Col. C Col. D
Amount Owned
Whether the Beneficially or
Securities Are Held as Collateral Percent of
Voting or Security for Class Represented
Nonvoting obligations in by Amount Given
Title of Class Securities Default in Col. C
- --------------------------------------------------------------------------------
3
<PAGE>
9. Securities of underwriters owned or held by the trustee (including its
parent and any affiliates). If the trustee (including its parent and
any affiliates) owns beneficially or holds as collateral security for
obligations in default any securities of an underwriter for the
obligor, furnish the following information as to each class of
securities of such underwriter any of which are so owned or held by the
trustee:
Col. A Col. B Col. C Col. D
Amount Owned
Beneficially or
Held as Collateral Percent of
Security for Class Represented
Title of Issuer Obligations in by Amount
and Title of Amount Default by Given in
Class Outstanding Trustee Col. C
- --------------------------------------------------------------------------------
10. Ownership or holdings by the trustee (including its parent and any
affiliates) of voting securities of certain affiliates or security
holders of the obligor. If the trustee (including its parent and any
affiliates) owns beneficially or holds as collateral security for
obligations in default voting securities of a person who, to the
knowledge of the trustee (1) owns 10% or more of the voting securities
of the obligor or (2) is an affiliate, other than a subsidiary, of the
obligor, furnish the following information as to the voting securities
of such person:
As of _______________________(insert date within 31 days)
Col. A Col. B Col. C Col. D
Amount Owned
Beneficially or
Held as Collateral Percent of
Security for Class Represented
Title of Issuer Obligations in by Amount
and Title of Amount Default by Given in
Class Outstanding Trustee Col. C
- --------------------------------------------------------------------------------
11. Ownership or holdings by the trustee (including its parent and any
affiliates) of any securities of a person owning 50 percent or more of
the voting securities of the obligor. If the trustee (including its
parent and any affiliates) owns beneficially or holds as collateral
security for obligations in default any securities of a person who, to
the knowledge of the trustee, owns 50 percent or more of the voting
securities of the obligor, furnish the following information as to each
class of securities of such person any of which are so owned or held by
the trustee (including its parent and affiliates):
As of ______________________(insert date within 31 days)
4
<PAGE>
Col. A Col. B Col. C Col. D
Amount Owned
Beneficially or
Held as Collateral Percent of
Security for Class Represented
Title of Issuer Obligations in by Amount
and Title of Amount Default by Given in
Class Outstanding Trustee Col. C
- --------------------------------------------------------------------------------
12. Indebtedness of the Obligor to the Trustee. Except as noted in the
instructions, if the obligor is indebted to the trustee, furnish the
following information:
As of ____________________(insert date with 31 days)
Col. A Col. B Col. C
Amount
Nature of Indebtedness Outstanding Due Date
- -----------------------------------------------------------------------
13. Defaults by the Obligor.
a) State whether there is or has been a default with
respect to the securities under this indenture.
Explain the nature of any such default.
b) If the Trustee is a trustee under another indenture
under which any other securities, or certificates of
interest or participation in any other securities, of
the obligor are outstanding, or is trustee for more
than one outstanding series or securities under the
indenture, state whether there has been a default
under any such indenture or series, identify the
indenture or series affected, and explain the nature
of any such default.
As of ____________________(insert date with 31 days)
Col. A Col. B Col. C Col. D
Amount Owned
Beneficially or
Held as Collateral Percent of
Security for Class Represented
Title of Issuer Obligations in by Amount
and Title of Amount Default by Given in
Class Outstanding Trustee Col. C
- --------------------------------------------------------------------------------
5
<PAGE>
14. Affiliations with the Underwriters.If any underwriter is an affiliate
of the trustee (including its parent and any affiliates), described
each such affiliation.
15. Foreign Trustee. Identify the order or rule pursuant to which the
foreign trustee is authorized to act as sole trustee under indentures
qualified or to be qualified under the Act.
16. List of Exhibits. List below all exhibits filed as part of this
statement of eligibility.
1. A copy of the Articles of Association of Star Bank, National
Association, as now in effect.
2. A copy of the certificate of authority of The First National
Bank of Cincinnati (now Star Bank, National Association) to
commence business dated September 1, 1922.
3. A copy of the authorization of The First National Bank of
Cincinnati (now Star Bank, National Association) to exercise
corporate trust powers.
4. A copy of existing By-Laws to Star Bank, National Association,
Cincinnati (now Star Bank, National Association)
5. The consent of the Trustee required by section 321 (b) of the
Trust Indenture Act of 1939.
6. A copy of the latest report of condition of Star Bank,
National Association, published pursuant to law or the
requirements of its supervising or examining authority.
6
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of
1939, the Trustee, Star Bank, National Association, a national banking
association organized and existing under the laws of the United States
of America, has duly caused this statement of eligibility to be signed
on its behalf by the undersigned, thereunto duly authorized, all in the
City of Cincinnati and State of Ohio on the 4th day of
February, 1999.
STAR BANK, NATIONAL ASSOCIATION
By: /S/ Robert T Jones
----------------------
Robert T. Jones
Senior Trust Officer
7
<PAGE>
EXHIBIT 1
Comptroller of the Currency
Administrator of National Banks
Washington, D.C. 20219
CERTIFICATE
I, Eugene A. Ludwig, Comptroller of the Currency, do hereby certify that:
1. The Comptroller of the Currency, pursuant to Revised Statutes 324, et. seq.,
as amended, 12 U.S.C. 1, et seq., as amended, has possession, custody and
control of all records pertaining to the chartering, regulation and supervision
of all National Banking Associations.
2. "Star Bank, National Association", Cincinnati, Ohio, (Charter No.24), is a
National Banking Association formed under the laws of the United States and is
authorized thereunder to transact the business of banking on the date of this
Certificate.
IN TESTIMONY WHEREOF, I have hereunto
subscribed my name and caused my name and
caused my seal of office to be affixed to these
(SEAL) presents at the Treasury Department, in the City of
Washington and District of Columbia, this 18th day
of December, 1996.
(Signed)Eugene A. Ludwig
Comptroller of the Currency
8
<PAGE>
Comptroller of the Currency
Administrator of National Banks
Washington, D.C. 20219
CERTIFICATE
I, Eugene A. Ludwig, Comptroller of the Currency hereby certify that the
document hereto attached is a true and complete copy, as recorded in this Office
of the currently effective Articles of Association for "Star Bank, National
Association", Cincinnati, Ohio, (Charter No. 24).
IN TESTIMONY WHEREOF, I have hereunto
subscribed my name and caused my seal of office to
be affixed to these presents at the Treasury
Department, in the City of Washington and District
(SEAL)
of Columbia, this 18th day of December, 1996.
(Signed)Eugene A. Ludwig
Comptroller of the Currency
9
<PAGE>
STAR BANK, NATIONAL ASSOCIATION
CHARTER NO. 24
ARTICLES OF ASSOCIATION
FIRST: The title of this Association shall be "Star Bank, National Association".
SECOND: The main office of the Association shall be in the city of Cincinnati,
County of Hamilton, State of Ohio. The general business of the Association shall
be conducted at its main office and its branches.
THIRD: The Board of Directors of this Association shall consist of not less than
five (5) nor more than twenty-five (25) shareholders, the exact number of
Directors within such minimum and maximum limits to be fixed and determined from
time to time by resolution of a majority of the full Board of Directors or by
resolution of the shareholders at any annual or special meeting thereof. Unless
otherwise provided by the laws of the United States, any vacancy in the Board of
Directors for any reason, including an increase in the number thereof, may be
filled by action of the Board of Directors.
FOURTH: The annual meeting of the shareholders for the election of Directors and
the transaction of whatever other business may be brought before said meeting
shall be held at the main office or such other place as the Board of Directors
may designate, on the day of each year specified thereof by the Bylaws, but of
no election is held on that day, it may be held on any subsequent day according
to the provisions of law; and all elections shall be held according to the
provisions of law; and all elections shall be held according to such lawful
regulations as may be prescribed by the Board of Directors.
FIFTH: The authorized amount of capital stock of this Association shall be
3,640,000 shares of common stock of the par value of five dollars ($5.00) each,
but said capital stack may be increased or decreased from time to time, in
accordance with the provisions of the laws of the United States.
No holder of shares of the capital stock of any class of the Association shall
have any pre-emptive or preferential right of subscription to any shares of any
class of stock of the Association, whether now or hereafter authorized, or to
any obligations convertible into stock of the Association issued or sold, nor
any right of subscription to any thereof other than such, if any, as the Board
of Directors, in its discretion, may from time to time determine and at such
price as the Board of Directors may from time to time fix.
The Association, at any time and from time to time, may authorize and issue debt
obligations, whether or not subordinated, without the approval of the
shareholders.
SIXTH: The Board of Directors shall appoint one of its members President of this
Association, who shall be Chairman of the Board, unless the Board appoints
10
<PAGE>
another Director to be the Chairman. The Board of Directors shall have the power
to appoint one or more Vice Presidents; and to appoint a Cashier and such other
officers and employees as may be required to transact the business of this
Association. The Board of Directors shall have the power to define the duties of
the officers and employees of the Association; to fix the salaries to be paid to
them; to dismiss them; to require bonds from them and to fix the penalty
thereof; to regulate the manner in which any increase of the capital of the
Association shall be made; to manage and administer the business and affairs of
the Association; to make all bylaws that it may be lawful for them to make and
generally to do and perform all acts that it may be legal for a Board of
Directors to do and perform.
SEVENTH: The Board of Directors, without need for approval of shareholders,
shall have the power to change the location of the main office of this
Association to any other place within the limits of Cincinnati, Ohio, without
the approval of the shareholders, and shall have the power to establish or
change the location of any branch or branches of the Association to any other
location, without the approval of the shareholders, but subject to the approval
of the Comptroller of the Currency.
EIGHTH: The corporate existence of this Association shall continue until
terminated in accordance with the laws of the United States.
NINTH: The Board of Directors of this Association, the Chairman of the Board,
the President, or any three of more shareholders owning, in the aggregate, not
less than twenty-five percent of the stock of this Association, may call a
special meeting of shareholders at any time. Unless otherwise provided by the
laws of the United States, a notice of the time, place, and purpose of every
annual and special meeting of the shareholders shall be given by first-class
mail, postage prepaid, mailed at least ten days prior to the date of such
meeting to each shareholder of record at his address as shown upon the books of
this Association.
TENTH: Any person, his heirs, executors, or administrators, may be indemnified
or reimbursed by the Association for reasonable expenses actually incurred in
connection with any action, suit, or proceeding, civil or criminal, to which he
or they shall be made a party by reason of his being or having been a director,
officer, or employee of the Association or of any firm, corporation, or
organization which he served in any such capacity at the request of the
Association. Provided, however, that no person shall be so indemnified or
reimbursed in relation to any matter in such action, suit, or proceeding as to
which he shall finally be adjudged to have been guilty of or liable for gross
negligence, willful misconduct or criminal acts in the performance of his duties
to the Association. And, provided further, that no person shall be so
indemnified or reimbursed in relation to any matter in such action, suit, or
proceeding which has been made the subject of a compromise settlement except
with the approval of a court of competent jurisdiction, or the holders of record
of a majority of the outstanding shares of the Association, or the Board of
Directors, acting by vote of Directors not parties to the same or substantially
the same action, suit or proceeding, constituting a majority of the whole number
of Directors. And, provided further, that no director, officer or employee shall
be so indemnified or reimbursed for expenses, penalties or other payments
incurred in an administrative proceeding or action instituted by an appropriate
bank regulatory agency where said proceeding or action results in a final order
assessing civil money penalties or requiring affirmative action by an individual
11
<PAGE>
or individuals in the form of payments to this Association. The foregoing right
of indemnification shall not be exclusive of other rights to which such person,
his heirs, executors, or administrators, may be entitled as a matter of law. The
Association may, upon the affirmative vote of a majority of its Board of
Directors, purchase insurance for the purpose of indemnifying its directors,
officers and other employees to the extent that such indemnification is allowed
in the preceding paragraph. Such insurance may, but need not, be for the benefit
of all directors, officers, or employees.
ELEVENTH: These Articles of Association may be amended at any regular or special
meeting of the shareholders by the affirmative vote of the holders of a majority
of the stock of this Association, unless the vote of the holders of a greater
amount of stock is required by law and in that case by the vote of the holders
of such greater amount.
12
<PAGE>
EXHIBIT 2
COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS:
NO. 24
E Pluribus Unum
TREASURY DEPARTMENT
Office of Comptroller of the Currency
Washington, D.C., September 1, 1992
WHEREAS, the Act of Congress of the United States, entitled, "An Act to
amend section 5136, Revised Statutes of the United States, relating to corporate
powers of associations, so as to provide succession thereof for a period of
ninety-nine years or until dissolved, and to apply said section as so amended to
all national banking association", approved by the President on July 1, 1922,
provided that all national banking associations organized and operating under
any law of the United States on July 1, 1922 should have succession until
ninety-nine years from that date, unless such association should be sooner
dissolved by the act of its shareholders owning two-thirds of its stock, or
unless its franchise should become forfeited by reason of violation of law, or
unless it should be terminated by an Act of Congress hereinafter enacted;
NOW THEREFORE, I, D. R. Crissinger Comptroller of the Currency, do
hereby certify that The First National Bank of Cincinnati and State of Ohio ,
was organized and operating under the laws of the United States on July 1, 1922,
and that its corporate existence was extended for the period of ninety-nine
years from that date in accordance with and subject to the condition in the Act
of Congress hereinbefore recited.
(SEAL) IN TESTIMONY WHEREOF, witness my hand
& seal of office this first day of
September, 1922
(Signed) D. R. Crissinger
-----------------------------
Comptroller of the Currency
13
<PAGE>
EXHIBIT 3
THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE TRUST POWERS:
FEDERAL RESERVE BOARD
Washington, D.C.
October 9, 1919
Pursuant to authority vested in the Federal Reserve Board by the Act of
Congress approved December 23, 1913, known as the Federal Reserve Act, as
amended by the Act of September 26, 1918, the
FIRST NATIONAL BANK OF CINCINNATI
has been granted the right to act, when not in contravention of State or local
law, as TRUSTEE, EXECUTOR, ADMINISTRATOR, REGISTRAR OF STOCKS AND BONDS,
GUARDIAN OF ESTATES, ASSIGNEE, RECEIVER OR IN ANY OTHER FIDUCIARY CAPACITY IN
WHICH STATE BANKS, TRUST COMPANIES OR OTHER CORPORATIONS WHICH COME INTO
COMPETITION WITH NATIONAL BANKS ARE PERMITTED TO ACT UNDER THE LAWS OF THE STATE
OF OHIO. The exercise of such rights shall be subject to regulations prescribed
by the Federal Reserve Board.
Federal Reserve Board,
By W.P.G. Harding
Governor.
ATTEST:
W. T. Chapman
Secretary.
STATE OF OHIO
DEPARTMENT OF BANKS AND BANKING
Certificate of Authority No. 17
NATIONAL BANKS
I, Philip C. Berg, Superintendent of Banks, do hereby certify that the
First National Bank of Cincinnati, Hamilton County, Ohio has complied with all
the requirements provided by law and is authorized to transact the business of a
trust company and to perform all the functions granted to such companies by the
laws of this state.
Given under my hand and official Seal at Columbus,
Ohio, this twenty-fifth day of November, A.D. 1919
Philip C. Berg,
Superintendent of Banks.
(SEAL)
14
<PAGE>
EXHIBIT 4
BY-LAWS
STAR BANK, N.A., CINCINNATI
ARTICLE I
MEETINGS OF SHAREHOLDERS
SECTION 1. ANNUAL MEETING
The annual meeting of shareholders shall be held in the main banking house of
the Association at 11:00 a.m. on the second Tuesday in February of each year.
Notice of such meeting shall be mailed to shareholders not less than ten (10)
nor more than sixty (60) days prior to the meeting date.
SECTION 2. SPECIAL MEETINGS
Special meetings of shareholders may be called and held at such times and upon
such notice as is specified in the Articles of Association.
SECTION 3. QUORUM
A majority of the outstanding capital stock represented in person or by proxy
shall constitute a quorum of any meeting of the shareholders, unless otherwise
provided by law, but less than a quorum may adjourn any meeting, from time to
time, and the meeting amy be held as adjourned without further notice.
SECTION 4. INSPECTORS
The Board of Directors may, and in the event of its failure so to do, the
Chairman of the Board shall appoint Inspectors of Election who shall determine
the presence of a quorum, the validity of proxies, and the results of all
elections and all other matters voted upon by shareholders at all annual and
special meetings of shareholders.
SECTION 5. VOTING
In deciding on questions at meetings of shareholders, except in the election of
directors, each shareholder shall be entitled to one vote for each share of
stock held. A majority of votes cast shall decide each matter submitted to the
shareholders, except where by law a larger vote is required. In all elections of
directors, each shareholder shall have the right to vote the number of shares
owned by him for as many persons as there are directors to be elected, or to
cumulate such shares and give one candidate as many votes as the number of
directors multiplied by the number of his shares equal, or to distribute them on
the same principle among as many candidates as he shall think fit.
15
<PAGE>
ARTICLE II
SECTION 1. TERM OF OFFICE
The directors of this Association shall hold office for one year and until their
successors are duly elected and qualified.
SECTION 2. REGULAR MEETINGS
The organization meeting of the Board of Directors shall be held as soon as
practical following the annual meeting of shareholders at the main banking
house. Other regular meetings of the Board of Directors shall be held without
notice at 11:00 a.m. on the second Tuesday of each month except February, at the
main banking house, or, provided notice is given by telegram, letter, telephone
or in person to every Director, at such time and place as may be designated in
the notice of the meeting. When any regular meeting of the Board falls on a
holiday, the meeting shall be held on the next banking business day, unless the
Board shall designate some other day.
SECTION 3. SPECIAL MEETINGS
Special meetings of the Board of Directors may be called by the Chairman of the
Board of the Association, or at the request of three or more Directors. Notice
of the time, place and purposes of such meetings shall be given by telegram,
letter, telephone or in person to every Director.
SECTION 4. QUORUM
A majority of the entire membership of the Board shall constitute a quorum at
any meeting of the Board.
SECTION 5. NECESSARY VOTE
A majority of those Directors present and voting at any meeting of the Board of
Directors shall decide each matter considered, except where otherwise required
by law or the Articles or By-Laws of this Association.
SECTION 6. COMPENSATION
Directors, excluding full-time employees of the Bank, shall receive such
reasonable compensation as may be fixed from time to time by the Board of
Directors.
SECTION 7. ELECTION-AGE LIMITATION
No person shall be elected or reelected a Director after reaching his seventieth
(70th) birthday, provided that any person who is a Director on December 10,
1985, may continue to be reelected a Director until he reaches his seventy-fifth
(75th) birthday.
16
<PAGE>
SECTION 8 RETIREMENT-AGE LIMITATION
Every Director of the Bank shall retire no later than the first month next
following his seventieth (70th) birthday, except for any person who was a
Director on December 10, 1985, who shall retire not later that the first of the
next month following his seventy-fifth (75th) birthday.
SECTION 9 DIRECTORS EMERITUS
The Board shall have the right from time to time to choose as Directors Emeritus
persons who have had prior service as members of the Board and who may receive
such compensation as shall be fixed from time to time by the Board of Directors.
ARTICLE III
OFFICERS
SECTION 1 WHO SHALL CONSTITUTE
The Officers of the Association shall be a Chairman of the Board, a President, a
Secretary, and other officers such as Chairman of the Executive Committee, Vice
Chairman of the Board, Executive Vice Presidents, Senior Vice Presidents, Vice
Presidents, Assistant Secretaries, Trust Officers, Trust Investment Officers,
Trust Real Estate Officers, Assistant Trust Officers, a Controller, Assistant
Controller, an Auditor and Assistant Auditors, as the Board may appoint from
time to time. Any person may hold two offices. The Chairman of the Board, all
Vice Chairmen of the Board and the President shall at all times be members of
the Board of Directors.
SECTION 2 TERM OF OFFICE
All officers shall be elected for and shall hold office for one year and until
their successors are elected and qualified, subject to the right in the Board of
Directors by a majority vote of the entire membership to discharge any officer
at any time.
SECTION 3 CHAIRMAN OF THE BOARD (Amended 12/13/88-see attachment)
The Chairman of the Board shall be the Chief Executive Officer of the
Association and shall have all duties, responsibilities and powers of the Chief
Executive Officer. He shall, when present, preside at all meetings of
shareholders and directors and shall be ex officio a member of all committees of
the Board. He shall name all members of the committees of the Board, subject to
the confirmation thereof by the Board.
In the event that there is a vacancy in the position of President or in the
event of the absence or incapacity of the President, the Chairman may appoint,
or in the event of his failure to do so, the Board of Directors or the Executive
Committee thereof may designate any Vice Chairman of the Board, any Executive
Vice President or any Senior Vice President of the Association temporarily
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to exercise the powers and perform the duties of the Chairman as Chief Executive
Officer when the Chairman is absent or incapacitated.
The Board of Directors shall have the power to elect a Chairman of the Executive
Committee. Any such Chairman of the Executive Committee shall participate in the
formation of the policies of the Association and shall have such other duties as
may be assigned to him from time to time by the President or by the Board of
Directors.
SECTION 4 PRESIDENT (amended 12/13/88-see attachment)
The President shall participate in the formation and supervision of the policies
and operations of the Association and shall perform such other duties as may be
assigned to him from time to time by the Board of Directors or by the Chairman
of the Board. In the event that there is a vacancy in the position of the
Chairman of the Board, the President shall be the Chief Executive Officer of the
Association and shall have all the powers and perform all the duties of the
Chairman of the Board, including the same power to name temporarily a Chief
Executive Officer to serve in the absence of the President.
SECTION 5 CHAIRMAN OF THE EXECUTIVE COMMITTEE
The Board of Directors shall have the power to elect a Chairman of the Executive
Committee. Any such Chairman of the Executive Committee shall participate in the
formation of the policies of the Association and shall have such other duties as
may be assigned to him from time to time by the President or by the Board of
Directors.
SECTION 6 VICE CHAIRMEN OF THE BOARD
The Board of Directors shall have the power to elect one or more Vice Chairmen
of the Board of Directors. Any such Vice Chairmen of the Board shall participate
in the formation of the policies of the Association and shall have such other
duties as may be assigned to him from time to time by the Chairman of the Board
or by the Board of Directors.
SECTION 7 OTHER OFFICERS
The Secretary and all other officers appointed by the Board of Directors shall
have such duties as defined by law and as may from time to time be assigned to
them by the Chief Executive Officer or the Board of Directors.
SECTION 8 RETIREMENT
Every officer of the Association shall retire not later than the first of the
month next following his sixty-fifth (65th) birthday. The Board of Directors
may, in its discretion, set the retirement date and terms of retirement of an
officer at a date later than provided above.
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ARTICLE IV
COMMITTEES
SECTION 1 EXECUTIVE COMMITTEE
There shall be a standing committee of Directors in this Association to be known
as the Executive Committee. This Committee shall meet at 11:00 a.m. on the first
and fourth Tuesday of each month. It shall have all of the powers of the Board
of Directors between meetings of the Board, except as the Board only by law is
authorized to perform or exercise. All actions of the Executive Committee shall
be reported to the Board of Directors. In the event that any member of the
Executive Committee is unable to attend a meeting of that committee, the
Chairman of the Board or the President may, at his discretion, appoint another
Director to attend said meeting of the Executive Committee and for that meeting
to serve as a member of the Executive Committee with full power to act in place
of the absent regular member of the committee.
SECTION 2 COMPENSATION COMMITTEE
There shall be a standing committee of directors of this Association to be known
as the Compensation Committee who shall review the compensation of all Executive
Officers and those officers who participate in the Profit Sharing Pool as well
as fees for directors of the Association. They will recommend specific
compensation arrangements to the Board of Directors for their confirmation.
SECTION 3 COMMITTEE ON AUDIT
There shall be a standing committee of Directors of this Association to be known
as the Committee on Audit, none of whose members shall be active officers of the
Association. This Committee shall make or cause to be made a suitable
examination of the affairs of the Association and the Trust Department at least
once during each period of twelve months. The results of such examination shall
be reported in writing to the Board at the next regular meeting thereafter
stating whether the Association and/or Trust Department is in a sound solvent
condition, whether adequate internal audit controls and procedures are being
maintained and make such recommendations as it deems advisable.
SECTION 4 TRUST COMMITTEE
There shall be a standing committee of Directors of this Association to be known
as the Trust Committee. The Trust Committee shall determine policies of the
Department and review actions of the Trust Investment Committee. All actions of
the Trust Committee shall be reported to the Board of Directors.
SECTION 5 TRUST INVESTMENT COMMITTEE
There shall be a standing committee of this Association to be known as the Trust
Investment Committee composed of officers of the Association. The Trust
Investment Committee or such officers as may be duly designated by the Trust
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Investment Committee, shall pass upon the acceptance of all trusts, the closing
out or relinquishment of all trusts and the making, retention, or disposition of
all investments of trust funds in conformity with policies established by the
Trust Committee. Actions of the Trust Investment Committee shall be reported to
the Trust Committee.
SECTION 6 PENSION COMMITTEE
There shall be a standing committee of directors or officers of this Association
to be known as the Pension Committee, who shall have the powers and duties as
set forth in the Association's Employees' Pension Plan. A report of the
condition of the pension fund shall be submitted annually to the Board of
Directors.
SECTION 7 OTHER COMMITTEES
The Chairman may appoint, from time to time, other committees for such purposes
and with such powers as he or the Board may direct.
ARTICLE V
SEAL
SECTION 1 IMPRESSION
The following is an impression of the seal of this Association.
August 25, 1988
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RESOLVED, That Section 3 of Article III of the By-Laws of the Bank shall be
amended to read:
SECTION 3 CHAIRMAN OF THE BOARD
The Chairman of the Board shall have general executive powers and duties and
shall perform such other duties as amy be assigned from time to time by the
Board of Directors. In addition, unless the Board of Directors shall have
designated the President to be the Chief Executive Officer, the Chairman of the
Board shall be the Chief Executive Officer and shall have all the powers and
duties of the Chief Executive Officer. He shall, when present, preside at all
meetings of shareholders and directors and shall be ex officio a member of all
committees of the Board. He shall name all members of the committees of the
Board, subject to the confirmation thereof by the Board.
If he is Chief Executive Officer, in the event that there is a vacancy in the
position of President or in the event of the absence or incapacity of the
President, the Chairman may appoint, or in the event of his failure to do so,
the Board of Directors or the Executive Committee thereof may designate, any
Vice Chairman of the Board, any Executive Vice President or any Senior Vice
President of the Association temporarily to exercise the powers and perform the
duties of the Chairman as Chief Executive Officer when the Chairman is absent or
incapacitated.
If the President has been designated Chief Executive Officer by the Board of
Directors, in the event that there is a vacancy in the position of the President
or in the event of the absence or incapacity of the President, the Chairman
shall be the Chief Executive Officer of the Association and shall have all the
powers and perform all the duties of the President, including the powers to name
temporarily a Chief Executive Officer to serve in the absence of the Chairman.
FURTHER RESOLVED, That Section 4 of Article III of the By-Laws of the bank shall
be amended to read:
SECTION 4 PRESIDENT
The President shall have general executive powers and duties and shall perform
such other duties as may be assigned from time to time by the Board of
Directors. In addition, if designated by the Board of Directors, the President
shall be the Chief Executive Officer and shall have all the powers and duties of
the Chief Executive Officer, including the same power to name temporarily a
Chief Executive Officer to serve in the absence of the President if there is a
vacancy in the position of the Chairman or in the event of the absence or
incapacity of the Chairman.
If the Chairman has been designated Chief Executive Officer by the Board of
Directors, in the event that there is a vacancy in the position of the Chairman
of the Board or in the event of the absence or incapacity of the Chairman of the
Board, the President shall be the Chief Executive Officer of the Association and
shall have all the powers and perform all the duties of the Chairman of the
Board, including the same power to name temporarily a Chief Executive Officer to
serve in the absence of the President.
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EXHIBIT 5
THE CONSENT OF THE TRUSTEE
REQUIRED BY 321 (b) OF THE ACT
Star Bank, National Association, the Trustee executing the statement of
eligibility and qualification to which this Exhibit is attached does hereby
consent that reports of examinations of the undersigned by Federal, State,
Territorial or District authorities may be furnished by such authorities to the
Securities and Exchange Commission upon request therefor in accordance with the
provisions of 321 (b) of the Trust Indenture Act of 1939.
STAR BANK, NATIONAL ASSOCIATION
February 4, 1999 BY: /S/ Robert T. Jones
- ---------------- -----------------------------------
Date Robert T. Jones
Senior Trust Officer
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EXHIBIT 6
Consolidated Report of Condition
Star Bank, National Association
for December 31, 1998
All schedules are to be reported in thousands of dollars.
Unless otherwise indicated, report the amount outstanding
as of the last business day of the quarter.
Balance Sheet
Dollar Amounts in
Thousands
ASSETS
1. Cash and balances due from depository institutions
a. Noninterest-bearing balances and currency and coin $ 894,736
b. Interest-bearing balances 20,242
2. Securities:
a. Held-to-maturity securities 135,407
b. Available-for-sale securities 2,291,155
3. Federal funds sold and securities purchased under
agreements to resell in domestic offices of the bank and
of its Edge and Agreements subsidiaries, and in YBFs 22,000
a. Federal funds sold 0.00
b. Securities purchased under agreements to resell 0.00
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income 12,552,139
b. LESS: Allowance for loan and lease losses 165,213
c. LESS: Allocated transfer risk reserve
d. Loans and leases, net of unearned income, allowance,
and reserve 12,386,926
5. Trading assets 2,957
6. Premises and fixed assets (including capitalized leases) 246,230
7. Other real estate owned 4,350
8. Investments in unconsolidated subsidiaries and
associated companies 5,815
9. Customers' liability to this bank on acceptances
outstanding 20,025
10. Intangible assets 795,811
11. Other assets 505,084
12. Total assets $17,330,738
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Consolidated Report of Condition Star Bank, National Association
for December 31, 1998 Continued
Dollar Amounts in
Thousands
LIABILITIES
13. Deposits:
a. In domestic offices $13,305,896
(1) Noninterest-bearing $2,641,858
(2) 10,664,028
Interest-bearing
b. In foreign offices, Edge and Agreement subsidiaries,
and IBFs 34,556
(1) Noninterest-bearing 0
(2) Interest-bearing 34,556
14. Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of the
bank and of its Edge and Agreement subsidiaries, and in
IBFs: 1,476,746
a. Federal funds purchased
b. Securities sold under agreements ro repurchase
15. a. Demand notes issued to the U.S. Treasury 18,659
b. Trading liabilities 0.00
16. Other borrowd money:
a. With original maturity of one year or less 0
b. With original maturity of more than one year 103,690
17. Mortgage indebtedness and obligations under
capitalizated leases
18. Bank's liability on acceptances executed and outstanding 20,025
19. Subordinated notes and debentures 337,998
20. Other liabilities 349,618
21. Total liabilities 15,672,188
22. Limited-life preferred stock and related surplus 0.00
23. Perpetual preferred stock and related surplus 0.00
24. Common Stock 18,200
25. Surplus [exclude all surplus related to preferred stock] 900,651
26. a. Undivided profits and capital reserves 717,823
b. Net unrealized holding gains (losses) on
available-for-sale securities 21,876
27. Cumulative foreign currency translation adjustments 0.00
28. Total equity capital 1,658,550
29. Total liabilities, limited-life preferred stock, and
equity capital $17,330,738
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